<PAGE>
As filed with the Securities and Exchange Commission on May 12, 2000
Registration No. 333-84089
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 6
TO
FORM S-1
REGISTRATION STATEMENT
under
The Securities Act of 1933
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VASCULAR SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
Minnesota 3841 41-1859679
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification Number)
incorporation or Classification Code
organization) Number)
2495 Xenium Lane North
Minneapolis, Minnesota 55441
(763) 656-4300
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Howard C. Root
Vascular Solutions, Inc.
2495 Xenium Lane North
Minneapolis, Minnesota 55441
(763) 656-4300
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copy to:
Timothy S. Hearn, Esq.
Dorsey & Whitney LLP
220 South Sixth Street
Minneapolis, Minnesota 55402-1498
(612) 340-2600
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
---------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box:[ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering:[ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earliest effective registration statement
for the same offering:[ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earliest effective registration statement
for the same offering:[ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box:[ ]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Maximum Aggregate Amount of
Title of Each Class of Offering Price Registration
Securities to be Registered (1) Fee (2)
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<S> <C> <C>
Common Stock, par value $.01 per share......... $51,750,000 $13,662
</TABLE>
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(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(o).
(2) A registration fee of $11,120 has previously been paid.
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED , 2000
PROSPECTUS
3,000,000 Shares
[Vascular Solutions Logo]
Common Stock
$ per share
--------
We are selling 3,000,000 shares of our common stock. We have granted the
underwriters a 30-day option to purchase up to an additional 450,000 shares to
cover over-allotments.
This is the initial public offering of our common stock. We currently expect
that the initial public offering price will be between $13.00 and $15.00 per
share. We have applied to have our common stock included for quotation on the
Nasdaq National Market under the symbol "VASC."
--------
Investing in our common stock involves certain risks. See "Risk Factors"
beginning on page 5.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined that
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
--------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public Offering Price $ $
Underwriting Discount $ $
Proceeds to Vascular Solutions (before expenses) $ $
</TABLE>
The underwriters expect to deliver the shares to purchasers on or about
, 2000.
--------
, 2000
<PAGE>
INSIDE FRONT COVER
[Duett sealing device logo]
- -- for a complete seal of the femoral artery puncture site and subcutaneous
tissue tract
[Drawing of a human lying down, with a puncture in the groin and showing
arteries running to the heart. Expanded insert shows the Duett sealing device
being deployed with the words "Duett Procoagulant" and "Duett Catheter".]
The Vascular Solutions Duett(TM) sealing device utilizes a dual approach.
The Duett balloon catheter provides a temporary seal on the inside of the
femoral artery, while the flowable, thrombin-based procoagulant is applied
directly to the outer surface of the artery to create a permanent seal.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 2
Risk Factors............................................................. 5
Information Regarding Forward-Looking Statements......................... 14
Use of Proceeds.......................................................... 15
Dividend Policy.......................................................... 15
Capitalization........................................................... 16
Dilution................................................................. 17
Selected Financial Data.................................................. 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 19
Business................................................................. 24
Management............................................................... 39
Certain Transactions..................................................... 48
Principal Shareholders................................................... 49
Description of Capital Stock............................................. 51
Shares Eligible for Future Sale.......................................... 54
Underwriting............................................................. 56
Legal Matters............................................................ 58
Experts.................................................................. 58
Where You Can Find More Information...................................... 59
Index to Financial Statements............................................ F-1
</TABLE>
Until , 2000, all dealers that buy, sell or trade our common stock,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
1
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
Because this is only a summary, it does not contain all of the information that
may be important to you. You should read the entire prospectus carefully. You
should consider the information under "Risk Factors" and in our financial
statements and the notes relating to these financial statements, together with
the information included elsewhere in this prospectus, before deciding to
invest in our common stock.
Our Business
We manufacture, market and sell the Vascular Solutions Duett sealing device,
which enables cardiologists and radiologists to rapidly seal the puncture site
following catheterization procedures such as angiography, angioplasty and
stenting. Our product combines a simple balloon catheter delivery mechanism
with a powerful, proprietary procoagulant, or blood clotting mixture. We
believe our product offers advantages over both manual compression and the
three existing FDA-approved devices used to seal the puncture site following
the catheterization procedure. We began selling our product in Europe in
February 1998. If we receive approval of our application we will commence
selling our Duett sealing device in the United States. Over 15,000 deployments
of our device have been performed worldwide.
We believe that we are well-positioned to capture a substantial share of the
vascular sealing device market as our Duett sealing device offers clinical,
patient comfort and economic benefits by:
. completely sealing the puncture site, even in patients receiving
powerful anti-clotting medications;
. leaving nothing behind in the artery that could cause an infection or
interfere with accessing the puncture site again, if that becomes
necessary;
. enabling a rapid deployment with an easy-to-use, one-size-fits-all
device; and
. providing improved patient comfort and increased provider efficiencies
by minimizing the amount of manual compression and the period of
immobile bed rest.
The primary factors underlying the market opportunity for vascular sealing
devices are that (1) there are a significant and growing number of
catheterization procedures being performed, and (2) the substantial majority of
the resulting puncture sites are still being sealed using manual compression.
In 1999, over seven million catheterization procedures were performed. This
number is expected to grow by more than 5% each year for the next three years
principally due to the increasing incidence of cardiovascular disease. Vascular
sealing devices were introduced in the United States in late 1995 and have been
adopted by physicians, as evidenced by the $160 million of these devices that
were sold worldwide in 1999. Nonetheless, over 85% of the arterial punctures
created in 1999 still were sealed using manual compression.
During 1999, we had net sales of $1,429,094 and a net loss of $7.9 million.
Because of our plans to invest heavily in sales and marketing, hire additional
employees and expand our commercialization, we expect to incur significant net
losses through at least December 31, 2000. Our success will depend on the
medical community's acceptance of our Duett sealing device.
2
<PAGE>
Principal Developments Since September 1999
Since September 1999, the following events have occurred:
. We have surpassed 15,000 cumulative deployments of our Duett sealing device
worldwide, and we have expanded our sales to Spain, Greece, Belgium and
Sweden.
. We have completed and reported on the first 400 deployments of our Duett
sealing device in the Continued Access Registry at five hospitals in the
United States. The reported results document equivalent times to hemostasis
and ambulation, and a lower rate of major complications, all as compared to
the results achieved with our Duett sealing device in our earlier multi-
center clinical study.
. On March 15, 2000, the United States District Court granted summary judgment
and dismissed all of the claims in the patent infringement lawsuit brought
against us by Datascope Corp. The grant of summary judgment allows Datascope
to recommence the litigation without prejudice if and when we receive FDA
approval of our Duett sealing device.
. During the quarter ended March 31, 2000, we achieved net sales of $642,545
with a net loss of $1,931,121. We have substantially increased our sales and
marketing expenses in 2000 as we hire and train our U.S. direct sales force
and continue to expand our international sales of the Duett sealing device.
. Gross profit as a percentage of net sales increased to 46% for the three
months ended March 31, 2000 from 10% for the three months ended March 31,
1999, resulting from the conversion to the Duett Model 2000 for
international sales and improved manufacturing processes.
The Offering
Common stock offered..........
3,000,000 shares
Common stock to be
outstanding after the
offering......................
12,042,868 shares. This number is based on
shares outstanding on March 31, 2000. It
excludes 943,551 shares of common stock
issuable upon exercise of options outstanding
under our stock option plan and 268,000 shares
of common stock issuable upon exercise of other
outstanding stock option and warrant
agreements.
Use of proceeds............... We intend to use the net proceeds of this
offering to hire, train and deploy a direct
United States sales force, for working capital
and for general corporate purposes. See "Use of
Proceeds."
Proposed Nasdaq National
Market symbol................
VASC
3
<PAGE>
Summary Financial Data
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months
Ended March 31
Year Ended December 31, ,
------------------------- ----------------
1997 1998 1999 1999 2000
------- ------- ------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales....................... $ -- $ 494 $ 1,429 $ 207 $ 643
Gross profit.................... -- 52 364 21 294
Operating expenses:
Research and development...... 766 2,348 3,068 713 692
Clinical and regulatory....... 259 1,376 1,324 580 190
Sales and marketing........... 273 1,075 2,301 350 901
General and administrative.... 426 668 1,904 195 564
Total operating expenses........ 1,724 5,467 8,597 1,838 2,347
Operating loss.................. (1,724) (5,415) (8,233) (1,817) (2,053)
Net loss........................ (1,652) (5,141) (7,862) (1,714) (1,931)
Basic and diluted net loss per
share.......................... $ (.62) $ (1.40) $ (1.95) $ (.46) $ (.37)
Shares used in basic and diluted
net loss per share............. 2,668 3,660 4,033 3,700 5,255
Pro forma basic and diluted net
loss per share................. $ (1.01) $ (.21)
Shares used in pro forma net
loss per share................. 7,810 9,032
</TABLE>
Pro forma basic and diluted net loss per share have been calculated assuming
the conversion of all outstanding shares of preferred stock into common stock.
<TABLE>
<CAPTION>
March 31, 2000
-------------------
Pro Forma
Actual As Adjusted
------- -----------
(unaudited)
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents................................. $ 8,065 $46,775
Working capital........................................... 8,519 47,229
Total assets.............................................. 10,380 49,090
Long-term debt............................................ -- --
Total shareholders' equity................................ 9,281 47,991
</TABLE>
The pro forma as adjusted balance sheet data as of March 31, 2000, reflects
the automatic conversion of all outstanding shares of preferred stock into
shares of common stock and our receipt and application of the estimated net
proceeds from the sale of 3,000,000 shares of common stock offered at an
assumed initial public offering price of $14.00 per share, after deducting the
underwriting discount and estimated offering expenses that we will pay.
------------
We were incorporated in Minnesota in December 1996 and commenced operations
in February 1997. Our facility is located at 2495 Xenium Lane, Minneapolis,
Minnesota 55441 and our telephone number is 763-656-4300.
Unless otherwise specifically stated, the information in this prospectus
does not take into account the possible sale of additional shares of common
stock to the underwriters pursuant to the underwriters' right to purchase
additional shares to cover over-allotments.
We have filed a trademark registration application for Vascular Solutions
Duett(TM). All other trademarks, service marks or trade names referred to in
this prospectus are the property of their respective owners.
4
<PAGE>
RISK FACTORS
You should carefully consider the risks described below before deciding to
purchase our common stock. The risks and uncertainties described below are not
the only ones facing our company. Additional risks and uncertainties not
presently known to us or that we currently deem immaterial may also impair our
business operations. If any of the following risks occur, our business,
financial condition or results of operations could be seriously harmed. In such
case, the trading price of our common stock could decline, and you could lose
all or part of your investment.
We will not be successful if we do not receive approval from the FDA to sell
our Duett sealing device in the United States
Before we are able to sell our Duett sealing device in the United States, we
must receive approval from the FDA of our premarket approval, or PMA,
application. We are unable to estimate when, if ever, we will receive approval
and be able to commence sales of the Duett sealing device in the United States.
Should we experience delays or be unable to receive approval from the FDA, our
business will be seriously harmed.
Because we only began product development in February 1997, we have a limited
operating history upon which to evaluate our potential for future success
We began product development in February 1997 and began to generate
international sales in February 1998. Accordingly, we have only three years of
operating history upon which you can evaluate our business and prospects. You
must consider the risks and uncertainties frequently encountered by early
stage, single-product medical device companies like ours in a new and evolving
market, such as the vascular sealing device market. If we are unsuccessful in
addressing these risks and uncertainties, our business will be seriously
harmed.
We have been named as the defendant in a patent infringement lawsuit and are
likely to face additional intellectual property infringement claims in the
future which could prevent us from manufacturing and selling our product or
result in our incurring substantial costs and liabilities
An adverse determination in any intellectual property litigation or
interference proceedings could prohibit us from selling our product, subject us
to significant liabilities to third parties or require us to seek licenses from
third parties. The costs associated with these license arrangements may be
substantial and could include ongoing royalties. Furthermore, the necessary
licenses may not be available to us on satisfactory terms, if at all. Adverse
determinations in a judicial or administrative proceeding or failure to obtain
necessary licenses could prevent us from manufacturing and selling our product.
On July 23, 1999, we were named as the defendant in a patent infringement
lawsuit brought by Datascope Corp. in the United States District Court for the
District of Minnesota. The complaint requested a judgment that our Duett
sealing device infringes and, following FDA approval, will infringe a United
States patent held by Datascope and asks for relief in the form of an
injunction that would prevent us from selling our product in the United States
as well as an award of attorneys' fees, costs and disbursements. On March 15,
2000, the court granted summary judgment dismissing all of Datascope's claims,
subject to the right of Datascope to recommence the litigation when we receive
FDA approval of our Duett sealing device. It is likely that this litigation
will be recommenced. It is
5
<PAGE>
not possible at this time to predict the outcome of the lawsuit if it is
recommenced, including whether we would be prohibited from selling our Duett
sealing device in the United States, or to estimate the amount or range of
potential loss, if any.
On September 22, 1999, we received a letter from the Daig division of St.
Jude Medical, Inc. claiming that the manufacture, use, marketing and sale of
our Duett sealing device infringes upon certain United States patents licensed
by Daig. The letter referenced a prior letter dated August 18, 1998 from us to
the prior licensee of those patents in which we made a proposal intended to
avoid the anticipated litigation over those patents. The proposed license was
rejected. It is likely that litigation will be commenced in the near future
concerning this claim. Daig could initiate a lawsuit requesting an injunction
that, if issued, would prohibit us from selling our product. Furthermore, Daig
could allege monetary damages that, if awarded, would significantly harm our
business. It is not possible to predict the timing, substance or outcome of any
lawsuit that may arise from these allegations, including whether we will be
prohibited from selling our Duett sealing device in the United States or
internationally, or to estimate the amount or range of potential loss, if any.
The interventional cardiology industry is characterized by numerous patent
filings and frequent and substantial intellectual property litigation.
Companies in the interventional cardiology industry in general, and in vascular
sealing in particular, have employed intellectual property litigation in an
attempt to gain a competitive advantage. We are aware of many United States
patents issued to other companies in the vascular sealing field which describe
vascular sealing devices. Each of the three vascular sealing products with
which our Duett sealing device competes has been subject to infringement
litigation. It is likely that we will become the subject of additional
intellectual property claims in the future related to our Duett sealing device.
Intellectual property litigation in recent years has proven to be very complex,
and the outcome of such litigation is difficult to predict.
Our defense of the Datascope claim, the Daig claim and any other
intellectual property claims filed in the future, regardless of the merits of
the complaint, could divert the attention of our technical and management
personnel away from the development and marketing of the Duett sealing device
for significant periods of time. The costs incurred to defend the Datascope
claim, the Daig claim and other future claims could be substantial and
seriously harm us, even if our defense is ultimately successful.
We will not be successful if the vascular sealing device market does not adopt
our new sealing methodology
We have sold only a limited number of our Duett sealing devices to date. We
have not commercialized our product in the United States, which we believe
represents the largest market for vascular sealing devices, because we do not
yet have approval from the FDA to do so. Our success will depend on the medical
community's acceptance of our Duett sealing device. We cannot predict how
quickly, if at all, the medical community will accept our Duett sealing device,
or, if accepted, the extent of its use. Our potential customers must:
. believe that our device offers benefits compared to the methodologies
and/or devices that they are currently using to seal vascular punctures;
. believe that our device is worth the price that they will be asked to
pay; and
. be willing to commit the time and resources required to change their
current methodology.
6
<PAGE>
If we encounter difficulties introducing our Duett sealing device into the
United States market or expanding our presence in markets outside the United
States, our business will be seriously harmed.
We currently rely on the Duett sealing device as our sole source of revenue
We have developed only one product which is being sold only in a limited
number of international markets and is awaiting FDA approval in the United
States. Even if we were to develop additional products, FDA approval would be
required in order to sell them in the United States. Preparation of the
requisite materials to seek FDA approval and the approval process itself
require a substantial amount of time and money. Therefore, we do not expect to
be in a position to sell additional products in the foreseeable future. As a
result, our success is solely dependent on the success of our Duett sealing
device. If our Duett sealing device is not successful, our business will be
seriously harmed.
We have incurred losses and we may not be profitable in the future
Since we commenced operations in February 1997, we have incurred net losses
from costs relating to the development and commercialization of our Duett
sealing device. At March 31, 2000, we had an accumulated deficit of $16.6
million. We expect to continue to significantly increase our sales and
marketing, research and development and general and administrative expenses. In
particular, we intend to hire, train and deploy a direct sales force to sell
our Duett sealing device in the United States. Because of our plans to invest
heavily in sales and marketing, hire additional employees and expand our
commercialization, we expect to incur significant net losses through at least
December 31, 2000. Our business strategies may not be successful and we may not
be profitable in any future period. If we do become profitable, we cannot be
certain that we can sustain or increase profitability on a quarterly or annual
basis.
Our future operating results are difficult to predict and may vary
significantly from quarter to quarter, which may adversely affect the price of
our common stock
The relatively recent international introduction of our Duett sealing device
and history of losses make prediction of future operating results difficult.
You should not rely on our past revenue growth as any indication of future
growth rates or operating results. The price of our common stock will likely
fall in the event that our operating results do not meet the expectations of
analysts and investors. Comparisons of our quarterly operating results are an
unreliable indication of our future performance because they are likely to vary
significantly based on many factors, including:
. when we receive FDA approval to sell our Duett sealing device;
. the timing of the introduction of our Duett sealing device into the
United States market;
. the effect of intellectual property disputes;
. the demand for and acceptance of our Duett sealing device;
. the success of our competition and the introduction of alternative means
for vascular sealing;
. our ability to command favorable pricing for our Duett sealing device;
. the growth of the market for vascular sealing devices;
7
<PAGE>
. the expansion and rate of success of our direct sales force in the
United States and our independent distributors internationally;
. actions relating to ongoing FDA compliance;
. the size and timing of orders from independent distributors or
customers;
. the attraction and retention of key personnel, particularly in sales and
marketing, regulatory, manufacturing and research and development;
. unanticipated delays or an inability to control costs with respect to
our Duett sealing device;
. our ability to introduce new products and enhancements in a timely
manner;
. general economic conditions as well as those specific to our customers
and markets; and
. seasonal fluctuations in revenue due to the elective nature of some
procedures.
Our direct sales efforts may not be successful because we have no operating
history with a direct sales force
Because we have not yet received regulatory approval to sell our Duett
sealing device in the United States, we have no operating history with a direct
sales force. We are in the process of hiring a direct sales force, including
clinical specialists to perform physician training, to commercialize our Duett
sealing device in the United States. We currently anticipate spending
approximately $18.5 million during the period from April 1, 2000 through
December 31, 2001 to hire, train and deploy our direct sales force. We believe
that our new salespeople and clinical specialists will require approximately
three months from their hiring date to become productive selling and training
physicians to use our Duett sealing device. Furthermore, we believe that there
is significant competition for direct sales personnel and clinical specialists
with the advanced sales skills and technical knowledge we require. We may not
be able to obtain, train and retain direct sales personnel and the future sales
efforts of our direct sales force may not be successful.
We may face product liability claims that could result in costly litigation and
significant liabilities
The manufacture and sale of medical products entail significant risk of
product liability claims. The medical device industry in general has been
subject to significant medical malpractice litigation. Any product liability
claims, with or without merit, could result in costly litigation, reduced
sales, cause us to incur significant liabilities and divert our management's
time, attention and resources. Because of our limited operating history and
lack of experience with these claims, we cannot be sure that our product
liability insurance coverage is adequate or that it will continue to be
available to us on acceptable terms, if at all.
The market for vascular sealing devices is highly competitive and will likely
become more competitive, and our competitors may be able to respond more
quickly to new or emerging technologies and changes in customer requirements
that may render our Duett sealing device obsolete
The existing market for vascular sealing devices is intensely competitive.
We expect competition to increase further as additional companies begin to
enter this market and/or modify their
8
<PAGE>
existing products to compete directly with ours. Our primary competitors are
Abbott Laboratories (through its subsidiary Perclose, Inc.), Datascope Corp.
and St. Jude Medical, Inc., which sells a product developed by Kensey Nash
Corporation. These companies have:
. FDA approval of their products;
. better name recognition;
. broader product lines;
. greater sales, marketing and distribution capabilities;
. significantly greater financial resources;
. larger research and development staffs and facilities; and
. existing relationships with some of our potential customers.
We may not be able to effectively compete with these companies. In addition,
broad product lines may allow our competitors to negotiate exclusive, long-term
supply contracts and offer comprehensive pricing for their products. Broader
product lines may also provide our competitors with a significant advantage in
marketing competing products to group purchasing organizations and other
managed care organizations that are increasingly seeking to reduce costs
through centralized purchasing. Greater financial resources and product
development capabilities may allow our competitors to respond more quickly to
new or emerging technologies and changes in customer requirements that may
render our Duett sealing device obsolete.
We currently depend solely on the marketing and sales efforts of a limited
number of independent distributors
Our Duett sealing device is sold internationally through independent
distributors in Germany, Norway, Italy, Austria, the United Kingdom, Denmark,
Switzerland, Finland, Sweden, Greece, Belgium, Spain, the Netherlands, Taiwan
and Hong Kong. Our international sales are largely dependent on the marketing
efforts of, and sales by, these distributors. Sales through distributors are
subject to several risks, including the risk of financial instability of
distributors and the risk that distributors will not effectively promote our
Duett sealing device. Loss or termination of these distribution relationships
could seriously harm our international sales efforts and could result in our
repurchasing unsold inventory from former distributors by virtue of local laws
applicable to distribution relationships, provisions of distribution agreements
or negotiated settlements entered into with our distributors. Sales to our
German, Norwegian and Italian distributors accounted for 29%, 20% and 12% of
net sales for the year ended December 31, 1999.
Our international sales are subject to a number of risks that could seriously
harm our ability to successfully commercialize our Duett sealing device in any
international market
Substantially all of our sales to date have been outside the United States,
and we anticipate that this will continue until our Duett sealing device is
approved for sale in the United States. Our international sales also are
subject to several risks, including:
. the impact of recessions in economies outside the United States;
. greater difficulty in collecting accounts receivable and longer
collection periods;
. unexpected changes in regulatory requirements, tariffs or other trade
barriers;
9
<PAGE>
. weaker intellectual property rights protection in some countries;
. potentially adverse tax consequences; and
. political and economic instability.
The occurrence of any of these events could seriously harm our future
international sales and our ability to successfully commercialize our Duett
sealing device or any future product in any international market.
We have limited manufacturing experience and may encounter difficulties in
expanding our manufacturing operations which could seriously harm our business
We have limited experience in manufacturing our Duett sealing device. We
currently manufacture the Duett sealing device in limited quantities for
international sales and clinical studies in the United States. We do not have
experience in manufacturing our Duett sealing device in substantial commercial
quantities. We believe our current facilities are adequate for our projected
production of our Duett sealing device for the next year, but future facility
requirements will depend on future sales of our product and when we receive FDA
approval to sell our product in the United States. We may encounter unforeseen
difficulties in expanding our production of our Duett sealing device and new
products, including problems involving production yields, quality control and
assurance, component supply and shortages of qualified personnel, compliance
with FDA regulations and requirements regarding good manufacturing practices,
and the need for further regulatory approval of new manufacturing processes.
Difficulties encountered by us in expanding our manufacturing capabilities
could seriously harm our business.
Our business and results of operations may be seriously harmed by changes in
third-party reimbursement policies
We could be seriously harmed by changes in reimbursement policies of
governmental or private healthcare payors, particularly to the extent any
changes affect reimbursement for catheterization procedures in which our Duett
sealing device is used. Failure by physicians, hospitals and other users of our
Duett sealing device to obtain sufficient reimbursement from healthcare payors
for procedures in which our Duett sealing device is used or adverse changes in
governmental and private third-party payors' policies toward reimbursement for
such procedures would seriously harm our business.
In the United States, healthcare providers, including hospitals and clinics
that purchase medical devices such as our Duett sealing device, generally rely
on third-party payors, principally federal Medicare, state Medicaid and private
health insurance plans, to reimburse all or part of the cost of catheterization
procedures. We anticipate that in a prospective payment system, such as the
system used by Medicare, and in many managed care systems used by private
healthcare payors, the cost of the Duett sealing device will be incorporated
into the overall cost of the procedure and that there will be no separate,
additional reimbursement for our product.
In international markets, acceptance of our Duett sealing device is
dependent in part upon the availability of reimbursement within prevailing
healthcare payment systems. However, we are unaware of any hospitals that
receive specific, cost-based, direct reimbursement for the use of our Duett
sealing device. Reimbursement and healthcare payment systems in international
markets vary significantly by country. Our failure to receive international
reimbursement approvals could have a negative impact on market acceptance of
our Duett sealing device in the markets in which these approvals are sought.
10
<PAGE>
Our Duett sealing device and our manufacturing activities are subject to
extensive governmental regulation that could delay or prevent us from
introducing our Duett sealing device in the United States or introducing new
and improved products
Our Duett sealing device and our manufacturing activities are subject to
extensive regulation by a number of governmental agencies, including the FDA
and comparable international agencies. We are required to:
. obtain the approval of the FDA and international agencies before we can
market and sell our Duett sealing device;
. satisfy these agencies' content requirements for all of our labeling,
sales and promotional materials; and
. undergo rigorous inspections by these agencies.
Compliance with the regulations of these agencies may delay or prevent us
from introducing our Duett sealing device in the United States or introducing
any new or improved products. Furthermore, we may be subject to sanctions,
including temporary or permanent suspension of operations, product recalls and
marketing restrictions if we fail to comply with the laws and regulations
pertaining to our business.
We are also required to demonstrate compliance with the FDA's quality system
regulations before we can receive FDA approval of our Duett sealing device. The
FDA enforces its quality system regulations through pre-approval and periodic
post-approval inspections. These regulations relate to product testing, vendor
qualification, design control and quality assurance, as well as the maintenance
of records and documentation. If we are unable to conform to these regulations,
we will be required to locate alternative manufacturers that do conform.
Identifying and qualifying alternative manufacturers may be a long and
difficult process and could seriously harm our business.
The FDA and international regulatory agencies may also limit the indications
for which our Duett sealing device is approved. Even if we receive approval of
our Duett sealing device, these regulatory agencies may restrict or withdraw
approval if additional information becomes available to support this action.
The loss of, or interruption of supply from, key vendors, including single
source suppliers, could limit our ability to manufacture our Duett sealing
device
We purchase components used in our Duett sealing device from various
suppliers and rely on single sources for the collagen and thrombin components
of our Duett sealing device procoagulant. There are currently no FDA-approved
alternative suppliers of thrombin and very few FDA-approved alternative
suppliers of collagen. Because it requires FDA approval, establishing
additional or replacement suppliers for thrombin would require a lead-time of
at least two years and would involve significant additional costs. Any supply
interruption from key vendors or failure by us to engage alternative vendors
may limit our ability to manufacture our Duett sealing device and could
therefore seriously harm our business.
Our failure to expand our management systems and controls to support
anticipated growth could seriously harm our business
Our operations are growing rapidly and we expect this expansion to continue
as we execute our business strategy. Our total number of employees grew from 48
on April 1, 1999 to 71 on April 1,
11
<PAGE>
2000. We anticipate further increases in the number of our employees.
Sustaining our growth has placed significant demands on management and our
administrative, operational, personnel and financial resources. Accordingly,
our future operating results will depend on the ability of our officers and
other key employees to continue to implement and improve our operational,
client support and financial control systems, and effectively expand, train and
manage our employee base. We may not be able to manage our growth successfully
and inability to sustain or manage our growth could seriously harm our
business.
We may be required to delay, reduce or eliminate some or all of our research
and development activities or sales and marketing efforts if we fail to obtain
additional funding that may be required to satisfy our future capital
expenditure needs
We plan to continue to spend substantial funds to expand our sales and
marketing activities, our research and development activities and our inventory
requirements. Our future liquidity and capital requirements will depend upon
numerous factors, including actions relating to regulatory matters, the costs
and timing of expansion of sales and marketing, manufacturing and research and
development activities, the extent to which our Duett sealing device gains
market acceptance and competitive developments. Any additional required
financing may not be available on satisfactory terms, if at all. If we are
unable to obtain financing, we may be required to delay, reduce or eliminate
some or all of our research and development activities or sales and marketing
efforts.
Concentration of ownership of our company may give some shareholders
substantial influence and may prevent or delay a change in control of our
company
We anticipate that our executive officers and directors, together with their
affiliates, will, in the aggregate, own approximately 5,758,565 shares, or
47.2%, of our outstanding common stock following the completion of this
offering. These shareholders may be able to exercise substantial influence over
all matters requiring shareholder approval, including the election of directors
and approval of significant corporate transactions. This concentration of
ownership may also have the effect of delaying or preventing a change in
control of our company.
Our articles of incorporation and Minnesota law may discourage an acquisition
of our company
Provisions of our articles of incorporation and Minnesota law could make it
more difficult for a third party to acquire us, even if doing so would be
beneficial to our shareholders.
Management could spend or invest the proceeds of this offering in ways with
which the shareholders may not agree, including the possible pursuit of other
market opportunities
Our management can spend or invest the proceeds from this offering in ways
with which the shareholders may not agree. The investment of these proceeds may
not yield a favorable return. Furthermore, because the market for vascular
sealing devices is new and emerging, we may in the future discover new
opportunities that are more attractive. As a result, we may commit resources to
these alternative market opportunities. This action may require us to limit or
abandon our current focus on developing, manufacturing and marketing our Duett
sealing device. If we change our product focus we may face risks that may be
different from the risks associated with the vascular sealing device market.
12
<PAGE>
The price of our common stock could be highly volatile due to a number of
factors
An active trading market for our common stock may not develop or be
sustained after completion of this offering. The initial public offering price
of our common stock may not be indicative of the prices that will prevail in
the public market after the offering, and the market price of our common stock
could fall below the initial public offering price.
The trading price of our common stock may fluctuate widely as a result of a
number of factors, including:
. delays in obtaining regulatory approvals, specifically the approval by
the FDA of the PMA application for our Duett sealing device;
. market perception and customer acceptance of vascular sealing devices;
. increased competition;
. litigation concerning intellectual property rights;
. the loss of significant orders;
. general conditions in the medical device industry; and
. changes in earnings estimates by analysts.
In addition, the stock market for medical device companies has experienced
extreme price and volume fluctuations, which have often been unrelated to the
operating performance of the companies experiencing these fluctuations.
Future sales of our common stock in the public market could cause our stock
price to fall
If our shareholders sell substantial amounts of our common stock in the
public market following this offering, the market price of our common stock
could fall. Upon completion of the offering, we will have 12,042,868
outstanding shares of common stock, assuming no exercise of outstanding options
or warrants after March 31, 2000. Other than the shares sold in this offering
which will be freely tradeable, 327,250 shares will become freely tradeable as
of the date of this prospectus, an additional 75,500 shares will be freely
tradeable 90 days after the date of this prospectus and the remaining shares
will become freely tradeable at varying dates beginning 180 days after the date
of this prospectus upon the expiration of lock-up agreements between our
existing shareholders and the underwriters.
If holders of our common stock that have registration rights require us to
register a large number of their shares for sale into the public market, the
market price of our common stock and our ability to raise needed capital could
be significantly harmed
One hundred eighty days after the date of this prospectus, the holders of
3,777,777 shares of our common stock, which represent 31% of our outstanding
common stock after this offering, and the holders of warrants to purchase
168,000 shares of our common stock will be entitled to have the resale of their
shares registered under the Securities Act of 1933. If these holders cause a
large number of shares to be registered and sold in the public market, such
sales could seriously harm the market price for our common stock. In addition,
if we include in a company-initiated registration shares held by these holders
pursuant to the exercise of their registration rights, such sales may have a
negative impact on our ability to raise needed capital.
13
<PAGE>
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that are based on our
current expectations, assumptions, estimates and projections about us and our
industry. When used in this prospectus, the words "expects," "anticipates,"
"estimates" and "intends" and similar expressions are intended to identify
forward-looking statements. These statements include, but are not limited to,
statements under the captions "Risk Factors," "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business" and elsewhere in this prospectus concerning, among other things:
. our future operating results;
. the comparative clinical performance of the Duett sealing device;
. the ability to obtain regulatory and reimbursement approvals for the
Duett sealing device;
. our ability to compete against existing and future competition;
. litigation or other unplanned future events;
. the future market for vascular sealing devices;
. our future capital expenditures and cash resources; and
. the use of the net proceeds from this offering.
These forward-looking statements are subject to risks and uncertainties that
could cause actual results to differ materially from those projected. The
cautionary statements made in this prospectus should be read as being
applicable to all related forward-looking statements wherever they appear in
this prospectus. We assume no obligation to update such forward-looking
statements publicly for any reason, or to update the reasons actual results
could differ materially from those anticipated in such forward-looking
statements, even if new information becomes available in the future.
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with different information. We are
not making an offer of these securities in any state where the offer is not
permitted. You should not assume that the information provided by this
prospectus is accurate as of any date other than the date on the front of this
prospectus.
14
<PAGE>
USE OF PROCEEDS
We estimate the net proceeds to us from the sale of the 3,000,000 shares of
our common stock offered pursuant to this offering to be approximately $38.7
million, or approximately $44.6 million if the underwriters' over-allotment
option is exercised in full, based on an assumed initial public offering price
of $14.00 per share less the underwriting discount and estimated offering
expenses we expect to pay.
We intend to use the net proceeds from this offering primarily for operating
expenses, including increased sales and marketing expenses associated with the
anticipated commercial launch of our Duett sealing device in the United States.
We currently anticipate spending approximately $18.5 million during the period
from April 1, 2000 through December 31, 2001 to hire, train and deploy a direct
sales force in the United States. Any remaining proceeds will be used for
working capital and other general corporate purposes. The amounts that we
actually spend for each of these purposes will vary significantly depending on
a number of factors, including the amount of cash we generate from operations
and the progress of our regulatory and sales and marketing efforts. As a
result, we will retain broad discretion in the allocation of the net proceeds
from this offering.
Pending these uses, we intend to invest the net proceeds from this offering
in short-term, investment-grade, interest-bearing securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock and
do not anticipate paying any cash dividends in the foreseeable future. We
currently intend to retain future earnings to fund the development and growth
of our business.
15
<PAGE>
CAPITALIZATION
The following table describes our capitalization as of March 31, 2000:
. on a pro forma basis to give effect to the automatic conversion of all
shares of preferred stock into an aggregate of 3,777,777 shares of
common stock upon the closing of this offering; and
. on a pro forma basis as adjusted to give effect to our receipt of the
estimated net proceeds from the sale of 3,000,000 shares of our common
stock offered by this prospectus at an assumed initial public offering
price of $14.00 per share less the underwriting discount and estimated
offering expenses we expect to pay.
You should read this information together with the section of this
prospectus titled "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our financial statements and the related notes
appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
March 31, 2000
-----------------------------
Pro Pro Forma
Actual Forma As Adjusted
------- ------- -----------
(in thousands)
<S> <C> <C> <C>
Long-term debt................................... $ -- $ -- $ --
Shareholders' equity:
Series A preferred stock, $.01 par value,
2,000,000 shares authorized, 2,000,000 shares
outstanding, actual; no shares outstanding,
pro forma and pro forma as adjusted........... 20 -- --
Series B preferred stock, $.01 par value,
1,777,777 shares authorized, 1,777,777 shares
outstanding, actual; no shares outstanding,
pro forma and pro forma as adjusted........... 18 -- --
Common stock, $.01 par value, 36,222,223 shares
authorized,
5,265,091 shares outstanding, actual;
40,000,000 shares authorized, 9,042,868 shares
outstanding, pro forma; 40,000,000 shares
authorized; 12,042,868 shares outstanding, pro
forma as adjusted............................. 53 91 121
Additional paid-in capital..................... 25,850 25,850 64,530
Deferred compensation.......................... (73) (73) (73)
Accumulated deficit............................ (16,587) (16,587) (16,587)
------- ------- -------
Total shareholders' equity................... 9,281 9,281 47,991
------- ------- -------
Total capitalization....................... $ 9,281 $ 9,281 $47,991
======= ======= =======
</TABLE>
The number of shares of common stock issued and outstanding, pro forma, as
adjusted, is based on shares outstanding on March 31, 2000. It excludes 943,551
shares of common stock issuable upon exercise of options outstanding under our
stock option plan and 268,000 shares of common stock issuable upon exercise of
other outstanding stock option and warrant agreements, each as of March 31,
2000.
16
<PAGE>
DILUTION
If you invest in our common stock, your interest will be diluted to the
extent of the difference between the public offering price per share of our
common stock and the pro forma as adjusted net tangible book value per share of
our common stock after this offering. Net tangible book value dilution per
share represents the difference between the amount per share paid by purchasers
of shares of common stock in this offering and the pro forma, adjusted net
tangible book value per share of common stock immediately after completion of
this offering.
Our pro forma, net tangible book value as of March 31, 2000, after giving
effect to the conversion of our outstanding preferred stock into common stock
in connection with this offering, was $9,281,589 or $1.03 per share of common
stock. Net tangible book value per share as of a specified date is equal to
total tangible assets less total liabilities, divided by the number of
outstanding shares of common stock at such date. After giving effect to our
sale of the 3,000,000 shares of common stock offered hereby at an assumed
initial public offering price of $14.00 per share and after deducting the
underwriting discount and estimated offering expenses we expect to pay, our pro
forma, adjusted net tangible book value as of March 31, 2000 would have been
$47,991,589 or $3.99 per share of common stock. This represents an immediate
increase in pro forma, adjusted net tangible book value to existing
shareholders of $2.96 per share and an immediate dilution to new investors of
$10.01 per share. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................. $14.00
Pro forma, net tangible book value per share at March 31,
2000.......................................................... $1.03
Increase attributable to this offering......................... 2.96
-----
Pro forma, adjusted net tangible book value per share after this
offering........................................................ 3.99
------
Net tangible book value dilution per share to investors in this
offering........................................................ $10.01
======
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 2000,
after giving effect to the conversion of all outstanding shares of our
preferred stock into shares of our common stock in connection with this
offering, the difference between the number of shares of common stock purchased
from us, the total consideration paid to us and the average price per share
paid by existing shareholders and new investors in this offering at an assumed
initial public offering price of $14.00 per share:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ ------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders...... 9,042,868 75.1% $25,416,665 37.7% $ 2.81
New investors.............. 3,000,000 24.9 42,000,000 62.3 14.00
---------- ----- ----------- -----
Total.................... 12,042,868 100.0% $67,416,665 100.0%
========== ===== =========== =====
</TABLE>
The tables and calculations above assume no exercise of the underwriters'
over-allotment option to purchase up to an additional 450,000 shares of common
stock. This information also assumes no exercise of options outstanding under
our stock option plan or other outstanding options or warrants to purchase
shares of our common stock. On March 31, 2000, there were options outstanding
to purchase 943,551 shares of common stock under our stock option plan and
268,000 shares of common stock issuable upon exercise of outstanding stock
option and warrant agreements. To the extent that any of these options or
warrants are exercised, there will be further dilution to new investors.
17
<PAGE>
SELECTED FINANCIAL DATA
The selected statement of operations data shown below for the years ended
December 31, 1997, 1998 and 1999 and the balance sheet data as of December 31,
1997, 1998 and 1999 are derived from our financial statements, which have been
audited by Ernst & Young LLP, independent auditors. The selected financial data
for the three months ended March 31, 1999 and 2000 and as of March 31, 2000 has
been derived from our unaudited financial statements which, in the opinion of
management, include all adjustments, consisting solely of normal recurring
adjustments, necessary for a fair presentation of the financial information
shown in these statements. The results for the three months ended March 31,
1999 and 2000 are not necessarily indicative of the results to be expected for
the full year or for any future period. When you read this selected financial
data, it is important that you also read the historical financial statements
and related notes included in this prospectus, as well as "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Historical results are not necessarily indicative of future results.
<TABLE>
<CAPTION>
Three Months
Year Ended December 31, Ended March 31,
------------------------- ----------------
1997 1998 1999 1999 2000
------- ------- ------- ------- -------
(in thousands, except per share
amounts)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales....................... $ -- $ 494 $1,429 $ 207 $ 643
Cost of goods sold.............. -- 442 1,065 186 349
------- ------- ------- ------- -------
Gross profit.................... -- 52 364 21 294
Operating expenses:
Research and development...... 766 2,348 3,068 713 692
Clinical and regulatory....... 259 1,376 1,324 580 190
Sales and marketing........... 273 1,075 2,301 350 901
General and administrative.... 426 668 1,904 195 564
------- ------- ------- ------- -------
Total operating expenses........ 1,724 5,467 8,597 1,838 2,347
------- ------- ------- ------- -------
Operating loss.................. (1,724) (5,415) (8,233) (1,817) (2,053)
Interest income................. 72 274 371 103 122
------- ------- ------- ------- -------
Net loss........................ $(1,652) $(5,141) $(7,862) $(1,714) $(1,931)
======= ======= ======= ======= =======
Basic and diluted net loss per
share.......................... $ (.62) $ (1.40) $ (1.95) $ (.46) $ (.37)
======= ======= ======= ======= =======
Shares used in basic and diluted
net loss per share............. 2,668 3,660 4,033 3,700 5,255
Pro forma basic and diluted net
loss per share................. $ (1.01) $ (.21)
======= =======
Shares used in pro forma net
loss per share................. 7,810 9,032
</TABLE>
<TABLE>
<CAPTION>
December 31,
--------------------- March 31,
1997 1998 1999 2000
------ ------ ------- ---------
(in thousands)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents..................... $7,299 $9,897 $10,529 $8,065
Working capital............................... 7,031 9,933 10,487 8,519
Total assets.................................. 7,559 11,007 12,295 10,380
Long-term debt................................ -- -- -- --
Total shareholders' equity.................... 7,216 10,546 11,172 9,281
</TABLE>
For information regarding the determination of the number of shares used in
computing pro forma basic and diluted net loss per share amounts, see Note 2 of
notes to the financial statements. Pro forma basic and diluted net loss per
share have been calculated assuming the conversion of all outstanding shares of
preferred stock into common stock.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with
"Selected Financial Data" and our financial statements and the related notes
included elsewhere in this prospectus. This discussion contains forward-looking
statements that involve risks and uncertainties. Our actual results may differ
significantly from those anticipated in these forward-looking statements as a
result of various factors, including, but not limited to, those described under
"Risk Factors" and elsewhere in this prospectus.
Overview
Since we commenced operations in February 1997, we have been engaged in the
design, development, clinical testing and, more recently, the manufacture and
sale in international markets of the Vascular Solutions Duett sealing device.
Our Duett sealing device is designed to seal the entire puncture site following
catheterization procedures such as angiography, angioplasty and stenting. We
have received regulatory approvals to market the Duett sealing device in
several international markets, principally in Europe.
We have a limited history of operations and have experienced significant
operating losses since inception. As of March 31, 2000, we had an accumulated
deficit of $16.6 million. We commenced international sales in February 1998. To
date, we have generated substantially all of our revenue from sales to
international distributors who resell the device to hospitals. We anticipate
that substantially all of our revenues will be derived from sales to our
independent international distributors until we receive approval to market our
Duett sealing device in the United States. Upon FDA approval, we plan to sell
our product in the United States with a direct sales force.
Although we have experienced revenue growth in recent periods, this growth
may not be sustainable and, therefore, these recent periods should not be
considered indicative of future performance. We may never achieve significant
revenues or profitability, or if we achieve significant revenues they may not
be sustained in future periods.
Results of Operations
Three months ended March 31, 2000 compared to three months ended March 31,
1999
Net sales increased 210% to $642,545 for the three months ended March 31,
2000 from $207,000 for the three months ended March 31, 1999. This increase in
net sales was the result of increased shipments of the Duett sealing device to
our distributors for sale in Europe. Sales to our German, Norwegian, Italian
and Austrian distributors accounted for approximately 26%, 26%, 18% and 10% of
net sales for the three months ended March 31, 2000.
Gross profit as a percentage of net sales increased to 46% for the three
months ended March 31, 2000 from 10% for the three months ended March 31, 1999.
This increase as a percentage of net sales resulted from a decrease in cost of
goods sold due to the conversion to the Duett Model 2000 for international
sales in the fourth quarter of 1999 and improved manufacturing processes. Cost
of goods sold consists primarily of direct material component costs, personnel
expenses and manufacturing equipment and overhead related to the production of
our Duett sealing device. The Duett Model 2000 incorporates minor modifications
to the procoagulant components and different vendors for certain components,
resulting in lower cost of goods compared to the original Duett
19
<PAGE>
Model 1000. We will not be able to sell the Duett Model 2000 in the United
States until we receive approval of a PMA supplement. We do not expect to
receive FDA approval of a PMA supplement for the Duett Model 2000 prior to
late-2001, at the earliest. We expect gross profit as a percentage of net sales
to continue to increase as we increase our manufacturing volume, improve our
manufacturing processes, and enter the United States market.
Research and development expenses decreased 3% to $691,723 for the three
months ended March 31, 2000 from $713,271 for the three months ended March 31,
1999. This slight decrease was attributable to the increased absorption of
additional capacity by manufacturing and the transition of the Duett Model 2000
to production. We expect our research and development expenses to increase
through the remainder of 2000 as we hire additional development personnel,
continue work on product improvements and explore new product opportunities.
Clinical and regulatory expenses decreased 67% to $189,904 for the three
months ended March 31, 2000 from $579,596 for the three months ended March 31,
1999. These expenses consist of payments to clinics for participation in
clinical studies, company personnel related to clinical study administration
and payments to regulatory agencies as part of the product approval process.
The decrease was primarily the result of the completion of our 695-patient
multi-center clinical study in 1999. During the three months ended March 31,
1999, payments related to this clinical study totaled $346,000. We expect our
clinical and regulatory expenses to continue to decrease during the remainder
of 2000 compared to 1999 as additional clinical studies are expected to be
smaller in scope than the multi-center clinical study.
Sales and marketing expenses increased 157% to $901,315 for the three months
ended March 31, 2000 from $350,065 for the three months ended March 31, 1999.
This increase was due primarily to additional personnel and travel for the
international distribution of our Duett sealing device. We currently anticipate
spending $18.5 million during the period from April 1, 2000 through December
31, 2001 to hire, train and deploy a direct sales force in the United States.
These increases will be principally related to hiring additional sales and
marketing personnel, expanding marketing efforts and training new physicians.
General and administrative expenses increased 189% to $563,572 for the three
months ended March 31, 2000 from $195,077 for the three months ended March 31,
1999. This increase was primarily attributable to a $235,900 increase in
litigation expenses and $124,900 increase in personnel costs. See Note 11 of
Notes to the Financial Statements. We anticipate that general and
administrative expenses will increase for the foreseeable future as we continue
to add personnel and infrastructure. It is also likely that we will continue to
incur litigation expenses related to patent infringement claims.
Interest income increased to $121,699 for the three months ended March 31,
2000 from $102,874 for the three months ended March 31, 1999 primarily as a
result of higher cash balances resulting from the exercise of an option and
warrant by an existing investor during the fourth quarter of 1999.
Year ended December 31, 1999 compared to year ended December 31, 1998
Net sales increased 189% to $1,429,094 for the year ended December 31, 1999
from $494,150 for the year ended December 31, 1998. This increase in net sales
was the result of increased shipments of our Duett sealing device to our
existing independent international distributors and
20
<PAGE>
shipments to new independent international distributors covering other
territories. International sales of our Duett sealing device commenced in
February 1998. Sales to our German, Norwegian and Italian distributors
accounted for approximately 29%, 20% and 12% of net sales for the year ended
December 31, 1999.
Gross profit as a percentage of net sales increased to 26% for the year
ended December 31, 1999 from 10% for the year ended December 31, 1998. This
increase as a percentage of net sales resulted from improvements in
manufacturing efficiencies and increases in the number of Duett sealing devices
manufactured.
Research and development expenses increased 31% to $3,067,897 for the year
ended December 31, 1999 from $2,348,281 in the year ended December 31, 1998.
This increase was attributable to a $301,100 increase for additional personnel
required for the continued development of the Duett sealing device, $240,000 of
materials associated with the development of our next generation sealing device
and $45,900 in prototyping costs.
Clinical and regulatory expenses decreased 4% to $1,323,972 for the year
ended December 31, 1999 from $1,375,595 for the year ended December 31, 1998.
The decrease was primarily the result of costs associated with the 695-patient
multi-center clinical study of our Duett sealing device which commenced in
August 1998 and was completed in March 1999. In addition to the payments to the
clinical centers for patient enrollment and data collection, we contracted with
a third party to perform data analysis and computation for the study. We also
contracted with a third party to perform a cost outcomes study of the patient
data from this multi-center study.
Sales and marketing expenses increased 114% to $2,301,603 for the year ended
December 31, 1999 from $1,075,250 for the year ended December 31, 1998. This
increase was due primarily to a $611,500 increase in personnel costs and
$277,800 associated with travel, marketing and physician training for the
international distribution of the Duett sealing device.
General and administrative expenses increased 185% to $1,903,946 for the
year ended December 31, 1999 from $667,522 in the year ended December 31, 1998.
This increase was primarily the result of $453,500 in initial public offering
costs that were expensed in the fourth quarter of 1999 due to the delay of the
offering and $422,500 in legal expenses in 1999 associated with intellectual
property claims.
Interest income increased to $371,066 for the year ended December 31, 1999
from $273,877 for the year ended December 31, 1998 primarily as a result of
higher cash balances resulting from our private equity financing completed in
the fourth quarter of 1998.
Year ended December 31, 1998 compared to the year ended December 31, 1997
Net sales of $494,150 in 1998 were the result of shipments to international
distributors, with 65% of the sales attributable to our German distributor and
16% of the sales attributable to our Austrian distributor. We commenced
international sales in February 1998 and, accordingly, had no revenues in 1997.
Gross profit as a percentage of net sales was 10% in 1998. Cost of goods
sold reflected the commencement of manufacturing and assembly operations as
well as manufacturing, engineering and support functions.
21
<PAGE>
Research and development expenses increased 206% to $2,348,281 in 1998 from
$766,176 in 1997. This increase was attributable to a $577,000 increase
associated with the hiring of additional personnel required to develop our
Duett sealing device, a $146,000 increase in legal costs related to patent
applications and approximately $425,000 of materials associated with the
development of our Duett sealing device.
Clinical and regulatory expenses increased 430% to $1,375,595 in 1998 from
$259,503 in 1997. The increase was primarily the result of costs associated
with our clinical studies that commenced in January 1998.
Sales and marketing expenses increased 294% to $1,075,250 in 1998 from
$273,089 in 1997. The increase was due primarily to the international
commercial launch of our Duett sealing device in February 1998, resulting in
increases in costs associated with travel, marketing and physician training.
General and administrative expenses increased 57% to $667,522 in 1998 from
$425,596 in 1997. The increase was primarily the result of additional
administrative personnel and facilities costs.
Interest income increased to $273,877 in 1998 from $72,546 in 1997 primarily
as a result of higher cash balances resulting from our December 1997 private
equity financings.
Income Taxes
We have not generated any pre-tax income to date and therefore have not paid
any federal income taxes since inception in December 1996. No provision or
benefit for federal and state income taxes has been recorded for net operating
losses incurred in any period since our inception.
As of March 31, 2000, we had $14,585,000 of federal net operating loss
carryforwards available to offset future taxable income which begin to expire
in the year 2013. As of March 31, 2000, we also had federal and state research
and development tax credit carryforwards of $339,000 which begin to expire in
the year 2013. Under the Tax Reform Act of 1986, the amounts of and benefits
from net operating loss carryforwards may be impaired or limited in certain
circumstances, including significant changes in ownership interests. Future use
of our existing net operating loss carryforwards may be restricted due to
changes in ownership or from future tax legislation.
We have established a valuation allowance against the entire amount of our
deferred tax asset because we have not been able to conclude that it is more
likely than not that we will be able to realize the deferred tax asset, due
primarily to our history of operating losses.
Liquidity and Capital Resources
We have financed all of our operations since inception through the issuance
of equity securities. Through March 31, 2000, we have sold common stock and
preferred stock generating aggregate net proceeds of $25.4 million. At March
31, 2000, we had $8.1 million in cash and cash equivalents on-hand. During the
three-month period ended March 31, 2000, we used $2.3 million of cash and cash
equivalents in operating activities. The cash used in operating activities was
primarily used to fund our net loss for the period of $1.9 million and
increases in accounts receivable and inventories to support our increased
operations and a decrease in accounts payable as a result of the timing of
certain vendor payments. For the year ended December 31, 1999, we used $7.2
million of cash in
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operating activities. This was primarily used to fund our net loss for the
period of $7.9 million and increases in accounts receivable and inventories.
Cash used in operating activities was partially offset by an increase of
$746,000 in accounts payable. Cash used in operating activities for the year
ended December 31, 1998 was $5.2 million. This was primarily used to fund our
net loss for the year of $5.1 million and increases in accounts receivable and
inventories. Our other use of cash in each of these periods was investing
activities to acquire manufacturing and office equipment. Our equipment
acquisitions totaled $159,000 during the three-month period ended March 31,
2000, $316,000 for the year ended December 31, 1999 and $582,000 for the year
ended December 31, 1998.
We do not have any significant cash commitments related to supply
agreements, nor do we have any commitments for capital expenditures.
We currently anticipate that we will continue to experience significant
growth in our expenses for the foreseeable future and our expenses will be a
material use of our cash resources. We anticipate that our operating losses
will continue through at least December 31, 2000, because we plan to spend
substantial amounts hiring and training a direct United States sales force,
funding sales and marketing activities and creating and expanding research and
development initiatives. We believe that current cash balances along with cash
generated from the future sales of products and the proceeds of this offering
will be sufficient to meet our operating and capital requirements for at least
the next 12 months. Our liquidity and capital requirements beyond the next 12
months will depend on numerous factors, including progress on the FDA approval
process of our PMA application, the extent to which our Duett sealing device
gains market acceptance and competitive developments.
If cash generated from operations is insufficient to satisfy our cash needs,
we may be required to raise additional funds. We currently have no commitments
for additional funding and so our ability to meet our long-term liquidity needs
is uncertain. If we raise additional funds through the issuance of equity
securities, our shareholders may experience significant dilution. Furthermore,
additional financing may not be available when needed or, if available,
financing may not be on terms favorable to us or our shareholders. If financing
is not available when required or is not available on acceptable terms, we may
be unable to develop or market our products or take advantage of business
opportunities or respond to competitive pressures.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No.133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
changes the previous accounting definition of derivative which focused on
freestanding contracts, including, for example, options and forwards, and
futures and swaps, expanding it to include embedded derivatives and many
commodity contracts. Under the statement, every derivative is recorded in the
balance sheet as either an asset or liability measured at its fair value. The
statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. SFAS
133 is effective for fiscal years beginning after June 15, 1999. We do not
anticipate that the adoption of SFAS 133 will have a material impact on our
financial position or results of operations. We do not currently hold
derivative instruments or engage in hedging activities.
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BUSINESS
Overview
We are a medical device company. We manufacture, market and sell the
Vascular Solutions Duett sealing device, which enables cardiologists and
radiologists to rapidly seal the entire puncture site following catheterization
procedures such as angiography, angioplasty and stenting. A catheterization
procedure involves the insertion of a catheter through a patient's skin and
into an artery to perform minimally invasive medical procedures. In order to
gain access to an artery for a catheter, the artery must first be punctured. At
the end of the procedure, the puncture must be sealed in order to prevent
bleeding. Traditionally, manual compression has been used to seal the puncture
site. Increasingly, vascular sealing devices are used, with three companies
currently selling FDA-approved devices.
Our Duett sealing device combines an easy-to-use balloon catheter delivery
mechanism with a biological procoagulant mixture, which we believe offers
advantages over both manual compression and the existing FDA-approved vascular
sealing devices. We began selling our product in Europe in February 1998. When
we receive approval of our application we will commence selling our Duett
sealing device in the United States. Over 15,000 Duett sealing devices have
been sold and deployed worldwide. While the vascular sealing device market has
developed quickly, it represents less than 15% of the more than $1 billion
potential annual market, based on the current number of catheterization
procedures performed.
We believe that we are well-positioned to capture a substantial share of the
vascular sealing device market opportunity as our Duett sealing device offers
the following benefits:
Clinical Benefits
. complete closure of the entire puncture site, consisting of the arterial
puncture and the tissue tract--the tissue between the skin surface and
the artery;
. effective in patients receiving anti-clotting medications, such as
ReoPro(R), which are increasingly used in therapeutic catheterization
procedures, through the use of thrombin in our biological procoagulant;
. nothing is left behind in the artery to cause an infection or to
interfere with accessing the site again, if that becomes necessary;
. rapid deployment of an easy-to-use, one-size-fits-all device through the
existing introducer sheath;
Patient Comfort Benefits
. the pain associated with the use of manual compression on the puncture
site is minimized;
. patients are ambulated earlier, thereby minimizing the pain associated
with immobile bed rest;
Economic Benefits
. the scheduling of patients and utilization of the catheterization
laboratory can be more efficient due to reduced recovery time and care;
and
. recovery beds and staff can be better utilized through early ambulation
of patients.
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Industry Background
Over 60 million Americans have one or more types of cardiovascular
disease--diseases of the heart and blood vessels. Cardiovascular disease is
the number one cause of death in the United States and is replacing infectious
disease as the world's pre-eminent health risk. Advances in medicine have
enabled physicians to perform an increasing number of diagnostic and
therapeutic treatments of cardiovascular disease using minimally invasive
methods, such as catheters placed inside the arteries, instead of highly
invasive open surgery. Cardiologists and radiologists use diagnostic
procedures, such as angiography, to confirm, and interventional procedures,
such as angioplasty and stenting, to treat, diseases of the coronary and
peripheral arteries. Based on industry statistics, we estimate that
cardiologists and radiologists performed over seven million diagnostic and
interventional catheterization procedures worldwide in 1999. The number of
catheterization procedures performed is expected to grow by more than 5% each
year for the next three years as the incidence of cardiovascular disease
continues to increase.
Each procedure using a catheter requires a puncture in an artery, usually
the femoral artery in the groin area, of the patient to gain access for the
catheter, which is deployed through an introducer sheath. Upon removal of the
catheter, the physician must seal this puncture in the artery and the tissue
tract that leads from the skin surface to the artery to stop bleeding. The
traditional method for sealing the puncture site has been a manual process
whereby a healthcare professional applies direct pressure to the puncture
site, sometimes using a sand bag or a large C-clamp, for 20 minutes to an hour
in order to form a blood clot. The healthcare professional then monitors the
patient, who must remain immobile in order to prevent dislodging of the clot,
for an additional four to 48 hours.
Patients subjected to manual compression generally experience significant
pain and discomfort during compression of the puncture site and during the
period in which they are required to be immobile. Many patients report that
this pain is the most uncomfortable aspect of the catheterization procedure.
In addition, patients usually develop a substantial coagulated mass of blood,
or hemotoma, around the puncture site, limiting patient mobility for up to six
weeks following the procedure. Finally, the need for healthcare personnel to
provide compression and the use of hospital beds during the recovery period
results in substantial costs to the institution which, under virtually all
current healthcare payment systems, are not separately reimbursed.
In addition to this discomfort and cost, manual compression can result in
major complications at the puncture site. These major complications can
include a pseudo-aneurysm, or the continuation of blood flow from the artery
into the coagulated blood mass at the puncture site, collapse of the femoral
artery or femoral nerve damage from the extended compression. Additional
procedures may be required to correct these major complications.
The increasing use of medications to prevent blood clot formation during
interventional catheterization procedures has increased the difficulty in
sealing the puncture site using manual compression. During and following the
catheterization procedure, physicians are concerned with the formation of
blood clots in the coronary or peripheral arteries. To prevent clots from
forming, the physician typically administers heparin, an anticoagulant, during
the interventional catheterization procedure. More recently, drugs which
prevent blood clotting by inhibiting platelet aggregation, such as ReoPro(R),
are also being used in interventional catheterization procedures. Because
these platelet inhibitor drugs limit the ability of blood to clot, they also
increase the difficulty of sealing the puncture site using manual compression
and the natural clotting process following the catheterization procedure.
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<PAGE>
Until 1996, manual compression was used following virtually all
catheterization procedures. In late 1995, the first vascular sealing device
which did not rely on compression was introduced in the United States. Three
devices have received FDA approval and are currently being marketed around the
world.
. One device places a dry collagen plug in the tissue tract adjacent to
the puncture in the artery. The plug seals the tissue tract, however,
the clotting effect of collagen at the puncture in the artery is
limited, particularly if anticoagulants or platelet inhibitors are
present in the bloodstream. As a result, manual pressure may be required
for an additional period of time in order to achieve closure of the
puncture in the artery.
. The second device inserts a collagen plug into the tissue tract
connected by a suture to a biodegradable anchor which is inserted into
the artery. This device is held in place for approximately 20 minutes to
seal the puncture in the artery. The presence of the anchor prohibits
reaccess to the puncture site for up to 90 days. The reliance on
collagen as the clotting agent limits the effectiveness of this device
in patients being treated with anticoagulants or platelet inhibitors.
. The third device is a mechanical device that employs remotely controlled
needles to suture the puncture in the artery but leaves the tissue tract
unsealed. The non-absorbable suture permanently remains at the arterial
puncture. This device is more complicated to learn and use than the
collagen-based devices.
In aggregate, $160 million of these three FDA-approved devices were sold
worldwide in 1999 compared to less than $20 million in 1996. Based on the
number of catheterization procedures performed annually by cardiologists and
radiologists, industry sources report that the total market opportunity for
vascular sealing devices is more than $1 billion. Accordingly, the market
opportunity for vascular sealing devices is less than 15% penetrated.
The Vascular Solutions Duett Sealing Device
We believe our product (1) offers a complete seal of the puncture site with
nothing left behind in the artery, (2) is an easy-to-use system and (3)
minimizes patient discomfort and permits early ambulation. Our product uses a
balloon catheter, a device already familiar to cardiologists and radiologists,
which is inserted through the introducer sheath that is already in the patient.
The inflated balloon serves as a temporary mechanical seal, preventing the flow
of blood from the artery. Our biological procoagulant, which is a proprietary
mixture of collagen, thrombin and diluent, is then delivered to the puncture
site, stimulating rapid clotting and creating a complete seal of both the
arterial puncture and the tissue tract from the artery to the skin surface. The
blood-clotting speed and strength of thrombin enable the use of the Duett
sealing device even in the presence of powerful anti-clotting medications, such
as ReoPro(R), increasingly used in interventional catheterization procedures.
With our Duett sealing device, nothing is left behind in the artery, so
immediate reaccess of the site, if necessary, is possible, and the potential
for infection is minimized.
Business Strategy
Our primary objective is to establish our Duett sealing device as the
leading product in the rapidly growing vascular sealing device market. The key
steps in achieving our primary objective are the following:
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<PAGE>
. Hire, Train and Deploy a Direct Sales Force in the United States. Upon
FDA approval of our PMA application, we intend to sell our Duett sealing
device in the United States through a direct sales force that will
include clinical specialists who will train interventional
cardiologists, radiologists and catheterization laboratory
administrators on the use of our product. We believe that effective
training is a key factor in promoting use of our Duett sealing device.
We have created and will continue to work to improve an in-the-field
training and certification program for the use of our Duett sealing
device. We have begun recruiting our sales force and anticipate that our
initial direct sales force will be substantially in place by July 2000.
We currently anticipate spending approximately $18.5 million during the
period from April 1, 2000 through December 31, 2001 to hire, train and
deploy our direct sales force.
. Promote the Duett Sealing Device's Benefits Compared to Manual
Compression and Other Devices. We believe that the primary benefits of
the Duett sealing device are improved patient outcomes and provider
efficiencies. We intend to use our existing and growing body of clinical
results to initiate use of our Duett sealing device by physicians
currently using manual compression and to convert physicians from other
vascular sealing devices to our product. Through our marketing staff, we
plan on building market awareness of our Duett sealing device using a
wide range of programs, materials and events, including conference and
trade show appearances and the dissemination of sales literature and
promotional materials.
. Capitalize on the Large and Growing Vascular Sealing Market. While the
market for vascular sealing devices has developed quickly, it represents
less than 15% of the more than $1 billion potential annual market, based
on the current number of catheterization procedures performed. The
primary factors underlying the market opportunity for vascular sealing
devices are the significant and growing number of catheterization
procedures being performed and the substantial majority of the resulting
puncture sites still being sealed through manual compression. The growth
in catheterization procedures by cardiologists and radiologists reflects
an increasing incidence of cardiovascular disease and the growing number
of catheterization laboratories worldwide. In 1999, over seven million
catheterization procedures were performed. This number is expected to
increase by more than 5% each year for the next three years. Although
the market for vascular sealing devices has grown rapidly, over 85% of
the arterial punctures in 1999 were sealed using manual compression. We
believe that our device offers benefits that position it well to capture
a significant share of the market for vascular sealing devices.
. Develop Duett Sealing Product Line Extensions and Explore New Product
Opportunities. In addition to developing next generation versions of our
Duett sealing device, we are evaluating enhancements that will allow our
product to be used in interventional procedures that result in larger
arterial punctures that are greater than nine French or three
millimeters in diameter. Furthermore, we intend to leverage our
knowledge and experience in the vascular sealing market into other
interventional cardiology and radiology products.
Clinical Results
To date, over 15,000 deployments of our Duett sealing device have been
performed worldwide. A total of 27 scientific publications and presentations
have been made on our Duett sealing device at interventional cardiology and
radiology meetings, reporting the results of over 2,500 deployments.
Six separate clinical studies of our Duett sealing device have been
performed to date, each of which produced very favorable clinical results.
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<PAGE>
Duett Sealing Device Clinical Studies
<TABLE>
<CAPTION>
Study Time Frame Patients Enrolled Number of Centers
----- ---------- ----------------- -----------------
<S> <C> <C> <C>
European
Feasibility July 1997 24 1
European
Multi-Center October 1997-- January 1998 48 2
U.S.
Feasibility January 1998--March 1998 43 2
European
Registry June 1998--January 1999 1,587 25
SEAL Multi-
Center August 1998--March 1999 695 15
Continued
Access
Registry July 1999--March 2000 457 5
</TABLE>
The Simple and Effective Arterial cLosure ("SEAL") clinical study was a
randomized, controlled study to support our PMA application with the FDA. In
the SEAL study, the Duett sealing device demonstrated, as compared to manual
compression, the three primary endpoints of (1) reduced time to the cessation
of bleeding, (2) reduced time to ambulation of the patient and (3) no
statistically significant increase in major complications.
Sales, Marketing and Distribution
Our initial sales and marketing strategy has been to sell to interventional
cardiologists and radiologists through established independent distributors in
major international markets, subject to required regulatory approvals. Our
Duett sealing device is currently marketed through independent distributors in
Germany, Norway, Italy, Austria, the United Kingdom, Denmark, Switzerland,
Finland, Sweden, Greece, Belgium, Spain, the Netherlands, Taiwan and Hong Kong.
We intend to add independent distributors in other countries as our sales and
marketing efforts are expanded. Under multi-year written distribution
agreements with each of our independent distributors, we ship our Duett sealing
device to these distributors upon receipt of purchase orders. Each of our
independent distributors has the exclusive right to sell our Duett sealing
device within a defined territory. These distributors also market other medical
products, although they have agreed not to sell other vascular sealing devices.
Our independent distributors purchase our Duett sealing device from us at a
discount from list price and resell the device to hospitals and clinics. Sales
to international distributors are denominated in United States dollars. The
end-user price is determined by the distributor and varies from country to
country.
Substantially all of our revenues through March 31, 2000 were derived from
sales to international distributors, primarily in Europe, none of which is
affiliated with us. Sales in Europe constituted 90% and 97% of our net sales
for the year ended December 31, 1999 and the three months ended March 31, 2000.
Sales to Cardiologic G.m.b.H., our German distributor, accounted for 29% of our
net sales for the year ended December 31, 1999. Sales to MicroMed A.S., our
Norwegian distributor, accounted for 20% of net sales and sales to N.G.C.
Medical S.p.A., our Italian distributor, accounted for 12% for the same period.
Sales to our German, Norwegian, Italian and Austrian distributors accounted for
approximately 26%, 26%, 18% and 10% of net sales for the three months ended
March 31, 2000. Our Austrian distributor is EuroMed.
As of March 31, 2000, our sales and marketing staff consisted of 24 people.
Upon receiving FDA approval of our PMA application, we plan to market our Duett
sealing device in the United States through a direct sales organization. We
believe that the majority of interventional catheterization procedures in the
United States are performed in high volume catheterization laboratories, and
that these institutions can be served by a focused direct sales force. While we
intend to initially focus on these high volume laboratories, we believe that
our Duett sealing device's ease
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of use and relatively short training time will also make our product attractive
to lower volume laboratories.
As part of our sales force, we intend to hire clinical specialists to train
physicians and other healthcare personnel on the use of the Duett sealing
device. We believe that effective training is a key factor in encouraging
physicians to use our Duett sealing device. We have created, and will continue
to work to improve an in-the-field training and certification program for the
use of our Duett sealing device. We will seek to develop and maintain close
working relationships with our customers to continue to receive input
concerning our product development plans.
We are focused on building market awareness and acceptance of our Duett
sealing device. Our marketing organization provides a wide range of programs,
materials and events that support our sales force. These include product
training, conference and trade show appearances and sales literature and
promotional materials. Members of our medical advisory board also aid in
marketing our Duett sealing device by publishing articles and making
presentations at physicians' meetings and conferences.
Product Technology
The components of our proprietary Duett sealing device consist of a very
thin balloon catheter and a procoagulant mixture. The balloon catheter consists
of a balloon made of polyethylene connected to a wire, covered by a sleeve. The
procoagulant is a proprietary mixture of collagen, thrombin and a diluent. Both
collagen and thrombin have been approved for use as blood clotting agents in
the human body by the FDA for over ten years. The mixture of thrombin, a very
rapid blood clotting agent, and collagen, which allows the procoagulant to
assume a gel-like viscosity, provides a highly effective clotting agent when
delivered directly to the puncture site. The diluent is a liquid used to create
the desired viscosity and neutralize the pH of the mixture. The procoagulant is
mixed before use and the Duett sealing device is deployed in the following
steps:
[Schematic drawing of introducer sheath in artery labeling the items listed
below:]
Artery
Arterial Puncture
Tissue Tract
Introducer Sheath
The Duett catheter can be deployed through any commonly used introducer
sheath from five French to nine French in diameter. Therefore, the sheath that
is already in the femoral artery is left in place and no replacement of the
sheath is required.
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<PAGE>
[Schematic drawing of Duett catheter in the artery labeling the items listed
below:]
Duett Catheter
Duett Procoagulant
The Duett catheter is then inserted through the introducer sheath and into
the femoral artery and the syringe containing the Duett procoagulant is
attached to the sidearm of the introducer sheath.
[Schematic drawing of Duett catheter inflated and creating a temporary seal;
labeling the item listed below:]
Inflated Duett Baloon Catheter
Using a syringe, the balloon is inflated and positioned against the inner
surface of the artery where the arterial pressure and gentle traction result in
the balloon acting as a temporary seal of the puncture.
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<PAGE>
[Schematic drawing of Duett procoagulant being delivered labeling the item
listed below:]
Procoagulant Delivery
Next, the procoagulant is delivered directly to the top of the arterial
puncture and the tissue tract through the sidearm of the introducer sheath. The
procoagulant stimulates rapid clotting through the powerful action of thrombin
and collagen. The introducer sheath is removed from the body as the
procoagulant agent is being delivered.
[Schematic drawing of Duett catheter being deflated labeling the item listed
below:]
Duett Catheter Sleeve
Immediately after the delivery of the procoagulant to the tissue tract, the
balloon is deflated and covered by the sleeve. The slippery nature of the
sleeve as well as its low profile (approximately one millimeter in diameter)
allows for removal of the balloon catheter from the artery without disruption
of the procoagulant.
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[Schematic drawing of artery labeling the item listed below:]
Complete Seal of puncture Site
After removal of the Duett catheter from the artery, manual pressure is
maintained for a short time, usually two to five minutes, to assure the seal.
We recommend ambulation of patients generally one to two hours after diagnostic
catheterizations and two to four hours after interventional catheterization
procedures.
Research and Development
Our research and development staff is currently focused on improving our
Duett sealing device and reducing our cost of goods sold. We incurred expenses
of $2,348,281 in 1998 and $3,067,897 in 1999 for research and development
activities. To further reduce our costs, our research and development group is
in the process of developing the in-house capability to manufacture some of the
components currently produced by outside vendors.
We intend to research and develop new sealants in the future for use in our
Duett sealing device as well as to apply our core closure technology to other
catheterization procedures, including cardio-pulmonary support procedures,
treatment of abdominal aortic aneurysms and treatment of pseudo-aneurysms. The
large size of the punctures in these procedures makes closure of the puncture
site very difficult using conventional compression methods. We believe that
modifications of our delivery system will allow our sealing technology to be
useful in larger punctures of the femoral artery that are greater than nine
French, as well as in cases of abnormalities such as pseudo-aneurysms.
We expect our research and development activities to expand to include
evaluation of new concepts and products beyond vascular sealing in the
interventional cardiology and radiology field. We believe that there are many
potential new interventional products that would fit within the development,
clinical, manufacturing and distribution network we have created for our Duett
sealing device.
Manufacturing
We manufacture our Duett sealing device in our facility in a suburb of
Minneapolis, Minnesota. The catheter manufacturing and packaging processes
occur under a controlled clean room environment. Our manufacturing facility and
processes were certified in July 1998 as compliant with the European
Community's ISO 9001 standards and was audited in September 1999 for compliance
with the FDA's good manufacturing practices with no deficiencies noted.
We purchase components from various suppliers and rely on single sources for
several parts of the Duett sealing device. In September 1998, we entered into a
ten year, sole-source, supply
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agreement with our collagen supplier, Davol Inc., that provides for a fixed
price based on volume purchases which is adjusted annually for increases in the
Department of Labor's employer's cost index. In June 1999, we entered into a
five year, sole-source, supply agreement with our thrombin supplier, GenTrac,
Inc., a subsidiary of Jones Pharma, Incorporated, that provides for a fixed
price with a price adjustment formula based on increased costs and wholesale
price increases. To date, we have not experienced any significant adverse
effects resulting from shortages of components.
The manufacture and sale of our Duett sealing device entail significant risk
of product liability claims. Although we have product liability insurance
coverage in an amount which we consider reasonable, it may not be adequate to
cover potential claims. Any product liability claims asserted against us could
result in costly litigation, reduced sales and significant liabilities and
divert the attention of our technical and management personnel away from the
development and marketing of the Duett sealing device for significant periods
of time.
Competition
Competition in the vascular sealing market is intense, and we believe that
it will increase. We believe that the primary bases of competition in the
vascular sealing market are clinical efficacy, ease of use, patient comfort,
minimization of complications and cost-effectiveness. On these bases, we
believe that our product is well-positioned.
Because the substantial majority of vascular sealing is performed through
manual compression, this represents our primary competition. Manual compression
usually requires a healthcare professional to manually apply pressure to the
puncture site for 20 minutes to one hour following which the patient is
confined to bed rest for between four and 48 hours. Often manual compression
involves the use of mechanical devices, including C-clamps and sandbags, or
pneumatic devices. Manual compression is considered to be uncomfortable for the
patient.
Our Duett sealing device also competes with three vascular sealing devices,
none of which had over 40% of the vascular sealing device market in 1999. These
three competitive devices are:
. The VasoSeal device, manufactured and marketed by Datascope Corp., seals
the tissue tract by placing a dry collagen plug in the tissue tract
adjacent to the puncture in the artery.
. The Angio-Seal device, sold by the Daig division of St. Jude Medical,
Inc. and developed by Kensey Nash Corporation, seals the puncture site
through the use of a collagen plug on the outside of the artery
connected by a suture to a biodegradable anchor which is inserted into
the artery.
. The third device, developed and marketed under the ProStar(TM),
TechStar(TM) and Closer(TM) names by Perclose, Inc., a subsidiary of
Abbott Laboratories, seals the puncture site through the use of a
mechanical device that enables a physician to perform a minimally
invasive replication of open surgery.
We believe that several other companies are developing arterial closure
devices, however, we are unaware of any new sealing device or company that has
entered U.S. clinical studies. The medical device industry is characterized by
rapid and significant technological change as well as the frequent emergence of
new technologies. There are likely to be research and development projects
related to vascular sealing devices of which we are currently unaware. A new
technology or product may emerge that results in a reduced need for vascular
sealing devices or results in a product that renders our product
noncompetitive.
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Regulatory Requirements
United States
Our Duett sealing device is regulated in the United States as a medical
device by the FDA under the FDC Act, and requires premarket approval by the FDA
prior to being sold. In May 1997, the FDA determined that the review of the
Duett sealing device would be delegated to the Center for Devices and
Radiological Health area of the FDA, with a consulting review by the Center for
Biologic Evaluation and Research. During 1998 and 1999, we received approval of
our investigational device exemption, or IDE, application to start our
feasibility clinical study, filed our IDE Supplement to begin our multi-center
clinical study, completed the SEAL multi-center clinical study and filed our
PMA application with the FDA. In September 1999 our manufacturing facility was
audited by the FDA, with no deficiencies or non-compliances noted by the
inspector. In December 1999, we received the FDA's review letter of our PMA
application, and we submitted an amendment to our PMA to the FDA in January
2000. The FDA has stated that a panel review of our PMA application will not be
necessary.
The FDA classifies medical devices into one of three classes based upon
controls the FDA considers necessary to reasonably ensure their safety and
effectiveness. Class I devices are subject to general controls such as
labeling, premarket notification and adherence to good manufacturing practices.
Class II devices are subject to the same general controls and also are subject
to special controls such as performance standards, postmarket surveillance,
patient registries and FDA guidelines, and may also require clinical testing
prior to approval. Class III devices are subject to the highest level of
controls because they are used in life-sustaining or life-supporting
implantable devices. Class III devices require rigorous clinical testing prior
to their approval. Our Duett sealing device is classified as a Class III
device.
Manufacturers must file an IDE application if human clinical studies of a
device are required and if the device presents what the FDA considers to be a
significant risk. The IDE application must be supported by data, typically
including the results of animal and mechanical testing of the device. If the
IDE application is approved by the FDA, human clinical studies may begin at a
specific number of investigational sites with a maximum number of patients, as
approved by the FDA. The clinical studies must be conducted under the review of
an independent institutional board at the hospital performing the clinical
study. Our Duett sealing device is subject to the IDE requirements. We received
approval of our IDE application and performed our feasibility clinical study at
two United States centers in January to March 1998. Based on the results of
this feasibility clinical study, we received approval and performed our 695
patient multi-center SEAL clinical study from August 1998 through March 1999.
Generally, upon completion of these human clinical studies, a manufacturer
seeks approval of a Class III medical device from the FDA by submitting a PMA
application. A PMA application must be supported by extensive data, including
the results of the clinical studies, as well as literature to establish the
safety and effectiveness of the device. The FDA has allowed us to submit our
PMA application in segments prior to completion of our clinical studies. Upon
completion of the follow up and data analysis of the SEAL clinical study, we
submitted the final two segments of our PMA application to the FDA in June
1999. Under the FDC Act, the FDA has 180 days to review a PMA application,
although the review of such an application more often occurs over a longer time
period and may require additional information. In December 1999, we received
the FDA's review letter of our PMA application, and we submitted an amendment
to our PMA to the FDA in January 2000.
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<PAGE>
If granted, the approval of our PMA application may include significant
limitations on the indicated uses for which our product may be marketed.
We also will be subject to FDA regulations concerning manufacturing
processes and reporting obligations. These regulations require that
manufacturing steps be performed according to FDA standards and in accordance
with documentation, control and testing standards. We also will be subject to
inspection by the FDA on an on-going basis. We will be required to provide
information to the FDA on adverse incidents as well as maintain a documentation
and record keeping system in accordance with FDA guidelines. The advertising of
the Duett sealing device also will be subject to both FDA and Federal Trade
Commission jurisdiction. If the FDA believes that we are not in compliance with
any aspect of the law, it can institute proceedings to detain or seize
products, issue a recall, stop future violations and assess civil and criminal
penalties against us, our officers and our employees.
International
The European Union has adopted rules which require that medical products
receive the right to affix the CE mark, an international symbol of adherence to
quality assurance standards and compliance with applicable European medical
device directives. As part of the CE compliance, manufacturers are required to
comply with the ISO 9000 series of standards for quality operations. We
received the CE mark approval for our Duett sealing device and ISO 9001
certification in July 1998.
International sales of the Duett sealing device are subject to the
regulatory requirements of each country in which we sell our product. These
requirements vary from country to country but generally are much less stringent
than those in the United States. Our Duett sealing device is currently marketed
in Germany, Norway, Italy, Austria, the United Kingdom, Denmark, Switzerland,
Finland, Sweden, Greece, Belgium, Spain, the Netherlands, Taiwan and Hong Kong.
We have obtained regulatory approvals where required. Through our Japanese
distributor, we are pursuing the regulatory approval for commercial sale in
Japan.
Third Party Reimbursement
In the United States, healthcare providers that purchase medical devices,
such as vascular sealing devices, generally rely on third-party payors,
principally the Health Care Financing Administration and private health
insurance plans, to reimburse all or part of the cost of therapeutic and
diagnostic catheterization procedures. We believe that in the current United
States reimbursement system, the cost of vascular sealing devices is and will
be incorporated into the overall cost of the catheter procedure. We do not
anticipate that a separate, additional reimbursement for the Duett sealing
device will be required.
As a result, we are working to establish the cost benefit of the Duett
sealing device, relying on shortened hospital stays and decreased use of
healthcare professionals, to justify the increased cost of using our Duett
sealing device in the United States. As part of our 695-patient, 15-center SEAL
clinical study, we retained the Emory Cost Outcomes Research Center to perform
an analysis of the costs and benefits of the use of the Duett sealing device in
a randomized, controlled comparison to manual compression. While the results of
this study are not complete, we believe that we will be able to demonstrate
that the use of our Duett sealing device can result in cost savings in
healthcare personnel and hospital resources. Before entering the United States
market, we intend to further document the cost benefit of our Duett sealing
device.
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<PAGE>
Market acceptance of the Duett sealing device in international markets is
dependent in part upon the availability of reimbursement from healthcare
payment systems. Reimbursement and healthcare payment systems in international
markets vary significantly by country. The main types of healthcare payment
systems in international markets are government sponsored healthcare and
private insurance. Countries with government sponsored healthcare, such as the
United Kingdom, have a centralized, nationalized healthcare system. New devices
are brought into the system through negotiations between departments at
individual hospitals at the time of budgeting. In most foreign countries, there
are also private insurance systems that may offer payments for alternative
therapies.
We have pursued reimbursement for our Duett sealing device internationally
through our independent distributors. We have initially focused on the markets
of Germany, Austria, Switzerland, Norway, Denmark, Finland, Sweden, Belgium,
Spain, Greece, the Netherlands, the United Kingdom, Taiwan, Italy and Hong
Kong. While the healthcare financing issues in these countries are substantial,
we have been able to sell the Duett sealing device to private clinics or
nationalized hospitals in each of these countries.
Patents and Intellectual Property
We file patent applications to protect technology, inventions and
improvements that are significant to the development of our business, and use
trade secrets and trademarks to protect other areas of our business.
Prior to the formation of our company, Dr. Gary Gershony filed a number of
patent applications in the United States and other countries directed to
proprietary technology used in our Duett sealing device. Upon the commencement
of our operations in February 1997, Dr. Gershony assigned all patents and
patent applications relating to the Duett sealing device to us on a worldwide,
perpetual, royalty-free basis. At the time of assignment, there existed one
United States patent issued that is directed to a balloon catheter sealing
device and method and which expires in May 2013, three United States patents
pending and an international patent application pending which designated
numerous foreign countries and regions.
Since commencing operations, we have continued the prosecution of the
pending United States patent applications and filed new patent applications. A
second United States patent has issued that is directed to a balloon catheter
and procoagulant sealing device and method and which expires in October 2015. A
third United States patent has also issued that contains method claims
concerning the use of a balloon catheter and flowable procoagulant and which
expires in October 2015. A fourth United States patent has issued concerning
the procoagulant mixture and which expires in October 2015. A fifth United
States patent has issued concerning a balloon catheter sealing device and which
expires in May 2013. Finally, a sixth United States patent has issued
concerning a balloon catheter and procoagulant sealing device and which expires
in October 2015. We currently have six additional United States patents pending
concerning aspects of our Duett sealing device and other interventional
products. We also have pursued international patent applications, which
designate the key developed nations with substantive patent protection systems.
The interventional cardiology market in general, and the vascular sealing
device field in particular, is characterized by numerous patent filings and
frequent and substantial intellectual property litigation. Each of the three
vascular sealing products with which our Duett sealing device competes has been
subject to infringement litigation. We are aware of many United States patents
issued to other companies in the vascular sealing field which describe vascular
sealing devices. After
36
<PAGE>
consultation with our intellectual property counsel, we believe that our Duett
sealing device does not infringe any of these existing United States issued
patents. The interpretation of patents, however, involves complex and evolving
legal and factual questions. Intellectual property litigation in recent years
has proven to be complex and expensive, and the outcome of such litigation is
difficult to predict.
On July 23, 1999, we were named as the defendant in a patent infringement
lawsuit brought by Datascope Corp. in the United States District Court for the
District of Minnesota. The complaint requested a judgment that our Duett
sealing device infringes and, following FDA approval will infringe, a United
States patent held by Datascope and asks for relief in the form of an
injunction that would prevent us from selling our product in the United States
as well as an award of attorneys' fees, costs and disbursements. On March 15,
2000, the court granted summary judgment dismissing all of Datascope's claims,
subject to the right of Datascope to recommence the litigation if and when we
receive FDA approval of our Duett sealing device. It is likely that this
litigation will be recommenced. It is not possible at this time to predict the
outcome of the lawsuit if it is recommenced, including whether we will be
prohibited from selling our Duett sealing device in the United States, or to
estimate the amount or range of potential loss, if any.
On September 22, 1999, we received a letter from the Daig division of St.
Jude Medical, Inc. claiming that the manufacture, use, marketing and sale of
our Duett sealing device infringes upon certain United States patents licensed
by Daig. The letter referenced a prior letter dated August 18, 1998 from us to
the prior licensee of those patents in which we made a proposal intended to
avoid the anticipated litigation over those patents. The proposed license was
rejected. It is likely that litigation will be commenced in the near future
concerning this claim. Daig could initiate a lawsuit requesting an injunction
that, if issued, would prohibit us from selling our product. Furthermore, Daig
could allege monetary damages that, if awarded, would significantly harm our
business. We have previously consulted with our intellectual property counsel
regarding Daig's United States patents and do not believe that we infringe
them. We believe the allegations included in the letter are without merit, and
we intend to defend any lawsuit that may arise from these allegations
vigorously. It is not possible to predict the timing, substance or outcome of
any lawsuit that may arise from these allegations, including whether we will be
prohibited from selling our Duett sealing device in the United States or
internationally, or to estimate the amount or range of potential loss, if any.
It is likely that we will become the subject of additional intellectual
property claims in the future related to our Duett sealing device. Our defense
of the Datascope claim, the Daig claim and any other intellectual property
claims filed in the future, regardless of the merits of the complaint, could
divert the attention of our technical and management personnel away from the
development and marketing of the Duett sealing device for significant periods
of time. The costs incurred to defend the Datascope claim, the Daig claim and
other future claims could be substantial and adversely affect us, even if we
are ultimately successful. An adverse determination in the Datascope matter,
the Daig matter or in other litigation or interference proceedings in the
future could prohibit us from selling our product, subject us to significant
liabilities to third parties or require us to seek licenses from third parties.
We also rely on trade secret protection for certain aspects of our
technology. We typically require our employees, consultants and vendors for
major components to execute confidentiality agreements upon their commencing
services with us or before the disclosure of confidential information to them.
These agreements generally provide that all confidential information developed
or made known to the other party during the course of that party's relationship
with us is to be kept confidential and not disclosed to third parties, except
in special circumstances. The agreements with
37
<PAGE>
our employees also provide that all inventions conceived or developed in the
course of providing services to us shall be our exclusive property.
We also intend to register the trademarks and trade names through which we
conduct our business. To date, we have applied for registration in the United
States of the mark "Vascular Solutions Duett" and the Duett logo.
Facilities
Our principal offices are in approximately 24,000 square feet of leased
space in a suburb of Minneapolis, Minnesota. These facilities include
approximately 8,200 square feet used for manufacturing activities,
approximately 3,300 square feet used for research and laboratory activities,
with the remainder used for administrative offices. Our lease for these
facilities expires March 31, 2003 and includes both an option to renew for an
additional five-year term and an option to terminate after April 1, 2001. We
believe that these facilities will be adequate to meet our needs through at
least the end of 2000.
Employees
As of March 31, 2000, we had 71 full time employees. Of these employees, 24
were in manufacturing activities, 24 were in sales and marketing activities,
eight were in research and development activities, seven were in regulatory,
quality assurance and clinical research activities and eight were in general
and administrative functions. We have never had a work stoppage and none of our
employees are covered by collective bargaining agreements. We believe our
employee relations are good.
Legal Proceedings
On July 23, 1999, we were named as the defendant in a patent infringement
lawsuit brought by Datascope Corp. in the United States District Court for the
District of Minnesota. The complaint requested a judgment that our Duett
sealing device infringes and, following FDA approval will infringe, a United
States patent held by Datascope and asks for relief in the form of an
injunction that would prevent us from selling our product in the United States
as well as an award of attorneys' fees, costs and disbursements. On August 12,
1999, we filed our answer to this lawsuit and brought a counterclaim alleging
unfair competition and tortious interference. On August 20, 1999, we moved for
summary judgement to dismiss Datascope's claims. On March 15, 2000, the court
granted summary judgment dismissing all of Datascope's claims, subject to the
right of Datascope to recommence the litigation if and when we receive FDA
approval of our Duett sealing device. It is likely that this litigation will be
recommenced. It is not possible at this time to predict the outcome of the
lawsuit if it is recommenced, including whether we will be prohibited from
selling our Duett sealing device in the United States, or to estimate the
amount or range of potential loss, if any.
Other than the Datascope claim, there are no legal proceedings pending
against us.
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MANAGEMENT
Executive Officers and Directors
The following table provides information concerning our executive officers
and directors:
<TABLE>
<CAPTION>
Name Age Position
---- --- ----------------------------------------
<S> <C> <C>
Howard Root.................. 39 Chief Executive Officer and Director
Gary Gershony, M.D. ......... 44 Medical Director and Director
Jerry Johnson................ 34 Chief Financial Officer and Secretary
Michael Nagel................ 38 Vice President of Sales & Marketing
Charmaine Sutton............. 40 Vice President of Regulatory Affairs
James Quackenbush............ 41 Vice President of Manufacturing
Will Sutton.................. 36 Vice President of Research & Development
Richard Buchholz............. 32 Treasurer
Gerard Langeler.............. 49 Director
Steven Brandt................ 45 Director
James Jacoby, Jr. ........... 37 Director
</TABLE>
Howard Root has served as our Chief Executive Officer and a director since
he co-founded Vascular Solutions in February 1997. From April 1996 through
February 1997, Mr. Root was the Vice President of Gateway Alliance, LLC, a
provider of management services to start-up businesses. From 1990 to 1995, Mr.
Root was employed by ATS Medical, Inc., a mechanical heart valve company, most
recently as Vice President and General Counsel. Prior to joining ATS Medical,
Mr. Root practiced corporate law, specializing in representing emerging growth
companies, at the law firm of Dorsey & Whitney for over five years. Mr. Root
received his B.S. in Economics and J.D. degrees from the University of
Minnesota.
Gary Gershony, M.D., is the principal inventor of the Duett sealing device
and has served as our Medical Director as well as a director since he co-
founded Vascular Solutions in February 1997. Dr. Gershony also is in private
practice as an interventional cardiologist with John Muir Hospital in Walnut
Creek, California. From 1997 through March 1998, Dr. Gershony was associated
with Los Angeles Cardiology Associates. From 1993 through 1997, Dr. Gershony
was the Director of the Cardiac Catheterization Laboratories and Interventional
Cardiology at the University of California Davis Medical Center and an
Assistant Professor of Medicine (Cardiology) at the University of California
Davis School of Medicine. From 1989 to 1993, Dr. Gershony served as Clinical
Assistant Professor of Medicine at the University of Oklahoma College of
Medicine and Associate Director of Research Cardiology at Hillcrest Medical
Center. Dr. Gershony is a Fellow of the American College of Cardiology, the
American Heart Association, the Society for Cardiac Angiography and
Interventions and the American Society for Lasers in Medicine and Surgery. Dr.
Gershony received his M.D. degree from the University of Toronto and performed
his interventional cardiology fellowship at Emory University.
Jerry Johnson joined us as our Chief Financial Officer and Secretary in
November 1999. Prior to joining us, Mr. Johnson was Executive Vice President of
Commerce Financial Group, Inc., a specialty finance and banking organization
since February 1999. From 1993 to 1999, Mr. Johnson was with John G. Kinnard &
Company, Inc., an investment bank, most recently as Managing Director of the
Healthcare Group. Mr. Johnson received a B.S. and M.B.A. in Finance from the
University of Minnesota and a J.D. degree from the University of Southern
California.
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<PAGE>
Michael Nagel has served as our Vice President of Sales & Marketing since
June 1997. Prior to joining us, Mr. Nagel was the Director of Sales & Marketing
at Quantech, Ltd., a developer of point of care medical diagnostic testing
products, where he worked since July 1996. From 1992 through July 1996, Mr.
Nagel was the mid-west division sales manager of B. Braun Cardiovascular, a
manufacturer of cardiovascular devices and catheters. From 1991 through 1992,
Mr. Nagel was the Director of Worldwide Sales for the Medical Products Division
of Angeion Corporation, a manufacturer of angioplasty accessories and pediatric
catheters. Prior to 1991, Mr. Nagel performed a variety of sales and marketing
functions with Abbott Labs Diagnostic Division for over five years. Mr. Nagel
received his B.A. and M.B.A. degrees from the University of St. Thomas.
Charmaine Sutton joined us as manager of regulatory compliance in February
1997, became director of regulatory affairs and quality assurance in January
1998 and was named our Vice President of Regulatory Affairs in June 1998. Ms.
Sutton has performed regulatory compliance, quality system development and
clinical study design for medical companies on a contract basis since 1992.
From 1990 to 1992, Ms. Sutton was manager of regulatory, clinical and quality
assurance with AngeLase, Inc., a subsidiary of Angeion Corporation. Previously,
Ms. Sutton was a physicist with the Lawrence Livermore National Laboratory. Ms.
Sutton received a B.S. in Applied Physics/Quantum Optics from the University of
California Davis.
James Quackenbush has served as our Vice President of Manufacturing since
March 1999. Prior to joining us, Mr. Quackenbush served as Vice President of
Manufacturing and Operations with Optical Sensors, Inc., a diagnostic medical
device company, where he worked since October 1992. From March 1989 through
October 1992, Mr. Quackenbush served as operations manager with Schneider USA's
stent division. Prior to this time, he was an advanced project engineer with
the 3M Medical Products Division. Mr. Quackenbush received a B.S. in Industrial
Engineering from Iowa State University.
Will Sutton joined us as our Vice President of Research & Development in
December 1999. From 1997 through 1999, Mr. Sutton was Director of Research &
Development for Urologix, Inc., a urology medical device company. From 1994
through 1997, Mr. Sutton was a manager of research and development with C.R.
Bard, Inc., a medical device company. Mr. Sutton was a development engineer
with Abbott Laboratories, Inc., from 1987 through 1994. Mr. Sutton received his
M.S. and B.S. degrees in Mechanical Engineering from Stanford University.
Richard Buchholz has served as our Controller since December 1997 and as our
Treasurer since December 1999. Prior to joining us, Mr. Buchholz was with Ernst
& Young LLP for over five years, most recently as manager on the audit staff.
Mr. Buchholz received his B.B.A. degree in Accounting from the University of
Wisconsin--Eau Claire and is a Certified Public Accountant.
Gerard Langeler has been a member of our board of directors since February
1997. Mr. Langeler has been a General Partner of Olympic Venture Partners, an
operating venture capital company, since 1992. Prior to joining Olympic Venture
Partners, Mr. Langeler was an officer and co-founder of Mentor Graphics, a
manufacturer of software for computer-aided design of electronics. Mr. Langeler
also is a director of Preview Systems, Inc., Webridge, Inc. and 800.com, Inc.
Steven Brandt was elected to the Board of Directors in January 2000. Mr.
Brandt was the Chief Executive Officer of XRT Corporation, an interventional
cardiology medical device company, from 1997 to February 2000, when it was
acquired by Medtronic, Inc. From 1995 to 1997 Mr. Brandt was Vice President of
Marketing for XRT Corporation. From 1992 through 1995, Mr. Brandt held
marketing positions with Schneider, a cardiology medical device company, most
recently as Director
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<PAGE>
of Marketing. Previously, Mr. Brandt was Director of Marketing for the
angioplasty business unit of Medtronic, Inc. and previously held sales and
marketing positions with the USCI and Bard Critical Care divisions of C.R.
Bard, Inc.
James Jacoby, Jr. joined our board of directors in February 1999. Mr. Jacoby
has been a Managing Director of the Life Sciences Group of the Corporate
Finance Department of Stephens Inc., an Arkansas-based investment banking firm,
since December 1999 and previously was Vice President, Corporate Finance
Department of Stephens Inc. since 1994. From 1990 through 1994, Mr. Jacoby was
Vice President, Mergers and Acquisitions Department of Chemical Banking
Corporation in New York and London.
There are no family relationships among any of our directors or executive
officers. All directors hold office until the next annual meeting of our
shareholders and until their successors have been elected and qualified or
until their earlier resignation or removal. Executive officers are appointed to
serve at the discretion of our board of directors. Mr. Langeler and Mr. Jacoby
have been elected to our board of directors pursuant to the terms of an amended
and restated voting agreement dated December 9, 1998 among Vascular Solutions
and certain of our shareholders, including affiliates of Olympic Venture
Partners and Stephens Inc. This voting agreement will terminate upon the
closing of this offering.
Board Committees
Our board of directors has established a compensation committee and an audit
committee.
The compensation committee consists of Messrs. Langeler and Jacoby and Dr.
Gershony. The compensation committee's responsibilities include establishing
salaries, incentives, and other forms of compensation for our directors and
officers; administering our incentive compensation and benefits plans; and
recommending policies relating to such incentive compensation and benefits
plans.
The audit committee consists of Messrs. Langeler, Brandt and Jacoby. The
audit committee's responsibilities include facilitating our relationship with
independent auditors; reviewing and assessing the performance of our accounting
and finance personnel; communicating to the board the results of work performed
by and issues raised by our independent auditors and legal counsel; and
evaluating our management of assets and reviewing policies relating to asset
management.
Director Compensation
We do not currently pay any compensation to directors for serving in that
capacity, but we reimburse directors for out-of-pocket expenses incurred in
attending board meetings. Each unaffiliated director receives an option to
purchase 10,000 shares of our common stock with an exercise price equal to fair
market value on the date of his or her election to our board and the date of
each re-election thereafter.
Compensation Committee Interlocks and Insider Participation
Messrs. Langeler and Jacoby and Dr. Gershony currently serve on the
compensation committee. None of these individuals has at any time been an
officer or employee of Vascular Solutions. Prior to formation of the
compensation committee, all decisions regarding executive compensation were
made by the full board of directors. No interlocking relationship exists
between the board of directors or the compensation committee and the board of
directors or compensation committee of any other company, nor has any such
interlocking relationship existed in the past.
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<PAGE>
We have sold shares of common stock, Series A and Series B preferred stock
to entities affiliated with Olympic Venture Partners and shares of common stock
and Series B preferred stock to entities affiliated with Stephens Inc. Mr.
Langeler, one of our directors and a member of our compensation committee, is a
general partner of Olympic Venture Partners and has voting control of the
affiliated entities. Mr. Jacoby, one of our directors and a member of our audit
committee, is a Vice President of Stephens Inc.
Indemnification Matters and Limitation of Liability
Minnesota law and our bylaws provide that we will, subject to limitations,
indemnify any person made or threatened to be made a party to a proceeding by
reason of that person's former or present official capacity with us. We will
indemnify such person against judgments, penalties, fines, settlements and
reasonable expenses, and, subject to limitations, we will pay or reimburse
reasonable expenses before the final disposition of the proceeding.
As permitted by Minnesota law, our articles of incorporation provide that
our directors will not be personally liable to us or our shareholders for
monetary damages for a breach of fiduciary duty as a director, subject to the
following exceptions:
. any breach of the director's duty of loyalty to us or our shareholders;
. acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. liability for illegal distributions under section 302A.559 of the
Minnesota Business Corporation Act or for civil liabilities for state
securities law violations under section 80A.23 of the Minnesota
statutes; or
. any transaction from which the director derived an improper personal
benefit.
In his role as one of our directors, Mr. Jacoby may be entitled to
indemnification by Stephens Inc.
Presently, there is no pending litigation or proceeding involving any of our
directors, officers, employees or agents where indemnification will be required
or permitted. We are not aware of any threatened litigation or proceeding that
might result in a claim for indemnification.
Employment and Consulting Agreements
We have entered into employment agreements with each of our executive
officers. The employment agreements provide for employment "at will" which may
be terminated by either party for any reason upon ten working days' prior
written notice. The base salary and any discretionary bonus for each of the
executive officers is determined by the compensation committee of our board of
directors. During the term of his or her employment agreement and for a period
of one year after its termination, each executive officer is prohibited from
competing with us in the vascular sealing device field.
Upon the commencement of our operations in February 1997, we entered into a
consulting agreement with Dr. Gershony to serve as our Medical Director. In
June 1999, the agreement was revised. Under the revised agreement, Dr. Gershony
receives $8,333 on a monthly basis for his services to us in clinical research,
product development and medical review. The relationship under the agreement is
on an "at will" basis. Either party may terminate the relationship for any
reason at
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any time by giving ten working days written notice to the other party. During
the term of the agreement and for one year after its termination, Dr. Gershony
is prohibited from working on a competitive vascular sealing device.
Executive Compensation
The following summary compensation table indicates the cash and non-cash
compensation earned by each our executive officers whose total compensation
exceeded $100,000 during the fiscal year ended December 31, 1999. All other
compensation consists of premiums we pay for health insurance benefits and
matching contributions to the 401(k) plan.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Long Term
Compensation Compensation
--------------------- ------------
Shares
Salary Bonus Underlying All Other
Name and Principal Position Year ($) ($) Options (#) Compensation ($)
- --------------------------- ---- -------- ------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Howard Root ............... 1999 $140,000 $28,000 200,000 $2,046
Chief Executive Officer 1998 115,000 -- -- 1,510
Michael Nagel.............. 1999 130,000 25,000 60,000 7,697
Vice President of Sales &
Marketing 1998 100,000 -- 10,000 5,078
Charmaine Sutton........... 1999 110,000 20,000 20,000 250
Vice President of
Regulatory
James Quackenbush.......... 1999 88,000 20,000 40,000 3,760
Vice President of
Manufacturing
</TABLE>
The following table provides information concerning the stock option grants
we made to each of the above named executive officers during the year ended
December 31, 1999. Options to purchase an aggregate of 573,000 shares of our
common stock were granted to our employees during the year ended December 31,
1999. All stock options were granted with an exercise price equal to the fair
market value of our common stock as determined by our board of directors on the
grant date and vest in equal monthly installments over a four-year period
beginning on the grant date. The 5% and 10% assumed annual rates of compounded
stock price appreciation are required by the rules of the Securities and
Exchange Commission and do not represent our estimates or projections of our
future stock prices.
Stock Options Granted in 1999
<TABLE>
<CAPTION>
Potential
Realizable Value at
Assumed Annual
Rates of Stock
Price Appreciation
Individual Grants for Option Term
----------------------------------------------- -------------------
Number of % of Total
Securities Options
Underlying Granted to
Options Employees Exercise Price Expiration
Name Granted in 1999 Per Share Date 5% 10%
- ---- ---------- ---------- -------------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Howard Root............. 200,000 34.9% $6.00 12/21/09 $754,674 $1,912,491
Michael Nagel........... 25,000 4.4 3.25 4/14/09 51,098 129,492
35,000 6.1 6.00 12/21/09 132,068 334,686
Charmaine Sutton........ 10,000 1.7 3.25 4/14/09 20,439 51,797
10,000 1.7 6.00 12/21/09 37,734 95,625
James Quackenbush....... 27,500 4.8 3.25 2/25/09 56,207 142,441
2,500 .4 3.25 4/14/09 5,110 12,949
10,000 1.7 6.00 12/21/09 37,734 95,625
</TABLE>
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<PAGE>
The following table sets forth information concerning stock option exercises
during 1999 by the named executive officers and the number and value of
unexercised options held by them. There was no public trading market for our
common stock as of December 31, 1999. Accordingly, the value of unexercised
options has been calculated by subtracting the exercise price from the fair
market value of the underlying securities on December 31, 1999 as determined by
our board of directors, which was determined to be $6.00 per share.
Aggregate Option Exercises in 1999 and Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options
Shares December 31, 1999 at December 31, 1999
Acquired Value ------------------------- -------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Howard Root............. -- $-- 10,375 205,836 $ 46,688 $ 26,262
Michael Nagel........... -- -- 32,600 82,400 141,000 160,250
Charmaine Sutton........ -- -- 21,400 38,600 90,000 102,500
James Quackenbush....... -- -- 6,600 33,400 18,150 64,350
</TABLE>
Benefit Plans
Stock Option and Stock Award Plan
Our stock option and stock award plan was approved by our board of directors
and shareholders and provides for the granting of the following to employees
and non-employees of Vascular Solutions:
. stock options, including incentive stock options and non-qualified stock
options;
. stock appreciation rights; and
. restricted stock.
We have reserved 1,400,000 shares of common stock for issuance under the
stock option and stock award plan. The stock option and stock award plan was
amended in February 2000 to provide for an automatic annual increase in the
number of shares available under the plan, beginning in 2001 and ending in
2006, equal to the lesser of:
. 500,000 shares;
. 5% of the common-equivalent shares outstanding at the end of the prior
fiscal year; or
. a smaller amount determined by the board of directors or the committee
administering the plan.
The application of these automatic annual increase provisions will result in a
maximum total authorized pool of 4,400,000 shares.
The plan is administered by the compensation committee of the board of
directors. The committee has the discretion to select the optionees and
grantees and to establish the terms and conditions of each stock option and
award, subject to the provisions of the plan. The exercise price for an
incentive stock option granted under the plan must not be less than the fair
market value of our common stock on the date the option is granted. The
exercise price of a non-qualified option granted under the plan must not be
less than 50% of the fair market value of our common stock on the date the
option is granted. The term of each incentive stock option is determined by the
committee but may not exceed ten years from the date the option is granted.
Options may be exercised by tendering cash, by tendering shares of our common
stock already owned by the optionee
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<PAGE>
or, in the discretion of the committee, by the issuance of a promissory note.
The plan may be amended or discontinued by our board of directors at any time.
In connection with any option granted under the plan, the committee may
grant a stock appreciation right. A stock appreciation right is a right to
receive, in lieu of the exercise of an option, the difference between the fair
market value of the common stock subject to the option and the exercise price
of the option. A stock appreciation right may be exercised as an alternative,
but not in addition to, the exercise of the option. A stock appreciation right
may be paid in cash or shares of our common stock, in the discretion of the
committee. The committee has not granted any stock appreciation rights.
The stock option and stock award plan also permits the award of restricted
stock to employees or non-employees who perform valuable services for us.
Restricted stock awards are a grant to an individual of a fixed number of
shares of our common stock which vest over a specific period of time. The
committee has the authority to determine the amount of any award and the
conditions and timing of the vesting of the shares. No restricted stock awards
have been made.
The stock option and stock award plan also provides for the automatic grant
to each director who is not also our employee an option to purchase 10,000
shares of our common stock upon first being elected as a member of the board of
directors and additional options to purchase 10,000 shares of common stock at
each annual meeting of shareholders at which the director is re-elected. The
exercise price of the options granted to directors under the stock option and
stock award plan is equal to the fair market value of the common stock on the
date of grant. The options expire upon the earlier of ten years from the date
of grant or the date the director no longer serves on the board of directors.
All options granted to non-employee directors under the stock option and stock
award plan are nonqualified stock options.
As of March 31, 2000, options to purchase an aggregate of 943,551 shares of
common stock, at an average exercise price of $4.25 per share, were outstanding
under the stock option and stock award plan and a total of 349,989 shares were
available for future option grants.
Employee Stock Purchase Plan.
Our employee stock purchase plan was adopted by the board of directors in
May 2000 and we intend to submit the plan to our shareholders for approval at
our annual meeting in March 2001. If the shareholders do not approve the
employee stock purchase plan, it will be terminated and all contributions
returned to the participants without the purchase of any shares. A total of
500,000 shares of common stock were reserved for issuance under the employee
stock purchase plan, none of which have been issued as of the date of this
offering. The number of shares authorized and reserved for issuance under the
employee stock purchase plan will be subject to an automatic annual increase on
the first day of each of our fiscal years beginning in 2002, equal to the
lesser of:
. 200,000 shares;
. 2% of our outstanding common stock on the last day of the immediately
preceding fiscal year; or
. a lesser number of shares as the board of directors may determine.
The application of these provisions will result in a total pool of a maximum
of 2,300,000 shares authorized and reserved. The employee stock purchase plan
becomes effective upon the date of this offering. Unless terminated earlier by
the board of directors, the employee stock purchase plan shall terminate in May
2010.
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<PAGE>
The employee stock purchase plan, which is intended to qualify under Section
423 of the Internal Revenue Code, will be implemented by a series of
overlapping offering periods of approximately 24 months' duration, with new
offering periods (other than the first offering period) commencing on May 1 and
November 1 of each year. Each offering period will generally consist of four
consecutive purchase periods of six months' duration, at the end of which an
automatic purchase will be made for participants. The initial offering period
is expected to commence on the date of this offering and end on April 30, 2002;
the initial purchase period is expected to begin on the date of this offering
and end on April 30, 2001. The employee stock purchase plan will be
administered by the board of directors or by a committee appointed by the
board. Our employees (including officers and employee directors), and employees
of any majority-owned subsidiary designated by the board, are eligible to
participate in the employee stock purchase plan if they are employed by us or
any such subsidiary for at least 20 hours per week. The employee stock purchase
plan permits eligible employees to purchase common stock through payroll
deductions, which in any event may not exceed 10% of an employee's eligible
compensation. The purchase price is equal to 85% of the lower of the fair
market value of the common stock at the beginning of each offering period or at
the end of each purchase period. Employees may end their participation in the
employee stock purchase plan at any time during an offering period, and
participation ends automatically on termination of employment.
An employee cannot be granted an option under the employee stock purchase
plan if immediately after the grant the employee would own stock and/or hold
outstanding options to purchase stock equaling 5% or more of the total voting
power or value of all classes of our stock or stock of our subsidiaries, or if
the option would permit an employee's rights to purchase stock under the
employee stock purchase plan at a rate that exceeds $25,000 of fair market
value of such stock for each calendar year in which the option is outstanding.
In addition, no employee may purchase more than 2,000 shares of common stock
under the employee stock purchase plan in any one purchase period. If the fair
market value of the common stock on a purchase date of an offering period
(other than the final purchase date) is less than the fair market value at the
beginning of the offering period, each participant in that offering period
shall automatically be withdrawn from the offering period as of the end of the
purchase date and be re-enrolled in a new 24 month offering period beginning on
the first business day following the purchase date.
If we merge or consolidate with or into another corporation or sell all or
substantially all of our assets to another corporation, each right to purchase
stock under the employee stock purchase plan will be assumed or an equivalent
right substituted by the successor corporation. However, the board of directors
will shorten any ongoing offering period so that employees' rights to purchase
stock under the employee stock purchase plan are exercised prior to the
transaction in the event that the successor corporation refuses to assume each
purchase right or to substitute an equivalent right. The board of directors has
the power to amend or terminate the employee stock purchase plan and to change
or terminate offering periods as long as such action does not adversely affect
any outstanding rights to purchase stock thereunder. However, the board of
directors may amend or terminate the employee stock purchase plan or an
offering period even if it would adversely affect outstanding options in order
to avoid incurring adverse accounting charges.
401(k) Plan
We have established a tax-qualified employee savings and retirement plan
(the "401(k) Plan") for all of our employees who satisfy eligibility
requirements, including requirements relating to age and length of service.
Pursuant to the 401(k) Plan, employees may elect to reduce their current
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<PAGE>
compensation by up to the lower of 18% or the statutorily prescribed limit and
have the amount of such reduction contributed to the 401(k) Plan. The 401(k)
Plan permits us to make additional discretionary matching contributions. The
401(k) Plan is intended to qualify under Section 401 of the Internal Revenue
Code so that contributions by employees or by us to the 401(k) Plan, and income
earned on plan contributions, are not taxable to employees until withdrawn from
the 401(k) Plan, and so that our contributions, if any, will be deductible by
us when made. Currently, we match 25% of the employee's contribution up to 5%
of current compensation.
Medical Advisory Board
We have assembled a medical advisory board consisting of practicing
interventional cardiologists to assist in the review of the Duett sealing
device, formulation of appropriate clinical studies and future product
developments. In addition to our Medical Director, Dr. Gary Gershony, our
medical advisory board is comprised of:
Dr. Donald Baim, who is Professor of Medicine at Harvard Medical School and
Director, Center for Minimally Invasive Therapy, at Brigham and Women's
Hospital in Boston, Massachusetts.
Dr. Stephen Ellis, who is the Director of the Sones Cardiac Catheterization
Laboratory at The Cleveland Clinic Foundation in Cleveland, Ohio.
Dr. Martin Leon, who is the Chief Executive Officer of the Cardiology
Research Foundation at Lenox Hill Hospital in New York, New York.
Dr. Michael Mooney, who is the Director of Interventional Cardiology at the
Minneapolis Heart Institute in Minneapolis, Minnesota.
Prof. Dr. Sigmund Silber, who is an interventional cardiologist at Muller
Hospital in Munich, Germany and performed the first clinical study of the Duett
sealing device.
Dr. Arne Tofte, who is an interventional radiologist with The National
Hospital of the University of Oslo in Norway.
Dr. James Wilentz, who is an interventional cardiologist at the Beth Israel
Medical Center in New York, New York.
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<PAGE>
CERTAIN TRANSACTIONS
In December 1998, we issued 1,777,777 shares of Series B preferred stock at
$4.50 per share. Of this amount, Stephens Vascular Preferred, LLC, an affiliate
of Stephens Inc., purchased 1,221,466 shares. Mr. James Jacoby Jr., one of our
directors, is a Managing Director of Stephens Inc. Affiliates of Olympic
Venture Partners, a 5% beneficial shareholder, purchased a total of 100,000
shares of Series B preferred stock. Mr. Langeler, one of our directors, is a
general partner of Olympic Venture Partners and possesses voting control of the
entities noted above. TGI Fund II, LC, an affiliate of Tredegar Investments and
a 5% beneficial shareholder, purchased a total of 100,000 shares of Series B
preferred stock.
In connection with the Series B preferred stock purchase agreement, we
entered into a put and option agreement with Stephens Vascular Preferred, LLC.
Under this agreement, we have the right to sell to Stephens Vascular Preferred,
LLC, and Stephens Vascular Options, LLC has the right to purchase from us, up
to 600,000 shares of our common stock at $5.00 per share. On June 30, 1999 we
exercised our right under this agreement and issued 600,000 shares of common
stock to Stephens Vascular Preferred, LLC in exchange for $3,000,000. On
December 28, 1999, Stephens Vascular Options, LLC exercised its right under
this agreement and purchased 600,000 shares of common stock in exchange for
$3,000,000.
Also in connection with the Series B preferred stock purchase agreement, we
granted Stephens Vascular Options, LLC the option to purchase from us up to
285,714 shares of our common stock at $7.00 per share. On December 28, 1999,
Stephens Vascular Options, LLC exercised its right under this agreement and
purchased 285,714 shares of common stock in exchange for $2,000,000.
All shares of our preferred stock will convert into shares of common stock
upon the closing of our initial public offering. Some of these shares were sold
or issued to 5% shareholders and entities affiliated with directors. We sold
these shares pursuant to preferred stock purchase agreements on substantially
similar terms as were sold to nonaffiliated purchasers. We believe that the
shares issued in these transactions were sold at the then fair market value of
the shares and that the terms of these transactions were no less favorable than
we could have obtained from unaffiliated third parties. The following table
summarizes the Series A and Series B preferred stock purchased by 5%
shareholders and entities affiliated with our directors and their affiliates:
<TABLE>
<CAPTION>
Common Stock
Issuable Upon
Conversion of
Preferred Stock
-------------------
Shareholder Series A Series B
----------- --------- ---------
<S> <C> <C>
Entities affiliated with Olympic Venture Partners........ 1,200,000 100,000
Stephens Vascular Preferred, LLC......................... -- 1,221,466
TGI Fund II, LC.......................................... 800,000 100,000
</TABLE>
The shares issued to entities affiliated with Olympic Venture Partners
consists of 724,000 shares purchased by Olympic Venture Partner IV, L.P.;
512,000 shares purchased by Olympic Venture Partners III, L.P.; 25,053 shares
purchased by OVP III Entrepreneurs Fund, L.P. and 38,947 shares purchased by
OVP IV Entrepreneurs Fund, L.P.
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<PAGE>
PRINCIPAL SHAREHOLDERS
The following table provides information concerning beneficial ownership of
our common stock as of March 31, 2000 for:
. each person or group that we know owns more than 5% of our outstanding
common stock;
. each of our named executive officers;
. each of our directors; and
. all of our directors and executive officers as a group.
The following table lists the applicable percentage of beneficial ownership
based on 9,042,868 shares of common stock outstanding as of March 31, 2000, as
adjusted to reflect the conversion of the outstanding shares of preferred stock
upon completion of this offering. The table also lists the applicable
percentage of beneficial ownership based on 12,042,868 shares of common stock
outstanding upon completion of this offering, assuming no exercise of the
underwriters' overallotment option.
Beneficial ownership is determined in accordance with rules of the
Securities and Exchange Commission, and generally includes voting power and/or
investment power with respect to the securities held. The fourth column shows
separately shares of common stock subject to options currently exercisable or
exercisable within 60 days after March 31, 2000 by the directors and named
executive officers individually and all directors and executive officers as a
group. These shares are included in the first column of the table below. Shares
of common stock which may be acquired by exercise of stock options are deemed
outstanding for purposes of computing the percentage beneficially owned by the
persons holding such options but are not deemed outstanding for purposes of
computing the percentage beneficially owned by any other person. Except as
otherwise noted, the persons or entities named have sole voting and investment
power with respect to all shares shown as beneficially owned by them.
<TABLE>
<CAPTION>
Percentage of Shares
Number of Beneficially Owned
Shares -------------------- Shares
Beneficially Before the After the Subject to
Owned Offering Offering Options
------------ ---------- --------- ----------
<S> <C> <C> <C> <C>
Entities affiliated with Stephens
Inc. (1)........................ 2,717,180 30.0% 22.5% 10,000
James Jacoby, Jr. (1).......... 2,717,180 30.0 22.5 10,000
Entities affiliated with Olympic
Venture Partners (2)............ 1,800,000 19.9 14.9 --
Gerard Langeler (2)............ 1,810,000 20.0 15.0 10,000
TGI Fund II, LC (3).............. 900,000 10.0 7.5 --
Gary Gershony, M.D. (4).......... 767,000 8.5 6.4 10,000
Howard Root...................... 313,035 3.4 2.6 33,246
Michael Nagel (5)................ 113,100 1.2 * 45,100
Charmaine Sutton................. 26,200 * * 26,200
James Quackenbush................ 10,050 * * 10,050
Steven Brandt.................... 2,000 * * 2,000
All directors and executive
officers as a group (10
persons)........................ 5,758,565 62.7% 47.2% 146,596
</TABLE>
- --------
* Less than 1%
(1) 1,821,466 of the shares are held by Stephens Vascular Preferred, LLC,
885,714 of the shares are held by Stephens Vascular Options, LLC and all
of the options are held by Stephens Investment Partners III LLC. The
address is 111 Center Street, Suite 2500, Little Rock, AR 72201.
Mr. Jacoby is a Managing Director of Stephens Inc. Mr. Jacoby disclaims
beneficial ownership of these shares.
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<PAGE>
(2) Consists of 724,000 shares held by Olympic Venture Partners IV, L.P.;
988,190 shares held by Olympic Venture Partners III, L.P.; 48,863 shares
held by OVP III Entrepreneurs Fund, L.P. and 38,947 shares held by OVP IV
Entrepreneurs Fund, L.P. The address of all of these entities is 2420
Carillion Point, Kirkland, Washington 98033. Mr. Langeler is a general
partner of Olympic Venture Partners and possesses shared voting control of
the entities noted above. Mr. Langeler disclaims beneficial ownership of
these shares other than his interest in the funds.
(3) An affiliate of Tredegar Investments. The address is 6501 Columbia Center,
Seattle, WA 98104.
(4) Dr. Gershony's address is 2495 Xenium Lane North, Minneapolis, Minnesota
55441.
(5) Includes an aggregate of 18,000 shares registered in the name of Mr.
Nagels' three minor children's irrevocable trusts.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 40,000,000 shares of capital stock,
par value $.01 per share. Unless otherwise designated by our board of
directors, all issued shares are deemed common stock with equal rights and
preferences.
Common Stock
As of March 31, 2000, there were 5,265,091 shares of common stock
outstanding, held by 168 shareholders of record.
Holders of our common stock do not have cumulative voting rights and are
entitled to one vote for each share held of record on all matters submitted to
a vote of the shareholders, including the election of directors. Holders of our
common stock are entitled to receive ratably such dividends, if any, as may be
declared by the board of directors out of funds legally available therefor,
subject to the prior rights of any preferred stock then outstanding. See
"Dividend Policy."
Upon a liquidation, dissolution or winding up of Vascular Solutions, the
holders of our common stock will be entitled to share ratably in the net assets
legally available for distribution to shareholders after the payment of all
debts and other liabilities of Vascular Solutions, subject to the prior rights
of any preferred stock then outstanding. Holders of our common stock have no
preemptive or conversion rights or other subscription rights and there are no
redemption or sinking funds provisions applicable to the common stock. All
outstanding shares of common stock are, and the common stock outstanding upon
completion of this offering will be, fully paid and nonassessable.
Preferred Stock
Upon the closing of this offering, all of our outstanding shares of
preferred stock will convert into 3,777,777 shares of common stock. These
shares of preferred stock will no longer be authorized, issued or outstanding
after completion of this offering.
Our board of directors has the authority, without further action by the
shareholders, to issue from time to time shares of preferred stock in one or
more series and to fix the number of shares, designations and preferences,
powers and relative, participating, optional or other special rights and the
qualifications or restrictions thereof. The preferences, powers, rights and
restrictions of different series of preferred stock may differ with respect to
dividend rates, amounts payable on liquidation, voting rights, conversion
rights, redemption provisions, sinking fund provisions and purchase funds and
other matters.
The issuance of preferred stock could decrease the amount of earnings and
assets available for distribution to holders of common stock or adversely
affect the rights and powers, including voting rights, of the holders of common
stock. It may have the effect of delaying, deferring or preventing a change in
control of Vascular Solutions. We currently do not plan to issue any shares of
preferred stock.
Registration Rights
After this offering, the holders of 3,777,777 shares of common stock will be
entitled to rights with respect to the registration of these shares under the
Securities Act as follows:
Demand Registration Rights: At any time after six months from the date of
this prospectus, the holders of at least 51% of these shares of common stock
can request that we register all or a
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<PAGE>
portion of their shares. Upon such a request, we must, subject to
restrictions and limitations, use our best efforts to cause a registration
statement covering the number of shares of common stock that are subject to
the request to become effective. The holders may only require us to file
two registration statements in response to their demand registration
rights.
Piggyback Registration Rights: The holders of these shares can request that
we register their shares anytime we are filing a registration statement to
register securities for our own account. These registration opportunities
are unlimited but the number of shares that can be registered may be cut
back in limited situations by the underwriters.
Form S-3 Registration Rights: The holders of over 20% of these shares can
request that we register their shares if we are eligible to file a
registration statement on Form S-3. The holders may only require us to file
one registration statement on Form S-3 per twelve-month period.
In addition, the holders of warrants to purchase 168,000 shares of common
stock are entitled to rights with respect to the registration of the shares
underlying their warrants under the Securities Act. At any time after the
closing of our initial public offering, the holders of at least 51% of these
warrants can request that we register the shares of common stock underlying
these warrants. In addition, the holders of these warrants can request that we
register the shares underlying these warrants anytime we are filing a
registration statement to register securities for our own account. The
registration rights of the warrant holders are subject to restrictions and
limitations.
All of these registration rights terminate when the shares may be sold
under Rule 144(k) under the Securities Act.
Warrants and Stock Options
We currently have outstanding warrants to purchase 268,000 shares of common
stock. Of this amount, warrants to purchase 100,000 shares of common stock
have an exercise price of $1.50 per share and expire in January and February
2007, warrants to purchase 68,000 shares of common stock have an exercise
price of $3.00 per share and expire in December 2007, and warrants to purchase
100,000 shares of common stock have an exercise price of $5.00 per share and
expire in June 2004.
Provisions of our Articles and State Law Provisions with Potential
Antitakeover Effects
The existence of authorized but unissued preferred stock, described above,
and certain provisions of Minnesota law, described below, could have an anti-
takeover effect. These provisions are intended to provide management with
flexibility, to enhance the likelihood of continuity and stability in the
composition of our board of directors and the policies of our board and to
discourage an unsolicited takeover of Vascular Solutions, if our board of
directors determines that such a takeover is not in the best interests of
Vascular Solutions and our shareholders. However, these provisions could have
the effect of discouraging attempts to acquire Vascular Solutions, which could
deprive our shareholders of opportunities to sell their shares of common stock
at prices higher than prevailing market prices.
Section 302A.671 of the Minnesota Business Corporation Act applies, with
exceptions, to any acquisition of our voting stock from a person other than
us, and other than in connection with certain mergers and exchanges to which
we are a party, that results in the beneficial ownership of 20% or more of the
voting stock then outstanding. Section 302A.671 requires approval of any such
acquisitions by a majority vote of our shareholders before its consummation.
In general, shares acquired in the absence of such approval are denied voting
rights and are redeemable at their then
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<PAGE>
fair market value by us within 30 days after the acquiring person has failed to
give a timely information statement to us or the date the shareholders voted
not to grant voting rights to the acquiring person's shares.
Section 302A.673 of the Minnesota Business Corporation Act generally
prohibits any business combination by us, or by any of our subsidiaries, with
any shareholder that purchases ten percent or more of our voting shares within
four years following that interested shareholder's share acquisition date. The
business combination may be permitted if it is approved by a committee of all
of the disinterested members of our board of directors before the interested
shareholder's share acquisition date.
Listing
We have applied for quotation of our common stock on the Nasdaq National
Market under the symbol "VASC."
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Norwest Bank
Minnesota, N.A.
53
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon the closing of this offering, we will have 12,042,868 shares of common
stock outstanding, assuming (1) the conversion of all outstanding shares of our
preferred stock into shares of common stock, (2) no exercise of the
underwriters' over-allotment option and (3) no exercise of outstanding options
or warrants to purchase common stock after March 31, 2000. Of these shares, the
3,000,000 shares of common stock being sold in this offering will be freely
tradeable without restriction or further registration under the Securities Act,
except for shares held by our "affiliates," as such term is defined in Rule 144
under the Securities Act. These shares may generally only be sold in compliance
with the limitations of Rule 144 described below.
The remaining 9,042,868 shares were issued and sold by us in private
transactions, are restricted securities and may be sold in the public market
only if registered under the Securities Act or if exempt from registration
under Rules 144, 144(k) or 701 under the Securities Act, which rules are
summarized below. Subject to the agreements between our shareholders and the
underwriters, described below, and the provisions of Rules 144, 144(k) and 701,
additional shares will be available for sale in the public market, subject in
the case of shares held by affiliates to compliance with volume restrictions,
as follows:
. 327,250 shares will be available for immediate sale in the public market
on the date of this prospectus;
. 75,500 shares will be available for sale beginning 90 days after the
date of this prospectus; and
. 8,640,118 shares will be available for sale upon the expiration of
agreements between our shareholders and the underwriters at varying
dates beginning 180 days after the date of this prospectus.
In general, under Rule 144, beginning 90 days after the date of this
prospectus, a person or persons whose shares are aggregated, including an
affiliate, who has beneficially owned restricted shares for at least one year,
is entitled to sell these shares. However, the number of these shares sold
within any three-month period may not exceed the greater of 1% of the then
outstanding shares of common stock, approximately 117,000 shares immediately
after this offering, or the average weekly trading volume of our common stock
on the Nasdaq National Market during the four calendar weeks preceding the date
of such sale. Sales under Rule 144 also are subject to requirements pertaining
to the manner and notice of such sales and the availability of current public
information concerning Vascular Solutions.
Under Rule 144(k), a person who is not deemed to have been an affiliate of
Vascular Solutions at any time during the 90 days before a sale and who has
beneficially owned the shares proposed to be sold for at least two years would
be entitled to sell these shares without regard to the requirements described
above. To the extent that shares were acquired from an affiliate of Vascular
Solutions, the transferee's holding period for the purpose of effecting a sale
under Rule 144(k) commences on the date of transfer from the affiliate.
Rule 701 provides that, beginning 90 days after the date of this prospectus,
persons other than affiliates may sell shares of common stock acquired from us
in connection with written compensatory benefit plans, such as our stock option
and stock award plan, subject only to the manner of sale provisions of Rule
144. Beginning 90 days after the date of this prospectus, affiliates may sell
these shares of common stock subject to all provisions of Rule 144 except the
one-year minimum holding period.
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<PAGE>
Approximately six months after the date of this prospectus, we intend to
file a registration statement on Form S-8 under the Securities Act to register
all shares of common stock issuable under our stock option and stock award
plan. See "Management--Benefit Plans." This Form S-8 registration statement is
expected to become effective immediately upon filing and shares covered by that
registration statement will then be eligible for sale in the public markets,
subject to the Rule 144 limitations applicable to affiliates.
Prior to this offering there has been no public market for our common stock,
and no predictions can be made regarding the effect, if any, that sales of
shares in the open market or the availability of shares for sale will have on
the market price prevailing from time to time. Nevertheless, sales of
substantial amounts of our common stock in the public market could adversely
affect the prevailing market price.
All of our directors and executive officers and substantially all of our
shareholders have agreed that they will not, without the prior written consent
of sell or otherwise dispose of any shares of common stock or
options to acquire shares of common stock during the 180-day period following
the closing of this offering. See "Underwriting."
After the closing of this offering, the holders of 3,777,777 shares of our
common stock will be entitled to rights with respect to the registration of
such shares under the Securities Act. See "Description of Capital Stock--
Registration Rights." Registration of these shares under the Securities Act
would result in these shares becoming freely tradeable without restriction
under the Securities Act, except for shares purchased by affiliates,
immediately upon the effectiveness of registration.
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<PAGE>
UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement
dated the date hereof, each underwriter named below has severally agreed to
purchase, and we have agreed to sell to such underwriter the number of shares
of common stock set forth opposite the name of such underwriter:
<TABLE>
<CAPTION>
Number
Name of Shares
---- ---------
<S> <C>
---------
Total......................................................... 3,000,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares included in this offering are subject to
approval of certain legal matters by counsel and to certain other conditions.
The underwriters are obligated to purchase all the shares (other than those
covered by the over-allotment option described below), if they purchase any of
the shares.
The underwriters, for whom , and are acting as
representatives, propose to offer some of the shares directly to the public at
the public offering price set forth on the cover page of this prospectus and
some of the shares to certain dealers at the public offering price less a
concession not in excess of $ per share. The underwriters may allow, and
such dealers may reallow, a concession not in excess of $ per share on sales
to certain other dealers. If all of the shares are not sold at the initial
offering price, the representatives may change the public offering price and
the other selling terms. The representatives have advised us that the
underwriters do not intend to confirm any sales to any accounts over which they
exercise discretionary authority.
We have granted the underwriters an option, exercisable for 30 days from the
date of this prospectus, to purchase up to 450,000 additional shares of common
stock at the public offering price less the underwriting discount. The
underwriters may exercise such option solely for the purpose of covering over-
allotments, if any, in connection with this offering. To the extent such option
is exercised, each underwriter will be obligated, subject to certain
conditions, to purchase a number of additional shares approximately
proportionate to such underwriter's initial purchase commitment.
At our request, the underwriters have reserved up to five percent of the
common stock offered by this prospectus for sale to our employees and their
friends and family members and to our business associates at the initial public
offering price set forth on the cover page of this prospectus. This directed
share program will be administered by . These persons must commit to
purchase no later than the close of business on the day following the date of
this prospectus. The number of shares available for sale to the general public
will be reduced to the extent these persons purchase the reserved shares.
We, our officers, directors and our existing shareholders, who own an
aggregate of 8,640,118 shares of our common stock prior to this offering, have
agreed that, for a period of 180 days from the date of this prospectus, we and
they will not, without the prior written consent of , dispose of or
hedge any shares of common stock or any securities convertible into or
exchangeable for shares of our common stock, except that we may issue shares
upon the exercise of options granted prior to the date of this prospectus, and
may grant additional options under our share option plan. in its
sole discretion may release any of the securities subject to these lock-up
agreements at any time without notice.
56
<PAGE>
Prior to this offering, there has been no public market for the common
stock. Consequently, the initial public offering price for the shares was
determined by negotiations between us and the representatives. Among the
factors considered in determining the initial public offering price were our
record of operations, our current financial condition, our future prospects,
our markets, the economic conditions in and future prospects for the industry
in which we compete, our management and currently prevailing general conditions
in the equity securities markets, including current market valuations of
publicly traded companies considered comparable to us. There can be no
assurance, however, that the prices at which the shares will sell in the public
market after this offering will not be lower than the price at which they are
sold by the underwriters or that an active trading market in the common stock
will develop and continue after this offering.
We have applied to have the common stock included for quotation on the
Nasdaq National Market under the symbol "VASC."
The following table shows the underwriting discounts and commissions to be
paid to the underwriters by us in connection with this offering. These amounts
are shown assuming both no exercise and full exercise of the underwriters'
option to purchase additional shares of common stock.
<TABLE>
<CAPTION>
Paid by Us
-----------------
No Full
Exercise Exercise
-------- --------
<S> <C> <C>
Per Share............................................... $ $
Total................................................... $ $
</TABLE>
In connection with the offering, , on behalf of the underwriters,
may purchase and sell shares of common stock in the open market. These
transactions may include over-allotment, syndicate covering transactions and
stabilizing transactions. Over-allotment involves syndicate sales of common
stock in excess of the number of shares to be purchased by the underwriters in
the offering, which creates a syndicate short position. Syndicate covering
transactions involve purchases of the common stock in the open market after the
distribution has been completed in order to cover syndicate short positions.
Stabilizing transactions consist of certain bids or purchases of common stock
made for the purpose of preventing or retarding a decline in the market price
of the common stock while the offering is in progress.
The underwriters also may impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when
, in covering syndicate short positions or making stabilizing
purchases, repurchases shares originally sold by that syndicate member.
Any of these activities may cause the price of the common stock to be higher
than the price that otherwise would exist in the open market in the absence of
such transactions. These transactions may be effected on the Nasdaq National
Market or in the over-the-counter market, or otherwise and, if commenced, may
be discontinued at any time.
In addition, in connection with this offering, certain of the underwriters
(and selling group members) may engage in passive market making transactions in
the common stock on the Nasdaq National Market, prior to the completion of the
offering. Passive market making consists of displaying bids on the Nasdaq
National Market no higher than the bid prices of independent market makers and
making purchases at prices no higher than those independent bids and effected
in response to order flow. Net purchases by a passive market maker on each day
are limited to a specified percentage of the passive market maker's average
daily trading volume in the common
57
<PAGE>
stock during a specified period and must be discontinued when such limit is
reached. Passive market making may cause the price of the common stock to be
higher than the price that otherwise would exist in the open market in the
absence of such transactions. If passive market making is commenced, it may be
discontinued at any time.
A prospectus in electronic format may be made available on the websites
maintained by one or more of the underwriters. The underwriters may agree to
allocate a number of shares to underwriters for sale to their online brokerage
account holders. The representatives will allocate shares to underwriters that
may make Internet distributions on the same basis as other allocations.
We estimate that our total expenses for this offering will be $350,000.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, or to contribute to
payments the underwriters may be required to make in respect of any of those
liabilities.
The rules of the National Association of Securities Dealers, Inc. (the
"NASD") provide that an NASD member may not participate in a public offering of
an issuer's securities if more than 10% of the issuer's common stock is
beneficially owned by the member participating in the distribution of the
offering, unless a "qualified independent underwriter" has been engaged as
required by the rules of the NASD.
In view of this ownership, this offering is being conducted in accordance
with rule 2720(d)(2) of the NASD conduct rules, and is acting as
"qualified independent underwriter" within the meaning of these rules. In
connection with this offering, has participated in the preparation
of the registration statement of which this prospectus forms a part. It has
exercised its usual standards of "due diligence" during its participation and
has recommended the maximum price at which the common stock may be offered.
LEGAL MATTERS
Dorsey & Whitney LLP, Minneapolis, Minnesota, will pass upon the validity of
the issuance of shares of common stock offered by this prospectus for Vascular
Solutions. Certain legal matters will be passed on for the underwriters by
.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements as of December 31, 1998 and 1999 and for each of the years in the
three year period ended December 31, 1999, as set forth in their report. We
have included our financial statements in the prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's report, given on
their authority as experts in accounting and auditing.
The matters of law discussed under the headings "Risk Factors--We have been
named as the defendant in a patent infringement lawsuit and may face additional
intellectual property infringement claims in the future which could prevent us
from manufacturing and selling our product or result in our incurring
substantial costs and liabilities" and "Business--Patents and Intellectual
Property" have been reviewed by Patterson & Keough PA, and have been included
herein in reliance upon the authority of such firm as an expert in such
matters.
58
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 with respect to the common stock offered by this
prospectus. This prospectus, which constitutes a part of the registration
statement, does not contain all of the information set forth in the
registration statement or the exhibits and schedules which are part of the
registration statement. For further information on Vascular Solutions and our
common stock, you should review the registration statement and exhibits and
schedules thereto. You may read and copy any document we file at the
Commission's public reference room at 450 Fifth Street, N.W., Washington, D.C.
20549. Please call the Commission at 1-800-SEC-0330 for further information on
the public reference room. Our filings are also available to the public from
the Commission's web site at http://www.sec.gov.
Upon completion of this offering, we will be required to file periodic
reports, proxy statements and other information with the Commission. These
periodic reports, proxy statements and other information will be available for
inspection and copying at the Commission's public reference rooms and the web
site of the Commission referred to above.
59
<PAGE>
VASCULAR SOLUTIONS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors............................................. F-2
Balance Sheets............................................................. F-3
Statements of Operations................................................... F-4
Statement of Changes in Shareholders' Equity............................... F-5
Statements of Cash Flows................................................... F-6
Notes to Financial Statements.............................................. F-7
</TABLE>
F-1
<PAGE>
Report of Independent Auditors
Board of Directors and Shareholders
Vascular Solutions, Inc.
We have audited the balance sheets of Vascular Solutions, Inc. as of
December 31, 1998 and 1999, and the related statements of operations, changes
in shareholders' equity and cash flows for each of the three years in the
period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Vascular Solutions, Inc. at
December 31, 1998 and 1999, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
Ernst & Young LLP
Minneapolis, Minnesota
January 12, 2000
F-2
<PAGE>
VASCULAR SOLUTIONS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, Pro forma
------------------------- March 31, March 31,
1998 1999 2000 2000
----------- ------------ ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash
equivalents............ $ 9,897,053 $ 10,529,191 $ 8,064,673 $ 8,064,673
Accounts receivable..... 125,000 374,978 602,069 602,069
Inventories............. 318,811 612,569 854,302 854,302
Prepaid expenses........ 53,174 93,177 95,923 95,923
----------- ------------ ----------- -----------
Total current assets.. 10,394,038 11,609,915 9,616,967 9,616,967
Property and equipment,
net...................... 612,577 684,952 762,725 762,725
----------- ------------ ----------- -----------
Total assets.......... $11,006,615 $ 12,294,867 $10,379,692 $10,379,692
=========== ============ =========== ===========
Liabilities and
Shareholders' Equity
Current liabilities:
Accounts payable........ $ 273,816 $ 1,019,715 $ 909,116 $ 909,116
Accrued clinical trial
costs.................. 140,705 -- -- --
Accrued expenses........ 46,318 102,954 188,987 188,987
----------- ------------ ----------- -----------
Total current
liabilities.......... 460,839 1,122,669 1,098,103 1,098,103
Commitments and
contingencies
Shareholders' equity:
Series A preferred
stock, $.01 par value;
2,000,000 shares
authorized; 2,000,000
shares issued and
outstanding............ 20,000 20,000 20,000 --
Series B preferred
stock, $.01 par value;
1,777,777 shares
authorized; 1,777,777
shares issued and
outstanding............ 17,778 17,778 17,778 --
Common stock, $.01 par
value;
16,222,223, 16,222,223
and 36,222,223 shares
authorized in 1998,
1999 and 2000,
respectively,
40,000,000 pro forma
shares authorized;
3,699,617, 5,250,291
and 5,265,091 shares
issued and outstanding
in 1998, 1999 and 2000,
respectively, 9,042,868
pro forma shares issued
and outstanding........ 36,996 52,503 52,651 90,429
Additional paid-in
capital.................. 17,264,006 25,828,309 25,850,361 25,850,361
Deferred compensation..... -- (90,931) (72,619) (72,619)
Accumulated deficit....... (6,793,004) (14,655,461) (16,586,582) (16,586,582)
----------- ------------ ----------- -----------
Total shareholders'
equity................. 10,545,776 11,172,198 9,281,589 9,281,589
----------- ------------ ----------- -----------
Total liabilities and
shareholders'
equity............... $11,006,615 $ 12,294,867 $10,379,692 $10,379,692
=========== ============ =========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE>
VASCULAR SOLUTIONS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
------------------------------------- ------------------------
1997 1998 1999 1999 2000
----------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net sales............... $ -- $ 494,150 $ 1,429,094 $ 207,000 $ 642,545
Cost of goods sold...... -- 442,565 1,065,199 185,944 348,851
----------- ----------- ----------- ----------- -----------
Gross profit............ -- 51,585 363,895 21,056 293,694
Operating expenses:
Research and
development.......... 766,176 2,348,281 3,067,897 713,271 691,723
Clinical and
regulatory........... 259,503 1,375,595 1,323,972 579,596 189,904
Sales and marketing... 273,089 1,075,250 2,301,603 350,065 901,315
General and
administrative....... 425,596 667,522 1,903,946 195,077 563,572
----------- ----------- ----------- ----------- -----------
Total operating
expenses........... 1,724,364 5,466,648 8,597,418 1,838,009 2,346,514
----------- ----------- ----------- ----------- -----------
Operating loss...... (1,724,364) (5,415,063) (8,233,523) (1,816,953) (2,052,820)
Interest income......... 72,546 273,877 371,066 102,874 121,699
----------- ----------- ----------- ----------- -----------
Net loss............ $(1,651,818) $(5,141,186) $(7,862,457) $(1,714,079) $(1,931,121)
=========== =========== =========== =========== ===========
Basic and diluted net
loss per share......... $ (.62) $ (1.40) $ (1.95) $ (.46) $ (.37)
=========== =========== =========== =========== ===========
Shares used in computing
basic and diluted net
loss per share......... 2,667,612 3,660,136 4,032,616 3,699,705 5,254,603
=========== =========== =========== =========== ===========
Pro forma net loss per
share:
Basic and diluted net
loss per share....... $ (1.01) $ (.21)
=========== ===========
Shares used in
computing basic and
diluted net loss per
share................ 7,810,393 9,032,380
=========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE>
VASCULAR SOLUTIONS, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Series A Series B
Preferred Stock Preferred Stock Common Stock Additional
----------------- ----------------- ----------------- Paid-in Deferred Accumulated
Shares Amount Shares Amount Shares Amount Capital Compensation Deficit Total
--------- ------- --------- ------- --------- ------- ----------- ------------ ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1996............. -- $ -- -- $ -- 1,366,250 $13,663 $ (12,297) $ -- $ -- $ 1,366
Sale of common
stock at $1.50
per share in
January and
February 1997,
net of offering
costs........... -- -- -- -- 1,500,000 15,000 2,064,499 -- -- 2,079,499
Value of options
granted for
services........ -- -- -- -- -- -- 25,440 -- -- 25,440
Exercise of
stock options... -- -- -- -- 7,000 70 10,430 -- -- 10,500
Sale of Series A
preferred stock
at $2.50 per
share in
December 1997,
net of offering
costs........... 2,000,000 20,000 -- -- -- -- 4,940,954 -- -- 4,960,954
Sale of common
stock at $3.00
per share in
December 1997,
net of offering
costs........... -- -- -- -- 680,000 6,800 1,782,774 -- -- 1,789,574
Net loss........ -- -- -- -- -- -- -- -- (1,651,818) (1,651,818)
--------- ------- --------- ------- --------- ------- ----------- --------- ------------- ----------
Balance at
December 31,
1997............. 2,000,000 20,000 -- -- 3,553,250 35,533 8,811,800 -- (1,651,818) 7,215,515
Sale of common
stock at $3.00
per share in
March and April
1998............ -- -- -- -- 126,667 1,266 378,734 -- -- 380,000
Exercise of
stock options... -- -- -- -- 19,700 197 32,353 -- -- 32,550
Value of options
granted for
services........ -- -- -- -- -- -- 78,400 -- -- 78,400
Sale of Series B
preferred stock
at $4.50 per
share in
December 1998,
net of offering
costs........... -- -- 1,777,777 17,778 -- -- 7,962,719 -- -- 7,980,497
Net loss........ -- -- -- -- -- -- -- -- (5,141,186) (5,141,186)
--------- ------- --------- ------- --------- ------- ----------- --------- ------------- ----------
Balance at
December 31,
1998............. 2,000,000 20,000 1,777,777 17,778 3,699,617 36,996 17,264,006 -- (6,793,004) 10,545,776
Exercise of
stock options... -- -- -- -- 1,550,674 15,507 8,144,018 -- -- 8,159,525
Value of options
granted for
services........ -- -- -- -- -- -- 22,660 -- -- 22,660
Value of warrant
granted related
to supply
agreement....... -- -- -- -- -- -- 257,000 -- -- 257,000
Deferred
compensation
related to
option grants... -- -- -- -- -- -- 140,625 (140,625) -- --
Amortization of
deferred
compensation.... -- -- -- -- -- -- -- 49,694 -- 49,694
Net loss........ -- -- -- -- -- -- -- -- (7,862,457) (7,862,457)
--------- ------- --------- ------- --------- ------- ----------- --------- ------------- ----------
Balance at
December 31,
1999............. 2,000,000 20,000 1,777,777 17,778 5,250,291 52,503 25,828,309 (90,931) (14,655,461) 11,172,198
Exercise of
stock options... -- -- -- -- 14,800 148 22,052 -- -- 22,200
Amortization of
deferred
compensation.... -- -- -- -- -- -- -- 18,312 -- 18,312
Net loss........ -- -- -- -- -- -- -- -- (1,931,121) (1,931,121)
--------- ------- --------- ------- --------- ------- ----------- --------- ------------- ----------
Balance at March
31, 2000
(unaudited)...... 2,000,000 $20,000 1,777,777 $17,778 5,265,091 $52,651 $25,850,361 $ (72,619) $ (16,586,582) $9,281,589
========= ======= ========= ======= ========= ======= =========== ========= ============= ==========
</TABLE>
See accompanying notes.
F-5
<PAGE>
VASCULAR SOLUTIONS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
------------------------------------- ------------------------
1997 1998 1999 1999 2000
----------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Operating activities
Net loss............... $(1,651,818) $(5,141,186) $(7,862,457) $(1,714,079) $(1,931,121)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation......... 12,832 154,272 243,318 53,678 80,724
Value of options
granted for
services............ 25,440 78,400 22,660 10,020 --
Value of warrant
granted related to
supply agreement.... -- -- 257,000 -- --
Deferred compensation
expense............. -- -- 49,694 -- 18,312
Changes in operating
assets and
liabilities:
Accounts
receivable......... -- (125,000) (249,978) (67,000) (227,091)
Inventories......... (59,710) (259,101) (293,758) (114,577) (241,733)
Prepaid expenses.... (15,110) (38,064) (40,003) (40,318) (2,746)
Accounts payable.... 327,583 (53,767) 745,899 (32,647) (110,599)
Accrued clinical
trial costs........ -- 140,705 (140,705) -- --
Accrued expenses.... 15,778 30,540 56,636 (37,319) 86,033
----------- ----------- ----------- ----------- -----------
Net cash used in
operating
activities........ (1,345,005) (5,213,201) (7,211,694) (1,942,242) (2,328,221)
Investing activities
Purchase of property
and equipment......... (197,758) (581,923) (315,693) (62,338) (158,497)
----------- ----------- ----------- ----------- -----------
Net cash used in
investing
activities........ (197,758) (581,923) (315,693) (62,338) (158,497)
Financing activities
Net proceeds from sale
of common stock........ 3,869,073 380,000 -- -- --
Net proceeds from
exercise of stock
options................ 10,500 32,550 8,159,525 2,520 22,200
Net proceeds from sale
of preferred stock..... 4,960,954 7,980,497 -- -- --
----------- ----------- ----------- ----------- -----------
Net cash provided
by financing
activities........ 8,840,527 8,393,047 8,159,525 2,520 22,200
----------- ----------- ----------- ----------- -----------
Increase (decrease)
in cash and cash
equivalents....... 7,297,764 2,597,923 632,138 (2,002,060) (2,464,518)
Cash and cash
equivalents at
beginning of period.... 1,366 7,299,130 9,897,053 9,897,053 10,529,191
----------- ----------- ----------- ----------- -----------
Cash and cash
equivalents at end of
period................. $ 7,299,130 $ 9,897,053 $10,529,191 $ 7,894,993 $ 8,064,673
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE>
VASCULAR SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
1. Description of Business
Vascular Solutions, Inc. (the "Company") manufactures, markets and sells the
Vascular Solutions Duett sealing device, which enables cardiologists and
radiologists to rapidly seal the puncture site following catheterization
procedures such as angiography, angioplasty and stenting. The Company was
incorporated in December 1996 and began operations in February 1997.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a remaining
maturity of three months or less to be cash equivalents. Cash equivalents
consist of money market funds and are carried at cost which approximates
market.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market and are comprised of the following at:
<TABLE>
<CAPTION>
December 31,
-----------------
1998 1999 March 31, 2000
-------- -------- ---------------
(unaudited)
<S> <C> <C> <C> <C>
Raw materials.............................. $273,027 $451,955 $608,144
Work-in process............................ -- 103,285 165,433
Finished goods............................. 45,784 57,329 80,725
-------- -------- --------
$318,811 $612,569 $854,302
======== ======== ========
</TABLE>
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided on a
straight-line basis over the estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Manufacturing equipment....................... 3 to 5 years
Office and computer equipment................. 3 years
Furniture and fixtures........................ 2 to 5 years
Leasehold improvements........................ Remaining term of the lease
Research and development equipment............ 3 to 5 years
</TABLE>
Impairment of Long-Lived Assets
The Company will record impairment losses on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. The amount of impairment loss recorded will be measured as the
amount by which the carrying value of the assets exceeds the fair value of the
assets.
F-7
<PAGE>
VASCULAR SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Pro Forma Shareholders' Equity
Upon the closing of the Company's planned initial public offering, all
outstanding shares of Series A and B preferred stock will automatically convert
into 3,777,777 shares of common stock. The pro forma effects of these
transactions are unaudited and have been reflected in the accompanying pro
forma balance sheet at March 31, 2000.
Revenue Recognition
The Company generally sells its products to international distributors which
subsequently resell the products to hospitals and clinics. The Company has
agreements with each of its distributors which provide that title and risk of
loss pass to the distributor upon shipment of the products to the distributor.
The Company warrants that its products are free from manufacturing defects at
the time of shipment to the distributor. Revenue is recognized upon shipment of
products to distributors following the receipt and acceptance of a
distributor's purchase order. Allowances are provided for estimated warranty
costs at the time of shipment. To date, warranty costs have been insignificant.
Research and Development Costs
All research and development costs are charged to operations as incurred.
Stock-Based Compensation
The Company follows Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees ("APB 25"), and related interpretations in
accounting for its stock options. Under APB 25, when the exercise price of
stock options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized.
The Company determines the fair value of stock options granted to non-
employees for services using the Black-Scholes valuation method. The fair value
of the stock options granted is expensed over the time period the services are
rendered.
Income Taxes
Income taxes are accounted for under the liability method. Deferred income
taxes are provided for temporary differences between the financial reporting
and the tax bases of assets and liabilities.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations
of credit risk consist primarily of cash and cash equivalents and accounts
receivables. The Company maintains its accounts for cash and cash equivalents
principally at one major bank in the United States. The Company has a formal
written investment policy that restricts the placement of investments to
issuers evaluated as creditworthy. The Company has not experienced any losses
on its deposits of its cash and cash equivalents.
With respect to accounts receivable, the Company performs credit evaluations
of its customers and does not require collateral. Four customers accounted for
100% of total accounts receivable as of
F-8
<PAGE>
VASCULAR SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998. Two customers accounted for 51% of total accounts receivable
as of December 31, 1999. Three customers accounted for 69% of total accounts
receivable as of March 31, 2000 (unaudited).
Net Loss Per Share
Under Financial Accounting Standards Board Statement No. 128, Earnings per
Share, basic earnings per share is based on the weighted average shares of
common stock outstanding during the period. Diluted earnings per share includes
any dilutive effects of options, warrants and convertible securities. Diluted
loss per share as presented is the same as basic loss per share as the effect
of outstanding options, warrants and convertible securities is antidilutive.
Pro Forma Net Loss Per Share
Pro forma net loss per share for the year ended December 31, 1999 and the
three months ended March 31, 2000 is computed using the weighted average number
of common shares outstanding, including the pro forma effects of the automatic
conversion of the Company's Series A and B preferred stock into shares of the
Company's common stock as if such conversion occurred on January 1, 1999, or at
the date of original issuance, if later. The resulting pro forma adjustment
includes an increase in the weighted average shares used to compute basic and
diluted net loss per share of approximately 3,777,777 shares for the year ended
December 31, 1999 and for the three months ended March 31, 2000. The pro forma
effects of these transactions are unaudited.
Interim Financial Statements
The interim financial statements for the three months ended March 31, 1999
and 2000, are unaudited and have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles. In the opinion of the Company's management, the
unaudited interim financial statements contain all adjustments, consisting of
normal recurring adjustments, considered necessary for a fair presentation. The
results of operations for the interim periods are not necessarily indicative of
the results of the entire year.
Reclassifications
Certain prior years' balances were reclassified to conform to the current
year presentation.
F-9
<PAGE>
VASCULAR SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
3. Property and Equipment
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31,
---------------------
1998 1999
--------- ----------
<S> <C> <C>
Property and equipment:
Manufacturing equipment............................. $ 393,565 $ 520,167
Office and computer equipment....................... 175,584 335,449
Furniture and fixtures.............................. 85,623 98,022
Leasehold improvements.............................. 67,234 84,143
Research and development equipment.................. 57,675 57,593
--------- ----------
779,681 1,095,374
Less accumulated depreciation......................... (167,104) (410,422)
--------- ----------
Net property and equipment............................ $ 612,577 $ 684,952
========= ==========
</TABLE>
4. Leases
The Company leases a 24,000 square foot office and manufacturing facility
under an operating lease agreement, which expires in March 2003. The Company
may terminate the lease agreement at any time after March 2001 with a six-month
written notice to the lessor. Prior to February 1998, the Company leased a
5,500 square foot facility under a noncancelable operating lease which expired
in December 1998. The Company was required to make rental payments on its
previous facility until December 1998. The Company subleased this facility to
another entity from June 1998 through December 1998. Rent expense related to
the operating leases was approximately $36,600, $152,300 and $167,900 for the
years ended December 31, 1997, 1998 and 1999, respectively. Rent expense for
the year ended December 31, 1998 has been reduced by approximately $32,000 for
rental income received under the sublease of the previous facility.
Future minimum lease commitments under the existing operating lease as of
December 31, 1999 are as follows:
<TABLE>
<S> <C>
2000............................................................. $148,000
2001............................................................. 150,900
2002............................................................. 151,700
2003............................................................. 37,900
--------
$488,500
========
</TABLE>
5. Income Taxes
At December 31, 1999, the Company had net operating loss carryforwards of
$12,643,000 for federal income tax purposes that are available to offset future
taxable income and begin to expire in the year 2013. At December 31, 1999, the
Company also had federal and Minnesota research and development tax credit
carryforwards of $332,500 which begin to expire in the year 2013. No benefit
has been recorded for such carryforwards, and utilization in future years may
be limited under Sections 382 and 383 of the Internal Revenue Code if
significant ownership changes have occurred.
F-10
<PAGE>
VASCULAR SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The components of the Company's deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
December 31,
------------------------
1998 1999
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................. $ 2,245,800 $ 5,057,200
Tax credit carryforwards......................... 306,300 332,500
Depreciation and amortization.................... 328,700 382,000
Accrued compensation............................. 52,800 180,000
----------- -----------
2,933,600 5,951,700
Less valuation allowances........................ (2,933,600) (5,951,700)
----------- -----------
Net deferred taxes............................... $ -- $ --
=========== ===========
</TABLE>
Reconciliation of the statutory federal income tax rate to the Company's
effective tax rate is as follows:
<TABLE>
<CAPTION>
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
Tax at statutory rate................................... 34.0% 34.0% 34.0%
State income taxes...................................... 6.0 6.0 6.0
Impact of net operating loss carryforward............... (40.0) (40.0) (40.0)
----- ----- -----
Effective income tax rate............................... -- % -- % -- %
===== ===== =====
</TABLE>
6. Capital Stock
In January and February 1997, the Company issued 1,500,000 shares of common
stock at $1.50 per share, from which the Company received net proceeds of
$2,079,499. In connection with the sale of common stock, the Company granted
warrants to the placement agent to purchase a total of 100,000 shares of common
stock at an exercise price of $1.50 per share. The warrants expire in January
and February 2007.
In December 1997, the Company issued 2,000,000 shares of Series A preferred
stock at $2.50 per share, from which the Company received net proceeds of
$4,960,954. The Series A preferred stock has certain voting and registration
rights, has preference over common stock upon liquidation and automatically
converts to common stock upon the closing of an initial public offering. The
holders of Series A preferred stock are also entitled to receive dividends
prior and in preference to the common stock at the rate of $.20 per share per
annum when, as and if declared by the Board of Directors. Such dividends shall
not be cumulative.
In December 1997, the Company issued 680,000 shares of common stock at $3.00
per share, from which the Company received net proceeds of $1,789,574. In
connection with the sale of common stock, the Company granted warrants to the
placement agent to purchase a total of 68,000 shares of common stock at an
exercise price of $3.00 per share. The warrants expire in December 2007.
In December 1998, the Company issued 1,777,777 shares of Series B preferred
stock at $4.50 per share, from which the Company received net proceeds of
$7,980,497. The Series B preferred stock has certain voting and registration
rights, and has preference over common stock
F-11
<PAGE>
VASCULAR SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
upon liquidation. The holders of Series B preferred stock are also entitled to
receive dividends prior and in preference to the Series A preferred stock and
the common stock at the rate of $.36 per share per annum when, as and if
declared by the Board of Directors. Such dividends shall be cumulative.
In connection with the Series B preferred stock Purchase Agreement, the
Company entered into a Put and Option Agreement (the "Agreement") with one of
the Series B investors (the "Investor"). The Agreement provided the Company
with the right to sell, and the Investor the obligation to purchase, up to
$3,000,000 of common stock at $5.00 or $6.00 per share based on the Company
attaining certain milestones. The Company exercised its right and sold 600,000
shares of common stock to the Investor at $5.00 per share on June 30, 1999. In
addition, the Agreement provided the Investor with the right to buy, and the
Company the obligation to sell, up to $3,000,000 common stock at $5.00 or $6.00
per share based on the Company attaining certain milestones. The Investor
exercised its right and purchased 600,000 shares of common stock from the
Company at $5.00 per share on December 28, 1999.
Furthermore, the Agreement provided an affiliate of the Investor with the
right to buy, and the Company with the obligation to sell, up to $2,000,000 of
common stock at $7.00 or $8.00 per share based on the Company attaining certain
milestones. The affiliate of the Investor exercised its right and purchased
285,714 shares of common stock from the Company at $7.00 per share on
December 28, 1999.
On June 10, 1999, the Company issued a warrant to purchase 100,000 shares of
common stock at $5.00 per share to a supplier in connection with entering into
a five year supply agreement. The warrant is exercisable at any time and
expires on June 10, 2004. Using the Black-Scholes valuation model, the Company
determined a fair value of $257,000 for the warrant and expensed this amount
during the year ended December 31, 1999. The amount was classified as research
and development expense because it related to product development activities.
On December 31, 1999, the Company had 168,000 warrants outstanding at a
weighted average exercise price of $2.11 per share.
7. Stock Options
Stock Option Plan
The Company has a stock option and stock award plan (the "Stock Option
Plan") which provides for the granting of incentive stock options to employees
and nonqualified stock options to employees, directors and consultants. As of
December 31, 1999, the Company reserved 1,400,000 shares of common stock under
the Stock Option Plan. Under the Stock Option Plan, incentive stock options
must be granted at an exercise price not less than the fair market value of the
Company's common stock on the grant date. The exercise price of a non-qualified
option granted under the Stock Option Plan must not be less than 50% of the
fair market value of the Company's common stock on the grant date. The Board of
Directors determined the fair value of the common shares underlying options by
assessing the business progress of the Company as well as the market conditions
for medical device companies and other external factors. The options expire on
the date determined by the Board of Directors but may not extend more than ten
years from the grant date. The Stock Option Plan also permits the granting of
stock appreciation rights; restricted stock and
F-12
<PAGE>
VASCULAR SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
other stock based awards. The incentive stock options generally become
exercisable over a four-year period and the non-qualified stock options
generally become exercisable over a two-year period. Unexercised options are
canceled upon termination of employment and become available under the Plan.
Option activity is summarized as follows:
<TABLE>
<CAPTION>
Plan Options Outstanding
-----------------------------------------
Weighted
Average
Exercise
Shares Price
Available Non- Price Per Per
for Grant Incentive Qualified Share Share
--------- --------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1996................... -- -- -- $ -- $ --
Shares reserved........ 500,000 -- -- -- --
Granted................ (456,011) 371,211 84,800 1.50- 2.00 1.71
Exercised.............. -- (7,000) -- 1.50 1.50
Canceled............... 47,600 (47,600) -- 1.50 1.50
-------- -------- -------
Balance at December 31,
1997................... 91,589 316,611 84,800 1.50- 2.00 1.74
Shares reserved........ 400,000 -- -- -- --
Granted................ (259,500) 217,000 42,500 3.00- 3.25 3.01
Exercised.............. -- (19,700) -- 1.50- 2.00 1.65
Canceled............... 108,080 (108,080) -- 1.50- 3.00 1.84
-------- -------- -------
Balance at December 31,
1998................... 340,169 405,831 127,300 1.50- 3.25 2.34
Shares reserved........ 500,000 -- -- -- --
Granted................ (587,000) 573,000 14,000 3.25- 6.00 5.08
Exercised.............. -- (61,960) (3,000) 2.00- 3.25 2.46
Canceled............... 121,560 (121,560) -- 2.00- 3.25 2.75
-------- -------- -------
Balance at December 31,
1999................... 374,729 795,311 138,300 $1.50-$6.00 $4.00
======== ======== =======
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------- -----------------------------
Weighted
Average Weighted
Number Remaining Average Number Weighted
Range of Outstanding Contractual Exercise Exercisable as Average
Exercise Prices as of 12/31/99 Life Price of 12/31/99 Exercise Price
--------------- -------------- ----------- -------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$1.50-
$2.00 206,931 7.44 years $1.65 140,775 $1.62
$3.00-
$3.25 328,180 8.92 years $3.14 85,440 $3.04
$5.00-
$6.00 398,500 9.91 years $5.94 12,480 $5.04
------- -------
$1.50-
$6.00 933,611 9.01 years $4.00 238,695 $2.31
======= =======
</TABLE>
Stock-Based Compensation
The Company accounts for stock options under APB 25, under which no
compensation cost has been recognized. Had compensation cost for these options
been determined consistent with Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation, the net loss
F-13
<PAGE>
VASCULAR SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
and net loss per common share would have been increased to the following pro
forma amounts for the years ended December 31, 1997 and 1998 and 1999:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Net loss:
As reported........................ $(1,651,818) $(5,141,186) $(7,862,457)
Pro forma.......................... (1,696,141) (5,306,547) (8,169,981)
Basic and diluted net loss per
share:
As reported........................ $ (.62) $ (1.40) $ (1.95)
Pro forma.......................... (.64) (1.45) (2.03)
</TABLE>
For purposes of calculating the above required disclosure, the fair value of
each option grant is estimated on the date of grant using the Black-Scholes
option pricing model. The fair value of the Company's stock options was
estimated assuming no expected dividends and the following weighted average
assumptions:
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Expected life (years).................................... 7.0 7.0 7.0
Expected volatility...................................... .70 .62 .67
Risk-free interest rate.................................. 5.02% 4.78% 4.90%
</TABLE>
The weighted average fair value of options granted with an exercise price
equal to the deemed stock price on the date of grant during 1997, 1998 and 1999
was $1.21, $1.97 and $3.82 per share.
For the years ended December 31, 1997, 1998 and 1999, the Company recorded
compensation expense of $25,440, $78,400 and $22,660 in connection with non-
qualified stock options granted to board of directors' members, medical
advisory board members and outside consultants.
Deferred Compensation
During 1999, the Company recorded $140,625 of deferred compensation for
certain stock options granted for the excess of the deemed value for accounting
purposes of common stock issuable upon exercise of such options over the
aggregate exercise price of such options. The weighted average fair value of
these options was $2.74. Deferred compensation recorded is amortized ratably
over the period that the options vest and is adjusted for options which have
been canceled. Deferred compensation expense was $49,694 for the year ended
December 31, 1999.
8. Employee Retirement Savings Plan
In February 1998, the Company implemented an employee retirement savings
plan (the "401(k) Plan") which qualifies under Section 401(k) of the Internal
Revenue Code. The 401(k) Plan provides eligible employees with an opportunity
to make tax-deferred contributions into a long-term investment and savings
program. All employees over the age of 21 are eligible to participate in the
401(k) Plan beginning with the first quarterly open enrollment date following
start of employment. The 401(k) Plan allows eligible employees to contribute up
to 18% of their annual compensation with the Company contributing an amount
equal to 25% of the first 5% contributed to the 401(k)
F-14
<PAGE>
VASCULAR SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Plan. No employer contributions were made for the year ended December 31, 1998.
The Company recorded an expense of $21,573 for contributions to the 401(k) Plan
for the year ended December 31, 1999.
9. Concentrations of Credit and Other Risks
The Company operates in a single industry segment and sells its product to
distributors who, in turn, sell to medical clinics. The Company sells its
product in foreign countries through independent distributors denominated in
United States dollars. Loss, termination or ineffectiveness of distributors to
effectively promote the Company's product could have a material adverse effect
on the Company's financial condition and results of operations.
Sales to significant customers as a percentage of total revenues are as
follows for the years ended December 31, 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
German distributor............................................ 65.0% 28.8%
Norwegian distributor......................................... 9.1% 19.7%
Italian distributor........................................... 4.0% 11.8%
Austrian distributor.......................................... 15.8% 5.8%
</TABLE>
The Company performs ongoing credit evaluations of its customers but does
not require collateral. There have been no material losses on customer
receivables.
10. Dependence on Key Suppliers
The Company purchases certain key components from single source suppliers.
Any significant component delay or interruption could require the Company to
qualify new sources of supply, if available, and could have a material adverse
effect on the Company's financial condition and results of operations.
11. Commitments and Contingencies
In July 1999, the Company was named as a defendant in a patent infringement
lawsuit brought by a competitor. The complaint requested a judgment that the
Company's device infringes and, following FDA approval will infringe, a United
States patent held by the competitor and asks for relief in the form of an
injunction that would prevent the Company from selling its product in the
United States as well as an award of attorney's fees, costs and disbursements.
On August 12, 1999, the Company filed its answer to this lawsuit and brought a
counterclaim alleging unfair competition and tortious interference against
Datascope. On August 20, 1999, the Company moved for summary judgment to
dismiss Datascope's claims. On March 15, 2000, the court granted summary
judgment dismissing all of Datascope's claims, subject to the right of
Datascope to recommence the litigation if and when we receive FDA approval of
our Duett sealing device. It is likely that this litigation will be
recommenced. It is currently not possible to predict the outcome of the lawsuit
if it is recommenced or to estimate the amount or range of potential loss, if
any.
On September 22, 1999, the Company received a letter from the Daig division
of St. Jude Medical, Inc. claiming that the manufacture, use, marketing and
sale of our Duett sealing device
F-15
<PAGE>
VASCULAR SOLUTIONS, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
infringes upon certain United States patents licensed by Daig. The letter
referenced a prior letter dated August 18, 1998 from the Company to the prior
licensee of those patents in which the Company made a proposal intended to
avoid the anticipated litigation over those patents. The proposed license was
rejected. It is likely that litigation will be commenced in the near future
concerning this claim. Daig could initiate a lawsuit requesting an injunction
that, if issued, would prohibit the Company from selling the Duett sealing
device. Furthermore, Daig could allege monetary damages that, if awarded, would
significantly harm the Company's business. The Company believes the allegations
included in the letter are without merit, and it intends to defend any lawsuit
that may arise from these allegations vigorously. It is not possible to predict
the timing, substance or outcome of any lawsuit that may arise from these
allegations, including whether the Company will be prohibited from selling the
Duett sealing device in the United States or internationally, or to estimate
the amount or range of potential loss, if any.
F-16
<PAGE>
INSIDE BACK COVER
[Duett sealing device logo]
Vascular Solutions Duett(TM) utilizes a dual approach. . .
Duett Catheter: A one-size-fits-all balloon catheter that creates a temporary
seal.
[Picture of Duett catheter]
Duett Procoagulant: A flowable mixture of thrombin, collagen and diluent that
creates a complete seal of the puncture site and tissue tract.
[Picture of collagen syringe, thrombin vial and diluent vial]
. . . to seal the puncture left by catheterizations.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3,000,000 Shares
Vascular Solutions, Inc.
Common Stock
[Vascular Solutions Logo]
--------
PROSPECTUS
, 2000
--------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
Except as set forth below, the following fees and expenses will be paid by
Vascular Solutions, Inc. (the "Company") in connection with the issuance and
distribution of the securities registered hereby and do not include
underwriting commissions and discounts. All such expenses, except for the SEC
registration, NASD filing and Nasdaq listing fees, are estimated.
<TABLE>
<S> <C>
SEC registration fee............................................... $ 13,662
NASD filing fee.................................................... $ 5,675
Nasdaq National Market listing fee................................. $ 84,875
Legal fees and expenses............................................ $100,000
Accounting fees and expenses....................................... $ 50,000
Transfer Agent's and Registrar's fees.............................. $ 3,500
Printing and engraving expenses.................................... $ 60,000
Miscellaneous...................................................... $ 32,288
--------
Total............................................................ $350,000
========
</TABLE>
Item 14. Indemnification of Directors and Officers
Section 302A.521 of the Minnesota Statutes provides that a corporation shall
indemnify any person made or threatened to be made a party to a proceeding by
reason of the former or present official capacity of such person against
judgments, penalties, fines (including, without limitation, excise taxes
assessed against such person with respect to any employee benefit plan),
settlements and reasonable expenses, including attorneys' fees and
disbursements, incurred by such person in connection with the proceeding, if,
with respect to the acts or omissions of such person complained of in the
proceeding, such person (1) has not been indemnified therefor by another
organization or employee benefit plan for the same judgments, penalties or
fines; (2) acted in good faith; (3) received no improper personal benefit and
Section 302A.255 (with respect to director conflicts of interest), if
applicable, has been satisfied; (4) in the case of a criminal proceeding, had
no reasonable cause to believe the conduct was unlawful; and (5) in the case of
acts or omissions in such person's official capacity for the corporation,
reasonably believed that the conduct was in the best interests of the
corporation, or in the case of acts or omissions in such person's official
capacity for other affiliated organizations, reasonably believed that the
conduct was not opposed to the best interests of the corporation. Section
302A.521 also requires payment by a corporation, upon written request, of
reasonable expenses in advance of final disposition of the proceeding in
certain instances. A decision as to required indemnification is made by a
disinterested majority of the Board of Directors present at a meeting at which
a disinterested quorum is present, or by a designated committee of the Board,
by special legal counsel, by the shareholders or by a court.
Provisions regarding indemnification of officers and directors of Vascular
Solutions to the extent permitted by Section 302A.521 are contained in Vascular
Solutions' bylaws.
II-1
<PAGE>
Item 15. Recent Sales of Unregistered Securities
Since December 20, 1996 (inception), the Company has issued and sold the
following securities that were not registered under the Securities Act:
1. On December 20, 1996, the Company sold 1,366,250 shares of common stock
at $.001 per share to the founders of the Company. The Company received
proceeds of $1,366 from the sale of common stock.
2. At various times during the period from December 20, 1996 through August
31, 1999, the Company has granted stock options to 85 individuals, including 69
employees, 9 consultants, 2 directors and 5 other individuals providing
services to the Company under its stock option plan covering an aggregate of
928,511 shares of the Company's common stock, at exercise prices ranging from
$1.50 to $5.00 per share. At various times during the period from July 1997
through August 31, 1999, a total of 48,660 shares of common stock were issued
by the Company upon the exercise of stock options under its stock option plan.
3. In January and February 1997, the Company sold 1,000,000 shares of common
stock at $1.50 per share, from which the Company received net proceeds of
approximately $1,329,000, to 56 individuals. In connection with this sale of
common stock, the Company granted warrants to the placement agent to purchase a
total of 100,000 shares of common stock at an exercise price of $1.50 per
share. The warrants expire in January and February 2007.
4. In February 1997, the Company sold 500,000 shares of common stock to two
entities affiliated with Olympic Venture Partners at $1.50 per share. Mr.
Gerard Langeler, a director of Vascular Solutions, is a general partner of
Olympic Venture Partners.
5. In December 1997, the Company sold 2,000,000 shares of Series A preferred
stock at $2.50 per share to entities affiliated with Tredegar Investments and
Olympic Venture Partners.
6. In December 1997, the Company sold 680,000 shares of common stock at
$3.00 per share, from which the Company received net proceeds of approximately
$1,790,000, to 59 individuals. In connection with this sale of common stock,
the Company granted warrants to the placement agent to purchase a total of
68,000 shares of common stock at an exercise price of $3.00 per share. The
warrants expire in December 2007.
7. Between March and April 1998, the Company sold a total of 126,667 shares
of common stock at $3.00 per share to a total of three individuals who are
unaffiliated with the Company.
8. In December 1998, the Company sold 1,777,777 shares of Series B preferred
stock at $4.50 per share to 18 entities and individuals, including 1,221,466
shares to an entity affiliated with Stephens Inc., 100,000 shares to an entity
affiliated with Tredegar Investments, and 100,000 shares to entities affiliated
with Olympic Venture Partners. In connection with the Series B preferred stock
purchase agreement, the Company entered into a put and option agreement with
Stephens Vascular Preferred, LLC and Stephens Vascular Options, LLC giving the
Company the right to sell to Stephens Vascular Preferred up to $3,000,000 of
common stock at $5.00 or $6.00 per share based on the Company attaining certain
milestones. On June 30, 1999, we exercised our right and issued 600,000 shares
of common stock to Stephens Vascular Preferred in exchange for $3,000,000. On
December 28, 1999, Stephens Vascular Options exercised its right and purchased
from the Company
II-2
<PAGE>
$3,000,000 of common stock at $5.00 per share. In addition, the put and option
agreement provided Stephens Vascular Options the right to purchase up to
$2,000,000 of common stock at $7.00 per share. This option was exercised in
full by Stephens Vascular Options on December 28, 1999.
9. In June 1999, the Company issued a warrant to purchase 100,000 shares of
common stock at $5.00 per share to Jones Pharma, Incorporated, who is a
supplier of thrombin for the Company's Duett sealing device.
The sale and issuance of securities described above were deemed to be exempt
from registration under the Securities Act in reliance on Section 4(2) of the
Securities Act or Regulation D promulgated thereunder as transactions by an
issuer not involving a public offering, where the purchasers represented their
intention to acquire securities for investment purposes only and not with a
view to or for sale in connection with any distribution thereof, and received
or had access to adequate information about Vascular Solutions, or Rule 701
promulgated thereunder in that they were offered and sold either pursuant to
written compensatory benefit plans or pursuant to a written contract relating
to compensation.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
1.1* Form of Underwriting Agreement
3.1* Articles of Incorporation of the Company
3.2* Bylaws of the Company, as currently in effect
3.3* Amendment to the Company's Articles of Incorporation
4.1* Specimen of Common Stock certificate
4.2* Form of warrant dated January 31 and February 14, 1997 issued to
representatives of Miller, Johnson & Kuehn, Incorporated
4.3* Form of warrant dated December 29, 1997 issued to representatives of
Miller, Johnson & Kuehn, Incorporated
4.4* Amended and Restated Investors' Rights Agreement dated December 9,
1998, by and between the Company and the purchasers of Series A and
Series B preferred stock
4.5* Amended and Restated Right of First Refusal and Co-Sale Agreement
dated December 9, 1998
4.6* Put & Option Agreement dated December 9, 1998 by and among the
Company, Stephens Vascular Preferred, LLC and Stephens Vascular
Options, LLC
4.7* Stock Purchase Warrant dated June 10, 1999 by and between the Company
and Jones Pharma, Incorporated
5.1* Opinion of Dorsey & Whitney LLP
10.1* Vascular Solutions, Inc. Amended Stock Option and Stock Award Plan
10.2* Lease Agreement dated February 11, 1998 by and between Massachusetts
Mutual Life Insurance Company as Landlord and the Company as Tenant.
10.3* First Lease Amendment dated June 9, 1999 by and between Duke Realty
Limited Partnership as Landlord and the Company as Tenant
10.4* Bill of Sale and Assignment dated January 31, 1997 by and between the
Company and Dr. Gary Gershony
10.5* Mutual and General Release dated November 9, 1998 by and between the
Company, Dr. Gary Gershony and B. Braun Medical, Inc.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
10.6* Clinical Trial Services Agreement dated July 1, 1998 by and between
the Company and The Cardiovascular Data Analysis Center of the Beth
Israel Medical Group
10.7* Economics Substudy Contract dated September 1998 by and between the
Company and Emory University
10.8* Purchase and Sale Agreement dated September 17, 1998 by and between
the Company and Davol Inc.**
10.9* Purchase Agreement dated June 10, 1999 by and between GenTrac, Inc.
and the Company**
10.10* Consulting Agreement dated June 10, 1999, between the Company and
Gary Gershony, M.D.
10.11* Form of Employment Agreement by and between the Company and each of
its executive officers
10.12* Form of Distribution Agreement
10.13 Vascular Solutions, Inc. Employee Stock Purchase Plan
23.1 Consent of Ernst & Young LLP
23.2* Consent of Dorsey & Whitney LLP (included in Exhibit No. 5.1 to the
Registration Statement)
23.3* Consent of Patterson & Keough PA
24.1* Powers of Attorney
27.1* Financial Data Schedule
</TABLE>
- --------
* Previously filed.
** Confidential information has been omitted from this exhibit and filed
separately with the Securities and Exchange Commission accompanied by a
confidential treatment request pursuant to Rule 406 under the Securities Act
of 1933, as amended.
(b) Financial Statement Schedules
Not applicable.
Item 17. Undertakings
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-4
<PAGE>
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 6 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Minneapolis, State of Minnesota, on May 12, 2000.
Vascular Solutions, Inc.
/s/ Howard Root
By: _________________________________
Howard Root
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 6 to the Registration Statement on Form S-1 has been signed by the
following persons in the capacities indicated on May 12, 2000.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C> <C>
/s/ Howard Root Chief Executive Officer
______________________________________ and Director (principal
Howard Root executive officer)
/s/ Jerry Johnson Chief Financial Officer
______________________________________ (principal financial
Jerry Johnson officer and principal
accounting officer)
* Director
______________________________________
Gary Gershony
* Director
______________________________________
Gerard Langeler
Director
______________________________________
Steven Brandt
* Director
______________________________________
James Jacoby, Jr.
</TABLE>
/s/ Howard Root
*By: ____________________________
Howard Root
Attorney-in-Fact
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
1.1* Form of Underwriting Agreement
3.1* Articles of Incorporation of the Company
3.2* Bylaws of the Company, as currently in effect
3.3* Amendment to the Company's Articles of Incorporation
4.1* Specimen of Common Stock certificate
4.2* Form of warrant dated January 31 and February 14, 1997 issued to
representatives of Miller, Johnson & Kuehn, Incorporated
4.3* Form of warrant dated December 29, 1997 issued to representatives of
Miller, Johnson & Kuehn, Incorporated
4.4* Amended and Restated Investors' Rights Agreement dated December 9,
1998, by and between the Company and the purchasers of Series A and
Series B preferred stock
4.5* Amended and Restated Right of First Refusal and Co-Sale Agreement dated
December 9, 1998
4.6* Put & Option Agreement dated December 9, 1998 by and among the Company,
Stephens Vascular Preferred, LLC and Stephens, Vascular Options, LLC
4.7* Stock Purchase Warrant dated June 10, 1999 by and between the Company
and Jones Pharma, Incorporated
5.1* Opinion of Dorsey & Whitney LLP
10.1* Vascular Solutions, Inc. Amended Stock Option and Stock Award Plan
10.2* Lease Agreement dated February 11, 1998 by and between Massachusetts
Mutual Life Insurance Company as Landlord and the Company as Tenant
10.3* First Lease Amendment dated June 9, 1999 by and between Duke Realty
Limited Partnership as Landlord and the Company as Tenant
10.4* Bill of Sale and Assignment dated January 31, 1997 by and between the
Company and Dr. Gary Gershony
10.5* Mutual and General Release dated November 9, 1998 by and between the
Company, Dr. Gary Gershony and B. Braun Medical, Inc.
10.6* Clinical Trial Services Agreement dated July 1, 1998 by and between the
Company and The Cardiovascular Data Analysis Center of the Beth Israel
Medical Group
10.7* Economics Substudy Contract dated September 1998 by and between the
Company and Emory University
10.8* Purchase and Sale Agreement dated September 17, 1998 by and between the
Company and Davol Inc.**
10.9* Purchase Agreement dated June 10, 1999 by and between GenTrac, Inc. and
the Company**
10.10* Consulting Agreement dated June 10, 1999, between the Company and Gary
Gershony, M. D.
10.11* Form of Employment Agreement by and between the Company and each of its
executive officers
10.12* Form of Distribution Agreement
10.13 Vascular Solutions, Inc. Employee Stock Purchase Plan
23.1 Consent of Ernst & Young LLP
23.2* Consent of Dorsey & Whitney LLP (included in Exhibit 5.1 to the
Registration Statement)
23.3* Consent of Patterson & Keough PA
24.1* Power of Attorney
27.1* Financial Data Schedule
</TABLE>
- --------
* Previously filed.
** Confidential information has been omitted from this exhibit and filed
separately with the Securities and Exchange Commission accompanied by a
confidential treatment request pursuant to Rule 406 under the Securities
Act of 1933, as amended.
<PAGE>
EXHIBIT 10.13
VASCULAR SOLUTIONS, INC.
EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the Employee Stock Purchase Plan
of Vascular Solutions, Inc.
1. Purpose. The purpose of the Plan is to provide employees of the Company
and its Designated Subsidiaries with an opportunity to purchase Common Stock of
the Company. It is the intention of the Company to have the Plan qualify as an
"Employee Stock Purchase Plan" under Section 423 of the Code. The provisions of
the Plan shall, accordingly, be construed so as to extend and limit
participation in a manner consistent with the requirements of that section of
the Code.
2. Definitions.
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" means the Common Stock of the Company.
(d) "Company" means Vascular Solutions, Inc., a Minnesota corporation.
(e) "Compensation" means regular cash compensation received by an
Employee from the Company or a Designated Subsidiary. By way of
illustration, but not limitation, Compensation includes regular
compensation such as salary, wages, overtime, shift differentials and
commissions, but excludes bonuses, incentive compensation, relocation,
expense reimbursements, tuition or other reimbursements and income realized
as a result of participation in any stock option, stock purchase, or
similar plan of the Company or any Designated Subsidiary.
(f) "Continuous Status as an Employee" means the absence of any
interruption or termination of service as an Employee. Continuous Status as
an Employee shall not be considered interrupted in the case of (i) sick
leave; (ii) military leave; (iii) any other leave of absence approved by
the Administrator, provided that such leave is for a period of not more
than 90 days, unless reemployment upon the expiration of such leave is
guaranteed by contract or statute, or unless provided otherwise pursuant to
Company policy adopted from time to time; or (iv) in the case of transfers
between locations of the Company or between the Company and its Designated
Subsidiaries.
(g) "Contributions" means all amounts credited to the account of a
participant pursuant to the Plan.
(h) "Corporate Transaction" means a sale of all or substantially all
of the Company's assets, or a merger, consolidation or other capital
reorganization of the Company with or into another corporation, or any
other transaction or series of related transactions in which the Company's
stockholders immediately prior thereto own less than 50% of the voting
stock of the Company (or its successor or parent) immediately thereafter.
Page 1 of 9
<PAGE>
(i) "Designated Subsidiaries" means the Subsidiaries that have been
designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan; provided however that the Board shall
only have the discretion to designate Subsidiaries if the issuance of
options to such Subsidiary's Employees pursuant to the Plan would not cause
the Company to incur adverse accounting charges.
(j) "Employee" means any person, including an Officer, who is an
Employee for tax purposes and who is customarily employed for at least
twenty (20) hours per week by the Company or one of its Designated
Subsidiaries.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(l) "Offering Date" means the first business day of each Offering
Period of the Plan.
(m) "Offering Period" means a period of twenty-four (24) months
commencing on November 1 and May 1 of each year, except for the first
Offering Period as set forth in Section 4(a).
(n) "Officer" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(o) "Plan" means this Employee Stock Purchase Plan.
(p) "Purchase Date" means the last day of each Purchase Period of the
Plan.
(q) "Purchase Period" means a period of six (6) months within an
Offering Period, except for the Purchase Periods in the first Offering
Period as set forth in Section 4(b).
(r) "Purchase Price" means with respect to a Purchase Period an amount
equal to 85% of the Fair Market Value (as defined in Section 7(b) below) of
a Share of Common Stock on the Offering Date or on the Purchase Date,
whichever is lower.
(s) "Share" means a share of Common Stock, as adjusted in accordance
with Section 19 of the Plan.
(t) "Subsidiary" means a corporation, domestic or foreign, of which
not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter
organized or acquired by the Company or a Subsidiary.
3. Eligibility.
(a) Any person who is an Employee as of the Offering Date of a given
Offering Period shall be eligible to participate in such Offering Period
under the Plan, subject to the requirements of Section 5(a) and the
limitations imposed by Section 423(b) of the Code.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) if, immediately
after the grant, such Employee (or any other person whose stock would be
attributed to such Employee pursuant to Section 424(d) of the Code) would
own capital stock of the Company and/or hold outstanding options to
purchase stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of stock of the Company or of any
subsidiary of the Company, or (ii) if such option would permit his or her
rights to purchase stock under all employee stock purchase plans (described
in Section 423 of the Code) of the Company and its Subsidiaries to accrue
at a rate that exceeds Twenty-Five Thousand Dollars ($25,000) of the Fair
Market Value (as
Page 2 of 9
<PAGE>
defined in Section 7(b) below) of such stock (determined at the time such
option is granted) for each calendar year in which such option is
outstanding at any time.
4. Offering Periods and Purchase Periods.
(a) Offering Periods. The Plan shall be generally implemented by a
series of Offering Periods of twenty-four (24) months' duration, with new
Offering Periods (other than the first Offering Period) commencing on or
about May 1 and November 1 of each year (or at such other time or times as
may be determined by the Board of Directors). The first Offering Period
shall commence on the day before the effective date of the Registration
Statement on Form S-1 for the initial public offering of the Company's
Common Stock (the "IPO Date") and continue until April 30, 2002. The Plan
shall continue until terminated in accordance with Section 19 hereof. The
Board of Directors of the Company shall have the power to change the
duration and/or the frequency of Offering Periods with respect to future
offerings without stockholder approval if such change is announced at least
five (5) days prior to the scheduled beginning of the first Offering Period
to be affected.
(b) Purchase Periods. Each Offering Period shall generally consist of
four (4) consecutive purchase periods of six (6) months' duration. The last
day of each Purchase Period shall be the "Purchase Date" for such Purchase
Period. A Purchase Period commencing on May 1 shall end on the next October
31. A Purchase Period commencing on November 1 shall end on the next April
30. The first Offering Period shall have three Purchase Periods. The first
Purchase Period of the first Offering Period shall commence on the IPO Date
and shall end on April 30, 2001, with the second Purchase Period beginning
on May 1, 2001 and ending on October 31, 2001, and the third Purchase
Period beginning on November 1, 2001 and ending on April 30, 2002. The
Board of Directors of the Company shall have the power to change the
duration and/or frequency of Purchase Periods with respect to future
purchases without stockholder approval if such change is announced at least
five (5) days prior to the scheduled beginning of the first Purchase Period
to be affected.
5. Participation.
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement on the form provided by the Company and
filing it with the Company's Human Resources Department or the stock
brokerage or other financial services firm designated by the Company (the
"Designated Broker") prior to the applicable Offering Date, unless a later
time for filing the subscription agreement is set by the Board for all
eligible Employees with respect to a given Offering Period. The
subscription agreement shall set forth the percentage of the participant's
Compensation (subject to Section 6(a) below) to be paid as Contributions
pursuant to the Plan.
(b) Payroll deductions shall commence on the first full payroll
following the Offering Date and shall end on the last payroll paid on or
prior to the last Purchase Period of the Offering Period to which the
subscription agreement is applicable, unless sooner terminated by the
participant as provided in Section 10.
6. Method of Payment of Contributions.
(a) A participant shall elect to have payroll deductions made on each
payday during the Offering Period in an amount not less than one percent
(1%) and not more than ten percent (10%) (or such other percentage as the
Board may establish from time to time before an Offering Date) of such
participant's Compensation on each payday during the Offering Period. All
payroll deductions made by a participant shall be credited to his or her
account under the Plan. A participant may not make any additional payments
into such account, except as provided in Section 11.
Page 3 of 9
<PAGE>
(b) A participant may discontinue his or her participation in the Plan
as provided in Section 10, or, unless otherwise provided by the
Administrator, on one occasion only during a Purchase Period may increase
and on one occasion only during a Purchase Period may decrease the rate of
his or her Contributions with respect to the ongoing Offering Period by
completing and filing with the Company a new subscription agreement
authorizing a change in the payroll deduction rate. The change in rate
shall be effective as of the beginning of the next pay period following the
date of filing of the new subscription agreement, if the agreement is filed
at least ten (10) business days prior to such date and, if not, as of the
beginning of the next succeeding pay period.
(c) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) herein, a participant's
payroll deductions may be decreased during any Offering Period scheduled to
end during the current calendar year to 0%. Payroll deductions shall
re-commence at the rate provided in such participant's subscription
agreement at the beginning of the first Offering Period that is scheduled
to end in the following calendar year, unless terminated by the participant
as provided in Section 10.
7. Grant of Option.
(a) On the Offering Date of each Offering Period, each eligible
Employee participating in such Offering Period shall be granted an option
to purchase on each Purchase Date a number of Shares of the Company's
Common Stock determined by dividing such Employee's Contributions
accumulated prior to such Purchase Date and retained in the participant's
account as of the Purchase Date by the applicable Purchase Price; provided
however that the maximum number of Shares an Employee may purchase during
each Purchase Period shall be 2,000 Shares (subject to any adjustment
pursuant to Section 19 below), and provided further that such purchase
shall be subject to the limitations set forth in Sections 3(b) and 13 of
this Plan and Section 423 of the Code.
(b) The fair market value of the Company's Common Stock on a given
date (the "Fair Market Value") shall be determined by the Board in its
discretion based on the closing sales price of the Common Stock for such
date (or, in the event that the Common Stock is not traded on such date, on
the immediately preceding trading date), as reported by the National
Association of Securities Dealers Automated Quotation (Nasdaq) National
Market or, if such price is not reported, the mean of the bid and asked
prices per share of the Common Stock as reported by Nasdaq or, in the event
the Common Stock is listed on a stock exchange, the Fair Market Value per
share shall be the closing sales price on such exchange on such date (or,
in the event that the Common Stock is not traded on such date, on the
immediately preceding trading date), as reported in The Wall Street
Journal. For purposes of the Offering Date under the first Offering Period
under the Plan, the Fair Market Value of a share of the Common Stock of the
Company shall be the Price to Public as set forth in the final prospectus
filed with the Securities and Exchange Commission pursuant to Rule 424
under the Securities Act of 1933, as amended.
8. Exercise of Option. Unless a participant withdraws from the Plan as
provided in Section 10, his or her option for the purchase of Shares will be
exercised automatically on each Purchase Date of an Offering Period, and the
maximum number of full Shares subject to the option will be purchased at the
applicable Purchase Price with the accumulated Contributions in his or her
account. No fractional Shares shall be issued. Any payroll deductions
accumulated in a participant's account that are not sufficient to purchase a
full Share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 below. Any other amounts left over in a
participant's account after a Purchase Date shall be returned to the
participant. The Shares purchased upon exercise of an option hereunder shall be
deemed to be transferred to the
Page 4 of 9
<PAGE>
participant on the Purchase Date. During his or her lifetime, a participant's
option to purchase Shares hereunder is exercisable only by him or her.
9. Delivery. Within thirty (30) days after each Purchase Date of each
Offering Period, the number of Shares purchased by each participant upon
exercise of his or her option shall be deposited into an account established in
the participant's name with the Designated Broker.
10. Voluntary Withdrawal; Termination of Employment.
(a) A participant may withdraw all but not less than all the
Contributions credited to his or her account under the Plan at any time
prior to each Purchase Date by giving written notice to the Company or the
Designated Broker, as directed by the Company. All of the participant's
Contributions credited to his or her account will be paid to him or her
promptly after receipt of his or her notice of withdrawal and his or her
option for the current period will be automatically terminated, and no
further Contributions for the purchase of Shares will be made during the
Offering Period.
(b) Upon termination of the participant's Continuous Status as an
Employee prior to the Purchase Date of an Offering Period for any reason,
including retirement or death, the Contributions credited to his or her
account will be returned to him or her or, in the case of his or her death,
to the person or persons entitled thereto under Section 14, and his or her
option will be automatically terminated.
(c) In the event an Employee fails to remain in Continuous Status as
an Employee of the Company for at least twenty (20) hours per week during
the Offering Period in which the employee is a participant, he or she will
be deemed to have elected to withdraw from the Plan and the Contributions
credited to his or her account will be returned to him or her and his or
her option terminated.
(d) A participant's withdrawal from an offering will not have any
effect upon his or her eligibility to participate in a succeeding offering
or in any similar plan that may hereafter be adopted by the Company.
11. Automatic Withdrawal. If the Fair Market Value of the Shares on any
Purchase Date of an Offering Period is less than the Fair Market Value of the
Shares on the Offering Date for such Offering Period, then every participant
shall automatically (i) be withdrawn from such Offering Period at the close of
such Purchase Date and after the acquisition of Shares for such Purchase Period,
and (ii) be enrolled in the Offering Period commencing on the first business day
subsequent to such Purchase Period. Participants shall automatically be
withdrawn as of October 31, 2000 from the Offering Period beginning on the IPO
Date and re-enrolled (with all Contributions carried forward) in the Offering
Period beginning on November 1, 2000 if the Fair Market Value of the Shares on
the IPO Date is greater than the Fair Market Value of the Shares on October 31,
2000, unless a participant notifies the Administrator prior to October 31, 2000
that he or she does not wish to be withdrawn and re-enrolled; and, in connection
therewith, any new participant to the Offering Period beginning on November 1,
2000 may make an additional Contribution up to the maximum amount of any
Contribution carried forward by a participant.
12. Interest. No interest shall accrue on the Contributions of a
participant in the Plan.
13. Stock.
(a) Subject to adjustment as provided in Section 19, the maximum
number of Shares which shall be made available for sale under the Plan
shall be 500,000 Shares, plus an automatic annual increase on the first day
of each of the Company's fiscal years beginning in 2002 and ending in 2010
equal to the lesser of (i) 200,000 Shares, (ii) two percent (2%) of the
Shares outstanding on the last day of the
Page 5 of 9
<PAGE>
immediately preceding fiscal year, or (iii) a lesser amount determined by
the Board. If the Board determines that, on a given Purchase Date, the
number of shares with respect to which options are to be exercised may
exceed (i) the number of shares of Common Stock that were available for
sale under the Plan on the Offering Date of the applicable Offering Period,
or (ii) the number of shares available for sale under the Plan on such
Purchase Date, the Board may in its sole discretion provide (x) that the
Company shall make a pro rata allocation of the Shares of Common Stock
available for purchase on such Offering Date or Purchase Date, as
applicable, in as uniform a manner as shall be practicable and as it shall
determine in its sole discretion to be equitable among all participants
exercising options to purchase Common Stock on such Purchase Date, and
continue all Offering Periods then in effect, or (y) that the Company shall
make a pro rata allocation of the shares available for purchase on such
Offering Date or Purchase Date, as applicable, in as uniform a manner as
shall be practicable and as it shall determine in its sole discretion to be
equitable among all participants exercising options to purchase Common
Stock on such Purchase Date, and terminate any or all Offering Periods then
in effect pursuant to Section 20 below. The Company may make pro rata
allocation of the Shares available on the Offering Date of any applicable
Offering Period pursuant to the preceding sentence, notwithstanding any
authorization of additional Shares for issuance under the Plan by the
Company's stockholders subsequent to such Offering Date.
(b) The participant shall have no interest or voting right in Shares
covered by his or her option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan will be
registered in the name of the participant or in the name of the participant
and his or her spouse.
14. Administration. The Board, or a committee named by the Board, shall
supervise and administer the Plan and shall have full power to adopt, amend and
rescind any rules deemed desirable and appropriate for the administration of the
Plan and not inconsistent with the Plan, to construe and interpret the Plan, and
to make all other determinations necessary or advisable for the administration
of the Plan.
15. Designation of Beneficiary.
(a) A participant may designate a beneficiary who is to receive any
Shares and cash, if any, from the participant's account under the Plan in
the event of such participant's death subsequent to the end of a Purchase
Period but prior to delivery to him or her of such Shares and cash. In
addition, a participant may designate a beneficiary who is to receive any
cash from the participant's account under the Plan in the event of such
participant's death prior to the Purchase Date of an Offering Period. If a
participant is married and the designated beneficiary is not the spouse,
spousal consent shall be required for such designation to be effective.
Beneficiary designations under this Section 15(a) shall be made as directed
by the Company's Human Resources Department.
(b) Such designation of beneficiary may be changed by the participant
(and his or her spouse, if any) at any time by written notice. In the event
of the death of a participant and in the absence of a beneficiary validly
designated under the Plan who is living at the time of such participant's
death, the Company shall deliver such Shares and/or cash to the executor or
administrator of the estate of the participant, or if no such executor or
administrator has been appointed (to the knowledge of the Company), the
Company, in its discretion, may deliver such Shares and/or cash to the
spouse or to any one or more dependents or relatives of the participant, or
if no spouse, dependent or relative is known to the Company, then to such
other person as the Company may designate.
Page 6 of 9
<PAGE>
16. Transferability. Neither Contributions credited to a participant's
account nor any rights with regard to the exercise of an option or to receive
Shares under the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way (other than by will, the laws of descent and
distribution, or as provided in Section 15) by the participant. Any such attempt
at assignment, transfer, pledge or other disposition shall be without effect,
except that the Company may treat such act as an election to withdraw funds in
accordance with Section 10.
17. Use of Funds. All Contributions received or held by the Company under
the Plan may be used by the Company for any corporate purpose, and the Company
shall not be obligated to segregate such Contributions.
18. Reports. Individual accounts will be maintained for each participant in
the Plan. Statements of account will be provided to participating Employees by
the Company or the Designated Broker at least annually, which statements will
set forth the amounts of Contributions, the per Share Purchase Price, the number
of Shares purchased and the remaining cash balance, if any.
19. Adjustments Upon Changes in Capitalization; Corporate Transactions.
(a) Adjustment. Subject to any required action by the stockholders of
the Company, the number of Shares covered by each option under the plan
that has not yet been exercised and the number of Shares that have been
authorized for issuance under the Plan but have not yet been placed under
option (collectively, the "Reserves"), as well as the maximum number of
shares of Common Stock that may be purchased by a participant in a Purchase
Period, the number of shares of Common Stock set forth in Section 13(a)(i)
above, and the price per Share of Common Stock covered by each option under
the Plan that has not yet been exercised, shall be proportionately adjusted
for any increase or decrease in the number of issued Shares resulting from
a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock (including any such change in the
number of Shares of Common Stock effected in connection with a change in
domicile of the Company), or any other increase or decrease in the number
of Shares effected without receipt of consideration by the Company;
provided however that conversion of any convertible securities of the
Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board, whose
determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issue by the Company of shares of
stock of any class, or securities convertible into shares of stock of any
class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of Shares subject to an option.
(b) Corporate Transactions. In the event of a dissolution or
liquidation of the Company, any Purchase Period and Offering Period then in
progress will terminate immediately prior to the consummation of such
action, unless otherwise provided by the Board. In the event of a Corporate
Transaction, each option outstanding under the Plan shall be assumed or an
equivalent option shall be substituted by the successor corporation or a
parent or Subsidiary of such successor corporation. In the event that the
successor corporation refuses to assume or substitute for outstanding
options, each Purchase Period and Offering Period then in progress shall be
shortened and a new Purchase Date shall be set (the "New Purchase Date"),
as of which date any Purchase Period and Offering Period then in progress
will terminate. The New Purchase Date shall be on or before the date of
consummation of the transaction and the Board shall notify each participant
in writing, at least ten (10) days prior to the New Purchase Date, that the
Purchase Date for his or her option has been changed to the New Purchase
Date and that his or her option will be exercised automatically on the New
Purchase Date, unless prior to such date he or she has withdrawn from the
Offering Period as provided in Section 10. For purposes of this Section 19,
an option granted under the Plan shall be deemed to be assumed, without
limitation, if, at the time of issuance of the stock or other consideration
upon a Corporate Transaction, each holder of an option under
Page 7 of 9
<PAGE>
the Plan would be entitled to receive upon exercise of the option the same
number and kind of shares of stock or the same amount of property, cash or
securities as such holder would have been entitled to receive upon the
occurrence of the transaction if the holder had been, immediately prior to
the transaction, the holder of the number of Shares of Common Stock covered
by the option at such time (after giving effect to any adjustments in the
number of Shares covered by the option as provided for in this Section 19);
provided however that if the consideration received in the transaction is
not solely common stock of the successor corporation or its parent (as
defined in Section 424(e) of the Code), the Board may, with the consent of
the successor corporation, provide for the consideration to be received
upon exercise of the option to be solely common stock of the successor
corporation or its parent equal in Fair Market Value to the per Share
consideration received by holders of Common Stock in the transaction.
The Board may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the Reserves, as well as the
price per Share of Common Stock covered by each outstanding option, in the
event that the Company effects one or more reorganizations,
recapitalizations, rights offerings or other increases or reductions of
Shares of its outstanding Common Stock, and in the event of the Company's
being consolidated with or merged into any other corporation.
20. Amendment or Termination.
(a) The Board may at any time and for any reason terminate or amend
the Plan. Except as provided in Section 19, no such termination of the Plan
may affect options previously granted, provided that the Plan or an
Offering Period may be terminated by the Board on a Purchase Date or by the
Board's setting a new Purchase Date with respect to an Offering Period and
Purchase Period then in progress if the Board determines that termination
of the Plan and/or the Offering Period is in the best interests of the
Company and the stockholders or if continuation of the Plan and/or the
Offering Period would cause the Company to incur adverse accounting charges
as a result of a change after the effective date of the Plan in the
generally accepted accounting rules applicable to the Plan. Except as
provided in Section 19 and in this Section 20, no amendment to the Plan
shall make any change in any option previously granted that adversely
affects the rights of any participant. In addition, to the extent necessary
to comply with Rule 16b-3 under the Exchange Act, or under Section 423 of
the Code (or any successor rule or provision or any applicable law or
regulation), the Company shall obtain stockholder approval in such a manner
and to such a degree as so required.
(b) Without stockholder consent and without regard to whether any
participant rights may be considered to have been adversely affected, the
Board (or its committee) shall be entitled to change the Offering Periods
and Purchase Periods, limit the frequency and/or number of changes in the
amount withheld during an Offering Period, establish the exchange ratio
applicable to amounts withheld in a currency other than U.S. dollars,
permit payroll withholding in excess of the amount designated by a
participant in order to adjust for delays or mistakes in the Company's
processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common
Stock for each participant properly correspond with amounts withheld from
the participant's Compensation, and establish such other limitations or
procedures as the Board (or its committee) determines in its sole
discretion advisable that are consistent with the Plan.
21. Notices. All notices or other communications by a participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such Shares pursuant thereto shall comply
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with all applicable provisions of law, domestic or foreign, including, without
limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules
and regulations promulgated thereunder, applicable state securities laws and the
requirements of any stock exchange upon which the Shares may then be listed, and
shall be further subject to the approval of counsel for the Company with respect
to such compliance.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.
23. Term of Plan; Effective Date. The Plan shall become effective upon the
IPO Date. If the Plan is not approved by the shareholders prior to April 30,
2001, all Contributions will be returned to each participant without interest
and the Plan will be terminated. The Plan shall continue in effect for a term of
ten (10) years unless sooner terminated under Section 20 or this Section 23.
24. Additional Restrictions of Rule 16b-3. The terms and conditions of
options granted hereunder to, and the purchase of Shares by, persons subject to
Section 16 of the Exchange Act shall comply with the applicable provisions of
Rule 16b-3. This Plan shall be deemed to contain, and such options shall
contain, and the Shares issued upon exercise thereof shall be subject to, such
additional conditions and restrictions as may be required by Rule 16b-3 to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.
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EXHIBIT 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the captions "Selected Financial
Data" and "Experts" and to the use of our report dated January 12, 2000 in
Amendment No. 6 to the Registration Statement (Form S-1 No. 333-84089) and
related Prospectus of Vascular Solutions, Inc. for the registration of 3,450,000
shares of common stock.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
May 12, 2000
