UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by
the Registrant
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Filed by a Party other than the Registrant
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Check the appropriate box:
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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2)
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to §240.14a-12
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ATS Medical, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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No fee required.
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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(1)
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Title of each class of securities to which transaction applies:
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Aggregate number of securities to which transaction applies:
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(3)
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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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Proposed maximum aggregate value of transaction:
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(5)
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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.
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(1)
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Amount Previously Paid:
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(2)
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Form, Schedule or Registration Statement No.:
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Filing Party:
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Date Filed:
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3905 Annapolis Lane, Suite 105
Minneapolis, Minnesota 55447
Dear Fellow Shareholder:
You are cordially invited to attend the 2010 Annual Meeting of Shareholders of ATS Medical,
Inc., which will be held at our offices at 20412 James Bay Circle, Lake Forest, California
beginning at 2:00 p.m. Pacific time on Wednesday, May 12, 2010.
This booklet contains your official notice of the 2010 Annual Meeting and a Proxy Statement
that includes information about the matters to be acted upon at the meeting. Our officers and
directors will be on hand to review our operations and to answer questions and discuss matters that
may properly arise.
I sincerely hope that you will be able to attend our 2010 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.
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Sincerely,
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Michael D. Dale
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Chairman of the Board of Directors
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April 9, 2010
2010 ANNUAL MEETING OF SHAREHOLDERS
3905 Annapolis Lane, Suite 105
Minneapolis, Minnesota 55447
NOTICE OF 2010 ANNUAL MEETING OF SHAREHOLDERS
The 2010 Annual Meeting of Shareholders of ATS Medical, Inc. will be held on Wednesday, May
12, 2010 at 2:00 p.m. Pacific time at our offices at 20412 James Bay Circle, Lake Forest,
California 92630, for the following purposes:
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To elect seven members to the Board of Directors to hold office for the ensuing
year and until their successors are elected and qualified;
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2.
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To adopt and approve the ATS Medical, Inc. 2010 Stock Incentive Plan;
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3.
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To approve an amendment to the ATS Medical, Inc. 1998 Employee Stock Purchase
Plan to increase the number of shares of our common stock that may be purchased under
the plan by 500,000 shares;
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4.
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To ratify the selection of Grant Thornton LLP as our independent registered
public accounting firm for the year ending December 31, 2010; and
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5.
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To consider and act upon any other matters that may properly come before the
meeting or any adjournment thereof.
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Only holders of record of our common stock at the close of business on March 19, 2010 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.
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By Order of the Board of Directors,
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Michael R. Kramer
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Chief Financial Officer and Secretary
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April 9, 2010
PROXY STATEMENT
TABLE OF CONTENTS
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2
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Appendix A
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Appendix B
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ii
ATS MEDICAL, INC.
PROXY STATEMENT
The Board of Directors of ATS Medical, Inc. is soliciting proxies for use at the 2010 Annual
Meeting of Shareholders to be held on Wednesday, May 12, 2010 at 2:00 p.m. Pacific time at our
offices at 20412 James Bay Circle, Lake Forest, California 92630, and at any adjournments thereof.
This proxy statement and the enclosed proxy card are first being mailed to shareholders on or
about April 9, 2010.
The Board has set March 19, 2010 as the record date for the 2010 Annual Meeting. Each
shareholder of record at the close of business on March 19, 2010 will be entitled to vote at the
2010 Annual Meeting. As of the record date, 78,797,249 shares of our common stock were issued and
outstanding and, therefore, eligible to vote at the 2010 Annual Meeting. Holders of our common
stock are entitled to one vote per share. Therefore, a total of 78,797,249 votes are entitled to
be cast at the meeting. There is no cumulative voting.
Shareholders who sign and return a proxy may revoke it at any time before it is voted by
giving written notice to our Corporate Secretary.
Expenses in connection with this solicitation of proxies will be paid by us. Proxies are
being solicited primarily by mail, but, in addition, our officers and employees, who will receive
no extra compensation for their services, may solicit proxies by telephone or personally. We also
will request that brokers or other nominees who hold shares of our 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 our expense.
Proxies that are completed, signed and returned to us prior to the 2010 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, FOR the other 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 2010 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. Votes withheld from one or more director nominees will
have no effect on the election of any director from whom votes are withheld. 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 2010 Annual Meeting for purposes of determining a
quorum but shall not be deemed to be represented at the 2010 Annual Meeting for purposes of
calculating the vote with respect to such matters. A broker has discretionary authority to vote on
the ratification of Grant Thornton LLP as our independent registered public accounting firm even if
the broker does not receive voting instructions from the shareholder. A broker does not have
discretionary authority to vote on the election of directors, approval of the ATS Medical, Inc.
2010 Stock Incentive Plan or approval of the amendment to the ATS Medical, Inc. 1998 Employee Stock
Purchase Plan without specific voting instruction from the shareholder. If you hold shares in a
brokerage account and wish to vote those shares on these proposals, then you should instruct the
broker how to vote the shares using the voting instructions provided.
Important Notice Regarding the Availability of Proxy Materials for the
Shareholder Meeting to Be Held on May 12, 2010:
This Proxy Statement and our 2009 Annual Report, including our Annual Report on
Form 10-K
, are
available on our website at http://phx.corporate-ir.net/phoenix.zhtml?c=89111&p=irol-IRHome.
(This
site can also be reached by going to www.atsmedical.com, clicking on Investors, then SEC Filings or
Annual Reports.)
1
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth security ownership information pertaining to persons known by
us to beneficially own more than 5% of our common stock, our directors and director nominees, the
executive officers named in the Summary Compensation Table and all of our directors and executive
officers as a group as of February 26, 2010. Unless otherwise noted, the shareholders listed in
the table have sole voting and investment power with respect to the shares of common stock owned by
them, and such shares are not subject to any pledge.
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Amount and Nature of
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Percent of Class
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Name of Beneficial Owner
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Beneficial Ownership
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Outstanding
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Alta Partners
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11,763,000
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(1)
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15.0
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One Embarcadero Center, Suite 3700
San Francisco, California 94111
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Essex Woodlands Health Ventures
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11,063,831
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14.1
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21 Waterway Avenue, Suite 225
The Woodlands, Texas 77380
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Steven M. Anderson
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75,312
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(3)
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Thaddeus Coffindaffer
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292,573
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(3)
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Michael D. Dale
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689,752
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(3)
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Michael R. Kramer
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101,973
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(3)
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Robert E. Munzenrider
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81,545
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(3)
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Guy P. Nohra
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11,763,000
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15.0
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Michael E. Reinhardt
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Eric W. Sivertson
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20,000
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(3)
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Theodore C. Skokos
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5,379,066
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6.9
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Martin P. Sutter
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11,113,831
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(3)(6)
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14.2
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Craig A. Swandal
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30,516
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All directors and executive officers as
a group (13 persons)
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29,738,751
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(3)
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38.0
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Less than 1%
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(1)
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Based on a Schedule 13D jointly filed with the Securities and Exchange Commission on July 3,
2008, by Alta Partners VIII, L.P. (AP-VIII), Alta Partners Management VIII, LLC
(APM-VIII), Farah Champsi, Guy P. Nohra and Daniel Janney. APM-VIII is the sole general
partner of AP-VIII, Alta Partners IV, Inc. (AP-IV) is the management advisory company of
AP-VIII and APM-VIII, and Ms. Champsi and Messrs. Nohra and Janney are the managing directors
(the Managing Directors) of APM-VIII and officers or employees of AP-IV (collectively, the
Filing Persons). AP-VIII has the sole voting power and investment power over 11,763,000
shares. APM-VIII, AP-IV and each Managing Director may be deemed to share voting power and
investment power over 11,763,000 shares. The Filing Persons expressly disclaim status as a
group for purposes of the filing of Schedule 13D.
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(2)
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Based on a Schedule 13D jointly filed with the Securities and Exchange Commission on December
30, 2008 by Essex Woodlands Health Ventures Fund VIII, L.P. (EW-VIII), Essex Woodlands
Health Ventures Fund VIII-A, L.P. (EW-VIII-A), Essex Woodlands Health Ventures Fund VIII-B,
L.P. (EW-VIII-B), Essex Woodlands Health Ventures VIII, L.P. (the Partnership), Essex
Woodlands Health Ventures VIII, LLC (the General Partner) and Martin P. Sutter, James L.
Currie, Mark Pacala, Jeff Himawan, Petri Vianio, Ron Eastman, Guido Neels, Steve Wiggins and
Immanuel Thangaraj. EW-VIII has sole voting and sole investment power over
10,026,596 shares, which includes a warrant to purchase 1,407,580 shares. EW-VIII-A has sole
voting and investment power over 722,921 shares, which includes a warrant to purchase 101,487
shares. EW-VIII-B has sole voting power and investment power over 314,314 shares, which
includes a warrant to purchase 44,125 shares. The Partnership and General Partner each may be
deemed to have sole voting and investment
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power with respect to such securities and each disclaim beneficial ownership of such securities
except to the extent of its pecuniary interest therein. Messrs. Sutter, Currie, Pacala,
Himawan, Vianio, Eastman, Neels, Wiggins and Thangaraj are the managing directors and have
shared voting power and investment power with respect to the securities held by the Essex Funds
by unanimous consent and through the Partnership and Essex Funds and disclaim beneficial
ownership of such securities except to the extent of their respective pecuniary interests
therein. Mr. Sutter, in his individual capacity, has sole voting power and investment power
over 50,000 shares.
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(3)
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Includes the following shares that may be acquired within 60 days of February 26, 2010
through the exercise of stock options and warrants or vesting of RSU awards: Mr. Anderson,
5,000 shares; Mr. Coffindaffer, 174,761 shares; Mr. Dale, 542,558 shares; Mr. Kramer, 35,948;
Mr. Munzenrider, 10,250 shares; Mr. Sivertson, 20,000 shares; Mr. Sutter, 1,553,192 shares;
Mr. Swandal, 13,213 shares; and all executive officers and directors as a group, 2,427,178
shares.
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(4)
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Includes shares beneficially owned by entities of which Mr. Nohra is a managing director,
officer or employee as described in footnote 1 above. Mr. Nohras address is c/o ATS Medical,
Inc., 3905 Annapolis Lane, Suite 105, Minneapolis, Minnesota 55447.
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Mr. Skokoss address is c/o ATS Medical, Inc., 3905 Annapolis Lane, Suite 105, Minneapolis,
Minnesota 55447.
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(6)
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Includes shares beneficially owned by entities of which Mr. Sutter is a managing director,
officer or employee as described in footnote 2 above. Mr. Sutters address is c/o ATS
Medical, Inc., 3905 Annapolis Lane, Suite 105, Minneapolis, Minnesota 55447.
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the Exchange Act),
requires our executive officers and directors to file with the Securities and Exchange Commission
initial reports of ownership and reports of changes in ownership of our common stock. Executive
officers and directors are required to furnish us with copies of all Section 16(a) reports they
file. Based solely on a review of the copies of such forms furnished to us, we believe that our
executive officers and directors complied with all Section 16(a) filing requirements applicable to
them during 2009, except for: (1) one late Form 4 filing made on March 5, 2009 for 43,201 shares
purchased by Robert Munzenrider, a director, on February 26, 2009; (2) one late Form 4 filing made
on March 4, 2010 for 6,400 shares sold by Robert Munzenrider, a director, on November 6, 2009; (3)
one late Form 4 filing made on December 17, 2009 for 2,626 shares issued to Astrid Berthe, an
officer, on December 7, 2009 as a former shareholder of 3F Therapeutics, Inc. due to satisfaction
of a milestone under the Agreement and Plan of Merger dated January 23, 2006; and (4) one late Form
4 filing made on December 17, 2009 for 2,073,890 shares issued to Theodore Skokos, a director, on
December 7, 2009 as a former shareholder of 3F Therapeutics, Inc. due to satisfaction of a
milestone under the Agreement and Plan of Merger dated January 23, 2006.
CORPORATE GOVERNANCE
Board Leadership Structure
The ATS Medical Board of Directors is responsible for overseeing the business, property and
affairs of ATS Medical. Members of the Board are kept informed of our business through discussions
with the Chief Executive Officer and other officers, by reviewing materials provided to them and by
participating in meetings of the Board and its committees.
The Board is currently comprised of Mr. Michael D. Dale, who serves as our Chief Executive
Officer, President and Chairman of the Board, one other non-independent director and five
independent directors. ATS Medical does not have an independent lead director. The Board believes
that there is no single best organizational model that is the most effective in all circumstances
and that the shareholders interests are best served by allowing the Board to retain the
flexibility to determine the optimal organizational structure for ATS Medical at a given time,
including whether the Chairman role should be held by an independent director or one or more senior
executives who serve on the Board.
3
We believe that ATS Medical, like many U.S. companies, is currently best served by having one
person serve as both Chief Executive Officer and Chairman of the Board. The Board believes that
through this leadership structure, Mr. Dale is able to draw on his intimate knowledge of the daily
operations of ATS Medical and its relationships with customers and employees to provide the Board
with leadership in setting its agenda and properly focusing its discussions. As the individual
with primary responsibility for managing our day to day operations, Mr. Dale is also
best-positioned to chair regular Board meetings and ensure that key business issues are brought to
the Boards attention. The combined role as Chairman and Chief Executive Officer also ensures that
ATS Medical presents its message and strategy to shareholders, employees, customers and other
stakeholders with a unified, single voice.
Risk Oversight by the Board of Directors
The Board of Directors takes an active role in risk oversight related to the company and
primarily administers its role during Board and committee meetings. During regular meetings of the
Board of Directors, members of the Board discuss the operating results for each fiscal quarter and
review presentations by the leaders of the primary operational areas at the company. These
meetings allow the members of the Board to analyze any significant financial, operational,
competitive, economic, regulatory and legal risks of our business model, as well as how effectively
we implement our strategic and budgetary goals. The non-employee members of the Board frequently
meet without management present to further discuss these and other topics.
During regular Audit, Finance and Investment Committee meetings, Committee members discuss the
financial results for the most recent fiscal quarter with the independent auditors, Chief Financial
Officer and Chief Executive Officer. The Audit, Finance and Investment Committee also meets with
and provides guidance to the independent auditors outside the presence of management, and oversees
and reviews with management the liquidity, capital needs and allocation of our capital, our funding
needs and other finance matters. In addition, the Audit, Finance and Investment Committee reviews
our legal and regulatory risks and our procedures regarding the receipt, retention and treatment of
complaints regarding internal accounting, accounting controls or audit matters These discussions
and processes allow the members of the Audit, Finance and Investment Committee to analyze any
significant risks that could materially impact the financial health of our business.
The Nominating, Corporate Governance and Compliance Committee oversees key regulatory and
clinical activities which present significant legal risk to ATS Medical, annually reviews the
organization of the Board and its committees and their overall effectiveness and oversees the Board
and committee self-evaluation processes.
Director Independence
The Board of Directors has determined that the following members of the Board are independent
under the applicable listing standards of the NASDAQ Stock Market: Steven M. Anderson, Robert E.
Munzenrider, Guy P. Nohra, Eric W. Sivertson and Martin P. Sutter. All of the members of our three
standing committees are independent directors under the applicable listing standards of the NASDAQ
Stock Market for such committees and under the rules of the Securities and Exchange Commission. In
assessing the independence of the directors, the Board considers any transactions, relationships
and arrangements between ATS Medical and our independent directors or their affiliated companies.
This review is based primarily on responses of the directors to questions in a director and officer
questionnaire regarding employment, business, familial, compensation and other relationships with
ATS Medical or our management. In reviewing Mr. Nohras independence, the Board considered Mr.
Nohras affiliations with Alta Partners, as described further under Related Person Transactions
below. In reviewing Mr. Sutters independence, the Board considered Mr. Sutters affiliations with
Essex Woodlands, as described further under Related Person Transactions below. There were no
other transactions, relationships or arrangements between ATS Medical and any of the independent
directors or the independent directors affiliated companies that came to the attention of the
Board during its review of the independence of directors that warranted additional review.
Board Meetings and Committees
The Board of Directors held eight meetings during 2009. Each director attended at least 75%
of the meetings of the Board and the committees of which he was a member. All seven directors were
in attendance at the 2009 Annual Meeting of Shareholders. Board members are encouraged to attend
each annual meeting of shareholders.
4
The Board of Directors has three standing committees: (1) an Audit, Finance and Investment
Committee, (2) a Personnel and Compensation Committee and (3) a Nominating, Corporate Governance
and Compliance Committee. The charter for each of these committees is available for review on our
website at www.atsmedical.com. The functions of the Audit, Finance and Investment Committee are to
review and monitor our accounting policies and control procedures, including recommending the
engagement of the independent registered public accounting firm and reviewing the scope of the
audit. The Audit, Finance and Investment Committee, on which Messrs. Munzenrider, Anderson and
Sivertson serve, held seven meetings during 2009. All of the members of the Audit, Finance and
Investment Committee are independent for purposes of the NASDAQ listing requirements and the rules
of the Securities and Exchange Commission. Mr. Munzenrider qualifies as an audit committee
financial expert under the rules of the Securities and Exchange Commission.
The Personnel and Compensation Committee reviews and establishes compensation levels for each
of our officers, as well as jointly administers our stock plans with the Board of Directors. The
Personnel and Compensation Committee, on which Messrs. Sivertson, Anderson and Nohra serve, held
five meetings during 2009. All of the members of the Personnel and Compensation Committee are
independent for purposes of the NASDAQ listing requirements.
The Nominating, Corporate Governance and Compliance Committee is responsible for determining
the slate of director nominees for election by shareholders, which the committee recommends for
consideration by the Board of Directors. The Nominating, Corporate Governance and Compliance
Committee, on which Messrs. Anderson, Munzenrider and Sutter serve, held two formal meetings and
several discussions during Board meetings regarding board positions and governance and compliance
matters. Mr. Sivertson also served on the committee until February 19, 2009. All of the current
and former members of the Nominating, Corporate Governance and Compliance Committee are independent
for purposes of the NASDAQ listing requirements.
Director Nominations
All director nominees approved by the Board of Directors and all individuals appointed to fill
vacancies created between our annual meetings of shareholders are required to stand for election by
shareholders at the next annual meeting.
The Nominating, Corporate Governance and Compliance Committee determines the required
selection criteria and qualifications of the director nominees based upon the needs of ATS Medical
at the time nominees are considered. In determining the composition of the Board, candidates are
considered based on a variety of factors, including: (1) relevant experience, (2) specific areas of
expertise, (3) the Boards interest in reflecting a diversity of viewpoints, experiences and
backgrounds, (4) independence, judgment, strength of character, ethics and integrity and (5) any
required attributes under applicable law. A candidate must possess the ability to apply good
business judgment and must be in a position to properly exercise his or her duties of loyalty and
care. Candidates should also exhibit proven leadership capabilities, high integrity and experience
with a high level of responsibilities within their chosen fields, and have the ability to quickly
grasp complex principles of business and finance. In general, candidates will be preferred who
hold or have held an established executive level position in business, finance, law, education,
research or government. The Nominating, Corporate Governance and Compliance Committee will
consider these criteria for nominees identified by the Committee, by shareholders, or through some
other source.
The Nominating, Corporate Governance and Compliance Committee will consider qualified
candidates for possible nomination that are submitted by our shareholders. Shareholders wishing to
make such a submission may do so by sending the following information to the Nominating, Corporate
Governance and Compliance Committee c/o Corporate Secretary at 3905 Annapolis Lane, Suite 105,
Minneapolis, Minnesota 55447: (1) name of the candidate and a brief biographical sketch and resume;
(2) contact information for the candidate and a document evidencing the candidates willingness to
serve as a director if elected; and (3) a signed statement as to the submitting shareholders
current status as a shareholder and the number of shares currently held. No candidates for
director nominations were submitted to the Nominating, Corporate Governance and Compliance
Committee by any shareholder in connection with the 2010 Annual Meeting.
The Nominating, Corporate Governance and Compliance Committee conducts a process of making
preliminary assessments of each proposed nominee based upon the resume and biographical
information, an indication of the individuals willingness to serve and other background
information. This information is evaluated against the
5
criteria set forth above and our specific needs at that time. Based upon a preliminary
assessment of the candidate(s), those who appear to be best suited to meet our needs may be invited
to participate in a series of interviews, which are used as a further means of evaluating potential
candidates. On the basis of information learned during this process, the Nominating, Corporate
Governance and Compliance Committee determines which nominee(s) to recommend to the Board of
Directors to submit for election at the next annual meeting of shareholders. The Nominating,
Corporate Governance and Compliance Committee uses the same process for evaluating all nominees,
regardless of the original source of nomination.
Shareholder Communications with the Board of Directors
Shareholders may send written communications to the attention of the Board of Directors. Any
shareholder desiring to communicate with our Board of Directors, or one or more of our directors,
may send a letter addressed to the Board of Directors c/o Corporate Secretary at 3905 Annapolis
Lane, Suite 105, Minneapolis, Minnesota 55447. The Corporate Secretary has been instructed by the
Board of Directors to promptly forward all communications so received to the full Board of
Directors or the individual members of the Board of Directors specifically addressed in the
communication.
PROPOSAL 1 ELECTION OF DIRECTORS
Seven directors have been nominated for election to our Board of Directors at the 2010 Annual
Meeting 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). Each of the director
nominees was elected by our shareholders at the 2009 Annual Meeting. 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.
Biographical information for each director nominee is included below. Included at the end of
each directors biography is a description of the particular experience, qualifications, attributes
or skills that led the Board to conclude that each of our directors should serve as a director of
ATS Medical.
Michael D. Dale
, 50, has been Chief Executive Officer and President of ATS Medical since
October 2002, and Chairman of the Board of Directors since May 2004. From 1998 to 2002, Mr. Dale
was Vice President of Worldwide Sales and Marketing at Endocardial Solutions, Inc., a company that
developed and marketed an advanced cardiac mapping and catheter navigation system for the diagnosis
and treatment of cardiac arrhythmias. From 1996 to 1998, Mr. Dale was Vice President of Global
Sales for Cyberonics, Inc., a neuromodulation medical device company, and additionally was Managing
Director of Cyberonics Europe S.A. From 1988 to 1996, Mr. Dale served in several capacities at
cardiovascular medical device manufacturer and marketer St. Jude Medical, Inc., most recently as
the Business Unit Director for St. Jude Medical Europe. At present, Mr. Dale serves on the board
of directors of Neuronetics, Inc., the worlds leader in Transcranial Magnetic Stimulation Therapy,
which involves the use of MRI-strength magnetic fields to stimulate nerve cells in the brain for
the treatment of patients suffering from depression. Mr. Dale also serves on the board of
directors of Rhythmia, Inc., an early stage medical technology company, and the Advanced Medical
Technology Association (AdvaMed). Mr. Dale also served on the board of Enpath Medical, Inc., a
medical products company that designs, develops, manufactures and markets percutaneous delivery
solutions, from 2001 to 2005 (when the company was acquired). Mr. Dale brings to our Board more
than 25 years of experience in the medical device industry, including many years of heart valve,
cardiology, electrophysiology, and neurology specific related business experience. Mr. Dales
prior experience working in publicly held companies includes significant product management, sales,
distribution, marketing and strategic planning responsibility for both early and late stage medical
device businesses.
Steven M. Anderson
, 47, has been President of Acorn Cardiovascular, Inc., a company developing
implantable therapies for the treatment of heart failure, since October 2007. Prior to his
appointment as President, Mr. Anderson was Vice-President of Regulatory, Reimbursement and Quality
of Acorn Cardiovascular since 2000. From 1998 to 2000, Mr. Anderson served as Vice President of
Regulatory, Clinical, Quality and Reimbursement at St. Croix Medical, Inc., a medical device
company developing fully implantable hearing systems. From 1996 to 1998, Mr. Anderson served as
Director of the North American Medical Division for TÜV Product Service, a European notified body
providing conformity assessment for the Medical Device Directive. Between 1987 and 1996,
6
Mr.
Anderson
served in several capacities at St. Jude Medical, Inc, most recently as Senior Manager of
Worldwide Regulatory Affairs. From 1982 to 1986, he worked in development engineering at
Medtronic, Inc. Additionally, Mr. Anderson is an Adjunct Professor at the University of St. Thomas
Graduate School, has served on multiple industry advisory boards, and was part of the industry team
which negotiated the MDUFMA II user fee legislation with FDA and Congress from 2006 to 2007. Mr.
Anderson was elected as a director of ATS Medical in May 2006. Mr. Anderson brings to our Board
nearly 30 years of medical device experience specializing in clinical and regulatory affairs,
regulatory compliance, reimbursement, quality and operations. Mr. Andersons wealth of U.S. and
European regulatory affairs experience and deep understanding of the intricacies and fundamental
spirit of the regulatory process strengthen our clinical and regulatory affairs capabilities and
help us design, develop and implement sound scientific processes and trials.
Robert E. Munzenrider
, 65, is a retired financial and operating executive. From 2000 to 2002,
Mr. Munzenrider was President of Harmon AutoGlass, a subsidiary of Apogee Enterprises, Inc. In
1999, he served as Vice President and Chief Financial Officer of the Glass Services Segment of
Apogee Enterprises. He also served as Executive Vice President and Chief Financial Officer of
Eliance Corp., an e-commerce service provider, during part of 1999. From 1997 to 1998, Mr.
Munzenrider served as Vice President and Chief Financial Officer of St. Jude Medical, Inc. From
1983 to 1997, he served as Vice President and Chief Financial Officer of three subsidiaries of Viad
Corp. and its predecessor companies, including Travelers Express Company, Inc., Restaura, Inc. and
Bell Atlantic Systems Leasing, Inc. (previously Greyhound Computer Corporation). Mr. Munzenrider
is a Certified Public Accountant. Mr. Munzenrider also serves as a director on the board of Viad
Corp. and is a Trustee Emeritus of the University of Montana Foundation. Mr. Munzenrider also
served on the boards of Criticare Systems, Inc., a publicly held company that manufactures and
markets patient monitoring systems in domestic and international markets, from April 2007 to April
2008 (when it was sold to a private company), and CABG Medical, Inc., a publicly held medical
device company engaged in the development of a synthetic graft system for use in cardiac bypass
surgical procedures, from November 2004 to February 2006 (when the company was dissolved). Mr.
Munzenrider was elected as a director of ATS Medical in June 2003. Mr. Munzenrider brings to our
Board more than 20 years of senior level executive experience, including more than 18 years as a
Chief Financial Officer in a variety of industries. His proven leadership and experience as a
senior executive in several publicly held companies, and his finance management experience add
significant value to our Board and to our Boards audit committee responsibilities. Mr.
Munzenrider qualifies as an audit committee financial expert under applicable rules of the
Securities and Exchange Commission.
Guy P. Nohra
, 49, is a founder and managing director of Alta Partners, a venture capital firm
investing in life science companies. Prior to founding Alta Partners in 1996, Mr. Nohra was a
partner at Burr, Egan, Deleage & Co., which he joined in 1989 and served as a Vice President of
from 1989 to 1997. Previously, Mr. Nohra was a Product Manager of Medical Products with Security
Pacific Trading Corporation where he was responsible for a multi-million dollar product line and
traveled extensively in Korea, Taiwan, Hong Kong, China and Southeast Asia. Mr. Nohra has served
as a director of ATS Medical since June 2007 when he joined our Board in connection with our
private placement of shares of our common stock and warrants to Alta Partners. Mr. Nohra is a
member of the boards of directors of several privately held medical device companies. Mr. Nohra
brings to our Board many years of experience in the field of business development. As a director
of several other private medical device companies, Mr. Nohra brings strategic and financial
perspective to our Board.
Eric W. Sivertson
, 59, has served as the President and Chief Executive Officer of Dymedix
Corporation, a company developing and marketing technology to help advance the science of sleep
medicine, since June 2005. Prior to Dymedix, Mr. Sivertson was a partner in the Minneapolis office
of DHR International Executive Search, which focuses on the medical device, diagnostic and
healthcare supply industries, during 2004 and 2005. In 2003, Mr. Sivertson was a partner at
TMP/Highland Partners, an executive search firm. From 1999 to 2003, Mr. Sivertson served as
President and Chief Executive Officer of netRegulus, Inc., a web-based medical device regulatory
and clinical information technology company. From 1997 to 1999, Mr. Sivertson served as President
and Chief Executive Officer of Biocompatible Cardiovascular, Ltd. Preceding this, Mr. Sivertson
served as Division President of International, Cardiovascular and Cardiac Rhythm Management for St.
Jude Medical, Inc. from 1985 to 1996. Mr. Sivertson started his career at American Hospital Supply
Corporation and held various sales and marketing positions from 1976 to 1985, including Vice
President of Marketing for the Convertors Division. Mr. Sivertson was elected as a director of ATS
Medical in January 2003. Mr. Sivertson also serves on the boards of Dymedix Corporation and
ExitCare LLC. Mr. Sivertson brings to our Board over 30 years of sales, marketing and general
7
management experience in the medical device and healthcare industry. His proven leadership
and experience in establishing new technology and building organizations adds significant value to
our Board.
Theodore C. Skokos
, 62, is a retired attorney, having practiced law from 1973 through 1994.
Since his retirement, he has been involved in various business enterprises, including founding and
serving as an officer of three entities involved in the cellular telephone business and founding
and serving as a member of the general partnership of Aloha Partners L.P., which holds the largest
number of 700 MHz wireless spectrum licenses in the United States. Aloha Partners was acquired by
AT&T Mobility in February 2008. Additionally, from 1999 to 2001, he served as chairman and
president of The Flight Department, Inc., a privately held aircraft management and air charter
company, located in Aspen, Colorado. Mr. Skokos has served as a director of ATS Medical since
September 2006.
Mr. Skokos was a founder and former Chairman of the Board of 3F Therapeutics, Inc. (3F),
which was acquired by ATS Medical in 2006. Under the merger agreement between 3F and ATS Medical,
the representative of the former stockholders of 3F was entitled to designate a person to serve as
a member of our Board of Directors until our next annual meeting of shareholders. Mr. Skokos was
selected by the 3F stockholder representative as its designee to our Board of Directors. Under the
merger agreement, we are obligated to continue to nominate Mr. Skokos, or his successor, for
election to the Board of Directors through 2013, unless he fails to be so elected or is removed
from the Board of Directors. Other than in connection with the merger agreement described above,
there are no arrangements or understandings between Mr. Skokos and any other persons pursuant to
which Mr. Skokos was selected as a director. Mr. Skokos brings to our Board more than 30 years of
experience in the field of law and in business entrepreneurship and development. As founder of 3F,
Mr. Skokos has been intimately involved with 3F from the very beginning, and his valuable insights
and skills help ensure continuity and a smooth transition as ATS Medical and 3F combine their
respective talents and assets.
Martin P. Sutter
,
54, is one of the two founding managing directors of Essex Woodlands Health
Ventures. Educated in chemical engineering and finance, Mr. Sutter began his career in management
consulting with Peat Marwick, Mitchell & Co. in 1977 and moved to Mitchell Energy & Development
Corp. (MEDC), now Devon Energy Corporation, a public company, where he held management positions
overseeing various operating units. He founded and managed The Woodlands Venture Capital Company,
a wholly-owned subsidiary of MEDC, in 1984 and formed The Woodlands Venture Partners, an
independent venture capital partnership, in 1988. During his tenure with both organizations, he
founded a number of successful healthcare companies originating from various institutions of the
Texas Medical Center. In 1994, Mr. Sutter merged his venture practice with Essex Venture Partners
to form Essex Woodlands Health Ventures (Essex Woodlands). Essex Woodlands manages eight venture
capital limited partnerships with capital in excess of $2 billion. He currently serves on the
boards of Abiomed, Inc., a publicly traded medical device company, and QSpex Technologies, Inc., a
privately held company developing ophthalmic lenses technology. Mr. Sutter formerly served on the
boards of BioForm Medical, Inc., a company developing soft tissue augmentation products which was
publicly held until February 2010, LifeCell Corporation, a company developing human-derived
tissue-based products which was publicly held until May 2008, and La Jolla Pharmaceutical Company,
a publicly held biopharmaceutical company. Mr. Sutter holds a B.S. from Louisiana State University
and an M.B.A. from the University of Houston. Mr. Sutter has been a director of ATS Medical since
December 2008 when he joined our Board in connection with our private placement of shares of our
common stock and warrants to Essex Woodlands. Mr. Sutter brings to our Board more than 25 years of
management experience in operations, marketing, finance and venture capital. He also has
significant experience in the needs and concerns of public companies, having served on many company
boards, including as lead director and on various board committees.
Recommendation of the Board of Directors; Vote Required for Approval
The Board recommends that you vote FOR the election of the seven nominated directors. In
accordance with Minnesota law, the nominees for election as directors at the 2010 Annual Meeting
will be elected by a plurality of the votes cast at the meeting. This means that since
shareholders will be electing seven directors, the seven nominees receiving the highest number of
votes will be elected.
8
COMPENSATION OF DIRECTORS
We pay each of our non-employee directors $20,000 as an annual retainer, payable quarterly,
for service on our Board of Directors. An additional annual retainer is paid quarterly to the
chair of the Audit, Finance and Investment Committee. During 2009, this additional annual retainer
was in the amount of $5,000. Effective June 8, 2010, the additional annual retainer to be paid to
the chair of the Audit, Finance and Investment Committee will be increased to $10,000. A $3,500
annual retainer is paid quarterly to the Chairs of the Personnel and Compensation Committee and the
Nominating, Corporate Governance and Compliance Committee. In addition, non-employee directors are
paid $1,000 for each board meeting attended in person and $500 for each board meeting attended
telephonically. Audit, Finance and Investment Committee, Nominating, Corporate Governance and
Compliance Committee and Personnel and Compensation Committee members are paid an additional $750
for each committee meeting attended. We also reimburse our directors for travel-related expenses.
Upon initial election to the Board of Directors, each non-employee director is granted an
award of 3,000 restricted stock units (RSUs) that vests on the second anniversary of the date of
grant. In addition, upon each re-election to the Board of Directors, each non-employee director
receives a yearly equity retainer of RSUs equal to $45,000, based on the closing price of our stock
on the date of grant. Such RSUs vest on the earlier of the date of the second annual meeting
following the date of grant or June 30 of the second year following the date of grant. Consistent
with the foregoing, in 2009, Messrs. Anderson, Munzenrider, Nohra, Sivertson, Skokos and Sutter
each received RSUs equal to $45,000.
Employee directors are not compensated for their service on the Board of Directors.
The following table shows the compensation of the members of our Board of Directors during
2009.
Director Compensation for 2009
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Fees
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Earned or
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Stock
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Option
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Paid in
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Awards
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Awards
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Name (1)
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Cash ($)
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($)(2)
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($)(3)
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Total ($)
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Steven M. Anderson
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38,375
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45,000
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83,375
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Robert E. Munzenrider
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37,750
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45,000
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82,750
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Guy P. Nohra (4)
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29,000
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45,000
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74,000
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Eric W. Sivertson
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36,750
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45,000
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81,750
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Theodore C. Skokos
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26,000
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45,000
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71,000
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Martin P. Sutter (5)
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25,750
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45,000
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70,750
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(1)
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Mr. Dale, our Chief Executive Officer and President, is not included in this table because he
was an employee during 2009 and thus received no compensation for his service as a director.
The compensation he received as an employee is shown in the Summary Compensation Table.
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(2)
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The amounts in this column are the grant date fair value of 28,662 RSUs awarded to each
non-employee director on May 7, 2009. The aggregate number of RSUs outstanding at December
31, 2009 was 37,228 shares for each of Messrs. Anderson, Munzenrider, Nohra, Sivertson and
Skokos and 18,901 shares for Mr. Sutter, all of which were awarded during 2008 or 2009.
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(3)
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There were no stock option grants to our non-employee directors in 2009. The aggregate
number of stock options outstanding at December 31, 2009, was 5,000 options for Mr. Anderson,
10,250 options for Mr. Munzenrider, 20,000 options for Mr. Sivertson and 0 for Messrs. Skokos,
Nohra and Sutter.
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(4)
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Mr. Nohras director fees are issued to Alta Partners IV, Inc.
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(5)
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Mr. Sutters director fees are issued to Essex Woodlands Health Ventures.
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9
The Personnel and Compensation Committee regularly reviews and makes recommendations to
the Board of Directors regarding compensation to be paid to our non-employee directors. From time
to time, the Personnel and Compensation Committee engages a compensation consultant to provide
non-employee director compensation advice. The consultant analyzes each element of director
compensation and total director compensation for comparable companies. The Personnel and
Compensation Committee reviews the consultants report of competitive director compensation and
determines whether to recommend to the Board a change in the non-employee director compensation.
If such a change is recommended by the Personnel and Compensation Committee, the full Board would
then determine whether to approve the change. The Personnel and Compensation Committee did not
engage a compensation consultant to review director compensation in 2009.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 2009, Eric W. Sivertson (Chairman), Steven M. Anderson and Guy P. Nohra served as
members of the Personnel and Compensation Committee. None of these individuals has ever served as
an officer or employee of ATS Medical or has any relationships with ATS Medical requiring
disclosure under Related Person Transactions below, except as disclosed for Mr. Nohra on page 11.
The members of the Personnel and Compensation Committee have no interlocking relationships
requiring disclosure under the rules of the Securities and Exchange Commission.
RELATED PERSON TRANSACTIONS REVIEW POLICY
AND RELATED PERSON TRANSACTIONS
Review of Related Person Transactions
In 2004, we adopted a written Code of Conduct for our employees, including our principal
executive officer, principal financial officer and principal accounting officer, which is posted on
our website (www.atsmedical.com). Under our Code of Conduct our directors, officers and employees
are expected to avoid conflicts of interest with ATS Medical and are required to report any such
conflicts of interest to our Chief Executive Officer or Chief Financial Officer, or to the Chair of
our Audit, Finance and Investment Committee. Our Audit, Finance and Investment Committee reviews
all such transactions and relationships that come to its attention either through the director and
officer questionnaires or otherwise, and considers whether to approve or take other appropriate
action with respect to such transactions or relationships.
In addition to our Code of Conduct, in 2009 we adopted a written policy regarding transactions
with related persons. In accordance with the policy, the Audit, Finance and Investment Committee
is responsible for the review and approval or ratification of all transactions with related persons
that are required to be disclosed under the rules of the Securities and Exchange Commission. Under
the policy, a related person includes any of our directors or executive officers, certain of our
shareholders and any of their respective immediate family members. The policy applies to
transactions in which ATS Medical is a participant, the amount involved exceeds $120,000 and a
related person has a direct or indirect material interest. A related persons material interest in
a transaction is to be determined based on the significance of the information to investors in
light of all the circumstances. Under the policy, management of ATS Medical is responsible for
disclosing to the Audit, Finance and Investment Committee all material information related to any
covered transaction prior to entering into the transaction. The Audit, Finance and Investment
Committee may use any process and review any information that it determines is reasonable under the
circumstances in order to determine whether the covered transaction is fair and reasonable and on
terms no less favorable to ATS Medical than could be obtained in a comparable arms-length
transaction with a third party unrelated to ATS Medical.
A description of our related person transactions is provided below. As described above, prior
to the adoption of the written policy regarding the review and approval of related person
transactions, the Audit, Finance and Investment Committee reviewed and approved such transactions
under the Code of Conduct. Because the transactions with Alta and Essex described below did not
involve a related person under the rules of the Securities and Exchange Commission at the time of
such transactions, the Audit, Finance and Investment Committee did not review and approve the
transactions. The Audit, Finance and Investment Committee was aware of Mr. Nohras involvement
with the Alta investment and Mr. Sutters involvement in the Essex investment when such individuals
joined our Board. The Credit Agreement with Mr. Skokos described below was reviewed by the Audit,
Finance and Investment Committee under the Code of Conduct. The $30 million debt commitment letter
from Mr. Skokos
10
described below was reviewed pursuant to the written policy for reviewing and approving
related person transactions adopted in 2009.
Related Person Transactions
Relationship with Alta Partners VIII, L.P. and Guy P. Nohra
On June 19, 2007, we entered into a Common Stock and Warrant Purchase Agreement (the Alta
Purchase Agreement) with Alta Partners VIII, L.P. (Alta), pursuant to which we agreed to issue
to Alta an aggregate of 9,800,000 shares (the Alta Shares) of our common stock and a seven-year
warrant to purchase up to 1,960,000 shares of common stock at an exercise price of $1.65 per share,
or the equivalent cash value thereof (the Alta Warrant). Under the terms of the Alta Warrant,
dated June 28, 2007, if we did not receive approval of our shareholders at our 2008 annual meeting
of shareholders (or any subsequent annual meeting) to issue shares of common stock to Alta upon
exercise of the Alta Warrant, then the Alta Warrant would have become exercisable on June 28, 2008,
and Alta would have been entitled to receive, upon exercise of the Alta Warrant, cash from ATS
Medical in an amount equal to the difference between the then-current fair market value of the
shares underlying the Alta Warrant and the aggregate exercise price of the Alta Warrant. If we
received shareholder approval to issue shares of common stock upon exercise of the Alta Warrant,
then the Alta Warrant would have become exercisable upon receipt of such shareholder approval and
Alta would have been entitled to receive shares of common stock upon exercise of the Alta Warrant.
Pursuant to the terms of the Alta Purchase Agreement, we also agreed to appoint to our Board of
Directors, as of the closing, one person designated by Alta.
On June 28, 2007, we closed the transactions contemplated under the Alta Purchase Agreement,
with Alta paying $1.65 per share for the purchase of the Alta Shares and $0.125 per underlying
share for the purchase of the Alta Warrant. The gross proceeds of the sale of the Alta Shares and
the Alta Warrant was $16,415,000. We also entered into a Registration Rights Agreement with Alta,
dated June 28, 2007, pursuant to which we agreed to prepare and file with the Securities and
Exchange Commission, on or prior to the 30th calendar day following the closing of the issuance of
the Alta Shares and the Alta Warrant, a registration statement (the Alta Registration Statement)
covering the resale of the Alta Shares and, if permitted by the Securities and Exchange Commission,
the common stock underlying the Alta Warrant (the Alta Warrant Shares), for an offering to be
made on a continuous basis pursuant to Rule 415 promulgated by the Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended (the Securities Act). If we were
not permitted to register the Alta Warrant Shares on the initial Alta Registration Statement, we
agreed to file a second registration statement covering the Alta Warrant Shares at such time as
shall have been permissible under Securities and Exchange Commission rules and regulations.
Pursuant to the Alta Registration Rights Agreement, we agreed to use commercially reasonable
efforts to cause the Alta Registration Statement to be declared effective under the Securities Act
as promptly as possible after the filing thereof but, in any event, within (1) 90 days following
the filing date of the Alta Registration Statement if the Securities and Exchange Commission
informed us that no review of the Alta Registration Statement would be made and (2) 120 days
following the filing date of the Alta Registration Statement if the Securities and Exchange
Commission informed us that it would review the Alta Registration Statement. We also agreed to
keep the Alta Registration Statement continuously effective under the Securities Act until the
earlier of the date on which all of the Alta Shares and Alta Warrant Shares have been sold and the
date on which all of the Alta Shares and Alta Warrant Shares could be sold publicly under Rule
144(k) promulgated by the Securities and Exchange Commission pursuant to the Securities Act. If
the Alta Registration Statement had not been declared effective within the timeframes set forth
above, then we would have been obligated to pay liquidated damages to Alta in an amount equal to 1%
of the aggregate amount invested by Alta for each 30-day period, or pro rata for any portion
thereof, following the date by which the Alta Registration Statement should have been declared
effective; provided, however, that the aggregate amount of liquidated damages paid would not have
exceeded 12% of the aggregate amount invested by Alta.
On June 28, 2007, in connection with the closing of the transactions contemplated by the Alta
Purchase Agreement, we appointed Mr. Guy Nohra, founder and managing director of Alta, to our Board
of Directors as Altas designee. Mr. Nohra is one of the three managing directors of Alta Partners
Management VIII, LLC (Alta Management VIII), the general partner of Alta. Mr. Nohra shares
voting and investment power with respect to the shares owned by Alta with the other managing
directors of Alta Management VIII. As a result, under the rules of the Securities and Exchange
Commission, Mr. Nohra beneficially owns 11,763,000 shares of our common stock.
11
Mr. Nohra disclaims beneficial ownership of these securities, except to the extent of his
proportionate pecuniary interest therein.
On May 8, 2008, at the annual meeting of shareholders, our shareholders approved the issuance
of shares of common stock to Alta upon exercise of the Alta Warrant. In June 2008, Alta exercised
the Alta Warrant to purchase all 1,960,000 shares of common stock. We received $3.2 million as a
result of the exercise.
Relationships with Theodore C. Skokos
On June 29, 2008, we entered into a Subordinated Credit Agreement (Credit Agreement) with
Theodore C. Skokos, a member of our Board of Directors, for a two-year, $5 million Revolving Credit
Facility (Credit Facility). Advances under the Credit Facility will carry interest at 15% per
annum payable quarterly. The Credit Facility also carries an annual commitment fee of 1% of the
average unused revolving commitment amount, payable annually. In July 2009, we paid the first
annual commitment fee of $50,000 to Mr. Skokos. Our obligations to Mr. Skokos under the Credit
Agreement are subordinate to (1) our obligations to the holders of our 6% Convertible Senior Notes
due 2025 issued in October 2005 and (2) our obligations to Silicon Valley Bank. All assets are
pledged as collateral on the Credit Facility. As of March 31, 2010, no amounts had been drawn
under the Credit Facility to date.
In connection with the execution of the Credit Agreement, we issued to Mr. Skokos a warrant to
purchase 245,098 shares of our common stock at $2.04 per share until June 29, 2015. In July 2008,
Mr. Skokos exercised this warrant in full and we received $0.5 million from the exercise. We are
obligated to issue additional seven-year warrants to Mr. Skokos in the future based on the total
amount of advances under the Credit Facility. The maximum number of additional shares issuable
pursuant to warrants issued under the Credit Facility is 490,196 shares (not including the warrant
issued upon execution of the Credit Agreement), which represents 20% of the maximum amount of
advances under the $5 million Credit Facility divided by the $2.04 warrant exercise price.
On February 25, 2010, we executed a commitment letter with Mr. Skokos and The Ted and Shannon
Skokos Foundation (the Skokos Foundation) for a four-year term loan of approximately $30 million.
If consummated, this financing will be used to call and retire our convertible senior notes and
bank term loan which together total approximately $26 million, as well as to provide general
corporate working capital. Mr. Skokos and the Skokos Foundation received a 1.5% facility fee, or
$450,000, in connection with execution of the commitment letter. The commitment to provide the
loan will expire on April 30, 2010. If the loan is not funded by that date, then Mr. Skokos and
the Skokos Foundation are entitled to receive an aggregate break-up fee of $450,000.
Relationships with Essex Woodlands and Martin P. Sutter
On December 19, 2008, we entered into a Common Stock and Warrant Purchase Agreement (the
Essex Purchase Agreement) with Essex Woodlands Health Ventures Fund VIII, L.P., Essex Woodlands
Health Ventures Fund VIII-A, L.P. and Essex Woodlands Health Ventures Fund VIII-B, L.P.
(collectively, Essex), pursuant to which we agreed to issue to Essex an aggregate of 8,510,639
shares (the Essex Shares) of our common stock and warrants to purchase up to 2,553,192 shares of
our common stock at an exercise price of $2.475 per share during the first year after the closing,
$2.85 per share during the second year after the closing, and $3.10 per share thereafter (the
Essex Warrants). The Essex Warrants expire on December 19, 2015. Pursuant to the terms of the
Essex Purchase Agreement, we also agreed to appoint to our Board of Directors, as of the closing,
one person designated by Essex.
On December 19, 2008, we closed the transactions contemplated under the Essex Purchase
Agreement. The gross proceeds of the sale of the Essex Shares and Essex Warrants were
approximately $20,000,000. We also entered into a Registration Rights Agreement with Essex, dated
December 19, 2008, pursuant to which we agreed to prepare and file with the Securities and Exchange
Commission, on or prior to the 30th calendar day following the closing of the issuance of the Essex
Shares and Essex Warrants, a registration statement (the Essex Registration Statement) covering
the resale of the Essex Shares and the common stock underlying the Essex Warrants (the Essex
Warrant Shares), for an offering to be made on a continuous basis pursuant to Rule 415 under the
Securities Act. Pursuant to the Essex Registration Rights Agreement, we agreed to use commercially
reasonable efforts to cause the Registration Statement to be declared effective under the
Securities Act as promptly as possible after the filing thereof but, in any event, within (1) 90
days following the filing date of the Essex Registration Statement if the
12
Securities and Exchange Commission informed us that no review of the Essex Registration
Statement would be made and (2) 120 days following the filing date of the Essex Registration
Statement if the Securities and Exchange Commission informed us that it would review the Essex
Registration Statement. We agreed to keep the Essex Registration Statement continuously effective
under the Securities Act until the earlier of the date on which all of the Shares and Warrant
Shares have been sold and the date on which all of the Essex Shares and Essex Warrant Shares can be
sold publicly under Rule 144 under the Securities Act. If the Essex Registration Statement had not
been declared effective within the timeframes set forth above, then ATS Medical would have been
obligated to pay liquidated damages to Essex in an amount equal to 1% of the aggregate amount
invested by Essex for each 30-day period, or pro rata for any portion thereof, following the date
by which the Essex Registration Statement should have been declared effective; provided, however,
that the aggregate amount of liquidated damages paid could not have exceeded 12% of the aggregate
amount invested by Essex.
On December 19, 2008, in connection with the closing of the transactions contemplated by the
Essex Purchase Agreement, we appointed Mr. Martin P. Sutter, co-founder and managing director at
Essex Woodlands Health Ventures Fund, to our Board of Directors as Essexs designee. Mr. Sutter is
one of the two founding managing directors of Essex Woodlands. Mr. Sutter shares voting and
investment power with respect to the shares owned by Essex with the other managing directors of
Essex Woodlands. As a result, under the rules of the Securities and Exchange Commission, Mr.
Sutter beneficially owns 9,560,639 shares of our common stock and warrants to purchase an
additional 1,533,192 shares of our common stock. Mr. Sutter disclaims beneficial ownership of
9,510,639 shares, except to the extent of his proportionate pecuniary interest therein. Mr. Sutter
owns 50,000 shares of our common stock in his individual capacity and he has sole voting and
investment power with respect to such securities.
In December 2009, Essex exercised 1,000,000 shares of the Essex Warrants and we received $2.5
million from the exercise.
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Philosophy
Our compensation programs are designed to attract and retain key employees, motivating them
for superior performance. The compensation programs are designed to encourage both short- and
long-term performance and to emphasize increasing our shareholder value over the long-term. Our
executive compensation programs impact all of our employees by establishing general levels of
compensation and creating an environment of goals, rewards and expectations. Because we believe
the performance of every employee is important to our success, we are mindful of the impact of
executive compensation and incentive programs on all of our employees.
We also believe that the compensation of our executives should reflect their success relative
to their individual development goals, as well as their collective success as a management team.
Collective goals of management include growth in operating income metrics, which we believe will
ultimately result in an increase in the value of our stock price. We believe that the performance
of our executives in managing the company should be the basis for determining their overall
compensation. We also believe that their compensation should not be based on the short-term
performance of our stock, whether favorable or unfavorable, but rather that the price of our stock
will, in the long term, reflect our operating performance, and ultimately, the management of the
company by our executives. Consequently, we seek to have the long-term performance of our stock
reflected in executive compensation through our equity incentive plans.
13
Overview of Compensation and our Process
The Personnel and Compensation Committee of our Board of Directors (the Committee) is
composed entirely of independent outside directors and is responsible for setting our compensation
policy and approving each component of compensation for the executive officers named in the Summary
Compensation Table below (our named executive officers). Our Chief Executive Officer develops
initial recommendations for all components of compensation for our other named executive officers
and presents the recommendations to the Committee for review and approval. In 2009, the Committee
established a peer group consisting of the following companies (collectively, the Peer Group) to
assist it in analyzing the reasonableness of the compensation paid to the executive officers:
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Alphatec Holdings, Inc.
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Kensey Nash, Corporation
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Possis Medical, Inc.
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Atrion Corporation
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Lifecore Biomedical, Inc.
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RTI Biologics, Inc.
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Cholestech, Corp.
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Micrus Endovascular
Corporation
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Somanetics Corporation
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Cryolife, Inc.
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Natus Medical, Inc.
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Stereotaxis, Inc.
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Cutera Inc.
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NxStage Medical, Inc.
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Vascular Solutions, Inc.
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Home Diagnostics, Inc.
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Orasure Technologies, Inc.
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VNUS Medical Technologies, Inc.
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I flow Corp
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Orthovita Inc.
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The following criteria were used to develop an appropriate peer group for purposes of comparing
compensation data: companies in SIC Industry categories 3841
Surgical and Medical Instruments and
Apparatus
, 3842
Orthopedic, Prosthetic and Surgical Appliances and Supplies
, and 3845
Electromedical and Electrotherapeutic Apparatus
; companies with revenues between $30 million and
$120 million; and companies with market capitalization between $87.5 million and $350 million. The
Committee compiled executive compensation data available from Equilar, Inc. for the Peer Group to
assist in assessing the reasonableness of its executive compensation.
Using this compensation data for the Peer Group companies, the Committee developed average
levels of salary, direct compensation, annual cash compensation, long-term incentive compensation,
and other compensation, as well as average levels of equity ownership, for positions corresponding
to those held by our executive officers. This data was then used for comparison purposes in
assessing the reasonableness and competitiveness of our executive compensation program.
Components of Our Compensation Program
During 2009, the principal components of compensation for our named executive officers were:
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base salary;
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performance-based cash incentive compensation; and
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long-term equity incentive compensation.
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We do not have a pre-established formula or target for the allocation between either cash and
non-cash or short-term and long-term incentive compensation. Rather, in general, our policy for
allocating between long-term and currently-paid compensation is to ensure adequate base
compensation to attract and retain executive officers, while providing incentives to maximize
long-term value for us and our shareholders.
Base Salary
We provide our named executive officers with base salary to compensate them for services
rendered during the year. Base salary ranges are established for each tier in our management
structure based on the level of responsibility and authority of the managers in that tier and by
using market data. Base salary ranges are designed so that salary opportunities for a given
position will be between 80% and 120% of the midpoint of the base salary range established for each
tier.
14
During its annual review of the base salaries for our executives, the Committee primarily
considers:
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market data provided by our outside data sources;
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the tier in which the executives position is placed; and
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the executives compensation relative to other executive officers in his or her
tier.
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The Committee reviews the base salary of an executive annually and also when he or she is
promoted or when his or her job responsibilities are otherwise changed. Changes in an executives
base salary will generally consist of one or both of the following: (1) adjustments made to reduce
or eliminate salary disparities between officers in the same tier, and (2) merit-based percentage
salary increases given to all executives in one or more tiers based on the overall performance or
progress made by ATS Medical and the demands placed on the executive team as ATS Medical grows.
In February 2009, the Committee increased the base salaries of the following named executive
officers as follows:
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2008
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2009
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Name and Principal Position
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Base Salary
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Base Salary
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Michael D. Dale
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$
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350,000
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$
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450,000
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Chairman, Chief Executive Officer and President
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Michael R. Kramer
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185,000
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225,000
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Chief Financial Officer
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Thaddeus Coffindaffer
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235,500
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244,400
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Vice President, Sales
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The base salary increases were effective on April 1, 2009. Mr. Dales base salary was
increased by 24% to reflect the fact he had not received an increase in his base salary since 2005
and to move him closer to the mid-point of the base salary range established for his tier by the
Committee. Mr. Kramers base salary was increased by 17% to better align his base salary with base
salaries paid to the other executive officers in his tier. In addition, in February 2009 each of
the named executive officers (other than Mr. Reinhardt who joined ATS Medical in May 2009) received
a 4% merit-based salary increase to reflect the progress made by ATS Medical toward achieving its
business plan.
Performance-Based Cash Incentive Compensation
The 2009 Management Incentive Plan (MIP) is an annual cash incentive program based on a
combination of corporate financial and individual objectives. The MIP was approved by the
Committee in February of 2009 and was designed to align our incentive compensation to our 2009
operating objectives. Each named executive officer was eligible for a target MIP bonus of 50% of
their base salary.
For 2009, 60% of a named executive officers target MIP award was based on the achievement of
corporate financial objectives relating to operating income levels. The operating income target
was originally set at $3.7 million and was adjusted during 2009 down to $2.8 million due to
unforeseen developments in connection with a planned acquisition and certain capital expenditures,
none of which were under the control of management.
The remaining 40% of each named executive officers target MIP award was based on individual
SMART goals as determined by the Committee. The term SMART relates to a specific compensation
philosophy that incentive goals should be
S
pecific,
M
easurable,
A
ttainable,
R
elated to the mission
and
T
ime bound. Each named executive officers SMART goals are designed specifically for that
officer each year and are known to the other members of the executive team. Performance in
relation to each executives SMART goals is measured and assessed by the Committee on a quarterly
basis.
15
Each year the Committee sets minimum, target and maximum levels for each component of the
corporate financial objective of the MIP. Payment awards under the MIP are based on the attainment
of the objective for the current year. As necessary, the Committee in its discretion may modify,
re-weight or make adjustment to the corporate objectives and/or individual objectives during the
course of the year to reflect changes in our business plan, the general business environment and
other factors. Executive officers participating in the MIP receive:
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no payment for a corporate financial objective portion of the MIP award unless we
achieve the minimum performance level for that objective (85% of the target);
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a payment ranging from 6% to 100% of the target award opportunity for the corporate
financial objective portion of the MIP award if we achieve a performance level ranging
from 85% to 100% of the target for that corporate financial objective; and
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a payment ranging from 100% up to 182% of the target award opportunity for the
corporate financial objective portion of the MIP award if we achieve a performance
level ranging from over 100% up to 121% of the target for that corporate financial
objective.
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The MIP further provides that no awards will be payable pursuant to the MIP if the operating
income/loss target is not achieved to at least the 80% level. For fiscal 2009, the operating
income target was $2.8 million, however, ATS Medical recorded an operating loss of $3.7 million.
As a result, there were no payouts under the MIP for any of the named executive officers with
respect to 2009. Although the Committee did not perform an end of the year review of each named
executive officers performance as compared to his or her SMART goals because of the poor
performance by ATS Medical against the corporate financial objective, the levels of performance
against SMART goals by the named executive officers through the third quarter of 2009 ranged from
36% to 95%.
Long-term Equity Incentive Compensation
Our stock-based equity incentive awards are made pursuant to our 2000 Stock Incentive Plan.
In the past, the Committee has awarded participants RSUs or stock options. In making awards of
RSUs or stock options, the Committee may establish any conditions or restrictions it deems
appropriate. Typically, the Committee awards RSUs, which vest in annual installments over a term
of either four or five years with the first vesting occurring on the one-year anniversary of the
grant date. All grants of stock options are made at the market price at the time of the grant.
Annual awards of RSUs to executives are made at the Committees regularly scheduled February
meeting. Awards of stock options or RSUs to newly hired executive officers who are eligible to
receive them are made at the next regularly scheduled Committee meeting on or following their hire
date.
Our long-term equity incentive compensation is designed to align the interest of each
executive officer with those of our shareholders and provide each executive officer with an
incentive to manage our business from the perspective of an owner with an equity stake in the
business. In general, we view long-term equity incentive compensation as incentive for future
performance and not as compensation for past accomplishments. Based on an analysis of executive
equity ownership at comparable companies, the Committee has set target levels of equity ownership
to guide its equity awards to executive officers. The Committees target level of equity ownership
for the Chief Executive Officer is 3% to 5% and for the other executive officers is 1% of our
outstanding stock. The RSUs awarded to the executive officers each year are intended to make it
possible for those officers to achieve these target levels over time.
At its meeting in February 2009, the Committee granted long-term equity incentives in the form
of RSUs to the named executive officers as indicated in the Grants of Plan-Based Awards table
below. The number of RSUs awarded to each named executive officer other than the Chief Executive
Officer was determined by dividing 70% of the mid-point of the base salary range (i.e., $235,000)
for the executive officer tier in our management structure by the value of a share of our common
stock on the grant date (i.e., $2.49). In the case of the Chief Executive Officer, this long-term
equity incentive RSU award was determined by dividing 150% of his 2008 base salary (i.e., $350,000)
by the value of a share of our common stock on the grant date (i.e., $2.49). The Committee used a
higher multiplier for the Chief Executive Officer than for the other named executive officers to
reflect the higher level of responsibility and management obligations to which he is subject.
16
After making these grants of long-term equity incentives, the Committee reviewed the progress
being made by the named executive officers in achieving their target levels of equity ownership.
Based on this review the Committee concluded that the RSU grants made to the named executive
officers other than the Chief Executive Officer were sufficient to enable those officers to
approach their target equity ownership levels. With respect to the Chief Executive Officer, the
Committee determined that an additional grant of 289,157 RSUs was required to enable the Chief
Executive Officer to approach his target equity ownership level. The size of this RSU grant was
dictated by the terms of the 2000 Stock Incentive Plan which caps the number of shares that may be
issued to a participant in any year at 500,000.
Special Moving Allowance for Michael R. Kramer
On August 17, 2009, the Committee authorized management to provide Mr. Kramer with a moving
allowance to facilitate his pending move from Stillwater, Minnesota, to a location much closer to
ATS Medical, which would substantially reduce Mr. Kramers daily commuting time. Under the
allowance, Mr. Kramer could receive up to $75,000 to cover moving costs, closing costs and the down
payment on his new home. Any request for funds under the allowance had to be made prior to December
1, 2009. Through that date, Mr. Kramer had requested an aggregate of $75,000 under the moving
allowance. All funds received by Mr. Kramer under the allowance will be treated as taxable income
to Mr. Kramer, and will be subject to return to ATS Medical under certain limited circumstances,
including termination for cause.
Change in Control Agreements
We have entered into change in control agreements with our named executive officers. The
change in control agreements provide certain benefits upon termination of employment after a change
of control depending on the circumstances of termination. The Committee believes that it is
important to protect our executive officers in the event of a change of control. Further, it is
the Committees belief that providing change of control benefits should eliminate or reduce the
reluctance of executive management to pursue potential change of control transactions that may be
in the best interests of shareholders. The change in control agreements with our named executive
officers contain a double trigger for change of control benefits, which means that there must be
both a change of control and a termination of employment in order to receive benefits. The
Committee believes the double trigger is more equitable than a single trigger because it
prevents unnecessary payments to executive officers in the event of a friendly (non-hostile) change
of control in which the executive officers employment is not terminated. The Committee considers
change in control benefits to be an important element of a competitive compensation package but
does not consider change in control benefits to be a significant factor in determining annual total
compensation. For details on the terms of the change in control agreements and the amounts each
named executive officer would have received under the applicable agreement based on a hypothetical
termination date of December 31, 2009, see Potential Payments Upon Termination After a Change in
Control.
Section 162(m) of the Internal Revenue Code
Section 162(m) of the Internal Revenue Code generally limits the corporate deduction for
compensation paid to certain executive officers to $1.0 million, unless the compensation qualifies
as a performance-based compensation under the Internal Revenue Code. Compensation resulting from
stock option awards under the 2000 Stock Incentive Plan will not be counted toward the $1.0 million
of deductible compensation under Section 162(m).
17
Compensation Committee Report
The Personnel and Compensation Committee has reviewed and discussed the Compensation
Discussion and Analysis with management. Based upon this review and discussion, the Personnel and
Compensation Committee recommended to the Board of Directors that the Compensation Discussion and
Analysis be included in this proxy statement and in our 2009 Annual Report.
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Members of the Personnel and Compensation
Committee of the Board of Directors:
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Eric W. Sivertson, Chairman
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Steven M. Anderson
Guy P. Nohra
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Summary Compensation Table
The following table sets forth the cash and non-cash compensation for the last three fiscal
years awarded to or earned by the individuals who served as our chief executive officer and chief
financial officer and our three other most highly compensated executive officers during fiscal year
2009.
Summary Compensation Table
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Non-Equity
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Stock
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Incentive Plan
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All Other
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Salary
|
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Awards
|
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Compensation
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Compensation
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Total
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Name and Principal Position
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Year
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($)
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($)(1)
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($)(2)
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($)
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($)
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Michael D. Dale
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2009
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440,385
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1,055,000
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53,961
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(3)
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1,549,346
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Chairman, Chief Executive
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2008
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350,000
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1,005,000
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217,000
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44,929
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1,609,929
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Officer and President
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2007
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350,000
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255,583
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1,365
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606,948
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Michael R. Kramer
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2009
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218,760
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139,397
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79,437
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(4)
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437,594
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Chief Financial Officer
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2008
|
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185,000
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271,078
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110,260
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4,179
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|
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570,517
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2007
|
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168,846
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175,694
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3,875
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348,415
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Thaddeus Coffindaffer
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2009
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249,144
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139,397
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19,067
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(5)
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407,608
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Vice President, Sales
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2008
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235,000
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271,078
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138,180
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16,122
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660,380
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Craig A. Swandal (6)
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2009
|
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241,798
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|
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139,397
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4,437
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385,632
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Vice President, Operations
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael E. Reinhardt (6)
|
|
|
2009
|
|
|
|
147,115
|
|
|
|
228,642
|
|
|
|
|
|
|
|
1,196
|
|
|
|
376,953
|
|
Vice President, Global
Marketing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The amounts in this column are based on the grant date fair value of RSUs awarded to the
named executive officer during the year.
|
|
(2)
|
|
The amounts in this column relate to awards granted under our MIP. The MIP is discussed in
the Compensation Discussion and Analysis section of this proxy statement.
|
|
(3)
|
|
Includes life insurance coverage paid by ATS Medical of $52,684 and other miscellaneous
compensation.
|
|
(4)
|
|
Includes a $75,000 moving allowance approved by the Personnel and Compensation Committee,
matching contributions by ATS Medical into the 401(k) plan and other miscellaneous
compensation.
|
|
(5)
|
|
Includes an automobile allowance of $8,400, sales award trips valued at $6,230, matching
contributions by ATS Medical into the 401(k) plan and other miscellaneous compensation.
|
|
(6)
|
|
Messrs. Swandal and Reinhardt were not named executive officers in 2008 or 2007. Therefore,
their compensation information is only provided for 2009.
|
18
Grants of Plan-Based Awards During 2009
The following table summarizes the 2009 grants of equity and non-equity plan-based awards to
the executive officers named in the Summary Compensation Table. All of the non-equity incentive
plan-based awards were made under our MIP. All of the equity incentive plan-based awards were made
under our 2000 Stock Incentive Plan.
Grants of Plan-Based Awards During 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
|
|
|
|
|
|
Date of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
|
|
|
|
|
|
|
Meeting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
Grant Date
|
|
|
|
|
|
|
at Which
|
|
Estimated Future Payouts Under
|
|
Shares of
|
|
Fair Value of
|
|
|
|
|
|
|
Grant
|
|
Non-Equity Incentive Plan Awards (1)
|
|
Stock or
|
|
Stock and
|
|
|
Grant
|
|
Was
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Units
|
|
Option
|
Name
|
|
Date
|
|
Approved
|
|
($)
|
|
($)
|
|
($)
|
|
(#)(2)
|
|
Awards (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael D. Dale
|
|
|
|
|
|
|
|
|
|
|
6,563
|
|
|
|
175,000
|
|
|
|
261,100
|
|
|
|
|
|
|
|
|
|
|
|
|
2/18/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500,000
|
(4)
|
|
|
1,055,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael R. Kramer
|
|
|
|
|
|
|
|
|
|
|
3,469
|
|
|
|
92,500
|
|
|
|
138,010
|
|
|
|
|
|
|
|
|
|
|
|
|
2/18/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,065
|
(4)
|
|
|
139,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thaddeus
Coffindaffer
|
|
|
|
|
|
|
|
|
|
|
4,416
|
|
|
|
117,500
|
|
|
|
175,683
|
|
|
|
|
|
|
|
|
|
|
|
|
2/18/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,065
|
(4)
|
|
|
139,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Craig A. Swandal
|
|
|
|
|
|
|
|
|
|
|
4,313
|
|
|
|
115,000
|
|
|
|
171,500
|
|
|
|
|
|
|
|
|
|
|
|
|
2/18/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,065
|
(4)
|
|
|
139,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael E. Reinhardt
|
|
|
|
|
|
|
|
|
|
|
2,797
|
|
|
|
74,589
|
|
|
|
111,287
|
|
|
|
|
|
|
|
|
|
|
|
|
5/04/09
|
|
|
|
4/24/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85,000
|
(5)
|
|
|
228,642
|
|
|
|
|
(1)
|
|
These columns show the potential payments for each of the named executive officers under the
MIP. The material terms of the MIP are described in the Compensation Discussion and Analysis
section of this proxy statement. The actual incentive amounts paid based on our performance
are reported in the Non-Equity Incentive Plan Compensation Column in the Summary Compensation
Table.
|
|
(2)
|
|
All equity awards in fiscal 2009 to the named executive officers were in the form of RSUs.
Holders of RSUs are entitled to receive dividend equivalents on the RSUs awarded, whether
vested or unvested, when and if dividends are declared by the Board on our common stock. The
RSUs become immediately vested in full in the event of the executive officers disability or
death or upon a change in control of ATS Medical. No stock options were awarded to the named
executive officers in fiscal 2009.
|
|
(3)
|
|
The grant date fair value of RSUs awarded is based on the closing market price of our common
stock on the date of grant.
|
|
(4)
|
|
These RSUs vest at a rate of 20% each year on the following vesting dates: March 15, 2010,
2011, 2012, 2013 and 2014.
|
|
(5)
|
|
These RSUs vest at a rate of 20% each year on the following vesting dates: May 4, 2010, 2011,
2012, 2013 and 2014.
|
19
Outstanding Equity Awards at 2009 Fiscal Year-End
The following table summarizes the total outstanding equity awards held at the end of the 2009
fiscal year by the executive officers named in the Summary Compensation Table:
Outstanding Equity Awards at 2009 Fiscal Year-End
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Awards
|
|
|
Option Awards
|
|
|
|
|
|
Market
|
|
|
Number of
|
|
Number of
|
|
|
|
|
|
|
|
|
|
Number of
|
|
Value of
|
|
|
Securities
|
|
Securities
|
|
|
|
|
|
|
|
|
|
Shares or
|
|
Shares or
|
|
|
Underlying
|
|
Underlying
|
|
|
|
|
|
|
|
|
|
Units of
|
|
Units of
|
|
|
Unexercised
|
|
Unexercised
|
|
Option
|
|
|
|
|
|
Stock Held That
|
|
Stock That
|
|
|
Options
|
|
Options
|
|
Exercise
|
|
Option
|
|
Have Not
|
|
Have Not
|
|
|
(#)(1)
|
|
(#)(1)
|
|
Price
|
|
Expiration
|
|
Vested
|
|
Vested
|
Name
|
|
Exercisable
|
|
Unexercisable
|
|
($)
|
|
Date
|
|
(#)
|
|
($)(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael D. Dale
|
|
|
225,000
|
|
|
|
|
|
|
|
0.37
|
|
|
|
9/18/2012
|
|
|
|
500,000
|
(3)
|
|
|
1,615,000
|
|
|
|
|
75,000
|
|
|
|
|
|
|
|
0.37
|
|
|
|
9/18/2012
|
|
|
|
160,000
|
(4)
|
|
|
516,800
|
|
|
|
|
50,000
|
|
|
|
|
|
|
|
3.80
|
|
|
|
12/19/2013
|
|
|
|
240,000
|
(5)
|
|
|
775,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97,674
|
(6)
|
|
|
315,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,000
|
(7)
|
|
|
51,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael R. Kramer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,065
|
(3)
|
|
|
213,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,000
|
(4)
|
|
|
129,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70,103
|
(5)
|
|
|
226,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000
|
(8)
|
|
|
96,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,627
|
(6)
|
|
|
50,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,000
|
(9)
|
|
|
38,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,000
|
(10)
|
|
|
25,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thaddeus Coffindaffer
|
|
|
100,000
|
|
|
|
|
|
|
|
3.36
|
|
|
|
8/16/2013
|
|
|
|
66,065
|
(3)
|
|
|
213,390
|
|
|
|
|
20,000
|
|
|
|
|
|
|
|
3.80
|
|
|
|
12/19/2013
|
|
|
|
40,000
|
(4)
|
|
|
129,200
|
|
|
|
|
5,000
|
|
|
|
|
|
|
|
3.80
|
|
|
|
10/28/2013
|
|
|
|
70,103
|
(5)
|
|
|
226,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,066
|
(6)
|
|
|
38,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,000
|
(6)
|
|
|
145,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,000
|
(7)
|
|
|
25,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Craig A. Swandal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,065
|
(3)
|
|
|
213,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68,000
|
(11)
|
|
|
219,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael E. Reinhardt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85,000
|
(12)
|
|
|
274,550
|
|
|
|
|
(1)
|
|
All outstanding options were fully vested at December 31, 2009.
|
|
(2)
|
|
Market value of RSUs outstanding at year-end is based on the closing market price of our
common stock at December 31, 2009 of $3.23 per share.
|
|
(3)
|
|
20% of remaining unvested award vests at each vesting date, which is March 15.
|
|
(4)
|
|
25% of remaining unvested award vests at each vesting date, which is July 30.
|
|
(5)
|
|
25% of remaining unvested award vests at each vesting date, which is March 15.
|
|
(6)
|
|
33 1/3% of remaining unvested award vests at each vesting date, which is March 15.
|
|
(7)
|
|
50% of remaining unvested award vests at each vesting date, which is January 10.
|
|
(8)
|
|
33 1/3% of remaining unvested award vests at each vesting date, which is August 1.
|
|
(9)
|
|
33 1/3% of remaining unvested award vests at each vesting date, which is February 13.
|
|
(10)
|
|
50% of remaining unvested award vests at each vesting date, which is October 2.
|
|
(11)
|
|
25% of remaining unvested award vests at each vesting date, which is August 11.
|
|
(12)
|
|
20% of remaining unvested award vests at each vesting date, which is May 4.
|
20
Option Exercises and Stock Vested During 2009
The following table summarizes information with respect to restricted stock and RSU awards
that vested during fiscal 2009 for each of the executive officers named in the Summary Compensation
Table. No stock options were exercised by the executive officers named in the Summary Compensation
Table.
Stock Vested During 2009
|
|
|
|
|
|
|
|
|
|
|
Stock Awards
|
|
|
Number of
|
|
|
|
|
Shares Acquired
|
|
Value Realized
|
|
|
on Vesting
|
|
on Vesting
|
Name
|
|
(#)
|
|
($)(1)
|
|
|
|
|
|
|
|
|
|
Michael D. Dale
|
|
|
140,559
|
|
|
|
369,732
|
|
Michael R. Kramer
|
|
|
50,736
|
|
|
|
140,449
|
|
Thaddeus Coffindaffer
|
|
|
51,799
|
|
|
|
131,570
|
|
Craig A. Swandal
|
|
|
17,000
|
|
|
|
50,830
|
|
Michael E. Reinhardt
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Value determined by multiplying the number of shares of restricted stock or RSUs vested by
the closing market price of a share of our common stock on the vesting date.
|
Employment Agreements and Potential Payments Upon Termination or Change in Control
Employment Agreement with Michael D. Dale
Michael D. Dale has served as our President and Chief Executive Officer since October 2002
pursuant to an employment agreement dated September 18, 2002. Mr. Dales initial annual base
salary under the agreement was $250,000, which was increased to $270,000 in 2004 and to $350,000 in
2005. Mr. Dales salary remained at $350,000 from 2006 through 2008. Effective April 1, 2009, the
Board of Directors increased Mr. Dales salary to $450,000. Mr. Dales employment agreement may be
terminated at will by either party, provided that if we terminate the agreement without cause, Mr.
Dale would be entitled to a severance payment from ATS Medical equal to 12 months salary ($450,000
as of the end of 2009 and $463,500 as of the date of this proxy statement). The agreement also
contains a non-competition obligation pursuant to which Mr. Dale agrees not to compete with us
during the term of the agreement and for a period of one year following his termination.
Payments Made Upon Termination
If the employment of any of Messrs. Dale, Kramer, Coffindaffer, Swandal and Reinhardt is
voluntarily or involuntarily terminated, they will not be entitled to any additional benefits or
payments from us other than what has accrued and is vested under the benefit plans discussed in
this proxy statement, including under the heading Summary Compensation Table, except as otherwise
set forth under Employment Agreement with Michael D. Dale above. A voluntary or involuntary
termination will not trigger an acceleration of the vesting of any outstanding stock options or
RSUs. Upon an executive officers voluntary or involuntary termination, the executive officer will
forfeit his or her unvested RSUs and will have three months from the date of termination to
exercise his or her stock options.
Payments Made Upon Disability
In the event of the disability of any of Messrs. Dale, Kramer, Coffindaffer, Swandal and
Reinhardt, we will pay the executive officer a disability benefit in an amount that is equal to 60%
of their current annual compensation, not to exceed $10,000 per month. This disability benefit is
the same as the disability benefit provided to all employees. The payments continue until the
participant dies, ceases to have a disability, or attains the age of 65. If the employment of
Messrs. Dale, Kramer, Coffindaffer, Swandal and Reinhardt is terminated due to disability, our
standard RSU agreement contains terms that provide for the acceleration of any RSUs upon
disability. If, as of the
21
end of 2009, the employment of Messrs. Dale, Kramer, Coffindaffer, Swandal and Reinhardt was
terminated due to a disability, the value of the RSUs that would have accelerated would have been
$3,274,167, $780,998, $779,186, $433,030 and $274,550, respectively.
Payments Made Upon Death
In the event of death of any of Messrs. Dale, Kramer, Coffindaffer, Swandal and Reinhardt, we
will make a one-time, lump sum payment to the executive officers estate in an amount equal to the
executive officers annual salary, not to exceed $150,000. No additional benefits or payments will
accrue to, or be paid to, the executive officer, other than what has accrued and is vested under
the benefit plans discussed in this proxy statement, including under the heading Summary
Compensation Table. If the employment of Messrs. Dale, Kramer, Coffindaffer, Swandal and
Reinhardt is terminated due to death, our standard RSU agreement contains terms that provide for
the acceleration of any RSUs upon death. If, as of the end of 2009, the employment of Messrs.
Dale, Kramer, Coffindaffer, Swandal and Reinhardt was terminated due to the executive officers
death, the value of RSUs that would have accelerated would have been $3,274,167, $780,998,
$779,186, $433,030 and $274,550, respectively.
Potential Payments Upon Termination After a Change in Control
We have entered into change in control agreements with Messrs. Dale, Kramer, Coffindaffer,
Swandal and Reinhardt. The change in control agreements provide that if the officers employment
with us is terminated within 24 months after a change in control either by us (other than for cause
or disability), or by the officer for good reason, then the officer will be entitled to a lump-sum
severance payment equal to two times the executive officers base salary, as limited by Section
280G of the Internal Revenue Code of 1986, as amended. In addition, the executive officer is
entitled to medical benefits and certain other benefits for up to 24 months following termination.
Good reason is defined as the termination of employment as a result of a diminution in the
officers responsibilities, a reduction in salary or benefits, or a relocation of our office of
more than 35 miles. A change in control is generally defined as an acquisition of more than 35%
of our outstanding common stock by any person or group, the merger or sale of ATS Medical or the
replacement of a majority of our Board of Directors with directors not recommended by the existing
Board of Directors. Our standard RSU agreement and some of our option agreements contain terms
that provide for the acceleration of any RSUs and stock options upon a change in control of ATS
Medical.
If there had been a change in control of ATS Medical as of the end of 2009 and the employment
of the executive officers named in the Summary Compensation Table had been immediately terminated,
Messrs. Dale, Kramer, Coffindaffer, Swandal and Reinhardt would have been entitled to receive,
pursuant to the terms of the agreements, lump sum payments, including salary and benefits, upon
termination of $930,896, $480,896, $519,696, $509,296 and $480,896, respectively. In addition, if
there had been a change in control of ATS Medical as of the end of 2009, the value of the RSUs held
by Messrs. Dale, Kramer, Coffindaffer, Swandal and Reinhardt that would have accelerated would have
been $3,274,167, $780,998, $779,186, $433,030 and $274,550, respectively.
PROPOSAL 2 APPROVAL OF THE
ATS MEDICAL, INC. 2010 STOCK INCENTIVE PLAN
On March 31, 2010, our Board adopted, subject to shareholder approval, the ATS Medical, Inc.
2010 Stock Incentive Plan (the Stock Incentive Plan). The purpose of the Stock Incentive Plan is
to promote the interests of ATS Medical and our shareholders by aiding us in attracting and
retaining employees, officers, consultants, advisors and non-employee directors who we expect will
contribute to our success and to enable these individuals to participate in our long-term success
and growth by giving them a proprietary interest in ATS Medical. The Stock Incentive Plan is
intended to replace our existing ATS Medical, Inc. 2000 Stock Incentive Plan (the 2000 Stock
Incentive Plan), which is scheduled to expire by its terms on December 31, 2010.
The Stock Incentive Plan authorizes the grant of stock options, restricted stock units
(including restricted stock units with time-based and performance-based vesting) and other forms of
stock-based compensation. The Board believes that stock options and restricted stock units have
been, and that in the future stock-based compensation will be, a very important factor both in
attracting and retaining experienced and talented employees and non-employee directors and in
motivating them to contribute significantly to the growth and profitability of our business. The
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Board believes that stock-based compensation aligns the interests of our managers and
non-employee directors with the interests of our shareholders. We believe the availability of
stock-based compensation not only increases employees focus on the creation of shareholder value,
but also enhances employee retention and generally provides increased motivation for our employees
to contribute to our future success.
We currently award stock options, restricted stock units and other stock-based awards under
the 2000 Stock Incentive Plan. If the Stock Incentive Plan is approved by our shareholders, no
more awards will be granted under the 2000 Stock Incentive Plan, except that the automatic
restricted stock unit grants to non-employee directors set forth in Section 7 of the 2000 Stock
Incentive Plan will be made in accordance with the terms of the 2000 Stock Incentive Plan on May
12, 2010.
The following is a summary of the material terms of the Stock Incentive Plan and is qualified
in its entirety by reference to the Stock Incentive Plan. A copy of the Stock Incentive Plan is
attached as Appendix A to this proxy statement.
Summary of the Stock Incentive Plan
Administration
The Personnel and Compensation Committee will administer the Stock Incentive Plan and will
have full power and authority to determine when and to whom awards will be granted, and the type,
amount, form of payment and other terms and conditions of each award, consistent with the
provisions of the Stock Incentive Plan. In addition, the Personnel and Compensation Committee can
specify whether, and under what circumstances, awards to be received under the Stock Incentive Plan
or amounts payable under such awards may be deferred automatically or at the election of either the
holder of the award or the Personnel and Compensation Committee. Subject to the provisions of the
Stock Incentive Plan, the Personnel and Compensation Committee may amend or waive the terms and
conditions, or accelerate the exercisability, of an outstanding award. The Personnel and
Compensation Committee has authority to interpret the Stock Incentive Plan and establish rules and
regulations for the administration of the Stock Incentive Plan.
The Personnel and Compensation Committee may delegate its powers under the Stock Incentive
Plan to one or more directors (including a director who is also one of our officers) and may
authorize one or more officers to grant awards under the Stock Incentive Plan, except that the
Personnel and Compensation Committee may not delegate its powers to grant awards to executive
officers or directors who are subject to Section 16 of the Exchange Act, or in a way that would
violate Section 162(m) of the Internal Revenue Code. The Board of Directors may also exercise the
powers of the Personnel and Compensation Committee at any time, so long as its actions would not
violate Section 162(m) of the Internal Revenue Code.
Eligible Participants
Any employee, officer, consultant, advisor or non-employee director providing services to us
or any of our affiliates, who is selected by the Personnel and Compensation Committee, is eligible
to receive an award under the Stock Incentive Plan, provided that, in the case of consultants and
advisors, such services are not in connection with the offer or sale of securities in a
capital-raising transaction and do not directly or indirectly promote or maintain a market for ATS
Medicals securities. As of March 19, 2010, approximately 340 employees, officers, consultants,
advisors and non-employee directors would have been eligible to participate in the Stock Incentive
Plan.
Shares Available For Awards
The aggregate number of shares of our common stock that may be issued under all stock-based
awards made under the Stock Incentive Plan will be 5,000,000. Under the Stock Incentive Plan, no
person may be granted in any taxable year Qualified Performance Awards (as defined below)
denominated in shares for more than 3,000,000 shares in the aggregate.
The Personnel and Compensation Committee will adjust the number of shares and share limits
described above in the case of a stock dividend or other distribution, recapitalization, stock
split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase or exchange of shares, issuance of warrants or
23
other rights or other similar corporate transaction or event that affects shares of our common
stock, in order to prevent dilution or enlargement of the benefits or potential benefits intended
to be provided under the Stock Incentive Plan.
Types of Awards and Terms and Conditions
The Stock Incentive Plan permits grants of:
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stock options (including both incentive and non-qualified stock options);
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stock appreciation rights (SARs);
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restricted stock and restricted stock units;
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dividend equivalents;
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performance awards of cash, stock or property;
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stock awards; and
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other stock-based awards.
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Awards may be granted alone, in addition to, in combination with or in substitution for, any
other award granted under the Stock Incentive Plan or any other compensation plan. Awards can be
granted for no cash consideration or for any cash or other consideration as may be determined by
the Personnel and Compensation Committee or as required by applicable law. Awards may provide that
upon the grant or exercise thereof, the holder will receive cash, shares of our common stock, other
securities or property, or any combination of these in a single payment, installments or on a
deferred basis. The exercise price per share under any stock option and the grant price of any SAR
may not be less than the fair market value of our common stock on the date of grant of such option
or SAR except to satisfy legal requirements of foreign jurisdictions or if the award is in
substitution for an award previously granted by an entity acquired by us. Determinations of fair
market value under the Stock Incentive Plan will be made in accordance with methods and procedures
established by the Personnel and Compensation Committee. The term of awards may not be longer than
ten years from the date of grant. Awards will be adjusted by the Personnel and Compensation
Committee in the case of a stock dividend or other distribution, recapitalization, stock split,
reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase or exchange of shares, issuance of warrants or other rights or other similar corporate
transaction or event that affects shares of our common stock in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be provided under the Stock Incentive
Plan.
Stock Options
. The holder of an option will be entitled to purchase a number of
shares of our common stock at a specified exercise price during a specified time period, all as
determined by the Personnel and Compensation Committee. The option exercise price may be payable
either in cash or, at the discretion of the Personnel and Compensation Committee, in other
securities or other property having a fair market value on the exercise date equal to the exercise
price. The Stock Incentive Plan provides that the term of any option will be fixed by the
Personnel and Compensation Committee but will not be longer than ten years from the grant date of
the option.
Stock Appreciation Rights
. The holder of an SAR is entitled to receive the excess of
the fair market value (calculated as of the exercise date or, at the Personnel and Compensation
Committees discretion, as of any time during a specified period before or after the exercise date)
of a specified number of shares of our common stock over the grant price of the SAR. SARs vest and
become exercisable in accordance with a vesting schedule established by the Personnel and
Compensation Committee. The Stock Incentive Plan provides that the term of any SAR will be fixed
by the Personnel and Compensation Committee but will not be longer than ten years from the grant
date of the SAR.
Restricted Stock and Restricted Stock Units
. The holder of restricted stock will own
shares of our common stock subject to restrictions imposed by the Personnel and Compensation
Committee (including, for example,
24
restrictions on the right to vote the restricted shares or to receive any dividends with
respect to the shares) for a specified time period determined by the Personnel and Compensation
Committee. The holder of restricted stock units will have the right, subject to any restrictions
imposed by the Personnel and Compensation Committee, to receive shares of our common stock, or a
cash payment equal to the fair market value of those shares, at some future date determined by the
Personnel and Compensation Committee. If the participants employment or service as a director
terminates during the vesting period for any reason, the restricted stock and restricted stock
units will be forfeited, unless the Personnel and Compensation Committee determines that it would
be in our best interest to waive the remaining restrictions.
Dividend Equivalents
. The holder of a dividend equivalent will be entitled to receive
payments (in cash, shares of our common stock, other securities or other property) equivalent to
the amount of cash dividends paid by us to our shareholders, with respect to the number of shares
determined by the Personnel and Compensation Committee. Dividend equivalents will be subject to
other terms and conditions determined by the Personnel and Compensation Committee.
Performance Awards
. The Personnel and Compensation Committee may grant performance
awards under the Stock Incentive Plan. A performance award may be payable in cash or stock and
will be conditioned solely upon the achievement of one or more objective performance goals
established by the Personnel and Compensation Committee in accordance with the Stock Incentive
Plan. The Personnel and Compensation Committee will determine the length of the performance
period, establish the performance goals for the performance period, and determine the amounts of
the performance awards for each participant. Certain performance awards granted under the Stock
Incentive Plan may be intended to qualify as performance-based compensation within the meaning of
Section 162(m) of the Internal Revenue Code (Qualified Performance Awards).
Performance goals must be based solely on one or more of the following business criteria,
applied on a corporate, subsidiary, division, business unit, line of business or geographic
regional basis: sales, revenue, costs, expenses, earnings (including one or more of net profit
after tax, gross profit, operating profit, earnings before interest and taxes, earnings before
interest, taxes, depreciation and amortization and net earnings), earnings per share, earnings per
share from continuing operations, operating income, pre-tax income, net income, margins (including
one or more of direct gross, gross, operating income, net income and pretax net income margins),
returns (including one or more of return on actual or proforma assets, net assets, equity,
investment, investment capital, capital and net capital employed), shareholder return (including
total shareholder return relative to an index or peer group), stock price, economic value added,
cash generation, cash flow, unit volume, working capital, market share, environmental health and
safety goals, cost reductions and development and implementation of strategic plans, completion of
key projects, management succession plans, diversity initiatives or SMART goals. Performance goals
may be an absolute measure or a defined change (amount or percentage) in a measure. The measure of
performance may be set by reference to an absolute standard or a comparison to specified companies
or groups of companies, or other external measures. The Personnel and Compensation Committee may
provide that, in determining whether the performance goal has been achieved, the effect of certain
events may be excluded. These events include, but are not limited to, any of the following: asset
write-downs; litigation or claim judgments or settlements; changes in tax law, accounting
principles or other such laws or provisions affecting reported results; severance, contract
termination and other costs related to exiting certain business activities; and gains or losses
from the disposition of businesses or assets or from the early extinguishment of debt.
Under the Stock Incentive Plan, the maximum amount that may be paid with respect to Qualified
Performance Awards denominated in cash to any participant in the aggregate in any taxable year is
$10,000,000 in value (whether payable in cash, stock or other property). In addition, Qualified
Performance Awards must comply with the requirements of Section 162(m) of the Internal Revenue
Code.
Stock Awards
. The Personnel and Compensation Committee may grant unrestricted shares
of our common stock, subject to terms and conditions determined by the Personnel and Compensation
Committee and the limitations in the Stock Incentive Plan.
Other Stock-Based Awards
. The Personnel and Compensation Committee is also authorized
to grant other types of awards that are denominated or payable in, valued in whole or in part by
reference to, or otherwise based on or related to our common stock, subject to terms and conditions
determined by the Personnel and Compensation Committee and the limitations in the Stock Incentive
Plan.
25
Accounting for Awards
If an award entitles the holder to receive or purchase shares of our common stock, the shares
covered by such award or to which the award relates will be counted against the aggregate number of
shares available for awards under the Stock Incentive Plan. For SARs settled in shares upon
exercise, the aggregate number of shares with respect to which the SAR is exercised, rather than
the number of shares actually issued upon exercise, will be counted against the number of shares
available for awards under the Stock Incentive Plan. Awards that do not entitle the holder to
receive or purchase shares and awards that are settled in cash will not be counted against the
aggregate number of shares available for awards under the Stock Incentive Plan.
The Stock Incentive Plan provides that shares covered by an award made under the Stock
Incentive Plan (or to which such an award relates) that are not purchased, that are forfeited or
are reacquired by us (including shares of restricted stock, whether or not dividends have been paid
on such shares), or that are subject to an award that otherwise terminates or is cancelled without
delivery of such shares, shall be available for award again under the Stock Incentive Plan to the
extent of any such forfeiture, reacquisition, termination or cancellation. Shares that are
withheld in full or partial payment of the purchase or exercise price of any award or in connection
with the satisfaction of tax obligations relating to an award will not be available again for grant
awards under the Stock Incentive Plan.
Duration, Termination and Amendment
Unless terminated by the Board of Directors, the Stock Incentive Plan will expire on March 31,
2020. No awards may be made after that date. However, unless otherwise expressly provided in an
applicable award agreement, any award granted under the Stock Incentive Plan prior to expiration
may extend beyond the expiration of the Stock Incentive Plan through the awards normal expiration
date. The Board of Directors may amend, alter, suspend, discontinue or terminate the Stock
Incentive Plan at any time, although shareholder approval must be obtained for any amendment to the
Stock Incentive Plan that would: (1) increase the number of shares of our common stock available
under the Stock Incentive Plan, (2) increase the award limits under the Stock Incentive Plan, (3)
permit awards of options or SARs at a price less than fair market value, (4) permit repricing of
options or SARs, or (5) cause Section 162(m) of the Internal Revenue Code to become unavailable
with respect to the Stock Incentive Plan. Shareholder approval is also required for any action
that requires shareholder approval under the rules and regulations of the Securities and Exchange
Commission or the NASDAQ Global Market or any other securities exchange that are applicable to us.
Prohibition on Repricing Awards and Award Adjustments
No option or SAR may be amended to reduce its initial exercise or grant price, and no option
or SAR may be cancelled and replaced with awards having a lower exercise or grant price. However,
the Personnel and Compensation Committee may adjust the exercise or grant price of, and the number
of shares subject to, any outstanding option or SAR in connection with a stock dividend or other
distribution, recapitalization, stock split, reverse stock split, reorganization, merger,
consolidation, split-up, spin-off, combination, repurchase or exchange of shares, issuance of
warrants or other rights or other similar corporate transaction or event that affects shares of our
common stock, in order to prevent dilution or enlargement of the benefits, or potential benefits
intended to be provided under the Stock Incentive Plan.
Transferability of Awards
Except in certain limited situations permitted under the Stock Incentive Plan, awards (other
than stock awards) under the Stock Incentive Plan may only be transferred by will or by the laws of
descent and distribution. Under no circumstances may outstanding awards (other than stock awards)
be transferred for value.
Federal Income Tax Consequences
Grant of Options and SARs
The grant of a stock option (either an incentive stock option or a non-qualified stock option)
or SAR is not expected to result in any taxable income for the recipient.
26
Exercise of Incentive Stock Options
No taxable income is realized by the optionee upon the exercise of an incentive stock option.
If stock is issued to the optionee pursuant to the exercise of an incentive stock option, and if no
disqualifying disposition of such shares is made by such award holder within two years after the
date of grant or within one year after the transfer of such shares to such award holder, then (1)
upon the sale of such shares, any amount realized in excess of the option price will be taxed to
such optionee as a long-term capital gain and any loss sustained will be a long-term capital loss,
and (2) we will not be entitled to a deduction for federal income tax purposes.
If the stock acquired upon the exercise of an incentive stock option is disposed of prior to
the expiration of either holding period described above, generally (1) the optionee will realize
ordinary income in the year of disposition in an amount equal to the excess (if any) of the fair
market value of such shares at exercise (or, if less, the amount realized on the disposition of
such shares) over the option price paid for such shares, and (2) we will be entitled to deduct such
amount for federal income tax purposes if the amount represents an ordinary and necessary business
expense. Any further gain (or loss) realized by the optionee will be taxed as short-term or
long-term capital gain (or loss), as the case may be, and will not result in any deduction by us.
Exercise of Non-Qualified Stock Options and SARs
Upon exercising a non-qualified stock option, the optionee must recognize ordinary income
equal to the excess of the fair market value of the shares of our common stock acquired on the date
of exercise over the exercise price, and we generally will be entitled at that time to an income
tax deduction for the same amount. Upon exercising a SAR, the amount of any cash received and the
fair market value on the exercise date of any shares of our common stock received are taxable to
the recipient as ordinary income and generally are deductible by us.
The tax consequence upon a disposition of shares acquired through the exercise of a
non-qualified stock option or SAR will depend on how long the shares have been held. Generally,
there will be no tax consequence to us in connection with the disposition of shares acquired under
a non-qualified stock option or SAR.
Restricted Stock
Recipients of grants of restricted stock generally will be required to include as taxable
ordinary income the fair market value of the restricted stock at the time it is no longer subject
to a substantial risk of forfeiture. However, an award holder who makes an 83(b) election within
30 days of the date of grant of the restricted stock will incur taxable ordinary income on the date
of grant equal to the fair market value of such shares of restricted stock (determined without
regard to forfeiture restrictions). With respect to the sale of shares after the forfeiture
restrictions have expired, the holding period to determine whether the award recipient has
long-term or short-term capital gain or loss generally begins when the restrictions expire, and the
tax basis for such shares will generally be based on the fair market value of the shares on that
date. However, if the award holder made an 83(b) election as described above, the holding period
commences on the date of such election, and the tax basis will be equal to the fair market value of
the shares on the date of the election (determined without regard to the forfeiture restrictions on
the shares). Dividends, if any, that are paid or accrued while the restricted stock is subject to
a substantial risk of forfeiture will also be taxed as ordinary income. We will be entitled to an
income tax deduction equal to amounts the award holder includes in ordinary income at the time of
such income inclusion.
Restricted Stock Units, Performance Awards and Dividend Equivalents
Recipients of grants of restricted stock units, performance awards or dividend equivalents
(collectively, deferred awards) will not incur any federal income tax liability at the time the
awards are granted. Award holders will recognize ordinary income equal to (a) the amount of cash
received under the terms of the award or, as applicable, (b) the fair market value of the shares
received (determined as of the date of receipt) under the terms of the award. Dividend equivalents
received with respect to any deferred award will also be taxed as ordinary income. Cash or shares
to be received pursuant to a deferred award generally become payable when applicable forfeiture
restrictions lapse; provided, however, that, if the terms of the award so provide, payment may be
delayed until a later date to the extent permitted under applicable tax laws. We will be entitled
to an income tax deduction for any amounts included by the award holder as ordinary income. For
awards that are payable in shares, participants tax basis is equal to the fair market value of the
shares at the time the shares become payable. Upon the sale of the
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shares, appreciation (or depreciation) after the shares are paid is treated as either
short-term or long-term capital gain (or loss) depending on how long the shares have been held.
Other Stock Grants
As to other grants of shares of our common stock made under the Stock Incentive Plan not
subject to a substantial risk of forfeiture, the holder of the award must recognize ordinary income
equal to the excess of (a) the fair market value of the shares received (determined as of the date
of receipt) over (b) the amount (if any) paid for the shares by the holder of the award. We
generally will be entitled at that time to an income tax deduction for the same amount.
Income Tax Deduction
Subject to the usual rules concerning reasonable compensation, including our obligation to
withhold or otherwise collect certain income and payroll taxes, and assuming that, as expected,
stock options, SARs and other Qualified Performance Awards paid under the Stock Incentive Plan are
qualified performance-based compensation within the meaning of Section 162(m) of the Internal
Revenue Code, we generally will be entitled to a corresponding income tax deduction at the time a
participant recognizes ordinary income from awards made under the Stock Incentive Plan.
Special Rules for Executive Officers and Directors Subject to Section 16 of the Exchange Act
Special rules may apply to individuals subject to Section 16 of the Exchange Act. In
particular, shares received through exercise or payout of a non-qualified option, an incentive
stock option (for purposes of the AMT only), an SAR or a restricted stock unit, and any shares of
restricted stock that vest, may be treated as restricted property for purposes of Section 83 of the
Internal Revenue Code if the recipient has had a non-exempt acquisition of shares of ATS stock
within the six months prior to the exercise, payout or vesting. Accordingly, the amount of any
ordinary income recognized and the amount of our income tax deduction will be determined as of the
end of that period (unless a special election is made by the recipient pursuant to Section 83(b) of
the Internal Revenue Code to recognize income as of the date the shares are received).
Delivery of Shares for Tax Obligation
Under the Stock Incentive Plan, the Personnel and Compensation Committee may permit
participants receiving or exercising awards, subject to the discretion of the Personnel and
Compensation Committee and upon such terms and conditions as it may impose, to deliver shares of
our common stock (either shares received upon the receipt or exercise of the award or shares
previously owned by the participant) to us to satisfy federal, state or local tax obligations.
Section 409A of the Internal Revenue Code
The Stock Incentive Plan contains provisions intended to prevent adverse tax consequences
under Section 409A of the Internal Revenue Code to holders of awards granted under the Stock
Incentive Plan.
New Plan Benefits
No benefits or amounts have been granted, awarded or received under the Stock Incentive Plan
that were subject to shareholder approval. In addition, the Personnel and Compensation Committee,
in its sole discretion, will determine the number and types of awards that will be granted under
the Stock Incentive Plan. Accordingly, it is not possible to determine the benefits that will be
received by eligible participants if the Stock Incentive Plan is approved by our shareholders. The
closing price of a share of our common stock as reported on the NASDAQ Global Market on March 19,
2010 was $2.43.
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Equity Compensation Plan Information
The following table summarizes, as of December 31, 2009, the shares of our common stock
subject to outstanding awards or available for future awards under our equity compensation plans
and arrangements.
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Number of securities
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remaining available for
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Number of securities
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Weighted-average
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future issuance under
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to be issued
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exercise price of
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equity compensation
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upon exercise of
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outstanding
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plans (excluding
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outstanding options,
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options, warrants
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securities reflected
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Plan category
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warrants and rights
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and rights
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in the first column)
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Equity compensation
plans approved
by security holders
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5,164,477
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$
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0.56
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2,165,834
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(1)
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Equity compensation
plans not approved
by security holders
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1,503,200
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$
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2.77
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(2)
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Total
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6,667,677
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$
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1.06
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2,165,834
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(1)
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Includes shares remaining available under the 2000 Stock Incentive Plan (2,075,078 shares)
and the 1998 Employee Stock Purchase Plan (90,756 shares). As of March 16, 2010, there were
317,880 shares remaining available under the 2000 Stock Incentive Plan and 53,154 shares under
the 1998 Employee Stock Purchase Plan.
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(2)
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Nearly all of the 1,503,200 shares listed consist of individual stock options granted to new
executives or employees as an inducement to their employment with us. These options have an
exercise price equal to the fair market value of our common stock at the time of the grant and
vest ratably over two to four year periods. Most of the options have a life of 10 years and
vesting accelerates upon a change of control of ATS Medical. We intend that these options
shall not be incentive stock options governed by the provisions of Section 422 of the Internal
Revenue Code.
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Recommendation of the Board of Directors; Vote Required for Approval
The Board recommends that you vote FOR the adoption of the Stock Purchase Plan. The
affirmative vote of a majority of the shares of our common stock present in person or by proxy and
entitled to vote at the 2010 Annual Meeting is required to approve the Stock Incentive Plan,
provided that the total number of shares that voted in favor of the Stock Incentive Plan
constitutes more than 25% of our outstanding shares.
PROPOSAL 3 APPROVAL OF AN AMENDMENT TO THE
ATS MEDICAL, INC. 1998 EMPLOYEE STOCK PURCHASE PLAN
The ATS Medical 1998 Employee Stock Purchase Plan (the Stock Purchase Plan) was adopted by
our Board and shareholders in 1998. Under the Stock Purchase Plan, employees of ATS Medical and
its designated subsidiaries can purchase up to an aggregate of 200,000 shares of our common stock
at a discount at the end of any purchase period. In 2003 and 2006, our Board and shareholders
adopted amendments to the Stock Purchase Plan increasing the number of shares of our common stock
available for purchase under the plan by 300,000 and 500,000 shares, respectively. As of March 16,
2010, approximately 53,154 shares of our common stock remained available for purchase under the
Stock Purchase Plan. Consequently, on March 31, 2010, our Board adopted, subject to shareholder
approval, an amendment to the Stock Purchase Plan increasing the number of shares of common stock
available under the Stock Purchase Plan by 500,000 shares to a total of 1,500,000 shares.
29
The following is a summary of the material terms of the Stock Purchase Plan and is qualified
in its entirety by reference to the Stock Purchase Plan. A copy of the Stock Purchase Plan, as
proposed to be amended, is attached as Appendix B to this proxy statement.
Summary of the Stock Purchase Plan
Purpose
The purpose of the Stock Purchase Plan is to provide employees of ATS Medical and its
designated subsidiaries with an opportunity to share in the ownership of ATS Medical by providing
them with a convenient means for regular and systematic purchases of our common stock and, thus, to
develop a stronger incentive to work for the continued success of ATS Medical.
Administration
The Personnel and Compensation Committee has been designated by the Board to administer the
Stock Purchase Plan. The Personnel and Compensation Committee has full authority to interpret the
Stock Purchase Plan and establish rules and regulations for the administration of the Stock
Purchase Plan.
Eligibility
Any employees of ATS Medical or any designated subsidiary (other than any employee whose
customary employment is less than 20 hours weekly or who has not completed at least 30 days of
service) is eligible to participate in the Stock Purchase Plan. However, an employee who
immediately after receiving a right to purchase shares would own, directly or indirectly, stock
equal to 5% or more of the total combined voting power or value of all of the capital stock of ATS
Medical or all of its affiliates will not be eligible to participate in the Stock Purchase Plan.
As of March 19, 2010, there were approximately 300 employees who were eligible to participate in
the Stock Purchase Plan.
Share Purchases
The Stock Purchase Plan permits our shares of common stock to be sold to participating
employees on the last business day of any purchase period at a price that is the lesser of (i) 85%
of the fair market value of our common stock on the first business day of the purchase period or
(ii) 85% of the fair market value of our common stock on the last business day of each purchase
period. There are four three-month purchase periods each year. Purchase periods begin on the
first day of February, May, August and November.
Number of Shares
The proposed amendment to the Stock Purchase Plan will increase the number of shares of our
common stock available for purchase by 500,000 shares to a total of 1,500,000 shares. The number
of shares of our common stock available for purchase under the Stock Purchase Plan is subject to
adjustment in the event of a reorganization, recapitalization, reclassification, stock dividend,
stock split, amendment to the Articles of Incorporation, reverse stock split, merger, consolidation
or other similar changes in the corporate structure or stock of ATS Medical. The shares of our
common stock to be sold under the Stock Purchase Plan may be treasury shares, authorized but
unissued shares or shares acquired in the open market.
No participant may purchase (1) more than 10,000 shares under the Stock Purchase Plan for a
given purchase period or (2) shares having a fair market value (determined at the beginning of each
purchase period) exceeding $25,000 under the Stock Purchase Plan and all other employee Stock
Purchase Plans (if any) for any calendar year. The closing price of a share of our common stock as
reported on the NASDAQ Global Market on March 19, 2010 was $2.43.
Certain Terms and Conditions
Participating employees may direct ATS Medical to make payroll deductions of 1% to 10%
(subject to other limitations imposed by the Personnel and Compensation Committee) of their
current, regular compensation for each pay period during the purchase period, subject to such other
limitations as the Personnel and Compensation
30
Committee in its sole discretion may impose. Participating employees may cease making payroll
deductions at any time, subject to such limitations as the Personnel and Compensation Committee in
its sole discretion may impose. In the event that during a purchase period the entire credit
balance in a participating employees stock purchase account exceeds the product of (1) 85% of the
fair market value of our common stock on the first business day of that purchase period, and (2)
10,000, then payroll deductions for such participating employee shall automatically cease, and
shall resume on the first pay period of the next purchase period.
Participating employees may withdraw from the Stock Purchase Plan at any time (although no
employee may enroll again after a withdrawal until commencement of the next purchase period). In
such event, the entire credit balance in the participating employees stock purchase account will
be paid to the participating employee in cash within 30 days.
Upon a participants termination of employment with ATS Medical or a designated subsidiary for
any reason, participation in the Stock Purchase Plan will cease. In the event of termination due
to the death of the participant, on the last business day of the purchase period during which such
participants death occurred, the entire credit balance in such participants stock purchase
account will be used to purchase our common stock unless the participants estate has elected to
have the balance of the participants share purchase account paid, in cash, to the participants
estate or a designated beneficiary within 30 days after the end of that purchase period. In the
event of termination due to normal or early retirement of the participant, on the last business day
of the purchase period during which such retirement occurred, the entire credit balance in such
participants stock purchase account will be used to purchase our common stock unless such
participant has elected to receive the balance of the participants share purchase account in cash
within 30 days after the end of that purchase period; provided, that, such participant shall have
no right to purchase our common stock in the event that the last day of such purchase period occurs
more than three months following the termination of such participants employment with ATS Medical
by reason of such retirement. In the event of any other termination, the balance of the
participants share purchase account will be paid, in cash, to the participant within 30 days after
such termination. Generally, the consideration to be received by ATS Medical from the participant
for the right to participate in the Stock Purchase Plan will be the participants past, present or
expected future contributions to ATS Medical or the designated subsidiary.
The common shares purchased under the Stock Purchase Plan will be delivered promptly after the
last day of each purchase period.
Duration, Termination and Amendment
Unless earlier discontinued or terminated by our Board, the Stock Purchase Plan shall
automatically terminate when all of the shares of common stock issuable under the Stock Purchase
Plan have been sold. The Stock Purchase Plan permits our Board to amend or discontinue the Stock
Purchase Plan at any time, except that prior shareholder approval will be required for any
amendment to the Stock Purchase Plan that:
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absent such shareholder approval, would cause Rule 16b-3 under the Exchange Act to
become unavailable with respect to the Stock Purchase Plan;
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increases the number of shares of common stock available for issuance under the
Stock Purchase Plan (other than for certain adjustments in the number of outstanding
shares of our common stock and certain corporate transactions described above);
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requires shareholder approval under the rules or regulations of the NASDAQ Global
Market; or
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permits the issuance of our common stock before payment therefor in full.
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Federal Income Tax Consequences
The following is a summary of the U.S. federal income tax aspects of the stock purchase rights
that may be granted under the Stock Purchase Plan as of the date of this proxy statement. This
summary is not intended to be exhaustive and does not describe state, local or foreign tax
consequences.
31
The Stock Purchase Plan, and the right of participants to make purchases of common shares
pursuant to the Stock Purchase Plan, are intended to be eligible for the favorable tax treatment
provided by Sections 421 and 423 of the Internal Revenue Code. The amounts of payroll deductions
under the Stock Purchase Plan will be taxable to a participant as compensation for the year in
which such amounts otherwise would have been paid to the participant. A participant will realize
no income upon the grant of the stock purchase rights or upon the purchase of common shares under
the Stock Purchase Plan, and ATS Medical will not be entitled to any deduction at the time of grant
of the rights or purchase of the shares.
The amount of a participants tax liability upon disposition of the shares acquired will
depend on whether or not the participant meets certain conditions summarized below. If the
participant:
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does not dispose of the shares purchased within two years after grant of the stock
purchase right and within one year after purchase; and
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is an employee of ATS Medical or its subsidiaries at all times during the period
beginning with the date he or she becomes a participant and ending three months before
acquiring the shares,
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then, upon disposition of shares acquired after satisfying the prescribed holding period, ATS
Medical will receive no deduction upon the disposition of the shares, and the participant:
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will recognize ordinary income on the lesser of (a) the participants gain on the
sale or (b) the purchase price discount under the Stock Purchase Plan, computed as if
the right to purchase was exercised on the first business day of the purchase period;
and
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will recognize long-term capital gain (or loss) on the difference between the sale
price and the sum of the purchase price and any ordinary income recognized on the
disposition.
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However, consequences for both ATS Medical and the participant would differ if the participant did
not satisfy the prescribed holding period. In that event, the participant will recognize ordinary
income on the lesser of (a) the participants gain on the sale, or (b) the purchase price discount
computed as of date of purchase. ATS Medical does get a deduction for that same amount. Upon
disposition, the balance of gain, if any, is long or short-term capital gain, depending on the
holding period.
New Plan Benefits
Because the amount of future benefits under the Stock Purchase Plan will depend on participant
elections and the fair market value of ATS Medical common stock, the amount of such benefits is not
determinable. During 2009, all participating employees, including current officers, as a group (77
persons), purchased 124,231 shares of our common stock under the Stock Purchase Plan at the
weighted average purchase price per share of $2.22.
Recommendation of the Board of Directors; Vote Required for Approval
The Board recommends that you vote FOR the approval of the amendment to the Stock Purchase
Plan. The affirmative vote of a majority of the shares of our common stock present in person or by
proxy and entitled to vote at the 2010 Annual Meeting is required to approve the amendment to the
Stock Purchase Plan, provided that the total number of shares that voted in favor of the amendment
to the Stock Purchase Plan constitutes more than 25% of our outstanding shares.
32
REPORT OF THE AUDIT, FINANCE AND INVESTMENT COMMITTEE
The Audit, Finance and Investment Committee of our Board of Directors is composed of the
following non-employee directors: Messrs. Sivertson, Anderson and Munzenrider. Mr. Munzenrider
currently serves as the Chairman of the Audit, Finance and Investment Committee. All of the
members of the Audit, Finance and Investment Committee are independent for purposes of the NASDAQ
listing requirements. Mr. Munzenrider qualifies as an audit committee financial expert under the
rules of the Securities and Exchange Commission. The Audit, Finance and Investment Committee
operates under a written charter adopted by the Board of Directors, which is available for review
on the Companys website at www.atsmedical.com. The Audit, Finance and Investment Committee
recommends to the Board of Directors, and submits for shareholder ratification, the appointment of
the Companys independent registered public accounting firm.
Management is responsible for the Companys internal controls and the financial reporting
process. Our independent registered public accounting firm is responsible for performing an
independent audit of our consolidated financial statements in accordance with generally accepted
auditing standards and for issuing a report on our financial statements. The Audit, Finance and
Investment Committees responsibility is to monitor and oversee these processes.
In this context, the Audit, Finance and Investment Committee has met and held discussions with
management and the independent registered public accounting firm. Management represented to the
Audit, Finance and Investment Committee that the Companys consolidated financial statements were
prepared in accordance with generally accepted accounting principles, and the Audit, Finance and
Investment Committee has reviewed and discussed the consolidated financial statements with
management and the independent registered public accounting firm. The Audit, Finance and
Investment Committee discussed with the independent registered public accounting firm matters
required to be discussed by Statement on Auditing Standards No. 61 (Communications with Audit
Committees), as amended (AICPA, Professional Standards, Vol. 1, AU section 380), as adopted by the
Public Company Accounting Oversight Board.
The Companys independent registered public accounting firm also provided to the Audit,
Finance and Investment Committee the written disclosures and letter concerning its independence
required by applicable requirements of the Public Company Accounting Oversight Board, and the
Audit, Finance and Investment Committee discussed with the independent registered public accounting
firm the auditing firms independence. The Committee also considered whether non-audit services
provided by the independent registered public accounting firm during the last fiscal year were
compatible with maintaining the independent registered public accounting firms independence.
Based upon the Audit, Finance and Investment Committees discussion with management and the
independent registered public accounting firm and the Audit, Finance and Investment Committees
review of the representation of management and the report of the independent registered public
accounting firm to the Audit, Finance and Investment Committee, the Audit, Finance and Investment
Committee recommended to the Board of Directors that the audited consolidated financial statements
be included in the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2009
filed with the Securities and Exchange Commission.
Members of the Audit, Finance and Investment
Committee of the Board of Directors:
Robert E. Munzenrider, Chairman
Steven M. Anderson
Eric W. Sivertson
33
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FEES
Grant Thornton LLP, our independent registered public accounting firm, provides both audit and
non-audit services to us. The fee table below reports fees billed or to be billed to us for
professional services provided to us during 2008 and 2009 by Grant Thornton LLP. Based in part on
its review of the nature and value of services provided by Grant Thornton LLP, our Audit, Finance
and Investment Committee has concluded that the provision of non-audit services is compatible with
maintaining Grant Thornton LLPs independence. The Audit, Finance and Investment Committee has
approved, pursuant to its pre-approval policies described below, all of the services listed below.
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2009
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2008
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Audit Fees
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$
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314,200
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$
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281,450
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Audit-Related Fees (1)
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13,400
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13,000
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Tax Fees (2)
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6,812
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All Other Fees
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Total Fees
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$
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327,600
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$
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301,262
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(1)
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These fees represent services performed in connection with audits of our 401(k) plan.
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(2)
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These fees represent tax services in connection with Canadian tax filings.
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All services provided by our independent registered public accounting firm, Grant Thornton
LLP, are subject to pre-approval by our Audit, Finance and Investment Committee. The Audit,
Finance and Investment Committee has authorized the Chair of the Audit, Finance and Investment
Committee to approve services by Grant Thornton LLP in the event there is a need for such approval
prior to the next Audit, Finance and Investment Committee meeting. However, a full report of any
such interim approvals must be given at the next Audit, Finance and Investment Committee meeting.
Before granting any approval, the Audit, Finance and Investment Committee (or the committee Chair,
if applicable) must receive: (1) a detailed description of the proposed service; (2) a statement
from management as to why they believe Grant Thornton LLP is best qualified to perform the service;
and (3) an estimate of the fees to be incurred. Before granting any approval, the Audit, Finance
and Investment Committee (or the committee Chair, if applicable) gives due consideration to whether
approval of the proposed service will have a detrimental impact on Grant Thornton LLPs
independence.
PROPOSAL 4 RATIFICATION OF APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors, based upon the recommendation of the Audit, Finance and Investment
Committee, has appointed Grant Thornton LLP as our independent registered public accounting firm to
examine our financial statements for the current fiscal year ending December 31, 2010 and to
perform other appropriate accounting services. Grant Thornton LLP has served as our independent
registered public accounting firm since August 2006, and has no relationship with us other than
that arising from their employment as our independent registered public accounting firm.
While we are not required to do so, we are submitting the appointment of Grant Thornton LLP
to serve as our independent registered public accounting firm for the fiscal year ending December
31, 2010 for ratification in order to ascertain the views of our shareholders on this appointment.
If the appointment is not ratified, the Audit, Finance and Investment Committee will reconsider its
selection.
34
Representatives of Grant Thornton LLP will be present at the 2010 Annual Meeting, 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.
Recommendation of the Board of Directors; Vote Required for Approval
The Board recommends that you vote FOR the ratification of Grant Thornton LLP as our
independent registered public accounting firm. The affirmative vote of a majority of the shares of
our common stock present in person or by proxy and entitled to vote at the 2010 Annual Meeting is
required to ratify the appointment of Grant Thornton LLP as our independent registered public
accounting firm, provided that the total number of shares that voted in favor of ratification
constitutes more than 25% of our outstanding shares.
PROPOSALS FOR THE 2011 ANNUAL MEETING
Any proposal by a shareholder to be included in our proxy material and presented at the 2011
Annual Meeting of Shareholders must be received at our principal executive offices, 3905 Annapolis
Lane, Suite 105, Minneapolis, Minnesota 55447, Attention: Corporate Secretary, no later than
December 10, 2010. In addition, in connection with any matter to be proposed by a shareholder at
the 2011 Annual Meeting, but not proposed for inclusion in our proxy materials, the proxy holders
designated by us for that meeting may exercise their discretionary voting authority with respect to
that shareholder proposal if appropriate notice of that proposal is not received by our Corporate
Secretary at our principal executive office by February 23, 2011.
ANNUAL REPORT ON FORM 10-K
Our Annual Report on Form 10-K, including financial statements for the year ended December 31,
2009, accompanies, or has been mailed to you immediately prior to, this proxy statement. The 2009
Annual Report on Form 10-K is also available on our website at www.atsmedical.com. If requested,
we will provide you copies of any exhibits to the Form 10-K upon the payment of a fee covering our
reasonable expenses in furnishing the exhibits. You can request exhibits to the Form 10-K by
writing to our Corporate Secretary at ATS Medical, Inc., 3905 Annapolis Lane, Suite 105,
Minneapolis, Minnesota 55447.
HOUSEHOLDING OF PROXY MATERIALS
The Securities and Exchange Commission rules allow a single copy of the proxy statement and
2009 Annual Report on Form 10-K to be delivered to multiple shareholders sharing the same address
and last name, or who we reasonably believe are members of the same family, and who consent to
receive a single copy of these materials in a manner provided by these rules. This practice is
referred to as householding and can result in significant savings of paper and mailing costs.
Although we do not household for our registered shareholders, some brokers household ATS Medical
proxy statements and annual reports, delivering a single copy of each to multiple shareholders
sharing an address unless contrary instructions have been received from the affected shareholders.
Once you have received notice from your broker that they will be householding materials to your
address, householding will continue until you are notified otherwise or until you revoke your
consent. If, at any time, you no longer wish to participate in householding and would prefer to
receive a separate copy of our proxy statement or annual report, or if you are receiving multiple
copies of either document and wish to receive only one, please notify your broker. We will deliver
promptly upon written or oral request a separate copy of our proxy statement and/or our 2009 Annual
Report on Form 10-K to a shareholder at a shared address to which a single copy of either document
was delivered. For copies of either or both documents, shareholders should write to our Corporate
Secretary at ATS Medical, Inc., 3905 Annapolis Lane, Suite 105, Minneapolis, Minnesota 55447, or
call (763) 553-7736.
35
OTHER MATTERS
The Board of Directors does not know of any other business to come before the 2010 Annual
Meeting. If any other matters are properly brought before the meeting, however, the persons named
in the accompanying proxy will vote in accordance with their best judgment.
Your cooperation in giving this matter your immediate attention and in returning your proxy
promptly will be appreciated.
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By Order of the Board of Directors,
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Michael D. Dale
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Chief Executive Officer
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April 9, 2010
36
APPENDIX A
ATS MEDICAL, INC.
2010 STOCK INCENTIVE PLAN
Section 1.
Purpose
.
The purpose of the Plan is to promote the interests of the Company and its shareholders by
aiding the Company in attracting and retaining employees, officers, consultants, advisors and
non-employee Directors capable of assuring the future success of the Company, to offer such persons
incentives to put forth maximum efforts for the success of the Companys business and to compensate
such persons through various stock-based arrangements and provide them with opportunities for stock
ownership in the Company, thereby aligning the interests of such persons with the Companys
shareholders.
Section 2.
Definitions
.
As used in the Plan, the following terms shall have the meanings set forth below:
(a) Affiliate shall mean (i) any entity that, directly or indirectly through one or more
intermediaries, is controlled by the Company and (ii) any entity in which the Company has a
significant equity interest, in each case as determined by the Committee.
(b) Award shall mean any Option, Stock Appreciation Right, Restricted Stock, Restricted
Stock Unit, Dividend Equivalent, Performance Award, Stock Award or Other Stock-Based Award granted
under the Plan.
(c) Award Agreement shall mean any written agreement, contract or other instrument or
document evidencing an Award granted under the Plan. An Award Agreement may be in an electronic
medium and need not that be signed by a representative of the Company or the Participant. Each
Award Agreement shall be subject to the applicable terms and conditions of the Plan and any other
terms and conditions (not inconsistent with the Plan) determined by the Committee.
(d) Board shall mean the Board of Directors of the Company.
(e) Change in Control shall have the meaning ascribed to such term in any Award Agreement;
provided, however, that no Award Agreement shall contain a definition of Change in Control that has
the effect of accelerating the exercisability of any Award or the lapse of restrictions relating to
any Award upon only the announcement or shareholder approval of (rather than consummation of) any
reorganization, merger or consolidation of, or sale or other disposition of all or substantially
all of the assets of, the Company.
(f) Code shall mean the Internal Revenue Code of 1986, as amended from time to time, and any
regulations promulgated thereunder.
(g) Committee shall mean the Personnel and Compensation Committee of the Board or any
successor committee of the Board designated by the Board to administer the Plan. The Committee
shall be comprised of not less than such number of Directors as shall be required
A-1
to permit Awards
granted under the Plan to qualify under Rule 16b-3, and each member of the Committee shall be a
Non-Employee Director within the meaning of Rule 16b-3 and an outside director within the
meaning of Section 162(m). The Company expects to have the Plan administered in accordance with
the requirements for the award of qualified performance-based compensation within the meaning of
Section 162(m)of the Code.
(h) Company shall mean ATS Medical, Inc., a Minnesota corporation, or any successor
corporation.
(i) Director shall mean a member of the Board.
(j) Dividend Equivalent shall mean any right granted under Section 6(d) of the Plan.
(k) Eligible Person shall mean any employee, officer, consultant, advisor or non-employee
Director providing services to the Company or any Affiliate whom the Committee determines to be an
Eligible Person, provided that, in the case of consultants and advisors, such services are not in
connection with the offer or sale of securities in a capital-raising transaction and do not
directly or indirectly promote or maintain a market for the Companys securities. An Eligible
Person must be a natural person.
(l) Exchange Act shall mean the Securities Exchange Act of 1934, as amended.
(m) Fair Market Value shall mean, with respect to any property (including, without
limitation, any Shares or other securities), the fair market value of such property determined by
such methods or procedures as shall be established from time to time by the Committee.
Notwithstanding the foregoing, unless otherwise determined by the Committee, the Fair Market Value
of Shares on a given date for purposes of the Plan shall be the closing sale price of the Shares on
the NASDAQ Global Market as reported on such date or, if such market is not open for trading on
such date, on the most recent preceding date when such market was open for trading.
(n) Incentive Stock Option shall mean an option granted under Section 6(a) of the Plan that
is intended to meet the requirements of Section 422 of the Code or any successor provision.
(o) Non-Qualified Stock Option shall mean an option granted under Section 6(a) of the Plan
that is not intended to be an Incentive Stock Option.
(p) Option shall mean an Incentive Stock Option or a Non-Qualified Stock Option.
(q) Other Stock-Based Award shall mean any right granted under Section 6(g) of the Plan.
(r) Participant shall mean an Eligible Person designated to be granted an Award under the
Plan.
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(s) Performance Award shall mean any right granted under Section 6(e) of the Plan.
(t) Performance Goal shall mean one or more of the following performance goals, either
individually, alternatively or in any combination, applied on a corporate, subsidiary, division,
business unit, line of business or geographic region basis: sales, revenue, costs, expenses,
earnings (including one or more of net profit after tax, gross profit, operating profit, earnings
before interest and taxes, earnings before interest, taxes, depreciation and amortization and net
earnings), earnings per share, earnings per share from continuing operations, operating income,
pre-tax income, net income, margins (including one or more of direct gross, gross, operating
income, net income and pretax net income margins), returns (including one or more of return on
actual or proforma assets, net assets, equity, investment, investment capital, capital and net
capital employed), shareholder return (including total shareholder return relative to an index or
peer group), stock price, economic value added, cash generation, cash flow, unit volume, working
capital, market share, environmental health and safety goals, cost reductions and development and
implementation of strategic plans, completion of key projects, management succession plans,
diversity initiatives or SMART goals. A Performance Goal may be an absolute measure or a defined
change (amount or percentage) in a measure. A Performance Goal may reflect absolute entity or
business unit performance or performance relative to the performance of a peer group of companies
or other external measure. To the extent consistent with Section 162(m), the Committee may provide
that, in determining whether the Performance Goal has been achieved, the effect of certain events
may be excluded. These events include, but are not limited to, any of the following: asset
write-downs, litigation or related judgments or settlements, changes in tax law, accounting
principles or other such laws or provisions affecting reported results, severance, contract
termination and other costs related to exiting certain business activities, and gains or losses
from the disposition of businesses or assets or from the early extinguishment of debt.
(u) Person shall mean any individual or entity, including a corporation, partnership,
limited liability company, association, joint venture or trust.
(v) Plan shall mean this ATS Medical, Inc. 2010 Stock Incentive Plan, as amended from time
to time.
(w) Qualified Performance Award means a Performance Award that (i) is made to as officer of
the Company who may be a covered person under Section 162(m), and (ii) is intended to be
qualified performance-based compensation within the meaning of Section 162(m).
(x) Restricted Stock shall mean any Share granted under Section 6(c) of the Plan.
(y) Restricted Stock Unit shall mean any unit granted under Section 6(c) of the Plan
evidencing the right to receive a Share (or a cash payment equal to the Fair Market Value of a
Share) at some future date.
(z) Rule 16b-3 shall mean Rule 16b-3 promulgated by the Securities and Exchange Commission
under the Exchange Act or any successor rule or regulation.
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(aa) Section 162(m) shall mean Section 162(m) of the Code and the applicable Treasury
Regulations promulgated thereunder.
(bb) Shares shall mean shares of Common Stock, par value of $0.01 per share, of the Company
or such other securities or property as may become subject to Awards pursuant to an adjustment made
under Section 4(c) of the Plan.
(cc) Specified Employee shall mean a specified employee as such term is defined in Section
409A(a)(2)(B) of the Code.
(dd) Stock Appreciation Right shall mean any right granted under Section 6(b) of the Plan.
(ee) Stock Award shall mean any Share granted under Section 6(f) of the Plan.
(ff) 2000 Plan shall mean the ATS Medical, Inc. 2000 Stock Incentive Plan, as amended from
time to time
Section 3.
Administration
.
(a)
Power and Authority of the Committee
. The Plan shall be administered by the Committee. Subject to the express provisions of the
Plan and to applicable law, the Committee shall have full power and authority to: (i) designate
Participants; (ii) determine the type or types of Awards to be granted to each Participant under
the Plan; (iii) determine the number of Shares to be covered by (or the method by which payments or
other rights are to be calculated in connection with) each Award; (iv) determine the terms and
conditions of any Award or Award Agreement; (v) amend the terms and conditions of any Award or
Award Agreement; (vi) accelerate the exercisability of any Award or the lapse of restrictions
relating to any Award; (vii) determine whether, to what extent and under what circumstances Awards
may be exercised in cash, Shares, other securities, other Awards or other property, or cancelled,
forfeited or suspended; (viii) determine whether, to what extent and under what circumstances cash,
Shares, other securities, other Awards, other property and other amounts payable with respect to an
Award under the Plan shall be deferred either automatically or at the election of the holder of the
Award or the Committee; (ix) interpret and administer the Plan and any instrument or agreement,
including any Award Agreement, relating to the Plan; (x) establish, amend, suspend or waive such
rules and regulations and appoint such agents as it shall deem appropriate for the proper
administration of the Plan; and (xi) make any other determination and take any other action that
the Committee deems necessary or desirable for the administration of the Plan. Unless otherwise
expressly provided in the Plan, all designations, determinations, interpretations and other
decisions under or with respect to the Plan or any
Award or Award Agreement shall be within the sole discretion of the Committee, may be made at
any time and shall be final, conclusive and binding upon any Participant, any holder or beneficiary
of any Award or Award Agreement, and any employee of the Company or any Affiliate.
(b)
Delegation
. The Committee may delegate its powers and duties under the Plan to one or more Directors
(including a Director who is also an officer of the Company) or a committee of Directors and may
authorize one or more officers of the Company to grant Awards under the Plan, subject to such
terms, conditions and limitations as the Committee may establish
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in its sole discretion; provided,
however, that the Committee shall not delegate its powers and duties under the Plan (i) with regard
to officers or directors of the Company or any Affiliate who are subject to Section 16 of the
Exchange Act or (ii) in such a manner as would cause the Plan not to comply with the requirements
of Section 162(m).
(c)
Power and Authority of the Board of Directors
. Notwithstanding anything to the contrary contained herein, the Board may, at any time and
from time to time, without any further action of the Committee, exercise the powers and duties of
the Committee under the Plan, unless the exercise of such powers and duties by the Board would
cause the Plan not to comply with the requirements of Section 162(m).
Section 4.
Shares Available for Awards
.
(a)
Shares Available
. Subject to adjustment as provided in Section 4(c) of the Plan, the aggregate number of
Shares that may be issued under all Awards under the Plan shall be 5,000,000. If any Shares
covered by an Award or to which an Award relates are not purchased or are forfeited or are
reacquired by the Company (including shares of Restricted Stock, whether or not dividends have been
paid on such shares), or if an Award otherwise terminates or is cancelled without delivery of any
Shares, then the number of Shares counted pursuant to Section 4(b) of the Plan against the
aggregate number of Shares available under the Plan with respect to such Award, to the extent of
any such forfeiture, reacquisition by the Company, termination or cancellation, shall again be
available for granting Awards under the Plan. Shares that are withheld in full or partial payment
to the Company of the purchase or exercise price relating to an Award or in connection with the
satisfaction of tax obligations relating to an Award shall not be available for granting Awards
under the Plan.
(b)
Accounting for Awards
. For purposes of this Section 4, if an Award entitles the holder thereof to receive or
purchase Shares, the number of Shares covered by such Award or to which such Award relates shall be
counted on the date of grant of such Award against the aggregate number of Shares available for
Awards under the Plan. For Stock Appreciation Rights settled in Shares upon
exercise, the aggregate number of Shares with respect to which the Stock Appreciation Right is
exercised, rather than the number of Shares actually issued upon exercise, shall be counted against
the number of Shares available for Awards under the Plan. Awards that do not entitle the holder
thereof to receive or purchase Shares and Awards that are settled in cash shall not be counted
against the aggregate number of Shares available for Awards under the Plan.
(c)
Adjustments
. In the event that any dividend or other distribution (whether in the form of cash, Shares,
other securities or other property), recapitalization, stock split, reverse stock split,
reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of
Shares or other securities of the Company, issuance of warrants or other rights to purchase Shares
or other securities of the Company or other similar corporate transaction or event affects the
Shares such that an adjustment is necessary in order to prevent dilution or enlargement of the
benefits or potential benefits intended to be made available under the Plan, then the Committee
shall, in such manner as it may deem equitable, adjust any or all of (i) the number and type of
Shares (or other securities or other property)
that thereafter may be made the subject of Awards,
(ii) the number and type of Shares (or other securities or other property)
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subject to outstanding
Awards, (iii) the purchase or exercise price with respect to any Awards and (iv) the limitations
contained in Section 4(d) of the Plan.
(d)
Section 162(m) Limitations for Qualified Performance Awards
. In accordance with Section 162(m), there are limits on the Qualified Performance Awards
that may be granted to an Eligible Person under the Plan in any taxable year. Qualified
Performance Awards denominated in Shares are subject to the limit set forth in subsection (i)
below, and Qualified Performance Awards denominated in cash are subject to the limit set forth in
subsection (ii) below. In no case is a Qualified Performance Award subject to both of the limits
set forth in subsections (i) and (ii) below.
(i)
Limitation for Qualified Performance Awards Denominated in Shares
. No Eligible Person may be granted any Qualified Performance Award or Qualified Performance
Awards denominated in Shares for more than 3,000,000 Shares (subject to adjustment as provided for
in Section 4(c) of the Plan) in the aggregate in any taxable year.
(ii)
Limitation for Qualified Performance Awards Denominated in Cash
. No Eligible Person may be granted any Qualified Performance Award or Qualified Performance
Awards denominated in cash with a value in excess of $10,000,000 (whether payable in cash, Shares
or other property) in the aggregate in any taxable year.
Section 5.
Eligibility
.
Any Eligible Person shall be eligible to be designated a Participant. In determining which
Eligible Persons shall receive an Award and the terms of any Award, the Committee may
take into account the nature of the services rendered by the respective Eligible Persons,
their present and potential contributions to the success of the Company or such other factors as
the Committee, in its discretion, shall deem relevant. Notwithstanding the foregoing, an Incentive
Stock Option may only be granted to full-time or part-time employees (which term as used herein
includes, without limitation, officers and Directors who are also employees), and an Incentive
Stock Option shall not be granted to an employee of an Affiliate unless such Affiliate is also a
subsidiary corporation of the Company within the meaning of Section 424(f) of the Code or any
successor provision.
Section 6.
Awards
.
(a)
Options
. The Committee is hereby authorized to grant Options to Eligible Persons with the following
terms and conditions and with such additional terms and conditions not inconsistent with the
provisions of the Plan as the Committee shall determine:
(i)
Exercise Price
. The purchase price per Share purchasable under an Option shall be determined by the
Committee and shall not be less than 100% of the Fair Market Value of a Share on the date of grant
of such Option; provided, however, that the Committee may designate a per share exercise price
below Fair Market Value on the date of grant (A) to the extent necessary or appropriate, as
determined by the Committee, to satisfy applicable legal or regulatory requirements of a foreign
jurisdiction or (B) if the Option is granted in substitution for a stock option previously granted
by an entity that is acquired by or merged with the Company or an Affiliate.
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(ii)
Option Term
. The term of each Option shall be fixed by the Committee but shall not be longer than 10
years from the date of grant.
(iii)
Time and Method of Exercise
. The Committee shall determine the time or times at which an Option may be exercised in
whole or in part and the method or methods by which, and the form or forms (including, without
limitation, cash, Shares, other securities, other Awards or other property, or any combination
thereof, having a Fair Market Value on the exercise date equal to the applicable exercise price) in
which, payment of the exercise price with respect thereto may be made or deemed to have been made.
(b)
Stock Appreciation Rights
. The Committee is hereby authorized to grant Stock Appreciation Rights to Eligible Persons
subject to the terms of the Plan and any applicable Award Agreement. A Stock
Appreciation Right granted under the Plan shall confer on the holder thereof a right to
receive upon exercise thereof the excess of (i) the Fair Market Value of one Share on the date of
exercise (or, if the Committee shall so determine, at any time during a specified period before or
after the date of exercise) over (ii) the grant price of the Stock Appreciation Right as specified
by the Committee, which price shall not be less than 100% of the Fair Market Value of one Share on
the date of grant of the Stock Appreciation Right; provided, however, that the Committee may
designate a per share grant price below Fair Market Value on the date of grant (A) to the extent
necessary or appropriate, as determined by the Committee, to satisfy applicable legal or regulatory
requirements of a foreign jurisdiction or (B) if the Stock Appreciation Right is granted in
substitution for a stock appreciation right previously granted by an entity that is acquired by or
merged with the Company or an Affiliate. Subject to the terms of the Plan and any applicable Award
Agreement, the grant price, methods of exercise, dates of exercise, methods of settlement and any
other terms and conditions of any Stock Appreciation Right shall be as determined by the Committee.
The term of any Stock Appreciation Right will be fixed by the Committee but shall not be longer
than 10 years from the date of grant. The Committee may impose such conditions or restrictions on
the exercise of any Stock Appreciation Right as it may deem appropriate.
(c)
Restricted Stock and Restricted Stock Units
. The Committee is hereby authorized to grant Awards of Restricted Stock and Restricted Stock
Units to Eligible Persons with the following terms and conditions and with such additional terms
and conditions not inconsistent with the provisions of the Plan as the Committee shall determine:
(i)
Restrictions
. Shares of Restricted Stock and Restricted Stock Units shall be subject to such restrictions
as the Committee may impose (including, without limitation, any limitation on the right to vote a
Share of Restricted Stock or the right to receive any dividend or other right or property with
respect thereto), which restrictions may lapse separately or in combination at such time or times,
in such installments or otherwise, as the Committee may deem appropriate.
(ii)
Issuance and Delivery of Shares
. Any Restricted Stock granted under the Plan shall be issued at the time such Awards are
granted and may be evidenced in such manner as the Committee may deem appropriate, including
book-entry registration or issuance of a stock certificate or certificates, which certificate or
certificates shall be held by the Company. Such certificate or certificates shall be registered in
the name of the Participant and shall bear an
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appropriate legend referring to the restrictions
applicable to such Restricted Stock. Shares representing Restricted Stock that is no longer
subject to restrictions shall be delivered to the Participant promptly after the applicable
restrictions lapse or are waived. In the case of Restricted Stock Units, no Shares shall be issued
at the time such Awards are granted. Upon the lapse or waiver of restrictions and the restricted
period relating to Restricted Stock Units evidencing the right to receive Shares, such Shares shall
be issued and delivered to the holder of the Restricted Stock Units.
(iii)
Forfeiture
. Except as otherwise determined by the Committee, upon a Participants termination of
employment or resignation or removal as a Director (in either case, as determined under criteria
established by the Committee) during the applicable restriction period, all Shares of Restricted
Stock and all Restricted Stock Units held by the Participant at such time shall be forfeited and
reacquired by the Company; provided, however, that the Committee may, when it finds that a waiver
would be in the best interest of the Company, waive in whole or in part any or all remaining
restrictions with respect to Shares of Restricted Stock or Restricted Stock Units.
(d)
Dividend Equivalents
. The Committee is hereby authorized to grant Dividend Equivalents to Eligible Persons under
which the Participant shall be entitled to receive payments (in cash, Shares, other securities,
other Awards or other property as determined in the discretion of the Committee) equivalent to the
amount of cash dividends paid by the Company to holders of Shares with respect to a number of
Shares determined by the Committee. Subject to the terms of the Plan and any applicable Award
Agreement, such Dividend Equivalents may have such terms and conditions as the Committee shall
determine.
(e)
Performance Awards
. The Committee is hereby authorized to grant Performance Awards to Eligible Persons subject
to the terms of the Plan and any applicable Award Agreement. A Performance Award granted under the
Plan (i) may be denominated or payable in cash, Shares (including, without limitation, Restricted
Stock and Restricted Stock Units), other securities, other Awards or other property, and (ii) shall
confer on the holder thereof the right to receive payments, in whole or in part, upon the
achievement of one or more objective Performance Goals during such performance periods as the
Committee shall establish. Subject to the terms of the Plan, the Performance Goals to be achieved
during any performance period, the length of any performance period, the amount of any Performance
Award granted, the amount of any payment to be made pursuant to any Performance Award and any other
terms and conditions of any Performance Award shall be determined by the Committee. Qualified
Performance Awards shall be conditioned, to the extent required by 162(m), solely on the
achievement of one or more objective Performance Goals established by the Committee within the time
prescribed by Section 162(m), and Qualified Performance Awards shall otherwise comply with the
requirements of Section 162(m).
(f)
Stock Awards
. The Committee is hereby authorized to grant to Eligible Persons Shares without restrictions
thereon, as deemed by the Committee to be consistent with the purpose of the Plan. Subject to the
terms of the Plan and any applicable Award Agreement, such Stock Awards may have such terms and
conditions as the Committee shall determine.
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(g)
Other Stock-Based Awards
. The Committee is hereby authorized to grant to Eligible Persons such other Awards that are
denominated or payable in, valued in whole or in part by reference to, or otherwise based on or
related to, Shares (including, without limitation, securities convertible into Shares), as are
deemed by the Committee to be consistent with the purpose of the Plan. The Committee shall
determine the terms and conditions of such Awards, subject to the terms of the Plan and the Award
Agreement. Shares, or other securities delivered pursuant to a purchase right granted under this
Section 6(g), shall be purchased for consideration having a value equal to at least 100% of the
Fair Market Value of such Shares or other securities on the date the purchase right is granted.
The consideration paid by the Participant may be paid by such method or methods and in such form or
forms (including, without limitation, cash, Shares, other securities, other Awards or other
property, or any combination thereof), as the Committee shall determine.
(h)
General
.
(i)
Consideration for Awards
. Awards may be granted for no cash consideration or for any cash or other consideration as
may be determined by the Committee or required by applicable law.
(ii)
Awards May Be Granted Separately or Together
. Awards may, in the discretion of the Committee, be granted either alone or in addition to,
in tandem with or in substitution for any other Award or any award granted under any other plan of
the Company or any Affiliate. Awards granted in addition to or in tandem with other Awards or in
addition to or in tandem with awards granted under any other plan of the Company or any Affiliate
may be granted either at the same time as or at a different time from the grant of such other
Awards or awards.
(iii)
Forms of Payment under Awards
. Subject to the terms of the Plan and of any applicable Award Agreement, payments or
transfers to be made by the Company or an Affiliate upon the grant, exercise or payment of an Award
may be made in such form or forms as the Committee shall determine (including, without limitation,
cash, Shares, other securities, other Awards or other property, or any combination thereof), and
may be made in a single payment or transfer, in installments or on a deferred basis, in each case
in accordance with rules and procedures established by the Committee. Such rules and procedures
may include, without limitation, provisions for the payment or crediting of reasonable interest on
installment or deferred payments or the grant or crediting of Dividend Equivalents with respect to
installment or deferred payments.
(iv)
Term of Awards
. The term of each Award shall be for a period not longer than 10 years from the date of
grant.
(v)
Limits on Transfer of Awards
. Except as otherwise provided in this Section 6(h)(v), no Award (other than a Stock Award)
and no right under any such Award shall be transferable by a Participant other than by will or by
the laws of descent and distribution. The Committee may establish procedures as it deems
appropriate for a Participant to designate a Person or Persons, as beneficiary or beneficiaries, to
exercise the rights of the Participant and receive any property distributable with respect to any
Award in the event of the Participants
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death. The Committee, in its discretion and subject to
such additional terms and conditions as it determines, may permit a Participant to transfer a
Non-Qualified Stock Option to any family member (as such term is defined in the General
Instructions to Form S-8 (or any successor to such Instructions or such Form) under the Securities
Act of 1933, as amended) at any time that such Participant holds such Option, provided that such
transfers may not be for value (
i.e.
, the transferor may not receive any consideration therefor)
and the family member may not make any subsequent transfers other than by will or by the laws of
descent and distribution. Each Award under the Plan or right under any such Award shall be
exercisable during the Participants lifetime only by the Participant (except as provided herein or
in an Award Agreement or amendment thereto relating to a Non-Qualified Stock Option) or, if
permissible under applicable law, by the Participants guardian or legal representative. No Award
(other than a Stock Award) or right under any such Award may be pledged, alienated, attached or
otherwise encumbered, and any purported pledge, alienation, attachment or encumbrance thereof shall
be void and unenforceable against the Company or any Affiliate.
(vi)
Restrictions; Securities Exchange Listing
. All Shares or other securities delivered under the Plan pursuant to any Award or the
exercise thereof shall be subject to such restrictions as the Committee may deem advisable under
the Plan, applicable federal or state securities laws and regulatory requirements, and the
Committee may cause appropriate entries to be made or legends to be placed on the certificates for
such Shares or other securities to reflect such restrictions. If the Shares or other securities
are traded on a securities exchange, the Company shall not be required to deliver any Shares or
other securities covered by an Award unless and until such Shares or other securities have been
admitted for trading on such securities exchange.
(vii)
Prohibition on Option and Stock Appreciation Right Repricing
. Except as provided in Section 4(c) hereof, no Option may be amended to reduce its initial
exercise price, and no Option shall be cancelled and replaced with an Option or Options having a
lower exercise price. In addition, except as provided in Section 4(c) hereof, no Stock
Appreciation Right may be amended to reduce its grant price, and no Stock Appreciation Right shall
be cancelled and replaced with a Stock Appreciation Right having a lower grant price.
(viii)
Section 409A Provisions
. Notwithstanding anything in the Plan or any Award Agreement to the contrary, to the extent
that any amount or benefit that constitutes deferred compensation to a Participant under Section
409A of the Code and applicable guidance thereunder is otherwise payable or distributable to a
Participant under the Plan or any Award Agreement solely by reason of the occurrence of a Change in
Control or due to the Participants disability or separation from
service (as such term is defined under Section 409A), such amount or benefit will not be
payable or distributable to the Participant by reason of such circumstance, unless the Committee
determines in good faith that (i) the circumstances giving rise to such Change in Control,
disability or separation from service meet the definition of a change in ownership or control,
disability or separation from service, as the case may be, in Section 409A(a)(2)(A) of the Code and
applicable proposed or final regulations, or (ii) the payment or distribution of such amount or
benefit would be exempt from the application of Section 409A by reason of the short-term deferral
exemption or otherwise. Any payment or distribution that otherwise would be made to a Participant
who is a Specified Employee (as determined by the Committee in good faith) on account of separation
from service may not be
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made before the date which is six months after the date of the Specified
Employees separation from service (or, if earlier, upon the Specified Employees death), unless
the payment or distribution is exempt from the application of Section 409A by reason of the
short-term deferral exemption or otherwise.
Section 7.
Amendment and Termination; Corrections
.
(a)
Amendments to the Plan
. The Board may amend, alter, suspend, discontinue or terminate the Plan at any time;
provided, however, that, notwithstanding any other provision of the Plan or any Award Agreement,
prior approval of the shareholders of the Company shall be required for any amendment to the Plan
that:
(i) requires shareholder approval under the rules or regulations of the Securities and
Exchange Commission, the NASDAQ Global Market or any securities exchange that are applicable to the
Company;
(ii) increases the number of shares authorized under the Plan as specified in Section 4(a) of
the Plan;
(iii) increases the number of shares or value subject to the limitations contained in Section
4(d) of the Plan;
(iv) permits repricing of Options or Stock Appreciation Rights which is prohibited by Section
6(h)(vii) of the Plan;
(v) permits the award of Options or Stock Appreciation Rights at a price less than 100% of the
Fair Market Value of a Share on the date of grant of such Option or Stock Appreciation Right,
contrary to the provisions of Sections 6(a)(i) and 6(b)(ii) of the Plan; and
(vi) would cause Section 162(m) of the Code to become unavailable with respect to the Plan.
(b)
Amendments to Awards
. Subject to the provisions of the Plan, the Committee may waive any conditions of or rights
of the Company under any outstanding Award, prospectively or retroactively. Except as otherwise
provided in the Plan, the Committee may amend, alter, suspend, discontinue or terminate any
outstanding Award, prospectively or retroactively, but no such action may adversely affect the
rights of the holder of such Award without the consent of the Participant or holder or beneficiary
thereof.
(c)
Correction of Defects, Omissions and Inconsistencies
. The Committee may correct any defect, supply any omission or reconcile any inconsistency in
the Plan or in any Award or Award Agreement in the manner and to the extent it shall deem desirable
to implement or maintain the effectiveness of the Plan.
Section 8.
Income Tax Withholding
.
In order to comply with all applicable federal, state, local or foreign income tax laws or
regulations, the Company may take such action as it deems appropriate to ensure that all
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applicable
federal, state, local or foreign payroll, withholding, income or other taxes, which are the sole
and absolute responsibility of a Participant, are withheld or collected from such Participant. In
order to assist a Participant in paying all or a portion of the applicable taxes to be withheld or
collected upon exercise or receipt of (or the lapse of restrictions relating to) an Award, the
Committee, in its discretion and subject to such additional terms and conditions as it may adopt,
may permit the Participant to satisfy such tax obligation by (a) electing to have the Company
withhold a portion of the Shares otherwise to be delivered upon exercise or receipt of (or the
lapse of restrictions relating to) such Award with a Fair Market Value equal to the amount of such
taxes or (b) delivering to the Company Shares other than Shares issuable upon exercise or receipt
of (or the lapse of restrictions relating to) such Award with a Fair Market Value equal to the
amount of such taxes. The election, if any, must be made on or before the date that the amount of
tax to be withheld is determined.
Section 9.
General Provisions
.
(a)
No Rights to Awards
. No Eligible Person, Participant or other Person shall have any claim to be granted any
Award under the Plan, and there is no obligation for uniformity of treatment of Eligible Persons,
Participants or holders or beneficiaries of Awards under the Plan. The terms and conditions of
Awards need not be the same with respect to any Participant or with respect to different
Participants.
(b)
Award Agreements
. No Participant shall have rights under an Award granted to such Participant unless and
until an Award Agreement is issued to, and accepted by, the Participant.
(c)
No Rights of Shareholders
. Except with respect to Restricted Stock and Stock Awards, neither a Participant nor the
Participants legal representative shall be, or have any of the rights and privileges of, a
shareholder of the Company with respect to any Shares issuable upon the exercise or payment of any
Award, in whole or in part, unless and until the Shares have been issued.
(d)
No Limit on Other Compensation Plans or Arrangements
. Nothing contained in the Plan shall prevent the Company or any Affiliate from adopting or
continuing in effect other or additional compensation plans or arrangements, and such plans or
arrangements may be either generally applicable or applicable only in specific cases.
(e)
No Right to Employment or Directorship
. The grant of an Award shall not be construed as giving a Participant the right to be
retained as an employee of the Company or any Affiliate, or a Director to be retained as a
Director, nor will it affect in any way the right of the Company or an Affiliate to terminate a
Participants employment at any time, with or without cause. In addition, the Company or an
Affiliate may at any time dismiss a Participant from employment free from any liability or any
claim under the Plan or any Award, unless otherwise expressly provided in the Plan or in any Award
Agreement.
(f)
Governing Law
. The internal law, and not the law of conflicts, of the State of Minnesota, shall govern all
questions concerning the validity, construction and effect of the Plan or any Award, and any rules
and regulations relating to the Plan or any Award.
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(g)
Severability
. If any provision of the Plan or any Award is or becomes or is deemed to be invalid, illegal
or unenforceable in any jurisdiction or would disqualify the Plan or any Award under any law deemed
applicable by the Committee, such provision shall be construed or deemed amended to conform to
applicable laws, or if it cannot be so construed or deemed amended without, in the determination of
the Committee, materially altering the purpose or intent of the Plan or the Award, such provision
shall be stricken as to such jurisdiction or Award, and the remainder of the Plan or any such Award
shall remain in full force and effect.
(h)
No Trust or Fund Created
. Neither the Plan nor any Award shall create or be construed to create a trust or separate
fund of any kind or a fiduciary relationship between the Company or any Affiliate and a Participant
or any other Person. To the extent that any Person acquires a right to receive payments from the
Company or any Affiliate pursuant to an Award, such right shall be no greater than the right of any
unsecured general creditor of the Company or any Affiliate.
(i)
No Fractional Shares
. No fractional Shares shall be issued or delivered pursuant to the Plan or any Award, and
the Committee shall determine whether cash shall be paid in lieu of any fractional Share or whether
such fractional Share or any rights thereto shall be cancelled, terminated or otherwise eliminated.
(j)
Headings
. Headings are given to the Sections and subsections of the Plan solely as a convenience to
facilitate reference. Such headings shall not be deemed in any way material or relevant to the
construction or interpretation of the Plan or any provision thereof.
Section 10.
Effective Date of the Plan; Effect on 2000 Plan
.
The Plan was adopted by the Board on March 31, 2010. The Plan shall be subject to approval by
the shareholders of the Company at the annual meeting of shareholders of the Company to be held on
May 12, 2010, and the Plan shall be effective as of the date of such shareholder approval. On and
after the date of shareholder approval of the Plan, no awards (other than the automatic Restricted
Stock Unit grants to non-employee Directors set forth in Section 7 of the 2000 Plan to be made to
non-employee Directors upon their election to the Board at the annual meeting of shareholders to be
held on May 12, 2010) shall be granted under the 2000 Plan, but all outstanding awards previously
granted under the 2000 Plan shall remain outstanding in accordance with the terms thereof. All
grants to non-employee Directors after the date of shareholder approval of the Plan shall be made
solely under the Plan.
Section 11.
Term of the Plan
.
The Plan shall terminate at midnight on March 31, 2020, unless terminated before then by the
Board; provided, however, that no Qualified Performance Award may be granted under the Plan after
the fifth year following the year in which the shareholders of the Company approved the Performance
Goals, unless and until the Performance Goals are reapproved by the shareholders. Awards may be
granted under the Plan until the earlier to occur of the date of termination of the Plan or the
date on which all Shares available for Awards under the Plan have been purchased or acquired. As
long as any Awards are outstanding under the Plan, the terms of the Plan shall govern such Awards.
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APPENDIX B
ATS MEDICAL, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
(AS PROPOSED TO BE AMENDED)
ARTICLE I.
INTRODUCTION
Section 1.01
Purpose
. The purpose of the ATS Medical, Inc. Employee Stock Purchase
Plan (the Plan) is to provide employees of ATS Medical, Inc., a Minnesota corporation (the
Company), and its Affiliates with an opportunity to share in the ownership of the Company by
providing them with a convenient means for regular and systematic purchases of the Companys Common
Stock and, thus, to develop a stronger incentive to work for the continued success of the Company.
Section 1.02
Rules of Interpretation
. It is intended that the Plan be an employee
stock purchase plan as defined in Section 423(b) of the Internal Revenue Code of 1986, as amended
(the Code), and Treasury Regulations promulgated thereunder. Accordingly, the Plan shall be
interpreted and administered in a manner consistent therewith if so approved. All Participants in
the Plan will have the same rights and privileges consistent with the provisions of the Plan.
Section 1.03
Definitions
. For purposes of the Plan, the following terms will have
the meanings set forth below:
(a) Acceleration Date means the earlier of the date of shareholder approval or approval by
the Companys Board of Directors of (i) any consolidation or merger of the Company in which the
Company is not the continuing or surviving corporation or pursuant to which shares of Company
Common Stock would be converted into cash, securities or other property, other than a merger of the
Company in which shareholders of the Company immediately prior to the merger have the same
proportionate ownership of stock in the surviving corporation immediately after the merger; (ii)
any sale, exchange or other transfer (in one transaction or a series of related transactions) of
all or substantially all of the assets of the Company; or (iii) any plan of liquidation or
dissolution of the Company.
(b) Affiliate means any subsidiary corporation of the Company, as defined in Section 424(f)
of the Code, whether now or hereafter acquired or established.
(c) Committee means the committee described in Section 10.01.
(d) Company means ATS Medical, Inc., a Minnesota corporation, and its successors by merger
or consolidation as contemplated by Article XI herein.
(e) Current Compensation means all regular wage, salary and commission payments paid by the
Company to a Participant in accordance with the terms of his or her employment, but excluding
annual bonus payments and all other forms of special compensation.
(f) Fair Market Value as of a given date means such value of the Common Stock as reasonably
determined by the Committee, but shall not be less than (i) the closing price of the
B-1
Common Stock
as reported for composite transactions if the Common Stock is then traded on a national securities
exchange, or (ii) the average of the closing representative bid and asked prices of the Common
Stock as reported on the Nasdaq National Market System on the date as of which the fair market
value is being determined. If on the date of grant of any option hereunder the Common Stock is not
traded on an established securities market, the Committee shall make a good faith attempt to
satisfy the requirements of this Section 1.03 and in connection therewith shall take such action as
it deems necessary or advisable.
(g) Participant means a Permanent Full-Time Employee who is eligible to participate in the
Plan under Section 2.01 and who has elected to participate in the Plan.
(h) Participating Affiliate means an Affiliate which has been designated by the Committee in
advance of the Purchase Period in question as a corporation whose eligible Permanent Full- Time
Employees may participate in the Plan.
(i) Permanent Full-Time Employee means an employee of the Company or a Participating
Affiliate as of the first day of a Purchase Period, including an officer or director who is also an
employee, but excluding (i) an employee whose customary employment is less than twenty (20) hours
per week and (ii) an employee who has been employed by the Company for less than thirty (30) days.
(j) Plan means the ATS Medical, Inc. 1998 Employee Stock Purchase Plan, as amended, the
provisions of which are set forth herein.
(k) Purchase Period means the approximate three-month periods beginning (i) on the first
business day in May and ending on the last business day in July of each year; (ii) on the first
business day in August and ending on the last business day in October of each year; (iii) on the
first business day in November of one year and ending on the last business day in January of the
following year; and (iv) on the first business day in February and ending on the last business day
in April of each year; provided, however, that the initial Purchase Period will commence on May 3,
1998 and will terminate on the last business day in July 1998, and provided further that the then
current Purchase Period will end upon the occurrence of an Acceleration Date.
(l) Common Stock means the Companys Common Stock, $.01 par value, as such stock may be
adjusted for changes in the stock or the Company as contemplated by Article XI herein.
(m) Stock Purchase Account means the account maintained on the books and records of the
Company recording the amount received from each Participant through payroll deductions made under
the Plan and from the Company through matching contributions.
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ARTICLE II.
ELIGIBILITY AND PARTICIPATION
Section 2.01
Eligible Employees
. All Permanent Full-Time Employees shall be eligible
to participate in the Plan beginning on the first day of the first Purchase Period to commence
after such person becomes a Permanent Full-Time Employee. Subject to the provisions of Article VI,
each such employee will continue to be eligible to participate in the Plan so long as such employee
remains a Permanent Full-Time Employee.
Section 2.02
Election to Participate
. An eligible Permanent Full-Time Employee may
elect to participate in the Plan for a given Purchase Period by filing with the Company, in advance
of that Purchase Period and in accordance with such terms and conditions as the Committee in its
sole discretion may impose, a form provided by the Company for such purpose (which authorizes
regular payroll deductions from Current Compensation beginning with the first payday in that
Purchase Period and continuing until the employee withdraws from the Plan or ceases to be eligible
to participate in the Plan).
Section 2.03
Limits on Stock Purchase
. No employee shall be granted any right to
purchase Common Stock hereunder if such employee, immediately after such a right to purchase is
granted, would own, directly or indirectly, within the meaning of Section 423(b)(3) and Section
424(d) of the Code, Common Stock possessing 5% or more of the total combined voting power or value
of all the classes of the capital stock of the Company or of all Affiliates.
Section 2.04
Voluntary Participation
. Participation in the Plan on the part of a
Participant is voluntary and such participation is not a condition of employment nor does
participation in the Plan entitle a Participant to be retained as an employee.
ARTICLE III.
PAYROLL DEDUCTIONS AND STOCK PURCHASE ACCOUNT
Section 3.01
Deduction from Pay
. The form described in Section 2.02 will permit a
Participant to elect payroll deductions of any multiple of 1%, but not less than 1% or more than
10% of such Participants Current Compensation for each pay period, subject to such other
limitations as the Committee in its sole discretion may impose. A Participant may cease making
payroll deductions at any time, subject to such limitations as the Committee in its sole discretion
may impose. In the event that during a Purchase Period the entire credit balance in a
Participants Stock Purchase Account exceeds the product of (i) 85% of the Fair Market Value of the
Common Stock on the first business day of that Purchase Period, and (ii) 10,000 then payroll
deductions for such Participant shall automatically cease, and shall resume on the first pay period
of the next Purchase Period.
Section 3.02
Credit to Account
. Payroll deductions will be credited to the
Participants Stock Purchase Account on each payday.
Section 3.03
Interest
. No interest will be paid upon payroll deductions or on any
amount credited to, or on deposit in, a Participants Stock Purchase Account.
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Section 3.04
Nature of Account
. The Stock Purchase Account is established solely for
accounting purposes, and all amounts credited to the Stock Purchase Account will remain part of the
general assets of the Company or the Participating Affiliate (as the case may be).
Section 3.05
No Additional Contributions
. A Participant may not make any payment
into the Stock Purchase Account other than the payroll deductions made pursuant to the Plan.
ARTICLE IV.
RIGHT TO PURCHASE SHARES
Section 4.01
Number of Shares
. Each Participant will have the right to purchase on
the last business day of the Purchase Period up to the largest number of whole shares of Common
Stock that can be purchased at the price specified in Section 4.02 with up to the entire credit
balance in the Participants Stock Purchase Account, subject to the limitations that (i) no more
than 10,000 shares of Common Stock may be purchased under the Plan by any one Participant for a
given Purchase Period, (ii) in accordance with Section 423(b)(8) of the Code, no more than $25,000
in Fair Market Value (determined at the beginning of each Purchase Period) of Common Stock and
other stock may be purchased under the Plan and all other employee stock purchase plans (if any) of
the Company and the Affiliates by any one Participant for any calendar year and (iii) the Committee
may reasonably impose. If the purchases for all Participants would otherwise cause the aggregate
number of shares of Common Stock to be sold under the Plan to exceed the number specified in
Section 10.03, each Participant shall be allocated a pro rata portion of the Common Stock to be
sold.
Section 4.02
Purchase Price
. Except as provided in Section 6.03, the purchase price
for any Purchase Period shall be the lesser of (i) 85% of the Fair Market Value of the Common Stock
on the first business day of that Purchase Period or (ii) 85% of the Fair Market Value of the
Common Stock on the last business day of that Purchase Period, in each case rounded up to the next
higher full cent.
ARTICLE V.
EXERCISE OF RIGHT
Section 5.01
Purchase of Stock
. On the last business day of a Purchase Period, the
entire credit balance in each Participants Stock Purchase Account will be used to purchase the
largest number of whole shares of Common Stock purchasable with such amount (subject to the
limitations of Section 4.01), unless the Participant has filed with the Company, in advance of that
date and subject to such terms and conditions as the Committee in its sole discretion may impose, a
form provided by the Company which requests the distribution of part or all of the credit balance
in cash.
Section 5.02
Cash Distributions
. Any amount remaining in a Participants Stock
Purchase Account after the last business day of a Purchase Period will be paid to the Participant
in cash within thirty (30) days after the end of that Purchase Period.
Section 5.03
Notice of Acceleration Date
. The Company shall use its best efforts to
notify each Participant in writing at least ten days prior to any Acceleration Date that the then
current Purchase Period will end on such Acceleration Date.
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ARTICLE VI.
WITHDRAWAL FROM PLAN; SALE OF STOCK
Section 6.01
Voluntary Withdrawal
. A Participant may, in accordance with such terms
and conditions as the Committee in its sole discretion may impose, withdraw from the Plan and cease
making payroll deductions by filing with the Company a form provided for this purpose. In such
event, the entire credit balance in the Participants Stock Purchase Account will be paid to the
Participant in cash within thirty (30) days. A Participant who withdraws from the Plan will not be
eligible to reenter the Plan until the beginning of the next Purchase Period following the date of
such withdrawal.
Section 6.02
Death
. Subject to such terms and conditions as the Committee in its
sole discretion may impose, upon the death of a Participant, no further amounts shall be credited
to the Participants Stock Purchase Account. Thereafter, on the last business day of the Purchase
Period during which such Participants death occurred and in accordance with Section 5.01, the
entire credit balance in such Participants Stock Purchase Account will be used to purchase Common
Stock, unless such Participants estate has filed with the Company, in advance of that day and
subject to such terms and conditions as the Committee in its sole discretion may impose, a form
provided by the Company which elects to have the entire credit balance in such Participants Stock
Account distributed in cash within thirty (30) days after the end of that Purchase Period or at
such earlier time as the Committee in its sole discretion may decide. Each Participant, however,
may designate one or more beneficiaries who, upon death, are to receive the Common Stock or the
amount that otherwise would have been distributed or paid to the Participants estate and may
change or revoke any such designation from time to time. No such designation, change or revocation
will be effective unless made by the Participant in writing and filed with the Company during the
Participants lifetime. Unless the Participant has otherwise specified the beneficiary
designation, the beneficiary or beneficiaries so designated will become fixed as of the date of the
death of the Participant so that, if a beneficiary survives the Participant but dies before the
receipt of the payment due such beneficiary, the payment will be made to such beneficiarys estate.
Section 6.03
Termination of Employment
. Subject to such terms and conditions as the
Committee in its sole discretion may impose, upon a Participants normal or early retirement with
the consent of the Company under any pension or retirement plan of the Company or Participating
Affiliate, no further amounts shall be credited to the Participants Stock Purchase Account.
Thereafter, on the last business day of the Purchase Period during which such Participants
approved retirement occurred and in accordance with Section 5.01, the entire credit balance in such
Participants Stock Purchase Account will be used to purchase Common Stock at the Fair Market Value
of the Common Stock on such date, unless such Participant has filed with the Company, in advance of
that day and subject to such terms and conditions as the Committee in its sole discretion may
impose, a form provided by the Company which elects to receive the entire credit balance in such
Participants Stock Purchase Account in cash within thirty (30) days after the end of that Purchase
Period, provided that such Participant shall have no right to purchase Common Stock in the event
that the last day of such a Purchase Period occurs more than three months following the termination
of such Participants employment with the Company by reason of such an approved retirement. In the
event of any other termination of employment (other than death) with the Company or a Participating
Affiliate, participation in the Plan will
B-5
cease on the date the Participant ceases to be a Permanent Full-Time Employee for any reason.
In such event, the entire credit balance in such Participants Stock Purchase Account will be paid
to the Participant in cash within thirty (30) days. For purposes of this Section 6.03, a transfer
of employment to any Affiliate, or a leave of absence which has been approved by the Committee,
will not be deemed a termination of employment as a Permanent Full-Time Employee.
ARTICLE VII.
NONTRANSFERABILITY
Section 7.01
Nontransferable Right to Purchase
. The right to purchase Common Stock
hereunder may not be assigned, transferred, pledged or hypothecated (whether by operation of law or
otherwise), except as provided in Section 6.02, and will not be subject to execution, attachment or
similar process. Any attempted assignment, transfer, pledge, hypothecation or other disposition or
levy of attachment or similar process upon the right to purchase will be null and void and without
effect.
Section 7.02
Nontransferable Account
. Except as provided in Section 6.02, the
amounts credited to a Stock Purchase Account may not be assigned, transferred, pledged or
hypothecated in any way, and any attempted assignment, transfer, pledge, hypothecation or other
disposition of such amounts will be null and void and without effect.
ARTICLE VIII.
STOCK CERTIFICATES
Section 8.01
Delivery
. Promptly after the last day of each Purchase Period and
subject to such terms and conditions as the Committee in its sole discretion may impose, the
Company will cause to be delivered to or for the benefit of the Participant a certificate
representing the Common Stock purchased on the last business day of such Purchase Period.
Section 8.02
Securities Laws
. The Company shall not be required to issue or deliver
any certificate representing Common Stock prior to registration under the Securities Act of 1933,
as amended, or registration or qualification under any state law if such registration is required.
The Company shall use its best efforts to accomplish such registration (if and to the extent
required) not later than a reasonable time following the Purchase Period, and delivery of
certificates may be deferred until such registration is accomplished.
Section 8.03
Completion of Purchase
. A Participant shall have no interest in the
Common Stock purchased until a certificate representing the same is issued to or for the benefit of
the Participant.
Section 8.04
Form of Ownership
. The certificates representing Common Stock issued
under the Plan will be registered in the name of the Participant or jointly in the name of the
Participant and another person, as the Participant may direct on a form provided by the Company.
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ARTICLE IX.
EFFECTIVE DATE, AMENDMENT AND TERMINATION OF PLAN
Section 9.01
Effective Date
. The Plan was approved by the Board of Directors on
January 28, 1998 and shall be approved by the shareholders of the Company within twelve (12) months
thereof.
Section 9.02
Plan Commencement
. The initial Purchase Period under the Plan will
commence on May 3, 1998. Thereafter, each succeeding Purchase Period will commence and terminate
in accordance with Section 1.03(k).
Section 9.03
Powers of Board
. The Board of Directors may amend or discontinue the
Plan at any time. No amendment or discontinuation of the Plan, however, shall without shareholder
approval be made that: (i) absent such shareholder approval, would cause Rule 16b-3 under the
Securities Exchange Act of 1934, as amended (the Act) to become unavailable with respect to the
Plan, (ii) requires shareholder approval under any rules or regulations of the National Association
of Securities Dealers, Inc. or any securities exchange that are applicable to the Company, (iii)
permit the issuance of Common Stock before payment therefor in full or, (iv) other than as provided
in Article XI, increases the number of shares of Common Stock available for issuance under the
Plan.
Section 9.04
Automatic Termination
. The Plan shall automatically terminate when all
of the shares of Common Stock provided for in Section 10.03 have been sold.
ARTICLE X.
ADMINISTRATION
Section 10.01
The Committee
. The Plan shall be administered by a committee (the
Committee) of two or more directors of the Company, each of whom shall be a Non-Employee
Director within the meaning of Rule 16b-3 under the Act. The members of the Committee shall be
appointed by and serve at the pleasure of the Board of Directors.
Section 10.02
Powers of Committee
. Subject to the provisions of the Plan, the
Committee shall have full authority to administer the Plan, including authority to interpret and
construe any provision of the Plan, to establish deadlines by which the various administrative
forms must be received in order to be effective, and to adopt such other rules and regulations for
administering the Plan as it may deem appropriate. The Committee shall have full and complete
authority to determine whether all or any part of the Common Stock acquired pursuant to the Plan
shall be subject to restrictions on the transferability thereof or any other restrictions affecting
in any manner a Participants rights with respect thereto but any such restrictions shall be
contained in the form by which a Participant elects to participate in the Plan pursuant to Section
2.02. Decisions of the Committee will be final and binding on all parties who have an interest in
the Plan.
B-7
Section 10.03
Stock to be Sold
. The Common Stock to be issued and sold under the
Plan may be treasury shares or authorized but unissued shares, or the Company may purchase Common
Stock in the market for sale under the Plan. Except as provided in Section 11.01, the aggregate
number of shares of Common Stock to be sold under the Plan will not exceed 1,500,000 shares.
Section 10.04
Notices
. Notices to the Committee should be addressed as follows:
ATS Medical Inc.
Chief Financial Officer
3905 Annapolis Lane
Minneapolis, Minnesota, 55447
ARTICLE XI.
ADJUSTMENT FOR CHANGES IN STOCK OR COMPANY
Section 11.01
Stock Dividend or Reclassification
. If the outstanding shares of
Common Stock are increased, decreased, changed into or exchanged for a different number or kind of
securities of the Company, or shares of a different par value or without par value, through
reorganization, recapitalization, reclassification, stock dividend, stock split, amendment to the
Companys Articles of Incorporation, reverse stock split or otherwise, an appropriate adjustment
shall be made in the maximum numbers and kind of securities to be purchased under the Plan with a
corresponding adjustment in the purchase price to be paid therefor.
Section 11.02
Merger or Consolidation
. If the Company is merged into or consolidated
with one or more corporations during the term of the Plan, appropriate adjustments will be made to
give effect thereto on an equitable basis in terms of issuance of shares of the corporation
surviving the merger or of the consolidated corporation, as the case may be.
ARTICLE XII.APPLICABLE LAW
Rights to purchase Common Stock granted under the Plan shall be construed and shall take
effect in accordance with the laws of the State of Minnesota.
B-8
ATS MEDICAL, INC.
ANNUAL MEETING OF SHAREHOLDERS
Wednesday, May 12, 2010
2:00 p.m. Pacific Time
OFFICES OF ATS MEDICAL, INC.
20412 James Bay Circle
Lake Forest, California
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ATS MEDICAL, INC.
3905 Annapolis Lane
Minneapolis, Minnesota 55447
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proxy
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This proxy is solicited on behalf of the Board of Directors
The undersigned, having duly received the Notice of 2010 Annual Meeting of Shareholders and
Proxy Statement dated April 9, 2010, appoints Michael D. Dale and Michael R. Kramer 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 on the matters shown on the reverse side, all shares of
common stock of ATS Medical, Inc. which the undersigned is entitled to vote at the 2010 Annual
Meeting of Shareholders of ATS Medical, Inc., to be held on Wednesday, May 12, 2010 at the ATS
Medical, Inc. offices at 20412 James Bay Circle, Lake Forest, California at 2:00 p.m. Pacific time
and any adjournment thereof.
See reverse for voting instructions.
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Shareowner Services
sm
P.O. Box 64945
St. Paul, MN 55164-0945
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There are three ways to vote your Proxy
Your telephone or Internet vote authorizes the Named Proxies
to vote your shares in the same
manner as if you marked,
signed and returned your proxy card.
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:
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INTERNET
www.eproxy.com/atsi/
Use the Internet to vote your proxy 24
hours a day, 7 days a week, until 12:00
p.m. (CT) on May 11, 2010.
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(
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PHONE 1-800-560-1965
Use a touch-tone telephone to vote your
proxy 24 hours a day, 7 days a week, until
12:00 p.m. (CT) on May 11, 2010.
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*
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Mail
Mark, sign and date your proxy card and
return it in the postage-paid envelope weve
provided or return it to
ATS Medical, Inc.
,
c/o Shareowner Services
SM
, P.O.
Box 64873, St. Paul, MN 55164-0873.
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If you vote by Phone or Internet, please do not
mail your Proxy Card.
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The Board of Directors Recommends a Vote FOR Items 1, 2, 3 and 4.
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1.
Election of directors:
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01
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Michael D. Dale
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05
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Eric W. Sivertson
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FOR all nominees
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WITHHOLD AUTHORITY
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02
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Steven M. Anderson
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06
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Theodore C. Skokos
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listed to the left
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to vote for all nominees
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03
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Robert E. Munzenrider
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07
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Martin P. Sutter
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(except as marked to
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04
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Guy P. Nohra
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the contrary below)
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(Instructions: To withhold authority to vote for any
indicated nominee, mark FOR all nominees and write the
number(s) of the nominee(s) in the box provided to the
right.)
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2.
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Approval of the ATS Medical, Inc. 2010 Stock Incentive Plan.
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For
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Against
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Abstain
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3.
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Approval of an amendment to the ATS Medical, Inc. 1998 Employee Stock Purchase Plan to increase the number
of shares of our common stock that may be purchased under the plan by 500,000 shares.
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For
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Against
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Abstain
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4.
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Ratification of Grant Thornton LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2010.
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For
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Against
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Abstain
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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
EACH PROPOSAL AND IN THE
DISCRETION OF THE NAMED PROXIES ON ALL OTHER MATTERS
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Address Change? Mark Box
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Indicate changes below:
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Date
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Signature(s) in Box
Please sign exactly as your name appears hereon.
Jointly owned shares will be voted as directed if one owner signs unless
another owner instructs to the contrary, in which case the shares will not be voted.
If signing in a representative capacity, please indicate title and authority
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