NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
December 12, 2001
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Possis
Medical, Inc., a Minnesota corporation, will be held on Wednesday, December 12,
2001, at 4:00 p.m. at the Minneapolis Marriott City Center, 30 South Seventh
Street, Minneapolis, Minnesota 55402, for the following purposes:
1. To elect seven (7) directors.
2. To approve amendment of the Corporation's 1991 Employee Stock Purchase
Plan
3. To ratify the selection of Deloitte & Touche LLP as independent
certified public accountants for the Corporation.
4. To transact such other business as may properly come before the meeting
or any adjournment thereof.
All shareholders of record on the transfer books of the Corporation as of
the close of business on Friday, October 26, 2001, will be entitled to vote at
the meeting.
Your attention is respectfully directed to the enclosed Proxy. Whether or
not you intend to be present at the meeting, please complete, sign and return
the Proxy in the enclosed envelope.
By Order of the Board of Directors
IRVING R. COLACCI
Secretary
Dated: November 5, 2001
Possis Medical Inc. 9055 Evergreen Boulevard NW Minneapolis, MN 55433-8003 USA
Phone: (763) 780-4555 Toll Free 1-800-810-7677 Fax: (763) 780-2227
PROXY STATEMENT
SOLICITATION AND REVOCATION OF PROXIES
This Proxy Statement is furnished to the Shareholders of Possis Medical,
Inc. (the "Corporation" or the "Company"), in connection with the solicitation
of proxies to be used in voting at the Annual Meeting of Shareholders to be held
on December 12, 2001, and any adjournments thereof. The enclosed Proxy is
solicited by the Board of Directors of the Corporation.
A person giving the enclosed Proxy has the power to revoke it at any time
before the convening of the Annual Meeting. Revocation must be in writing,
signed in exactly the same manner as the Proxy, and dated. Revocations of Proxy
will be honored if received at the offices of the Corporation, addressed to the
attention of Irving R. Colacci, Secretary, on or before December 11, 2001. In
addition, on the day of the Meeting, prior to the convening thereof, revocations
may be delivered to the Company representatives who will be seated at the door
of the meeting hall.
Proxies not revoked will be voted in accordance with the choice specified
by Shareholders by means of the ballot provided on the Proxy for that purpose.
Proxies which are signed but which lack any such specification will, subject to
the following, be voted in favor of the proposals set forth in the Notice of
Meeting and in favor of the slate of Directors proposed by the Board of
Directors and listed herein. If a Shareholder abstains from voting as to any
matter, then the shares held by such Shareholder shall be deemed present at the
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. Abstentions, therefore, as to any proposal will have the
same effect as votes against such proposal. If a broker returns a "non-vote"
proxy, indicating a lack of voting instruction by the beneficial holder of the
shares and a lack of discretionary authority on the part of the broker to vote
on a particular matter, then the shares covered by such non-vote shall not be
deemed to be represented at the Meeting for purposes of calculating the vote for
approval of such matter, but will be deemed to be present for purposes of
determining the presence of a quorum.
The Corporation will bear the cost of the solicitation of Proxies,
including the charges and expenses of brokerage firms and others for forwarding
solicitation material to, and obtaining Proxies from, beneficial owners of the
Corporation's Common Shares. In addition to the use of the mails, Proxies may be
solicited by personal interview, telephone, letter or facsimile. Proxies may be
solicited by officers or other employees of the Corporation, who will receive no
special compensation for their services. The Corporation's management intends to
send this Proxy Statement and the enclosed Proxy to Shareholders commencing on
approximately November 5, 2001.
VOTING RIGHTS
At October 26, 2001, 16,904,390 shares of Common Stock, the only voting
securities of the Corporation, were outstanding. Each share of Common Stock is
entitled to one vote. Shareholders are not entitled to cumulate their votes in
the election of Directors. Only holders of Common Stock of record at the close
of business on October 26, 2001, will be entitled to notice of and to vote at
this Annual Meeting of Shareholders.
COMMON STOCK OWNERSHIP
The following table sets forth the beneficial holdings as of September 24,
2001, of each Director and Named Executive Officer (as defined under the heading
"Executive Compensation") and all Directors and Executive Officers as a group.
The Corporation is aware of no person who beneficially owns more than five
percent of the Corporation's Common Shares.
Name of Beneficial Owner or Voting and Total %
Identity of Group Investment Power of Class
Donald C. Wegmiller, Chairman 82,906 (1) *
Seymour J. Mansfield, Director 182,977 (2) 1.0
Whitney A. McFarlin, Director 10,804 (3) *
William C. Mattison, Jr., Director 406,948 (4) 2.2
Rodney A. Young, Director 9,103 (5) *
Mary K. Brainerd, Director 0 *
Robert G. Dutcher, Director, 320,477 (6) 1.8
President & Chief Executive Officer
Irving R. Colacci, Vice President, 135,627 (7) *
Legal Affairs & Human Resources,
General Counsel and Secretary
James G. Gustafson, Vice President, 121,301 (8) *
Technology, Product Development
and Quality Systems
Shawn McCarrey, Vice President,
U.S. Sales 66,068 (9) *
T. V. Rao, Vice President,
Sales and Marketing 81,562 (10) *
Directors and Executive Officers
as a Group (13 persons) 1,629,626 (11) 9.0
<FN>
(1) Includes 58,877 shares issuable upon exercise of currently exercisable
options.
(2) Includes 49,889 shares issuable upon exercise of currently exercisable
options.
(3) Includes 9,804 shares issuable upon exercise of currently exercisable
options.
(4) Includes 133,500 shares owned directly, 267,000 shares held indirectly
in Trust and by an IRA, and 6,448 shares issuable upon the exercise of currently
exercisable options.
(5) Includes 8,643 shares issuable upon exercise of currently exercisable
options.
(6) Includes 253,161 shares issuable upon exercise of currently exercisable
options.
(7) Includes 119,134 shares issuable upon exercise of currently exercisable
options.
(8) Includes 115,459 shares issuable upon exercise of currently exercisable
options.
(9) Includes 34,773 shares issuable upon exercise of currently exercisable
options.
(10) Includes 70,629 shares issuable upon exercise of currently exercisable
options.
(11) Includes 1,293,205 shares issuable upon exercise of currently exercisable
options.
* Denotes ownership of less than 1% of shares outstanding
</FN>
ELECTION OF DIRECTORS
(Proposal Number One)
At the Annual Meeting, seven Directors will be elected to serve until the
next Annual Meeting of Shareholders and until their respective successors are
elected and qualified.
Unless instructed not to vote for the election of Directors or not to vote
for any specific nominee, the Proxy will vote FOR the election as Directors of
the seven nominees named below. If any nominee becomes unavailable for any
reason or if a vacancy should occur before the election, which events are not
anticipated, the Proxy may vote for such other person as he, in his discretion,
may determine.
THE BOARD OF DIRECTORS OF THE CORPORATION RECOMMENDS THAT THE NOMINEES LISTED
BELOW BE ELECTED.
Information Concerning Nominees. The following information concerning the
principal occupations of the nominees has been furnished by the nominees. Each
of the nominees has held their principal occupation for more than the past five
years, unless otherwise indicated.
Director Committee
Director Nominees Principal Occupation Age Since Positions
- -------------------------------------------------------------------------------------------------------------------
Donald C. Wegmiller President and CEO, HealthCare 63 1987 Executive
Chairman Compensation Strategies (formerly and Compensation
Management Compensation Group/
Health Care), Minneapolis, Minnesota.
Director, ALLETE (formerly Minnesota
Power), and LecTec Corporation.
Seymour J. Mansfield Officer and Shareholder, Mansfield, 56 1987 Executive
Tanick & Cohen, P.A., Attorneys, and Compensation
Minneapolis, Minnesota.
Whitney A. McFarlin Retired. Former Chairman, President 61 1998 Planning and Audit
and CEO, Angeion Corporation
William C. Mattison, Jr. Principal, Gerard, Klauer 54 1999 Planning
Mattison & Co., Inc., New York, and Audit
New York, since 1989; served as
President or Vice Chairman from
1989 to 1998.
Rodney A. Young Chairman, CEO and President, 46 1999 Compensation
LecTec Corporation, Minneapolis, and Planning
Minnesota. Director, Health Fitness
Corporation.
Robert G. Dutcher President and Chief Executive 56 1993 Executive
Officer of the Corporation.
Mary K. Brainerd Executive Vice President and Chief 48 2001 ---
Operating Officer since 2000;
Executive Vice President, Care Delivery,
since 1994, HealthPartners, Inc.,
Minneapolis, Minnesota.
Meetings. During fiscal year 2001, the Board of Directors had four regular
and three special meetings. Actions were also taken by written consent. All
director nominees attended at least 75% of all meetings of the Board and the
Committees of which they are members.
Committees. The Corporation has established four committees to address the
Corporation's business. The Executive Committee met one time during fiscal year
2001 and is responsible for exercising the authority of the Board during the
intervals between meetings of the Board and for formulating and recommending
general policies for Board consideration. The Audit Committee met five times
during fiscal year 2001 and assists the Board in fulfilling its responsibility
for the safeguarding of assets and oversight to the quality and integrity of the
accounting, auditing and reporting practices of the Corporation and such other
duties as directed by the Board. The Compensation Committee met five times
during fiscal 2001 and is responsible for defining and administering the
Corporation's executive compensation program. The Strategic Planning Committee
met twice during fiscal year 2001 and was established in December 1999 to work
with management in the development of its annual Strategic Plan and to advise
the Board on strategic issues.
Director Fees. Outside directors receive retainer fees as follows: Chairman
- - $12,000; Outside Directors - $4,000; Committee Chairs - $3,000; Executive
Committee Members - $6,000. Each outside Director also receives $500 for each
Board meeting attended, $200 for each teleconference Board meeting attended, and
$250 for each Committee Meeting attended. The Chairmen of the Compensation,
Audit and Strategic Planning Committees each also receive $500 per meeting.
Total fees of $87,300 were earned by outside Directors during fiscal 2001.
Pursuant to the Corporation's 1999 Stock Compensation Plan, each outside
Director may elect to receive Director fees in the form of discounted stock
options. Each Director must make an election on or before June 1 of each year
with regard to fees that would otherwise be payable for that calendar year. The
exercise price of the options is 50% of the fair market value on the date of
grant, which is January 2 of the year following the year for which the fees are
earned. Each option becomes exercisable in full six months following the date of
grant, is exercisable for 10 years following the date of grant, and is subject
to the general restrictions on exercise and transferability applicable to stock
options issued to employees. The number of shares subject to each option is
calculated by dividing the fees owed to the particular Director by the dollar
amount of the discount.
On January 2, 2001, all eligible outside Directors received discounted
stock options in lieu of cash payments of fees for calendar year 2000. These
options were granted pursuant to elections made in May 2000. A total of 40,289
options at an exercise price of $2.22 were granted to current Directors. Due to
the retirement of Mr. Belbas from the Board in December 2001, his calendar year
2001 fees will be paid in cash.
The Corporation's 1999 Stock Compensation Plan provides for the annual
grant of options to purchase 3,000 Common Shares to outside Directors. The
exercise price of these options must be at least 100% of the fair market value
at date of grant. The date of grant is the first business day of each calendar
year. The options vest ratably over a four-year period and expire ten years
after the date of grant. During fiscal 2001, 18,000 options were granted to
outside Directors under this Plan at an exercise price of $4.44.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth compensation paid for services rendered to
the Corporation during each of the three fiscal years ended July 31, 2001, 2000
and 1999, to the President and CEO of the Corporation and the Corporation's four
other highest paid executive officers who received salary and bonus in excess of
$100,000 during fiscal year 2001 ("Named Executive Officers"):
-------------------------------------------------------------------------------------------------------------
Name and Long-Term
Principal Position Year Annual Compensation Compensation
Awards
------------------------- ----- ----------------------- -------------------------- ---------------
Securities
Restricted Underlying All Other
Salary Bonus(1) Stock Award Options/ (2) Compensation(3)
($) ($) ($) SARs (#) ($)
------------------------------------------------------------------------------
Robert G. Dutcher, 2001 167,504 15,500 -- 145,661 (5) 12,294
President and 2000 179,472 64,300 -- 90,000 12,181
Chief Executive 1999 167,250 88,000 -- 90,000 12,964
Officer
Irving R. Colacci, 2001 115,431 6,200 -- 54,629 12,937
Vice President, 2000 112,037 29,700 -- 40,000 11,185
Legal Affairs & Human 1999 104,904 36,900 -- 30,000 11,159
Resources, General
Counsel and Secretary
James D. Gustafson, 2001 113,944 6,200 -- 54,384 10,986
Vice President, 2000 110,447 29,300 -- 30,000 9,584
Technology, Product 1999 102,482 36,700 -- 30,000 6,032
Development and Quality
Systems
Shawn F. McCarrey, 2001 105,385 (6) 4,200 23,900 (4) 43,523 11,774
Vice President, U.S. 2000 100,000 (7) 13,600 -- 15,000 10,895
Sales 1999 68,692 (8) 12,000 -- 25,000 4,112
T.V. Rao, 2001 138,125 6,000 -- 82,669 (5) 10,423
Vice President, 2000 147,907 44,900 -- 50,000 11,174
Sales and Marketing 1999 140,462 47,300 -- 45,000 8,534
-------------------------------------------------------------------------------------------------------------
<FN>
(1) Cash bonuses shown are awarded following end of fiscal year, based on
fiscal year performance. For fiscal year 2001, 85% of target cash bonuses were
paid in the form of stock options and the remainder was paid in cash based on
performance.
(2) Stock options shown for 2001 include: options granted on November 2,
2000 as part of the Special Equity Compensation Program described in the Report
of the Compensation Committee herein; options granted April 3, 2001 as part of
the Corporation's Incentive Compensation Program for fiscal year 2001; and
options granted to two officers on January 16, 2001, in lieu of a portion of
base salary. The 1999 and 2000 grants were awarded following the end of the
fiscal year based on performance and vest in seven years, subject to specified
conditions relating to the appreciation in the value of the Company's stock. The
2001 grants pursuant to the Corporation's Incentive Compensation Plan vest 50%
on April 3, 2002 and 50% on April 3, 2003.
(3) Includes Company matching contributions to its 401(k) Plan, car
allowance and life insurance payments.
(4) Mr. McCarrey was granted 5,000 shares of restricted stock: 2,500 shares
vest on April 16, 2002 and 2,500 shares vest on April 16, 2003. The dollar value
shown represents the fair market value of the stock on the April 16, 2001 date
of grant.
(5) Includes options granted in lieu of base salary compensation for the
second six months of fiscal year 2001 as follows: Mr. Dutcher - 18,489 shares in
lieu of $36,978 in salary; T.V. Rao - 15,254 shares in lieu of $30,508 in
salary.
(6) Reflects base salary only. Total compensation includes $80,706 in
commissions.
(7) Reflects base salary only. Total compensation includes $66,012 in
commissions.
(8) Reflects base salary only. Total compensation includes $43,580 in
commissions; employed commencing December 1999.
</FN>
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information concerning stock option grants to
Named Executive Officers during fiscal year 2001.
- -----------------------------------------------------------------------------------------------------------------------------
Individual Grants
- ---------------------------------------------------------------------------------------
Number of Percent of Total
Securities Options/SARs Potential Realizable Value at
Underlying Granted to Exercise or Assumed Annual Rates of Stock
Options/SARs Employees in Base Price Price Appreciation for Option
Name Granted (#) Fiscal Year (%) ($/Sh) Expiration Date Term(5)
- -----------------------------------------------------------------------------------------------------------------------------
5% ($) 10% ($)
- -----------------------------------------------------------------------------------------------------------------------------
Robert G. Dutcher 47,172(1) 4.0 5.8800 November 2, 2010 174,437 442,059
18,489(2) 1.5 5.5600 January 16, 2011 64,650 163,835
80,000(3) 6.7 3.9375 April 3, 2011 198,102 502,029
- -----------------------------------------------------------------------------------------------------------------------------
Irving R. Colacci 19,629(1) 1.6 5.8800 November 2, 2010 72,586 183,947
35,000(3) 2.9 3.9375 April 3, 2011 86,670 219,638
- -----------------------------------------------------------------------------------------------------------------------------
James D. Gustafson 19,384(1) 1.6 5.8800 November 2, 2010 71,680 181,651
35,000(3) 2.9 3.9375 April 3, 2011 86,670 219,638
- -----------------------------------------------------------------------------------------------------------------------------
Shawn F. McCarrey 10,023(4) .8 7.6900 September 6, 2010 48,473 122,841
8,500(1) .7 5.8800 November 2, 2010 31,432 79,655
25,000(3) 2.1 3.9375 April 3, 2011 61,907 156,884
- -----------------------------------------------------------------------------------------------------------------------------
T. V. Rao 32,415(1) 2.7 5.8800 November 2, 2010 119,867 303,768
15,254(2) 1.3 5.5600 January 16, 2011 53,338 135,169
35,000(3) 2.9 3.9375 April 3, 2011 86,670 219,638
- -----------------------------------------------------------------------------------------------------------------------------
All Shareholders N/A N/A N/A N/A 54,906,463(6) 139,143,756(6)
- -----------------------------------------------------------------------------------------------------------------------------
All Optionees 1,800,865 N/A 5.19(7) 10 years 5,877,957 14,895,897
- -----------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Vested in full on November 2, 2001.
(2) Vested in full on August 1, 2001.
(3) Vests in two equal annual installments on April 3, 2002 and 2003.
(4) Vested in full on September 6, 2001.
(5) The 5% and 10% assumed annual rates of compounded stock price
appreciation are mandated by rules of the Securities and Exchange Commission
(the "SEC") and do not represent the Company's estimate or projection of the
Company's future Common Stock prices. These amounts represent certain assumed
rates of appreciation only. Actual gains, if any, on stock option exercises are
dependent on the future performance of the Common Stock and overall stock market
conditions. The amounts reflected in this table may not necessarily be achieved.
(6) For All Shareholders, the potential gain is calculated using an
exercise price of $5.19, representing the weighted average exercise price for
all options awarded in FY2001, and the total amount of outstanding common stock
on July 31, 2001.
(7) Exercise price shown is a weighted average of all options awarded in
FY2001. Options expire on various dates through the year 2011
</FN>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR END
FISCAL YEAR-END OPTION VALUES
The following table provides information concerning stock option exercises
and the value of unexercised options at July 31, 2001, for the Named Executive
Officers. No options were exercised by Named Executive Officers during fiscal
year 2001.
-------------------------------------------------------------------------------------------------------
Number of Securities Underlying Value of Unexercised In-The-Money
Name Unexercised Options at Fiscal Year-End Options at Fiscal Year-End (1)
Exercisable/Unexercisable Exercisable/Unexercisable
(#) ($)
-------------------------------------------------------------------------------------------------------
Robert G. Dutcher 171,000/319,661 519,504/1,871,825
Irving R. Colacci 88,559/127,370 243,103/757,211
James D. Gustafson 85,050/120,534 217,532/715,371
Shawn F. McCarrey 8,750/74,773 32,269/453,712
T. V. Rao 46,500/176,169 173,272/1,048,685
-------------------------------------------------------------------------------------------------------
<FN>
(1) The dollar values shown are calculated by determining the difference
between the fair market value of the common stock underlying the options at
fiscal year-end and the exercise price of the options. The closing price of the
stock on July 31, 2001 was $12.17.
</FN>
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors (the "Committee")
consists of four independent, outside directors. The Committee provides
assistance to the Board of Directors in fulfilling their responsibility to
shareholders relating to compensation philosophy and practices for corporate
executive officers. The Committee meets as necessary to review executive
compensation policies, the design of compensation programs and individual
salaries and awards for executive officers. In carrying out their
responsibilities the Committee believes its policies and procedures should
remain flexible in order that it can best react to changing conditions and
environments, and to assure the directors and shareholders that executive
compensation and stock plan practices of the Corporation are in accordance with
all requirements and are of the highest quality.
The Corporation's compensation program is intended to attract and retain
high quality executive leadership and to motivate these executives to perform
consistent with shareholders' interests. Executive officer compensation is
directly linked to both individual and Company performance necessary to drive
increasing value to shareholders. The program is designed to provide a
competitive base salary while retaining flexibility through the structuring of
short- and long-term incentives that recognize progress toward achievement of
both individual and Corporate goals.
Compensation decisions for fiscal year 2001 reflect that 2001 was a
critical year in the development of the Corporation and its success in meeting
growth and profitability goals and preserving cash to fund future growth. Based
on the special challenges faced by the Corporation, including the retention of
sales personnel in the face of aggressive recruiting by other medical device
companies, the retention of key technical and management employees in the face
of a very competitive job market, and the need to reduce expenses and preserve
the Corporation's cash resources, the Committee instituted special programs to
address these challenges. These programs included the Special Equity
Compensation Program discussed in last year's Report, replacing of a percentage
of four executives' base salaries with stock options, including sales personnel
in the annual incentive stock option program and granting FY2001 incentive stock
options prior to the end of the fiscal year. Going forward, compensation
decisions will be based on the Committee's general compensation philosophies, as
described later in this Report, the need to retain flexibility and the
importance of continuing to enhance the alignment of management's interests with
those of the shareholders.
Fiscal Year 2001
The Corporation successfully met the special challenges it faced in FY2001.
The Committee assessed FY2001 corporate performance at 100% of Plan, compared to
53% the previous year, based on achievement of sales goals, significant
improvement in gross margins, particularly in the second half of the year
leading to profitability, the execution of a successful reduction-in-force that
allowed the Corporation to realize over $2 million in annualized expense
reduction while increasing productivity and maintaining strong ongoing product
development efforts, the successful imposition of financial discipline necessary
to complete the year with $9.5 million in cash and cash equivalents, which was
$4.5 million over Plan, achievement of significant product development
milestones, increased efficiencies in manufacturing processes and the retention
of key sales and technical personnel. This level of performance is reflected in
the vesting schedule applied to the Special Equity Compensation Program and in
year-end cash bonuses.
As we reported in last year's Compensation Committee Report, a special,
one-time equity-based compensation program was instituted for sales personnel
and for officers, managers and other key employees during fiscal year 2001. This
Special Equity Compensation program was designed to align employee interests
with those of the shareholders, to preserve cash by reducing the amount of cash
necessary to pay sales commissions and incentive compensation awards, to reward
successful performance and to provide the Corporation with an opportunity to
raise new capital on terms equal to or more favorable than it achieved in
financing efforts in 1999 and 2000. These goals have been achieved. An increased
number of employees now hold stock or options the value of which are directly
aligned with the Corporation's stock performance. The Corporation has preserved
approximately $657,000 in cash by paying commissions and bonuses in the form of
options instead of cash at a value of $2 per option share. If all options are
eventually exercised, the Corporation will receive proceeds of $2.1 million, or
a total benefit of $8.32 per share, terms comparable to or better than the
Corporation's two most recent financing efforts when calculated without normal
commissions and transaction costs associated with public and private financing
efforts.
The Special Equity Compensation Program provided Sales personnel an
opportunity to elect to receive nonqualified stock options in lieu of up to 50%
of target cash commissions earned throughout fiscal year 2001 at a rate of one
option share for each two dollars of potential cash commission. The options
granted to sales personnel have an exercise price of $7.69 per share, equal to
the fair market value of the common stock on the date the program was
implemented for sales personnel. All options granted to sales personnel under
this program vested on September 6, 2001, based on successful achievement of
individual sales objectives. These options are non-qualified options and can
only be exercised by cash payment to the Corporation. On September 6, 2001,
after deducting the number of cancelled options due to termination of employment
of a number of original grantees, a total of 80,234 nonqualified options, in
lieu of $160,468 in cash sales commissions, vested in sales personnel under the
Special Equity Compensation Program.
Selected management and key employee personnel were granted 85% of their
target annual incentive cash compensation in the form of nonqualified stock
options based on fiscal year 2001 performance at the same rate of one option
share for each two dollars of target annual incentive cash compensation. The
options granted to selected management and key personnel were awarded in
November 2000 at an exercise price of $5.88. Assessments of fiscal year 2001
performance resulted in vesting of all grants on November 2, 2001, for all
recipients employed by the Corporation on that date. As with the options granted
to sales personnel, these options are non-qualified options and can only be
exercised by cash payment to the Corporation. Management and key employees,
after deducting the number of cancelled options due to termination of
employment, received 248,162 nonqualified options in lieu of $496,324 in cash
incentive compensation.
As an additional initiative to preserve the Corporation's cash resources
and to provide an incentive for performance, four executives received 20% of
their base salaries for the second half of fiscal year 2001 in the form of stock
options in an amount equal to one share of stock for every two dollars of
foregone salary. A total of 56,228 stock options, all of which vested on August
1, 2001, were granted under this program at an option price of $5.56 per share.
A total of $112,456 in base salary was, therefore, paid in the form of stock
options. The Corporation will also receive $312,628 in cash if these stock
options are exercised.
The Corporation's practice of granting stock options as long-term incentive
compensation for officers and key employees was expanded during FY2001 in order
to enhance their value as a retention tool at a critical juncture in the
operations of the Corporation. Pursuant to its 1999 Incentive Compensation Plan,
the Committee granted stock options in April 2001 to 41 officers, managers and
other key employees and to an additional 21 sales personnel. A total of 733,800
shares were awarded at an option exercise price of $3.94, the fair market value
of Possis Stock on the day of grant, representing approximately 4% of the
Corporation's total shares outstanding. Of the total grant, approximately 40%
were granted to officers. The grant was made prior to the end of the fiscal year
and the size of the total grant was roughly double the amount normally awarded
as long-term incentive compensation due to the extraordinary circumstances faced
by the Corporation in fiscal year 2001, including the need to retain key
management, technical and sales personnel, and the desire to provide additional
incentive for performance toward success in meeting corporate goals.
Compensation Program for 2002
Program Elements
The development of appropriate criteria to guide compensation decisions
going forward will be increasingly influenced by two factors: the fact that the
Company has entered a new stage in its development and is establishing a
foundation for long-term growth and profitability; and by the need to continue
to enhance the alignment of management's interests with those of the
shareholders. As the Corporation increases its market penetration through the
sale and placement of AngioJet(R) System products and enhances performance
through the realization of operational efficiencies, its performance will be
evaluated on its ability to increase profitability while maintaining strong new
product development efforts. Corporate and individual performance measures will
continue to reflect an emphasis on financial goals, sales growth, profitability
targets, and product development, research and regulatory approvals necessary to
support sustained growth.
Compensation of executive management and key managerial and technical
personnel is based on three types of compensation: a) base salaries; b)
short-term incentives; and c) long-term equity-based compensation.
(a) Base Salaries
Executive officers generally participate in the same benefit plans as other
employees and executive perquisites are minimal. The Compensation Committee
reviews base salaries annually and adjustments are made as the Committee deems
appropriate. Generally, annual base salary adjustments will be minor except when
the Corporation achieves certain size-related milestones (i.e., from $50 million
to $200 million in sales). Base salaries are paid in cash consistent with the
Corporation's normal payroll practices. Adjustments are typically made effective
the first day of the fiscal year.
In awarding increases in officer base salaries effective August 1, 2001,
the Committee considered survey information, recommendations by outside
compensation consultants, changes in job responsibilities of individual officers
and a comprehensive assessment of total compensation of the executive group.
Based on its decision to move toward tying a greater percentage of total
compensation to short-term incentive bonus compensation over the next three
years (in the form of cash payments or a combination of cash and equity), the
Committee granted an average increase of 11.5% to the executive officers as a
group. The individual increases ranged from 2.5% to 19%. The Vice President of
U.S. Sales was appointed to that position in April 2001 with a compensation
program that included both base salary and commission and no adjustment was made
to his compensation for fiscal year 2002.
(b) Short-term Incentives
The Corporation will continue to provide executives and other key employees
with an opportunity to earn short-term incentive awards. This discretionary
bonus will be paid annually in cash and/or equity after completion of the fiscal
year and completion of an assessment of individual and corporate performance.
The magnitude of the potential incentive award to each officer is set at the
beginning of the year with payment, if any, occurring at the end of the year.
The Committee has begun a three year phase-in of a plan to increase the relative
value of the performance-based bonus in relation to base salary. Under the
phase-in plan, officers, other than the CEO and sales management, will be
compensated such that 40% of total compensation (excluding long-term
compensation) will be paid as short-term incentive bonus, assuming 100%
achievement of both corporate and individual objectives. The CEO will move
toward a 45% ratio and sales management to a 50% ratio.
(c) Long-term Equity-based Compensation
The major component of the Corporation's long-term equity-based
compensation program consists of stock options awarded annually at the
discretion of the Board under the Corporation's Stock Compensation Plan. Stock
options are intended by the Committee to maximize individual performance and
strengthen the alignment of management interests with that of the shareholders.
It is the current intent of the Committee that the maximum number of stock
options granted to employees each year going forward, exclusive of options to
new employees and extraordinary grants compelled by special circumstances, shall
not exceed 2% of the Corporation's fully diluted shares outstanding. In order to
build long-term net worth for executives tied directly to increasing shareholder
value, grants to executive officers should approximate 40-50% of the total
number of stock options granted. Officers with a greater degree of influence
over the Corporation's ability to achieve its strategic goals will receive
greater long-term incentive awards. Stock options have historically been granted
annually to officers and other key employees based on progress toward
achievement of short- and long-term strategic objectives, technical and
regulatory milestones, and corporate financial performance goals. Until 1999,
exercisability was conditioned on passage of time, with no specific performance
requirements. Stock options awarded for fiscal year 1999 and 2000 to officers
included special vesting provisions tied to appreciation in stock value.
The Corporation established a restricted stock program in June 1993 as a
vehicle to retain officers and other key personnel. No new restricted stock
grants have been made to the original participants in this program since 1997.
Five thousand shares of restricted stock were granted to one new officer during
fiscal year 2001. All existing grants vested on September 24, 2000. The 2001
grant vests in two annual 50% installments in April of 2002 and 2003. Future
grants, if any, will depend on an assessment of how this type of equity
compensation supports the overall compensation program.
CEO Compensation
Robert G. Dutcher, as President and CEO of the Corporation, participates in
the general compensation program of the Company, as described above, along with
all other key employees. Mr. Dutcher's base salary is set at a level determined
by the Committee to be competitive with other similarly-situated companies based
on salary surveys and other comparative data, and reflects the scope of his
responsibilities and individual performance as an officer of the Corporation.
Effective August 1, 2001, Mr. Dutcher's base salary was increased 17%. Mr.
Dutcher participated in the Special Equity Compensation Program and received
47,172 stock options that will vest on November 2, 2001. He also received a cash
bonus of $15,500 for FY2001 performance and a grant of 80,000 stock options in
April 2001 to reward fiscal year 2001 performance. Fifty percent of the options
granted to Mr. Dutcher in April 2001 vest on April 3, 2002 and 50 percent vest
on April 3, 2003. All cash and equity awards reflect the Committee's judgment as
to Mr. Dutcher's individual performance, the overall performance of the
Corporation as measured against Corporate objectives and the Committee's
commitment to aligning the interests of the CEO with those of shareholders. The
terms and conditions of the option awards are identical to those contained in
grants to other officers. No new grants of restricted stock were awarded to the
CEO in 2001.
Mr. Dutcher also received 20% of his base salary for the second half of
fiscal year 2001 in the form of stock options in an amount equal to one share of
stock for every two dollars of salary foregone. Mr. Dutcher received 18,489
stock options, all of which vested on August 1, 2001, at an option price of
$5.56, in lieu of $36,978 in salary.
The Committee has adopted a plan for CEO compensation as part of its
compensation philosophy and plan for all executives, as described above. CEO
compensation will continue to be based on corporate and individual performance
measured against established guidelines and objectives. Current guidelines and
objectives are contained in the Corporation's Strategic Plan, as approved by the
Board.
Compensation Committee of the Board of Directors
Dean Belbas, Chairman
Donald C. Wegmiller
Seymour J. Mansfield
Rodney A. Young
Performance Graph
Set forth below is a graph showing the five-year cumulative returns through
July 31, 2001 of Possis Medical, Inc. Common Stock as compared with the Nasdaq
Stock Market Index (U.S. companies only) and a peer group index comprised of
seven companies in the medical device industry with operations similar in size
to Possis Medical, Inc. (the "Peer Group"). The graph assumes an investment of
$100.00 in the Company's Common Stock in each of the indexes on July 31, 1996,
and the reinvestment of all dividends.
Possis Medical, Inc. is included in the Nasdaq Stock Market Index (U.S.
companies only) and is similar in size and stage of commercialization as the
other companies in the Peer Group. The Nasdaq Stock Market Index does not have
an index specifically for medical devices. The Company believes that the
following entities comprising the Peer Group are representative of the Company's
current medical device operations: Angeion Corporation; Arrow International,
Inc.; Cardima, Inc.; Micro Therapeutics, Inc.; Novoste Corporation; PLC Systems,
Inc.; and Rochester Medical Corporation.
[OBJECT OMITTED]
1996 1997 1998 1999 2000 2001
----------------------- ------- ------- ------- ------- ------- -------
Possis Medical, Inc 100.00 94.26 60.66 70.90 42.42 79.80
----------------------- ------- ------- ------- ------- ------- -------
[X| Nasdaq US Index 100.00 147.54 173.63 248.14 353.37 189.71
----------------------- ------- ------- ------- ------- ------- -------
Peer Group Index 100.00 115.29 99.58 90.49 130.44 93.39
----------------------- ------- ------- ------- ------- ------- -------
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Seymour J. Mansfield, a Director of the Corporation, is a shareholder
in a law firm that performs legal services for the Corporation from time to
time. The amount of fees paid by the Corporation during fiscal 2001 to Mr.
Mansfield's law firm does not exceed five percent of that firm's gross revenues
for its last full fiscal year
SECTION 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
that Executive Officers and Directors of the Corporation and persons who own
more than 10% of a registered class of the Corporation's equity securities file
initial reports of ownership and reports of changes in ownership with the
Securities and Exchange Commission (the "SEC"). Such persons are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file.
Based solely on its review of the copies of such forms received by it with
respect to fiscal 2001 and written representations from certain reporting
persons, the Corporation believes that all filing requirements applicable to its
Executive Officers and Directors have been complied with, except that the Form 3
Initial Statement of Beneficial Ownership of Securities, due for filing within
ten (10) days of the date of the promotion of Shawn F. McCarrey, Vice President
of U.S. Sales, was not filed within the required time frame. This Form 3 was
subsequently filed. The Corporation is aware of no person who owns more than 10%
of the Corporation's Common Shares.
APPROVAL OF AMENDMENT TO THE CORPORATION'S
1991 EMPLOYE STOCK PURCHASE PLAN
(Proposal Number Two)
On October 23, 2001, the Corporation's Board of Directors adopted, subject
to shareholder approval, an amendment to the Possis Medical, Inc. 1991 Employee
Stock Purchase Plan (the "Plan") to increase the number of Common Shares
available for issuance under the Plan from 300,000 to 600,000. This increase of
300,000 shares represents approximately 1.8% of the Corporation's outstanding
Common Shares as of the record date for this Proxy Statement. As of July 31,
2001, 84,366 shares remained available for issuance under the Plan. It is
expected that approximately 14,000 shares will be available following issuance
of shares on December 31, 2001.
The purpose of the Plan is to encourage equity ownership in the Corporation
by all employees by providing employees an opportunity to purchase the
Corporation's Common Shares at an attractive price. Accordingly, under the Plan,
eligible employees may purchase Common Shares at a discount from the prevailing
stock market price through a payroll deduction system. The Board of Directors
believes it is in the best interests of the Corporation and its shareholders to
increase the number of authorized shares in the Plan in order to continue to
align the interests of the Corporation's employees with those of the
Corporation's shareholders.
Summary of the Plan
Eligibility. The Plan is open to all full-time and part-time employees who
work 20 hours or more per week and who are employed by the Corporation as of
January 1 each Plan Year. However, employees who work for the Corporation less
than five months out of each calendar year or who already own stock possessing
5% or more of the total combined voting power of the Corporation (or any parent
or subsidiary), including stock that the employee is entitled to purchase
pursuant to any outstanding options, are not be eligible to participate in the
Plan. As of September 30, 2001, the Corporation employed 194 employees who are
potential participants in the Plan as of the beginning of the next Plan Year.
Stock Purchase Rights. The Plan provides for the grant of rights to
purchase Common Shares of the Corporation at a discount from the prevailing
market price through a payroll deduction system. The purchase price for the
Common Shares purchased through the Plan will be 85% of the lower of (a) the
closing price of the Common Shares as reported on the NASDAQ National Market
System on the first business day of the purchase period and (b) the closing
price of the Common Shares as reported on the NASDAQ National Market System on
the last business day of the purchase period. The closing price of a Common
Share as reported on the Nasdaq National Market on October 25, 2001 was $12.62.
Each purchase period shall begin on January 1 and end on the next following
December 31.
The maximum number of shares an employee may purchase during any purchase
period is 200 shares per $10,000 of Annual Compensation (as defined in the
Plan). The minimum purchase is 25 shares. The minimum payroll deduction is
$10.00 per pay period. The fair market value (determined as of the date of
grant) of the Common Shares purchased by an employee under the Plan and all
other stock purchase plans, if any, of the Corporation in any calendar year may
not exceed $25,000.
Authorized Shares. Currently, 300,000 Common Shares are available for
issuance under the Plan. If the proposal to amend the Plan is approved by the
shareholders, an additional 300,000 Common Shares will be available for
issuance, for a total of 600,000 shares. Common Shares issued under the Plan may
consist of, in whole or in part, authorized and unissued shares. If any shares
subject to a stock purchase right are not issued to a Plan participant because
the stock purchase right is not exercised, the shares will be available for
distribution in connection with future stock purchase rights granted under the
Plan.
Adjustment. In the case of a stock split, stock dividend, consolidation,
recapitalization, merger, reorganization, or other change in the Corporation's
structure affecting the Common Shares, appropriate adjustments will be made by
the Board, in its sole discretion, in the number of Common Shares reserved under
the Plan and in the number of shares covered by stock purchase rights then
outstanding under the Plan and, where applicable, the purchase price for such
shares.
Administration. The Plan is administered by a committee of no fewer than
three individuals appointed by the Board. The committee is authorized to:
o determine the number of Common Shares covered by each stock purchase
right granted under the Plan;
o determine the terms and conditions of each stock purchase right;
o interpret and administer the Plan and any instrument or agreement entered
into under the Plan;
o establish rules and regulations for the administration of the Plan and
appoint agents to administer the Plan, as it deems
appropriate; and
o make any other determination and take any other action that the committee
deems necessary or desirable in administering the Plan.
Amendment and Termination. The Plan may be amended or terminated by the
Board of Directors at any time, except that, without the consent of the
participant, the Board may not make any amendments that would impair the vested
rights of a participant under any stock purchase right previously granted.
Additionally, without obtaining the approval of the Corporation's shareholders,
the Board may not:
o increase the number of shares available for issuance under the Plan;
o extend the right to exercise a stock purchase right to a date more than
five years from the date of grant;
o change the class of employees eligible to receive awards under the Plan;
o increase the maximum number of shares that may be purchased by an
employee; or
o decrease the purchase price below the amount provided in the Plan.
Federal Income Tax Matters. The following is a brief summary of the federal
income tax aspects of the stock purchase rights that may be granted under the
Plan based upon federal income tax laws in effect on the date of this Proxy
Statement. This summary is not intended to be exhaustive and does not describe
state or local tax consequences.
The Common Shares purchased pursuant to the stock purchase rights are
intended to be eligible for the favorable tax treatment provided by Section 423
of the Internal Revenue Code of 1986. A participant will realize no income upon
the grant of the stock purchase rights and no income upon the purchase of Common
Shares pursuant to stock purchase rights. The Corporation will not be entitled
to any deduction at the time of grant or purchase.
In order to receive the favorable treatment under Section 423, the
participant:
o must not dispose of the shares purchased within two years after grant of
the stock purchase right and within one year after purchase; and
o must be an employee of the Corporation at all times during the period
beginning with the date he or she becomes a participant and ending three months
before acquiring the shares.
Upon disposition of shares acquired after satisfying the prescribed holding
period, the participant:
o will recognize ordinary income on the lesser of (a) the participant's
gain on the sale or (b) the purchase price discount under the Plan, computed as
if the right to purchase was exercised on the first business day of the Purchase
Period; and
o 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.
The Corporation will receive no deduction upon the disposition of the
shares. However, consequences for both the Corporation and the participant would
differ if the participant did not satisfy the prescribed holding period.
Board Recommendation and Vote Required
THE BOARD OF DIRECTORS OF THE CORPORATION RECOMMENDS A VOTE FOR APPROVAL OF
THE AMENDMENT TO THE EMPLOYEE STOCK PURCHASE PLAN. Approval of Proposal Two
requires the affirmative vote of the holders of a majority of the Common Shares
present in person or represented by proxy and entitled to vote at the annual
meeting. Proxies will be voted in favor of Proposal Two unless otherwise
specified.
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
Notwithstanding anything to the contrary set forth in any of the Company's
previous or future filings under the Securities Act or the Exchange Act that
might incorporate this Proxy Statement or future filings with the SEC, in whole
or in part, the following report shall not be deemed to be incorporated by
reference into any such filing.
All of the members of the Audit Committee are independent for purposes of
the Nasdaq listing requirements. The Audit Committee operates under a written
charter adopted by the Board of Directors, a copy of which is attached to this
Proxy Statement as Appendix A.
The Audit Committee has reviewed and discussed the audited financial
statements of the Company for the fiscal year ended July 31, 2001 with the
Company's management. The Audit Committee has discussed with Deloitte & Touche
LLP, the Company's independent public accountants, the matters required to be
discussed by Statement on Auditing Standards No.61 (Communication with Audit
Committees).
The Audit Committee has also received the written disclosures and the
letter from Deloitte & Touche LLP required by Independence Standards Board
Standard No. 1 (Independence Discussions with Audit Committees) and the Audit
Committee has discussed the independence of Deloitte & Touche LLP with that
firm.
Based on the Audit Committee's review and discussions noted above, the
Audit Committee recommended to the Board of Directors that the Company's audited
financial statements be included in the Company's Annual Report on Form 10-K for
the fiscal year ended July 31, 2001 for filing with the SEC.
Audit Fees
Audit fees billed by Deloitte & Touche LLP for services rendered in
auditing the Company's financial statements for fiscal 2001 and reviewing the
financial statements included in the Company's quarterly reports on Form 10-Q
for fiscal 2001 totaled $63,000. Financial Information Systems Design and
Implementation Fees Deloitte & Touche LLP did not bill the Company for any
financial information systems design and implementation services during fiscal
2001.
All Other Fees
Fees billed by Deloitte & Touche LLP for all other non-audit services,
including tax-related services, provided during fiscal 2001 totaled $48,000.
Audit Committee of the Board of Directors
Whitney A. McFarlin, Chair
Dean Belbas
William C. Mattison, Jr.
APPOINTMENT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
(Proposal Number Three)
Deloitte & Touche LLP, independent certified public accountants, have been
auditors of the accounts of the Corporation since July 31, 1960. They have been
appointed by the Board of Directors of the Corporation for the purpose of
auditing the Corporation's accounts in the current fiscal year. Shareholder
approval of such appointment is requested. The Board of Directors considers such
accountants to be well qualified.
Representatives of the firm of Deloitte & Touche LLP will be in attendance
at the Annual Meeting of Shareholders and will have the opportunity to make a
statement if they desire to do so. In addition, they will be available to
respond to appropriate questions.
In the event that the appointment of Deloitte & Touche LLP should not be
approved by shareholders, the Board of Directors will make another appointment
to be effective at the earliest feasible time either this fiscal year or the
next.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPOINTMENT OF
DELOITTE & TOUCHE LLP. The enclosed Proxy will be so voted unless a contrary
specification is made.
SHAREHOLDER PROPOSALS
In order to be eligible for inclusion in the Corporation's proxy
solicitation materials for its next annual meeting of shareholders, any
shareholder proposal to be considered at such meeting must be received at the
Corporation's principal executive offices, 9055 Evergreen Boulevard N.W.,
Minneapolis, Minnesota 55433-8003, no later than July 8, 2002. Pursuant to the
Corporation's Bylaws, in order for business to be properly brought before the
next annual meeting by a shareholder, the shareholder must give written notice
of such shareholder's intent to bring a matter before the annual meeting no
later than July 8, 2002. Each notice should be sent to the Secretary at the
Corporation's executive offices, and must set forth certain information with
respect to the shareholder who intends to bring such matter before the meeting
and the business desired to be conducted, as set forth in greater detail in the
Corporation's Bylaws. Any such proposal will be subject to the requirements of
the proxy rules adopted under the Securities Exchange Act of 1934.
Management may use discretionary authority to vote against any shareholder
proposal presented at the 2002 annual meeting if: 1) such proposal has been
properly omitted from the Corporation's proxy materials under federal securities
law; 2) notice of such proposal was not submitted to the Secretary of the
Corporation at the address listed above by July 8, 2002; or 3) the proponent has
not solicited proxies in compliance with federal securities laws from the
holders of at least the percentage of the Corporation's voting shares required
to carry the proposal.
MISCELLANEOUS
The Board of Directors is aware of no matter, other than as described in
the Notice, that will be presented for action at the Meeting. If, however, other
matters do properly come before the Meeting, it is the intention of the person
named in the Proxy to vote the proxied shares in accordance with his best
judgment on such matters.
OTHER MATTERS
A copy of the Corporation's Annual Report on Form 10-K may be obtained
without charge by any beneficial owner of the Corporation's Common Shares on the
record date upon written request addressed to Eapen Chacko, Vice President,
Finance and Chief Financial Officer, Possis Medical, Inc., 9055 Evergreen
Boulevard N.W., Minneapolis, Minnesota 55433-8003.
By Order of the Board of Directors
IRVING R. COLACCI,
Secretary
Dated: November 5, 2001
Possis Medical Inc.
9055 Evergreen Boulevard NW - Minneapolis, MN 55433-8003 USA
Phone: (763) 780-4555 Toll Free 1-800-810-7677 Fax: (763) 780-2227
Appendix A to Proxy Statement
AUDIT COMMITTEE CHARTER
Role and Independence
The audit committee of the Board of Directors assists the Board in
fulfilling its responsibility for the safeguarding of assets and oversight to
the quality and integrity of the accounting, auditing and reporting practices of
the Corporation and such other duties as directed by the Board. The membership
of the committee shall consist of at least three directors who are generally
knowledgeable in financial and auditing matters, including at least one member
with accounting or related financial management expertise. Each member shall be
free of any relationship that, in the opinion of the Board, would interfere with
their individual exercise of independent judgment. The committee is expected to
maintain free and open communication (including private executive sessions at
least annually) with the independent accountants, the internal auditors, and
management of the Corporation. In discharging this oversight role, the committee
is empowered to investigate any matter brought to its attention, with full power
to retain outside counsel or other experts for this purpose. This Charter shall
be reviewed and updated annually.
Responsibilities
The audit committee's primary responsibilities include:
o Primary input into the recommendation to the Board for the selection and
retention of the independent accountant who audits the financial statements of
the Corporation. In so doing, the committee will discuss and consider the
auditor's written affirmation that the auditor is, in fact, independent, will
discuss the nature and rigor of the audit process, receive and review all
reports and will provide to the independent accountant full access to the
committee (and the Board) to report on any and all matters appropriate.
o Provision of guidance and oversight to the internal audit function of the
Corporation including review of the organization, plans and results of such
activity.
o Review of financial statements (including quarterly reports) with
management and the independent auditor. It is anticipated that these discussions
will include quality of earnings, discussions of significant items subject to
estimate, consideration of the suitability of accounting principles, review of
highly judgmental areas, audit adjustments whether or not recorded and such
other inquiries as may be appropriate.
o Discussion with management and the auditors of the quality and adequacy
of the Company's internal controls.
o Discussion with management of the status of pending litigation, taxation
matters and other areas of oversight to the legal and compliance area as may be
appropriate.
o Reporting on audit committee activities to the full Board and issuance
annually of a summary report (including appropriate oversight conclusions)
suitable for submission to the shareholders.