SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act
of 1934 (Amendment No. ____)
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
SurModics, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing:
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
SURMODICS, INC.
___________________
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
___________________
The Annual Meeting of Shareholders of SurModics, Inc. will be held on
January 24, 2000, at 4:00 p.m. (Minneapolis time), at the Hotel Sofitel, 5601
West 78th Street, Bloomington, Minnesota, for the following purposes:
1. To set the number of directors at seven (7).
2. To elect Class I directors.
3. To approve the Company's 1999 Employee Stock Purchase Plan.
4. To amend the Articles of Incorporation, including an increase
of the authorized Common Stock from 15,000,000 to 45,000,000
shares.
5. To consider and act upon such other matters as may properly
come before the meeting and any adjournments thereof.
Only shareholders of record at the close of business on December 3,
1999, are entitled to notice of and to vote at the meeting or any adjournment
thereof.
Your vote is important. We ask that you complete, sign, date and return
the enclosed proxy in the envelope provided for your convenience. The prompt
return of proxies will save the Company the expense of further requests for
proxies.
BY ORDER OF THE BOARD OF DIRECTORS
Dale R. Olseth
Chairman and Chief Executive Officer
Eden Prairie, Minnesota
December 14, 1999
SURMODICS, INC.
Annual Meeting of Shareholders
January 24, 2000
___________________
PROXY STATEMENT
___________________
INTRODUCTION
Your Proxy is solicited by the Board of Directors of SurModics, Inc.
("the Company") for use at the Annual Meeting of Shareholders to be held on
January 24, 2000, at the location and for the purposes set forth in the notice
of meeting, and at any adjournment thereof.
The cost of soliciting proxies, including the preparation, assembly and
mailing of the proxies and soliciting material, as well as the cost of
forwarding such material to beneficial owners of stock, will be borne by the
Company. Directors, officers and regular employees of the Company may, without
compensation other than their regular remuneration, solicit proxies personally
or by telephone.
Any shareholder giving a proxy may revoke it at any time prior to its
use at the meeting by giving written notice of such revocation to the Secretary
of the Company. Proxies not revoked will be voted in accordance with the choice
specified by shareholders by means of the ballot provided on the Proxy for that
purpose. Proxies which are signed but which lack any such specification will,
subject to the following, be voted in favor of the proposals set forth in the
Notice of Meeting and in favor of the slate of directors proposed by the Board
of Directors and listed herein. If a shareholder abstains from voting as to any
matter, then the shares held by such shareholder shall be deemed present at the
meeting for purposes of determining a quorum and for purposes of calculating the
vote with respect to such matter, but shall not be deemed to have been voted in
favor of such matter. Abstentions, therefore, as to any proposal will have the
same effect as votes against such proposal. If a broker returns a "non-vote"
proxy, indicating a lack of voting instructions by the beneficial holder of the
shares and a lack of discretionary authority on the part of the broker to vote
on a particular matter, then the shares covered by such non-vote proxy shall be
deemed present at the meeting for purposes of determining a quorum but shall not
be deemed to be represented at the meeting for purposes of calculating the vote
required for approval of such matter.
The mailing address of the principal executive office of the Company is
9924 West 74th Street, Eden Prairie, Minnesota 55344. The Company expects that
this Proxy Statement, the related proxy and notice of meeting will first be
mailed to shareholders on or about December 14, 1999.
1
OUTSTANDING SHARES AND VOTING RIGHTS
The Board of Directors of the Company has fixed December 3, 1999, as
the record date for determining shareholders entitled to vote at the Annual
Meeting. Persons who were not shareholders on such date will not be allowed to
vote at the Annual Meeting. At the close of business on December 3, 1999,
7,728,690 shares of the Company's Common Stock were issued and outstanding. The
Common Stock is the only outstanding class of capital stock of the Company
entitled to vote at the meeting. Each share of Common Stock is entitled to one
vote on each matter to be voted upon at the meeting. Holders of Common Stock are
not entitled to cumulative voting rights.
PRINCIPAL SHAREHOLDERS
The following table provides information concerning persons known to
the Company to be the beneficial owners of more than 5% of the Company's
outstanding Common Stock as of December 3, 1999. Unless otherwise indicated, the
shareholders listed in the table have sole voting and investment powers with
respect to the shares indicated.
Name and Address of Number of Shares Percent of
Beneficial Owner Beneficially Owned Class (1)
Arbor Capital Management 628,500 8.1%
120 South 6th Street, Suite 1000
Minneapolis, MN 55402
Dale R. Olseth 614,500(2) 7.9%
9924 West 74th Street
Eden Prairie, MN 55344
David A. Koch 510,300(3) 6.6%
9924 West 74th Street
Eden Prairie, MN 55344
(1) Shares not outstanding but deemed beneficially owned by virtue of the
right of a person to acquire them as of December 3, 1999, or within
sixty days of such date are treated as outstanding only when
determining the percent owned by such individual and when determining
the percent owned by a group.
(2) Includes 2,500 shares held by Mr. Olseth's wife and 50,000 shares which
may be acquired upon exercise of stock options which are exercisable as
of December 3, 1999 or within 60 days of such date.
(3) Includes 20,900 shares which may be acquired upon exercise of stock
options which are exercisable as of December 3, 1999 or within 60 days
of such date, 10,000 shares held by the Greycoach Foundation, over
which Mr. Koch has shared voting and investment power, and 66,000
shares held by a Trust for the benefit of Mr. Koch's wife and children.
Mr. Koch is one of the Trustees of such Trust and has shared voting and
dispositive powers over the shares held by the Trust.
2
MANAGEMENT SHAREHOLDINGS
The following table sets forth the number of shares of Common Stock
beneficially owned as of December 3, 1999, by each executive officer of the
Company named in the Summary Compensation table, by each current director and
nominee for director of the Company and by all directors and executive officers
(including the named individuals) as a group. Unless otherwise indicated, the
shareholders listed in the table have sole voting and investment powers with
respect to the shares indicated.
Name of Beneficial Number of Shares Percent of
Owner or Identity of Group Beneficially Owned Class (1)
--------------------------- ------------------ ----------
Dale R. Olseth 614,500 (2) 7.9%
David A. Koch 510,300 (3) 6.6%
Patrick E. Guire, Ph.D. 228,127 (4) 2.9%
Kendrick B. Melrose 149,502 (5) 1.9%
James C. Powell 81,863 (6) 1.1%
James J. Grierson 78,286 (5) 1.0%
Donald S. Fredrickson, M.D. 53,400 (5) *
Walter H. Diers, Jr. 52,000 (7) *
Stephen C. Hathaway 48,200 (8) *
Kenneth H. Keller, Ph.D. 12,600 (9) *
All officers and directors
as a group (11 persons) 1,862,278 (10) 23.2%
_______________________
* Less than 1%
(1) See footnote (1) to preceding table.
(2) See footnote (2) to preceding table.
(3) See footnote (3) to preceding table.
(4) Includes 35,000 shares which may be acquired upon exercise of stock
options which are exercisable as of December 3, 1999 or within 60 days
of such date.
(5) Includes 20,900 shares which may be acquired upon exercise of stock
options which are exercisable as of December 3, 1999 or within 60 days
of such date.
(6) Includes 250 shares held by Mr. Powell's wife and 29,600 shares which
may be purchased upon exercise of options which are exercisable as of
December 3, 1999 or within 60 days of such date.
3
(7) Includes 13,000 shares which may be acquired upon exercise of stock
options which are exercisable as of December 3, 1999 or within 60 days
of such date.
(8) Includes 45,200 shares which may be purchased upon exercise of options
which are exercisable as of December 3, 1999 or within 60 days of such
date.
(9) Includes 12,600 shares which may be purchased upon exercise of options
which are exercisable as of December 3, 1999 or within 60 days of such
date.
(10) Includes 290,300 shares which may be purchased upon exercise of options
which are exercisable as of December 3, 1999 or within 60 days of such
date.
ELECTION OF DIRECTORS
(Proposals #1 and #2)
General Information
The Bylaws of the Company provide that the number of directors, which
shall not be less than three, shall be determined by the shareholders. The Board
of Directors recommends that the number of directors be set at seven. The Bylaws
also provide for the election of three classes of directors with terms staggered
so as to require the election of only one class of directors each year. Only
directors who are members of Class I will be elected at the Annual Meeting. The
Class I directors will be elected to a three-year term and, therefore, will hold
office until the Company's 2003 Annual Meeting of Shareholders and until their
successors have been duly elected and qualified. The terms of Classes II and III
continue until 2001 and 2002, respectively.
The Board of Directors nominates Patrick E. Guire, Ph.D. and Donald S.
Fredrickson, M.D. for re-election as Class I directors. Each Proxy will be voted
for each of such nominees unless the Proxy withholds a vote for one or both
nominees. If, prior to the meeting, it should become known that either of the
nominees will be unable to serve as a director after the meeting by reason of
death, incapacity or other unexpected occurrence, the proxies will be voted for
such substitute nominee as is selected by the Board of Directors or,
alternatively, not voted for any nominee. The Board of Directors has no reason
to believe that any nominee will be unable to serve. Under applicable Minnesota
law, approval of the proposal to set the number of directors at seven, as well
as the election of each Class I nominee, requires the affirmative vote of the
holders of a majority of the voting power of the shares represented in person or
by proxy at the Annual Meeting with authority to vote on such matter, but not
less than the affirmative vote of 1,932,174 shares.
The following information is provided with respect to each director
nominee as well as each director whose term continues after the Annual Meeting:
Name Age Position with Company
Dale R. Olseth 68 Chairman and Chief Executive Officer
Patrick E. Guire, Ph.D. 63 Senior Vice President and Chief
Scientific Officer and Director
4
Donald S. Fredrickson, M.D. (1) 75 Director
James J. Grierson (2) 57 Director
Kenneth H. Keller, Ph.D. (1)(2) 65 Director
David A. Koch (1)(2) 69 Director
Kendrick B. Melrose (1)(2) 59 Director
________________________
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Dale R. Olseth (Class III) joined the Company in 1986 as its President
(which position he held until 1998), Chief Executive Officer and a director, and
has served as Chairman of the Board since 1988. Mr. Olseth also serves on the
Board of Directors of The Toro Company and Graco Inc. He served as Chairman or
President and Chief Executive Officer of Medtronic, Inc. from 1976 to 1986. From
1971 to 1976, Mr. Olseth served as President and Chief Executive Officer of
Tonka Corporation.
Patrick E. Guire, Ph.D. (Class I) is a co-founder of the Company and
has served as Senior Vice President and Chief Scientific Officer and a director
since 1980. Dr. Guire is responsible for the research affairs of the Company.
Prior to founding SurModics, Dr. Guire was employed by Kallestad Laboratories,
Inc. as a senior scientist from 1978 to 1979 and was a researcher at the Midwest
Research Institute, Inc. in Kansas City, Missouri from 1972 to 1978.
Donald S. Fredrickson, M.D. (Class I) was elected a director of the
Company in 1991. He has served as President and Chief Executive Officer of D.S.
Fredrickson Associates, Inc., an international medical research and biomedical
consulting firm since 1987. Dr. Fredrickson served as Vice President, President
and Chief Executive Officer during his tenure at the Howard Hughes Medical
Institute in Washington D.C. from 1983 to 1987. During 1982 and 1983, he served
as a scholar-in-residence at the National Academy of Sciences of the United
States of America. From 1975 to 1981, he served as the Director of the National
Institutes of Health.
James J. Grierson (Class II) was elected a director of the Company in
1988. He served as Vice President of Business Development for Honeywell, Inc.
from 1992 until his retirement in 1996. He was Vice President of Finance for
Honeywell from 1987 to 1992 and its Vice President and Treasurer from 1982 to
1987.
Kenneth H. Keller, Ph.D. (Class III) was elected a director of the
Company in 1997. He has served as Professor of Science and Technology Policy in
the Hubert H. Humphrey Institute of Public Affairs at the University of
Minnesota since 1996. Dr. Keller was a Senior Fellow at the Council on Foreign
Relations from 1989 to 1997. Dr. Keller joined the Chemical Engineering and
Materials Science faculty of the University of Minnesota in 1964, and through
the years assumed increasing administrative responsibilities, including serving
as the twelfth President of the University in 1985, a position he held until
1988, when he moved to Princeton University as a Visiting Fellow.
David A. Koch (Class III) was elected a director of the Company in
1988. He has served as the Chairman of Graco Inc. since 1985, as its Chief
5
Executive Officer from 1985 to 1996 and as its President and Chief Executive
Officer from 1962 to 1985. Mr. Koch is also a director of ReliaStar Financial
Corporation and is Chair of the Federal Reserve Bank of Minneapolis.
Kendrick B. Melrose (Class II) was elected a director of the Company in
1988. He has served as Chairman of the Board and Chief Executive Officer of The
Toro Company since 1987, served as its Chief Executive Officer from 1983 to 1987
and as its President from 1981 to 1983. Mr. Melrose is also a director of
Donaldson Company, Inc., Valspar Corporation and Jostens, Inc.
Committee and Board Meetings
The Company's Board of Directors has two standing committees, the Audit
Committee and the Compensation Committee. The Audit Committee is responsible for
reviewing the Company's internal control procedures, the quarterly and annual
financial statements of the Company, and reviewing with the Company's
independent public accountants the results of the annual audit. The Audit
Committee met two times during fiscal 1999. The Compensation Committee
recommends to the Board of Directors from time to time the salaries and
incentive compensation to be paid to executive officers of the Company and
administers the Company's employee stock plans.
The Compensation Committee met once during the year.
During fiscal 1999, the Board of Directors held six formal meetings.
Each incumbent director attended 75% or more of the total number of meetings of
the Board and of committee(s) of which he was a member.
Directors Fees
Directors are not currently paid fees for attending Board or Committee
meetings. Non-employee directors are generally compensated with non-qualified
stock options as determined by the Board of Directors from time to time. The
non-employee directors currently hold non-qualified stock options to purchase an
aggregate of 121,000 shares of Common Stock, including options to purchase an
aggregate of 21,000 shares granted during fiscal 1999. All such options have an
exercise price equal to the fair market value of a share of Common Stock on the
date of grant and expire five to ten years after the date of grant. Such options
vest over five year periods commencing on the date of grant. In addition,
Messrs. Grierson and Fredrickson are reimbursed for their travel-related
expenses incurred in attending meetings of the Board of Directors.
CERTAIN TRANSACTIONS
In August 1997, the Company adopted a plan pursuant to which an
employee of the Company could borrow amounts from the Company to fund stock
option exercises. No further loans are being granted under this program. Any
loan made pursuant to this plan was required to provide for: a five-year term,
subject to automatic acceleration to three months after termination of
employment; interest payable annually at the prime rate in effect at the time of
the loan, paid annually; principal payable at maturity; and a pledge of the
6
shares of Common Stock acquired with the proceeds of the loan as security. Under
the terms of this loan program, (i) Walter H. Diers, Jr., Vice President of
Corporate Development for the Company, borrowed an aggregate of $80,000 on
September 19, 1997, at an interest rate of 8.5%, to exercise an option to
purchase an aggregate of 20,000 shares of Common Stock at $4.00 per share and
(ii) James C. Powell, President and Chief Operating Officer, borrowed an
aggregate of $56,000 on September 19, 1997, at an interest rate of 8.5% to
exercise an option to purchase an aggregate of 14,000 shares of Common Stock at
$4.00 per share. Mr. Powell's loan was paid in full during fiscal 1999 and Mr.
Diers' loan was paid in full by November 1999.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain information regarding
compensation paid during each of the Company's last three fiscal years to the
Chief Executive Officer and each other executive officer of the Company (the
"Named Executive Officers") who received total salary and bonus compensation in
excess of $100,000 for 1999.
Summary Compensation Table
Long-term
Annual Compensation Compensation
------------------- ------------
Securities All
Name and Principal Fiscal Salary Bonus Underlying Options Other
Position Year ($) ($)(1) (# of shares) Compensation(2)
- -------------------------- ------ ------ ------------- ------------------ ---------------
Dale R. Olseth, 1999 $132,088 $ 27,596 15,000 $ 6,148
Chairman and Chief Executive Officer 1998 $114,944 $ 22,663 10,000 $ 3,938
1997 $109,598 $ 20,408 0 $ 2,100
James C. Powell, 1999 $122,500 $ 28,800 15,000 $ 5,871
President and Chief Operating Officer 1998 $104,755 $ 20,602 10,000 $ 3,479
1997 $96,246 $ 18,463 0 $ 1,830
Stephen C. Hathaway, 1999 $107,082 $ 25,200 8,000 $ 5,488
Vice President and Chief Financial 1998 $95,771 $ 19,573 5,000 $ 3,225
Officer 1997 $90,000 $ 22,493 74,000 $ 618
Patrick E. Guire, Ph.D., 1999 $93,344 $ 20,880 0 $ 4,781
Senior Vice President and Chief 1998 $87,326 $ 17,922 5,000 $ 3,100
Scientific Officer 1997 $86,250 $ 16,327 20,000 $ 1,680
Walter H. Diers, Jr., 1999 $89,676 $ 20,644 8,000 $ 4,641
Vice President of Corporate Development 1998 $85,157 $ 16,997 5,000 $ 2,894
1997 $80,008 $ 14,577 0 $ 1,642
___________________________
(1) Represents amounts earned under a bonus plan for the Company's officers
enabling them to receive a payout of up to 24% of their base salary.
The amount of the bonus is determined based on the achievement of
certain revenue and profit goals for the year. The plan was reviewed
and approved by the Board of Directors. Mr. Hathaway's bonus for fiscal
1997 includes an additional bonus paid upon commencement of employment
with the Company.
(2) Represents contributions made by the Company under its 401(k) plan.
7
Option/SAR Grants During 1999 Fiscal Year
The following table sets forth information regarding stock options
granted to the Named Executive Officers during the fiscal year ended September
30, 1999. The Company has not granted stock appreciation rights.
Number of
Securities % of Total
Underlying Options/SARs
Options/SARs Granted to Exercise or
Granted Employees in Base Price Expiration
Name (#) (1) Fiscal Year ($/Sh) Date
------ ---------- ----------- -------- ----
Dale R. Olseth 15,000 9.2% $16.125 9/20/06
James C. Powell 15,000 9.2% $16.125 9/20/06
Stephen C. Hathaway 8,000 4.9% $16.125 9/20/06
Patrick E. Guire, Ph.D. 0 N/A N/A N/A
Walter H. Diers, Jr. 8,000 4.9% $16.125 9/20/06
______________________
(1) Such options are exercisable annually as to 20% of the total number of
shares commencing September 20, 2000.
Aggregated Option/SAR Exercises During 1999 Fiscal Year
and Fiscal Year End Option/SAR Values
The following table provides information related to the exercise of
stock options during fiscal 1999 by the Named Executive Officers and the number
and value of options held at fiscal year end by such persons:
Number of Unexercised
Securities Underlying Value of Unexercised In-the-
Options at 9/30/99 Money Options at 9/30/99(1)
---------------------------- ----------------------------
Shares
Acquired on Value
Name Exercise Realized(2) Exercisable Unexercisable Exercisable Unexercisable
- ---- -------- -------- ----------- ------------- ----------- -------------
Dale R. Olseth 160,000 $1,660,000 50,000 55,000 $488,250 $373,000
James C. Powell 48,000 $ 562,000 29,600 41,400 $286,800 $238,700
Stephen C. Hathaway 3,000 $ 13,938 30,400 53,600 $297,450 $439,300
Patrick E. Guire, Ph.D. 24,000 $ 270,000 31,000 24,000 $303,375 $226,000
Walter H. Diers, Jr. 30,000 $ 319,438 13,000 24,000 $125,625 $147,000
________________________
(1) Value of exercisable/unexercisable in-the-money options is equal to the
difference between the market price of the Common Stock at fiscal year
end and the option exercise price per share multiplied by the number of
shares subject to options. The closing sale price as of September 30,
1999 on the Nasdaq National Market was $14.875.
(2) Value is equal to the difference between the closing price as quoted
on the Nasdaq National Market on the date of exercise and the option
exercise price per share multiplied by the number of shares to which
the exercise relates.
8
APPROVAL OF 1999 EMPLOYEE STOCK PURCHASE PLAN
(PROPOSAL #3)
General
On November 15, 1999, the Board of Directors adopted, subject to
shareholder approval, the Company's 1999 Employee Stock Purchase Plan (the
"Stock Purchase Plan"). A general description of the basic features of the Stock
Purchase Plan is presented below, but such description is qualified in its
entirety by reference to the full text of the Stock Purchase Plan, a copy of
which may be obtained without charge upon written request to the Company's Chief
Financial Officer.
Description of the 1999 Employee Stock Purchase Plan
Purpose. The purpose of the Stock Purchase Plan is to encourage stock
ownership by the Company's employees and in so doing to provide an incentive to
remain in the Company's employ, to improve operations, to increase profits and
to contribute more significantly to the Company's success.
Eligibility. The Stock Purchase Plan permits employees to purchase
stock of the Company at a favorable price and possibly with favorable tax
consequences to the employees. Generally speaking, all full-time and part-time
employees (including officers) of the Company who are customarily employed for
more than 20 hours per week are eligible to participate in any of the phases of
the Stock Purchase Plan. However, any employee who would own (as determined
under the Internal Revenue Code), immediately after the grant of an option,
stock representing 5% or more of the total combined voting power or value of all
classes of the stock of the Company cannot purchase stock through the Stock
Purchase Plan. Currently, this limitation excludes Dale R. Olseth from
participating. As of December 1, 1999, the Company had approximately 105
full-time and part-time employees eligible to participate.
Administration; Term. The Stock Purchase Plan will be administered by
the Compensation Committee. The Stock Purchase Plan gives broad powers to the
Committee to administer and interpret the Stock Purchase Plan, including the
authority to limit the number of shares that may be optioned under the Stock
Purchase Plan during a phase. The Stock Purchase Plan will terminate on February
28, 2010, unless the Board of Directors extends the term of the Plan.
Options. Unless otherwise determined by the Compensation Committee,
phases of the Stock Purchase Plan will commence on March 1 and end on February
28/29 of each year, beginning March 1, 2000. Before the commencement date of the
phase, each participating employee must elect to have a certain percentage of
his or her compensation deducted during each pay period in such phase; provided,
however, that the payroll deductions during a phase must be no more than 10% and
no less than 1% of the participant's compensation. An employee may not increase
his or her payroll deduction percentage during a phase. An employee may request
that any further payroll deductions be discontinued or request a withdrawal
9
of all accumulated payroll deductions at any time during the phase. An
employee's payroll deduction election will continue for all future phases of
the Stock Purchase Plan unless the employee changes his or her election or
withdraws from the Plan. Based on the amount of accumulated payroll deductions
made at the end of the phase, shares will be purchased by each employee at the
termination date of such phase. The purchase price to be paid by the employees
will be the lower of: (i) 85% of the average closing price of the Company's
Common Stock quoted by the Nasdaq National Market over the five trading days
immediately preceding the commencement date of the phase; or (ii) 85% of the
average closing price of the Company's Common Stock quoted by the Nasdaq
National Market over the five trading days immediately preceding the termination
date of the phase. The closing price of one share of the Company's Common Stock
on December 1, 1999 was $20.875 per share. As required by tax law, an employee
may not, during any calendar year, receive options under the Stock Purchase Plan
for shares which have a total fair market value in excess of $25,000 determined
at the time such options are granted. Any amount not used to purchase shares
will be carried over to the next phase, unless the employee requests a refund of
that amount. If an employee withdraws his or her payroll deductions during a
phase, the Company will pay interest on such funds to the employee. If the
employee dies or terminates employment for any reason before the end of the
phase, the employee's payroll deductions will be refunded, without interest.
Amendment. The Board of Directors may, from time to time, revise or
amend the Stock Purchase Plan as the Board may deem proper and in the best
interest of the Company or as may be necessary to comply with Section 423 of the
Internal Revenue Code (the "Code"); provided, that no such revision or amendment
may (i) increase the total number of shares for which options may be granted
under the Stock Purchase Plan except as provided in the case of stock splits,
consolidations, stock dividends or similar events, (ii) modify requirements as
to eligibility for participation in the Stock Purchase Plan, or (iii) materially
increase the benefits accruing to participants under the Stock Purchase Plan,
without prior approval of the Company's shareholders, if such approval is
required to comply with Code Section 423 or the requirements of Section 16(b) of
the Securities Exchange Act of 1934 (the "Act").
Shares Reserved. Under the Stock Purchase Plan, 100,000 shares of the
Company's Common Stock have been reserved for issuance under the Stock Purchase
Plan. The Board of Directors shall equitably adjust the number of shares
reserved for grant, the number of shares of stock subject to outstanding options
and the price per share of stock subject to an option in the event of certain
increases or decreases in the number of outstanding shares of Common Stock of
the Company effected as a result of stock splits, stock dividends, combination
of shares, reclassifications or similar transactions.
Federal Income Tax Consequences of the Stock Purchase Plan. Options
granted under the Stock Purchase Plan are intended to qualify for favorable tax
treatment to the employees under Code Sections 421 and 423. Employee
contributions are made on an after-tax basis. Under existing federal income tax
provisions, no income is taxable to the optionee upon the grant or exercise of
an option if the optionee remains an employee of the Company or one of its
subsidiaries at all times from the date of grant until three months before the
date of exercise. In addition, certain favorable tax consequences may be
available to the optionee if shares purchased pursuant to the Stock Purchase
Plan are not disposed of by the optionee within two years after the date the
option was granted nor within one year after the date of transfer of purchased
shares to the optionee. The Company generally will not receive an income tax
deduction upon either the grant or exercise of the option.
10
Plan Benefits. Because participation in the Stock Purchase Plan is
voluntary, the future benefits that may be received by participating individuals
or groups under the Stock Purchase Plan cannot be determined at this time.
Vote Required
The Board of Directors recommends that the shareholders approve the
1999 Employee Stock Purchase Plan. Approval of the Stock Purchase Plan requires
the affirmative vote of a majority of the shares represented at the meeting with
authority to vote on such matter, but not less than the affirmative vote of
1,932,174 shares.
ADOPTION OF AMENDMENT TO ARTICLES OF INCORPORATION
(PROPOSAL #4)
General
As of December 3, 1999, 7,728,690 shares of Common Stock were
outstanding and 7,271,310 shares of Common Stock were authorized but unissued.
No shares of Preferred Stock were outstanding at such date. Of the unissued
shares of Common Stock, approximately 447,880 were reserved for issuance
pursuant to the Company's employee benefit plans. Accordingly, at December 3,
1999, there were approximately 6,823,430 shares of Common Stock available for
general corporate purposes.
The Board of Directors recommends that the authorized number of shares
of Common Stock be increased from 15,000,000 shares to 45,000,000 shares. The
Board also proposes that the Articles of Incorporation be amended to eliminate
all references in the Articles to a class of Convertible Preferred Stock, shares
of which class were automatically converted as part of the Company's initial
public offering in 1998. If the Amendment to the Articles of Incorporation is
approved, Section 3.1 of Article 3 of the Company's Articles of Incorporation
will provide that the total number of authorized shares of the Company will be
50,000,000, consisting of 45,000,000 shares of Common Stock, $.05 par value per
share, 150,000 shares of Series A Preferred Stock, $.05 par value per shares,
which are the shares authorized for issuance in connection with the Company's
Shareholder Rights Plan, and 4,850,000 undesignated shares. The full text of the
proposed Amendment to the Articles of Incorporation is set forth in Appendix A
hereto.
The Board desires to increase the number of authorized shares of Common
Stock to give the Board flexibility to declare stock dividends or stock splits
at such times as the Board may deem appropriate; to give the Board flexibility
to make acquisitions using stock; to adopt additional employee benefit plans or
11
increase the shares available under existing plans; to raise equity capital or
to use the additional shares for other general corporate purposes. Aside from
shares currently reserved for issuance under employee benefit plans, the Board
has not authorized the issuance of any additional shares, and there are no
current agreements or commitments for the issuance of any additional shares.
Shareholders of the Company have no preemptive rights with respect to
the Common Stock and Preferred Stock for the Company. If this proposed amendment
is adopted, the additional authorized shares of Common Stock will be available
for issuance from time to time at the discretion of the Board without further
action by the shareholders, except where shareholder approval is required by
stock exchange requirements or to obtain favorable tax treatment for certain
employee benefit plans. Although an increase in the authorized shares of Common
Stock could, under certain circumstances, also be construed as having an
anti-takeover effect (for example, by diluting the stock ownership of a person
seeking to effect a change in the composition of the Board of Directors or
contemplating a tender offer or other transaction for the combination of the
Company with another company), the Company is not proposing the increase in
authorized shares in response to any effort to accumulate the Company's stock or
to obtain control of the Company by means of a merger, tender offer, or
solicitation in opposition to management.
Vote Required
The Board of Directors recommends that the shareholders approve the
Amendment to the Articles of Incorporation including the increase in the
authorized shares of Common Stock. Approval of the Amendment requires the
affirmative vote of a majority of the shares represented at the meeting with
authority to vote on such matter, but not less than the affirmative vote of
1,932,174 shares.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers, directors and persons who own more than 10 percent
of the Company's Common Stock, to file with the Securities and Exchange
Commission initial reports of ownership and reports of changes in ownership of
Common Stock and other equity securities of the Company. Officers, directors and
greater than 10% shareholders ("Insiders") are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based on a review of the copies of such
reports furnished to the Company, during the fiscal year ended September 30,
1999, all Section 16(a) filing requirements applicable to Insiders were complied
with.
INDEPENDENT PUBLIC ACCOUNTANT
Arthur Andersen LLP acted as the Company's independent public
accountant for fiscal 1999. Representatives of Arthur Andersen LLP are expected
to be present at the meeting, will be given an opportunity to make a statement
12
regarding financial and accounting matters of the Company if they so desire, and
will be available at the meeting to respond to appropriate questions from the
Company's shareholders.
OTHER BUSINESS
Management knows of no other matters to be presented at the meeting. If
any other matter properly comes before the meeting, the appointees named in the
proxies will vote the proxies in accordance with their best judgment.
SHAREHOLDER PROPOSALS
Any appropriate proposal submitted by a shareholder of the Company and
intended to be presented at the 2001 annual meeting of shareholders must be
received by the Company by August 16, 2000, to be considered for inclusion in
the Company's proxy statement and related proxy for the 2001 annual meeting.
Also, if a shareholder proposal intended to be presented at the 2001
annual meeting but not included in the Company's proxy statement and proxy is
received by the Company after October 29, 2000, then management named in the
Company's proxy form for the 2001 annual meeting will have discretionary
authority to vote shares represented by such proxies on the shareholder
proposal, if presented at the meeting, without including information about the
proposal in the Company's proxy materials.
ANNUAL REPORT TO SHAREHOLDERS
A copy of the Company's Annual Report to Shareholders for the fiscal
year ended September 30, 1999, accompanies this notice of meeting and Proxy
Statement. No part of the Annual Report is incorporated herein and no part
thereof is to be considered proxy soliciting material.
FORM 10-KSB
The Company will furnish without charge to each person whose proxy is
being solicited, upon written request of any such person, a copy of the
Company's Annual Report on Form 10-KSB for the fiscal year ended September 30,
1999, as filed with the Securities and Exchange Commission, including the
financial statements and the financial statement schedules thereto. The Company
will furnish to any such person any exhibit described in the list accompanying
the Form 10-KSB, upon the payment, in advance, of reasonable fees related to the
Company's furnishing such exhibit(s). Requests for copies of such report and/or
exhibits(s) should be directed to Mr. Stephen C. Hathaway, Vice President and
Chief Financial Officer, at the Company's principal address.
BY ORDER OF THE BOARD OF DIRECTORS
Dale R. Olseth
Chairman and Chief Executive Officer
Dated: December 14, 1999
Eden Prairie, Minnesota
14
APPENDIX A
AMENDMENT TO ARTICLES OF INCORPORATION
OF
SURMODICS, INC.
Section 3.1 of Article 3 is amended to read as follows:
3.1) Authorized Shares. The aggregate number of shares which the
corporation shall have the authority to issue shall be 50.0 million, 45.0
million of which shall be designated Common Stock, $.05 Par Value; 4.85 million
of which shall be undesignated shares and 150,000 of which shall be designated
Series A Preferred Stock, $.05 Par Value (hereinafter referred to as the "Series
A Preferred Stock"). (The Common Stock, any shares issued from the undesignated
shares, and the Series A Preferred Stock are hereinafter referred to
collectively as the "Capital Stock.") The Board of Directors of the corporation
is authorized to establish from the undesignated shares, by resolution adopted
and filed in the manner provided by law, one or more classes or series of
shares, to designate each such class or series (which may include but is not
limited to designation as additional shares of Common Stock or Series A
Preferred Stock), and to fix the relative rights and preferences of each such
class or series.
Section 4.1 of Article 4 is amended to read as follows:
4.1) Voting Privileges. Unless otherwise provided in these Articles of
Incorporation, each holder of Common Stock shall have one vote on all matters
submitted to the shareholders for each share of Common Stock standing in the
name of such holder on the books of the corporation.
Section 4.4 of Article 4 is amended to read as follows:
4.4) Distributions. Except as otherwise provided in these Articles of
Incorporation, on the liquidation, dissolution or winding up of the corporation,
shares of Capital Stock shall share ratably in any dividends or distributions of
the corporation, whether paid in cash, property or stock.
Section 4.5 of Article 4, entitled "Series A Convertible Preferred Stock," is
deleted in its entirety.
Section 6.1 of Article 6 is amended to read as follows:
6.1) Any provision contained in these Articles of Incorporation may be
amended, altered, changed or repealed by the affirmative vote of the holders of
at least majority of the voting power of the shares present and entitled to vote
at a duly held meeting or such greater percentage as may be otherwise prescribed
by the laws of the State of Minnesota.
Article 7, entitled "Incorporators," is deleted in its entirety.
SURMODICS, INC.
PROXY FOR ANNUAL MEETING
Of Shareholders To Be Held
January 24, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints DALE R. OLSETH and STEPHEN C. HATHAWAY,
and each of them, with full power of substitution, as Proxies to represent and
vote, as designated below, all shares of Common Stock of SurModics, Inc.
registered in the name of the undersigned at the Annual Meeting of Shareholders
of the Company to be held at the Hotel Sofitel, 5601 West 78th Street,
Bloomington, Minnesota, at 4:00 p.m. (Minneapolis time) on January 24, 2000, and
at any adjournment thereof, and the undersigned hereby revokes all proxies
previously given with respect to the meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO
DIRECTION IS GIVEN FOR A PARTICULAR PROPOSAL, WILL BE VOTED FOR SUCH PROPOSAL.
DETACH BELOW AND RETURN USING THE ENVELOPE PROVIDED
SURMODICS, INC. 2000 ANNUAL MEETING
The Board of Directors recommends that you vote FOR each proposal below.
1. Set the number of directors at seven (7) [ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Elect Class I directors: 1 - Donald S. Fredrickson, M.D. [ ] FOR all nomi- [ ] WITHHOLD AUTHORITY
2 - Patrick E. Guire, Ph.D. nees listed to the to vote for all nominees
left (except as listed to the left.
specified below).
(Instructions: To withhold authority to vote for any indicated
nominee, write the name of the nominee(s) in the box provided
to the right). [_________________________]
3. Approve the 1999 Employee Stock Purchase Plan: [ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Adopt an Amendment to the Articles of Incorporation, [ ] FOR [ ] AGAINST [ ] ABSTAIN
including an increase of the authorized Common Stock
from 15,000,000 to 45,000,000 shares.
5. In their discretion, upon such other business as may
properly come before the Meeting or any adjournment thereof.
Check appropriate box.
Indicate changes below:
Address Change? [ ] Name Change? [ ] Date____________ NO. OF SHARES
Attending Meeting? [ ] [_______________________]
Signature(s) in Box
PLEASE DATE AND SIGN ABOVE
exactly as name appears at the left indi-
cating, where appropriate, official position
or representative capacity. For stock held in
joint tenancy, each joint tenant should sign.
SURMODICS, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
ARTICLE I - ESTABLISHMENT OF PLAN
1.01 Adoption by Board of Directors. By action of the Board of
Directors of SurModics, Inc. (the "Corporation") on November
15, 1999, subject to approval by its shareholders, the
Corporation has adopted an employee stock purchase plan
pursuant to which eligible employees of the Corporation and
certain of its Subsidiaries may be offered the opportunity to
purchase shares of Stock of the Corporation. The terms and
conditions of this Plan are set forth in this plan document,
as amended from time to time as provided herein. The
Corporation intends that the Plan shall qualify as an
"employee stock purchase plan" under Section 423 of the
Internal Revenue Code of 1986, as amended from time to time,
(the "Code") and shall be construed in a manner consistent
with the requirements of Code Section 423 and the regulations
thereunder.
1.02 Shareholder Approval and Term. This Plan shall become
effective upon its adoption by the Board of Directors and
shall terminate February 28, 2010; provided, however, that the
Plan shall be subject to approval by the shareholders of the
Corporation within twelve (12) months after the Plan is
adopted by the Board in the manner provided under Code Section
423 and the regulations thereunder; and provided, further that
the Board of Directors may extend the term of the Plan for
such period as the Board, in its sole discretion, deems
advisable. In the event the shareholders fail to approve the
Plan within twelve (12) months after the Plan is adopted by
the Board, this Plan shall not become effective and shall have
no force and effect, participation in the Plan shall
immediately cease, all outstanding options shall immediately
be canceled and all payroll deductions shall be returned to
the Participants without interest. No shares of stock shall be
issued to any Participant for any Phase unless and until the
shareholders approve the Plan within such twelve-month period.
ARTICLE II - PURPOSE
2.01 Purpose. The primary purpose of the Plan is to provide an
opportunity for Eligible Employees of the Corporation to
become shareholders of the Corporation, thereby providing
them with an incentive to remain in the Corporation's employ,
to improve operations, to increase profits and to contribute
more significantly to the Corporation's success.
1
ARTICLE III - DEFINITIONS
3.01 "Administrator" means the Board of Directors or such Committee
appointed by the Board of Directors to administer the Plan.
The Board or the Committee may, in its sole discretion,
authorize the officers of the Corporation to carry out the
day-to-day operation of the Plan. In its sole discretion, the
Board may take such actions as may be taken by the
Administrator, in addition to those powers expressly reserved
to the Board under this Plan.
3.02 "Board of Directors" or "Board" means the Board of Directors
of SurModics, Inc.
3.03 "Compensation" means the Participant's base compensation,
excluding commissions, overtime and all bonuses.
3.04 "Corporation" means SurModics, Inc., a Minnesota corporation.
3.05 "Eligible Employee" means any employee who, as determined on
or immediately prior to an Enrollment Period, is a United
States full-time or part-time employee of the Corporation or
one of its Subsidiaries and is customarily employed for more
than twenty (20) hours per week.
3.06 "Enrollment Period" means the period determined by the
Administrator for purposes of accepting elections to
participate during a Phase from Eligible Employees.
3.07 "Fiscal Year" means the fiscal year of the Corporation,
which is the twelve-month period beginning October 1 and
ending September 30 each year.
3.08 "Participant" means an Eligible Employee who has been
granted an option and is participating during a Phase
through payroll deductions, but shall exclude those
employees subject to the limitations described in Section
9.03 below.
3.09 "Phase" means the period beginning on the date that the
option was granted, otherwise referred to as the
commencement date of the Phase, and ending on the date that
the option was exercised, otherwise referred to as the
termination date of the Phase.
3.10 "Plan" means the SurModics, Inc. 1999 Employee Stock Purchase
Plan.
3.11 "Stock" means the voting common stock of the Corporation.
3.12 "Subsidiary" means any corporation defined as a subsidiary of
the Corporation in Code Section 424(f) as of the effective
date of the Plan, and such other corporations that qualify as
subsidiaries of the Corporation under Code Section 424(f) as
the Board approves to participate in this Plan from time to
time.
2
ARTICLE IV - ADMINISTRATION
4.01 Administration. Except for those matters expressly reserved to
the Board pursuant to any provisions of the Plan, the
Administrator shall have full responsibility for
administration of the Plan, which responsibility shall
include, but shall not be limited to, the following:
(a) The Administrator shall, subject to the
provisions of the Plan, establish, adopt and
revise such rules and procedures for
administering the Plan, and shall make all
other determinations as it may deem
necessary or advisable for the
administration of the Plan;
(b) The Administrator shall, subject to the
provisions of the Plan, determine all terms
and conditions that shall apply to the grant
and exercise of options under this Plan,
including, but not limited to, the number of
shares of Stock that may be granted, the
date of grant, the exercise price and the
manner of exercise of an option. The
Administrator may, in its discretion,
consider the recommendations of the
management of the Corporation when
determining such terms and conditions;
(c) The Administrator shall have the exclusive
authority to interpret the provisions of the
Plan, and each such interpretation or
determination shall be conclusive and
binding for all purposes and on all persons,
including, but not limited to, the
Corporation and its Subsidiaries, the
shareholders of the Corporation and its
Subsidiaries, the Administrator, the
directors, officers and employees of the
Corporation and its Subsidiaries, and the
Participants and the respective
successors-in-interest of all of the
foregoing; and
(d) The Administrator shall keep minutes of its
meetings or other written records of its
decisions regarding the Plan and shall, upon
requests, provide copies to the Board.
ARTICLE V - PHASES OF THE PLAN
5.01 Phases. The Plan shall be carried out in one or more Phases of
twelve (12) months each. Unless otherwise determined by the
Administrator, in its discretion, Phases shall commence on
March 1 of each fiscal year during the term of the Plan, with
the first phase commencing on March 1, 2000, and ending on
February 28, 2001. No two Phases shall run concurrently.
Notwithstanding anything in the Plan to the contrary, the
Administrator may, in its sole discretion, designate a special
commencement date for a phase but only with respect to those
3
individuals who become Eligible Employees after March 1 in
connection with a merger, purchase or similar transaction.
Such special phase shall terminate on the following February
28/29.
5.02 Limitations. The Administrator may, in its discretion, limit
the number of shares available for option grants during any
Phase as it deems appropriate. Without limiting the foregoing,
in the event all of the shares of Stock reserved for the grant
of options under Section 12.01 is issued pursuant to the terms
hereof prior to the commencement of one or more Phases or the
number of shares of Stock remaining is so small, in the
opinion of the Administrator, as to render administration of
any succeeding Phase impracticable, such Phase or Phases may
be canceled or the number of shares of Stock limited as
provided herein. In addition, if, based on the payroll
deductions authorized by Participants at the beginning of a
Phase, the Administrator determines that the number of shares
of Stock which would be purchased at the end of a Phase
exceeds the number of shares of Stock remaining reserved under
Section 12.01 hereof for issuance under the Plan, or if the
number of shares of Stock for which options are to be granted
exceeds the number of shares designated for option grants by
the Administrator for such Phase, then the Administrator shall
make a pro rata allocation of the shares of Stock remaining
available in as nearly uniform and equitable a manner as the
Administrator shall consider practicable as of the
commencement date of the Phase or, if the Administrator so
elects, as of the termination date of the Phase. In the event
such allocation is made as of the commencement date of a
Phase, the payroll deductions which otherwise would have been
made on behalf of Participants shall be reduced accordingly.
ARTICLE VI - ELIGIBILITY
6.01 Eligibility. Subject to the limitations described in Section
9.03, each employee who is an Eligible Employee on or
immediately prior to the commencement of a Phase shall be
eligible to participate in such Phase; provided, however, that
the Administrator may, in its sole discretion, establish a
special eligibility date for certain Eligible Employees who
become eligible to participate in the Plan in connection with
a merger, purchase or similar transaction pursuant to Section
5.01. If, in the discretion of the Administrator, any Phase
commences on a date other than March 1, whether an employee is
an Eligible Employee shall be determined on a date selected by
the Administrator.
ARTICLE VII - PARTICIPATION
7.01 Participation. Participation in the Plan is voluntary. An
Eligible Employee who desires to participate in any Phase
of the Plan must complete the Plan enrollment form provided
by the Administrator and deliver such form to the
Administrator or its designated representative during the
Enrollment Period established by the Administrator prior to
the commencement date of the Phase.
4
7.02 Subsequent Phases. An Eligible Employee who elects to
participate in a Phase of a fiscal year shall be deemed to
have elected to participate in each subsequent Phase unless
such Participant elects to discontinue payroll deductions
during a Phase or exercises his or her right to withdraw
amounts previously withheld, as provided under Article X
hereof. In such event, such Participant must complete a change
of election form or a new Plan enrollment form and file such
form with the Administrator during the Enrollment Period prior
to the next Phase with respect to which the Eligible Employee
wishes to participate.
ARTICLE VIII - PAYMENT: PAYROLL DEDUCTIONS
8.01 Enrollment. Each Eligible Employee electing to participate
shall indicate such election on the Plan enrollment form and
designate therein a percentage of such Participant's
Compensation during each pay period during the Phase. Subject
to the Participant's right to discontinue payroll deductions
as provided in Section 10.02 and the limitations contained in
Section 9.03(a), such percentage shall be at least one percent
(1%) but not more than ten percent (10%) of such Participant's
Compensation to be paid during such Phase, or such other
maximum percentage as the Administrator may establish from
time to time. In order to be effective, such Plan enrollment
form must be properly completed and received by the
Administrator by the due date indicated on such form, or by
such other date established by the Administrator.
8.02 Payroll Deductions. Payroll deductions for a Participant shall
commence with the paycheck issued immediately after the
commencement date of the Phase and shall terminate with the
paycheck issued immediately prior to the termination date of
that Phase, unless the Participant elects to discontinue
payroll deductions or exercises his or her right to withdraw
all accumulated payroll deductions previously withheld during
the Phase as provided in Article X hereof. The authorized
payroll deductions shall be made over the pay periods of such
Phase by deducting from the Participant's Compensation for
each such pay period that percentage specified by the
Participant in the Plan enrollment form.
Unless the Participant elected to discontinue payroll
deductions or exercised his or her right to withdraw all
accumulated payroll deductions previously withheld during the
preceding Phase (in which event the Participant must complete
a change of election form or a new Plan enrollment form, as
the case may be, to continue participation for any subsequent
Phase), the Corporation shall continue to withhold from such
Participant's Compensation the same designated percentage
specified by the Participant in the most recent Plan
enrollment form previously completed by the Participant for
all subsequent Phases; provided, however, that the Participant
may, if he or she so chooses, discontinue payroll deductions
for any or all such subsequent Phases by properly completing a
5
new enrollment form during the Enrollment Period for such
subsequent Phase and delivering such form to the Administrator
by the due date for receipt of such forms for that Phase.
8.03 Change in Compensation During a Phase. In the event that the
Participant's Compensation is increased or decreased during a
Phase for any reason so that the amount actually withheld on
behalf of the Participant as of the termination date of the
Phase is different from the amount anticipated to be withheld
as determined on the commencement date of the Phase, then the
extent to which the Participant may exercise his or her option
shall be based on the amounts actually withheld on his or her
behalf, subject to the limitations in Article IX. In the event
of a change in the pay period of any Participant, such as from
biweekly to monthly, an appropriate adjustment shall be made
to the deduction in each new pay period so as to insure the
deduction of the proper amount authorized by the Participant.
8.04 Decreases During a Phase. In addition to the right to
discontinue or withdraw payroll deductions during a Phase as
provided in Article X, a Participant may decrease the
percentage of Compensation designated to be deducted as
payroll deductions during a Phase (but not below 1%) by
completing and filing such forms as the Administrator may
require. Such decrease shall be effective with the next
payroll period beginning after the date that the Administrator
receives such forms and shall apply to all remaining
Compensation paid during the Phase. The Participant may
exercise the right to decrease his or her payroll deductions
only once during each Phase.
ARTICLE IX - OPTIONS
9.01 Grant of Option. Subject to Article X, a Participant who has
elected to participate in the manner described in Article VIII
and who is employed by the Corporation or a Subsidiary as of
the commencement date of a Phase shall be granted an option as
of such date to purchase that number of whole shares of Stock
determined by dividing the total amount to be credited to the
Participant's account by the option price per share set forth
in Section 9.02(a) below. The option price per share for such
Stock shall be determined under Section 9.02 hereof, and the
number of shares exercisable shall be determined under Section
9.03 hereof.
9.02 Option Price. Subject to the limitations hereinbelow, the
option price for such Stock shall be the lower of the amounts
determined under paragraphs (a) and (b) below:
(a) Eighty-five percent (85%) of the average closing
price for a share of the Corporation's Stock as
reported on the Nasdaq National Market, Nasdaq
SmallCap Market or on an established securities
exchange over the five (5) trading days immediately
preceding the commencement date of the Phase; or
6
(b) Eighty-five percent (85%) of the average closing
price for a share of the Corporation's Stock as
reported on the Nasdaq National Market, Nasdaq
SmallCap Market or on an established securities
exchange over the five (5) trading days immediately
preceding the termination date of the Phase.
If the Corporation's Stock is not listed on the Nasdaq
National Market, Nasdaq SmallCap Market or on an established
securities exchange, then the option price shall equal the
lesser of (i) eighty-five percent (85%) of the fair market
value of a share of the Corporation's Stock as of the
commencement date of the Phase; or (ii) eighty-five percent
(85%) of the fair market value of such stock as of the
termination date of the Phase. Such "fair market value" shall
be determined by the Board.
9.03 Limitations. No employee shall be granted an option hereunder:
(a) Which permits his or her rights to purchase Stock
under all employee stock purchase plans of the
Corporation or its Subsidiaries to accrue at a rate
which exceeds Twenty-Five Thousand Dollars ($25,000)
of fair market value of such Stock (determined at the
time such option is granted) for each calendar year
in which such option is outstanding at any time;
(b) If such employee would own and/or hold,
immediately after the grant of the option, Stock
possessing five percent (5%) or more of the total
combined voting power or value of all classes of
stock of the Corporation or of any Subsidiary. For
purposes of determining stock ownership under this
paragraph, the rules of Section 424(d) of the Code
and the regulations thereunder shall apply.
(c) Which, if exercised, would cause the limits
established by the Administrator under Section 5.02
to be exceeded.
9.04 Exercise of Option. Subject to a Participant's right to
withdraw in the manner provided in Section 10.01, a
Participant's option for the purchase of shares of Stock will
be exercised automatically on the termination date of that
Phase. However, in no event shall a Participant be allowed to
exercise an option for more shares of Stock than can be
purchased with the payroll deductions accumulated by the
Participant in his or her bookkeeping account during such
Phase.
9.05 Delivery of Shares. As promptly as practicable after the
termination of any Phase, the Corporation's transfer agent or
other authorized representative shall deliver to each
Participant herein certificates for that number of whole
shares of Stock purchased upon the exercise of the
Participant's option. The Corporation may, in its sole
discretion, arrange with the Corporation's transfer agent or
other authorized representative to establish, at the direction
of the Participant, individual securities accounts to which
will be credited that number of whole shares of Stock that are
7
purchased upon such exercise, such securities account to be
subject to such terms and conditions as may be imposed by the
transfer agent or authorized representative.
The shares of the Corporation's common stock to be delivered
to a Participant pursuant to the exercise of an option under
Section 9.04 of the Plan will be registered in the name of the
Participant or, if the Participant so directs by written
notice to the Administrator prior to the termination date of
the Phase, in the names of the Participant and one other
person the Participant may designate as his joint tenant with
rights of survivorship, to the extent permitted by law.
Any accumulated payroll deductions remaining after the
exercise of the Participant's option shall be returned to the
Participant, without interest, on the first paycheck issued
for the payroll period which begins on or immediately after
the commencement date of next Phase; provided, however, that
the Corporation may, under rules of uniform application,
retain such remaining amount in the Participant's bookkeeping
account and apply it toward the purchase of shares of Stock in
the next succeeding Phase, unless the Participant requests a
withdrawal of such amount pursuant to Section 10.01.
ARTICLE X - WITHDRAWAL OR
DISCONTINUATION OF PAYROLL WITHHOLDINGS
10.01 Withdrawal. Once during the Phase, a Participant may request a
withdrawal of all accumulated payroll deductions then credited
to the Participant's bookkeeping account by completing a
change of election form and filing such form with the
Administrator. The Participant's request shall be effective as
of the beginning of the next payroll period immediately
following the date that the Administrator receives the
Participant's properly completed change of election form. As
soon as administratively feasible after such payroll period,
all payroll deductions credited to a bookkeeping account for
the Participant will be paid to such Participant, with
interest at the semi-annual short-term federal rate in effect
as of the commencement date of the Phase, compounded monthly,
from the commencement date of the Phase through the date of
payment. No further payroll deductions will be made during
that Phase or any future Phase unless the Participant
completes a new Plan enrollment form as provided in Section
8.02 above. If the Participant requests a withdrawal, the
option granted to the Participant under that Phase of the Plan
shall immediately lapse and shall not be exercisable. Partial
withdrawals of payroll deductions are not permitted.
Notwithstanding the foregoing, in order to be effective for a
particular Phase, the Participant's request for withdrawal
must be properly completed and received by the Administrator
on or before the date immediately preceding the termination
date of the Phase established by the Administrator. Requests
for withdrawal that are received after that due date shall not
be effective and no withdrawal shall be made, unless otherwise
determined by the Administrator.
8
10.02 Discontinuation. At any time during the Phase, a Participant
may also request that the Administrator discontinue any
further payroll deductions that would otherwise be made during
the remainder of the Phase by completing a change of election
form and filing such form with the Administrator on or before
the date immediately preceding the termination date of the
Phase established by the Administrator. The Participant's
request shall be effective as of the beginning of the next
payroll period immediately following the date that the
Administrator receives the Participant's properly completed
change of election form. Upon the effective date of the
Participant's request, the Corporation will discontinue making
payroll deductions for such Participant for that Phase, and
all future Phases, unless the Participant completes another
change of election form as provided above.
ARTICLE XI - TERMINATION OF EMPLOYMENT
11.01 Termination. If, on or before the termination date of any
Phase, a Participant's employment terminates with the
Corporation for any reason, voluntarily or involuntarily,
including by reason of retirement or death, the payroll
deductions credited to such Participant's bookkeeping account
for such Phase, if any, will be returned to the Participant,
without interest, and any options granted to such Participant
under the Plan shall immediately lapse and shall not be
exercisable. The return of such payroll deductions shall be
made to the Participant as soon as administratively
practicable following the Participant's termination of
employment. In the event that such termination occurs near the
end of a Phase and the Corporation is unable to discontinue
payroll deductions for such Participant for his or her final
paycheck(s), such deductions shall still be made but shall be
returned to the Participant as provided herein. In no event
shall the accumulated payroll deductions be used to purchase
any shares of Stock.
If the option lapses as a result of the Participant's death,
any accumulated payroll deductions credited to the
Participant's bookkeeping account will be paid to the
Participant's estate, without interest. In the event a
Participant dies after exercise of the Participant's option
but prior to delivery of the Stock to be transferred pursuant
to the exercise of the option under Section 9.04 above, any
such Stock and/or accumulated payroll deductions remaining
after such exercise shall be paid by the Corporation to the
Participant's estate.
The Corporation will not be responsible for or be required to
give effect to the disposition of any cash or Stock or the
exercise of any option in accordance with any will or other
testamentary disposition made by such Participant or in
accordance with the provisions of any law concerning
intestacy, or otherwise. No person shall, prior to the death
of a Participant, acquire any interest in any Stock, in any
option or in the cash credited to the Participant's
bookkeeping account during any Phase of the Plan.
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11.02 Subsidiaries. In the event that any Subsidiary ceases to be a
Subsidiary of the Corporation, the employees of such
Subsidiary shall be considered to have terminated their
employment for purposes of Section 11.01 hereof as of the date
the Subsidiary ceased to be a Subsidiary of the Corporation.
ARTICLE XII - STOCK RESERVED FOR OPTIONS
12.01 Shares Reserved. One Hundred Thousand (100,000) shares of
Stock, which may be authorized but unissued shares of the
Corporation (or the number and kind of securities to which
said 100,000 shares may be adjusted in accordance with Section
14.01 hereof) are reserved for issuance upon the exercise of
options to be granted under the Plan. Shares subject to the
unexercised portion of any lapsed or expired option may again
be subject to option under the Plan.
12.02 Rights as Shareholder. The Participant shall have no rights as
a shareholder with respect to any shares of Stock subject to
the Participant's option until the date of the issuance of a
stock certificate evidencing such shares as provided in
Section 9.05. No adjustment shall be made for dividends
(ordinary or extraordinary, whether in cash, securities or
other property), distributions or other rights for which the
record date is prior to the date such stock certificate is
actually issued, except as otherwise provided in Section 14.01
hereof.
ARTICLE XIII - ACCOUNTING AND USE OF FUNDS
13.01 Bookkeeping Account. Payroll deductions for Participants shall
be credited to bookkeeping accounts, established by the
Corporation for each such Participant under the Plan. A
Participant may not make any cash payments into such account.
Such account shall be solely for bookkeeping purposes and
shall not require the Corporation to establish any separate
fund or trust hereunder. All funds from payroll deductions
received or held by the Corporation under the Plan may be
used, without limitation, for any corporate purpose by the
Corporation, which shall not be obligated to segregate such
funds from its other funds. Except as otherwise provided in
Section 10.01, Participants shall not be entitled to interest
on the amounts credited to such bookkeeping accounts.
ARTICLE XIV - ADJUSTMENT PROVISION
14.01 General. Subject to any required action by the shareholders of
the Corporation, in the event of an increase or decrease in
the number of outstanding shares of Stock or in the event the
Stock is changed into or exchanged for a different number or
kind of shares of stock or other securities of the Corporation
or another corporation by reason of a reorganization, merger,
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consolidation, divestiture (including a spin-off),
liquidation, recapitalization, reclassification, stock
dividend, stock split, combination of shares, rights offering
or any other change in the corporate structure or shares of
the Corporation, the Board (or, if the Corporation is not the
surviving corporation in any such transaction, the board of
directors of the surviving corporation), in its sole
discretion, shall adjust the number and kind of securities
subject to and reserved under the Plan and, to prevent the
dilution or enlargement of rights of those Eligible Employees
to whom options have been granted, shall adjust the number and
kind of securities subject to such outstanding options and,
where applicable, the exercise price per share for such
securities.
In the event of sale by the Corporation of substantially all
of its assets and the consequent discontinuance of its
business, or in the event of a merger, exchange,
consolidation, reorganization, divestiture (including a
spin-off), liquidation, reclassification or extraordinary
dividend (collectively referred to as a "transaction"), after
which the Corporation is not the surviving corporation, the
Board may, in its sole discretion, at the time of adoption of
the plan for such transaction, provide for one or more of the
following:
(a) The acceleration of the exercisability of
outstanding options granted at the
commencement of the Phase then in effect, to
the extent of the accumulated payroll
deductions made as of the date of such
acceleration pursuant to Article VIII
hereof;
(b) The complete termination of this Plan and a
refund of amounts credited to the
Participants' bookkeeping accounts
hereunder; or
(c) The continuance of the Plan only with
respect to completion of the then current
Phase and the exercise of options
thereunder. In the event of such
continuance, Participants shall have the
right to exercise their options as to an
equivalent number of shares of stock of the
corporation succeeding the Corporation by
reason of such transaction.
In the event of a transaction where the Corporation survives,
then the Plan shall continue in effect, unless the Board takes
one or more of the actions set forth above. The grant of an
option pursuant to the Plan shall not limit in any way the
right or power of the Corporation to make adjustments,
reclassifications, reorganizations or changes in its capital
or business structure or to merge, exchange or consolidate or
to dissolve, liquidate, sell or transfer all or any part of
its business or assets.
ARTICLE XV - NONTRANSFERABILITY OF OPTIONS
15.01 Nontransferability. Options granted under any Phase of the
Plan shall not be transferable and shall be exercisable only
by the Participant during the Participant's lifetime.
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15.02 Nonalienation. Neither payroll deductions granted to a
Participant's account, nor any rights with regard to the
exercise of an option or to receive Stock under any Phase of
the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way by the Participant. Any such attempted
assignment, transfer, pledge or other disposition shall be
null and void and without effect, except that the Corporation
may, at its option, treat such act as an election to withdraw
in accordance with Section 10.01.
ARTICLE XVI - AMENDMENT AND TERMINATION
16.01 General. The Plan may be terminated at any time by the Board
of Directors, provided that, except as permitted in Section
14.01 hereof, no such termination shall take effect with
respect to any options then outstanding. The Board may, from
time to time, amend the Plan as it may deem proper and in the
best interests of the Corporation or as may be necessary to
comply with Code Section 423, as amended, and the regulations
thereunder, or other applicable laws or regulations; provided,
however, no such amendment shall, without the consent of a
Participant, materially adversely affect or impair the right
of a Participant with respect to any outstanding option; and
provided, further, that no such amendment shall:
(a) increase the total number of shares for
which options may be granted under the Plan
(except as provided in Section 14.01
herein);
(b) modify the group of Subsidiaries whose
employees may be eligible to participate in
the Plan or materially modify any other
requirements as to eligibility for
participation in the Plan; or
(c) materially increase the benefits accruing
to Participants under the Plan;
without the approval of the Corporation's shareholders, if
such approval is required for compliance with Code Section
423, as amended, and the regulations thereunder, or other
applicable laws or regulations.
ARTICLE XVII - NOTICES
17.01 General. All notices, forms, elections or other communications
in connection with the Plan or any Phase thereof shall be in
such form as specified by the Corporation or the Administrator
from time to time, and shall be deemed to have been duly given
when received by the Participant or his or her personal
representative or by the Corporation or its designated
representative, as the case may be.