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:
[ ] Preliminary Proxy Statement
[ ] Confidential for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
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 17, 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 17, 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 17, 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.