SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 25, 2009
Cardiovascular Systems, Inc.
(Exact name of Registrant as Specified in its Charter)
Delaware
(State or Other Jurisdiction of Incorporation)
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000-52082
(Commission File Number)
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84-1568247
(IRS Employer
Identification No.)
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651 Campus Drive
St. Paul, Minnesota 55112-3495
(Address of Principal Executive Offices and Zip Code)
(651) 259-1600
(Registrants telephone number, including area code)
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the
filing obligation of the registrant under any of the following provisions:
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
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TABLE OF CONTENTS
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Item 1.01.
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Entry Into Material Definitive Agreement
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Background
On February 25 2009, Replidyne, Inc., a Delaware corporation (Replidyne), completed its
business combination with Cardiovascular Systems, Inc., a Minnesota corporation (CSI-MN), in
accordance with the terms of the Agreement and Plan of Merger and Reorganization, dated as of
November 3, 2008, by and among Replidyne, Responder Merger Sub, Inc., a wholly-owned subsidiary of
Replidyne (Merger Sub), and CSI-MN (the Merger Agreement). Pursuant to the Merger Agreement,
Merger Sub merged with and into CSI-MN, with CSI-MN continuing after the merger as the surviving
corporation and a wholly owned subsidiary of Replidyne. At the effective time of the merger,
Replidyne changed its name to Cardiovascular Systems, Inc. (CSI) and CSI-MN changed its name to
CSI Minnesota, Inc. Following the merger of Merger Sub with CSI-MN, CSI-MN merged with and into
CSI, with CSI continuing after the merger as the surviving corporation. Unless the context
otherwise requires, all references herein to CSI and the Company refer to CSI following the
completion of the merger and the name change, all references to Replidyne refer to Replidyne
prior to the completion of the merger and the name change, and all references to CSI-MN refer to
CSI-MN prior to the completion of the merger and its name change.
Immediately prior to the merger:
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each share of CSI-MNs Series A convertible preferred stock
automatically converted into approximately 1.005 shares of CSI-MNs
common stock;
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each share of CSI-MNs Series A-1 convertible preferred stock
automatically converted into approximately 1.032 shares of CSI-MNs
common stock; and
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each share of CSI-MNs Series B convertible preferred stock
automatically converted into approximately 1.010 shares of CSI-MNs
common stock.
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At the effective time of the merger, each outstanding share of CSI-MNs common stock, including
each share issuable upon conversion of CSI-MN Series A, Series A-1 and Series B convertible
preferred stock in accordance with the ratios described above, was converted into the right to
receive 0.647 shares of CSI common stock.
Immediately prior to the merger, warrants to purchase shares of CSI-MN Series A and Series B
convertible preferred stock were converted into warrants to purchase shares of CSI-MN common stock
according to the conversion ratios set forth above. Each option and warrant to purchase CSI-MN
common stock outstanding at the effective time of the merger was assumed by CSI at the effective
time of the merger. Each such option or warrant became an option or warrant, as applicable, to
acquire that number of shares of CSI common stock equal to the product obtained by multiplying the
number of shares of CSI-MN common stock subject to such option or warrant by 0.647, rounded down to
the nearest whole share of CSI common stock. Following the merger, each such option or warrant has
a purchase price per share of CSI common stock equal to the quotient obtained by dividing the per
share purchase price of CSI-MN common stock subject to such option or warrant by 0.647, rounded up
to the nearest whole cent.
In accordance with the terms of the merger agreement, immediately after the merger, current
stockholders of Replidyne, together with holders of Replidyne options and warrants, were expected
to own or have the right to acquire between 16.3% and 17.0% of the combined company, and current
CSI-MN stockholders, optionholders and warrantholders were expected to own or have the right to
acquire between 83.0% and 83.7% of the combined company, in each case assuming that Replidynes net
assets at closing were between $35.0 and $37.0 million as calculated in accordance with the terms
of the merger agreement, on a fully diluted basis using the treasury stock method of accounting for
options and warrants.
At closing, Replidynes net assets, as calculated pursuant to the terms of the Merger
Agreement, were $37.0 million. As of immediately following the effective time of the merger,
former CSI-MN stockholders owned approximately 80.2% of the outstanding common stock of CSI, and
Replidyne stockholders owned approximately 19.8% of the outstanding common stock of CSI. Options
exercisable for a total of 5,681,974 shares of CSI-MN common stock (equivalent to a total of
3,676,208 shares of CSI common stock) and warrants exercisable for a total
of 4,836,051 shares of CSI-MN common stock (equivalent to a total of 3,128,740 shares of CSI
common stock) were assumed by CSI in connection with the merger.
CSIs common stock has been accepted for listing on the Nasdaq Global Market under the symbol
CSII and trading commenced on February 26, 2009. As of February 25, 2009, immediately following
the consummation of the merger, there were approximately 13.7 million shares of CSI common stock
issued and outstanding. The full text of CSIs press release dated February 25, 2009 announcing the
completion of the merger is attached hereto as Exhibit 99.1 to this Current Report on Form 8-K and
is incorporated herein by reference.
On February 25, 2009, following the effective time of the merger, the board of directors of
CSI approved a merger with CSIs wholly-owned subsidiary, CSI-MN, pursuant to which CSI-MN was
merged with and into CSI.
Material CSI-MN Agreements
Following the completion of the merger, the following material CSI-MN agreements and
arrangements became material agreements and arrangements of CSI:
Margin Loan
On August 21, 2008, CSI-MN obtained a margin loan from UBS Bank USA, with maximum borrowings
available of $23.0 million. This maximum borrowing amount is not set forth in the written agreement
for the loan and may be adjusted from time to time by UBS Bank in its sole discretion The margin
loan has a floating interest rate equal to 30-day LIBOR, plus 1.0%. The loan is due on demand and
UBS Bank will require us to repay it in full from the proceeds received from a public equity
offering where net proceeds exceed $50.0 million. In addition, if at any time any of our auction
rate securities (ARS) may be sold, exchanged, redeemed, transferred or otherwise conveyed for no
less than their par value, then we must immediately effect such a transfer and the proceeds must be
used to pay down outstanding borrowings under this loan. The margin requirements are determined by
UBS Bank but are not included in the written loan agreement and are therefore subject to change.
From August 21, 2008, the date this loan was initially funded, through the date of this Form 8-K,
the margin requirements included maximum borrowings, including interest, of $23.0 million. If these
margin requirements are not maintained, UBS Bank may require us to make a loan payment in an amount
necessary to comply with the applicable margin requirements or demand repayment of the entire
outstanding balance. CSI-MN has maintained the margin requirements under this loan. The outstanding
balance on this loan at December 31, 2008 was $22.7 million.
Acceptance of UBS Settlement
On November 7, 2008, CSI-MN accepted an offer from UBS AG (UBS), providing rights related to
its ARS (such rights shall be referred to as the Rights). CSI acquired the ARS and the Rights as
a result of the Merger, as they were previously held by CSI-MN. The Rights permit CSI to require
UBS to purchase its ARS at par value, which is defined for this purpose as the liquidation
preference of the ARS plus accrued but unpaid dividends or interest, at any time during the period
of June 30, 2010 through July 2, 2012. Conversely, UBS has the right, in its discretion, to
purchase or sell CSIs ARS at any time until July 2, 2012, so long as CSI receives payment at par
value upon any sale or disposition. CSI expects to sell its ARS under the Rights. However, if the
Rights are not exercised before July 2, 2012 they will expire and UBS will have no further rights
or obligation to buy the Companys ARS. So long as CSI holds ARS, they will continue to accrue
interest as determined by the auction process or the terms of the ARS if the auction process fails.
UBSs obligations under the Rights are not secured by its assets and do not require UBS to
obtain any financing to support its performance obligations under the Rights. Furthermore, UBS will
only purchase up to an aggregate of $10.3 billion in ARS from its institutional clients. UBS has
disclaimed any assurance that it will have sufficient financial resources to satisfy its
obligations under the Rights.
Loan and Security Agreement
On September 12, 2008, CSI-MN entered into a loan and security agreement with Silicon Valley
Bank with maximum available borrowings of $13.5 million. CSI assumed this agreement from CSI-MN in
connection with the merger, and the guarantors acknowledged this assumption. The agreement
includes a $3.0 million term loan, a $5.0
million accounts receivable line of credit, and two term loans for an aggregate of $5.5 million
that are guaranteed by certain of our affiliates. The terms of each of these loans are as follows:
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The $3.0 million term loan has a fixed interest rate of 10.5% and a final payment amount
equal to 3.0% of the loan amount due at maturity. This term loan has a 36 month maturity,
with repayment terms that include interest only payments during the first six months
followed by 30 equal principal and interest payments. This term loan also includes an
acceleration provision that requires us to pay the entire outstanding balance, plus a
penalty ranging from 1.0% to 6.0% of the principal amount, upon prepayment or the
occurrence and continuance of an event of default. As part of the term loan agreement,
CSI-MN granted Silicon Valley Bank a warrant to purchase 13,000 shares of CSI-MNs Series B
convertible preferred stock at an exercise price of $9.25 per share (which was converted
into a warrant to purchase 8,493 shares of CSI common stock at an exercise price of $14.16
per share). This warrant is immediately exercisable and has a term of ten years, and was
assigned an accounting value of $75,000. The balance outstanding on the term loan at
December 31, 2008 was $3.0 million.
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The accounts receivable line of credit has a two year maturity and a floating interest
rate equal to the prime rate, plus 2.0%, with an interest rate floor of 7.0%. Interest on
borrowings is due monthly and the principal balance is due at maturity. Borrowings on the
line of credit are based on 80% of eligible domestic receivables, which is defined as
receivables aged less than 90 days from the invoice date along with specific exclusions for
contra-accounts, concentrations, and government receivables. All accounts receivable
receipts will be deposited into a lockbox account in the name of Silicon Valley Bank. The
accounts receivable line of credit is subject to non-use fees, annual fees and cancellation
fees. There was no balance outstanding on the line of credit at December 31, 2008.
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One of the guaranteed term loans is for $3.0 million and the other guaranteed term loan
is for $2.5 million, each with a one year maturity. Each of the guaranteed term loans has a
floating interest rate equal to the prime rate, plus 2.25%, with an interest rate floor of
7.0% (effective rate of 7.0% at December 31, 2008). Interest on borrowings is due monthly
and the principal balance is due at maturity. One of our directors, an entity affiliated
with one of our directors and one of our affiliates agreed to act as guarantors of these
term loans. In consideration for the guarantees, CSI-MN issued the guarantors warrants to
purchase an aggregate of 458,333 shares of CSI-MNs common stock at an exercise price of
$6.00 per share (which were converted into warrants to purchase an aggregate of 296,539
shares of CSI common stock at an exercise price of $9.28 per share). The balance
outstanding on the guaranteed term loans at December 31, 2008 was $5.5 million (excluding
debt discount of $1.3 million).
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Borrowings from Silicon Valley Bank are collateralized by all of the Companys assets, other
than the Companys ARS and intellectual property, and the investor guarantees. The borrowings are
subject to prepayment penalties and financial covenants, including the Companys achievement of
minimum monthly net revenue goals. Any non-compliance by the Company under the terms of the
Companys debt arrangements could result in an event of default under the Silicon Valley Bank loan,
which, if not cured, could result in the acceleration of this debt.
Real Property Lease
CSIs principal executive offices are located in a 47,000 square foot facility located in St.
Paul, Minnesota. CSI assumed this lease from CSI-MN as a result of the merger. CSI has leased
this facility through November 2012 with an option to renew through November 2017. This facility
accommodates CSIs research and development, sales, marketing, manufacturing, finance and
administrative activities.
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Item 1.02
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Termination of a Material Definitive Agreement
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Termination of Replidyne Officers
Pursuant to the terms of the Merger Agreement, effective as of the effective time of the
merger, the employment of the following Replidyne officers was terminated without cause: Kenneth
Collins, president and chief executive officer; Mark Smith, chief financial officer; and Don
Morrissey, senior vice president of corporate development. In connection with these terminations,
CSI paid these former officers severance benefits due to them under their employment agreements
with Replidyne dated April 4, 2006, as amended June 15, 2007. Pursuant to the employment
agreements, because each executives employment was terminated without cause within one month
before or 13 months following a change of control, each executive became entitled to the following
additional benefits:
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the equivalent of 12 months (or 18 months with respect to Mr. Collins) of the
executives base salary as in effect immediately prior to the date of termination;
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reimbursement for the cost of continued medical insurance coverage through the
end of this 12 month period (or 18 month period with respect to Mr. Collins) or if
earlier, the date on which the executive obtains alternative group health
insurance; and
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acceleration of vesting of all of the executives outstanding unvested options
to purchase Replidyne common stock.
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In addition, because each executive officers employment was terminated without cause within
one month before or 13 months following a change of control of Replidyne, each executive officer
was also entitled to payment of a bonus equal to the average of his annual bonus for the two years
prior to such termination (or one and a half times the average of his annual bonus for the two
years prior to such termination with respect to Mr. Collins).
In addition to the severance benefits due to them under their employment agreements, Messrs.
Smith and Morrisey also became entitled to receive certain retention bonuses in connection with the
closing of the merger. On March 31, 2008, Replidyne entered into a retention bonus agreement with
each of Messrs. Smith and Morrisey. Pursuant to the terms of the retention bonus agreements,
Replidyne paid each of Mr. Smith and Mr. Morrissey a cash bonus in the amount of $100,000 in
October 2008 because such executives remained employed by Replidyne through September 30, 2008. The
retention bonus agreements provided for an additional cash bonus to each of Mr. Smith and Mr.
Morrissey in an amount of not less than $100,000 and not greater than $150,000, which final amounts
were determined by Replidynes board of directors to be $135,000.
Pursuant to the terms of their employment agreements and retention bonus agreements, the
Replidyne executive officers received the following severance payments in connection with the
closing of the merger:
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Total Severance
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Payments and Change
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of Control Payments
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Pursuant to
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Payments Pursuant
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Name of Executive
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Employment
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to Retention Bonus
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Officer
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Agreements
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Agreements
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Total
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Kenneth Collins
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$
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564,375
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$
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$
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564,375
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Mark Smith
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$
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317,400
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$
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135,000
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$
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452,400
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Donald Morrissey
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$
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286,800
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$
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135,000
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$
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421,800
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Item 2.01
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Completion of Acquisition or Disposition of Assets
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The information set forth in Item 1.01 under the section entitled Background of this Current
Report on Form 8-K is incorporated herein by reference. The information regarding CSI-MN set forth
in CSI-MNs Registration Statement on Form 10 (Reg. No. 000-53478) filed with the Securities and
Exchange Commission on December 17, 2008, CSI-MNs Quarterly Report on Form 10-Q for the quarter
ended December 31, 2008, Replidynes Registration Statement on Form S-4 (Reg. No. 333-155887) filed
with the Securities and Exchange Commission on January 26, 2009, and Replidynes Annual Report of
Form 10-K for the year ended December 31, 2008, is also incorporated herein by reference.
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Item 2.03
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Creation of Direct Financial Obligation or an Obligation under
an Off-Balance Sheet Arrangement of a Registrant
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The information set forth in Item 1.01 above, under the titles Material CSI-MN Agreements
Margin Loan with respect to the UBS Bank loan and Material CSI-MN Agreements Loan and Security
Agreement with respect to the Silicon Valley Bank loan is incorporated herein by reference.
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Item 2.04
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Triggering Events That Accelerate or Increase a Direct Financial
Obligation or an Obligation under an Off-Balance Sheet
Arrangement
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The information set forth in Item 1.02 above, under the title Termination of Replidyne
Officers is incorporated herein by reference.
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Item 3.02
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Unregistered Sales of Equity Securities
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Concurrently with the execution of the Merger Agreement, the holders of approximately 68% of
CSI-MNs outstanding preferred stock, calculated on an as-converted to common stock basis, entered
into an agreement with CSI-MN pursuant to which all outstanding shares of CSI-MN preferred stock
were automatically converted into shares of CSI-MN common stock, effective as of immediately prior
to the effective time of the merger. In consideration of the agreement of such stockholders, CSI-MN
issued to the holders of CSI-MN preferred stock five-year warrants to purchase 3,499,877 shares of
CSI-MN common stock (equivalent to a total of 2,264,264 shares of CSI common stock based on the
conversion ratio set forth in the Merger Agreement) at an exercise price of $5.71 per share
(equivalent to $8.83 per share based on the conversion ratio set forth in the Merger Agreement),
pro rata to each such holder based on its percentage of the outstanding shares of CSI-MN preferred
stock on an as-converted to common stock basis. Such warrants were issued immediately following the
effectiveness of the conversion of all outstanding shares of CSI-MN preferred stock into CSI-MN
common stock, but prior to the effective time of the merger. The warrants were issued by CSI-MN in
reliance upon Section 4(2) of the Securities Act of 1933, as amended, and were assumed by CSI in
the merger.
Also in connection with the merger, CSI assumed CSI-MN stock options to acquire an aggregate
of 5,681,974 shares of CSI-MN common stock (equivalent to 3,676,208 shares of CSI common stock
based on the conversion ratio set forth in the Merger Agreement) and CSI-MN warrants to acquire an
aggregate of 4,836,051 shares of CSI-MN common stock (equivalent to 3,128,740 shares of CSI common
stock based on the conversion ratio set forth in the Merger Agreement).
The
information set forth in item 5.02 of this Current Report on Form
8-K under the heading Equity Incentive Plan and Awards
Post-Merger Awards to New Officers and Directors is
incorporated herein by reference.
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Item 3.03
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Material Modification to Rights of Security Holders
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Reverse Stock Split Amendment and Name Change Amendment
On February 24, 2009, the stockholders of Replidyne approved an amendment to Replidynes
restated certificate of incorporation to effect a reverse stock split of the issued and outstanding
shares of Replidynes common stock whereby a number of outstanding shares of Replidynes common
stock between and including one and 50, such number consisting only of whole shares, would be
combined into one share of Replidynes common stock, with this exact number (the Split Ratio)
within the range to be determined by Replidynes board of directors, subject to its obligation
under the Merger Agreement to agree with CSI-MN on such determination. That same day, following
stockholder approval of the reverse stock split amendment, Replidynes board of directors acted to
set the Split Ratio at one for ten so that every ten shares of Replidyne common stock outstanding
immediately prior to the reverse stock split converted into one share of Replidyne common stock,
and adopted an amendment to Replidynes restated certificate of incorporation to effect the reverse
stock split in accordance with the Split Ratio (the Reverse Stock Split Amendment). Replidynes
board of directors also adopted an amendment to Replidynes restated certificate of incorporation
changing Replidynes name from Replidyne, Inc. to Cardiovascular Systems, Inc. (such change in
name, the Name Change Amendment). The Reverse Stock Split Amendment and the Name Change
Amendment both became effective on February 25, 2009 and the common stock of Replidyne (now known
as CSI) began trading on the Nasdaq Global Market on a post-reverse-split basis on February 26,
2009 under the new symbol CSII. The amendment to Replidynes restated certificate of
incorporation is attached as Exhibit 3.1 to this Current Report on Form 8-K and incorporated herein
by reference.
Bylaw Amendments
On February 25, 2009, following the effective time of the merger, the board of directors of
CSI approved certain amendments to CSIs amended and restated bylaws (the Bylaw Amendment). The
Bylaw Amendment modifies the manner by which business may properly be brought before an annual or
special meeting of the Companys stockholders and the manner and circumstances in which CSI will
indemnify and advance expenses to its directors and officers in connection with claims brought
against them in their capacity as directors and officers of the company. A summary of the
principal amendments to CSIs amended and restated bylaws is set forth below.
The Bylaw Amendment clarifies that, apart from submitting proposals and nominations in
compliance with Rule 14a-8 under the Securities and Exchange Act of 1934 (the Exchange Act), the
advance notice provisions of the Companys Bylaws provide the exclusive means by which a
stockholder may make nominations of directors or submit other business before an annual or special
meeting of stockholders.
The Bylaw Amendment also modifies the information required to be included in the stockholder
notice to require, in addition to the name, address and stock ownership of the stockholder giving
the notice, any other information that would be required to be disclosed in a proxy statement or
other filings required to be made in connection with the solicitation of proxies for the proposal
or nomination pursuant to Section 14 of the Exchange Act and a brief description of the business to
be brought before the meeting, information with respect to the stockholder or such beneficial owner
on whose behalf the nomination or proposal is submitted regarding (i) any derivative positions
related to any class or series of the Companys stock, (ii) any proxy, contract, arrangement or
understanding relating to the voting of any of the Companys securities, (iii) any short positions
in the Companys securities, (iv) any separate or separable dividend rights, (iv) any proportionate
interest in the Companys securities held by a limited or general partnership in which such
stockholder or beneficial owner is, or owns an interest in, a general partner, and (v) any
performance-related fees such stockholder or beneficial owner is entitled to based on the value of
the Companys securities. If the notice relates to business other than a director nomination, the
Bylaw Amendment further requires the notice to set forth any material interest of the stockholder
or the beneficial owner on whose behalf the proposal is submitted in such business and a
description of all agreements between such stockholder and the beneficial owner on whose behalf the
proposal is submitted, or any other person. If the notice relates to a director nomination, the
Bylaw Amendment further requires the notice to describe any compensation or
monetary arrangements or other material relationships during the previous three years between
such stockholder and beneficial owner, or their affiliates, and each proposed nominee and such
nominees affiliates, as well as any information that would be required to be disclosed pursuant to
Rule 404 of Regulation S-K if the stockholder making the nomination or the beneficial owner on
whose behalf the nomination is made were the registrant and the director nominee was a director of
the Company. Finally, the Bylaw Amendment adds a requirement that any director nominee must submit
a completed and signed questionnaire setting forth such nominees background and qualifications, an
agreement of such nominee that such person is not and will not become a party to (i) any voting
agreement with respect to the Companys securities that has not been disclosed to the Company, (ii)
any voting agreement that could limit such persons ability to comply with such persons fiduciary
duties, or (iii) any compensatory arrangement with any party other than the Company with respect to
service as a director of the Company that has not been disclosed to the Company, and a
representation by such person that such person would be in compliance with and will comply with all
applicable publicly disclosed corporate governance, conflict of interest, confidentiality, stock
ownership and trading policies and guidelines of the Company.
The Bylaw Amendment also modifies the indemnification provision set forth in Article 11 of the
amended and restated bylaws. Under the revised provisions, CSI is not obligated to indemnify any
officer or director in connection with any proceeding brought by or on behalf of the Company
against such director or officer that is authorized by CSIs board of directors, except to the
extent set forth in the new expense advancement section of the amended and restated bylaws. The
new expense advancement section provides that CSI will indemnify each of its directors and officers
against all expenses actually and reasonably incurred by such individual in connection with the
defense of any proceeding or claim, but only to the extent that the director or officer is
successful on the merits or otherwise, including, without limitation, the dismissal of any action
without prejudice, or if it is ultimately determined that the director or officer is otherwise
entitled to be indemnified against expenses. If the director or officer is partially successful on
the merits or otherwise in defense of any proceeding, such indemnification will be apportioned
appropriately to reflect the degree of the directors or officers success in the proceeding.
The foregoing summary of the Bylaw Amendment does not purport to be a complete description of
the Bylaw Amendment and is qualified in its entirety by reference to the Bylaw Amendment, included
as Exhibit 3.2 to this Current Report on Form 8-K and incorporated by reference as if fully set
forth herein.
Stock Certificate
On February 24, 2009, Replidynes board of directors adopted a new form of stock certificate
representing CSIs common stock after the effective time of the reverse stock split and merger. The
form of stock certificate is filed as Exhibit 4.1 to this Current Report on Form 8-K and is
incorporated herein by reference.
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Item 4.01
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Changes in Registrants Certifying Accountant
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(a) Previous Independent Registered Public Accounting Firm
Concurrent
with the engagement of PricewaterhouseCoopers LLP described below, the CSI audit
committee approved the dismissal of KPMG LLP (KPMG) as CSIs principal accountant. KPMGs audit
reports on the financial statements of Replidyne, Inc. as of and for the years ended December 31,
2008 and 2007 did not contain an adverse opinion or a disclaimer of opinion, nor were such reports
qualified or modified as to uncertainty, audit scope, or accounting principles, except that KPMGs
report on the financial statements of Replidyne, Inc. as of and for the year ended December 31,
2007 contained a separate paragraph stating that as discussed in note 2 to the accompanying
financial statements, the Company adopted Statement of Financial Accounting Standards No. 123(R),
Share-Based Payments, effective January 1, 2006. The audit report of KPMG on the effectiveness of
internal control over financial reporting as of December 31, 2007 did not contain any adverse
opinion or disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope,
or accounting principles. During Replidyne, Inc.s two fiscal years ended December 31, 2008 and
the subsequent interim period through February 25, 2009, there were no disagreements with KPMG on
any matter of accounting principles or practices, financial statement disclosure, or auditing scope
or procedure, which disagreements, if not resolved to the satisfaction of KPMG, would have caused
KPMG to make reference to the subject matter of the disagreements in connection with its report,
and there were no reportable events as that term is defined in Item 304(a)(1)(v) of Regulation
S-K. CSI has provided KPMG with a copy of the foregoing statements and has requested and received
from KPMG a letter addressed to the
Securities and Exchange Commission stating whether or not KPMG agrees with the above
statements. A copy of the letter from KPMG is attached as Exhibit 16.1 to this Current Report on
Form 8-K.
(b)
New Independent Registered Public Accounting Firm
Prior to the merger, CSI-MN had engaged PricewaterhouseCoopers LLP as
the principal accountant to audit CSI-MNs financial statements. For accounting purposes, CSI-MN
is deemed to have acquired Replidyne, Inc. pursuant to the transactions contemplated by the Merger
Agreement, and the historical financial statements of CSI-MN are considered to be the historical
financial statements of CSI after the merger. CSI engaged
PricewaterhouseCoopers LLP as its new independent registered public
accounting firm as of February 25, 2009. During the fiscal years ended
December 31, 2007 and 2008 and through February 24, 2009, Replidyne,
Inc. has not consulted with PricewaterhouseCoopers LLP regarding any
of the matters described in item 304(a)(2)(i) or item 304(a)(2)(ii)
of Regulation S-K.
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Item 5.01
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Change in Control of Registrant
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The information set forth in Item 1.01 under the section entitled Background of this Current
Report on Form 8-K is incorporated herein by reference. The information regarding CSI-MN set forth
in CSI-MNs Registration Statement on Form 10 (Reg. No. 000-53478) filed with the Securities and
Exchange Commission on December 17, 2008, in CSI-MNs Quarterly Report on Form 10-Q for the quarter
ended December 31, 2008, and in Replidynes Registration Statement on Form S-4 (Reg. No.
333-155887) filed with the Securities and Exchange Commission on January 26, 2009, is also
incorporated herein by reference.
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Item 5.02
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Departure of Directors or Principal Officers; Election of
Directors; Appointment of Principal Officers
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Pursuant to the terms of the Merger Agreement, effective as of the effective time of the
merger, Kenneth Collins resigned from Replidynes board of directors, Kirk Calhoun resigned from
Replidynes board of directors and audit committee; Geoffrey Duyk, M.D., Ph.D. resigned from
Replidynes board of directors, compensation committee and governance and nominating committee; and
Dan Mitchell resigned from Replidynes board of directors and compensation committee and governance
and nominating committee. Edward Brown also resigned from Replidynes board of directors, but was
reappointed to the CSI board effective as of the effective time of the merger. Augustine Lawlor
also remains a member of CSIs board of directors following the merger.
In addition, pursuant to the terms of the Merger Agreement, effective as of the effective time
of the merger, the following individuals were elected to CSIs board of directors: David L. Martin,
Brent G. Blackey, John H. Friedman, Geoffrey O. Hartzler, Roger J. Howe, Glen D. Nelson and Gary M.
Petrucci. These individuals constituted all members of the CSI-MN board of directors except for Michael
Kallok and Christy Wyskiel who both resigned from the CSI-MN board effective concurrent with the
merger. Messrs. Brown, Lawlor and Petrucci are Class I directors, whose terms expire at the 2009
annual meeting of CSIs stockholders, Messrs. Blackey, Friedman and Howe are Class II directors,
whose terms expire at the 2010 annual meeting of CSIs stockholders and Messrs. Nelson, Hartzler
and Martin are Class III directors, whose terms expire at the 2011 annual meeting of CSIs
stockholders.
In addition, effective as of the effective time of the merger, the compensation committee of
CSIs board of directors is comprised of Mr. Friedman, as the chairperson, Messrs. Petrucci, and
Lawlor; the audit committee of CSIs board of directors is comprised of Mr. Blackey, as the
chairperson, Messrs. Hartzler and Lawlor; and the nominating and corporate governance committee of
CSIs board of directors is comprised of Mr. Hartzler, as the chairperson, and Messrs. Nelson and
Brown.
Finally, pursuant to the terms of the Merger Agreement, effective as of the effective time of
the merger, the following Replidyne officers were terminated without cause from the following
positions: Kenneth Collins, Replidynes president and chief executive officer; Mark Smith,
Replidynes chief financial officer; and Donald Morrissey, Replidynes senior vice president of
corporate development. In addition, pursuant to the terms of the Merger Agreement, effective as of
the effective time of the merger, David L. Martin was appointed president and chief executive
officer of CSI, Laurence L. Betterley was appointed chief financial officer, James E. Flaherty was
appointed chief administrative officer and secretary, and Robert J.
Thatcher was appointed executive vice president. These individuals constituted all of CSI-MNs executive officers except for Michael Kallok who
resigned as an executive officer of CSI-MN effective concurrent with the merger and entered into a
consulting agreement with CSI to provide services following the merger.
The
following is a brief biographical summary for each of CSIs new
directors and its new President and Chief Executive Officer, Chief
Financial Officer, Chief Administrative Officer and Executive Vice
President:
David L. Martin, President, Chief Executive Officer and Director, Age 44.
Mr. Martin has been
CSI-MNs President and Chief Executive Officer since February 2007, and a director since August
2006. Mr. Martin also served as CSI-MNs Interim Chief Financial Officer from January 2008 to April
2008. Prior to joining CSI-MN, Mr. Martin was Chief Operating Officer of FoxHollow Technologies,
Inc. from January 2004 to February 2006, Executive Vice President of Sales and Marketing of
FoxHollow Technologies, Inc. from January 2003 to January 2004, Vice President of Global Sales and
International Operations at CardioVention Inc. from October 2001 to May 2002, Vice President of
Global Sales for RITA Medical Systems, Inc. from March 2000 to October 2001 and Director of U.S.
Sales, Cardiac Surgery for Guidant Corporation from September 1999 to March 2000. Mr. Martin has
also held sales and sales management positions for The Procter & Gamble Company and Boston
Scientific Corporation. Mr. Martin currently serves as a director of AccessClosure, Inc. and
Apieron Inc., two privately-held medical device companies.
Laurence L. Betterley, Chief Financial Officer, Age 54.
Mr. Betterley joined CSI-MN in April
2008 as its Chief Financial Officer. Previously, Mr. Betterley was Chief Financial Officer at Cima
NanoTech, Inc. from May 2007 to April 2008, Senior Vice President and Chief Financial Officer of
PLATO Learning, Inc. from June 2004 to January 2007, Senior Vice President and Chief Financial
Officer of Diametrics Medical, Inc. from 1996 to 2003, and Chief Financial Officer of Cray Research
Inc. from 1994 to 1996.
James E. Flaherty, Chief Administrative Officer and Secretary, Age 55.
Mr. Flaherty has been
CSI-MNs Chief Administrative Officer since January 14, 2008. Mr. Flaherty was CSI-MNs Chief
Financial Officer from March 2003 to January 14, 2008. As Chief Administrative Officer, Mr.
Flaherty reports directly to CSI-MNs Chief Executive Officer and has responsibility for
information technology, facilities, legal matters, financial analysis of business development
opportunities and business operations. Mr. Flaherty assisted with CSI-MNs initial public offering
process, including financial matters, and assisted with the transition of CSI-MNs new Chief
Financial Officer. As CSI-MNs Chief Financial Officer, Mr. Flaherty had primary responsibility for
the preparation of historical financial statements, but he no longer has any such responsibility.
Prior to joining CSI-MN, Mr. Flaherty served as an independent financial consultant from 2001 to
2003 and Chief Financial Officer of Zomax Incorporated from 1997 to 2001. Mr. Flaherty served as
Chief Financial Officer of Racotek, Inc. from 1990 to 1996, of Time Management Corporation from
1986 to 1990, and of Nugget Oil Corp. from 1980 to 1985. Mr. Flaherty was an accountant at Coopers
& Lybrand from 1975 to 1980. On June 9, 2005, the Securities and Exchange Commission filed a civil
injunctive action charging Zomax Incorporated with violations of federal securities law by filing a
materially misstated Form 10-Q for the period ended June 30, 2000. The SEC further charged that in
a conference call with analysts, certain of Zomaxs executive officers, including Mr. Flaherty,
misrepresented or omitted to state material facts regarding Zomaxs prospects of meeting quarterly
revenue and earnings targets, in violation of federal securities law. Without admitting or denying
the SECs charges, Mr. Flaherty consented to the entry of a court order enjoining him from any
violation of certain provisions of federal securities law. In addition, Mr. Flaherty agreed to
disgorge $16,770 plus prejudgment interest and pay a $75,000 civil penalty.
Robert J. Thatcher, Executive Vice President, Age 54.
Mr. Thatcher joined CSI-MN as Senior
Vice President of Sales and Marketing in October 2005 and became CSI-MNs Vice President of
Operations in September 2006. Mr. Thatcher became CSI-MNs Executive Vice President in August 2007.
Previously, Mr. Thatcher was Senior Vice President of TriVirix Inc. from October 2003 to October
2005. Mr. Thatcher has more than 29 years of medical device experience in both large and start-up
companies. Mr. Thatcher has held various sales management, marketing management and general
management positions at Medtronic, Inc., Schneider USA, Inc. (a former division of Pfizer Inc.),
Boston Scientific Corporation and several startup companies.
Brent G. Blackey, Director, Age 50.
Mr. Blackey has been a member of CSI-MNs board of
directors since 2007. Since 2004, Mr. Blackey has served as the President and Chief Operating
Officer for Holiday Companies. Between 2002 and 2004 Mr. Blackey was a Senior Partner at the
accounting firm of Ernst & Young LLP. Prior to 2002, Mr. Blackey served most recently as a Senior
Partner at the accounting firm of Arthur Andersen LLP. Mr. Blackey serves on the board of directors
of Datalink Corporation, and also serves on the Board of Overseers for the University of Minnesota,
Carlson School of Management.
John H. Friedman, Director, Age 55.
Mr. Friedman has been a member of CSI-MNs board of
directors since 2006. Mr. Friedman is the Managing Partner of the Easton Capital Investment Group,
a private equity firm. Prior to founding Easton Capital, Mr. Friedman was the founder and Managing
General Partner of Security Pacific Capital Investors, a $200-million private equity fund geared
towards expansion financings and recapitalizations, from 1989 to 1992. Prior to joining Security
Pacific, Mr. Friedman was a Managing Director and Partner at E.M. Warburg, Pincus & Co., Inc. from
1981 to 1989. Mr. Friedman has also served as a Managing Director of Atrium Capital Corp., an
investment firm. Mr. Friedman currently serves on the board of directors of Trellis Bioscience,
Inc., Xoft, Inc., Sanarus Inc., Genetix Pharmaceuticals, Inc., PlaySpan Inc. and Experimed
Bioscience, Inc., all of which are privately-held companies. Mr. Friedman is also Co-Chairman of
the Cold Spring Harbor Presidents Council.
Geoffrey O. Hartzler, M.D., Director, Age 62.
Dr. Hartzler has been a member of CSI-MNs
board of directors since 2002. Dr. Hartzler commenced practice as a cardiologist in 1974, serving
from 1980 to 1995 as a Consulting Cardiologist with the Mid America Heart Institute of St. Lukes
Hospital in Kansas City, Missouri. Dr. Hartzler has co-founded three medical product companies
including Ventritex Inc. Most recently he served as Chairman of the Board of IntraLuminal
Therapeutics, Inc. from 1997 to 2004 and Vice Chairman from 2004 to 2006. Dr. Hartzler has also
served as a consultant or director to over a dozen business entities, some of which are medical
device companies.
Roger J. Howe, Ph.D., Director, Age 66.
Dr. Howe has been a member of CSI-MNs board of
directors since 2002. Over the past 22 years, Dr. Howe has founded four successful start-up
ventures in the technology, information systems and medical products business sectors. Most
recently, Dr. Howe served as Chairman of the Board and Chief Financial Officer of Reliant
Technologies, Inc., a medical laser company, from 2001 to 2005. From 1996 to 2001, Dr. Howe served
as Chief Executive Officer of Metrix Communications, Inc., a business-to-business software
development company that he founded. Dr. Howe currently serves on the boards of directors of
Stemedica Cell Technologies, Inc., BioPharma Scientific, Inc., and Americas Back & Neck Clinic,
Inc., all of which are privately-held companies.
Glen D. Nelson, M.D., Director, Age 71.
Dr. Nelson has been a member of CSI-MNs board of
directors since 2003 and CSI-MNs Chairman since August 2007. Dr. Nelson was a member of the board
of directors of Medtronic, Inc. from 1980 until 2002. Dr. Nelson joined Medtronic as Executive Vice
President in 1986, and he was elected Vice Chairman in 1988, a position held until his retirement
in 2002. Before joining Medtronic, Dr. Nelson practiced surgery from 1969 to 1986. Dr. Nelson was
Chairman of the Board and Chief Executive Officer of American MedCenters, Inc. from 1984 to 1986.
Dr. Nelson also was Chairman, President and Chief Executive Officer of the Park Nicollet Medical
Center, a large multi-specialty group practice in Minneapolis, from 1975 to 1986. Dr. Nelson is on
the board of directors of DexCom, Inc. and The Travelers Companies, Inc., both publicly-held
companies, and also serves as a director for ten private companies.
Gary M. Petrucci, Director, Age 67.
Mr. Petrucci has been a member of CSI-MNs board of
directors since 1992. Since August 2006, Mr. Petrucci has been Senior Vice President Investments
at UBS Financial Services, Inc. Previously, Mr. Petrucci was an Investment Executive with Piper
Jaffray & Co. from 1968 until Piper Jaffrays retail brokerage unit was sold to UBS Financial
Services in August 2006. Mr. Petrucci served on the board of
directors of Piper Jaffray & Co. from 1981 to 1995. Mr. Petrucci achieved the Fred Sirianni
Award 14 times since the award began 25 years ago honoring the top producing Investment Executive
at Piper Jaffray. In January 2005, this award was renamed in his honor. Mr. Petrucci received the
2002 Outstanding Alumni award from St. Cloud State University. Mr. Petrucci is serving as a member
on the boards of directors of Americas Back & Neck Clinic, Inc., National Urology Board, Stemedica
Cell Technologies, Inc. and the University of Minnesota Landscape Arboretum.
Employment Agreement with David L. Martin
David L. Martin is employed as CSIs president and chief executive officer under an Employment
Agreement with CSI-MN dated December 19, 2006, which was assumed by CSI in connection with the
closing of the merger. Mr. Martins employment agreement provides that his annual base salary for
calendar 2007 would be $370,000 and that his base salary for subsequent years shall be determined
by the board of directors, and is eligible to receive an annual incentive bonus equal to 25% of his
base salary in 2007, and 50% of his base salary in 2008 and 2009, earned and payable according to
the achievement of performance goals as shall be agreed between Mr. Martin and the board of
directors. Mr. Martins current base salary is $395,000.
Under the terms of the employment agreement with Mr. Martin, CSI will pay Mr. Martin an amount
equal to 12 months of his then current base salary and 12 months of CSIs share of health insurance
costs if Mr. Martin is terminated by CSI without cause, or if Mr. Martin terminates his employment
for good reason, as defined in the agreement. Good reason is generally defined as the assignment
of job responsibilities to Mr. Martin that are not comparable in status or responsibility to those
job responsibilities set forth in the agreement, a reduction in Mr. Martins base salary without
his consent, or CSIs failure to provide Mr. Martin the benefits promised under his employment
agreement. As a condition to receiving his severance benefits, Mr. Martin is required to execute a
release of claims agreement in favor of CSI.
Employment Agreement with Laurence L. Betterley
Laurence L. Betterley is employed as CSIs chief financial officer under an Employment
Agreement with CSI-MN dated April 14, 2008, which was assumed by CSI in connection with the closing
of the merger. Mr. Betterleys employment agreement provides that his annual base salary shall
initially be $225,000, and that his base salary for subsequent years shall be determined by the
board of directors. Mr. Betterleys employment agreement further provides that he is eligible to
receive an annual bonus equivalent to up to 40% of his annual base salary, as determined by the
board of directors in its sole discretion. Mr. Betterleys current base salary is $250,000.
Under the terms of the employment agreement with Mr. Betterley, CSI will pay Mr. Betterley an
amount equal to 12 months of his then current base salary and 12 months of CSIs share of health
insurance costs if Mr. Betterley is terminated by CSI without cause, or if Mr. Betterley terminates
his employment for good reason, as defined in the agreement. Good reason is generally defined as
the assignment of job responsibilities to Mr. Betterley that are not comparable in status or
responsibility to those job responsibilities set forth in the agreement, a reduction in Mr.
Betterleys base salary without his consent, or CSIs failure to provide Mr. Betterley the benefits
promised under his employment agreement. As a condition to receiving his severance benefits, Mr.
Betterley is required to execute a release of claims agreement in favor of CSI. Mr. Betterley must
have been continuously employed by CSI for six months to be eligible to receive any severance
benefits.
Employment
Agreements with Other New CSI Executive Officers
All
other new CSI executive officers are party to CSI-MNs standard form of employment agreement. The
current base salaries for these new CSI executive officers are as follows:
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Name
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Base Salary
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James E. Flaherty
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$
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233,000
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Robert J. Thatcher
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$
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250,000
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Executive Officer Cash Incentive Compensation Plan
On February 25, 2009, CSIs board of directors adopted CSI-MNs executive officer cash
incentive compensation plan applicable to the six-month period ended June 30, 2009.
This plan conditions the payment of incentive compensation to all participants upon CSIs
achievement of revenue and adjusted EBITDA financial goals. Target bonus amounts are split evenly
between these two goals. None of CSIs officers is subject to individual goals under this plan. No
plan participant will receive a bonus unless CSI achieves certain minimum adjusted EBITDA goals.
Target bonus levels as a percentage of base salary for the six-month period are 75% for the
President and Chief Executive Officer and 50% for the other executive officers. Depending
upon CSIs performance against the goals, participants are eligible to earn 50% to 200% of their
target bonus amount for adjusted EBITDA and 50% to 150% of their target bonus amount for revenue;
however, in the event of extraordinary revenue performance above the goals set by the board, the
participants would receive incentive payments greater than 150% of their targets for the revenue
goal based upon a formula established by the board, with no maximum payout set under the plan. The
plan criteria are the same for all of the executive officers. This plan is designed to reward the
executive officers for achieving and surpassing the financial goals set by the compensation
committee and board of directors.
Related
Party Transactions Involving New CSI Executive Officers and Directors
Described below are any transactions or series of transactions occurring since the beginning
of 2008 to which either Replidyne or CSI-MN was a party in which:
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the amounts involved exceeded or will exceed $120,000; and
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a person who has been newly appointed to serve as a director or executive officer of CSI, or
any member of such persons immediate family, had or will have a direct or indirect
material interest.
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Investors Rights Agreement
CSI-MN was party to an investors rights agreement, which provided that holders of its
convertible preferred stock had the right to demand that it file a registration statement or
request that its shares be covered by a registration statement that it was otherwise filing.
Certain related parties of CSI-MN, and now CSI, were parties to this investor rights agreement.
This agreement was terminated upon the consummation of the merger in accordance with the preferred
stockholder conversion agreement described below.
Stockholders Agreement
CSI-MN was party to a stockholders agreement, which provided that holders of its convertible
preferred stock had the right to elect up to two directors to its board of directors, to maintain a
pro rata interest in CSI-MN through participation in offerings that occurred before CSI-MN become a
public company, and to force other parties to the agreement to vote in favor of significant
corporate transactions such as a consolidation, merger, sale of substantially all of the assets of
CSI-MN or sale of more than 50% of CSI-MNs voting capital stock. In addition, the stockholders
agreement placed certain transfer restrictions upon CSI-MN stockholders that were parties to the
agreement. Certain related parties of CSI-MN, and now CSI, were parties to this stockholders
agreement. This stockholders agreement terminated upon the conversion of all CSI-MN preferred stock
into CSI-MN common stock immediately prior to the effective time of the merger.
Preferred Stockholder Conversion Agreement
Concurrently with the execution of the Merger Agreement, the holders of approximately 68% of
CSI-MNs outstanding preferred stock, calculated on an as-converted to common stock basis, entered
into an agreement with CSI-MN pursuant to which all outstanding shares of CSI-MN preferred stock
were automatically converted into shares of CSI-MN common stock, effective as of immediately prior
to the effective time of the merger. Parties to this agreement include entities affiliated with
John Friedman and Glen Nelson, two of CSIs new directors. In consideration of the agreement of
such stockholders, CSI-MN issued to the holders of CSI-MN preferred stock warrants to purchase
3,500,000 shares of CSI-MN common stock at an exercise price of $5.71 per share, pro rata to each
such holder based on its percentage of the outstanding shares of CSI-MN preferred stock on an
as-converted to
common stock basis. Pursuant to the terms of this agreement, immediately prior to the closing
of the merger, CSI-MN issued to the holders of CSI-MN preferred stock five-year warrants to
purchase 3,499,877 shares of CSI-MN common stock (equivalent to a total of 2,264,264 shares of CSI
common stock based on the conversion ratio set forth in the Merger Agreement) at an exercise price
of $5.71 per share (equivalent to $8.83 per share based on the conversion ratio set forth in the
Merger Agreement), pro rata to each such holder based on its percentage of the outstanding shares
of CSI-MN preferred stock on an as-converted to common stock basis. Due to their ownership of
CSI-MN preferred stock, the following CSI executive officers and directors received a portion of those
warrants: Robert Thatcher, Brent Blackey, and Gary Petrucci. Additionally, certain
entities affiliated with John Friedman and Glen Nelson also received a portion of the warrants.
Indemnification of Directors and Officers
Immediately following the effective time of the merger, on February 25, 2009, CSI approved
indemnification agreements with the new CSI directors and executive officers who were formerly
directors and executive officers of CSI-MN. These agreements provide for the indemnification of
and advancement of expenses for the directors and executive officers of CSI for all reasonable
expenses and liabilities incurred in connection with any action or proceeding brought against them
by reason of the fact that they are or were directors or officers of CSI.
Other Transactions
CSI assumed CSI-MNs loan and security agreement with Silicon Valley Bank, as described in
Item 1.01 of this Current Report on Form 8-K. The agreement includes a $3.0 million term loan, a
$5.0 million accounts receivable line of credit, and two term loans for an aggregate of $5.5
million that are guaranteed by certain of CSIs affiliates. One of CSIs directors and one entity
affiliated with one of CSIs directors agreed to act as guarantors of these term loans. Those
guarantors are Glen Nelson, who is guaranteeing $1.0 million, and Easton Capital Investment Group,
which is guaranteeing $2.0 million. CSIs director John Friedman is the Managing Partner of Easton
Capital Investment Group. In consideration for guaranteeing the investor guaranty line of credit,
CSI-MN issued the guarantors warrants to purchase shares of its common stock at an exercise price
of $6.00 per share in the following amounts: Easton Capital Investment Group, 166,667 shares, and
Glen Nelson, 83,333 shares, which warrants were assumed by CSI in the merger and are exercisable
for an aggregate of 296,539 shares of CSI common stock at an exercise price of $9.28 per share.
These warrants are immediately exercisable and have terms of five years.
CSI-MN granted stock options to its executive officers and certain of its directors, which
were assumed by CSI as of the effective time of the merger. See Equity Incentive Plan and Awards
Outstanding CSI-MN Equity Incentive Awards and
Post-Merger Awards to New Officers and Directors below for a summary of the outstanding awards.
Equity Incentive Plan and Awards
2007 Equity Incentive Plan
Immediately prior to the merger, the only plan being used by CSI-MN to grant equity incentive
awards was the CSI-MN 2007 Equity Incentive Plan (the 2007 Plan). On February 24, 2009,
Replidynes stockholders approved the assumption of the 2007 Plan, and on February 25, 2009, the
CSI board of directors amended and restated the 2007 Plan and adopted the forms of agreement under
the 2007 Plan. As of February 25, 2009 there were 1,396,458 options and 601,856 restricted stock
awards outstanding under the 2007 Plan.
CSI-MNs board of directors adopted the 2007 Plan in October 2007 and approved certain
amendments to the 2007 Plan in November 2007, and its stockholders approved the 2007 Plan in
December 2007. The 2007 Plan became effective on the date of board approval. Incentive stock
options may be granted pursuant to the 2007 Plan until October 2017 and other awards may be granted
under the plan until the 2007 Plan is discontinued or terminated by the administrator.
Equity Awards.
The 2007 Plan permits the granting of incentive stock options, nonqualified
options, restricted stock awards, restricted stock units, performance share awards, performance
unit awards and stock appreciation rights to employees, officers, consultants and directors.
Share Reserve.
The aggregate number of shares of CSI common stock issuable pursuant to stock
awards under the 2007 Plan is 2,509,969. The number of shares of CSI common stock reserved for
issuance will automatically increase on the first day of each fiscal year, beginning on July 1,
2009, and ending on July 1, 2017, by the lesser of (i) 970,500 shares, (ii) 5% of the outstanding
shares of common stock on such date or (iii) a lesser amount determined by the board of directors.
Under the 2007 Plan, no person may be granted equity awards intended to qualify as
performance-based compensation covering more than 64,700 shares of CSI common stock during any
calendar year pursuant to stock options, stock appreciation rights, restricted stock awards or
restricted stock unit awards.
If any awards granted under the 2007 Plan expire or terminate prior to exercise or otherwise
lapse, or if any awards are settled in cash, the shares subject to such portion of the award are
available for subsequent grants of awards. Further, shares of stock used to pay the exercise price
under any award or used to satisfy any tax withholding obligation attributable to any award,
whether withheld by CSI or tendered by the participant, will continue to be reserved and available
for awards granted under the 2007 Plan.
The total number of shares and the exercise price per share of common stock that may be issued
pursuant to outstanding awards under the 2007 Plan are subject to adjustment by the board of
directors upon the occurrence of stock dividends, stock splits or other recapitalizations, or
because of mergers, consolidations, reorganizations or similar transactions in which CSI receive no
consideration. CSIs board of directors may also provide for the protection of plan participants in
the event of a merger, liquidation, reorganization, divestiture (including a spin-off) or similar
transaction.
Administration.
The 2007 Plan may be administered by CSIs board of directors or a committee
appointed by the board. Any committee appointed by the board to administer the 2007 Plan shall
consist of at least two non-employee directors (as defined in Rule 16b-3, or any successor
provision, of the General Rules and Regulations under the Securities Exchange Act of 1934). The
plan administrator has broad powers to administer and interpret the 2007 Plan, including the
authority to (i) establish rules for the administration of the 2007 Plan, (ii) select the
participants in the 2007 Plan, (iii) determine the types of awards to be granted and the number of
shares covered by such awards, and (iv) set the terms and conditions of such awards. All
determinations and interpretations of the plan administrator are binding on all interested parties.
CSIs board of directors may terminate or amend the 2007 Plan, except that the terms of award
agreements then outstanding may not be adversely affected without the consent of the participant.
CSIs board of directors may not amend the 2007 Plan to materially increase the total number of
shares of CSI common stock available for issuance under the 2007 Plan, materially increase the
benefits accruing to any individual, decrease the price at which options may be granted, or
materially modify the requirements for eligibility to participate in the 2007 Plan without the
approval of CSI stockholders if such approval is required to comply with the Code or other
applicable laws or regulations.
Stock Options.
Options granted under the 2007 Plan may be either incentive stock options
within the meaning of Code Section 422 or nonqualified stock options that do not qualify for
special tax treatment under Code Section 422. No incentive stock option may be granted with a per
share exercise price less than the fair market value of a share of the underlying common stock on
the date the incentive stock option is granted. Unless otherwise determined by the plan
administrator, the per share exercise price for nonqualified stock options granted under the 2007
Plan also will not be less than the fair market value of a share of CSI common stock on the date
the nonqualified stock option is granted.
The period during which an option may be exercised and whether the option will be exercisable
immediately, in stages, or otherwise is set by the administrator. An incentive stock option
generally may not be exercisable more than ten years from the date of grant.
Participants generally must pay for shares upon exercise of options with cash, certified check
or CSI common stock valued at the stocks then fair market value. Each incentive option granted
under the 2007 Plan is nontransferable during the lifetime of the participant. A nonqualified stock
option may, if permitted by the plan administrator, be transferred to certain family members,
family limited partnerships and family trusts.
The plan administrator may, in its discretion, modify or impose additional restrictions on the
term or exercisability of an option. The plan administrator may also determine the effect that a
participants termination of employment with CSI or a subsidiary may have on the exercisability of
such option. The grants of stock options under the 2007 Plan are subject to the plan
administrators discretion.
Tax Limitations on Stock Options.
Nonqualified stock options granted under the 2007 Plan
are not intended to and do not qualify for favorable tax treatment available to incentive stock
options under Code Section 422. Generally, no income is taxable to the participant (and CSI is not
entitled to any deduction) upon the grant of a nonqualified stock option. When a nonqualified stock
option is exercised, the participant generally must recognize compensation taxable as ordinary
income equal to the difference between the option price and the fair market value of the shares on
the date of exercise. CSI normally will receive a deduction equal to the amount of compensation the
participant is required to recognize as ordinary income and must comply with applicable tax
withholding requirements.
Incentive
stock options granted pursuant to the 2007 Plan are intended to qualify for
favorable tax treatment to the participant under Code Section 422. Under Code Section 422, a
participant realizes no taxable income when the incentive stock option is granted. If the
participant has been an employee of CSI or any subsidiary at all times from the date of grant until
three months before the date of exercise, the participant will realize no taxable income when the
option is exercised. If the participant does not dispose of shares acquired upon exercise for a
period of two years from the granting of the incentive stock option and one year after receipt of
the shares, the participant may sell the shares and report any gain as capital gain. CSI will not
be entitled to a tax deduction in connection with either the grant or exercise of an incentive
stock option, but may be required to comply with applicable withholding requirements. If the
participant should dispose of the shares prior to the expiration of the two-year or one-year
periods described above, the participant will be deemed to have received compensation taxable as
ordinary income in the year of the early sale in an amount equal to the lesser of (i) the
difference between the fair market value of CSI common stock on the date of exercise and the option
price of the shares, or (ii) the difference between the sale price of the shares and the option
price of shares. In the event of such an early sale, CSI will be entitled to a tax deduction equal
to the amount recognized by the participant as ordinary income. The foregoing discussion ignores
the impact of the alternative minimum tax, which may particularly be applicable to the year in
which an incentive stock option is exercised.
Stock Appreciation Rights.
A stock appreciation right may be granted independent of or in
tandem with a previously or contemporaneously granted stock option, as determined by the plan
administrator. Generally, upon the exercise of a stock appreciation right, the participant will
receive cash, shares of common stock or some combination of cash and shares having a value equal to
the excess of (i) the fair market value of a specified number of shares of CSI common stock, over
(ii) a specified exercise price. If the stock appreciation right is granted in tandem with a stock
option, the exercise of the stock appreciation right will generally cancel a corresponding portion
of the option, and, conversely, the exercise of the stock option will cancel a corresponding
portion of the stock appreciation right. The plan administrator will determine the term of the
stock appreciation right and how it will become exercisable. A stock appreciation right may not be
transferred by a participant except by will or the laws of descent and distribution.
Restricted Stock Awards and Restricted Stock Unit Awards.
The plan administrator is also
authorized to grant awards of restricted stock and restricted stock units. Each restricted stock
award granted under the 2007 Plan shall be for a number of shares as determined by the plan
administrator, and the plan administrator, in its discretion, may also establish continued
employment, achievement of performance criteria, vesting or other conditions that must be satisfied
for the restrictions on the transferability of the shares and the risks of forfeiture to lapse.
Each restricted stock unit represents the right to receive cash or shares of CSI common stock, or
any combination thereof,
at a future date, subject to continued employment, achievement of performance criteria,
vesting or other conditions as determined by the plan administrator.
If a restricted stock award or restricted stock unit award is intended to qualify as
performance-based compensation under Code Section 162(m), the risks of forfeiture shall lapse
based on the achievement of one or more performance objectives established in writing by the plan
administrator in accordance with Code Section 162(m) and the applicable regulations. Such
performance objectives shall consist of any one, or a combination of, (i) revenue, (ii) net income,
(iii) earnings per share, (iv) return on equity, (v) return on assets, (vi) increase in revenue,
(vii) increase in share price or earnings, (viii) return on investment, or (ix) increase in market
share, in all cases including, if selected by the plan administrator, threshold, target and maximum
levels.
Performance Share Awards and Performance Units Awards.
The plan administrator is also
authorized to grant performance share and performance unit awards. Performance share awards
generally provide the participant with the opportunity to receive shares of CSI common stock and
performance units generally provide recipients with the opportunity to receive cash awards, but
only if certain performance criteria are achieved over specified performance periods. A performance
share award or performance unit award may not be transferred by a participant except by will or the
laws of descent and distribution.
Prior CSI-MN Equity Plans
In addition to the 2007 Plan, prior to the merger CSI-MN also adopted a 2003 Stock Option Plan
and 1991 Stock Option Plan (collectively, the Prior Equity Plans). As a result of the merger,
CSI assumed all outstanding option agreements under the Prior Equity Plans, but did not assume the
Prior Equity Plans themselves.
2003 Stock Option Plan.
The CSI-MN board of directors adopted the 2003 Stock Option Plan (the
2003 Plan), in May 2003, and the CSI-MN shareholders approved the 2003 Plan in November 2003, in
order to provide for the granting of stock options to CSI-MN employees, directors and consultants.
The 2003 Plan permitted the granting of incentive stock options meeting the requirements of Section
422 of the Code, and also nonqualified options, which do not meet the requirements of Section 422.
Under the 2003 Plan, 3,800,000 shares of CSI-MN common stock were reserved for issuance pursuant to
options granted under the 2003 Plan and approved by the board of directors in February 2005 and
August 2006 and shareholders in March 2005 and October 2006.
The 2003 Plan was administered by the CSI-MN board of directors. The 2003 Plan gave broad
powers to the CSI-MN board of directors to administer and interpret the Plan, including the
authority to select the individuals to be granted options and to prescribe the particular form and
conditions of each option granted.
Incentive stock options were permitted to be granted pursuant to the 2003 Plan through May 20,
2013, ten years from the date the CSI-MN board of directors adopted the 2003 Plan. Nonqualified
stock options could be granted pursuant to the 2003 Plan until the 2003 Plan was terminated by the
CSI-MN board of directors. In the event of a sale of substantially all of CSI-MNs assets or in the
event of a merger, exchange, consolidation, or liquidation, the CSI-MN board of directors was
authorized to terminate the 2003 Plan. As of February 25, 2009 there were 2,203,009 options
outstanding under the 2003 Plan, and no further shares will be issued under the 2003 Plan.
1991 Stock Option Plan
. The CSI-MN 1991 Stock Option Plan (the 1991 Plan), was adopted by
the CSI-MN board of directors in July 1991. Under the 1991 Plan, 750,000 shares of CSI-MN common
stock were reserved for option grants. With the creation of the 2003 Plan, no additional options
were granted under the 1991 Plan. As of February 25, 2009, there were options outstanding under the
1991 Plan to purchase an aggregate of 31,451 shares of common stock.
Outstanding CSI-MN Equity Incentive Awards
At the effective time of the merger, all options to purchase CSI-MN common stock and all
CSI-MN restricted stock outstanding at the time of the merger were assumed by CSI. Options
outstanding were issued pursuant to CSI-MNs 1991 Stock Option Plan, 2003 Stock Option Plan and
2007 Equity Incentive Plan, and a small quantity of option agreements were issued outside of any
plan. All restricted stock was issued pursuant to CSI-MNs 2007 Equity Incentive Plan. At the
effective time of the merger, each option became an option to acquire that number of shares of CSI
common stock equal to the product obtained by multiplying the number of shares of CSI-MN common
stock subject to such option by 0.647, rounded down to the nearest whole share of CSI common stock,
and each such option has a purchase price per share of CSI common stock equal to the quotient
obtained by dividing the per share purchase price of CSI-MN common stock subject to such option by
0.647, rounded up to the nearest whole cent. At the effective time of the merger, each share of
restricted stock was converted into the right to receive 0.647 shares of CSI common stock.
The following executive officers and directors of CSI were granted stock options to purchase
shares of CSI-MN common stock prior to the merger. The number of shares of CSI common stock
issuable pursuant to these option grants and the exercise price, as adjusted for the merger, is set
forth opposite such executive officers and directors name in the following table. The options
will remain subject to the terms and conditions of the applicable CSI-MN plan pursuant to which
they were granted and the stock option agreements between CSI-MN and each director and executive
officer.
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Grant Date
|
|
CSI Option Shares
|
|
Exercise Price
|
David L. Martin(1)
|
|
|
7/17/06
|
|
|
|
71,170
|
|
|
$
|
8.83
|
|
|
|
|
8/15/06
|
|
|
|
38,820
|
|
|
$
|
8.83
|
|
|
|
|
2/15/07
|
|
|
|
349,380
|
|
|
$
|
8.83
|
|
|
|
|
6/12/07
|
|
|
|
90,580
|
|
|
$
|
7.90
|
|
|
|
|
12/12/07
|
|
|
|
242,625
|
|
|
$
|
12.15
|
|
|
James E. Flaherty(2)
|
|
|
11/16/04
|
|
|
|
4,852
|
|
|
$
|
9.28
|
|
|
|
|
7/01/05
|
|
|
|
16,175
|
|
|
$
|
12.37
|
|
|
|
|
11/08/05
|
|
|
|
7,764
|
|
|
$
|
12.37
|
|
|
|
|
12/19/06
|
|
|
|
9,381
|
|
|
$
|
8.83
|
|
|
|
|
4/18/07
|
|
|
|
25,233
|
|
|
$
|
8.83
|
|
|
|
|
8/07/07
|
|
|
|
22,645
|
|
|
$
|
7.90
|
|
|
|
|
12/12/07
|
|
|
|
32,350
|
|
|
$
|
12.15
|
|
|
Robert J. Thatcher(2)
|
|
|
10/17/05
|
|
|
|
64,700
|
|
|
$
|
12.37
|
|
|
|
|
12/19/06
|
|
|
|
7,764
|
|
|
$
|
8.83
|
|
|
|
|
4/18/07
|
|
|
|
29,762
|
|
|
$
|
8.83
|
|
|
|
|
8/07/07
|
|
|
|
22,645
|
|
|
$
|
7.90
|
|
|
|
|
12/12/07
|
|
|
|
32,350
|
|
|
$
|
12.15
|
|
|
|
Brent G. Blackey(3)
|
|
|
10/09/07
|
|
|
|
38,820
|
|
|
$
|
7.90
|
|
|
|
|
10/09/07
|
|
|
|
6,470
|
|
|
$
|
7.90
|
|
|
John H. Friedman(4)
|
|
|
8/15/06
|
|
|
|
38,820
|
|
|
$
|
8.83
|
|
|
|
|
10/09/07
|
|
|
|
4,321
|
|
|
$
|
7.90
|
|
|
|
|
11/13/07
|
|
|
|
15,088
|
|
|
$
|
11.38
|
|
|
Geoffrey O. Hartzler(5)
|
|
|
12/01/04
|
|
|
|
12,940
|
|
|
$
|
9.28
|
|
|
|
|
12/01/05
|
|
|
|
9,705
|
|
|
$
|
12.37
|
|
|
|
|
12/19/06
|
|
|
|
12,940
|
|
|
$
|
8.83
|
|
|
|
|
10/09/07
|
|
|
|
15,087
|
|
|
$
|
11.38
|
|
|
|
|
10/09/07
|
|
|
|
4,322
|
|
|
$
|
7.90
|
|
|
|
|
2/14/08
|
|
|
|
74,281
|
|
|
$
|
13.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Grant Date
|
|
CSI Option Shares
|
|
Exercise Price
|
Roger J. Howe(5)
|
|
|
12/01/04
|
|
|
|
12,940
|
|
|
$
|
9.28
|
|
|
|
|
12/01/05
|
|
|
|
9,705
|
|
|
$
|
12.37
|
|
|
|
|
12/19/06
|
|
|
|
12,940
|
|
|
$
|
8.83
|
|
|
|
|
10/09/07
|
|
|
|
15,088
|
|
|
$
|
11.38
|
|
|
|
|
10/09/07
|
|
|
|
4,321
|
|
|
$
|
7.90
|
|
|
|
|
12/31/07
|
|
|
|
121,490
|
|
|
$
|
12.15
|
|
|
Glen D. Nelson(5)
|
|
|
12/01/04
|
|
|
|
6,470
|
|
|
$
|
9.28
|
|
|
|
|
12/01/05
|
|
|
|
9,705
|
|
|
$
|
12.37
|
|
|
|
|
12/19/06
|
|
|
|
12,940
|
|
|
$
|
8.83
|
|
|
|
|
10/09/07
|
|
|
|
4.322
|
|
|
$
|
7.90
|
|
|
|
|
11/13/07
|
|
|
|
15,087
|
|
|
$
|
11.38
|
|
|
Gary M. Petrucci(5)
|
|
|
12/01/04
|
|
|
|
12,940
|
|
|
$
|
9.28
|
|
|
|
|
12/01/05
|
|
|
|
9,705
|
|
|
$
|
12.37
|
|
|
|
|
12/19/06
|
|
|
|
19,410
|
|
|
$
|
8.83
|
|
|
|
|
10/09/07
|
|
|
|
4,321
|
|
|
$
|
7.90
|
|
|
|
|
11/13/07
|
|
|
|
24,793
|
|
|
$
|
11.38
|
|
|
|
|
12/31/07
|
|
|
|
236,906
|
|
|
$
|
12.15
|
|
|
|
|
|
(1)
|
|
The July 2006 options vest at the rate of 3,235 shares per month starting on August 17,
2006. The August 2006 and June 2007 options vest at the rate of one-third per year starting on
the first anniversary of the grant date. The February 2007 options vest at the rate of 9,705
shares per month starting March 15, 2007. The December 2007 options provide for vesting of 50%
of the options on February 25, 2010 and 50% of the options on February 25, 2011.
|
|
(2)
|
|
All option awards vest at the rate of one-third per year starting on the first anniversary of
the grant date, except for the grants made on December 12, 2007, which vest to the extent of
50% of the options on February 25, 2010 and 50% of the options on February 25, 2011.
|
|
(3)
|
|
The larger option award vests at the rate of one-third per year starting on the first
anniversary of the grant date, and the smaller award vested immediately on the grant date.
|
|
(4)
|
|
All option awards vested immediately on the grant date, except for the grant made on August
15, 2006, which vests at the rate of one-third per year starting on the first anniversary of
the grant date.
|
|
(5)
|
|
All option awards vested immediately on the grant date.
|
In addition, pursuant to the terms of his employment agreement, Mr. Betterley received
75,000 shares of CSI-MN restricted stock under the CSI-MN 2007 Equity Incentive Plan, which shares
vest ratably in three annual installments, beginning on April 14, 2009. As a result of the merger,
these shares were converted into 48,525 shares of CSI common stock, subject to the same terms and
conditions of the restricted stock agreement between CSI-MN and Mr. Betterley.
Post-Merger
Awards to New Officers and Directors
On
March 2, 2009, CSIs board of directors granted CSIs new executive officers the following stock
option awards under the 2007 Plan:
|
|
|
|
|
Name
|
|
Number of Option Shares
|
David L. Martin
|
|
|
32,350
|
|
Laurence L. Betterley
|
|
|
14,234
|
|
James E. Flaherty
|
|
|
11,646
|
|
Robert J. Thatcher
|
|
|
11,646
|
|
Each option award has an exercise price equal $8.75 per share, the closing price of CSIs common
stock on the date of grant, vests at the rate of one-half per year on the first and second
anniversaries of the date of grant and expires on March 1, 2019.
On March 2, 2009, CSIs board of directors awarded CSIs directors the following restricted
stock units under its 2007 Equity Incentive Plan:
|
|
|
|
|
Name
|
|
Number of Restricted Stock Units
|
Brent G. Blackey
|
|
|
5,714
|
|
Edward Brown
|
|
|
3,977
|
|
John H. Friedman
|
|
|
5,714
|
|
Geoffrey O. Hartzler
|
|
|
5,714
|
|
Roger J. Howe
|
|
|
5,714
|
|
Augustine Lawlor
|
|
|
3,977
|
|
Glen D. Nelson
|
|
|
5,714
|
|
Gary M. Petrucci
|
|
|
5,714
|
|
Each restricted stock unit represents the right to receive a payment from CSI equal in value to the
market price per share of CSI common stock on the date of payment, and shall be payable in cash
beginning six months following the termination of each directors board membership.
Amendment to 2006 Employee Stock Purchase Plan
On February 24, 2009, Replidynes stockholders approved (i) an increase to the maximum number
of shares of Replidyne common stock authorized for issuance under the Replidyne 2006 Employee Stock
Purchase Plan (ESPP) by an additional 161,500 shares and (ii) an amendment to the evergreen
provisions of the ESPP to provide that on July 1st of each year, beginning with July 1, 2009, the
share reserve under the ESPP automatically will be increased by a number of shares equal to the
lesser of (A) one percent (1.0%) of the total number of shares of Replidyne common stock
outstanding on such date, or (B) 180,000 shares, unless the board of directors designates a smaller
number of shares.
Payments to Former Replidyne Officers
CSI made payments to certain of Replidynes former officers pursuant to the terms of their
employment agreements and certain retention bonus agreements at the time the merger closed.
Certain of these payments were triggered as a result of the officers termination for cause at the
time of the merger, and other payments were
triggered by the consummation of the merger. The information set forth in Item 1.02 of this
Current Report on Form 8-K under the heading Termination of Replidyne Officers is incorporated
herein by reference.
In addition, in connection with the merger closing, CSI paid Nebojsa Janjic, Replidynes
former chief scientific officer, a bonus in the amount of $50,000 pursuant to the terms of the
separation agreement between Dr. Janjic and Replidyne dated December 8, 2008.
|
|
|
Item 5.03
|
|
Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.
|
Amendments to Articles of Incorporation and Bylaws
The information set forth in Item 3.03 of this Current Report on Form 8-K is incorporated
herein by reference.
Change in Fiscal Year
For accounting purposes, CSI-MN is deemed to have acquired Replidyne pursuant to the
transactions contemplated by the Merger Agreement, and the historical financial statements of
CSI-MN are considered to be the historical financial statements of CSI after the merger. The CSI
board of directors approved, effective February 25, 2009, a change in CSIs fiscal year from
December 31 to June 30 to correspond with the periods of the Companys post-merger historical
financial statements.
On February 24, 2009, Replidyne filed its Annual Report on Form 10-K for the year ended
December 31, 2008, and on February 13, 2009, CSI-MN filed its Quarterly Report on Form 10-Q for the
quarter ended December 31, 2008; therefore, no report covering a transition period will be filed by
CSI as a result of this change in fiscal year.
|
|
|
Item 5.05
|
|
Amendments to the Registrants Code of Ethics, or Waiver of a
Provision of the Code of Ethics.
|
Following the closing of the merger, on February 25, 2009, the CSI board of directors replaced
Replidynes Code of Business Conduct and Ethics with CSI-MNs former Code of Ethics and Business
Conduct. The new code and old code address the same topics, but because CSIs post-merger officers
and employees are comprised entirely of former CSI-MN officers and employees, the board of
directors believes it will be most efficient to adopt and implement the former CSI-MN code.
The new CSI Code of Ethics and Business Conduct is filed as Exhibit 14.1 to this Current
Report on Form 8-K and is incorporated herein by reference.
On February 25, 2009, CSI issued a press release announcing the completion of the merger. The
press release is attached hereto as Exhibit 99.1 to this Current Report on Form 8-K and is
incorporated herein by reference.
|
|
|
Item 9.01
|
|
Financial Statements and Exhibits
|
(a) Financial Statements of Businesses Acquired.
The
CSI-MN financial statements required by this Item are filed as
Exhibit 99.2 and 99.3 to this Current Report on Form 8-K and are
incorporated herein by reference.
(b) Pro Forma Financial Information.
The
pro forma financial information required by this Item is filed as
Exhibit 99.4 to this Current Report on Form 8-K and is incorporated
herein by reference.
(d) Exhibits.
|
|
|
|
|
Exhibit
Number
|
|
Description of Document
|
|
|
|
|
|
|
3.1
|
|
|
Amendment to Restated Certificate of Incorporation.
|
|
|
|
|
|
|
3.2
|
|
|
Amended and Restated Bylaws.
|
|
|
|
|
|
|
4.1
|
|
|
Specimen Common Stock Certificate.
|
|
|
|
|
|
|
4.2
|
|
|
Form of Cardiovascular Systems, Inc. common stock warrant issued to former preferred
stockholders.
|
|
|
|
|
|
|
14.1
|
|
|
Code of Ethics and Business Conduct.
|
|
|
|
|
|
|
16.1
|
|
|
Letter from KPMG LLP to the Securities and Exchange Commission dated February 27, 2009.
|
|
|
|
|
|
|
23.1
|
|
|
Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm
to Cardiovascular Systems, Inc.
|
|
|
|
|
|
|
99.1
|
|
|
Press Release of Cardiovascular Systems, Inc. dated as of February 25, 2009.
|
|
|
|
|
|
|
99.2
|
|
|
Cardiovascular
Systems, Inc. Consolidated Financial Statements for the three months
ended September 30, 2008 and twelve months ended June 30, 2008 and
2007.
|
|
|
|
|
|
|
99.3
|
|
|
Cardiovascular
Systems, Inc. Consolidated Financial Statements for the three and six
months ended December 31, 2008 and 2007.
|
|
|
|
|
|
|
99.4
|
|
|
Unaudited
Pro Forma Condensed Combined Financial Statements.
|
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 hereunto duly authorized.
Date:
March 3, 2009
|
|
|
|
|
|
CARDIOVASCULAR SYSTEMS, INC.
|
|
|
By:
|
/s/ Laurence L. Betterley
|
|
|
|
Laurence L. Betterley
|
|
|
|
Chief Financial Officer
|
|
|
EXHIBIT INDEX
|
|
|
|
|
Exhibit
Number
|
|
Description of Document
|
|
|
|
|
|
|
3.1
|
|
|
Amendment to Restated Certificate of Incorporation.
|
|
|
|
|
|
|
3.2
|
|
|
Amended and Restated Bylaws.
|
|
|
|
|
|
|
4.1
|
|
|
Specimen Common Stock Certificate.
|
|
|
|
|
|
|
4.2
|
|
|
Form of Cardiovascular Systems, Inc. common stock warrant issued to former preferred
stockholders.
|
|
|
|
|
|
|
14.1
|
|
|
Code of Ethics and Business Conduct.
|
|
|
|
|
|
|
16.1
|
|
|
Letter from KPMG LLP to the Securities and Exchange Commission dated February 27, 2009.
|
|
|
|
|
|
|
23.1
|
|
|
Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm
to Cardiovascular Systems, Inc.
|
|
|
|
|
|
|
99.1
|
|
|
Press Release of Cardiovascular Systems, Inc. dated as of February 25, 2009.
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99.2
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Cardiovascular
Systems, Inc. Consolidated Financial Statements for the three months
ended September 30, 2008 and twelve months ended June 30, 2008 and
2007.
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99.3
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Cardiovascular
Systems, Inc. Consolidated Financial Statements for the three and six
months ended December 31, 2008 and 2007.
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99.4
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Unaudited
Pro Forma Condensed Combined Financial Statements.
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Exhibit 3.2
AMENDED AND RESTATED BYLAWS
OF
CARDIOVASCULAR SYSTEMS, INC.
(A DELAWARE CORPORATION)
AMENDED AND RESTATED BYLAWS
OF
CARDIOVASCULAR SYSTEMS, INC.
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
Section 1. Registered Office.
The registered office of the corporation in the State of
Delaware shall be in the City of Wilmington, County of New Castle.
Section 2. Other Offices.
The corporation shall also have and maintain an office or principal
place of business at such place as may be fixed by the Board of Directors, and may also have
offices at such other places, both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the corporation may require.
ARTICLE II
CORPORATE SEAL
Section 3. Corporate Seal.
The Board of Directors may adopt a corporate seal. The corporate
seal shall consist of a die bearing the name of the corporation and the inscription, Corporate
Seal-Delaware. Said seal may be used by causing it or a facsimile thereof to be impressed or
affixed or reproduced or otherwise.
ARTICLE III
STOCKHOLDERS MEETINGS
Section 4. Place Of Meetings.
Meetings of the stockholders of the corporation may be held at
such place, either within or without the State of Delaware, as may be determined from time to time
by the Board of Directors. The Board of Directors may, in its sole discretion, determine that the
meeting shall not be held at any place, but may instead be held solely by means of remote
communication as provided under the Delaware General Corporation Law (DGCL).
1.
Section 5. Annual Meetings.
(a)
The annual meeting of the stockholders of the corporation, for the purpose of election of
directors and for such other business as may lawfully come before it, shall be held on such date
and at such time as may be designated from time to time by the Board of Directors. Nominations of
persons for election to the Board of Directors of the corporation and the proposal of business to
be considered by the stockholders may be made at an annual meeting of stockholders: (i) pursuant
to the corporations notice of meeting of stockholders; (ii) by or at the direction of the Board of
Directors; or (iii) by any stockholder of the corporation who was a stockholder of record at the
time of giving the stockholders notice provided for in the following paragraph, who is entitled to
vote at the meeting and who complied with the notice procedures set forth in Section 5; provided,
however, that clause (iii) above shall be the exclusive means for a stockholder to make nominations
and submit other business (other than matters properly brought under Rule 14a-8 under the
Securities Exchange Act of 1934, as amended (the 1934 Act) and included in the corporations
notice of meeting of stockholders) before an annual meeting of stockholders.
(b)
At an annual meeting of the stockholders, only such business shall be conducted as shall
have been properly brought before the meeting. For nominations or other business to be properly
brought before an annual meeting by a stockholder pursuant to clause (iii) of Section 5(a) of these
Bylaws, (i) the stockholder must have given timely notice thereof in proper form in writing to the
Secretary of the corporation, (ii) such other business must be a proper matter for stockholder
action under DGCL, (iii) if the stockholder, or the beneficial owner on whose behalf any such
proposal or nomination is made, has provided the corporation with a Solicitation Notice (as defined
in this Section 5(b)), such stockholder or beneficial owner must, in the case of a proposal, have
delivered a proxy statement and form of proxy to holders of at least the percentage of the
corporations voting shares required under applicable law to carry any such proposal, or, in the
case of a nomination or nominations, have delivered a proxy statement and form of proxy to holders
of a percentage of the corporations voting shares reasonably believed by such stockholder or
beneficial owner to be sufficient to elect the nominee or nominees proposed to be nominated by such
stockholder, and must, in either case, have included in such materials the Solicitation Notice, and
(iv) if no Solicitation Notice relating thereto has been timely provided pursuant to this section,
the stockholder or beneficial owner proposing such business or nomination must not have solicited a
number of proxies sufficient to have required the delivery of such a Solicitation Notice under this
Section 5. To be timely, a stockholders notice shall be delivered to the Secretary at the
principal executive offices of the corporation not later than the close of business on the
ninetieth (90
th
) day nor earlier than the close of business on the one hundred twentieth
(120
th
) day prior to the first anniversary of the preceding years annual meeting;
provided, however, that in the event that the date of the annual meeting is advanced more than
thirty (30) days prior to or delayed by more than thirty (30) days after the anniversary of the
preceding years annual meeting, notice by the stockholder to be timely must be so delivered not
earlier than the close of business on the one hundred twentieth (120
th
) day prior to
such annual meeting and not later than the close of business on the later of the ninetieth
(90
th
) day prior to such annual meeting or the tenth (10
th
) day following the
day on which public announcement of the date of such meeting is first made. In no event shall the
public announcement of an adjournment of an annual meeting commence a new time period for the
giving of a stockholders notice as described above. To be in proper form, such stockholders
notice shall set forth: (A) as to each person whom the stockholder proposed to nominate for
election or reelection as a director (i) all information relating to such person that is required
to be disclosed in solicitations of proxies for election of directors in an election contest, or is
otherwise required, in each case pursuant to Regulation 14A under the 1934 Act and Rule 14a-4(d)
thereunder (including such persons written consent to being named in the proxy statement as a
nominee and to serving as a director if elected), and (ii) a description of all direct and indirect
compensation and other material monetary agreements, arrangements and understandings during the
past three years, and any other material relationships, between or among such stockholder and
beneficial owner, if any, and their respective affiliates and associates, or others acting in
concert therewith, on the one hand, and each proposed nominee, and his or her respective affiliates
and associates, or others acting in concert therewith, on the other hand, including, without
limitation all information that would be required to be disclosed pursuant to Rule 404 promulgated
under Regulation S-K under the 1934 Act if the stockholder making the nomination and any beneficial
owner on whose behalf the nomination is made, if any, or any affiliate or associate thereof or
person acting in concert therewith, were the registrant for purposes of such rule and the nominee
were a director or executive officer of such registrant; (B) as to any other business that the
stockholder proposes to bring before the meeting, (i) a brief description of the business desired
to be brought before the meeting, the reasons for conducting such business at the meeting and any
material interest in such business of such stockholder and the beneficial owner, if any, on whose
behalf the proposal is made, and (ii) a description of all agreements, arrangements and
understandings between such stockholder and beneficial owner, if any, and any other person or
persons (including their names) in connection with the proposal of such business by such
stockholder; and (C) as to the stockholder giving the notice and the beneficial owner, if any, on
whose behalf the nomination or proposal is made (i) the name and address of such stockholder, as
they appear on the corporations books, and of such beneficial owner, (ii) (1) the class and number
of shares of the corporation which are, directly or indirectly, owned beneficially and of record by
such stockholder and such beneficial owner, (2) any option, warrant, convertible security, stock
appreciation right, or similar right with an exercise or conversion privilege or a settlement
payment or mechanism at a price related to any class or series of shares of the corporation or with
a value derived in whole or in part from the value of any class or series of shares of the
corporation, whether or not such instrument or right shall be subject to settlement in the
underlying class or series of capital stock of the corporation or otherwise (a Derivative
Instrument) directly or indirectly owned beneficially by such stockholder or such beneficial
holder and any other direct or indirect opportunity to profit or share in any profit derived from
any increase or decrease in the value of shares of the corporation, (3) any proxy, contract,
arrangement, understanding, or relationship pursuant to which such stockholder or such beneficial
holder has a right to vote any shares of any security of the corporation, (4) any short interest in
any security of the corporation (for purposes of these Bylaws a person shall be deemed to have a
short interest in a security if such person directly or indirectly, through any contract,
arrangement, understanding, relationship or otherwise, has the opportunity to profit or share in
any profit derived from any decrease in the value of the subject security), (5) any rights to
dividends on the shares of the corporation owned beneficially by such stockholder or such
beneficial holder that are separated or separable from the underlying shares of the corporation,
(6) any proportionate interest in shares of the corporation or Derivative Instruments held,
directly or indirectly, by a general or limited partnership in which such stockholder or such
beneficial holder is a general partner or, directly or indirectly, beneficially
owns an interest in a general partner and (7) any performance-related fees (other than an
asset-based fee) that such stockholder or such beneficial holder is entitled to based on any
increase or decrease in the value of shares of the corporation or Derivative Instruments, if any,
as of the date of such notice, including without limitation any such interests held by members of
such
stockholders or such beneficial holders immediate family sharing the same household (which
information shall be supplemented by such stockholder and beneficial owner, if any, not later than
10 days after the record date for the meeting to disclose such ownership as of the record date),
(iii) whether either such stockholder or beneficial owner intends to deliver a proxy statement and
form of proxy to holders of, in the case of the proposal, at least the percentage of the
corporations voting shares required under applicable law to carry the proposal or, in the case of
a nomination or nominations, a sufficient number of holders of the corporations voting shares to
elect such nominee or nominees (an affirmative statement of such intent, a Solicitation Notice),
and (iv) any other information relating to such stockholder and beneficial owner, if any, that
would be required to be disclosed in a proxy statement or other filings required to be made in
connection with solicitations of proxies for, as applicable, the proposal and/or for the election
of directors in a contested election pursuant to Section 14 of the 1934 Act and the rules and
regulations promulgated thereunder. In addition, such stockholders notice shall be accompanied
by, with respect to each nominee for election or reelection to the Board of Directors, a completed
and signed questionnaire, representation and agreement required by Section 5(g). The corporation
may require any proposed nominee to furnish such other information as may reasonably be required by
the corporation to determine the eligibility of such proposed nominee to serve as an independent
director of the corporation or that could be material to a reasonable stockholders understanding
of the independence, or lack thereof, of such nominee.
(c)
Notwithstanding anything in the third sentence of Section 5(b) of these Bylaws to the
contrary, in the event that the number of directors to be elected to the Board of Directors of the
corporation is increased and there is no public announcement naming all of the nominees for
director or specifying the size of the increased Board of Directors made by the corporation at
least one hundred (100) days prior to the first anniversary of the preceding years annual meeting,
a stockholders notice required by this Section 5 shall also be considered timely, but only with
respect to nominees for any new positions created by such increase, if it shall be delivered to the
Secretary at the principal executive offices of the corporation not later than the close of
business on the tenth (10
th
) day following the day on which such public announcement is
first made by the corporation.
(d)
Only such persons who are nominated in accordance with the procedures set forth in this
Section 5 shall be eligible to serve as directors and only such business shall be conducted at a
meeting of stockholders as shall have been brought before the meeting in accordance with the
procedures set forth in this Section 5. Except as otherwise provided by law, the chairman of the
meeting shall have the power and duty to determine whether a nomination or any business proposed to
be brought before the meeting was made, or proposed, as the case may be, in accordance with the
procedures set forth in these Bylaws and, if any proposed nomination or business is not in
compliance with these Bylaws, to declare that such defective proposal or nomination shall not be
presented for stockholder action at the meeting and shall be disregarded.
(e)
Notwithstanding the foregoing provisions of this Section 5, in order to include
information with respect to a stockholder proposal in the proxy statement and form of proxy for a
stockholders meeting, a stockholder must also comply with all applicable requirements of the 1934
Act and the rules and regulations thereunder with respect to matters set forth in this Section 5;
provided, however, that any references in these Bylaws to the 1934 Act or
the rules promulgated
thereunder are not intended to and shall not limit the requirements applicable to nominations or
proposals as to any other business to be considered pursuant to this Section 5. Nothing in these
Bylaws shall be deemed to affect any rights of stockholders to request inclusion of proposals in
the corporations proxy statement pursuant to Rule 14a-8 under the 1934 Act.
(f)
For purposes of these Bylaws, public announcement shall mean disclosure in a press
release reported by the Dow Jones News Service, Associated Press or comparable national news
service or in a document publicly filed by the corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the 1934 Act and the rules and regulations
promulgated thereunder.
(g)
To be eligible to be a stockholder-proposed nominee for election or reelection as a
director of the corporation in accordance with Section 5 or 6, a person must deliver (in accordance
with the time periods prescribed for delivery of notice under Sections 5 and 6, as applicable) to
the Secretary at the principal executive offices of the corporation a written questionnaire with
respect to the background and qualification of such person and the background of any other person
or entity on whose behalf the nomination is being made (which questionnaire shall be provided by
the Secretary upon written request) and a written representation and agreement (in the form
provided by the Secretary upon written request) that such person (A) is not and will not become a
party to (1) any agreement, arrangement or understanding with, and has not given any commitment or
assurance to, any person or entity as to how such person, if elected as a director of the
corporation, will act or vote on any issue or question (a Voting Commitment) that has not been
disclosed to the corporation or (2) any Voting Commitment that could limit or interfere with such
persons ability to comply, if elected as a director of the corporation, with such persons
fiduciary duties under applicable law, (B) is not and will not become a party to any agreement,
arrangement or understanding with any person or entity other than the corporation with respect to
any direct or indirect compensation, reimbursement or indemnification in connection with service or
action as a director that has not been disclosed therein, (C) beneficially owns, or agrees to
purchase within 90 days if elected as a director of the corporation, not less than one percent (1%)
of the then outstanding shares of common stock of the corporation (Qualifying Shares), will not
dispose of such minimum number of shares so long as such person is a director, and has disclosed
therein whether all or any portion of the Qualifying Shares were purchased with any financial
assistance provided by any other person and whether any other person has any interest in the
Qualifying Shares, and (D) in such persons individual capacity and on behalf of any person or
entity on whose behalf the nomination is being made, would be in compliance, if elected as a
director of the corporation, and will comply with all applicable publicly disclosed corporate
governance, conflict of interest, confidentiality and stock ownership and trading policies and
guidelines of the corporation.
Section 6. Special Meetings.
(a)
Special meetings of the stockholders of the corporation may be called, for any purpose or
purposes, by (i) the Chairman of the Board of Directors, (ii) the Chief Executive Officer, or
(iii) the Board of Directors pursuant to a resolution adopted by a majority of the total number of
authorized directors (whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board of Directors for adoption).
(b)
The Board of Directors shall determine the time and place of such special meeting. Upon
determination of the time and place of the meeting, the Secretary shall cause a notice of meeting
to be given to the stockholders entitled to vote, in accordance with the provisions of Section 7 of
these Bylaws. No business may be transacted at such special meeting otherwise than specified in the
notice of meeting. Nothing contained in this paragraph (b) shall be construed as limiting, fixing,
or affecting the time when a meeting of stockholders called by action of the Board of Directors may
be held.
(c)
Nominations of persons for election to the Board of Directors may be made at a special
meeting of stockholders at which directors are to be elected pursuant to the corporations notice
of meeting (i) by or at the direction of the Board of Directors or (ii) provided that the Board of
Directors has determined that directors shall be elected at such meeting, by any stockholder of the
corporation who is a stockholder of record at the time of giving notice provided for in this
paragraph who shall be entitled to vote at the meeting and who complies with the notice procedures
set forth in Section 5 of these Bylaws. In the event the corporation calls a special meeting of
stockholders for the purpose of electing one or more directors to the Board of Directors, any such
stockholder may nominate a person or persons (as the case may be), for election to such position(s)
as specified in the corporations notice of meeting, if the stockholders notice and other
materials required by Section 5(b) of these Bylaws (including the completed and signed
questionnaire, representation and agreement required by Section 5(g)) shall be delivered to the
Secretary at the principal executive offices of the corporation not earlier than the close of
business on the one hundred twentieth (120
th
)
day prior to such special
meeting and not later than the close of business on the later of the ninetieth (90
th
)
day prior to such meeting or the tenth (10
th
) day following the day on which public
announcement is first made of the date of the special meeting and of the nominees proposed by the
Board of Directors to be elected at such meeting. In no event shall the public announcement of an
adjournment of a special meeting commence a new time period for the giving of a stockholders
notice as described above.
(d)
Notwithstanding the foregoing provisions of this Section 6, a stockholder must also comply
with all applicable requirements of the 1934 Act and the rules and regulations thereunder with
respect to matters set forth in this Section 6; provided, however, that any references in these
Bylaws to the 1934 Act or the rules promulgated thereunder are not intended to and shall not limit
the requirements applicable to nominations or proposals as to any other business to be considered
pursuant to this Section 6. Nothing in these Bylaws shall be deemed to affect any rights of
stockholders to request inclusion of proposals in the corporations proxy statement pursuant to
Rule 14a-8 under the 1934 Act.
Section 7. Notice Of Meetings.
Except as otherwise provided by law, notice, given in writing
or by electronic transmission, of each meeting of stockholders shall be given not less than ten
(10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to
vote at such meeting, such notice to specify the place, if any, date and hour, in the case of
special meetings, the purpose or purposes of the meeting, and the means of remote communications,
if any, by which stockholders and proxy holders may be deemed to be present in person and vote at
any such meeting. If mailed, notice is given when deposited in the United States mail, postage
prepaid, directed to the stockholder at such stockholders address as it appears on the records of
the corporation. Notice of the time, place, if any, and purpose of any
meeting of stockholders may
be waived in writing, signed by the person entitled to notice thereof, or by electronic
transmission by such person, either before or after such meeting, and will be waived by any
stockholder by his attendance thereat in person, by remote communication, if applicable, or by
proxy, except when the stockholder attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Any stockholder so waiving notice of such meeting shall be bound by the
proceedings of any such meeting in all respects as if due notice thereof had been given.
Section 8. Quorum.
At all meetings of stockholders, except where otherwise provided by
statute or by the Certificate of Incorporation, or by these Bylaws, the presence, in person, by
remote communication, if applicable, or by proxy duly authorized, of the holders of a majority of
the outstanding shares of stock entitled to vote shall constitute a quorum for the transaction of
business. In the absence of a quorum, any meeting of stockholders may be adjourned, from time to
time, either by the chairman of the meeting or by vote of the holders of a majority of the shares
represented thereat, but no other business shall be transacted at such meeting. The stockholders
present at a duly called or convened meeting, at which a quorum is present, may continue to
transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave
less than a quorum. Except as otherwise provided by statute or by applicable stock exchange or
Nasdaq rules, or by the Certificate of Incorporation or these Bylaws, in all matters other than the
election of directors, the affirmative vote of the majority of shares present in person, by remote
communication, if applicable, or represented by proxy at the meeting and entitled to vote generally
on the subject matter shall be the act of the stockholders. Except as otherwise provided by
statute, the Certificate of Incorporation or these Bylaws, directors shall be elected by a
plurality of the votes of the shares present in person, by remote communication, if applicable, or
represented by proxy at the meeting and entitled to vote generally on the election of directors.
Where a separate vote by a class or classes or series is required, except where otherwise provided
by the statute or by the Certificate of Incorporation or these Bylaws, a majority of the
outstanding shares of such class or classes or series, present in person, by remote communication,
if applicable, or represented by proxy duly authorized, shall constitute a quorum entitled to take
action with respect to that vote on that matter. Except where otherwise provided by statute or by
the Certificate of Incorporation or these Bylaws, the affirmative vote of the majority (plurality,
in the case of the election of directors) of shares of such class or classes or series present in
person, by remote communication, if applicable, or represented by proxy at the meeting shall be the
act of such class or classes or series.
Section 9. Adjournment And Notice Of Adjourned Meetings.
Any meeting of stockholders, whether
annual or special, may be adjourned from time to time either by the
chairman of the meeting or by the vote of a majority of the shares present in person, by
remote communication, if applicable, or represented by proxy at the meeting. When a meeting is
adjourned to another time or place, if any, notice need not be given of the adjourned meeting if
the time and place, if any, thereof are announced at the meeting at which the adjournment is taken.
At the adjourned meeting, the corporation may transact any business which might have been
transacted at the original meeting. If the adjournment is for more than thirty (30) days or if
after the adjournment a new record date is fixed for the adjourned meeting, a notice of the
adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.
Section 10. Voting Rights.
For the purpose of determining those stockholders entitled to vote
at any meeting of the stockholders, except as otherwise provided by law, only persons in whose
names shares stand on the stock records of the corporation on the record date, as provided in
Section 12 of these Bylaws, shall be entitled to vote at any meeting of stockholders. Every person
entitled to vote shall have the right to do so either in person, by remote communication, if
applicable, or by an agent or agents authorized by a proxy granted in accordance with Delaware law.
An agent so appointed need not be a stockholder. No proxy shall be voted after three (3) years
from its date of creation unless the proxy provides for a longer period.
Section 11. Joint Owners Of Stock.
If shares or other securities having voting power stand of
record in the names of two (2) or more persons, whether fiduciaries, members of a partnership,
joint tenants, tenants in common, tenants by the entirety, or otherwise, or if two (2) or more
persons have the same fiduciary relationship respecting the same shares, unless the Secretary is
given written notice to the contrary and is furnished with a copy of the instrument or order
appointing them or creating the relationship wherein it is so provided, their acts with respect to
voting shall have the following effect: (a) if only one (1) votes, his act binds all; (b) if more
than one (1) votes, the act of the majority so voting binds all; (c) if more than one (1) votes,
but the vote is evenly split on any particular matter, each faction may vote the securities in
question proportionally, or may apply to the Delaware Court of Chancery for relief as provided in
the DGCL, Section 217(b). If the instrument filed with the Secretary shows that any such tenancy
is held in unequal interests, a majority or even-split for the purpose of subsection (c) shall be a
majority or even-split in interest.
Section 12. List Of Stockholders.
The Secretary shall prepare and make, at least ten (10) days
before every meeting of stockholders, a complete list of the stockholders entitled to vote at said
meeting, arranged in alphabetical order, showing the address of each stockholder and the number of
shares registered in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, (a) on a reasonably accessible electronic
network, provided that the information required to gain access to such list is provided with the
notice of the meeting, or (b) during ordinary business hours, at the principal place of business of
the corporation. In the event that the corporation determines to make the list available on an
electronic network, the corporation may take reasonable steps to ensure that such information is
available only to stockholders of the corporation. The list shall be open to examination of any
stockholder during the time of the meeting as provided by law.
Section 13. Action Without Meeting.
No action shall be taken by the stockholders except at
an annual or special meeting of stockholders called in accordance with
these Bylaws, and no action shall be taken by the stockholders by written consent or by
electronic transmission.
Section 14. Organization.
(a)
At every meeting of stockholders, the Chairman of the Board of Directors, or, if a
Chairman has not been appointed or is absent, the President, or, if the President is absent, a
chairman of the meeting chosen by a majority in interest of the stockholders entitled to vote,
present in person or by proxy, shall act as chairman. The Secretary, or, in his or her absence, an
Assistant Secretary directed to do so by the President, shall act as secretary of the meeting.
(b)
The Board of Directors of the corporation shall be entitled to make such rules or
regulations for the conduct of meetings of stockholders as it shall deem necessary, appropriate or
convenient. Subject to such rules and regulations of the Board of Directors, if any, the chairman
of the meeting shall have the right and authority to prescribe such rules, regulations and
procedures and to do all such acts as, in the judgment of such chairman, are necessary, appropriate
or convenient for the proper conduct of the meeting, including, without limitation, establishing an
agenda or order of business for the meeting, rules and procedures for maintaining order at the
meeting and the safety of those present, limitations on participation in such meeting to
stockholders of record of the corporation and their duly authorized and constituted proxies and
such other persons as the chairman shall permit, restrictions on entry to the meeting after the
time fixed for the commencement thereof, limitations on the time allotted to questions or comments
by participants and regulation of the opening and closing of the polls for balloting on matters
which are to be voted on by ballot. The date and time of the opening and closing of the polls for
each matter upon which the stockholders will vote at the meeting shall be announced at the meeting.
Unless and to the extent determined by the Board of Directors or the chairman of the meeting,
meetings of stockholders shall not be required to be held in accordance with rules of parliamentary
procedure.
ARTICLE IV
DIRECTORS
Section 15. Number And Term Of Office.
The authorized number of directors of the corporation
shall be fixed in accordance with the Certificate of Incorporation. Directors need not be
stockholders unless so required by the Certificate of Incorporation or Section 5(g) of these
Bylaws. If for any cause, the directors shall not have been elected at an annual meeting, they may
be elected as soon thereafter as convenient at a special meeting of the stockholders called for
that purpose in the manner provided in these Bylaws.
Section 16. Powers.
The powers of the corporation shall be exercised, its business conducted
and its property controlled by the Board of Directors, except as may be otherwise provided by
statute or by the Certificate of Incorporation.
Section 17. Classes of Directors.
Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances, the directors shall be
divided into three classes designated as Class I, Class II and Class III, respectively. At
the first annual meeting of stockholders following the initial classification of the Board of
Directors, the term of office of the Class I directors shall expire and Class I directors shall be
elected for a full term of three years. At the second annual meeting of stockholders following
such initial classification, the term of office of the Class II directors shall expire and Class II
directors shall be elected for a full term of three years. At the third annual meeting of
stockholders following such initial classification, the term of office of the Class III directors
shall expire and Class III directors shall be elected for a full term of three years. At each
succeeding annual meeting of stockholders, directors shall be elected for a full term of three
years to succeed the directors of the class whose terms expire at such annual meeting.
Notwithstanding the foregoing provisions of this section, each director shall serve until his
successor is duly elected and qualified or until his earlier death, resignation or removal. No
decrease in the number of directors constituting the Board of Directors shall shorten the term of
any incumbent director.
Section 18. Vacancies.
(a)
Unless otherwise provided in the Certificate of Incorporation, and subject to the rights
of the holders of any series of Preferred Stock, any vacancies on the Board of Directors resulting
from death, resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors shall, unless the Board of
Directors determines by resolution that any such vacancies or newly created directorships shall be
filled by stockholders, be filled only by the affirmative vote of a majority of the directors then
in office, even though less than a quorum of the Board of Directors, or by a sole remaining
director,
provided, however
, that whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions of the Certificate of
Incorporation, vacancies and newly created directorships of such class or classes or series shall,
unless the Board of Directors determines by resolution that any such vacancies or newly created
directorships shall be filled by stockholders, be filled by a majority of the directors elected by
such class or classes or series thereof then in office, or by a sole remaining director so elected.
Any director elected in accordance with the preceding sentence shall hold office for the remainder
of the full term of the director for which the vacancy was created or occurred and until such
directors successor shall have been elected and qualified. A vacancy in the Board of Directors
shall be deemed to exist under this Bylaw in the case of the death, removal or resignation of any
director.
Section 19. Resignation.
Any director may resign at any time by delivering his or her notice
in writing or by electronic transmission to the Secretary, such resignation to specify whether it
will be effective at a particular time, upon receipt by the Secretary or at the pleasure of the
Board of Directors. If no such specification is made, it shall be deemed effective at the pleasure
of the Board of Directors. When one or more directors shall resign from the Board of Directors,
effective at a future date, a majority of the directors then in office, including those who have so
resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when
such resignation or resignations shall become effective, and each Director so chosen shall hold
office for the unexpired portion of the term of the Director whose place shall be vacated and until
his successor shall have been duly elected and qualified.
Section 20. Meetings.
(a) Regular Meetings.
Unless otherwise restricted by the Certificate of Incorporation,
regular meetings of the Board of Directors may be held at any time or date and at any place within
or without the State of Delaware which has been designated by the Board of Directors and publicized
among all directors, either orally or in writing, by telephone, including a voice-messaging system
or other system designed to record and communicate messages, facsimile, telegraph or telex, or by
electronic mail or other electronic means. No further notice shall be required for regular
meetings of the Board of Directors.
(b) Special Meetings.
Unless otherwise restricted by the Certificate of Incorporation,
special meetings of the Board of Directors may be held at any time and place within or without the
State of Delaware whenever called by the Chairman of the Board, the Chief Executive Officer or a
majority of the authorized number of directors.
(c) Meetings by Electronic Communications Equipment.
Any member of the Board of Directors, or
of any committee thereof, may participate in a meeting by means of conference telephone or other
communications equipment by means of which all persons participating in the meeting can hear each
other, and participation in a meeting by such means shall constitute presence in person at such
meeting.
(d) Notice of Special Meetings.
Notice of the time and place of all special meetings of the
Board of Directors shall be orally or in writing, by telephone, including a voice messaging system
or other system or technology designed to record and communicate messages, facsimile, telegraph or
telex, or by electronic mail or other electronic means, during normal business hours, at least
twenty-four (24) hours before the date and time of the meeting. If notice is sent by US mail, it
shall be sent by first class mail, charges prepaid, at least three (3) days before the date of the
meeting. Notice of any meeting may be waived in writing, or by electronic transmission, at any
time before or after the meeting and will be waived by any director by attendance thereat, except
when the director attends the meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully called or convened.
(e) Waiver of Notice.
The transaction of all business at any meeting of the Board of
Directors, or any committee thereof, however called or noticed, or wherever held, shall be as valid
as though had at a meeting duly held after regular call and notice, if a quorum be present and if,
either before or after the meeting, each of the directors not present who did not receive notice
shall sign a written waiver of notice or shall waive notice by electronic transmission. All such
waivers shall be filed with the corporate records or made a part of the minutes of the meeting.
Section 21. Quorum And Voting.
(a)
Unless the Certificate of Incorporation requires a greater number, and except with respect
to questions related to indemnification arising under Section 42 for which a quorum shall be
one-third of the exact number of directors fixed from time to time, a quorum of the Board of
Directors shall consist of a majority of the exact number of directors fixed from
time to time by the Board of Directors in accordance with the Certificate of Incorporation;
provided, however,
at any meeting whether a quorum be present or otherwise, a majority of the
directors present may adjourn from time to time until the time fixed for the next regular meeting
of the Board of Directors, without notice other than by announcement at the meeting.
(b)
At each meeting of the Board of Directors at which a quorum is present, all questions and
business shall be determined by the affirmative vote of a majority of the directors present, unless
a different vote be required by law, the Certificate of Incorporation or these Bylaws.
Section 22. Action Without Meeting.
Unless otherwise restricted by the Certificate of
Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the
Board of Directors or of any committee thereof may be taken without a meeting, if all members of
the Board of Directors or committee, as the case may be, consent thereto in writing or by
electronic transmission, and such writing or writings or transmission or transmissions are filed
with the minutes of proceedings of the Board of Directors or committee. Such filing shall be in
paper form if the minutes are maintained in paper form and shall be in electronic form if the
minutes are maintained in electronic form.
Section 23. Fees And Compensation.
Directors shall be entitled to such compensation for their
services as may be approved by the Board of Directors, including, if so approved, by resolution of
the Board of Directors, a fixed sum and expenses of attendance, if any, for attendance at each
regular or special meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. Nothing herein contained shall be construed to preclude any director from serving
the corporation in any other capacity as an officer, agent, employee, or otherwise and receiving
compensation therefor.
Section 24. Committees.
(a) Executive Committee.
The Board of Directors may appoint an Executive Committee to consist
of one (1) or more members of the Board of Directors. The Executive Committee, to the extent
permitted by law and provided in the resolution of the Board of Directors shall have and may
exercise all the powers and authority of the Board of Directors in the management of the business
and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all
papers which may require it; but no such committee shall have the power or authority in reference
to (i) approving or adopting, or recommending to the stockholders, any action or matter (other than
the election or removal of directors) expressly required by the DGCL to be submitted to
stockholders for approval, or (ii) adopting, amending or repealing any bylaw of the corporation.
(b) Other Committees.
The Board of Directors may, from time to time, appoint such other
committees as may be permitted by law. Such other committees appointed by the Board of Directors
shall consist of one (1) or more members of the Board of Directors and shall have such powers and
perform such duties as may be prescribed by the resolution or resolutions creating such committees,
but in no event shall any such committee have the powers denied to the Executive Committee in these
Bylaws.
(c) Term.
The Board of Directors, subject to any requirements of any outstanding series of
Preferred Stock and the provisions of subsections (a) or (b) of this Section 24, may at any time
increase or decrease the number of members of a committee or terminate the existence of a
committee. The membership of a committee member shall terminate on the date of his death or
voluntary resignation from the committee or from the Board of Directors. The Board of Directors
may at any time for any reason remove any individual committee member and the Board of Directors
may fill any committee vacancy created by death, resignation, removal or increase in the number of
members of the committee. The Board of Directors may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at any meeting of the
committee, and, in addition, in
the absence or disqualification of any member of a committee, the
member or members thereof present at any meeting and not disqualified from voting, whether or not
he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to
act at the meeting in the place of any such absent or disqualified member.
(d) Meetings.
Unless the Board of Directors shall otherwise provide, regular meetings of the
Executive Committee or any other committee appointed pursuant to this Section 24 shall be held at
such times and places as are determined by the Board of Directors, or by any such committee, and
when notice thereof has been given to each member of such committee, no further notice of such
regular meetings need be given thereafter. Special meetings of any such committee may be held at
any place which has been determined from time to time by such committee, and may be called by any
Director
who is a member of such committee, upon notice to the members of such committee
of the time and place of such special meeting given in the manner provided for the giving of notice
to members of the Board of Directors of the time and place of special meetings of the Board of
Directors. Notice of any special meeting of any committee may be waived in writing at any time
before or after the meeting and will be waived by any director by attendance thereat, except when
the director attends such special meeting for the express purpose of objecting, at the beginning of
the meeting, to the transaction of any business because the meeting is not lawfully called or
convened. Unless otherwise provided by the Board of Directors in the resolutions authorizing the
creation of the committee, a majority of the authorized number of members of any such committee
shall constitute a quorum for the transaction of business, and the act of a majority of those
present at any meeting at which a quorum is present shall be the act of such committee.
Section 25. Organization.
At every meeting of the directors, the Chairman of the Board of
Directors, or, if a Chairman has not been appointed or is absent, the Chief Executive Officer (if a
director), or, if a Chief Executive Officer is absent, the President (if a director), or if the
President is absent, the most senior Vice President (if a director), or, in the absence of any such
person, a chairman of the meeting chosen by a majority of the directors present, shall preside over
the meeting. The Secretary, or in his absence, any Assistant Secretary or other officer or
director directed to do so by the President or other person directed to do so by the Board of
Directors, shall act as secretary of the meeting.
ARTICLE V
OFFICERS
Section 26. Officers Designated.
The officers of the corporation shall include, if and when
designated by the Board of Directors, the Chairman of the Board of Directors, the Chief Executive
Officer, the President, one or more Vice Presidents, the Secretary, the Chief Financial Officer and
the Treasurer. The Board of Directors may also appoint one or more Assistant Secretaries and
Assistant Treasurers and such other officers and agents with such powers and duties as it shall
deem necessary. The Board of Directors may assign such additional titles to one or more of the
officers as it shall deem appropriate. Any one person may hold any number of offices of the
corporation at any one time unless specifically prohibited therefrom by law. The salaries and
other compensation of the officers of the corporation shall be fixed by or in the manner designated
by the Board of Directors.
Section 27. Tenure And Duties Of Officers.
(a) General.
All officers shall hold office at the pleasure of the Board of Directors and
until their successors shall have been duly elected and qualified, unless sooner removed. Any
officer elected or appointed by the Board of Directors may be removed at any time by the Board of
Directors. If the office of any officer becomes vacant for any reason, the vacancy may be filled
by the Board of Directors.
(b) Duties of Chairman of the Board of Directors.
The Chairman of the Board of Directors,
when present, shall preside at all meetings of the stockholders and the Board of Directors. The
Chairman of the Board of Directors shall perform other duties commonly incident to the office and
shall also perform such other duties and have such other powers, as the Board of Directors shall
designate from time to time.
(c) Duties of Chief Executive Officer.
The Chief Executive Officer shall preside at all
meetings of the stockholders and at all meetings of the Board of Directors, unless the Chairman of
the Board of Directors has been appointed and is present. Unless another officer has been
appointed Chief Executive Officer of the corporation, the President shall be the chief executive
officer of the corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the corporation. To the
extent that a Chief Executive Officer has been appointed, all references in these Bylaws to the
President shall be deemed references to the Chief Executive Officer.
The Chief Executive
Officer shall perform other duties commonly incident to the office and shall also perform such
other duties and have such other powers, as the Board of Directors shall designate from time to
time.
(d) Duties of President.
The President shall preside at all meetings of the stockholders and
at all meetings of the Board of Directors, unless the Chairman of the Board of Directors or the
Chief Executive Officer has been appointed and is present. Unless another officer has been
appointed Chief Executive Officer of the corporation, the President shall be the chief executive
officer of the corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
corporation.
The President shall perform other duties commonly incident to the
office and shall also perform such other duties and have such other powers, as the Board of
Directors shall designate from time to time.
(e) Duties of Vice Presidents.
The Vice Presidents may assume and perform the duties of the
President in the absence or disability of the President or whenever the office of President is
vacant. The Vice Presidents shall perform other duties commonly incident to their office and shall
also perform such other duties and have such other powers as the Board of Directors or the Chief
Executive Officer, or, if the Chief Executive Officer has not been appointed or is absent, the
President shall designate from time to time.
(f) Duties of Secretary.
The Secretary shall attend all meetings of the stockholders and of
the Board of Directors and shall record all acts and proceedings thereof in the minute book of the
corporation. The Secretary shall give notice in conformity with these Bylaws of all meetings of
the stockholders and of all meetings of the Board of Directors and any
committee thereof requiring
notice. The Secretary shall perform all other duties provided for in these Bylaws and other duties
commonly incident to the office and shall also perform such other duties and have such other
powers, as the Board of Directors shall designate from time to time. The President may direct any
Assistant Secretary or other officer to assume and perform the duties of the Secretary in the
absence or disability of the Secretary, and each Assistant Secretary shall perform other duties
commonly incident to the office and shall also perform such other duties and have such other powers
as the Board of Directors or the President shall designate from time to time.
(g) Duties of Chief Financial Officer.
The Chief Financial Officer shall keep or cause to be
kept the books of account of the corporation in a thorough and proper manner and shall render
statements of the financial affairs of the corporation in such form and as often as required by the
Board of Directors or the President. The Chief Financial Officer, subject to the order of the
Board of Directors, shall have the custody of all funds and securities of the corporation. The
Chief Financial Officer shall perform other duties commonly incident to the office and shall also
perform such other duties and have such other powers as the Board of Directors or the President
shall designate from time to time. The President may direct the Treasurer or any Assistant
Treasurer, or the Controller or any Assistant Controller to assume and perform the duties of the
Chief Financial Officer in the absence or disability of the Chief Financial Officer, and each
Treasurer and Assistant Treasurer and each Controller and Assistant Controller shall perform other
duties commonly incident to the office and shall also perform such other duties and have such other
powers as the Board of Directors or the President shall designate from time to time.
Section 28. Delegation Of Authority.
The Board of Directors may from time to time delegate the
powers or duties of any officer to any other officer or agent, notwithstanding any provision
hereof.
Section 29. Resignations.
Any officer may resign at any time by giving notice in writing or by
electronic transmission to the Board of Directors or to the President or to the Secretary. Any
such resignation shall be effective when received by the person or persons to whom such notice is
given, unless a later time is specified therein, in which event the resignation
shall become effective at such later time. Unless otherwise specified in such notice, the
acceptance of any such resignation shall not be necessary to make it effective. Any resignation
shall be without prejudice to the rights, if any, of the corporation under any contract with the
resigning officer.
Section 30. Removal.
Any officer may be removed from office at any time, either with or
without cause, by the affirmative vote of a majority of the directors in office at the time, or by
the unanimous written consent of the directors in office at the time, or by any committee or by the
Chief Executive Officer or by other superior officers upon whom such power of removal may have been
conferred by the Board of Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE CORPORATION
Section 31. Execution Of Corporate Instruments.
The Board of Directors may, in its discretion,
determine the method and designate the signatory officer or officers, or other person or persons,
to execute on behalf of the corporation any corporate instrument or document, or to sign on behalf
of the corporation the corporate name without limitation, or to enter into contracts on behalf of
the corporation, except where otherwise provided by law or these Bylaws, and such execution or
signature shall be binding upon the corporation.
All checks and drafts drawn on banks or other depositaries on funds to the credit of the
corporation or in special accounts of the corporation shall be signed by such person or persons as
the Board of Directors shall authorize so to do.
Unless authorized or ratified by the Board of Directors or within the agency power of an
officer, no officer, agent or employee shall have any power or authority to bind the corporation by
any contract or engagement or to pledge its credit or to render it liable for any purpose or for
any amount.
Section 32. Voting Of Securities Owned By The Corporation.
All stock and other securities of
other corporations owned or held by the corporation for itself, or for other parties in any
capacity, shall be voted, and all proxies with respect thereto shall be executed, by the person
authorized so to do by resolution of the Board of Directors, or, in the absence of such
authorization, by the Chairman of the Board of Directors, the Chief Executive Officer, the
President, or any Vice President.
ARTICLE VII
SHARES OF STOCK
Section 33. Form And Execution Of Certificates.
The shares of the corporation shall be
represented by certificates, or shall be uncertificated, or a combination thereof. Certificates
for the shares of stock, if any, shall be in such form as is consistent with the Certificate of
Incorporation and applicable law. Every holder of stock represented by certificate in the
corporation shall be entitled to have a certificate signed by or in the name of the
corporation by the Chairman of the Board of Directors, or the President or any Vice President
and by the Treasurer or Assistant Treasurer or the Secretary or Assistant Secretary, certifying the
number of shares owned by him in the corporation. Any or all of the signatures on the certificate
may be facsimiles. In case any officer, transfer agent, or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be such officer,
transfer agent, or registrar before such certificate is issued, it may be issued with the same
effect as if he were such officer, transfer agent, or registrar at the date of issue. Each
certificate shall state upon the face or back thereof, in full or in summary, all of the powers,
designations, preferences, and rights, and the limitations or restrictions of the shares authorized
to be issued or shall, except as otherwise required by law, set forth on the face or back a
statement that the
corporation will furnish without charge to each stockholder who so requests the
powers, designations, preferences and relative, participating, optional, or other special rights of
each class of stock or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights. Within a reasonable time after the issuance or transfer of
uncertificated stock, the corporation shall send to the registered owner thereof a written notice
containing the information required to be set forth or stated on certificates pursuant to this
section or otherwise required by law or with respect to this section a statement that the
corporation will furnish without charge to each stockholder who so requests the powers,
designations, preferences and relative participating, optional or other special rights of each
class of stock or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
Section 34. Lost Certificates.
A new certificate or certificates shall be issued in place of
any certificate or certificates theretofore issued by the corporation alleged to have been lost,
stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the
certificate of stock to be lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of such lost, stolen, or
destroyed certificate or certificates, or the owners legal representative, to agree to indemnify
the corporation in such manner as it shall require or to give the corporation a surety bond in such
form and amount as it may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost, stolen, or destroyed.
Section 35. Transfers.
(a)
Transfers of record of shares of stock of the corporation shall be made only upon its
books by the holders thereof, in person or by attorney duly authorized, and, in the case of stock
represented by certificate, upon the surrender of a properly endorsed certificate or certificates
for a like number of shares.
(b)
The corporation shall have power to enter into and perform any agreement with any number
of stockholders of any one or more classes of stock of the corporation to restrict the transfer of
shares of stock of the corporation of any one or more classes owned by such stockholders in any
manner not prohibited by the DGCL.
Section 36. Fixing Record Dates.
(a)
In order that the corporation may determine the stockholders entitled to notice of or to
vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix, in
advance, a record date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which record date shall, subject
to applicable law, not be more than sixty (60) nor less than ten (10) days before the date of such
meeting. If no record date is fixed by the Board of Directors, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or if notice is waived, at the
close of business on the day next preceding the day on which the meeting is held. A determination
of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply
to any adjournment of the meeting;
provided, however,
that the Board of Directors may fix a new
record date for the adjourned meeting.
(b)
In order that the corporation may determine the stockholders entitled to receive payment
of any dividend or other distribution or allotment of any rights or the stockholders entitled to
exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose
of any other lawful action, the Board of Directors may fix, in advance, a record date, which record
date shall not precede the date upon which the resolution fixing the record date is adopted, and
which record date shall be not more than sixty (60) days prior to such action. If no record date
is fixed, the record date for determining stockholders for any such purpose shall be at the close
of business on the day on which the Board of Directors adopts the resolution relating thereto.
Section 37. Registered Stockholders.
The corporation shall be entitled to recognize the
exclusive right of a person registered on its books as the owner of shares to receive dividends,
and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
Section 38. Execution Of Other Securities.
All bonds, debentures and other corporate
securities of the corporation, other than stock certificates (covered in Section 33), may be signed
by the Chairman of the Board of Directors, the President or any Vice President, or such other
person as may be authorized by the Board of Directors, and the corporate seal impressed thereon or
a facsimile of such seal imprinted thereon and attested by the signature of the Secretary or an
Assistant Secretary, or the Chief Financial Officer or Treasurer or an Assistant Treasurer;
provided, however,
that where any such bond, debenture or other corporate security shall be
authenticated by the manual signature, or where permissible facsimile signature, of a trustee under
an indenture pursuant to which such bond, debenture or other corporate security shall be issued,
the signatures of the persons signing and attesting the corporate seal on such bond, debenture or
other corporate security may be the imprinted facsimile of the signatures of such persons.
Interest coupons appertaining to any such bond, debenture or other corporate
security, authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an
Assistant Treasurer of the corporation or such other person as may be authorized by the Board of
Directors, or bear imprinted thereon the facsimile signature of such person. In case any officer
who shall have signed or attested any bond, debenture or other corporate security, or whose
facsimile signature shall appear thereon or on any such interest coupon, shall have ceased to be
such officer before the bond, debenture or other corporate security so signed or attested shall
have been delivered, such bond, debenture or other corporate security nevertheless may be adopted
by the corporation and issued and delivered as though the person who signed the same or whose
facsimile signature shall have been used thereon had not ceased to be such officer of the
corporation.
ARTICLE IX
DIVIDENDS
Section 39. Declaration Of Dividends.
Dividends upon the capital stock of the corporation,
subject to the provisions of the Certificate of Incorporation and applicable law, if any, may be
declared by the Board of Directors pursuant to law at any regular or special meeting. Dividends
may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of
the Certificate of Incorporation and applicable law.
Section 40. Dividend Reserve.
Before payment of any dividend, there may be set aside out of
any funds of the corporation available for dividends such sum or sums as the Board of Directors
from time to time, in their absolute discretion, think proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think conducive to the
interests of the corporation, and the Board of Directors may modify or abolish any such reserve in
the manner in which it was created.
ARTICLE X
FISCAL YEAR
Section 41. Fiscal Year.
The fiscal year of the corporation shall be fixed by resolution of
the Board of Directors.
ARTICLE XI
INDEMNIFICATION
Section 42. Indemnification Of Directors, Officers, Employees And Other Agents.
(a) Directors and Officers.
The corporation shall indemnify its current and former
directors and officers to the fullest extent not prohibited by the DGCL or any other applicable
law;
provided, however,
that the corporation may modify the extent of such indemnification by
individual contracts with its directors and officers; and,
provided, further,
that the corporation
shall not be required to indemnify any director or officer in connection with
any proceeding (or part thereof) initiated by such person unless (i) such indemnification is
expressly required to be made by law, (ii) the proceeding was authorized by the Board of Directors
of the corporation, (iii) such indemnification is provided by the corporation, in its sole
discretion, pursuant to the powers vested in the corporation under the DGCL or any other applicable
law or (iv) such indemnification is required to be made under subsection (d). Except as provided
in paragraph (f) of this Section 42, the corporation shall not be obligated to indemnify any
director or officer in connection with any proceeding brought by or on behalf of the corporation
against such director or officer that is authorized by the corporations Board of Directors.
(b) Employees and Other Agents.
The corporation shall have power to indemnify its employees
and other agents as set forth in the DGCL or any other applicable law. The Board of Directors
shall have the power to delegate the determination of whether indemnification shall be given to any
such person to such officers or other persons as the Board of Directors shall determine.
(c) Expenses.
The corporation shall advance to any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a
director or officer of the corporation, or is or was serving at the request of the corporation as a
director or officer of another corporation, partnership, joint venture, trust or other enterprise,
prior to the final disposition of the proceeding, promptly following request therefor, all expenses
actually and reasonably incurred by any director or officer in connection with such proceeding;
provided, however, that if the DGCL requires, an advancement of expenses incurred by a director or
officer in his or her capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such indemnitee, including, without limitation, service to an
employee benefit plan) shall be made only upon delivery to the corporation of an undertaking
(hereinafter an undertaking), by or on behalf of such indemnitee, to repay all amounts so
advanced if it shall ultimately be determined by final judicial decision from which there is no
further right to appeal (hereinafter a final adjudication) that such indemnitee is not entitled
to be indemnified for such expenses under this Section 42 or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to paragraph (e) of this
Section 42, no advance shall be made by the corporation to an officer of the corporation (except by
reason of the fact that such officer is or was a director of the corporation in which event this
paragraph shall not apply) in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, if a determination is reasonably and promptly made (i) by a
majority vote of directors who were not parties to the proceeding, even if not a quorum, or (ii) by
a committee of such directors designated by a majority vote of such directors, even though less
than a quorum, or (iii) if there are no such directors, or such directors so direct, by independent
legal counsel in a written opinion, that the facts known to the decision-making party at the time
such determination is made demonstrate that such person acted in bad faith or in a manner that such
person did not believe to be in or not opposed to the best interests of the corporation, or with
respect to any criminal action or proceeding, that such person had reasonable cause to believe that
his conduct was unlawful.
(d) Enforcement.
Without the necessity of entering into an express contract, all rights to
indemnification and advances to directors and officers under this Bylaw shall be deemed to be
vested contractual rights and be effective to the same extent and as if provided for in a contract
between the corporation and the director or officer. Such rights shall be deemed to have vested as
of the effective date of this Bylaw. Any right to indemnification or advances granted by this
Section 42 to a director or officer shall be enforceable by or on behalf of the person holding such
right in any court of competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within ninety (90) days
of request therefor. The claimant in such enforcement action, if successful in whole or in part,
shall be entitled to be paid also the expense of prosecuting the claim. In connection with any
claim for indemnification, the corporation shall be entitled to raise as a defense to any such
action that the claimant has not met the standards of conduct that make it permissible under the
DGCL or any other applicable law for the corporation to indemnify the
claimant for the amount
claimed. In connection with any claim by an officer of the corporation (except in any action, suit
or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that
such officer is or was a director of the corporation) for advances, the corporation shall be
entitled to raise a defense as to any such action evidence that such person acted in bad faith or
in a manner that such person did not believe to be in or not opposed to the best interests of the
corporation, or with respect to any criminal action or proceeding that such person acted without
reasonable cause to believe that his conduct was lawful. Neither the failure of the corporation
(including its Board of Directors, independent legal counsel or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of, or advancement to,
the claimant is proper in the circumstances because he has met the applicable standard of conduct
set forth in the DGCL or any other applicable law, nor an actual determination by the corporation
(including its Board of Directors, independent legal counsel or its stockholders) that the claimant
has not met such applicable standard of conduct, shall be a defense to the action or create a
presumption that claimant has not met the applicable standard of conduct. In any suit brought by a
director or officer to enforce a right to indemnification or to an advancement of expenses
hereunder, the burden of proving that the director or officer is not entitled to be indemnified, or
to such advancement of expenses, under this Section 42 or otherwise shall be on the corporation.
(e) Non-Exclusivity of Rights.
The rights conferred on any person by this Bylaw shall not be
exclusive of any other right which such person may have or hereafter acquire under any applicable
statute, provision of the Certificate of Incorporation, Bylaws, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity and as to action
in another capacity while holding office. The corporation is specifically authorized to enter into
individual contracts with any or all of its directors, officers, employees or agents respecting
indemnification and advances, to the fullest extent not prohibited by the DGCL, or by any other
applicable law.
(f) Indemnification for Expenses of Successful Party.
Notwithstanding the limitations of any
other provisions of the Bylaws, to the extent that a director or officer is successful on the
merits or otherwise in defense of any proceeding, or in defense of any claim, issue or matter
therein, including, without limitation, the dismissal of any action without prejudice, or if it is
ultimately determined that the director or officer is otherwise entitled to be indemnified against
expenses, the director and/or officer shall be indemnified against all
expenses actually and reasonably incurred in connection therewith. If the director or officer
is partially successful on the merits or otherwise in defense of any proceeding, such
indemnification shall be apportioned appropriately to reflect the degree of success.
(g) Survival of Rights.
The rights conferred on any person by this Bylaw shall continue as to
a person who has ceased to be a director, officer, employee or other agent
and shall inure
to the benefit of the heirs, executors and administrators of such a person.
(h) Insurance.
To the fullest extent permitted by the DGCL or any other applicable law, the
corporation, upon approval by the Board of Directors, may purchase insurance on behalf of any
person required or permitted to be indemnified pursuant to this Section 42.
(i) Amendments.
Any repeal or modification of this Section 42 shall only be prospective and
shall not affect the rights under this Bylaw in effect at the time of the alleged occurrence of any
action or omission to act that is the cause of any proceeding against any agent of the corporation.
(j) Saving Clause.
If this Bylaw or any portion hereof shall be invalidated on any ground by
any court of competent jurisdiction, then the corporation shall nevertheless indemnify each
director and officer to the full extent not prohibited by any applicable portion of this Section 42
that shall not have been invalidated, or by any other applicable law. If this Section 42 shall be
invalid due to the application of the indemnification provisions of another jurisdiction, then the
corporation shall indemnify each director and officer to the full extent under any other applicable
law.
(k) Certain Definitions.
For the purposes of this Bylaw, the following definitions shall
apply:
(1) The term proceeding shall be broadly construed and shall include, without limitation,
the investigation, preparation, prosecution, defense, settlement, arbitration and appeal of, and
the giving of testimony in, any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative.
(2) The term expenses shall be broadly construed and shall include, without limitation,
court costs, attorneys fees, witness fees, fines, amounts paid in settlement or judgment and any
other costs and expenses of any nature or kind incurred in connection with any proceeding.
(3) The term the corporation shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or was serving at the
request of such constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall stand in the same
position under the provisions of this Section 42 with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its separate existence
had continued.
(4) References to a director, officer, employee, or agent of the corporation shall
include, without limitation, situations where such person is serving at the request of the
corporation as, respectively, a director, officer, employee, trustee or agent of another
corporation, partnership, joint venture, trust or other enterprise.
(5) References to other enterprises shall include employee benefit plans; references to
fines shall include any excise taxes assessed on a person with respect to an employee benefit
plan; and references to serving at the request of the corporation shall include any service as a
director, officer, employee or agent of the corporation which imposes duties on, or involves
services by, such director, officer, employee, or agent with respect to an employee
benefit plan,
its participants, or beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries of an employee
benefit plan shall be deemed to have acted in a manner not opposed to the best interests of the
corporation as referred to in this Section 42.
ARTICLE XII
NOTICES
Section 43. Notices.
(a) Notice To Stockholders.
Written notice to stockholders of stockholder meetings shall be
given as provided in Section 7 herein. Without limiting the manner by which notice may otherwise
be given effectively to stockholders under any agreement or contract with such stockholder, and
except as otherwise required by law, written notice to stockholders for purposes other than
stockholder meetings may be sent by US mail or nationally recognized overnight courier, or by
facsimile, telegraph or telex or by electronic mail or other electronic means.
(b) Notice To Directors.
Any notice required to be given to any director may be given by the
method stated in subsection (a), as otherwise provided in these Bylaws, or by overnight delivery
service, facsimile, telex or telegram, except that such notice other than one which is delivered
personally shall be sent to such address as such director shall have filed in writing with the
Secretary, or, in the absence of such filing, to the last known post office address of such
director.
(c) Affidavit Of Mailing.
An affidavit of mailing, executed by a duly authorized and
competent employee of the corporation or its transfer agent appointed with respect to the class of
stock affected, or other agent, specifying the name and address or the names and addresses of the
stockholder or stockholders, or director or directors, to whom any such notice or notices was or
were given, and the time and method of giving the same, shall in the absence of fraud, be prima
facie evidence of the facts therein contained.
(d) Methods of Notice.
It shall not be necessary that the same method of giving notice be
employed in respect of all recipients of notice, but one permissible method may
be employed in respect of any one or more, and any other permissible method or methods may be
employed in respect of any other or others.
(e) Notice To Person With Whom Communication Is Unlawful.
Whenever notice is required to be
given, under any provision of law or of the Certificate of Incorporation or Bylaws of the
corporation, to any person with whom communication is unlawful, the giving of such notice to such
person shall not be required and there shall be no duty to apply to any governmental authority or
agency for a license or permit to give such notice to such person. Any action or meeting which
shall be taken or held without notice to any such person with whom communication is unlawful shall
have the same force and effect as if such notice had been duly given. In the event that the action
taken by the corporation is such as to require the filing of a certificate under any provision of
the DGCL, the certificate shall state, if such is the fact and if notice is required, that notice
was given to all persons entitled to receive notice except such persons with whom communication is
unlawful.
(f) Notice to Stockholders Sharing an Address.
Except as otherwise prohibited under DGCL, any
notice given under the provisions of DGCL, the Certificate of Incorporation or the Bylaws shall be
effective if given by a single written notice to stockholders who share an address if consented to
by the stockholders at that address to whom such notice is given. Such consent shall have been
deemed to have been given if such stockholder fails to object in writing to the corporation within
60 days of having been given notice by the corporation of its intention to send the single notice.
Any consent shall be revocable by the stockholder by written notice to the corporation.
ARTICLE XIII
AMENDMENTS
Section 44.
Subject to the limitations set forth in Section 42(i) of these Bylaws or the
provisions of the Certificate of Incorporation, the Board of Directors is expressly empowered to
adopt, amend or repeal the Bylaws of the corporation. Any adoption, amendment or repeal of the
Bylaws of the corporation by the Board of Directors shall require the approval of a majority of the
authorized number of directors. The stockholders also shall have power to adopt, amend or repeal
the Bylaws of the corporation; provided, however, that, in addition to any vote of the holders of
any class or series of stock of the corporation required by law or by the Certificate of
Incorporation, such action by stockholders shall require the affirmative vote of the holders of at
least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then-outstanding
shares of the capital stock of the corporation entitled to vote generally in the election of
directors, voting together as a single class.
ARTICLE XIV
LOANS TO OFFICERS
Section 45. Loans To Officers.
Except as otherwise prohibited by applicable law, the
corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or
other employee of the corporation or of its subsidiaries, including any officer or
employee who is a Director of the corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably be expected to benefit
the corporation. The loan, guarantee or other assistance may be with or without interest and may
be unsecured, or secured in such manner as the Board of Directors shall approve, including, without
limitation, a pledge of shares of stock of the corporation. Nothing in these Bylaws shall be
deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common
law or under any statute.
Exhibit 14.1
CODE OF ETHICS
AND
BUSINESS CONDUCT
To Our Employees, Officers and Directors:
Ethical business practices provide a critical foundation for our success and protect our reputation
in the industry and community. Integrity in the manner in which we manage and operate
Cardiovascular Systems, Inc. (CSI or the Company) is a key element in our corporate culture.
We place a high value on honesty, fair dealing and ethical business practice.
The following Code of Ethics and Business Conduct is designed to help you understand what CSI
expects of its employees, officers and directors. It does not cover every ethical issue, but the
basics are here to help your general understanding. For employees, compliance with the Code is a
condition of employment. This Code supplements and does not replace or modify the Companys other
policies or procedures, including provisions of CSIs current employee handbook(s) and other
statements of policy or procedure issued from time to time.
Ethical behavior is everyones responsibility. You must show that responsibility by
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Knowing and complying with the requirements and expectations that apply to your job,
which includes following this Code of Ethics and Business Conduct.
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Promptly reporting suspected violations of law or the Code.
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Cooperating with any investigation of a potential ethics or business conduct
violation.
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Seeking assistance when you have questions about CSIs code of ethics and business
conduct or when faced with a challenging ethical situation.
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Never acting unethically, even if directed by another person to do so.
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Never retaliate against an individual because that individual has reported a
suspected violation of the Code.
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If a potential course of action seems questionable, please seek guidance from your supervisor or
our Compliance Officer (currently Robert J. Thatcher, Executive Vice President). We encourage open
communications regarding the possible violation of CSIs ethical principles and business practices.
TABLE OF CONTENTS
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Compliance with Laws and CSI Code of Conduct
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Accuracy of Company Records
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Securities Trading Policies
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Contact with Government Officials
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Conflicts of Interest
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Political Contributions and Related Policies
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Business Courtesies and Gratuities
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Company Opportunities
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Intellectual Property and Confidential Information
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Protection and Proper Use of Company Assets
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Fair Dealing with Competitors, Customers and Suppliers
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Personal Behavior in the Workplace
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Public Disclosure of Code and Waivers
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Accountability for Adherence to the Code
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Reporting Any Suspected Illegal or Unethical Behavior
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Coordination with Other CSI Policies
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Monitoring
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Certificate of Compliance
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Compliance with Laws and CSI Code of Conduct
All CSI officers, employees and directors are expected and directed to comply with all laws
and CSIs Code of Ethics and Business Conduct.
Each employee, officer and director has an obligation to behave according to ethical standards that
comply with CSIs policy, and the letter and spirit of applicable laws, rules and regulations. It
is everyones responsibility to know and understand legal and policy requirements as they apply to
his or her Company responsibilities.
Employees, officers and directors should promptly report all known or suspected violations of
applicable law or CSIs ethical principles
to his or her supervisor or Robert J. Thatcher, our
Compliance Officer. Or, as an alternative, he or she may contact Brent G. Blackey, our Chairman of
the Audit Committee, by email at brent.blackey@holidaycompanies.com, or by phone at 952.832.8635,
to report suspected violations or incidents that he or she believes do not meet CSI standards.
Accuracy of Company Records
Each officer and employee must help maintain the integrity of CSIs financial and other
records.
Management, directors, audit committee members, shareholders, creditors, governmental entities and
others depend on CSIs business records for reliable and accurate information. CSIs books,
records, accounts and financial statements must appropriately and accurately reflect CSIs
transactions and conform to applicable legal requirements and CSIs system of internal controls.
If and when CSI becomes obligated to file reports with the Securities and Exchange Commission
(SEC), CSI is committed to full, fair, accurate, timely and understandable disclosure in all
reports filed with the SEC and in other public communications, and each person subject to this Code
is required to provide truthful, complete and timely information in support of this commitment.
There is no excuse for participating in the creation of or not reporting a deliberately false or
misleading CSI record. In addition, an employee, officer or director must not destroy, alter,
falsify or cover up documents with the intent to impede or obstruct any investigation of suspected
wrongdoing.
Directors, officers and employees must not participate in any misstatement of CSIs accounts, and
they must avoid improper influence on the conduct of an audit. No circumstances justify the
maintenance of off-the-books
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accounts. All arrangements or requisition contracts under which funds are disbursed shall
accurately state the purposes for which these funds are paid and shall not be misleading.
Business records and communications often become public and you are expected to avoid exaggeration,
derogatory remarks, guesswork or inappropriate characterizations of individuals or companies that
could be misunderstood. This obligation applies in any communication, including, but not limited
to e-mail, internal memoranda and formal reports. Records are expected to be retained or destroyed
according to CSIs record retention policies. In the event of litigation or governmental
investigation you are expected to consult CSIs legal counsel concerning the records you hold.
Securities Trading Policies
Never trade securities on the basis of confidential information acquired in the course of
your CSI duties or while you are at the workplace.
If the Company becomes a publicly traded company, there will be times when employees, officers or
directors will possess information about the Company, its subsidiaries or affiliates or about a
company with which CSI does business that is not known to the investing public. Such insider
information may relate to, among other things, strategies, plans of CSI, new products or processes,
mergers, acquisitions or dispositions of businesses or securities, problems facing the Company,
sales, profitability, negotiations relating to significant contracts or business relationships,
significant litigation or financial information.
If any information is of the type that a reasonable investor would consider important in reaching
an investment decision, the Company employee, officer or director who possesses such information
must not buy or sell Company securities, nor provide the information to others, until such
information becomes public. Use of material, non-public information in the above manner is not
only illegal, but also unethical. Employees who directly or indirectly involve themselves in
illegal insider trading will be subject to immediate termination by the Company, and an individual
convicted of insider trading may face criminal penalties of up to ten years in prison and/or a
$1,000,000 fine.
In connection with any public offering of its securities, the Company will adopt an insider trading
policy and distribute it to all Company personnel. All employees, officers and directors will be
obligated to read, become familiar with and comply with the Companys insider trading policy.
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An employee, officer or director who is unsure how the law applies in a given instance, should seek
guidance before he or she trades. All questions should be referred to our Compliance Officer.
Contact with Government Officials
CSI complies with all applicable laws, rules and regulations relating to lobbying or
attempting to influence government officials.
Bribery, kickbacks or other improper or illegal payments have no place in CSIs business. In
addition, information provided to governments must be accurate and interactions with government
officials must be honest and ethical. All activities that might constitute lobbying or attempts to
influence government officials must first be reviewed with and approved by legal counsel.
Before doing business with foreign, national, state or local government, an employee or officer
must know the applicable rules. An employee who is in doubt, must not make the mistake of
interpreting the rules by him or herself. Such an employee must discuss the matter with his or her
supervisor or other management of the Company.
Conflicts of Interest
Each employee, officer and director must avoid any situation in which his or her personal
interests conflict with or interfere with CSIs interests.
Each employee and officer owes CSI a duty of loyalty. Employees and officers must make business
decisions solely in the best interests of CSI. Conflicts may arise when an employee or officer
receives improper personal benefits as a result of the persons position with the Company or gains
personal enrichment through access to confidential information. A conflict situation can also
arise when an employee or officer takes actions or has interests that may make it difficult to
perform his or her CSI work objectively and effectively. For that reason, all employees and
officers must exercise great care not to allow their personal interests to potentially conflict
with CSIs interests. Each employee, officer and director shall act with honesty and integrity,
avoiding actual or apparent conflicts of interest between personal and professional relationships.
CSI employees are generally free to engage in outside activities of their choice. It is important,
however, that such activities do not adversely affect CSIs business, involve misuse of CSI
position or resources, divert for
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personal gain any business opportunity from which CSI may profit, or constitute a potential source
of discredit to the CSI name. The following is a non-exhaustive list of examples of prohibited
conflicts of interest for employees and officers of CSI:
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Consulting with or employment in any capacity with a competitor, supplier or
customer of CSI.
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Having a substantial equity, debt, or other financial interest in any competitor,
supplier or customer.
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Having a financial interest in any transaction involving the purchase or sale by CSI
of any product, material, equipment, services or property.
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Misusing CSIs confidential or proprietary information, including the unauthorized
disclosure or use of such information.
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Using materials, equipment or other assets of CSI for any unauthorized or
undisclosed purpose.
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Receiving loans or guarantees of obligations from the Company without Board of
Director authorization.
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Directors also owe CSI a duty of loyalty. The duty of loyalty mandates that the best interests of
the Company and its shareholders takes precedence over any interest possessed by a director not
shared by the shareholders generally. In the event that a conflict (or the appearance of a
conflict) arises or is anticipated, directors must bring the matter to the attention of the
Chairman of the Audit Committee, or if there is no Audit Committee, to the Chairman of the Board.
Political Contributions and Related Policies
Generally CSIs funds or resources may not be used to make a political contribution to any
political candidate or political party.
Exceptions to this basic policy are allowed only where such contributions are permitted by law and
permission is granted in advance by the Companys Chief Executive Officer, Compliance Officer or
Board of Directors. Company policy does not permit the use of any Company facilities or resources
by employees for political campaigning, political fundraising or partisan political purposes. A
decision by an employee to contribute any personal time,
money or other resources to a political campaign or political activity must be totally voluntary.
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Business Courtesies and Gratuities
CSIs policy is not to offer or accept kickbacks or bribes, or gifts of substantial value.
CSI employees, officers and directors may only exchange non-monetary and modestly-valued gifts that
promote goodwill with our business partners and do not improperly influence others. We will accept
only approved and widely available discounts and do not encourage, accept or exchange gratuities or
payments for providing services to others.
Business courtesies such as meals, transportation and entertainment provided to a vendor, supplier,
customer or other business associations must be modest in amount and related to a legitimate
business purpose (e.g., explanation or demonstration of CSI products, application of products,
service capabilities, or training). Such courtesies must not violate the law, regulations, or
reasonable customs of the market-place. If you have any question about whether any business
courtesies, gratuities or gifts are appropriate, please contact your supervisor or other CSI
management.
Company Opportunities
Do not use a Company opportunity for personal gain.
Employees, officers and directors owe a duty to the Company to advance its legitimate interests
when the opportunity to do so arises. Employees, officers and directors are prohibited (without
the specific consent of the Board of Directors or an appropriate committee thereof) from (1) taking
for themselves personally opportunities that are discovered through the use of company property,
information or their position, (2) using company property, information or their position for
personal gain, or (3) competing with the Company directly or indirectly.
Intellectual Property and Confidential Information
CSI invests substantial resources in developing proprietary intellectual property and
confidential information.
Confidential information is information that is not generally known or readily available to others.
It includes non-public information that might be of value to competitors if it were disclosed. It
must not be shared with others outside CSI except pursuant to approved business relationships or
when
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required by law. Confidential information includes, but is not limited to, intellectual property
and trade secrets, business plans and information, marketing and sales programs and information,
customer and prospective customer information and lists, pricing information and policies,
financial information, and any other information which the Company deems confidential.
Every CSI employee, officer and director is obligated to protect the Companys confidential
information as well as that of its customers, suppliers and third parties who disclose information
to CSI in confidence. CSI employees, officers and directors must not accept confidential
information from a third party, including competitors, unless specifically authorized to do so by
an authorized supervisor or officer of the Company and following an appropriate grant of rights
from such third party.
Protection and Proper Use of Company Assets
Our shareholders trust us to manage Company assets appropriately
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Collectively, employees, officers and directors have a responsibility for safeguarding and making
proper and efficient use of the Companys assets. Each of us has an obligation to prevent the
Companys property from loss, damage, misuse, theft, embezzlement or destruction. We seek to
ensure that the Company equipment, supplies and other assets are used for legitimate business
purposes unless otherwise specifically authorized, and to protect all tangible and intangible
Company property.
Fair Dealing with Competitors, Customers and Suppliers
Respect the rights of competitors, customers and suppliers.
CSIs success depends on building productive relationships with our customers and suppliers based
on integrity, ethical behavior and mutual trust. In addition, customers have individual needs and
expectations representing unique opportunities for mutual success.
The Company bases its supplier relationships on fundamental concepts of integrity, fairness, and
mutual respect.
CSI strives to outperform its competition fairly and honestly. CSI seeks and develops competitive
advantages through superior performance, not through unethical or illegal business practice. Each
Company employee, officer and director should endeavor to deal fairly with the Companys customers,
suppliers and competitors. No one should take unfair advantage through
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manipulation, concealment, abuse of privileged information, misrepresentation of material facts or
any other intentional unfair dealing.
Personal Behavior in the Workplace
CSI is committed to providing equal opportunity in employment and will not tolerate illegal
discrimination or harassment.
CSI strives to enhance and support the diversity of its employee group. All are expected to deal
with each other in an atmosphere of trust and respect in a manner consistent with CSIs core
values. Please refer to applicable portions of our Employee Handbook for guidance related to
personal behavior in the workplace.
Public Disclosure of Code and Waivers
The existence and content of this Code of Ethics and Business Conduct will be disclosed to
shareholders and will be made available in the Companys filings with the SEC or on the Companys
website. It is expected that waivers of this Code rarely, if ever, would be acceptable. Any
waiver a provision of Code for executive officers or directors may granted only by the Board of
Directors, with only the independent members voting, or an appropriate Board Committee consisting
of independent directors, and such waiver must be promptly disclosed to shareholders.
Accountability for Adherence to the Code
Each employee, officer and director must accept responsibility for adherence to this Code.
Violations of this Code may lead to serious sanctions including, for an employee, discipline up to
and including immediate termination, in the sole discretion of the Company. The Company may, in
addition, seek civil recourse against an employee, officer or director and/or refer alleged
criminal misconduct to law enforcement agencies.
Reporting Any Suspected Illegal or Unethical Behavior
CSI maintains an open door policy and an anonymous telephone hotline for employees to raise
concerns and to encourage the reporting of suspected violations of law or the Code of Ethics and
Business Conduct without fear of retribution or retaliation.
If you have questions about an ethical situation, you are encouraged to talk with your supervisor
or with our Compliance Officer about any behavior you believe may be illegal or unethical. You
will be assured confidentiality, to the limit of the law. If you do not feel it is appropriate to
discuss the issue
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with these persons, CSI has established a hotline so that you can report concerns or potential
violations anonymously (see below). Anonymous callers should supply detailed information to
address the concern.
It is against the Companys policy to retaliate against any employee, officer or director for good
faith reporting of violation of this Code. If you feel you have been retaliated against for
raising your good faith reporting, you should immediately contact your supervisor, our Compliance
Officer or the Compliance Hotline.
COMPLIANCE HOTLINE
If you believe someone may be unintentionally or intentionally violating the law or the principles
or standards included in the Code of Conduct document, report the known or suspected violations by
contacting:
David L. Martin
Chief Executive Officer
651.259.1605
dmartin@csi360.com
Robert J. Thatcher
Executive Vice President
651.259.1630
rthatcher@csi360.com
If you would like to anonymously notify the board of directors of a suspected violation, contact
the Chairman of the Audit Committee or the Companys legal counsel in the following manner:
Brent G. Blackey
Chairman of the Audit Committee
952.832.8635
brent.blackey@holidaycompanies.com
Robert K. Ranum
Legal Counsel
Fredrikson & Byron, P.A.
612.492.7067
rranum@fredlaw.com
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Each report of a known or suspected violation will be promptly and thoroughly investigated. If a
violation has occurred, CSI will take appropriate actions to prevent similar violations.
Coordination with Other CSI Policies
The provisions of this Code of Conduct are in addition to, and do not modify, replace or supersede
CSIs other policies or procedures including, but not limited to, those policies and procedures set
forth in any employee handbook, or CSIs other statements of policy or procedure, whether written
or oral.
Additionally, this Code of Conduct is not intended to be and does not constitute a contract of
employment between CSI and its employees. If you are an employee and do not have an Employment
Agreement with CSI, you are an employee at-will. This means that you have the option of resigning
from your employment at any time, for any reason or no reason, with or without prior notice.
Conversely, CSI has same option to terminate your employment at any time, for any reason or no
reason, with or without prior notice.
Monitoring
CSI will periodically reaffirm its commitment to compliance with the Code of Ethics and
Business Conduct.
CSI intends to conduct periodic training sessions regarding the Code. In addition, CSI will
periodically distribute copies of the Code and the Certification of Compliance card to each
employee, officer and director to remind such persons of the contents of the Code as well as to
reestablish their commitment to compliance with it.
Please make sure you return your
Certificate of Compliance
9
CERTIFICATE OF COMPLIANCE
This Certificate must be read and signed by all employees, officers and directors.
I certify that I have received, read and understood CSIs Code of Ethics and Business Conduct.
I understand what types of conduct violate these policies. I agree to comply with the terms of
the Code and understand that if I am an employee, violation of these terms may result in discipline
up to and including immediate termination of employment in the discretion of CSI.
|
|
|
|
|
|
Employee, Officer or Director Signature
|
|
|
Return to:
Cardiovascular Systems, Inc.
651 Campus Drive
St. Paul, MN 55112
Attn: Compliance Officer
Telephone: 651.259.1630
10
Exhibit
99.2
Cardiovascular
Systems, Inc.
Consolidated
Financial Statements
Three months
ended September 30, 2008 and twelve months ended June 30, 2008 and
2007
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
Cardiovascular Systems, Inc.
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of operations, changes in
shareholders (deficiency) equity and comprehensive (loss)
income and cash flows present fairly, in all material respects,
the financial position of Cardiovascular Systems, Inc. (the
Company) at June 30, 2007 and 2008, and the
results of its operations and its cash flows for each of the
three years in the period ended June 30, 2008, in
conformity with accounting principles generally accepted in the
United States of America. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
statements in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles
used and significant estimates made by management, and
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
As discussed in Note 1 to the consolidated financial
statements, the Company changed its method of accounting for
stock-based compensation effective July 1, 2006.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in Note 2 to the financial
statements, the Company has incurred substantial operating
losses, negative cash flows from operations, liquidity
constraints due to investments in auction rate securities and
has limited capital to fund future operations, which raise
substantial doubt about its ability to continue as a going
concern. Managements plans in regard to these matters are
also described in Note 2. The financial statements do not
include any adjustments that might result from the outcome of
this uncertainty.
/s/ PricewaterhouseCoopers
LLP
Minneapolis, Minnesota
August 15, 2008, except as to the Companys loan and
security agreement and margin loan payable as described in
paragraphs 1 through 4 in Note 4 for which the date is
September 12, 2008
1
Cardiovascular
Systems, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2008
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(Dollars in thousands, except per share and share amounts)
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
7,908
|
|
|
$
|
7,595
|
|
|
$
|
14,727
|
|
Short-term investments
|
|
|
11,615
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
|
|
|
|
4,897
|
|
|
|
5,439
|
|
Inventories
|
|
|
1,050
|
|
|
|
3,776
|
|
|
|
3,930
|
|
Prepaid expenses and other current assets
|
|
|
255
|
|
|
|
1,936
|
|
|
|
818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
20,828
|
|
|
|
18,204
|
|
|
|
24,914
|
|
Investments
|
|
|
|
|
|
|
21,733
|
|
|
|
21,390
|
|
Property and equipment, net
|
|
|
585
|
|
|
|
1,041
|
|
|
|
1,156
|
|
Patents, net
|
|
|
612
|
|
|
|
980
|
|
|
|
1,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
22,025
|
|
|
$
|
41,958
|
|
|
$
|
48,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS (DEFICIENCY) EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,909
|
|
|
$
|
5,851
|
|
|
$
|
5,150
|
|
Accrued expenses
|
|
|
748
|
|
|
|
3,467
|
|
|
|
3,707
|
|
Deferred revenue
|
|
|
|
|
|
|
116
|
|
|
|
|
|
Current maturities of long-term debt
|
|
|
|
|
|
|
11,888
|
|
|
|
27,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
2,657
|
|
|
|
21,322
|
|
|
|
36,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
|
2,400
|
|
Redeemable convertible preferred stock warrants
|
|
|
3,094
|
|
|
|
3,986
|
|
|
|
4,047
|
|
Deferred rent
|
|
|
79
|
|
|
|
100
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
3,173
|
|
|
|
4,086
|
|
|
|
6,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
5,830
|
|
|
|
25,408
|
|
|
|
42,605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A redeemable convertible preferred stock, no par
value; authorized 5,400,000 shares, issued and outstanding
4,728,547 at June 30, 2007 and 4,737,561 at June 30,
2008 and September 30, 2008 (unaudited), respectively;
aggregate liquidation value $29,034, $31,230 and $31,782 at
June 30, 2007 and 2008, and September 30, 2008
(unaudited), respectively
|
|
|
40,193
|
|
|
|
51,213
|
|
|
|
51,213
|
|
Series A-1
redeemable convertible preferred stock, no par value; authorized
1,470,589 at June 30, 2007 and 2,188,425 shares at
June 30, 2008 and September 30, 2008 (unaudited),
respectively; issued and outstanding 977,046 at June 30,
2007 and 2,188,425 at June 30, 2008 and September 30,
2008 (unaudited), respectively; aggregate liquidation value
$8,305, $19,862 and $20,243 at June 30, 2007 and 2008, and
September 30, 2008 (unaudited), respectively
|
|
|
8,305
|
|
|
|
23,657
|
|
|
|
23,657
|
|
Series B redeemable convertible preferred stock, no par
value; authorized 2,162,162 shares, issued and outstanding
2,162,150 at June 30, 2008 and September 30, 2008
(unaudited), aggregate liquidation value $20,871 and $21,280 at
June 30, 2008 and September 30, 2008 (unaudited),
respectively
|
|
|
|
|
|
|
23,372
|
|
|
|
23,372
|
|
Shareholders (deficiency) equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, no par value; authorized 25,000,000 common shares
at June 30, 2007 and 70,000,000 common shares and 5,000,000
undesignated shares at June 30, 2008 and September 30,
2008 (unaudited); issued and outstanding 6,267,454, 7,575,206,
7,731,450 at June 30, 2007 and 2008, and September 30,
2008 (unaudited), respectively
|
|
|
26,054
|
|
|
|
35,933
|
|
|
|
37,738
|
|
Common stock warrants
|
|
|
1,366
|
|
|
|
680
|
|
|
|
2,374
|
|
Accumulated other comprehensive (loss) income
|
|
|
(7
|
)
|
|
|
|
|
|
|
(343
|
)
|
Accumulated deficit
|
|
|
(59,716
|
)
|
|
|
(118,305
|
)
|
|
|
(132,004
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders (deficiency) equity
|
|
|
(32,303
|
)
|
|
|
(81,692
|
)
|
|
|
(92,235
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders (deficiency) equity
|
|
$
|
22,025
|
|
|
$
|
41,958
|
|
|
$
|
48,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
2
Cardiovascular
Systems, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Year Ended June 30,
|
|
|
September 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
(Dollars in thousands, except per share and share amounts)
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
22,177
|
|
|
$
|
|
|
|
$
|
11,646
|
|
Cost of goods sold
|
|
|
|
|
|
|
|
|
|
|
8,927
|
|
|
|
539
|
|
|
|
3,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
|
|
|
|
13,250
|
|
|
|
(539
|
)
|
|
|
7,765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
1,735
|
|
|
|
6,691
|
|
|
|
35,326
|
|
|
|
3,552
|
|
|
|
16,424
|
|
Research and development
|
|
|
3,168
|
|
|
|
8,446
|
|
|
|
16,068
|
|
|
|
3,328
|
|
|
|
4,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
4,903
|
|
|
|
15,137
|
|
|
|
51,394
|
|
|
|
6,880
|
|
|
|
21,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(4,903
|
)
|
|
|
(15,137
|
)
|
|
|
(38,144
|
)
|
|
|
(7,419
|
)
|
|
|
(13,614
|
)
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(48
|
)
|
|
|
(1,340
|
)
|
|
|
(923
|
)
|
|
|
(300
|
)
|
|
|
(227
|
)
|
Interest income
|
|
|
56
|
|
|
|
881
|
|
|
|
1,167
|
|
|
|
278
|
|
|
|
142
|
|
Impairment on investments
|
|
|
|
|
|
|
|
|
|
|
(1,267
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
8
|
|
|
|
(459
|
)
|
|
|
(1,023
|
)
|
|
|
(22
|
)
|
|
|
(85
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(4,895
|
)
|
|
|
(15,596
|
)
|
|
|
(39,167
|
)
|
|
|
(7,441
|
)
|
|
|
(13,699
|
)
|
Accretion of redeemable convertible preferred stock
|
|
|
|
|
|
|
(16,835
|
)
|
|
|
(19,422
|
)
|
|
|
(4,853
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss available to common shareholders
|
|
$
|
(4,895
|
)
|
|
$
|
(32,431
|
)
|
|
$
|
(58,589
|
)
|
|
$
|
(12,294
|
)
|
|
$
|
(13,699
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.79
|
)
|
|
$
|
(5.22
|
)
|
|
$
|
(8.57
|
)
|
|
$
|
(1.95
|
)
|
|
$
|
(1.78
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares used in computation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
6,183,715
|
|
|
|
6,214,820
|
|
|
|
6,835,126
|
|
|
|
6,291,512
|
|
|
|
7,692,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
3
Cardiovascular
Systems, Inc.
Comprehensive
(Loss) Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
|
|
|
Comprehensive
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Warrants
|
|
|
Deficit
|
|
|
(Loss) Income
|
|
|
Total
|
|
|
(Loss) Income
|
|
|
|
(Dollars in thousands, except per share and share amounts)
|
|
|
Balances at June 30, 2005
|
|
|
5,911,579
|
|
|
|
23,248
|
|
|
|
1,249
|
|
|
|
(22,390
|
)
|
|
|
|
|
|
|
2,107
|
|
|
$
|
|
|
Shares issued for cash, $8.00 per share, net of offering costs
of $20
|
|
|
287,625
|
|
|
|
2,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,281
|
|
|
|
|
|
Stock options and warrants expensed for outside consulting
services
|
|
|
|
|
|
|
49
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
80
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,895
|
)
|
|
|
|
|
|
|
(4,895
|
)
|
|
$
|
(4,895
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at June 30, 2006
|
|
|
6,199,204
|
|
|
|
25,578
|
|
|
|
1,280
|
|
|
|
(27,285
|
)
|
|
|
|
|
|
|
(427
|
)
|
|
$
|
(4,895
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options and warrants at $1.00 per share
|
|
|
68,250
|
|
|
|
86
|
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
|
69
|
|
|
|
|
|
Value assigned to warrants issued in connection with
Series A redeemable convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
103
|
|
|
|
|
|
|
|
|
|
|
|
103
|
|
|
|
|
|
Accretion of redeemable convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,835
|
)
|
|
|
|
|
|
|
(16,835
|
)
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
390
|
|
|
|
|
|
Unrealized loss on short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
(7
|
)
|
|
$
|
(7
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,596
|
)
|
|
|
|
|
|
|
(15,596
|
)
|
|
|
(15,596
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at June 30, 2007
|
|
|
6,267,454
|
|
|
|
26,054
|
|
|
|
1,366
|
|
|
|
(59,716
|
)
|
|
|
(7
|
)
|
|
|
(32,303
|
)
|
|
$
|
(15,603
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of restricted stock awards
|
|
|
840,138
|
|
|
|
1,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,152
|
|
|
|
|
|
Forfeiture of restricted stock awards
|
|
|
(27,834
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options and warrants at $1.00
$8.00 per share
|
|
|
495,448
|
|
|
|
2,382
|
|
|
|
(570
|
)
|
|
|
|
|
|
|
|
|
|
|
1,812
|
|
|
|
|
|
Expiration of warrants
|
|
|
|
|
|
|
116
|
|
|
|
(116
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of redeemable convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,422
|
)
|
|
|
|
|
|
|
(19,422
|
)
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
6,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,229
|
|
|
|
|
|
Unrealized gain on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
7
|
|
|
$
|
7
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(39,167
|
)
|
|
|
|
|
|
|
(39,167
|
)
|
|
|
(39,167
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at June 30, 2008
|
|
|
7,575,206
|
|
|
$
|
35,933
|
|
|
$
|
680
|
|
|
$
|
(118,305
|
)
|
|
$
|
|
|
|
$
|
(81,692
|
)
|
|
$
|
(39,160
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of restricted stock awards
|
|
|
161,823
|
|
|
|
1,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,296
|
|
|
|
|
|
Forfeiture of restricted stock awards
|
|
|
(25,029
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options and warrants at $5.00
$5.71 per share
|
|
|
19,450
|
|
|
|
133
|
|
|
|
(120
|
)
|
|
|
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
Issuance of common stock warrants
|
|
|
|
|
|
|
|
|
|
|
1,814
|
|
|
|
|
|
|
|
|
|
|
|
1,814
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
376
|
|
|
|
|
|
Unrealized loss on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(343
|
)
|
|
|
(343
|
)
|
|
$
|
(343
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,699
|
)
|
|
|
|
|
|
|
(13,699
|
)
|
|
|
(13,699
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at September 30, 2008 (unaudited)
|
|
|
7,731,450
|
|
|
$
|
37,738
|
|
|
$
|
2,374
|
|
|
$
|
(132,004
|
)
|
|
$
|
(343
|
)
|
|
$
|
(92,235
|
)
|
|
$
|
(14,042
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
4
Cardiovascular
Systems, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Year Ended June 30,
|
|
|
September 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
(Dollars in thousands, except per share and share amounts)
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,895
|
)
|
|
$
|
(15,596
|
)
|
|
$
|
(39,167
|
)
|
|
$
|
(7,441
|
)
|
|
$
|
(13,699
|
)
|
Adjustments to reconcile net loss to net cash used in operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization of property and equipment
|
|
|
73
|
|
|
|
153
|
|
|
|
264
|
|
|
|
47
|
|
|
|
86
|
|
Provision for doubtful accounts
|
|
|
|
|
|
|
|
|
|
|
164
|
|
|
|
14
|
|
|
|
28
|
|
Amortization of patents
|
|
|
45
|
|
|
|
45
|
|
|
|
29
|
|
|
|
|
|
|
|
9
|
|
Change in carrying value of the convertible preferred stock
warrants
|
|
|
|
|
|
|
1,327
|
|
|
|
916
|
|
|
|
300
|
|
|
|
(14
|
)
|
Amortization of debt discount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79
|
|
Stock-based compensation
|
|
|
|
|
|
|
390
|
|
|
|
7,381
|
|
|
|
350
|
|
|
|
1,672
|
|
Expense for stock, options and warrants granted for outside
consulting services
|
|
|
80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Disposal of property and equipment
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of discount on investments
|
|
|
|
|
|
|
(293
|
)
|
|
|
(52
|
)
|
|
|
(52
|
)
|
|
|
|
|
Impairment on investments
|
|
|
|
|
|
|
|
|
|
|
1,267
|
|
|
|
|
|
|
|
|
|
Changes in assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
|
|
|
|
|
|
|
|
(5,061
|
)
|
|
|
(1,395
|
)
|
|
|
(570
|
)
|
Inventories
|
|
|
(438
|
)
|
|
|
(322
|
)
|
|
|
(2,726
|
)
|
|
|
(1,522
|
)
|
|
|
(154
|
)
|
Prepaid expenses and other current assets
|
|
|
(96
|
)
|
|
|
(113
|
)
|
|
|
(1,323
|
)
|
|
|
13
|
|
|
|
1,118
|
|
Accounts payable
|
|
|
30
|
|
|
|
1,709
|
|
|
|
3,631
|
|
|
|
(430
|
)
|
|
|
(701
|
)
|
Accrued expenses and deferred rent
|
|
|
216
|
|
|
|
424
|
|
|
|
2,693
|
|
|
|
632
|
|
|
|
240
|
|
Deferred revenue
|
|
|
|
|
|
|
|
|
|
|
116
|
|
|
|
1,428
|
|
|
|
(116
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operations
|
|
|
(4,988
|
)
|
|
|
(12,276
|
)
|
|
|
(31,868
|
)
|
|
|
(8,056
|
)
|
|
|
(12,022
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures for property and equipment
|
|
|
(235
|
)
|
|
|
(465
|
)
|
|
|
(721
|
)
|
|
|
(207
|
)
|
|
|
(201
|
)
|
Proceeds from sale of property and equipment
|
|
|
7
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
Purchases of investments
|
|
|
|
|
|
|
(23,169
|
)
|
|
|
(31,314
|
)
|
|
|
(12,700
|
)
|
|
|
|
|
Sales of investments
|
|
|
|
|
|
|
11,840
|
|
|
|
19,988
|
|
|
|
5,874
|
|
|
|
|
|
Costs incurred in connection with patents
|
|
|
|
|
|
|
(58
|
)
|
|
|
(397
|
)
|
|
|
|
|
|
|
(181
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(228
|
)
|
|
|
(11,852
|
)
|
|
|
(12,443
|
)
|
|
|
(7,033
|
)
|
|
|
(382
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from the sale of common stock
|
|
|
2,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of redeemable convertible preferred stock
|
|
|
|
|
|
|
30,294
|
|
|
|
30,296
|
|
|
|
10,296
|
|
|
|
|
|
Payment of offering costs
|
|
|
|
|
|
|
(1,776
|
)
|
|
|
(51
|
)
|
|
|
(10
|
)
|
|
|
|
|
Issuance of common stock warrants
|
|
|
|
|
|
|
103
|
|
|
|
|
|
|
|
|
|
|
|
1,814
|
|
Issuance of convertible preferred stock warrants
|
|
|
|
|
|
|
1,767
|
|
|
|
|
|
|
|
|
|
|
|
75
|
|
Exercise of stock options and warrants
|
|
|
|
|
|
|
69
|
|
|
|
1,865
|
|
|
|
160
|
|
|
|
13
|
|
Proceeds from long-term debt
|
|
|
|
|
|
|
|
|
|
|
16,398
|
|
|
|
|
|
|
|
17,712
|
|
Payment on long-term debt
|
|
|
|
|
|
|
|
|
|
|
(4,510
|
)
|
|
|
|
|
|
|
(78
|
)
|
Proceeds from convertible promissory notes
|
|
|
3,059
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payable to shareholder, common stock repurchase
|
|
|
(350
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
4,990
|
|
|
|
30,482
|
|
|
|
43,998
|
|
|
|
10,446
|
|
|
|
19,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(226
|
)
|
|
|
6,354
|
|
|
|
(313
|
)
|
|
|
(4,643
|
)
|
|
|
7,132
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
1,780
|
|
|
|
1,554
|
|
|
|
7,908
|
|
|
|
7,908
|
|
|
|
7,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
1,554
|
|
|
$
|
7,908
|
|
|
$
|
7,595
|
|
|
$
|
3,265
|
|
|
$
|
14,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash investing and financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of convertible promissory notes and accrued interest
into Series A redeemable convertible preferred stock
|
|
$
|
|
|
|
$
|
(3,145
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Capitalized financing costs included in accounts payable
|
|
|
|
|
|
|
|
|
|
|
311
|
|
|
|
|
|
|
|
|
|
Capitalized financing costs included in accrued expenses
|
|
|
|
|
|
|
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
Accretion of redeemable convertible preferred stock
|
|
|
|
|
|
|
16,835
|
|
|
|
19,422
|
|
|
|
4,853
|
|
|
|
|
|
Net unrealized (loss) gain on investments
|
|
|
|
|
|
|
(7
|
)
|
|
|
7
|
|
|
|
6
|
|
|
|
(343
|
)
|
The accompanying notes are an integral part of these
consolidated financial statements.
5
CARDIOVASCULAR
SYSTEMS, INC.
(Information
presented as of and for the three months
ended September 30, 2007 and 2008 is unaudited)
(dollars in thousands, except per share and share
amounts)
|
|
1.
|
Summary
of Significant Accounting Policies
|
Company
Description
Cardiovascular Systems, Inc. (the Company) was
incorporated on February 28, 1989, to develop, manufacture
and market devices for the treatment of vascular diseases. The
Company has completed a pivotal clinical trial in the United
States to demonstrate the safety and efficacy of the
Companys Diamondback 360° orbital atherectomy system
in treating peripheral arterial disease. On August 30,
2007, the U.S. Food and Drug Administration, or FDA,
granted the Company 510(k) clearance to market the Diamondback
360° for the treatment of peripheral arterial disease. The
Company commenced a limited commercial introduction of the
Diamondback 360° in the United States in September
2007. During the quarter ended March 31, 2008, the Company
began its full commercial launch of the Diamondback 360°.
For the fiscal year ended June 30, 2007, the Company was
considered a development stage enterprise as
prescribed in Statement of Financial Accounting Standards
(SFAS) No. 7,
Accounting and Reporting by
Development Stage Enterprises
. During that time, the
Companys major emphasis was on planning, research and
development, recruitment and development of a management and
technical staff, and raising capital. These development stage
activities were completed during the first quarter of fiscal
2008. The Companys management team, organizational
structure and distribution channel are in place. The
Companys primary focus is on the sale and
commercialization of its current product to end user customers.
During the year ended June 30, 2008 and three months ended
September 30, 2008 (unaudited), the Company no longer
considered itself a development stage enterprise.
Principles
of Consolidation
The consolidated balance sheets, statements of operations,
changes in shareholders (deficiency) equity and
comprehensive (loss) income, and cash flows include the accounts
of the Company and its wholly owned inactive Netherlands
subsidiary, SCS B.V., after elimination of all significant
intercompany transactions and accounts. SCS B.V. was formed for
the purpose of conducting human trials and the development of
production facilities. Operations of the subsidiary ceased in
fiscal 2002; accordingly, there are no assets or liabilities
included in the consolidated financial statements related to SCS
B.V.
Interim
Financial Statements
The Company has prepared the unaudited interim consolidated
financial statements and related unaudited financial information
in the footnotes in accordance with accounting principles
generally accepted in the United States of America
(GAAP) and the rules and regulations of the
Securities and Exchange Commission (SEC) for interim
financial statements. These interim consolidated financial
statements reflect all adjustments consisting of normal
recurring accruals, which, in the opinion of management, are
necessary to present fairly the Companys consolidated
financial position, the results of its operations and its cash
flows for the interim periods. These interim consolidated
financial statements should be read in conjunction with the
consolidated annual financial statements and the notes thereto
contained herein. The nature of the Companys business is
such that the results of any interim period may not be
indicative of the results to be expected for the entire year.
Cash
and Cash Equivalents
The Company considers all money market funds and other
investments purchased with an original maturity of three months
or less to be cash and cash equivalents.
6
CARDIOVASCULAR
SYSTEMS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Information
presented as of and for the three months
ended September 30, 2007 and 2008 is unaudited)
(dollars in thousands, except per share and share
amounts)
Investments
The Company classifies all investments as
available-for-sale. Investments are recorded at fair
value and unrealized gains and losses are recorded as a separate
component of shareholders deficiency until realized.
Realized gains and losses are accounted for on the specific
identification method. The Company has historically placed its
investments primarily in auction rate securities,
U.S. government securities and commercial paper. These
investments, a portion of which had original maturities beyond
one year, were classified as short-term based on their liquid
nature. The securities which had stated maturities beyond one
year had certain economic characteristics of short-term
investments due to a rate-setting mechanism and the ability to
sell them through a Dutch auction process that occurred at
pre-determined intervals of less than one year. For the years
ended June 30, 2007 and 2008, and three months ended
September 30, 2008 (unaudited), the amount of gross
realized gains and losses related to sales of investments were
insignificant.
The Companys investments include AAA rated auction rate
securities issued primarily by state agencies and backed by
student loans substantially guaranteed by the Federal Family
Education Loan Program (FFELP). The federal government insures
loans in the FFELP so that lenders are reimbursed at least 97%
of the loans outstanding principal and accrued interest if
a borrower defaults. Approximately 99.2% of the par value of the
Companys auction rate securities is supported by student
loan assets that are guaranteed by the federal government under
the FFELP.
The Companys auction rate securities are debt instruments
with a long-term maturity and with an interest rate that is
reset in short intervals, primarily every 28 days, through
auctions. The recent conditions in the global credit markets
have prevented the Company from liquidating its holdings of
auction rate securities because the amount of securities
submitted for sale has exceeded the amount of purchase orders
for such securities. When auctions for these securities fail,
the investments may not be readily convertible to cash until a
future auction of these investments is successful or they are
redeemed by the issuer or they mature.
In February 2008, the Company was informed that there was
insufficient demand for auction rate securities, resulting in
failed auctions for $23.0 million of the Companys
auction rate securities held at June 30, 2008. Currently,
these affected securities are not liquid and will not become
liquid until a future auction for these investments is
successful or they are redeemed by the issuer or they mature. As
a result, at June 30, 2008 and September 30, 2008
(unaudited), the Company has classified the fair value of the
auction rate securities as a long-term asset. Interest rates on
all failed auction rate securities were reset to a temporary
predetermined penalty or maximum rate.
These maximum rates are generally limited to a maximum amount
payable over a 12 month period equal to a rate based on the
trailing
12-month
average of
90-day
treasury bills, plus 120 basis points. These maximum
allowable rates range from 2.7% to 4.0% of par value per year.
The Company has collected all interest due on its auction rate
securities and has no reason to believe that it will not collect
all interest due in the future. The Company expects to receive
the principal associated with its auction rate securities upon
the earlier of a successful auction, their redemption by the
issuer or their maturity. On March 28, 2008, the Company
obtained a margin loan from UBS Financial Services, Inc., the
entity through which it originally purchased the auction rate
securities, for up to $12.0 million, with a floating
interest rate equal to
30-day
LIBOR, plus 0.25%. The loan was secured by the
$23.0 million par value of the Companys auction rate
securities. The maximum borrowing amount was not set forth in
the written agreement for the loan and may have been adjusted
from time to time by UBS Financial Services at its discretion.
The loan was due on demand and UBS Financial Services may have
required the Company to repay it in full from any loan or
financing arrangement or a public equity offering. The margin
requirements were determined by UBS Financial Services but were
not included in the written loan agreement and were therefore
subject to change. As of June 30, 2008, the margin
requirements provided that UBS Financial Services would require
a margin call on this loan if at any time the outstanding
borrowings, including interest, exceeded $12.0 million or
75% of
7
CARDIOVASCULAR
SYSTEMS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Information
presented as of and for the three months
ended September 30, 2007 and 2008 is unaudited)
(dollars in thousands, except per share and share
amounts)
UBS Financial Services estimate of the fair value of the
Companys auction rate securities. If these margin
requirements were not maintained, UBS Financial Services may
have required the Company to make a loan payment in an amount
necessary to comply with the applicable margin requirements or
demand repayment of the entire outstanding balance. As of
June 30, 2008, the Company maintained these margin
requirements and the outstanding balance on the loan was
$11.9 million.
On August 21, 2008, the Company replaced this loan with a
margin loan from UBS Bank USA, which increased maximum
borrowings available to $23.0 million. This maximum
borrowing amount is not set forth in the written agreement for
the loan and may be adjusted from time to time by UBS Bank at
its discretion The margin loan has a floating interest rate
equal to
30-day
LIBOR, plus 1.0%. The loan is due on demand and UBS Bank will
require the Company to repay it in full from the proceeds
received from a public equity offering where net proceeds exceed
$50.0 million. In addition, if at any time any of the
Companys auction rate securities may be sold, exchanged,
redeemed, transferred or otherwise conveyed for no less than
their par value, then the Company must immediately effect such a
transfer and the proceeds must be used to pay down outstanding
borrowings under this loan. The margin requirements are
determined by UBS Bank but are not included in the written loan
agreement and are therefore subject to change. As of
August 21, 2008, the margin requirements include maximum
borrowings, including interest, of $23.0 million. If these
margin requirements are not maintained, UBS Bank may require the
Company to make a loan payment in an amount necessary to comply
with the applicable margin requirements or demand repayment of
the entire outstanding balance. The Company has maintained the
margin requirements under the loans from both UBS entities. The
outstanding balance on this loan at September 30, 2008
(unaudited) was $22.9 million.
In accordance with
EITF 03-01
and FSP
FAS 115-1
and
124-1,
The Meaning of Other Than-Temporary Impairment and Its
Application to Certain Investments, the Company reviews
several factors to determine whether a loss is
other-than-temporary. These factors include but are not limited
to: (1) the length of time a security is in an unrealized
loss position, (2) the extent to which fair value is less
than cost, (3) the financial condition and near term
prospects of the issuer, and (4) the Companys intent
and ability to hold the security for a period of time sufficient
to allow for any unanticipated recovery in fair value.
The Company recorded an other-than-temporary impairment loss of
$1.3 million relating to its auction rate securities in its
statement of operations for the year ended June 30, 2008
and recorded an unrealized loss of $0.3 million relating to
its auction rate securities in other comprehensive income (loss)
for the three months ended September 30, 2008 (unaudited).
The Company determined the fair value of its auction rate
securities and quantified the other-than-temporary impairment
loss and the unrealized loss with the assistance of
ValueKnowledge LLC, an independent third party valuation firm,
which utilized various valuation methods and considered, among
other factors, estimates of present value of the auction rate
securities based upon expected cash flows, the likelihood and
potential timing of issuers of the auction rate securities
exercising their redemption rights at par value, the likelihood
of a return of liquidity to the market for these securities and
the potential to sell the securities in secondary markets.
At June 30, 2008, the Company concluded that no weight
should be given to the value indicated by the secondary markets
for student loan-backed auction rate securities similar to those
the Company holds because these markets have very low
transaction volumes and consist primarily of private
transactions with minimal disclosure, transactions may not be
representative of the actions of typically-motivated buyers and
sellers and the Company does not currently intend to sell in the
secondary markets. However, the Company did consider the
secondary markets for certain mortgage-backed securities to
estimate the market yields attributable to the Companys
auction rate securities, but determined that these secondary
markets do not provide a sufficient basis of comparison for the
auction rate securities that the Company holds and, accordingly,
attributed no weight to the values of these mortgage-backed
securities indicated by the secondary markets.
8
CARDIOVASCULAR
SYSTEMS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Information
presented as of and for the three months
ended September 30, 2007 and 2008 is unaudited)
(dollars in thousands, except per share and share
amounts)
At June 30, 2008, the Company attributed a weight of 66.7%
to estimates of present value of the auction rate securities
based upon expected cash flows and a weight of 33.3% to the
likelihood and potential timing of issuers of the auction rate
securities exercising their redemption rights at par value or
willingness of third parties to provide financing in the market
against the par value of those securities. The attribution of
these weights required the exercise of valuation judgment. A
measure of liquidity is available from borrowing, which led to
the 33.3% weight attributed to the likelihood and potential
timing of issuers of the auction rate securities exercising
their redemption rights at par value or the willingness of third
parties to provide financing in the market against the par value
of those securities. However, borrowing does not eliminate
exposure to the risk of holding the securities, so the weight of
66.7% attributed to the present value of the auction rate
securities based upon expected cash flows reflects the
expectation that the securities are likely to be held for an
uncertain period. The Company focused on these methodologies
because no certainty exists regarding how the auction rate
securities will be eventually converted to cash and these
methodologies represent the most likely possible outcomes. To
derive estimates of the present value of the auction rate
securities based upon expected cash flows, the Company used the
securities expected annual interest payments, ranging from
2.7% to 4.0% of par value, representing estimated maximum annual
rates under the governing documents of the auction rate
securities; annual market interest rates, ranging from 4.5% to
5.8%, based on observed traded, state sponsored, taxable
certificates rated AAA or lower and issued between June 15 and
June 30, 2008; and a range of expected terms to liquidity.
At June 30, 2008, the Companys weighting of the
valuation methods indicates an implied term to liquidity of
approximately 3.5 years. The implied term to liquidity of
approximately 3.5 years is a result of considering a range
in possible timing of the various scenarios that would allow a
holder of the auction rate securities to convert the auction
rate securities to cash ranging from zero to ten years, with the
highest probability assigned to the range of zero to five years.
Several sources were consulted but no individual source of
information was relied upon to arrive at the Companys
estimate of the range of possible timing to convert the auction
rate securities to cash or the implied term to liquidity of
approximately 3.5 years. The primary reason for the fair
value being less than cost related to a lack of liquidity of the
securities, rather than the financial condition and near term
prospects of the issuer.
At September 30, 2008, the Company concluded that no weight
should be given to the value indicated by the secondary markets
for student loan backed auction rate securities similar to those
the Company holds because these markets have very low
transaction volumes and consist primarily of private
transactions with minimal disclosure and transactions may not be
representative of the actions of typically-motivated buyers and
sellers and the Company does not currently intend to sell in the
secondary markets. However, the Company did consider the
secondary markets for certain mortgage-backed securities to
estimate the market yields attributable to the Companys
auction rate securities, but determined that these secondary
markets do not provide a sufficient basis of comparison for the
auction rate securities that the Company holds and, accordingly,
attributed no weight to the values of these mortgage-backed
securities indicated by the secondary markets.
At September 30, 2008, the Company concluded that no weight
should be given to the likelihood and potential timing of
issuers of the auction rate securities exercising their
redemption rights at par value based on low issuer call
activity, so the Company attributed a weight of 100.0% to
estimates of present value of the auction rate securities based
upon expected cash flows. The attribution of weights to the
valuation factors required the exercise of valuation judgment.
The selection of a weight of 100.0% attributed to the present
value of the auction rate securities based upon expected cash
flows reflects the expectation, in absence of the Auction Rate
Securities Rights Prospectus discussed below, that no certainty
exists regarding how the auction rate securities will be
eventually converted to cash and this methodology represents the
possible outcome. To derive estimates of the present value of
the auction rate securities based upon expected cash flows, the
Company used the securities expected annual interest
payments, ranging from 2.1% to 5.4% of par value, representing
estimated maximum annual rates under the
9
CARDIOVASCULAR
SYSTEMS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Information
presented as of and for the three months
ended September 30, 2007 and 2008 is unaudited)
(dollars in thousands, except per share and share
amounts)
governing documents of the auction rate securities; annual
market interest rates, ranging from 3.9% to 5.4%, based on
observed traded, state sponsored, taxable certificates rated AAA
or lower and issued between September 29 and September 30,
2008; certain mortgage-backed securities and indices; and a
range of expected terms to liquidity.
The Companys weighting of the valuation methods as of
September 30, 2008 indicates an implied term to liquidity
of approximately five years in absence of the Auction Rate
Securities Rights Prospectus discussed below. The implied term
to liquidity of approximately five years is a result of
considering a range in possible timing of the various scenarios
that would allow a holder of the auction rate securities to
convert the auction rate securities to cash ranging from zero to
ten years, with the highest probability assigned to five years.
UBS issued a comprehensive settlement, which was confirmed by an
Auction Rate Securities Rights Prospectus issued by UBS on
October 7, 2008, in which there is a possibility of
redemption by UBS at par value for the auction rate securities
held by the Company between June 30, 2010 and July 2,
2012. Under the comprehensive settlement, UBS has committed to
purchase a total of $8.3 billion of auction rate securities
at par value from most private clients during the two-year
period beginning January 1, 2009. Private clients and
charities holding less than $1.0 million in household
assets at UBS were able to avail themselves of this relief
beginning October 31, 2008. From mid-September 2008, UBS
began to provide loans at no cost to its clients for the par
value of their auction rate security holdings. In addition, UBS
has also committed to provide liquidity solutions to
institutional investors and has agreed to purchase all or any of
a remaining $10.3 billion in auction rate securities at par
value from its institutional clients beginning June 10,
2010. These auction rate security rights are not transferable,
tradable or marginable. The Company has not considered the
liquidity potentially generated by UBSs comprehensive
settlement or the UBS loan in the Companys valuation of
the 19 auction rate certificates held by the Company because the
settlement rights were not enforceable at September 30,
2008. The repurchase arrangement and lending arrangement may
represent separate contracts, securities or other assets that
have not been considered in the valuation of the auction rate
securities.
The Companys auction rate securities include AAA rated
auction rate securities issued primarily by state agencies and
backed by student loans substantially guaranteed by the Federal
Family Education Loan Program. These auction rate securities
continue to be AAA rated auction rate securities subsequent to
the failed auctions that began in February 2008.
In addition to the valuation procedures described above, the
Company considered (i) its current inability to hold these
securities for a period of time sufficient to allow for an
unanticipated recovery in fair value based on The Companys
current liquidity, history of operating losses, and
managements estimates of required cash for continued
product development and sales and marketing expenses, and
(ii) failed auctions and the anticipation of continued
failed auctions for all of the Companys auction rate
securities.
Based on the factors described above, the Company recorded the
entire amount of impairment loss identified for the year ended
June 30, 2008 of $1.3 million as other-than-temporary
and recorded the decrease in fair value of $0.3 million as
an unrealized loss for the three months ended September 30,
2008 (unaudited). The Company did not identify or record any
additional realized or unrealized gains or losses for the year
ended June 30, 2008 or the three months ended
September 30, 2008 (unaudited). The Company will continue
to monitor and evaluate the value of its investments each
reporting period for further possible impairment or unrealized
loss. Although it does not currently intend to do so, the
Company may consider selling its auction rate securities in the
secondary markets in the future, which may require a sale at a
substantial discount to the stated principal value of these
securities.
10
CARDIOVASCULAR
SYSTEMS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Information
presented as of and for the three months
ended September 30, 2007 and 2008 is unaudited)
(dollars in thousands, except per share and share
amounts)
The amortized cost and fair value of available-for-sale
investments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2008
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
Amortized
|
|
|
Aggregate
|
|
|
Unrealized
|
|
|
|
Cost(1)
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Auction rate securities (original maturities greater than ten
years)
|
|
$
|
21,733
|
|
|
$
|
21,733
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments
|
|
$
|
21,733
|
|
|
$
|
21,733
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2008
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
Amortized
|
|
|
Aggregate
|
|
|
Unrealized
|
|
|
|
Cost(1)
|
|
|
Fair Value
|
|
|
Losses
|
|
|
|
(Unaudited)
|
|
|
Auction rate securities (original maturities greater than ten
years)
|
|
$
|
21,733
|
|
|
$
|
21,390
|
|
|
$
|
(343
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments
|
|
$
|
21,733
|
|
|
$
|
21,390
|
|
|
$
|
(343
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Amortized cost at June 30, 2008 and September 30, 2008
includes unamortized premiums, discounts and other cost basis
adjustments, as well as other-than-temporary impairment losses.
|
Accounts
Receivable and Allowance for Doubtful Accounts
Trade accounts receivable are recorded at the invoiced amount
and do not bear interest. Customer credit terms are established
prior to shipment with the standard being net 30 days.
Collateral or any other security to support payment of these
receivables generally is not required. The Company maintains
allowances for doubtful accounts. This allowance is an estimate
and is regularly evaluated by the Company for adequacy by taking
into consideration factors such as past experience, credit
quality of the customer base, age of the receivable balances,
both individually and in the aggregate, and current economic
conditions that may affect a customers ability to pay.
Provisions for the allowance for doubtful accounts attributed to
bad debt are recorded in general and administrative expenses. If
the financial condition of the Companys customers were to
deteriorate, resulting in an impairment of their ability to make
payments, additional allowances may be required. The following
table shows allowance for doubtful accounts activity for the
fiscal year ended June 30, 2008 and three months ended
September 30, 2008 (unaudited):
|
|
|
|
|
|
|
Amount
|
|
|
Balance at June 30, 2007
|
|
$
|
|
|
Provision for doubtful accounts
|
|
|
164
|
|
|
|
|
|
|
Balance at June 30, 2008
|
|
|
164
|
|
Provision for doubtful accounts
|
|
|
28
|
|
|
|
|
|
|
Balance at September 30, 2008 (unaudited)
|
|
$
|
192
|
|
|
|
|
|
|
Inventories
Inventories are stated at the lower of cost or market with cost
determined on a
first-in,
first-out (FIFO) method of valuation. The
establishment of inventory allowances for excess and obsolete
inventories is based on estimated exposure on specific inventory
items.
11
CARDIOVASCULAR
SYSTEMS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Information
presented as of and for the three months
ended September 30, 2007 and 2008 is unaudited)
(dollars in thousands, except per share and share
amounts)
Property
and Equipment
Property and equipment is carried at cost, less accumulated
depreciation and amortization. Depreciation of equipment is
computed using the straight-line method over estimated useful
lives of three to seven years and amortization of leasehold
improvements over the shorter of their estimated useful lives or
the lease term. Expenditures for maintenance and repairs and
minor renewals and betterments which do not extend or improve
the life of the respective assets are expensed as incurred. All
other expenditures for renewals and betterments are capitalized.
The assets and related depreciation accounts are adjusted for
property retirements and disposals with the resulting gains or
losses included in operations.
Operating
Lease
The Company leases office space under an operating lease. The
lease arrangement contains a rent escalation clause for which
the lease expense is recognized on a straight-line basis over
the terms of the lease. Rent expense that is recognized but not
yet paid is included in deferred rent on the consolidated
balance sheets.
Patents
The capitalized costs incurred to obtain patents are amortized
using the straight-line method over their remaining estimated
lives, not exceeding 20 years. The recover ability of
capitalized patent costs is dependent upon the Companys
ability to derive revenue-producing products from such patents
or the ultimate sale or licensing of such patent rights. Patents
that are abandoned are written off at the time of abandonment.
Long-Lived
Assets
The Company regularly evaluates the carrying value of long-lived
assets for events or changes in circumstances that indicate that
the carrying amount may not be recoverable or that the remaining
estimated useful life should be changed. An impairment loss is
recognized when the carrying amount of an asset exceeds the
anticipated future undiscounted cash flows expected to result
from the use of the asset and its eventual disposition. The
amount of the impairment loss to be recorded, if any, is
calculated by the excess of the assets carrying value over
its fair value.
Revenue
Recognition
The Company recognizes revenue in accordance with SEC Staff
Accounting Bulletin (SAB) No. 104,
Revenue
Recognition
and Emerging Issues Task Force
(EITF) Issue
No. 00-21,
Revenue Arrangements with Multiple Deliverables
. Revenue
is recognized when all of the following criteria are met:
(1) persuasive evidence of an arrangement exists;
(2) shipment of all components has occurred or delivery of
all components has occurred if the terms specify that title and
risk of loss pass when products reach their destination;
(3) the sales price is fixed or determinable; and
(4) collectability is reasonably assured. The Company has
no additional post-shipment or other contractual obligations or
performance requirements and does not provide any credits or
other pricing adjustments affecting revenue recognition once
those criteria have been met. The customer has no right of
return on any component once these criteria have been met.
Payment terms are generally set at 30 days.
The Company derives its revenue through the sale of the
Diamondback 360°, which includes single-use catheters,
guidewires and control units used in the atherectomy procedure.
Initial orders from all new customers require the customer to
purchase the entire Diamondback 360° system, which includes
multiple single-use catheters and guidewires and one control
unit. Due to delays in the final FDA clearance of the new
control unit and early production constraints of the new control
unit, the Company was not able to deliver all components of the
initial
12
CARDIOVASCULAR
SYSTEMS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Information
presented as of and for the three months
ended September 30, 2007 and 2008 is unaudited)
(dollars in thousands, except per share and share
amounts)
order. For these initial orders, the Company shipped and billed
only for the single-use catheters and guidewires. In addition,
the Company sent an older version of its control unit as a
loaner unit with the customers expectation that the
Company would deliver and bill for a new control unit once it
becomes available. As the Company had not delivered each of the
individual components to all customers, the Company had deferred
the revenue for the entire amount billed for single-use
catheters and guidewires shipped to the customers that had not
received the new control unit. Those billings totaled $116 at
June 30, 2008, which amount had been deferred until the new
control units were delivered during the three months ended
September 30, 2008 (unaudited). After the initial order,
customers are not required to purchase any additional disposable
products from the Company. Once the Company had delivered the
new control unit to a customer, the Company recognized revenue
that was previously deferred and revenue for subsequent reorders
of single-use catheters, guidewires and additional new control
units when the criteria of SAB No. 104 are met.
The legal title and risk of loss of each of Diamondback
360° components, consisting of disposable catheters,
disposable guidewires, and a control unit, are transferred to
the customer based on the shipping terms. Many initial shipments
to customers included a loaner control unit, which the Company
provided, until the new control unit received clearance from the
FDA and was subsequently available for sale. The loaner control
units were Company-owned property and the Company maintained
legal title to these units.
Costs related to products delivered are recognized when the
legal title and risk of loss of individual components are
transferred to the customer based on the shipping terms. At June
30 and September 30, 2008 (unaudited), the legal title and
risk of loss of each disposable component had transferred to the
customer and the Company has no future economic benefit in these
disposables. As a result, the cost of goods sold related to
these disposable units has been recorded during the year ended
June 30, 2008 and three months ended September 30,
2008 (unaudited).
Warranty
Costs
The Company provides its customers with the right to receive a
replacement if a product is determined to be defective at the
time of shipment. Warranty reserve provisions are estimated
based on Company experience, volume, and expected warranty
claims. Warranty reserve, provisions and claims for the fiscal
year ended June 30, 2008 and three months ended
September 30, 2008 (unaudited) were as follows:
|
|
|
|
|
|
|
Amount
|
|
|
Balance at June 30, 2007
|
|
$
|
|
|
Provision
|
|
|
137
|
|
Claims
|
|
|
(125
|
)
|
|
|
|
|
|
Balance at June 30, 2008
|
|
|
12
|
|
Provision
|
|
|
122
|
|
Claims
|
|
|
(102
|
)
|
|
|
|
|
|
Balance at September 30, 2008 (unaudited)
|
|
$
|
32
|
|
|
|
|
|
|
Income
Taxes
Deferred income taxes are recorded to reflect the tax
consequences in future years of differences between the tax
bases of assets and liabilities and their financial reporting
amounts based on enacted tax rates applicable to the periods in
which the differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized.
13
CARDIOVASCULAR
SYSTEMS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Information
presented as of and for the three months
ended September 30, 2007 and 2008 is unaudited)
(dollars in thousands, except per share and share
amounts)
Developing a provision for income taxes, including the effective
tax rate and the analysis of potential tax exposure items, if
any, requires significant judgment and expertise in federal and
state income tax laws, regulations and strategies, including the
determination of deferred tax assets. The Companys
judgment and tax strategies are subject to audit by various
taxing authorities.
Research
and Development Expenses
Research and development expenses include costs associated with
the design, development, testing, enhancement and regulatory
approval of the Companys products. Research and
development expenses include employee compensation, including
stock-based compensation, supplies and materials, consulting
expenses, travel and facilities overhead. The Company also
incurs significant expenses to operate clinical trials,
including trial design, third-party fees, clinical site
reimbursement, data management and travel expenses. Research and
development expenses are expensed as incurred.
Concentration
of Credit Risk
Financial instruments that potentially expose the Company to
concentration of credit risk consist primarily of cash and cash
equivalents, investments and accounts receivable. The Company
maintains its cash and investment balances primarily with two
financial institutions. At times, these balances exceed
federally insured limits. The Company has not experienced any
losses in such accounts and believes it is not exposed to any
significant credit risk in cash and cash equivalents.
Fair
Value of Financial Instruments (unaudited)
Effective July 1, 2008, the Company adopted
SFAS No. 157,
Fair Value Measurements
(SFAS No. 157), which provides a
framework for measuring fair value under Generally Accepted
Accounting Principles and expands disclosures about fair value
measurements. In February 2008, the Financial Accounting
Standards Board (FASB) issued FASB Staff Position
No. 157-2,
Effective Date of FASB Statement No. 157,
which
provides a one-year deferral on the effective date of
SFAS No. 157 for non-financial assets and
non-financial liabilities, except those that are recognized or
disclosed in the financial statements at least annually.
Therefore, the Company has adopted the provisions of
SFAS No. 157 with respect to financial assets and
financial liabilities only.
SFAS 157 classifies these inputs into the following
hierarchy:
Level 1 Inputs
quoted prices in active
markets for identical assets and liabilities
Level 2 Inputs
observable inputs other
than quoted prices in active markets for identical assets and
liabilities
Level 3 Inputs
unobservable inputs
As of September 30, 2008, those assets and liabilities that
are measured at fair value on a recurring basis consisted of the
Companys auction rate securities it classifies as
available-for-sale. The Company believes that the carrying
amounts of its other financial instruments, including accounts
payable and accrued liabilities approximate their fair value due
to the short-term maturities of these instruments.
14
CARDIOVASCULAR
SYSTEMS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Information
presented as of and for the three months
ended September 30, 2007 and 2008 is unaudited)
(dollars in thousands, except per share and share
amounts)
The following table sets forth the fair value of the
Companys auction rate securities that were measured on a
recurring basis as of September 30, 2008. Assets are
measured on a recurring basis if they are remeasured at least
annually:
|
|
|
|
|
|
|
Level 3
|
|
|
Balance at June 30, 2008
|
|
$
|
21,733
|
|
Total unrealized losses included in other comprehensive income
(loss)
|
|
|
(343
|
)
|
|
|
|
|
|
Balance at September 30, 2008 (unaudited)
|
|
$
|
21,390
|
|
|
|
|
|
|
Use of
Estimates
The preparation of the Companys consolidated financial
statements in conformity with accounting principles generally
accepted in the United States of America requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Stock-Based
Compensation
Effective July 1, 2006, the Company adopted Financial
Accounting Standards Board (FASB)
SFAS No. 123(R),
Share-Based Payment,
as
interpreted by SAB No. 107, using the prospective
application method, to account for stock-based compensation
expense associated with the issuance of stock options to
employees and directors on or after July 1, 2006. The
unvested compensation costs at July 1, 2006, which relate
to grants of options that occurred prior to the date of adoption
of SFAS No. 123(R), will continue to be accounted for
under Accounting Principles Board (APB) No. 25,
Accounting for Stock Issued to Employees
.
SFAS No. 123(R) requires the Company to recognize
stock-based compensation expense in an amount equal to the fair
value of share-based payments computed at the date of grant. The
fair value of all employee and director stock option awards is
expensed in the consolidated statements of operations over the
related vesting period of the options. The Company calculated
the fair value on the date of grant using a Black-Scholes model.
For all options granted prior to July 1, 2006, in
accordance with the provisions of APB No. 25, compensation
costs for stock options granted to employees were measured at
the excess, if any, of the value of the Companys stock at
the date of the grant over the amount an employee would have to
pay to acquire the stock.
As a result of adopting SFAS No. 123(R) on
July 1, 2006, net loss for the years ended June 30,
2007 and 2008 and the three months ended September 30, 2007
and 2008 (unaudited) were $390, $7,646, $350 and $1,672,
respectively, higher than if the Company had continued to
account for stock-based compensation consistent with prior
years. This expense is included in cost of goods sold, selling,
general and administrative and research and development
expenses. Note 6 to the consolidated financial statements
contains the significant assumptions used in determining the
underlying fair value of options.
Preferred
Stock
The Company records the current estimated fair value of its
redeemable convertible preferred stock based on the fair market
value of that stock as determined by management and the Board of
Directors. In accordance with Accounting Series Release
No. 268,
Presentation in Financial Statements of
Redeemable Preferred Stocks,
and EITF Abstracts,
Topic D-98,
Classification and Measurement of Redeemable
Securities,
the Company records changes in the current fair
value of its redeemable convertible preferred stock in the
consolidated statements of
15
CARDIOVASCULAR
SYSTEMS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Information
presented as of and for the three months
ended September 30, 2007 and 2008 is unaudited)
(dollars in thousands, except per share and share
amounts)
changes in shareholders (deficiency) equity and
comprehensive (loss) income and consolidated statements of
operations as accretion of redeemable convertible preferred
stock.
Preferred
Stock Warrants
Freestanding warrants and other similar instruments related to
shares that are redeemable are accounted for in accordance with
SFAS No. 150,
Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity,
and its related interpretations. Under
SFAS No. 150, the freestanding warrant that is related
to the Companys redeemable convertible preferred stock is
classified as a liability on the consolidated balance sheets as
of June 30, 2007 and 2008, and September 30, 2008
(unaudited). The warrant is subject to remeasurement at each
balance sheet date and any change in fair value is recognized as
a component of interest (expense) income. Fair value on the
grant date is measured using the Black-Scholes option pricing
model and similar underlying assumptions consistent with the
issuance of stock option awards. The Company will continue to
adjust the liability for changes in fair value until the earlier
of the exercise or expiration of the warrants or the completion
of a liquidity event, including the completion of an initial
public offering with gross cash proceeds to the Company of at
least $40,000 (Qualified IPO), at which time all
preferred stock warrants will be converted into warrants to
purchase common stock and, accordingly, the liability will be
reclassified to equity.
Comprehensive
(Loss) Income
Comprehensive (loss) income for the Company includes net loss
and unrealized (loss) gain on investments that are charged or
credited to comprehensive (loss) income. These amounts are
presented in the consolidated statements of changes in
shareholders (deficiency) equity and comprehensive (loss)
income.
Recent
Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
. This standard clarifies the
principle that fair value should be based on the assumptions
that market participants would use when pricing an asset or
liability. Additionally, it establishes a fair value hierarchy
that prioritizes the information used to develop these
assumptions. On February 12, 2008, the FASB issued FASB
Staff Position, or FSP,
FAS 157-2,
Effective Date of FASB Statement No. 157,
or FSP
FAS 157-2.
FSP
FAS 157-2
defers the implementation of SFAS No. 157 for certain
nonfinancial assets and nonfinancial liabilities. The portion of
SFAS No. 157 that has been deferred by FSP
FAS 157-2
will be effective for the Company beginning in the first quarter
of fiscal year 2010. SFAS No. 157 was adopted for
financial assets and liabilities on July 1, 2008 and did
not have a material impact on the Companys financial
position or consolidated results of operations during the three
months ended September 30, 2008 (unaudited).
In February 2007, the FASB issued SFAS No. 159,
The
Fair Value Option for Financial Assets and Financial
Liabilities
. This standard provides companies with an option
to report selected financial assets and liabilities at fair
value and establishes presentation and disclosure requirements
designed to facilitate comparisons between companies that choose
different measurement attributes for similar types of assets and
liabilities. SFAS No. 159 was adopted on July 1,
2008 and did not have a material impact on the Companys
financial position or consolidated results of operations during
the three months ended September 30, 2008 (unaudited).
In December 2007, the FASB issued SFAS No. 141
(revised 2007),
Business Combinations
, and
SFAS No. 160,
Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB
No. 51
. The revised standards continue the movement
toward the greater use of fair values in financial reporting.
SFAS 141(R) will significantly change how business
acquisitions are accounted for and will impact financial
statements both on the
16
CARDIOVASCULAR
SYSTEMS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Information
presented as of and for the three months
ended September 30, 2007 and 2008 is unaudited)
(dollars in thousands, except per share and share
amounts)
acquisition date and in subsequent periods including the
accounting for contingent consideration. SFAS 160 will
change the accounting and reporting for minority interests,
which will be recharacterized as noncontrolling interests and
classified as a component of equity. SFAS 141(R) and
SFAS 160 are effective for fiscal years beginning on or
after December 15, 2008 with SFAS 141(R) to be applied
prospectively while SFAS 160 requires retroactive adoption
of the presentation and disclosure requirements for existing
minority interests. All other requirements of SFAS 160
shall be applied prospectively. Early adoption is prohibited for
both standards. The Company is currently evaluating the impact
of these statements, but expects that the adoption of
SFAS No. 141(R) will have a material impact on how the
Company will identify, negotiate, and value any future
acquisitions and a material impact on how an acquisition will
affect its consolidated financial statements, and that
SFAS No. 160 will not have a material impact on its
financial position or consolidated results of operations.
The Companys consolidated financial statements have been
prepared on the going concern basis, which contemplates the
realization of assets and the satisfaction of liabilities in the
normal course of business. The Company has cash and cash
equivalents of $7.6 million and $14.7 million at
June 30, 2008 and September 30, 2008 (unaudited),
respectively. During the year ended June 30, 2008 and the
three months ended September 30, 2008 (unaudited), net cash
used in operations amounted to $31.9 million and
$12.0 million, respectively. As of June 30, 2008 and
September 30, 2008 (unaudited), the Company had an
accumulated deficit of $118.3 million and
$132.0 million, respectively. The Company has incurred
negative cash flows and losses since inception. In addition, in
February 2008, the Company was notified that recent conditions
in the global credit markets have caused insufficient demand for
auction rate securities, resulting in failed auctions for
$23.0 million of the Companys auction rate securities
held at June 30, 2008 and September 30, 2008
(unaudited). These securities are currently not liquid, as the
Company has an inability to sell the securities due to continued
failed auctions.
On March 28, 2008, the Company obtained a margin loan from
UBS Financial Services, Inc., the entity through which it
originally purchased the auction rate securities, for up to
$12.0 million, with a floating interest rate equal to
30-day
LIBOR, plus 0.25%. The loan was secured by the
$23.0 million par value of the Companys auction rate
securities. The maximum borrowing amount was not set forth in
the written agreement for the loan and may have been adjusted
from time to time by UBS Financial Services at its discretion.
The loan was due on demand and UBS Financial Services may have
required the Company to repay it in full from any loan or
financing arrangement or a public equity offering. The margin
requirements were determined by UBS Financial Services but were
not included in the written loan agreement and were therefore
subject to change. As of June 30, 2008, the margin
requirements provided that UBS Financial Services would require
a margin call on this loan if at any time the outstanding
borrowings, including interest, exceeded $12.0 million or
75% of UBS Financial Services estimate of the fair value
of the Companys auction rate securities. If these margin
requirements were not maintained, UBS Financial Services may
have required the Company to make a loan payment in an amount
necessary to comply with the applicable margin requirements or
demand repayment of the entire outstanding balance. As of
June 30, 2008, the Company maintained these margin
requirements. See Note 4 for a description of the
replacement of this loan and the additional loan and security
agreement entered into with Silicon Valley Bank.
Based on current operating levels, combined with limited capital
resources, financing the Companys operations will require
that the Company raise additional equity or debt capital prior
to or during the quarter ending September 30, 2009. If the
Company fails to raise sufficient equity or debt capital,
management would implement cost reduction measures, including
workforce reductions, as well as reductions in overhead costs
and capital expenditures. There can be no assurance that these
sources will provide sufficient cash flows to enable the Company
to continue as a going concern. The Company currently has no
commitments for additional financing and
17
CARDIOVASCULAR
SYSTEMS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Information
presented as of and for the three months
ended September 30, 2007 and 2008 is unaudited)
(dollars in thousands, except per share and share
amounts)
may experience difficulty in obtaining additional financing on
favorable terms, if at all. All of these factors raise
substantial doubt about the Companys ability to continue
as a going concern.
|
|
3.
|
Selected
Consolidated Financial Statement Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2008
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Accounts Receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
|
|
|
$
|
5,061
|
|
|
$
|
5,631
|
|
Less: Allowance for doubtful accounts
|
|
|
|
|
|
|
(164
|
)
|
|
|
(192
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
4,897
|
|
|
$
|
5,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
|
|
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
513
|
|
|
$
|
2,338
|
|
|
$
|
2,471
|
|
Work in process
|
|
|
134
|
|
|
|
117
|
|
|
|
232
|
|
Finished goods
|
|
|
403
|
|
|
|
1,321
|
|
|
|
1,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,050
|
|
|
$
|
3,776
|
|
|
$
|
3,930
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment
|
|
$
|
804
|
|
|
$
|
1,360
|
|
|
$
|
1,554
|
|
Furniture
|
|
|
85
|
|
|
|
169
|
|
|
|
169
|
|
Leasehold improvements
|
|
|
14
|
|
|
|
90
|
|
|
|
97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
903
|
|
|
|
1,619
|
|
|
|
1,820
|
|
Less: Accumulated depreciation and amortization
|
|
|
(318
|
)
|
|
|
(578
|
)
|
|
|
(664
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
585
|
|
|
$
|
1,041
|
|
|
$
|
1,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents
|
|
$
|
990
|
|
|
$
|
1,279
|
|
|
$
|
1,460
|
|
Less: Accumulated amortization
|
|
|
(378
|
)
|
|
|
(299
|
)
|
|
|
(308
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
612
|
|
|
$
|
980
|
|
|
$
|
1,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2008, future estimated amortization of
patents and patent licenses will be:
|
|
|
|
|
2009
|
|
$
|
37
|
|
2010
|
|
|
37
|
|
2011
|
|
|
36
|
|
2012
|
|
|
35
|
|
2013
|
|
|
35
|
|
Thereafter
|
|
|
800
|
|
|
|
|
|
|
|
|
$
|
980
|
|
|
|
|
|
|
18
CARDIOVASCULAR
SYSTEMS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Information
presented as of and for the three months
ended September 30, 2007 and 2008 is unaudited)
(dollars in thousands, except per share and share
amounts)
As of September 30, 2008 (unaudited), future estimated
amortization of patents and patent licenses will be:
|
|
|
|
|
Nine months ending June 30, 2009
|
|
$
|
28
|
|
2010
|
|
|
37
|
|
2011
|
|
|
36
|
|
2012
|
|
|
35
|
|
2013
|
|
|
35
|
|
Thereafter
|
|
|
981
|
|
|
|
|
|
|
|
|
$
|
1,152
|
|
|
|
|
|
|
This future amortization expense is an estimate. Actual amounts
may vary from these estimated amounts due to additional
intangible asset acquisitions, potential impairment, accelerated
amortization or other events.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
September 30,
|
|
|
|
|
|
|
2007
|
|
|
2008
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Accrued expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and bonus
|
|
$
|
612
|
|
|
$
|
1,229
|
|
|
$
|
898
|
|
|
|
|
|
Commissions
|
|
|
|
|
|
|
1,493
|
|
|
|
1,840
|
|
|
|
|
|
Accrued vacation
|
|
|
124
|
|
|
|
554
|
|
|
|
708
|
|
|
|
|
|
Other
|
|
|
12
|
|
|
|
191
|
|
|
|
261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
748
|
|
|
$
|
3,467
|
|
|
$
|
3,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan
and Security Agreement with Silicon Valley Bank
On September 12, 2008, the Company entered into a loan and
security agreement with Silicon Valley Bank with maximum
available borrowings of $13.5 million. The agreement
includes a $3.0 million term loan, a $5.0 million
accounts receivable line of credit, and two term loans for an
aggregate of $5.5 million that are guaranteed by certain of
the Companys affiliates. The terms of each of these loans
is as follows:
|
|
|
|
|
The $3.0 million term loan has a fixed interest rate of
10.5% and a final payment amount equal to 3.0% of the loan
amount due at maturity. This term loan has a 36 month
maturity, with repayment terms that include interest only
payments during the first six months followed by 30 equal
principal and interest payments. This term loan also includes an
acceleration provision that requires the Company to pay the
entire outstanding balance, plus a penalty ranging from 1.0% to
6.0% of the principal amount, upon prepayment or the occurrence
and continuance of an event of default. As part of the term loan
agreement, the Company granted Silicon Valley Bank a warrant to
purchase 13,000 shares of Series B redeemable
convertible preferred stock at an exercise price of $9.25 per
share. This warrant was assigned a value of $75 for accounting
purposes, is immediately exercisable, and expires ten years
after issuance. The balance outstanding on the term loan at
September 30, 2008 (unaudited) was $3.0 million.
|
|
|
|
|
|
The accounts receivable line of credit has a two year maturity
and a floating interest rate equal to the prime rate, plus 2.0%,
with an interest rate floor of 7.0%. Interest on borrowings is
due monthly and the principal balance is due at maturity.
Borrowings on the line of credit are based on 80% of eligible
domestic receivables, which is defined as receivables aged less
than 90 days from the invoice date along with specific
exclusions for contra-accounts, concentrations, and government
receivables. The Companys accounts receivable receipts
will be
|
19
CARDIOVASCULAR
SYSTEMS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Information
presented as of and for the three months
ended September 30, 2007 and 2008 is unaudited)
(dollars in thousands, except per share and share
amounts)
|
|
|
|
|
deposited into a lockbox account in the name of Silicon Valley
Bank. The accounts receivable line of credit is subject to
non-use fees, annual fees and cancellation fees. There was no
balance outstanding on the line of credit at September 30,
2008 (unaudited).
|
|
|
|
|
|
One of the guaranteed term loans is for $3.0 million and
the other guaranteed term loan is for $2.5 million, each
with a one year maturity. Each of the guaranteed term loans has
a floating interest rate equal to the prime rate, plus 2.25%,
with an interest rate floor of 7.0% (effective rate of 7.0% at
September 30, 2008). Interest on borrowings is due monthly
and the principal balance is due at maturity. One of the
Companys directors and shareholders and two entities who
hold the Companys preferred shares and are also affiliated
with two of the Companys directors agreed to act as
guarantors of these term loans. In consideration for guarantees,
the Company issued the guarantors warrants to purchase an
aggregate of 458,333 shares of the Companys common
stock at an exercise price of $6.00 per share. The balance
outstanding on the guaranteed term loans at September 30,
2008 (unaudited) was $5.5 million (excluding debt discount
of $1.8 million).
|
The guaranteed term loans and common stock warrants were
allocated using the relative fair value method. Under this
method, the Company estimated the fair value of the term loans
without the guarantees and calculated the fair value of the
common stock warrants using the Black-Scholes method. The
relative fair value of the loans and warrants were applied to
the loan proceeds of $5.5 million, resulting in an assigned
value of $3.7 million for the loans and $1.8 million
for the warrants. The assigned value of the warrants of
$1.8 million is treated as a debt discount and amortized
over the one year maturity of the loan.
Borrowings from Silicon Valley Bank are collateralized by all of
the Companys assets, other than the Companys auction
rate securities and intellectual property, and the investor
guarantees. The borrowings are subject to prepayment penalties
and financial covenants, including the Company maintaining a
minimum liquidity ratio and the Companys achievement of
minimum monthly net revenue goals. Any non-compliance by the
Company under the terms of the Companys debt arrangements
could result in an event of default under the Silicon Valley
Bank loan, which, if not cured, could result in the acceleration
of this debt.
Loan
Payable
On March 28, 2008, the Company obtained a margin loan from
UBS Financial Services, Inc. for up to $12.0 million, with
a floating interest rate equal to
30-day
LIBOR, plus 0.25%. The loan was secured by the
$23.0 million par value of the Companys auction rate
securities. The maximum borrowing amount was not set forth in
the written agreement for the loan and may have been adjusted
from time to time by UBS Financial Services in its sole
discretion. The loan was due on demand and UBS Financial
Services may have required the Company to repay it in full from
any loan or financing arrangement or a public equity offering.
The margin requirements were determined by UBS Financial
Services but were not included in the written loan agreement and
were therefore subject to change. As of June 30, 2008, the
margin requirements provided that UBS Financial Services would
require a margin call on this loan if at any time the
outstanding borrowings, including interest, exceed
$12.0 million or 75% of UBS Financial Services
estimate of the fair value of the Companys auction rate
securities. If these margin requirements were not maintained,
UBS Financial Services may have required the Company to make a
loan payment in an amount necessary to comply with the
applicable margin requirements or demand repayment of the entire
outstanding balance. As of June 30, 2008, the Company
maintained these margin requirements.
On August 21, 2008, the Company replaced this loan with a
margin loan from UBS Bank USA, which increased maximum
borrowings available to $23.0 million. This maximum
borrowing amount is not set forth in the written agreement for
the loan and may be adjusted from time to time by UBS Bank at
its discretion. The margin loan has a floating interest rate
equal to
30-day
LIBOR, plus 1.0%. The loan is due on demand and UBS Bank will
20
CARDIOVASCULAR
SYSTEMS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Information
presented as of and for the three months
ended September 30, 2007 and 2008 is unaudited)
(dollars in thousands, except per share and share
amounts)
require the Company to repay it in full from the proceeds
received from a public equity offering where net proceeds exceed
$50.0 million. In addition, if at any time any of the
Companys auction rate securities may be sold, exchanged,
redeemed, transferred or otherwise conveyed for no less than
their par value, then the Company must immediately effect such a
transfer and the proceeds must be used to pay down outstanding
borrowings under this loan. The margin requirements are
determined by UBS Bank but are not included in the written loan
agreement and are therefore subject to change. As of
August 21, 2008, the margin requirements include maximum
borrowings, including interest, of $23.0 million. If these
margin requirements are not maintained, UBS Bank may require the
Company to make a loan payment in an amount necessary to comply
with the applicable margin requirements or demand repayment of
the entire outstanding balance. The Company has maintained the
margin requirements under the loans from both UBS entities. The
outstanding balance on this loan at September 30, 2008
(unaudited) was $22.9 million.
As of September 30, 2008 (unaudited), debt maturities were
as follows:
|
|
|
|
|
Nine months ending June 30, 2009
|
|
$
|
21,853
|
|
2010
|
|
|
6,248
|
|
2011
|
|
|
1,200
|
|
2012
|
|
|
300
|
|
|
|
|
|
|
Total
|
|
$
|
29,601
|
|
Less: Current Maturities
|
|
|
(27,201
|
)
|
|
|
|
|
|
Long-term debt
|
|
$
|
2,400
|
|
|
|
|
|
|
Additional
Financing
In conjunction with the proceeds received through the signing of
the loan and security agreement with Silicon Valley Bank and new
margin loan from UBS Bank USA, the Company reassessed its need
for additional equity or debt capital. Based on current
operating levels, combined with limited capital resources and
proceeds received from the loan and security agreement with
Silicon Valley Bank and new margin loan from UBS Bank USA,
financing the Companys operations will require that the
Company raise additional equity or debt capital prior to or
during the quarter ending September 30, 2009. See
Note 2 for additional discussion of the assessment of the
Companys ability to continue as a going concern.
Convertible
Promissory Notes
At various dates in fiscal 2006 and 2007, the Company obtained
$3,084 in financing from the issuance of convertible promissory
notes (the Notes) that accrued interest at a rate of
8% per annum. Under the terms of the Notes, interest and
principal were due on February 28, 2009, unless earlier
prepaid or converted into Series A redeemable convertible
preferred stock. The interest and principal of the notes convert
at the per share price of any future offerings. On July 19,
2006, all Notes and accrued interest were converted into the
Series A redeemable convertible preferred stock
(Note 10).
In fiscal 2007, the Company issued warrants to purchase
131,349 shares of common stock at $5.71 per share to agents
in connection with the Series A redeemable convertible
preferred stock offering. The warrants expire seven years after
issuance and are exercisable immediately. The warrants were
assigned a value of $99 for accounting purposes. In fiscal 2006
and 2007, the Company also issued warrants to purchase 6,400 and
6,000 shares of common
21
CARDIOVASCULAR
SYSTEMS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Information
presented as of and for the three months
ended September 30, 2007 and 2008 is unaudited)
(dollars in thousands, except per share and share
amounts)
stock to consultants resulting in expense for services of $31
and $4, respectively. The warrants granted to consultants in
2007 were 50% immediately exercisable and 50% exercisable one
year from the date of issuance. During September 2008
(unaudited), the Company issued the guarantors of the Silicon
Valley Bank guaranteed term loans warrants to purchase an
aggregate of 458,333 shares of the Companys common
stock at an exercise price of $6.00 per share. The warrants
issued in September 2008 were assigned a value of
$1.8 million for accounting purposes, are immediately
exercisable, and expire five years after issuance. The following
summarizes common stock warrant activity:
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
Price Range
|
|
|
|
Outstanding
|
|
|
per Share
|
|
|
Warrants outstanding at June 30, 2005
|
|
|
259,925
|
|
|
$
|
1.00 - $6.00
|
|
Warrants issued
|
|
|
6,400
|
|
|
$
|
8.00
|
|
Warrants expired
|
|
|
(3,600
|
)
|
|
$
|
5.00
|
|
|
|
|
|
|
|
|
|
|
Warrants outstanding at June 30, 2006
|
|
|
262,725
|
|
|
$
|
1.00 - $8.00
|
|
Warrants issued
|
|
|
137,349
|
|
|
$
|
5.71
|
|
Warrants exercised
|
|
|
(3,250
|
)
|
|
$
|
1.00
|
|
|
|
|
|
|
|
|
|
|
Warrants outstanding at June 30, 2007
|
|
|
396,824
|
|
|
$
|
1.00 - $8.00
|
|
Warrants exercised
|
|
|
(117,948
|
)
|
|
$
|
1.00 - $8.00
|
|
Warrants expired
|
|
|
(34,602
|
)
|
|
$
|
5.00
|
|
|
|
|
|
|
|
|
|
|
Warrants outstanding at June 30, 2008
|
|
|
244,274
|
|
|
$
|
1.00 - $8.00
|
|
Warrants issued
|
|
|
458,333
|
|
|
$
|
6.00
|
|
Warrants exercised
|
|
|
(10,450
|
)
|
|
$
|
5.00
|
|
Warrants expired
|
|
|
(6,000
|
)
|
|
$
|
5.00
|
|
|
|
|
|
|
|
|
|
|
Warrants outstanding at September 30, 2008 (unaudited)
|
|
|
686,157
|
|
|
$
|
1.00 - $8.00
|
|
|
|
|
|
|
|
|
|
|
Warrants have exercise prices ranging from $1.00 to $8.00 and
are immediately exercisable, unless noted above. The following
assumptions were utilized in determining the fair value of
warrants issued under the Black-Scholes model:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Year Ended June 30,
|
|
September 30,
|
|
|
|
2006
|
|
|
2007
|
|
2008
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Weighted average fair value of warrants granted
|
|
$
|
4.90
|
|
|
$0.69 - $0.76
|
|
$
|
6.17
|
|
Risk-free interest rates
|
|
|
4.34
|
%
|
|
4.70% - 5.02%
|
|
|
3.01
|
%
|
Expected life
|
|
|
5 years
|
|
|
5 - 7 years
|
|
|
5 years
|
|
Expected volatility
|
|
|
70.0
|
%
|
|
44.9% - 45.1%
|
|
|
46.7
|
%
|
Expected dividends
|
|
|
None
|
|
|
None
|
|
|
None
|
|
|
|
6.
|
Stock
Options and Restricted Stock Awards
|
The Company has a 1991 Stock Option Plan (the 1991
Plan), a 2003 Stock Option Plan (the 2003
Plan), and a 2007 Equity Incentive Plan (the 2007
Plan) (collectively the Plans) under which
options to purchase common stock and restricted stock awards
have been granted to employees, directors and consultants at
exercise prices determined by the Board of Directors. The 1991
Plan and 2003 Plan permitted the granting of incentive stock
22
CARDIOVASCULAR
SYSTEMS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Information
presented as of and for the three months
ended September 30, 2007 and 2008 is unaudited)
(dollars in thousands, except per share and share
amounts)
options and nonqualified options. A total of 750,000 shares
were originally reserved for issuance under the 1991 Plan, but
with the execution of the 2003 Plan no additional options were
granted under it. A total of 3,800,000 shares of the
Companys common stock were originally reserved for
issuance under the 2003 Plan but with the approval of the 2007
Plan no additional options will be granted under it. The 2007
Plan allows for the granting of up to 3,000,000 shares of
common stock as approved by the Board of Directors in the form
of nonqualified or incentive stock options, restricted stock
awards, restricted stock unit awards, performance share awards,
performance unit awards or stock appreciation rights to
officers, directors, consultants and employees of the Company.
The 2007 Plan also includes a renewal provision whereby the
number of shares shall automatically be increased on the first
day of each fiscal year beginning July 1, 2008, and ending
July 1, 2017, by the lesser of
(i) 1,500,000 shares, (ii) 5% of the outstanding
common shares on such date, or (iii) a lesser amount
determined by the Board of Directors.
For the year ended June 30, 2008, the Company had granted
the following amount of stock options and restricted stock
awards:
|
|
|
|
|
|
|
Number of
|
|
Grant Type
|
|
Shares
|
|
|
Service based stock options (2007 Plan)
|
|
|
1,383,364
|
|
Performance based stock options (2007 Plan)
|
|
|
775,000
|
|
Service based stock options (2003 Plan)
|
|
|
663,583
|
|
|
|
|
|
|
Total
|
|
|
2,821,947
|
(1)
|
|
|
|
|
|
Restricted stock awards (2007 Plan)
|
|
|
840,138
|
|
|
|
|
(1)
|
|
Excludes 70,000 shares of service based stock options
granted outside of the plans.
|
The Company had granted the following amount of stock options
and restricted stock awards through September 30, 2008
(unaudited):
|
|
|
|
|
|
|
Number of
|
|
Grant Type
|
|
Shares
|
|
|
Service based stock options (2007 Plan)
|
|
|
1,383,364
|
|
Performance based stock options (2007 Plan)
|
|
|
775,000
|
|
Service based stock options (2003 Plan)
|
|
|
663,583
|
|
|
|
|
|
|
Total
|
|
|
2,821,947
|
(1)
|
|
|
|
|
|
Restricted stock awards (2007 Plan)
|
|
|
1,001,961
|
|
|
|
|
(1)
|
|
Excludes 70,000 shares of service based stock options
granted outside of the plans.
|
All options granted under the Plans become exercisable over
periods established at the date of grant. The option exercise
price is generally not less than the estimated fair market
values of the Companys common stock at the date of grant,
as determined by the Companys management and Board of
Directors. In addition, the Company has granted nonqualified
stock options to employees, directors and consultants outside of
the Plans.
In estimating the value of the Companys common stock for
purposes of granting options and determining stock-based
compensation expense, the Companys management and board of
directors conducted stock valuations using two different
valuation methods: the option pricing method and the probability
weighted expected return method. Both of these valuation methods
have taken into consideration the following factors: financing
activity, rights and preferences of the Companys preferred
stock, growth of the executive management team, clinical trial
23
CARDIOVASCULAR
SYSTEMS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Information
presented as of and for the three months
ended September 30, 2007 and 2008 is unaudited)
(dollars in thousands, except per share and share
amounts)
activity, the FDA process, the status of the Companys
commercial launch, the Companys mergers and acquisitions
and public offering processes, revenues, the valuations of
comparable public companies, the Companys cash and working
capital amounts, and additional objective and subjective factors
relating to the Companys business. The Companys
management and board of directors set the exercise prices for
option grants based upon their best estimate of the fair market
value of the common stock at the time they made such grants,
taking into account all information available at those times. In
some cases, management and the board of directors made
retrospective assessments of the valuation of the common stock
at later dates and determined that the fair market value of the
common stock at the times the grants were made was different
than the exercise prices established for those grants. In cases
in which the fair market was higher than the exercise price, the
Company recognized stock-based compensation expense for the
excess of the fair market value of the common stock over the
exercise price.
Stock option activity is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Shares Available
|
|
|
Number of
|
|
|
Average
|
|
|
|
for Grant(a)
|
|
|
Options(b)
|
|
|
Exercise Price
|
|
|
Options outstanding at June 30, 2005
|
|
|
995,750
|
|
|
|
1,552,861
|
|
|
|
3.12
|
|
Options granted
|
|
|
(484,500
|
)
|
|
|
484,500
|
|
|
|
7.53
|
|
Options forfeited or expired
|
|
|
113,500
|
|
|
|
(213,500
|
)
|
|
|
2.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at June 30, 2006
|
|
|
624,750
|
|
|
|
1,823,861
|
|
|
|
3.93
|
|
Shares reserved
|
|
|
2,500,000
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
(2,622,850
|
)
|
|
|
2,622,850
|
|
|
|
5.64
|
|
Options exercised
|
|
|
|
|
|
|
(65,000
|
)
|
|
|
1.00
|
|
Options forfeited or expired
|
|
|
79,850
|
|
|
|
(94,850
|
)
|
|
|
1.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at June 30, 2007
|
|
|
581,750
|
|
|
|
4,286,861
|
|
|
|
4.96
|
|
Shares reserved
|
|
|
3,000,000
|
|
|
|
|
|
|
|
|
|
Options granted(c)
|
|
|
(2,821,947
|
)
|
|
|
2,891,947
|
|
|
|
7.21
|
|
Options exercised
|
|
|
|
|
|
|
(377,500
|
)
|
|
|
3.28
|
|
Options forfeited or expired
|
|
|
81,833
|
|
|
|
(923,167
|
)
|
|
|
2.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at June 30, 2008
|
|
|
841,636
|
|
|
|
5,878,141
|
|
|
|
6.59
|
|
Shares reserved
|
|
|
379,397
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
|
|
|
|
(9,000
|
)
|
|
|
5.39
|
|
Options forfeited or expired
|
|
|
|
|
|
|
(27,666
|
)
|
|
|
5.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at September 30, 2008 (unaudited)
|
|
|
1,221,033
|
|
|
|
5,841,475
|
|
|
|
6.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Excludes the effect of options granted, exercised, forfeited or
expired related to activity from options granted outside the
stock option plans described above; excludes the effect of
restricted stock awards granted or forfeited under the 2007 Plan.
|
|
(b)
|
|
Includes the effect of options granted, exercised, forfeited or
expired from the 1991 Plan, 2003 Plan, 2007 Plan, and options
granted outside the stock option plans described above.
|
|
(c)
|
|
Excludes 70,000 options granted outside of the plans.
|
24
CARDIOVASCULAR
SYSTEMS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Information
presented as of and for the three months
ended September 30, 2007 and 2008 is unaudited)
(dollars in thousands, except per share and share
amounts)
The following table summarizes information about stock options
granted during the years ended June 30, 2007 and 2008 and
three months ended September 30, 2008 (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
Number of Shares
|
|
|
|
|
|
Fair Value of
|
|
Grant Date
|
|
Subject to Options
|
|
|
Exercise Price
|
|
|
Common Stock
|
|
|
July 1, 2006
|
|
|
132,000
|
|
|
$
|
5.71
|
|
|
$
|
2.43
|
|
July 17, 2006
|
|
|
230,000
|
|
|
$
|
5.71
|
|
|
$
|
2.43
|
|
August 15, 2006
|
|
|
239,500
|
|
|
$
|
5.71
|
|
|
$
|
2.43
|
|
October 3, 2006
|
|
|
375,000
|
|
|
$
|
5.71
|
|
|
$
|
2.58
|
|
December 19, 2006
|
|
|
446,100
|
|
|
$
|
5.71
|
|
|
$
|
2.79
|
|
February 14, 2007
|
|
|
46,000
|
|
|
$
|
5.71
|
|
|
$
|
3.58
|
|
February 15, 2007
|
|
|
540,000
|
|
|
$
|
5.71
|
|
|
$
|
3.58
|
|
April 18, 2007
|
|
|
299,250
|
|
|
$
|
5.71
|
|
|
$
|
4.63
|
|
June 12, 2007
|
|
|
315,000
|
|
|
$
|
5.11
|
|
|
$
|
5.95
|
|
August 7, 2007
|
|
|
402,500
|
|
|
$
|
5.11
|
|
|
$
|
5.95
|
|
October 9, 2007
|
|
|
331,083
|
|
|
$
|
5.11
|
|
|
$
|
7.36
|
|
November 13, 2007
|
|
|
154,917
|
|
|
$
|
7.36
|
|
|
$
|
7.90
|
|
December 12, 2007
|
|
|
775,000
|
|
|
$
|
7.86
|
|
|
$
|
8.44
|
|
December 31, 2007
|
|
|
1,056,234
|
|
|
$
|
7.86
|
|
|
$
|
8.44
|
|
February 14, 2008
|
|
|
172,213
|
|
|
$
|
9.04
|
|
|
$
|
9.36
|
|
Options outstanding and exercisable at June 30, 2008, were
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
Number of
|
|
|
Average
|
|
|
Average
|
|
|
Number of
|
|
|
Average
|
|
|
Average
|
|
|
|
Outstanding
|
|
|
Contractual
|
|
|
Exercise
|
|
|
Exercisable
|
|
|
Contractual
|
|
|
Exercise
|
|
Range of Exercise Prices
|
|
Shares
|
|
|
Life (Years)
|
|
|
Price
|
|
|
Shares
|
|
|
Life (Years)
|
|
|
Price
|
|
|
$5.00
|
|
|
94,000
|
|
|
|
0.31
|
|
|
$
|
5.00
|
|
|
|
94,000
|
|
|
|
0.31
|
|
|
$
|
5.00
|
|
$5.11
|
|
|
972,583
|
|
|
|
9.11
|
|
|
$
|
5.11
|
|
|
|
162,083
|
|
|
|
9.06
|
|
|
$
|
5.11
|
|
$5.71
|
|
|
2,122,083
|
|
|
|
5.08
|
|
|
$
|
5.71
|
|
|
|
875,466
|
|
|
|
5.18
|
|
|
$
|
5.71
|
|
$6.00
|
|
|
185,500
|
|
|
|
1.19
|
|
|
$
|
6.00
|
|
|
|
185,500
|
|
|
|
1.19
|
|
|
$
|
6.00
|
|
$7.36
|
|
|
154,917
|
|
|
|
9.38
|
|
|
$
|
7.36
|
|
|
|
154,917
|
|
|
|
9.38
|
|
|
$
|
7.36
|
|
$7.86
|
|
|
1,831,234
|
|
|
|
6.60
|
|
|
$
|
7.86
|
|
|
|
1,056,234
|
|
|
|
4.50
|
|
|
$
|
7.86
|
|
$8.00
|
|
|
297,000
|
|
|
|
2.32
|
|
|
$
|
8.00
|
|
|
|
226,332
|
|
|
|
2.33
|
|
|
$
|
8.00
|
|
$9.04
|
|
|
172,213
|
|
|
|
4.63
|
|
|
$
|
9.04
|
|
|
|
172,213
|
|
|
|
4.63
|
|
|
$
|
9.04
|
|
$12.00
|
|
|
48,611
|
|
|
|
7.76
|
|
|
$
|
12.00
|
|
|
|
48,611
|
|
|
|
7.76
|
|
|
$
|
12.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,878,141
|
|
|
|
6.00
|
|
|
$
|
6.59
|
|
|
|
2,975,356
|
|
|
|
4.76
|
|
|
$
|
6.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
CARDIOVASCULAR
SYSTEMS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Information
presented as of and for the three months
ended September 30, 2007 and 2008 is unaudited)
(dollars in thousands, except per share and share
amounts)
Options issued to employees and directors that are vested or
expected to vest at June 30, 2008, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Contractual
|
|
|
Average
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Life (Years)
|
|
|
Exercise Price
|
|
|
Value
|
|
|
Options vested or expected to vest
|
|
|
5,584,234
|
|
|
|
6.00
|
|
|
$
|
6.59
|
|
|
$
|
20,369
|
|
Options outstanding and exercisable at September 30, 2008
(unaudited), were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
Number of
|
|
|
Average
|
|
|
Average
|
|
|
Number of
|
|
|
Average
|
|
|
Average
|
|
|
|
Outstanding
|
|
|
Contractual
|
|
|
Exercise
|
|
|
Exercisable
|
|
|
Contractual
|
|
|
Exercise
|
|
Range of Exercise Prices
|
|
Shares
|
|
|
Life (Years)
|
|
|
Price
|
|
|
Shares
|
|
|
Life (Years)
|
|
|
Price
|
|
|
$5.00
|
|
|
64,000
|
|
|
|
0.14
|
|
|
$
|
5.00
|
|
|
|
64,000
|
|
|
|
0.14
|
|
|
$
|
5.00
|
|
$5.11
|
|
|
972,583
|
|
|
|
8.85
|
|
|
$
|
5.11
|
|
|
|
290,915
|
|
|
|
8.83
|
|
|
$
|
5.11
|
|
$5.71
|
|
|
2,115,417
|
|
|
|
4.81
|
|
|
$
|
5.71
|
|
|
|
1,130,132
|
|
|
|
4.48
|
|
|
$
|
5.71
|
|
$6.00
|
|
|
185,500
|
|
|
|
0.94
|
|
|
$
|
6.00
|
|
|
|
185,500
|
|
|
|
0.94
|
|
|
$
|
6.00
|
|
$7.36
|
|
|
154,917
|
|
|
|
9.13
|
|
|
$
|
7.36
|
|
|
|
154,917
|
|
|
|
9.13
|
|
|
$
|
7.36
|
|
$7.86
|
|
|
1,831,234
|
|
|
|
6.35
|
|
|
$
|
7.86
|
|
|
|
1,056,234
|
|
|
|
4.25
|
|
|
$
|
7.86
|
|
$8.00
|
|
|
297,000
|
|
|
|
2.07
|
|
|
$
|
8.00
|
|
|
|
234,666
|
|
|
|
2.07
|
|
|
$
|
8.00
|
|
$9.04
|
|
|
172,213
|
|
|
|
4.38
|
|
|
$
|
9.04
|
|
|
|
172,213
|
|
|
|
4.38
|
|
|
$
|
9.04
|
|
$12.00
|
|
|
48,611
|
|
|
|
7.50
|
|
|
$
|
12.00
|
|
|
|
48,611
|
|
|
|
7.50
|
|
|
$
|
12.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,841,475
|
|
|
|
5.78
|
|
|
$
|
6.60
|
|
|
|
3,337,188
|
|
|
|
4.59
|
|
|
$
|
6.84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options issued to employees and directors that are vested or
expected to vest at September 30, 2008 (unaudited), were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Contractual
|
|
|
Exercise
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Life (Years)
|
|
|
Price
|
|
|
Value
|
|
|
Options vested or expected to vest
|
|
|
5,549,401
|
|
|
|
5.78
|
|
|
$
|
6.60
|
|
|
$
|
20,357
|
|
Effective July 1, 2006, the Company adopted
SFAS No. 123(R) using the prospective application
method. Under this method, as of July 1, 2006, the Company
has applied the provisions of this statement to new and modified
awards. The adoption of this pronouncement had no effect on net
loss in fiscal 2006.
An additional requirement of SFAS No. 123(R) is that
estimated pre-vesting forfeitures be considered in determining
stock-based compensation expense. As previously permitted, the
Company recorded forfeitures when they occurred for pro forma
presentation purposes. As of June 30, 2007 and 2008 and
September 30, 2008 (unaudited), the Company estimated its
forfeiture rate at 5.0% per annum. As of June 30, 2007 and
2008 and September 30, 2008 (unaudited), the total
compensation cost for nonvested awards not yet recognized in the
consolidated statements of operations was $2,367, $6,316, and
$4,821, respectively, net of the effect of estimated
forfeitures. These amounts are expected to be recognized over a
weighted-average period of 2.72, 2.17, and 3.04 years,
respectively.
Options typically vest over three years. An employees
unvested options are forfeited when employment is terminated;
vested options must be exercised at or within 90 days of
termination to avoid forfeiture. The Company determines the fair
value of options using the Black-Scholes option pricing model.
The estimated fair value of
26
CARDIOVASCULAR
SYSTEMS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Information
presented as of and for the three months
ended September 30, 2007 and 2008 is unaudited)
(dollars in thousands, except per share and share
amounts)
options, including the effect of estimated forfeitures, is
recognized as expense on a straight-line basis over the
options vesting periods. The following assumptions were
used in determining the fair value of stock options granted
under the Black-Scholes model:
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
|
2006
|
|
2007
|
|
2008
|
|
Weighted average fair value of options granted
|
|
$1.16
|
|
$1.07
|
|
$3.74
|
Risk-free interest rates
|
|
3.71% - 4.77%
|
|
4.56% - 5.18%
|
|
2.45% - 4.63%
|
Expected life
|
|
4 years
|
|
3.5 - 6 years
|
|
3.5 - 6 years
|
Expected volatility
|
|
None
|
|
43.8% - 45.1%
|
|
43.1% - 46.4%
|
Expected dividends
|
|
None
|
|
None
|
|
None
|
The risk-free interest rate for periods within the five and ten
year contractual life of the options is based on the
U.S. Treasury yield curve in effect at the grant date and
the expected option life of 3.5 to 6 years. Expected
volatility is based on the historical volatility of the stock of
companies within the Companys peer group. Generally, the
3.5 to 6 year expected life of stock options granted to
employees represents the weighted average of the result of the
simplified method applied to plain
vanilla options granted during the period, as provided
within SAB No. 110.
The aggregate intrinsic value of a stock award is the amount by
which the market value of the underlying stock exceeds the
exercise price of the award. The aggregate intrinsic value for
outstanding options at June 30, 2006, 2007 and 2008 and
September 30, 2007 and 2008 (unaudited) was $1,301, $5,181,
$21,441, $11,475, and $21,428, respectively. The aggregate
intrinsic value for exercisable options at June 30, 2006,
2007 and 2008 and September 30, 2007 and 2008 (unaudited)
was $1,301, $4,417 $9,692, $6,869 and $11,459, respectively. The
total aggregate intrinsic value of options exercised during the
years ended June 30, 2006 and 2007 was negligible while the
aggregate intrinsic value of options exercised during the year
ended June 30, 2008 and three months ended
September 30, 2008 (unaudited) was $1,435 and $43,
respectively. Shares supporting option exercises are sourced
from new share issuances.
On December 12, 2007, the Company granted 775,000
performance based incentive stock options to certain executives.
The options shall become exercisable in full on the third
anniversary of the date of grant provided that the Company has
completed its initial public offering of common stock or a
change of control transaction before December 31, 2008 and
shall terminate on the tenth anniversary of the date of the
grant. For this purpose change of control
transaction shall be defined as an acquisition of the
Company through the sale of substantially all of the
Companys assets and the consequent discontinuance of its
business or through a merger, consolidation, exchange,
reorganization or similar transaction. The Company has not
recorded any stock-based compensation expense related to
performance based incentive stock options for the year ended
June 30, 2008 or three months ended September 30, 2008
(unaudited) as it was not probable that the performance based
criteria would be achieved.
As of June 30, 2008 and September 30, 2008
(unaudited), the Company had granted 840,138 and 1,001,961
restricted stock awards, respectively. The fair value of each
restricted stock award was equal to the fair market value of the
Companys common stock at the date of grant. Vesting of
restricted stock awards range from one to three years. The
estimated fair value of restricted stock awards, including the
effect of estimated forfeitures, is recognized
27
CARDIOVASCULAR
SYSTEMS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Information
presented as of and for the three months
ended September 30, 2007 and 2008 is unaudited)
(dollars in thousands, except per share and share
amounts)
on a straight-line basis over the restricted stocks
vesting period. Restricted stock award activity for the three
months ended September 30, 2008 (unaudited) is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Number of
|
|
|
Average Fair
|
|
|
|
Shares
|
|
|
Value
|
|
|
Restricted stock awards outstanding at June 30, 2007
|
|
|
|
|
|
$
|
|
|
Restricted stock awards granted
|
|
|
840,138
|
|
|
|
9.49
|
|
Restricted stock awards forfeited
|
|
|
(27,834
|
)
|
|
|
9.29
|
|
|
|
|
|
|
|
|
|
|
Restricted stock awards outstanding at June 30, 2008
|
|
|
812,304
|
|
|
|
9.50
|
|
Restricted stock awards granted
|
|
|
161,823
|
|
|
|
10.22
|
|
Restricted stock awards forfeited
|
|
|
(25,029
|
)
|
|
|
10.09
|
|
|
|
|
|
|
|
|
|
|
Restricted stock awards outstanding at September 30, 2008
(unaudited)
|
|
|
949,098
|
|
|
$
|
9.60
|
|
|
|
|
|
|
|
|
|
|
The following amounts were recognized as stock-based
compensation expense in the consolidated statements of
operations for the year ended June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
Restricted
|
|
|
|
|
|
|
Options
|
|
|
Stock Awards
|
|
|
Total
|
|
|
Cost of goods sold
|
|
$
|
91
|
|
|
$
|
141
|
|
|
$
|
232
|
|
Selling, general and administrative
|
|
|
5,957
|
|
|
|
895
|
|
|
|
6,852
|
|
Research and development
|
|
|
181
|
|
|
|
116
|
|
|
|
297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,229
|
|
|
$
|
1,152
|
|
|
$
|
7,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following amounts were recognized as stock-based
compensation expense in the consolidated statements of
operations for the three months ended September 30, 2008
(unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
Restricted
|
|
|
|
|
|
|
Options
|
|
|
Stock Awards
|
|
|
Total
|
|
|
Cost of goods sold
|
|
$
|
38
|
|
|
$
|
138
|
|
|
$
|
176
|
|
Selling, general and administrative
|
|
|
297
|
|
|
|
1,087
|
|
|
|
1,384
|
|
Research and development
|
|
|
41
|
|
|
|
71
|
|
|
|
112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
376
|
|
|
$
|
1,296
|
|
|
$
|
1,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
CARDIOVASCULAR
SYSTEMS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Information
presented as of and for the three months
ended September 30, 2007 and 2008 is unaudited)
(dollars in thousands, except per share and share
amounts)
The components of the Companys overall deferred tax assets
and liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2008
|
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
$
|
76
|
|
|
$
|
2,423
|
|
Accrued expenses
|
|
|
54
|
|
|
|
181
|
|
Inventories
|
|
|
226
|
|
|
|
409
|
|
Deferred rent
|
|
|
24
|
|
|
|
40
|
|
Deferred revenue
|
|
|
|
|
|
|
46
|
|
Accounts receivable
|
|
|
|
|
|
|
66
|
|
Research and development credit carryforwards
|
|
|
|
|
|
|
1,798
|
|
Net operating loss carryforwards
|
|
|
16,524
|
|
|
|
25,825
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
16,904
|
|
|
|
30,788
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
Accelerated depreciation and amortization
|
|
|
(15
|
)
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(15
|
)
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(16,889
|
)
|
|
|
(30,768
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
The Company has established valuation allowances to fully offset
its deferred tax assets due to the uncertainty about the
Companys ability to generate the future taxable income
necessary to realize these deferred assets, particularly in
light of the Companys historical losses. The future use of
net operating loss carryforwards is dependent on the Company
attaining profitable operations, and will be limited in any one
year under Internal Revenue Code Section 382 (IRC
Section 382) due to significant ownership changes, as
defined under the Code Section, as a result of the
Companys equity financings.
At June 30, 2008, the Company had net operating loss
carryforwards for federal and state income tax reporting
purposes of approximately $69,000 which will expire at various
dates through fiscal 2028.
The Company adopted the provisions of FIN 48 on
July 1, 2007. Under FIN 48, the Company recognizes the
financial statement benefit of a tax position only after
determining that the relevant tax authority would more likely
than not sustain the position following an audit. For tax
positions meeting the more-likely-than-not threshold, the amount
recognized in the financial statements is the largest benefit
that has a greater than 50% likelihood of being realized upon
ultimate settlement with the relevant tax authority. At the
adoption date, the Company applied FIN 48 to all tax
positions for which the statute of limitations remained open.
The Company did not record any adjustment to the liability for
unrecognized income tax benefits or accumulated deficit for the
cumulative effect of the adoption of FIN 48.
In addition, the amount of unrecognized tax benefits as of
July 1, 2007, June 30, 2008 and September 30,
2008 (unaudited) was zero. There have been no material changes
in unrecognized tax benefits since July 1, 2007, and the
Company does not anticipate a significant change to the total
amount of unrecognized tax benefits within the next
12 months. The Company recognizes penalties and interest
accrued related to unrecognized tax benefits in income
29
CARDIOVASCULAR
SYSTEMS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Information
presented as of and for the three months
ended September 30, 2007 and 2008 is unaudited)
(dollars in thousands, except per share and share
amounts)
tax expense for all periods presented. The Company did not have
an accrual for the payment of interest and penalties related to
unrecognized tax benefits as of June 30, 2008 or
September 30, 2008 (unaudited).
The Company is subject to income taxes in the U.S. federal
jurisdiction and various state jurisdictions. Tax regulations
within each jurisdiction are subject to the interpretation of
the related tax laws and regulations and require significant
judgment to apply. The Company is potentially subject to income
tax examinations by tax authorities for the tax years ended
June 30, 2006, 2007 and 2008. The Company is not currently
under examination by any taxing jurisdiction.
|
|
8.
|
Commitment
and Contingencies
|
Operating
Lease
The Company leases manufacturing and office space and equipment
under various lease agreements which expire at various dates
through November 2012. Rental expenses were $201, $341 and $572
for the years ended June 30, 2006, 2007 and 2008,
respectively and $132 and $161 for the three months ended
September 30, 2007 and 2008 (unaudited), respectively.
Future minimum lease payments under the agreements as of
June 30, 2008 are as follows:
|
|
|
|
|
2009
|
|
$
|
464
|
|
2010
|
|
|
471
|
|
2011
|
|
|
475
|
|
2012
|
|
|
476
|
|
2013
|
|
|
202
|
|
|
|
|
|
|
|
|
$
|
2,088
|
|
|
|
|
|
|
Future minimum lease payments under the agreements as of
September 30, 2008 (unaudited) are as follows:
|
|
|
|
|
Nine months ended June 30, 2009
|
|
$
|
350
|
|
2010
|
|
|
471
|
|
2011
|
|
|
475
|
|
2012
|
|
|
476
|
|
2013
|
|
|
202
|
|
|
|
|
|
|
|
|
$
|
1,974
|
|
|
|
|
|
|
Related
Party Transaction
On December 12, 2007, the Company entered into an agreement
with Reliant Pictures Corporation, or RPC, to participate in a
documentary film to be produced by RPC. Portions of the film
will focus on the Companys technologies, and RPC will
provide separate filmed sections for the Companys
corporate use. In connection with that agreement, the Company
contributed $150 in December 2007 and an additional $100 in
January 2008 towards the production of the documentary. One of
the Companys directors holds more than 10% of the equity
of RPC and is a director of RPC. Another director of the Company
is a shareholder of RPC.
30
CARDIOVASCULAR
SYSTEMS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Information
presented as of and for the three months
ended September 30, 2007 and 2008 is unaudited)
(dollars in thousands, except per share and share
amounts)
The Company offers a 401(k) plan to its employees. Eligible
employees may authorize up to $16 of their annual compensation
as a contribution to the plan, subject to Internal Revenue
Service limitations. The plan also allows eligible employees
over 50 years old to contribute an additional $5 subject to
Internal Revenue Service limitations. All employees must be at
least 21 years of age to participate in the plan. The
Company did not provide any employer matching contributions for
the years ended June 30, 2006, 2007 and 2008 or for the
three months ended September 30, 2008 (unaudited).
|
|
10.
|
Redeemable
Convertible Preferred Stock and Convertible Preferred Stock
Warrants
|
During the period from July 2006 to October 2006, the Company
completed the sale of 4,728,547 shares of Series A
redeemable convertible preferred stock, no par value, at a
purchase price of $5.71 per share for a total of $27,000. In
addition, Series A convertible preferred stock warrants
were issued to purchase 671,453 shares of Series A
redeemable convertible preferred stock in connection with the
sale of the Series A redeemable convertible preferred
stock. The Series A convertible preferred stock warrants
have a purchase price of $5.71 per share with a five-year term
and were assigned an initial value of $1,767 for accounting
purposes using the Black-Scholes model. The change in value of
the Series A convertible preferred stock warrants due to
accretion as a result of remeasurement was $916, $300, and ($14)
as of June 30, 2008 and September 30, 2007 and 2008
(unaudited), respectively, and is included in interest expense
on the consolidated statements of operations. The Series A
redeemable convertible preferred stock offering included the
conversion of $3,145 of convertible promissory notes and accrued
interest previously sold by the Company at various dates in
fiscal 2006 and 2007 (Note 4).
In connection with the Series A redeemable convertible
preferred stock offering, the Company incurred offering costs of
$1,742 and issued warrants to purchase 131,349 shares of
common stock at a purchase price of $5.71 with a term of seven
years. The warrants were assigned a value of $99 for accounting
purposes (Note 5).
As of June 30, 2007, the Company had sold
977,046 shares of
Series A-1
redeemable convertible preferred stock, no par value, at a
purchase price of $8.50 per share for total proceeds of $8,271,
net of offering costs of $34. During the period from July 2007
to September 2007, the Company sold an additional
1,211,379 shares of
Series A-1
redeemable convertible preferred stock for total proceeds of
$10,282, net of offering costs of $14.
On December 17, 2007, the Company completed the sale of
2,162,150 shares of Series B redeemable convertible
preferred stock at a price of $9.25 per share for total proceeds
of $19,963, net of offering costs of $37.
In connection with the preparation of the Companys
financial statements as of June 30, 2007 and 2008, and
September 30, 2008 (unaudited), the Companys
management and Board of Directors established what it believes
to be a fair market value of the Companys Series A,
Series A-1,
and Series B redeemable convertible preferred stock. This
determination was based on concurrent significant stock
transactions with third parties and a variety of factors,
including the Companys business milestones achieved and
future financial projections, the Companys position in the
industry relative to its competitors, external factors impacting
the value of the Company in its marketplace, the stock
volatility of comparable companies in its industry, general
economic trends and the application of various valuation
methodologies.
Changes in the current market value of the Series A,
Series A-1,
and Series B redeemable convertible preferred stock are
recorded as accretion of redeemable convertible preferred stock
and as accumulated deficit in the consolidated statements of
changes in shareholders (deficiency) equity and in the
consolidated statements of operations as accretion of redeemable
convertible preferred stock.
31
CARDIOVASCULAR
SYSTEMS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Information
presented as of and for the three months
ended September 30, 2007 and 2008 is unaudited)
(dollars in thousands, except per share and share
amounts)
The rights, privileges and preferences of the Series A,
Series A-1,
and Series B redeemable convertible preferred stock
(collectively, the Preferred Stock) are as follows:
Dividends
The holders of Preferred Stock are entitled to receive cash
dividends at the rate of 8% of the original purchase price. All
dividends shall accrue, whether or not earned or declared, and
whether or not the Company has legally available funds. All such
dividends shall be cumulative and shall be payable only
(i) when and as declared by the Board of Directors,
(ii) upon liquidation or dissolution of the Company and
(iii) upon redemption of the Preferred Stock by the
Company. As of June 30, 2008 and September 30, 2007
and 2008 (unaudited), $6,362, $2,714, and $7,703, respectively,
of dividends had accumulated but had not yet been declared by
the Companys Board of Directors, or paid by the Company as
of such respective dates. The holders of the Preferred Stock
have the right to participate in dividends with the common
shareholders on an as converted basis.
Conversion
The holders of the Preferred Stock shall have the right to
convert, at their option, their shares into common stock on a
share for share basis (subject to adjustments for events of
dilution). Each preferred share shall be automatically converted
into unregistered shares of the Companys common stock
without any Company action, thereby providing conversion of all
preferred shares, upon the approval of a majority of the
preferred shareholders or upon the completion of an underwritten
public offering of the Companys shares, pursuant to a
registration statement on
Form S-1
under the Securities Act of 1933, as amended, of which the
aggregate proceeds to the Company exceed $40,000 (a
Qualified Public Offering). Upon conversion, each
share of the preferred stock shall be converted into one share
of common stock (subject to adjustment as defined in the
preferred stock sale agreement), dividends will no longer
accumulate, and previously accumulated, undeclared and unpaid
dividends will not be payable by the Company.
In the event the holders of the Preferred Stock elect to convert
their preferred shares into shares of common stock, and those
holders request that the Company register those shares of common
stock, the Company is obligated to use its best efforts to
effect a registration of the Companys common shares. In
the event that the common shares are not registered, the Company
is not subject to financial penalties.
Redemption
The Company shall not have the right to call or redeem at any
time any shares of Preferred Stock. Holders of Preferred Stock
shall have the right to require the Company to redeem in cash,
30% of the original amount on the fifth year anniversary of the
Purchase Agreement, 30% after the sixth year and 40% after the
seventh year. The price the Company shall pay for the redeemed
shares shall be the greater of (i) the price per share paid
for the Preferred Stock, plus all accrued and unpaid dividends;
or (ii) the fair market value of the Preferred Stock at the
time of redemption as determined by a professional appraiser.
Liquidation
In the event of any liquidation or winding up of the Company,
the holders of preferred stock are entitled to receive an amount
equal to (i) the price paid for the preferred shares, plus
(ii) all dividends accrued and unpaid before any payments
shall be made to holders of stock junior to the preferred stock.
The remaining net assets of the Company, if any, would be
distributed to the holders of preferred and common stock based
on their ownership amounts assuming the conversion of the
preferred stock. The amount is limited based on the overall
return on
32
CARDIOVASCULAR
SYSTEMS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Information
presented as of and for the three months
ended September 30, 2007 and 2008 is unaudited)
(dollars in thousands, except per share and share
amounts)
investment earned by the preferred stock holders. At
June 30, 2008 and September 30, 2007 and 2008
(unaudited), the liquidation value of the Series A
redeemable convertible preferred stock was $31,230, $29,586, and
$31,782, respectively, and
Series A-1
redeemable convertible preferred stock were $19,862, $18,730,
and $20,243, respectively. At June 30, 2008 and
September 30, 2008 (unaudited), the liquidation value of
the Series B redeemable convertible preferred stock was
$20,871 and $21,280, respectively.
Voting
Rights
The holders of Preferred Stock have the right to vote on all
actions to be taken by the Company based on such number of votes
per share as shall equal the number of shares of common stock
into which each share of redeemable convertible preferred stock
is then convertible. The holders of Preferred Stock also have
the right to designate, and have designated, two individuals to
the Companys Board of Directors.
Registration
Rights
Pursuant to the terms of an investor rights agreement dated
July 19, 2006, entered into with certain holders of the
preferred stock and the holder of a warrant to purchase shares
of the Companys common stock if, at any time after the
earlier of four years after the date of the agreement or six
months after the Companys IPO, the Company receives a
written request from the holders of a majority of the
registrable securities then outstanding, the Company has agreed
to file up to three registration statements on
Form S-3.
Shturman
Legal Proceedings
The Company is party to two legal proceedings relating to a
dispute with Dr. Leonid Shturman, the Companys
founder, and Shturman Medical Systems, Inc., or SMS, a company
owned by Dr. Shturman. On or about November 2006, the
Company discovered that Dr. Shturman had sought patent
protection in the United Kingdom and with the World Intellectual
Property Organization as the sole inventor for technology
relating to the use of counterbalance weights with rotational
atherectomy devices, or the counterbalance technology, which the
Company believes should have been assigned to it.
On August 16, 2007, the Company served and filed a Demand
for Arbitration against SMS alleging that SMS should have
assigned the counterbalance technology to the Company, and
SMSs failure to assign the technology violated the
assignment provision of the Stock Purchase Agreement. On
September 28, 2007, SMS filed a Statement of Answer and
Motion to Dismiss alleging the Stock Purchase Agreement had
expired, thus ending Dr. Shturmans obligation to
assign atherectomy technology. Following a trial, the arbitrator
ruled on May 5, 2008 that the technology in question was
developed pursuant to the Stock Purchase Agreement and working
relationship agreements between the parties, and that SMS
breached the agreements by failing to transfer the technology to
the Company in 2002. The panel ordered SMS to transfer to the
Company its interest in the technology and SMS did so. The
Hennepin County District Court affirmed the arbitrators
award.
Also on August 16, 2007, the Company filed a complaint in
the U.S. District Court in Minnesota against
Dr. Shturman for a breach of his employment agreement.
Specifically, under the employment agreement, Dr. Shturman
was obligated to assign any inventions for the diagnosis or
treatment of coronary or periphery vessels that were disclosed
to patent attorneys or otherwise documented by Dr. Shturman
during the employment term. The Company alleged that the
counterbalance technology was disclosed
and/or
documented during the term of his employment agreement and the
Company was seeking judgment against Dr. Shturman for
breach of the employment agreement and a declaratory judgment
that Dr. Shturman must assign his interest in the
counterbalance
33
CARDIOVASCULAR
SYSTEMS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Information
presented as of and for the three months
ended September 30, 2007 and 2008 is unaudited)
(dollars in thousands, except per share and share
amounts)
technology to the Company. On October 31, 2007,
Dr. Shturman filed an answer and counterclaim against the
Company and other co- defendants asserting conversion, theft and
unjust enrichment for the alleged illegal removal and transport
to the United States of two drive shaft winding devices
purportedly developed by Shturman Cardiology Systems, Russia, as
well as raising certain affirmative defenses. The Company filed
its answer on November 16, 2007. Dr. Shturman filed a
motion to stay this lawsuit on the basis that it should be
stayed pending the resolution of alleged proceedings in the
U.S. Patent and Trademark Office. On July 7, 2008 the
motion was heard by the court, but the court did not rule on
Dr. Shturmans motion at that time. Instead, the court
ordered a settlement conference with the court, which occurred
on September 4 and 5, 2008.
On September 4 and 5, 2008, the Company settled all of its
claims against Dr. Shturman. In settlement of the
Companys claim against him, Dr. Shturman agreed that
he is not the author or owner of the counterbalance technology,
as defined in the May 5, 2008 award of the arbitrator.
However, as part of the settlement, Dr. Shturman has the
right to argue that the counterbalance technology, as defined in
the award of the arbitrator, is separate and distinct from the
inventions or know-how contained in any current or future patent
applications made by him, and the Company has the right to argue
that such patent applications do incorporate the counterbalance
technology, as defined by the arbitrator in the award. In
settlement of Dr. Shturmans counterclaim against the
Company, the parties entered into a settlement that is
conditioned upon the Companys agreement to pay
Dr. Shturman $50 by November 14, 2008, and in
connection with Dr. Shturmans desire to sell
22,000 shares of the Companys common stock held by
him by November 14, 2008 at a fixed price, the Company
agreed to refer to Dr. Shturman the names of parties that
may be interested in purchasing such shares in private
transactions. As of November 19, 2008, the Company had
referred to Dr. Shturman names of parties that are
interested in purchasing these shares and had also paid
Dr. Shturman $50. In addition, the Company and
Dr. Shturman have executed a settlement agreement, and
pending a stipulation of dismissal with prejudice to be filed by
Dr. Shturmans counsel, the Company anticipates that
Dr. Shturmans counterclaim against the Company will
be dismissed.
The Company is defending this litigation vigorously and believes
that Dr. Shturmans counterclaims and affirmative
defenses are without merit and the outcome of this case will not
have a material adverse effect on the Companys business,
operations, cash flows or financial condition. The Company
recognized the $50 expense related to the settlement of this
matter but believes additional expense and an adverse outcome of
this claim are not probable and cannot be reasonably estimated.
ev3
Legal Proceedings
On December 28, 2007, ev3 Inc., ev3 Endovascular, Inc. and
FoxHollow Technologies, Inc., together referred to as the
Plaintiffs, filed a complaint in the Ramsey County District
Court for the State of Minnesota against the Company and two
former employees of FoxHollow currently employed by the Company,
as well as against unknown former employees of Plaintiffs
currently employed by the Company referred to in the complaint
as John Does 1-10. On July 2, 2008, the Plaintiffs in this
lawsuit served and filed a Second Amended Complaint. In this
amended pleading, Plaintiffs now assert claims against the
Company as well as ten of its employees, all of whom were
formerly employed by one or more of the Plaintiffs. The Second
Amended Complaint also continues to refer to John Doe
1-10 defendants, who are not identified by name.
The Second Amended Complaint includes seven counts, which allege
as follows:
|
|
|
|
|
Individual defendants violated provisions in their employment
agreements with their former employer FoxHollow, barring them
from misusing FoxHollow Confidential Information.
|
34
CARDIOVASCULAR
SYSTEMS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Information
presented as of and for the three months
ended September 30, 2007 and 2008 is unaudited)
(dollars in thousands, except per share and share
amounts)
|
|
|
|
|
Individual defendants violated a provision in their FoxHollow
employment agreements barring them, for a period of one year
following their departure from FoxHollow, from soliciting or
encouraging employees of FoxHollow to join the Company.
|
|
|
|
Individual defendants breached a duty of loyalty owed to
FoxHollow.
|
|
|
|
The Company and individual defendants misappropriated trade
secrets of one or more of the Plaintiffs.
|
|
|
|
All defendants engaged in unfair competition.
|
|
|
|
The Company tortiously interfered with the contracts between
FoxHollow and individual defendants by allegedly procuring
breaches of the non-solicitation/encouragement provision in
those agreements, and an individual defendant tortiously
interfered with the contracts between certain individual
defendants and FoxHollow by allegedly procuring breaches of the
confidential information provision in those agreements.
|
|
|
|
All defendants conspired to gain an unfair competitive and
economic advantage for the Company to the detriment of the
Plaintiffs.
|
In the Second Amended Complaint, the Plaintiffs seek, among
other forms of relief, an award of damages in an amount greater
than $50, a variety of forms of injunctive relief, exemplary
damages under the Minnesota Trade Secrets Act, and recovery of
their attorney fees and litigation costs. Although the Company
has requested the information, the Plaintiffs have not yet
disclosed what specific amount of damages they claim.
The action is presently in the discovery phase. The Company has
responded to interrogatories and document requests served by the
Plaintiffs and has also served written discovery requests
directed to the Plaintiffs. Two depositions were taken before
July 31, 2008 and it is expected that numerous witness
depositions will be taken in the coming months.
In July 2008, the Company and the individual defendants filed
motions to dismiss the action. These motions were based on the
argument that the Plaintiffs are required to resolve the claims
at issue in arbitration in accordance with arbitration
provisions in the employment agreements between at least eight
of the individual defendants and FoxHollow.
The Company is defending this litigation vigorously, and
believes that the outcome of this litigation will not have a
materially adverse effect on the Companys business,
operations, cash flows or financial condition. The Company has
not recognized any expense related to the settlement of this
matter as an adverse outcome of this action is not probable and
cannot be reasonably estimated.
35
CARDIOVASCULAR
SYSTEMS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Information
presented as of and for the three months
ended September 30, 2007 and 2008 is unaudited)
(dollars in thousands, except per share and share
amounts)
The following table presents a reconciliation of the numerators
and denominators used in the basic and diluted earnings per
common share computations:
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Three Months Ended
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Year Ended June 30,
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September 30,
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2006
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2007
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2008
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2007
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2008
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(Unaudited)
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(Unaudited)
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Numerator
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Net loss available in basic calculation
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$
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4,895
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$
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15,596
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$
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39,167
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$
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7,441
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$
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13,699
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Plus: Accretion of redeemable convertible preferred stock(a)
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16,835
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19,422
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4,853
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Loss available to common stock- holders plus assumed conversions
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$
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4,895
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$
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32,431
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$
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58,589
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$
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12,294
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$
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13,699
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Denominator
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Weighted average common shares basic
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6,183,715
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6,214,820
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6,835,126
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6,291,512
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7,692,248
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Effect of dilutive stock options and warrants(b)(c)
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Weighted average common shares outstanding diluted
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6,183,715
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6,214,820
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6,835,126
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6,291,512
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7,692,248
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Loss per common share basic and diluted
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$
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(0.79
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)
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$
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(5.22
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)
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$
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(8.57
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)
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$
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(1.95
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)
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$
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(1.78
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(a)
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The calculation for accretion of redeemable convertible
preferred stock marks the redeemable convertible preferred stock
to fair value, which equals or exceeds the amount of any
undeclared dividends on the redeemable convertible preferred
stock.
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(b)
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At June 30, 2006, 2007 and 2008, 262,725, 1,068,277 and
906,713 warrants, respectively, and at September 30, 2007
and 2008 (unaudited), 1,068,277 and 1,361,596 warrants,
respectively, were outstanding. The effect of the shares that
would be issued upon exercise of these warrants has been
excluded from the calculation of diluted loss per share because
those shares are anti-dilutive.
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(c)
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At June 30, 2006, 2007 and 2008, 1,823,861, 4,286,861 and
5,878,141 stock options, respectively, and at September 30,
2007 and 2008 (unaudited), 4,599,361 and 5,841,475 stock
options, respectively, were outstanding. The effect of the
shares that would be issued upon exercise of these options has
been excluded from the calculation of diluted loss per share
because those shares are anti-dilutive.
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On December 6, 2007, the shareholders of the Company
approved the increase of authorized shares of common stock to
70,000,000 shares and undesignated shares of 5,000,000.
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14.
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Initial
Public Offering Costs (unaudited)
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The Company withdrew the registration statement for its initial
public offering in conjunction with the announcement of the
execution of the merger agreement with Replidyne, Inc., as
described in Note 15. Therefore,
36
CARDIOVASCULAR
SYSTEMS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Information
presented as of and for the three months
ended September 30, 2007 and 2008 is unaudited)
(dollars in thousands, except per share and share
amounts)
previously capitalized offering costs of approximately
$1.7 million were included in selling, general and
administrative during the three months ended September 30,
2008.
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15.
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Subsequent
Events (unaudited)
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Reverse
Merger Agreement
On November 3, 2008 the Company entered into a definitive
merger agreement with Replidyne, Inc. in an all-stock
transaction. Under terms of the agreement, Replidyne will issue
new shares of its common stock to Company shareholders whereby
former Company shareholders are expected to own 83% of the
combined company and Replidyne stockholders are expected to own
17% of the combined company on a fully diluted basis using the
treasury stock method, subject to adjustments as described in
the merger agreement, and assuming that Replidynes net
assets at closing are between $37 million and
$40 million, as calculated in accordance with the terms of
the merger agreement. The merger is subject to shareholder
approval, and is expected to be consummated in the first quarter
of calendar 2009.
Stock
Options Amended
On December 15, 2008, the Company amended the vesting
provisions of 775,000 performance based incentive stock options
that had been granted to certain executives on December 12,
2007. Previously, the stock options were exercisable in full on
the third anniversary of the date of grant provided the Company
completed its initial public offering of common stock or a
change in control transaction before December 31, 2008. The
vesting provisions were updated to provide that exercisability
of the options are conditioned upon the closing of the
Companys proposed merger with Replidyne, Inc. and the
options shall vest to the extent of 50% of the total shares on
the first anniversary of the merger and the remaining 50% on the
second anniversary of the merger.
37