<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 22, 1995
REGISTRATION NO. 33-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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POSSIS MEDICAL, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-0783184
(State or other jurisdiction of incorporation (I.R.S. Employer Identification
or organization) Number)
2905 NORTHWEST BOULEVARD
MINNEAPOLIS, MINNESOTA 55441-2644
612/550-1010
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
--------------------------
IRVING R. COLACCI, ESQ.
VICE PRESIDENT, LEGAL AFFAIRS AND HUMAN RESOURCES, GENERAL COUNSEL AND SECRETARY
2905 NORTHWEST BOULEVARD
MINNEAPOLIS, MINNESOTA 55441-2644
612/550-1010
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPIES TO:
David J. Lubben, Esq. D. William Kaufman, Esq.
Amy E. Lange, Esq. Popham, Haik, Schnobrich & Kaufman, Ltd.
Dorsey & Whitney P.L.L.P. 222 South Ninth Street
220 South Sixth Street Minneapolis, MN 55402
Minneapolis, MN 55402 612/334-2644
612/340-2904
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
--------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: / /
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED (1) PER UNIT (2) OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock
$.40 par value.......................... 2,196,500 shares $13.375 $29,378,187 $10,131
<FN>
(1) Includes 286,500 shares that may be purchased by the Underwriters solely to
cover over-allotments, if any.
(2) Calculated pursuant to Rule 457(c) based upon the last sale price as
reported by The Nasdaq National Market on August 15, 1995.
</TABLE>
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED , 1995
1,910,000 SHARES
[LOGO;]
COMMON STOCK
Of the 1,910,000 shares of Common Stock offered hereby, 1,750,000 shares are
being sold by the Company and 160,000 shares are being sold by the Selling
Shareholder. See "Principal and Selling Shareholders." The Company will not
receive any of the proceeds from the sale of the Common Stock by the Selling
Shareholder. The Company's Common Stock is traded on The Nasdaq National Market
under the symbol "POSS." On August 17, 1995, the closing sale price of the
Common Stock, as reported by Nasdaq, was $13.75 per share. See "Price Range of
Common Stock."
------------------------
THE COMMON STOCK OFFERED HERE BY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE FIVE.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
DISCOUNTS AND PROCEEDS TO SELLING
PRICE TO PUBLIC COMMISSIONS (1) COMPANY (2) SHAREHOLDERS
<S> <C> <C> <C> <C>
Per Share............... $ $ $ $
Total (3)............... $ $ $ $
</TABLE>
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting."
(2) Before deducting offering expenses payable by the Company, estimated at
$210,000.
(3) The Company has granted the Underwriters a 30-day option to purchase an
aggregate up to 286,500 additional shares to cover over-allotments, if any.
It this option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions, Proceeds to Company ans Proceeds to Selling
Shareholders will be $ , $ , $ and $ ,
respectively. See "Underwriting."
------------------------
The shares of Common Stock are offered by the Underwriters subject to prior
sale when, as and if delivered to and accepted by them, and are subject to the
right of the Underwriters to withdraw, cancel, or modify such offer and to
reject orders in whole or in part. It is expected that delivery of shares of
Common Stock will be made on or about , 1995, in Minneapolis,
Minnesota.
DAIN BOSWORTH INCORPORATED
JOHN G. KINNARD AND COMPANY, INCORPORATED
The date of this Prospectus is , 1995
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements, and other
information can be inspected and copied, at prescribed rates, at the Public
Reference Section of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following regional offices of the Commission:
New York Regional Office, Seven World Trade Center, 13th Floor, New York, New
York 10048 and Chicago Regional Office, 500 West Madison, Suite 1400, Chicago,
Illinois 60661.
The Company has filed with the Commission a Registration Statement under the
Securities Act of 1933 (the "Securities Act") with respect to the Common Stock
offered hereby. This Prospectus does not contain all of the information
contained in the Registration Statement and the exhibits thereto, certain parts
of which are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock offered hereby, reference is made to the Registration Statement, including
the exhibits filed as a part thereof, copies of which can be inspected at, or
obtained at prescribed rates from, the Public Reference Section of the
Commission at the address set forth above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated herein by reference:
(i) Annual Report on Form 10-K for the fiscal year ended July 31, 1994 (as
amended by Report on Form 10-K/A1);
(ii) Quarterly Reports on Form 10-Q for the quarters ended October 31, 1994,
January 31, 1995 (as amended by Reports on Form 10-Q/A1 and 10-Q/A2)
and April 30, 1995;
(iii) Report on Form 8-K dated December 6, 1994; and
(iv) The description of the Company's Common Stock contained in the Company's
Registration Statement on Form 8-A, and any amendment or report filed
for the purpose of updating such descriptions.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the Shares shall be deemed to be incorporated
by reference into this Prospectus and to be a part hereof from the respective
dates of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein modifies or supersedes such statement. Any statement
so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon the written or oral request of such person, a copy
of any or all of the documents incorporated by reference in this Prospectus (not
including certain exhibits to such documents). Written requests for such copies
should be directed to Russel E. Carlson, Possis Medical, Inc., 2905 Northwest
Boulevard, Minneapolis, Minnesota 55441-2644; telephone number: (612) 550-1010.
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMPANY'S COMMON
STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE
SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
<PAGE>
[POSSIS MEDICAL, INC. LOGO]
PROVIDING INNOVATIVE CARDIOVASCULAR TREATMENT OPTIONS
The AngioJet, Perma-Flow and Perma-Seal have not been approved by the FDA for
marketing in the United States. There can be no assurance that any of the
products will ever receive such approval or achieve commercial acceptance.
POSSIS GRAFTS -- PERMA-FLOW-REGISTERED TRADEMARK- AND
PERMA-SEAL-REGISTERED TRADEMARK-
POSSIS GRAFTS ARE SYNTHETIC VESSELS WHICH CAN BE USED BY SURGEONS TO BYPASS
BLOCKED CORONARY ARTERIES AND TO PROVIDE A POINT OF VASCULAR ACCESS IN KIDNEY
DIALYSIS PATIENTS.
THE PERMA-FLOW CORONARY BYPASS GRAFT
[The image material here shows an artistic depiction of a human heart with a
Perma-Flow Coronary Bypass Graft sutured to the vena cava and the aorta.]
Perma-Flow is a synthetic coronary graft using a unique fluid dynamic
approach to enhance its ability to stay open and provide blood flow to
bypassed coronary arteries. Worldwide, an estimated 500,000 people
require a coronary bypass each year. Perma-Flow is intended to increase
graft options for these patients and reduce the need to use a blood
vessel surgically removed from their own body.
[The image material here shows a close-up photograph of a Perma-Flow Coronary
Bypass Graft.]
THE PERMA-SEAL DIALYSIS ACCESS GRAFT
[The image material here shows a close-up photograph of a Perma-Seal Dialysis
Access Graft.]
The Perma-Seal self-sealing design is intended to help stop bleeding
following needle removal, to help prevent formation of blood clots at
needle entry sites (which can lead to graft failure), and to enhance the
possibility for early graft usage following implant.
[The image material here shows a photographic comparison of a conventional ePTFE
conduit (at top of photograph) and a Perma-Seal Dialysis Access Graft (at bottom
of photograph) following insertion of a needle.]
At right is a photographic comparison of a conventional ePTFE conduit and
Perma-Seal graft following insertion of a 16 gauge hemodialysis needle.
Note the absence of a visible opening in the Perma-Seal graft following
removal of the needle.
POSSIS ANGIOJET-TM- RAPID THROMBECTOMY SYSTEM
The AngioJet Rapid Thrombectomy System is a non-surgical system designed for
safe, rapid and effective removal of blood clots from peripheral arteries and
grafts, coronary arteries and grafts, and veins.
[The image material here shows a photograph of a laboratory technician standing
next to an AngioJet System, with a close-up photographic inset of an AngioJet
catheter.]
The AngioJet System consists of a reusable drive unit, a disposable
catheter and a disposable pump/bag assembly. Pressurized streams of
sterile saline gently wash blood clot from the blood vessel's wall, break
it up into small particles, and direct these particles toward the
catheter's tip. Inwardly directed saline jets draw the particles into the
tip where they are further broken down and propelled through the catheter
and out of the body.
THE ANGIOJET THROMBECTOMY SYSTEM
[The image material here shows an artistic depiction of an AngioJet catheter
tracking over a guidewire to treat a blood vessel blocked by thrombus.]
The illustration above shows the AngioJet catheter tracking over a
guidewire to treat a blood vessel blocked by thrombus.
PERMA-FLOW-REGISTERED TRADEMARK-, PERMA-SEAL-REGISTERED TRADEMARK- AND
ANGIOJET-TM- ARE TRADEMARKS OF THE COMPANY.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED OR INCORPORATED
BY REFERENCE IN THIS PROSPECTUS. EXCEPT AS OTHERWISE INDICATED, ALL INFORMATION
CONTAINED IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE UNDERWRITERS'
OVER-ALLOTMENT OPTION. SEE "GLOSSARY" ON THE INSIDE BACK COVER FOR DEFINITIONS
OF CERTAIN TERMS USED HEREIN.
THE COMPANY
Possis Medical, Inc. ("Possis" or the "Company") develops, manufactures, and
markets innovative medical products that assist surgeons and interventionalists
in treating cardiovascular or vascular diseases or conditions requiring vascular
intervention. Currently, the Company's products, the AngioJet Rapid Thrombectomy
System, Perma-Flow Coronary Bypass Graft and Perma-Seal Dialysis Access Graft,
are in clinical trials in the United States and in early stages of
commercialization in Europe, Japan and Canada.
The Company's AngioJet System utilizes a disposable catheter that delivers
pressurized saline jets to remove blood clots in a rapid and minimally invasive
manner. The development of blood clots in various segments of the vascular
system is common and is one of the leading causes of morbidity and death. Possis
believes that its AngioJet System represents a new approach to the removal of
blood clots from arteries, veins, and grafts and offers certain potential
advantages over the current primary methods of treatment, thrombolytic drugs and
mechanical devices. A Phase I clinical trial involving the use of the AngioJet
System for removing blood clots from peripheral arteries and vascular grafts was
completed in March 1994. In July 1994, the United States Food and Drug
Administration ("FDA") approved commencement of a Phase II clinical trial. The
Company plans to file a 510(k) application for use of the AngioJet System in
peripheral arteries and vascular grafts in early 1996. The Company has commenced
clinical trials and anticipates filing a premarket approval ( PMA ) application
in early 1997 relating to the use of the AngioJet System for removing blood
clots from coronary arteries and coronary bypass grafts.
The Perma-Flow Graft is a synthetic graft that acts as a substitute for
native blood vessels used in coronary artery bypass surgery, which is performed
to treat the impairment of blood flow to portions of the heart. The Perma-Flow
Graft is intended initially to provide an alternative to patients with
insufficient or inadequate native vessels for use in bypass surgery. The Company
believes that the Perma-Flow Graft may ultimately be used as a substitute for
native saphenous veins, thus avoiding the trauma and expense associated with the
surgical harvesting of the native vein. The Perma-Flow Graft is currently in
Phase II clinical trials in the United States, and the Company plans to file a
PMA application with the FDA in early 1997.
The Perma-Seal Graft is a synthetic conduit used as a point of vascular
access in kidney dialysis patients. Possis believes that its Perma-Seal Graft
may offer advantages over currently used synthetic grafts because of its
self-sealing characteristic. The Company believes that this characteristic will
be effective in sealing puncture sites in the grafts with minimal compression
time and bleeding as compared with other currently available graft products and,
as a result, will reduce dialysis procedure time per patient. In addition,
because of its ability to seal a needle puncture without depending on tissue
ingrowth, the Perma-Seal Graft may provide an option for patients who require
dialysis immediately after implant. The Perma-Seal Graft is currently in
clinical trials in the United States. The Company filed a 510(k) application
for marketing authorization with the FDA in August 1994 and expects to
respond to a request for additional information from the FDA in August 1995.
The Company's strategy is to become a leading supplier of innovative medical
products for the treatment of cardiovascular or vascular diseases or conditions.
The Company will pursue its strategy by seeking to establish the safety and
efficacy of its products, developing relationships with leading clinicians,
establishing world-class manufacturing processes and by rapidly commercializing
its products. In addition, Possis intends to expand its product portfolio by
applying its existing product technology to additional cardiovascular or
vascular treatment needs, by developing new product technology and, in some
cases, by using existing product technology in non-vascular applications.
The Company's executive offices are located at 2905 Northwest Boulevard,
Minneapolis, Minnesota 55441-2644. Its telephone number is (612) 550-1010.
3
<PAGE>
RECENT DEVELOPMENTS
The Company entered into a distribution agreement with Bard Vascular Systems
Division, C.R. Bard, Inc. ("Bard") in December 1994, which grants Bard exclusive
worldwide sales and marketing rights to the Company's Perma-Seal Graft. The
Company will manufacture Bard's requirements and sell the Perma-Seal Graft to
Bard. In addition, Bard has agreed to make additional payments to the Company
upon the achievement of certain milestones. The Company has already received a
total of $750,000 from Bard under the agreement, and will receive up to an
additional $2,000,000 if the Company achieves certain additional milestones.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.......... 1,750,000 shares
Common Stock offered by the Selling
Shareholders................................ 160,000 shares
Common Stock outstanding after the
offering.................................... 11,720,781 shares(1)
Use of proceeds.............................. To fund clinical trials, to increase manufacturing
capacity, to expand marketing and
sales activities, to develop new products and for
working capital and general corporate
purposes.
Nasdaq National Market symbol................ POSS
<FN>
- ------------------------
(1) Does not include 863,752 shares issuable upon exercise of outstanding
options and warrants at a weighted average exercise price of $5.53 per
share.
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED JULY 31, APRIL 30,
------------------------------- --------------------
1992 1993 1994 1994 1995
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<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues from continuing operations...................... $ 7,160 $ 8,435 $ 6,400 $ 5,200 $ 3,459
Gains on asset sales..................................... -- -- 1,606 1,606 --
--------- --------- --------- --------- ---------
Total revenues....................................... 7,160 8,435 8,006 6,806 3,459
Cost of sales and other expenses......................... 6,689 8,616 9,252 7,381 6,400
--------- --------- --------- --------- ---------
Income (loss) from continuing operations................. 471 (181) (1,246) (575) (2,941)
Income (loss) from discontinued operations............... 153 (1,331) 523 274 316
--------- --------- --------- --------- ---------
Net income (loss)........................................ $ 624 $ (1,512) $ (723) $ (301) $ (2,625)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income (loss) per share:
Continuing operations.................................. $ .06 $ (.02) $ (.15) $ (.07) $ (.30)
Discontinued operations................................ .02 (.16) .06 .03 .03
--------- --------- --------- --------- ---------
Net.................................................... $ .08 $ (.18) $ (.09) $ (.04) $ (.27)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average number of shares
outstanding............................................. 8,238 8,361 8,436 8,429 9,649
</TABLE>
<TABLE>
<CAPTION>
APRIL 30, 1995
-------------------------
ACTUAL AS ADJUSTED(1)
--------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities.................................... $ 7,502 $ 29,911
Working capital..................................................................... 8,804 31,213
Total assets........................................................................ 12,305 34,713
Long-term debt, excluding current maturities........................................ 114 114
Shareholders' equity................................................................ 10,561 32,970
<FN>
- ------------------------
(1) As adjusted to give effect to the sale of the 1,750,000 shares offered by
the Company at an estimated offering price of $13.75 per share and the
application of the estimated net proceeds therefrom. See "Use of Proceeds."
</TABLE>
4
<PAGE>
RISK FACTORS
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. IN
EVALUATING THE COMPANY AND ITS BUSINESS, PROSPECTIVE INVESTORS SHOULD CAREFULLY
CONSIDER THE FOLLOWING RISK FACTORS IN ADDITION TO THE OTHER INFORMATION SET
FORTH IN THIS PROSPECTUS.
SUBSTANTIAL ANTICIPATED FUTURE LOSSES
Possis is engaged primarily in conducting clinical trials and in developing
distribution and manufacturing capabilities for its products. Possis has
generated limited revenues to date from the sale of its products outside the
United States and expects to incur substantial net operating losses at least
until it achieves significant sales outside the United States and receives FDA
approval to market its products in the United States. Sales of the Company's
products in the United States cannot begin until the products have received FDA
approval, which may not occur for several years, if ever. There is no assurance
that any of the Company's products will receive the necessary FDA marketing
approvals or that the Company will generate substantial revenues or achieve
profitability in future years. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
LACK OF FDA APPROVAL FOR PRODUCTS
The Possis AngioJet System, Perma-Flow Graft and Perma-Seal Graft have not
been approved for marketing by the FDA, and the Company will be unable to
commercialize these products in the United States unless approvals are obtained,
which may not occur for several years, if ever. The process of obtaining FDA
approval is lengthy and will require continued expenditure of substantial
resources. The Company's products are currently in clinical trials in the United
States. There is no assurance that the results of these trials will support the
filing of an application for marketing authorization. Possis filed a 510(k)
application to market the Perma-Seal Graft in August 1994 and plans to file a
510(k) application to market the AngioJet System for peripheral applications in
early 1996 and to file PMA applications to market the AngioJet System for
coronary applications and the Perma-Flow Graft in early 1997. The timing of the
FDA approval process is unpredictable, and there can be no assurance that any of
the Company's applications other than the Perma-Seal Graft will be accepted for
review or that the Company will ultimately receive FDA approval for marketing
any of its products. Failure to receive necessary regulatory approvals or
clearances would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Risk Factors -- Potential
Negative Impact of Changes in or Failure to Comply with Government Regulations"
and "Business -- Government Regulation."
UNCERTAINTY OF MARKET ACCEPTANCE
The commercial success of the Possis AngioJet System, Perma-Flow Graft and
Perma-Seal Graft will require acceptance by cardiovascular and vascular surgeons
and interventionalists. Such acceptance will depend on clinical results and the
conclusion by these professionals that the products are safe, cost-effective
methods of treatment. There can be no assurance that the Company's products will
provide benefits considered adequate by providers of cardiovascular and vascular
treatments or that a sufficient number of such providers will use the Company's
products for commercial success to be achieved. Because the Company's products
are based on innovative technologies and, in some cases, represent new methods
of treatment, there may be greater reluctance to accept these products than
would occur with products utilizing established technologies or methods of
treatment. In addition, Possis has a relatively small marketing staff and
limited experience in marketing its products. Further, acceptance of the
Perma-Seal Graft is substantially dependent upon Bard's success in marketing the
product. Failure of any of the Company's products to achieve market acceptance
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Recent Developments" and "Business --
Marketing and Sales."
LACK OF SUFFICIENT CLINICAL DATA TO ESTABLISH SAFETY AND EFFICACY OF PRODUCTS
The Company's products are in clinical trials in the United States, and as
of August 1, 1995, 51 patients have been treated using the AngioJet System in
peripheral arteries, five patients have been treated using the AngioJet System
in coronary arteries, 30 patients have been implanted with the Perma-Flow Graft,
and 66 patients have received Perma-Seal Grafts. A limited number of procedures
have also been performed outside the United States. With the exception of one
patient, all enrollment in these clinical trials has occurred since June 1993.
Accordingly, Possis has compiled limited long-term data regarding the safety and
efficacy of the use of its products to treat humans. There can be no assurance
that the efficacy of the
5
<PAGE>
treatments provided by the Company's products will not decline over time or that
the long-term use of its products will not produce adverse side effects to
patients. In order to obtain sufficient clinical data, Possis must generate
patient enrollment and demonstrate the health and safety advantages,
cost-effectiveness and performance features of its products to the
cardiovascular and vascular surgeons and interventionalists who treat such
patients. The Company believes that any adverse data occurring in the early
stages of any of its ongoing clinical trials could adversely affect patient
enrollment in such trials. Enrollment in clinical trials is also limited
by the frequency with which eligible patients are present at the investigation
sites, a factor not within the Company's control. Slow patient enrollment or
adverse data could result in delays in obtaining sufficient data to prove the
efficacy and safety of the Company's products, which could have a material
adverse effect on the Company's business, financial condition, and results of
operations.
UNCERTAINTY THAT COMPANY'S PRODUCTS WILL RESPOND TO TECHNOLOGICAL CHANGES OR
COMPETITION
The medical products market is characterized by rapidly evolving technology
and intense competition. The Company's future success will depend on its ability
to keep pace with advancing technology and competitive innovations. Many
potential competitors have significantly greater research and development
capabilities, experience in obtaining regulatory approvals and marketing, and
financial and managerial resources than the Company. In some cases, these
competitors have large existing market shares. Many of the Company's potential
competitors have developed or are in the process of developing technologies that
are, or in the future may be, the basis for competitive products, some of which
may have an entirely different approach or means of accomplishing the desired
therapeutic effect than products being developed by the Company. No assurance
can be given that the Company or its products will be able to compete
successfully.
DEPENDENCE ON PATENTS, PATENT APPLICATIONS, LICENSES AND PROPRIETARY RIGHTS
The Company's success depends and will continue to depend in part on its
ability to maintain patent protection for products and processes, to preserve
its trade secrets and to operate without infringing the proprietary rights of
third parties. The validity and breadth of claims covered in medical technology
patents involve complex legal and factual questions and, therefore, may be
highly uncertain. No assurance can be given that the Company's pending
applications will result in patents being issued, or, if issued, that such
patents or the Company's current patents will provide a competitive advantage,
or that competitors of the Company will not design around any patents issued to
the Company. Possis is aware of one pending foreign patent application relating
to a water jet system for removing blood clots. Although the application was
filed after the AngioJet System patent application, no assurance can be given
that such third party will not receive a patent. Further, there can be no
assurance that the Company's non-disclosure agreements and other safeguards will
protect its proprietary information and know-how or provide adequate remedies
for the Company in the event of unauthorized use or disclosure of such
information, or that others will not be able independently to develop such
information. There has been substantial litigation regarding patent and other
intellectual property rights in the medical device industry. Litigation, which
could result in substantial cost to and diversion of effort by the Company, may
be necessary to enforce patents issued to the Company, to protect trade secrets
or know-how owned by the Company, to defend the Company against claimed
infringement of the rights of others or to determine the ownership, scope or
validity of the proprietary rights of the Company and others. An adverse
determination in any such litigation could subject the Company to significant
liabilities to third parties, could require the Company to seek licenses from
third parties and could prevent the Company from manufacturing, selling or using
its products, any of which could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business --
Patents, Patent Applications, Licenses and Proprietary Rights."
POTENTIAL NEGATIVE IMPACT OF CHANGES IN OR FAILURE TO COMPLY WITH GOVERNMENT
REGULATIONS
The Company's research, preclinical development, clinical trials,
manufacturing, marketing and distribution of its products in the United States
and other countries are subject to extensive regulation by numerous governmental
authorities including, but not limited to, the FDA. The FDA administers the
Federal Food, Drug and Cosmetic Act (the "FDC Act"). Under the FDC Act, medical
devices must receive FDA clearance through the Section 510(k) notification
process or approval through the more lengthy PMA process before they can be sold
in the United States. The process of obtaining FDA and other required regulatory
approvals is lengthy and has required and will continue to require the
expenditure of substantial resources, and there can be no assurance that Possis
will be able to obtain the necessary approvals. Additionally, products that have
received regulatory approval for one clinical application must go through the
regulatory process if marketing clearance or approval for a different
application of the product is sought. Moreover, if marketing approvals are
obtained, the marketing, distribution and manufacture of the Company's products
would remain subject to extensive regulatory requirements
6
<PAGE>
administered by the FDA and other regulatory bodies. While the Company has
previously passed FDA inspections for compliance with Good Manufacturing
Practices ("GMP") relating to the manufacture of pacemaker leads, it may be
required to pass future GMP inspections relating to the manufacture of its
current products. Such inspections are conducted approximately every two
years after approval is obtained; in special cases, passing an inspection is
a condition of approval. Failure to comply with these regulatory requirements
could, among other things, result in fines, suspensions or withdrawals of
regulatory approvals, product recalls, operating restrictions and criminal
prosecution. Further, changes in existing regulations or adoption of new
regulations or policies could prevent Possis from obtaining, or affect the
timing of, future regulatory approvals or clearances. There can be no
assurance that the Company will be able to obtain necessary regulatory
approvals or clearances on a timely basis or at all, and delays in receipt of
or failure to receive such approvals or clearances, or failure to comply with
existing or future regulatory requirements, would have a material adverse
effect on the Company's business, financial condition and results of
operations. See "Business -- Government Regulation."
In addition, certain substances used in the manufacture of the Company's
products are or may be subject to environmental regulations which govern the use
of potentially hazardous materials. These regulations may prohibit the Company
from using certain substances in the manufacture of its products in the manner
in which they are currently used or at all. One of the substances currently used
in the manufacture of the Perma-Flow Graft has been removed from the market as a
result of these regulations. There can be no assurance that the Company will be
able to identify and obtain supplies of replacement substances or develop
alternative manufacturing processes that do not use substances in violation of
these regulations when necessary.
COMPLIANCE WITH FOREIGN REGULATORY REQUIREMENTS
As an important part of its strategy, Possis intends to pursue
commercialization of its products in international markets. The Company's
products are subject to regulations that vary from country to country. The
process of obtaining foreign regulatory approvals in certain countries can be
lengthy and require the expenditure of substantial resources. There can be no
assurance that the Company will be able to obtain necessary regulatory approvals
or clearances on a timely basis or at all, and delays in receipt of or failure
to receive such approvals or clearances, or failure to comply with existing or
future regulatory requirements, would have a material adverse effect on the
Company's business, financial condition and results of operations. See "Business
- -- Government Regulation."
UNCERTAINTY OF HEALTH CARE REFORM
The levels of revenue and profitability of medical device companies may be
affected by the continuing efforts of government and third party payors to
contain or reduce the costs of health care through various means. In the United
States there have been, and the Company expects that there will continue to be,
a number of federal and state proposals to control health care costs. These
proposals contain measures intended to control public and private spending on
health care as well as to provide universal public access to the health care
system. If enacted, these proposals may result in a substantial restructuring of
the health care delivery system. Significant changes in the nation's health care
system are likely to have a substantial impact over time on the manner in which
the Company conducts its business and could have a material adverse effect on
the Company's business, financial condition and results of operations.
LIMITATIONS ON THIRD-PARTY REIMBURSEMENT
The extent to which reimbursement for the cost of medical products will be
available from government health administration authorities, private health
coverage insurers and other organizations will affect the Company's ability
successfully to commercialize (assuming regulatory approvals are obtained) its
products. Significant uncertainty exists as to the pricing, availability of
distribution channels and reimbursement status of new medical products, and
there can be no assurance that adequate third party coverage will be available
for the Company to maintain price levels for its products sufficient to realize
an appropriate return on its investment in product development. In certain
foreign markets, pricing or profitability of health care products is subject to
government control.
7
<PAGE>
DEPENDENCE ON SINGLE SOURCE SUPPLIERS
Possis depends on single source suppliers for certain of the raw materials
used in the manufacture of its products. In the event the Company must obtain
alternative sources for key raw materials, there can be no assurance that such
materials will be available for purchase from alternative suppliers, that
alternative suppliers will agree to supply the Company, or that the Company's
use of such suppliers would be approved by the FDA. The Company has been
notified by its suppliers for polytetraflouroethylene ("PTFE") and for polyester
fiber that they will no longer supply those products. Although the Company
purchased a supply of these materials that it believes will be adequate for
several years and is taking steps to secure new suppliers, there can be no
assurance that new sources of supply will be available when necessary. Any
interruption in supply of raw materials could have a material adverse effect on
the Company's ability to manufacture its products until a new source of supply
is located and, therefore, could have a material adverse effect on its business,
financial condition and results of operations. See "Business -- Manufacturing."
LIMITED MANUFACTURING EXPERIENCE FOR PRODUCTS
For the Company to be financially successful, it must manufacture its
products in accordance with regulatory requirements, in commercial quantities,
at appropriate quality levels and at acceptable costs. Possis has not yet been
required to produce its AngioJet System, Perma-Flow Graft or Perma-Seal Graft in
large quantities at competitive costs, and there can be no assurance that it
will be able to do so. If these products receive FDA marketing approval, there
can be no assurance that the Company will be successful in making the transition
to commercial production of these products.
DEPENDENCE ON KEY PERSONNEL
The Company is highly dependent on a limited number of key management and
technical personnel, particularly its President and Chief Executive Officer,
Robert G. Dutcher. The Company's future success will depend, in part, on its
ability to attract and retain highly qualified personnel. Possis competes for
such personnel with other companies, academic institutions, government
entities and other organizations. There can be no assurance that the Company
will be successful in hiring or retaining qualified personnel. The loss of
key personnel, or inability to hire or retain qualified personnel, could have
an adverse effect on the Company's business, financial condition and results
of operations. See "Management."
PRODUCT LIABILITY RISK; LIMITED INSURANCE COVERAGE
The Company faces an inherent business risk of exposure to product liability
claims in the event that the use of its products is alleged to have resulted in
adverse effects to a patient. Possis maintains a general liability insurance
policy that includes coverage for product liability claims. There can be no
assurance that liability claims will not be excluded from such policy, will not
exceed the coverage limits of such policy or that such insurance will continue
to be available on commercially reasonable terms or at all. Consequently, a
product liability claim or other claim with respect to uninsured liabilities or
in excess of insured liabilities could have a material adverse effect on the
Company's business, financial condition and results of operations.
ANTITAKEOVER CONSIDERATIONS
As a Minnesota corporation, the Company is subject to certain antitakeover
provisions of the Minnesota Business Corporation Act. These provisions could
have the effect of discouraging potential takeover attempts and of delaying,
deferring, or preventing a change in control of the Company or making removal of
management more difficult. See "Description of Common Stock -- Certain
Provisions of Minnesota Business Corporation Act."
VOLATILITY OF STOCK PRICE
The market price of the Common Stock has in the past been subject to
significant fluctuations. See "Price Range of Common Stock." In the future, the
market price of the Common Stock may be significantly affected by factors such
as the announcement of new products or technological innovations by the Company
or its competitors, publicity regarding actual or potential medical results
relating to the Company's products, regulatory developments affecting health
care in both the United States and foreign countries, acquisitions in the
industry, disputes concerning patents or proprietary rights or economic and
other external factors.
8
<PAGE>
DILUTION
Investors in this offering will incur substantial dilution in net tangible
book value per share from the public offering price. See "Dilution."
ABSENCE OF DIVIDENDS
No dividends are currently paid on the Common Stock, and the Company does
not anticipate paying cash dividends on the Common Stock in the foreseeable
future. See "Dividend Policy."
RECENT DEVELOPMENTS
In December 1994, the Company entered into a distribution agreement with
Bard which grants Bard exclusive worldwide sales and marketing rights to the
Company's Perma-Seal Graft. The Company will manufacture Bard's requirements and
sell the Perma-Seal Graft to Bard. In addition, Bard has agreed to purchase
certain minimum quantities and to make additional payments to the Company upon
the achievement of certain milestones. The Company has already received a total
of $750,000 from Bard under the agreement, and will receive up to an additional
$2,000,000 if the Company achieves certain additional milestones.
USE OF PROCEEDS
The net proceeds received by the Company from the sale of the Common Stock
offered hereby, after deducting the estimated underwriting discounts and
offering expenses, are estimated to be approximately $22,408,750 ($26,111,762
if the Underwriters' over-allotment option is exercised in full) assuming an
offering price of $13.75 per share. The Company will not receive any of the
proceeds from the sale of Common Stock by the Selling Shareholders.
Possis anticipates that it will use approximately $3,500,000 of the net
proceeds of this offering to fund clinical trials and related activities in
support of United States regulatory approvals for its products, approximately
$5,000,000 to increase the Company's manufacturing capacity, primarily to cover
excess production expenses associated with the start-up of new production lines,
approximately $4,000,000 to expand marketing and sales activities, including the
development of a United States sales force for the AngioJet System, and
approximately $2,500,000 to fund the development of new products. The Company
will use the balance of the net proceeds for working capital and general
corporate purposes. The amounts actually expended for each purpose may vary
significantly depending upon numerous factors, including progress of the
Company's clinical trials and actions relating to regulatory matters, and the
costs and timing of expansion of marketing, sales and manufacturing activities.
Pending such uses, the net proceeds of this offering will be invested in
interest-bearing, investment-grade securities.
DILUTION
As of April 30, 1995, the net tangible book value of the Company was
approximately $10,057,000, or $1.01 per share. "Net tangible book value"
represents the tangible assets of the Company less total liabilities. After
giving effect to the sale of the 1,750,000 shares of Common Stock offered by the
Company hereby at an assumed offering price of $13.75, and the application of
the estimated net proceeds therefrom, the net tangible book value of the Company
as of April 30, 1995 would have been approximately $32,466,000, or $2.77 per
share. This amount represents an immediate increase in net tangible book value
of $1.76 per share to the existing holders of Common Stock and an immediate
dilution of $10.98 per share to new investors. "Dilution" is determined by
subtracting net tangible book value per share after the offering from the price
to the public set forth on the cover page of this Prospectus, as illustrated by
the following table:
<TABLE>
<S> <C> <C>
Assumed public offering price per share..................... $ 13.75
Net tangible book value per share as of April 30, 1995...... $ 1.01
Increase per share attributable to this offering............ 1.76
---------
Pro forma net tangible book value per share after this
offering................................................... 2.77
---------
Dilution per share to new investors......................... $ 10.98
---------
---------
</TABLE>
9
<PAGE>
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on The Nasdaq National Market under the
symbol "POSS." The following table sets forth, for the periods indicated, the
high and low closing sale prices for the Common Stock as reported by Nasdaq.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
FISCAL 1993:
First quarter ended October 31, 1992....................................... $ 8.88 $ 6.63
Second quarter ended January 31, 1993...................................... 11.63 7.25
Third quarter ended April 30, 1993......................................... 9.75 6.75
Fourth quarter ended July 31, 1993......................................... 11.75 7.25
FISCAL 1994:
First quarter ended October 31, 1993....................................... $ 12.00 $ 8.75
Second quarter ended January 31, 1994...................................... 10.25 7.38
Third quarter ended April 30, 1994......................................... 8.75 5.75
Fourth quarter ended July 31, 1994......................................... 7.38 5.75
FISCAL 1995:
First quarter ended October 31, 1994....................................... $ 6.75 $ 5.63
Second quarter ended January 31, 1995...................................... 8.25 5.50
Third quarter ended April 30, 1995......................................... 9.25 6.38
Fourth quarter ended July 31, 1995......................................... 14.88 9.13
</TABLE>
On August 17, 1995, the last sale price of the Common Stock as reported by
Nasdaq was $13.75 per share. As of August 7, 1995, there were 1,871 shareholders
of record of the Common Stock.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of April
30, 1995, and as adjusted to give effect to the sale by the Company of the
1,750,000 shares of Common Stock offered hereby at an assumed price of $13.75
per share and the application of the estimated net proceeds therefrom.
<TABLE>
<CAPTION>
APRIL 30, 1995
----------------------
ACTUAL AS ADJUSTED
--------- -----------
<S> <C> <C>
(IN THOUSANDS)
Long-term debt, excluding current maturities............................................. $ 114 $ 114
--------- -----------
Shareholders' equity:
Common Stock, $.40 par value; 20,000,000 shares authorized; 9,936,811 shares issued and
outstanding, 11,686,811 shares issued and outstanding as adjusted (1)................. 3,975 4,675
Additional paid-in capital............................................................... 14,034 35,743
Unearned compensation.................................................................... (63) (63)
Retained deficit......................................................................... (7,385) (7,385)
--------- -----------
Total shareholders' equity........................................................... 10,561 32,970
--------- -----------
Total capitalization................................................................. $ 10,675 $ 33,084
--------- -----------
--------- -----------
<FN>
- ------------------------
(1) Does not include 863,752 shares issuable upon exercise of outstanding
options and warrants at a weighted average exercise price of $5.53 per
share.
</TABLE>
DIVIDEND POLICY
The company has not paid cash dividends on its common stock since 1983. The
company currently intends to retain all earnings for use in its business and
does not anticipate paying cash dividends in the foreseeable future.
10
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and with the financial statements and notes thereto included
elsewhere in this Prospectus. The statements of operations data set forth below
for the years ended July 31, 1992, 1993 and 1994 and the balance sheet data set
forth below at July 31, 1993 and 1994 are derived from the financial statements
included elsewhere in this Prospectus, which have been audited by Deloitte &
Touche LLP. The statements of operations data set forth below for the years
ended July 31, 1990 and 1991 and the balance sheet data set forth below at July
31, 1990, 1991 and 1992 are derived from audited financial statements not
included herein. The selected financial data as of April 30, 1995 and for the
nine months ended April 30, 1994 and 1995 have been derived from unaudited
financial statements of the Company, which, in the opinion of management,
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair statement of the results for such periods. The results of
the nine months ended April 30, 1995 are not necessarily indicative of the
results to be expected for the entire year. The following financial data reflect
the Jet Edge business and the Technical Services division as discontinued
operations (see Note 2 of Notes to Consolidated Financial Statements).
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED JULY 31, APRIL 30,
----------------------------------------------------- --------------------
1990 1991 1992 1993 1994 1994 1995
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues from continuing operations............ $ 2,565 $ 5,422 $ 7,160 $ 8,435 $ 6,400 $ 5,200 $ 3,459
Gains on asset sales........................... -- -- -- -- 1,606 1,606 --
--------- --------- --------- --------- --------- --------- ---------
Total revenues............................... 2,565 5,422 7,160 8,435 8,006 6,806 3,459
Cost of sales and other expenses:
Cost of medical products..................... 239 1,216 2,167 2,735 3,675 2,957 2,532
Selling, general and administrative.......... 1,218 1,490 1,551 2,125 1,706 1,257 1,541
Research and development..................... 2,263 1,796 2,836 3,613 3,747 3,060 2,307
Interest..................................... 177 119 135 143 124 107 20
--------- --------- --------- --------- --------- --------- ---------
Total cost of sales and other expenses..... 3,897 4,621 6,689 8,616 9,252 7,381 6,400
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from continuing operations....... (1,332) 801 471 (181) (1,246) (575) (2,941)
Income (loss) from discontinued operations
including gain (loss) on disposal -- net...... 2,016 (434) 153 (1,331) 523 274 316
--------- --------- --------- --------- --------- --------- ---------
Net income (loss).............................. $ 684 $ 367 $ 624 $ (1,512) $ (723) $ (301) $ (2,625)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) per share:
Continuing operations........................ $ (.16) $ .10 $ .06 $ (.02) $ (.15) $ (.07) $ (.30)
Discontinued operations...................... .24 (.06) .02 (.16) .06 .03 .03
--------- --------- --------- --------- --------- --------- ---------
Net........................................ $ .08 $ .04 $ .08 $ (.18) $ (.09) $ (.04) $ (.27)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Weighted average number of shares outstanding.. 8,164 8,184 8,238 8,361 8,436 8,429 9,649
</TABLE>
<TABLE>
<CAPTION>
JULY 31,
----------------------------------------------------- APRIL 30,
1990 1991 1992 1993 1994 1995
--------- --------- --------- --------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities...... $ 449 $ -- $ 948 $ 569 $ 1,769 $ 7,502
Working capital....................................... 3,593 4,690 6,103 5,183 4,007 8,804
Total assets.......................................... 8,879 10,222 11,133 11,472 8,882 12,305
Long-term debt, excluding current maturities.......... 1,020 1,250 1,313 1,279 80 114
Shareholders' equity.................................. 5,671 6,124 6,969 5,947 5,684 10,561
</TABLE>
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company was incorporated in 1956 and went public in 1960 as Possis
Machine Corporation. Initial operations consisted of design, manufacturing, and
sales of industrial equipment and a division that provided temporary technical
personnel. The Company's involvement with medical products began in 1976, when
it sold its rights to a patented bileaflet mechanical heart valve, which it had
obtained from Zinon C. Possis, the founder of the Company, to St. Jude Medical,
Inc. for annual royalty payments based on St. Jude's valve sales (the "St. Jude
Royalties"). In 1982 a subsidiary was established to focus initially on the
development of a synthetic blood vessel used to bypass blocked coronary
arteries. In the late 1980's the Company decided to leverage existing management
expertise and entered the pacemaker lead business. The strategic role of the
pacemaker lead business was to provide cash flow to fund the development of
synthetic grafts and thrombectomy systems and to give the Company access to and
name recognition within the medical device industry. In 1990 the Company made
the decision to focus on medical products and subsequently divested all
non-medical operations, beginning with its Technical Services division in
September 1991 followed by its industrial equipment subsidiary and related land
and buildings in January 1994. See Notes 2 and 12 of Notes to Consolidated
Financial Statements. In March 1994 the Company sold its OEM pacemaker leads
business because it anticipated that revenues from this business would decline
due to a pacemaker lead technology shift. In connection with this sale, the
Company received $1.1 million in cash and the right to receive royalty payments
over a twelve-month period. See Note 11 of Notes to Consolidated Financial
Statements. The sale of the pacemaker leads business has enabled Possis to focus
its human and financial resources exclusively on its other products, which are
currently in clinical trials in the United States and in early stages of
commercialization in Europe, Japan and Canada.
Over the past three fiscal years, substantially all of the Company's
revenues and gross profits have been derived from the sale of pacemaker leads
and the St. Jude Royalties. The resulting cash flow together with the
approximately $7.2 million of proceeds from the Company's 1994 common stock
offering has been used to fund the Company's operations, including research and
development related to its products. With the sale of its lead business and the
termination of royalty payments from St. Jude in March 1995, Possis does not
expect to become profitable unless it achieves significant sales outside the
United States and its products receive FDA marketing approval. There can be no
assurance that significant sales or marketing approvals will occur.
RESULTS OF OPERATIONS
NINE MONTHS ENDED APRIL 30, 1995 AND 1994
Total revenues for the nine month period ended April 30, 1995 are 64% below
those reported in the comparable period last year. Medical product sales for the
1994 nine month period included approximately $2,333,000 in pacemaker leads
sales, a business sold by the Company in March 1994. Early stage international
sales of the Company's products for the nine months ended April 30, 1995 were
$218,000, which was 73% above the same 1994 period. The Company expects
international sales of its products will build gradually along with physician
use and acceptance, and believes sales will grow significantly upon receipt of
FDA marketing clearance. There can be no assurance that the Company will be able
to obtain FDA marketing clearance on a timely basis or at all. In March 1995 the
Company recorded its final revenues from both the sale of its heart valve
patents to St. Jude Medical, Inc. and the sale of its pacemaker leads business
to Innovex, Inc. In addition, the 1995 third quarter included a $215,000
negative heart valve patent revenue estimate adjustment. Included in 1994 third
quarter revenues is a $647,816 gain from the sale of the pacemaker leads
business and a $957,573 gain from the sale of Company real estate. Other income
shows significant growth in 1995 primarily as a result of interest income
generated by the investment of the $7,200,000 net proceeds of the stock
offering in September 1994.
The cost of medical products for the nine month period ended April 30, 1995
include approximately $2,300,000 of production scale-up and start-up expense
compared to $1,650,000 incurred in the same period last year. The Company's
products incorporate unique technology, production equipment and processes.
These expenses are expected to decrease as the volume produced increases and as
the Company gains operating experience.
12
<PAGE>
Selling, general and administrative expense in 1995 increased by $292,000
for the nine month period ended April 30, 1995. The increase is due primarily to
additional sales and marketing expenses for personnel, travel, and associated
expenses necessary to introduce the Company's products into the international
market. Possis anticipates that sales and marketing costs will continue to grow
with international sales and the establishment of a direct sales organization in
the United States.
Research and development spending decreased by $753,386 for the nine month
period ended April 30, 1995. The decline in expense can be attributed to the
discontinuance of pacemaker leads research activity following the sale of the
pacemaker leads business. The Company expects research and development expenses
to increase from current levels as the pace of its current U.S. clinical trials
increases and as additional products currently in development begin clinical
trials.
Income from discontinued operations for the nine month period ended April
30, 1995, increased by $42,000 from the comparable period last year. This
increase is due partially to $80,000 in 1995 expense reductions resulting from
the reversal of bad debt and warranty accruals related to the Jet Edge business
which was sold in January 1994. In addition, income recognized from the sale of
the Company's Technical Services Division increased $69,000 compared to the same
period last year.
YEARS ENDED JULY 31, 1994, 1993 AND 1992
Revenue declined by 5% in the year ended July 31, 1994 as compared to the
prior year and revenue increased by 18% in the year ended July 31, 1993 as
compared to the same prior period. The revenue decrease in the most recent year
results from the March 1994 sale of the pacemaker leads business resulting in a
pacemaker leads revenue reduction of $2,164,000 for the year ended July 31, 1994
versus the prior year. Partially offsetting the pacemaker leads business revenue
decline in the most recent year was the $1,605,000 gain on the sales of the
pacemaker leads business and the Company's land and buildings. The revenue
increase in the year ended July 31, 1993 is due to both a 17% increase in
pacemaker lead revenues and a 20% increase in St. Jude royalties as compared to
the prior year.
The Company's products utilize new technology and manufacturing processes.
The Company incurred approximately $2,300,000 of manufacturing startup expense
for the twelve months ended July 31, 1994 and expects to incur additional
manufacturing startup expense associated with the production of units for
international sale and use in United States clinical trials. Manufacturing
expense per unit is expected to decline as the Company gains additional
production experience and production volume increases in response to anticipated
sales increases.
Selling, general and administrative expense decreased by 20% in the year
ended July 31, 1994 and increased by 37% in the year ended July 31, 1993 as
compared to the prior years. The decrease in fiscal 1994 expense reflects a
$600,000 decrease in administrative expense associated with consolidated
corporate administrative functions, a real estate tax reduction and the
nonrecurrence of computer system installation expenses incurred in fiscal 1993.
As a partial offset, Sales and Marketing expenses increased 63%, or $186,000, in
fiscal 1994 primarily as a result of staff additions and expenses associated
with establishing international distribution of its products. The significant
increase for the year ended July 31, 1993 as compared to the prior year
is primarily the result of added travel and consulting expenses associated with
establishing an international independent distributor network to market the
Company's products and added expenditures to install and operate a new computer
system.
Research and development expense in fiscal 1994 increased 4% as compared to
fiscal 1993 and fiscal 1993 increased 27% as compared to the prior year. During
fiscal 1992 the Company received reimbursement of research and development
expenditures of $657,000 which was netted against expense. See Note 9 of Notes
to Consolidated Financial Statements. Adding this reimbursement amount back to
reported expense, the fiscal 1993 spending increase was 3%. The research and
development activity in fiscal 1994 was mainly focused on supporting United
States clinical trials of the Company's products, expanding the clinical
applications for the AngioJet System, and utilizing Perma-Flow and Perma-Seal
Graft technology to develop other graft products. Fiscal 1993 and fiscal 1992
research and development activity was primarily devoted to product and process
development of the Company's products. Pacemaker leads research and development
was 10% to 15% of the total in all three periods. The Company expects research
and development expenses to increase over the next several years from recent
levels primarily due to the expenses of United States clinical trials for its
products and the development of new products from its existing technology.
13
<PAGE>
The Company reported losses from continuing operations of $1,246,000 and
$181,000 for fiscal 1994 and fiscal 1993, respectively. The increased fiscal
1994 loss reflects the March 1994 sale of the Company's pacemaker leads
business, one-time gains of $1,605,000 related to asset sales which partially
offset new product manufacturing startup expense of $2,300,000. The Company does
not expect to be profitable until such time as its products gain sufficient
market acceptance to generate significant commercial sales, which is expected to
occur after the products receive necessary approval from the FDA.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents and marketable securities balance of
$7,502,281 at April 30, 1995 increased significantly from the balance of
$1,769,348 at July 31, 1994 primarily as a result of the Company's public
offering in September 1994.
Cash used in operating activities for the nine-month periods ended April 30,
1995 and 1994, were $1,061,000 and $1,234,000, respectively. The 1995 cash usage
resulted primarily from the net loss of $2,625,000 which was partially offset by
the receipt of the St. Jude Royalties. The net cash used in operating activities
for the nine-month period ending April 30, 1994 can be attributed to the
operating loss, after adjusting for the gains on the real estate sale and sale
of the leads business.
Investing activity consumed $2,457,000 in the nine-month period ended April
30, 1995. This usage is due primarily to the net purchase of short-term
marketable securities. During the nine-month period ended April 30, 1994,
$4,301,000 was provided by investing activities. In 1994 the Company received
$3,031,000 for the sale of various assets including the Jet Edge, Inc. business,
corporate real estate and the pacemaker leads business.
During the nine-month period ended April 30, 1995, approximately $6,943,000
was provided by financing activities. The September 1994 issuance of 1,402,500
shares of common stock in a public offering generated net proceeds of
approximately $7,200,000. In September 1994 the Company prepaid, at no penalty,
the remaining $500,000 balance on a $1,000,000 mortgage note due in May 1995. In
the first nine months of 1994, the Company reduced its long-term debt by
$783,000.
In the fourth quarter of fiscal 1995, the Company received its final
payments of royalties from the heart valve patent sale and the sale of the leads
business. In recent years, the St. Jude Royalties and the cash generated by
the leads business have been the Company's primary source of funds. These cash
streams will need to be replaced by funds generated from the sale of the
Company's current products.
The Company expects to receive up to an additional $2,000,000 in payments
from Bard during the next 12 months, pursuant to the Perma-Seal Graft Supply and
Distribution Agreement executed in December 1994. See Note 13 of Notes to
Consolidated Financial Statements. In May 1995, the Company held a meeting of
its Perma-Seal Graft United States clinical study investigators and received a
written response from the FDA to its 510(k) application filed in August 1994. As
a result, the Company plans to continue the United States clinical study and has
sought FDA permission to introduce an already developed, thinner-walled product
into the study. Possis now expects international sales of the Perma-Seal Graft
will commence in the first half of fiscal 1996 and anticipates FDA marketing
clearance and United States commercialization to begin in the second half of
fiscal 1996. Sales of the Company's products are expected to grow significantly
with increased acceptance in the international markets, as well as in the
domestic market upon marketing clearance from the FDA. There can be no assurance
the Company's products will gain market acceptance or receive marketing
clearance from the FDA.
Cash usage is likely to increase over the next several quarters. Increased
expenses associated with production scale-up, U.S. clinical trials for all
products, and selling and marketing are necessary in order to accelerate product
sales. In addition, the Company will continue to invest in capital assets to
allow for production growth.
The Company anticipates reporting a significant loss for fiscal 1995 and a
smaller loss in fiscal 1996. Possis anticipates that current capital resources
together with the proceeds of this offering will be sufficient for planned
operations for the foreseeable future.
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BUSINESS
GENERAL
Possis develops, manufactures and markets innovative medical products that
assist surgeons and interventionalists in treating cardiovascular or vascular
diseases or conditions requiring vascular intervention. Currently, the Company
has three products in clinical trials in the United States and in the early
stages of commercialization in Europe, Japan and Canada. The Possis AngioJet
System utilizes a disposable catheter that delivers pressurized saline jets to
remove blood clots in a rapid and minimally invasive manner. The Company's
Perma-Flow Graft is a synthetic graft that acts as a substitute for native blood
vessels used in coronary artery bypass surgery, and its Perma-Seal Graft is a
synthetic conduit for use as a point of vascular access in kidney dialysis
patients. The Company's products are currently being sold in Europe, Japan and
Canada on a limited basis for clinical use by key medical opinion leaders. The
Company conducts ongoing research and development activities primarily directed
at developing additional applications of existing products as well as new
products expanding on the Company's proprietary technologies and expertise.
STRATEGY
The Company's objective is to become a leading supplier of innovative
medical products for the treatment of cardiovascular or vascular diseases or
conditions. The Company's current focus is to establish its products as
preferred methods of treatment, establish world-class manufacturing processes
and distribution systems and leverage its existing technologies to develop new
products. The following are important elements of the Company's strategy:
- DEMONSTRATE SAFETY AND EFFICACY OF ITS PRODUCTS. The Company's products
are currently in multi-center clinical trials in the United States designed
to demonstrate their safety and efficacy. The data obtained from these
trials will be used to seek regulatory approval to market the products and
to establish the products as effective methods of treatment. In order to
obtain regulatory approvals to market its products as rapidly as possible,
the Company has dedicated significant effort and resources to conducting
clinical trials and making required regulatory filings in the United States
and internationally.
- DEVELOP RELATIONSHIPS WITH LEADING CLINICIANS. The Company seeks to
develop relationships with leading surgeons and interventionalists and to
leverage those relationships to obtain acceptance of the Company's products
within the medical community. The Company believes these relationships help
attract a higher volume of patients to the Company's clinical studies and
facilitate earlier completion of the studies necessary to obtain FDA
product approvals.
- ESTABLISH WORLD-CLASS MANUFACTURING PROCESSES. The Company seeks to build
on its expertise gained in manufacturing other medical devices to establish
world-class manufacturing for its current products. The Company seeks to
create a competitive advantage by vertically integrating certain
proprietary manufacturing processes necessary for the production of the
Company's products. For example, the Company has developed in-house
production of expanded polytetraflouroethylene ("ePTFE") necessary for the
manufacture of the Perma-Flow Graft and the electrostatic spinning
technology necessary for the manufacture of the Perma-Seal Graft.
- RAPIDLY COMMERCIALIZE PRODUCTS. The Company seeks to rapidly commercialize
its products as soon as the required regulatory approvals are obtained. The
Company has entered into a worldwide exclusive distribution agreement with
Bard to distribute the Perma-Seal Graft. The Company is currently marketing
the AngioJet System internationally through independent distributors and
intends to market the AngioJet System in the United States through a direct
sales force. The Company is currently marketing the Perma-Flow Graft
internationally through independent distributors and is evaluating
additional distribution channels for this product.
- DEVELOP NEW PRODUCTS AND APPLICATIONS. The Company seeks to apply the
proprietary technologies and expertise it has developed in vascular grafts
to develop new products such as endovascular stent grafts. The Company also
seeks to use its existing technologies in new applications including the
use
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of the AngioJet System for the treatment of deep vein thrombosis and
for certain non-vascular applications, and the use of the venturi design of
the Perma-Flow Graft for non-coronary applications.
PRODUCTS
ANGIOJET SYSTEM
BACKGROUND. The development of blood clots in various parts of the vascular
system is common and is one of the leading causes of morbidity and death. Blood
clots may be caused by various factors, including cardiovascular disease,
trauma, interventional procedures using catheters and needles or prolonged bed
rest. If a blood clot becomes large enough, it can block an artery, preventing
oxygenated blood from reaching the organ or tissue supplied by the artery. In
addition, if a blood clot breaks off it can travel through the bloodstream and
block oxygenated blood flow to other organs and tissue. Conditions caused by
blood clots include peripheral ischemia, which can lead to limb loss, vascular
access failure, pulmonary embolism, acute myocardial infarction (heart attack),
stroke and deep vein obstruction.
CURRENT METHODS OF TREATMENT. Currently, the two primary methods of
removing blood clots are thrombolytic drugs and mechanical devices. Thrombolytic
drug treatment involves the administration of a drug designed to dissolve the
blood clot in an intensive or critical care setting. Thrombolytic drugs may
require several administrations to be effective, and then may only partially
remove the clot. In addition, thrombolytic drugs may require significant time to
take effect, which is costly in an intensive or critical care setting, and may
cause uncontrolled bleeding. Mechanical devices such as the Fogarty-type
catheter operate by inflating a balloon past the point of the blood clot and
then dragging the blood clot out of the patient's body through the artery.
Fogarty-type catheters require surgical intervention, which may result in
overnight hospital stays, are more limited in their applications and may cause
vascular trauma.
ANGIOJET SYSTEM. Possis believes that its AngioJet System represents a new
approach to the removal of blood clots from arteries, veins and grafts and
offers certain potential advantages over current methods of treatment. The
AngioJet System is a minimally invasive catheter system designed for rapidly
removing blood clots with minimal vascular trauma. The system's principal
components are a reusable drive unit, a high-pressure single use pump and a
single use small diameter (3.5 to 5F or 1.2 to 1.7 mm) catheter. In clinical
trials, the AngioJet System has demonstrated the ability to remove blood clots
within minutes without surgical intervention and without the risk of
uncontrolled bleeding.
The AngioJet System removes blood clots through the non-surgical insertion
of the catheter over a guidewire into the patient's blood vessel and then, with
the aid of fluoroscopy, directing the tip of the catheter to the site of the
blood clot. The drive unit is then activated to deliver pressurized saline
through tiny openings in the catheter's tip. These small waterjets clean the
blood clot from the vessel wall, break it into small fragments and, in order to
prevent formation of a new blood clot downstream, propel the debris down the
central lumen of the catheter and into a collection bag attached to the drive
unit, without the need for a separate suction or vacuum device. Unlike certain
other mechanical devices that are able only to create channels through blood
clots of a size similar to that of the catheter used, the AngioJet System's
waterjet technology enables it to break up large blood clots from vessels much
larger than its catheter diameter.
MARKET. Because the Possis AngioJet System is unlike any existing procedure
or device, market potential is difficult to quantify, but may be estimated by
determining the number of thrombectomy and thrombolytic procedures performed
using other therapies and devices and estimating the number of procedures that
might reasonably be replaced or supplemented by using the AngioJet System.
Based upon information provided by medical practitioners and its own
analysis, the Company believes that the AngioJet System may potentially be used
for alternative or supplemental therapy for the 60,000 thrombectomy procedures
using lytic drugs, the 380,000 thrombectomy procedures using mechanical devices
and the 60,000 thrombolysis/revision procedures involving dialysis access grafts
estimated to be performed each year in the United States. The Company also
believes that the AngioJet System may be used in Percutaneous Transluminal
Angioplasty ("PTA") procedures that involve the presence of clinically
significant clot. The Company also believes that of the 5,000,000 patients with
deep vein thrombosis, 10% would be suitable for treatment with the AngioJet
System. Additionally, the Company believes that the approximately 600,000
patients with pulmonary embolism annually in the United States are candidates
for treatment with the
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AngioJet System. Further, the Company estimates that more than 550,000
patients annually are candidates for AngioJet treatment of failed or occluded
saphenous vein grafts, unstable angina, acute myocardial infarction and strokes.
Although the Company has not yet determined pricing for the AngioJet System,
it anticipates that the price to the hospital for the single use catheter and
pump set will be between $800 and $1,500 and for the drive unit the price will
be between $30,000 and $35,000. The Company cannot estimate the ultimate charge
for this procedure to the patient. The average mechanical thrombectomy procedure
is performed in a surgical setting with an overnight hospital stay and could
result in charges to the patient exceeding $10,000. Lytic drug therapy may cost
$500 to $5,000 for the drug plus hospital and procedure charges, resulting in a
total patient cost of as much as $10,000.
STATUS OF CLINICAL TRIALS. The Company is currently conducting clinical
trials in the United States with the AngioJet System for removing blood clots
from peripheral arteries and vascular grafts and for use in removing blood clots
from coronary arteries and coronary bypass grafts. Possis received FDA approval
to initiate clinical testing of its AngioJet System for use in removing blood
clots from peripheral arteries and vascular grafts in December 1992. The first
patient was enrolled in the trial in July 1993 and by March 31, 1994, Phase I of
the trial, consisting of 19 patients undergoing 23 treatments, was complete and
the summary report had been submitted to the FDA. In July 1994, the Company
received approval from the FDA to commence Phase II of the trial, in which
patients receive, on a one-to-one randomized basis, treatment with either the
AngioJet System or a Fogarty-type catheter already marketed for blood clot
removal. As of August 1, 1995, 81 patients had been treated in both phases of
the trial, of which 51 were treated with the AngioJet System. The Company
anticipates filing an application in early 1996 for 510(k) marketing
authorization for leg arteries or grafts and A-V access grafts.
In April 1995, Possis received conditional FDA approval to initiate clinical
testing of its AngioJet System for use in removing blood clots from coronary
arteries and bypass grafts. As of August 1, 1995, five patients had been treated
to open blocked saphenous vein bypass grafts and native coronary arteries. The
Company believes that the coronary application of the AngioJet System will be
subject to a PMA approval process and anticipates filing a PMA application in
early 1997.
PERMA-FLOW GRAFT
BACKGROUND. Coronary artery bypass graft ("CABG") surgery is performed to
treat impairment of blood flow to portions of the heart. CABG surgery involves
the addition of one or more new vessels to the heart to re-route blood around
blocked coronary arteries.
CURRENT METHODS OF TREATMENT. Autogenous grafts using the saphenous vein or
mammary artery have been successfully used in CABG procedures for a number of
years and have shown a relatively high patency rate (80% to 90% for saphenous
veins and over 90% for mammary arteries one year after surgery) with no risk of
tissue rejection. However, the harvesting of vessels for autogenous grafts
involves significant trauma and expense. In addition, not all patients requiring
CABG surgery have sufficient native vessels as a result of previous bypass
surgeries, or their vessels may be of inferior quality due to trauma or disease.
Cryopreserved saphenous veins are available, but these veins often deteriorate
due to the body's immune system.
PERMA-FLOW GRAFT. The Possis Perma-Flow Graft is a synthetic graft 5mm in
diameter for use in CABG surgery. The Perma-Flow Graft is intended initially to
provide an alternative to patients with insufficient or inadequate native
vessels for use in bypass surgery as a result of repeat procedures, trauma,
disease or other factors. The Company believes, however, that the Perma-Flow
Graft may ultimately be used as a substitute for native saphenous veins, thus
avoiding the trauma and expense associated with the surgical harvesting of the
vein.
The Perma-Flow Graft is made of ePTFE that contains a molded silicone
venturi-shaped flow resistance element approximately 2mm in diameter. The
Perma-Flow Graft is designed to be implanted by initially suturing it to the
vena cava followed by side-to-side anastomoses (connections) of the graft to the
coronary arteries beyond the blockages and finally suturing the graft to the
aorta. The formation of this artery-to-vein shunt is designed to create a
continuous blood flow at a sufficiently high rate through the graft to reduce
the incidence of blood clot formation, the major reason for synthetic graft
failure in the past. The flow resistance element is designed to prevent
excessive shunting of blood to the vena cava and to maintain high arterial
pressure for effective coronary perfusion.
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The following diagrams illustrate a double coronary artery bypass using
native saphenous veins as grafts and a double coronary artery bypass using the
Perma-Flow Graft.
[THE DIAGRAM HERE SHOWS A COMPARISON OF TWO HEARTS, ONE WITH A
CONVENTIONAL BYPASS PROCEDURE USING SAPHENOUS VEIN GRAFTS AND THE OTHER
WITH A BYPASS USING A PERMA-FLOW GRAFT]
MARKET. The Company believes that in 1995 approximately 540,000 CABG
procedures will be performed worldwide, of which approximately 300,000 will be
performed in the United States, and that approximately 20% of these CABG
procedures will be performed on patients who have previously undergone bypass
surgery. The Company further believes that the number of repeat procedures will
continue to increase as a percentage of procedures performed, as the number of
patients who have the procedure increases. Currently, approximately 70% of CABG
procedures are performed utilizing the saphenous vein. Based upon its interviews
with cardiovascular surgeons, including those involved in the clinical trials,
the Company believes that patients whose native vessels are not available for
use in bypass surgery comprise approximately 4% of those receiving CABG
procedures, or approximately 20,000 annually, and that approximately 80,000
patients annually are determined by the treating physician to have native
vessels inadequate to be used in bypass surgery. If initial use of the
Perma-Flow Graft is shown to be clinically acceptable, the Company believes that
the graft may be used for these patients. The Company further believes that if
long-term clinical results are acceptable to clinicians (generally greater than
50% patency five years after implant), the graft may ultimately be used as a
substitute for native saphenous veins.
Currently, no synthetic coronary graft has been approved by the FDA.
Cryopreserved saphenous veins sell to hospitals for approximately $3,500 to
$4,000 in the United States. The Company anticipates pricing for the Perma-Flow
Graft will be competitive with cryopreserved saphenous veins.
STATUS OF CLINICAL TRIALS. The Company received FDA approval to initiate
clinical testing of its Perma-Flow Graft in November 1991. The Company currently
has eight sites actively recruiting patients. In July 1995, the Company received
approval to commence Phase II of the study comprising 100 additional patients at
up to 20 sites. As of August 1, 1995, 30 patients had been implanted with the
Perma-Flow Graft. Angiographic results within 30 days of surgery have been
reported on 17 patients which confirmed 32 of their 34 side-to-side anastomoses
to be patent. Within this 30-day interval, of the remaining 13 patients,
angiographic results were not reported for nine and four died of causes reported
by the investigator to be unrelated to the graft. In addition, angiographic
follow-up was performed within three to 12 months of implant on seven patients,
which confirmed that 10 of 11 anastomoses were patent. The Company anticipates
filing a PMA application for marketing authorization in early 1997.
PERMA-SEAL GRAFT
BACKGROUND. Patients suffering from renal disease may be required to
undergo long-term kidney dialysis. The majority of these patients require
long-term vascular access to facilitate treatment. A point of access for
dialysis needles may be created by connecting an artery and a vein in the
patient's arm using either a natural or synthetic graft. However, because kidney
dialysis therapy typically requires patients to undergo blood dialysis treatment
three times per week, these connections often become unusable over time. Other
methods of vascular access for kidney dialysis such as temporary catheters are
not designed for long-term use.
CURRENT METHODS OF TREATMENT. A synthetic graft may be implanted in kidney
dialysis patients to provide the necessary vascular access. The vast majority of
these synthetic grafts are made of ePTFE. The use of synthetic grafts currently
available is often accompanied by excessive bleeding when the dialysis needle is
withdrawn, requiring a nurse to apply pressure to help stop the bleeding and
requiring the patient to remain in the treatment area until the bleeding has
been stopped. In addition, to limit the risk of graft infection following
implant, at least a two-week healing period following implantation is required
to allow for tissue ingrowth into the graft before initiating dialysis.
PERMA-SEAL GRAFT. The Possis Perma-Seal Graft is a self-sealing synthetic
graft comprised of silicone elastomers, with a winding of polyester yarn
encapsulated within its wall, and is manufactured using proprietary
electrostatic spinning technology developed by the Company. The Company believes
that its Perma-Seal Graft may offer advantages over currently
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used synthetic grafts because of its self-sealing characteristic. The Company
believes that this characteristic will be effective in sealing puncture sites
in the grafts with minimal compression time and bleeding as compared with
other currently available graft products and, as a result, will reduce
dialysis procedure and administrative time per patient and the costs
associated therewith. In addition, because of its ability to seal a needle
puncture without depending on tissue ingrowth, the Perma-Seal Graft may
provide an option for patients who require dialysis immediately after implant.
MARKET. Approximately 170,000 patients in the United States undergo kidney
dialysis each year, of which 140,000 receive vascular access procedures
utilizing either natural vessel grafts or synthetic access grafts. The Company
estimates that of these patients approximately 40,000 are implanted with a
synthetic graft. The Company believes that a comparable market exists outside
the United States as well.
The hospital prices of ePTFE and biological graft products manufactured by
certain other manufacturers currently range from $400 to $700 per unit,
depending on length, style, and configuration. Although final pricing of the
Company's Perma-Seal Graft will depend upon manufacturing costs, distribution
methods, and competitive pressures, the Company anticipates that pricing for the
Perma-Seal Graft will be at a premium relative to standard ePTFE graft products.
STATUS OF CLINICAL TRIALS. In July 1992, Possis received FDA approval to
initiate clinical testing of its Perma-Seal Graft. The study is randomized on a
one-to-one basis with patients receiving either a Perma-Seal Graft or a
conventional ePTFE graft. As of August 1, 1995, 136 patients at four clinical
sites had been enrolled in the study, 66 of which had received the Perma-Seal
Graft. Clinical data indicates that Perma-Seal Graft patients who have been
accessed for dialysis have compression times to stop bleeding after removing the
dialysis needles averaging two minutes compared to an average of nine minutes
with conventional grafts. The Company filed a 510(k) application for marketing
authorization with the FDA in August 1994. In May 1995, the Company received a
request for additional information from the FDA and the Company expects to
respond to the request in August 1995. In July 1995, the Company received
approval of an investigational device exemption ( IDE ) supplement to commence
clinical testing of its new thinner-walled Perma-Seal Graft.
RESEARCH AND DEVELOPMENT
The Company's current product development efforts are focused primarily on
clinical testing and obtaining necessary FDA approvals. The Company's new
product development efforts are focused primarily on developing additional
applications of the AngioJet System, including the treatment of deep vein
thrombosis and certain non-vascular tissue cutting applications, and on
utilizing its Perma-Flow Graft and Perma-Seal Graft technologies to develop
other graft products, including endovascular stent grafts. Research and
development expenses are generally incurred for product design and
qualification, manufacturing process development and validation, and clinical
trials and governmental approvals. The Company's research and development
expense is expected to increase as the Company continues its clinical trials and
current product development plans.
As of August 1, 1995, the Company employed approximately 30 full-time
employees in research and development, including six in concept research
(focusing on initial development of new products), five in engineering and
equipment design, 12 in manufacturing process design, four in manufacturing
process qualification and three in regulatory and clinical affairs. The Company
performs all of its research and development activities at its headquarters in
Minneapolis, Minnesota. The Company spent $2,836,000, $3,613,000, $3,746,000 and
$2,307,000 in fiscal 1992, 1993 and 1994, and the nine months ended April 30,
1995, respectively, on medical product research and development. Clinical trial
expenses are included in total research and development expense.
MANUFACTURING
The Company engages in various manufacturing and assembly activities at its
facility in Minneapolis, Minnesota, including fabrication and assembly of the
AngioJet System drive unit and disposable pump, assembly and manufacture of
certain critical components of AngioJet catheters and manufacture of the
Perma-Flow Graft and the Perma-Seal Graft. Certain components used in the
manufacture of the Company's products are produced using proprietary processes
and materials developed by the Company or acquired from other companies. The
Company is expanding its manufacturing capacity in anticipation of increasing
commercial sales of its products and anticipates that it has sufficient capacity
to meet its needs at least through 1996.
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All components, materials and subassemblies included within the Company's
products, whether produced in-house or obtained from others, are inspected to
ensure compliance with Company specifications. All finished products are
subjected to quality assurance and performance testing procedures by Company
personnel. Many of the raw materials included within the Company's products are
obtained from single source suppliers. Although the Company believes that
additional sources of supply for these materials are available, the inability in
the future to obtain sufficient supplies of these materials could result in
delays in product introductions or shipments which could have a material adverse
effect on the Company's operating results. The Company attempts, to the extent
possible, to ensure that adequate supplies are available to meet its
manufacturing needs.
The Company continues to reduce its dependence on outside suppliers and to
create competitive barriers to entry by developing or bringing in-house certain
proprietary manufacturing processes used in the production of the Company's
products. For example, in order to reduce its dependence on outside suppliers
for ePTFE material, a key material in the manufacture of the Perma-Flow Graft,
the Company has recently begun to manufacture this material itself. In addition,
the Company has developed a proprietary electrostatic spinning technology
necessary to manufacture the Perma-Seal Graft. The Company believes that its
know-how and trade secrets used in the manufacture of its products provide a
competitive advantage to the Company.
The Company's facility consists of 28,300 square feet, containing 20,000
square feet of manufacturing space, of which 6,400 square feet is clean
manufacturing space. The facility is designed to comply with current GMP as
specified in published FDA regulations. The FDA's most recent unannounced
inspection took place in September 1993 and related to the manufacture of
pacemaker leads, and the FDA's report noted no material deficiencies. The
Company is also in the process of complying with ISO 9001 quality assurance
certification criteria for the standardization of manufacturing documentation
and processes and servicing. The ISO 9001 quality assurance standard has been
adopted as the EN 29001 standard in the European Union ("EU"). Although the
Company anticipates obtaining ISO 9001 certifications, it cannot predict when or
whether such certifications will ultimately be obtained.
MARKETING AND SALES
The Company expects to market its AngioJet System and graft products to
physician specialty groups, including vascular surgeons, cardiovascular and
thoracic surgeons, interventional radiologists and interventional cardiologists.
The Company will initially market the AngioJet System for peripheral arterial
and vascular graft thrombosis, targeting vascular surgeons and interventional
clinicians who perform PTA and other thrombectomy or lytic procedures. AngioJet
Systems for coronary applications will be marketed to interventional
cardiologists and cardiovascular surgeons. The primary customer for the
Perma-Flow Graft is expected to be the cardiovascular surgeon and thoracic
surgeon. The initial focus of the Company's marketing will be for use in
procedures involving patients having inadequate native vessels. The Perma-Seal
Graft will be marketed to vascular surgeons, who typically are the primary
decisionmakers with respect to the placement of vascular access grafts for
patients receiving dialysis for renal failure. The Company will also target
other clinicians influential in dialysis treatment selection, including
nephrologists, internists, and dialysis unit technicians.
Possis is currently marketing its AngioJet System and Perma-Flow Graft
outside the United States using an independent distributor network. The Company
has entered into distributorship agreements with six distributors covering
Belgium, Denmark, Germany, Greece, Italy, Luxembourg, The Netherlands, Norway,
Spain and Switzerland. The Company is also selling its products to distributors
covering Canada, France, Japan, and the United Kingdom. Generally, the
distributorship agreements are for a five-year term and provide that the
distributors, at their own expense, will investigate, negotiate and obtain
regulatory approvals for the Company's products in the specified territory.
Possis Medical Europe B.V., the Company's newly formed subsidiary in The
Netherlands, acts as a point of centralized warehousing and distribution in
Europe in order to enhance response time, efficiency and service to European
customers. All sales made to the Company's independent distributors will be
denominated in United States dollars. The Company will begin commercial
marketing of the AngioJet System and Perma-Flow Graft in the United States
following receipt of FDA marketing authorization. The Company intends to market
and distribute the AngioJet System in the United States through a direct sales
force and is evaluating distribution channels for the Perma-Flow Graft.
The Company entered into a distribution agreement with Bard pursuant to
which the Company granted to Bard the exclusive worldwide right to market, sell
and distribute the Company's Perma-Seal Graft. Under the agreement, Bard agreed
to purchase the Perma-Seal Graft from the Company at certain transfer prices, to
purchase certain minimum quantities and to make certain milestone payments to
the Company relating to the commercialization of the product.
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Promotional activities by the Company are designed primarily to enlist the
support of key medical opinion leaders in the United States and abroad. The
Company believes that sales to key opinion leaders in European countries will be
especially important to encourage broader acceptance of its products and will
give the Company experience in marketing its products prior to their
introduction in the United States. Other promotional activities may include
publishing analytical papers, making scientific symposium presentations and
conducting comparative clinical trials demonstrating the uses and effectiveness
of the Company's products.
PATENTS, PATENT APPLICATIONS, LICENSES AND PROPRIETARY RIGHTS
The Company's success depends and will continue to depend in part on its
ability to maintain patent protection for products and processes, to preserve
its trade secrets and to operate without infringing the proprietary rights of
third parties. The Company's policy is to attempt to protect its technology by,
among other things, filing patent applications for technology that it considers
important to the development of its business. The Company currently holds five
United States patents and 17 foreign patents related to the Perma-Flow Graft and
has one patent application pending in the United States and six patent
applications pending in foreign jurisdictions. The Company also holds one United
States patent relating to the AngioJet System and a second United States patent
has been allowed which the Company expects to be issued in the near future. In
addition, the Company has 11 United States and 10 foreign patent applications
pending relating to the AngioJet System. In connection with the Perma-Seal
Graft, one United States patent is pending, one of the claims included in which
has been allowed, and five foreign patent applications are pending. The validity
and breadth of claims covered in medical technology patents involve complex
legal and factual questions and, therefore, may be highly uncertain. No
assurance can be given that the Company's pending applications will result in
patents being issued or, if issued, that such patents, or the Company's existing
patents, will provide a competitive advantage, or that competitors of the
Company will not design around any patents issued to the Company. The Company is
aware of one pending foreign patent application relating to a water jet system
for removing blood clots. Although the application was filed after the AngioJet
System patent application, no assurance can be given that such third party will
not receive a patent.
The Company has acquired rights through licensing agreements to patents
relating to processes used in the manufacture of the Perma-Seal Graft. Under
these agreements, Possis is required to pay certain annual fees and royalties
based on net sales of products using the technology covered by these patents.
The Company requires its employees having access to proprietary information
to execute non-disclosure agreements upon commencement of employment with the
Company. These agreements generally provide that all confidential information
developed or made known to the individual by the Company during the course of
the individual's employment with the Company is to be kept confidential and not
disclosed to third parties.
There can be no assurance that the Company's non-disclosure agreements and
other safeguards will protect its proprietary information and know-how or
provide adequate remedies for the Company in the event of unauthorized use or
disclosure of such information, or that others will not be able to independently
develop such information. There has been substantial litigation regarding patent
and other intellectual property rights in the medical device industry.
Litigation, which could result in substantial cost to and diversion of effort by
the Company, may be necessary to enforce patents issued to the Company, to
protect trade secrets or know-how owned by the Company, to defend the Company
against claimed infringement of the rights of others or to determine the
ownership, scope or validity of the proprietary rights of the Company and
others. An adverse determination in any such litigation could subject the
Company to significant liabilities to third parties, could require the
Company to seek licenses from third parties and could prevent the Company
from manufacturing, selling or using its products, any of which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
COMPETITION
The Company's products will compete with a number of different products and
methods of treatment for the conditions they address. The Company believes that
its AngioJet System will face intense competition from a variety of treatments
for the ablation and removal of blood clots, including thrombolytic drug
therapies, surgical intervention, balloon embolectomy, mechanical and laser
thrombectomy devices, ultrasound ablators, and other thrombectomy devices based
on
21
<PAGE>
waterjet systems that are currently being developed by other companies. It is
the Company's understanding that Cordis Corporation currently has a
waterjet-based thrombectomy system in early stage sales in Europe.
The Company is not aware of any synthetic graft that will compete with the
Perma-Flow Graft and believes it is the first developer to obtain FDA approval
for clinical trials with a synthetic coronary bypass graft. The Company's
Perma-Seal Graft will compete with, among others, ePTFE grafts manufactured by
W.L. Gore and Associates and IMPRA, Inc., which currently have a combined market
share of approximately 90%.
The medical products market is characterized by rapidly evolving technology
and intense competition. The future success of the Company will depend on its
ability to keep pace with advancing technology and competitive innovations. Many
potential competitors have significantly greater research and development
capabilities, experience in obtaining regulatory approvals and marketing, and
financial and managerial resources than the Company. Many potential competitors
have developed or are in the process of developing technologies that are, or in
the future may be, the basis for competitive products, some of which may employ
an entirely different approach or means of accomplishing the desired therapeutic
effect than products being developed by the Company.
GOVERNMENT REGULATION
Government regulation in the United States and other countries is a
significant factor in the development and marketing of the Company's products
and in the Company's ongoing manufacturing and research and development
activities. The Company and its products are regulated by the FDA under a number
of statutes, including the FDC Act.
Under the FDC Act, medical devices are classified into one of three classes
(i.e., Class I, II or III) on the basis of the controls deemed necessary to
reasonably ensure their safety and effectiveness. Class I devices are subject to
the least extensive controls, as the safety and effectiveness reasonably can be
assured through general controls (e.g., labeling, premarket notification and
adherence to GMP). For Class II devices, safety and effectiveness can be assured
through the use of special controls (e.g., performance standards, post market
surveillance, patient registries and FDA guidelines). Class III devices (i.e.,
life-sustaining or life-supporting implantable devices, or new devices which
have been found not to be substantially equivalent to legally marketed devices)
require the highest level of control, generally requiring premarket approval by
the FDA to ensure their safety and effectiveness.
If a manufacturer or distributor of medical devices can establish that a
proposed device is "substantially equivalent" to a legally marketed Class I or
Class II medical device or to a Class III medical device for which the FDA has
not required a PMA application, the manufacturer or distributor may seek FDA
marketing clearance for the device by filing a 510(k) notification. Following
submission of the 510(k) notification, the manufacturer or distributor may not
place the device into commercial distribution in the United States until an
order has been issued by the FDA. The FDA's target for issuing such orders is
within 90 days of submission, but the process can take significantly longer. The
order may declare the FDA's determination that the device is "substantially
equivalent" to another legally marketed device and allow the proposed device to
be marketed in the United States. The FDA may, however, determine that the
proposed device is not substantially equivalent or may require further
information, such as additional test data, before making a determination
regarding substantial equivalence. Any adverse determination or request for
additional information could delay market introduction and have a materially
adverse effect on the Company's continued operations.
If a manufacturer or distributor of medical devices cannot establish that a
proposed device is substantially equivalent to another device via the 510(k)
process, the manufacturer or distributor must seek PMA approval of the proposed
device. A PMA application must be submitted, supported by extensive data,
including preclinical and clinical trial data to prove the safety and efficacy
of the device. Generally, a company is required to obtain an IDE before it
commences clinical testing in the United States in support of such PMA. The FDA
monitors and oversees the use and distribution of such "research use only" and
"investigational use only" products. Although by statute the FDA has 180 days to
review a PMA application once it has been accepted for filing, during which time
an advisory committee may also evaluate the application and provide
recommendations to the FDA, PMA reviews often extend over a significantly
protracted time period, usually 12 to 24 months or longer from filing.
Accordingly, there can be no assurance that FDA review of any PMA application
submitted by the Company will not encounter prolonged delays or that the data
collected and submitted by the Company in its PMA will support approval.
22
<PAGE>
Labeling and promotional activities are subject to scrutiny by the FDA and,
in certain instances, by the Federal Trade Commission. The FDA also imposes
post-marketing controls on the Company and its products, and registration,
listing, medical device reporting, post-market surveillance, device tracking and
other requirements on medical devices. Failure to meet these pervasive FDA
requirements or adverse FDA determinations regarding the Company's clinical and
preclinical trials could subject the Company and/or its employees to injunction,
prosecution, civil fines, seizure or recall of products, prohibition of sales or
suspension or withdrawal of any previously granted approvals.
The FDC Act regulates the Company's quality control and manufacturing
procedures by requiring the Company and its contract manufacturers to
demonstrate compliance with current GMP as specified in published FDA
regulations. The FDA monitors compliance with GMP by requiring manufacturers to
register with the FDA, which subjects them to periodic unannounced FDA
inspections of manufacturing facilities. If violations of applicable regulations
are noted during FDA inspections of the Company's manufacturing facilities or
the facilities of its contract manufacturers, the continued marketing of the
Company's products may be adversely affected. Such regulations are subject to
change and depend heavily on administrative interpretations. There can be no
assurance that future changes in regulations or interpretations made by the FDA
or other regulatory bodies, with possible retroactive effect, will not adversely
affect the Company.
The Company has complied with GMP requirements in the past and believes it
will be able to comply with all applicable regulations regarding the manufacture
and sale of medical devices.
Sales of medical devices outside of the United States are subject to United
States export requirements and foreign regulatory requirements. Export sales of
investigational devices that are subject to PMA requirements and have not
received FDA marketing clearance or approval generally are subject to FDA export
permit requirements under Section 801(e) of the FDC Act. In order to obtain such
a permit, the Company must provide the FDA with documentation from the medical
device regulatory authority of the country in which the purchaser is located,
stating that the sale of the device is not a violation of that country's medical
device laws. The Company has received permits to export its AngioJet System,
Perma-Flow Graft and Perma-Seal Graft to the Netherlands and Switzerland and
will use this authorization to transship to additional countries, an activity
that the FDA does not regulate. The Company may also seek additional approvals
to export its products directly into other countries. Legal restrictions on the
sale of imported medical devices vary from country to country. The time required
to obtain approval by a foreign country may be longer or shorter than that
required for FDA approval, and the requirements may differ. For countries in the
EU, in January 1995, CE Mark certification procedures became available for
medical devices, the successful completion of which would allow certified
devices to be placed on the market in all EU countries. After June 1998, medical
devices may not be sold in EU countries unless they display the CE Mark. There
can be no assurance that Possis will be able to obtain regulatory approvals or
clearances for its products in foreign countries.
EMPLOYEES
As of August 1, 1995, the Company had 104 full-time employees, one part-time
employee and four contract employees. Of these full-time employees, 30 are in
research and development (including regulatory and clinical), 40 are in
manufacturing and production, 14 are in quality assurance, four are in
facilities/maintenance, and 16 are in management or administrative positions.
None of the Company's employees is covered by a collective bargaining agreement,
and management considers its relations with its employees to be good.
FACILITIES
The Company leases approximately 28,300 square feet of office and
manufacturing space (including 6,400 square feet of clean manufacturing space)
at 2905 Northwest Boulevard, Minneapolis, Minnesota 55441-2644. The Company is
currently negotiating an extension of this lease which expires in August 1996.
See Note 8 of Notes to Consolidated Financial Statements.
23
<PAGE>
MANAGEMENT
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------- --- ------------------------------------------------------------
<S> <C> <C>
Robert G. Dutcher 50 Chief Executive Officer, President and Director
Russel E. Carlson 49 Vice President, Finance and Chief Financial Officer
William J. Drasler 46 Vice President, Research and Development
Robert S. Scott 50 Vice President, Manufacturing Operations
James D. Gustafson 39 Vice President, Quality Assurance and Regulatory/ Clinical
Affairs
Joseph J. Afryl, Jr. 47 Vice President, Sales and Marketing
Irving R. Colacci 42 Vice President, Legal Affairs and Human Resources, General
Counsel and Secretary
Donald C. Wegmiller 56 Chairman of the Board
Joe A. Walters 75 Director
Dean Belbas 63 Director
Seymour J. Mansfield 50 Director
Demetre M. Nicoloff, M.D. 62 Director
Ann M. Possis 35 Director
</TABLE>
ROBERT G. DUTCHER served as Executive Vice President of the Company from
June 1992 until October 1993 and has served as President, Chief Executive
Officer and a director of the Company since October 1993 and as President and
Chief Operating Officer of Possis Holdings, Inc. (a subsidiary formerly known as
Possis Medical, Inc.) since 1987. Prior to joining the Company, Mr. Dutcher had
served in several positions (most recently as Director of Research and
Development) at Medtronic, Inc. since 1972. Mr. Dutcher received a master's
degree in biomedical engineering from the University of Minnesota.
RUSSEL E. CARLSON joined the Company in September 1991 and has served as
Vice President and Chief Financial Officer of the Company since June 1992. Prior
to joining the Company, Mr. Carlson had been Chief Financial Officer of
SpectraScience, Inc. (formerly GV Medical, Inc.), a Minneapolis, Minnesota
medical device company, since September 1989 and had served in several financial
management positions with The Pillsbury Company, a food manufacturer and
processor, since 1972.
WILLIAM J. DRASLER has served as Vice President of the Company since
December 1993 and as Vice President of Research and Development and Director of
New Product Development of Possis Holdings, Inc. since 1986. Prior to joining
the Company, Mr. Drasler had served as an engineering and program manager at
SciMed Life Systems, Inc. since 1983. Mr. Drasler received a Ph.D. in biomedical
engineering and a M.S. in chemical engineering from the University of Minnesota.
ROBERT S. SCOTT has served as Vice President of the Company since December
1993 and as Vice President of Manufacturing Operations of Possis Holdings, Inc.
since 1988 and was Director of Manufacturing Operations for Possis Holdings,
Inc. from 1984 through 1988. Prior to joining the Company, Mr. Scott had served
as a consultant to various
24
<PAGE>
medical and nonmedical manufacturing companies and as Manufacturing Manager
for Aequitron Medical, Inc. and Resistance Technology Incorporated and in
various positions for Daig Corporation and Medtronic, Inc.
JAMES D. GUSTAFSON has served as a Vice President of the Company since
January 1, 1994 and has been Director of Quality Assurance and
Regulatory/Clinical Affairs for Possis Holdings, Inc. since June 1993. Prior
to joining the Company, Mr. Gustafson had served as a Manager of Clinical and
Regulatory Affairs and of Clinical Programs at St. Jude Medical, Inc., a
medical device manufacturer, since June 1989, and as a Senior Clinical
Scientist at Shiley, Inc., Irvine, California, since March 1985. Mr.
Gustafson received a master's degree in management from University of
Redlands and a master's degree in biology from the University of California
at Irvine.
JOSEPH J. AFRYL, JR. has served as Vice President of the Company since April
1994. Prior to joining the Company, Mr. Afryl served as Vice President of Sales
and Marketing for Bio-Vascular, Inc. from July 1992 to March 1994, as Director
of Sales for Angeion Corporation from September 1991 through July 1992, and as
Director of Marketing at St. Jude Medical, Inc. from May 1987 to September 1991.
Each of these companies is a manufacturer of medical devices.
IRVING R. COLACCI has served as Secretary and Corporate Counsel of the
Company since July 1988 and as Vice President and General Counsel since December
1993. Prior to joining the Company, Mr. Colacci had been an attorney at Dorsey &
Whitney P.L.L.P.
DONALD C. WEGMILLER has served as a director since 1987 and became Chairman
in October 1993. Since April 1993, Mr. Wegmiller has served as President and
Chief Executive Officer of Management Compensation Group/Health Care, a
consulting firm specializing in compensation and benefits for health care
executives and physicians. From May 1987 until April 1993, Mr. Wegmiller was
President and CEO of Health One Corporation, Minneapolis, Minnesota. He
currently serves as a director of Minnesota Power & Light Company, HBO & Co.,
Medical Graphics Corporation, and LifeRate Systems Inc. From 1986 to 1988 Mr.
Wegmiller served as Chairman of the Board of the American Hospital Association,
and he currently serves on the Board of Governors of American Healthcare
Systems. From 1972 to 1976, Mr. Wegmiller served as a White House staff
assistant to Presidents Nixon and Ford.
JOE A. WALTERS has served as a director since 1960. Mr. Walters is a partner
in the law firm of O'Connor & Hannan, Minneapolis, Minnesota, which has
performed legal services for the Company from time to time.
DEAN BELBAS has served as a director since 1985. Mr. Belbas currently serves
as Vice President and Director of Investor Relations of General Mills, Inc., a
Minneapolis, Minnesota, food manufacturer and processor. For more than five
years prior to his appointment to such position in January 1993, Mr. Belbas had
served as Vice President and Director of Corporate Communications for General
Mills, Inc.
SEYMOUR J. MANSFIELD has served as a director since 1987. Mr. Mansfield is
currently a shareholder in the law firm of Mansfield & Tanick, P.A.,
Minneapolis, Minnesota, and performs legal services for the Company from time to
time. From 1982 until the formation of Mansfield & Tanick, P.A., he was an
attorney with the law firm of S. J. Mansfield & Associates, Minneapolis,
Minnesota.
DEMETRE M. NICOLOFF, M.D. has served as a director since 1991. Dr. Nicoloff
has been a cardiac surgeon with and Vice President of Cardiac Surgical
Associates in Minneapolis, Minnesota, since 1982 and serves as a director of
Micromedics, Inc. and Optical Sensors for Medicine.
ANN M. POSSIS was appointed as a director in December 1993. Ms. Possis is
currently the Director of Development for The Voyageur Outward Bound School, a
position she has held since April 1995. From 1992 to April 1995, she was a
Development Associate for Planned Parenthood of Minnesota. From April 1983
through October 1991, Ms. Possis held a variety of sales and marketing positions
with West Publishing Company. Ms. Possis is the daughter of Z.C. Possis, the
Company's former Chairman and Chief Executive Officer. See "Principal and
Selling Shareholders."
25
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth, as of August 1, 1995, and as adjusted to
reflect the sale of the shares of Common Stock in this offering, certain
information with respect to the beneficial ownership of the Company's Common
Stock by (i) each person known by the Company to be the beneficial owner of 5%
or more of the outstanding shares of Common Stock, (ii) each director of the
Company, (iii) each of the Company's current shareholders who is expected to
sell shares in this offering (the "Selling Shareholders"), and (iv) by all
directors and executive officers as a group. Unless otherwise indicated, the
person or entity listed in the table is the beneficial owner of the shares and
has sole voting and investment power with respect to the shares indicated.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED SHARES SHARES BENEFICIALLY
PRIOR TO OFFERING BEING OWNED AFTER OFFERING
------------------------ OFFERED ------------------------
NAME NUMBER PERCENT FOR SALE NUMBER PERCENT
- --------------------------------------------- ----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
The Possis Marital Trust (1)................. 454,653 4.6% 125,000 329,653 2.8%
Demetre M. Nicoloff, M.D. (2)................ 470,610 4.7 20,000 450,610 3.8
Seymour J. Mansfield (3)..................... 165,212 1.7 10,000 155,212 1.3
Robert G. Dutcher (4)........................ 132,863 1.3 -- 132,863 1.1
Ann M. Possis (5)............................ 97,250 * 5,000 92,250 *
Joe A. Walters (4)........................... 55,283 * -- 55,283 *
Dean Belbas (4).............................. 48,753 * -- 48,753 *
Donald C. Wegmiller (4)...................... 39,927 * -- 39,927 *
All directors and officers as a group (13
persons) (2)(3)(5)(6)....................... 1,238,343 11.9 35,000 1,203,343 9.9
<FN>
- ------------------------
* Less than 1%.
(1) Includes 364,003 shares held directly by the Possis Marital Trust (the
Trust ), 70,400 shares held by Mary Possis, a co-trustee of the Trust, and
20,250 shares issuable upon exercise of currently exercisable options
granted to Z.C. Possis, former chairman and chief executive officer of the
Company. Does not include 92,000 shares beneficially held by Ann M. Possis,
who is a co-trustee of the Trust and a director of the Company. The shares
of Common Stock to be sold by the Selling Shareholder in this offering are
held by the Trust. The address of the Trust is 601 Second Avenue South,
P.O. Box A55, Minneapolis, Minnesota 55480.
(2) Includes 143,000 shares held for the benefit of Dr. Nicoloff's children and
9,075 shares issuable upon exercise of currently exercisable options. Dr.
Nicoloff's address is 920 East 28th Street, Minneapolis, Minnesota 55407.
(3) Includes 11,000 shares held by Mr. Mansfield's minor children and 35,260
shares issuable upon exercise of currently exercisable options. Mr.
Mansfield's address is 1560 International Center, 900 Second Avenue South,
Minneapolis, Minnesota 55402.
(4) Includes the following shares issuable upon exercise of currently
exercisable options: 105,250 for Mr. Dutcher, 27,306 for Mr. Walters,
39,353 for Mr. Belbas and 39,927 for Mr. Wegmiller.
(5) Includes 4,500 shares held of record by Ms. Possis' spouse and 750 shares
issuable upon exercise of currently exercisable options. Does not include
shares held by the Possis Trust, of which Ms. Possis is a co-trustee, or by
Mary Possis, mother of Ann Possis. Ms. Possis' address is 2790 Dean
Parkway, Minneapolis, Minnesota 55416.
(6) Includes 459,797 shares issuable upon exercise of currently exercisable
options.
</TABLE>
26
<PAGE>
DESCRIPTION OF COMMON STOCK
The description contained herein of the Common Stock is qualified in its
entirety by reference to the Company's Articles of Incorporation, as restated
and amended to date, and the Minnesota Business Corporation Act.
COMMON STOCK
The Company's authorized capital stock consists of 20,000,000 common shares,
$.40 par value, of which 9,970,781 were issued and outstanding as of the date of
this Prospectus.
The holders of shares of Common Stock are entitled to one vote per share on
all matters subject to shareholder action. The holders of shares of Common Stock
are entitled to receive such dividends, if any, as may be declared by the Board
of Directors out of funds legally available therefor. See "Dividend Policy."
Upon any liquidation or dissolution of the Company, the holders of Common
Stock are entitled to share, pro rata, in any distribution of the Company's
assets to shareholders. No preemptive, conversion, redemption, or sinking fund
rights are applicable to the Common Stock. All of the outstanding shares of
Common Stock are, and all shares of Common Stock to be outstanding upon
completion of this offering will be, fully paid and nonassessable.
CERTAIN PROVISIONS OF MINNESOTA BUSINESS CORPORATION ACT
Section 302A.671 of the Minnesota Business Corporation Act (the "Minnesota
Act") applies, with certain exceptions, to any acquisition of voting stock of
the Company from a person other than the Company, and other than in connection
with certain mergers and exchanges to which the Company is a party, that results
in the beneficial ownership by the acquiring party of 20% or more of the
Company's voting stock then outstanding. Under Section 302A.671 any such
acquisition must be approved by a majority vote of the shareholders of the
Company. In general, in the absence of such approval, shares exceeding the
threshold are denied voting rights and may be redeemed by the Company at their
then fair market value within 30 days after the acquiring person fails to give a
timely information statement to the Company or after the date the shareholders
vote not to grant voting rights to the acquiring person's shares.
Section 302A.673 of the Minnesota Act generally prohibits any business
combination by the Company, or any subsidiary of the Company, with any
shareholder that purchases 10% or more of the Company's voting shares (an
"interested shareholder") within four years following such interested
shareholder's share acquisition date, unless the business combination is
approved by a committee of all of the disinterested members of the Board of
Directors of the Company before the interested shareholder's share acquisition
date.
Under certain circumstances, these statutory provisions could delay or
prevent a change in control of the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is Norwest
Bank Minnesota, N.A.
27
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), for whom Dain Bosworth
Incorporated and John G. Kinnard and Company, Incorporated are acting as the
representatives (the "Representatives"), have severally agreed to purchase an
aggregate of 1,910,000 shares of Common Stock from the Company and the Selling
Shareholders at the Price to Public set forth on the cover page of this
Prospectus, less underwriting discounts and commissions in the amounts set forth
opposite their respective names below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- --------------------------------------------------------------------------------- -----------
<S> <C>
Dain Bosworth Incorporated.......................................................
John G. Kinnard and Company, Incorporated........................................
-----------
Total............................................................................ 1,910,000
-----------
-----------
</TABLE>
The Underwriting Agreement provides that the Underwriters' obligations are
subject to conditions precedent and that the Underwriters are committed to
purchase all shares of Common Stock offered hereby (other than those covered by
the over-allotment option described below) if the Underwriters purchase any
shares. The Representatives have advised the Company and the Selling
Shareholders that the several Underwriters may offer the shares of Common Stock
directly to the public at the price to public set forth on the cover page of
this Prospectus and to certain dealers at the price to public less a concession
not exceeding $ per share. The Underwriters may allow, and such dealers may
reallow, a concession not exceeding $ per share to other dealers. After the
shares of Common Stock are released for sale to the public, the Representatives
may change the initial price to public and other selling terms.
The Company has granted to the Underwriters an option, exercisable for 30
days after the date of this Prospectus, to purchase up to an aggregate of
286,500 additional shares of the Common Stock, at the same price per share as
the initial shares. The Underwriters may purchase these shares solely to cover
over-allotments, if any, in connection with the sale of Common Stock offered
hereby. If the Underwriters exercise the over-allotment option, the Underwriters
will purchase additional shares in approximately the same proportion as those in
the above table.
The Underwriting Agreement provides that the Company, the Selling
Shareholders and the Underwriters will indemnify each other against certain
liabilities, including liabilities under the Act.
The Company and all of its current officers, directors and the Selling
Shareholders have agreed not to offer, sell or otherwise dispose of any shares
of Common Stock for a period of 90 days after the date of this Prospectus
without the prior written consent of the Representatives.
John G. Kinnard and Company, Incorporated served as the representative of
the several underwriters in the Company's public offering of an aggregate of
1,552,500 shares of Common Stock in September 1994 for which it received
customary compensation, including the receipt of warrants to purchase 120,000
shares of Common Stock.
In connection with this offering, certain Underwriters and selling group
members who are qualified registered market makers on The Nasdaq National
Market may engage in passive market making transactions in the Common Stock
of the Company on The Nasdaq National Market in accordance with Rule 10b-6A
under the Exchange Act during the two business day period before commencement
of offers or sales of the Common Stock. The passive market making
transactions must comply with applicable volume and price limits and be
identified as such. In general, a passive market maker may display its bid at
a price not in excess of the highest independent bid for the Common Stock; if
all independent bids are lowered below the passive market maker's bid,
however, such bid must then be lowered when certain purchase limits are
exceeded.
28
<PAGE>
The foregoing is a brief summary of the provisions of the Underwriting
Agreement and does not purport to be a complete statement of its terms and
conditions. The Underwriting Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby is being passed
upon for the Company by Dorsey & Whitney P.L.L.P., Minneapolis, Minnesota.
Certain legal matters are being passed upon for the Underwriters by Popham,
Haik, Schnobrich & Kaufman, Ltd., Minneapolis, Minnesota.
EXPERTS
The consolidated financial statements of the Company as of July 31, 1994 and
1993 and for each of the three years in the period ended July 31, 1994, included
and incorporated by reference in this Prospectus, have been audited by Deloitte
& Touche LLP, independent auditors, as stated in their reports which are
included and incorporated by reference herein, and have been so included and
incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
29
<PAGE>
POSSIS MEDICAL, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Independent Auditors' Report............................................................................... F-2
Consolidated Balance Sheets as of July 31, 1993 and 1994 and April 30, 1995................................ F-3
Consolidated Statements of Operations for the years ended July 31, 1992, 1993 and 1994 and for the nine
months ended April 30, 1994 and 1995...................................................................... F-4
Consolidated Statements of Shareholders' Equity for the years ended July 31, 1992, 1993 and 1994 and for
the nine months ended April 30, 1995...................................................................... F-5
Consolidated Statements of Cash Flows for the years ended July 31, 1992, 1993 and 1994 and for the nine
months ended April 30, 1994 and 1995...................................................................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF POSSIS MEDICAL, INC. (FORMERLY
POSSIS CORPORATION):
We have audited the accompanying consolidated balance sheets of Possis
Medical, Inc. and its subsidiaries (the Company) as of July 31, 1994 and 1993
and the related consolidated statements of operations, cash flows, and changes
in shareholders' equity for each of the three years in the period ended July 31,
1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Possis Medical, Inc. and its
subsidiaries as of July 31, 1994 and 1993 and the results of its operations and
its cash flows for each of the three years in the period ended July 31, 1994 in
conformity with generally accepted accounting principles.
As discussed in Note 4 to the financial statements, in 1992 Possis Medical,
Inc. changed its method of accounting for income taxes to conform with Statement
of Financial Accounting Standards No. 109.
DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
October 7, 1994
F-2
<PAGE>
POSSIS MEDICAL, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JULY 31,
---------------------------
1993 1994
------------- ------------ APRIL 30,
1995
-------------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................................................. $ 568,834 $ 1,769,348 $ 5,194,634
Marketable securities................................................................. -- -- 2,307,647
Receivables:
Trade (less allowance for doubtful accounts: $309,000, $30,000 and $49,398,
respectively)...................................................................... 1,943,862 45,706 102,653
St. Jude Medical, Inc. (NOTE 6)..................................................... 2,971,000 2,930,158 945,409
Jet Edge (less allowance for doubtful accounts $90,000) (NOTE 2).................... -- 215,160 --
Notes receivable (NOTE 2)........................................................... 123,918 123,918 123,918
Other............................................................................... 199,052 385,798 343,286
Inventories: (NOTE 1)
Parts............................................................................... 1,703,455 471,943 654,707
Work-in-progress.................................................................... 911,304 482,181 222,964
Finished goods...................................................................... 388,645 89,500 101,200
Prepaid expenses and other assets..................................................... 175,976 309,629 207,196
------------- ------------ -------------
Total current assets.............................................................. 8,986,046 6,823,341 10,203,614
------------- ------------ -------------
PROPERTY (NOTES 1, 2 AND 3):
Land.................................................................................. 94,993 -- --
Buildings and improvements............................................................ 966,460 160,069 169,356
Machinery and equipment............................................................... 3,211,786 2,041,873 2,234,467
Assets in construction................................................................ 14,802 83,305 286,904
------------- ------------ -------------
4,288,041 2,285,247 2,690,727
Less accumulated depreciation......................................................... (2,788,369) (1,017,013) (1,207,836)
------------- ------------ -------------
Property -- net....................................................................... 1,499,672 1,268,234 1,482,891
------------- ------------ -------------
OTHER ASSETS:
Goodwill (NOTE 1)..................................................................... 629,922 557,922 503,922
Notes receivable (NOTE 2)............................................................. 355,989 232,071 114,133
------------- ------------ -------------
Total other assets................................................................ 985,911 789,993 618,055
------------- ------------ -------------
$ 11,471,629 $ 8,881,568 $ 12,304,560
------------- ------------ -------------
------------- ------------ -------------
LIABILITIES AND SHAREHOLDERS EQUITY
CURRENT LIABILITIES:
Trade accounts payable................................................................ $ 574,052 115,359 $ 123,284
Accrued liabilities:
Related parties (NOTE 6)............................................................ 1,076,987 1,062,182 342,711
Salaries, wages and commissions..................................................... 714,038 622,982 602,771
Warranty reserve.................................................................... 85,000 30,000 --
Real estate taxes................................................................... 108,835 -- --
Customer deposits................................................................... 92,774 -- --
Current portion of long-term debt (NOTE 3)............................................ 35,204 574,366 81,103
Estimated loss on disposal of segment (NOTE 2)........................................ 850,000 -- --
Other liabilities..................................................................... 265,752 411,016 249,896
------------- ------------ -------------
Total current liabilities......................................................... 3,802,642 2,815,905 1,399,765
------------- ------------ -------------
DEFERRED REVENUE (NOTE 2)............................................................. 360,744 246,828 174,645
LONG-TERM DEBT (NOTE 3)............................................................... 1,278,740 80,370 114,382
OTHER LIABILITIES..................................................................... 82,140 54,760 54,760
COMMITMENTS AND CONTINGENCIES (NOTE 8)................................................ -- -- --
SHAREHOLDERS' EQUITY (NOTE 5):
Common stock-authorized, 20,000,000 shares of $.40 par value each; issued and
outstanding, 8,419,803, 8,456,252 and 9,936,811, respectively........................ 3,367,921 3,382,501 3,974,724
Additional paid-in capital............................................................ 6,912,420 7,180,089 14,034,594
Unearned compensation................................................................. (295,668) (118,836) (63,219)
Retained deficit...................................................................... (4,037,310) (4,760,049) (7,385,091)
------------- ------------ -------------
Total shareholders' equity........................................................ 5,947,363 5,683,705 10,561,008
------------- ------------ -------------
$ 11,471,629 $ 8,881,568 $ 12,304,560
------------- ------------ -------------
------------- ------------ -------------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
POSSIS MEDICAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JULY 31, APRIL 30,
------------------------------------------ -----------------------
1992 1993 1994 1994 1995
----------- ----------- ----------- ---------- ---------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Medical products (NOTES 9 & 10) . . . . . . . . . . . $ 4,425,319 $ 5,169,100 $3,140,335 $3,039,530 $ 220,235
Net heart valve patent
payments (NOTE 6). . . . . . . . . . . . . . . . . . 2,653,593 3,172,602 2,998,091 2,025,911 1,782,343
Payments relating to lead business (NOTE 11). . . . . -- -- 176,292 79,500 410,118
Sales agreement revenue (NOTE 13) . . . . . . . . . . -- -- -- -- 750,000
Gain on sale of lead business (NOTE 11) . . . . . . . -- -- 647,816 647,816 --
Gain on sale of real estate (NOTE 12) . . . . . . . . -- -- 957,573 957,573 --
Interest and other income . . . . . . . . . . . . . . 81,515 92,971 85,397 55,770 295,844
----------- ------------ ----------- ----------- ----------
Total revenues . . . . . . . . . . . . . . . . . . . 7,160,427 8,434,673 8,005,504 6,806,100 3,458,540
Cost of sales and other expenses:
Cost of medical products. . . . . . . . . . . . . . . 2,166,915 2,734,644 3,675,461 2,957,049 2,531,851
Selling, general and administrative . . . . . . . . . 1,550,821 2,124,767 1,706,420 1,256,896 1,540,666
Research and development (NOTE 9) . . . . . . . . . . 2,836,380 3,613,050 3,745,762 3,060,252 2,306,865
Interest. . . . . . . . . . . . . . . . . . . . . . . 135,113 142,992 124,104 106,757 19,733
----------- ------------ ----------- ----------- ----------
Total cost of sales and other expenses . . . . . . . 6,689,229 8,615,453 9,251,747 7,380,954 6,399,115
----------- ------------ ----------- ----------- ----------
Income (loss) from continuing operations . . . . . . . 471,198 (180,780) (1,246,243) (574,854) (2,940,575)
Income (loss) from discontinued operations,
including gain (loss) on disposal-net
(NOTE 2). . . . . . . . . . . . . . . . . . . . . . . 152,935 (1,330,884) 523,504 273,986 315,533
----------- ------------ ----------- ----------- ----------
Net income (loss). . . . . . . . . . . . . . . . . . . $ 624,133 $(1,511,664) $ (722,739) $ (300,868)$ (2,625,042)
----------- ------------ ----------- ----------- ----------
----------- ------------ ----------- ----------- ----------
Weighted average number of common and
common equivalent shares outstanding. . . . . . . . . 8,237,971 8,361,347 8,435,818 8,429,386 9,648,751
----------- ------------ ----------- ----------- ----------
----------- ------------ ----------- ----------- ----------
Earnings (loss) per common and
common equivalent share
Continuing operations. . . . . . . . . . . . . . . . $ .06 $ (.02) $ (.15) $ (.07) $ (.30)
Discontinued operations. . . . . . . . . . . . . . . .02 (.16) .06 .03 .03
----------- ------------ ----------- ----------- ----------
Net. . . . . . . . . . . . . . . . . . . . . . . . . .. $ .08 $ (.18) $ (.09) $ (.04) $ (.27)
----------- ------------ ----------- ----------- ----------
----------- ------------ ----------- ----------- ----------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
POSSIS MEDICAL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
-------------------------- ADDITIONAL RETAINED
NUMBER OF PAID-IN UNEARNED EARNINGS
SHARES AMOUNT CAPITAL COMPENSATION (DEFICIT) TOTAL
----------- ---------- ----------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, AUGUST 1, 1991. . . . . . . . . . $8,195,201 $3,278,081 $ 5,995,809 $ -- $ (3,149,779) $ 6,124,111
Employee stock
purchase plan . . . . . . . . . . . . . . 25,640 10,256 82,306 -- -- 92,562
Stock options exercised. . . . . . . . . . 35,456 14,182 113,592 -- -- 127,774
Net income . . . . . . . . . . . . . . . . -- -- -- -- 624,133 624,133
----------- ---------- ----------- ------------ ------------- -----------
BALANCE, JULY 31, 1992 . . . . . . . . . . 8,256,297 3,302,519 6,191,707 -- (2,525,646) 6,968,580
Employee stock
purchase plan . . . . . . . . . . . . . . 14,996 5,998 113,520 -- -- 119,518
Stock options issued
to directors (NOTE 5) . . . . . . . . . . -- -- 26,747 -- -- 26,747
Stock options and
warrants exercised. . . . . . . . . . . . 105,793 42,317 323,264 -- -- 365,581
Stock grants and amortization
(NOTE 5). . . . . . . . . . . . . . . . . 42,717 17,087 257,182 (295,668) (21,399)
Net loss . . . . . . . . . . . . . . . . . -- -- -- -- (1,511,664) (1,511,664)
----------- ---------- ----------- ------------ ------------- -----------
BALANCE, JULY 31, 1993 . . . . . . . . . . 8,419,803 3,367,921 6,912,420 (295,668) (4,037,310) 5,947,363
Employee stock purchase plan . . . . . . . 16,019 6,408 95,714 102,122
Stock options issued to
directors (NOTE 5). . . . . . . . . . . . -- -- 62,100 -- -- 62,100
Stock options exercised. . . . . . . . . . 20,430 8,172 109,855 -- -- 118,027
Unearned stock compensation
amortization. . . . . . . . . . . . . . . -- -- -- 176,832 -- 176,832
Net loss . . . . . . . . . . . . . . . . . -- -- -- -- (722,739) (722,739)
----------- ---------- ----------- ------------ ------------- -----------
BALANCE, JULY 31, 1994 . . . . . . . . . . 8,456,252 3,382,501 7,180,089 (118,836) (4,760,049) 5,683,705
Employee stock purchase plan . . . . . . . 10,932 4,373 65,319 -- -- 69,692
Stock options issued to directors. . . . . 44,849 -- -- 44,849
Stock options exercised. . . . . . . . . . 55,499 22,199 92,925 -- -- 115,124
Stock grants . . . . . . . . . . . . . . . 11,628 4,651 59,303 -- -- 63,954
Stock offering . . . . . . . . . . . . . . 1,402,500 561,000 6,592,109 -- -- 7,153,109
Unearned stock compenstation
amortization. . . . . . . . . . . . . . . -- -- -- 55,617 -- 55,617
Net loss . . . . . . . . . . . . . . . . . -- -- -- -- (2,625,042) (2,625,042)
----------- ---------- ----------- ------------ ------------- -----------
BALANCE, APRIL 30, 1995. . . . . . . . . . $9,936,811 $3,974,724 $14,034,594 $ (63,219) $ (7,385,091) $10,561,008
----------- ---------- ----------- ------------ ------------- -----------
----------- ---------- ----------- ------------ ------------- -----------
(unaudited)
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
POSSIS MEDICAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JULY 31, APRIL 30,
------------------------------------- -----------------------------
1992 1993 1994 1994 1995
--------- ---------- ---------- ---------- -----------
(UNAUDITED)
OPERATING ACTIVITIES:
<S> <C> <C> <C> <C> <C>
Net income (loss). . . . . . . . . . . . . . . . . . . . $ 624,133 $(1,511,664) $ (722,739) $ (300,868) $(2,625,042)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Gain on sale of discontinued operations. . . . . . . (66,517) -- (68,123) (33,238) --
(Gain) loss on disposal of assets. . . . . . . . . . (47) (43,936) 245 -- 5,631
Gain on sale of lead business. . . . . . . . . . . . -- -- (647,816) (647,816) --
Gain on sale of real estate. . . . . . . . . . . . . -- -- (957,573) (957,573) --
Depreciation . . . . . . . . . . . . . . . . . . . . 498,694 509,891 353,584 307,846 265,839
Amortization of goodwill . . . . . . . . . . . . . . 72,000 72,000 72,000 54,000 54,000
Stock compensation . . . . . . . . . . . . . . . . . -- 165,206 238,930 203,279 55,617
(Increase) decrease in receivables . . . . . . . . . (1,203,277) (443,618) 1,537,092 2,735,172 1,985,796
(Increase) decrease in inventories . . . . . . . . . 1,488,086 (426,270) (18,722) 168,966 64,753
(Increase) decrease in other current assets. . . . . (132,686) (16,023) (159,734) (2,206) 82,871
Increase (decrease) in trade accounts
payable . . . . . . . . . . . . . . . . . . . . . (520,702) 226,483 (457,786) (502,544) 7,925
Increase (decrease) in accrued and other
current liabilities.. . . . . . . . . . . . . . . 375,473 1,150,138 (367,340) (919,213) (958,135)
Other. . . . . . . . . . . . . . . . . . . . . . . . (310,258) (172,121) -- (104,997) --
--------- ---------- ---------- ---------- -----------
Net cash provided by (used in) operating
activities. . . . . . . . . . . . . . . . . . . . 824,899 (489,914) (1,197,982) 808 (1,060,745)
INVESTING ACTIVITIES:
Proceeds from sale of discontinued operations. . . . . . 787,500 150,000 1,111,792 1,262,305 337,179
Additions to plant and equipment . . . . . . . . . . . . (622,962) (578,576) (553,506) (495,714) (488,857)
Proceeds from sale of fixed assets . . . . . . . . . . . 886 85,000 430 -- 2,728
Proceeds upon disposal of real estate. . . . . . . . . . -- -- 1,200,000 1,200,000 --
Proceeds upon sale of lead business. . . . . . . . . . . -- -- 1,100,000 1,100,000 --
Purchase of marketable securities. . . . . . . . . . . . -- -- -- -- (9,553,113)
Proceeds from sale/maturity of marketable
securities. . . . . . . . . . . . . . . . . . . . . . -- -- -- -- 7,245,467
--------- ---------- ---------- ---------- -----------
Net cash provided by (used in) investing
activities. . . . . . . . . . . . . . . . . . . . . . 165,424 (343,576) 2,858,716 3,066,591 (2,456,596)
FINANCING ACTIVITIES:
Proceeds from notes payable. . . . . . . . . . . . . . . 100,920 -- 143,928 143,928 115,673
Repayment of long-term debt. . . . . . . . . . . . . . . (26,689) (31,091) (803,136) (783,179) (574,925)
Increase (decrease) in bank overdrafts . . . . . . . . . (336,574) -- -- -- --
Proceeds from issuance of stock and
exercise of options and warrants. . . . . . . . . . . 220,336 485,099 198,988 177,738 7,401,879
--------- ---------- ---------- ---------- -----------
Net cash provided by (used in) financing
activities. . . . . . . . . . . . . . . . . . . . . . (42,007) 454,008 (460,220) (461,513) 6,942,627
--------- ---------- ---------- ---------- -----------
Increase (decrease) in cash and cash
equivalents . . . . . . . . . . . . . . . . . . . . . 948,316 (379,482) 1,200,514 2,605,886 3,425,286
Cash and cash equivalents at beginning of
period. . . . . . . . . . . . . . . . . . . . . . . . -- 948,316 568,834 568,834 1,769,348
--------- ---------- ---------- ---------- -----------
Cash and cash equivalents at end of period . . . . . . . $ 948,316 $ 568,834 $1,769,348 $3,174,720 $ 5,194,634
--------- ---------- ---------- ---------- -----------
--------- ---------- ---------- ---------- -----------
Supplemental cash flow disclosure:
Notes receivable taken in conjunction with the
sale of discontinued operations (NOTE 2). . . . . . . $ 750,000 $ -- $ -- $ -- $ --
Cash paid for interest . . . . . . . . . . . . . . . . . 135,113 131,408 130,313 106,757 19,733
Inventory transferred to fixed assets. . . . . . . . . . 22,060 -- 21,298 -- 40,570
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
POSSIS MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION The accompanying consolidated financial statements
include the accounts of Possis Medical, Inc. (the Company, formerly Possis
Corporation) and its wholly-owned subsidiaries, Possis Holdings, Inc; JEI
Liquidation, Inc. (Jet Edge) (NOTE 2) and Possis Medical Europe B.V., after
elimination of intercompany accounts and transactions.
Possis Medical, Inc. is a developer, manufacturer and marketer of medical
devices. The Company was incorporated in 1956 and has operated several
businesses over the last 39 years. In 1990 the Board of Directors decided to
focus on medical products, which led to the sale of the Technical Services
division in 1991 and the Jet Edge industrial waterjet business in 1994. In March
1994 the Company sold its OEM pacemaker leads business because it anticipated
that revenues from its pacemaker leads business would decline due to a pacemaker
lead technology shift. The name of the Company was changed to Possis Medical,
Inc. in 1993. In January 1995, the Company established a 100% owned subsidiary
(Possis Medical Europe B.V.) in The Netherlands to support international product
distribution.
UNAUDITED FINANCIAL STATEMENTS The consolidated balance sheet as of April
30, 1995, the consolidated statements of operations and cash flows for the nine
months ended April 30, 1994 and 1995, and the consolidated statements of
shareholders' equity for the nine months ended April 30, 1995 and related
information contained in these notes have been prepared by management of the
Company without audit. In the opinion of management, all accruals (consisting
only of normal recurring accruals) which are necessary for a fair presentation
of financial position and results of operations for such periods have been made.
Results for an interim period should not be considered as indicative of results
for a full year.
INVENTORIES Inventories are stated at the lower of cost (on the first-in,
first-out basis) or market.
PROPERTY, DEPRECIATION, AND AMORTIZATION Property is carried at cost and
depreciated using the straight-line method over estimated useful lives of the
assets at the following annual rates:
<TABLE>
<S> <C>
Building................................................... 3-10%
Machinery and equipment.................................... 10-25%
</TABLE>
GOODWILL Goodwill is being amortized on a straight-line basis over 13 1/2
years, based on the remaining life of patent rights related to the
Perma-Flow-Registered Trademark- graft acquired in 1988. Accumulated
amortization at July 31, 1994 and April 30, 1995 was $429,500 and $483,500,
respectively.
INCOME TAXES The Company changed its method of accounting for income taxes
in 1992 (SEE NOTE 4). Certain items are accounted for tax purposes in a
different period than for financial statement purposes.
REVENUE RECOGNITION Revenue associated with medical products sales is
recognized when products are shipped. Heart valve patent revenue and royalty
payments related to the lead business sale are accrued based on estimated sales
of the companies making the royalty payments.
EARNINGS PER SHARE The Company's outstanding stock options and stock
warrants were considered in the computation of earnings per share except in
1993, 1994 and the nine months ended April 30, 1994 and 1995, when the impact
would have been antidilutive because of the net loss. The difference between
primary and fully diluted earnings per share was not significant in any period.
CASH EQUIVALENTS The Company considers highly liquid investments with
original maturities of three months or less to be cash equivalents.
F-7
<PAGE>
POSSIS MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARKETABLE SECURITIES Effective August 1, 1994 the Company adopted
Statement of Financial Accounting Standard No. 115, Accounting for Certain
Investments in Debt and Equity Securities. All Company securities as of April
30, 1995 are classified as available-for-sale and carried at fair value. There
was no material difference between amortized cost and fair value for the
marketable securities at adoption or at April 30, 1995. Company operating cash
investment objectives are principally security and a reasonable return. Fiscal
1995 investments include U.S. Treasury securities, existing or former federal
agency securities and high quality commercial paper, all with maturities of less
than a year.
2. DISCONTINUED OPERATIONS
WATERJET EQUIPMENT In April 1993, the Company decided to discontinue its
waterjet equipment business (Jet Edge). A reserve of $850,000 for the estimated
loss on disposal of Jet Edge was established at July 31, 1993. The business was
sold on January 28, 1994 to TC/ American Monorail, Inc. Under the terms of the
sale, the Company received $963,000 for certain inventory, fixed assets, and
intangible assets. The sale resulted in a book gain of approximately $68,000.
The Company retained all liabilities and the right to all proceeds from the
collection of the accounts receivable.
A summary of the assets and liabilities of the waterjet equipment business
at July 31, 1993 and 1994 is as follows:
<TABLE>
<CAPTION>
JULY 31,
--------------------------
1993 1994
------------- -----------
<S> <C> <C>
ASSETS
Receivables, net...................................................................... $ 1,266,000 $ 215,160
Inventories:
Raw materials....................................................................... 1,056,000 --
Work-in-process..................................................................... 494,000 --
Finished goods...................................................................... 311,000 --
Machinery and equipment, net.......................................................... 218,000 --
------------- -----------
Total assets...................................................................... 3,345,000 215,160
LIABILITIES
Trade accounts payable................................................................ 213,000 --
Accrued liabilities................................................................... 336,000 30,000
Reserve for loss on disposal of segment............................................... 850,000 --
------------- -----------
Total liabilities................................................................. 1,399,000 30,000
Net............................................................................... $ 1,946,000 $ 185,160
------------- -----------
------------- -----------
</TABLE>
TECHNICAL SERVICES On September 29, 1991, the Company sold its Technical
Services division to Advance Technical Services, Inc. (ATS) which is 51% owned
by a former officer of the Company. Under the terms of the sale, the Company
received approximately $550,000 in cash and a note of $250,000 for the net
assets of the business and realized a gain of $66,517. In addition, the Company
will receive a percentage of ATS's annual revenues in excess of a specified
amount for a five-year period, up to a maximum of $2,000,000. These amounts
are recognized as income when received or when collection is reasonably
assured. As part of the sale, the Company also received $200,000 in cash and
a note of $500,000 for an agreement not to compete for a five-year period;
income from this agreement is recognized ratably over the period of the
agreement.
F-8
<PAGE>
POSSIS MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Notes receivable related to the Technical Services division at July 31, 1993
and 1994 and April 30, 1995 are as follows:
<TABLE>
<CAPTION>
JULY 31,
-------------------------- APRIL 30,
1993 1994 1995
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
9% note receivable, due in 20 quarterly installments of principal and
interest through October 1, 1996....................................... $ 162,500 $ 112,500 $ 75,000
Note receivable, no interest, principal due in five equal annual
installments on October 1, 1992 through October 1, 1996................ 400,000 300,000 200,000
Discount on noninterest bearing note (amortized over the term of the
note).................................................................. (82,593) (56,511) (36,949)
------------ ------------ ------------
479,907 355,989 238,051
Less current portion.................................................... (123,918) (123,918) (123,918)
------------ ------------ ------------
$ 355,989 $ 232,071 $ 114,133
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
OPERATING RESULTS FROM DISCONTINUED OPERATIONS Operating results of the
waterjet equipment business and Technical Services division were as follows for
the years ended July 31, 1992, 1993, and 1994 and the nine months ended April
30, 1995:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31, NINE MONTHS
-------------------------------------------- ENDED APRIL
1992 1993 1994 30, 1995
------------- -------------- ------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Sales................................................ $ 7,611,843 $ 5,525,106 $ 3,400,170 $ --
------------- -------------- ------------- ------------
------------- -------------- ------------- ------------
Income (loss) from operations........................ $ (48,812) $ (221,923) $ 142,259 --
Amortization of not-to-compete agreement............. 94,930 113,916 113,916 85,437
Percentage of ATS revenues........................... 60,300 188,279 199,206 150,290
------------- -------------- ------------- ------------
Income before income taxes........................... 106,418 80,272 455,381 --
Income taxes......................................... (20,000) -- -- --
------------- -------------- ------------- ------------
86,418 80,272 455,381 235,727
Gain or estimated (loss) on disposal, including, for
Jet Edge, provision for estimated losses from
measurement date to date of disposal................ 66,517 (1,411,156) 68,123 79,806
------------- -------------- ------------- ------------
Net income (loss).................................... $ 152,935 $ (1,330,884) $ 523,504 $ 315,533
------------- -------------- ------------- ------------
------------- -------------- ------------- ------------
</TABLE>
Income tax expense consists of federal and Minnesota alternative minimum
taxes. No additional income tax expense or benefit is recognized due to
nonrecognizable benefits of net operating loss carryforwards in 1993, 1994 and
1995 and the utilization of net operating loss carryforwards in 1992.
F-9
<PAGE>
POSSIS MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. LONG-TERM DEBT
Long-term debt at July 31, 1993 and 1994 and April 30, 1995 is as follows:
<TABLE>
<CAPTION>
JULY 31,
---------------------------- APRIL 30,
1993 1994 1995
------------- ------------- -----------
(UNAUDITED)
<S> <C> <C> <C>
11% mortgage payable, principal due in full in May 1995, interest only
payable quarterly, collateralized by the Company's land, buildings,
equipment and inventory.............................................. $ 1,000,000 $ 500,000 $ --
9% note payable, principal due in full in May 1995, interest only
payable quarterly, collateralized by the Company's equipment......... 250,000 -- --
9.75% note payable, principal and interest payable monthly, final
payment due in April 1995, collateralized by the Company's
equipment............................................................ 63,944 28,740 --
8.25% note payable, principal and interest payable monthly, final
payment due in February 1997, collateralized by the Company's
equipment............................................................ -- 125,996 92,131
9.90% note payable, principal and interest payable monthly, final
payment due in November 1997, collateralized by the Company's
equipment............................................................ -- -- 65,930
9.75% note payable, principal and interest payable monthly, final
payment due in November 1998, collateralized by the Company's
equipment............................................................ -- -- 19,002
10.15% note payable, principal and interest payable monthly, final
payment due in December 1998, collateralized by the Company's
equipment............................................................ -- -- 18,422
------------- ------------- -----------
1,313,944 654,366 195,485
Less current maturities............................................... (35,204) (574,366) (81,103)
------------- ------------- -----------
$ 1,278,740 $ 80,370 $ 114,382
------------- ------------- -----------
------------- ------------- -----------
</TABLE>
Maturities of debt for the three months ending July 31, 1995 and the
twelve-month periods ending July 31, 1996, 1997, 1998, and 1999 are $19,605,
$82,925, $67,686, $20,756, and $4,513, respectively.
F-10
<PAGE>
POSSIS MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES
In 1992, the Company adopted Statement of Financial Accounting Standard No.
109 (SFAS 109), "Accounting for Income Taxes." There was no cumulative effect of
this change on the August 1, 1991 retained deficit or on net income reported in
the 1992 consolidated statements of income.
At July 31, 1994, the Company has net operating loss carryforwards of
approximately $4,200,000 for financial reporting purposes; $3,950,000 for
federal tax purposes, which expire in 2002 through 2009; and $1,860,000 for
Minnesota tax purposes, which expire in 2002 through 2009.
In addition, at July 31, 1994 the Company has approximately $950,000 in
federal tax credits, substantially all of which is a research and development
tax credit which expire from 1999 through 2009, and $77,000 AMT credit which
does not expire.
Deferred tax assets and liabilities as of July 31 are described in the table
below. The Company has not recorded any net deferred tax assets due to the
uncertainty of realizing such assets.
<TABLE>
<CAPTION>
1993 1994
-------------- --------------
<S> <C> <C>
Current assets (liabilities):
Allowance for doubtful accounts................................................... $ 124,000 $ 48,000
Inventory......................................................................... 701,000 340,000
Accrued vacation.................................................................. 54,000 50,000
Heart valve patent payments....................................................... (758,000) (750,000)
Other............................................................................. (32,000) 48,000
-------------- --------------
89,000 (264,000)
Less valuation allowance.......................................................... (89,000) --
-------------- --------------
Net............................................................................... $ -- $ (264,000)
-------------- --------------
-------------- --------------
Long-term assets:
Net operating losses.............................................................. $ 1,540,000 $ 1,680,000
Amortization of patents........................................................... 112,000 117,000
Depreciation...................................................................... 45,000 (4,000)
-------------- --------------
1,697,000 1,793,000
Less valuation allowance.......................................................... (1,697,000) (1,529,000)
-------------- --------------
Net............................................................................... $ -- $ 264,000
-------------- --------------
-------------- --------------
</TABLE>
F-11
<PAGE>
POSSIS MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The effective income tax rate differed from the U.S. federal statutory rate
for each of the three years ended July 31, as follows:
<TABLE>
<CAPTION>
1992 1993 1994
------------ ---------- ------------
<S> <C> <C> <C>
Tax provision (credit) on income (loss) from continuing operations
computed at statutory rate of 34%....................................... $ 160,207 $ (61,465) $ (423,640)
Increases (decreases) in tax due to:
Utilization of net operating loss carryforwards........................ (160,207) -- --
Nonrecognizable benefits of net operating loss carryforwards........... -- 61,465 423,640
------------ ---------- ------------
Total income tax expense-continuing operations....................... $ -- $ -- $ --
------------ ---------- ------------
------------ ---------- ------------
</TABLE>
5. COMMON STOCK
STOCK OPTIONS Certain officers, directors, key employees, and certain other
individuals may purchase common stock of the Company under stock option plans.
In 1992, the Company established the 1992 Stock Compensation Plan (the "1992
Plan"), which replaces the 1983 and 1985 plans. Although the 1983 and 1985 plans
remain in effect for options outstanding, no new options may be granted under
these plans.
The 1992 Plan authorizes awards of the following types of equity-based
compensation: Incentive Stock Options, Nonqualified Stock Options, Stock
Appreciation Rights, Restricted Stock, Deferred Stock, Annual Grants of Stock
Options to Directors, Stock Options to Directors in Lieu of Compensation for
Services rendered as Directors, and Other Stock-Based Awards valued in whole or
in part by reference to stock of the Company. No Incentive Stock Options may be
granted on or after August 1, 2002, nor shall such options remain valid beyond
ten years following the date of grant.
The total number of shares of stock reserved and available for distribution
under the 1992 Plan was 600,000 shares, a maximum of 350,000 of which may be
issued as Incentive Stock Options. The total number of shares reserved and
available for distribution under the plan shall be increased annually on January
2 by 1% of the number of shares of the Company's common stock outstanding at
July 31 of each prior fiscal year. At April 30, 1995, there were 447,791 shares
available for grant under the 1992 Plan.
In 1983, the Company established an Incentive Stock Option Plan. A maximum
of 545,000 shares has been authorized under the plan at an option price of at
least 100% of the fair market value at date of grant. The options become
exercisable at date of grant, except for those options granted after March 17,
1985, which vest ratably over a three or four-year period. All options expire
ten years from date of grant.
F-12
<PAGE>
POSSIS MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In 1985, the Company established a Nonqualified Stock Option Plan under
which a maximum of 200,000 shares has been authorized to be granted at a price
of at least 100% of the fair market value at date of grant. The options vest
ratably over a three or four year period and expire not more than ten years from
date of grant.
In 1989, as part of an exchange of the Company's common stock for a 13%
minority interest in Possis Medical, Inc., the Company granted to the former
minority owner of Possis Medical, Inc. a four-year option to purchase 12,500
shares at an exercise price of $3.00 per share. In 1992, these options were
exercised.
In 1991, the Company granted 12,750 noncompensatory options exercisable at
$7.125 per share to Z. C. Possis, former Chief Executive Officer of the Company.
These options vested ratably over a three-year period and expire not more than
ten years from date of grant. At April 30, 1995, none of these options had been
exercised.
In fiscal 1991, 1993 and 1994 and through April 30, 1995, the Company
granted 7,015, 5,219, 16,560, and 11,574 compensatory options, respectively, to
its outside directors in lieu of cash payments for directors' fees. The exercise
price of these options range from $3.75 to $5.125. The 1993, 1994 and 1995
options were granted under the 1992 Plan.
A summary of changes in outstanding options for each of the three years
ended July 31, 1992, 1993 and 1994, and the nine months ended April 30, 1995
follows:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31, NINE MONTHS
------------------------------------------------- ENDED
1992 1993 1994 APRIL 30, 1995
--------------- --------------- --------------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Shares under option at beginning of year..... 570,699 610,909 751,835 870,478
Options granted -- 1983 plan................. 103,500 -- -- --
Options granted -- 1985 plan................. 15,000 -- -- --
Options granted -- 1992 plan................. -- 149,219 163,560 33,374
Options granted -- other..................... -- -- -- --
Options exercised............................ (35,456) (5,793) (23,417) (104,250)
Options canceled............................. (42,834) (2,500) (21,500) (33,500)
--------------- --------------- --------------- ---------------
Shares under option at end of year......... 610,909 751,835 870,478 766,102
Shares exercisable at end of year.......... 349,327 470,710 546,603 470,903
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Exercise price of options granted............ $ 8.625-9.50 $ 5.125-10.25 $ 3.75-7.50 $ 3.875-7.75
Exercise price of options exercised.......... $ 2.75-5.625 $ 2.75-4.87 $ 2.75-8.62 $ 2.625-7.125
Market price of options exercised............ $ 7.625-10.50 $ 7.00-10.00 $ 5.71-10.25 $ 5.75-8.625
Aggregate market value of options
exercised................................... $ 328,123 $ 48,022 $ 53,587 $ 696,938
</TABLE>
In 1993, the Company granted 37,000 shares of restricted stock to employees
under the terms of the 1992 Plan, which vest 7,400 shares each on December 2,
1993 and June 3, 1994 through 1997. Approximately $128,000 was accrued to pay
the estimated withholding taxes on those shares as management believes that the
employees will elect to receive fewer shares in lieu of paying the withholding
taxes. In case of termination of the employees, with the exception of those
shares that vested December 2, 1993, unvested shares are forfeited. Unearned
compensation of $342,250 was recorded at the date of grant and will be
recognized over the vesting period. In addition, the Company issued 5,717 shares
of deferred stock under the 1992 Plan which were fully vested at July 31, 1993.
In fiscal 1993
F-13
<PAGE>
POSSIS MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
and 1994, and the nine months ended April 30, 1995, total
compensation expense of $138,459, $176,832 and $55,616, respectively, was
recognized on these shares.
STOCK WARRANTS Stock purchase warrants held by unrelated parties
representing the right to purchase an aggregate of 26,400 shares of the
Company's common stock at $8.52 a share were outstanding at July 31, 1994 and
April 30, 1995. These warrants do not have an expiration date and must be
exercised if the market value of the Company's common stock exceeds $22.73 per
share for a specified period.
On September 15, 1994, warrants to purchase 120,000 shares of common stock
at $6.90 per share were issued to John G. Kinnard and Company, Incorporated in
conjunction with the Company's September 1994 public offering. As of April 30,
1995, all warrants were outstanding.
EMPLOYEE STOCK PURCHASE PLAN The Employee Stock Purchase Plan, effective
January 1, 1991, enables eligible employees, through payroll deduction, to
purchase the Company's common stock at the end of each calendar year. The
purchase price is the lower of 85% of the fair market value of the stock on the
first or last day of the calendar year. The Company issued 700 shares in 1991,
25,640 shares in 1992, 14,996 shares in 1993, 16,019 shares in 1994 and 10,932
shares through April 30, 1995.
6. RELATED-PARTY TRANSACTIONS
The Company and St. Jude Medical, Inc. (St. Jude), an unrelated corporation,
entered into an agreement under which the Company transferred to St. Jude its
entire right, title, and interest in the patents relating to a prosthetic heart
valve developed by Z. C. Possis, former Chief Executive Officer of the Company,
on his own time and without consideration. Under the terms of the agreement, St.
Jude remitted royalty payments to the Company for sales through March 14, 1995
equal to 2% of St. Jude's total net sales of heart valves in excess of
$4,052,000 per year. The Company has agreed to remit 25% of such payments to a
group of individuals including a shareholder of the Company, three relatives of
Z. C. Possis, and four unrelated persons, and 11.25% (7.5% through February
1992) to Z. C. Possis or his estate. As of July 31, 1993 and 1994 and April 30,
1995, $1,076,987, $1,062,182 and $342,711, respectively, has been accrued as a
liability for such payments.
7. 401(K) PLAN
The Company has an employees' savings and profit sharing plan for all
qualified employees who have completed one year of service. Company
contributions are made at the discretion of the Board of Directors subject to
the maximum amount allowed under the Internal Revenue Code. Contributions for
the years ended July 31, 1992, 1993 and 1994 and the nine months ended April 30,
1994 and 1995 were $90,130, $109,934, $98,417, $87,061 and $55,948,
respectively.
8. LEASE COMMITMENTS
The Company's medical products operation is conducted from a leased facility
under an operating lease which expires in August 1996. The Company is currently
negotiating an extension of its current lease. Rental payments under the lease
are guaranteed by a letter of credit in the amount of $136,000 at July 31, 1994
and $68,000 at April 30, 1995. Rental expense charged against earnings was
$292,311 in 1992, $325,186 in 1993, $340,342 in 1994, and $283,074 and $288,585
for the nine months ended April 30, 1994 and 1995, respectively. The future
minimum annual rentals on this noncancelable operating lease at July 31, 1994
are $391,000, $409,000, and $35,000 in fiscal 1995 through 1997, including
estimated additional operating costs.
F-14
<PAGE>
POSSIS MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. RESEARCH AND DEVELOPMENT
The Company has had agreements for joint funding of certain research and
development costs related to the Company's products and projects. In connection
therewith, the Company recorded medical products revenue of approximately
$91,000, $181,000, and $576,000 in 1992, 1993, and 1994, respectively, in
exchange for the rights to the use of certain technology and products.
Additionally, the Company received reimbursement of research and development
costs (which is netted against expense) of $657,000 in 1992.
10. SALES TO MAJOR CUSTOMERS
The Company's continuing operations are in one segment, the design and
production of cardiovascular-related devices for use in health care. In 1992,
sales to three customers amounted to 62%, 15%, and 14% of medical product
revenue. In 1993, sales to one customer amounted to 83% of medical product
revenue, and in 1994 sales to two customers amounted to 70% and 14% of medical
product revenue. In the nine months ended April 30, 1994 and 1995, sales to two
customers amounted to 69% and 15% and 68% and 14% of medical products revenue,
respectively.
11. SALE OF LEAD BUSINESS
On March 18, 1994, the Company sold the assets of the pacemaker leads
product line to Innovex, Inc. The Company received $1,100,000 in cash in
exchange for $451,786 in inventories and fixed assets, recording a gain of
$647,816. In addition, the Company received a 75% royalty on gross sales of
leads and related services for a twelve-month period. The pacemaker leads was a
product line and component of the medical products segment. Since other
components of this segment (research and development activities and initial
production of new products) are continuing, the sale of the leads business has
not been reported as a discontinued operation.
12. SALE OF REAL ESTATE
In March 1994, the Company closed on the sale of its land, buildings and
leasehold improvements associated with the Jet Edge business to TC/American
Monorail, Inc. The property sold for $1,200,000, and the Company recorded a gain
on the sale of $957,573. All Company operations are now conducted at the leased
facility in Plymouth, Minnesota.
13. PRODUCT SUPPLY AND DISTRIBUTION AGREEMENT
On December 30, 1994, the Company executed a Supply and Distribution
Agreement with Bard Vascular Systems Division, C.R. Bard, Inc. ("Bard"). The
Agreement granted to Bard exclusive worldwide sales and marketing rights to the
Possis Perma-Seal Dialysis Access Graft for an initial 10-year term, renewable
for the life of applicable patents. The Agreement called for a payment to the
Company of $250,000 upon signing and up to an additional $2,750,000 upon
achievement of specified regulatory and commercialization milestones. Through
April 30, 1995, the Company received $750,000 in such payments.
F-15
<PAGE>
GLOSSARY
<TABLE>
<S> <C>
AUTOGENOUS GRAFT........... a graft using a patient's own vessels or organs.
A-V ACCESS................. arterial to venous access.
CORONARY PERFUSION......... the passage of fluid through the arteries of the heart.
CRYOPRESERVED.............. preserved by freezing at a very low temperature.
ENDOVASCULAR GRAFT......... a graft designed to be implanted within an existing blood
vessel.
FLUOROSCOPY................ examination by means of a device using radiation.
ISCHEMIA................... deficiency of blood in a conduit due to functional constriction
or actual obstruction.
LYTIC THERAPY.............. the use of thrombolytic drugs as a treatment for the removal of
blood clot ("thrombolysis").
MORBIDITY.................. diseased condition or state.
MYOCARDIAL
INFARCTION-ACUTE.......... gross tissue death of the heart muscle as a result of
interruption of the blood supply to the area.
NEPHROLOGIST............... an expert in the scientific study of the kidney and the
treatment of kidney disease.
PATENCY; PATENT............ the condition of being wide open, i.e. free flowing blood
through a conduit.
PERCUTANEOUS TRANSLUMINAL
ANGIOPLASTY (PTA)......... dilation of a blood vessel by means of a balloon catheter
inserted through the skin and into the blood vessel, where the
balloon is used to flatten plaque against the wall of the blood
vessel.
PRE-CLINICAL DEVELOPMENT... early stage of medical device development preceding clinical
trials; often includes animal model testing.
PULMONARY EMBOLISM. the sudden closure of the pulmonary artery or one of its
branches by a clot or foreign material.
RENAL FAILURE.............. the inability of the kidneys to clean the blood under normal
conditions, or the inability to retain electrolytes under
normal intake.
SAPHENOUS.................. pertaining to either of the two large superficial veins of the
leg.
STENT...................... a device used to provide support for tubular structures, such
as arteries and veins.
THROMBECTOMY............... removal of a clot in a blood vessel.
UNSTABLE ANGINA............ serious, unpredictable spasmodic, choking or suffocative pain
associated with coronary distress.
VASCULAR ACCESS FAILURE.... inability of A-V access graft to allow the flow of blood to the
dialysis machine.
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
INFORMATION OR MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, THE SELLING SHAREHOLDER OR THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Available Information............................. 1
Incorporation of Certain Documents by Reference... 1
Prospectus Summary................................ 3
Risk Factors...................................... 5
Recent Developments............................... 9
Use of Proceeds................................... 9
Dilution.......................................... 9
Price Range of Common Stock....................... 10
Capitalization.................................... 10
Dividend Policy................................... 10
Selected Consolidated Financial Data.............. 11
Management's Discussion and Analysis of Financial
Condition and Results of Operations.............. 12
Business.......................................... 15
Management........................................ 24
Principal and Selling Shareholders................ 26
Description of Common Stock....................... 27
Underwriting...................................... 28
Legal Matters..................................... 29
Experts........................................... 29
Index to Consolidated Financial Statements........ F-1
GLOSSARY INSIDE BACK COVER
</TABLE>
1,910,000 SHARES
LOGO
COMMON STOCK
---------------------
PROSPECTUS
---------------------
DAIN BOSWORTH
INCORPORATED
J OHN G. KINNARD AND COMPANY,
INCORPORATED
, 1995
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth estimated expenses payable by the Registrant
in connection with the offering and sale of the Common Stock being registered
hereunder, other than underwriting discounts and commissions. None of the
expenses listed below will be paid by the Selling Shareholders.
<TABLE>
<S> <C>
SEC registration fee............................................. $ 10,131
NASD filing fee.................................................. 3,438
Nasdaq additional listing fee.................................... 17,500
*Accounting fees and expenses.................................... 25,000
*Legal fees and expenses......................................... 55,000
*Blue sky fees and expenses...................................... 5,000
*Printing........................................................ 80,000
*Transfer agent and registrar fees............................... 5,000
*Miscellaneous expenses.......................................... 8,931
---------
Total........................................................ $ 210,000
---------
---------
<FN>
- ------------------------
*All expenses except SEC registration and NASD filing and listing fees are
estimated.
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Unless prohibited in a corporation's articles or bylaws, Minnesota Statutes
302A.521 requires indemnification of officers, directors, employees and agents,
under certain circumstances, against judgments, penalties, fees, settlements and
reasonable expenses (including attorney's fees and disbursements) incurred by
such person in connection with a threatened or pending proceeding with respect
to the acts or omissions of such person in his or her official capacity. The
general effect of Minnesota Statutes 302A.521 is to reimburse (or pay on behalf
of) directors and officers of the Registrant any personal liability that may be
imposed for certain acts performed in their capacity as directors and officers
of the Registrant, except where such persons have not acted in good faith. The
officers and directors of the Registrant have entered into indemnification
agreements with the Registrant.
The Bylaws of the Registrant provide for such indemnification to the maximum
extent permitted by Minnesota Statutes. The Registrant has purchased insurance
covering the liability of its directors and officers.
Under Section 8 of the Underwriting Agreement filed as Exhibit 1 hereto, the
Underwriters and the Selling Shareholders agree to indemnify, under certain
conditions, the Registrant, its directors, certain of its officers and persons
who control the Registrant within the meaning of the Securities Act of 1933, as
amended, against certain liabilities.
II-1
<PAGE>
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------
<C> <S>
1 Form of Underwriting Agreement
4.1 Articles of Incorporation of the Registrant as amended and restated
to date (i)
4.2 Bylaws of the Registrant as amended and restated to date (ii)
5 Opinion of Dorsey & Whitney P.L.L.P.
23.1 Consent of Deloitte & Touche LLP, Independent Public Accountants
23.2 Consent of Dorsey & Whitney P.L.L.P. (included in Exhibit 5)
24 Powers of Attorney (included on signature page)
<FN>
- ------------------------
(i) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the year ended July 31, 1994, filed with the Commission on October 28,
1994.
(ii) Incorporated by reference to Amendment No. 1 to the Registrant's
Registration Statement on Form S-2, filed with the Commission on August 9,
1994.
</TABLE>
ITEM 17. UNDERTAKINGS
A. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is
therefore unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
B. The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement on Form S-3 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Minneapolis, State of Minnesota, on August 21,
1995.
POSSIS MEDICAL, INC.
By: /s/ ROBERT G. DUTCHER
-----------------------------------
Robert G. Dutcher
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that each person whose signature appears below
hereby constitutes and appoints Robert G. Dutcher and Irving R. Colacci, and
each of them, his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement on Form S-3 and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting upon said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or 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 that said attorneys-in-fact and agents, or any of
them, or his or their substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-3 has been signed below on August 21, 1995 by
the following persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- -------------------------------------------------- ----------------------------
<C> <S>
President, Chief Executive
/s/ ROBERT G. DUTCHER Officer and Director
-------------------------------------------- (principal executive
Robert G. Dutcher officer)
/s/ RUSSEL E. CARLSON Chief Financial Officer
-------------------------------------------- (principal financial and
Russel E. Carlson accounting officer)
/s/ DEAN BELBAS
-------------------------------------------- Director
Dean Belbas
/s/ SEYMOUR J. MANSFIELD
-------------------------------------------- Director
Seymour J. Mansfield
/s/ DEMETRE M. NICOLOFF, M.D.
-------------------------------------------- Director
Demetre M. Nicoloff, M.D.
/s/ ANN M. POSSIS
-------------------------------------------- Director
Ann M. Possis
/s/ JOE A. WALTERS
-------------------------------------------- Director
Joe A. Walters
/s/ DONALD C. WEGMILLER
-------------------------------------------- Director
Donald C. Wegmiller
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
NUMBER DESCRIPTION PAGE NUMBER
- ----------- ------------------------------------------------------------------------------------------ -----------------
<C> <S> <C>
1 Form of Underwriting Agreement............................................................
5 Opinion of Dorsey & Whitney P.L.L.P.......................................................
23.1 Consent of Deloitte & Touche LLP, Independent Public Accountant...........................
</TABLE>
<PAGE>
1,910,000 SHARES
POSSIS MEDICAL, INC.
COMMON STOCK
PAR VALUE $.40 PER SHARE
UNDERWRITING AGREEMENT
----------------------
_________, 1995
Dain Bosworth Incorporated
John G. Kinnard and Company, Incorporated
As Representatives of the several Underwriters
c/o Dain Bosworth Incorporated
Dain Bosworth Plaza
60 South Sixth Street
Minneapolis, Minnesota 55402
Ladies and Gentlemen:
Possis Medical, Inc., a Minnesota corporation (the "Company"), and the
shareholders of the Company named in Schedule B hereto (the "Selling
Shareholders") propose, subject to the terms and conditions stated herein, to
issue and sell, or to sell, as the case may be, to the several Underwriters
named in Schedule A hereto (the "Underwriters"), for which you are acting as
representatives (the "Representatives"), an aggregate of 1,910,000 shares (the
"Firm Shares") of Common Stock, par value $.40 per share, of the Company (the
"Common Stock"), including 1,750,000 shares to be sold by the Company and
160,000 shares to be sold by the Selling Shareholders. The Company also
proposes, subject to the terms and conditions stated herein, to issue and sell,
or to sell, as the case may be, to the Underwriters, at their election, up to an
aggregate of 286,500 shares of Common Stock (the "Option Shares"). The Firm
Shares and the Option Shares are herein collectively called the "Shares."
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (File No. 33- ) and a
related preliminary prospectus for the registration of the Shares under the
Securities Act of 1933, as amended (the "Act"). The registration statement, as
amended at the time it was declared effective, including the information (if
any) deemed to be part thereof pursuant to Rule 430A under the Act and all
documents incorporated by reference in the prospectus contained therein at such
time is herein referred to as the "Registration Statement." The form of
prospectus first filed by the Company with the Commission pursuant to Rules
424(b) and 430A under the Act is referred to herein as the "Prospectus." Each
preliminary prospectus included in the Registration Statement prior to the time
it becomes effective or filed with the Commission pursuant to Rule 424(a) under
the Act is referred to herein as a "Preliminary Prospectus." Any reference
herein to any Preliminary Prospectus or the Prospectus shall be deemed to refer
to and include the documents incorporated by reference therein pursuant to Item
12 of Form S-3 under the Act, as of the date of such Preliminary Prospectus or
Prospectus, as the case may be; any reference to any amendment or supplement to
any Preliminary Prospectus or Prospectus shall be deemed to refer to and include
any documents filed after the date of such Preliminary Prospectus or Prospectus,
as the case may be, under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and incorporated by reference in such Preliminary Prospectus or
Prospectus, as the case may be; and any reference to any amendment to the
Registration Statement shall be
<PAGE>
deemed to refer to and include any annual report
of the Company filed pursuant to Section 13(a) or 15(d) of the Exchange Act
after the effective date of the Registration Statement that is incorporated by
reference in the Registration Statement. Copies of the Registration Statement,
including all exhibits and schedules thereto and any documents incorporated by
reference, any amendments thereto and all Preliminary Prospectuses have been
delivered to you.
The Company and the Selling Shareholders hereby confirm their respective
agreements with respect to the purchase of the Shares by the Underwriters as
follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
(a) The Company represents and warrants to, and agrees with,
each of the Underwriters that:
(i) The Registration Statement has been declared effective
under the Act, and no post-effective amendment to the
Registration Statement has been filed as of the date of this
Agreement. No stop order suspending the effectiveness of the
Registration Statement has been issued and no proceeding for that
purpose has been instituted or threatened by the Commission.
(ii) No order preventing or suspending the use of any
Preliminary Prospectus has been issued by the Commission, and
each Preliminary Prospectus, at the time of filing thereof,
conformed in all material respects to the requirements of the Act
and the rules and regulations of the Commission promulgated
thereunder, and did not contain an untrue statement of a material
fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading;
provided, however, the Company makes no representation or
warranty as to information contained in or omitted in reliance
upon, and in conformity with, written information furnished to
the Company by or on behalf of any Underwriter through the
Representatives expressly for use in the preparation thereof.
The documents incorporated by reference in the Prospectus,
when they became effective or were filed with the Commission, as
the case may be, conformed in all material respects to the
requirements of the Exchange Act and the rules and regulations of
the Commission thereunder, and none of such documents contained
an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make
the statements therein not misleading; and any further documents
so filed and incorporated by reference in the Prospectus, when
such documents become effective or are filed with Commission, as
the case may be, will conform in all material respects to the
requirements of the Exchange Act and the rules and regulations of
the Commission thereunder and will not contain an untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading.
(iii) The Registration Statement conforms, and the
Prospectus and any amendments or supplements thereto will
conform, in all material respects to the requirements of the Act
and the rules and regulations thereunder. Neither the
Registration Statement nor any amendment thereto, and neither the
Prospectus nor any supplement thereto, contains or will contain,
as the case may be, any untrue statement of a material fact or
omits or will omit to state any material fact required to be
stated
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<PAGE>
therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not
misleading; provided, however, that the Company makes no
representation or warranty as to information contained in or
omitted from the Registration Statement or the Prospectus, or any
such amendment or supplement, in reliance upon, and in conformity
with, written information furnished to the Company by or on
behalf of any Underwriter through the Representatives, expressly
for use in the preparation thereof.
(iv) The Company has been duly organized, is validly
existing as a corporation in good standing under the laws of the
Minnesota, has the corporate power and authority to own or lease
its properties and conduct its business as described in the
Prospectus, and is duly qualified to transact business in all
jurisdictions in which the conduct of its business or its
ownership or leasing of property requires such qualification and
the failure so to qualify would have a material adverse effect on
the business or condition, financial or otherwise, of the Company
and its subsidiaries, taken as a whole.
(v) Each subsidiary of the Company has been duly
incorporated, is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation,
has the corporate power and authority to own or lease it
properties and conduct its business as described in the
Prospectus, and is duly qualified to transact business in all
jurisdictions in which the conduct of its business or its
ownership or leasing of property requires such qualification and
the failure so to qualify would have a material adverse effect on
the business or condition, financial or otherwise, of the Company
and its subsidiaries, taken as a whole. All outstanding shares
of capital stock of each of the subsidiaries of the Company have
been duly authorized and validly issued, are fully paid and
non-assessable, and are owned, directly or indirectly, by the
Company free and clear of all liens, encumbrances and security
interests. No options, warrants or other rights to purchase,
agreements or other obligations to issue, or other rights to
convert any obligations into, shares of capital stock or
ownership interests in any of the subsidiaries of the Company are
outstanding.
(vi) The outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid
and nonassessable. All offers and sales by the Company of
outstanding shares of capital stock and other securities of the
Company, prior to the date hereof, were made in compliance with
the Act and all applicable state securities or blue sky laws.
The Shares to be issued and sold by the Company to the
Underwriters pursuant to this Agreement have been duly authorized
and, when issued and paid for as contemplated herein, will be
validly issued, fully paid and nonassessable. There are no
preemptive rights or other rights to subscribe for or to
purchase, or any restriction upon the voting or transfer of, any
shares of capital stock of the Company pursuant to the Company's
Articles of Incorporation, Bylaws or any agreement or other
instrument to which the Company is a party or by which the
Company is bound. Neither the filing of the Registration
Statement nor the offering or the sale of the Shares as
contemplated by this Agreement gives rise to any rights for, or
relating to, the registration of any shares of capital stock or
other securities of the Company, except such rights which have
been validly waived or satisfied. Except as described in the
Prospectus, there are no outstanding options, warrants,
agreements, contracts or other rights to purchase or acquire from
the Company any shares of its capital stock. The Company has
the authorized and outstanding capital stock as set
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<PAGE>
forth under the heading "Capitalization" in the Prospectus.
The outstanding capital stock of the Company, including the
Shares, conforms, and the Shares to be issued by the Company to
the Underwriters will conform, to the description thereof
contained in the Prospectus.
(vii) The financial statements, together with the
related notes and schedules as set forth or incorporated by
reference in the Registration Statement and Prospectus, present
fairly the consolidated financial position, results of operations
and changes in financial position of the Company and its
subsidiaries on the basis stated in the Registration Statement at
the indicated dates and for the indicated periods. Such
financial statements have been prepared in accordance with
generally accepted accounting principles consistently applied
throughout the periods involved, and all adjustments necessary
for a fair presentation of results for such periods have been
made, except as otherwise stated therein. The summary and
selected financial and statistical data included in the
Registration Statement present fairly the information shown
therein on the basis stated in the Registration Statement and
have been compiled on a basis consistent with the financial
statements presented therein.
(viii) There is no action or proceeding pending or, to
the knowledge of the Company, threatened or contemplated against
the Company or any of its subsidiaries before any court or
administrative or regulatory agency which, if determined
adversely to the Company or any of its subsidiaries, would,
individually or in the aggregate, result in a material adverse
change in the business or condition (financial or otherwise),
results of operations, shareholders' equity or prospects of the
Company and its subsidiaries, taken as a whole, except as set
forth in the Registration Statement.
(ix) The Company has good and marketable title to all
properties and assets reflected as owned in the financial
statements hereinabove described (or as described as owned in the
Prospectus), in each case free and clear of all liens,
encumbrances and defects, except such as are described in the
Prospectus or do not substantially affect the value of such
properties and assets and do not materially interfere with the
use made and proposed to be made of such properties and assets by
the Company and its subsidiaries; and any real property and
buildings held under lease by the Company and its subsidiaries
are held by them under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and
buildings by the Company and its subsidiaries.
(x) Since the respective dates as of which information is
given in the Registration Statement, as it may be amended or
supplemented, (A) there has not been any material adverse change,
or any development involving a prospective material adverse
change, in or affecting the condition, financial or otherwise, of
the Company and its subsidiaries, taken as a whole, or the
business affairs, management, financial position, shareholders'
equity or results of operations of the Company and its
subsidiaries, taken as a whole, whether or not occurring in the
ordinary course of business, (B) there has not been any
transaction not in the ordinary course of business entered into
by the Company or any of its subsidiaries which is material to
the Company and its subsidiaries, taken as a whole, other than
transactions described or contemplated in the Registration
Statement, (C) the Company and its subsidiaries have not incurred
any material liabilities or obligations, which are not in the
ordinary course of business or which could result in a material
reduction in the future earnings of the
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<PAGE>
Company and its subsidiaries, (D) the Company and its
subsidiaries have not sustained any material loss or
interference with their respective businesses or properties
from fire, flood, windstorm, accident or other calamity,
whether or not covered by insurance, (E) there has not been
any change in the capital stock of the Company (other than upon
the exercise of options and warrants described in the
Registration Statement), or any material increase in the
short-term or long-term debt (including capitalized lease
obligations) of the Company and its subsidiaries, taken as a
whole, (F) there has not been any declaration or payment of any
dividends or any distributions of any kind with respect to the
capital stock of the Company, other than any dividends or
distributions described or contemplated in the Registration
Statement, or (G) there has not been any issuance of warrants,
options, convertible securities or other rights to purchase or
acquire capital stock of the Company.
(xi) Neither the Company nor any of its subsidiaries is in
violation of, or in default under, its Articles of Incorporation
or Bylaws, or any statute, or any rule, regulation, order,
judgment, decree or authorization of any court or governmental or
administrative agency or body having jurisdiction over the
Company or any of its subsidiaries or any of their properties, or
any indenture, mortgage, deed of trust, loan agreement, lease,
franchise, license or other agreement or instrument to which the
Company or any of its subsidiaries is a party or by which it or
any of them are bound or to which any property or assets of the
Company or any of its subsidiaries is subject, which violation or
default would have a material adverse effect on the business,
condition (financial or otherwise), results of operations,
shareholders' equity or prospects of the Company and its
subsidiaries, taken as a whole.
(xii) The issuance and sale of the Shares by the Company
and the compliance by the Company with all of the provisions of
this Agreement and the consummation of the transactions
contemplated herein will not violate any provision of the
Articles of Incorporation or Bylaws of the Company or any of its
subsidiaries or any statute or any order, judgment, decree, rule,
regulation or authorization of any court or governmental or
administrative agency or body having jurisdiction over the
Company or any of its subsidiaries or any of their properties,
and will not conflict with, result in a breach or violation of,
or constitute, either by itself or upon notice or passage of time
or both, a default under any indenture, mortgage, deed of trust,
loan agreement, lease, franchise, license or other agreement or
instrument to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries is bound
or to which any property or assets of the Company or any of its
subsidiaries is subject. No approval, consent, order,
authorization, designation, declaration or filing by or with any
court or governmental agency or body is required for the
execution and delivery by the Company of this Agreement and the
consummation of the transactions herein contemplated, except as
may be required under the Act or any state securities or blue sky
laws.
(xiii) The Company and each of its subsidiaries holds and
is operating in compliance with all licenses, approvals,
certificates and permits from governmental and regulatory
authorities, foreign and domestic, which are necessary to the
conduct of its business as described in the Prospectus.
(xiv) Deloitte and Touche LLP, which has certified
certain of the financial statements filed with the Commission as
part of the Registration Statement, are
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<PAGE>
independent public accountants as required by the Act and the
rules and regulations thereunder.
(xv) The Company has not taken and will not take, directly
or indirectly, any action designed to, or which has constituted,
or which might reasonably be expected to cause or result in,
stabilization or manipulation of the price of the Common Stock.
(xvi) The Shares have been approved for designation upon
notice of issuance on the Nasdaq National Market under the symbol
"POSS."
(xvii) The Company has obtained and delivered to the
Representatives written agreements, in form and substance
satisfactory to the Representatives, of each of its directors and
executive officers and the Possis Marital Trust that no offer,
sale, assignment, transfer, encumbrance, contract to sell, grant
of an option to purchase or other disposition of any Common Stock
or other capital stock of the Company will be made for a period
of 90 days after the date of the Prospectus, directly or
indirectly, by such holder otherwise than hereunder or with the
prior written consent of the Representatives and that for an
additional 90-day period after such 90-day period, no offer,
sale, assignment, transfer, encumbrance, contract to sell, grant
of an option to purchase or other disposition of any Common Stock
or other capital stock of the Company will be made by such holder
unless such holder shall have first offered the Representatives
in writing the opportunity to effect any such transaction and the
Representatives shall not have notified the holder thereof within
five business days of the Representatives' receipt of such notice
of their desire to attempt to effect such transaction on behalf
of the holder.
(xviii) The Company has not distributed and will not
distribute any prospectus or other offering material in
connection with the offering and sale of the Shares other than
any Preliminary Prospectus or the Prospectus or other materials
permitted by the Act to be distributed by the Company.
(xix) The Company is in compliance with all provisions
of Florida Statutes Section 517.075 (Chapter 92-198, laws of
Florida). The Company does not do any business, directly or
indirectly, with the government of Cuba or with any person or
entity located in Cuba.
(xx) The Company and its subsidiaries have filed all
federal, state, local and foreign tax returns or reports required
to be filed, and have paid in full all taxes indicated by said
returns or reports and all assessments received by it or any of
them to the extent that such taxes have become due and payable,
except where the Company and its subsidiaries are contesting in
good faith such taxes and assessments.
(xxi) The Company and each of its subsidiaries owns or
licenses all patents, patent applications, trademarks, service
marks, tradenames, trademark registrations, service mark
registrations, copyrights, licenses, inventions, trade secrets
and other similar rights (the "Proprietary Rights") necessary for
the conduct of its business as described in the Prospectus. The
Company has no knowledge of any infringement by it or its
subsidiaries of or conflict with any proprietary rights of
others, and neither the Company nor any of its subsidiaries has
given or received any notice or claim of conflict with the
asserted proprietary rights of others with respect
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<PAGE>
any of the foregoing. No action, suit, arbitration or legal,
administrative or other proceeding, or domestic or foreign
governmental investigation is pending, or to the best of the
Company's knowledge, threatened, which involves any Proprietary
Rights. The Company is not subject to any judgment, order, writ,
injunction or decree of any court or any federal, state, local,
foreign or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, or any
arbitrator, or has entered into or is a party to any contract
which restricts or impairs the use of any such Propriety Rights.
To the best of the Company's knowledge, no Proprietary Rights
used by the Company and no services or products sold by the
Company conflict with or infringe upon any proprietary rights
available to any third party. The Company has not entered into
any consent, indemnification, forbearance to sue or settlement
agreement with respect to Proprietary Rights other than in the
ordinary course of business. No claims have been asserted by any
person with respect to the validity of or the Company's ownership
or right to use the Proprietary Rights and, to the best knowledge
of the Company, there is no reasonable basis for any such claim
to be successful. The Proprietary Rights are valid and
enforceable and no registration relating thereto has lapsed,
expired or been abandoned or cancelled or is the subject of
cancellation or other adversarial proceedings, and all
applications therefore are pending and are in good standing. The
Company has complied with its respective contractual obligations
relating to the protection of the Proprietary Rights used
pursuant to licenses. To the best knowledge of the Company, no
person is infringing on or violating the Proprietary Rights owned
or used by the Company.
(xxii) The Company is not, and upon completion of the
sale of Shares contemplated hereby will not be, required to
register as an "investment company" under the Investment Company
Act of 1940, as amended.
(xxiii) The conditions for the use of Form S-3, as set
forth in the General Instructions thereto, have been satisfied.
(xxiv) Except as described in the Prospectus, there are
no rulemaking or similar proceedings before the United States
Food and Drug Administration or comparable federal, state, local
or foreign government bodies which involve or, to the best
knowledge of the Company, affect the Company, which, if the
subject of an action unfavorable to the Company could involve a
prospective material adverse change in or effect on the business,
condition (financial or otherwise), results of operations,
shareholders' equity or prospects of the Company.
(xxv) The Company maintains insurance of the type and in
the amounts generally deemed adequate for its business and
consistent with insurance coverage maintained by similar
companies and businesses, including without limitation, product
liability insurance and insurance covering all real and personal
property owned or leased by it, all of which is in full force and
effect.
(b) Any certificate signed by any officer of the Company and
delivered to the Representatives or counsel to the Underwriters shall
be deemed to be a representation and warranty of the Company to each
Underwriter as to the matters covered thereby.
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<PAGE>
2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SELLING SHAREHOLDERS.
(a) Each Selling Shareholder severally represents and warrants
to, and covenants and agrees with, each of the Underwriters and the
Company that:
(i) Such Selling Shareholder has duly executed and
delivered a Power of Attorney (the "Power of Attorney"),
appointing Robert G. Dutcher and Russel E. Carlson, and each of
them, as attorney-in-fact (the "Attorneys-In-Fact") with full
power and authority to execute and deliver this Agreement on
behalf of such Selling Shareholder, to authorize the delivery of
the Shares to be sold by the Selling Shareholder hereunder, and
otherwise to act on behalf of such Selling Shareholder in
connection with the transactions contemplated by this Agreement.
(ii) Such Selling Shareholder has duly executed and
delivered a Custody Agreement (the "Custody Agreement") with
Norwest Bank Minnesota, N.A., as Custodian, pursuant to which
certificates in negotiable form for the Shares to be sold by such
Selling Shareholder hereunder have been placed in custody for
delivery under this Agreement.
(iii) Such Selling Shareholder has full right, power and
authority to enter into this Agreement, the Power of Attorney and
the Custody Agreement, and to sell, assign, transfer and deliver
the Shares to be sold by such Selling Shareholder hereunder; and
all consents, approvals, authorizations and orders necessary for
the execution and delivery by such Selling Shareholder of this
Agreement, the Power of Attorney and the Custody Agreement, and
for the sale and delivery of the Shares to be sold by such
Selling Shareholder hereunder, have been obtained, except such as
may be required by any state securities or blue sky laws.
(iv) Such Selling Shareholder has, and at the Closing Date
will have good and valid title to the Firm Shares to be sold by
such Selling Shareholder hereunder, free of any liens,
encumbrances, security interests, equities or claims whatsoever;
and upon delivery of and payment for such Firm Shares pursuant to
this Agreement, good and valid title thereto, free of any liens,
encumbrances, security interests, equities or claims whatsoever,
will be transferred to the several Underwriters.
(v) The consummation by such Selling Shareholder of the
transactions herein contemplated and the fulfillment by such
Selling Shareholder of the terms hereof will not conflict with or
result in a breach or violation of any of the terms and
provisions of, or constitute a default under, any will, mortgage,
deed of trust, loan agreement or other agreement, instrument or
obligation to which such Selling Shareholder is a party or to
which any of the property or assets of such Selling Shareholder
is subject, except for such agreements, instruments or
obligations for which consents have been obtained, nor will such
actions result in any violations of the provisions of the charter
or by-laws if such Selling Shareholder is a corporation, the
partnership agreement, certificate or articles if the Selling
Shareholder is a partnership, or any statute, rule, regulation or
order applicable to such Selling Shareholder of any court or of
any regulatory body or administrative agency or other
governmental body having jurisdiction over such Selling
Shareholder.
(vi) Such Selling Shareholder has not taken and will not
take, directly or indirectly, any action designed to, or which
has constituted, or which might reasonably
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<PAGE>
be expected to cause or result in, stabilization or
manipulation of the price of the Common Stock.
(vii) To the extent that any statements or omissions
made in the Registration Statement, any Preliminary Prospectus
thereof, the Prospectus or any amendment or supplement thereto
are made in reliance upon and in conformity with written
information with respect to such Selling Shareholder furnished to
the Company by such Selling Shareholder expressly for use
therein, such Preliminary Prospectus and the Registration
Statement did not, and the Prospectus and any further amendments
or supplements to the Registration Statement and the Prospectus
will not, when they become effective or are filed with the
Commission, as the case may be, contain any untrue statement of a
material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading.
(viii) Such Selling Shareholder will not offer to sell,
sell, transfer, assign or otherwise dispose of any Common Stock
or other capital stock of the Company, directly or indirectly,
for a period of 90 days after the date of the Prospectus,
otherwise than hereunder or with the written consent of the
Representative, and for an additional 90-day period after such
90-day period, no offer, sale, assignment, transfer, encumbrance,
contract to sell, grant of an option to purchase or other
disposition of any Common Stock or other capital stock of the
Company will be made by such Selling Shareholder unless such
Selling Shareholder shall have first offered the Representative
in writing the opportunity to effect any such transaction and the
Representative shall not have notified the Selling Shareholder
thereof within five business days of the Representative' receipt
of such notice of their desire to attempt to effect such
transaction on behalf of the Selling Shareholder.
(ix) Such Selling Shareholder does not have knowledge or any
reason to believe that the Registration Statement or the
Prospectus (or any amendment or supplement thereto) contains any
untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make
the statements therein not misleading.
(b) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Internal Revenue Code of
1986, as amended, with respect to the transactions herein
contemplated, each of the Selling Shareholders agrees to deliver to
you prior to or at the Closing Date a properly completed and executed
United States Treasury Department Form W-9 (or other applicable form
or statement specified by Treasury Department regulations in lieu
thereof).
(c) Each of the Selling Shareholders specifically agrees that
the Shares represented by the certificates held in custody for such
Selling Shareholder under the Custody Agreement are subject to the
interests of the Underwriters hereunder, and that the arrangements
made by such Selling Shareholder for such custody and the appointment
by such Selling Shareholder of the Attorneys-in-Fact by the Power of
Attorney, are to that extent irrevocable. Each of the Selling
Shareholders specifically agrees that the obligations of the Selling
Shareholders hereunder shall not be terminated by operation of law,
whether by the death or incapacity of any individual Selling
Shareholder or, in the case of an estate or trust, by the death or
incapacity of any executor or trustee or the termination of such
estate or trust, or in the case of a corporation or partnership, by
the dissolution of such corporation or partnership, or by the
occurrence of any other event. If any individual Selling Shareholder
or any such
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<PAGE>
executor or trustee should die or become incapacitated, or if
any such estate or trust should be terminated, or if any such
corporation or partnership should be dissolved, or if any other such
event should occur before the delivery of the Shares hereunder,
certificates representing the Shares shall be delivered by or on
behalf of the Selling Shareholders in accordance with the terms and
conditions of this Agreement and of the Custody Agreement, and actions
taken by the Attorneys-in-Fact pursuant to the Powers of Attorney
shall be as valid as if such death, incapacity, termination,
dissolution or other event had not occurred, regardless of whether or
not the Custodian, the Attorneys-in-Fact, or any of them, shall have
received notice of such death, incapacity, termination, dissolution or
other event.
(d) Any certificate signed by or on behalf of any Selling
Shareholder and delivered to the Representatives or to counsel to the
Underwriters shall be deemed to be a representation and warranty of
such Selling Shareholder to each Underwriter as to the matters covered
thereby.
3. PURCHASE, SALE AND DELIVERY OF SHARES. On the basis of the
representations, warranties and covenants contained herein, and subject to the
terms and conditions herein set forth, the Company and each Selling Shareholder
agrees, severally and not jointly, to sell to each Underwriter and each
Underwriter agrees, severally and not jointly, to purchase from the Company and
each Selling Shareholder, at a price of $_____ per share, the number of Firm
Shares (to be adjusted by you to eliminate fractional shares) determined by
multiplying the aggregate number of Firm Shares to be sold by the Company and
each of the Selling Shareholders, as set forth opposite their respective names
in Schedule B hereto, by a fraction, the numerator of which is the aggregate
number of Firm Shares to be purchased by such Underwriter as set forth opposite
the name of such Underwriter in Schedule A hereto and the denominator of which
is the aggregate number of Firm Shares to be purchased by all the Underwriters
from the Company and the Selling Shareholders hereunder.
In addition, on the basis of the representations, warranties and covenants
herein contained and subject to the terms and conditions herein set forth, the
Company hereby grants to the several Underwriters an option to purchase at their
election up to 286,500 Option Shares at the same price per share as set forth
for the Firm Shares in the paragraph above, for the sole purpose of covering
overallotments in the sale of the Firm Shares. The option granted hereby may be
exercised in whole or in part, but only once, and at any time upon written
notice given within 30 days after the date of this Agreement, by you, as
Representatives of the several Underwriters, to the Company, the Attorneys-in-
Fact and the Custodian setting forth the number of Option Shares as to which the
several Underwriters are exercising the option and the time and date at which
certificates are to be delivered. If any Option Shares are purchased, each
Underwriter agrees, severally and not jointly, to purchase that portion of the
number of Option Shares as to which such election shall have been exercised
(subject to adjustment to eliminate fractional shares) determined by multiplying
such number of Option Shares by a fraction the numerator of which is the maximum
number of Option Shares which such Underwriter is entitled to purchase as set
forth opposite the name of such Underwriter in Schedule A hereto and the
denominator of which is the maximum number of Option Shares which all of the
Underwriters are entitled to purchase hereunder. The time and date at which
certificates for Option Shares are to be delivered shall be determined by the
Representatives but shall not be earlier than two or later than ten full
business days after the exercise of such option, and shall not in any event be
prior to the Closing Date. If the date of exercise of the option is three or
more full days before the Closing Date, the notice of exercise shall set the
Closing Date as the Option Closing Date.
Certificates in definitive form for the Shares to be purchased by each
Underwriter hereunder, and in such denominations and registered in such names as
the Representatives may request upon at least forty-eight hours' prior notice to
the Company, shall be delivered by or on behalf of the Company to you for the
account of such Underwriter at such time and place as shall hereafter be
designated by the Representatives, against payment by such Underwriter or on its
behalf of the purchase price therefor by certified or official bank check or
checks,
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<PAGE>
payable to the order of the Company in next day funds. The time and date of
such delivery and payment shall be, with respect to the Firm Shares, 8:30
a.m. Minneapolis time, at the offices of Dorsey & Whitney, P.L.L.P.,
on , 1995, or such other time and date as you and the Company may
agree upon in writing, such time and date being herein referred to as the
"Closing Date," and, with respect to the Option Shares, at the time and on
the date specified by you in the written notice given by you of the
Underwriters' election to purchase the Option Shares, or such other time and
date as you and the Company may agree upon in writing, such time and date
being referred to herein as the "Option Closing Date." Such certificates
will be made available for checking and packaging at least twenty-four hours
prior to the Closing Date or the Option Closing Date, as the case may be, at
a location as may be designated by you.
4. OFFERING BY UNDERWRITERS. It is understood that the several
Underwriters propose to make a public offering of the Firm Shares as soon as the
Representatives deem it advisable to do so. The Firm Shares are to be initially
offered to the public at the Price to Public set forth in the Prospectus. The
Representatives may from time to time thereafter change the public offering
price and other selling terms. To the extent, if at all, that any Option Shares
are purchased pursuant to Section 3 hereof, the Underwriters will offer such
Option Shares to the public on the foregoing terms.
It is understood that 100,000 Firm Shares will initially be reserved by
the several Underwriters for offer and sale upon the terms and conditions set
forth in the Prospectus to employees and persons having business relationships
with the Company and its subsidiaries who have heretofore delivered to you
offers or indications of interest to purchase Firm Shares in form satisfactory
to you, and that any allocation of such Firm Shares among such persons will be
made in accordance with timely directions received by you from the Company,
provided that under no circumstances will you or any Underwriter be liable to
the Company or any such person for any action taken or omitted in good faith in
connection with such offering to employees and persons having business
relationships with the Company and its subsidiaries. It is further understood
that any of such Firm Shares which are not purchased by such persons will be
offered by the Underwriters to the public upon the terms and conditions set
forth in the Prospectus.
5. COVENANTS OF THE COMPANY. The Company covenants and agrees with the
several Underwriters that:
(a) The Company will prepare and timely file with the Commission
under Rule 424(b) under the Act a Prospectus containing information
previously omitted at the time of effectiveness of the Registration
Statement in reliance on Rule 430A under the Act, and will not file
any amendment to the Registration Statement or supplement to the
Prospectus or any document incorporated by reference in the
Prospectus] of which the Representatives shall not previously have
been advised and furnished with a copy and as to which the
Representatives shall have objected in writing promptly after
reasonable notice thereof or which is not in compliance with the Act
or the rules and regulations thereunder. The Company will file
promptly all reports and any definitive proxy or information
statements required to be filed by the Company with the Commission
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date of the Prospectus and for so long as the
delivery of a prospectus is required in connection with the offering
or sale of the Shares.
(b) The Company will advise the Representatives promptly of any
request of the Commission for amendment of the Registration Statement
or for any supplement to the Prospectus or for any additional
information, or of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the use
of the Prospectus, of the suspension of the qualification of the
Shares for offering or sale in any jurisdiction, or of the institution
or threatening of any proceedings for that purpose, and the Company
will use its best efforts to prevent the issuance of any such stop
order preventing or suspending the use of
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the Prospectus or suspending such qualification and to obtain as
soon as possible the lifting thereof, if issued.
(c) The Company will endeavor to qualify the Shares for sale
under the securities laws of such jurisdictions as the Representatives
may reasonably have designated in writing and will, or will cause
counsel to, make such applications, file such documents, and furnish
such information as may be reasonably requested by the
Representatives, provided that the Company shall not be required to
qualify as a foreign corporation or to file a general consent to
service of process in any jurisdiction where it is not now so
qualified or required to file such a consent. The Company will, from
time to time, prepare and file such statements, reports and other
documents as are or may be required to continue such qualifications in
effect for so long a period as the Representatives may reasonably
request for distribution of the Shares.
(d) The Company will furnish the Underwriters with as many
copies of any Preliminary Prospectus as the Representatives may
reasonably request and, during the period when delivery of a
prospectus is required under the Act, the Company will furnish the
Underwriters with as many copies of the Prospectus in final form, or
as thereafter amended or supplemented, as the Representatives may,
from time to time, reasonably request. The Company will deliver to
the Representatives, at or before the Closing Date, three signed
copies of the Registration Statement and all amendments thereto
including all exhibits filed therewith, and will deliver to the
Representatives such number of copies of the Registration Statement,
without exhibits, and of all amendments thereto, as the
Representatives may reasonably request.
(e) If, during the period in which a prospectus is required by
law to be delivered by an Underwriter or dealer, any event shall occur
as a result of which the Prospectus as then amended or supplemented
would include an untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements therein,
in light of the circumstances existing at the time the Prospectus is
delivered to a purchaser, not misleading, or if for any other reason
it shall be necessary at any time to amend or supplement the
Prospectus to comply with any law, the Company promptly will prepare
and file with the Commission an appropriate amendment to the
Registration Statement or supplement to the Prospectus so that the
Prospectus as so amended or supplemented will not include an untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements therein in light of the
circumstances existing when it is so delivered, not misleading, or so
that the Prospectus will comply with law. In case any Underwriter is
required to deliver a prospectus in connection with sales of any
Shares at any time nine months or more after the effective date of the
Registration Statement, upon the request of the Representatives but at
the expense of such Underwriter, the Company will prepare and deliver
to such Underwriter as many copies as the Representatives may request
of an amended or supplemented Prospectus complying with Section
10(a)(3) of the Act.
(f) The Company will make generally available to its security
holders, as soon as it is practicable to do so, but in any event not
later than 18 months after the effective date of the Registration
Statement, an earnings statement (which need not be audited) in
reasonable detail, covering a period of at least 12 consecutive months
beginning after the effective date of the Registration Statement,
which earnings statement shall satisfy the requirements of Section
11(a) of the Act and Rule 158 thereunder and will advise you in
writing when such statement has been so made available.
(g) The Company will, for such period up to five years from the
Closing Date, deliver to the Representatives copies of its annual
report and copies of all other documents,
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reports and information furnished by the Company to its security
holders or filed with any securities exchange pursuant to the
requirements of such exchange or with the Commission pursuant
to the Act or the Exchange Act. The Company will deliver to
the Representatives similar reports with respect to significant
subsidiaries, as that term is defined in the rules and
regulations under the Act, which are not consolidated in the
Company's financial statements.
(h) No offering, sale or other disposition of any Common Stock
or other capital stock of the Company, or warrants, options,
convertible securities or other rights to acquire such Common Stock or
other capital stock (other than pursuant to employee stock option
plans, outstanding options or on the conversion of convertible
securities outstanding on the date of this Agreement) will be made for
a period of 90 days after the date of this Agreement, directly or
indirectly, by the Company otherwise than hereunder or with the prior
written consent of the Representatives.
(i) The Company will apply the net proceeds from the sale of the
Shares to be sold by it hereunder substantially in accordance with the
purposes set forth under "Use of Proceeds" in the Prospectus.
(j) The Company will use its best efforts to maintain the
designation of the Common Stock on the Nasdaq National Market.
(k) The Company will file with the Commission such reports on
Form SR as may be required pursuant to Rule 463 under the Act.
6. COSTS AND EXPENSES. The Company and each Selling Shareholder on a pro
rata basis will pay (directly or by reimbursement) all costs, expenses and fees
incident to the performance of the obligations of the Company and the Selling
Shareholders under this Agreement, including, without limiting the generality of
the foregoing, the following: accounting fees of the Company; the fees and
disbursements of counsel for the Company; the cost of preparing, printing and
filing of the Registration Statement, Preliminary Prospectuses and the
Prospectus and any amendments and supplements thereto and the printing, mailing
and delivery to the Underwriters and dealers of copies thereof and of this
Agreement, the Agreement Among Underwriters, any Selected Dealers Agreement, the
Underwriters' Selling Memorandum, the Invitation Letter, the Power of Attorney,
the Blue Sky Memorandum and any supplements or amendments thereto (excluding,
except as provided below, fees and expenses of counsel to the Underwriters); the
filing fees of the Commission; the filing fees and expenses (including
disbursements of counsel for the Underwriters) incident to securing any required
review by the NASD of the terms of the sale of the Shares; listing fees, if any,
transfer taxes and the expenses, including the fees and disbursements of counsel
for the Underwriters incurred in connection with the qualification of the Shares
under state securities or Blue Sky laws; the fees and expenses incurred in
connection with the designation of the Shares on the Nasdaq National Market; the
costs of preparing stock certificates; the costs and fees of any registrar or
transfer agent and all other costs and expenses incident to the performance of
its obligations hereunder which are not otherwise specifically provided for in
this Section 6. In addition, the Company will pay all travel and lodging
expenses incurred by management of the Company in connection with any
informational "road show" meetings held in connection with the offering and will
also pay for the preparation of all materials used in connection with such
meetings. [The Selling Shareholders will pay the fees and expenses of any
separate counsel retained by them in connection with the transactions
contemplated hereby.] The Company [and the Selling Shareholders] shall not,
however, be required to pay for any of the Underwriters' expenses (other than
those related to qualification of the Shares under state securities or Blue Sky
laws and those incident to securing any required review by the NASD of the terms
of the sale of the shares) except that, if this Agreement shall not be
consummated because the conditions in Section 7 hereof are not satisfied, or
because this Agreement is terminated by the Representatives pursuant to Section
11(b) hereof, or by reason of any failure, refusal or inability on the part of
the Company or the Selling Shareholders to perform any undertaking or satisfy
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any condition of this Agreement or to comply with any of the terms
hereof on their respective parts to be performed, unless such failure to
satisfy said condition or to comply with said terms shall be due to the
default or omission of any Underwriter, then the Company and the Selling
Shareholders shall promptly upon request by the Representatives reimburse the
several Underwriters for all out-of-pocket accountable expenses, including
fees and disbursements of counsel, incurred in connection with investigating,
marketing and proposing to market the Shares or in contemplation of
performing their obligations hereunder; but the Company and the Selling
Shareholders shall not in any event be liable to any of the several
Underwriters for damages on account of loss of anticipated profits from the
sale by them of the Shares.
7. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS. The several
obligations of the Underwriters to purchase the Firm Shares on the Closing Date
and the Option Shares, if any, on the Option Closing Date, are subject to the
condition that all representations and warranties of the Company and the Selling
Shareholders contained herein are true and correct, at and as of the Closing
Date or the Option Closing Date, as the case may be, the condition that the
Company and the Selling Shareholders shall have performed all of their
respective covenants and obligations hereunder and to the following additional
conditions:
(a) The Prospectus shall have been filed with the Commission
pursuant to Rule 424(b) within the applicable time period prescribed
for such filing by the rules and regulations under the Act and in
accordance with Section 4(a) hereof; no stop order suspending the
effectiveness of the Registration Statement, as amended from time to
time, or any part thereof shall have been issued and no proceedings
for that purpose shall have been initiated or threatened by the
Commission; and all requests for additional information on the part of
the Commission shall have been complied with to the reasonable
satisfaction of the Representatives.
(b) The Representatives shall have received on the Closing Date
or the Option Closing Date, as the case may be, the opinion of Dorsey
& Whitney, P.L.L.P. for the Company, dated the Closing Date or the
Option Closing Date, as the case may be, addressed to the
Underwriters, to the effect that:
(i) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the
State of Minnesota, with corporate power and authority to own or
lease its properties and conduct its business as described in the
Prospectus.
(ii) Each subsidiary of the Company has been duly organized
and is validly existing as a corporation in good standing under
the laws of the jurisdiction of its incorporation, with corporate
power and authority to own or lease its properties and conduct
its business as described in the Prospectus. The outstanding
shares of capital stock of each such subsidiary have been duly
authorized and validly issued, are fully paid and nonassessable
and are owned, directly or indirectly, by the Company, free and
clear of all liens, encumbrances and security interests, other
than security interests specifically disclosed in the Prospectus.
To the knowledge of such counsel, no options, warrants or other
rights to purchase, agreements or other obligations to issue or
other rights to convert any obligations into any shares of
capital stock or ownership interests in each such subsidiary are
outstanding.
(iii) The Company has authorized and outstanding capital
stock as described in the Prospectus. The outstanding shares of
the Company's capital stock have been duly authorized and validly
issued and are fully paid and nonassessable. The form of
certificate for the Shares is in due and proper form and complies
with all
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applicable statutory requirements. The Shares to be issued
and sold by the Company pursuant to this Agreement have
been duly authorized and, when issued and paid for as
contemplated herein, will be validly issued, fully paid and
nonassessable. No preemptive or, to the knowledge of such
counsel, other similar subscription rights of shareholders of the
Company, or of holders of warrants, options, convertible
securities or other rights to acquire shares of capital stock of
the Company, exist with respect to any of the Shares or the issue
and sale thereof. To the knowledge of such counsel, no rights to
register outstanding shares of the Company's capital stock, or
shares issuable upon the exercise of outstanding warrants,
options, convertible securities or other rights to acquire shares
of such capital stock, exist which have not been validly
exercised or waived with respect to the Registration Statement.
The capital stock of the Company, including the Shares, conforms
in all material respects to the description thereof contained in
the Prospectus.
(iv) The Registration Statement has become effective under
the Act and, to the knowledge of such counsel, no stop order
proceedings with respect thereto have been instituted or are
pending or threatened by the Commission.
(v) The Registration Statement, the Prospectus and each
amendment or supplement thereto comply as to form in all material
respects with the requirements of the Act and the rules and
regulations thereunder (except that such counsel need express no
opinion as to the financial statements and related schedules
included therein). The documents incorporated by reference in
Prospectus or any further amendment or supplement thereto made by
the Company prior to the Closing Date or the Option Closing Date,
as the case may be, (other than the financial statements and
related schedules therein, as to which such counsel need express
no opinion), when they became effective or were filed with the
Commission, as the case may be, complied as to form in all
material respects with the requirements of the Exchange Act , and
the rules and regulations of the Commission thereunder; such
counsel has no reason to believe that any of such documents, when
such documents became effective or were so filed, as the case may
be, contained in the case of a registration statement which
became effective under the Act, an untrue statement of a material
fact, or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not
misleading or, in the case of other documents which were filed
under the Exchange Act with the Commission, an untrue statement
of a material fact or omitted to state a material fact necessary
in order to make the statements therein, in light of the
circumstances under which they were made when such documents were
so filed, not misleading.
(vi) The statements (A) in the Prospectus under the caption
"Description of Capital Stock" and paragraph four under the
caption "Underwriting" and (B) in the Registration Statement in
Item 15 insofar as such statements constitute a summary of
matters of law, are accurate summaries and fairly present the
information called for with respect to such matters.
(vii) Such counsel does not know of any contracts,
agreements, documents or instruments required to be filed as
exhibits to the Registration Statement, incorporated by reference
into the Prospectus, or described in the Registration Statement
or the Prospectus which are not so filed, incorporated by
reference or described as required; and insofar as any statements
in the Registration Statement or the Prospectus constitute
summaries of any contract, agreement, document or
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<PAGE>
instrument to which the Company is a party, such statements
are accurate summaries and fairly present the information
called for with respect to such matters.
(viii) Such counsel knows of no legal or governmental
proceeding, pending or threatened, before any court or
administrative body or regulatory agency, to which the Company or
any of its subsidiaries is a party or to which any of the
properties of the Company or any of its subsidiaries is subject
that are required to be described in the Registration Statement
or Prospectus and are not so described, or statutes or
regulations that are required to be described in the Registration
Statement or the Prospectus that are not so described.
(ix) To the best of such counsel's knowledge, there are no
franchises, leases, contracts, agreements or documents of a
character required to be disclosed in the Registration Statement
or Prospectus or to be filed as exhibits to the Registration
Statement or required to be incorporated by reference into the
Prospectus which are not disclosed or filed or incorporated by
reference, as required.
(x) The execution and delivery of this Agreement and the
consummation of the transactions herein contemplated do not and
will not conflict with or result in a violation of or default
under the charter or bylaws of the Company or any of its
subsidiaries, or under any statute, permit, judgment, decree,
order, rule or regulation known to such counsel of any court or
governmental agency or body having jurisdiction over the Company
or any of its subsidiaries or any of their properties, or under
any lease, contract, indenture, mortgage, loan agreement or other
agreement or other instrument or obligation known to such counsel
to which the Company or any of its subsidiaries is a party or by
which the Company or any of its subsidiaries is bound or to which
any property or assets of the Company or any of its subsidiaries
is subject, except such agreements, instruments or obligations
with respect to which valid consents or waivers have been
obtained by the Company or any of its subsidiaries.
(xi) The Company has the corporate power and authority to
enter into this Agreement and to authorize, issue and sell the
Shares as contemplated hereby. This Agreement has been duly and
validly authorized, executed and delivered by the Company.
(xii) No approval, consent, order, authorization,
designation, declaration or filing by or with any regulatory,
administrative or other governmental body is necessary in
connection with the execution and delivery of this Agreement and
the consummation of the transactions herein contemplated (other
than as may be required by state securities and blue sky laws, as
to which such counsel need express no opinion) except such as
have been obtained or made, specifying the same.
(xiii) The statements in the Prospectus under the heading
"Risk Factors -- Potential Negative Impact of Changes in or
Failure to Comply with Governmental Regulations," "-- Compliance
with Foreign Regulatory Requirements" and "Business --
Governmental Regulation" fairly summarize the matters therein
described.
(xiv) With respect to the requirements of the federal
Food, Drug and Cosmetic Act and the regulations of the federal
Food and Drug Administration, the Company holds all material
certificates, permits, authorizations, consents and orders
necessary for the conduct of its present business as described in
the Prospectus.
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<PAGE>
(xv) The Company is not, and immediately upon completion of
the sale of Shares contemplated hereby will not be, required to
register as an "investment company" under the Investment Company
Act of 1940, as amended.
(xvi) Such counsel has no reason to believe that, as of
its effective date, the Registration Statement or any further
amendment thereto made by the Company prior to the Closing Date
or the Option Closing Date, as the case may be, (other than the
financial statements and related schedules therein, as to which
such counsel need express no opinion) contained an untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading or that, as of its date, the Prospectus or
any further amendment or supplement thereto made by the Company
prior to the Closing Date or the Option Closing Date, as the case
may be, (other than the financial statements and related
schedules therein, as to which such counsel need express no
opinion) contained an untrue statement of a material fact or
omitted to state a material fact necessary to make the statements
therein, in light of the circumstances in which they were made,
not misleading or that, as of the Closing Date or the Option
Closing Date, as the case may be, either the Registration
Statement or the Prospectus or any further amendment or
supplement thereto made by the Company prior to the Closing Date
or the Option Closing Date, as the case may be, (other than the
financial statements and related schedules therein, as to which
such counsel need express no opinion) contains an untrue
statement of a material fact or omits to state a material fact
necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading; and they
do not know of any amendment to the Registration Statement
required to be filed.
(c) The Representatives shall have received on the Closing Date,
the opinion of counsel for each of the Selling Shareholders, which
counsel shall be reasonably acceptable to the Representatives, dated
the Closing Date, addressed to the Underwriters, to the effect that:
(i) A Power of Attorney and a Custody Agreement have been
duly executed and delivered by such Selling Shareholder and are
the valid and binding agreements of such Selling Shareholder.
(ii) This Agreement has been duly authorized, executed and
delivered by or on behalf of such Selling Shareholder.
(iii) The sale of the Shares to be sold by such Selling
Shareholder hereunder and the compliance by such Selling
Shareholder with all of the provisions of this Agreement, the
Power of Attorney and the Custody Agreement, and the consummation
of the transactions herein and therein contemplated, will not
conflict with or result in a breach or violation of any terms or
provisions of, or constitute a default under, any statute, any
indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument known to such counsel to which such
Selling Shareholder is a party or by which such Selling
Shareholder is bound or to which any of the property or assets of
such Selling Shareholder is subject, nor will such action result
in any violation of the provisions of the organizational
documents of such Selling Shareholder if such Selling Shareholder
is a corporation or partnership, or any order, rule or regulation
known to such counsel of any court or governmental agency or body
having jurisdiction over such Selling Shareholder or the property
of such Selling Shareholder.
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<PAGE>
(iv) No consent, approval, authorization or order of any
court or governmental agency or body is required for the
consummation of the transactions contemplated by this Agreement
in connection with the Shares to be sold by such Selling
Shareholder hereunder, except such consents, approvals,
authorizations or orders as have been validly obtained and are in
full force and effect, such as have been obtained under the Act
and such as may be required under the state securities or blue
sky laws in connection with the purchase and distribution of such
Shares by the Underwriters.
(v) Such Selling Shareholder has full right, power and
authority to sell, assign, transfer and deliver the Shares to be
sold by such Selling Shareholder hereunder.
(vi) Good and valid title to the Shares being sold by such
Selling Shareholder, free and clear of any claims, liens,
encumbrances, security interests or other adverse claims, has
been transferred to each of the several Underwriters who have
purchased such Shares in good faith and without notice of any
such claim, lien, encumbrance, security interest or other adverse
claim within the meaning of the Uniform Commercial Code.
In rendering the opinions described above, counsel for each of
the Selling Shareholders may rely, as to matters of fact with respect
to such Selling Shareholder, upon the representations of such Selling
Shareholder contained in this Agreement, the Power of Attorney and the
Custody Agreement.
(d) The Representatives shall have received from Popham, Haik,
Schnobrich & Kaufman, Ltd., counsel for the Underwriters, an opinion
dated the Closing Date or the Option Closing Date, as the case may be,
with respect to the incorporation of the Company, the validity of the
Shares, the Registration Statement, the Prospectus, and other related
matters as the Representatives may reasonably request, and such
counsel shall have received such papers and information as they may
reasonably request to enable them to pass upon such matters.
(e) The Representatives shall have received on each of the date
hereof, the Closing Date and the Option Closing Date, as the case may
be, a signed letter, dated as of the date hereof, the Closing Date or
the Option Closing Date, as the case may be, in form and substance
satisfactory to the Representatives, from Deloitte and Touche LLP, to
the effect that they are independent public accountants with respect
to the Company and its subsidiaries within the meaning of the Act and
the related rules and regulations and containing statements and
information of the type ordinarily included in accountants' "comfort
letters" to underwriters with respect to the financial statements and
certain financial information contained in the Registration Statement
and the Prospectus.
(f) Subsequent to the execution and delivery of this Agreement
and prior to the Closing Date or the Option Closing Date, as the case
may be, there shall not have been any change or any development
involving a prospective change, in or affecting the general affairs,
management, financial position, shareholders' equity or results of
operations of the Company and its subsidiaries, otherwise than as set
forth or contemplated in the Prospectus, the effect of which, in your
judgment, is material and adverse to the Company and makes it
impracticable or inadvisable to proceed with the public offering or
the delivery of the Shares being delivered at the Closing Date or the
Option Closing Date, as the case may be, on the terms and in the
manner contemplated in the Prospectus.
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(g) The Representative shall have received on the Closing Date
or the Option Closing Date, as the case may be, the opinion of both
Hugh Jaeger, Esq. and Burd, Bartz & Gutenkauf, patent counsel for the
Company, dated as of the Closing Date or the Option Closing Date, as
the case may be, and addressed to you, covering matters relating to
the patents and other intellectual property owned or licensed by the
Company to the effect that:
(i) Such counsel have no reason to believe that the
Registration Statement or the Prospectus contains any untrue
statement of a material fact, or omits to state any material fact
that is required to be stated therein or is necessary to make the
statements made therein not misleading, with respect to patents,
trade secrets, trademarks, service marks, copyrights or other
proprietary information or know-how owned or used by the Company,
or any allegation on the part of any person that the Company is
infringing any patent rights, trade secrets, trademarks, service
marks, copyrights or has misappropriated other proprietary
information or material of any such person.
(ii) To the best of such counsel's knowledge, the statements
in the Registration Statement and the Prospectus under the
caption "Risk Factors--Dependence on Patents, Patent
Applications, Licenses and Proprietary Rights" and "Business--
Patents, Patent Applications, Licenses and Proprietary Rights"
are accurate and complete statements or summaries of the matters
therein set froth, and nothing has come to such counsel's
attention that causes such counsel to believe that such material
contains any untrue statement of a material fact, or omits to
state a material fact that is required to be stated therein or
necessary in order to make the statements made therein not
misleading, in light of the circumstances under which they were
made.
(iii) To the best of such counsel's knowledge and also
based upon due inquiry of the Company, there are no pending legal
proceedings relating to patent rights, trade secrets, trademarks,
service marks, copyrights or other proprietary information or
know-how of the Company, and no such proceedings are threatened
or contemplated.
(iv) Although no search has been conducted, to the best of
such counsel's knowledge the Company is not infringing or
otherwise violating any patents, trade secrets, trademarks,
service marks, copyrights or other proprietary information or
know-how of any persons, and no person is infringing or otherwise
violating any of the Company's patents, trade secrets,
trademarks, service marks, copyrights or other proprietary
information or know-how of the Company in a way which could
materially affect the use thereof by the Company.
(v) To the best of such counsel's knowledge, the Company
owns all patents, trade secrets, trademarks, service marks or
other proprietary information or know-how necessary to conduct
the business now being or proposed to be conducted by the Company
as described in the Prospectus.
(vi) The Company is listed in the records of the United
States Patent and Trademark Office ("PTO") as the sole assignee
of record of each of the patents listed on Schedule III to such
opinion (the "Patents") and each of the applications listed on
Schedule IV to such opinion (the "Applications"). To the best of
such counsel's knowledge, there are no asserted or unasserted
claims of any persons relating to the scope, or ownership of the
Patents or Applications, there are no liens which have been
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filed against any of the Patents or Applications, there are no
material defects of form in the preparation or filing of the
Applications, the Applications are being diligently prosecuted,
and none of the Applications has been finally rejected or
abandoned.
(vii) The Company is listed in the records of the
appropriate foreign patent offices as the sole assignee of record
of each of the foreign patents listed on Schedule V to such
opinion (the "Foreign Patents") and each of the foreign
applications listed on Schedule VI to such opinion (the "Foreign
Applications"). To the best of such counsel's knowledge, there
are no asserted or unasserted claims of any persons relating to
the scope or ownership of the Foreign Patents or Foreign
Applications, there are no liens which have been filed against
any of the Foreign Patents or Foreign Applications, there are no
material defects of form in the preparation of filing of the
Foreign Applications, the Foreign Applications are being
diligently prosecuted, and none of the Foreign Applications has
been finally rejected or abandoned.
(viii) Such counsel has no reason to believe that the
Applications and Foreign Applications will not eventuate in
issued patents, or that any patents issued in respect of any such
Applications or Foreign Applications will not be valid or will
not afford the Company reasonable patent protection relative to
the subject matter thereof.
(ix) To the best of such counsel's knowledge, all pertinent
prior art reference known to counsel during the prosecution of
the Patents and Applications were disclosed to the PTO, and to
the best of counsel's information and belief neither such counsel
nor the Company, made any misrepresentation to, or concealed any
material fact from, the PTO during such prosecution.
(x) To the best of such counsel's knowledge, the Company
takes security measures adequate to assert trade secret
protection in its non-patented technology where appropriate.
(xi) To the best of such counsel's knowledge,the agreements
executed by the Company's employees, consultants and other
advisors respecting trade secrets, confidentiality, or
intellectual property rights are valid, binding and enforceable
in accordance with their express terms.
(h) The Representatives shall have received on the Closing Date
or the Option Closing Date, as the case may be, a certificate or
certificates of the chief executive officer and the chief financial
officer of the Company to the effect that, as of the Closing Date or
the Option Closing Date, as the case may be, each of them severally
represents as follows:
(i) The Prospectus was filed with the Commission pursuant
to Rule 424(b) within the applicable period prescribed for such
filing by the rules and regulations under the Act and in
accordance with Section 4 of this Agreement; no stop order
suspending the effectiveness of the Registration Statement has
been issued, and no proceedings for such purpose have been
initiated or are, to his knowledge, threatened by the Commission.
(ii) The representations and warranties of the Company set
forth in Section 1 of this Agreement are true and correct at and
as of the Closing Date or the Option Closing Date, as the case
may be, and the Company has performed all of its
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<PAGE>
obligations under this Agreement to be performed at or prior
to the Closing Date or the Option Closing Date, as the case may
be.
(i) The Representatives shall have received on the Closing Date
or the Option Date, as the case may be, a certificate of the Selling
Shareholders pursuant to which the Selling Shareholders certify that
their representations and warranties set forth in this Agreement are
true and correct at and as of the Closing Date or the Option Date, as
the case may be, and that they have performed all of their obligations
under this Agreement to be performed at or prior to the Closing Date
or the Option Closing Date, as the case may be.
(j) The Representatives shall have received a written agreement
from each executive officer and director of the Company and the Possis
Marital Trust that for 90 days following the date of the Prospectus,
such person will not, without the Representatives' prior written
consent, sell, transfer or otherwise dispose of, his, her or its
Common Stock all as provided for in more detail in Section 1(a)(xvii)
hereof.
(k) The Shares shall have been approved for listing on The
Nasdaq National market.
(l) The Company and the Selling Shareholders shall have
furnished to the Representatives such further certificates and
documents as the Representatives may reasonably have requested.
The opinions and certificates mentioned in this Agreement shall be deemed
to be in compliance with the provisions hereof only if they are in all material
respects reasonably satisfactory to the Representatives and to Popham, Haik,
Schnobrich & Kaufman, Ltd., counsel for the Underwriters.
If any of the conditions hereinabove provided for in this Section 7 shall
not have been fulfilled when and as required by this Agreement to be fulfilled,
the obligations of the Underwriters hereunder may be terminated by the
Representatives by notifying the Company of such termination in writing or by
telegram at or prior to the Closing Date or the Option Closing Date, as the case
may be. In such event, the Company and the Underwriters shall not be under any
obligation to each other (except to the extent provided in Sections 6 and 8
hereof).
8. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter, each officer and director thereof, and each person, if
any, who controls any Underwriter within the meaning of the Act,
against any losses, claims, damages or liabilities to which such
Underwriter or such persons may became subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) arise out of or are based
upon (i) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, any Preliminary
Prospectus or the Prospectus, including any amendments or supplements
thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the
statements therein not misleading in light of the circumstances under
which they were made, or (iii) any act or failure to act or any
alleged act or failure to act by any Underwriter in connection with,
or relating in any manner to, the Common Stock or the offering
contemplated hereby, and which is included as part of or referred to
in any losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arising out of or based upon matters
covered by clause (i) or (ii) above, and will reimburse each
Underwriter and each such controlling person for any legal or
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<PAGE>
other expenses reasonably incurred by such Underwriter or such
controlling person in connection with investigating or defending any
such action or claim as such expenses are incurred; provided,
however, that the Company shall not be liable in any such case to
the extent that any such loss, claim, damage or liability arises
out of or is based upon an untrue statement or alleged untrue
statement, or omission or alleged omission, made in the
Registration Statement, any Preliminary Prospectus or the Prospectus,
including any amendments or supplements thereto, in reliance upon
and in conformity with written information furnished to the
Company by any Underwriter through the Representatives specifically
for use therein; and provided, further, that the Company shall not
be liable in the case of any matter covered by clause (iii) above
to the extent that it is determined in a final judgment by a court
of competent jurisdiction that such losses, claims, damages or
liabilities resulted directly from any such acts or failures to
act undertaken or omitted to be taken by such Underwriter through
its gross negligence or willful misconduct.
(b) Each of the Selling Shareholders, severally in proportion to
the number of Shares to be sold by such Selling Shareholder hereunder,
agrees to indemnify and hold harmless each Underwriter, each officer
and director thereof, and each person, if any, who controls any
Underwriter within the meaning of the Act, against any losses, claims,
damages, or liabilities to which such Underwriter or such persons may
become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect
thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus or the Prospectus,
including any amendments or supplements thereto, or arise out of or
are based upon the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the
statements therein not misleading in light of the circumstances under
which they were made, and will reimburse each Underwriter and each
such controlling person for any legal or other expenses reasonably
incurred by such Underwriter or such controlling person in connection
with investigating or defending any such action or claim as such
expenses are incurred; provided, however, that the Selling
Shareholders shall not be liable in any such case to the extent that
any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement, or omission or
alleged omission, made in the Registration Statement, any Preliminary
Prospectus or the Prospectus, including any amendments or supplements
thereto, in reliance upon and in conformity with written information
furnished to the Company by any Underwriter through the
Representatives specifically for use therein; and, provided, further,
that the Selling Shareholders shall not be liable with respect to any
Preliminary Prospectus to the extent that any loss, claim, damage or
liability of such Underwriter results from the fact that such
Underwriter sold Shares to a person to whom there was not sent or
given a copy of the Prospectus if the Company had previously furnished
copies thereof to such Underwriter and the loss, claim, damage or
liability of such Underwriter results from an untrue statement or
omission of a material fact contained in the Preliminary Prospectus
which was corrected in the Prospectus; and, provided, further, in no
event shall any Selling Shareholder be liable for an amount in excess
of the net proceeds received by such Selling Shareholder from the sale
of the Shares.
(c) Each Underwriter agrees to indemnify and hold harmless the
Company, each of its directors, each of its officers who have signed
the Registration Statement, each Selling Shareholder and each person,
if any, who controls the Company or any Selling Shareholder within the
meaning of the Act, against any losses, claims, damages or liabilities
to which the Company or any such director, officer, Selling
Shareholder or controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) arise out of or are based
upon any untrue statement
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<PAGE>
or alleged untrue statement of any material fact contained in
the Registration Statement, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto, or arise
out of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light
of the circumstances under which they were made, and will reimburse
any legal or other expenses reasonably incurred by the Company or any
such director, officer, Selling Shareholder or controlling person in
connection with investigating or defending any such action or claim as
such expenses are incurred; provided, however, that each Underwriter
will be liable in each case to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or omission or
alleged omission has been made in the Registration Statement, any
Preliminary Prospectus, the Prospectus or any such amendment or
supplement in reliance upon and in conformity with written information
furnished to the Company by any Underwriter through the
Representatives specifically for use therein.
(d) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of
which indemnity or contribution may be sought pursuant to this Section
8, such person (the "indemnified party") shall promptly notify the
person against whom such indemnity may be sought (the "indemnifying
party") in writing. No indemnification provided for in Section 8(a),
(b) or (c) or contribution provided for in Section 8(e) shall be
available with respect to a proceeding to any party who shall fail to
give notice of such proceeding as provided in this Section 8(d) if the
party to whom notice was not given was unaware of the proceeding to
which such notice would have related and was prejudiced by the failure
to give such notice, but the failure to give such notice shall not
relieve the indemnifying party or parties from any liability which it
or they may have to the indemnified party otherwise than on account of
the provisions of Section 8(a), (b), (c) or (d). In case any such
proceeding shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate therein and, to
the extent that it shall wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, with counsel
reasonably satisfactory to such indemnified party and shall pay as
incurred the fees and disbursements of such counsel related to such
proceeding. In any such proceeding, any indemnified party shall have
the right to retain its own counsel at its own expense.
Notwithstanding the foregoing, the indemnifying party shall pay
promptly as incurred the reasonable fees and expenses of the counsel
retained by the indemnified party in the event (i) the indemnifying
party and the indemnified party shall have mutually agreed to the
retention of such counsel or (ii) the named parties to any such
proceeding (including any impleaded parties) include both the
indemnifying party and the indemnified party and the indemnified party
shall have reasonably concluded that there may be a conflict between
the positions of the indemnifying party and the indemnified party in
conducting the defense of any such action or that there may be legal
defenses available to it or other indemnified parties which are
different from or additional to those available to the indemnifying
party. It is understood that the indemnifying party shall not, in
connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the fees and expenses of more than one
separate firm at any time for all such indemnified parties. Such firm
shall be designated in writing by the Representatives and shall be
reasonably satisfactory to the Company in the case of parties
indemnified pursuant to Section 8(a) or (b) and shall be designated in
writing by the Company and shall be reasonably satisfactory to the
Representatives in the case of parties indemnified pursuant to Section
8(c). The indemnifying party shall not be liable for any settlement
of any proceeding effected without its written consent but if settled
with such consent or if there be a final judgment for the plaintiff,
the indemnifying party agrees to indemnify the indemnified party from
and against any loss or liability by reason of such settlement or
judgment.
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<PAGE>
(e) If the indemnification provided for in this Section 8 is
unavailable or insufficient to hold harmless an indemnified party
under Section 8(a), (b) or (c) above in respect of any losses, claims,
damages or liabilities (or actions or proceedings in respect thereof)
referred to therein, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of
such losses, claims, damages or liabilities (or actions or proceedings
in respect thereof) in such proportion as is appropriate to reflect
the relative benefits received by the Company and the Selling
Shareholders on the one hand and the Underwriters on the other from
the offering of the Shares. If, however, the allocation provided by
the immediately preceding sentence is not permitted by applicable law,
then each indemnifying party shall contribute to such amount paid or
payable by such indemnified party in such proportion as is appropriate
to reflect not only such relative benefits but also the relative fault
of the Company and the Selling Shareholders on the one hand and the
Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof), as well as
any other relevant equitable considerations. The relative benefits
received by the Company and the Selling Shareholders on the one hand
and the Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company and the Selling
Shareholders bears to the total underwriting discounts and commissions
received by the Underwriters, in each case as set forth in the table
on the cover page of the Prospectus. The relative fault shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by
the Company and the Selling Shareholders on the one hand or the
Underwriters on the other and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such
statement or omission. The Company, the Selling Shareholders and the
Underwriters agree that it would not be just and equitable if
contributions pursuant to this Section 8(e) were determined by pro
rata allocation (even if the Underwriters were treated as one entity
for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this
Section 8(e). The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities (or actions or
proceedings in respect thereto) referred to above in this Section 8(e)
shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or
defending any such action or claim. Notwithstanding the provisions of
this Section 8(e), no Underwriter shall be required to contribute any
amount in excess of the underwriting discounts and commissions
applicable to the Shares purchased by such Underwriter; and no person
guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations in this Section 8(e) to contribute are
several in proportion to their respective underwriting obligations and
not joint.
(f) The obligations of the Company and the Selling Shareholders
under this Section 8 shall be in addition to any liability which the
Company and the Selling Shareholders may otherwise have, and the
obligations of the Underwriters under this Section 8 shall be in
addition to any liability which the Underwriters may otherwise have.
9. DEFAULT BY UNDERWRITERS. If on the Closing Date or the Option Closing
Date, as the case may be, any Underwriter shall fail to purchase and pay for the
portion of the Shares which such Underwriter has agreed to purchase and pay for
on such date (otherwise than by reason of any default on the part of the Company
or a Selling Shareholder), you, as Representatives of the Underwriters, shall
use your best efforts to procure within 36 hours thereafter one or more of the
other Underwriters, or any others, to purchase from the Company and the Selling
Shareholders such amounts as may be agreed upon, and upon the terms set forth
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<PAGE>
herein, of the Firm Shares or Option Shares, as the case may be, which the
defaulting Underwriter or Underwriters failed to purchase. If during such 36
hours you, as Representatives, shall not have procured such other Underwriters,
or any others, to purchase the Firm Shares or Option Shares, as the case may be,
agreed to be purchased by the defaulting Underwriter or Underwriters, then (a)
if the aggregate number of Shares with respect to which such default shall occur
does not exceed 10% of the Firm Shares or Option Shares, as the case may be,
covered hereby, the other Underwriters shall be obligated, severally, in
proportion to the respective numbers of Firm Shares or Option Shares, as the
case may be, which they are obligated to purchase hereunder, to purchase the
Firm Shares or Option Shares, as the case may be, which such defaulting
Underwriter or Underwriters failed to purchase, or (b) if the aggregate number
of shares of Firm Shares or Option Shares, as the case may be, with respect to
which such default shall occur exceeds 10% of the Firm Shares or Option Shares,
as the case may be, covered hereby, the Company and the Selling Shareholders or
you as the Representatives of the Underwriters will have the right, by written
notice given within the next 36-hour period to the parties to this Agreement, to
terminate this Agreement without liability on the part of the non-defaulting
Underwriters or of the Company and the Selling Shareholders except for expenses
to be borne by the Company, the Selling Shareholders and the Underwriters as
provided in Section 6 hereof and the indemnity and contribution agreements in
Section 8 hereof. In the event of a default by any Underwriter or Underwriters,
as set forth in this Section 9, the Closing Date or Option Closing Date, as the
case may be, may be postponed for such period, not exceeding seven days, as you,
as Representatives, may determine in order that the required changes in the
Registration Statement or in the Prospectus or in any other documents or
arrangements may be effected. The term "Underwriter" includes any person
substituted for a defaulting Underwriter. Any action taken under this Section 9
shall not relieve any defaulting Underwriter from liability in respect of any
default of such Underwriter under this Agreement.
10. NOTICES. All communications hereunder shall be in writing and, except
as otherwise provided herein, will be mailed, delivered or telegraphed and
confirmed as follows: if to the Underwriters, to Dain Bosworth Incorporated,
Dain Bosworth Plaza, 60 South Sixth Street, Minneapolis, Minnesota, Attention:
Brian J. Reagan, and John G. Kinnard and Company, Incorporated, Attention:
Michael Norton, with copies to D. William Kaufman, Esq., Popham, Haik,
Schnobrich & Kaufman, Ltd., 3300 Piper Jaffray Tower, 222 South Ninth Street,
Minneapolis, Minnesota 55402; if to the Company, to Possis Medical, Inc., 2905
Northwest Blvd., Minneapolis, Minnesota 55441-2644, Attention: Robert G.
Dutcher, with copies to David J. Lubben, Esq., Dorsey & Whitney, P.L.L.P., 220
South Sixth Street, Minneapolis, Minnesota 55402; and if to the Selling
Shareholders, to Robert G. Dutcher, 2905 Northwest Boulevard, Minneapolis,
Minnesota 55441-2644.
11. TERMINATION. This Agreement may be terminated by you by notice to the
Company and the Selling Shareholders as follows:
(a) at any time prior to the earlier of (i) the time the Shares
are released by you for sale by notice to the Underwriters or (ii)
4:00 p.m., Minneapolis time, on the first business day following the
later of the date on which the Registration Statement becomes
effective or the date of this Agreement;
(b) at any time prior to the Closing Date if any of the
following has occurred: (i) since the respective dates as of which
information is given in the Registration Statement and the Prospectus,
any material adverse change in or affecting the condition, financial
or otherwise, of the Company and its subsidiaries taken as a whole or
the business affairs, management, financial position, shareholders'
equity or results of operations of the Company and its subsidiaries
taken as a whole, whether or not arising in the ordinary course of
business, (ii) any outbreak or escalation of hostilities or
declaration of war or national emergency after the date hereof or
other national or international calamity or crisis or change in
economic or political conditions if the effect of such outbreak,
escalation, declaration, emergency, calamity, crisis or change on the
financial markets of the United States would, in your judgment, make
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<PAGE>
the offering or delivery of the Shares impracticable or inadvisable,
(iii) suspension of trading in securities on the New York Stock
Exchange or the American Stock Exchange or limitation on prices (other
than limitations on hours or numbers of days of trading) for
securities on either such Exchange, or a halt or suspension of trading
in securities generally which are quoted on Nasdaq National Market
System, or (iv) declaration of a banking moratorium by either federal
or New York State authorities; or
(c) as provided in Sections 7 and 9 of this Agreement.
This Agreement also may be terminated by you, by notice to the Company, as
to any obligation of the Underwriters to purchase the Option Shares, upon the
occurrence at any time prior to the Option Closing Date of any of the events
described in subparagraph (b) above or as provided in Sections 6 and 8 of this
Agreement.
12. WRITTEN INFORMATION. For all purposes under this Agreement
(including, without limitation, Section 1, Section 2, Section 3 and Section 8
hereof), the Company and the Selling Shareholders understand and agree with each
of the Underwriters that the following constitutes the only written information
furnished to the Company by or through the Representatives specifically for use
in preparation of the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto: (i) the per share "Price to
Public" and per share "Underwriting Discounts and Commissions" set forth on the
cover page of the Prospectus, (ii) the information relating to stabilization set
forth in the last paragraph on page two of the Preliminary Prospectus and the
Prospectus, and (iii) the information set forth in the , and
paragraphs under the caption "Underwriting" in the Preliminary Prospectus and
the Prospectus.
13. SUCCESSORS. This Agreement has been and is made solely for the
benefit of and shall be binding upon the Underwriters, the Company, the Selling
Shareholders and their respective successors, executors, administrators, heirs
and assigns, and the officers, directors and controlling persons referred to
herein, and no other person will have any right or obligation hereunder. The
term "successors" shall not include any purchaser of the Shares merely because
of such purchase.
14. MISCELLANEOUS. The reimbursement, indemnification and contribution
agreements contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect regardless of
(a) any termination of this Agreement, (b) any investigation made by or on
behalf of any Underwriter or controlling person thereof, or by or on behalf of
the Company or its directors or officers or the Selling Shareholders and (c)
delivery of and payment for the Shares under this Agreement.
Each provision of this Agreement shall be interpreted in such a manner as
to be effective and valid under applicable law, but if any provision of this
Agreement is held to be invalid, illegal or unenforceable under any applicable
law or rule in any jurisdiction, such provision will be ineffective only to the
extent of such invalidity, illegality or unenforceability in such jurisdiction
or any provision hereof in any other jurisdiction
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of Minnesota.
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company, the Selling
Shareholders and the several Underwriters in accordance with its terms.
Very truly yours,
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<PAGE>
POSSIS MEDICAL, INC.
By:
--------------------------------------
Robert G. Dutcher
President
SELLING SHAREHOLDERS LISTED ON
SCHEDULE B
By:
---------------------------------------
Attorney-in-Fact
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<PAGE>
The foregoing Underwriting
Agreement is hereby confirmed
and accepted as of the date
first above written.
DAIN BOSWORTH INCORPORATED
JOHN G. KINNARD AND COMPANY, INCORPORATED
As Representatives of the several Underwriters
By Dain Bosworth Incorporated
By:
---------------------------------------
Its:
--------------------------------------
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<PAGE>
SCHEDULE A
SCHEDULE OF UNDERWRITERS
<TABLE>
<CAPTION>
Number of Firm Maximum Number
Underwriter Shares to be Purchased of Option Shares
----------- ---------------------- ----------------
<S> <C> <C>
Dain Bosworth Incorporated . . . .
John G. Kinnard and Company, Incorporated
. . . . . . . . . . . . . . . . . . Total 1,910,000 286,500
</TABLE>
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<PAGE>
SCHEDULE B
<TABLE>
<CAPTION>
Number of Maximum Number
Seller Firm Shares of Option Shares
------ ----------- ----------------
<S> <C> <C>
Possis Medical, Inc. . . . . . . . 1,750,000 286,500
Selling Shareholders:
The Possis Marital Trust . . . 125,000
Demetre M. Nicoloff, M.D.. . . 20,000
Seymour J. Mansfield . . . . . 10,000
Ann M. Possis. . . . . . . . . 5,000
Total. . . . . . . . . . . . . 1,910,000 286,500
</TABLE>
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<PAGE>
Exhibit 5
---------
Possis Medical, Inc.
2905 Northwest Boulevard
Minneapolis, Minnesota 55441
Re: Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as counsel to Possis Medical, Inc., a Minnesota
corporation (the "Company"), in connection with a Registration Statement on Form
S-3 (the "Registration Statement") relating to 2,196,500 shares of the Company's
common stock, par value $.40 per share (the "Common Stock"), 2,036,500 of which
(including 286,500 shares to be subject to the Underwriters' over-allotment
option) are authorized but heretofore unissued and 160,000 of which will be sold
by certain shareholders of the Company (the "Selling Shareholders").
We have examined such documents and have reviewed such questions of
law as we deemed necessary and appropriate for the purposes of our opinion set
forth below. In rendering this opinion, we have assumed the authenticity of all
documents submitted to us as originals, the genuineness of all signatures and
the conformity to authentic originals of all documents submitted to us as
copies. We have also assumed the legal capacity for all purposes relevant
hereto of all natural persons and, with respect to all parties to agreements or
instruments relevant hereto other than the Company, that such parties had the
requisite power and authority (corporate or otherwise) to execute, deliver and
perform such agreements or instruments, that such agreements or instruments have
been duly authorized by all requisite action (corporate or otherwise), executed
and delivered by such parties and that such agreements or instruments are the
valid, binding and enforceable obligations of such parties. As to questions of
fact material to our opinion, we have relied upon certificates of officers of
the Company and of public officials. We have also assumed for purposes of this
opinion that the Common Stock will be priced by the Pricing Committee
established by the authorizing resolutions adopted by the Company's Board of
Directors in accordance with such resolutions and will be issued and sold as
described in the Registration Statement.
Based on the foregoing, we are of the opinion that the shares of
Common Stock to be sold by the Selling Shareholders have been, and the shares of
Common Stock to be sold by the Company pursuant to the Registration Statement,
upon issuance, delivery and payment therefor as described in the Registration
Statement, will be, validly issued, fully paid and nonassessable.
Our opinion expressed above is limited to the laws of the State of
Minnesota.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the heading
"Legal Matters" in the Prospectus constituting part of the Registration
Statement.
Dated: August 22, 1995
Very truly yours,
/s/ Dorsey & Whitney P.L.L.P.
DJL
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Possis Medical, Inc. on
Form S-3 of our report dated October 7, 1994, incorporated by reference in the
Annual Report on Form 10-K of Possis Medical, Inc. for the year ended July 31,
1994, and to the use of our report dated October 7, 1994, appearing in the
Prospectus, which is part of this Registration Statement. We also consent to
the reference to us under the headings "Selected Consolidated Financial Data"
and "Experts" in such Prospectus.
Deloitte & Touche LLP
Minneapolis, Minnesota
August 21, 1995
