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ATS MEDICAL, INC.
(Name of Registrant as Specified in its Charter)
-------------------------------------------------
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[LOGO] ATS MEDICAL, INC.
Dear Fellow Shareholder:
You are cordially invited to attend the 2001 Annual Meeting of
Shareholders of ATS Medical, Inc. (the "Company"), which will be held at the
Minneapolis Club, 729 Second Avenue South, Minneapolis, Minnesota (on the corner
of 8th Street and Second Avenue in downtown Minneapolis) beginning at 3:30 p.m.
on Tuesday, May 1, 2001.
This booklet contains your official notice of the 2001 Annual Meeting
and a Proxy Statement that includes information about the matters to be acted
upon at the meeting. Officers and directors of the Company will be on hand to
review the Company's operations and to answer questions and discuss matters that
may properly arise.
I sincerely hope that you will be able to attend our Annual Meeting.
However, whether or not you plan to attend, please complete and return the
enclosed proxy in the accompanying envelope. If you attend the meeting, you may,
if you wish, withdraw any proxy previously given and vote your shares in person.
Sincerely,
/s/ Manuel A. Villafana
Manuel A. Villafana
Chairman of the Board of Directors
and Chief Executive Officer
2001 ANNUAL MEETING OF
SHAREHOLDERS
NOTICE OF 2001 ANNUAL
MEETING OF SHAREHOLDERS
The 2001 Annual Meeting of Shareholders of ATS Medical, Inc. (the
"Company") will be held on Tuesday, May 1, 2001 at 3:30 p.m. at the Minneapolis
Club, 729 Second Avenue South, Minneapolis, Minnesota 55402, for the following
purposes:
1. To elect five members to the Board of Directors to hold office
for the ensuing year and until their successors are elected
and qualified;
2. To ratify the selection of Ernst & Young LLP as independent
auditors of the Company for the year ending December 31, 2001;
and
3. To consider and act upon any other matters that may properly
come before the meeting or any adjournment thereof.
Only holders of record of the common stock of the Company at the close
of business on March 15, 2001 will be entitled to receive notice of and to vote
at the meeting.
Whether or not you plan to attend the meeting in person, you are
requested to complete and return the enclosed proxy in the accompanying
envelope. If you later decide to revoke your proxy, you may do so at any time
before it is exercised.
By Order of the Board of Directors,
/s/ Russell W. Felkey
Russell W. Felkey
Secretary
April 3, 2001
ATS MEDICAL, INC.
PROXY STATEMENT
This proxy statement is furnished in connection with the solicitation
of the enclosed proxy by the Board of Directors of ATS Medical, Inc. (the
"Company") for use at the 2001 Annual Meeting of Shareholders to be held on
Tuesday, May 1, 2001 at 3:30 p.m. at the Minneapolis Club, 729 Second Avenue
South, Minneapolis, Minnesota 55402, and at any adjournments thereof.
Shareholders who sign and return a proxy may revoke it at any time before it is
voted by giving written notice to the Secretary of the Company. This proxy
statement and the enclosed proxy card are being mailed to shareholders
commencing on or about April 3, 2001.
Proxies that are completed, signed and returned to the Company prior to
the Annual Meeting will be voted as specified. If no direction is given, the
proxy will be voted for the election of the nominees for director named in this
proxy statement and for the management proposals discussed herein and in
accordance with the judgment of the persons named in the proxy as to any other
matters that properly come before the meeting. If a shareholder abstains from
voting as to any matter (or indicates a "withhold vote for" as to directors),
then the shares held by such shareholder shall be deemed present at the Annual
Meeting for purposes of determining a quorum and for purposes of calculating the
vote with respect to such matter, but shall not be deemed to have been voted in
favor of such matter. If a broker returns a "non-vote" proxy, indicating a lack
of authority to vote on such matter, then the shares covered by such non-vote
shall be deemed present at the Annual Meeting for purposes of determining a
quorum but shall not be deemed to be represented at the Annual Meeting for
purposes of calculating the vote with respect to such matters.
PROPOSAL 1 - ELECTION OF DIRECTORS
Five directors have been nominated for election to the Company's Board
of Directors at the 2001 Annual Meeting of Shareholders to hold office for a
term of one year and until their successors are duly elected and qualified
(except in the case of earlier death, resignation or removal). The accompanying
proxy is intended to be voted for the election of nominees for director named
below, unless authority to vote for one or more nominees is withheld as
specified on the proxy card. The affirmative vote of a majority of the shares of
common stock of the Company (the "Common Stock") represented at the Annual
Meeting is required for the election of each director, and cumulative voting is
not permitted. In the event that any nominee becomes
unable or unwilling to serve as a director for any reason, the persons named in
the enclosed proxy will vote for a substitute nominee in accordance with their
best judgment. The Board of Directors has no reason to believe that any nominee
will be unable or unwilling to serve as a director if elected.
Each nominee has furnished to the Company the following information
with respect to his principal occupations or employment during the last five
years, his directorships of other companies subject to the reporting
requirements of the Securities Exchange Act of 1934 or the Investment Company
Act of 1940 and his direct and indirect beneficial ownership of shares of the
Company's Common Stock as of February 15, 2001. Except as otherwise noted below,
each nominee possesses sole voting and investment power with respect to any
shares of Common Stock owned by him, and all shares of Common Stock owned by him
represent less than 1% of the shares outstanding.
MANUEL A. VILLAFANA, 60, is a founder of the Company and has served as
Chief Executive Officer, Chairman of the Board and a Director since the
Company's inception in 1987. From 1983 to 1987, Mr. Villafana served as Chairman
of GV Medical, Inc., a company co-founded by Mr. Villafana to develop,
manufacture and market the LASTAC System, a laser transluminal angioplasty
catheter system. From 1976 to 1982, Mr. Villafana served as President and
Chairman of St. Jude Medical, Inc., a company founded by Mr. Villafana to
develop, manufacture and market a pyrolytic carbon bileaflet mechanical heart
valve. From 1972 to 1976, he served as President and Chairman of Cardiac
Pacemakers, Inc., a company founded by Mr. Villafana to develop, manufacture and
market a new generation of lithium powered pacemakers. Mr. Villafana
beneficially owns 743,646 shares of Common Stock (3.4% of the outstanding),
including 119,500 shares issuable upon exercise of currently exercisable
options. Mr. Villafana is also a Director of Vicom, Inc., a company providing a
full range of voice, data and video communication systems.
RICHARD W. KRAMP, 55, has served as President, Chief Operating Officer
and a Director of the Company since joining the Company in 1988. Prior to
joining the Company, Mr. Kramp was Vice President of Sales and Marketing for St.
Jude Medical, Inc., where he served in a variety of sales and marketing
capacities from 1978 to 1988. From 1972 to 1976, Mr. Kramp was the Senior Design
Engineer and then Supervisor of Electrical Design for Cardiac Pacemakers, Inc.,
where he designed the first lithium powered demand pacemaker for which he
received a U.S. patent. Mr. Kramp beneficially owns 440,740 shares of Common
Stock (2.0% of the outstanding), including 49,229 shares issuable upon exercise
of currently exercisable options.
DAVID L. BOEHNEN, 54, is Executive Vice President of SUPERVALU INC.
("SUPERVALU"), a food distribution company and food retailer. Mr. Boehnen served
as Senior Vice President, Law and External Relations of SUPERVALU from April
1991 to June 1997.
2
Mr. Boehnen was elected as a Director of the Company in November of 1997. Mr.
Boehnen beneficially owns 63,000 shares of Common Stock, including 60,000 shares
issuable upon exercise of currently exercisable options.
CHARLES F. CUDDIHY, JR., 74, was Executive Vice President-Corporate
Marketing of Medtronic, Inc., a medical products company, where he was employed
from 1967 through 1984. Mr. Cuddihy served as Managing Director of Trident
Medical International, an international trading company, from May 1991 to April
1992. From January 1989 to October 1990, Mr. Cuddihy was President and Chief
Executive Officer of Cherne Medical, Inc., a cardiovascular products company.
Mr. Cuddihy has served as a Director of the Company since 1991. Mr. Cuddihy
beneficially owns 81,000 shares of Common Stock, including 65,000 shares
issuable upon exercise of currently exercisable options.
A. JAY GRAF, 53, is a Group Chairman of Guidant Corporation, a medical
products company. From 1995 to 2000, Mr. Graf was the Vice President of Guidant
Corporation and President of its Cardiac Rhythm Management group. From 1992 to
1995, Mr. Graf has served as President of CPI. Prior thereto, he served as CPI's
Executive Vice President and Chief Operating Officer. Mr. Graf has served as a
Director of the Company since 1995. Mr. Graf beneficially owns 65,000 shares of
Common Stock, all of which are issuable upon exercise of currently exercisable
options.
COMMITTEES OF THE BOARD OF DIRECTORS AND ATTENDANCE
The Company has an Audit Committee whose functions are to review and
monitor accounting policies and control procedures of the Company, including
recommending the engagement of independent auditors and reviewing the scope of
the audit. The Audit Committee, on which Messrs. Boehnen,Cuddihy and Graf serve,
held two meetings during 2000. The Company also has a Compensation Committee
which reviews and establishes compensation levels for each of the Company's
officers, as well as jointly administers the Company's stock plans with the
Board of Directors. The Compensation Committee, on which Messrs. Cuddihy and
Graf serve, held one formal meeting during 2000. The Company does not have a
standing nominating committee. The Board of Directors held four meetings during
2000. Each Director attended at least 75% of the meetings of the Board and all
meetings of each committee of which he was a member.
3
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Audit Committee of our Board of Directors is composed of the
following non-employee directors: Mr. Boehnen, Mr. Cuddihy and Mr. Graf. Mr.
Boehnen currently serves as the Chairman of the Audit Committee. All of the
members of the Audit Committee are independent for purposes of the Nasdaq
listing requirements. The Audit Committee operates under a written charter
adopted by the Board of Directors, a copy of which is attached to this Proxy
Statement as Exhibit A. The Audit Committee recommends to the Board of
Directors, and submits for shareholder ratification, the appointment of our
independent auditors Ernst & Young LLP.
Management is responsible for the Company's internal controls and the
financial reporting process. Our independent auditors are responsible for
performing an independent audit of our consolidated financial statements in
accordance with generally accepted auditing standards and to issue a report on
our financial statements. The Audit Committee's responsibility is to monitor and
oversee these processes.
In this context, the Audit Committee has met and held discussions with
management and the independent auditors. Management represented to the Audit
Committee that the Company's consolidated financial statements were prepared in
accordance with generally accepted accounting principles, and the Audit
Committee has reviewed and discussed the consolidated financial statements with
management and the independent auditors. The Audit Committee discussed with the
independent auditors matters required to be discussed by Statement on Auditing
Standards No. 61 (Communications with Audit Committees).
Our independent auditors also provided to the Audit Committee the
written disclosure required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees), and the Audit Committee
discussed with the independent auditors the auditing firm's independence. The
Committee also considered whether non-audit services provided by the independent
auditors during the last fiscal year were compatible with maintaining the
independent auditors' independence.
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Based upon the Audit Committee's discussion with management and the
independent auditors and the Audit Committee's review of the representation of
management and the report of the independent auditors to the Audit Committee,
the Audit Committee recommended to the Board of Directors that the audited
consolidated financial statements be included in Company's Annual report on Form
10-K for the fiscal year ended December 31, 2000 filed with the Securities and
Exchange Commission.
Members of the Audit Committee
David L. Boehnen, Chairman
Charles F. Cuddihy, Jr.
A. Jay Graf
COMPENSATION OF DIRECTORS
The Directors of the Company do not receive any cash compensation for
their services on the Board of Directors. Upon their initial election to the
Board of Directors, each outside Director receives an option to purchase 5,000
shares of Common Stock at the fair market value on the date of election under
the 1987 Stock Option and Stock Award Plan (the "Plan"). Upon each reelection,
each outside Director receives an option to purchase 2,500 shares of Common
Stock at the fair market value on the date of reelection under the Plan. On May
4, 2000, each outside Director was granted a fully vested stock option for
50,000 shares at an exercise price of $9.875 per share (the fair market value on
May 4, 2000). Also, on May 4, 2000, each outside Director was granted a stock
option for 50,000 shares with an exercise price of $9.875 per share vesting at a
rate of 25% on each anniversary over the next four years. The outside Directors
received these grants in recognition of their past and continuing contributions
to the Company and to bring their grants to a level commensurate with that of
directors at companies comparable to the Company.
5
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the cash and non-cash compensation for
each of the last three fiscal years awarded to or earned by the Chief Executive
Officer of the Company and the other executive officers of the Company whose
salary and bonus earned in 2000 exceeded $100,000:
LONG-TERM
NAME AND ANNUAL COMPENSATION COMPENSATION
--------------------- SHARES UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS (1) COMPENSATION (2)
- --------------------------- ------ ---------- -------- ------------------- ----------------
Manuel A. Villafana 2000 $ 255,164 $ 12,758 90,000 $ 0
Chief Executive Officer 1999 243,013 25,516 15,000 0
1998 231,441 76,607 0 0
Richard W. Kramp 2000 $ 208,662 $ 10,433 65,000 $ 2,625
Chief Executive Officer 1999 198,726 20,866 15,000 2,500
1998 189,262 58,861 0 2,500
Russell W. Felkey 2000 $ 185,220 $ 9,261 40,000 $ 2,625
Exec. Vice President 1999 176,400 18,522 15,000 2,500
1998 168,000 53,928 0 2,500
John H. Jungbauer 2000 $ 147,001 $ 5,880 40,000 $ 2,625
Chief Financial Officer 1999 140,001 14,700 140,000 2,500
1998 129,938 40,411 0 2,500
Frank R. Santiago 2000 $ 145,532 $ 6,811 40,000 $ 1,827
V.P., Sales and Marketing 1999 138,602 12,474 15,000 2,254
1998 126,280 41,730 20,000 1,793
- ----------------------------
(1) All stock options were granted with an exercise price per share at least
equal to the fair market value of the Common Stock on the date of grant.
(2) Consists of matching contributions to the ATS Medical 401(k) Plan, which is
generally available to all employees.
6
COMPENSATION AGREEMENTS
Mr. Villafana continues to serve as Chairman and Chief Executive
Officer of the Company on a full-time basis through December 31, 2001, pursuant
to an agreement dated January 26, 1995 and extended in April 1998. Under the
agreement, Mr. Villafana may engage in outside consulting activities, provided
he continues to devote substantially his full-time efforts to the Company. Mr.
Villafana's base salary under the agreement is determined by the Compensation
Committee. Mr. Villafana also is eligible to receive bonuses as and when
determined by the Compensation Committee. Mr. Villafana has agreed not to
compete with the Company during the term of the agreement and for a period of
two years following his termination of services to the Company. In exchange, the
Company has agreed to continue Mr. Villafana's monthly salary during the period
of non-competition restriction.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
The following table summarizes option grants made by the Company to
each of its executive officers in 2000.
POTENTIAL REALIZABLE VALUE
NUMBER OF PERCENTAGE OF AT ASSUMED ANNUAL RATES OF
SECURITIES TOTAL OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM (3)
OPTIONS IN EMPLOYEES BASE PRICE EXPIRATION ---------------------------
NAME GRANTED (1) 2000 ($/SH) (2) DATE 5% ($) 10% ($)
- ---- ------------ ------------ ------------ ------------ ----------- -------------
Mr. Villafana 15,000 3% 8.500 2/22/10 80,184 203,202
75,000 13% 9.875 5/04/10 465,775 1,180,366
Mr. Kramp 15,000 3% 8.500 2/22/10 80,184 203,202
50,000 9% 9.875 5/04/10 310,517 786,910
Mr. Felkey 15,000 3% 8.500 2/22/10 80,184 230,202
25,000 4% 9.875 5/04/10 155,258 393,455
Mr. Jungbauer 15,000 3% 8.500 2/22/10 80,184 203,202
25,000 4% 9.875 5/04/10 155,258 393,455
Mr. Santiago 15,000 3% 8.500 2/22/10 80,184 203,202
25,000 4% 9.875 5/04/10 155,258 393,455
- ---------------------------
(1) All the options vest in annual cumulative 25% installments beginning one
year from the date of grant.
(2) All stock options were granted with an exercise price per share at least
equal to the fair market value of the Common Stock on the date of grant.
(3) These amounts represent certain assumed annual rates of appreciation only.
Potential realizable value is calculated assuming 5% and 10% appreciation
in the price of the Common Stock from the date of grant. ACTUAL GAINS, IF
ANY, ON STOCK OPTION EXERCISES ARE DEPENDENT ON THE FUTURE PERFORMANCE OF
THE COMMON STOCK, AND OVERALL STOCK MARKET CONDITIONS. THE AMOUNTS
REFLECTED IN THIS TABLE MAY NOT NECESSARILY BE ACHIEVED.
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STOCK OPTION EXERCISES IN LAST FISCAL YEAR
The following table summarizes stock options exercised during 2000 by
the Chief Executive Officer and the other executive officers named in the
Summary Compensation Table, and the estimated values of the options held by such
persons at December 31, 2000.
NUMBER OF SHARES UNDERLYING VALUE OF UNEXRCISED
SHARES UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
ACQUIRED FISCAL YEAR-END OF 2000 AT FISCAL YEAR END OF 2000 (1)
ON VALUE ------------------------------ ------------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ---------- ---------- ------------- --------------- ------------- ---------------
Mr. Villafana 0 $ 0 114,500 105,000 $ 1,020,266 $ 521,016
Mr. Kramp 0 0 41,729 80,000 272,261 413,203
Mr. Felkey 55,000 853,719 93,000 55,000 793,172 305,391
Mr. Jungbauer 74,250 888,143 196,250 67,500 1,026,812 385,859
Mr. Santiago 32,500 327,637 1,875 68,125 17,109 413,281
- -----------------------------
(1) Value represents the difference between the last sale price of the Common
Stock on December 31, 2000, and the exercise price of the options.
CHANGE IN CONTROL AGREEMENTS
The Company has entered into agreements with its officers providing for the
payment of certain benefits to the officers if their employment terminates
following a "change in control" of the Company. The Agreements provide for
benefits if an officer's employment is terminated within 24 months following a
change in control unless such termination was by the Company for cause, by the
officer other than for "good reason," or because of the officer's death. "Good
reason" is defined as the termination of employment as a result of either a
diminishment in the officer's responsibilities, a reduction in salary or
benefits, a relocation of the Company's office of more than 35 miles or any
reason during the sixth month following a change in control. A "change in
control" is generally defined as an acquisition of more than 20% of the
outstanding Common Stock by any person or group, the merger or sale of the
Company or the replacement of a majority of the Company's Board of Directors
with directors not recommended by the existing Board of Directors. The
Agreements provide for lump sum payments following termination in amounts equal
to three times the sum of the officer's base salary and any annual target bonus
potential, as limited by Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code"). If there had been a change in control of the Company as of
the end of 2000 and the employment of the five executive officers named in the
Summary Compensation
8
Table had been immediately terminated, then Messrs. Villafana, Kramp, Felkey,
Jungbauer and Santiago would have been entitled to receive, pursuant to the
terms of the Agreements, lump sum payments upon termination of $801,730,
$680,864, $595,966, $465,808 and $492,885, respectively.
REPORT OF THE COMPENSATION COMMITTEE
CONCERNING EXECUTIVE COMPENSATION
OVERVIEW
The Compensation Committee is responsible for setting the compensation
and benefits of the Company's executive officers, including the Chief Executive
Officer, on behalf of the Board of Directors and the shareholders. The
Compensation Committee also oversees the operation of the 1998 Employee Stock
Purchase Plan (the "Purchase Plan") and the ATS Medical, Inc. 2000 Stock
Incentive Plan (the "Stock Option Plan").
The Compensation Committee is composed entirely of outside directors of
the Company. During 2000, the Board elected Messrs. Cuddihy and Graf to serve on
the Compensation Committee. Mr. Cuddihy is Chairman of the Committee.
The basic objective of the Compensation Committee is to establish a
compensation package which is appropriate for each officer's scale of
responsibility and performance, commensurate with the marketplace compensation
for executives of companies of similar size as the Company, and to attract,
motivate and retain executives of the necessary caliber. The Committee intends
to achieve these objectives by giving executives the opportunity for equity
ownership in the Company through stock options and by awarding bonuses tied to
individual and Company performance as significant elements of the executive
compensation package.
COMPENSATION CRITERIA
In determining each executive compensation package, the Compensation
Committee reviews the compensation of each executive and the individual
achievements and performance of each such executive during the year. The
Committee considers objective criteria, such as salary survey data of companies
of similar size and technology as the Company, in determining executive
salaries. The financial performance and accomplishments of the Company during
the year are also factors in the Committee's determination of executive
compensation. In line with the Compensation Committee's goal of tying
compensation with performance, executives' salaries are generally increased only
to keep up with estimated cost-of-living expenses, while bonuses vary
substantially from year to year and have generally depended upon the performance
of the Company and the individual executive. The Committee generally makes a
determination as to salaries for the current calendar and reviews bonuses to be
awarded for the prior year at the end of the calendar year or at the beginning
of the following year.
9
In 2000, the Compensation Committee continued to place emphasis on the
performance-based component of the Company's bonus program to the Company's
executive employees by implementing the Management Incentive Compensation Plan
(the "MICP"). In particular, bonuses to be granted to executive employees
pursuant to the MICP were tied to a grid representing year-over-year increases
in sales and operating income. The Compensation Committee and each executive
officer also develop annual individual objectives which would allow for an
additional 1% of salary bonus for each objective completed, for up to a total of
5% salary bonus.
In addition, the Compensation Committee, in consultation with the Chief
Executive Officer, generally grants stock options to its executive officers on
an annual basis to maintain and increase the executives' incentive to continue
their long-term employment with the Company. The Compensation Committee may also
approve special grants to certain executives to reward their individual
performance. The overall compensation package may also be varied if the
Committee feels that it is necessary to maintain the Company's executive
compensation in line with companies similar in size and technology to the
Company.
EXECUTIVE COMPENSATION PACKAGE
The primary components of the executive compensation package are
salary, bonuses and stock option grants. The Company also currently maintains a
variety of employee benefits in which its executive officers may participate,
including health benefits, automobile allowances, disability insurance, matching
contributions to the Company's 401(k) program and discounting the purchase of a
certain number of shares of the Company's Common Stock pursuant to the Stock
Purchase Plan.
The Compensation Committee took the following actions with respect to
executive compensation for 2000:
* Continued the Management Incentive Compensation Plan (MICP) with
specific goals for 2000.
* Each executive officer earned a bonus of 4 to 5% of 2000 salary for
completion of individual objectives.
In 2001, the Committee intends to continue to emphasize objective
factors and performance in determining executive compensation, including
maintaining the compensation of the Company's officers at industry levels, as
reflected in surveys of compensation practices in corporations of comparable
size and technology. In addition, the Committee intends to use growth in the
Company's gross revenue and operating income during 2001 as the primary criteria
for determining the size of bonuses to be paid to executive officers for 2001.
The Committee will use stock options as part of executive compensation in 2001
to provide additional performance incentives.
10
The year 2000 was atypical insofar as the number of stock options
granted to the executive officers and outside members of the Board of Directors.
The Compensation Committee granted the additional options because of 1) full
marketing approval from the FDA, 2) the value of the carbon contract negotiated
with Sulzer-Carbomedics, Inc. and the development of our own carbon facility,
and 3) the foresight and preparation which allowed for a quick start in the
formation of the U.S. Sales and Marketing Team.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
During 2000, the Compensation Committee reviewed the Company's and Mr.
Villafana's performance in order to establish Mr. Villafana's compensation. Mr.
Villafana received a salary increase in 2000 over 1999 of 5% and a salary
increase in 2001 over 2000 of 5%. In addition, Mr. Villafana received a bonus
consisting of 5% of his 2000 annual salary. The Committee's performance review
of Mr. Villafana addressed major areas of accomplishment for the Company.
SECTION 162(m) OF THE INTERNAL REVENUE CODE
Section 162(m) of the Code generally limits the corporate deduction for
compensation paid to executive officers to $1.0 million, unless the compensation
qualifies as a "performance-based compensation" under the Code. Compensation
resulting from stock options granted under the Stock Option Plan or the ATS
Medical, Inc. 2000 Incentive Plan will not be counted toward the $1.0 million of
deductible compensation under Section 162(m). The Committee does not believe
that the annual compensation for Section 162(m) purposes of any of the Company's
executive officers will exceed $1.0 million in fiscal 2001.
Charles F. Cuddihy, Jr.
A. Jay Graf
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers and all persons who beneficially own more than
10% of the outstanding shares of the Company's Common Stock to file with the
Securities and Exchange Commission initial reports of ownership and reports of
changes in ownership of such Common Stock. Directors, executive officers and 10%
or more beneficial owners are also required to furnish the Company with copies
of all Section 16(a) reports they file. Based solely on a review of the copies
of such forms furnished to the Company, the Company believes that all Section
16(a) filing requirements applicable to its executive officers, directors and
10% shareholders were complied with.
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COMPARATIVE STOCK PERFORMANCE GROWTH
The graph below compares the cumulative total shareholder return on the
Common Stock since December 31, 1995 with the cumulative return of the Standard
& Poor's 500 Stock Index and the NASDAQ Medical Devices, Instruments and
Supplies Index over the same period (assuming the investment of $100 in each
vehicle on December 31, 1995 and reinvestment of all dividends).
[PLOT POINTS CHART]
NAME 1995 1996 1997 1998 1999 2000
- ------------------------------------------------------------------------------------------------
ATS Medical, Inc $ 100.00 $ 83.78 $ 56.09 $ 75.68 $ 161.49 $ 153.41
Standard & Poor's 500 100.00 123.18 164.36 212.07 256.84 233.96
NASDAQ Medical Dev/Ins/Sup 100.00 93.68 107.29 120.12 145.65 151.14
12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth security ownership information
pertaining to persons known by the Company to beneficially own more than 5% of
the Company's Common Stock, the executive officers named in the Summary
Compensation Table and all directors and executive officers of the Company as a
group as of February 15, 2001.
COMMON STOCK BENEFICIALLY OWNED
---------------------------------------------
BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF OUTSTANDING (1)
- ---------------- ---------------- --------------------------
Lord, Abett & Co. (2)................................ 1,931,438 8.7%
90 Hudson Street, 11th Floor
Jersey City, NJ 07302
Manual A. Villafana (3).............................. 743,646 3.4%
Richard W. Kramp (3)................................. 440,740 2.0%
Russell W. Felkey (3)................................ 100,500 * %
John H. Jungbauer (3)................................ 226,677 1.0%
Frank R. Santiago (3)................................ 12,775 * %
All directors and executive officers as a group
(eight persons) (3).................................. 1,734,838 7.8%
- ------------------------
* Less than 1%
(1) The ownership percentage for each person or entity is calculated based on
the number of shares outstanding as of February 15, 2001.
(2) The number of shares owned is based on a Schedule 13G filed by Lord, Abett
& Co. on February 7, 2001. The Schedule 13G indicates that Lord, Abett &
Co. has sole voting and dispositive power and direct ownership of 1,931,438
shares. Lord, Abett & Co. filed the Schedule 13G as an investment advisor
registered under Section 203 of the Investment Advisors Act of 1940.
(3) Includes the following shares that may be acquired within 60 days through
the exercise of stock options: Mr. Villafana, 119,500; Mr. Kramp,49,229;
Mr. Felkey, 100,500; Mr. Jungbauer, 216,250; Mr. Santiago, 9,375; and all
executive officers and directors as a group, 684,854.
13
PROPOSAL 2 - RATIFICATION OF APPOINTMENT OF AUDITORS
The Board of Directors, based upon the recommendation of its Audit
Committee, has appointed Ernst & Young LLP as independent auditors to examine
the financial statements of the Company for the current fiscal year ending
December 31, 2001 and to perform other appropriate accounting services. Ernst &
Young LLP has served as independent auditors of the Company since its inception
and has no relationship with the Company other than that arising from their
employment as independent auditors. Representatives of Ernst & Young LLP will be
present at the 2001 Annual Meeting of Shareholders, will have an opportunity to
make a statement if they desire to do so and will be available to respond to
appropriate questions from shareholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF
ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT AUDITORS. The affirmative vote of
a majority of the outstanding shares of the Company's Common Stock entitled to
vote and present in person or by proxy at the Annual Meeting will be required to
ratify the appointment. Proxies will be voted in favor of the ratification of
the appointment unless otherwise specified.
ADDITIONAL INFORMATION ABOUT OUR INDEPENDENT AUDITOR
AUDIT FEES
Audit fees billed or expected to be billed to ATS Medical, Inc. by
Ernst & Young LLP for the audit of our financial statements for the fiscal year
ended December 31, 2000 and for reviews of our financial statements included in
our quarterly reports on Form 10-Q for the last fiscal year totaled $54,750.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
No fees were billed or are expected to be billed to ATS Medical, Inc.
by Ernst & Young LLP for services provided during the last fiscal year for the
design and implementation of financial information systems.
ALL OTHER FEES
Fees billed or expected to be billed to ATS Medical, Inc. by Ernst &
Young LLP for all other non-audit services, including the set up of ATS Medical
Sales, Inc. and tax-related services, provided during the last fiscal year
totaled $209,332.
14
SHARES OUTSTANDING AND VOTING RIGHTS
On March 15, 2001, the Company had outstanding 22,128,822 shares of
Common Stock. Each holder of record of Common Stock as of the close of business
on March 15, 2001 will be entitled to one vote on all matters being presented at
the meeting for each share of Common Stock held on such date.
PROPOSALS FOR THE 2002 ANNUAL MEETING
Any proposal by a shareholder to be presented at the 2002 Annual
Meeting of Shareholders must be received at the Company's principal executive
officers, 3905 Annapolis Lane, Suite 105, Minneapolis, Minnesota 55447,
Attention: Corporate Secretary, no later than December 4, 2001. In addition, the
form of Proxy issued with this Proxy Statement will confer discretionary
authority to vote for or against any proposal made by a shareholder at the 2000
Annual Meeting of Shareholders and which is not included in this Proxy
Statement. However, under the rules of the Securities and Exchange Commission,
such discretionary authority may not be exercised if the shareholder proponent
has given the Secretary of the Company notice of such proposal prior to February
15, 2002, and certain other conditions provided for in the Commission's rules
have been satisfied.
15
GENERAL
The Board of Directors of the Company does not know of any other
business to come before the 2001 Annual Meeting of Shareholders. If any other
matters are properly brought before the meeting, however, the persons named in
the accompanying proxy will vote in accordance with their best judgment.
Expenses in connection with this solicitation of proxies will be paid
by the Company. Proxies are being solicited primarily by mail, but, in addition,
officers and employees of the Company, who will receive no extra compensation
for their services, may solicit proxies by telephone or personal calls. The
Company also will request that brokers or other nominees who hold shares of
Common Stock in their names for the benefit of others forward proxy materials
to, and obtain voting instructions from, the beneficial owners of such stock at
the Company's expense.
Your cooperation in giving this matter your immediate attention and in
returning your proxy promptly will be appreciated.
By Order of the Board of Directors,
/s/ Russell W. Felkey
Russell W. Felkey
Secretary
April 3, 2001
16
EXHIBIT A
ATS MEDICAL, INC.
AUDIT COMMITTEE CHARTER
ORGANIZATION
This charter governs the operations of the audit committee. The committee shall
review and reassess the charter at least annually and obtain the approval of the
board of directors. The committee shall be appointed by the board of directors
and shall comprise at least three directors, each of whom are independent of
management and ATS Medical, Inc. ("the Company"). Members of the committee shall
be considered independent if they have no relationship that may interfere with
the exercise of their independence from management and the Company. All
committee members shall be financially literate, (or shall become financially
literate within a reasonable period of time after appointment to the committee,)
and at least one member shall have accounting or related financial management
expertise.
STATEMENT OF POLICY
The audit committee shall provide assistance to the board of directors in
fulfilling their oversight responsibility to the shareholders, potential
shareholders, the investment community, and others relating to the Company's
financial statements and the financial reporting process, the systems of
internal accounting and financial controls, the annual independent audit of the
Company's financial statements, and the legal compliance and ethics programs as
established by management and the board. In so doing, it is the responsibility
of the committee to maintain free and open communication between the committee,
independent auditors and management of the Company. In discharging its oversight
role, the committee is empowered to investigate any matter brought to its
attention with full access to all books, records, facilities and personnel of
the Company and the power to retain outside counsel or other experts for this
purpose.
RESPONSIBILITIES AND PROCESSES
The primary responsibility of the audit committee is to oversee the Company's
financial reporting process on behalf of the board and report the results of
their activities to the board. Management is responsible for preparing the
Company's financial statements, and the independent auditors are responsible for
auditing those financial statements. The committee in carrying out its
responsibilities believes its policies and procedures should remain flexible, in
order to best react to changing conditions and circumstances. The committee
should take the appropriate actions to set the overall corporate "tone" for
quality financial reporting, sound business risk practices and ethical behavior.
A-1
In fulfilling their responsibilities hereunder, it is recognized that members of
the Audit Committee are not full-time employees of the company and are not, and
do not represent themselves to be, accountants or auditors by profession or
experts in the fields of accounting or auditing. As such, it is not the duty or
the responsibility of the Audit Committee or its members to conduct "field work"
or other types of auditing or accounting reviews or procedures, and each member
of the audit committee shall be entitled to rely on (i) the integrity of those
persons and organizations within and outside the company that they receive
information from and (ii) the accuracy of the financial and other information
provided to the Audit Committee by such persons or organizations, absent actual
knowledge of the contrary.
The following shall be the principal recurring processes of the audit committee
in carrying out its oversight responsibilities. The processes are set forth as a
guide with the understanding that the committee may supplement them as
appropriate.
* The committee shall have a clear understanding with management and the
independent auditors that the independent auditors are ultimately
accountable to the board and the audit committee as representatives of the
Company's shareholders. The committee shall have the ultimate authority to
evaluate and, where appropriate, replace the independent auditors. The
committee shall discuss with the auditors their independence from
management and the Company and the matters included in the written
disclosures required by the Independence Standards Board. Annually, the
committee shall review and recommend to the board the selection of the
Company's independent auditors, subject to shareholders' approval.
* The committee shall discuss with the independent auditors the overall scope
and plans for their audits including the adequacy of staffing and
compensation. Also, the committee shall discuss with management and the
independent auditors the adequacy and effectiveness of the accounting and
financial controls, including the Company's system to monitor and manage
business risk and legal and ethical compliance programs. Further, the
committee shall meet separately with the independent auditors, with and
without management present, to discuss the results of their examinations.
* The committee shall review the interim financial statements with management
and the independent auditors prior to the filing of the Company's quarterly
Report on Form 10-Q. Also, the committee shall discuss the results of the
quarterly review and any other matters required to be communicated to the
committee by the independent auditors under generally accepted auditing
standards. The chair of the committee may represent the entire committee
for the purposes of this review.
A-2
* The committee shall review with management and the independent auditors the
financial statements to be included in the Company's Annual Report on Form
10-K (or the annual report to shareholders if distributed prior to the
filing of Form 10-K), including their judgment about the quality, not just
acceptability, of accounting principles, the reasonableness of significant
judgments, and the clarity of the disclosures in the financial statements.
Also, the committee shall discuss the results of the annual audit and any
other matters required to be communicated to the committee by the
independent auditors under generally accepted auditing standards.
* Following each annual meeting, the committee shall elect a chair.
* In order to conduct timely meetings and accommodate individual schedules,
member(s) of the committee may participate in a meeting by conference call
or similar communications equipment.
A-3
[LOGO]
ATS MEDICAL, INC.
ANNUAL MEETING OF SHAREHOLDERS
TUESDAY, MAY 1, 2001
3:30 P.M.
MINNEAPOLIS CLUB
729 SECOND AVE SOUTH
MINNEAPOLIS, MINNESOTA
[LOGO] ATS MEDICAL, INC.
3905 ANNAPOLIS LANE
MINNEAPOLIS, MINNESOTA 55447 PROXY
- --------------------------------------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, having duly received the Notice of Annual Meeting and Proxy
Statement dated April 3, 2001, appoints John H. Jungbauer and Russell W. Felkey
proxies (each with the power to act alone and with the power of substitution and
revocation) to represent the undersigned and to vote, as designated below, all
shares of common stock of ATS Medical, Inc. which the undersigned is entitled to
vote at the 2001 Annual Meeting of Shareholders of ATS Medical, Inc., to be held
on Tuesday, May 1, 2001 at the Minneapolis Club, 729 Second Avenue South,
Minneapolis, Minnesota at 3:30 p.m. and any adjournment thereof.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE
SEE REVERSE FOR VOTING INSTRUCTIONS.
[LOGO]
PLEASE DETACH HERE
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2 AND 3.
1. Election of directors: 01 Manuel A. Villafana 04 A. Jay Graf [ ] Vote FOR [ ] Vote WITHHELD
02 Richard W. Kramp 05 David L. Boehnen all nominees from all nominees
03 Charles F. Cuddihy, Jr. (except as marked)
___________________________________________
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDICATED NOMINEE, | |
WRITE THE NUMBER(S) OF THE NOMINEE(S) IN THE BOX PROVIDED TO THE RIGHT.) |___________________________________________|
2. Ratification of Ernst & Young LLP as independent auditors for the fiscal
year ending December 31, 2001. [ ] For [ ] Against [ ] Abstain
3. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting and any adjournment
thereof. [ ] For [ ] Against [ ] Abstain
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO
DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS AND IN THE DISCRETION OF THE NAMED PROXIES ON ALL OTHER MATTERS.
Address Change? Mark Box [ ] Indicate changes below: Date ____________________________________
___________________________________________
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|___________________________________________|
Signature(s) in Box
Please sign exactly as your name appears
hereon. Jointly owned shares will be voted as
directed if one owner signs unless another
owner instructs to the contrary, in which case
the shares will not be voted. If signing in a
representative capacity, please indicate title
and authority.