SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(MARK ONE)
X Quarterly Report pursuant to Section 13 or 15(d) of the
- ----- Securities Exchange Act of 1934
For the quarterly period ended June 30, 1997
_____ Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ______________________ to ____________________
Commission File No. 0-18785
OXBORO MEDICAL INTERNATIONAL, INC.
- -----------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Minnesota 41-1391803
- ------------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
13828 Lincoln Street NE, Ham Lake, Minnesota 55304
- -------------------------------------------- ------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (612) 755-9516
------------------------------
No Change
- ------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the issuer was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes ____ No __X__
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 2,662,078 shares of Common Stock at
July 31, 1997.
<PAGE>
OXBORO MEDICAL INTERNATIONAL, INC.
TABLE OF CONTENTS
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 1997 3
(unaudited) and September 30, 1996
Condensed Consolidated Statements of Operations for 4
Three Months and Nine Months Ended June 30, 1997
and 1996 (unaudited)
Condensed Consolidated Statements of Cash Flows for 5
Nine Months Ended June 30, 1997 and 1996 (unaudited)
Notes to Condensed Consolidated Financial Statements 6
(unaudited)
Item 2. Management's Discussion and Analysis 7
Part II. Other Information
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 6. Exhibits and Reports on Form 8-K 10
Signature 11
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, September 30,
1997 1996
----------- -------------
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 59,834 $ 13,323
Accounts receivable, less allowance for doubtful
accounts of $21,434 and $19,958, respectively 626,373 580,104
Interest receivable 9,568 21,067
Inventories 1,959,711 1,810,949
Deferred income taxes 116,000 116,000
Other current assets 177,847 102,952
----------- -----------
TOTAL CURRENT ASSETS 2,949,333 2,644,395
PROPERTY AND EQUIPMENT:
Building 890,444 884,812
Land 57,211 57,211
Furniture and equipment 1,207,148 1,127,294
----------- -----------
2,154,803 2,069,317
Less accumulated depreciation (778,237) (642,427)
----------- -----------
1,376,566 1,426,890
INVESTMENTS 470,024 410,816
INVENTORIES 771,000 771,000
OTHER ASSETS 256,126 203,945
----------- -----------
TOTAL ASSETS $ 5,823,049 $ 5,457,046
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term obligations $ 7,521 $ 7,521
Note payable to bank 550,000 50,000
Accounts payable 109,752 212,617
Accrued salaries, wages, payroll taxes 187,848 337,426
Income taxes payable 103 29,103
Other accrued expenses 196,831 70,986
----------- -----------
TOTAL CURRENT LIABILITIES 1,052,055 707,653
LONG TERM OBLIGATIONS 387,030 392,060
DEFERRED INCOME TAXES 123,000 123,000
SHAREHOLDERS' EQUITY:
Common stock 26,621 26,723
Additional paid-in capital 2,270,914 2,276,110
Retained earnings 3,024,485 3,080,056
Less:
Receivable from ESOP (93,806) (101,306)
Stock subscription receivable -- (80,000)
Deferred R&D expense (967,250) (967,250)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 4,260,964 4,234,333
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 5,823,049 $ 5,457,046
=========== ===========
See accompanying notes to condensed consolidated financial statements.
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30 June 30
-------------------------- --------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 1,185,167 $ 1,096,022 $ 3,486,462 $ 3,075,627
Cost of goods sold 374,792 315,639 1,013,166 877,237
----------- ----------- ----------- -----------
810,375 780,383 2,473,296 2,198,390
Selling, general and administrative
expenses 931,867 680,540 2,512,394 2,058,023
----------- ----------- ----------- -----------
(121,492) 99,843 (39,098) 140,367
Interest and other income (expense)
(15,442) (22) (25,760) 21,711
----------- ----------- ----------- -----------
Earnings (loss) before income taxes (136,934) 99,821 (64,858) 162,078
Income tax provision (benefit) (31,694) -- (9,287) 22,662
----------- ----------- ----------- -----------
Net earnings (loss) $ (105,240) $ 99,821 $ (55,571) $ 139,416
=========== =========== =========== ===========
Net earnings (loss) per share of
common stock (based on weighted average) $ (.04) $ .04 $ (.02) $ .05
=========== =========== =========== ===========
Weighted average common and common
equivalent shares 2,720,578 2,672,278 2,703,025 2,672,278
=========== =========== =========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
June 30
----------------------
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ (55,571) $ 139,416
Adjustments to reconcile net earnings to net cash used in operating
activities:
Depreciation and amortization 135,810 89,482
Change in current assets and current liabilities:
Accounts receivable (34,770) (30,758)
Inventories (148,762) (727,976)
Other current assets (74,895) 2,444
Accounts payable (102,865) 66,351
Income taxes payable (29,000) --
Accrued salaries, wages, payroll taxes and other accrued expenses
(23,733) 60,359
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES (333,786) (400,682)
CASH FLOWS FROM INVESTING ACTIVITIES:
Long-term investment (59,208) (64,391)
(Additions to) reduction of other assets (52,181) 243
Purchase of property, plant and equipment (85,486) (621,683)
Repurchase of stock (95,298) --
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (292,173) (685,831)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock option 90,000 --
Payment of stock subscription 80,000 --
ESOP payment 7,500 7,500
Payment on long-term debt (5,030) --
Bank note proceeds 500,000 30,000
Proceeds from issuance of long-term debt -- 400,000
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 672,470 437,500
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 46,511 (649,013)
CASH AND CASH EQUIVALENTS, at beginning of period 13,323 689,420
--------- ---------
CASH AND CASH EQUIVALENTS, at end of period $ 59,834 $ 40,407
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the nine months ended June 30 for:
Income taxes $ 29,000 --
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
OXBORO MEDICAL INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
1. Interim Financial Statements
The interim financial statements include the accounts of Oxboro Medical
International, Inc. ("Medical") and its wholly-owned subsidiary, Oxboro
Outdoors, Inc. ("Outdoors"). The interim financial statements are
unaudited but, in the opinion of management, reflect all adjustments
necessary for a fair presentation of results for such periods. The
results of operations for any interim period are not necessarily
indicative of results for the full year. These financial statements
should be read in conjunction with the financial statements and notes
thereto contained in the Company's Report on Form 10-KSB for the fiscal
year ended September 30, 1996.
2. Inventories
June 30, September 30,
1997 1996
---------- ----------
Inventories consist of:
Raw materials $1,338,048 $1,448,151
Finished goods 1,392,663 1,133,798
---------- ----------
$2,730,711 $2,581,949
========== ==========
3. Long-Term Investments
Long-term investments include:
June 30, September 30,
1997 1996
---------- ----------
Investment in cash surrender value
of life insurance $ 407,033 $ 347,825
Investment in limited partnership 62,991 62,991
---------- ----------
$ 470,024 $ 410,816
========== ==========
The investment in limited partnership is a $142,000 cash investment for
a 30% limited partnership interest in a partnership formed to develop
processes or devices for inhibiting rejection in connection with organ
transplant procedures. The general partner of the limited partnership
is a corporation owned by a significant shareholder of the Company.
In addition, the Company placed 383,500 shares of common stock of the
Company in escrow for release pursuant to a Stock Award Agreement to
the general partner/shareholder on the attainment of specific
milestones in the development of the concept to be used in the limited
partnership project. The Stock Award Agreement expires October 31,
1998. These shares have been valued at $967,250.
<PAGE>
4. Note Payable to Bank
The Company has a $1,500,000 revolving line of credit agreement with a
bank bearing interest at .50% over the bank's prime rate (effective
rate of 9.00% at June 30, 1997), collateralized by inventories and
accounts receivable.
5. Long-term Obligations
The Company has a note payable to a bank payable in monthly
installments of principal and interest at .50% over the bank's prime
rate (effective rate of 9.00% at June 30, 1997) through January 2001 at
which time all unpaid principal and interest is due, collateralized by
the Company's building.
6. Shareholders' Equity
Changes in shareholders' equity during the nine months ended June 30,
1997 were as follows:
Shareholders' equity at September 30, 1996 $4,234,333
Receipt on ESOP receivable 7,500
Net loss (55,571)
Exercise of stock option 90,000
Stock subscription payment 80,000
Stock repurchase (95,298)
----------
Shareholders' equity at June 30, 1997 $4,260,964
==========
7. Supplemental Disclosure of Cash Flow Information
The Company paid $51,661 and $7,071 in interest for the nine months
ended June 30, 1997 and 1996, respectively, and received cash of
$25,567 and $14,986 as interest payments during the nine months ended
June 30, 1997 and 1996, respectively.
8. Recently Issued Accounting Standards
Financial Accounting Standards Board Statement No. 128, "Earnings per
Share" ("Statement No. 128"), issued in February 1997 and effective for
fiscal years ending after December 15, 1997, establishes and simplifies
standards for computing and presenting earnings per share ("EPS"). The
Company has not yet determined the impact of implementation of this
statement on the Company's computation or presentation of EPS.
Item 2. Management's Discussion and Analysis
Liquidity and Capital Resources
As of June 30, 1997, the Company had working capital of $1,897,278 as compared
to $1,936,742 at September 30, 1996 and $387,030 in long-term obligations. As of
June 30, 1997, the Company had $59,834 in cash as compared to $13,323 at
September 30, 1996.
<PAGE>
During the nine months ended June 30, 1997, the Company used $333,786 in
operating activities, including an increase of $148,762 in inventories and a
decrease of $102,865 in accounts payable.
The Company used $292,173 in investing activities during the nine months ended
June 30, 1997, of which $85,486 was used to purchase fixed assets and $95,298
was used to redeem stock pledged under a stock purchase agreement with a former
officer.
The Company received $672,470 cash from financing activities during the nine
months ended June 30, 1997. The Company has increased its line of credit from
$500,000 to $1,500,000, subject to certain terms and conditions related to the
Company's financial performance. As of June 30, 1997, the Company has drawn
$550,000 on this line of credit. The Company also received $90,000 from the
exercise of a stock option.
Results of Operations
Net sales during the three-month and nine-month periods ended June 30, 1997,
increased by 8% and 13%, respectively, as compared to the corresponding periods
in the previous fiscal year. Medical sales for fiscal 1997 for the three-month
and nine-month periods were $1,090,089 and $3,187,305, representing increases of
6% and 8% compared to the corresponding prior periods. Oxboro Outdoors sales for
fiscal 1997 for the three-month and nine-month periods were $95,078 and
$299,158, respectively, representing increases of 41% and 132% over the prior
year periods.
The sales increases resulted from a combination of new customers for both Oxboro
Medical and Oxboro Outdoors, increased sales of current medical products to
existing medical customers, and sales of new medical products and Outdoors
products introduced during 1996. Medical unit sales increased by more than the
increase in dollar sales because of the Company's continuing emphasis on
expanding its customer base in an increasingly competitive marketplace through
aggressive pricing strategies.
Gross margin was 68% for the third quarter and 71% for the nine-month period in
fiscal 1997, as compared to 71% for each of the corresponding periods in fiscal
1996. The reduction in gross margin results from competitiveness for the markets
served, variation of the product mix, increases in Outdoors sales, which have a
higher cost of goods, and costs of compliance domestically with ISO standards
and internationally with the CE Mark certification and substantially increased
activity with Good Manufacturing Practices.
Selling, general and administrative expenses during the three-month and
nine-month periods ended June 30, 1997 increased by 37% and 22%, respectively,
as compared to the corresponding periods in the previous fiscal year. During the
three months ended June 30, 1997, Medical expenses increased by $241,734, or
51%, due mainly to costs related to a settlement with a former officer. These
costs included approximately $170,000 payable to the former officer, of which
$35,000 had been paid as of June 30, 1997, and the balance of which is payable
in monthly installments through March 31, 1999, and approximately $46,000 in
related legal fees. Also contributing to the higher expenses were increases in
wages, royalties due to sales increases, printing costs, depreciation on the
building addition and expenses related to ISO/CE Mark certification, partially
offset by decreases in bonuses and accounting expenses. During the same period,
Outdoors expenses increased by $9,594, or 5%, due to increases in postage,
wages, royalties on sales of NFL licensed product, and advertising, partially
offset by decreases in rent due to closing of the Duluth facility and in travel
and entertainment, consultation fees, and legal expenses.
<PAGE>
The Company incurred losses before taxes of $136,934 and $64,858, respectively,
during the three-month and nine-month periods ended June 30, 1997 as compared to
income before taxes of $99,821 and $162,078 during the corresponding periods in
the previous fiscal year. The losses are attributable mainly to costs related to
the settlement with a former officer.
Forward-Looking Statements
Forward-looking statements herein are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. There are
certain important factors that could cause results to differ materially from
those anticipated by some of the statements made herein. Investors are cautioned
that all forward-looking statements involve risks and uncertainty. Among the
factors that could cause actual results to differ materially are the following:
acceptance of new products, pricing strategies of competitors, general
conditions in the industries served by the Company's products, ability to
maintain adequate inventories to respond to customer demand, continued
availability of financial resources, changes in the environment for health care
related products, and overall economic conditions, including inflation and
consumer buying patterns.
Medical and Outdoors together ship approximately 200 packages per day. Prior to
the UPS strike, nearly all of the packages were shipped via UPS. The Company is
utilizing alternative shippers pending the settlement of the strike; however,
the cost of the alternative shippers is considerably higher. Although the
Company is attempting to find less expensive shipping alternatives, the Company
anticipates that a prolonged UPS strike may have a significant adverse effect on
operating results.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company was named as defendant in an action brought by Harley
Haase, the Company's former President and Chief Executive Officer, filed June 9,
1997, in the Hennepin County District Court, Fourth Judicial District, State of
Minnesota. Mr. Haase claimed breach of his employment agreement, violations by
the Company of certain Minnesota statutes and, in addition to other claims,
damages in excess of $50,000. Mr. Haase and the Company resolved this matter and
entered into a Settlement Agreement and Mutual Release of Claims effective as of
June 13, 1997. Following completion of certain obligations, a Stipulation for
Dismissal is to be signed by the parties and filed with the court.
Item 2. Changes in Securities
On January 9, 1997, February 17, 1997 and February 28, 1997, the
Company issued 40,000, 10,000 and 10,000 shares of Common Stock, respectively,
to an officer-director upon exercise of an outstanding option. The exercise
price was $1.50 per share, paid in cash on each exercise. No underwriter or
selling agent was used and no discounts or commissions were paid. The Company
claims exemption for this transaction under Section 4(2) of the Securities Act
of 1933 as a transaction not involving a public offering.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10 - Settlement Agreement and Mutual Release of Claims
by and between Harley Haase and Oxboro Medical
International, Inc. dated June 13, 1997.
27 - Financial Data Schedule
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the quarter ended
June 30, 1997.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
OXBORO MEDICAL INTERNATIONAL, INC.
Dated: August 14, 1997 By /s/ Larry A. Rasmusson
Larry A. Rasmusson
Its CEO and CFO
SETTLEMENT AGREEMENT AND
MUTUAL RELEASE OF CLAIMS
This Settlement Agreement and Mutual Release of Claims ("Settlement
Agreement") is entered into this 13th day of June, 1997, by and between Harley
Haase ("Haase") and Oxboro Medical International, Inc. ("Oxboro").
RECITALS
A. Mr. Haase is the former President, Chief Executive Officer, and
Treasurer of Oxboro. Mr. Haase also was (and up to the date of this Settlement
Agreement has been) a Director of Oxboro. Mr. Haase's employment with Oxboro was
subject to a written Employment Agreement dated April 1, 1993 ("Employment
Agreement"). Mr. Haase and Oxboro also had executed a Consulting Agreement dated
November 1, 1995 ("Consulting Agreement").
B. On May 5, 1997, Mr. Haase commenced a lawsuit against Oxboro in
Minnesota State District Court, Fourth Judicial District, County of Hennepin,
titled Harley Haase v. Oxboro Medical International, Inc. (the "Litigation").
Mr. Haase raised a number of claims in the Litigation, including (without
limitation) claims for breach of contract, violation of Minn. Stat. ss. 181.79,
injunctive relief, equitable estoppel, and promissory estoppel. Mr. Haase's
claims are more completely described in the Amended Complaint served in the
Litigation.
C. Oxboro denies the allegations contained in the Amended Complaint and
has advised Mr. Haase that it intends to serve and file certain counterclaims
against him based upon alleged violations of the duties he owed to Oxboro in his
positions as an officer of Oxboro.
D. Both Mr. Haase and Oxboro wish to resolve all disputes and/or claims
raised in or related to the Litigation, as well as all other disputes and/or
claims one party may have against the other, subject to the terms and conditions
of this Settlement Agreement, without admitting any of the claims or
counterclaims asserted by the other party. Both Mr. Haase and Oxboro Medical
hereby specifically agree and acknowledge that good and sufficient consideration
exists for the terms and conditions of this Settlement Agreement.
SETTLEMENT AGREEMENT AND MUTUAL RELEASES
1. SEVERANCE PAYMENT. Oxboro agrees to pay Mr. Haase the sum of $6,440
per month for 22-months beginning June, 1997. Oxboro shall make these monthly
payments to Mr. Haase by placing a check in the United States mail on the first
payroll date of every month during this 22-month period. Oxboro may prepay any
portion of these monthly severance payments to Mr. Haase at any time. Oxboro
also agrees to obtain a bond securing the payment of these monthly severance
amounts to Mr. Haase from a bonding company with a rating of "AAA" or better.
The bond will be made payable to Mr. Haase in the event that Oxboro, for any
reason other than a breach by Mr. Haase of any term, covenant or condition of
this Agreement, fails to make any of the payments required under this paragraph.
<PAGE>
2. SPECIAL PAYMENT. Oxboro further agrees to pay Mr. Haase the sum of
$12,100 upon execution of this Settlement Agreement in consideration of Mr.
Haase's resignation as a director of Oxboro.
3. PAYMENT FOR UNUSED VACATION/UNPAID WAGES. Oxboro agrees to pay Mr.
Haase the sum of $14,710 on the date he executes this Settlement Agreement,
which represents all unused, accrued vacation due and owing to Mr. Haase. In
addition, Oxboro agrees to pay Mr. Haase the sum of $16,343.75 on the date he
executes this Settlement Agreement, which represents his wages for the remainder
of the Month of April, 1997 and the entire month of May, 1997. Oxboro may make
any withholdings from these amounts as required by law.
4. MEDICAL AND DENTAL INSURANCE COVERAGE. Oxboro agrees to maintain
COBRA medical and dental coverage for Mr. Haase and his eligible dependents for
an 18-month (the statutory COBRA) period commencing on June 1, 1997, subject to
Oxboro's timely receipt of premium payments from Mr. Haase for his eligible
dependents coverage. Mr. Haase and Oxboro shall split the cost of the premiums
for COBRA coverage. This medical and dental coverage shall be maintained at the
same levels of benefits and on the same terms that Oxboro provided to Mr. Haase
immediately prior to his termination, subject to COBRA adjustments.
5. SPLIT-DOLLAR LIFE INSURANCE. Oxboro agrees to maintain the two
split-dollar life insurance policies contracted for on Mr. Haase's life through
New England Life Insurance Company, Policy Numbers 08681809 and 08731789 (the
"Split-Dollar Policies"). Oxboro agrees to maintain these Split-Dollar Policies
for as long as Mr. Haase pays for and maintains his portion of the monthly
premiums for the Split-Dollar Policies. Said monthly premiums are currently
$845.00 and are subject to an increase from time to time pursuant to the terms
of the Split-Dollar Policies. Oxboro may deduct the sum of $5,915.00, which
represents Mr. Haase's reimbursement to Oxboro for the monthly portion of Mr.
Haase's premiums paid by Oxboro on the Split-Dollar Policies for the first seven
(7) months of Oxboro's 1997 fiscal year, from the amount described in paragraph
2 above. Oxboro agrees to pay the $845.00 premium due for May, 1997. Beginning
in June, 1997, Mr. Haase agrees to pay Oxboro $845.00 per month subject to
increases as described above, for his portion of the premiums for the
Split-Dollar Policies. If and as allowed under the Split-Dollar Policies, Oxboro
may borrow against its portion of the cash value of the Split-Dollar Policies.
If Oxboro borrows against its cash value portion of the Split-Dollar Policies,
it must borrow an equal amount from the split-dollar life insurance policies it
maintains on the life of Larry Rasmusson, with repayment of the loans to be made
equally. If and as allowed under the Split-Dollar Policies, Mr. Haase may borrow
against his portion of the cash value of the Split-Dollar Policies. Mr. Haase
also may cancel the Split-Dollar Policies and obtain the cash value for his
portion of those Policies, as provided in the Split-Dollar Policies. Oxboro and
Mr. Haase each agree to provide the other with a duly executed consent form in
the event that such a form is necessary to allow either to borrow against their
respective portions of the cash value of the Split-Dollar Policies, or to allow
Mr. Haase to cancel the Split-Dollar Policies and obtain the cash value for his
portion.
6. TERM LIFE INSURANCE. Mr. Haase agrees that Oxboro may cancel the
term life insurance policy its currently maintains on his life, which policy was
purchased from New
<PAGE>
England Variable Life Insurance Company, Policy No. 02092994 ("Term Life
Insurance Policy").
7. DISABILITY INSURANCE. Mr. Haase agrees that Oxboro may cancel the
disability insurance policy its currently maintains on Mr. Haase's behalf, which
policy was purchased from The Paul Revere Life Insurance Company, Policy No.
01027032820 ("Disability Insurance Policy").
8. PAYMENT OF LOAN FOR PURCHASE OF STOCK. Oxboro and Mr. Haase agree
that Mr. Haase may repay the loan he obtained from Oxboro for his purchase of
Oxboro common stock (the "Stock Loan") by transferring to Oxboro on the date
this Settlement Agreement is executed 70,200 shares of Oxboro common stock
currently in Oxboro's possession and represented by Certificate Nos. 4591 and
4592. Oxboro agrees that these shares shall be valued at $1.2812/share for
purpose of Mr. Haase's payment of the Stock Loan, and that Mr. Haase's transfer
of these shares to Oxboro shall constitute full and complete repayment of the
entire principal value of the Stock Loan and any interest due and owing on the
Stock Loan.
9. ESOP SHARES. Mr. Haase may maintain the shares attributable to him
as part of Oxboro's Employee Stock Option Plan, which amount to 28,208 shares,
pursuant to the terms of Oxboro's Employee Stock Option Plan.
10. HAASE RELEASE OF OXBORO. For good and valuable consideration,
including, but not limited to, the mutual agreements set forth in this
Settlement Agreement, the receipt and sufficiency of which consideration Mr.
Haase expressly acknowledges, Mr. Haase, for himself and for each of his heirs,
executors, administrators, insurers, employers, attorneys, agents, successors,
and assigns, hereby releases and forever discharges Oxboro, and each of its
parent and subsidiary corporations, affiliates, shareholders, predecessors,
successors, assigns, insurers, indemnitors, directors, officers, attorneys,
employees, agents and representatives, of and from any and all past and present
claims, demands, liabilities, judgments, and causes of action, at law or in
equity, known or unknown, asserted or unasserted, liquidated or unliquidated,
absolute or contingent, accrued or not accrued, which Mr. Haase ever had,
presently has, claims to have, or claims to have had against Oxboro as of the
effective date of this Settlement Agreement, including, without limitation, any
claims raised, or which could have been raised, in the Litigation and claims for
payment of wages and commissions; claims of discrimination under the Age
Discrimination in Employment Act (the "ADEA"), Title VII of the Civil Rights Act
of 1964, as amended, the Americans with Disabilities Act, the Minnesota Human
Rights Act or other federal, state or local civil rights laws based on age or
any other protected status; claims for breach of contract; breach of fiduciary
duty; fraud or misrepresentation; unpaid wages and benefits; unpaid sick or
vacation pay; claims for the ongoing payment of insurance premiums or insurance
coverage, expense reimbursement or any other benefit; defamation; intentional or
negligent infliction of emotional distress; breach of a covenant of good faith
and fair dealing; promissory estoppel; negligence; wrongful termination of
employment; any other claims for unlawful employment practices; or under any
other theory, whether legal or equitable, that arose prior to the date of
execution of this Agreement. Notwithstanding the foregoing, this release
specifically excludes any and all claims or demands Mr. Haase may have against
Oxboro for the indemnification or defense of any claims under Minn. Stat. ss.
302A.521,
<PAGE>
Minn. Stat. ss. 181.970, or under Minnesota common law, arising out of or in any
way relating to: (a) his employment with Oxboro, (b) any acts Mr. Haase took (or
failed to take) as part of his employment by Oxboro, (c) his position as an
officer or director of Oxboro, and/or (d) any acts Mr. Haase took (or failed to
take) in his position as an officer or director of Oxboro. This exception to Mr.
Haase's release is intended to fully and completely preserve and protect Mr.
Haase's rights to indemnification or a defense as provided to him under
Minnesota law, whether such claims are raised by shareholders, employees,
governmental agencies, or any other person or entity.
11. OXBORO RELEASE OF HAASE. For good and valuable consideration,
including, but not limited to, the mutual agreements set forth in this
Settlement Agreement, the receipt and sufficiency of which consideration Oxboro
and Oxboro Outdoors, Inc. ("Oxboro Outdoors") expressly acknowledge, Oxboro and
Oxboro Outdoors, for themselves and for each of their respective subsidiaries,
parents, affiliates, predecessors, successors, assigns, insurers, indemnitors,
directors, attorneys, officers, agents, and representatives, hereby release and
forever discharge Mr. Haase and each and every one of his heirs, executors,
administrators, insurers, employers, attorneys, agents, successors, and assigns
of and from any and all past and present claims, demands, liabilities,
judgments, and causes of action, at law or in equity, known or unknown, asserted
or unasserted, liquidated or unliquidated, absolute or contingent, accrued or
not accrued, direct, indirect, or derivative, which Oxboro and/or Oxboro
Outdoors ever had, presently have, claim to have, or claim to have had against
Mr. Haase as of the date this Settlement Agreement is executed, including,
without limitation, any claims Oxboro and/or Oxboro Outdoors raised or could
have raised against Mr. Haase in the Litigation, but excluding eligibility
issues under Minn. Stat. ss. 302A.251, subd. 6.
11A. RASMUSSON, MIKKELSON, AND WALTER RELEASE OF HAASE. For good and
valuable consideration, including, but not limited to, the mutual agreements set
forth in this Settlement Agreement, the receipt and sufficiency of which
consideration Larry Rasmusson, Dennis Mikkelson and John Walter each expressly
acknowledge, Larry Rasmusson, Dennis Mikkelson, and John Walter, for themselves
and for each of their respective heirs, executors, administrators, insurers,
employers, attorneys, agents, successors, and assigns, hereby release and
forever discharge Mr. Haase, and each of his heirs, executors, administrators,
insurers, employers, attorneys, agents, successors, and assigns, of and from any
and all past and present claims, demands, liabilities, judgments, and causes of
action, at law or in equity, known or unknown, asserted or unasserted,
liquidated or unliquidated, absolute or contingent, accrued or not accrued,
which Messrs. Rasmusson, Mikkelson, or Walter ever had, presently has, claims to
have, or claims to have had against Mr. Haase in their capacities as officers,
directors, and/or shareholders of Oxboro and/or Oxboro Outdoors as of the
effective date of this Settlement Agreement, including, without limitation, any
claims raised or that could have been raised in the Litigation.
12. FDA COMPLIANCE MATTERS. Oxboro agrees that it will not disclose to
or file with the United States Food and Drug Administration (or any other
related state or federal agency) any information regarding any issues of alleged
non-compliance by Oxboro with any statutes, rules, or regulations governing its
products or manufacturing operations without first meeting with Mr. Haase or
providing him with copies of the information Oxboro intends to disclose to or
file with the FDA (or any other related agency) prior to the date of such
disclosure or filing, and providing Mr. Haase with an opportunity to review and
comment on the material to be disclosed to or filed with
<PAGE>
the FDA (or any other agency) prior to its disclosure/filing. If Mr. Haase has
not provided Oxboro with comments regarding the provided materials within three
(3) business days after he receives them, Oxboro may disclose or file the
materials provided without having received Mr. Haase's comments.
13. NON-DISPARAGEMENT AGREEMENT. Both Mr. Haase and Oxboro agree that
they shall make no disparaging statements concerning each other to any person,
firm, entity, or governmental entity; however, any truthful statement made,
given or communicated to any governmental entity shall not be deemed to be
disparaging.
14. CONFIDENTIALITY. Mr. Haase and Oxboro agree not to disclose the
terms of this Settlement Agreement to any person who is not a director, officer,
or attorney of the parties; provided, however, that the terms of this Agreement
may be disclosed as necessary to satisfy any ordinary tax and accounting
reporting requirements or any regulatory requirement or if under oath or
subpoena. If asked about resolution of the Litigation outside the context of
this paragraph, Mr. Haase and Oxboro agree to state only that the Litigation was
resolved amicably.
15. AGREEMENT NOT TO COMPETE. This agreement not to compete provision
completely replaces and supersedes any agreement not to compete provisions
contained in the Employment Agreement and the Consulting Agreement. From June 1,
1997 through October 1, 1998, Mr. Haase agrees that he will not, directly or
indirectly, as an officer, director, agent, employee, representative, consultant
or in any other capacity solicit business from, consult with or sell any
products that Oxboro or Oxboro Outdoors had available for sale or under research
and development as of June 1, 1997, to any person or entity to whom Oxboro or
Oxboro Outdoors sold any of its products prior to or as of June 1, 1997. For
purposes of this Settlement Agreement, products "under research and development"
are those listed in the attached Exhibit A. With respect to products "under
research and development," Oxboro or Oxboro Outdoors must bring such products to
market by June 1, 1998 to be protected under this paragraph.
16. TERMINATION OF EMPLOYMENT AGREEMENT. Oxboro and Mr. Haase agree
that all of the terms and conditions of Mr. Haase's Employment Agreement shall
be, and hereby are canceled and terminated as of the date of this Settlement
Agreement, including, without limitation, the non-compete agreement contained in
Section 9 of the Employment Agreement. Notwithstanding the forgoing sentence,
Mr. Haase agrees to maintain the confidentiality of any information designated
by Oxboro or Oxboro Outdoors or defined as "Confidential Information" pursuant
to the terms of Section 7 of the Employment Agreement and shall not compete as
provided in Section 15 above. Upon the execution of this Settlement Agreement,
Mr. Haase agrees to resign as a Director of Oxboro, effective that same day.
17. CANCELLATION OF CONSULTING AGREEMENT. Oxboro and Mr. Haase agree
that all of the terms and conditions of Mr. Haase's Consulting Agreement shall
be, and hereby are canceled and terminated as of the date of this Settlement
Agreement.
18. MAINTENANCE OF OTHER AGREEMENTS. Oxboro and Mr. Haase agree that
the Royalty Sharing Agreement dated November 21, 1995 ("Royalty Sharing
Agreement") and the Product Development Incentive Agreement dated November 8,
1995 ("Product Development
<PAGE>
Incentive Agreement") entered into between them shall remain in full force and
effect, and that no party is waiving or releasing any claims under either of
these agreements, notwithstanding the terms of paragraphs 10 and 11 of this
Settlement Agreement. Oxboro and Mr. Haase agree that the Royalty Sharing
Agreement and the Product Development Incentive Agreement shall be deemed to be
effective as of May 1, 1997.
19. HAASE COOPERATION IN LAWSUITS. For a period of two years from the
date of this Settlement Agreement, Mr. Haase agrees to cooperate with Oxboro in
the defense of any lawsuit that may be brought against it by TechLogic, Inc., Up
North Communications, Inc., any shareholder, or any entity (other than any
governmental entity) regarding issues about which Mr. Haase had knowledge as an
officer, director, or employee with respect to Oxboro's operations. For purposes
of this paragraph, the term "cooperation" is defined to include only the
following items: (a) providing facts to Oxboro or its attorneys regarding any
issues being raised in any lawsuit; (b) providing affidavits to Oxboro stating
those facts; (c) providing a deposition to Oxboro regarding those facts; and (d)
not cooperating with TechLogic, Inc., Up North Communications, Inc., any
shareholder or any other adverse party (other than any governmental entity) in
the prosecution of any lawsuit against Oxboro. This cooperation agreement shall
not prevent Mr. Haase from responding to any subpoena that may be issued to him
for testimony or the production of documents by any party involved in any such
lawsuit.
20. HAASE NONRELIANCE. Mr. Haase warrants and represents that he has
consulted with his attorneys regarding the effect of this Settlement Agreement,
and that he has executed this Settlement Agreement fully aware of its content,
purpose and effect, based upon his sole judgment, belief and knowledge, and upon
advice of his own attorneys, and that he is not relying on representations or
statements made Oxboro or by anyone representing Oxboro, other than those
specifically set forth in this Settlement Agreement.
21. OXBORO NONRELIANCE. Oxboro warrants and represents that it has
consulted with its attorneys regarding the effect of this Settlement Agreement,
and that it has executed this Settlement Agreement fully aware of its content,
purpose and effect, based upon its sole judgment, belief and knowledge, and upon
advice of its own attorneys, and that it is not relying on representations or
statements made Mr. Haase or by anyone representing Mr. Haase, other than those
specifically set forth in this Settlement Agreement.
22. NO ADMISSION OF LIABILITY. Each of the parties to this Settlement
Agreement agree that neither its content nor its or his entry into this
Settlement Agreement is to be construed as an admission of liability by it or
him, and that each of them expressly denies any such liability.
23. GOVERNING LAW. The parties to this Settlement Agreement agree that
the interpretation and effect of this Settlement Agreement shall be governed by
the law of the State of Minnesota, giving no effect to the law of the state of
Minnesota governing conflicts of laws.
24. JURISDICTION. The parties to this Settlement Agreement hereby
consent to the jurisdiction of the District Court, Fourth Judicial District,
County of Hennepin, State of Minnesota, for the enforcement of any and all
provisions of this Settlement Agreement, both now or in the future.
<PAGE>
25. INTERPRETATION. Should any of the provisions of this Settlement
Agreement require judicial interpretation, it is agreed that the court
interpreting or construing the same shall not apply a presumption that the terms
of this Settlement Agreement shall be more strictly construed against one or
more parties hereto by reason of the rule of construction that a document is to
be construed more strictly against the party who prepared the document, it being
acknowledged and agreed that all of the parties and their attorneys have
participated in the preparation and review of this Settlement Agreement.
26. COMPLETE AGREEMENT. The parties to this Settlement Agreement each
agree that this Settlement Agreement, including the exhibits hereto, contains
the entire agreement between them, and supersedes all prior or contemporaneous
agreements and understandings, oral or written, between the parties hereto as of
the date hereof regarding the matters described herein.
27. MODIFICATIONS AND WAIVERS. No term or provision of this Settlement
Agreement may be varied, changed, modified, waived or terminated orally, but
only by an instrument in writing signed by the party against whom the
enforcement of the variation, change, modification, waiver or termination is
sought. The waiver by any party hereto of any breach of any provision of this
Settlement Agreement shall not constitute or operate as a waiver of any other
breach of such provision or of any other provision hereof, nor shall any failure
to enforce any provision hereof operate as a waiver at such time or at any
future time of such provision or of any other provision hereof.
28. NOTICE. Any notice required or permitted hereunder shall be in
writing and shall be deemed to have been given, if mailed, registered or
certified, postage prepaid, on the date posted, or if personally delivered, when
addressed and delivered to the address indicated below:
TO MR. HAASE:
Mr. Harley Haase
13873 Guild Avenue
Apple Valley, Minnesota 55124
WITH COPY TO:
George R. Wood
Gray, Plant, Mooty, Mooty & Bennett, P.A.
City Center
Minneapolis, Minnesota 55402
<PAGE>
TO OXBORO:
Mr. Larry Rasmusson
Oxboro Medical International, Inc.
13828 Lincoln Street N.E.
Ham Lake, Minnesota 55304
WITH COPY TO:
Thomas Judd
Moss & Barnett, P.A.
4800 Norwest Center
Minneapolis, Minnesota 55402
29. OXBORO AUTHORITY. Oxboro represents and warrants that its
undersigned representative is duly authorized to execute this Settlement
Agreement on its behalf and to bind it to the terms of this Settlement
Agreement.
30. EXECUTION IN COUNTERPARTS. This Settlement Agreement may be signed
in any number of counterparts, with the same effect as if the signature thereto
were upon the same instrument. Complete sets of counterparts shall be lodged
with and delivered to each party to this Settlement Agreement.
31. HAASE RESCISSION RIGHTS. Mr. Haase may rescind this Settlement
Agreement within fifteen (15) calendar days of its execution. To be effective,
the rescission must be in writing, and delivered to Oxboro either by hand or
mail within the 15-day period. If delivered by mail, the rescission must be (1)
postmarked within the 15-day period; (2) properly addressed to the persons set
forth in paragraph 28 above; and (3) sent by certified mail return receipt
requested. If Mr. Haase exercises his right of rescission, he agrees to return
to Oxboro all payments that may have been made to him under this Settlement
Agreement.
32. NON-RELEASE OF FUTURE CLAIMS. This Settlement Agreement does not
waive or release any rights or claims that Mr. Haase may have under the
Minnesota Human Rights Act or the Age Discrimination in Employment Act, or any
of the Oxboro's benefit plans, which arise after Mr. Haase signs this Settlement
Agreement, or which arise out of acts occurring after he signs this Settlement
Agreement.
33. PERIOD FOR REVIEW AND CONSIDERATION. Mr. Haase understands that he
has been given a period of 21 days to review and consider this Settlement
Agreement before signing it. Mr. Haase further understands that he may use as
much or as little of this 21 day period as Mr. Haase wishes prior to signing it.
34. RETURN OF OXBORO'S EQUIPMENT, PERSONAL PROPERTY, MATERIALS,
DOCUMENTS AND FILES. Mr. Haase represents and warrants that either prior to the
date of execution of this Agreement or upon the execution of this Agreement he
has returned or will return any and all
<PAGE>
equipment, personal property, materials, documents and files of Oxboro whether
in written form, on computer disk or in any other electronic or other form, and
any and all copies thereof. Oxboro agrees that it shall maintain at the offices
of Moss & Barnett, P.A. a complete copy set of all documents/tangible items
returned by Mr. Haase pursuant to this paragraph. Moss & Barnett, P.A. shall
maintain this copy set for a period of two (2) years from the date of this
Settlement Agreement. Following the expiration of this two (2) year period, Moss
& Barnett, P.A. may return the copy set of the documents/tangible items to
Oxboro.
/s/ Harley Haase
Harley Haase
OXBORO MEDICAL INTERNATIONAL, INC.
By /s/ Larry A. Rasmusson
Larry A. Rasmusson
Chairman and Chief Financial Officer
/s/ Larry A. Rasmusson
Larry A. Rasmusson, as Officer, Director, and
Shareholder of Oxboro Medical International,
Inc., and as Officer and Director or Oxboro
Outdoors, Inc.
/s/ John Walter
John Walter, as Director of Oxboro Medical
International, Inc.
/s/ Dennis Mikkelson
Dennis Mikkelson, as Director of Oxboro
Medical International, Inc.
OXBORO OUTDOORS, INC.
By /s/ Larry A. Rasmusson
Its Pres.
<PAGE>
EXHIBIT A
Web Guard
Weitlander Guard
Instrument Transport System
Scissor Tractor
Anti-DE Mattress
Stoma Pouch Seal Cover
Instrument Cleaner
New Shape Instrument Guard
Plasto Film
Tape Remover Liquid
Tape Remover Knife
Reel Pack Vessel Loops
Reel Pack RFCC Covers
Reel Pack Clamp Covers
Reel Pack Fabric Clamp Covers
Sterile Lubricants
Teeth Protective Device
Scar Reduction Material
Anti-Fog Kit or Device
Garbage Bag
Instrument Guards for Retractors
<PAGE>
Instrument Tape & Instrument Guard Carousel
Surgical Stand Instrument Organizer
Tracker/Usage Counter for Scissors
Special Purpose/Design Instrument Guards
Roll and Sheet Tape Remover
Water Base Solvent/Cleaner
Logo Lures for NBA
Logo Lures for Major League Baseball
Logo Lures for NHL
Logo Lures for NASCAR
Silicone Base Crank Bait
Any change in packaging quantities, packaging size, quantities per package,
packaging design, labeling changes and different or additional colors are an
extension of an existing product and do not constitute a new product.
As an example, if Oxboro were to start packaging Vessel Loops in a "ten (10)
Vessel Loops per package" configuration, that package would be considered to be
an existing product.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE 9 MONTHS ENDED JUNE 30, 1997, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 59,834
<SECURITIES> 0
<RECEIVABLES> 647,807
<ALLOWANCES> 21,434
<INVENTORY> 2,730,711
<CURRENT-ASSETS> 2,949,333
<PP&E> 2,154,803
<DEPRECIATION> 778,237
<TOTAL-ASSETS> 5,823,049
<CURRENT-LIABILITIES> 1,052,055
<BONDS> 0
0
0
<COMMON> 26,621
<OTHER-SE> 4,234,343
<TOTAL-LIABILITY-AND-EQUITY> 5,823,049
<SALES> 3,486,462
<TOTAL-REVENUES> 3,486,462
<CGS> 1,013,166
<TOTAL-COSTS> 1,013,166
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 51,666
<INCOME-PRETAX> (64,858)
<INCOME-TAX> (9,287)
<INCOME-CONTINUING> (55,571)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (55,571)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
