UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________________
FORM 10-Q
_____________________________________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
March 31, 2018
Commission File No. 000-52082
____________________________________________________
CARDIOVASCULAR SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
____________________________________________________
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Delaware
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No. 41-1698056
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(State or other jurisdiction of
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(IRS Employer
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incorporation or organization)
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Identification No.)
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1225 Old Highway 8 Northwest
St. Paul, Minnesota 55112-6416
(Address of principal executive offices, including zip code)
Registrant’s telephone number, including area code: (651) 259-1600
____________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES
x
NO
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Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES
x
NO
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer
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x
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Accelerated filer
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Non-accelerated filer
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(Do not check if a smaller reporting company)
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Smaller reporting company
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Emerging growth company
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES
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The number of shares outstanding of the registrant’s common stock as of
April 27, 2018
was: Common Stock, $0.001 par value per share,
33,258,205
shares.
Cardiovascular Systems, Inc.
Table of Contents
PART I. — FINANCIAL INFORMATION
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ITEM 1.
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CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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Cardiovascular Systems, Inc.
Consolidated Balance Sheets
(Dollars in thousands, except per share and share amounts)
(Unaudited)
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March 31,
2018
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June 30,
2017
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ASSETS
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Current assets
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Cash and cash equivalents
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$
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109,305
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$
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107,912
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Accounts receivable, net
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31,941
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28,472
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Inventories
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17,002
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16,897
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Marketable securities
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586
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704
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Prepaid expenses and other current assets
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2,350
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5,074
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Total current assets
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161,184
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159,059
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Property and equipment, net
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28,165
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29,696
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Patents, net
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5,148
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5,056
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Other assets
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262
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129
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Total assets
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$
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194,759
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$
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193,940
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LIABILITIES AND STOCKHOLDERS’ EQUITY
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Current liabilities
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Accounts payable
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$
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9,836
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$
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10,736
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Accrued expenses
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24,765
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30,236
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Deferred revenue
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1,554
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—
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Total current liabilities
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36,155
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40,972
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Long-term liabilities
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Financing obligation
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21,083
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21,100
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Deferred revenue
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9,023
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10,000
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Other liabilities
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2,042
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3,479
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Total liabilities
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68,303
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75,551
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Commitments and contingencies (see Note 7)
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Common stock, $0.001 par value; authorized 100,000,000 common shares at March 31, 2018 and June 30, 2017; issued and outstanding 33,258,205 at March 31, 2018 and 32,849,563 at June 30, 2017, respectively
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33
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33
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Additional paid in capital
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457,648
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447,559
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Accumulated other comprehensive income
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103
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100
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Accumulated deficit
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(331,328
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(329,303
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)
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Total stockholders’ equity
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126,456
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118,389
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Total liabilities and stockholders’ equity
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$
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194,759
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$
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193,940
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
Cardiovascular Systems, Inc.
Consolidated Statements of Operations
(Dollars in thousands, except per share and share amounts)
(Unaudited)
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Three Months Ended
March 31,
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Nine Months Ended
March 31,
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2018
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2017
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2018
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2017
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Net revenues
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$
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55,587
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$
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52,144
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$
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157,891
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$
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151,987
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Cost of goods sold
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9,969
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11,139
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28,670
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29,768
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Gross profit
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45,618
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41,005
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129,221
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122,219
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Expenses:
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Selling, general and administrative
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37,796
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37,332
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110,722
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108,191
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Research and development
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7,333
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5,432
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20,037
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16,572
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Total expenses
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45,129
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42,764
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130,759
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124,763
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Income (loss) from operations
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489
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(1,759
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(1,538
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(2,544
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Other (income) expense, net:
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Interest expense
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429
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20
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1,291
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66
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Interest income and other, net
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(338
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(48
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(903
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(112
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Total other (income) expense, net
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91
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(28
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388
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(46
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Income (loss) before income taxes
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398
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(1,731
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(1,926
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(2,498
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Provision for income taxes
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33
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18
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99
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66
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Net income (loss)
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$
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365
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$
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(1,749
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$
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(2,025
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$
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(2,564
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Basic earnings per share
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$
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0.01
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$
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(0.05
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$
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(0.06
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$
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(0.08
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Diluted earnings per share
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$
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0.01
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$
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(0.05
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$
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(0.06
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$
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(0.08
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Basic weighted average shares outstanding
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33,237,552
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32,650,974
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33,105,174
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32,232,409
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Diluted weighted average shares outstanding
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33,641,804
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32,650,974
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33,105,174
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32,232,409
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
Cardiovascular Systems, Inc.
Consolidated Statements of Comprehensive Loss
(Dollars in thousands)
(Unaudited)
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Three Months Ended
March 31,
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Nine Months Ended
March 31,
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2018
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2017
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2018
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2017
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Net income (loss)
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$
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365
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$
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(1,749
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$
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(2,025
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$
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(2,564
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Other comprehensive income:
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Unrealized gain (loss) on available for sale securities
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(1
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20
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27
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57
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Adjustment for net gain realized and included in other income, net
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(8
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—
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(24
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—
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Total change in unrealized gain (loss) on available for sale securities
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(9
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20
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3
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57
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Comprehensive income (loss)
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$
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356
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$
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(1,729
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$
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(2,022
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)
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$
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(2,507
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
Cardiovascular Systems, Inc.
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
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Nine Months Ended
March 31,
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2018
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2017
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Cash flows from operating activities
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Net loss
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$
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(2,025
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$
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(2,564
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Adjustments to reconcile net loss to net cash used in operations
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Depreciation of property and equipment
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2,927
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2,932
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Amortization and write-off of patents
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650
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883
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Provision for (recovery of) doubtful accounts
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(18
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315
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Loss on disposal of equipment
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—
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158
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Stock-based compensation
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7,880
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8,336
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Changes in assets and liabilities
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Accounts receivable
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(3,594
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(5,064
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)
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Inventories
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(105
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835
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Prepaid expenses and other assets
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2,879
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(153
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Accounts payable
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(544
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)
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190
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Accrued expenses and other liabilities
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(6,945
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)
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615
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Deferred revenue
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577
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10,000
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Net cash provided by operating activities
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1,682
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16,483
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Cash flows from investing activities
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Purchases of property and equipment
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(1,614
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)
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(841
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)
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Proceeds from convertible note receivable
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143
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—
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Sales of marketable securities
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144
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—
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Costs incurred in connection with patents
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(880
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)
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(496
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)
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Net cash used in investing activities
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(2,207
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)
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(1,337
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)
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Cash flows from financing activities
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Proceeds from employee stock purchase plan
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1,385
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1,400
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Exercise of stock options
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513
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5,002
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Proceeds from financing
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—
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20,944
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Other
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20
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—
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Net cash provided by financing activities
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1,918
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27,346
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Net change in cash and cash equivalents
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1,393
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42,492
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Cash and cash equivalents
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Beginning of period
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107,912
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60,638
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End of period
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$
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109,305
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$
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103,130
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
CARDIOVASCULAR SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(For the
Nine Months Ended
March 31, 2018
and
2017
)
(Dollars in thousands, except per share and share amounts)
(Unaudited)
1. Business Overview
Company Description
Cardiovascular Systems, Inc. (the “Company” or “CSI
®
”) develops, manufactures and markets devices for the treatment of vascular diseases. The Company’s peripheral arterial disease (“PAD”) products, the Diamondback 360
®
Peripheral Orbital Atherectomy System (“OAS”) and the Stealth 360
®
Peripheral OAS, are catheter-based platforms capable of treating a broad range of plaque types, including calcified plaque, in leg arteries both above and below the knee, and these products address many of the limitations associated with other surgical, catheter and pharmacological treatment alternatives. These devices use smaller access sheaths that can provide procedural benefits and allow physicians to treat PAD patients in a variety of vessel sizes, including the small and tortuous vessels located below the knee, and facilitate access through alternative sites in the ankle, foot and wrist, as well as in the groin. The Company refers to the products above as the “Peripheral OAS.”
In October 2013, the Company received premarket approval from the United States Food and Drug Administration (“FDA”) to market the Diamondback 360 Coronary OAS (the “Coronary OAS”) as a treatment for severely calcified coronary arteries. In March 2017, the Company received approval from the FDA to market the Diamondback 360 Coronary OAS Micro Crown (the “Coronary OAS Micro Crown”).
In January 2018, the Company announced two new relationships that broaden the Company’s product portfolio. The Company is now the exclusive U.S. distributor of OrbusNeich
®
balloon products. In March 2018, the FDA granted 510(k) clearance for the OrbusNeich 1.0mm Sapphire
®
11 Pro coronary balloon (“1.0mm balloon”). The
1.0
mm balloon, the first and only 1.0mm coronary balloon available in the United States, offers industry-leading entry and crossing profiles and is precision engineered for crossing and treating extremely tight and complex lesions. The Company anticipates OrbusNeich’s full coronary balloon product portfolio will become available in 2018 and 2019.
In January 2018, the Company also announced that it entered into an original equipment manufacturer agreement with Integer Holdings Corporation for CSI-branded ZILIENT™ guidewires. The broad market launch of the CSI-branded ZILIENT peripheral guidewires is expected to begin later in the current fiscal year. The Company anticipates that additional ZILIENT guidewires for coronary interventions and radial peripheral interventions will become available in the future.
In February 2018, the Company announced that the first patients were treated using its FDA-cleared extended length Diamondback 360
®
Peripheral OAS to treat PAD. Radial access allows physicians to reach and treat lower limb PAD lesions through the radial artery in the wrist, providing an alternative access point and more options to treat complicated and at-risk patients. The Company is currently in a limited market rollout with an anticipated full commercial launch in fiscal 2019.
In November 2016, the Company signed an exclusive distribution agreement with Medikit Co., Ltd. (“Medikit”) to sell its Coronary and Peripheral OAS in Japan. In March 2017, the Company received approval from Japan’s Ministry of Health, Labor and Welfare for its Coronary OAS Micro Crown. On February 1, 2018, the Coronary OAS Micro Crown received reimbursement approval in Japan, followed by the first commercial sales, making Japan the first international market for any of the Company’s products. The Coronary OAS Micro Crown is the only atherectomy device designed to both pilot tight, calcific lesions and treat
2.5
to
4
mm vessels with a single device. The Company is currently evaluating options for additional international markets to expand the coronary and peripheral opportunities.
2. Summary of Significant Accounting Policies
Interim Financial Statements
The Company 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. The year-end consolidated balance sheet was derived from the Company’s audited consolidated financial statements, but does not include all disclosures as required by GAAP. These interim consolidated financial statements reflect all adjustments consisting of normal recurring accruals, which, in the opinion of management, are necessary for a fair statement of the Company’s 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 included in the Annual Report on Form 10-K filed by the Company with the SEC on August 24, 2017. The nature of the Company’s business is such that the results of any interim period may not be indicative of the results to be expected for the entire year.
Use of Estimates
The preparation of the Company’s consolidated financial statements in conformity with GAAP 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
The Company has stock-based compensation plans, which include stock options, nonvested share awards, and an employee stock purchase plan. Fair value of option awards is determined using option-pricing models, fair value of nonvested share awards with market conditions is determined using the Monte Carlo simulation, and fair value of nonvested share awards that vest based upon service conditions is determined by the closing market price of the Company’s stock on the date of grant. Stock-based compensation expense is recognized ratably over the requisite service period for the awards expected to vest.
Revenue Recognition
The Company sells the majority of its products via direct shipment to hospitals or clinics. The Company recognizes revenue when all of the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred; the sales price is fixed or determinable; and collectability is reasonably assured. Revenue recognition may occur upon shipment or upon delivery to the customer site, based on the contract terms. The Company records estimated sales returns, discounts and rebates as a reduction of net sales.
Deferred revenue associated with the upfront payment received under the Company’s distribution agreement with Medikit (see Note 3 for additional details) is recognized in relation to the estimated future sales under the agreement. The short term portion represents the expected amount of deferred revenue that will be recognized over the next year. The estimate of future sales under contract will continue to be assessed and adjusted accordingly.
Costs related to products delivered are recognized in the period revenue is recognized. Cost of goods sold consists primarily of raw materials, direct labor, and manufacturing overhead.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued amended revenue recognition guidance to clarify the principles for recognizing revenue from contracts with customers. The guidance requires an entity to recognize revenue in an amount that reflects the consideration to which an entity expects to be entitled in exchange for the transfer of goods or services. The guidance also requires expanded disclosures relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative disclosures are required about customer contracts, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. The Company is continuing its process of analyzing the impact of the new standard. The Company has reviewed its customer contracts, applying the five-step model of the new standard to the customer contracts and assessing the results to the Company’s current accounting. The Company is also evaluating the method of adoption and assessing changes that might be necessary to information technology systems, processes, and internal controls to capture new data and address changes in financial reporting. Effective July 1, 2018, the Company will be revising its revenue recognition accounting policy and
expanding revenue disclosures to reflect the requirements of the amended revenue recognition guidance. Because of the nature of the work that remains, at this time the Company is unable to reasonably estimate the impact of adoption on its consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities,” which revises the accounting requirements related to the classification and measurement of investments in equity securities and the presentation of certain fair value changes for financial liabilities measured at fair value. The update also changes certain disclosure requirements associated with the fair value of financial instruments. These changes will require an entity to measure, at fair value, investments in equity securities and recognize the changes in fair value within net income. ASU 2016-01 will be applied on a modified retrospective basis to all outstanding instruments, with an adjustment recorded to opening retained earnings as of the beginning of the first period in which the guidance becomes effective. The guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. The guidance is effective for the Company on July 1, 2018. The Company does not anticipate a material impact on its financial statements upon adoption.
In February 2016, the FASB issued ASU 2016-02, “Leases.” The guidance requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet. ASU 2016-02 is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods, and should be applied using a modified retrospective approach. Early adoption is permitted. The guidance is effective for the Company on July 1, 2019. The Company is currently evaluating the timing, method of adoption and impact of the new lease guidance on its financial statements.
In June 2016, the FASB issued ASU No. 2016-13, “Measurement of Credit Losses on Financial Instruments,” which revises guidance for the accounting for credit losses on financial instruments within its scope. The new standard introduces an approach, based on expected losses, to estimate credit losses on certain types of financial instruments and modifies the impairment model for available-for-sale debt securities. The new approach to estimating credit losses (referred to as the current expected credit losses model) applies to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans, held-to-maturity debt securities, net investments in leases and off-balance-sheet credit exposures. ASU 2016-13 is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted and should be applied as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The guidance is effective for the Company on July 1, 2020. The Company does not anticipate a material impact on its financial statements upon adoption.
In May 2017, the FASB issued ASU 2017-09, “Scope of Modification Accounting,” which clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. The new guidance will reduce diversity in practice and result in fewer changes to the terms of an award being accounted for as modifications. ASU 2017-09 will be applied prospectively to awards modified on or after the adoption date. The guidance is effective for annual periods, and interim periods within those annual periods beginning after December 15, 2017, with early adoption permitted. The guidance is effective for the Company on July 1, 2018. The Company does not anticipate a material impact on its financial statements upon adoption.
3. Selected Consolidated Financial Statement Information
Accounts Receivable, Net
Accounts receivable consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
June 30,
|
|
|
2018
|
|
2017
|
|
Accounts receivable
|
$
|
32,742
|
|
|
$
|
29,336
|
|
|
Less: Allowance for doubtful accounts
|
(801
|
)
|
|
(864
|
)
|
|
Accounts receivable, net
|
$
|
31,941
|
|
|
$
|
28,472
|
|
Inventories
Inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
June 30,
|
|
|
2018
|
|
2017
|
|
Raw materials
|
$
|
7,919
|
|
|
$
|
7,898
|
|
|
Work in process
|
1,354
|
|
|
1,221
|
|
|
Finished goods
|
7,729
|
|
|
7,778
|
|
|
Inventories
|
$
|
17,002
|
|
|
$
|
16,897
|
|
Property and Equipment, Net
Property and equipment consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
June 30,
|
|
|
2018
|
|
2017
|
|
Land
|
$
|
500
|
|
|
$
|
500
|
|
|
Building
|
22,420
|
|
|
22,420
|
|
|
Equipment
|
17,034
|
|
|
16,502
|
|
|
Furniture
|
2,709
|
|
|
2,709
|
|
|
Leasehold improvements
|
438
|
|
|
86
|
|
|
Construction in progress
|
924
|
|
|
421
|
|
|
|
44,025
|
|
|
42,638
|
|
|
Less: Accumulated depreciation
|
(15,860
|
)
|
|
(12,942
|
)
|
|
Property and equipment, net
|
$
|
28,165
|
|
|
$
|
29,696
|
|
In December 2016, the Company entered into a Purchase and Sale Agreement, as subsequently amended (collectively, the “Sale Agreement”), with Krishna Holdings, LLC (“Krishna”), providing for the sale to Krishna of the Company’s headquarters facility in St. Paul, Minnesota (the “Facility”) for a cash purchase price of
$21,500
. On March 30, 2017, the sale of the Facility under the Sale Agreement closed. The Company received proceeds of approximately $
20,944
($21,500, less
$556
of transaction expenses). The net proceeds are to be used for working capital and general corporate purposes.
Under the Sale Agreement, the Company entered into a Lease Agreement (the “Lease Agreement”) with Krishna Holdings, LLC, Apex Holdings, LLC, Kashi Associates, LLC, Keva Holdings, LLC, S&V Ventures, LLC, Polo Group LLC, SPAV Holdings LLC, Star Associates LLC, and The Global Villa, LLC. As the lease terms resulted in a capital lease classification, the Company accounted for the sale and leaseback of the Facility as a financing transaction where the assets remain on the Company’s balance sheet. See Note 4 for further discussion of future payment obligations under the Lease Agreement.
Accrued Expenses
Accrued expenses consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
June 30,
|
|
|
2018
|
|
2017
|
|
Salaries and bonus
|
$
|
4,214
|
|
|
$
|
8,247
|
|
|
Commissions
|
8,075
|
|
|
8,217
|
|
|
Accrued vacation
|
3,520
|
|
|
3,436
|
|
|
Accrued excise, sales and other taxes
|
3,555
|
|
|
3,497
|
|
|
Accrued legal
|
—
|
|
|
2,600
|
|
|
Legal settlement
|
1,839
|
|
|
1,814
|
|
|
Clinical studies
|
1,163
|
|
|
657
|
|
|
Other accrued expenses
|
2,399
|
|
|
1,768
|
|
|
Accrued expenses
|
$
|
24,765
|
|
|
$
|
30,236
|
|
Legal Settlement
On June 28, 2016, the Company entered into a Settlement Agreement (the “Settlement Agreement”) with the United States of America, acting through the Department of Justice (the “DOJ”) and on behalf of the Office of Inspector General of the Department of Health and Human Services, and Travis Thams, to resolve the previously disclosed DOJ investigation and the qui tam complaint filed by Thams pursuant to the False Claims Act. Under the Settlement Agreement, the Company agreed to pay
$8,000
(the “Settlement Amount”) as follows: an initial payment of
$3,000
, paid on July 1, 2016, with the remaining
$5,000
, which bears interest at
1.8%
per annum, payable in
11
equal quarterly installments, beginning January 1, 2017. The amount payable within the next twelve months is included in accrued expenses (as noted in the table above) with the long-term portion included in other liabilities (as noted in the table below). Under the Settlement Agreement, if the Company makes a single payment in excess of
$2,000
, which payment is not covered by an insurance policy, in settlement of any claims before paying the full Settlement Amount, the remaining unpaid balance of the Settlement Amount will become immediately due and payable, with interest accruing on the unpaid principal portion at an interest rate of 1.8% per annum.
Other Liabilities
Other non-current liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
June 30,
|
|
|
2018
|
|
2017
|
|
Legal settlement
|
$
|
932
|
|
|
$
|
2,314
|
|
|
Deferred compensation
|
439
|
|
|
519
|
|
|
Deferred grant incentive
|
464
|
|
|
473
|
|
|
Other non-current liabilities
|
207
|
|
|
173
|
|
|
Other liabilities
|
$
|
2,042
|
|
|
$
|
3,479
|
|
Deferred Revenue
In November 2016, the Company signed an exclusive distribution agreement with Medikit to sell its Coronary and Peripheral OAS in Japan. To secure exclusive distribution rights, Medikit made an upfront payment of
$10,000
to the Company, which is refundable based on performance under the terms of the agreement. In February 2018, the Coronary OAS Micro Crown received reimbursement approval in Japan, followed by the first commercial sales. Accordingly, the Company has classified
$802
of the upfront payment as current and
$9,023
as long-term based on its expected amount of deferred revenue that will be recognized over the next year. The estimate will be assessed and adjusted accordingly on a quarterly basis.
The Company also has
$752
of current deferred revenue related to the prepayment of an order from Medikit that will be shipped during the three months ended June 30, 2018.
4. Debt
Revolving Credit Facility
In March 2017, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Silicon Valley Bank (“SVB”). The Loan Agreement provides for a senior, secured revolving credit facility (the “Revolver”) of
$40,000
(the “Maximum Dollar Amount”).
Advances under the Revolver may be made from time to time up to the Maximum Dollar Amount, subject to certain borrowing limitations. The Revolver has a maturity date of
March 31, 2020
and bears interest at a floating per annum rate equal to the Wall Street Journal prime rate, less
0.25%
. Interest on borrowings is due monthly and the principal balance is due at maturity. Borrowings up to
$10,000
are available on a non-formula basis. Borrowings above
$10,000
are based on (i)
85%
of eligible domestic accounts receivable, and (ii) the lesser of
50%
of eligible inventory or
$5,000
, subject to adjustment as defined in Loan Agreement. Upon the Revolver’s maturity, any outstanding principal balance, unpaid accrued interest, and all other obligations under the Revolver will be due and payable. The Company will incur a fee equal to
1%
of the Maximum Dollar Amount upon termination of the Loan Agreement or the Revolver for any reason prior to the maturity date, unless refinanced with SVB.
The Company’s obligations under the Loan Agreement are secured by certain of the Company’s assets, including, among other things, accounts receivable, deposit accounts, inventory, equipment, general intangibles and records pertaining to the foregoing.
The collateral does not include the Company’s intellectual property, but the Company has agreed not to encumber its intellectual property without the consent of SVB. The Loan Agreement contains customary covenants limiting the Company’s ability to, among other things, incur debt or liens, make certain investments and loans, enter into transactions with affiliates, undergo certain fundamental changes, dispose of assets, or change the nature of its business. In addition, the Loan Agreement contains financial covenants requiring the Company to maintain, at all times when any amounts are outstanding under the Revolver, either (i) minimum unrestricted cash at SVB and unused availability on the Revolver of at least
$10,000
or (ii) minimum trailing three-month Adjusted EBITDA of
$1,000
. If the Company does not comply with the various covenants under the Loan Agreement, the interest rate on outstanding amounts will increase by
5%
and SVB may, subject to various customary cure rights, decline to provide additional advances under the Revolver, require the immediate payment of all amounts outstanding under the Revolver, and foreclose on all collateral.
Under the Loan Agreement, the Company paid SVB a non-refundable commitment fee of
$80
, which will be amortized to interest expense over the term of the Loan Agreement. The Company is required to pay a fee equal to
0.35%
per annum on the unused portion of the Revolver, payable quarterly in arrears. The Company is not obligated to draw any funds under the Revolver and has not done so under the Revolver since entering into the Loan Agreement.
No
amounts are outstanding as of
March 31, 2018
.
Financing Obligation
In connection with the sale of the Facility, the Company entered into an agreement to lease the Facility. The Lease Agreement has an initial term of
fifteen
years, with
four
consecutive renewal options of
five
years each at the Company’s option, with a base annual rent in the first year of
$1,638
and annual escalations of
3%
thereafter. Rent during subsequent renewal terms will be at the then fair market rental rate. As the lease terms resulted in a capital lease classification, the Company accounted for the sale and leaseback of the Facility as a financing transaction where the assets remain on the Company’s balance sheet and a financing obligation was recorded for
$20,944
. As lease payments are made, they will be allocated between interest expense and a reduction of the financing obligation, resulting in a value of the financing obligation that is equivalent to the net book value of the assets at the end of the lease term. The effective interest rate is
7.89%
. At the end of the lease (including any renewal option terms), the Company will remove the assets and financing obligation from its balance sheet.
Payments under the initial term of the Lease Agreement as of
March 31, 2018
are as follows:
|
|
|
|
|
|
|
|
Three months ended June 30, 2018
|
$
|
422
|
|
|
Fiscal 2019
|
1,699
|
|
|
Fiscal 2020
|
1,750
|
|
|
Fiscal 2021
|
1,803
|
|
|
Fiscal 2022
|
1,857
|
|
|
Thereafter
|
21,288
|
|
|
|
$
|
28,819
|
|
5. Deferred Compensation Plan
The Company offers certain members of management and highly compensated employees the opportunity to defer up to
100%
of their base salary (after 401(k), payroll tax and other deductions), performance bonus and discretionary bonus and elect to receive the deferred compensation at a fixed future date of participant’s choosing. Each participant may, at the time of his or her deferral election, choose to allocate the deferred compensation into investment alternatives set by the Human Resources and Compensation Committee. The amount payable to each participant under the plan will change in value based upon the investment selected by that participant and is classified as current or long-term on the Company’s balance sheet based on the disbursement elections made by the participants. As of
March 31, 2018
,
$195
of the amount payable is included in accrued liabilities and
$439
is included in other liabilities on the consolidated balance sheet.
The available-for-sale marketable securities are comprised of individual mutual funds which invest in fixed income and equity securities and consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2018
|
|
|
|
Amortized Cost
|
|
Unrealized Gains
|
|
Unrealized Losses
|
|
Fair Value
|
|
Mutual funds
|
|
$
|
483
|
|
|
$
|
103
|
|
|
$
|
—
|
|
|
$
|
586
|
|
|
Total short-term investments
|
|
$
|
483
|
|
|
$
|
103
|
|
|
$
|
—
|
|
|
$
|
586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2017
|
|
|
|
Amortized Cost
|
|
Unrealized Gains
|
|
Unrealized Losses
|
|
Fair Value
|
|
Mutual funds
|
|
$
|
604
|
|
|
$
|
100
|
|
|
$
|
—
|
|
|
$
|
704
|
|
|
Total short-term investments
|
|
$
|
604
|
|
|
$
|
100
|
|
|
$
|
—
|
|
|
$
|
704
|
|
During the three and
nine months ended
March 31, 2018
and
2017
, there were
no
purchases of available-for-sale securities or other-than-temporary impairments. There was
$48
and
$144
of available-for-sale securities that were sold during the three and
nine months ended
March 31, 2018
, respectively. There were
no
sales during the three and
nine months ended
March 31, 2017
. During the three and
nine months ended
March 31, 2018
, there was a realized gain of
$8
and
$24
, respectively, that was recorded within interest and other, net on the consolidated statement of operations. There were
no
realized gains or losses in the three and
nine months ended
March 31, 2017
.
The following table provides information by level for the Company’s available-for-sale marketable securities that were measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of March 31, 2018
Using Inputs Considered as
|
|
|
|
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Mutual funds
|
|
$
|
586
|
|
|
$
|
221
|
|
|
$
|
365
|
|
|
$
|
—
|
|
|
Total short-term investments
|
|
$
|
586
|
|
|
$
|
221
|
|
|
$
|
365
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of June 30, 2017
Using Inputs Considered as
|
|
|
|
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Mutual funds
|
|
$
|
704
|
|
|
$
|
281
|
|
|
$
|
423
|
|
|
$
|
—
|
|
|
Total short-term investments
|
|
$
|
704
|
|
|
$
|
281
|
|
|
$
|
423
|
|
|
$
|
—
|
|
The Company’s marketable securities classified within Level 1 are valued using real-time quotes for transactions in active exchange markets. Marketable securities within Level 2 are valued using readily available pricing sources. There were
no
transfers of assets between Level 1 and Level 2 of the fair value measurement hierarchy during the
nine months ended
March 31, 2018
. Any transfers between levels would be recognized on the date of the event or when a change in circumstances causes a transfer.
6. Stock Options and Restricted Stock Awards
On November 15, 2017, the Company’s stockholders approved the 2017 Equity Incentive Plan (the “2017 Plan”), for the purpose of granting equity awards to employees, directors and consultants. The 2017 Plan replaced the 2014 Equity Incentive Plan (the “2014 Plan”), and
no
further equity awards may be granted under the 2014 Plan or the 2007 Equity Incentive Plan (the “2007 Plan”) (the 2017 Plan, 2014 Plan and the 2007 Plan are collectively referred to as the “Plans”).
Stock Options
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 value of the Company’s common stock at the date of grant, as determined by the Company’s management and Board of Directors. An employee’s vested options must be exercised at or within
90
days of termination to avoid forfeiture. As of
March 31, 2018
, all outstanding options were fully vested.
Stock option activity for the
nine
months ended
March 31, 2018
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Options
(a)
|
|
Weighted
Average
Exercise Price
|
|
Options outstanding at June 30, 2017
|
78,201
|
|
|
$
|
9.07
|
|
|
Options exercised
|
(55,880
|
)
|
|
$
|
9.20
|
|
|
Options outstanding at March 31, 2018
|
22,321
|
|
|
$
|
8.75
|
|
|
(a) Includes the effect of options granted, exercised, forfeited or expired from the 2007 Plan.
|
Restricted Stock
The value of each restricted stock award is equal to the fair market value of the Company’s common stock at the date of grant. Vesting of time-based restricted stock awards ranges from
one
to
three years
. The estimated fair value of restricted stock awards, including the effect of estimated forfeitures, is recognized on a straight-line basis over the restricted stock’s vesting period.
Restricted stock award activity for the
nine
months ended
March 31, 2018
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted
Average Fair
Value
|
|
Outstanding at June 30, 2017
|
486,584
|
|
|
$
|
21.26
|
|
|
Granted
|
281,152
|
|
|
$
|
27.91
|
|
|
Forfeited
|
(63,287
|
)
|
|
$
|
22.74
|
|
|
Vested
|
(242,062
|
)
|
|
$
|
22.80
|
|
|
Outstanding at March 31, 2018
|
462,387
|
|
|
$
|
24.67
|
|
Performance-Based Restricted Stock
The Company also grants performance-based restricted stock awards to certain executives and other management. In August and November 2017, the Company granted an aggregate maximum of
251,479
and
27,140
shares, respectively, that vest based on the Company’s total shareholder return relative to total shareholder return of the Company’s peer group (a market condition), as measured by the closing prices of the stock of the Company and the peer group members for the
90
trading days preceding July 1, 2017 compared to the closing prices of the stock of the Company and the peer group members for the 90 trading days preceding July 1, 2020. Vesting of these awards will be determined on the date that the Company’s Annual Report on Form 10-K for the fiscal year ending June 30, 2020 is filed.
To calculate the estimated fair value of these restricted stock awards with market conditions, the Company uses a Monte Carlo simulation, which uses the expected average stock prices to estimate the expected number of shares that will vest. The Monte Carlo simulation resulted in an aggregate fair value of approximately
$3,801
, which the Company will recognize as expense using the straight-line method over the period that the awards are expected to vest. Stock-based compensation expense related to an award with a market condition will be recognized regardless of whether the market condition is satisfied, provided that the requisite service has been provided.
Performance-based restricted stock awards granted in August 2016 that are outstanding vest based on the Company’s total shareholder return relative to total shareholder return of the Company’s peer group (a market condition), as measured by the closing prices of the stock of the Company and the peer group members for the 90 trading days preceding July 1, 2016 compared to the closing prices of the stock of the Company and the peer group members for the 90 trading days preceding July 1, 2019.
Performance-based restricted stock award activity for the
nine
months ended
March 31, 2018
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted
Average Fair
Value
|
|
Outstanding at June 30, 2017
|
318,584
|
|
|
$
|
11.97
|
|
|
Granted
|
278,889
|
|
|
$
|
13.63
|
|
|
Forfeited
|
(66,295
|
)
|
|
$
|
13.17
|
|
|
Outstanding at March 31, 2018
|
531,178
|
|
|
$
|
12.69
|
|
7. Commitment and Contingencies
Operating Leases
The Company leases manufacturing space, equipment and apartments under lease agreements that expire at various dates through
March 2020
. Rental expenses were
$157
and
$164
for the three months ended
March 31, 2018
and
2017
, respectively, and
$496
and
$485
for the nine months ended
March 31, 2018
and
2017
, respectively.
Future minimum lease payments under the agreements as of
March 31, 2018
are as follows:
|
|
|
|
|
|
|
|
Three months ended June 30, 2018
|
$
|
119
|
|
|
Fiscal 2019
|
472
|
|
|
Fiscal 2020
|
353
|
|
|
|
$
|
944
|
|
Stockholder Securities Litigation
With respect to
Shoemaker v. Cardiovascular Systems, Inc. et al.
, 0:16-cv-00568 (D. Minn.) described in Note 8 of the notes to the consolidated annual financial statements included in the Annual Report on Form 10-K filed by the Company with the SEC on August 24, 2017, in Note 7 of the notes to the consolidated (unaudited) financial statements included in the Quarterly Report on Form 10-Q filed by the Company with the SEC on November 3, 2017, and in Note 7 of the notes to the consolidated (unaudited) financial statements included in the Quarterly Report on Form 10-Q filed by the Company with the SEC on February 9, 2018, the Company filed a motion to dismiss the plaintiffs’ amended complaint on August 11, 2017. On January 10, 2018, the court granted the Company’s motion to dismiss the amended complaint and dismissed the amended complaint with prejudice.
Other Matters
In the ordinary conduct of business, the Company is subject to various lawsuits and claims covering a wide range of matters including, but not limited to, employment claims and commercial disputes. While the outcome of these matters is uncertain, the Company does not believe there are any significant matters as of
March 31, 2018
that are probable or estimable, for which the outcome could have a material adverse impact on its consolidated balance sheets or statements of operations.
8. Earnings Per Share
The following table presents a reconciliation of the numerators and denominators used in the basic and diluted earnings per common share computations (in thousands except share and per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
Nine Months Ended
March 31,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
Numerator
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
365
|
|
|
$
|
(1,749
|
)
|
|
$
|
(2,025
|
)
|
|
$
|
(2,564
|
)
|
|
Income allocated to participating securities
|
(5
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Net income (loss) available to common stockholders
|
$
|
360
|
|
|
$
|
(1,749
|
)
|
|
$
|
(2,025
|
)
|
|
$
|
(2,564
|
)
|
|
Denominator
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding – basic
|
33,237,552
|
|
|
32,650,974
|
|
|
33,105,174
|
|
|
32,232,409
|
|
|
Effect of dilutive stock options
(1)
|
14,197
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Effect of dilutive restricted stock units
(2)
|
318,122
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Effect of performance-based restricted stock awards
(3)
|
67,918
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Effect of employee stock purchase plan
(4)
|
4,015
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Weighted average common shares outstanding – diluted
|
33,641,804
|
|
|
32,650,974
|
|
|
33,105,174
|
|
|
32,232,409
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share – basic
|
$
|
0.01
|
|
|
$
|
(0.05
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.08
|
)
|
|
Earnings per common share – diluted
|
$
|
0.01
|
|
|
$
|
(0.05
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.08
|
)
|
|
|
|
|
(1)
|
At March 31, 2018 and 2017,
22,321
and
106,694
stock options were outstanding, respectively. 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 for the nine months ended March 31, 2018 and the three and nine months ended March 31, 2017 because those shares are anti-dilutive.
|
|
|
|
|
(2)
|
At March 31, 2018 and 2017,
335,869
and
349,430
additional shares of common stock, respectively, were issuable upon the settlement of outstanding restricted stock units. The effect of the shares that would be issued upon settlement of these restricted stock units has been excluded from the calculation of diluted loss per share for the nine months ended March 31, 2018 and the three and nine months ended March 31, 2017 because those shares are anti-dilutive.
|
|
|
|
|
(3)
|
At March 31, 2018 and 2017,
237,369
and
334,505
performance-based restricted stock awards, respectively, were outstanding. The effect of the shares that would be issued upon vesting of these awards has been excluded from the calculation of diluted loss per share for the nine months ended March 31, 2018 and the three and nine months ended March 31, 2017 because those shares are anti-dilutive.
|
|
|
|
|
(4)
|
At March 31, 2018, the Company included the number of shares that would be issued under our employee stock purchase plan based on the aggregate expected amount of withholdings and the average unrecognized compensation expense as assumed proceeds. The effect of these shares has been excluded from the calculation of diluted loss per shares for the nine months ended March 31, 2018 and the three and nine months ended March 31, 2017, because those shares are anti-dilutive.
|
Unvested time-based restricted stock awards that contain nonforfeitable rights to dividends are participating securities and included in the computation of earnings per share pursuant to the two-class method. Under this method, earnings attributable to the Company are allocated between common stockholders and the participating awards, as if the awards were a second class of stock. During periods of net income, the calculation of earnings per share excludes the income attributable to participating securities in the numerator and the dilutive impact of these securities from the denominator. In the event of a net loss, undistributed earnings are not allocated to participating securities and the denominator excludes the dilutive impact of these securities as they do not share in the losses of the Company. During the three months ended March 31, 2018, undistributed earnings allocated to participating securities were based on
462,387
unvested time-based restricted stock awards.
9. Income Taxes
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was signed into law. Among other provisions, the Tax Act will lower the Federal statutory corporate income tax rate from
35%
to
21%
. Under ASC 740,
Accounting for Income Taxes
, the enactment of the Tax Act requires companies to recognize the effects of changes in tax laws and rates on deferred tax assets and liabilities and the retroactive effects of changes in tax laws in the period in which the new legislation is enacted. The Company has reviewed the provisions that will impact the Company, however, given that its deferred tax assets are offset by a full valuation allowance, the Company does not expect these changes to have a net impact on its financial position and net loss after the revaluation. There is no change to the Company’s assertion on maintaining a full valuation allowance against its deferred tax assets.
|
|
|
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes appearing under Item 1 of Part I of this Quarterly Report on Form 10-Q. Some of the information contained in this discussion and analysis or set forth elsewhere in this report, including information with respect to our plans and strategy for our business and expected financial results, includes forward-looking statements that involve risks and uncertainties. You should review the “Risk Factors” discussed in our Annual Report on Form 10-K for the year ended
June 30, 2017
and subsequent reports on Form 10-Q, including in Item 1A of Part II of this Quarterly Report on Form 10-Q, for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
OVERVIEW
We are a medical technology company leading the way in the effort to successfully treat patients suffering from peripheral and coronary artery diseases, including those with arterial calcium, the most difficult arterial disease to treat. We are committed to clinical rigor, constant innovation and a defining drive to set the industry standard to deliver safe and effective medical devices that improve lives of patients facing these difficult disease states.
Peripheral
Our peripheral arterial disease (“PAD”) products, the Diamondback 360
®
Peripheral Orbital Atherectomy System (“OAS”) (“Diamondback 360 Peripheral”), the Diamondback 360 60cm Peripheral OAS, the Diamondback 360 4 French 1.25 Peripheral OAS, the Diamondback 360 1.50 Peripheral OAS, the Diamondback 360 2.00 Peripheral OAS, and the Stealth 360
®
Peripheral OAS (“Stealth 360”), are catheter-based platforms capable of treating a broad range of plaque types in leg arteries both above and below the knee, including calcified plaque, and address many of the limitations associated with other existing surgical, catheter and pharmacological treatment alternatives. The micro-invasive devices use small access sheaths that can provide procedural benefits and allow physicians to treat PAD patients in even the small and tortuous vessels located below the knee and facilitate access through alternative sites in the ankle, foot and wrist, as well as in the groin. We refer to each of the products above in this report as the “Peripheral OAS.”
The United States Food and Drug Administration (“FDA”) has granted us 510(k) clearances for our Peripheral OAS devices as a therapy in patients with PAD, as discussed in Item 1 of Part I of our Annual Report on Form 10-K for the year ended June 30, 2017.
In January 2018, we announced that we entered into an original equipment manufacturer agreement with Integer Holdings Corporation for CSI-branded ZILIENT™ guidewires. The broad market launch of the CSI-branded ZILIENT peripheral guidewires is expected to begin later in the current fiscal year. We anticipate that additional ZILIENT guidewires for coronary interventions and radial peripheral interventions will become available in the future.
In February 2018, we announced that the first patients were treated using our FDA-cleared extended length Diamondback 360 Peripheral OAS to treat PAD. Radial access allows physicians to reach and treat lower limb PAD lesions through the radial artery in the wrist, providing an alternative access point and more options to treat complicated and at-risk patients. We are currently in a limited market rollout with an anticipated full commercial launch in fiscal 2019.
Coronary
Our coronary arterial disease (“CAD”) product, the Diamondback 360 Coronary OAS (“Coronary OAS”), is marketed as a treatment for severely calcified coronary arteries. The Coronary OAS is a catheter-based platform designed to facilitate stent delivery in patients with CAD who are acceptable candidates for percutaneous transluminal coronary angioplasty or stenting due to de novo, severely calcified coronary artery lesions. The Coronary OAS design is similar to technology used in our Peripheral OAS, customized specifically for the coronary application.
A coronary application required us to conduct a clinical trial and file a premarket approval (“PMA”) application and obtain approval from the FDA. In March 2013, we completed submission of our PMA application to the FDA for our orbital atherectomy system to treat calcified coronary arteries. In October 2013, we received PMA from the FDA to market the Coronary OAS as a treatment for severely calcified coronary arteries. We commenced a commercial launch of our Coronary OAS following receipt of PMA. In March 2017, we received approval from the FDA to market the Diamondback 360 Coronary OAS Micro Crown (the “Coronary OAS Micro Crown”).
In January 2018, we announced our relationship with OrbusNeich
®
to be the exclusive U.S. distributor of OrbusNeich balloon products. In March 2018, the FDA granted 510(k) clearance for the OrbusNeich 1.0mm Sapphire
®
11 Pro coronary balloon (“1.0mm balloon”). The 1.0mm balloon, the first and only 1.0mm coronary balloon available in the United States, offers industry-leading entry and crossing profiles and is precision engineered for crossing and treating extremely tight and complex lesions. We anticipate OrbusNeich’s full balloon product portfolio will become available in the United States in 2018 and 2019.
We market the Peripheral and Coronary OAS and ancillary products in the United States through a direct sales force and expend significant capital on our sales and marketing efforts to expand our customer base and utilization per customer. At our facilities, we assemble the saline infusion pump and the single-use catheter used in the Peripheral and Coronary OAS with components purchased from third-party suppliers, as well as with components manufactured in-house. Ancillary products are purchased from third-party suppliers.
International
In November 2016, we signed an exclusive distribution agreement with Medikit Co., Ltd. (“Medikit”) to sell our Coronary and Peripheral OAS in Japan. In March 2017, we received approval from Japan’s Ministry of Health, Labor and Welfare for our Coronary OAS Micro Crown. On February 1, 2018, the Coronary OAS Micro Crown received reimbursement approval in Japan, followed by the first commercial sales, making Japan the first international market for any of our products. The Coronary OAS Micro Crown is the only atherectomy device designed to both pilot tight, calcific lesions and treat 2.5 to 4mm vessels with a single device. We are currently evaluating options for additional international markets to expand the coronary and peripheral opportunities.
CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGMENTS AND ESTIMATES
Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of our consolidated financial statements requires us to make estimates, assumptions and judgments that affect amounts reported in those statements. Our estimates, assumptions and judgments, including those related to revenue recognition, allowance for doubtful accounts, excess and obsolete inventory, deferred revenue and stock-based compensation, are updated as appropriate at least quarterly. We use authoritative pronouncements, our technical accounting knowledge, cumulative business experience, judgment and other factors in the selection and application of our accounting policies. While we believe that the estimates, assumptions and judgments that we use in preparing our consolidated financial statements are appropriate, these estimates, assumptions and judgments are subject to factors and uncertainties regarding their outcome. Therefore, actual results may materially differ from these estimates.
Some of our significant accounting policies require us to make subjective or complex judgments or estimates. An accounting estimate is considered to be critical if it meets both of the following criteria: (1) the estimate requires assumptions about matters that are highly uncertain at the time the accounting estimate is made, and (2) different estimates that reasonably could have been used, or changes in the estimate that are reasonably likely to occur from period to period, would have a material impact on the presentation of our financial condition, results of operations, or cash flows.
Our critical accounting policies are identified in our Annual Report on Form 10-K for the fiscal year ended
June 30, 2017
in Management’s Discussion and Analysis of Financial Condition and Results of Operations under the heading “Critical Accounting Policies and Significant Judgments and Estimates.”
RESULTS OF OPERATIONS
The following table sets forth our results of operations expressed as dollar amounts (in thousands) and the changes between the specified periods expressed as percent increases or decreases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
Nine Months Ended
March 31,
|
|
|
2018
|
|
2017
|
|
Percent
Change
|
|
2018
|
|
2017
|
|
Percent
Change
|
|
Net revenues
|
$
|
55,587
|
|
|
$
|
52,144
|
|
|
6.6
|
%
|
|
$
|
157,891
|
|
|
$
|
151,987
|
|
|
3.9
|
%
|
|
Cost of goods sold
|
9,969
|
|
|
11,139
|
|
|
(10.5
|
)
|
|
28,670
|
|
|
29,768
|
|
|
(3.7
|
)
|
|
Gross profit
|
45,618
|
|
|
41,005
|
|
|
11.2
|
|
|
129,221
|
|
|
122,219
|
|
|
5.7
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
37,796
|
|
|
37,332
|
|
|
1.2
|
|
|
110,722
|
|
|
108,191
|
|
|
2.3
|
|
|
Research and development
|
7,333
|
|
|
5,432
|
|
|
35.0
|
|
|
20,037
|
|
|
16,572
|
|
|
20.9
|
|
|
Total expenses
|
45,129
|
|
|
42,764
|
|
|
5.5
|
|
|
130,759
|
|
|
124,763
|
|
|
4.8
|
|
|
Income (loss) from operations
|
489
|
|
|
(1,759
|
)
|
|
(127.8
|
)
|
|
(1,538
|
)
|
|
(2,544
|
)
|
|
(39.5
|
)
|
|
Other (income) expense, net
|
91
|
|
|
(28
|
)
|
|
(425.0
|
)
|
|
388
|
|
|
(46
|
)
|
|
(943.5
|
)
|
|
Income (loss) before income taxes
|
398
|
|
|
(1,731
|
)
|
|
(123.0
|
)
|
|
(1,926
|
)
|
|
(2,498
|
)
|
|
(22.9
|
)
|
|
Provision for income taxes
|
33
|
|
|
18
|
|
|
83.3
|
|
|
99
|
|
|
66
|
|
|
50.0
|
|
|
Net income (loss)
|
$
|
365
|
|
|
$
|
(1,749
|
)
|
|
(120.9
|
)
|
|
$
|
(2,025
|
)
|
|
$
|
(2,564
|
)
|
|
(21.0
|
)
|
Comparison of
Three Months Ended March 31, 2018
with
Three Months Ended March 31, 2017
Net revenues.
Net revenues increased by $3.5 million, or 6.6%, from $52.1 million for the three months ended
March 31, 2017
to $55.6 million for the three months ended
March 31, 2018
. Sales of our Peripheral OAS increased $2.3 million, or 6.5%, due to 10.7% more devices sold, partially offset by a 3.8% decrease in average selling price in the three months ended
March 31, 2018
compared to the three months ended
March 31, 2017
. Coronary OAS revenues increased approximately $322,000, or 2.6%, due to 5.4% more devices sold, partially offset by a 2.7% decrease in average selling price in the three months ended
March 31, 2018
compared to the three months ended
March 31, 2017
. We also had $838,000 of revenue from sales in Japan, of which $176,000 related to the deferred upfront payment from Medikit, as commercialization commenced in February 2018.
Prior to February 2018, all of our revenues have been in the United States; however, sales in Japan commenced in February 2018. In November 2016, we signed an exclusive distribution agreement with Medikit to sell our Coronary and Peripheral OAS in Japan, and in March 2017, we received approval from Japan’s Ministry of Health, Labor and Welfare for our Coronary OAS Micro Crown. On February 1, 2018, the Coronary OAS Micro Crown received reimbursement approval in Japan, followed by the first commercial sales, making Japan the first international market for any of our products. We are evaluating options for additional international markets to expand the coronary and peripheral opportunities. We expect our revenue to increase as we continue to increase the number of physicians using the devices, increase the usage per physician, introduce new and improved products such as the OrbusNeich balloons and ZILIENT guidewires, generate additional clinical data, and expand into new geographies, partially offset by potential decreases in average selling prices.
Cost of Goods Sold.
Cost of goods sold decreased $1.1 million, or 10.5%, from $11.1 million for the three months ended
March 31, 2017
to $10.0 million for the three months ended
March 31, 2018
. Cost of goods sold represents the cost of materials, labor and overhead for single-use catheters, guidewires, saline pumps, and other ancillary products. Cost of goods sold for the three months ended
March 31, 2018
and
2017
includes $61,000 and $182,000, respectively, for stock-based compensation. The decrease in cost of goods sold was primarily due to the prior year $1.5 million one-time charge related to the voluntary recall of one type of our saline infusion pumps, as well as lower costs per unit driven by manufacturing efficiencies and cost reductions. Gross margin increased to 82.1% for the three months ended
March 31, 2018
compared to 78.6% for the three months ended
March 31, 2017
due to the drivers discussed above. We expect that gross margin in the fourth quarter of fiscal
2018
will be slightly lower than the gross margin in the three months ended
March 31, 2018
. Quarterly margin fluctuations could occur based on production volumes, timing of new product introductions, sales mix, pricing changes, or other unanticipated circumstances.
Selling, General and Administrative Expenses.
Our selling, general and administrative expenses increased by $364,000, or 1.0%, from $37.3 million for the three months ended
March 31, 2017
to $37.7 million for the three months ended
March 31, 2018
. The increase was primarily due to increased payroll related expenses due to the expansion of our sales organization, partially offset by lower incentive compensation expense and lower litigation costs. Selling, general and administrative expenses for the three months ended
March 31, 2018
and
2017
include $1.9 million and $1.9 million, respectively, for stock-based compensation. We expect our selling, general and administrative expenses for the fourth quarter of fiscal 2018 to be slightly higher than the amounts incurred for the three months ended
March 31, 2018
.
Research and Development Expenses.
Research and development expenses increased by $1.9 million, or 35.0%, from $5.4 million for the three months ended
March 31, 2017
to $7.3 million for the three months ended
March 31, 2018
. Research and development expenses relate to specific projects to develop new products or expand into new markets, such as the development of new versions of the Peripheral and Coronary OAS, shaft designs and crown designs, and to PAD and CAD clinical trials. The increase was primarily due to the commencement of our ECLIPSE clinical study and higher patent expense. Research and development expenses for the three months ended
March 31, 2018
and
2017
include $209,000 and $281,000, respectively, for stock-based compensation. We expect research and development expenses in the fourth quarter of fiscal 2018 to be slightly less than the amounts incurred for the three months ended
March 31, 2018
. Fluctuations could occur based on the number of projects and studies and the timing of expenditures.
Other (Income) Expense, Net.
Other (income) expense, net was
$91,000
and
$(28,000)
for three months ended
March 31, 2018
and
2017
, respectively. The change was primarily due to $416,000 of interest expense related to the sale-leaseback of our facility that we completed in March 2017, partially offset by $241,000 of higher interest income due to our increased cash balance from the three months ended
March 31, 2017
.
Comparison of
Nine Months Ended March 31, 2018
with
Nine Months Ended March 31, 2017
Net revenues.
Net revenues increased by $5.9 million, or 3.9%, from $152.0 million for the
nine months ended
March 31, 2017
to $157.9 million for the
nine months ended
March 31, 2018
. Sales of our Peripheral OAS increased $4.1 million, or 4.0%, due to 7.8% more devices sold, partially offset by a 3.6% decrease in average selling price in the
nine months ended
March 31, 2018
compared to the
nine months ended
March 31, 2017
. Coronary OAS revenues increased approximately $616,000, or 1.8%, due to 3.6% more devices sold, partially offset by a 1.8% decrease in average selling price in the
nine months ended
March 31, 2018
compared to the
nine months ended
March 31, 2017
. We also had $851,000 of revenue from sales in Japan as commercialization commenced in February 2018. Other product revenue increased by $301,000 for the
nine months ended
March 31, 2018
, driven by increased sales of our Peripheral and Coronary OAS, which the other products support. Hurricanes Harvey and Irma and a recall of a version of our saline infusion pump had an adverse effect on revenues in the
nine months ended
March 31, 2018.
Cost of Goods Sold.
Cost of goods sold decreased to $28.7 million for the
nine months ended
March 31, 2018
from $29.8 million for the
nine months ended
March 31, 2017
, a 3.7% decrease. Cost of goods sold represents the cost of materials, labor and overhead for single-use catheters, guidewires, saline pumps, and other ancillary products. Cost of goods sold for the
nine months ended
March 31, 2018
and
2017
includes $221,000 and $557,000, respectively, for stock-based compensation. The decrease in cost of goods sold was due to the prior year $1.5 million one-time charge related to the voluntary recall of one type of our saline infusion pumps, as well as lower costs per unit driven by manufacturing efficiencies and cost reductions in the current year. Gross margin increased to 81.8% for the
nine months ended
March 31, 2018
from 80.4% for the
nine months ended
March 31, 2017
due to drivers discussed above.
Selling, General and Administrative Expenses.
Our selling, general and administrative expenses increased by $2.4 million, or 2.2%, from $108.2 million for the
nine months ended
March 31, 2017
to $110.6 million for the
nine months ended
March 31, 2018
. The increase was primarily due to increased payroll related expenses due to the expansion of our sales organization, severance benefits, as well as litigation and other legal expenses. These amounts were partially offset by lower incentive compensation expense. Selling, general and administrative expenses for each of the
nine months ended
March 31, 2018
and
2017
include $6.9 million and $7.0 million, respectively, for stock-based compensation.
Research and Development Expenses.
Research and development expenses increased by $3.4 million, or 20.9%, from $16.6 million for the
nine months ended
March 31, 2017
to $20.0 million for the
nine months ended
March 31, 2018
. Research and development expenses relate to specific projects to develop new products or expand into new markets, such as the development of new versions of the Peripheral and Coronary OAS, shaft designs and crown designs, and to PAD and CAD clinical trials. The increase was primarily due to the commencement of our ECLIPSE clinical study and new development projects. Research and development expenses for the
nine months ended
March 31, 2018
and
2017
include $799,000 and $822,000, respectively, for stock-based compensation.
Other (Income) Expense, Net.
Other (income) expense, net was
$388,000
and
$(46,000)
for
nine months ended
March 31, 2018
and
2017
, respectively. The change was primarily due to $1.2 million of interest expense related to the sale-leaseback of our facility that we completed in March 2017, partially offset by $685,000 of higher interest income due to our increased cash balance from the
nine months ended
March 31, 2017
, as well as interest related to the partial payment of the convertible note receivable.
LIQUIDITY AND CAPITAL RESOURCES
We had cash and cash equivalents of
$109.3 million
and
$107.9 million
at
March 31, 2018
and
June 30, 2017
, respectively. During the
nine months ended
March 31, 2018
, net cash provided by operations was
$1.7 million
. As of
March 31, 2018
, we had an accumulated deficit of
$331.3 million
. We have historically funded our operating losses primarily from the issuance of common and preferred stock, convertible promissory notes, and debt.
Facility Sale
On December 29, 2016, we entered into a Purchase and Sale Agreement, as subsequently amended (collectively, the “Sale Agreement”), with Krishna Holdings, LLC (“Krishna”), providing for the sale to Krishna of our headquarters facility in St. Paul, Minnesota (the “Facility”) for a cash purchase price of
$21.5 million
. On March 30, 2017, the sale of the Facility under the Sale Agreement closed. We received proceeds of approximately
$20.9 million
($21.5 million less
$556,000
of transaction expenses).
We intend to use the net proceeds from the sale for working capital and general corporate purposes, which may include, but are not limited to:
|
|
|
|
•
|
the funding of clinical trials and studies;
|
|
|
|
|
•
|
sales and marketing programs;
|
|
|
|
|
•
|
expansion into international markets; and
|
|
|
|
|
•
|
development of new products.
|
We may also use a portion of the net proceeds for the potential acquisition of, or investments in, businesses, technologies and products, although we have no current understandings, commitments or arrangements to do so. We cannot specify with certainty all of the particular uses for the net proceeds. Accordingly, we will retain broad discretion over the use of these net proceeds.
Revolving Credit Facility
On March 31, 2017, we entered into a Loan and Security Agreement (the “Loan Agreement”) with Silicon Valley Bank (“SVB”). The Loan Agreement provides for a senior, secured revolving credit facility (the “Revolver”) of
$40.0 million
(the “Maximum Dollar Amount”).
Advances under the Revolver may be made from time to time up to the Maximum Dollar Amount, subject to certain borrowing limitations. The Revolver has a maturity date of
March 31, 2020
and bears interest at a floating per annum rate equal to the Wall Street Journal prime rate, less
0.25%
. Interest on borrowings is due monthly and the principal balance is due at maturity. Borrowings up to
$10.0 million
are available on a non-formula basis. Borrowings above
$10.0 million
are based on (i)
85%
of eligible domestic accounts receivable, and (ii) the lesser of
50%
of eligible inventory or
$5.0 million
, subject to adjustment as defined in Loan Agreement. Upon the Revolver’s maturity, any outstanding principal balance, unpaid accrued interest, and all other obligations under the Revolver will be due and payable. We will incur a fee equal to
1%
of the Maximum Dollar Amount upon termination of the Loan Agreement or the Revolver for any reason prior to the maturity date, unless refinanced with SVB.
Our obligations under the Loan Agreement are secured by certain of our assets, including, among other things, accounts receivable, deposit accounts, inventory, equipment, general intangibles and records pertaining to the foregoing. The collateral does not include our intellectual property, but we agreed not to encumber our intellectual property without the consent of SVB. The Loan Agreement contains customary covenants limiting our ability to, among other things, incur debt or liens, make certain investments and loans, enter into transactions with affiliates, undergo certain fundamental changes, dispose of assets, or change the nature of its business. In addition, the Loan Agreement contains financial covenants requiring us to maintain, at all times when any amounts are outstanding under the Revolver, either (i) minimum unrestricted cash at SVB and unused availability on the Revolver of at least
$10.0 million
or (ii) minimum trailing three-month Adjusted EBITDA of
$1.0 million
. If we do not comply with the various covenants under the Loan Agreement, the interest rate on outstanding amounts will increase by
5%
and
SVB may, subject to various customary cure rights, decline to provide additional advances under the Revolver, require the immediate payment of all amounts outstanding under the Revolver, and foreclose on all collateral.
Under the Loan Agreement, we paid SVB a non-refundable commitment fee of
$80,000
, which will be amortized to interest expense over the term of the Loan Agreement. We are required to pay a fee equal to
0.35%
per annum on the unused portion of the Revolver, payable quarterly in arrears. We are not obligated to draw any funds under the Revolver and have not done so under the Revolver since entering into the Loan Agreement.
No
amounts are outstanding as of
March 31, 2018
and we currently do not have plans to borrow under the Loan Agreement.
Changes in Liquidity
Cash and Cash Equivalents.
Cash and cash equivalents were
$109.3 million
at
March 31, 2018
and
$107.9 million
at
June 30, 2017
. The increase is primarily attributable to net cash provided by our financing and operating activities during the
nine
months ended
March 31, 2018
.
Operating Activities.
Net cash provided by operations was
$1.7 million
and
$16.5 million
for the
nine
months ended
March 31, 2018
and
2017
, respectively. For the
nine
months ended
March 31, 2018
and
2017
, we had a net loss of
$2.0 million
and
$2.6 million
, respectively. Significant changes in working capital during these periods included:
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|
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|
•
|
Cash used in accounts receivable was
$3.6 million
and
$5.1 million
during the
nine
months ended
March 31, 2018
and
2017
, respectively, primarily due to the amount and timing of revenue and collections.
|
|
|
|
|
•
|
Cash (used in) provided by inventories was
$(105,000)
and
$835,000
during the
nine
months ended
March 31, 2018
and
2017
, respectively. For the
nine
months ended
March 31, 2018
, the amount of cash used in inventories was primarily due to new products. For the
nine
months ended
March 31, 2017
, the amount of cash provided by inventories was primarily due to lower inventory levels from better inventory management.
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|
|
|
|
•
|
Cash provided by (used in) prepaid expenses and other assets was
$2.9 million
and
$(153,000)
during the
nine
months ended
March 31, 2018
and
2017
, respectively, primarily due to payment timing of vendor deposits and other expenditures. During the nine months ended March 31, 2018, we also received proceeds from an insurance receivable related to a litigation settlement payment.
|
|
|
|
|
•
|
Cash (used in) provided by accounts payable was
$(544,000)
and
$190,000
during the
nine
months ended
March 31, 2018
and
2017
, respectively, due to the amount and timing of purchases and vendor payments.
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|
|
|
|
•
|
Cash (used in) provided by accrued expenses and other liabilities was
$(6.9) million
and
$615,000
during the
nine
months ended
March 31, 2018
and
2017
, respectively. For the
nine
months ended
March 31, 2018
, the change in accrued expenses was primarily due to the amount and timing of compensation payments, as well as a litigation settlement payment. For the
nine
months ended
March 31, 2017
, the change in accrued expenses was primarily due to settlement payments to the DOJ (discussed below), reduction of clinical accruals, severance payments, and the amount and timing of compensation payments.
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|
|
|
|
•
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Cash provided by deferred revenue was
$577,000
and
$10.0 million
during the nine months ended
March 31, 2018
and
2017
. During the nine months ended March 31, 2017, Medikit made an upfront payment of $10.0 million to us in connection with the exclusive distribution agreement with Medikit to sell our Coronary and Peripheral OAS in Japan, which is being recognized in relation to the estimated future sales under the agreement.
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Investing Activities
. Net cash used in investing activities was
$2.2 million
and
$1.3 million
for the
nine
months ended
March 31, 2018
and
2017
, respectively, primarily related to the purchase of property and equipment and patents. Cash used in the nine months ended March 31, 2018, was partially offset by proceeds from a convertible note receivable and sales of marketable securities.
Financing Activities
. Net cash provided by financing activities was
$1.9 million
and
$27.3 million
for the
nine
months ended
March 31, 2018
and
2017
, respectively, primarily due to proceeds from employee stock purchases and the exercise of stock options. Cash provided by the nine months ended March 31, 2017 included $20.9 million proceeds from a financing obligation related to the sale and leaseback of the Facility.
Our future liquidity and capital requirements will be influenced by numerous factors, including the extent and duration of future operating losses, the level and timing of future sales and expenditures, the results and scope of ongoing research and product development programs, working capital required to support our business operations, the receipt of and time required to obtain regulatory clearances and approvals, our sales and marketing programs, the continuing acceptance of our products in the
marketplace, competing technologies, market and regulatory developments, ongoing facility requirements, potential strategic transactions (including the potential acquisition of, or investments in, businesses, technologies and products), international expansion, and the existence, defense and resolution of legal claims and proceedings. As of
March 31, 2018
, we believe our current cash and cash equivalents will be sufficient to fund working capital requirements, capital expenditures and operations for the foreseeable future, including at least the next twelve months, as well as to fund payments related to the Department of Justice settlement, expenses relating to compliance with our Corporate Integrity Agreement (as defined below), payments under our lease agreements, payments under severance agreements and anticipated costs relating to litigation. We intend to retain any future earnings to support operations and to finance the growth and development of our business. We do not anticipate paying any dividends in the foreseeable future.
Legal Settlement
As previously discussed in our Annual Report on Form 10-K for the year ended June 30, 2017, filed with the SEC on August 24, 2017, on June 28, 2016, we entered into a Settlement Agreement with the DOJ, pursuant to which we agreed to pay $8.0 million (the “Settlement Amount”) as follows: an initial payment of $3.0 million, which we paid in July 2016, with the remaining $5.0 million, which bears interest at 1.8% per annum, payable in 11 equal quarterly installments, beginning in January 2017. Under the Settlement Agreement, if we make a single payment in excess of $2.0 million, which payment is not covered by an insurance policy, in settlement of any claims before paying the full Settlement Amount, the remaining unpaid balance of the Settlement Amount will become immediately due and payable, with interest accruing on the unpaid principal portion at an interest rate of 1.8% per annum.
In connection with the resolution of this matter, we entered into a five-year corporate integrity agreement (the “Corporate Integrity Agreement”) with the Office of Inspector General of the Department of Health and Human Services. The Corporate Integrity Agreement requires that we maintain our existing compliance programs and imposes certain expanded compliance-related requirements during the term of the Corporate Integrity Agreement, including establishment of specific procedures and requirements regarding consulting activities, co-marketing activities and other interactions with healthcare professionals and healthcare institutions and the sale and marketing of our products; ongoing monitoring, reporting, certification and training obligations; and the engagement of an independent review organization to perform certain auditing and reviews and prepare certain reports regarding our compliance with federal health care programs. In the event of a breach of the Corporate Integrity Agreement, we could become liable for payment of certain stipulated penalties or could be excluded from participation in federal health care programs. The Corporate Integrity Agreement will require us to invest additional amounts in our compliance program and pay fees and expenses of the independent review organization.
Facility Lease
We entered into a Lease Agreement (the “Lease Agreement”) with Krishna Holdings, LLC, Apex Holdings, LLC, Kashi Associates, LLC, Keva Holdings, LLC, S&V Ventures, LLC, Polo Group LLC, SPAV Holdings LLC, Star Associates LLC, and The Global Villa, LLC. The Lease Agreement has an initial term of fifteen years, with four consecutive renewal options of five years each, with a base annual rent in the first year of
$1.6 million
and annual escalations of
3%
. See Note 3 to our Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q for additional discussion.
NON-GAAP FINANCIAL INFORMATION
To supplement our consolidated financial statements prepared in accordance with GAAP, our management uses a non-GAAP financial measure referred to as “Adjusted EBITDA.” The following table sets forth, for the periods indicated, a reconciliation of Adjusted EBITDA to the most comparable GAAP measure expressed as dollar amounts (in thousands):
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|
|
|
|
|
|
|
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Nine Months Ended
March 31,
|
|
|
2018
|
|
2017
|
|
Net loss
|
$
|
(2,025
|
)
|
|
$
|
(2,564
|
)
|
|
Less: Other (income) expense, net
|
388
|
|
|
(46
|
)
|
|
Less: Provision for income taxes
|
99
|
|
|
66
|
|
|
Loss from operations
|
(1,538
|
)
|
|
(2,544
|
)
|
|
Add: Stock-based compensation
|
7,880
|
|
|
8,336
|
|
|
Add: Depreciation and amortization
|
3,080
|
|
|
3,100
|
|
|
Adjusted EBITDA
|
$
|
9,422
|
|
|
$
|
8,892
|
|
Adjusted EBITDA increased as compared to the prior year period due to the lower net loss in the nine months ended March 31, 2018 compared to the nine months ended March 31, 3017.
Use and Economic Substance of Non-GAAP Financial Measures Used and Usefulness of Such Non-GAAP Financial Measures to Investors
We use Adjusted EBITDA as a supplemental measure of performance and believe this measure facilitates operating performance comparisons from period to period and company to company by factoring out potential differences caused by depreciation and amortization expense and non-cash charges such as stock-based compensation. Our management uses Adjusted EBITDA to analyze the underlying trends in our business, assess the performance of our core operations, establish operational goals and forecasts that are used to allocate resources and evaluate our performance period over period and in relation to our competitors’ operating results. Additionally, our management is partially evaluated on the basis of Adjusted EBITDA when determining achievement of their incentive compensation performance targets.
We believe that presenting Adjusted EBITDA provides investors greater transparency to the information used by our management for its financial and operational decision-making and allows investors to see our results “through the eyes” of management. We also believe that providing this information better enables our investors to understand our operating performance and evaluate the methodology used by our management to evaluate and measure such performance.
The following is an explanation of each of the items that management excluded from Adjusted EBITDA and the reasons for excluding each of these individual items:
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•
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Stock-based compensation.
Our management believes that excluding this item from our non-GAAP results is useful to investors to understand the application of stock-based compensation guidance and its impact on our operational performance and ability to make additional investments in the Company, and it allows for greater transparency to certain line items in our financial statements.
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|
|
|
|
•
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Depreciation and amortization expense.
Our management believes that excluding these items from our non-GAAP results is useful to investors to understand our operational performance and ability to make additional investments in the company.
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Material Limitations Associated with the Use of Non-GAAP Financial Measures and Manner in Which We Compensate for these Limitations
Non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. Some of the limitations associated with our use of these non-GAAP financial measures are:
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•
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Items such as stock-based compensation do not directly affect our cash flow position; however, such items reflect economic costs to us and are not reflected in our Adjusted EBITDA, and therefore these non-GAAP measures do not reflect the full economic effect of these items.
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|
|
|
•
|
Non-GAAP financial measures are not based on any comprehensive set of accounting rules or principles and therefore other companies may calculate similarly titled non-GAAP financial measures differently than we do, limiting the usefulness of those measures for comparative purposes.
|
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|
|
|
•
|
Our management exercises judgment in determining which types of charges or other items should be excluded from the non-GAAP financial measures we use.
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We compensate for these limitations by relying primarily upon our GAAP results and using non-GAAP financial measures only supplementally.
INFLATION
We do not believe that inflation had a material impact on our business and operating results during the periods presented.
OFF-BALANCE SHEET ARRANGEMENTS
Since inception, we have not engaged in any off-balance sheet activities as defined in Item 303(a)(4) of Regulation S-K.
RECENT ACCOUNTING PRONOUNCEMENTS
For a description of recent accounting pronouncements, see Note 2 to the Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q.
PRIVATE SECURITIES LITIGATION REFORM ACT
The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. Such “forward-looking” information is included in this Form 10-Q and in other materials filed or to be filed by us with the Securities and Exchange Commission (as well as information included in oral statements or other written statements made or to be made by us). Forward-looking statements include all statements based on future expectations. This Form 10-Q contains forward-looking statements that involve risks and uncertainties, including, but not limited to, (i) our expectations regarding approvals and market launches of new products, including the anticipating timing thereof; (ii) the expectation of selling our products, including recently approved products, domestically and internationally in the future and the timing and structure of our plans to do so; (iii) our expectations regarding selling prices of our devices; (iv) our expectation that our revenue will increase; (v) our expectation that gross margin in the fourth quarter of fiscal 2018 will be slightly lower than gross margin in the three months ended March 31, 2018; (vi) our expectation that selling, general and administrative expenses in the fourth quarter of fiscal 2018 will be slightly higher than the amounts incurred for the third quarter of fiscal 2018; (vii) our expectation that we will incur slightly lower research and development expenses in the fourth quarter of fiscal 2018 compared to the three months ended March 31, 2018; (viii) the use of proceeds from financing activities; (ix) our plan not to borrow under the Loan Agreement; (x) our belief that our current cash and cash equivalents will be sufficient to fund working capital requirements, capital expenditures and operations for the foreseeable future, as well as to fund certain other anticipated expenses; (xi) our intention to retain any future earnings to support operations and to finance the growth and development of our business; (xii) our dividend expectations; (xiii) our expectations regarding the impact of federal corporate tax reform; and (xiv) the anticipated impact of adoption of recent accounting pronouncements on our financial statements.
In some cases, you can identify forward-looking statements by the following words: “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would,” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. Forward-looking statements are only predictions and are not guarantees of performance. These statements are based on our management’s beliefs and assumptions, which in turn are based on their interpretation of currently available information.
These statements involve known and unknown risks, uncertainties and other factors that may cause our results or our industry’s actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. These factors include, but are not limited to, regulatory developments in the U.S., Japan and other foreign countries; FDA and similar Japanese and other foreign clearances and approvals; approval of our products for distribution in foreign countries; approval of products for reimbursement and the level of reimbursement in the U.S., Japan and other foreign countries; dependence on market growth; agreements with third parties to sell their products; our ability to maintain third-party supplier relationships and renew existing purchase agreements; our ability to maintain our relationship with our distribution partner in Japan; our ability to identify and enter into agreements with distributors for our products outside of the United States and Japan; the experience of physicians regarding the effectiveness and reliability of our products; the reluctance of physicians, hospitals and other organizations to accept new products; the potential for unanticipated delays in enrolling medical centers and patients for clinical trials; actual clinical trial and study results; the impact of competitive products and pricing; our ability to comply with the financial covenants in our loan and security agreement and to make payments under and comply with the lease agreement for our corporate headquarters; unanticipated developments affecting our estimates regarding expenses, future revenues and capital requirements; the difficulty of successfully managing operating costs; our ability to manage our sales force strategy; actual research and development efforts and needs; our ability to obtain and maintain intellectual property protection for product candidates; our actual financial resources and our ability to obtain additional financing; fluctuations in results and expenses based on new product introductions, sales mix, unanticipated warranty claims, and the timing of project expenditures; our ability to manage costs; investigations or litigation threatened or initiated against us; court rulings and future actions by the FDA and other regulatory bodies; the effects of hurricanes, flooding, and other natural disasters on our business; issues relating to our saline pump recall; the impact of federal corporate tax reform on our business, operations and financial statements; and general economic conditions. These and additional risks and uncertainties are described more fully in our Form 10-K filed with the SEC on August 24, 2017 and subsequent Quarterly Reports on Form 10-Q, including in Part II, Item 1A (Risk Factors) of this Quarterly Report on Form 10-Q. Copies of filings made with the SEC are available through the SEC’s electronic data gathering analysis and retrieval system (EDGAR) at www.sec.gov.
You should read these risk factors and the other cautionary statements made in this Form 10-Q as being applicable to all related forward-looking statements wherever they appear in this Form 10-Q. We cannot assure you that the forward-looking statements in this Form 10-Q will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. You should read this Form 10-Q completely. Other than as required by law, we undertake no obligation to update these forward-looking statements, even though our situation may change in the future.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The primary objective of our investment activity is to preserve our capital for the purpose of funding operations, while at the same time maximizing the income we receive from our investments without significantly increasing risk or decreasing availability. To achieve these objectives, our investment policy allows us to maintain a portfolio of cash equivalents and investments in a variety of marketable securities, including money market funds, U.S. government securities, and certain bank obligations. Our cash and cash equivalents as of
March 31, 2018
include liquid money market accounts. Due to the short-term nature of these investments, we believe that there is no material exposure to interest rate risk.
Additionally, we have acquired certain available-for-sale marketable securities under our deferred compensation plan. See Note 5 to our Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q for additional information on these available-for-sale marketable securities.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer, referred to collectively herein as the Certifying Officers, are responsible for establishing and maintaining our disclosure controls and procedures. The Certifying Officers have reviewed and evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of
March 31, 2018
. Based on that review and evaluation, which included inquiries made to certain other employees of the Company, the Certifying Officers have concluded that, as of the end of the period covered by this Report, the Company’s disclosure controls and procedures, as designed and implemented, are effective.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended
March 31, 2018
that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Employment Litigation
Refer to Part I, Item 3 (Legal Proceedings) of our Annual Report on Form 10-K for the year ended June 30, 2017, as filed with the SEC on August 24, 2017; Part II, Item 1 (Legal Proceedings) of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, as filed with the SEC on November 3, 2017; and Part II, Item 1 (Legal Proceedings) of our Quarterly Report on Form 10-Q for the quarter ended December 31, 2017, as filed with the SEC on February 9, 2018. Our prior disclosures therein regarding
Steven Babyak v. Cardiovascular Systems, Inc.
are incorporated herein by reference.
Stockholder Securities Litigation
Refer to Part I, Item 3 (Legal Proceedings) of our Annual Report on Form 10-K for the year ended June 30, 2017, as filed with the SEC on August 24, 2017; Part II, Item 1 (Legal Proceedings) of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, as filed with the SEC on November 3, 2017; and Part II, Item 1 (Legal Proceedings) of our Quarterly Report on Form 10-Q for the quarter ended December 31, 2017, as filed with the SEC on February 9, 2018. Our prior disclosures therein regarding
Shoemaker v. Cardiovascular Systems, Inc. et al.
, 0:16-cv-00568 (D. Minn.) are incorporated herein by reference. We filed a motion to dismiss the plaintiffs’ amended complaint on August 11, 2017. On January 10, 2018, the court granted our motion to dismiss the amended complaint and dismissed the amended complaint with prejudice.
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this report, including the important information in the section entitled “Private Securities Litigation Reform Act,” you should carefully consider the “Risk Factors” discussed in our Form 10-K for the year ended June 30, 2017 filed with the SEC on August 24, 2017 and our subsequent reports on Form 10-Q for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in this report and materially adversely affect our financial condition or future results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial might materially adversely affect our actual business, financial condition and/or operating results. In addition, you should consider the following risk factors:
The recently passed Tax Cuts and Jobs Act of 2017 may have a significant impact on our financial condition and results of operations.
The Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was signed into law on December 22, 2017. The Tax Act made numerous changes to U.S. federal corporate tax law and is expected to reduce our effective tax rate for fiscal year 2018 and future periods. Effective January 1, 2018, the Tax Act lowers the U.S. corporate tax rate from 35% to 21% and prompts various other changes to U.S. federal corporate tax law. We are currently assessing the impact the Tax Act will have on our deferred tax assets with our professional advisors and until our analysis is complete, the full impact the Tax Act will have on us in future periods is uncertain and may adversely affect our financial condition and results of operations.
The effects of hurricanes, flooding and other natural disasters may impact our sales, inventories and supply availability, which could adversely affect our financial condition and results of operations.
In August and September 2017, Hurricanes Harvey and Irma made landfall along the Texas Gulf Coast and in the State of Florida, respectively, bringing high winds, unprecedented rain and extreme flooding to those areas. A significant portion of our sales is generated from these areas. Procedure volumes in the Houston area and in Florida decreased during the pendency and immediate aftermath of the hurricanes and flooding, which decreased the number of our products used during this time. Any sustained decrease in procedure volumes from hurricanes and other natural disasters that affect any areas in which our customers are located will result in decreased sales in these areas and could have a material adverse effect on our financial condition and results of operations.
In addition, we maintain a 46,000-square foot production facility in Pearland, Texas, which is just outside of Houston in southeast Texas. The storm and its aftermath did not cause damage to our Pearland facility, which remains open. However, any future loss of operations at the Pearland facility as a result of natural disasters eliminates an alternate production source in the event that our manufacturing capacity at the Minnesota facility is disrupted for any reason.
Any disruptions in our ability to timely manufacture and supply our products to our customers could cause us to experience delays in recognizing revenue or even to lose sales altogether, and any additional hurricanes, flooding or other natural disasters affecting areas in which our products are sold could result in decreased numbers of cases using our products. Any of these events could have a material adverse effect on our financial condition and results of operations.
New regulatory requirements will impose additional burdens on us, and our business could be adversely affected if we are unable to timely satisfy all applicable new requirements.
New regulations impacting our products are periodically adopted. These regulations may require us to change our existing product designs in order to continue marketing our products, which could result in increased expenditures and in risks that we may be unable to successfully change our designs to satisfy the new requirements. For example, IEC 60601-1-2 (4th Edition) was published in July 2014 and updates the performance requirements with respect to electromagnetic interference for medical devices. In the United States, the 4th Edition requirements go into effect on December 31, 2018 for new devices and devices that have undergone substantial changes. We have taken steps to ensure that our products sold in the United States will be compliant with the 4
th
Edition requirements, but we could experience technical and regulatory delays. If our products do not meet the 4th Edition standards, we may be delayed in launching new products or selling existing products that require material changes, including, for example, as a result of a change of supplier or quality issues. Any delays in selling our products resulting from non-compliance with 4
th
Edition and other new regulatory requirements could have a material adverse effect on our business.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
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Exhibit No.
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Description
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10.1†*
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10.2†*
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10.3†*
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10.4†*
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10.5*+
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31.1*
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31.2*
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32.1**
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32.2**
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101*
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Financial statements from the quarterly report on Form 10-Q of the Company for the quarter ended March 31, 2018, formatted in XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Loss, (iv) the Consolidated Statements of Cash Flows, and (v) the Notes to Financial Statements.
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_______________________
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†
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Compensatory plan or agreement.
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+
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Confidential treatment has been requested for certain portions omitted from this exhibit pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
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Dated: May 4, 2018
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CARDIOVASCULAR SYSTEMS, INC.
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By
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/s/ Scott R. Ward
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Scott R. Ward
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Chairman, President and Chief Executive Officer
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(Principal Executive Officer)
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By
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/s/ Jeffrey S. Points
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Jeffrey S. Points
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Chief Financial Officer
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(Principal Financial and Accounting Officer)
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November 27, 2017
(revised sent to you counsel via email on 1/3/18)
Via E-Mail
Personal and Confidential
Kevin Kenny
[ADDRESS REDACTED]
Re:
Separation Agreement and Release
Dear Kevin:
As we discussed with you, your employment with Cardiovascular Systems, Inc. (“CSI”) will end effective at the close of business on January 31, 2018 (the “Separation Date”). Between the date of this letter and continuing through the Separation Date, CSI will place you on a paid leave, with no required duties and no obligation to be present at CSI’s offices. The purpose of this Separation Agreement and Release letter (“Agreement”) is to set forth the specific Salary and Wage Continuation Benefits and other benefits CSI will provide to you in keeping with the CSI Executive Officer Severance Plan as restated November 15, 2017 (the “Severance Plan”) in exchange for your agreement to the terms and conditions of this Agreement. Please note that while we are giving this Agreement to you now for review and we will not modify, withdraw or revoke this letter after issuance of a signed version to you (unless you engage in conduct that would amount to breach of this Agreement if fully-executed or any of the other agreements referenced in Section 11 below), you may not execute this Agreement until your Separation Date.
By your signature below, you agree to the following terms and conditions:
1.
End of Employment
.
Your employment with CSI will end effective at the close of business on the Separation Date. By signing below, you agree that as of the Separation Date you will be deemed to have also automatically resigned from all positions with CSI, if and as applicable. Except as set forth herein for Salary and Wage Continuation Benefits in Section 2.a. and bonus pay in Section 2.b., upon your receipt of your final paycheck for services through the Separation Date, you will have received all wages, bonuses, commissions and compensation owed to you by virtue of your employment with CSI or termination thereof. With your final paycheck, you will also receive payment from CSI for your ending balance of accrued but unused Paid Time Off (PTO) calculated at the rate of your ending base salary of $430,000. If applicable, information regarding your right to elect COBRA coverage will be sent to you via separate letter. If elected, your COBRA period will begin February 1, 2018.
You are not eligible for any other payments or benefits by virtue of your employment with CSI or termination thereof except for those expressly described in this Agreement. You will not receive the pay and benefits described in Section 2 of this Agreement if you (i) do not sign this Agreement and return it to CSI by the Offer Expiration, (ii) rescind this Agreement after signing it, or (iii) violate any of the terms and conditions set forth in this Agreement, Sections 12 - 15 of your Employment Agreement with CSI dated April 15, 2011 (as amended, the “Employment Agreement”), the Severance Plan, or any other written agreement in effect between you and CSI containing post-employment obligations. In addition, the pay and benefits described in Section 2 of this Agreement shall be subject to reduction, cancellation, forfeiture, offset or recoupment as and to the extent required by the applicable provisions of any law (including without limitation Section 10D of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder), government regulation or stock exchange listing requirement, or clawback policy or provision implemented by CSI pursuant to such law, regulation or listing requirement.
2.
Salary and Wage Continuation Benefits
. Specifically in consideration of your signing this Agreement and subject to the limitations, obligations, and other provisions contained in this Agreement, CSI agrees to the following as set forth in and subject to the Severance Plan:
a.
To pay you eighteen (18) months of Salary and Wage Continuation Benefits based on your ending Base Salary, in the gross amount of $540,000, less applicable deductions and withholding, to be paid to you in substantially equal installments with the first such payment to be made to you on the sixtieth (60
th
) day following your Separation Date, provided the rescission periods described in Section 5 have expired without rescission, and continuing thereafter on CSI’s regular payday schedule. The first payment will include “catch-up” pay for the period between your Separation Date and the first payment date.
b.
To pay you an additional severance in the gross amount of $180,000, less applicable deductions and withholding, to be paid to you in a lump sum payment on the first pay date coinciding with or immediately following July 31, 2018.
c.
You will remain eligible for a pro-rata annual bonus under the Fiscal Year 2018 bonus plan in which you participated, prorated for your period of employment during such bonus period (July 1, 2017 through January 31, 2018). Bonuses under such plan will be calculated following the close of Fiscal Year 2018 and, if any bonus is owing to you thereunder, such bonus will be paid to you in a lump sum payment, less applicable deductions and withholding, within ninety (90) days after the close of Fiscal Year 2018.
d.
To provide you with a six-month outplacement services package through Pathfinder free of charge as more fully set forth in an attachment hereto. Your use of such services must commence no later than April 1, 2018 and end no later than September 30, 2018.
e.
Provided you are eligible for and timely elect COBRA coverage, CSI shall pay the monthly employer portion toward your COBRA premiums necessary to continue your health, dental and/or life insurance coverage in effect for yourself and your eligible dependents as of the Separation Date until the earliest of (A) July 31, 2019, (B) the expiration of your eligibility for the continuation coverage under COBRA or any similar applicable state law, or (C) the date on which you participate in another employer’s group health insurance plan (such period from the Separation Date through the earliest of (A) through (C), the “COBRA Payment Period”). You shall timely pay your share of the COBRA premiums. Notwithstanding the foregoing, if CSI determines, in its sole discretion, that its payment of the COBRA premiums would result in a violation of the nondiscrimination rules of Section 105(h)(2) of the Code or any statute or regulation of similar effect (including but not limited to the 2010 Patient Protection and Affordable Care Act, as amended by the 2010 Health Care and Education Reconciliation Act), then in lieu of providing the COBRA premiums, CSI, in its sole discretion, may elect to instead pay you on the first day of each month of the COBRA Payment Period, a fully taxable cash payment equal to the COBRA premiums for that month, subject to applicable tax withholdings (such amount, the “Special Severance Payment”), for the remainder of the COBRA Payment Period. You may, but are not obligated to, use such Special Severance Payment toward the cost of COBRA premiums. If you participate in another group health plan or otherwise cease to be eligible for COBRA during the period provided in this clause, you must notify CSI within fifteen (15) days of such event, and all payments and obligations under this clause shall then cease.
f.
To accelerate the vesting of 15,122
of your time-vested shares of CSI restricted stock that were previously granted to you that would have vested within the 12 month period following the
Separation Date had you remained employed by CSI during such period such that they are deemed fully vested, exercisable and not subject to any forfeiture or CSI call option as of the expiration of the rescission periods described in Section 5 below without rescission by you.
g.
To provide for the vesting of up to 25,925 and 7,278 of your performance-based shares of restricted stock that were previously granted to you that may vest in accordance with the Restricted Stock Agreements - Performance-Based Vesting relating to such shares following the Separation Date;
provided
, that the performance criteria for such vesting are met as determined by CSI in accordance with the terms for such shares of restricted stock (in or around August or September 2019 and 2020 (as applicable)) such that, if and to the extent applicable, such shares will become fully vested, exercisable and not subject to any forfeiture or CSI call option as of such determination.
h.
Reimburse you, within thirty (30) days after your submission of supporting documentation to CSI’s Chief Talent Officer (and in all events, reimbursed prior to December 31, 2018), for any reasonable out-of-pocket travel expenses incurred for your participation in the Executive Health Program at the Mayo Clinic prior to the Separation Date.
i.
In the event of your death prior to the end of Salary and Wage Continuation Benefits, COBRA health benefits and any other benefit provided to you under this Agreement, your beneficiary or beneficiaries, as you designate in writing to CSI or, in the absence of such designation, to the surviving spouse, or if there is no surviving spouse, then the executor, administrator or other personal representative of your Estate will be entitled to receive (i) any unpaid Salary and Wage Continuation Benefits as set forth in Sections 2(a) and 2(b) above; (ii) any unpaid bonus or other payments as set forth in Section 2(c) above; and (iii) all other payments, benefits or fringe benefits to which you shall be entitled under the terms of this Agreement, as set forth in Sections 1 and 2(e)-(h) above, to the full extent permitted by law.
3.
Release of Claims
. Specifically in consideration of the pay and benefits described in Section 2, to which you would not otherwise be entitled, by signing this Agreement you, for yourself and anyone who has or obtains legal rights or claims through you, agree to the following:
a.
Notwithstanding the provisions of Section 1542 of the Civil Code of the State of California (see Section 3.f. below), you hereby do release and forever discharge the “Released Parties” (as defined in Section 3.e. below) of and from any and all manner of claims, demands, actions, causes of action, administrative claims, liability, damages, claims for punitive or liquidated damages, claims for attorney’s fees, costs and disbursements, individual or class action claims, or demands of any kind whatsoever, you have or might have against them or any of them, whether known or unknown, in law or equity, contract or tort, arising out of or in connection with your employment with CSI, or the termination of that employment, or otherwise, and however originating or existing, from the beginning of time through the date of your signing this Agreement.
b.
This release includes, without limiting the generality of the foregoing, any claims you may have for, wages, bonuses, commissions, penalties, deferred compensation, vacation, sick, and/or PTO pay, separation pay and/or benefits, including, without limitation, arising under the Severance Plan; tortious conduct, defamation, invasion of privacy, negligence, emotional distress; breach of implied or express contract (including, without limitation, arising under your Employment Agreement), estoppel; wrongful discharge (based on contract, common law, or statute, including any federal, state or local statute or ordinance prohibiting discrimination or retaliation in employment); violation of any of the following: the United States Constitution, the Minnesota Constitution, the California Constitution, the Minnesota Human Rights Act, Minn. Stat. § 363A.01
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., Minn. Stat. § 181.932, Title VII of the Civil Rights Act, 42 U.S.C. § 2000e
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., wrongful termination in violation of public policy (
Tameny
claims), the California Fair Employment and Housing Act,
Cal. Gov’t Code § 12900
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., California Family Rights Act, Cal. Gov’t Code § 12945.1,
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., the California Unruh Civil Rights Act, Cal. Civ. Code §§ 51-54.3, California Discrimination in Payment on Basis of Sex, Cal. Lab. Code §§ 1197.5, 1199 and 1199.5, California Labor Code Section 1102.5, the California Healthy Workplaces, Healthy Families Act, Cal. Lab. Code § 245
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., the Age Discrimination in Employment Act, 29 U.S.C. § 621
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., the Americans with Disabilities Act, 42 U.S.C. § 12101
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., the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001
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., the Family and Medical Leave Act, 29 U.S.C. § 2601
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., the National Labor Relations Act, 29 U.S.C. § 151
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., the Sarbanes-Oxley Act, 15 U.S.C. § 7201
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.; any paid sick and/or safe time law; any claim for retaliation under federal, state or local law; all waivable claims arising under Minnesota and California statutes and codes; and any claim for discrimination, harassment or retaliation based legally-protected class status under federal, state or local law. You understand and agree that, by signing this Agreement, you waive and release any claim to employment with CSI.
c.
If you file, or have filed on your behalf, a charge, complaint, or action, you agree that the separation pay and benefits described above in Section 2 are in complete satisfaction of any and all claims in connection with such charge, complaint, or action and you waive, and agree not to take, any award of money or other damages from such charge, complaint, or action. Notwithstanding the foregoing, you do not waive your right to receive and fully retain a monetary award from a government-administered whistleblower award program, such as that administered by the Securities and Exchange Commission (“SEC”), for providing information directly to a governmental agency.
d.
You are not, by signing this Agreement, releasing or waiving (1) any vested interest you may have in any 401(k) or profit sharing plan by virtue of your employment with CSI, any rights as a shareholder of CSI, and/or rights to any vested benefits under any stock, compensation or other employee benefit plan or agreement with CSI, (2) any rights or claims that may arise after the Agreement is signed or which cannot be released as a matter of applicable law, (3) the right to institute legal action for the purpose of enforcing the provisions of this Agreement, (4) any rights you have to disability or workers’ compensation benefits, (5) any rights you have under state unemployment compensation benefits laws, (6) the right to file a charge or complaint with a governmental agency such as the Equal Employment Opportunity Commission (“EEOC”), the California Department of Fair Employment and Housing
(“CDFEH”),
the National Labor Relations Board (“NLRB”), the Occupational Safety and Health Administration (“OSHA”), the SEC or any other federal, state or local governmental agency, subject to Section 3(c) above, (7) the right to communicate with, testify, assist, or participate in an investigation, hearing, or proceeding conducted by, the EEOC, CDFEH, NLRB, OSHA, SEC or other governmental agency, (8) any rights you have under the Consolidated Omnibus Budget Reconciliation Act (“COBRA”) or any similar applicable state law, (9) your rights with regard to your equity incentive awards with CSI, if any, which shall be governed by those applicable operative agreement(s), as modified by Section 2 above, (10) your rights to indemnification and/or contribution, advancement or payment of related expenses arising under CSI’s Bylaws, Articles of Incorporation and/or the Indemnification Agreement between you and CSI dated November 2, 2015 (the “Indemnification Agreement”), or (11) the right to coverage and indemnification under CSI’s directors’ and officers’ insurance coverage as set forth in CSI’s D&O insurance policy, other insurance policies of CSI and/or applicable law. Further, nothing in this Agreement prohibits you from reporting possible violations of law or regulation to any governmental agency or regulatory authority, including but not limited to the SEC, or from making other disclosures that are protected under the whistleblower provisions of applicable law or regulation.
e.
The “Released Parties,” as used in this Agreement, shall mean Cardiovascular Systems, Inc. and any parent, subsidiaries, divisions, affiliated entities, insurers, and its and their present and former officers, directors, shareholders, trustees, employees, agents, attorneys, representatives and consultants, and the successors and assigns of each, whether in their individual or official capacities, and the current and
former trustees or administrators of any pension or other benefit plan applicable to the employees or former employees of CSI, in their official and individual capacities.
f.
Waiver of Section 1542 Rights
. Except as set forth in this Agreement, you understand and agree that this release SHALL APPLY TO ALL UNKNOWN OR UNANTICIPATED CLAIMS, ACTIONS OR DEMANDS OF ANY KIND WHATSOEVER ARISING OUT OF OR IN CONNECTION WITH YOUR EMPLOYMENT BY CSI OR THE TERMINATION OF THAT EMPLOYMENT, AS WELL AS THOSE KNOWN AND ANTICIPATED. You hereby waive any and all rights under Section 1542 of the Civil Code of the State of California and irrevocably and unconditionally release and forever discharge CSI from and with respect to all claims described in Section 3 of this Agreement. Section 1542 has been duly explained to you and reads as follows:
A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor.
You further acknowledge that you are aware that you may hereafter discover facts in addition to or different from those you know or believe to be true with respect to the disputes that are resolved by this separation agreement and release, but that it is your intention to fully, finally, and forever release all claims related to those disputes, whether or not you know about them.
4.
Notice of Right to Consult Attorney and Twenty-One (21) Calendar Day Consideration Period
. By signing this Agreement, you acknowledge and agree that CSI has informed you by this Agreement that (1) you have the right to consult with an attorney of your choice prior to signing this Agreement, and (2) you are entitled to at least Twenty-One (21) calendar days from your receipt of this Agreement to consider whether the terms are acceptable to you.
5.
Notification of Rights under the Minnesota Human Rights Act (Minn. Stat. Chapter 363A) and the Federal Age Discrimination in Employment Act (29 U.S.C. § 621 et seq.)
. You are hereby notified of your right to rescind the release of claims contained in Section 3 with regard to claims arising under the Minnesota Human Rights Act, Minnesota Statutes Chapter 363A, within fifteen (15) calendar days of your signing this Agreement, and with regard to your rights arising under the federal Age Discrimination in Employment Act, 29 U.S.C. § 621
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., within seven (7) calendar days of your signing this Agreement. The two rescission periods shall run concurrently. In order to be effective, the rescission
must
(a) be in writing; (b) delivered to Laura Gillund, Chief Talent Officer, 1225 Old Highway 8 NW, St. Paul, MN 55112, by hand or mail within the required period; and (c) if delivered by mail, the rescission must be postmarked within the required period, properly addressed to Laura Gillund as set forth above, and sent by certified mail, return receipt requested. You understand and agree that if you rescind any part of this Agreement in accordance with this Section 5, CSI will have no obligation to provide you the payments and benefits described in Section 2 of this Agreement and you will be obligated to return to CSI any payment(s) and benefits already received in connection with Section 2 of this Agreement.
6.
Return of Property
. You acknowledge and agree that all documents and materials relating to the business of, or the services provided by, CSI are the sole property of CSI. You agree and represent that you have returned, or will return by the Separation Date, to CSI all of its property, including but not limited to, all medical device and other equipment, computers and related hardware, customer records and other documents and materials, whether on computer disc, hard drive or other form, and all copies thereof, within your possession or control, which in any manner relate to the business of, or the duties and services you performed on behalf of CSI. Notwithstanding the above or any provision in any other agreement between you and CSI, except for those referenced in Section 7 below which shall continue to apply, following the
Separation Date, you may retain, in hardcopy and/or electronic format, and use the Microsoft Outlook Contacts and similar contact information maintained by you as of the Separation Date, and may also continue to maintain and use any personal or professional profile, accounts or contacts contained on any LinkedIn, Facebook or other social media site or system existing as of the Separation Date.
7.
Ongoing Obligations Under Your Employment Agreement
. You are hereby reminded of your ongoing obligations to CSI under Paragraphs 12 - 15 of your Employment Agreement with CSI. Nothing in this Agreement or elsewhere is intended to or will be used in any way to prevent disclosure of confidential information in accordance with the immunity provisions set forth in Section 7 of the Defend Trade Secrets Act of 2016 (18 U.S.C. § 1833(b)), meaning disclosure (i) in confidence to a government official or attorney solely for the purpose of reporting or investigating a suspected legal violation; or (ii) under seal in connection with a lawsuit (including an anti-retaliation lawsuit). Likewise, nothing in this Agreement or any other agreement between you and CSI prevents you from providing truthful testimony or otherwise responding accurately and fully to any question, inquiry or request for information or disclosure of documents when required by legal process, subpoena, notice, court order or law (including, without limitation, in any criminal, civil, or regulatory proceeding or investigation), or as necessary in any action for enforcement or claimed breach of this Agreement or any other legal dispute with CSI. In addition, as a California based employee, the Company hereby waives your post-employment obligations under Section 16 of your Employment Agreement.
8.
Cooperation and Defense of Claims
. You agree that through the 18 month anniversary of the Separation Date, you will respond in a reasonably timely and helpful manner via telephone or email to occasional CSI questions, if any, regarding your employment with CSI, such as, but not limited to, status of projects, customer matters, location of data, passwords, etc. In addition, you agree that you will reasonably cooperate and assist in the orderly transition of files and other information related to your work with CSI and, upon reasonable request, provide your reasonable assistance, knowledge, and expertise to CSI to address any problems or issues that may arise regarding matters as to which you have any directly relevant information. You further agree that you will reasonably cooperate with CSI to respond to, defend, or address all claims, charges, complaints or litigation by or against CSI that have arisen or that may arise with respect to omissions, acts, transactions or other events that occurred during your employment with CSI as to which you have any directly relevant information. You also agree that you will provide truthful and accurate sworn testimony in the form of deposition, affidavit, and/or court testimony if reasonably requested by CSI. CSI will reimburse you for all reasonable out-of-pocket expenses incurred as a result of your assistance under this Section unless such remuneration is prohibited by applicable law. In the event that you are requested to and agree to provide any assistance to CSI at any time after the 18 month anniversary of the Separation Date, in addition to reimbursing any out-of-pocket expenses, CSI will also compensate you for the time you spend providing such assistance at a pro-rata or per diem rate based on your base salary as of the Separation Date. In no event will any of the obligations under this Section unduly interfere with any subsequent employment, consulting or other business or personal activities or obligations you may have after the Separation Date.
9.
Non-Disparagement and Confidentiality
. You promise and agree not to disparage CSI, its directors, officers, shareholders, employees, products or services, and CSI agrees to instruct in writing its Executive level employees and its Board of Directors as of December 31, 2017 not to disparage you, either orally or in writing. You further promise and agree not to disclose or discuss, directly or indirectly, in any manner whatsoever, any information regarding either (1) the contents and terms of this Agreement, or (2) the substance and/or nature of any dispute between CSI and any employee or former employee, including yourself. Notwithstanding the foregoing, nothing in this Section 9 or this Agreement shall prohibit or limit you from discussing or disclosing this confidential information with or to your legal and financial advisors and your spouse, if applicable, provided they agree to keep the information confidential, or from freely and
truthfully communicating with, with or without notice to CSI, federal and state tax authorities, the state unemployment compensation department, other government agencies, or as otherwise required or allowed by law or permitted by this Agreement. You acknowledge and agree that CSI has obligations to describe the contents and terms of this Agreement and file this Agreement pursuant to the rules and regulations of the SEC (as defined above). On or before January 5, 2018, CSI will provide you with a letter of reference. CSI further agrees that, in the event Scott Ward receives any direct inquiries from any third-parties concerning your employment with CSI, he will respond by providing a positive employment reference consistent with the letter of reference and will not make any negative comments of any kind regarding you. You will direct any inquiries for verification of your employment to CSI’s Chief Talent Officer and, in response to any such inquiries, she/he will provide only your dates of employment, last position held and information consistent with the letter of reference.
10.
Code Section 409A
. It is intended that any amounts payable under the Agreement shall be exempt from or comply with the applicable requirements, if any, of Section 409A of the Internal Revenue Code of 1986, as amended, and the notices, regulations and other guidance of general applicability issued thereunder (“Code Section 409A”), and the parties will interpret the Agreement in a manner that will preclude the imposition of additional taxes and interest imposed under Code Section 409A. Any payments under this Agreement that may be excluded from Code Section 409A either as separation pay due to an involuntary separation from service or as a short-term deferral will be so excluded to the maximum extent possible. If either you or CSI reasonably determines that any payment or benefit hereunder will violate Code Section 409A, you and CSI shall use best efforts to restructure the payment or benefit in a manner that is either exempt from or compliant with Code Section 409A. You and CSI agree that they will execute any and all amendments to this Agreement as may be necessary to ensure compliance with the distribution provisions of Code Section 409A in an effort to avoid or minimize, to the extent allowable by law, the tax (and any interest or penalties thereon) associated with Code Section 409A. If it is determined that a payment under this Agreement was (or may be) made in violation of Code Section 409A, CSI will cooperate reasonably with any effort by you to mitigate the tax consequences of such violation, including cooperation with your participation in any IRS voluntary compliance program or other correction procedure under Code Section 409A that may be available to you.
11.
Remedies
. If either party breaches any term of this Agreement, if you breach any of the specific paragraphs of your Employment Agreement referenced in this Agreement, or if either party breaches any other written agreement in effect between you and CSI, the prevailing party in any enforcement action as determined by a court of competent jurisdiction shall be entitled to its available legal and equitable remedies, including but not limited to, in the case of your breach, CSI suspending and recovering any and all payments and benefits made or to be made under Section 2 of this Agreement, and payment by the non-prevailing party of the prevailing party’s reasonable attorneys’ fees and costs incurred in connection with such action. If either party seeks and/or obtains relief from an alleged breach of this Agreement, all of the provisions of this Agreement shall remain in full force and effect.
12.
Non-Admission
. It is expressly understood that this Agreement does not constitute, nor shall it be construed as, an admission by CSI or you of any liability or unlawful conduct whatsoever. CSI and you specifically deny any liability or unlawful conduct. Additionally, by signing this Agreement you acknowledge and agree that you are not aware, to the best of your knowledge, of any conduct, on your part or on the part of another employee at CSI, that violated CSI’s code of conduct, applicable policies and procedures, or applicable law or otherwise exposed CSI to any liability, whether criminal or civil, and whether to any government, individual or other entity. Further, you acknowledge and agree that you are not aware of any material violations by CSI and/or any of the Released Parties or employees of CSI of any statute, regulation or other rules that have not been addressed by CSI through appropriate compliance and/or corrective action.
13.
Successors and Assigns
. This Agreement is personal to you and may not be assigned by you without the written agreement of CSI; provided, however, that the terms of this Agreement and all of your rights hereunder will inure to the benefit of, and be enforceable by, your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. The rights and obligations of this Agreement shall inure to and be binding on the successors and assigns of CSI. CSI shall require any successors or assigns to expressly assume and agree to perform this Agreement in the same manner and to the same extent that CSI would be required to perform it if no such succession or assignment had taken place.
14.
Enforceability
. If a court finds any term of this Agreement to be invalid, unenforceable, or void, the parties agree that the court shall modify such term to make it enforceable to the maximum extent possible. If the term cannot be modified, the parties agree that the term shall be severed and all other terms of this Agreement shall remain in effect.
15.
Jury Trial Waiver
. Each of the parties knowingly and voluntarily waives all right to trial by jury in any action or proceeding arising out of or relating to this Agreement or for recognition or enforcement of any judgment.
16.
Full Agreement
. This Agreement contains the full agreement between you and CSI and may not be modified, altered, or changed in any way except by written agreement signed by both parties. The parties agree that this Agreement supersedes and terminates any and all other written and oral agreements and understandings between the parties, except for Sections 12-15 of your Employment Agreement; the Indemnification Agreement; the Severance Plan, and any other written agreement in effect between you and CSI containing post-employment obligations, which shall continue in full force and effect according to their terms and shall survive the termination of your employment.
17.
Counterparts
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This Agreement may be executed by facsimile or electronic transmission and in counterparts, each of which shall be deemed an original and all of which shall constitute one binding instrument.
18.
Acknowledgment of Reading and Understanding
. By signing this Agreement, you acknowledge that you have read this Agreement, including the release of claims contained in Section 3, and understand that the release of claims is a full and final release of all claims you may have against CSI and the other entities and individuals covered by the release. By signing, you also acknowledge and agree that you have entered into this Agreement knowingly and voluntarily, and that CSI has informed you that you have the right to consult with an attorney of your choice prior to signing this Agreement.
As noted above, you may not sign this Agreement until January 31, 2018. The deadline for you to accept this Agreement is 5:00 p.m. (Central time) on February 1, 2018, which is more than 21 calendar days following your receipt of this Agreement (the “Offer Expiration”). If not accepted by the Offer Expiration, the offer contained herein will expire. After you have reviewed this Agreement and obtained whatever advice and counsel you consider appropriate regarding it, please evidence your agreement to the provisions set forth in this Agreement by dating and signing the Agreement. Please then return a signed Agreement to me no later than the Offer Expiration. Please keep a copy for your records.
Kevin, on behalf of CSI, we thank you for your service and wish you all the best.
Sincerely,
/s/ Laura Gillund
Laura Gillund
Chief Talent Officer
ACKNOWLEDGMENT AND SIGNATURE
By signing below, I, Kevin Kenny, acknowledge and agree to the following:
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I have read this Separation Agreement and Release carefully.
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I understand and agree to all of the terms of the Separation Agreement and Release.
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I am knowingly and voluntarily releasing my claims against CSI and the other persons and entities defined as the Released Parties.
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I have not, in signing this Agreement, relied upon any statements or explanations made by CSI except as for those specifically set forth in this Separation Agreement and Release.
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I intend this Separation Agreement and Release to be legally binding.
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I am signing this Separation Agreement and Release on or after my last day of employment with CSI.
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Accepted this 31st day of January, 2018.
/s/ Kevin Kenny
Kevin Kenny
62655944
January 10, 2018
Rhonda Robb
[ADDRESS REDACTED]
Dear Rhonda:
It is my pleasure to present an offer to you to join our leadership team at Cardiovascular Systems, Inc. as the Chief Operating Officer. This role will report to Scott Ward, the Chairman, President and Chief Executive Officer.
The specifics of the offer follow:
Location: 1225 Old Highway 8 NW St. Paul, MN 55112
Compensation: $450,000 ($ 17,307.69 bi-weekly)
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Bonus Opportunity:
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Target is 90% of base salary (prorated for the partial fiscal year in which your employment commences).
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Employment
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Commencement Date:
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The earliest date mutually agreed by the parties immediately following your last date of employment with your current employer.
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Special
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Equity/Stock Awards:
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You will be awarded two restricted stock awards under the Cardiovascular Systems, Inc. 2017 Equity Incentive Plan. The first equity award will be $750,000 in value and will be a time based vested award. The $750,000 time-based award will vest annually in equal installments of one-third of the total number of shares granted, commencing on the first regular vesting date that occurs approximately 12 months following the date of grant, subject to your continued employment on those dates. The second equity award will be $750,000 in value and will be cliff vested on the third anniversary of the award, approximately 36 months following the date of grant, subject to your continued employment through that date. In accordance with (and subject to) the Company’s Executive Officer Severance Plan, any unvested portion of these two special equity/stock awards that would vest within 12 months following the termination of your employment will accelerate and be fully vested in the event of a termination of your employment by the Company without Cause or by you for Good Reason (as those terms are defined in the Executive Officer Severance Plan).
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Annual Equity/Stock
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Awards:
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Beginning with the annual equity grants for 2018 in August 2018, you will be eligible for annual equity/stock awards with a target value of 200% of your base annual salary.
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Change of Control:
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In the event of a change of control (as defined in the 2017 Equity Incentive Plan), all of your unvested equity/stock awards will accelerate and become vested in full.
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Other terms:
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The Company will also pay you a sign on bonus of $450,000, less required and authorized deductions and withholding, upon joining the Company. Should you voluntarily leave the Company within 12 months of your date of hire, you will be responsible for reimbursing the Company a pro-rated amount of the entire sign on bonus. By your signature on the employment agreement, you authorize the Company to withhold applicable amounts necessary from any severance or any final pay you receive upon termination of employment.
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Benefits:
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The current employee benefits summary is attached for your reference. The Company’s health insurance benefits will begin on the first day of the month following the month in which your employment with the Company commences.
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This offer is contingent upon your execution of the attached employment agreement and the completion of a background investigation satisfactory to the Company. Pursuant to an agreement between CSI and the Office of Inspector General (OIG) of the United States Department of Health and Human Services (HHS), part of the background investigation will include ensuring that you are not an Ineligible Person as defined by HHS/OIG. As part of the Ineligible Person screening, you must complete and return the enclosed Pre-Hire HHS/OIG Ineligible Person Screening form to CSI by the stated due date.
This letter confirms that the Company’s Board of Directors or the committee administering its 2017 Equity Incentive Plan has approved the special equity awards as described above, and the number of shares will be determined based on the closing price of the Company’s stock on the date your employment begins.
As noted in the Employment Agreement, your employment with the Company will be “at-will.” No circumstances arising out of your employment will alter the “at-will” employment relationship unless expressed in writing, with the understanding specifically set forth and signed by you and an officer of the Company.
If you accept employment, you will be required to complete the Company’s new hire paperwork, including a Form I-9 establishing your identity and that you are legally authorized to work in the United States. The “List of Acceptable Documents” in connection with the Form I-9 can be found at http://www.uscis.gov/files/form/i-9.pdf.
Those of us that have had the opportunity to meet with you are impressed with your experience and capabilities and excited about the value you can add to our organization and team. To indicate your acceptance of this offer, please sign and return the enclosed Employment Agreement to me no later than January 29, 2018.
This letter replaces and supersedes the letter to you dated December 19, 2017.
Sincerely,
/s/ Laura Gillund
Laura Gillund
Chief Talent Officer
EMPLOYMENT AGREEMENT
This Employment Agreement (“
Agreement
”) is entered into by and between Cardiovascular Systems, Inc. (the “
Corporation
”) and Rhonda Robb (“
Executive
”).
RECITALS
A.
The Corporation desires to employ Executive as its Chief Operating Officer.
B
.
Executive wishes to become employed by the Corporation as its Chief Operating Officer on the terms and conditions set forth in this Agreement.
C.
The Corporation is engaged in the business of researching, designing, developing, manufacturing and marketing medical devices for the treatment of cardiovascular disease.
D.
The Corporation, through its research, development and expenditure of funds, has developed confidential and proprietary information, including trade secrets.
E.
During her employment, Executive will have access to the Corporation’s valuable Confidential Information (as defined below), may contribute to Confidential Information and acknowledges that the Corporation will suffer irreparable harm if Executive uses Confidential Information outside her employment or makes unauthorized disclosure of Confidential Information to any third party.
F.
The Corporation has provided Executive with an offer letter that proposes certain terms of Executive’s employment with the Corporation (the “
Offer Letter
”).
AGREEMENT
In consideration of the above recitals and the promises set forth in the Agreement, and in consideration of Executive’s employment with the Corporation, the parties agree as follows:
1.
Nature and Capacity of Employment
. The Corporation will employ Executive, initially as Chief Operating Officer. Executive will perform, on a full time basis, the functions of this position. Executive hereby accepts employment as the full-time Chief Operating Officer. Executive will report to the Corporation’s President and Chief Executive Officer.
2.
Term of Employment
. Executive’s employment with the Corporation hereunder will commence on a date mutually agreed by the Corporation and Executive and will continue until terminated by either party as provided for in Paragraph 8 hereunder. In the event that Executive is terminated or she elects to resign as an employee of the Corporation, Executive agrees to submit her resignation as an officer and (if applicable) director of the Corporation effective concurrently with the effective date of her termination or resignation as an employee of the Corporation.
3.
Base Salary
. Executive’s initial annualized base salary will initially be the amount set forth in the Offer Letter, payable biweekly, less required and authorized deductions and withholdings. The base salary may be subject to review and adjustment by the Board of Directors of the Corporation or a Committee thereof (the “
Board
”) from time to time.
4.
Bonus
. Executive will be eligible to participate in the Corporation’s bonus programs for executive officers in effect from time to time. Executive’s eligibility to earn bonuses will be subject to the terms and conditions of the then-applicable executive officer bonus programs, which may be subject to discontinuation or modification by the Board from time to time. The target amount for Executive’s annual bonus shall be not less than 90% of Executive’s base annual salary. For the partial first year of Executive’s employment, the bonus will be prorated based on the portion of the first partial year that Executive was employed by the Company
5.
Restricted Stock Grants
. Executive will receive grants of restricted stock under the Corporation’s 2017 Equity Incentive Plan as set forth in the Offer Letter, including the value of the shares and vesting terms, subject to approval by the Board. Further details of the restricted stock grants will be provided in separate Restricted Stock Agreements consistent with the Offer Letter. Future grants of restricted stock to Executive as set forth in the Offer Letter will be at the discretion of the Board and will be contingent upon Executive agreeing to a separate Restricted Stock Agreement and restrictive covenants in the Corporation’s then-current form.
6.
Employee Benefits; PTO.
Executive will be eligible to participate in all retirement plans and all other employee benefits and policies made available by the Corporation to its full-time employees, to the extent Executive meets applicable eligibility requirements. Executive will be eligible to accrue and use paid time off (PTO) pursuant to the Corporation’s then-current PTO policies. Executive will be eligible to participate in the Corporation’s Executive Officer Severance Plan, as in effect from time to time (the “
Severance Plan
”). Nothing in this Agreement is intended to or will in any way restrict the Corporation’s right to amend, modify or terminate any of its benefits or benefit plans during Executive’s employment.
7.
Best Efforts/Undertakings of Executive
. During the term of Executive’s employment with the Corporation, Executive will serve the Corporation faithfully and to the best of her ability and will devote her full business and professional time, energy, and diligence to the performance of the duties assigned to her. Executive will perform such duties for the Corporation (i) as are customarily incident to Executive’s position and (ii) as may be assigned or delegated to Executive from time to time by the Corporation. During the term of Executive’s employment with the Corporation, Executive will not engage in any other business activity that would conflict or interfere with her ability to perform her duties under this Agreement. During the term of Executive’s employment, she will not provide any services or invest in, or offer for sale or sell any products, to any individual, company or other business entity that is a competitor, supplier or customer of the Corporation, except in connection with Executive’s employment with the Corporation. Furthermore, Executive will be subject to the Corporation’s control, rules, regulations, policies and programs, including, without limitation, with regard to conflict of interest and code of ethics. Executive will carry on all business and commercial correspondence, publicity and advertising in the Corporation’s name and she will not enter into any contract on behalf of the Corporation except as expressly authorized by the Corporation.
8.
Termination of Employment
.
8.1
Employment At Will
. Executive is employed “at-will.” That is, either Executive or the Corporation may terminate the employment relationship under this Agreement at any time, with or without Cause or Good Reason, and with or without advance notice. In addition, the terms and conditions of Executive’s employment are subject to change by the Corporation and any such change will not be a breach of this Agreement.
8.2
Payment Upon Termination
. Except as provided in Section 8.3 or in the Severance Plan, after the effective date of termination, Executive shall not be entitled to any compensation, benefits, or
payments whatsoever except for compensation earned through her last day of employment and any accrued benefits.
8.3
Severance
. If at any time Executive is terminated by the Corporation without Cause (as defined below), or Executive terminates her employment for Good Reason (as defined below), and Executive executes, returns and does not rescind, and all rescission periods have expired, by the 60
th
day after termination of Executive’s employment, a release of claims agreement in a form supplied by the Corporation, then the Corporation shall: (i) pay Executive the Severance Amount (as defined below) at the times and in the manner described below; (ii) pay Executive at the same time and in the same manner as provided under the Corporation’s cash bonus plan a pro rata portion of any performance bonus for which the performance period has not expired prior to her termination of employment, with such pro rata portion based on that portion of the performance period during which the Executive was employed; and (iii) continue to pay the Corporation’s ordinary share of premiums for eighteen (18) calendar months for Executive’s COBRA continuation coverage in the Corporation’s group medical, dental, and life insurance plans (as applicable), provided Executive timely elects such continuation coverage and timely pays Executive’s share of such premiums, if any. Notwithstanding the foregoing clause (iii), if the Corporation determines, in its sole discretion, that the payment of its share of the COBRA premiums would result in a violation of the nondiscrimination rules of Section 105(h)(2) of the Code or any statute or regulation of similar effect (including but not limited to the 2010 Patient Protection and Affordable Care Act, as amended by the 2010 Health Care and Education Reconciliation Act), then in lieu of providing its share of the COBRA premiums, the Corporation may, in its sole discretion, elect to pay Executive on a monthly basis a fully taxable cash payment equal to the Corporation’s ordinary share of the premiums for that month, subject to applicable tax withholdings (such amount, the “
Special Severance Payment
”), for the remainder of the eighteen (18) month period. Executive may, but is not obligated to, use such Special Severance Payment toward the cost of COBRA premiums. Such Special Severance Payment shall be made at the time and in the manner prescribed in Section 8.3(c) and Section 8.4. Each of the payments described in clauses (i), (ii) and (iii) of the preceding sentence are subject to the application of Code Section 409A as set forth in Section 8.4 below and subject to the condition that Executive, at the time of any such payment, is in compliance with the terms of the release of claims agreement referred to in the preceding sentence and with Sections 9, 10, 11, 12 and 13 of this Agreement.
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a.
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Termination by the Corporation with Cause
. For purposes of this Section 8.3,
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“
Cause
” shall be defined as:
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(1)
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Executive’s neglect of any of her material duties or her failure to carry out reasonable directives from the Board of Directors or its designees;
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(2)
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Any willful or deliberate misconduct of Executive that is injurious to the Corporation;
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(3)
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Any statement, representation or warranty made to the Board or its designees by the Executive that the Executive knows is false or materially misleading; or
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(4)
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Executive’s commission of a felony, whether or not against the Corporation and whether or not committed during the Executive’s employment.
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For the avoidance of doubt, termination of Executive’s employment due to her death or disability shall not be deemed a without Cause termination hereunder.
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b.
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Termination by Executive for Good Reason
. For purposes of this Section 8.3, “
Good Reason
” shall be defined as the occurrence of any of the following without Executive’s written consent:
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(1)
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The assignment to Executive of employment responsibilities that are not of comparable responsibility and status to the employment responsibilities described in this Agreement;
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(2)
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The Corporation’s material reduction of Executive’s base salary, unless pursuant to a cost reduction effort approved by the Board of Directors that also results in the reduction of salaries of other executive officers; or
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(3)
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The Corporation’s failure to provide Executive those employee benefits specifically required by this Agreement.
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Notwithstanding the foregoing, Executive’s resignation shall not constitute resignation for Good Reason unless (i) Executive notifies the Corporation in writing within ninety (90) days after the initial existence of any condition that constitutes Good Reason, (ii) the Corporation fails to cure the condition within thirty (30) days after receiving such notice, and (iii) Executive resigns within ninety (90) days after the end of such thirty-day cure period.
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c.
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Severance Amount
. Except as set forth in the following sentence with respect to a Change of Control, the Severance Amount will be the product of (i) 1.5, multiplied by (ii) Executive’s annual base salary at the time of termination of Executive’s employment. If Executive is terminated without Cause or terminates her employment for Good Reason in accordance with terms hereof following a Change of Control (as that phrase is defined in the Severance Plan) and before the second anniversary of the Change of Control, then the Severance Amount will be the product of (i) 1.5, multiplied by (ii) the sum of Executive’s annual base salary at the time of termination of Executive’s employment and the target bonus amount that Executive was eligible to earn for the fiscal year in which termination occurred under the Corporation’s cash bonus plan then in effect, assuming 100% achievement against Corporation’s budgets. In either case, the Severance Amount shall be paid in approximately equal installments, as determined by the Corporation in its sole and absolute discretion, at regular payroll intervals over a period of eighteen (18) months, beginning on the next regularly scheduled payday coinciding with or immediately following the 60
th
day after the termination of the Executive’s employment and continuing until the end of such eighteen (18) month period.
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8.4
IRC Section 409A
. This Agreement is intended to comply with Internal Revenue Code Section 409A (“
Code Section 409A
”) or an exemption thereunder and shall be construed and administered in accordance with Code Section 409A. Any payments to be made under this Agreement upon a termination of employment shall only be made if such termination of employment constitutes a “separation from service” under Code Section 409A. Notwithstanding any other provision of this Agreement to the contrary, if any of the payments described in this Agreement are subject to the requirements of Code Section 409A and the Corporation determines that Executive is a “specified employee” as defined in Code Section 409A as of the date of Executive’s termination of employment, all or a portion of such payments will not be paid or commence until the first payroll date that occurs after the six-month anniversary of the date of Executive’s termination of employment, or, if earlier, the date of Executive’s death, but only to the extent such delay is required for compliance with Code Section 409A. Further, notwithstanding anything in this
Agreement to the contrary, the Corporation expressly reserves the right to amend this Agreement without Executive’s consent to the extent necessary to comply with Code Section 409A, as it may be amended from time to time, and the regulations, notices and other guidance of general applicability issued thereunder.
9.
Return of Property.
a.
Immediately upon termination of employment for any reason (or at such earlier time as requested by the Corporation), Executive will deliver to the Corporation all Confidential Information and all physical property of the Corporation or any of its prospective or current customers in the possession or control of Executive, including all products, equipment, product specifications, drawings, work in progress, research data, models, prototypes, notes, software programs, project plans, sales and marketing materials, business and product development materials, advertising materials, media materials, customer and client lists, customer account records, training and operations material and memoranda, personnel records, code books, pricing information, business practices, business policies, methods of operation, advertising strategies, business plans and strategy, financial information, information submitted to the Corporation by its customers, clients, suppliers, employees, consultants or co-ventures, prospective or existing customers of the Corporation, and other information concerning or relating to the business, accounts, customers, suppliers, employees and affairs of the Corporation, together with any similar materials, whether or not of a secret or confidential nature, and all copies of any of the foregoing that are in any way related to the Corporation’s business and that Executive has in its possession or that are subject to Executive’s control. Neither the execution of this Agreement nor the furnishing of any Confidential Information hereunder will be construed as the Corporation granting to Executive, either expressly, by implication, estoppel or otherwise, any license under any invention, patent, copyright or trade secret, now or hereafter owned or controlled by the Corporation.
b.
If Executive fails to return the Corporation’s property, products and/or equipment to the Corporation within 24 hours of demand by the Corporation, by signing below, Executive voluntarily authorizes the Corporation to deduct the monetary value of such property, products and/or equipment, as determined in the Corporation’s sole discretion, from any money that the Corporation may owe Executive for wages, commissions, bonuses, paid time off, or any other advances or reimbursements due to Executive. If the amount the Corporation owes Executive is insufficient to cover the amount Executive owes under this Agreement, Executive will pay the remaining balance to the Corporation within ten business days of the Corporation’s demand for payment. Additionally, the Corporation may treat the property, products and/or equipment as stolen property and take all necessary actions to recover it, including notifying law enforcement.
10.
Use and Disclosure of Confidential Information.
The Corporation has and will disclose to Executive, and Executive will have access to, certain confidential and proprietary information of the Corporation, including product specifications, drawings, work in progress, research data, models, prototypes, notes, project plans, business and product development materials, creations, ideas, concepts, trade secrets, know-how, techniques, Inventions, Works, methodologies, software programs, computer hardware, media materials, sales and marketing materials, advertising materials, customer and client lists, customer account records, training and operations material and memoranda, personnel records, code books, pricing information, business practices, business policies, methods of operation, advertising strategies, business plans and strategy, financial information, information submitted to the Corporation by its customers, clients, suppliers, employees, consultants or co-ventures, prospective or existing customers of the Corporation, and other confidential or proprietary information concerning or relating to the business, accounts, customers, suppliers, employees and affairs of the Corporation (collectively, “
Confidential Information
”). Executive acknowledges that such Confidential Information is of significant value to the Corporation and that the unauthorized use or the disclosure of such information could result in significant
business or financial loss to the Corporation that may be difficult to measure in monetary amounts. Executive will not disclose any Confidential Information to any individual, business, firm or corporation, other than the Corporation and its authorized representatives, at any time during or after the term of this Agreement. Except as required in the regular course of performing Executive’s duties under this Agreement, Executive will not permit any person to examine or make copies or reproductions of any documents or other information containing Confidential Information. Executive’s obligations under this Paragraph are unconditional and will not be excused by any conduct on the part of the Corporation, except prior voluntary disclosure to the general public by the Corporation of the information. Notwithstanding anything to the contrary in this Agreement or otherwise, nothing will limit Employee’s rights under applicable law to provide truthful information to any governmental entity or to file a charge with or participate in an investigation conducted by any governmental entity. In addition, Employee is hereby notified that the immunity provisions in Section 1833 of title 18 of the United States Code provide that an individual cannot be held criminally or civilly liable under any federal or state trade secret law for any disclosure of a trade secret that is made (i) in confidence to federal, state or local government officials, either directly or indirectly, or to an attorney, and is solely for the purpose of reporting or investigating a suspected violation of the law, (ii) under seal in a complaint or other document filed in a lawsuit or other proceeding, or (iii) to its attorney in connection with a lawsuit for retaliation for reporting a suspected violation of law (and the trade secret may be used in the court proceedings for such lawsuit) as long as any document containing the trade secret is filed under seal and the trade secret is not disclosed except pursuant to court order.
11.
Ownership of Intellectual Property
.
a.
Copyrights
. All works of authorship fixed in any tangible medium of expression created by Executive during the course and scope of her employment with the Corporation (“
Works
”) will be and remain exclusively owned by the Corporation. Each such Work created by Executive will be considered a “work made for hire,” as defined by the Copyright Act of 1976, Title 17 of the United States Code, as now enacted or later amended or in any applicable successor statute, and the Corporation may file applications to register copyright in such Works as author and copyright owner thereof. If, for any reason, a Work created by Executive is excluded from such definition of a “work made for hire,” then Executive hereby assigns, sells, and conveys to the Corporation Executive’s entire rights, title and interests in and to such Works, including the copyright therein, free and clear of any liens, claims or other encumbrances. Executive will execute any documents that the Corporation deems necessary in connection with the assignment of such Work and copyright therein. Executive will take whatever steps and do whatever acts the Corporation requests, including placement of the Corporation’s proper copyright notice on Works created by Executive to secure or aid in securing copyright protection in such Works and will assist the Corporation or its nominees in filing applications to register claims of copyright in such Works. The Corporation will have free and unlimited access at all times to all Works and all copies thereof and will have the right to claim and take possession on demand of such Works and copies.
b.
Assignment of Inventions
. All rights, title and interest in and to all discoveries, concepts and ideas, whether patentable or not, including any apparatus, processes, methods, compositions of matter, techniques and formulae, as well as improvements thereof or know-how related thereto (“
Inventions
”), relating to any present or prospective product, process or service of the Corporation that Executive conceives or makes relating to the Corporation’s business, including any domestic and foreign patent applications and patents related to such Inventions, are hereby assigned to the Corporation (“
Assignment
”). This Assignment will not apply to Inventions for which no equipment, supplies, facility or trade secret information of the Corporation was used and that was developed entirely on Executive’s own time, and (1) that does not relate (a) directly to the business of the Corporation or (b) to the Corporation’s actual or
demonstrably anticipated research or development, or (2) that does not result from any work performed by Executive for the Corporation.
c.
Executive will, without further consideration:
1.
inform the Corporation promptly and fully of any Inventions and provide written reports setting forth in detail the procedures employed and the results achieved;
2.
assign to the Corporation all of Executive’s rights, title and interests in and to such Inventions, any applications for United States and foreign patents, and any United States and foreign issued patents;
3.
assist the Corporation to obtain United States and foreign patents for such Inventions as the Corporation may elect; and
4.
execute, acknowledge and deliver to the Corporation, at the Corporation’s expense, such written documents and instruments, and do such other acts, such as giving testimony in support of Executive’s inventorship, as may be necessary, in the opinion of the Corporation, to obtain and maintain the Corporation’s ownership in such Inventions and United States and foreign patents and patent applications for such Inventions and to vest the entire rights, title and interest in and to such Inventions and United States and foreign patents and patent applications for such Inventions in the Corporation and to confirm the Corporation’s complete ownership of such Inventions and United States and foreign patents and patent applications for such Inventions, patent applications and patents.
d.
Executive hereby irrevocably designates and appoints the Corporation and its duly authorized officers and agents as Executive’s agents and attorney-in-fact, to act for and on Executive’s behalf and instead of Executive, to execute and file any documents, applications or related findings and to do all other lawfully permitted acts to further the purposes set forth above in this Paragraph 11, including the perfection of assignment and the prosecution and issuance of patents, patent applications, copyright applications and registrations, trademark applications and registrations or other rights in connection with such Inventions and improvements thereto with the same legal force and effect as if executed by Executive.
12.
Executive’s Prior Contract Obligations and Intellectual Property Rights
. Executive represents and warrants that Executive is not bound by a non-compete or confidentiality agreement from a prior employer, individual or entity that is or would be inconsistent or in conflict with this Agreement or would prevent, limit or impair in any way the performance by Executive of her obligations hereunder, including any duties owed to any former employers not to compete, and Executive’s employment hereunder does not breach any agreement or duty to any third party. Executive will not disclose or use in any way during the term of employment with the Corporation any confidential, proprietary or trade secret information that Executive may have acquired or retained in any way as a result of a prior employment or other relationship with any third party, and Executive has not brought and will not bring any documents, materials of a former employer or other third party that are not otherwise generally available to the public without the express written authorization of said former employer or third party.
13.
Non-Competition and Non-Solicitation
. During Executive’s employment with the Corporation (except on behalf of the Corporation) and for eighteen (18) months following termination of such employment for any reason, whether voluntary or involuntary, Executive will not, directly or indirectly, alone or as an employee, director, officer, agent, partner of or consultant to, a stockholder or other equity owner of (except as an equity owner of a public company in which Executive beneficially owns less than
5% of the issued and outstanding capital stock or other equity interests of such company) any other person or entity, or otherwise:
a.
render services to any person or entity engaged in the design, development, manufacture, marketing and/or sale of products or services that are the same as or similar to, or compete with, the Corporation’s then-current products or services, in any geographic area in which the Corporation then-currently actively markets its products and services. Executive acknowledges that, as of the commencement of this Agreement, the geographic area in which the Corporation actively markets its products and services is the United States of America;
b.
call upon, solicit or offer to provide products or services that are the same as or similar to, or compete with, the Corporation’s then-current products or services to any customer of the Corporation, or assist in any such activities;
c.
interfere with or attempt to interfere with the Corporation’s business relationships with any of its customers, suppliers, vendors or others, regardless of whether Executive procured such actual or potential business relationship for the Corporation, or assist in any such activities;
d.
solicit, hire or engage in any capacity any employee of the Corporation or any of its subsidiaries (or any person who was an employee of the Corporation or any of its subsidiaries within 12 months of the date of Executive’s termination or within 12 months of the date such hiring or engagement occurs) or induce any of such employees to terminate or curtail their employment relationship with the Corporation, or assist in any such activities; or
e.
make any public statement that is intended to or could reasonably be expected to disparage the Corporation or its affiliates or any of their products, services, stockholders, directors, officers or employees.
The term “
customer
” as used in this Paragraph 13 means any and all persons or entities that were purchasers of the Corporation’s products or services at any time during the one year period immediately preceding termination of Executive’s employment with the Corporation.
14.
Miscellaneous.
14.1
Survival of Restrictions
. The obligations and restrictions contained in Paragraphs 8, 9, 10, 11, 12 and 13 of this Agreement, and this Paragraph 14, will survive the termination of this Agreement and Executive’s employment and will apply no matter how Executive’s employment terminates and regardless of whether her termination is voluntary or involuntary.
14.2
Unconditional Obligations
. It is intended that the obligations of Executive to perform pursuant to the terms of this Agreement are unconditional and do not depend on the performance or nonperformance of any agreements, duties or obligations between the Corporation and Executive not specifically contained in this Agreement.
14.3
Remedies
. If Executive breaches or threatens to breach any term of this Agreement, the Corporation will be entitled as a matter of right to injunctive relief (without the necessity of showing actual monetary damages or the posting of a bond or other security) and payment by Executive of its reasonable attorneys’ fees, costs and expenses incurred in connection with enforcing its rights under this Agreement, in addition to any other remedies available at law or equity.
14.4
Consent to Reasonableness
. Executive acknowledges that the Corporation has spent and will continue to expend substantial amounts of time, money and effort to develop the Corporation’s products and its business strategies, Confidential Information, customer relationships, goodwill and employee relationships, and that Executive will benefit from these efforts. Executive acknowledges that the terms of the foregoing restrictive covenants are reasonable and necessary to protect the Corporation’s legitimate business interests and will not unreasonably interfere with Executive’s ability to obtain alternate employment. Executive further acknowledges the use or disclosure of the Confidential Information and the unrestricted competition by Executive would be unfair and extremely detrimental to the Corporation. Accordingly, based on these legitimate business reasons, Executive acknowledges the Corporation’s need to protect its legitimate business interests by reasonably restricting Executive’s ability to compete with the Corporation on a limited basis. Executive hereby acknowledges that such restrictions are valid and enforceable, and affirmatively waives any argument or defense to the contrary. Executive further acknowledges that the restrictive covenants in Paragraph 13 will survive the termination of this Agreement for any reason and the termination of Executive’s employment for any reason. Executive further acknowledges that any alleged breach by the Corporation of any contractual, statutory or other obligation will not excuse or terminate the obligations hereunder or otherwise preclude the Corporation from seeking injunctive or other relief. Rather, Executive acknowledges that such obligations are independent and separate covenants undertaken by Executive for the benefit of the Corporation. If Executive breaches any of the restrictions contained in Paragraph 13 of this Agreement, then the time period for such restriction will be extended by the length of time that Executive was in breach.
14.5
Notification
. By signing below, Executive authorizes the Corporation to notify third parties (including the Corporation’s competitors and customers) of the terms of this Agreement and Executive’s obligations hereunder.
14.6
Integration.
This Agreement and the Offer Letter, which is incorporated by reference herein and made a part hereof, embody the entire agreement and understanding among the parties relative to subject matter hereof and supersede all prior agreements and understandings relating to such subject matter. Executive’s obligations under this Agreement may not be canceled, modified or otherwise changed, except by another written agreement signed by the Corporation expressly referencing the applicable provision(s) hereunder.
14.7
Applicable Law; Venue; Jury Trial Waiver.
The Corporation is headquartered in Minnesota. Therefore, this Agreement and the rights of the parties will be governed by and construed and enforced in accordance with the laws of the State of Minnesota (without regard to its choice of law provisions). The venue for any action hereunder will be in Hennepin County, in the State of Minnesota, whether or not such venue is or subsequently becomes inconvenient, and the parties consent to the exclusive jurisdiction of the courts of the State of Minnesota, County of Hennepin, and the U.S. District Court, District of Minnesota. Each of the parties knowingly and voluntarily waives all right to trial by jury in any action or proceeding arising out of or relating to this Agreement or for recognition or enforcement of any judgment.
14.8
Counterparts
. This Agreement may be executed in counterparts, including by facsimile or electronic transmission, each of which will be deemed an original and all of which will constitute one instrument.
14.9
Successor and Assigns
. This Agreement will inure to the benefit of and be binding upon the Corporation and its successors and assigns. The Corporation may assign this Agreement without the consent of Executive. The services to be performed by Executive are personal and, therefore, this Agreement is not assignable by Executive.
14.10
Interpretation
. The captions set forth in this Agreement are for the convenience only and will not be considered as part of this Agreement or as in any way limiting or amplifying the terms and conditions hereof. All references in this Agreement to “days” refers to calendar days unless otherwise specified. The words “this Agreement,” “herein,” “hereby,” “hereunder” and “hereof,” and words of similar import, refer to this Agreement as a whole and not to any particular subdivision, unless expressly so limited. The words “this Article” and “this Paragraph” and words of similar import refer only to the Article or Paragraph hereof in which such words occur. The word “including” (in its various forms) means “including without limitation.”
14.11
Waivers
. The Corporation’s action in not enforcing a breach of any part of this Agreement will not prevent the Corporation from enforcing it as to any other breach of this Agreement.
14.12
Severability
. In the event that any provision hereof is held invalid or unenforceable by a court of competent jurisdiction, then that part should be modified by the court to make it enforceable to the maximum extent possible. If the part cannot be modified, then that part may be severed and the other parts of this Agreement will remain enforceable.
14.13
Ineligible Person
. By signing below, Executive affirms that she is not an Ineligible Person. “Ineligible Person” means any individual who (1) is currently excluded from participation in any Federal health care program (as defined in 42 U.S.C. § 1320a-7b(f)), (2) has been convicted of a criminal offense that falls within the scope of 42 U.S.C. § 1320a-7(a), but has not yet been excluded from participation in any Federal health care program, and/or (3) is listed on the “Exclusion List” maintained by the HHS/OIG List of Excluded Individuals/Entities (LEIE) (http://www.oig.hhs.gov). By signing below, Executive further acknowledges and agrees that she is obligated to disclose to the Corporation immediately if she becomes an Ineligible Person while employed by the Corporation.
14.14
Legal Fees
. The Company will pay Executive’s legal fees in connection with this Agreement and related matters up to a maximum of $20,000.
{Signature Page Follows}
NOW, THEREFORE, with the intention of being bound hereby, the parties have executed this Employment Agreement as of the dates set forth below.
CARDIOVASCULAR SYSTEMS, INC.
By:
/s/ Laura Gillund
Date:
1/10/2018
Name: Laura Gillund
Title: Chief Talent Officer
EXECUTIVE:
/s/ Rhonda Robb
Date:
1/12/2018
Rhonda Robb
Signature Page to Employment Agreement
February 7, 2018
Jeff Points
[ADDRESS REDACTED]
Dear Jeff:
It is my pleasure to confirm your promotion to Chief Financial Officer of Cardiovascular Systems, Inc. This role will report to Scott Ward, Chairman, President and Chief Executive Officer.
The specifics of the offer follow
:
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Location:
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1225 Old Highway 8 NW St. Paul, MN 55112
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Compensation:
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$275,000 ($10,576.92 bi-weekly)
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Bonus Opportunity:
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Your new bonus target is 60% of base salary. This bonus opportunity will commence on the effective date of your promotion and will be prorated for the remaining five months of the 2018 fiscal year.
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Promotion Effective Date:
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February 7, 2018
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Annual Equity/ Stock Awards:
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Beginning with the annual equity grants for 2018 to be awarded in August 2018, you will be eligible for annual equity/stock awards with a target value of 125% of your base annual salary. The equity award value will be split into two awards; 60% of the value will be a performance-based vesting and 40% will be time-based vesting. The performance-based vesting is based on Total Shareholder Return of the Company relative to Total Shareholder Return of the peer group at the end of a three-year period. The time-based award will vest annually in equal installments of one-third of the total number of shares granted, commencing on the first regular vesting date that occurs approximately 12 months following the date of grant, subject to your continued employment on those dates.
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This offer is contingent upon your execution of the attached employment agreement.
Thank you for your many contributions to the organization. I look forward to continuing to benefit from your capabilities and expertise. Please sign and date below and return this letter to me acknowledging your acceptance.
Sincerely,
/s/ Scott Ward
Scott Ward
Chairman, President and Chief Executive Officer
I Understand and accept the terms outlined above:
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/s/ Jeffrey Points
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2/2/18
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Jeffrey Points
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Date
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EMPLOYMENT AGREEMENT
This Employment Agreement (“
Agreement
”) is entered into by and between Cardiovascular Systems, Inc. (the “
Corporation
”) and Jeffrey Points (“
Executive
”).
RECITALS
A. The Corporation desires to employ Executive as its Chief Financial Officer.
B
.
Executive wishes to become employed by the Corporation as its Chief Financial Officer on the terms and conditions set forth in this Agreement.
C. The Corporation is engaged in the business of researching, designing, developing, manufacturing and marketing medical devices for the treatment of cardiovascular
disease.
D. The Corporation, through its research, development and expenditure of funds, has developed confidential and proprietary information, including trade secrets.
E.
During his employment, Executive will have access to the Corporation’s valuable Confidential Information (as defined below), may contribute to Confidential Information and acknowledges that the Corporation will suffer irreparable harm if Executive uses Confidential Information outside his employment or makes unauthorized disclosure of Confidential Information to any third party.
F. In exchange for Executive’s agreement to be bound as set forth herein (including, without limitation, as set forth in Sections 9-13 of this Agreement), the Corporation has offered Executive employment as set forth herein and a promotion on the terms set forth in the promotion offer letter dated February 7, 2018 (the “
Promotion Letter
”) to which Executive is not otherwise entitled. Executive’s execution of this Agreement is a condition to Executive’s receipt of such Promotion Letter.
AGREEMENT
In consideration of the above recitals and the promises set forth in the Agreement, and in consideration of Executive’s employment with the Corporation, the parties agree as follows:
1.
Nature and Capacity of Employment
. The Corporation will employ Executive, initially as Chief Financial Officer. Executive will perform, on a full time basis, the functions of this position. Executive hereby accepts employment as the full-time Chief Financial Officer. Executive will report to the Corporation’s President and Chief Executive Officer.
2.
Term of Employment
. Executive’s employment with the Corporation hereunder will commence on a date mutually agreed by the Corporation and Executive and will continue until terminated by either party as provided for in Paragraph 8 hereunder. In the event that Executive is terminated or he elects to resign as an employee of the Corporation, Executive agrees to submit his resignation as an officer and (if applicable) director of the Corporation effective concurrently with the effective date of his termination or resignation as an employee of the Corporation.
3.
Base Salary
. Executive’s initial annualized base salary will initially be the amount set forth in the Promotion Letter, payable biweekly, less required and authorized deductions and withholdings. The base salary may be subject to review and adjustment by the Board of Directors of the Corporation or a Committee thereof (the “
Board
”) from time to time.
4.
Bonus
. Executive will be eligible to participate in the Corporation’s bonus programs for executive officers in effect from time to time. Executive’s eligibility to earn bonuses will be subject to the terms and conditions of the then-applicable executive officer bonus programs, which may be subject to discontinuation or modification by the Board from time to time.
5.
Restricted Stock Grants
. Grants of restricted stock to Executive will be at the discretion of the Board and will be contingent upon Executive agreeing to a separate Restricted Stock Agreement and restrictive covenants in the Corporation’s then-current form.
6.
Employee Benefits; PTO.
Executive will be eligible to participate in all retirement plans and all other employee benefits and policies made available by the Corporation to its full-time employees, to the extent Executive meets applicable eligibility requirements. Executive will be eligible to accrue and use paid time off (PTO) pursuant to the Corporation’s then-current PTO policies. Executive will be eligible to participate in the Corporation’s Executive Officer Severance Plan, as in effect from time to time (the “
Severance Plan
”). Nothing in this Agreement is intended to or will in any way restrict the Corporation’s right to amend, modify or terminate any of its benefits or benefit plans during Executive’s employment.
7.
Best Efforts/Undertakings of Executive
. During the term of Executive’s employment with the Corporation, Executive will serve the Corporation faithfully and to the best of his ability and will devote his full business and professional time, energy, and diligence to the performance of the duties assigned to him. Executive will perform such duties for the Corporation (i) as are customarily incident to Executive’s position and (ii) as may be assigned or delegated to Executive from time to time by the Corporation. During the term of Executive’s employment with the Corporation, Executive will not engage in any other business activity that would conflict or interfere with his ability to perform his duties under this Agreement. During the term of Executive’s employment, he will not provide any services or invest in, or offer for sale or sell any products, to any individual, company or other business entity that is a competitor, supplier or customer of the Corporation, except in connection with Executive’s employment with the Corporation. Furthermore, Executive will be subject to the Corporation’s control, rules, regulations, policies and programs, including, without limitation, with regard to conflict of interest and code of ethics. Executive will carry on all business and commercial correspondence, publicity and advertising in the Corporation’s name and he will not enter into any contract on behalf of the Corporation except as expressly authorized by the Corporation.
8.
Termination of Employment
.
8.1
Employment At Will
. Executive is employed “at-will.” That is, either Executive or the Corporation may terminate the employment relationship under this Agreement at any time, with or without Cause or Good Reason, and with or without advance notice. In addition, the terms and conditions of Executive’s employment are subject to change by the Corporation and any such change will not be a breach of this Agreement.
8.2
Payment Upon Termination
. Except as provided in Section 8.3 or in the Severance Plan, after the effective date of termination, Executive shall not be entitled to any compensation, benefits, or payments whatsoever except for compensation earned through his last day of employment and any accrued benefits.
8.3
Severance
. If at any time Executive is terminated by the Corporation without Cause (as defined below), or Executive terminates his employment for Good Reason (as defined below), and Executive executes, returns and does not rescind, and all rescission periods have expired, by the 60
th
day after termination of Executive’s employment, a release of claims agreement in a form supplied by the Corporation, then the Corporation shall: (i) pay Executive the Severance Amount (as defined below) at the times and in the manner described below; (ii) pay Executive at the same time and in the same manner as provided under the Corporation’s cash bonus plan a pro rata portion of any performance bonus for which the performance period has not expired prior to his termination of employment, with such pro rata portion based on that portion of the performance period during which the Executive was employed; and (iii) continue to pay the Corporation’s ordinary share of premiums for eighteen (18) calendar months for Executive’s COBRA continuation coverage in the Corporation’s group medical, dental, and life insurance plans (as applicable), provided Executive timely elects such continuation coverage and timely pays Executive’s share of such premiums, if any. Notwithstanding the foregoing clause (iii), if the Corporation determines, in its sole discretion, that the payment of its share of the COBRA premiums would result in a violation of the nondiscrimination rules of Section 105(h)(2) of the Code or any statute or regulation of similar effect (including but not limited to the 2010 Patient Protection and Affordable Care Act, as amended by the 2010 Health Care and Education Reconciliation Act), then in lieu of providing its share of the COBRA premiums, the Corporation may, in its sole discretion, elect to pay Executive on a monthly basis a fully taxable cash payment equal to the Corporation’s ordinary share of the premiums for that month, subject to applicable tax withholdings (such amount, the “
Special Severance Payment
”), for the remainder of the eighteen (18) month period. Executive may, but is not obligated to, use such Special Severance Payment toward the cost of COBRA premiums. Such Special Severance Payment shall be made at the time and in the manner prescribed in Section 8.3(c) and Section 8.4. Each of the payments described in clauses (i), (ii) and (iii) of the preceding sentence are subject to the application of Code Section 409A as set forth in Section 8.4 below and subject to the condition that Executive, at the time of any such payment, is in compliance with the terms of the release of claims agreement referred to in the preceding sentence and with Sections 9, 10, 11, 12 and 13 of this Agreement.
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a.
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Termination by the Corporation with Cause
. For purposes of this Section 8.3,
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“
Cause
” shall be defined as:
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(1)
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Executive’s neglect of any of his material duties or his failure to carry out reasonable directives from the Board of Directors or its designees;
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(2)
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Any willful or deliberate misconduct of Executive that is injurious to the Corporation;
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(3)
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any statement, representation or warranty made to the Board or its designees by the Executive that the Executive knows is false or materially misleading; or
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(4)
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Executive’s commission of a felony, whether or not against the Corporation and whether or not committed during the Executive’s employment.
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For the avoidance of doubt, termination of Executive’s employment due to his death or disability shall not be deemed a without Cause termination hereunder.
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b.
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Termination by Executive for Good Reason
. For purposes of this Section 8.3, “
Good Reason
” shall be defined as the occurrence of any of the following without Executive’s written consent:
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(1)
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The assignment to Executive of employment responsibilities that are not of comparable responsibility and status to the employment responsibilities described in this Agreement;
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(2)
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The Corporation’s material reduction of Executive’s base salary, unless pursuant to a cost reduction effort approved by the Board of Directors that also results in the reduction of salaries of other executive officers; or
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(3)
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The Corporation’s failure to provide Executive those employee benefits specifically required by this Agreement.
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Notwithstanding the foregoing, Executive’s resignation shall not constitute resignation for Good Reason unless (i) Executive notifies the Corporation in writing within ninety (90) days after the initial existence of any condition that constitutes Good Reason, (ii) the Corporation fails to cure the condition within thirty (30) days after receiving such notice, and (iii) Executive resigns within ninety (90) days after the end of such thirty-day cure period.
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c.
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Severance Amount
. Except as set forth in the following sentence with respect to a Change of Control, the Severance Amount will be the product of (i) 1.5, multiplied by (ii) Executive’s annual base salary at the time of termination of Executive’s employment. If Executive is terminated without Cause or terminates his employment for Good Reason in accordance with terms hereof following a Change of Control (as that phrase is defined in the Severance Plan) and before the second anniversary of the Change of Control, then the Severance Amount will be the product of (i) 1.5, multiplied by (ii) the sum of Executive’s annual base salary at the time of termination of Executive’s employment and the target bonus amount that Executive was eligible to earn for the fiscal year in which termination occurred under the Corporation’s cash bonus plan then in effect, assuming 100% achievement against Corporation’s budgets. In either case, the Severance Amount shall be paid in approximately equal installments, as determined by the Corporation in its sole and absolute discretion, at regular payroll intervals over a period of eighteen (18) months, beginning on the next regularly scheduled payday coinciding with or immediately following the 60
th
day after the termination of the Executive’s employment and continuing until the end of such eighteen (18) month period.
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8.4
IRC Section 409A
. This Agreement is intended to comply with Internal Revenue Code Section 409A (“
Code Section 409A
”) or an exemption thereunder and shall be construed and administered in accordance with Code Section 409A. Any payments to be made under this Agreement upon a termination of employment shall only be made if such termination of employment constitutes
a “separation from service” under Code Section 409A. Notwithstanding any other provision of this Agreement to the contrary, if any of the payments described in this Agreement are subject to the requirements of Code Section 409A and the Corporation determines that Executive is a “specified employee” as defined in Code Section 409A as of the date of Executive’s termination of employment, all or a portion of such payments will not be paid or commence until the first payroll date that occurs after the six-month anniversary of the date of Executive’s termination of employment, or, if earlier, the date of Executive’s death, but only to the extent such delay is required for compliance with Code Section 409A. Further, notwithstanding anything in this Agreement to the contrary, the Corporation expressly reserves the right to amend this Agreement without Executive’s consent to the extent necessary to comply with Code Section 409A, as it may be amended from time to time, and the regulations, notices and other guidance of general applicability issued thereunder.
9.
Return of Property/Termination of Loan.
a. Immediately upon termination of employment for any reason (or at such earlier time as requested by the Corporation), Executive will deliver to the Corporation all Confidential Information and all physical property of the Corporation or any of its prospective or current customers in the possession or control of Executive, including all products, equipment, product specifications, drawings, work in progress, research data, models, prototypes, notes, software programs, project plans, sales and marketing materials, business and product development materials, advertising materials, media materials, customer and client lists, customer account records, training and operations material and memoranda, personnel records, code books, pricing information, business practices, business policies, methods of operation, advertising strategies, business plans and strategy, financial information, information submitted to the Corporation by its customers, clients, suppliers, employees, consultants or co-ventures, prospective or existing customers of the Corporation, and other information concerning or relating to the business, accounts, customers, suppliers, employees and affairs of the Corporation, together with any similar materials, whether or not of a secret or confidential nature, and all copies of any of the foregoing that are in any way related to the Corporation’s business and that Executive has in its possession or that are subject to Executive’s control. Neither the execution of this Agreement nor the furnishing of any Confidential Information hereunder will be construed as the Corporation granting to Executive, either expressly, by implication, estoppel or otherwise, any license under any invention, patent, copyright or trade secret, now or hereafter owned or controlled by the Corporation.
b. If Executive fails to return the Corporation’s property, products and/or equipment to the Corporation within 24 hours of demand by the Corporation, by signing below, Executive voluntarily authorizes the Corporation to deduct the monetary value of such property, products and/or equipment, as determined in the Corporation’s sole discretion, from any money that the Corporation may owe Executive for wages, commissions, bonuses, paid time off, or any other advances or reimbursements due to Executive. If the amount the Corporation owes Executive is insufficient to cover the amount Executive owes under this Agreement, Executive will pay the remaining balance to the Corporation within ten business days of the Corporation’s demand for payment. Additionally, the Corporation may treat the property, products and/or equipment as stolen property and take all necessary actions to recover it, including notifying law enforcement.
10.
Use and Disclosure of Confidential Information.
The Corporation has and will disclose to Executive, and Executive will have access to, certain confidential and proprietary information of the Corporation, including product specifications, drawings, work in progress, research data, models, prototypes, notes, project plans, business and product development materials, creations, ideas,
concepts, trade secrets, know-how, techniques, Inventions, Works, methodologies, software programs, computer hardware, media materials, sales and marketing materials, advertising materials, customer and client lists, customer account records, training and operations material and memoranda, personnel records, code books, pricing information, business practices, business policies, methods of operation, advertising strategies, business plans and strategy, financial information, information submitted to the Corporation by its customers, clients, suppliers, employees, consultants or co-ventures, prospective or existing customers of the Corporation, and other confidential or proprietary information concerning or relating to the business, accounts, customers, suppliers, employees and affairs of the Corporation (collectively, “
Confidential Information
”). Executive acknowledges that such Confidential Information is of significant value to the Corporation and that the unauthorized use or the disclosure of such information could result in significant business or financial loss to the Corporation that may be difficult to measure in monetary amounts. Executive will not disclose any Confidential Information to any individual, business, firm or corporation, other than the Corporation and its authorized representatives, at any time during or after the term of this Agreement. Except as required in the regular course of performing Executive’s duties under this Agreement, Executive will not permit any person to examine or make copies or reproductions of any documents or other information containing Confidential Information. Executive’s obligations under this Paragraph are unconditional and will not be excused by any conduct on the part of the Corporation, except prior voluntary disclosure to the general public by the Corporation of the information. Notwithstanding anything to the contrary in this Agreement or otherwise, nothing will limit Employee’s rights under applicable law to provide truthful information to any governmental entity or to file a charge with or participate in an investigation conducted by any governmental entity. In addition, Employee is hereby notified that the immunity provisions in Section 1833 of title 18 of the United States Code provide that an individual cannot be held criminally or civilly liable under any federal or state trade secret law for any disclosure of a trade secret that is made (i) in confidence to federal, state or local government officials, either directly or indirectly, or to an attorney, and is solely for the purpose of reporting or investigating a suspected violation of the law, (ii) under seal in a complaint or other document filed in a lawsuit or other proceeding, or (iii) to its attorney in connection with a lawsuit for retaliation for reporting a suspected violation of law (and the trade secret may be used in the court proceedings for such lawsuit) as long as any document containing the trade secret is filed under seal and the trade secret is not disclosed except pursuant to court order.
11.
Ownership of Intellectual Property
.
a.
Copyrights
. All works of authorship fixed in any tangible medium of expression created by Executive during the course and scope of his employment with the Corporation (“
Works
”) will be and remain exclusively owned by the Corporation. Each such Work created by Executive will be considered a “work made for hire,” as defined by the Copyright Act of 1976, Title 17 of the United States Code, as now enacted or later amended or in any applicable successor statute, and the Corporation may file applications to register copyright in such Works as author and copyright owner thereof. If, for any reason, a Work created by Executive is excluded from such definition of a “work made for hire,” then Executive hereby assigns, sells, and conveys to the Corporation Executive’s entire rights, title and interests in and to such Works, including the copyright therein, free and clear of any liens, claims or other encumbrances. Executive will execute any documents that the Corporation deems necessary in connection with the assignment of such Work and copyright therein. Executive will take whatever steps and do whatever acts the Corporation requests, including placement of the Corporation’s proper copyright notice on Works created by Executive to secure or aid in securing copyright protection in such Works and will assist the Corporation or its nominees in filing applications to register claims of copyright in such Works. The Corporation will have free
and unlimited access at all times to all Works and all copies thereof and will have the right to claim and take possession on demand of such Works and copies.
b.
Assignment of Inventions
. All rights, title and interest in and to all discoveries, concepts and ideas, whether patentable or not, including any apparatus, processes, methods, compositions of matter, techniques and formulae, as well as improvements thereof or know-how related thereto (“
Inventions
”), relating to any present or prospective product, process or service of the Corporation that Executive conceives or makes relating to the Corporation’s business, including any domestic and foreign patent applications and patents related to such Inventions, are hereby assigned to the Corporation (“
Assignment
”). This Assignment will not apply to Inventions for which no equipment, supplies, facility or trade secret information of the Corporation was used and that was developed entirely on Executive’s own time, and (1) that does not relate (a) directly to the business of the Corporation or (b) to the Corporation’s actual or demonstrably anticipated research or development, or (2) that does not result from any work performed by Executive for the Corporation.
c. Executive will, without further consideration:
1. inform the Corporation promptly and fully of any Inventions and provide written reports setting forth in detail the procedures employed and the results achieved;
2. assign to the Corporation all of Executive’s rights, title and interests in and to such Inventions, any applications for United States and foreign patents, and any United States and foreign issued patents;
3. assist the Corporation to obtain United States and foreign patents for such Inventions as the Corporation may elect; and
4. execute, acknowledge and deliver to the Corporation, at the Corporation’s expense, such written documents and instruments, and do such other acts, such as giving testimony in support of Executive’s inventorship, as may be necessary, in the opinion of the Corporation, to obtain and maintain the Corporation’s ownership in such Inventions and United States and foreign patents and patent applications for such Inventions and to vest the entire rights, title and interest in and to such Inventions and United States and foreign patents and patent applications for such Inventions in the Corporation and to confirm the Corporation’s complete ownership of such Inventions and United States and foreign patents and patent applications for such Inventions, patent applications and patents.
d. Executive hereby irrevocably designates and appoints the Corporation and its duly authorized officers and agents as Executive’s agents and attorney-in-fact, to act for and on Executive’s behalf and instead of Executive, to execute and file any documents, applications or related findings and to do all other lawfully permitted acts to further the purposes set forth above in this Paragraph 11, including the perfection of assignment and the prosecution and issuance of patents, patent applications, copyright applications and registrations, trademark applications and registrations or other rights in connection with such Inventions and improvements thereto with the same legal force and effect as if executed by Executive.
12.
Executive’s Prior Contract Obligations and Intellectual Property Rights
. Executive represents and warrants that he is not bound by a non-compete or confidentiality agreement from a prior employer, individual or entity that is or would be inconsistent or in conflict with this Agreement or would prevent, limit or impair in any way the performance by Executive of his obligations hereunder, including any duties owed to any former employers not to compete, and Executive’s employment hereunder does not breach any agreement or duty to any third party. Executive will not disclose or use in any way during the term of employment with the Corporation any confidential, proprietary
or trade secret information that Executive may have acquired or retained in any way as a result of a prior employment or other relationship with any third party, and Executive has not brought and will not bring any documents, materials of a former employer or other third party that are not otherwise generally available to the public without the express written authorization of said former employer or third party.
13.
Non-Competition and Non-Solicitation
. During Executive’s employment with the Corporation (except on behalf of the Corporation) and for eighteen (18) months following termination of such employment for any reason, whether voluntary or involuntary, Executive will not, directly or indirectly, alone or as an employee, director, officer, agent, partner of or consultant to, a stockholder or other equity owner of (except as an equity owner of a public company in which Executive beneficially owns less than 5% of the issued and outstanding capital stock or other equity interests of such company) any other person or entity, or otherwise:
a. render services to any person or entity engaged in the design, development, manufacture, marketing and/or sale of products or services that are the same as or similar to, or compete with, the Corporation’s then-current products or services, in any geographic area in which the Corporation then-currently actively markets its products and services. Executive acknowledges that, as of the commencement of this Agreement, the geographic area in which the Corporation actively markets its products and services is the United States of America;
b. call upon, solicit or offer to provide products or services that are the same as or similar to, or compete with, the Corporation’s then-current products or services to any customer of the Corporation, or assist in any such activities;
c. interfere with or attempt to interfere with the Corporation’s business relationships with any of its customers, suppliers, vendors or others, regardless of whether Executive procured such actual or potential business relationship for the Corporation, or assist in any such activities;
d. solicit, hire or engage in any capacity any employee of the Corporation or any of its subsidiaries (or any person who was an employee of the Corporation or any of its subsidiaries within 12 months of the date of Executive’s termination or within 12 months of the date such hiring or engagement occurs) or induce any of such employees to terminate or curtail their employment relationship with the Corporation, or assist in any such activities; or
e. make any public statement that is intended to or could reasonably be expected to disparage the Corporation or its affiliates or any of their products, services, stockholders, directors, officers or employees.
The term “
customer
” as used in this Paragraph 13 means any and all persons or entities that were purchasers of the Corporation’s products or services at any time during the one year period immediately preceding termination of Executive’s employment with the Corporation.
14.
Miscellaneous.
14.1
Survival of Restrictions
. The obligations and restrictions contained in Paragraphs 8, 9, 10, 11, 12 and 13 of this Agreement, and this Paragraph 14, will survive the termination of this Agreement and Executive’s employment and will apply no matter how Executive’s employment terminates and regardless of whether his termination is voluntary or involuntary.
14.2
Unconditional Obligations
. It is intended that the obligations of Executive to perform pursuant to the terms of this Agreement are unconditional and do not depend on the performance or nonperformance of any agreements, duties or obligations between the Corporation and Executive not specifically contained in this Agreement.
14.3
Remedies
. If Executive breaches or threatens to breach any term of this Agreement, the Corporation will be entitled as a matter of right to injunctive relief (without the necessity of showing actual monetary damages or the posting of a bond or other security) and payment by Executive of its reasonable attorneys’ fees, costs and expenses incurred in connection with enforcing its rights under this Agreement, in addition to any other remedies available at law or equity.
14.4
Consent to Reasonableness
. Executive acknowledges that the Corporation has spent and will continue to expend substantial amounts of time, money and effort to develop the Corporation’s products and its business strategies, Confidential Information, customer relationships, goodwill and employee relationships, and that Executive will benefit from these efforts. Executive acknowledges that the terms of the foregoing restrictive covenants are reasonable and necessary to protect the Corporation’s legitimate business interests and will not unreasonably interfere with Executive’s ability to obtain alternate employment. Executive further acknowledges the use or disclosure of the Confidential Information and the unrestricted competition by Executive would be unfair and extremely detrimental to the Corporation. Accordingly, based on these legitimate business reasons, Executive acknowledges the Corporation’s need to protect its legitimate business interests by reasonably restricting Executive’s ability to compete with the Corporation on a limited basis. Executive hereby acknowledges that such restrictions are valid and enforceable, and affirmatively waives any argument or defense to the contrary. Executive further acknowledges that the restrictive covenants in Paragraph 13 will survive the termination of this Agreement for any reason and the termination of Executive’s employment for any reason. Executive further acknowledges that any alleged breach by the Corporation of any contractual, statutory or other obligation will not excuse or terminate the obligations hereunder or otherwise preclude the Corporation from seeking injunctive or other relief. Rather, Executive acknowledges that such obligations are independent and separate covenants undertaken by Executive for the benefit of the Corporation. If Executive breaches any of the restrictions contained in Paragraph 13 of this Agreement, then the time period for such restriction will be extended by the length of time that Executive was in breach.
14.5
Notification
. By signing below, Executive authorizes the Corporation to notify third parties (including the Corporation’s competitors and customers) of the terms of this Agreement and Executive’s obligations hereunder.
14.6
Integration.
This Agreement and the Promotion Letter, which is incorporated by reference herein and made a part hereof, embody the entire agreement and understanding among the parties relative to subject matter hereof and supersede all prior agreements and understandings relating to such subject matter. For the avoidance of doubt, the parties acknowledge and agree that any equity award agreements between the Corporation and Executive entered into prior to the date of this Agreement will remain in full force and effect according to their terms. Executive’s obligations under this Agreement may not be canceled, modified or otherwise changed, except by another written agreement signed by the Corporation expressly referencing the applicable provision(s) hereunder.
14.7
Applicable Law; Venue; Jury Trial Waiver.
The Corporation is headquartered in Minnesota. Therefore, this Agreement and the rights of the parties will be governed by and construed and enforced in accordance with the laws of the State of Minnesota (without regard to its choice of
law provisions). The venue for any action hereunder will be in Hennepin County, in the State of Minnesota, whether or not such venue is or subsequently becomes inconvenient, and the parties consent to the exclusive jurisdiction of the courts of the State of Minnesota, County of Hennepin, and the U.S. District Court, District of Minnesota. Each of the parties knowingly and voluntarily waives all right to trial by jury in any action or proceeding arising out of or relating to this Agreement or for recognition or enforcement of any judgment.
14.8
Counterparts
. This Agreement may be executed in counterparts, including by facsimile or electronic transmission, each of which will be deemed an original and all of which will constitute one instrument.
14.9
Successor and Assigns
. This Agreement will inure to the benefit of and be binding upon the Corporation and its successors and assigns. The Corporation may assign this Agreement without the consent of Executive. The services to be performed by Executive are personal and, therefore, this Agreement is not assignable by Executive.
14.10
Interpretation
. The captions set forth in this Agreement are for the convenience only and will not be considered as part of this Agreement or as in any way limiting or amplifying the terms and conditions hereof. All references in this Agreement to “days” refers to calendar days unless otherwise specified. The words “this Agreement,” “herein,” “hereby,” “hereunder” and “hereof,” and words of similar import, refer to this Agreement as a whole and not to any particular subdivision, unless expressly so limited. The words “this Article” and “this Paragraph” and words of similar import refer only to the Article or Paragraph hereof in which such words occur. The word “including” (in its various forms) means “including without limitation.”
14.11
Waivers
. The Corporation’s action in not enforcing a breach of any part of this Agreement will not prevent the Corporation from enforcing it as to any other breach of this Agreement.
14.12
Severability
. In the event that any provision hereof is held invalid or unenforceable by a court of competent jurisdiction, then that part should be modified by the court to make it enforceable to the maximum extent possible. If the part cannot be modified, then that part may be severed and the other parts of this Agreement will remain enforceable.
14.13
Ineligible Person
. By signing below, Executive affirms that he is not an Ineligible Person. “Ineligible Person” means any individual who (1) is currently excluded from participation in any Federal health care program (as defined in 42 U.S.C. § 1320a-7b(f)), (2) has been convicted of a criminal offense that falls within the scope of 42 U.S.C. § 1320a-7(a), but has not yet been excluded from participation in any Federal health care program, and/or (3) is listed on the “Exclusion List” maintained by the HHS/OIG List of Excluded Individuals/Entities (LEIE) (http://www.oig.hhs.gov). By signing below, Executive further acknowledges and agrees that he is obligated to disclose to the Corporation immediately if he becomes an Ineligible Person while employed by the Corporation.
{Signature Page Follows}
NOW, THEREFORE, with the intention of being bound hereby, the parties have executed this Employment Agreement as of the dates set forth below.
CARDIOVASCULAR SYSTEMS, INC.
By:
/s/ Scott R. Ward
Date:
6 Feb 2018
Name: Scott R. Ward
Title: Chairman, President and Chief Executive Officer
EXECUTIVE:
/s/ Jeffrey S. Points
Date:
2/2/18
Jeffrey Points
Signature Page to Employment Agreement
February 6, 2018
Via Hand Delivery
To: Larry Betterley
Re: Transition Agreement
Dear Larry:
As you know, you have indicated to Cardiovascular Systems, Inc. (“CSI”) that you plan to voluntarily resign your employment with CSI for the purpose of retirement effective August 15, 2018. The purpose of this letter agreement is to confirm your and CSI’s agreement with regard to the upcoming transition and end of your employment relationship with CSI. As used herein, the “Transition Period” shall be the period commencing as of the date you sign this letter agreement below and ending at the close of business on August 15, 2018.
Through February 6, 2018, you will remain employed in your current role of Chief Financial Officer under your current terms and conditions of employment. Effective at the close of business on February 6, 2018, you will automatically be deemed to have voluntarily resigned from your position as an executive officer of CSI, but you will remain employed by CSI. At that time, you will no longer be eligible for CSI’s CSI Executive Officer Severance Plan as restated November 15, 2017 (the “Plan”); instead, you will be offered the Severance Package summarized below. Notwithstanding the foregoing, if CSI terminates your employment without Cause (including due to Reduction-In-Force) or you resign for Good Reason, as those terms are defined in the Plan, prior to August 15, 2018, CSI will offer you a severance package equal to what you would have been offered under such Plan as a Section 16 Officer and the terms of this letter agreement will be null and void.
Effective February 7, 2018, pursuant to your written consent as indicated by your signature below, you will assume a new position of Vice President, Administration and your current pay (annualized salary of $379,212) and employee benefits will remain in place. Your annual bonus eligibility for FY18 (July 1, 2017 - June 30, 2018) will remain in place unchanged per the terms and conditions of the applicable bonus plan. You will not be eligible to earn or receive any bonus pay for the period commencing July 1, 2018 and thereafter.
Your employment with CSI will end on August 15, 2018 as a result of your voluntary resignation due to retirement. As of August 15, 2018, CSI will offer you a severance package consisting of (1) a one-year consulting agreement commencing August 16, 2018 and ending August 15, 2019 (unless terminated earlier as set forth in such agreement) under which you will be paid $3,333 per month, provided, however, that in no event shall such consulting services be greater than 16 hours per month (which is less than twenty percent (20%) of the level of services performed by you over the 36-month period ending on August 15, 2018), (2) allowing your time-based restricted stock awards to continue to vest through August 15, 2019, (3) allowing your two performance-based restricted stock awards to continue to vest through their respective vesting periods (provided, that the performance criteria for such vesting are met as determined by CSI in accordance with the terms for such restricted stock (in or around August or September 2019 and 2020 (as applicable)) such that, if and to the extent applicable, such shares will vest as of such determination), and (4) paying COBRA premiums for you and your eligible dependents for up to 18 months or, if earlier, such time as you or your eligible dependents are eligible for other health insurance coverage (collectively, the “Severance
Package”). Your receipt of the Severance Package is conditioned upon your remaining in compliance with any restrictive covenant agreements you have with CSI, including those set forth in Sections 9-13 of your Employment Agreement with CSI dated April 7, 2008 (as amended, your “Employment Agreement”), and you executing, not rescinding and complying with a full and final release of claims agreement in favor of CSI in a form supplied by CSI, to include other standard terms such as cooperation, non-disparagement and confidentiality (the “Separation Agreement”). The Separation Agreement and the consulting agreement will be provided to you on or about August 15, 2018 for your signature.
Notwithstanding anything herein to the contrary, during the Transition Period, you will remain employed on an at-will basis as provided in Section 8.1 of your Employment Agreement. As noted above, if your employment is terminated by CSI without Cause (including due to Reduction-In-Force) or you resign for Good Reason, as those terms are defined in the Plan, prior to August 15, 2018, CSI will offer you a severance package equal to what you would have been offered under such Plan as a Section 16 Officer and the terms of this letter agreement will be null and void. If your employment is terminated with Cause (as defined in the Plan) prior to August 15, 2018, you will not be eligible for the Severance Package set forth herein (or in the Plan). If you resign your employment with CSI for any reason or die prior to August 15, 2018, you will not be eligible for the Severance Package set forth herein (or the Plan), unless otherwise agreed by CSI in writing. For the avoidance of doubt, the parties agree that as of your signing of this letter agreement, Sections 8.2 and 8.3 of your Employment Agreement shall be of no further force or effect and shall be superseded by this letter agreement. In addition, for the avoidance of doubt, the parties agree that the change of your title from Chief Financial Offer to Vice President, Administration effective February 7, 2018, and any and all related changes to your status in connection with such change (including, without limitation, relative to your authority, duties or responsibilities, reporting structure or relationships, budget authority, and target bonus), will not constitute Good Reason under the Plan under any circumstances.
If you agree with the terms outlined in this letter, please sign and date below, and return to Laura Gillund by February 6, 2018. Larry, we are grateful for your years of service to CSI and look forward to working with you during the Transition Period. Please do not hesitate to contact me if you have any questions.
Sincerely,
/s/ Scott R. Ward
Scott R. Ward
President & Chief Executive Officer
Agreed:
/s/ Laurence L. Betterley
2/6/18
Laurence L. Betterley
Date
PURCHASING AGREEMENT
Products
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Vendor:
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Cardiovascular Systems, Inc.
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Effective Date:
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May 1, 2018
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Agreement Number:
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HPG-4037
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*
Confidential treatment has been requested with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission.
PURCHASING AGREEMENT
This Purchasing Agreement is entered into by HealthTrust Purchasing Group, L.P., a Delaware limited partnership, having its principal place of business at 1100 Charlotte Ave., Suite 1100, Nashville, TN 37203 (“HealthTrust”), and Cardiovascular Systems, Inc., a Delaware corporation, with a place of business at 1225 Old Hwy 8 NW, St. Paul, MN 55112 (“Vendor”).
WHEREAS, HealthTrust is organized as a group purchasing organization to which various healthcare providers and other organizations belong as Participants;
WHEREAS, pursuant and subject to Participation Agreements with HealthTrust, Participants and their Affiliates are permitted to obtain products and services under purchasing agreements between HealthTrust and vendors; and
WHEREAS, Vendor desires to offer certain of its products and/or services to Participants;
NOW, THEREFORE, HealthTrust and Vendor hereby agree that Vendor shall provide products and/or services to Participants in accordance with this Agreement.
1.0
Definitions
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1.1.
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“Affiliates” as applied to any particular entity, means those entities, businesses, facilities, and enterprises that are controlled by, controlling, or under common control with a stated entity, whether by ownership or contract; provided, however, that no shareholder of any Participant (including HCA Holdings, Inc.) shall be deemed to be an “Affiliate”.
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1.2.
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“Agreement” means this purchasing agreement, including all exhibits and other attachments appended hereto, as amended from time to time.
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1.3.
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“Cause” means any failure to perform or observe any material covenant or obligation contained in this Agreement, including any violation of state or federal laws, rules or regulations that would prohibit a Party or any Purchaser, as applicable, from participating in Healthcare Programs (as defined in Section 14.9).
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1.4.
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“Confidential Information” means information related to the business of a Party, a Participant, and their Affiliates, clients and patients that may be obtained as the result of performance under this Agreement. Confidential Information shall include, but is not limited to, the list of Participants, the terms of this Agreement, including the
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prices for Products and Services, and the sales volumes of Products and Services, in the aggregate or by Purchaser. Subject to the HIPAA Requirements (as defined in Section 11.3) and any applicable law or regulation, Confidential Information shall not include: (i) information that is publicly available prior to the disclosure or becomes publicly available through no wrongful act of the Receiving Party; (ii) information that was in lawful possession of the Receiving Party prior to the disclosure and was not received as a result of any breach of confidentiality with respect to the Disclosing Party; (iii) de-identified and aggregated transaction data related to purchases of Products and/or Services; or (iv) information that was independently developed by the Receiving Party without use of information disclosed under this Agreement.
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1.5.
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“Disclosing Party” means the Party, Participant, or its Affiliate, that provides or discloses Confidential Information to the other Party, Participant, or its Affiliate under this Agreement.
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1.6.
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“Distributor(s)” means any product distributor designated in accordance with Exhibit B.
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1.7.
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“Dual Source Award” means an agreement by HealthTrust not to contract on behalf of its entire membership with more than one alternative supplier from which Participants can purchase products and services comparable to those listed in Exhibit A during the Term.
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1.8.
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“EDI” means Electronic Data Interchange.
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1.9.
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“Effective Date” means the date this Agreement commences, which is designated in Exhibit B.
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1.10.
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“EFT” means Electronic Funds Transfer.
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1.11.
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“Equipment” means a Product: (i) with a life span in excess of one (1) year; (ii) contains or is made of non-expendable material; and (iii) is not a consumable or software. Equipment includes any and all component parts thereof.
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1.12.
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“Expiration Date” means the date this Agreement expires, which is designated in Exhibit B.
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1.13.
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“FDA” means the United States Food and Drug Administration.
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1.14.
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“Fill Rate” means the average of the individual fill rates for all orders of a Product by stock keeping unit (or “SKU”) by all Purchasers during any calendar month, calculated by dividing the total units delivered undamaged within the delivery requirements of Section 7.0 of this Agreement and/or Exhibit B by the total units ordered for such Product during such calendar month.
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1.15.
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“GLN” means the Global Location Number assigned to each Purchaser by GS1.
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1.16.
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“GPO” means group purchasing organization.
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1.17.
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“GPO Fees” shall have the definition set forth in Section 3.1.
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1.18.
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“GPOID” means the unique identification number assigned by HealthTrust to each Purchaser or Participant.
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1.19.
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“Multi-Source Award” means Vendor is designated as an approved source of Products and/or Services with no limitation on HealthTrust contracting with alternative suppliers from which Participants can purchase products and services comparable to those listed in Exhibit A during the Term.
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1.20.
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“MWBE” or “Minority and Woman Owned Business Enterprise” means a business that is: (i) a minority owned business, as certified by the National Minority Supplier Development Council (NMSDC) or any local affiliate thereof; (ii) a woman owned business, as certified by the Women’s Business Enterprise National Council (WBENC); or (iii) a service disabled veteran owned business, as certified by the Association for Service Disabled Veterans (ASDV).
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1.21.
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“New Technology Product” means a product that, as compared to existing products, offers significant technological advancements and: (i) will significantly improve clinical outcomes or patient care; or (ii) will significantly streamline clinical and/or operational work processes.
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1.22.
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“Optional Source Award” means Vendor is designated as an approved source of the Products and/or Services with no limitation on HealthTrust or Participants contracting with alternative suppliers for purchases of products and services comparable to those listed in Exhibit A during the Term, or on Participants purchasing such comparable products and services from alternative suppliers on a non-contract basis.
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1.23.
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“OSHA” means the Occupational Safety and Health Administration.
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1.24.
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“Participant” means a member of HealthTrust that has entered into a Participation Agreement, and its Affiliates, including but not limited to acute care facilities, hospitals, ambulatory surgery centers, imaging centers, alternate site entities, physician practices, rehabilitation facilities, psychiatric centers, clinics or any other kind of healthcare provider, as well as any distribution centers qualifying as a Participant and servicing other Participants.
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1.25.
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“Participation Agreement” means a written member agreement between HealthTrust and a Participant that permits the Participant and its Affiliates to purchase products and services from various vendors having purchasing agreements with HealthTrust.
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1.26.
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“Party” and “Parties” means Vendor and/or HealthTrust, as the context requires.
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1.27.
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“Products” means those goods listed in Exhibit A to this Agreement, and any instruments or other items provided by Vendor Personnel in connection with the use of the goods listed in Exhibit A.
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1.28.
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“Purchaser” means any Participant obtaining Products and/or Services from Vendor.
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1.29.
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“Rebate” means any amount paid by Vendor to HealthTrust for allocation to Purchasers, based on purchases of Products and/or Services by Purchasers under this Agreement during a specified time period. The Rebate shall be determined as stated in Section 3.2 and any applicable Exhibit.
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1.30.
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“Recall” shall have the definition set forth in Section 9.7.
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1.31.
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“Receiving Party” means the Party, Participant, or its Affiliate, that receives Confidential Information from the other Party, Participant, or its Affiliate under this Agreement.
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1.32.
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“Required Fill Rate” shall have the definition set forth in Section 7.4.
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1.33.
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“Services” means those services listed in Exhibit A to this Agreement and under any Purchaser-Specific Agreements permitted hereunder, as well as any services provided by Vendor Personnel in connection with any Purchaser’s purchase and/or use of Products, including conversion to and support for the Products, as well as training and education related to the Products.
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1.34.
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“Sole Source Award” means an agreement by HealthTrust not to contract on behalf of its entire membership with any alternative supplier from which Participants can purchase products and services comparable to those listed in Exhibit A during the Term.
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1.35.
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“Subcontractor” means representatives, agents or other third party entities engaged or used by Vendor in the performance of Vendor’s obligations under this Agreement.
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1.36.
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“Term” means the period during which this Agreement is in effect, commencing on the Effective Date and ending on the Expiration Date, unless terminated early or extended as permitted by this Agreement.
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1.37.
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“Vendor Personnel” means any Vendor employees or Subcontractors responsible for performing Services under this Agreement.
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2.0
General Purchasing Provisions
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2.1.
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GPO Laws and Regulations
. HealthTrust is a group purchasing organization as defined in 42 C.F.R. § 1001.952(j). The Parties acknowledge that it is their intent to establish a business relationship in which payments by Vendor to HealthTrust and Purchasers comply with the exceptions to the Medicare and Medicaid Anti-Kickback statute set forth at 42 U.S.C. § 1320a-7b(b)(3) (A) and (C), the “safe harbor”
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regulations regarding discounts set forth in 42 C.F.R. § 1001.952(h), and the “safe harbor” regulations regarding payments to group purchasing organizations set forth in 42 C.F.R. § 1001.952(j); and the Parties believe that the relationship contemplated by this Agreement is in compliance with those requirements.
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2.2.
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Award Basis
. The award basis for this Agreement is designated in Exhibit B.
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2.3.
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Eligible and Ineligible Purchasers
. Commencing on the Effective Date, all Participants shall be eligible to obtain Products and/or Services from Vendor under this Agreement. At least once every two (2) weeks, Vendor shall check HealthTrust’s Participant list located at https://vendors.healthtrustpg.com/ and within ten (10) business days thereafter Vendor shall update its list of Participants to accurately reflect the name, address, GPOID, GLN, and any other assigned identification code for each Participant. Vendor shall provide any new Participant with access to Products and pricing under this Agreement by the end of such ten (10) day period. Vendor shall provide HealthTrust a copy of Vendor’s list of Participants upon request and shall make any corrections required by HealthTrust. If Vendor has a documented basis to believe that a Purchaser is a member of another group purchasing organization, it shall promptly notify HealthTrust, which will coordinate with Vendor and Purchaser to resolve any such discrepancy. If a Purchaser ceases to be a Participant of HealthTrust during the Term, Vendor agrees not to thereafter allow such entity to purchase Products and/or Services under this Agreement except with HealthTrust’s prior written consent and, in any case, Vendor’s obligation to pay GPO Fees shall remain in full force and effect with respect to any such purchases. Purchasers obtaining Products and/or Services from Vendor under this Agreement shall be considered third party beneficiaries under this Agreement.
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2.4.
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Purchaser Obligations
. Vendor agrees that HealthTrust shall have no responsibility or obligation for payments owed by Purchasers or for any other obligations of Purchasers under this Agreement.
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2.5.
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Orders
. This Agreement shall apply to each order of Products and Services by a Purchaser, regardless of how communicated or whether reference is made to this Agreement.
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2.6.
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Purchaser-Specific Arrangements
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2.6.1
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Termination of Existing Arrangements
. Any Participant or Purchaser may, at any time and without penalty or liability, terminate any existing contract or other arrangement with Vendor in order to purchase under this Agreement notwithstanding any provision to the contrary in any such existing contract or arrangement; provided, however, that such termination shall not relieve such Participant or Purchaser from any payment obligations incurred prior to the termination..
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2.6.2
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Local Deals
. Except as expressly permitted by HealthTrust in the form of an exhibit to this Agreement, Vendor covenants that it will not enter into or negotiate a separate agreement with any Purchaser for the same Products and/or Services offered under this Agreement without HealthTrust’s prior written consent and authorization (“Purchaser-Specific Agreement”). In any case, a Purchaser-Specific Agreement must have pricing terms no less favorable than those of this Agreement, and all Purchaser-Specific Agreements will be subject to and governed by the terms of this Agreement, including Section 15.3 (Conflicts). Upon request, Vendor shall provide HealthTrust with information regarding Purchaser-Specific Agreements, including lists of Purchasers that have executed Purchaser-Specific Agreements and summaries and copies of same.
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2.7.
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Participant-specific Websites
. Upon a Participant’s written authorization, at Vendor’s sole expense, Vendor may establish and maintain one or more websites or web portals specific to such Participant and/or its Affiliates (each, a “Participant-specific Website”), provided that: (i) access is only available to such Participant and/or its Affiliates; (ii) the content is limited to Products and/or Services under this Agreement or under any other contract between HealthTrust and such Vendor or one of its Affiliates; and (iii) Vendor will remove or take down any such Participant-specific Website immediately upon request of Participant or HealthTrust.
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2.8.
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Capital Investments
. Vendor assumes the full and complete risk of any capital investment it makes to enable or to enhance its capabilities to perform under this Agreement.
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2.9.
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Direct and/or Distributor Purchases
. As set forth in Exhibit B, Products and/or Services may be obtained: (i) only directly from Vendor; or (ii) only through a Distributor; or (iii) by either of the foregoing means. Exhibit A sets forth the prices (including any discounts or Rebates) for purchases made directly from Vendor and/or through a Distributor, as applicable.
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2.9.1
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Direct Purchases
. For purchases directly from Vendor, no minimum quantity or dollar amount shall apply to any order unless expressly stated in Exhibit B. Vendor shall issue a refund or credit, at Purchaser’s option, for any overcharge/overpayment to Purchaser no later than thirty (30) days following discovery or notice thereof. In the event of an undercharge, Purchaser shall have no obligation to pay Vendor the amount of such undercharge, nor shall Vendor have the right to set-off the undercharge against any refund due for an overcharge/overpayment, unless the undercharge was an error discovered and re-invoiced within thirty (30) days after the date of the original invoice. Vendor shall provide to each Purchaser with unapplied credits at least quarterly statements
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listing unapplied credits, and upon request by a Purchaser, shall promptly refund the amount of the unapplied credits.
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2.9.2
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Purchases through Distributors
. If any purchases are available through Distributors, prices shall be either net to Distributor or net to Purchaser as specified in Exhibit A. Vendor shall provide Product pricing and related information to Distributors that is consistent with Exhibit A (and any amendments) and corresponding pricing files for EDI and Internet e-commerce transactions. HealthTrust shall also be permitted to provide such Product pricing and related information to Distributors. Vendor bears total responsibility for obtaining Purchaser-specific purchase information from Distributors so that Vendor accurately pays and reports GPO Fees and Rebates (if any). Vendor will not change its financial arrangements with any Distributor in any manner that could result in an increase in the prices charged by that Distributor to Purchasers for Products under this Agreement.
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2.10.
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Effective Date and Firm Pricing
. The obligation of Vendor to make Products and/or Services available under this Agreement shall commence as of the Effective Date. The prices set forth in Exhibit A shall be fixed and firm effective from the Effective Date through the Expiration Date.
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2.11.1
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Current Products
. Vendor represents and warrants that, as of the Effective Date, Exhibit A contains all products offered by Vendor in the United States within a Product category covered by this Agreement. Upon receipt of notice from HealthTrust that Vendor is not in compliance with this Section 2.11.1, Vendor will have thirty (30) days to execute an amendment to add the product to Exhibit A at a price point or discount comparable to other Products under this Agreement. If Vendor fails or declines to add the product within such thirty (30) day period, then HealthTrust, in its sole discretion, may immediately terminate this Agreement.
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2.11.2
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Product Discontinuation
. Vendor shall provide HealthTrust at least three (3) months’ notice prior to discontinuation of any Product. Subject to Section 2.12, replacement products shall have characteristics and specifications at least equal to that of the replaced Product and shall be offered at a price not greater than that of the replaced Product.
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2.11.3
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New Products
. Vendor must provide three (3) months’ notice to HealthTrust prior to offering for sale to Participants any new product (that is not a New Technology Product subject to Section 2.11.4) in the Product category covered by this Agreement. During this period, Vendor must complete any product documentation requested by HealthTrust and
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amend Exhibit A to add such product at a mutually-agreed price. If Vendor offers any new product to Participants prior to such amendment, Vendor agrees that Participants will pay the price on Exhibit A for the most comparable Product. Vendor shall pay the GPO Fee for all Participant purchases beginning from date of first sale of such product.
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2.11.4
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New Technology Products
. If a New Technology Product within a Product category covered by this Agreement becomes available from any supplier including Vendor, HealthTrust may evaluate and contract with such supplier to make the New Technology Product available to Participants without constituting a breach of this Agreement. If requested by HealthTrust, Vendor shall negotiate in good faith to amend Exhibit A to add such product at a price point or discount comparable to those applicable to Products under this Agreement, or at a price comparable to those offered by competing suppliers, whichever is lower.
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2.12.
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Performance Requirements
. Vendor represents and warrants that it will not change a Product in a manner that would materially affect its specifications or functionality without prior written notice to HealthTrust. If Vendor fails to provide such notice for any such change, then:
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2.12.1
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Contracted pricing for the identified Product(s) will not be increased under any circumstances;
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2.12.2
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Each Purchaser shall have the right to procure products comparable to the identified Product(s) from another source without any penalty and will continue to be in compliance with this Agreement and any Purchaser-Specific Agreements under this Agreement; and
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2.12.3
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HealthTrust has the right to either: (a) remove the identified Product(s) from this Agreement; or (b) reduce the award basis and contract with an alternative supplier for the applicable product category.
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2.13.
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Technology Refresh; Replacement Parts
. Intentionally Omitted.
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3.0
GPO Fees, Rebates, Reporting, Prices, Payments
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3.1.
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GPO Fees
. In consideration for the administrative and other services performed by HealthTrust in connection with purchases of Products and Services, Vendor shall pay administrative fees to HealthTrust (“GPO Fees”) for all purchases by Purchasers of Products and Services whether such purchases are made directly from Vendor or through a Distributor (notwithstanding the ordering point method specified in Exhibit B), and regardless of whether such purchases are made at prices other than those stated in Exhibit A or whether pursuant to a separate agreement with a Purchaser. The GPO Fee shall be determined by multiplying the GPO Fee percentage stated in Exhibit B by the dollar amount of purchases of Products and Services by Purchasers,
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excluding any separately-billed freight charges (not included in Product price), taxes, Rebates, refunds, credits on Product returns (unless returned due to a Recall) and, if the Product is purchased from a Distributor, any Distributor markup. For clarity, remuneration (whether described as rebates or otherwise) that is paid by Vendor to a distribution center qualifying as a Participant pursuant to a disintermediation agreement shall not be excluded from the GPO Fee calculation. The payment of such GPO Fees is intended to be in compliance with the exception to the Medicare and Medicaid Anti-Kickback Statute set forth at 42 U.S.C. § 1320a-7b(b)(3)(C) and the “safe harbor” regulations set forth in 42 C.F.R. § 1001.952(j).
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3.2.
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Rebates
. Vendor shall pay Rebates based on purchases of Products and/or Services by Purchasers in the amounts stated in Exhibit A, if any. If a percentage is listed, then the Rebate shall be determined by multiplying the stated percentage by the dollar amount actually paid by the Purchaser for Products and Services purchased under this Agreement, excluding any added freight charges, taxes, any Distributor markup (if applicable), and net of any refunds or credits on Product returns. Rebates shall be paid to HealthTrust for payment by HealthTrust to Purchasers. The payment of Rebates is intended to be in compliance with the exception to the Medicaid and Medicare Anti-Kickback Statute set forth at 42 U.S.C. § 1320a-7b(b)(3)(A) and the “safe harbor” regulations set forth in 42 C.F.R. § 1001.952(h).
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3.3.
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GPO Fee and Rebate Reports from Vendor
. With each GPO Fee payment, Vendor shall provide to HealthTrust an electronic report that accurately lists, by Purchaser, the purchases upon which the GPO Fees are based for the applicable time period, and any other information that may be required to enable HealthTrust to comply with 42 C.F.R. § 1001.952(j). With each Rebate payment, Vendor shall provide an electronic report that contains sufficient detail to permit HealthTrust to accurately allocate the appropriate amounts to each Purchaser. Each such Vendor report shall include a listing of each Purchaser by the Purchaser GPOID or GLN associated with its ship-to address, even if Vendor uses its own customer identification number. In the event Vendor has no sales under this Agreement during a reporting period, Vendor shall submit a report to HealthTrust indicating zero sales. The Vendor reports shall be sent by e-mail to vendorbackup@healthtrustpg.com. Payment of GPO Fees or Rebates without accompanying reports shall be considered non-payment until such reports have been delivered to HealthTrust.
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3.4.
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Prompt Payment Acknowledgement
. Vendor acknowledges that failure to timely pay GPO Fees and Rebates, or to submit accurate reports, will delay HealthTrust’s payment and/or reporting to Participants and Purchasers, thereby potentially causing them to be unable to accurately complete cost reports required under government-reimbursed healthcare programs.
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3.5.
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Late Fees
. HealthTrust shall have the right to charge, and Vendor agrees to pay, a late fee equal to one percent (1%) per month (or the maximum allowed by law, whichever is less) of the amount of any GPO Fees, Rebates, or other fees not paid
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or refunded by Vendor in accordance with the payment terms stated in this Agreement. Any Purchaser shall have the right to charge, and Vendor agrees to pay, a late fee equal to one percent (1%) per month (or the maximum allowed by law, whichever is less) of the amount of any Purchaser overpayments not refunded by Vendor in accordance with the payment terms stated in Section 2.9.1. Such late fees shall also apply to other fees not paid or refunded by Vendor within thirty (30) days of Vendor’s receipt of the applicable invoice. The accrual of the late fee shall commence on the date the original payment was due.
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3.6.
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Other Reports
. On or prior to the Effective Date, and thereafter upon request, Vendor shall provide HealthTrust with electronic copies of: (i) the price list in Exhibit A; and (ii) Vendor’s list prices for Products. On a quarterly basis, Vendor shall also provide to HealthTrust the related product offerings reports per Exhibit B, which shall include all applicable GTIN, GLN and GDSN data as defined in Section 4.2 (GS1 GTIN Standards). Vendor shall also furnish, in an agreed-upon format, any additional reports reasonably requested by HealthTrust related to Products provided to Purchasers under this Agreement.
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4.0
EDI and E-Commerce
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4.1.
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Electronic Ordering
. For Products and Services available directly from Vendor (if any), Vendor shall provide, at no additional cost to Purchasers, a mechanism for purchase order placement, confirmation, change orders and invoices to be sent by EDI or by internet-based e-commerce system except where Vendor or a Purchaser does not have such capability, or as expressly stated otherwise pursuant in Exhibit B. Subject to the prior sentence, Vendor will absorb any costs incurred by Vendor to provide or maintain such mechanism, including third party costs for data transfers. Vendor and the applicable Purchaser shall own all transaction data, and HealthTrust shall have the right to access and retain such transaction data for performance of its group purchasing functions.
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4.2.
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GS1 GTIN Standards
. HealthTrust and Vendor support implementation of GS1 Global Trade Item Numbers (“GTIN”) and GLNs in the health care industry as the standardized system for marking products with unique identifiers at all units of use, in an effort to improve the efficiency and visibility of clinical supply and demand chains. Vendor will assign a GTIN to identify each Product at all applicable levels of packaging and will provide the GTIN and GLN information and applicable Product attributes to HealthTrust upon request. Upon HealthTrust request, Vendor will participate in compliance testing to demonstrate that its data submissions conform to the GTIN and GLN requirements.
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5.0
Price Warranty
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5.1.
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Competitive Pricing
. The prices, terms, and conditions under this Agreement, must be as favorable or better than those offered by Vendor to any other group purchasing organization or integrated delivery network whose members’ product category,
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purchase commitment levels, product purchase mix and volume are, during the corresponding period, substantially similar to those purchased by the Purchasers, excluding government entities. Within thirty (30) days of determining that Vendor is not in compliance, HealthTrust and Vendor shall amend this Agreement to provide at least as favorable prices, terms, and conditions to Purchasers.
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5.2.
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Price Decreases
. Vendor shall notify HealthTrust if it offers any general, “across the board” price decreases for Products or Services to a substantial number of its customers and shall make such decreases available to Purchasers promptly and in like amounts or percentages, as applicable.
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5.3.
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Invoice Errors
. If an invoice does not match purchase order information, including but not limited to purchase order number, Products, prices set forth in Exhibit A and other required information, then Purchaser shall have the right to reject the invoice and request resubmission by Vendor or Distributor, and the payment terms set forth in Exhibit B shall be tolled until an invoice with the correct purchase order information has been received by Purchaser.
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6.0
Taxes
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6.1.
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Tax Collection
. Vendor shall be registered in all taxing jurisdictions where, as a seller of Products and/or Services under this Agreement, it is legally required to register. Vendor shall pay to the applicable taxing authority any federal, state or local excise or other similar tax imposed on Vendor or for which Vendor is legally, contractually or otherwise responsible in connection with its sale or provision of Products and/or Services under this Agreement (including, without limitation, the medical device excise tax as set forth in the Section 4191 of the Internal Revenue Code) without seeking any reimbursement from Purchasers. Vendor shall collect from each Purchaser and pay to the applicable taxing authority any federal, state or local sales or use tax imposed on a Purchaser or for which a Purchaser is legally responsible in connection with such Purchaser’s purchase or acquisition of Products and/or Services under this Agreement. Invoices to Purchasers shall clearly and separately state the amount of such tax. Vendor’s invoice will show taxability per applicable taxing jurisdiction. Vendor shall promptly refund to Purchasers any overcharges of taxes collected by Vendor from Purchasers. Vendor shall pay all amounts assessed by any taxing authority as a result of Vendor’s failure to comply with this Section 6.1.
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6.2.
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Product Information for Tax Reconciliation
. Upon request, Vendor shall provide reasonable assistance to HealthTrust and each Purchaser to provide data and information in Vendor’s possession to assist Purchaser’s reconciliation of its item files to Vendor’s files with regard to tax rates and taxability of Products and/or Services including the provision of the following information as applicable to Products, to the extent Vendor tracks and has actual knowledge of such information:
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6.2.1
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Is the Product or package labeled in a manner that indicates that it is available only with a physician’s prescription (i.e., is it a federal legend item)?
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6.2.2
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Is the item a kit, pack, or tray? If yes, list all items contained in the kit, pack, or tray and each item’s approximate percentage of the cost.
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6.2.3
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Is the Product intended for single patient use?
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6.2.4
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Does the Product carry a National Drug Code (“NDC”) label or serve as a generic equivalent for a product carrying an NDC label?
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6.2.5
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Is the Product medicated? If yes, what is the primary active ingredient?
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6.3.
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Tax Information
. Upon request, Vendor shall furnish to HealthTrust and each Purchaser a copy of Vendor’s registration certificate and number within each taxing jurisdiction prior to collecting such sales or use taxes. If a Purchaser is tax-exempt, such Purchaser shall furnish Vendor with any documents necessary to demonstrate its tax-exempt status, and Vendor shall honor Purchaser’s tax-exempt status as appropriate under applicable state law. Vendor shall also provide to each Purchaser Vendor’s Federal Tax Identification number upon request.
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7.0
Vendor Performance; Cancellation
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7.1.
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Performance Warranty for Direct Purchases and Services
. For purchases made directly from Vendor (if any), Vendor represents and warrants that it shall maintain sufficient inventory and transportation arrangements to comply with the delivery time and the Required Fill Rate stated in this Agreement. Further, for Services provided by Vendor (if any), Vendor represents and warrants that it shall comply with the performance time, if any, stated in this Agreement or permitted Purchaser-Specific Agreement. In any instance where Vendor anticipates that it will not be able to comply with the delivery time and/or the Required Fill Rate for Products, or the performance time for Services, Vendor shall promptly attempt to resolve the issue to each affected Purchaser’s reasonable satisfaction, which may include Purchaser’s acceptance of alternative delivery or performance dates or, with respect to Products, the provision of an acceptable substitute from Vendor at the same or lower price as the unavailable Product. Without limiting the cancellation rights set forth in Section 7.3 (Cancellation of Orders), where Vendor is unable to comply with the foregoing performance warranty, Purchaser shall also have the right to order a substitute product or services from another supplier, in which case Vendor shall reimburse Purchaser for any cost incurred (including freight, as applicable) in excess of the cost Purchaser would have paid for Vendor’s unfulfilled order. Notwithstanding any provision to the contrary contained in this Agreement, Vendor shall be responsible for paying additional costs, if any, for expediting shipment to meet the delivery obligations stated in this Agreement, including Products subject to a backorder, or to meet its performance obligations.
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7.2.
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No Breach of Award or Commitment
. Neither HealthTrust nor Purchaser shall be deemed to be in breach of this Agreement (including award status and any individual Purchaser-Specific Agreement or other commitment terms) by entering into a contract for or purchasing replacements for Products or Services that, due to Vendor’s supply or performance problems or Product Recall, Vendor or a Distributor is unable to provide as required by this Agreement.
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7.3.
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Cancellation of Orders
. Purchaser may cancel any order arising out of this Agreement in whole or in part, without liability, if: (i) Products ordered have not been shipped or Services have not been provided as of the date of Vendor’s receipt of notice of cancellation (unless Products are custom orders); (ii) delivery of the Products ordered is not made or Services related to those Products are not provided at the time and in the quantities specified; (iii) the Products (or the possession and use thereof) or Services infringe, misappropriate or are alleged to infringe or misappropriate any third party patent, trademark, copyright, trade secret or other intellectual property right; (iv) Products (or the possession and use thereof) or related Services fail to comply with the terms of this Agreement or with any applicable law or regulation; or (v) the Products ordered are subject to Recall. Also, Purchaser may immediately cancel any order where Vendor is in breach of the Warranty of Non-exclusion, as set forth in Section 14.9. To cancel, Purchaser shall give notice to Vendor in writing, and to the extent specified in such notice, Vendor shall immediately terminate deliveries or performance under the order.
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7.4.
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Fill Rate Requirements
. Vendor represents and warrants that it shall meet or exceed a ninety-five percent (95%) Fill Rate (unless a different Fill Rate is specified in Exhibit B) for each Product during the Term (the “Required Fill Rate”). Any failure by Vendor to maintain the Required Fill Rate for any Product (whether such Product is supplied directly to Purchasers or to a Distributor) that is not cured within thirty (30) days following written notice from HealthTrust shall be deemed a breach of this Agreement. In the event of such failure to cure, in addition to any other rights or remedies of HealthTrust, HealthTrust may convert the award status for such Product to an Optional Source Award with no change in pricing.
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8.0
Shipping Terms for Direct Purchases
For purchases made directly from Vendor, shipping terms and freight payment responsibility shall be in accordance with this Section 8.0 and Exhibit B.
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8.1.
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Freight Charges
. If and to the extent freight charges are included in the Product’s purchase price, Vendor represents and warrants that such charges will remain reasonable and market competitive. If freight charges are not included in the Product’s purchase price, Vendor shall invoice Purchaser only the actual amount the carrier charges Vendor to ship such Product. Under no circumstances (including Section 8.3, Third Party Freight Management Service) may Vendor charge any fees related to delivery by Vendor Personnel, any processing or minimum order fees, or any other shipping or handling charges whatsoever.
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8.2.
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Packing and Risk of Loss
. Vendor assumes all responsibility for proper packing of Products for safe shipment to Purchaser and in accordance with carrier requirements and applicable laws and regulations. Products shall be shipped F.O.B. Destination unless expressly provided otherwise in Exhibit B.
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8.3.
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Third Party Freight Management Service
. If freight is not included in the Product’s purchase price, Vendor shall ship the Products using a Purchaser-designated freight management service upon request by such Purchaser. Delivery terms shall be F.O.B. Destination, bill Purchaser or Purchaser’s designee, for payment by Purchaser to the carrier directly. If Vendor fails to ship Products through the designated carrier, Vendor shall reimburse Purchaser for the total freight charges incurred by Purchaser.
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8.4.
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Inspection
. Upon inspection within sixty (60) days of receipt, Purchaser may reject Products that (i) do not comply with Purchaser’s purchase order, including quantities and delivery time; (ii) in any way fail to comply with the warranties provided under this Agreement or with applicable law; or (iii) are damaged in shipment. Purchaser may hold any Product rejected for reasons described in this Agreement pending Vendor’s instructions, or Purchaser, at Purchaser’s option, may return such Products to Vendor at Vendor’s expense, F.O.B. Origin, Freight Collect.
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9.0
Representations and Warranties for Products and Services; Disclaimer of Liability
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9.1.
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Product Warranties
. Vendor represents and warrants to HealthTrust and Purchasers that the Products when received by Purchaser:
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9.1.1
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are new, unadulterated and not used, remanufactured or reconditioned (unless specified in the Purchaser’s order);
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9.1.2
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are free from defects, whether patent or latent, in design, materials or workmanship;
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9.1.3
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have packaging, labeling and inserts that conform to and comply with the requirements of all applicable regulatory standards, and applicable federal, state and local laws, regulations and ordinances (including those of the Joint Commission and Medicare/Medicaid conditions of participation);
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9.1.4
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conform with statements in Vendor’s Product inserts, advertising literature, user documentation, specifications, and written warranties for the Products;
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9.1.5
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are marked with an industry standard barcode for each unit of measure associated with each Product;
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9.1.6
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carry a safety mark, if required by OSHA, from a National Recognized Testing Laboratory (“NRTL”) for use of electrical equipment in a public
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facility (as specified in the OSHA 29 C.F.R. Standards, Part 1910, Subpart S-Electrical, Sec 1910.399, including any amendments thereto);
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9.1.7
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are listed with Underwriters Laboratory (“UL”) or a nationally recognized testing laboratory as suitable for use in a healthcare facility, if such listing is available for Products; if Products include medical electrical equipment, Products shall meet or exceed the requirements of either UL-544 or UL 60601-1 Medical Electrical Equipment, Part 1: General Requirements for Safety, as amended or superseded, or the then most current UL, National Fire Protection Association (“NFPA”) 99, NFPA 70, FDA, or other applicable standard/code that addresses the safety and marking requirements of electrical medical devices (references to UL or NFPA code sections in this Section 9.1 shall also be deemed to apply to any amendments or superseding sections thereto);
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9.1.8
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if the Products are electrically powered, each Product is provided with a heavy-duty grade power cord that meets the requirements of UL-544, UL 60601-1, or NFPA 99 § 8-4.1 (and subsets) or the then most current UL, NFPA 99, NFPA 70, FDA, or other applicable standard/code that addresses the safety and marking requirements of electrical medical devices; the adapters and extension cords, if needed, for the use of this Product, meet the requirements of NFPA 99 § 8-4.1.2.5 or the then most current UL, NFPA 99, NFPA 70, FDA, or other applicable standard/code that addresses the safety and marking requirements of electrical medical devices; and to the extent other requirements of NFPA apply to any Product, whether or not specifically referenced in this Agreement, Products will comply with such applicable NFPA standards;
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9.1.9
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to the extent applicable, meet the requirements of NFPA 99 for Health Care Facilities, Chapter 8 or UL 544 or UL 2601-1 or the then most current UL, NFPA 99, NFPA 70, FDA, or other applicable standard/code that addresses the safety and marking requirements of electrical medical devices, with maximum leakage current not to exceed the values set forth in NFPA 99 § 7-5.1.3 or 7-5.2 or the then most current UL, NFPA 99, NFPA 70, FDA, or other applicable standard/code that addresses the safety and marking requirements of electrical medical devices, as applicable. (Actual leakage current test values for Products shall be furnished by Vendor at the request of HealthTrust or any Purchaser);
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9.1.10
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if the Products are equipment intended for use in an operating room environment or other location with anesthetizing equipment, each Product is labeled in accordance with NFPA 99 § 9-2.1.8.3 or the then most current UL, NFPA 99, NFPA 70, FDA, or other applicable standard/code that addresses the safety and marking requirements of electrical medical devices; each Product label shall indicate whether it is suitable
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for use in anesthetizing locations under the requirements of NFPA 70 § 13-4.1 and 99 § 7-5.1 or the then most current UL, NFPA 99, NFPA 70, FDA, or other applicable standard/code that addresses the safety and marking requirements of electrical medical devices; if Product is intended to be used in locations where flammable anesthetics are used, the Product shall be marked in accordance with NFPA 70 § Article 505-9 or the then most current UL, NFPA 99, NFPA 70, FDA, or other applicable standard/code that addresses the safety and marking requirements of electrical medical devices;
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9.1.11
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if the Products are equipment, each Product is shipped with an operator or user manual (may be in compact disc form or downloaded from Vendor’s website) that includes:
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9.1.11.1
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llustrations that show locations of controls;
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9.1.11.2
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Explanation of the function of each control;
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9.1.11.3
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Illustrations of proper connection to the patient and other equipment;
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9.1.11.4
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Step-by-step procedures for proper use of the appliance;
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9.1.11.5
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Safety precautions (or considerations) in application and in servicing;
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9.1.11.6
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Effects of probable malfunctions on patient and employee safety;
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9.1.11.7
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Difficulties that might be encountered, and care to be taken if the Product is used on a patient at the same time as other electric devices;
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9.1.11.8
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Circuit diagrams for the particular Product shipped;
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9.1.11.9
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Functional description of the circuits in Product;
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9.1.11.10
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Power requirements, heat dissipation, weight, dimensions, output current, output voltage and other pertinent data for the Product;
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9.1.11.11
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All other warnings and instructions necessary to operate the equipment safely, effectively, and efficiently; and
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9.1.11.12
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Troubleshooting guide;
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9.1.12
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if the Products are equipment, each Product contains:
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9.1.12.1
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Condensed operating instructions clearly and permanently displayed on the Product itself;
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9.1.12.2
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Nameplates, warning signs, condensed operating instructions, labels, etc. that are legible and will remain so for the expected life of the Product under the usual stringent hospital service cleaning conditions;
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9.1.12.3
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Labeling in compliance with the medical device labeling requirements under the applicable FDA rules, regulations, and guidelines; and
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9.1.12.4
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Labeling that provides all other warnings and instructions necessary to operate the equipment safely, effectively, and efficiently; and
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9.1.13
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are: (i) not “tracked devices” (as defined in 21 C.F.R. § 821.1, as such may be amended from time to time), unless Vendor provides the tracking requirements applicable to such Product in Exhibit B; and (ii) if any Product is a “tracked device,” the disclosures in Exhibit B regarding the applicable tracking requirements for such Product are true and accurate.
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9.2.
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Product Failures
. If any Product purchased under this Agreement fails to function in accordance with the warranties stated in this Agreement within the warranty period stated in Exhibit B, except due to normal wear and tear, or due to misuse, including, but not limited to, use contrary to Vendor’s or Vendor’s representative’s instructions for use, labeling, maintenance or storage of the Product, then Vendor shall promptly repair or replace the Product, at Purchaser’s option, at no additional cost to Purchaser.
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9.3.
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Good Title
. Vendor represents and warrants to HealthTrust and Purchasers that Vendor has good title to the Products supplied and that the Products are free and clear from all liens, claims and encumbrances.
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9.4.
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Intellectual Property Rights
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9.4.1
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Warranty of Non-Infringement
. Vendor represents and warrants to HealthTrust and Purchasers that it has investigated the design and specifications for all Products to determine if any of the Products (or the possession or use thereof) infringe or misappropriate the patent, trade secret, trademark, copyright or other intellectual property rights of any third party, and has determined that, and hereby represents and warrants to HealthTrust and Purchasers that, the Products and the possession and use thereof by Purchasers in the manner intended by Vendor do not infringe or misappropriate the patent, trade secret, trademark, copyright or other intellectual property rights of any third party.
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9.4.2
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Remedies
. If a Product is alleged to infringe or misappropriate or is believed by Vendor to infringe upon any U.S. copyright, patent or trademark, or misappropriate any trade secret of a third party, Vendor, at Vendor’s sole expense, may elect to: (i) modify the Product so that such Product is non-infringing and functionally equivalent; (ii) replace the Product with a non-infringing product that is functionally equivalent; or (iii) obtain the right for Purchasers to continue using the Product. If none of the foregoing occurs, Purchasers may return to Vendor any remaining inventory of such Product, and in such case, Vendor shall refund all amounts paid for such remaining Product inventory, and Vendor may remove the Product from this Agreement. Vendor further agrees to indemnify HealthTrust and Purchasers against third-party claims of infringement or misappropriation as provided in Section 10.0 (Indemnity).
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9.4.3
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No Additional Fees
. If the Products and the use thereof are covered by any intellectual property rights of Vendor or its Affiliates, provided Purchaser has paid the purchase price for the Products, Purchaser shall have the right to use the Products in the manner intended by Vendor without paying any additional fees to Vendor or Vendor’s Affiliates.
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9.5.
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Services Warranties
. Vendor represents and warrants to HealthTrust and Purchasers that:
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9.5.1
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the Services conform with statements in Vendor’s advertising literature, user documentation, specifications, and written warranties for the Services, including any project–specific Service warranties and any Services warranties stated herein;
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9.5.2
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the Services provided conform to the requirements of all applicable industry, accreditation, committee and regulatory standards and applicable federal, state and local laws, regulations and ordinances (including those of the Joint Commission and Medicare/Medicaid conditions of participation);
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9.5.3
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the Services shall be performed timely, in a workman-like manner, consistent with industry standards, and only by Vendor Personnel that have been sufficiently trained to perform assigned Services; and otherwise in conformance with any standards provided in any Exhibit to this Agreement;
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9.5.4
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Vendor shall obtain at its own cost any and all necessary consents, licenses, approvals, and permits required for the provision of Services; and
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9.5.5
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Vendor will not employ or use any individual to perform Services who is not legally authorized to work in the United States.
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9.5.6
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Vendor shall (and shall require that any Subcontractors shall) (i) retain exclusive responsibility for the payment of wages, salaries, benefits, taxes and/or other payments to, or in respect of, Vendor Personnel; (ii) remain the common law employer of Vendor Personnel; (iii) retain the authority to manage, direct and control the day-to-day work of Vendor Personnel; and (iv) inform Vendor Personnel in writing that they are not eligible to receive benefits offered to employees of customers of Vendor and/or Subcontractor (in a manner inclusive of HealthTrust, any Purchaser and/or their respective Affiliates) and retain written confirmation of same.
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9.6.
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Training
. Vendor represents and warrants that if Vendor Personnel provide Product training to Purchaser employees or physicians: (i) the predominant purpose of the training is provide instruction on the use of the Products; (ii) the training is not for instruction on how to market the Products or procedures using the Products; (iii) the training is not intended to encourage investment in Vendor; and (iv) the training is not for instruction on how to bill any federal healthcare program.
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9.7.
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Recalls
. Vendor will promptly notify HealthTrust upon becoming aware of any patient safety issue involving the Products or Services. If any Product or any of its components is subject to recall as that term is defined under 21 C.F.R. Part 7, or a voluntary recall by Vendor, or is subject to an FDA-initiated court action for removing or correcting violative, distributed products or components (any of the foregoing being referred to as a “Recall”), Vendor shall notify Purchasers and HealthTrust within twenty-four (24) hours after becoming aware of any Recall or after Vendor provides notice of the Recall to the FDA. Notices to HealthTrust shall be sent by e-mail to:
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vendorrecall@healthtrustpg.com
Vendor will comply with any process mandated by the FDA, if applicable, to address such Recall with each Purchaser, and each Purchase and HealthTrust shall provide reasonable cooperation to Vendor to facilitate Vendor’s compliance with such process. If a Recall notice suggests or requires that a Product or any component of a Product be returned or otherwise removed from use, Purchasers shall have the right to return to Vendor or Distributor (if purchased from a Distributor) any such Products at Vendor’s expense, including return shipping, and Vendor shall reimburse Purchaser for its original costs, including freight, in acquiring such Product. For any other Recall which provides Purchaser the option of Vendor repair or replacement of the Product, if Vendor is unable to do so to Purchaser’s satisfaction, Purchaser shall have the right to return the Product for reimbursement and refund at Vendor’s expense as provided in the preceding sentence. To the extent such Recall precludes Vendor from supplying any Products or Services under this Agreement, any
Purchaser compliance requirements or purchase requirements under this Agreement or any Purchaser-Specific Agreement shall not be effective for as long as Vendor is unable to supply such Products, and a Purchaser’s pricing will not change for failure to meet the compliance or purchase requirements during the Vendor’s inability to supply.
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9.8.
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Business Continuity Plan
. Vendor represents and warrants to HealthTrust and Purchasers that it has and shall maintain a business continuity and disaster recovery plan to enable delivery of Products or Services upon the occurrence of any event or circumstance beyond Vendor’s reasonable control, including without limitation acts of God, war or terrorist attack, pandemic, riot, fire, explosion, catastrophic weather event or natural disaster at its primary manufacturing and distribution locations, and agrees to review such plan with HealthTrust upon request.
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9.9.
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Liability Limitations; Mitigation
.
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9.9.1
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Neither Party nor any Purchaser shall be liable to the other for the other’s special, consequential, punitive, incidental or indirect damages, however caused, on any theory of liability, and whether or not they have been advised of the possibility of such damages, except:
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9.9.1.1
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as may arise from a Party’s or any Purchaser’s gross negligence, willful misconduct, fraud or violation of applicable law or regulation;
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9.9.1.2
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as may arise from a Party’s or any Purchaser’s breach of Section 11.0 (Confidentiality); or
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9.9.1.3
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obligations pursuant to Section 9.7 (Recalls) or Sections 10.1 and 10.2 (Vendor Indemnification; Comparative Fault).
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9.9.2
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Any reasonable costs and expenses incurred by HealthTrust and any Purchasers to mitigate or lessen any damages or harm caused by any failure of Products or Services to comply with the warranties referenced in this Agreement shall be considered direct damages.
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9.10.
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PRODUCT WARRANTIES SET FORTH IN THIS AGREEMENT ARE EXCLUSIVE AND NO OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, ARE MADE BY VENDOR OR ARE AUTHORIZED TO BE MADE WITH RESPECT TO THE PRODUCTS. VENDOR DOES NOT WARRANT THE SUITABILITY OF THE PRODUCTS FOR ANY PARTICULAR PATIENT. THE REMEDIES SET FORTH IN THIS SECTION AGREEMENT WILL BE THE ONLY REMEDIES AVAILABLE TO ANY PERSON WITH REGARD TO THE PRODUCTS. NO PERSON HAS ANY AUTHORITY TO BIND VENDOR TO
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ANY WARRANTY OR REPRESENTATION EXCEPT THOSE STATED IN AGREEMENT
10.0
Indemnity
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10.1.
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Vendor Indemnification
. Vendor agrees to and does defend, indemnify and hold harmless HealthTrust and each Purchaser, their respective Affiliates, successors, assigns, directors, officers, agents and employees (“HealthTrust Indemnitees”) from and against any and all liabilities, demands, losses, damages, costs, expenses, fines, amounts paid in settlements or judgments, and all other reasonable expenses and costs incident thereto, including reasonable attorneys’ fees (collectively referred to as “Damages”) to the extent arising out of or resulting from any claim, lawsuit, investigation, proceeding, regulatory action, or other cause of action, arising out of or in connection with (i) Products and/or Services, or the possession and/or use of the Products or Services (“Injury”); (ii) the breach or alleged breach by Vendor of the representations, warranties or covenants contained in this Agreement or in materials furnished by Vendor or any Vendor Personnel; or (ii) any infringement, misappropriation or alleged infringement or misappropriation of any U.S. patent, trademark, copyright, trade secret or other intellectual property right resulting from the purchase of Products and/or Purchasers’ possession and use thereof, as well as from receipt of any Services provided under this Agreement.
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10.2.
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Comparative Fault
. If an Injury is caused by the negligence or fault of both Vendor (and/or any Vendor Personnel), on the one hand, and any of the HealthTrust Indemnitees, on the other hand, the apportionment of said Damages shall be shared between Vendor and such HealthTrust Indemnitees based upon the comparative degree of each other’s negligence or fault, and each shall be responsible for its own defense and costs, including but not limited to the costs of defense, attorneys’ fees, witnesses’ fees and expenses incident thereto.
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10.3.
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Indemnification Process
. If any Legal Action is commenced against a HealthTrust Indemnitee for which Vendor has an indemnity obligation under this Section 10.0, the HealthTrust Indemnitee will give prompt written notice of the Legal Action to Vendor, but in any event not later than ten days after receipt of notice of the Legal Action. The failure to give such prompt written notice shall not, however, relieve Vendor of its indemnification obligations, except and only to the extent that the HealthTrust Indemnitee forfeits rights or defenses by reason of such failure or is otherwise materially prejudiced. Vendor shall undertake the defense of any such suit, and such HealthTrust Indemnitee shall cooperate with Vendor in the defense of the demand, claim or suit to whatever reasonable extent Vendor requires and at Vendor’s sole expense. Vendor shall have the right to compromise such claim at Vendor’s expense for the benefit of such HealthTrust Indemnitee, except that prior written consent of the HealthTrust Indemnitee is required if such compromise would seek to obligate a HealthTrust Indemnitee in any respect. Notwithstanding the foregoing,
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if Vendor fails to assume its obligation to defend, a HealthTrust Indemnitee may do so to protect its interest and seek reimbursement from Vendor.
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10.4.
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Reimbursement of Costs for Third Party Litigation
. With respect to any litigation involving only one of the Parties or any of its Affiliates (the “Litigating Party”), if any subpoena or other legally binding request related to such litigation is served on the other Party (or on any Purchaser if Vendor or any of its Affiliates is the Litigating Party) (the “Subpoenaed Party”) requesting copies of documents maintained by the Subpoenaed Party, the Litigating Party shall reimburse the Subpoenaed Party for its out-of-pocket costs associated with compliance with such request, including reasonable attorneys’ fees.
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11.0
Confidentiality
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11.1.
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Confidentiality Obligations
. During the Term and surviving its expiration or termination, both Parties will regard and preserve as confidential and not disclose publicly or to any third party (other than their respective Affiliates) the Confidential Information of the other Party, its Affiliates or any Purchaser. Subject to Section 11.2 (Permitted Uses of Confidential Information), each Party agrees to use the Confidential Information of the other Party, its Affiliates or any Purchaser solely for purposes of performing its obligations under this Agreement. All Confidential Information shall remain the property of the Disclosing Party.
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11.2.
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Permitted Uses of Confidential Information
. Notwithstanding the definition of Confidential Information or any provision to the contrary contained in this Agreement: (i) HealthTrust, HealthTrust’s Affiliates, and Purchasers shall have the right to use Vendor pricing information on Products and Services for their internal analyses (including their materials management and group purchasing organization functions) and to disclose such information to third party consultants for performance of such analyses pursuant to a confidentiality agreement; (ii) HealthTrust shall have the right to disclose terms and pricing information and provide copies of this Agreement to Participants, potential purchasers of any Participant, potential Participants and any third party consultants of any of the foregoing, provided such disclosure is made pursuant to a confidentiality agreement; (iii) HealthTrust and Purchasers shall have the right to provide Product and Service pricing information to third party e-commerce companies that process orders between Purchasers and Vendor; and (iv) any Receiving Party shall have the right to disclose information which such Receiving Party is requested or required to disclose by law, court order, subpoena or government agency request, provided that immediate notice of such request is given to the Disclosing Party (unless such notice is prohibited by law or court or government agency order) to provide the Disclosing Party with an opportunity to oppose such request for disclosure. Any confidentiality agreement required by this Section 11.2 shall have terms that are at least as strict as those contained in Section 11.1 (Confidentiality Obligations) and this Section 11.2. Notwithstanding the foregoing, any Receiving Party may disclose any information
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required by law to be disclosed under applicable rules and regulations, including, but not limited to those promulgated by the United States Securities and Exchange Commission or the rules of a stock exchange on which shares and other securities issued by the Receiving Party are publicly traded, including the material terms of this Agreement and the filing of this Agreement and any ancillary agreements in their entirety with its public filings, and any subsequent disclosures in other public filings and announcements consistent with any such prior disclosures (including in earnings press releases). If a Receiving Party becomes legally compelled to disclose any Confidential Information from Disclosing Party, Receiving Party shall provide Disclosing Party with prompt notice so Disclosing Party may seek a protective order or other appropriate remedy.
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11.3.
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HIPAA Requirements
. Vendor acknowledges that many Purchasers are “covered entities” and/or “business associates” as those terms are defined at 45 C.F.R. § 160.103. To the extent applicable to this Agreement, Vendor agrees to comply with the Health Information Technology for Economic and Clinical Health Act of 2009 (the “HITECH Act”), the Administrative Simplification Provisions of the Health Insurance Portability and Accountability Act of 1996, as codified at 42 U.S.C. § 1320d et seq. (“HIPAA”) and any current and future regulations promulgated under either the HITECH Act or HIPAA, including without limitation the federal privacy regulations contained in 45 C.F.R. Parts 160 and 164 (the “Federal Privacy Regulations”), the federal security standards contained in 45 C.F.R. Parts 160 and 164 (the “Federal Security Regulations”), and the federal standards for electronic transactions contained in 45 C.F.R. Parts 160 and 162 (the “Federal Electronic Transactions Regulations”), all as may be amended and/or supplemented from time to time (all collectively referred to herein as the “HIPAA Requirements”). Vendor shall not use or further disclose any “Protected Health Information,” including “Electronic Protected Health Information” (as such terms are defined in the HIPAA Requirements) other than as permitted by the HIPAA Requirements and the terms of this Agreement. Vendor will make its internal practices, books, and records relating to the use and disclosure of Protected Health Information available to the Secretary of Health and Human Services (“HHS”) to the extent required for determining compliance with the HIPAA Requirements. Vendor agrees to enter into any further agreements as necessary to facilitate compliance with the HIPAA Requirements.
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11.4.
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Data Use
. Vendor shall not distribute, sell, market or commercialize data (whether or not deemed Confidential Information) made available by HealthTrust or Purchasers or related to purchases by Purchasers, create derivative products or applications based on such data, or otherwise use such data in any manner not expressly permitted in this Agreement or permitted in writing by the Purchaser.
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12.0
Insurance
Vendor shall maintain, at its own expense and in the minimum amounts specified in Exhibit B, commercial general liability insurance (including coverages for product liability,
completed operations, contractual liability and personal injury liability) on an occurrence or claims-made basis covering Vendor for claims, lawsuits or damages arising out of its performance under this Agreement, and any negligent or otherwise wrongful acts or omissions by Vendor or any Vendor Personnel, with HealthTrust listed as an additional insured. If such coverage is provided on a claims-made basis, such insurance shall continue throughout the Term, and upon the termination or expiration of this Agreement, or the expiration or cancellation of the insurance, Vendor shall: (i) renew the existing coverage, maintaining the expiring policy’s retroactive date; or (ii) purchase or arrange for the purchase of either an extended reporting endorsement (“Tail” coverage) from the prior insurer, or “Prior Acts” coverage from the subsequent insurer, with a retroactive date on or prior to the Effective Date and, in either event, for a period of three (3) years following the termination or expiration of this Agreement. Vendor shall also maintain Automobile Liability insurance with limits of one million dollars ($1,000,000) per accident, Worker’s Compensation with statutory limits as applicable, and Employer’s Liability insurance with limits of one million dollars ($1,000,000). Vendor shall provide HealthTrust with a copy of all certificates of insurance evidencing the existence of all coverage required under this Agreement upon request. Vendor shall provide HealthTrust with no fewer than thirty (30) days prior written notice of a material reduction in the liability policies of Vendor. For avoidance of doubt, any insufficiency of Vendor’s insurance limits or denial of coverage by Vendor’s insurance carriers shall in no way limit Vendor’s liability for damages under this Agreement.
13.0
Termination of Agreement
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13.1.
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Termination with Cause
. In addition to any other termination rights set forth in this Agreement, Vendor and HealthTrust each shall have the right to terminate this Agreement in its entirety or with respect to certain Products or Services for Cause, which is not cured within thirty (30) days following receipt of written notice thereof specifying the Cause. Vendor and any Purchaser each shall have the right to terminate any of their respective obligations under this Agreement (or Purchaser-Specific Agreement, if any) as to the other for Cause, which is not cured within thirty (30) days following receipt of written notice thereof specifying the Cause.
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13.2.
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Termination without Cause
. HealthTrust shall have the right to terminate this Agreement in its entirety or with respect to certain Products or Services, without Cause and without any liability to Vendor for such termination, by providing at least sixty (60) days’ prior written notice to Vendor.
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13.3.
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Change of Control
. Except in the event of a “significant organizational transaction” (as defined in Section 19.3, Assignment), HealthTrust also shall have the right to terminate this Agreement in its entirety or with respect to certain Products or Services, by providing sixty (60) days prior written notice to Vendor, upon the transfer, directly or indirectly, by sale, merger or otherwise, of: (i) substantially all of the assets of Vendor or its ultimate parent or any permitted assignee (upon assignment to such assignee); or (ii) fifty percent (50%) or more of the ownership interest of Vendor, its ultimate parent or any such permitted assignee.
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13.4.
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Remedies
. Subject to the provisions of Section 19.8 (Survival of Terms; Beneficiaries), any termination by either Party, whether for breach or otherwise, shall be without prejudice to any claims for damages or other rights against the other Party, or between Vendor and any Purchaser, that preceded termination. No specific remedy set forth in this Agreement shall be in lieu of any other remedy to which a Party or any Purchaser may be entitled pursuant to this Agreement or otherwise at law or equity, except as otherwise provided in this Agreement.
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13.5.
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Effect of Expiration or Termination
. Notwithstanding anything in this Agreement to the contrary, in the event that this Agreement expires or is terminated without a replacement agreement for Products and Services between the Parties, and any separate agreement (e.g., a Purchaser-Specific Agreement) entered into directly by a Purchaser with Vendor remains in effect, the provisions of this Agreement, including those relating to the payment of GPO Fees and Rebates (if any), shall survive and be deemed incorporated into such separate agreement, and shall remain in full force and effect until: (i) such Purchaser ceases being a Participant of HealthTrust, or (ii) such separate agreement is terminated or expires.
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13.6.
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Transition
. The Parties agree that, upon request of HealthTrust, the Expiration Date shall be extended for a period of ninety (90) days if HealthTrust, in its reasonable discretion, deems such extension necessary to assist Purchasers with a smooth transition from purchasing under this Agreement to purchasing under any other agreement. Notwithstanding the foregoing, no purchasing requirements or compliance level commitments shall be applicable during this transition period.
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14.0
Compliance Requirements; Books and Records; Credentialing
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14.1.
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Compliance with Applicable Law; Vendor Licensure
. Each Party represents and warrants to the other Party (and in the case of Vendor, to the Purchasers as well) that each of its and its Affiliates’ performance under this Agreement will at all times comply with all applicable federal, state and local laws, ordinances and regulations. Vendor represents and warrants to HealthTrust and Purchasers that each of Vendor and its Affiliates has obtained and will obtain and maintain during the Term all licenses, permits and approvals required by applicable laws and regulations for each of its and its Affiliates’ performance under this Agreement.
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14.2.
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Child Labor and Human Trafficking
. Vendor represents and warrants to HealthTrust and Purchasers that Vendor, any Subcontractors, and its manufacturers of Products prohibit any form of human trafficking, child labor or other exploitation of children, in compliance with applicable labor and employment laws and standards, including the International Labour Organization’s Minimum Age Convention (No. 138). Vendor further represents and warrants that it undertakes to make periodic inquiries or reviews of any Subcontractors and manufacturers of Products to ensure compliance with the foregoing and will disqualify such Subcontractors and manufacturers determined to be non-compliant.
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14.3.
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Conflict Minerals
. Vendor agrees that it will comply with U.S. Securities and Exchange Commission disclosure rules and other regulations regarding “conflict minerals”, including the Dodd-Frank Wall Street Reform and Consumer Protection Act, and that it will undertake periodic inquiries of any Subcontractors and manufacturers of Products to ensure compliance with the foregoing.
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14.4.
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Access to Vendor Records
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14.4.1
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To the extent the requirements of 42 C.F.R. § 420.300
et seq
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14.4.2
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If Vendor subcontracts with an organization “related” to Vendor to fulfill Vendor’s obligations under this Agreement, and if said subcontract is worth ten thousand dollars ($10,000) or more over a consecutive twelve (12) month period, Vendor shall ensure that such subcontract contains a clause substantially identical to Section 14.4.1, which permits access by the HHS, GAO and their representatives to the “related” organization’s books and records.
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14.5.
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Discount Laws and Regulations
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14.5.1
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Vendor agrees to comply with 42 U.S.C. § 1320a-7b(b)(3)(A) and the “safe harbor” regulations regarding discounts or other reductions in price set forth at 42 C.F.R. § 1001.952(h).
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14.5.2
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Vendor shall include language in each invoice sufficient to advise Purchasers of whether or not such invoice reflects a Rebate or other reduction in price, or is net of any discounts, applicable to the Products and/or Services purchased.
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14.5.3
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When Vendor sends Purchasers invoices listing charges that include a capital cost component (e.g., equipment that must be either capitalized or reported as lease expense) and/or an operating cost component (e.g., services and/or supplies), Vendor shall separately list the prices, shipping fees and taxes applicable to equipment, supplies and services. The price for all capital component items must be reported on the invoice at the net price, with no discount or Rebate to be received separately or at a later point in time.
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14.6.
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Government Contractor Requirements
. HealthTrust is not a federal government contractor; however, some of the Purchasers that will purchase from Vendor under this Agreement may be federal government contractors or subcontractors. If applicable, Vendor shall abide by the requirements of 41 C.F.R. §§ 60-1.4(a), 60-300.5(a) and 60 741.5(a). These regulations prohibit discrimination against qualified individuals based on their status as protected veterans or individuals with disabilities, and prohibit discrimination against all individuals based on their race, color, religion, sex, or national origin. Moreover, these regulations require that covered prime contractors and subcontractors take affirmative action to employ and advance in employment individuals without regard to race, color, religion, sex, national origin, protected veteran status or disability. Vendor may also be subject to the Executive Order 13496 and implementing regulations at 29 C.F.R. Part 471, Appendix A to Subpart A.
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14.7.1
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Right to Audit Vendor
. HealthTrust shall have the right to review Vendor’s books, documents and records (whether in hard copy, electronic or other form) that pertain directly to the accounts of HealthTrust, Purchasers, and their Affiliates, Vendor’s compliance with the terms of this Agreement, the amounts payable to Vendor under this Agreement, and the GPO Fees and Rebates payable by Vendor for the Products and Services provided by Vendor hereunder. HealthTrust shall exercise such right only during normal business hours and with reasonable advance notice to Vendor. The audit may be conducted by employees of HealthTrust or its Affiliates (including contract employees) or by an external auditing firm selected by HealthTrust, subject to the provisions relating to Confidential Information in this Agreement.
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14.7.2
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Methodology
. The methodology for such audit may include sampling and extrapolation in accordance with standard statistical estimations. In connection with any such audit, Vendor shall provide an aging report, as well as a report containing the following data fields: GPOID, GTIN, GLN, COID, Customer Number, Facility/Customer Name, Street Address, City, State, Invoice Date, Invoice Number, PO Number, HealthTrust Contract Number, Contract Name and Description, Product/Item Number, Product/Item Description, Unit of Measure, Quantity Shipped, Unit Price, Extended Price, UOM Conversion Factor, and UOM Type. HealthTrust reserves the right to reasonably request, and Vendor agrees to provide, any additional data that is pertinent to the audit. At the request of HealthTrust, the records requested shall be provided to HealthTrust in electronic form.
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14.7.3
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Costs
. The cost of the audit, including the cost of the auditors, shall be paid by HealthTrust. HealthTrust shall have no obligation to pay any
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costs incurred by Vendor or Vendor Personnel in cooperating with HealthTrust in such audit.
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14.7.4
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Audit Executive Summary and Payments
. Upon completion of the audit, Vendor will be notified in writing of the results (an “Executive Summary”). If no response to the Executive Summary is received from Vendor within thirty (30) days following its issuance, the Executive Summary shall be deemed accepted by Vendor, and HealthTrust will issue an invoice to Vendor for any amounts due. Vendor shall pay HealthTrust for proper application and allocation, the amount of any overcharges and unapplied credits (as to Purchasers) and underpayments (as to HealthTrust) determined by the audit within thirty (30) days from receipt of an invoice from HealthTrust; Vendor shall not use the overcharges or underpayments as a set-off in any fashion. Payment by Purchasers of negotiated prices for Products that are less than those listed in Exhibit A shall not be considered to be undercharges and shall not be applied to reduce the amount of any overcharges by Vendor. The unpaid amount of any overcharges or underpayments shall be subject to a late payment fee as stated in Section 3.5 (Late Fees). If the result of the audit is that Vendor has overpaid GPO Fees to HealthTrust, such overpayment may be used as a credit against future GPO Fees payable by Vendor to HealthTrust.
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14.7.5
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Disputes; Settlement Exclusions
. The Parties agree to use good faith efforts to resolve any dispute that may arise from any Executive Summary issued pursuant to Section 14.7.4 (Audit Executive Summary and Payments). If HealthTrust and Vendor enter into any settlement with respect to an audit conducted hereunder, each Purchaser shall have the right to be excluded from such settlement, provided that the pro rata portion of such settlement paid by Vendor that is allocable to such Purchaser is refunded by HealthTrust.
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14.8.
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Validation Reviews
. Section 14.7 (Audit Rights) shall not be construed in any way to preclude or otherwise limit HealthTrust or any Purchasers from conducting limited-inscope reviews of charges by Vendor for purchases by such Purchasers under this Agreement and of GPO Fees and Rebates paid in connection with those purchases, to validate the accuracy thereof. HealthTrust shall also have the right, at any time, to request from Vendor a copy of its list of Participants to validate the accuracy thereof. Vendor shall correct any inaccuracies discovered by the foregoing reviews. For clarification purposes, such reviews will not be conducted at Vendor’s premises or offices.
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14.9.
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Warranty of Non-exclusion
. Vendor represents and warrants to HealthTrust, Purchasers and their Affiliates that Vendor and its directors, officers, and key employees: (i) are not currently excluded, debarred, or otherwise ineligible to participate in the federal health care programs as defined in 42 U.S.C. § 1320a-7b(f)
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or any state healthcare program (collectively, the “Healthcare Programs”); (ii) have not been convicted of a criminal offense related to the provision of healthcare items or services but have not yet been excluded, debarred, or otherwise declared ineligible to participate in the Healthcare Programs; and (iii) are not under investigation or otherwise aware of any circumstances which may result in Vendor being excluded from participation in the Healthcare Programs (collectively, the “Warranty of Non-exclusion”). Vendor’s representations and warranties underlying the Warranty of Non-exclusion shall be ongoing during the Term, and Vendor shall immediately notify HealthTrust of any change in the status of the representations and warranties set forth in this Section 14.9. Any breach of this Section 14.9 shall give HealthTrust the right to terminate this Agreement immediately.
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14.10.
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Background Checks
. Vendor agrees to perform background checks on any Vendor Personnel who have access to, or may have access to, any Purchaser facility for the purpose of delivering, maintaining, servicing, or removing equipment and/or Products or participating in surgical procedures in which the Products are used, or for the purpose of providing Services, to ensure such Vendor Personnel: (i) are not then-currently excluded, debarred or otherwise ineligible to participate in any Healthcare Program (as defined in Section 14.9); (ii) have not been convicted of a criminal offense related to the provision of healthcare items, products or services; (iii) have not been convicted of any felony or are not then-currently charged with any felony; (iv) as discovered through any background check or based upon Vendor’s knowledge, have not been terminated from employment by any employer or contractor for theft, misappropriation of property, or any other potentially illegal or unethical acts; and (v) have the appropriate I-9 documentation. Vendor shall not use any Vendor Personnel that does not have the appropriate I-9 documentation to provide Products and/or Services to any Purchaser under this Agreement. Vendor shall obtain a Purchaser’s prior written consent before using any Vendor Personnel failing to meet any of the criteria in (i) – (iv) above to provide Products and/or Services to any Purchaser under this Agreement or permitting any such Vendor Personnel to have access to any Purchaser facility. Any breach of this Section 14.10 shall give HealthTrust the right to terminate this Agreement immediately.
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14.11.
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Credentialing
. Vendor represents and warrants the following to HealthTrust and Purchasers:
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14.11.1
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Purchaser Credentialing Requirements. Vendor Personnel shall be in compliance with such Purchaser’s credentialing, approval and other policies required to visit the premises of a Purchaser, as applicable, including paying all related fees and submitting all information required by Purchaser and/or Purchaser’s credentialing verification organization in the required format and maintaining the accuracy of such information during the Term, which may include: (i) completed applications including scope of services requested; (ii) information required to conduct background investigations, including social security number(s); (iii)
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letters of compliance; (iv) current licensure and applicable certifications; (v) health requirements verification; (vi) certificate(s) of insurance; (vii) proof of Purchaser educational requirements completion; (viii) Vendor’s job description; (ix) proof of HIPAA training; and (x) proof of operating room protocols training;
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14.11.2
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Purchaser Network Access Requirements
. As a condition precedent to any Vendor Personnel gaining or utilizing access to any Purchaser’s information technology systems or networks if required to perform Services, Vendor shall (i) execute, and ensure that all Vendor Personnel providing Services utilizing such access execute, the applicable network access agreement(s), in the form(s) provided by such Purchaser; and (ii) submit all information required by such Purchaser, including the information set forth in Section 14.11.1 hereof; and
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14.11.3
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List of Vendor Personnel
. Vendor shall provide to each Purchaser, upon request in the requested format, a list of Vendor Personnel providing Services on the premises of such Purchaser, and shall maintain the accuracy of such list of Vendor Personnel during the Term.
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14.12.
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Potential Conflicts
. Vendor shall notify HealthTrust and any applicable Participants of any potential conflict of interest between Vendor Personnel selling Products and any such Participants or their employees, representatives or independent contractors (including physicians) possibly involved in the purchasing decision process.
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14.13.
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No Remuneration
. Vendor represents and warrants to HealthTrust and Purchasers that Vendor has not made, is not obligated to make, and will not make any payment or provide any remuneration or items of intrinsic value to any third party or to HealthTrust, Purchasers or their directors, officers or employees in return for HealthTrust entering into this Agreement or for any business transacted under this Agreement (excluding GPO Fees and Rebates).
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14.14.
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Industry Code of Conduct
. Vendor represents and warrants that, in performing Vendor’s obligations under this Agreement, it and Vendor Personnel shall comply with a code of conduct applicable to Vendor’s industry.
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14.15.
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HealthTrust Code of Conduct
. Vendor acknowledges that HealthTrust has standards of conduct relating to ethics and compliance matters that may arise between a vendor and HealthTrust or a HealthTrust employee, covering topics including conflicts of interest, business courtesies and vendor participation in HealthTrust events. These standards are described in HealthTrust’s code of conduct and related policies and procedures, which may be accessed at http://healthtrustpg.com/ethics-compliance/. If Vendor becomes aware of any action by any HealthTrust employee or representative that is not consistent with the HealthTrust code of conduct, Vendor shall so advise HealthTrust’s Ethics & Compliance Officer by phone at 615-344-3000, in writing to HealthTrust’s principal place of business, or by calling
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HealthTrust’s Ethics Line at 1-800-345-7419 where calls may be made anonymously if desired.
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14.16.
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Physician Ownership Interests and Compensation Arrangements
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14.16.1
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Physician Ownership Interests
. Vendor represents and warrants that it is either (a) a publicly traded company with at least $75 million in stockholders’ equity at the end of its most recent fiscal year or on average during the previous 3 fiscal years, or (b) no Physician or Immediate Family Member of a Physician has an Ownership Interest in Vendor or a business that is affiliated with Vendor unless the identity of such Physician has been previously disclosed in Vendor’s Certification (defined in Section 14.16.3 below). For purposes of this Section 14.16 only, a business that is considered affiliated with Vendor includes, but is not limited to, a parent entity, subsidiary, or other entity controlling, controlled by, or under common control with Vendor, with control meaning the direct or indirect power to govern the management and policies of the entity or the power to approve the entity’s transactions through a management agreement or otherwise.
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14.16.2
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Physician Compensation Arrangements
. Vendor represents and warrants that, with respect to any and all current and future compensation arrangements between Vendor and a Physician, an Immediate Family Member of a Physician, and any entity in which a Physician or an Immediate Family Member of a Physician has an ownership interest, such compensation arrangements:
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14.16.2.1
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constitute compensation consistent with fair market value for commercially reasonable and legitimate services under a signed written agreement;
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14.16.2.2
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do not vary with, or otherwise take into account, the volume or value of referrals or other business generated by the Physician for or with any hospital, ASC or health care facility, regardless of whether said compensation otherwise satisfies the special rules set forth in 42 C.F.R § 411.354(d)(2) or (d)(3); and
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14.16.2.3
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if in the form of consulting, product development, royalty agreement or similar arrangements expressly exclude from the compensation or royalty payment any revenues Vendor receives by virtue of the use of any product, item or service in question by the following: (i) the Physician or any Immediate Family Member of a Physician; (ii) any practice group with which the Physician or any Immediate Family Member of a Physician is affiliated; (iii) any member, employee or consultant of a practice group of which the Physician or any Immediate Family Member
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of a Physician is affiliated; (iv) any hospital, ASC or health care facility with which the Physician is affiliated or has medical staff privileges; and (v) any individual or entity for which the Physician has any actual or potential ability to influence procurement decisions for goods, items or services.
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14.16.3
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Certification, Notice of Changes and Termination
. Vendor has submitted a Physician Ownership & Compensation Certification (“Certification”) to HealthTrust and represents and warrants to the continued accuracy of the information provided therein. Vendor will submit a renewed and updated Certification upon request of HealthTrust. Vendor will also provide HealthTrust with thirty (30) days’ advance written notice prior to entering into any transaction inconsistent with the representations and warranties of Sections 14.16.1 (Physician Ownership Interests) and 14.16.2 (Physician Compensation Arrangements). Upon receipt of any such notice, HealthTrust may immediately terminate this Agreement, without penalty or prejudice, by written notice to Vendor.
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14.16.4
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Definitions for this Section
. For purposes of this Section 14.16 (Physician Ownership Interests and Compensation Arrangements), the following terms have the following meanings. “Physician” means any person who is a doctor of medicine or osteopathy, a doctor of dental surgery or dental medicine, a doctor of podiatric medicine, a doctor of optometry, or chiropractor. “Immediate Family Member” of a person means that person’s husband or wife; birth or adoptive parent, child, or sibling; stepparent, stepchild, stepbrother, or stepsister; father-in-law, mother-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law; grandparent or grandchild; grandparent’s or grandchild’s spouse. “Ownership Interest” means any direct or indirect ownership or investment interest whether through equity, debt or other means, including but not limited to stock, stock options, warrants, partnership shares, limited liability company memberships, as well as loans and bonds.
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14.17.
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Warranty of Non-Sanction
. Vendor represents and warrants that neither Vendor, nor its directors, officers, employees, agents or subcontractors, is (i) a “specially designated national” or blocked person under U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury; (ii) located, organized, or resident in Iran, Sudan, Syria, Cuba, North Korea or the Crimean region of Ukraine; or (iii) directly or indirectly owned or controlled by or acting on behalf of a person described in (i) or (ii) above.
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15.0
Merger of Terms
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15.1.
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Entire Agreement; Prior Agreement
. This Agreement constitutes the entire agreement between the Parties and, as of the Effective Date, this Agreement replaces
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any existing agreement between HealthTrust and Vendor for purchases of products and services comparable to the Products and/or Services (each such existing agreement, a “Prior Agreement”). This Agreement shall exclusively govern the purchases of Products and/or Services by Purchasers that occur during the Term. The provisions of any Prior Agreement shall continue to apply to the products purchased under the Prior Agreement prior to the Effective Date of this Agreement, except that HealthTrust shall have the right, in its sole discretion, to apply the Audit Rights provisions set forth in the Prior Agreement or this Agreement to such purchases.
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15.2.
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Other Documents
. The terms of any purchase order issued by a Purchaser shall not apply to purchases of Products and/or Services hereunder, except as necessary to designate specific Products and/or Services, quantities, delivery dates, and other similar terms that may vary from order to order; the terms of this Agreement, to the extent applicable, shall be deemed incorporated into such purchase orders. The terms and conditions contained in any acceptance, invoice, bill of lading, or other documents supplied by Vendor are expressly rejected and superseded by this Agreement and shall not be included in any contract with a Purchaser. No commitment form, standardization incentive program acknowledgement, or any other document shall be required by Vendor to be signed by a Purchaser to purchase Products and/or Services under this Agreement, unless expressly stated in this Agreement or later approved in writing by HealthTrust. Any change to such documents that are attached to this Agreement shall first be approved in writing by both Parties. If this Agreement requires Participants to submit an electronic letter of commitment (“eLOC”), Vendor shall accept or reject each eLOC within ten (10) calendar days of each Participant’s submission to HealthTrust’s web-based eLOC portal, and eLOCs that have not been rejected by Vendor within ten (10) calendar days will be deemed accepted.
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15.3.
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Conflicts
. The terms of the body of this Agreement shall control in the event of any conflict between these terms and any Exhibit, Purchaser-Specific Agreement, and Vendor Product warranty (however provided), unless such document expressly states otherwise and has been approved in writing by HealthTrust.
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16.0
Modifications of Terms
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16.1.
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Amendments
. This Agreement, as executed and approved, may only be modified by written amendment signed by the Parties expressly stating their intent to modify the terms of this Agreement, except with respect to transition period extension as set forth in Section 13.6 (Transition) and catalog number revisions as set forth in Section 16.2 (Informal Exhibit A Revisions).
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16.2.
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Informal Exhibit A Revisions
. The Parties may informally amend Exhibit A solely to revise catalog numbers for Products (“Exhibit A Revisions”) by delivery of desired Exhibit A Revisions from one Party to the other Party and a return delivery of such
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other Party’s consent to such Exhibit A Revisions, to become effective as agreed upon by the Parties.
17.0
Minority and Women Owned Business Enterprises
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17.1.
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Contracting with MWBEs
. In conjunction with HealthTrust’s efforts to involve MWBEs in its contracting process, HealthTrust may enter into purchasing agreements with MWBEs that will enable Participants to purchase supplies and/or equipment comparable to the Products under this Agreement. In such event, notwithstanding any other terms of this Agreement to the contrary, such agreement will not be deemed to be a breach of this Agreement by HealthTrust, nor will any purchases by Participants or their Affiliates from MWBEs (i) be deemed to be a breach of this Agreement or any Purchaser-Specific Agreement or (ii) count against any purchasing requirements of a particular tier or any other compliance level commitments.
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17.2.
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Reporting of MWBE Activity
. Vendor shall identify and report in writing to HealthTrust annually all MWBE activities in which it participates, specifically identifying such activities and purchases relating to Products and Services obtained under this Agreement (“MWBE Report”). The MWBE Report shall include the following information for each applicable reporting period: (i) a list of the each of Vendor’s MWBE Subcontractors (if any); (ii) their specific MWBE designation (as defined in Section 1.20); (iii) any applicable HealthTrust agreement number(s); (iv) the associated products or services provided; and (v) Vendor’s direct and indirect spend with MWBEs individually and in the aggregate.
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18.0
Environmental Disclosures; Reprocessing
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18.1.
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Environmental Disclosures
. Vendor acknowledges HealthTrust’s commitment to sourcing environmentally preferable products and Vendor shall, upon request of and in the format requested by HealthTrust, submit written responses to HealthTrust representing and warranting to the environmental attributes of Products and/or the Product manufacturing process. In the event HealthTrust determines that Vendor’s responses are materially inaccurate with respect to one or more Products, HealthTrust and Participants shall have the right to contract with alternative sources for the affected Product(s).
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18.2.
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Reprocessing
. Intentionally Omitted.
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19.0
Miscellaneous
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19.1.
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Publicity
. No advertisement or public announcement of the existence of this Agreement or the relationship created by this Agreement may be made by either Party, unless such Party is required by law to do so (including Securities-related Disclosures), or the Parties agree to do so. In such event, the text of any proposed
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announcement should be first submitted in writing to the other Party in accordance with Exhibit B (Vendor contact information).
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19.2.
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Vendor Name and Logos
. Vendor authorizes HealthTrust to use Vendor’s names and logos, in the form as provided by Vendor to HealthTrust, on HealthTrust’s proprietary websites and other HealthTrust publications for Participants. Except as expressly provided herein, HealthTrust shall obtain Vendor’s written consent, which shall not be unreasonably withheld, to use Vendor’s names and logos in other manners or contexts.
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19.3.
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Assignment
. Neither Party shall assign this Agreement, in whole or in part, without the prior written consent of the other Party, which consent shall not be unreasonably withheld. Consent by either Party to such assignment in one instance shall not constitute consent by the Party to any other assignment. Any assignment without such prior written consent shall be void and have no effect. Notwithstanding the foregoing, the following shall not constitute an assignment for purposes of this Section 19.3: (i) the transfer, in whole or in part, of a Party’s rights and obligations under this Agreement to an Affiliate of the transferring Party; provided such Affiliate shall possess the financial and legal wherewithal sufficient to fulfill the obligations of the transferring Party under this Agreement; or (ii) the transfer, in whole or in part, of a Party’s rights and obligations under this Agreement in the event of a significant organizational transaction. For purposes of this Section 19.3, a “significant organizational transaction” means (a) a transaction such as, without limitation, a spin-off or sale of assets of a business, provided that the entity to which this Agreement is transferred was, in whole or in part, an Affiliate of the transferring Party immediately prior to such significant organizational transaction; or (b) an internal reorganization that results in the transferring Party being organized in one or more different legal entities or any other corporate form(s), whether through conversion, merger, or otherwise. Subject to the foregoing, all terms, conditions, covenants and agreements contained in this Agreement shall inure to the benefit of and be binding upon any successor and any permitted assignees of the respective Parties.
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19.4.
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Subcontractors
. Vendor may use Subcontractors in the performance of Vendor’s obligations under this Agreement if the following additional conditions are met: (i) any Subcontractor shall satisfy the background check requirements set forth in Section 14.10; and (ii) any Subcontractor must have signed Vendor’s confidentiality agreement and/or business associate agreement (if applicable), in each case with terms at least as restrictive as those contained in this Agreement, prior to any involvement in the performance of Vendor’s obligations under this Agreement. Vendor guarantees the proper classification of each Subcontractor and shall remain responsible for the full compliance by each Subcontractor of all duties and obligations that would otherwise apply to Vendor absent the use of such Subcontractor. Neither HealthTrust nor any Purchaser shall have to assert or exhaust any remedies against any Subcontractor before asserting against Vendor or recovering from Vendor any
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Damages arising under any Injury or other claim, or exercising any indemnification or other rights under this Agreement.
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19.5.
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Independent Contractor Relationship
. The Parties agree that Vendor is an independent contractor and that this Agreement does not create any partnership, agency, employment, or joint venture relationship, or any right of either Party or its agents or employees to bind or obligate the other Party to any legal or financial obligation.
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19.6.
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Governing Law and Venue
.
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19.6.1
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Between the Parties
. As between the Parties, this Agreement and any claim, controversy or dispute arising under or related to this Agreement shall be governed by and construed in accordance with the laws of the State of Tennessee, without regard to its principles of conflict of laws. Jurisdiction and venue for any dispute between Vendor and HealthTrust concerning this Agreement shall rest exclusively within the state and federal courts of Davidson County, Tennessee. Each of Vendor and HealthTrust waives all defenses of lack of personal jurisdiction and forum non conveniens related thereto.
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19.6.2
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Between Vendor and a Purchaser
. As between Vendor and any one Purchaser, this Agreement and any claim, controversy or dispute arising under or related to this Agreement shall be governed by and construed in accordance with the laws of the state in which such Purchaser is located (or, if as to multiple Affiliate Purchasers, the state of such Affiliate Purchasers’ headquarters), without regard to its principles of conflict of laws. Jurisdiction and venue for any dispute between Vendor and any Purchaser concerning this Agreement shall rest exclusively in a court of competent jurisdiction located in the county and state in which such Purchaser is located (or, if as to multiple Affiliate Purchasers, the county and state of such Affiliate Purchasers’ headquarters). Each of Vendor and Purchaser(s) waives all defenses of lack of personal jurisdiction and forum non conveniens related thereto.
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19.7.
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Severability
. If any provision of this Agreement should for any reason be held invalid, unenforceable or contrary to public policy, the remainder of the Agreement shall remain in full force and effect notwithstanding.
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19.8.
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Survival of Terms; Beneficiaries
. Any terms in this Agreement which by their nature must survive after the Term to give their intended effect shall be deemed to survive termination or expiration of this Agreement. Further, the representations and warranties provided in this Agreement, subject to the limitations in this Agreement, shall run to HealthTrust, Purchaser and their successors and permitted assigns, and their applicability during the Term shall survive the termination or expiration of this Agreement.
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19.9.
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Waivers
. The waiver of any provision of this Agreement or any right, power or remedy under this Agreement shall not be effective unless made in writing and signed by both Parties. No failure or delay by either Party in exercising any right, power or remedy with respect to any of its rights under this Agreement shall operate as a waiver thereof.
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19.10.
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Headings; Interpretations
. The descriptive headings of the sections of this Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any provision hereof. In this Agreement, unless the context otherwise requires: (i) the term “days” means calendar days; and (ii) the term “including” shall mean, “including, without limitation.”
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19.11.
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Notices
. Notices under this Agreement shall all be in writing, shall be effective upon receipt and shall be sent to the designated recipients listed in Exhibit B by any of the following methods: (i) United States Postal Service certified or registered mail with return receipt showing receipt; (ii) courier delivery service with proof of delivery; or (iii) personal delivery. Either party may change the name and address of any of its designated recipients of notices by giving notice as provided for in this Agreement.
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19.12.
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Counterparts; Execution
. This Agreement and any amendments hereto may be executed by the Parties hereto by paper or electronic means, and individually or in any combination, in one or more counterparts, each of which shall be an original and all of which shall together constitute one and the same agreement.
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19.13.
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No Revocation
. Vendor understands and agrees that, following its partial-execution of this Agreement, a condition precedent to HealthTrust countersignature is completion of HealthTrust’s internal review and approval process for this Agreement, including approvals of applicable HealthTrust advisory boards. Vendor warrants that it shall not seek to withdraw, rescind or otherwise revoke this Agreement during HealthTrust’s internal review and approval process and further agrees and acknowledges that HealthTrust is acting in reliance on this Vendor warranty.
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[Signature Page Follows]
IN WITNESS WHEREOF, the Parties indicate their acceptance of the terms of this Agreement by the signatures of their duly authorized representatives.
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HealthTrust Purchasing Group, L.P.,
by HPG Enterprises, LLC, its general partner
HealthTrust Signee:
/s/ Michael Berryhill
HealthTrust Signee Name: Michael Berryhill
HealthTrust Signee Title: COO
HealthTrust Signature Date: 3/12/2018
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Cardiovascular Systems, Inc.
Vendor Signee:
/s/ Jeff Points
Vendor Signee Name: Jeff Points
Vendor Signee Title: Chief Financial Officer
Vendor Signature Date: 2/16/2018
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Exhibits
The following Exhibits are part of the Agreement and are incorporated by reference.
A. Products and Services with Prices
B. Specific Purchasing Terms
Exhibit A
Products and Services with Prices
Products
:
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Mfr Catalog
Number
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Long Description
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UOM
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UOM Factor
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Tier 1
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VPR-TRK-MM-20
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TAPE RADPQ 50CM VIPERTRACK
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BX
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20
|
$ [******]*
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VPR-TRK
|
TAPE RADPQ 30CM VIPERTRACK ADHER VSL LSN LGTH
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CA
|
50
|
$ [******]*
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VPR-GW-14
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GUIDEWIRE VASC 335CM .014IN VIPERWIRE ADV PERPH
|
BX
|
5
|
$ [******]*
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VPR-GW-17
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GUIDEWIRE VASC .017IN .014IN VIPERWIRE ADV PGW
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BX
|
5
|
$ [******]*
|
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SIP-3000
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PUMP INFUSION SALINE
|
EA
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1
|
$ [******]*
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VPR-SLD2
|
LUBRICANT ATHRCM SYS VIPERSLIDE BG 100ML STRL LF DISP
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BX
|
10
|
$ [******]*
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DBE-200
|
CATHETER ATHRCM 20MM DIAMONDBACK STLTH 360 .014IN 2MM ORBT
|
EA
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1
|
$ [******]*
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PRD-SC30-150
|
CATHETER ATHRCM DIAMONDBACK 360 1.5MM PERPH CLSC CRWN
|
EA
|
1
|
$ [******]*
|
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DBE-150
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CATHETER ARTHMY DIAMONDBACK 1.25MM 30UM
|
EA
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1
|
$ [******]*
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PRD-SC30-125
|
CATHETER ARTHMY DIAMONDBACK 1.5MM 30UM
|
EA
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1
|
$ [******]*
|
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PRD-SC30-200
|
CATHETER ATHRCM 30MM DIAMONDBACK STLTH 360 2MM SLD CRWN
|
EA
|
1
|
$ [******]*
|
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VPR-TRK 20
|
TAPE RADPQ 30CM VIPERTRACK ADHER VSL LSN LGTH
|
BX
|
20
|
$ [******]*
|
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GWC-12325LG-FLP
|
GUIDEWIRE VASC 325CM .012IN .014IN VIPERWIRE ADV COR
|
BX
|
5
|
$ [******]*
|
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DBEC-125
|
CATHETER ATHRCM 145CM STLTH 360 1.25MM ORBT CLSC CRWN PD
|
EA
|
1
|
$ [******]*
|
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DBP-125MICRO145
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SYSTEM ATHRCM 145CM 1.25MM DIAMONDBACK 360 PERPH MIC CRWN
|
EA
|
1
|
$ [******]*
|
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DBP-125MICRO60
|
CATHETER ATHRCM 60CM 1.25MM DIAMONDBACK 360 PERPH MIC CRWN 7
|
EA
|
1
|
$ [******]*
|
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DBP-125SOLID60
|
CATHETER ATHRCM 60CM 1.25MM DIAMONDBACK 360 PERPH SLD CRWN
|
EA
|
1
|
$ [******]*
|
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VPR-GW-200
|
GUIDEWIRE VASC 200CM .014IN .012IN VIPERWIRE ADV DIAMONDBACK
|
BX
|
5
|
$ [******]*
|
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VPR-GW-FT14
|
GUIDEWIRE VASC 335CM .014IN FLX TP VIPERWIRE ADV DIAMONDBACK
|
BX
|
5
|
$ [******]*
|
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DBP-125SOLID145
|
SYSTEM ATHRCM 145CM DIAMONDBACK 360 1.25MM PERPH DMD SLD
|
EA
|
1
|
$ [******]*
|
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VPR-GW-FT18
|
GUIDEWIRE VASC 335CM .018IN .014IN FLX TP VIPERWIRE ADV
|
BX
|
5
|
$ [******]*
|
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DBP 150 CLASSIC145
|
SYSTEM ATHRCM 145CM DIAMONDBACK 360 1.5MM PERPH DMD CLSC
|
EA
|
1
|
$ [******]*
|
|
DBP-150SOLID145
|
CATHETER ATHRCM 145CM 1.5MM DIAMONDBACK 360 PERPH DMD SLD
|
EA
|
1
|
$ [******]*
|
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DBP 200 CLASSIC145
|
CATHETER ATHRCM 145CM 2MM 6FR DIAMONDBACK 360 2MM PERPH CLSC
|
EA
|
1
|
$ [******]*
|
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DBP-200SOLID145
|
CATHETER ATHRCM 145CM 2MM DIAMONDBACK 360 PERPH DMD ROT SLD
|
EA
|
1
|
$ [******]*
|
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•
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Rebates: [******]* percent ([******]*%) on all net Purchases during each contract quarter.
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Services
: N/A
Exhibit B
Specific Purchasing Terms
1.
Product and Award Basis
ProductAward Basis
AtherectomyMulti
2.
Effective Date
: May 1, 2018
3.
Expiration Date
: July 31, 2021
4.
Prior Agreement
:
The prior agreement between HealthTrust and Vendor dated August 1, 2014 is replaced by this Agreement upon the Effective Date, as provided in Section 15.1 (Entire Agreement; Prior Agreement).
5.
Market Level Pricing
:
If the award basis stated above for any Product is other than Sole Source, Vendor acknowledges that if any Participant is able to commit a selected group of its Affiliated Purchasers to purchase from Vendor a higher commitment basis (either by market share percentage or award basis), or to otherwise provide value to Vendor, then Vendor agrees to provide mutually acceptable reduced prices for Products for such Purchasers (“Committed Purchasers”). In each such event, HealthTrust, Vendor and the Participant shall enter into an amendment to this Agreement specifically for such Committed Purchasers, which shall state the reduced prices for Products and other applicable terms, and shall list the Committed Purchasers that are eligible for such prices, subject to any applicable commitment stated therein. Except as modified by such amendment, the terms of this Agreement shall apply to purchases of Products by Committed Purchasers, and such purchases shall be deemed to have been made under this Agreement. If the Committed Purchasers fail to meet any agreed upon commitments, Vendor’s sole remedy shall be to terminate the applicable amendment and move the Committed Purchasers to the prices applicable under this Agreement. The terms of this Agreement shall control in the event of any conflict with the terms of any such amendment.
6.
Contacts for Notices
:
HealthTrust’s contact for notices under the Agreement:
Senior Vice President, Strategic Sourcing
HealthTrust Purchasing Group, L.P.
1100 Charlotte Avenue, Suite 1100
Nashville, TN 37203
With a copy to:
Chief Legal Officer
HealthTrust Purchasing Group, L.P.
1100 Charlotte Avenue, Suite 1100
Nashville, TN 37203
Vendor’s contact for notices under the Agreement:
Vice President, Market Development
Cardiovascular Systems, Inc.
1225 Old Hwy 8 NW
St. Paul, MN 55112
With a copy to:
General Counsel
Cardiovascular Systems, Inc.
1225 Old Hwy 8 NW
St. Paul, MN 55112
7.
Additional Products or Services Provided at No Additional Charge
: N/A
The value of any additional product or service provided by Vendor to Purchasers may be considered to be an additional discount, rebate or other reduction in price to the Products and/or Services obtained under the Agreement. Purchasers may have an obligation to disclose and/or appropriately reflect any such discounts, rebates or price reductions in any costs claimed or charges made to Medicare, Medicaid, or health insurers requiring disclosure. Vendor agrees to provide estimates of the value of such additional products or services to Purchasers upon request.
8.
Product Warranty Duration
: For shelf life of the Products as indicated on the packaging.
No later than sixty (60) days after use of the Product, the Purchaser must notify Vendor of any such defects or failure to conform to warranties set forth in this Agreement.
9.
Tracked Devices
: N/A
10.
Ordering Process
:
Purchasers may place orders directly from Vendor by the means checked below:
Internet
EDI
Purchase Order
Verbal
Facsimile
Other
Not applicable - Product only available from Distributors
11.
Ordering Point
:
Purchasers may place orders directly from Vendor and/or from Distributors as checked below:
Vendor Direct only
Distributor only
Either Vendor Direct or Distributor
12.
Distributors
: N/A
13.
Distributor Pricing
: N/A
14.
F.O.B. Designation
:
Shipments of orders placed directly with Vendor shall be fulfilled as checked below:
F.O.B. Origin
F.O.B. Destination
If Products are shipped on an F.O.B. Origin basis, Vendor shall remain responsible for replacing, at Vendor’s sole expense, any Products lost or damaged in transit and, provided that Vendor has timely shipped replacement Products to the applicable Purchaser, shall be entitled to retain the proceeds of any damage-in-transit insurance claim.
15.
Delivery Time
: Seven (7) calendar days from receipt of order.
16.
Required Fill Rate
: Ninety-five percent (95%).
17.
Payment Terms
:
GPO Fees
: [******]* percent ([******]*%)
Vendor shall pay to HealthTrust such GPO Fees related to purchases hereunder during each calendar quarter during the Term within thirty (30) days after the expiration of each calendar quarter.
Rebates
: Rebates shall be based on purchases by Purchasers under this Agreement made during each calendar quarter during the Term, and shall be paid within thirty (30) days after the expiration of each calendar quarter.
Purchasing Invoice
: Net due forty-five (45) days from the latter of receipt of invoice or receipt of Product.
Electronic Payment Programs
: Vendor shall accept payment through electronic payment programs (e.g., the American Express Buyer Initiated Payment (BIP) Solution, Bank of America’s ePayables) for all payments arising under this Agreement.
18.
Addresses for Payments
: GPO Fees and Rebates shall be sent to HealthTrust as follows:
For delivery of checks that require proof of delivery:
HealthTrust Purchasing Group, L.P.
c/o Wells Fargo
Attn: Wholesale Lockbox- P. O. Box 751576
Building 2C2-NC 0802
1525 West WT Harris Blvd
Charlotte, North Carolina 28262
Telephone No.: 704-590-5382
For ACH payments:
Bank Name: Wells Fargo
Account Name: HealthTrust Purchasing Group, L.P.
For wire payments:
HealthTrust Purchasing Group, L.P.
c/o Wells Fargo
For all other mail deliveries:
HealthTrust Purchasing Group, L.P.
c/o Wells Fargo
P.O. Box 751576
Charlotte, North Carolina 28275-1576
HealthTrust reserves the right to revise the above payment address information by providing written notice to Vendor.
19.
Freight / Shipping Charges
:
Freight/shipping charges for purchases directly from Vendor shall be subject to the additional terms checked below:
Freight/shipping charges are not included in the Product price and shall be “prepaid” by Vendor and added to the invoice as a separate line item that is identified as either a “freight” or “shipping” charge. The freight/shipping charge shall not include any additional amounts for shipping for which Vendor is responsible pursuant to Section 7.1 of the Agreement.
Freight/shipping charges are included in the Product price, subject to Purchaser’s obligations to pay any additional expedited freight/shipping charges (if such expedited delivery is requested by Purchaser), as stated in Section 8.1 of the Agreement.
Freight collect via carrier designated by Purchaser or HealthTrust.
N/A – Products available only via distribution.
20.
Insurance Policy Minimum Amounts
:
Per Occurrence: Ten million dollars ($10,000,000).
In the Annual Aggregate: Twenty-five million dollars ($25,000,000).
21.
Vendor Customer Service
:
Vendor’s customer service representatives shall be available between 8:00 A.M. and 8:00 P.M. Eastern Time, Monday through Friday, except for holidays.
22.
Training, Repair, Safety
:
Vendor shall supply training, repair and safety information to each Purchaser as checked below:
Operator training
Preventative maintenance and repair instruction
Repair and replacement parts lists, ordering instructions, and alternative sources of parts
Material Safety Data Sheets for all material/chemical Product purchases in compliance with OSHA standards and those of any other applicable federal, state or local law or regulation
23.
Related Product Offerings
:
With respect to each product category under this Agreement, Vendor shall provide to HealthTrust upon request and upon request a listing of its and its Affiliates’ entire offering of products in each such product category and (ii) to the extent reasonably available, its competitors’ offerings of products in each such product category, in the form of the following worksheet:
Exhibit 31.1
CERTIFICATION UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Scott R. Ward, certify that:
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1.
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I have reviewed this quarterly report on Form 10-Q of Cardiovascular Systems, Inc.;
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2.
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
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3.
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Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
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4.
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The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
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a)
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Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
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b)
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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c)
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Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
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d)
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Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
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5.
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The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
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a)
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
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b)
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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By:
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/s/ Scott R. Ward
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Dated: May 4, 2018
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Scott R. Ward
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Chairman, President and Chief Executive Officer
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Exhibit 31.2
CERTIFICATION UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Jeffrey S. Points, certify that:
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1.
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I have reviewed this quarterly report on Form 10-Q of Cardiovascular Systems, Inc.;
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2.
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
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3.
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Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
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4.
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The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
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|
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a)
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Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
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b)
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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c)
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Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
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d)
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Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
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5.
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The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
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a)
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
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b)
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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By:
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/s/ Jeffrey S. Points
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Dated: May 4, 2018
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Jeffrey S. Points
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Chief Financial Officer
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Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the filing of the Quarterly Report on Form 10-Q for the quarter ended March 31, 2018 (the “Report”) by Cardiovascular Systems, Inc. (“Registrant”), I, Scott R. Ward, the Chief Executive Officer of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that to the best of my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
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By:
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/s/ Scott R. Ward
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Dated: May 4, 2018
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Scott R. Ward
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Chairman, President and Chief Executive Officer
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Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the filing of the Quarterly Report on Form 10-Q for the quarter ended March 31, 2018 (the “Report”) by Cardiovascular Systems, Inc. (“Registrant”), I, Jeffrey S. Points, the Chief Financial Officer of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that to the best of my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
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By:
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/s/ Jeffrey S. Points
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Dated: May 4, 2018
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Jeffrey S. Points
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Chief Financial Officer
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