-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FHeRxIFkHI8CtBTQLUHu6B9RIcIgLeHyhWjpeb3IG3Sbwz+PVAu2k0a/DVCoo3hk l9RgDPo/DEY55ErtQVKD5A== 0000897101-02-000534.txt : 20020808 0000897101-02-000534.hdr.sgml : 20020808 20020808120638 ACCESSION NUMBER: 0000897101-02-000534 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020808 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VASCULAR SOLUTIONS INC CENTRAL INDEX KEY: 0001030206 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841] IRS NUMBER: 411859679 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-27605 FILM NUMBER: 02722551 BUSINESS ADDRESS: STREET 1: 2495 XENIUM LANE NORTH CITY: MINNEAPOLIS STATE: MN ZIP: 55441 BUSINESS PHONE: 6125532970 MAIL ADDRESS: STREET 1: 2495 XENIUM LANE NORTH CITY: MINNEAPOLIS STATE: MN ZIP: 55441 10-Q 1 vascular023933_10q.txt VASCULAR SOLUTIONS, INC. FORM 10-Q ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) [X] QUARTERLY PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________ TO _________ Commission File Number: 0-27605 ----------------- VASCULAR SOLUTIONS, INC. (Exact name of registrant as specified in its charter) MINNESOTA 41-1859679 (State of Incorporation) (IRS Employer Identification No.) 2495 XENIUM LANE NORTH MINNEAPOLIS, MINNESOTA 55441 (Address of Principal Executive Offices) (763) 656-4300 (Registrant's telephone number, including area code) ----------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The registrant had 13,402,884 shares of common stock, $.01 par value per share, outstanding as of August 2, 2002. ================================================================================ VASCULAR SOLUTIONS, INC. INDEX PAGE ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Consolidated Balance Sheets 2 Consolidated Statements of Operations 3 Consolidated Statements of Cash Flows 4 Notes to Unaudited Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Item 3. Quantitative and Qualitative Disclosure About Market Risks 11 PART II. OTHER INFORMATION Item 1. Legal Proceedings 11 Item 2. Changes in Securities and Use of Proceeds 12 Item 3. Defaults upon Senior Securities 12 Item 4. Submission of Matters to a Vote of Security Holders 12 Item 5. Other Information 13 Item 6. Exhibits and Reports on Form 8-K 13 1 VASCULAR SOLUTIONS, INC. CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31, 2002 2001 ------------ ------------ (Unaudited) (Note) ASSETS Current assets: Cash and cash equivalents ........................................ $ 25,987,501 $ 33,318,115 Accounts receivable, net of allowance for doubtful accounts of $180,000 in 2002 and $174,526 in 2001 ............. 1,588,935 1,285,011 Inventories ...................................................... 2,208,814 1,782,363 Prepaid expenses ................................................. 175,920 289,888 ------------ ------------ Total current assets .................................................. 29,961,170 36,675,377 Property and equipment, net ........................................... 897,441 917,579 Intangible assets ..................................................... 1,026,345 -- ------------ ------------ Total assets .......................................................... $ 31,884,956 $ 37,592,956 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable ................................................. $ 1,270,119 $ 876,891 Accrued compensation ............................................. $ 894,701 $ 923,705 Accrued expenses ................................................. 226,119 162,476 ------------ ------------ Total current liabilities ............................................. 2,390,939 1,963,072 Commitments and contingencies Shareholders' equity: Common Stock, $.01 par value: Authorized shares - 40,000,000 Issued and outstanding - June 30, 2002 - 13,402,884; December 31, 2001 - 13,327,002 ............................. 134,029 133,270 Additional paid-in capital ............................................ 70,840,615 70,712,174 Other ................................................................. (71,765) (100,834) Accumulated deficit ................................................... (41,408,862) (35,114,726) ------------ ------------ Total shareholders' equity ............................................ 29,494,017 35,629,884 ------------ ------------ Total liabilities and shareholders' equity ............................ $ 31,884,956 $ 37,592,956 ============ ============
SEE ACCOMPANYING NOTES. Note: The balance sheet at December 31, 2001 has been derived from the audited financial statements at that date. 2 VASCULAR SOLUTIONS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, 2002 2001 2002 2001 ------------ ------------ ------------ ------------ (unaudited) (unaudited) Net sales ..................................... $ 3,328,529 $ 3,540,103 $ 6,131,948 $ 6,663,185 Cost of goods sold ............................ 1,326,260 1,386,509 2,533,178 2,604,077 ------------ ------------ ------------ ------------ Gross profit .................................. 2,002,269 2,153,594 3,598,770 4,059,108 Operating expenses: Research and development ................. 811,201 1,073,863 1,753,363 2,042,653 Clinical and regulatory .................. 379,302 309,645 694,575 646,696 General and administrative ............... 533,232 911,222 1,085,962 1,492,423 Sales and marketing ...................... 3,112,935 3,122,253 6,588,094 6,128,430 Amortization of purchased technology ..... 36,250 -- 36,250 -- ------------ ------------ ------------ ------------ Total operating expenses ...................... 4,872,920 5,416,983 10,158,244 10,310,202 ------------ ------------ ------------ ------------ Operating loss ................................ (2,870,651) (3,263,389) (6,559,474) (6,251,094) Interest income ............................... 127,513 439,061 265,338 1,081,693 ------------ ------------ ------------ ------------ Net loss ...................................... $ (2,743,138) $ (2,824,328) $ (6,294,136) $ (5,169,401) ============ ============ ============ ============ Basic and diluted net loss per share ........................... $ (0.20) $ (0.21) $ (0.47) $ (0.39) ============ ============ ============ ============ Shares used in computing basic and diluted net loss per share ................................ 13,381,165 13,177,407 13,357,272 13,155,347 ============ ============ ============ ============
SEE ACCOMPANYING NOTES. 3 VASCULAR SOLUTIONS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, 2002 2001 2002 2001 ------------ ------------ ------------ ------------ (unaudited) (unaudited) OPERATING ACTIVITIES Net loss for the period ..................................... $ (2,743,138) $ (2,824,328) $ (6,294,136) $ (5,169,401) Adjustments to reconcile net loss: Depreciation and amortization .......................... 158,725 105,870 278,183 207,753 Value of options granted for services .................. -- -- -- 10,398 Deferred compensation expense .......................... 18,501 9,281 39,102 27,491 Changes in operating assets and liabilities: Accounts receivable ................................. (333,802) 72,671 (303,924) 55,457 Inventories ......................................... 484,924 116,750 37,157 (183,001) Prepaid expenses .................................... 63,042 (82,569) 113,968 (96,810) Accounts payable .................................... (11,559) 27,780 393,228 116,226 Accrued compensation and expenses ................... 272,595 138,200 34,639 (531,655) ------------ ------------ ------------ ------------ Net cash used in operating activities ....................... (2,090,712) (2,436,345) (5,701,783) (5,563,542) INVESTING ACTIVITIES Purchases of property and equipment .................... (40,233) (164,422) (197,795) (274,755) Purchase of Acolysis assets ............................ (1,550,203) -- (1,550,203) -- ------------ ------------ ------------ ------------ Net cash used in investing activities ....................... (1,590,436) (164,422) (1,747,998) (274,755) FINANCING ACTIVITIES Proceeds from exercise of stock options and sale of stock ........................................ 109,200 281,938 129,200 354,306 ------------ ------------ ------------ ------------ Net cash provided by financing activities ................... 109,200 281,938 129,200 354,306 ------------ ------------ ------------ ------------ Effect of exchange rate changes on cash and cash equivalents .......................................... (6,581) (10,857) (10,033) (20,754) Increase (decrease) in cash and cash equivalents ............ (3,578,529) (2,329,686) (7,330,614) (5,504,745) Cash and cash equivalents at beginning of period ............ 29,566,030 40,922,504 33,318,115 44,097,563 ------------ ------------ ------------ ------------ Cash and cash equivalents at end of period .................. $ 25,987,501 $ 38,592,818 $ 25,987,501 $ 38,592,818 ============ ============ ============ ============
SEE ACCOMPANYING NOTES. 4 VASCULAR SOLUTIONS, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (1) BASIS OF PRESENTATION The accompanying unaudited financial statements of Vascular Solutions, Inc. (the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all normal, recurring adjustments considered necessary for a fair presentation have been included. The financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2001 included in the Annual Report on Form 10-K of the Company filed with the Securities and Exchange Commission. Interim results of operations are not necessarily indicative of the results to be expected for the full year or any other interim periods. (2) COMPUTATION OF NET LOSS PER SHARE In accordance with Statement of Financial Accounting Standards No. 128, EARNINGS PER SHARE, (SFAS 128), basic net loss per share for the three and six months ended June 30, 2002 and 2001 is computed by dividing net loss by the weighted average common shares outstanding during the periods presented. Diluted net loss per share is computed by dividing net loss by the weighted average common and dilutive potential common shares outstanding computed in accordance with the treasury stock method. For all periods presented, diluted loss per share is the same as basic loss per share, because the effect of outstanding options, warrants and convertible preferred stock is antidilutive. (3) REVENUE RECOGNITION In the United States and Germany, the Company sells its products directly to hospitals and clinics. Revenue is recognized upon shipment of products to customers. In all other international markets, the Company sells its products to international distributors which subsequently resell the products to hospitals and clinics. The Company has agreements with each of its distributors which provide that title and risk of loss pass to the distributor upon shipment of the products to the distributor. The Company warrants that its products are free from manufacturing defects at the time of shipment to the distributor. Revenue is recognized upon shipment of products to distributors following the receipt and acceptance of a distributor's purchase order. Allowances are provided for estimated warranty costs at the time of shipment. To date, warranty costs have been insignificant. 5 VASCULAR SOLUTIONS, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED (4) INVENTORIES Inventories are stated at the lower of cost (first-in, first-out method) or market and are comprised of the following at: JUNE 30, DECEMBER 31, 2002 2001 ---- ---- (unaudited) Raw materials......................... $ 1,626,389 $ 1,294,507 Work-in process....................... 174,772 305,527 Finished goods........................ 407,653 182,329 ------------ ------------ $ 2,208,814 $ 1,782,363 ============ ============ (5) CONCENTRATIONS OF CREDIT AND OTHER RISKS Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivables. The Company maintains its accounts for cash and cash equivalents principally at one major bank and two investment firms in the United States. The Company has a formal written investment policy that restricts the placement of investments to issuers evaluated as creditworthy. The Company has not experienced any losses on its deposits of its cash and cash equivalents. With respect to accounts receivable, the Company performs credit evaluations of its customers and does not require collateral. Sales by geographic destination as a percentage of total net sales for the six months ended June 30, 2002 and 2001 were 89% and 90% in the United States, respectively, and 11% and 10% in international markets, respectively. There have been no material losses on accounts receivable. The Company operates in a single industry segment and sells its product directly to hospitals and clinics in the United States and Germany. In Germany, the Company sells its product in Euros. In all other international markets, the Company sells its product in United States dollars to distributors who, in turn, sell to medical clinics in the local currency. Loss, termination or ineffectiveness of distributors to effectively promote the Company's product would have a material adverse effect on the Company's financial condition and results of operations. No single customer represented greater than 10% of the total net sales for the three and six months ended June 30, 2002 and 2001. 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW We develop, manufacture and market the Vascular Solutions Duett(TM) sealing device, the Diagnostic Duett(TM) sealing device and the D-Stat(TM) flowable hemostat. Our Duett sealing device is designed to provide a complete seal of the puncture site following catheterization procedures such as angiography, angioplasty and stenting. The Diagnostic Duett is a version of the Duett sealing device that is tailored specifically for treating diagnostic patients. The D-Stat flowable hemostat is a thick, yet flowable blood clotting material that is used in a wide variety of interventional medical procedures for the local control of bleeding. We commenced operations in February 1997, and during 1998 and 1999 we received regulatory approvals to market our Duett sealing device in several international markets, principally in Europe. On June 22, 2000, we received approval from the FDA of our PMA application for the sale of our Duett sealing device in the United States. As a result, during the third quarter of 2000 we commenced sales of the Duett in the United States through our direct sales force. We commenced sales of the Diagnostic Duett in the United States in December 2001, and commenced sales of the D-Stat in the United States in February 2002. On April 2, 2002, we acquired the assets of the Acoylysis system from the secured creditors of Angiosonics, Inc. The Acolysis controller and probes have been sold in international markets, principally in Europe and China, for over two years. During the second quarter of 2002, we commenced international sales of the Acolysis probes. We have a limited history of operations and have experienced significant operating losses since inception. As of June 30, 2002, we had an accumulated deficit of $41.4 million. We may never achieve profitability, or if we achieve profitability it may not be sustained in future periods. RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2002 COMPARED TO THREE MONTHS ENDED JUNE 30, 2001 Net sales decreased 6% to $3,328,529 for the three months ended June 30, 2002 from $3,540,103 for the three months ended June 30, 2001. The decrease in net sales was attributable to more focused and lower sales of our Duett devices, partially offset by sales of the D-Stat flowable hemostat which commenced in February 2002. Beginning in mid-2001, our U.S. distribution strategy for the Duett has focused on serving our existing accounts to provide better account retention and use per account. Net sales for the three months ended June 30, 2002 for the Duett and D-Stat flowable hemostat were $3,152,237 and $171,423, respectively. We also completed our first sale of the Acolysis probes during the second quarter ending June 30, 2002. Gross profit as a percentage of net sales was 60% for the three months ended June 30, 2002 compared to 61% for the three months ended June 30, 2001. Beginning July 1, 2001, a royalty expense of 2.5% of net sales is included in our cost of goods sold related to an agreement that settled all existing intellectual property litigation with St. Jude Medical, Inc. (See "Legal Proceedings" in Item 1 of Part II of this Form 10-Q). Research and development expenses decreased 24% to $811,201 for the three months ended June 30, 2002 from $1,073,863 for the three months ended June 30, 2001. Research and development expenses consist primarily of development of next generation Duett devices as well as new interventional devices. The decrease in spending is due to more focused spending and efficiencies, not any program 7 cancellations. We expect our research and development expenses to increase slightly in the future as we continue work on product improvements and product line extensions. Clinical and regulatory expenses increased 23% to $379,302 for the three months ended June 30, 2002 from $309,645 for the three months ended June 30, 2001. This increase is attributable to a modest increase in the number of products and product improvements compared to the prior year. We expect clinical and regulatory expenses to increase modestly in the future as we pursue new products, including clinical studies for the biopsy tract sealing device, and as we incur expenses for additional marketing studies of our Duett sealing devices. General and administrative expenses decreased 41% to $533,232 for the three months ended June 30, 2002 from $911,222 for the three months ended June 30, 2001. The three months ended June 30, 2001 included a one time charge of $350,000 for the patent litigation settlement of our lawsuit with St. Jude Medical, Inc. (See "Legal Proceedings" in Item 1 of Part II of this Form 10-Q). The remaining decrease is the result of lower personnel costs from the previous prior year. We currently anticipate that general and administrative expenses will increase by modest amounts for the foreseeable future as we continue to incur litigation expenses related to the existing Datascope litigation. Sales and marketing expenses leveled off at $3,112,935 for the three months June 30, 2002 from $3,122,253 for the three months ended June 30, 2001. As of June 30, 2002, our direct sales force consisted of approximately 62 employees, which we expect to remain relatively stable through the end of 2002. As a result, we expect our sales and marketing expenses to continue to remain relatively stable or slightly decrease during the remainder of 2002. Amortization of purchased technology was $36,250 for the three months ended June 30, 2002 and $0 for the three months ended June 30, 2001. The amortization was the result of our acquisition of the Acolysis assets from the secured creditors of Angiosonics, Inc. We allocated $870,000 to purchased technology and are amortizing the amount over four years. Interest income decreased to $127,513 for the three months ended June 30, 2002 from $439,061 for the three months ended June 30, 2001 primarily as a result of lower interest rates and lower cash balances compared to the previous comparable period. SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO SIX MONTHS ENDED JUNE 30, 2001 Net sales decreased 8% to $6,131,948 for the six months ended June 30, 2002 from $6,663,185 for the six months ended June 30, 2001. The decrease in net sales was attributable to more focused lower sales of our Duett devices, partially offset by sales of the D-Stat flowable hemostat which commenced in February 2002. Beginning in mid-2001, our U.S. distribution strategy for the Duett has focused on serving our existing accounts to provide better account retention and use per account. Net sales for the six months ended June 30, 2002 for the Duett and D-Stat flowable hemostat were $5,856,249 and $270,831, respectively. We also had our first sale of the Acolysis probes during the second quarter ending June 30, 2002. Gross profit as a percentage of net sales was 59% for the six months ended June 30, 2002 compared to 61% for the six months ended June 30, 2001. Beginning July 1, 2001, a royalty expense of 2.5% of net sales is included in our cost of goods sold related to an agreement that settled all existing intellectual property litigation with St. Jude Medical, Inc. (See "Legal Proceedings" in Item 1 of Part II of this Form 10-Q). 8 Research and development expenses decreased 14% to $1,753,363 for the six months ended June 30, 2002 from $2,042,653 for the six months ended June 30, 2001. Research and development expenses consist primarily of development of next generation Duett devices as well as new interventional devices. Clinical and regulatory expenses increased 7% to $694,575 for the six months ended June 30, 2002 from $646,696 for the six months ended June 30, 2001. As stated above, the increase is attributable to a modest increase in the number of products and product improvements. General and administrative expenses decreased 27% to $1,085,962 for the three months ended June 30, 2002 from $1,492,423 for the six months ended June 30, 2001. The six months ended June 30, 2001 included a one-time charge of $350,000 incurred in connection with the settlement of our patent litigation with St. Jude Medical, Inc. (See "Legal Proceedings" in Item 1 of Part II of this Form 10-Q). The remaining decrease is the result of lower personnel costs from the prior year. Sales and marketing expenses increased 8% to $6,588,094 for the six months June 30, 2002 from $6,128,430 for the six months ended June 30, 2001. This increase is principally attributable to increased marketing activities compared to the prior year. Amortization of purchased technology was $36,250 for the six months ended June 30, 2002 and $0 for the six months ended June 30, 2001. The amortization was the result of our acquisition of the Acolysis assets from the secured creditors of Angiosonics, Inc. We allocated $870,000 of the purchase price to purchased technology and are amortizing the amount over four years. Interest income decreased to $265,338 for the six months ended June 30, 2002 from $1,081,693 for the six months ended June 30, 2001 primarily as a result of lower interest rates and lower cash balances compared to the previous comparable period. INCOME TAXES We have not generated any pre-tax income to date and therefore have not paid any federal income taxes since inception in December 1996. No provision or benefit for federal and state income taxes has been recorded for net operating losses incurred in any period since our inception. As of June 30, 2002, we had approximately $38.4 million of federal net operating loss carryforwards available to offset future taxable income which begin to expire in the year 2014. As of June 30, 2002, we also had federal and state research and development tax credit carryforwards of approximately $1.5 million which begin to expire in the year 2014. Under the Tax Reform Act of 1986, the amounts of and benefits from net operating loss carryforwards may be impaired or limited in certain circumstances, including significant changes in ownership interests. Future use of our existing net operating loss carryforwards may be restricted due to changes in ownership or from future tax legislation. We have established a valuation allowance against the entire amount of our deferred tax asset because we have not been able to conclude that it is more likely than not that we will be able to realize the deferred tax asset, due primarily to our history of operating losses. LIQUIDITY AND CAPITAL RESOURCES We have financed all of our operations since inception through the issuance of equity securities. Through June 30, 2002, we had sold common stock and preferred stock generating aggregate net proceeds of $70.2 million. At June 30, 2002, we had $26 million in cash and cash equivalents on-hand. 9 During the three months ended June 30, 2002, we used $2.1 million of cash and cash equivalents in operating activities primarily to fund our net loss for the period of $2.7 million. We also used $1.6 million of cash and cash equivalents in investing activities for the purchase of the Acolysis assets from the secured creditors of Angiosonics, Inc. Our capital expenses to acquire manufacturing and office equipment totaled $40,000 during the three months ended June 30, 2002. We do not have any significant cash commitments related to supply agreements, nor do we have any commitments for capital expenditures. We currently anticipate that we will continue to experience a negative cash flow and our expenses will be a material use of our cash resources. We anticipate that our operating losses will continue through at least December 31, 2003. We believe that current cash balances along with cash generated from the future sales of products will be sufficient to meet our operating and capital requirements for at least the next 36 months. Our liquidity and capital requirements beyond the next 36 months will depend on numerous factors, including the extent to which our products gain market acceptance and competitive developments. If cash generated from operations is insufficient to satisfy our cash needs, we may be required to raise additional funds. We currently have no commitments for additional funding and so our ability to meet our long-term liquidity needs is uncertain. If we raise additional funds through the issuance of equity securities, our shareholders may experience significant dilution. Furthermore, additional financing may not be available when needed or, if available, financing may not be on terms favorable to us or our shareholders. If financing is not available when required or is not available on acceptable terms, we may be unable to develop or market our products or take advantage of business opportunities or respond to competitive pressures. CAUTIONARY STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 The Private Securities Litigation Reform Act of 1995 (the "Act") provides a "safe harbor" for forward-looking statements to encourage companies to provide prospective information about their business, so long as those statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those discussed in the statement. Vascular Solutions, Inc. desires to take advantage of the safe harbor provisions with respect to any forward-looking statements it may make in this filing, other filings with the Securities and Exchange Commission and any public oral statements or written releases. The words or phrases "will likely," "is expected," "will continue," "is anticipated," "estimate," "projected," "forecast," or similar expressions are intended to identify forward-looking statements within the meaning of the Act. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. The Company cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. In accordance with the Act, the Company identifies the following important general factors which if altered from the current status could cause the Company's actual results to differ from those described in any forward-looking statements: risks associated with our limited operating history, defense of patent infringement lawsuits, adoption of our new sealing methodology, reliance on a sole product, lack of profitability, lack of experience with a direct sales force, exposure to possible product liability claims, the development of new products by others, dependence on third party distributors in international markets, doing business in international markets, limited manufacturing experience, the availability of third party reimbursement, actions by the FDA related to the Duett sealing device, the loss of key vendors and those factors set forth under the heading "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2001. This list is not exhaustive, and the Company may supplement this list in any future 10 filing with the Securities and Exchange Commission or in connection with the making of any specific forward-looking statement. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivables. We maintain our accounts for cash and cash equivalents principally at one major bank and two investment firms in the United States. We have a formal written investment policy that restricts the placement of investments to issuers evaluated as creditworthy. We have not experienced any losses on our deposits of our cash and cash. With respect to accounts receivable, we perform credit evaluations of our customers and do not require collateral. There have been no material losses on accounts receivables. In the United States and Germany, we sell our products directly to hospitals and clinics in the local currency. Revenue is recognized upon shipment of products to customers. In all other international markets, we sell our products to independent distributors who, in turn, sell to medical clinics. We sell our product in these countries through independent distributors denominated in United States dollars. Loss, termination or ineffectiveness of distributors to effectively promote our product would have a material adverse effect on our financial condition and results of operations. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On July 23, 1999, we were named as the defendant in a patent infringement lawsuit brought by Datascope Corp. in the United States District Court for the District of Minnesota. The complaint requested a judgment that our Duett sealing device infringes and, following FDA approval will infringe, a United States patent held by Datascope and asks for relief in the form of an injunction that would prevent us from selling our product in the United States as well as an award of attorneys' fees, costs and disbursements. On August 12, 1999, we filed our answer to this lawsuit and brought a counterclaim alleging unfair competition and tortious interference. On August 20, 1999, we moved for summary judgement to dismiss Datascope's claims. On March 15, 2000, the court granted summary judgment dismissing all of Datascope's claims, subject to the right of Datascope to recommence the litigation after our receipt of FDA approval of our Duett sealing device. On July 12, 2000, after our receipt of FDA approval, Datascope recommenced this litigation, alleging that the Duett sealing device infringes a United States patent held by Datascope and requesting relief in the form of an injunction that would prevent us from selling our product in the United States, damages caused by our alleged infringement, and other costs, disbursements and attorneys' fees. We believe the allegations included in the complaint are without merit. Both parites have brought motions for summary judgment, and the lawsuit is scheduled for trial as early as September 2002. It is not possible to predict the timing or outcome of the Datascope litigation, including whether we will be prohibited from selling our Duett sealing device in the United States or internationally, or to estimate the amount or range of potential loss, if any. On July 3, 2000, we were named as the defendant in a patent infringement lawsuit brought by the Daig division of St. Jude Medical in the United States District Court for the District of Minnesota. The complaint requested a judgment that our Duett sealing device infringes a series of four patents known as 11 the Fowler patents held by St. Jude Medical and asks for relief in the form of an injunction that would prevent us from selling our Duett sealing device in the United States, damages caused by the manufacture and sale of our product, and other costs, disbursements and attorneys' fees. On July 12, 2001, we entered into an agreement that settled all existing intellectual property litigation with St. Jude Medical. Under the terms of the settlement agreement, we agreed to pay a royalty of 2.5% of net sales of our Duett sealing device to St. Jude Medical, up to a maximum amount over the remaining life of the St. Jude Fowler patents. In exchange, St. Jude Medical granted to us a non-exclusive license to its Fowler patents and has released us from any claim of patent infringement based on sales of our Duett sealing device. We granted a non-exclusive cross-license to our Gershony patents to St. Jude Medical, subject to a similar royalty payment if St. Jude Medical utilizes our Gershony patents in any future device. Beginning on July 1, 2001, a royalty expense of 2.5% of net sales is included in our cost of goods sold until the maximum royalty is attained. From time to time we are involved in legal proceedings arising in the normal course of our business. Other than as described above, as of the date of this report we are not a party to any legal proceeding in which an adverse outcome would reasonably be expected to have a material adverse effect on our results of operations or financial condition. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS (a) Not applicable (b) Not applicable (c) Not applicable (d) On July 25, 2000, we sold 3,500,000 shares of our common stock, at an initial public offering price of $12.00 per share, pursuant to a Registration Statement on Form S-1 (Registration No. 333-84089), which was declared effective by the Securities and Exchange Commission on July 19, 2000. The managing underwriters of our initial public offering were Salomon Smith Barney Inc., Stephens Inc. and William Blair & Company, L.L.C. On August 15, 2000, the underwriters exercised in full their over-allotment option to purchase an additional 525,000 shares of common stock at $12.00 per share. Our net proceeds from the offering were approximately $44.0 million. To date, we have spent approximately $16.5 million of the net proceeds to hire, train and deploy a direct sales force in the United States, $3.0 million for general corporate purposes, and $1.6 million for the purchase of the Acolysis assets from Angiosonics. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The annual meeting of Shareholders of the Company was held on April 16, 2002 at which time (i) six nominees were elected to the Board of Directors for one-year terms and (ii) the appointment of Ernst & Young LLP as the independent auditors of the Company was approved. Proxies for the Company were solicited pursuant to Section 14(a) of the Securities Exchange Act of 1934, as amended, 12 and there was no solicitation in opposition to management's solicitations. All nominees for directors as listed in the proxy statement were elected. The voting results were as follows: Broker For Against Withheld Non-Votes --- ------- -------- --------- Election of Directors: Paul O'Connell 12,047,170 0 138,368 0 James Jacoby, Jr. 12,056,321 0 129,217 0 Michael Kopp 12,056,646 0 128,892 0 Gerard Langeler 12,054,646 0 130,892 0 Richard Nigon 12,043,446 0 142,092 0 Howard Root 11,850,575 0 334,963 0 Approval of Independent Auditors 12,056,030 111,978 17,530 0 ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 10.1 Stock Option and Stock Award Plan as Amended July 16, 2002 99.1 Certification of Chief Executive Officer and Acting Chief Financial Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002 (b) Reports on Form 8-K: We filed a Form 8-K on May 1, 2002 to report the acquisition of assets related to the Acolysis system from Angiosonics. There were no financial statements required to be filed with the Form 8-K. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. VASCULAR SOLUTIONS, INC. Date: August 9, 2002 By: /s/ Howard Root ------------------------- Howard Root CHIEF EXECUTIVE OFFICER (Duly authorized officer) 13 EX-10.1 3 vascular023933_ex10-1.txt STOCK OPTION AND STOCK AWARD PLAN EXHIBIT 10.1 VASCULAR SOLUTIONS, INC. STOCK OPTION AND STOCK AWARD PLAN AS AMENDED JULY 16, 2002 1. Purpose of Plan --------------- This Plan shall be known as the "Vascular Solutions, Inc. Stock Option and Stock Award Plan" and is hereinafter referred to as the "Plan". The Plan shall provide for the issuance of shares of common stock, par value $.01 (the "Common Stock"), of Vascular Solutions, Inc. (the "Corporation"). The purpose of the Plan is to aid in maintaining and developing a mutually beneficial relationship with employees and non-employees of the Corporation who perform valuable services for or on behalf of the Corporation, to offer such persons additional incentives to put forth maximum efforts for the success of the business, and to afford them an opportunity to acquire a proprietary interest in the Corporation. It is intended that this purpose be effected through the granting of stock options, the awarding of Common Stock subject to restrictions (the "Restricted Shares") and the awarding of stock appreciation rights to such persons as hereinafter provided. Options granted under the Plan may be either incentive stock options ("Incentive Stock Options") within the meaning of the Internal Revenue Code of 1986, as amended (the "Code"), or options which do not qualify as Incentive Stock Options. 2. Stock Subject to the Plan ------------------------- Subject to the provisions of Section 10 hereof, the stock to be subject to options and which may be awarded as Restricted shares under the Plan shall be shares of the Corporation's authorized Common Stock. Such shares may be either authorized but unissued shares or issued shares which have been reacquired by the Corporation. Subject to the adjustment as provided in Section 10 hereof, the maximum number of shares on which options may be exercised or which may be awarded as Restricted Shares under this Plan shall be 1,400,000, plus an automatic annual increase on the first day of each of the Corporation's fiscal years beginning in 2001 and ending in 2006 equal to the lesser of (i) 500,000 shares, (ii) five percent (5%) of the common-equivalent shares outstanding on the last day of the immediately preceding fiscal year, or (iii) such lesser number of shares as determined by the Board of Directors or the Stock Option Committee. Notwithstanding the foregoing, the number of shares available for granting Incentive Stock Options under the Plan shall not exceed 2,600,000 shares, subject to adjustment as provided in the Plan and Section 422 or 424 of the Code or any successor provisions. Any shares subject to an option under the Plan which, for any reason, expires or is terminated unexercised, shall be available for options or awards thereafter granted during the term of the Plan. If any award of Restricted Shares is forfeited in accordance with the terms and conditions of such award, the Restricted Shares so forfeited shall also become available for further grants or awards under the Plan. 1 3. Administration of Plan ---------------------- (a) The Plan shall be administered by the Board of Directors of the Corporation. The Board of Directors may authorize, at any time, the formation of a Stock Option Committee (the "Committee"), consisting of two or more members who shall be appointed from time to time by the Board of Directors. The Stock Option Committee will, if formed, have authority to exercise the powers conferred on the Board of Directors under the Plan, other than the power under Section 11 herein to terminate or amend the Plan or to accelerate the exercisability of any option or lift the restrictions on any Restricted Shares granted or awarded under the Plan. (b) The Board of Directors shall have plenary authority in its discretion, subject to the express provisions of this Plan, to: (i) determine the purchase price of the Common Stock covered by each option and the terms of exercise of each such option, (ii) determine the persons to whom and the time or times at which options (a person receiving an option is hereinafter referred to as an "Optionee") or awards of Restricted Shares (a person receiving an award of Restricted Shares is hereinafter referred to as a "Grantee") shall be granted or made and the number of shares to be subject to each such option or award (iii) determine the period during which Restricted Shares shall remain subject to restrictions and the nature and type of restrictions that may be imposed on Restricted Shares (iv) interpret the Plan, (v) prescribe, amend and rescind rules and regulations relating to the Plan, (vi) determine the terms and provisions (and amendments thereof) of each option and Restricted Share agreement under this Plan (which agreements need not be identical), including the designation of those options intended to be Incentive Stock Options, (vii) the form of payment to be made upon the exercise of an SAR (as hereinafter defined) as provided in Section 16, which payment may be either cash, common stock of the Corporation or a combination thereof, and (viii) make all other determinations necessary or advisable for the administration of the Plan. (c) The Committee shall select one of its members as its Chairman and shall hold its meetings at such times and places as it may determine. A majority of its members shall constitute a quorum. All determinations of the Committee shall be made by not less than a majority of its members. Any decision or determination reduced to writing and signed by a majority of the members of the Committee shall be fully effective as if it had been made by a majority vote at a meeting duly called and held. (d) The granting of an option or an award pursuant to the Plan shall be effective only if a written agreement shall have been duly executed and delivered by and on behalf of the Corporation and the Optionee or Grantee to whom such right is granted. (e) The Board of Directors or the Committee shall, to the extent necessary or desirable, establish any special rules for Optionees or Grantees located in any particular country other than the United States. Such rules shall be set forth in Appendices to the Plan, which shall be deemed incorporated into and form part of the Plan. 2 4. Eligibility ----------- (a) Incentive Stock Options (as determined pursuant to Section 14 herein) may be granted only to employees of the Corporation and its subsidiary corporations. Options which do not qualify as Incentive Stock Options and awards of Restricted Shares may be granted or made to both employees and to individuals or other entities (including but not limited to consultants) who perform services for the Corporation but who are not employed by the Corporation, when granting an option or award to such person would be of benefit to the Corporation. (b) Notwithstanding any other provision in the Plan, if at the time an option is otherwise to be granted pursuant to the Plan the Optionee owns directly or indirectly (within the meaning of Section 425(d) of the Code (as hereinafter defined) Common Stock of the Corporation possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Corporation or its parent or subsidiary corporations, if any, (within the meaning of Section 422(b)(6) of the Code) then any Incentive Stock Option to be granted to such Optionee pursuant to the Plan shall satisfy the requirements of Section 422A(c)(6) of the Code, and the option price shall not be less than 110% of the fair market value of the Common Stock of the Corporation, determined as described in Section 5, and such option by its terms shall not be exercisable after the expiration of five (5) years from the date such option is granted. 5. Price ----- The option price for all Incentive Stock Options granted under the Plan shall be determined by the Board of Directors but shall not be less than 100% of the fair market value of the Common Stock at the date of granting of such option, as determined in good faith by such Board. The option price for options granted under the Plan that do not qualify as Incentive Stock Options shall also be determined by the Board of Directors but shall not be less than 50% of the fair market value of the Common Stock at the date of granting of the option. The option price shall be payable at the time written notice of exercise is given to the Corporation. An Optionee shall be entitled to pay the exercise price in cash, by tendering to the Corporation shares of Common Stock, previously owned by the Optionee for at least six months, having a fair market value on the date of exercise equal to the option price, or, with the consent of the Board of Directors, by the issuance of a promissory note to the Corporation. The fair market value of such shares shall be (i) the closing price of the Common Stock as reported for composite transactions if the Common Stock is then traded on a national securities exchange, (ii) the last sales price if the Common Stock is then traded on the NASDAQ National Market System, or (iii) the average of the closing representative bid and asked prices as reported on NASDAQ if the Common Stock is then traded on NASDAQ. If the Common Stock is not so traded, the Board of Directors shall determine in good faith the fair market value. 3 6. Term ---- Each option and each Restricted Share award and all rights and obligations thereunder shall (subject to the provisions of Section 8) expire on the date determined by the Board of Directors and specified in the option agreement or agreement relating to the award of the Restricted Shares. The Board of Directors shall be under no duty to provide terms of like duration for options or awards granted under the Plan; provided, however, that the term of any Incentive Stock Option shall not extend more than ten (10) years from the date of granting of the option. 7. Exercise of Options and Awards ------------------------------ (a) The Board of Directors shall have full and complete authority (subject to the provisions of Section 8) to determine, at the time of granting or making, whether an option or Restricted Share award will be exercisable in full at any time or from time to time during the term of the option or award, or to provide for the exercise or receipt thereof in such installments and at such times during the term of the option or award as Board may determine. (b) Notwithstanding any provision of the Plan or the terms of any option granted or award of Restricted Shares made under the Plan, the exercise of any option or the transferring of any shares of Common Stock on the books and records of the Corporation pursuant to a Restricted Share award may be made contingent upon receipt from the Optionee or Grantee (or other person rightfully exercising the option or receiving certificates for the shares granted pursuant to a Restricted Share award) of a representation that, at the time of such exercise or receipt, it is their then intention to acquire the shares so received thereunder for investment and not with a view to distribution thereof. Certificates for shares issued or transferred pursuant to the exercise of any option or the granting of any Restricted Share award may be restricted as to further transfers upon advice of legal counsel that such restriction is appropriate to comply with applicable securities laws. (c) Notwithstanding any provision of the Plan or the terms of any option granted or award of Restricted Shares made under the Plan, the Company shall not be required to issue any shares of Common Stock, deliver any certificates for shares of Common Stock or transfer on its books and records any shares of Common Stock if such issuance, delivery or transfer would, in the judgment of the Board of Directors, constitute a violation of any state or Federal law, or of the rules and regulations of any governmental regulatory body or any securities exchange. (d) An Optionee electing to exercise an option shall give written notice to the Corporation of such election and of the number of shares subject to such exercise. The full purchase price of such shares shall be tendered, in accordance with the provisions of Section 5, with such notice of exercise. Until such person has been issued a certificate or certificates for the shares subject to such exercise, he shall possess no rights as a stockholder with respect to such shares. (e) Nothing in the Plan or in any agreement thereunder shall confer on any employee any right to continue in the employ of the Corporation or any of its subsidiaries or affect, in any way, the right of the Corporation or any of its subsidiaries to terminate his or her employment at any time. 4 8. Effect of Termination of Employment or Death -------------------------------------------- Unless otherwise stated in the option agreement, the following provisions shall govern the treatment of an option upon termination of employment: (a) In the event that the Optionee shall cease to be employed by the Corporation or its subsidiaries, if any, for any reason other than such holder's gross and willful misconduct or death or disability, such Optionee shall have the right to exercise the option at any time within three months after such termination of employment to the extent of the full number of shares such holder was entitled to purchase under the option on the date of termination, subject to the condition that no option shall be exercisable after the expiration of the term of the option. (b) In the event that an Optionee shall cease to be employed by the Corporation or its subsidiaries, if any, by reason of such holder's gross and willful misconduct during the course of employment, including but not limited to wrongful appropriation of funds of the Corporation or the commission of a gross misdemeanor or felony, the option shall be terminated as of the date of the misconduct. (c) If the Optionee shall die while in the employ of the Corporation or any subsidiary, if any, or within three (3) months after termination of employment for any reason other than gross and willful misconduct, or become disabled (within the meaning of Section 105(d)(4) of the Code) while in the employ of the Corporation or a subsidiary, if any, and such Optionee shall not have fully exercised the option, such option may be exercised at any time within twelve months after such holder's death or such disability by the personal representatives, administrators, or, if applicable, guardian, of the Optionee or by any person or persons to whom the option is transferred by will or the applicable laws of descent and distribution to the extent of the full number of shares such holder was entitled to purchase under the option on the date of death, disability or termination of employment, if earlier, and subject to the condition that no option shall be exercisable after the expiration of the term of the option. 9. Nontransferability of Options ----------------------------- No option granted under the Plan shall be transferable by an Optionee, otherwise than by will or the laws of descent or distribution or pursuant to a qualified domestic relations order as defined by the Code. 10. Dilution or Other Adjustments ----------------------------- If the number of outstanding shares of the Common Stock of the Corporation shall, at any time, be increased or decreased as a result of a subdivision or consolidation of shares, stock dividend, stock split, spin-off or other distribution of assets to shareholders, recapitalization, merger, consolidation or other corporate reorganization in which the Corporation is the surviving 5 corporation, the number and kind of shares subject to the Plan and to any option, SAR or Restricted Share award previously granted or made, as well as the option price or amount payable upon the exercise of any previously granted option or SAR, shall be appropriately adjusted in order to prevent the dilution or enlargement of rights of holders of outstanding options, SARs or Restricted Share awards. Any fractional shares resulting from any such adjustment shall be eliminated. 11. Amendment or Discontinuance of Plan ----------------------------------- The Board of Directors may amend or discontinue the Plan at any time; however, no amendment of the Plan shall, without shareholder approval, amend the Plan in a way which would cause the Plan to no longer comply with Rule 16b-3 under the Securities Exchange Act of 1934 or any successor rule or other regulatory requirements. Except as provided in Section 10, the Board of Directors shall not alter or impair any option, SAR or Restricted Share award thereto granted or made under the Plan without the consent of the holder of the option, SAR or award; provided, however, that the Board of Directors may accelerate the exercisability of options (and any related SARs) or lift any restrictions imposed on Restricted Shares at any time during the term of such options or awards without the consent of the holder thereof. 12. Time of Granting ---------------- Nothing contained in the Plan or in any resolution adopted or to be adopted by the Board of Directors or by the shareholders of the Corporation, and no action taken by the Board of Directors (other than the execution and delivery of an option or the making of an Award Agreement (as hereinafter defined)), shall constitute the granting of an option or the making of a Restricted Share award hereunder. The granting of an option or the making of a Restricted Share award pursuant to the Plan shall take place only when a written option or Award Agreement shall have been duly executed and delivered by or on behalf of the Corporation to the Optionee or Grantee to whom such option or award is granted or made. 13. Termination of Plan ------------------- Unless the Plan shall have been discontinued as provided in Section 12 hereof, the Plan shall terminate on December 22, 2006. No option or Restricted Share award may be granted or made after such termination, but termination of the Plan shall not, without the consent of the Optionee or Grantee, alter or impair any rights or obligations under any option, SAR or Restricted Share award theretofore granted or made. 14. Determination of Incentive Stock Option --------------------------------------- The Board shall determine, upon the granting of each option, whether such option shall be an Incentive Stock Option or an option that does not qualify as an Incentive Stock Option. 6 15. Restricted Share Awards ----------------------- Each award of Restricted Shares under the Plan shall be evidenced by an instrument (an "Award Agreement"). Each Award Agreement shall be subject to the terms and conditions of the Plan but may contain additional terms and conditions (which terms and conditions may vary from Grantee to Grantee) that are not inconsistent with the Plan as the Board of Directors may deem necessary and desirable. Each Award Agreement shall comply with the following terms and conditions: (a) The Board of Directors shall determine the number of Restricted Shares to be awarded to a Grantee. (b) At the time of the award of Restricted Shares, a certificate representing the appropriate number of shares of Common Stock awarded to a Grantee shall be registered in the name of such Grantee but shall be held by the Corporation or any custodian appointed by the Corporation for the account of the Grantee subject to the terms and conditions of the Plan. The Grantee shall have all rights of a stockholder as to such shares of Common Stock, including the right to receive dividends and the right to vote such Common Stock, subject to the following restrictions: (i) the Grantee shall not be entitled to delivery of the stock certificate until the expiration of the Restricted Period (as hereinafter defined); (ii) the Restricted Shares may not be sold, transferred, assigned, pledged, or otherwise encumbered or disposed of during the Restricted Period; and (iii) all or a specified portion of the Restricted Shares shall be forfeited and all rights of the Grantee to any forfeited Restricted Shares shall terminate without further obligation on the part of the Corporation unless the Grantee remains in the continuous employment of the Corporation for the period in relation to which all or such portion of the Restricted Shares were granted ( the "Restricted Period"). No Restricted Shares shall have a Restricted Period of less than six (6) months from the date of award. The Board of Directors shall have the power to determine which portion of an award of Restricted Shares shall be forfeited in the event of a Grantee's failure to remain in the continuous employment of the Corporation during the Restricted Period relating to such award. In addition, the Board of Directors may specify additional restrictions or events that must occur during the Restricted Period or the Restricted Shares, or a portion thereof, shall be forfeited as stated in the award thereof. Any shares of Common Stock received as a result of a stock distribution to holders of Restricted Shares shall be subject to the same restrictions as such Restricted Shares. (c) At the end of each applicable Restricted Period or at such earlier time as otherwise provided by the Board of Directors, all restrictions contained in an Award Agreement and in the Plan shall lapse as to such portion of the Restricted Shares granted in relation to such Restricted Period, and a stock certificate for the appropriate number of shares of Common Stock, free of restrictions, shall be delivered to the Grantee or the Grantee's beneficiary or estate, as the case may be. (d) There shall be no limitation on the number of shares of Common Stock which a Grantee may be awarded except that no Grantee may be awarded shares of Common Stock in 7 excess of the number of shares remaining available for option grants and awards of Restricted Shares under the Plan. 16. Alternative Stock Appreciation Rights ------------------------------------- (a) Grant. At the time of grant of an option under the Plan (or at any time thereafter as to options which are not Incentive Stock Options), the Board of Directors, in its discretion, may grant to the holder of such option an alternative Stock Appreciation Right ("SAR") for all or any part of the number of shares covered by the holder's option. Any such SAR may be exercised as an alternative, but not in addition to, an option granted hereunder, and any exercise of an SAR shall reduce an option by the same number of shares as to which the SAR is exercised. An SAR granted to an Optionee shall provide that such SAR, if exercised, must be exercised within the time period specified therein. Such specified time period may be less than (but may not be greater than) the time period during which the corresponding option may be exercised. An SAR may be exercised only when the corresponding option is eligible to be exercised. The failure of the holder of an SAR to exercise such SAR within the time period specified shall not reduce such holder's option rights. If an SAR is granted for a number of shares less than the total number of shares covered by the corresponding option, the Board of Directors may later (as to options which are not Incentive Stock Options) grant to the Optionee an additional SAR covering additional shares; provided, however, that the aggregate amount of all SARs held by any Optionee shall at no time exceed the total number of shares covered by such Optionee's unexercised options. (b) Exercise. The holder of any option that by its terms is exercisable who also holds an SAR may, in lieu of exercising their option, elect to exercise their SAR, subject, however, to the limitation on time of exercise hereinafter set forth. Such SAR shall be exercised by the delivery to the Corporation of a written notice which shall state that the Optionee elects to exercise their SAR as to the number of shares specified in the notice and which shall further state what portion, if any, of the SAR exercise amount (hereinafter defined) the holder thereof requests be paid in cash and what portion, if any, such holder requests be paid in Common Stock of the Corporation. The Board of Directors shall promptly cause to be paid to such holder the SAR exercise amount either in cash, in Common Stock of the Corporation, or any combination of cash and stock as the Board of Directors may determine. Such determination may be either in accordance with the request made by the holder of the SAR or in the sole and absolute discretion of the Board of Directors. The SAR exercise amount is the excess of the fair market value of one share of the Corporation's Common Stock on the date of exercise over the per share option price for the option in respect of which the SAR was granted multiplied by the number of shares as to which the SAR is exercised. For the purposes hereof, the fair market value of the Corporation's shares shall be determined as provided in Section 5 herein. An SAR may be exercised only when the SAR exercise amount is positive. (c) Limitation on Date of Exercise. A cash settlement of an SAR by an officer or director of the Corporation may only be accomplished in compliance with Rule 16b-3(e) of the Securities Exchange Act of 1934 as presently in effect or as subsequently modified by amendment. 8 (d) Other Provisions of Plan Applicable. All provisions of this Plan applicable to options granted hereunder shall apply with equal effect to an SAR. No SAR shall be transferable otherwise than by will or the laws of descent and distribution and an SAR may be exercised during the lifetime of the holder thereof, only by such holder. 17. Tax Indemnification Payments ---------------------------- The Board shall have the authority, at the time of the grant of an option or the making of a Restricted Share award under the Plan or at any time thereafter, to approve tax indemnification payments to designated Optionees and Grantees to be paid upon their exercise of stock options which do not qualify as incentive stock options or recognition of a taxable gain by reason of their receipt of an award of Restricted Shares, as the case may be. The amount of any such payments shall not exceed the amount of tax generally payable by an Optionee or Grantee by reason of such exercise or recognition, and shall not, in any case, exceed sixty percent of the amount imputed as taxable income to a particular Optionee or Grantee by reason of either of the above-described events. The Board of Directors shall have full authority, in its discretion, to determine the amount of any such payment, the terms and conditions affecting the exercise, vesting and payment of any payment, and whether any payment shall be payable in cash or other property. 18. Income Tax Withholding ---------------------- (a) In order to assist an Optionee or Grantee in paying federal and state income taxes required to be withheld upon the exercise of an option or receipt of a Restricted Share award granted or made hereunder, the Board of Directors, in its discretion and subject to such additional terms and conditions as it may adopt, may permit the Grantee or Optionee to elect to satisfy such income tax withholding obligation by delivering previously owned shares or by having the Corporation withhold a portion of the shares otherwise to be delivered upon exercise of such option or award with a fair market value, determined in accordance with the provisions of Section 5 hereof, in an amount up to the Optionee's maximum marginal tax rate. Any such election by an officer or director of the Corporation must comply with the provisions of Rule 16b-3 under the Securities Exchange Act of 1934 or any successor rule. (b) Optionees and Grantees are responsible for the payment of all income taxes, employment, social insurance, welfare and other taxes under applicable law relating to any amounts deemed under the laws of the country of their residency or of the organization of the subsidiary which employs them to constitute income arising out of the Plan, the purchase and sale of shares pursuant to the Plan and the distribution of shares or cash to the participant in accordance with the Plan. Each participant, by participating in the Plan, authorizes the Company or the relevant subsidiary to make appropriate withholding deductions from each participant's compensation, and to pay such amounts to the appropriate tax authorities in the relevant country or countries in order to satisfy any of the above tax liabilities of the participant under applicable law. 9 19. Automatic Outside Director Stock Option Grants ---------------------------------------------- (a) Procedure for Grants. All grants of options under this Section 19 shall be automatic and nondiscretionary and shall be made strictly in accordance with the following provisions: (i) No person shall have any discretion to select which Outside Directors shall be granted options or to determine the number of shares to be covered by options granted to Outside Directors. As used herein, "Outside Director" means a member of the Corporation's Board of Directors who is not an employee of the Corporation. (ii) Any person who first becomes an Outside Director after January 24, 2000, shall be automatically granted an option to purchase 10,000 shares on the date on which such person first becomes an Outside Director, whether through election by the shareholders of the Corporation or appointment by the Board of Directors to fill a vacancy. (iii) Beginning with the 2000 Annual Meeting of Shareholders, each Outside Director shall be automatically granted an option to purchase 10,000 shares on the date of each Annual Meeting of the Corporation's shareholders immediately following which such Outside Director is serving on the Board of Directors, provided that, on such date, he or she shall have served on the Board of Directors for at least six (6) months prior to the date of such Annual Meeting. (iv) Notwithstanding the provisions of subsections (ii) and (iii) hereof, in the event that a grant would cause the number of shares subject to outstanding options plus the number of shares previously purchased upon exercise of options to exceed the total number of shares available under the Plan in accordance with Section 2, then each such automatic grant shall be for that number of shares determined by dividing the total number of shares remaining available for grant by the number of Outside Directors receiving an option on the automatic grant date. Any further grants shall then be deferred until such time, if any, as additional shares become available for grant under the Plan through action of the shareholders to increase the number of shares which may be issued under the Plan or through cancellation or expiration of options previously granted hereunder. (b) Terms. The terms of each option granted under this Section 19 shall be as follows: (i) each option shall have a ten-year term and shall be exercisable only while the Outside Director remains a director of the Corporation, subject to the same extension provided to employees for death and disability under Section 8 (c) of the Plan; (ii) the exercise price per share shall be 100% of the fair market value per share on the date of grant of each option, determined in accordance with Section 5 of the Plan; (iii) each option shall be fully vested and exercisable on the date of grant. 10 20. Award Limitations Under the Plan -------------------------------- No person eligible to receive an award under the Plan may be granted any award or awards under the Plan, the value of which awards is based solely on an increase in the value of the shares after the date of grant of such awards, for more than 500,000 shares (subject to adjustment as provided for in Section 10), in the aggregate in any calendar year. The foregoing annual limitation specifically includes the grant of any awards representing "qualified performance-based compensation" within the meaning of Section 162(m) of the Code. 21. Miscellaneous ------------- Nothing in this Plan shall confer on any Optionee or Grantee any express or implied right of continued employment by the Company or any subsidiary, whether for the duration of the Plan or otherwise. Nothing in this Plan shall confer on any person any legal or equitable right against the Company or any of its affiliates, directly or indirectly, or give rise to any cause of action at law or in equity against the Company or any of its affiliates. None of the options granted hereunder, the shares purchased hereunder or any other benefits conferred hereby shall form any part of the wages or salary of any employee for purposes of severance pay or termination indemnities, irrespective of the reason for termination of employment. Under no circumstances shall any person ceasing to be an employee of the Company or any of its affiliates be entitled to any compensation for any loss or any right or benefit under this Plan which such employee might otherwise have enjoyed but for termination of employment, whether such compensation is claimed by way of damages for wrongful or unfair dismissal, breach of contract or otherwise. 22. Acceptance of Terms ------------------- By participating in the Plan, each Optionee and Grantee shall be deemed to have accepted all the conditions of the Plan and the terms and conditions of any rules and regulations adopted by the Board of Directors or the Committee and shall be fully bound thereby. 11 EX-99.1 4 vascular023933_ex99-1.txt CERTIFICATION OF THE SARBANES-OXLEY ACT OF 2002 EXHIBIT 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SS.1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Vascular Solutions, Inc. (the "Company") on Form 10-Q for the period ended June 30, 2002, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Howard Root, Chief Executive Officer and Acting Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Howard Root ---------------------------------------- Howard Root Chief Executive Officer and Acting Chief Financial Officer August 9, 2002 -----END PRIVACY-ENHANCED MESSAGE-----