SCHEDULE 14A
(Rule 14a-1O1)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, For Use of the
Commission Only (as permitted
by Rule 14a-6(e) (2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-l 1(c) or Rule 14a-12
ADVANCED NEUROMODULATION SYSTEMS, INC.
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(Name of Registrant as Specified in Its Charter)
BOARD OF DIRECTORS OF ADVANCED NEUROMODULATION SYSTEMS, INC.
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
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Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6 (i) (1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials:
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a) (2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement no.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
ADVANCED NEUROMODULATION SYSTEMS, INC.
- --------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON WEDNESDAY, MAY 24, 2000
- --------------------------------------------------------------------------------
To the Shareholders of Advanced Neuromodulation Systems, Inc.:
The Annual Meeting of Shareholders (the "Annual Meeting") of Advanced
Neuromodulation Systems, Inc. (the "Company") will be held at the Company's
offices located at 6501 Windcrest Drive, Suite 100, Plano, Texas 75024 on May
24, 2000, at 10:00 a.m. CST, for the purpose of considering and acting upon the
following matters:
1. To elect seven directors, each to hold office for a term of one-year.
2. To approve the Advanced Neuromodulation Systems, Inc. 2000 Stock Option
Plan.
3. To consider and act upon such other business as may properly come before the
meeting or any adjournment(s) thereof.
Shareholders of record on April 7, 2000, are the only persons entitled to notice
of and to vote at the Annual Meeting and any adjournment(s) thereof.
A proxy for the Annual Meeting is enclosed herewith. Whether or not you plan to
attend the Annual Meeting, you are urged promptly to complete, date and sign the
enclosed proxy and to mail it in the enclosed envelope, which requires no
postage if mailed in the United States. Return of your proxy does not deprive
you of your right to attend the Annual Meeting or to vote your shares in person.
By Order of the Board of Directors
F. Robert Merrill III
Secretary
Plano, Texas
April 17, 2000
<PAGE>
Advanced Neuromodulation Systems, Inc.
6501 Windcrest Drive, Suite 100, Plano, Texas 75024
---------------------
Proxy Statement
---------------------
The enclosed proxy is solicited by the Board of Directors of Advanced
Neuromodulation Systems, Inc. (the "Company") for use at the Annual Meeting of
Shareholders (the "Annual Meeting") to be held on Wednesday, May 24, 2000, at
10:00 a.m. CST, or at any adjournment or adjournments thereof, at the place and
for the purposes set forth in the accompanying Notice of Annual Meeting. Proxies
in the accompanying form, properly signed and received in time for the meeting,
will be voted as instructed. The persons named in the accompanying proxy will
vote the proxy FOR the Board of Directors' slate of directors and FOR the
approval of the 2000 Stock Option Plan unless contrary instructions are given.
At any time before it is voted, each proxy granted can be revoked by the
shareholder by a later dated proxy, by written revocation addressed to the
Secretary of the Company at the address below or by voting by ballot at the
Annual Meeting.
The cost of preparing and mailing the enclosed material will be borne by the
Company. The Company may use the services of officers and employees of the
Company (who will receive no additional compensation) to solicit proxies. The
Company intends to request banks and brokers holding shares of the Company's
stock to forward copies of the proxy material to those persons for whom they
hold shares and to request authority for the execution of proxies. The Company
will reimburse banks and brokers for their out-of-pocket expenses.
The principal executive office of the Company is located at 6501 Windcrest
Drive, Suite 100, Plano, Texas 75024. This Proxy Statement and the accompanying
proxy card are being sent to shareholders on or about April 18, 2000.
SHAREHOLDER VOTE
Only shareholders of record at the close of business on April 7, 2000, are
entitled to vote at the Annual Meeting or any adjournment or adjournments
thereof. On April 7, 2000, there were 7,471,134 shares of Common Stock, par
value $.05 per share (the "Common Stock") outstanding. Every holder of
outstanding shares of Common Stock entitled to be voted at the Annual Meeting is
entitled to one vote for each share held. The presence at the Annual Meeting in
person, or by proxy, of the holders of a majority of the outstanding Common
Stock constitutes a quorum for the Annual Meeting and for acting on the matters
specified in the Notice of Annual Meeting. If a quorum is not present, in person
or by proxy, the Annual Meeting may be adjourned from time to time until a
quorum is obtained. Votes withheld from any director nominee will be counted in
1
<PAGE>
determining whether a quorum has been reached. In the election of directors,
shareholders are not entitled to cumulate their votes and are not entitled to
vote for a greater number of persons than the number of nominees named in this
Proxy Statement.
Assuming the presence of a quorum, the affirmative vote of a plurality of the
shares of Common Stock present in person or represented by proxy at the Annual
Meeting is required for the election of directors. This simply means that the
seven director nominees who receive the highest number of affirmative votes will
be elected as directors. Votes may be cast in favor of or withheld from a
director nominee. Votes that are withheld from a particular nominee will be
excluded entirely from the vote and will not affect the outcome of the vote.
Under applicable rules, brokers who hold shares in street name have the
authority to vote on the election of directors when they have not received
instructions from beneficial owners. Brokers who do not receive instructions are
generally entitled to vote on the election of directors.
Assuming the presence of a quorum, the affirmative vote of a majority of the
shares of Common Stock present in person or represented by proxy at the Annual
Meeting is required to approve the 2000 Stock Option Plan. Votes may be cast
"for", "against" or "abstain" on this matter. Votes that are cast as an
"abstain" vote will have the practical effect of a vote against the matter,
because abstaining votes are counted as shares with voting power present at the
meeting. Under applicable rules, brokers who hold shares in street name may not
have the authority to vote on this proposal when they have not received
instructions from beneficial owners.
In all other matters, assuming the presence of a quorum, the affirmative vote of
a majority of the shares of Common Stock present in person or represented by
proxy and entitled to vote thereon is required to take shareholder action.
Where a shareholder has appropriately specified how a proxy is to be voted, it
will be voted accordingly, and where no specific direction is given, it will be
voted FOR approval of each of the proposals set forth in the Notice of Annual
Meeting and at the discretion of the proxy holders on all other business that
may properly come before the meeting. Abstentions and broker nonvotes will be
counted for purposes of determining whether a quorum exists, but will not be
counted as affirmative votes in the election of the directors. Again, with
respect to the approval of the 2000 Stock Option Plan and all other
matters, an abstention or broker nonvote would have the same effect as a vote
against the proposal.
2
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
AND PRINCIPAL SHAREHOLDERS
The following table sets forth, as of April 7, 2000, the beneficial ownership of
each current director, each nominee for director, the Chief Executive Officer
and the four most highly compensated executive officers (the "Named Executive
Officers") whose total annual salary and bonus exceeded $100,000 for the year,
all executive officers and directors as a group, and each shareholder known to
management of the Company to own beneficially more than 5% of the outstanding
Common Stock.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership(1) of Class(2)
- -------------------- ----------------------- ------------
<S> <C> <C>
T. Rowe Price Associates, Inc. 906,300(3) 12.13%
100 East Pratt
Baltimore, Maryland 21202
Brookside Capital Partners Fund, L.P. 683,600(4) 9.15%
Two Copley Place
Boston, Massachusetts 02116
DCF Capital, L.L.C. 626,500(5) 8.39%
660 Steamboat Road
Greenwich, Connecticut 06830
Robert L. Swisher, Jr. 570,000(6) 7.53%
5005 LBJ Freeway, Suite 1130
Dallas, Texas 75244
Dimensional Fund Advisors Inc. 480,009(7) 6.43%
1299 Ocean Avenue
11th Floor
Santa Monica, California 90401
Christopher G. Chavez 159,150(8) 2.09%
4437 Cordova Lane
McKinney, Texas 75070
Hugh M. Morrison 45,750(9) *
2517 Bluebonnet Boulevard
Houston, Texas 77030
Robert C. Eberhart, Ph.D. 25,675(10) *
10519 Royal Springs
Dallas, Texas 75229
A. Ronald Lerner 117,000 1.57%
2340 Three Bears Road
Bozeman, Montana 59719
Richard D. Nikolaev 45,000(11) *
11835 N. 83rd Place
Scottsdale, Arizona 85260
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership(1) of Class(2)
- -------------------- ----------------------- ------------
<S> <C> <C>
Michael J. Torma, M.D. 10,000(12) *
1029 Delaware
Shreveport, Louisiana 71106
Joseph E. Laptewicz, Jr. 7,500(12) *
119 Trent Lane
Chocowinity, North Carolina 27817
F. Robert Merrill III 90,451(13) 1.20%
3329 Leigh Drive
Plano, Texas 75025
Scott F. Drees 95,250(12) 1.26%
834 Parkwood Court
McKinney, Texas 75070
Alan W. Mock 18,750(12) *
5212 N. Meadow Ridge Circle
McKinney, Texas 75070
Stuart B. Johnson 40,250(14) *
3112 Pinehurst
Plano, Texas 75075
All directors and executive officers 773,774(15) 9.72%
as a group, including those named above
(14 persons)
</TABLE>
- --------------------
* Less than 1.0%
(1) Unless otherwise noted and subject to community property laws, where
applicable, the persons named in the table above have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them.
(2) Shares not outstanding but deemed beneficially owned by virtue of the right
of a person or member of a group to acquire them within 60 days are treated
as outstanding only when determining the amount and percent owned by such
person or group.
(3) Based on information obtained by the Company from Schedule 13G filed by T.
Rowe Price Associates, Inc. dated Apri 10, 2000. T. Rowe Price
Associates, Inc. is deemed to have beneficial ownership of 906,300 shares
of the Company's Common Stock as of April 7, 2000.
(4) Based on information obtained by the Company from Schedule 13G filed by
Brookside Capital Partners Fund, L.P. dated February 11, 2000. Brookside
Capital Partners Fund, L.P. is deemed to have beneficial ownership of
683,600 shares of the Company's Common Stock as of December 31, 1999.
(5) Based on information obtained by the Company from Schedule 13D filed
by DCF Capital, L.L.C. dated April 12, 2000. DCF Capital L.L.C. is
deemed to have beneficial ownership of 626,500 shares of the Company's
Common Stock as of April 7, 2000.
(6) Based on information obtained by the Company from Schedule 13D/A filed
by Robert L. Swisher, Jr. dated January 3, 2000. Mr. Swisher owned 470,000
shares of the Company's Common Stock as of December 31, 1999, and a
warrant to purchase 100,000 shares of the Company's Common Stock which
became exercisable as of February 21, 1997 at an exercise price of $6.50
per share.
(7) Based on information obtained by the Company from Schedule 13G filed by
Dimensional Fund Advisors, Inc. ("Dimensional"), an investment advisor
registered under Section 203 of the Investment Advisors Act of 1940, dated
February 11, 2000. Dimensional is deemed to have beneficial ownership of
480,009 shares of the Company's Common Stock, as of December 31, 1999.
(8) Includes 156,250 shares subject to options.
(9) Includes 20,000 shares subject to options.
(10) Includes 2,500 shares subject to options.
(11) Includes 15,000 shares subject to options.
(12) Consists entirely of shares subject to options.
(13) Includes 70,450 shares subject to options.
(14) Includes 20,250 shares subject to options.
(15) Includes 488,200 shares subject to options.
4
<PAGE>
PROPOSAL I
ELECTION OF DIRECTORS
Seven directors are nominated for election at the Annual Meeting. Each director
will serve until the next annual meeting of shareholders or until his successor
shall be elected and shall qualify. Proxies in the accompanying form will be
voted for the seven nominees listed in the table that follows, except where
authority is specifically withheld by the shareholder.
All nominees are incumbent directors. If any of the nominees should become
unable to accept the election, or for good cause will not accept the election,
the person named in the proxy may vote for such other person or persons as may
be designated by the Board of Directors, or the Board of Directors can vote to
reduce the size of the Board. Each of the nominees named below has indicated his
willingness to accept election, and management has no reason to believe that any
of the nominees named below will be unable or unwilling to serve.
The nominees for directors of the Company are as follows:
<TABLE>
<CAPTION>
Director
Principal Occupation or of
Employment During the Company
Name Past Five Years Age Since
- ------------------------------ ---------------------------------- ---- ---------
<S> <C> <C> <C>
Hugh M. Morrison(1) President and Chief Executive 52 1983
Officer of Clean Acquisition, Inc.
and Pilgrim Cleaners, Inc. since
March 1996; Independent Business
Consultant and Investor from
January 1993 to February 1996;
Chairman of the Board of the
Company since January 1998.
Robert C. Eberhart, Ph.D.(1,2) Professor of Engineering in 62 1994
Surgery, University of Texas
Southwestern Medical Center,
Dallas, Texas; Director,
Biomedical Engineering, University
of Texas at Arlington, Arlington,
Texas since September 1983.
Chairman, Joint Program in
Biomedical Engineering, University
of Texas Southwestern Medical
Center, Dallas, Texas, and
University of Texas at Arlington,
Arlington, Texas from September
1983 to December 1999.
Michael J. Torma, M.D.(1,2) Vice President-Technology 57 1994
Development of Biomedical Research
Foundation of Northwest Louisiana
and Director of the Center for
Biomedical Technology Innovation
(CBTI) since September 1996;
Chair, Surgical Services of
Presbyterian Hospital of Dallas
and Chairman of Institute for
Surgical Sciences of Presbyterian
Healthcare System from October
1992 to September 1996.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Director
Principal Occupation or of
Employment During the Company
Name Past Five Years Age Since
- ------------------------------ ---------------------------------- ---- ---------
<S> <C> <C> <C>
Richard D. Nikolaev (3) President and Chief Executive 60 1996
Officer, NIKOR Enterprises, Inc.
(Healthcare Industry Consulting/
Investing) since November 1997;
President and Chief Executive
Officer of Wright Medical
Technology, Inc. from November
1995 to November 1997; Chief
Executive Officer of
OsteoBiologics, Inc. from August
1995 to November 1995; Independent
Business Consultant from January
1995 to July 1995.
Christopher G. Chavez President, Chief Executive Officer 43 1998
and Director of the Company since
April 1998; Vice President,
Worldwide Marketing & Strategic
Planning, Eastman Kodak Company,
from April 1997 to November 1997;
Vice President and General
Manager, Infection Prevention
Business Unit of Johnson & Johnson
Medical, Inc. (JJMI) from August
1995 to April 1997; Director,
International Marketing of JJMI
from June 1994 to August 1995;
Director of the Health
Industry Council since February
1999.
Joseph E. Laptewicz, Jr.(3) Chairman and Chief Executive 50 1998
Officer, Empi, Inc. (Physical
Therapy and Orthopedic Medical
Products) since October 1994;
President and Chief Executive
Officer, Schneider USA (Subsidiary
of Pfizer, Inc.) from April 1992
to September 1994; Director of
Angiodynamics, Inc., (Peripheral
Interventional Medicine) a
subsidiary of E-Z-EM, Inc. since
April 1997.
A. Ronald Lerner Independ Business Consultant and 54 1999
Investor since January 2000;
Founder and President, Trendalysis
Securities from March 1991 to
December 1999; Founder and
President, Cypress Asset
Management, Inc. from March 1996
to June 1999; Founder and
President, Prometheus Advisors,
Inc. from March 1991 to
February 1996.
</TABLE>
- --------------------------------------------------------------------------------
(1) Member of the Audit Committee of the Board of Directors
(2) Member of the Compensation Committee of the Board of Directors
(3) Member of the Stock Option Committee of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
THE ELECTION OF ALL NOMINEES NAMED ABOVE
6
<PAGE>
COMPENSATION AND COMMITTEES OF THE BOARD OF DIRECTORS
During the year ended December 31, 1999, there were five meetings of the Board
of Directors. Each director attended at least 75% of the aggregate of (a) the
total number of meetings of the Board of Directors held during the period for
which he served as a director and (b) the total number of meetings held by all
committees of the Board of Directors on which he served. The Board has three
committees: Audit, Compensation, and Stock Option.
Prior to the Annual Meeting, the Audit Committee consisted of Mr. Laptewicz and
Mr. Nikolaev, both of whom are independent outside directors. This committee
acts as a liaison between the Board of Directors and the independent auditors.
The committee reviews with the independent auditors the planning and scope of
financial statement audits, the results of those audits and the adequacy of
internal accounting controls. It also monitors other corporate and financial
policies. The Audit Committee held one meeting during the year ended December
31, 1999.
Prior to the Annual Meeting, the Compensation Committee consisted of Dr.
Eberhart, Mr. Morrison, and Dr. Torma, all of whom are independent outside
directors. This committee establishes executive compensation policies and makes
recommendations to the Board of Directors. The Compensation Committee held two
meetings during the year ended December 31, 1999.
Prior to the Annual Meeting, the Stock Option Committee consisted of Dr.
Eberhart and Dr. Torma, both of whom are independent outside directors. This
committee is vested with full authority to select participants, grant options,
determine the number of shares subject to each option, the exercise price of
each option, and in general, to make, administer and interpret such rules and
regulations as it deems necessary to administer the Company's Stock Option
Plans. The Stock Option Committee held one meeting during the year ended
December 31, 1999.
Mr. Morrison, Chairman of the Board, receives an annual retainer of $60,000 and
reimbursement of all expenses incurred in attending each Board of Directors'
meeting. Mr. Morrison does not receive any additional compensation for attending
Board of Directors' meetings or committee meetings. All other nonmanagement
directors receive an annual retainer of $10,000 assuming at least 75% board
meeting attendance, a $1,000 director's fee for each Board of Directors' meeting
attended, $500 for each committee meeting attended and reimbursement of all
expenses incurred in attending such meetings.
Directors and clinical advisors of the Company may be granted nontransferable
stock options under certain of the Company's stock option plans. The option
price per share for stock options granted to directors and clinical advisors
cannot be less than the fair market value per share on the date the option is
granted. In addition, the exercise period for options cannot exceed six years
7
<PAGE>
and each option vests ratably over a four-year period. During the year ended
December 31, 1999, two directors were granted stock options: A. Ronald Lerner
was granted 15,000 shares on November 29,1999 at an exercise price of $7.563 per
share and Richard D. Nikolaev was granted 5,000 shares on November 29, 1999 at
an exercise price of $7.563 per share.
EXECUTIVE OFFICERS
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Executive
Officer
Name Age Position Since
- ---------------------- --- --------------------------------------- ----------
<S> <C> <C> <C>
Christopher G. Chavez 43 President, Chief Executive Officer 1998
and Director
F. Robert Merrill III 50 Executive Vice President - Finance; 1981
Chief Financial Officer;
Treasurer and Secretary
Scott F. Drees 42 Executive Vice President - Sales and 1996
Marketing
James P. Calhoun 50 Vice President - Human Resources 1995
Ramon C. Dougan 58 Vice President - North American Sales 1996
John H. Erickson 51 Vice President - Research and Development 1996
Stuart B. Johnson 53 Vice President - Manufacturing 1997
W. Alan Mock 43 Vice President - Marketing 1996
</TABLE>
Mr. Chavez has been President, Chief Executive Officer and Director of the
Company since April 1998. From April 1997 to November 1997, Mr. Chavez was Vice
President, Worldwide Marketing & Strategic Planning of Eastman Kodak Company.
From January 1990 to April 1997, Mr. Chavez was employed by Johnson & Johnson
Medical, Inc. where he held various positions including Vice President and
General Manager of the Infection Prevention Business Unit from August 1995 to
April 1997; Director, International Marketing from June 1994 to August 1995 and
Director, New Business Development from January 1990 to May 1994.
8
<PAGE>
Mr. Merrill has been Executive Vice-President-Finance since March 1998, Chief
Financial Officer since April 1994, Secretary since February 1989, and Treasurer
since February 1981. Mr. Merrill was acting President and Chief Executive
Officer of the Company from January 1998 to April 1998. From July 1995 to March
1998, Mr. Merrill was Senior Vice President-Finance of the Company, and from
February 1981 to July 1995, was Vice President-Finance. Mr. Merrill joined the
Company in October 1979 as Director of Manufacturing Operations.
Mr. Drees has been Executive Vice-President-Sales and Marketing of the Company
since March 1998. From April 1996 to March 1998, Mr. Drees was Vice President
of the Company and President of ANS from September 1996 to March 1998. From
November 1987 to April 1996, Mr. Drees was employed by St. Jude Medical, Inc.,
a medical device company, where he held various positions within the sales and
marketing area, including Director, North American Sales from August 1990 to
April 1996.
Mr. Calhoun has been Vice President-Human Resources of the Company since April
1995. From May 1992 to April 1995, Mr. Calhoun was Executive Director of Hogan
Quality Institute, a management consulting firm. From February 1988 to May 1992,
Mr. Calhoun was the Vice President of Human Resources and Corporate Quality
Programs of Harris Adacom Corporation, a data communications company.
Mr. Dougan has been Vice President-North American Sales of the Company since
January 2000. Mr. Dougan was Vice President-International Sales of the Company
from September 1996 to December 1999 and was Director of International Sales of
the Company from April 1995 to August 1996. From May 1993 to March 1995, Mr.
Dougan was employed by Neuromed, Inc., the predecessor of the Company which was
acquired by the Company in March 1995. Mr. Dougan held various positions within
the sales and marketing area at Neuromed, Inc. including Director of
International Sales and Marketing.
Mr. Erickson has been Vice President-Research and Development of the Company
since September 1996 and was Director of Electronics Research and Development of
the Company from January 1996 to September 1996. From August 1982 to October
1995, Mr. Erickson was employed by Orthofix Inc. (formerly American Medical
Electronics, Inc.) where he held various positions within the research and
development area including Vice President of Research and Development.
Mr. Johnson has been Vice President-Manufacturing of the Company since June 1997
and was Director of Manufacturing of the Company from March 1997 to June 1997.
From 1993 to 1997, Mr. Johnson was employed by Orthofix Inc. (formerly American
Medical Electronics, Inc.) where he held various positions including Vice
President of Corporate Operations.
9
<PAGE>
Mr. Mock has been Vice President-Marketing of the Company since November 1996.
From November 1995 to October 1996, Mr. Mock was an Independent Business
Consultant. From November 1987 to October 1995, Mr. Mock was employed by DSP
Worldwide (formerly Snowden-Pencer, Inc.) where he held various positions within
the sales and marketing area including Vice President, Sales and Marketing
Operations.
COMPENSATION OF EXECUTIVE OFFICERS
The following tables set forth, for the fiscal year ended December 31, 1999,
certain information regarding compensation, aggregate stock option grants and
exercises during 1999 and year-end stock option values for the Named Executive
Officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
================================================================================
Annual Compensation Long-Term Compensation
----------------------- -----------------------------
Awards Payouts
--------------------- -------
Other All
Annual Restricted Securities Other
Name and Comp. Stock Underlying LTIP Comp.
Principal Salary Bonus (1) Award(s) Options/ Payouts (2)
Position Year ($) ($) ($) ($) SARs(#)(5) ($) ($)
- ------------- ---- -------- ------- ------ ---------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Christopher 1999 $209,023 $95,409 --- --- 25,000 --- $5,000
G. Chavez(3) 1998 $168,749 $75,000 --- --- 200,000 --- $2,591
(C.E.O) 1997 $ --- $ --- --- --- --- --- $ ---
- --------------------------------------------------------------------------------
Scott F. 1999 $150,529 $34,586 --- --- 10,000 --- $5,000
Drees 1998 $143,750 $36,250 --- --- 107,000 --- $4,937
(Ex. Vice 1997 $132,000 $13,000 --- --- 7,000 --- $3,536
President)
- --------------------------------------------------------------------------------
F. Robert 1999 $125,612 $28,861 --- --- 10,000 --- $4,676
Merrill III 1998 $119,963 $80,250(4)--- --- 65,000 --- $5,000
(C.F.O.) 1997 $110,209 $10,000 --- --- --- --- $2,907
- --------------------------------------------------------------------------------
Alan W. 1999 $115,236 $21,182 --- --- 10,000 --- $4,054
Mock 1998 $109,038 $16,500 --- --- 25,000 --- $3,580
(Vice 1997 $100,000 $ 7,500 --- --- --- --- $1,625
President)
- --------------------------------------------------------------------------------
Stuart B. 1999 $108,477 $24,925 --- --- 20,000 --- $3,992
Johnson(6) 1998 $103,587 $20,900 --- --- 27,000 --- $3,318
(Vice 1997 $ 76,653 $ 4,000 --- --- 17,000 --- $ ---
President)
- --------------------------------------------------------------------------------
</TABLE>
(1) None of the Named Executive Officers received personal benefits, securities
or property in excess of the lesser of $50,000 or 10 percent of such
individual's reported salary and bonus.
(2) Reflects matching employer contributions under the Company's Employees
Savings Plan 401(k).
(3) Mr. Chavez joined the Company on April 9, 1998. The compensation
amounts for 1998 reflect compensation from April 1998 through December
1998.
(4) Includes a $50,000 bonus paid in connection with the sale of the
cardiovascular business in January 1998.
(5) The 1998-year includes new option grants and repriced options.
(6) Mr. Johnson joined the Company on March 17, 1997. The compensation
amounts for 1997 reflect compensation from March 1997 through December
1997.
10
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Potential Realizable
Number of Percent of Value at Assumed
Securities Total Annual Rates of
Underlying Options/SARs Exercise Stock Price
Options/SARs Granted to or Base Appreciation
Granted Employees In Price Expiration For Option Term
Name (#) Fiscal Year ($/Sh) Date 5% 10%
- -------------- ------------ ------------ -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Christopher G. 25,000 8.00% $6.625 03/31/09 $104,163 $263,968
Chavez
- --------------------------------------------------------------------------------
F. Robert 10,000 3.20% $6.625 03/31/09 $ 41,665 $105,587
Merrill III
- --------------------------------------------------------------------------------
Scott F. Drees 10,000 3.20% $6.625 03/31/09 $ 41,665 $105,587
- --------------------------------------------------------------------------------
Alan W. Mock 10,000 3.20% $6.625 03/31/09 $ 41,665 $105,587
- --------------------------------------------------------------------------------
Stuart B. 20,000 6.40% $6.625 03/31/09 $ 83,330 $211,174
Johnson
- --------------------------------------------------------------------------------
</TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Number of
Securities Value of
Underlying Unexercised
Unexercised In-The-Money
Shares Options/SARs Options/SARs
Acquired at FY-end (#) at FY-end ($)(1)
on Value ------------------ ---------------------
Exercise Realized Exer- Unexer- Exer- Unexer-
Name (#) ($) cisable cisable cisable cisable
- ------------------- --------- --------- -------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Christopher G.
Chavez -- -- 100,000 125,000 $437,500 $506,250
- --------------------------------------------------------------------------------
F. Robert Merrill -- -- 55,450 35,000 $274,884 $136,875
III
- --------------------------------------------------------------------------------
Scott F. Drees -- -- 66,000 51,000 $288,750 $206,875
- --------------------------------------------------------------------------------
Alan W. Mock -- -- 16,250 18,750 $ 71,094 $ 65,781
- --------------------------------------------------------------------------------
Stuart B. Johnson -- -- 11,000 36,000 $ 48,125 $125,000
- --------------------------------------------------------------------------------
</TABLE>
(1) Represents the difference between the closing market price of the Common
Stock on the Nasdaq National Market System on December 31, 1999 and the
exercise price of the options.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Company's directors, executive officers and persons who own more than 10% of
the Company's Common Stock, to file with the Securities and Exchange Commission
(the "SEC") initial reports of ownership and reports of changes in ownership of
Common Stock and other equity securities of the Company.
Upon receipt of the appropriate information, the Company has prepared all Forms
3, 4 and 5 for its non-employee directors and executive officers, subject to
their review and signing prior to filing with the SEC. Based solely on the
information provided to the Company by individual non-employee directors and
11
<PAGE>
executive officers, the Company believes that all filing requirements applicable
to such persons have been complied with in 1999.
COMPENSATION COMMITTEE REPORT
The Compensation Committee, comprised of three independent outside directors,
recommends compensation strategies, policies, and programs to the Board of
Directors and approves annual salary and cash bonus awards to executive officers
and long-term incentive awards to all key employees.
The Board of Directors and the Compensation Committee believe that the Company's
success requires a small, but highly motivated professional staff. The
Compensation programs, therefore, are primarily designed to attract and retain
highly capable executives and key employees, to motivate the performance of
executives in support of the achievement of the Company's strategic financial
and operating performance objectives and to reward performance that meets this
standard.
The Company's executive compensation program combines base salary, annual bonus,
and a stock ownership program to attract and retain executives. Base salary
increases and annual bonuses are based, in part, on corporate performance.
Compensation is also based on a competitive analysis of compensation paid by
other comparable companies, current market conditions for recruiting highly
skilled and/or specialized talent, the need to retain key executives, the
experience level and market worth of current executives, and individual
performance.
Under the Company's annual bonus program, year-end cash bonuses are awarded to
executive officers based on the level of achievement of annual revenue and
earnings objectives. Targeted bonus levels for executive officers are
established by the Compensation Committee annually.
The stock option programs of the Company are long-term incentive plans for
executive officers and key employees that are intended to motivate executives
and employees to improve total return to shareholders. Stock options are
generally granted annually, with an exercise price of the fair market value of
the Common Stock on the date of the grant. The number of options granted to a
recipient is determined using various factors such as the long-term incentives
granted to executive officers in companies of comparable size and the
contribution of the individual recipient to the Company. To encourage long-term
performance, options generally vest over a four-year period.
In addition to using local and national survey data the Company, on occasion,
uses the services of independent compensation and benefits consulting firms to
provide analysis and recommendations for competitive pay levels and programs.
12
<PAGE>
In early 1999, the Compensation Committee increased the base salary levels of
the Company's eight executive officers by an average of 4.5%. At year-end 1999,
based on performance for 1999, the Compensation Committee granted cash bonuses
of $273,772 to those eight executive officers.
The base salary of Mr. Chavez, the Chief Executive Officer of the Company, was
increased by 4.5% to $209,000 in early 1999. The Compensation Committee also
established the target bonus in 1999 for Mr. Chavez of 50% of his base salary,
with a potential range of 0% to 100% of his base salary, depending on the degree
of attainment of the budgeted revenue and earnings objectives of the Company in
1999. Based on 1999 results, the Compensation Committee awarded Mr. Chavez a
cash bonus of $95,409, which is part of the $273,772 of total bonuses granted to
the Company's eight executive officers for 1999.
In 1999, Mr. Chavez was also granted options to purchase 25,000 shares of Common
Stock at an exercise price of $6.625 per share, the fair market value of the
stock on the date of the grant.
COMPENSATION COMMITTEE
Robert C. Eberhart
Hugh M. Morrison
Michael J. Torma
This Compensation Committee report will not be deemed to be incorporated by
reference in any filing by the Company under the Securities Act of 1933, as
amended (the "Securities Act"), or the Exchange Act of 1934, as amended (the
"Exchange Act"), except to the extent that the Company specifically incorporates
this report by reference.
Performance Graph. The following graph compares the cumulative total return of
the Company's Common Stock during the period commencing January 1, 1995 through
December 31, 1999, with the Nasdaq U.S. Market Index and an index of companies
within the Standard Industrial Code for Medical Devices, Instruments, and
Supplies (the "Peer Index").
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
ANS 100.000 197.619 147.619 132.738 120.248 178.571
Nasdaq Market Index 100.000 141.335 173.892 213.073 300.248 542.430
Peer Index 100.000 151.759 142.158 162.861 182.442 221.945
</TABLE>
[OBJECT OMITTED]
The stock price performance depicted in the Performance Graph is not necessarily
indicative of future price performance. The Performance Graph will not be deemed
to be incorporated by reference in any filing by the Company under the
Securities Act or the Exchange Act.
13
<PAGE>
PROPOSAL II
APPROVAL OF THE ADVANCED NEUROMODULATION SYSTEMS, INC.
2000 STOCK OPTION PLAN
Effective February 22, 2000, the Board of Directors adopted the Advanced
Neuromodulation Systems, Inc. 2000 Stock Option Plan (the "2000 Plan"). Certain
options granted under the 2000 Plan are intended to qualify as "incentive stock
options" pursuant to Section 422 of the Internal Revenue Code of 1986, as
amended from time to time ("Incentive Stock Options"), while certain other
options granted under the 2000 Plan will constitute nonqualified options. The
2000 Plan is being submitted for approval by the shareholders of the Company to
permit the granting of Incentive Stock Options and to insure full deductibility
by the Company of compensation derived from option exercises by executives under
Section 162(m) under the Internal Revenue Code (the "Code"). A summary of the
material features of the 2000 Plan follows. This summary does not purport to be
complete and is qualified in its entirety by reference to the text of the 2000
Plan, a copy of which is attached as Appendix A and is incorporated herein by
reference.
Purpose of the 2000 Plan. The purpose of the 2000 Plan is to furnish additional
equity incentives to directors, clinical advisors, consultants, officers and key
employees of the Company because there are a limited number of shares of Common
Stock remaining for issuance under the Advanced Neuromodulation Systems, Inc.
1979, 1995, 1998 and Directors' Stock Option Plans. The additional equity
incentives are designed to increase shareholder value and to advance the
interests of the Company by furnishing incentives to attract and retain the best
available personnel for positions of substantial responsibility and to provide
incentives to such personnel to promote the success of the business of the
Company and its subsidiaries. Because the Company has used stock options to
successfully attract and retain directors, clinical advisors, consultants,
officers and key employees in the past, the Board of Directors determined that
it would be in the Company's best interest to adopt a new stock option plan.
Shares Issuable through the 2000 Plan. The total number of shares of Common
Stock issuable under the 2000 Plan will be 500,000 shares, provided that on
January 1 of each year (commencing on January 1, 2001), the aggregate
number of shares of Common Stock then issuable upon the exercise of options
will be increased by the same percentage that the total number of issued and
outstanding shares of Common Stock increased from the preceding January 1 to the
following December 31 (if the percentage is positive). Notwithstanding the
above, the aggregate number of shares of Common Stock issuable upon the exercise
of Incentive Stock Options pursuant to the 2000 Plan cannot exceed 500,000
shares. Shares of Common Stock subject to stock options that are canceled,
terminated or forfeited will again be available for issuance under the 2000
Plan. The aggregate number of shares of Common Stock with respect to which
14
<PAGE>
options may be granted to any single participant in any one calendar year will
not exceed 100,000.
Directors, clinical advisors, consultants, officers and key employees of the
Company are eligible to receive stock option grants under the 2000 Plan.
Approximately 43 employees were eligible to participate in the 2000 Plan as of
April 7, 2000.
The 2000 Plan is being submitted to the shareholders for approval in part to
comply with the provisions of Section 162(m) of the Code. Section 162(m) limits
the tax deduction available to a company with respect to compensation paid to
certain of its executive officers unless, among other conditions, the
compensation is "performance based" and is paid pursuant to a plan approved by
shareholders.
Each stock option granted under the 2000 Plan will be evidenced by a stock
option agreement containing such terms and provisions as are approved by the
Stock Option Committee and executed on behalf of the Company by an appropriate
officer. The per share exercise price of each stock option is determined by the
Stock Option Committee, but will in no event be less than the fair market value
of the Common Stock at the time the stock option is granted. Vesting of the
stock options will be determined by the Stock Option Committee, under terms and
conditions set forth in each stock option agreement. However, no Incentive Stock
Option will be exercisable at any time after the expiration of ten (10) years
from the date of grant; provided, however, that if a participant with respect to
an Incentive Stock Option is a 10% shareholder on the date of grant of such
Incentive Stock Option, then such Incentive Stock Option will not be
exercisable after the expiration of five (5) years from its date of grant.
Upon exercise of a stock option under the 2000 Plan, the exercise price for the
purchased shares will be immediately payable in cash, by check, or at the Stock
Option Committee's option, in shares of Common Stock that the optionee has owned
for at least six months, having a fair market value on the date immediately
preceding the exercise date equal to the exercise price. The Stock Option
Committee may, but is not required to, make financing available to the
participant for the purchase of shares of Common Stock pursuant to such stock
option on such terms as it shall specify.
The Board has the discretion at the time of a grant or at any time prior to or
upon the occurrence of a change of control or potential change of control, to
provide in whole or in part for the accelerated exercisability of each option
outstanding at the time.
15
<PAGE>
Options granted under the 2000 Plan are not assignable or transferable other
than by will or the laws of descent and distribution, and during the optionee's
lifetime, the option may be exercised only by such optionee.
Termination of Employment. If a participant dies or becomes disabled, all vested
Incentive Stock Options may be exercised at any time within one year (or the
remaining term of the stock option, if less). If a participant ceases to be a
Company officer or employee for any other reason, he or she must exercise any
vested Incentive Stock Options within three months (or their remaining term, if
less).
Administration of the 2000 Plan. The Stock Option Committee of the Board of
Directors will administer the 2000 Plan. The Stock Option Committee is generally
empowered to interpret the 2000 Plan, to prescribe, and rescind rules and
regulations relating to it, and to determine the terms and provisions of the
respective stock option agreements. The Board of Directors or the Stock Option
Committee may amend or discontinue the 2000 Plan at any time subject to certain
restrictions set forth in the 2000 Plan. Except in limited circumstances, no
amendment or discontinuance may adversely affect any previously granted stock
option award without the consent of the recipient thereof. Shareholder approval
is required if the number of shares issuable under the 2000 Plan is increased or
the class of eligible employees is changed.
Federal Income Tax Consequences. The following general description of federal
income tax consequences is based upon current statutes, regulations and
interpretations and does not purport to be complete. Reference should be made to
the applicable provisions of the Internal Revenue Code of 1986 (as amended, the
"Code"). There also may be state, local and foreign income tax consequences
applicable to transactions involving stock options.
Under existing federal income tax provisions, a participant who receives stock
options will not normally realize any income, nor will the Company normally
receive any deduction for federal income tax purposes upon the grant of a stock
option.
When a nonqualified stock option granted pursuant to the 2000 Plan is exercised,
the employee generally will recognize ordinary income (compensation) measured by
the difference between the aggregate purchase price of the Common Stock as to
which the stock option is exercised and the aggregate fair market value of the
Common Stock on the exercise date, and the Company generally will be entitled to
a deduction in the year the stock option is exercised equal to the amount the
employee is required to treat as ordinary income. Any taxable income recognized
in connection with a nonqualified stock option exercised by an optionee who is
also an employee of the Company will be subject to tax withholding by the
Company. The basis for determining gain or loss upon a subsequent disposition of
Common Stock acquired upon the exercise of a nonqualified stock option will be
16
<PAGE>
the purchase price paid to the Company for the Common Stock increased by an
amount included in the optionee's taxable income resulting from the exercise of
such stock option. The holding period for determining the rate of tax on gain or
loss on such subsequent disposition generally begins on the date on which the
optionee acquires the Common Stock.
An employee generally will not recognize any income upon the exercise of an
Incentive Stock Option, but the exercise may, depending on particular factors
relating to the employee, subject the employee to the alternative minimum tax.
An employee will recognize capital gain or loss in the amount of the difference
between the exercise price and the sale price on the sale or exchange of stock
acquired pursuant to the exercise of an Incentive Stock Option, provided that
the employee does not dispose of such stock within two years from the date of
grant and one year from the date of exercise of the Incentive Stock Option (the
"Required Holding Periods"). An employee disposing of such shares before the
expiration of the Required Holding Periods will recognize ordinary income equal
to the lesser of (i) the difference between the stock option price and the fair
market value of the stock on the date of exercise, or (ii) the total amount of
gain realized. The remaining gain or loss is generally treated as capital gain
or loss, with the tax rate depending on how long the shares are held. The
Company will not be entitled to a federal income tax deduction in connection
with the exercise of an Incentive Stock Option, except where the employee
disposes of the shares of Common Stock received upon exercise before the
expiration of the Required Holding Periods.
The affirmative vote of a majority of the shares of Common Stock voted at the
Annual Meeting and entitled to vote thereon is required (a) to permit the
granting of Incentive Stock Options under the 2000 Plan, and (b) to qualify
awards of stock options under the 2000 Plan as "performance based" under Section
162(m) of the Code. If the 2000 Plan is not approved by the shareholders at the
Annual Meeting, then any stock options previously granted under the 2000 Plan
will be nonqualified stock options, regardless of whether the stock option
agreement relating thereto purports to grant Incentive Stock Options, and such
options will not qualify as "performance based" under Section 162(m). No
executive officers or directors will be issued stock options under the 2000 Plan
until the shareholders have voted on the 2000 Plan at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
APPROVAL OF THE 2000 STOCK OPTION PLAN
INDEPENDENT AUDITOR
Ernst & Young LLP has been selected by the Board of Directors as the Company's
independent auditor for the current year. Representatives of Ernst & Young LLP
are expected to be present at the Annual Meeting and will have an opportunity to
make a statement if they desire to do so, and are expected to be available to
respond to appropriate questions.
17
<PAGE>
SHAREHOLDER PROPOSALS
A proper proposal submitted by a shareholder in accordance with applicable rules
and regulations for presentation at the Company's annual shareholders meeting in
2001 and received at the Company's principal executive office by December 18,
2000 will be included in the Company's Proxy Statement and form of proxy
relating to such annual meeting of shareholders, if it is a proposal that the
Company is required to include in the Proxy Statement under the rules of the
Securities and Exchange Commission.
OTHER MATTERS
The Board of Directors is not aware of any matter to be presented for action at
the meeting other than the matters set forth herein. Should any other matter
requiring a vote of shareholders arise, the proxies in the enclosed form confer
upon the person or persons entitled to vote the shares represented by such
proxies discretionary authority to vote the same in accordance with their best
judgment in the interest of the Company.
FINANCIAL STATEMENTS AVAILABLE
A copy of the Company's 1999 Annual Report accompanies this Proxy Statement. The
Annual Report does not constitute a part of the proxy solicitation material.
Upon written request to F. Robert Merrill III, Corporate Secretary, Advanced
Neuromodulation Systems, Inc., 6501 Windcrest Drive, Suite 100, Plano, Texas
75024, the Company will provide without charge copies of the Company's Annual
Report on Form 10-K.
By Order of the Board of Directors
F. Robert Merrill III
Secretary
Plano, Texas
April 17, 2000
18
<PAGE>
Appendix A
ADVANCED NEUROMODULATION SYSTEMS, INC.
2000 STOCK OPTION PLAN
1. Purpose of the Plan. This Plan shall be known as the Advanced
Neuromodulation Systems, Inc. 2000 Stock Option Plan. The purposes of the Plan
are (i) to attract and retain the best available personnel for positions of
substantial responsibility, (ii) to attract and retain directors and clinical
advisors with a high degree of training, experience and ability and (iii) to
provide incentives to such personnel, directors and clinical advisors to promote
the success of the business of Advanced Neuromodulation Systems, Inc. and its
subsidiaries.
Certain options granted under this Plan are intended to
qualify as "incentive stock options" pursuant to Section 422 of the Internal
Revenue Code of 1986, as amended from time to time, while certain other options
granted under the Plan will constitute nonqualified options.
2. Definitions. As used herein, the following definitions will
apply:
(a) "Board" means the Board of Directors of the Corporation.
(b) "Common Stock" means the Common Stock, $.05 par value per
share, of the Corporation. Except as otherwise provided herein, all Common Stock
issued pursuant to the Plan will have the same rights as all other issued and
outstanding shares of Common Stock, including but not limited to voting rights,
the right to dividends, if declared and paid, and the right to pro rata
distributions of the Corporation's assets in the event of liquidation.
(c) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
(d) "Committee" means the committee described in Section 18(a)
that administers the Plan.
(e) "Corporation" means Advanced Neuromodulation Systems,
Inc., a Texas corporation.
(f) "Date of Grant" means the date on which an Option is
granted pursuant to this Plan or, if the Committee so determines, the date
specified by the Committee as the date the award is to be effective.
A-1
<PAGE>
(g) "Director" means any director, clinical advisor or
consultant of the Corporation or one of its Subsidiaries, but excluding any
director, clinical advisor or consultant who is also an officer or employee of
the Corporation or one of its Subsidiaries.
(h) "Employee" means any officer or other key employee of the
Corporation or one of its Subsidiaries, including any director who is also an
officer or key employee of the Corporation or one of its Subsidiaries.
(i) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(j) "Executive" means an Employee who is, or in the judgment
of the Committee may become, the Chief Executive Officer of the Corporation or
one of the other four most highly compensated executive officers of the
Corporation.
(k) "Fair Market Value" means the closing sale price (or
average of the quoted closing bid and asked prices if there is no closing sale
price reported) of the Common Stock on the trading day immediately prior to the
date specified as reported by The Nasdaq Stock Market or by the principal
national stock exchange on which the Common Stock is then listed. If there is no
reported price information for the Common Stock, the Fair Market Value will be
determined by the Committee, in its sole discretion. In making such
determination, the Committee may, but will not be obligated to, commission and
rely upon an independent appraisal of the Common Stock.
(l) "Non-Employee Director" means an individual who is a
"non-employee director" as defined in Rule 16b-3 under the Exchange Act and also
an "outside director" within the meaning of Treasury Regulation ss.
1.162-27(e)(3).
(m) "Nonqualified Option" means any Option that is not a
Qualified Option.
(n) "Option" means a stock option granted pursuant to Section
6 of this Plan.
(o) "Optionee" means any Employee or Director who receives an
Option.
(p) "Participant" means any Employee or Director who receives
an Option pursuant to this Plan.
(q) "Plan" means the Advanced Neuromodulation Systems, Inc.
2000 Stock Option Plan, as amended from time to time.
A-2
<PAGE>
(r) "Qualified Option" means any Option that is intended to
qualify as an "incentive stock option" within the meaning of Section 422 of the
Code.
(s) "Rule 16b-3" means Rule 16b-3 of the rules and regulations
under the Exchange Act, as Rule 16b-3 may be amended from time to time, and any
successor provisions to Rule 16b-3 under the Exchange Act.
(t) "Subsidiary" means any now existing or hereinafter
organized or acquired company of which more than fifty percent (50%) of the
issued and outstanding voting stock is owned or controlled directly or
indirectly by the Corporation or through one or more Subsidiaries of the
Corporation.
3. Term of Plan. The Plan has been adopted by the Board effective
as of February 22, 2000. To permit the granting of Qualified Options under the
Code, and to qualify awards of Options hereunder as "performance based" under
Section 162(m) of the Code, the Plan will be submitted for approval by the
shareholders of the Corporation by the affirmative votes of the holders of a
majority of the shares of Common Stock then issued and outstanding, for approval
no later than the next annual meeting of shareholders. If the Plan is not so
approved by the shareholders of the Corporation, then any Options previously
granted under the Plan will be Nonqualified Options, regardless of whether the
option agreements relating thereto purport to grant Qualified Options, and any
options granted to Executives will be void. The Plan will continue in effect
until terminated pursuant to Section 18(a).
4. Shares Subject to the Plan. Except as otherwise provided in
Section 17 hereof, the aggregate number of shares of Common Stock issuable upon
the exercise of Options pursuant to this Plan will be 500,000 shares; provided
that on January 1 of each year (commencing on January 1, 2001), the aggregate
number of shares of Common Stock then issuable upon the exercise of Options will
be increased by the same percentage that the total number of issued and
outstanding shares of Common Stock increased from the preceding January 1 to the
following December 31 (if the percentage is positive). For example, if the total
number of issued and outstanding shares of Common Stock on January 1, 2000 were
5,000,000, the total number of issued and outstanding shares of the Corporation
on December 31, 2000 were 5,500,000, and the aggregate number of shares of
Common Stock then issuable upon the exercise of Options pursuant to this Plan
were 250,000, the aggregate number of shares of Common Stock issuable under the
Plan effective January 1, 2001 would be 275,000 (a 10% increase).
Notwithstanding the above, the aggregate number of shares of Common Stock
issuable upon the exercise of Qualified Options pursuant to this Plan
will not exceed 500,000 shares. Shares issuable upon the exercise of Options
may either be authorized but unissued shares or treasury shares. The Corporation
will, during the term of this Plan, reserve and keep available a number of
A-3
<PAGE>
shares of Common Stock sufficient to satisfy the requirements of the Plan. If an
Option should expire or become unexercisable for any reason without having been
exercised in full, then the shares that were subject thereto shall, unless the
Plan shall have terminated, become immediately available for the grant of
additional Options under this Plan, subject to the limitations and adjustments
set forth above. In addition, for purposes of calculating the aggregate number
of shares that may be issued under this Plan, only the net shares issued
(including the shares, if any, withheld for tax withholding requirements) will
be counted when shares of Common Stock are used as full or partial payment for
shares issued upon exercise of a Qualified Option or a Nonqualified Stock
Option. Shares tendered by a Participant as payment for shares issued upon such
exercise will be available for reissuance under the Plan.
5. Eligibility. Qualified Options may be granted under Section 6
of the Plan to such Employees of the Corporation or its Subsidiaries as may be
determined by the Committee. Nonqualified Options may be granted under Section 6
of the Plan to such Employees or Directors of the Corporation or its
Subsidiaries as may be determined by the Committee. Subject to the limitations
and qualifications set forth in this Plan, the Committee will also determine
the number of Options to be granted, the number of shares subject to each Option
grant, the exercise price or prices of each Option, the vesting and exercise
period of each Option, whether an Option may be exercised as to less than all of
the Common Stock subject thereto, and such other terms and conditions of each
Option as are consistent with the provisions of this Plan. In connection with
the granting of Qualified Options, the aggregate Fair Market Value (determined
at the Date of Grant of a Qualified Option) of the shares with respect to which
Qualified Options are exercisable for the first time by an Optionee during any
calendar year (under all such plans of the Optionee's employer corporation and
its parent and subsidiary corporations as defined in Section 424(e) and (f) of
the Code, or a corporation or a parent or subsidiary corporation of such
corporation issuing or assuming an Option in a transaction to which Section
424(a) of the Code applies (collectively, such corporations described in this
sentence are hereinafter referred to as "Related Corporations")) will not
exceed $100,000 or such other amount as from time to time provided in Section
422(d) of the Code or any successor provision. In the event that the
Participant's total Qualified Options exceed the $100,000 limit in any calendar
year (whether due to acceleration of exercisability, miscalculation, error or
otherwise) the amount of Qualified Options that exceed such limit will be
treated as Nonqualified Options. The Qualified Options granted earliest (whether
under this Plan or any other agreement or plan) will be applied first to the
$100,000 limit. In the event that only a portion of the Qualified Options
granted at the same time can be applied to the $100,000 limit, the Corporation
will issue separate share certificates for such number of shares as does not
exceed the $100,000 limit, and will designate such shares as Qualified Option
stock in its share transfer records.
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<PAGE>
6. Grant of Options. Except as provided in Section 18(c), the
Committee will determine the number of shares of Common Stock to be offered
from time to time pursuant to Options granted hereunder and will grant Options
under the Plan. Notwithstanding the foregoing, each member of the Committee
shall be eligible to receive Options only if the Board unanimously (except for
such Committee member) grants such Option to such member. The grant of Options
will be evidenced by Option agreements containing such terms and provisions as
are approved by the Committee and executed on behalf of the Corporation by an
appropriate officer. In connection with the granting of any Options under the
Plan, the aggregate number of shares of Common Stock with respect to which
Options may be granted to any single Executive in any one calendar year will
not exceed 100,000. Solely for this purpose, Options that lapse or are canceled
continue to count against such limit.
7. Time of Grant of Options. The date of grant of an Option under
the Plan will be the date on which the Committee awards the Option or, if the
Committee so determines, the date specified by the Committee as the date the
award is to be effective. Notice of the grant will be given to each Participant
to whom an Option is granted promptly after the date of such grant.
8. Price. The exercise price for each share of Common Stock
subject to an Option (the "Exercise Price") granted pursuant to Section 6 of the
Plan will be determined by the Committee at the Date of Grant; provided,
however, that (a) the Exercise Price for any Option will not be less than 100%
of the Fair Market Value of the Common Stock at the Date of Grant, and (b) if
the Optionee owns on the Date of Grant more than 10 percent of the total
combined voting power of all classes of stock of the Corporation or its parent
or any of its subsidiaries, as more fully described in Section 422(b)(6) of the
Code or any successor provision (such shareholder is referred to herein as a
"10-Percent Shareholder"), the Exercise Price for any Qualified Option granted
to such Optionee will not be less than 110% of the Fair Market Value of the
Common Stock at the Date of Grant.
9. Vesting. Subject to Section 11 of this Plan, each Option award
under the Plan will vest or be subject to forfeiture in accordance with the
provisions set forth in the applicable Option agreement. The Committee may, but
will not be required to, permit acceleration of vesting or termination of
forfeiture provisions upon any sale of the Corporation or similar transaction.
Notwithstanding the foregoing, in no event will the acceleration of any Option
hereunder upon a change of control of the Corporation occur to the extent an
"excess parachute payment" (as defined in Section 280G of the Code) would
result. In the event that the Committee determines that such an excess parachute
payment would result if acceleration occurred (when added to any other payments
or benefits contingent on a change of control under any other agreements,
arrangements or plans) then the number of shares as to which excercisability is
accelerated will be reduced so that total parachute payments do not exceed 299%
A-5
<PAGE>
of the Optionee's "base amount," as defined in Section 280G(b)(3) of the Code. A
Participant's Option agreement may contain such additional provisions with
respect to vesting as the Committee may specify.
10. Exercise. A Participant may pay the Exercise Price of the
shares of Common Stock as to which an Option is being exercised by the delivery
of (a) cash, (b) check, (c) at the Corporation's option, by the delivery of
shares of Common Stock having a Fair Market Value on the date immediately
preceding the exercise date equal to the Exercise Price and have been held by
the Optionee at least six (6) months prior to the date of exercise, or (d) at
the Corporation's option, any other consideration that the Corporation
determines is consistent with the Plan's purpose and applicable law. If the
shares to be purchased are covered by an effective registration statement under
the Securities Act of 1933, as amended, any Option granted under the Plan may be
exercised by a broker-dealer acting on behalf of an Optionee if (i) the
broker-dealer has received from the Optionee or the Corporation a fully- and
duly-endorsed agreement evidencing such Option, together with instructions
signed by the Optionee requesting the Corporation to deliver the shares of
Common Stock subject to such Option to the broker-dealer on behalf of the
Optionee and specifying the account into which such shares should be deposited,
(ii) adequate provision has been made with respect to the payment of any
withholding taxes due upon such exercise, and (iii) the broker-dealer and the
Optionee have otherwise complied with Section 220.3(e)(4) of Regulation T, 12
CFR Part 220, or any successor provision.
11. When Qualified Options May be Exercised. No Qualified Option
will be exercisable at any time after the expiration of ten (10) years from the
Date of Grant; provided, however, that if the Optionee with respect to a
Qualified Option is a 10-Percent Shareholder on the Date of Grant of such
Qualified Option, then such Option will not be exercisable after the expiration
of five (5) years from its Date of Grant. In addition, if an Optionee of a
Qualified Option ceases to be an employee of the Corporation or any Related
Corporation for any reason, such Optionee's vested Qualified Options will not
be exercisable after (a) three (3) months following the date such Optionee
ceases to be an employee of the Corporation or any Related Corporation, if such
cessation of service is not due to the death or permanent and total disability
(within the meaning of Section 22(e)(3) of the Code) of the Optionee, or (b)
twelve (12) months following the date such Optionee ceases to be an employee of
the Corporation or any Related Corporation, if such cessation of service is due
to the death or permanent and total disability (as defined above) of the
Optionee. Upon the death of an Optionee, any vested Qualified Option exercisable
on the date of death may be exercised by the Optionee's estate or by a person
who acquires the right to exercise such Qualified Option by bequest or
inheritance or by reason of the death of the Optionee, provided that such
exercise occurs within both the remaining option term of the Qualified Option
and twelve (12) months after the date of the Optionee's death. This Section 11
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only provides the outer limits of allowable exercise dates with respect to
Qualified Options; the Committee may determine that the exercise period for a
Qualified Option shall have a shorter duration than as specified above.
12. Option Financing. Upon the exercise of any Option granted
under the Plan, the Corporation may, but will not be required to, make
financing available to the Participant for the purchase of shares of Common
Stock pursuant to such Option on such terms as the Board or the Committee may
specify.
13. Withholding of Taxes. The Committee will make such provisions
and take such steps as it may deem necessary or appropriate for the withholding
of any taxes that the Corporation is required by any law or regulation of any
governmental authority to withhold in connection with any Option including, but
not limited to, (a) withholding the issuance of all or any portion of the shares
of Common Stock subject to such Option until the Participant reimburses the
Corporation for the amount it is required to withhold with respect to such
taxes, (b) withholding any portion of such issuance in an amount sufficient to
reimburse the Corporation for the amount of taxes it is required to withhold,
(c) allowing the Participant to deliver Common Stock as payment for the amount
the Corporation is required to withhold for taxes or (d) taking any other action
reasonably required to satisfy the Corporation's withholding obligation.
14. Conditions Upon Issuance of Shares.
(a) The Corporation will not be obligated to sell or issue
any shares upon the exercise of any Option granted under the Plan unless the
issuance and delivery of shares comply with all provisions of applicable federal
and state securities laws and the requirements of The Nasdaq Stock Market or any
stock exchange upon which shares of the Common Stock may then be listed.
(b) As a condition to the exercise of an Option, the
Corporation may require the person exercising the Option to make such
representations and warranties as may be necessary to assure the availability of
an exemption from the registration requirements of applicable federal and state
securities laws.
(c) The Corporation will not be liable for refusing to sell
or issue any shares covered by any Option if the Corporation cannot obtain
authority from the appropriate regulatory bodies deemed by the Corporation to be
necessary to sell or issue such shares in compliance with all applicable federal
and state securities laws and the requirements of The Nasdaq Stock Market or any
stock exchange upon which shares of the Common Stock may then be listed. In
addition, the Corporation will have no obligation to any Participant, express
or implied, to list, register or otherwise qualify the shares of Common Stock
covered by any Option.
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(d) No Participant will be, or will be deemed to be, a holder
of any Common Stock subject to an Option unless and until such Participant has
exercised his or her Option and paid the purchase price for the subject shares
of Common Stock.
15. Restrictions on Transfer.
(a) Options issued pursuant to the Plan will be
nontransferable except by will or the laws of descent and distribution, and may
only be exercisable during the Participant's lifetime only by the Participant.
(b) Shares of Common Stock issued pursuant to the Plan may be
subject to restrictions on transfer under applicable federal and state
securities laws. The Committee may impose such additional restrictions on the
ownership and transfer of shares of Common Stock issued pursuant to the Plan as
it deems desirable; any such restrictions will be set forth in any Option
agreement entered into hereunder.
16. Modification of Plan and Options.
(a) The Committee may from time to time and at any time alter,
amend, suspend, discontinue or terminate this Plan; provided, however, that no
such action of the Committee may, without the approval of the shareholders of
the Corporation, alter the provisions of the Plan so as to (i) increase the
maximum number of shares of Common Stock that may be subject to Qualified
Options under this Plan (except as provided in Section 17 of this Plan), (ii)
change the class of employees eligible to receive Qualified Options pursuant to
this Plan, or (iii) change the annual limit on the number of Options granted to
an Executive in Section 6 above.
(b) At any time and from time to time, the Committee may
execute an instrument providing for modification, extension or renewal of any
outstanding Option, provided that no such modification, extension or renewal
will impair the Option without the consent of the holder of the Option.
Notwithstanding the foregoing, (i) in the event of such a modification,
substitution, extension or renewal of a Qualified Option, the Committee may
increase the exercise price of such Option if necessary to retain the qualified
status of such Option, and (ii) the Committee may, in its discretion and without
the holder's consent, convert, any Qualified Option into a Nonqualified Option.
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17. Effect of Change in Stock Subject to the Plan. In the event
that each of the outstanding shares of Common Stock (other than shares held by
dissenting shareholders) will be changed into or exchanged for a different
number or kind of shares of stock of the Corporation or of another corporation
(whether by reason of merger, consolidation, recapitalization, reclassification,
split-up, combination of shares or otherwise), or in the event a stock split or
stock dividend occurs, then the Corporation may either (a) substitute for each
share of Common Stock then subject to Options or available for Options the
number and kind of shares of stock into which each outstanding share of Common
Stock (other than shares held by dissenting shareholders) will be so changed or
exchanged, or the number of shares of Common Stock as is equitably required in
the event of a stock split or stock dividend, together with an appropriate
adjustment of the Exercise Price, or (b) cancel all such Options as of the
effective date of any merger, consolidation, recapitalization, reclassification,
split-up or combination of shares by giving written notice to each holder
thereof or his personal representatives of its intention to do so and by
permitting the exercise of all such Options, without regard to determinations of
periods or installments of exercisability during the thirty (30) day period
immediately preceding such effective date. The Committee may, but will not be
required to, provide additional anti-dilution protection to a Participant under
the terms of the Participant's Option agreement.
18. Administration.
(a) Notwithstanding anything to the contrary herein, to the
extent necessary to comply with the requirements of Rule 16b-3, the Plan will
be administered by the Board, if each member is a Non-Employee Director, or by a
committee comprised solely of two or more Non-Employee Directors appointed by
the Board (the group responsible for administering the Plan is referred to as
the "Committee"). Options may be granted under Section 6 only by majority
agreement of the members of the Committee. Option agreements, in the form as
approved by the Committee, and containing such terms and conditions consistent
with the provisions of this Plan as are determined by the Committee, may be
executed on behalf of the Corporation by the Chairman of the Board, the
President or any Vice President of the Corporation. The Committee will have
complete authority to construe, interpret and administer the provisions of this
Plan and the provisions of the Option agreements granted hereunder; to
prescribe, amend and rescind rules and regulations pertaining to this Plan; to
suspend, discontinue or terminate this Plan; and to make all other
determinations necessary or deemed advisable in the administration of the Plan.
The determinations, interpretations and constructions made by the Committee
will be final and conclusive. No member of the Committee will be liable for
any action taken, or failed to be taken, made in good faith relating to the Plan
or any award thereunder, and the members of the Committee will be entitled to
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indemnification and reimbursement by the Corporation in respect of any claim,
loss, damage or expense (including attorneys' fees) arising therefrom to the
fullest extent permitted by law.
(b) Members of the Committee will be specified by the Board,
and will consist solely of Non-Employee Directors. Non-Employee Directors may
not possess an interest in any transaction for which disclosure is required
under Section 404(a) of Regulation S-K under the Exchange Act or be engaged in a
business relationship that must be disclosed under Section 404(a) and must
qualify as `outside directors' as defined in Section 162(m) of the Code and
regulations thereunder.
(c) Although the Committee may suspend, discontinue or
terminate the Plan at any time, all Qualified Options must be granted within ten
(10) years from the effective date of the Plan or the date the Plan is approved
by the shareholders of the Corporation, whichever is earlier.
19. Continued Employment Not Presumed. Nothing in this Plan or
any document describing it nor the grant of any Option will give any
Participant the right to continue in the employment of the Corporation or affect
the right of the Corporation to terminate the employment of any such person with
or without cause.
20. Liability of the Corporation. Neither the Corporation, its
directors, officers or employees or the Committee, nor any Subsidiary which is
in existence or hereafter comes into existence, will be liable to any
Participant or other person if it is determined for any reason by the Internal
Revenue Service or any court having jurisdiction that any Qualified Option
granted hereunder does not qualify for tax treatment as an incentive stock
option under Section 422 of the Code.
21. Governing Law. The Plan will be governed by and construed in
accordance with the laws of State of Texas and the United States, as applicable,
without reference to the conflict of laws provisions thereof.
22. Severability of Provisions. If any provision of this Plan is
determined to be invalid, illegal or unenforceable, such invalidity, illegality
or unenforceability will not affect the remaining provisions of the Plan, but
such invalid, illegal or unenforceable provision will be fully severable, and
the Plan will be construed and enforced as if such provision had never been
inserted herein.
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Appendix B
(FRONT OF PROXY CARD)
ADVANCED NEUROMODULATION SYSTEMS, INC.
BOARD OF DIRECTORS PROXY FOR THE ANNUAL MEETING
OF SHAREHOLDERS AT 10:00 A.M. WEDNESDAY, MAY 24, 2000
6501 WINDCREST DRIVE, SUITE 100, PLANO, TEXAS 75024
The undersigned shareholder of Advanced Neuromodulation Systems, Inc. (the
"Company") hereby appoints F. Robert Merrill III and Hugh M. Morrison, or either
of them, as proxies, each with full powers of substitution, to vote the shares
of the undersigned at the above-stated Annual Meeting and at any adjournment(s)
thereof:
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND WILL BE VOTED IN
ACCORDANCE WITH THE SPECIFICATIONS MADE ON THE REVERSE SIDE. IF A CHOICE IS NOT
INDICATED WITH RESPECT TO ITEMS (1) AND (2) THIS PROXY WILL BE VOTED "FOR" SUCH
ITEM. THE PROXIES WILL USE THEIR DISCRETION WITH RESPECT TO ANY MATTER REFERRED
TO IN ITEM (3). THIS PROXY IS REVOCABLE AT ANY TIME BEFORE IT IS EXERCISED.
Receipt herewith of the Company's Annual Report and Notice of Meeting and Proxy
Statement, dated April 17, 2000, is hereby acknowledged.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE.)
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BACK OF PROXY CARD
ADVANCED NEUROMODULATION SYSTEMS, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.
The Board of Directors recommends a vote FOR proposals 1 and 2.
FOR WITHHOLD FOR ALL
ALL ALL EXCEPT
1. Election of Directors
Nominees: Hugh M. Morrison, Robert C. Eberhart, O O O
Ph.D., Michael J. Torma, M.D.,
Richard D. Nikolaev,
Christopher G. Chavez,
Joseph E. Laptewicz, Jr. and
A. Ronald Lerner
Nominee Exceptions
------------------
(INSTRUCTIONS: To withhold authority to
vote for any individual nominee, write
that nominee's name here)
FOR AGAINST ABSTAIN
2. Approval of the 2000 Stock Option Plan for key O O O
employees, directors, clinical advisors and
consultants of the Company.
FOR AGAINST ABSTAIN
3. In their discretion, the proxies are O O O
authorized to vote upon such other business or
matters as may properly come before the
meeting or any adjournment thereof.
Dated: ______________________, 2000
-----------------------------------
-----------------------------------
(Signature(s)of Shareholder(s))
(Joint owners must EACH sign.
Please sign EXACTLY as your name(s)
appear(s) on this card. When
signing as attorney, trustee,
executor, administrator,
guardian or corporate officer,
please give your FULL title.)
PLEASE SIGN, DATE AND MAIL TODAY.
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