Ev3 (EVVV)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A INFORMATION

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9600 54th Avenue North

Plymouth, Minnesota 55442

 

April 15, 2008

 

 

Dear Fellow Stockholders:

 

We are pleased to invite you to join us for the ev3 Inc. Annual Meeting of Stockholders to be held on Tuesday, May 20, 2008, at 2:00 p.m., local time, at our corporate offices located at 9600 54th Avenue North, Plymouth, Minnesota 55442. Details about the meeting, nominees for our board of directors and other matters to be acted on are presented in the Notice of Annual Meeting and proxy statement that follow.

 

In addition to Annual Meeting formalities, we will report to stockholders generally on our business, and will be pleased to answer stockholders’ questions about ev3.

 

We hope you plan to attend the Annual Meeting. Please exercise your right to vote by signing, dating and returning the enclosed proxy card or using Internet or telephone voting as described in the proxy statement, even if you plan to attend the meeting.

 

On behalf of ev3’s board of directors and management, it is our pleasure to express our appreciation for your continued support.

 

Sincerely,

 

 

 

 

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD ON May 20, 2008

 

 

 

To the Stockholders of ev3 Inc.:

 

The Annual Meeting of Stockholders of ev3 Inc., a Delaware corporation, will be held on Tuesday, May 20, 2008, at 2:00 p.m., local time, at ev3’s corporate offices at 9600 54th Avenue North, Plymouth, Minnesota 55442 for the following purposes:

 

1. To elect three directors, each to serve for a term of three years.

 

2. To consider a proposal to ratify the selection of Ernst & Young LLP as our independent registered public accounting firm for the year ending December 31, 2008.

 

3. To transact such other business as may properly come before the meeting or any adjournment of the meeting.

 

Only stockholders of record at the close of business on April 1, 2008 will be entitled to notice of, and to vote at, the meeting and any adjournments thereof. A stockholder list will be available at ev3’s corporate offices beginning May 9, 2008 during normal business hours for examination by any stockholder registered on ev3’s stock ledger as of the record date for any purpose germane to the annual meeting.

 

By Order of the Board of Directors,

 

 

Kevin M. Klemz

Senior Vice President, Secretary and

Chief Legal Officer

 

April 15, 2008

Plymouth, Minnesota

 

TABLE OF CONTENTS

 

 

9600 54th Avenue North

Plymouth, Minnesota 55442

 

 

 

 

PROXY STATEMENT FOR
ANNUAL MEETING OF STOCKHOLDERS

MAY 20, 2008

 

 

 

 

The board of directors of ev3 Inc. is soliciting your proxy for use at the 2008 Annual Meeting of Stockholders on Tuesday, May 20, 2008. The Notice of Annual Meeting, this proxy statement and the enclosed form of proxy are being mailed to stockholders beginning on or about April 15, 2008.

Date, Time, Place and Purposes of Meeting

 

The Annual Meeting of Stockholders of ev3 Inc. will be held on Tuesday, May 20, 2008, at 2:00 p.m., local time, at ev3’s corporate offices at 9600 54th Avenue North, Plymouth, Minnesota 55442, for the purposes set forth in the Notice of Annual Meeting.

Who Can Vote

 

Stockholders of record at the close of business on April 1, 2008 will be entitled to notice of and to vote at the meeting or any adjournment of the Annual Meeting. As of that date, there were 105,229,148 shares of our common stock outstanding. Each share of our common stock is entitled to one vote on each matter to be voted on at the Annual Meeting. Stockholders are not entitled to cumulate voting rights.

How You Can Vote

 

Your vote is important. If you are a stockholder whose shares are registered in your name, you may vote your shares in person at the meeting or by one of the three following methods:

 

 

If your shares are held in “street name” (through a broker, bank or other nominee), you may receive a separate voting instruction form with this proxy statement or you may need to contact your broker, bank or other nominee to determine whether you will be able to vote electronically using the Internet or telephone.

 

If you return your signed proxy card or use Internet or telephone voting before the Annual Meeting, the named proxies will vote your shares as you direct. You have three choices on each matter to be voted on.

For the election of directors, you may:

 

 

For each of the other proposals, you may:

 

 

If you send in your proxy card or use Internet or telephone voting, but do not specify how you want to vote your shares, the proxies will vote your shares FOR the three nominees for director and FOR all of the other proposals set forth in the Notice of Annual Meeting.

How Does the Board Recommend that You Vote

 

The Board of Directors unanimously recommends that you vote FOR the three nominees for director and FOR the approval of all of the other proposals set forth in the Notice of Annual Meeting.

How You May Revoke or Change Your Vote

 

If you are a stockholder whose shares are registered in your name, you may revoke your proxy at any time before it is voted by one of the following methods:

 

Quorum Requirement

 

The presence at the Annual Meeting, in person or by proxy, of the holders of a majority (52,614,575 shares) of the outstanding shares of our common stock as of the record date will constitute a quorum for the transaction of business at the Annual Meeting. Shares represented by proxies marked “Abstain” or “Withheld” are counted in determining whether a quorum is present. In addition, a “broker non-vote” is considered in determining whether a quorum is present. A “broker non-vote” is a proxy 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 by the broker from the customer, and the broker does not have discretionary authority to vote on behalf of such customer on such matter.

Vote Required

 

Assuming a quorum is represented at the Annual Meeting, either in person or by proxy, the election of the three nominees for director and the approval of each of the other proposals described in this proxy statement requires the affirmative vote of the holders of a majority of the shares of our common stock present in person or by proxy and entitled to vote.

 

If your shares are held in “street name” and you do not indicate how you wish to vote, your broker is permitted to exercise its discretion to vote your shares on certain “routine” matters that include the election of directors (Proposal One) and the ratification of the selection of our independent registered public accounting firm (Proposal Two).

Procedures at the Annual Meeting

 

The presiding officer at the Annual Meeting will determine how business at the Annual Meeting will be conducted. Only matters brought before the Annual Meeting in accordance with our bylaws will be considered.

 

Only a natural person present at the Annual Meeting who is either one of our stockholders or is acting on behalf of one of our stockholders may make a motion or second a motion. A person acting on behalf of a stockholder must present a written statement executed by the stockholder or the duly authorized representative of the stockholder on whose behalf the person purports to act.

 

Significant Stockholders

 

The following table sets forth information as to individuals and entities that have reported to the Securities and Exchange Commission, or SEC, or have advised us that they are a beneficial owner, as defined by the SEC’s rules and regulations, of more than five percent of our outstanding common stock.

 

 

 

Directors and Executive Officers

 

The following table sets forth information known to us regarding the beneficial ownership of our common stock as of April 1, 2008 for:

 

 

The number of shares beneficially owned by a person includes shares subject to options held by that person that are currently exercisable or that become exercisable within 60 days of April 1, 2008, shares subject to stock grants which vest over time and are subject to forfeiture until vested and shares subject to restricted stock units which vest over time and become issuable within 60 days of April 1, 2008. Percentage calculations assume, for each person and group, that all shares that may be acquired by such person or group pursuant to options currently exercisable or that become exercisable or restricted stock units that vest within 60 days of April 1, 2008 are outstanding for the purpose of computing the percentage of common stock owned by such person or group. However, those unissued shares of common stock described above are not deemed to be outstanding for calculating the percentage of common stock owned by any other person.

Except as otherwise indicated, the persons in the following table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them, subject to community property laws where applicable and subject to the information contained in the footnotes to the table. Unless otherwise indicated, the address for each of the individuals in the table below is c/o ev3 Inc., 9600 54th Avenue North, Plymouth, Minnesota 55442.

 

 

 

 

 

 

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors and executive officers and all persons who beneficially own more than 10% of the outstanding shares of our common stock to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock. Directors, executive officers and greater than 10% beneficial owners are also required to furnish us with copies of all Section 16(a) forms they file. To our knowledge, based on review of the copies of such reports and amendments to such reports furnished to us with respect to the year ended December 31, 2007, and based on written representations by our directors and executive officers, all required Section 16 reports under the Securities Exchange Act of 1934, as amended, for our directors, executive officers and beneficial owners of greater than 10% of our common stock were filed on a timely basis during the year ended December 31, 2007.

 

Board Structure; Number of Directors

 

As provided in our certificate of incorporation, our board of directors is divided into three staggered classes of directors of the same or nearly the same number. At each annual meeting of stockholders, a class of directors is elected for a three-year term to succeed the directors of the same class whose terms are then expiring. The term of the directors will expire upon election and qualification of successor directors at the 2009 annual meeting of stockholders for the Class I directors, at the 2010 annual meeting of stockholders for the Class II directors and at the 2008 annual meeting of stockholders for the Class III directors.

 

Upon completion of our merger with FoxHollow Technologies, Inc. in October 2007, our board of directors, pursuant to our certificate of incorporation, increased the size of our board from eight to 10 members. At that time, Douglas W. Kohrs and Dale A. Spencer resigned from our board and Jeffrey B. Child, Richard N. Kender, Myrtle S. Potter and John B. Simpson, Ph.D., M.D. were elected to our board. John B. Simpson, Ph.D., M.D. resigned as a director effective as of February 7, 2008.

On April 6, 2008, James M. Corbett resigned as Chairman, President and Chief Executive Officer and Robert J. Palmisano was elected as our new President and Chief Executive Officer. Under our certificate of incorporation, our board of directors has the power to fill vacancies on our board resulting from the resignation of a director. Pursuant to this authority, on April 6, 2008, our board elected Mr. Palmisano as a director to fill the vacancy created by Mr. Corbett’s resignation. Our board also at that time elected Daniel J. Levangie as our new non-executive Chairman of the Board of Directors.

 

Our current directors and their respective classes and terms are as follows:

 

 

Myrtle S. Potter indicated to us in February 2008 that she did not intend to stand for re-election upon expiration of her term at our 2008 annual meeting of stockholders. Ms. Potter will continue to serve as a director of our company until the expiration of her term at the 2008 annual meeting of stockholders. In addition, in February 2008, Daniel J. Levangie tendered his resignation as a Class I director with a term expiring at our 2009 annual meeting of stockholders effective as of his election at our 2008 annual meeting of stockholders as a Class III director with a term expiring at our 2011 annual meeting of stockholders. The purpose of Mr. Levangie’s resignation was to accommodate the desire of our board of directors to submit to our stockholders a full slate of director nominees for election at our 2008 annual meeting of stockholders and to cause the three staggered classes of our directors to be comprised of nearly the same number of directors.

 

On April 6, 2008, our board of directors nominated the following three individuals to serve as Class III directors with three-year terms expiring at our 2011 annual meeting of stockholders: Daniel J. Levangie, Robert J. Palmisano and Elizabeth H. Weatherman.

 

Our certificate of incorporation and bylaws provide that the number of directors that constitute our board of directors will be fixed from time to time by a resolution of the majority of our board of directors and will consist of at least five members. Our board of directors has fixed the number of directors at nine.

 

Under our certificate of incorporation, our board of directors has the power to fill vacancies on our board resulting from death, resignation, removal, disqualification or other cause, and newly created directorships resulting from any increase in the authorized number of directors. Any director so elected by our board will hold office for the remainder of the full term of the class of directors in which the vacancy occurred or to which the new directorship is apportioned, and until such director’s successor is elected and qualified. Any additional directorships resulting from any increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors. Our board of directors, through the nominating, corporate governance and compliance committee, is currently in the process of seeking additional members of our board of directors. Due to the timing of our 2008 annual meeting of stockholders and the length of time it typically takes to identify and evaluate individuals qualified to become members of the board of directors, it is possible that our board of directors will increase the number of directors to more than nine and elect one or more additional directors to fill such vacancy or vacancies shortly after the Annual Meeting.

Board Designation Rights

 

We and certain of our stockholders, including Warburg Pincus LLC and certain of its affiliates (collectively, “Warburg Pincus”), The Vertical Group, L.P. and certain of its affiliates (collectively, “The Vertical Group”) and members of our management, are parties to a holders agreement, which includes terms

relating to the composition of our board of directors. The holders agreement requires us to nominate and use our best efforts to have elected to our board of directors:

 

 

Mr. Emmitt and Ms. Weatherman were the initial designees under the holders agreement. In the event any director designated by the Warburg Pincus Entities and the Vertical Funds is unable to serve or is removed or withdraws from our board of directors, the Warburg Pincus Entities and the Vertical Funds will have the right to designate a substitute for such director. We and certain of our stockholders, including certain members of our management party to the holders agreement, have agreed to take all action within our or their respective power, including the voting of shares of common stock owned by us or them as is necessary to cause the election of the substitute director designated by the Warburg Pincus Entities and the Vertical Funds or to, upon the written request of the Warburg Pincus Entities and the Vertical Funds, remove with or without cause a director previously designated by such institutional investors.

Nominees for Director

 

The three nominees for election at the 2008 Annual Meeting are Daniel J. Levangie, Robert J. Palmisano and Elizabeth H. Weatherman. All of these nominees are current members of our board of directors and have consented to serve if elected. Proxies can only be voted for the number of persons named as nominees in this proxy statement, which is three.

Board Recommendation

 

The board of directors unanimously recommends a vote FOR the election of the three nominees named above.

 

If prior to the Annual Meeting, the board of directors should learn that any nominee will be unable to serve for any reason, the proxies that otherwise would have been voted for this nominee will be voted for a substitute nominee as selected by the board of directors. Alternatively, the proxies, at the discretion of the board of directors, may be voted for that fewer number of nominees as results from the inability of any nominee to serve. The board of directors has no reason to believe that any of the nominees will be unable to serve.

Information About Board Nominees and Other Directors

 

The following table sets forth certain information that has been furnished to us by each director and each person who has been nominated by our board of directors to serve as a director of our company.

 

 

 

Additional Information About Board Nominees and Other Directors

 

Nominees for Election as Class III Directors for Three-Year Terms Expiring in 2011

 

Daniel J. Levangie has served as our Chairman of the Board since April 6, 2008 and as one of our directors since February 2007. From July 2006 to October 2007, Mr. Levangie served as the President, Surgical Products Division, and as an Executive Vice President and director of Cytyc Corporation, a leading provider of surgical and diagnostic products targeting women’s health and cancer, since July 2006. Prior to July 2006, Mr. Levangie held several positions with Cytyc, including Executive Vice President and Chief Operating Officer from July 2000 to June 2002, Chief Executive Officer and President of Cytyc Health Corporation from July 2002 to December 2003 and Executive Vice President and Chief Commercial Officer from January 2004 to June 2006. Mr. Levangie is also a member of the board of directors of Dune Medical Devices Ltd. and HyperMed, Inc., both privately held medical device companies.

 

Robert J. Palmisano has served as our President and Chief Executive Officer and as one of our directors since April 6, 2008. Mr. Palmisano served as President and Chief Executive Officer of IntraLase Corp., a company engaged in the design, development and manufacture of laser products for vision correction, from April 2003 to April 2007, when IntraLase was acquired by Advanced Medical Optics, Inc. From April 2001 to April 2003, Mr. Palmisano was the President, Chief Executive Officer and a director of MacroChem Corporation, a development stage pharmaceutical corporation. From April 1997 to January 2001 Mr. Palmisano

served as President and Chief Executive Officer and a director of Summit Autonomous, Inc., a global medical products company that was acquired by Alcon, Inc. in October 2000. Prior to 1997, Mr. Palmisano held various executive positions with Bausch & Lomb Incorporated, a global eye care company. Mr. Palmisano earned his B.A. in Political Science from Providence College. Mr. Palmisano serves on the boards of directors of Advanced Medical Optics, Inc. and Osteotech, Inc., both publicly held companies, and Songbird Hearing, Inc., a privately held company.

 

Elizabeth H. Weatherman has served as one of our directors since June 2005. Ms. Weatherman was a member of the board of managers of ev3 LLC from August 2003 through the date of the merger of ev3 LLC with and into ev3 in June 2005. Ms. Weatherman is a Managing Director of Warburg Pincus LLC and a member of the firm’s Executive Management Group. Ms. Weatherman joined Warburg Pincus’ health care group in 1988 and is currently responsible for the firm’s medical device investment activities. Ms. Weatherman currently serves on the board of directors of Bausch & Lomb, Inc., Bacchus Vascular, Inc. and Tornier B.V. (Dutch), all privately held companies.

 

Class I Directors Not Standing for Election this Year Whose Terms Expire in 2009

 

Jeffrey B. Child has served as one of our directors since October 2007 when he was elected to our board of directors in connection with our merger with FoxHollow Technologies, Inc. Mr. Child has served as Chief Financial Officer of a family office of an unaffiliated third party since July 2004. From February 1999 through June 2003, Mr. Child served as a Managing Director, U.S. Equity Capital Markets at Banc of America Securities LLC. Prior to that time, he served as a Managing Director in the Healthcare Group at Banc of America Securities. Mr. Child currently serves on the board of directors of AMERIGROUP Corporation, a multi-state managed healthcare company. Mr. Child also serves as a Trustee of the Menlo Park City School District Board of Education.

 

Richard N. Kender has served as one of our directors since October 2007 when he was elected to our board of directors in connection with our merger with FoxHollow Technologies, Inc. and our agreement with Merck & Co., Inc. Mr. Kender has worked for Merck & Co., Inc. since 1978, holding several positions, including Senior Vice President since February 2008, Vice President, Business Development and Corporate Licensing from 2000 to February 2008 and Vice President, Corporate Development from 1996 to 2000. Mr. Kender is also a member of Merck’s Finance Senior Leadership Team.

 

Thomas E. Timbie has served as one of our directors since June 2005. Mr. Timbie served as a Vice President of ev3 from April 2005 until June 2005 and as ev3’s Interim Chief Financial Officer from January 2005 until April 2005. Mr. Timbie was a member of the board of managers of ev3 LLC from March 2004. Since 2000, Mr. Timbie has been the President of Timbie & Company, LLC, a financial consulting firm that he founded. During 2000, Mr. Timbie was the Interim Vice President and Chief Financial Officer of e-dr. Network, Inc., and from 1996 to 1999 he was the Vice President and Chief Financial Officer of Xomed Surgical Products, Inc. Mr. Timbie currently serves on the board of directors of American Medical Systems Holdings, Inc. and Wright Medical Group, Inc., both publicly held companies.

 

Class II Directors Not Standing for Election this Year Whose Terms Expire in 2010

 

John K. Bakewell has served as one of our directors since April 2006. Mr. Bakewell serves as Executive Vice President and Chief Financial Officer of Wright Medical Group, Inc., a publicly held orthopaedic medical device company specializing in the design, manufacture and marketing of reconstructive joint devices and biologics products. Mr. Bakewell has served as Executive Vice President and Chief Financial Officer of Wright Medical Group, Inc. since December 2000. He served as Vice President of Finance and Administration and Chief Financial Officer of Altra Energy Technologies, Inc., a software and e-commerce solutions provider to the energy industry, from July 1998 to December 2000.

 

Richard B. Emmitt has served as one of our directors since June 2005. Mr. Emmitt was a member of the board of managers of ev3 LLC from August 2003 through the date of the merger of ev3 LLC with and into ev3 in June 2005. Since 1989, Mr. Emmitt has been a General Partner of The Vertical Group, L.P., an investment management and venture capital firm focused on the medical device industry. Mr. Emmitt currently

serves on the board of directors of American Medical Systems Holdings, Inc., a publicly held company, as well as BioSET, Inc., ENTrigue Surgical, Inc., Galil Medical, Inc., Incumed, Inc., Tepha, Inc. and Tornier B.V. (Dutch), all privately held companies.

 

Director Not Standing for Election this Year Whose Term Expires in 2008

 

Myrtle S. Potter has served as one of our directors since October 2007 when she was elected to our board of directors in connection with our merger with FoxHollow Technologies, Inc. Ms. Potter has been a consultant since August 2005 and since September 2006 has been an owner and operator of a number of real estate-related private entities. From May 2000 to August 2005, Ms. Potter held senior management positions at Genentech, Inc., a biotechnology company, including President and Executive Vice President of Commercial Operations and Chief Operating Officer. Prior to joining Genentech, Ms. Potter held the positions of President of U.S. Cardiovascular/Metabolics from November 1998 to May 2000, Senior Vice President of Sales, U.S. Cardiovascular/Metabolics from March 1998 to October 1998, Group Vice President of Worldwide Medicines Group from February 1997 to February 1998 and Vice President of Strategy and Economics, U.S. Pharmaceutical Group from April 1996 to January 1997 at Bristol-Myers Squibb Company, a pharmaceutical company. Previously, Ms. Potter held the position of Vice President of the Northeast Region Business Group at Merck & Co., Inc., a pharmaceutical company, from October 1993 to March 1996. Ms. Potter serves on the board of directors of Amazon.com and Medco Health Solutions, Inc., both publicly held companies.

 

Corporate Governance Guidelines

 

Our board of directors has adopted Corporate Governance Guidelines. A copy of these Corporate Governance Guidelines can be found on the Investor Relations — Corporate Governance section of our corporate website at www.ev3.net. A printed copy of these Corporate Governance Guidelines is available to any stockholder upon request to our Corporate Secretary at ev3 Inc., 9600 54th Avenue North, Plymouth, MN 55442 or by telephone at (763) 398-7000. Among the topics addressed in our Corporate Governance Guidelines are:

 

 

Director Independence

 

The board of directors has affirmatively determined that six of our nine current directors — John K. Bakewell, Jeffrey B. Child, Richard B. Emmitt, Daniel J. Levangie, Myrtle S. Potter and Thomas E. Timbie — are “independent directors” under the Marketplace Rules of the NASDAQ Stock Market. The Marketplace Rules of the NASDAQ Stock Market provide a non-exclusive list of persons who are not considered independent. For example, under these rules, a director who is, or during the past three years was, employed by the company or by any parent or subsidiary of the company, other than prior employment as an interim chairman or chief executive officer, would not be considered independent. No director qualifies as independent unless the board of directors affirmatively determines that the director does not have a material relationship with the listed company that would interfere with the exercise of independent judgment. In making an affirmative determination that each of Messrs. Bakewell, Child, Emmitt, Levangie and Timbie and Ms. Potter is an “independent director,” the board of directors reviewed and discussed information provided by these individuals and by us with regard to each of their business and personal activities as they may relate to us and our management.

Chairman of the Board; Lead Independent Director; Executive Sessions

 

Daniel J. Levangie serves as our non-executive Chairman of the Board of Directors. Prior to Mr. Corbett’s resignation as our Chairman of the Board on April 6, 2008, Mr. Levangie served as our lead independent director. Under our Corporate Governance Guidelines, if at any time the Chief Executive Officer and Chairman of the Board positions are held by the same person, our board of directors will elect an independent director as a lead independent director. The lead independent director will have the following duties and responsibilities in addition to such other duties and responsibilities as may be determined by the board of directors from time to time:

 

 

Commencing in October 2007, at each regular board meeting our independent directors have met in executive session with no company management present during a portion of the meeting.

Board Meetings and Attendance

 

Our board of directors had 12 regular meetings and 15 special meetings during 2007. All of our directors attended 75% or more of the aggregate meetings of the board of directors (held during the period for which they had been a director) and all committees on which they served during 2007 (during the period that they served).

Board Committees

 

Our board of directors has a standing audit committee, compensation committee and nominating, corporate governance and compliance committee, each of which has the composition and responsibilities described below. Our board of directors may from time to time establish other committees to facilitate the management of our company and may change the composition and the responsibilities of our existing committees. Each committee has a charter which can be found on the Investor Relations — Corporate Governance section of our corporate website at www.ev3.net. A printed copy of each committee charter is also available to any stockholder upon request to our Corporate Secretary at ev3 Inc., 9600 54th Avenue North, Plymouth, MN 55442 or by telephone at (763) 398-7000.

 

The following table summarizes the current membership of each of our three board committees. Each of the members of the audit committee, compensation committee and nominating, corporate governance and compliance committee is an “independent director” under the Marketplace Rules of the NASDAQ Stock Market.

 

Audit Committee

 

Responsibilities.  Our audit committee oversees a broad range of issues surrounding our accounting and financial reporting processes and audits of our financial statements. Our audit committee:

 

 

The audit committee reviews and evaluates, at least annually, the performance of the audit committee and its members, including compliance of the audit committee with its charter.

 

Composition.  The current members of our audit committee are Messrs. Bakewell, Child and Emmitt. Mr. Bakewell is the chair of our audit committee. Prior to Mr. Child’s election as a director and as a member of our audit committee in October 2007, Mr. Levangie served as a member of our audit committee.

 

Each current member of our audit committee qualifies as “independent” for purposes of membership on audit committees pursuant to the Marketplace Rules of the NASDAQ Stock Market and the rules and regulations of the SEC and is “financially literate” as required by the Marketplace Rules of the NASDAQ Stock Market. In addition, our board of directors has determined that Mr. Bakewell qualifies as an “audit committee financial expert” as defined by the rules and regulations of the SEC and meets the qualifications of “financial sophistication” under the Marketplace Rules of the NASDAQ Stock Market as a result of his experience as a chief financial officer of several public companies. Other members of our audit committee who have served as chief executive officers or chief financial officers of public companies or have similar experience or understanding with respect to certain accounting and auditing matters may also be considered audit committee financial experts. These designations related to our audit committee members’ experience and understanding with respect to certain accounting and auditing matters are disclosure requirements of the SEC and the NASDAQ Stock Market and do not impose upon any of them any duties, obligations or liabilities that are greater than those generally imposed on a member of our audit committee or of our board of directors.

 

Meetings and Other Information.  The audit committee met 18 times during 2007. At four of these meetings, the audit committee met in private session with our independent registered public accounting firm. Additional information regarding our audit committee and our independent registered public accounting firm is disclosed under the “— Audit Committee Report” and “Proposal Two — Ratification of Selection of Independent Registered Public Accounting Firm” sections of this proxy statement.

Audit Committee Report

 

This report is furnished by the audit committee of our board of directors with respect to our financial statements for the year ended December 31, 2007.

 

One of the purposes of our audit committee is to oversee our accounting and financial reporting processes and the audit of our annual financial statements. Our management is responsible for the preparation and presentation of complete and accurate financial statements. Our independent registered public accounting firm, Ernst & Young LLP, is responsible for performing an independent audit of our financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States) and for issuing a report on their audit.

 

In performing its oversight role, our audit committee has reviewed and discussed our audited financial statements for the fiscal year ended December 31, 2007 with our management. Management represented to the audit committee that our consolidated financial statements were prepared in accordance with generally accepted accounting principles. Our audit committee has discussed with Ernst & Young LLP, our independent registered public accounting firm, the matters required to be discussed by Statement on Auditing Standards No. 61, Communication with Audit Committees (Codification of Statements on Auditing Standards, AU 380), as in effect for our fiscal year ended December 31, 2007. Our audit committee has received the written disclosures and the letter from Ernst & Young LLP required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees), as in effect for our fiscal year ended December 31, 2007. The audit committee has discussed with Ernst & Young LLP its independence and concluded that the independent registered public accounting firm is independent from our company and our management.

 

Based on the review and discussions of the audit committee described above, in reliance on the unqualified opinion of Ernst & Young LLP regarding our audited financial statements, and subject to the limitations on the role and responsibilities of the audit committee described above and in the audit committee’s charter, the audit committee recommended to our board of directors that our audited financial statements for

the fiscal year ended December 31, 2007 be included in our annual report on Form 10-K for the year ended December 31, 2007 for filing with the Securities and Exchange Commission.

 

This report is dated as of March 12, 2008.

 

Audit Committee

 

John K. Bakewell, Chair

Jeffrey B. Child

Richard B. Emmitt

Compensation Committee

 

Responsibilities.  Our compensation committee discharges our board’s responsibilities relating to compensation of our directors, officers and certain other executives and our overall compensation and benefits structure. Our compensation committee:

 

 

The compensation committee reviews and evaluates, at least annually, the performance of the compensation committee and its members, including compliance of the compensation committee with its charter.

 

Composition.  The current members of our compensation committee are Mr. Emmitt, Mr. Levangie and Ms. Potter. Mr. Levangie is the chair of our compensation committee. Each of the three current members of our compensation committee is an “independent director” under the Marketplace Rules of the NASDAQ Stock Market, a “non-employee director” within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended, and an “outside director” within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended. Prior to the completion of our merger with FoxHollow in October 2007, Mr. Kohrs, a former director, and Ms. Weatherman served as members of our compensation committee. Neither Mr. Kohrs nor Ms. Weatherman were determined “independent directors” under the Marketplace Rules of the NASDAQ Stock Market. Prior to the completion of our merger with FoxHollow in October 2007, we were considered a “controlled company” under the Marketplace Rules of the NASDAQ Stock Market and thus were permitted and elected to opt out of the NASDAQ requirements that otherwise would have required our compensation committee to have been comprised entirely of independent directors.

 

Processes and Procedures for Consideration and Determination of Executive Compensation.  As described in more detail above under the heading “— Responsibilities,” our board has delegated to our compensation committee the responsibility, among other things, to approve any and all compensation payable

to our executive officers, including annual salaries, incentive compensation, long-term incentive compensation and any special or supplemental benefits or perquisites, and to administer our equity and incentive compensation plans applicable to our executive officers. Our board has retained, however, the authority to approve the adoption of and any amendment to our compensation plans for all directors and executive officers, including incentive compensation plans and equity-based plans. Prior to the completion of our merger with FoxHollow, our compensation committee only had the authority under its written charter to make recommendations to our board of directors with respect to compensation to be paid to our executive officers. Therefore, with respect to most of the compensation awarded to, earned by or paid to our executive officers during 2007, decisions determining the form and amount of such compensation were in most cases recommended by the compensation committee and approved by the entire board of directors.

 

Under the terms of its written charter, the compensation committee has the power and authority, to the extent permitted by our bylaws and applicable law, to delegate all or a portion of its duties and responsibilities to a subcommittee of the compensation committee; provided, that any actions taken pursuant to any such delegation are reported to the compensation committee at its next meeting. During 2007, the compensation committee delegated its duties and responsibilities under the ev3 Inc. Executive Performance Incentive Plan to determine the first three quarterly bonus payouts to our executive officers based on the payout formula previously approved by the compensation committee and the board of directors to the former chair of our compensation committee, Douglas W. Kohrs. The quarterly bonus payout for fourth quarter 2007 was determined by our entire compensation committee. The compensation committee did not delegate any other duties and responsibilities to the chair, a subcommittee or any other members of the compensation committee during 2007.

 

With respect to the gathering of compensation related data regarding our executive officers and the making of recommendations to the compensation committee regarding the form and amount of compensation to be paid to each executive officer, our President and Chief Executive Officer, with the assistance of our Senior Vice President, Human Resources, assists the compensation committee in this regard. In making final decisions regarding compensation to be paid to our executive officers, the compensation committee considers the recommendations of our President and Chief Executive Officer, but also considers other factors, such as its own views as to the form and amount of compensation to be paid, the input of compensation consultants, the achievement by the company of pre-established performance objectives and the achievement by the individual officers of pre-established individual goals, the general performance of the company and the individual officers, the performance of the company’s stock price and other factors that may be relevant.

 

Historically, our senior management has engaged a compensation consultant on behalf of our company to gather competitive executive compensation data to assist the compensation committee in determining executive compensation. However, in late 2006, our compensation committee rather than our management engaged a compensation consultant, Mercer (US) Inc., to provide information, analyses and advice regarding executive compensation. The Mercer consultant who performed these services reported directly to the chair of the compensation committee. Our company also retains Mercer and its related entities to perform other services.

 

The compensation committee established procedures that it considered adequate to ensure that Mercer’s advice to the compensation committee remained objective and was not influenced by our management. These procedures included: a direct reporting relationship of the Mercer consultant to the compensation committee including a summary of the work performed for our company during the preceding 12 months; and written assurances from Mercer that, within the Mercer organization, the Mercer consultant who performed services for our company had a reporting relationship and compensation determined separately from Mercer’s other lines of business and from its other work for our company.

 

All of the recommendations and decisions by our compensation committee and board of directors with respect to determining the amount or form of executive compensation under our executive compensation program were made by the compensation committee and board of directors, as the case may be, alone and may reflect factors and considerations other than the information and advice provided by Mercer.

 

In addition, final deliberations and decisions by our compensation committee or our board of directors regarding the form and amount of compensation to be paid to our executive officers, including our former

Chairman, President and Chief Executive Officer, for 2007 performance were made by the compensation committee or the board, as the case may be, without the presence of our former Chairman, President and Chief Executive Officer or any other executive officer of our company.

 

Processes and Procedures for Consideration and Determination of Director Compensation.  As described in more detail above under the heading “— Responsibilities,” our board of directors has delegated to our compensation committee the responsibility, among other things, to review and make recommendations to our board concerning compensation for non-employee members of our board, including retainers, meeting fees, committee fees, committee chair fees, equity compensation, benefits and perquisites. Decisions regarding director compensation made by our compensation committee are not considered final and are subject to final review and approval by our entire board. Under the terms of its written charter, the compensation committee has the power and authority, to the extent permitted by our bylaws and applicable law, to delegate all or a portion of its duties and responsibilities to a subcommittee of the compensation committee; provided, that any actions taken pursuant to any such delegation are reported to the compensation committee at its next meeting. The compensation committee has not generally delegated any of its duties and responsibilities regarding director compensation to subcommittees, the chair or any other members of the compensation committee, but rather has taken such actions as a committee, as a whole.

 

Our Senior Vice President, Human Resources assists the compensation committee in gathering compensation related data regarding director compensation. In making final recommendations to the board regarding compensation to be paid to our non-employee directors, the compensation committee considers general market information regarding director compensation and other factors that may be relevant.

 

In December 2007, our compensation committee engaged Mercer to provide information, analyses and advice regarding director compensation. The Mercer consultant who performed these services reported directly to the chair of the compensation committee. Our company also retains Mercer and its related entities to perform other services.

 

All of the recommendations and decisions by our compensation committee and board of directors with respect to determining the amount or form of compensation under our director compensation program were made by the compensation committee and board of directors, as the case may be, alone and may reflect factors and considerations other than the information and advice provided by Mercer.

 

In addition, in making final decisions regarding compensation to be paid to our non-employee directors, the board gives considerable weight to the recommendations of our compensation committee.

 

Meetings and Other Information.  Our compensation committee met four times and took action by written consent once during 2007. Additional information regarding our compensation committee is disclosed under the “Executive Compensation — Compensation Committee Report” and “Compensation Discussion and Analysis” sections of this proxy statement.

Nominating, Corporate Governance and Compliance Committee

 

Responsibilities.  Our board of directors established our nominating and corporate governance committee in October 2007 upon completion of our merger with FoxHollow to provide assistance to our board in fulfilling its responsibilities relating to the nomination of directors and overseeing corporate governance processes of our company. In February 2008, we transferred from our audit committee to our nominating and corporate governance committee the responsibility for overseeing our compliance efforts with respect to legal and regulatory requirements and relevant company policies and procedures, including our Code of Business Conduct, Code of Ethics for Senior Executive and Financial Officers and Corporate Compliance Program, other than with respect to matters relating to our financial statements and financial reporting obligations and any accounting, internal accounting controls or auditing matters, which remain within the purview of our audit committee. At that time, we changed the name of the committee to the nominating, corporate governance and compliance committee to reflect this additional responsibility of the committee.

In addition to overseeing our compliance efforts with respect to legal and regulatory requirements, our nominating, corporate governance and compliance committee:

 

 

The nominating, corporate governance and compliance committee reviews and evaluates, at least annually, the performance of the nominating, corporate governance and compliance committee and its members, including compliance of the nominating, corporate governance and compliance committee with its charter.

 

Composition.  The current members of our nominating, corporate governance and compliance committee are Mr. Levangie, Ms. Potter and Mr. Timbie. Mr. Timbie is the chair of our nominating, corporate governance and compliance committee. Each of the three members of our nominating, corporate governance and compliance committee is an “independent director” under the Marketplace Rules of the NASDAQ Stock Market.

 

Processes and Procedures for Selecting Nominees for Our Board of Directors.  In selecting director nominees for recommendation to our board of directors, the nominating, corporate governance and compliance committee first determines whether the incumbent directors whose terms expire at the meeting are qualified to serve, and wish to continue to serve, on the board. Our board believes that our company and stockholders benefit from the continued service of qualified incumbent directors because those directors have familiarity with and insight into our corporate affairs that they have accumulated during their tenure with the company. Appropriate continuity of board membership also contributes to our board’s ability to work as a collective body. Accordingly, it is the general practice of the nominating, corporate governance and compliance committee to recommend to our board and our board to re-nominate an incumbent director whose term expires at the upcoming annual meeting of stockholders if the director wishes to continue his or her service with our board, the director continues to satisfy our board’s criteria for membership on the board, the nominating, corporate governance and compliance committee believes the director continues to make important contributions to the board, and there are no special, countervailing considerations against re-nomination of the director.

 

In identifying and evaluating new candidates for election to our board, the nominating, corporate governance and compliance committee first solicits recommendations for nominees from persons whom the committee believes are likely to be familiar with candidates having the qualifications, skills and characteristics required for board nominees from time to time. Such persons may include members of our board and our senior management. Each of Mr. Levangie, who joined our board of directors in February 2007, and Mr. Palmisano, who joined our board of directors in April 2008, were recommended as director nominees by one of our current directors. In addition, the nominating, corporate governance and compliance committee may engage a search firm to assist it in identifying and evaluating qualified candidates.

 

The nominating, corporate governance and compliance committee reviews and evaluates each candidate whom it believes merits serious consideration, taking into account available information concerning the candidate, any qualifications or criteria for board membership established by the nominating, corporate governance and compliance committee, the existing composition of the board, and other factors that it deems relevant. In conducting its review and evaluation, the nominating, corporate governance and compliance committee may solicit the views of our management, our board members, and any other individuals it believes may have insight into a candidate. The nominating, corporate governance and compliance committee may designate one or more of its members and/or other board members to interview any proposed candidate.

 

The nominating, corporate governance and compliance committee will consider recommendations for the nomination of directors submitted by our stockholders. For more information, see the information set forth

under the heading “Other Matters — Director Nominations for 2009 Annual Meeting.” The nominating, corporate governance and compliance committee will evaluate candidates recommended by stockholders in the same manner as those recommended as stated above.

 

There are no formal requirements or minimum qualifications that a candidate must meet in order for our nominating, corporate governance and compliance committee to recommend the candidate to the board. The nominating, corporate governance and compliance committee believes that each nominee should be evaluated based on his or her merits as an individual, taking into account the needs of our company and the board. However, in evaluating candidates, there are a number of criteria that the nominating, corporate governance and compliance committee generally view as relevant and are likely to consider. Some of these factors include:

 

 

Meetings.  Our nominating, corporate governance and compliance committee met twice during 2007.

Code of Conduct and Ethics

 

Our Code of Business Conduct applies to all of our employees, officers and directors, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, and meets the requirements of the SEC. We also have a Code of Ethics for Senior Executive and Financial Officers that applies to our Chief Executive Officer, Chief Financial Officer, Presidents, and any other senior executive or financial officers performing similar functions and so designated from time to time by the Chief Executive Officer. A copy of our Code of Business Conduct and Code of Ethics for Senior Executive and Financial Officers is available on the Investor Relations — Corporate Governance section of our corporate website at www.ev3.net. If we amend or grant any waiver from a provision of our Code of Business Conduct or Code of Ethics for Senior Executive and Financial Officers, which we do not anticipate doing, we will post the amendments or waivers on the Investor Relations — Corporate Governance section of our corporate website at www.ev3.net.

Policy Regarding Director Attendance at Annual Meetings of Stockholders

 

It is the policy of our board of directors that directors standing for re-election should attend our annual meeting of stockholders, if their schedules permit. Two of our eight then current directors attended our annual meeting of stockholders in May 2007.

Process Regarding Stockholder Communications with Board of Directors

 

Stockholders may communicate with our board of directors or any one particular director by sending correspondence, addressed to our Corporate Secretary, ev3 Inc., 9600 54th Avenue North, Plymouth, MN 55442, with an instruction to forward the communication to our board or one or more particular directors. Our Corporate Secretary will promptly forward all such stockholder communications to our board or the one or more particular directors, with the exception of any advertisements, solicitations for periodical or other subscriptions and other similar communications.

 

 

Summary of Cash and Other Compensation

 

The following table provides summary information concerning the compensation of each individual who served as a director of our company during the year ended December 31, 2007, other than James M. Corbett, our former Chairman, President and Chief Executive Officer, whose compensation is set forth under the heading “Executive Compensation.”

 

DIRECTOR COMPENSATION — 2007

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Overview

 

Compensation for our directors is designed to attract and retain experienced and knowledgeable directors and to provide equity-based compensation in order to align the interests of our directors with those of our stockholders. We currently use a combination of cash and long-term equity-based incentive compensation, in the form of initial and annual stock option grants, to attract and retain qualified candidates to serve on our board of directors. In setting director compensation, we follow the process and procedures described under the heading “Corporate Governance — Compensation Committee — Processes and Procedures for the Determination of Director Compensation.”

 

Our compensation for our “outside” directors for 2007 was comprised of both cash compensation, in the form of annual board and committee chair retainers, and equity compensation, in the form of initial and annual stock option grants. Each of these components is described in more detail below. Our outside directors are our directors who are not our employees or consultants or employees of Merck & Co., Inc. Our current outside directors include John K. Bakewell, Jeffrey B. Child, Richard B. Emmitt, Daniel J. Levangie, Myrtle S. Potter, Thomas E. Timbie and Elizabeth H. Weatherman and exclude Robert J. Palmisano and Richard N. Kender. Douglas W. Kohrs served as an outside director until his resignation on October 4, 2007. Neither Dale A. Spencer, John B. Simpson, Ph.D., M.D., nor James M. Corbett served as an outside director prior to his resignation as a director. Directors who are not outside directors do not receive any additional compensation for their director service.

Cash Compensation

 

We pay each of our outside directors an annual cash retainer of $24,000, paid on a quarterly basis. In addition, we pay the chair of our audit committee an additional annual retainer of $20,000, the chair of our compensation committee an additional annual retainer of $10,000 and the chair of our nominating, corporate governance and compliance committee an additional annual retainer of $10,000, paid on a quarterly basis. The chair of our audit committee is currently Mr. Bakewell, the chair of our compensation committee is currently Mr. Levangie and the chair of our nominating, corporate governance and compliance committee is currently Mr. Timbie. We do not pay our outside directors separate fees for attending board and committee meetings.

 

We do not pay any compensation to our other directors who are not outside directors for serving on our board of directors or any of our board committees. We do, however, reimburse each member of our board of directors, including directors who are not outside directors, for out-of-pocket expenses incurred in connection with attending our board and committee meetings.

 

While Dr. Simpson did not receive any separate cash compensation in 2007 for serving on our board of directors during 2007, we paid Dr. Simpson $100,000 in base salary and $155,600 in incentive cash compensation and $333 in contributions under our 401(k) plan during 2007 since the date of our merger with FoxHollow.

Equity-Based Compensation

 

A substantial portion of our director compensation is linked to our common stock performance. Under our current policy regarding equity-based compensation for directors, which became effective upon the completion of our merger with FoxHollow in October 2007, we grant options to purchase shares of our common stock to our outside directors effective as of the date of the director’s first appointment or election to the board and on an annual basis thereafter. Each outside director receives an initial grant of an option, effective as of the date of the director’s first appointment or election to the board, to purchase 20,000 shares of our common stock. On an annual basis, each outside director receives an option, effective as of the date of our annual meeting of stockholders, to purchase 20,000 shares of our common stock. All of these initial and annual options have a term of 10 years and vest immediately with respect to 25% of the shares purchasable thereunder and vest with respect to the remaining 75% annually over the next three years. Under our policy regarding equity-based compensation for directors in effect during 2007 prior to the completion of our merger with FoxHollow, each outside director received an initial grant of an option, effective as of the date of the director’s first appointment or election to the board, to purchase no less than 30,000, but no more than 50,000 shares of our common stock, with the exact number determined by our board at the time of the director’s first appointment or election to the board.

 

While Dr. Simpson did not receive any separate equity-based compensation for serving on our board of directors during 2007, we granted Dr. Simpson a restricted stock grant for 16,447 shares of our common stock and an option to purchase 37,500 shares of our common stock at an exercise price of $16.64 on October 4, 2007.

 

We refer you to footnote 2 to the Director Compensation table above for a summary of all grants of options to purchase shares of our common stock to our directors, excluding Mr. Corbett, during the fiscal year ended December 31, 2007. We refer you to footnote 3 to the Director Compensation table above for a summary of all options to purchase shares of our common stock held by our directors, excluding Mr. Corbett, as of December 31, 2007. Information regarding stock option grants to Mr. Corbett during the fiscal year ended December 31, 2007 is set forth under the heading “Executive Compensation — Grants of Plan-Based Awards” and information regarding all stock options held by Mr. Corbett as of December 31, 2007 is set forth under the heading “Executive Compensation — Outstanding Equity Awards at Fiscal Year End.”

Proposed Changes to Outside Director Compensation

 

In December 2007, our compensation committee engaged an independent consultant, Mercer, to review our outside director compensation. In so doing, Mercer also analyzed the outside director compensation levels

and practices of our peer companies. Mercer used the same 19 peer companies as was used to gather competitive compensation information for our executive officers in August 2007:

 

 

According to Mercer’s findings, our total direct compensation for our outside directors is slightly above the median of our peer companies, although our average total direct compensation per director is below the market median of our peer companies. Of the total direct compensation, we provide 83% in the form of equity, which is more than a majority of our peers. The median pay mix is 72% in the form of equity. The value of our equity compensation is near the 75th percentile of our peer companies. Our total cash compensation is below the 25th percentile of our peer companies. Our annual cash retainer for board service is between the 25th percentile and median of our peer companies. Although our annual committee chair retainers are above the 75th percentile of our peer companies, unlike most of our peer companies, we do not pay annual committee member retainers or committee meeting fees, which bring our total cash compensation to below the 25th percentile of our peer companies.

 

Our compensation committee intends to recommend to our board of directors a few changes to our outside director compensation. It is expected that our board of directors will consider the proposed changes at its next regular board meeting, which is expected to take place at the end of April 2008. The changes recommended by our compensation committee are to:

 

Treatment of Stock Options Held by Former Directors

 

In August 2007, our board of directors, upon recommendation of our compensation committee, approved amendments to all outstanding options to purchase shares of our common stock held by two of our directors that resigned from our board effective as of the effective time of our merger with FoxHollow — Douglas W. Kohrs and Dale A. Spencer. The amendments accelerated the vesting of such options to the extent such options had not previously vested as of the effective time of the merger and extended the term in which such options may be exercised by the former directors to one year from the termination of their service on our board in the event such options by their terms would have expired prior to such time.

Consulting and Change in Control Agreements with Former Director Dale A. Spencer

 

We are party to a consulting agreement with Dale A. Spencer, a former director who resigned as one of our directors upon completion of our merger with FoxHollow in October 2007. Pursuant to the agreement, we have agreed to pay Mr. Spencer an independent consulting fee of $23,750 per month, which fee is reduced by any cash fees paid to Mr. Spencer by any entities affiliated with us. In addition, we pay Mr. Spencer an

additional $2,000 per month to defray the costs of his insurance and disability coverage benefits. In 2007, we paid Mr. Spencer $309,000 in the aggregate.

 

The term of the consulting agreement with Mr. Spencer automatically renews for an additional one-year period on July 1 of each year, unless either party gives notice to the other party at least 30 days prior to the July 1 renewal date of the party’s desire not to extend the term of the agreement. The agreement will be terminated prior to the end of any renewal term in the event of Mr. Spencer’s death or disability and may be terminated by Mr. Spencer at any time and for any reason upon 30 days prior written notice and may be terminated by us at any time and for any reason upon written notice. If we terminate the agreement without “cause,” we must continue to pay Mr. Spencer his consulting fees for the remainder of the then current term. “Cause” is defined under the agreement to mean (1) any act of personal dishonesty taken by Mr. Spencer in connection with his responsibilities as a consultant and intended to result in substantial personal enrichment; (2) the conviction of a felony by Mr. Spencer; (3) gross misconduct by Mr. Spencer which is injurious to our company and (4) continued violations by Mr. Spencer of his obligations under the consulting agreement after prior written notice of such violations.

 

Under the agreement, we have agreed to indemnify Mr. Spencer to the fullest extent permitted by the Delaware General Corporation Law, for any liabilities, costs or expenses arising out of his association with our company, except to the extent that such liabilities, costs or expenses arise under or are related to his gross negligence or willful misconduct. The agreement also contains non-competition and non-solicitation covenants which restrict Mr. Spencer’s activities during the term of the agreement, as well as confidentiality provisions.

 

We have also entered into a change in control letter agreement with Mr. Spencer, which provides that in the event of a “change in control” of our company, all of Mr. Spencer’s then unvested, non-statutory stock options or other stock awards granted to him under our stock incentive plans as of the date of the change in control will be accelerated and become fully vested and immediately exercisable. The change in control agreement also provides that, in addition to any other indemnification obligations that we may have, if, following a change in control of our company, Mr. Spencer incurs damages, costs or expenses (including, without limitation, judgments, fines and reasonable attorneys’ fees) as a result of his service to our company or status as an independent consultant of our company, we will indemnify him to the fullest extent permitted by law, except to the extent that such damages, costs or expenses arose as a result of his gross negligence or willful misconduct. The change in control agreement will continue in effect so long as Mr. Spencer remains as either a consultant or a director of our company or, if later, until our obligations to him arising under the agreement have been satisfied in full. The term “change in control” for purposes of Mr. Spencer’s agreement has the same meaning as in the change in control agreements with our other executive officers, which are described under the heading “Executive Compensation — Potential Payments Upon Termination or a Change in Control” in this proxy statement. If a change in control of our company occurred on December 31, 2007, the automatic acceleration of Mr. Spencer’s stock options would have no value since all of his stock options were fully vested as of such date.

Change in Control Agreement with Former Director John B. Simpson, Ph.D., M.D.

 

In connection with our merger with FoxHollow, we assumed FoxHollow’s obligations under the change in control agreements with FoxHollow’s former executive officers, including Dr. Simpson, and expressly agreed to perform FoxHollow’s obligations under the change in control agreements in the same manner and to the same extent as FoxHollow would have been required to perform such obligations. Under Dr. Simpson’s agreement, upon a change in control of FoxHollow, which included the merger between FoxHollow and ev3’s subsidiary, 50% of Dr. Simpson’s unvested shares underlying the stock options then held by him became fully vested and exercisable. The shares underlying options held by Dr. Simpson that remained subject to vesting at that time were to vest fully over the 12 months following the change in control. In addition, our right to repurchase any shares previously purchased by Dr. Simpson were to lapse over 12 months following the change in control, so long as he continued to be employed by us or any successor entity, at a rate of one-twelfth of the shares subject to vesting or to our right to repurchase per month.

Under the change in control agreement, if Dr. Simpson was terminated without cause within 12 months of the change in control, he would have been eligible, in most circumstances, for a severance package under which: (i) all options held by Dr. Simpson would become fully vested and any right we may have to repurchase any shares held by Dr. Simpson would lapse, (ii) he would be paid an amount equal to his base salary for 12 months, and (iii) certain health coverage and benefits for Dr. Simpson would be reimbursed for up to six months.

 

Dr. Simpson voluntarily resigned as an employee and director of our company on February 7, 2008 and agreed to waive any severance benefits under his change in control agreement with FoxHollow or any further vesting on his stock options or restricted stock awards after such date.

 

We were also party to an airplane time-sharing agreement and a reimbursement agreement with an entity affiliated with Dr. Simpson. These agreements are described under the heading “Related Person Relationships and Transactions — Airplane Time-Sharing and Reimbursement Agreements.”

Indemnification Agreements

 

We have entered into agreements with all of our directors under which we are required to indemnify them against expenses, judgments, penalties, fines, settlements and other amounts actually and reasonably incurred, including expenses of a derivative action, in connection with an actual or threatened proceeding if any of them may be made a party because he or she is or was one of our directors. We will be obligated to pay these amounts only if the director acted in good faith and in a manner that he or she reasonably believed to be in or not opposed to our best interests. With respect to any criminal proceeding, we will be obligated to pay these amounts only if the director had no reasonable cause to believe his or her conduct was unlawful. The indemnification agreements also set forth procedures that will apply in the event of a claim for indemnification.

COMPENSATION DISCUSSION AND ANALYSIS

 

 

This Compensation Discussion and Analysis describes the material elements of the compensation awarded to, earned by or paid to our former Chairman, President and Chief Executive Officer, our current Senior Vice President and Chief Financial Officer and our other executive officers included in the Summary Compensation Table under the heading “Executive Compensation — Summary of Cash and Other Compensation” found elsewhere in this proxy statement. These individuals are referred to in this proxy statement as our “named executive officers.” The discussion below focuses on the information contained in the tables and related footnotes and narrative primarily for 2007 under the heading “Executive Compensation” found elsewhere in this proxy statement, but also describes compensation actions taken during 2006 and 2008 to the extent it enhances the understanding of our executive compensation disclosure for 2007.

Executive Summary

 

ev3 has designed its executive compensation program to attract, motivate, retain and reward its executives and to create value for its stockholders. Our executive compensation program includes four principal elements: base salary; short-term cash incentive compensation; long-term equity-based incentive compensation; and executive benefits and perquisites. We try to establish competitive base salaries and overall target compensation for our executive officers at the 50^th to 75^th percentile of companies in our peer group. More importantly, we have designed our compensation program so that a significant portion of each executive’s compensation is performance based, with a short-term cash incentive component based primarily on corporate performance and a long-term equity component (stock options and/or restricted stock) based on increases in the price of our common stock.

 

For the short-term cash incentive portion of our compensation program, payable on a quarterly basis, we set corporate financial performance goals intended to align the interests of our management and stockholders. As our business has grown and the metrics by which stockholders and analysts measure us have changed over

the last two years, we have modified our corporate financial performance goals. For 2007, the primary corporate financial performance goal for the first three quarters was a net sales target, with payouts for each quarter being increased or decreased based on gross margins and controllable operating expenses for the quarter. The payout for the fourth quarter was also determined by whether we achieved certain working capital management goals for the year and achieved an annual target for EBITDA, excluding stock-based compensation. At the beginning of 2007, our business had not yet begun to generate net income (although we had for the first time in the fourth quarter of 2006 generated positive EBITDA, excluding stock-based compensation) and we believed that the 2007 performance goals used in our cash incentive plan were consistent with the financial criteria then being used by analysts and investors to value our common stock.

 

Our merger with FoxHollow, announced in July 2007 and completed in October 2007, was a significant development that, among other things, led us to review our executive compensation program and make several changes that affected the program for 2007 and 2008. As a result of the FoxHollow transaction, our net sales were expected to significantly increase. As a consequence of expected revenue synergies and cost savings resulting from the merger, we began to develop an operating plan for 2008 involving a substantial increase in sales and the generation of positive pre-tax income.

 

In connection with the FoxHollow transaction, our board of directors took several actions. In August 2007, our board, upon recommendation of our compensation committee, approved increases in the base salaries of our named executive officers to more closely match a peer group of companies. The board at that time also amended the terms of our short-term cash incentive plan for 2007 by adding a formal divisional performance element for Ms. Enxing Seng and Messrs. Jenusaitis and Girin and changing the thresholds used in the plan to determine the incentive pool funding levels for the third and fourth quarters to better balance the reward for the over-performance of goals and the penalty for under-performance (without affecting the overall plan targets). Upon completion of the FoxHollow merger in October 2007, our compensation committee amended our cash incentive plan to update the fourth quarter corporate performance goals to reflect the operations of the newly-combined company. In addition, effective upon completion of the FoxHollow merger in October 2007, our board of directors approved annual performance recognition grants under our equity incentive plan intended to relate to 2008, in lieu of the grants that normally would have been made in January 2008. Finally, in December 2007, our board of directors established corporate financial goals under our cash incentive plan for 2008 based on revenue, pre-tax income and cash flow, intended to align management’s interests with the interests of our stockholders in our newly combined business.

Objectives and Philosophy

 

Our executive compensation program is designed to:

 

 

In order to achieve these objectives, our compensation committee and board make compensation decisions based on the following philosophy and principles:

 

 

Setting Executive Compensation

 

Based on the objectives of our executive compensation program, our compensation committee and board of directors have structured our annual and long-term incentive-based cash and non-cash executive compensation to motivate our executives to achieve the business goals established by the board and reward our executives for achieving these goals.

 

Compensation Committee Role and Input from Management

 

The primary task of our compensation committee in connection with the compensation of our executive officers is to approve the compensation payable to our executive officers and to administer our equity and incentive compensation plans applicable to our executive officers. Prior to the completion of our merger with FoxHollow, our compensation committee only had the authority under its charter to make recommendations to our board of directors with respect to compensation to be paid to our executive officers. Therefore, with respect to most of the compensation awarded to, earned by or paid to our executive officers during 2007, decisions determining the form and amount of such compensation were in most cases recommended by our compensation committee and approved by the entire board of directors. Following the completion of the FoxHollow merger in October 2007, our compensation committee was reconstituted to consist solely of members who are “independent directors” under the Marketplace Rules of the Nasdaq Stock Market and our board of directors amended the charter of our compensation committee to give the committee the authority, among other things, to review and approve all compensation for our executive officers and to administer our equity and incentive compensation plans applicable to our executive officers. See “Corporate Governance — Compensation Committee.”

 

Our President and Chief Executive Officer, together with our Senior Vice President, Human Resources, assist our compensation committee in gathering compensation related data regarding our executive officers and regularly attend meetings of our compensation committee. Our President and Chief Executive Officer, with the assistance of Senior Vice President, Human Resources, also makes recommendations to our compensation committee and our board of directors regarding the form and amount of compensation to be paid to each executive officer (other than himself).

 

In making its final decision regarding the form and amount of compensation to be paid to our executive officers, our compensation committee considers the recommendations of our President and Chief Executive Officer, but also considers other factors, such as its own views as to the form and amount of compensation to be paid and, in certain instances, the input of compensation consultants. Final deliberations and decisions by our compensation committee regarding executive officer compensation, including compensation to be paid to our President and Chief Executive Officer, are made by our compensation committee, without the presence of our President and Chief Executive Officer or any other executive officer of our company. As permitted by the charter of our compensation committee, during 2007 our compensation committee delegated its duties and responsibilities under our cash incentive plan to determine the first three quarterly bonus payouts for our named executive officers to the chair of our compensation committee, who was then Mr. Kohrs, although the

final payout decisions were made by our full board. The bonus payouts under the plan for the fourth quarter and for the entire year were made by our compensation committee, as a whole.

 

Annual Compensation Process

 

As a result of the FoxHollow merger, during 2007 the timing of our compensation committee’s decisions concerning executive compensation changed. In most years, our compensation committee, at its annual December meeting, reviews the base compensation for our executive officers, including our named executive officers. Final decisions concerning any salary changes are either made at the December compensation committee meeting or at a compensation committee meeting in January. At the December meeting, our compensation committee also establishes goals for the following year for our cash incentive plan, generally based on and consistent with the annual operating plan adopted by the board at that meeting. At its meeting in early January of each year, our compensation committee determines the individual payout amounts under our cash incentive plan for the prior year, determines any base salary changes and individual annual performance recognition grants under our equity incentive plan. During each year, after the end of each of the first three quarters our compensation committee determines the quarterly payouts under the cash incentive plan for the prior quarter and makes any one-time “special recognition” grants of equity incentives.

 

During 2007, the timing of these decisions by our compensation committee changed. In August 2007, in contemplation of the completion of the transaction with FoxHollow, management recommended to our compensation committee and board of directors that ev3 review its compensation structure. Our compensation committee retained Mercer (US) Inc., the consultant it had used at the end of 2006, to benchmark (against an updated peer group) the compensation of our named executive officers.

 

As a result of this review, in August 2007 our board of directors, upon the recommendation of our compensation committee, approved increases in the base salaries of our executive officers, including our named executive officers, effective immediately and amended the terms of the cash incentive plan for 2007. Effective upon completion of the FoxHollow merger in October 2007, our board of directors awarded annual performance recognition grants under our equity incentive plan for 2008, in lieu of the grants that normally would have been made in January 2008.

 

Compensation Consultants

 

Our compensation committee and our management use the services of compensation consultants from time to time. To assist in this process for 2006 compensation, in late 2005 our compensation committee retained Watson Wyatt Worldwide to benchmark the compensation of our named executive officers and certain other executive officers against the compensation offered by comparable companies. In late 2006, our management engaged Mercer (US) Inc. to benchmark the compensation of our named executive officers against the compensation offered by competitors, and since that time our management and compensation committee have regularly consulted with Mercer. As further discussed below, in August 2007 at the request of our compensation committee, Mercer benchmarked the compensation of our named executive officers in light of the pending FoxHollow merger.

 

Mercer’s engagement with ev3 includes reviewing and advising on all significant aspects of executive and non-employee director compensation. This includes base salaries, bonuses and equity awards for executive officers, and cash compensation and equity awards for non-employee directors. Our management, principally our Senior Vice President, Human Resources, Mr. Morrison, and the chair of our compensation committee, Mr. Levangie, regularly consult with representatives of Mercer, and generally meet with Mercer representatives prior to each compensation committee meeting. Representatives of Mercer from time to time are also invited to attend meetings of our compensation committee.

 

Peer Group Review

 

To determine the appropriate levels of compensation for each element of our executive compensation program, our compensation committee annually reviews the compensation levels of our named executive

officers and other key executives against the compensation levels of comparable positions with companies in the same business, with similar products and operations, and with revenues in a range similar to those of ev3.

 

In connection with its review in late 2006 of our executive compensation program for 2007, our compensation committee did not request its compensation consultant, Mercer, to develop a specific peer group of companies. Instead, Mercer was asked to benchmark the compensation of our then President and Chief Executive Officer, our Chief Financial Officer and our two division presidents, Stacy Enxing Seng and Matthew Jenusaitis, against the compensation packages of executives with similar positions summarized in published survey data for companies with similar revenues in the biotechnology sector (including medical device manufacturers). For each position, Mercer used data collected from Presidio (2006 Biotech industry report), including data from a group of biotech companies, with average revenues of $179 to $181 million, and data from Top Five Data Services (2005 Report on Executive Compensation in the Biotech/Pharma industry), including data from a group of biotech or pharma companies, with average revenues of $200 million (compared with 2006 ev3 net sales of $202.4 million). As part of its analysis, Mercer increased the compensation information in the reported data from 2005 by an annual factor of 4.3% to reflect expected increases from the prior year and the compensation information in the reported data from 2006 by an annual factor of 3.9% to reflect expected salary increases in the biotech/medical devices sector since the end of 2006 and to more accurately reflect pay levels as of October 1, 2006. Mercer also applied a premium of 15% to the reported data for the two division presidents to reflect additional operational responsibilities of these individuals compared with the duties typically associated with the vice presidents included within the data Mercer reviewed.

 

In connection with the review by our compensation committee and board of directors in August 2007 of our executive compensation program in light of the then pending FoxHollow merger, our compensation committee engaged Mercer to benchmark the compensation of our executive officers, including our named executive officers. For purposes of this review, our compensation committee decided to use a peer group of companies rather than broader survey data, as it had for its review in 2006. Our compensation committee believed that use of a peer group provided more relevant comparisons for purposes of benchmarking. At the request of our committee, Mercer created a peer group of 19 companies for its analysis. Companies in the peer group created by Mercer are public companies in the health care equipment and supplies business with products and operations similar to those of ev3, and which have annual revenues generally within the range of one-half to two times ev3’s annual net sales assuming completion of the FoxHollow merger (which annual net sales Mercer assumed would be approximately $600 million). This peer group includes the following companies, which had the following respective net sales or revenues for their most recent fiscal years (each in millions):

 

 

The compensation surveys and peer group data described above were provided to our compensation committee, which used data from these surveys to review and analyze compensation for our named executive officers and make adjustments as appropriate. While our compensation committee recognizes that benchmarking may not always be appropriate as a stand-alone tool for setting compensation due to the aspects of our business and objectives that may be unique to our company, our compensation committee nevertheless believes that gathering this information is an important part of its compensation-related decision-making process.

Executive Compensation Components

 

The principal elements of our executive compensation program for 2007 included:

 

 

In addition, our executive compensation program also includes change in control arrangements.

 

In determining the form of compensation to pay our named executive officers, our compensation committee views these elements of our executive compensation program as related but distinct. Our compensation committee does not believe that significant compensation derived by an executive from one element of our compensation program should necessarily result in a reduction in the amount of compensation the executive receives from other elements. At the same time, our compensation committee does not believe that minimal compensation derived from one element of compensation should necessarily result in an increase in the amount the executive should receive from one or more other elements of compensation.

 

Except as described below, our compensation committee has not adopted any formal or informal policies or guidelines for allocating compensation between long-term and currently paid out compensation, between cash and non-cash compensation, or among different forms of non-cash compensation. However, our compensation committee’s philosophy is to make a greater percentage of an executive’s compensation performance-based, and therefore at risk, as the executive’s position and responsibility increases given the influence more senior level executives generally have on company performance. Thus, individuals with greater roles and responsibilities associated with achieving our company’s objectives should bear a greater proportion of the risk that those goals are not achieved and should receive a greater proportion of the reward if objectives are met or surpassed.

 

Base Salary

 

Generally.  We provide a base salary for our named executive officers, which, unlike some of the other elements of our executive compensation program, is not subject to company or individual performance risk. We recognize the need for most executives to receive at least a portion of their total compensation in the form of a guaranteed base salary that is paid in cash regularly throughout the year to support their standard of living.

 

We initially fix base salaries for our executives at a level we believe enables us to hire and retain them in a competitive environment and to reward satisfactory individual performance and a satisfactory level of contribution to our overall business objectives. We also take into account the base compensation that is payable by companies in our peer group.

 

Salary Increases.  Our compensation committee targets the 50^th to 75^th percentile of the compensation survey data for the base salaries of the named executive officers. Adjustments to the base salary level may be made based on comparisons to the survey data and evaluation of the officer’s level of responsibility and experience as well as company-wide performance. Our compensation committee also considers each named executive officer’s experience and qualifications, individual performance and the impact of such performance on our results. In practice, at any point in time our salaries tend to be closer to the 50^th percentile of the comparative data, because base salaries in compensation surveys tend to increase with company size and as we have experienced rapid growth we have not adjusted base salaries quickly enough to keep up with the our changing comparables.

 

In contemplation of the completion of the FoxHollow merger, in August 2007 our board of directors, upon recommendation of our compensation committee, approved increases in the base salaries of our named executive officers. These increased salaries, which were effective as of August 24, 2007, are shown in the table below under the “2008” heading. In making this decision, our compensation committee and our board of

directors considered compensation information from the peer group of companies compiled by Mercer and the board’s recognition that the scale of ev3’s business had increased dramatically since its review of salaries in late 2006. Based on this review and its determination that base salary increases were necessary to move the base salaries of named executive officers closer to the 50th percentile of the comparative data, our board of directors determined that it was appropriate to make the increased base salaries of the named executive officers effective whether or not the then-pending FoxHollow merger was completed.

 

The following table shows base salaries for the named executive officers for 2006, 2007 (both as of January 1 and for the full year) and 2008 (as of January 1, but in each case effective on August 24, 2007), and the percentage increases between periods:

 

 

 

 

Analysis.  The increases from 2006 to 2007 in the January 1 base salaries for the named executive officers (other than Mr. Girin) each reflected a merit increase of 4% and an additional adjustment intended to bring the base salaries closer to market comparables. The increases in base salaries of the named executive officers effective as of August 24, 2007 were intended to bring the base salaries closer to those for executives in comparable positions with companies in our peer group. After the increases in August 2007, the base salaries for the named executive officers (other than Mr. Girin) were just below the 50th percentile of base salaries reflected in the Mercer peer group data. For Mr. Girin, a portion of the August 2007 increase shown in the table above is the result of changes in the U.S. Dollar/Euro exchange rate. Mr. Girin’s base salary in Euros, the currency in which his salary is determined and paid, increased approximately 10.6% in August 2007 over his base salary at the end of 2006. The increases in Mr. Girin’s base salary between periods was intended to bring his base salary closer to market comparables.

 

Short-Term Cash Incentive Compensation

 

Generally.  Under the terms of the ev3 Inc. Executive Performance Incentive Plan, our named executive officers, as well as other executives of our company, are eligible to earn quarterly cash bonus payments based on our financial performance. This plan is designed to provide a direct financial incentive to our executive officers for achievement of specific performance goals of our company.

 

Each of our named executive officers has a yearly incentive target under the performance incentive plan, expressed as a percentage of his or her base salary. The level of each incentive target is based on the individual’s level of responsibility within the company. Each executive’s bonus payment under the plan for a particular quarter is determined by multiplying the executive’s target bonus amount (the executive’s incentive target times his or her base salary) for the quarter by a payout percentage determined based on the achievement of corporate financial performance goals. The performance of each of our business units is measured separately (U.S. peripheral vascular, U.S. neurovascular and International), and a different percentage can be determined for executives in our various business units. In addition, in some cases, the executive will receive an additional bonus amount based on individual performance, such as the achievement of personal milestones or other personal objectives. Because short-term cash incentive compensation is a significant

component of our compensation program, we have decided to measure the achievement of performance goals and make bonus payouts on a quarterly rather than on an annual basis. For each executive, 20% of the annual target bonus amount is eligible to be paid for each of the first three quarters, while 40% of the annual target bonus amount is eligible to be paid for the fourth quarter:

 

 

The bonus payout percentage for each quarter is primarily based on the achievement of corporate financial performance goals. Before the start of each year, our President and Chief Executive Officer recommends to our compensation committee corporate performance goals for the year, broken down by quarter and on an annual basis, and the bonus payout percentages that will result from the various levels of achievement of these performance goals. Bonus payout percentages under this plan can range from 0% for performance below a minimal level up to more than 100% for superior performance. Bonus payouts at the 100% level generally require corporate performance at the target levels established in our annual operating plan, with payouts at higher levels requiring better than expected corporate performance. Our compensation committee then makes a recommendation to our board of directors concerning the corporate performance goals under the plan and the board then makes the final decision concerning the plan. While these corporate performance goals are generally established before the start of each year, during 2007 the goals were adjusted as a result of the FoxHollow merger, as discussed below.

 

2007 Incentive Targets and Corporate Performance Goals.  The incentive targets of the named executive officers under the executive performance incentive plan for 2007 were as follows: Mr. Corbett (50%); Mr. Spangler (45%); Ms. Enxing Seng (45%); Mr. Girin (45%); and Mr. Jenusaitis (45%). A portion of Mr. Girin’s bonus for 2007 (15%) was guaranteed and was to be paid at the 100% level regardless of corporate performance, which means that his incentive target under the plan for the year was effectively 30%. The purpose of this change for Mr. Girin was to increase the fixed portion of his compensation, making it consistent with the compensation paid to other executives in comparable positions.

 

The primary metric in determining the bonus payout percentages under the plan during 2007 was net sales. For 2007, the quarterly bonus payout percentage was based primarily on the level of net sales for each quarter compared with the quarterly goal established in ev3’s annual operating plan. The table below shows the payout percentages established at the beginning of the year for different quarterly levels of net sales, with the shaded portion showing the actual results for the first two quarters (as discussed below, the payout percentages for the third and fourth quarters and the goals for the fourth quarter were later revised as a result of the FoxHollow merger).

 

 

 

 

The bonus payout percentage for each quarter (which, as shown by the table above, initially could range from 0% to 150%) was then increased or decreased based on ev3’s gross margin as a percent of sales for the quarter and controllable operating expenses as a percent of sales for the quarter, in each case as compared with a target percentage. The tables below show the payout changes as a result of these adjustments. The shaded portion of the table shows the actual results for the first two quarters (as discussed below, the payout

percentages for the third and fourth quarters and the financial goals for the fourth quarter were later revised as a result of the FoxHollow merger).