<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-KSB
<TABLE>
<S> <C>
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
</TABLE>
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-18785
------------------------
OXBORO MEDICAL INTERNATIONAL, INC.
(Name of small business issuer in its charter)
<TABLE>
<S> <C>
MINNESOTA 41-1391803
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
13828 LINCOLN STREET N.E.
HAM LAKE, MINNESOTA 55304
(Address of principal executive offices) (Zip Code)
(612) 755-9516
(Issuer's Telephone Number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, par value $.01 per share
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes
/X/ No / /
Check if no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. /X/
State issuer's revenues for its most recent fiscal year. $4,801,965.
Based upon the closing price of the issuer's Common Stock as reported by The
Nasdaq SmallCap Market, the aggregate market value of such Common Stock held by
nonaffiliates of the issuer as of December 12, 1997, was approximately
$1,748,485.
As of December 12, 1997 there were 2,258,578 shares of the issuer's Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Information required under Part III, Items 9-12 is incorporated by reference
from the Registrant's Proxy Statement to be mailed to shareholders in connection
with the 1998 Annual Meeting (the "Proxy Statement").
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS.
The Company ("Oxboro") develops, assembles, and markets medical and surgical
devices and, through its wholly-owned subsidiary, Oxboro Outdoors, Inc.
("Outdoors"), develops, assembles and markets products for the boating, hunting,
and fishing markets. The Company entered into the business of recreational
products in fiscal 1993.
(b) NARRATIVE DESCRIPTION OF BUSINESS.
PRINCIPAL PRODUCTS. Principal products produced and sold by Oxboro include
silicone loops, silicone and fabric clamp covers, instrument guards, suture aid
booties, identification sheet and roll tape, and various holders and organizers
for instruments used in the operating room.
Oxboro has developed and is conducting market analysis as to the feasibility
of introducing a biogradable sheet and roll tape removal system.
Oxboro uses a Class 10,000 clean room facility to assemble, package, and
inspect its products. Raw materials and parts for the products are produced to
Oxboro's specifications by various outside vendors. The assembled products that
are sold sterile are sent to an independent contract sterilizer and independent
laboratory for sterilization efficacy.
Outdoors has developed a line of products for the fishing, hunting and
related recreational market using certain common vendors and materials used in
production by Oxboro. The remaining Outdoors products are designed and produced
to Outdoors specification by various vendors.
Outdoors' basic products generally fall into one of the following groups:
(i) self-adhesive organizational products for use in various recreational
vehicles such as boats, snowmobiles and off-road vehicles, including fishing rod
holders, net holders, drink holders, accessory holders, utility straps, and a
variety of other products useful for organizational purposes, (ii) terminal
tackle and various tackle components, and (iii) fishing related items.
In fiscal 1996, Outdoors entered into a license agreement with NFL
Properties, Inc. that gives Outdoors the right to manufacture and sell fishing
tackle printed with logos of National Football League teams. In fiscal 1997 the
license was expanded to include key chains and earrings manufactured out of
fishing tackle components. Currently, the product line consists of four
individual pieces of fishing tackle, one pair of earrings and two sizes of key
chains imprinted with the logo of each of the 30 NFL football teams.
In late fiscal 1997 Outdoors entered into an agreement with Major League
Baseball Properties to produce fishing tackle using the logos and indicia of the
thirty Major League Baseball teams.
PRODUCT DISTRIBUTION. Medical products are marketed through Oxboro's
telemarketing department directly to hospitals throughout the United States and
Canada and through dealers and kit packaging companies domestically.
International sales of medical products are made through distributors secured by
Oxboro in the international market. International sales accounted for
approximately 8% and 7% of medical product net sales during fiscal 1997 and
1996, respectively.
Outdoors products are sold to retailers using a combination of Outdoors
field salespersons and telemarketers and independent representatives
representing the Outdoors product lines and directly to consumers through the
Outdoors retail catalogue. During fiscal 1997 Outdoors produced and directed two
pilot programs for a 13-week Outdoors television show, the purpose of which is
to promote Outdoors products. Negotiations are currently underway with cable and
network affiliates to broadcast the show.
2
<PAGE>
SOURCES OF SUPPLY. The raw materials used for the extruding, molding, and
weaving of the Company's various products are readily available from multiple
sources.
PATENTS, TRADEMARKS, LICENSES. Many of the products currently being
marketed by the Company are not unique, and, therefore, the Company believes
that the effect of patents, licenses, franchises, or other intellectual or
intangible property concessions on other than a few select products would be
negligible.
In the event the Company substantially develops and tests any new unique
products, patent protection could be important. In the event the Company
attempts to secure patents, it is likely to incur substantial costs in such
attempts, and such patents may not be available.
COMPETITION. Both the surgical and medical products market and the outdoor
recreational market are extremely competitive. The Company believes that among
its direct competitors are firms with substantially greater assets, marketing
capability, and experience than the Company. In addition, such competitors are
often able to offer lower prices than the Company and thus can limit the
Company's penetration and market share.
RESEARCH AND DEVELOPMENT EXPENDITURES. In the fiscal years ended September
30, 1997 and 1996, the Company spent $19,373 and $43,249, respectively, for
research and development, exclusive of personnel costs. In fiscal 1996, $30,664
was spent for development of medical products, and $12,585 was spent for
development of recreational products. In fiscal 1997, $6,640 was spent for
medical products and $12,913 for development of Outdoors products.
GOVERNMENT REGULATION. Because Oxboro manufactures and sells medical
products, both the products and the manufacturing procedures are subject to
regulation by the federal Food and Drug Administration. As a result, Oxboro is
subject to extensive rules and regulations, compliance with which may require
expenditure of material amounts. In addition, should Oxboro fail to comply with
such regulations it could be subject to administrative and criminal actions,
which could have a material adverse effect on the Company's business. Beginning
in calendar 1998, the Company will be subject to additional new regulations,
known as CE Mark Certification, which must be adhered to in order to continue to
sell the Company's products in certain international markets. Continued
compliance with all regulatory requirements may require significant
expenditures.
EMPLOYEES. As of December 12, 1997, the Company, including Outdoors,
employed 53 persons on a full-time basis, including three in management, 12 in
sales, 28 in production and shipping, and 10 in general and administration. The
Company also employed 5 persons on a part-time basis in manufacturing. During
the first quarter of fiscal 1998, the Company has added an executive assistant,
an FDA compliance manager, and a human resource manager, and plans to add a
chief financial officer and a full-time medical research and development person.
These additional personnel are believed necessary to achieve the Company's
future plans.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's office, manufacturing, and warehouse facilities are located in
a 30,000 square foot building on 2.41 acres in Ham Lake, a suburb of
Minneapolis, Minnesota. See Note D of Notes to Consolidated Financial Statements
(included in Item 7 hereof) regarding the terms of a mortgage on the property.
ITEM 3. LEGAL PROCEEDINGS
UP NORTH. On January 14, 1997, Up North Communications, Ltd. ("Up North")
commenced an action against the Company and Outdoors, in Minnesota District
Court, Anoka County, seeking payment of approximately $64,000, plus interest,
for goods and services provided to Outdoors. Outdoors asserted a counterclaim
against Up North alleging breach of contract, breach of warranty and
misrepresentation,
3
<PAGE>
seeking damages in excess of $50,000, for Up North's failure to comply with the
contract by supplying defective goods and services and misrepresenting its
abilities and experience. Up North also asserted a claim for defamation,
claiming damages in excess of $50,000 for damage to reputation.
The dispute arose from problems occurring in the printing of lures and
packaging materials for Outdoors products. Outdoors claims that the film and the
backer cards supplied by Up North were defective and not suitable for their
intended use and that Outdoors was forced to find alternative sources of supply.
A jury trial held in late October and early November 1997, resulted in a net
award to the Company and Outdoors of between $19,000 and $26,700, depending on
the court's interpretation of the legal effect of one of the jury's answers to
the special verdict. The court had dismissed Up North's defamation claim prior
to submission to the jury.
HARLEY HAASE. 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, the
action was dismissed in November 1997.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year ended September 30, 1997, no
matter was submitted to a vote of security holders.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on The Nasdaq SmallCap Market. The
following table sets forth the quarterly high and low prices for the Company's
Common Stock for each quarter of the past two fiscal years as reported by
Nasdaq.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
FISCAL 1997
First Quarter......................... $ 1 3/8 $ 1 5/32
Second Quarter........................ 1 1/2 1 3/16
Third Quarter......................... 1 5/16 7/8
Fourth Quarter........................ 1 5/16 15/16
FISCAL 1996
First Quarter......................... $ 1 3/4 $ 1 3/8
Second Quarter........................ 1 11/16 1 3/16
Third Quarter......................... 1 7/16 1 3/16
Fourth Quarter........................ 1 7/16 1 1/6
</TABLE>
There were approximately 580 holders of record of the Company's Common Stock
as of December 12, 1997. The Company has paid no cash dividends on its Common
Stock.
4
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
GENERAL
Oxboro Medical International, Inc.'s only business operation until 1993 was
as a supplier of single-use products to hospital operating rooms and other
hospital departments. In 1993, Outdoors was established as a wholly-owned
subsidiary to develop, manufacture and market outdoor recreational products.
Many of the original Outdoors products use medical and surgical product
technologies and materials.
Outdoors sales began in January 1994, with the introduction of 60 products
designed for boats, automobiles, all-terrain vehicles, and various other
recreational vehicles. Since 1994, Outdoors has acquired four small tackle
companies in order to build its product line and now has approximately 2,900
products. Outdoors uses a combination of a field sales force, a telemarketing
sales force, and a network of independent representatives to market and
distribute the product lines.
In late fiscal 1996, Outdoors secured a license agreement with NFL
Properties, Inc. that gives Outdoors the right to manufacture and sell fishing
tackle printed with logos, names and all indicia of the National Football
League. During fiscal 1997, the license agreement was amended to include
earrings and key chains manufactured from fishing tackle components. Outdoors
now manufactures and distributes 180 products utilizing the logos and indicia of
the National Football League.
Recently, Outdoors secured a similar license agreement with Major League
Baseball to produce fishing tackle using the logos and indicia of the 30 Major
League Baseball teams.
During fiscal 1997, the Company determined that a change in the position of
chief executive officer was necessary to facilitate the development and
implementation of a strategic plan. As part of the management restructuring,
other components of the Company have also been reorganized and/or expanded. To
position itself for future growth, the Company has added several positions,
including an executive assistant, an office of human resources, and an office of
regulatory compliance. The Company plans to add a chief financial officer and a
full time medical research and development person within the near future.
RESULTS OF OPERATIONS
Net sales for the Company were $4,801,965 in fiscal 1997 compared to
$4,149,718 in fiscal 1996, an increase of approximately 16%. The Company
performed well in both the medical and surgical products division and the
Outdoors division. Sales of medical and surgical products for the year ended
September 30, 1997, were $4,322,108 compared to $3,995,568 for the year ended
September 30, 1996, which represents an increase of 8%, or $326,540, over the
previous year. In light of increasing competition and the challenges resulting
from the consolidation of the health care industry, with the resulting greater
emphasis on controlling costs and competitive pricing, management is pleased
with these results.
Outdoors sales for the year ended September 30, 1997 were $479,857 compared
to $154,150 in fiscal 1996, or an increase of 211% over the previous year.
Increased revenue resulted in part from an increased number of retail outlets
handling Outdoors products and increased sales to existing retail outlets. Sales
of product under the NFL license agreement were approximately $362,000.
Consolidated gross margin was 68% in fiscal 1997 as compared to 65% in
fiscal 1996. Oxboro's gross margin was 76%, while Outdoors' was (5%). The
improvement in gross margin for Oxboro (which had been 68% in fiscal 1996) can
be attributed to the correction of some inefficiencies in manufacturing
processes and a reduction in the obsolescence reserve made appropriate by those
corrections.
The improvement in gross margin for Outdoors (which was a negative 10% in
fiscal 1996) can be attributed to increased sales and the correction of some of
the manufacturing inefficiencies present during fiscal 1996. In addition, an
increase of $85,000 in reserves against Outdoors inventory was incurred during
fiscal 1997 (which decreased gross margin by 18%).
5
<PAGE>
During fiscal 1997, selling, general and administrative ("SG&A") expenses
increased by 29%, or $747,614 over fiscal 1996. For fiscal year 1997, SG&A
expenses increased approximately 7% as a percentage of sales. Increased SG&A
expenses for Oxboro include approximately $160,000 incurred in connection with
the settlement related to the termination of the previous chief executive
officer, increases of approximately $115,000 in legal fees, incurred principally
in connection with the termination and related legal proceedings, approximately
$63,000 in salaries and wages, from both increases to existing employees and the
addition of new personnel, approximately $33,000 in consulting expense related
to FDA/ISO/CE Mark Certification activities, $37,000 in additional printing
expense related to increased promotional activities, and approximately $45,000
of increased bonus expense. Decreased expenses for Oxboro include approximately
$24,000 in research and development costs. In addition, the Company had
increased interest expense of approximately $47,000 as a result of increased
borrowings on its line of credit.
The increase in SG&A expenses for Outdoors during fiscal 1997 of 24% over
fiscal 1996 was mainly due to implementation of an annual salary for the
Outdoors president of $60,000, increased royalty expenses of approximately
$73,000 due to increased sales of the licensed product line, and increased
advertising expense of approximately $161,000. In addition, the Company incurred
legal costs of approximately $37,000 related to the successful defense of an
action brought by a vendor.
In fiscal 1997, the Company incurred a loss before income taxes of $147,765
as compared to earnings before taxes of $102,242 in fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30,1997, the Company had working capital of $2,100,234 as
compared to $1,936,742 at September 30, 1996. Also, at September 30, 1997, the
Company had $386,754 in long-term debt and $124,815 in cash and cash
equivalents.
During the year ended September 30, 1997, the Company used $32,524 net cash
in operating activities, reflecting the loss before income taxes of $147,765 and
increases of $139,443 in accounts receivable and $136,250 in other assets,
offset by $336,393 in depreciation and amortization.
The Company used $28,381 in net cash in investing activities during the
fiscal year ended September 30, 1997.
During fiscal 1997, net cash from financing activities was $172,397. The
Company increased its line of credit to $1,500,000, subject to certain terms and
conditions related to the Company's financial performance. Outstanding balances
on the line are subject to an annual interest rate of 1/2% over the bank's prime
rate (9.0% at September 30, 1997) and are secured by substantially all of the
Company's assets. During fiscal 1997, the Company used $550,000 of available
credit, and as of September 30, 1997, the amount outstanding had been reduced to
$131,313. Subsequent to September 30, 1997, the outstanding balance was reduced
to approximately $44,000.
During fiscal 1998, the Company expects continued investments in Outdoors to
increase market awareness, continue the development of products and distribution
channels, including the continued development of the National Football League
line of tackle for national distribution, and the introduction of a line of
licensed products using Major League Baseball logos. In addition, the Company
intends to continue to pursue introduction of additional medical products. The
amount of these investments cannot be quantified at this time.
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
6
<PAGE>
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, changes in the environment for health
care related products, and overall economic conditions, including inflation and
consumer buying patterns.
ITEM 7. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Certified Public Accountants......................................................... F-1
Consolidated Balance Sheet, September 30, 1997............................................................. F-2
For the years ended September 30, 1997 and 1996:
Consolidated Statements of Operations.................................................................... F-3
Consolidated Statements of Shareholders' Equity.......................................................... F-4
Consolidated Statements of Cash Flows.................................................................... F-5
Notes to Consolidated Financial Statements............................................................... F-6
</TABLE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
No disclosure is required under this item.
7
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Information required by Item 9 is contained in the Proxy Statement under
"Election of Directors."
ITEM 10. EXECUTIVE COMPENSATION
Information required by Item 10 is contained in the Proxy Statement under
"Election of Directors" and "Executive Compensation."
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by Item 11 is contained in the Proxy Statement under
"Common Stock Ownership."
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by Item 12 is contained in the Proxy Statement under
"Executive Compensation" and "Certain Relationships and Related
Transactions."
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
See "Exhibit Index" for list of Exhibits filed with this report.
(b) Reports on Form 8-K.
No Reports on Form 8-K were filed during the quarter ended September 30,
1997.
8
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
<TABLE>
<S> <C> <C>
OXBORO MEDICAL INTERNATIONAL, INC.
Dated: December 29, 1997 By: /s/ LARRY A. RASMUSSON
-----------------------------------------
Larry A. Rasmusson
CHIEF EXECUTIVE OFFICER AND
CHIEF FINANCIAL OFFICER
</TABLE>
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.
SIGNATURES TITLE DATE
- ------------------------------ -------------------------- -------------------
President, principal
/s/ LARRY A. RASMUSSON executive officer,
- ------------------------------ principal financial and December 29, 1997
Larry A. Rasmusson accounting officer and
director
/s/ DENNIS L. MIKKELSON
- ------------------------------ Director December 29, 1997
Dennis L. Mikkelson
/s/ JOHN R. WALTER
- ------------------------------ Director December 29, 1997
John R. Walter
9
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Shareholders and Board of Directors
Oxboro Medical International, Inc.
We have audited the accompanying consolidated balance sheet of Oxboro
Medical International, Inc. and subsidiary as of September 30, 1997, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the two years in the period ended September 30, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Oxboro Medical
International, Inc. and subsidiary as of September 30, 1997, and the
consolidated results of their operations and their consolidated cash flows for
each of the two years in the period ended September 30, 1997, in conformity with
generally accepted accounting principles.
GRANT THORNTON LLP
Minneapolis, Minnesota
December 2, 1997
F-1
<PAGE>
OXBORO MEDICAL INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents......................................................................................... $ 124,815
Trade receivables, net of allowance of $28,276.................................................................... 719,547
Inventories....................................................................................................... 1,659,838
Deferred income taxes............................................................................................. 188,000
Other current assets.............................................................................................. 250,329
------------
Total current assets............................................................................................ 2,942,529
PROPERTY, PLANT AND EQUIPMENT--AT COST
Land.............................................................................................................. 57,211
Building.......................................................................................................... 891,919
Furniture and equipment........................................................................................... 1,243,080
------------
2,192,210
Less accumulated depreciation..................................................................................... 841,582
------------
1,350,628
OTHER ASSETS
Cash surrender value of life insurance............................................................................ 203,770
Inventories....................................................................................................... 910,000
Other............................................................................................................. 171,250
------------
$ 5,578,177
------------
------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable to bank.............................................................................................. $ 131,313
Current maturities of long-term obligation........................................................................ 6,411
Accounts payable.................................................................................................. 231,704
Accrued salaries, wages and payroll taxes......................................................................... 245,126
Income taxes payable.............................................................................................. 32,602
Other accrued expenses............................................................................................ 195,139
------------
Total current liabilities....................................................................................... 842,295
LONG-TERM OBLIGATION, less current maturities....................................................................... 386,754
DEFERRED INCOME TAXES............................................................................................... 115,000
COMMITMENTS AND CONTINGENCIES....................................................................................... --
SHAREHOLDERS' EQUITY
Undesignated shares, $.01 par value; 5,000,000 shares authorized; no shares issued or outstanding................. --
Common stock, $.01 par value; 5,000,000 shares authorized; 2,258,578 shares issued and outstanding................ 22,586
Additional paid-in capital........................................................................................ 1,313,057
Retained earnings................................................................................................. 2,992,291
------------
4,327,934
Receivable from employee stock ownership plan..................................................................... (93,806)
------------
4,234,128
------------
$ 5,578,177
------------
------------
</TABLE>
The accompanying notes are an integral part of this statement.
F-2
<PAGE>
OXBORO MEDICAL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Net sales........................................................................................... $ 4,801,965 $ 4,149,718
Cost of goods sold.................................................................................. 1,554,643 1,446,635
------------ ------------
Gross margin.................................................................................... 3,247,322 2,703,083
Selling, general and administrative expenses........................................................ 3,344,450 2,596,836
------------ ------------
Operating income (loss)......................................................................... (97,128) 106,247
Other income (expense)
Interest expense.................................................................................. (65,906) (18,430)
Other............................................................................................. 15,269 14,425
------------ ------------
Earnings (loss) before income taxes............................................................. (147,765) 102,242
Income taxes........................................................................................ (60,000) 4,000
------------ ------------
NET EARNINGS (LOSS)............................................................................. $ (87,765) $ 98,242
------------ ------------
------------ ------------
Net earnings (loss) per common share................................................................ $ (0.03) $ 0.04
------------ ------------
------------ ------------
Weighted average common shares outstanding.......................................................... 2,679,112 2,672,278
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
OXBORO MEDICAL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
SHARES IN
RECEIVABLE ESCROW RELATED
FROM TO RESEARCH
COMMON STOCK ADDITIONAL EMPLOYEE STOCK AND
--------------------- PAID-IN RETAINED STOCK SUBSCRIPTION DEVELOPMENT
SHARES AMOUNT CAPITAL EARNINGS OWNERSHIP PLAN RECEIVABLE ARRANGEMENT
---------- --------- ----------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at October 1, 1995.......... 2,672,278 $ 26,723 $ 2,276,110 $ 2,981,814 $ (108,806) $ (80,000) $ (967,250)
Payment from ESOP................. -- -- -- -- 7,500 -- --
Net earnings...................... -- -- -- 98,242 -- -- --
---------- --------- ----------- ----------- -------------- ----------- --------------
Balance at September 30, 1996....... 2,672,278 26,723 2,276,110 3,080,056 (101,306) (80,000) (967,250)
Retirement of shares related to
research and development
arrangement..................... (383,500) (3,835) (963,415) -- -- -- 967,250
Retirement of shares related to
stock subscription receivable... (70,200) (702) (89,238) -- -- 80,000 --
Exercise of stock options......... 40,000 400 89,600 -- -- -- --
Payment from ESOP................. -- -- -- -- 7,500 -- --
Net loss.......................... -- -- -- (87,765) -- -- --
---------- --------- ----------- ----------- -------------- ----------- --------------
Balance at September 30, 1997....... 2,258,578 $ 22,586 $ 1,313,057 $ 2,992,291 $ (93,806) $ -- $ --
---------- --------- ----------- ----------- -------------- ----------- --------------
---------- --------- ----------- ----------- -------------- ----------- --------------
<CAPTION>
TOTAL
-----------
<S> <C>
Balance at October 1, 1995.......... $ 4,128,591
Payment from ESOP................. 7,500
Net earnings...................... 98,242
-----------
Balance at September 30, 1996....... 4,234,333
Retirement of shares related to
research and development
arrangement..................... --
Retirement of shares related to
stock subscription receivable... (9,940)
Exercise of stock options......... 90,000
Payment from ESOP................. 7,500
Net loss.......................... (87,765)
-----------
Balance at September 30, 1997....... $ 4,234,128
-----------
-----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
OXBORO MEDICAL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss).................................................................... $ (87,765) $ 98,242
Adjustments to reconcile net earnings (loss) to net cash used in operating activities:
Depreciation and amortization........................................................ 336,393 180,287
Loss (income) from limited partnership............................................... 7,991 (2,639)
Deferred income taxes................................................................ (80,000) (40,000)
Change in operating assets and liabilities
Trade receivables.................................................................. (139,443) (2,808)
Inventories........................................................................ 12,111 (774,283)
Other current assets............................................................... (136,250) 13,825
Accounts payable................................................................... 19,087 47,645
Income taxes payable............................................................... 3,499 29,103
Accrued liabilities................................................................ 31,853 35,576
---------- ----------
Net cash used in operating activities............................................ (32,524) (415,052)
Cash flows from investing activities:
Purchase of property, plant and equipment.............................................. (122,893) (214,557)
Reduction of (additions to) other assets............................................... 94,512 (103,569)
---------- ----------
Net cash used in investing activities............................................ (28,381) (318,126)
Cash flows from financing activities:
Net borrowings under notes payable to bank............................................. 81,313 50,000
Proceeds from ESOP receivable.......................................................... 7,500 7,500
Proceeds from exercise of stock options................................................ 90,000 --
Payments on long-term obligations...................................................... (6,416) (419)
---------- ----------
Net cash provided by financing activities........................................ 172,397 57,081
---------- ----------
Net increase (decrease) in cash and cash equivalents..................................... 111,492 (676,097)
Cash and cash equivalents at beginning of year........................................... 13,323 689,420
---------- ----------
Cash and cash equivalents at end of year................................................. $ 124,815 $ 13,323
---------- ----------
---------- ----------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest............................................................................. $ 65,906 $ 11,636
Income taxes......................................................................... 29,000 --
Supplemental disclosure of noncash investing and financing activities:
During 1997, the Company retired 383,500 shares of common stock at a value of $967,250 in connection with the
termination of a research and development arrangement (note B).
During 1997, the Company received 70,200 shares of its common stock in cancellation of a stock subscription
receivable of $80,000 and related interest receivable of $9,940.
During 1996, the Company financed the construction of a building addition with debt of $400,000.
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
OXBORO MEDICAL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Oxboro Medical International, Inc. ("the Company") develops, assembles and
markets disposable medical products for use in general and cardiovascular
surgery. The Company's wholly-owned subsidiary, Oxboro Outdoors, Inc., develops
and markets products for outdoor recreational use. The Company conducts all of
its operations out of one facility located in Ham Lake, Minnesota.
CONSOLIDATION POLICY
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, Oxboro Outdoors, Inc. All significant
intercompany transactions and accounts have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid temporary investments with original
maturities of three months or less to be cash equivalents.
TRADE RECEIVABLES AND CUSTOMERS
The Company grants credit to customers in the normal course of business, but
generally does not require collateral or any other security to support amounts
due.
Medical products are primarily marketed directly to hospitals throughout the
United States and Canada. Outdoor recreational products are sold primarily to
retailers throughout the United States.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market. Inventories consist of the following at September 30, 1997:
<TABLE>
<S> <C>
Raw materials................................................... $1,385,987
Finished goods.................................................. 1,183,851
---------
$2,569,838
---------
---------
</TABLE>
The Company produces inventory in anticipation of customer demand. Although
management believes its estimate of carrying value of this inventory is
appropriate, it is reasonably possible that in the near term the value of this
inventory could decrease significantly which could have a significant adverse
material effect to the Company. Inventories in excess of amounts expected to be
sold during fiscal 1998 have been classified as long-term.
DEPRECIATION
Depreciation is provided in amounts sufficient to charge the cost of
depreciable assets to operations over their estimated service lives, principally
on straight-line methods for financial reporting purposes and
F-6
<PAGE>
OXBORO MEDICAL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997 AND 1996
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
on straight-line and accelerated methods for income tax reporting purposes.
Estimated service lives for financial reporting purposes are as follows:
<TABLE>
<CAPTION>
NUMBER OF YEARS
---------------------
<S> <C>
Building..................................................................... 30
Furniture and equipment...................................................... 7
</TABLE>
INCOME TAXES
Deferred income tax assets and liabilities are recorded based on the
difference between the tax bases of assets and liabilities and their carrying
amounts for financial reporting purposes.
NET EARNINGS (LOSS) PER COMMON SHARE
Net earnings (loss) per common share are based upon the weighted average
number of outstanding common shares and common share equivalents, when dilutive.
STOCK-BASED COMPENSATION
The Company utilizes the intrinsic value method of accounting for its
employee stock-based compensation.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards (SFAS) 128, EARNINGS PER SHARE, which is
effective for periods ending after December 15, 1997. Early adoption of the new
standard is not permitted. The new standard eliminates primary and fully diluted
earnings per share and requires presentation of basic and diluted earnings per
share together with disclosure of how the per share amounts were computed.
The FASB also issued SFAS 130, REPORTING COMPREHENSIVE INCOME, which
requires the Company to display an amount representing total comprehensive
income, as defined by the statement, as part of the Company's basic financial
statements. Additionally, SFAS 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE
AND RELATED INFORMATION, requires the Company to disclose financial and other
information about its business segments, their products and services, geographic
areas, sales, profits, assets and other information. These statements are
effective for financial statements for periods beginning after December 15,
1997.
The adoption of these statements is not expected to have a material effect
on the consolidated financial statements of the Company.
RECLASSIFICATIONS
Certain reclassifications have been made to 1996 amounts to conform to 1997
presentation.
F-7
<PAGE>
OXBORO MEDICAL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997 AND 1996
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
Preparing financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting periods. Actual results could differ
from those estimates.
NOTE B--INVESTMENT IN LIMITED PARTNERSHIP
The Company had a 30% interest in a limited partnership formed to develop
processes or devices for inhibiting rejection in connection with organ
transplant procedures. This investment included cost in excess of the fair value
of net assets acquired (goodwill), which was being amortized over a five-year
life. The general partner of the limited partnership was a corporation owned by
a significant shareholder of the Company (note G).
In connection with this investment, the Board of Directors authorized the
Company to enter into an agreement to issue 383,500 shares of common stock to
the general partner with a total fair market value at the date of issuance of
$967,250. These shares were placed in escrow and were to be released to the
general partner on the attainment of specific project development milestones.
On September 30, 1997, the limited partnership was terminated and all shares
held in escrow were surrendered to the Company and retired. In addition, the
Company will receive cash of $55,000 representing its investment in the
partnership. A loss of approximately $8,000 was recognized as a result of this
transaction.
NOTE C--NOTE PAYABLE TO BANK
The Company has a line of credit facility with a bank under which it can
borrow up to $1,500,000, subject to a defined borrowing base. Amounts
outstanding under the facility are due upon demand or, if no demand is made, on
March 31, 1998 and bear interest at prime plus .5% (effective rate of 9.00% at
September 30, 1997). The facility is collateralized by substantially all assets
of the Company, contains restrictive covenants which include, but are not
limited to, minimum tangible net worth, net earnings, and a maximum debt to
tangible net worth ratio. Effective September 30, 1997 the Company was in
compliance with or in the process of obtaining waivers for all covenants. The
Company expects to maintain or replace the line of credit under similar terms
and conditions.
NOTE D--LONG-TERM OBLIGATION
The Company has a term note payable to a bank which is due in monthly
installments of principal and interest at the bank's prime rate plus .5%
(effective rate of 9.00% at September 30, 1997). The note is due in 2001 and is
collateralized by a building. It is subject to the same restrictive covenants as
the line of credit (note C).
F-8
<PAGE>
OXBORO MEDICAL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997 AND 1996
NOTE D--LONG-TERM OBLIGATION (CONTINUED)
Maturities of the long-term obligation are as follows for the years ending
September 30:
<TABLE>
<S> <C>
1998.............................................................. $ 6,411
1999.............................................................. 7,621
2000.............................................................. 8,336
2001.............................................................. 370,797
---------
$ 393,165
---------
---------
</TABLE>
NOTE E--SHAREHOLDERS' EQUITY
EMPLOYEE STOCK OWNERSHIP PLAN
The Board of Directors has adopted an Employee Stock Ownership Plan (ESOP)
for the benefit of the Company's employees. The Company originally loaned
$150,000 to the ESOP for the purchase of 225,000 shares of newly issued common
stock at $.67 a share. The loan from the ESOP bears interest at 9% per annum and
is to be repaid over 20 years in annual payments of $7,500 plus interest.
Repayment by the ESOP will be made from future annual contributions by the
Company. Contributions to the ESOP were approximately $20,000 for each of the
years ended September 30, 1997 and 1996.
STOCK OPTIONS
The Company has granted nonqualified stock options to key employees and
other individuals providing services to the Company at an exercise price not
less than market price as of the date of grant. Each grant awarded specifies the
period for which the options are exercisable and provides that the options shall
expire at the end of such period.
Option transactions for the two years ended September 30, 1997 are
summarized as follows:
<TABLE>
<CAPTION>
NUMBER WEIGHTED AVERAGE
OF SHARES EXERCISE PRICE
--------- -----------------
<S> <C> <C>
Outstanding at October 1, 1995................................... 220,364 $ 2.02
Expired.......................................................... (60,000) 2.50
--------- -----
Outstanding at September 30, 1996................................ 160,364 1.84
Granted.......................................................... 80,000 1.10
Exercised........................................................ (60,000) 1.50
Expired.......................................................... (40,000) 2.75
--------- -----
Outstanding at September 30, 1997................................ 140,364 $ 1.31
--------- -----
--------- -----
</TABLE>
During 1997, options to purchase 60,000 shares of common stock were
exercised. Stock certificates relating to 20,000 of these shares are yet to be
issued as of September 30, 1997.
Options for 119,364 shares were exercisable at September 30, 1997, at a
weighted average exercise price of $1.25.
F-9
<PAGE>
OXBORO MEDICAL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997 AND 1996
NOTE E--SHAREHOLDERS' EQUITY (CONTINUED)
The following table summarizes information concerning outstanding and
exercisable stock options at September 30, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
- ------------------------------------------------------------------
WEIGHTED AVERAGE
RANGE OF NUMBER REMAINING WEIGHTED AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE
- ---------------- ----------- ---------------- -----------------
<S> <C> <C> <C>
$ 1.08 - $1.50 100,364 4.1 years $ 1.18
1.63 40,000 2.9 years 1.63
</TABLE>
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE
- ------------------------------------------------
RANGE OF NUMBER WEIGHTED AVERAGE
EXERCISE PRICES EXERCISABLE EXERCISE PRICE
- ---------------- ----------- -----------------
<S> <C> <C>
$ 1.08 - $1.50 100,364 $ 1.18
1.63 19,000 1.63
</TABLE>
The weighted average fair value of options granted in 1997 was $1.10 per
share. The fair value of each option grant is determined on the date of grant
using the Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 1997: no dividend yield; risk-free rate of return
of 6.3%; volatility of 64.2%; and an average term of 5.0 years. The Company's
1997 pro forma net loss and net loss per share would have been $157,564 or $0.06
per share had the fair value method been used for valuing options granted during
1997. These effects may not be representative of the future effects of applying
the fair value method.
On October 1, 1997, an officer of the Company was granted options to
purchase 200,000 shares of common stock at an exercise price of $1.00 per share.
One half of the options vest immediately, with the second half vesting October
1, 1998. Terms of these options expire five years from the vesting date.
NOTE F--INCOME TAXES
Deferred income tax assets and liabilities consist of the following at
September 30, 1997:
<TABLE>
<S> <C>
Deferred tax assets
Accrued liabilities..................................................... $ 92,000
Allowance for doubtful accounts......................................... 10,000
Inventories............................................................. 134,000
Capital loss carryforward............................................... 14,000
Charitable contribution carryforward.................................... 21,000
Other................................................................... 5,000
---------
276,000
Valuation allowance..................................................... (88,000)
---------
$ 188,000
---------
---------
Deferred tax liabilities
Property and equipment.................................................. $ 104,000
Capitalized catalog costs............................................... 11,000
---------
$ 115,000
---------
---------
</TABLE>
During 1997, the valuation allowance increased by $20,000.
F-10
<PAGE>
OXBORO MEDICAL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997 AND 1996
NOTE F--INCOME TAXES (CONTINUED)
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
Currently payable
Federal............................................................. $ 18,000 $ 56,000
State............................................................... 2,000 (12,000)
---------- ----------
20,000 44,000
Deferred
Federal............................................................. (74,000) (37,000)
State............................................................... (6,000) (3,000)
---------- ----------
(80,000) (40,000)
---------- ----------
$ (60,000) $ 4,000
---------- ----------
---------- ----------
</TABLE>
A reconciliation of income taxes at the statutory rate to the actual income
taxes provided is as follows:
<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Federal tax, at statutory rate.............................................. (34.0)% 34.0%
State income taxes, net of federal tax benefit and credits received......... 0.9 (9.9)
Differences in statutory rates.............................................. 8.0 (11.4)
Officers life insurance..................................................... 4.2 7.2
Non-deductible entertainment expenses....................................... 9.0 4.0
Adjustment of prior year's accruals......................................... (6.2) (3.1)
Research and development credits............................................ (8.5) (18.5)
Change in valuation allowance............................................... (13.5) --
Other....................................................................... (0.5) 1.6
--------- ---------
Effective rate.............................................................. (40.6)% 3.9%
--------- ---------
--------- ---------
</TABLE>
The Company has a capital loss carryforward of approximately $38,000
available to offset future capital gains and a charitable contribution
carryforward of approximately $56,000 which may be carried forward for up to
five years. Benefits of these carryforwards will be recognized as they become
deductible for tax purposes.
F-11
<PAGE>
OXBORO MEDICAL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997 AND 1996
NOTE G--RELATED PARTY TRANSACTIONS
SIGNIFICANT SHAREHOLDER AND OFFICER
The Company has entered into several transactions with a significant
shareholder and Chief Executive Officer (Officer) of the Company as described
below:
The Officer has an employment agreement with the Company. Total compensation
earned under this agreement was approximately $392,975 and $233,000 in 1997 and
1996. The employment agreement expires September 30, 1999 and includes a
non-compete covenant for two years from the date of termination and a provision
for severance compensation on termination of employment under certain
circumstances during the term of the agreement.
The Officer has an exclusive license agreement for specified products he
developed which pays royalties of 4% of the net sales price of the products sold
by the Company. Royalties earned by the Officer were $34,255 and $26,424 during
the years ended September 30, 1997 and 1996.
Under an exclusive license agreement with the Officer for specified Oxboro
Outdoors, Inc. products invented or developed, royalties ranging from 8% to 9%
of the net sales price of the products sold are to be paid. Advance royalties of
$112,500 (the maximum under the agreement) were paid prior to 1995 on products
accepted for production. These advances were capitalized on the books of the
Company when paid and are being amortized as sales of the related products are
made. At September 30, 1997, net royalties remaining on the books were
approximately $59,000. However, under the agreement, the Officer may draw
additional royalty advances up to an aggregate outstanding balance of $112,500.
The Officer is the sole trustee of, and votes the unallocated shares held
in, the Company's Employee Stock Ownership Plan.
The Company entered into a consulting agreement with the Officer which
provides that upon reaching age 55 and retiring from the Company, he will
receive $150,000 per year for a minimum of five years. This agreement requires
the Officer to be available to the Company for a certain number of hours per
month and prohibits him from competing with the Company during the term of the
agreement.
OTHER
A director of the Company received approximately $60,000 during each of the
fiscal years ended September 30, 1997 and 1996 for general business consulting
and for development and enhancement of the Company's computer capabilities.
Another director received approximately $10,000 in commissions from the sale
of insurance policies to the Company during each of the years ended September
30, 1997 and 1996. This director also received $30,000 in consulting fees
related to Oxboro Outdoors, Inc. during each of the years ended September 30,
1997 and 1996.
Each director of the Company who is not an employee receives a fee for
services provided in the amount of $600 per month. The aggregate fees paid to
nonmanagement directors for services rendered for the years ended September 30,
1997 and 1996 were approximately $24,000 and $32,000. The directors also
received bonuses totaling $15,000 for the year ended September 30, 1997. No
bonuses were earned for the year ended September 30, 1996.
F-12
<PAGE>
OXBORO MEDICAL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997 AND 1996
NOTE G--RELATED PARTY TRANSACTIONS (CONTINUED)
The former President of the Company issued a promissory note to the Company
in the amount of $160,000 in conjunction with the exercise of stock options. The
note earned interest at a stated applicable federal rate and was due in annual
installments through January 25, 1999. At September 30, 1996, $80,000 remained
outstanding under this note. During 1997, the former President surrendered, and
the Company retired, 70,200 shares of the Company's common stock in cancellation
of the promissory note and related accrued interest receivable.
Additionally, under a product development incentive agreement, the former
President will receive royalties of 4% of net sales of products he developed for
the Company. The former President and the Officer participate in a royalty
sharing agreement related to certain products jointly developed for the Company
and its subsidiary. Provisions of this agreement may affect payment terms of
other royalty and license agreements described above.
NOTE H--SEGMENT INFORMATION
Oxboro Medical International, Inc. operates in two industry segments:
medical supplies ("Medical") and outdoor recreational products through its
wholly-owned subsidiary, Oxboro Outdoors, Inc. ("Outdoors"). Financial
information by industry segment as of and for the years ended September 30, 1997
and 1996 is summarized as follows:
<TABLE>
<CAPTION>
MEDICAL OUTDOORS CONSOLIDATED
------------ ------------- ------------
<S> <C> <C> <C>
1997
Net sales.......................................... $ 4,322,108 $ 479,857 $4,801,965
Direct contribution operating income (loss)........ 1,773,804 (1,000,276) 773,528
Allocation of corporate expense.................... (679,758) (190,898) (870,656)
------------ ------------- ------------
Operating income (loss)............................ $ 1,094,046 $ (1,191,174) $ (97,128)
------------ ------------- ------------
------------ ------------- ------------
Identifiable assets................................ $ 3,926,403 $ 1,651,774 $5,578,177
------------ ------------- ------------
------------ ------------- ------------
1996
Net sales.......................................... $ 3,995,568 $ 154,150 $4,149,718
Direct contribution operating income (loss)........ 1,487,189 (799,861) 687,328
Allocation of corporate expense.................... (447,467) (133,614) (581,081)
------------ ------------- ------------
Operating income (loss)............................ $ 1,039,722 $ (933,475) $ 106,247
------------ ------------- ------------
------------ ------------- ------------
Identifiable assets................................ $ 4,100,167 $ 1,356,879 $5,457,046
------------ ------------- ------------
------------ ------------- ------------
</TABLE>
Direct contribution operating income (loss) represents segment revenues less
directly related operating expenditures of the Company's segments. Management
believes this is the most meaningful measurement of each segment's results as it
excludes consideration of corporate expenses which are common to both business
segments.
Corporate expenses consist principally of senior management's compensation
and facility costs of the Company's administrative and distribution
headquarters. These costs generally would not be subject to significant
reduction upon the discontinuance or disposal of one of the segments.
F-13
<PAGE>
OXBORO MEDICAL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997 AND 1996
NOTE I--COMMITMENTS
CONSULTING AGREEMENT
In October 1994, Oxboro Outdoors, Inc. entered into a six year consulting
agreement with an individual which provides for annual payments of approximately
$25,000.
LICENSING AGREEMENT
The Company has a licensing agreement, expiring March 31, 1998, with
National Football League (NFL) Properties Inc. to market and sell fishing tackle
bearing logos of NFL teams. The agreement calls for royalty payments of 10% of
net sales with minimum royalty payments as defined in the agreement. Management
anticipates that this agreement will be renewed for a two-year period beginning
April 1, 1998 with substantially the same terms as the current agreement.
NOTE J--LEGAL PROCEEDINGS
The Company is subject to various legal proceedings in the normal course of
business. Management believes that these proceedings will not have a material
adverse effect on the consolidated financial statements.
NOTE K--FOURTH QUARTER ADJUSTMENTS
During the fourth quarter, the Company recorded reserves against inventories
of approximately $105,000, which increased cost of sales.
F-14
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE NO.
- ---------- ------------------------------------------------------------------------------------------- -----------
<S> <C> <C>
3.1 Articles of Incorporation as restated effective July 27, 1994.............................. [i]
3.2 Amended and Restated Bylaws effective February 23, 1995.................................... [i]
10.1(a) Limited Partnership Agreement for Project Heart............................................ [ii]
*10.1(b) Transfer of Technology Agreement by and between Project Heart Limited Partnership and
LexTen, Inc., effective September 30, 1997...............................................
*10.2(a) Stock Award Agreement dated October 1, 1990 between the Registrant and Larry Rasmusson..... [ii]
*10.2(b) Amendment No. 1 to Stock Agreement, effective June 19, 1991................................ [iii]
*10.2(c) Amendment No. 2 to Stock Award Agreement, effective October 31, 1995....................... [i]
*10.2(d) Termination of Stock Award Agreement effective September 30, 1997, between Registrant and
Larry A. Rasmusson.......................................................................
*10.3(a) Exclusive License Agreement between the Registrant and Larry Rasmusson dated April 1,
1990..................................................................................... [ii]
*10.3(b) First Amendment to Exclusive License Agreement, effective November 8, 1995................. [i]
*10.4(a) Employment Agreement between the Registrant and Larry A. Rasmusson dated April 1, 1993..... [iv]
*10.4(b) First Amendment to Employment Agreement, effective December 21, 1993....................... [i]
*10.4(c) Second Amendment to Employment Agreement, effective October 1, 1997........................
*10.5(a) Exclusive License and Royalty Agreement between Oxboro Outdoors, Inc. and Larry Rasmusson
dated April 17, 1993..................................................................... [iv]
*10.5(b) First Amendment to Exclusive License and Royalty Agreement, effective December 21, 1993.... [i]
*10.5(c) Second Amendment to Exclusive License and Royalty Agreement, effective November 8, 1995.... [i]
*10.6(a) Consulting Agreement, effective November 1, 1995 by and between the Registrant and Larry
Rasmusson................................................................................ [i]
*10.6(b) First Amendment to Consulting Agreement, effective October 1, 1997.........................
*10.7(a) Stock Option Agreement, effective August 17, 1995, by and between the Registrant and Larry
Rasmusson................................................................................ [i]
*10.7(b) Stock Option Agreement, effective October 1, 1997, by and between the Registrant and Larry
A. Rasmusson.............................................................................
*10.7(c) Stock Option Agreement, effective October 1, 1997, by and between the Registrant and Larry
A. Rasmusson.............................................................................
*10.8 Settlement Agreement and Mutual Release of Claims by and between Harley Haase and the
Registrant dated June 13, 1997........................................................... [iv]
*10.9 Product Development and Incentive Agreement, effective November 8, 1995, by and between the
Registrant and Harley Haase.............................................................. [i]
*10.10 Royalty Sharing Agreement, effective November 21, 1995, by and between the Registrant,
Oxboro Outdoors, Inc., Larry Rasmusson and Harley Haase.................................. [i]
*10.11 Bonus Programs for Harley Haase, Keith Olson and Larry Rasmusson adopted May 30, 1990...... [vi]
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE NO.
- ---------- ------------------------------------------------------------------------------------------- -----------
<S> <C> <C>
*10.12 Stock Option Agreement, effective October 30, 1996, by and between the Registrant and
Dennis Mikkelson.........................................................................
*10.13 Stock Option Agreement, effective June 19, 1997, by and between the Registrant and John
Walter...................................................................................
21 The Registrant has two subsidiaries, Oxboro Medical, Inc. and Oxboro Outdoors, Inc., both
of which are incorporated in the State of Minnesota.
27 Financial Data Schedule....................................................................
</TABLE>
- ------------------------
* Denotes management contract or compensatory plan or arrangement.
[i] Incorporated by reference to the Registrant's Annual Report on Form 10-KSB
for the year ended September 30, 1995.
[ii] Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the year ended September 30, 1990.
[iii] Incorporated by reference to the Registrant's Report on Form 8-K dated
June 19, 1991.
[iv] Incorporated by reference to the Registrant's Annual Report on Form 10-KSB
for the year ended September 30, 1993.
[v] Incorporated by reference to the Registrant's Quarterly Report on Form
10-QSB for the quarter ended June 30, 1997.
[vi] Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the year ended September 30, 1991.
<PAGE>
TRANSFER OF
TECHNOLOGY AGREEMENT
This Transfer of Technology Agreement ("Agreement") by and between Project
Heart Limited Partnership, a Minnesota limited partnership (the "Partnership"),
and LexTen, Inc., a Minnesota corporation ("LexTen") shall be deemed to be
effective as of the 30th day of September, 1997.
W I T N E S S E T H:
WHEREAS, LexTen is the general partner of the Partnership and Larry
Rasmusson, the president of LexTen, Inc., was, but no longer is, a limited
partner of the Partnership;
WHEREAS, Larry A. Rasmusson ("Rasmusson") and LexTen sold, assigned and
transferred all of their right, title and interest in and to certain processes
or devices for inhibiting rejection in connection with heart transplant patient
procedures, as described in Exhibit A (the "Concept") attached hereto and made a
part hereof, to the Partnership pursuant to the terms of an Assignment dated
October 31, 1990, attached hereto as Exhibit B;
WHEREAS, the Partnership has been since the date of the Assignment
described above and is now the sole owner of the Concept;
WHEREAS, the undersigned general partner and limited partners have decided
to dissolve the Partnership and return all of the cash on hand, which is the
only asset of the Partnership other than the Concept, to the limited partners
and to distribute the Concept to the general partner to facilitate the
dissolution of the Partnership;
WHEREAS, the limited partners have approved the transfer and distribution
of the Concept to the general partner, LexTen, and have authorized the general
partner to effect such transfer and distribution pursuant to the terms of this
Agreement.
NOW THEREFORE, in consideration of the recitals set forth above and the
terms and conditions set forth below, the parties hereto agree as follows:
1. TRANSFER OF CONCEPT. The Partnership hereby sells, transfers, assigns
and distributes to LexTen all past, present and future rights, title and
interests of the Partnership in and to the Concept, including, without
limitation, any applications for Letters Patent and any all divisions,
continuations and reissues thereof, and any and all Letters Patent of the United
States and foreign countries which may be granted therefor, the same to be held
and enjoyed by LexTen for its own use and benefit, and for the use and benefit
of its successors, assigns or other legal representatives. The Partnership
further authorizes LexTen to execute and deliver any and all papers on behalf of
the Partnership that may be necessary or desirable to perfect the title of said
invention or inventions in and to such Letters Patent as may be applied for or
granted therefor
<PAGE>
and to sign all papers, make all rightful oaths and do all lawful acts requisite
for the filing of such applications.
2. CONSIDERATION. The consideration for the transfer, assignment and
distribution described herein is the acceptance of the Concept by LexTen in full
and complete satisfaction and in consideration of the liquidation of LexTen's
interest in the Partnership and LexTen's consent to the distribution of cash to
the limited partners.
3. OWNERSHIP INTEREST. The Partnership represents and warrants that it
has not advanced the research and development of the Concept by research or
development or otherwise and has not granted an interest in and to the Concept
to any third parties and has not communicated, divulged or disclosed the
specifics of the Concept to any third party or parties.
4. GENERAL PROVISIONS.
4.1 This Agreement is the entire Agreement between the parties
concerning the subject matter herein and supersedes and replaces
any existing Agreement between the parties hereto relating to
such subject matter.
4.2 No provisions of this Agreement may be modified, waived, or
discharged unless in a writing signed by LexTen and the
Partnership.
4.3 It is further agreed and understood by the parties hereto that if
any part, term or provision of this Agreement is held
unenforceable, this Agreement shall be construed as if not
containing the invalid provision or provisions. Invalidity or
unenforceability of any portion or provision of this Agreement
shall not affect the validity or enforceability of the remaining
provisions of this Agreement, which shall remain in full force
and effect and shall govern the rights and obligations of the
parties hereto.
4.4 This Agreement shall be construed and enforced in accordance with
the laws of the State of Minnesota. By executing this Agreement,
the parties do hereby agree and submit to personal jurisdiction
in the State of Minnesota for the purposes of any suit or
proceeding brought to enforce the terms and conditions of this
Agreement and agree that any such suit or proceeding shall be
venued in Minnesota.
4.5 The terms, conditions and covenants herein shall be binding upon
the successors or assigns of the Partnership and/or LexTen or any
subsidiary or affiliate of the Partnership and/or LexTen.
4.6 This Agreement may be executed in one or more counterparts, each
of which shall be deemed to be an original, but all of which
together shall constitute one and the same contract.
2
<PAGE>
4.7 In the event that any legal action must be taken by either party
to enforce this Agreement, all costs and expenses of the
prevailing party in connection with any such action, including,
but not limited to, reasonable attorney's fees and legal expenses
shall be paid on demand and presentation of appropriate evidence
by the nonprevailing party.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date set forth above.
LEXTEN, INC.
By /s/ Larry Rasmusson
----------------------------
Its President
-------------------------
Date: 11/23 , 1997;
------------------
PROJECT HEART LIMITED PARTNERSHIP
LexTen, Inc., General Partner
By /s/ Larry Rasmusson
--------------------------------------
Its President
-----------------------------------
Date: 11/23 , 1997
---------------
Consented and agreed by the undersigned Limited Partners of Project Heart
Limited Partnership:
OXBORO MEDICAL INTERNATIONAL, INC.
By /s/ Larry Rasmusson
-------------------------------------------
Its CEO
---------------------------------------
Date: 11/23 , 1997
------------
/s/ Keith Olson 11-19-97
- --------------------------------------------
Keith Olson Date
/s/ Harley Haase 11/19/97
- --------------------------------------------
Harley Haase Date
/s/ Randie Lundberg 11-24-97
- --------------------------------------------
Randie Lundberg Date
3
<PAGE>
TERMINATION OF STOCK AWARD AGREEMENT
This Termination of Stock Award Agreement (the "Termination Agreement") is
entered by and between OXBORO MEDICAL INTERNATIONAL, INC., a Minnesota
corporation (the "Company"), and LARRY A. RASMUSSON ("Rasmusson") and shall be
deemed to be effective as of the 30th day of September, 1997.
RECITALS
WHEREAS, the Company and Rasmusson entered into a Stock Award Agreement
effective as of the 31st day of October, 1990, which Stock Award Agreement was
amended pursuant to Amendment No. 1 to Stock Award Agreement on June 19, 1991,
and was further amended pursuant to Amendment No. 2 to Stock Award Agreement
dated October 31, 1995;
WHEREAS, Amendment No. 2 to the Stock Award Agreement extended the
termination of the Agreement from midnight, October 31, 1995 to midnight,
October 31, 1998;
WHEREAS, the Company and Rasmusson desire to terminate the Stock Award
Agreement as of midnight, September 30, 1997 as provided below.
TERMS AND CONDITIONS
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
and conditions contained in this Termination Agreement, the parties hereto agree
as follows:
1. TERMINATION. The Stock Award Agreement, as amended pursuant to
Amendment No. 1 and Amendment No. 2, shall be and is hereby terminated as of
midnight, September 30, 1997.
2. RETURN OF STOCK TO COMPANY. Under the terms of the Stock Award
Agreement, as amended, 383,500 shares of stock have been issued in the name of
Larry A. Rasmusson and either delivered to Rasmusson or deposited with the
Norwest Bank - Riverdale, Coon Rapids, Minnesota, as Escrow Agent, to be held
and transferred pursuant to the terms of the Stock Award Agreement, as amended.
The 383,500 shares of Common Stock of the Company include the 100,000 shares of
common stock issued at or about the time of execution of the Stock Award
Agreement on October 31, 1991, which shares are now deemed to be equal to
200,000 after giving effect to a two-for-one stock split effective March 22,
1991, and an additional 183,500 shares which were deposited with the Escrow
Agent pursuant to paragraph 2 of Amendment No. 1 to Stock Award Agreement.
Rasmusson hereby agrees to return to the Company all shares of Common Stock of
the Company held by Rasmusson under the Stock
<PAGE>
Award Agreement, as amended, and the Company and Rasmusson hereby agree to sign
any and all documents necessary to authorize the Escrow Agent to return the
Common Stock of the Company held by the Escrow Agent under the Stock Award
Agreement, as amended, to the Company.
3. MUTUAL RELEASE. The Company and Rasmusson hereby fully and forever
release each other, as well as their successors, assigns, agents, heirs and
representatives, as the case may be, from any and all claims arising out of or
having to do with the Stock Award Agreement, as amended.
IN WITNESS WHEREOF, the parties hereto have executed this Termination
Agreement below.
COMPANY: RASMUSSON:
OXBORO MEDICAL INTERNATIONAL, INC.
By /s/ Larry Rasmusson /s/ Larry A. Rasmusson
-------------------------------- --------------------------------
Larry A. Rasmusson, Individually
Its CEO
--------------------------
Consented and agreed to this 19th day of DECEMBER, 1997.
ESCROW AGENT:
NORWEST BANK OF MINNESOTA - ANOKA
By /s/ Thomas G. Skalitzky
-----------------------------
Its Vice President
----------------------------
2
<PAGE>
SECOND AMENDMENT TO
EMPLOYMENT AGREEMENT
THIS AGREEMENT (this "Agreement") is made and entered into effective as of
the 1st day of October, 1997 by and between Oxboro Medical International, Inc.,
a Minnesota corporation (the "Company"), and Larry A. Rasmusson ("Rasmusson").
R E C I T A L S
WHEREAS, the Company and Rasmusson have entered into an Employment
Agreement as of the 1st day of April, 1993 and, subsequently, entered into a
First Amendment to Employment Agreement as of December 21, 1993, and, later,
entered into an Appendix to Employment Agreement as of January 4, 1996;
WHEREAS, the term of the Employment Agreement was from April 1, 1993 until
March 31, 1998, as provided in Section VIII of the Employment Agreement;
WHEREAS, neither the First Amendment to Employment Agreement dated December
21, 1993 nor the Appendix to Employment Agreement dated January 4, 1996, between
Rasmusson and the Company extended the term of the Employment Agreement;
WHEREAS, Rasmusson and the Company desire to extend the term of the
Employment Agreement in accordance with and pursuant to the terms and conditions
set forth below;
TERMS AND CONDITIONS
NOW, THEREFORE, in consideration of the mutual promises hereinafter
contained, the parties hereto agree as follows:
I. EXTENDED TERM OF EMPLOYMENT AGREEMENT
The term of the Employment Agreement is hereby extended from March 31, 1998
to September 30, 1999.
II. DIRECTORS
If Rasmusson is not re-elected as a director of the Company at the end of
his current term, then, at Rasmusson's option, this Agreement shall terminate on
March 31, 1998 and the Consulting Agreement shall commence on April 1, 1998. At
least one of the two directors elected by the Board of Directors to fill the
existing two vacancies on the Board of Directors shall be nominated by
Rasmusson.
<PAGE>
III. DUTIES AND RESPONSIBILITIES
The Company hereby employs Rasmusson as the Chief Executive Officer of the
Company and, in addition to the duties and responsibilities of the Chief
Executive Officer, Rasmusson shall also serve as the Chairman of the Board of
Directors and Chief Financial Officer of the Company until his successor is duly
appointed. In addition, Rasmusson agrees to provide such additional and other
services as he and the Company may mutually agree. Rasmusson shall devote
substantially all of his working hours to and for the benefit of the Company
and/or its wholly-owned subsidiary, Oxboro Outdoors, Inc.; it being understood
that during the term of this extended period that Rasmusson's successors as
Chief Executive Officer and Chief Financial Officer will gradually assume more
responsibilities and the demand on Rasmusson will gradually decrease.
IV. COMPENSATION
Compensation for the extended period shall be as determined by the Board of
Directors and Rasmusson, but in no event shall Rasmusson's base salary for the
extended term be less than his base salary as of October 1, 1997. In addition
to Rasmusson's base salary during the extended term and the bonus, if earned
during or for the extended term, Rasmusson shall be reimbursed for the
reasonable costs of his estate planning, not to exceed $7,500, and shall, as a
part of said additional compensation increase Rasmusson's life insurance
coverage with Rasmusson's estate as a beneficiary with a like policy in the face
amount of $1 million. In addition, Rasmusson shall receive an option to
purchase 200,000 shares of common stock of the Company at an exercise price of
$1.00 per share, and the option shall be exercisable with respect to 100,000
shares from the date this Agreement is executed until the option expires five
years thereafter, and shall be exercisable with respect to the remaining 100,000
shares from and after October 1, 1998 if Rasmusson's employment under the
Employment Agreement, as amended, has not been terminated, until the option with
respect to the remaining 100,000 shares expires five years after October 1,
1998. The Company shall, upon request by Rasmusson, provide the financing
necessary to enable Rasmusson to exercise either option or both options, which
financing shall be secured by the stock so purchased.
The bonus criteria, determination and calculation for the extended period
shall be determined pursuant to a separate Bonus Agreement, a copy of which
shall be attached hereto and made a part hereof; however, if the parties hereto
are unable to come to an agreement with respect to the bonus criteria,
determination and calculation, this Agreement and the Employment Agreement shall
be null and void and the Consulting Agreement shall immediately go into effect.
V. TERMINATION FOR CAUSE
Paragraph VIII(a) of the Employment Agreement is hereby superseded and
replaced by the following new paragraph VIII(a):
This Contract may be terminated by either party without cause, for any
reason or for no reason, at any time upon thirty (30) days written notice to the
other party. If the Company
2
<PAGE>
terminates the Employment Agreement without cause, then the Company shall pay
Rasmusson the unpaid base salary which would have been earned through the end of
the extended term plus all benefits for said period, and the Consulting
Agreement shall go into effect as of the date of such termination. The Company
may terminate this Contract immediately for Cause without prior notice to
Rasmusson. "Cause" shall mean the following:
(i) Conviction or judicial determination of a violation of a
standard of conduct of an officer as set forth in MSA Section 302A.361 or
of a conviction of a violation of securities laws or regulations, which
violations have a material adverse effect on the Company, or a conviction
of a felony for an act or failure to act outside of the scope of
Rasmusson's employment and/or for an act or failure to act within the scope
of Rasmusson's employment which act or failure to act has not been
disclosed to the Board of Directors of the Company as of the date of this
Agreement;
(ii) Failure or refusal by Rasmusson to perform a material
requirement of a specific duty or duties which specific duty or duties have
been determined by a unanimous resolution of the Board of Directors, with
Rasmusson abstaining, after receipt by Rasmusson of written notice thereof
specifying in detail the failure or refusal, and a reasonable time in which
to perform;
(iii) Rasmusson's (a) death or (b) disability (by reason of
physical or mental disease, defect, accident or illness) such that
Rasmusson is or, in the unanimous opinion of two independent physicians,
one selected by the Company and one by Rasmusson or his representative, for
purposes of making this determination, will be unable for an aggregate of
180 or more days during any continuous 12-month period to render the
services required of him in his then current position(s) with the Company;
however, Rasmusson shall be deemed to be employed hereunder during said 180
day period and shall be paid his base salary and shall be provided ordinary
and standard benefits during said period.
With respect to subparagraph (ii) above, the Company shall give Rasmusson
written notice of such failure, refusal or breach, and Rasmusson shall have
thirty (30) days to cure such failure, refusal or breach. If such failure,
refusal or breach is not cured within said thirty (30) day period, "Cause" shall
be deemed to exist.
Upon termination of the Employment Agreement, as amended, whether with or
without cause and/or whether by the Company or by Rasmusson, the Consulting
Agreement shall commence as of the date of such termination, subject to the
provisions of the Consulting Agreement, as amended, between the parties hereto.
VI. VACATION
Rasmusson shall receive six (6) weeks of vacation for the extended eighteen
(18) month term of the Employment Agreement. If this Agreement is terminated
prior to the end of the eighteen (18) month period for cause, either by
Rasmusson or by the Company, then the vacation
3
<PAGE>
shall be deemed to accrue at one(1) week for each three (3) month period of
employment or any part thereof.
All other terms and conditions of the Employment Agreement, as amended,
shall remain unchanged, subject to future amendment by written agreement of the
parties hereto.
COMPANY: RASMUSSON:
OXBORO MEDICAL
INTERNATIONAL, INC. /s/ Larry A. Rasmusson
-----------------------------------
Larry A. Rasmusson
By /s/ Dennis L. Mikkelson
--------------------------------------
Its Director
-----------------------------------
4
<PAGE>
FIRST AMENDMENT TO
CONSULTING AGREEMENT
This First Amendment is made and entered into effective as of the 1st day
of October, 1997 by and between Oxboro Medical International, Inc., a Minnesota
corporation (the "Company"), and Larry A. Rasmusson ("Rasmusson" or
"Consultant").
R E C I T A L S
WHEREAS, the Company and Rasmusson have entered into a Consulting Agreement
as of the 1st day of November, 1995;
WHEREAS, the Consulting Agreement was drafted with the intent that it would
commence upon the termination of Rasmusson's Employment Agreement with the
Company on March 31, 1998;
WHEREAS, Rasmusson and the Company have negotiated and expect to enter into
an agreement which extends the term of Rasmusson's Employment Agreement for an
additional eighteen months through September 30, 1999; and,
WHEREAS, as a condition and in consideration of Rasmusson's entering into
said Extension Agreement, the Company has agreed to amend the terms of the
Consulting Agreement as set forth below.
TERMS AND CONDITIONS
NOW, THEREFORE, in consideration of the mutual promises hereinafter
contained, the parties hereto agree as follows:
I. CONSULTING SERVICES
Section 1 of the Consulting Agreement, entitled "Consulting Services", is
hereby superseded and replaced by the following new Section 1:
1. CONSULTING SERVICES. Consultant agrees that commencing on the
date of his termination of employment or retirement from his duties as an
officer and employee of the Company, he will hold himself available, unless
disabled from doing so as a result of illness or other incapacity, to
advise and consult from time to time, by telephone, in person at the
Company's offices, or in such other manner and at such other place or
places as may from time to time be mutually agreeable to Consultant and the
Company, with the officers, directors, employees, and other representatives
of the Company when and to the extent reasonably requested to do so by the
Company's officers and/or directors, relative to the Business of the
Company and to give to the Company, through such officers,
<PAGE>
directors, employees, and other representatives, the benefit of his
experience and knowledge of the Business and of his judgment on the
financial, merchandising, personnel, and other management aspects,
problems, and policies of the Business.
During the initial five (5) year term of this Agreement, Consultant
shall not be required to provide consulting services for more than five
days per month (or sixty days per year); however, Consultant may, at his
own discretion, devote two of said five days a month to the review of
operations, manufacturing, marketing/sales, product development and
finances/accounting, with full access to the Company's books and records,
information and sales and accounting data and systems, with assistance from
Company staff, as reasonably requested by Consultant. In no event during
such initial five (5) year term shall Consultant be required to provide
more than ten (10) days in any given calendar month.
During the extended term of this Agreement, Consultant shall not be
required to provide consulting services for more than one and one-half days
a month (or eighteen days per year); however, Consultant may, at his own
discretion, devote one (1) of said one and one-half (1 1/2) days a month to
review the operations, manufacturing, marketing/sales, product development
and finances/accounting, with full access to the Company's books and
records, information and sales and accounting data and systems, with
assistance from Company staff, as reasonably requested by Consultant. In
no event during such extended term shall Consultant be required to provide
more than five (5) days in any given calendar month.
II. COMMENCEMENT
Section 3 of the Consulting Agreement, entitled "Commencement", is hereby
superseded and replaced by the following new Section 3:
3. COMMENCEMENT. This Agreement shall commence upon termination of
the Employment Agreement, as amended, whether such Employment Agreement is
terminated during the initial term or extended term or as of or on the
termination date and whether the Employment Agreement is terminated by the
Company, its successors or assigns, with or without cause, or by Rasmusson,
with or without cause; however, if Rasmusson voluntarily terminates his
employment with the Company prior to reaching age fifty-five without good
cause attributable to the Company, then this Agreement, as amended, shall
be of no further force and effect. A "change in control," as defined in
Rasmusson's Employment Agreement, as amended, shall be deemed to constitute
good cause attributable to the Company.
2
<PAGE>
III. COMPENSATION
The first paragraph under Section 4 of the Consulting Agreement, entitled
"Compensation", is hereby superseded and replaced by the following paragraph:
4. COMPENSATION. For the services rendered by Consultant pursuant
to this Agreement during the initial five (5) year term hereof, the Company
shall pay the Consultant annually the sum of One Hundred Fifty Thousand and
No/100 ($150,000.00) Dollars in twelve (12) equal monthly installment
payments in the amount of Twelve Thousand Five Hundred and No/100
($12,500.00) Dollars each. For services rendered by Consultant pursuant to
this Agreement, as amended, during any extension hereof beyond the initial
five (5) year term, the Company shall pay Consultant annually Fifty
Thousand and No/100 ($50,000.00) Dollars in twelve (12) equal monthly
installment payments in the amount of Four Thousand One Hundred Sixty-Six
and 67/100 ($4,166.67) Dollars each.
IV. TERMINATION
Subparagraphs (d) through (e) under Section 9 of the Consulting Agreement,
entitled "Termination", are hereby superseded and replaced by the following new
subparagraphs:
(d) upon its fifth anniversary, if Consultant's employment terminated on
or before April 1, 1998;
(e) if Consultant's employment is terminated after April 1, 1998, but
before April 1, 1999, upon the sixth anniversary of this Agreement;
(f) if Consultant's employment is terminated after April 1, 1999, then the
term of this Agreement shall be extended an additional full year for
each year or portion thereof that Consultant's employment continues
past April 1, 1999;
(g) if Company is in default hereunder and such default is not cured
within thirty (30) days of written notice thereof, then Consultant can
terminate this Agreement and the non-competition provisions of the
Consulting Agreement, as amended, are of no further force and effect.
V. LEGAL FEES
In the event either party commences legal action to enforce the terms of
the Consulting Agreement, as amended, the prevailing party in such action shall
be reimbursed by the non-prevailing party all legal costs and expenses and
attorney's fees incurred by the prevailing party in such action.
3
<PAGE>
All other terms of the Consulting Agreement shall remain unchanged, subject
to future amendment by written agreement of the parties hereto.
COMPANY: RASMUSSON:
OXBORO MEDICAL
INTERNATIONAL, INC. /s/ Larry A. Rasmusson
-----------------------------------
Larry A. Rasmusson
By /s/ Dennis L. Mikkelson
--------------------------------------
Its Director
-----------------------------------
4
<PAGE>
CURRENT
OXBORO MEDICAL INTERNATIONAL, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
October 1, 1997
Dear Mr. Rasmusson:
At the direction of the Board of Directors of Oxboro Medical International,
Inc. (the "Company"), you are hereby notified that the Board has granted to you
a Stock Option ("Option") to purchase 100,000 shares of Common Stock ("Stock")
of the Company at a price of $1.00 per share. The date of grant of this Option
is the date of this notice.
You are not required to exercise this Option. This Option must be
exercised, if at all and to the extent exercised, on or before October 1, 2002.
Your Option is in all respects limited and conditioned by the following:
a. Your Option is immediately exercisable in full.
b. The purchase price of any Stock purchased pursuant to exercise of this
Option may be paid in cash or by certified or cashier's check or by delivery to
the Company of shares of Stock owned by you for at least six months prior to
delivery in an amount equal in fair market value to the purchase price of the
shares of Stock being purchased pursuant to this Option. Pursuant to your prior
written request, such purchase price shall be paid by proceeds from a loan from
the Company to you upon such terms as the Board of Directors may establish from
time to time.
c. Your Option may be exercised by you, but only by you, at any time
during your lifetime, but only to the extent you were entitled to exercise your
Option at the date of such termination and only if your Option has not expired.
In no event will your Option be exercisable after the expiration of five (5)
years from the date such Option is granted.
d. In the event of your death during the term of this Option, your Option
may be exercised pursuant to the terms hereof, including exercise by loan as
provided in subparagraph a. above, at any time within six (6) months following
the date of your death by your estate or by a person who acquired the right to
exercise your Option by will or the laws of descent and distribution. In either
case, such Option may be exercised only to the extent you were entitled to
exercise the Option at the time of your death.
e. You may not transfer, sell, pledge, assign, or otherwise dispose of
your Option, other than at death by will or the laws of descent and
distribution, and your Option during your lifetime is exercisable only by you.
f. The shares of Stock you may acquire upon exercise of your Option are
subject to restrictions against transfer.
<PAGE>
g. Unless a registration statement under the Securities Act of 1933 (and
applicable state securities laws) is in effect with respect to this Option or
Stock to be purchased pursuant to this Option, you agree with, and represent to,
the Company that you are acquiring the Option and Stock for the purpose of
investment and not with a view to transfer, sell, or otherwise dispose of the
Option or Stock, except as may be permitted under applicable securities laws.
The Company may require an opinion of counsel satisfactory to it prior to the
transfer of any Stock to or by you to assure at all times that such transaction
will be in compliance with applicable federal and state securities laws.
As a condition to the issuance of shares of Stock under this Option, you
agree to remit to the Company at the time of any exercise of this Option any
taxes required to be withheld by the Company under federal, state, or local law
as a result of your exercise of this Option. At your option, such taxes may be
paid by delivery to the Company of shares of Stock already owned by you or
withholding of shares issuable upon exercise of this Option, in either case in
an amount equal in fair market value to the taxes owed.
OXBORO MEDICAL INTERNATIONAL, INC.
By /s/ Dennis L. Mikkelson
---------------------------------
Its Director
------------------------------
ACCEPTANCE
I hereby accept the terms and provisions of the above Nonqualified Stock
Option Agreement and agree to be bound by its terms. I also agree to accept as
binding, conclusive, and final all decisions or interpretations of the Company's
Board of Directors upon any questions arising under the Option.
Dated effective Oct. 1 , 1997.
----------
/s/ Larry A. Rasmusson
--------------------------------------
Larry A. Rasmusson
2
<PAGE>
NOTICE OF EXERCISE OF STOCK OPTION
AND RECORD OF STOCK TRANSFER
I hereby exercise the Stock Option granted by Oxboro Medical International,
Inc., effective October 1, 1997, subject to all terms and provisions thereof,
and notify you of my desire to purchase _______ shares of Common Stock of the
Company (the "Shares"), offered to me pursuant to said Option. Enclosed is my
check in the sum of $_________________ in full payment for the Shares.
[This paragraph is applicable if the Shares are not registered under the
Securities Act of 1933.] I hereby represent that the Shares are being acquired
by me as an investment and not with a view to, or for resale in connection with,
the distribution of any shares of the Company. I understand that the Shares are
not registered under the Securities Act of 1933, as amended (the "Act"), or
applicable state securities laws, that the Shares may not be sold or otherwise
transferred except pursuant to an effective registration statement under the Act
and said laws unless the Company has received an opinion of counsel satisfactory
to it that such transfer or disposition does not require registration under the
Act or said laws and, for any sales under Rule 144 of the Act, such evidence as
it shall request for compliance with that rule or applicable state securities
laws, and that the certificate representing the Shares may contain a legend
referring to such restrictions.
I agree that I am responsible for any taxes payable as a result of the
exercise of the option or the sale of the shares issued upon such exercise. I
agree that if the Company is required to withhold any taxes as a result of my
exercise of the option, I will remit any required amount to the Company as a
condition to the issuance to me of the Shares.
Dated: , 19 .
--------------- --
------------------------------------------
Optionee's Signature
3
<PAGE>
RECEIPT
RECEIPT is hereby acknowledged of the delivery to me by Oxboro Medical
International, Inc., on ____________, 19__, of stock certificate no.
____________ for _________ shares of Common Stock purchased by me pursuant to
the terms and conditions of a stock option granted to me effective October 1,
1997.
------------------------------------------
Optionee
4
<PAGE>
DEFERRED
OXBORO MEDICAL INTERNATIONAL, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
October 1, 1997
Dear Mr. Rasmusson:
At the direction of the Board of Directors of Oxboro Medical International,
Inc. (the "Company"), you are hereby notified that the Board has granted to you
a Stock Option ("Option") to purchase 100,000 shares of Common Stock ("Stock")
of the Company at a price of $1.00 per share. The date of grant of this Option
is the date of this notice.
You are not required to exercise this Option. This Option must be
exercised, if at all and to the extent exercised, on or after October 1, 1998
and on or before October 1, 2003.
Your Option is in all respects limited and conditioned by the following:
a. Your Option shall become exercisable in full if you are still employed
by the Company on October 1, 1998 pursuant to the Employment Agreement between
you and the Company dated April 1, 1993, as amended; however, in the event that
you are terminated without cause or in the event of a change in control, as
defined in said Employment Agreement between the Company and you, prior to
October 1, 1998, then this Option shall be exercisable according to its terms.
b. The purchase price of any Stock purchased pursuant to exercise of this
Option may be paid in cash or by certified or cashier's check or by delivery to
the Company of shares of Stock owned by you for at least six months prior to
delivery in an amount equal in fair market value to the purchase price of the
shares of Stock being purchased pursuant to this Option. Pursuant to your prior
written request, such purchase price shall be paid by proceeds from a loan from
the Company to you upon such terms as the Board of Directors may establish from
time to time.
c. Your Option may be exercised by you, but only by you, at any time
during your lifetime, but only to the extent you were entitled to exercise your
Option at the date of such termination and only if your Option has not expired.
In no event will your Option be exercisable after the expiration of five (5)
years from October 1, 1998, the date such Option is exercisable.
d. In the event of your death during the term of this Option, your Option
may be exercised pursuant to the terms hereof, including exercise by loan as
provided in subparagraph a. above, at any time within six (6) months following
the date of your death by your estate or by a person who acquired the right to
exercise your Option by will or the laws of descent and distribution. In either
case, such Option may be exercised only to the extent you were entitled to
exercise the Option at the time of your death.
<PAGE>
e. You may not transfer, sell, pledge, assign, or otherwise dispose of
your Option, other than at death by will or the laws of descent and
distribution, and your Option during your lifetime is exercisable only by you.
f. The shares of Stock you may acquire upon exercise of your Option are
subject to restrictions against transfer.
g. Unless a registration statement under the Securities Act of 1933 (and
applicable state securities laws) is in effect with respect to this Option or
Stock to be purchased pursuant to this Option, you agree with, and represent to,
the Company that you are acquiring the Option and Stock for the purpose of
investment and not with a view to transfer, sell, or otherwise dispose of the
Option or Stock, except as may be permitted under applicable securities laws.
The Company may require an opinion of counsel satisfactory to it prior to the
transfer of any Stock to or by you to assure at all times that such transaction
will be in compliance with applicable federal and state securities laws.
As a condition to the issuance of shares of Stock under this Option, you
agree to remit to the Company at the time of any exercise of this Option any
taxes required to be withheld by the Company under federal, state, or local law
as a result of your exercise of this Option. At your option, such taxes may be
paid by delivery to the Company of shares of Stock already owned by you or
withholding of shares issuable upon exercise of this Option, in either case in
an amount equal in fair market value to the taxes owed.
OXBORO MEDICAL INTERNATIONAL, INC.
By /s/ Dennis L. Mikkelson
--------------------------------
Its Director
-------------------------
ACCEPTANCE
I hereby accept the terms and provisions of the above Nonqualified Stock
Option Agreement and agree to be bound by its terms. I also agree to accept as
binding, conclusive, and final all decisions or interpretations of the Company's
Board of Directors upon any questions arising under the Option.
Dated effective Oct. 1 , 1997.
--------------------
/s/ Larry A. Rasmusson
-----------------------------------
Larry A. Rasmusson
2
<PAGE>
NOTICE OF EXERCISE OF STOCK OPTION
AND RECORD OF STOCK TRANSFER
I hereby exercise the Stock Option granted by Oxboro Medical International,
Inc., effective October 1, 1997, and exercisable on and after October 1, 1998,
subject to all terms and provisions thereof, and notify you of my desire to
purchase _______ shares of Common Stock of the Company (the "Shares"), offered
to me pursuant to said Option. Enclosed is my check in the sum of
$_________________ in full payment for the Shares.
[This paragraph is applicable if the Shares are not registered under the
Securities Act of 1933.] I hereby represent that the Shares are being acquired
by me as an investment and not with a view to, or for resale in connection with,
the distribution of any shares of the Company. I understand that the Shares are
not registered under the Securities Act of 1933, as amended (the "Act"), or
applicable state securities laws, that the Shares may not be sold or otherwise
transferred except pursuant to an effective registration statement under the Act
and said laws unless the Company has received an opinion of counsel satisfactory
to it that such transfer or disposition does not require registration under the
Act or said laws and, for any sales under Rule 144 of the Act, such evidence as
it shall request for compliance with that rule or applicable state securities
laws, and that the certificate representing the Shares may contain a legend
referring to such restrictions.
I agree that I am responsible for any taxes payable as a result of the
exercise of the option or the sale of the shares issued upon such exercise. I
agree that if the Company is required to withhold any taxes as a result of my
exercise of the option, I will remit any required amount to the Company as a
condition to the issuance to me of the Shares.
Dated:
------------------, ------.
(Month) (Date) (Year)
-------------------------------------
Optionee's Signature
3
<PAGE>
RECEIPT
RECEIPT is hereby acknowledged of the delivery to me by Oxboro Medical
International, Inc., on ____________, _____, of stock certificate no.
____________ for _________ shares of Common Stock purchased by me pursuant to
the terms and conditions of a stock option granted to me October 1, 1997 and
exercisable on or after October 1, 1998.
-------------------------------------
Optionee
4
<PAGE>
OXBORO MEDICAL INTERNATIONAL, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
June 19, 1997
Dear Mr. Walter:
At the direction of the Board of Directors of Oxboro Medical International,
Inc. (the "Company"), you are hereby notified that the Board has granted to you
a Stock Option ("Option") to purchase 40,000 shares of Common Stock ("Stock") of
the Company at a price of $1.08 per share. The date of grant of this Option is
the date of this notice, and it is the determination of the Board of Directors
that on this date the fair market value of the Company's Common Stock does not
exceed $1.08 per share.
You are not required to exercise this Option. This Option must be
exercised, if at all and to the extent exercised, on or before June 19, 2002.
Your Option is in all respects limited and conditioned by the following:
a. Your Option is immediately exercisable in full.
b. The purchase price of any Stock purchased pursuant to exercise of this
Option may be paid in cash or by certified or cashier's check or by delivery to
the Company of shares of Stock owned by you for at least six months prior to
delivery in an amount equal in fair market value to the purchase price of the
shares of Stock being purchased pursuant to this Option. In addition, such
purchase price may be paid by a loan from the Company upon such terms as the
Board of Directors may establish from time to time.
c. Your Option may be exercised by you, but only by you, at any time
during your lifetime prior to six (6) months after the date of the termination
of your service as a member of the Board of Directors of the Company, but only
to the extent you were entitled to exercise your Option at the date of such
termination and only if your Option has not expired. In no event will your
Option be exercisable after the expiration of five (5) years from the date such
Option is granted.
d. In the event of your death while you are a director of the Company,
your Option may be exercised at any time within six (6) months following the
date of your death by your estate or by a person who acquired the right to
exercise your Option by will or the laws of descent and distribution. In either
case, such Option may be exercised only to the extent you were entitled to
exercise the Option at the time of your death. In the event of your death
within ninety (90) days after termination of your service as a director, then
the Option may be exercised at any time within three (3) months following the
date of your death by your estate or by a person who acquired the right to
exercise your Option by will or by the laws of descent and distribution, but
only to the extent you were entitled to exercise the Option at the time of such
termination.
<PAGE>
e. You may not transfer, sell, pledge, assign, or otherwise dispose of
your Option, other than at death by will or the laws of descent and
distribution, and your Option during your lifetime is exercisable only by you.
f. The shares of Stock you may acquire upon exercise of your Option are
subject to restrictions against transfer.
g. Unless a registration statement under the Securities Act of 1933 (and
applicable state securities laws) is in effect with respect to this Option or
Stock to be purchased pursuant to this Option, you agree with, and represent to,
the Company that you are acquiring the Option and Stock for the purpose of
investment and not with a view to transfer, sell, or otherwise dispose of the
Option or Stock, except as may be permitted under applicable securities laws.
The Company may require an opinion of counsel satisfactory to it prior to the
transfer of any Stock to or by you to assure at all times that such transaction
will be in compliance with applicable federal and state securities laws.
As a condition to the issuance of shares of Stock under this Option, you
agree to remit to the Company at the time of any exercise of this Option any
taxes required to be withheld by the Company under federal, state, or local law
as a result of your exercise of this Option. At your option, such taxes may be
paid by delivery to the Company of shares of Stock already owned by you or
withholding of shares issuable upon exercise of this Option, in either case in
an amount equal in fair market value to the taxes owed.
OXBORO MEDICAL INTERNATIONAL, INC.
By /s/ Larry A. Rasmusson
-----------------------------------
Larry A. Rasmusson
Its Chief Executive Officer
ACCEPTANCE
I hereby accept the terms and provisions of the above Nonqualified Stock
Option Agreement and agree to be bound by its terms. I also agree to accept as
binding, conclusive, and final all decisions or interpretations of the Company's
Board of Directors upon any questions arising under the Option.
Dated effective 7/28 , 1997.
-------------
/s/ John Walter
----------------------------------------
John Walter
2
<PAGE>
NOTICE OF EXERCISE OF STOCK OPTION
AND RECORD OF STOCK TRANSFER
I hereby exercise the Stock Option granted by Oxboro Medical International,
Inc., effective June 19, 1997, subject to all terms and provisions thereof, and
notify you of my desire to purchase _______ shares of Common Stock of the
Company (the "Shares"), offered to me pursuant to said Option. Enclosed is my
check in the sum of $_________________ in full payment for the Shares.
[This paragraph is applicable if the Shares are not registered under the
Securities Act of 1933.] I hereby represent that the Shares are being acquired
by me as an investment and not with a view to, or for resale in connection with,
the distribution of any shares of the Company. I understand that the Shares are
not registered under the Securities Act of 1933, as amended (the "Act"), or
applicable state securities laws, that the Shares may not be sold or otherwise
transferred except pursuant to an effective registration statement under the Act
and said laws unless the Company has received an opinion of counsel satisfactory
to it that such transfer or disposition does not require registration under the
Act or said laws and, for any sales under Rule 144 of the Act, such evidence as
it shall request for compliance with that rule or applicable state securities
laws, and that the certificate representing the Shares may contain a legend
referring to such restrictions.
I agree that I am responsible for any taxes payable as a result of the
exercise of the option or the sale of the shares issued upon such exercise. I
agree that if the Company is required to withhold any taxes as a result of my
exercise of the option, I will remit any required amount to the Company as a
condition to the issuance to me of the Shares.
Dated: , 19
--------------- --.
---------------------------------------
Optionee's Signature
3
<PAGE>
RECEIPT
RECEIPT is hereby acknowledged of the delivery to me by Oxboro Medical
International, Inc., on ____________, 19__, of stock certificate no.
____________ for _________ shares of Common Stock purchased by me pursuant to
the terms and conditions of a stock option granted to me effective June 19,
1997.
----------------------------------
Optionee
4
<PAGE>
OXBORO MEDICAL INTERNATIONAL, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
October 30, 1996
Dear Mr. Mikkelson:
At the direction of the Board of Directors of Oxboro Medical International,
Inc. (the "Company"), you are hereby notified that the Board has granted to you
a Stock Option ("Option") to purchase 40,000 shares of Common Stock ("Stock") of
the Company at a price of $1.125 per share. The date of grant of this Option is
the date of this notice, and it is the determination of the Board of Directors
that on this date the fair market value of the Company's Common Stock does not
exceed $1.125 per share.
You are not required to exercise this Option. This Option must be
exercised, if at all and to the extent exercised, on or before October 30, 2001.
Your Option is in all respects limited and conditioned by the following:
a. Your Option is immediately exercisable in full.
b. The purchase price of any Stock purchased pursuant to exercise of this
Option may be paid in cash or by certified or cashier's check or by delivery to
the Company of shares of Stock owned by you for at least six months prior to
delivery in an amount equal in fair market value to the purchase price of the
shares of Stock being purchased pursuant to this Option. In addition, such
purchase price may be paid by a loan from the Company upon such terms as the
Board of Directors may establish from time to time.
c. Your Option may be exercised by you, but only by you, at any time
during your lifetime prior to six (6) months after the date of the termination
of your service as a member of the Board of Directors of the Company, but only
to the extent you were entitled to exercise your Option at the date of such
termination and only if your Option has not expired. In no event will your
Option be exercisable after the expiration of five (5) years from the date such
Option is granted.
d. In the event of your death while you are a director of the Company,
your Option may be exercised at any time within six (6) months following the
date of your death by your estate or by a person who acquired the right to
exercise your Option by will or the laws of descent and distribution. In either
case, such Option may be exercised only to the extent you were entitled to
exercise the Option at the time of your death. In the event of your death
within ninety (90) days after termination of your service as a director, then
the Option may be exercised at any time within three (3) months following the
date of your death by your estate or by a person who acquired the right to
exercise your Option by will or by the laws of descent and distribution, but
only to the extent you were entitled to exercise the Option at the time of such
termination.
<PAGE>
e. You may not transfer, sell, pledge, assign, or otherwise dispose of
your Option, other than at death by will or the laws of descent and
distribution, and your Option during your lifetime is exercisable only by you.
f. The shares of Stock you may acquire upon exercise of your Option are
subject to restrictions against transfer.
g. Unless a registration statement under the Securities Act of 1933 (and
applicable state securities laws) is in effect with respect to this Option or
Stock to be purchased pursuant to this Option, you agree with, and represent to,
the Company that you are acquiring the Option and Stock for the purpose of
investment and not with a view to transfer, sell, or otherwise dispose of the
Option or Stock, except as may be permitted under applicable securities laws.
The Company may require an opinion of counsel satisfactory to it prior to the
transfer of any Stock to you to assure at all times that it will be in
compliance with applicable federal and state securities laws.
As a condition to the issuance of shares of Stock under this Option, you
agree to remit to the Company at the time of any exercise of this Option any
taxes required to be withheld by the Company under federal, state, or local law
as a result of your exercise of this Option. At your option, such taxes may be
paid by delivery to the Company of shares of Stock already owned by you or
withholding of shares issuable upon exercise of this Option, in either case in
an amount equal in fair market value to the taxes owed.
OXBORO MEDICAL INTERNATIONAL, INC.
By /s/ Harley Haase
-------------------------------
Harley Haase
Its President
ACCEPTANCE
I hereby accept the terms and provisions of the above Nonqualified Stock
Option Agreement and agree to be bound by its terms. I also agree to accept as
binding, conclusive, and final all decisions or interpretations of the Company's
Board of Directors upon any questions arising under the Option. Dated effective
Feb. 15 , 1997.
- ---------------
/s/ Dennis L. Mikkelson
----------------------------------
Dennis L. Mikkelson
2
<PAGE>
NOTICE OF EXERCISE OF STOCK OPTION
AND RECORD OF STOCK TRANSFER
I hereby exercise the Stock Option granted by Oxboro Medical International,
Inc., effective October 30, 1996, subject to all terms and provisions thereof,
and notify you of my desire to purchase ___________ shares of Common Stock of
the Company (the "Shares"), offered to me pursuant to said Option. Enclosed is
my check in the amount of $________ in full payment for the Shares.
[This paragraph is applicable if the Shares are not registered under the
Securities Act of 1933.] I hereby represent that the Shares are being acquired
by me as an investment and not with a view to, or for resale in connection with,
the distribution of any shares of the Company. I understand that the Shares are
not registered under the Securities Act of 1933, as amended (the "Act"), or
applicable state securities laws, that the Shares may not be sold or otherwise
transferred except pursuant to an effective registration statement under the Act
and said laws unless the Company has received an opinion of counsel satisfactory
to it that such transfer or disposition does not require registration under the
Act or said laws and, for any sales under Rule 144 of the Act, such evidence as
it shall request for compliance with that rule or applicable state securities
laws, and that the certificate representing the Shares may contain a legend
referring to such restrictions.
I agree that I am responsible for any taxes payable as a result of the
exercise of the option or the sale of the Shares issued upon such exercise. I
agree that if the Company is required to withhold any taxes as a result of my
exercise of the option, I will remit any required amount to the Company as a
condition to the issuance to me of the Shares.
Dated: , 19
--------------------- --.
--------------------------------------
Optionee's Signature
3
<PAGE>
RECEIPT is hereby acknowledged of the delivery to me by Oxboro Medical
International, Inc., of stock certificate no. _______________ for ______________
shares of Common Stock purchased by me pursuant to the terms and conditions of a
stock option granted to me effective October 30, 1996.
----------------------------------
Optionee
Date:
-----------------------------
4
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<CASH> 124,815
<SECURITIES> 0
<RECEIVABLES> 747,823
<ALLOWANCES> 28,276
<INVENTORY> 1,659,838
<CURRENT-ASSETS> 2,942,529
<PP&E> 2,192,210
<DEPRECIATION> 841,582
<TOTAL-ASSETS> 5,578,177
<CURRENT-LIABILITIES> 842,295
<BONDS> 0
0
0
<COMMON> 22,586
<OTHER-SE> 4,211,542
<TOTAL-LIABILITY-AND-EQUITY> 5,578,177
<SALES> 4,801,965
<TOTAL-REVENUES> 4,801,965
<CGS> 1,554,643
<TOTAL-COSTS> 1,554,643
<OTHER-EXPENSES> 3,344,450
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 65,906
<INCOME-PRETAX> (147,765)
<INCOME-TAX> (60,000)
<INCOME-CONTINUING> (87,765)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (87,765)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
