<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
-----
Filed by the Registrant [X]
Filed by Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
------------------------------
AVECOR CARDIOVASCULAR INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
------------------------------
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1 Title of each class of securities to which transaction applies:
------------------------------------------------
2 Aggregate number of securities to which transaction applies:
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3 Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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4 Proposed maximum aggregate value of transaction:
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5 Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1 Amount Previously Paid:
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2 Form, Schedule or Registration Statement No.:
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3 Filing Party:
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4 Date Filed:
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<PAGE>
AVECOR CARDIOVASCULAR INC.
7611 NORTHLAND DRIVE
MINNEAPOLIS, MINNESOTA 55428
---------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 14, 1997
---------------------
TO THE SHAREHOLDERS OF AVECOR CARDIOVASCULAR INC.:
The Annual Meeting of Shareholders of AVECOR Cardiovascular Inc. (the
"Company") will be held on Wednesday, May 14, 1997, at 3:30 p.m. local time, at
the Minneapolis Marriot City Center Hotel, 30 South Seventh Street, Minneapolis,
Minnesota for the following purposes:
1. To elect four directors to serve for the ensuing year or until
their successors are elected and qualified.
2. To transact such other business as may be properly brought before
the Annual Meeting or any adjournment thereof.
Only shareholders of record as shown on the books of the Company at the
close of business on March 21, 1997 will be entitled to vote at the Annual
Meeting or any adjournment thereof.
By Order of the Board of Directors
/s/ ANTHONY BADOLATO
Anthony Badolato
CHIEF EXECUTIVE OFFICER
April 4, 1997
<PAGE>
AVECOR CARDIOVASCULAR INC.
7611 NORTHLAND DRIVE
MINNEAPOLIS, MINNESOTA 55428
-------------------------
PROXY STATEMENT FOR
ANNUAL MEETING OF SHAREHOLDERS,
MAY 14, 1997
-------------------------
INTRODUCTION
The Annual Meeting of Shareholders of AVECOR Cardiovascular Inc. (the
"Company") will be held on Wednesday, May 14, 1997, at 3:30 p.m. local time, at
the Minneapolis Marriot City Center Hotel, 30 South Seventh Street, Minneapolis,
Minnesota, or at any adjournment thereof (the "Annual Meeting"), for the
purposes set forth in the Notice of Meeting.
A proxy card is enclosed for your use. You are solicited on behalf of the
Board of Directors to MARK, SIGN AND RETURN THE PROXY CARD IN THE ACCOMPANYING
ENVELOPE. No postage is required if mailed within the United States. The cost
of soliciting proxies, including the preparation, assembly and mailing of the
proxies and soliciting material, as well as the cost of forwarding such material
to the beneficial owners of Common Stock, will be borne by the Company.
Directors, officers and regular employees of the Company may, without
compensation other than their regular compensation, solicit proxies by
telephone, telegraph or personal conversation. The Company may reimburse
brokerage firms and others for expenses in forwarding proxy material to the
beneficial owners of Common Stock.
Any proxy given to this solicitation and received in time for the Annual
Meeting will be voted in accordance with the instructions given in such proxy.
Any shareholder giving a proxy may revoke it any time prior to its use at the
Annual Meeting by giving written notice of such revocation to the Secretary of
the Company, by filing a revoking instrument or a duly executed proxy bearing a
later date with the Secretary of the Company or by attending the Annual Meeting
and voting in person. Proxies that are signed by shareholders but that lack any
such specification will be voted in favor of the proposals set forth in the
Notice of Meeting and in favor of the election as directors of the nominees
listed in this Proxy Statement.
THE BOARD RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE APPROVAL OF THE
PROPOSALS SET FORTH IN THE NOTICE OF MEETING.
The Company expects that this Proxy Statement, the Proxy and Notice of
Meeting will first be mailed to shareholders on or about April 4, 1997.
<PAGE>
VOTING OF SHARES
The close of business on Friday, March 21, 1997 has been fixed by the Board
of Directors of the Company (the "Board") as the record date for the
determination of shareholders entitled to notice of and to vote at the Annual
Meeting. On March 21, 1997, the Company had outstanding 7,903,268 shares of
Common Stock, $.01 par value (the "Common Stock"), each such share entitling the
holder thereof to one vote in person or by proxy on each matter to be voted on
at the Annual Meeting, voting together as a single class.
The presence at the Annual Meeting, in person or by proxy, of the holders
of a majority of the outstanding shares of Common Stock entitled to vote at the
meeting is required for a quorum for the transaction of business. In general,
shares of Common Stock represented by a properly signed and returned proxy card
will be counted as shares present and entitled to vote at the meeting for
purposes of determining a quorum, without regard to whether the card reflects
abstentions (or is left blank) or reflects a "broker non-vote" on a matter
(i.e., a card returned by a broker on behalf of its beneficial owner customer
that is not voted on a particular matter because voting instructions have not
been received and the broker has no discretionary authority to vote).
The election of a nominee for director and the approval of each of the
other proposals described in this Proxy Statement require the approval of a
majority of the shares present and entitled to vote in person or by proxy on
that matter (and at least a majority of the minimum number of votes necessary
for a quorum to transact business at the Annual Meeting). Shares represented by
a proxy card voted as abstaining on any of the proposals will be treated as
shares present and entitled to vote that were not cast in favor of a particular
matter, and thus will be counted as votes against that matter. Shares
represented by a proxy card including any broker non-vote on a matter will be
treated as shares not entitled to vote on that matter, and thus will not be
counted in determining whether that matter has been approved.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of February 3, 1997 (except as otherwise
indicated below) information regarding the beneficial ownership of Common Stock
of the Company by (a) each shareholder who is known by the Company to own
beneficially more than 5% of the outstanding Common Stock, (b) by each director
and each nominee, (c) by each executive officer named in the Summary
Compensation Table below, and (d) by all executive officers and directors of the
Company as a group.
SHARES OF COMMON STOCK
BENEFICIALLY OWNED (1)(2)
-------------------------
NAME AND ADDRESS
OF BENEFICIAL OWNER AMOUNT PERCENT OF CLASS
- ----------------------------------------- --------- ----------------
LeRoy C. Kopp and
Kopp Investment Advisors, Inc. (3) 1,106,430 14.2%
6600 France Avenue South, Suite 672
Edina, MN 55435
2
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Chancellor LGT Asset Management, Inc., 625,460 8.0%
Chancellor LGT Trust Company and
LGT Asset Management, Inc. (4)
1166 Avenue of the Americas,
New York, New York 10036
T. Rowe Price Associates, Inc. (5) 426,594 5.5%
100 E. Pratt Street
Baltimore, Maryland 21202
Anthony Badolato (6) 359,241 4.6%
Allan R. Seck 309,241 4.0%
Ann H. Lamont (7) 13,799 *
David W. Stassen (8) 17,500 *
Edward E. Strickland (9) 389,741 5.0%
J. Gordon Wright (10) 17,350 *
William S. Haworth (11) 42,380 *
Gregory J. Melsen (12) 18,750 *
Glenn D. Taylor (13) 8,333 *
All executive officers and directors 1,168,002 14.9%
as a Group (8 persons)
(6)(7)(8)(9)(10)(11)(12)
- -----------------------------------------------
* Less than 1% of the outstanding shares.
(1) Unless otherwise noted, each of the shareholders listed in the table
possesses sole voting and investment power with respect to the shares
indicated.
(2) Shares not outstanding but deemed beneficially owned by virtue of the right
of a person or member of a group to acquire them within 60 days are treated
as outstanding only when determining the amount and percent owned by such
person or group. As of February 3, 1997, there were 7,818,818 shares of
Common Stock outstanding.
(3) Reflects shares beneficially owned as of December 31, 1996, based upon a
joint Schedule 13G filed with the Securities and Exchange Commission on
January 28, 1997 by Kopp Investment Advisors, Inc. ("KIA") on behalf of KIA
and Mr. Kopp as the sole shareholder of KIA. KIA has sole voting power as
to 222,500 of such shares, sole investment power as to 30,000 shares and
shared investment power as to 1,066,430 of such shares. By virtue of his
control of KIA, Mr. Kopp is deemed to be the beneficial owner of the shares
beneficially owned by KIA. Of the
3
<PAGE>
shares indicated, Mr. Kopp has sole voting and investment power as to
10,000 shares, in addition to the voting and investment power attributed to
Mr. Kopp by virtue of his control over KIA.
(4) Reflects shares beneficially owned as of December 31, 1996, based upon a
Schedule 13G filed with the Securities and Exchange Commission on February
7, 1997 on behalf of Chancellor LGT Asset Management, Inc. and Chancellor
LGT Trust Company, as investment advisors for various fiduciary accounts,
and LGT Asset Management, Inc. as the holding company for Chancellor LGT
Asset Management, Inc. Chancellor LGT Asset Management, Inc. and
Chancellor LGT Trust Company have sole voting and investment power with
respect to all of the shares shown. The address of LGT Asset Management,
Inc. is 50 California Street, San Francisco, CA 94111.
(5) Reflects shares beneficially owned as of December 31, 1996, based upon a
Schedule 13G filed with the Securities and Exchange Commission on February
10, 1997 by T. Rowe Price Associates, Inc. ("Price Associates") The shares
reflected are owned by various individual and institutional investors, to
which Price Associates serves as investment adviser with power to direct
investments and/or sole power to vote the shares. Of the shares indicated,
Price Associates has sole voting power as to 107,594 shares and sole
investment power with respect to all such shares. For purposes of the
reporting requirements of the Securities Exchange Act of 1934, as amended,
Price Associates is deemed to be a beneficial owner of such securities;
however, Price Associates expressly disclaims that it is, in fact, the
owner of such securities.
(6) Includes 184,450 shares beneficially owned by the Badolato Family Limited
Partnership, as to which Mr. Badolato disclaims beneficial ownership. Mr.
Badolato is a general partner of the Badolato Family Limited Partnership.
(7) Includes 7,000 shares Ms. Lamont has the right to acquire within 60 days
upon the exercise of options.
(8) Represents shares Mr. Stassen has the right to acquire within 60 days upon
the exercise of options.
(9) Includes 150,000 shares beneficially owned by the Strickland Family Limited
Partnership, as to which Mr. Strickland disclaims beneficial ownership.
Mr. Strickland is a general partner of the Strickland Family Limited
Partnership. Also includes 7,000 shares Mr. Strickland has the right to
acquire within 60 days upon the exercise of options. Mr. Strickland's
address is 7611 Northland Drive, Minneapolis, MN 55428.
(10) Includes 3,500 shares Mr. Wright has the right to acquire within 60 days
upon the exercise of options.
(11) Includes 34,250 shares Mr. Haworth has the right to acquire within 60 days
upon the exercise of options.
(12) Represents shares Mr. Melsen has the right to acquire within 60 days upon
the exercise of options.
(13) Represents shares Mr. Taylor has the right to acquire within 60 days upon
the exercise of options.
4
<PAGE>
ELECTION OF DIRECTORS
NOMINATION
The Bylaws of the Company provide that the Board shall consist of one (1)
or more members, with the number of directors determined by the Board or by the
shareholders at a regular meeting. Since the resignation of Mr. Glenn D. Taylor
as an officer and director of the Company in December, 1996, the number of
directors has been, and is currently set at, five (5).
In connection with the decision of Ms. Ann Lamont, a current director of
the Company, not to stand for re-election at the Annual Meeting, the number of
directors of the Company has been set at four (4), effective as of the Annual
Meeting. Ms. Lamont has served as a director of the Company since 1992, having
been originally designated by Oak Investment Partners IV, Limited Partnership
and Oak VI Affiliates Fund, Limited Partnership, pursuant to a then-existing
provision in the Company's Articles of Incorporation. Ms. Lamont serves as a
general partner or managing member of various limited partnerships and limited
liability companies affiliated with Oak Investments, a venture capital firm, and
has determined not to stand for re-election in order to devote attention to
companies in which such affiliates currently have an investment. The Company
would like to thank Ms. Lamont for her service on the Board.
The Board has nominated the four (4) individuals below to serve as
directors of the Company until the next annual meeting of the shareholders or
until their respective successors have been elected and qualified. All of the
nominees are current members of the Board.
The Board recommends a vote FOR the election of each of the nominees listed
below. The election of a nominee requires the affirmative vote of a majority of
the shares of Common Stock voting in person or by proxy for directors at the
Annual Meeting, and at least a majority of the minimum number of votes necessary
for a quorum to transact business at the Annual Meeting. In the absence of
other instructions, the proxies will be voted FOR each of the individuals named
below. If prior to the Annual Meeting the Board should learn that any nominee
will be unable to serve by reason of death, incapacity or other unexpected
occurrence, the proxies that would have otherwise been voted for such nominee
will be voted for a substitute nominee as selected by the Board. Alternatively,
the proxies may, at the Board's discretion, be voted for such fewer number of
nominees as results from such death, incapacity or other unexpected occurrence.
The Board has no reason to believe that any of the nominees will be unable to
serve.
INFORMATION ABOUT NOMINEES
The following information has been furnished to the Company as of February
3, 1997 by the respective nominees for director.
Name of Nominee Age Principal Occupation Director Since
- --------------- --- -------------------- --------------
Anthony Badolato 59 Chief Executive Officer 1991
of the Company
Edward E. Strickland 70 Independent Financial 1991
Consultant
5
<PAGE>
David W. Stassen 45 President and Chief 1992
Executive Officer of
Spine-Tech, Inc.
J. Gordon Wright 50 Managing Director of 1996
Caledonian Medical Limited
OTHER INFORMATION ABOUT NOMINEES
ANTHONY BADOLATO. Mr. Badolato is a founder of the Company and has served
as a director and Chief Executive Officer of the Company since April 1991. From
April 1991 through January 1996, Mr. Badolato also served as President of the
Company. From January 1989 through September 1990, Mr. Badolato was Vice
President-Research and Development and Manufacturing of Bio-Medicus, Inc. ("Bio-
Medicus"), a specialty cardiovascular products company. From 1969 to December
1988, Mr. Badolato was employed by Johnson & Johnson, a global health care
company. While employed by Johnson & Johnson, Mr. Badolato was employed by the
Cardiovascular Division in various research and development and manufacturing
positions over a period of 12 years, including Director of Research and
Development from 1979 to 1988.
EDWARD E. STRICKLAND. Mr. Strickland is a founder of the Company and has
served as a director since 1991. Mr. Strickland has been an independent
financial consultant for more than five years. Since January 1991, Mr.
Strickland has been Chairman of the Board of Directors of Reuter Manufacturing,
Inc., formerly Green Isle Environmental Services, Inc. ("Green Isle"), a
precision manufacturer of medical devices and other instruments. From October
1990 through January 1991, Mr. Strickland served on the Executive Committee of
the Board of Directors of Green Isle, which performed the duties of the Chief
Executive Officer of Green Isle. Mr. Strickland also serves as a director of
Bio-Vascular, Inc., Hector Communications Corp., Communications Systems Inc. and
Quantech, Ltd.
DAVID W. STASSEN. Mr. Stassen became a director of the Company in January
1992 and was originally designated by St. Paul Fire and Marine Insurance Company
("St. Paul") pursuant to a provision in the Company's then existing Articles of
Incorporation entitling St. Paul to designate one director (which provision has
since expired). Mr. Stassen has been the President and Chief Executive Officer
of Spine-Tech, Inc., a manufacturer of surgical products and instruments, since
June 1992. From January 1990 to June 1992, Mr. Stassen was the Executive Vice
President of St. Paul Venture Capital, Inc., a venture capital company. From
January 1980 to December 1989, Mr. Stassen was Vice President of North Star
Ventures, Inc., a privately held Minnesota-based venture capital fund. Mr.
Stassen also serves as a director of Spine-Tech, Inc. and RSI Systems, Inc.
J. GORDON WRIGHT. Mr. Wright has served as a director of the Company since
1996. Mr. Wright is the founder and Managing Director of Caledonian Medical
Limited, a distributor of medical devices and provider of contract ethylene
oxide sterilization, microbiology and laboratory support services located in
Strathclyde, Scotland. Mr. Wright has been employed by Caledonian Medical
Limited since the company's formation in 1991, and has 25 years of experience in
the manufacture and distribution of medical devices, including oxygenators,
heart valves and implantable defibrilators. Mr. Wright also serves as a
director of Primed, Inc.
6
<PAGE>
ADDITIONAL INFORMATION ABOUT THE BOARD AND ITS COMMITTEES
Standing committees of the Board of Directors include the Audit Committee
and Compensation Committee.
THE AUDIT COMMITTEE. The Audit Committee is responsible for matters
related to accounting policies and practices, financial reporting and internal
controls. The Audit Committee reviews with representatives of the Company's
independent auditors the scope of the audit of the Company's financial
statements, the results of audits, audit fees and any recommendations with
respect to internal controls and financial matters. The Audit Committee
consists of Mr. Strickland and Ms. Lamont. In December, 1996 the Audit
Committee met to review the 1995 audit, the Company's accounting policies and
the scope of the 1996 audit.
THE COMPENSATION COMMITTEE. The Compensation Committee reviews general
programs of compensation and benefits for all employees of the Company, makes
recommendations to the Board concerning such matters as compensation to be paid
to the Company's officers and directors and administers the Company's 1991 Stock
Incentive Plan, as amended (the "1991 Plan"), Employee Stock Purchase Plan and
1995 Non-Employee Director Option Plan (the "Director Plan"). The Compensation
Committee consists of Messrs. Strickland and Stassen, and it met two times
during 1996.
The Company's Board of Directors met eight times during fiscal 1996. With
the exception of Mr. Wright, all of the directors attended 75% or more of the
meetings of the Board of Directors and committees on which they served during
1996. From the time of his election as a director of the Company on May 7, 1996
through December 31, 1996, Mr. Wright was in attendance in person at two of
three Board meetings held during such period and participated in two of three
Board meetings held by teleconference during such period.
DIRECTOR COMPENSATION
DIRECTORS' FEES. Directors who are employees of the Company receive no
separate compensation for their services as directors. Non-employee directors
of the Company currently receive a retainer of $1,000 per month and compensation
of $750 for each Board meeting attended in person. Directors are also
reimbursed for travel and lodging expenses incurred while attending Board
meetings or otherwise engaging in Company business. Committee members do not
receive any additional compensation by reason of their service on such
committee(s).
STOCK-BASED COMPENSATION. On August 1, 1995, the Board adopted the 1995
Non-Employee Director Option Plan (the "Director Plan"), which was approved by
the shareholders at the Company's 1996 annual meeting. Pursuant to the Director
Plan, an initial one-time grant of an option to purchase 10,500 shares of Common
Stock was made to each of the Company's non-employee directors on August 1,
1995, the date the Director Plan was adopted. The Director Plan provides that
each non-employee director appointed or elected to the Board after August 1,
1995 will be granted, on a one-time basis, an option to purchase 10,500 shares
of Common Stock upon such non-employee director's Initial Election. "Initial
Election" means, in the case of a non-employee director serving on the Board as
of August 1, 1995, such date, or, in the case of a non-employee director elected
or appointed to the Board after August 1, 1995, the date on which such director
is first elected or appointed. In addition, each non-employee director who
continues to serve the Company in such capacity will be granted an option to
purchase 3,500 shares of Common Stock at the conclusion of each annual meeting
of the Company's shareholders
7
<PAGE>
occurring after the second anniversary of his or her Initial Election. Options
granted in connection with a non-employee director's Initial Election become
exercisable in equal one-third increments on the date of Initial Election and
the first and second anniversary of the date of Initial Election. Options
granted in connection with an annual meeting become exercisable in full on the
first anniversary of the date of grant. Options under the Director Plan have an
exercise price per share equal to 100% of the fair market value of one share of
Common Stock on the date of grant. Each option expires and remains exercisable
until the tenth anniversary after its date of grant. Pursuant to the Director
Plan, an option will become immediately and fully exercisable for a period of
three months after the termination of service of a non-employee director as a
director of the Company, except that, if termination of service is due to death,
disability or retirement, an option will remain exercisable for a period of one
year, but never beyond the option's original term. In the event of a change in
control of the Company, the Director Plan provides that all options will become
immediately and fully exercisable for the remainder of their respective terms.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the cash and noncash compensation paid or
earned during 1996, 1995 and 1994 by the Chief Executive Officer of the Company
and the four other most highly compensated executive officers of the Company
whose salary and bonus exceeded $100,000 for 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
---------
COMPENSATION
------------
ANNUAL COMPENSATION AWARDS
------------------- ------
OTHER ANNUAL SECURITIES ALL OTHER
NAME AND COMPENSATION UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($)(1) OPTIONS (#) ($)(2)
- ------------------ ---- ---------- --------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Anthony Badolato 1996 $164,000 $0 $6,000 0 $194
CHIEF EXECUTIVE OFFICER 1995 140,000 57,000 6,000 0 194
1994 130,000 26,000 6,000 0 184
Glenn D. Taylor 1996 $175,000 $0 $6,000 150,000 $40,216
FORMER PRESIDENT AND CHIEF 1995 --- --- --- --- ---
OPERATING OFFICER (3) 1994 --- --- --- --- ---
Gregory J. Melsen 1996 $110,000 $0 $6,000 75,000 $147
VICE PRESIDENT - FINANCE, AND 1995 --- --- --- --- ---
TREASURER AND CHIEF FINANCIAL 1994 --- --- --- --- ---
OFFICER (4)
Allan R. Seck 1996 $120,000 $0 $6,000 0 $822
VICE PRESIDENT - MARKETING 1995 120,000 40,000 6,000 0 546
1994 103,000 15,450 6,000 0 184
William S. Haworth 1996 $125,000 $0 $6,000 40,000 $130
VICE PRESIDENT - ENGINEERING 1995 110,000 20,000 6,000 0 130
1994 95,000 5,000 6,000 16,000 97
</TABLE>
8
<PAGE>
(1) "Other Annual Compensation" paid to each named executive officer is
comprised entirely of automobile expense.
(2) "All Other Compensation" paid to Messrs. Badolato, Melsen and Haworth is
comprised entirely of term life insurance premiums paid by the Company.
"All Other Compensation" paid to Mr. Taylor is comprised of moving and
relocation expense of $40,000 and term life insurance premiums of $216 paid
by the Company. "All Other Compensation" paid to Mr. Seck is comprised of
matching contributions to the Company's 401(k) plan of $638 and $362 in
1996 and 1995, respectively, and term life insurance premiums of $184 paid
by the Company in each year reported.
(3) Mr. Taylor was named President and Chief Operating Officer of the Company
in January 1996, and resigned from the Company effective December 31, 1996.
See "Management Agreements--Separation Agreement."
(4) Mr. Melsen was named Vice President - Finance and Treasurer and Chief
Financial Officer of the Company in January 1996.
OPTION GRANT AND EXERCISE TABLES
The following tables provide information for the year ended December 31,
1996 as to individual grants and aggregate exercises of options to purchase
shares of the Company's Common Stock by each of the executive officers named in
the Summary Compensation Table above, other than Messrs. Badolato and Seck, and
the potential realizable value of the options held by such persons at December
31, 1996.
As discussed in the Compensation Committee Report on Executive
Compensation, Messrs. Badolato and Seck have not been granted options to
purchase shares of Common Stock to date, due to their significant holdings of
Common Stock as a result of the Company's organization. Accordingly, Messrs.
Badolato and Seck are not included in the following tables.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------
NUMBER OF
SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS GRANTED
OPTIONS GRANTED TO EMPLOYEES IN EXERCISE OR BASE EXPIRATION GRANT DATE PRESENT
NAME (#)(1) FISCAL YEAR PRICE ($/SH) DATE VALUE ($)(2)
---- --------------- ----------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
Glenn D. Taylor 150,000(3) 49% $12.00 1/24/01 $837,966(4)
Gregory J. Melsen 75,000 24% $12.00 1/24/01 418,983
William S. Haworth 15,000 5% $14.00 2/14/02 92,371
25,000 8% $12.63 6/11/02 152,604
</TABLE>
(1) All options granted to the executives indicated were made under the
Company's 1991 Stock Incentive Plan, as amended (the "1991 Plan"). The
1991 Plan provides for the grant to eligible key employees, officers,
directors and consultants of the Company of stock options, including
incentive stock options, non-statutory stock options, Restricted Stock
Awards and Stock
9
<PAGE>
Bonuses. All stock options indicated will become exercisable at the rate
of one quarter of the number of shares underlying the option on each of the
four anniversaries of the date of grant. In the event of a "change in
control," as defined in the 1991 Plan, all outstanding options become
immediately exercisable in full and will remain so for the remainder of
their term regardless of whether the holder remains in the employ or
service of the Company.
(2) Represents the present value of the options granted on the date of grant
using the Black-Scholes option pricing model, which requires the assumption
of certain values. In calculating the values shown, the Company assumed
annualized volatility of the price of Common Stock of 50%, time of exercise
or option life of 4.3 years, and risk-free interest rates ranging from 5.2%
to 6.8%, determined from market information as of the respective dates of
grant. No adjustments were made for the non-transferability or risk of
forfeiture of the options, and, because the Company has historically not
paid dividends on Common Stock, no yield on Common Stock was assumed.
There can be no assurance that these assumptions will prove true in the
future. The actual value, if any, that an executive may realize will
depend on the excess of the market price of Common Stock over the exercise
price on the date the option is exercised, which may vary from the
theoretical value indicated in the table.
(3) Pursuant to the terms of a Separation Agreement dated December 31, 1996
between the Company and Mr. Taylor (the "Separation Agreement"), options to
purchase 37,500 shares of Common Stock covered by this grant vested in
accordance with their terms, of which options to purchase 29,167 shares
terminated as of January 31, 1997, and options to purchase 8,333 terminated
as of March 31, 1997. The remainder of the grant, consisting of options to
purchase 112,500 shares of Common Stock, did not vest and were terminated
as of December 31, 1996 pursuant to the Separation Agreement. See
"Management Agreements -- Separation Agreement."
(4) Does not account for the terms and conditions of the Separation Agreement
relating to forfeiture and cancellation of options granted to Mr. Taylor
and the limited exercisability of remaining options granted to Mr. Taylor.
Taking into account the effect of the Separation Agreement, the theoretical
grant date present value of such options would be $23,685, based on the
Black-Scholes option pricing model, and assuming annualized volatility of
the price of Common Stock of 50%, time of exercise or option life of one
year and a risk-free interest rate of 5.4%.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-
UNDERLYING UNEXERCISED THE-MONEY OPTIONS AT
OPTIONS AT FISCAL YEAR END FISCAL YEAR END
(#) ($) (1)
SHARES ACQUIRED -------------------------------- ------------------------------
NAME ON EXERCISE (#) VALUE REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- ------------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Glenn D. Taylor 0 $0 37,500(2) 112,500(3) $9,375 $0
Gregory J. Melsen 0 0 18,750 56,250 4,688 14,063
William S. Haworth 0 0 26,500 51,500 125,188 37,063
</TABLE>
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<PAGE>
(1) Represents the aggregate difference between the closing price of the Common
Stock of $12.25 per share on December 31, 1996, as reported by the Nasdaq
National Market, and the applicable exercise prices.
(2) Of the amount shown, options to purchase 29,167 shares terminated as of
January 31, 1997, and options to purchase 8,333 shares terminated as of
March 31, 1997 pursuant to the Separation Agreement. See "Management
Agreements--Separation Agreement."
(3) Represents options terminated as of December 31, 1996 pursuant to the terms
of the Separation Agreement. See "Management Agreements--Separation
Agreement."
MANAGEMENT AGREEMENTS
EMPLOYMENT AGREEMENTS. In connection with his employment by the Company,
Mr. Haworth and the Company entered into a letter agreement dated August 19,
1991, providing for an initial annual base salary of $80,000. Pursuant to the
terms of this agreement, Mr. Haworth was also granted options to purchase 8,000
shares of Common Stock, vesting in equal installments on each of the four
anniversaries of the date of his employment. In addition, Mr. Haworth received
an automobile allowance of $500 per month and other benefits, including term
life insurance equal to one year's salary.
In connection with his employment as Vice President - Finance and Treasurer
and Chief Financial Officer, the Company entered into an letter agreement with
Mr. Melsen, dated December 29, 1995, providing for a annual base salary of
$110,000, plus a bonus of up to 40% of his annual base salary, with the exact
amount to be determined the Compensation Committee of the Board. Pursuant to
this agreement, Mr. Melsen was also granted options to purchase 75,000 shares of
Common Stock, vesting in equal installments on each of the four anniversaries of
the date of his employment. In addition, Mr. Melsen's agreement with the
Company provides for an automobile allowance of $500 per month and other
benefits, including term life insurance equal to one year's salary.
In connection with Mr. Taylor's engagement as President and Chief Operating
Officer, the Company and Mr. Taylor entered into a letter agreement, dated
December 27, 1995, identical to the agreement between the Company and Mr.
Melsen, except that Mr. Taylor's letter agreement provided for annual base
salary of $175,000, payment of relocation expenses and for the grant of options
to purchase 150,000 shares of Common Stock. Mr. Taylor's agreement has been
superseded by the Separation Agreement, as discussed below. See "Separation
Agreement."
CONFIDENTIALITY AGREEMENTS. Each of the executive officers named in the
Summary Compensation Table above has entered into an Agreement Regarding Non-
Disclosure of Confidential Information, Non-Competition and Ownership of
Intellectual Property with the Company. In addition to certain confidentiality
and non-disclosure obligations, these agreements provide that the named
executive officer will not participate in or support the manufacture, invention,
development, sale, solicitation of sale, marketing, testing, research or other
business aspect of any product competitive with the Company's actual or
projected products during the named executive officer's term of employment and
for a period of two (2) years thereafter (or, if employed by the Company for
less than two years, the period of such employment or one (1) year, whichever is
greater). Mr. Taylor's agreement has been modified by the Separation Agreement,
as discussed below. See "Separation Agreement."
11
<PAGE>
In consideration for the agreement of each named executive officer not to
compete with the Company, the Company has agreed to pay each executive, on a
monthly basis, 75% of such executive's average monthly base salary (or, in the
case of Messrs. Badolato or Seck, the greater of $6,250 or 75% of such
executive's average monthly base salary), less any compensation which such
executive has an unqualified right to receive, should such executive's
employment with the Company be terminated. These payments commence with the
fourth month after termination and are conditioned on efforts by the executive
to seek employment consistent with the executive's education, abilities and
experience and which would not violate the non-competition provisions. The
payments continue until the earlier of the expiration or waiver by the Company
of the non-competition provision or the failure by the executive to fulfill the
conditions to such payments.
SEPARATION AGREEMENT. On December 31, 1996 the Company entered into a
Separation Agreement with Mr. Taylor in connection with his resignation as an
officer, director and employee of the Company as of that date. The terms of the
agreement provided that Mr. Taylor would be paid his base compensation and
benefits through December 31, 1996 in accordance with the terms of his
employment agreement with the Company and remain eligible for an executive bonus
for 1996, with the exact amount to be determined the Compensation Committee of
the Board. In addition, the Separation Agreement requires the Company to make
severance payments to Mr. Taylor in an amount equal to his annual base
compensation, less any deduction required by law, through December 31, 1997.
The Separation Agreement also provides that Mr. Taylor will continue to receive
insurance coverage under the Company's medical and dental insurance plans, and
will be indemnified by the Company for liabilities incurred by reason of his
service as an officer or director of the Company in accordance with the
Company's Bylaws and as permitted by law. Pursuant to the Separation Agreement,
Mr. Taylor's existing options to purchase 150,000 shares of Common Stock vested
and became exercisable only as to 37,500 of such shares, and lapsed and
terminated as to the remaining 112,500 shares. Of Mr. Taylor's vested options,
options to purchase 29,167 shares of Common Stock remained exercisable only
through January 31, 1997, and options to purchase 8,333 shares remained
exercisable through March 31, 1997, according to the Separation Agreement. The
Separation Agreement also modifies the terms of Mr. Taylor's Agreement
Regarding Non-Disclosure of Confidential Information, Non-Competition and
Ownership of Intellectual Property to provide that Mr. Taylor's obligation not
to compete will expire on December 31, 1997.
CHANGE IN CONTROL AGREEMENTS. In April 1996, the Company entered into
Change in Control letter agreements ("Change in Control Agreements") with each
of the executive officers named in the Summary Compensation Table above. Under
the Change in Control Agreements, an executive of the Company is entitled to
receive certain benefits if, within twelve months after a "change in control,"
the executive is terminated by the Company for any reason other than death,
disability, retirement or "cause" (as defined in the Change in Control
Agreement) or leaves voluntarily for a "good reason" (which includes adverse
changes in the executive's status or position, reduction in base salary,
material adverse changes in benefit plans or relocation). In such a case, the
Company (or its successor) would be required to make a lump-sum cash payment to
the executive in an amount equal to twenty four (24) times the executive's
"highest monthly compensation." For purposes of the Change in Control
Agreements, "highest monthly compensation" is defined as one-twelfth of the
highest amount of the executive's compensation for any 12 consecutive calendar
month-period during the 36 consecutive calendar-month period prior to the month
of the executive's termination. The executive would also be entitled to
continued coverage under the Company's welfare plans for up to 24 months.
A "change in control" for purposes of the Change in Control Agreements is
defined to include (a) a transfer of substantially all of the Company's assets;
(b) approval by the stockholders of the
12
<PAGE>
Company of any plan or proposal for liquidation or dissolution of the Company;
or (c) a change in control of a nature that would be required to be reported to
the Securities and Exchange Commission in response to Item 1(a) of Form 8-K.
Additionally, the Change in Control Agreements provide that, without limitation,
a "change in control" will be deemed to have occurred at such time as (i) any
person or group becomes the beneficial owner of 50% or more of the voting power
of the Company's outstanding voting stock ordinarily entitled to vote at
elections of directors; or (ii) the "incumbent board" (generally defined as the
current directors and their future nominees) cease to constitute a majority of
the Board. The Change in Control Agreements are designed to attract and retain
valued executives of the Company and to ensure that the performance of these
executives is not undermined by the possibility, threat or occurrence of a
change in control.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors makes recommendations
to the Board of Directors concerning the compensation of the Company's executive
officers and directors, and acts on such other matters relating to their
compensation as it deems appropriate. In addition, the Compensation Committee
administers the Company's stock-based compensation plans, including the 1991
Plan, pursuant to which incentive stock options, non-statutory stock options,
restricted stock awards and stock bonuses may be granted to eligible key
employees, officers, directors and consultants of the Company.
COMPENSATION PHILOSOPHY AND OBJECTIVES. The philosophy underlying the
decisions and recommendations of the Compensation Committee is to recognize and
reward results and achievement at the individual and Company level by linking
compensation to such achievement. Consistent with this philosophy, the
Compensation Committee has set the following objectives for the Company's
executive compensation program:
- Encourage the achievement of desired individual and Company
performance goals by rewarding such achievements.
- Provide a program of compensation that is competitive with
comparable companies to enable the Company to attract and retain
key executive talent.
- Align the interests of the Company's executives with the
interests of its shareholders by linking compensation to the
Company's performance and by providing the Company's executives
with long-term opportunities for stock ownership.
In determining its recommendations as to the compensation of the Company's
executives, the Compensation Committee considers factors such as Company
performance, both in isolation and in comparison to companies of comparable
profitability, complexity and size; the individual performance of each executive
officer; historical compensation levels at the Company; the overall competitive
environment for executives and the level of compensation necessary to attract
and retain the level of key executive talent desired by the Company. In
analyzing these factors, the Compensation Committee may from time to time review
competitive compensation data gathered in comparative surveys or collected by
independent consultants.
EXECUTIVE COMPENSATION PROGRAM COMPONENTS. The Company's executive
compensation program consists of base salary, annual cash incentive compensation
opportunities, and long-term
13
<PAGE>
incentive opportunities under the 1991 Plan. Each element of the compensation
program is discussed in greater detail below.
BASE SALARY. The Compensation Committee's recommendations regarding
the base salary of each executive officer of the Company, including the
compensation of Mr. Badolato as Chief Executive Officer, is determined by
the potential impact of the individual on the Company's performance, the
level of skill, responsibility and experience required by the individual's
position and the other factors described above. Base salaries are
determined for each year prior to the beginning of the year. For 1996, all
of the base salaries of the Company's executive officers were increased
from 1995 levels based upon a review of these factors. Mr. Badolato's base
salary for 1996 was increased from $140,000 to $164,000 after an assessment
of the foregoing factors by the Compensation Committee, as well as an
assessment of comparative data relating to compensation of chief executive
officers.
ANNUAL CASH BONUSES. The Compensation Committee utilizes annual cash
bonuses to provide a direct financial incentive to the Company's executive
officers. Under the executive officer bonus program administered by the
Compensation Committee, an executive may receive a bonus ranging from 0% to
40% of such executive's base salary, with the amount of potential bonus
determined by achievement of budgeted pre-tax income target levels for the
fiscal year. It is the objective of the Compensation Committee to link
such bonuses to the financial and overall performance of the Company, the
achievement of desired individual performance goals and the competitive
levels of bonuses at comparable companies. Based upon these factors, and,
in particular, upon the Company's financial performance during 1996, no
bonuses were paid to or accrued for any of the Company's executive officers
for 1996.
LONG-TERM INCENTIVE COMPENSATION. The Compensation Committee makes
long-term incentive compensation available to the Company's executive
officers through its administration of the 1991 Plan, as discussed above.
The purpose of the 1991 Plan is to advance the interests of the Company and
its shareholders by enabling the Company to attract and retain persons of
ability to perform services for the Company, including persons performing
services to the Company as executive officers. The 1991 Plan provides an
incentive to such persons through equity participation in the Company and
by rewarding such persons who contribute to the Company's achievement of
its financial objectives. To date, stock options have not been granted to
Mr. Badolato or Mr. Seck, due to the fact that each of those executive
officers has significant stock holdings resulting from the organization of
the Company. The Compensation Committee currently believes that these
stock holdings provide adequate incentive to such executives to achieve
long-term stock performance and align the interests of such executives to
those of the Company's shareholders, although the Compensation Committee
may determine at some point in the future that it is advisable to grant
additional stock-based incentives to such named executives. During 1996,
Mr. Taylor, Mr. Melsen and Mr. Haworth were each granted options under the
1991 Plan as incentive to remain with the Company, with the grants to
Messrs. Taylor and Melsen additionally designed as incentive to join the
Company. See "Management Agreements."
SECTION 162(m). Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"), limits the deductibility of certain compensation paid to
the chief executive officer and each of the four other most highly compensated
executives of a publicly held corporation to $1,000,000. In 1996, the Company
did not pay "compensation" within the meaning of Section 162(m) to such
executive officers in excess of $1,000,000, and does not believe it will do so
in the near future. Therefore, the
14
<PAGE>
Company does not have a policy at this time regarding qualifying compensation
paid to its executive officers for deductibility under Section 162(m), but will
formulate such a policy if compensation levels ever approach $1 million.
COMPENSATION COMMITTEE
Edward E. Strickland, CHAIRMAN
David W. Stassen
COMPARATIVE STOCK PERFORMANCE
The graph below compares the cumulative total shareholder return on the
Company's Common Stock to the total cumulative return on the Nasdaq Market Index
and an industry index based on Standard Industrial Code 3841 (Surgical and
Medical Instruments and Apparatus) during the period from March 26, 1992, the
date of the Company's initial public offering, to December 31, 1996. The graph
assumes a $100 investment in Common Stock, the Nasdaq Market Index and the
industry index on March 26, 1992 and the reinvestment of all dividends.
MARCH DECEMBER 31,
26, -------------------------------------------------
1992 1992 1993 1994 1995 1996
- ------------------------------------------------------------------------------
AVECOR Cardiovascular 100 83.05 123.73 113.56 240.68 166.10
- ------------------------------------------------------------------------------
SIC Code 3841 Index 100 94.49 68.99 79.39 135.44 147.51
- ------------------------------------------------------------------------------
Nasdaq Market Index 100 106.08 127.25 133.60 173.29 215.34
- ------------------------------------------------------------------------------
15
<PAGE>
INDEPENDENT ACCOUNTANTS
The Board of Directors has approved the selection of Coopers & Lybrand
L.L.P. as independent accountants to make an examination of the accounts of the
Company for the fiscal year ending December 31, 1997, and to perform other
appropriate accounting services. The Company does not intend to request that
the shareholders approve the selection of the independent public accountants for
the fiscal year ended December 31, 1997. The Company has requested and expects
a representative of Coopers & Lybrand L.L.P. to be present at the Annual Meeting
to make a statement if he or she so desires and to respond to appropriate
questions.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers, and persons who own more than
10% of the Company's Common Stock, to file with the Securities and Exchange
Commission (the "SEC") initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. Executive
officers, directors and greater-than-10% shareholders are required by SEC
regulations to furnish the Company with copies of all Section 16(a) reports they
file. To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company for the period ended December 31, 1996, all
Section 16(a) reports required to be filed by the Company's executive officers,
directors and greater-than-10% shareholders were filed on a timely basis except
for (i) reports on Form 3 not filed on a timely basis by each of Messrs. Taylor
and Melsen, in each case reporting appointment as an executive officer of the
Company; and (ii) an erroneous report on Form 3 filed by Mr. Wright in
connection with his election as a director of the Company, which failed to
report Mr. Wright's beneficial ownership of an additional 13, 850 shares of
Common Stock as of the date of his election.
PROPOSALS FOR THE NEXT ANNUAL MEETING
Shareholder proposals intended to be presented in the proxy materials
relating to the next Annual Meeting of Shareholders must be received by the
Company on or before December 5, 1997.
OTHER BUSINESS
The Company knows of no business that will be presented for consideration
at the Annual Meeting other than that described in this Proxy Statement. As to
other business, if any, that may properly come before the Annual Meeting, it is
intended that proxies solicited by the Board will be voted in accordance with
the judgment of the person or persons voting the proxies.
16
<PAGE>
ANNUAL REPORT
THE COMPANY WILL FURNISH WITHOUT CHARGE A COPY OF ITS ANNUAL REPORT ON FORM
10-K (EXCLUSIVE OF EXHIBITS) FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 TO EACH
PERSON WHO WAS A SHAREHOLDER OF THE COMPANY AS OF MARCH 21, 1997, UPON RECEIPT
FROM ANY SUCH PERSON OF A WRITTEN REQUEST FOR SUCH AN ANNUAL REPORT. SUCH
REQUEST SHOULD BE SENT TO: AVECOR CARDIOVASCULAR INC., 7611 NORTHLAND DRIVE,
MINNEAPOLIS, MINNESOTA 55428; ATTN: SHAREHOLDER RELATIONS.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ ANTHONY BADOLATO
Anthony Badolato
CHIEF EXECUTIVE OFFICER
April 4, 1997
17
<PAGE>
AVECOR CARDIOVASCULAR INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints ANTHONY BADOLATO and GREGORY J. MELSEN, and
each of them, as Proxies, each with full power of substitution, and hereby
authorizes each of them to represent and to vote, as designated below, all the
shares of Common Stock, $.01 par value, of AVECOR Cardiovascular Inc. held of
record by the undersigned on March 21, 1997, at the Annual Meeting of
Shareholders to be held on May 14, 1997, or any adjournment thereof.
<TABLE>
<S> <C> <C> <C>
1. ELECTION OF DIRECTORS. FOR all nominees listed AGAINST all nominees
below listed below / /
(EXCEPT AS MARKED TO THE
CONTRARY BELOW) / /
</TABLE>
(INSTRUCTION: TO VOTE AGAINST ANY INDIVIDUAL NOMINEE, STRIKE A LINE THROUGH THE
NOMINEE'S NAME.)
ANTHONY BADOLATO DAVID W. STASSEN
EDWARD E. STRICKLAND J. GORDON WRIGHT
2. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
<PAGE>
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR ALL NOMINEES NAMED IN PROPOSAL 1 ABOVE. Please sign exactly as name
appears below. When shares are held by joint tenants, both should sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such. If a corporation, please sign in full corporate name by
President or other authorized officer. If a partnership, please sign in
partnership name by authorized person.
Dated: _____________________, 1997
__________________________________
Signature
__________________________________
Signature if held jointly
PLEASE MARK, SIGN, DATE AND RETURN
THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
