SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION
STATEMENT UNDER
SECTION 14(d)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
Possis Medical, Inc.
(Name of Subject
Company)
Possis Medical, Inc.
(Name of Persons Filing
Statement)
Common Shares
(Title of Class of
Securities)
737407106
(CUSIP Number of Class of
Securities)
Robert G. Dutcher
Possis Medical, Inc.
9055 Evergreen Blvd NW
Minneapolis, Minnesota
55433-8003
(763) 780-4555
(Name, address and telephone
numbers of person authorized to receive notices
and communications on behalf of
the persons filing statement)
Copies to:
Thomas Martin
Dorsey & Whitney LLP
50 South Sixth Street, Suite 1500
Minneapolis, Minnesota 55402
(612) 340-2600
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Check the box if the filing relates solely to preliminary
communications made before the commencement of a tender offer.
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ITEM 1.
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SUBJECT
COMPANY INFORMATION.
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The name of the subject company is Possis Medical, Inc., a
Minnesota corporation (the Company), and the address
of the principal executive offices of the Company is 9055
Evergreen Blvd NW, Minneapolis, Minnesota
55433-8003.
The telephone number for its principal executive offices is
(763) 780-4555.
The title of the class of equity securities to which this
Solicitation/Recommendation Statement on
Schedule 14D-9
(together with any Exhibits or Annexes hereto, this
Statement) relates is common stock, par value $0.40
per share (the Common Stock) of the Company,
including the associated rights to purchase shares of capital
stock of the Company issued pursuant to that certain Amended and
Restated Rights Agreement dated as of December 23, 2006 by
and between the Company and Wells Fargo Bank, National
Association (the Shares). As of February 8,
2008, 17,034,157 shares of the Companys Common Stock
were issued and outstanding.
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ITEM 2.
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IDENTITY
AND BACKGROUND OF FILING PERSON.
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The name, business address and business telephone number of the
Company, which is the person filing this Statement, are set
forth in Item 1(a) above, which information is incorporated
herein by reference.
This Statement relates to the cash tender offer by Phoenix
Acquisition Corp. (Purchaser), a Minnesota
corporation and wholly owned subsidiary of MEDRAD, Inc., a
Delaware corporation (Parent), disclosed in a Tender
Offer Statement on Schedule TO dated February 25, 2008
(the Schedule TO) filed with the Securities and
Exchange Commission, to purchase all of the outstanding Shares
at a price of $19.50 per share, net to the seller in cash (the
Offer Price), upon the terms and subject to the
conditions set forth in the Offer to Purchase dated
February 25, 2008 (the Offer to Purchase), and
the related Letter of Transmittal (which, together with any
amendments or supplements thereto, constitute the
Offer). Copies of the Offer to Purchase and the
Letter of Transmittal are filed as Exhibits (a)(1) and (a)(2)
hereto, respectively, and are incorporated herein by reference.
The Offer is being made pursuant to an Agreement and Plan of
Merger, dated as of February 11, 2008, by and among Parent,
Purchaser and the Company, as amended by Amendment No. 1 to
Agreement and Plan of Merger dated February 20, 2008 (as
amended, the Merger Agreement). The Merger Agreement
is filed as Exhibits (e)(1) and (e)(2) hereto and is
incorporated herein by reference. The Merger Agreement provides,
among other things, for the making of the Offer by Purchaser and
further provides that, upon the terms and subject to the
conditions contained in the Merger Agreement, as soon as
practicable following completion of the Offer, Purchaser will
merge with and into the Company (the Merger) and the
Company will continue as the surviving company under the laws of
the State of Minnesota (the Surviving Corporation),
and the separate corporate existence of Purchaser will cease. In
the Merger, the Shares issued and outstanding immediately prior
to the consummation of the Merger (other than Shares owned by
Parent, the Company, any subsidiary of Parent or any subsidiary
of the Company, all of which will be cancelled, and other than
Shares, where applicable, held by shareholders who are entitled
to and who have properly exercised dissenters rights under
the Minnesota Business Corporation Act (the MBCA)),
will be converted into the right to receive an amount in cash
equal to the Offer Price (the Merger Consideration).
The Offer to Purchase states that the principal executive
offices of Purchaser are located care of MEDRAD, Inc. at 100
Global View Drive, Warrendale, PA 15086. The telephone number of
Purchaser at such location is
(724) 940-6800.
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ITEM 3.
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PAST
CONTACTS, TRANSACTIONS, NEGOTIATIONS AND
AGREEMENTS.
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Certain contracts, agreements, arrangements or understandings
between the Company or its affiliates and certain of its
executive officers, directors or affiliates are, except as noted
below, described in the Information
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Statement pursuant to Section 14(f) of the Securities
Exchange Act of 1934, as amended (the Exchange Act),
and
Rule 14f-1
thereunder (the Information Statement) that is
attached hereto as Annex A and is incorporated herein by
reference. Except as set forth in this Item 3, Item 4
below, the Information Statement or as incorporated herein by
reference, to the knowledge of the Company, there are no
material agreements, arrangements or understandings, and no
actual or potential conflicts of interest, between the Company
or its affiliates and (i) the Companys executive
officers, directors or affiliates or (ii) Parent or
Purchaser or their respective executive officers, directors or
affiliates.
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(a)
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Agreements
Between the Company and its Executive Officers, Directors and
Affiliates.
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Certain members of management and the Companys Board of
Directors (the Board) may be deemed to have
interests in the transactions contemplated by the Merger
Agreement that are different from or in addition to their
interests as Company shareholders generally. The Board was aware
of these interests and considered them, among other matters, in
approving the Merger Agreement and the transactions contemplated
thereby. As described below, consummation of the Offer will
constitute a change in control of the Company for the purposes
of determining the entitlements due to the executive officers
and directors of the Company to certain severance and other
benefits.
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Interests
of Executive Officers and Directors
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Change in
Control Termination Pay Plan
The Possis Medical, Inc. Change in Control Termination Pay Plan
(the Plan) provides for benefits to executive
officers and other employees named in the plan in the event of a
change in control of the Company. For these purposes, a change
of control includes any change of control that would be required
to be reported under the federal proxy rules, and would include
the acquisition of more than two thirds of the Companys
outstanding Shares upon acceptance of tenders in the Offer. The
executives participating in the Plan include Robert G. Dutcher,
Irving R. Colacci, Jules L. Fisher, James D. Gustafson, Shawn F.
McCarrey, Robert J. Scott and John C. Riles. For these
executives, the Plan provides for both severance benefits if the
executive is terminated without cause or resigns for good reason
within 24 months after a change of control, and for a
transaction bonus payable upon consummation of a change of
control. The conditions under which the executive officers are
entitled to benefits under the Plan have been altered by the
terms of employment agreements entered into by the Company and
the executive officers at the request of and with the consent of
Parent and which will become effective upon acceptance of
tenders of and payment for the Shares pursuant to the Offer (the
Acceptance Date), as described below under
Employment Agreements.
Severance Benefits.
The Plan provides
for severance payments that vary based on the position of the
executive and that are payable if the executives
employment is terminated (i) by the Company other than for
cause or (ii) by the executive for good reason, within
24 months after a change in control of the Company. The
payment is equal to the sum of (x) 36 times for
Mr. Dutcher, 24 times for Messrs. Colacci, Fisher,
Gustafson, McCarrey and Scott, and 12 times for Mr. Riles
the executives highest monthly base salary during the six
months immediately before his termination, and (y) all
annual incentive payments that the executive would have received
for the year in which his termination occurs. In addition, the
executives are entitled to receive from the Company continuation
of welfare benefits for a period of time after termination equal
to the multiplier used for purposes of the severance payment, or
if shorter, until the executive obtains full-time employment
providing similar benefits. If an executive is terminated during
the 24 months after a change of control, the Plan also
obligates the Company to provide group outplacement counseling
services having a value not exceeding $20,000 for
Mr. Dutcher, $15,000 for Messrs. Colacci, Fisher,
Gustafson, McCarrey and Scott, and $10,000 for Mr. Riles.
Cash Transaction Bonus.
The Plan also
provides for a cash payment to executive officers upon a change
in control, regardless of whether the executives
employment is terminated (the Cash Transaction
Bonus). Under the Cash Transaction Bonus, the Company pays
a cash bonus from a bonus pool when the change of control
occurs. The amount of the bonus pool is based on the premium in
value of the Company represented by the transaction over the
value of the Company prior to public announcement of the
transaction. The Plan provides that the value prior to
announcement is measured by the stock price averaged over the
thirty days prior to announcement of a change in control
agreement. If the premium is less than 11%, no bonus pool is
created. If the premium is
11-20%,
the
bonus pool is 2% of the transaction value. If the premium is
21-30%,
the
bonus pool is 2.5% of the transaction value. If the
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premium is
31-40%,
the
bonus pool is 3% of the transaction value. If the premium is
41-50%,
the
bonus pool is 3.5% of the transaction value. If the premium is
greater than 50%, the bonus pool is 4% of the transaction value.
The plan provides that the participation in the bonus pool of
Mr. Dutcher is 30%, of Messrs. Colacci, Fisher,
Gustafson, McCarrey and Scott is 10% and of Mr. Riles is 5%.
The average stock price during the thirty days prior to
announcement of the Merger on February 11, 2008 was $14.13.
The transaction price represents a premium of 36% over such
price and the bonus pool is therefore 3% of the aggregate price
to holders of Shares, or a total pool of approximately
$10,871,160, 13% of which is unallocated and will not be paid
and 2% of which has been allocated to a non-executive management
employee. Accordingly, the Company estimates that the Merger
will result in Robert G. Dutcher receiving a Cash Transaction
Bonus of approximately $3,261,348. In addition, the Company
estimates that each of Irving R. Colacci, Robert J. Scott,
Jules L. Fisher, James D. Gustafson and Shawn F. McCarrey
will each be paid a Cash Transaction Bonus of approximately
$1,087,116 and John C. Riles will be paid a Cash Transaction
Bonus of approximately $543,558.
Tax
Gross-Up.
Under
the Plan, Robert G. Dutcher and Robert J. Scott are entitled to
receive
gross-up
payments from the Company related to taxes imposed under
Section 4999 of the Internal Revenue Code of 1986, as
amended, on any payments or distributions received by them under
the Plan.
For more information on the Plan, see the Information Statement
attached to this Statement as Annex A and the Plan filed as
Exhibit (e)(14) hereto.
Robert
Dutcher Supplemental Executive Retirement Deferred Compensation
Agreement
Under the Robert Dutcher Supplemental Executive Retirement
Deferred Compensation Agreement, Restated as of August 1,
2006 (the SERP Agreement), certain accelerated
contributions by the Company are to be made upon a change in
control. The value of these contributions is $276,219. In
addition, Mr. Dutcher is to begin receiving the annual
payments he is entitled to under the SERP Agreement as if he had
obtained normal retirement age immediately prior to the change
in control. For more information on the SERP Agreement, see the
Information Statement attached to this Statement as Annex A
and the SERP Agreement filed as Exhibit (e)(10) hereto.
Employment
Agreements
At the request of Parent, but as approved by the Compensation
Committee of the Company, the Company entered into employment
agreements with Mr. Dutcher on February 11, 2008 and
with Messrs. Colacci, Fisher, Scott, Gustafson, McCarrey
and Riles on February 19, 2008. These employment agreements
become effective only on and after the Acceptance Date.
Chief Executive Officer.
When
effective, the employment agreement with Robert G. Dutcher,
Chief Executive Officer of the Company, requires the Company to
pay (i) all of the sums due Mr. Dutcher as a Cash
Transaction Bonus under the Plan, as detailed above,
(ii) an additional payment equal to the severance payments
under the Plan that would be due Mr. Dutcher if his
employment had been terminated on the effective date of the
employment agreement in recognition of his entitlement to such
payments under the terms of the Plan notwithstanding his
continued employment on the terms set forth in such agreement,
including all
gross-up
payments to which he is entitled under the Plan, and
(iii) all contributions and annual payments due under the
SERP Agreement, as detailed above. The agreement also provides
for Mr. Dutchers continued employment for a period of
one year. The Company estimates that the aggregate cash value of
salary and bonus severance payments due to Mr. Dutcher
under the Plan, is approximately $1,694,096, and the cash value
of the payments under the SERP Agreement is approximately
$276,219. Further, the employment agreement provides that the
Company will continue the health and welfare benefits afforded
Mr. Dutcher at the effective date of the agreement until
the 60th month after the change of control, as opposed to
the 36 months of such benefits due Mr. Dutcher under
the Plan. The Company estimates that the cash value of this
benefit at approximately $106,335. Based on preliminary
calculations, the amount of the
gross-up
payment that will be due Mr. Dutcher is estimated at
approximately $2,811,000.
During the one year term of his employment under the employment
agreement, Mr. Dutcher will serve as President of the
Company and will be paid a base salary equal to $390,000 per
year, plus a bonus based upon achievement of certain targets of
up to $260,000. Mr. Dutcher has also agreed to provide up
to one hundred hours
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per year of consulting services at a rate of $250.00 per hour
for a period of two years following the termination of his
employment under the employment agreement.
Chief Financial Officer and General
Counsel.
When effective, the employment
agreements with Jules L. Fisher, Chief Financial Officer of the
Company, and Irving R. Colacci, General Counsel of the Company,
require the Company to pay (i) all of the sums due
Mr. Fisher and Mr. Colacci as a Cash Transaction
Bonus, as detailed above, and, (ii) in recognition of their
entitlement to such payments under the terms of the Plan
notwithstanding their employment on the terms set forth in such
agreements, an additional payment equal to the severance
payments that would be due Mr. Fisher and Mr. Colacci
under the Plan if their employment had been terminated on the
effective date of their employment agreements. The Company
estimates that aggregate value of severance payments due to each
of Mr. Fisher and Mr. Colacci under the Plan are
approximately $664,254 and $633,254, respectively.
During the six month term of their employment agreements,
Mr. Fisher will be paid a base salary equal to $200,000 per
year, plus a bonus based upon achievement of certain targets of
up to $65,500, and Mr. Colacci will be paid a base salary
equal to $190,000 per year, plus a bonus based upon achievement
of certain targets of up to $60,000. In addition,
Mr. Fisher and Mr. Colacci will receive the health and
welfare benefits, and other benefits (including automobile
allowance, health club membership allowance, tax preparation
allowance, and deferred compensation contribution) they received
prior to the effective date for the six month term of the
employment agreements, and continuing for two years after those
agreements terminate. The Company estimates the value of such
benefits for Mr. Fisher and Mr. Colacci during the two
years after termination at approximately $72,813 and $70,207,
respectively. Mr. Fisher and Mr. Colacci will also be
entitled to $15,000 of group outplacement counseling services
after termination of the employment agreement.
Other Executive Officers.
The
employment agreements with James D. Gustafson, Senior Vice
President, Research & Development, Engineering,
Clinical Evaluation and Chief Quality Officer; Shawn F.
McCarrey, Executive Vice President, Worldwide Sales &
Marketing; Robert J. Scott, Vice President, Manufacturing
Operations, Information Technology and Chief Security Officer
and John C. Riles, Vice President, Business Development and
Strategy, provide for the continued employment of each executive
until the agreement is terminated. The agreements may be
terminated by either the Company or the executive with
30 days written notice.
Under the employment agreements, the Company acknowledges that
Mr. Gustafson, Mr. McCarrey, Mr. Scott and
Mr. Riles shall be entitled to the Cash Transaction Bonus
(including any
gross-up
payments due Mr. Scott), as detailed above, at the
effective date of each employment agreement. Pursuant to the
employment agreements, each of Mr. Gustafson,
Mr. McCarrey, Mr. Scott and Mr. Riles waived any
severance payments due under the Plan as a result of termination
of employment. Instead, each employment agreement provides that
in the event the executives employment is terminated prior
to the second anniversary of the employment agreement without
cause (as defined in the employment agreement), the
executive shall be entitled to participate in the Companys
welfare benefit plans and receive other equivalent benefits for
a period of 24 months following such termination and will
be entitled to the following payments: Mr. Gustafson,
$578,671; Mr. McCarrey, $675,860; Mr. Riles, $225,219;
and Mr. Scott, $495,235 plus, in the case of
Mr. Scott, a tax
gross-up
related to taxes imposed under Section 4999 of the Internal
Revenue Code of 1986, as amended, on such amount to which he
would have been entitled under the Plan. If the executive
remains employed after the second anniversary of the agreement,
the executive is entitled to a payment of $100,000.
During the term of the agreements, Mr. Gustafson will be
paid an annual base salary equal to $189,600 per year, plus an
annual bonus based upon achievement of certain targets of up to
$133,000; Mr. McCarrey will be paid an annual base salary
equal to $204,000 per year, plus an annual bonus based upon
achievement of certain targets of up to $200,000; Mr. Scott
will be paid an annual base salary equal to $160,000 per year,
plus an annual bonus based upon achievement of certain targets
of up to $107,000, and Mr. Riles will be paid an annual
base salary equal to $150,000 per year, plus an annual bonus
based upon achievement of certain targets of up to $50,000.
Because the Company was exceeding bonus targets at the time of
announcement of the transaction and because the Companys
performance for the fiscal year ending July 31,
2008 may be affected by the change in control, the
employment agreements for these executives provide for full
payment of the annual bonus as of July 31, 2008, and a
bonus of a pro rata amount (five-twelfths) based upon
achievement of new targets for the balance of the current
calendar year.
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The foregoing summary of the employment agreements is qualified
in its entirety by reference to the employment agreements
attached hereto as Exhibits (e)(3) through (e)(9) and
incorporated herein by reference.
The
Companys Stock Option Plans
All outstanding and unvested options to purchase shares of
Common Stock were accelerated and became fully exercisable
concurrently with execution of the Merger Agreement. The Merger
Agreement provides that each Company stock option outstanding
immediately prior to the Effective Time will be cancelled. The
holder of an option will become entitled to receive, in full
satisfaction of their rights, a single lump-sum cash payment
equivalent to (A) the number of shares of the
Companys Common Stock for which their option has not been
exercised and (B) the excess, if any, of the Offer Price
over the exercise price per share of their option. If the
exercise price of any option exceeds the Offer Price, then the
option will be cancelled without payment of any consideration.
As a result of the foregoing, the approximate aggregate dollar
value of the outstanding options, based on the excess, if any,
of the Offer Price over the exercise price per share subject to
such options, held by the Companys executive officers, is:
Robert G. Dutcher, $6,314,680; Irving R. Colacci, $2,456,343;
Robert J. Scott, $2,461,957; James D. Gustafson, $2,445,018;
Jules L. Fisher, $490,661; Shawn F. McCarrey, $1,748,036 and
John C. Riles, $393,878; and the aggregate dollar value of the
outstanding options, based on the excess, if any, of the Offer
Price over the exercise price per share subject to such options,
issued to the Companys non-employee directors, are: Mary
K. Brainerd, $467,499; Seymour J. Mansfield, $584,754; William
C. Mattison, $832,436; Whitney A. McFarlin, $793,720; Donald C.
Wegmiller, $371,537; and Rodney A. Young, $582,318. The
approximate aggregate dollar value of all the outstanding
options issued to employees and directors of the Company
(including the options of the officers and non-employee
directors listed above), based on the excess, if any, of the
Offer Price over the exercise price per share subject to such
option, is $30,205,954.
The foregoing summary is qualified in its entirety by reference
to the Merger Agreement, which is filed as Exhibits (e)(1) and
(e)(2) hereto and is incorporated herein by reference.
The
Companys Restricted Stock
The Merger Agreement provides that the Companys restricted
shares, which are outstanding shares of the Companys
Common Stock subject to vesting or other forfeiture restrictions
or are subject to a right of repurchase by the Company at a
fixed purchase price, will vest and the restrictions associated
with them will automatically be deemed waived at the Effective
Time.
The number of shares of restricted stock held by the executive
officers that will vest at the Effective Time, are: Robert G.
Dutcher, 5,040; Irving R. Colacci, 3,120; Robert J. Scott,
3,090; James D. Gustafson, 3,157; Jules L. Fisher, 3,120; Shawn
F. McCarrey, 3,097 and John C. Riles, 1,357. Each non-employee
director, including Ms. Brainerd, and
Messrs. Mansfield, Mattison, McFarlin, Wegmiller, and
Young, holds 528 shares of restricted stock that will vest
at the Effective Time
The foregoing summary is qualified in its entirety by reference
to the Merger Agreement, which is filed as Exhibits (e)(1) and
(e)(2) hereto and is incorporated herein by reference.
Directors
and Officers Indemnification and Insurance
The Merger Agreement provides that the Surviving Corporation
will indemnify each present and former director or officer. The
Surviving Corporation will indemnify against all claims, losses,
liabilities, damages, judgments, fines and fees, costs and
expenses, including reasonable attorneys fees and
disbursements, incurred in connection with any claim, action,
suit, proceeding or investigation, whether civil, criminal,
administrative legislative or investigative (whether internal or
external) arising out of or pertaining to the fact that the
indemnified party is or was a director or officer of the
Company, whether asserted or claimed prior to, at or after the
Effective Time, to the same extent that such indemnified party
was entitled to indemnification under the Companys
Articles of Incorporation and Bylaws as in effect on the date of
the Merger Agreement. Each indemnified party will be entitled to
advancement of expenses incurred in the defense of any such
claim, action, suit, proceeding or investigation to the same
extent that such indemnified party was entitled to advancement
of expenses under the
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Companys Articles of Incorporation and Bylaws as in effect
on the date Merger Agreement. The Merger Agreement further
provides that for the six year period commencing at the
Effective Time, the Surviving Corporation will maintain
directors and officers liability insurance covering
acts or omissions occurring at or prior to the Effective Time at
a level not less favorable to such individuals than the
directors and officers liability insurance coverage
presently maintained by the Company. The foregoing summary is
qualified in its entirety by reference to the Merger Agreement,
which is filed as Exhibits (e)(1) and (e)(2) hereto and is
incorporated herein by reference.
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Interests
of All Employees
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Employee
Benefits
The Merger Agreement provides that, for a period of twelve
months following the Merger becoming effective as set forth in
the Articles of Merger, the Surviving Corporation will provide
current employees of the Company and its Subsidiaries who
continue employment with the Surviving Corporation with
compensation and benefits that are substantially similar in the
aggregate than those provided under the Companys
compensation and benefit plans, programs, policies, practices
and arrangements (excluding equity-based programs) in effect at
the effective time of the Merger (the Effective
Time). The foregoing summary is qualified in its entirety
by reference to the Merger Agreement, which is filed as Exhibits
(e)(1) and (e)(2) hereto and is incorporated herein by reference.
The
Companys Employee Stock Purchase Plan
The Company has suspended participation in the Possis Medical,
Inc. Restated Employee Stock Purchase Plan (the
ESPP) effective as of February 10, 2008. In
addition, the ESPP shall terminate immediately prior to the
Effective Time. Finally, any contributions by participants in
the ESPP during the Offer are to be refunded to such participant
in cash.
The Board has taken steps to cause any dispositions of shares of
its Common Stock or options to acquire shares of its Common
Stock in connection with the Offer or the Merger to be exempt
from the effects of Section 16 of the Exchange Act by
virtue of
Rule 16b-3
promulgated under the Exchange Act.
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(b)
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Agreements
between the Company and Parent.
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In connection with the transactions contemplated by the Merger,
the Company and Parent entered into the Merger Agreement
February 11, 2008 and a Confidentiality Agreement dated
October 12, 2007.
The summary of the material terms of the Merger Agreement set
forth under the caption Terms of the Offer; Expiration
Date in the Offer to Purchase is incorporated herein by
reference. The summary of the Merger Agreement contained in the
Offer to Purchase is qualified in its entirety by reference to
the Merger Agreement, which is filed as Exhibits (e)(1) and
(e)(2) hereto and is incorporated herein by reference.
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Confidentiality
Agreement
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On October 12, 2007, the Company and Parent entered into a
Mutual Confidentiality Agreement (the Confidentiality
Agreement) to facilitate the mutual sharing of information
in order to allow Parent and the Company to evaluate a potential
transaction. The foregoing summary is qualified in its entirety
by reference to the complete text of the Confidentiality
Agreement which is filed as Exhibit (e)(12) hereto and is
incorporated herein by reference.
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Ownership
of Company Securities
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The Offer to Purchase states that neither Parent nor Purchaser
owns any Shares.
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The Merger Agreement provides that promptly upon payment by
Purchaser of Shares representing at least two-thirds of the
total number of outstanding shares of the Companys Common
Stock, Parent shall be entitled to designate that number of
directors, rounded up to the next whole number, on the Board
that equals the product of (a) the total number of
directors on the Board, giving effect to the election of any
additional directors, multiplied by (b) the percentage that
the number of shares of the Companys Common Stock held by
Parent and Purchaser bears to the total number of share of the
Companys Common stock then outstanding. The Company shall
promptly take all actions necessary to cause Parents
designees to be elected or appointed to the Board in compliance
with law, including increasing the number of directors and
seeking and accepting resignations from incumbent directors.
Moreover, the Company will take all actions necessary to cause
individuals designated by Parent to constitute the number of
members, rounded up to the next whole number, on each committee
of the Board, each board of directors of each subsidiary of the
Company, and each committee of the board of each subsidiary,
that represents the same percentage as the designees of Parent
represent on the Board.
Following the election or appointment of the Parents
designees and until the consummation of the Merger, consent of
both of the directors of the Company then in office who are not
the Parents designees will be needed to take any of the
following actions: (i) any amendment or termination of the
Merger Agreement by the Company, (ii) any extension by the
Company of the time for the performance of any of the
obligations or other acts of Parent or Purchaser, (iii) any
waiver of any of the Companys rights or any of the
obligations of Parent or Purchaser under the Merger Agreement,
(iv) any other consent, action or recommendation by the
Company or the Board with respect to the Merger Agreement, the
Offer or the Merger or any other transaction contemplated
thereby or in connection therewith or (v) any amendment or
modification to the Companys articles of incorporation or
bylaws.
The foregoing is qualified in its entirety by reference to the
Merger Agreement, which is filed as Exhibits (e)(1) and (e)(2)
hereto and is incorporated herein by reference.
Parent intends to designate representatives to the Board from
among the directors and officers of the Purchaser and Parent.
Background information on these individuals is found in the
Information Statement attached to this Statement as Annex A
and incorporated herein by reference.
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(c)
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Agreements
by and among the Parent, Purchaser and Shareholders of the
Company
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Tender
and Support Agreements
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In connection with, and simultaneously with the execution of the
Merger Agreement, all of the directors and executive officers of
the Company entered into Tender and Support Agreements, dated
February 11, 2008, with Parent and Purchaser (the
Support Agreements). Pursuant to, and subject to the
terms and conditions of, the Support Agreements, each director
and executive officer has (a) agreed to tender any Shares
held by such director or executive officer to Purchaser pursuant
to the Offer, (b) agreed to vote, if necessary, such Shares
in favor of the Merger and against any alternative transaction.
The foregoing summary is qualified in its entirety by reference
to the form of Support Agreement, which is filed as Exhibit
(e)(11) hereto and is incorporated herein by reference.
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ITEM 4.
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THE
SOLICITATION OR RECOMMENDATION.
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(a)
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Solicitation/Recommendation.
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The Board, during a meeting held on February 10, 2008,
acting on the unanimous recommendation of a special committee,
by unanimous vote approved and adopted the Merger Agreement and
the transactions contemplated thereby and determined that the
Offer and the Merger are advisable and fair to, and in the best
interests of, the Company and its shareholders.
Accordingly, the Board unanimously recommends that the holders
of the Shares accept and tender their Shares pursuant to the
Offer, and, if the Merger is required to be submitted to a vote
of the Companys shareholders, vote their Shares in favor
of the Merger. A letter to the Companys shareholders
communicating the Board recommendation is filed herewith as
Exhibit (a)(11) and is incorporated herein by reference.
7
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(b)
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Background
of the Transaction.
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Although it was incorporated in 1956, the Company has focused
its business on medical products since 1994, and more
particularly on the mechanical thrombectomy segment of the
medical product market. The Company received FDA clearance to
begin marketing its AngioJet products in the United States for
removal of blood clots in kidney access grafts in late 1996, and
for coronary arteries in March 1999. As it expanded the
applications for AngioJet and commissioned clinical trials
designed to prove its efficacy in ever broader applications, the
Companys revenue from sale of these products grew rapidly.
From slightly over $13 million for the fiscal year ending
July 31, 1999, the Company had increased its product
revenue, almost exclusively from AngioJet, to over
$72 million for the year ended July 31, 2004.
From 2001 through 2004, the Company sponsored a study designed
to investigate the use of AngioJet in treating acute myocardial
infarction (heart attack) prior to balloon angioplasty,
regardless of the presence of visible thrombus (the AiMI study).
The AiMI study failed to show improvement in infarct size, and
the publication of these results in August 2004 had a dramatic
effect on the Companys business. The trading price of the
Companys common stock declined dramatically, the Company
was served with putative class action securities litigation, and
the Companys sales, particularly its sales for coronary
applications declined for several years, to a low of
approximately $62 million in fiscal 2006.
Prior to the release of the AiMI study results, the Company had
periodically been approached by companies that had expressed
interest in joint projects or in business combination
discussions. Until 2005, however, and although the Board
reviewed these inquiries with a view to enhancing shareholder
value, the Company had not actively sought a business
combination partner. Given the growth of the Companys
business and the value afforded the Companys shares in
trading markets, none of these approaches had matured to serious
discussions.
Initial
Contacts from Parent The First
Engagement
Management of the Company was first contacted by Parent, then a
subsidiary of Schering AG, in November 2005, purportedly to
discuss joint product initiatives. The Companys Board of
Directors discussed the informal contact made by Parent at its
regular meeting on December 7, 2005.
Management, including Mr. Dutcher, Mr. McCarrey and
Mr. Scott, met with Mr. Friel and representatives of
Parent on December 9, 2005, but discussions quickly
progressed to the complementary nature of the businesses and the
possibility of a business combination. Mr. Dutcher
expressed doubt that Parent could meet the Companys
valuation expectations, given the depressed trading price of the
Companys common stock at that time, which was then trading
in a range from approximately $8.00 to $11.00 per share.
Nevertheless, Mr. Friel and other executives called
Mr. Dutcher in December 2005 and January 2006, expressing
enthusiasm for a combination and flexibility regarding price.
Following Parents request that the parties execute a
mutual confidentiality agreement, an executive committee of the
Board consisting of Messrs. Wegmiller, Mansfield, Mattison
and Dutcher (the Executive Committee) met and
authorized Parents request. Management negotiated, and on
February 14, 2006 executed, the mutual confidentiality
agreement.
The full Board discussed the approach made by Parent at its
regular meeting on February 17, 2006, as well as several
other partnership opportunities.
On February 24, 2006, at a meeting in Minneapolis with
Mr. Dutcher and Mr. Fisher, Mr. Friel verbally
expressed interest in acquiring the Company at a price of
between $13 and $15 per share. Although Mr. Dutcher
expressed his reservations regarding the price and the
inopportune time this represented given the depressed trading
price of the Companys common stock, he agreed to present
the opportunity to the Companys Board.
At a special meeting held March 6, 2006, Dorsey &
Whitney LLP, the Companys outside counsel
(Dorsey & Whitney), presented information
to its Board regarding the processes commonly employed in
acquisition transactions and the duties and responsibilities of
Board members in connection with such transactions. The Board
also received a presentation from an investment banking firm
regarding the appropriate valuation of the Company. The Board
considered publicly available information obtained regarding
Parent and its corporate parent
8
Schering. The Board also considered publicly available
information regarding a pending hostile contest for control of
Schering. After considering the risks then facing the Company,
but the potential for growth, as well as the possibility that
Parents ability to proceed might be impaired, the Board
authorized Mr. Dutcher to contact Parent and explain that
the valuation range was inadequate.
On March 12, 2006, Mr. Dutcher contacted
Mr. Friel and described the Boards conclusion
regarding Parents proposed valuation range.
Mr. Dutcher informed Mr. Friel that the Board had
indicated that the Company would not allow Parent to commence
due diligence based on the proposed valuation range.
Representatives of the Company and Parent had further
discussions on March 13 and March 14.
The Board met again on March 17, 2006 and considered the
status of discussions and the unacceptability of the valuation
range, but authorized Mr. Dutcher to present to Parent the
strategic plan which they considered the basis for a higher
valuation. Mr. Dutcher also was authorized to solicit
proposals from financial advisors, and between March 17,
and April 11, interviewed and assembled proposals from
three advisors.
Mr. Dutcher, Mr. McCarrey, Mr. Fisher,
Mr. Riles and Mr. Gustafson met with Mr. Friel
and representatives of Parent on March 23, 2006 and
presented the strategic plan. Parent confirmed at this meeting
that evolving circumstances with its corporate parent should not
affect discussions.
Mr. Friel telephoned Mr. Dutcher on March 28,
2006 and reiterated his desire to commence due diligence and
Mr. Dutcher reiterated our desire not to proceed without a
higher valuation. Between March 28, 2006 and April 7,
2006, Messrs. Friel and Dutcher, spoke by telephone several
times to discuss the status of negotiations. During the April 7
discussion, Mr. Friel indicated that Parent may increase
the proposed valuation range to $14 to $16 per share, subject to
the outcome of due diligence.
On April 10, 2006, representatives of the Company
management met with Dorsey & Whitney and reviewed the
acquisition and due diligence process. On April 11, 2006,
the Board met and received presentations from Greene
Holcomb & Fisher LLC (Greene Holcomb &
Fisher), as well as a thorough update of the status of
operations and the proposals from Parent. After an extensive
review of the opportunities available to the Company, as well as
the risk presented, in remaining independent, the Board approved
proceeding with due diligence with Parent and the retention of
Greene Holcomb & Fisher to assist with negotiation of
the transaction and with an evaluation of the fairness of any
transaction that would surface. The Board instructed Greene
Holcomb & Fisher to proceed with a non-public search
for alternative transactions.
Between April 12 and April 14, Mr. Dutcher advised
Parent that it was willing to move forward, and on
April 14, the Company formally engaged Greene
Holcomb & Fisher as its financial advisor. Between
April 14 and May 31, 2006, Greene Holcomb &
Fisher contacted 15 companies, and received indications of
interest from two. One of these two alternative bidders met with
our management.
Parent proceeded with due diligence during early May, conducting
most of its investigation off-site during the week of May 1
through May 5, 2006. Management of the Company presented to
personnel of Parent and Schering on May 2, 2006.
On May 31, 2006, Mr. Friel contacted Mr. Dutcher.
Mr. Friel informed Mr. Dutcher that, despite
Parents favorable impressions developed during its
diligence investigation, Parent would not be in position to
proceed with discussions until July.
On June 1, 2006, the Company received an expression of
interest from one additional potential acquirer. On
June 16, 2006, representatives of the Company conducted a
conference call with the potential acquirer. Following the
conference call, this potential acquirer declined to proceed
further and provide a formal offer.
On June 26, 2006, Mr. Friel notified Mr. Dutcher
that, as a result of changes in the management of Parents
corporate parent, Parent was unwilling to proceed with
discussion regarding an acquisition of the Company. On
July 5, 2006, Greene Holcomb & Fisher was
informed to cease any further activities aimed at facilitating
an acquisition of the Company.
9
Operations
between Offers
At its August 18, 2006 Board meeting, the Companys
Board determined to proceed with its business plan as an
independent entity, including plans to expand through
acquisitions and new product acquisitions. The Company also
commenced succession planning for Mr. Dutcher, who was
approaching retirement age and expressed the need to arrange for
such planning.
Parent contacted Mr. Dutcher and other members of
management between August 2006 and September 2007 at trade
shows, or informal telephone calls, at which it expressed
continuing interest, but also expressed its uncertainty as to
its ability to proceed because of policy changes being
implemented by Bayer, its new corporate parent. As used herein,
the term Bayer is used to refer to Bayer AG and
Bayer HealthCare AG, a
wholly-owned
subsidiary of Bayer AG. In May 2007 the Company had informal
conversations with Company X, and met with Company X on
May 14, 2007, regarding a potential combination of the two
companies. Although both parties expressed interest, no formal
actions were taken and the conversations were tabled.
Re-engagement
with Parent
Mr. Friel contacted Mr. Dutcher by telephone on
September 21, 2007 and informed him that he was authorized
to renew discussions with the Company concerning a possible
transaction. Mr. Dutcher advised the lead director and the
chair of the Executive Committee of such contacts.
At its regularly scheduled meeting on September 27, 2007,
the Companys Nominating and Corporate Governance
Committee, which consists of all directors with the exception of
Mr. Dutcher, determined to suspend succession planning
activities and authorized Mr. Dutcher to meet with Parent.
On October 12, 2007, and after signing a new nondisclosure
agreement at commencement of the meeting, Mr. Dutcher and
Mr. Fisher met with Mr. Friel and other
representatives of Parent and Bayer. The Companys
management presented information about the current status of its
business, and Parent presented its plans to pursue strategic
transactions. Parent also described the process they anticipated
in making an offer to acquire the Company. Parent informed the
Company that Parent expected to be in a position to deliver a
written indication of interest in November, following necessary
internal Bayer approvals.
On October 16, 2007, Mr. Dutcher contacted
representatives of Greene Holcomb & Fisher,
representatives of Dorsey & Whitney and members of the
Board to update them on recent discussions with Parent.
On October 18, 2007, the Executive Committee, with
Mr. McFarlin also participating, met to discuss the status
of discussions with Parent. Mr. Dutcher updated the
committee on the meetings with Parent and with Greene
Holcomb & Fisher. The Committee discussed the issues
raised in discussions with Parent, potential responses if a
reasonable offer was forthcoming, and activities pending such an
offer.
On November 8, 2007, the Board held a special meeting.
Greene Holcomb & Fisher presented a detailed analysis
of the Companys market position, including the changes in
the Companys performance, market price, anticipated
performance, market comparables for similar companies, the price
range of the Companys common stock and preliminary
valuation analyses. Greene Holcomb & Fisher also
explained, and discussed with the Board, the process for
contacting other potentially interested acquirers should Parent
determine to make an offer that Board determined to pursue. The
Board discussed the preliminary performance of the Company for
the quarter ended October 31, 2007, which had exceeded
revenue expectations for the quarter, and the possibility that
more value could be generated by remaining independent. The
Board authorized the Companys management to re-engage
Greene Holcomb & Fisher and approved the terms of such
engagement.
On November 13, 2007, Mr. Friel contacted
Mr. Dutcher and advised him that the Bayer board had
authorized Parent to proceed and that the Company would be
receiving a letter the following day. Mr. Dutcher scheduled
an Executive Committee meeting for November 14 in anticipation
of the letter.
On November 14, 2007, Mr. Dutcher received a written,
non-binding indication of interest from Bayer expressing
interest in an acquisition of the Company by Parent or another
of its affiliates at a price of between $17 and $18 per share in
cash. The letter expressed willingness to commence diligence
immediately and a desire to receive a positive response by
November 28, 2007. The Executive Committee met on
November 14, 2007 and
10
discussed the letter in detail, as well as the proposed
valuation contained in the letter. The Executive Committee
concluded that the letter represented a good faith offer but
that the proposed valuation range was not acceptable.
Mr. Dutcher discussed with the Committee the impact of
continued performance, the risks facing the business in terms of
sales expense, CEO succession, and other matters. After
discussion, the Committee instructed Mr. Dutcher to advise
Greene Holcomb & Fisher that the proposed valuation
range contained in the letter was inadequate but authorized the
Companys management to permit Parent and Bayer to conduct
adequate diligence to formulate a more substantial offer. The
Committee instructed Greene Holcomb & Fisher to
immediately commence a confidential, non-public search for
alternative acquirers and to communicate to Parents
financial advisor, Morgan Stanley, the reaction of the Committee
to the proposed valuation range.
Following the November 14, 2007 meeting, Greene
Holcomb & Fisher immediately started contacting
prospective acquirers, as part of a market check. Twenty-three
companies believed to have interest in a potential acquisition
of the Company were contacted by Green Holcomb &
Fisher.
On November 16, 2007, Company X expressed interest in a
transaction, noting that they were interested in pursuing a
merger pursuant in which the shareholders of the Company would
receive Company Xs shares.
On November 19, 2007, the Executive Committee met and
received a report from Greene Holcomb & Fisher on the
progress of the market check process, as well as conversations
that Greene Holcomb & Fisher had conducted with Morgan
Stanley. Greene Holcomb & Fisher informed the
committee that Bayer had indicated that it would not increase
its proposed valuation range prior to due diligence. The
Committee authorized management to proceed with off-site
diligence meetings with personnel of Parent and Bayer.
On November 26, 2007, the Executive Committee met and
received a status update from Greene Holcomb & Fisher
on the market check and a proposed time schedule for due
diligence by Parent. The Committee also discussed the increase
in market price of the Companys common stock following
Companys recent earnings release.
On November
29-30,
2007
and December 3, 2007, representatives of the Company and
Parent held detailed due diligence discussions at the offices of
Dorsey & Whitney and sent representatives to review
records with outside intellectual property counsel. In late
November 2007, the Company created a secure electronic data room
to house due diligence documents. Throughout the month of
December 2007, representatives of the Company and Parent were in
contact to discuss Parents review of the due diligence
materials and
follow-up
questions.
On November 26, 2007, Company Y expressed interest to
Greene Holcomb & Fisher in pursuing further
discussions with the Company. Mr. Dutcher, Mr. Fisher,
Mr. Colacci, Mr. McCarrey, Mr. Gustafson and
Mr. Scott met with Company Y on December 11, 2007 to
discuss the potential for a transaction.
On December 3 and December 10, 2007, the Executive
Committee met to receive updates from the Companys
management and Greene Holcomb & Fisher on the status
of discussions with Parent and Morgan Stanley, Parents due
diligence investigation and the progress of the market check.
On December 13, 2007, the Board held a regularly scheduled
meeting in connection with the Companys annual meeting of
shareholders. Greene Holcomb & Fisher reported to the
Board in detail the history of negotiations with Parent, and the
status of the market check, including the two additional
companies that had expressed an interest and proceeded with
meetings with management. Greene Holcomb & Fisher
briefed the Board on the recent increase in market price of the
Companys common stock, the impact of current Company
performance, the timing of the current process and its impact of
negotiations, the history of volatility in the Companys
performance and stock value, and the likelihood of identifying
alternative buyers if the proposed transaction did not proceed.
Greene Holcomb & Fisher and the Board also discussed,
in detail, the business risks for the Company going forward,
including the potential results of the clinical trials, the
ability to increase earnings and potential competition, factors
that could impact Parents ability and willingness to pay a
price acceptable to the Board, the likelihood that Parent will
ultimately decide to make a firm purchase offer, and additional
issues. The Board concluded by encouraging management to pursue
all three potential bidders and any other potential acquirers
developed through the market check process.
On December 17, 2007, Mr. Dutcher, Mr. Fisher,
Mr. McCarrey and Mr. Gustafson met with
representatives of Company X.
11
The Executive Committee met again on December 21, 2007 with
Ms. Brainerd, Mr. Young and Mr. McFarlin also
attending. Greene Holcomb & Fisher advised the
Committee that Parent had informed it that Parent and
Bayer anticipated making a revised formal offer after the
meeting of Bayers board of directors to be held in the
second week of January 2008. Greene Holcomb & Fisher
also noted that they were actively encouraging Company X and
Company Y to formulate their proposals before that time. The
Committee inquired of Greene Holcomb & Fisher at
length whether there were other companies in the industry that
could have an interest in considering a transaction.
On January 7, 2008, Greene Holcomb & Fisher
updated management on continued interest and internal
consideration of a transaction with the Company by both Company
X and Company Y, but no further communication from Parent.
On January 12, 2008, Company Y advised Greene
Holcomb & Fisher that it was formulating a proposal
and would seek approval from its senior management to submit the
proposal on January 22, 2008.
The Executive Committee met again on January 14, 2008 with
Ms. Brainerd, Mr. Young and Mr. McFarlin also
attending. Greene Holcomb & Fisher presented a summary
of the market check process, reported the result of its initial
contacts with 23 companies, and briefed the Committee on
the status of discussions with Parent and the two potential
acquirers that had emerged from the market check process,
Company X, Company Y.
On January 16, 2008, a draft Merger Agreement prepared by
Parents outside counsel, Cohen & Grigsby P.C.
(Cohen & Grigsby) was delivered to Greene
Holcomb & Fisher and forwarded to Dorsey &
Whitney. The electronic communication transmitting the draft
agreement also contained a request to meet with the
Companys management to discuss the ongoing role of
management after the transaction. Greene Holcomb &
Fisher also advised the Company that Morgan Stanley had informed
it that a proposal for Parents acquisition of the Company
would be considered by the board of management of Bayer at a
meeting on January 28, 2008. Greene Holcomb &
Fisher was instructed that the Companys management would
not participate in discussions regarding their compensation and
post-transaction responsibilities until a proposal containing a
valuation acceptable to the Board had been received from Parent.
On January 17, 2008, Company X contacted Greene
Holcomb & Fisher and advised it that a decline in the
market price for Companys Xs shares had adversely
affected the competitiveness of the share-for-share exchange
that it expected to propose to the Company. Company X now
anticipated that its proposal could offer consideration, based
on the market value of its shares on that date, that was
substantially below the cash consideration contained in
Parents original indication of interest on
November 14, 2007.
Between January 16 and January 23, 2008, Dorsey &
Whitney formulated comments on the draft Merger Agreement and
discussed those comments in detail with the Company and Greene
Holcomb & Fisher on January 23, 2008.
On January 23, 2008, Company Y advised Greene
Holcomb & Fisher that it was considering making a cash
offer that was competitive with the $17 to $18 per share range
proposed by the Parent on November 14, 2007.
On January 24, 2008, the Executive Committee met with
Mr. McFarlin and Mr. Young also attending. Greene
Holcomb & Fisher updated the Committee as to the
status of discussions with Parent, Company X and Company Y. The
Committee agreed that, given the indication of the amount and
form of consideration proposed by Company X, further
negotiations with Company X would not be productive. After a
discussion with Dorsey & Whitney and the
Companys management, the Committee instructed Greene
Holcomb & Fisher to notify Parent that the Company
believed that the draft Merger Agreement required revision but
that the revisions did not relate to economics. The Committee
determined that comments to the draft Merger Agreement would not
be provided until a proposal with a valuation range acceptable
to the Board had been communicated to the Company. Greene
Holcomb & Fisher was also instructed to aggressively
pursue negotiations with Company Y.
On January 30, 2008, Bayer forwarded a revised, nonbinding
indication of interest indicating its desire to proceed toward
closure of the transaction at a price of $19.00 per share. On
January 31, 2008, the Executive Committee met, with
Mr. McFarlin and Mr. Young also participating, and
considered the revised offer, as well as the terms of the draft
Merger Agreement. The Executive Committee engaged in
considerable discussion regarding the
12
possibility of generating more value by remaining independent,
particularly given what appeared to be further positive
performance in the recently concluded quarter. The Executive
Committee advised Greene Holcomb & Fisher that the
$19.00 offer was not adequate or acceptable and that it should
continue to aggressively pursue negotiations with Parent and
Company Y. Greene Holcomb & Fisher contacted Company
Y, but Company Y indicated, orally, that it was not prepared to
increase its offer to a level at which it would be competitive
with the likely increased offer Greene Holcomb &
Fisher believed Parent might be prepared to make.
On February 1, 2008, Greene Holcomb & Fisher
contacted Morgan Stanley and indicated that the $19.00 offer was
not acceptable to the Board and that Greene Holcomb &
Fisher believed that a third party may be prepared to make an
enhanced offer. Morgan Stanley indicated that they understood
the Companys position, but desired to complete negotiation
on the Merger Agreement prior to further discussing valuation.
After polling members of the Executive Committee, the Company
agreed to proceed with negotiation of the Merger Agreement.
On February 4, 2008, Dorsey & Whitney delivered
its comments on the Merger Agreement to Cohen &
Grigsby. Representatives of Dorsey & Whitney and
Cohen & Grigsby discussed the comments on
February 6, 2008 and representatives of the Company,
Dorsey & Whitney and Greene Holcomb & Fisher
agreed to meet with representatives of Parent, Bayer,
Cohen & Grigsby and Morgan Stanley at Morgan
Stanleys offices in New York City on February 8, 2008
to negotiate the open issues on the Merger Agreement. On
February 6, 2007, Cohen & Grigsby delivered a
revised draft of the Merger Agreement and an initial draft of
the Support Agreement to Dorsey & Whitney.
On February 8, 2008, Mr. Dutcher and representatives
of Dorsey & Whitney and Greene Holcomb &
Fisher met with representatives of Parent, Bayer,
Cohen & Grigsby and Morgan Stanley in New York and
resolved most of the remaining open issues on the Merger
Agreement. Following negotiations on the open Merger Agreement
issues, Bayer, Parent, Greene Holcomb & Fisher and
Morgan Stanley negotiated the purchase price, reaching a
preliminary agreement, subject to satisfactory resolution of any
remaining merger issues and approval by the Board, of $19.50 per
Share.
On February 9 and February 10, 2008 representatives of
Dorsey & Whitney and Cohen & Grigsby
resolved the remaining issues on the Merger Agreement and
negotiated the terms of the Support Agreements to be entered
into by members of the Board and the Companys executive
officers in connection with the transaction. Also on February
8-10, 2008, Parent and certain members of management discussed
the terms of employment agreements that had been proposed by
Parent.
On February 10, 2008, the Board met to review the proposed
transaction for the acquisition of the Company by Parent.
Consistent with statutory provisions in Minnesota, the Board
established a special committee, consisting of all Board members
except Mr. Dutcher, to consider and act upon the proposed
Merger Agreement. The Compensation Committee, a committee
consisting solely of independent directors, also met and
approved an amendment to the Change of Control Termination Pay
Plan to cause it to comply with certain provisions of the
Internal Revenue Code, approved the proposed employment
agreements with management, approved suspension of the
Companys employee stock purchase plan, and approved
payments to management under such plans and agreements in
compliance with
Rule 14d-10(d)
under the Securities Exchange Act of 1934.
Representatives of Dorsey & Whitney reviewed the terms
and conditions of the Merger Agreement and the Support
Agreements and reviewed the fiduciary duties of the Board with
both the special committee and the Board. Greene
Holcomb & Fisher made a financial presentation to the
special committee and the Board and provided its oral opinion to
the Board, later confirmed in writing, that, as of
February 10, 2008, and based upon and subject to the
factors and assumptions set forth therein, the $19.50 per Share
in cash to be received by the holders of the Companys
Common Stock in the Offer and the Merger was fair from a
financial point of view to such holders. See Opinion of
the Companys Financial Advisor below for a further
discussion of Greene Holcomb & Fishers opinion.
The special committee recommended to the Board, and the Board,
after further deliberation, then unanimously (i) approved
the Merger Agreement and the Support Agreements;
(ii) determined that the terms of the Offer, the Merger and
the Merger Agreement were fair to and in the best interests of
the holders of Shares; and (iii) recommended that such
holders accept the Offer and tender their Shares into the Offer
and, if a shareholder meeting to approve the Merger was
necessary, such holders vote any Shares held by them at such
time in favor of the Merger.
13
On the evening of February 10, 2008, but effective as of
12:01 a.m. on February 11, 2008, the Merger Agreement,
the Support Agreements and the employment agreement between the
Company and Mr. Dutcher were executed by the various
parties thereto. On February 11, 2008, Parent and the
Company issued a press release announcing the execution of the
Merger Agreement.
On February 19, 2008, and after clarification of terms,
Parent and each of the executives other than Mr. Dutcher
listed under the caption Interest of Executive Officers
and Directors Employment Agreements in
Item 3(a) above executed the employment agreements.
On February 20, 2008, Parent, Purchaser and the Company
executed and delivered an amendment to the Merger Agreement to
make additional disclosures regarding the Companys capital
structure.
On February 25, 2008, Purchaser commenced the Offer.
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(c)
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Reasons
for the Recommendation.
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In evaluating the Merger Agreement and the transactions
contemplated thereby, including the Offer and the Merger, and
making its recommendations to the holders of Shares, the Board
consulted with the Companys senior management, legal
counsel and financial advisor and considered a number of
factors, including the following material factors which the
Board viewed as supporting its recommendation:
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Prospects of the Company.
The Board considered
the risks and uncertainties associated with the successful
implementation of the Companys strategic plans, including
risks related to pending litigation, clinical trials, continued
revenue growth, the impact of sales force compensation on
earnings, management succession, and other risks relating to its
business.
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Dependence on Single Product Line.
The Board
considered the Companys continued dependence on AngioJet
for substantially all of its revenue, the market constraints on
mechanical thrombectomy, the product risks associated with the
use of the product in expanding applications, past regulatory
and clinical experience with such product and the risk that
another event such as the AiMI trial results could impact value,
and the limited number of potential strategic acquirors that
have complementary products.
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Market Performance.
The Board considered the
volume of trading and volatility of the Companys Common
Stock, the susceptibility of the market price to negative news,
and the difficulty in generating increased shareholder value
because of such lack of liquidity even with positive
developments such as recently improved results.
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Premium to Market Price.
The Board considered
the trading price of the Common Stock and the fact that the
offer price of $19.50 per share represented an approximately 39%
premium over the average closing price of the Companys
common stock for the thirty days prior to February 8, 2008,
the last trading day prior to announcement of the Offer.
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Public Company Burdens.
The Board considered
the compliance, insurance, regulatory and other costs of being a
public company required to file reports under Section 13(a)
of the Securities Exchange Act of 1934.
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Economic and Market Uncertainty.
The Board
considered the national economy and trends in securities markets
in general, and the potential, given the markets, for
substantial appreciation in value of the Shares in the near term.
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Cash Tender Offer; Certainty of Value.
The
Board considered the fact that the form of consideration to be
paid to holders of Shares in the Offer and the Merger would be
cash, thereby providing the Companys shareholders with the
certainty of the value of their consideration and the ability to
realize immediate value for their investment.
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Timing of Completion.
The Board considered the
anticipated timing of consummation of the transactions
contemplated by the Merger Agreement, and the structure of the
transaction as a tender offer for all Shares, which should allow
shareholders to receive the transaction consideration in a
relatively short time frame, followed by the Merger in which
shareholders will receive the same consideration as received by
shareholders who tender their Shares in the Offer. In addition,
the Board considered the likelihood of receiving
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14
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required regulatory approvals, which the Board believed
supported the conclusion that an acquisition transaction with
Parent and Purchaser could be completed relatively quickly and
in an orderly manner.
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Solicitation of Other Parties Prior to the Execution of the
Merger Agreement.
The Board considered the fact
that the Company had twice during the past two years engaged in
a confidential, non-public search for alternative acquirers,
which had progressed to detailed discussions with at least four
different third parties with respect to potential business
combinations with the Company as described in more detail above
under Background of the Offer and Merger The Board
also considered the fact that, in addition to Parent, Greene
Holcomb & Fisher had inquired of 15 potential
acquirors during 2006, and 23 potential acquirors from November
2007 to January 2008 as to whether such acquirors would be
interested in acquiring the Company and those potential
acquirors had informed the Company that they were not interested
at a price range competitive with the Offer.
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Ability to Respond to Certain Unsolicited Takeover
Proposals.
The Board considered the
Companys ability under certain circumstances to engage in
negotiations or discussions prior to the Acceptance Date with,
and to provide information to, any third party that, after the
date of the Merger Agreement, has made a bona fide written
unsolicited acquisition proposal that the Board determines in
good faith (after consultation with its financial advisor and
outside counsel) is reasonably expected to lead to a
Superior Proposal (as that term is defined in the
Merger Agreement), if the Board determines in good faith, after
consultation with outside counsel, that its failure to take such
action is reasonably likely to result in a breach of its
fiduciary duties under applicable law.
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Ability to Terminate the Merger Agreement to Accept a
Superior Proposal.
The Board
considered the Companys ability, following receipt of a
Superior Proposal after the date of the Merger Agreement, to
change its recommendation with respect to the Offer or the
Merger and terminate the Merger Agreement if certain conditions
are satisfied, including if the Board determines in good faith,
after consultation with outside counsel, that its failure to
take such action is reasonably likely to result in a breach of
its fiduciary duties under applicable law and that at least
three business days prior written notice is given to
Parent of the Boards intent to take such action.
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No Financing Condition.
The Board considered
the lack of financing condition in the Merger Agreement and
Parents representation that it has available cash
resources and financing in an amount sufficient to enable
Purchaser to purchase Shares pursuant to the Offer and to
consummate the Merger and perform its obligations under the
Merger Agreement.
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Regulatory Approvals.
The Board considered the
fact that the Merger Agreement provides that each of Parent and
Purchaser will promptly make and effect all registrations,
filings and submissions required to be made or effected by it
pursuant to the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the HSR
Act), any required foreign antitrust filings, the Exchange
Act and other applicable legal requirements with respect to the
Offer and the Merger, and execute and deliver any additional
instruments necessary to consummate the transactions
contemplated by the Merger Agreement.
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Mandatory Extension of Offer.
The Board
considered Purchasers obligation, on the conditions
contained in the Merger Agreement, in the event that as of a
scheduled expiration date all conditions had not been satisfied
or waived, to extend the Offer until such conditions were
satisfied or waived; provided that such extension shall not be
later than May 31, 2008.
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Terms of Merger Agreement.
The Board
considered the terms of the Merger Agreement, including the
respective representations, warranties and covenants and
termination rights of the parties, the termination fees payable
by the Company and Purchaser and the fact that such terms and
termination fees are favorable to the Companys
shareholders.
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Termination Fee and Expense Reimbursement.
The
Board considered the $11,100,000 termination fee, in addition to
the Parents and Purchasers reasonable out-of-pocket
expenses, subject to a cap of $1,500,000, related to the Offer
and Merger, that could become payable pursuant to the Merger
Agreement. The Board considered that such payments were unlikely
to be a significant deterrent to competing acquisition offers.
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15
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Dissenters Rights.
The Board considered
the availability of dissenters rights with respect to the
Merger for the Companys shareholders who properly exercise
their rights under Minnesota law, which would give the
Companys shareholders the ability to dispute that the
Offer Price is the fair value of their Shares at the
completion of the Merger.
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Greene Holcomb & Fishers
Opinion.
The Board considered the financial
analyses and opinion of Greene Holcomb & Fisher
delivered orally to the Board on February 10, 2008 and
subsequently confirmed in writing to the effect that, as of such
date and based upon and subject to the factors and assumptions
set forth therein, the $19.50 per share in cash to be received
by holders of Shares in the Offer and the Merger pursuant to the
Merger Agreement was fair from a financial point of view to such
holders. The full text of the written opinion of Greene
Holcomb & Fisher, dated February 10, 2008, which
sets forth the assumptions made, procedures followed, matters
considered and limitations on the review undertaken in
connection with the opinion is attached to this Statement as
Annex B and is incorporated herein by reference. Greene
Holcomb & Fisher provided its opinion for the
information and assistance of the Board in connection with its
consideration of the Offer and the Merger. Greene
Holcomb & Fishers opinion is not a
recommendation as to whether or not any holder of Shares should
tender such Shares in connection with the Offer or how any
holder of Shares should vote with respect to the Merger. For a
further discussion of Greene Holcomb & Fishers
opinion, see Opinion of the Companys Financial
Advisor below.
|
The Board also considered a number of uncertainties and risks in
their deliberations concerning the transactions contemplated by
the Merger Agreement, including the Offer and Merger, including
the following:
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Restrictions; Termination Fee and Reimbursement
Expenses.
The Board considered the restrictions
that the Merger Agreement imposes on actively soliciting
competing bids. The Board considered the Merger Agreements
termination fee and reimbursement requirement the may have to be
paid under certain circumstances, and it potential influence on
deterring other potential acquirers from proposing alternative
transactions.
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Failure to Close.
The Board considered that
the conditions to Parents and Purchasers obligation
to accept for payment and pay for the Shares tendered pursuant
to the Offer and to consummate the Merger were subject to
conditions, and the possibility that such conditions may not be
satisfied, including as a result of events outside of the
Companys control. The Board also considered the fact that,
if the Offer and Merger are not completed, the markets
perception of the Companys continuing business could
potentially result in a loss of customers, vendors, business
partners, collaboration partners and employees and that the
trading price of the Shares could be adversely affected. The
Board considered that, in that event, it would be unlikely that
another party would be interested in acquiring the Company. The
Board also considered the fact that, if the Offer and Merger are
not consummated, the Companys directors, officers and
other employees will have expended extensive time and effort and
will have experienced significant distractions from their work
during the pendency of the transaction, and the Company will
have incurred significant transaction costs, attempting to
consummate the transaction.
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Public Announcement of the Offer and
Merger.
The Board considered the effect of a
public announcement of the execution of the Merger Agreement and
the Offer and Merger contemplated thereby, including effects on
the Companys operations, stock price and employees and the
Companys ability to attract and retain key management and
personnel. The Board also considered the effect of these matters
on Parent and Purchaser and the risks that any adverse reaction
to the transactions contemplated by the Merger Agreement could
adversely affect Parents and Purchasers willingness
to consummate the transactions contemplated by the Merger
Agreement.
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Pre-Closing Covenants.
The Board considered
that, under the terms of the Merger Agreement, the Company
agreed that it will carry on its business in the ordinary course
of business consistent with past practice and, subject to
specified exceptions, that the Company will not take a number of
actions related to the conduct of its business without the prior
written consent of Purchaser. The Board further considered that
these terms of the Merger Agreement may limit the ability of the
Company to pursue business opportunities that it would otherwise
pursue.
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16
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Cash Consideration.
The Board considered the
fact that, subsequent to completion of the Merger, the Company
will no longer exist as an independent public company and that
the nature of the transaction as a cash transaction would
prevent the Company shareholders from being able to participate
in any value creation that the Company could generate going
forward, as well as any future appreciation in value of the
combined company.
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Tax Treatment.
The Board considered the fact
that gains from this transaction would be taxable to the
Companys shareholders for U.S. federal income tax
purposes.
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Potential Conflicts of Interest.
The Board was
aware of the potential conflicts of interest between the
Company, on the one hand, and certain of the Companys
officers and directors, on the other hand, as a result of the
transactions contemplated by the Offer and the Merger as
described in Item 3 above.
|
The Board believed that, overall, the potential benefits of the
Offer and the Merger to the Company shareholders outweigh the
risks of the Offer and the Merger and provide the maximum value
to shareholders.
The foregoing discussion of information and factors considered
by the Board is not intended to be exhaustive. In light of the
variety of factors considered in connection with its evaluation
of the Offer and the Merger, the Board did not find it
practicable to, and did not, quantify or otherwise assign
relative weights to the specific factors considered in reaching
its determinations and recommendations. Moreover, each member of
the Board applied his own personal business judgment to the
process and may have given different weight to different factors.
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(d)
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Opinion
of the Companys Financial Advisor.
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At the February 10, 2008 meeting of the Board, Greene
Holcomb & Fisher delivered to the Board its
preliminary oral opinion, which opinion was confirmed in writing
on February 10, 2008, to the effect that, as of
February 10, 2008, and based upon and subject to the
qualifications and conditions set forth in the written opinion,
the consideration of $19.50 in cash per share of Common Stock
was fair, from a financial point of view, to holders of Common
Stock.
The full text of Greene Holcomb & Fishers
written opinion, which sets forth the assumptions made,
procedures followed, matters considered and qualifications and
limitations on the review undertaken by Greene
Holcomb & Fisher, is attached to this document as
Annex B. The summary of the Greene Holcomb &
Fisher opinion set forth below is qualified in its entirety by
reference to the full text of the opinion. Company shareholders
are encouraged to read the Greene Holcomb & Fisher
opinion in its entirety. In reading the summary of the Greene
Holcomb & Fisher opinion set forth below, Company
shareholders should be aware that the opinion:
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was provided to the Board for its benefit and use in connection
with its consideration as to whether the consideration of $19.50
in cash for each share of Common Stock, was fair, from a
financial point of view, to such holders;
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did not constitute a recommendation to the Board as to how to
vote in connection with its consideration of the Merger
Agreement or any holder of Common Stock as to whether to tender
any shares of Common Stock pursuant to the Offer or how to vote
in connection with the Merger;
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did not address the Companys underlying business decision
to pursue the transaction with Parent and Purchaser on the terms
set forth in the Merger Agreement, the relative merits of the
transaction as compared to any alternative business strategies
that might exist for the Company or the effects of any other
transaction in which the Company might engage;
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did not express an opinion regarding the fairness of the amount
or nature of the compensation that is being paid in the Offer
and the Merger to any of the Companys officers, directors
or employees, or class of such persons, relative to the
compensation to the public shareholders of the Company;
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did not express an opinion regarding the merits or fairness of
any bonus or severance agreements or any payments to be made to
certain managers of the Company pursuant to such agreements in
connection with the consummation of the Offer and the
Merger; and
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17
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did not express any opinion as to the price or range of prices
at which the shares of Common Stock might trade subsequent to
the announcement of the Offer and the Merger.
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In arriving at its opinion, Greene Holcomb & Fisher,
among other things:
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reviewed the draft of the Merger Agreement dated
February 10, 2008;
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reviewed the Companys audited financial statements on
Form 10-K
for the fiscal years ended July 31, 2005, 2006 and 2007,
its interim financial information on
Form 10-Q
for the three months ended October 31, 2007, and its
preliminary results for the three months and six months ended
January 31, 2008;
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reviewed the Companys Proxy Statement dated
November 6, 2007;
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reviewed certain internal financial projections for the Company
for the years ending July 31, 2008 through July 31,
2012, which are referred to as the Projections, all
as prepared and provided to Greene Holcomb & Fisher by
Company management;
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met with certain members of Company management to discuss the
Companys business, operations, historical and projected
financial results and future prospects (including the
Projections);
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reviewed the historical prices, trading multiples and trading
volumes of the Common Stock;
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performed a discounted cash flow analysis based on the
Projections;
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reviewed recent analyst reports regarding the Company and its
industry;
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reviewed publicly available financial data, stock market
performance data and trading multiples of companies which Greene
Holcomb & Fisher deemed generally comparable to the
Company;
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reviewed the terms of recent acquisitions of companies which
Greene Holcomb & Fisher deemed generally comparable to
the Company; and
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considered such other information, studies, analyses, inquiries
and investigations and financial, economic and market criteria
as Greene Holcomb & Fisher deemed appropriate.
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In preparing its opinion, Greene Holcomb & Fisher
relied upon and assumed, without independent verification, the
accuracy and completeness of the financial and other information
provided to or discussed with Greene Holcomb & Fisher
by the Company, or obtained by Greene Holcomb & Fisher
from public sources, including, without limitation, the
Projections. With respect to the Projections, Greene
Holcomb & Fisher relied on representations that they
have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the senior
management of the Company as to the expected future performance
of the Company. Greene Holcomb & Fisher has not
assumed any responsibility for the independent verification of
any such information, including, without limitation, the
Projections, and has further relied upon the assurances of
senior management of the Company that they were unaware of any
facts that would make the information, including the Projections
provided to Greene Holcomb & Fisher, incomplete or
misleading. Greene Holcomb & Fisher has assumed that
there have been no material changes in the assets, financial
condition, results of operations, business or prospects of the
Company since the date of the last financial statements made
available to Greene Holcomb & Fisher and that the
Company is not a party to any material pending transaction,
including external financings, recapitalizations, acquisitions
or merger discussions, other than the Offer and the Merger.
In arriving at its opinion, Greene Holcomb & Fisher
did not perform or obtain any independent appraisal of the
assets or liabilities (contingent or otherwise) of the Company,
nor was Greene Holcomb & Fisher furnished with any
such appraisals. In addition, Greene Holcomb & Fisher
did not undertake independent analysis of any outstanding,
pending or threatened litigation, material claims, possible
unasserted claims or other contingent liabilities to which the
Company or any of its affiliates is a party or may be subject,
or of any other governmental investigation of any possible
unasserted claims or other contingent liabilities to which the
Company or any of its affiliates is a party or may be subject.
In preparing its opinion, Green Holcomb & Fisher made
no assumption concerning, and therefore did not consider, the
potential effects of any such litigation, claims, investigations
or possible assertions of claims, or the outcomes or damages
arising out of any such matters. During the course of its
engagement, Greene Holcomb & Fisher was asked by the
Board to solicit indications of interest from various third
parties regarding a
18
transaction with the Company, and Greene Holcomb &
Fisher has considered the results of such solicitation in
rendering its opinion. Greene Holcomb & Fisher assumed
that all necessary governmental and regulatory approvals and
consents required for the Offer and the Merger would be obtained
and that the Offer and the Merger would be consummated in a
timely manner and in accordance with the terms of the Merger
Agreement, without any limitations, restrictions, conditions,
amendments or modifications, regulatory or otherwise, that
collectively would have a material adverse effect on the Company
or the contemplated benefits to the Company of the transaction
or would otherwise change the amount of consideration being paid
to the holders of Common Stock. The Greene Holcomb &
Fisher opinion was approved by a fairness committee of Greene
Holcomb & Fisher.
The following is a brief summary of the material financial
analyses performed by Greene Holcomb & Fisher and
presented to the Board in connection with rendering its fairness
opinion. This summary does not purport to be a complete
description of the analyses underlying the Greene
Holcomb & Fisher opinion and the order of the analyses
described does not represent the relative importance or weight
given to the analyses performed by Greene Holcomb &
Fisher.
Summary of Reviews and Analyses.
Greene
Holcomb & Fishers opinion was necessarily based
on economic, market and other conditions, and the information
made available to Greene Holcomb & Fisher, as of the
date of the opinion. In performing its analyses, Greene
Holcomb & Fisher made numerous assumptions with
respect to industry performance, general business, economic,
market and financial conditions and other matters, many of which
are beyond the control of Greene Holcomb & Fisher and
the Company. Any estimates contained in the analyses performed
by Greene Holcomb & Fisher are not necessarily
indicative of actual values or future results, which may be
significantly more or less favorable than suggested by such
analyses. Additionally, estimates of the value of businesses or
securities do not purport to be appraisals or to reflect the
prices at which such businesses or securities might actually be
sold. Accordingly, such analyses and estimates are inherently
subject to substantial uncertainty.
Some of the financial analyses summarized below include summary
data and information presented in tabular format. In order to
understand fully the reviews and financial and valuation
analyses used by Greene Holcomb & Fisher, any
information presented in tabular format must be read together
with the text of each summary. The tables alone do not represent
a complete description of any such reviews or financial and
valuation analyses. Considering the summary data and tables
alone could create a misleading or incomplete view of Greene
Holcomb & Fishers financial analyses. All such
reviews and financial and valuation analyses were based on
information available to Greene Holcomb & Fisher on
February 8, 2008. Greene Holcomb & Fisher has not
undertaken, and is under no duty, to update any such reviews or
financial and valuation analyses upon the availability of new
information.
Historical Stock Performance Analysis.
Greene
Holcomb & Fisher compared the consideration of $19.50
in cash per share of Common Stock to the closing prices for the
Company on certain dates and to the average daily closing prices
for Common Stock for various periods and noted the following
implied offer premiums:
Implied
Offer Premiums
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Common
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Time Period Ending February 8, 2008
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Stock Price
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Premium*
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1 day (February 8, 2008)
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$
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14.35
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35.9
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%
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1 week before
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$
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14.01
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39.2
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%
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4 weeks before
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$
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14.03
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39.0
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%
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*
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Based on transaction consideration of $19.50 per share.
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Using publicly available information, Greene Holcomb &
Fisher also reviewed the trading history of the Common Stock for
the one-year period ending February 8, 2008 on a
stand-alone basis and also in relation to the NASDAQ composite,
as well as to a group consisting of certain publicly-traded
companies with SIC codes 3841 (Surgical and Medical Instruments
and Apparatus) and 3845 (Manufacturing Electro-medical
Equipment), each with a market capitalization of between
$100 million and $1.0 billion (referred to herein as
the Comparable Companies)
19
The group of Comparable Companies consisted of:
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AngioDynamics Inc.
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Endologix Inc.
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ev3, Inc.
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Kensey Nash Corp.
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Micrus Endovascular Corp.
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Stereotaxis Inc.
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Synovis Life Technologies Inc.
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The Spectranetics Corporation
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Volcano Corporation
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Comparable Company Analysis.
Using publicly
available research analyst earnings forecasts and information
provided by Company management, including the Projections,
Greene Holcomb & Fisher compared certain operating,
financial, trading and valuation information for the Company to
the corresponding information for the Comparable Companies.
In its analysis, Greene Holcomb & Fisher derived and
compared multiples for the Company and the Comparable Companies,
calculated as follows:
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company value, which is defined as equity market value less net
cash, divided by revenue for the most recently reported
12-month
period, which is referred to below as Company Value/LTM
Revenue;
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company value divided by estimated revenue for calendar year
2008, which is referred to below as Company Value/CY 2008E
Revenue;
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company value divided by estimated revenue for calendar year
2009, which is referred to below as Company Value/CY 2009P
Revenue;
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common stock price divided by estimated earnings per share
(P/E Ratio) for calendar year 2008, which is
referred to below as CY 2008E P/E Ratio; and
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P/E Ratio for calendar year 2009, which is referred to below as
CY 2009P P/E Ratio.
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This analysis indicated the following:
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Low
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Mean
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Median
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High
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Possis*
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Company Value / LTM Revenue
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1.9
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x
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3.8
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x
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3.8
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x
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5.8
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x
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4.5
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x
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Company Value / CY 2008E Revenue
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1.7
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x
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2.9
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x
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2.8
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x
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3.8
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x
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3.9
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x
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Company Value / CY 2009P Revenue
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1.4
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x
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2.2
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x
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2.1
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x
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2.8
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x
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3.1
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x
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CY 2008E P/E Ratio
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23.6
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x
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45.2
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x
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33.7
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x
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76.8
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x
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53.3
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x
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CY 2009P P/E Ratio
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11.2
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x
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25.5
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x
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23.4
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x
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42.5
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x
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29.1x
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*
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For the Company, company value and P/E ratio is based on the
transaction consideration of $19.50 per share.
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Greene Holcomb & Fisher noted that none of the
comparable companies are identical to the Company and,
accordingly, any analysis of comparable companies necessarily
involved complex considerations and judgments concerning
differences in financial and operating characteristics and other
factors that would necessarily affect the relative trading value
of the Company versus the companies to which the Company was
being compared.
Discounted Cash Flow Analysis.
Greene
Holcomb & Fisher performed a discounted cash flow
analysis on the projected cash flows of the Company for the six
months ending July 31, 2008 and the fiscal years ending
July 31, 2009 through July 31, 2012 using the
Projections. Greene Holcomb & Fisher also calculated
the terminal value of the enterprise at July 31, 2012 by
multiplying projected revenue in the fiscal year ending
July 31, 2012 by multiples
20
ranging from 3.0x to 4.0x. To discount the projected free cash
flows and the terminal value to present value, Greene
Holcomb & Fisher used discount rates ranging from
18.0% to 22.0%. This analysis indicated a range of implied
equity value per share of Common Stock of $14.66 to $21.17,
compared to the consideration of $19.50 per share of Common
Stock.
Comparable Transaction Analysis.
Using
publicly available information, Greene Holcomb &
Fisher examined the following transactions involving medical
technology companies by strategic acquirors announced since
January 1, 2004, which are referred to as the
Comparable Transactions. The Comparable Transactions
considered and the month and year each transaction was announced
were as follows:
Comparable
Transactions
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Target
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Acquiror
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Month and Year
|
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Boston Scientific-Surgery Bus
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Getinge AB
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November 2007
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Arrow International Inc.
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Teleflex Inc.
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July 2007
|
FoxHollow Technologies Inc.
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|
ev3 Inc.
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July 2007
|
DJO Inc.
|
|
ReAble Therapeutics LLC
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|
July 2007
|
VIASYS Healthcare Inc.
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Cardinal Health Inc.
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May 2007
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Rita Medical Systems Inc.
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|
AngioDynamics Inc.
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|
November 2006
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Encore Medical Corp
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|
Blackstone Group LP
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|
June 2006
|
American Med Instr Holding Inc.
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Angiotech Pharmaceuticals Inc.
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|
January 2006
|
American Cystoscope Makers
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|
Gyrus Group PLC
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|
June 2005
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Endocardial Solutions Inc.
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|
St. Jude Medical Inc.
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|
September 2004
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Empi Inc.
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|
Encore Medical Corp
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|
August 2004
|
ALARIS Medical Systems Inc.
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Cardinal Health Inc.
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May 2004
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Interpore International Inc.
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Biomet Inc.
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|
May 2004
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In its analysis, Greene Holcomb & Fisher derived and
compared multiples for the Company and the selected
transactions, calculated as follows:
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transaction value as a multiple of revenues for the
latest-twelve-months, or LTM, immediately preceding
announcement of the transaction, which is referred to below as
Company Value/LTM Revenues.
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This analysis indicated the following:
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Low
|
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Mean
|
|
|
Median
|
|
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High
|
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Possis*
|
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|
Company Value/LTM Revenues
|
|
|
2.3
|
x
|
|
|
3.6
|
x
|
|
|
3.4
|
x
|
|
|
6.4
|
x
|
|
|
4.5x
|
|
|
|
|
*
|
|
For the Company, company value is based on the transaction
consideration of $19.50 per share.
|
Greene Holcomb & Fisher noted that none of the
precedent transactions above are identical to this transaction.
Greene Holcomb & Fisher further noted that the
analysis of precedent transactions necessarily involves complex
considerations and judgments concerning differences in financial
and operating characteristics and other factors that would
necessarily affect the acquisition value of the Company versus
the acquisition value of any comparable company in general and
the transactions above in particular.
Transaction Implied Premium Analysis.
Using
publicly available information, Greene Holcomb &
Fisher examined 28 transactions involving the sale of publicly
traded medical technology companies announced since
January 1, 2004. In its analysis, Greene
Holcomb & Fisher compared the purchase price per share
for the Company and the targets in the 28 selected transactions
to the closing prices for the Company and the targets in the 28
selected
21
transactions one day, one week, and four weeks prior to the
transaction announcement and noted the following implied offer
premiums:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Low
|
|
|
Mean
|
|
|
Median
|
|
|
High
|
|
|
Possis*
|
|
|
One Day Premium
|
|
|
4.9
|
%
|
|
|
27.9
|
%
|
|
|
27.4
|
%
|
|
|
67.0
|
%
|
|
|
35.9
|
%
|
One Week Premium
|
|
|
11.6
|
%
|
|
|
28.0
|
%
|
|
|
25.4
|
%
|
|
|
75.1
|
%
|
|
|
39.2
|
%
|
Four Week Premium
|
|
|
7.3
|
%
|
|
|
31.4
|
%
|
|
|
29.7
|
%
|
|
|
67.2
|
%
|
|
|
39.0
|
%
|
|
|
|
*
|
|
For the Company, based on the transaction consideration of
$19.50 per share.
|
Greene Holcomb & Fisher noted that none of the
precedent transactions used in the transaction implied premium
analysis are identical to this transaction. Greene
Holcomb & Fisher further noted that the analysis of
precedent transactions necessarily involves complex
considerations and judgments concerning differences in financial
and operating characteristics and other factors that would
necessarily affect the acquisition value of the Company versus
the acquisition value of any comparable company in general and
the transactions used in the transaction implied premium
analysis in particular.
The preparation of a fairness opinion is a complex process that
involves various judgments and determinations as to the most
appropriate and relevant methods of financial and valuation
analysis and the application of those methods to the particular
circumstances involved. The opinion is, therefore, not readily
susceptible to partial analysis or summary description. Greene
Holcomb & Fisher believes that its analyses must be
considered as a whole and that selecting portions of its
analyses and the factors considered, without considering all of
the analyses and factors, would create a misleading and
incomplete view of the processes underlying its opinion. Greene
Holcomb & Fisher based its analysis on assumptions
that it deemed reasonable, including assumptions concerning
general business and economic conditions and industry-specific
factors. Greene Holcomb & Fisher did not form an
opinion as to whether any individual analysis or factor, whether
positive or negative, considered in isolation, formed a basis
for its opinion. In arriving at its opinion, Greene
Holcomb & Fisher considered the results of all its
analyses and did not attribute any particular weight to any one
analysis or factor. Greene Holcomb & Fisher arrived at
its ultimate opinion based on the results of all analyses
undertaken by it and assessed as a whole and believes that the
totality of the factors considered and analyses performed by
Greene Holcomb & Fisher in connection with its opinion
operated collectively to support its determination as to the
fairness of the consideration to be received by the holders of
Common Stock.
The analyses performed by Greene Holcomb & Fisher,
particularly those based on estimates and projections, are not
necessarily indicative of actual values or actual future
results, which may be significantly more or less favorable than
suggested by such analyses. None of the public companies used in
the comparable company analysis described above are identical to
the Company, and none of the comparable transactions used in the
comparable transactions analysis or the transactions used in the
transaction implied premium analysis, each as described above,
are identical to the transaction with Parent and Purchaser.
Accordingly, an analysis of publicly traded comparable companies
and comparable transactions is not strictly mathematical;
rather, it involves complex considerations and judgments
concerning the differences in financial and operating
characteristics of the companies and comparable transactions and
other factors that could affect the value of the Company and the
public trading values of the companies and comparable
transactions to which they were compared. The analyses do not
purport to be appraisals or to reflect the prices at which any
securities may trade at the present time or at any time in the
future.
The Greene Holcomb & Fisher opinion was just one of
the many factors taken into consideration by the Board.
Consequently, Greene Holcomb & Fishers analysis
should not be viewed as determinative of the decision of the
Board with respect to the fairness of the per share
consideration to be received, from a financial point of view, by
the holders of Common Stock.
Greene Holcomb & Fisher has previously been engaged by
the Company to provide investment banking and other services on
matters unrelated to the Offer and Merger, for which Greene
Holcomb & Fisher received customary fees. Greene
Holcomb & Fisher may seek to provide the Company and
Parent and their respective affiliates certain investment
banking and other services unrelated to the Offer and Merger in
the future.
22
Pursuant to an engagement letter dated April 14, 2006, as
amended, the Company engaged Greene Holcomb & Fisher
to act as its financial advisor with respect to the possible
sale of the Company. In selecting Greene Holcomb &
Fisher, the Board considered, among other things, the fact that
Greene Holcomb & Fisher is a nationally recognized
investment banking firm with substantial experience advising
companies in the Companys industry as well as substantial
experience providing strategic advisory services. Greene
Holcomb & Fisher, as part of its investment banking
business, is continuously engaged in the evaluation of
businesses and their debt and equity securities in connection
with mergers and acquisitions, private placements and other
securities transactions, senior credit financings, valuations,
and general corporate advisory services.
Pursuant to the engagement letter, as amended, the Company
agreed to pay to Greene Holcomb & Fisher for its
services (1) a non-refundable retainer fee in the amount of
$50,000, payable upon execution of the engagement letter,
(2) a fee in the amount of $125,000, payable upon the
delivery of its opinion, (3) an additional fee payable
contingent upon consummation of the Offer based upon 0.6% of the
aggregate value of the transaction, which fee is expected to be
approximately $2.2 million. The fee payable upon delivery
of the Greene Holcomb & Fisher opinion and the
retainer fee are not contingent upon consummation of the Offer.
In addition, the Company agreed to reimburse Greene
Holcomb & Fisher for all out-of-pocket expenses
reasonably incurred by Greene Holcomb & Fisher in
connection with its engagement, including the reasonable fees
and disbursements of its legal counsel. The Company has also
agreed to indemnify Greene Holcomb & Fisher against
specific liabilities in connection with its engagement,
including liabilities under the federal securities laws.
The full text of the Greene Holcomb & Fisher opinion,
dated February 10, 2008, which sets forth, among other
things, the assumptions made, procedures followed, matters
considered and limitations on the scope of the review
undertaken, is attached hereto as Annex B and is
incorporated herein by reference. The Greene Holcomb &
Fisher opinion is directed to the Companys Board and
addresses only the fairness of the consideration from a
financial point of view to holders of Shares (other than Parent,
the Company and their respective affiliates) as of the date of
such opinion and does not address any other aspect of the
Merger. The Greene Holcomb & Fisher opinion is not a
recommendation to any Company shareholder to tender Shares as
part of the Offer or as to how any shareholder should vote with
respect to the proposed transaction or any other matter, and
should not be relied upon by the Companys shareholders as
such. The summary of the Greene Holcomb & Fisher
opinion set forth in this Statement is qualified in its entirety
by reference to the full text of the Greene Holcomb &
Fisher opinion attached hereto as Annex B, which should be
read carefully and in its entirety.
To the knowledge of the Company, to the extent permitted by
applicable securities laws, rules or regulations, including
Section 16(b) of the Exchange Act, each executive officer
and director of the Company currently intends to tender all
Shares over which he or she has sole dispositive power. Each
executive officer and director has a contractual obligation to
tender, and has provided to Parent a power of attorney to
tender, all of the Shares over which he or she has dispositive
power under the Support Agreement executed by such officer or
director.
|
|
ITEM 5.
|
PERSONS/ASSETS
RETAINED, EMPLOYED, COMPENSATED OR USED.
|
The Company has retained Greene Holcomb & Fisher as
its financial advisor in connection with the Offer and the
Merger. The Company has also engaged Greene Holcomb &
Fisher to provide a fairness opinion letter in connection with
the Merger Agreement, the Offer and the Merger, which is filed
hereto as Annex B and is incorporated herein by reference.
Pursuant to an engagement letter between Greene
Holcomb & Fisher and the Company, the Company agreed
to pay Greene Holcomb & Fisher (1) a
non-refundable retainer fee in the amount of $50,000,
(2) $125,000 upon delivery of its fairness opinion and
(3) a fee, contingent upon consummation of the Offer, equal
to 0.6% of the aggregate consideration received by the Company
and its shareholders in the transactions contemplated by the
Merger Agreement. The Company has also agreed in the engagement
letter to reimburse Greene Holcomb & Fisher for all
reasonable expenses incurred in performing its services and to
indemnify Greene Holcomb & Fisher and certain related
persons against certain liabilities and expenses, including
certain liabilities under the federal securities laws, relating
to or arising out of its engagement.
23
Except as set forth above, neither the Company nor any person
acting on its behalf has employed, retained or agreed to
compensate any person to make solicitations or recommendations
to shareholders of the Company concerning the Offer or the
Merger.
|
|
ITEM 6.
|
INTEREST
IN SECURITIES OF THE SUBJECT COMPANY.
|
On January 2, 2008, and in accordance with an automatic,
formula grant plan, the Company granted restricted stock and
options to purchase the Companys Common Stock to its
non-employee directors as part of their annual director fees.
Pursuant to such formula grant plan, each of Mary K. Brainerd,
Seymour J. Mansfield, William C. Mattison, Whitney A. McFarlin,
Donald C. Wegmiller and Rodney A. Young received 528 shares
of restricted Common Stock as their annual retainer and an
option to purchase 4,000 shares of Common Stock at a price
of $14.21 per share. In addition, pursuant to a formula plan
under which directors who have served more than six years
receive options, each of Mary K. Brainerd, William C. Mattison,
Whitney A. McFarlin and Rodney A. Young received an additional
option to purchase 4,000 shares of the Companys
Common Stock at a price of $14.21 per share. Finally, in
accordance with elections made in June 2007 in accordance with
the Companys 1999 Stock Compensation Plan, each of the
following non-employee directors elected to forego their cash
compensation for calendar 2007 and received on January 4,
2008 an option to purchase the Companys Common Stock at a
price of $7.105 per share in the following amounts: William C.
Mattison, 3,906 shares; Donald C. Wegmiller,
4,504 shares; Whitney A. McFarlin, 3,378 shares;
Rodney A. Young, 3,061 shares; and Seymour J. Mansfield,
6,263 shares.
On December 31, 2007, Robert G. Dutcher acquired
388 shares, Robert J. Scott acquired 146 shares,
Irving R. Colacci acquired 49 shares and Shawn F. McCarrey
acquired 243 shares of the Companys Common Stock
under the Companys employee stock purchase plan at a per
share price of $12.39, or 85% of the closing price of the Common
Stock on that date.
Except as set forth in this Item 6, no transactions in the
Shares have been effected during the last sixty days by the
Company or any of its subsidiaries or, to the knowledge of the
Company, by any executive officer, director or affiliate of the
Company.
|
|
ITEM 7.
|
PURPOSES
OF THE TRANSACTION AND PLANS OR PROPOSALS.
|
Except as set forth in this Statement, the Company is not
engaged in any negotiation in response to the Offer which
relates to or would result in (a) a tender offer for or
other acquisition of the Companys securities by the
Company, any subsidiary of the Company or any other person,
(b) an extraordinary transaction, such as a merger,
reorganization or liquidation, involving the Company or any
subsidiary of the Company, (c) a purchase, sale or transfer
of a material amount of assets by the Company or any subsidiary
of the Company or (d) any material change in the present
dividend rate or policy, or indebtedness or capitalization.
Except as set forth above, there are no transactions,
resolutions of the Board, agreements in principle or signed
contracts in response to the Offer that relate to one or more of
the events referred to in the preceding paragraph.
|
|
ITEM 8.
|
ADDITIONAL
INFORMATION TO BE FURNISHED.
|
Dissenters
Rights
No dissenters rights are available in connection with the
Offer. However, under Minnesota law, shareholders who do not
sell their Shares in the Offer will have the right, by fully
complying with the applicable provisions of
Sections 302A.471 and 302A.473 of the MBCA, to dissent with
respect to the Merger and to receive payment in cash for the
fair value of their Shares after the Merger is
completed. The term fair value means the value of
the Shares immediately before the effective time of the Merger
and may be less than, equal to or greater than the price per
share to be paid in the Merger.
To be entitled to payment, the dissenting shareholder must not
accept the Offer, must file with the Company, prior to the vote
for the Merger, a written notice of intent to demand payment of
the fair value of the dissenting shareholders Shares, must
not vote in favor of the Merger and must satisfy the other
procedural requirements of the MBCA. Any shareholder
contemplating the exercise of such dissenters rights
should review carefully the provisions of Sections 302A.471
and 302A.473 of the MBCA, particularly the procedural steps
required to perfect
24
such rights, and should consult legal counsel. Dissenters
rights will be lost if the procedural requirements of the
statute are not fully and precisely satisfied.
If a vote of shareholders is required to approve the Merger
under the MBCA, the notice and proxy statement for the meeting
of the shareholders will again inform each shareholder of record
as of the record date of the meeting of the shareholders
(excluding persons who tender all of their Shares pursuant to
the Offer if such Shares are purchased in the Offer) of their
dissenters rights and will include a copy of
Sections 302A.471 and 302A.473 of the MBCA and a summary
description of the procedures to be followed to obtain payment
of fair value for their Shares. If a vote of the shareholders is
not required to approve the Merger, the Surviving Corporation
will send a notice to those persons who are shareholders of the
Surviving Corporation immediately prior to the effective time of
the Merger which, among other things, will include a copy of
Sections 302A.471 and 302A.473 of the MBCA and a summary
description of the procedures to be followed to obtain payment
of fair value for their Shares.
Dissenters rights cannot be exercised at this time. The
information set forth above is for informational purposes only
with respect to alternatives available to shareholders if the
Merger is consummated. Shareholders who will be entitled to
dissenters rights in connection with the merger will
receive additional information concerning dissenters
rights and the procedures to be followed in connection therewith
before such shareholders have to take any action relating
thereto.
This foregoing description of dissenters rights is not
intended to be complete and is qualified in its entirety by
reference to Sections 302A.471 and 302A.473 of the MBCA.
Anti-Takeover
Statutes
State
Takeover Laws
The Company is incorporated under the laws of the State of
Minnesota. Section 302A.671 of the MBCA establishes various
disclosure and stakeholder approval requirements to be met by
individuals or companies attempting a takeover of an
issuing public corporation such as the Company.
Further, Section 302A.673 of the MBCA provides that an
issuing public corporation such as the Company generally may not
engage in certain business combinations with any person that
becomes an interested shareholder by acquiring beneficial
ownership of 10% or more of the voting stock of that corporation
for a period of four years following the date that the person
became an interested shareholder. However, because a special
committee of disinterested directors of the Board have approved
the Merger Agreement and the transactions contemplated thereby,
the restrictions of Sections 302A.671 and 302A.673 are
inapplicable to the Merger Agreement and the transactions
contemplated thereby, including the Offer, the
Top-Up
Option and the Merger.
Takeover
Disclosure Statute
The Minnesota Takeover Disclosure Law, Minnesota Statutes
Sections 80B.01-80B.13
(the Takeover Disclosure Statute), by its terms
requires certain disclosures and the filing of certain
disclosure material with the Minnesota Commissioner of Commerce
(the Commissioner) with respect to any offer for a
corporation, such as the Company, that has its principal place
of business in Minnesota and a certain number of shareholders
resident in Minnesota. The Purchaser will file a registration
statement with the Commissioner on the date the Schedule TO
is filed with the SEC or shortly thereafter. Although the
Commissioner does not have an approval right with respect to the
Offer, the Commissioner does review the disclosure material for
the adequacy of such disclosure and is empowered to suspend
summarily the Offer in Minnesota within three days of such
filing if the Commissioner determines that the registration
statement does not (or the material provided to beneficial
owners of the Shares residing in Minnesota does not) provide
full disclosure. If such summary suspension occurs, a hearing
must be held (within 10 days of the summary suspension) as
to whether to permanently suspend the Offer in Minnesota,
subject to corrective disclosure. If the Commissioner takes
action under the Takeover Disclosure Statute, such action may
have the effect of significantly delaying the Offer. Pursuant to
the Merger Agreement, if any state takeover law becomes
applicable to the Merger Agreement, the Offer, the Merger or any
of the other transactions contemplated by the Merger Agreement,
the Company is obligated to take such actions as may be
necessary to ensure that the Offer, the Merger and the other
transactions contemplated by the Merger Agreement may be
consummated as promptly as practicable on the terms contemplated
by the Merger Agreement and otherwise to minimize the effect
25
of such state takeover law on the Merger Agreement, the Offer,
the Merger and the other transactions contemplated by the Merger
Agreement.
Fair
Price Provision
Section 302A.675 of the MBCA which provides that an offeror
generally may not acquire shares of a Minnesota publicly held
corporation from a shareholder within two years following the
offerors last purchase of shares of the same class
pursuant to a takeover offer, including, but not limited to,
acquisitions made by purchase, exchange or merger, unless the
selling shareholder is afforded, at the time of the proposed
acquisition, a reasonable opportunity to dispose of the shares
to the offeror upon substantially equivalent terms as those
provided in the earlier takeover offer. However, because a
special committee of disinterested directors of the Board have
approved the Merger Agreement and the transactions contemplated
thereby, the restrictions of Sections 302A.675 are
inapplicable to the Merger Agreement and the transactions
contemplated thereby, including the Offer, the
Top-Up
Option and the Merger.
Antitrust
Compliance
United
States
The acquisition of Shares pursuant to the Merger Agreement is
subject to the pre-merger notification and reporting obligations
under the HSR Act. Under the HSR Act, both parties to the
transaction are required to submit a Notification and Report
Form (the HSR Application) and observe a
15-day
waiting period following Purchasers filing prior to
Purchasers acquisition of the Shares. During the
15-day
HSR
waiting period, the Antitrust Division of the
U.S. Department of Justice (the Antitrust
Division) and the Federal Trade Commission (the
FTC), will examine the legality under the antitrust
laws of Purchasers acquisition of the Shares. At any time
prior to the expiration of the
15-day
HSR
waiting period, the Antitrust Division or the FTC has the
authority to open an investigation of the transaction and
suspend the running of the waiting period by issuance of a
Request for Additional Information and Documentary Material,
sometimes referred to as a Second Request. The Antitrust
Division and the FTC also have the statutory authority after
Purchasers acquisition of Shares pursuant to the Offer to
take any action under the antitrust laws it deems necessary or
desirable in the public interest, including (i) seeking to
enjoin the purchase of Shares pursuant to the Offer or the
consummation of the Merger or (ii) seeking the divestiture
of Shares or substantial assets of the Company or its
subsidiaries. Private parties, and state attorneys general, may
also bring legal action under the antitrust laws under certain
circumstances. There can be no assurance that a challenge to the
Offer on antitrust grounds will not be made, or, if a challenge
is made, the ultimate result. Parent submitted its HSR
Application on February 22, 2008.
Germany
Under the German Act against Restraints on Competition, the
purchase of Shares pursuant to the Offer may be consummated if
the acquisition is approved by the German Federal Cartel Office
(FCO), either by written approval or by expiration
of a one month waiting period that is commenced by the filing by
Parent of a complete notification (the German
Notification) with respect to the Offer, unless the FCO
notifies Parent within the one month waiting period of the
initiation of an in-depth investigation. Parent filed the German
Notification on February 19, 2008. If the FCO initiates an
in-depth investigation, the purchase of Shares pursuant to the
Offer may be consummated if the acquisition is approved by the
FCO, either by written approval or by expiration of a four month
waiting period commenced by the filing of the German
Notification, unless the FCO notifies Parent within the four
month waiting period that the acquisition satisfies the
conditions for a prohibition and may not be consummated. The
written approval of the FCO or the expiration of any applicable
waiting period is a condition to Purchasers obligation to
accept for payment and pay for Shares tendered pursuant to the
Offer.
Italy
Under applicable Italian law, the acquisition of Shares in the
Offer requires Bayer to file a notification with the
Autorità Garante della Concorrenza e del Mercato (the
Italian Authority). The Italian Competition
Authority has 30 calendar days from the submission of
Parents complete notification to approve the acquisition
or open an in-
26
depth investigation, which has a maximum review period of an
additional 75 calendar days. The Offer can be consummated prior
to receiving approval from the Italian Authority, but if an
in-depth investigation is opened, the Italian Authority can
order the parties not to implement the transaction until Italian
Competition Authority makes a final decision.
Top-Up
Option
Subject to the terms of the Merger Agreement, the Company has
granted to Purchaser the option to purchase that number of newly
issued shares of its Common Stock that is equal to one share
more than the amount needed to give the Purchaser ownership of
90% of the outstanding shares of the Companys Common Stock
(the
Top-Up
Option). The
Top-Up
Option is exercisable in the event that (a) at least 80%
but less than 90% of outstanding shares are tendered in the
Offer, and (b) the number of shares of the Companys
Common Stock issuable upon exercise of the
Top-Up
Option when added to the number of shares of the Companys
Common Stock tendered in the Offer, will exceed 90% of the
outstanding shares of the Companys Common Stock. However,
the number of Shares subject to the
Top-Up
Option is limited to the number of shares of the Companys
Common Stock authorized and available for issuance. If the
Top-Up
Option is exercised by the Purchaser (resulting in the Purchaser
owning at least 90% of the fully diluted shares of the
Companys Common Stock), or the Purchaser otherwise
acquires at least 90% of the fully diluted shares of the
Companys Common Stock, the Purchaser will be able to
effect a short-form merger under the Minnesota Business
Corporation Act, subject to the terms and conditions of the
Merger Agreement. The foregoing summary is qualified in its
entirety by reference to the Merger Agreement, which is filed as
Exhibits (e)(1) and (e)(2) hereto and is incorporated herein by
reference.
Amendment
of the Rights Agreement
In connection with the execution of the Merger Agreement, the
Company entered into Amendment No. 1 (Amendment
No. 1) to the Companys Amended and Restated
Rights Agreement with Wells Fargo Bank, National Association, as
rights agent, dated as of December 23, 2006 (the
Rights Agreement). The Amendment No. 1 renders
the Rights Agreement inapplicable to the Merger Agreement and
the transactions contemplated by the Merger Agreement. The
foregoing summary is qualified in its entirety by reference to
Amendment No. 1, a copy of which is filed as Exhibit
(e)(13) hereto and is incorporated herein by reference. In
addition, the Board has adopted resolutions designating the
Offer and the other transactions contemplated by the Merger
Agreement as a Permitted Offer under the Rights
Agreement.
Vote
Required to Approve the Merger
Under Section 302A.621 of the MBCA, if Purchaser acquires,
pursuant to the Offer, the
Top-Up
Option or otherwise, at least 90% of the outstanding shares of
the Companys Common Stock, Purchaser will be able to
effect the Merger after consummation of the Offer without a vote
by the Companys shareholders. If Purchaser acquires less
than 90% of the outstanding shares of the Companys Common
Stock, the affirmative vote of the holders of two-thirds of the
outstanding shares of the Companys Common Stock will be
required under the Companys Articles of Incorporation to
effect the Merger. If Purchaser purchases shares of the
Companys Common Stock pursuant to the Offer, Purchaser
will own a sufficient number of shares of the Companys
Common Stock to ensure approval of the Merger regardless of the
vote of any other shareholders and Purchaser has agreed to vote
all of its shares of the Companys Common Stock in favor of
the Merger.
Section 14(f)
Information Statement
The Information Statement attached as Annex A to this
Statement is being furnished pursuant to Section 14(f)
under the Exchange Act in connection with the possible
designation by Parent, pursuant to the Merger Agreement, of
certain persons to be appointed to the Board other than at a
meeting of the Companys shareholders as described in the
Information Statement, and is incorporated herein by reference.
27
INDEX TO
EXHIBITS
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
(a)(1)
|
|
|
Offer to Purchase, dated February 25, 2008 (incorporated by
reference to Exhibit(a)(1)(i) to the Tender Offer Statement on
Schedule TO, filed by Parent and Purchaser with respect to
the Company on February 22, 2008 (the
Schedule TO))
|
|
(a)(2)
|
|
|
Form of Letter of Transmittal (incorporated by reference to
Exhibit(a)(1)(ii) to the Schedule TO)
|
|
(a)(3)
|
|
|
Form of Notice of Guaranteed Delivery (incorporated by reference
to Exhibit(a)(1)(iii) to the Schedule TO)
|
|
(a)(4)
|
|
|
Form of Letter to Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees (incorporated by
reference to Exhibit(a)(1)(iv) to the Schedule TO)
|
|
(a)(5)
|
|
|
Form of Letter to Clients for use by Brokers, Dealers,
Commercial Banks, Trust Companies and Other Nominees
(incorporated by reference to Exhibit(a)(1)(v) to the
Schedule TO)
|
|
(a)(6)
|
|
|
Guidelines for Certification of Taxpayer Identification Number
on Substitute
Form W-9
(incorporated by reference to Exhibit(a)(1)(vi) to the
Schedule TO)
|
|
(a)(7)
|
|
|
Form of Summary Advertisement as published on February 25,
2008 (incorporated by reference to Exhibit(a)(1)(vii) to the
Schedule TO)
|
|
(a)(8)
|
|
|
Press Release dated February 11, 2008 (incorporated by
reference to Exhibit 99.1 to the Companys Current
Report on
Form 8-K
filed on February 11, 2008)
|
|
(a)(9)
|
|
|
The Information Statement of the Company dated as of
February 25, 2008 (included as Annex A to this
Statement)
|
|
(a)(10)
|
|
|
Opinion of Greene Holcomb & Fisher dated
February 10, 2008 (included as Annex B to this
Statement)
|
|
(a)(11)
|
|
|
Letter to Shareholders of the Company dated February 25,
2008 (filed herewith)
|
|
(e)(1)
|
|
|
Agreement and Plan of Merger dated as of February 11, 2008,
among Parent, Purchaser and the Company (incorporated by
reference to Exhibit 2.1 to the Companys Current
Report on
Form 8-K
filed on February 11, 2008)
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(e)(2)
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Amendment No. 1 to Agreement and Plan of Merger, dated as
of February 20, 2008, by and between Parent, Purchaser and
the Company (filed herewith)
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(e)(3)
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Employment Agreement, made on February 10, 2008, between
the Company and Robert G. Dutcher (incorporated by reference to
Exhibit 10.1 to the Companys Current Report on
Form 8-K
filed on February 11, 2008)
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(e)(4)
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Employment Agreement, dated February 19, 2008, between the
Company and Jules L. Fisher (filed herewith)
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(e)(5)
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Employment Agreement, dated February 19, 2008, between the
Company and Irving R. Colacci (filed herewith)
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(e)(6)
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Employment Agreement, dated February 19, 2008, between the
Company and James D. Gustafson (filed herewith)
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(e)(7)
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Employment Agreement, dated February 19, 2008, between the
Company and Shawn F. McCarrey (filed herewith)
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(e)(8)
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Employment Agreement, dated February 19, 2008, between the
Company and Robert J. Scott (filed herewith)
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(e)(9)
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Employment Agreement, dated February 19, 2008, between the
Company and John C. Riles (filed herewith)
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(e)(10)
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Robert Dutcher Supplemental Executive Retirement Deferred
Compensation Agreement, Restated as of August 1, 2006
(filed herewith)
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28
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Exhibit No.
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Description
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(e)(11)
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Form of Tender and Support Agreement, dated February 11,
2008, by and among MEDRAD, Inc., Phoenix Acquisition Corp. and
each of the following directors and executive officers of the
Company: Robert G. Dutcher, Jules L. Fisher, Irving R. Colacci,
James D. Gustafson, Robert J. Scott, Shawn F. McCarrey, Donald
C. Wegmiller, Seymour J. Mansfield, William C. Mattison, Whitney
A. McFarlin, Rodney A. Young and Mary K. Brainerd (incorporated
by reference to Exhibit 2.2 to the Companys Current
Report on
Form 8-K
filed on February 11, 2008)
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(e)(12)
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Confidentiality Agreement between Parent and the Company dated
October 12, 2007 (filed herewith)
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(e)(13)
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Amendment No. 1 to Amended and Restated Rights Agreement,
dated as of February 11, 2008, by and between the Company
and Wells Fargo Bank, National Association (incorporated by
reference to Exhibit 4.1 to the Companys Current
Report on
Form 8-K
filed on February 11, 2008)
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(e)(14)
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Possis Medical, Inc. Change in Control Termination Pay Plan,
amended effective February 10, 2008 (incorporated by
reference to Exhibit 10.2 to the Companys Current
Report on
Form 8-K
filed on February 11, 2008)
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(g)
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None
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Annex A
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The Information Statement of the Company dated as of
February 25, 2008
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Annex B
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Opinion of Greene Holcomb & Fisher dated
February 10, 2008
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29
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is
true, complete and correct.
POSSIS MEDICAL, INC.
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By:
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/s/
ROBERT
G. DUTCHER
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Name: Robert G. Dutcher
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Title:
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Chairman, President and Chief Executive Officer
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Dated: February 25, 2008
30
ANNEX A
POSSIS
MEDICAL, INC.
9055 EVERGREEN BLVD NW
MINNEAPOLIS, MINNESOTA
55433-8003
(763) 780-4555
INFORMATION
STATEMENT PURSUANT TO SECTION 14(f) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND
RULE 14f-1
THEREUNDER
GENERAL
INFORMATION
This Information Statement is being mailed on or about
February 25, 2008, as part of the
Solicitation/Recommendation Statement on
Schedule 14D-9
(the
Schedule 14D-9)
of Possis Medical, Inc. (Possis or the
Company), to holders of the Companys common
stock, par value $0.40 per share, including the associated
rights to purchase shares of capital stock of the Company issued
pursuant to that certain Amended and Restated Rights Agreement
dated as of December 23, 2006 by and between the Company
and Wells Fargo Bank, National Association (the
Shares). Unless the context indicates otherwise, in
this Information Statement, we use the terms us,
we and our to refer to Possis. You are
receiving this Information Statement in connection with the
possible election of persons designated by Medrad, Inc., a
Delaware corporation (Parent) to a majority of the
seats on the board of directors of the Company (the
Board).
BACKGROUND
On February 11, 2008, the Company entered into an Agreement
and Plan of Merger (as amended by the parties on
February 20, 2008, the Merger Agreement) with
Parent and Phoenix Acquisition Corp., a Minnesota corporation
and wholly owned subsidiary of Parent (Purchaser).
Pursuant to the Merger Agreement, Purchaser has commenced an
offer to purchase all outstanding Shares at a price per Share of
$19.50 (the Offer Price), net to the sellers in cash
without interest, upon the terms and subject to the conditions
of the Merger Agreement as described in the Offer to Purchase
and in the related Letter of Transmittal (which, together with
the Offer to Purchase, as each may be amended or supplemented
from time to time, collectively constitute the Offer
). Copies of the Offer to Purchase and the Letter of Transmittal
have been mailed to shareholders of the Company and are filed as
Exhibits (a)(1) and (a)(2), respectively, to the
Schedule TO filed by Parent and Purchaser with the
Securities and Exchange Commission (the SEC) on
February 25, 2008.
The Merger Agreement provides, among other things, for the
making of the Offer by Purchaser and further provides that, upon
the terms and subject to the conditions contained in the Merger
Agreement, following completion of the Offer and the
satisfaction or waiver of certain conditions, Purchaser will
merge with and into the Company (the Merger) and the
Company will continue as the surviving corporation under the
laws of the State of Minnesota, and the separate corporate
existence of Purchaser will cease. In the Merger, Shares issued
and outstanding immediately prior to the consummation of the
Merger (other than Shares owned by Parent, Purchaser, any other
subsidiary of Parent or any subsidiary of the Company, all of
which will be cancelled, and other than Shares held by
shareholders who have properly exercised dissenters rights
under the Minnesota Business Corporation Act), will be converted
into the right to receive an amount in cash equal to the Offer
Price, without interest.
The Offer, the Merger and the Merger Agreement are more fully
described in the
Schedule 14D-9,
to which this Information Statement is attached, which was filed
by the Company with the SEC on February 25, 2008 and which
is being mailed to shareholders of the Company along with this
Information Statement.
This Information Statement is being mailed to you in accordance
with Section 14(f) of the Securities Exchange Act of 1934
and
Rule 14f-1
promulgated thereunder. Information set forth herein relating to
Parent, Purchaser or the potential Board designees (as defined
below) has been provided by Parent. You are urged to read this
Information Statement carefully. You are not, however, required
to take any action in connection with the matters set forth
herein.
A-1
Purchaser commenced the Offer on February 25, 2008. As set
forth in the Offer to Purchase, the Offer is currently scheduled
to expire at 5:00 p.m., New York City time, on Tuesday,
March 25, 2008, unless the Offer is extended pursuant to
the Merger Agreement.
DIRECTORS
DESIGNATED BY PARENT
Right to
Designate Directors
The Merger Agreement provides that after Purchaser accepts for
payment and pays for Shares pursuant to the Offer, and upon
Parents request, Parent will be entitled to designate the
number of directors, rounded up to the next whole number, to the
Board that equals the product of (a) the total number of
directors on the Board, giving effect to the election of any
additional directors, and (b) the percentage that the
number of Shares held by Parent and Purchaser bears to the total
number of Shares outstanding. The Company will use its best
efforts to cause Parents designees to be elected or
appointed to the Board, including increasing the number of
directors and seeking and accepting resignations of incumbent
directors. Moreover, the Company will take all actions necessary
to cause individuals designated by Parent to constitute the
number of members, rounded up to the next whole number, on each
committee of the Board, each board of directors of each
subsidiary of the Company, and each committee of the board of
each subsidiary, that represents the same percentage as the
individuals represent on the Board, in each case to the fullest
extent permitted by applicable law.
Following the election or appointment of Parents designees
and until the consummation of the Merger, consent of both of the
directors of the Company then in office who were not
Parents designees will be needed to approve (i) any
amendment or termination of Merger Agreement by the Company,
(ii) any extension by the Company of the time for the
performance of any of the obligations or other acts of Parent or
Purchaser under the Merger Agreement, (iii) any waiver of
any of the Companys rights or any of the obligations of
Parent or Purchaser under the Merger Agreement, (iv) any
other consent, action or recommendation by the Company or the
Companys board of directors with respect to the Merger
Agreement, the Offer or the Merger or any other transaction
contemplated thereby or in connection therewith or (v) any
amendment or modification to the Companys articles of
incorporation or bylaws.
Information
with respect to the Board Designees
Parent has informed the Company that promptly following its
payment for Shares pursuant to the Offer, Parent will exercise
its rights under the Agreement to obtain representation on, and
control of, the Board by requesting that the Company provide it
with the maximum representation on the Board to which it is
entitled under the Agreement. As of the date of this Information
Statement, Parent has not determined who it will designate to
the Board. However, such designees will be selected from the
list of potential designees provided below (the Potential
Designees). The Potential Designees have consented to
serve as directors of the Company if so designated. None of the
Potential Designees currently is a director of, or holds any
position with, the Company. To our knowledge, none of the
Potential Designees beneficially owns any equity securities, or
rights to acquire any equity securities of the Company, has a
familial relationship with any director or executive officer of
the Company or has been involved in any transactions with the
Company or any of its directors, executive officers or
affiliates that are required to be disclosed pursuant to the
rules of the SEC. To our knowledge, there are no material
pending legal proceedings, other than ordinary routine
litigation incidental to the business, to which any Potential
Designee or any associate of any Potential Designee is a party
adverse to the Company or any of its subsidiaries or has a
material interest adverse to the Company or any of its
subsidiaries. To our knowledge, none of the Potential Designees
listed below has, during the past five years, (1) been
convicted in a criminal proceeding (excluding traffic violations
or similar misdemeanors) or (2) been a party to any
judicial or administrative proceeding that resulted in a
judgment, decree or final order enjoining the person from future
violations of, or prohibiting activities subject to, federal or
state securities laws, or a finding of any violation of federal
or state securities laws.
The following table sets forth, with respect to each individual
who may be designated by Parent as a designee, the name, age of
the individual as of the date hereof, and such individuals
present principal occupation and
A-2
employment history during the past five years. Unless otherwise
indicated, all designees of the Parent to the Board have held
the office and principal occupation identified below for not
less than five years.
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Name
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Age
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Principal Occupation and Five-Year Employment History
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John P. Friel
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54
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Director of Parent; President and Chief Executive Officer of
Parent.
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Gary Bucciarelli
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51
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Senior Vice President and Chief Administration Officer of Parent
since July 2007; prior thereto Senior Vice President of the
Magnetic Resonance Strategic Business Unit from January 2004 and
Vice President of Finance from January 2003.
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Joseph Havrilla
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53
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Senior Vice President of the Magnetic Resonance Strategic
Business Unit of Parent since July 2007; prior thereto Senior
Vice President of Corporate Innovation since 2003.
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Kraig McEwen
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35
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Senior Vice President, Cardiovascular Business Unit of Parent
since January 2004; prior thereto Executive Director of Business
Development.
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John R. Tedeschi
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50
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Senior Vice President - Global Field Organization of Parent.
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Jeffrey S. Kelly
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37
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Executive Director of Marketing of Parent.
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William H. Snyder
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40
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Executive Director of Finance of Parent since June 2004; prior
thereto Sales Representative.
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CERTAIN
INFORMATION CONCERNING THE COMPANY
The authorized capital stock of the Company consists of
100,000,000 shares, 20,000,000 shares of which are
designated as common stock, par value $0.40 per share, and
1,000,000 shares of which are designated series A
junior participating preferred stock, par value $0.40 per share.
As of the close of business on February 8, 2008, there were
17,034,157 shares of common stock outstanding and no shares
of preferred stock outstanding.
The Shares are the only class of voting securities of the
Company outstanding that are entitled to vote at a meeting of
shareholders of the Company. Each Share entitles the record
holder to one vote on all matters submitted to a vote of the
shareholders.
A-3
CURRENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Set forth below are the name, age and position of each director
and executive officer of the Company as of February 11,
2008.
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Name
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Age
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Position(s)
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Robert G. Dutcher
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62
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Chairman, President and Chief Executive Officer
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Mary K. Brainerd
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54
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Director
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Seymour J. Mansfield
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62
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Director
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William C. Mattison, Jr.
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60
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Director
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Whitney A. McFarlin
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67
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Director
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Donald C. Wegmiller
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69
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Director
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Rodney A. Young
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53
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Director
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Jules L. Fisher
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53
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Vice President, Finance and Chief Financial Officer
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Irving R. Colacci
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54
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Vice President, Legal Affairs and Human Resources, General
Counsel and Secretary, and Chief Governance Officer
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James D. Gustafson
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52
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Senior Vice President, Research Development, Engineering,
Clinical Evaluation and Chief Quality Officer
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Shawn F. McCarrey
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50
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Executive Vice President, Worldwide Sales and Marketing
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Robert J. Scott
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63
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Vice President, Manufacturing Operations and Information
Technology, and Chief Security Officer
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The following are brief biographies of each current director and
executive officer of the Company (including present principal
occupation or employment, and material occupations, positions,
offices or employment for the past five years). Unless otherwise
indicated, to the knowledge of the Company, no current director
or executive officer of the Company has been convicted in a
criminal proceeding during the last five years and no director
or executive officer of the Company was a party to any judicial
or administrative proceeding during the last five years (except
for any matters that were dismissed without sanction or
settlement) that resulted in a judgment, decree or final order
enjoining the person from future violations of, or prohibiting
activities subject to, federal or state securities laws, or a
finding of any violation of federal or state securities laws.
There are no family relationships between directors and
executive officers of the Company.
Robert G. Dutcher
, 62, has been a director of the Company
since 1993. He was hired as General Manager of our medical
product subsidiary in 1985 and subsequently became its
President. He served as Executive Vice President of the parent
company from June 1992 until October 1993. He has served as our
President and Chief Executive Officer since the medical products
subsidiary and parent were combined in 1993 and was elected
Chairman of the Board of Directors in December 2001.
Mr. Dutcher also serves as a director of Daktronics, Inc.
Mary K. Brainerd
, 54, has been a director of the Company
since 2001. She has been President and Chief Executive Officer
of HealthPartners, Inc., a family of non-profit Minnesota health
care organizations, since 2002. She served as Executive Vice
President and Chief Operating Officer of HealthPartners from
2000 to 2002.
Seymour J. Mansfield
,62, has been a director of the
Company since 1987. He is a founder, officer and shareholder of
Mansfield, Tanick & Cohen, P.A., a Minneapolis,
Minnesota law firm.
William C. Mattison, Jr.
, 60, has been a director of
the Company since 1999. He retired in 1998 as a Principal of
Gerard, Klauer, Mattison & Co., Inc., an institutional
equity research and banking firm.
Whitney A. McFarlin
, 67, has been a director of the
Company since 1998. He has been retired since 1998. He served as
Chairman, President, and Chief Executive Officer of Angeion
Corporation, a medical device company, from 1993 to 1998.
A-4
Donald C. Wegmiller
, 69, has been a director of the
Company since 1987. He has been a Senior Consultant and Advisor
with Clark Consulting Healthcare Group since 2005. From 2002 to
2005 he was the Chairman of Clark Consulting Healthcare Group, a
compensation and benefits consulting firm. Mr. Wegmiller
serves as a director of Omnicell, Inc.
Rodney A. Young
, 53, has been a director of the Company
since 1999. He has been the President and Chief Executive
Officer of Medical Graphics Corporation, a medical device
company, since November 2004. He served as Chairman, Chief
Executive Officer and President of LecTec Corporation from 1996
to 2003. Mr. Young serves as a director of Angeion
Corporation and Health Fitness Corporation.
Jules L. Fisher
, 53, has been an officer of the Company
since 2005. He joined us as Chief Financial Officer, Vice
President of Finance, in May 2005. Prior to that time,
Mr. Fisher served as a consultant with Certes Financial
Pros since November 2004 and was Corporate Controller of
American Medical Systems from February to September 2004.
Mr. Fisher was the Chief Financial Officer of Medical CV,
Inc. from December 2001 to February 2004. From 1996 until
December 2001, Mr. Fisher served as Vice President and
Chief Financial Officer at Minntech Corporation.
Irving R. Colacci
, 54, has been an officer of the Company
since 1988. He joined us in 1988 as Secretary and Corporate
Counsel. Since 1993, he has served as General Counsel and Vice
President, Legal Affairs and Human Resources; and in August 2005
was designated as Chief Governance Officer.
James D. Gustafson
, 52, has been an officer of the
Company since 1994. He has served as a Senior Vice President
since August 2005, and previously served as Vice President since
January 1994. Mr. Gustafson has been responsible for our
Quality Assurance and Regulatory/Clinical Affairs since June
1993. In August 2001, Mr. Gustafson assumed responsibility
for research, development, and engineering functions, and in
August 2005 he assumed responsibility for all clinical
evaluation activities and was designated Chief Quality Officer.
Shawn F. McCarrey,
50, has been an officer of the Company
since 2001. He became our Director of U.S. Sales in
December 1998 and became Vice President of U.S. Sales in
April 2001. In February 2003 he became Vice President of
Worldwide Sales and Executive Vice President of Worldwide Sales
and Marketing in August 2005.
Robert J. Scott,
63, has been an officer of the Company
since 1993. He joined our medical subsidiary in 1985 and has
served as Vice President of Manufacturing since 1993. He assumed
responsibility for Information Technology in 2001. In August
2005 he was designated as Chief Security Officer.
CORPORATE
GOVERNANCE
Director
Independence
The Board has determined that each of our directors satisfies
the independence requirements of the Nasdaq Global Market
(Nasdaq), except for Robert G. Dutcher, who serves
as our Chairman, President and Chief Executive Officer.
Our Audit Committee, Compensation Committee, and Nominating and
Governance Committee consist solely of independent directors, as
defined by Nasdaq. The members of our Audit Committee also meet
the additional SEC and Nasdaq independence and experience
requirements applicable specifically to members of the Audit
Committee. In addition, all of the members of our Compensation
Committee are non-employee directors within the
meaning of the rules of Section 16 of the Securities
Exchange Act, and are outside directors for purposes
of Internal Revenue Code Section 162(m).
Board
Meetings and Participation
As of the date of this Information Statement, the Board has
seven members currently comprised of Robert G. Dutcher, Mary K.
Brainerd, Seymour J. Mansfield, William C. Mattison, Jr.,
Whitney A. McFarlin, Donald C. Wegmiller and Rodney A. Young.
The Board has a standing Audit Committee, Compensation
Committee, Nominating and Governance Committee and Executive and
Strategic Planning Committee. Current copies of
A-5
the charters of each of the committees are available in the
Governance section of the Investor Information section of our
website at www.possis.com.
During the fiscal year ended July 31, 2007, (i) the
Board held five meetings; (ii) the Audit Committee held
four meetings; (iii) the Compensation Committee held three
meetings and (iv) the Nominating and Governance Committee
held two meeting. The Executive and Strategic Planning Committee
did not meet during the Fiscal Year ended July 31, 2007.
During the fiscal year ended July 31, 2007, each director
attended at least 75% or more of the aggregate number of the
meetings of the Board and of the committees of which he or she
is a member. The Board does not have a formal policy requiring
attendance by the directors at the annual meetings of
shareholders; however, all of our directors attended our 2006
annual meeting.
Audit
Committee
The members of our Audit Committee are Whitney A. McFarlin,
William C. Mattison, Jr. and Rodney A. Young.
Mr. McFarlin is the chair of the committee. The Audit
Committee assists the Board in fulfilling its responsibility for
the safeguarding of assets and oversight of the quality and
integrity of our accounting, auditing and reporting practices,
and such other duties as directed by the Board. The Audit
Committee has sole authority to appoint, determine funding for,
retain and oversee our independent registered public accounting
firm and to pre-approve all audit services and permissible
non-audit services. It is our policy to present to the entire
committee proposals for all audit services and permissible
non-audit services prior to engagement. All members of the Audit
Committee are independent, as defined in Rule 4350(d)(2) of
the NASD. The Board of Directors has determined that Whitney A.
McFarlin is an audit committee financial expert within the
meaning of SEC regulations but that neither of the other two
members of the Committee are Audit Committee Financial Experts.
The Committee operates under a charter, which is available on
our website at www.possis.com under the Investors/Corporate
Overview/Corporate Governance tab.
Compensation
Committee
The members of our Compensation Committee are Donald C.
Wegmiller, Mary K. Brainerd, Seymour J. Mansfield and Rodney A.
Young. Mr. Wegmiller is the chair of the committee. The
Compensation Committee is responsible for defining and
administering our executive compensation program. The
responsibilities and activities of the Compensation Committee
are discussed in this Information Statement under the caption
Compensation Discussion and Analysis. The Committee operates
under a charter, which is available on our website at
www.possis.com under the Investors/Corporate Overview/Corporate
Governance tab.
Nominating
and Governance Committee
The members of our Nominating and Governance Committee are
Seymour J. Mansfield, Mary K. Brainerd, William C.
Mattison, Jr., Whitney A. McFarlin, Donald C. Wegmiller and
Rodney A. Young. Mr. Mansfield is the chair of the
committee. The Nominating and Governance Committee is
responsible for the director nomination and election process,
succession planning, and corporate governance issues. It
determines the criteria and qualifications of director nominees
based on qualification criteria that it develops. The Committee
will apply these criteria for nominees identified by the
Committee, by share-holders, or through some other source. The
Committees membership consists of all members of the Board
who meet the independence requirements of the Nasdaq listing
standards. In addition, Seymour J. Mansfield serves as Lead
Director and chairs the Committee. His duties and
responsibilities as Lead Director are described in the
Committees Charter, which governs the activities of the
Committee and is available on our website at www.possis.com
under the Investors/Corporate Overview/Corporate Governance tab.
Executive
and Strategic Planning Committee
The members of our Executive and Strategic Planning Committee
are Donald C. Wegmiller, Robert G. Dutcher, Seymour J. Mansfield
and William C. Mattison, Jr. Mr. Wegmiller is the
chair of the committee. The Executive and Strategic Planning
Committee is responsible for exercising the authority of the
Board during the intervals between meetings of the Board, for
formulating and recommending general policies for Board
A-6
consideration, for working with management in the development of
its annual Strategic Plan, and for advising the Board on
strategic issues. It operates under a charter available on our
website at www.possis.com under the Investors/Corporate
Overview/Corporate Governance tab.
Shareholder
Communications with our Board
Shareholders may communicate with the our Board of Directors by
sending a letter addressed to the Board of Directors or
specified individual directors to: Possis Medical, Inc., 9055
Evergreen Blvd NW, Minneapolis, MN 55433,
c/o Irving
R. Colacci, Vice President, General Counsel and Secretary. All
communications will be compiled by the General Counsel of the
Company and submitted to the Board or the individual directors
on a periodic basis.
Code of
Ethics
We have adopted a formal Code of Ethics that is applicable to
all of our officers, directors and employees, including our
senior financial officers. It is the responsibility of any
employee, officer or director to report any violations of our
code of ethics to the Companys General Counsel or the
Chair of its Audit Committee. Our Code of Ethics is available on
our website at www.possis.com under the Investors/Corporate
Overview/Corporate Governance tab.
DIRECTOR
COMPENSATION
Directors who are not employees receive an annual retainer of
$7,500, meeting fees of $2,000 per Board meeting attended in
person, and $1,000 for each telephonic Board meeting attended.
We also pay the chair of each committee an additional annual
retainer of $3,000, pay members of the Executive and Strategic
Planning Committee an annual retainer of $6,000, pay members of
other committees an annual retainer of $1,500, and pay meeting
fees of $500 for each committee meeting attended as committee
Chair and $250 for each committee meeting attended as a
committee member. Our Lead Director receives an additional
$15,000 annual retainer.
Under our 1999 Stock Compensation Plan, outside directors
receive options to purchase 4,000 common shares on the first
business day of each calendar year. The exercise price of these
options is equal to the fair market value on date of grant.
Fifty percent of these options vest after six months and the
remainder vest after one year.
Beginning with options granted in January 2007, all options to
directors expire in five years, instead of the ten year
expiration period provided in all grants prior to that date.
Directors also receive, on the first business day of each
calendar year, restricted stock having a value on the date of
grant equal to their annual retainer of $7,500. New directors
receive an option to purchase 8,000 shares of common stock
upon initial election to the Board.
We also have a stock option program to promote retention of
outside directors for a period long enough to allow for a full
understanding of our business, to encourage solid judgments that
lead to sustained business success and to aid in the recruitment
of new qualified directors. Following election to a sixth annual
term, directors receive a 20,000 share stock option grant
and additional grants of 4,000 shares annually for ten
years. Vesting of these grants is contingent on three levels of
appreciation in the value of our common stock. One-third of the
initial grant vests if the stock appreciates 20% in value;
one-third vests if the stock appreciates 40% in value; and the
final third vests if the stock appreciates 60% in value. In
addition, all options granted under this program continue to be
eligible for vesting for five years following retirement from
service as a director and vest, in any event, five years
following the date of the grant.
Pursuant to our 1999 Stock Compensation Plan, each outside
director may elect to receive director fees in the form of
discounted stock options. Each director must make an election
each year with regard to fees that would otherwise be payable
for that calendar year. The exercise price of the options is
50 percent of the fair market value of the stock on the
date of grant, which is the first business day of the year
following the year for which the fees are earned. Each option
becomes exercisable in full six months following the date of
grant. The number of shares subject to each option is calculated
by dividing the fees owed to the particular director by the
discounted exercise price. Going forward, these grants will
remain exercisable for five years. For calendar year 2007, all
directors, with the exception of Ms. Brainerd, elected to
receive these fees in discounted stock options.
A-7
The following table reflects all compensation awarded to, earned
by, or paid to our non-employee directors during fiscal year
2007.
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Director Compensation Table
|
|
Name
|
|
Fees
Earned
1
|
|
|
Stock
Awards
2
|
|
|
Option
Awards
3
4
|
|
|
Total
5
|
|
|
Mary K. Brainerd
|
|
$
|
20,500
|
|
|
$
|
7,500
|
|
|
$
|
154,800
|
|
|
$
|
182,800
|
|
Seymour J. Mansfield
|
|
$
|
43,500
|
|
|
$
|
7,500
|
|
|
$
|
22,320
|
|
|
$
|
73,320
|
|
William C. Mattison, Jr.
|
|
$
|
27,000
|
|
|
$
|
7,500
|
|
|
$
|
44,400
|
|
|
$
|
78,900
|
|
Whitney A. McFarlin
|
|
$
|
23,500
|
|
|
$
|
7,500
|
|
|
$
|
44,400
|
|
|
$
|
75,400
|
|
Donald C. Wegmiller
|
|
$
|
32,000
|
|
|
$
|
7,500
|
|
|
$
|
22,320
|
|
|
$
|
61,820
|
|
Rodney A. Young
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|
$
|
21,000
|
|
|
$
|
7,500
|
|
|
$
|
44,400
|
|
|
$
|
72,900
|
|
|
|
|
1
|
|
Fees are paid on a calendar year basis. All directors elected to
receive their calendar 2006 directors fees, otherwise
payable in cash, in the form of discounted stock options as
described herein.
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2
|
|
Each non-employee director was granted restricted stock on the
first business day of the calendar year equal in value to the
$7,500 annual retainer. The $7,500 divided by the fair market
value on the date of grant equals the number of shares granted.
A total of 3,174 shares of stock were granted on
January 2, 2007, 529 shares to each of the six
non-employee directors.
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3
|
|
All options were granted on January 2, 2007.
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|
4
|
|
All non-employee directors received 4,000 stock options valued
at $5.58. Mr. Young, Mr. Mattison, Mr. McFarlin
and Ms. Brainerd received 4,000 additional options under
the Companys director retention option program. These
options vest based on achievement of specified stock
appreciation over time and are valued differently for each price
point, but at an overall average value of $5.52. In addition,
Ms. Brainerd was granted 20,000 options on January 2,
2007, as the initial grant under the director retention option
program, which we valued at the same level as the
4,000 share grants under the director retention program.
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5
|
|
Non-employee directors held the following stock options as of
October 3, 2007: Mary K. Brainerd, 65,647; Seymour
Mansfield, 108,117; William Mattison, 88,231; Whitney McFarlin,
98,093; Donald Wegmiller, 29,197 and Rodney Young, 70,218.
|
SECURITY
OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership as of
February 11, 2008, by each person known to us to
beneficially own 5% or more of our common stock, by each of our
directors, by each of our named executive officers
(as defined under the heading Executive
Compensation) and by all directors and executive officers
as a group.
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|
|
|
|
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|
|
|
Name of Beneficial
|
|
Amount
|
|
|
Total%
|
|
Owner or Identity of Group
|
|
Beneficially Owned(1)
|
|
|
of Class
|
|
|
Royce and Associates, LLC
1414 Avenue of the Americas
New York, NY 10019
|
|
|
1,998,084
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(2)
|
|
|
11.7
|
|
Black River Asset Management, LLC
12700 Whitewater Drive
Minnetonka, MN 55343
|
|
|
1,691,400
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(3)
|
|
|
9.9
|
|
Wall Street Associates, LLC
1200 Prospect Street, Suite 100
La Jolla, CA 92037
|
|
|
874,500
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(4)
|
|
|
5.1
|
|
Robert G. Dutcher
|
|
|
611,619
|
|
|
|
3.6
|
|
Mary K. Brainerd
|
|
|
52,756
|
|
|
|
|
*
|
Seymour J. Mansfield
|
|
|
221,563
|
(5)
|
|
|
1.3
|
|
William C. Mattison, Jr.
|
|
|
192,682
|
|
|
|
1.1
|
|
A-8
|
|
|
|
|
|
|
|
|
Name of Beneficial
|
|
Amount
|
|
|
Total%
|
|
Owner or Identity of Group
|
|
Beneficially Owned(1)
|
|
|
of Class
|
|
|
Whitney A. McFarlin
|
|
|
85,686
|
|
|
|
|
*
|
Donald C. Wegmiller
|
|
|
61,359
|
|
|
|
|
*
|
Rodney A. Young
|
|
|
43,229
|
|
|
|
|
*
|
Irving R. Colacci
|
|
|
189,506
|
|
|
|
1.1
|
|
Jules L. Fisher
|
|
|
24,452
|
|
|
|
|
*
|
James D. Gustafson
|
|
|
220,936
|
|
|
|
1.3
|
|
Shawn F. McCarrey
|
|
|
183,785
|
|
|
|
1.1
|
|
Directors and Executive Officers as a Group (12 persons)
|
|
|
2,131,669
|
|
|
|
12.4
|
|
|
|
|
(1)
|
|
Includes shares owned indirectly by trusts, spouses, minor
children and options that are currently exercisable or will
become exercisable within sixty days of February 11, 2008,
as follows: Mr. Dutcher, 589,034 shares;
Ms. Brainerd, 41,647 shares; Mr. Mansfield,
169,321 shares; Mr. Mattison, 145,564
Mr. McFarlin, 81,568 shares; Mr. Wegmiller,
29,199 shares; Mr. Young, 39,711 shares;
Mr. Colacci, 185,150 shares; Mr. Gustafson,
212,725 shares; Mr. McCarrey, 154,423 shares;
Mr. Fisher, 18,275 shares; and for all directors and
executive officers as a group, 1,882,871 shares.
|
|
(2)
|
|
Based on a Schedule 13G filed by Royce and Associates, LLC,
with the SEC on January 24, 2007. Represents shares over
which Royce and Associates, LLC has sole voting and dispositive
power.
|
|
(3)
|
|
Based on a Schedule 13G filed by Black River Asset
Management, LLC, dated February 14, 2007. Represents shares
over which Black River Asset Management, LLC, has shared voting
and dispositive power as the advisor to Black River Long/Short
Fund, LTD and Black River Long/Short Opportunity Fund, LLC.
|
|
(4)
|
|
Based on a Schedule 13G filed by Wall Street Associates,
LLC dated February 11, 2008. Represents 600,600 shares
over which Wall Street Associates, LLC has sole voting power and
874,500 shares over which it has sole dispositive power.
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|
(5)
|
|
Includes 2,000 shares pledged as security.
|
|
*
|
|
Denotes ownership of less than 1% of shares outstanding
|
EXECUTIVE
COMPENSATION
Compensation
Discussion and Analysis
Compensation Objectives.
Our executive
compensation philosophy and practices are intended to retain and
provide an incentive for increased performance by our current
executives and to facilitate recruitment of new executives. We
believe that compensation paid to our executive officers should
be closely aligned with our performance on both a short-term and
long-term basis and should be linked to specific measurable
results intended to increase shareholder value. Our executive
compensation program is designed to achieve the following
objectives:
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Attract and retain executives important to our success and the
creation of value for our shareholders;
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Motivate our executives to achieve corporate and individual
performance objectives intended to enhance shareholder
value; and
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Reward our executives for the achievement of corporate and
individual performance objectives, creation of shareholder value
and contribution to our short and long-term success.
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In order to achieve these objectives, our compensation
committee, with the authorization of our Board, has designed the
executive compensation program using the following philosophy
and principles:
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|
We target base salaries at or below the median of the peer group
and short-term cash bonuses at or above the peer group, thus
allocating a greater portion of each executives salary and bonus
compensation to achievement of annual corporate and individual
objectives;
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A-9
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We target total compensation at the 50th to
75th percentile of companies in our peer group, with the
opportunity to earn total compensation above the market median
when achievement of performance objectives exceed plan targets;
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|
We favor having a significant component of variable compensation
tied to results and achievement;
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|
We differentiate individual compensation among our executives
based on responsibility, education, experience, job performance
and potential; and
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|
We provide long-term incentives in the form of equity
participation through restricted stock and stock options and
retirement enhancement through participation in an employer
contributed deferred compensation program.
|
Determination of Compensation Awards.
Our
compensation committee, operating under a written charter
adopted by our Board, has the primary authority to determine
compensation for our executive officers. Compensation committee
determinations are presented to and ratified by the Board. The
compensation committee is comprised entirely of independent
directors within the meaning of the rules of the NASDAQ. For the
past several years, the compensation committee has retained the
services of Financial Concepts, Inc. (FCI), an
independent executive compensation consultant, to advise on
competitive pay practices and the amounts and nature of
compensation paid to executive officers at similar companies,
including a specified peer group of companies.
Typically, the committee utilizes the services of FCI to
establish a three-year compensation program, with less extensive
services utilized annually to ensure that the three-year program
remains appropriate. FCI was retained during fiscal year 2007 to
perform an extensive analysis of compensation and to present its
recommendations for our fiscal year 2008 executive compensation
program. FCI reported directly to the compensation committee and
the committee had sole authority to engage and terminate its
services. The compensation committee also uses senior management
staff as needed to gather relevant historical data and prepare
analyses to assist in the evaluation of compensation data.
At the invitation of the Committee, our chief executive officer
participates in a portion of most compensation committee
meetings, although he is not present and does not participate in
the final consultation on his compensation. To aid our
compensation committee in making its determination and
recommendations to the Board, our chief executive officer
provides an assessment of performance for each executive officer.
Using the input from the compensation consultant and the chief
executive officer, and with other information supplied by
administrative staff, our compensation committee reviews all
components of the compensation package for the executive
officers including:
|
|
|
|
|
annual base salary;
|
|
|
|
cash bonuses based on corporate and individual performance;
|
|
|
|
equity compensation;
|
|
|
|
accumulated realized and unrealized stock option and restricted
stock grants;
|
|
|
|
contributions to deferred compensation plans;
|
|
|
|
the dollar value to the executive and cost of
perquisites; and
|
|
|
|
the actual and projected payout obligations under the our
change-in-control
agreements.
|
In order to allocate total compensation among the above
components, the compensation committee considers and discusses
the merits of several structures and decides on the structure
that best meets both our needs and the needs of the executives.
Compensation Benchmarking and Peer Group.
For
2007, as in prior years, our compensation committee relied on
compensation comparisons prepared by its outside compensation
consultant in reviewing compensation for our executive officers.
The committee reviewed the average total target cash
compensation for each named executive officer and the average
number and value of equity-based awards considering individual
job responsibility levels on both a single year and historical
basis. The consultants data included a market analysis to
ascertain
A-10
the relative compensation positions of the chief executive
officer and other executive officers compared to a peer group of
medical device companies. We have traditionally relied on a peer
group of companies that includes those used to prepare the
comparative five-year cumulative total return chart that has
appeared in our annual proxy statement. In 2007, however, the
peer group was expanded to include five additional companies.
The expanded peer group allowed our compensation committee to
compare our executive compensation to more companies with a
similar position in their growth cycle and comparable in market
capitalization. The peer group used included: Arthocare Corp.,
Datascope Corp., Kensey Nash Corp., Merit Medical Systems, Inc.,
Spectronetics Corp., Angiodynamics, Inc., Cantel Medical Corp.,
ev3 Inc., Polymedica Corp. and FoxHollow Technologies, Inc. All
elements of compensation pay were considered. In order to
determine the competitive market within the peer group and to
validate the data obtained, data from multiple survey sources
was also examined. A different combination of surveys was used
for each executive in an effort to accurately match survey data
to individual job function. Sources for survey data included
Watson Wyatt, Stanton, the Employer Association, Qualcomp and
the Manufacturers Alliance.
Any proposed revisions to compensation levels are discussed,
modified as needed to reflect individual and specific
circumstances and acted upon following a comprehensive review of
corporate and individual performance against previously
established goals and objectives. In order to attract, retain
and motivate its executives, the compensation committee believes
that total compensation should generally fall between the
50th and 75th percentile of remuneration provided by
comparable peer group companies. This approach ensures us that
we remain competitive in our markets even though we tend to keep
base salaries below the peer group median.
Executive Compensation Program.
Our executive
compensation program and the policies that govern its
implementation are outlined briefly below. The elements of the
program are:
|
|
|
|
|
Base Salary
|
|
|
|
Short-Term Incentive Bonus
|
|
|
|
Long-Term Equity Awards
|
|
|
|
Retirement Benefits
|
|
|
|
Other Personal Benefits
|
Base Salary.
Base salaries for executive
officers are set at levels that the compensation committee
believes are generally competitive with levels of compensation
paid to executive officers of other comparably-sized medical
device manufacturers based on analysis and recommendations
provided by FCI, market data reflecting base salaries paid by
comparably-sized medical device manufacturers, and individual
performance of the executive. Our overall performance,
shareholder return, and progress toward achieving specific
objectives are also important factors in setting compensation
for the chief executive officer and, to a lesser extent, for
other officers. Annual salary adjustments are generally modest.
Consistent with our policy of setting base salary at or slightly
below the median of executives at peer companies, for the 2007
fiscal year our compensation committee raised base salaries in
amounts from 5-6 percent. Base salaries for fiscal year
2008 were increased by 9 percent for the chief executive
officer to raise his salary from the 25th percentile to the 40th
percentile and 5 percent for all other executive officers.
The $390,000 base salary of our chief executive officer for
fiscal year 2008 was approximately 5 percent below the mean
of the salaries of executives in our peer group. The $200,000
base salary of our chief financial officer was approximately
11 percent below the mean. At $190,000, our general counsel
was approximately 16 percent below the mean; at $204,000
our vice president of sales was 8 percent below the mean;
at $189,600 our vice president of research and clinical
evaluation was 13 percent below the mean; and at $160,000
our vice president of manufacturing and IT was 29 percent
below the mean.
Short-Term Incentive Bonus.
The compensation
committee has established an annual short-term incentive bonus
program for officers. The incentive bonus is intended to reward
annual performance and help attract and retain qualified
executives. Under the incentive bonus program, the executive
officers are eligible to receive a cash bonus payment following
the conclusion of the fiscal year, contingent on achievement of
predetermined performance goals.
A-11
Our incentive bonus program for 2007 was established by the
compensation committee in August 2006, at the same time as
adjustments were made in base salaries. The program provided,
generally, that at targeted performance levels, the executives
would receive a bonus that placed their total compensation above
the median for similarly situated executives based on statistics
provided by the compensation consultant. For our chief executive
officer, payout at target levels would have caused his total
compensation, when combined with base salary, to be in the 50th
percentile of total compensation in the peer group.
Seventy percent of the 2007 bonus program was based on
achievement of corporate financial objectives and thirty percent
was based on achievement of non-financial performance
milestones. The financial objectives consisted of a total
revenue target of $71 million, broken down both annually
and by quarterly sales by product franchise, pre-tax income of
$610,000 for the full year and further subdivided by quarter,
and a gross profit margin for the year of 71.5 percent,
also broken down by quarterly performance. Non-financial goals
included the ability to launch new products following
appropriate regulatory approval, obtaining regulatory clearance
on specified applications, completion or significant progress on
specified clinical studies, completion of specified new product
development activities, publication of significant clinical
studies and completion of a specific investment/acquisition
project involving a third-party company.
Our compensation committee determines the extent to which
performance objectives have been met or exceeded. The amount of
the incentive bonus paid is set by the compensation committee
after the committee determines the level of goal achievement for
the year. Based on an overall corporate performance assessment
of 81.4 percent of target objectives for 2007, the chief
executive officer qualified for a cash bonus of $194,800, which
represented 84.3 percent of his target award after
factoring in an assessment of his individual performance. For
2008, the chief executive officer will be eligible to receive a
cash bonus of $260,000 if corporate and individual performance
is assessed at 100 percent.
For 2007, the other executive officers received cash bonuses in
amounts that ranged from 84 percent to 86 percent of
target based on the 81.4 percent corporate performance
assessment and application of individual assessments that
represented 25 percent of their total awards. For 2008,
executive officers will be eligible to receive cash bonuses
ranging from $107,000 to $200,000, depending on their position,
and based on a 100 percent assessment of corporate and
individual performance.
Long-Term Equity Awards.
Long-term equity
awards, in the form of restricted stock and stock options, are
granted annually to the chief executive officer and other
executive officers consistent with our executive incentive
compensation program. The combination of restricted stock and
stock options are intended to encourage executive retention,
maximize individual performance and strengthen the alignment of
management interests with that of the shareholders. In making
awards under our incentive compensation program, the
compensation committee considers total compensation and the
appropriate combination of equity-based awards. The amount of
long-term equity awards granted to the chief executive officer
and other executive officers is based upon the compensation
committees assessment of corporate performance in relation
to goals and objectives established at the beginning of the
fiscal year and each executives expected future
contributions. In granting restricted stock and stock options to
the chief executive officer and other executive officers, the
compensation committee also considers the impact of the grant on
our financial performance, as determined in accordance with the
requirements of Statement of Financial Accounting Standards
No. 123(R).
The committee attempts to limit the maximum number of restricted
stock and stock option awards to employees in each year,
exclusive of options to new employees and extraordinary grants
compelled by special circumstances, to two percent or less of
the shares we have issued and outstanding. In addition, and in
order to reduce or eliminate dilution of shareholders
interests, we intend to continue to attempt to repurchase at
least as many shares in the open market under our current stock
repurchase program as are awarded in stock options and
restricted stock.
The compensation committee, under the authority granted to it by
the Board of Directors, has historically granted stock options
on an annual basis following the end of the fiscal year and at
the same time as base salary and cash bonus decisions are made
consistent with its executive incentive compensation program as
described herein. Grants are made to officers and other key
employees based on the same goals and objectives and individual
performance assessments as are applied to determine cash bonus
awards. Options are granted by the committee only
A-12
at regular or special meetings, or by unanimous written consent.
Although our chief executive officer makes recommendations
regarding the number of options and other equity-based awards
that are granted based on his performance assessment, the
committee has not delegated to the chief executive officer or
any other officer the ability to make these grants. The
committees normal practice is to condition the vesting of
stock options on the passage of time.
For fiscal year 2007, the committee granted a portion of
long-term equity-based compensation in the form of restricted
stock that will vest in equal annual installments of twenty-five
percent per year beginning one year following the date of grant.
These grants also carry an accelerated vesting provision that
allows each 25 percent tranche of the total grant to vest
upon appreciation of 20 percent, 44 percent,
73 percent and 100 percent of the market value of our
common stock after the date of grant. Because of the
disproportionate expense of options under SFAS 123(R)
compared to other forms of equity benefit, and because
restricted stock represents a benefit less susceptible to our
highly volatile stock price, we have granted a portion of our
equity-based benefits in the form of restricted stock. We retain
custody of the restricted stock shares until they are no longer
subject to the restriction.
The remainder of the fiscal year 2007 long-term equity award was
made in the form of nonqualified stock options priced at the
closing price of the underlying common stock on the date of
grant. The stock options have a five-year term and vest in equal
annual installments of twenty-five percent beginning one year
following the date of grant.
Retirement Benefits.
Our policy is to provide
an attractive benefit package to all employees. All of our
executive officers, to the extent they meet plan eligibility
requirements, are entitled to participate in our 401(k)
retirement savings plan on the same basis as other employees. In
addition, our chief executive officer is also the beneficiary of
a Supplemental Executive Retirement Deferred Compensation
Agreement that provides for annual contributions by the Company
in amounts that are calculated to provide a target benefit
following retirement at age 65 in an amount equal to fifty
percent of base salary for ten years, with smaller benefits paid
in the event of retirement prior to age sixty-five. Because our
chief executive officer is a highly valued employee, this
Agreement has been structured as both a retirement supplement
and retention vehicle incorporating non-compete and
non-disclosure provisions. The annual contribution is made to a
self-directed investment account in an amount calculated to
provide the target benefit at retirement assuming a reasonable
rate of return and anticipated increases in annual base salary.
Benefits, if any, actually paid following retirement are
dependent on the performance of the investment account and the
balance of the fund at the time of retirement. In 2007, a
contribution of $204,599 was made for the benefit of our chief
executive officer under this Agreement.
During 2004, and based on extensive surveys of industry
compensation practices, our compensation committee determined
that our least competitive benefit, in relation to industry
comparables, was executive retirement benefits. Accordingly, our
compensation committee recommended, and our Board approved, a
supplemental retirement program for our other executive
officers. This program conditions entitlement to retirement
benefits on a minimum level of corporate performance against the
same objectives used to determine incentive compensation, allows
for increased benefits if the Company performs in excess of
Plan, recognizes that the Company has, in the past, relied on
stock options to make up for the lack of traditional retirement
programs and recognizes that use of stock options in the future
may be less desirable to the Company due to the changing
accounting environment. Contributions range from 6 percent
of base salary if corporate performance is assessed at
85-90 percent
of goal to 14 percent of base salary if corporate
performance is assessed at over 110 percent of goal. For
fiscal year 2007, a total contribution of $62,968 was made,
divided between the five eligible executives, in an amount equal
to 7 percent of each executives base salary, based on
an 81.4 percent corporate performance assessment. The
benefits under this supplemental retirement program are accrued
during the term of each officers employment, are invested
at the discretion of each individual officer in the same menu of
investments made available to employees under our 401(K)
retirement savings plan, and are paid out in equal annual
payments for ten years following a termination of employment or
a
change-in-control
in the company, based on the total amount accrued in the
individual officers account at the time of termination.
Other Personal Benefits.
We also provide other
welfare benefits to our executive officers in order to achieve a
competitive total pay package. We believe we offer a minimal
amount of perquisites. The compensation committee believes that
these benefits are reasonable, competitive and consistent with
our overall executive compensation
A-13
objectives. These other benefits consist of Company-paid
premiums for life insurance, tax preparation and financial
planning services, automobile allowances and health club dues.
Benefits provided to all executive officers, above those
provided to all employees, aggregated less than $75,000 in 2007.
Company executive compensation practices exclude purely personal
forms of benefits, such as spousal travel reimbursement,
vacation payouts and private aircraft.
Severance and Change in Control Agreements.
We
do not have contracts with any executive officer, including our
chief executive officer, that provide for severance benefits. We
have, in the past, entered into severance agreements with
executive officers when their employment is terminated that
provided the executive with some form of severance benefit in
exchange for acknowledgement of continuing confidentiality
covenants, covenants against competition and liability releases.
We may consider entering into severance agreements in the future
depending on the circumstances at the time.
In 1999, our Board approved a Change in Control Termination Pay
Plan (the Plan) that provides, at the discretion of
the Board, salary and benefit continuation payments to the chief
executive officer and other executive officers, together with
selected key management and technical personnel, in the event
they are terminated within twenty-four months of a change in
control. The definition of a change in control for purposes of
the Plan is described in this proxy under the section,
Change in Control. We created the Plan, with this
definition, in order to provide assurances that the livelihood
of the persons covered by the Plan would not be adversely
affected by a transaction in the nature of an acquisition, and
to make certain that the officers would not work against a
transaction that might be in the best interest of our
shareholders.
Under the Plan currently in effect, the chief executive officer
is eligible to receive a three-year salary and benefit
continuation and the other executive officers a two-year salary
and benefit continuation. In addition, other key management and
technical personnel are entitled to salary and benefit
continuation benefits ranging in duration from six to
twenty-four months. The Plan also provides that any unvested
restricted stock and stock options would become immediately
exercisable upon the change in control event.
The Plan provides that the chief executive officer and one other
executive officer are eligible for reimbursement of excise taxes
paid or payable by them under the Internal Revenue Service Code
Section 280(g). In the event that any payment or other
benefit conferred by the Company to or for the benefit of the
chief executive officer under the Plan would be subject to the
excise tax imposed by Section 4999 of the Internal Revenue
Code, the chief executive officer is entitled to receive an
additional payment from us equal to 100 percent of any
excise tax actually paid or payable.
The Board of Directors has approved additional variable payments
upon a change in control notwithstanding employment status
following a change in control. The amount of the pool available
for such payments is limited, in aggregate, to between two and
four percent of the value of Possis at the time of the change in
control. The percentage applied is based on the extent to which
the change in control agreement price exceeds the value of the
corporation prior to public announcement of the acquisition. The
value of the corporation for this purpose is equal to the
closing stock price averaged over the thirty days prior to
announcement of a change in control agreement times the number
of shares issued and outstanding on the date of announcement. If
the change in control agreement price is less than
11 percent above the value of the corporation, then no
bonus pool is created. If the change in control agreement price
is between 11 percent and 20 percent, then a pool of
2 percent of the value of the Company at the time of the
change in control is created. The available pool increases in
increments to a maximum of 4 percent if the premium exceeds
50 percent. At present, our chief executive officer is
entitled to 30 percent of the bonus pool, other executive
officers are entitled to 10 percent of the bonus pool and
20 percent is unallocated but awardable to executive
officers or other key employees at the discretion of the board
of directors.
Deductibility of Executive
Compensation.
Section 162(m) of the Internal
Revenue Code of 1986, as amended, imposes a $1 million
annual limit on the amount that a public company may deduct for
compensation paid to its chief executive officer during a
tax year or to any of the companys most highly compensated
executive officers who are still employed at the end of the tax
year. The limit does not apply to compensation that meets the
requirements of Section 162(m) for qualified
performance-based compensation (i.e., compensation paid
only if the executive meets pre-established, objective goals
based upon performance criteria approved by the companys
shareholders).
A-14
Compensation
Committee Report
The Compensation Committee of the Company has reviewed and
discussed with management the section of this Information
Statement entitled, Compensation Discussion and
Analysis, which is required by Item 402(b) of
Regulation S-K.
Based on such review and discussions, the Compensation Committee
recommended to the Board that the section entitled,
Compensation Discussion and Analysis, be included in
the Information Statement.
Compensation Committee of the Board of Directors
Donald C. Wegmiller, Chairman
Seymour J. Mansfield
Mary K. Brainerd
Summary
Compensation Table
The following table summarizes all compensation paid to or
earned by our chief executive officer, our chief financial
officer, and the three other most highly compensated executive
officers (named executive officers) for services
rendered to the Company during fiscal year 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name and
|
|
|
|
|
|
|
|
Stock
|
|
|
Option
|
|
|
Non-Equity Incentive
|
|
|
All Other
|
|
|
|
|
Principal Position
|
|
Year
|
|
|
Salary
|
|
|
Awards(1)
|
|
|
Awards(1)
|
|
|
Plan Compensation(2)
|
|
|
Compensation(3)
|
|
|
Total
|
|
|
Robert G. Dutcher,
Chairman, President and Chief Executive Officer
|
|
|
2007
|
|
|
$
|
358,555
|
|
|
$
|
67,288
|
|
|
$
|
118,011
|
|
|
$
|
194,800
|
|
|
$
|
17,111
|
|
|
$
|
755,765
|
|
Jules L. Fisher,
Vice President and Chief Financial Officer
|
|
|
2007
|
|
|
$
|
190,898
|
|
|
$
|
31,176
|
|
|
$
|
54,627
|
|
|
$
|
108,200
|
|
|
$
|
15,402
|
|
|
$
|
400,303
|
|
Irving R. Colacci,
Vice President, Legal Affairs and Human Resources, General
Counsel and Secretary, and Chief Governance Officer
|
|
|
2007
|
|
|
$
|
181,757
|
|
|
$
|
31,176
|
|
|
$
|
54,627
|
|
|
$
|
98,200
|
|
|
$
|
17,317
|
|
|
$
|
383,077
|
|
James D. Gustafson,
Senior Vice President, Research, Development, Engineering,
Clinical Evaluation, and Chief Quality Officer
|
|
|
2007
|
|
|
$
|
180,786
|
|
|
$
|
31,176
|
|
|
$
|
54,627
|
|
|
$
|
110,200
|
|
|
$
|
14,249
|
|
|
$
|
391,038
|
|
Shawn F. McCarrey,
Executive Vice President, Worldwide Sales and Marketing
|
|
|
2007
|
|
|
$
|
194,215
|
|
|
$
|
43,473
|
|
|
$
|
54,627
|
|
|
$
|
162,700
|
|
|
$
|
15,924
|
|
|
$
|
470,939
|
|
|
|
|
(1)
|
|
The Stock Awards and Option Awards columns represent the dollar
amount of restricted stock and stock option awards to each
officer in August 2006 under our Incentive Compensation Plan
that created accounting expense beginning in fiscal year 2007.
These awards were based on an assessment of corporate and
individual performance as measured against corporate goals and
objectives established by the Board of Directors and an
assessment of individual performance based on the
recommendations of the Companys chief executive officer.
The Compensation Committee assessed the individual performance
of the chief executive officer directly. The dollar amounts
shown reflect the dollar amount recognized for financial
statement reporting purposes for the year ended July 31,
2007, in accordance with FAS 123(R), which placed a value
of $4.17 on each stock option and $8.66 on each share of
restricted stock (the closing price of the stock on the
August 15, 2006, grant date).
|
A-15
|
|
|
(2)
|
|
The dollar amounts shown in the Non-Equity Incentive Plan
Compensation column represent cash bonus incentive payments made
in August 2007 pursuant to our Incentive Compensation Plan for
performance during the fiscal year ended July 31, 2007. No
bonus was paid to any named executive officer that was either
discretionary, guaranteed and/or made outside of the Incentive
Compensation Plan. All cash bonuses were based on an assessment
of corporate and individual performance as measured against
corporate goals and objectives established by the Board of
Directors and an assessment of individual performance based on
the recommendation of the Companys chief executive
officer. The Compensation Committee assessed the individual
performance of the chief executive officer directly.
|
|
(3)
|
|
The All Other Compensation column represents the value of
Company contributions to each officers 401(K) Plan, the
value of the use of a company-owned automobile, amounts paid on
each officers behalf for tax return preparation and
financial planning services, company-paid premiums for excess
life insurance coverage, the amount of company-paid health club
dues and membership fees, and the amount of Medicare tax paid by
the Company that is associated with the benefits provided and
included in the listing of All Other Compensation, as reflected
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
|
|
|
|
|
|
Medicare
|
|
|
|
|
|
|
Contributions
|
|
|
Excess Life
|
|
|
Health
|
|
|
Planning and
|
|
|
|
|
|
Tax Paid
|
|
|
|
|
Name and
|
|
to
|
|
|
Insurance
|
|
|
Club
|
|
|
Income Tax
|
|
|
Automobile
|
|
|
on W-2
|
|
|
|
|
Principal Position
|
|
401(K) Plan
|
|
|
Premiums
|
|
|
Dues
|
|
|
Preparation
|
|
|
Benefit
|
|
|
Gross-Up
|
|
|
Total
|
|
|
Robert G. Dutcher
|
|
$
|
6,008
|
|
|
$
|
792
|
|
|
$
|
996
|
|
|
$
|
1,174
|
|
|
$
|
7,992
|
|
|
$
|
150
|
|
|
$
|
17,112
|
|
Jules L. Fisher
|
|
$
|
5,986
|
|
|
$
|
276
|
|
|
$
|
372
|
|
|
$
|
882
|
|
|
$
|
8,125
|
|
|
$
|
132
|
|
|
$
|
15,401
|
|
Irving R. Colacci
|
|
$
|
6,757
|
|
|
$
|
276
|
|
|
$
|
1,827
|
|
|
$
|
1,343
|
|
|
$
|
6,964
|
|
|
$
|
149
|
|
|
$
|
17,316
|
|
James D. Gustafson
|
|
$
|
5,764
|
|
|
$
|
276
|
|
|
$
|
0
|
|
|
$
|
1,419
|
|
|
$
|
6,671
|
|
|
$
|
119
|
|
|
$
|
14,249
|
|
Shawn F. McCarrey
|
|
$
|
6,895
|
|
|
$
|
180
|
|
|
$
|
0
|
|
|
$
|
880
|
|
|
$
|
7,956
|
|
|
$
|
13
|
|
|
$
|
15,924
|
|
A-16
Grants of
Plan-Based Awards
The following table summarizes all plan-based award grants to
each of the named executive officers during fiscal year 2007.
Please refer to the Compensation Discussion and Analysis
sections entitled, Determination of Compensation
Award, Short-Term Incentive Bonus and
Long-Term Equity Awards, for an explanation of how
plan-based awards are determined.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
Option
|
|
|
|
|
|
Grant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
|
Awards:
|
|
|
Exercise
|
|
|
Date Fair
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
Number of
|
|
|
or Base
|
|
|
Value of
|
|
|
|
|
|
|
Estimated Future Payouts Under
|
|
|
Estimated Future Payouts Under
|
|
|
of Shares
|
|
|
Securities
|
|
|
Price of
|
|
|
Stock and
|
|
|
|
Grant
|
|
|
Non-Equity Incentive Plan Awards(1)
|
|
|
Equity Incentive Plan Awards(2)
|
|
|
of Stock
|
|
|
Underlying
|
|
|
Option
|
|
|
Option
|
|
Name
|
|
Date
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
Threshold
|
|
|
Target(3)
|
|
|
Maximum
|
|
|
or Units(4)
|
|
|
Options(5)
|
|
|
Awards
|
|
|
Awards(7)
|
|
|
|
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
(#)
|
|
|
($)
|
|
|
(#)
|
|
|
(#)
|
|
|
(#)
|
|
|
($/Sh)(6)
|
|
|
($)
|
|
|
Robert G. Dutcher
|
|
|
2/16/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/16/07
|
|
|
|
N/A
|
|
|
|
231,000
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
37,500
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/15/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,300
|
|
|
$
|
8.66
|
|
|
|
118,011
|
|
|
|
|
8/15/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,770
|
|
|
|
|
|
|
|
|
|
|
|
67,288
|
|
Jules L. Fisher
|
|
|
2/16/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/16/07
|
|
|
|
N/A
|
|
|
|
127,200
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
17,300
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/15/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,100
|
|
|
$
|
8.66
|
|
|
|
54,627
|
|
|
|
|
8/15/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,600
|
|
|
|
|
|
|
|
|
|
|
|
31,176
|
|
Irving R. Colacci
|
|
|
2/16/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/16/07
|
|
|
|
N/A
|
|
|
|
115,500
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
17,000
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/15/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,100
|
|
|
$
|
8.66
|
|
|
|
54,627
|
|
|
|
|
8/15/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,600
|
|
|
|
|
|
|
|
|
|
|
|
31,176
|
|
James D. Gustafson
|
|
|
2/16/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/16/07
|
|
|
|
N/A
|
|
|
|
128,100
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
17,300
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/15/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,100
|
|
|
$
|
8.66
|
|
|
|
54,627
|
|
|
|
|
8/15/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,600
|
|
|
|
|
|
|
|
|
|
|
|
31,176
|
|
Shawn F. McCarrey
|
|
|
2/16/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/16/07
|
|
|
|
N/A
|
|
|
|
192,400
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
17,300
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/15/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,100
|
|
|
$
|
8.66
|
|
|
|
54,627
|
|
|
|
|
8/15/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,020
|
|
|
|
|
|
|
|
|
|
|
|
43,473
|
|
|
|
|
(1)
|
|
Cash bonus awards are granted following the end of the fiscal
year based on corporate and individual performance during the
preceding fiscal year. The Target award is determined at the
beginning of the fiscal year. No pre-determined threshold is
specified at the beginning or during the fiscal year that must
be met in order to support an award at the end of the year, but
the Board retains the discretion to decline to grant an award if
corporate performance is determined to be so poor as to not
support incentive awards. In the event the corporate performance
exceeds the plan, the Board retains the discretion to grant
awards in excess of targets specified at the beginning of the
fiscal year.
|
|
(2)
|
|
Equity incentive awards are granted consistent with the policy
and procedure governing non-equity incentive awards (see above).
|
|
(3)
|
|
Represents the target dollar value of restricted stock that will
be awarded if, following the close of the fiscal year, corporate
and individual performance is assessed at 100 percent. The
number of shares awarded is calculated by dividing the dollar
award by the stock price on the date of grant.
|
|
(4)
|
|
Consists of restricted stock awards granted consistent with the
policy and procedure governing cash and stock option incentive
awards (see above).
|
|
(5)
|
|
The stock options listed in this column were awarded based on
corporate and individual performance as measured against
pre-determined goals and objectives for the applicable fiscal
year performance. Each grant of
|
A-17
|
|
|
|
|
stock options vest 25% per year beginning one year following the
dated of grant, provided the recipient of the grant is employed
by Company at the time the grant vests.
|
|
(6)
|
|
The exercise price of all option awards is the closing market
price of Possis Medical common stock on the date of grant.
|
|
(7)
|
|
Values are calculated for the 8/15/06 restricted stock grants
listed in the column entitled, All Other Awards: Number of
shares of Stock or Units, using the closing price of the
underlying stock on the date of grant, which was $8.66. The
value of the stock options granted on 8/15/06 was calculated
based on the $4.17 value per option applied by the Company for
accounting purposes consistent with FAS 123(R).
|
Outstanding
Equity Awards At Fiscal Year-End
The table below reflects all outstanding equity awards made to
each of the named executive officers that were outstanding as of
July 31, 2007, the end of our fiscal year 2007. The market
value or payout value of unexercised shares that have not vested
is based on the closing price of Possis Medical common stock on
July 31, 2007, which was $11.66.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
Incentive Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
Incentive
|
|
|
Awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive Plan
|
|
|
|
|
|
|
|
|
Plan Awards:
|
|
|
Market or
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Payout Value
|
|
|
|
|
|
|
Number of
|
|
|
Number of
|
|
|
Number of
|
|
|
|
|
|
|
|
|
Unearned
|
|
|
of Unearned
|
|
|
|
|
|
|
Securities
|
|
|
Securities
|
|
|
Securities
|
|
|
|
|
|
|
|
|
Shares, Units
|
|
|
Shares, Units
|
|
|
|
|
|
|
Underlying
|
|
|
Underlying
|
|
|
Underlying
|
|
|
|
|
|
|
|
|
or Other
|
|
|
or Other
|
|
|
|
Option
|
|
|
Unexercised
|
|
|
Unexercised
|
|
|
Unexercised
|
|
|
Option
|
|
|
Option
|
|
|
Rights That
|
|
|
Rights That
|
|
|
|
Grant
|
|
|
Options (#)
|
|
|
Options (#)
|
|
|
Unearned
|
|
|
Exercise
|
|
|
Expiration
|
|
|
Have Not
|
|
|
Have Not
|
|
Name
|
|
Date
|
|
|
Exercisable
|
|
|
Exercisable
|
|
|
Options (#)
|
|
|
Price ($)
|
|
|
Date
|
|
|
Vested (#)(5)
|
|
|
Vested ($)(6)
|
|
|
Robert G. Dutcher
|
|
|
9/24/1997
|
|
|
|
24,000
|
(1)
|
|
|
|
|
|
|
|
|
|
|
14.38
|
|
|
|
9/24/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
9/14/1998
|
|
|
|
30,000
|
(1)
|
|
|
|
|
|
|
|
|
|
|
5.81
|
|
|
|
9/13/2008
|
|
|
|
|
|
|
|
|
|
|
|
|
8/12/1999
|
|
|
|
90,000
|
(1)
|
|
|
|
|
|
|
|
|
|
|
8.63
|
|
|
|
8/12/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
8/7/2000
|
|
|
|
18,000
|
(1)
|
|
|
|
|
|
|
|
|
|
|
6.13
|
|
|
|
8/7/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
8/7/2000
|
|
|
|
72,000
|
(1)
|
|
|
|
|
|
|
|
|
|
|
6.13
|
|
|
|
8/7/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
11/2/2000
|
|
|
|
47,200
|
(1)
|
|
|
|
|
|
|
|
|
|
|
5.88
|
|
|
|
11/2/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
1/16/2001
|
|
|
|
18,489
|
(2)
|
|
|
|
|
|
|
|
|
|
|
5.56
|
|
|
|
1/16/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
4/3/2001
|
|
|
|
80,000
|
(1)
|
|
|
|
|
|
|
|
|
|
|
3.94
|
|
|
|
4/3/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
9/10/2002
|
|
|
|
57,400
|
(1)
|
|
|
|
|
|
|
|
|
|
|
12.10
|
|
|
|
9/10/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
8/28/2003
|
|
|
|
37,350
|
(1)
|
|
|
12,450
|
|
|
|
|
|
|
|
18.69
|
|
|
|
8/28/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
9/17/2004
|
|
|
|
28,150
|
(1)
|
|
|
28,150
|
|
|
|
|
|
|
|
17.25
|
|
|
|
9/17/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
8/29/2005
|
|
|
|
13,825
|
(3)
|
|
|
41,475
|
|
|
|
|
|
|
|
12.57
|
|
|
|
8/29/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
8/15/2006
|
|
|
|
|
|
|
|
28,300
|
(3)
|
|
|
|
|
|
|
8.66
|
|
|
|
8/15/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
2/16/2007
|
|
|
|
|
|
|
|
|
|
|
|
37,500
|
|
|
|
|
|
|
|
|
|
|
|
7,301
|
|
|
|
81,187
|
|
Jules L. Fisher
|
|
|
5/11/2005
|
|
|
|
15,000
|
(4)
|
|
|
5,000
|
|
|
|
|
|
|
|
8.91
|
|
|
|
5/11/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
8/15/2006
|
|
|
|
|
|
|
|
13,000
|
(1)
|
|
|
|
|
|
|
8.66
|
|
|
|
8/15/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
2/16/2007
|
|
|
|
|
|
|
|
|
|
|
|
17,300
|
|
|
|
|
|
|
|
|
|
|
|
4,478
|
|
|
|
49,795
|
|
Irving R. Colacci
|
|
|
9/24/1997
|
|
|
|
14,300
|
(1)
|
|
|
|
|
|
|
|
|
|
|
14.38
|
|
|
|
9/24/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
9/14/1998
|
|
|
|
20,000
|
(1)
|
|
|
|
|
|
|
|
|
|
|
5.81
|
|
|
|
9/14/2008
|
|
|
|
|
|
|
|
|
|
|
|
|
8/12/1999
|
|
|
|
20,000
|
(1)
|
|
|
|
|
|
|
|
|
|
|
8.63
|
|
|
|
8/12/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
8/12/1999
|
|
|
|
10,000
|
(1)
|
|
|
|
|
|
|
|
|
|
|
8.63
|
|
|
|
8/12/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
8/7/2000
|
|
|
|
13,500
|
(1)
|
|
|
|
|
|
|
|
|
|
|
6.13
|
|
|
|
8/7/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
8/7/2000
|
|
|
|
26,500
|
(1)
|
|
|
|
|
|
|
|
|
|
|
6.13
|
|
|
|
8/7/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
11/2/2000
|
|
|
|
19,600
|
(1)
|
|
|
|
|
|
|
|
|
|
|
5.88
|
|
|
|
11/2/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
4/3/2001
|
|
|
|
25,000
|
(1)
|
|
|
|
|
|
|
|
|
|
|
3.94
|
|
|
|
4/3/2111
|
|
|
|
|
|
|
|
|
|
|
|
|
9/10/2002
|
|
|
|
22,000
|
(1)
|
|
|
|
|
|
|
|
|
|
|
12.10
|
|
|
|
9/10/1012
|
|
|
|
|
|
|
|
|
|
|
|
|
8/28/2003
|
|
|
|
14,925
|
(1)
|
|
|
4,975
|
|
|
|
|
|
|
|
18.69
|
|
|
|
8/28/2013
|
|
|
|
|
|
|
|
|
|
A-18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
Incentive Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
Incentive
|
|
|
Awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive Plan
|
|
|
|
|
|
|
|
|
Plan Awards:
|
|
|
Market or
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Payout Value
|
|
|
|
|
|
|
Number of
|
|
|
Number of
|
|
|
Number of
|
|
|
|
|
|
|
|
|
Unearned
|
|
|
of Unearned
|
|
|
|
|
|
|
Securities
|
|
|
Securities
|
|
|
Securities
|
|
|
|
|
|
|
|
|
Shares, Units
|
|
|
Shares, Units
|
|
|
|
|
|
|
Underlying
|
|
|
Underlying
|
|
|
Underlying
|
|
|
|
|
|
|
|
|
or Other
|
|
|
or Other
|
|
|
|
Option
|
|
|
Unexercised
|
|
|
Unexercised
|
|
|
Unexercised
|
|
|
Option
|
|
|
Option
|
|
|
Rights That
|
|
|
Rights That
|
|
|
|
Grant
|
|
|
Options (#)
|
|
|
Options (#)
|
|
|
Unearned
|
|
|
Exercise
|
|
|
Expiration
|
|
|
Have Not
|
|
|
Have Not
|
|
Name
|
|
Date
|
|
|
Exercisable
|
|
|
Exercisable
|
|
|
Options (#)
|
|
|
Price ($)
|
|
|
Date
|
|
|
Vested (#)(5)
|
|
|
Vested ($)(6)
|
|
|
|
|
|
9/17/2004
|
|
|
|
10,550
|
(1)
|
|
|
10,550
|
|
|
|
|
|
|
|
17.25
|
|
|
|
9/17/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
8/29/2005
|
|
|
|
5,775
|
(3)
|
|
|
17,325
|
|
|
|
|
|
|
|
12.57
|
|
|
|
8/29/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
8/15/2006
|
|
|
|
|
|
|
|
13,100
|
(3)
|
|
|
|
|
|
|
8.66
|
|
|
|
8/15/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
2/16/2007
|
|
|
|
|
|
|
|
|
|
|
|
17,300
|
|
|
|
|
|
|
|
|
|
|
|
4,478
|
|
|
|
49,795
|
|
James D. Gustafson
|
|
|
9/24/1997
|
|
|
|
14,600
|
(1)
|
|
|
|
|
|
|
|
|
|
|
14.38
|
|
|
|
9/24/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
9/14/1998
|
|
|
|
20,000
|
(1)
|
|
|
|
|
|
|
|
|
|
|
5.81
|
|
|
|
9/14/2008
|
|
|
|
|
|
|
|
|
|
|
|
|
8/12/1999
|
|
|
|
20,000
|
(1)
|
|
|
|
|
|
|
|
|
|
|
8.63
|
|
|
|
8/12/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
8/12/1999
|
|
|
|
10,000
|
(1)
|
|
|
|
|
|
|
|
|
|
|
8.63
|
|
|
|
8/12/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
8/7/2000
|
|
|
|
13,500
|
(1)
|
|
|
|
|
|
|
|
|
|
|
6.13
|
|
|
|
8/7/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
8/7/2000
|
|
|
|
16,500
|
(1)
|
|
|
|
|
|
|
|
|
|
|
6.13
|
|
|
|
8/7/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
1/2/2000
|
|
|
|
17,000
|
(1)
|
|
|
|
|
|
|
|
|
|
|
5.88
|
|
|
|
11/2/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
4/3/2001
|
|
|
|
35,000
|
(1)
|
|
|
|
|
|
|
|
|
|
|
3.94
|
|
|
|
4/3/2111
|
|
|
|
|
|
|
|
|
|
|
|
|
9/10/2002
|
|
|
|
21,700
|
(1)
|
|
|
|
|
|
|
|
|
|
|
12.10
|
|
|
|
9/10/1012
|
|
|
|
|
|
|
|
|
|
|
|
|
8/28/2003
|
|
|
|
4,875
|
(1)
|
|
|
14,625
|
|
|
|
|
|
|
|
18.69
|
|
|
|
8/28/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
9/17/2004
|
|
|
|
11,400
|
(1)
|
|
|
11,400
|
|
|
|
|
|
|
|
17.25
|
|
|
|
9/17/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
8/29/2005
|
|
|
|
5,775
|
(3)
|
|
|
17,325
|
|
|
|
|
|
|
|
12.57
|
|
|
|
8/29/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
8/15/2006
|
|
|
|
|
|
|
|
13,100
|
(3)
|
|
|
|
|
|
|
8.66
|
|
|
|
8/15/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
2/16/2007
|
|
|
|
|
|
|
|
|
|
|
|
17,300
|
|
|
|
|
|
|
|
|
|
|
|
4,478
|
|
|
|
49,795
|
|
Shawn F. McCarrey
|
|
|
12/1/1998
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
8.38
|
|
|
|
12/1/2008
|
|
|
|
|
|
|
|
|
|
|
|
|
8/12/1999
|
|
|
|
15,000
|
|
|
|
|
|
|
|
|
|
|
|
8.63
|
|
|
|
8/12/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
8/7/2000
|
|
|
|
15,000
|
|
|
|
|
|
|
|
|
|
|
|
6.13
|
|
|
|
8/7/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
9/6/2000
|
|
|
|
10,023
|
|
|
|
|
|
|
|
|
|
|
|
7.69
|
|
|
|
9/6/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
11/2/2000
|
|
|
|
8,500
|
|
|
|
|
|
|
|
|
|
|
|
5.88
|
|
|
|
11/2/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
4/3/2001
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
3.94
|
|
|
|
4/3/2111
|
|
|
|
|
|
|
|
|
|
|
|
|
9/10/2002
|
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
|
12.10
|
|
|
|
9/10/1012
|
|
|
|
|
|
|
|
|
|
|
|
|
8/28/2003
|
|
|
|
19,900
|
|
|
|
|
|
|
|
|
|
|
|
18.69
|
|
|
|
8/28/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
9/17/2004
|
|
|
|
10,600
|
|
|
|
10,600
|
|
|
|
|
|
|
|
17.25
|
|
|
|
9/17/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
8/29/2005
|
|
|
|
5,775
|
(3)
|
|
|
17,325
|
|
|
|
|
|
|
|
12.57
|
|
|
|
8/29/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
8/15/2006
|
|
|
|
|
|
|
|
13,100
|
(3)
|
|
|
|
|
|
|
8.66
|
|
|
|
8/15/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
2/16/2007
|
|
|
|
|
|
|
|
|
|
|
|
17,300
|
|
|
|
|
|
|
|
|
|
|
|
4,478
|
|
|
|
49,795
|
|
|
|
|
(1)
|
|
Stock Options vested 25% per year beginning one year following
the date of grant and expire after ten years.
|
|
(2)
|
|
Vested in full August 1, 2001.
|
|
(3)
|
|
Stock options vest 25% per year beginning one year following the
date of grant and expire after 5 years.
|
|
(4)
|
|
Vest 25% per year beginning July 31, 2005.
|
|
(5)
|
|
Represents the number of shares of restricted stock that would
be awarded following the end of the fiscal year if
100 percent of the target dollar amount is earned based on
corporate and individual performance against incentive plan
objectives, using the closing price of the stock on
July 31, 2007, for purposes of calculations.
|
|
(6)
|
|
Represents the dollar value of restricted stock that would be
awarded following the end of the fiscal year if corporate and
individual performance is assessed at 100 percent of Plan
objectives.
|
A-19
Option
Exercises and Stock Vested
The table below includes information related to stock options
exercised by each of the named executive officers and restricted
stock awards that vested during fiscal year 2007. The table also
includes the value realized for such stock options and
restricted stock. For stock options, the value realized on
exercise is equal to the difference between the fair market
price of the underlying shares at exercise and the exercise
price of the options. For stock awards, the value realized on
vesting is equal to the market price of the underlying shares at
vesting.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
|
|
Number of
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
Shares Acquired
|
|
|
Value Realized
|
|
|
Shares Acquired
|
|
|
Value Realized
|
|
Name
|
|
on Exercise
|
|
|
on Exercise
|
|
|
on Vesting
|
|
|
on Vesting
|
|
|
|
(#)
|
|
|
($)
|
|
|
(#)
|
|
|
($)
|
|
|
Robert G. Dutcher
|
|
|
|
|
|
|
|
|
|
|
7,770
|
|
|
|
99,223
|
|
Jules L. Fisher
|
|
|
|
|
|
|
|
|
|
|
3,600
|
|
|
|
45,972
|
|
Irving R. Colacci
|
|
|
10,000
|
|
|
|
91,500
|
|
|
|
3,600
|
|
|
|
45,972
|
|
James D. Gustafson
|
|
|
|
|
|
|
|
|
|
|
3,600
|
|
|
|
45,972
|
|
Shawn F. McCarrey
|
|
|
|
|
|
|
|
|
|
|
5,020
|
|
|
|
64,105
|
|
Nonqualified
Deferred Compensation
The table below includes information with respect to the
deferral of compensation on a basis that is not tax-qualified
for each of the named executive officers for fiscal year 2007. A
narrative description of the material factors necessary to
understand the information in the table is provided below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
|
|
|
|
Executive
|
|
|
Registrant
|
|
|
Aggregate
|
|
|
Aggregate
|
|
|
Balance at
|
|
|
|
Contributions
|
|
|
Contributions in
|
|
|
Earnings in
|
|
|
Withdrawals/
|
|
|
Last Fiscal
|
|
|
|
in Last Fiscal
|
|
|
Last Fiscal
|
|
|
Last Fiscal
|
|
|
Distributions
|
|
|
Year End
|
|
Name
|
|
Year ($)
|
|
|
Year ($)
|
|
|
Year ($)
|
|
|
($)
|
|
|
($)
|
|
|
Robert G. Dutcher
|
|
|
|
|
|
|
204,559
|
|
|
|
92,528
|
|
|
|
|
|
|
|
969,705
|
|
Jules L. Fisher
|
|
|
|
|
|
|
10,800
|
|
|
|
1,171
|
|
|
|
|
|
|
|
11,971
|
|
Irving R. Colacci
|
|
|
|
|
|
|
10,380
|
|
|
|
3,293
|
|
|
|
|
|
|
|
26,865
|
|
James D. Gustafson
|
|
|
|
|
|
|
10,320
|
|
|
|
1,409
|
|
|
|
|
|
|
|
24,802
|
|
Shawn F. McCarrey
|
|
|
|
|
|
|
11,100
|
|
|
|
2,310
|
|
|
|
|
|
|
|
26,349
|
|
As described in the section of this Information Statement
entitled, Compensation Discussion and Analysis, we
have established a deferred compensation plan for our chief
executive officer and a second plan for our other executive
officers. These plans are designed as retirement plans and the
participants make no individual contributions into their own
accounts. Amounts contributed by Possis are invested into
self-directed accounts that, for the named executive officers
other than our chief executive officer, mirror investment
options available under our 401(K) plan, and for our chief
executive officer into an investment vehicle chosen by an
investment committee established by the compensation committee
of the board of directors in consultation with Mr. Dutcher.
Participant account balances are fully vested and will be paid
to each executive officer over a ten-year period following
retirement.
Payments
Upon Termination or Change of Control
Under our Change in Control Termination Pay Plan (the
Plan) our executive officers and other employees
named in the plan are entitled to benefits in the event of a
change in control of the Company. For these purposes, a change
of control includes any change of control that would be required
to be reported under the federal proxy rules, and would include
the acquisition of more than two thirds of our outstanding
shares upon acceptance of tenders in the Offer pursuant to the
Merger Agreement. The Plan provides for both severance benefits
if the executive is terminated without cause or resigns for good
reason within 24 months after a change of control, and for
a transaction bonus payable upon consummation of a change of
control. The entitlement of the executive officers to severance
benefits under the plan has been altered under employment
agreements entered into by the Company and the
A-20
executive officers prior to the commencement of the Offer and
which will become effective upon acceptance of tenders of and
payment for the shares pursuant to the Offer as described below.
The Plan provides for severance payments that vary based on the
position of the executive and that are payable if (i) we
terminate the executives employment for a reason other
than for cause, or (ii) if the executive terminates his
employment for good reason, within 24 months after a change
in control. The payment is equal to the sum of
(x) 36 times for Mr. Dutcher, and 24 times for
Messrs. Colacci, Fisher, Gustafson, and McCarrey, the
executives highest monthly base salary during the six
months immediately before his termination, and (y) all
annual incentive payments that the executive would have received
for the year in which his termination occurs. In addition, we
are required under the plan to continue welfare benefits for a
period of time after termination equal to 36 months for
Mr. Dutcher, and 24 months for Messrs. Colacci,
Fisher, Gustafson, McCarrey, or if shorter, until the executive
obtains full-time employment providing similar benefits. If an
executive is terminated during the 24 months after a change
of control, the Plan also obligates us to provide group
outplacement counseling services having a value not exceeding
$20,000 for Mr. Dutcher, and $15,000 for
Messrs. Colacci, Fisher, Gustafson, and McCarrey.
Mr. Dutcher is also entitled to payments under a
Supplemental Executive Retirement Deferred Compensation
Agreement (the SERP Agreement) for an additional two
years after a change of control.
The Plan also provides for a cash payment to executive officers
upon a change in control, regardless of whether the
executives employment is terminated. We are obligated
under this provision to pay a cash bonus from a bonus pool when
the change of control occurs. The amount of the bonus pool is
based on the premium in value represented by the transaction
over the value of our shares prior to public announcement of the
transaction. The Plan provides that the value prior to
announcement is measured by the stock price averaged over the
thirty days prior to announcement of a change in control
agreement. If the premium is less than 11%, no bonus pool is
created. If the premium is
11-20%,
the
bonus pool is 2% of the transaction value. If the premium is
21-30%,
the
bonus pool is 2.5% of the transaction value. If the premium is
31-40%,
the
bonus pool is 3% of the transaction value. If the premium is
41-50%,
the
bonus pool is 3.5% of the transaction value. If the premium is
greater than 50%, the bonus pool is 4% of the transaction value.
The Plan provides that the participation in the bonus pool of
Mr. Dutcher is 30%, and of Messrs. Colacci, Fisher,
Gustafson, and McCarrey is 10%.
The average price during the thirty days prior to announcement
of execution of the Merger Agreement on February 11, 2008
was $14.13. The transaction price represents a premium of 36%
over such price and the bonus pool is therefore 3% of the
aggregate price to holders of shares, for a total pool of
approximately $10,871,160. Accordingly, we estimate that the
acceptance and payment for the Shares will result in Robert G.
Dutcher receiving a cash transaction bonus of approximately
$3,261,348. In addition, we estimate that each of Irving R.
Colacci, Jules L. Fisher, James D. Gustafson and Shawn F.
McCarrey will be paid a cash transaction bonus of approximately
$1,087,116.
Under the Plan, Robert G. Dutcher is also entitled to receive
gross-up
payments related to taxes imposed under Section 4999 of the
Internal Revenue Code of 1986, as amended, on any payments or
distributions.
At the request of Parent, but as approved by our Compensation
Committee, we entered into employment agreements with
Mr. Dutcher on February 11, 2008 and with
Messrs. Colacci, Fisher, Gustafson, and McCarrey on
February 19, 2008. These employment agreements are only
effective on and after the acceptance and payment for Shares in
the Offer pursuant to the Merger Agreement.
When effective, the employment agreement with Mr. Dutcher
requires us to pay (i) all of the sums due Mr. Dutcher
as a cash transaction bonus under the Plan, as detailed above,
(ii) an additional payment equal to the severance payments
under the plan that would be due Mr. Dutcher if his
employment had been terminated on the effective date of the
employment agreement, including all
gross-up
payments, and (iii) all contributions and annual payments
due under the SERP Agreement, as detailed above. The agreement
also provides for Mr. Dutchers continued employment
for a period of one year. We estimate that the aggregate cash
value of salary and bonus severance payments due to
Mr. Dutcher under the Plan, is approximately $1,694,096,
and the cash value of the payments under the SERP Agreement is
approximately $276,219. Further, the employment agreement
provides that we will continue the health and welfare benefits
afforded Mr. Dutcher at the effective date of the agreement
until the 60th month after the change of control, as
opposed to the 36 months of such benefits due
Mr. Dutcher under the Plan.
A-21
We estimate that the cash value of this benefit at approximately
$106,335. Based on preliminary calculations, we estimate the
amount of the
gross-up
payment that will be due Mr. Dutcher at approximately
$2,811,000.
During the one year term of his employment under the employment
agreement, Mr. Dutcher will serve as President of the
Company and will be paid a base salary equal to $390,000 per
year, plus a bonus based upon achievement of certain targets of
up to $260,000. Mr. Dutcher has also agreed to provide up
to one hundred hours per year of consulting services at a rate
of $250.00 per hour for a period of two years following the
termination of his employment under the employment agreement.
When effective, the employment agreements with Mr. Fisher
and Mr. Colacci, require us to pay (i) all of the sums
due Mr. Fisher and Mr. Colacci as a cash transaction
bonus under the Plan, and (ii) an additional payment equal
to the severance payments that would be due Mr. Fisher and
Mr. Colacci under that plan if their employment had been
terminated on the effective date of their employment agreements.
We estimate that the aggregate value of severance payments due
Mr. Fisher under the plan at approximately $664,254 and due
Mr. Colacci under the Plan at approximately $664,254.
During the six month term of their employment agreements,
Mr. Fisher will be paid a base salary equal to $200,000 per
year, plus a bonus based upon achievement of certain targets of
up to $65,500, and Mr. Colacci will be paid a base salary
equal to $190,000 per year, plus a bonus based upon achievement
of certain targets of up to $60,000. In addition,
Mr. Fisher and Mr. Colacci will receive the health and
welfare benefits, and other benefits (including automobile
allowance, health club membership allowance, tax preparation
allowance, and deferred compensation contribution) they received
prior to the effective date for the six month term of the
employment agreements, and continuing for two years after those
agreements terminate. We estimate the value of these benefits
during the two years after termination at $72,813 for
Mr. Fisher and $70,207 for Mr. Colacci.
Mr. Fisher and Mr. Colacci will also be entitled to
$15,000 of group outplacement counseling services after
termination of their employment agreements.
The employment agreements with Mr. Gustafson and
Mr. McCarrey provide for the continued employment of the
executives until the agreement is terminated. The agreements may
be terminated by us or the executive with 30 days written
notice. Under these employment agreements, we acknowledge that
Mr. Gustafson and Mr. McCarrey are entitled to the
cash transaction bonus under the Plan, at the effective date of
each employment agreement. Under the employment agreements, both
Mr. Gustafson, and Mr. McCarrey have waived any
severance payments due under the Plan as a result of termination
of employment. Instead, each employment agreement provides that
in the event the executives employment is terminated prior
to the second anniversary of the employment agreement without
cause (as defined in the employment agreement), the
executive shall be entitled to participate in our welfare
benefit plans and receive other equivalent benefits for a period
of 24 months following the termination and will be entitled
to a severance payment of $578,671 for Mr. Gustafson and
$675,860 for Mr. McCarrey. If the executive remains
employed after the second anniversary of the agreement, the
executive is entitled to a retention bonus of $100,000.
During the term of the agreements, Mr. Gustafson will be
paid an annual base salary equal to $189,600 per year, plus an
annual bonus based upon achievement of certain targets of up to
$133,000. Mr. McCarrey will be paid an annual base salary
equal to $204,000 per year, plus an annual bonus based upon
achievement of certain targets of up to $200,000. Because we
were exceeding bonus targets at the time of announcement of the
transaction and because our performance for the fiscal year
ending July 31, 2008 may be affected by the change in
control, the employment agreements for Mr. Gustafson and
Mr. McCarrey provide for full payment of the annual bonus
as of July 31, 2008, and a bonus of a pro rata amount
(five-twelfths) based upon achievement of new targets for the
balance of the current calendar year.
In addition to benefits under our Plan, all of the stock options
that are outstanding and all of the shares of restricted stock
that are outstanding become fully vested upon a change of
control.
The following table sets forth our current estimate of benefits
under these arrangements that will be due our named executive
officers and assumes that Mr. Dutchers employment
will terminate after the one-year term of his
A-22
employment agreement, and Mr. Fisher and
Mr. Colaccis employment will terminate after the
six-month term of their employment agreements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance Payment
|
|
|
Cash
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
Salary
|
|
|
Incentive
|
|
|
Transaction
|
|
|
Benefit(1)
|
|
|
Outplacement
|
|
|
Accelerated(2)
|
|
|
Tax
|
|
|
|
|
Name
|
|
Continuation
|
|
|
Bonus
|
|
|
Bonus
|
|
|
Continuation
|
|
|
Benefit
|
|
|
Vesting
|
|
|
Gross-Up
|
|
|
Total
|
|
|
Robert G. Dutcher
|
|
$
|
1,170,000
|
|
|
$
|
524,096
|
|
|
$
|
3,261,348
|
|
|
$
|
106,335
|
|
|
$
|
N/A
|
|
|
$
|
845,838
|
|
|
$
|
2,810,681
|
|
|
$
|
8,718,298
|
|
Irving R. Colacci
|
|
$
|
380,000
|
|
|
$
|
253,254
|
|
|
$
|
1,087,116
|
|
|
$
|
70,207
|
|
|
$
|
15,000
|
|
|
$
|
396,110
|
|
|
|
N/A
|
|
|
$
|
2,201,687
|
|
Jules L. Fisher
|
|
$
|
400,000
|
|
|
$
|
264,254
|
|
|
$
|
1,087,116
|
|
|
$
|
70,813
|
|
|
$
|
15,000
|
|
|
$
|
457,050
|
|
|
|
N/A
|
|
|
$
|
2,294,233
|
|
James D. Gustafston(3)
|
|
$
|
N/A
|
|
|
$
|
N/A
|
|
|
$
|
1,087,116
|
|
|
$
|
N/A
|
|
|
$
|
N/A
|
|
|
$
|
394,797
|
|
|
|
N/A
|
|
|
$
|
1,481,913
|
|
Shawn F. McCarrey(3)
|
|
$
|
N/A
|
|
|
$
|
N/A
|
|
|
$
|
1,087,116
|
|
|
$
|
N/A
|
|
|
$
|
N/A
|
|
|
$
|
390,729
|
|
|
|
N/A
|
|
|
$
|
1,477,845
|
|
|
|
|
(1)
|
|
Includes health and welfare insurance premiums, tax preparation
allowances, automobile allowances, for Mr. Colacci, and
Mr. Fisher, contributions under a nonqualified deferred
compensation plan, and health club dues.
|
|
(2)
|
|
Represents the number of shares of restricted stock that remain
unvested multiplied by $19.50 plus the difference between $19.50
and the exercise price of unvested options multiplied by the
number of shares subject to such unvested options.
|
|
(3)
|
|
Mr. Gustafson and Mr. McCarrey will be entitled to
severance payments, group outplacement counseling services and
benefit continuation only if their employment is terminated by
the Company without cause after the acceptance of shares in the
tender offer. If their employment continues for the two years
following the effective date of the employment agreements, Mr.
Gustafson and Mr. McCarrey each will also be entitled to a
$100,000 retention bonus.
|
Securities
Authorized for Issuance Under Equity Compensation
Plans
The following table provides information on equity compensation
plans under which equity securities of the Company are
authorized for issuance, as of July 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Number of securities remaining
|
|
|
|
securities to be
|
|
|
Weighted-average
|
|
|
available for future issuance under
|
|
|
|
issued upon exercise
|
|
|
exercise price of
|
|
|
equity compensation plans
|
|
|
|
of outstanding
|
|
|
outstanding
|
|
|
(excluding securities reflected in the
|
|
Plan category
|
|
options
|
|
|
options
|
|
|
second column)
|
|
|
Equity compensation plans approved by Security holders(1)
|
|
|
3,324,666
|
|
|
$
|
11.12
|
|
|
|
370,764
|
|
Equity compensation plans not approved by Security holders
|
|
|
None
|
|
|
|
N/A
|
|
|
|
None
|
|
Total
|
|
|
3,324,666
|
|
|
$
|
11.12
|
|
|
|
370,764
|
|
|
|
|
(1)
|
|
Includes our 1992 and 1999 Stock Compensation Plans.
|
AUDIT
COMMITTEE REPORT AND PAYMENT OF FEES TO ACCOUNTANTS
Payment
of Fees to Accountants
The following table presents fees billed for professional
services rendered for the audit of our annual financial
statements for fiscal years 2006 and 2007 and fees billed for
other services provided by the our independent auditors in each
of the last two fiscal years.
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2006
|
|
|
Fiscal Year 2007
|
|
|
Audit Fees(1)
|
|
$
|
273,703
|
|
|
$
|
367,304
|
|
Audit-Related Fees(2)
|
|
$
|
89,395
|
|
|
$
|
20,948
|
|
Tax Fees(3)
|
|
$
|
95,392
|
|
|
$
|
125,688
|
|
All Other Fees(4)
|
|
$
|
19,770
|
|
|
$
|
|
|
A-23
|
|
|
(1)
|
|
Audit Fees consisted of fees billed by Deloitte &
Touche LLP for services rendered in auditing our financial
statements for fiscal years 2006 and 2007, and reviewing the
financial statements included in our quarterly reports on
Form 10-Q
for fiscal years 2006 and 2007, and services related to
Sarbanes-Oxley 404 certification.
|
|
(2)
|
|
Audit-Related Fees consisted of fees for fiscal year 2005 and
2006 audits of our 401(k) Plan and fees related to special
projects in connection with business initiatives during fiscal
year 2006.
|
|
(3)
|
|
Tax Fees consisted of preparation of fiscal year 2005 and 2006
corporate income tax returns, and consultation on international
tax issues.
|
|
(4)
|
|
All Other Fees consists of analysis of our Change in Control
Termination Pay Plan.
|
Prior to engagement of our auditors to render audit or non-audit
services, the engagement is approved by our Audit Committee.
Our Audit Committee has determined that the provision of
non-audit services was compatible with maintaining the
independence of Deloitte & Touche LLP.
Report of
the Audit Committee of the Board of Directors
The Audit Committee is responsible for overseeing
managements financial reporting practices and internal
controls.
The Audit Committee operates under a written charter adopted by
the Board of Directors. All of the members of the Audit
Committee are independent for purposes of current Nasdaq listing
requirements.
The Audit Committee has reviewed and discussed the audited
financial statements of Possis for the fiscal year ended
July 31, 2007 with management. The Audit Committee has
discussed with Deloitte & Touche LLP, our independent
public accountants, the matters required to be discussed by
Statement on Auditing Standards No. 61 (Communication with
Audit Committees).
The Audit Committee has also received the written disclosures
and the letter from Deloitte & Touche LLP required by
Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committees), and the Audit Committee has
discussed the independence of Deloitte & Touche LLP
with that firm.
Based on the Audit Committees review and discussions
described above, the Audit Committee recommended to the Board of
Directors that the Companys audited financial statements
be included in the Possis Annual Report on
Form 10-K
for the fiscal year ended July 31, 2007 for filing with the
SEC.
Audit Committee of the Board of Directors
Whitney A. McFarlin, Chair
William C. Mattison, Jr.
Rodney A. Young
A-24
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
The Company compensates non-employee directors for their
services on our Board of Directors and its committees. Please
refer to the section above entitled Director
Compensation.
Mary Brainerd, a director of the Company, serves as President
and Chief Executive Officer of HealthPartners, Inc., a family of
non-profit Minnesota health care organizations. HealthPartners,
Inc. provides the health coverage of the Company.
SECTION 16(a)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934
requires our directors and executive officers and persons who
beneficially own more than 10% of our securities to file initial
reports of ownership of those securities on Form 3 and
reports of changes in ownership on Form 4 or Form 5
with the Securities and Exchange Commission. Specific due dates
for these reports have been established by the Securities and
Exchange Commission, and we are required to disclose in this
Information Statement any failure to timely file the required
reports by these dates. Based solely on our review of the copies
of these reports received by us and written representations from
our directors and executive officers, we believe that our
executive officers and directors complied with all
Section 16(a) filing requirements for the fiscal year ended
July 31, 2007.
A-25
Annex B
Opinion of Greene Holcomb & Fisher
February 10, 2008
The Board of Directors
Possis Medical, Inc.
9055 Evergreen Boulevard NW
Minneapolis, MN 55433
Ladies and Gentlemen:
We understand that Possis Medical, Inc. (Possis),
MEDRAD, Inc. (Parent) and a wholly owned subsidiary
of Parent (Purchaser), intend to enter into an
Agreement and Plan of Merger to be dated as of February 10,
2008 (the Agreement), pursuant to which
(i) Purchaser will commence a cash tender offer (the
Tender Offer) for all of the issued and outstanding
shares of Possis common stock, par value $0.40 per share (the
Possis Common Stock), for $19.50 per share, net to
the seller in cash (the Consideration) and
(ii) Purchaser will be merged with and into Possis in a
merger (the Merger and, together with the Tender
Offer, the Transaction) in which each share of
Possis Common Stock not acquired in the Tender Offer, subject to
certain customary exceptions, will be converted into the right
to receive the Consideration. We further understand that, in
connection with the Transaction, Parent and certain shareholders
of Possis (the Selected Shareholders) intend to
enter into tender and support agreements, to be dated as of the
date of the Agreement, pursuant to which the Selected
Shareholders will agree, among other things, to tender all
shares of Possis Common Stock held by such shareholders in the
Tender Offer. You have provided us with a copy of the Agreement
in substantially final form.
You have asked us to render our opinion as to whether the
Consideration is fair, from a financial point of view, to the
holders of Possis Common Stock, excluding Parent and its
affiliates.
In the course of performing our review and analyses for
rendering this opinion, we have:
|
|
|
|
|
reviewed a draft dated February 10, 2008 of the Agreement;
|
|
|
|
reviewed Possis audited financial statements on
Form 10-K
for the fiscal years ended July 31, 2005, 2006 and 2007;
Possis interim financial information on
Form 10-Q
for the three (3) months ended October 31, 2007; and
Possis preliminary results for the three (3) months
and six (6) months ended January 31, 2008;
|
|
|
|
reviewed Possis Proxy Statement dated November 6,
2007;
|
|
|
|
reviewed certain internal financial projections for Possis for
the years ending July 31, 2008 through July 31, 2012
(the Projections), all as prepared and provided to
us by Possis management;
|
|
|
|
performed discounted cash flow analyses based on the Projections;
|
|
|
|
met with certain members of Possis management to discuss
Possis business, operations, historical and projected
financial results and future prospects;
|
|
|
|
reviewed the historical prices, trading multiples and trading
volumes of the Possis Common Stock;
|
|
|
|
reviewed recent analyst reports regarding Possis and its
industry;
|
|
|
|
reviewed publicly available financial data, stock market
performance data and trading multiples of companies that we
deemed generally comparable to Possis; and
|
|
|
|
conducted such other studies, analyses, inquiries and
investigations as we deemed appropriate.
|
We have relied upon and assumed, without independent
verification, the accuracy and completeness of the financial and
other information provided to or discussed with us by Possis or
obtained by us from public sources, including, without
limitation, the Projections referred to above. With respect to
the Projections, we have relied on representations that they
have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the senior
management of Possis as to the expected future performance of
Possis. We have not
B-1
The Board of Directors
Possis Medical, Inc.
February 10, 2008
Page 2
assumed any responsibility for the independent verification of
any such information, including, without limitation, the
Projections, and we have further relied upon the assurances of
the senior management of Possis that they are unaware of any
facts that would make the information, including the
Projections, provided to us, incomplete or misleading. We have
assumed that there have been no material changes in the assets,
financial condition, results of operations, business or
prospects of Possis since the date of the last financial
statements made available to us. We have also assumed that
Possis is a not a party to any material pending transaction,
including external financing, recapitalizations, acquisitions or
merger discussions, other than the Transaction.
In arriving at our opinion, we have not performed or obtained
any independent appraisal of the assets or liabilities
(contingent or otherwise) of Possis, nor have we been furnished
with any such appraisals. In addition, we have undertaken no
independent analysis of any outstanding, pending or threatened
litigation, material claims, possible unasserted claims or other
contingent liabilities to which Possis or any of its affiliates
is a party or may be subject, or of any other governmental
investigation of any possible unasserted claims or other
contingent liabilities to which Possis or any of its affiliates
is a party or may be subject. At Possis direction and with
its consent, our opinion makes no assumption concerning, and
therefore does not consider, the potential effects of any such
litigation, claims, investigations or possible assertions of
claims, or the outcomes or damages arising out of any such
matters. During the course of our engagement, we were asked by
the Possis Board of Directors to solicit indications of interest
from various third parties regarding a transaction with Possis,
and we have considered the results of such solicitation in
rendering our opinion.
We have assumed that all the necessary governmental and
regulatory approvals and consents required for the Transaction
will be obtained and that the Transaction will be consummated in
a timely manner and in accordance with the terms of the
Agreement without any limitations, restrictions, conditions,
amendments or modifications, regulatory or otherwise, that
collectively would have a material adverse effect on Possis or
the contemplated benefits to Possis of the Transaction or will
otherwise change the amount of the Consideration. We do not
express any opinion as to the price or range of prices at which
the shares of Possis Common Stock may trade subsequent to the
announcement of the Transaction.
Greene, Holcomb & Fisher LLC (Greene
Holcomb & Fisher), as part of its investment
banking business, is engaged in the valuation of businesses and
their securities in connection with mergers and acquisitions,
private placements and valuations for corporate and other
purposes. We are currently acting as financial advisor to Possis
in connection with the Transaction, for which Possis will pay us
a fee for such services that is contingent upon the consummation
of the Tender Offer. For our services in rendering this opinion,
Possis will pay us a fee that is not contingent upon the
consummation of the Tender Offer. In addition, Possis has agreed
to reimburse us for certain expenses and to indemnify us against
certain liabilities arising out of our engagement. Greene
Holcomb & Fisher may seek to provide Possis and Parent
and their respective affiliates certain investment banking and
other services unrelated to the Transaction in the future.
This letter is furnished pursuant to our engagement letter dated
April 12, 2006, as amended, and has been approved by our
fairness opinion committee. It is understood that this letter is
intended for the benefit and use of the Board of Directors of
Possis and does not constitute a recommendation to the Board of
Directors of Possis as to how to vote in connection with its
consideration of the Agreement nor does this letter constitute a
recommendation to any holders of Possis Common Stock as to
whether to tender any shares of Possis Common Stock pursuant to
the Tender Offer or as to how to vote in connection with the
Merger. This letter does not address Possis underlying
business decision to pursue the Transaction, the relative merits
of the Transaction as compared to any alternative business
strategies that might exist for Possis or the effects of any
other transaction in which Possis might engage. This letter does
not express an opinion regarding the fairness of the amount or
nature of the compensation that is being paid in the Transaction
to any of Possis officers, directors or employees, or
class of such persons, relative to the compensation to the
public shareholders of Possis. Finally, we understand that
certain managers of Possis (the
B-2
Possis Managers) have negotiated separate bonus
agreements with the Parent pursuant to which they will receive a
cash bonus upon consummation of the Transaction. We express no
opinion or view as to the merits of such bonus agreements or as
to the fairness of such agreements to the Possis Managers or to
the other equity holders of Possis from a financial point of
view or otherwise.
This letter is not to be used for any other purpose, or be
reproduced, disseminated, quoted from or referred to at any
time, in whole or in part, without our prior written consent;
provided, however, that this letter may be included in its
entirety in any Tender Offer Solicitation/Recommendation
Statement on
Schedule 14D-9
or any proxy statement to be distributed to the holders of
Possis Common Stock in connection with the Merger.
Our opinion is subject to the assumptions and conditions
contained herein and is necessarily based on economic, market
and other conditions, and the information made available to us,
as of the date hereof. Events occurring after the date hereof
could materially affect the assumptions used in preparing, and
the conclusions reached in, this opinion. We assume no
responsibility for updating, revising or reaffirming our opinion
based on circumstances or events occurring after the date hereof.
Based on and subject to the foregoing, it is our opinion that,
as of the date hereof, the Consideration is fair, from a
financial point of view, to the holders of Possis Common Stock,
excluding Parent and its affiliates.
Sincerely,
/s/
GREENE
HOLCOMB & FISHER LLC
GREENE HOLCOMB & FISHER LLC
B-3
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