SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
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[ ] Preliminary Proxy Statement
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14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-12
ATS MEDICAL, INC.
_____________________________________________________________
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
_____________________________________________________________
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
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[ATS MEDICAL LOGO]
Dear Fellow Shareholder:
You are cordially invited to attend the 2004 Annual Meeting of
Shareholders of ATS Medical, Inc. (the "Company"), which will be held at the
Thrivent Financial for Lutherans Building, 625 Fourth Avenue South, Minneapolis,
Minnesota (on the corner of 6th Street and Fourth Avenue in downtown
Minneapolis) beginning at 3:30 p.m. on Thursday, May 6, 2004.
This booklet contains your official notice of the 2004 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
2004 ANNUAL MEETING OF
SHAREHOLDERS
NOTICE OF 2004 ANNUAL
MEETING OF SHAREHOLDERS
The 2004 Annual Meeting of Shareholders of ATS Medical, Inc. (the
"Company") will be held on Thursday, May 6, 2004 at 3:30 p.m. at the Thrivent
Financial for Lutherans Building, 625 Fourth Avenue South, Minneapolis,
Minnesota, 55415, for the following purposes:
1. To elect four 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, 2004; 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 19, 2004 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/ Deborah K. Chapman
-----------------------------------
Deborah K. Chapman
Secretary
April 1, 2004
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 2004 Annual Meeting of Shareholders to be held on
Thursday, May 6, 2004 at 3:30 p.m. at the Thrivent Financial for Lutherans
Building, 625 Fourth Avenue South, Minneapolis, Minnesota 55415, and at any
adjournments thereof. On March 19, 2004, the Company had outstanding 26,814,089
shares of common stock (the "Common Stock"). Each holder of record of Common
Stock as of the close of business on March 19, 2004 will be entitled to one vote
on all matters being presented at the meeting for each share of Common Stock
held on such date. 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 1, 2004.
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
Four directors have been nominated for election to the Company's Board of
Directors at the 2004 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
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 27, 2004.
MICHAEL D. DALE, 44, has been Chief Executive Officer, President and a
Director of the Company since October 2002. From 2000 to 2002, Mr. Dale was
President of Worldwide Sales and Marketing at Endocardial Solutions, Inc. a
company that develops, markets and distributes an advanced cardiac mapping
system. Mr. Dale joined Endocardial Solutions in December 1998 as Vice President
Worldwide Sales. From 1996 to 1998, Mr. Dale was Vice President of Global Sales
for Cyberonics, Inc., a medical device company, and additionally was managing
director of Cyberonics Europe S.A. From 1988 to 1996, Mr. Dale served in several
capacities at St. Jude Medical, most recently as the Business Unit Director for
St. Jude Medical Europe. Mr. Dale is on the Board of Directors of Enpath
Medical, Inc., a medical products company that designs, develops, manufactures
and markets percutaneous delivery solutions.
DAVID L. BOEHNEN, 57, 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. Mr. Boehnen was elected as a Director of the Company in
November of 1997.
ERIC W. SIVERTSON, 53, is a Partner in the Minneapolis Office of DHR
International Executive Search, focusing on the medical device, diagnostic and
healthcare supply industries. Previously, Mr. Sivertson was a partner at
TMP/Highland Partners, an executive search firm, from 2002 to 2003. Prior to
joining TMP/Highland Partners, Mr. Sivertson was President and Chief Executive
Officer of netRegulus, Inc., a web-based regulatory and clinical information
technology company. From 1997 to 1999, Mr. Sivertson served as President and
Chief Executive Officer of Biocompatables Cardiovascular Ltd.
ROBERT E. MUNZENRIDER, 59, is a retired financial and operating
executive. From 2000 to 2002, Mr. Munzenrider was President of Harmon AugoGlass,
a subsidiary of Apogee Enterprises, Inc. In 1999, he served as Vice President
and Chief Financial Officer of the Glass Services Segment of Apogee Enterprises.
He also served as Executive Vice President and Chief Financial Officer of
Eliance Corp., an e-commerce service provider, during part of 1999. From 1998 to
1999, Mr. Munzenrider served as Vice President and Chief Financial Officer of
St. Jude Medical, Inc. Mr. Munzenrider was elected as a Director of the Company
in June of 2003.
COMMITTEES OF THE BOARD OF DIRECTORS AND ATTENDANCE
The Board of Directors held five meetings during 2003. Each Director
attended at least 75% of the meetings of the Board and all meetings of each
committee of which he was a member. All Directors were in attendance at the 2003
Annual Meeting of Shareholders. Board members are encouraged to attend the
Annual Meetings of Shareholders. Other than the executive officers of the
Company and Mr. Villafana, all directors are independent as such term is defined
in Nasdaq Rule 4200.
The Board of Directors has three standing committees: (i) an Audit
Committee, (ii) a Compensation Committee and (iii) a Nominating and Corporate
Governance Committee. The functions of the Audit Committee 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, Sivertson and
Munzenrider served in 2003, held eight meetings during 2003.
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The Compensation Committee 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. Sivertson and Graf serve, held two formal meetings during 2003.
The Company also has a Nominating and Corporate Governance Committee,
which is responsible for determining the slate of director nominees for election
by shareholders, which the committee recommends for consideration by the Board
of Directors. Messrs. Boehnen, Sivertson and Graf currently serve on the
Nominating and Corporate Governance Committee. The Nominating and Corporate
Governance Committee was established in 2003 but did not have any formal
meetings in 2003. A copy of the Nominating and Corporate Governance Committee
charter is attached to this Proxy Statement.
SHAREHOLDER COMMUNICATIONS WITH THE BOARD OF DIRECTORS
Shareholders may send written communications to the attention of the
Board of Directors. Any shareholder desiring to communicate with our Board of
Directors, or one or more of our directors, may send a letter addressed to the
Board of Directors c/o Corporate Secretary at 3905 Annapolis Lane, Suite 105,
Minneapolis, Minnesota 55447. The Corporate Secretary has been instructed by the
Board of Directors to promptly forward all communications so received to the
full Board of Directors or the individual members of the Board of Directors
specifically addressed in the communication.
NOMINATIONS
All director nominees approved by the Board of Directors and all
individuals appointed to fill vacancies created between our annual meetings of
shareholders are required to stand for election by shareholders at the next
annual meeting. The Nominating and Corporate Governance Committee does not
currently utilize the services of any third party search firm to assist in the
identification or evaluation of director candidates.
The Nominating and Corporate Governance Committee determines the required
selection criteria and qualifications of the director nominees based upon the
needs of the Company at the time nominees are considered. A candidate must
possess the ability to apply good business judgment and must be in a position to
properly exercise his or her duties of loyalty and care. Candidates should also
exhibit proven leadership capabilities, high integrity and experience with a
high level of responsibilities within their chosen fields, and have the ability
to quickly grasp complex principles of business and finance. In general
candidates will be preferred who hold an established executive level position in
business, finance, law, education, research or government. The Nominating and
Corporate Governance Committee will consider these criteria for nominees
identified by the Committee, by shareholders, or through some other source.
The Nominating and Corporate Governance Committee will consider qualified
candidates for possible nomination that are submitted by our shareholders.
Shareholders wishing to make such a submission may do so by sending the
following information to the Nominating and Corporate Governance Committee c/o
Corporate Secretary at 3905 Annapolis Lane, Suite 105, Minneapolis, Minnesota
55447: (i) name of the candidate and a brief biographical sketch and resume;
(ii) contact information for the candidate and a document evidencing the
candidate's willingness to serve as a director if elected; and (iii) a signed
statement as to the submitting shareholder's current status as a
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shareholder and the number of shares currently held. No candidates for director
nominations were submitted to the Nominating and Corporate Governance Committee
by any shareholder in connection with the 2004 annual meeting.
The Nominating and Corporate Governance Committee conducts a process of
making preliminary assessments of each proposed nominee based upon the resume
and biographical information, an indication of the individual's willingness to
serve and other background information. This information is evaluated against
the criteria set forth above and the specific needs of the Company at that time.
Based upon a preliminary assessment of the candidate(s), those who appear to be
best suited to meet the needs of the Company may be invited to participate in a
series of interviews, which are used as a further means of evaluating potential
candidates. On the basis of information learned during this process, the
Nominating and Corporate Governance Committee determines which nominee(s) to
recommend to the Board of Directors to submit for election at the next annual
meeting of shareholders. The Nominating and Corporate Governance Committee uses
the same process for evaluating all nominees, regardless of the original source
of nomination.
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: Messrs. Boehnen, Sivertson and Munzenrider.
Mr. Munzenrider 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. Mr. Munzenrider, one of the members of the audit
committee, qualifies as an "audit committee financial expert" under the rules of
the Securities and Exchange Commission. The Audit Committee operates under a
written charter adopted by the Board of Directors. The Audit Committee
recommends to the Board of Directors, and submits for shareholder ratification,
the appointment of the Company's independent auditors.
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).
The Company's 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, 2003 filed with the Securities and
Exchange Commission.
Members of the Audit Committee
Robert E. Munzenrider, Chairman
Eric W. Sivertson
David L. Boehnen
COMPENSATION OF DIRECTORS
The directors of the Company do not receive any cash compensation for
their services on the Board of Directors, except for Mr. Villafana under a
consulting agreement with the Company described below, and for Mr. Munzenrider
in connection with his role as Chairman of the Audit Committee. 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 2000 Stock Incentive 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. Consistent with
the foregoing practices, each of Messrs. Munzenrider and Sivertson received
options for the purchase of 5,000 shares of Common Stock upon their appointment
to the Board in 2003, and each of the outside Board members who were elected to
the Board at the last annual meeting of shareholders of the Company were granted
options for the purchase of 2,500 shares of Common Stock.
Mr. Villafana, who is stepping down as Chairman of the Board of Directors
and a Director of the Company effective as of the 2004 Annual Meeting of
Shareholders, has served as Chairman of the Board of Directors and has provided
consulting services to the Company under a consulting agreement that was most
recently amended in October 2003. Under Mr. Villafana's consulting agreement, in
addition to acting as Chairman of the Board of Directors, he assisted the
Company in recruiting several directors to the Board and Mike Dale as Chief
Executive Officer of the Company, and has assisted the Company in several
private placements of its equity securities. Prior to January 1, 2002, Mr.
Villafana was the Chief Executive Officer of the Company. Mr. Villafana's fees
under his consulting agreement for 2003 were $241,130. Mr. Villafana was granted
an option for 2,500 shares of Common Stock when he was re-elected at the last
annual meeting of shareholders. The consulting agreement, as amended, will
terminate on May 31, 2004. The consulting agreement contains a non-competition
agreement pursuant to which Mr. Villafana agreed not to compete with the Company
during the term of the agreement and for a period of two years following his
termination of consulting services to the Company. In exchange, the Company has
agreed to continue Mr. Villafana's monthly consulting fees during the period of
non-competition restriction, adjusted annually to take into account increases in
the consumer price index.
In 2003, the Board of Directors approved paying Mr. Munzenrider, Director
and Chair of the Audit Committee, a retainer of $10,000 a year for his role as
Chair of the Audit Committee. This retainer is paid in quarterly installments.
Mr. Munzenrider received $2,500 during 2003.
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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 2003 exceeded $100,000:
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION SHARES
-------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(1) COMPENSATION (2)
- ----------------------------- ---- -------- -------- ------------ ----------------
Michael D. Dale 2003 $250,000 $100,000 50,000 $ 0
President and 2002 52,885 100,000 400,000 0
Chief Executive Officer 2001 0 0 0 0
John R. Judd 2003 $ 27,792 $ 22,869 125,000 $ 0
Chief Financial Officer (3) 2002 0 0 0 0
2001 0 0 0 0
Richard A. Curtis 2003 $185,000 $ 49,256 20,000 $13,000(4)(5)
Vice President, Marketing and 2002 10,673 0 125,000 0
Business Development 2001 0 0 0 0
Marc R. Sportsman 2003 $155,769 $184,375 270,000 $ 3,000(5)
Vice President, Sales 2002 0 0 0 0
2001 0 0 0 0
- ---------------------------
(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) Unless otherwise stated, consists of matching contributions to the ATS
Medical 401(k) Plan, which is generally available to all employees.
(3) Mr. Judd has served as Chief Financial Officer of the Company since
October 2003.
(4) Mr. Curtis was reimbursed $10,000 for moving expenses in 2003.
(5) Each of Mr. Curtis and Mr. Sportsman received $3,000 matching
contributions to the ATS Medical 401(k).
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COMPENSATION AGREEMENTS
Michael D. Dale has served as President and Chief Executive Officer of
the Company since October 2002 pursuant to an employment agreement dated
September 18, 2002. Mr. Dale's initial annual base salary under the agreement
was $250,000. In 2004, the Board of Directors increased his salary to $270,000.
The Board of Directors granted a bonus of $100,000 to Mr. Dale, which was paid
to him in February 2004, as reward for the Company's achievement of certain
sales criteria and hiring of certain key employees established by the Board of
Directors. The employment agreement may be terminated at will by either party,
provided that if the Company terminates the agreement without cause, Mr. Dale
would be entitled to twelve (12) months of salary benefit. The agreement also
contains a non-competition obligation pursuant to which Mr. Dale agrees not to
compete with the Company during the term of the agreement and for a period of
one year following its termination. Mr. Dale will be entitled to compensation
during the non-competition period only if the Company terminates the agreement
without cause, as indicated above.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
The following table summarizes option grants made by the Company in 2003
to each of its executive officers shown in the Summary Compensation Table above.
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF PERCENTAGE OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS EXERCISE PRICE APPRECIATION
UNDERLYING GRANTED TO OR BASE FOR OPTION TERM(3)
OPTIONS EMPLOYEES PRICE EXPIRATION ---------------------
NAME GRANTED(1) IN 2003 ($/SH)(2) DATE 5%($) 10%($)
- ----------------- ----------- ------------- --------- ---------- -------- ---------
Michael D. Dale 50,000 2% $ 3.80 12/19/13 $119,490 $302,811
John R. Judd 125,000 4% $ 3.76 10/07/13 $295,580 $749,059
Richard A. Curtis 20,000 1% $ 3.80 12/19/13 $ 47,796 $121,124
Marc R. Sportsman 250,000 8% $ 1.02 03/24/13 $160,368 $406,404
20,000 1% $ 3.80 12/19/13 $ 47,796 $121,124
- ---------------------------
(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 2003 by the
executive officers named in the Summary Compensation Table, and the estimated
values of the options held by such persons at December 31, 2003.
VALUE OF UNEXERCISED
NUMBER OF SHARES UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS AT FISCAL OPTIONS AT FISCAL
SHARES YEAR-END OF 2003 YEAR END OF 2003(1)
ACQUIRED ON VALUE ----------------------------- --------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------- ----------- -------- ----------- ------------- ----------- -------------
Michael D. Dale 0 $0 100,000 350,000 $368,000 $1,116,500
John R. Judd 0 $0 0 125,000 $ 0 $ 36,250
Richard A. Curtis 0 $0 31,250 113,750 $110,281 $ 335,844
Marc R. Sportsman 0 $0 0 270,000 $ 0 $ 762,500
- ---------------------------
(1) Value represents the difference between the last sale price of the Common
Stock on December 31, 2003, 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
diminution in the officer's responsibilities, a reduction in salary or benefits,
a relocation of the Company's office of more than 35 miles or for 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 2003 and the
employment of the executive officers named in the Summary Compensation Table had
been immediately terminated, Messrs. Dale, Judd, Curtis and Sportsman would have
been entitled to receive, pursuant to the terms of the Agreement, a lump sum
payments upon termination of $900,000, $624,000, $720,500, and $1,012,500,
respectively.
-8-
EQUITY COMPENSATION PLANS
The following table summarizes as of December 31, 2003 the shares of
the Company's Common Stock subject to outstanding awards or available for future
awards under the Company's equity compensation plans and arrangements.
NUMBER OF SHARES REMAINING
AVAILABLE FOR FUTURE
NUMBER OF SHARES ISSUANCE UNDER EQUITY
TO BE ISSUED WEIGHTED-AVERAGE COMPENSATION
UPON EXERCISE OF EXERCISE PRICE OF PLANS (EXCLUDING
OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, SHARES REFLECTED
PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS IN THE FIRST COLUMN)
- ------------------------- -------------------- -------------------- --------------------------
Equity Compensation Plans 2,183,796 $4.81 822,203(1)
Approved by Shareholders
Equity Compensation Plans 2,725,000 $2.12 --(2)
Not Approved by
Shareholders
--------- ----- -------
Total 4,408,796 $3.32 822,203
========= ===== =======
- ---------------------------
(1) Includes shares remaining available under the Company's 2000 Stock
Incentive Plan (539,874 shares) and the 1998 Employee Stock Purchase Plan
(282,329 shares).
(2) Nearly all of the 2,725,000 shares listed consist of individual stock
options granted to new executives or employees as an inducement to their
employment with the Company. These options have an exercise price equal
to the fair market value of the Company Common Stock at the time of the
grant, and vest ratably over two to four year periods. Most of the
options have a life of 10 years and vesting accelerates upon a change of
control of the Company. The Company intends that these options shall not
be Incentive Stock Options governed by the provisions of Section 422 of
the Code.
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 "Stock Purchase Plan"), the ATS Medical, Inc. 2000 Stock
Incentive Plan (the "Plan") and the Management Incentive Compensation Plan.
The Compensation Committee was composed entirely of non-employee
directors of the Company in 2003. Messrs. Sivertson and Graf each are
non-employee directors of the Company and currently comprise the Compensation
Committee. Mr. Graf is the Chairman of the Compensation 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
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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 year and reviews bonuses
to be awarded for the prior year at the end of the prior year or at the
beginning of the current year.
In 2003, the Compensation Committee continued to place emphasis on
performance-based criteria to determine bonuses to employees for 2003. In
particular, the Committee evaluated the criteria used to grant bonuses during
2003 to its executive officers under the Management Incentive Compensation Plan
(the "MICP"), which is the Company's bonus program for its executive employees.
Under the MICP, bonuses to be granted to executive employees were tied to
individual performance based criteria.
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.
-10-
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 2003:
- Adopted a new MICP to provide annual incentive compensation to the
key officers and employees of the Company; and
- Granted stock option grants to its newly hired executive officers
to provide to each a significant incentive to help the Company
continue to improve its performance.
In April 2003, the Company hired Mr. Marc R. Sportsman as Vice President
of Sales, and in October 2003, the Company hired Mr. John R. Judd as Chief
Financial Officer. Mr. Sportsman's and Mr. Judd's initial compensation packages,
consisting of annual salary, potential for bonus and grant of stock options,
were based on subjective criteria. When negotiating with Mr. Sportsman and Mr.
Judd prior to their hiring, the Committee concluded that the salary, bonus and
grant of stock options offered to them were necessary and appropriate to attract
them to the Company.
In 2004, the Committee intends to continue to emphasize objective factors
and performance in determining executive compensation. The Committee will
continue to use stock options as part of executive compensation in 2004 to
provide additional performance incentives.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Mr. Dale, the Company's President and Chief Executive Officer, is paid a
base and salary of $250,000 under his compensation agreement dated September 18,
2002. For 2003, he also was eligible to receive a bonus of up to $50,000 based
on certain sales criteria determined by the Board, with the potential to earn an
additional $50,000 bonus if the Company met certain other key financial
performance criteria in the short term. Bonus criteria included achieving
certain sales goals, and the hiring of certain key employees. In 2003, Mr. Dale
earned the full $100,000 bonus for which he was eligible. In the future, Mr.
Dale will have the potential to earn a bonus equal to up to 50% of his salary
based upon a formula which takes into consideration year-over-year increases in
sales and operating income. For 2004, Mr. Dale's salary was raised to $270,000.
In addition, Mr. Dale received an option for the purchase of 50,000 shares of
Common Stock in 2003. The Board felt that Mr. Dale's salary compensation and
option grant were appropriate in light of the challenges and difficult
competitive environment facing the Company. The primary basis for the Board's
decision to grant to Mr. Dale stock option was to provide a significant
incentive for him to enhance shareholder value over the long term. The number of
options granted to Mr. Dale was based on the Committee's conclusion that the
number of options was necessary and appropriate to retain Mr. Dale in this
position.
-11-
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 Plan or the Stock Purchase 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 2004.
Members of the Compensation Committee
A. Jay Graf, Chairman
Eric W. Sivertson
CODE OF ETHICS
The Company is finalizing a Code of Ethics for its employees, including its
Principal Executive Officer, Principal Financial Officer and Principal
Accounting Officer. The Company will post the Code of Ethics on its website
(www.atsmedical.com) by May 6, 2004. The Company intends to satisfy the
disclosure requirement under Item 10 of Form 8-K regarding an amendment to, or
waiver from a provision of the Code of Ethics by posting such information on its
website at the address specified above.
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, we believe that our
executive officers, directors and 10% shareholders complied with all Section
16(a) filing requirements applicable to them, except that late Form 4 filings
were made on January 9, 2004 to report an incentive stock option grant to Mr.
Dale of 50,000 shares of the Company's Common Stock and an incentive stock
option grant to Messrs. Curtis and Sportsman of 20,000 shares each.
-12-
COMPARATIVE STOCK PERFORMANCE GROWTH
The graph below compares the cumulative total shareholder return on the
Common Stock since December 31, 1998 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, 1998 and reinvestment of all dividends).
[PERFORMANCE GRAPH]
Name 1998 1999 2000 2001 2002 2003
- ---------------------------------- ----------- ----------- ----------- ---------- ----------- ----------
ATS Medical, Inc. $ 100.00 $ 213.40 $ 202.71 $ 75.71 $ 6.43 $ 57.86
Standard & Poor's 500 Stock Index 100.00 121.11 110.34 97.32 75.75 97.51
NASDAQ Medical Dev/Ins/Sup 100.00 121.11 124.94 137.25 111.09 164.29
-13-
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 27, 2004.
COMMON STOCK BENEFICIALLY OWNED
-----------------------------------------
PERCENT OF
BENEFICIAL OWNER NUMBER OF SHARES OUTSTANDING(1)
- ------------------------------------------- ---------------- --------------
Austin W. Marxe and
David M. Greenhouse (2)
153 East 53rd Street, 55th Floor
New York, NY 10022 1,750,000 7%
A I M Management Group Inc. (3)
11 Greenway Plaza, Suite 100
Houston, TX 77046-1173 1,649,400 6%
David L. Boehnen (4)....................... 164,760 *
Richard A. Curtis (4)...................... 36,063 *
Michael D. Dale (4)........................ 114,296 *
A. Jay Graf (4)............................ 105,000 *
John R. Judd (4)........................... 0 *
Robert E. Munzenrider (4).................. 5,000 *
Eric W. Sivertson (4)...................... 7,500 *
Marc. R. Sportsman (4)..................... 64,417 *
Manuel A. Villafana (4).................... 952,276 4%
All directors and executive officers as a
group (nine persons) (4)................... 1,449,312 5%
- ---------------------------
* Less than 1%
(1) The ownership percentage for each person or entity is calculated based on
the number of shares outstanding as of February 27, 2004, and assuming
that, with respect to each person, any options exercisable within 60 days
by that person had been exercised and the underlying shares were
outstanding.
(2) The number of shares owned is based on a Schedule 13G filed by jointly by
Justin W. Marxe and David M. Greenhouse on February 17, 2004. The
Schedule 13G indicates that Austin W. Marxe and David M. Greenhouse share
sole voting and investment power over 312,500 shares of Common Stock
owned by Special Situations Cayman Fund, L.P., 937,500 shares of Common
Stock owned by Special Situations Fund III, L.P. and 500,000 shares of
Common Stock owned by Special Situations Private Equity Fund, L.P. Justin
W. Marxe and David M. Greenhouse filed the Schedule 13G in their capacity
as individuals and as an investment advisor registered under Section 203
of the Investment Advisors Act of 1940. Although not indicated on the
Form 13G, it appears that Austin W. Marxe and David M. Greenhouse are
filing as a group.
(3) The number of shares owned is based on a Schedule 13G/A filed by A I M
Management Group Inc. on February 10, 2004. The Schedule 13G indicates
that A I M Management Group Inc., on behalf of itself and its
wholly-owned subsidiaries, A I M Advisors, Inc. and A I M Capital
Management, Inc., has sole voting and dispositive power and direct
ownership of 1,649,400 shares. A I M Management Group Inc. filed the
Schedule 13G/A as an investment advisor registered under Section 203 of
the Investment Advisors Act of 1940 and as a parent holding
company/control person.
(4) Includes the following shares that may be acquired within 60 days of
February 27, 2004 through the exercise of stock options: Mr. Boehnen,
100,000 shares; Mr. Curtis, 31,250 shares; Mr. Dale, 100,000 shares; Mr.
Graf, 105,000 shares; Mr. Judd, 0 shares; Mr. Munzenrider, 5,000 shares;
Mr. Sivertson, 7,500 shares; Mr. Sportsman, 62,500 shares; Mr. Villafana,
201,250 shares; and all executive officers and directors as a group,
612,500 shares.
-14-
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, 2004 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 2004 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 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.
INDEPENDENT AUDITOR FEES
Ernst & Young LLP, independent auditors of the Company, provides both
audit and non-audit services to the Company. The fee table below reports fees
billed or to be billed to the Company for professional services provided to the
Company during 2003. Based in part on its review of the nature and value of
services provided by Ernst & Young LLP, the Audit Committee of the Company has
concluded that the provision of non-audit services are compatible with
maintaining Ernst & Young LLP's independence. The audit committee has approved
100% of the services listed below.
2003 2002
-------- --------
Audit Related Fees (1) $157,455 $ 72,000
Audit Related Fees (2) $ 0 $ 29,323
All Other Fees $ 0 $ 0
Tax Services (3) $ 51,210 $ 69,830
-------- --------
Total Fees $208,665 $171,153
======== ========
- ---------------------------
(1) Includes fees of $107,831 in 2003 and $72,000 in 2002 for services
related to quarterly review services and annual audit fees.
(2) Includes audit-related fees of $29,323 for 2002 for accounting
consultations regarding accounting matters.
(3) Includes tax fees of $51,210 for 2003 and $69,830 for 2002, for tax
consulting and compliance services.
-15-
All services provided by our independent auditor, Ernst & Young LLP, are subject
to pre-approval by our Audit Committee. The Audit Committee has authorized the
Chair of the Committee to approve services by Ernst & Young LLP in the event
there is a need for such approval prior to the next Audit Committee meeting.
However, a full report of any such interim approvals must be given at the next
Audit Committee meeting. Before granting any approval, the Audit Committee (or
the committee Chair, if applicable) must receive: (1) a detailed description of
the proposed service; (2) a statement from management as to why they believe
Ernst & Young LLP is best qualified to perform the service; and (3) an estimate
of the fees to be incurred. Before granting any approval, the Audit Committee
(or the committee Chair, if applicable) gives due consideration to whether
approval of the proposed service will have a detrimental impact on Ernst & Young
LLP's independence.
PROPOSALS FOR THE 2005 ANNUAL MEETING
Any proposal by a shareholder to be included in the Company's proxy
material and presented at the 2005 Annual Meeting of Shareholders must be
received at the Company's principal executive offices, 3905 Annapolis Lane,
Suite 105, Minneapolis, Minnesota 55447, Attention: Corporate Secretary, no
later than December 30, 2004. In addition, in connection with any matter to be
proposed by a shareholder at the 2005 Annual Meeting, but not proposed for
inclusion in the Company's proxy materials, the proxy holders designated by the
Company for that meeting may exercise their discretionary voting authority with
respect to that shareholder proposal if appropriate notice of that proposal is
not received by the Secretary of the Company at its principal executive office
by February 14, 2005.
GENERAL
The Board of Directors of the Company does not know of any other business
to come before the 2004 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/ Michael D. Dale
-------------------------------------
Michael D. Dale
Chief Executive Officer
April 1, 2004
-16-
ATS MEDICAL, INC.
CHARTER OF
NOMINATING AND CORPORATE GOVERNANCE COMMITTEE
PURPOSE
The purposes of the Nominating and Corporate Governance Committee (the
"Committee") of ATS Medical, Inc. (the "Corporation") are to identify and
recommend individuals qualified to become members of the Board of Directors (the
"Board") and its committees, to make recommendations regarding the organization
of the Board and its committees, to oversee succession planning for the
Corporation's Chief Executive Officer and to develop and recommend to the Board
a set of corporate governance principles applicable to the Corporation.
MEMBERSHIP
The Committee will consist of one or more members of the Board, the
specific number of such members to be determined from time to time by the Board.
The members of the Committee will be appointed by and serve at the discretion of
the Board. Each member of the Committee shall be independent of the management
of the Company and free of any relationship that, in the reasonable judgment of
the Board, would interfere with the exercise of his or her independent judgment
as a Committee member, considering applicable legal and regulatory requirements
in effect from time to time.
DUTIES AND RESPONSIBILITIES
The Committee will have the following duties and responsibilities, in
addition to any other duties and responsibilities prescribed by the Board from
time to time:
1. develop qualification criteria for Board members (considering
goals for Board composition and individual qualifications) and
evaluate potential candidates in accordance with established
criteria;
2. review and respond to director nominations or recommendations
submitted in writing by the Corporation's shareholders;
3. recommend to the Board a slate of candidates for presentation to
the shareholders at each annual meeting of shareholders and one or
more nominees for each vacancy on the Board that occurs between
annual meetings of shareholders;
4. review and recommend policies relating to the recruitment and
retention of directors, including director and officer liability
insurance coverage and bylaws relating to indemnification;
5. recommend to the Board qualified members of the Board for
membership on committees of the Board;
A-1
6. review the organization of the Board and its committees in the
context of the strategic direction of the Corporation and make
recommendations relating to the size, composition, practices and
overall effectiveness of the Board and its committees;
7. coordinate management succession planning with the Chief Executive
Officer and review and evaluate succession plans for the Chief
Executive Officer;
8. develop and recommend to the Board a set of corporate governance
principles;
9. monitor compliance with the Corporation's corporate governance
principles and code of business conduct and ethics;
10. periodically reassess the Corporation's corporate governance
principles and code of business conduct and ethics and recommend
to the Board revisions to such principles and code;
11. oversee the annual evaluation of the Board, its committees and
executive management;
12. conduct an annual performance evaluation of the Committee and
present it to the Board;
13. provide regular reports of its activities to the Board;
14. review and reassess annually the adequacy of this Charter and
recommend any proposed changes to the Board for approval; and
15. review the Corporation's bylaws and other organizational documents
periodically to determine whether any modifications are necessary
or appropriate, and recommend such modifications to the Board.
MEETINGS
The Committee will meet twice annually, or more frequently as
circumstances dictate. A majority of the members of the Committee will
constitute a quorum for the transaction of business. The chairperson of the
Committee will preside at each meeting and, in consultation with the other
members of the Committee, will set the frequency and length of each meeting and
the agenda of items to be addressed at each meeting. The chairperson of the
Committee will ensure that the agenda for each meeting is circulated to each
Committee member in advance of the meeting. The Committee will maintain written
minutes of its meetings, which minutes will be filed with the minutes of the
Board meetings.
RESOURCES AND AUTHORITY
The Committee will have the resources and authority appropriate to
discharge its responsibilities, including the authority to use internal
personnel and to engage external search firms to identify director candidates,
and will have sole authority to retain and terminate any such search firm and to
approve the fees and other retention terms related to the appointment of such
firm.
A-2
The Committee will have the authority to obtain advice and assistance
from internal or external legal, accounting or other advisors.
The Committee may delegate its authority to subcommittees established by
the Committee from time to time, which subcommittees will consist of one or more
members of the Committee and will report to the Committee.
ADOPTION OF CHARTER
This Charter was originally adopted by the Board of Directors on April
30, 2003.
A-3
(ATS MEDICAL, INC. LOGO)
ATS MEDICAL, INC.
ANNUAL MEETING OF SHAREHOLDERS
THURSDAY, MAY 6, 2004
3:30 P.M.
THRIVENT FINANCIAL FOR LUTHERANS BUILDING
625 FOURTH AVENUE SOUTH
MINNEAPOLIS, MINNESOTA
(ATS MEDICAL, INC. 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 1, 2004, appoints Deborah K. Chapman and John R. Judd
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 2004 Annual Meeting of Shareholders of ATS Medical, Inc., to be held
on Thursday, May 6, 2004 at the Thrivent Financial for Lutherans Building, 625
Fourth 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.
(ATS MEDICAL, INC. LOGO)
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2 AND 3.
1. Election of directors: 01 Michael D. Dale 03 Eric W. Sivertson
02 David L. Boehnen 04 Robert E. Munzenrider
[ ] FOR all nominees [ ] WITHHOLD AUTHORITY
listed below to vote for the nominees
(except as marked indicated below
to the contrary below)
(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.)
- Please fold here -
2. Ratification of Ernst & Young LLP as independent auditors for the fiscal year
ending December 31, 2004.
[ ] 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_____________________________________
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.