-----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, AWAW/hUhbEA9R1KggwOOoIQR2wg80MpDvZxz+b83B8A+7JrPlaz5TxNXeKkQYdbM i1vPVXBEt6kszNTaE67k0A== 0000914190-99-000401.txt : 19991220 0000914190-99-000401.hdr.sgml : 19991220 ACCESSION NUMBER: 0000914190-99-000401 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000124 FILED AS OF DATE: 19991217 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SURMODICS INC CENTRAL INDEX KEY: 0000924717 STANDARD INDUSTRIAL CLASSIFICATION: ADHESIVES & SEALANTS [2891] IRS NUMBER: 411356149 STATE OF INCORPORATION: MN FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: SEC FILE NUMBER: 000-23837 FILM NUMBER: 99776283 BUSINESS ADDRESS: STREET 1: 9924 W 74TH ST CITY: EDEN PRAIRIE STATE: MN ZIP: 55344 BUSINESS PHONE: 6128292700 MAIL ADDRESS: STREET 1: 9924 WEST 74TH ST CITY: EDEN PRAIRIE STATE: MN ZIP: 55344 FORMER COMPANY: FORMER CONFORMED NAME: BSI CORP DATE OF NAME CHANGE: 19970506 DEF 14A 1 DEFINITIVE PROXY SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. ____) Filed by the Registrant [ X ] Filed by a Party other than the Registrant [ ] Check the appropriate box: [ ] Preliminary Proxy Statement [ ] Confidential for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) [X] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12 SurModics, Inc. (Name of Registrant as Specified In Its Charter) (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box): [X] No fee required [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11 1) Title of each class of securities to which transaction applies: 2) Aggregate number of securities to which transaction applies: 3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): 4) Proposed maximum aggregate value of transaction: 5) Total fee paid: [ ] Fee paid previously with preliminary materials. [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing: 1) Amount Previously Paid: 2) Form, Schedule or Registration Statement No.: 3) Filing Party: 4) Date Filed: SURMODICS, INC. ___________________ NOTICE OF ANNUAL MEETING OF SHAREHOLDERS ___________________ The Annual Meeting of Shareholders of SurModics, Inc. will be held on January 24, 2000, at 4:00 p.m. (Minneapolis time), at the Hotel Sofitel, 5601 West 78th Street, Bloomington, Minnesota, for the following purposes: 1. To set the number of directors at seven (7). 2. To elect Class I directors. 3. To approve the Company's 1999 Employee Stock Purchase Plan. 4. To amend the Articles of Incorporation, including an increase of the authorized Common Stock from 15,000,000 to 45,000,000 shares. 5. To consider and act upon such other matters as may properly come before the meeting and any adjournments thereof. Only shareholders of record at the close of business on December 3, 1999, are entitled to notice of and to vote at the meeting or any adjournment thereof. Your vote is important. We ask that you complete, sign, date and return the enclosed proxy in the envelope provided for your convenience. The prompt return of proxies will save the Company the expense of further requests for proxies. BY ORDER OF THE BOARD OF DIRECTORS Dale R. Olseth Chairman and Chief Executive Officer Eden Prairie, Minnesota December 17, 1999 SURMODICS, INC. Annual Meeting of Shareholders January 24, 2000 ___________________ PROXY STATEMENT ___________________ INTRODUCTION Your Proxy is solicited by the Board of Directors of SurModics, Inc. ("the Company") for use at the Annual Meeting of Shareholders to be held on January 24, 2000, at the location and for the purposes set forth in the notice of meeting, and at any adjournment thereof. The cost of soliciting proxies, including the preparation, assembly and mailing of the proxies and soliciting material, as well as the cost of forwarding such material to beneficial owners of stock, will be borne by the Company. Directors, officers and regular employees of the Company may, without compensation other than their regular remuneration, solicit proxies personally or by telephone. Any shareholder giving a proxy may revoke it at any time prior to its use at the meeting by giving written notice of such revocation to the Secretary of the Company. Proxies not revoked will be voted in accordance with the choice specified by shareholders by means of the ballot provided on the Proxy for that purpose. Proxies which are signed but which lack any such specification will, subject to the following, be voted in favor of the proposals set forth in the Notice of Meeting and in favor of the slate of directors proposed by the Board of Directors and listed herein. If a shareholder abstains from voting as to any matter, then the shares held by such shareholder shall be deemed present at the meeting for purposes of determining a quorum and for purposes of calculating the vote with respect to such matter, but shall not be deemed to have been voted in favor of such matter. Abstentions, therefore, as to any proposal will have the same effect as votes against such proposal. If a broker returns a "non-vote" proxy, indicating a lack of voting instructions by the beneficial holder of the shares and a lack of discretionary authority on the part of the broker to vote on a particular matter, then the shares covered by such non-vote proxy shall be deemed present at the meeting for purposes of determining a quorum but shall not be deemed to be represented at the meeting for purposes of calculating the vote required for approval of such matter. The mailing address of the principal executive office of the Company is 9924 West 74th Street, Eden Prairie, Minnesota 55344. The Company expects that this Proxy Statement, the related proxy and notice of meeting will first be mailed to shareholders on or about December 17, 1999. 1 OUTSTANDING SHARES AND VOTING RIGHTS The Board of Directors of the Company has fixed December 3, 1999, as the record date for determining shareholders entitled to vote at the Annual Meeting. Persons who were not shareholders on such date will not be allowed to vote at the Annual Meeting. At the close of business on December 3, 1999, 7,728,690 shares of the Company's Common Stock were issued and outstanding. The Common Stock is the only outstanding class of capital stock of the Company entitled to vote at the meeting. Each share of Common Stock is entitled to one vote on each matter to be voted upon at the meeting. Holders of Common Stock are not entitled to cumulative voting rights. PRINCIPAL SHAREHOLDERS The following table provides information concerning persons known to the Company to be the beneficial owners of more than 5% of the Company's outstanding Common Stock as of December 3, 1999. Unless otherwise indicated, the shareholders listed in the table have sole voting and investment powers with respect to the shares indicated. Name and Address of Number of Shares Percent of Beneficial Owner Beneficially Owned Class (1) Arbor Capital Management 628,500 8.1% 120 South 6th Street, Suite 1000 Minneapolis, MN 55402 Dale R. Olseth 614,500(2) 7.9% 9924 West 74th Street Eden Prairie, MN 55344 David A. Koch 510,300(3) 6.6% 9924 West 74th Street Eden Prairie, MN 55344 (1) Shares not outstanding but deemed beneficially owned by virtue of the right of a person to acquire them as of December 3, 1999, or within sixty days of such date are treated as outstanding only when determining the percent owned by such individual and when determining the percent owned by a group. (2) Includes 2,500 shares held by Mr. Olseth's wife and 50,000 shares which may be acquired upon exercise of stock options which are exercisable as of December 3, 1999 or within 60 days of such date. (3) Includes 20,900 shares which may be acquired upon exercise of stock options which are exercisable as of December 3, 1999 or within 60 days of such date, 10,000 shares held by the Greycoach Foundation, over which Mr. Koch has shared voting and investment power, and 66,000 shares held by a Trust for the benefit of Mr. Koch's wife and children. Mr. Koch is one of the Trustees of such Trust and has shared voting and dispositive powers over the shares held by the Trust. 2 MANAGEMENT SHAREHOLDINGS The following table sets forth the number of shares of Common Stock beneficially owned as of December 3, 1999, by each executive officer of the Company named in the Summary Compensation table, by each current director and nominee for director of the Company and by all directors and executive officers (including the named individuals) as a group. Unless otherwise indicated, the shareholders listed in the table have sole voting and investment powers with respect to the shares indicated. Name of Beneficial Number of Shares Percent of Owner or Identity of Group Beneficially Owned Class (1) --------------------------- ------------------ ---------- Dale R. Olseth 614,500 (2) 7.9% David A. Koch 510,300 (3) 6.6% Patrick E. Guire, Ph.D. 228,127 (4) 2.9% Kendrick B. Melrose 149,502 (5) 1.9% James C. Powell 81,863 (6) 1.1% James J. Grierson 78,286 (5) 1.0% Donald S. Fredrickson, M.D. 53,400 (5) * Walter H. Diers, Jr. 52,000 (7) * Stephen C. Hathaway 48,200 (8) * Kenneth H. Keller, Ph.D. 12,600 (9) * All officers and directors as a group (11 persons) 1,862,278 (10) 23.2% _______________________ * Less than 1% (1) See footnote (1) to preceding table. (2) See footnote (2) to preceding table. (3) See footnote (3) to preceding table. (4) Includes 35,000 shares which may be acquired upon exercise of stock options which are exercisable as of December 3, 1999 or within 60 days of such date. (5) Includes 20,900 shares which may be acquired upon exercise of stock options which are exercisable as of December 3, 1999 or within 60 days of such date. (6) Includes 250 shares held by Mr. Powell's wife and 29,600 shares which may be purchased upon exercise of options which are exercisable as of December 3, 1999 or within 60 days of such date. 3 (7) Includes 13,000 shares which may be acquired upon exercise of stock options which are exercisable as of December 3, 1999 or within 60 days of such date. (8) Includes 45,200 shares which may be purchased upon exercise of options which are exercisable as of December 3, 1999 or within 60 days of such date. (9) Includes 12,600 shares which may be purchased upon exercise of options which are exercisable as of December 3, 1999 or within 60 days of such date. (10) Includes 290,300 shares which may be purchased upon exercise of options which are exercisable as of December 3, 1999 or within 60 days of such date. ELECTION OF DIRECTORS (Proposals #1 and #2) General Information The Bylaws of the Company provide that the number of directors, which shall not be less than three, shall be determined by the shareholders. The Board of Directors recommends that the number of directors be set at seven. The Bylaws also provide for the election of three classes of directors with terms staggered so as to require the election of only one class of directors each year. Only directors who are members of Class I will be elected at the Annual Meeting. The Class I directors will be elected to a three-year term and, therefore, will hold office until the Company's 2003 Annual Meeting of Shareholders and until their successors have been duly elected and qualified. The terms of Classes II and III continue until 2001 and 2002, respectively. The Board of Directors nominates Patrick E. Guire, Ph.D. and Donald S. Fredrickson, M.D. for re-election as Class I directors. Each Proxy will be voted for each of such nominees unless the Proxy withholds a vote for one or both nominees. If, prior to the meeting, it should become known that either of the nominees will be unable to serve as a director after the meeting by reason of death, incapacity or other unexpected occurrence, the proxies will be voted for such substitute nominee as is selected by the Board of Directors or, alternatively, not voted for any nominee. The Board of Directors has no reason to believe that any nominee will be unable to serve. Under applicable Minnesota law, approval of the proposal to set the number of directors at seven, as well as the election of each Class I nominee, requires the affirmative vote of the holders of a majority of the voting power of the shares represented in person or by proxy at the Annual Meeting with authority to vote on such matter, but not less than the affirmative vote of 1,932,174 shares. The following information is provided with respect to each director nominee as well as each director whose term continues after the Annual Meeting: Name Age Position with Company Dale R. Olseth 68 Chairman and Chief Executive Officer Patrick E. Guire, Ph.D. 63 Senior Vice President and Chief Scientific Officer and Director 4 Donald S. Fredrickson, M.D. (1) 75 Director James J. Grierson (2) 57 Director Kenneth H. Keller, Ph.D. (1)(2) 65 Director David A. Koch (1)(2) 69 Director Kendrick B. Melrose (1)(2) 59 Director ________________________ (1) Member of the Compensation Committee. (2) Member of the Audit Committee. Dale R. Olseth (Class III) joined the Company in 1986 as its President (which position he held until 1998), Chief Executive Officer and a director, and has served as Chairman of the Board since 1988. Mr. Olseth also serves on the Board of Directors of The Toro Company and Graco Inc. He served as Chairman or President and Chief Executive Officer of Medtronic, Inc. from 1976 to 1986. From 1971 to 1976, Mr. Olseth served as President and Chief Executive Officer of Tonka Corporation. Patrick E. Guire, Ph.D. (Class I) is a co-founder of the Company and has served as Senior Vice President and Chief Scientific Officer and a director since 1980. Dr. Guire is responsible for the research affairs of the Company. Prior to founding SurModics, Dr. Guire was employed by Kallestad Laboratories, Inc. as a senior scientist from 1978 to 1979 and was a researcher at the Midwest Research Institute, Inc. in Kansas City, Missouri from 1972 to 1978. Donald S. Fredrickson, M.D. (Class I) was elected a director of the Company in 1991. He has served as President and Chief Executive Officer of D.S. Fredrickson Associates, Inc., an international medical research and biomedical consulting firm since 1987. Dr. Fredrickson served as Vice President, President and Chief Executive Officer during his tenure at the Howard Hughes Medical Institute in Washington D.C. from 1983 to 1987. During 1982 and 1983, he served as a scholar-in-residence at the National Academy of Sciences of the United States of America. From 1975 to 1981, he served as the Director of the National Institutes of Health. James J. Grierson (Class II) was elected a director of the Company in 1988. He served as Vice President of Business Development for Honeywell, Inc. from 1992 until his retirement in 1996. He was Vice President of Finance for Honeywell from 1987 to 1992 and its Vice President and Treasurer from 1982 to 1987. Kenneth H. Keller, Ph.D. (Class III) was elected a director of the Company in 1997. He has served as Professor of Science and Technology Policy in the Hubert H. Humphrey Institute of Public Affairs at the University of Minnesota since 1996. Dr. Keller was a Senior Fellow at the Council on Foreign Relations from 1989 to 1997. Dr. Keller joined the Chemical Engineering and Materials Science faculty of the University of Minnesota in 1964, and through the years assumed increasing administrative responsibilities, including serving as the twelfth President of the University in 1985, a position he held until 1988, when he moved to Princeton University as a Visiting Fellow. David A. Koch (Class III) was elected a director of the Company in 1988. He has served as the Chairman of Graco Inc. since 1985, as its Chief 5 Executive Officer from 1985 to 1996 and as its President and Chief Executive Officer from 1962 to 1985. Mr. Koch is also a director of ReliaStar Financial Corporation and is Chair of the Federal Reserve Bank of Minneapolis. Kendrick B. Melrose (Class II) was elected a director of the Company in 1988. He has served as Chairman of the Board and Chief Executive Officer of The Toro Company since 1987, served as its Chief Executive Officer from 1983 to 1987 and as its President from 1981 to 1983. Mr. Melrose is also a director of Donaldson Company, Inc., Valspar Corporation and Jostens, Inc. Committee and Board Meetings The Company's Board of Directors has two standing committees, the Audit Committee and the Compensation Committee. The Audit Committee is responsible for reviewing the Company's internal control procedures, the quarterly and annual financial statements of the Company, and reviewing with the Company's independent public accountants the results of the annual audit. The Audit Committee met two times during fiscal 1999. The Compensation Committee recommends to the Board of Directors from time to time the salaries and incentive compensation to be paid to executive officers of the Company and administers the Company's employee stock plans. The Compensation Committee met once during the year. During fiscal 1999, the Board of Directors held six formal meetings. Each incumbent director attended 75% or more of the total number of meetings of the Board and of committee(s) of which he was a member. Directors Fees Directors are not currently paid fees for attending Board or Committee meetings. Non-employee directors are generally compensated with non-qualified stock options as determined by the Board of Directors from time to time. The non-employee directors currently hold non-qualified stock options to purchase an aggregate of 121,000 shares of Common Stock, including options to purchase an aggregate of 21,000 shares granted during fiscal 1999. All such options have an exercise price equal to the fair market value of a share of Common Stock on the date of grant and expire five to ten years after the date of grant. Such options vest over five year periods commencing on the date of grant. In addition, Messrs. Grierson and Fredrickson are reimbursed for their travel-related expenses incurred in attending meetings of the Board of Directors. CERTAIN TRANSACTIONS In August 1997, the Company adopted a plan pursuant to which an employee of the Company could borrow amounts from the Company to fund stock option exercises. No further loans are being granted under this program. Any loan made pursuant to this plan was required to provide for: a five-year term, subject to automatic acceleration to three months after termination of employment; interest payable annually at the prime rate in effect at the time of the loan, paid annually; principal payable at maturity; and a pledge of the 6 shares of Common Stock acquired with the proceeds of the loan as security. Under the terms of this loan program, (i) Walter H. Diers, Jr., Vice President of Corporate Development for the Company, borrowed an aggregate of $80,000 on September 19, 1997, at an interest rate of 8.5%, to exercise an option to purchase an aggregate of 20,000 shares of Common Stock at $4.00 per share and (ii) James C. Powell, President and Chief Operating Officer, borrowed an aggregate of $56,000 on September 19, 1997, at an interest rate of 8.5% to exercise an option to purchase an aggregate of 14,000 shares of Common Stock at $4.00 per share. Mr. Powell's loan was paid in full during fiscal 1999 and Mr. Diers' loan was paid in full by November 1999. EXECUTIVE COMPENSATION Summary Compensation Table The following table sets forth certain information regarding compensation paid during each of the Company's last three fiscal years to the Chief Executive Officer and each other executive officer of the Company (the "Named Executive Officers") who received total salary and bonus compensation in excess of $100,000 for 1999. Summary Compensation Table
Long-term Annual Compensation Compensation ------------------- ------------ Securities All Name and Principal Fiscal Salary Bonus Underlying Options Other Position Year ($) ($)(1) (# of shares) Compensation(2) - -------------------------- ------ ------ ------------- ------------------ --------------- Dale R. Olseth, 1999 $132,088 $ 27,596 15,000 $ 6,148 Chairman and Chief Executive Officer 1998 $114,944 $ 22,663 10,000 $ 3,938 1997 $109,598 $ 20,408 0 $ 2,100 James C. Powell, 1999 $122,500 $ 28,800 15,000 $ 5,871 President and Chief Operating Officer 1998 $104,755 $ 20,602 10,000 $ 3,479 1997 $96,246 $ 18,463 0 $ 1,830 Stephen C. Hathaway, 1999 $107,082 $ 25,200 8,000 $ 5,488 Vice President and Chief Financial 1998 $95,771 $ 19,573 5,000 $ 3,225 Officer 1997 $90,000 $ 22,493 74,000 $ 618 Patrick E. Guire, Ph.D., 1999 $93,344 $ 20,880 0 $ 4,781 Senior Vice President and Chief 1998 $87,326 $ 17,922 5,000 $ 3,100 Scientific Officer 1997 $86,250 $ 16,327 20,000 $ 1,680 Walter H. Diers, Jr., 1999 $89,676 $ 20,644 8,000 $ 4,641 Vice President of Corporate Development 1998 $85,157 $ 16,997 5,000 $ 2,894 1997 $80,008 $ 14,577 0 $ 1,642 ___________________________
(1) Represents amounts earned under a bonus plan for the Company's officers enabling them to receive a payout of up to 24% of their base salary. The amount of the bonus is determined based on the achievement of certain revenue and profit goals for the year. The plan was reviewed and approved by the Board of Directors. Mr. Hathaway's bonus for fiscal 1997 includes an additional bonus paid upon commencement of employment with the Company. (2) Represents contributions made by the Company under its 401(k) plan. 7 Option/SAR Grants During 1999 Fiscal Year The following table sets forth information regarding stock options granted to the Named Executive Officers during the fiscal year ended September 30, 1999. The Company has not granted stock appreciation rights.
Number of Securities % of Total Underlying Options/SARs Options/SARs Granted to Exercise or Granted Employees in Base Price Expiration Name (#) (1) Fiscal Year ($/Sh) Date ------ ---------- ----------- -------- ---- Dale R. Olseth 15,000 9.2% $16.125 9/20/06 James C. Powell 15,000 9.2% $16.125 9/20/06 Stephen C. Hathaway 8,000 4.9% $16.125 9/20/06 Patrick E. Guire, Ph.D. 0 N/A N/A N/A Walter H. Diers, Jr. 8,000 4.9% $16.125 9/20/06 ______________________
(1) Such options are exercisable annually as to 20% of the total number of shares commencing September 20, 2000. Aggregated Option/SAR Exercises During 1999 Fiscal Year and Fiscal Year End Option/SAR Values The following table provides information related to the exercise of stock options during fiscal 1999 by the Named Executive Officers and the number and value of options held at fiscal year end by such persons:
Number of Unexercised Securities Underlying Value of Unexercised In-the- Options at 9/30/99 Money Options at 9/30/99(1) ---------------------------- ---------------------------- Shares Acquired on Value Name Exercise Realized(2) Exercisable Unexercisable Exercisable Unexercisable - ---- -------- -------- ----------- ------------- ----------- ------------- Dale R. Olseth 160,000 $1,660,000 50,000 55,000 $488,250 $373,000 James C. Powell 48,000 $ 562,000 29,600 41,400 $286,800 $238,700 Stephen C. Hathaway 3,000 $ 13,938 30,400 53,600 $297,450 $439,300 Patrick E. Guire, Ph.D. 24,000 $ 270,000 31,000 24,000 $303,375 $226,000 Walter H. Diers, Jr. 30,000 $ 319,438 13,000 24,000 $125,625 $147,000 ________________________
(1) Value of exercisable/unexercisable in-the-money options is equal to the difference between the market price of the Common Stock at fiscal year end and the option exercise price per share multiplied by the number of shares subject to options. The closing sale price as of September 30, 1999 on the Nasdaq National Market was $14.875. (2) Value is equal to the difference between the closing price as quoted on the Nasdaq National Market on the date of exercise and the option exercise price per share multiplied by the number of shares to which the exercise relates. 8 APPROVAL OF 1999 EMPLOYEE STOCK PURCHASE PLAN (PROPOSAL #3) General On November 15, 1999, the Board of Directors adopted, subject to shareholder approval, the Company's 1999 Employee Stock Purchase Plan (the "Stock Purchase Plan"). A general description of the basic features of the Stock Purchase Plan is presented below, but such description is qualified in its entirety by reference to the full text of the Stock Purchase Plan, a copy of which may be obtained without charge upon written request to the Company's Chief Financial Officer. Description of the 1999 Employee Stock Purchase Plan Purpose. The purpose of the Stock Purchase Plan is to encourage stock ownership by the Company's employees and in so doing to provide an incentive to remain in the Company's employ, to improve operations, to increase profits and to contribute more significantly to the Company's success. Eligibility. The Stock Purchase Plan permits employees to purchase stock of the Company at a favorable price and possibly with favorable tax consequences to the employees. Generally speaking, all full-time and part-time employees (including officers) of the Company who are customarily employed for more than 20 hours per week are eligible to participate in any of the phases of the Stock Purchase Plan. However, any employee who would own (as determined under the Internal Revenue Code), immediately after the grant of an option, stock representing 5% or more of the total combined voting power or value of all classes of the stock of the Company cannot purchase stock through the Stock Purchase Plan. Currently, this limitation excludes Dale R. Olseth from participating. As of December 1, 1999, the Company had approximately 105 full-time and part-time employees eligible to participate. Administration; Term. The Stock Purchase Plan will be administered by the Compensation Committee. The Stock Purchase Plan gives broad powers to the Committee to administer and interpret the Stock Purchase Plan, including the authority to limit the number of shares that may be optioned under the Stock Purchase Plan during a phase. The Stock Purchase Plan will terminate on February 28, 2010, unless the Board of Directors extends the term of the Plan. Options. Unless otherwise determined by the Compensation Committee, phases of the Stock Purchase Plan will commence on March 1 and end on February 28/29 of each year, beginning March 1, 2000. Before the commencement date of the phase, each participating employee must elect to have a certain percentage of his or her compensation deducted during each pay period in such phase; provided, however, that the payroll deductions during a phase must be no more than 10% and no less than 1% of the participant's compensation. An employee may not increase his or her payroll deduction percentage during a phase. An employee may request that any further payroll deductions be discontinued or request a withdrawal 9 of all accumulated payroll deductions at any time during the phase. An employee's payroll deduction election will continue for all future phases of the Stock Purchase Plan unless the employee changes his or her election or withdraws from the Plan. Based on the amount of accumulated payroll deductions made at the end of the phase, shares will be purchased by each employee at the termination date of such phase. The purchase price to be paid by the employees will be the lower of: (i) 85% of the average closing price of the Company's Common Stock quoted by the Nasdaq National Market over the five trading days immediately preceding the commencement date of the phase; or (ii) 85% of the average closing price of the Company's Common Stock quoted by the Nasdaq National Market over the five trading days immediately preceding the termination date of the phase. The closing price of one share of the Company's Common Stock on December 1, 1999 was $20.875 per share. As required by tax law, an employee may not, during any calendar year, receive options under the Stock Purchase Plan for shares which have a total fair market value in excess of $25,000 determined at the time such options are granted. Any amount not used to purchase shares will be carried over to the next phase, unless the employee requests a refund of that amount. If an employee withdraws his or her payroll deductions during a phase, the Company will pay interest on such funds to the employee. If the employee dies or terminates employment for any reason before the end of the phase, the employee's payroll deductions will be refunded, without interest. Amendment. The Board of Directors may, from time to time, revise or amend the Stock Purchase Plan as the Board may deem proper and in the best interest of the Company or as may be necessary to comply with Section 423 of the Internal Revenue Code (the "Code"); provided, that no such revision or amendment may (i) increase the total number of shares for which options may be granted under the Stock Purchase Plan except as provided in the case of stock splits, consolidations, stock dividends or similar events, (ii) modify requirements as to eligibility for participation in the Stock Purchase Plan, or (iii) materially increase the benefits accruing to participants under the Stock Purchase Plan, without prior approval of the Company's shareholders, if such approval is required to comply with Code Section 423 or the requirements of Section 16(b) of the Securities Exchange Act of 1934 (the "Act"). Shares Reserved. Under the Stock Purchase Plan, 100,000 shares of the Company's Common Stock have been reserved for issuance under the Stock Purchase Plan. The Board of Directors shall equitably adjust the number of shares reserved for grant, the number of shares of stock subject to outstanding options and the price per share of stock subject to an option in the event of certain increases or decreases in the number of outstanding shares of Common Stock of the Company effected as a result of stock splits, stock dividends, combination of shares, reclassifications or similar transactions. Federal Income Tax Consequences of the Stock Purchase Plan. Options granted under the Stock Purchase Plan are intended to qualify for favorable tax treatment to the employees under Code Sections 421 and 423. Employee contributions are made on an after-tax basis. Under existing federal income tax provisions, no income is taxable to the optionee upon the grant or exercise of an option if the optionee remains an employee of the Company or one of its subsidiaries at all times from the date of grant until three months before the date of exercise. In addition, certain favorable tax consequences may be available to the optionee if shares purchased pursuant to the Stock Purchase Plan are not disposed of by the optionee within two years after the date the option was granted nor within one year after the date of transfer of purchased shares to the optionee. The Company generally will not receive an income tax deduction upon either the grant or exercise of the option. 10 Plan Benefits. Because participation in the Stock Purchase Plan is voluntary, the future benefits that may be received by participating individuals or groups under the Stock Purchase Plan cannot be determined at this time. Vote Required The Board of Directors recommends that the shareholders approve the 1999 Employee Stock Purchase Plan. Approval of the Stock Purchase Plan requires the affirmative vote of a majority of the shares represented at the meeting with authority to vote on such matter, but not less than the affirmative vote of 1,932,174 shares. ADOPTION OF AMENDMENT TO ARTICLES OF INCORPORATION (PROPOSAL #4) General As of December 3, 1999, 7,728,690 shares of Common Stock were outstanding and 7,271,310 shares of Common Stock were authorized but unissued. No shares of Preferred Stock were outstanding at such date. Of the unissued shares of Common Stock, approximately 447,880 were reserved for issuance pursuant to the Company's employee benefit plans. Accordingly, at December 3, 1999, there were approximately 6,823,430 shares of Common Stock available for general corporate purposes. The Board of Directors recommends that the authorized number of shares of Common Stock be increased from 15,000,000 shares to 45,000,000 shares. The Board also proposes that the Articles of Incorporation be amended to eliminate all references in the Articles to a class of Convertible Preferred Stock, shares of which class were automatically converted as part of the Company's initial public offering in 1998. If the Amendment to the Articles of Incorporation is approved, Section 3.1 of Article 3 of the Company's Articles of Incorporation will provide that the total number of authorized shares of the Company will be 50,000,000, consisting of 45,000,000 shares of Common Stock, $.05 par value per share, 150,000 shares of Series A Preferred Stock, $.05 par value per shares, which are the shares authorized for issuance in connection with the Company's Shareholder Rights Plan, and 4,850,000 undesignated shares. The full text of the proposed Amendment to the Articles of Incorporation is set forth in Appendix A hereto. The Board desires to increase the number of authorized shares of Common Stock to give the Board flexibility to declare stock dividends or stock splits at such times as the Board may deem appropriate; to give the Board flexibility to make acquisitions using stock; to adopt additional employee benefit plans or 11 increase the shares available under existing plans; to raise equity capital or to use the additional shares for other general corporate purposes. Aside from shares currently reserved for issuance under employee benefit plans, the Board has not authorized the issuance of any additional shares, and there are no current agreements or commitments for the issuance of any additional shares. Shareholders of the Company have no preemptive rights with respect to the Common Stock and Preferred Stock for the Company. If this proposed amendment is adopted, the additional authorized shares of Common Stock will be available for issuance from time to time at the discretion of the Board without further action by the shareholders, except where shareholder approval is required by stock exchange requirements or to obtain favorable tax treatment for certain employee benefit plans. Although an increase in the authorized shares of Common Stock could, under certain circumstances, also be construed as having an anti-takeover effect (for example, by diluting the stock ownership of a person seeking to effect a change in the composition of the Board of Directors or contemplating a tender offer or other transaction for the combination of the Company with another company), the Company is not proposing the increase in authorized shares in response to any effort to accumulate the Company's stock or to obtain control of the Company by means of a merger, tender offer, or solicitation in opposition to management. Vote Required The Board of Directors recommends that the shareholders approve the Amendment to the Articles of Incorporation including the increase in the authorized shares of Common Stock. Approval of the Amendment requires the affirmative vote of a majority of the shares represented at the meeting with authority to vote on such matter, but not less than the affirmative vote of 1,932,174 shares. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934 requires the Company's executive officers, directors and persons who own more than 10 percent of the Company's Common Stock, to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company. Officers, directors and greater than 10% shareholders ("Insiders") are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file. To the Company's knowledge, based on a review of the copies of such reports furnished to the Company, during the fiscal year ended September 30, 1999, all Section 16(a) filing requirements applicable to Insiders were complied with. INDEPENDENT PUBLIC ACCOUNTANT Arthur Andersen LLP acted as the Company's independent public accountant for fiscal 1999. Representatives of Arthur Andersen LLP are expected to be present at the meeting, will be given an opportunity to make a statement 12 regarding financial and accounting matters of the Company if they so desire, and will be available at the meeting to respond to appropriate questions from the Company's shareholders. OTHER BUSINESS Management knows of no other matters to be presented at the meeting. If any other matter properly comes before the meeting, the appointees named in the proxies will vote the proxies in accordance with their best judgment. SHAREHOLDER PROPOSALS Any appropriate proposal submitted by a shareholder of the Company and intended to be presented at the 2001 annual meeting of shareholders must be received by the Company by August 16, 2000, to be considered for inclusion in the Company's proxy statement and related proxy for the 2001 annual meeting. Also, if a shareholder proposal intended to be presented at the 2001 annual meeting but not included in the Company's proxy statement and proxy is received by the Company after October 29, 2000, then management named in the Company's proxy form for the 2001 annual meeting will have discretionary authority to vote shares represented by such proxies on the shareholder proposal, if presented at the meeting, without including information about the proposal in the Company's proxy materials. ANNUAL REPORT TO SHAREHOLDERS A copy of the Company's Annual Report to Shareholders for the fiscal year ended September 30, 1999, accompanies this notice of meeting and Proxy Statement. No part of the Annual Report is incorporated herein and no part thereof is to be considered proxy soliciting material. FORM 10-KSB The Company will furnish without charge to each person whose proxy is being solicited, upon written request of any such person, a copy of the Company's Annual Report on Form 10-KSB for the fiscal year ended September 30, 1999, as filed with the Securities and Exchange Commission, including the financial statements and the financial statement schedules thereto. The Company will furnish to any such person any exhibit described in the list accompanying the Form 10-KSB, upon the payment, in advance, of reasonable fees related to the Company's furnishing such exhibit(s). Requests for copies of such report and/or exhibits(s) should be directed to Mr. Stephen C. Hathaway, Vice President and Chief Financial Officer, at the Company's principal address. BY ORDER OF THE BOARD OF DIRECTORS Dale R. Olseth Chairman and Chief Executive Officer Dated: December 17, 1999 Eden Prairie, Minnesota 14 APPENDIX A AMENDMENT TO ARTICLES OF INCORPORATION OF SURMODICS, INC. Section 3.1 of Article 3 is amended to read as follows: 3.1) Authorized Shares. The aggregate number of shares which the corporation shall have the authority to issue shall be 50.0 million, 45.0 million of which shall be designated Common Stock, $.05 Par Value; 4.85 million of which shall be undesignated shares and 150,000 of which shall be designated Series A Preferred Stock, $.05 Par Value (hereinafter referred to as the "Series A Preferred Stock"). (The Common Stock, any shares issued from the undesignated shares, and the Series A Preferred Stock are hereinafter referred to collectively as the "Capital Stock.") The Board of Directors of the corporation is authorized to establish from the undesignated shares, by resolution adopted and filed in the manner provided by law, one or more classes or series of shares, to designate each such class or series (which may include but is not limited to designation as additional shares of Common Stock or Series A Preferred Stock), and to fix the relative rights and preferences of each such class or series. Section 4.1 of Article 4 is amended to read as follows: 4.1) Voting Privileges. Unless otherwise provided in these Articles of Incorporation, each holder of Common Stock shall have one vote on all matters submitted to the shareholders for each share of Common Stock standing in the name of such holder on the books of the corporation. Section 4.4 of Article 4 is amended to read as follows: 4.4) Distributions. Except as otherwise provided in these Articles of Incorporation, on the liquidation, dissolution or winding up of the corporation, shares of Capital Stock shall share ratably in any dividends or distributions of the corporation, whether paid in cash, property or stock. Section 4.5 of Article 4, entitled "Series A Convertible Preferred Stock," is deleted in its entirety. Section 6.1 of Article 6 is amended to read as follows: 6.1) Any provision contained in these Articles of Incorporation may be amended, altered, changed or repealed by the affirmative vote of the holders of at least majority of the voting power of the shares present and entitled to vote at a duly held meeting or such greater percentage as may be otherwise prescribed by the laws of the State of Minnesota. Article 7, entitled "Incorporators," is deleted in its entirety. SURMODICS, INC. PROXY FOR ANNUAL MEETING Of Shareholders To Be Held January 24, 2000 THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. The undersigned hereby appoints DALE R. OLSETH and STEPHEN C. HATHAWAY, and each of them, with full power of substitution, as Proxies to represent and vote, as designated below, all shares of Common Stock of SurModics, Inc. registered in the name of the undersigned at the Annual Meeting of Shareholders of the Company to be held at the Hotel Sofitel, 5601 West 78th Street, Bloomington, Minnesota, at 4:00 p.m. (Minneapolis time) on January 24, 2000, and at any adjournment thereof, and the undersigned hereby revokes all proxies previously given with respect to the meeting. THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN FOR A PARTICULAR PROPOSAL, WILL BE VOTED FOR SUCH PROPOSAL. DETACH BELOW AND RETURN USING THE ENVELOPE PROVIDED SURMODICS, INC. 2000 ANNUAL MEETING The Board of Directors recommends that you vote FOR each proposal below.
1. Set the number of directors at seven (7) [ ] FOR [ ] AGAINST [ ] ABSTAIN 2. Elect Class I directors: 1 - Donald S. Fredrickson, M.D. [ ] FOR all nomi- [ ] WITHHOLD AUTHORITY 2 - Patrick E. Guire, Ph.D. nees listed to the to vote for all nominees left (except as listed to the left. specified below). (Instructions: To withhold authority to vote for any indicated nominee, write the name of the nominee(s) in the box provided to the right). [_________________________] 3. Approve the 1999 Employee Stock Purchase Plan: [ ] FOR [ ] AGAINST [ ] ABSTAIN 4. Adopt an Amendment to the Articles of Incorporation, [ ] FOR [ ] AGAINST [ ] ABSTAIN including an increase of the authorized Common Stock from 15,000,000 to 45,000,000 shares. 5. In their discretion, upon such other business as may properly come before the Meeting or any adjournment thereof. Check appropriate box. Indicate changes below: Address Change? [ ] Name Change? [ ] Date____________ NO. OF SHARES Attending Meeting? [ ] [_______________________] Signature(s) in Box PLEASE DATE AND SIGN ABOVE exactly as name appears at the left indi- cating, where appropriate, official position or representative capacity. For stock held in joint tenancy, each joint tenant should sign.
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