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Proc-Type: 2001,MIC-CLEAR
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Originator-Name: [email protected]
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<SEC-DOCUMENT>0000897101-00-001205.txt : 20001221
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<SEC-HEADER>0000897101-00-001205.hdr.sgml : 20001221
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ACCESSION NUMBER: 0000897101-00-001205
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CONFORMED SUBMISSION TYPE: 10-K
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PUBLIC DOCUMENT COUNT: 8
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CONFORMED PERIOD OF REPORT: 20000930
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FILED AS OF DATE: 20001220
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FILER:
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COMPANY DATA:
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COMPANY CONFORMED NAME: ROCHESTER MEDICAL CORPORATION
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CENTRAL INDEX KEY: 0000868368
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STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841]
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IRS NUMBER: 411613227
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STATE OF INCORPORATION: MN
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FISCAL YEAR END: 0930
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FILING VALUES:
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FORM TYPE: 10-K
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SEC ACT:
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SEC FILE NUMBER: 000-18933
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FILM NUMBER: 792624
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BUSINESS ADDRESS:
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STREET 1: ONE ROCHESTER MEDICAL DR
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CITY: STEWARTVILLE
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STATE: MN
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ZIP: 55976
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BUSINESS PHONE: 5075339600
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MAIL ADDRESS:
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STREET 1: ONE ROCHESTER MEDICAL DR
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CITY: STEWARTVILLE
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STATE: MN
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ZIP: 55976
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</SEC-HEADER>
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<DOCUMENT>
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<TYPE>10-K
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<SEQUENCE>1
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<FILENAME>0001.txt
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<TEXT>
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SECURITIES AND EXCHANGE COMMISSION
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WASHINGTON, D.C. 20549
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FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
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OF THE SECURITIES EXCHANGE ACT OF 1934
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FOR FISCAL YEAR ENDED SEPTEMBER 30, 2000
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Commission File Number: 0-18933
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ROCHESTER MEDICAL CORPORATION
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MINNESOTA 41-1613227
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State of Incorporation IRS Employer Identification No.
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ONE ROCHESTER MEDICAL DRIVE
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STEWARTVILLE, MINNESOTA 55976
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Address of Principal Executive Offices
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Telephone Number: (507) 533-9600
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Securities Registered pursuant to Section 12(b) of the Act: None
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Securities Registered Pursuant to Section 12(g) of the Act:
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COMMON STOCK WITHOUT PAR VALUE
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Check whether the issuer (1) filed all reports required to be filed by Section
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13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
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period that the Registrant was required to file such reports), and has been
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subject to such filing requirements for the past 90 days. Yes _X_ No ___
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Check if no disclosure of delinquent filers pursuant to Item 405 of Regulation
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S-B is contained in this form, and no disclosure will be contained, to the best
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of registrant's knowledge, in definitive proxy or information statements
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incorporated by reference in Part III of this Form 10-K or any amendment to
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this Form 10-K. ___
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The issuer's revenues for its most recent fiscal year were $7,860,132.
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The aggregate market value of voting stock held by non-affiliates based upon
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the closing Nasdaq sale price on December 1, 2000 was $23,907,725.
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Number of shares outstanding on December 15, 2000 was 5,338,900 Common Shares.
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DOCUMENTS INCORPORATED BY REFERENCE
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Portions of Registrant's Proxy Statement for its February 8, 2001 Annual
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Meeting of Shareholders are incorporated by reference in Part III.
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<PAGE>
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PART I
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ITEM 1. BUSINESS
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OVERVIEW
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Rochester Medical Corporation (the "Company") develops, manufactures and
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markets a broad line of innovative, technologically enhanced latex-free urinary
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continence and urine drainage care products for the home care and
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acute/extended care markets. The Company's home care products include its
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FEMSOFT(R) INSERT, a soft, liquid-filled, conformable urethral insert for
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managing female stress urinary incontinence in adult females, a line of male
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external catheters for managing male urinary incontinence and a line of
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intermittent catheters for managing both male and female urinary retention. The
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Company's acute/extended care products include a line of standard Foley
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catheters and its RELEASE-NF (TM) CATHETER, an antibacterial Foley catheter to
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reduce the incidence of hospital acquired urinary tract infection ("UTI").
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The Company markets its products under its own ROCHESTER MEDICAL(R) brand
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through a direct field sales force in the United States and independent
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distributors in international markets. The Company also supplies its products
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to several large medical product companies for sale under brands owned by these
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companies.
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HOME CARE PRODUCTS
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MALE EXTERNAL CATHETERS. The Company's male external catheters are
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self-care, disposable devices for managing male urinary incontinence. The
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Company manufactures and markets three models of silicone male external
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catheters: the ULTRAFLEX(R), "POP-ON"(R) and WIDE BAND(R) catheters. The
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UltraFlex catheter has adhesive positioned midway down the catheter sheath. The
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"POP-ON" catheter has a sheath that is shorter than that of a standard male
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external catheter and has adhesive applied to the full length of the sheath. It
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is designed to accommodate patients who require shorter-length external
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catheters. The Company's WIDE BAND self-adhering male external catheter has an
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adhesive band which extends over the full length of the sheath, providing
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approximately 70% more adhesive coverage than other male external catheters
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currently marketed. The WIDE BAND catheter is designed to reduce adhesive
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failure and the resulting leakage, which is a common complaint among users of
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male external catheters.
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All models of the Company's male external catheters are produced in five
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sizes for better patient fit. The Company's male external catheters are made
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from silicone, a non-toxic and biocompatible material that eliminates the risks
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of latex-related skin irritation. Silicone catheters are also odor free and
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have greater air permeability than catheters made from other materials,
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including latex. Air permeability reduces skin irritation and damage from
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catheter use and thereby increases patient comfort. The Company's silicone
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catheters are transparent, permitting visual skin inspection without removal of
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the catheters and aiding proper placement of the catheters. The Company's
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catheters also have a kink-proof funnel design to ensure uninterrupted urine
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flow. The self-adhering technology of the Company's catheters simplifies
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application of the catheters and provides a strong bond to the skin for greater
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patient confidence and improved wear.
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The Company also manufactures and sells male external catheters made from
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a proprietary non-latex, non-silicone material to certain private label
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customers. Certain of these catheters use the same self-adhesive technology as
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the Company's silicone male external catheters. Like the silicone male external
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catheters, these non-silicone catheters eliminate the risk of latex reactions
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and latex-related skin irritations. The non-silicone catheters also are odor
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free.
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PERSONAL CATHETER(TM). The Company's PERSONAL CATHETER is a disposable
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intermittent catheter manufactured from two different silicones, with a stiff
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core catheter tube and a softer outer cover. This construction provides
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sufficient stiffness for ease of insertion, while the softer cover is designed
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to reduce tissue irritation during insertion. The Company produces the PERSONAL
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CATHETER in three lengths for male, female and pediatric use and multiple
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diameters.
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In June 2000, the Company received authorization from the FDA to market
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its hydrophilic intermittent catheter. When moistened, the hydrophilic surface
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of the catheter becomes slippery to provide a low friction surface. The Company
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intends to formally introduce the hydrophilic intermittent catheter in January
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2001 under the ROCHESTER MEDICAL brand in the United States.
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FEMSOFT INSERT. The FEMSOFT INSERT is a disposable device for the
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management of stress urinary incontinence in active women. It is a soft,
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conformable urethral insert that assists the female urethra and bladder neck to
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control the involuntary loss of urine. The device can be simply inserted, worn
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and removed for voiding by most women. It requires no inflation, deflation,
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syringes or valving mechanisms.
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The Company believes the FEMSOFT INSERT will provide significant
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advantages in the management of female stress incontinence. The FEMSOFT INSERT
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is a minimally invasive device that provides a patient with effective control
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of her urinary function and eliminates the need for collection bags and pads or
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liners that can cause embarrassment, restrict mobility and compromise
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lifestyle. In addition, the soft, liquid-filled silicone membrane of the
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FEMSOFT INSERT has been designed to conform to the irregular shape of the
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urethra and follow the movements of the urethra during normal activities,
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thereby reducing leakage without chafing or abrasion of the delicate tissues of
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the urethra.
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The FEMSOFT INSERT is a prescription device that requires a woman to visit
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her physician. The physician will fit the patient with the proper size and
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instruct the patient on proper application of the FEMSOFT INSERT.
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ACUTE/EXTENDED CARE PRODUCTS
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RELEASE-NF CATHETER. The Company's RELEASE-NF CATHETER is a silicone Foley
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catheter that has been designed to reduce the incidence of hospital acquired
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UTI. Using patented technology, the RELEASE-NF CATHETER incorporates
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nitrofurazone, an effective broad-spectrum antibacterial agent, into the
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structure of the catheter, permitting sustained release of a controlled dosage
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directly into the urinary tract to prevent the onset of infection.
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FOLEY CATHETERS. The Company offers Foley catheters in a standard two
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lumen version for urinary drainage management and in a three lumen version for
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irrigation of the urinary tract. These Foley catheters are available in all
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standard adult and pediatric sizes. All of the Company's silicone Foley
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catheters eliminate the risk of the allergic reactions and tissue irritation
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and damage associated with latex Foley catheters. The Company's Foley catheters
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are transparent which enables healthcare professionals to observe urine flow.
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Unlike the manufacturing processes used by producers of competing silicone
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Foley catheters, in which the balloon is made separately and attached by hand
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in a separate process involving gluing, the Company's automated manufacturing
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processes allow the Company to integrate the balloon into the structure of the
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Foley catheter, resulting in a smoother, more uniform exterior that may help
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reduce irritation to urinary tissue.
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The Company's standard Foley catheters are packaged sterile in single
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catheter strips and sold under the ROCHESTER MEDICAL brand and under private
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label arrangements. In addition, the Company sells its standard Foley catheters
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in bulk under private label arrangements for packaging in kits with tubing,
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collection bags and other associated materials.
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TECHNOLOGY
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The Company uses proprietary, automated manufacturing technologies and
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processes to manufacture continence care devices cost effectively. The
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production of the Company's products also depends on its materials expertise
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and know-how in the formulation of silicone and advanced polymer products. The
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Company's proprietary liquid encapsulation technology enables it to manufacture
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innovative products, such as its FEMSOFT INSERT, that have soft, conformable,
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liquid-filled reservoirs, which cannot be manufactured using conventional
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technologies. Using this liquid encapsulation technology, the Company can mold
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and form liquid encapsulated devices in a variety of shapes and sizes in an
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automated process. The Company's manufacturing technologies and
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materials know-how also allow the Company to incorporate a sustained release
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antibacterial agent into its products. The Company believes that its
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manufacturing technology is particularly well-suited to high unit volume
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production and that its automated processes enable cost-effective production.
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The Company further believes that its manufacturing and materials expertise,
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particularly its proprietary liquid encapsulation technology, may be applicable
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to a variety of other devices for medical applications. The Company plans to
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consider, commensurate with its financial and personnel resources, future
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research and development activities to investigate opportunities provided by
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the Company's technology and know-how.
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The Company believes that its proprietary manufacturing processes,
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materials expertise, custom designed equipment and technical know-how allow it
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to simplify and further automate traditional catheter manufacturing techniques
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to reduce the Company's manufacturing costs. In order to manufacture high
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quality products at competitive costs, the Company concurrently designs and
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develops new products and the processes and equipment to manufacture them.
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MARKETING AND SALES
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To date, the majority of the Company's revenues have been derived from
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sales of its male external catheters and standard Foley catheters to medical
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products companies for resale under brands owned by such companies. In fiscal
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1999, the Company experienced a significant reduction in sales under these
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arrangements due to one customer that switched to its own production of
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silicone male external catheters and another customer that significantly
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reduced its order volume. Private label arrangements are likely to continue to
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account for a significant portion of the Company's revenues in the foreseeable
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future, particularly in international markets where the Company does not
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maintain a direct sales presence.
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The Company sells its products in the United States under the ROCHESTER
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MEDICAL brand name through a five-person direct sales force. The primary
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markets for the Company's products are individual hospitals and healthcare
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institutions, distributors and extended care facilities.
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In fiscal 2000, the Company began a phased introduction of FEMSOFT INSERT
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in three metropolitan areas, Denver, Detroit and Iowa City, including the
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Quad-Cities of Iowa and Illinois, which were among the primary clinical study
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locations for the insert. The Company also has begun to introduce the FEMSOFT
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INSERT to a select group of clinicians in the United States. The marketing of
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the FEMSOFT INSERT requires significant physician and clinician education
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efforts. The Company's focus is on enrolling clinicians in its FEMSOFT program
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which trains the clinicians in the use of the FEMSOFT INSERT and enters the
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clinicians in the Company's distribution and customer service program for the
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insert. The Company has formed a distribution and customer service program for
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the FEMSOFT INSERT with Healthcare Delivery Systems ("HDS"), a business unit of
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McKesson Corporation. Under this program, HDS will administer a centralized
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resource center for customer service, product information and nationwide
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distribution of the FEMSOFT INSERT. In addition, the Company is testing methods
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of consumer advertising of the FEMSOFT INSERT in its initial markets.
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The Company is actively exploring alternative approaches to the sales and
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marketing of the RELEASE-NF catheter in the United States.
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The Company relies on arrangements with medical product companies and
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independent distributors to sell the Company's products in Europe and other
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international markets. These arrangements are conducted under the ROCHESTER
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MEDICAL brand name and under brands controlled by the medical product
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companies.
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MANUFACTURING
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The Company designs and builds custom equipment to implement its
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manufacturing technologies and processes. The Company's manufacturing
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facilities are located in Stewartville, Minnesota. The Company produces its
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Foley catheters on one production line and its male external catheters on other
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lines. The Company has constructed a separate manufacturing facility to house
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its liquid encapsulation manufacturing operations, and has installed the
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FEMSOFT INSERT manufacturing line in this facility.
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The Company maintains a comprehensive quality assurance and quality
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control program, which includes documentation of all material specifications,
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operating procedures, equipment maintenance and quality control test methods.
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The Company has obtained ISO 9001 certification and CE mark quality system
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certification for its Foley catheter, male external catheter, and FEMSOFT
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INSERT production lines.
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The Company's manufacturing facility has been designed to accommodate the
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specialized requirements for the manufacture of medical devices, including the
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FDA's requirements for Quality System Regulation ("QSR").
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SOURCES OF SUPPLY
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The Company obtains certain raw materials and components for a number of
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its products from a sole supplier or limited number of suppliers. The loss of
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such a supplier or suppliers, or a material interruption of deliveries from
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such a supplier or suppliers, could have a material adverse effect on the
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Company. The Company believes that in most, if not all, cases the Company has
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identified other potential suppliers. In the event that the Company had to
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replace a supplier, however, the Company may be required to repeat
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biocompatibility and other testing of its products using the material from the
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new supplier and may be required to obtain additional regulatory clearances.
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RESEARCH AND DEVELOPMENT
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The Company believes that its ability to add new products to its existing
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continence care product lines is important to the Company's future success.
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Accordingly, the Company is engaged in ongoing research and development to
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develop and introduce new products which provide additional features and
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functionality. In the future, consistent with market opportunities and the
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Company's financial and personnel resources, the Company intends to perform
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clinical studies for other of its products in development.
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Research and development expense for fiscal years 2000, 1999 and 1998, was
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$1,008,000, $1,052,000 and $1,384,000, respectively.
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COMPETITION
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The continence care market is highly competitive. The Company believes
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that the primary competitive factors include price, product quality, technical
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capability, breadth of product line and distribution capabilities. The
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Company's ability to compete is affected by its product development and
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innovation capabilities, its ability to obtain regulatory clearances, its
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ability to protect the proprietary technology of its products and manufacturing
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processes, its marketing capabilities, its ability to attract and retain
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skilled employees, and, for products sold in managed care environments, its
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ability to maintain current distribution relationships, to establish new
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distribution relationships and to secure participation in purchase contracts
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with group purchasing organizations. The Company believes that it will be
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important for the Company to differentiate its products in order to attract
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large customers, such as distributors, dealers, institutions and home care
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organizations.
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The Company's products compete with a number of alternative products and
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treatments for continence care. The Company's ability to compete with these
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alternative methods for urinary continence care depends on the relative market
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acceptance of alternative products and therapies and the technological advances
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in these alternative products and therapies. Any development of a broad-based
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and effective cure for a significant form of incontinence could have a material
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adverse effect on sales of continence care devices such as the Company's
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products.
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The Company competes directly for sales of continence care devices under
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the Company's own brand with larger, multi-product medical device manufacturers
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and distributors such as ConvaTec, C.R. Bard, Inc., Maersk Medical, Kendall
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Healthcare Products Company, Hollister and Mentor. Many of the competitive
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alternative products or therapies to the Company's products are distributed by
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larger competitors including Johnson & Johnson Personal Products Company,
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Kimberly-Clark Corporation and Proctor & Gamble Company (for adult diapers and
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absorbent
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pads), and C.R. Bard, Inc. (for injectable materials). Many of the Company's
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competitors, potential competitors and providers of alternative products or
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therapies have significantly greater financial, manufacturing, marketing,
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distribution and technical resources and experience than the Company. It is
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possible that other large healthcare and consumer products companies may enter
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this market in the future. Furthermore, academic institutions, governmental
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agencies and other public and private research organizations will continue to
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conduct research, seek patent protection and establish arrangements for
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commercializing products in this market. Such products may compete directly
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with products which may be offered by the Company.
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PATENTS AND PROPRIETARY RIGHTS
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The Company's success may depend in part on its ability to obtain patent
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protection for its products and manufacturing processes, to preserve its trade
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secrets and to operate without infringing the proprietary rights of third
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parties. The Company may seek patents on certain features of its products and
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technology based on the Company's analysis of various business considerations,
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such as the cost of obtaining a patent, the likely scope of patent protection
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and the benefits of patent protection relative to relying on trade secret
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protection. The Company also relies upon trade secrets, know-how and continuing
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technological innovations to develop and maintain its competitive position.
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The Company owns 17 United States patents and a number of corresponding
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foreign patents that generally relate to certain of the Company's catheters and
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devices and certain of the Company's production processes. In addition, the
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Company owns a number of pending United States and corresponding foreign patent
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applications. The Company may file additional patent applications for certain
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of the Company's current and proposed products and processes in the future.
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There can be no assurance that the Company's patents will be of sufficient
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scope or strength to provide meaningful protection of the Company's products
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and technologies. The coverage sought in a patent application can be denied or
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significantly reduced before the patent is issued. In addition, there can be no
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assurance that the Company's patents will not be challenged, invalidated or
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circumvented or that the rights granted thereunder will provide proprietary
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protection or commercial advantage to the Company.
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Should attempts be made to challenge, invalidate or circumvent the
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Company's patents in the United States Patent and Trademark Office and/or
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courts of competent jurisdiction, including administrative boards or tribunals,
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the Company may have to participate in legal or quasi-legal proceedings
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therein, to maintain, defend or enforce its rights in these patents. Any legal
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proceedings to maintain, defend or enforce the Company's patent rights can be
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lengthy and costly, with no guarantee of success. There also can be no
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assurance that the Company will file additional patent applications or that
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additional patents will issue from the Company's pending patent applications.
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A claim by third parties that the Company's current products or products
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under development allegedly infringe their patent rights could have a material
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adverse effect on the Company. The Company is aware that others have obtained
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or are pursuing patent protection for various aspects of the design, production
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and manufacturing of continence care products. The medical device industry is
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characterized by frequent and substantial intellectual property litigation,
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particularly with respect to newly developed technology. Intellectual property
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litigation is complex and expensive, and the outcome of such litigation is
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difficult to predict. Any future litigation, regardless of outcome, could
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result in substantial expense to the Company and significant diversion of the
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efforts of the Company's technical and management personnel. An adverse
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determination in any such proceeding could subject the Company to significant
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liabilities to third parties, require disputed rights to be licensed from such
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parties, if licenses to such rights could be obtained, and/or require the
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Company to cease using such technology. There can be no assurance that if such
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licenses were obtainable, they would be obtainable at costs reasonable to the
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Company. If forced to cease using such technology, there can be no assurance
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that the Company would be able to develop or obtain alternate technology.
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Additionally, if third party patents containing
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claims affecting the Company's technology are issued and such claims are
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determined to be valid, there can be no assurance that the Company would be
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able to obtain licenses to such patents at costs reasonable to the Company, if
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at all, or be able to develop or obtain alternate technology. Accordingly, an
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adverse determination in a judicial or administrative proceeding or failure to
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obtain necessary licenses could prevent the Company from manufacturing, using
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or selling certain of its products, which could have a material adverse effect
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on the Company's business, financial condition and results of operations.
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There also can be no assurance that any third party does not currently
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have, has not applied for, or might not in the future apply for, additional
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patents in the United States or abroad which, if ultimately granted, might be
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infringed in such country by any of the Company's products as currently
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configured or any other product of the Company and provide the basis for an
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infringement action in such country against the Company.
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The Company also relies on proprietary manufacturing processes and
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techniques, materials expertise and trade secrets applicable to the manufacture
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of its products. The Company seeks to maintain the confidentiality of this
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proprietary information. There can be no assurance, however, that the measures
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taken by the Company will provide the Company with adequate protection of its
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proprietary information or with adequate remedies in the event of unauthorized
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use or disclosure. In addition, there can be no assurance that the Company's
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competitors will not independently develop or otherwise gain access to
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processes, techniques or trade secrets that are similar or superior to the
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Company's. Finally, as with patent rights, legal action to enforce trade secret
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rights can be lengthy and costly, with no guarantee of success.
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GOVERNMENT REGULATION
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The manufacture and sale of the Company's products are subject to
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regulation by numerous governmental authorities, principally the FDA and
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corresponding foreign agencies. In the United States, the medical devices
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manufactured and sold by the Company are subject to laws and regulations
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administered by the FDA, including regulations concerning the prerequisites to
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commercial marketing, the conduct of clinical investigations, compliance with
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QSR and labeling.
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A manufacturer may seek from the FDA market authorization to distribute a
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new medical device by filing a 510(k) Premarket Notification ("510(k)") to
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establish that the device is "substantially equivalent" to medical devices
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legally marketed in the United States prior to the Medical Device Amendments of
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1976. A manufacturer may also seek market authorization for a new medical
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device through the more rigorous Premarket Approval ("PMA") application
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process, which requires the FDA to determine that the device is safe and
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effective for the purposes intended.
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The Company received FDA marketing authorization for its FEMSOFT INSERT on
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September 30, 1999 pursuant to a PMA. As a condition of FDA approval of the
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Company's PMA filing based on interim clinical study results, the Company will
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be required to complete the current clinical study of the FEMSOFT INSERT and
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submit the additional data to the FDA for its further consideration to
565
determine whether such approval should be continued. There can be no assurance
566
that these additional data will be sufficient in the FDA's opinion to permit
567
continued marketing of the device even though the PMA filing for the FEMSOFT
568
INSERT was initially approved by the FDA. All of the Company's other marketed
569
products have received FDA marketing authorization pursuant to 510(k)
570
notifications.
571
572
The Company is also required to register with the FDA as a medical device
573
manufacturer. As such, the Company's manufacturing facilities are inspected on
574
a routine basis for compliance with QSR. These regulations require that the
575
Company manufacture its products and maintain its documents in a prescribed
576
manner with respect to design, manufacturing, testing and quality control
577
activities. As a medical device manufacturer, the Company is further required
578
to comply with FDA requirements regarding the reporting of adverse events
579
associated with the use of its medical devices, as well as product malfunctions
580
that would likely cause or contribute to death or serious injury if the
581
malfunction were to recur. FDA regulations also govern product labeling and can
582
prohibit a manufacturer from marketing an approved device for unapproved
583
applications. If the FDA believes that a manufacturer is not in compliance with
584
the law, it can institute
585
586
587
7
588
589
590
<PAGE>
591
592
enforcement proceedings to detain or seize products, issue a recall, enjoin
593
future violations and assess civil and criminal penalties against the
594
manufacturer, its officers and employees.
595
596
The Company may become subject to future legislation and regulations
597
concerning the manufacture and marketing of medical devices. Such future
598
legislation and regulations could increase the cost and time necessary to begin
599
marketing new products and could affect the Company in other respects not
600
currently foreseeable. The Company cannot predict the effect of possible future
601
legislation and regulations.
602
603
Sales of medical devices outside the United States are subject to foreign
604
regulatory requirements that vary widely from country to country. These laws
605
and regulations range from simple product registration requirements in some
606
countries to complex clearance and production controls in others. As a result,
607
the processes and time periods required to obtain foreign marketing approval
608
may be longer or shorter than those necessary to obtain FDA approval. These
609
differences may affect the efficiency and timeliness of international market
610
introduction of the Company's products. For countries in the European Union
611
("EU"), medical devices must display a CE mark before they may be imported or
612
sold. In order to obtain and maintain the CE mark, the Company must comply with
613
the Medical Device Directive and pass an initial and annual facilities audit
614
inspections to ISO 9001 by an EU inspection agency. The Company has obtained
615
ISO 9001 quality system certification for the CE mark for its currently
616
marketed standard products and the FEMSOFT INSERT. The Company is pursuing CE
617
mark certification for the RELEASE-NF CATHETER. In order to maintain
618
certification, if granted, the Company will be required to pass annual
619
facilities audit inspections conducted by EU inspectors. There can be no
620
assurance, however, that the Company will be able to obtain or maintain all
621
necessary regulatory approvals or clearances, including CE mark certification,
622
for its products in foreign countries.
623
624
In addition, international sales of medical devices manufactured in the
625
United States that have not been approved by the FDA for marketing in the
626
United States are subject to FDA export requirements. These require that the
627
Company obtain documentation from the medical device regulatory authority of
628
the destination country stating that sale of the medical device is not in
629
violation of that country's medical device laws, and, under some circumstances,
630
may require the Company to apply to the FDA for permission to export a device
631
to that country.
632
633
634
THIRD PARTY REIMBURSEMENT
635
In the United States, healthcare providers that purchase medical devices
636
generally rely on third party payors, such as Medicare, Medicaid, private
637
health insurance plans and managed care organizations, to reimburse all or a
638
portion of the cost of the devices. The Medicare program is funded and
639
administered by the federal government, while the Medicaid program is jointly
640
funded by the federal government and the states, which administer the program
641
under general federal oversight. The Company believes its currently marketed
642
products, including the RELEASE-NF CATHETER, are generally eligible for
643
coverage under these third party reimbursement programs. The Company is
644
currently seeking to establish the eligibility of the FEMSOFT INSERT for
645
reimbursement. Several private health insurance plans have begun to offer this
646
reimbursement. The competitive position of certain of the Company's products
647
may be partially dependent upon the extent of reimbursement for its products.
648
649
The federal government and certain state governments are currently
650
considering a number of proposals to reform the Medicare and Medicaid health
651
care reimbursement system. The Company is unable to evaluate what legislation
652
may be drafted and whether or when any such legislation will be enacted and
653
implemented. Certain of the proposals, if adopted, could have an adverse effect
654
on the Company's business, financial condition and results of operations.
655
656
In foreign countries, the policies and procedures for obtaining third
657
party payment of reimbursement for medical devices vary widely. Compliance with
658
such procedures may delay or prevent the eligibility of the Company's branded
659
and/or private label products for reimbursement, and have an adverse effect on
660
the Company's ability to sell its branded or private label products in a
661
particular foreign country.
662
663
664
8
665
666
667
<PAGE>
668
669
PRIVATE LABEL DISTRIBUTION AGREEMENTS
670
671
CONVATEC. In April 1998, the Company and ConvaTec entered into a Revised
672
and Restated Distribution Agreement (the "Revised ConvaTec Agreement"), which
673
grants ConvaTec certain rights to market the Company's Foley catheters and male
674
external catheters under the ConvaTec brand. The Revised ConvaTec Agreement
675
provides, subject to certain existing obligations and limitations, that the
676
Company will not appoint any other private label distributor for silicone male
677
external catheters in Central America, South America, Australia, Japan, New
678
Zealand, South Africa, Israel, Iran, Iraq, Lebanon, Oman, Saudi Arabia, Syria,
679
United Arab Emirates and Yemen. ConvaTec has non-exclusive rights to distribute
680
the Company's products in other markets.
681
682
The Revised ConvaTec Agreement does not include any minimum purchase
683
requirements or require that ConvaTec market any or all of the Company's
684
products. The ConvaTec Agreement also provides in the event that the Company is
685
unable to supply ConvaTec's requirements for products under certain
686
circumstances, ConvaTec will have a license to the Company's technologies for
687
purposes of manufacturing such products for ConvaTec.
688
689
The Revised ConvaTec Agreement has an initial term expiring April 30,
690
2006, and may be renewed for successive annual extensions thereafter. Either
691
party may terminate the Revised ConvaTec Agreement upon the other party's
692
material breach of the Revised ConvaTec Agreement, bankruptcy or insolvency, or
693
inability to perform under the Revised ConvaTec Agreement for a period of more
694
than six months.
695
696
Sales of products to ConvaTec represented 16% of the Company's revenues in
697
fiscal 2000 and 16% of revenues in fiscal 1999. ConvaTec has consulted with us
698
regarding its intention going forward in the continence care market and these
699
consultations may result in modifications to the Company's agreement with
700
ConvaTec.
701
702
The Company supplies a number of medical product companies with products
703
on a private label basis.
704
705
706
EMPLOYEES
707
As of September 30, 2000, the Company employed 118 full-time employees, of
708
whom 80 were in manufacturing, and the remainder in marketing and sales,
709
research and development and administration. The labor market for medical
710
device manufacturing personnel has tightened in Minnesota, and particularly in
711
the Rochester area where the Company's manufacturing facilities are located.
712
This has resulted in upward pressure on wages for production workers but has
713
not, to date, adversely affected the Company's ability to hire and retain
714
capable manufacturing personnel. The Company is not a party to any collective
715
bargaining agreement and believes its employee relations are good.
716
717
718
EXECUTIVE OFFICERS OF THE REGISTRANT
719
The executive officers of the Company as of December 19, 2000 are as
720
follows:
721
722
723
NAME AGE POSITION
724
- ------------------- ----- -------------------------------------------------
725
Anthony J. Conway 56 Chairman of the Board, Chief Executive Officer,
726
President and Secretary
727
David A. Jonas 36 Controller, Treasurer and Director of Operations
728
Philip J. Conway 44 Vice President, Production Technologies
729
Richard D. Fryar 53 Vice President, Research and Development
730
Dara Lynn Horner 42 Vice President, FEMSOFT Marketing
731
Martyn R. Sholtis 41 Vice President, Marketing and Sales
732
733
ANTHONY J. CONWAY, a founder of the Company, has served as Chairman of the
734
Board, Chief Executive Officer, President and Secretary of the Company since
735
May 1988. In addition to his duties as Chief Executive Officer, Mr. Anthony
736
Conway actively contributes to the Company's research and development and
737
design activities. From 1979 to March 1988, he was President,
738
739
740
9
741
742
743
<PAGE>
744
745
Secretary and Treasurer of Arcon Corporation ("Arcon"), a company that he
746
co-founded in 1979 to develop, manufacture and sell latex-based male external
747
catheters and related medical devices. Prior to founding Arcon, Mr. Anthony
748
Conway worked for twelve years for International Business Machines Corporation
749
("IBM") in various research and development capacities. Mr. Anthony Conway is
750
one of the named inventors on numerous patent applications that have been
751
assigned to the Company, of which to date 17 have resulted in issued United
752
States patents.
753
754
DAVID A. JONAS has served as the Company's Controller since June 1998, as
755
its Director of Operations since August 1999, and as its Treasurer since
756
November 2000. Mr. Jonas has had principal responsibility for the Company's
757
operational activities since August 1999, and since November 2000 has also had
758
principal responsibility for the Company's financial activities. Prior to
759
joining the Company, Mr. Jonas was employed in various financial, financial
760
management and operational management positions with Polaris Industries, Inc.
761
from January 1989 to June 1998. Mr. Jonas holds a BS degree in Accounting from
762
the University of Minnesota and is a certified public accountant.
763
764
PHILIP J. CONWAY, a founder of the Company, has served as Vice President
765
of Production Technologies of the Company since August 1999 and as a Director
766
of the Company since May 1988. From 1988 to July 1999, Mr. Philip Conway served
767
as Vice President of Operations of the Company. Mr. Philip Conway is
768
responsible for plant design as well as new product and production processes,
769
research, design and development activities. From 1979 to March 1988, Mr.
770
Philip Conway served as Plant and Production Manager of Arcon, a company that
771
he co-founded. Prior to joining Arcon, Mr. Philip Conway was employed in a
772
production supervisory capacity by AFC Corp., a manufacturer and fabricator of
773
fiberglass, plastics and other composite materials. He is one of the named
774
inventors on numerous patent applications that have been assigned to the
775
Company, of which to date 17 have resulted in issued United States patents.
776
777
RICHARD D. FRYAR, a founder of the Company, has served as Vice President,
778
Research and Development and as a director of the Company since May 1988. Mr.
779
Fryar is responsible for overseeing the Company's research and development and
780
regulatory affairs activities. From 1984 to March 1988, Mr. Fryar was employed
781
by Arcon, a company that he co-founded, in research and development capacities.
782
From 1969 to 1984, he was employed by IBM in various research and development
783
capacities. He is one of the named inventors on numerous patent applications
784
that have been assigned to the Company, of which to date 17 have resulted in
785
issued United States patents.
786
787
DARA LYNN HORNER has served as Marketing Director for the Company's
788
FEMSOFT INSERT product line since November 1998. Ms. Horner has principal
789
responsibility for management of the Company's FEMSOFT marketing activities.
790
From 1990 until joining the Company in 1998, Ms. Horner was employed by Lake
791
Region Manufacturing, Inc., a medical device manufacturer, most recently as
792
Marketing Director. From 1980 to 1998, she was employed in various marketing
793
and sales capacities with, respectively, Medtronic, Inc., West Central Tribune,
794
and Blue Cross-Blue Shield of Minnesota.
795
796
MARTYN R. SHOLTIS joined the Company in April 1992 and serves as Vice
797
President of Marketing & Sales. Mr. Sholtis' responsibilities include
798
implementation of the Company's marketing & sales strategy as well as the
799
development of the Company's relationships with the Company's private label and
800
international customers. From 1985 to 1992 Mr. Sholtis was employed by Sherwood
801
Medical, a company that manufactured and sold a variety of disposable medical
802
products including urological catheters, most recently as Regional Sales
803
Manager for the Nursing Care Division.
804
805
Messrs. Anthony J. Conway, Philip J. Conway and Peter R. Conway, a
806
director of the Company, are brothers.
807
808
809
10
810
811
812
<PAGE>
813
814
ITEM 2. PROPERTIES
815
The Company's administrative offices and liquid encapsulation
816
manufacturing facilities occupy a 52,000 square foot manufacturing and office
817
facility on a 28 acre site owned by the Company and located in an industrial
818
park in Stewartville, Minnesota. The Company's male external and Foley catheter
819
manufacturing facilities consists of a 34,000 square foot manufacturing and
820
office building located on a nearby 3.5 acre site owned by the Company in the
821
same industrial park.
822
823
824
ITEM 3. LEGAL PROCEEDINGS
825
The Company is not involved in any material legal proceedings.
826
827
828
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
829
No matters were submitted to a vote of security holders during the fourth
830
quarter ended September 30, 2000.
831
832
833
834
PART II
835
836
837
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
838
The Common Stock is quoted on the Nasdaq National Market under the symbol
839
ROCM. The following table sets forth, for the periods indicated, the range of
840
high and low last sale prices for the Common Stock as reported by the Nasdaq
841
National Market.
842
843
844
HIGH LOW
845
------------ -----------
846
FISCAL 1999
847
First Quarter .......... $ 15.250 $ 9.625
848
Second Quarter ......... 15.500 9.250
849
Third Quarter .......... 12.250 9.500
850
Fourth Quarter ......... 12.313 8.375
851
852
FISCAL 2000
853
First Quarter .......... $ 10.156 $ 6.25
854
Second Quarter ......... 12.375 7.00
855
Third Quarter .......... 12.25 7.625
856
Fourth Quarter ......... 9.375 5.875
857
858
HOLDERS
859
As of December 15, 2000, the Company had 132 shareholders of record. Such
860
number of record holders does not reflect shareholders who beneficially own
861
Common Stock in nominee or street name.
862
863
The Company has paid no cash dividends on its Common Stock, and it does
864
not intend to pay cash dividends on its Common Stock in the future.
865
866
867
11
868
869
870
<PAGE>
871
872
ITEM 6. SELECTED FINANCIAL DATA
873
The following selected financial data of the Company as of September 30,
874
2000 and 1999 and for the three fiscal years ended September 30, 2000, 1999 and
875
1998 are derived from, and should be read together with, the financial
876
statements of the Company audited by Ernst & Young LLP, independent auditors,
877
included elsewhere in this Form 10-K. The following selected financial data as
878
of September 30, 1998, 1997 and 1996 and for the fiscal years ended September
879
30, 1997 and 1996 are derived from audited financial statements not included
880
herein. The information set forth below should be read in conjunction with
881
"Management's Discussion and Analysis of Financial Condition and Results of
882
Operations," the Financial Statements and Notes thereto and other financial
883
information included elsewhere in this Form 10-K.
884
885
886
<TABLE>
887
<CAPTION>
888
FISCAL YEARS ENDED SEPTEMBER 30,
889
---------------------------------------------------------------------------
890
2000 1999 1998 1997 1996
891
----------- ------------- ------------- ------------- -------------
892
<S> <C> <C> <C> <C> <C>
893
Statements of Operations Data:
894
Net sales .......................... $ 7,860 $ 7,341 $ 9,518 $ 7,615 $ 5,540
895
Cost of sales ...................... 6,151 5,602 6,604 4,869 3,788
896
-------- --------- --------- --------- ---------
897
Gross profit ...................... 1,709 1,739 2,914 2,746 1,752
898
Operating expenses:
899
Marketing and selling .............. 4,589 3,944 3,191 2,210 1,351
900
Research and development ........... 1,008 1,052 1,384 1,451 1,182
901
General and administrative ......... 2,238 1,863 1,445 1,499 1,112
902
-------- --------- --------- --------- ---------
903
Total operating expenses .......... 7,835 6,859 6,020 5,160 3,645
904
-------- --------- --------- --------- ---------
905
Loss from operations ................ (6,126) (5,120) (3,106) (2,414) (1,893)
906
Interest income ..................... 595 719 848 657 818
907
Interest expense .................... -- -- -- (342) (285)
908
-------- --------- --------- --------- ---------
909
Net loss ............................ $ (5,531) $ (4,401) $ (2,258) $ (2,099) $ (1,360)
910
======== ========= ========= ========= =========
911
Net loss per common share --
912
basic and diluted .................. $ (1.04) $ (.83) $ (.44) $ (.51) $ (.35)
913
Weighted average number of
914
common shares outstanding .......... 5,341 5,333 5,141 4,132 3,867
915
916
</TABLE>
917
918
919
<TABLE>
920
<CAPTION>
921
AS OF SEPTEMBER 30,
922
----------------------------------------------------------------------
923
2000 1999 1998 1997 1996
924
------------ ------------ ----------- ------------ -----------
925
<S> <C> <C> <C> <C> <C>
926
Balance Sheet Data:
927
Cash, cash equivalents and
928
Marketable securities ............. $ 8,859 $ 13,246 $ 16,410 $ 4,639 $ 17,408
929
Working capital .................... 10,329 15,486 19,245 7,081 18,861
930
Total assets ....................... 23,254 28,702 32,736 18,613 23,888
931
Long-term debt ..................... -- -- -- -- 3,321
932
Accumulated deficit ................ (19,706) (14,175) (9,774) (7,516) (5,418)
933
Total shareholders' equity ......... $ 21,573 $ 27,177 $ 30,918 $ 17,181 $ 19,231
934
</TABLE>
935
936
937
938
12
939
940
941
<PAGE>
942
943
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
944
OF OPERATIONS
945
Statements other than historical information contained herein constitute
946
"forward-looking statements" within the meaning of the Private Securities
947
Litigation Reform Act of 1995. Such forward-looking statements may be
948
identified by the use of terminology such as "may," "will," "expect,"
949
"anticipate," "predict," "intend," "designed," "estimate," "should" or
950
"continue" or the negatives thereof or other variations thereon or comparable
951
terminology. The forward-looking statements involve known or unknown risks,
952
uncertainties and other factors which may cause the actual results, performance
953
or achievements of the Company, or industry results, to be materially different
954
from any future results, performance or achievements expressed or implied by
955
such forward-looking statements. Factors that might cause such differences
956
include, but are not limited to, those discussed in the section entitled "Risk
957
Factors" below.
958
959
RESULTS OF OPERATIONS
960
The following table sets forth, for the periods indicated, certain items
961
from the statements of operations of the Company expressed as a percentage of
962
net sales:
963
964
965
<TABLE>
966
<CAPTION>
967
FISCAL YEARS ENDED
968
SEPTEMBER 30,
969
------------------------------------
970
2000 1999 1998
971
---------- ---------- ----------
972
<S> <C> <C> <C>
973
Total net sales ..................... 100% 100% 100%
974
Cost of sales ....................... 78 76 69
975
--- --- ---
976
Gross margin ........................ 22 24 31
977
Operating expenses:
978
Marketing and selling .............. 58 54 34
979
Research and development ........... 13 14 15
980
General and administrative ......... 29 26 15
981
--- --- ---
982
Total operating expenses ............ 100 94 64
983
Loss from operations ................ (78) (70) (33)
984
Interest income, net ................ 8 10 9
985
--- --- ---
986
Net loss ............................ (70)% (60)% (24)%
987
=== === ===
988
</TABLE>
989
990
FISCAL YEAR ENDED SEPTEMBER 30, 2000 COMPARED TO FISCAL YEAR ENDED
991
SEPTEMBER 30, 1999
992
993
NET SALES. Net sales increased 7% to $7.9 million in fiscal 2000 from $7.3
994
million in the prior fiscal year. Domestic sales were flat compared to the
995
prior fiscal year, with growth of 17% in ROCHESTER MEDICAL brand product sales
996
offset by a 13% decline in sales to domestic private label customers, primarily
997
Mentor and ConvaTec. International sales increased 18% in fiscal 2000 compared
998
to the prior fiscal year, primarily due to growth in European markets.
999
1000
GROSS MARGIN. The Company's gross margin was 22% in fiscal 2000 compared
1001
to 24% in fiscal 1999. The fiscal 2000 margin primarily reflects costs
1002
associated with continuing underutilized production capacity. Costs associated
1003
with increased capacity are anticipated to continue until such time as, if
1004
ever, the Company achieves sufficient sales to absorb the additional capacity.
1005
1006
MARKETING AND SELLING. Marketing and selling expense increased 16% to $4.6
1007
million in fiscal 2000 from $3.9 million in fiscal 1999. The increase in
1008
expense is due to promotional activities for the FEMSOFT INSERT. The Company
1009
anticipates that marketing and selling expenses will decrease in fiscal 2001
1010
because fiscal 2000 included nonrecurring expenses for the development of
1011
marketing materials related to the FEMSOFT INSERT and due to a reduction in the
1012
size of the Company's sales force.
1013
1014
RESEARCH AND DEVELOPMENT. Research and development expense decreased 4% to
1015
$1.0 million in fiscal 2000 from $1.1 million in fiscal 1999. The decrease in
1016
research and development expense primarily reflects a reduction in accruals for
1017
costs of the FEMSOFT INSERT clinical trials related to stage of completion.
1018
1019
1020
13
1021
1022
1023
<PAGE>
1024
1025
GENERAL AND ADMINISTRATIVE. General and administrative expense increased
1026
20% to $2.2 million in fiscal 2000 from $1.9 million in fiscal 1999. The
1027
increase in general and administrative expense is related to one-time costs
1028
associated with the terminated transaction with Maersk Medical, as well as
1029
one-time costs related to severance expenses associated with a reduction in
1030
personnel.
1031
1032
INTEREST INCOME. Interest income decreased 17% to $595,000 in fiscal 2000
1033
from $719,000 in fiscal 1999. The decrease in interest income reflects the
1034
comparatively lower average level of invested cash balances in the current
1035
quarter due to the utilization of cash for operations and capital expenditures.
1036
1037
1038
1039
FISCAL YEAR ENDED SEPTEMBER 30, 1999 COMPARED TO FISCAL YEAR ENDED
1040
SEPTEMBER 30, 1998
1041
1042
NET SALES. Net sales decreased 23% to $7.3 million in fiscal 1999 from
1043
$9.5 million in the prior fiscal year. Domestic sales decreased 31% in fiscal
1044
1999 from the prior fiscal year, with growth of 41% in ROCHESTER MEDICAL brand
1045
product sales offset by a 50% decline in sales to domestic private label
1046
customers, primarily Mentor and ConvaTec. International sales decreased 6% in
1047
fiscal 1999 from the prior fiscal year compared with the prior year, with 45%
1048
growth in European markets offset by a 25% decline in all other international
1049
markets.
1050
1051
GROSS MARGIN. The Company's gross margin was 24% in fiscal 1999 compared
1052
to 31% in fiscal 1998. The fiscal 1999 margin primarily reflects costs
1053
associated with continuing underutilized production capacity due to lower
1054
sales. Costs associated with increased capacity are anticipated to continue
1055
until such time as, if ever, the Company achieves sufficient sales to absorb
1056
the additional capacity.
1057
1058
MARKETING AND SELLING. Marketing and selling expense increased 24% to $3.9
1059
million in fiscal 1999 from $3.2 million in fiscal 1998. The increase in
1060
expense is due to promotional activities for the RELEASE-NF CATHETER and market
1061
introduction preparation for the FEMSOFT INSERT. The Company anticipates that
1062
marketing and selling expenses will increase in future periods as the Company
1063
expands its promotional and market development activities related to Rochester
1064
Medical brand products, particularly the Company's FEMSOFT INSERT.
1065
1066
RESEARCH AND DEVELOPMENT. Research and development expense decreased 24%
1067
to $1.1 million in fiscal 1999 from $1.4 million in fiscal 1998. The decrease
1068
in research and development expense primarily reflects a reduction in accruals
1069
for costs of the FEMSOFT INSERT clinical trials related to stage of completion.
1070
1071
1072
GENERAL AND ADMINISTRATIVE. General and administrative expense increased
1073
29% to $1.9 million in fiscal 1999 from $1.4 million in fiscal 1998. The
1074
increase in general and administrative expense is related to upgrading of
1075
business systems, including the Year 2000 compliance program, and general
1076
increases in administrative support costs.
1077
1078
INTEREST INCOME. Interest income decreased 15% to $719,000 in fiscal 1999
1079
from $848,000 in fiscal 1998. The decrease in interest income reflects the
1080
comparatively lower average level of invested cash balances in the current
1081
quarter due to the utilization of cash for operations and capital expenditures.
1082
1083
1084
1085
LIQUIDITY AND CAPITAL RESOURCES
1086
The Company has financed its operations primarily through public offerings
1087
and private placements of its equity securities, and has raised approximately
1088
$40.7 million in net proceeds since its inception. In August 1995, the Company
1089
received proceeds of $3.0 million from issuance of a convertible note to
1090
ConvaTec. The Company repaid the ConvaTec note on September 30, 1997, with
1091
accrued interest, for a total amount of $3.7 million.
1092
1093
The Company's cash, cash equivalents and marketable securities were $8.9
1094
million at September 30, 2000 compared with $13.2 million at September 30,
1095
1999. The Company used a net $3.6 million of cash in operating activities
1096
during the year. Investing activities, primarily sales of
1097
1098
1099
14
1100
1101
1102
<PAGE>
1103
1104
marketable securities, provided net cash of $2,658,000 in fiscal 2000, offset
1105
in part by capital expenditures of $676,000. The Company anticipates lower
1106
capital expenditures in fiscal 2001.
1107
1108
During fiscal 2000, the Company's working capital position, excluding cash
1109
and marketable securities, decreased by a net $770,000. Accounts receivable
1110
balances decreased 26% or $362,000 during the fiscal year as a result of
1111
receivable collections. Inventories decreased by 8% or $155,000 during the
1112
year. Other current assets decreased 28% or $97,000 as a result of the
1113
collection of miscellaneous receivables. Current liabilities increased 10% or
1114
$156,000 during the year. Changes in other asset and liability balances related
1115
to timing of expense recognition.
1116
1117
In December 1999, the Board of Directors authorized a stock repurchase
1118
program. Up to one million shares of the Company's outstanding common stock may
1119
be repurchased under the program. Purchases may be made from time to time at
1120
prevailing prices in the open market and through other customary means. No time
1121
limit has been placed on the duration of the stock repurchase program and it
1122
may be conducted over an extended period of time as business and market
1123
conditions warrant. The Company also may discontinue the stock repurchase
1124
program at any time. The repurchased shares will be available for reissuance
1125
pursuant to employee stock option plans and for other corporate purposes. The
1126
Company intends to fund such repurchases with currently available funds. During
1127
the first quarter of fiscal 2000, the Company repurchased 10,600 shares of
1128
common stock for $73,000.
1129
1130
Although the Company believes that its existing resources and anticipated
1131
cash flows from operations will be sufficient to satisfy its capital needs for
1132
approximately the next two years, there can be no assurance that the Company
1133
will not require additional financing before that time. The Company's actual
1134
liquidity and capital requirements will depend upon numerous factors, including
1135
the costs and timing of expansion of sales and marketing activities; the amount
1136
of revenues from sales of the Company's existing and new products; changes in,
1137
termination of, and the success of, existing and new distribution arrangements;
1138
the cost of maintaining, enforcing and defending patents and other intellectual
1139
property rights; competing technological and market developments; developments
1140
related to regulatory and third party reimbursement matters; the cost and
1141
progress of the Company's research and development efforts; and other factors.
1142
In the event that additional financing is needed, the Company may seek to raise
1143
additional funds through public or private financing, collaborative
1144
relationships or other arrangements. Any additional equity financing may be
1145
dilutive to shareholders, and debt financing, if available, may involve
1146
significant restrictive covenants. Collaborative arrangements, if necessary to
1147
raise additional funds, may require the Company to relinquish its rights to
1148
certain of its technologies, products or marketing territories. Failure to
1149
raise capital when needed could have a material adverse effect on the Company's
1150
business, financial condition and results of operations. There can be no
1151
assurance that such financing, if required, will be available on terms
1152
satisfactory to the Company, if at all.
1153
1154
1155
15
1156
1157
1158
<PAGE>
1159
1160
RISK FACTORS
1161
1162
1163
UNCERTAINTY OF MARKET ACCEPTANCE OF NEW PRODUCTS
1164
Much of the Company's ability to increase revenues and to achieve
1165
profitability and positive cash flow will depend on the successful introduction
1166
of new products, primarily the RELEASE-NF CATHETER, the FEMSOFT INSERT and the
1167
new hydrophilic personal catheter. These products represent new methods and
1168
improvements for urinary continence care. There can be no assurance that these
1169
products will gain any significant degree of market acceptance among
1170
physicians, healthcare payors and patients. Market acceptance of these
1171
products, if it occurs, may require lengthy hospital evaluations and/or the
1172
training of numerous physicians and clinicians, which could delay or dampen any
1173
such market acceptance. Moreover, approval of reimbursement for the Company's
1174
products, competing products or alternative medical treatments, and the
1175
Company's pricing policies will be important factors in determining market
1176
acceptance of these products. Any of the foregoing factors, or other factors,
1177
could limit or detract from market acceptance of these products. Insufficient
1178
market acceptance of these products could have a material adverse effect on the
1179
Company's business, financial condition and results of operations.
1180
1181
1182
RISKS ASSOCIATED WITH MARKETING AND SALES OF ROCHESTER MEDICAL BRAND PRODUCTS
1183
The Company's success will depend on its ability to overcome established
1184
market positions of competitors and to establish its own market presence under
1185
the ROCHESTER MEDICAL brand name. One of the challenges facing the Company in
1186
this respect is the Company's ability to compete with companies that offer a
1187
wider array of products to hospitals and medical care institutions,
1188
distributors and end users. The Company may also find it difficult to sell its
1189
products due to the limited recognition of its brand name.
1190
1191
1192
LIMITED REVENUES; HISTORY OF LOSSES AND ANTICIPATED FUTURE LOSSES
1193
The Company has generated only limited revenues to date and has
1194
experienced net losses since its inception. Net losses for the fiscal years
1195
ended September 30, 2000, 1999 and 1998 were $5.5 million, $4.4 million and
1196
$2.3 million, respectively. The Company had an accumulated deficit of
1197
approximately $19.7 million at September 30, 2000. The Company's ability to
1198
increase revenues and achieve profitability and positive cash flow will depend
1199
primarily upon market acceptance of, and achievement of material sales from,
1200
the Company's new products, particularly the RELEASE-NF CATHETER, FEMSOFT
1201
INSERT and hydrophilic personal catheter, of which there can be no assurance. A
1202
substantial portion of the expenses associated with the Company's manufacturing
1203
facilities are fixed in nature (i.e. depreciation) and will reduce the
1204
Company's operating margin until such time, if ever, as the Company is able to
1205
increase utilization of its capacity through increased sales of its new
1206
products. As a result, the Company expects to incur substantial operating
1207
losses for the foreseeable future and there can be no assurance that the
1208
Company will ever generate substantial revenues or achieve or sustain
1209
profitability.
1210
1211
1212
HIGHLY COMPETITIVE MARKETS; ALTERNATIVE TREATMENTS; TECHNOLOGICAL ADVANCEMENTS
1213
The medical products market in general is, and the markets for urinary
1214
continence care products in particular are, highly competitive. Many of the
1215
Company's competitors have greater name recognition than the Company and offer
1216
well known and established products, some of which are less expensive than the
1217
Company's products. As a result, even if the Company can demonstrate that its
1218
products provide greater ease of use, lifestyle improvement or beneficial
1219
effects on medical outcomes over the course of treatment, the Company may not
1220
be successful in capturing a significant share of the market. In addition, many
1221
of the Company's competitors offer broader product lines than the Company,
1222
which may be a competitive advantage in obtaining contracts with healthcare
1223
purchasing groups, and may adversely affect the Company's ability to obtain
1224
contracts with such purchasing groups. Additionally, many of the Company's
1225
competitors have substantially more marketing and sales experience than the
1226
Company and substantially greater resources to devote to such efforts. There
1227
can be no assurance that the Company will be able to compete successfully
1228
against such competitors.
1229
1230
1231
16
1232
1233
1234
<PAGE>
1235
1236
Urinary continence care can be managed with a variety of alternative
1237
medical treatments and management products or techniques, including adult
1238
diapers and absorbent pads, surgery, behavior therapy, pelvic muscle exercise,
1239
implantable devices, injectable materials and other medical devices.
1240
Manufacturers of these products or techniques are engaged in research to
1241
develop more advanced versions of current products and techniques. Many of the
1242
companies that are engaged in such development work have substantially greater
1243
capital resources than the Company and greater expertise than the Company in
1244
research, development and regulatory matters. There can be no assurance that
1245
the Company's products will be able to compete with existing or future
1246
alternative products, techniques or therapies, or that advancements in existing
1247
products, techniques or therapies will not render the Company's products
1248
obsolete.
1249
1250
1251
DEPENDENCE ON DISTRIBUTION ARRANGEMENTS
1252
A significant portion of the Company's net sales to date have depended on
1253
the Company's ability to provide products that meet the requirements of medical
1254
product companies that resell or distribute the Company's products, and on the
1255
sales and marketing efforts of such entities. Arrangements with these entities
1256
are likely to continue to be a significant portion of the Company's revenues in
1257
the future. There can be no assurance that the Company's purchasers and
1258
distributors will be able to successfully market and sell the Company's
1259
products, that they will devote sufficient resources to support the marketing
1260
of any of the Company's products, that they will market any of the Company's
1261
products at prices which will permit such products to develop, achieve, or
1262
sustain market acceptance, or that they will not develop alternative sources of
1263
supply. The failure of the Company's purchasers and distributors to continue to
1264
purchase products from the Company at levels reasonably consistent with their
1265
prior purchases or to effectively market the Company's products could have a
1266
material adverse effect on the Company's business, financial condition and
1267
results of operations.
1268
1269
1270
POSSIBLE NEED FOR ADDITIONAL CAPITAL
1271
The Company intends to expend substantial funds for expansion of sales and
1272
marketing activities, product education efforts, advertising and other working
1273
capital and general corporate purposes. Although the Company believes its
1274
existing resources and anticipated cash flows from operations will be
1275
sufficient to satisfy its capital needs for approximately the next two years,
1276
there can be no assurance that the Company will not require additional
1277
financing before that time. The Company's actual liquidity and capital
1278
requirements will depend on numerous factors, including the costs and timing of
1279
expansion of sales and marketing activities; the amount of revenues from sales
1280
of the Company's existing and new products, including the RELEASE-NF CATHETER
1281
and FEMSOFT INSERT; changes in, termination of, and the success of, existing
1282
and new distribution arrangements; the cost of maintaining, enforcing and
1283
defending patents and other intellectual property rights; competing
1284
technological and market developments; developments relating to regulatory and
1285
third party reimbursement matters; the cost and progress of the Company's
1286
research and development efforts; and other factors. In the event that
1287
additional financing is needed, the Company may seek to raise additional funds
1288
through public or private financing, collaborate relationships or other
1289
arrangements. Any additional equity financing may be dilutive to shareholders,
1290
and debt financing, if available, may involve significant restrictive
1291
covenants. Failure to raise capital when needed could have a material adverse
1292
effect on the Company's business, financial condition and results of
1293
operations. There can be no assurance that such financing, if required, will be
1294
available on terms satisfactory to the Company, if at all.
1295
1296
1297
EFFECTS OF GOVERNMENT REGULATION
1298
The Company's products, product development activities and manufacturing
1299
processes are subject to extensive regulation by the FDA and by comparable
1300
agencies in foreign countries. In the United States, the FDA regulates the
1301
introduction of medical devices as well as manufacturing, labeling and record
1302
keeping procedures for such products. The process of obtaining marketing
1303
clearance for new medical products from the FDA can be costly and time
1304
consuming, and there can be no assurance that such clearance will be granted
1305
timely, if at all, for the Company's products in
1306
1307
1308
17
1309
1310
1311
<PAGE>
1312
1313
development, or that FDA review will not involve delays that would adversely
1314
affect the Company's ability to commercialize additional products or to expand
1315
permitted uses of existing products. Even if regulatory clearance to market a
1316
product is obtained from the FDA, this clearance may entail limitations on the
1317
indicated uses of the product. Marketing clearance can also be withdrawn by the
1318
FDA due to failure to comply with regulatory standards or the occurrence of
1319
unforeseen problems following initial clearance. The Company may be required to
1320
make further filings with the FDA under certain circumstances, such as the
1321
addition of product claims or product reformulation. The FDA could also limit
1322
or prevent the manufacture or distribution of the Company's products and has
1323
the power to require the recall of such products. FDA regulations depend
1324
heavily on administrative interpretation, and there can be no assurance that
1325
future interpretation made by the FDA or other regulatory bodies, which may
1326
have retroactive effect, will not adversely affect the Company. The FDA and
1327
various state agencies inspect the Company and its facilities from time to time
1328
to determine whether the Company is in compliance with regulations relating to
1329
medical device manufacturing companies, including regulations concerning
1330
design, manufacturing, testing, quality control and product labeling practices.
1331
A determination that the Company is in material violation of such regulations
1332
could lead to the imposition of civil penalties, including fines, product
1333
recalls, product seizures, or, in extreme cases, criminal sanctions.
1334
1335
A portion of the Company's revenues are dependent upon sales of its
1336
products outside the United States. Foreign regulatory bodies have established
1337
varying regulations governing product standards, packaging requirements,
1338
labeling requirements, import restrictions, tariff regulations, duties and tax
1339
requirements. The Company relies on its third-party foreign distributors to
1340
comply with certain foreign regulatory requirements. The inability or failure
1341
of the Company or such foreign distributors to comply with varying foreign
1342
regulations or the imposition of new regulations could restrict the sale of the
1343
Company's products internationally and thereby adversely affect the Company's
1344
business, financial condition and results of operations.
1345
1346
1347
DEPENDENCE ON THIRD PARTY REIMBURSEMENT
1348
The Company's products are purchased by medical care institutions and
1349
other users, which bill various third party payors, such as government health
1350
programs, private health insurance plans, managed care organizations and other
1351
similar programs, for the health care products and services provided to their
1352
patients. Payors may deny reimbursement if they determine that a product used
1353
in a procedure was not used in accordance with established payor protocols
1354
regarding cost-efficient treatment methods, was used for an unapproved
1355
indication or was not otherwise covered. Third party payors are increasingly
1356
challenging the prices charged for medical products and services and, in some
1357
instances, have pressured medical suppliers to lower their prices. The Company
1358
is unable to predict what changes will be made in the reimbursement methods
1359
used by third party health care payors. There can be no assurance that
1360
treatments utilizing the Company's products will be considered cost effective
1361
by third party payors, that reimbursement for such treatments will be available
1362
or, if available, that payor reimbursement levels will not adversely affect the
1363
Company's ability to sell its products on a profitable basis. Moreover,
1364
Medicare, Medicaid and private third party payors may limit reimbursement for
1365
disposable devices such as those manufactured by the Company by implementing
1366
fee schedules or by allowing reimbursement for only a fixed number of devices
1367
per month. In addition, healthcare costs have risen significantly over the past
1368
decade, and there have been and may continue to be proposals by legislators,
1369
regulators and third party payors to curb these costs. The Company is currently
1370
in the process of assessing the eligibility of the FEMSOFT INSERT for
1371
reimbursement. Failure by users of the Company's products to obtain
1372
reimbursement from third party payors, changes in third party payors' policies
1373
towards reimbursement for the Company's products or legislative action limiting
1374
reimbursement for certain procedures or products could have a material adverse
1375
effect on the Company's business, financial condition and results of
1376
operations.
1377
1378
1379
DEPENDENCE ON PATENTS AND PROPRIETARY RIGHTS
1380
The Company's success may depend in part on its ability to obtain patent
1381
protection for its products and manufacturing processes, to preserve its trade
1382
secrets, and to operate without
1383
1384
1385
18
1386
1387
1388
<PAGE>
1389
1390
infringing the proprietary rights of third parties. The validity and breadth of
1391
claims covered in medical technology patents involve complex legal and factual
1392
questions and, therefore, may be highly uncertain. No assurance can be given
1393
that the scope of any patent protection under the Company's current patents, or
1394
under any patent the Company might obtain in the future, will exclude
1395
competitors or provide competitive advantages to the Company; that any of the
1396
Company's patents will be held valid if subsequently challenged; or that others
1397
will not claim rights in or ownership of the patents and other proprietary
1398
rights held by the Company. There can be no assurance that the Company's
1399
technology, current or future products or activities will not be deemed to
1400
infringe upon the rights of others. Furthermore, there can be no assurance that
1401
others have not developed or will not develop similar products or manufacturing
1402
processes, duplicate any of the Company's products or manufacturing processes,
1403
or design around the Company's patents. The Company also relies upon unpatented
1404
trade secrets to protect its proprietary technology, and no assurance can be
1405
given that others will not independently develop or otherwise acquire
1406
substantially equivalent technology or otherwise gain access to the Company's
1407
proprietary technology or disclose such technology or that the Company can
1408
ultimately protect meaningful rights to such unpatented proprietary technology.
1409
1410
1411
The medical device industry is characterized by frequent and substantial
1412
intellectual property litigation, particularly with respect to newly developed
1413
technology. Litigation may be necessary to enforce patents issued to the
1414
Company, to protect trade secrets or know-how owned by the Company, or to
1415
determine the ownership, scope or validity of the proprietary rights of the
1416
Company and others. Intellectual property litigation is complex and expensive,
1417
and the outcome of such litigation is difficult to predict. Any such
1418
litigation, regardless of outcome, could result in substantial expense to the
1419
Company and significant diversion of the efforts of the Company's technical and
1420
management personnel. As a result, a claim by a third party that the Company's
1421
current products or products in development allegedly infringe its patent
1422
rights could have a material adverse effect on the Company. Moreover, an
1423
adverse determination in any such proceeding could subject the Company to
1424
significant liabilities to third parties, require disputed rights to be
1425
licensed from such parties, if licenses to such rights could be obtained,
1426
and/or require the Company to cease using such technology. If third party
1427
patents containing claims affecting the Company's technology were issued and
1428
such claims were determined to be valid, there can be no assurance that the
1429
Company would be able to obtain licenses to such patents at costs reasonable to
1430
the Company, if at all, or be able to develop or obtain alternate technology.
1431
Accordingly, an adverse determination in a judicial or administrative
1432
proceeding or failure to obtain necessary licenses could prevent the Company
1433
from manufacturing, using or selling certain of its products, which could have
1434
a material adverse effect on the Company's business, financial condition and
1435
results of operations.
1436
1437
1438
POSSIBILITY OF PRODUCT LIABILITY LITIGATION; POSSIBLE INADEQUACY OF INSURANCE
1439
The medical products industry is subject to substantial product liability
1440
litigation, and the Company faces an inherent business risk of exposure to
1441
product liability claims in the event that the use of its products is alleged
1442
to have resulted in adverse effects to a patient. Although the Company has not
1443
experienced any product liability claims to date, any such claims could have a
1444
material adverse effect on the Company, including on market acceptance of its
1445
products. The Company maintains general insurance policies that include
1446
coverage for product liability claims. The policies are limited to an aggregate
1447
maximum of $6 million per product liability claim, with an annual aggregate
1448
limit of $7 million under the policies. The Company may require increased
1449
product liability coverage as new products are developed and commercialized.
1450
There can be no assurance that liability claims will not exceed the coverage
1451
limits of the Company's policies or that adequate insurance will continue to be
1452
available on commercially reasonable terms, if at all. A product liability
1453
claim or other claim with respect to uninsured liabilities or in excess of
1454
insured liabilities could have a material adverse effect on the Company's
1455
business, financial condition and results of operations.
1456
1457
1458
19
1459
1460
1461
<PAGE>
1462
1463
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
1464
The Company's operations are not currently subject to market risks for
1465
interest rates, foreign currency exchange rates, commodity prices or other
1466
relevant market price risks of a material nature.
1467
1468
1469
ITEM 8. FINANCIAL STATEMENTS
1470
1471
1472
1473
ROCHESTER MEDICAL CORPORATION
1474
1475
FINANCIAL STATEMENTS
1476
1477
1478
YEARS ENDED SEPTEMBER 30, 2000, 1999, AND 1998
1479
1480
1481
1482
PAGE
1483
----
1484
Report of Independent Auditors ............. 20
1485
1486
Audited Financial Statements ............... 21-31
1487
1488
Balance Sheets ............................ 21
1489
1490
Statements of Operations .................. 22
1491
1492
Statement of Shareholders' Equity ......... 23
1493
1494
Statements of Cash Flows .................. 24
1495
1496
Notes to Financial Statements ............. 25
1497
1498
1499
1500
1501
20
1502
1503
1504
<PAGE>
1505
1506
REPORT OF INDEPENDENT AUDITORS
1507
1508
1509
1510
1511
1512
1513
Shareholders
1514
Rochester Medical Corporation
1515
1516
1517
1518
We have audited the accompanying balance sheets of Rochester Medical
1519
Corporation as of September 30, 2000 and 1999, and the related statements of
1520
operations, shareholders' equity and cash flows for each of the three years in
1521
the period ended September 30, 2000. Our audits also included the financial
1522
statement schedule listed in Item 14(a). These financial statements and
1523
schedule are the responsibility of the Company's management. Our responsibility
1524
is to express an opinion on these financial statements and schedule based on
1525
our audits.
1526
1527
We conducted our audits in accordance with auditing standards generally
1528
accepted in the United States. Those standards require that we plan and perform
1529
the audit to obtain reasonable assurance about whether the financial statements
1530
are free of material misstatement. An audit includes examining, on a test
1531
basis, evidence supporting the amounts and disclosures in the financial
1532
statements. An audit also includes assessing the accounting principles used and
1533
significant estimates made by management, as well as evaluating the overall
1534
financial statement presentation. We believe that our audits provide a
1535
reasonable basis for our opinion.
1536
1537
In our opinion, the financial statements referred to above present fairly,
1538
in all material respects, the financial position of Rochester Medical
1539
Corporation at September 30, 2000, and the results of its operations and its
1540
cash flows for each of the three years in the period ended September 30, 2000,
1541
in conformity with accounting principles generally accepted in the United
1542
States. Also in our opinion, the related financial statement schedule, when
1543
considered in relation to the basic financial statements taken as a whole,
1544
presents fairly in all material respects, the information set forth therein.
1545
1546
1547
1548
1549
/s/ ERNST & YOUNG LLP
1550
1551
Minneapolis, Minnesota
1552
October 20, 2000
1553
1554
1555
1556
1557
1558
1559
21
1560
1561
1562
<PAGE>
1563
1564
ROCHESTER MEDICAL CORPORATION
1565
1566
BALANCE SHEETS
1567
1568
1569
1570
<TABLE>
1571
<CAPTION>
1572
SEPTEMBER 30,
1573
---------------------------------
1574
2000 1999
1575
------------ ------------
1576
<S> <C> <C>
1577
ASSETS
1578
Current assets:
1579
Cash and cash equivalents $ 3,204,161 $ 4,216,814
1580
Marketable securities 5,654,442 9,029,296
1581
Accounts receivable, less allowance for doubtful accounts
1582
($62,567 - 2000; $59,466 - 1999) 1,007,432 1,369,662
1583
Inventories, net 1,892,455 2,047,820
1584
Prepaid expenses and other current assets 251,328 347,860
1585
------------ ------------
1586
Total current assets 12,009,818 17,011,452
1587
Property, plant and equipment:
1588
Land 169,707 169,707
1589
Buildings 5,250,720 5,221,078
1590
Construction in progress -- 1,699,440
1591
Equipment and fixtures 9,984,496 7,638,733
1592
------------ ------------
1593
15,404,923 14,728,958
1594
Less accumulated depreciation (4,351,235) (3,257,233)
1595
------------ ------------
1596
Total property, plant and equipment 11,053,688 11,471,725
1597
Patents, less accumulated amortization ($710,492 - 2000
1598
$641,516 - 1999) 190,717 219,218
1599
------------ ------------
1600
Total assets $ 23,254,223 $ 28,702,395
1601
============ ============
1602
LIABILITIES AND SHAREHOLDERS' EQUITY
1603
Current liabilities:
1604
Accounts payable $ 799,737 $ 689,475
1605
Accrued compensation 530,276 556,329
1606
Accrued clinical costs -- 45,214
1607
Accrued expenses 351,192 234,371
1608
------------ ------------
1609
Total current liabilities 1,681,205 1,525,389
1610
Shareholders' equity:
1611
Common Stock, no par value:
1612
Authorized shares - 20,000,000
1613
Issued and outstanding shares; (5,338,900 - 2000;
1614
5,349,500 - 1999) $ 41,279,359 $ 41,352,202
1615
Accumulated deficit (19,706,341) (14,175,196)
1616
------------ ------------
1617
Total shareholders' equity 21,573,018 27,177,006
1618
------------ ------------
1619
Total liabilities and shareholders' equity $ 23,254,223 $ 28,702,395
1620
============ ============
1621
</TABLE>
1622
1623
SEE ACCOMPANYING NOTES.
1624
1625
1626
1627
1628
1629
22
1630
1631
1632
<PAGE>
1633
1634
ROCHESTER MEDICAL CORPORATION
1635
1636
STATEMENTS OF OPERATIONS
1637
1638
1639
1640
<TABLE>
1641
<CAPTION>
1642
FISCAL YEARS ENDED SEPTEMBER 30,
1643
-----------------------------------------------------
1644
2000 1999 1998
1645
--------------- --------------- -----------------
1646
<S> <C> <C> <C>
1647
Net sales .............................................. $ 7,860,132 $ 7,340,870 $ 9,518,311
1648
Cost of sales .......................................... 6,151,195 5,602,042 6,604,201
1649
------------ ------------ -------------
1650
Gross profit ........................................... 1,708,937 1,738,828 2,914,110
1651
Operating expenses:
1652
Marketing and selling ................................. 4,588,874 3,943,589 3,190,642
1653
Research and development .............................. 1,008,431 1,052,090 1,384,210
1654
General and administrative ............................ 2,237,985 1,863,194 1,445,167
1655
------------ ------------ -------------
1656
Total operating expenses ............................... 7,835,290 6,858,873 6,020,019
1657
Loss from operations ................................... (6,126,353) (5,120,045) (3,105,909)
1658
Other income (expense):
1659
Interest income ....................................... 595,208 719,322 847,662
1660
Interest expense ...................................... -- -- --
1661
------------ ------------ -------------
1662
Net loss ............................................... $ (5,531,145) $ (4,400,723) $ (2,258,247)
1663
============ ============ =============
1664
Net loss per common share -- basic and diluted ......... $ (1.04) $ (.83) $ (.44)
1665
============ ============ =============
1666
Weighted average number of common shares
1667
outstanding ........................................... 5,341,243 5,332,868 5,140,670
1668
============ ============ =============
1669
</TABLE>
1670
1671
1672
1673
1674
SEE ACCOMPANYING NOTES.
1675
1676
1677
1678
1679
1680
23
1681
1682
1683
<PAGE>
1684
1685
ROCHESTER MEDICAL CORPORATION
1686
1687
STATEMENT OF SHAREHOLDERS' EQUITY
1688
1689
1690
1691
<TABLE>
1692
<CAPTION>
1693
COMMON STOCK
1694
------------------------------
1695
ACCUMULATED
1696
SHARES AMOUNT DEFICIT TOTAL
1697
------------- -------------- ---------------- --------------
1698
<S> <C> <C> <C> <C>
1699
Balance at September 30, 1997 ............. 4,133,500 $24,697,199 $ (7,516,226) $17,180,973
1700
Common Stock issued in public
1701
offering ................................ 1,125,000 15,862,253 -- 15,862,253
1702
Exercise of common stock options ......... 11,000 132,750 -- 132,750
1703
Net loss for the year .................... -- -- (2,258,247) (2,258,247)
1704
--------- ----------- ------------ ------------
1705
Balance at September 30, 1998 ............. 5,269,500 40,692,202 (9,774,473) 30,917,729
1706
Exercise of common stock options ......... 80,000 660,000 -- 660,000
1707
Net loss for the year .................... -- -- (4,400,723) (4,400,723)
1708
--------- ----------- ------------ ------------
1709
Balance at September 30, 1999 ............. 5,349,500 $41,352,202 $(14,175,196) $27,177,006
1710
Stock Repurchase ......................... (10,600) (72,843) -- (72,843)
1711
Net loss for the year .................... -- -- (5,531,145) (5,531,145)
1712
--------- ----------- ------------ ------------
1713
Balance at September 30, 2000 ............. 5,338,900 $41,279,359 $(19,706,341) $21,573,018
1714
========= =========== ============ ============
1715
</TABLE>
1716
1717
1718
SEE ACCOMPANYING NOTES.
1719
1720
1721
1722
24
1723
1724
1725
<PAGE>
1726
1727
ROCHESTER MEDICAL CORPORATION
1728
1729
STATEMENTS OF CASH FLOWS
1730
1731
1732
1733
<TABLE>
1734
<CAPTION>
1735
FISCAL YEARS ENDED SEPTEMBER 30,
1736
------------------------------------------------------
1737
2000 1999 1998
1738
---------------- ---------------- ----------------
1739
<S> <C> <C> <C>
1740
OPERATING ACTIVITIES
1741
Net loss ............................................... $(5,531,145) $(4,400,723) $(2,258,247)
1742
Adjustments to reconcile net loss to net cash used
1743
in operating activities:
1744
Depreciation and amortization ......................... 1,162,978 837,331 776,699
1745
Changes in operating assets and liabilities:
1746
Accounts receivable .................................. 362,230 585,386 12,146
1747
Inventories .......................................... 155,365 161,779 (555,866)
1748
Other current assets ................................. 96,532 141,141 (235,216)
1749
Accounts payable ..................................... 110,262 (76,829) 308,740
1750
Other current liabilities ............................ 45,554 (215,803) 76,882
1751
----------- ----------- -----------
1752
Net cash used in operating activities .................. (3,598,224) (2,967,718) (1,874,862)
1753
1754
INVESTING ACTIVITIES
1755
Capital expenditures ................................... (675,965) (798,285) (2,305,258)
1756
Patents ................................................ (40,475) (58,081) (43,579)
1757
Purchase of marketable securities ...................... (23,570,342) (54,892,037) (50,871,767)
1758
Sales and maturities of marketable securities .......... 26,945,196 59,408,013 40,773,957
1759
----------- ----------- -----------
1760
Net cash provided by (used in) investing activities 2,658,414 3,659,610 (12,446,647)
1761
1762
FINANCING ACTIVITIES
1763
Sale (purchase) of Common Stock ........................ (72,843) 660,000 15,995,003
1764
----------- ----------- -----------
1765
Net cash provided by (used in) financing
1766
activities ............................................ (72,843) 660,000 15,995,003
1767
----------- ----------- -----------
1768
Increase (decrease) in cash and cash
1769
equivalents ........................................... (1,012,653) 1,351,892 1,673,494
1770
Cash and cash equivalents at beginning of year ......... 4,216,814 2,864,922 1,191,428
1771
----------- ----------- -----------
1772
Cash and cash equivalents at end of year ............... $ 3,204,161 $ 4,216,814 $ 2,864,922
1773
=========== =========== ===========
1774
</TABLE>
1775
1776
SEE ACCOMPANYING NOTES.
1777
1778
25
1779
1780
1781
<PAGE>
1782
1783
ROCHESTER MEDICAL CORPORATION
1784
1785
NOTES TO FINANCIAL STATEMENTS
1786
1787
SEPTEMBER 30, 2000
1788
1789
1790
1. BUSINESS ACTIVITY
1791
Rochester Medical Corporation (the "Company") develops, manufactures and
1792
markets a broad line of innovative, technologically enhanced latex-free urinary
1793
continence and urine drainage care products for the home care and
1794
acute/extended care markets. The Company currently manufactures and markets
1795
standard continence care products, including male external catheters, Foley
1796
catheters and intermittent catheters and innovative and technologically
1797
advanced products such as its FEMSOFT INSERT, RELEASE-NF catheter and
1798
hydrophilic intermittent catheter.
1799
1800
1801
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1802
1803
1804
CASH EQUIVALENTS
1805
The Company considers all highly liquid investments with a remaining
1806
maturity of three months or less when purchased to be cash equivalents.
1807
1808
1809
MARKETABLE SECURITIES
1810
Marketable securities are classified as available for sale and are carried
1811
at cost which approximates fair value as determined by published market data.
1812
The balance at September 30, 2000 consists of $3,000,000 of bonds maturing in
1813
2001 and $2,650,000 of commercial paper. At September 30, 1999, the balance
1814
consisted entirely of bonds and commercial paper.
1815
1816
1817
MANUFACTURING AND SALES
1818
The Company manufactures and sells its products to a full range of
1819
companies in the medical industry on a worldwide basis. There is a
1820
concentration of sales to larger medical wholesalers and distributors. Sales of
1821
products are recorded upon shipment. The Company performs periodic credit
1822
evaluations of its customers' financial condition. The Company requires
1823
irrevocable letters of credit on sales to certain foreign customers.
1824
Receivables generally are due within 30 days. Credit losses relating to
1825
customers consistently have been within management expectations.
1826
1827
1828
INVENTORIES
1829
Inventories, consisting of material, labor and manufacturing overhead, are
1830
stated at the lower of cost or market. Cost is determined by the first-in,
1831
first-out (FIFO) method.
1832
1833
1834
PROPERTY AND EQUIPMENT
1835
Property and equipment are stated at cost less accumulated depreciation.
1836
Depreciation is based on estimated useful lives of 4 -- 35 years computed using
1837
the straight-line method.
1838
1839
1840
PATENTS
1841
Capitalized costs include costs incurred in connection with making patent
1842
applications for the Company's products and are amortized on a straight-line
1843
basis over eight years. The Company periodically reviews its patents for
1844
impairment of value. Any adjustment from the analysis is charged to operations.
1845
1846
1847
RESEARCH AND DEVELOPMENT COSTS
1848
Research and development costs are charged to operations as incurred.
1849
Research and development costs include clinical testing costs, certain salary
1850
and related expenses, other labor costs, materials and an allocation of certain
1851
overhead expenses.
1852
1853
1854
INCOME TAXES
1855
Income taxes are accounted for under the liability method. Deferred income
1856
taxes are provided for temporary differences between financial reporting and
1857
tax bases of assets and liabilities.
1858
1859
1860
1861
1862
26
1863
1864
1865
<PAGE>
1866
1867
ROCHESTER MEDICAL CORPORATION
1868
1869
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1870
1871
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
1872
1873
1874
STOCK-BASED COMPENSATION
1875
The Company follows Accounting Principles Board Opinion No. 25,
1876
"Accounting for Stock Issued to Employees" ("APB 25"), and related
1877
interpretations in accounting for its stock options. Under APB 25, when the
1878
exercise price of stock options equals the market price of the underlying stock
1879
on the date of grant, no compensation expense is recognized.
1880
1881
The Company has adopted the disclosure-only provisions of Statement of
1882
Financial Accounting Standards No 123, "Accounting for Stock-Based
1883
Compensation."
1884
1885
USE OF ESTIMATES
1886
The preparation of financial statements in conformity with generally
1887
accepted accounting principles requires management to make estimates and
1888
assumptions that affect the amounts reported in the financial statements and
1889
accompanying notes. Actual results could differ from those estimates.
1890
1891
IMPAIRMENT OF LONG-LIVED ASSETS
1892
The Company will record impairment losses on long-lived assets used in
1893
operations when indicators of impairment are present and the undiscounted cash
1894
flows estimated to be generated by those assets are less than the assets'
1895
carrying amount.
1896
1897
NET LOSS PER SHARE
1898
Basic net loss per share is computed using the weighted average number of
1899
common shares outstanding during the period. Fully diluted and basic net loss
1900
per share are the same because the effect of common equivalent shares from
1901
stock options and convertible debt are excluded from the computation as their
1902
effect is antidilutive.
1903
1904
1905
3. ADVERTISING COSTS
1906
The Company incurred advertising expenses of $1,347,000, $779,000 and
1907
$414,000 for the years ended September 30, 2000, 1999 and 1998, respectively.
1908
All advertising costs are charged to operations as incurred.
1909
1910
1911
4. INVENTORIES
1912
Inventories are summarized as follows:
1913
1914
1915
SEPTEMBER 30,
1916
------------------------------
1917
2000 1999
1918
-------------- -------------
1919
Raw materials .............................. $ 771,468 $ 652,229
1920
Work-in-process ............................ 766,466 1,058,716
1921
Finished goods ............................. 452,640 445,605
1922
Reserve for inventory obsolescence ......... (98,119) (108,730)
1923
---------- ----------
1924
$1,892,455 $2,047,820
1925
========== ==========
1926
1927
5. SHAREHOLDERS' EQUITY
1928
1929
STOCK OPTIONS
1930
In August 1998, the 1991 Stock Option Plan (the Plan) was amended to
1931
increase by 300,000 shares the number of shares authorized for issuance to
1932
1,000,000 shares. Under terms of the Plan, the Board of Directors may grant
1933
employee incentive stock options equal to fair market value of the Company's
1934
Common Stock or employee non-qualified options at a price which cannot be less
1935
than 85% of the fair market value. Automatic non-employee director options are
1936
also covered
1937
1938
1939
1940
1941
27
1942
1943
1944
<PAGE>
1945
1946
ROCHESTER MEDICAL CORPORATION
1947
1948
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1949
1950
5. SHAREHOLDERS' EQUITY (CONTINUED)
1951
1952
1953
under the Plan, under which 1,000 shares are granted at fair market value to
1954
non-employee directors on the date of each of the Company's Annual Meetings.
1955
1956
The 1995 Non-Statutory Stock Option Plan authorizes the issuance of up to
1957
50,000 shares of Common Stock. In September 1995, Medical Advisory Board
1958
members were granted options to purchase 12,000 shares of the Company's Common
1959
Stock at an exercise price of $15.75 per share. In April 1999, one member of
1960
the Medical Advisory Board was granted options to purchase 6,000 shares of the
1961
Company's Common Stock at an exercise price of $10.125 per share.
1962
1963
Option activity is summarized as follows:
1964
1965
1966
<TABLE>
1967
<CAPTION>
1968
AVERAGE
1969
SHARES WEIGHTED EXERCISE
1970
RESERVED OPTIONS PRICE PER
1971
FOR GRANT OUTSTANDING SHARE
1972
------------- ------------- ----------
1973
<S> <C> <C> <C>
1974
Balance as of September 30, 1997 ......... 209,000 535,000 $ 12.35
1975
Options granted .......................... (226,000) 226,000 14.90
1976
Options exercised ........................ -- (11,000) 12.07
1977
Options canceled ......................... 27,000 (27,000) 14.13
1978
Increase in authorized shares ............ 300,000 -- --
1979
-------- ------- --------
1980
Balance as of September 30, 1998 ......... 310,000 723,000 13.09
1981
Options granted .......................... (173,500) 173,500 11.40
1982
Options exercised ........................ -- (80,000) 8.25
1983
Options canceled ......................... 70,000 (70,000) 13.80
1984
-------- ------- --------
1985
Balance as of September 30, 1999 ......... 206,500 746,500 13.15
1986
Options granted .......................... (153,000) 153,000 7.85
1987
Options exercised ........................ -- -- --
1988
Options canceled ......................... 124,375 (124,375) 13.34
1989
-------- -------- --------
1990
Balance as of September 30, 2000 ......... 177,875 775,125 $ 12.07
1991
======== ======== ========
1992
</TABLE>
1993
1994
The weighted average fair value of options granted in 2000, 1999 and 1998
1995
was $4.90, $7.48 and $9.67 per share, respectively. The exercise price of
1996
options outstanding at September 30, 2000 ranged from $6.00 to $20.00 per share
1997
as summarized in the following table:
1998
1999
2000
<TABLE>
2001
<CAPTION>
2002
NUMBER WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
2003
OUTSTANDING REMAINING EXERCISABLE EXERCISE PRICE
2004
RANGE OF EXERCISE PRICES AT 9/30/00 CONTRACTUAL LIFE AT 9/30/00 PER SHARE
2005
- -------------------------- ------------- ------------------ ------------- -----------------
2006
<S> <C> <C> <C> <C>
2007
$6.00 -- $10.75 .......... 325,375 6.8 years 135,125 $ 8.25
2008
10.76 -- 14.75 ........... 301,250 6.0 years 229,750 13.95
2009
14.76 -- 20.00 ........... 148,500 6.2 years 103,750 16.54
2010
------- -------
2011
775,125 6.4 years 468,625 $ 12.88
2012
======= =======
2013
</TABLE>
2014
2015
The number of stock options exercisable at September 30, 2000, 1999 and
2016
1998 was 468,625, 367,000 and 307,500 at a weighted average exercise price of
2017
$12.88, $12.80 and $9.68 per share, respectively.
2018
2019
The Company has elected to follow Accounting Principles Board Opinion No.
2020
25, Accounting for Stock Issued to Employees ("APB 25") and related
2021
interpretations in accounting for its employee stock options because, as
2022
discussed below, the alternative fair value accounting provided under FASB
2023
Statement No. 123, "Accounting for Stock-Based Compensation" ("Statement 123"),
2024
requires use of option valuation models that were not developed for use in
2025
valuing employee stock
2026
2027
2028
2029
2030
2031
28
2032
2033
2034
<PAGE>
2035
2036
ROCHESTER MEDICAL CORPORATION
2037
2038
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2039
2040
5. SHAREHOLDERS' EQUITY (CONTINUED)
2041
2042
2043
options. Under APB 25, when the exercise price of the Company's employee stock
2044
options equals the market price of the underlying stock on the date of grant,
2045
no compensation expense is recognized.
2046
2047
Pro forma information regarding net loss and loss per share is required by
2048
Statement 123, and has been determined as if the Company had accounted for its
2049
employee stock options under the fair value method of Statement 123. The fair
2050
value of these options was estimated at the date of grant using the
2051
Black-Scholes option pricing model with the following weighted average
2052
assumptions: risk-free interest rate of 6.08%; volatility factor of the
2053
expected market price of the Company's common stock of .528 and a weighted
2054
average expected life of the option of seven years.
2055
2056
The Black-Scholes option valuation model was developed for use in
2057
estimating the fair value of traded options which have no vesting restrictions
2058
and are fully transferable. In addition, option valuation models require the
2059
input of highly subjective assumptions. Because the Company's employee stock
2060
options have characteristics significantly different from those of traded
2061
options, and because changes in the subjective input assumptions can materially
2062
affect the fair value estimate, in management's opinion, the existing models do
2063
not necessarily provide a reliable single measure of the fair value of its
2064
employee stock options.
2065
2066
For purposes of pro forma disclosures, the estimated fair value of the
2067
options is amortized to expense over the option's vesting period. The Company's
2068
pro forma information is as follows:
2069
2070
2071
<TABLE>
2072
<CAPTION>
2073
YEAR ENDED SEPTEMBER 30,
2074
------------------------------------------------------
2075
2000 1999 1998
2076
---------------- ---------------- ----------------
2077
<S> <C> <C> <C>
2078
Pro forma net loss .......................... $ (6,803,649) $ (5,934,181) $ (3,796,025)
2079
Pro forma net loss per common share ......... $ (1.27) $ (1.11) $ (.74)
2080
</TABLE>
2081
2082
These pro forma amounts may not be indicative of future years' amounts
2083
since the statement provides for a phase in of option values beginning with
2084
those granted in fiscal 1997.
2085
2086
WARRANTS
2087
In connection with the November 1995 public offering, the Company sold to
2088
the underwriters for a nominal purchase price five-year warrants to purchase
2089
75,000 shares of Common Stock at $14.85 per share. The warrants can be
2090
exercised any time through November 2000.
2091
2092
2093
29
2094
2095
2096
<PAGE>
2097
2098
ROCHESTER MEDICAL CORPORATION
2099
2100
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2101
2102
6. INCOME TAXES
2103
Deferred income taxes are due to temporary differences between the
2104
carrying values of certain assets and liabilities for financial reporting and
2105
income tax purposes. Significant components of deferred income taxes are as
2106
follows:
2107
2108
2109
<TABLE>
2110
<CAPTION>
2111
SEPTEMBER 30,
2112
---------------------------
2113
2000 1999
2114
------------ ----------
2115
<S> <C> <C>
2116
Deferred assets:
2117
Net operating loss ........................... $ 7,484,000 $5,466,000
2118
Research and development credits ............. 164,000 143,000
2119
Allowance for uncollectible accounts ......... 23,000 22,000
2120
Inventory reserves ........................... 36,000 40,000
2121
Inventory capitalization ..................... 68,000 37,000
2122
Accrued expenses ............................. 116,000 61,000
2123
------------ ----------
2124
Subtotal ..................................... 7,891,000 5,769,000
2125
Deferred liability:
2126
Depreciation and amortization ................ 346,000 386,000
2127
------------ ----------
2128
Net deferred income tax assets ............... 7,545,000 5,383,000
2129
Valuation allowance .......................... (7,545,000) (5,383,000)
2130
------------ ----------
2131
Net deferred income taxes .................... $ -- $ --
2132
============ ==========
2133
</TABLE>
2134
2135
The Company will be subject to federal income taxes when operations become
2136
profitable. The Company's net operating loss carryforwards of approximately
2137
$20,436,000 can be carried forward to offset future taxable income, subject to
2138
the limitation of Internal Revenue Code Section 382. The net operating loss
2139
carryforward will expire at different times beginning in 2005.
2140
2141
2142
7. LEASES
2143
Rent expense from operating leases for the years ended September 30, 2000,
2144
1999 and 1998 was $1,000, $5,000 and $7,000, respectively.
2145
2146
2147
8. RELATED PARTY TRANSACTIONS
2148
The brother-in-law of the CEO and President, the Vice President of
2149
Production Technologies and a member of the board of directors of the Company
2150
has performed legal services for the Company. During the years ended September
2151
30, 2000, 1999 and 1998, the Company incurred legal fees and expenses of
2152
approximately $16,000, $46,000 and $71,000, respectively, to such counsel for
2153
services rendered in connection with litigation and for general legal services.
2154
Management believes the fees paid for the services rendered to the Company were
2155
on terms at least as favorable to the Company as could have been obtained from
2156
an unrelated party.
2157
2158
The Company contracts with Petersen Blacksmith Company for the fabrication
2159
of customized, proprietary manufacturing equipment used in the Company's
2160
automated production lines. During 2000, 1999 and 1998, the Company paid
2161
Petersen Blacksmith Company the sum of $56,000, $46,000 and $231,000,
2162
respectively. Michael Petersen, the proprietor of Petersen Blacksmith Company,
2163
is the brother-in-law of a Director and Vice President, Research and
2164
Development of the Company. Management believes that the terms of the agreement
2165
are at least as favorable to the Company as could have been obtained from an
2166
unrelated party.
2167
2168
2169
2170
2171
30
2172
2173
2174
<PAGE>
2175
2176
ROCHESTER MEDICAL CORPORATION
2177
2178
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2179
2180
9. CONVATEC AGREEMENT
2181
On August 11, 1995, the Company entered into a Distribution and
2182
Co-Development Agreement (the "Distribution Agreement") with ConvaTec, a
2183
division of E.R. Squibb & Sons, Inc., a wholly-owned subsidiary of
2184
Bristol-Myers Squibb Company ("ConvaTec"), for the purpose of marketing and
2185
distributing the Company's incontinence and urological devices. Under the
2186
Distribution Agreement, the Company has granted ConvaTec, subject to
2187
obligations and limitations imposed by the Company's other distribution
2188
agreements, worldwide rights to market the Company's current products and
2189
products in development. The Company is obligated to offer ConvaTec rights of
2190
first and last refusal to market all products developed after the date of the
2191
Distribution Agreement. Under the Distribution Agreement, the Company retains
2192
worldwide marketing rights to its products under the Rochester Medical brand.
2193
2194
In April 1998, the Company and ConvaTec entered into a Revised and
2195
Restated Distribution Agreement (the "Revised Agreement") which grants ConvaTec
2196
limited territorial rights to market certain of the Company's standard male
2197
external catheter and Foley catheter products under the ConvaTec name. In
2198
addition to retaining worldwide marketing rights for Rochester Medical brand
2199
products, the Revised Agreement provides the Company exclusive marketing rights
2200
for its advanced products and products in development.
2201
2202
2203
10. SIGNIFICANT CUSTOMERS
2204
Significant customers, measured as a percentage of sales, are summarized
2205
as follows:
2206
2207
2208
SEPTEMBER 30,
2209
------------------
2210
2000 1999 1998
2211
---- ---- ----
2212
Significant customers:
2213
ConvaTec ........... 16% 16% 25%
2214
Hollister .......... 9 7 7
2215
Maersk ............. 15 18 15*
2216
Mentor ............. 1 10 21
2217
-- -- --
2218
Total ................ 41% 51% 68%
2219
== == ==
2220
2221
- ------------------
2222
* 1998 includes sales to Euromedical Industries SdN., which was acquired by
2223
Maersk in July of 1998.
2224
2225
In May 1998, Mentor advised the Company of its intention to manufacture
2226
its own silicone male external catheters under the royalty-free license it
2227
holds from the Company. There have been no sales of male external catheters to
2228
Mentor since the first quarter of fiscal 1999.
2229
2230
2231
31
2232
2233
2234
<PAGE>
2235
2236
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
2237
FINANCIAL DISCLOSURE
2238
None.
2239
2240
2241
PART III
2242
2243
2244
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
2245
Incorporated herein by reference to portions of the Proxy Statement for
2246
Annual Meeting of Shareholders to be filed with the Securities and Exchange
2247
Commission within 120 days of the close of the fiscal year ended September 30,
2248
2000, and "Executive Officers of the Registrant" in Part I of this report.
2249
2250
2251
ITEM 11. EXECUTIVE COMPENSATION
2252
Incorporated herein by reference to portions of the Proxy Statement for
2253
Annual Meeting of Shareholders to be filed with the Securities and Exchange
2254
Commission within 120 days of the close of the fiscal year ended September 30,
2255
2000.
2256
2257
2258
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
2259
Incorporated herein by reference to portions of the Proxy Statement for
2260
Annual Meeting of Shareholders to be filed with the Securities and Exchange
2261
Commission within 120 days of the close of the fiscal year ended September 30,
2262
2000.
2263
2264
2265
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
2266
Incorporated herein by reference to portions of the Proxy Statement for
2267
Annual Meeting of Shareholders to be filed with the Securities and Exchange
2268
Commission within 120 days of the close of the fiscal year ended September 30,
2269
2000.
2270
2271
2272
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
2273
(a)(1) The following financial statements are filed herewith in Item 8.
2274
2275
(i) Balance Sheets as of September 30, 2000 and 1999.
2276
2277
(ii) Statements of Operations for the years ended September 30, 2000,
2278
1999 and 1998.
2279
2280
(iii) Statement of Shareholders' Equity for the years ended September
2281
30, 2000 and 1999.
2282
2283
(iv) Statements of Cash Flows for the years ended September 30, 2000,
2284
1999 and 1998.
2285
2286
(v) Notes to financial statements at September 30, 2000.
2287
2288
(a)(2) Financial Statement Schedules.
2289
2290
Schedule II -- Valuation and Qualifying Accounts
2291
2292
Financial statement schedules other than those listed have been
2293
omitted since they are not required or are not applicable or the
2294
required information is shown in the financial statements or related
2295
notes.
2296
2297
(b) Exhibits
2298
2299
The following exhibits are submitted herewith:
2300
2301
3.1 Articles of Incorporation of the Company, as amended.
2302
(Incorporated by reference to Exhibit 4.1 of Registrant's
2303
Registration Statement on Form S-2, Registration Number
2304
33-97788).
2305
2306
3.2 Restated Bylaws of the Company. (Incorporated by reference to
2307
Exhibit 3.2 of Registrant's Registration Statement on Form S-18,
2308
Registration Number 33-36362-C).
2309
2310
2311
2312
2313
32
2314
2315
2316
<PAGE>
2317
2318
3.3 Amendment to Restated Bylaws of the Company. (Incorporated by
2319
reference to Exhibit 4.3 of Registrant's Registration Statement
2320
on Form S-2, Registration Number 33-97788).
2321
2322
4.1 Specimen of Common Stock Certificate. (Incorporated by reference
2323
to Exhibit 4.4 of Registrant's Annual Report on Form 10-KSB for
2324
fiscal year ended September 30, 1995).
2325
2326
4.2 The Company's 1991 Stock Option Plan as amended (Incorporated by
2327
reference to Exhibit 4.5 of Registrant's Registration Statement
2328
on Form S-8, Registration Number 333-10261).
2329
2330
4.3 Amendment to the Company's 1991 Stock Option Plan as amended
2331
(Incorporated by reference to Exhibit 4.3 of Registrant's Annual
2332
Report on Form 10-K for fiscal year ended September 30, 1998).
2333
2334
10.1 Employment Agreement, dated August 31, 1990 between the Company
2335
and Anthony J. Conway. (Incorporated by reference to Exhibit
2336
10.13 of Registrant's Registration Statement on Form S-18,
2337
Registration Number 33-36362-C).
2338
2339
10.2 Employment Agreement, dated August 31, 1990 between the Company
2340
and Philip J. Conway. (Incorporated by reference to Exhibit 10.14
2341
of Registrant's Registration Statement on Form S-18, Registration
2342
Number 33-36362-C).
2343
2344
10.3 Change of Control Agreement dated December 4, 1998, between the
2345
Company and Philip J. Conway (Incorporated by reference to
2346
Exhibit 10.3 of Registrant's Annual Report on Form 10-K for
2347
fiscal year ended September 30, 1998).
2348
2349
10.4 Employment Agreement, dated August 31, 1990 between the Company
2350
and Richard D. Fryar. (Incorporated by reference to Exhibit 10.15
2351
of Registrant's Registration Statement on Form S-18, Registration
2352
Number 33-36362-C).
2353
2354
10.5 Change of Control Agreement dated December 4, 1998, between the
2355
Company and Richard D. Fryar (Incorporated by reference to
2356
Exhibit 10.5 of Registrant's Annual Report on Form 10-K for
2357
fiscal year ended September 30, 1998).
2358
2359
10.6 Change of Control Agreement dated November 21, 2000, between the
2360
Company and Anthony J. Conway.*
2361
2362
10.7 Change of Control Agreement dated November 21, 2000, between the
2363
Company and Dara Lynn Horner.*
2364
2365
10.8 Employment Agreement, dated November 16, 1998 between the Company
2366
and Dara Lynn Horner. (Incorporated by reference to Exhibit 10.8
2367
of Registrant's Annual Report on Form 10-K for fiscal year ended
2368
September 30, 1999.)
2369
2370
10.9 Change of Control Agreement dated November 21, 2000, between the
2371
Company and Martyn R. Sholtis.*
2372
2373
10.10 Change of Control Agreement dated November 21, 2000, between the
2374
Company and David A. Jonas.*
2375
2376
10.11 Revised and Restated Distribution Agreement, dated as of May 6,
2377
1998, between the Company and E. R. Squibb & Sons, Inc. (through
2378
its ConvaTec division). (Incorporated by reference to Exhibit
2379
10.17 of Registrant's Quarterly Report on Form 10-Q for the
2380
quarter ended March 31, 1998).
2381
2382
23 Consent of Ernst & Young LLP.*
2383
2384
24 Power of Attorney*
2385
2386
27 Financial Data Schedule.*
2387
2388
- ------------------
2389
* Filed herewith.
2390
2391
(c) Registrant filed no Report on Form 8-K during its fourth fiscal quarter.
2392
2393
2394
2395
2396
2397
33
2398
2399
2400
<PAGE>
2401
2402
SIGNATURES
2403
2404
Pursuant to the requirements of Section 13 or 15(d) of the Securities
2405
Exchange Act of 1934, the registrant has duly caused this report to be signed
2406
on its behalf by the undersigned, thereunto duly authorized.
2407
2408
2409
ROCHESTER MEDICAL CORPORATION
2410
2411
2412
2413
Dated: December 19, 2000 By: /s/ ANTHONY J. CONWAY
2414
------------------------------------
2415
Anthony J. Conway
2416
CHAIRMAN OF THE BOARD, PRESIDENT,
2417
CHIEF EXECUTIVE OFFICER AND SECRETARY
2418
2419
Pursuant to the requirements of the Securities Exchange Act of 1934, this
2420
Report has been signed below by the following persons in the capacities and on
2421
the dates indicated.
2422
2423
2424
2425
2426
SIGNATURE TITLE
2427
- ----------------------------- ------------------------------------------------
2428
2429
/s/ ANTHONY J. CONWAY Chairman of the Board, President,
2430
-------------------------- Chief Executive Officer, and Secretary
2431
Anthony J. Conway (PRINCIPAL EXECUTIVE OFFICER)
2432
2433
/s/ DAVID A. JONAS Controller, Treasurer and Director of Operations
2434
-------------------------- (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
2435
David A. Jonas
2436
2437
* Vice President, Production Technologies
2438
-------------------------- and Director
2439
Philip J. Conway
2440
2441
* Vice President, Research and Development
2442
-------------------------- and Director
2443
Richard D. Fryar
2444
2445
* Director
2446
--------------------------
2447
Darnell L. Boehm
2448
2449
* Director
2450
--------------------------
2451
Peter R. Conway
2452
2453
* Director
2454
--------------------------
2455
Roger W. Schnobrich
2456
2457
*By /s/ DAVID A. JONAS Dated: December 19, 2000
2458
----------------------
2459
David A. Jonas
2460
ATTORNEY-IN-FACT
2461
2462
2463
34
2464
2465
2466
<PAGE>
2467
2468
ROCHESTER MEDICAL CORPORATION
2469
2470
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
2471
FOR CONTINUING OPERATIONS
2472
2473
2474
<TABLE>
2475
<CAPTION>
2476
- ----------------------------------------------------------------------------------------------------------
2477
COL. A. COL. B COL. C COL. D COL. E
2478
- ----------------------------------------------------------------------------------------------------------
2479
ADDITIONS
2480
----------------------------------
2481
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
2482
BEGINNING COSTS AND OTHER ACCOUNTS DEDUCTIONS END OF
2483
DESCRIPTION OF PERIOD EXPENSES -- DESCRIBE -- DESCRIBE PERIOD
2484
- ------------------------------ ------------ ----------------- ---------------- --------------- -----------
2485
<S> <C> <C> <C> <C> <C>
2486
Year ended September 30, 2000:
2487
Reserves and allowances
2488
deducted from asset accounts:
2489
Allowance for doubtful
2490
accounts ................... $ 59,466 $ 12,000 -- $ 8,899(1) $ 62,567
2491
Allowance for inventory
2492
obsolescence ............... 108,729 14,000 -- 24,611(2) 98,118
2493
Allowance for inventory
2494
valuation .................. -- 200,849(3) -- -- 200,849
2495
2496
Year ended September 30, 1999:
2497
Reserves and allowances
2498
deducted from asset accounts:
2499
Allowance for doubtful
2500
accounts ................... $ 50,000 $ 10,000 -- $ 534(1) $ 59,466
2501
Allowance for inventory
2502
obsolescence ............... 50,034 60,000 -- 1,305(2) 108,729
2503
Allowance for inventory
2504
valuation .................. -- -- -- -- --
2505
2506
Year ended September 30, 1998:
2507
Reserves and allowances
2508
deducted from asset accounts:
2509
Allowance for doubtful
2510
accounts ................... $ 52,099 $ 9,000 -- $11,099(1) $ 50,000
2511
Allowance for inventory
2512
obsolescence ............... 91,910 12,300 -- 54,106(2) 50,034
2513
Allowance for inventory
2514
valuation .................. -- -- -- -- --
2515
</TABLE>
2516
2517
- ------------------
2518
(1) Uncollectable accounts written off net of recoveries
2519
2520
(2) Obsolete disposed of net of recoveries
2521
2522
(3) Valuation of inventory at lower of cost or market
2523
2524
2525
<PAGE>
2526
2527
INDEX TO EXHIBITS
2528
2529
2530
<TABLE>
2531
<CAPTION>
2532
EXHIBIT PAGE
2533
- --------- -----
2534
<S> <C> <C>
2535
3.1 Articles of Incorporation of the Company, as amended. (Incorporated by reference
2536
to Exhibit 4.1 of Registrant's Registration Statement on Form S-2, Registration
2537
Number 33-97788) ....................................................................
2538
2539
3.2 Restated Bylaws of the Company. (Incorporated by reference to Exhibit 3.2 of
2540
Registrant's Registration Statement on Form S-18, Registration Number
2541
33-36362-C) .........................................................................
2542
2543
3.3 Amendment to Restated Bylaws of the Company. (Incorporated by reference to
2544
Exhibit 4.3 of Registrant's Registration Statement on Form S-2, Registration
2545
Number 33-97788) ....................................................................
2546
2547
4.1 Specimen of Common Stock Certificate. (Incorporated by reference to Exhibit 4.4
2548
of Registrant's Annual Report on Form 10-KSB for fiscal year ended
2549
September 30, 1995) .................................................................
2550
2551
4.2 The Company's 1991 Stock Option Plan as amended (Incorporated by reference
2552
to Exhibit 4.5 of Registrant's Registration Statement on Form S-8, Registration
2553
Number 333-10261) ...................................................................
2554
2555
4.3 Amendment to the Company's 1991 Stock Option Plan as amended (Incorporated
2556
by reference to Exhibit 4.3 of Registrant's Annual Report on Form 10-K for
2557
fiscal year ended September 30, 1998) ...............................................
2558
2559
10.1 Employment Agreement, dated August 31, 1990 between the Company and
2560
Anthony J. Conway. (Incorporated by reference to Exhibit 10.13 of Registrant's
2561
Registration Statement on Form S-18, Registration Number 33-36362-C) ................
2562
2563
10.2 Employment Agreement, dated August 31, 1990 between the Company and
2564
Philip J. Conway. (Incorporated by reference to Exhibit 10.14 of Registrant's
2565
Registration Statement on Form S-18, Registration Number 33-36362-C) ................
2566
2567
10.3 Change of Control Agreement dated December 4, 1998, between the Company
2568
and Philip J. Conway (Incorporated by reference to Exhibit 10.3 of Registrant's
2569
Annual Report on Form 10-K for fiscal year ended September 30, 1998) ................
2570
2571
10.4 Employment Agreement, dated August 31, 1990 between the Company and
2572
Richard D. Fryar. (Incorporated by reference to Exhibit 10.15 of Registrant's
2573
Registration Statement on Form S-18, Registration Number 33-36362-C) ................
2574
2575
10.5 Change of Control Agreement dated December 4, 1998, between the Company
2576
and Richard D. Fryar (Incorporated by reference to Exhibit 10.5 of Registrant's
2577
Annual Report on Form 10-K for fiscal year ended September 30, 1998) ................
2578
2579
10.6 Change of Control Agreement dated November 21, 2000, between the Company
2580
and Anthony J. Conway ...............................................................
2581
2582
10.7 Change of Control Agreement dated November 21, 2000, between the Company
2583
and Dara Lynn Horner ................................................................
2584
2585
10.8 Employment Agreement, dated November 16, 1998 between the Company and
2586
Dara Lynn Horner* (Incorporated by reference to Exhibit 10.8 of Registrant's
2587
Annual Report on Form 10-K for fiscal year ended September 30, 1999) ................
2588
2589
10.9 Change of Control Agreement dated November 21, 2000, between the Company
2590
and Martyn R. Sholtis ...............................................................
2591
2592
10.10 Change of Control Agreement dated November 21, 2000, between the Company
2593
and David A. Jonas* .................................................................
2594
2595
10.11 Revised and Restated Distribution Agreement, dated as of May 6, 1998, between
2596
the Company and E. R. Squibb & Sons, Inc. (through its ConvaTec division)
2597
(Incorporated by reference to Exhibit 10.17 of Registrant's Quarterly Report on
2598
Form 10-Q for the quarter ended March 31, 1998) .....................................
2599
2600
23 Consent of Ernst & Young LLP ........................................................
2601
2602
24 Power of Attorney ...................................................................
2603
2604
27 Financial Data Schedule .............................................................
2605
2606
</TABLE>
2607
2608
2609
2610
</TEXT>
2611
</DOCUMENT>
2612
<DOCUMENT>
2613
<TYPE>EX-10.6
2614
<SEQUENCE>2
2615
<FILENAME>0002.txt
2616
<DESCRIPTION>CHANGE OF CONTROL AGREEMENT
2617
<TEXT>
2618
2619
2620
2621
EXHIBIT 10.6
2622
2623
2624
2625
2626
Anthony J. Conway
2627
Rochester Medical Corporation
2628
One Rochester Medical Drive
2629
Stewartville, Minnesota 55976
2630
2631
Dear Anthony:
2632
2633
You are presently the President, Chief Executive Officer and Secretary
2634
of Rochester Medical Corporation, a Minnesota corporation (the "Company"). The
2635
Company considers the establishment and maintenance of a sound and vital
2636
management to be essential to protecting and enhancing the best interests of the
2637
Company and its stockholders. In this connection, the Company recognizes that,
2638
as is the case with many publicly held corporations, the possibility of a Change
2639
in Control (as defined in Section 1 below) of the Company may arise and that
2640
such possibility, and the uncertainty and questions which it may raise among
2641
management, may result in the departure or distraction of management personnel
2642
to the detriment of the Company and its stockholders.
2643
2644
Accordingly, the Compensation Committee (the "Committee") of the Board
2645
of Directors of the Company (the "Board") has determined that appropriate steps
2646
should be taken to reinforce and encourage the continued attention and
2647
dedication of members of the Company's management to their assigned duties
2648
without distraction in circumstances arising from the possibility of a Change in
2649
Control of the Company. In particular, the Board believes it important, should
2650
the Company or its stockholders receive a proposal for transfer of control of
2651
the Company, that you be able to assess and advise the Board whether such
2652
proposal would be in the best interests of the Company and its stockholders and
2653
to take such other action regarding such proposal as the Board might determine
2654
to be appropriate, without being influenced by the uncertainties of your own
2655
personal situation.
2656
2657
In order to induce you to remain in the employ of the Company, this
2658
letter agreement (this "Agreement"), which has been approved by the Committee,
2659
sets forth the severance benefits which the Company agrees will be provided to
2660
you in the event your employment with the Company is terminated subsequent to a
2661
Change in Control of the Company under the circumstances described below. This
2662
Agreement also provides you with certain benefits following a Change in Control
2663
of the Company regardless of whether your employment by the Company is
2664
terminated.
2665
2666
In consideration of these benefits, the Agreement contains a covenant
2667
not to compete (Section 7, below).
2668
2669
2670
<PAGE>
2671
2672
1. Definitions. The following terms shall have the meaning set forth
2673
below unless the context clearly requires otherwise. Terms defined elsewhere in
2674
this Agreement shall have the same meaning throughout this Agreement.
2675
2676
(a) "Cause" shall mean: (i) continued failure by you to perform
2677
substantially your duties with the Company (other than any such failure
2678
resulting from your Disability or from termination by you for Good Reason) which
2679
failure, in the reasonable judgment of the Company, is willful; (ii) any act or
2680
acts of personal dishonesty by you intended to result in your personal
2681
enrichment at the expense of the Company (including but not limited to wrongful
2682
appropriation of funds of the Company or its affiliates); (iii) willful and
2683
deliberate misconduct during the course of employment; or (iv) the commission of
2684
a gross misdemeanor or felony (whether or not the Company is the victim of such
2685
offense).
2686
2687
(b) "Change in Control" shall be deemed to have occurred if: (i) a
2688
tender offer shall be made and consummated for the ownership of fifty percent
2689
(50%) or more of the outstanding Voting Securities of the Company; (ii) the
2690
Company shall be merged or consolidated with another corporation and as a result
2691
of such merger or consolidation less than fifty percent (50%) of the outstanding
2692
Voting Securities of the surviving or resulting corporation shall be owned in
2693
the aggregate by the former shareholders of the Company, other than affiliates
2694
(within the meaning of the Exchange Act) of any party to such merger or
2695
consolidation, as the same shall have existed immediately prior to such merger
2696
or consolidation; (iii) the Company shall sell substantially all of its assets
2697
to another corporation which is not a wholly owned subsidiary of the Company;
2698
(iv) a Person shall acquire fifty percent (50%) or more of the outstanding
2699
Voting Securities of the Company (whether directly, indirectly, beneficially or
2700
of record) (for purposes hereof, ownership of Voting Securities shall take into
2701
account and shall include ownership as determined by applying the provisions of
2702
Rule 13d-3(d)(1)(i) (as in effect on the date hereof) pursuant to the Exchange
2703
Act); or (v) individuals who constitute the Board on the date hereof (the
2704
"Incumbent Board") cease for any reason to constitute at least a majority
2705
thereof, provided that any person becoming a director subsequent to the date
2706
hereof whose election, or nomination for election by the Company's stockholders,
2707
was approved by a vote of at least three-quarters (3/4) of the directors
2708
comprising the Incumbent Board (either by a specific vote or by approval of the
2709
proxy statement of the Company in which such person is named as a nominee for
2710
director, without objection to such nomination) shall be, for purposes of this
2711
clause (v), considered as though such person were a member of the Incumbent
2712
Board. Notwithstanding anything in the foregoing to the contrary, no Change in
2713
Control of the Company shall be deemed to have occurred for purposes of this
2714
Agreement by virtue of any transaction which results in: (A) you, or a group of
2715
Persons which includes you, acquiring, directly or indirectly more than fifty
2716
percent (50%) of the combined voting power of the Company's Voting Securities;
2717
or (B) you becoming immediately employed by a Person which leases and/or manages
2718
substantially all of the assets of the Company, providing that the terms of such
2719
employment do not constitute a "Good Reason" termination as defined in
2720
Subsection 1(f) hereof either when such employment commences or at any time
2721
during the then remaining term of this Agreement.
2722
2723
(c) "Date of Termination" shall mean the date specified in the Notice
2724
of Termination (except in the case of your death, in which case Date of
2725
Termination shall be the date of death).
2726
2727
2728
<PAGE>
2729
2730
(d) "Disability" shall have the same meaning as defined in the
2731
Company's long-term disability plan as in effect immediately prior to the Change
2732
in Control of the Company.
2733
2734
(e) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
2735
amended.
2736
2737
(f) "Good Reason" shall mean termination based on:
2738
2739
(i) the assignment to you of employment responsibilities which
2740
are not of materially comparable responsibility and status as the
2741
employment responsibilities held by you immediately prior to the Change
2742
in Control of the Company;
2743
2744
(i) a reduction by the Company in your rate of compensation
2745
(or an adverse change in the form or timing of the payment thereof) as
2746
in effect immediately prior to the Change in Control of the Company;
2747
2748
(ii) the failure by the Company to continue in effect any Plan
2749
in which you are participating at the time of the Change in Control of
2750
the Company (or Plans providing you with at least substantially similar
2751
benefits) other than a result of the normal expiration of any such Plan
2752
in accordance with its terms as in effect at the time of the Change in
2753
Control of the Company, or the taking of any action, or the failure to
2754
act, by the Company which would adversely affect your continued
2755
participation in any of such Plans on at least as favorable a basis to
2756
you as is the case on the date of the Change in Control of the Company
2757
or which would materially reduce your benefits in the future under any
2758
of such Plans or deprive you of any material benefit enjoyed by you at
2759
the time of the Change in Control in the Company;
2760
2761
(iii) the Company's requiring you to be based anywhere other
2762
than the environs of the municipality where your office is located
2763
immediately prior to the Change in Control of the Company and more than
2764
thirty-five (35) miles from such office location, except for required
2765
travel on the Company's business, and then only to the extent
2766
substantially consistent with the business travel obligations which
2767
your undertook on behalf of the Company prior to the Change in Control
2768
of the Company; or
2769
2770
(iv) the failure by the Company to obtain from any Successor
2771
the assent to this Agreement contemplated by Subsection 8(a) hereof.
2772
2773
(g) "Notice of Termination" shall mean a written notice which shall
2774
state the specific termination provision in this Agreement relied upon. Any
2775
purported termination by the Company or by you following a Change in Control of
2776
the Company shall be communicated by written Notice of Termination to the other
2777
party hereto.
2778
2779
(h) "Person" shall mean and include any individual, corporation,
2780
partnership, group, association or other "person" within the meaning of Section
2781
3(a)(9) or of Section 13(d)(3) (as in effect on the date hereof) of the Exchange
2782
Act, and used in Section 14(d) thereof, other than the
2783
2784
2785
<PAGE>
2786
2787
Company, a wholly-owned subsidiary of the Company or any employee benefit
2788
plan(s) sponsored by the Company or a wholly-owned subsidiary of the Company.
2789
2790
(i) "Plan" shall mean any compensation plan (such as an incentive stock
2791
option or restricted stock plan) or any employee benefit plan (such as a thrift,
2792
pension, profit sharing, medical, disability, accident, life insurance or
2793
relocation plan or policy) or any other plan, program, policy or agreement of
2794
the Company intended to benefit employees generally, management employees as a
2795
group or you in particular, now in existence or becoming effective hereafter
2796
during the term of this Agreement.
2797
2798
(j) "Successor" shall mean any Person that succeeds to, or has the
2799
practical ability to control (either immediately or with the passage of time),
2800
the Company's business directly, by merger, consolidation or other form of
2801
business combination, or indirectly, by purchase of the Company's Voting
2802
Securities, all or substantially all of its assets or otherwise.
2803
2804
(k) "Voting Securities" shall mean securities of a corporation
2805
ordinarily having the right to vote at elections of directors.
2806
2807
2. Term of Agreement. This Agreement shall commence on the date hereof
2808
and shall continue in effect until December 31, 2001; provided, however, that
2809
commencing on January 1, 2002 and each January 1st thereafter, the term of this
2810
Agreement shall automatically be extended for one (1) additional year unless at
2811
least ninety (90) days prior to such January 1st date, the Company or you shall
2812
have given notice that this Agreement shall not be extended; and provided,
2813
further, that this Agreement shall continue in effect for a period of twelve
2814
(12) months beyond the date of a Change in Control of the Company if such Change
2815
in Control of the Company shall have occurred prior to the end of the then
2816
current term.
2817
2818
3. Agreement to Provide Services; Right to Terminate.
2819
2820
(a) Agreement to Provide Services. You agree to remain in the employ of
2821
the Company during the term of this Agreement unless you terminate your
2822
employment because of death or Disability or your termination is for Good Reason
2823
following a Change in Control of the Company.
2824
2825
(b) Right to Terminate Prior to Change in Control. This Agreement does
2826
not constitute a contract of employment or impose on the Company any obligation
2827
to retain you as an employee, to continue your current employment status or to
2828
change any employment policies of the Company. Prior to any Change in Control of
2829
the Company, the Company may terminate your employment at-will with or without
2830
Cause at any time. If a Change in Control of the Company has occurred, the
2831
Company may thereafter terminate your employment as herein provided, subject to
2832
the Company's providing the benefits hereinafter specified in accordance with
2833
the terms hereof.
2834
2835
4. Benefit Payment Upon Fulfillment of Required Service Following
2836
Change in Control. If a Change in Control of the Company has occurred then, so
2837
long as you have
2838
2839
2840
<PAGE>
2841
2842
remained in the employ of the Company during the term of this Agreement
2843
(including the twelve (12) month period following such Change in Control (as
2844
described in Section 2 hereof)), subject to the limitations set forth in Section
2845
10 hereof, within five (5) business days following the end of such twelve (12)
2846
month period the Company shall pay to you a lump sum cash payment equal to two
2847
and one-half (2.5) times your compensation earned on account of your employment
2848
with the Company during the twelve month (12) period prior to the date of the
2849
Change in Control of the Company. For purposes of this Agreement, compensation
2850
shall include your base salary plus any cash amounts received under incentive or
2851
other bonus plans. No payment shall be paid under this Section 4 if you have not
2852
remained in the employ of the Company during the term of this Agreement,
2853
regardless of the reason your employment was earlier terminated.
2854
2855
5. Welfare Benefit Plans upon a Change in Control. Following a Change
2856
in Control of the Company, unless and until your employment by the Company is
2857
terminated for Cause or Disability or you terminate your employment by the
2858
Company other than for Good Reason, the Company shall maintain in full force and
2859
effect, for the continued benefit of you and your dependents for a period
2860
terminating on the earliest of (i) twelve (12) months after the Date of
2861
Termination or (ii) the commencement date of equivalent benefits from a new
2862
employer, each insured and self-insured employee welfare benefit Plan
2863
(including, without limitation, group health, death, dental and disability
2864
plans) in which you were entitled to participate immediately prior to the Change
2865
in Control of the Company, provided that your continued participation is
2866
possible under the general terms and provisions of such Plans (and any
2867
applicable funding media) and provided that you continue to pay an amount equal
2868
to your regular contribution under such Plans for such participation. If, at the
2869
end of twelve (12) months after the date of the Date of Termination, you have
2870
not previously received or are not then receiving equivalent benefits from a new
2871
employer, the Company shall arrange, at your sole cost and expense, to enable
2872
you to convert your and your dependents' coverage under such Plans to individual
2873
policies or programs upon the same terms as employees of the Company may apply
2874
for such conversions. In the event that your participation in any such Plan is
2875
barred, the Company, at your sole cost and expense, shall arrange to have issued
2876
for the benefit of you and your dependents individual policies of insurance
2877
providing benefits substantially similar (on a federal, state and local income
2878
and employment after-tax basis) to those which you otherwise would have been
2879
entitled to receive under such Plans pursuant to this Section 5 or, if such
2880
insurance is not available at a reasonable cost to the Company, the Company
2881
shall otherwise provide you and your dependents equivalent benefits (on a
2882
federal, state and local income and employment after-tax basis). You shall not
2883
be required to pay any premiums or other charges in an amount greater than that
2884
which you would have paid in order to participate in such Plans. Any welfare
2885
benefits which are subject to continuation rights under state or federal law,
2886
and which are provided by the Company pursuant to this Section 5, will be deemed
2887
to be provided by the Company in satisfaction of such continuation requirements
2888
to the extent permitted under such laws.
2889
2890
6. Benefits Upon Termination of Employment Following Change in Control.
2891
2892
(a) Disability or Death. During the term of this Agreement, for any
2893
period following a Change in Control of the Company that you fail to perform
2894
your duties as a result of incapacity due to physical or mental illness, you
2895
shall continue to receive your compensation at the times, in
2896
2897
2898
<PAGE>
2899
2900
the form and at the rate then in effect, and any benefits or awards under any
2901
and all Plans shall continue to accrue during such period to the extent not
2902
inconsistent with such Plans, until your employment is terminated on account of
2903
Disability pursuant to and in accordance with the terms hereof. Thereafter, your
2904
benefits shall be determined in accordance with the Plans (as in effect
2905
immediately prior to a Change in Control of the Company) and as provided in
2906
accordance with this Agreement. If your Death occurs during the term of this
2907
Agreement, and after a Change in Control of the Company but prior to a
2908
termination of your employment, you or your beneficiary (as provided under the
2909
applicable Plans) shall receive all benefits or awards (including, without
2910
limitation, both the cash and stock components) under any and all Plans as in
2911
effect immediately prior to the Change in Control of the Company, and all
2912
benefits to which you or your beneficiary may be entitled under the terms of
2913
this Agreement.
2914
2915
(b) Cause. If, during the term of this Agreement, your employment by
2916
the Company shall be terminated for Cause following a Change in Control of the
2917
Company, the Company shall pay you your compensation through the Date of
2918
Termination at the times, in the form and at the rate in effect just prior to
2919
the time a Notice of Termination is given plus any benefits or awards
2920
(including, without limitation, both the cash and stock components) which
2921
pursuant to the terms of any and all Plans have been earned or become payable,
2922
but which have not yet been paid to you. Thereupon, except as otherwise provided
2923
in this Agreement, the Company shall have no further obligations to you under
2924
this Agreement.
2925
2926
(c) Change in Control Termination. If, during the term of this
2927
Agreement, after a Change in Control of the Company shall have occurred your
2928
employment by the Company shall be terminated by the Company other than for
2929
Cause or shall be terminated by you for Good Reason, then you shall be entitled,
2930
without regard to any contrary provisions of any Plan, to the benefits as
2931
provided below:
2932
2933
(i) Compensation. Subject to the limitations set
2934
forth in Section 10 hereof, within five (5) business days
2935
following the Date of Termination, the Company shall pay your
2936
compensation through such Date of Termination in the form and
2937
at the rate in effect just prior to the time a Notice of
2938
Termination is given plus any benefits or awards (including,
2939
without limitation, both the cash and stock components) which
2940
pursuant to the terms of any and all Plans have been earned or
2941
become payable, but which have not yet been paid to you.
2942
2943
(ii) Outplacement Service. The Company shall pay or
2944
reimburse you for the costs, fees and expenses of reasonable
2945
outplacement assistance services.
2946
2947
(iii) Severance. If your termination occurs under
2948
this Subsection 6(c) within twelve (12) months following a
2949
Change in Control of the Company, then, subject to the
2950
limitations set forth in Section 10 hereof, within five (5)
2951
business days following the Date of Termination, as severance
2952
pay and in lieu of any further salary for periods subsequent
2953
to the Date of Termination, the Company shall pay to you a
2954
lump sum cash payment equal to two and one-half (2.5) times
2955
your compensation earned on account of your employment with
2956
the Company
2957
2958
2959
<PAGE>
2960
2961
during the one (1) year period prior to the date of the Change
2962
in Control of the Company. For purposes of this Agreement,
2963
compensation shall include your base salary plus any cash
2964
amounts received under incentive or other bonus plans.
2965
2966
(d) No Setoff. The amount of any payment provided for in this Section 6
2967
shall not be reduced, offset or subject to recovery by the Company by reason of
2968
any compensation earned by you as the result of employment by another employer
2969
after the Date of Termination or otherwise.
2970
2971
7. Non-Competition; Non-Solicitation. You and the Company recognize
2972
that your services to the Company are special and unique and that your
2973
compensation and other benefits are partly in consideration of and conditioned
2974
upon your not competing with the Company or its subsidiaries, and that a
2975
covenant on your part not to compete during the term of your employment and
2976
during a period of twelve (12) full calendar months thereafter is essential to
2977
protect the business and goodwill of the Company. Accordingly, you agree that
2978
during the term of your employment with the Company or any of its affiliates and
2979
for a period of twelve (12) full calendar months following your termination of
2980
employment for any reason, you shall not, directly or indirectly, alone or as a
2981
partner, officer, director, shareholder or employee of any other firm or entity:
2982
(a) engage in any commercial activity in competition with any substantial part
2983
of the Company's business as conducted during the term of the Agreement or as of
2984
the Date of Termination of your employment or with any substantial part of the
2985
Company's contemplated business; (b) assist, solicit, entice, or induce (or
2986
assist any other person or entity in soliciting, enticing or inducing) any
2987
customer or potential customer (or agent, employee or consultant of any customer
2988
or potential customer) with whom you had contact in the course of your
2989
employment with the Company to deal with a competitor of the Company; and/or (c)
2990
in any manner solicit, assist or encourage (or assist any other person or entity
2991
in soliciting or encouraging) any other officer or employee of the Company to
2992
work or otherwise provide services for you or for any entity in which you
2993
participate in the ownership, management, operation or control of, or is
2994
connected with in any manner as an independent contractor, consultant or
2995
otherwise.. For purposes of this Section 7, "shareholder" shall not include
2996
beneficial ownership of less than five percent (5%) of the combined voting power
2997
of all issued and outstanding voting securities of a publicly held corporation
2998
whose stock is traded on a major stock exchange or quoted on NASDAQ. You agree
2999
that the services you render to the Company are unique and of extraordinary
3000
character; that the Company has agreed to enter into this Agreement and to
3001
compensate you in the manner provided for herein relying on that fact; that this
3002
covenant not to compete is of the essence of this Agreement and that in the
3003
event of a breach or threatened breach of the provisions of the covenant not to
3004
compete the Company would suffer irreparable damage for which there is no
3005
adequate remedy at law since damages would not be readily determinable.
3006
Accordingly, in the event of a breach or a threatened breach by you of this
3007
covenant, the Company shall be entitled to a temporary restraining order and an
3008
injunction restraining you from any such breach issued by a court of competent
3009
jurisdiction notwithstanding the provisions of Section 14 hereof. Should any
3010
court of competent jurisdiction determine that any of the covenants set forth in
3011
this Section 7 are invalid in any respect, the parties agree that the court so
3012
holding may restrict such covenant in time or in area, or in both, or in any
3013
other manner which the court determines sufficient to render the covenant
3014
enforceable against you.
3015
3016
3017
3018
<PAGE>
3019
3020
3021
8. Successors; Binding Agreements.
3022
3023
(a) Upon your written request, the Company will seek to have any
3024
Successor by agreement in form and substance satisfactory to you, assent to the
3025
fulfillment by the Company of the Company's obligations under this Agreement.
3026
Failure of the Company to obtain such assent at least three (3) business days
3027
prior to the time a Person becomes a Successor (or where the Company does not
3028
have at least three (3) business days advance notice that a Person may become a
3029
successor, within one (1) business day after having notice that such Person may
3030
become or has become a Successor) shall constitute Good Reason for termination
3031
by you of your employment and, if a Change in Control of the Company has
3032
occurred, shall entitle you immediately to the benefits provided hereunder upon
3033
delivery by you of a Notice of Termination.
3034
3035
(b) This Agreement shall inure to the benefit of and be enforceable by
3036
you, your personal or legal representatives, executors, administrators,
3037
successors, heirs, distributees, devisees and legatees. If you should die while
3038
any amount would still be payable to you hereunder if you had continued to live,
3039
all such amounts, unless otherwise provided herein, shall be paid in accordance
3040
with the terms of this Agreement to your devisee, legatee or other designee or,
3041
if there be no such designee, to your estate.
3042
3043
(c) For purposes of this Agreement, the "Company" shall include any
3044
corporation or other entity which is the surviving or continuing entity in
3045
respect of any merger, consolidation or other form of business combination in
3046
which the Company ceases to exist.
3047
3048
9. Withholding. All payments to be made to you under this Agreement
3049
will be subject to required withholding of federal, state and local income and
3050
employment taxes.
3051
3052
10. Excess Payment Limitation. Notwithstanding anything in this
3053
Agreement to the contrary, in the event that any payment or benefit received or
3054
to be received by you in connection with a change in control of the Company or
3055
termination of your employment (whether payable pursuant to the terms of this
3056
Agreement or any other plan, contract, agreement or arrangement with the
3057
Company, with any person whose actions result in a change in control of the
3058
Company or with any person constituting a member of an "affiliated group" as
3059
defined in Section 280G(d)(5) of the Internal Revenue Code of 1986, as amended
3060
(the "Code"), with the Company or with any person whose actions result in a
3061
change in control of the Company) (collectively, the "Total Payments") would not
3062
be deductible (in whole or in part) by the Company or such other person making
3063
such payment or providing such benefit solely as a result of Section 280G of the
3064
Code, the amounts payable to you under this Agreement shall be reduced until no
3065
portion of the Total Payments is not deductible solely as a result of Section
3066
280G of the Code or such amounts payable to you under this Agreement are reduced
3067
to zero. For purposes of this limitation: (a) no portion of the Total Payments
3068
shall be taken into account which in the opinion of tax counsel selected by the
3069
Company does not constitute a "parachute payment" within the meaning of
3070
Section 280G(b)(2) of the Code (such as payments payable pursuant to the
3071
Company's standard or general severance policies); (b) payments pursuant to this
3072
Agreement shall be reduced only to the extent necessary so that the Total
3073
Payments (other than those referred to in the immediately preceding clause (a))
3074
in their entirety constitute reasonable compensation within the meaning of
3075
3076
3077
<PAGE>
3078
3079
3080
Section 280G(b)(4)(B) of the Code, in the opinion of the tax counsel referred to
3081
in the immediately preceding clause (a); and (c) the value of any other non-cash
3082
benefit or of any deferred cash payment included in the Total Payments shall be
3083
determined by the Company's independent auditors in accordance with the
3084
principles of Sections 280G(d)(3) and (4) of the Code. In case of uncertainty as
3085
to whether all or some portion of a payment is or is not payable to you under
3086
this Agreement, the Company shall initially make the payment to you, and you
3087
agree to refund to the Company any amounts ultimately determined not to have
3088
been payable under the terms hereof.
3089
3090
11. Notice. For the purposes of this Agreement, notices and all other
3091
communications provided for in or required under this Agreement shall be in
3092
writing and shall be deemed to have been duly given when personally delivered or
3093
when mailed by United States certified or registered mail, return receipt
3094
requested, postage prepaid and addressed to each party's respective address set
3095
forth on the first page of this Agreement (provided that all notices to the
3096
Company shall be directed to the attention of the chairman of the board or
3097
president of the Company, with a copy to the secretary of the Company), or to
3098
such other address as either party may have furnished to the other in writing in
3099
accordance herewith, except that notice of change of address shall be effective
3100
only upon receipt.
3101
3102
12. Validity. The invalidity or unenforceability of any provision of
3103
this Agreement shall not affect the validity or enforceability of any other
3104
provision of this Agreement, which shall remain in full force and effect.
3105
3106
13. Limitation of Damages. If for any reason you believe the benefits
3107
provisions of this Agreement have not been properly adhered to by the Company,
3108
and if, pursuant to Section 14 hereof, it is determined that the Company has
3109
not, in fact, properly adhered to the benefits provisions of this Agreement, the
3110
sole and exclusive remedy to which you are entitled are the benefits payment to
3111
which you are entitled under the provisions of this Agreement.
3112
3113
14. Dispute Resolution. Any dispute or controversy arising under or in
3114
connection with this Agreement shall be settled exclusively by arbitration in
3115
Minneapolis, Minnesota by three (3) arbitrators in accordance with the rules of
3116
the American Arbitration Association then in effect. The decision of the
3117
arbitrators shall be final and binding on both parties. Judgment may be entered
3118
on the arbitrators' award in any court having jurisdiction. The arbitrators
3119
shall strictly adhere to the sole and exclusive remedy set forth in Section 13
3120
hereof and may not award or assess punitive damages against either party. Each
3121
party shall bear its own costs and expenses of the arbitration and one-half
3122
(1/2) of the fees and costs of the arbitrators.
3123
3124
15. Related Agreements. To the extent that any provision of any other
3125
Plan or agreement between the Company or any of its subsidiaries and you shall
3126
limit, qualify or be inconsistent with any provision of this Agreement, then for
3127
purposes of this Agreement, while the same shall remain in force, the provision
3128
of this Agreement shall control and such provision of such other Plan agreement
3129
shall be deemed to have been superseded, and to be of no force or effect, as if
3130
such other agreement had been formally amended to the extent necessary to
3131
accomplish such purpose.
3132
3133
3134
<PAGE>
3135
3136
16. Survival. The respective obligations of, and benefits afforded to,
3137
the Company and you as provided in Sections 4, 5, 6, 7, 8(b), 14 and 15 of this
3138
Agreement shall survive termination of this Agreement and shall remain in full
3139
force and effect according to their terms.
3140
3141
17. Counterparts. This Agreement may be executed in several
3142
counterparts, each of which shall be deemed to be an original but all of which
3143
together will constitute one and the same instrument.
3144
3145
18. Miscellaneous. No provision of this Agreement may be modified,
3146
waived or discharged unless such modification, waiver or discharge is agreed to
3147
in a writing signed by you and the chairman of the board or president of the
3148
Company, provided, however, if you occupy those positions at the time, such
3149
writings shall be signed by another officer of the Company at the direction of
3150
the Board of Directors. No waiver by either party hereto at any time of any
3151
breach by the other party hereto of, or of compliance with, any condition or
3152
provision of this Agreement to be performed by such other party shall be deemed
3153
a waiver of similar or dissimilar provisions or conditions at the same or at any
3154
prior or subsequent time. Any and all previous written or oral agreements with
3155
respect to compensation and/or benefits triggered by a Change in Control of the
3156
Company or a similar event are hereby superseded and canceled, and no other
3157
agreements or representations, oral or otherwise, express or implied, with
3158
respect to the subject matter hereof have been made by either party which are
3159
not expressly set forth in this Agreement. This Agreement and the legal
3160
relations among the parties as to all matters, including, without limitation,
3161
matters of validity, interpretation, construction, performance and remedies,
3162
shall be governed by and construed in accordance with the internal laws of the
3163
State of Minnesota. Headings are for purpose of convenience only and do not
3164
constitute a part of this Agreement. The parties hereto agree to perform, or
3165
cause to be performed, such further acts and deeds and shall execute and
3166
deliver, or cause to be executed and delivered, such additional or supplemental
3167
documents or instruments as may be reasonably required by the other party to
3168
carry into effect the intent and purpose of this Agreement.
3169
3170
3171
<PAGE>
3172
3173
If this letter correctly sets forth our agreement on the subject matter
3174
hereof, kindly sign and return to the Company the enclosed copy of this letter
3175
which will then constitute our agreement on this subject.
3176
3177
Sincerely,
3178
3179
ROCHESTER MEDICAL CORPORATION
3180
3181
3182
By: /s/ Anthony J. Conway
3183
--------------------------
3184
Name: Anthony J. Conway
3185
Title: President and Chief Executive Officer
3186
3187
Agreed to this 21st day of November, 2000.
3188
3189
3190
/s/ Anthony J. Conway
3191
- ---------------------
3192
Anthony J. Conway
3193
3194
3195
</TEXT>
3196
</DOCUMENT>
3197
<DOCUMENT>
3198
<TYPE>EX-10.7
3199
<SEQUENCE>3
3200
<FILENAME>0003.txt
3201
<DESCRIPTION>CHANGE OF CONTROL AGREEMENT
3202
<TEXT>
3203
3204
3205
3206
3207
EXHIBIT 10.7
3208
3209
3210
3211
3212
Dara Lynn Horner
3213
Rochester Medical Corporation
3214
One Rochester Medical Drive
3215
Stewartville, Minnesota 55976
3216
3217
Dear Dara Lynn:
3218
3219
You are presently the Vice President, FEMSOFT Marketing of Rochester
3220
Medical Corporation, a Minnesota corporation (the "Company"). The Company
3221
considers the establishment and maintenance of a sound and vital management to
3222
be essential to protecting and enhancing the best interests of the Company and
3223
its stockholders. In this connection, the Company recognizes that, as is the
3224
case with many publicly held corporations, the possibility of a Change in
3225
Control (as defined in Section 1 below) of the Company may arise and that such
3226
possibility, and the uncertainty and questions which it may raise among
3227
management, may result in the departure or distraction of management personnel
3228
to the detriment of the Company and its stockholders.
3229
3230
Accordingly, the Compensation Committee (the "Committee") of the Board
3231
of Directors of the Company (the "Board") has determined that appropriate steps
3232
should be taken to reinforce and encourage the continued attention and
3233
dedication of members of the Company's management to their assigned duties
3234
without distraction in circumstances arising from the possibility of a Change in
3235
Control of the Company. In particular, the Board believes it important, should
3236
the Company or its stockholders receive a proposal for transfer of control of
3237
the Company, that you be able to assess and advise the Board whether such
3238
proposal would be in the best interests of the Company and its stockholders and
3239
to take such other action regarding such proposal as the Board might determine
3240
to be appropriate, without being influenced by the uncertainties of your own
3241
personal situation.
3242
3243
In order to induce you to remain in the employ of the Company, this
3244
letter agreement (this "Agreement"), which has been approved by the Committee,
3245
sets forth the severance benefits which the Company agrees will be provided to
3246
you in the event your employment with the Company is terminated subsequent to a
3247
Change in Control of the Company under the circumstances described below. This
3248
Agreement also provides you with certain benefits following a Change in Control
3249
of the Company regardless of whether your employment by the Company is
3250
terminated.
3251
3252
In consideration of these benefits, the Agreement contains a covenant
3253
not to compete (Section 7, below).
3254
3255
3256
<PAGE>
3257
3258
1. Definitions. The following terms shall have the meaning set forth
3259
below unless the context clearly requires otherwise. Terms defined elsewhere in
3260
this Agreement shall have the same meaning throughout this Agreement.
3261
3262
(a) "Cause" shall mean: (i) continued failure by you to perform
3263
substantially your duties with the Company (other than any such failure
3264
resulting from your Disability or from termination by you for Good Reason) which
3265
failure, in the reasonable judgment of the Company, is willful; (ii) any act or
3266
acts of personal dishonesty by you intended to result in your personal
3267
enrichment at the expense of the Company (including but not limited to wrongful
3268
appropriation of funds of the Company or its affiliates); (iii) willful and
3269
deliberate misconduct during the course of employment; or (iv) the commission of
3270
a gross misdemeanor or felony (whether or not the Company is the victim of such
3271
offense).
3272
3273
(b) "Change in Control" shall be deemed to have occurred if: (i) a
3274
tender offer shall be made and consummated for the ownership of fifty percent
3275
(50%) or more of the outstanding Voting Securities of the Company; (ii) the
3276
Company shall be merged or consolidated with another corporation and as a result
3277
of such merger or consolidation less than fifty percent (50%) of the outstanding
3278
Voting Securities of the surviving or resulting corporation shall be owned in
3279
the aggregate by the former shareholders of the Company, other than affiliates
3280
(within the meaning of the Exchange Act) of any party to such merger or
3281
consolidation, as the same shall have existed immediately prior to such merger
3282
or consolidation; (iii) the Company shall sell substantially all of its assets
3283
to another corporation which is not a wholly owned subsidiary of the Company;
3284
(iv) a Person shall acquire fifty percent (50%) or more of the outstanding
3285
Voting Securities of the Company (whether directly, indirectly, beneficially or
3286
of record) (for purposes hereof, ownership of Voting Securities shall take into
3287
account and shall include ownership as determined by applying the provisions of
3288
Rule 13d-3(d)(1)(i) (as in effect on the date hereof) pursuant to the Exchange
3289
Act); or (v) individuals who constitute the Board on the date hereof (the
3290
"Incumbent Board") cease for any reason to constitute at least a majority
3291
thereof, provided that any person becoming a director subsequent to the date
3292
hereof whose election, or nomination for election by the Company's stockholders,
3293
was approved by a vote of at least three-quarters (3/4) of the directors
3294
comprising the Incumbent Board (either by a specific vote or by approval of the
3295
proxy statement of the Company in which such person is named as a nominee for
3296
director, without objection to such nomination) shall be, for purposes of this
3297
clause (v), considered as though such person were a member of the Incumbent
3298
Board. Notwithstanding anything in the foregoing to the contrary, no Change in
3299
Control of the Company shall be deemed to have occurred for purposes of this
3300
Agreement by virtue of any transaction which results in: (A) you, or a group of
3301
Persons which includes you, acquiring, directly or indirectly more than fifty
3302
percent (50%) of the combined voting power of the Company's Voting Securities;
3303
or (B) you becoming immediately employed by a Person which leases and/or manages
3304
substantially all of the assets of the Company, providing that the terms of such
3305
employment do not constitute a "Good Reason" termination as defined in
3306
Subsection 1(f) hereof either when such employment commences or at any time
3307
during the then remaining term of this Agreement.
3308
3309
(c) "Date of Termination" shall mean the date specified in the Notice
3310
of Termination (except in the case of your death, in which case Date of
3311
Termination shall be the date of death).
3312
3313
3314
<PAGE>
3315
3316
(d) "Disability" shall have the same meaning as defined in the
3317
Company's long-term disability plan as in effect immediately prior to the Change
3318
in Control of the Company.
3319
3320
(e) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
3321
amended.
3322
3323
(f) "Good Reason" shall mean termination based on:
3324
3325
(i) the assignment to you of employment responsibilities which
3326
are not of materially comparable responsibility and status as the
3327
employment responsibilities held by you immediately prior to the Change
3328
in Control of the Company;
3329
3330
(i) a reduction by the Company in your rate of compensation
3331
(or an adverse change in the form or timing of the payment thereof) as
3332
in effect immediately prior to the Change in Control of the Company;
3333
3334
(ii) the failure by the Company to continue in effect any Plan
3335
in which you are participating at the time of the Change in Control of
3336
the Company (or Plans providing you with at least substantially similar
3337
benefits) other than a result of the normal expiration of any such Plan
3338
in accordance with its terms as in effect at the time of the Change in
3339
Control of the Company, or the taking of any action, or the failure to
3340
act, by the Company which would adversely affect your continued
3341
participation in any of such Plans on at least as favorable a basis to
3342
you as is the case on the date of the Change in Control of the Company
3343
or which would materially reduce your benefits in the future under any
3344
of such Plans or deprive you of any material benefit enjoyed by you at
3345
the time of the Change in Control in the Company;
3346
3347
(iii) the Company's requiring you to be based anywhere other
3348
than the environs of the municipality where your office is located
3349
immediately prior to the Change in Control of the Company and more than
3350
thirty-five (35) miles from such office location, except for required
3351
travel on the Company's business, and then only to the extent
3352
substantially consistent with the business travel obligations which
3353
your undertook on behalf of the Company prior to the Change in Control
3354
of the Company; or
3355
3356
(iv) the failure by the Company to obtain from any Successor
3357
the assent to this Agreement contemplated by Subsection 8(a) hereof.
3358
3359
(g) "Notice of Termination" shall mean a written notice which shall
3360
state the specific termination provision in this Agreement relied upon. Any
3361
purported termination by the Company or by you following a Change in Control of
3362
the Company shall be communicated by written Notice of Termination to the other
3363
party hereto.
3364
3365
(h) "Person" shall mean and include any individual, corporation,
3366
partnership, group, association or other "person" within the meaning of Section
3367
3(a)(9) or of Section 13(d)(3) (as in effect on the date hereof) of the Exchange
3368
Act, and used in Section 14(d) thereof, other than the
3369
3370
3371
<PAGE>
3372
3373
Company, a wholly-owned subsidiary of the Company or any employee benefit
3374
plan(s) sponsored by the Company or a wholly-owned subsidiary of the Company.
3375
3376
(i) "Plan" shall mean any compensation plan (such as an incentive stock
3377
option or restricted stock plan) or any employee benefit plan (such as a thrift,
3378
pension, profit sharing, medical, disability, accident, life insurance or
3379
relocation plan or policy) or any other plan, program, policy or agreement of
3380
the Company intended to benefit employees generally, management employees as a
3381
group or you in particular, now in existence or becoming effective hereafter
3382
during the term of this Agreement.
3383
3384
(j) "Successor" shall mean any Person that succeeds to, or has the
3385
practical ability to control (either immediately or with the passage of time),
3386
the Company's business directly, by merger, consolidation or other form of
3387
business combination, or indirectly, by purchase of the Company's Voting
3388
Securities, all or substantially all of its assets or otherwise.
3389
3390
(k) "Voting Securities" shall mean securities of a corporation
3391
ordinarily having the right to vote at elections of directors.
3392
3393
2. Term of Agreement. This Agreement shall commence on the date hereof
3394
and shall continue in effect until December 31, 2001; provided, however, that
3395
commencing on January 1, 2002 and each January 1st thereafter, the term of this
3396
Agreement shall automatically be extended for one (1) additional year unless at
3397
least ninety (90) days prior to such January 1st date, the Company or you shall
3398
have given notice that this Agreement shall not be extended; and provided,
3399
further, that this Agreement shall continue in effect for a period of twelve
3400
(12) months beyond the date of a Change in Control of the Company if such Change
3401
in Control of the Company shall have occurred prior to the end of the then
3402
current term.
3403
3404
3. Agreement to Provide Services; Right to Terminate.
3405
3406
(a) Agreement to Provide Services. You agree to remain in the employ of
3407
the Company during the term of this Agreement unless you terminate your
3408
employment because of death or Disability or your termination is for Good Reason
3409
following a Change in Control of the Company.
3410
3411
(b) Right to Terminate Prior to Change in Control. This Agreement does
3412
not constitute a contract of employment or impose on the Company any obligation
3413
to retain you as an employee, to continue your current employment status or to
3414
change any employment policies of the Company. Prior to any Change in Control of
3415
the Company, the Company may terminate your employment at-will with or without
3416
Cause at any time. If a Change in Control of the Company has occurred, the
3417
Company may thereafter terminate your employment as herein provided, subject to
3418
the Company's providing the benefits hereinafter specified in accordance with
3419
the terms hereof.
3420
3421
4. Benefit Payment Upon Fulfillment of Required Service Following
3422
Change in Control. If a Change in Control of the Company has occurred then, so
3423
long as you have
3424
3425
3426
<PAGE>
3427
3428
remained in the employ of the Company during the term of this Agreement
3429
(including the twelve (12) month period following such Change in Control (as
3430
described in Section 2 hereof)), subject to the limitations set forth in Section
3431
10 hereof, within five (5) business days following the end of such twelve (12)
3432
month period the Company shall pay to you a lump sum cash payment equal to two
3433
and one-half (2.5) times your compensation earned on account of your employment
3434
with the Company during the twelve month (12) period prior to the date of the
3435
Change in Control of the Company. For purposes of this Agreement, compensation
3436
shall include your base salary plus any cash amounts received under incentive or
3437
other bonus plans. No payment shall be paid under this Section 4 if you have not
3438
remained in the employ of the Company during the term of this Agreement,
3439
regardless of the reason your employment was earlier terminated.
3440
3441
5. Welfare Benefit Plans upon a Change in Control. Following a Change
3442
in Control of the Company, unless and until your employment by the Company is
3443
terminated for Cause or Disability or you terminate your employment by the
3444
Company other than for Good Reason, the Company shall maintain in full force and
3445
effect, for the continued benefit of you and your dependents for a period
3446
terminating on the earliest of (i) twelve (12) months after the Date of
3447
Termination or (ii) the commencement date of equivalent benefits from a new
3448
employer, each insured and self-insured employee welfare benefit Plan
3449
(including, without limitation, group health, death, dental and disability
3450
plans) in which you were entitled to participate immediately prior to the Change
3451
in Control of the Company, provided that your continued participation is
3452
possible under the general terms and provisions of such Plans (and any
3453
applicable funding media) and provided that you continue to pay an amount equal
3454
to your regular contribution under such Plans for such participation. If, at the
3455
end of twelve (12) months after the date of the Date of Termination, you have
3456
not previously received or are not then receiving equivalent benefits from a new
3457
employer, the Company shall arrange, at your sole cost and expense, to enable
3458
you to convert your and your dependents' coverage under such Plans to individual
3459
policies or programs upon the same terms as employees of the Company may apply
3460
for such conversions. In the event that your participation in any such Plan is
3461
barred, the Company, at your sole cost and expense, shall arrange to have issued
3462
for the benefit of you and your dependents individual policies of insurance
3463
providing benefits substantially similar (on a federal, state and local income
3464
and employment after-tax basis) to those which you otherwise would have been
3465
entitled to receive under such Plans pursuant to this Section 5 or, if such
3466
insurance is not available at a reasonable cost to the Company, the Company
3467
shall otherwise provide you and your dependents equivalent benefits (on a
3468
federal, state and local income and employment after-tax basis). You shall not
3469
be required to pay any premiums or other charges in an amount greater than that
3470
which you would have paid in order to participate in such Plans. Any welfare
3471
benefits which are subject to continuation rights under state or federal law,
3472
and which are provided by the Company pursuant to this Section 5, will be deemed
3473
to be provided by the Company in satisfaction of such continuation requirements
3474
to the extent permitted under such laws.
3475
3476
6. Benefits Upon Termination of Employment Following Change in Control.
3477
3478
(a) Disability or Death. During the term of this Agreement, for any
3479
period following a Change in Control of the Company that you fail to perform
3480
your duties as a result of incapacity due to physical or mental illness, you
3481
shall continue to receive your compensation at the times, in
3482
3483
3484
<PAGE>
3485
3486
the form and at the rate then in effect, and any benefits or awards under any
3487
and all Plans shall continue to accrue during such period to the extent not
3488
inconsistent with such Plans, until your employment is terminated on account of
3489
Disability pursuant to and in accordance with the terms hereof. Thereafter, your
3490
benefits shall be determined in accordance with the Plans (as in effect
3491
immediately prior to a Change in Control of the Company) and as provided in
3492
accordance with this Agreement. If your Death occurs during the term of this
3493
Agreement, and after a Change in Control of the Company but prior to a
3494
termination of your employment, you or your beneficiary (as provided under the
3495
applicable Plans) shall receive all benefits or awards (including, without
3496
limitation, both the cash and stock components) under any and all Plans as in
3497
effect immediately prior to the Change in Control of the Company, and all
3498
benefits to which you or your beneficiary may be entitled under the terms of
3499
this Agreement.
3500
3501
(b) Cause. If, during the term of this Agreement, your employment by
3502
the Company shall be terminated for Cause following a Change in Control of the
3503
Company, the Company shall pay you your compensation through the Date of
3504
Termination at the times, in the form and at the rate in effect just prior to
3505
the time a Notice of Termination is given plus any benefits or awards
3506
(including, without limitation, both the cash and stock components) which
3507
pursuant to the terms of any and all Plans have been earned or become payable,
3508
but which have not yet been paid to you. Thereupon, except as otherwise provided
3509
in this Agreement, the Company shall have no further obligations to you under
3510
this Agreement.
3511
3512
(c) Change in Control Termination. If, during the term of this
3513
Agreement, after a Change in Control of the Company shall have occurred your
3514
employment by the Company shall be terminated by the Company other than for
3515
Cause or shall be terminated by you for Good Reason, then you shall be entitled,
3516
without regard to any contrary provisions of any Plan, to the benefits as
3517
provided below:
3518
3519
(i) Compensation. Subject to the limitations set
3520
forth in Section 10 hereof, within five (5) business days
3521
following the Date of Termination, the Company shall pay your
3522
compensation through such Date of Termination in the form and
3523
at the rate in effect just prior to the time a Notice of
3524
Termination is given plus any benefits or awards (including,
3525
without limitation, both the cash and stock components) which
3526
pursuant to the terms of any and all Plans have been earned or
3527
become payable, but which have not yet been paid to you.
3528
3529
(ii) Outplacement Service. The Company shall pay or
3530
reimburse you for the costs, fees and expenses of reasonable
3531
outplacement assistance services.
3532
3533
(iii) Severance. If your termination occurs under
3534
this Subsection 6(c) within twelve (12) months following a
3535
Change in Control of the Company, then, subject to the
3536
limitations set forth in Section 10 hereof, within five (5)
3537
business days following the Date of Termination, as severance
3538
pay and in lieu of any further salary for periods subsequent
3539
to the Date of Termination, the Company shall pay to you a
3540
lump sum cash payment equal to two and one-half (2.5) times
3541
your compensation earned on account of your employment with
3542
the Company
3543
3544
3545
<PAGE>
3546
3547
during the one (1) year period prior to the date of the Change
3548
in Control of the Company. For purposes of this Agreement,
3549
compensation shall include your base salary plus any cash
3550
amounts received under incentive or other bonus plans.
3551
3552
(d) No Setoff. The amount of any payment provided for in this Section 6
3553
shall not be reduced, offset or subject to recovery by the Company by reason of
3554
any compensation earned by you as the result of employment by another employer
3555
after the Date of Termination or otherwise.
3556
3557
7. Non-Competition; Non-Solicitation. You and the Company recognize
3558
that your services to the Company are special and unique and that your
3559
compensation and other benefits are partly in consideration of and conditioned
3560
upon your not competing with the Company or its subsidiaries, and that a
3561
covenant on your part not to compete during the term of your employment and
3562
during a period of twelve (12) full calendar months thereafter is essential to
3563
protect the business and goodwill of the Company. Accordingly, you agree that
3564
during the term of your employment with the Company or any of its affiliates and
3565
for a period of twelve (12) full calendar months following your termination of
3566
employment for any reason, you shall not, directly or indirectly, alone or as a
3567
partner, officer, director, shareholder or employee of any other firm or entity:
3568
(a) engage in any commercial activity in competition with any substantial part
3569
of the Company's business as conducted during the term of the Agreement or as of
3570
the Date of Termination of your employment or with any substantial part of the
3571
Company's contemplated business; (b) assist, solicit, entice, or induce (or
3572
assist any other person or entity in soliciting, enticing or inducing) any
3573
customer or potential customer (or agent, employee or consultant of any customer
3574
or potential customer) with whom you had contact in the course of your
3575
employment with the Company to deal with a competitor of the Company; and/or (c)
3576
in any manner solicit, assist or encourage (or assist any other person or entity
3577
in soliciting or encouraging) any other officer or employee of the Company to
3578
work or otherwise provide services for you or for any entity in which you
3579
participate in the ownership, management, operation or control of, or is
3580
connected with in any manner as an independent contractor, consultant or
3581
otherwise.. For purposes of this Section 7, "shareholder" shall not include
3582
beneficial ownership of less than five percent (5%) of the combined voting power
3583
of all issued and outstanding voting securities of a publicly held corporation
3584
whose stock is traded on a major stock exchange or quoted on NASDAQ. You agree
3585
that the services you render to the Company are unique and of extraordinary
3586
character; that the Company has agreed to enter into this Agreement and to
3587
compensate you in the manner provided for herein relying on that fact; that this
3588
covenant not to compete is of the essence of this Agreement and that in the
3589
event of a breach or threatened breach of the provisions of the covenant not to
3590
compete the Company would suffer irreparable damage for which there is no
3591
adequate remedy at law since damages would not be readily determinable.
3592
Accordingly, in the event of a breach or a threatened breach by you of this
3593
covenant, the Company shall be entitled to a temporary restraining order and an
3594
injunction restraining you from any such breach issued by a court of competent
3595
jurisdiction notwithstanding the provisions of Section 14 hereof. Should any
3596
court of competent jurisdiction determine that any of the covenants set forth in
3597
this Section 7 are invalid in any respect, the parties agree that the court so
3598
holding may restrict such covenant in time or in area, or in both, or in any
3599
other manner which the court determines sufficient to render the covenant
3600
enforceable against you.
3601
3602
3603
3604
<PAGE>
3605
3606
3607
8. Successors; Binding Agreements.
3608
3609
(a) Upon your written request, the Company will seek to have any
3610
Successor by agreement in form and substance satisfactory to you, assent to the
3611
fulfillment by the Company of the Company's obligations under this Agreement.
3612
Failure of the Company to obtain such assent at least three (3) business days
3613
prior to the time a Person becomes a Successor (or where the Company does not
3614
have at least three (3) business days advance notice that a Person may become a
3615
successor, within one (1) business day after having notice that such Person may
3616
become or has become a Successor) shall constitute Good Reason for termination
3617
by you of your employment and, if a Change in Control of the Company has
3618
occurred, shall entitle you immediately to the benefits provided hereunder upon
3619
delivery by you of a Notice of Termination.
3620
3621
(b) This Agreement shall inure to the benefit of and be enforceable by
3622
you, your personal or legal representatives, executors, administrators,
3623
successors, heirs, distributees, devisees and legatees. If you should die while
3624
any amount would still be payable to you hereunder if you had continued to live,
3625
all such amounts, unless otherwise provided herein, shall be paid in accordance
3626
with the terms of this Agreement to your devisee, legatee or other designee or,
3627
if there be no such designee, to your estate.
3628
3629
(c) For purposes of this Agreement, the "Company" shall include any
3630
corporation or other entity which is the surviving or continuing entity in
3631
respect of any merger, consolidation or other form of business combination in
3632
which the Company ceases to exist.
3633
3634
9. Withholding. All payments to be made to you under this Agreement
3635
will be subject to required withholding of federal, state and local income and
3636
employment taxes.
3637
3638
10. Excess Payment Limitation. Notwithstanding anything in this
3639
Agreement to the contrary, in the event that any payment or benefit received or
3640
to be received by you in connection with a change in control of the Company or
3641
termination of your employment (whether payable pursuant to the terms of this
3642
Agreement or any other plan, contract, agreement or arrangement with the
3643
Company, with any person whose actions result in a change in control of the
3644
Company or with any person constituting a member of an "affiliated group" as
3645
defined in Section 280G(d)(5) of the Internal Revenue Code of 1986, as amended
3646
(the "Code"), with the Company or with any person whose actions result in a
3647
change in control of the Company) (collectively, the "Total Payments") would not
3648
be deductible (in whole or in part) by the Company or such other person making
3649
such payment or providing such benefit solely as a result of Section 280G of the
3650
Code, the amounts payable to you under this Agreement shall be reduced until no
3651
portion of the Total Payments is not deductible solely as a result of Section
3652
280G of the Code or such amounts payable to you under this Agreement are reduced
3653
to zero. For purposes of this limitation: (a) no portion of the Total Payments
3654
shall be taken into account which in the opinion of tax counsel selected by the
3655
Company does not constitute a "parachute payment" within the meaning of
3656
Section 280G(b)(2) of the Code (such as payments payable pursuant to the
3657
Company's standard or general severance policies); (b) payments pursuant to this
3658
Agreement shall be reduced only to the extent necessary so that the Total
3659
Payments (other than those referred to in the immediately preceding clause (a))
3660
in their entirety constitute reasonable compensation within the meaning of
3661
3662
3663
<PAGE>
3664
3665
3666
Section 280G(b)(4)(B) of the Code, in the opinion of the tax counsel referred to
3667
in the immediately preceding clause (a); and (c) the value of any other non-cash
3668
benefit or of any deferred cash payment included in the Total Payments shall be
3669
determined by the Company's independent auditors in accordance with the
3670
principles of Sections 280G(d)(3) and (4) of the Code. In case of uncertainty as
3671
to whether all or some portion of a payment is or is not payable to you under
3672
this Agreement, the Company shall initially make the payment to you, and you
3673
agree to refund to the Company any amounts ultimately determined not to have
3674
been payable under the terms hereof.
3675
3676
11. Notice. For the purposes of this Agreement, notices and all other
3677
communications provided for in or required under this Agreement shall be in
3678
writing and shall be deemed to have been duly given when personally delivered or
3679
when mailed by United States certified or registered mail, return receipt
3680
requested, postage prepaid and addressed to each party's respective address set
3681
forth on the first page of this Agreement (provided that all notices to the
3682
Company shall be directed to the attention of the chairman of the board or
3683
president of the Company, with a copy to the secretary of the Company), or to
3684
such other address as either party may have furnished to the other in writing in
3685
accordance herewith, except that notice of change of address shall be effective
3686
only upon receipt.
3687
3688
12. Validity. The invalidity or unenforceability of any provision of
3689
this Agreement shall not affect the validity or enforceability of any other
3690
provision of this Agreement, which shall remain in full force and effect.
3691
3692
13. Limitation of Damages. If for any reason you believe the benefits
3693
provisions of this Agreement have not been properly adhered to by the Company,
3694
and if, pursuant to Section 14 hereof, it is determined that the Company has
3695
not, in fact, properly adhered to the benefits provisions of this Agreement, the
3696
sole and exclusive remedy to which you are entitled are the benefits payment to
3697
which you are entitled under the provisions of this Agreement.
3698
3699
14. Dispute Resolution. Any dispute or controversy arising under or in
3700
connection with this Agreement shall be settled exclusively by arbitration in
3701
Minneapolis, Minnesota by three (3) arbitrators in accordance with the rules of
3702
the American Arbitration Association then in effect. The decision of the
3703
arbitrators shall be final and binding on both parties. Judgment may be entered
3704
on the arbitrators' award in any court having jurisdiction. The arbitrators
3705
shall strictly adhere to the sole and exclusive remedy set forth in Section 13
3706
hereof and may not award or assess punitive damages against either party. Each
3707
party shall bear its own costs and expenses of the arbitration and one-half
3708
(1/2) of the fees and costs of the arbitrators.
3709
3710
15. Related Agreements. To the extent that any provision of any other
3711
Plan or agreement between the Company or any of its subsidiaries and you shall
3712
limit, qualify or be inconsistent with any provision of this Agreement, then for
3713
purposes of this Agreement, while the same shall remain in force, the provision
3714
of this Agreement shall control and such provision of such other Plan agreement
3715
shall be deemed to have been superseded, and to be of no force or effect, as if
3716
such other agreement had been formally amended to the extent necessary to
3717
accomplish such purpose.
3718
3719
3720
<PAGE>
3721
3722
16. Survival. The respective obligations of, and benefits afforded to,
3723
the Company and you as provided in Sections 4, 5, 6, 7, 8(b), 14 and 15 of this
3724
Agreement shall survive termination of this Agreement and shall remain in full
3725
force and effect according to their terms.
3726
3727
17. Counterparts. This Agreement may be executed in several
3728
counterparts, each of which shall be deemed to be an original but all of which
3729
together will constitute one and the same instrument.
3730
3731
18. Miscellaneous. No provision of this Agreement may be modified,
3732
waived or discharged unless such modification, waiver or discharge is agreed to
3733
in a writing signed by you and the chairman of the board or president of the
3734
Company, provided, however, if you occupy those positions at the time, such
3735
writings shall be signed by another officer of the Company at the direction of
3736
the Board of Directors. No waiver by either party hereto at any time of any
3737
breach by the other party hereto of, or of compliance with, any condition or
3738
provision of this Agreement to be performed by such other party shall be deemed
3739
a waiver of similar or dissimilar provisions or conditions at the same or at any
3740
prior or subsequent time. Any and all previous written or oral agreements with
3741
respect to compensation and/or benefits triggered by a Change in Control of the
3742
Company or a similar event are hereby superseded and canceled, and no other
3743
agreements or representations, oral or otherwise, express or implied, with
3744
respect to the subject matter hereof have been made by either party which are
3745
not expressly set forth in this Agreement. This Agreement and the legal
3746
relations among the parties as to all matters, including, without limitation,
3747
matters of validity, interpretation, construction, performance and remedies,
3748
shall be governed by and construed in accordance with the internal laws of the
3749
State of Minnesota. Headings are for purpose of convenience only and do not
3750
constitute a part of this Agreement. The parties hereto agree to perform, or
3751
cause to be performed, such further acts and deeds and shall execute and
3752
deliver, or cause to be executed and delivered, such additional or supplemental
3753
documents or instruments as may be reasonably required by the other party to
3754
carry into effect the intent and purpose of this Agreement.
3755
3756
3757
<PAGE>
3758
3759
If this letter correctly sets forth our agreement on the subject matter
3760
hereof, kindly sign and return to the Company the enclosed copy of this letter
3761
which will then constitute our agreement on this subject.
3762
3763
Sincerely,
3764
3765
ROCHESTER MEDICAL CORPORATION
3766
3767
3768
By: /s/ Anthony J. Conway
3769
--------------------------
3770
Name: Anthony J. Conway
3771
Title: President and Chief Executive Officer
3772
3773
Agreed to this 21st day of November, 2000.
3774
3775
3776
/s/ Dara Lynn Horner
3777
- --------------------
3778
Dara Lynn Horner
3779
3780
</TEXT>
3781
</DOCUMENT>
3782
<DOCUMENT>
3783
<TYPE>EX-10.9
3784
<SEQUENCE>4
3785
<FILENAME>0004.txt
3786
<DESCRIPTION>CHANGE OF CONTROL AGREEMENT
3787
<TEXT>
3788
3789
3790
3791
EXHIBIT 10.9
3792
3793
3794
3795
3796
Martyn R. Sholtis
3797
Rochester Medical Corporation
3798
One Rochester Medical Drive
3799
Stewartville, Minnesota 55976
3800
3801
Dear Martyn:
3802
3803
You are presently the Vice President, Sales and Marketing of Rochester
3804
Medical Corporation, a Minnesota corporation (the "Company"). The Company
3805
considers the establishment and maintenance of a sound and vital management to
3806
be essential to protecting and enhancing the best interests of the Company and
3807
its stockholders. In this connection, the Company recognizes that, as is the
3808
case with many publicly held corporations, the possibility of a Change in
3809
Control (as defined in Section 1 below) of the Company may arise and that such
3810
possibility, and the uncertainty and questions which it may raise among
3811
management, may result in the departure or distraction of management personnel
3812
to the detriment of the Company and its stockholders.
3813
3814
Accordingly, the Compensation Committee (the "Committee") of the Board
3815
of Directors of the Company (the "Board") has determined that appropriate steps
3816
should be taken to reinforce and encourage the continued attention and
3817
dedication of members of the Company's management to their assigned duties
3818
without distraction in circumstances arising from the possibility of a Change in
3819
Control of the Company. In particular, the Board believes it important, should
3820
the Company or its stockholders receive a proposal for transfer of control of
3821
the Company, that you be able to assess and advise the Board whether such
3822
proposal would be in the best interests of the Company and its stockholders and
3823
to take such other action regarding such proposal as the Board might determine
3824
to be appropriate, without being influenced by the uncertainties of your own
3825
personal situation.
3826
3827
In order to induce you to remain in the employ of the Company, this
3828
letter agreement (this "Agreement"), which has been approved by the Committee,
3829
sets forth the severance benefits which the Company agrees will be provided to
3830
you in the event your employment with the Company is terminated subsequent to a
3831
Change in Control of the Company under the circumstances described below. This
3832
Agreement also provides you with certain benefits following a Change in Control
3833
of the Company regardless of whether your employment by the Company is
3834
terminated.
3835
3836
In consideration of these benefits, the Agreement contains a covenant
3837
not to compete (Section 7, below).
3838
<PAGE>
3839
3840
1. Definitions. The following terms shall have the meaning set forth
3841
below unless the context clearly requires otherwise. Terms defined elsewhere in
3842
this Agreement shall have the same meaning throughout this Agreement.
3843
3844
(a) "Cause" shall mean: (i) continued failure by you to perform
3845
substantially your duties with the Company (other than any such failure
3846
resulting from your Disability or from termination by you for Good Reason) which
3847
failure, in the reasonable judgment of the Company, is willful; (ii) any act or
3848
acts of personal dishonesty by you intended to result in your personal
3849
enrichment at the expense of the Company (including but not limited to wrongful
3850
appropriation of funds of the Company or its affiliates); (iii) willful and
3851
deliberate misconduct during the course of employment; or (iv) the commission of
3852
a gross misdemeanor or felony (whether or not the Company is the victim of such
3853
offense).
3854
3855
(b) "Change in Control" shall be deemed to have occurred if: (i) a
3856
tender offer shall be made and consummated for the ownership of fifty percent
3857
(50%) or more of the outstanding Voting Securities of the Company; (ii) the
3858
Company shall be merged or consolidated with another corporation and as a result
3859
of such merger or consolidation less than fifty percent (50%) of the outstanding
3860
Voting Securities of the surviving or resulting corporation shall be owned in
3861
the aggregate by the former shareholders of the Company, other than affiliates
3862
(within the meaning of the Exchange Act) of any party to such merger or
3863
consolidation, as the same shall have existed immediately prior to such merger
3864
or consolidation; (iii) the Company shall sell substantially all of its assets
3865
to another corporation which is not a wholly owned subsidiary of the Company;
3866
(iv) a Person shall acquire fifty percent (50%) or more of the outstanding
3867
Voting Securities of the Company (whether directly, indirectly, beneficially or
3868
of record) (for purposes hereof, ownership of Voting Securities shall take into
3869
account and shall include ownership as determined by applying the provisions of
3870
Rule 13d-3(d)(1)(i) (as in effect on the date hereof) pursuant to the Exchange
3871
Act); or (v) individuals who constitute the Board on the date hereof (the
3872
"Incumbent Board") cease for any reason to constitute at least a majority
3873
thereof, provided that any person becoming a director subsequent to the date
3874
hereof whose election, or nomination for election by the Company's stockholders,
3875
was approved by a vote of at least three-quarters (3/4) of the directors
3876
comprising the Incumbent Board (either by a specific vote or by approval of the
3877
proxy statement of the Company in which such person is named as a nominee for
3878
director, without objection to such nomination) shall be, for purposes of this
3879
clause (v), considered as though such person were a member of the Incumbent
3880
Board. Notwithstanding anything in the foregoing to the contrary, no Change in
3881
Control of the Company shall be deemed to have occurred for purposes of this
3882
Agreement by virtue of any transaction which results in: (A) you, or a group of
3883
Persons which includes you, acquiring, directly or indirectly more than fifty
3884
percent (50%) of the combined voting power of the Company's Voting Securities;
3885
or (B) you becoming immediately employed by a Person which leases and/or manages
3886
substantially all of the assets of the Company, providing that the terms of such
3887
employment do not constitute a "Good Reason" termination as defined in
3888
Subsection 1(f) hereof either when such employment commences or at any time
3889
during the then remaining term of this Agreement.
3890
3891
(c) "Date of Termination" shall mean the date specified in the Notice
3892
of Termination (except in the case of your death, in which case Date of
3893
Termination shall be the date of death).
3894
3895
3896
<PAGE>
3897
3898
(d) "Disability" shall have the same meaning as defined in the
3899
Company's long-term disability plan as in effect immediately prior to the Change
3900
in Control of the Company.
3901
3902
(e) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
3903
amended.
3904
3905
(f) "Good Reason" shall mean termination based on:
3906
3907
(i) the assignment to you of employment responsibilities which
3908
are not of materially comparable responsibility and status as the
3909
employment responsibilities held by you immediately prior to the Change
3910
in Control of the Company;
3911
3912
(i) a reduction by the Company in your rate of compensation
3913
(or an adverse change in the form or timing of the payment thereof) as
3914
in effect immediately prior to the Change in Control of the Company;
3915
3916
(ii) the failure by the Company to continue in effect any Plan
3917
in which you are participating at the time of the Change in Control of
3918
the Company (or Plans providing you with at least substantially similar
3919
benefits) other than a result of the normal expiration of any such Plan
3920
in accordance with its terms as in effect at the time of the Change in
3921
Control of the Company, or the taking of any action, or the failure to
3922
act, by the Company which would adversely affect your continued
3923
participation in any of such Plans on at least as favorable a basis to
3924
you as is the case on the date of the Change in Control of the Company
3925
or which would materially reduce your benefits in the future under any
3926
of such Plans or deprive you of any material benefit enjoyed by you at
3927
the time of the Change in Control in the Company;
3928
3929
(iii) the Company's requiring you to be based anywhere other
3930
than the environs of the municipality where your office is located
3931
immediately prior to the Change in Control of the Company and more than
3932
thirty-five (35) miles from such office location, except for required
3933
travel on the Company's business, and then only to the extent
3934
substantially consistent with the business travel obligations which
3935
your undertook on behalf of the Company prior to the Change in Control
3936
of the Company; or
3937
3938
(iv) the failure by the Company to obtain from any Successor
3939
the assent to this Agreement contemplated by Subsection 8(a) hereof.
3940
3941
(g) "Notice of Termination" shall mean a written notice which shall
3942
state the specific termination provision in this Agreement relied upon. Any
3943
purported termination by the Company or by you following a Change in Control of
3944
the Company shall be communicated by written Notice of Termination to the other
3945
party hereto.
3946
3947
(h) "Person" shall mean and include any individual, corporation,
3948
partnership, group, association or other "person" within the meaning of Section
3949
3(a)(9) or of Section 13(d)(3) (as in effect on the date hereof) of the Exchange
3950
Act, and used in Section 14(d) thereof, other than the
3951
3952
3953
<PAGE>
3954
3955
Company, a wholly-owned subsidiary of the Company or any employee benefit
3956
plan(s) sponsored by the Company or a wholly-owned subsidiary of the Company.
3957
3958
(i) "Plan" shall mean any compensation plan (such as an incentive stock
3959
option or restricted stock plan) or any employee benefit plan (such as a thrift,
3960
pension, profit sharing, medical, disability, accident, life insurance or
3961
relocation plan or policy) or any other plan, program, policy or agreement of
3962
the Company intended to benefit employees generally, management employees as a
3963
group or you in particular, now in existence or becoming effective hereafter
3964
during the term of this Agreement.
3965
3966
(j) "Successor" shall mean any Person that succeeds to, or has the
3967
practical ability to control (either immediately or with the passage of time),
3968
the Company's business directly, by merger, consolidation or other form of
3969
business combination, or indirectly, by purchase of the Company's Voting
3970
Securities, all or substantially all of its assets or otherwise.
3971
3972
(k) "Voting Securities" shall mean securities of a corporation
3973
ordinarily having the right to vote at elections of directors.
3974
3975
2. Term of Agreement. This Agreement shall commence on the date hereof
3976
and shall continue in effect until December 31, 2001; provided, however, that
3977
commencing on January 1, 2002 and each January 1st thereafter, the term of this
3978
Agreement shall automatically be extended for one (1) additional year unless at
3979
least ninety (90) days prior to such January 1st date, the Company or you shall
3980
have given notice that this Agreement shall not be extended; and provided,
3981
further, that this Agreement shall continue in effect for a period of twelve
3982
(12) months beyond the date of a Change in Control of the Company if such Change
3983
in Control of the Company shall have occurred prior to the end of the then
3984
current term.
3985
3986
3. Agreement to Provide Services; Right to Terminate.
3987
3988
(a) Agreement to Provide Services. You agree to remain in the employ of
3989
the Company during the term of this Agreement unless you terminate your
3990
employment because of death or Disability or your termination is for Good Reason
3991
following a Change in Control of the Company.
3992
3993
(b) Right to Terminate Prior to Change in Control. This Agreement does
3994
not constitute a contract of employment or impose on the Company any obligation
3995
to retain you as an employee, to continue your current employment status or to
3996
change any employment policies of the Company. Prior to any Change in Control of
3997
the Company, the Company may terminate your employment at-will with or without
3998
Cause at any time. If a Change in Control of the Company has occurred, the
3999
Company may thereafter terminate your employment as herein provided, subject to
4000
the Company's providing the benefits hereinafter specified in accordance with
4001
the terms hereof.
4002
4003
4. Benefit Payment Upon Fulfillment of Required Service Following
4004
Change in Control. If a Change in Control of the Company has occurred then, so
4005
long as you have
4006
4007
4008
<PAGE>
4009
4010
remained in the employ of the Company during the term of this Agreement
4011
(including the twelve (12) month period following such Change in Control (as
4012
described in Section 2 hereof)), subject to the limitations set forth in Section
4013
10 hereof, within five (5) business days following the end of such twelve (12)
4014
month period the Company shall pay to you a lump sum cash payment equal to two
4015
and one-half (2.5) times your compensation earned on account of your employment
4016
with the Company during the twelve month (12) period prior to the date of the
4017
Change in Control of the Company. For purposes of this Agreement, compensation
4018
shall include your base salary plus any cash amounts received under incentive or
4019
other bonus plans. No payment shall be paid under this Section 4 if you have not
4020
remained in the employ of the Company during the term of this Agreement,
4021
regardless of the reason your employment was earlier terminated.
4022
4023
5. Welfare Benefit Plans upon a Change in Control. Following a Change
4024
in Control of the Company, unless and until your employment by the Company is
4025
terminated for Cause or Disability or you terminate your employment by the
4026
Company other than for Good Reason, the Company shall maintain in full force and
4027
effect, for the continued benefit of you and your dependents for a period
4028
terminating on the earliest of (i) twelve (12) months after the Date of
4029
Termination or (ii) the commencement date of equivalent benefits from a new
4030
employer, each insured and self-insured employee welfare benefit Plan
4031
(including, without limitation, group health, death, dental and disability
4032
plans) in which you were entitled to participate immediately prior to the Change
4033
in Control of the Company, provided that your continued participation is
4034
possible under the general terms and provisions of such Plans (and any
4035
applicable funding media) and provided that you continue to pay an amount equal
4036
to your regular contribution under such Plans for such participation. If, at the
4037
end of twelve (12) months after the date of the Date of Termination, you have
4038
not previously received or are not then receiving equivalent benefits from a new
4039
employer, the Company shall arrange, at your sole cost and expense, to enable
4040
you to convert your and your dependents' coverage under such Plans to individual
4041
policies or programs upon the same terms as employees of the Company may apply
4042
for such conversions. In the event that your participation in any such Plan is
4043
barred, the Company, at your sole cost and expense, shall arrange to have issued
4044
for the benefit of you and your dependents individual policies of insurance
4045
providing benefits substantially similar (on a federal, state and local income
4046
and employment after-tax basis) to those which you otherwise would have been
4047
entitled to receive under such Plans pursuant to this Section 5 or, if such
4048
insurance is not available at a reasonable cost to the Company, the Company
4049
shall otherwise provide you and your dependents equivalent benefits (on a
4050
federal, state and local income and employment after-tax basis). You shall not
4051
be required to pay any premiums or other charges in an amount greater than that
4052
which you would have paid in order to participate in such Plans. Any welfare
4053
benefits which are subject to continuation rights under state or federal law,
4054
and which are provided by the Company pursuant to this Section 5, will be deemed
4055
to be provided by the Company in satisfaction of such continuation requirements
4056
to the extent permitted under such laws.
4057
4058
6. Benefits Upon Termination of Employment Following Change in Control.
4059
4060
(a) Disability or Death. During the term of this Agreement, for any
4061
period following a Change in Control of the Company that you fail to perform
4062
your duties as a result of incapacity due to physical or mental illness, you
4063
shall continue to receive your compensation at the times, in
4064
4065
4066
<PAGE>
4067
4068
the form and at the rate then in effect, and any benefits or awards under any
4069
and all Plans shall continue to accrue during such period to the extent not
4070
inconsistent with such Plans, until your employment is terminated on account of
4071
Disability pursuant to and in accordance with the terms hereof. Thereafter, your
4072
benefits shall be determined in accordance with the Plans (as in effect
4073
immediately prior to a Change in Control of the Company) and as provided in
4074
accordance with this Agreement. If your Death occurs during the term of this
4075
Agreement, and after a Change in Control of the Company but prior to a
4076
termination of your employment, you or your beneficiary (as provided under the
4077
applicable Plans) shall receive all benefits or awards (including, without
4078
limitation, both the cash and stock components) under any and all Plans as in
4079
effect immediately prior to the Change in Control of the Company, and all
4080
benefits to which you or your beneficiary may be entitled under the terms of
4081
this Agreement.
4082
4083
(b) Cause. If, during the term of this Agreement, your employment by
4084
the Company shall be terminated for Cause following a Change in Control of the
4085
Company, the Company shall pay you your compensation through the Date of
4086
Termination at the times, in the form and at the rate in effect just prior to
4087
the time a Notice of Termination is given plus any benefits or awards
4088
(including, without limitation, both the cash and stock components) which
4089
pursuant to the terms of any and all Plans have been earned or become payable,
4090
but which have not yet been paid to you. Thereupon, except as otherwise provided
4091
in this Agreement, the Company shall have no further obligations to you under
4092
this Agreement.
4093
4094
(c) Change in Control Termination. If, during the term of this
4095
Agreement, after a Change in Control of the Company shall have occurred your
4096
employment by the Company shall be terminated by the Company other than for
4097
Cause or shall be terminated by you for Good Reason, then you shall be entitled,
4098
without regard to any contrary provisions of any Plan, to the benefits as
4099
provided below:
4100
4101
(i) Compensation. Subject to the limitations set
4102
forth in Section 10 hereof, within five (5) business days
4103
following the Date of Termination, the Company shall pay your
4104
compensation through such Date of Termination in the form and
4105
at the rate in effect just prior to the time a Notice of
4106
Termination is given plus any benefits or awards (including,
4107
without limitation, both the cash and stock components) which
4108
pursuant to the terms of any and all Plans have been earned or
4109
become payable, but which have not yet been paid to you.
4110
4111
(ii) Outplacement Service. The Company shall pay or
4112
reimburse you for the costs, fees and expenses of reasonable
4113
outplacement assistance services.
4114
4115
(iii) Severance. If your termination occurs under
4116
this Subsection 6(c) within twelve (12) months following a
4117
Change in Control of the Company, then, subject to the
4118
limitations set forth in Section 10 hereof, within five (5)
4119
business days following the Date of Termination, as severance
4120
pay and in lieu of any further salary for periods subsequent
4121
to the Date of Termination, the Company shall pay to you a
4122
lump sum cash payment equal to two and one-half (2.5) times
4123
your compensation earned on account of your employment with
4124
the Company
4125
4126
4127
<PAGE>
4128
4129
during the one (1) year period prior to the date of the Change
4130
in Control of the Company. For purposes of this Agreement,
4131
compensation shall include your base salary plus any cash
4132
amounts received under incentive or other bonus plans.
4133
4134
(d) No Setoff. The amount of any payment provided for in this Section 6
4135
shall not be reduced, offset or subject to recovery by the Company by reason of
4136
any compensation earned by you as the result of employment by another employer
4137
after the Date of Termination or otherwise.
4138
4139
7. Non-Competition; Non-Solicitation. You and the Company recognize
4140
that your services to the Company are special and unique and that your
4141
compensation and other benefits are partly in consideration of and conditioned
4142
upon your not competing with the Company or its subsidiaries, and that a
4143
covenant on your part not to compete during the term of your employment and
4144
during a period of twelve (12) full calendar months thereafter is essential to
4145
protect the business and goodwill of the Company. Accordingly, you agree that
4146
during the term of your employment with the Company or any of its affiliates and
4147
for a period of twelve (12) full calendar months following your termination of
4148
employment for any reason, you shall not, directly or indirectly, alone or as a
4149
partner, officer, director, shareholder or employee of any other firm or entity:
4150
(a) engage in any commercial activity in competition with any substantial part
4151
of the Company's business as conducted during the term of the Agreement or as of
4152
the Date of Termination of your employment or with any substantial part of the
4153
Company's contemplated business; (b) assist, solicit, entice, or induce (or
4154
assist any other person or entity in soliciting, enticing or inducing) any
4155
customer or potential customer (or agent, employee or consultant of any customer
4156
or potential customer) with whom you had contact in the course of your
4157
employment with the Company to deal with a competitor of the Company; and/or (c)
4158
in any manner solicit, assist or encourage (or assist any other person or entity
4159
in soliciting or encouraging) any other officer or employee of the Company to
4160
work or otherwise provide services for you or for any entity in which you
4161
participate in the ownership, management, operation or control of, or is
4162
connected with in any manner as an independent contractor, consultant or
4163
otherwise.. For purposes of this Section 7, "shareholder" shall not include
4164
beneficial ownership of less than five percent (5%) of the combined voting power
4165
of all issued and outstanding voting securities of a publicly held corporation
4166
whose stock is traded on a major stock exchange or quoted on NASDAQ. You agree
4167
that the services you render to the Company are unique and of extraordinary
4168
character; that the Company has agreed to enter into this Agreement and to
4169
compensate you in the manner provided for herein relying on that fact; that this
4170
covenant not to compete is of the essence of this Agreement and that in the
4171
event of a breach or threatened breach of the provisions of the covenant not to
4172
compete the Company would suffer irreparable damage for which there is no
4173
adequate remedy at law since damages would not be readily determinable.
4174
Accordingly, in the event of a breach or a threatened breach by you of this
4175
covenant, the Company shall be entitled to a temporary restraining order and an
4176
injunction restraining you from any such breach issued by a court of competent
4177
jurisdiction notwithstanding the provisions of Section 14 hereof. Should any
4178
court of competent jurisdiction determine that any of the covenants set forth in
4179
this Section 7 are invalid in any respect, the parties agree that the court so
4180
holding may restrict such covenant in time or in area, or in both, or in any
4181
other manner which the court determines sufficient to render the covenant
4182
enforceable against you.
4183
4184
4185
4186
<PAGE>
4187
4188
4189
8. Successors; Binding Agreements.
4190
4191
(a) Upon your written request, the Company will seek to have any
4192
Successor by agreement in form and substance satisfactory to you, assent to the
4193
fulfillment by the Company of the Company's obligations under this Agreement.
4194
Failure of the Company to obtain such assent at least three (3) business days
4195
prior to the time a Person becomes a Successor (or where the Company does not
4196
have at least three (3) business days advance notice that a Person may become a
4197
successor, within one (1) business day after having notice that such Person may
4198
become or has become a Successor) shall constitute Good Reason for termination
4199
by you of your employment and, if a Change in Control of the Company has
4200
occurred, shall entitle you immediately to the benefits provided hereunder upon
4201
delivery by you of a Notice of Termination.
4202
4203
(b) This Agreement shall inure to the benefit of and be enforceable by
4204
you, your personal or legal representatives, executors, administrators,
4205
successors, heirs, distributees, devisees and legatees. If you should die while
4206
any amount would still be payable to you hereunder if you had continued to live,
4207
all such amounts, unless otherwise provided herein, shall be paid in accordance
4208
with the terms of this Agreement to your devisee, legatee or other designee or,
4209
if there be no such designee, to your estate.
4210
4211
(c) For purposes of this Agreement, the "Company" shall include any
4212
corporation or other entity which is the surviving or continuing entity in
4213
respect of any merger, consolidation or other form of business combination in
4214
which the Company ceases to exist.
4215
4216
9. Withholding. All payments to be made to you under this Agreement
4217
will be subject to required withholding of federal, state and local income and
4218
employment taxes.
4219
4220
10. Excess Payment Limitation. Notwithstanding anything in this
4221
Agreement to the contrary, in the event that any payment or benefit received or
4222
to be received by you in connection with a change in control of the Company or
4223
termination of your employment (whether payable pursuant to the terms of this
4224
Agreement or any other plan, contract, agreement or arrangement with the
4225
Company, with any person whose actions result in a change in control of the
4226
Company or with any person constituting a member of an "affiliated group" as
4227
defined in Section 280G(d)(5) of the Internal Revenue Code of 1986, as amended
4228
(the "Code"), with the Company or with any person whose actions result in a
4229
change in control of the Company) (collectively, the "Total Payments") would not
4230
be deductible (in whole or in part) by the Company or such other person making
4231
such payment or providing such benefit solely as a result of Section 280G of the
4232
Code, the amounts payable to you under this Agreement shall be reduced until no
4233
portion of the Total Payments is not deductible solely as a result of Section
4234
280G of the Code or such amounts payable to you under this Agreement are reduced
4235
to zero. For purposes of this limitation: (a) no portion of the Total Payments
4236
shall be taken into account which in the opinion of tax counsel selected by the
4237
Company does not constitute a "parachute payment" within the meaning of
4238
Section 280G(b)(2) of the Code (such as payments payable pursuant to the
4239
Company's standard or general severance policies); (b) payments pursuant to this
4240
Agreement shall be reduced only to the extent necessary so that the Total
4241
Payments (other than those referred to in the immediately preceding clause (a))
4242
in their entirety constitute reasonable compensation within the meaning of
4243
4244
4245
<PAGE>
4246
4247
4248
Section 280G(b)(4)(B) of the Code, in the opinion of the tax counsel referred to
4249
in the immediately preceding clause (a); and (c) the value of any other non-cash
4250
benefit or of any deferred cash payment included in the Total Payments shall be
4251
determined by the Company's independent auditors in accordance with the
4252
principles of Sections 280G(d)(3) and (4) of the Code. In case of uncertainty as
4253
to whether all or some portion of a payment is or is not payable to you under
4254
this Agreement, the Company shall initially make the payment to you, and you
4255
agree to refund to the Company any amounts ultimately determined not to have
4256
been payable under the terms hereof.
4257
4258
11. Notice. For the purposes of this Agreement, notices and all other
4259
communications provided for in or required under this Agreement shall be in
4260
writing and shall be deemed to have been duly given when personally delivered or
4261
when mailed by United States certified or registered mail, return receipt
4262
requested, postage prepaid and addressed to each party's respective address set
4263
forth on the first page of this Agreement (provided that all notices to the
4264
Company shall be directed to the attention of the chairman of the board or
4265
president of the Company, with a copy to the secretary of the Company), or to
4266
such other address as either party may have furnished to the other in writing in
4267
accordance herewith, except that notice of change of address shall be effective
4268
only upon receipt.
4269
4270
12. Validity. The invalidity or unenforceability of any provision of
4271
this Agreement shall not affect the validity or enforceability of any other
4272
provision of this Agreement, which shall remain in full force and effect.
4273
4274
13. Limitation of Damages. If for any reason you believe the benefits
4275
provisions of this Agreement have not been properly adhered to by the Company,
4276
and if, pursuant to Section 14 hereof, it is determined that the Company has
4277
not, in fact, properly adhered to the benefits provisions of this Agreement, the
4278
sole and exclusive remedy to which you are entitled are the benefits payment to
4279
which you are entitled under the provisions of this Agreement.
4280
4281
14. Dispute Resolution. Any dispute or controversy arising under or in
4282
connection with this Agreement shall be settled exclusively by arbitration in
4283
Minneapolis, Minnesota by three (3) arbitrators in accordance with the rules of
4284
the American Arbitration Association then in effect. The decision of the
4285
arbitrators shall be final and binding on both parties. Judgment may be entered
4286
on the arbitrators' award in any court having jurisdiction. The arbitrators
4287
shall strictly adhere to the sole and exclusive remedy set forth in Section 13
4288
hereof and may not award or assess punitive damages against either party. Each
4289
party shall bear its own costs and expenses of the arbitration and one-half
4290
(1/2) of the fees and costs of the arbitrators.
4291
4292
15. Related Agreements. To the extent that any provision of any other
4293
Plan or agreement between the Company or any of its subsidiaries and you shall
4294
limit, qualify or be inconsistent with any provision of this Agreement, then for
4295
purposes of this Agreement, while the same shall remain in force, the provision
4296
of this Agreement shall control and such provision of such other Plan agreement
4297
shall be deemed to have been superseded, and to be of no force or effect, as if
4298
such other agreement had been formally amended to the extent necessary to
4299
accomplish such purpose.
4300
4301
4302
<PAGE>
4303
4304
16. Survival. The respective obligations of, and benefits afforded to,
4305
the Company and you as provided in Sections 4, 5, 6, 7, 8(b), 14 and 15 of this
4306
Agreement shall survive termination of this Agreement and shall remain in full
4307
force and effect according to their terms.
4308
4309
17. Counterparts. This Agreement may be executed in several
4310
counterparts, each of which shall be deemed to be an original but all of which
4311
together will constitute one and the same instrument.
4312
4313
18. Miscellaneous. No provision of this Agreement may be modified,
4314
waived or discharged unless such modification, waiver or discharge is agreed to
4315
in a writing signed by you and the chairman of the board or president of the
4316
Company, provided, however, if you occupy those positions at the time, such
4317
writings shall be signed by another officer of the Company at the direction of
4318
the Board of Directors. No waiver by either party hereto at any time of any
4319
breach by the other party hereto of, or of compliance with, any condition or
4320
provision of this Agreement to be performed by such other party shall be deemed
4321
a waiver of similar or dissimilar provisions or conditions at the same or at any
4322
prior or subsequent time. Any and all previous written or oral agreements with
4323
respect to compensation and/or benefits triggered by a Change in Control of the
4324
Company or a similar event are hereby superseded and canceled, and no other
4325
agreements or representations, oral or otherwise, express or implied, with
4326
respect to the subject matter hereof have been made by either party which are
4327
not expressly set forth in this Agreement. This Agreement and the legal
4328
relations among the parties as to all matters, including, without limitation,
4329
matters of validity, interpretation, construction, performance and remedies,
4330
shall be governed by and construed in accordance with the internal laws of the
4331
State of Minnesota. Headings are for purpose of convenience only and do not
4332
constitute a part of this Agreement. The parties hereto agree to perform, or
4333
cause to be performed, such further acts and deeds and shall execute and
4334
deliver, or cause to be executed and delivered, such additional or supplemental
4335
documents or instruments as may be reasonably required by the other party to
4336
carry into effect the intent and purpose of this Agreement.
4337
4338
4339
<PAGE>
4340
4341
If this letter correctly sets forth our agreement on the subject matter
4342
hereof, kindly sign and return to the Company the enclosed copy of this letter
4343
which will then constitute our agreement on this subject.
4344
4345
Sincerely,
4346
4347
ROCHESTER MEDICAL CORPORATION
4348
4349
4350
By: /s/ Anthony J. Conway
4351
--------------------------
4352
Name: Anthony J. Conway
4353
Title: President and Chief Executive Officer
4354
4355
Agreed to this 21st day of November, 2000.
4356
4357
4358
/s/ Martyn R. Sholtis
4359
- ---------------------
4360
Martyn R. Sholtis
4361
4362
4363
</TEXT>
4364
</DOCUMENT>
4365
<DOCUMENT>
4366
<TYPE>EX-10.10
4367
<SEQUENCE>5
4368
<FILENAME>0005.txt
4369
<DESCRIPTION>CHANGE OF CONTROL AGREEMENT
4370
<TEXT>
4371
4372
4373
EXHIBIT 10.10
4374
4375
4376
4377
4378
David A. Jonas
4379
Rochester Medical Corporation
4380
One Rochester Medical Drive
4381
Stewartville, Minnesota 55976
4382
4383
Dear David:
4384
4385
You are presently the Controller, Director of Operations and Principle
4386
Financial Officer of Rochester Medical Corporation, a Minnesota corporation (the
4387
"Company"). The Company considers the establishment and maintenance of a sound
4388
and vital management to be essential to protecting and enhancing the best
4389
interests of the Company and its stockholders. In this connection, the Company
4390
recognizes that, as is the case with many publicly held corporations, the
4391
possibility of a Change in Control (as defined in Section 1 below) of the
4392
Company may arise and that such possibility, and the uncertainty and questions
4393
which it may raise among management, may result in the departure or distraction
4394
of management personnel to the detriment of the Company and its stockholders.
4395
4396
Accordingly, the Compensation Committee (the "Committee") of the Board
4397
of Directors of the Company (the "Board") has determined that appropriate steps
4398
should be taken to reinforce and encourage the continued attention and
4399
dedication of members of the Company's management to their assigned duties
4400
without distraction in circumstances arising from the possibility of a Change in
4401
Control of the Company. In particular, the Board believes it important, should
4402
the Company or its stockholders receive a proposal for transfer of control of
4403
the Company, that you be able to assess and advise the Board whether such
4404
proposal would be in the best interests of the Company and its stockholders and
4405
to take such other action regarding such proposal as the Board might determine
4406
to be appropriate, without being influenced by the uncertainties of your own
4407
personal situation.
4408
4409
In order to induce you to remain in the employ of the Company, this
4410
letter agreement (this "Agreement"), which has been approved by the Committee,
4411
sets forth the severance benefits which the Company agrees will be provided to
4412
you in the event your employment with the Company is terminated subsequent to a
4413
Change in Control of the Company under the circumstances described below. This
4414
Agreement also provides you with certain benefits following a Change in Control
4415
of the Company regardless of whether your employment by the Company is
4416
terminated.
4417
4418
In consideration of these benefits, the Agreement contains a covenant
4419
not to compete (Section 7, below).
4420
4421
4422
<PAGE>
4423
4424
1. Definitions. The following terms shall have the meaning set forth
4425
below unless the context clearly requires otherwise. Terms defined elsewhere in
4426
this Agreement shall have the same meaning throughout this Agreement.
4427
4428
(a) "Cause" shall mean: (i) continued failure by you to perform
4429
substantially your duties with the Company (other than any such failure
4430
resulting from your Disability or from termination by you for Good Reason) which
4431
failure, in the reasonable judgment of the Company, is willful; (ii) any act or
4432
acts of personal dishonesty by you intended to result in your personal
4433
enrichment at the expense of the Company (including but not limited to wrongful
4434
appropriation of funds of the Company or its affiliates); (iii) willful and
4435
deliberate misconduct during the course of employment; or (iv) the commission of
4436
a gross misdemeanor or felony (whether or not the Company is the victim of such
4437
offense).
4438
4439
(b) "Change in Control" shall be deemed to have occurred if: (i) a
4440
tender offer shall be made and consummated for the ownership of fifty percent
4441
(50%) or more of the outstanding Voting Securities of the Company; (ii) the
4442
Company shall be merged or consolidated with another corporation and as a result
4443
of such merger or consolidation less than fifty percent (50%) of the outstanding
4444
Voting Securities of the surviving or resulting corporation shall be owned in
4445
the aggregate by the former shareholders of the Company, other than affiliates
4446
(within the meaning of the Exchange Act) of any party to such merger or
4447
consolidation, as the same shall have existed immediately prior to such merger
4448
or consolidation; (iii) the Company shall sell substantially all of its assets
4449
to another corporation which is not a wholly owned subsidiary of the Company;
4450
(iv) a Person shall acquire fifty percent (50%) or more of the outstanding
4451
Voting Securities of the Company (whether directly, indirectly, beneficially or
4452
of record) (for purposes hereof, ownership of Voting Securities shall take into
4453
account and shall include ownership as determined by applying the provisions of
4454
Rule 13d-3(d)(1)(i) (as in effect on the date hereof) pursuant to the Exchange
4455
Act); or (v) individuals who constitute the Board on the date hereof (the
4456
"Incumbent Board") cease for any reason to constitute at least a majority
4457
thereof, provided that any person becoming a director subsequent to the date
4458
hereof whose election, or nomination for election by the Company's stockholders,
4459
was approved by a vote of at least three-quarters (3/4) of the directors
4460
comprising the Incumbent Board (either by a specific vote or by approval of the
4461
proxy statement of the Company in which such person is named as a nominee for
4462
director, without objection to such nomination) shall be, for purposes of this
4463
clause (v), considered as though such person were a member of the Incumbent
4464
Board. Notwithstanding anything in the foregoing to the contrary, no Change in
4465
Control of the Company shall be deemed to have occurred for purposes of this
4466
Agreement by virtue of any transaction which results in: (A) you, or a group of
4467
Persons which includes you, acquiring, directly or indirectly more than fifty
4468
percent (50%) of the combined voting power of the Company's Voting Securities;
4469
or (B) you becoming immediately employed by a Person which leases and/or manages
4470
substantially all of the assets of the Company, providing that the terms of such
4471
employment do not constitute a "Good Reason" termination as defined in
4472
Subsection 1(f) hereof either when such employment commences or at any time
4473
during the then remaining term of this Agreement.
4474
4475
(c) "Date of Termination" shall mean the date specified in the Notice
4476
of Termination (except in the case of your death, in which case Date of
4477
Termination shall be the date of death).
4478
4479
4480
<PAGE>
4481
4482
(d) "Disability" shall have the same meaning as defined in the
4483
Company's long-term disability plan as in effect immediately prior to the Change
4484
in Control of the Company.
4485
4486
(e) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
4487
amended.
4488
4489
(f) "Good Reason" shall mean termination based on:
4490
4491
(i) the assignment to you of employment responsibilities which
4492
are not of materially comparable responsibility and status as the
4493
employment responsibilities held by you immediately prior to the Change
4494
in Control of the Company;
4495
4496
(i) a reduction by the Company in your rate of compensation
4497
(or an adverse change in the form or timing of the payment thereof) as
4498
in effect immediately prior to the Change in Control of the Company;
4499
4500
(ii) the failure by the Company to continue in effect any Plan
4501
in which you are participating at the time of the Change in Control of
4502
the Company (or Plans providing you with at least substantially similar
4503
benefits) other than a result of the normal expiration of any such Plan
4504
in accordance with its terms as in effect at the time of the Change in
4505
Control of the Company, or the taking of any action, or the failure to
4506
act, by the Company which would adversely affect your continued
4507
participation in any of such Plans on at least as favorable a basis to
4508
you as is the case on the date of the Change in Control of the Company
4509
or which would materially reduce your benefits in the future under any
4510
of such Plans or deprive you of any material benefit enjoyed by you at
4511
the time of the Change in Control in the Company;
4512
4513
(iii) the Company's requiring you to be based anywhere other
4514
than the environs of the municipality where your office is located
4515
immediately prior to the Change in Control of the Company and more than
4516
thirty-five (35) miles from such office location, except for required
4517
travel on the Company's business, and then only to the extent
4518
substantially consistent with the business travel obligations which
4519
your undertook on behalf of the Company prior to the Change in Control
4520
of the Company; or
4521
4522
(iv) the failure by the Company to obtain from any Successor
4523
the assent to this Agreement contemplated by Subsection 8(a) hereof.
4524
4525
(g) "Notice of Termination" shall mean a written notice which shall
4526
state the specific termination provision in this Agreement relied upon. Any
4527
purported termination by the Company or by you following a Change in Control of
4528
the Company shall be communicated by written Notice of Termination to the other
4529
party hereto.
4530
4531
(h) "Person" shall mean and include any individual, corporation,
4532
partnership, group, association or other "person" within the meaning of Section
4533
3(a)(9) or of Section 13(d)(3) (as in effect on the date hereof) of the Exchange
4534
Act, and used in Section 14(d) thereof, other than the
4535
4536
4537
<PAGE>
4538
4539
Company, a wholly-owned subsidiary of the Company or any employee benefit
4540
plan(s) sponsored by the Company or a wholly-owned subsidiary of the Company.
4541
4542
(i) "Plan" shall mean any compensation plan (such as an incentive stock
4543
option or restricted stock plan) or any employee benefit plan (such as a thrift,
4544
pension, profit sharing, medical, disability, accident, life insurance or
4545
relocation plan or policy) or any other plan, program, policy or agreement of
4546
the Company intended to benefit employees generally, management employees as a
4547
group or you in particular, now in existence or becoming effective hereafter
4548
during the term of this Agreement.
4549
4550
(j) "Successor" shall mean any Person that succeeds to, or has the
4551
practical ability to control (either immediately or with the passage of time),
4552
the Company's business directly, by merger, consolidation or other form of
4553
business combination, or indirectly, by purchase of the Company's Voting
4554
Securities, all or substantially all of its assets or otherwise.
4555
4556
(k) "Voting Securities" shall mean securities of a corporation
4557
ordinarily having the right to vote at elections of directors.
4558
4559
2. Term of Agreement. This Agreement shall commence on the date hereof
4560
and shall continue in effect until December 31, 2001; provided, however, that
4561
commencing on January 1, 2002 and each January 1st thereafter, the term of this
4562
Agreement shall automatically be extended for one (1) additional year unless at
4563
least ninety (90) days prior to such January 1st date, the Company or you shall
4564
have given notice that this Agreement shall not be extended; and provided,
4565
further, that this Agreement shall continue in effect for a period of twelve
4566
(12) months beyond the date of a Change in Control of the Company if such Change
4567
in Control of the Company shall have occurred prior to the end of the then
4568
current term.
4569
4570
3. Agreement to Provide Services; Right to Terminate.
4571
4572
(a) Agreement to Provide Services. You agree to remain in the employ of
4573
the Company during the term of this Agreement unless you terminate your
4574
employment because of death or Disability or your termination is for Good Reason
4575
following a Change in Control of the Company.
4576
4577
(b) Right to Terminate Prior to Change in Control. This Agreement does
4578
not constitute a contract of employment or impose on the Company any obligation
4579
to retain you as an employee, to continue your current employment status or to
4580
change any employment policies of the Company. Prior to any Change in Control of
4581
the Company, the Company may terminate your employment at-will with or without
4582
Cause at any time. If a Change in Control of the Company has occurred, the
4583
Company may thereafter terminate your employment as herein provided, subject to
4584
the Company's providing the benefits hereinafter specified in accordance with
4585
the terms hereof.
4586
4587
4. Benefit Payment Upon Fulfillment of Required Service Following
4588
Change in Control. If a Change in Control of the Company has occurred then, so
4589
long as you have
4590
4591
4592
<PAGE>
4593
4594
remained in the employ of the Company during the term of this Agreement
4595
(including the twelve (12) month period following such Change in Control (as
4596
described in Section 2 hereof)), subject to the limitations set forth in Section
4597
10 hereof, within five (5) business days following the end of such twelve (12)
4598
month period the Company shall pay to you a lump sum cash payment equal to two
4599
and one-half (2.5) times your compensation earned on account of your employment
4600
with the Company during the twelve month (12) period prior to the date of the
4601
Change in Control of the Company. For purposes of this Agreement, compensation
4602
shall include your base salary plus any cash amounts received under incentive or
4603
other bonus plans. No payment shall be paid under this Section 4 if you have not
4604
remained in the employ of the Company during the term of this Agreement,
4605
regardless of the reason your employment was earlier terminated.
4606
4607
5. Welfare Benefit Plans upon a Change in Control. Following a Change
4608
in Control of the Company, unless and until your employment by the Company is
4609
terminated for Cause or Disability or you terminate your employment by the
4610
Company other than for Good Reason, the Company shall maintain in full force and
4611
effect, for the continued benefit of you and your dependents for a period
4612
terminating on the earliest of (i) twelve (12) months after the Date of
4613
Termination or (ii) the commencement date of equivalent benefits from a new
4614
employer, each insured and self-insured employee welfare benefit Plan
4615
(including, without limitation, group health, death, dental and disability
4616
plans) in which you were entitled to participate immediately prior to the Change
4617
in Control of the Company, provided that your continued participation is
4618
possible under the general terms and provisions of such Plans (and any
4619
applicable funding media) and provided that you continue to pay an amount equal
4620
to your regular contribution under such Plans for such participation. If, at the
4621
end of twelve (12) months after the date of the Date of Termination, you have
4622
not previously received or are not then receiving equivalent benefits from a new
4623
employer, the Company shall arrange, at your sole cost and expense, to enable
4624
you to convert your and your dependents' coverage under such Plans to individual
4625
policies or programs upon the same terms as employees of the Company may apply
4626
for such conversions. In the event that your participation in any such Plan is
4627
barred, the Company, at your sole cost and expense, shall arrange to have issued
4628
for the benefit of you and your dependents individual policies of insurance
4629
providing benefits substantially similar (on a federal, state and local income
4630
and employment after-tax basis) to those which you otherwise would have been
4631
entitled to receive under such Plans pursuant to this Section 5 or, if such
4632
insurance is not available at a reasonable cost to the Company, the Company
4633
shall otherwise provide you and your dependents equivalent benefits (on a
4634
federal, state and local income and employment after-tax basis). You shall not
4635
be required to pay any premiums or other charges in an amount greater than that
4636
which you would have paid in order to participate in such Plans. Any welfare
4637
benefits which are subject to continuation rights under state or federal law,
4638
and which are provided by the Company pursuant to this Section 5, will be deemed
4639
to be provided by the Company in satisfaction of such continuation requirements
4640
to the extent permitted under such laws.
4641
4642
6. Benefits Upon Termination of Employment Following Change in Control.
4643
4644
(a) Disability or Death. During the term of this Agreement, for any
4645
period following a Change in Control of the Company that you fail to perform
4646
your duties as a result of incapacity due to physical or mental illness, you
4647
shall continue to receive your compensation at the times, in
4648
4649
4650
4651
<PAGE>
4652
4653
the form and at the rate then in effect, and any benefits or awards under any
4654
and all Plans shall continue to accrue during such period to the extent not
4655
inconsistent with such Plans, until your employment is terminated on account of
4656
Disability pursuant to and in accordance with the terms hereof. Thereafter, your
4657
benefits shall be determined in accordance with the Plans (as in effect
4658
immediately prior to a Change in Control of the Company) and as provided in
4659
accordance with this Agreement. If your Death occurs during the term of this
4660
Agreement, and after a Change in Control of the Company but prior to a
4661
termination of your employment, you or your beneficiary (as provided under the
4662
applicable Plans) shall receive all benefits or awards (including, without
4663
limitation, both the cash and stock components) under any and all Plans as in
4664
effect immediately prior to the Change in Control of the Company, and all
4665
benefits to which you or your beneficiary may be entitled under the terms of
4666
this Agreement.
4667
4668
(b) Cause. If, during the term of this Agreement, your employment by
4669
the Company shall be terminated for Cause following a Change in Control of the
4670
Company, the Company shall pay you your compensation through the Date of
4671
Termination at the times, in the form and at the rate in effect just prior to
4672
the time a Notice of Termination is given plus any benefits or awards
4673
(including, without limitation, both the cash and stock components) which
4674
pursuant to the terms of any and all Plans have been earned or become payable,
4675
but which have not yet been paid to you. Thereupon, except as otherwise provided
4676
in this Agreement, the Company shall have no further obligations to you under
4677
this Agreement.
4678
4679
(c) Change in Control Termination. If, during the term of this
4680
Agreement, after a Change in Control of the Company shall have occurred your
4681
employment by the Company shall be terminated by the Company other than for
4682
Cause or shall be terminated by you for Good Reason, then you shall be entitled,
4683
without regard to any contrary provisions of any Plan, to the benefits as
4684
provided below:
4685
4686
(i) Compensation. Subject to the limitations set
4687
forth in Section 10 hereof, within five (5) business days
4688
following the Date of Termination, the Company shall pay your
4689
compensation through such Date of Termination in the form and
4690
at the rate in effect just prior to the time a Notice of
4691
Termination is given plus any benefits or awards (including,
4692
without limitation, both the cash and stock components) which
4693
pursuant to the terms of any and all Plans have been earned or
4694
become payable, but which have not yet been paid to you.
4695
4696
(ii) Outplacement Service. The Company shall pay or
4697
reimburse you for the costs, fees and expenses of reasonable
4698
outplacement assistance services.
4699
4700
(iii) Severance. If your termination occurs under
4701
this Subsection 6(c) within twelve (12) months following a
4702
Change in Control of the Company, then, subject to the
4703
limitations set forth in Section 10 hereof, within five (5)
4704
business days following the Date of Termination, as severance
4705
pay and in lieu of any further salary for periods subsequent
4706
to the Date of Termination, the Company shall pay to you a
4707
lump sum cash payment equal to two and one-half (2.5) times
4708
your compensation earned on account of your employment with
4709
the Company
4710
4711
4712
<PAGE>
4713
4714
during the one (1) year period prior to the date of the Change
4715
in Control of the Company. For purposes of this Agreement,
4716
compensation shall include your base salary plus any cash
4717
amounts received under incentive or other bonus plans.
4718
4719
(d) No Setoff. The amount of any payment provided for in this Section 6
4720
shall not be reduced, offset or subject to recovery by the Company by reason of
4721
any compensation earned by you as the result of employment by another employer
4722
after the Date of Termination or otherwise.
4723
4724
7. Non-Competition; Non-Solicitation. You and the Company recognize
4725
that your services to the Company are special and unique and that your
4726
compensation and other benefits are partly in consideration of and conditioned
4727
upon your not competing with the Company or its subsidiaries, and that a
4728
covenant on your part not to compete during the term of your employment and
4729
during a period of twelve (12) full calendar months thereafter is essential to
4730
protect the business and goodwill of the Company. Accordingly, you agree that
4731
during the term of your employment with the Company or any of its affiliates and
4732
for a period of twelve (12) full calendar months following your termination of
4733
employment for any reason, you shall not, directly or indirectly, alone or as a
4734
partner, officer, director, shareholder or employee of any other firm or entity:
4735
(a) engage in any commercial activity in competition with any substantial part
4736
of the Company's business as conducted during the term of the Agreement or as of
4737
the Date of Termination of your employment or with any substantial part of the
4738
Company's contemplated business; (b) assist, solicit, entice, or induce (or
4739
assist any other person or entity in soliciting, enticing or inducing) any
4740
customer or potential customer (or agent, employee or consultant of any customer
4741
or potential customer) with whom you had contact in the course of your
4742
employment with the Company to deal with a competitor of the Company; and/or (c)
4743
in any manner solicit, assist or encourage (or assist any other person or entity
4744
in soliciting or encouraging) any other officer or employee of the Company to
4745
work or otherwise provide services for you or for any entity in which you
4746
participate in the ownership, management, operation or control of, or is
4747
connected with in any manner as an independent contractor, consultant or
4748
otherwise.. For purposes of this Section 7, "shareholder" shall not include
4749
beneficial ownership of less than five percent (5%) of the combined voting power
4750
of all issued and outstanding voting securities of a publicly held corporation
4751
whose stock is traded on a major stock exchange or quoted on NASDAQ. You agree
4752
that the services you render to the Company are unique and of extraordinary
4753
character; that the Company has agreed to enter into this Agreement and to
4754
compensate you in the manner provided for herein relying on that fact; that this
4755
covenant not to compete is of the essence of this Agreement and that in the
4756
event of a breach or threatened breach of the provisions of the covenant not to
4757
compete the Company would suffer irreparable damage for which there is no
4758
adequate remedy at law since damages would not be readily determinable.
4759
Accordingly, in the event of a breach or a threatened breach by you of this
4760
covenant, the Company shall be entitled to a temporary restraining order and an
4761
injunction restraining you from any such breach issued by a court of competent
4762
jurisdiction notwithstanding the provisions of Section 14 hereof. Should any
4763
court of competent jurisdiction determine that any of the covenants set forth in
4764
this Section 7 are invalid in any respect, the parties agree that the court so
4765
holding may restrict such covenant in time or in area, or in both, or in any
4766
other manner which the court determines sufficient to render the covenant
4767
enforceable against you.
4768
4769
4770
4771
<PAGE>
4772
4773
4774
8. Successors; Binding Agreements.
4775
4776
(a) Upon your written request, the Company will seek to have any
4777
Successor by agreement in form and substance satisfactory to you, assent to the
4778
fulfillment by the Company of the Company's obligations under this Agreement.
4779
Failure of the Company to obtain such assent at least three (3) business days
4780
prior to the time a Person becomes a Successor (or where the Company does not
4781
have at least three (3) business days advance notice that a Person may become a
4782
successor, within one (1) business day after having notice that such Person may
4783
become or has become a Successor) shall constitute Good Reason for termination
4784
by you of your employment and, if a Change in Control of the Company has
4785
occurred, shall entitle you immediately to the benefits provided hereunder upon
4786
delivery by you of a Notice of Termination.
4787
4788
(b) This Agreement shall inure to the benefit of and be enforceable by
4789
you, your personal or legal representatives, executors, administrators,
4790
successors, heirs, distributees, devisees and legatees. If you should die while
4791
any amount would still be payable to you hereunder if you had continued to live,
4792
all such amounts, unless otherwise provided herein, shall be paid in accordance
4793
with the terms of this Agreement to your devisee, legatee or other designee or,
4794
if there be no such designee, to your estate.
4795
4796
(c) For purposes of this Agreement, the "Company" shall include any
4797
corporation or other entity which is the surviving or continuing entity in
4798
respect of any merger, consolidation or other form of business combination in
4799
which the Company ceases to exist.
4800
4801
9. Withholding. All payments to be made to you under this Agreement
4802
will be subject to required withholding of federal, state and local income and
4803
employment taxes.
4804
4805
10. Excess Payment Limitation. Notwithstanding anything in this
4806
Agreement to the contrary, in the event that any payment or benefit received or
4807
to be received by you in connection with a change in control of the Company or
4808
termination of your employment (whether payable pursuant to the terms of this
4809
Agreement or any other plan, contract, agreement or arrangement with the
4810
Company, with any person whose actions result in a change in control of the
4811
Company or with any person constituting a member of an "affiliated group" as
4812
defined in Section 280G(d)(5) of the Internal Revenue Code of 1986, as amended
4813
(the "Code"), with the Company or with any person whose actions result in a
4814
change in control of the Company) (collectively, the "Total Payments") would not
4815
be deductible (in whole or in part) by the Company or such other person making
4816
such payment or providing such benefit solely as a result of Section 280G of the
4817
Code, the amounts payable to you under this Agreement shall be reduced until no
4818
portion of the Total Payments is not deductible solely as a result of Section
4819
280G of the Code or such amounts payable to you under this Agreement are reduced
4820
to zero. For purposes of this limitation: (a) no portion of the Total Payments
4821
shall be taken into account which in the opinion of tax counsel selected by the
4822
Company does not constitute a "parachute payment" within the meaning of
4823
Section 280G(b)(2) of the Code (such as payments payable pursuant to the
4824
Company's standard or general severance policies); (b) payments pursuant to this
4825
Agreement shall be reduced only to the extent necessary so that the Total
4826
Payments (other than those referred to in the immediately preceding clause (a))
4827
in their entirety constitute reasonable compensation within the meaning of
4828
4829
4830
<PAGE>
4831
4832
4833
Section 280G(b)(4)(B) of the Code, in the opinion of the tax counsel referred to
4834
in the immediately preceding clause (a); and (c) the value of any other non-cash
4835
benefit or of any deferred cash payment included in the Total Payments shall be
4836
determined by the Company's independent auditors in accordance with the
4837
principles of Sections 280G(d)(3) and (4) of the Code. In case of uncertainty as
4838
to whether all or some portion of a payment is or is not payable to you under
4839
this Agreement, the Company shall initially make the payment to you, and you
4840
agree to refund to the Company any amounts ultimately determined not to have
4841
been payable under the terms hereof.
4842
4843
11. Notice. For the purposes of this Agreement, notices and all other
4844
communications provided for in or required under this Agreement shall be in
4845
writing and shall be deemed to have been duly given when personally delivered or
4846
when mailed by United States certified or registered mail, return receipt
4847
requested, postage prepaid and addressed to each party's respective address set
4848
forth on the first page of this Agreement (provided that all notices to the
4849
Company shall be directed to the attention of the chairman of the board or
4850
president of the Company, with a copy to the secretary of the Company), or to
4851
such other address as either party may have furnished to the other in writing in
4852
accordance herewith, except that notice of change of address shall be effective
4853
only upon receipt.
4854
4855
12. Validity. The invalidity or unenforceability of any provision of
4856
this Agreement shall not affect the validity or enforceability of any other
4857
provision of this Agreement, which shall remain in full force and effect.
4858
4859
13. Limitation of Damages. If for any reason you believe the benefits
4860
provisions of this Agreement have not been properly adhered to by the Company,
4861
and if, pursuant to Section 14 hereof, it is determined that the Company has
4862
not, in fact, properly adhered to the benefits provisions of this Agreement, the
4863
sole and exclusive remedy to which you are entitled are the benefits payment to
4864
which you are entitled under the provisions of this Agreement.
4865
4866
14. Dispute Resolution. Any dispute or controversy arising under or in
4867
connection with this Agreement shall be settled exclusively by arbitration in
4868
Minneapolis, Minnesota by three (3) arbitrators in accordance with the rules of
4869
the American Arbitration Association then in effect. The decision of the
4870
arbitrators shall be final and binding on both parties. Judgment may be entered
4871
on the arbitrators' award in any court having jurisdiction. The arbitrators
4872
shall strictly adhere to the sole and exclusive remedy set forth in Section 13
4873
hereof and may not award or assess punitive damages against either party. Each
4874
party shall bear its own costs and expenses of the arbitration and one-half
4875
(1/2) of the fees and costs of the arbitrators.
4876
4877
15. Related Agreements. To the extent that any provision of any other
4878
Plan or agreement between the Company or any of its subsidiaries and you shall
4879
limit, qualify or be inconsistent with any provision of this Agreement, then for
4880
purposes of this Agreement, while the same shall remain in force, the provision
4881
of this Agreement shall control and such provision of such other Plan agreement
4882
shall be deemed to have been superseded, and to be of no force or effect, as if
4883
such other agreement had been formally amended to the extent necessary to
4884
accomplish such purpose.
4885
4886
4887
<PAGE>
4888
4889
16. Survival. The respective obligations of, and benefits afforded to,
4890
the Company and you as provided in Sections 4, 5, 6, 7, 8(b), 14 and 15 of this
4891
Agreement shall survive termination of this Agreement and shall remain in full
4892
force and effect according to their terms.
4893
4894
17. Counterparts. This Agreement may be executed in several
4895
counterparts, each of which shall be deemed to be an original but all of which
4896
together will constitute one and the same instrument.
4897
4898
18. Miscellaneous. No provision of this Agreement may be modified,
4899
waived or discharged unless such modification, waiver or discharge is agreed to
4900
in a writing signed by you and the chairman of the board or president of the
4901
Company, provided, however, if you occupy those positions at the time, such
4902
writings shall be signed by another officer of the Company at the direction of
4903
the Board of Directors. No waiver by either party hereto at any time of any
4904
breach by the other party hereto of, or of compliance with, any condition or
4905
provision of this Agreement to be performed by such other party shall be deemed
4906
a waiver of similar or dissimilar provisions or conditions at the same or at any
4907
prior or subsequent time. Any and all previous written or oral agreements with
4908
respect to compensation and/or benefits triggered by a Change in Control of the
4909
Company or a similar event are hereby superseded and canceled, and no other
4910
agreements or representations, oral or otherwise, express or implied, with
4911
respect to the subject matter hereof have been made by either party which are
4912
not expressly set forth in this Agreement. This Agreement and the legal
4913
relations among the parties as to all matters, including, without limitation,
4914
matters of validity, interpretation, construction, performance and remedies,
4915
shall be governed by and construed in accordance with the internal laws of the
4916
State of Minnesota. Headings are for purpose of convenience only and do not
4917
constitute a part of this Agreement. The parties hereto agree to perform, or
4918
cause to be performed, such further acts and deeds and shall execute and
4919
deliver, or cause to be executed and delivered, such additional or supplemental
4920
documents or instruments as may be reasonably required by the other party to
4921
carry into effect the intent and purpose of this Agreement.
4922
4923
4924
<PAGE>
4925
4926
If this letter correctly sets forth our agreement on the subject matter
4927
hereof, kindly sign and return to the Company the enclosed copy of this letter
4928
which will then constitute our agreement on this subject.
4929
4930
Sincerely,
4931
4932
ROCHESTER MEDICAL CORPORATION
4933
4934
4935
By: /s/ Anthony J. Conway
4936
--------------------------
4937
Name: Anthony J. Conway
4938
Title: President and Chief Executive Officer
4939
4940
Agreed to this 21st day of November, 2000.
4941
4942
4943
4944
/s/ David A. Jonas
4945
- ------------------
4946
David A. Jonas
4947
4948
4949
</TEXT>
4950
</DOCUMENT>
4951
<DOCUMENT>
4952
<TYPE>EX-23
4953
<SEQUENCE>6
4954
<FILENAME>0006.txt
4955
<DESCRIPTION>CONSENT
4956
<TEXT>
4957
4958
EXHIBIT 23
4959
4960
4961
CONSENT OF ERNST & YOUNG LLP
4962
4963
4964
We consent to the incorporation by reference in the Registration Statement
4965
(Form S-8 No. 333-10261) pertaining to the 1991 Stock Option Plan of Rochester
4966
Medical Corporation, of our report dated October 20, 2000, with respect to the
4967
financial statements and schedule of Rochester Medical Corporation included in
4968
this Annual Report (Form 10-K) for the year ended September 30, 2000.
4969
4970
4971
4972
/s/ Ernst & Young LLP
4973
4974
Minneapolis, Minnesota
4975
December 13, 2000
4976
4977
4978
</TEXT>
4979
</DOCUMENT>
4980
<DOCUMENT>
4981
<TYPE>EX-24
4982
<SEQUENCE>7
4983
<FILENAME>0007.txt
4984
<DESCRIPTION>POWER OF ATTORNEY
4985
<TEXT>
4986
4987
4988
EXHIBIT 24
4989
4990
4991
POWER OF ATTORNEY
4992
4993
4994
KNOW ALL BY THESE PRESENTS, that each person whose signature appears below
4995
constitutes and appoints each of Anthony J. Conway and David A. Jonas, with
4996
full power to each to act without the other, his or her true and lawful
4997
attorney-in-fact and agent with full power of substitution, for him or her and
4998
in his or her name, place and stead, in any and all capacities, to sign the
4999
Annual Report on Form 10-K of Rochester Medical Corporation (the "Company") for
5000
the Company's fiscal year ended September 30, 2000, and any or all amendments
5001
to said Annual Report, and to file the same, with all exhibits thereto, and
5002
other documents in connection therewith, with the Securities and Exchange
5003
Commission, and to file the same with such other authorities as necessary,
5004
granting unto each such attorney-in-fact and agent full power and authority to
5005
do and perform each and every act and thing requisite and necessary to be done
5006
in and about the premises, as fully to all intents and purposes as he or she
5007
might or could do in person, hereby ratifying and confirming all that each such
5008
attorney-in-fact and agent, or his substitute, may lawfully do or cause to be
5009
done by virtue hereof.
5010
5011
IN WITNESS WHEREOF, this Power of Attorney has been signed on this 13th
5012
day of December, 2000, by the following persons.
5013
5014
5015
/s/ ANTHONY J. CONWAY /s/ DARNELL L. BOEHM
5016
------------------------- -------------------------
5017
Anthony J. Conway Darnell L. Boehm
5018
5019
/s/ DAVID A. JONAS /s/ PETER CONWAY
5020
------------------------- -------------------------
5021
David A. Jonas Peter Conway
5022
5023
/s/ PHILIP CONWAY /s/ ROGER SCHNOBRICH
5024
------------------------- -------------------------
5025
Philip Conway Roger Schnobrich
5026
5027
/s/ RICHARD FRYAR
5028
-------------------------
5029
Richard Fryar
5030
5031
5032
</TEXT>
5033
</DOCUMENT>
5034
<DOCUMENT>
5035
<TYPE>EX-27
5036
<SEQUENCE>8
5037
<FILENAME>0008.txt
5038
<DESCRIPTION>FINANCIAL DATA SCHEDULE
5039
<TEXT>
5040
5041
<TABLE> <S> <C>
5042
5043
5044
5045
<ARTICLE> 5
5046
5047
<S> <C>
5048
<PERIOD-TYPE> 12-MOS
5049
<FISCAL-YEAR-END> SEP-30-2000
5050
<PERIOD-END> SEP-30-2000
5051
<PERIOD-START> OCT-01-1999
5052
<CASH> 3,204,161
5053
<SECURITIES> 5,654,442
5054
<RECEIVABLES> 1,069,999
5055
<ALLOWANCES> 62,567
5056
<INVENTORY> 1,892,455
5057
<CURRENT-ASSETS> 12,009,818
5058
<PP&E> 15,404,923
5059
<DEPRECIATION> 4,351,235
5060
<TOTAL-ASSETS> 23,254,223
5061
<CURRENT-LIABILITIES> 1,681,205
5062
<BONDS> 0
5063
<PREFERRED-MANDATORY> 0
5064
<PREFERRED> 0
5065
<COMMON> 41,279,359
5066
<OTHER-SE> 0
5067
<TOTAL-LIABILITY-AND-EQUITY> 23,254,223
5068
<SALES> 7,860,132
5069
<TOTAL-REVENUES> 7,860,132
5070
<CGS> 6,151,195
5071
<TOTAL-COSTS> 13,986,485
5072
<OTHER-EXPENSES> 0
5073
<LOSS-PROVISION> (6,126,353)
5074
<INTEREST-EXPENSE> 0
5075
<INCOME-PRETAX> 0
5076
<INCOME-TAX> 0
5077
<INCOME-CONTINUING> 0
5078
<DISCONTINUED> 0
5079
<EXTRAORDINARY> 0
5080
<CHANGES> 0
5081
<NET-INCOME> (5,531,145)
5082
<EPS-BASIC> (1.04)
5083
<EPS-DILUTED> (1.04)
5084
5085
5086
</TABLE>
5087
</TEXT>
5088
</DOCUMENT>
5089
</SEC-DOCUMENT>
5090
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5091
5092