UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JULY 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For transition period from ____________ to___________
Commission file number 001-12567
POSSIS MEDICAL, INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-0783184
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9055 Evergreen Blvd, NW, Minneapolis, Minnesota 55433-8003
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 612-780-4555
SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT:
Common Stock, 40 Cents Par Value
Preferred Shares Purchase Rights
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( )
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of October 22, 1999 was approximately $135,030,636.
The number of shares outstanding of the registrant's common stock as of
October 22, 1999: 15,003,404.
Certain responses in Part III are incorporated herein by reference to
information contained in the Company's definitive Proxy Statement for its 1999
annual meeting to be filed on or before November 3, 1999 ("The Proxy
Statement").
POSSIS MEDICAL, INC.
Forward-Looking Statements
This report on Form 10-K, including the description of the Company's
business, its Year 2000 readiness, and Management's Discussion and Analysis of
Financial Condition and Results of Operations, contains certain "forward-looking
statements" as defined in the Private Securities Litigation Reform Act of 1995.
Such statements relating to future events and financial performance, including
the submission of applications to the Food and Drug Administration ("FDA"),
revenue and expense levels, profitability, and future capital requirements, are
forward-looking statements that involve risks and uncertainties, including the
Company's ability to meet its timetable for FDA submissions, the review time and
process at the FDA, results of clinical trials, changes in the Company's
marketing strategies, the Company's ability to establish product distribution
channels, changes in manufacturing methods, market acceptance of the AngioJet(R)
System, changes in the level of capital expenditures by hospitals, the levels of
sales of the Company's products that can be achieved, ability to raise
additional capital and other risks set forth in the cautionary statements
included in Exhibit 99 to the Company's report on Form 10-Q dated April 30,
1999, filed with the Securities and Exchange Commission.
PART I
Item 1. Business:
General
Possis Medical, Inc. (the Company) was incorporated in 1956 and went public
in 1960 as Possis Machine Corporation. Initial operations consisted of design,
manufacturing, and sales of industrial equipment and a division that provided
temporary technical personnel. The Company's involvement with medical products
began in 1976, when it sold its rights to a patented bileaflet mechanical heart
valve, which it had obtained from Zinon C. Possis, the founder of the Company,
to St. Jude Medical, Inc. for royalty payments based on St. Jude's valve sales.
In 1982 a subsidiary was established to focus initially on the development of a
synthetic blood vessel used to bypass blocked coronary arteries. In the late
1980's the Company decided to leverage existing management expertise and entered
the pacemaker lead business. The strategic role of the pacemaker lead business
was to provide cash flow to fund the development of synthetic grafts and
thrombectomy systems and to give the Company access to and name recognition
within the medical device industry. In 1990 the Company made the decision to
focus on medical products and subsequently divested all non-medical operations,
beginning with its Technical Services division in September 1991 followed by its
industrial equipment subsidiary and related land and buildings in January 1994.
See Note 2 of Notes to Consolidated Financial Statements contained in Part II,
Item 8 of this Form 10-K. These sales enabled Possis to focus its human and
financial resources exclusively on its other products, which are currently in
clinical trials and in early stages of commercialization.
Products
ANGIOJET(R)RHEOLYTIC(TM)HROMBECTOMY SYSTEM. The development of blood clots
in various sites within the vascular system is common and is one of the leading
causes of morbidity and death. Blood clots may be caused by multiple factors,
including cardiovascular disease, trauma, impediment of normal flow during
interventional procedures or prolonged bed rest. If a blood clot becomes large
enough, it can block an artery, preventing oxygenated blood from reaching the
organ or tissue supplied by the artery. In addition, if a blood clot breaks off
it can travel through the bloodstream and block oxygenated blood flow to other
organs and tissue. Conditions caused by blood clots include peripheral ischemia,
which can lead to limb loss, vascular access failure, pulmonary embolism, acute
myocardial infarction (heart attack), stroke and deep vein obstruction.
Currently, the two primary methods of removing intravascular blood clots
are thrombolytic drugs and mechanical devices. Thrombolytic drug treatment
involves the administration of a drug designed to dissolve the blood clot in an
intensive or critical care setting. Thrombolytic drugs may require prolonged
infusion to be effective, may require significant time to take effect, which is
costly in an intensive or critical care setting, and then may only partially
remove the clot. In addition, thrombolytic drugs may cause uncontrolled,
life-threatening bleeding. Mechanical devices such as the Fogarty-type catheter
operate by inflating a balloon past the point of the blood clot and then
dragging the blood clot out of the patient's body through the artery.
Fogarty-type catheters require surgical intervention, which may result in
overnight hospital stays, are more limited in their applications and may cause
significant vascular trauma.
The Company believes that its AngioJet System represents a novel approach
to the removal of blood clots from arteries, veins and grafts and offers certain
advantages over current methods of treatment. The AngioJet System is a
non-surgical, minimally invasive catheter system designed for rapidly removing
blood clots with minimal vascular trauma. The AngioJet System consists of three
major components: a reusable drive unit to power the pump and monitor patient
safety, a disposable single-use pump set that delivers pressurized saline to the
catheter, and a family of disposable, single-use catheters. In early stages of
commercialization and in U.S. clinical trials, the AngioJet System has
demonstrated the ability to safely and effectively remove blood clots within
seconds to minutes without surgical intervention and without the risk of
uncontrolled bleeding.
To operate the AngioJet System, a physician first threads a catheter down a
patient's blood vessel to the site of the blood clot. The AngioJet System's
drive unit is then activated, causing a disposable pump to pressurize sterile
saline to 10,000 pounds per square inch (psi) and send it down the catheter.
Saline jets spray backwards down the catheter at half the speed of sound. The
result is a jet-action that creates a localized low-pressure zone around the
catheter's tip. The difference between the low pressure at the tip and the
normal blood pressure in the vessel draws the blood clot into the catheter
through an opening at the tip. The jets then blast the clot material into
microscopic fragments which are immediately propelled down the catheter, out of
the patient's body and into a disposable collection bag located on the drive
unit.
Because the Possis AngioJet System is unique, market potential, though
difficult to quantify, may be estimated by determining the number of
thrombectomy and thrombolysis procedures performed using other therapies and
devices and estimating the number of procedures that might reasonably be
replaced or supplemented by using the AngioJet System.
The Company's marketing analysis indicates that the versatile AngioJet
System may be effective for the treatment of various blood clot-induced
conditions throughout the body. The following table shows the locations and
conditions where the AngioJet System may be used. In addition, the table
indicates the annual incidences worldwide and the Company's estimated AngioJet
System annual market potential.
AngioJet
Estimated System
Annual Annual
Worldwide Market
Incidence Potential
Location Condition (Patients) (Procedures)
Cerebral Stroke 1,100,000 500,000
Venous Cerebral Sinus Stroke 4,500 2,000
Cervical Carotid Stroke 6,600 1,000
Lungs Pulmonary Embolism 1,000,000 200,000
Coronary Heart Attacks and 5,300,000 550,000
Unstable Angina
A-V Access Hemodialysis Graft Thrombosis 400,000 190,000
Legs Leg Artery and 1,300,000 220,000
Graft Thrombosis
Venous Deep Vein Thrombosis 2,500,000 900,000
Total 11,611,100 2,563,000
Clinical results from our VeGAS 2 coronary trial, which compared the
AngioJet System with the drug Urokinase, clearly demonstrate the cost savings
associated with the AngioJet System - on average nearly $5,000 per patient. The
AngioJet System's speed and lower complication rate, result in less time spent
in an intensive care unit, a shorter hospital stay and lower overall treatment
costs.
In March 1999 and December 1996 the Company received FDA clearances to
commence U.S. marketing of the AngioJet System, with labeling claims for removal
of blood clots in native coronary arteries and coronary bypass grafts and access
grafts used by patients on kidney dialysis. In July 1997, the Company submitted
a 510(k) application to the FDA seeking clearance for the AngioJet System to be
used in leg arteries and bypass grafts. The Company is currently responding to
issues with the FDA and expects approval for peripheral AngioJet System use in
the first half of calendar 2000. In addition, the Company submitted an
Investigational Device Exemption (IDE) application with the FDA in September
1999 for the treatment of cerebrovascular stroke using the AngioJet System. The
first patient is expected to be enrolled in the cerebrovascular stroke clinical
trial by calendar year end. The Company is currently enrolling patients in a
clinical trial of the AngioJet System for use in the treatment of stroke caused
by the blockage of the carotid arteries, the main vessels supplying blood to the
brain.
PERMA-FLOW(R) CORONARY BYPASS GRAFT. Coronary artery bypass graft ("CABG")
surgery is performed to treat impairment of blood flow to portions of the heart.
CABG surgery involves the grafting of one or more vessels to the heart to
re-route blood around blocked coronary arteries.
Autogenous grafts (using the patient's own saphenous vein or mammary
artery) have been successfully used in CABG procedures for a number of years and
have shown a relatively high patency rate (75% to 85% for saphenous veins and
over 90% for mammary arteries one year after surgery) with negligible risk of
tissue rejection. However, the surgical harvesting of vessels for autogenous
grafts involves significant patient trauma and expense. In addition, not all
patients requiring CABG surgery have sufficient native vessels as a result of
previous bypass surgeries, or their vessels may be of inferior quality due to
trauma or disease. Cryopreserved saphenous veins are available, but these veins
have shown low patency rates and often deteriorate due to the body's immune
system attacking the graft.
The Possis Perma-Flow Graft is a synthetic graft 5mm in diameter for use in
CABG surgery. The Perma-Flow Graft is intended initially to provide a graft
alternative to patients who require bypass surgery but have insufficient or
inadequate native vessels as a result of repeat procedures, trauma, disease or
other factors. The Company believes, however, that the Perma-Flow Graft may
ultimately be used as a substitute for native saphenous veins, thus avoiding the
trauma and expense associated with the surgical harvesting of veins.
The Perma-Flow Graft is made of ePTFE, a standard graft material, and
contains a molded silicone venturi-shaped flow-resistance element approximately
2mm in diameter. The Perma-Flow Graft is designed to be implanted by initially
suturing it to the vena cava, followed by side-to-side anastomoses (connections)
of the graft to the coronary arteries beyond the blockages and then suturing the
graft to the aorta. The formation of this artery-to-vein shunt is designed to
create a continuous blood flow at a sufficiently high rate through the graft to
reduce the incidence of blood clot formation, the major reason for synthetic
graft failure in the past. The flow resistance element is designed to prevent
excessive shunting of blood to the vena cava and to maintain high arterial
pressure for effective coronary perfusion.
Company research indicates that in the year 2000 approximately 760,000 CABG
procedures will be performed worldwide, of which approximately 400,000 will be
performed in the United States. Approximately 10% of these CABG procedures will
be performed on patients who had previously undergone bypass surgery. It is
anticipated that the number of repeat CABGs will continue to increase as a
percentage of procedures performed. Currently, approximately 70% of CABG
procedures are performed utilizing the saphenous vein. Based upon interviews
with cardiovascular surgeons, including those involved in the clinical trials,
the Company believes that patients whose native vessels are not available for
use in bypass surgery comprise approximately 1% of those receiving CABG
procedures, or approximately 7,000 annually. If initial use of the Perma-Flow
Graft is shown to be clinically acceptable, the Company believes that the graft
may be used for these patients. The Company further believes that if long-term
clinical results are acceptable to clinicians (generally greater than 50%
patency five years after implant), the graft may ultimately be used as a
substitute for native saphenous veins.
Currently, no synthetic coronary graft has received full marketing approval
from by the FDA. Cryopreserved saphenous veins are currently not regulated by
the FDA and sell to U.S. hospitals for approximately $3,500 to $4,000. The
Company anticipates pricing for the Perma-Flow Graft will be competitive with
cryopreserved saphenous veins.
The Company received FDA approval to initiate clinical testing of its
Perma-Flow Graft in November 1991. In July 1995, the Company received approval
to commence Phase 2 of the study. In February 1999, the Company placed further
vascular graft research and development on hold, including the enrollment into
the Perma-Flow clinical trial due to the Phase 2 clinical results and to focus
its resources on the AngioJet System.
In April 1998, the Company received Humanitarian Device Exemption ("HDE")
approval from the FDA, clearing the way for U.S. marketing of the Perma-Flow
Graft for patients who require coronary bypass surgery, but who have inadequate
blood vessels of their own for use in the surgery.
PERMA-SEAL(R) GRAFT. Patients suffering from renal disease may be required
to undergo long-term kidney dialysis. The majority of these patients require
long-term vascular access to facilitate treatment. A point of access for
dialysis needles may be created by connecting an artery and a vein in the
patient's arm. However, because kidney dialysis therapy typically requires
patients to undergo blood dialysis treatment three times per week, these
connections often become unusable over time. Other methods of vascular access
for kidney dialysis such as temporary catheters are not designed for long-term
use.
A synthetic graft may be implanted in kidney dialysis patients to provide
the necessary vascular access. The vast majority of these synthetic grafts are
made of ePTFE. The use of synthetic grafts currently available is often
accompanied by excessive bleeding when the dialysis needle is withdrawn,
requiring a nurse to apply pressure to help stop the bleeding and requiring the
patient to remain in the treatment area until the bleeding has been stopped. In
addition, to limit the risk of graft infection following implant, at least a
two-week healing period following implantation is required to allow for tissue
ingrowth into the graft before initiating dialysis.
In September 1998, the Company received FDA marketing approval for its
Perma-Seal Graft. The Possis Perma-Seal Graft is a self-sealing synthetic graft
comprised of silicone elastomers, with a winding of polyester yarn encapsulated
within its wall, and is manufactured using proprietary electrostatic spinning
technology developed by the Company. The Company believes that its Perma-Seal
Graft offers advantages over currently used synthetic grafts because of its
needle hole sealing capability. The Company believes that this characteristic
will be effective in sealing puncture sites in the grafts with minimal
compression time and bleeding as compared with other currently available graft
products and, as a result, will reduce dialysis procedure and administrative
time per patient and the costs associated therewith. In addition, because of its
ability to seal a needle puncture without depending on tissue ingrowth, the
Perma-Seal Graft may provide an option for patients who require dialysis
immediately after implant.
Approximately 250,000 patients in the United States are expected to undergo
kidney dialysis in the year 2000, of which approximately 95,000 are expected to
receive vascular access procedures utilizing either natural vessel grafts or
synthetic access grafts. The Company estimates that of these patients
approximately 74,000 are implanted with a synthetic graft. The Company believes
that worldwide, approximately 108,000 synthetic grafts are implanted annually.
The U.S. hospital prices of ePTFE and biological graft products
manufactured by certain other manufacturers currently range from $400 to $700
per unit, depending on length, style, and configuration. In December 1999, the
Company entered into an exclusive worldwide supply and distribution agreement.
The pricing of the Perma-Seal Graft to the distributor is a percentage of the
price charged to the hospital by the distributor subject to a minimum sales
price.
ePTFE SYNTHETIC VASCULAR GRAFT. In February 1999, the Company received
510(k) approval from the FDA to market three expanded polytetrafluoroethylene
("ePTFE") synthetic vascular grafts. ePTFE synthetic vascular grafts are the
most commonly used synthetic grafts in peripheral vessel bypass procedures. In
2000, the Company estimates 270,000 peripheral grafting procedures will be
performed worldwide, with 200,000 of these in the United States.
Research and Development
The Company's research and development program for its existing products
are focused primarily on clinical testing, obtaining necessary FDA product
registrations and validating manufacturing processes for the AngioJet System.
The Company's new product development efforts are focused primarily on
developing additional applications of the AngioJet Thrombectomy System,
including carotid, neurovascular and large vessel applications. The Company is
exploring AngioJet System applications for other blood clot conditions, such as
removal of intracranial blood clot in head trauma cases. In addition, the
Company is examining non-vascular applications involving the removal of unwanted
soft tissue including liposuction, gastroenterology, keyhole surgery, orthopedic
applications, and ear, nose and throat surgery. Research and development
expenses are generally incurred for product design, development and
qualification, development and validation of manufacturing process, conduct of
clinical trials, and seeking and obtaining governmental approvals. The Company's
research and development expenses are expected to increase as the Company
continues its clinical trials and current product development plans.
As of September 30, 1999, the Company employed approximately 59 full-time
employees in research and development, including 50 in new product concept
screening, prototype building, product and process development and validation,
and nine in regulatory and clinical affairs. The Company performs substantially
all of its research and development activities at its headquarters in Coon
Rapids, Minnesota, a suburb of Minneapolis, Minnesota. The Company spent $5.7
million, $5.2 million and $5.0 million in fiscal 1999, 1998, and 1997,
respectively, on medical product research and development.
Marketing and Sales
The Company is marketing its AngioJet System and graft products to
interventional radiologists and cardiologists and also to physician specialty
groups, including vascular, cardiovascular and thoracic surgeons.
The Company is currently marketing the AngioJet System for coronary
applications and hemodialysis graft thrombosis and plans to market the system
for other peripheral vessel and graft applications as FDA marketing approvals
are obtained, targeting interventional radiologists, vascular surgeons and some
cardiologists who do peripheral interventions. The AngioJet System for stroke
treatment will be marketed to interventional neuroradiologists, neurologists and
cardiologists as FDA marketing approvals are obtained.
The primary customer for the Perma-Flow Graft is expected to be
cardiovascular and thoracic surgeons. The Perma-Seal Graft is marketed to
vascular surgeons, who typically are the primary decision makers with respect to
the placement of vascular access grafts for patients receiving dialysis for
renal failure. The Company is also targeting other clinicians influential in
dialysis treatment selection, including nephrologists, internists, and dialysis
unit technicians.
The Company is currently marketing its AngioJet System outside the United
States using an independent distributor network. Generally, the distributorship
agreements are for an initial five-year term and provide that the distributors,
at their own expense, will investigate, negotiate and obtain regulatory
approvals for the Company's products in the specified territory. All sales made
to the Company's independent distributors are denominated in United States
dollars.
In December 1999, the Company entered into an exclusive worldwide supply
and distribution agreement with Horizon Medical Products, Inc. for its
Perma-Seal Dialysis Access Graft. The first shipment under this Agreement was
made in January 1999.
In March 1996, the Company entered into a three year distribution agreement
with Baxter Healthcare Corporation ("Baxter") granting Baxter worldwide rights
to market, sell and distribute the Perma-Flow Graft. The initial shipment of
Perma-Flow Grafts was made in July 1996. However, in April 1998, the Company
modified the Agreement with Baxter, under which Baxter retains non-exclusive
distribution rights outside of the United States, but has no distribution rights
in the United States for the remaining term of the Distribution Agreement. In
March 1999, the distribution agreement expired and the Company is seeking a new
distributor.
The Company's three expanded polytetrafluoroethylene ("ePTFE") synthetic
vascular grafts are planned to be marketed and sold by a marketing partner or
independent distributor.
A goal of the Company is to maximize the value of vascular graft products
and technologies for its shareholders. Its strategy is to seek partners to
distribute the products and possibly fund the graft product development program.
In addition, the Company will continue to pursue the possible sale of the
vascular graft products and technologies.
Promotional activities by the Company are designed primarily to enlist the
support of key medical opinion leaders in the United States and abroad. The
Company believes that opinion leader publications in medical journals and
presentations at medical meetings will be especially important to encourage
broad acceptance of its products. Other marketing activities include medical
journal advertising, participating in medical meetings, and supporting studies
designed to gather cost effectiveness data of the Company's products compared to
conventional treatment.
Patents, Patent Applications, Licenses and Proprietary Rights
The Company's success depends and will continue to depend in part on its
ability to maintain patent protection for products and processes, to preserve
its trade secrets and to operate without infringing the proprietary rights of
third parties. The Company's policy is to attempt to protect its technology by,
among other things, filing patent applications for technology that it considers
important to the development of its business. The Company currently holds five
United States patents and seventeen foreign patents related to the Perma-Flow
Graft and has two patent applications pending in the United States and four
patent applications pending in foreign jurisdictions. The Company holds three
United States patents and three foreign patents relating to the AngioJet System.
In addition, the Company has fifteen United States and twenty foreign patent
applications pending relating to the AngioJet System. In connection with the
Perma-Seal Graft, the Company holds two United States and one foreign patents
and three foreign patent applications are pending. The validity and breadth of
claims covered in medical technology patents involve complex legal and factual
questions and, therefore, may be highly uncertain. No assurance can be given
that the Company's pending applications will result in patents being issued or,
if issued, that such patents, or the Company's existing patents, will provide a
competitive advantage, or that competitors of the Company will not design around
any patents issued to the Company. In addition, no assurance can be given that
third parties will not receive patent protection on their own waterjet devices.
The Company requires all employees to execute non-disclosure agreements
upon commencement of employment with the Company. These agreements generally
provide that all confidential information developed or made known to the
individual by the Company during the course of the individual's employment with
the Company is to be kept confidential and not disclosed to third parties.
There can be no assurance that the Company's non-disclosure agreements and
other safeguards will protect its proprietary information and know-how or
provide adequate remedies for the Company in the event of unauthorized use or
disclosure of such information, or that others will not be able to independently
develop such information. There has been substantial litigation regarding patent
and other intellectual property rights in the medical device industry.
Litigation, which could result in substantial cost to and diversion of effort by
the Company, may be necessary to enforce patents issued to the Company, to
protect trade secrets or know-how owned by the Company, to defend the Company
against claimed infringement of the rights of others or to determine the
ownership, scope or validity of the proprietary rights of the Company and
others. An adverse determination in any such litigation could subject the
Company to significant liabilities to third parties, could require the Company
to seek licenses from third parties and could prevent the Company from
manufacturing, selling or using its products, any of which could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Competition
The Company's products will compete with a number of different products and
treatment methods for the conditions they address. The Company believes that its
AngioJet System will face intense competition from a variety of treatments for
the ablation and removal of blood clots, including thrombolytic drug therapies,
particulate capture systems, direct stenting, surgical intervention, balloon
embolectomy, mechanical and laser thrombectomy devices, ultrasound ablators, and
other thrombectomy devices based on waterjet systems that are currently being
developed by other companies.
The Company is not aware of any synthetic graft being developed that will
compete with the Perma-Flow Graft and believes it is the first developer to
obtain FDA approval for clinical trials with a synthetic coronary bypass graft.
The Company's Perma-Seal Graft will compete with ePTFE grafts and other
synthetic grafts with needle sealing properties.
The medical products market is characterized by rapidly evolving technology
and intense competition. The future success of the Company will depend on its
ability to keep pace with advancing technology and competitive innovations. Many
potential competitors have significantly greater research and development
capabilities, experience in obtaining regulatory approvals, established
marketing and financial and managerial resources than the Company. Many
potential competitors have developed or are in the process of developing
technologies that are, or in the future may be, the basis for competitive
products, some of which may employ an entirely different approach or means of
accomplishing the desired therapeutic effect than products being developed by
the Company.
Government Regulation
Government regulation in the United States and other countries is a
significant factor in the development and marketing of the Company's products
and in the Company's ongoing manufacturing and research and development
activities. The Company and its products are regulated by the FDA under a number
of statutes, including the Food, Drug and Cosmetic ("FDC") Act.
Under the FDC Act, medical devices are classified into one of three classes
(i.e., Class I, II or III) on the basis of the controls deemed necessary to
reasonably ensure their safety and effectiveness. Class I devices are subject to
the least extensive controls, as the safety and effectiveness reasonably can be
assured through general controls (e.g., labeling, premarket notification and
adherence to Good Manufacturing Practices ("GMP")). For Class II devices, safety
and effectiveness can be assured through the use of special controls (e.g.,
performance standards, post market surveillance, patient registries and FDA
guidelines). Class III devices (i.e., life-sustaining or life-supporting
implantable devices, or new devices which have been found, or are determined to
be not substantially equivalent to legally marketed devices) require the highest
level of control, including premarket approval by the FDA to ensure their safety
and effectiveness.
If a manufacturer or distributor of medical devices can establish that a
proposed device is "substantially equivalent" to a legally marketed Class I or
Class II medical device or to a ClassIII medical device for which the FDA has
not required a PMA application, the manufacturer or distributor may seek FDA
marketing clearance for the device by filing a 510(k) notification. Following
submission of the 510(k) notification, the manufacturer or distributor may not
place the device into commercial distribution in the United States until an
order has been issued by the FDA. The FDA's target for issuing such orders is
within 90 days of submission, but the process can take significantly longer. The
order may declare the FDA's determination that the device is "substantially
equivalent" to another legally marketed device and allow the proposed device to
be marketed in the United States. The FDA may, however, determine that the
proposed device is not substantially equivalent or may require further
information, such as additional test data, before making a determination
regarding substantial equivalence. Any adverse determination or request for
additional information could delay market introduction and have a materially
adverse effect on the Company's continued operations.
If a manufacturer or distributor of medical devices cannot establish that a
proposed device is substantially equivalent to another device via the 510(k)
process, the manufacturer or distributor must seek PMA approval of the proposed
device. A PMA application must be submitted, supported by extensive data,
including pre-clinical and clinical trial data to prove the safety and efficacy
of the device. Generally, a company is required to obtain an Investigational
Device Exemption ("IDE") before it commences clinical testing in the United
States in support of such a PMA. The FDA monitors and oversees the conduct of
clinical trials under IDE. Although by statute the FDA has 180 days to review a
PMA application once it has been accepted for filing, during which time an
advisory committee may also evaluate the application and provide recommendations
to the FDA, PMA reviews often extend over a significantly protracted time
period, usually 12 to 24 months or longer from filing. Accordingly, there can be
no assurance that FDA review of any PMA application submitted by the Company
will not encounter prolonged delays or that the data collected and submitted by
the Company in its PMA will support approval.
In 1996, FDA issued regulations for Humanitarian Device Exemptions (HDEs).
These regulations permit that certain devices, if intended for a small (less
than 4,000 per year), medically-defined group of patients, may qualify as
Humanitarian Use Devices and be authorized for sale in the U.S. under a
temporary exemption from PMA or 510(k) requirements. An HDE is authorized by the
FDA upon approval of an appropriate HDE submission. Such submissions must
establish the safety and probable benefit of the device for the proposed
intended use. An HDE approval lasts 12 months, but may be extended with
subsequent submissions. Devices marketed under an HDE may simultaneously undergo
clinical trials under an approved IDE, and be submitted for clearance or
approval under a 510(k) or PMA for a different or broader indication.
Labeling and promotional activities are subject to scrutiny by the FDA and,
in certain instances, by the Federal Trade Commission. The FDA also imposes
post-marketing controls on the Company and its products, and registration,
listing, medical device reporting, post-market surveillance, device tracking and
other requirements on medical devices. Failure to meet these pervasive FDA
requirements or adverse FDA determinations regarding the Company's clinical and
pre-clinical trials could subject the Company and/or its employees to
injunction, prosecution, civil fines, seizure or recall of products, prohibition
of sales or suspension or withdrawal of any previously granted approvals.
The FDC Act regulates the Company's manufacturing and quality systems by
requiring the Company to demonstrate compliance with current Good Manufacturing
Procedures ("GMP") as specified in published FDA regulations. The FDA monitors
compliance with GMP by requiring manufacturers to register with the FDA, which
subjects them to periodic FDA inspections of manufacturing facilities. If
violations of applicable regulations are noted during such FDA inspections, the
continued marketing of the Company's products may be adversely affected. Such
regulations are subject to change and depend heavily on regulatory
interpretations.
There can be no assurance that future changes in regulations or
interpretations made by the FDA or other regulatory bodies, with possible
retroactive effect, will not adversely affect the Company.
The Company has complied with ISO 9001 compliance GMP requirements in the
past and believes it will be able to comply with all applicable regulations
regarding the manufacture and sale of medical devices.
The export and sale of medical devices outside of the United States are
subject to United States export requirements and foreign regulatory
requirements. A device under a U.S. IDE may be exported to any country, so long
as its import to the receiving country complies with its requirements. Legal
restrictions on the sale of imported medical devices vary from country to
country. The time required to obtain approval by a foreign country may be longer
or shorter than that required for FDA approval, and the requirements may differ.
For countries in the European Union, in January 1995, CE Mark certification
procedures became available for medical devices, the successful completion of
which would allow certified devices to be placed on the market in all European
Union countries. After June 1998, medical devices may not be sold in European
Union countries unless they display the CE Mark. The Company received CE Mark
approval for all of its current products in July 1997.
Employees
As of September 30, 1999, the Company had 211 full-time employees, and two
contract employees. Of these full-time employees, 59 are in research and
development, 66 are in manufacturing and production, four are in quality
systems, six are in facilities/maintenance, 52 are in sales and marketing and 24
are in management or administrative positions. None of the Company's employees
are covered by a collective bargaining agreement, and management considers its
relations with its employees to be good.
Item 2. Properties:
The Company leases approximately 51,000 square feet of office and
manufacturing space (including approximately 6,500 square feet of clean
manufacturing space) at 9055 Evergreen Boulevard NW, Minneapolis, Minnesota
55433-8003. See Note 7 of Notes to Consolidated Financial Statements in Part II,
Item 8, in this Form 10-K.
Item 3. Legal Proceedings:
None
Item 4. Submission of Matters to a Vote of Security-Holders:
None
EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Position
Robert G. Dutcher 54 Director, Chief Executive Officer and President
Russel E. Carlson 53 Vice President, Finance and Chief Financial Officer
Eapen Chacko 51 Vice President, Investor and Public Relations
Irving R. Colacci 46 Vice President, Legal Affairs and Human Resources
General Counsel and Secretary
James D. Gustafson 43 Vice President, Quality Systems and
Regulatory/Clinical Affairs
T. V. Rao 56 Vice President and General Manager
Robert J. Scott 54 Vice President, Manufacturing Operations
Robert G. Dutcher has served as President and Chief Executive Officer and
has been a director of the Company since October 1993. From June 1992 until
October 1993, Mr. Dutcher served as Executive Vice President of the Company.
Since 1987, he has served as President and Chief Operating Officer of Possis
Holdings, Inc. (a subsidiary formerly known as Possis Medical, Inc.). Prior to
joining the Company, Mr. Dutcher had served in several positions (most recently
as Director of Research and Development) at Medtronic, Inc. since 1972. Mr.
Dutcher received a master's degree in biomedical engineering from the University
of Minnesota.
Russel E. Carlson joined the Company in September 1991 and has served as
Vice President and Chief Financial Officer of the Company since June 1992. Prior
to joining the Company, Mr. Carlson had been Chief Financial Officer of
SpectraScience, Inc. (formerly GV Medical, Inc.), a medical device company,
since September 1989 and had served in eight financial management positions with
The Pillsbury Company, a food manufacturer and processor, since 1972.
Eapen Chacko joined the Company in September 1999 as Vice President of
Investor and Public Relations. Prior to joining the Company, Mr. Chacko had been
Director of Investor Relations for Fingerhut Companies, Inc., a $2 billion
catalog and Internet marketer, since March 1995. Mr. Chacko earned a master's
degree in economics from The Johns Hopkins University.
Irving R. Colacci has served as Vice President and General Counsel since
December 1993, and as Secretary and Corporate Counsel of the Company since July
1988. Prior to 1993, Mr. Colacci served in various management positions with the
Company and its subsidiaries. Prior to joining the Company, Mr. Colacci was an
associate attorney at Dorsey & Whitney LLP, a major law firm in Minneapolis.
James D. Gustafson has served as a Vice President of the Company since
January 1, 1994; prior to this he was Director of Quality Systems and
Regulatory/Clinical Affairs for Possis Holdings, Inc. since his hire June 1993.
Prior to joining the Company, Mr. Gustafson had served as a Manager of Clinical
and Regulatory Affairs and of Clinical Programs at St. Jude Medical, Inc., a
medical device manufacturer, since June 1989, and as a Senior Clinical Scientist
at Shiley, Inc., Irvine, California, since March 1985. Mr. Gustafson received a
master's degree in management from University of Redlands and a master's degree
in biology from the University of California at Irvine.
T. V. Rao has served as Vice President and General Manager of Possis
Medical since February 1999. Prior to this he was Vice President and General
Manager of the AngioJet System business. Before joining the Company, Mr. Rao
served as Vice President of Sales and Marketing for Angeion Corporation from
July 1995 to June 1998, as Vice President of Sales and Marketing for Brunswick
Biomedical Corporation from July 1994 to June 1995 and served in several
positions (most recently as Director of Marketing, Tachyarrhythmia Business) at
Medtronic Inc. since 1980. Mr. Rao holds a master's degree in business from the
College of St. Thomas and a bachelor's degree with honors in mechanical
engineering from Madras, India.
Robert J. Scott has served as Vice President of the Company since December
1993 and as Vice President of Manufacturing Operations of Possis Holdings, Inc.
since 1988 and was Director of Manufacturing Operations for Possis Holdings,
Inc. from 1984 through 1988. Prior to joining the Company, Mr. Scott had served
as a consultant to various medical and nonmedical manufacturing companies and as
Manufacturing Manager for Aequitron Medical, Inc. and Resistance Technology
Incorporated and in various corporate and technical positions for Daig
Corporation and Medtronic, Inc.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters:
The Company had 1,680 common shareholders of record at July 31, 1999. The
common stock is traded on The Nasdaq Stock Market under the symbol POSS. High
and low closing sale prices for each quarter of fiscal years ended July 31, 1999
and 1998 are presented below:
1999 1998
High Low High Low
QUARTER:
First........................... $ 9.88 $ 4.31 $15.25 $11.00
Second 11.38 6.75 15.00 10.38
Third........................... 14.88 7.50 17.00 12.50
Fourth.......................... 12.50 10.31 14.75 9.25
Additional information is contained in Note 5 of Notes to Consolidated
Financial Statements included in Part II, Item 8, in this Form 10-K.
The Company has not paid cash dividends on its common stock since 1983. The
Company currently intends to retain all earnings for use in its business and
does not anticipate paying cash dividends in the foreseeable future.
On May 11 and June 2,1999, the Company sold an aggregate of 827,852 shares
of Common Stock and warrants to purchase a total of 127,178 shares of Common
Stock for aggregate consideration of $7,000,000. The securities were privately
sold to accredited investors. Miller, Johnson & Kuehn received a placement fee
of $210,000 in connection with the private placement. The exercise price is
$11.43 per share for 106,509 warrants and $11.69 per share for 17,669 warrants
and are exercisable for a period of four years. The securities were sold
pursuant to Rule 506 of Regulation D promulgated under the Securities Exchange
Act of
1934.
Item 6. Selected Financial Data:
SELECTED FINANCIAL DATA
POSSIS MEDICAL, INC. AND SUBSIDIARIES
YEARS ENDED JULY 31,
In Thousands Except Per Share Data
1999 1998 1997 1996 1995
INCOME STATEMENT DATA:
Operating revenues-
Continuing operations..................... $13,123 $6,118 $ 4,834 $ 1,606 $3,207
Net income (loss):
Continuing operations..................... (12,021) (11,969) (8,608) (8,578) (5,153)
Discontinued operations........................ -- -- 112 405 421
Net income (loss) per common share -
basic and diluted:
Continuing operations..................... (.90) (.98) (.71) (.74) (.53)
Discontinued operations................... -- -- .01 .04 .04
Weighted average shares outstanding -
basic and diluted......................... 13,356 12,191 12,099 11,611 9,726
BALANCE SHEET DATA:
Working capital............................ $13,530 $16,598 $16,840 $24,780 $6,846
Total assets................................... 19,821 23,897 22,423 29,361 10,321
Long-term debt,
excluding current maturities........ 100 11,493 10 39 93
Shareholders' equity........................ 16,315 8,744 19,800 27,597 8,648
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations:
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company was incorporated in 1956 and went public in 1960 as Possis
Machine Corporation. Initial operations consisted of design, manufacturing and
sales of industrial equipment and a division that provided temporary technical
personnel. The Company's involvement with medical products began in 1976, when
it sold its rights to a patented bileaflet mechanical heart valve, which it had
obtained from Zinon C. Possis, the founder of the Company, to St. Jude Medical,
Inc. for royalty payments based on St. Jude's valve sales. In 1982 a subsidiary
was established to focus initially on the development of a synthetic blood
vessel used to bypass blocked coronary arteries. In the late 1980's the Company
decided to leverage existing management expertise and entered the pacemaker lead
business. The strategic role of the pacemaker lead business was to provide cash
flow to fund the development of synthetic grafts and thrombectomy systems and to
give the Company access to and name recognition within the medical device
industry. In 1990 the Company made the decision to focus on medical products and
subsequently divested all non-medical operations, beginning with its Technical
Services division in September 1991 followed by its industrial equipment
subsidiary and related land and buildings in January 1994. See Note 2 of Notes
to Consolidated Financial Statements. In March 1994 the Company sold its
pacemaker lead business because it anticipated that revenues from this business
would decrease due to a pacemaker lead technology shift. This sale enabled
Possis to focus its resources exclusively on its other products, which are
currently in clinical trials and in early stages of commercialization.
The Company operates in one business segment -- the manufacture and sale of
medical devices. Possis Medical, Inc. evaluates revenue performance based on the
worldwide revenues of each major product line and profitability based on an
enterprise-wide basis due to shared infrastructures to make operating and
strategic decisions.
Over the past several fiscal years, the Company has transitioned its
revenue stream from pacemaker leads and royalty revenues to revenues from the
sale of its new products. The resulting cash flow, together with the
approximately $34.0 million net proceeds from the Company's calendar 1994 and
1995 common stock offerings, the $12.0 million gross proceeds from the issuance
of 5% convertible subordinated debentures in 1998, and the $7.0 million gross
proceeds from the Company's 1999 private placement of common stock, have been
used to fund the Company's operations, including research and development
related to its products. In excess of 95% of fiscal 1999 revenues were United
States product sales. The importance of United States revenue generation is
expected to continue for the foreseeable future.
Results of Operations
Fiscal Years ended July 31, 1999, 1998 and 1997
Total revenue for 1999 increased $7,005,000, or 115%, to $13,123,000
compared to $6,118,000 in 1998. Total revenue for 1998 increased $1,284,000, or
27%, to $6,118,000 compared to $4,834,000 in 1997. The main factors in the
revenue increase were the March 1999 and December 1996 FDA clearances to
commence U.S. marketing of the AngioJet(R) Rheolytic(TM) Thrombectomy System,
with labeling claims for removal of blood clots in symptomatic native coronary
arteries and coronary bypass grafts and for removal of blood clots from grafts
used by patients on kidney dialysis. U.S. AngioJet System product revenue was
$12,040,000, $5,662,000 and $1,827,000 for fiscal 1999, 1998 and 1997,
respectively. This was an increase of 113% and 210% in fiscal 1999 and 1998,
respectively, compared to prior years.
Revenue - AngioJet
During the fiscal years ended July 31, 1999, 1998 and 1997 the Company sold
162, 29 and 25 AngioJet System drive units, respectively. In fiscal 1999 and
1998, 92% and 93% of the drive units sold were sold within the U.S.,
respectively. The significant increase in AngioJet System drive unit sales in
fiscal 1999 was due to the FDA approval received in March 1999 for use in the
native coronary arteries and coronary bypass grafts. The Company currently lists
its AngioJet System drive unit, considered capital equipment, at $35,000 to
hospitals in the U.S. The Company employs a variety of flexible drive unit
acquisition programs including outright purchase, rental, lease and
fee-per-procedure. Management believes the purchasing cycle for the AngioJet
System drive unit will vary from purchasing the drive unit with no evaluation to
an evaluation period up to six months depending on the customer's budget cycle.
As of July 31, 1999 the Company had 300 AngioJet System drive units in U.S.
hospitals as compared to 191 and 72 at the end of the previous two fiscal years.
Each drive unit generates disposable income when it is used. During fiscal 1999
the Company sold approximately 9,100 disposable sets versus 4,700 and 1,900
disposable sets in fiscal years 1998 and 1997, respectively.
The Company expects the U.S. AngioJet System sales will continue to grow
primarily through the addition of sales people, the completion of clinical
trials designed to yield additional FDA label approved product uses, the
publication of clinical performance and cost effectiveness data, and the
introduction of additional catheter designs. The current sales increases are
expected to be generated primarily from the FDA coronary approval received in
March 1999. Additional sales growth is planned upon FDA approval for AngioJet
System use in leg arteries and bypass grafts. In July 1997, the Company
submitted a 510(k) application to the FDA seeking clearance for the AngioJet
System to be used in leg arteries and bypass grafts. The Company is currently
responding to issues with the FDA and expects approval for peripheral AngioJet
System in the first half of calendar 2000. In addition, the Company submitted an
Investigational Device Exemption (IDE) application with the FDA in September
1999 for the treatment of cerebrovascular stroke using the AngioJet System. The
first patient to be enrolled in the stroke clinical trial is expected by
calendar year end. The Company is currently enrolling patients in a clinical
trial of the AngioJet System for use in the treatment of stroke caused by the
blockage of the carotid arteries, the main vessels supplying blood to the brain.
The Company believes that the treatment of blood clots in coronary vessels,
peripheral arteries, bypass grafts and neuro vessels are significant worldwide
marketing opportunities for the AngioJet System.
Foreign sales of the AngioJet System during fiscal 1999, 1998 and 1997 were
$491,000, $351,000 and $804,000, respectively. The reduction in foreign sales
from 1997 to 1998 was due to the reduced number of drive units sold in fiscal
1998 versus fiscal 1997. In Japan, the coronary AngioJet System clinical study
enrollment was completed in April 1998 and a regulatory filing is planned for
November 1999 with the Japanese Ministry of Health and Welfare. Japanese
approval for coronary use of the AngioJet System is expected by the end of
calendar 2000.
Revenue - Vascular Grafts
During fiscal 1999, 1998 and 1997, sales of Perma-Seal(R) Dialysis Access
Graft were $593,000, $0 and $124,000, respectively. The reduction in Perma-Seal
sales in fiscal 1998 was due to the termination of a distribution agreement in
January 1997. In September 1998 the Company received FDA marketing approval for
its Perma-Seal Dialysis Access Graft. In December 1998 the Company entered into
an exclusive worldwide Supply and Distribution Agreement with Horizon Medical
Products, Inc. for its Perma-Seal Dialysis Access Graft. The first shipment
under this Agreement was made in January 1999.
During fiscal 1998 and 1997, sales of Perma-Flow(R) Coronary Bypass Graft
were $105,000 and $58,000, respectively. In March 1996, the Company entered into
a Distribution Agreement with Baxter Healthcare Corporation ("Baxter"). This
Agreement granted Baxter exclusive worldwide distribution rights to the
Perma-Flow Coronary Bypass Graft for a three-year term. In April 1998, this
Distribution Agreement was modified with Baxter retaining non-exclusive
distribution rights outside the United States but having no distribution rights
in the United States for the remaining term of the Distribution Agreement.
Marketing efforts were reduced subsequent to the modification of the Agreement
which resulted in the termination of Perma-Flow sales. In April 1998, the
Company received Humanitarian Device Exemption ("HDE") approval from the FDA,
clearing the way for U.S. marketing of the Perma-Flow Coronary Bypass Graft for
patients who require coronary bypass surgery but who have inadequate blood
vessels of their own for use in the surgery. In March 1999, the Distribution
Agreement expired and the Company is seeking a new distributor.
In February 1999, the Company received 510(k) approval from the FDA to
market three expanded polytetrafluoroethylene ("ePTFE") synthetic vascular
grafts. ePTFE synthetic grafts are the most commonly used synthetic grafts in
peripheral vessel bypass procedures. These products are planned to be marketed
and sold by a marketing partner or independent distributor.
Sales agreement and other revenue of $2,019,431 includes $200,000 for
fiscal 1997 from Baxter paid to the Company under a supply and distribution
agreement for the Perma-Flow Coronary Bypass Graft. In addition, fiscal 1997
sales agreement and other revenue includes $1,799,000 in cash and returned
unused product due to the termination of the Company's Perma-Seal Graft supply
and distribution agreement. See Note 9 of Notes to Consolidated Financial
Statements.
A goal of the Company is to maximize the value of these products and
technologies for its shareholders. Its strategy is to seek partners to
distribute the products and possibly fund the graft product development program.
In addition, the Company will continue to pursue the possible sale of the
vascular graft products and technologies. While the Company works toward
completing these activities, it has placed vascular graft product development
activities on hold, including enrollment into the Perma-Flow Coronary Bypass
Graft clinical trial.
The Company is planning for continued growth in product sales in fiscal
2000 and beyond and believes that most of this growth will come from AngioJet
System sales in the U.S. marketplace.
Cost of Medical Products
Cost of medical products, compared to prior years, increased 36% and 17% in
fiscal 1999 and 1998, respectively. The increase is primarily due to the
significant growth in the AngioJet System product sales. Medical product gross
margins improved by $4,917,000 and $2,443,000 in fiscal 1999 and 1998,
respectively, compared to prior years. The gross margin percentage in fiscal
1999 was 40% compared to 5% in fiscal 1998. The Company believes that
manufacturing costs per unit will be reduced and gross margins will continue to
improve as product sales and related production volumes continue to grow and as
identified product and process improvements are made.
Selling, General and Administrative Expense
Selling, general and administrative expenses increased $4,055,000 and
$3,010,000 in fiscal 1999 and 1998, respectively, as compared to prior periods.
The primary factors are increased sales and marketing expenses related to the
establishment of a direct sales organization to sell the AngioJet System and
expenses of marketing the product in the United States. Based upon early
physician interest and with the AngioJet System receiving FDA approval for
coronary use, the Company has grown the U.S. AngioJet System sales and marketing
organization from eight employees in January 1997 to 53 employees in July 1999.
The Company plans on increasing its sales and marketing expenditures in fiscal
2000 in order to continue to expand its direct U.S. sales force and to expand
its marketing efforts.
Research & Development
Research and development expenses increased 11% and 5% in fiscal 1999 and
1998, respectively, as compared to prior periods, primarily due to increased
expenses relating to the development of new AngioJet Thrombectomy System
applications. This increase was offset by a reduction of expenses relating to
the Perma-Flow Graft and Perma-Seal Graft clinical trials and development
expenses. The Company has placed further vascular graft research and development
activities on hold, including enrollment into the Perma-Flow Graft clinical
trial. The Company believes that research and development expenses for AngioJet
Thrombectomy System applications will increase as it completes the development
of its current products and invests in development of new AngioJet System
thrombectomy applications and new high-pressure waterjet technology-based
products.
Interest Income and Expense
Interest income has decreased in fiscal 1999 and 1998 from the previous
years due to use of the Company's cash reserves to fund the Company's
operations. The gross proceeds of $7,000,000 received from the private placement
offering in May and June 1999 had a modest impact on interest income in fiscal
1999. The $12,000,000 gross proceeds received from the issuance of 5%
convertible subordinated debentures received in July 1998 had a modest impact on
interest income in fiscal 1998. The Company expects interest income to decrease
as the Company's cash reserves are used to fund the Company's operations.
Interest expense increased $341,000 and $35,000 in fiscal 1999 and 1998,
compared to prior years. These increases were due to the issuance of the 5%
convertible subordinated debentures in July 1998. The Company expects interest
expense to decrease in fiscal 2000, due to the final 5% convertible subordinated
debenture being converted into the Company's common stock in March 1999.
Discontinued Operations
The Company recorded the final income relating to the sale of its Technical
Service division during the first quarter of fiscal 1997.
Liquidity and Capital Resources
The Company's cash and cash equivalents totaled approximately $9.2 million
at July 31, 1999, a decrease of $4.7 million from the prior year. The primary
factors in the reduction of the Company's cash position was the net loss of
approximately $12.0 million which was partially offset by the $6.7 million
private placement offering in May and June 1999.
During fiscal 1999, cash used in operating activities was $11.9 million,
which resulted primarily from a $12.0 million net loss, a $1.9 million increase
in receivables and $366,000 decrease in trade accounts payable, partially offset
by depreciation, amortization, stock compensation and an increase in accrued
liabilities totaling $2.4 million. Cash used in investing activities was
$700,000 which was used to purchase plant and equipment. Net cash provided by
financing activities was $7.9 million, which resulted from the net proceeds of
the private placement offering of $6.7 million, the exercise of stock warrants
of $828,000 and the exercise of stock options of $417,000. As of March 1999, all
of the 5% convertible subordinated debentures and related accrued interest
totaling $12.3 million were converted into approximately 1.7 million shares of
the Company's common stock at an average conversion price of $7.12 per share.
During fiscal 1998, cash used in operating activities was $11.8 million,
which resulted primarily from a $12.0 million net loss and a $1.8 million
increase in receivables, inventories and other current assets, partially offset
by depreciation, amortization, stock compensation and an increase in trade
accounts payable and accrued liabilities totaling $2.0 million. Cash provided by
investing activities was $10.4 million, which resulted from the net proceeds
from the sale/maturity of marketable securities of $11.0 million, offset by
additions to plant and equipment of $614,000. Net cash provided by financing
activities was $11.4 million, which resulted from the net proceeds from the
issuance of 5% convertible subordinated debentures of $11.1 million, proceeds
from long-term debt of $175,000 and the exercise of stock options of $142,000.
During fiscal 1997, cash used in operating activities was $8.6 million,
which resulted primarily from a $8.5 million net loss and a $1.7 million
increase in receivables, inventories and other current assets, partially offset
by depreciation, amortization of goodwill, stock compensation and an increase in
trade accounts payable and accrued liabilities totaling $1.6 million. Cash
provided by investing activities was $4.4 million, which resulted from the net
proceeds from the sale/maturity of marketable securities of $5.0 million, offset
by additions to plant and equipment of $613,000. Net cash provided by financing
activities was $332,000, which resulted primarily from the exercise of stock
options of $405,000.
The Company believes that product sales of the AngioJet System, primarily
in the U.S., will yield meaningful sales growth going forward. Concurrently,
sales and marketing expenditures are planned to increase with the sales growth.
Research and development expenditures are expected to increase as the Company
completes the development of its current products and invests in development of
new AngioJet System thrombectomy applications and new high-pressure waterjet
technology-based products. The Company expects to report a loss for fiscal 2000,
which is expected to be less than the fiscal 1999 loss. A modest profit is
expected for fiscal 2001. In addition, the Company expects that increasing
working capital investments in trade receivables and inventory will be required
to support growing product sales.
The Company is currently evaluating its capital needs and options available
for raising cash, including the sale of additional equity capital, asset based
financing and monies that may be forthcoming from the Company's graft business.
There is no guarantee that the Company will secure financing, or reach an
agreement to sell its common stock, at terms acceptable to the Company.
Change of Control Plan
On September 15, 1999, the Company's Board of Directors approved a Change
in Control Termination Pay Plan that provides, at the discretion of the Board,
salary and benefit continuation payments to executive officers and selected key
management and technical personnel in the event they are terminated within 24
months of a change in control. In addition, executive officers, and other key
management personnel may, under the Plan, receive an additional payment upon a
change in control notwithstanding their employment status following a change in
control.
Year 2000 ("Y2K")
The Company established a team in May 1998 to assess the possible exposures
related to the Y2K issue. The areas investigated include: product issues,
business computer systems and software, production equipment, vendor readiness
and contingency plans. Products currently sold by the Company are Y2K compliant.
The Company has responded to all inquiries regarding Y2K compliance by customers
and vendors. The Company has noted an increase in requests from customers since
January 1999. The Company has taken steps to attach stickers to all drive units
indicating Y2K compliance.
The Company uses commercial software to manage the primary business
functions of production, finance and payroll. These systems have been certified
by the vendors as Y2K compliant on the software releases currently installed.
The Company has service contracts with these vendors so any additional changes
needed are obtained in service packs. The Company's network operating system is
certified as Y2K compliant and has been tested by the company. Production and
quality control equipment do not use dates to control operations.
Certain personal computers were not Y2K compliant. The Company has
completed the purchase of replacement computers which were purchased as planned
spending necessary to maintain current technology. Installation of these
computers will be completed in October 1999.
The Company uses Microsoft software to operate its workstations and to
provide office productivity functions. It knows that not all of the current
versions used are fully Y2K ready. The Company installed software to
automatically distribute software updates. It has installed commercial software
to check hardware, software, and data files for potential Y2K problems. The
Company expects no significant problems with applications software.
The Company evaluated its suppliers of utility, telecommunications,
payroll, banking, and employee benefits services. It does not expect any
disruptions in these services. The Company replaced its voice mail system with
one that is Y2K compliant; the replacement was needed for other business reasons
so was not budgeted as a specific Y2K expense.
Company vendors have responded to questionnaires and follow-up phone calls
regarding their Y2K readiness. The Company continues to monitor key suppliers
and has incorporated Y2K readiness into its supplier certification process. The
Company's contingency planning includes monitoring of suppliers and market
conditions to ensure a constant supply of materials. In the event any vendors
are not or will not be Y2K compliant, the Company will seek new vendors and/or
stockpile inventory to meet its production needs.
The Company budgeted approximately $50,000 for expenses directly related to
Y2K identification and remediation. Expenses to date are approximately $10,000;
total expenses are not expected to deviate significantly from the budget. The
Company purchased directors' and officers' liability insurance related to the
Y2K issue.
Although the Company does not at this time expect a significant effect on
its consolidated financial position, results of operations and cash flows,
internal preparations are ongoing and there can be no assurance that the systems
of other companies or the systems of the Company itself will be converted on a
timely basis and will not have a corresponding adverse effect on the Company.
While it is impossible to evaluate every aspect of year 2000 compliance, we
believe that either of two events would be our most likely year 2000 worst case
scenario. The first would be from one or more of our sole or limited source
suppliers to fail to be year 2000 compliant or to have its business negatively
impacted by year 2000 issues of others. The second would be delays in receiving
orders or payments from customers due to year 2000 problems they experience. At
the present time, it is not possible to determine whether any of these events is
likely to occur, or to quantify any potential negative impact they may have on
our future results of operations and financial condition.
New Accounting Pronouncements
Effective for fiscal 1999, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income". SFAS No. 130 requires that changes in the amounts of
certain items, including foreign currency translation adjustments, be presented
in the Company's financial statements.
Effective for fiscal 1999, the Company adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information". The statement requires
disclosure of certain financial and descriptive information about operating
segments as redefined by SFAS No. 131. The Company operates in one business
segment.
In June 1998, SFAS No. 133, "Acounting for Derivative Instruments and
Hedging Activities" was issued. SFAS No. 133 establishes a new model for
accounting for derivatives and hedging activities and supersedes and amends a
number of existing accounting standards. SFAS No. 133 requires that all
derivatives be recognized in the balance sheet at their fair market value, and
the corresponding derivative gains or losses be either reported in the statement
of operations or as a deferred item depending on the type of hedge relationship
that exists with respect to such derivative. Management has not yet completed an
assessment of the impact of adopting the provisions of SFAS No. 133 and the
Company's financial statements. The standard is effective for the Company in
fiscal 2001.
Forward-Looking Statements
Management's Discussion and Analysis of Financial Condition and Results of
Operations and certain other sections of this Form 10-K, including the
discussion regarding Year 2000 compliance, contain certain "forward-looking
statements" as defined in the Private Securities Litigation Reform Act of 1995.
Such statements relating to future events and financial performance, including
the submission of applications to the FDA, anticipated FDA approvals, the timing
of FDA approvals, revenue and expense levels, profitability and future capital
requirements, are forward-looking statements that involve risks and
uncertainties, including the Company's ability to meet its timetable for FDA
submissions, the review time and process at the FDA, results of clinical trials,
changes in the Company's marketing strategies, the Company's ability to
establish product distribution channels, changes in manufacturing methods,
market acceptance of the AngioJet System, changes in the levels of capital
expenditures by hospitals, the levels of sales of the Company' products that can
be achieved, ability to raise additional capital and other risks set forth in
the cautionary statements included in Exhibit 99 to the Company's report on Form
10-Q dated April 30, 1999, filed with the Securities and Exchange Commission.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk:
The Company invests its excess cash in money market mutual funds. The
market risk on such investments is minimal.
The product sales for the Company's foreign subsidiary are in U.S. Dollars
("USD"). At the end of July 1999, the amount of currency held in foreign
exchange was approximately $1,000 USD. The market risk on the Company's foreign
subsidiary operations is minimal.
At July 31, 1999, all of the Company's outstanding long-term debt carries
interest at a fixed rate. There is no material market risk relating to the
Company's long-term debt.
Item 8. Financial Statements and Supplementary Data:
INDEPENDENT AUDITORS' REPORT
To the Shareholders of Possis Medical, Inc.:
We have audited the accompanying consolidated balance sheets of Possis
Medical, Inc. and subsidiaries (the Company) as of July 31, 1999 and 1998 and
the related consolidated statements of operations, comprehensive loss, cash
flows, and changes in shareholders' equity for each of the three years in the
period ended July 31, 1999. Our audits also included the financial statement
schedule listed in the Index at Item 14. These consolidated financial statements
and financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Possis Medical, Inc. and
subsidiaries as of July 31, 1999 and 1998 and the results of their operations
and their cash flows for each of the three years in the period ended July 31,
1999, in conformity with generally accepted accounting principles. Also, in our
opinion, such financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
Deloitte & Touche LLP
Minneapolis, Minnesota
August 31, 1999
(September 15, 1999 as to Note 10)
POSSIS MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
July 31, 1999 July 31, 1998
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents (Note 1)........................... $ 9,151,004 $13,841,793
Receivables:
Trade (less allowance for doubtful accounts and returns:
$489,000 and $150,000, respectively)................ 3,063,311 1,147,563
Inventories (Note 1):
Parts...................................................... 1,218,910 1,085,236
Work-in-process............................................ 1,596,313 1,740,834
Finished goods............................................. 1,556,482 1,913,084
Prepaid expenses and other assets............................ 247,907 313,158
Total current assets...................................... 16,833,927 20,041,668
PROPERTY (Notes 1 and 3):
Leasehold improvements....................................... 1,274,814 1,210,984
Machinery and equipment...................................... 4,143,032 3,720,772
Assets in construction....................................... 258,114 113,094
5,675,960 5,044,850
Less accumulated depreciation................................ 2,887,025 2,343,691
Property - net............................................. 2,788,935 2,701,159
OTHER ASSETS:
Deferred debt issue costs (Note 1)........................... -- 884,105
Goodwill (Note 1)............................................ 197,922 269,922
TOTAL ASSETS.................................................. $19,820,784 $23,896,854
<FN>
See notes to consolidated financial statements.
</FN>
POSSIS MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(continued)
July 31, 1999 July 31, 1998
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable.................................. $ 879,173 $ 1,245,552
Accrued salaries, wages, and commissions................ 1,605,680 1,060,687
Current portion of long-term debt (Note 3).............. 92,490 97,713
Clinical trials accrual................................. 110,100 335,067
Litigation settlement................................... -- 200,000
Other liabilities....................................... 616,840 504,624
Total current liabilities................................... 3,304,283 3,443,643
LONG-TERM DEBT (Notes 1 and 3).............................. 99,728 11,492,661
OTHER LIABILITIES (Note 5)................................. 102,000 216,200
COMMITMENTS AND CONTINGENCIES (Notes 7 and 10)
SHAREHOLDERS' EQUITY (Note 5):
Common stock-authorized, 100,000,000 shares
of $ .40 par value each; issued and outstanding,
14,998,360 and 12,218,622 shares, respectively...... 5,999,344 4,887,449
Additional paid-in capital.............................. 60,608,623 42,476,257
Unearned compensation................................... (141,467) (489,060)
Retained deficit........................................ (50,151,727) (38,130,296)
Total shareholders' equity.............................. 16,314,773 8,744,350
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. $19,820,784 $23,896,854
<FN>
See notes to consolidated financial statements.
</FN>
POSSIS MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JULY 31
1999 1998 1997
REVENUES:
Medical products sales (Note 8).............................. $13,123,479 $ 6,117,850 $2,814,646
Sales agreement and other (Note 9)........................... -- -- 2,019,431
Total revenues........................................... 13,123,479 6,117,850 4,834,077
COST OF SALES AND OTHER EXPENSES:
Cost of medical products .................................... 7,883,865 5,794,901 4,934,887
Selling, general and administrative.......................... 11,611,113 7,555,616 4,545,937
Research and development .................................... 5,743,866 5,193,787 4,964,239
Interest..................................................... 381,179 40,599 5,422
Total cost of sales and other expenses................... 25,620,023 18,584,903 14,450,485
Operating loss.................................................... (12,496,544) (12,467,053) (9,616,408)
Interest income................................................... 475,113 489,610 1,001,578
Gain on sale of investments .................................... -- 8,101 7,109
Loss from continuing operations................................... (12,021,431) (11,969,342) (8,607,721)
Income from discontinued operations - net (Note 2)................ -- -- 111,539
Net loss ......................................................... $(12,021,431) $(11,969,342) $(8,496,182)
Weighted average number
of common shares outstanding - basic and diluted............. 13,355,822 12,191,477 12,099,217
Earnings (loss) per common share - basic and diluted:
Continuing operations .................................... $(.90) $(.98) $(.71)
Discontinued operations .................................... -- -- .01
Net loss ......................................................... $(.90) $(.98) $(.70)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
YEARS ENDED JULY 31
1999 1998 1997
Net loss ........................................................ $(12,021,431) $(11,969,342) $(8,496,182)
Unrealized gain on investments................................... -- 5,836 139,440
Comprehensive loss............................................... $(12,021,431) $(11,963,506) $(8,356,742)
<FN>
See notes to consolidated financial statements.
</FN>
POSSIS MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JULY 31
1999 1998 1997
OPERATING ACTIVITIES:
Net loss ......................................................... $(12,021,431) $(11,969,342) $(8,496,182)
Adjustments to reconcile net loss to net
cash used in operating activities:
Gain on sale of marketable securities............................. -- (8,101) (7,109)
Loss on disposal of assets............................................. 4,312 15,237 4,932
Depreciation........................................................... 1,035,105 774,027 473,816
Amortization........................................................... 204,077 84,832 72,000
Stock compensation................................................ 327,462 430,046 155,083
Stock options issued to non-employees............................. 14,000 11,648 --
Increase in receivables........................................... (1,915,748) (148,112) (391,314)
Increase in inventories........................................... (58,002) (1,613,285) (1,286,860)
(Increase) decrease in other current assets....................... 65,251 (57,920) (56,961)
Increase (decrease) in trade accounts payable..................... (366,379) 597,052 330,597
Increase in accrued and other current liabilities................. 787,795 113,110 601,686
Net cash used in operating activities......................... (11,923,558) (11,770,808) (8,600,312)
INVESTING ACTIVITIES:
Additions to plant and equipment.................................. (693,398) (614,074) (612,641)
Proceeds from sale of fixed assets................................ 16,656 2,100 20,954
Purchase of marketable securities................................. -- (13,612) (1,990,718)
Proceeds from sale/maturity of marketable securities.............. -- 10,991,719 7,011,640
Net cash provided by (used in) investing activities........... (676,742) 10,366,133 4,429,235
FINANCING ACTIVITIES:
Proceeds from notes payable and long-term debt.................... 21,074 12,175,000 --
Repayment of long-term debt....................................... (14,069) (28,356) (73,386)
Proceeds from issuance of stock and exercise
of options and warrants....................................... 7,926,761 142,406 405,150
Deferred debt issue costs......................................... (24,255) (891,776) --
Net cash provided by financing activities..................... 7,909,511 11,397,274 331,764
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................................................... (4,690,789) 9,992,599 (3,839,313)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR............................................................. 13,841,793 3,849,194 7,688,507
CASH AND CASH EQUIVALENTS AT END OF YEAR............................... $ 9,151,004 $13,841,793 $3,849,194
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid.......................................................... $ 1,643 $ 1,262 $ 5,422
Conversion of subordinated debentures and accrued
interest into common stock........................................ 12,346,174 -- --
Deferred debt issue costs and original issue discount
netted against conversion of subordinated debentures.............. 1,371,122 -- --
Issuance of stock to settle litigation................................. 225,000 -- --
Accrued payroll taxes related to restricted stock...................... 83,230 325,397 --
Cancellation of restricted stock....................................... 40,381 -- --
Inventory transferred to fixed assets.................................. 32,201 16,288 32,279
Issuance of restricted stock........................................... 20,250 919,106 --
Warrants issued related to convertible debt............................ -- 600,000 --
<FN>
See notes to consolidated financial statements.
</FN>
POSSIS MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS' EQUITY
Unearned Unrealized
Common Stock Additional Stock Loss on
Number of Paid-in Compen- Invest- Retained
Shares Amount Capital sation ments Deficit Total
BALANCE AT JULY 31, 1996........ 12,052,644 $4,821,058 $40,688,535 $(102,690) $(145,276) $(17,664,772) $27,596,855
Employee stock purchase
plan................... 8,537 3,415 123,616 -- -- -- 127,031
Stock options issued to
directors (Note 5)...... -- -- 52,393 -- -- -- 52,393
Stock options exercised..... 68,109 27,243 276,391 -- -- -- 303,634
Stock retired.............. (7,978) (3,191) (22,324) -- -- -- (25,515)
Unearned stock compensation
amortization............ -- -- -- 102,690 -- -- 102,690
Unrealized gain on investments -- -- -- -- 139,440 -- 139,440
Net loss.................... -- -- -- -- -- (8,496,182) (8,496,182)
BALANCE AT JULY 31, 1997........ 12,121,312 4,848,525 41,118,611 -- (5,836) (26,160,954) 19,800,346
Employee stock purchase
plan..................... 7,811 3,124 69,909 -- -- -- 73,033
Stock options issued to
directors and physicians
(Note 5)................. -- -- 60,455 -- -- -- 60,455
Stock options exercised..... 23,940 9,576 59,797 -- -- -- 69,373
Stock grants................ 65,559 26,224 567,485 (919,106) -- -- (325,397)
Unearned stock compensation
amortization.............. -- -- -- 430,046 -- -- 430,046
Warrants issued............. -- -- 600,000 -- -- -- 600,000
Unrealized gain on
investments............... -- -- -- -- 5,836 -- 5,836
Net loss.................... -- -- -- -- -- (11,969,342) (11,969,342)
BALANCE AT JULY 31, 1998........ 12,218,622 4,887,449 42,476,257 (489,060) -- (38,130,296) 8,744,350
Employee stock purchase
plan..................... 19,881 7,952 106,181 -- -- -- 114,133
Stock options issued to
directors and physicians
(Note 5)................. -- -- 54,349 -- -- -- 54,349
Stock options exercised..... 66,200 26,480 276,687 -- -- -- 303,167
Stock grants................ 2,500 1,000 11,250 (20,250) -- -- (8,000)
Unearned stock compensation
amortization.............. -- -- -- 327,462 -- -- 327,462
Litigation settlement....... 22,785 9,114 215,886 -- -- -- 225,000
Stock retired............... (12,814) (5,126) 55,976 40,381 -- -- 91,231
Warrants exercised.......... 120,000 48,000 780,000 -- -- -- 828,000
Debentures converted........ 1,733,334 693,334 10,281,718 -- -- -- 10,975,052
Private placement
stock offering........... 827,852 331,141 6,350,319 -- -- -- 6,681,460
Net loss.................... -- -- -- -- -- (12,021,431) (12,021,431)
BALANCE AT JULY 31, 1999........ 14,998,360 $5,999,344 $60,608,623 $(141,467) $ -- $(50,151,727) $16,314,773
<FN>
See notes to consolidated financial statements.
</FN>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business Possis Medical, Inc. is a developer, manufacturer and
marketer of medical devices, operating in one business segment. The Company was
incorporated in 1956 and has operated several businesses over the last 43 years.
In 1990 the Board of Directors decided to focus on medical products, which led
to the sale of the Technical Services Division in 1991 and the Jet Edge
industrial waterjet business in 1994. In March 1994 the Company sold its
pacemaker lead business because it anticipated that revenues from this business
would decline due to a pacemaker lead technology shift. The name of the Company
was changed to Possis Medical, Inc. in 1993. In January 1995, the Company
established a 100% owned subsidiary, Possis Medical Europe B.V., in the
Netherlands to support international product distribution. Possis Medical
received AngioJet Rheolytic Thrombectomy System U.S. marketing approval for use
in AV access hemodialysis grafts in December 1996 and for use in native coronary
arteries and coronary bypass grafts in March 1999.
The Company's thrombectomy and graft products utilize new technology and
the production processes, and production equipment used to manufacture them are
unique and have been designed and constructed by Company employees. In addition,
the medical device industry is subject to the laws and oversight of the United
States Food and Drug Administration ("FDA") as well as non-U.S. regulatory
bodies in countries where the Company does business.
Basis of Consolidation The consolidated financial statements include the
accounts of Possis Medical, Inc. (the Company) and its wholly-owned
subsidiaries, Possis Holdings, Inc., JEI Liquidation, Inc. (Jet Edge) and Possis
Medical Europe B.V., after elimination of intercompany accounts and
transactions.
Use of Estimates The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Inventories Inventories are stated at the lower of cost (on the first-in,
first-out basis) or market.
Property, Depreciation, and Amortization Property is carried at cost and
depreciated using the straight-line method over the estimated useful lives of
the assets at the following annual rates:
Leasehold improvements.............. 10%
Machinery and equipment............. 10-33%
Deferred Debt Issue Costs Deferred debt issue costs were being amortized on
a straight-line basis over six years, based on the term of the 5% convertible
subordinated debentures due 2004. In FY99, all of the 5% convertible
subordinated debentures were converted into the Company's common stock. All
unamoritzed deferred debt issue costs were offset against equity. Accumulated
amortization at July 31, 1998 was $7,671.
Original Issue Discount Original issue discount was being amortized on a
straight-line basis over six years, based on the term of the 5% convertible
subordinated debentures due 2004. The original amount of $600,000 was the value
associated with the detachable stock warrants issued in conjunction with the
convertible subordinated debentures. In FY99, all of the 5% convertible
subordinated debentures were converted into the Company's common stock. All
unamortized original issue discount was offset against equity. Accumulated
amortization at July 31, 1998 was $5,161.
Goodwill Goodwill is being amortized on a straight-line basis over 13
years, based on the remaining life of patent rights related to the
Perma-Flow(R)Graft acquired in 1988. Accumulated amortization at July 31, 1999
and 1998 was $789,500 and $717,500, respectively.
Income Taxes The Company accounts for income taxes under Statement of
Financial Accounting Standard ("SFAS") No. 109, "Accounting for Income Taxes."
Certain items are accounted for tax purposes in a different period than for
financial statement purposes.
Revenue Recognition Revenue associated with medical products sales is
recognized when products are shipped. Revenue under product supply and
distribution agreements is recognized when the required milestones have been
achieved.
Fair Value of Financial Instruments Marketable securities are carried at
fair value. The carrying value of all other financial instruments, except
long-term debt, approximates fair value due to the short-term nature of the
instrument. The carrying value of long-term debt approximates fair value due to
the fixed interest rates being consistent with current market rates of interest.
Earnings (Loss) Per Share Loss per share for 1999, 1998 and 1997 is
computed by dividing the net loss by the weighted average number of common
shares outstanding. Warrants, options, and convertible debentures representing
1,882,288, 2,511,762 and 1,359,344 shares of common stock at July 31, 1999, 1998
and 1997, respectively, have been excluded from the computations because the
effect is antidilutive.
Cash Equivalents The Company considers highly liquid investments with
original maturities of three months or less to be cash equivalents.
Marketable Securities During 1998 and 1997, the Company sold
available-for-sale securities aggregating approximately $5,992,000 and
$1,012,000, realizing gains of $8,101 and $7,109 in 1998 and 1997, respectively.
Impairment of Long-Lived Assets SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
requires that long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying value of an asset may not be
recoverable. An impairment loss is recognized, based on the difference between
the carrying value and the discounted cash flows of an asset, when the estimated
future undiscounted cash flows from the asset are less than the carrying value
of the asset. The adoption of SFAS No. 121 had no material effect on the
consolidated financial statements.
Comprehensive Income Effective fiscal 1999, the Company adopted SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130 requires that changes in the
amounts of certain items, including foreign currency translation adjustments, be
presented in the Company's financial statements.
Segment Reporting Effective fiscal 1999, the Company adopted SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." The
statement requires disclosure of certain financial and descriptive information
about operating segments as redefined by SFAS No. 131. The Company operates in
one business segment.
Derivative Instruments and Hedging Activities In June 1998, SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" was issued. SFAS
No. 133 establishes a new model for accounting for derivatives and hedging
activities and supersedes and amends a number of existing accounting standards.
SFAS No. 133 requires that all derivatives be recognized in the balance sheet at
their fair market value, and the corresponding derivative gains or losses be
either reported in the statement of operations or as a deferred item depending
on the type of hedge relationship that exists with respect to such derivative.
Management has not yet completed an assessment of the impact of adopting the
provisions of SFAS No. 133 on the Company's financial statements. The standard
is effective for the Company in fiscal 2001.
2. DISCONTINUED OPERATIONS
Technical Services Division On September 29, 1991, the Company sold its
Technical Services division to Advance Technical Services, Inc. ("ATS"), which
is 51% owned by a former officer of the Company. Under the terms of the sale,
the Company received approximately $550,000 in cash and a note of $250,000 for
the net assets of the business and realized a gain of $66,517. In addition, the
Company received a percentage of ATS's annual revenues in excess of a specified
amount through September 1996. As part of the sale, the Company also received
$200,000 in cash and a note of $500,000 for an agreement not-to-compete for a
five-year period; income from the now complete agreement was recognized ratably
over the period of the agreement.
During 1996, ATS prepaid the notes receivable and the estimated remaining
royalty payments in connection with the sale of ATS. At July 31, 1997, all
amounts related to the Company's sale of ATS were paid in full.
Income from Discontinued Operations Operating results of the Technical
Services division were as follows for the year ended July 31, 1997:
Sales......................................... $ --
Income from operations........................ $ --
Amortization of not-to-compete agreement...... 41,768
Percentage of ATS's revenues.................. 69,771
Income from discontinued operations .......... $111,539
3. LONG-TERM DEBT
Long-term debt at July 31, 1999 and 1998 is as follows: 1999 1998
Note payable, interest at 4.5%, interest and principal due June
1999 and June 2001, collateralized by the Company's equipment................... $175,000 $ 175,000
Notes payable, interest at 9.75%-10.15%, .principal and interest
payable monthly, final payment due October 2002, collateralized by the
Company's equipment............................................................. 17,218 4,513
Convertible subordinated registered debentures due July 2004,
face value of $12,000,000, net of unamortized original issue discount
of $-0- and $594,839 as of July 31, 1999 and 1998, interest at 5%,
converted in 1999, unsecured ................................................... -- 11,405,161
Non-interest bearing note payable, principal payable in 10 equal
quarterly payments beginning January 1997, final payment paid
April 1999, unsecured........................................................... -- 5,700
192,218 11,590,374
Less current maturities.......................................................... (92,490) (97,713)
$ 99,728 $11,492,661
In July 1998, the Company received $12,000,000 gross proceeds from the
issuance of 5% convertible subordinated debentures due 2004 and 110,640 warrants
valued at $600,000. During the year ended July 31, 1999, all of the 5%
convertible subordinated debentures and related accrued interest totaling
$12,346,174 were converted into 1,733,334 shares of the Company's common stock
at an average conversion price of $7.12 per share. The warrants are exercisable
for common stock at $15.58 per share.
4. INCOME TAXES
At July 31, 1999, the Company had net operating loss carryforwards of
approximately $45,793,000 for federal tax purposes, which expire in 2003 through
2019, and $13,455,000 for Minnesota tax purposes, which expire in 2003 through
2014.
In addition, at July 31, 1999 the Company has approximately $2,126,000 and
$548,000 in federal and state tax credits, respectively, substantially all of
which are research and development tax credits, which expire from 2000 through
2014, and a $65,182 AMT credit which does not expire.
Deferred tax assets and liabilities as of July 31, 1999 and 1998 are
described in the table below. The Company reduced its net deferred tax assets to
zero through a valuation allowance due to the uncertainty of realizing such
assets:
1999 1998
Current assets (liabilities):
Allowance for doubtful accounts and returns.......... $ 171,000 $ 51,000
Inventory............................................ 179,000 152,000
Employee compensation and benefits................... 334,000 203,000
Other .............................................. 25,000 16,000
709,000 422,000
Valuation allowance.................................. (709,000) (422,000)
Net .............................................. $ -- $ --
Long-term assets:
Net operating losses........................ $16,518,000 $12,464,000
Amortization of patents..................... 365,000 276,000
Tax credits................................. 2,674,000 1,975,000
Depreciation................................ (263,000) (222,000)
19,294,000 14,493,000
Valuation allowance......................... (19,294,000) (14,493,000)
Net ..................................... $ -- $ --
The effective income tax rate differed from the U.S. federal statutory rate
for each of the three years ended July 31, 1999, 1998 and 1997 as follows:
1999 1998 1997
Tax benefit on loss from
continuing operations computed at
statutory rate of 34%.......................... $(4,087,000) $(4,069,000) $(2,889,000)
Decrease in tax benefit due to nonrecognizable
benefits of net operating loss
carryforwards and others....................... 4,087,000 4,069,000 2,889,000
Total income tax expense
continuing operations.......................... $ -- $ -- $ --
5. COMMON STOCK
Private Placement Offering In May and June 1999, in conjunction with a
private placement offering, the Company issued 827,852 shares of its common
stock to various investors and received $7,000,000 in gross proceeds. The
Company incurred issuance costs of $300,000. In addition, the Company issued
124,178 warrants to purchase shares of its common stock. The exercise price is
$11.43 per share for 106,509 warrants and $11.69 per share for 17,669 warrants.
Stock Options Certain officers, directors, key employees, and certain other
individuals may purchase common stock of the Company under stock option plans.
In 1992, the Company established the 1992 Stock Compensation Plan (the 1992
Plan), which replaced the 1983 and 1985 plans. Although the 1983 and 1985 plans
remain in effect for options outstanding, no new options may be granted under
these plans.
The 1992 Plan authorizes awards of the following types of equity-based
compensation: incentive stock options, nonqualified stock options, stock
appreciation rights, restricted stock, deferred stock, annual grants of stock
options to directors, stock options to directors in lieu of compensation for
services rendered as directors, and other stock-based awards valued in whole or
in part by reference to stock of the Company. No incentive stock options may be
granted on or after August 1, 2002, nor shall such options remain valid beyond
ten years following the date of grant.
The total number of shares of stock reserved and available for distribution
under the 1992 Plan originally was 600,000 shares, a maximum of 350,000 of which
may be issued as incentive stock options. The total number of shares reserved
and available for distribution under the Plan was increased annually on January
2, 1993, 1994 and 1995, by 1% of the number of shares of the Company's common
stock outstanding at July 31 of the prior fiscal year. In 1995 the Company
amended the 1992 Stock Compensation Plan by increasing the number of common
shares issuable under the Plan each year from 1% to 2% of the total number of
shares outstanding at July 31 of the prior fiscal year. In addition, the number
of common shares issuable as Incentive Stock Options under the Plan was
increased to 1,000,000. In 1997, the Company amended the 1992 Stock Compensation
Plan by increasing the number of shares issuable under the Plan each year from
2% to 3% of the total number of shares outstanding at July 31 of the prior
fiscal year. In addition, the number of common shares issuable on Incentive
Stock Options under the Plan was increased to 2,000,000.
At July 31, 1999, there were 1,621,070 shares reserved for outstanding
options and 407,332 shares available for granting of options under the 1992
Plan.
In 1983, the Company established an Incentive Stock Option Plan. A maximum
of 545,000 shares were authorized under the Plan at an option price of at least
100% of the fair market value at date of grant. The options become exercisable
at date of grant, except for those options granted after March 17, 1985, which
vest ratably over a three or four year period. All options expire ten years from
date of grant.
In 1985, the Company established a Nonqualified Stock Option Plan under
which a maximum of 200,000 shares were authorized to be granted at a price of at
least 100% of the fair market value at date of grant. The options vest ratably
over a three or four year period and expire not more than ten years from date of
grant.
In fiscal 1999, 1998 and 1997, the Company granted 11,477, 8,874 and 5,207
compensatory options, respectively, to its outside directors in lieu of cash
payments for directors fees. These options were granted under the 1992 Plan and
vested immediately.
A summary of changes in outstanding options for each of the three years
ended July 31, 1999 follows:
1999 1998 1997
Shares under option at
beginning of year............................ 1,443,571 1,212,944 899,787
Options granted - 1992 plan..................... 460,877 302,674 460,557
Options exercised............................... (66,200) (23,940) (68,109)
Options canceled................................ (217,178) (48,107) (79,291)
Shares under option at end of year........... 1,621,070 1,443,571 1,212,944
Shares exercisable at end of year............... 859,866 691,209 581,238
Exercise price of options granted............... $3.52-15.50 $5.50-16.69 $10.62-20.45
Exercise price of options exercised............. $3.75-8.75 $1.00-5.75 $1.00-14.625
Market price of options exercised............... $7.43-14.95 $13.13-19.25 $16.75-19.625
Aggregate market value of options
exercised.................................... $603,877 $424,396 $1,241,296
Stock option weighted average exercise prices during 1999, 1998 and 1997
are summarized below:
1999 1998 1997
Outstanding at beginning of year.......... $12.10 $11.63 $ 9.15
Granted ................................. 7.79 13.55 15.81
Exercised................................. 5.72 4.20 4.46
Canceled ................................. 13.98 13.79 12.40
Outstanding at end of year................ 10.89 12.10 11.63
The following table summarizes information concerning options outstanding
and exercisable options as of July 31, 1999:
Weighted
Average
Range of Remaining Weighted Weighted
Exercise Shares Contractual Life Average Shares Average
Price Outstanding in Years Exercise Price Exercisable Exercise Price
$1 - $6 197,668 4.06 $ 4.52 191,418 $ 4.48
$6 - $12 695,627 7.40 8.30 293,992 8.48
$12 - $17 562,225 7.47 14.18 286,244 14.17
$17 - $21 165,550 7.18 18.20 88,213 18.21
In 1993, the Company granted 37,000 shares of restricted stock to employees
under the terms of the 1992 Plan, which vested 7,400 shares each on December 2,
1993 and on June 3, 1994, 1995, 1996 and 1997. Approximately $128,000 was
accrued to pay the estimated withholding taxes on those shares as management
believes that the employees would elect to receive fewer shares in lieu of
paying the withholding taxes. In case of termination of the employees, with the
exception of those shares vesting December 2, 1993, unvested shares were
forfeited. Unearned compensation of $342,250 was recorded at the date of grant
and was recognized over the vesting period. In 1996, the Company granted 18,000
shares of restricted stock to employees which vested 9,000 shares each on June
3, 1996 and 1997, under terms similar to the 1993 grants. Approximately $112,000
was accrued to pay the estimated withholding taxes on those shares as management
believed that the employees would elect to receive fewer shares in lieu of
paying the withholding taxes. Unearned compensation of $265,500 was recorded at
the date of grant and was recognized over the vesting period.
In fiscal 1998, the Company granted 65,559 shares of restricted stock to
employees under the terms of the 1992 Plan, which vested 21,853 shares each year
in fiscal years 1999, 2000 and 2001. Approximately $325,000 was accrued to pay
the estimated withholding taxes on those shares as management believes that the
employees will elect to receive fewer shares in lieu of paying the withholding
taxes. In case of termination of the employees, unvested shares are forfeited.
Unearned compensation of $919,106 was recorded at the date of grant and is being
recognized over the vesting period.
In fiscal 1999, the Company granted 2,500 shares of restricted stock to
employees under the terms of the 1992 Plan, which vested 1,250 shares each year
in fiscal years 2000 and 2001. Approximately $8,000 was accrued to pay the
estimated withholding taxes on those shares as management believes that the
employees will elect to receive fewer shares in lieu of paying the withholding
taxes. In case of termination of the employees, unvested shares are forfeited.
Unearned compensation of $20,250 was recorded at the date of grant and is being
recognized over the vesting period.
In fiscal 1999, 1998 and 1997, total compensation expense of $327,462,
$430,046 and $102,690, respectively, was recognized on these restricted stock
grants.
Effective August 1, 1996, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation." As permitted by SFAS 123, the Company has elected to
continue following the guidance of APB No. 25 for measurement and recognition of
stock-based transactions with employees. No compensation cost has been
recognized for stock options issued under the 1992 Plan because the exercise
price for all options granted was at least equal to the fair value of the common
stock at the date of grant except as noted previously in this note. If
compensation cost for the Company's stock option and employee purchase plans had
been determined based on the fair value at the grant dates for grants during
1999, 1998 and 1997, consistent with the method provided in SFAS No. 123, the
Company's net loss and loss per share would have been as follows:
1999 1998 1997
Net loss:
As reported.................... $(12,021,431) $(11,969,342) $(8,496,182)
Pro forma...................... (14,312,062) (14,122,375) (9,752,401)
Loss per share - basic and diluted:
As reported.................... $ (.90) $ (.98) $ (.70)
Pro forma...................... (1.07) (1.16) (.81)
The fair value of options granted under the various option plans during
1999, 1998 and 1997 was estimated on the date of grant using the Black-Sholes
option-pricing model with the following weighted average assumptions and
results:
1999 1998 1997
Dividend yield........................... None None None
Expected volatility...................... 78% 47% 40%
Risk-free interest rate.................. 5.5% 6.5% 6.5%
Expected life of option.................. 120 mo. 120 mo. 120 mo.
Fair value of options on grant date...... $2,964,817 $2,795,547 $4,353,803
Stock Warrants Stock purchase warrants held by unrelated parties
representing the right to purchase 26,400 shares of the Company's common stock
at $8.52 a share were outstanding as of July 31, 1999. These warrants do not
have an expiration date and must be exercised if the market value of the
Company's common stock exceeds $22.73 per share for any sixty consecutive
calendar days.
On September 15, 1994, warrants to purchase 120,000 shares of common stock
at $6.90 per share were issued to John G. Kinnard & Company in conjunction with
the Company's September 1994 public stock offering. In November 1998, these
warrants were exercised.
In July 1998, the Company issued to various investors 110,640 stock
purchase warrants in conjunction with a private placement of convertible
debentures (See Note 3). These warrants expire on July 15, 2002 and are
exercisable into common stock at $15.58 per share. As of July 31, 1999, all such
warrants were outstanding and unexercised.
In May and June 1999, the Company issued 106,509 and 17,669 warrants,
respectively, to various investors in conjunction with the Company's private
placement offering. These warrants expire in May and June 2003 and are
exercisable into common stock at $11.43 and $11.69, respectively.
Employee Stock Purchase Plan The Employee Stock Purchase Plan, effective
January 1, 1991, enables eligible employees, through payroll deduction, to
purchase the Company's common stock at the end of each calendar year. The
purchase price is the lower of 85% of the fair market value of the stock on the
first or last day of the calendar year. The Company issued 19,881 shares in
1999, 7,811 shares in 1998 and 8,537 shares in 1997 under this Plan.
6. 401 K PLAN
The Company has an employees' savings and profit sharing plan for all
qualified employees who have completed six months of service. Company
contributions are made at the discretion of the Board of Directors subject to
the maximum amount allowed under the Internal Revenue Code. Contributions for
the years ended July 31, 1999, 1998 and 1997 were $208,563, $154,863 and
$97,765, respectively.
7. COMMITMENTS AND CONTINGENCIES
The Company's medical products operation is conducted from a leased
facility under an operating lease which expires in 2006. Rental payments under
the lease are guaranteed by a letter of credit in the amount of $20,000 at July
31, 1999. Rental expense charged to operations was $241,674 in fiscal 1999,
$241,674 in 1998 and $237,742 in fiscal 1997. Future minimum payments under the
non-cancelable operating leases at July 31, 1999 were:
Year Ended
July 31 Amount
2000 $242,000
2001 242,000
2002 242,000
2003 242,000
2004 242,000
2005 and thereafter 484,000
Total minimum lease payments $1,694,000
The lease is noncancelable before April 2001, after which it can be
canceled with notice and payment of a termination fee.
The Company is leasing a sales office under an operating lease effective
August 1999 which expires in 2002. The future annual rentals on this operating
lease are approximately $14,000 per year through 2002.
The Company is a defendant in various lawsuits relating to business, some
of which involve claims for unspecified amounts. Although the ultimate outcome
of these matters cannot be predicted with certainty, management believes that
the outcome will not have a material adverse effect on the financial statements
of the Company.
8. SEGMENT AND GEOGRAPHIC INFORMATION AND CONCENTRATION OF CREDIT RISK
The Company's operations are in one business segment, the design,
manufacture and distribution of cardiovascular and vascular medical devices.
Possis Medical, Inc. evaluates revenue performance based on the worldwide
revenues of each major product line and profitability based on an
enterprise-wise basis due to shared infrastructures to make operating and
strategic decisions.
Total revenues by United States and non-United States for each of the three
years ended July 31, 1999, 1998 and 1997 are as follows:
1999 1998 1997
United States............ $12,632,300 $5,766,817 $4,029,806
Non-United States........ 491,179 351,033 804,271
Total revenues........... $13,123,479 $6,117,850 $4,834,077
In 1999, 1998 and 1997 there were no individual customers with sales
exceeding 10% of total revenues.
9. PRODUCT SUPPLY AND DISTRIBUTION AGREEMENTS
In December 1998, the Company entered into an exclusive worldwide supply
and distribution agreement with Horizon Medical Products, Inc. for its
Perma-Seal Dialysis Access Graft. The first shipment under this agreement was
made in January 1999.
On December 30, 1994, the Company executed a supply and distribution
agreement with Bard Vascular Systems Division, C.R. Bard, Inc. ("Bard"). This
agreement granted to Bard exclusive worldwide sales and marketing rights to the
Possis Perma-Seal Dialysis Access graft for an initial 10-year term, renewable
for the life of applicable patents. Under this agreement, through July 31, 1996,
the Company had received $1,000,000. In January 1997, the Company terminated the
agreement with Bard. Upon termination, the Company received $1,750,000 in cash
and approximately $49,000 in returned unused product.
On March 15, 1996 the Company entered into a distribution agreement with
Baxter Healthcare Corporation ("Baxter"). This agreement granted Baxter
exclusive worldwide distribution rights to the Possis Perma-Flow Coronary Bypass
Graft for a three-year term. Under this agreement, through July 31, 1997, the
Company received $400,000 and was scheduled to receive up to an additional
$200,000, on the second anniversary date of agreement signing, as long as the
agreement was still in effect. In April 1998, this distribution agreement was
modified with Baxter retaining non-exclusive distribution rights outside of the
United States but has no distribution rights in the United States for the
remaining term of the distribution agreement. In conjunction with the
modification, the Company waived the $200,000 second anniversary payment.
Effective March 15, 1999, all of Baxter's distribution rights to Possis
Perma-Flow Coronary Bypass Graft terminated.
10. SUBSEQUENT EVENT
On September 15, 1999, the Company's Board of Directors has approved a
Change in Control Termination Pay Plan that provides, at the discretion of the
Board, salary and benefit continuation payments to executive officers and
selected key management and technical personnel in the event they are terminated
within 24 months of a change in control. In addition, executive officers, and
other key management personnel, may, under the Plan, receive an additional
payment upon a change in control notwithstanding their employment status
following a change in control.
Item 9. Changes in and disagreements with Accountants on Accounting and
Financial Disclosure:
During fiscal 1998 and 1999, there were no changes in or disagreements with
the Company's independent certified public accountants on accounting procedures
or accounting and financial disclosures.
PART III
Item 10. Directors and Executive Officers of the Registrant:
Information under the heading "Election of Directors" and "Compliance with
Section 16(a) of the Exchange Act" in the Proxy Statement is incorporated herein
by reference. The information regarding executive officers is included in Part I
of this report under the caption "Executive Officers of the Registrant."
Item 11. Executive Compensation:
Information regarding compensation of directors and officers for the fiscal
year ended July 31, 1999 is in the Proxy Statement and is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management:
The security ownership of certain beneficial owners and management is in
the Proxy Statement under the heading "Common Stock Ownershi" and is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions:
Information regarding related party transactions is contained in "Certain
Relationships and Related Transactions" in the Proxy Statement and is
incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K:
(a) 1. Financial Statements
The following financial statements of the Company, accompanied by an
Independent Auditors' Report, are contained in Part II, Item 8:
Consolidated Balance Sheets, July 31, 1999 and 1998
Consolidated Statements of Operations for each of the three years in
the period ended July 31, 1999
Consolidated Statements of Comprehensive Loss for each of the three
years in the period ended July 31, 1999.
Consolidated Statements of Cash Flows for each of the three years
in the period ended July 31, 1999.
Consolidated Statements of Changes in Shareholders' Equity for each
of the three years in the period ended July 31, 1999.
Notes to Consolidated Financial Statements
2. Schedules
The following financial statement schedules are submitted herewith:
SCHEDULE II - Valuation Accounts
Other schedules are omitted because they are not required or are not
applicable or because the required information is included in the financial
statements listed above.
3. Exhibits
Certain of the following exhibits are incorporated by reference from prior
filings. The form with which each exhibit was filed and the date of filing are
indicated on the following three pages.
Exhibit Form Date Filed Description
3.1 10-K Fiscal year ended Articles of incorporation as amended
July 31, 1994 and restated to date
3.2 10-K Fiscal year ended Bylaws as amended and restated
July 31, 1999 to date
4.1 8-A December 13, 1996 Rights agreement, dated December 12,
1996, between the Company and
Norwest Bank Minnesota N.A., as
rights agent
4.2 8-K July 24, 1998 Convertible Debenture Purchase
Agreement dated July 14, 1998
4.3 8-K July 24, 1998 Form of Series A 5% Convertible
Debenture due July 15, 2004,
dated July 14, 1998
4.4 8-K July 24, 1998 Registration Rights Agreement
between the Company and
purchasers of the Convertible Debt
dated July 14, 1998
4.5 8-K July 24, 1998 Form of Redeemable Warrant to
purchasers of the Convertible
Debt dated July 15, 1998
4.6 10-K November 23, 1966 Debenture Agreement with St. Paul
Fire and Marine Company and
Western Life Insurance Company
and form of debenture rates and
warrants
4.7 8-K May 12, 1999 Private placement Purchase Agreement
dated May 11, 1999 between the
Company and the investors listed
therein
4.8 8-K May 12, 1999 Registration Rights Agreement between
the Company and the investors in the
purchase Agreement dated May 11, 1999
4.9 8-K May 12, 1999 Form of Warrant to investors of the
Purchase Agreement dated May 11, 1999
Exhibit Form Date Filed Description
10.1 8-K December 6, 1996 Settlement agreement and mutual
release relating to the termination
of the Perma-Seal supply and
distribution agreement with C.R.Bard,
Inc.
10.2 S-2 Amendment No.1 License agreement with Imperial
August 9, 1994 Chemical Industries Plc., dated
April 15, 1991
10.3 S-2 Amendment No.1 License agreement with the
August 9, 1994 University of Liverpool, dated
May 10, 1990
10.4 S-1 June 30, 1988 Form of indemnification agreement
with officers and directors of
Registrant
* 10.5 S-8 February 7, 1990 1983 Incentive Stock Option Plan as
amended to date
* 10.6 S-1 June 30, 1988 1985 Nonqualified Stock Option
Plan as amended to date
* 10.7 10-K Fiscal year ended Form of incentive stock option
July 31, 1989 agreement for officers
* 10.8 10-K Fiscal year ended Form of stock option agreement for
July 31, 1989 directors
* 10.9 S-8 June 16, 1998 1992 Stock Compensation Plan
* 10.10 10-K Fiscal year ended Form of restricted stock agreement
July 31, 1993 for officers (1992 Plan)
* 10.11 10-K Fiscal year ended Form of nonqualified stock option
July 31, 1993 agreement for officers (1992 Plan)
* 10.12 10-K Fiscal year ended Form of incentive stock option
July 31, 1993 agreement for officers (1992 Plan)
* 10.13 10-K Fiscal year ended Form of nonqualified stock option
July 31, 1993 agreement for 1992 directors' fees
(1992 Plan)
* 10.14 10-K Fiscal year ended Form of nonqualified stock option
July 31, 1993 agreement for 1990 directors' fees
Exhibit Form Date Filed Description
* 10.15 10-K Fiscal year ended Form of nonqualified stock option
July 31, 1993 agreement for 1989 directors' fees
10.16 10-Q Quarter ended Supply & distribution agreement
January 31, 1995 with Bard Vascular Systems
Division, C.R.Bard, Inc.
10.17 10-Q Quarter ended Lease agreement for corporate
January 31, 1996 headquarters and manufacturing
facility dated December 15, 1995.
10.18 8-K March 28, 1996 Supply and distribution agreement
with Edwards CVS Division, Baxter
Healthcare Corporation
10.19 10-K Fiscal Year ended Addendum to Distributor Agreement
July 31, 1998 with Edwards CVS Division, Baxter
Healthcare Corporation dated
May 1, 1998
* 10.20 10-K Fiscal Year ended Change in Control Termination
July 31, 1999 Pay Plan
10.21 10-K Fiscal year ended 1999 Stock Compensation Plan
July 31, 1999
21 10-K Fiscal year ended Subsidiaries of registrant
July 31, 1995
23 10-K Fiscal year ended Consent of independent certified
July 31, 1999 public accountants
27 Financial data schedule
99 10-Q Quarter ended Investment risk factors
April 30, 1999
* Indicates management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
During the quarter ended July 31, 1999, the Company filed a report on Form
8-K dated May 12, 1999 reporting under Item 5 that the Company had entered into
a Private Placement Purchase Agreement.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
POSSIS MEDICAL, INC.
by: /s/ Russel E. Carlson
Russel E. Carlson
Vice President of Finance
Chief Financial and Accounting Officer
Dated: October 29, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
Signature Title Date
/s/ Donald C. Wegmiller Chairman of the Board October 29, 1999
Donald C. Wegmiller
/s/ Robert G. Dutcher Director, President and October 29, 1999
Robert G. Dutcher Chief Executive Officer
/s/ Dean Belbas Director October 29, 1999
Dean Belbas
/s/ Seymour J. Mansfield Director October 29, 1999
Seymour J. Mansfield
/s/ Whitney A. McFarlin Director October 29, 1999
Whitney A. McFarlin
/s/ William C. Mattison, Jr. Director October 29, 1999
William C. Mattison, Jr.
/s/ Rodney A. Young Director October 29, 1999
Rodney A. Young
SCHEDULE II
POSSIS MEDICAL, INC.
VALUATION ACCOUNTS
YEARS ENDED JULY 31, 1999, 1998 AND 1997
Column A Column B Column C Column D Column E
Additions
Balance at Charged to
Beginning Costs and Deductions Balance at
Description of Year Expenses Write-offs End of Year
Allowance for doubtful accounts
and returns - deducted from trade
receivables in the balance sheet:
Year ended July 31, 1999 $ 150,000 $ 584,000 $ 245,000 $ 489,000
Year ended July 31, 1998 80,000 140,000 70,000 150,000
Year ended July 31, 1997 60,000 96,530 76,530 80,000
Valuation allowance on
deferred tax asset:
Year ended July 31, 1999 $14,915,000 $5,008,000 $ -- $20,003,000
Year ended July 31, 1998 10,695,000 4,220,000 -- 14,915,000
Year ended July 31, 1997 7,657,000 3,038,000 -- 10,695,000
POSSIS MEDICAL, INC.
FORM 10-K - ITEM 14(a)3
EXHIBIT INDEX
Exhibit
Number Description
23 Consent of independent certified public accountants
27 Financial data schedule
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Possis Medical, Inc.:
We consent to the incorporation by reference in Post-Effective Amendment
No. 1 to Registration Statement No. 33-5467 on Form S-8, Post-Effective
Amendment No. 1 to Registration Statement No. 33-33416 on Form S-8, Registration
Statement No. 33-39987 on Form S-8, Registration Statement No. 33-56728 on Form
S-8, and Registration Statement No. 333-57289 on Form S-8 of our report, dated
August 31, 1999 (September 15, 1999 as to Note 10), appearing in this Annual
Report on Form 10-K of Possis Medical, Inc. for the year ended July 31, 1999.
Deloitte & Touche LLP
Minneapolis, Minnesota
October 25, 1999
EXHIBIT 3.2
BYLAWS OF P0SSIS MEDICAL, INC.
ARTICLE I
DEFINITIONS AND ABBREVIATIONS
As used herein, the following terms shall have the following meanings:
"Corporation" means Possis Medical, Inc.
"Act" means the Minnesota Business Corporation Act, as amended from time to
time. "Articles of Incorporation" or "Articles" mean the Articles of
Incorporation of the Corporation, as amended from time to time.
"Bylaws" means the Bylaws of the Corporation, as amended from time to time.
"Authorized Shares" means the shares of all classes of stock which the
Corporation is authorized by the Articles of Incorporation to issue.
"Registered Holders" means the shareholders of record of the issued shares
of the Corporation as they appear upon the Shareholders' Ledger maintained by
the Transfer Agent.
ARTICLE II
IDENTIFICATION
Section 1. NAME. The name of the Corporation is Possis Medical, Inc.
Section 2. REGISTERED OFFICE AND REGISTERED AGENT.
Clause (a). OBLIGATION TO MAINTAIN. The Corporation shall have and
continuously maintain in the State of Minnesota a registered office which may
be, but need not be, the same as its place of business.
Clause (b) REGISTERED OFFICE. The registered office of the Corporation in
Minnesota shall be that set forth in a statement of the Board of Directors filed
with the Secretary of State of the State of Minnesota.
Section 3. PRINCIPAL BUSINESS OFFICE. The principal business office of the
Corporation is 9055 Evergreen Blvd. N.W., Minneapolis, Minnesota. The
Corporation may have such other business offices either within or without the
State of Minnesota as the Board of Directors may from time to time establish.
Section 4. SEAL. If so directed by the Board of Directors, the Corporation
may use a corporate seal. The failure to use such a seal, however, shall not
affect the validity of any documents executed on behalf of the Corporation. The
seal of the Corporation shall be circular in form and mounted upon a metal die,
suitable for impressing the same upon paper. The seal need only include the word
"Seal", but it may also include, at the discretion of the Board, such additional
wording as is permitted by law.
Section 5. FISCAL YEAR. The fiscal year of the Corporation shall begin on
the first day of August in each year and end on the last day of July the
following year.
ARTICLE III
CAPITAL STOCK
Section 1. SUBSCRIPTIONS FOR SHARES. Unless otherwise provided in the
subscription agreement, subscriptions for shares, whether made before or after
the organization of the Corporation, shall be paid in full at such time, or in
such installments and at such times, as shall be determined by the Board of
Directors. Any call made by the Board of Directors for payment on subscriptions
shall be uniform as to all shares of the same class or as to all shares of the
same series, as the case may be. In case of default in the payment of any
installment or call when such payment is due, the Corporation may proceed to
collect the amount due in the same manner as any debt due the Corporation.
Section 2. CONSIDERATION FOR SHARES. Common Stock may be issued for such
consideration as may be fixed from time to time by the Board of Directors
provided it not be less than the par value of the shares so issued.
Section 3. PAYMENT FOR SHARES. The consideration for the issuance of shares
may be paid, in whole or in part, in money, in other property, tangible or
intangible, or in labor or services actually performed for the Corporation. When
payment of the consideration for which shares are to be issued shall have been
received by the Corporation, such shares shall be deemed to be fully paid and
non-assessable. Neither promissory notes nor future services shall constitute
payment or part payment for shares of the Corporation. In the absence of fraud
in the transaction, the judgment of the Board of Directors or the shareholders,
as the case may be, as to the value of the consideration received for shares
shall be conclusive. No certificate shall be issued for any share until such
share is fully paid.
Section 4. CERTIFICATES REPRESENTING SHARES. Certificates of shares of the
Corporation shall be in such form as shall be prescribed by law and adopted by
the Board of Directors, certifying the number of shares of the Corporation owned
by each shareholder. The certificates shall be numbered in the order in which
they are issued and shall be signed by the Chief Executive Officer and the
Secretary or by such other officers as the Board of Directors may designate. The
signatures of the Chief Executive Officer and the Secretary upon a certificate
may be facsimiles. In case any officer who has signed or whose facsimile
signature has been placed upon such certificate shall have ceased to be such
officer before such certificate is issued, it may be issued by the Corporation
with the same effect as if he or she was such officer at the date of its issue.
Such certificates shall also have such legends as may be required by any
shareholder agreement or other agreement.
Section 5. CERTIFICATES FOR SHARES OF COMMON STOCK. Each holder of the
Common Stock of the Corporation shall be entitled to a certificate in a form
approved by the Board of Directors.
Section 6. TRANSFER OF SHARES. Transfer of certified shares on the books of
the Corporation may be authorized only by the shareholder named in the
certificate, or the shareholder's legal representative, or the shareholder's
duly authorized attorney-in-fact, and upon surrender of the certificate or the
certificates for such shares therefore properly endorsed. The Corporation may
treat, as the absolute owner of the shares of the Corporation, the person or
persons in whose name or names the shares are registered on the books of the
Corporation. The transfer of uncertified shares, if any, shall be made by the
means determined by the Board of Directors. Every certificate surrendered to the
Corporation for exchange or transfer shall be canceled, and no new certificate
or certificates shall be issued in exchange for any existing certificate until
such existing certificate shall have been cancelled. The rights against the
Corporation inherent in certified shares are transferable only by registration
of such shares in the name of the assignee as the registered holder on the
Shareholders Ledger maintained by the Transfer Agent of the Corporation.
Section 7. TRANSFER AGENT AND REGISTRAR. The Board of Directors may appoint
one or more transfer agents and one or more registrars and may require all
certificates for shares to bear the signature or signatures of any of them. The
Transfer Agent shall maintain among other records a Shareholders' Ledger,
setting forth, among other things, the names and addresses of the holders of all
issued shares of the Corporation, the number of shares held by each, the
certificate numbers representing such shares, and the date of issue of the
certificates representing such shares. The Registrar shall maintain among other
records a Share Register, setting forth, among other things, the total number of
shares of each class of shares which the Corporation is authorized to issue, and
the total number of shares actually issued. The Shareholders' Ledger and the
Share Register are hereby identified as the Stock Transfer Books of the
Corporation; but as between the Shareholders' Ledger and the Share Register, the
names and addresses of shareholders, as they appear on the Shareholders' Ledger
maintained by the Transfer Agent, shall be the official list of "shareholders of
record" of the Corporation, in the Articles of Incorporation, Bylaws, stock
certificates, minutes and other records of the Corporation occasionally referred
to as "registered holders." The name and address of each shareholder of record,
as they appear upon the Shareholders' Ledger, shall be conclusive evidence as to
who are the shareholders entitled to receive notice of the meetings of
shareholders; to vote at such meetings, to examine a complete list of the
shareholders entitled to vote at meetings; and to own, enjoy, and exercise any
other property or rights deriving from such shares against the Corporation.
Shareholders, but not the Corporation, its Directors, Officers, Agents or
Attorneys, shall be responsible for notifying the Transfer Agent, in writing, of
any changes in their names or addresses from time to time, and failure so to do
will relieve the Corporation, its other Shareholders, Directors, Officers,
Agents, and Attorneys, and its Transfer Agent and Registrar, of liability for
failure to direct notices or other documents, or pay over or transfer dividends
or other property or rights, to a name or address other than the name and
address appearing in the Shareholders' Ledger maintained by the Transfer Agent.
Section 8. LOST, STOLEN OR DESTROYED CERTIFICATES. The Corporation may
issue a new certificate for shares of stock in the place of any certificate
theretofore issued and alleged to have been lost, stolen or destroyed, but the
Board of Directors may require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to furnish affidavits as to such loss,
theft, or destruction and to give a bond in such form and substance, and with
such surety or sureties, with fixed or open penalty, as it may direct, to
indemnify the Corporation and the Transfer Agent and Registrar against any claim
that may be made on account of the alleged loss, theft or destruction of such
certificate.
ARTICLE IV
THE SHAREHOLDERS
Section 1. PLACE OF MEETINGS. Meetings of the shareholders of the
Corporation may be held at such place, either within or without the State of
Minnesota, as may be specified in the respective notices, or waivers of notice,
thereof, or proxies to represent shareholders thereat.
Section 2. ANNUAL MEETING. An annual meeting of the shareholders for the
election of Directors and for the transaction of such other business as may
properly come before the meeting shall be held on an annual basis as determined
by the Board of Directors.
Section 3. SPECIAL MEETINGS. Special meetings of the shareholders may be
called by the Chief Executive Officer, the Board of Directors, or the holders of
not less than one-tenth of all the shares entitled to vote at the meeting.
Section 4. NOTICE OF MEETINGS--WAIVER. Written or printed notice, stating
the place, day and hour of the meeting and, in case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered not less
than ten nor more than sixty days before the date of the meeting, either
personally or by mail, by or at the direction of the Chief Executive Officer,
the Secretary, or the Officer or person calling the meeting, to each shareholder
of record entitled to vote at such meeting. If mailed, such notice shall be
deemed to be delivered when deposited in the United States mail addressed to the
shareholder at this address as it appears on the Stock Transfer Books of the
Corporation, with postage thereon prepaid. Waiver by a shareholder of notice in
writing of a shareholders' meeting, signed by him, whether before or after the
time stated therein, shall be equivalent to the giving of such notice.
Attendance by a shareholder, whether in person or by proxy, at a shareholders'
meeting shall constitute a waiver of notice of such meeting.
Section 5. MEETINGS HELD UPON SHAREHOLDER DEMAND. Annual or special
meetings of the shareholders may be demanded by a shareholder under the
following circumstances:
Clause (a). If an annual meeting of shareholders has not been held during
the immediately preceding fifteen (15) months, a shareholder or shareholders
holding three percent (3%) or more of all voting shares may demand an annual
meeting of shareholders by written notice of demand given to the Chief Executive
Officer or Chief Financial Officer the Corporation. If the Board fails to cause
an annual meeting to be called and held as required by law, the shareholder or
shareholders making the demand may call the meeting by giving notice as required
by law, all at the expense of the Corporation.
Clause (b). A shareholder or shareholders holding ten percent (10%) or more
of the voting power of all shares entitled to vote may demand a special meeting
of shareholders by written notice of demand given to the Chief Executive Officer
or Chief Financial Officer of the Corporation and containing the purpose of the
meeting, except that a special meeting for the purpose of considering any action
to directly or indirectly effect a business combination, including any action to
change or otherwise affect the composition of the Board of Directors for that
purpose, must be called by twenty-five percent (25%) or more of the voting power
of all shares entitled to vote. Within thirty (30) days after receipt of the
notice of demand by the Chief Executive Officer or Chief Financial Officer, it
shall be the duty of the Board of Directors to cause a special meeting to be
duly called and held on notice no later than ninety (90) days after receipt of
the demand. If the Board of Directors fails to cause such a meeting to be called
and held as required by this Section, the shareholder or shareholders making the
demand may call the meeting by giving notice as provided in Article IV, Section
4.
Section 6. CLOSING OF TRANSFER BOOKS AND FIXING RECORD DATE. For the
purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or entitled to receive
payment of any dividend, or in order to make a determination of shareholders for
any other proper purpose, the Board of Directors of the Corporation may provide
that the Stock Transfer Books shall be closed for a stated period but not to
exceed, in any case, sixty days. If the Stock Transfer Books shall be closed for
the purpose of determining shareholders entitled to notice of or to vote at a
meeting of shareholders, such books shall be closed for at least ten days
immediately preceding such meeting. In lieu of closing the Stock Transfer Books,
the Board of Directors may fix in advance a date as the record date for any such
determination of shareholders, such date in any case to be not more than sixty
days and, in case of a meeting of shareholders, not less than ten days prior to
the date on which the particular action, requiring such determination of
shareholders, is to be taken. If the Stock Transfer Books are not closed and no
record date is fixed for the determination of shareholders entitled to notice of
or to vote at a meeting of shareholders, or shareholders entitled to receive
payment of a dividend, the date on which notice of the meeting is mailed or the
date on which the resolution of the Board of Directors declaring such dividend
is adopted, as the case may be, shall be the record date for such determination
of shareholders. When a determination of shareholders entitled to vote at any
meeting of shareholders has been made as provided in this Section, such
determination shall apply to any adjournment thereof except where the
determination has been made through the closing of the Stock Transfer Books and
the stated period of closing has expired.
Section 7. QUORUM. A majority of the shares entitled to vote, represented
in person or by proxy, shall constitute a quorum at a meeting of shareholders.
The shareholders present at a duly organized meeting may continue to do business
until adjournment, notwithstanding the withdrawal of enough shareholders to
leave less than a quorum.
Section 8. VOTING.
Clause (a) COMMON STOCK. Except as otherwise provided by the Act or by the
Articles of Incorporation, every holder of the Common Stock of the Corporation
shall be entitled to one vote for each share of Common Stock standing in his
name on the books of the Corporation.
Clause (b) PROHIBITION AGAINST VOTING STOCK. Common Stock shall not be
voted at any meeting of shareholders in any of the following events:
Item (i) If any installment of the purchase price owing the Corporation for
such shares is due and unpaid thereon.
Item (ii) If the certificate representing such shares shall have been
transferred on the Shareholders' Ledger maintained by the Transfer Agent of the
Corporation after the record date for determining shareholders entitled to vote
at the meeting has been fixed by the Board of Directors, or, if no record date
is so fixed, then after the date on which notice of the meeting is mailed to
shareholders.
Clause (c) PROXIES. A shareholder may vote either in person or by proxy
executed in writing by the shareholder, or by his duly authorized
attorney-in-fact. No proxy shall be valid after eleven months from the date of
its execution, unless otherwise provided in the proxy.
Clause (d) VOTING OF SHARES OWNED BY OTHER CORPORATIONS. Shares standing in
the name of another corporation may be voted by such officer, agent or proxy as
the Bylaws of such other corporation may prescribe, or, in the absence of such
provision, as the Board of Directors of such other corporation may determine;
or, in the absence of such provision or determination, as the President or Vice
President and Secretary or Assistant Secretary of such other corporation may by
proxy, duly executed and sealed (but not necessarily acknowledged or verified),
designate.
Clause (e) VOTING OF SHARES OWNED BY FIDUCIARIES. Shares held by an
administrator, executor, guardian or conservator may be voted either in person
or by proxy, without a transfer of such shares into his name. Shares standing in
the name of a trustee may be voted by him, either in person or by proxy, but no
trustee shall be entitled to vote shares held by him without a transfer of such
shares into his name. It shall not be necessary for such fiduciary to obtain a
court order authorizing him to vote such shares. The general proxy of a
fiduciary shall be given the same weight and effect as a general proxy of an
individual or corporation.
Clause (f) VOTING OF SHARES OWNED BY RECEIVERS. Shares standing in the name
of a receiver may be voted by such receiver, and shares held by or under the
control of a receiver may be voted by such receiver without the transfer thereof
into his name if authority so to do be contained in an appropriate order of the
court by which such receiver was appointed.
Clause (g) VOTING OF PLEDGED SHARES. A shareholder whose shares are pledged
shall be entitled to vote such shares until the shares have been transferred
into the name of the pledge, and thereafter the pledge shall be entitled to vote
the shares so transferred.
Section 9. PROPOSALS. To be properly brought before a regular meeting of
shareholders, business must be (i) specified in the notice of the meeting, (ii)
directed to be brought before the meeting by the Board of Directors or (iii)
proposed at the meeting by a shareholder who (A) was a shareholder of record at
the time of giving of notice provided for in these Bylaws, (B) is entitled to
vote at the meeting and (C) gives prior notice of the matter, which must
otherwise be a proper matter for shareholder action, in the manner herein
provided. For business to be properly brought before a regular meeting by a
shareholder, the shareholder must give written notice to the Secretary of the
Corporation so as to be received at the principal executive offices of the
Corporation at least 120 days before the date that is one year after the date of
the corporation's proxy statement for the prior year's regular meeting. Such
notice shall set forth (i) the name and record address of the shareholder and of
the beneficial owner, if any, on whose behalf the proposal will be made, (ii)
the class and number of shares of the Corporation owned by the shareholder and
beneficially owned by the beneficial owner, if any, on whose behalf the proposal
will be made, (iii) a brief description of the business desired to be brought
before the regular meeting and the reasons for conducting such business and (iv)
any material interest in such business of the shareholder and the beneficial
owner, if any, on whose behalf the proposal is made. The chairman of the meeting
may refuse to acknowledge any proposed business not made in compliance with the
foregoing procedure.
Section 10. CONDUCT OF SHAREHOLDER MEETINGS. The presiding officer of the
meeting shall have the right and authority to prescribe such rules, regulations
and procedures and to do all such acts as, in the judgment of such presiding
officer, are appropriate for conduct of the meeting. To the extent not
prohibited by law, such rules, regulations or procedures may include, without
limitation, establishment of (i) an agenda or order of business for the meeting
and the method by which business may be proposed, (ii) rules and procedures for
maintaining order at the meeting and the safety of those present, (iii)
limitations on attendance at or participation in the meeting to shareholders of
record of the Corporation, their duly authorized proxies or such other person as
the presiding officer of the meeting shall determine, (iv) restrictions on entry
to the meeting after the time fixed for the commencement thereof and (v)
limitations on the time allotted to questions or comments by participants. Any
proposed business contained in the notice of a regular meeting is deemed to be
on the agenda and no further motions or other actions shall be required to bring
such proposed business up for consideration. Unless and to the extent otherwise
determined by the presiding officer of the meeting, it shall not be necessary to
follow Robert's Rules of Order or any other rules of parliamentary procedure in
the meeting of the shareholders. Following completion of the business of the
meeting as determined by the presiding officer of the meeting, the presiding
officer of the meeting shall have the exclusive authority to adjourn the
meeting.
ARTICLE V
THE BOARD OF DIRECTORS
Section 1. NUMBER AND QUALIFICATIONS. The business and affairs of the
Corporation shall be managed by a Board of not more than nine Directors, who
need not be residents of the State of Minnesota, or shareholders of the
Corporation. The number of Directors may be any lesser number, but may not be
less than three. The number of Directors may be increased to any number, from
time to time, by amendment of this Section; but no decrease shall have the
effect of shortening the term of any incumbent Director.
Section 2. ELECTION.
Clause (a) Members of the Board of Directors shall hold office until the
next annual meeting of the shareholders or until death, resignation, removal or
disqualification. At each annual meeting, the shareholders shall elect Directors
to hold office until the next succeeding annual meeting. Each Director shall
hold office for the term for which he is elected, and until his successor shall
be elected and qualified.
Clause (b) Nominations of persons for election as Directors at a regular
meeting of shareholders may be made (i) by or at the direction of the Board of
Directors or (ii) by any shareholder who (A) was a shareholder of record at the
time of giving of notice provided for in these Bylaws, (B) is entitled to vote
at the meeting and (C) gives prior notice of the nomination in the manner herein
provided. For a nomination to be properly made by a shareholder, the shareholder
must give written notice to the Secretary of the Corporation so as to be
received at the principal executive offices of the Corporation at least 120 days
before the date that is one year after the date of the corporation's proxy
statement for the prior year's regular meeting. Such notice shall set forth (i)
as to the shareholder giving the notice: (A) the name and record address of the
shareholder and the beneficial owner, if any, on whose behalf the nomination
will be made, and (B) the class and number of shares of the Corporation owned by
the shareholder and beneficially owned by the beneficial owner, if any, on whose
behalf the nomination will be made and (ii) as to each person the shareholder
proposes to nominate: (A) the name, age, business address and residence address
of the person, (B) the principal occupation or employment of the person and (C)
the class and number of shares of the Corporation's capital stock beneficially
owned by the person. The chairman of the meeting may refuse to acknowledge the
nomination of any person not made in compliance with the foregoing procedure.
Section 3. VACANCIES. Any vacancy occurring in the Board of Directors may
be filled by the affirmative vote of a majority of the remaining Directors,
though less than a quorum of the Board of Directors. A Director elected to fill
a vacancy shall be elected for the unexpired term of his predecessor in office.
Any directorship to be filled by reason of increase in the number of Directors
may be filled by the affirmative vote of the majority of the remaining
Directors, though less than a quorum of the Board of Directors. A Director
elected to fill such a vacancy shall hold office until the next annual meeting
of shareholders and until his successor shall have been elected and qualified.
Section 4. PLACE OF MEETINGS. Meetings of the Board of Directors of the
Corporation, annual, regular or special, may be held either within or without
the State of Minnesota. A conference among Directors of the Corporation by any
means of communication through which the Directors may simultaneously hear each
other during the conference constitutes a meeting of the Board of Directors.
Section 5. ANNUAL MEETINGS. The Board of Directors shall meet each year
immediately after the annual meeting of the shareholders, at the place where
such meeting of the shareholders has been held (either within or without the
State of Minnesota), or at such other location as the Board shall determine, for
the purpose of organization, election of officers, and consideration of any
other business that may properly be brought before the meeting. No notice of any
kind to either old or new members of the Board of Directors for such annual
meeting shall be necessary.
Section 6. REGULAR MEETINGS. Regular meetings of the Board of Directors
shall be held at least four (4) times a year as the Board of Directors may, from
time to time, determine.
Section 7. SPECIAL MEETINGS. Special meetings of the Board of Directors of
the Corporation shall be held upon notice thereof by letter, facsimile,
telephone, electronic mail, word-of-mouth or other means given not later than
twenty-four (24) hours prior to the time for such meeting. Notice of any special
meeting of the Board of Directors may be waived in writing signed by the person
or persons entitled to such notice, whether before or after the time stated
therein, and shall be equivalent to the giving of such notice. Attendance of a
Director at a special meeting shall constitute a waiver of notice of such
special meeting, except where a Director attends a meeting for the express
purpose of objecting to the transaction of any business, because such special
meeting is not lawfully convened. Neither the business to be transacted at, nor
the purpose of any special meeting of the Board of Directors, need be specified
in the notice, or waiver of notice of such meeting.
Section 8. QUORUM. A majority of the Directors currently holding office
shall constitute a quorum for the transaction of business. The act of the
majority of the Directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors.
Section 9. COMMITTEES.
Clause (a) A resolution approved by the affirmative vote of a majority of
the Board of Directors may establish committees having the authority of the
Board in the management of the business of the Corporation to the extent
provided in the resolution. Committees shall be subject at all times to the
direction and control of the Board, except as provided in Article V, Section 10.
Clause (b) A committee shall consist of one or more natural persons, who
need not be Directors, appointed by the affirmative vote of a majority of the
Directors present at a duly held meeting of the Board.
Clause (c) Minutes, if any, of committee meetings shall be made available
upon request to members of the committee and to any Director.
Section 10. COMMITTEE OF DISINTERESTED PERSONS. Pursuant to the procedure
set forth in Section 9 above, the Board may establish a committee composed of
two or more disinterested Directors or other disinterested persons to determine
whether it is in the best interest of the Corporation to pursue a particular
legal right or remedy of the Corporation and whether to cause the dismissal or
discontinuance of a particular proceeding that seeks to assert a right or remedy
on behalf of the Corporation. For the purposes of this Section, a Director or
other person is "disinterested" if the director or other person is not the owner
of more than 1% of the stock of the Corporation or a related corporation, is not
a present or former officer, employee, or agent of the Corporation or of a
related corporation, and has not been made or threatened to be made a party to
the proceeding in question. The committee, once established, is not subject to
the direction or control of, or termination by, the Board. A vacancy on the
committee may be filled by a majority vote of the remaining committee members.
The good faith determinations of the committee are binding upon the Corporation
and its directors, officers, and shareholders. The committee shall terminate
when it issues a written report of its determinations to the Board.
Section 11. DIVIDENDS.
Clause (a) SHARE DIVIDENDS. The Board of Directors or the shareholders may,
from time to time, declare and the Corporation may pay dividends on its
outstanding shares in cash, property, or its own shares, except when the
Corporation is insolvent or when the payment thereof would render the
Corporation insolvent or when the declaration or payment thereof would be
contrary to any restrictions contained in the Articles of Incorporation or the
Act.
Section 12. LOANS. The Board of Directors shall have power with respect to
the lending of funds:
Clause (a) TO LEND FUNDS GENERALLY. To lend money for any general business
purposes; invest the funds of the Corporation from time to time; and take and
hold real and personal property as security for the payment of funds so loaned
or invested; but to make no loans secured by the shares of the Corporation.
Clause (b) TO LEND FUNDS TO EMPLOYEES. To lend money to, and otherwise
assist, its employees, other than its Directors and Officers; but to make no
loans secured by the shares of the Corporation.
Section 13. IMPROPER ACTION AT MEETINGS.
Clause (a) IMPROPER DIVIDEND OR DISTRIBUTION. Directors who vote for or
assent to the declaration of any dividend or other distribution of the assets of
the Corporation to its shareholders contrary to the provisions of the Act or the
Articles of Incorporation, shall be jointly and severally liable to the
Corporation for the amount of such dividend which is paid or the value of such
assets which are distributed in excess of the amount of such dividend or
distribution which could have been paid or distributed without a violation of
hate provisions of the Act or the Articles of Incorporation.
Clause (b) IMPROPER PURCHASE OF SHARES OF THE CORPORATION. Directors who
vote for or assent to the purchase of the shares of the Corporation contrary to
the provisions of the Act or the Articles of Incorporation shall be jointly and
severally liable to the Corporation for the amount of consideration paid for
such shares which is in excess of the maximum amount which could have been paid
therefore without a violation of the provisions of the Act or the Articles of
Incorporation.
Clause (c) IMPROPER LIQUIDATION OF ASSETS. Directors who vote for or assent
to any distribution of assets of the Corporation to its Shareholders during the
liquidation of the Corporation without payment and discharge of, or making
adequate provision for, all known debts, obligations, and liabilities of the
Corporation shall be jointly and severally liable to the Corporation for the
value of such assets which are distributed to the extent that such debts,
obligations and liabilities of the Corporation are not thereafter paid and
discharged.
Clause (d) IMPROPER LOANS. Directors who vote for or assent to the making
of a loan to an Officer or Director of the Corporation, or the making of any
loan secured by shares of the Corporation, shall be jointly and severally liable
to the Corporation for the amount of such loan until the repayment thereof.
Clause (e) EFFECT OF GOOD FAITH. A Director shall not be liable under
Clauses (a), (b), or (c) of this Section if he relied and acted in good faith
upon financial statements of the Corporation represented to him to be correct by
the President or the Officer of the Corporation having charge of its books of
account, or certified by an independent public or certified public accountant or
firm of such accountants fairly to reflect the financial condition of the
Corporation, nor shall he be so liable if in good faith in determining the
amount available for any such dividend or distribution he considered the assets
to be of their book value.
Clause (f) CONTRIBUTION FROM SHAREHOLDERS. Any Director against whom a
claim shall be asserted under or pursuant to this Section for the payment of a
dividend or other distribution of assets of the Corporation and who shall be
held liable thereon, shall be entitled to contribution from the shareholders who
accepted or received any such dividend or assets, knowing such dividend or
distribution to have been made in violation of this Section, in proportion to
the amounts received by them respectively.
Clause (g) CONTRIBUTION FROM OTHER DIRECTORS. Any Director against whom a
claim shall be asserted under or pursuant to this Section shall be entitled to
contribution from the other Directors who voted for or assented to the action
upon which the claim is asserted.
Section 14. EFFECT OF PRESENCE AT MEETINGS. A Director who is present at a
meeting of the Board of Directors at which action on any corporate matter is
taken shall be presumed to have assented to the action taken unless his dissent
shall be entered in the minutes of the meeting or unless he shall file his
written dissent to such action with the person acting as the secretary of the
meeting before the adjournment thereof or shall forward such dissent by
registered mail to the Secretary of the Corporation immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a Director
who voted in favor of such action.
Section 15. PLACES OF KEEPING RECORDS. Subject to the limitations existing
under the Act and the laws of the State of Minnesota, the books of account,
records, documents, and papers of the Corporation may be kept at any place or
places within the State of Minnesota. Limitations on the place or places where
the books of account, records, documents, and papers of the Corporation may be
kept may be made from time to time by the Bylaws of the Corporation.
Section 16. PROVISIONS FOR WORKING CAPITAL. The Board of Directors of the
Corporation shall have power, from time to time, to fix and determine and to
vary the amount to be reserved as working capital of the Corporation and, before
the payment of any dividends or the making of any distribution of profits, it
may set aside out of the net profits or earned surplus of the Corporation such
sum or sums as it may from time to time in its absolute discretion determine to
be proper whether as a reserve fund to meet contingencies or for the equalizing
of dividends, or for repairing or maintaining any property of the Corporation,
or for an addition to the stated capital, capital surplus, or earned surplus, or
for any corporate purposes that he Board of Directors shall think conducive to
the best interest of the Corporation, subject only to such limitations as the
Restated Code of Bylaws of the Corporation may from time to time impose.
Section 17. TO WHOM SHARES MAY BE SOLD. Subject to the provisions of the
Articles of Incorporation, any of the shares of the Corporation may be issued,
sold or otherwise disposed of by it from time to time to such person,
corporations, or other legal entities as the Board of Directors of the
Corporation may determine.
Section 18. INTEREST OF DIRECTORS IN CONTRACTS. Any contract or other
transaction between the Corporation and one or more of its Directors, or between
the Corporation and any firm of which one or more of its Directors are members
or employees, or in which they are interested, or between the Corporation and
any corporation or association of which one or more of its Directors are
shareholders, members, directors, officers, or employees, or in which they are
interested, shall be valid for all purposes, notwithstanding the presence of
such Director or Directors at the meeting of the Board of Directors of the
Corporation, which acts upon, or in reference to such contract or transaction,
and notwithstanding his or their participation in such action, if the fact of
such interest shall be disclosed or known to the Board of Directors present,
such interested Director or Directors to be counted in determining whether a
quorum is present, but not to be counted in calculating the majority of such
quorum necessary to carry such vote. This Section shall not be construed to
invalidate any contract or other transaction which would otherwise be valid
under the common and statutory law applicable thereto.
Section 19. COMPENSATION OF DIRECTORS. By act of a majority of the Board of
Directors, the members of the Board of Directors may be paid a retainer and/or a
fee for attendance at all annual, regular, special and adjourned meetings of the
Board and its duly constituted committees. No such fee shall be paid any
Director if absent. Any Director of the Corporation may also serve the
Corporation in any other capacity, and receive compensation therefore in any
form.
ARTICLE VI
EXECUTIVE COMMITTEE
Section 1. DESIGNATION OF EXECUTIVE COMMITTEE. By resolution of the Board
of Directors, the Board may designate two or more Directors to constitute an
Executive Committee. The designation of such Executive Committee, and the
delegation of the authority herein granted, shall not operate to relieve the
Board of Directors, or any member thereof, of any responsibility imposed upon it
or him by law. No member of the Executive Committee shall continue to be a
member thereof after he ceases to be a Director of the Corporation. The Board of
Directors shall have the power at any time to increase or decrease the number of
members of the Executive Committee, to fill vacancies thereon, to change any
member thereof, and to change the functions or terminate the existence thereof.
Section 2. POWERS OF THE EXECUTIVE COMMITTEE. During the intervals between
meetings of the Board of Directors, and subject to such limitations as may be
required by law or by resolution of the Board of Directors, the Executive
Committee shall have and may exercise all of the authority of the Board of
Directors in the management of the Corporation. The Executive Committee may
also, from time to time, formulate and recommend to the Board of Directors for
approval general policies regarding the management of the business and affairs
of the Corporation. All minutes of meetings of the Executive Committee shall be
submitted to the next succeeding meeting of the Board of Directors for approval;
but failure to submit the same or to receive the approval thereof shall not
invalidate any completed or incompleted action taken by the Corporation upon
authorization by the Executive Committee prior to the time at which the same
should have been, or was, submitted as above provided.
Section 3. PROCEDURE; MEETINGS; QUORUM. The Chairman of the Executive
Committee of the Corporation shall, if present, act as Chairman at all meetings
of the Executive Committee, and the Secretary of the Corporation shall, if
present, act as secretary of the meeting. In case of the absence of the Chairman
from any meeting of the Executive Committee, the Executive Committee shall
appoint an Acting Chairman of the meeting. The Executive Committee shall keep a
record of its acts and proceedings. Regular meetings of the Executive Committee,
of which no notice shall be necessary, shall be held on such days and at such
places as shall be fixed by resolution adopted by a majority of the Executive
Committee. Special meetings of the Executive Committee shall be called at the
request of any member of the Executive Committee, and shall be held upon notice
by letter, facsimile, or other electronic memo, delivered for transmission not
later than during the second day immediately preceding the day for such meeting.
Notice of any special meeting of the Executive Committee may be waived in
writing, signed by the member or members entitled to such notice, whether before
or after the time stated therein, and shall be equivalent to the giving of such
notice. Attendance of any member of the Executive Committee at a special meeting
shall constitute a waiver of notice of such special meeting. The Executive
Committee may hold its meetings within or without the State of Minnesota, as it
may from time to time by resolution determine. A majority of the Executive
Committee shall be necessary to constitute a quorum for the transaction of any
business, and the act of a majority of the members present at a meeting at which
a quorum is present shall be the act of the Executive Committee. The members of
the Executive Committee shall act only as a committee, and the individual
members shall have no power as such.
ARTICLE VII
OFFICERS
Section 1. NUMBER AND DESIGNATION. The Officers of the Corporation shall be
elected or appointed by the Board of Directors. The Corporation shall have one
or more natural persons exercising the functions of the offices of Chief
Executive Officer and Chief Financial Officer. The Board of Directors may elect
or appoint such other officers or agents as it deems necessary for the operation
and management of the Corporation, with such powers, rights, duties, and
responsibilities as may be determined by the Board, including, without
limitation, a Chairman of the Board (who shall be a director), a President, one
or more Vice Presidents, a Secretary, and a Treasurer, each of whom shall have
the powers, rights, duties, and responsibilities set forth in these Bylaws,
unless otherwise determined by the Board. Any of the offices or functions of
those offices may be held or performed by the same person.
Section 2. CHIEF EXECUTIVE OFFICER. Unless provided otherwise by a
resolution adopted by the Board of Directors, the Chief Executive Officer: (a)
shall be responsible for the general active management of the business of the
Corporation; (b) shall, when present, preside at all meetings of the
shareholders; (c) shall be responsible for implementing all orders and
resolutions of the Board; (d) shall sign and deliver in the name of the
Corporation any deeds, mortgages, bonds, contracts, or other instruments
pertaining to the business of the Corporation, except where authority to sign
and deliver is required or permitted by law to be exercised by another person
and except where such authority is expressly delegated by these Bylaws or by the
Board to some other officer or agent of the Corporation; (e) may maintain
records of and certity proceedings of the Board and shareholders; and (f) shall
perform such other duties as may from time to time be assigned to him by the
Board.
Section 3. CHIEF FINANCIAL OFFICER. Unless provided otherwise by a
resolution adopted by the Board of Directors, the Chief Financial Officer: (a)
shall keep accurate financial records for the Corporation; (b) shall deposit all
moneys, drafts, and checks in the name of and to the credit of the Corporation
in such banks and depositories as the Board of Directors shall designate from
time to time; (c) shall endorse for deposit all notes, checks, and drafts
received by the Corporation as ordered by the Board, making proper vouchers
therefore; (d) shall disburse the funds of the Corporation as may be ordered by
the Board of Directors or the Chief Executive Officer, making proper vouchers
therefore; (e) shall render to the Chief Executive Officer and the Board of
Directors, whenever requested, an account of all of his transactions as Chief
Financial Officer and of the financial condition of the Corporation; and (f)
shall perform such other duties as may be assigned to him by the Board of
Directors or the Chief Executive Officer from time to time.
Section 4. CHAIRMAN OF THE BOARD. The Chairman of the Board of the
Corporation shall preside at all meetings of the Board of Directors and shall
perform such other functions as may be determined from time to time by the
Board.
Section 5. PRESIDENT. Unless otherwise determined by the Board of
Directors, the President shall be the Chief Executive Officer of the
Corporation. If an officer other than the President is designated Chief
Executive Officer, the President shall perform such duties as may from time to
time be assigned to him by the Board, or if authorized by the Board, such duties
as are assigned to him by the Chief Executive Officer.
Section 6. VICE PRESIDENTS. Any one or more Vice Presidents, if any, may be
designated by the Board of Directors as Executive Vice Presidents or Senior Vice
Presidents. During the absence or disability of the President, it shall be the
duty of the highest ranking Executive Vice President, and, in the absence of any
such Vice President, it shall be the duty of the highest ranking Senior Vice
President or other Vice President, who shall be present at the time and able to
act, to perform the duties of the President. The determination of who is the
highest ranking of two or more persons holding the same office shall, in the
absence of specific designation of order or rank by the Board of Directors, be
made on the basis of the earliest date of appointment or election, or, in the
event of simultaneous appointment or election, on the basis of the longest
continuous employment by the Corporation.
Section 7. SECRETARY. The Secretary, unless otherwise determined by the
Board, shall attend all meetings of the shareholders and all meetings of the
Board of Directors, shall record or cause to be recorded all proceedings thereof
in a book to be kept for that purpose, and may certity such proceedings. Except
as otherwise required or permitted by law or by these Bylaws, the Secretary
shall give or cause to be given notice of all meetings of the shareholders and
all meetings of the Board of Directors.
Section 8. TREASURER. Unless otherwise determined by the Board, the
Treasurer shall be the Chief Financial Officer of the Corporation. If an officer
other than the Treasurer is designated Chief Financial Officer, the Treasurer
shall perform such duties as may from time to time be assigned to him by the
Board.
Section 9. TREASURER'S BOND. If required by the Board of Directors, the
Treasurer shall give the Corporation a bond in such sum and with such surety or
sureties as shall be satisfactory to the Board of Directors for the faithful
performance of the duties of his office and for the restoration to the
Corporation, in case of his death, resignation, retirement, or removal from
office, of all books, papers, vouchers, money, and other property of whatever
kind in his possession or under his control belonging to the Corporation.
Section 10. VACANCIES. If any office becomes vacant by reason of death,
resignation, retirement, disqualification, removal, or other cause, the
directors then in office, although less than a quorum, may by a majority vote,
choose a successor or successors who shall hold office for the unexpired term in
respect of which such vacancy occurred.
Section 11. AUTHORITY AND DUTIES. In addition to the foregoing authority
and duties, all officers of the Corporation shall respectively have such
authority and perform such duties in the management of the business of the
Corporation as may be designated from time to tine by the Board of Directors.
Unless prohibited by a resolution approved by the affirmative vote of a majority
of the Directors present, an officer elected or appointed by the Board may,
without the approval of the Board ,delegate some or all of the duties and powers
of an office to other persons.
Section 12. TERM; RESIGNATION; REMOVAL; VACANCIES.
Clause (a) All officers of the Corporation shall hold office until their
respective successors are chosen and have qualified or until their earlier
death, resignation, or removal.
Clause (b) An officer may resign at any time by giving written notice to
the Corporation. The resignation is effective without acceptance when the notice
is given to the Corporation, unless a later effective date is specified in the
notice.
Clause (c) An officer may be removed at any time, with or without cause, by
a resolution approved by an affirmative vote of the majority of the directors
present at a duly held Board meeting.
Clause (d) A vacancy in an office because of death, resignation, removal,
disqualification, or other cause may, or in the case of a vacancy in the office
of Chief Executive Officer or Chief Financial Officer shall, be filled by the
Board.
Section 13. OFFICERS SHALL NOT LEND CORPORATE CREDIT. Except when properly
authorized to act on behalf of the Corporation, no officer of this Corporation
may sign or endorse, in the name of or on behalf of this Corporation or in his
official capacity, any obligations for the accommodation of any other party. No
check, note, bond, stock certificate, or other security or thing of value
belonging to this Corporation shall be used by an officer or director as
collateral for any obligation other than a valid obligation of the Corporation.
Section 14. SALARIES. The salaries of all officers of the Corporation shall
be fixed by the Board of Directors or by the Chief Executive Officer, if
authorized by the Board.
ARTICLE VIII
Section 1. INDEMNIFICATION. The Corporation shall indemnify such persons
for such expenses and liabilities, in such manner, under such circumstances, and
to such extent, as required or permitted by Minnesota Statutes Section 302A.521,
as amended from time to time, or as required or permitted by other provisions of
law.
Section 2. INSURANCE. The Corporation may purchase insurance, at its
expense, to protect itself and any Director, Officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Minnesota Business Corporation Act.
ARTICLE IX
SPECIAL CORPORATE ACTS.
NEGOTIABLE INSTRUMENTS, DEEDS, CONTRACTS
AND SHAREHOLDERS' MEETINGS.
Section 1. EXECUTION OF NEGOTIABLE INSTRUMENTS. All checks, drafts, notes,
bonds, bills of exchange and orders for the payment of money of the Corporation
shall, unless otherwise directed by the Board of Directors, or unless otherwise
required bylaw, be signed by any two of the following Officers: Chairman of the
Board, Chief Executive Officer, Chief Financial Officer, President, a Vice
President, Treasurer, Assistant Treasurer, Secretary or Assistant Secretary. The
Board of Directors may, however, authorize any one of such Officers to sign
checks, drafts and orders for the payment of money, which are for respective
amounts not in excess of $10,000.00 in any case, singly and without necessity of
countersignature; and may designate Officers and employees of the Corporation,
other than those names above, or different combinations of such Officers and
employees of the Corporation, who may, in the name of the Corporation, execute
in its behalf checks, drafts and orders for the payment of money, which are for
amounts not in excess of $5,000.00.
Section 2. EXECUTION OF DEEDS, CONTRACTS, ETC. Subject always to the
specific directions of the Board of Directors all deeds and mortgages made by
the Corporation and all other written contracts and agreements to which the
Corporation shall be a party shall be executed in its name by the President or
one of the Vice Presidents and attested by the Secretary or an Assistant
Secretary; and the Secretary or an Assistant Secretary, when necessary or
required, shall affix the Corporate Seal thereto.
Section 3. ENDORSEMENT OF STOCK CERTIFICATES. Subject always to the
specific directions of the Board of Directors, any share or shares of stock
issued by any corporation and owned by the Corporation (including reacquired
shares of stock of the Corporation) may, for sale or transfer, be endorsed in
the name of the Corporation by the President or one of the Vice Presidents, and
attested by the Secretary or an Assistant Secretary either with or without
affixing thereto the Corporate Seal.
Section 4. VOTING OF SHARES OWNED BY CORPORATION. Subject always to the
specific directions of the Board of Directors, any share or shares of stock
issued by any other corporation and owned or controlled by the Corporation may
be voted at any shareholders meeting of such other corporation by the President
of the Corporation if he be present, or in his absence by any Vice President of
the Corporation who, may be present. Whenever, in the judgment of the President,
or, in his absence, of any Vice Presidents, it is desirable for the Corporation
to execute a proxy or give a shareholders consent in respect to any share of
shares of stock issued by any other corporation and owned by the Corporation,
such proxy or consent shall be executed in the name of the Corporation by the
President or one of the Vice Presidents of the Corporation and shall be attested
by the Secretary or an Assistant Secretary of the Corporation under the
Corporate Seal without necessity of any authorization by the Board of Directors.
Any person or persons designated in the manner above stated as the proxy or
proxies of the Corporation shall have full right, power and authority to vote
the share or shares of stock issued by such other corporation and owned by the
Corporation the same as such share or shares might be voted by the Corporation.
ARTICLE X
AMENDMENTS
The power to alter, amend or repeal these Bylaws, or adopt new Bylaws, is
vested in the Board of Directors, but the affirmative vote of the number of
Directors which is equal to a majority of the number who would constitute a full
Board of Directors at the time of such action shall be necessary to effect any
such action.
The undersigned, Possis Medical, Inc., a Minnesota corporation, does hereby
certify that the foregoing Bylaws were duly adopted as the Bylaws of the
Corporation by its Board of Directors, and are effective as of June 10, 1999.
POSSIS MEDICAL, INC.
By:
Irving R. Colacci, Secretary
EXHIBIT 10.20
CHANGE IN CONTROL
TERMINATION PAY PLAN
SECTION 1
INTRODUCTION
Effective September 15, 1999, Possis Medical, Inc., a Minnesota corporation
(hereinafter sometimes referred to as "Employer" or the "Company"), hereby
creates a change in control termination pay plan for the benefit of certain
employees of the Employer in the event of a Change in Control. Capitalized terms
used herein shall have the meaning provided in Section 9.
The Board of Directors of the Company (the "Board"), has determined that it
is in the best interests of the Company and its shareholders to assure that the
Company will have the continued dedication of its officers and other key
management and technical personnel, notwithstanding the possibility, threat or
occurrence of a Change in Control (as defined below) of the Company. The Board
believes it is essential to diminish the inevitable distraction of these
employees by virtue of the personal uncertainties and risks created by a pending
or threatened Change in Control and to encourage full attention and dedication
to the Company currently and in the event of any threatened or pending Change in
Control, and to provide specified individuals with compensation and benefit
arrangements upon a Change in Control which ensure that the compensation and
benefits expectations of these individuals will be satisfied and which are
competitive with those of other corporations. Therefore, in order to accomplish
these objectives, the Board has adopted this Change in Control Termination Pay
Plan.
SECTION 2
PARTICIPATION
All Participants in the Plan shall be identified at the discretion of the
Board. Participants shall be classified as Class I, Class II, Class III or Class
IV Participants. An employee who has become a Participant shall be considered to
continue as a Participant in the Plan until the date of the Participant's death
or, if earlier, the date when the Participant is no longer employed by the
Employer or is removed as a Participant at the discretion of the Board;
provided, however, that a Participant who has a Termination of Employment within
24 months following the date of a Change in Control will not cease to be a
Participant.
SECTION 3
TERMINATION OF EMPLOYMENT
3.1. Notice of Termination. Any purported termination of a Participant's
employment by the Employer or the Participant, including a Termination of
Employment as defined herein, (other than by reason of the Participant's death)
within twenty-four (24) months following the month in which a Change in Control
occurs, shall be communicated by a Notice of Termination to the other. No
purported termination by the Employer of a Participant's employment shall be
effective if it is not pursuant to a Notice of Termination. Failure by a
Participant to provide Notice of Termination shall not limit any rights of the
Participant under the Plan except to the extent the Employer can demonstrate
that it suffered actual damages by reason of such failure.
3.2. Participant's Termination Rights. A Participant's right to terminate
his or her employment pursuant to the terms of the Plan shall not be affected by
the Participant's incapacity due to physical or mental illness. A Participant's
continued employment shall not constitute consent to, or a waiver of rights with
respect to, any circumstance constituting Good Reason pursuant to the terms of
the Plan. Termination by a Participant of the Participant's employment for Good
Reason shall constitute termination for Good Reason for all purposes of the
Plan, notwithstanding that the Participant may also thereby be deemed to have
"retired" under any applicable retirement programs of the Employer.
SECTION 4
TERMINATION PAYMENT
4.1. Qualification. To qualify for a termination payment under the Plan, a
Participant must (a) be a Participant as of the date of the Change in Control,
and (b) have a Termination of Employment within 24 months following a Change in
Control.
4.2. Amount. Subject to the eligibility requirement set forth in Section
4.1, and the limitations set forth in Section 4.4 and Section 5, termination
payments for Class I, Class II, Class III and Class IV Participants shall be
determined as
follows:
4.2.1. Class I Participants. Termination payments shall be made to a Class
I Participant in an amount equal to the sum of (a) thirty-six (36) times the
Class I Participant's highest monthly base compensation during the six (6)
months immediately before the Date of Termination; and (b) all annual incentive
payments that the Class I Participant would have received for the year in which
the Date of Termination occurs, had required performance targets been met, which
shall be deemed to have occurred on the Date of Termination, whether or not they
have occurred or could possibly occur. Said payments shall be paid in a single
lump sum, discounted to present value, or by periodic payments consistent with
payroll practices of the Employer during a term to be determined by the Board.
The manner of payment shall be at the discretion of the Board.
Additionally, the Class I Participant shall receive the following: (a)
until the end of the thirty-sixth (36th) month following the month in which
occurs the Class I Participant's Date of Termination, the Employer will arrange
to provide the Class I Participant with welfare benefits (including life and
health insurance benefits) and other employee benefits of substantially similar
design and cost (to the Class I Participant) as the welfare benefits and other
employee benefits available to the Class I Participant immediately prior to the
Notice of Termination or immediately prior to the date of the Change in Control,
whichever is greater; but benefits otherwise receivable by the Class I
Participant pursuant to this clause (a) shall be discontinued if the Class I
Participant obtains full-time employment providing welfare benefits during such
period following such termination; and (b) group outplacement counseling
services up to $20,000 in value. Notwithstanding the foregoing, the Employer
shall not be required to continue to provide disability benefits following a
Class I Participant's Date of Termination other than with respect to benefits to
which the Class I Participant became entitled prior to the Date of Termination
and which are required to be paid following such Date of Termination in
accordance with the terms of applicable disability plans or policies in effect
prior to such Date of Termination. The Class I Participant shall not be required
to mitigate the amount of any payment provided for under the Plan by seeking
other employment or otherwise, nor shall the amount of any payment provided for
under the Plan be reduced by any compensation earned by the Class I Participant
as the result of employment by another employer after the Date of Termination,
or otherwise, except as set forth in clause (a) of this paragraph.
4.2.2. Class II Participants. Termination payments shall be made to a Class
II Participant in an amount equal to the sum of (a) twenty-four (24) times the
Class II Participant's highest monthly base compensation during the six (6)
months immediately before the Date of Termination; and (b) all annual incentive
payments that the Class II Participant would have received for the year in which
the Date of Termination occurs, had required performance targets been met, which
shall be deemed to have occurred on the Date of Termination, whether or not they
have occurred or could possibly occur. Said payments shall be paid in a single
lump sum, discounted to present value, or by periodic payments consistent with
payroll practices of the Employer during a term to be determined by the Board.
The manner of payment shall be at the discretion of the Board.
Additionally, the Class II Participant shall receive the following: (a)
until the end of the twenty-fourth (24th) month following the month in which
occurs the Class II Participant's Date of Termination, the Employer will arrange
to provide the Class II Participant with welfare benefits (including life and
health insurance benefits) and other employee benefits of substantially similar
design and cost (to the Class II Participant) as the welfare benefits and other
employee benefits available to the Class II Participant immediately prior to the
Notice of Termination or immediately prior to the date of the Change in Control,
whichever is greater; but benefits otherwise receivable by the Class II
Participant pursuant to this clause (a) shall be discontinued if the Class II
Participant obtains full-time employment providing welfare benefits during such
period following such termination; and (b) group outplacement counseling
services up to $15,000 in value. Notwithstanding the foregoing, the Employer
shall not be required to continue to provide disability benefits following a
Class II Participant's Date of Termination other than with respect to benefits
to which the Class II Participant became entitled prior to the Date of
Termination and which are required to be paid following such Date of Termination
in accordance with the terms of applicable disability plans or policies in
effect prior to such Date of Termination. The Class II Participant shall not be
required to mitigate the amount of any payment provided for under the Plan by
seeking other employment or otherwise, nor shall the amount of any payment
provided for under the Plan be reduced by any compensation earned by the Class
II Participant as the result of employment by another employer after the Date of
Termination, or otherwise, except as set forth in clause (a) of this paragraph.
4.2.3. Class III Participants. Termination payments shall be made to a
Class III Participant in an amount equal to the sum of (a) twelve (12) times the
Class III Participant's highest monthly base compensation during the six (6)
months immediately before the Date of Termination; (b) all annual incentive
payments that the Class III Participant would have received for the year in
which the Date of Termination occurs, had required performance targets been met,
which shall be deemed to have occurred on the Date of Termination, whether or
not they have occurred or could possibly occur. Said payments shall be paid in a
single lump sum, discounted to present value, or by periodic payments consistent
with payroll practices of the Employer during a term to be determined by the
Board. The manner of payment shall be at the discretion of the Board.
Additionally, the Class III Participant shall receive the following: (a)
until the end of the twelfth (12th) month following the month in which occurs
the Class III Participant's Date of Termination, the Employer will arrange to
provide the Class III Participant with welfare benefits (including life and
health insurance benefits) and other employee benefits of substantially similar
design and cost (to the Class III Participant) as the welfare benefits and other
employee benefits available to the Class III Participant immediately prior to
the Notice of Termination or immediately prior to the date of the Change in
Control, whichever is greater; but benefits otherwise receivable by the Class
III Participant pursuant to this clause (a) shall be discontinued if the Class
II Participant obtains full-time employment providing welfare benefits during
such period following such termination; and (b) group outplacement counseling
services up to $10,000 in value. Notwithstanding the foregoing, the Employer
shall not be required to continue to provide disability benefits following a
Class III Participant's Date of Termination other than with respect to benefits
to which the Class III Participant became entitled prior to the Date of
Termination and which are required to be paid following such Date of Termination
in accordance with the terms of applicable disability plans or policies in
effect prior to such Date of Termination. The Class III Participant shall not be
required to mitigate the amount of any payment provided for under the Plan by
seeking other employment or otherwise, nor shall the amount of any payment
provided for under the Plan be reduced by any compensation earned by the Class
III Participant as the result of employment by another employer after the Date
of Termination, or otherwise, except as set forth in clause (a) of this
paragraph.
4.2.4. Class IV Participants. Termination payments shall be made to a Class
IV Participant in an amount equal to the sum of (a) six (6) times the Class IV
Participant's highest monthly base compensation during the six (6) months
immediately before the Date of Termination; (b) all annual incentive payments
that the Class IV Participant would have received for the year in which the Date
of Termination occurs, had required performance targets been met, which shall be
deemed to have occurred on the Date of Termination, whether or not they have
occurred or could possibly occur. Said payments shall be paid in a single lump
sum, discounted to present value, or by periodic payments consistent with
payroll practices of the Employer during a term to be determined by the Board.
The manner of payment shall be at the discretion of the Board.
Additionally, the Class IV Participant shall receive the following: (a)
until the end of the sixth (6th) month following the month in which occurs the
Class IV Participant's Date of Termination, the Employer will arrange to provide
the Class IV Participant with welfare benefits (including life and health
insurance benefits) and other employee benefits of substantially similar design
and cost (to the Class IV Participant) as the welfare benefits and other
employee benefits available to the Class IV Participant immediately prior to the
Notice of Termination or immediately prior to the date of the Change in Control,
whichever is greater; but benefits otherwise receivable by the Class IV
Participant pursuant to this clause (a) shall be discontinued if the Class IV
Participant obtains full-time employment providing welfare benefits during such
period following such termination; and (b) group outplacement counseling
services up to $5,000 in value. Notwithstanding the foregoing, the Employer
shall not be required to continue to provide disability benefits following a
Class IV Participant's Date of Termination other than with respect to benefits
to which the Class IV Participant became entitled prior to the Date of
Termination and which are required to be paid following such Date of Termination
in accordance with the terms of applicable disability plans or policies in
effect prior to such Date of Termination. The Class IV Participant shall not be
required to mitigate the amount of any payment provided for under the Plan by
seeking other employment or otherwise, nor shall the amount of any payment
provided for under the Plan be reduced by any compensation earned by the Class
IV Participant as the result of employment by another employer after the Date of
Termination, or otherwise, except as set forth in clause (a) of this paragraph.
4.3 Cash Transaction Bonus. In the event of a Change in Control, and
notwithstanding their employment status following a Change in Control,
Participants identified by the Board may receive a Cash Bonus calculated
consistent based on the value of the Employer at the time of a Change in
Control. To qualify for this Cash Bonus payment, the Participant must be a
Participant as of the date of the Change in Control and must hold the same
position, or have essentially the same or higher level of responsibility, as
held when being named as a Participant.
The Cash Bonus payments provided herein are intended to be paid to senior
executive officers and other key management personnel of the Employer. Cash
Bonus payments shall be paid only if the Employer achieves substantial growth in
value. Said Cash Bonus Awards are intended and designed to be in an amount, in
aggregate, between one percent (1%) and a maximum of four percent (4%) of the
value of the Employer at the time of a Change in Control, as measured based on
revenue levels.
4.4 Certain Additional Payments by the Company.
4.4.1 Anything in this Agreement to the contrary notwithstanding and except
as set forth below, in the event it shall be determined that any payment or
distribution by the Company to or for the benefit of a Participant identified by
the Board as eligible for the benefit provided in this Section 4.4 (whether paid
or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional payments
required under this Section 4.4 (a "Payment") would be subject to the excise tax
imposed by Code Section 4999 or any interest or penalties are incurred by said
Participant with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then said Participant shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
said Participant retains an amount of the Gross-Up Payment equal to the Excise
Tax imposed upon the Payments.
4.4.2 Subject to the provisions of Section 9(c), all determinations
required to be made under this Section 4.4, including whether and when a
Gross-Up Payment is required and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determination, shall be made by
the Company, with the input of the Company's certified public accounting firm,
which shall provide detailed supporting calculations to the Participant within
15 business days of the receipt of notice that there has been a Payment. Any
Gross-Up Payment, as determined pursuant to this Section 9, shall be paid by the
Company to said Participant within a reasonable time. As a result of the
uncertainty in the application of Code Section 4999, it is possible that
Gross-Up Payments which will not have been made by the Company should have been
made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 4.4.3 and said Participant thereafter is required to make a payment of
any Excise Tax, the Company shall determine the amount of the Underpayment that
has occurred and any such Underpayment shall be promptly paid by the Company.
4.4.3 Said Participant shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after said Participant is
informed in writing of such claim and shall appraise the Company of the nature
of such claim and the date on which such claim is requested to be paid. Said
Participant shall not pay such claim prior to the expiration of the 30-day
period following the date on which he or she gives such notice to the Company
(or such shorter period ending on the date that any payment of taxes with
respect to such claim is due). If the Company notifies said Participant in
writing prior to the expiration of such period that it desires to contest such
claim, said participant shall:
(i) give the Company any information reasonably requested by the Company
relating to such claim;
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company;
(iii) cooperate with the Company in good faith in order to effectively
contest such claim; and
(iv) permit the Company to participate in any proceedings relating to such
claim.
Provided, however, that the Company shall bear and pay directly all costs
and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold said Participant
harmless, on an after-tax basis, for any Excise Tax or income tax (including
interest and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 4.4.3, the Company shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct the Participant to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and the said Participant
agrees to prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided, however, that if the Company
directs said Participant to pay such claim and sue for a refund, the Company
shall advance the amount of such payment to said Participant, on an
interest-free basis and shall indemnify and hold said Participant harmless, on
an after-tax basis, from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and further provided
that any extension of the statute of limitations relating to payment of taxes
for the taxable year of said Participant with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder and said
Participant shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
4.4.4 If, after the receipt by said Participant of an amount advanced by
the Company pursuant to Section 4.4.3, the said Participant becomes entitled to
receive any refund with respect to such claim said participant shall (subject to
the Company's complying with the requirements of Section 4.4.3) promptly pay to
the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by said
Participant of an amount advanced by the Company pursuant to Section 4.4.3, a
determination is made the said Participant shall not be entitled to any refund
with respect to such claim and the Company does not notify said Participant in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be paid.
4.5 Legal Fees and Expenses. The Employer will pay any legal fees and
expenses incurred by a Participant in connection with any dispute with any
Federal, state or local governmental agency with respect to benefits claimed
under the Plan. If the Participant utilizes arbitration to resolve any such
dispute, the Employer will pay any legal fees and expenses incurred by the
Participant in connection therewith.
SECTION 5
280G LIMITATION
The amount of any cash payment to be received by a Participant pursuant to
the Plan shall be reduced (but not below zero) by the amount, if any, necessary
to prevent any part of any payment or benefit received or to be received by the
Participant in connection with a Change in Control (whether payable pursuant to
the terms of the Plan or any other plan, contract, agreement or arrangement with
the Employer, with any person whose actions result in a Change in Control of the
Employer or with any person constituting a member of an "affiliated group" (as
defined in section 280G(d)(5) of the Code)) (such foregoing payments or benefits
referred to collectively as the "Total Payments"), from being treated as an
"excess parachute payment" within the meaning of section 280G(b) (l) of the
Code, but only if and to the extent such reduction will also result in, after
taking into account all applicable state or federal taxes (computed at the
highest marginal rate), including any taxes payable pursuant to section 4999 of
the Code, a greater after-tax benefit to the Participant than the after-tax
benefit to the Participant of the Total Payments computed without regard to any
such reduction. For purposes of the foregoing, (a) no portion of the Total
Payments shall be taken into account which in the opinion of tax counsel
selected by the Employer and acceptable to the Participant does not constitute a
"parachute payment" within the meaning of section 280G (b) (2) of the Code; (b)
any reduction in payments pursuant to the Plan shall be computed by taking into
account that portion of Total Payments which constitute reasonable compensation
within the meaning of section 28OG(b)(4) of the Code in the opinion of such tax
counsel; (c) the value of any non-cash benefit or of any deferred cash payment
included in the Total Payments shall be determined by the Employer in accordance
with the principles of section 28OG(d)(4) of the Code; and (d) in the event of
any uncertainty as to whether a reduction in Total Payments to the Participant
is required pursuant to the Plan, the Employer shall initially make the payment
to the Participant and the Participant shall be required to refund to the
Employer any amounts ultimately determined not to have been payable under the
terms of the Plan.
SECTION 6
AMENDMENT OR TERMINATION OF THE PLAN
The Plan may be terminated or amended at any time, at the discretion of the
Board. Except to the extent benefits have become payable but have not actually
been paid, the Plan terminates automatically on the second anniversary of the
date of a Change in
Control.
SECTION 7
MISCELLANEOUS PROVISIONS
7.1. Non-exclusivity of Rights. Nothing in the Plan shall prevent or limit
any Participant's continuing or future participation in any benefit, bonus,
incentive, retirement or other plan or program provided by the Employer and for
which the Participant may qualify, nor shall anything in the Plan limit or
reduce such rights as any Participant may have under any other agreement with,
or plan, program, policy or practice of, the Employer. Amounts which are vested
benefits or which a Participant is otherwise entitled to receive under any
agreement with, or plan, program, policy or practice of, the Employer shall be
payable in accordance with such agreement, plan, program, policy or practice,
except as explicitly modified by the Plan.
7.2. Successors. The Employer will require any successor (whether direct or
indirect, by purchase, merger, consolidation, or otherwise) to all or
substantially all of the business and/or assets of the Employer or of any
division or subsidiary thereof employing any Participant to expressly assume and
agree to perform under the terms of the Plan in the same manner and to the same
extent that the Employer would be required to perform if no such succession had
taken place. Failure of the Employer to obtain such assumption and agreement
prior to the effectiveness of any such succession shall entitle each affected
Participant to compensation from the Employer in the same amount and on the same
terms as the Participant would be entitled under the Plan if the Participant
terminated employment for Good Reason following a Change in Control, except that
for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Date of Termination and Notice
of Termination shall be deemed to have been given on such date.
7.3 Payments as Compensation. Payments under the Plan shall not be deemed
compensation for purposes for any retirement or 401(k) Plan maintained by the
Company.
7.4. Notice. Notices and all other communications provided for under the
Plan shall be in writing and shall be deemed to have been duly given when
delivered or mailed by United States registered mail, postage prepaid, addressed
to the other party as follows:
If to the Employer, to:
Possis Medical, Inc.
Attention: General Counsel
9055 Evergreen Blvd. N.W.
Minneapolis, MN 55433
If to the Participant, to the address shown on the records of the Employer,
which the Employer shall keep up to date.
Either party may change its address for purposes of this Section 7.4 by
giving appropriate notice to the other party.
7.5. Governing Law. The validity, interpretation and construction of the
Plan shall be governed by the laws of the State of Minnesota, except to the
extent that federal law controls.
7.6. Validity. The invalidity or unenforceability of any provision of the
Plan shall not affect the validity or enforceability of any other provision of
the Plan, which shall remain in full force and effect.
7.7. Employment. The Plan does not constitute a contract of employment or
impose on the Employer any obligation to retain any Participant as an employee,
to continue any Participant's current employment status or to change any
employment policies of the
Employer.
7.8. Termination Prior to a Change in Control. Any termination of the
Participant's employment by the Employer without Cause prior to a Change in
Control, and which occurs at the request or insistence of any person (other than
the Employer) in connection with a Change in Control shall be deemed to have
occurred after the Change in Control for purposes of the Plan.
SECTION 8
CLAIMS PROCEDURE
8.1. General. If a Participant believes that he or she may be entitled to
benefits, or the Participant is in disagreement with any determination that has
been made, the Participant may present a claim to the Employer.
8.2. Making a Claim. A Participant's claim must be written and must be
delivered to the Employer. Within 30 days after delivery of such claim, the
Participant shall receive either: (a) a decision; or (b) a notice describing
special circumstances requiring a specified amount of additional time (but no
more than 60 days from the date of delivery of such claim) to reach a decision.
If such claim is wholly or partially denied, the Participant shall receive
a written notice specifying: (a) the reasons for denial; (b) the Plan provisions
on which the denial is based; and (c) any additional information needed from the
Participant in connection with the claim and the reason such information is
needed. The Participant also shall receive a copy of Section 8.3 below
concerning the Participant's right to request a review.
8.3 Requesting Review of a Denied Claim. A Participant may request that a
denied claim be reviewed. Such request for review must be written and must be
delivered to the Employer within 30 days after the Participant receives the
written notice that the participant's claim was denied. Such request for review
may (but is not required to) include issues and comments the Participant wants
considered in the review. The Participant may examine pertinent Plan documents
by asking the Employer. Within 30 days after delivery by the Participant of the
Participant's request for review, the Participant shall receive either: (a) a
decision; or (b) a notice describing special circumstances requiring a specified
amount of additional time (but no more than 60 days from the date of delivery of
such request for review) to reach a decision. The decision shall be in writing
and shall specify the Plan provisions on which it is based.
8.4. Exhaustion of Administrative Remedies. No Participant (nor the estate
of any deceased Participant) may commence any legal action to recover Plan
benefits or to enforce or clarify rights under the Plan under Section 502 or
Section 510 of ERISA, or under any other provision of law, whether or not
statutory, until the claims and review procedures set forth herein have been
exhausted in their entirety.
Decisions. All decisions on claims and on reviews of denied claims will be
made by the Employer. The Employer may, in its discretion, hold one or more
hearings. If a Participant does not receive a decision within the specified
time, the Participant should assume that the claim was denied or re-denied on
the date the specified time expired. The Employer reserves the right to delegate
its authority to make decisions.
SECTION 9
DEFINITIONS
When the following terms are used in this document with initial capital
letters, they shall have the following meanings.
9.1. Cause - shall mean (i) the material breach by a Participant of any
obligation to the Company under the terms of this Plan; (ii) any acts of a
Participant constituting gross negligence or conduct which is demonstrably and
materially injurious to the Employer, monetarily or otherwise; (iii) Employees
breach of any fiduciary duty to the Employer; or (iv) a Participant's conviction
or the entry of a pleading of guilty or nolo contendere to any crime involving
moral turpitude. For purposes of this definition, no act, or failure to act, on
a Participant's part shall be deemed "willful" unless done, or omitted to be
done, by the Participant with reasonable belief that the Participant's action or
omission was not in the best interest of the Employer. Failure by a Participant
to perform the Participant's duties with the Employer during any period of
disability shall not constitute Cause.
9.2. Change in Control - shall mean:
(a) a change in control of a nature that would be required to be reported
in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not
the Employer is then subject to such reporting requirement; or
(b) the public announcement (which, for purposes of this definition, shall
include, without limitation, a report filed pursuant to Section 13(d) of the
Exchange Act) by the Employer or any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act) that such person has become the "beneficial
owner" (as defined in Rule 13d-3 promulgated under the Exchange Act), directly
or indirectly, of securities of the Employer (i) representing 25% or more, but
not more than 50%, of the combined voting power of the Employer's then
outstanding securities unless the transaction resulting in such ownership has
been approved in advance by the Continuing Directors (as hereinafter defined) or
(ii) representing more than 50% of the combined voting power of the Employer's
then outstanding securities (regardless of any approval by the Continuing
Directors); provided, however, that notwithstanding the foregoing, no Change in
Control shall be deemed to have occurred for purposes of the Plan by reason of
the ownership of 25% or more of the total voting capital stock of the Employer
then issued and outstanding by the Employer, any subsidiary of the Employer or
any employee benefit plan of the Employer or of any subsidiary of the Employer
or any entity holding shares of the common stock organized, appointed or
established for, or pursuant to the terms of, any such plan (any such person or
entity described in this clause is referred to herein as a "Employer Entity");
or
(c) the announcement of a tender offer by any person or entity (other than
an Employer Entity) for 20% or more of the Employer's voting capital stock then
issued and outstanding, which tender offer has not been approved by the Board, a
majority of the members of which are Continuing Directors, and recommended to
the shareholders of the Employer; or
(d) the Continuing Directors cease to constitute a majority of the
Employer's Board of Directors; or
(e) the shareholders of the Employer approve (i) any consolidation or
merger of the Employer in which the Employer is not the continuing or surviving
corporation or pursuant to which shares of Employer stock would be converted
into cash, securities or other property, other than a merger of the Employer in
which shareholders immediately prior to the merger have the same proportionate
ownership of stock of the surviving corporation immediately after the merger;
(ii) any sale, lease, exchange or other transfer (in one transaction or a series
of related transactions) of all or substantially all of the assets of the
Employer; or (iii) any plan of liquidation or dissolution of the Employer.
9.3. Code - shall mean the Internal Revenue Code of 1986, as amended.
9.4. Continuing Director - shall mean any person who is a member of the
Board of Directors of the Employer, while such person is a member of the Board
of Directors, who is not an Acquiring Person (as hereinafter defined) or an
Affiliate or Associate (as hereinafter defined) of an Acquiring Person, or a
representative of an Acquiring Person or of any such Affiliate or Associate, and
who (i) was a member of the Board of Directors as of the Effective Date or (ii)
subsequently becomes a member of the Board of Directors, if such person's
initial nomination for election or initial election to the Board of Directors is
recommended or approved by a majority of the Continuing Directors for purposes
of this definition. "Acquiring Person" shall mean any "person" (as such term is
used in Sections 13(d) and 14(d) of the Exchange Act) who or which, together
with all Affiliates and Associates of such person, is the "beneficial owner" (as
defined in Rule 13(d)-3 promulgated under the Exchange Act), directly or
indirectly, of securities of the Employer representing 20% or more of the
combined voting power of the Employer's then outstanding securities, but shall
not include the Investors or any Employer Entity; and "Affiliate" and
"Associate" shall have their respective meanings ascribed to such terms in Rule
12(b)-2 promulgated under the Exchange Act.
9.5. Date of Termination - shall mean the date specified in the Notice of
Termination (except in the case of a Participant's death, in which case Date of
Termination shall be the date of death); provided, however, that if the
Participant's employment is terminated by the Employer, the date specified in
the Notice of Termination shall be at least 30 days from the date the Notice of
Termination is given to the Participant and if the Participant's employment is
terminated by the Participant for Good Reason, the date specified in the Notice
of Termination shall not be more than 60 days from the date the Notice of
Termination is given to the Employer.
9.6. Effective Date - shall mean September 15, 1999.
9.7. Employer - shall mean Possis Medical, Inc., a Minnesota corporation,
or any successor thereto pursuant to Section 7.2 hereof or by operation of law.
9.8. Good Reason - shall mean the occurrence, without a Participant's
express written consent, within 24 months following a Change in Control of any
one or more of the following:
(a) a significant reduction by the Employer in the Participant's base
salary as in effect immediately prior to the Change in Control or as the same
shall be increased from time to time;
(b) the Employer's requiring the Participant to be based at a location in
excess of thirty (30) miles from the location of the Participant's office
immediately prior to the Change in Control:
(c) the failure by the Employer to (i) continue in effect any material
compensation or benefit plan, program, policy or practice in which the
Participant was participating at the time of the Change in Control or (ii)
provide the Participant with compensation and benefits at least equal (in terms
of benefit levels and/or reward opportunities) to those provided for under each
employee benefit plan, program, policy and practice as in effect immediately
prior to the Change in Control (or as in effect following the Change in Control,
if greater);
(d) the failure of the Employer to obtain a satisfactory agreement from any
Successor to the Employer to assume and agree to perform under the Plan, as
contemplated in Section 7.2 hereof;
(e) any purported termination by the Employer of the Participant's
employment that is not effected pursuant to a Notice of Termination (as
hereinafter defined); and
(f) the assignment by the Employer to the Participant of any duties
inconsistent in any respect with Participant's position (including status,
offices, titles, and reporting requirements), authorities, duties, or other
responsibilities as in effect immediately prior to the Change in Control or any
other action of the Employer which results in a diminishment in such position,
authority, duties, or responsibilities, other than an insubstantial and
inadvertent action which is remedied by the Employer promptly after receipt of
notice thereof given by the Participant.
9.9. Notice of Termination - shall mean a written notice which shall set
forth the Date of Termination and shall set forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of the
Participant's employment.
9.10. Participant - shall mean the employees of the Employer identified as
such by the Board, as the same may be modified by the Employer from time to
time. Each Participant shall be assigned to Class I, Class II, Class III or
Class IV provided in Section 4 herein.
9.11. Plan - shall mean the termination pay plan of the Employer
established for the benefit of the Participants in the event of a Change in
Control. The Plan shall be referred to as the "Possis Medical, Inc. Change in
Control Termination Pay Plan."
9.12. Plan Year - the twelve consecutive month period ending on any
December 31.
9.13. Termination of Employment - shall mean termination of a Participant's
employment (a) by the Employer for any reason other than Cause or (b) by a
Participant for Good Reason; but shall not include termination by reason of a
Participant's death.
EXHIBIT 10.21
1999 STOCK COMPENSATION PLAN
Section 1. Purpose.
The purpose of the Possis Medical, Inc. 1999 Stock Compensation Plan (the
"Plan") is to promote the interests of Possis Medical, Inc. (the "Company") and
its shareholders by aiding the Company in attracting, retaining and providing
incentives to employees, officers, consultants, independent contractors and
non-employee directors.
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, Performance Award, Dividend Equivalent, Other
Stock Grant or Other Stock-Based Award granted under the Plan.
(c) "Award Agreement" shall mean any written agreement, contract or other
instrument or document evidencing any Award granted under the Plan.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and any regulations promulgated thereunder.
(e) "Committee" shall mean either the Board of Directors of the Company or
a committee of the Board of Directors appointed by the Board of Directors to
administer the Plan, comprised of not less than such number of Directors as
shall be required to permit Awards granted under the Plan to qualify under Rule
16b-3. 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.
(f) "Company" shall mean Possis Medical, Inc., a Minnesota corporation, and
any successor corporation.
(g) "Director" shall mean a member of the Board of Directors of the
Company.
(h) "Dividend Equivalent" shall mean any right granted under Section 6(e)
of the Plan.
(i) "Eligible Person" shall mean any employee, officer, consultant,
independent contractor or director providing services to the Company or any
Affiliate whom the Committee determines to be an Eligible Person.
(j) "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 not be less than: (i) the closing
price as reported for composite transactions, if the Shares are then listed on a
national securities exchange; (ii) the last sale price, if the Shares are then
quoted on the NASDAQ National Market; or (iii) the average of the closing
representative bid and asked prices of the Shares in all other cases; on the
date as of which fair market value is being determined. If on a given date the
Shares are not traded in an established securities market, the Committee shall
make a good faith attempt to satisfy the requirements of this clause and in
connection therewith shall take such action as it deems necessary or advisable.
(k) "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.
(l) "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.
(m) "Option" shall mean an Incentive Stock Option or a Non-Qualified Stock
Option, and shall include Reload Options.
(n) "Other Stock Grant" shall mean any right granted under Section 6(f) of
the Plan.
(o) "Other Stock-Based Award" shall mean any right granted under Section
6(g) of the Plan.
(p) "Participant" shall mean an Eligible Person designated to be granted an
Award under the Plan.
(q) "Performance Award" shall mean any right granted under Section 6(d) of
the Plan.
(r) "Person" shall mean any individual, corporation, partnership,
association or trust.
(s) "Plan" shall mean the Possis Medical, Inc. 1999 Stock Compensation
Plan, as amended from time to time.
(t) "Reload Option" shall mean any Option granted under Section 6(a)(iv) of
the Plan.
(u) "Restricted Stock" shall mean any Shares granted under Section 6(c) of
the Plan.
(v) "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.
(w) "Shares" shall mean shares of Common Stock, $0.40 par value, 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.
(x) "Stock Appreciation Right" shall mean any right granted under Section
6(b) of the Plan.
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 and accelerate the exercisability of any Award or the lapse of
restrictions relating to any Award; (vi) determine whether, to what extent and
under what circumstances Awards may be exercised in cash, Shares, other
securities, other Awards or other property, or canceled, forfeited or suspended;
(vii) 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 thereof or the Committee; (viii) interpret and
administer the Plan and any instrument or agreement, including an Award
Agreement, relating to the Plan; (ix) 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 (x) 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 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, and any employee
of the Company.
(b) Delegation. The Committee may delegate its powers and duties under the
Plan to one or more Directors or a committee of Directors, subject to such
terms, conditions and limitations as the Committee may establish in its sole
discretion.
Section 4. Shares Available for Awards.
(a) Shares Available. Subject to adjustment as provided in Section 4(c),
the aggregate number of Shares that may be issued under all Awards under the
Plan shall be 2,000,000, which number shall be increased annually effective
August 1 by a number of shares equal to 2% of the number of shares of the
Company issued and outstanding at the end of the immediately preceding fiscal
year. Shares to be issued under the Plan may be either authorized but unissued
Shares or Shares acquired in the open market or otherwise. Any Shares that are
used by a Participant as full or partial payment to the Company of the purchase
price relating to an Award, or in connection with the satisfaction of tax
obligations relating to an Award, shall again be available for granting Awards
(other than Incentive Stock Options) under the Plan. If any Shares covered by an
Award or to which an Award relates are not purchased or are forfeited, or if an
Award otherwise terminates without delivery of any Shares, then the number of
Shares counted against the aggregate number of Shares available under the Plan
with respect to such Award, to the extent of any such forfeiture or termination,
shall again be available for granting Awards under the Plan. Notwithstanding the
foregoing, the number of Shares available for granting Incentive Stock Options
under the Plan shall not exceed 2,000,000, subject to adjustment as provided in
the Plan and Section 422 or 424 of the Code or any successor provision.
(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
granting Awards under the Plan.
(c) Adjustments. In the event that the Committee shall determine 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 determined by the Committee to be appropriate 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) subject to outstanding Awards and (iii) the purchase or exercise price
with respect to any Award; provided, however, that the number of Shares covered
by any Award or to which such Award relates shall always be a whole number.
(d) Award Limitations Under the Plan. No Eligible Person may be granted any
Award or Awards under the Plan, the value of which Awards is based solely on an
increase in the value of the Shares after the date of grant of such Awards, for
more than 500,000 Shares (subject to adjustment as provided for in Section
4(c)), in the aggregate in any calendar year. The foregoing annual limitation
specifically includes the grant of any Awards representing "qualified
performance-based compensation" within the meaning of Section 162(m) of the
Code.
Section 5. Eligibility.
Any Eligible Person of the Company or any Affiliate 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; provided however, that the purchase
price of an Incentive Stock Option shall not be less than 100% of the Fair
Market Value of a Share on the date of grant of such Option.
(ii) Option Term. The term of each Option shall be fixed by the Committee.
(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 relevant
exercise price) in which payment of the exercise price with respect thereto may
be made or deemed to have been made.
(iv) Reload Options. The Committee may grant Reload Options, separately or
together with another Option, pursuant to which, subject to the terms and
conditions established by the Committee, the Participant would be granted a new
Option when the payment of the exercise price of a previously granted option is
made by the delivery of Shares owned by the Participant pursuant to Section
6(a)(iii) hereof or the relevant provisions of another plan of the Company,
and/or when Shares are tendered or withheld as payment of the amount to be
withheld under applicable income tax laws in connection with the exercise of an
Option, which new Option would be an Option to purchase the number of Shares not
exceeding the sum of (A) the number of Shares so provided as consideration upon
the exercise of the previously granted option to which such Reload Option
relates and (B) the number of Shares, if any, tendered or withheld as payment of
the amount to be withheld under applicable tax laws in connection with the
exercise of the option to which such Reload Option relates pursuant to the
relevant provisions of the plan or agreement relating to such option. Reload
Options may be granted with respect to Options previously granted under the Plan
or any other stock option plan of the Company, or may be granted in connection
with any Option granted under the Plan or any other stock option plan of the
Company at the time of such grant. Such Reload Options shall have a per share
exercise price equal to the Fair Market Value as of the date of grant of the new
Option. Any Reload Option shall be subject to availability of sufficient Shares
for grant under the Plan. Shares surrendered as part or all of the exercise
price of the Option to which it relates that have been owned by the Participant
less than six months will not be counted for purposes of determining the number
of Shares that may be purchased pursuant to a Reload Option.
(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. Subject to the terms of the Plan and any applicable
Award Agreement, the grant price, term, 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 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 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, a waiver by the Participant of the right to vote or 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) Stock Certificates: Delivery of Shares. Any Restricted Stock shall be
registered in the name of the Participant and shall bear an appropriate legend
referring to the terms, conditions and restrictions applicable to such
Restricted Stock. 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
Participant's Termination of employment (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) 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 such performance goals
during such performance periods as the Committee shall establish. Subject to the
terms of the Plan and any applicable Award Agreement, 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 or
transfer to be made pursuant to any Performance Award and any other terms and
conditions of any Performance Award shall be determined by the Committee.
(e) Dividend Equivalents. The Committee is hereby authorized to grant
Dividend Equivalents to Eligible Persons, subject to the terms of the Plan and
any applicable Award Agreement, under which the Participants 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.
(f) Other Stock Grants. The Committee is hereby authorized, subject to the
terms of the Plan and any applicable Award Agreement, to grant to Eligible
Persons Shares without restrictions thereon as are deemed by the Committee to be
consistent with the purpose of the Plan.
(g) Other Stock-Based Awards. The Committee is hereby authorized to grant
to Eligible Persons, subject to the terms of the Plan and any applicable Award
Agreement, 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. Shares or
other securities delivered pursuant to a purchase right granted under this
Section 6(g) shall be purchased for such consideration, which 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) No Cash Consideration for Awards. Awards shall be granted for no cash
consideration or for such minimal cash consideration as may be 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 plan of the Company or any Affiliate other than the Plan. Awards granted in
addition to or in tandem with other Awards or in addition to or in tandem with
awards granted under any such 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) Limits on Transfer of Awards. No Award (other than Other Stock Grants)
and no right under any such Award shall be transferable by a Participant
otherwise than by will or by the laws of descent and distribution; provided,
however, that, if so determined by the Committee, a Participant may, in the
manner established by the Committee, transfer Options (other than Incentive
Stock Options) or designate a beneficiary or beneficiaries to exercise the
rights of the Participant and receive any property distributable with respect to
any Award upon the death of the Participant. Each Award or right under any Award
shall be exercisable during the Participant's lifetime only by the Participant
or, if permissible under applicable law, by the Participant's guardian or legal
representative. No 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.
(v) Term of Awards. The term of each Award shall be for such period as may
be determined by the Committee.
(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 affixed to reflect such restrictions. If the Shares or
other securities are listed on a securities exchange, the Company shall not be
required to deliver any Shares or other securities covered by an Award until
such Shares or other securities have been listed on such securities exchange.
(i) Directors' Options.
(i) Annual Grant. Directors of the Company who are not otherwise employees
shall receive annually on January 2 Non-Qualified Options to purchase 3,000
shares of Stock. The exercise price for the Shares shall be the Fair Market
Value of the stock on the date of the grant. Each Option shall become
exercisable in annual increments of 750 shares beginning on the first
anniversary of the date of grant, shall be exercisable for ten years following
grant, and shall be generally subject to the terms and conditions set forth in
the Plan.
(ii) Options in Lieu of Director's Fees. Each Director who is not otherwise
an employee of the Company shall be permitted to elect to receive fees that
would otherwise be due for services as a Director in the form of discounted
Non-Qualified Stock Options. Such election must be made 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 such Options shall be 50% of the Fair Market Value
on the date of grant, which shall be January 2 of the year following the year
for which the fees were earned. Each Option shall become exercisable in full six
months following the date of grant, shall be exercisable for ten years following
the date of grant, and shall be generally subject to the terms and conditions
set forth in the Plan. The number of Shares subject to each Option shall be
calculated by dividing the fees owed by the dollar amount of the discount from
Fair Market Value in the exercise price.
(iii) The provisions of this Section 6(i) herein shall not prevent the
Committee or the Board from granting other and additional Awards to Directors of
the Company who are not employees of the Company, subject only to the terms and
conditions set forth in the Plan.
Section 7. Change in Control Provisions
(a) In the event of a "Change in Control" as defined herein, the following
acceleration and valuation provisions shall apply:
(i) Any Award, unless provided to the contrary in the related Award
Agreement, shall become fully exercisable and vested.
(ii) The value of all outstanding Awards shall, unless otherwise determined
by the Committee in its sole discretion at or after grant but prior to any
Change in Control, with respect to Options granted to employees and
non-Directors, be cashed out on the basis of the "Change in Control Price" as
defined herein as of the date such Change in Control is determined to have
occurred or such other date as the Committee may determine prior to the Change
in Control.
(b) Change in Control shall mean:
(i) a change in control of a nature that would be required to be reported
in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not
the Company is then subject to such reporting requirement; or
(ii) the public announcement (which, for purposes of this definition, shall
include, without limitation, a report filed pursuant to Section 13(d) of the
Exchange Act) by the Company or any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act) that such person has become the "beneficial
owner" (as defined in Rule 13d-3 promulgated under the Exchange Act), directly
or indirectly, of securities of the Company (i) representing 25% or more, but
not more than 50%, of the combined voting power of the Company's then
outstanding securities unless the transaction resulting in such ownership has
been approved in advance by the Continuing Directors (as hereinafter defined) or
(ii) representing more than 50% of the combined voting power of the Company's
then outstanding securities (regardless of any approval by the Continuing
Directors); provided, however, that notwithstanding the foregoing, no Change in
Control shall be deemed to have occurred for purposes of the Plan by reason of
the ownership of 25% or more of the total voting capital stock of the Company
then issued and outstanding by the Company, any subsidiary of the Company or any
employee benefit plan of the Company or of any subsidiary of the Company or any
entity holding Shares organized, appointed or established for, or pursuant to
the terms of, any such plan; or
(iii) the announcement of a tender offer by any person or entity for 20% or
more of the Company's voting capital stock then issued and outstanding, which
tender offer has not been approved by the Board, a majority of the members of
which are Continuing Directors, and recommended to the shareholders of the
Company; or
(iv) the Continuing Directors cease to constitute a majority of the
Company's Board of Directors; or
(v) the shareholders of the Company approve (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 stock would be converted into
cash, securities or other property, other than a merger of the Company in which
shareholders immediately prior to the merger have the same proportionate
ownership of stock of the surviving corporation immediately after the merger;
(ii) any sale, lease, 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.
(c) Continuing Director shall mean: any person who is a member of the Board
of Directors of the Company, while such person is a member of the Board of
Directors, who is not an Acquiring Person (as hereinafter defined) or an
Affiliate or Associate (as hereinafter defined) of an Acquiring Person, or a
representative of an Acquiring Person or of any such Affiliate or Associate, and
who (i) was a member of the Board of Directors as of the Effective Date or (ii)
subsequently becomes a member of the Board of Directors, if such person's
initial nomination for election or initial election to the Board of Directors is
recommended or approved by a majority of the Continuing Directors. For purposes
of this definition, "Acquiring Person" shall mean any "person" (as such term is
used in Sections 13(d) and 14(d) of the Exchange Act) who or which, together
with all Affiliates and Associates of such person, is the "beneficial owner" (as
defined in Rule 1 3d-3 promulgated under the Exchange Act), directly or
indirectly, of securities of the Company representing 20% or more of the
combined voting power of the Company's then outstanding securities; and
"Affiliate" and "Associate" shall have their respective meanings ascribed to
such terms in Rule 12b-2 promulgated under the Exchange Act.
(d) Change in Control Price shall mean: the highest price per share paid in
any transaction reported on NASDAQ/NMS or, if the Company's Stock is listed on a
national securities exchange, such exchange, or paid or offered in any bona fide
transaction related to the Change in Control of the Company at any time during
the 60-day period immediately preceding the occurrence of the Change in Control
in each case as determined by the Committee.
Section 8. Amendment and Termination: Adjustments.
(a) Amendments to the Plan. The Board of Directors of the Company may
amend, alter, suspend, discontinue or terminate 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
herein or in an Award Agreement. The Committee may not amend, alter, suspend,
discontinue or terminate any outstanding Award, prospectively or retroactively,
if such action would 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 any Award in the manner and to the extent it shall deem desirable to
carry the Plan into effect.
Section 9. Income Tax Withholding; Tax Bonuses.
(a) Withholding. In order to comply with all applicable federal or state
income tax laws or regulations, the Company may take such action as it deems
appropriate to ensure that all applicable federal or state 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 federal and state 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 (i) 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 (ii) 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.
(b) Tax Bonuses. The Committee, in its discretion, shall have the
authority, at the time of grant of any Award under this Plan or at any time
thereafter, to approve cash bonuses to designated Participants to be paid upon
their exercise or receipt of (or the lapse of restrictions relating to) Awards
in order to provide funds to pay all or a portion of federal and state taxes due
as a result of such exercise or receipt (or the lapse of such restrictions). The
Committee shall have full authority in its discretion to determine the amount of
any such tax bonus.
Section 10. 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 will have rights under an Award
granted to such Participant unless and until an Award Agreement shall have been
duly executed on behalf of the Company and, if requested by the Company, signed
by the Participant.
(c) No Rights of Shareholders. Except with respect to Restricted Stock and
other Stock grants, neither a Participant nor the Participant's legal
representative shall be, or have any of the rights and privileges of, a
Shareholder of the Company in respect of 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 Arrangements. Nothing contained in the
Plan shall prevent the Company or any Affiliate from adopting or continuing in
effect other or additional compensation arrangements, and such arrangements may
be either generally applicable or applicable only in specific cases.
(e) No Right to Employment. The grant of an Award shall not be construed as
giving a Participant the right to be retained in the employ of the Company or
any Affiliate, nor will it affect in any way the right of the Company or an
Affiliate to terminate such 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 validity, construction and effect of the Plan or any
Award, and any rules and regulations relating to the Plan or any Award, shall be
determined in accordance with the laws of the State of Minnesota.
(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 canceled, 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.
(k) Other Benefits. No compensation or benefit awarded to or realized by
any Participant under the Plan shall be included for the purpose of computing
such Participant's compensation under any compensation-based retirement,
disability or similar plan of the Company unless required by law or otherwise
provided by such other plan.
Section 11. Effective Date of the Plan.
The Plan shall be effective as of December 16, 1999. If the Company's
shareholders do not approve the Plan at the Annual Meeting of Shareholders
scheduled for December 15, 1999, the Plan shall be null and void.
Section 12. Term of the Plan.
Awards shall only be granted under the Plan during a 10-year period
beginning on the effective date of the Plan. However, unless otherwise expressly
provided in the Plan or in an applicable Award Agreement, any Award theretofore
granted may extend beyond the end of such 10-year period, and the authority of
the Committee provided for hereunder with respect to the Plan and any Awards,
and the authority of the Board of Directors of the Company to amend the Plan,
shall extend beyond the termination of the Plan.
Section 13. Applicability to Grants under Other Company Plans.
No further Awards shall be granted under any other Stock Compensation Plan
currently maintained by the Company. All existing Plans shall, however, remain
in effect until all options or awards granted pursuant thereto have been
exercised or have expired or terminated by their terms.