SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
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Check the appropriate box:
[ ] Preliminary Proxy Statement
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14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 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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[X] No fee required.
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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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pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid: ______________________________________________
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ATS MEDICAL, INC.
Dear Fellow Shareholder:
You are cordially invited to attend the 1997 Annual Meeting of
Shareholders of ATS Medical, Inc., which will be held at the Minneapolis Club,
729 Second Avenue South, Minneapolis, Minnesota (on the corner of 8th Street and
Second Avenue in downtown Minneapolis) beginning at 3:30 p.m. on Thursday, May
1, 1997.
This booklet contains your official notice of the 1997 Annual Meeting
and a Proxy Statement that includes information about the matters to be acted
upon at the meeting. Officers and directors of ATS Medical, Inc. will be on hand
to review the Company's operations and to answer questions and discuss matters
that may properly arise.
I sincerely hope that you will be able to attend our Annual Meeting.
However, whether or not you plan to attend, please complete and return the
enclosed proxy in the accompanying envelope. If you attend the meeting, you may,
if you wish, withdraw any proxy previously given and vote your shares in person.
Sincerely,
/s/ Manuel A. Villafana
Manuel A. Villafana
Chairman of the Board of Directors
and Chief Executive Officer
1997 ANNUAL MEETING OF
SHAREHOLDERS
NOTICE OF 1997 ANNUAL MEETING OF SHAREHOLDERS
The 1997 Annual Meeting of Shareholders of ATS Medical, Inc. (the
"Company") will be held on Thursday, May 1, 1997 at 3:30 p.m. at the Minneapolis
Club, 729 Second Avenue South, Minneapolis, Minnesota 55402, for the following
purposes:
1. To elect five members to the Board of Directors to hold office
for the ensuing year until their successors are elected and
qualified;
2. To ratify the selection of Ernst & Young LLP as independent
auditors for the year ending December 31, 1997;
3. To vote on proposed amendments to the ATS Medical, Inc. 1987
Stock Option and Stock Award Plan, as amended, to (a) increase
the number of shares of the Company's Common Stock authorized for
issuance pursuant to options granted thereunder from 2,400,000 to
3,400,000, and (b) satisfy the requirements of Section 162(m) of
the Internal Revenue Code of 1986, as amended; and
4. 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 Company's Common Stock at the close of
business on March 4, 1997 will be entitled to receive notice of and to vote at
the meeting.
Whether or not you plan to attend the meeting in person, you are
requested to complete and return the enclosed proxy in the accompanying
envelope. If you later decide to revoke your proxy, you may do so at any time
before it is exercised.
By Order of the Board of Directors,
/s/ Russell W. Felkey
Russell W. Felkey
Secretary
April 4, 1997
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 1997 Annual Meeting of Shareholders to be held on
Thursday, May 1, 1997 at 3:30 p.m. at the Minneapolis Club, 729 Second Avenue
South, Minneapolis, Minnesota 55402, and at any adjournments thereof.
Shareholders who sign and return a proxy may revoke it at any time before it is
voted by giving written notice to the Secretary of the Company. This proxy
statement and the enclosed proxy card are being mailed to shareholders
commencing on or about April 4, 1997.
Proxies that are completed, signed and returned to the Company prior to
the Annual Meeting will be voted as specified. If no direction is given, the
proxy will be voted for the election of the nominees for director named in this
proxy statement and for the management proposals discussed herein and in
accordance with the judgment of the persons named in the proxy as to any other
matters that properly come before the meeting. If a shareholder abstains from
voting as to any matter (or indicates a "withhold vote for" as to directors),
then the shares held by such shareholder shall be deemed present at the Annual
Meeting for purposes of determining a quorum and for purposes of calculating the
vote with respect to such matter, but shall not be deemed to have been voted in
favor of such matter. If a broker returns a "non-vote" proxy, indicating a lack
of authority to vote on such matter, then the shares covered by such non-vote
shall be deemed present at the Annual Meeting for purposes of determining a
quorum but shall not be deemed to be represented at the Annual Meeting for
purposes of calculating the vote with respect to such matters.
PROPOSAL 1 - ELECTION OF DIRECTORS
Five directors have been nominated for election to the Company's Board
of Directors at the 1997 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 January 1, 1997. Except as otherwise noted below,
each nominee possesses sole voting and investment power with respect to any
shares of Common Stock owned by him and all shares of Common Stock owned by him
represent less than 1% of the shares outstanding.
MANUEL A. VILLAFANA, 56, is a founder of the Company and has served as
Chief Executive Officer, Chairman of the Board and a Director since the
Company's inception in 1987. From 1983 to 1987, Mr. Villafana served as Chairman
of GV Medical, Inc., a company co-founded by Mr. Villafana to develop,
manufacture and market the LASTAC System, a laser transluminal angioplasty
catheter system. From 1976 to 1982, Mr. Villafana served as President and
Chairman of St. Jude Medical, Inc., a company founded by Mr. Villafana to
develop, manufacture and market a pyrolytic carbon bileaflet mechanical heart
valve. From 1972 to 1976, he served as President and Chairman of Cardiac
Pacemakers, Inc., a company founded by Mr. Villafana to develop, manufacture and
market a new generation of lithium powered pacemakers. Mr. Villafana
beneficially owns 689,871 shares of Common Stock (4.1% of the outstanding),
including 49,625 shares issuable upon exercise of currently exercisable options.
RICHARD W. KRAMP, 51, has served as President, Chief Operating Officer
and a Director of the Company since joining the Company in 1988. Prior to
joining the Company, Mr. Kramp was Vice President of Sales and Marketing for St.
Jude Medical, Inc., where Mr. Kramp served in a variety of sales and marketing
capacities from 1978 to 1988. From 1972 to 1976, Mr. Kramp was the Senior Design
Engineer and then Supervisor of Electrical Design for Cardiac Pacemakers, Inc.,
where he designed the first lithium powered demand pacemaker for which he
received a U.S. patent. Mr. Kramp beneficially owns 603,168 shares of Common
Stock (3.5% of the outstanding), including 332,500 shares issuable upon exercise
of currently exercisable options. Mr. Kramp is also a Director of MedAmicus,
Inc.
CHARLES F. CUDDIHY, JR., 70, was Executive Vice President-Corporate
Marketing of Medtronic, Inc., a medical products company, where he was employed
from 1967 through 1984. Mr. Cuddihy served as Managing Director of Trident
Medical International, an international trading company, from May 1991 to April
1992. From January 1989 to October 1990, Mr. Cuddihy was President and Chief
Executive Officer of Cherne Medical, Inc., a cardiovascular products company.
Mr. Cuddihy has served as a Director of the Company since 1991. Mr. Cuddihy
beneficially owns 37,000 shares of Common Stock, including 35,000 shares
issuable upon exercise of currently exercisable options.
JAMES F. LYONS, 66, was Chief Executive Officer of Bio-Vascular, Inc.,
a cardiovascular medical products company, from September 1993 through October
1994, when he retired. Mr. Lyons was President and Chief Executive Officer of
BioMedicus, Inc., a cardiovascular medical products company, from 1978 through
1990. Mr. Lyons also is a Director of AVECOR Cardiovascular, Inc., Quantech,
Inc. and Spine-Tech, Inc. Mr. Lyons has served as a Director of the Company
since 1991. Mr. Lyons beneficially owns 30,500 shares of Common Stock, including
27,500 shares issuable upon exercise of currently exercisable options.
A. JAY GRAF, 49, is a Vice President of Guidant Corporation, a medical
products company, and President of its Cardiac Rhythm Management group, which
includes business activities of Cardiac Pacemakers ("CPI") and Heart Rhythm
Technologies. Since 1992, Mr. Graf has served as President of CPI. Prior
thereto, he served as CPI's Executive Vice President and Chief Operating
Officer. Mr. Graf was elected to the Board of Directors during 1995. Mr. Graf
beneficially owns 7,500 shares of Common Stock, all of which are issuable upon
exercise of currently exercisable options.
COMMITTEES OF THE BOARD OF DIRECTORS AND ATTENDANCE
The Company has an Audit Committee whose functions are to review and
monitor accounting policies and control procedures of the Company, including
recommending the engagement of independent auditors and reviewing the scope of
the audit. The Audit Committee, on which Messrs. Cuddihy and Lyons serve, held
one meeting during 1996. The Company also has a Compensation Committee which
reviews and establishes compensation levels for each of the Company's officers,
as well as jointly administers the Company's stock plans with the Board of
Directors. The Compensation Committee, on which Messrs. Cuddihy, Graf and Lyons
serve, held two formal meetings during 1996 and, in addition, adopted two
written actions. The Company does not have a standing nominating committee. The
Board of Directors held six meetings during 1996. Each Director attended all
meetings of the Board and of each committee of which he was a member.
COMPENSATION OF DIRECTORS
The Directors of the Company do not receive any cash compensation for
their services on the Board of Directors. Upon their initial election to the
Board of Directors, each outside Director receives an option to purchase 5,000
shares of Common Stock at the fair market value on the date of election under
the 1987 Stock Option and Stock Award Plan (the "Plan"). Upon each reelection,
each outside Director receives an option to purchase 2,500 shares of Common
Stock at the fair market value on the date of reelection under the Plan.
Effective January 1, 1994, the Company entered into a consulting
agreement with Mr. Cuddihy. In exchange for Mr. Cuddihy's consulting services
throughout 1996, the Company paid Mr. Cuddihy a fee of $25,000.
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 1996 exceeded $100,000:
<TABLE>
<CAPTION>
Long-Term
Name and Annual Compensation Compensation Shares All Other
Principal Position Year Salary Bonus Underlying Options(1) Compensation(2)
------------------ ---- ------ ------- --------------------- --------------
<S> <C> <C> <C> <C> <C>
Manuel A. Villafana 1996 $216,300 $21,630 30,000 $ 0
Chief Executive Officer 1995 204,667 0 0 0
1994 186,917 0 30,000 0
Richard W. Kramp 1996 184,349 18,205 27,500 2,375
Chief Oper. Officer 1995 176,325 0 0 2,310
1994 157,265 0 25,000 2,310
Russell W. Felkey 1996 153,383 15,072 30,000 2,375
Exec. Vice President 1995 148,714 0 0 2,310
1994 136,265 0 20,000 2,310
John H. Jungbauer 1996 115,532 11,250 30,000 2,375
Chief Financial Officer 1995 111,432 0 0 2,310
1994 97,919 0 15,000 2,310
</TABLE>
- ----------------------------
(1) All stock options were granted with an exercise price per share at least
equal to the fair market value of the Common Stock on the date of grant.
(2) Consists of matching contributions to the ATS Medical 401(k) Plan, which is
generally available to all employees.
COMPENSATION AGREEMENTS
Mr. Villafana continues to serve as Chairman and Chief Executive
Officer of the Company on a full-time basis through January 1, 1998, pursuant to
an agreement dated January 26, 1995. Under the agreement, Mr. Villafana may
engage in outside consulting activities, provided he continues to devote
substantially his full-time efforts to the Company. Mr. Villafana's base salary
under the agreement is determined by the Compensation Committee. Mr. Villafana
also is eligible to receive bonuses as and when determined by the Compensation
Committee. Mr. Villafana has agreed not to compete with the Company during the
term of the agreement and for a period of two years following his termination of
services to the Company. In exchange, the Company has agreed to continue Mr.
Villafana's monthly salary during the period of non-competition restriction.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
The following table summarizes option grants made by the Company to
each of its executive officers in 1996.
<TABLE>
<CAPTION>
Potential Realizable Value At
Number of Percentage of Assumed Annual Rates of
Securities Total Options Stock Price Appreciation
Underlying Granted to Exercise or for Option Term (2)
Options Employees in Base Price Expiration -----------------------------
Name Granted(#)(1) 1996 ($/Sh) Date 5% ($) 10% ($)
- -------------- ------------- ------------- ----------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Mr. Villafana 15,000 (3) 4.5% $10.000 03/22/06 $94,334 $239,061
15,000 (4) 4.5% 7.875 12/09/06 74,288 188,260
Mr. Kramp 12,500 (3) 3.7% 10.000 03/22/06 78,612 199,218
15,000 (4) 4.5% 7.875 12/09/06 74,288 188,260
Mr. Felkey 15,000 (3) 4.5% 10.000 03/22/06 94,334 239,061
15,000 (4) 4.5% 7.875 12/09/06 74,288 188,260
Mr. Jungbauer 15,000 (3) 4.5% 10.000 03/22/06 94,334 239,061
15,000 (4) 4.5% 7.875 12/09/06 74,288 188,260
</TABLE>
- ---------------------------
(1) All the options vest in annual cumulative 25% installments beginning one
year from the date of grant.
(2) 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.
(3) Stock options granted to employees on March 22, 1996.
(4) Stock options granted to employees on December 9, 1996.
STOCK OPTION EXERCISES IN LAST FISCAL YEAR
The following table summarizes stock options exercised during 1996 by
the Chief Executive Officer and the other executive officers named in the
Summary Compensation Table, and the estimated values of the options held by such
persons at December 31, 1996.
<TABLE>
<CAPTION>
Number of Shares Value of Unexercised
Shares Underlying Unexercised In-The-Money Options
Acquired on Value Options at End of 1996 at End of 1996 (1)
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ----- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mr. Villafana 0 $ 0 45,875 53,625 $ 189,234 $97,453
Mr. Kramp 14,000 106,692 329,375 48,625 2,394,230 87,141
Mr. Felkey 12,000 111,000 87,000 46,000 503,250 66,000
Mr. Jungbauer 0 0 49,500 43,500 204,187 55,687
</TABLE>
- ----------------------------
(1) Value represents the difference between the last sale price of the Common
Stock on December 31, 1996, 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"). The
Agreements provide for benefits if an officer's employment is terminated within
24 months following a change in control unless such termination was by the
Company for cause, by the officer other than for "good reason," or because of
the officer's death. "Good reason" is defined as the termination of employment
as a result of either a diminishment in the officer's responsibilities, a
reduction in salary or benefits, a relocation of the Company's office of more
than 35 miles or any reason during the sixth month following a change in
control. A "change in control" is generally defined as an acquisition of more
than 20% of the outstanding Common Stock by any person or group, the merger or
sale of the Company or the replacement of a majority of the Company's Board of
Directors with directors not recommended by the existing Board of Directors. The
Agreements provide for lump sum payments following termination in amounts equal
to three times the sum of the officer's base salary and any annual target bonus
potential, as limited by Section 280G of the Internal Revenue Code of 1986, as
amended. If there had been a change in control of the Company as of the end of
1996 and the employment of the four executive officers named in the Summary
Compensation Table had been immediately terminated, then Messrs. Villafana,
Kramp, Felkey and Jungbauer would have been entitled to receive, pursuant to the
terms of the Agreements, lump sum payments upon termination of $565,330,
$476,298, $416,498 and $304,788, respectively.
REPORT OF THE COMPENSATION COMMITTEE
CONCERNING EXECUTIVE COMPENSATION
The Compensation Committee is responsible for setting the compensation
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 Company's executive compensation
benefits. The Company currently maintains a variety of employee benefits in
which its executive officers may participate, including health benefits,
automobile allowances, disability insurance, stock options and matching
contributions to the Company's 401(k) program.
The Compensation Committee is composed entirely of outside directors of
the Company. During 1996, the Board elected Messrs. Cuddihy, Graf and Lyons to
serve on the Compensation Committee. Mr. Cuddihy is Chairman of the Committee.
The basic objective of the Compensation Committee is to establish a
compensation package which is appropriate for each officer's scale of
responsibility and performance and to attract, motivate and retain executives of
the necessary caliber. Prior to 1996, the Committee took a subjective approach
to establishing officer compensation levels. In setting compensation levels, the
Compensation Committee reviewed each officer's performance during the year based
on qualitative standards, and also analyzed each officer's importance to the
future success of the Company.
In connection with its consideration of executive compensation in 1996,
the Compensation Committee decided that in the future it would place more
emphasis on objective criteria in setting executive compensation level. As a
first step in this process, the Committee decided to tie salary raises to cost
of living increases and to provide any additional compensation in the form of
bonuses.
As a result of these considerations, the Compensation Committee took
the following actions with respect to executive compensation:
* The Company's officers received a 3.0% increase in salary. This
raise was designed to maintain the salary level of the previous year
by matching the 1996 level of inflation.
* The Company's officers and top managers received a bonus consisting
of 10% of their salary. When considering granting these bonuses, the
Committee looked at the overall performance of the Company,
including, among other factors, the Company's 28% revenue increase
in 1996 over 1995.
* Grants of stock options were made to each officer (and to each
employee) in an attempt to correlate the officers' interests with
the shareholders' interest by tying a substantial portion of the
officers' future compensation to the Company's stock price. In
determining the number of shares subject to a stock option grant,
the Compensation Committee takes into consideration the
recommendations of the Chief Executive Officer and each officer's
prior grants. The stock options vest in increments over four years,
thus providing an additional incentive for continued employment of
the officer with the Company.
* Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), generally limits the corporate deduction for compensation
paid to executive officers to $1.0 million, unless the compensation
qualifies as "performance-based compensation" under the Code. The
Committee reviewed the need to qualify the compensation paid to its
executive officers for deductibility under Section 162(m) of the
Code and decided to take the steps necessary to conform its
compensation to comply with the section. For this reason, the
Company is proposing to amend the ATS Medical, Inc. 1987 Stock
Option and Stock Award Plan. See "Proposal 3" below. It is the
Committee's understanding that this amendment will allow future
stock options granted under the Plan to be considered "qualified
performance-based compensation" which will mean that any
compensation resulting from those stock options 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 1997.
In 1997, the Committee intends to place more emphasis on objective
factors in determining executive compensation. Factors that the Committee
anticipates it will consider include maintaining the compensation of the
Company's officers at industry levels, as reflected in surveys of compensation
practices in corporations of comparable size and technology.
During 1996, the Compensation Committee reviewed the Company's and Mr.
Villafana's performance in order to establish Mr. Villafana's compensation. Mr.
Villafana received a 3.0% salary increase to keep up with inflation, as did all
the other executive officers. Mr. Villafana also received a bonus consisting of
10% of his 1996 annual salary. The bonus was based primarily on the Company's
1996 performance. In addition, Mr. Villafana received options for 30,000 shares
of Common Stock pursuant to the Company's Stock Option Plan. The number of
options granted to Mr. Villafana was in line with the grants given to the other
top Company executives. The Committee's performance review of Mr. Villafana
addressed major areas of accomplishment for the Company.
James F. Lyons
Charles F. Cuddihy, Jr.
A. Jay Graf
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers and all persons who beneficially own
more than 10% of the outstanding shares of the Company's Common Stock to file
with the Securities and Exchange Commission initial reports of ownership and
reports of changes in ownership of such Common Stock. Directors, executive
officers and 10% or more beneficial owners are also required to furnish the
Company with copies of all Section 16(a) reports they file. Based solely on a
review of the copies of such forms furnished to the Company, the Company
believes that all Section 16(a) filing requirements applicable to its executive
officers, directors and 10% shareholders were complied with, except that
statements of change in beneficial ownership on Form 4 were not filed for (a)
Mr. Kramp's exercise of a stock option and (b) Mr. Felkey's disposition of
shares of Common Stock. These transactions were reported on Form 5 by each of
Messrs. Kramp and Felkey.
COMPARATIVE STOCK PERFORMANCE GROWTH
The graph below compares the cumulative total shareholder return on the
Common Stock since December 31, 1991 with the cumulative return of the Standard
& Poor's 500 Stock Index and the Value Line Medical Suppliers Index over the
same period (assuming the investment of $100 in each vehicle on December 31,
1991 and reinvestment of all dividends).
[PLOT POINTS GRAPH OMITTED]
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
1991 1992 1993 1994 1995 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ATS Medical, Inc. $100.00 $91.18 $66.18 $48.53 $108.82 $91.18
- -----------------------------------------------------------------------------------------------------------------
Standards & Poor's 500 $100.00 $107.79 $118.68 $120.56 $165.78 $204.32
- -----------------------------------------------------------------------------------------------------------------
Value Line Med. Supply $100.00 $87.51 $77.89 $91.72 $135.65 $159.04
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth security ownership information pertaining to
persons known by the Company to beneficially own more than 5% of the Company's
Common Stock, the executive officers named in the Summary Compensation Table and
all directors and executive officers of the Company as a group as of February
15, 1997.
<TABLE>
<CAPTION>
Common Stock Beneficially Owned
---------------------------------------------
Name and Address of Beneficial Owner(1) Number of Shares Percent of Outstanding(2)
- --------------------------------------- ---------------- -------------------------
<S> <C> <C>
ITOCHU Corporation(3) 1,568,940 9.3%
5-1, Kita-Aoyama 2-Chome
Minato, Tokyo 107-77, Japan
Perkins Capital Management, Inc.(4) 935,423 5.5%
730 East Lake Street
Wayzata, MN 55391-1769
Manuel A. Villafana 689,871 4.1%
Richard W. Kramp 603,168 3.5%
Russell W. Felkey 90,750 *
John H. Jungbauer 56,250 *
All directors and executive officers as group 1,515,039(5) 8.7%
(7 persons)
</TABLE>
- ------------------------
* Less than 1%
(1) The business address of the executive officers of the Company is 3905
Annapolis Lane, Suite 105, MN 55447.
(2) The ownership percentage for each person or entity is calculated based on
the number of shares outstanding as of February 15, 1997. This number
includes the shares issued to ITOCHU Corporation ("ITOCHU") pursuant to its
purchase of 1,568,940 shares on February 7, 1997.
(3) The number of shares owned is based on a Schedule 13D filed by ITOCHU on
February 18, 1997. The Schedule 13D indicates that ITOCHU has sole voting
power and beneficial ownership of the shares.
(4) The number of shares owned is based on a Schedule 13G filed by Perkins
Capital Management, Inc. ("Perkins Capital") on February 13, 1997. Perkins
Capital indicates that (a) it is an investment adviser registered under
Section 203 of the Investment Advisers Act of 1940; (b) it has sole voting
power over 246,150 of the shares; and (c) it has sole dispositive power
over 935,423 shares.
(5) Includes the following shares that may be acquired within 60 days through
the exercise of stock options: Mr. Villafana, 49,625; Mr. Kramp, 332,500;
Mr. Felkey, 90,750; Mr. Jungbauer, 53,250; and all executive officers and
directors as a group, 596,125.
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, 1997 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 1997 Annual Meeting of Shareholders, will have an opportunity to
make a statement if they desire to do so and will be available to respond to
appropriate questions from shareholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF
ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT AUDITORS. The affirmative vote of
a majority of the outstanding shares of the Company's Common Stock entitled to
vote and present in person or by proxy at the Annual Meeting will be required to
ratify the appointment. Proxies will be voted in favor of the ratification of
the appointment unless otherwise specified.
PROPOSAL 3-
APPROVAL OF AMENDMENT TO THE ATS MEDICAL, INC.
1987 STOCK OPTION AND STOCK AWARD PLAN
PROPOSED AMENDMENTS
The Company's Board of Directors has adopted, subject to shareholder
approval, amendments to the ATS Medical, Inc. 1987 Stock Option and Stock Award
Plan, as restated and amended (the "Option Plan") (a) to increase the number of
shares of Common Stock available for issuance pursuant to options granted
thereunder from 2,400,000 to 3,400,000 and (b) in order to satisfy the
requirements of Section 162(m) of the Code to provide that no employee may be
granted any options under the Option Plan (the value of which options under the
Option Plan is based solely on an increase in the value of shares of Common
Stock after the date of grant) for more than 300,000 shares in the aggregate in
any calendar year.
The Board of Directors believes that stock options have been, and will
continue to be an important compensation element in attracting and retaining key
employees. The Board of Directors believes that the increase in authorized
shares is necessary because of the need to continue to make awards under the
Option Plan to attract and retain key employees.
The amendment to limit the amount of options under the Option Plan that
may be granted to any employee in any calendar year is necessary in order to
allow the Company to fully deduct certain compensation to executive officers of
a publicly traded company whose compensation is required to be disclosed in such
company's proxy statement. Under Section 162(m) of the Code, one of the
requirements that must be satisfied, in order for compensation related to
options under the Option Plan to be "qualified performance-based compensation"
not subject to the $1,000,000 cap, is that the Company must place a limit on the
number of shares subject to options that may be granted to an employee during
any calendar year under the Option Plan. Although the Board of Directors does
not believe that compensation levels of the Company's executive officers will
reach the Section 162(m) deductibility limit in fiscal 1997, the Board of
Directors believes that it is important for the Company to take all steps
reasonably necessary to ensure that the Company will be able to take all
available tax deductions with respect to compensation resulting from options
granted under the Option Plan.
SUMMARY OF OPTION PLAN
Since August 6, 1987, the Company has maintained the Option Plan for
the benefit of employees, directors, consultants and independent contractors
providing valuable services to the Company or its subsidiaries. The Option Plan
is administered by the Compensation Committee of the Board of Directors (the
"Committee"). The Committee is comprised of disinterested members of the Board
of Directors as defined by Rule 16b-3 under the Securities Exchange Act of 1934,
as amended. The Committee has the authority, subject to the provisions of the
Option Plan, to determine in its discretion to whom and the times at which
options are to be granted, the number of shares of Common Stock subject to each
option, the option price per share, the terms of exercise of each option, and
certain other terms of each option agreement. The Committee may also interpret
the Option Plan and make all other determinations necessary or advisable for the
administration of the Option Plan.
The Option Plan provides for the grant of options to purchase up to an
aggregate of 2,400,000 shares of Common Stock, of which 63,129 shares remained
available for grant as of March 4, 1997. Subject to stockholder approval at the
Meeting, the total number of shares that may be granted under the Option Plan
will be increased by 1,000,000 to 3,400,000. The shares subject to options
granted under the Option Plan may be either authorized but unissued shares, or
issued shares which have been reacquired by the Company. The market value of a
share of Common Stock as of March 4, 1997 was $7.00. If an option under the
Option Plan expires, or for any reason is terminated or unexercised with respect
to any shares, such shares will again be available for options thereafter
granted during the term of the Option Plan. Options granted under the Option
Plan may be incentive stock options or non-qualified stock options. As of March
4, 1997, 656,553 of the outstanding options granted under the Option Plan were
incentive stock options, and 729,617 of the outstanding options granted under
the Option Plan were non-qualified stock options. The exercise price of any
option may not be less than 100% of the fair market value of the Common Stock at
the date of grant. In each instance, the fair market value of the Common Stock
shall be reasonably determined by the Committee. Shares purchased upon the
exercise of an option are to be paid for in cash or, at the discretion of the
Committee, with shares of Common Stock of the Company or a combination of cash
and shares of Common Stock. Options may not exceed a term of ten years from the
date of grant. Notwithstanding the foregoing, if at the time of grant the
optionee directly or indirectly owns shares of Common Stock of the Company
possessing more than 10% of the total combined voting power of all classes of
stock of the Company, then any incentive stock option to be granted to such
optionee pursuant to the Option Plan will have a purchase price of not less than
110% of the fair market value of the Common Stock at the date of grant and such
option will not be exercisable after five years after the date of grant. An
option granted under the Option Plan may not be transferred by the owner thereof
during the optionee's lifetime. No stock options may be granted under the Option
Plan after December 31, 2000.
The Committee has the authority to amend, alter, suspend, discontinue
or terminate the Option Plan at any time. However, no amendment or other
modification of the Option Plan may, without stockholder approval, amend the
Option Plan in a way which would cause the Option Plan to no longer comply with
Rule 16b-3 under the Securities Exchange Act of 1934 or any successor rule or
other regulatory requirements. In addition, the Board of Directors may not alter
or impair any option theretofore granted under the Option Plan in a manner
detrimental to the interests of the holder of an option without the consent of
such holder.
FEDERAL INCOME TAX CONSEQUENCES
This discussion sets forth only general federal tax principles
affecting options which may be granted under the Option Plan. Special rules may
apply to option holders who are subject to Section 16 of the Securities Exchange
Act of 1934, as amended.
Under current federal income tax law, there are no federal income tax
consequences to the Company or the option holder upon the granting of an option.
An option holder who exercises an incentive stock option will not
realize income at the time of exercise for purposes of the regular income tax
(although such option holder will realize income at such time for purposes of
the alternative minimum tax in an amount equal to the amount by which the fair
market value of the Common Stock received by the option holder exceeds the
option price paid), and the Company will not be entitled to a tax deduction at
such time. If the option holder holds shares of Common Stock received upon
exercise of an incentive stock option for at least one year after exercise and
two years from the date the incentive stock option was granted, then upon the
sale of such shares, the option holder will realize long-term capital gain and
no tax deduction will be allowed to the Company. If the option holder sells or
otherwise disposes of shares of Common Stock received upon exercise of an
incentive stock option before such holding period is satisfied, then (a) the
option holder will recognize ordinary income at the time of the disposition in
an amount equal to the lesser of (i) the difference between the option price and
the fair market value of the shares at the time the option was exercised, and
(ii) the difference between the option price and the amount realized upon the
disposition of the shares, and such option holder will recognize short-term or
long-term capital gain, depending upon whether the holding period for such
shares is less or more than one year, to the extent of any excess of the amount
realized upon the disposition of the shares over the fair market value of the
shares at the time of exercise of the option, and (b) subject to the general
rules concerning deductibility of compensation, the Company will be allowed a
tax deduction in the amount that, and for its taxable year in which, the option
holder recognizes ordinary income.
Upon the exercise of an option which does not qualify as an incentive
stock option, the option holder generally will realize ordinary income equal to
the difference between the exercise price and the fair market value of the
shares on the date of exercise. Subject to the general rules concerning
deductibility of compensation and provided that the Company withholds income tax
in respect of such amount, the Company will be allowed a tax deduction in the
amount that, and for its taxable year in which, the option holder recognizes
ordinary income upon the exercise of a non-incentive stock option.
The Option Plan provides that, with the approval of the administrators
of the Option Plan, an option holder may exercise an option by tendering shares
of Common Stock owned by the option holder in lieu of cash, in which case
generally no gain or loss will be recognized by the option holder with respect
to the tendered shares if the option holder has held the tendered shares for the
required holding period, if any. In the case of an incentive stock option, no
income will be recognized by the option holder upon the receipt of additional
shares of Common Stock as a result of such an exercise. In the case of a
non-incentive stock option, the option holder will recognize ordinary income as
a result of such an exercise in an amount equal to the fair market value of that
number of shares equal to the excess of the number of shares received upon
exercise of the option over the number of shares tendered by the option holder.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE AMENDMENT OF
THE COMPANY'S 1987 STOCK OPTION AND STOCK AWARD PLAN. The affirmative vote of a
majority of the outstanding shares of the Company's Common Stock entitled to
vote and present in person or by proxy at the Annual Meeting will be required to
ratify the appointment. Proxies will be voted in favor of the ratification of
the appointment unless otherwise specified.
SHARES OUTSTANDING AND VOTING RIGHTS
On March 4, 1997, the Company had outstanding 17,558,606 shares of
Common Stock. Each holder of record of Common Stock as of the close of business
on March 4, 1997 will be entitled to one vote on all matters being presented at
the meeting for each share of Common Stock held on such date.
PROPOSALS FOR THE 1998 ANNUAL MEETING
Any proposal by a shareholder to be presented at the 1998 Annual
Meeting of Shareholders must be received at the Company's principal executive
officers, 3905 Annapolis Lane, Suite 105, Minneapolis, Minnesota 55447,
Attention: Corporate Secretary, no later than December 5, 1997.
GENERAL
The Board of Directors of the Company does not know of any other
business to come before the 1997 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 judgement.
Expenses in connection with this solicitation of proxies will be paid
by the Company. Proxies are being solicited primarily by mail, but, in addition,
officers and employees of the Company, who will receive no extra compensation
for their services, may solicit proxies by telephone or personal calls. The
Company also will request that brokers or other nominees who hold shares of
Common Stock in their names for the benefit of others forward proxy materials
to, and obtain voting instructions from, the beneficial owners of such stock at
the Company's expense.
Your cooperation in giving this matter your immediate attention and in
returning your proxy promptly will be appreciated.
By Order of the Board of Directors,
/s/ Russell W. Felkey
Russell W. Felkey
Secretary
April 4, 1997
Appendix 1 Restated 2/28/91
As Amended 7/2/91
Filed pursuant to Instruction 3 to Item 10 of Schedule 14A.
ATS MEDICAL, INC.
1987 STOCK OPTION AND STOCK AWARD PLAN
(1991 RESTATEMENT)
1. Purpose of Plan
This Plan shall be known as the "ATS Medical, Inc. 1987 Stock Option
and Stock Award Plan" and is hereinafter referred to as the "Plan". The Plan
shall provide for the issuance of shares of common stock, par value $.01 (the
"Common Stock"), of ATS Medical, Inc. (the "Corporation"). The purpose of the
Plan is to aid in maintaining and developing a mutually beneficial relationship
with employees and non-employees of the Corporation who perform valuable
services for or on behalf of the Corporation, to offer such persons additional
incentives to put forth maximum efforts for the success of the business, and to
afford them an opportunity to acquire a proprietary interest in the Corporation.
It is intended that this purpose be effected through the granting of stock
options, the awarding of Common Stock subject to restrictions (the "Restricted
Shares") and the awarding of stock appreciation rights to such persons as
hereinafter provided. Options granted under the Plan may be either incentive
stock options ("Incentive Stock Options") within the meaning of the Internal
Revenue Code of 1986, as amended (the "Code"), or options which do not qualify
as Incentive Stock Options.
2. Stock Subject to Plan
Subject to the provisions of Section 12 hereof, the stock to be subject
to options and which may be awarded as Restricted Shares under the Plan shall be
shares of the Corporation's authorized Common Stock. Such shares may be either
authorized but unissued shares or issued shares which have been reacquired by
the Corporation. Subject to the adjustment as provided in Section 11 hereof, the
maximum number of shares on which options may be exercised or which may be
awarded as Restricted Shares under this Plan shall be 2,400,000. Any shares
subject to an option under the Plan which, for any reason, expires or is
terminated unexercised, shall be available for options or awards thereafter
granted during the term of the Plan. If any award of Restricted Shares is
forfeited in accordance with the terms and conditions of such award, the
Restricted Shares so forfeited shall also become available for further grants or
awards under the Plan.
3. Administration of Plan
(a) The Plan shall be administered by the Board of Directors of the
Corporation. The Board of Directors may authorize, at any time, the formation of
a Stock Option Committee (the "Committee"), consisting of two or more members
who shall be appointed from time to time by the Board of Directors. The Stock
Option Committee will, if formed, have authority to exercise the powers
conferred on the Board of Directors under the Plan, other than the power under
Section 12 herein to terminate or amend the Plan or to accelerate the
exercisability of any option or lift the restrictions on any Restricted Shares
granted or awarded under the Plan. The granting of stock options or the award of
Restricted Shares to members of the Board of Directors shall be made only by the
Committee, all of the members of which shall be "disinterested persons" with
respect to the Plan within the meaning of Rule 16b-3(d)(3) under the Securities
Exchange Act of 1934.
(b) The Board of Directors shall have plenary authority in its
discretion, subject to the express provisions of this Plan, to: (i) determine
the purchase price of the Common Stock covered by each option and the terms of
exercise of each such option, (ii) determine the persons to whom and the time or
times at which options (a person receiving an option is hereinafter referred to
as an "Optionee") or awards of Restricted Shares (a person receiving an award of
Restricted Shares is hereinafter referred to as a "Grantee") shall be granted or
made and the number of shares to be subject to each such option or award (iii)
determine the period during which Restricted Shares shall remain subject to
restrictions and the nature and type of restrictions that may be imposed on
Restricted Shares (iv) interpret the Plan, (v) prescribe, amend and rescind
rules and regulations relating to the Plan, (vi) determine the terms and
provisions (and amendments thereof) of each option and Restricted Share
agreement under this Plan (which agreements need not be identical), including
the designation of those options intended to be Incentive Stock Options, (vii)
the form of payment to be made upon the exercise of an SAR (as hereinafter
defined) as provided in Section 17, which payment may be either cash, common
stock of the Corporation or a combination thereof, and (viii) make all other
determinations necessary or advisable for the administration of the Plan.
(c) The Committee shall select one of its members as its Chairman and
shall hold its meetings at such times and places as it may determine. A majority
of its members shall constitute a quorum. All determinations of the Committee
shall be made by not less than a majority of its members. Any decision or
determination reduced to writing and signed by a majority of the members of the
Committee shall be fully effective as if it had been made by a majority vote at
a meeting duly called and held.
(d) The granting of an option or an award pursuant to the Plan shall be
effective only if a written agreement shall have been duly executed and
delivered by and on behalf of the Corporation and the Optionee or Grantee to
whom such right is granted.
4. Eligibility
(a) Incentive Stock Options (as determined pursuant to Section 15
herein) may be granted only to employees of the Corporation and its future
subsidiary corporations, if any. Options which do not qualify as Incentive Stock
Options and awards of Restricted Shares may be granted or made to both employees
and to individuals or other entities (including but not limited to consultants)
who perform services for the Corporation but who are not employed by the
Corporation, when granting an option or award to such person would be of benefit
to the Corporation. Except as provided in Section 9 herein, options and
Restricted Shares may not be granted or awarded to members of the Board of
Directors of the Corporation who are neither employed by the Corporation nor a
consultant to the Corporation.
(b) Notwithstanding any other provision in the Plan, if at the time an
option is otherwise to be granted pursuant to the Plan the Optionee owns
directly or indirectly (within the meaning of Section 425(d) of the Code (as
hereinafter defined) Common Stock of the Corporation possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Corporation or its parent or subsidiary corporations, if any, (within the
meaning of Section 422(b)(6) of the Code) then any Incentive Stock Option to be
granted to such Optionee pursuant to the Plan shall satisfy the requirements of
Section 422A(c)(6) of the Code, and the option price shall not be less than 110%
of the fair market value of the Common Stock of the Corporation, determined as
described in Section 5, and such option by its terms shall not be exercisable
after the expiration of five (5) years from the date such option is granted.
5. Price
The option price for all Incentive Stock Options granted under the Plan
shall be determined by the Board of Directors but shall not be less than 100% of
the fair market value of the Common Stock at the date of granting of such
option, as determined in good faith by such Board. The option price for options
granted under the Plan that do not qualify as Incentive Stock Options shall also
be determined by the Board of Directors but shall not be less than 50% of the
fair market value of the Common Stock at the date of granting of the option. The
option price shall be payable at the time written notice of exercise is given to
the Corporation. An Optionee shall be entitled to pay the exercise price in
cash, by tendering to the Corporation shares of Common Stock, previously owned
by the Optionee, having a fair market value on the date of exercise equal to the
option price, or, with the consent of the Board of Directors, by the issuance of
a promissory note to the Corporation. The fair market value of such shares shall
be (i) the closing price of the Common Stock as reported for composite
transactions if the Common Stock is then traded on a national securities
exchange, (ii) the last sales price if the Common Stock is then traded on the
NASDAQ National Market System, or (iii) the average of the closing
representative bid and asked prices as reported on NASDAQ if the Common Stock is
then traded on NASDAQ. If the Common Stock is not so traded, the Board of
Directors shall determine in good faith the fair market value.
6. Term
Each option and each Restricted Share award and all rights and
obligations thereunder shall (subject to the provisions of Section 8) expire on
the date determined by the Board of Directors and specified in the option
agreement or agreement relating to the award of the Restricted Shares. The Board
of- Directors shall be under no duty to provide terms of like duration for
options or awards granted under the Plan; provided, however, that the term of
any Incentive Stock Option shall not extend more than ten (10) years from the
date of granting of the option.
7. Exercise of Options and Awards
(a) The Board of Directors shall have full and complete authority
(subject to the provisions of Section 8) to determine, at the time of granting
or making, whether an option or Restricted Share award will be exercisable in
full at any time or from time to time during the term of the option or award, or
to provide for the exercise or receipt thereof in such installments and at such
times during the term of the option or award as Board may determine.
Notwithstanding any provision of the Plan or the terms of any option granted or
award of Restricted Shares made under the Plan, no option granted or Restricted
Share awarded under the Plan may be exercised until at least six months from the
date of grant or award.
(b) Notwithstanding any provision of the Plan or the terms of any
option granted or award of Restricted Shares made under the Plan, the exercise
of any option or the transferring of any shares of Common Stock on the books and
records of the Corporation pursuant to a Restricted Share award may be made
contingent upon receipt from the Optionee or Grantee (or other person rightfully
exercising the option or receiving certificates for the shares granted pursuant
to a Restricted Share award) of a representation that, at the time of such
exercise or receipt, it is their then intention to acquire the shares so
received thereunder for investment and not with a view to distribution thereof
Certificates for shares issued or transferred pursuant to the exercise of any
option or the granting of any Restricted Share award may be restricted as to
further transfers upon advice of legal counsel that such restriction is
appropriate to comply with applicable securities laws.
(c) Notwithstanding any provision of the Plan or the terms of any
option granted or award of Restricted Shares made under the Plan, the Company
shall not be required to issue any shares of Common Stock, deliver any
certificates for shares of Common Stock or transfer on its books and records any
shares of Common Stock if such issuance, delivery or transfer would, in the
judgment of the Board of Directors, constitute a violation of any state or
Federal law, or of the rules and regulations of any governmental regulatory body
or any securities exchange.
(d) An Optionee electing to exercise an option shall give written
notice to the Corporation of such election and of the number of shares subject
to such exercise. The full purchase price of such shares shall be tendered, in
accordance with the provisions of Section 5, with such notice of exercise. Until
such person has been issued a certificate or certificates for the shares subject
to such exercise, he shall possess no rights as a stockholder with respect to
such shares.
(e) Nothing in the Plan or in any agreement thereunder shall confer on
any employee any right to continue in the employ of the Corporation or any of
its subsidiaries or affect, in any way, the right of the Corporation or any of
its subsidiaries to terminate his or her employment at any time.
8. Effect of Termination of Employment or Death
Unless otherwise stated in the option agreement, the following
provisions shall govern the treatment of an option upon termination of
employment:
(a) In the event that the optionee shall cease to be employed by the
Corporation or its subsidiaries, if any, for any reason other than such holder's
gross and willful misconduct or death or disability, such optionee shall have
the right to exercise the option at any time within three months after such
termination of employment to the extent of the full number of shares such holder
was entitled to purchase under the option on the date of termination, subject to
the condition that no option shall be exercisable after the expiration of the
term of the option.
(b) In the event that an optionee shall cease to be employed by the
Corporation or its subsidiaries, if any, by reason of such holder's gross and
willful misconduct during the course of employment, including but not limited to
wrongful appropriation of funds of the Corporation or the commission of a gross
misdemeanor or felony, the option shall be terminated as of the date of the
misconduct.
(c) If the optionee shall die while in the employ of the Corporation or
any subsidiary, if any, or within three (3) months after termination of
employment for any reason other than gross and willful misconduct, or become
disabled (within the meaning of Section 105(d)(4) of the Code) while in the
employ of the Corporation or a subsidiary, if any, and such optionee shall not
have fully exercised the option, such option may be exercised at any time within
twelve months after such holder's death or such disability by the personal
representatives, administrators, or, if applicable, guardian, of the optionee or
by any person or persons to whom the option is transferred by will or the
applicable laws of descent and distribution to the extent of the full number of
shares such holder was entitled to purchase under the option on the date of
death, disability or termination of employment, if earlier, and subject to the
condition that no option shall be exercisable after the expiration of the term
of the option.
9. Automatic Grants to Non-Employee Directors
Upon such person's initial election to the Corporation's Board of
Directors, each director who is not an employee or consultant to the Corporation
shall receive a non-Incentive Stock Option to purchase 5,000 shares of Common
Stock. Thereafter, upon each re-election to the Board of Directors, such
director shall receive a non-Incentive Stock Option to purchase 2,500 shares of
Common Stock. The options shall have an exercise price equal to the fair market
value of the Common Stock on the day of election. The options shall have a ten
year term and shall vest in full six months following the date of grant.
Directors who are not employees or consultants to the Corporation shall not be
entitled to receive option grants under the Plan other than as specified in this
paragraph. This Section 9 may not be amended more than once every six months,
other than to comport with changes in the Code or the rules thereunder.
10. Nontransferability of Options
No option granted under the Plan shall be transferable by an Optionee,
otherwise than by will or the laws of descent or distribution or pursuant to a
qualified domestic relations order as defined by the Code.
11. Dilution or Other Adjustments
If the number of outstanding shares of the Common Stock of the
Corporation shall, at any time, be increased or decreased as a result of a
subdivision or consolidation of shares, stock dividend, stock split, spin-off or
other distribution of assets to shareholders, recapitalization, merger,
consolidation or other corporate reorganization in which the Corporation is the
surviving corporation, the number and kind of shares subject to the Plan and to
any option, SAR or Restricted Share award previously granted or made, as well as
the option price or amount payable upon the exercise of any previously granted
option or SAR, shall be appropriately adjusted in order to prevent the dilution
or enlargement of rights of holders of outstanding options, SARs or Restricted
Share awards. Any fractional shares resulting from any such adjustment shall be
eliminated.
12. Amendment or Discontinuance of Plan
The Board of Directors may amend or discontinue the Plan at any time;
however, no amendment of the Plan shall, without shareholder approval, amend the
Plan in a way which would cause the Plan to no longer comply with Rule 16b-3
under the Securities Exchange Act of 1934 or any successor rule or other
regulatory requirements. Except as provided in Section 11, the Board of
Directors shall not alter or impair any option, SAR or Restricted Share award
thereto granted or made under the Plan without the consent of the holder of the
option, SAR or award; provided, however, that the Board of Directors may
accelerate the exercisability of options (and any related SARs) or lift any
restrictions imposed on Restricted Shares at any time during the term of such
options or awards without the consent of the holder thereof.
13. Time of Granting
Nothing contained in the Plan or in any resolution adopted or to be
adopted by the Board of Directors or by the shareholders of the Corporation, and
no action taken by the Board of Directors (other than the execution and delivery
of an option or the making of an Award Agreement (as hereinafter defined)),
shall constitute the granting of an option or the making of a Restricted Share
award hereunder. The granting of an option or the making of a Restricted Share
award pursuant to the Plan shall take place only when a written option or Award
Agreement shall have been duly executed and delivered by or on behalf of the
Corporation to the Optionee or Grantee to whom such option or award is granted
or made.
14. Termination of Plan
Unless the Plan shall have been discontinued as provided in Section 12
hereof, the Plan shall terminate on December 31, 2000. No option or Restricted
Share award may be granted or made after such termination, but termination of
the Plan shall not, without the consent of the Optionee or Grantee, alter or
impair any rights or obligations under any option, SAR or Restricted Share award
theretofore granted or made.
15. Determination of Incentive Stock Option
The Board shall determine, upon the granting of each option, whether
such option shall be an Incentive Stock Option or an option that does not
qualify as an Incentive Stock Option.
16. Restricted Share Awards
Each award of Restricted Shares under the Plan shall be evidenced by an
instrument (an "Award Agreement"). Each Award Agreement shall be subject to the
terms and conditions of the Plan but may contain additional terms and conditions
(which terms and conditions may vary from Grantee to Grantee) that are not
inconsistent with the Plan as the Board of Directors may deem necessary and
desirable. Each Award Agreement shall comply with the following terms and
conditions:
(a) The Board of Directors shall determine the number of Restricted
Shares to be awarded to a Grantee.
(b) At the time of the award of Restricted Shares, a certificate
representing the appropriate number of shares of Common Stock awarded to a
Grantee shall be registered in the name of such Grantee but shall be held by the
Corporation or any custodian appointed by the Corporation for the account of the
Grantee subject to the terms and conditions of the Plan. The Grantee shall have
all rights of a stockholder as to such shares of Common Stock, including the
right to receive dividends and the right to vote such Common Stock, subject to
the following restrictions: (i) the Grantee shall not be entitled to delivery of
the stock certificate until the expiration of the Restricted Period (as
hereinafter defined); (ii) the Restricted Shares may not be sold, transferred,
assigned, pledged, or otherwise encumbered or disposed of during the Restricted
Period; and (iii) all or a specified portion of the Restricted Shares shall be
forfeited and all rights of the Grantee to any forfeited Restricted Shares shall
terminate without further obligation on the part of the Corporation unless the
Grantee remains in the continuous employment of the Corporation for the period
in relation to which all or such portion of the Restricted Shares were granted
(the "Restricted Period"). No Restricted Shares shall have a Restricted Period
of less than six (6) months from the date of award. The Board of Directors shall
have the power to determine which portion of an award of Restricted Shares shall
be forfeited in the event of a Grantee's failure to remain in the continuous
employment of the Corporation during the Restricted Period relating to such
award. In addition, the Board of Directors may specify additional restrictions
or events which must occur during the Restricted Period or the Restricted
Shares, or a portion thereof, shall be forfeited as stated in the award thereof.
Any shares of Common Stock received as a result of a stock distribution to
holders of Restricted Shares shall be subject to the same restrictions as such
Restricted Shares.
(c) At the end of each applicable Restricted Period or at such earlier
time as otherwise provided by the Board of Directors, all restrictions contained
in an Award Agreement and in the Plan shall lapse as to such portion of the
Restricted Shares granted in relation to such Restricted Period, and a stock
certificate for the appropriate number of shares of Common Stock, free of
restrictions, shall be delivered to the Grantee or the Grantee's beneficiary or
estate, as the case may be.
(d) There shall be no limitation on the number of shares of Common
Stock which a Grantee may be awarded except that no Grantee may be awarded
shares of Common Stock in excess of the number of shares remaining available for
option grants and awards of Restricted Shares under the Plan.
17. Alternative Stock Appreciation Rights
(a) Grant. At the time of grant of an option under the Plan (or at any
time thereafter as to options which are not Incentive Stock Options), the Board
of Directors, in its discretion, may grant to the holder of such option an
alternative Stock Appreciation Right ("SAR") for all or any part of the number
of shares covered by the holder's option. Any such SAR may be exercised as an
alternative, but not in addition to, an option granted hereunder, and any
exercise of an SAR shall reduce an option by the same number of shares as to
which the SAR is exercised. An SAR granted to an Optionee shall provide that
such SAR, if exercised, must be exercised within the time period specified
therein. Such specified time period may be less than (but may not be greater
than) the time period during which the corresponding option may be exercised. An
SAR may be exercised only when the corresponding option is eligible to be
exercised. The failure of the holder of an SAR to exercise such SAR within the
time period specified shall not reduce such holder's option rights. If an SAR is
granted for a number of shares less than the total number of shares covered by
the corresponding option, the Board of Directors may later (as to options which
are not Incentive Stock Options) grant to the Optionee an additional SAR
covering additional shares; provided, however, that the aggregate amount of all
SARs held by any Optionee shall at no time exceed the total number of shares
covered by such Optionee's unexercised options.
(b) Exercise. The holder of any option which by its terms is
exercisable who also holds an SAR may, in lieu of exercising their option, elect
to exercise their SAR, subject, however, to the limitation on time of exercise
hereinafter set forth. Such SAR shall be exercised by the delivery to the
Corporation of a written notice which shall state that the Optionee elects to
exercise their SAR as to the number of shares specified in the notice and which
shall further state what portion, if any, of the SAR exercise amount
(hereinafter defined) the holder thereof requests be paid in cash and what
portion, if any, such holder requests be paid in Common Stock of the
Corporation. The Board of Directors shall promptly cause to be paid to such
holder the SAR exercise amount either in cash, in Common Stock of the
Corporation, or any combination of cash and stock as the Board of Directors may
determine. Such determination may be either in accordance with the request made
by the holder of the SAR or in the sole and absolute discretion of the Board of
Directors. The SAR exercise amount is the excess of the fair market value of one
share of the Corporation's Common Stock on the date of exercise over the per
share option price for the option in respect of which the SAR was granted
multiplied by the number of shares as to which the SAR is exercised. For the
purposes hereof, the fair market value of the Corporation's shares shall be
determined as provided in Section 5 herein. An SAR may be exercised only when
the SAR exercise amount is positive.
(c) Limitation on Date of Exercise. A cash settlement of an SAR by an
officer or director of the Corporation may only be accomplished in compliance
with Rule 16b-3 (e) of the Securities Exchange Act of 1934 as presently in
effect or as subsequently modified by amendment.
(d) Other Provisions of Plan Applicable. All provisions of this Plan
applicable to options granted hereunder shall apply with equal effect to an SAR.
No SAR shall be transferable otherwise than by will or the laws of descent and
distribution and an SAR may be exercised during the lifetime of the holder
thereof, only by such holder.
18. Tax Indemnification Payments
The Board shall have the authority, at the time of the grant of an
option or the making of a Restricted Share award under the Plan or at any time
thereafter, to approve tax indemnification payments to designated Optionees and
Grantees to be paid upon their exercise of stock options which do not qualify as
incentive stock options or recognition of a taxable gain by reason of their
receipt of an award of Restricted Shares, as the case may be. The amount of any
such payments shall not exceed the amount of tax generally payable by an
Optionee or Grantee by reason of such exercise or recognition, and shall not, in
any case, exceed sixty percent of the amount imputed as taxable income to a
particular Optionee or Grantee by reason of either of the above-described
events. The Board of Directors shall have full authority, in its discretion, to
determine the amount of any such payment, the terms and conditions affecting the
exercise, vesting and payment of any payment, and whether any payment shall be
payable in cash or other property.
19. Income Tax Withholding
In order to assist an Optionee or Grantee in paying federal and state
income taxes required to be withheld upon the exercise of an option or receipt
of a Restricted Share award granted or made hereunder, the Board of Directors,
in its discretion and subject to such additional terms and conditions as it may
adopt, may permit the Grantee or Optionee to elect to satisfy such income tax
withholding obligation by delivering previously owned shares or by having the
Corporation withhold a portion of the shares otherwise to be delivered upon
exercise of such option or award with a fair market value, determined in
accordance with the provisions of Section 5 hereof, in an amount up to the
Optionee's maximum marginal tax rate. Any such election by an officer or
director of the Corporation must comply with the provisions of Rule 16b-3 under
the Securities Exchange Act of 1934 or any successor rule.
PROXY
ATS MEDICAL, INC.
3905 Annapolis Lane
Minneapolis, Minnesota 55447
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 7, 1997, appoints Manuel A. Villafana and Russell W.
Felkey proxies (each with the power to act alone and with the power of
substitution and revocation) to represent the undersigned and to vote, as
designated below, all shares of common stock of ATS Medical, Inc. which the
undersigned is entitled to vote at the 1997 Annual Meeting of Shareholders of
ATS Medical, Inc., to be held on May 1, 1997 at the Minneapolis Club, 729 Second
Avenue South, Minneapolis, Minnesota at 3:30 p.m. and any adjournment thereof.
1. ELECTION OF DIRECTORS
[ ] FOR all nominees listed below (except as marked to the
contrary below)
[ ] WITHHOLD AUTHORITY to vote for the nominees indicated
below
(INSTRUCTION: TO WITHHOLD AUTHORITY FOR ANY NOMINEE, STRIKE A LINE THROUGH THE
NOMINEE'S NAME IN THE LIST BELOW.)
Manuel A. Villafana, Richard W. Kramp, Charles F. Cuddihy, Jr.,
A. Jay Graf, James F. Lyons
2. RATIFICATION OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS FOR
THE FISCAL YEAR ENDING DECEMBER 31, 1997.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. AMENDMENTS TO THE ATS MEDICAL, INC. 1987 STOCK OPTION PLAN (a)
INCREASING THE NUMBER OF SHARES SUBJECT TO THE PLAN FROM
2,400,000 TO 3,400,000 AND (b) TO SATISFY THE REQUIREMENTS OF
SECTION 162(m) OF THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(CONTINUED AND TO BE SIGNED AND DATED ON THE OTHER SIDE)
4. In their discretion, the proxies are authorized to vote upon such
other business as may properly come before the meeting and any adjournment
thereof.
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 1, 2 and 3.
Please sign, date and mail this proxy in the enclosed envelope, which
requires no postage if mailed in the U.S.
Date: ____________________________, 1997
________________________________________
(SIGNATURE)
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.
