<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a 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
ENDOCARDIAL SOLUTIONS, 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)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
---------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
---------------------------------------------------------------------------
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):
---------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
---------------------------------------------------------------------------
5) Total fee paid:
---------------------------------------------------------------------------
/ / 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:
-----------------------------------------------
2) Form, Schedule or Registration Statement No.:
-------------------------
3) Filing Party:
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4) Date Filed:
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<PAGE>
ENDOCARDIAL SOLUTIONS, INC.
1350 ENERGY LANE, SUITE 110
ST. PAUL, MINNESOTA 55108
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
May 21, 1998
TO THE STOCKHOLDERS OF ENDOCARDIAL SOLUTIONS, INC.:
Notice is hereby given that the Annual Meeting of Stockholders of
Endocardial Solutions, Inc. (the "Company") will be held on Thursday, May 21,
1998 at 3:30 p.m., local time, at the Minneapolis Hilton, located at 1001
Marquette Avenue, Minneapolis, Minnesota, for the following purposes:
1. To elect two directors to serve for three-year terms or until their
respective successors are elected and qualify; and
2. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Only holders of record of the Company's Common Stock as of the close of
business on April 6, 1998 are entitled to notice of and to vote at the
meeting and any adjournment thereof.
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING. WHETHER OR NOT YOU
PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY
AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE, WHICH NEEDS NO POSTAGE IF
MAILED IN THE UNITED STATES. IF YOU LATER DESIRE TO REVOKE YOUR PROXY, YOU
MAY DO SO AT ANY TIME BEFORE IT IS EXERCISED.
By Order of the Board of Directors
/s/ James W. Bullock
James W. Bullock
Secretary
April 24, 1998
<PAGE>
ENDOCARDIAL SOLUTIONS, INC.
1350 ENERGY LANE, SUITE 110
ST. PAUL, MINNESOTA 55108
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
MAY 21, 1998
This Proxy Statement is furnished in connection with the solicitation of
the enclosed proxy by the Board of Directors of Endocardial Solutions, Inc.
(the "Company") for use at the Annual Meeting of Stockholders (the "Annual
Meeting") to be held on Thursday, May 21, 1998 at 3:30 p.m., local time, at
the Minneapolis Hilton, located at 1001 Marquette Avenue, Minneapolis,
Minnesota, and at any adjournment thereof, for the purposes set forth in the
Notice of Annual Meeting of Stockholders. This Proxy Statement and the form
of proxy enclosed are being mailed to stockholders with the Company's Annual
Report to Stockholders commencing on or about April 24, 1998.
Only stockholders of record of the Common Stock, par value $0.01 per
share, of the Company (the "Common Stock") at the close of business on April
6, 1998 will be entitled to vote at the Annual Meeting. As of that date, a
total of 8,981,410 shares of Common Stock were outstanding, each share being
entitled to one vote. There is no cumulative voting. The presence at the
Annual Meeting, in person or by proxy, of the holders of a majority of the
shares of Common Stock will constitute a quorum for the transaction of
business at the Annual Meeting. If, however, a quorum is not present or
represented at the Annual Meeting, the stockholders entitled to vote thereat,
present in person or represented by proxy, will have the power to adjourn the
Annual Meeting, without notice other than announcement at the Annual Meeting,
until a quorum shall be present or represented.
Shares of the Company's Common Stock represented by proxies in the
accompanying form, which are properly completed, signed and returned to the
Company prior to the Annual Meeting, and which have not been revoked, will be
voted in the manner directed by a stockholder. If no direction is given, the
proxy will be voted FOR the election of the nominees for director named in
this Proxy Statement and FOR ratification of the selection of Ernst & Young
LLP as the Company's independent accountants. A stockholder may revoke a
proxy at any time prior to its exercise by giving to an officer of the
Company a written notice of revocation of the proxy's authority, by
submitting a duly elected proxy bearing a later date or by delivering a
written revocation at the Annual Meeting.
If a stockholder returns a proxy withholding authority to vote the proxy
with respect to a nominee for director, then the shares of the Common Stock
covered by such proxy shall be deemed present at the Annual Meeting for
purposes of determining a quorum and for purposes of calculating the vote
with respect to such nominee, but shall not be deemed to have been voted for
such nominee. If a stockholder abstains from voting as to any matter, then
the shares held by such stockholder shall be deemed present at the Annual
Meeting for purposes of determining a quorum and for purposes of calculating
the vote with respect to such matter, but shall not be deemed to have been
voted in favor of such matter. If a broker returns a "non-vote" proxy,
indicating a lack of authority to vote on such matter, then the shares
covered by such non-vote shall be deemed present at the Annual Meeting for
purposes of determining a quorum but shall not be deemed to be present and
entitled to vote at the Annual Meeting for purposes of calculating the vote
with respect to such matter.
As of the date of this Proxy Statement, the Board of Directors of the
Company knows of no business that will be presented for consideration at the
Annual Meeting other than the matters described in this Proxy Statement. If
any other matters are properly brought before the Annual Meeting, the persons
named in the enclosed form of proxy will vote the proxies in accordance with
their best judgment.
<PAGE>
PROPOSAL ONE: ELECTION OF DIRECTORS
The Board of Directors of the Company is composed of seven members
divided into three classes. The members of each class are elected to serve
three-year terms with the term of office of each class ending in successive
years. Graydon E. Beatty and James W. Bullock are the directors in the class
whose term expires at the Annual Meeting. The Board of Directors has
nominated Messrs. Beatty and Bullock for election to the Board of Directors
at the Annual Meeting for terms of three years, and each has indicated a
willingness to serve. Peter H. McNerney resigned as a director of the
Company as of March 31, 1998. The other directors of the Company will
continue in office for their existing terms. Robert G. Hauser, M.D. and
Steven R. LaPorte serve in the class whose term expires in 1999, and James E.
Daverman and Ronald H. Kase serve in the class whose term expires in 2000.
Upon the expiration of the term of a class of directors, directors in such
class will be elected for three-year terms at the annual meeting of
stockholders in the year in which such term expires. The affirmative vote of
a majority of the shares of Common Stock present and entitled to vote at the
Annual Meeting is necessary to elect the nominees for director.
The persons named as proxies in the enclosed form of proxy will vote the
proxies received by them for the election of Messrs. Beatty and Bullock,
unless otherwise directed. In the event that any nominee becomes unavailable
for election at the Annual Meeting, the persons named as proxies in the
enclosed form of proxy may vote for a substitute nominee in their discretion
as recommended by the Board of Directors.
Information concerning the incumbent directors is set forth below.
<TABLE>
<S> <C>
Graydon E. Beatty
(Nominee with new term
expiring in 2001). . . . . Graydon E. Beatty, 41 years old, is a founder of the
Company and has been Chief Technical Officer of the
Company since May 1995 and a Director since August
1992. Since the Company's inception in May 1992, Mr.
Beatty has served in several technical and
management positions. In addition, from May 1992
until December 1993, Mr. Beatty served as a
consultant with GMN Consulting, an engineering
consulting firm, and as a consulting engineer of
AngeMed, a division of Angeion Corp., a
cardiovascular device Company, from February 1992 to
September 1992. Mr. Beatty was Senior Development
Engineer of Bio-Medical Design Group, Inc., an
electrophysiology system developer, from December
1991 to May 1992. From 1989 to December 1991, Mr.
Beatty served as Principal Research Engineer at
Cardiac Pacemakers, Inc., a cardiovascular device
company.
James W. Bullock
(Nominee with new term
expiring in 2001). . . . . James W. Bullock, 41 years old, has been President,
Chief Executive Officer and a Director of the
Company since May 1994. In addition, Mr. Bullock
served as the Chief Financial Officer of the Company
from May 1994 until May 1996. From April 1992 until
joining the Company, Mr. Bullock served as President
and Chief Operating Officer of Stuart Medical, Inc.,
a cardiac monitoring start-up company. From April
1990 to April 1992, Mr. Bullock served as Vice
President of Sales and Marketing of the Stackhouse
Division of Bird Medical Technologies, a medical
device company. From 1978 to 1990, Mr. Bullock
served in a variety of marketing and sales
management positions, most recently as Vice
President of Sales, for the Pharmaseal Division of
Baxter International Inc., a medical products
company. Mr. Bullock serves as a director of XRT
Corp., a manufacturer of x-ray catheters.
-2-
<PAGE>
Robert G. Hauser, M.D.
(Term expires in 1999) . . Robert G. Hauser, M.D., 58 years old, has been a
Director of the Company since October 1995. Dr.
Hauser has been a cardiologist at the Minneapolis
Heart Institute since September 1992, and has served
as Executive Director since July 1994 and
President since February 1997. Dr. Hauser served as
President of the Cardiovascular Services Division
of Abbott Northwestern Hospital from May 1995
until November 1996. From 1988 to July 1992,
Dr. Hauser served as President and Chief Executive
Officer of Cardiac Pacemakers, Inc., a
cardiovascular device company.
Steven R. LaPorte
(Term expires in 1999) . . Steven R. LaPorte, 47 years old, has been a Director
of the Company since September 1996. Mr. LaPorte
has served as Vice President and General Manager of
Medtronic CardioRhythm, an affiliate of Medtronic,
Inc., since January 1994. From 1989 to January 1994,
Mr. LaPorte served as Vice President of Operations
for the Neurological Division of Medtronic, and from
1979 to 1989, as a project manager and then Director
of the Corporate Information Services division of
Medtronic.
James E. Daverman
(Term expires in 2000) . . James E. Daverman, 48 years old, has been a Director
of the Company since July 1994. Mr. Daverman has
served as a Managing General Partner and is a
founder of Marquette Venture Partners, a venture
capital investment firm, since January 1987. Mr.
Daverman is a director of Colla Genex
Pharmaceuticals, Inc., a pharmaceutical company.
Ronald H. Kase
(Term expires in 2000) . . Ronald H. Kase, 39 years old, has been a Director of
the Company since March 1993. Mr. Kase joined New
Enterprise Associates, a venture capital investment
firm, in January 1991 and became a general partner
in May 1995. Mr. Kase is a limited partner of NEA
V, Limited Partnership. Mr. Kase also serves as a
director of several privately held health care
companies.
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF MESSRS.
BEATTY AND BULLOCK AS DIRECTORS OF THE COMPANY.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During the 1997 fiscal year, the Board of Directors held six meetings.
Each director holding office during the fiscal year attended at least 75% of
the total number of meetings of the Board of Directors (held during the
period for which he has been a director) and committees of the Board on which
he served. The Board of Directors has an Audit Committee and a Compensation
Committee, which are described below. The Company does not have a Nominating
Committee.
The Board of Directors has an Audit Committee comprised in 1997 of
Messrs. Daverman and McNerney. The Audit Committee reviews the scope,
results and costs of the audit with the Company's independent accountants,
reviews the Company's significant accounting policies and internal controls
and reports the results of its review to the full Board of Directors and to
management. The Audit Committee held one meeting during the 1997 fiscal
year.
The Board of Directors has a Compensation Committee comprised in 1997 of
Messrs. Daverman, Kase and McNerney. The Compensation Committee makes
recommendations concerning executive
-3-
<PAGE>
salaries and incentive compensation for employees to the Company, subject to
ratification by the full Board of Directors, and administers the Company's
stock option plans. The Compensation Committee held two meetings during the
1997 fiscal year.
COMPENSATION OF DIRECTORS
For their services to the Company, nonemployee directors receive stock
options under the Directors' Plan and each director is reimbursed for
expenses actually incurred in attending meetings of the Board of Directors
and its committees.
Directors who are also employees of the Company are not separately
compensated for any services provided as a director.
EXECUTIVE OFFICERS
The executive officers of the Company serve at the discretion of the
Board of Directors and are chosen annually by the Board of Directors. Set
forth below are the names, ages and positions of the executive officers of
the Company.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
James W. Bullock 41 President and Chief Executive Officer and
Director
Frank J. Callaghan 44 Vice President, Research and Development
Richard J. Omilanowicz 45 Vice President, Manufacturing
Andrew K. Balo 50 Vice President of Regulatory, Clinical
Affairs and Quality Assurance
Graydon E. Beatty 41 Chief Technical Officer and Director
Leota L. Pearson 39 Controller
Patrick J. Wethington 29 Director of Marketing
</TABLE>
Information concerning the business experience of Messrs. Beatty and
Bullock is provided in "Proposal One: Election of Directors." Set forth
below is a description of the background of the other executive officers.
FRANK J. CALLAGHAN has been Vice President of Research and Development
of the Company since November 1995. From 1987 until joining the Company, Mr.
Callaghan served as a Director of Research and Development at Telectronics
Pacing Systems, Inc., a manufacturer of cardiac rhythm management devices.
From 1983 to 1987 Mr. Callaghan served in several capacities, including
Manager, Systems Technology, at Cordis Corporation, a manufacturer of
angiographic and implantable devices.
RICHARD J. OMILANOWICZ has been Vice President of Manufacturing of the
Company since November 1994. From May 1993 until joining the Company, Mr.
Omilanowicz served as General Manager of McKechnie Plastic Components, a
custom injection molding company. From 1980 to May 1993, Mr. Omilanowicz
served in several capacities at the Pharmaseal Division of Baxter
International Inc., most recently as Director of Research, Development and
Engineering.
ANDREW K. BALO has been Vice President of Regulatory, Clinical Affairs
and Quality Assurance of the Company since October 1997. From September 1995
until joining the Company, Mr. Balo served as Vice President,
Regulatory/Clinical/Technical Services at Pacesetter, Cardiac Rhythm
Management Division of St. Jude Medical, Inc. From July 1992 to September
1995, Mr. Balo served as Vice President Regulatory/Clinical/Quality of St.
Jude Medical, a manufacturer of mechanical and tissue heart valves. From 1978
to 1992, Mr. Balo served in a variety of regulatory, clinical and quality
management positions, most recently as Vice President of Regulatory and
Quality for the Operating Room Division of Baxter International, a medical
products company.
-4-
<PAGE>
LEOTA L. PEARSON has been Controller of the Company since July 1994.
From November 1993 until joining the Company, Ms. Pearson served as
Controller of General Litho Services, Inc., a printing company. Ms. Pearson
completed her MBA in June 1993. From 1983 to May 1990, Ms. Pearson served as
Controller of Orthomet, Inc., a manufacturer and distributor of orthopedic
devices. Ms. Pearson is a Certified Public Accountant.
PATRICK J. WETHINGTON has been Director of Marketing of the Company
since November 1996. From March 1994 to October 1996, Mr. Wethington was the
marketing manager for tachycardia products for Guidant/CPI's implantable
cardioverter defibrillator pulse generator and endocardial lead business.
From June 1992 to March 1994, Mr. Wethington served as a field clinical
representative for Guidant/CPI's cardiac rhythm management products. From
September 1990 to June 1992, Mr. Wethington served as a sales and marketing
consultant for several businesses, including 3M, Dayton Hudson Corp. and
Synert Service Corporation.
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by or
paid for services rendered to the Company in all capacities during the fiscal
years ended December 31, 1997 and 1996, by the Company's Chief Executive
Officer and all other executive officers whose salary and bonus earned in
1997 exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION -------------
------------------------- SECURITIES
FISCAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(#)(1) COMPENSATION
- --------------------------- ------ ---------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C>
James W. Bullock 1997 $ 185,577 $ 30,000 335,000 --
President and Chief 1996 180,000 20,000 285,000 --
Executive Officer and
Director
Frank J. Callaghan 1997 $ 126,000 -- 80,000 --
Vice President, 1996 120,000 $ 7,698 70,000 $50,735(2)
Research and
Development
Richard J. Omilanowicz 1997 $ 128,446 -- 80,000 --
Vice President,
Marketing 1996 119,954 -- 70,000 --
Graydon E. Beatty 1997 $ 110,000 -- 25,000 --
Chief Technical Officer 1996 110,000 -- 25,000 --
and Director
Dennis J. McFadden 1997 $ 139,997 $ 10,000 -- --
Chief Financial Officer
</TABLE>
- -------------------
(1) Represents options granted pursuant to the Company's Stock Option Plan.
(2) Represents reimbursement of relocation expenses.
-5-
<PAGE>
STOCK OPTIONS
The following table summarizes stock options granted to the executive
officers named in the Summary Compensation Table above during the Company's
fiscal year ended December 31, 1997.
OPTION GRANTS IN FISCAL YEAR 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1)
--------------------------------------- POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERM (4)
OPTIONS IN FISCAL PRICE PER EXPIRATION -----------------------
NAME GRANTED YEAR(2) SHARE (3) DATE 5% 10%
------------------------- ---------- ---------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
James W. Bullock. . . . . 50,000 20.8% $9.38 6/19/07 $295,000 $755,500
Frank J. Callaghan. . . . 10,000 4.2% $11.06 12/16/07 $69,600 $182,900
Richard J. Omilanowicz. . 10,000 4.2% $11.06 12/16/07 $69,600 $182,900
Graydon E. Beatty . . . . - - - - - -
Dennis J. McFadden. . . . 25,000 10.4% $13.13 9/21/07 (5) (5)
</TABLE>
- ---------------------
(1) Each option represents the right to purchase one share of Common
Stock. The options shown in this column are all incentive stock
options granted pursuant to the Stock Option Plan. The options vest in
monthly installments over a period of four years and are exercisable
after six months of employment. Each option grant allows the
individual to acquire shares of the Company's Common Stock at a fixed
price per share over a ten year period of time. To the extent not
already exercisable, the options generally become exercisable in the
event of a merger in which the Company is not the surviving
corporation, a transfer of all of the Company's stock, a sale of
substantially all of the Company's assets or a dissolution or
liquidation of the Company.
(2) In 1997, the Company granted employees options to purchase an
aggregate of 235,500 shares of Common Stock.
(3) The exercise price may be paid in cash, or in the case of Mr. Bullock,
in cash, by promissory note or in shares of Common Stock with a market
value as of the date of grant equal to the exercise price or a
combination of any of the above.
(4) The compounding assumes a ten year exercise period for all options
grants. The 5% and 10% assumed annual rates of compounded stock price
appreciation are mandated by rules of the Securities and Exchange
Commission and do not represent the Company's estimate or projection
of the Company's future Common Stock prices. These amounts represent
certain assumed rates of appreciation only. Actual gains, if any, on
stock option exercises are dependent on the future performance of the
Common Stock and overall stock market conditions. The amounts
reflected in the table may not necessarily be achieved.
(5) The stock options were canceled upon the resignation of Mr. McFadden
in December 1997.
-6-
<PAGE>
YEAR-END OPTION TABLE
The following table sets forth certain information concerning
options to purchase Common Stock exercised by the executive officers named in
the Summary Compensation Table above during fiscal year 1997 and the number
and value of unexercised stock options held by such officers as of December
31, 1997.
AGGREGATED VALUE OF OPTIONS HELD AT DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT IN-THE-MONEY OPTIONS HELD
DECEMBER 31, 1997 AT DECEMBER 31, 1997 (1)
-------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
James W. Bullock 176,875 133,125 $ 1,677,530 $ 761,168
Frank J. Callaghan 33,542 46,458 $ 317,695 $ 321,005
Richard J. Omilanowicz 36,879 40,121 $ 345,744 $ 248,035
Graydon E. Beatty 25,000 0 $ 248,250 $ 0
Dennis J. McFadden 15,750 0 $ 121,748 $ 0
</TABLE>
- ---------------
(1) "Value" has been determined based on the difference between the last
sale price of the Company's Common Stock as reported by the Nasdaq
National Market System on December 31, 1997 ($10.13) and the per share
option exercise price, multiplied by the number of shares subject to
the in-the-money options.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors advises the Chief
Executive Officer and the Board of Directors on matters of the Company's
compensation philosophy and recommends salaries, incentives and other forms
of compensation for directors, officers and other employees of the Company.
The Compensation Committee also is responsible for the administration of the
Company's 1993 Long-Term Stock Option Plan. The Compensation Committee has
reviewed and is in accord with the compensation paid to executive officers in
fiscal year 1997.
General Compensation Policy. The Company is committed to attracting,
hiring and retaining an experienced management team that can successfully
develop and manufacture the Company's products, penetrate target markets and
develop new products. The fundamental policy of the Compensation Committee
is to provide the Company executive officers with competitive compensation
opportunities based upon their contribution to the development and financial
success of the Company and long-term shareholder interest as well as the
officers' personal performance. It is the Compensation Committee objective
to have a portion of each executive officer compensation contingent upon the
Company performance as well as upon such executive officer's own level of
performance. Accordingly, the compensation package for each executive
officer is comprised of three elements: (i) base salary which reflects
individual performance and is designed primarily to be competitive with
salary levels in the industry (ii) bonus contingent upon specific corporate
and individual milestones and (iii) long-term stock-based incentive awards
which strengthen the mutuality of interests between the executive officers
and the Company's stockholders.
Base Salary. The base salary is established as a result of the
Committee's analysis of each executive officer's individual performance
during the prior year, the overall performance of the Company during the
prior year and historical compensation levels within the executive officer
group. The committee believes executive salaries must be sufficient to
attract and retain key individuals. Salaries are based on experience level
and are intended to be competitive with median salaries paid to comparable
executives in similar positions at other development stage medical device
companies.
-7-
<PAGE>
Bonus Awards for Fiscal 1997. In conjunction with the establishment of
a fiscal 1997 bonus pool during the fiscal year, the Committee established
certain performance objectives, including corporate, departmental and
individual goals, which, when met, would result in bonus payments to
employees, including executive officers. In early 1998, the Committee
approved bonuses for executive officers and employees for recognition of
established objectives.
Long-Term Incentive Compensation. Long-term incentives are provided
through grants of stock options. The grants are designed to align the
interest of each executive officer with those of the stockholders and provide
each individual with an incentive to manage the Company from the perspective
of an owner with an equity stake in the Company. Stock options are generally
granted to executive officers at the time of they are elected. In
determining the number of share subject to stock option grants, the Committee
takes into consideration the job responsibilities, experience and
contributions of the individual as well as the recommendations of the Chief
Executive Officer. The restricted stock generally vests in monthly
installments over a period of four years and are exercisable after six months
of employment. Each option grant allows the individual to acquire shares of
the Company's Common Stock at a fixed price per share over a ten year period
of time.
CEO Compensation. The Compensation Committee's determination of the
Chief Executive Officer's salary, bonus and stock option grants follow the
policies set forth above for all executive's compensation. The Committee
seeks to establish a level of base salary competitive with that paid by
companies within the industry which are of comparable size and a bonus
contingent upon specific corporate objectives. In addition, a significant
percentage of the total compensation package is contingent upon the Company's
performance and stock price appreciation.
During 1997, Mr. Bullock salary was increased 5.6% to recognize
favorable corporate and individual performance. Mr. Bullock also received an
incentive stock option grant of 50,000 shares in May 1997. In addition, a
bonus of $30,000 was paid during 1997 based upon the accomplishment of
specific milestones. These cash, stock and bonus awards reflected the
Committee's judgment as to Mr. Bullock's individual performance and the
overall performance of the Company in completing its initial public stock
offering and making significant progress toward the commercialization of the
Company's EnSite 3000-TM- System. The Committee also believes that stock
options granted to Mr. Bullock to date provide a significant and appropriate
tie between overall compensation and the performance of the Company over the
long term.
Compliance with Internal Revenue Code Section 162(m). As a result of
Section 162(m) of the Internal Revenue Code of 1986, as amended, which was
enacted into law in 1993, the Company will not be allowed a federal income
tax deduction for compensation paid to certain executive officers, to the
extent that compensation exceeds $1 million per officer in any one year.
This limitation will apply to all compensation paid to the covered executive
officers which is not considered to be performance based. Compensation which
does qualify as performance-based compensation will not have to be taken into
account for purposes of this limitation. The Committee believes that option
granted the 1993 Long-Term Stock Option Plan will meet the requirements for
qualifying as performance-based.
The Compensation Committee does not expect that the compensation to be
paid to the Company's executive officers for the 1997 calendar year will
exceed the $1 million limit per officer. Accordingly, the Committee believes
that this section will not affect the tax deductions available to the
Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Ronald H. Kase, Peter H. McNerney and James E. Daverman served as
members of the Company's Compensation Committee during 1997. Mr. McNerney is
a Partner of Coral Partners IV, Limited Partnership. Mr. McNerney resigned
from the Board of Directors of the Company as of March 31, 1998. Mr. Kase is
a limited partner in New Enterprise Associates V, Limited Partnership. New
Enterprise Associates V, Limited Partnership is affiliated with ONSET
Enterprise Associates, L.P., Chemicals & Materials Enterprise Associates,
-8-
<PAGE>
Limited Partnership and Catalyst Ventures. Mr. Daverman is the Managing
General Partner of Marquette Venture Partners II, L.P. and MVP II Affiliates
Fund, L.P. See "Security Ownership of Certain Beneficial Owners and
Management."
RONALD H. KASE,
JAMES E. DAVERMAN and
PETER H. MCNERNEY
The Members of the Compensation Committee
of the Board of Directors
PERFORMANCE GRAPH
The following graph shows a comparison of cumulative total returns for
the Company, the Nasdaq Stock Market and the Standard & Poor's Health Care
Index, assuming the investment of $100 on March 19, 1997 (the date the Common
Stock began trading) and the reinvestment of dividends.
COMPARISON OF 1997 CUMULATIVE TOTAL RETURN*
AMONG ENDOCARDIAL SOLUTIONS, INC., THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE STANDARD & POOR'S HEALTH CARE INDEX.
<TABLE>
<CAPTION>
Endocardial Solutions, Inc. Nasdaq Stock Market (U.S.) S&P Health Care
--------------------------- -------------------------- ---------------
(dollars) (dollars) (dollars)
<S> <C> <C> <C>
March 1997 100 100 100
Dec. 1997 113 121 128
</TABLE>
* $100 INVESTED ON 3/17/97 IN STOCK OR INDEX INCLUDING REINVESTMENT OF
DIVIDENDS.
-9-
<PAGE>
CERTAIN TRANSACTIONS
The Company paid $16,000 in 1997 to Novel Biomedical, Inc. in connection
with research and development activities performed for the Company. The owner
of Novel Biomedical, Inc., Jonathan Kagan, is a founder and stockholder of
the Company.
In April 1996, the Company entered into an Investment Agreement (the
"Investment Agreement") with a wholly-owned subsidiary of Medtronic, Inc.
("Medtronic") pursuant to which the Company sold to Medtronic 1,953,700
shares of the Company's Series C Preferred Stock for a purchase price of $10
million. See "Security Ownership of Certain Beneficial Owners and
Management." Each share of Series C Preferred Stock issued to Medtronic
automatically converted to one-half share of Common Stock upon completion of
the Company's initial public offering, as a result of the one-for-two reverse
stock split of the Common Stock. Pursuant to the Investment Agreement, the
Company has granted Medtronic a right of first offer with respect to the
exclusive distribution of the EnSite 3000-TM- System and related products in
territories outside of North America. Pursuant to such right of first offer,
the Company and Medtronic entered into a seven-year distribution agreement in
September 1997 to market the EnSite 3000-TM- System in Europe, Japan and the
Middle East. The Company also granted Medtronic certain rights to have the
shares of Common Stock issued upon conversion of the Series C Preferred Stock
registered under the federal securities laws. Medtronic currently owns
1,726,850 shares of Common Stock of the Company, which represents
approximately 19.3% of the Company's outstanding Common Stock. In January
1998, the Company entered into a license agreement (the "License Agreement")
with Medtronic. In connection with the License Agreement, the Company issued
to Medtronic an immediately exercisable warrant (the "Initial Warrant") to
purchase 447,554 shares of the Common Stock, and agreed to issue in the
future an additional warrant (the "Additional Warrant"), subject to certain
conditions and contingencies, to purchase 223,777 shares of Common Stock. In
connection with execution of the License Agreement, the Company also granted
Medtronic certain demand and piggy-back registration rights with respect to
the shares obtained on exercise of the Initial and Additional Warrants.
Mr. LaPorte, a director of the Company, is Vice President and General Manager
of Medtronic CardioRhythm, an affiliate of Medtronic.
-10-
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of February 28, 1998 by (i) each
person who is known by the Company to own beneficially more than 5% of the
Common Stock, (ii) each director, nominee and executive officer of the
Company named in the Summary Compensation Table under the heading "Executive
Compensation" above and (iii) all directors and executive officers of the
Company as a group. Unless otherwise noted, the stockholders listed in the
table have sole voting and investment powers with respect to the shares of
Common Stock owned by them.
<TABLE>
<CAPTION>
Percentage of
Number of Shares Outstanding
Beneficially Owned (1) Shares
---------------------- --------------
<S> <C> <C>
Medtronic Asset Management, Inc. (2) . . . . 2,174,404 24.3%
7000 Central Avenue NE
Minneapolis, MN 55432
Marquette Venture Partners II, L.P. (3). . . 735,294 8.2
520 Lake Cook Road, Suite 450
Deerfield, IL 60015
NEA Partners V,. . . . . . . . . . . . . . . 647,794 7.2
Limited Partnership
2490 Sand Hill Road
Menlo Park, CA 94025
Interactive Research Advisors, Inc. (4). . . 518,900 5.8
101 Park Center Plaza
Suite 1300
San Jose, CA 95113
Sprout Capital VI, L.P. (5). . . . . . . . . 482,347 5.4
3000 Sand Hill Road
Building 4, Suite 270
Menlo Park, CA 94025-7114
Graydon E. Beatty (6). . . . . . . . . . . . 240,000 2.7
James W. Bullock (7) . . . . . . . . . . . . 253,750 2.8
James E. Daverman (8). . . . . . . . . . . . 745,294 8.3
Robert G. Hauser, M.D. (7) . . . . . . . . . 35,000 *
Ronald H. Kase (9) . . . . . . . . . . . . . 10,000 *
Steven R. LaPorte (10) . . . . . . . . . . . 10,000 *
Peter H. McNerney (11) . . . . . . . . . . . 451,177 5.0
Frank J. Callaghan (12). . . . . . . . . . . 39,375 *
Richard J. Omilanowicz (13). . . . . . . . . 45,712 *
Dennis J. McFadden (14). . . . . . . . . . . 23,750 *
All executive officers and directors . . . . 5,138,201 57.4
as a group (10 persons) (15)
</TABLE>
- --------------------
* Less than 1%.
-11-
<PAGE>
(1) Beneficial ownership is determined in accordance with rules of the
Securities and Exchange Commission, and includes generally voting power
and/or investment power with respect to securities. Shares of Common
Stock subject to options or warrants currently exercisable or
exercisable within 60 days of the date hereof ("Currently Exercisable
Options") are deemed outstanding for computing the percentage
beneficially owned by the person holding such options but are not deemed
outstanding for computing the percentage beneficially owned by any other
person. Except as indicated by footnote, the Company believes that the
persons named in this table, based on information provided by such
persons, have sole voting and investment power with respect to the
shares of Common Stock indicated.
(2) Includes 447,554 shares issuable pursuant to a currently exercisable
warrant.
(3) Includes 20,426 shares held by MVP II Affiliates Fund, L.P.
(4) Disclosure is made in reliance upon a statement on Schedule 13D, dated
as of February 17, 1998, filed with the Securities and Exchange
Commission.
(5) Includes 65,986 shares held by DLJ Capital Corporation.
(6) Includes 25,000 shares issuable pursuant to Currently Exercisable
Options.
(7) Represents shares issuable pursuant to Currently Exercisable Options.
(8) Includes 735,294 shares beneficially owned by Marquette Venture Partners
II, L.P. and MVP II Affiliates Fund, L.P. with respect to which Mr.
Daverman has voting and investment power. See Note 3 above. Mr. Daverman
is a Managing General Partner of Marquette Venture Partners II, L.P. Mr.
Daverman disclaims beneficial ownership of these shares, except to the
extent of his proportionate interest in Marquette Venture Partners II,
L.P.
(9) Excludes shares beneficially owned by entities affiliated with New
Enterprise Associates. Mr. Kase is a limited partner of NEA Partners
V, Limited Partnership. Mr. Kase disclaims beneficial ownership of
these shares, except to the extent of his proportionate interest in
NEA Partners V, Limited Partnership.
(10) Excludes shares beneficially owned by Medtronic Asset Management, Inc.
Mr. LaPorte is Vice President and General Manager of Medtronic
CardioRhythm, an affiliate of Medtronic. Mr. LaPorte disclaims
beneficial ownership of these shares.
(11) Includes 441,177 shares beneficially owned by Coral Partners IV, Limited
Partnership with respect to which Mr. McNerney has voting and investment
power. Mr. McNerney is a partner of Coral Management Partners IV, the
General Partner of Coral Partners IV, Limited Partnership. Mr. McNerney
disclaims beneficial ownership of these shares, except to the extent of
his proportionate interest in Coral Partners IV, Limited Partnership.
(12) Includes 29,375 shares issuable pursuant to Currently Exercisable
Options.
(13) Includes 42,712 shares issuable pursuant to Currently Exercisable
Options.
(14) Includes 18,250 shares issuable pursuant to Currently Exercisable
Options.
(15) See Notes 6, 7, 8, 9, 10, 11, 12 and 13 above.
-12-
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and directors and persons who beneficially own
more than 10% of the Company's Common Stock to file initial reports of
ownership and reports of changes in ownership with the Commission. Such
executive officers, directors and greater than 10% beneficial owners are
required by the regulations of the Commission to furnish the Company with
copies of all Section 16(a) reports they file.
Based solely on a review of the copies of such reports furnished to the
Company and written representations from the executive officers and
directors, the Company believes that all Section 16(a) filing requirements
applicable to its executive officers and directors and greater than 10%
beneficial owners were complied with, except that statements of changes in
beneficial ownership on Form 4 were not timely filed by New Enterprise
Associates V, Limited Partnership and certain affiliates, and Richard J.
Omilanowicz.
INDEPENDENT ACCOUNTANTS
Representatives of Ernst & Young LLP, independent accountants for the
Company for the fiscal year ending December 31, 1998, are expected to be
present at the Annual Meeting, and will be available to answer appropriate
questions from stockholders.
SOLICITATION OF PROXIES
The Company is paying the costs of solicitation, including the cost of
preparing and mailing this Proxy Statement. Proxies are being solicited
primarily by mail, but in addition, the solicitation by mail may be followed
by solicitation in person, or by telephone or facsimile, by regular employees
of the Company without additional compensation. The Company will reimburse
brokers, banks and other custodians and nominees for their reasonable
out-of-pocket expenses incurred in sending proxy materials to the Company's
stockholders.
PROPOSALS FOR THE 1999 ANNUAL MEETING
Any proposal by a stockholder to be presented at the 1999 Annual Meeting
of Stockholders and to be included in the Company's proxy statement must be
received at the Company's executive offices, 1350 Energy Lane, Suite 110 St.
Paul, Minnesota 55108, no later than the close of business on December 21,
1998. Proposals should be sent to the attention of the Secretary.
GENERAL
The Company's Annual Report for the fiscal year ended December 31, 1997
is being mailed to stockholders together with this Proxy Statement. The
Annual Report is not to be considered part of the soliciting materials.
The information set forth in this Proxy Statement under the caption
"Compensation Committee Report on Executive Compensation" and "Performance
Graph" shall not be deemed to be (i) incorporated by reference into any
filing by the Company under the Securities Act of 1933 or the Securities
Exchange Act of 1934, except to the extent that in any such filing the
Company expressly so incorporates such information by reference, and (ii)
"soliciting material" or to be "filed" with the SEC.
By Order of the Board of Directors
/s/ James W. Bullock
James W. Bullock
Secretary
April 24, 1998
-13-
<PAGE>
PROXY ENDOCARDIAL SOLUTIONS, INC.
1998 ANNUAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints James W. Bullock and Leota L. Pearson
proxies (each with the power to act alone and with the power of substitution),
to vote, as designated below, all shares of Common Stock of Endocardial
Solutions, Inc. which the undersigned is entitled to vote at the 1998 Annual
Meeting of Shareholders of Endocardial Solutions, Inc. to be held on Thursday,
May 21, 1998, at 3:30 p.m. local time, at the Minneapolis Hilton, located at
1001 Marquette Avenue, Minneapolis, Minnesota, and any adjournment thereof, and
hereby revokes all former proxies.
1. ELECTION OF DIRECTORS. NOMINEES: James W. Bullock and Graydon E. Beatty
/ / VOTE FOR all nominees listed above, / / WITHHOLD
AUTHORITY
except those whose names are written below: to vote for all
nominees listed above
- --------------------------------------------------------------------------------
(CONTINUED, AND TO BE SIGNED AND DATED ON THE REVERSE SIDE)
<PAGE>
(CONTINUED FROM OTHER SIDE)
2. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
MATTERS THAT MAY PROPERLY COME BEFORE THE ANNUAL MEETING OR ANY ADJOURNMENT
OR ADJOURNMENTS THEREOF.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED HEREIN BY THE
UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR
THE ELECTION OF DIRECTORS.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY IN THE ENCLOSED ADDRESSED
ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
Please sign exactly as your name
appears hereon. Jointly owned
shares will be voted as directed
if one owner signs unless another
owner instructs to the contrary,
in which case the shares will not
be voted. If signing in a
representative capacity, please
indicate title and authority.
Dated: _____________________, 1998
__________________________________
Signature
