SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 30, 1996
Commission file number 0-11571
AEQUITRON MEDICAL, INC.
(Exact name of registrant as specified in its charter)
14800 Twenty-eighth Avenue North
Minneapolis, Minnesota 55447
(Address of principal executive offices)
Incorporated under the laws of IRS Identification Number
the State of Minnesota 41-1359703
(612) 557-9200
(Registrant's telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. [ x ] Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ x ]
The issuer's revenues for 1996, its most recent fiscal year, were $38,447,800.
The aggregate market value of the Company's common stock held by nonaffiliates
of the Company on July 23, 1996 computed at The Nasdaq National Market closing
price of $7.50 was $35,785,665.
The Company has one class of equity securities outstanding: common stock, $.01
par value per share. On July 19, 1996, there were 4,940,842 shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's definitive proxy statement for its 1996 annual meeting
of shareholders are incorporated by reference into Items 10, 11, 12 and 13 of
Part III.
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PART I
ITEM 1. BUSINESS
Aequitron Medical, Inc. (the "Company" or "Aequitron") is primarily
engaged in the development, manufacture and distribution of medical electronic
devices for home health care and hospital use. The Company was formed as a
Minnesota corporation on May 8, 1980. The Company's medical electronic products
include electronic equipment and related accessories for monitoring and
analyzing respiration and heart rate data for infants considered susceptible to
episodes of apnea, a line of ventilator products used to assist respiration in
patients suffering from chronic obstructive pulmonary disease or other breathing
difficulties, and sleep disorder diagnostic products.
The Company, through its Crow River Industries, Incorporated subsidiary
("Crow River"), also manufactures and sells wheelchair lifts, securement systems
and automobile hand controls for the mobility-impaired.
In June 1995, the Company acquired a line of products and inventory for
the diagnosis of sleep disorders. As a result of the acquisition, the Company
now designs, manufactures and markets computer-based diagnostic devices for
sleep disorders such as sleep apnea (the cessation or interruption of breathing
during sleep), insomnia and narcolepsy. The products produced include (i) a
sleep lab product line, SLEEPLAB(R), which records, processes and permits
analysis of comprehensive sleep study data, (ii) a portable sleep staging
device, the Sleep I/T(R), (iii) a portable recording device, the PolyG(R), for
in-home sleep apnea testing, (iv) portable recording devices, Serena(TM) and
Serena MX(TM) and (v) Matrix Sleep(TM), a Windows(R)-based sleep analysis
software package.
INFANT APNEA PRODUCTS
The Company designs, manufactures and markets monitors intended to
detect central apnea, bradycardia (an abnormally low heart rate) and tachycardia
(an abnormally fast heart rate) in infants. Prolonged apnea incidents are
generally considered to be a contributing factor of Sudden Infant Death Syndrome
("SIDS"), commonly referred to as "Crib Death." Although it is presently
impossible to predict precisely which infants are susceptible to SIDS due to
apnea, it is known statistically that certain categories of infants have a
higher incidence of SIDS. These categories include infants with low birth
weights, premature infants, infants with siblings who have had apnea-related
problems or have succumbed to SIDS, and infants who have experienced apnea
episodes and survived.
The Company's principal products in this area are its Model 9500/9550
respiration/heart rate memory monitors (the "Model 9500/9550 Memory Monitors"),
which are designed to be used in homes and hospitals. The Model 9500/9550 Memory
Monitors, which were introduced in May 1989, have respiration and heart rate
monitoring capabilities as well as internal recording capabilities. The Company
has manufactured and marketed respiration/heart rate monitors since June 1982.
Additionally, the Company offers the Model 9216 respiration/heart rate monitor
used in hospital monitoring.
Since June 1990, the Company has also been selling the Model 9101
multi-channel recording and analysis system (the "Model 9101"), which is a
diagnostic device designed to assist physicians in managing patients of all ages
who experience breathing disorders while sleeping. A portable version of the
Model 9101 was introduced in July 1991 for home or hospital use.
The Company's infant apnea-related products and accessories accounted
for approximately 18%, 27% and 28% of the Company's net sales in fiscal 1996,
1995 and 1994, respectively.
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Model 9500/9550 Respiration/Heart Rate Memory Monitors
The Model 9500/9550 Memory Monitors are portable monitoring devices
which are attached by placing a padded belt holding electrodes around the
infant's torso in the correct position on the infant's skin. Model 9500/9550
Memory Monitors are used to monitor the infant's respiratory and cardiac
functions and are intended to sound an alarm when these detected functions
deviate from norms established by the physician for that infant. The alarm can
be set for apnea, tachycardia and bradycardia events. The alarm normally alerts
the parents or caregiver in attendance of the possible need to stimulate the
infant or take other appropriate action.
Model 9500/9550 Memory Monitors have capabilities so that information
on apnea, bradycardia or tachycardia events is recorded internally and can be
printed out at a later time in graphic format. Both the Model 9500 and 9550
Memory Monitors record on/off times and provide a complete log, a summary report
of what happened during the monitoring period, and a compliance graph and event
histograms. The information generated provides clinicians with compliance
patterns, objective alarm verification data, and assistance in determining
monitor discontinuance. The Model 9550 Memory Monitor also interfaces with a
pulse oximeter which measures pulse rate and blood oxygen saturation level.
Recorded information can be transmitted by telephone or by a direct
connection from the Model 9500/9550 to a compatible PC. Report generator
software analyzes the data received and provides the physician with a printed
copy of the recorded data.
The Model 9500/9550 Memory Monitors, which have been designed for both
hospital and home use, are used primarily for the monitoring of infants in the
home. Monitoring at home is less expensive than hospitalization and has proven
to be a cost-effective alternative to hospital monitoring when the necessary
training, service and supervision for in-home use are available.
The Company sells its products primarily to home health care dealers,
who in turn rent or sell units to families of infants who have been diagnosed as
susceptible to apnea. The expense of the monitor is generally covered by third
party payors.
The Company also has a series of accessories that may be used with
Model 9500/9550 Memory Monitors or may be sold separately. These include remote
alarms, a digital ratemeter, an impedance tester, cables, carrying cases and a
variety of electrodes.
Model 9216 Respiration/Heart Rate Monitor
In February 1988, the Company introduced and sold its first Model 9216
Respiration/Heart Rate Monitor, which is designed to meet the needs of hospitals
that monitor both adult and pediatric patients. The Model 9216 is portable (7
lbs.), contains an eight-hour rechargeable battery and displays the patient's
heart and respiration rates. The Model 9216 is used in a number of
cardiorespiratory monitoring applications, such as in neonatal intensive care
units, patient transport and recovery rooms.
Model 9101 Recording and Analysis System
In June 1990, the Company introduced the Model 9101, a multi-channel
recording and analysis system which can be used in conjunction with the
Company's respiration/heart monitors. This diagnostic device has been designed
to help physicians manage patients of all ages who experience breathing
disorders while sleeping. It records and analyzes eight physiological parameters
including the patient's respiration, EKG, air flow, blood oxygen saturation and
esophageal pH. The Model 9101 processes the recorded data through a
sophisticated software program for analysis. The Model 9101 has been designed
for use in sleep or breathing disorder laboratories and in neonatal and
pediatric intensive care units. A portable version of the Model 9101 was
introduced in July 1991 for both home and hospital use.
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PORTABLE COMPACT VENTILATORS
In August 1986, the Company purchased for $6 million all the
outstanding stock of Life Products, Inc. ("Life Products"), a Colorado-based
corporation engaged in the manufacture and sale of portable breathing assistance
devices. With the acquisition of Life Products, the Company began to manufacture
a line of compact, portable breathing assistance devices and related accessories
for use in home, hospital, nursing facility and patient transport settings. The
devices are used to assist and monitor respiration in patients suffering from
chronic obstructive pulmonary disease or breathing difficulties caused by spinal
cord injuries, polio or other trauma. In June 1991, the Company introduced the
Model LP10 Compact Volume Ventilator ("LP10 Ventilator"). The LP6 Plus
Ventilator ("LP6 Plus") was introduced in July 1992 to replace the Company's
original LP6 Ventilator ("Original LP6"). The Company designed the LP6 Plus in
order to utilize more current technology and incorporate parts and supplies
which are more readily available. In July 1996, the Company introduced the Model
LP20 Portable Volume Ventilator ("LP20 Ventilator").
Traditionally, positive-pressure ventilators are one of two types: (i)
intensive care unit ventilators designed for continuous use in hospitals and
(ii) portable ventilators designed for continuous use in the home, subacute
settings or for transport. The LP6 Plus, LP10 Ventilators and LP20 Ventilators,
like all positive pressure ventilators, force air into the patient's lungs at
regular pre-set intervals and are used in all patient care settings.
The Company believes the LP6 Plus and LP10 Ventilators are well known
to dealers as state-of-the-art technology and are well established in the
marketplace. The LP6 Plus and LP10 Ventilators use a microprocessor controlled
system with an integrated motor, gear box and pumping process, which greatly
reduces periodic maintenance intervals and improves access to the system. The
LP6 Plus and LP10 Ventilator casing has a one-piece molded manifold that reduces
potential for air leaks. The LP6 Plus and LP10 Ventilators have been designed
for ease of operation with calibrated control knobs, an analog pressure meter
and audible/visual alarms. The units are portable (32 lbs.) and have a remote
alarm and remote printer accessories, as well as other accessories. The most
notable features of the LP10 Ventilator include a pressure plateau valve for the
pediatric market and a printer interface for recording data to assist resolution
of potential problems and offer greater detail to alarm occurrences.
The LP6 Plus and LP10 Ventilators are marketed for general use in the
home; in hospitals for various uses including intensive care units, burn care
units, cardio-pulmonary treatment, and patient transport; in nursing homes; in
air and ground emergency transport; and in long-term acute care/subacute care
facilities. The Company's principal focus has historically been home health care
sales. The LP6 Plus (or its predecessor, the Original LP6) and LP10 Ventilators
and accessories accounted for approximately 47%, 47% and 44% of the Company's
net sales in fiscal 1996, 1995 and 1994, respectively.
Pursuant to an original equipment manufacturer agreement between the
Company and Dragerwerk Aktiengesellschaft, a corporation with its principal
place of business in Germany ("Dragerwerk"), the Company has redesigned the
Original LP6 and LP10 Ventilators to Dragerwerk's specifications for
distribution by Dragerwerk outside the United States. Dragerwerk markets the
redesigned ventilators under the name Drager EV800 and EV801.
The LP20 Ventilator, which just received FDA approval in July 1996, is
very similar to the LP6 Plus and LP10 Ventilators, except that it was designed
especially for subacute and acute care markets. The significant differences
include a built-in nurse call system without the use of an additional interface
device and differentiating low and high pressure alarms for more accurate
analysis of the user's breathing condition.
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SLEEP DISORDER DIAGNOSTIC DEVICES
On June 1, 1995, the Company acquired the sleep diagnostic business
from CNS, Inc. pursuant to an Asset Purchase Agreement dated May 8, 1995. The
assets acquired include all rights to CNS, Inc.'s sleep diagnostic products, all
applicable patents and a product currently under development.
Following the acquisition, the Company now manufactures two new types
of computer-based products used to diagnose sleep disorders: (i) hospital and
clinic-based sleep laboratory equipment and (ii) portable devices for use
primarily outside traditional hospital sleep laboratories. The diagnosis and
treatment of sleep disorders such as sleep apnea, insomnia and narcolepsy have
expanded significantly in recent years.
The Company believes the largest market for its sleep disorder
diagnostic devices is sleep apnea, which is estimated to afflict 4% of the U.S.
adult population. Sleep apnea patients typically stop breathing hundreds of
times during the night, disrupting their sleep and causing significant
cardiorespiratory problems. In addition, because their sleep is frequently
disrupted, apnea patients have greater difficulty staying awake during the day
and are more likely to fall asleep at work or while driving. The Company
believes that the level of interest in providing more testing for sleep apnea
has been increasing because of the large number of people believed to be
affected by this disorder and because safe and effective therapy is available.
However, the extent to which this trend will continue may be influenced by
potentially lower reimbursement rates.
In sleep labs, patients are typically monitored for one or two nights
with a polysomnograph which records any or all of the following data: EEG, EKG,
eye movement, respiration (flow and effort of breathing), muscle activity from
the chin and legs, blood oxygen level, snoring sounds and body position. The
Company's sleep disorder diagnostic products reduce the costs and time required
to gather, analyze and store sleep study data obtained compared with other data
that is obtained without the use of computer-based diagnostic equipment and when
compared to competitive systems.
The Company currently manufactures and sells the following
computer-based products used principally in the diagnosis of sleep related
disorders.
SLEEP LAB(R) (Sleep Disorders Laboratory Systems)
The Company's laboratory systems are used primarily in hospital sleep
labs where comprehensive sleep studies are performed. The Company's systems
record EEG, EKG, eye movement, respiration, muscle activity from the chin and
legs, blood oxygen level, snoring sounds, body position and penile tumescence,
and stores that information on an optical disk cartridge or onto a hard disk. In
addition to recording and storing the patient's physiologic data, the systems
process data on-line during the recording session using the Company's
proprietary software algorithms, and provide a compressed representation of the
data for rapid review and analysis after the recording session has been
completed. The operator reviews samples of the raw data selected from the
findings in the processed data and has the ability to set parameters so that the
analysis of the data can be tailored to a specific patient. In addition, the
analysis software provides the user with extensive editing capabilities that
allow a user to override the computer's decisions on an event-by-event basis.
The Company believes its diagnostic systems increase the operating
efficiencies and improve the results of sleep labs by reducing analysis time,
increasing technician productivity, expediting communication of test results,
reducing recording and storage costs and providing a more standardized analysis.
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Sleep I/T(R) (Sleep Integrated Technology) Portable Sleep Staging Device
The Sleep I/T is a portable sleep staging device intended for use
outside the sleep laboratory. This small, 1.5 pound, battery-operated device can
be placed at the home bedside for nighttime recording of the patient's sleep
data. The information recorded using Sleep I/T differs from PolyG and includes
EEG, eye movements, limb activity and muscle activity from either the chin or
legs, providing the operator with information regarding the quality of the
patient's sleep. Oxygen saturation, snoring sounds and respiratory effort can
also be recorded. Once the unit is returned to the physician, the data can be
transferred to a computer, analyzed and viewed. In addition to testing for sleep
apnea, the device may also be used to test for a variety of other sleep
disorders, including insomnia.
PolyG(R) Portable Apnea Recorder
The PolyG is a portable sleep disorder diagnostic device used primarily
for sleep apnea testing. This small, 12 pound, battery-operated device measures
and records EKG, oxygen saturation, respiratory flow and effort, body position
and the level of positive airway pressure delivered to the patient via
continuous positive airway pressure ("CPAP") delivered at the nose. The
information collected with the PolyG can be analyzed using the Company's sleep
disorders laboratory system or an IBM(R) compatible personal computer operating
the Company's analysis software.
Patients can be tested using the portable PolyG in locations other than
in the sleep laboratory. For example, the PolyG is useful in intensive care
units for testing patients too ill to be tested in the sleep lab. It is well
suited for small hospitals and physician group practices. Additional software
programs for IBM compatible personal computers are available to allow users to
manipulate and analyze data collected using a PolyG.
Serena(TM) Portable Apnea Recorder
The Serena(TM) and the Serena Mx(TM) are portable devices used
primarily to perform sleep testing on adults. There are a maximum of nine
channels of physiologic data that can be recorded including pulse rate,
respiratory flow, body position and limb activity. The Serena Mx(TM), in
addition, records respiratory effort and tracheal sound. Both devices are
battery operated and are capable of performing an analysis function without the
aid of an additional computer. The products are sold both in the domestic and
international markets. Apnoescreen, a brand name that covers four models,
performs apnea recording and analysis and is sold in the European market only.
Matrix Sleep(TM) Analysis Software
Matrix Sleep is a Windows(R)-based sleep analysis software package
which provides user-friendly options in recording, analyzing and reporting sleep
study data. Some of these options include customer requested features such as
"Snapshot," which lets the user capture specific segments of important data for
immediate or later review. Also, the Patient Profile Screen provides the viewer
with critical and milder events simultaneously allowing a patient classification
by sleep disorder and severity. The ReportGenerator function allows the user to
print reports while analyzing a case or using other Windows applications.
MOBILITY EQUIPMENT
In December 1986, the Company acquired all the assets, properties and
equipment of Crow River Industries, Inc., a Minnesota corporation that
manufactured and marketed wheelchair lifts, securement systems and automobile
hand controls for the mobility-impaired. These products are manufactured and
sold through the Company's subsidiary which operates under the name Crow River
Industries, Incorporated ("Crow River").
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Crow River products are installed in vans, school buses, nursing home
transporters and certain municipal buses used in transportation of handicapped
or mobility-impaired persons. The Company's wheelchair lifts are sold under the
names Vangater(TM), Vangater(TM) II, Mini-Vangater(TM), Transgater(TM) and
Ultragater(TM).
The lifts are powered either electro-mechanically or
electro-hydraulically. Crow River also markets a complete line of driving
assistance aids under the name Mobility Products and Design. Crow River products
accounted for approximately 21%, 26% and 26% of the Company's net sales in
fiscal 1996, 1995 and 1994, respectively.
OTHER MATTERS
New Products and Research & Development
The Company's research and development efforts focus primarily on
developing improvements to its existing products and introducing new products in
its areas. Research and development costs of $3,369,400, $2,953,700 and
$1,896,600 were incurred in the fiscal years ended April 30, 1996, 1995 and
1994, respectively, for product development and improvements of existing
products.
Raw Materials and Supplies
The Company assembles its medical electronic products from electronic
components and housings manufactured by other companies and from other parts,
including control panels, which subcontractors make to comply with Company
specifications. The Company has not experienced any significant shortage of
materials or parts, even though a few of the components that the Company uses
are manufactured by only one or a few companies. The Company believes it
maintains sufficient inventory and, in most cases, has the ability to design
around temporary shortages caused by an inability to obtain components from its
suppliers.
Intellectual Property
The areas in which the Company is engaged are characterized by
significant research and development and are noted for frequent introduction of
new and advanced techniques, products and devices. Therefore, despite existing
and potential patent protection, products in this market, including the
Company's, are subject to possible technological obsolescence. In addition,
there can be no assurance that the Company will be successful in obtaining
patents on its products. Therefore, although the Company has obtained patents on
several of the processes used in its products and will continue to seek patent
protection for its significant products in the future, it believes such
protection is not essential to its continued competitiveness. The Company has
obtained registration of its trademark, Aequitron Medical. The Company believes
that its trademarks have been and will be useful in developing and protecting
market recognition for its products.
As a result of the Company's acquisition of the sleep disorder
diagnostic business from CNS, Inc., the Company acquired all the domestic and
foreign patents and patents-pending and the U.S. trademark registrations for
"SLEEPLAB", "Sleep I/T", "PolyG" granted by the United States Patent and
Trademark Office. In addition, a trademark registration for Serena(TM) is
pending.
The Company also has submitted patent applications for its Vangater(TM)
II and a new infant apnea monitor.
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Seasonal Aspects of Business
The Company has not experienced significant seasonal variations in the
sale of its products.
Working Capital Requirements
The Company is not subject to unusual working capital requirements with
regard to receivables, inventories and payables.
Government Contracts
No portion of the business of the Company is subject to renegotiation
of profits or termination of contracts or subcontracts at the election of the
government.
Competition
Traditionally, the Company's main competitor in the production of apnea
monitoring systems has been Healthdyne, Inc., which has substantially greater
financial resources than the Company and which the Company believes
traditionally accounted for a predominant share of the market. Since entering
the market in fiscal 1983, the Company has been able to develop a significant
market share, which management attributes to the reliability of its monitors
(including low false alarm rates), portability and the Company's customer
service, sales and support. As a result, the Company is the second largest
seller of apnea memory monitors nationally. Apart from itself, Healthdyne, Inc.,
Corometrics Medical Systems, Inc., Arvee and Nellcor (EdenTec), the Company
believes no other company has a significant market share in the apnea monitoring
market.
Competition within the market for apnea monitoring systems is based
primarily on the quality and features of the products sold as well as the price
of the systems. The Company believes its future success in the apnea field
depends upon its service and responsiveness to the physicians and other health
care professionals who are involved in apnea monitoring and recording, and upon
its ability to design innovative and reliable products that meet the needs of
the marketplace.
Competition within the home health care ventilator market is based upon
a number of factors including product features, ease of operation, service,
reliability and price. The market is competitive, and the Company faces
competition from such companies as LIFECARE Services, Inc. and Bear Medical
Systems, Inc. The Company believes its competitive strengths include the
state-of-the-art design of its ventilators and their multiple applications,
effective distribution methods and the Aequitron reputation for quality and
service, including its technical support and clinical education for individuals
who use and maintain the equipment.
The apnea and ventilator industries in which the Company operates are
subject to rapid technological change. Although the Company has been a leader in
the apnea and ventilator industries, there can be no assurance that the Company
will be able to react and adapt to any such change or that developments by
competitors will not render the Company's products and services obsolete.
Within the sleep disorder diagnostic market, the Company competes with
several companies that market products designed for use in hospital-based sleep
labs. Telefactor Corporation, Oxford Medilog, Inc. (EdenTec), Nicolet Instrument
Corporation, Bio-Logic Systems Corp., Healthdyne Technologies, Inc. and
Sensormedics, Inc. offer computerized sleep disorder diagnostic systems. Several
companies, including Nellcor (EdenTec) and Healthdyne Technologies, Inc., market
products that compete with the Company's portable devices. The sleep disorder
diagnostic market is not believed to be the primary market served by the
competitors named above.
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The Company competes in the sleep disorder diagnostic products market
on the basis of its technology and broad diagnostic product line. The
competitors' systems also allow for electronic data storage, but provide only a
portion of the analysis capability of the Company's sleep disorders laboratory
systems. The Company's laboratory systems, and its portable PolyG and Sleep I/T
devices, complement one another.
There are a number of companies that compete with the Company's Crow
River subsidiary in the sales of wheelchair lifts, securement systems and hand
controls. The Company believes that traditionally these markets have been
fragmented with no company dominating the market.
The medical device industry is highly competitive and characterized by
rapid technological change. Moreover, the adoption of government-imposed and
other changes to reimbursement programs has created economic incentives to
reduce health care costs. The Company believes that these factors may shorten
medical product life cycles and increase clinical evaluation expenses and
regulatory compliance expenditures.
There can be no assurance that other companies have not developed, are
not developing, or will not develop products which will be perceived as superior
to the Company's products. Further, as the markets for the Company's products
develop more fully, the Company will likely face additional competition from
more established companies with greater technological, financial, manufacturing
and marketing resources. There can be no assurance that the Company will be able
to compete effectively with either present or future competitors in any of its
markets.
Regulatory Matters
The manufacture, testing, packaging, labeling and distribution of
medical devices and the manufacturing procedures relating to devices are
regulated under the Federal Food, Drug and Cosmetic Act, as amended (the "Act"),
and additional regulations promulgated thereunder. In general, these statutes
and regulations require that manufacturers conform to certain procedures and
controls designed to ensure the safety and effectiveness of medical products.
Under the Act, all medical devices are classified as Class I, Class II
or Class III devices. All of the Company's products are classified as Class II
devices. In general, Class II devices must comply with labeling and
record-keeping requirements and are subject to other general controls. In
addition to general controls, certain Class II devices may have to comply with
special controls established by the FDA, and all manufacturers are subject to
periodic inspection by the FDA. Class III devices must receive premarket
approval from the FDA before they can be commercially distributed in the United
States. Furthermore, state, local and foreign governments have adopted
regulations relating to the manufacture and marketing of medical health care
products. The Company believes that it is presently in material compliance with
all applicable regulations.
Environmental Regulation
The Company believes that the federal, state and local regulations
relating to the protection of the environment have had no material effect upon
the Company.
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Employees
The Company had approximately 277 full-time employees as of July 15,
1996, including 11 in management, 30 in administration, 160 in production, 36 in
research and development and 40 in sales and marketing.
Sales and Marketing
The Company's apnea and ventilator products are sold to home health
care dealers, hospitals and hospital distributors through the Company's sales
and distribution force of both independent manufacturers representatives and
direct sales representatives.
The Company markets its sleep products primarily to hospital sleep lab
personnel and sleep specialty physicians. This group is believed to have the
necessary expertise to effectively diagnose and treat sleep disordered patients,
and is normally involved in the decision to purchase sleep diagnostic products.
Portable sleep disorder diagnostic products can provide the necessary screening
and postdiagnostic follow-up function, and their use may serve to expand the
number of patients which may be tested for sleep disorders. The Company believes
that home care providers are becoming more involved in non-sleep lab testing,
and are excellent candidates to purchase portable systems.
The Company's Crow River products are sold to independent dealers for
resale to the ultimate consumers.
The Company's marketing of its products includes advertising in
appropriate medical journals, trade show attendance and direct mail campaigns.
Foreign Sales
Prior to fiscal 1990, substantially all of the Company's sales had been
generated from domestic sales of its products. In fiscal 1996, 1995 and 1994,
foreign sales amounted to 13%, 12% and 11% of total sales, with Dragerwerk
accounting for 5%, 5% and 4% of such sales, respectively. See also footnote 12
to the Company's 1996 Financial Statements.
On March 3, 1988, the Company entered into an original equipment
manufacturer agreement (the "Agreement") with Dragerwerk. Under the Agreement,
Dragerwerk was granted the exclusive right to purchase the Original LP6
Ventilator on an original equipment manufacturer's basis for distribution in
selected European countries, and non-exclusive distribution rights in other
international markets. Dragerwerk agreed to develop and implement an effective
program for marketing, distribution and servicing of the ventilators, to use its
best efforts to promote and increase sales of the ventilators and accessory
products, and to purchase all of this type of ventilator from Aequitron. The
Agreement was first amended and extended through December 31, 1993. In March
1994, the Agreement was again amended. The current agreement was automatically
renewed through December 31, 1996, and covers both the Company's LP6 and LP10
ventilators and offers certain volume incentives. Dragerwerk markets the
ventilators under the name Drager EV800 and EV801.
Significant Customers and Suppliers
The Company sells a substantial portion of its product to one customer
(the loss of which, however, would not materially adversely impact the Company).
During 1996, 1995 and 1994, sales to that customer aggregated $3.5 million, $2.8
million and $4.3 million, respectively. At April 30, 1996 and 1995, amounts due
from that customer included in trade accounts receivable were $542,500 and
$301,100, respectively.
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Firm Backlog of Orders
As of April 30, 1996 and 1995, the Company had a firm backlog in the
amount of $1,339,500 and $1,252,700, respectively.
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the names and ages of the Company's
Executive Officers, together with all positions and offices held with the
Company by each such Executive Officer. Officers are appointed to serve until
the meeting of the Board of Directors following the next Annual Meeting of
Shareholders and until their successors have been elected and have qualified.
Name Age Office
James B. Hickey, Jr. 43 President, Chief Executive Officer and Director
Jeffrey A. Blair 48 Senior Vice President, Sales and Marketing
Patricia A. Hamm 42 Vice President, Human Resources
William M. Milne 52 Chief Financial Officer
Robert C. Samec 43 Vice President, Quality Assurance/Regulatory
Affairs
Earl H. Slee 36 Vice President, Research and Development
Edson R. Weeks, III 43 Vice President, Operations
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James B. Hickey, Jr. has been the President and Chief Executive Officer
of the Company since June 1993. From October 1989 to June 1993, Mr. Hickey
served as President of Baxter Healthcare, Inc.'s Respiratory/Anesthesia Systems
Division, and, prior to October 1989, he was President of Baxter's Hospitex
Division for three years.
Jeffrey A. Blair joined the Company as Senior Vice President of Sales
and Marketing in September 1993. From May 1989 through April 1993, Mr. Blair
served as Senior Vice President of Sentinel Monitoring, Inc., a medical device
manufacturing company based in Indianapolis. Prior to May 1989, Mr. Blair held
various management positions with Glasrock Home Health Care, Inc. and Baxter
Healthcare, Inc.
Patricia A. Hamm has been with the Company since January 1995 in the
position of Vice President of Human Resources. Prior to joining the Company, she
held a variety of positions with First Bank System in Minneapolis, most recently
as Vice President, Marketing, from August 1991 through December 1995.
William M. Milne has served as Chief Financial Officer of the Company
since August 1989 and was acting President and acting Chief Executive Officer of
the Company from January 1993 to June 1993. From 1984 through July 1989, Mr.
Milne was employed by The Griffin Cos., Inc. of Minneapolis, Minnesota, a real
estate investment and property management firm, where he served as Vice
President of Finance, Secretary and Treasurer. He was employed by Graco, Inc. of
Minneapolis, Minnesota from 1974 to 1984, holding various positions including
corporate tax manager and assistant treasurer.
10
<PAGE>
Robert C. Samec has been with the Company since January 1982, serving
as vice president primarily in roles relating to quality assurance and
regulatory affairs. Since August 1993, he has held the position of Vice
President, Quality Assurance/Regulatory Affairs.
Edson R. Weeks, III has been with the Company since May 1984 and has
served as Vice President, Operations since November 1995. Prior to that, Mr.
Weeks served as Vice President, Manufacturing from May 1990 to November 1995,
Director of Manufacturing from September 1986 through April 1990 and Materials
Manager from May 1984 to September 1986.
Earl H. Slee joined the Company as its Vice President of Research and
Development in August 1995. Prior to joining the Company, Mr. Slee was Director
of Engineering for Instromedix, a medical device manufacturing company in
Portland, Oregon, from July 1992 to August 1995. Mr. Slee attended Dartmouth
College from September 1990 to June 1992 in its Masters of Business
Administration program.
ITEM 2. PROPERTIES
The Company leases approximately 67,140 square feet of office,
production and warehouse space in a building in suburban Minneapolis under a
lease expiring on December 31, 1996. Monthly payments are currently $46,300. The
Company believes there is adequate adjacent space for its short-term growth. The
Company's Crow River subsidiary owns a 34,000 square foot manufacturing facility
in Brooten, Minnesota. Both facilities have adequate space for the Company to
conduct its current business.
ITEM 3. LEGAL PROCEEDINGS
Currently there are no material products liability claims pending
against the Company; however, the Company believes that products liability
claims are incidental to its business and the medical products industry.
Generally, the Company maintains reserves for the cost of defending such claims,
which, together with its products liability insurance coverage, are believed to
be adequate to protect the Company against losses that could have a material
adverse impact on the Company. Nevertheless, there is no assurance that future
products liability claims will not be made seeking compensation significantly in
excess of the Company's reserves and insurance coverage, and such claims could,
if upheld in a court of law, have a material adverse impact on the Company's
financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of Aequitron shareholders during
the fourth quarter of fiscal year 1996.
11
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Price Range of Common Stock
The Company's Common Stock trades on The Nasdaq National Market tier of
The Nasdaq Stock Market under the symbol "AQTN." The following table sets forth,
for the periods indicated, the high and low last sales prices.
Fiscal 1996: High Low
First Quarter 6-3/4 4-3/4
Second Quarter 9-1/4 6-1/4
Third Quarter 8-1/2 6-7/8
Fourth Quarter 8 6-5/8
Fiscal 1995: High Low
First Quarter 3-7/16 2-3/4
Second Quarter 5-3/4 2-13/16
Third Quarter 5-3/8 4
Fourth Quarter 5-3/8 4-1/8
Approximate Number of Holders of Common Stock
Approximate Number of
Record Holders as of
Title of Class July 24, 1996
Common Stock, $.01 par value 726
Dividends
The Company has never paid any cash dividends on its Common Stock. The
Board of Directors presently intends to retain all earnings for use in the
Company's business and does not anticipate paying cash dividends in the
foreseeable future. Any future determinations as to payments of dividends will
depend upon the financial condition and results of operations of the Company and
such other factors as are deemed relevant by the Board of Directors.
12
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years ended April 30,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operations Data:
Net sales $ 38,477,800 $ 30,802,300 $ 26,310,200 $ 26,984,900 $ 24,573,100
Gross profit 21,253,400 16,919,300 13,290,900 13,665,200 12,478,900
Sales, general and
administrative expenses 14,230,000 11,280,100 10,136,100 10,536,900 10,413,400
Research and development
expenses 3,369,400 2,953,700 1,896,600 1,680,000 1,395,000
Other (income) expense (132,200) (359,700) 580,800* (31,100) (466,100)**
Income before income
taxes and extraordinary
credit and change in
accounting principle 3,786,200 3,045,200 677,400 1,479,400 1,136,600
Income taxes 1,375,000 1,187,600 301,600 581,400 480,900
Income before
extraordinary credit and
change in accounting principle 2,411,200 1,857,600 375,800 898,000 655,700
Accounting change -- -- (92,600)*** -- --
Net income $ 2,411,200 $ 1,857,600 $ 283,200 $ 898,000 $ 655,700
Net income per share $ .45 $ .36 $ .06 $ .19 $ .14
Weighted average number
of shares outstanding 5,391,400 5,125,200 4,777,300 4,751,700 4,735,900
Balance Sheet Data:
Total assets $ 23,178,200 $ 17,943,300 $ 15,318,000 $ 14,773,100 $ 14,486,400
Working capital $ 10,517,200 $ 9,388,800 $ 6,770,800 $ 6,519,600 $ 6,123,700
Current ratio 3.2/1 3.4/1 3.1/1 3.2/1 3.1/1
Long-term debt $ 1,901,200 $ 64,000 $ 85,700 $ 139,900 $ 727,400
Shareholders' equity $ 16,419,300 $ 13,956,800 $ 11,999,400 $ 11,681,000 $ 10,738,800
Book value $ 3.35 $ 2.88 $ 2.50 $ 2.45 $ 2.26
</TABLE>
* Includes $712,900 charge for the disposal of the oxygen concentrator line.
** Includes $522,500 resulting from the settlement of a claim against a vendor.
*** Cumulative effect of change in accounting for income taxes.
13
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
Year Ended April 30, 1996 Compared to Year Ended April 30, 1995
Results of Operations
Net sales in fiscal 1996 increased $7,675,500, or 24.9 percent from
fiscal 1995. Sales increased in the ventilation and mobility product lines, and
also reflect the additional sales generated by the sleep diagnostics product
line acquired in June 1995. Service revenue increased while rental revenue
decreased marginally from fiscal 1995. Service revenue was strong for the
existing product lines and also increased due to the new product line
acquisition. Rental revenue of existing products decreased as customers continue
to purchase units previously being rented. The Company experienced strong sales
in fiscal 1996 and expects positive sales trends to continue.
Gross margins for fiscal 1996 increased to 55.2 percent compared to
54.9 percent for the prior year. This increase reflects the benefit of product
mix, including the newly acquired sleep diagnostics product line, and the
increased absorption of overhead due to increased volume in production. Gross
margins may decrease slightly due to competition and expense increases, but
should remain strong in fiscal 1997.
Sales and marketing expenses increased $2,134,500 in fiscal 1996
compared to fiscal 1995. The increase in expenses reflects the increase in
commissions paid to the Company's manufacturers representatives as a result of
the increased sales volume, as well as expenses associated with the newly
acquired product line. Overall sales and marketing expenses as a percentage of
sales increased to 21.8 percent in fiscal 1996 from 20.3 percent in fiscal 1995
due to the additional ongoing costs incurred to incorporate the sleep
diagnostics product line. Sales and marketing expenses are expected to remain at
similar levels for fiscal 1997.
General and administrative expenses increased $815,400, or 16.2
percent, over fiscal 1995, which represents a decrease to 15.2 percent from 16.3
percent of sales in fiscal 1995. The decrease reflects the benefit of increased
sales. The Company expects fiscal 1997 general and administrative expenses to be
consistent with fiscal 1996 levels.
Research and development expenses for fiscal 1996 were $415,700 higher
than fiscal 1995. However, fiscal 1995 expenses include a write-off of $500,000
associated with Adahan, Inc. Excluding the write-off, research and development
expenses were up $915,700, or 37.3 percent, but represent only 8.8 percent of
sales compared with 9.6 percent of sales in fiscal 1995. The increase was due to
additional costs to finalize several projects for FDA submittal and increased
expenses due to the addition of the sleep diagnostics product line. With the
Company's ongoing commitment to increase funding for product development
projects, expenditures are expected to increase for fiscal 1997.
Other income decreased by $28,400 from fiscal 1995, which is the result
of a decrease in interest income with the reduction of cash due to the
acquisition of the sleep diagnostics product line. Interest expense increased
$199,200 from fiscal 1995 as a direct result of the increase in long-term debt
used to finance the balance of the acquisition.
The effective tax rate for fiscal 1996 decreased to 36.3 percent from
39.0 percent for fiscal 1995. The decrease is due to the effect of
non-deductible goodwill on higher earnings and the benefit of the Foreign Sales
Corporation on increased international sales.
14
<PAGE>
On June 1, 1995, the Company acquired all assets, including inventory,
fixed assets, receivables and certain intangibles, of the sleep diagnostics
division of CNS, Inc. for $2.3 million in cash, $3.1 million in notes payable
and $452,000 in liabilities. The acquisition was accounted for as a purchase
and, accordingly, the net assets and results of operations are included in the
fiscal 1996 financial statements from the date of acquisition.
Liquidity and Capital Reserves
Cash and cash equivalents decreased to $3,143,300 at April 30, 1996, a
decrease of $1,843,500 from $4,986,800 at April 30, 1995. Operating activities
provided cash of $2,020,100 during the fiscal year compared to $3,285,300 during
fiscal 1995. The decrease in cash provided by operating activities during fiscal
1996 was attributable to the increase in accounts receivable of $1,825,500,
coupled with a decrease in inventory of $331,200. The Company expects to make
increased capital expenditures in fiscal 1997. The Company renewed its line of
credit with its bank for $2,000,000 on June 1, 1995. The line of credit expires
on October 30, 1996. In addition, a long-term note of $2,500,000 was obtained to
purchase the sleep diagnostics product line from CNS, Inc. The Company believes
that internally generated funds and existing borrowing potential will provide
sufficient working capital to meet all present and anticipated commitments.
Year Ended April 30, 1995 Compared to Year Ended April 30, 1994
Results of Operations
Net sales in fiscal 1995 increased $4,492,100, or 17.1 percent from
fiscal 1994. Sales increased in the ventilation, apnea and mobility product
lines. Service and rental revenue decreased from the prior year due to two major
accounts converting their rental units to purchases.
Gross margins for fiscal 1995 increased to 54.9 percent compared to
50.5 percent for the prior year. This increase reflects the benefit of the
discontinuation of the oxygen concentrator produce line and the increased
absorption of overhead due to increased volume in production.
Sales and marketing expenses increased $412,200 in fiscal 1995 compared
to fiscal 1994. The increase in expenses reflects the increase in commissions
paid to the Company's manufacturers' representatives as a result of the
increased sales volume. However, overall sales and marketing expenses as a
percentage of sales decreased to 20.3 percent in fiscal 1995 from 22.2 percent
in fiscal 1994.
General and administrative expenses increased $731,800, or 17.1
percent, over fiscal 1994, and represented 16.3 percent of sales for both fiscal
1995 and 1994. The increase was due to increased professional fees, training
costs and employee benefits.
Research and development expenses for fiscal 1995 increased $1,057,100,
or 55.7 percent, from fiscal 1994 representing an increase to 9.6 percent of
sales from 7.2 percent in fiscal 1994. The increase was due in part to
cancellation of a license agreement for new ventilator technology with Adahan,
Inc. The balance of the increase was due to the Company's commitment to increase
funding for product development projects.
Other income increased by $225,500 from fiscal 1994 which was primarily
the result of an increase in interest income on the Company's higher average
cash balance. Interest expense decreased $2,100 from fiscal 1994 as a direct
result of the decrease in long-term debt from fiscal 1994.
15
<PAGE>
The effective tax rate for fiscal 1995 decreased to 39.0 percent from
44.5 percent for fiscal 1994. The decrease was due to the effect of
non-deductible goodwill and the benefit of the Foreign Sales Corporation on the
higher earnings for the year.
CAUTIONARY STATEMENTS
As provided for under the Private Securities Litigation Reform Act of
1995, the Company wishes to caution investors that the following important
factors, among others, in some cases have affected and in the future could
affect the Company's actual results of operations and cause such results to
differ materially from those anticipated in forward-looking statements made in
this document and elsewhere by or on behalf of the Company.
Competition. The medical device industry is highly competitive and
characterized by rapid technological change. Many of the Company's competitors
offer more products and have substantially greater financial resources than the
Company. Moreover, the medical device industry is experiencing rapid
consolidation, creating larger and financially stronger companies. There can be
no assurance that the Company will be able to compete with any of these larger
companies many of which have significantly greater technological, financial,
manufacturing and marketing resources.
Government Regulation and Private Sector Initiatives. The Company's
products are subject to the laws and regulations administered by the FDA.
Additionally, government and private sector initiatives to limit the growth of
health care are increasing, including price regulation and competitive pricing.
Although the Company believes it can adapt to changes in government regulation
and cost containment initiatives, there can be no assurance that the impact of
these changes will not have a material adverse impact on the Company's financial
results.
New Product Development. The future success of the Company is dependent
on its ability to continually offer new products which are acceptable to the
marketplace. Any inability of the Company to develop new products could have a
material and adverse impact on future revenues.
Uncertainty of Market Acceptance of New or Acquired Products. The
Company's ability to achieve acceptable revenue growth is dependent in large
part on the market acceptance of recently introduced or acquired products. There
is no assurance that the Company's recently introduced products will be accepted
or that it will meet its revenue growth objectives.
16
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements and Schedule listed below are included herein
immediately following the signature page on the pages set forth:
Page
Report of Independent Auditors....................................F-1
Consolidated Balance Sheets -- April 30, 1996 and 1995............F-2
Consolidated Statements of Operations -- Years ended
April 30, 1996, 1995 and 1994.....................................F-4
Consolidated Statements of Shareholders' Equity --
Years ended April 30, 1996, 1995 and 1994.........................F-5
Consolidated Statements of Cash Flows -- Years ended
April 30, 1996, 1995 and 1994.....................................F-6
Notes to Consolidated Financial Statements -- April 30, 1996......F-7
Schedule of Valuation and Qualifying Accounts and Reserves........F-18
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEMS 10, 11, 12 and 13.
The information required by Item 10 concerning the executive officers
of the Company is submitted in a separate section of Part I of this Report.
Additional information called for by Items 10, 11, 12 and 13 is
incorporated by reference from the Company's definitive proxy statement pursuant
to Regulation 14A which involves the election of directors and will be filed
with the Commission within 120 days after the end of the fiscal year.
17
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed or incorporated by reference as part of this Form 10-K
1. Financial Statements. The following financial statements are
included in Part II, Item 8 of this report on Form 10-K:
Report of Independent Auditors
Consolidated Balance Sheets -- April 30, 1996 and 1995
Consolidated Statements of Operations -- Years ended April 30, 1996,
1995 and 1994
Consolidated Statements of Shareholders' Equity -- Years ended
April 30, 1996, 1995 and 1994
Consolidated Statements of Cash Flows -- Years ended April 30,
1996, 1995 and 1994
Notes to Consolidated Financial Statements -- April 30, 1996
2. Financial Statement Schedules. The following financial statement
schedule is included in Part II, Item 8 of this report on Form 10-K:
Schedule II -- Valuation and Qualifying Accounts and Reserves
All other schedules are omitted as the required information is
inapplicable or the information is presented in the financial statements or
related notes.
3. Exhibits. The following exhibits are included in this report: See
"Exhibit Index to Form 10-K" beginning at page E-1 immediately following the
financial statements of this Form 10-K.
(b) Reports on Form 8-K
The Company did not file a Report on Form 8-K in its last fiscal
quarter of 1996.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the Company has caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Dated: July 29, 1996
AEQUITRON MEDICAL, INC. "Company"
/s/ James B. Hickey, Jr.
James B. Hickey, Jr., President
and Chief Executive Officer
/s/ William M. Milne
William M. Milne, Chief
Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed by the following persons on behalf of the Company in
the capacities and on the dates indicated.
(Power of Attorney)
Each person whose signature appears below constitutes and appoints
JAMES B. HICKEY, JR. and WILLIAM M. MILNE as his true and lawful
attorneys-in-fact and agents, each acting alone, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments to this Annual Report on Form 10-K and
to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, each acting alone, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all said attorneys-in-fact
and agents, each acting alone, or his substitute or substitutes, may lawfully do
or cause to be done by virtue thereof.
Signature and Title Date
/s/ James B. Hickey, Jr. July 29, 1996
James B. Hickey, Jr., President,
Chief Executive Officer and
Director (Principal Executive Officer)
/s/ William M. Milne July 29, 1996
William M. Milne, Chief
Financial Officer (Principal Financial
Officer)
/s/ Lawrence A. Lehmkuhl July 29, 1996
Lawrence A. Lehmkuhl, Director
/s/ David B. Morse July 29, 1996
David B. Morse, Director
/s/ Gerald E. Rhodes July 29, 1996
Gerald E. Rhodes, Director
/s/ Ervin F. Kamm, Jr. July 29, 1996
Ervin F. Kamm, Jr., Director
19
<PAGE>
Report of Independent Auditors
Board of Directors
Aequitron Medical, Inc.
We have audited the accompanying consolidated balance sheets of Aequitron
Medical, Inc. as of April 30, 1996 and 1995, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended April 30, 1996. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These financial statements
and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 consolidated financial position of Aequitron Medical,
Inc. at April 30, 1996 and 1995, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended April 30,
1996, in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
As discussed in Note 9, in 1994 the Company changed its method of accounting for
income taxes.
/s/ ERNST & YOUNG LLP
Minneapolis, Minnesota
June 12, 1996
F-1
<PAGE>
Aequitron Medical, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
April 30
1996 1995
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 3,143,300 $ 4,986,800
Accounts receivable, less allowances of $325,000
in 1996 and $243,500 in 1995 6,641,600 4,311,200
Inventories 4,313,800 3,071,100
Deferred income taxes 717,300 606,100
Prepaid expenses and other 558,900 336,100
------------------------------------
Total current assets 15,374,900 13,311,300
Property and equipment:
Buildings 711,100 652,600
Equipment 4,815,600 3,930,900
Leasehold improvements 42,500 26,800
------------------------------------
5,569,200 4,610,300
Less allowances for depreciation (3,504,600) (2,901,400)
------------------------------------
2,064,600 1,708,900
Other assets:
Goodwill, net of accumulated amortization of $3,017,200
in 1996 and $2,520,000 in 1995 3,574,400 1,789,500
Demonstration, evaluation and rental equipment, net
of accumulated amortization of $757,000 in 1996
and $749,900 in 1995 1,199,800 1,133,600
Other assets 964,500 -
------------------------------------
5,738,700 2,923,100
====================================
Total assets $23,178,200 $17,943,300
====================================
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
April 30
1996 1995
---- ----
<S> <C> <C>
Liabilities and shareholders' equity Current liabilities:
Accounts payable $ 1,070,500 $ 1,161,100
Employee compensation 1,311,900 1,104,900
Commissions payable 842,400 543,200
Other liabilities and accrued expenses 1,246,400 1,075,000
Current maturities of long-term debt 386,500 38,300
------------------------------------
Total current liabilities 4,857,700 3,922,500
Long-term debt 1,901,200 64,000
Shareholders' equity:
Preferred Stock, no par value per share:
Authorized shares - 4,000,000
Issued and outstanding shares-none
Common Stock, $.01 par value per share:
Authorized shares - 15,000,000
Issued and outstanding shares - 4,894,700 in 1996 and 4,848,500
in 1995 48,900 48,500
Additional paid-in capital 5,984,600 5,933,700
Retained earnings 10,385,800 7,974,600
------------------------------------
Total shareholders' equity 16,419,300 13,956,800
------------------------------------
Total liabilities and shareholders' equity $23,178,200 $17,943,300
====================================
See accompanying notes.
</TABLE>
F-3
<PAGE>
Aequitron Medical, Inc.
Consolidated Statements of Income
<TABLE>
<CAPTION>
Year ended April 30
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues:
Product $35,613,400 $28,385,100 $23,553,700
Service 2,864,400 2,417,200 2,756,500
------------------------------------------------------
Total revenues 38,477,800 30,802,300 26,310,200
Cost of sales:
Product 16,296,300 13,061,600 11,943,200
Service 928,100 821,400 1,076,100
------------------------------------------------------
Total cost of sales 17,224,400 13,883,000 13,019,300
------------------------------------------------------
Gross profit 21,253,400 16,919,300 13,290,900
Operating expenses:
Sales and marketing 8,393,000 6,258,500 5,846,300
General and administrative 5,837,000 5,021,600 4,289,800
Research and development 3,369,400 2,953,700 1,896,600
Disposal of oxygen concentrator line - - 712,900
------------------------------------------------------
17,599,400 14,233,800 12,745,600
------------------------------------------------------
Operating income 3,654,000 2,685,500 545,300
Other income (expense):
Interest income 260,700 302,000 109,400
Interest expense (224,000) (24,800) (26,900)
Other - net 95,500 82,500 49,600
------------------------------------------------------
Income before income taxes and cumulative effect of
change in accounting principle 3,786,200 3,045,200 677,400
Income taxes 1,375,000 1,187,600 301,600
------------------------------------------------------
Income before cumulative effect of change in
accounting principle 2,411,200 1,857,600 375,800
Cumulative effect of change in accounting for income
taxes - - (92,600)
------------------------------------------------------
Net income $ 2,411,200 $ 1,857,600 $ 283,200
======================================================
Earnings per common share:
Income before cumulative effect of change in
accounting principle $.45 $.36 $.08
Cumulative effect of change in accounting for
income taxes - - (.02)
------------------------------------------------------
Net income per common share $.45 $.36 $.06
======================================================
Weighted average shares outstanding 5,391,400 5,125,200 4,777,300
======================================================
See accompanying notes.
</TABLE>
F-4
<PAGE>
Aequitron Medical, Inc.
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Additional
Common Stock Paid-In Retained
Shares Amount Capital Earnings Total
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at April 30, 1993 4,774,300 $ 47,800 $ 5,799,400 $ 5,833,800 $ 11,681,000
Net income -- -- -- 283,200 283,200
Stock options exercised 1,000 -- 2,100 -- 2,100
Stock issued under employee
stock purchase plan 17,300 100 33,000 -- 33,100
-------------------------------------------------------------------------
Balance at April 30, 1994 4,792,600 47,900 5,834,500 6,117,000 11,999,400
Net income -- -- -- 1,857,600 1,857,600
Stock options exercised, net 57,700 700 134,100 -- 134,800
Stock issued under employee
stock purchase plan 20,100 100 65,900 -- 66,000
Stock repurchased (21,900) (200) (100,800) -- (101,000)
-------------------------------------------------------------------------
Balance at April 30, 1995 4,848,500 48,500 5,933,700 7,974,600 13,956,800
Net income -- -- -- 2,411,200 2,411,200
Stock options exercised, net 52,500 500 92,200 -- 92,700
Stock issued under employee
stock purchase plan 17,700 100 90,500 -- 90,600
Stock repurchased (24,000) (200) (131,800) -- (132,000)
-------------------------------------------------------------------------
Balance at April 30, 1996 4,894,700 $ 48,900 $ 5,984,600 $ 10,385,800 $ 16,419,300
=========================================================================
See accompanying notes
</TABLE>
F-5
<PAGE>
Aequitron Medical, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended April 30
1996 1995 1994
-----------------------------------------------------
<S> <C> <C> <C>
Operating activities
Net income $2,411,200 $1,857,600 $ 283,200
Adjustments to reconcile to net cash provided by operating
activities:
Depreciation 609,300 478,900 467,500
Amortization of goodwill and other intangible assets 594,800 288,000 359,300
Cumulative effect of change in accounting for income taxes - - 92,600
Provision for losses on accounts receivable 90,700 113,100 144,100
Change in deferred income taxes (111,200) 18,000 (170,600)
Loss on sale of property and equipment 1,400 18,800 9,700
Payments under license agreements - - (525,000)
Write-off of license agreements - 587,800 -
Changes in operating assets and liabilities:
Accounts receivable (1,825,500) (387,700) 793,800
Inventories 331,800 (401,500) 890,500
Rental equipment 37,200 44,700 258,200
Accounts payable (90,500) 245,200 76,200
Other current assets and liabilities (29,100) 422,400 236,500
-----------------------------------------------------
Net cash provided by operating activities 2,020,100 3,285,300 2,916,000
Investing activities
Purchases of property and equipment (725,500) (742,000) (593,100)
Proceeds from disposals of property and equipment 7,400 6,100 26,300
Purchase of product line (5,382,200) - -
-----------------------------------------------------
Net cash used in investing activities (6,100,300) (735,900) (566,800)
Financing activities
Proceeds from short-term borrowings - 16,600 394,000
Payments on short-term borrowings (16,600) - (394,000)
Proceeds from long-term debt 2,500,000 - -
Reduction of long-term debt (298,000) (54,200) (145,800)
Net proceeds from exercise of stock options and sale of
common stock 183,300 99,800 35,200
Purchase of common stock (132,000) - -
-----------------------------------------------------
Net cash provided by (used in) financing activities 2,236,700 62,200 (110,600)
-----------------------------------------------------
Net (decrease) increase in cash and cash equivalents (1,843,500) 2,611,600 2,238,600
Cash and cash equivalents at beginning of year 4,986,800 2,375,200 136,600
-----------------------------------------------------
Cash and cash equivalents at end of year $3,143,300 $4,986,800 $2,375,200
=====================================================
See accompanying notes.
</TABLE>
F-6
<PAGE>
Aequitron Medical, Inc.
Notes to Consolidated Financial Statements
April 30, 1996
1. Business Activity
Aequitron Medical, Inc. designs, manufactures and markets electronic respiratory
products for home healthcare, sub-acute care and hospital use and wheelchair
lifts and automobile hand controls for people who face mobility challenges. The
Company's principal markets are in the United States and Europe.
2. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of Aequitron Medical,
Inc. and its wholly-owned subsidiary after elimination of intercompany accounts
and transactions. Certain amounts for fiscal 1995 have been reclassified to
conform with the fiscal 1996 financial statement presentation.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Revenue Recognition
Revenues from sales are recognized when a product is shipped, from rentals as
they accrue, and from service when performed.
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.
F-7
<PAGE>
Aequitron Medical, Inc.
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Inventories
Inventories are stated at the lower of cost or market with cost being determined
on a first-in, first-out basis.
Demonstration, Evaluation and Rental Equipment
This equipment is held for sale and is amortized over an estimated useful life
of 36 to 60 months.
Property and Equipment
Owned property and equipment are carried at cost. Property and equipment
acquired under capital leases are stated at the lower of the present value of
minimum lease payments or fair market value at the inception of the lease. The
Company provides for depreciation using the straight line method at rates
designed to amortize the cost of property and equipment over their estimated
useful lives. Property and equipment under capital leases are amortized over the
lease terms or the estimated useful lives of the assets, whichever is less.
Maintenance, repairs and minor renewals are expensed as incurred.
Goodwill
Goodwill resulting from the fiscal 1987 acquisition of Life Products, Inc. is
being amortized using the straight line method over fifteen years. Goodwill
resulting from the current year acquisition of the Sleep diagnostics division of
CNS, Inc. is being amortized using the straight-line method over ten years.
The carrying value of goodwill will be reviewed if the facts and circumstances
suggest that it may be impaired.
Warranties
Estimated product warranty costs are provided at the time of sale of the related
products.
F-8
<PAGE>
2. Summary of Significant Accounting Policies (continued)
Credit Risk
The Company is required by SFAS No. 105, "Disclosure of Information about
Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments with
Concentrations of Credit Risk," to disclose significant concentrations of credit
risk regardless of the degree of such risk. Financial instruments which
potentially subject the Company to concentrations of credit risk consist
principally of trade receivables. The Company requires no collateral from its
customers. Historically, the Company has not incurred significant credit related
losses and believes no significant credit risk exists at April 30, 1996.
During 1996, 1995 and 1994, sales to one customer aggregated $3.5 million, $2.8
million, and $4.3 million, respectively. At April 30, 1996 and 1995, amounts due
from that customer included in trade accounts receivable were $542,500 and
$301,100, respectively.
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.
Accounting for Stock Options
The Company follows Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (ABP 25), and related interpretations in accounting
for its employee stock options. Under APB 25, when the exercise price of
employee stock options equals the market price of the underlying stock on the
date of the grant, no compensation expense is recognized.
F-9
<PAGE>
2. Summary of Significant Accounting Policies (continued)
Net Income Per Share
Net income per share of Common Stock is computed by dividing net income by the
weighted average number of shares outstanding during the periods, including the
dilutive effect of shares issuable under the terms of stock options and
warrants.
3. Acquisition
On June 1, 1995, the Company acquired certain assets, consisting primarily of
inventory, fixed assets, receivables and certain intangibles of the sleep
diagnostics division of CNS, Inc. The purchase price of $5.8 million included
$2.3 million in cash, $3.1 million in notes payable to a bank and the assumption
of $450,000 in liabilities. The results of operations of the acquired business
are included in the accompanying financial statements since the date of
acquisition.
Had the acquisition occurred May 1, 1994, the unaudited pro forma consolidated
revenues, net income and net income per share would be as follows. The pro forma
results do not purport to be indicative of the results of operations that would
have occurred for the periods presented or of future results of operations.
Year ended April 30
1996 1995
--------------------------------
Revenues $38,727,800 $37,554,700
Net income 2,284,400 1,363,100
Net income per share $.43 $.27
F-10
<PAGE>
4. Disposal of Oxygen Concentrator Line
In fiscal 1994, the Company recorded a $712,900 charge due to the disposal of
the oxygen concentrator product line. This amount included write-offs of
$311,600 for inventory, $38,300 for a covenant not to compete, and $6,900 for
miscellaneous equipment. The remaining $356,100 of charges included $166,800 for
severance pay, $37,300 for rework of inventory, and $152,000 for lease
obligations. The charges reduced after tax earnings by $454,800 or $.10 per
share. Cash payments of $48,000 and $242,300 were made on the remaining
liabilities during fiscal 1995 and 1994, respectively. The remaining obligations
totaling $65,800 at April 30, 1995, included in other liabilities, was paid
during fiscal 1996.
5. Other Liabilities and Accrued Expenses
The significant components of other liabilities and accrued expenses are as
follows:
April 30
1996 1995
---------------------------
Accrued product liability and professional costs $ 118,500 $ 264,500
Accrued warranty 464,500 388,500
Other 663,400 422,000
---------------------------
$1,246,400 $1,075,000
===========================
6. Inventories
The major classes of inventories consist of the following:
1996 1995
---------------------------
Raw materials $2,600,300 $1,594,300
Work in progress 959,100 854,500
Finished goods 754,400 622,300
---------------------------
$4,313,800 $3,071,100
===========================
F-11
<PAGE>
7. Financing Arrangements
The Company has a working capital line of credit with a bank whereby it may
borrow up to $2,000,000. Any amounts outstanding under the line of credit accrue
interest at the bank's fixed rate cost of funds plus 2.75%. The line of credit
matures on October 30, 1996. All borrowings under the line are secured by the
Company's receivables, inventories, equipment and intangibles. There were no
outstanding balances with the bank under the line of credit agreement at April
30, 1996 and 1995, respectively.
8. Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
April 30
1996 1995
<S> <C> <C>
Note payable to Norwest Bank, prime rate plus .85%; principal is
to be paid in 26 equal quarterly installments of $92,500 with
final payment due on June 30, 2002 $2,222,500 $ -
Note payable to the City of Brooten, Minnesota, 3.5% interest,
due in 120 monthly installments of $801 with final payment due on
November 1, 2002. 56,400 63,900
Capital lease obligation, 8.7% effective interest rate,
due in monthly installments of $1,200 through October 1997; secured by
equipment. 8,800 21,600
Capital lease obligation, 9.0% effective interest rate,
due in monthly installments of $1,500 through March 1996; secured by
equipment - 16,800
------------------------------------
2,287,700 102,300
Less current portion (386,500) (38,300)
------------------------------------
Total long-term debt $1,901,200 $ 64,000
====================================
</TABLE>
F-12
<PAGE>
8. Long-Term Debt (continued)
Total interest paid on all short-term and long-term debt for the years ended
April 30, 1996, 1995 and 1994 was $224,000, $24,800 and $26,900, respectively.
Maturities of long-term debt are as follows:
1997 $386,534
1998 378,036
1999 378,322
2000 378,618
2001 370,000
Thereafter 396,164
The carrying value of the Company's long-term debt approximates its fair market
value.
9. Income Taxes
The Company adopted SFAS No. 109, "Accounting for Income Taxes", as of the
beginning of fiscal 1994, changing its method of accounting for income taxes
from the deferred method to the liability method. As permitted under the new
rules, prior years' financial statements have not been restated. The cumulative
effect of adopting SFAS No. 109 as of May 1, 1993, was to decrease net income by
$92,600, or $.02 per share.
The components of the provision for income taxes attributable to income before
the change in accounting principle were as follows:
1996 1995
------------------------------------
Federal $1,361,100 $1,071,800
State 125,100 97,800
Deferred (111,200) 18,000
------------------------------------
$1,375,000 $1,187,600
====================================
F-13
<PAGE>
9. Income Taxes (continued)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The components of the
deferred income tax liabilities and assets as of April 30, 1996 and 1995 were as
follows:
<TABLE>
<CAPTION>
1996 1995
------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation $ (17,400) $ (24,300)
Deferred tax assets:
Vacation accrual 145,700 106,400
Obsolescence reserve 82,700 85,100
Consignment inventory amortization 45,200 45,300
Warranty reserves 174,700 140,600
Accrued product liability and professional costs 44,500 95,800
Bad debt reserve 125,900 88,100
Inventory capitalization 57,500 43,100
Other 58,400 26,000
-----------------------------------
Net deferred tax assets $717,200 $606,100
====================================
</TABLE>
The reconciliation of the statutory federal income tax rate to the Company's
effective tax rate is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------------------------------------------------
<S> <C> <C> <C>
U.S. statutory rate 34.0% 34.0% 34.0%
State taxes, net of federal tax benefit 2.1 2.2 2.8
Goodwill 2.6 3.2 14.5
Foreign Sales Corporation benefit (2.3) (2.5) (8.4)
Other (0.3) 2.0 1.6
------------------------------------------------------
Effective tax rate 36.1% 38.9% 44.5%
======================================================
</TABLE>
F-14
<PAGE>
9. Income Taxes (continued)
Total income taxes paid during fiscal 1996, 1995 and 1994 were $1,479,300,
$1,213,600 and $493,700, respectively.
10. Shareholders' Equity
The Company has stock option plans which permit the granting of incentive stock
options or non-qualified options to key employees, outside directors, and
members of the Scientific Advisory Board. Options are granted at 100% of market
value at the date of grant. Under the terms of these plans, 1,800,000 shares
have been reserved for grants. A total of 445,805 shares is available for future
issuance under the plans at April 30, 1996.
<TABLE>
<CAPTION>
Options Outstanding
------------------------------------
Shares
------------------------------------
Price
Total Exercisable Per Share
--------------------------------------------------------
<S> <C> <C> <C>
Balance at April 30, 1994 750,500 211,875 $2.06 / $3.00
Canceled (41,400) (23,000) 2.19 / 2.69
Options becoming exercisable - 190,275 2.13 / 2.44
Granted 140,000 - 3.25 / 4.81
Exercised (70,800) (70,800) 2.13 / 3.00
------------------------------------
Balance at April 30, 1995 778,300 308,350 2.06 / 4.81
Canceled (1,000) - 2.12 / 2.12
Options becoming exercisable - 223,875 2.06 / 8.50
Granted 498,000 - 5.50 / 8.50
Exercised (60,950) (60,950) 2.12 / 3.00
------------------------------------
Balance at April 30, 1996 1,214,350 471,275 $2.06 / $8.50
====================================
</TABLE>
The Company has an employee stock purchase plan under which eligible employees
may purchase shares of the Company's Common Stock. At April 30, 1996, 241,017
shares remain available for issuance under the plan.
F-15
<PAGE>
11. Leases
The Company leases equipment, warehouse, office and assembly facilities under
noncancelable operating leases expiring in various years through fiscal 1998.
These leases, some of which are subject to renewal options, require the Company
to pay all maintenance costs, insurance and real estate taxes. The Company also
entered into capital leases for a copier and its computer system during fiscal
1992 and 1990, respectively, for $58,600 and $367,500. These obligations are
included in long-term debt.
At April 30, 1996, future minimum lease payments under noncancelable operating
leases with initial or remaining terms of one year or more are as follows:
1997 $228,900
1998 2,800
Rent expense for the years ended April 30, 1996, 1995 and 1994 was $497,697,
$502,400 and $670,000, respectively.
12. International Sales
The Company distributes its products to major home health care dealers outside
of the United States. International (primarily Europe) sales for fiscal 1996,
1995 and 1994 were $5,751,200, $3,871,600 and $2,832,300, respectively.
13. Profit Sharing and 401(k) Plan
The Company sponsors a defined contribution benefit plan which covers virtually
all employees. Under the plan, eligible employees can elect to contribute up to
15% of their annual compensation to the plan. The Company is permitted, but not
required, to make a 50% matching contribution to the plan up to a maximum of 3%
of each participating employee's annual compensation. The Company made matching
contributions in 1996, 1995 and 1994 of $173,200, $137,000 and $114,800,
respectively.
F-16
<PAGE>
14. Commitments and Contingencies
The Company is engaged in certain legal proceedings and claims arising in the
ordinary course of its business. The ultimate liabilities, if any, which may
result from these or other pending or threatened legal actions against the
Company cannot be determined at this time. However, it is the opinion of
management that facts known at the present time do not indicate that there is a
probability that such litigation will have a material effect on the financial
position of the Company.
15. Related Party Transactions
During fiscal years 1996, 1995 and 1994, the Company paid $400,500, $246,400 and
$224,000, respectively, in legal fees to a law firm of which a senior partner
also serves on the Company's Board of Directors.
16. Quarterly Results of Operations (Unaudited)
<TABLE>
<CAPTION>
For the three months ended
July 31 October 31 January 31 April 30
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Fiscal year 1996:
Net sales $9,562,100 $9,708,500 $9,111,400 $10,095,800
Cost of sales 4,266,300 4,436,700 4,044,600 4,476,800
---------------------------------------------------------------
Gross profit 5,295,800 5,271,800 5,066,800 5,619,000
Net income $ 724,700 $ 712,700 $ 369,500 $ 604,300
===============================================================
Net income per common share $.14 $.13 $.07 $.11
===============================================================
Fiscal year 1995:
Net sales $8,104,400 $8,057,900 $7,298,900 $ 7,341,100
Cost of sales 3,637,400 3,685,200 3,363,000 3,197,400
---------------------------------------------------------------
Gross profit 4,467,000 4,372,700 3,935,900 4,143,700
Net income $ 583,400 $ 337,300 $ 478,000 $ 458,900
===============================================================
Net income per common share $.12 $.06 $.09 $.09
===============================================================
</TABLE>
F-17
<PAGE>
Aequitron Medical, Inc.
Schedule II--Valuation and Qualifying Accounts and Reserves
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- --------------------------------------------------------------------------------------------------------
Additions
----------------------
Charged to
Balance at Charged to Other
Beginning Costs and Accounts-- Deductions-- Balance at
Description of Period Expenses Describe Describe End of Period
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended April 30, 1996:
Deducted from asset accounts:
Allowance for doubtful accounts $243,500 $116,600 $ -- $ 35,100 $325,000
Reserve for obsolescence 235,000 144,300 -- 159,300 220,000
-------------------------------------------------------------
$478,500 $260,900 $ -- $194,400 $545,000
=============================================================
Product warranty liability $388,500 $303,700 $ -- $227,700 $464,500
=============================================================
Accrued product liability and
professional costs $264,500 $270,800 $ -- $416,800 $118,500
=============================================================
Year ended April 30, 1995:
Deducted from asset accounts:
Allowance for doubtful accounts $200,500 $144,900 $ -- $ 83,200 $243,500
Reserve for obsolescence 209,000 98,600 -- 72,600 235,000
-------------------------------------------------------------
$409,500 $243,500 $ -- $155,800 $478,500
=============================================================
Product warranty liability $277,100 $288,000 $ -- $176,600 $388,500
=============================================================
Accrued product liability
and professional costs $531,500 $370,000 $ -- $637,000 $264,500
=============================================================
Year ended April 30, 1994:
Deducted from asset accounts:
Allowance for doubtful accounts $185,800 $154,900 $ -- $140,200 $200,500
Reserve for obsolescence 174,000 199,700 -- 164,700 209,000
-------------------------------------------------------------
$359,800 $354,600 $ -- $304,900 $409,500
=============================================================
Product warranty liability $183,900 $382,100 $ -- $286,200 $279,800
=============================================================
Accrued product liability and
professional costs $161,500 $787,200 $ -- $417,200 $531,500
=============================================================
</TABLE>
F-18
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AEQUITRON MEDICAL, INC.
EXHIBIT INDEX TO FORM 10-K
For the fiscal year
ended April 30, 1996 Commission File Number 0-11571
Exhibit Description
3.1 Company's Restated Articles of Incorporation. Incorporated by reference
to Exhibit 1 to October 31, 1987 Form 10-Q.
3.2 Company's Bylaws, as amended. Incorporated by reference to Exhibit 3.2
to 1989 Form 10-K.
10.1 Lease Agreement, dated June 17, 1987, between Realpro Limited
Partnership and the Company relating to premises at 14800 28th Avenue
North, Plymouth, Minnesota, First Amendment thereto dated July 17,
1987, Second Amendment thereto dated March 4, 1988, Third Amendment
thereto dated February 27, 1989, and Fourth Amendment thereto dated
June 29, 1990. Incorporated by reference to Exhibit 10.1 to 1995 Form
10-K.
10.2 Aequitron Medical, Inc. 1985 Incentive Stock Option Plan, as amended.
Incorporated by reference to Exhibit 10.7 to the Company's 1990 Form
10-K. (1)
10.3 Aequitron Medical, Inc. Amended and Restated 1988 Stock Option Plan.
(1)
10.4 Aequitron Medical, Inc. 1995 Employee Stock Purchase Plan. (1)
10.5 OEM Agreement between Aequitron Medical, Inc. and Dragerwerk
Aktiengesellschaft regarding LP6 Volume Ventilator. Incorporated by
reference from Exhibit 1 to March 3, 1988 Form 8-K.
10.6 Term Loan and Credit Agreement and related Term Note and Current Note
with Norwest Bank Minnesota, National Association all dated December
28, 1990. Incorporated by reference to Exhibit 10.9 to the Company's
1991 Form 10-K.
10.7 First Amendment to Term and Credit Agreement with Norwest Bank
Minnesota, National Association dated February 11, 1991. Incorporated
by reference to Exhibit 10.10 to the Company's 1991 Form 10-K.
E-1
<PAGE>
10.8 Second Amendment to Term Loan and Credit Agreement dated November 1,
1991 between Norwest Bank Minnesota, National Association and the
Company. Incorporated by reference to Exhibit 10.11 to the Company's
1992 Form 10-K.
10.9 Fifth Amendment to Office/Warehouse Lease dated January 1, 1992 between
Realpro Limited Partnership and the Company. Incorporated by reference
to Exhibit 10.12 of 1993 Form 10-KSB.
10.10 Third Amendment to Term Loan and Credit Agreement dated November 27,
1992 between Norwest Bank Minnesota, National Association and the
Company. Incorporated by reference to Exhibit 10.13 of 1993 Form
10-KSB.
10.11 Fourth Amendment to Term Loan and Credit Agreement dated August 19,
1993 between Norwest Bank Minnesota, National Association and the
Company. Incorporated by reference to Exhibit 10.13 of 1994 Form
10-KSB.
10.12 Second Amendment to the OEM Agreement between Aequitron Medical, Inc.
and Dragerwerk Aktiengesellschaft dated March 17, 1994. Incorporated by
reference by Exhibit 10.14 of 1994 Form 10-KSB. (2)
10.13 Employment Agreement dated June 11, 1993 between Aequitron Medical,
Inc. and Mr. James B. Hickey, Jr. Incorporated by reference to Exhibit
10.16 of 1994 Form 10-KSB. (1)
10.14 Employment Agreement dated September 9, 1993 between Aequitron Medical,
Inc. and Mr. Jeffrey A. Blair. Incorporated by reference to Exhibit
10.17 of 1994 Form 10-KSB. (1)
10.15 Asset Purchase Agreement dated May 8, 1995 by and among Aequitron
Medical, Inc. and CNS, Inc. Upon the request of the Commission, the
Company agrees to furnish a copy of the exhibits and schedules to the
Asset Purchase Agreement. Incorporated by reference to Exhibit 2.1 of
Form 8-K dated June 1, 1995.
10.16 Non-Competition Agreement dated May 8, 1995 by and between Dan Cohen
and Aequitron Medical, Inc. Incorporated by reference to Exhibit 2.2 of
Form 8-K dated June 1, 1995.
10.17 Term Loan and Credit Agreement dated June 1, 1995 by and between
Norwest Bank Minnesota, N. A. and Aequitron Medical, Inc. Incorporated
by reference to Exhibit 2.3 of Form 8-K dated June 1, 1995.
10.18 Term Note from Aequitron Medical, Inc. to Norwest Bank Minnesota, N.A.
dated June 1, 1995 in the amount of $2,500,000. Incorporated by
reference to Exhibit 2.4 of Form 8-K dated June 1, 1995.
E-2
<PAGE>
10.19 Security Agreement dated June 1, 1995 for Norwest Bank Minnesota, N.A.
by Aequitron Medical, Inc. Incorporated by reference to Exhibit 2.5 of
Form 8-K dated June 1, 1995.
10.20 Change in Control Employment Agreement dated December 9, 1994 between
James B. Hickey, Jr. and Aequitron Medical, Inc. Incorporated by
reference to Exhibit 10.21 of 1995 Form 10-K.(1)
10.21 Change in Control Employment Agreement dated December 9, 1994 between
William M. Milne and Aequitron Medical, Inc. Incorporated by reference
to Exhibit 10.22 of 1995 Form 10-K.(1)
10.22 Change in Control Employment Agreement dated December 9, 1994 between
Jeffrey A. Blair and Aequitron Medical, Inc. Incorporated by reference
to Exhibit 10.23 of 1995 Form 10-K.(1)
10.23 Change in Control Employment Agreement dated December 9, 1994 between
Robert C. Samec and Aequitron Medical, Inc. Incorporated by reference
to Exhibit 10.24 of 1995 Form 10-K.(1)
10.24 Change in Control Employment Agreement dated December 9, 1994 between
Edson R. Weeks, III and Aequitron Medical, Inc. Incorporated by
reference to Exhibit 10.25 of 1995 Form 10-K.(1)
10.25 Change in Control Employment Agreement dated December 30, 1994 between
Patricia A. Hamm and Aequitron Medical, Inc. Incorporated by reference
to Exhibit 10.26 of 1995 Form 10-K.(1)
10.26 Change in Control Employment Agreement dated July 1, 1996 between Earl
H. Slee and Aequitron Medical, Inc. (1)
11 Net Income Per Share Computation.
21 List of Subsidiaries. Incorporated by reference to Exhibit 21 of 1995
Form 10-K.
23 Consent of Ernst & Young LLP
24 Power of Attorney appointing James B. Hickey, Jr. and William M. Milne
as attorneys-in-fact for the remaining persons signing this Form 10-K
to sign any amendment to this Form 10-K is contained on the signature
page of this Form 10-K.
27 Financial Data Schedule (filed in electronic version only)
- ------------------
(1) Indicates a management contract.
(2) Confidential treatment was requested and received for certain portions
of this document.
E-3
EXHIBIT 10.3
AEQUITRON MEDICAL, INC.
AMENDED AND RESTATED
1988 STOCK OPTION PLAN
1. Purpose. The purpose of the Aequitron Medical, Inc. 1988 Stock Option
Plan is to provide a continuing, long-term incentive to selected eligible
officers and key employees of Aequitron Medical, Inc. (the "Corporation") and of
any subsidiary corporation of the Corporation (the "Subsidiary"), as herein
defined and to all Non-Employee Directors of the Corporation; to provide a means
of rewarding outstanding performance; and to enable the Corporation to maintain
a competitive position to attract and retain key personnel necessary for
continued growth and profitability.
2. Definitions. The following words and phrases as used herein shall have
the meanings set forth below:
2.1 "Board" shall mean the Board of Directors of the Corporation.
2.2 "Change in Control" shall mean the time at which any entity, person or
group (other than the Corporation, any subsidiary of the Corporation or any
savings, pension or other benefit plan for the benefit of any employees of the
Corporation or its subsidiaries) which prior to such time beneficially owned
less than twenty percent (20%) of the then outstanding Common Stock acquires
such additional shares of Common Stock in one or more transactions, or a series
of transactions, such that following such transaction or transactions such
entity, person or group beneficially owns, directly or indirectly, twenty
percent (20%), or more, of the outstanding Common Stock.
2.3 "Code" shall mean the Internal Revenue Code of 1986, as amended.
2.4 "Committee" shall mean the Stock Option Committee of the Board, or such
other committee of the Board as may be designated by the Board, from time to
time, for the purpose of administering this plan as contemplated by Article 3
hereof.
2.5 "Common Stock" shall mean the common stock, $.01 par value, of the
Corporation.
2.6 "Corporation" shall mean Aequitron Medical, Inc., a Minnesota
corporation.
2.7 "Non-Employee Directors" shall mean members of the Board who are not
employees of the Corporation or any Subsidiary.
- 1 -
<PAGE>
2.8 "Fair Market Value" of any security on any given date shall be
determined by the Committee as follows: (a) if the security is listed for
trading on one or more national securities exchanges, or is traded on the NASDAQ
National Market System, the last reported sales price on the principal such
exchange or NASDAQ System on the date in question, or if such security shall not
have been traded on such principal exchange on such date, the last reported
sales price on such principal exchange or the NASDAQ System on the first day
prior thereto on which such security was so traded; or (b) if the security is
not listed for trading on a national securities exchange or the NASDAQ National
Market System, but is traded in the over-the-counter market, including the
NASDAQ System, the mean of the highest and lowest bid prices for such security
on the date in question, or if there are no such bid prices for such security on
such date, the mean of the highest and lowest bid prices on the first day prior
thereto on which such prices existed; or (c) if neither (a) nor (b) is
applicable, by any means deemed fair and reasonable by the Committee, which
determination shall be final and binding on all parties.
2.9 "ISO" shall mean any stock option granted pursuant to this Plan as an
"incentive stock option" within the meaning of Section 422 of the Code.
2.10 "NQO" shall mean any stock option granted pursuant to this Plan which
is not an ISO.
2.11 "Option" shall mean any stock option granted pursuant to this Plan,
whether an ISO or an NQO.
2.12 "Optionee" shall mean any person who is the holder of an Option
granted pursuant to this Plan.
2.13 "Plan" shall mean this 1988 Stock Option Plan of the Corporation.
2.14 "Subsidiary" shall mean any corporation which at the time qualifies as
a subsidiary of the Corporation under Section 425(f) of the Code.
3. Shares Available Under Plan. The number of shares which may be issued
pursuant to options granted under this Plan shall not exceed 1,600,000 shares of
the Common Stock of the Corporation; provided, however, that shares which become
available as a result of cancelled, unexercised, lapsed or terminated options
granted under this Plan shall be available for issuance pursuant to options
subsequently granted under this Plan. The shares issued upon exercise of options
granted under this Plan may be authorized and unissued shares or shares
previously acquired or to be acquired by the Corporation.
4. Administration
4.1 The Plan will be administered by the Board of Directors or a Committee
of at least three members selected by the Board, and who have not at any time
during the twelve month period before service on the Committee ("Committee"),
been eligible to receive any Option under the Plan, or under any other benefit
plan of the Corporation or any of its affiliates entitling the participants
therein to acquire stock or stock options of the Corporation or any of its
Subsidiaries, except for the granting of options that are exempt under SEC Rule
16b-3 or any successor rule. The Board or such Committee is hereinafter
described as the Committee.
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4.2 The Committee will have plenary authority, subject to provisions of the
Plan, to determine when and to whom Options will be granted, the term of each
Option, the number of shares covered by it, the participation by the Optionee in
other plans, and any other terms or conditions of each Option. The Committee
shall determine with respect to each grant of an Option whether a participant
shall receive an ISO or an NQO. The number of shares, the term and the other
terms and conditions of a particular kind of Option need not be the same, even
as to options granted at the same time. The Committee's recommendations
regarding option grants and terms and conditions thereof will be conclusive.
4.3 The Committee will have the sole responsibility for construing and
interpreting the Plan, for establishing and amending any rules and regulations
as it deems necessary or desirable for the proper administration of the Plan,
and for resolving all questions arising under the Plan. Any decision or action
taken by the Committee arising out of or about the construction, administration,
interpretation and effect of the Plan and of its rules and regulations will, to
the extent permitted by law, be within its absolute discretion, except as
otherwise specifically provided herein, and will be conclusive and binding on
all Optionees, all successors, and any other person, whether that person is
claiming under or through any Optionee or otherwise.
4.4 The Committee will designate one of its members as chairman. It will
hold its meetings at the times and places as it may determine. A majority of its
members will constitute a quorum, and all determinations of the Committee will
be made by a majority of its members. Any determination reduced to writing and
signed by all members will be fully as effective as if it had been made by a
majority vote at a meeting duly called and held. The Committee may appoint a
secretary, who need not be a member of the Committee, and may make such rules
and regulations for the conduct of its business as it may deem advisable.
4.5 No member of the Committee will be liable, in the absence of bad faith,
for any act or omission with respect to his services on the Committee. Service
on the Committee will constitute service as a member of the Board, so that the
members of the Committee will be entitled to indemnification and reimbursement
as Board members pursuant to its By-laws.
4.6 The Committee will regularly inform the Board as to its actions with
respect to all Options granted under the Plan and the terms and conditions and
any such Options in a manner, at any times, and in any form as the Board may
reasonably request.
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<PAGE>
4.7 Any other provision of the Plan to the contrary notwithstanding, the
Committee is authorized to take such action as it, in its discretion, may deem
necessary or advisable and fair and equitable to Optionees in the event of: a
Change in Control of the Corporation; a tender, exchange or similar offer for
all or any part of the Common Stock made by any entity, person or group (other
than the Corporation, any Subsidiary of the Corporation or any savings, pension
or other benefit plan for the benefit of employees of the Corporation or its
Subsidiaries); a merger of the Corporation into, a consolidation of the
Corporation with, or an acquisition of the Corporation by another corporation;
or a sale or transfer of all or substantially all of the Corporation's assets,
Such action, in the Committee's discretion, may include (but shall not be deemed
limited to): establishing, amending or waiving the forms, terms, conditions or
duration of Options so as to provide for earlier, later, extended or additional
terms for exercise of the whole, or any installment, thereof; alternate forms of
payment; or other modifications. The Committee may take any such actions
pursuant to this Section 4.7 by adopting rules or regulations of general
applicability to all Optionees, or to certain categories of Optionees; by
amending or waiving terms and conditions in stock option agreements; or by
taking action with respect to individual Optionees. The Committee may take any
such actions before or after the public announcement of any such Change in
Control, tender offer, exchange offer, merger, consolidation, acquisition or
sale or transfer of assets.
5. Participants.
5.1 Participation in this Plan shall be limited to officers and regular
full-time executive, administrative, professional, production and technical
employees of the Corporation or of a Subsidiary, and to all Directors of the
Corporation. Non-Employee Directors of the Corporation shall only be able to
participate under this Plan as specified in Section 14 hereof.
5.2 Subject to other provisions of this Plan, Options may be granted to the
same participants on more than one occasion.
5.3 Except with respect to Options granted to Non-Employee Directors under
Section 14, the Committee's determination under the Plan including, without
limitation, determination of the persons to receive Options, the form, amount
and type of such Options, and the terms and provisions of Options need not he
uniform and may be made selectively among otherwise eligible participants,
whether or not the participants are similarly situated.
6. Terms and Conditions.
6.1 Each Option granted under the Plan shall be evidenced by a written
agreement, which shall be subject to the provisions of this Plan and to such
other terms and conditions as the Corporation may deem appropriate.
6.2 Each Option agreement shall specify the period for which the Option
thereunder is granted (which in no event shall exceed ten years from the date of
the grant for any Option granted pursuant to Section 6.3(a) hereof, five years
from the date of grant for any Option granted pursuant to 6.3(b) hereof and ten
years and one day from the date of grant for any Option designated by the
Committee as an NQO) and shall provide that the Option shall expire at the end
of such period; provided, however, the term of each Option shall be subject to
the power of the Committee, among other things, to accelerate or otherwise
adjust the terms for exercise of Options pursuant to Section 4.7 hereof in the
event of the occurrence of any of the events set forth therein.
6.3 The exercise price per share shall be determined by the Committee at
the time any Option is granted and, if the Option is an ISO, shall be determined
as follows:
(a) For employees who do not own stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of
the Corporation or of any Subsidiary, the ISO exercise price per share
shall not be less than one hundred percent (100%) of Fair Market Value of
the Common Stock of the Corporation on the date the Option is granted, as
determined by the Committee.
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(b) For employees who own stock possessing more than ten percent (10%)
of the total combined voting power of all classes of stock of the
Corporation or of any Subsidiary, the ISO exercise price per share shall
not be less than one hundred ten percent (110%) of the Fair Market Value of
the Common Stock of the Corporation on the date the Option is granted, as
determined by the Committee.
6.4 An Option shall be exercisable at such time or times, and with respect
to such minimum number of shares, as may be determined by the Corporation at the
time of the grant. The Option agreement may require, if so determined by the
Corporation, that no part of the Option may be exercised until the Optionee
shall have remained in the employ of the Corporation or of a Subsidiary for such
period after the date of the Option as the Corporation may specify.
6.5 The Corporation may prescribe the form of legend which shall be affixed
to the stock certificate representing shares to be issued and the shares shall
be subject to the provisions of any repurchase agreement or other agreement
restricting the sale or transfer thereof. Such agreements or restrictions shall
be noted on the certificate representing the shares to be issued.
7. Exercise of Option.
7.1 Each exercise of an Option granted hereunder, whether in whole or in
part, shall be by written notice thereof, delivered to the Secretary of the
Corporation (or such other person as he may designate). The notice shall state
the number of shares with respect to which the Options are being exercised and
shall be accompanied by payment in full for the number of shares so designated.
Shares shall be registered in the name of the Optionee unless the Optionee
otherwise directs in his or her notice of election.
7.2 Payment shall be made to the Corporation either (i) in cash, including
certified check, bank draft or money order (ii) at the discretion of the
Corporation, by delivering Common Stock of the Corporation already owned by the
participant or a combination of Common Stock and cash for all or a portion of
the purchase price of the shares so purchased. With respect to (ii) the Fair
Market Value of stock so delivered shall be determined as of the date
immediately preceding the date of exercise.
7.3 Upon notification of the amount due and prior to, or concurrently with,
the delivery to the Optionee of a certificate representing any shares purchased
pursuant to the exercise of an Option, the Optionee shall promptly pay to the
Corporation any amount necessary to satisfy applicable federal, state or local
withholding tax requirements.
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<PAGE>
8. Adjustments of Option Stock. In case the shares issuable upon exercise
of any Option granted under the Plan at any time outstanding shall be subdivided
into a greater or combined into a lesser number of shares (whether with or
without par value), the number of shares purchasable upon exercise of such
Option immediately prior thereto shall be adjusted so that the Optionee shall be
entitled to receive a number of shares which he or she would have owned or have
been entitled to receive after the happening of such event had such Option been
exercised immediately prior to the happening of such subdivision or combination
or any record date with respect thereto. An adjustment made pursuant to this
paragraph shall become effective immediately after the effective date of such
subdivision or combination retroactive to the record date, if any, for such
subdivision or combination. The option price (as such amount may have
theretofore been adjusted pursuant to the provisions hereof) shall be adjusted
by multiplying the option price immediately prior to the adjustment of the
number of shares purchasable under the Option by a fraction, of which the
numerator shall be the number of shares purchasable upon the exercise of the
Option immediately prior to such adjustment, and of which the denominator shall
be the number of shares so purchasable immediately thereafter. Substituted
shares of stock shall be deemed shares under Section 3 of the Plan.
9. Assignments. Any Option granted under this Plan shall be exercisable
only by the Optionee to whom granted during his or her lifetime and shall not be
assignable or transferable otherwise than by will or by the laws of descent and
distribution.
10. Severance; Death; Disability. An Option shall terminate, and no rights
thereunder may be exercised, if the person to whom it is granted ceases to be
employed by the Corporation or by a Subsidiary except that:
10.1 If the employment of the Optionee is terminated by any reason other
than his or her death or disability, the Optionee may at any time within not
more than three months after termination of his or her employment, exercise his
or her Option rights but only to the extent they were exercisable by the
Optionee on the date of termination of his or her employment; provided, however,
that if the employment is terminated by deliberate, willful or gross misconduct
as determined by the Committee, all rights under the Option shall terminate and
expire upon such termination.
10.2 If the Optionee dies while in the employ of the Corporation or a
Subsidiary, or within not more than three months after termination of his or her
employment, the Optionee's rights under the Option may be exercised at any time
within one year following such death by his or her personal representative or by
the person or persons to whom such rights under the Option shall pass by will or
by the laws of descent and distribution, but only to the extent they were
exercisable by the Optionee on the date of death.
10.3 If the employment of the Optionee is terminated because of permanent
disability, the Optionee, or his or her legal representative, may at any time
within not more than one year after termination of his or her employment,
exercise his or her Option rights but only to the extent they were exercisable
by the Optionee on the date of termination of his or her employment.
10.4 Notwithstanding anything contained in Sections 10.1, 10.2 and 10.3 to
the contrary, no Option rights shall be exercisable by anyone after the
expiration of the term of the Option.
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<PAGE>
10.5 Transfers of employment between the Corporation and a Subsidiary, or
between Subsidiaries, will not constitute termination of employment for purposes
of any Option granted under this Plan. The Committee may specify in the terms
and conditions of an Option whether any authorized leave of absence or absence
for military or government service or for any other reasons will constitute a
termination of employment for purposes of the Option and the Plan.
11. Rights of Participants. Neither the participant nor the personal
representatives, heirs, or legatees of such participant shall be or have any of
the rights or privileges of a shareholder of the Corporation in respect of any
of the shares issuable upon the exercise of an Option granted under this Plan
unless and until certificates representing such shares shall have been issued
and delivered to the participant or to such personal representatives, heirs or
legatees.
12. Securities Registration. If any law or regulation of the Securities and
Exchange Commission or of any other body having jurisdiction shall require the
Corporation or the participant to take any action in connection with the
exercise of an Option, then notwithstanding any contrary provision of an Option
agreement or this Plan, the date for exercise of such Option and the delivery of
the shares purchased thereunder shall be deferred until the completion of the
necessary action. In the event that the Corporation shall deem it necessary, the
Corporation may condition the grant or exercise of an Option granted under this
Plan upon the receipt of a satisfactory certificate that the Optionee is
acquiring the Option or the shares obtained by exercise of the Option for
investment purposes and not with the view or intent to resell or otherwise
distribute such Option or shares. In such event, the stock certificate
evidencing such shares shall bear a legend referring to applicable laws
restricting transfer of such shares. In the event that the Corporation shall
deem it necessary to register under the Securities Act of 1933, as amended, or
any other applicable statute, any Options or any shares with respect to which an
Option shall have been granted or exercised, then the participant shall
cooperate with the Corporation and take such action as is necessary to permit
registration or qualification of such Options or shares.
13. Duration and Amendment.
13.1 There is no express limitation upon the duration of the Plan, except
for the requirement of the Code that all ISOs must be granted within ten years
from the date the Plan is approved by the shareholders.
13.2 The Board may terminate or may amend the Plan at any time, provided,
however, that the Board may not, without approval of the shareholders of the
Corporation, (i) increase the maximum number of shares as to which Options may
be granted under the Plan, (ii) permit the granting of ISO's at less than 100%
of Fair Market Value at time of grant, (iii) change the class of employees
eligible to receive Options under the Plan, or (iv) permit Directors to receive
options under the Plan other than pursuant to Section 14 hereof.
14. Granting of Options to Directors. Each Non-Employee Director who on and
after the date after this Plan is approved by shareholders of the Corporation is
elected or reelected as a director of the Corporation or whose term of offices
continues after such meeting of Shareholders shall as of the date of such
election, reelection, or annual or special meeting automatically be granted an
option to purchase 10,000 shares of the Corporation's Common Stock at an option
price per share equal to 100% of the Fair Market Value of a share on such date.
In the case of a special meeting, the action of the holders of shares in
electing a Non- Employee Director shall constitute the granting of the Option to
such Director, and, in the case of an annual meeting, the action of the holders
of shares in electing or reelecting a Non- Employee Director shall constitute
the granting of an Option to such Director; and the date when the holders of
shares shall take such action shall be the date of grant of the Option. No
director shall receive more than one option to purchase shares pursuant to this
Plan in any one fiscal year. All such Options shall be designated as NQOs and
shall be subject to the same terms and provisions as are then in effect with
respect to granting of NQOs to salaried officers and key employees of the
Corporation, except that the Option shall be exercisable as to all or any part
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<PAGE>
of the shares subject to the Option beginning one year from the date the Option
is granted, and shall expire on the earlier of (i) twelve months after the
Optionee ceases to be a director (except by death) and (ii) five years after the
date of grant. Notwithstanding the foregoing, in the event of a death of a
Non-Employee Director, any option granted to such Non-Employee Director may be
exercised at any time within twelve months of death of such Non-Employee
Director or on the date on which the option, by its terms expire, whichever is
earlier. Subject to the foregoing, all provisions of this Plan not inconsistent
with the foregoing shall apply to Options granted to Directors, except that
directors shall always have the right to deliver stock in exercise of options as
provided in Section 7.2. Upon the effective date of shareholder approval of this
Plan, the Stock Option Grant Program of the 1985 Incentive Stock Option Plan is
terminated, except that options outstanding or to be granted on the date of
shareholder approval shall remain outstanding until they, by their terms,
expire.
15. Approval of Shareholders. This Plan expressly is subject to approval of
holders of a majority of the outstanding shares of Common Stock of the
Corporation, and if it is not so approved on or before one year after the date
of adoption of this Plan by the Board, the Plan shall not come into effect, and
any Options granted pursuant to this Plan shall be deemed cancelled.
16. Conditions of Employment. The granting of an Option to a participant
under this Plan who is an employee shall impose no obligation on the Corporation
to continue the employment of any participant and shall not lessen or affect the
right of the Corporation to terminate the employment of the participant.
17. Other Options. Nothing in the Plan will be construed to limit the
authority of the Corporation to exercise its corporate rights and powers,
including, by way of illustration and not by way of limitation, the right to
grant options for proper corporate purposes otherwise than under the Plan to any
employee or any other person, firm, corporation, association, or other entity,
or to grant options to, or assume options of, any person for the acquisition by
purchase, lease, merger, consolidation, or otherwise, of all or any part of the
business and assets of any person, firm, corporation, association, or other
entity.
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EXHIBIT 10.4
AEQUITRON MEDICAL, INC.
1995 EMPLOYEE STOCK PURCHASE PLAN
ARTICLE I - ESTABLISHMENT OF PLAN
1.01 Adoption by Board of Directors. By action of the Board of Directors of
Aequitron Medical, Inc. (the "Corporation") on June 19, 1995, subject to
approval by its shareholders, the Corporation has adopted an employee stock
purchase plan pursuant to which eligible employees of the Corporation and
certain of its Subsidiaries may be offered the opportunity to purchase
shares of Stock of the Corporation. The terms and conditions of this Plan
are set forth in this plan document, as amended from time to time as
provided herein. The Corporation intends that the Plan shall qualify as an
"employee stock purchase plan" under Section 423 of the Internal Revenue
Code of 1986, as amended from time to time, (the "Code") and shall be
construed in a manner consistent with the requirements of Code Section 423
and the regulations thereunder.
1.02 Shareholder Approval and Term. This Plan shall become effective November 1,
1995, and shall terminate October 31, 2005; provided, however, that the
Plan shall be subject to approval by the shareholders of the Corporation
within twelve (12) months after the Plan is adopted by the Board or, if
earlier, at the next annual meeting of the shareholders, in the manner
provided under Code Section 423 and the regulations thereunder; and
provided, further that the Board of Directors may extend the term of the
Plan for such period as the Board, in its sole discretion, deems advisable.
In the event that the shareholders fail to approve the Plan at such annual
shareholders' meeting, this Plan shall not become effective and shall have
no force or effect.
ARTICLE II - PURPOSE
2.01 Purpose. The primary purpose of the Plan is to provide an opportunity for
Eligible Employees of the Corporation to become shareholders of the
Corporation, thereby providing them with an incentive to remain in the
Corporation's employ, to improve operations, to increase profits and to
contribute more significantly to the Corporation's success.
<PAGE>
ARTICLE III - DEFINITIONS
3.01 "Administrator" means the Compensation Committee appointed by the Board of
Directors. The Compensation Committee may, in its sole discretion,
authorize the officers of the Corporation to carry out the day-to-day
operation of the Plan. In its sole discretion, the Board may take such
actions as may be taken by the Administrator, in addition to those powers
expressly reserved to the Board under this Plan.
3.02 "Board of Directors" or "Board" means the Board of Directors of Aequitron
Medical, Inc.
3.03 "Compensation" means the Participant's regular compensation excluding
overtime and all bonuses, including but not limited to bonuses payable
under the Employee Profit Sharing Plan.
3.04 "Corporation" means Aequitron Medical, Inc., a Minnesota corporation.
3.05 "Eligible Employee" means any employee who, as determined on or immediately
prior to an Enrollment Period, is a United States full-time or part-time
employee of the Corporation or one of its Subsidiaries and who has been
employed by the Corporation or the Subsidiary at least six (6) consecutive
months prior to the commencement date of a phase.
3.06 "Enrollment Period" means the period determined by the Administrator for
purposes of accepting elections to participate during a Phase from Eligible
Employees.
3.07 "Fiscal Year" means the fiscal year of the Corporation, which is the
twelve-month period beginning May 1 and ending April 30 each year.
3.08 "Participant" means an Eligible Employee who has been granted an option and
is participating during a Phase through payroll deductions, but shall
exclude those employees subject to the limitations described in Section
9.03 below.
3.09 "Phase" means the period beginning on the date that the option was granted,
otherwise referred to as the commencement date of the Phase, and ending on
the date that the option was exercised, otherwise referred to as the
termination date of the Phase.
3.10 "Plan" means the Aequitron Medical, Inc. 1995 Employee Stock Purchase Plan.
3.11 "Stock" means the voting common stock of the Corporation.
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3.12 "Subsidiary" means any corporation defined as a subsidiary of the
Corporation in Code Section 424(f) as of the effective date of the Plan,
and such other corporations that qualify as subsidiaries of the Corporation
under Code Section 424(f) as the Board approves to participate in this Plan
from time to time.
ARTICLE IV - ADMINISTRATION
4.01 Administration. Except for those matters expressly reserved to the Board
pursuant to any provisions of the Plan, the Administrator shall have full
responsibility for administration of the Plan, which responsibility shall
include, but shall not be limited to, the following:
(a) The Administrator shall, subject to the provisions of the Plan,
establish, adopt and revise such rules and procedures for
administering the Plan, and shall make all other determinations
as it may deem necessary or advisable for the administration of
the Plan;
(b) The Administrator shall, subject to the provisions of the Plan,
determine all terms and conditions that shall apply to the grant
and exercise of options under this Plan, including, but not
limited to, the number of shares of Stock that may be granted,
the date of grant, the exercise price and the manner of exercise
of an option. The Administrator may, in its discretion, consider
the recommendations of the management of the Corporation when
determining such terms and conditions;
(c) The Administrator shall have the exclusive authority to interpret
the provisions of the Plan, and each such interpretation or
determination shall be conclusive and binding for all purposes
and on all persons, including, but not limited to, the
Corporation and its Subsidiaries, the shareholders of the
Corporation and its Subsidiaries, the Administrator, the
directors, officers and employees of the Corporation and its
Subsidiaries, and the Participants and the respective
successors-in-interest of all of the foregoing; and
(d) The Administrator shall keep minutes of its meetings or other
written records of its decisions regarding the Plan and shall,
upon requests, provide copies to the Board.
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ARTICLE V - PHASES OF THE PLAN
5.01 Phases. The Plan shall be carried out in one or more Phases of six (6)
months each. Unless otherwise determined by the Administrator, in its
discretion, Phases shall commence on May 1 and November 1 of each fiscal
year during the term of the Plan; provided, however, that there shall be
only one phase for the 1996 fiscal year commencing on November 1, 1995. No
two Phases shall run concurrently.
5.02 Limitations. The Administrator may, in its discretion, limit the number of
shares available for option grants during any Phase as it deems
appropriate. Without limiting the foregoing, in the event all of the shares
of Stock reserved for the grant of options under Section 12.01 is issued
pursuant to the terms hereof prior to the commencement of one or more
Phases or the number of shares of Stock remaining is so small, in the
opinion of the Administrator, as to render administration of any succeeding
Phase impracticable, such Phase or Phases may be cancelled or the number of
shares of Stock limited as provided herein. In addition, if, based on the
payroll deductions authorized by Participants at the beginning of a Phase,
the Administrator determines that the number of shares of Stock which would
be purchased at the end of a Phase exceeds the number of shares of Stock
remaining reserved under Section 12.01 hereof for issuance under the Plan,
or if the number of shares of Stock for which options are to be granted
exceeds the number of shares designated for option grants by the
Administrator for such Phase, then the Administrator shall make a pro rata
allocation of the shares of Stock remaining available in as nearly uniform
and equitable a manner as the Administrator shall consider practicable as
of the commencement date of the Phase or, if the Administrator so elects,
as of the termination date of the Phase. In the event such allocation is
made as of the commencement date of a Phase, the payroll deductions which
otherwise would have been made on behalf of Participants shall be reduced
accordingly.
ARTICLE VI - ELIGIBILITY
6.01 Eligibility. Each employee who is an Eligible Employee on or immediately
prior to the commencement of a Phase shall be eligible to participate in
such Phase.
ARTICLE VII - PARTICIPATION
7.01 Participation. Participation in the Plan is voluntary. An Eligible Employee
who desires to participate in any Phase of the Plan must complete the Plan
enrollment form provided by the Administrator and deliver such form to the
Administrator or its designated representative during the Enrollment Period
established by the Administrator prior to the commencement date of the
Phase.
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<PAGE>
7.02 Subsequent Phases. An Eligible Employee who elects to participate in a
Phase of a fiscal year shall be deemed to have elected to participate in
each subsequent Phase during that fiscal year and all subsequent fiscal
years unless such Participant elects to discontinue payroll deductions
during a Phase or exercises his or her right to withdraw amounts previously
withheld, as provided under Article 10 hereof. In such event, such
Participant must complete a change of election form or a new Plan
enrollment form and file such form with the Administrator during the
Enrollment Period prior to the next Phase with respect to which the
Eligible Employee wishes to participate.
ARTICLE VIII - PAYMENT: PAYROLL DEDUCTIONS
8.01 Enrollment. Each Eligible Employee electing to participate shall indicate
such election on the Plan enrollment form and designate therein a
percentage of such Participant's Compensation to be paid during the Phase.
Such percentage shall be at least one percent (1%) but not more than ten
percent (10%) of such Participant's Compensation to be paid during such
Phase, or such other maximum percentage as the Administrator may establish
from time to time; provided, however, that the payroll deduction authorized
by the Participant must equal or exceed $10. In order to be effective, such
Plan enrollment form must be properly completed and received by the
Administrator by the due date indicated on such form, or by such other date
established by the Administrator.
8.02 Payroll Deductions. Payroll deductions for a Participant shall commence on
the first paycheck issued for the payroll period which begins on or
immediately after the commencement date of the Phase and shall terminate on
the last paycheck issued for the payroll period which begins on or
immediately prior to the termination date of that Phase, unless the
Participant elects to discontinue payroll deductions or exercises his or
her right to withdraw all accumulated payroll deductions previously
withheld during the Phase as provided in Article 10 hereof. The authorized
payroll deductions shall be made over the pay periods of such Phase by
deducting from the Participant's Compensation for each such pay period that
percentage specified by the Participant in the Plan enrollment form.
Unless the Participant elected to discontinue payroll deductions or
exercised his or her right to withdraw all accumulated payroll deductions
previously withheld during the preceding Phase (in which event the
Participant must complete a change of election form or a new Plan
enrollment form, as the case may be, to continue participation for any
subsequent Phase), the Corporation shall continue to withhold from such
Participant's Compensation the same designated percentage specified by the
Participant in the most recent Plan enrollment form previously completed by
the Participant for all subsequent Phases; provided, however, that the
Participant may, if he or she so chooses, increase, decrease or discontinue
payroll deductions for any or all such subsequent Phases by properly
completing a new enrollment form during the Enrollment Period for such
subsequent Phase and delivering such form to the Administrator by the due
date for receipt of such forms for that Phase.
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<PAGE>
8.03 Increases or Decreases During a Phase. In addition to the right to
discontinue or withdraw payroll deductions during a Phase as provided in
Article 10 and the right to increase or decrease or discontinue payroll
deductions for subsequent Phases as provided in Section 8.02, a Participant
may increase or decrease the percentage of Compensation designated to be
deducted during a Phase by completing a change of election form and filing
such form with the Administrator on or before the date that is fifteen (15)
days prior to the date of the last paycheck during that Phase, or on or
before such other date established by the Corporation; provided, however,
that the Participant may exercise the right to increase or decrease his or
her payroll deductions only once during each Phase.
8.04 Change in Compensation During a Phase. In the event that the Participant's
Compensation is discontinued or reduced during a Phase for any reason so
that the amount actually withheld on behalf of the Participant as of the
termination date of the Phase is less than the amount anticipated to be
withheld as determined on the commencement date of the Phase, then the
extent to which the Participant may exercise his or her option shall be
based on the amounts actually withheld on his or her behalf. In the event
of a change in the pay period of any Participant, such as from biweekly to
monthly, an appropriate adjustment shall be made to the deduction in each
new pay period so as to insure the deduction of the proper amount
authorized by the Participant.
ARTICLE IX - OPTIONS
9.01 Grant of Option. Subject to Article 10, a Participant who has elected to
participate in the manner described in Article VIII and who is employed by
the Corporation or a Subsidiary as of the commencement date of a Phase
shall be granted an option as of such date to purchase that number of whole
shares of Stock determined by dividing the total amount to be credited to
the Participant's account by the option price per share set forth in
Section 9.02(a) below. The option price per share for such Stock shall be
determined under Section 9.02 hereof, and the number of shares exercisable
shall be determined under Section 9.03 hereof.
- 6 -
<PAGE>
9.02 Option Price. Subject to the limitations hereinbelow, the option price for
such Stock shall be the lower of the amounts determined under paragraphs
(a) and (b) below:
(a) Eighty-five percent (85%) of the closing price for a share of the
Corporation's Stock as reported on the NASDAQ National Market or on an
established securities exchange as of the commencement date of the
Phase; or
(b) Eighty-five percent (85%) of the closing price for a share of the
Corporation's Stock as reported on the NASDAQ National Market or on an
established securities exchange as of the termination date of the
Phase.
In the event that the commencement or termination date of a Phase is a
Saturday, Sunday or holiday, the amounts determined under the foregoing
subsections shall be determined using the price as of the last preceding
trading day.
If the Corporation's Stock is not so reported in the NASDAQ National Market
or upon an established securities exchange, the option price shall equal
the lesser of (i) eighty-five percent (85%) of the average of the closing
"bid" and "asked" prices quoted on the NASDAQ SmallCap Market as of the
commencement date of the Phase, or if there are no such quoted "bid" and
"asked" prices on such date, on the next preceding date for which there are
quotes, and (ii) eighty-five percent (85%) of the average of the closing
"bid" and "asked" prices quoted on the NASDAQ SmallCap Market as of the
termination date of the phase, or if there are no such quoted "bid" and
"asked" prices on such date, on the next preceding date for which there are
such quotes.
If the Corporation's Stock is not listed on an established securities
exchange, the NASDAQ National Market or the NASDAQ SmallCap Market, then
the option price shall equal the lesser of (i) eighty-five percent (85%) of
the fair market value of a share of the Corporation's Stock as of the
commencement date of the Phase, and (ii) eighty-five percent (85%) of the
fair market value of such stock as of the termination date of the Phase.
Such "fair market value" shall be determined by the Board.
9.03 Limitations. No employee shall be granted an option hereunder:
(a) Which permits his or her rights to purchase Stock under all
employee stock purchase plans of the Corporation or its Subsidiaries
to accrue at a rate which exceeds Twenty-Five Thousand Dollars
($25,000) of fair market value of such Stock (determined at the time
such option is granted) for each calendar year in which such option is
outstanding at any time;
- 7 -
<PAGE>
(b) If such employee would own and/or hold, immediately after the
grant of the option, Stock possessing five percent (5%) or more of the
total combined voting power or value of all classes of stock of the
Corporation or of any Subsidiary. For purposes of determining stock
ownership under this paragraph, the rules of Section 424(d) of the
Code shall apply.
(c) Which, if exercised, would cause the limits established by the
Administrator under Section 5.02 to be exceeded.
9.04 Exercise of Option. Subject to a Participant's right to withdraw in the
manner provided in Section 10.01, a Participant's option for the purchase
of shares of Stock will be exercised automatically on the termination date
of that Phase. However, in no event shall a Participant be allowed to
exercise an option for more shares of Stock than can be purchased with the
payroll deductions accumulated by the Participant in his or her bookkeeping
account during such Phase, whether or not the accumulated payroll
deductions are less than the full percentage amount that such Participant
anticipated he or she would contribute at the beginning of such Phase.
9.05 Delivery of Shares. As promptly as practicable after the termination of any
Phase, the Corporation's transfer agent or other authorized representative
shall deliver to each Participant herein certificates for that number of
whole shares of Stock purchased upon the exercise of the Participant's
option. Any accumulated payroll deductions remaining after the exercise of
the Participant's option pursuant to Section 9.04 above shall remain
credited to the Participant's bookkeeping account and applied to the
purchase of shares of Stock in the next succeeding Phase, unless the
Participant requests a withdrawal of such amount pursuant to Section 10.01.
The shares of the Corporation's common stock to be delivered to a
Participant pursuant to the exercise of an option under Section 9.04 of the
Plan will be registered in the name of the Participant or, if the
Participant so directs by written notice to the Administrator prior to the
termination date of the Phase, in the names of the Participant and one
other person the Participant may designate as his joint tenant with rights
of survivorship, to the extent permitted by law.
- 8 -
<PAGE>
ARTICLE X - WITHDRAWAL OR
DISCONTINUATION OF PAYROLL WITHHOLDINGS
10.01Withdrawal. A Participant may request a withdrawal of all accumulated
payroll deductions then credited to the Participant's bookkeeping account
by completing a change of election form and filing such form with the
Administrator. The Participant's request shall be effective as of the
beginning of the next payroll period immediately following the date that
the Administrator receives the Participant's properly completed change of
election form. As soon as administratively feasible after the end of that
Phase, all payroll deductions credited to a bookkeeping account for the
Participant will be paid to such Participant and no further payroll
deductions will be made during that Phase or any future Phase unless the
Participant completes a new Plan enrollment form as provided in Section
8.02 above. If the Participant requests a withdrawal, the option granted to
the Participant under that Phase of the Plan shall immediately lapse and
shall not be exercisable. Partial withdrawals of payroll deductions are not
permitted.
Notwithstanding the foregoing, in order to be effective for a particular
Phase, the Participant's request for withdrawal must be properly completed
and received by the Administrator on or before the date that is fifteen
(15) days before the date of the last paycheck during the Phase, or on or
before such other date established by the Administrator. Requests for
withdrawal that are received after that due date shall not be effective and
no withdrawal shall be made, unless otherwise determined by the
Administrator.
10.02Discontinuation. A Participant may also request that the Administrator
discontinue any further payroll deductions that would otherwise be made
during the remainder of the Phase by completing a change of election form
and filing such form with the Administrator on or before the date that is
fifteen (15) days before the date of the last paycheck during the phase, or
on or before such other date established by the Administrator. The
Participant's request shall be effective as of the beginning of the next
payroll period immediately following the date that the Administrator
receives the Participant's properly completed change of election form. Upon
the effective date of the Participant's request, the Corporation will
discontinue making payroll deductions for such Participant for that Phase,
and all future Phases, unless the Participant completes another change of
election form as provided above.
- 9 -
<PAGE>
ARTICLE XI - TERMINATION OF EMPLOYMENT
11.01If a Participant's employment terminates with the Corporation for any
reason, voluntarily or involuntarily, including by reason of retirement or
death, the payroll deductions credited to such Participant's bookkeeping
account for such Phase, if any, will be returned to the Participant (or, in
the case of death, to the Participant's estate) and any options granted to
such Participant under the Plan shall immediately lapse and shall not be
exercisable. The return of such payroll deductions shall be made to the
Participant (or to the Participant's estate) as soon as administratively
practicable. In the event that such termination occurs near the end of a
Phase and the Corporation is unable to discontinue payroll deductions for
such Participant for his or her final paycheck(s), such deductions shall
still be made but shall be returned to the Participant (or his or her
estate) as provided herein. In no event shall the accumulated payroll
deductions be used to purchase any shares of Stock.
If the option lapses as a result of the Participant's death, any
accumulated payroll deductions credited to the Participant's bookkeeping
account will be paid to the Participant's estate. In the event a
Participant dies after exercise of the Participant's option but prior to
delivery of the Stock to be transferred pursuant to the exercise of the
option under Section 9.04 above, any such Stock and/or accumulated payroll
deductions remaining after such exercise shall be paid by the Corporation
to the Participant's estate.
The Corporation will not be responsible for or be required to give effect
to the disposition of any cash or Stock or the exercise of any option in
accordance with any will or other testamentary disposition made by such
Participant or in accordance with the provisions of any law concerning
intestacy, or otherwise. No person shall, prior to the death of a
Participant, acquire any interest in any Stock, in any option or in the
cash credited to the Participant's bookkeeping account during any Phase of
the Plan.
11.02In the event that any Subsidiary ceases to be a Subsidiary of the
Corporation, the employees of such Subsidiary shall be considered to have
terminated their employment for purposes of Section 11.01 hereof as of the
date the Subsidiary ceased to be a Subsidiary of the Corporation.
- 10 -
<PAGE>
ARTICLE XII - STOCK RESERVED FOR OPTIONS
12.01Two Hundred Fifty Thousand (250,000) shares of Stock, which may be
authorized but unissued shares of the Corporation (or the number and kind
of securities to which said 250,000 shares may be adjusted in accordance
with Section 14.01 hereof) are reserved for issuance upon the exercise of
options to be granted under the Plan. Shares subject to the unexercised
portion of any lapsed or expired option may again be subject to option
under the Plan.
12.02The Participant (or a joint tenant named pursuant to Section 9.05 above)
shall have no rights as a shareholder with respect to any shares of Stock
subject to the Participant's option until the date of the issuance of a
stock certificate evidencing such shares as provided in Section 9.05. No
adjustment shall be made for dividends (ordinary or extraordinary, whether
in cash, securities or other property), distributions or other rights for
which the record date is prior to the date such stock certificate is
actually issued, except as otherwise provided in Section 14.01 hereof.
ARTICLE XIII - ACCOUNTING AND USE OF FUNDS
13.01Payroll deductions for Participants shall be credited to bookkeeping
accounts, established by the Corporation for each such Participant under
the Plan. A Participant may not make any cash payments into such account.
Such account shall be solely for bookkeeping purposes and shall not require
the Corporation to establish any separate fund or trust hereunder. All
funds from payroll deductions received or held by the Corporation under the
Plan may be used, without limitation, for any corporate purpose by the
Corporation, which shall not be obligated to segregate such funds from its
other funds.
ARTICLE XIV - ADJUSTMENT PROVISION
14.01Subject to any required action by the shareholders of the Corporation, in
the event of an increase or decrease in the number of outstanding shares of
Stock or in the event the Stock is changed into or exchanged for a
different number or kind of shares of stock or other securities of the
Corporation or another corporation by reason of a reorganization, merger,
consolidation, divestiture (including a spin-off), liquidation,
recapitalization, reclassification, stock dividend, stock split,
combination of shares, rights offering or any other change in the corporate
structure or shares of the Corporation, the Board (or, if the Corporation
is not the surviving corporation in any such transaction, the board of
directors of the surviving corporation), in its sole discretion, shall
adjust the number and kind of securities subject to and reserved under the
Plan and, to prevent the dilution or enlargement of rights of those
Eligible Employees to whom options have been granted, shall adjust the
number and kind of securities subject to such outstanding options and,
where applicable, the exercise price per share for such securities.
- 11 -
<PAGE>
In the event of sale by the Corporation of substantially all of its assets
and the consequent discontinuance of its business, or in the event of a
merger, exchange, consolidation, reorganization, divestiture (including a
spin-off), liquidation, reclassification or extraordinary dividend
(collectively referred to as a "transaction"), after which the Corporation
is not the surviving corporation, the Board may, in its sole discretion, at
the time of adoption of the plan for such transaction, may provide for one
or more of the following:
(a) The acceleration of the exercisability of outstanding options
granted at the commencement of the Phase then in effect, to the
extent of the accumulated payroll deductions made as of the date
of such acceleration pursuant to Article 8 hereof;
(b) The complete termination of this Plan and a refund of amounts
credited to the Participants' bookkeeping accounts hereunder; or
(c) The continuance of the Plan only with respect to completion of
the then current Phase and the exercise of options thereunder. In
the event of such continuance, Participants shall have the right
to exercise their options as to an equivalent number of shares of
stock of the corporation succeeding the Corporation by reason of
such transaction.
In the event of a transaction where the Corporation survives, then the Plan
shall continue in effect, unless the Board takes one or more of the actions
set forth above. The grant of an option pursuant to the Plan shall not
limit in any way the right or power of the Corporation to make adjustments,
reclassifications, reorganizations or changes in its capital or business
structure or to merge, exchange or consolidate or to dissolve, liquidate,
sell or transfer all or any part of its business or assets.
ARTICLE XV - NONTRANSFERABILITY OF OPTIONS
15.01Options granted under any Phase of the Plan shall not be transferable and
shall be exercisable only by the Participant during the Participant's
lifetime.
- 12 -
<PAGE>
15.02Neither payroll deductions granted to a Participant's account, nor any
rights with regard to the exercise of an option or to receive Stock under
any Phase of the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way by the Participant. Any such attempted assignment,
transfer, pledge or other disposition shall be null and void and without
effect, except that the Corporation may, at its option, treat such act as
an election to withdraw in accordance with Section 10.01.
ARTICLE XVI - AMENDMENT AND TERMINATION
16.01The Plan may be terminated at any time by the Board of Directors, provided
that, except as permitted in Section 14.01 hereof, no such termination
shall take effect with respect to any options then outstanding. The Board
may, from time to time, amend the Plan as it may deem proper and in the
best interests of the Corporation or as may be necessary to comply with
Code Section 423 or other applicable laws or regulations; provided,
however, no such amendment shall, without the consent of a Participant,
materially adversely affect or impair the right of a Participant with
respect to any outstanding option; and provided, further, that no such
amendment shall, unless the shareholders of the Corporation have approved
the same, directly or indirectly:
(a) Increase the total number of shares for which options may be
granted under the Plan (except as provided in Section 14.01
herein);
(b) Modify the group of Subsidiaries whose employees may be eligible
to participate in the Plan or materially modify any other
requirements as to eligibility for participation in the Plan; or
(c) Materially increase the benefits accruing to Participants under
the Plan.
ARTICLE XVII - NOTICES
17.01All notices, forms, elections or other communications in connection with
the Plan or any Phase thereof shall be in such form as specified by the
Corporation or the Administrator from time to time, and shall be deemed to
have been duly given when received by the Participant or his or her
personal representative or by the Corporation or its designated
representative, as the case may be.
- 13 -
EXHIBIT 10.26
CHANGE IN CONTROL EMPLOYMENT AGREEMENT
This Change in Control Employment Agreement (the "Agreement") is hereby
made and entered into effective as of July 1, 1996, by and between Aequitron
Medical, Inc., a Minnesota corporation (the "Company"), and Earl Slee
("Executive").
Recitals
1. Executive has been employed by the Company since August 30, 1995 on an
"at will basis."
2. Company desires to provide Executive with assurances justifying
Executive's continued employment at a time when Company anticipates that there
may be offers for its acquisition by outside third parties.
Agreement
1. Employment. The Company agrees to continue to employ Executive as its
Vice President of Research and Development on an at will basis.
2. Benefits Available to Executive When Employment Termination Results
Subsequent to a Change in Control.
a. If, at any time, subsequent to the date of this Agreement, the
Company undergoes a "change in control" as hereinafter defined and
thereafter Executive is terminated without cause or if Executive
voluntarily resigns within one year after such "change in control,"
Executive shall receive two times the total of his base compensation and
two times the amount of target bonus pursuant to the Company's approved
management incentive plan in effect at the time of the change in control.
Within ten (10) days from the date of termination of Executive's employment
or Executive's voluntary resignation, all sums due the Executive for his
base compensation and target bonus under this Agreement shall be paid in
one lump sum (subject to applicable deductions and withholding for FICA and
state and federal income taxes) unless a schedule specifying dates upon
which such payments will be made has been agreed to by the Executive in
writing. Executive will also receive the health benefits in effect at the
time of termination for a period of one year or until he attains new
employment and qualifies for similar health coverage, whichever occurs
earlier. The health coverage to be received will be consistent with the
Aequitron Medical, Inc. policy for full-time employees in effect on the
date a "change in control" occurs. In addition, all outstanding stock
options on the date of resignation or termination to the extent they are
not then vested will become vested immediately, and Executive shall
thereafter have the right to exercise all such options for a period of
three months after Executive is terminated or voluntarily resigns.
<PAGE>
b. A change in control shall be deemed to have occurred if: (i) any
person or entity becomes the beneficial owner of 35% or more of the
Company's outstanding securities in conjunction with a "change in the Board
of Directors composition"; (ii) any person or entity increased his or her
or its ownership of the Company by an amount equal to 25% of the Company's
outstanding securities in conjunction with a "change in the Board of
Directors composition"; (iii) the consummation of a merger, acquisition or
consolidation of the Company into or with any other entity; (iv) the
consummation of a plan of complete liquidation of the Company or the sale
of substantially all of the Company's assets; or (v) a "change in the Board
of Directors composition."
c. A "change in the Board of Directors composition" shall be deemed to
have occurred if, at any time, while Employee is employed by the Company a
numerical majority of the Company's Board of Directors is comprised of
persons whose nomination was not approved by vote of at least two-thirds of
the Company's directors.
3. Except for the specific occurrence of a "change in control" or a "change
in the composition of the Board of Directors" of Company as defined herein,
Employee's employment with Company shall continue to be on an at will basis and
such other Company employment policies as are from time to time approved and
adopted for Company's full-time employees.
IN WITNESS WHEREOF, the parties have hereto executed this Change in Control
Employment Agreement as of the day and year first written above.
AEQUITRON MEDICAL, INC.
By /s/ James B. Hickey, Jr.
Its President and CEO
/s/ Earl H. Slee
Executive
Exhibit 11 - Net Income Per Share Computation
<TABLE>
<CAPTION>
Year ended April 30,
1996 1995 1994
---- ---- ----
Primary earnings per share:
<S> <C> <C> <C>
Average shares outstanding 4,871,900 4,823,900 4,777,300
Net effect of dilutive stock options and
warrants--based on the treasury stock
method using average market price 519,500 301,300 47,200
---------- ---------- ----------
Total 5,391,400 5,125,200 4,824,500
========== ========== ==========
Net income $2,411,200 $1,857,600 $ 283,200
========== ========== ==========
Net income per share $ .45 $ .36 $ .06
======= ======= ========
Fully diluted earnings per share:
Average shares outstanding 4,871,900 4,823,900 4,777,300
Net effect of dilutive stock options and
warrants--based on the year-end market
price, if higher than average
market price 519,500 396,900 182,200
---------- ---------- ---------
Total 5,391,400 5,220,800 4,959,500
========== ========== ==========
Net income $2,411,200 $1,857,600 $ 283,200
========== ========== ==========
Net income per share $ .45 $ .36 $ .06
======= ======= =======
</TABLE>
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in (i) Registration Statement No.
33-21862 on Form S-8 effective May 11, 1988, (ii) Registration Statement No.
33-25981 on Form S-8 effective December 26, 1988, (iii) Registration Statement
No. 33-89950 on Form S-8 effective March 3, 1995, (iv) Registration Statement
No. 33-63839 on Form S-8 effective October 31, 1995 and (v) Registration
Statement No. 33-63837 on Form S-8 effective October 31, 1995 of our report
dated June 12, 1996, with respect to the consolidated financial statements and
schedule of Aequitron Medical, Inc. included in its Annual Report (Form 10-K)
for the year ended April 30, 1996 filed with the Securities and Exchange
Commission.
/s/ ERNST & YOUNG LLP
Minneapolis, Minnesota
July 25, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-START> MAY-01-1995
<PERIOD-END> APR-30-1996
<EXCHANGE-RATE> 1
<CASH> 3,143,300
<SECURITIES> 0
<RECEIVABLES> 6,966,600
<ALLOWANCES> 325,000
<INVENTORY> 4,313,800
<CURRENT-ASSETS> 15,374,900
<PP&E> 5,569,200
<DEPRECIATION> 3,504,600
<TOTAL-ASSETS> 23,178,200
<CURRENT-LIABILITIES> 4,857,700
<BONDS> 0
0
0
<COMMON> 48,900
<OTHER-SE> 16,370,400
<TOTAL-LIABILITY-AND-EQUITY> 23,178,200
<SALES> 38,477,800
<TOTAL-REVENUES> 38,477,800
<CGS> 17,224,400
<TOTAL-COSTS> 17,224,400
<OTHER-EXPENSES> 17,243,200
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 224,000
<INCOME-PRETAX> 3,786,200
<INCOME-TAX> 1,375,000
<INCOME-CONTINUING> 2,411,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,411,200
<EPS-PRIMARY> .45
<EPS-DILUTED> .45
</TABLE>
