SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[x] Quarterly report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 1999
OR
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from_________ to_________
Commission file number 0-23837
SurModics, Inc.
(Exact Name of Small Business Issuer as Specified in Its Charter)
MINNESOTA 41-1356149
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
9924 West 74th Street
Eden Prairie, Minnesota 55344
(Address of Principal Executive Offices)
(612) 829-2700
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No____
As of July 30, 1999, there were 7,422,772 shares of Common Stock
outstanding.
Traditional Small Business Disclosure Format (check one):
Yes____ No X
1
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SURMODICS, INC.
Condensed Balance Sheets
(In thousands, except share data)
<TABLE>
<CAPTION>
June 30, September 30,
1999 1998
------------------ -----------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash & cash equivalents $1,135 $1,344
Short-term investments 1,830 3,526
Accounts receivable, net 1,351 1,057
Inventories 466 380
Prepaids and other 380 255
------------------ -----------------
Total current assets 5,162 6,562
------------------ -----------------
PROPERTY AND EQUIPMENT, net 4,752 1,240
LONG-TERM INVESTMENTS 16,572 16,249
OTHER ASSETS, net 981 254
------------------ -----------------
$27,467 $24,305
================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $208 $305
Accrued liabilities 840 950
Deferred revenues 220 228
------------------ -----------------
Total current liabilities 1,268 1,483
DEFERRED REVENUES AND OTHER, less current portion -- 124
------------------ -----------------
Total liabilities 1,268 1,607
------------------ -----------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock-
$.05 par value, 150,000 shares authorized;
no shares issued or outstanding -- --
Common stock-
$.05 par value, 15,000,000 shares authorized;
7,403,387 and 7,214,085 shares issued and outstanding 370 361
Additional paid-in capital 29,603 28,934
Unearned compensation (233) (170)
Stock purchase notes receivable (86) (182)
Accumulated other comprehensive income (175) 278
Accumulated deficit (3,280) (6,523)
------------------ -----------------
Total stockholders' equity 26,199 22,698
------------------ -----------------
$27,467 $24,305
================== =================
</TABLE>
The accompanying notes are an integral part of these condensed
balance sheets.
2
<PAGE>
SURMODICS, INC.
Condensed Statements of Income and Comprehensive Income
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ -----------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Royalties $1,692 $1,240 $4,528 $3,447
License fees 225 88 550 148
Product sales 1,126 831 2,916 2,063
Research and development 642 513 1,638 1,502
------ ------ ------ ------
Total revenues 3,685 2,672 9,632 7,160
------ ------ ------ ------
OPERATING COSTS AND EXPENSES:
Product 381 344 1,060 912
Research and development 1,345 1,184 3,723 3,244
Sales and marketing 504 361 1,339 1,105
General and administrative 700 453 1,899 1,180
------ ------ ------ ------
Total operating costs and expenses 2,930 2,342 8,021 6,441
------ ------ ------ ------
INCOME FROM OPERATIONS 755 330 1,611 719
------ ------ ------ ------
OTHER INCOME:
Interest income, net 267 248 797 399
Gain (loss) on sale of investments (2) -- 92 --
------ ------ ------ ------
Other income, net 265 248 889 399
------ ------ ------ ------
INCOME BEFORE PROVISION FOR INCOME TAXES 1,020 578 2,500 1,118
INCOME TAX BENEFIT (PROVISION) (Note 3) 194 (12) 743 (25)
------ ------ ------ ------
NET INCOME 1,214 566 3,243 1,093
------ ------ ------ ------
OTHER COMPREHENSIVE INCOME (LOSS), net of tax
Unrealized losses on securities:
Unrealized holding losses arising during the period (141) -- (453) --
Less: reclassification adjustment for gains/(losses)
included in net income (2) -- 92 --
------ ------ ------ ------
Other comprehensive loss (143) -- (361) --
COMPREHENSIVE INCOME $1,071 $566 $2,882 $1,093
====== ====== ====== ======
NET INCOME PER SHARE:
Basic $0.16 $0.08 $0.44 $0.19
Diluted $0.15 $0.07 $0.41 $0.17
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic weighted average common shares outstanding 7,368 7,218 7,289 5,897
Dilutive effect of outstanding stock options 726 646 703 543
------ ------ ------ ------
Diluted weighted average common shares outstanding 8,094 7,864 7,992 6,440
</TABLE>
The accompanying notes are an integral part of these
condensed financial statements.
3
<PAGE>
SURMODICS, INC.
Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
-----------------------------
1999 1998
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $3,243 $1,093
Adjustments to reconcile net income to net cash provided by
operating activities-
Depreciation and amortization 523 436
Amortization of unearned compensation, net 61 94
Deferred rent (30) (12)
Deferred taxes (747) --
Change in assets and liabilities:
Accounts receivable (295) (201)
Inventories (86) (40)
Prepaids and other (207) (141)
Accounts payable and accrued liabilities (102) 207
Deferred revenues (121) (180)
------------- -------------
Net cash provided by operating activities 2,239 1,256
------------- -------------
INVESTING ACTIVITIES:
Purchases of property and equipment, net (4,018) (597)
Purchases of investments available for sale (20,463) (17,500)
Sales of investments available for sale 21,383 2,569
Collections on stock purchase notes receivable 96 --
Other -- (22)
------------- -------------
Net cash used in investing activities (3,002) (15,550)
------------- -------------
FINANCING ACTIVITIES:
Issuance of common stock 554 15,643
------------- -------------
Net increase (decrease) in cash and cash equivalents (209) 1,349
CASH AND CASH EQUIVALENTS:
Beginning of period 1,344 492
------------- -------------
End of period $1,135 $1,841
============= =============
</TABLE>
The accompanying notes are an integral part of these condensed
financial statements.
4
<PAGE>
SURMODICS, INC.
Notes to Condensed Financial Statements
(Unaudited)
(1) Basis of Presentation:
In the opinion of management, the accompanying unaudited condensed
financial statements have been prepared in accordance with generally accepted
accounting principles and reflect all adjustments, consisting solely of normal
recurring adjustments, needed to fairly present the financial results for these
interim periods. These financial statements include some amounts that are based
on management's best estimates and judgments. These estimates may be adjusted as
more information becomes available, and any adjustment could be significant. The
results of operations for the three months and nine months ended June 30, 1999
are not necessarily indicative of the results that may be expected for the
entire fiscal year.
According to the rules and regulations of the Securities and Exchange
Commission, the Company has omitted footnote disclosures that would
substantially duplicate the disclosures contained in the audited financial
statements of the Company. Read together with the disclosures below, management
believes the interim financial statements are presented fairly. However, these
unaudited condensed financial statements should be read together with the
financial statements for the year ended September 30, 1998 and footnotes thereto
included in the Company's 10-KSB as filed with the Securities and Exchange
Commission.
(2) New Accounting Pronouncements
The Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which establishes a new model for segment
reporting, called the "management approach," and requires certain disclosures
for each segment. The management approach is based on the way the chief
operating decision maker organizes segments within a company for making
operating decisions and assessing performance. The Company will adopt the
provisions of SFAS No. 131 in the fourth quarter of fiscal 1999 by providing
additional disclosures.
(3) Income Taxes
Current accounting standards require that future tax benefits, such as
net operating loss carryforwards ("NOLs"), be recognized to the extent that
realization of such benefits is more likely than not. Through September 30,
1998, management had established a valuation allowance of $2.6 million to offset
tax benefits that did not meet the more-likely-than-not criteria.
Based upon recent operating performance and other considerations,
management subsequently concluded that the Company will generate sufficient
future taxable income to meet the more-likely-than-not criteria. As a result,
net income included the reversal of income tax valuation reserves of
approximately $572,000 and $1,634,000 for the three months and nine months ended
June 30, 1999, respectively, reducing the Company's tax provision to a net
credit of $194,000 and $743,000 for the three months and nine months ended June
30, 1999, respectively, based upon the Company's estimated tax rate for the full
fiscal year.
5
<PAGE>
(4) Shareholder Rights Plan
In April 1999, the Company adopted a Shareholder Rights Plan (the
"Rights Plan"). Under the Rights Plan, the Board of Directors declared a
dividend to shareholders of record of one preferred stock purchase right (the
"Rights") for each outstanding share of common stock. The Rights issued under
the plan will only become exercisable by shareholders, other than a potential
acquirer, following an acquisition by the acquirer (without prior approval of
the Company's Board of Directors) of 15% or more of the Company's common stock,
or the announcement of a tender offer for 15% or more of the common stock. The
Rights will expire in April 2009. In conjunction with the adoption of the Rights
Plan, the Board of Directors authorized 150,00 shares of $.05 par value
preferred stock.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
General
SurModics is a leading provider of surface modification solutions to
medical device manufacturers. The Company's revenues are derived from four
primary sources: fees from licensing its patented technology to customers;
royalties received from licensees; the sale of photoreactive chemical compounds
to licensees and stabilization products to the diagnostics industry; and
research and development fees generated on projects for commercial customers and
pursuant to government grants. In March 1998, the Company completed an initial
public offering ("IPO") of 2.3 million shares of Common Stock which generated
proceeds of approximately $15.5 million, net of related offering costs.
Results of Operations
Three Months Ended June 30, 1999 and 1998
Revenues. The Company's revenues were $3.7 million for the third
quarter of fiscal 1999, an increase of $1,013,000, or 37.9%, over the same
period of fiscal 1998. The revenue components were as follows (in thousands):
<TABLE>
<CAPTION>
$ Increase % Increase
1999 1998 (Decrease) (Decrease)
---- ---- ----------- -----------
<S> <C> <C> <C> <C>
PhotoLink(R) commercial revenue:
Royalties $ 977 $ 545 $ 432 79.3%
License fees 225 88 137 155.7%
Reagent chemical sales 520 249 271 108.8%
Commercial development 412 219 193 88.1%
--- --- ---
Total PhotoLink revenue 2,134 1,101 1,033 93.8%
Other revenue:
Diagnostic royalties 715 695 20 2.9%
Stabilization product sales 606 582 24 4.1%
Government research 230 294 (64) (21.8%)
--- --- ----
Total other revenue 1,551 1,571 (20) (1.3)%
----- ----- ----
Total revenues $3,685 $2,672 $1,013 37.9%
====== ====== ======
</TABLE>
The third quarter revenue growth was primarily a result of a 93.8%
increase in PhotoLink-related revenue. The 79.3% growth in PhotoLink royalties
resulted from the introduction of additional coated products by the Company's
licensees and increases in earned royalties from greater market penetration of
previously introduced coated products. The 108.8% increase in reagent chemical
sales (those chemicals used by licensees in the PhotoLink coating process) was
due to growing production of PhotoLink-coated devices by SurModics' clients. A
single client purchased 67% of the reagents sold during the quarter to build
inventory for a product launch that occurred during the current quarter. The
88.1% increase in commercial development was primarily due to a high level of
effort on development projects for two clients. This level of effort is not
expected to continue, therefore, it is anticipated that the commercial
development revenue will decrease in the fourth quarter. SurModics signed five
new PhotoLink license agreements during the third quarter, which resulted in
license fee revenue of $225,000.
Product costs. The Company's product costs were $381,000 for the third
quarter of fiscal 1999, an increase of $37,000, or 10.8%, over the same period
of fiscal 1998. Overall product margins increased to 66.2% in the third quarter
7
<PAGE>
of fiscal 1999 from 58.6% in the same period of fiscal 1998. The margin
improvement was the result of efficiencies achieved in manufacturing reagent
chemicals due to increased production volumes.
Research and development expenses. Research and development expenses
were $1,345,000 for the third quarter of fiscal 1999, an increase of $161,000,
or 13.6%, over the same period of fiscal 1998. The change was primarily due to
added compensation and benefits, and general business expenses associated with
technical personnel added by the Company over the last year and increased patent
and legal fees. The increase was offset by lower external project charges on
government grants.
Sales and marketing expenses. Sales and marketing expenses were
$504,000 for the third quarter of fiscal 1999, an increase of $143,000, or
39.6%, from the same period of fiscal 1998. This increase was due to higher
promotional costs associated with a recent product introduction and compensation
and benefit costs associated with additional marketing personnel added by the
Company over the last year.
General and administrative expenses. General and administrative
expenses were $700,000 for the third quarter of fiscal 1999, an increase of
$247,000, or 54.6%, over the same period of fiscal 1998. The increase was the
result of several factors including charges related to the purchase of the
Company's headquarters building, expenses associated with being a public company
(such as investor relations costs, and other external reporting expenses), and
costs associated with the Company President, who was appointed late last summer.
Income from operations. The Company's income from operations was
$755,000 for the third quarter of fiscal 1999, an increase of $425,000, or
128.5%, over the same period of fiscal 1998.
Other income, net. The Company's other income was $265,000 for the
third quarter of fiscal 1999, an increase of $17,000, or 6.9%, over the same
period of fiscal 1998. The increase was due to additional interest income
realized on a higher level of investments.
Income tax benefit. The Company ended fiscal 1998 with $2.6 million of
deferred tax assets, which were offset in full by a valuation allowance. Based
upon recent operating performance and other considerations, management concluded
that the Company will generate sufficient future taxable income to realize the
deferred tax asset prior to the expiration of any NOLs. As a result, during the
quarter, net income included the reversal of income tax valuation reserves of
approximately $572,000 reducing the Company's tax provision at statutory rates
to a net credit of $194,000 based upon the Company's estimated tax rate for the
full fiscal year. It is anticipated that similar amounts will be recorded in the
fourth quarter in order to fully recognize the deferred tax asset by the end of
the fiscal year. Excluding the effect of the reversal of income tax valuation
reserves, the Company's net income and diluted net income per share would have
been as follows on a proforma basis:
Proforma
Three Months Ended June 30,
1999 1998
---- ----
Net income before provision for income taxes $1,020,000 $578,000
Income tax provision (378,000) (214,000)
Net income $ 642,000 $364,000
========== ========
Diluted net income per share $0.08 $0.05
===== =====
Other comprehensive income (loss). The Company's other comprehensive
loss was $143,000 for the third quarter of fiscal 1999. This loss was due to a
8
<PAGE>
reduction in the market value of the Company's long-term investments available
for sale. As of June 30, 1999, the Company had a net $175,000 unrealized loss
related to those investments.
Nine Months Ended June 30, 1999 and 1998
Revenues. The Company's revenues were $9.6 million for the first nine
months of fiscal 1999, an increase of $2.5 million, or 34.5%, over the same
period of fiscal 1998. The revenue components were as follows (in thousands):
<TABLE>
<CAPTION>
$ Increase % Increase
1999 1998 (Decrease) (Decrease)
---- ---- ----------- -----------
<S> <C> <C> <C> <C>
PhotoLink commercial revenue:
Royalties $2,486 $1,522 $964 63.3%
License fees 550 148 402 271.6%
Reagent chemical sales 1,295 562 733 130.4%
Commercial development 903 707 196 27.7%
--- --- ---
Total PhotoLink revenue 5,234 2,939 2,295 78.1%
Other revenue:
Diagnostic royalties 2,042 1,925 117 6.1%
Stabilization product sales 1,621 1,501 120 8.0%
Government research 735 795 (60) (7.5%)
--- --- ----
Total other revenue 4,398 4,221 177 4.2%
----- ----- ---
Total revenues $9,632 $7,160 $2,472 34.5%
====== ====== ======
</TABLE>
The year to date revenue growth was primarily a result of a 78.1%
increase in PhotoLink-related revenue. The 63.3% growth in PhotoLink royalties
was the result of increases in the minimum royalty payments from certain
clients, the introduction of additional coated products by the Company's
clients, and increased earned royalties from greater market penetration of
coated products sold by licensees. The 130.4% increase in reagent chemical sales
was due to growing production of PhotoLink-coated devices by SurModics' clients.
PhotoLink license fee revenue totaled $550,000 during the first nine months of
fiscal 1999. Twelve new license agreements have been signed during the first
nine months of this year compared to two new agreements during the first nine
months of last year.
Product costs. The Company's product costs were $1,060,000 for the
first nine months of fiscal 1999, an increase of $148,000, or 16.3%, over the
same period of fiscal 1998. Overall product margins increased to 63.6% in the
first nine months of fiscal 1999 from 55.8% in the same period of fiscal 1998.
The margin improvement was primarily the result of efficiencies achieved in
manufacturing reagent chemicals due to increased production volumes.
Research and development expenses. Research and development expenses
were $3,723,000 for the first nine months of fiscal 1999, an increase of
$479,000, or 14.8%, over the same period of fiscal 1998. The change was due to
additional compensation and benefits, laboratory supplies, and general business
expenses associated with technical personnel added by the Company during the
period and increased legal and patent fees. This increase was offset by lower
external project charges on government grants.
Sales and marketing expenses. Sales and marketing expenses were
$1,339,000 for the first nine months of fiscal 1999, an increase of $234,000, or
21.2%, over the same period of fiscal 1998. This increase was primarily the
result of compensation and benefits associated with additional marketing
personnel and spending for advertising and promotions. Increases were offset by
a reduction in external consulting expenses associated with a market research
study performed last year.
9
<PAGE>
General and administrative expenses. General and administrative
expenses were $1,899,000 for the first nine months of fiscal 1999, an increase
of $719,000, or 60.9%, over the same period of fiscal 1998. The increase was due
primarily to the cost of maintaining a directors' and officers' liability
insurance policy added in March 1998, expenses associated with being a public
company (such as investor relations costs, and other external reporting
expenses), expenses associated with the recently adopted shareholder rights
plan, and costs associated with the Company President, who was appointed late
last summer.
Income from operations. The Company's income from operations was
$1,611,000 for the first nine months of fiscal 1999, an increase of $892,000, or
124.1%, over the same period of fiscal 1998.
Other income, net. The Company's other income was $889,000 for the
first nine months of fiscal 1999, an increase of $490,000, or 122.8%, over the
same period of fiscal 1998. The increase was due to additional interest income
realized on the investments purchased with the proceeds of the public stock
offering. In addition, the Company sold certain investments available for sale
resulting in a net gain of $92,000, which can be offset in full by the Company's
capital loss carryforwards for tax purposes.
Income tax benefit. During the first nine months, net income included
the reversal of income tax valuation reserves of $1,634,000 reducing the
Company's tax provision at statutory rates to a net credit of $743,000 based
upon the Company's estimated tax rate for the full fiscal year. It is
anticipated that similar amounts will be recorded in the fourth quarter in order
to fully recognize the deferred tax asset by the end of the fiscal year.
Excluding the effect of the reversal of income tax valuation reserves, the
Company's net income and diluted net income per share would have been as follows
on a proforma basis:
Proforma
--------
Nine Months Ended June 30,
--------------------------
1999 1998
---- ----
Net income before provision for income taxes $2,500,000 $1,118,000
Income tax provision (891,000) (414,000)
---------- ----------
Net income $1,609,000 $ 704,000
========== =========
Diluted net income per share $0.20 $0.11
===== =====
Other comprehensive income (loss). The Company's other comprehensive
loss was $361,000 for the first nine months of fiscal 1999. This loss was due to
a reduction in the market value of the Company's long-term investments available
for sale. As of June 30, 1999, the Company had a net $175,000 unrealized loss
related to those investments.
Year 2000 Compliance
The Company has evaluated its information technology infrastructure for
Year 2000 compliance. The Company does not utilize any mainframe technology, but
instead has an internal technical infrastructure comprised of client server
networks and desktop microcomputers. The applications which run on these
computers are primarily purchased software without any significant customized
programming. Over the last three years, the Company has routinely upgraded most
of its computer hardware, software and telecommunications systems. Based on its
internal reviews, the Company does not anticipate any problems related to Year
2000 compliance with its information technology infrastructure.
10
<PAGE>
The Company has evaluated its non-information technology systems with
regard to Year 2000 compliance. This is especially important related to embedded
technology such as microcontrollers contained in certain lab equipment, and raw
material suppliers who support the Company's manufacturing process. Based upon
information currently available, the Company does not anticipate any material
disruption in its operations as a result of any failure by either
non-information technology equipment or one of its suppliers to be in
compliance. Compliance should not be an issue with the Company's products, since
they are not date-sensitive.
Costs associated with Year 2000 compliance are expensed as incurred. To
date, those costs have not been material. Based upon currently available
information, the Company does not expect that the costs of addressing potential
Year 2000 problems will have a material impact on the Company's financial
condition or results of operations. The Company plans to devote the necessary
resources to resolve any significant Year 2000 issues by no later than the end
of fiscal year 1999.
Although the Company is committed to addressing any issues well in
advance of the Year 2000, there are risks if the Company's objectives are not
met. The most severe risk is business interruption. Specific examples of
situations that could cause business interruption include, among others, (i)
computer hardware or application software processing errors or failures; (ii)
failure of lab or manufacturing equipment; and (iii) outside suppliers who may
not be Year 2000 compliant. Depending on the extent and duration of the business
interruption resulting from non-compliant Year 2000 systems, such interruption
could have a material adverse effect on the Company's financial condition and
results of operations.
Liquidity and Capital Resources
As of June 30, 1999, the Company had working capital of approximately
$3.9 million and cash, cash equivalents and investments totaling approximately
$19.5 million. The Company generated positive cash flows from operating
activities of $2.2 million in the first nine months, which was an increase of
78.3% for the same period of last year, primarily due to the increased net
income. Approximately $3.0 million of cash was used for investing activities
during the first nine months compared to $15.6 million last year. The
significant change in investing activities between years was due to the
repositioning of the Company's proceeds from its March 1998 initial public
offering managed by an external investment manager. The investment manager is
guided by an investment policy adopted by the Company. The Company's investments
principally consist of U.S. government agency obligations and investment grade,
interest-bearing corporate debt securities with varying maturity dates, the
majority of which are three years or less. In addition, in May 1999, the Company
purchased the land and building it currently occupies (which includes additional
space for expansion) for approximately $3.2 million. Finally, $600,000 of cash
was generated from financing activities due to the exercise of stock options
during the first nine months of the year. Last year, a net of $15.5 million of
cash was generated in the Company's initial public offering of 2.3 million
shares of Common Stock.
As of June 30, 1999, the Company had no debt, nor did it have any
credit agreements. The Company believes that its existing capital resources will
be adequate to fund the Company's operations into the foreseeable future.
11
<PAGE>
Forward Looking Statements
The statements contained in this quarterly report relating to future
revenue growth are based on current expectations and involve a number of risks
and uncertainties. These statements are forward looking and are made pursuant to
the safe harbor provisions of the Private Securities Reform Act of 1995. The
following factors could cause royalty revenue to materially and adversely differ
from that anticipated: the ability of the Company's licensees to successfully
gain regulatory approval for, market and sell products incorporating the
Company's technology; the amount and timing of resources devoted by the
Company's licensees to market and sell products incorporating the Company's
technology; the Company's ability to attract new licensees and to enter into
agreements for additional applications with existing licensees; the Company's
ability to maintain a competitive position in the development of technologies
and products in its areas of focus; and business and general economic
conditions.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities and Use of Proceeds.
Use of Proceeds for the period ending June 30, 1999.
(1) Effective Date: March 3, 1998
SEC File Number: 333-43217
(2) Offering Date: March 3, 1998
(4)(i) The offering has terminated; all securities registered
were sold.
(4)(ii) Managing Underwriter: John G. Kinnard and
Company, Incorporated
(4)(iii) Title of Securities: Common Stock
(4)(iv) Amount Registered: 2,300,000
Aggregate Offering Price: $17,250,000
Amount Sold: 2,300,000
Aggregate Offering Price Sold: $17,250,000
(4)(v) Underwriting Discount and Commissions $ 1,293,750
Other Expenses $ 435,148
Total Expenses $ 1,728,898
All the above items represented direct or indirect
payments to others.
(4)(vi) Net Offering Proceeds $15,521,102
(4)(vii) Use of Net Offering Proceeds:
Research and development $ 732,000
Sales and marketing $ 684,000
Property and equipment upgrades $ 4,343,000
Patent protection $ 111,000
Working capital and general
corporate purposes $ 588,000
Money market funds $ 9,063,102
All the above items represented direct or indirect
payments to others.
12
<PAGE>
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits-10 SurModics, Inc. Executive Income Continuation Plan
27 Financial Data Schedule
(b) Reports on Form 8-K - None
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SurModics, Inc.
August 12, 1999
By: /s/ Stephen C. Hathaway
Stephen C. Hathaway
Vice President & CFO
(Principal Financial Officer)
13
<PAGE>
Exhibit Index
Exhibit Number Description
-------------- -----------
10 SurModics, Inc. Executive Income
Continuation Plan
27 Financial Data Schedule
14
SURMODICS, INC.
EXECUTIVE INCOME CONTINUATION PLAN
SECTION 1.
DEFINITIONS
As used herein, the following terms shall have the meanings indicated
below:
(a) "Administrator" shall have the meaning set forth in Section 4.
(b) "Board" shall mean the Board of Directors of the Corporation.
(c) "Committee" shall mean a committee of one or more directors who
shall be appointed by and serve at the pleasure of the Board.
(d) "Corporation" shall mean SurModics, Inc., a Minnesota corporation.
(e) "Employment Termination Date" shall mean the date on which
Employee's employment by the Corporation is terminated.
(f) "Employee" means an employee of the Corporation whose employment
with the Corporation has been or is about to be terminated.
(g) "Plan" means this Executive Income Continuation Plan, as amended
hereafter from time to time, including the form of Termination Agreements as
they may be modified by the Administrator from time to time.
(h) "Severance Pay" shall have the meaning set forth in Section 6.
(i) "Termination Agreement" shall have the meaning set forth in Section
6.
SECTION 2.
PURPOSE
The purpose of the Plan is to provide, under certain circumstances,
continued income and benefits to designated executive-level employees of the
Corporation in the event of certain terminations of employment. Such policy is
intended to assist in the occupational transition and financial security of such
executive-level employees who do not violate any of the conditions to which such
continued income is subject.
1
<PAGE>
SECTION 3.
EFFECTIVE DATE OF PLAN
The Plan shall be effective as of the date of adoption by the Board of
Directors.
SECTION 4.
ADMINISTRATION
The Plan shall be administered by the Board or by a Committee (in
either case, the "Administrator"). The Administrator shall have all of the
powers vested in it under the provisions of the Plan, including but not limited
to exclusive authority (where applicable and within the limitations described in
the Plan) to determine, in its sole discretion, application of the Plan to a
particular Employee. The Administrator shall have full power and authority to
administer and interpret the Plan, to make and amend rules, regulations and
guidelines for administering the Plan, to prescribe the form and conditions of
agreements entered into by the Corporation and an Employee to carry out the
intent of the plan (which may vary from Employee to Employee) and to make all
other determinations necessary or advisable for the administration of the Plan.
The Administrator's interpretation of the Plan, and all actions taken and
determinations made by the Administrator pursuant to the power vested in it
hereunder, shall be conclusive and binding on all parties concerned.
No member of the Board or the Committee shall be liable for any action
taken or determination made in good faith in connection with the administration
of the Plan. In the event the Board appoints a Committee as provided hereunder,
any action of the Committee with respect to the administration of the Plan shall
be taken pursuant to a majority vote of the Committee members or pursuant to the
written resolution of all Committee members.
SECTION 5.
PARTICIPANTS
The Administrator shall from time to time, at its discretion, designate
those Employees of the Corporation whom are eligible to participate in the Plan.
The Board may from time to time designate Employees as being ineligible to
participate in the Plan. No person shall have any rights under the Plan unless
and until a Termination Agreement is fully executed with respect to that person
and no such person shall have any right to require that an agreement be executed
with respect to him or her.
2
<PAGE>
SECTION 6.
TERMS AND CONDITIONS OF AGREEMENTS UNDER THE PLAN
The terms and conditions for continued income and certain benefits
under the Plan shall be evidenced by a written termination agreement (the
"Termination Agreement"). The Termination Agreement shall be in such form as may
be approved from time to time by the Administrator, provided, however, that each
Termination Agreement shall comply with and be subject to the following terms
and conditions:
(a) Severance Payments. The Termination Agreement shall state
the total amount of severance payments to be paid to the Employee
("Severance Pay"). Severance Pay shall range from 10% to 100% of
Employee's base annual salary on the Employment Termination Date.
(b) Incentive Compensation Program. If the Employee is a
participant in an incentive compensation program of the Corporation on
the Employment Termination Date, the Termination Agreement shall
provide that the Employee will receive from 1/12ths to 12/12ths of the
amount to which the Employee would otherwise be entitled pursuant to
such program if the Employee has remained an employee of the
Corporation.
(c) Benefits. The Agreement shall provide that Employee will
be allowed to participate in the Corporation's group health, dental,
and life insurance coverage, if any, for a number of months ranging
from 1 to 12 months following the Employment Termination Date, on the
same basis the Employee was participating three months prior to the
Employment Termination Date.
(d) Other Provisions. The Termination Agreement shall
contain such other provisions as the Administrator shall deem
advisable.
SECTION 7.
AMENDMENT OF THE PLAN
The Board may from time to time, insofar as permitted by law, suspend
or discontinue the Plan or revise or amend it in any respect; provided, however,
that no such revision or amendment shall impair the terms and conditions of any
Termination Agreement which is in effect on the date of such revision or
amendment to the material detriment of the Employee without the consent of the
Employee.
3
<PAGE>
FORM OF TERMINATION AGREEMENT
Corporation: SurModics, Inc.
9924 West 74th Street
Eden Prairie, Minnesota 55344-3523
Employee: _________________________________
Employment Termination Date: _________________________________
THIS AGREEMENT is made effective as of _______________________
(the "Agreement Effective Date") by and between the Corporation and Employee.
RECITALS:
A. Employee is an employee and officer of the Corporation.
B. In connection with his employment, Employee executed a certain
employment agreement (the "Employment Agreement") attached hereto as Exhibit A.
C. From time to time, Employee executed certain conflict of interest
disclosure statements, some of which are attached hereto as Exhibit B
("Disclosure Statements").
D. The Corporation and Employee have engaged in discussions concerning
Employee's separation from the Corporation and desire to memorialize their
understandings concerning certain payments to be made to Employee in exchange
for certain undertakings, representations and other obligations of Employee, all
as hereinafter set forth.
E. This Agreement constitutes a Termination Agreement under the
Corporation's Executive Income Continuation Plan (the "Plan").
F. The Administrator of the Plan has authorized the Corporation to
enter into this Agreement with Employee.
NOW, THEREFORE, in consideration of the foregoing recitals which are
expressly incorporated herein by reference, of the following terms, covenants,
conditions, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by the Corporation and Employee, the
parties hereto agree as follows:
1. Resignation. Employee hereby resigns from employment with and as an
officer of the Corporation effective as of the Employment Termination Date; the
Corporation consents to such resignation, each party waiving any notice
otherwise required. Except as otherwise specifically provided for in this
Agreement, Employee hereby waives any other compensation (whether it be cash
wages, benefits, vacation, any other paid time off, or otherwise) to which he is
or may become entitled arising out of his employment relationship with the
Corporation. Employee acknowledges he has received full payment for all services
rendered to the Corporation through __________________ and will, when he has
received his regular base salary payments due __________________ have received
1
<PAGE>
full payment for all services rendered to the Corporation through the date of
termination of his employment, except with respect to the "Incentive
Compensation Program" described below. Furthermore, Employee acknowledges that
the Corporation owes him no reimbursement for expenses accrued through the
Agreement Effective Date excepting those detailed on Exhibit C hereto. Between
the Agreement Effective Date and the Employment Termination Date, Employee shall
not incur expenses on behalf of the Corporation and shall not be entitled to
reimbursement of expenses he incurs except to the extent prior written approval
is given by two officers of the Corporation.
[1A. Incentive Compensation Program. Employee is a participant in the
Corporation's Incentive Compensation Program regarding fiscal year ______, a
copy of which is attached hereto as Exhibit H. Corporation will pay Employee
___/12ths of the amount to which he would otherwise be entitled pursuant to the
Incentive Compensation Program if he had remained an employee, up to a maximum
of ___________________. Such amount will be payable, after subtraction of tax
withholding amounts, during December ________.]
2. Interim Services. Employee will provide full-time services to the
Corporation until the Employment Termination Date. During this time, Employee
will exercise best efforts to execute a smooth transition such that the
Corporation's relationships with its other employees, its customers, and its
prospective customers are preserved and enhanced. In this regard, Employee shall
cooperate fully in designing and implementing a plan of transition, including,
without limitation, introducing substitute Corporation personnel to clients and
customers of the Corporation, providing detailed memoranda on existing and
prospective clients and customers, organizing files and similar services.
Because of the short time remaining prior to the Employment Termination Date,
Employee agrees to work closely with the Corporation's officers in implementing
the previous provisions of this Paragraph 2.
3. Post-Termination Consultation. While the parties intend that prior
to the Employment Termination Agreement, Employee's transitional services will
fully integrate one or more substitute employees of the Corporation to perform
Employee's duties, it is understood that there may occur situations following
that date in which consultation with Employee is desirable. In that regard,
Employee agrees to provide at the Corporation's request, and upon reasonable
notice, and, without cost, excepting reimbursement of out-of-pocket expenses,
occasional consulting services through _______________. If requested services of
Employee exceed an average of ___ hours per month (a total of ___ hours),
Employee shall, in advance of providing services beyond such cumulative hour
limitation, notify the Corporation in writing and, if the Corporation desires
Employee's services, Employee and the Corporation shall negotiate an agreeable
fee structure.
4. Benefits. Employee will be allowed to continue participation in the
Corporation's group health, dental, and life insurance coverage for an
additional ___ months following the Employment Termination Date, on the same
basis he is participating three months prior thereto. The Corporation will pay
Employee's premiums for participation in the group health and dental insurance
plans providing coverage for a period of ___ months following the Employment
Termination Date, provided that: (i) the Corporation's aggregate financial
obligation with respect to such premiums shall not exceed ____________; (ii)
Employee remains an eligible participant in the Corporation's group health and
dental programs; and (iii) the Corporation shall be unrestricted in its right to
2
<PAGE>
terminate or change such plans (in the event of termination or change of such
plans, Employee shall have the right to take a cash payment in lieu of such
benefits equal to the then unconsumed portion of the Corporation's maximum
financial obligation as described above). The Corporation's obligations with
respect to such group health and dental insurance shall not include any
co-payment, deductibles, or employee participation in premiums. Employee may at
any time terminate his participation in one or more of such plans in which case
he will be paid on a monthly basis the amount by which the Corporation's
obligation with respect to such coverage is reduced because of Employee's
termination of participation.
5. Post-Employment Restrictions. Employee acknowledges that the
Employment Agreement contains prohibitions on disclosure and/or use of
"Confidential Information" as therein defined and contains prohibitions on
competition and similar activities for a period of time following termination of
employment; Employee represents and warrants that he has abided by such
restrictions and agrees that he will continue to abide by all post-employment
restrictions and obligations contained in the Employment Agreement, as if such
obligations were expressly incorporated herein. Employee hereby acknowledges
that the durational and geographical scope of the post-employment restrictions
therein stated are fair, reasonable and appropriate in the circumstances.
Employee has further made certifications in the Disclosure Statements which
Employee hereby represents and warrants were true, correct and complete as of
the day made and that there are no further disclosures required to make them
true, correct and complete if they were made as of the date hereof. Employee
agrees that for two years after termination of his employment with the
Corporation, he will not solicit, entice, induce or encourage employees of the
Corporation to leave the Corporation to become an employee of, consultant to or
independent contractor for, any person or entity.
6. Severance Payments. As partial consideration for Employee's
representations warranties, undertakings and releases provided by this
Agreement, and subject to any specific conditions otherwise set forth in this
Agreement, the Corporation will pay Employee $________ ("Severance Pay") payable
in _____ equal semi-monthly installments, commencing on the fifteenth day of the
first month following the Employment Termination Date, payable without interest,
and reduced by applicable tax withholding.
7. Releases. Employee hereby releases and forever discharges the
Corporation and its "Affiliates" as hereinafter defined, of and from any and all
actions or causes of action, suits, debts, claims, complaints, contracts
(express or implied), controversy, agreements, promises, damages, claims for
attorneys' fees, judgments, costs, disbursements, severance benefits,
compensation, vacation pay, and demands whatsoever, known or unknown, in law or
in equity, he had, now has or shall have as of the date of this Agreement
including, but not limited to, any alleged violation of any federal, state or
local law, regulation or ordinance prohibiting discrimination or other unlawful
activity on the basis of race, color, creed, marital status, sex, age, religion,
national origin, disability, sexual orientation, sexual harassment, or any other
basis, or any other alleged obligation created by statute or by common law,
contract or tort theory. Employee releases and discharges the Corporation and
Affiliates not only from any and all claims which he could make on his behalf,
but also those that may or could be brought by any other person or organization
on his behalf. Employee affirms that he has not caused or permitted to be filed
any charge, complaint or action against the Corporation, and/or Affiliates and
agrees that he will not cause or permit to be filed any charge, complaint or
action. "Affiliates" of the Corporation include the Corporation's present and
former officers, directors, shareholders, employees, and agents, whether in
their individual or official capacity. Without limitation on the generality of
the foregoing, the release stated above applies to Title VII of the Civil Rights
Act of 1964, 42 U.S.C. ss.20000(e) et. seq., the Americans with Disability Act,
42 U.S.C. ss.12101 et. seq., the Age Discrimination in Employment Act, 29 U.S.C.
ss.621, et. seq., the Minnesota Human Rights Act, Minn. Stat. ss.363.01 et.
3
<PAGE>
seq., all as amended, re-named or re-codified from time to time. Employee is
hereby notified that he may rescind the release described above with respect to
claims arising under the Minnesota Human Rights Act, Minn. Stat. ss.ss.363.01-15
(but only to the extent he has not previously given a release with respect to
that claim) within 15 calendar days of his signing this Release. In order to be
effective, Employee's rescission with respect to such claims must be in writing
and delivered by hand or mailed to the Corporation. An address to which such
notice may be delivered or mailed is set forth below the Corporation's signature
block to this Agreement and such notice should be mailed or delivered to the
attention of the President. If delivered by mail, the rescission must be
postmarked within such 15-day period after the signing of this Release and sent
by certified mail, return receipt requested.
Employee is hereby notified that he is given 21 days after receiving
this Agreement to consider its provisions relating to any settlement or release
of claims arising under the Federal Age Discrimination in Employment Act. At
least 21 days after receipt of this Agreement, Employee shall execute and
deliver to the Corporation a release in the form and style set forth in the
attached Exhibit D entitled "21-Day Release" if Employee desires to give such
release. It is understood that no payments becoming owing to Employee under this
Agreement after 30 days following the Termination Effective Date will be paid
until 10 days after receipt by the Corporation from Employee of a fully-executed
and acknowledged 21-Day Release, which thereafter remains unrevoked in all
aspects.
Employee agrees that the payments and benefits that will be provided to
him or for his benefit pursuant to Agreement will fully compensate him for and
extinguish any and all claims arising out of his employment with (or the
termination thereof from) the Corporation, including but not limited to, claims
for attorneys' fees and costs, and any and all other claims for any type of
legal or equitable relief. It is further understood that the Corporation's
obligations under this Agreement are full and adequate consideration for the
releases given and contemplated to be given by Employee pursuant to this
Agreement and in further full and adequate consideration for Employee never
making any claims against the Corporation or its Affiliates. Employee agrees
that should any such claims be made, the amounts owing Employee under this
Agreement shall be reduced by the amount of any such claims as well as by any
costs and expenses incurred by the Corporation or Affiliates relating to such
claims.
This release and the 21-Day Release do not apply to payments being made
under this Agreement to Employee.
8. Records. During the period between the date of this Agreement and
the Employment Termination Date, Employee will exercise his best efforts to
return to the Corporation all records containing Confidential Information (as
that term is defined in the Employment Agreement) and all other property of the
Corporation and materials relating to the Corporation including correspondence,
credit cards, keys and other documents in his possession. Following termination
of employment, Employee will execute and deliver to the Corporation a
certificate relating to such items precisely in the form contained in Exhibit E
hereof; any payments becoming due under Paragraph 6 after 30 days following the
Employment Termination Date, will be suspended until such certificate is
executed and delivered by Employee to the Corporation.
4
<PAGE>
9. Tax Liability. Except for the employer's portion of the so-called
FICA tax, Employee agrees that he is solely responsible for any and all
liability of Employee arising under the federal and state tax laws from any and
all payments and benefits made pursuant to this Agreement, and Employee further
agrees to indemnify, defend and hold the Corporation harmless from any and all
such liabilities or obligations, if any. The Corporation makes no
representations nor warranties concerning the treatment of any sums paid
hereunder under said laws. The Corporation may, if it deems appropriate,
withhold and pay over to federal or state authorities reasonable amounts related
thereto. [Employee has received his own legal and accounting advice concerning
the tax consequences of the adjustments, if any, in the Incentive Stock
Agreements and the Non-Qualified Stock Agreement as described in Paragraphs 11A
and 11B.]
10. Claims Involving the Corporation. At the Corporation's request,
Employee will cooperate with the Corporation and the Corporation's Affiliates in
any future claims or lawsuits involving the Corporation wherein Employee has
knowledge of the underlying facts and Employee will not voluntarily aid, assist
or cooperate with any claimants or plaintiffs (or their attorneys or agents) in
any claims or lawsuits by third parties against the Corporation or the
Corporation's Affiliates.
11. Stock Options and Other Similar Rights: The Employee holds certain
options to purchase stock of the Corporation or otherwise acquire stock rights
relating to the Corporation, all of which are hereby waived, terminated and
extinguished[, excepting as described in the following Paragraph 11A and
Paragraph 11B].
11A. Incentive Stock Options. Employee is a party to _____ separate
agreements attached hereto as Exhibit F (the "Incentive Stock Agreements") which
provide Employee with certain rights to purchase stock of the Corporation
pursuant to the Corporation's ______ Incentive Stock Option Plan. Except as
provided in the following sentence, Employee understands that there have been no
modifications, waivers, or other adjustments to the Incentive Stock Agreements,
that he has not relied on any statements of the Corporation in interpreting his
rights thereunder, and that his rights to purchase any stock pursuant to the
Incentive Stock Agreements will expire not later than _____________. The
Corporation waives its right of repurchase contained in Paragraph [13] of the
Incentive Stock Agreement dated ___________.
[11B. Non-Qualified Stock Agreements. Employee is a party to a certain
Employee Non-Qualified Stock Option dated ______________ (the "Non-Qualified
Stock Agreement"), a copy of which is attached hereto as Exhibit G. Employee
agrees that pursuant to the terms of the Non-Qualified Stock Agreement, as of
_______________, the option pursuant to the Non-Qualified Stock Agreement, would
be exercisable only to the extent of ___% of the Option Stock therein described
and that the termination of his employment would otherwise eliminate any
additional Option Stock becoming subject to his rights of exercise.
Notwithstanding such limitation, it is hereby agreed that from and after the
Effective Date of this Agreement, Employee's option pursuant to the
Non-Qualified Stock Agreement shall be exercisable with respect to ___% of the
Option Stock (it being understood that the Option Stock consists of an original
________ shares adjusted pursuant to Paragraph 7 of the Non-Qualified Stock
Agreement to ___________ shares of voting, common stock of the Corporation.
Applying ___% to the ___________ of Option Stock yields a right of Employee to
5
<PAGE>
exercise his option pursuant to the Non-Qualified Stock Agreement to the extent
of ________ shares of the Corporation's voting, common stock. The Corporation
further agrees that, until ______________, Employee's termination of employment
will not prevent Employee from exercising the option contained in the
Non-Qualified Stock Agreement provided Employee meets all of the other
conditions and performs all of the other obligations set forth in the
Non-Qualified Stock Agreement. The Corporation waives its right of repurchase
contained in Paragraph [12] of the Non-Qualified Stock Agreement.]
12. Miscellaneous.
a. This Agreement (along with all of the exhibits which are
incorporated herein by reference), along with the Employment Agreement
and the Disclosure Statements, contains the full agreement of the
parties respecting the subject matter hereof and may not be modified,
altered or changed in any way except by written agreement executed by
both parties. Employee agrees he will maintain the contents and terms
of this Agreement confidential.
b. Employee acknowledges that he has been advised by the
Corporation to consult with an attorney and, has in fact consulted with
counsel relating to this Agreement and has been fully advised in
connection herewith and with respect to all of his rights under
applicable law. Employee acknowledges and agrees that in choosing to
execute this Agreement, he has not relied on any representations or
statements of the Corporation, whether oral or written, other than
those expressly set forth herein. Employee acknowledges that his
resignation from the Corporation shall be deemed voluntary for all
purposes.
c. This Agreement shall be binding upon and inure to the
benefit of the respective successors, assigns and legal representatives
of the parties hereto. Employee acknowledges that his releases run in
favor of certain persons who are not parties to this Agreement but that
such persons are intended to be third-party beneficiaries of such
portions of this Agreement and shall be fully entitled to the benefits
of such release and of such other provisions of this Agreement as are
needed to enforce such rights. This Agreement may be pleaded as a full
and complete defense to, and may be used as a basis for an injunction
against, any action, suit or other proceeding which may be instituted,
prosecuted or attempted by any one or more parties hereto regarding any
matter within the scope of this Agreement, except for an action based
on breach of this Agreement. If any action is brought by Employee
regarding any matter within the scope of this Agreement, then any
defendant in such action for whose benefit a release was given under
this Agreement shall be entitled to recover all costs and expenses of
defending such action (including reasonable attorneys' fees) unless it
is ultimately determined by a court of competent jurisdiction that (i)
no part of the subject matter of such lawsuit against such defendant
was subject to the release given in this Agreement, or (ii) there was a
breach of this Agreement by such defendant.
d. Any amounts owing by Employee to the Corporation may be
offset against amounts owing Employee hereunder or otherwise. Employee
acknowledges that the Corporation has agreed to make the payments
6
<PAGE>
pursuant to Paragraph 6 only if Employee has not previously and does
not in the future commit any material breach of his obligations under
this Agreement and/or the Employment Agreement, and if the
representations and warranties set forth in Paragraph 5 are true,
accurate and complete. If there is or shall hereafter occur any
material breach or misrepresentation, then the Corporation shall, in
addition to its other remedies, not owe Employee the amount described
in Paragraph 6; provided, however, that if the Corporation shall intend
to invoke its rights with respect to the preceding provisions of this
sentence with respect to any matter which then remains curable, it
shall offer Employee 30 days in which to cure such wrongdoing.
e. In the event that any one or more of the provisions or
portions of this Agreement is determined to be illegal or
unenforceable, the remainder of this Agreement shall not be affected
thereby and shall remain and continue to be valid and effective;
provided, however, that payments to Employee pursuant to Paragraph 6
are expressly conditioned upon there being no material reduction in
scope or duration of Employee's obligations with respect to competition
with the Corporation and Employee not having asserted any claims
against the Corporation or its Affiliates.
f. Time shall be the essence in the performance of all
obligations under this Agreement.
g. It is understood that this Agreement shall be interpreted
and enforced in accordance with the laws of the State of Minnesota and
that venue for any action relating to this Agreement or Employee's
relationship with the Corporation shall be in the applicable state or
federal court located in Minnesota and if permitted by the applicable
court, in the City of Minneapolis.
h. Employee acknowledges that he has been given the so-called
"COBRA" notice of his right to continue certain insurance benefits
under applicable law.
i. Employee's releases given pursuant to this Agreement are
unconditional and irrevocable (except for the limited rescission rights
specifically set forth with respect to the Minnesota Human Rights Act
and the Federal Age Discrimination in Employment Act) and no act or
failure of the Corporation shall in any way affect the validity or
enforceability of such releases; provided, however, it is understood
that such releases do not prevent or restrict Employee's right to
compel the Corporation's performance of its obligations hereunder,
including the payment of money and the provision of benefits (to the
extent such payment or provision is not otherwise excused pursuant to
this Agreement or applicable law).
j. The Employee represents that he has previously abided by
the Employment Agreement and that it remains valid and enforceable. In
exchange for the payments and benefits given to Employee both during
his employment and under this Agreement, Employee acknowledges and
agrees that he will continue to abide by and be bound by the Employment
Agreement through and after termination of employment.
k. The Corporation agrees to pay up to $___________ to
______________ for out-placement services provided for the benefit of
Employee.
7
<PAGE>
l. This Agreement is made pursuant to the Plan, a copy of
which Plan has been made available to Employee and is hereby
incorporated into this Agreement. This Agreement is subject to and in
all respects limited and conditioned as provided in the Plan. The Plan
governs this Agreement and, in the event of any questions as to the
construction of this Agreement or in the event of a conflict between
the Plan and this Agreement, the Plan shall govern, except as the Plan
otherwise provides.
IN WITNESS WHEREOF, the Corporation and Employee have executed this
Agreement as of the date and year first above written.
SURMODICS, INC.
Date signed by Corporation:
_____________________, ____ By:_________________________________
Its:________________________________
Address: 9924 West 74th Street
Eden Prairie, MN 55344-3523
Date signed by Employee:
___________________, ____ ____________________________________
Employee
Address: ___________________________
___________________________
___________________________
8
<PAGE>
SCHEDULE OF EXHIBITS
- --------------------
Exhibit A - Employment Agreement
Exhibit B - Disclosure Statements
Exhibit C - Expenses
Exhibit D - 21-Day Release
Exhibit E - Certificate of Return
Exhibit F - Qualified Stock Agreements
Exhibit G - Non-Qualified Stock Agreements
Exhibit H - Incentive Compensation Program
<PAGE>
21-DAY RELEASE
Corporation: SurModics, Inc. f/k/a BSI Corporation
9924 West 74th Street
Eden Prairie, Minnesota 55344-3523
Agreement: Agreement for Termination of Employment and Release
Employee: _______________________________________
Employment Termination Date: ________________________________________
Employee, in consideration of good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, hereby states and
agrees as follows:
1. His termination of employment with the Corporation occurred on
or before the Employment Termination Date stated above.
2. Employee hereby releases and forever discharges the
Corporation and its "Affiliates" as hereinafter defined, of
and from any and all actions or causes of action, suits,
debts, claims, complaints, contracts (express or implied),
controversy, agreements, promises, damages, claims for
attorneys' fees, judgments, costs, disbursements, severance
benefits, compensation, vacation pay, and demands whatsoever,
known or unknown, in law or in equity, he had, now has or
shall have as of the date of this Agreement including, but not
limited to, any alleged violation of any federal, state or
local law, regulation or ordinance prohibiting discrimination
or other unlawful activity on the basis of race, color, creed,
marital status, sex, age, religion, national origin,
disability, sexual orientation, sexual harassment, or any
other basis, or any other alleged obligation created by
statute or by common law, contract or tort theory. Employee
releases and discharges the Corporation and Affiliates not
only from any and all claims which he could make on his
behalf, but also those that may or could be brought by any
other person or organization on his behalf. Employee affirms
that he has not caused or permitted to be filed any charge,
complaint or action against the Corporation, and/or Affiliates
and agrees that he will not cause or permit to be filed any
charge, complaint or action. "Affiliates" of the Corporation
include the Corporation's present and former officers,
directors, shareholders, employees, and agents, whether in
their individual or official capacity. Without limitation on
the generality of the foregoing, the release stated above
applies to Title VII of the Civil Rights Act of 1964, 42
U.S.C.ss.20000(e) et. seq., the Americans with Disability Act,
42 U.S.C. ss.12101 et. seq., the Age Discrimination in
Employment Act, 29 U.S.C.ss.621, et. seq., the Age
Discrimination in Employment Act, 29 U.S.C.ss.621, et. seq.,
the Minnesota Human Rights Act, Minn. Stat.ss.363.01 et. seq.,
all as amended, re-named or re-codified from time to time.
3. Employee is hereby notified that he may rescind the release
described above with respect to claims arising under the
Minnesota Human Rights Act, Minn. Stat.ss.ss.363.01-15 (but
only to the extent he has not previously given a release with
respect to that claim) within 15 calendar days of his signing
this Release. In order to be effective, Employee's rescission
with respect to such claims must be in writing and delivered
by hand or mailed to the Corporation. An address to which such
notice may be delivered or mailed is set forth below the
Corporation's signature block to this Agreement and such
notice should be mailed or delivered to the attention of the
President. If delivered by mail, the rescission must be
postmarked within such 15-day period after the signing of this
Release and sent by certified mail, return receipt requested.
Exhibit D
<PAGE>
4. Employee acknowledges that he may rescind his release of
claims given under the Federal Age Discrimination in
Employment Act within 7 days of his signing of this Release.
It is recommended that Employee's rescission be in writing and
delivered by hand or mailed to Corporation. An address to
which such notice may be delivered or mailed is set forth at
the beginning of this Agreement and it is recommended that
such notice be given to the attention of the President, and,
if delivered by mail, the rescission must be postmarked within
such 7-day period after the signing of this Release.
5. Employee certifies that he executed this Release on the date
set forth below and that he executed this Release more that 21
days after he received this Release and he signed the
Agreement.
6. Employee acknowledges that he has received consideration for
this Release in addition to anything of value to which he
would otherwise be entitled. Employee acknowledges that he is
advised to consult with an attorney prior to executing this
Release and, has, in fact, consulted with counsel who has
verified that his release given herein is knowing and
voluntary.
Dated: _________________,____ ______________________________________
"Employee"
STATE OF MINNESOTA )
)
COUNTY OF __________)
The foregoing instrument was acknowledged before me this ____ day of
__________, _____, by ________________________, the Employee stated above.
______________________________________
Notary Public
Exhibit D
<PAGE>
CERTIFICATE OF RETURN
The undersigned hereby certifies that he has returned to SurModics,
Inc. all records concerning Confidential Information (as that term is defined in
a certain agreement to which this document is attached as Exhibit E), including
any copies thereof, and including all drawings, blueprints, notes, notebooks,
memoranda, specifications, documents or materials of whatsoever kind and nature
which contain or disclose any of such confidential information, and further that
he has returned to SurModics, Inc. all other property of SurModics, Inc. and
records relating to the business of SurModics, Inc. of any kind or nature
whatsoever, and howsoever maintained (including, but not limited to, electronic
formats).
Dated: _________________, ____ _____________________________________
Employee
Exhibit E
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 1,135
<SECURITIES> 1,830
<RECEIVABLES> 1,351
<ALLOWANCES> 0
<INVENTORY> 466
<CURRENT-ASSETS> 5,162
<PP&E> 8,641
<DEPRECIATION> 3,889
<TOTAL-ASSETS> 27,467
<CURRENT-LIABILITIES> 1,268
<BONDS> 0
0
0
<COMMON> 370
<OTHER-SE> 25,829
<TOTAL-LIABILITY-AND-EQUITY> 27,467
<SALES> 2,916
<TOTAL-REVENUES> 9,632
<CGS> 1,060
<TOTAL-COSTS> 8,021
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,500
<INCOME-TAX> (743)
<INCOME-CONTINUING> 3,243
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,243
<EPS-BASIC> .44
<EPS-DILUTED> .41
</TABLE>
