<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, 1998
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-18785
</TABLE>
------------------------
OXBORO MEDICAL INTERNATIONAL, INC.
(Name of small business issuer in its charter)
<TABLE>
<S> <C>
MINNESOTA 41-1391803
(State or other (I.R.S. Employer Identification
jurisdiction of No.)
incorporation or
organization)
</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. / /
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
State issuer's revenues for its most recent fiscal year. $5,002,489.
Based upon the closing price of the issuer's Common Stock as reported by The
Nasdaq Small-Cap Market, the aggregate market value of such Common Stock held by
nonaffiliates of the issuer as of December 11, 1998, was approximately
$2,112,774.
As of December 11, 1998 there were 2,438,578 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 1999 Annual Meeting (the "Proxy Statement").
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 fishing, hunting, and related outdoor recreational
markets. The Company entered into the business of recreational products in
fiscal 1993.
(b) NARRATIVE DESCRIPTION OF BUSINESS.
PRINCIPAL PRODUCTS. Principal medical 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.
Raw materials and parts for the products are produced to Oxboro's
specifications by various outside vendors. Oxboro uses a Class 10,000 clean room
facility to assemble, package, and inspect its sterilized products. The
assembled products that are sold sterile are sent to an independent contract
sterilizer, and samples are tested at an independent laboratory.
Outdoors has developed a line of products for the fishing, hunting and
related outdoor recreational market using certain common vendors and materials
used in production by Oxboro. The remaining Outdoors products are designed and
produced to Outdoors' specifications by various vendors.
Outdoors' principal products fall into two groups. One group consists of
products licensed by professional sports organizations ("Licensed Products") and
represents approximately 80% of Outdoors' sales. Currently, Licensed Products
are comprised of four fishing lures products (the spoon, spinner, tandem and
in-line), earrings and key chains. In fiscal 1996, Outdoors entered into a
license agreement with NFL Properties, Inc. to obtain the rights to manufacture
and sell fishing tackle imprinted with the logos of all 30 National Football
League teams. In 1997 the license was expanded to include key chains and
earrings using the fishing lure components. In 1997, Outdoors entered into a
license agreement with Major League Baseball to obtain the rights to manufacture
and sell fishing tackle imprinted with the logos of all 30 Major League Baseball
teams. In 1998 Outdoors entered into a similar license agreement with National
Association for Stock Car Auto Racing, Inc. ("NASCAR"). It is in the process of
negotiating similar license agreements with the Canadian Football League,
Professional Cowboy Rodeo Association and Professional Bowlers Association.
The other product group consists of miscellaneous fishing and hunting
related products, including fishing tackle products (hooks, lures, leaders,
weights, artificial bait and lines), fishing tools and equipment, and fishing
and hunting accessory products (self-adhesive organizational foam and other
products).
In fiscal 1999, Outdoors plans to focus on the development, marketing and
sale of Licensed Products and to explore options that will allow it to realize
the maximum cash value of non-licensed products.
2
<PAGE>
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 and
accounted for approximately 8% of medical product sales during fiscal 1998 and
1997.
Outdoors products are sold to retailers using a combination of Outdoors
telemarketers and independent brokers representing the Outdoors product lines
and directly to consumers through the Outdoors retail catalogue.
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. Accordingly, the Company believes that
the effect of patents 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; however, such protection may not
be available. In the event the Company attempts to secure patents, it is likely
to incur substantial costs in such attempts.
With regard to the marketing and sales of certain Outdoors products,
Outdoors believes that trademarks may be important and, accordingly, Outdoors
has applied for and received trademark registrations for various products. In
addition, Outdoors manufactures and markets several products pursuant to license
agreements with professional sports organizations. Without these license
agreements, Outdoors would be unable to manufacture and market the Licensed
Products.
COMPETITION. Both the 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, 1998 and 1997, the Company spent $16,916 and $19,373, respectively, for
research and development, exclusive of personnel costs. In fiscal 1998, $13,486
was spent for development of medical products, and $3,430 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 in the United States by the Food and Drug Administration and in the
European Community by the Medical Device Directives. 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 would be subject to administrative and criminal actions,
which could have a material adverse effect on the Company's business. The
Company is subject to CE Mark Certification, which must be adhered to in order
for the Company to continue to sell its products in certain international
markets. Continued compliance with all regulatory requirements may require
significant expenditures.
EMPLOYEES. As of December 11, 1998, the Company, including Outdoors,
employed 64 persons on a full-time basis, including 3 in management, 9 in sales,
34 in production and shipping, and 18 in general and administration. In
addition, the Company has retained two individuals on a part-time basis to serve
as interim president and interim chief financial officer and certain other
individuals to provide consulting services on an as-needed basis. The Company
also employed six persons on a part-time basis in manufacturing.
3
<PAGE>
During fiscal 1998, the Company lost its chief executive officer and chief
financial officer and its sales manager. The Company is attempting to replace
these individuals and, in doing so, will incur certain nonrecurring expenses,
including placement fees and other related costs.
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 C of Notes to Consolidated Financial Statements
(included in Item 7 hereof) regarding the terms of a mortgage on the property.
ITEM 3. LEGAL PROCEEDINGS
No disclosure is required under this Item.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year ended September 30, 1998, 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 Small-Cap 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 1998
First Quarter............................................................ $1 9/32 $ 15/16
Second Quarter........................................................... 2 1/4 1 3/32
Third Quarter............................................................ 1 31/32 1 1/4
Fourth Quarter........................................................... 1 7/8 1
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
</TABLE>
There were approximately 516 holders of record of the Company's Common Stock
as of December 11, 1998. The Company has paid no cash dividends on its Common
Stock.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
Consolidated net sales for the Company were $5,002,489 in fiscal 1998
compared to $4,801,965 in fiscal 1997, an increase of approximately 4%. Sales of
medical and surgical products for the year ended September 30, 1998, were
$4,450,597 compared to $4,322,108 for the year ended September 30, 1997, which
represents an increase of 3% over the previous year. Competition and the greater
emphasis on controlling costs in the health care industry represent ongoing
challenges to the Company.
4
<PAGE>
Outdoors sales for the year ended September 30, 1998 were $551,892 compared
to $479,857 in fiscal 1997, or an increase of 15% 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 $393,000 in fiscal 1998 as
compared to $362,000 in fiscal 1997.
Consolidated gross margin was 48% in fiscal 1998 as compared to 68% in
fiscal 1997. Gross margin for the medical and surgical products division was
67%, while Outdoors had a negative gross margin of (111)%. The lower gross
margin for the medical products division (which was 76% in fiscal 1997) can be
attributed to increased compensation for production workers, increased costs
attributable to quality and regulatory requirements, and reduced efficiencies
because of production time spent on compliance matters. The deterioration in
gross margin for Outdoors (which was a negative 5% in fiscal 1997) can be
attributed to adjustments to inventory of approximately $640,000 to reflect
reduced estimated net realizable value of the assets.
During fiscal 1998, consolidated selling, general and administrative
("SG&A") expenses increased by 14%, or $457,047 as compared to fiscal 1997. For
fiscal year 1998, SG&A expenses represented approximately 76% as a percentage of
sales. Increased SG&A expenses for Oxboro include approximately $265,000
incurred in connection with the termination of Larry Rasmusson as chief
executive officer and chief financial officer and increases of approximately
$249,000 in legal fees and other costs incurred principally in connection with a
proxy contest at the 1998 annual meeting, approximately $110,000 in salaries and
wages, from both increases to existing employees and the addition of new
personnel, and approximately $207,000 in consulting expense related to
FDA/ISO/CE Mark Certification activities. Offsetting these increased expenses
was a reduction in bonus expense of $156,000. Also, in fiscal 1997, the Company
incurred an additional $242,000 in costs in connection with the termination of
Harley Haase as chief executive officer. The Company's interest expenses
decreased by approximately $10,000 as a result of lower average borrowings on
its line of credit.
The decrease in SG&A expenses for Outdoors during fiscal 1998 of 2% compared
to fiscal 1997 was mainly due to the reduction in advertising expense of
approximately $209,000 and reduction in consulting fees of $53,000, offset by
expenses of $265,000 related to the termination of Larry Rasmusson.
During the next approximately twenty-four months, the Company will be
required to pay approximately $150,000 to Larry Rasmusson in connection with a
non-competition agreement.
In fiscal 1998, the Company incurred a loss before income taxes of
$1,453,544 as compared to a loss before taxes of $147,765 in fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1998, the Company had working capital of $1,661,371 as
compared to $2,100,234 at September 30, 1997. Also, at September 30, 1998, the
Company had $379,041 in long-term debt and $71,125 in cash and cash equivalents.
During the year ended September 30, 1998, the Company used $54,474 net cash
in operating activities, primarily as a result of the net loss of $1,453,544,
offset by decreases of $642,913 in inventories and $194,682 in other current
assets, $224,947 in depreciation and amortization, and an increase of $207,882
in accrued liabilities.
The Company used $157,213 net cash in investing activities during the fiscal
year ended September 30, 1998, primarily for purchases of equipment.
During fiscal 1998, net cash provided by financing activities was $157,997.
The Company has a line of credit facility, pursuant to which it can borrow up to
$550,000, subject to certain terms and conditions related to the Company's
financial performance. Outstanding balances are subject to an annual interest
5
<PAGE>
rate of 0.5% over the bank's prime rate (8.75% at September 30, 1998) and are
secured by all of the Company's assets. As of September 30, 1998, the amount
outstanding was $288,313. Subsequent to September 30, 1998, the outstanding
balance was increased to approximately $453,000. This credit facility expires in
March 1999, and the Company intends to replace the credit facility prior to that
time.
During fiscal 1999, the Company currently expects to spend approximately
$150,000 to update its management information systems and to refurbish
production and packaging equipment. During fiscal 1999, 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, Major League Baseball, and NASCAR
lines of tackle for national distribution, and the introduction of lines of
licensed products using Canadian Football League, Professional Cowboy Rodeo
Association, and Professional Bowlers Association logos. In addition, the
Company intends to continue to pursue introduction of additional medical
products. The amount of these investment cannot be quantified at this time.
The Company anticipates certain nonrecurring expenses during fiscal 1999
that could affect cash flow. These include payments to be made to Mr. Rasmusson
in connection with his termination and costs incurred in the Company's efforts
to replace key management employees. The Company may consider debt or equity
financing, if necessary to fund these and other operating costs.
FORWARD LOOKING STATEMENTS
Forward looking statements herein are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. There are
certain important factors that could cause results to differ materially from
those anticipated by some of the statements made herein. Investors are cautioned
that all forward-looking statements involve risks and uncertainty. Among the
factors that could cause actual results to differ materially are the following:
acceptance of new products, pricing strategies of competitors, general
conditions in the industries served by the Company's products, ability to
maintain adequate inventories to respond to customer demand, changes in
regulatory requirements for health care related products, and overall economic
conditions, including inflation and consumer buying patterns.
YEAR 2000 ISSUES
The Company has assessed and continues to assess the impact of the Year 2000
issue on its reporting systems and operations. The Year 2000 issue exists
because many computer systems and applications currently use two-digit fields to
designate a year. As the century date occurs, date sensitive systems may
recognize the Year 2000 as 1900 or not at all. This inability to recognize or
properly treat the Year 2000 may cause systems to process critical financial and
operational information incorrectly.
Most management information systems under which the Company is currently
operating recognize the Year 2000. Any hardware or software that the Company
acquires as part of the updating of its management information system will
recognize the Year 2000. The Company's other operational systems have not yet
been tested for Year 2000 compliance. Further, the Company has not yet
determined whether the entities with which it does business will be Year 2000
compliant. The Company plans to devote the necessary resources to resolve all
significant Year 2000 issues in a timely manner, including contacting entities
with whom the Company conducts business to determine their readiness. The
Company plans to complete its assessments as soon as reasonably possible. Thus
far, the Company's expenditures for Year 2000 compliance have been minimal.
Although it has not yet quantified the costs of any required modifications, the
Company anticipates these costs will be minimal. If Year 2000 modifications are
not properly completed either by the Company or any entities with whom the
Company conducts business, which include approximately 3800 hospitals, the
Company could be unable to receive, process, or ship orders to customers on a
timely basis, if at all. In such case, the Company's revenues and financial
condition could be adversely impacted. At this stage, the Company has not
developed a contingency plan.
6
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Certified Public Accountants......................................................... F-1
Consolidated Balance Sheet, September 30, 1998............................................................. F-2
For the years ended September 30, 1998 and 1997:
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.
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,
1998.
7
<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.
By /s/ CHRISTOPHER J. TURNBULL
-----------------------------------------
Dated: December 28, 1998 PRESIDENT
</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.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ CHRISTOPHER J. TURNBULL
- ------------------------------ President (principal December 28, 1998
Christopher J. Turnbull executive officer)
/s/ RICHARD ULVENES Chief Financial Officer
- ------------------------------ (principal financial and December 28, 1998
Richard Ulvenes accounting officer)
/s/ KENNETH W. BRIMMER
- ------------------------------ Director December 28, 1998
Kenneth W. Brimmer
/s/ GARY COPPERUD
- ------------------------------ Director December 28, 1998
Gary Copperud
/s/ ROBERT S. GARIN
- ------------------------------ Director December 28, 1998
Robert S. Garin
/s/ JOHN E. SAYER
- ------------------------------ Director December 28, 1998
John E. Sayer
/s/ JOHN R. WALTER
- ------------------------------ Director December 28, 1998
John R. Walter
</TABLE>
8
<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, 1998, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the two years in the period ended September 30, 1998. 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, 1998, and the
consolidated results of their operations and their consolidated cash flows for
each of the two years in the period ended September 30, 1998, in conformity with
generally accepted accounting principles.
GRANT THORNTON LLP
Minneapolis, Minnesota
November 24, 1998
F-1
<PAGE>
OXBORO MEDICAL INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash.......................................................................... $ 71,125
Trade receivables, net of allowance of $23,808................................ 717,014
Inventories................................................................... 1,926,925
Income taxes receivable....................................................... 46,758
Deferred income taxes......................................................... 103,000
Other current assets.......................................................... 55,647
---------
Total current assets........................................................ 2,920,469
PROPERTY, PLANT AND EQUIPMENT--AT COST
Land.......................................................................... 57,211
Building...................................................................... 905,366
Furniture and equipment....................................................... 1,295,866
---------
2,258,443
Less accumulated depreciation................................................. 1,015,809
---------
1,242,634
OTHER ASSETS
Cash surrender value of life insurance........................................ 287,029
Other......................................................................... 128,251
---------
$4,578,383
---------
---------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable to bank.......................................................... $ 288,313
Current maturities of long-term obligation.................................... 7,621
Accounts payable.............................................................. 315,017
Accrued salaries, wages and payroll taxes..................................... 109,675
Accrued consulting fees....................................................... 428,531
Other accrued expenses........................................................ 109,941
---------
Total current liabilities................................................... 1,259,098
LONG-TERM OBLIGATION, less current maturities................................... 379,041
DEFERRED INCOME TAXES........................................................... 103,000
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; 2,438,578 shares
issued and outstanding...................................................... 24,386
Additional paid-in capital.................................................... 1,536,617
Retained earnings............................................................. 1,538,747
---------
3,099,750
Receivable from employee stock ownership plan................................. (174,306)
Stock subscriptions receivable................................................ (88,200)
---------
2,837,244
---------
$4,578,383
---------
---------
</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>
1998 1997
------------- ------------
<S> <C> <C>
Net sales............................................................................ $ 5,002,489 $ 4,801,965
Cost of goods sold................................................................... 2,623,271 1,554,643
------------- ------------
Gross margin..................................................................... 2,379,218 3,247,322
Selling, general and administrative expenses......................................... 3,801,497 3,344,450
------------- ------------
Operating loss................................................................... (1,422,279) (97,128)
Other income (expense)
Interest expense................................................................... (55,916) (65,906)
Other.............................................................................. 24,651 15,269
------------- ------------
Loss before income taxes......................................................... (1,453,544) (147,765)
Income taxes......................................................................... -- (60,000)
------------- ------------
NET LOSS......................................................................... $ (1,453,544) $ (87,765)
------------- ------------
------------- ------------
Net loss per common share-basic and diluted.......................................... $ (0.52) $ (0.03)
------------- ------------
------------- ------------
Weighted average common and common equivalent shares outstanding-basic and diluted... 2,788,560 2,679,112
------------- ------------
------------- ------------
</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, 1998 AND 1997
<TABLE>
<CAPTION>
RECEIVABLE
COMMON STOCK ADDITIONAL FROM EMPLOYEE
--------------------- PAID-IN RETAINED STOCK
SHARES AMOUNT CAPITAL EARNINGS OWNERSHIP PLAN
---------- --------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Balance at October 1, 1996.............................. 2,672,278 $ 26,723 $ 2,276,110 $ 3,080,056 $ (101,306)
Retirement of shares related to research and
development arrangement............................. (383,500) (3,835) (963,415) -- --
Retirement of shares related to stock subscription
receivable.......................................... (70,200) (702) (89,238) -- --
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)
Shares issued related to amendments to employment and
exclusive license agreements........................ 510,000 5,100 1,003,740 -- --
Cancellation of shares related to employment and
exclusive license agreement amendments.............. (510,000) (5,100) (1,003,740) -- --
Shares issued to ESOP................................. 80,000 800 87,200 -- (88,000)
Exercise of stock options............................. 320,364 3,204 315,542 -- --
Compensation expense related to options............... -- -- 49,160 -- --
Cancellation of shares related to employment agreement
amendment........................................... (220,364) (2,204) (228,342) -- --
Payment from ESOP..................................... -- -- -- -- 7,500
Net loss.............................................. -- -- -- (1,453,544) --
---------- --------- ------------ ------------ --------------
Balance at September 30, 1998........................... 2,438,578 $ 24,386 $ 1,536,617 $ 1,538,747 $ (174,306)
---------- --------- ------------ ------------ --------------
---------- --------- ------------ ------------ --------------
<CAPTION>
SHARES IN
ESCROW RELATED SHARES IN ESCROW
TO RESEARCH RELATED TO
STOCK AND EMPLOYMENT AND
SUBSCRIPTION DEVELOPMENT EXCLUSIVE LICENSE
RECEIVABLE ARRANGEMENT AGREEMENTS TOTAL
----------- -------------- ----------------- ------------
<S> <C> <C> <C> <C>
Balance at October 1, 1996.............................. $ (80,000) $ (967,250) $ -- $ 4,234,333
Retirement of shares related to research and
development arrangement............................. -- 967,250 -- --
Retirement of shares related to stock subscription
receivable.......................................... 80,000 -- -- (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
Shares issued related to amendments to employment and
exclusive license agreements........................ -- -- (1,008,840) --
Cancellation of shares related to employment and
exclusive license agreement amendments.............. -- -- 1,008,840 --
Shares issued to ESOP................................. -- -- -- --
Exercise of stock options............................. (318,746) -- -- --
Compensation expense related to options............... -- -- -- 49,160
Cancellation of shares related to employment agreement
amendment........................................... 230,546 -- -- --
Payment from ESOP..................................... -- -- -- 7,500
Net loss.............................................. -- -- -- (1,453,544)
----------- -------------- ----------------- ------------
Balance at September 30, 1998........................... $ (88,200) $ -- $ -- $ 2,837,244
----------- -------------- ----------------- ------------
----------- -------------- ----------------- ------------
</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>
1998 1997
------------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................................................ $ (1,453,544) $ (87,765)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization..................................................... 224,947 336,393
Inventory valuation adjustments................................................... 535,305 122,982
Loss from limited partnership..................................................... -- 7,991
Deferred income taxes............................................................. 73,000 (80,000)
Compensation related to stock options............................................. 49,160 --
Change in operating assets and liabilities
Trade receivables............................................................... 2,533 (139,443)
Inventories..................................................................... 107,608 (110,871)
Income taxes receivable......................................................... (79,360) 3,499
Other current assets............................................................ 194,682 (136,250)
Accounts payable................................................................ 83,313 19,087
Accrued liabilities............................................................. 207,882 31,853
------------- -----------
Net cash used in operating activities......................................... (54,474) (32,524)
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment................................. 40,764 --
Purchases of property, plant and equipment.......................................... (137,617) (122,893)
Disposal of (additions to) other assets............................................. (60,360) 94,512
------------- -----------
Net cash used in investing activities......................................... (157,213) (28,381)
Cash flows from financing activities:
Net borrowings under note payable to bank........................................... 157,000 81,313
Proceeds from ESOP receivable....................................................... 7,500 7,500
Proceeds from exercise of stock options............................................. -- 90,000
Payments on long-term obligation.................................................... (6,503) (6,416)
------------- -----------
Net cash provided by financing activities..................................... 157,997 172,397
------------- -----------
Net increase (decrease) in cash....................................................... (53,690) 111,492
Cash at beginning of year............................................................. 124,815 13,323
------------- -----------
Cash at end of year................................................................... $ 71,125 $ 124,815
------------- -----------
------------- -----------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest.......................................................................... $ 55,916 $ 65,906
Income taxes...................................................................... 1,000 29,000
</TABLE>
Supplemental disclosure of noncash investing and financing activities:
- During 1998, the Company received stock subscriptions in the amount of
$88,200 in connection with the exercise of stock options.
- During 1998, the Company issued 80,000 shares of common stock to the
employee stock ownership plan in exchange for a note receivable in the
amount of $88,000.
- 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.
- 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.
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
OXBORO MEDICAL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
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.
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 recreation 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, 1998:
<TABLE>
<CAPTION>
<S> <C> <C>
Raw materials..................................................... $ 1,087,488
Finished goods.................................................... 839,437
------------
$ 1,926,925
------------
------------
</TABLE>
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 on straight-line
and accelerated methods for income tax reporting purposes. Estimated service
lives for financial reporting purposes are thirty years for the building and
seven years for furniture and equipment.
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 LOSS PER COMMON SHARE
On December 31, 1997, the Company adopted Statement of Financial Accounting
Standards No. 128 "Earnings Per Share." As required by Statement No. 128, all
previously reported loss per share data have been restated to conform to the
provisions of Statement No. 128.
F-6
<PAGE>
OXBORO MEDICAL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998 AND 1997
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company's basic net loss per share amounts have been computed by
dividing net loss by the weighted average number of outstanding common shares.
The Company's diluted net loss per share is computed by dividing net loss by the
weighted average number of outstanding common shares and common share
equivalents relating to stock options, when dilutive. For the fiscal year ended
September 30, 1998, the common share equivalents that would have been included
in the computation of diluted net income per share were 200,364, had net income
been achieved. There were no common share equivalents at September 30, 1997.
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 has issued Statement No. 130
"Reporting Comprehensive Income" and Statement No. 131 "Disclosures about
Segments of an Enterprise and Related Information," which are effective for
fiscal year 1999. Statement No. 130 will require the Company to display an
amount representing total comprehensive income, as defined by the statement, as
part of the Company's basic financial statements. Comprehensive income will
include items such as unrealized gains or losses on certain investment
securities and foreign currency items. Statement No. 131 will require the
Company to disclose financial and other information about its business segments,
their products and services, geographic areas, major customers, revenues,
profits, assets, and other information.
The adoption of these standards is not expected to have a material effect on
the consolidated financial statements of the Company.
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.
F-7
<PAGE>
OXBORO MEDICAL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998 AND 1997
NOTE B--NOTE PAYABLE TO BANK
The Company has a line of credit facility with a bank under which it can
borrow up to $550,000, subject to a defined borrowing base. Amounts outstanding
under the facility are due upon demand or, if no demand is made, on March 31,
1999 and bear interest at prime plus .5% (effective rate of 8.75% at September
30, 1998). 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. As of September 30, 1998, the Company was in compliance with all
covenants. The Company expects to maintain or replace the line of credit under
terms similar to those in effect at September 30, 1998.
NOTE C--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 8.75% at September 30, 1998). The note is due in 2001, is
collateralized by the Company's land and building and is subject to the same
restrictive covenants as the line of credit (note B).
Maturities of the long-term obligation are as follows for the years ending
September 30:
<TABLE>
<S> <C>
1999.............................................................. $ 7,621
2000.............................................................. 8,336
2001.............................................................. 370,705
</TABLE>
NOTE D--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. In 1998, the Company loaned an additional $88,000 to the
ESOP for the purchase of 80,000 shares of newly issued common stock at $1.10 per
share. The loans from the ESOP bear interest at 9% and 6% per annum,
respectively, and are to be repaid in annual installments through 2009.
Repayment by the ESOP will be made from future annual contributions by the
Company. Contributions to the ESOP were $20,000 for the year ended September 30,
1997. No contribution was made for the year ended September 30, 1998.
STOCK OPTIONS
The Company grants nonqualified stock options to key employees and other
individuals providing services to the Company generally 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.
F-8
<PAGE>
OXBORO MEDICAL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998 AND 1997
NOTE D--SHAREHOLDERS' EQUITY (CONTINUED)
Option transactions for the two years ended September 30, 1998 are
summarized as follows:
<TABLE>
<CAPTION>
NUMBER WEIGHTED AVERAGE
OF SHARES EXERCISE PRICE
---------- -----------------
<S> <C> <C>
Outstanding at October 1, 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
Granted......................................................... 330,000 1.20
Exercised....................................................... (80,000) 1.10
Canceled........................................................ (100,000) 1.00
---------- -----
Outstanding at September 30, 1998............................... 290,364 $ 1.35
---------- -----
---------- -----
</TABLE>
Options for 276,364 shares were exercisable at September 30, 1998 at a
weighted average exercise price of $1.33.
The following table summarizes information concerning outstanding and
exercisable stock options at September 30, 1998:
OPTIONS OUTSTANDING
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
RANGE OF NUMBER REMAINING WEIGHTED AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE
- ---------------- ----------- ---------------- -----------------
<S> <C> <C> <C>
$1.00--$1.50 210,364 4.0 years $ 1.17
1.63--2.00 80,000 3.2 years 1.81
</TABLE>
OPTIONS EXERCISABLE
<TABLE>
<CAPTION>
RANGE OF NUMBER WEIGHTED AVERAGE
EXERCISE PRICES EXERCISABLE EXERCISE PRICE
- ---------------- ----------- -----------------
<S> <C> <C>
$1.00--$1.50 210,364 $ 1.17
1.63--2.00 66,000 1.85
</TABLE>
The weighted average fair value of options granted in 1998 and 1997 was $.85
and $1.10 per share, respectively. 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 1998 and
1997: no dividend yield; risk-free rate of return of 6.3%; volatility of 64.2%;
and an average term of 5 years. The Company's 1998 and 1997 pro forma net loss
and net loss per share would have been $1,623,183 and $157,564 or $.58 and $0.06
per share had the fair value method been used for valuing options granted during
1998 and 1997. These effects may not be representative of the future effects of
applying the fair value method.
F-9
<PAGE>
OXBORO MEDICAL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998 AND 1997
NOTE E--INCOME TAXES
Deferred income tax assets and liabilities consist of the following at
September 30, 1998:
<TABLE>
<S> <C>
Deferred tax assets
Accrued liabilities............................................ $ 148,000
Allowance for doubtful accounts................................ 9,000
Inventory valuation adjustments................................ 332,000
Net operating loss carryforward................................ 178,000
Capital loss carryforward...................................... 14,000
Charitable contribution carryforward........................... 21,000
---------
702,000
Valuation allowance............................................ (599,000)
---------
$ 103,000
---------
---------
Deferred tax liabilities
Depreciation................................................... $ 103,000
---------
---------
</TABLE>
During 1998, the valuation allowance increased by $511,000.
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
Currently payable (receivable)
Federal............................................................. $ (74,000) $ 18,000
State............................................................... 1,000 2,000
---------- ----------
(73,000) 20,000
Deferred
Federal............................................................. 67,000 (74,000)
State............................................................... 6,000 (6,000)
---------- ----------
73,000 (80,000)
---------- ----------
$ -- $ (60,000)
---------- ----------
---------- ----------
</TABLE>
F-10
<PAGE>
OXBORO MEDICAL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998 AND 1997
NOTE E--INCOME TAXES (CONTINUED)
A reconciliation of income taxes at the statutory rate compared with the
actual income taxes provided is as follows:
<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
--------------------
1998 1997
--------- ---------
<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
Differences in statutory rates.................................................................. -- 8.0
Officers life insurance......................................................................... .4 4.2
Non-deductible entertainment expenses........................................................... 1.4 9.0
Adjustment of prior year's accruals............................................................. (0.4) (6.2)
Research and development credits................................................................ (2.4) (8.5)
Change in valuation allowance................................................................... 35.2 (13.5)
Other........................................................................................... (0.2) (0.5)
--------- ---------
Effective rate.................................................................................. -- % (40.6)%
--------- ---------
--------- ---------
</TABLE>
At September 30, 1998, the Company has net operating loss carryforwards of
approximately $480,000 which expire in 2018.
The Company also has a capital loss carryforward of approximately $38,000
available to offset future capital gains which expires in 2002 and a charitable
contribution carryforward of approximately $56,000 which expires in 1999.
Benefits of these carryforwards will be recognized as they become deductible for
tax purposes.
NOTE F--RELATED PARTY TRANSACTIONS
SIGNIFICANT SHAREHOLDER AND FORMER OFFICER
The Company has entered into several agreements with a significant
shareholder, former Chief Executive Officer and Director, Larry Rasmusson
(Former Officer) of the Company as described below:
In September 1998, the Company entered into a Mutual Release and
Noncompetition Agreement ("Release") with the Former Officer. The Release
includes a consulting agreement requiring the Company to pay the Former Officer
$485,000 in twenty-four equal monthly installments of $20,208, beginning in
September 1998 and a noncompetition agreement requiring payment of $150,000 in
twenty-four equal monthly installments of $6,250, beginning in September 1998.
The obligations under the consulting agreement ($485,000) were accrued and
expensed as of September 30, 1998. The payments under the noncompetition
agreement are expensed as paid and will continue so long as the Former Officer
is not in violation of the terms and conditions of the agreement. The payments
under the consulting and noncompetition agreements are secured by a second
mortgage on the Company's land and building.
The Release also amended the exclusive license agreement between the Company
and the Former Officer for specified Oxboro Outdoors, Inc. products invented or
developed by the Former Officer. Under the agreement, advance royalties totaling
$229,241 have been paid to the Former Officer, including $112,500 paid prior to
1995. These advances are capitalized and are being amortized as the sales of the
related products are made. Under the amended agreement, royalties of 8% to 9% of
the net sales price of the products sold are to be paid until the advanced
royalties are earned. Thereafter, royalties of 4% to
F-11
<PAGE>
OXBORO MEDICAL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998 AND 1997
NOTE F--RELATED PARTY TRANSACTIONS (CONTINUED)
8% will be paid on the net sales price of the products sold. The agreement
expires in August 2001. Royalty expense under this agreement was $47,008 and
$36,385 for the years ended September 30, 1998 and 1997, respectively. At
September 30, 1998, net advance royalties remaining on the books were $128,251.
During 1998, the Company issued 510,000 shares of common stock into escrow
in connection with amendments to the Former Officer's employment agreement and
the exclusive license agreement. The Former Officer also issued notes receivable
to the Company in the amount of $230,546 in connection with the exercise of
options to purchase 220,364 shares of common stock. The Release rescinded these
stock issuances, the notes receivable were canceled and the related shares of
common stock were returned to the Company.
OTHER
A former director, Dennis Mikkelson, of the Company received approximately
$64,000 and $60,000 during the fiscal years ended September 30, 1998 and 1997
for general business consulting and for maintenance, development and enhancement
of the Company's computer capabilities.
A current director, John Walter, received approximately $10,000 in
commissions from the sale of insurance policies to the Company during each of
the years ended September 30, 1998 and 1997. This director also received
approximately $2,000 and $30,000 in consulting fees related to Oxboro Outdoors,
Inc. during the years ended September 30, 1998 and 1997, respectively.
Each director of the Company who is not an employee receives a fee for
services provided in the amount of $1,000 per quarter and the Chairman of the
Board receives $1,250 per quarter. The aggregate fees paid to non-management
directors for services rendered for the years ended September 30, 1998 and 1997
were approximately $32,250 and $24,000. Directors serving in fiscal 1997 (Dennis
Mikkelson and John Walter) received bonuses totaling $15,000 for the year ended
September 30, 1997. No bonuses were awarded for the year ended September 30,
1998.
At October 1, 1996, $80,000 was outstanding under a note issued by the
former President of the Company, Harvey Haase, in conjunction with the exercise
of stock options. During 1997, 70,200 shares of the Company's common stock were
surrendered and retired in connection with the cancellation of the promissory
note and related accrued interest receivable.
Larry Rasmusson and Harvey Haase receive royalties on product sales under
certain royalty agreements. Royalty expense for the years ended September 30,
1998 and 1997 under these agreements was $92,967 and $82,447.
Dennis Mikkelson and John Walter issued promissory notes to the Company in
the combined amount of $88,200 in connection with the exercise of stock options.
The notes bear interest at 6% and are due in annual installments through January
2003. The notes are collateralized by the related shares of common stock.
F-12
<PAGE>
OXBORO MEDICAL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998 AND 1997
NOTE G--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, 1998
and 1997 is summarized as follows:
<TABLE>
<CAPTION>
MEDICAL OUTDOORS CONSOLIDATED
------------ ------------- -------------
<S> <C> <C> <C>
1998
Net sales............................................................. $ 4,450,597 $ 551,892 $ 5,002,489
Direct contribution operating income (loss)........................... 1,035,498 (1,291,996) (256,498)
Allocation of corporate expense....................................... (705,858) (459,923) (1,165,781)
------------ ------------- -------------
Operating income (loss)............................................... $ 329,640 $ (1,751,919) $ (1,422,279)
------------ ------------- -------------
------------ ------------- -------------
Identifiable assets................................................... $ 3,194,412 $ 1,383,971 $ 4,578,383
------------ ------------- -------------
------------ ------------- -------------
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
------------ ------------- -------------
------------ ------------- -------------
</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 building. These costs generally would not be
subject to significant reduction upon the discontinuance or disposal of one of
the segments.
NOTE H--COMMITMENTS AND CONTINGENCIES
CONSULTING AGREEMENT
In October 1994, Oxboro Outdoors, Inc. entered into a six year consulting
agreement with an individual, R.J. Fritz, which provides for annual payments of
approximately $25,000. The agreement was terminated in fiscal 1999 resulting in
a cash payment for the final 23 months of the agreement subsequent to September
30, 1998.
LICENSING AGREEMENTS
The Company has a licensing agreement with National Football League
Properties Inc. (NFL) to market and sell fishing tackle, keychains and earrings
bearing logos of NFL teams. The Company also has licensing agreements with Major
League Baseball Properties, Inc. (MLB) and National Association for Stock Car
Auto Racing, Inc. (NASCAR) to market and sell fishing tackle bearing logos of
MLB teams and
F-13
<PAGE>
OXBORO MEDICAL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998 AND 1997
NOTE H--COMMITMENTS AND CONTINGENCIES (CONTINUED)
certain NASCAR drivers. The royalty payments, as a percent of net sales as
defined in the agreements, and expiration dates of the agreements are as
follows:
<TABLE>
<CAPTION>
ROYALTIES EXPIRATION DATE
----------- ----------------------
<S> <C> <C>
NFL......................................................... 11% March 31, 2000
MLB......................................................... 11% December 31, 1999
NASCAR...................................................... 17% December 31, 1999
</TABLE>
The agreements also call for minimum royalty payments, as defined in the
agreements.
RISKS AND UNCERTAINTIES
The Year 2000 issue relates to limitations in computer systems and
applications that may prevent proper recognition of the Year 2000. If Year 2000
modifications are not properly completed either by the Company or any entities
with whom the Company conducts business, specifically hospital customers, the
Company could be unable to receive, process, or ship orders to customers on a
timely basis, if at all. In such case, the Company's revenues and financial
condition could be adversely impacted.
NOTE I--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 J--FOURTH QUARTER ADJUSTMENTS
During the fourth quarter of fiscal year 1998, the Company recorded expenses
related to the Release of the Former Officer (note F) of approximately $530,000
and adjustments to inventory of $640,000 to reflect reduced estimated net
realizable value of the assets.
F-14
<PAGE>
SECOND AMENDMENT TO EXCLUSIVE LICENSE AGREEMENT
This Second Amendment made and entered into effective this 1st day of
September, 1998, by and between Larry Rasmusson ("Rasmusson") and Oxboro
Medical International, Inc., a Minnesota corporation ("Company").
WITNESSETH:
WHEREAS, Rasmusson and the Company entered into an exclusive license
agreement effective as of the first day of April, 1990 (the "License
Agreement"); and
WHEREAS, Rasmusson and the Company entered into a First Amendment to
Exclusive License Agreement effective the first day of November, 1995; and
WHEREAS, Rasmusson and the Company desire to amend the License Agreement
to set forth the number of days that the Company has to accept or reject
products submitted by Rasmusson to the Company under the License Agreement.
NOW THEREFORE, the parties hereto, in consideration of the above
recitals and in further consideration of the terms and conditions set forth
below, agree as follows:
1. Article VII of the License Agreement entitled "General Provisions"
shall be amended by the addition of the following subparagraph:
7.8. Rasmusson agrees to offer to the Company, in writing, all
products, concepts, and ideas that he may develop until August
31, 2000, that are within the same category as, or similar to,
the products the Company is marketing as of September 1, 1998,
and the Company shall determine, within forty-five (45) days,
whether it is interested in obtaining the rights to and
developing and marketing such product, concept or idea. If
within said forty-five (45) days of the Company's receipt of
Rasmusson's written offer the Company has not advised
Rasmusson in writing that it has determined to pursue
development and marketing of the product, concept, or idea,
Rasmusson shall be entitled to offer it to any third party.
<PAGE>
Company will pay Rasmusson or his heirs or personal
representative Royalties as set forth in Article 4.1 of the
License Agreement on the NET SALES PRICE of all PRODUCTS and
Additional Products after the date of Rasmusson's death,
disability or retirement.
The Company will have the option at any time to cease paying
Royalties to Rasmusson with respect to any individual item
included in the PRODUCTS or the Additional Products by
transferring all rights to such item back to Rasmusson and
cease to manufacture, market and sell such PRODUCTS or
Additional Products. The Company will also have the right to
maintain its exclusive license to an individual item included
in the PRODUCTS or the Additional Products, even if such item
is defined as no longer sold by the Company, by paying to
Rasmusson an amount equal to four percent (4%) times the
average annual NET SALES PRICE for the item over the Company's
three (3) preceding fiscal years for each year that the
Company wishes to maintain its exclusive license.
Except as hereby amended or as otherwise amended and signed by the
parties to such Agreement, the Exclusive License Agreement remains in full
force and effect.
IN WITNESS WHEREOF, the parties have executed this Second Amendment to
the Exclusive License Agreement as of the day and year first above written.
OXBORO MEDICAL INTERNATIONAL, INC.
By /s/ Robert S. Garin
--------------------------------
Its Chairman of the Board
--------------------------
RASMUSSON
/s/ Larry Rasmusson
-----------------------------------
Larry Rasmusson
2
<PAGE>
FOURTH AMENDMENT TO
EXCLUSIVE LICENSE AND ROYALTY AGREEMENT
THIS FOURTH AMENDMENT ("Amendment") to the Exclusive License and Royalty
Agreement ("Royalty Agreement") dated as of April 17, 1993, by and between
LARRY A. RASMUSSON, residing at 1485 - 139th Lane Northwest, Andover,
Minnesota (hereinafter referred to as "Rasmusson") and OXBORO OUTDOORS, INC.,
a Minnesota corporation having its principal place of business at 13828
Lincoln Street, Ham Lake, Minnesota 55304 (hereinafter referred to as the
"Company"), is made effective as of the 1st day of September, 1998.
RECITALS
WHEREAS, and Rasmusson entered into the Third Amendment to the Royalty
Agreement effective as of February 25, 1998;
WHEREAS, the Third Amendment reduced the Royalties payable to Rasmusson
under the Royalty Agreement for a period of time and caused the Parent of the
Company to issue on behalf of the Company shares of stock of the Parent to
Rasmusson in escrow.
WHEREAS, the Company and Rasmusson desire to rescind the Third Amendment
to the Royalty Agreement in its entirety and to effect certain other
amendments to the Royalty Agreement pursuant to the terms and conditions set
forth herein.
NOW, THEREFORE, in consideration of the recitals set forth above and in
further consideration of the terms and conditions set forth below, Rasmusson,
Company and Parent agree to amend the Agreement as follows:
1. RESCISSION OF THIRD AMENDMENT TO EXCLUSIVE LICENSE AND ROYALTY
AGREEMENT. The Third Amendment to the Exclusive License and Royalty
Agreement effective the 25th day of February, 1998, is hereby rescinded
in its entirety. The 150,000 shares issued to Rasmusson (Certificate of
Common Stock of Oxboro Medical International, Inc. No. __) shall be and
are hereby returned to Oxboro Medical International, Inc. duly endorsed
by Rasmusson or with an attached Assignment Separate From Certificate.
2. AMENDMENT TO SUBSECTION 4.1. Section 4.1 of the Royalty
Agreement is hereby amended in its entirety as follows:
4.1 The Company will pay to Rasmusson Royalties in the amount
set forth below on the NET SALES PRICE of all PRODUCTS sold by the
Company during the revised term of this Royalty Agreement:
(a) The Company will pay Rasmusson Royalties in the
amount of eight percent (8%) up to One Million Dollars of NET
SALES PRICE of PRODUCTS and nine percent (9%) for all net
<PAGE>
sales in excess of One Million Dollars until Royalty advances
(currently in the approximate amount of Eighty Thousand and
No/100 Dollars ($80,000.00)) are consumed; thereafter
Royalties shall be paid pursuant to subparagraph b;
(b) Royalties shall be paid as set forth in the
following table on the cumulative NET SALES PRICE of PRODUCTS
sold by the Company for each fiscal year:
<TABLE>
<CAPTION>
--------------------------------------------------------------
Cumulative NET SALES ROYALTY
PRICE OF PRODUCTS PERCENTAGE
--------------------------------------------------------------
<S> <C>
$0 to $1,000,000 4%
--------------------------------------------------------------
$1,000,000 to $2,000,000 6%
--------------------------------------------------------------
Over $2,000,000 8%
--------------------------------------------------------------
</TABLE>
3. AMENDMENT TO SECTION 8. Section 8 of the Royalty Agreement
entitled Duration and Termination is hereby amended in its entirety as
follows:
8. DURATION AND TERMINATION.
(a) This Contract shall terminate at 11:59 p.m. on
August 31, 2001. Upon termination, Rasmusson shall have no
further rights with respect to the PRODUCTS or Additional
Products being sold at that time or to PRODUCTS and Additional
Products which have not previously reverted to Rasmusson.
(b) Prior thereto, this Contract may be terminated by
either party in the event of a breach under or default in the
performance of any material provision, term or condition of
this Contract and the giving of written notice specifying the
alleged breach or default, if the party in breach or default
fails to cure the alleged breach or default within thirty (30)
days of receipt of notice, or fails to commence actions to
cure the breach or default within such thirty (30) days period
and thereafter diligently prosecute and pursue such cure to
completion.
(c) In the event of termination of this Contract as a
result of a default by the Company, the Company will
immediately lose all rights to manufacture, produce and sell
the PRODUCTS and the Additional Products, which rights shall
immediately revert to Rasmusson; provided, however, that the
Company will have the right to sell its inventory of any
completed PRODUCTS and Additional Products manufactured or
produced as of the date of such termination for a period of
ninety (90) days from the date of such termination. The
Company will also immediately lose all rights to use the
KNOW-HOW, will cease using the KNOW-HOW in all respects, and
will transfer all rights pertaining to the KNOW-
2
<PAGE>
HOW back to Rasmusson. The Company will continue to pay
Royalties as provided in this Contract based on the NET SALES
PRICE of PRODUCTS or Additional Products sold by the Company
following the termination of this Contract. The Company will
assign to Rasmusson all patents, trademark registrations,
copyrights and similar intellectual property rights, as well
as all applications therefore, which relate to or are derived
from the PRODUCTS, the Additional Products or the KNOW-HOW;
and Rasmusson will have the right to utilize the KNOW-HOW and
to manufacture and sell the PRODUCTS and the Additional
Products, either on his own account or through such other
persons or entities as he may select.
4. ARBITRATION. Any controversy or dispute arising under the
terms of this Agreement shall be determined by arbitration in
Minneapolis, Minnesota, according to the then current Rules and
Regulations of the American Arbitration Association and the decision of
the arbitrator or arbitrators shall be final and binding upon all
parties and may be entered as a final judgment in any court of competent
jurisdiction. The costs and arbitrators fees of the prevailing party
shall be paid by the non-prevailing party.
5. NOTICES. All notices required under this Agreement shall be
given in writing and shall be sufficiently given if delivered to the
addressee in person or, if mailed, by certified mail, return receipt
requested, and addressed as follows:
<TABLE>
<S> <C>
If to Parent: President
Oxboro Medical International, Inc.
13828 Lincoln Street NE
Ham Lake, Minnesota 55304
If to Company: Oxboro Outdoors, Inc.
c/o The Board of Directors
Oxboro Medical International, Inc.
13828 Lincoln Street NE
Ham Lake, Minnesota 55304
If to Rasmusson: Larry A. Rasmusson
1485 - 139th Lane N.W.
Andover, MN 55304
</TABLE>
Any notice shall be deemed effective (i) when delivered if
delivered personally and (ii) five (5) days after deposit in the mail,
return receipt requested.
All other terms and conditions of the Royalty Agreement, as amended,
shall remain unchanged, subject to future amendment by written agreement of
the parties hereto.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
COMPANY: RASMUSSON:
OXBORO OUTDOORS, INC.
By: /s/ Robert S. Garin /s/ Larry A. Rasmusson
----------------------------- -----------------------------
Its: Chairman of the Board Larry A. Rasmusson
------------------------
PARENT:
Consented and Agreed to this 21st day of _______,1998.
OXBORO MEDICAL INTERNATIONAL, INC.
By: /s/ Robert S. Garin
-----------------------------
Its: Chairman of the Board
-------------------------
4
<PAGE>
SECOND AMENDMENT TO
CONSULTING AGREEMENT
This Second Amendment is made and entered into effective as of the 1st
day of September, 1998 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 negotiated an agreement which
extended the term of Rasmusson's Employment Agreement for an additional
eighteen months through September 30, 1999; Rasmusson and the Company
recently negotiated an agreement which now reduces the term of said
Employment Agreement to September 1, 1998;
WHEREAS, as a condition and in consideration of Rasmusson's agreeing to
reduce the term of his Employment 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 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 or in such other manner and at such 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 consistent in scope and concept with
Rasmusson's
<PAGE>
duties and responsibilities while he was employed by the Company. Upon
such request(s), Consultant shall provide to the Company, through such
officers, directors, employees and other representatives, the benefit of
his experience and knowledge of the business and of his judgment on or
with respect to matters, issues and/or subjects submitted to Consultant
through such requests. Rasmusson may, but shall not be required to,
provide such consulting services in person at the Company's offices.
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.
III. FEES
The first paragraph under Section 4 of the Consulting Agreement, entitled
"Compensation", is hereby superseded and replaced by the following paragraph:
4. FEES. In consideration of the services to be rendered by
Consultant pursuant to this Agreement during the twenty-four (24)
month term hereof, the Company shall pay the Consultant the sum of
Four Hundred Eighty-Five Thousand and No/100 ($485,000.00) Dollars in
twenty-four (24) equal monthly installment payments in the amount of
Twenty Thousand Two Hundred Eight and 33/100 ($20,208.33) Dollars
each, whether or not the Company requests Consultant to provide such
services. Payments shall commence in September, 1998 and shall be
made on the first day in September, 1998 and on the first day of each
month thereafter through August, 2000.
IV. TERMINATION
Section 9 of the Consulting Agreement, entitled "Termination", is hereby
superseded and replaced by the following:
9. TERMINATION. This Agreement shall be terminated upon the second
anniversary of this Agreement or may otherwise be terminated:
(a) by Consultant without cause, for any reason or for no reason,
at any time upon thirty (30) days written notice to the
Company; or
(b) 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-compete
provision hereof is of no further force and effect.
2
<PAGE>
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.
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/ Robert S. Garin
-----------------------------
Its Chairman of the Board
------------------------
3
<PAGE>
FIRST AMENDMENT TO NON-QUALIFIED STOCK OPTION AGREEMENT
This First Amendment to the Oxboro Medical International, Inc.
Non-Qualified Stock Option Agreement dated August 17, 1995, is made and
entered into effective as of the 1st day of September, 1998 between Oxboro,
Medical International, Inc., a Minnesota corporation (the "Company") and
Larry A. Rasmusson ("Rasmusson").
RECITALS
WHEREAS, the Company granted a Stock Option to Rasmusson effective
August 17, 1995 to purchase Eighty Thousand Three Hundred Sixty-Four (80,364)
shares of Common Stock ("Stock") of the Company at a price of $1.50 per share;
WHEREAS, on January 14, 1998 there remained Twenty Thousand Three
Hundred Sixty-Four (20,364) shares of said Stock outstanding under the option;
WHEREAS, on January 14, 1998 the Company and Rasmusson entered into a
Stock Option Exercise and Loan Agreement to effect an exercise of the option
and an acquisition of the Twenty Thousand Three Hundred Sixty-Four (20,364)
shares in consideration of a Secured Promissory Note in the amount of Thirty
Thousand Five Hundred Forty-Six and No/100 Dollars($30,546.00), which shares
were pledged to the Company as security for the Note under an Instruments
Security Agreement dated January 15, 1998;
WHEREAS, the Company and Rasmusson desire to effect a rescission to said
Stock Option Exercise and Loan Agreement, secured Promissory Note and
Instruments Security Agreement;
WHEREAS, the Company and Rasmusson desire to reinstate and amend the
terms of the Non-Qualified Stock Option Agreement as set forth below.
TERMS AND CONDITIONS
NOW, THEREFORE, in consideration of the mutual promises hereinafter
contained, the parties hereto agree as follows:
1. RESCISSION OF THE STOCK OPTION EXERCISE AND LOAN AGREEMENT, SECURED
PROMISSORY NOTE AND INSTRUMENTS SECURITY AGREEMENT. The Company
and Rasmusson hereby rescind in their entirety the Stock Option
Exercise and Loan Agreement, Secured Promissory Note and
Instruments Security Agreement between the Company and Rasmusson,
all dated January 15, 1998. The Twenty Thousand Three Hundred
Sixty-Four (20,364) shares of the Company's Common Stock issued to
Rasmusson pursuant to the Certificate of Common Stock of Oxboro
Medical International, Inc. No. __ shall be and hereby is returned
to the Company duly endorsed by Rasmusson or pursuant to an
Assignment Separate from Certificate. Both the Company and
Rasmusson are hereby relieved from
<PAGE>
any and all obligation, duties and responsibilities under said
Stock Option Exercise and Loan Agreement, Secured Promissory Note
and Instruments Security Agreement.
2. TERM OF OPTION. This Option must be exercised, if at all, and to
the extent exercised, on or before March 31, 1999.
3. EXERCISE OF OPTION. This Option may be exercised either by payment
in full in cash, by certified or cashier's check or, by the
transfer to the Company of shares of Stock already owned by
Rasmusson and having a fair market value, as of the date of the
exercise of the this Option, which is not less than the purchase
price of the Stock being acquired pursuant to the Option provided
that such shares of Stock were acquired and full consideration paid
therefore at least six (6) months prior to such delivery or by
execution of an interest-free Promissory Note by Rasmusson in the
amount of Thirty Thousand Five Hundred Forty-Six and No/100 Dollars
($30,546.00) which Note shall be payable in full on or before
September 1, 2000. If the Option is exercised by the execution of
a Promissory Note, in the form attached hereto as Exhibit 1, then
the Note shall be secured by any and all payments due to Rasmusson
by the Company. If the Note is not paid in full on or before
September 1, 2000, then the Company may apply any and all amounts
due and owing to Rasmusson at such time to payment of the Note.
Further, the shares shall be held as additional collateral for
payment of the Note; however, Rasmusson may vote the shares while
such shares are being held as collateral by the Company. Such
shares shall be held as collateral pursuant to an Instruments
Security Agreement in the form attached hereto as Exhibit 2. All
other terms and conditions of the Option remain unchanged and are
in full force and effect.
OXBORO MEDICAL INTERNATIONAL, INC.
By: /s/ Robert S. Garin
---------------------------------
Its: Chairman of the Board
----------------------------
RASMUSSON
/s/ Larry A. Rasmusson
-------------------------------------
Larry A. Rasmusson
2
<PAGE>
FIRST AMENDMENT TO NON-QUALIFIED STOCK OPTION AGREEMENT
(CURRENT)
This First Amendment to the Oxboro Medical International, Inc.
Non-Qualified Stock Option Agreement dated October 1, 1997 (Current Option"),
is made and entered into effective as of the 1st day of September, 1998
between Oxboro, Medical International, Inc., a Minnesota corporation (the
"Company") and Larry A. Rasmusson ("Rasmusson").
RECITALS
WHEREAS, the Company granted a Stock Option to Rasmusson effective
October 1, 1997 to purchase One Hundred Thousand (100,000) Shares of Common
Stock ("Stock") of the Company at a price of $1.00 per share;
WHEREAS, on January 14, 1998 the Company and Rasmusson entered into a
Stock Option Exercise and Loan Agreement to effect an exercise of the Option
and an additional option for an additional One Hundred Thousand (100,000)
Shares of Common Stock of the Company and an acquisition of Shares in
consideration of a Secured Promissory Note in the amount of Two Hundred
Thousand Dollars ($200,000), which Shares were pledged to the Company as
security for the Note under an Instruments Security Agreement dated January
15, 1998;
WHEREAS, the Company and Rasmusson desire to effect a rescission to said
Stock Option Exercise and Loan Agreement, secured Promissory Note and
Instruments Security Agreement;
WHEREAS, the Company and Rasmusson desire to reinstate and amend the
terms of the Non-Qualified Stock Option Agreement as set forth below.
TERMS AND CONDITIONS
NOW, THEREFORE, in consideration of the mutual promises hereinafter
contained, the parties hereto agree as follows:
1. RESCISSION OF THE STOCK OPTION EXERCISE AND LOAN AGREEMENT, SECURED
PROMISSORY NOTE AND INSTRUMENTS SECURITY AGREEMENT. The Company and
Rasmusson hereby rescind in their entirety the Stock Option Exercise
and Loan Agreement, Secured Promissory Note and Instruments Security
Agreement between the Company and Rasmusson for the purchase of said
Two Hundred Thousand (200,000) Shares of Stock, all dated January 15,
1998. The One Hundred Thousand (100,000) shares of the Company's
Common Stock issued to Rasmusson under the above-referenced Current
Option and pursuant to the Certificate of Common Stock of Oxboro
Medical International, Inc. No. __ shall be and hereby is returned to
the Company duly endorsed by Rasmusson or pursuant to an Assignment
Separate from Certificate. Both the Company and Rasmusson are hereby
relieved from any and all obligation, duties and
<PAGE>
responsibilities under said Stock Option Exercise and Loan
Agreement, Secured Promissory Note and Instruments Security
Agreement.
2. TERM OF OPTION. This Option must be exercised, if at all, and to
the extent exercised, on or before March 31, 1999.
3. EXERCISE OF OPTION. This Option may be exercised either by payment
in full in cash, by certified or cashier's check or, by the
transfer to the Company of shares of Stock already owned by
Rasmusson and having a fair market value, as of the date of the
exercise of the this Option, which is not less than the purchase
price of the Stock being acquired pursuant to the Option provided
that such shares of Stock were acquired and full consideration paid
therefore at least six (6) months prior to such delivery or by
execution of an interest-free Promissory Note by Rasmusson in the
amount of One Hundred Thousand Dollars ($100,000) which Note shall
be payable in full on or before September 1, 2000. If the Option
is exercised by the execution of a Promissory Note, in the form
attached hereto as Exhibit 1, then the Note shall be secured by any
and all payments due to Rasmusson by the Company. If the Note is
not paid in full on or before September 1, 2000, then the Company
may apply any and all amounts due and owing to Rasmusson at such
time to payment of the Note. Further, the shares shall be held as
additional collateral for payment of the Note; however, Rasmusson
may vote the shares while such shares are being held as collateral
by the Company. Such shares shall be held as collateral pursuant
to an Instruments Security Agreement in the form attached hereto as
Exhibit 2.
All other terms and conditions of the Option remain unchanged and are in
full force and effect.
OXBORO MEDICAL INTERNATIONAL, INC.
By: /s/ Robert S. Garin
----------------------------------
Its: Chairman of the Board
------------------------------
RASMUSSON
/s/ Larry A. Rasmusson
---------------------------------------
Larry A. Rasmusson
2
<PAGE>
MUTUAL RELEASE & NONCOMPETITION AGREEMENT
This Mutual Release & Noncompetition Agreement ("Agreement") is entered
into effective the 1st day of September, 1998, by and between Larry A.
Rasmusson ("Rasmusson") and Oxboro Medical International, Inc. ("Company").
RECITALS
A. Rasmusson is the Chief Executive Officer and Chief Financial
Officer of the Company and is the President, Treasurer and Secretary of
Oxboro Outdoors, Inc. ("Outdoors"), a wholly owned subsidiary of Company.
The Company, Outdoors and Rasmusson have entered into the following
agreements:
1. An Employment Agreement between the Company and Rasmusson dated
April 1, 1993, as amended ("Employment Agreement");
2. A Consulting Agreement between the Company and Rasmusson dated
November 1, 1995, as amended ("Consulting Agreement");
3. An Exclusive License Agreement between the Company and Rasmusson
dated effective as of April 1, 1990, as amended ("License Agreement");
4. An Exclusive License and Royalty Agreement between Outdoors and
Rasmusson dated effective as of April 17, 1993, as amended ("Royalty
Agreement");
5. A Non-Qualified Stock Option from the Company to Rasmusson
effective August 17, 1995 for 80,364 shares, of which 20,364 shares
remained unexercised on January 14, 1998;
6. A Stock Option Exercise and Loan Agreement, a Secured Promissory
Note and Instruments Security Agreement between the Company and Rasmusson
with respect to said 20,364 shares dated January 15, 1998;
<PAGE>
7. Two Non-Qualified Stock Options from the Company to Rasmusson
dated October 1, 1997, each for 100,000 shares, which options were
exercised on January 15, 1998; and
8. A Stock Option Exercise and Loan Agreement, Secured Promissory
Note and Instruments Security Agreement between the Company and Rasmusson
with respect to said 200,000 shares dated January 15, 1998.
B. The Employment Agreement, as amended, terminates as of October 1,
1999. The Company and Rasmusson desire to effect an earlier termination date
of the Employment Agreement as provided herein.
C. The Consulting Agreement is to take effect on and as of the
effective date of the termination of the Employment Agreement. The Company
and Rasmusson desire to effect an amendment to the Consulting Agreement as
provided herein.
D. Company and Rasmusson desire the License Agreement, as previously
amended, to continue in full force and effect and remain unchanged and
unaffected by this Agreement.
E. Outdoors and Rasmusson desire to further amend the Royalty
Agreement as provided herein.
F. Company and Rasmusson desire to rescind the Stock Option Exercise
and Loan Agreement, Secured Promissory Note and Instruments Security
Agreement for the 20,364 shares as provided herein.
G. Company and Rasmusson desire to rescind the Stock Option Exercise
and Loan Agreement, the Secured Promissory Note and the Instruments Security
Agreement which relate to the two 100,000 share Non-Qualified Stock Option
Agreements, and to rescind one of said
2
<PAGE>
Non-Qualified Stock Option Agreements and to revise the remaining
Non-Qualified Stock Option Agreement, as provided herein.
H. In addition to the above, Rasmusson and Company wish to resolve any
and all claims arising out of or having to do with Rasmusson's employment by
the Company and/or Outdoors and/or serving the Company and Outdoors as an
officer, director, consultant, agent or representative. Both Rasmusson and
Company hereby specifically agree and acknowledge that good and sufficient
consideration exists for the terms and conditions of this Mutual Release &
Noncompetition Agreement as set forth below.
TERMS AND CONDITIONS
The parties hereto agree as follows:
1. EMPLOYMENT AGREEMENT. Effective as of 12:01 a.m., September 1,
1998, the Employment Agreement is and shall be terminated, including, but not
limited to, the First, Second and Third Amendments to the Employment
Agreements, whereupon the 360,000 shares of Common Stock of the Company
issued to Rasmusson in Escrow pursuant to the Third Amendment shall be
endorsed over to the Company by Rasmusson and shall be cancelled by the
Company. However, Section III entitled "Covenant Not to Compete" and Section
IV entitled "Confidential Nature of the Company's Business - Non-Disclosure"
in the Employment Agreement shall continue in full force and effect for a
period of twenty-four (24) months from and after September 1, 1998; however,
if Harley Haase is employed, engaged or retained, directly or indirectly, by
the Company during said 30 month period, then the remaining term of such
Covenant Not to Compete shall be waived. Further, Rasmusson may keep a copy
of memos and other written correspondence written by and to him subject to
the above-referenced confidentiality obligation. In consideration of the
early termination of the Employment
3
<PAGE>
Agreement, and in consideration of the non-disclosure and noncompete
provisions, the Company shall pay to Rasmusson $150,000.00 in twenty-four
(24) equal monthly installments of $6,250.00 beginning September, 1998. The
Company shall make these monthly payments to Rasmusson by placing a check in
the United States mail on the first payroll date of every month during this
twenty-four-month period, so long as Rasmusson is not in violation of any of
the terms and conditions of said Sections III and/or IV of the Employment
Agreement, as amended. The Company's obligation to Rasmusson hereunder shall
be secured by a second mortgage on the Company's land and building located at
13828 Lincoln Street N.E., Ham Lake, Minnesota. Until the payment
obligations set forth in Paragraphs 1 and 2 hereof have been fulfilled, the
combined total of the unpaid balances secured by the first mortgage and the
second mortgage cannot exceed an amount equal to 80% of the fair market value
of land and building described in said mortgages. The fair market value
shall be determined by an appraiser appointed or selected by the first
mortgagee; however, if Rasmusson disagrees with such appraised value, then he
shall appoint or select a second appraiser in a timely manner, and the fair
market value shall be the average of the two appraisals. After January 1,
2000, if the Company desires to refinance the subject property while there
are unpaid installments, the Company may, subject to Rasmusson's prior
written consent, prepay the unpaid installments or provide substitute
collateral reasonably satisfactory to Rasmusson]. Until September 1, 1998,
Rasmusson shall continue to be paid his full salary and normal benefits under
the terms of the Employment Agreement.
2. CONSULTING AGREEMENT. The Consulting Agreement shall be amended
effective as of the date of this Mutual Release & Noncompetition Agreement to
reduce the term of the Consulting Agreement to twenty-four (24) months, which
twenty-four (24) month period shall commence on the effective date of this
Mutual Release & Noncompetition Agreement. In
4
<PAGE>
consideration of Rasmusson agreeing to reduce the term of the Consulting
Agreement and the performance of his obligations thereunder, the Company
hereby agrees to pay Rasmusson consulting fees in a total amount of
$485,000.00, which shall be paid in twenty-four (24) equal monthly
installments of $20,208.33. The payment of such installments shall commence
September 1998, and shall be paid on the first date of each of said
twenty-four (24) months. After January 1, 2000, if the Company desires to
refinance the subject property while there are unpaid installments, the
Company may, subject to Rasmusson's prior written consent, prepay the unpaid
installments or provide substitute collateral reasonably satisfactory to
Rasmusson. Rasmusson shall not be required to devote more than five (5) days
per month of consulting services to the Company. The Consulting Agreement
shall be amended pursuant to the terms of Exhibit A attached hereto and made
a part hereof consistent with the terms set forth above. The Company's
obligation to Rasmusson hereunder shall also be secured by a second mortgage
on the Company's land and building located at 13828 Lincoln Street N.E., Ham
Lake, Minnesota.
3. LICENSE AGREEMENT. The License Agreement shall be amended
effective as of the date of this Mutual Release & Noncompetition Agreement to
provide that the Company has forty-five (45) days to accept or reject
products submitted by Rasmusson to the Company as more particularly set forth
in the Second Amendment to the License Agreement attached hereto as Exhibit B.
4. ROYALTY AGREEMENT. The Royalty Agreement shall be amended
effective as of the date of this Mutual Release & Noncompetition Agreement
(i) to rescind the Third Amendment to the Royalty Agreement dated February
25, 1998, (ii) to return the 150,000 shares of Common Stock of the Company
issued to Rasmusson in escrow pursuant to said Third Amendment, which shares
shall thereupon be cancelled by the Company, (iii) to provide for a
5
<PAGE>
termination date of the Royalty Agreement at 11:59 p.m. on August 31, 2001,
and (iv) to revise the Royalty schedule, all as more particularly set forth
in the Fourth Amendment to the Royalty Agreement attached hereto as Exhibit C.
5. STOCK OPTION EXERCISE AND LOAN AGREEMENTS. The Stock Option
Exercise and Loan Agreements, one for 20,364 shares of Common Stock of the
Company and the other for 200,000 shares of Common Stock of the Company, both
dated January 15, 1998, are hereby rescinded. The Secured Promissory Notes
("Notes"), one in the amount of $30,546 and the other in the amount of
$200,000, and the accompanying Instruments Security Agreements for each of
the respective Notes, all dated January 15, 1998 are hereby rescinded,
including accrual of interest. Rasmusson shall have no obligations under said
documents other than to execute Assignments Separate from Certificate with
respect to said shares of Common Stock in the form attached hereto as Exhibit
D, whereupon said certificates shall be returned to and cancelled by the
Company.
6. DEFERRED NON-QUALIFIED STOCK OPTION. The Deferred Non-Qualified
Stock Option granted by the Company to Rasmusson on October 1, 1997 for
100,000 shares of Common Stock of the Company is hereby terminated.
7. REMAINING NON-QUALIFIED STOCK OPTIONS. The Non-Qualified Stock
Option granted by the Company to Rasmusson on August 17, 1995 for 80,364
shares of Common Stock of the Company shall be amended as of the date of the
Mutual Release & Noncompetition Agreement with respect to the remaining
option for 20,364 shares of Common Stock to provide that the option must be
exercised on or before March 31, 1999 by payment in cash or by execution of
an interest-free promissory note in the amount of the price secured by the
payments
6
<PAGE>
due to Rasmusson from the Company, all as more particularly set
forth in the First Amendment to the Non-Qualified Stock Option Agreement
attached hereto as Exhibit E.
The Current Non-Qualified Stock Option granted by the Company to
Rasmusson on October 1, 1997 for 100,000 shares of Common Stock of the
Company shall be amended as of the date of this Mutual Release &
Noncompetition Agreement to provide that the option must be exercised on or
before March 31, 1999 by payment in cash or by execution of an interest-free
promissory note in the amount of the option price secured by the payments due
to Rasmusson from the Company, all as more particularly set forth in the
First Amendment to the Current Non-Qualified Stock Option Agreement attached
hereto as Exhibit F.
8. TRANSITION PERIOD. During the period not to exceed three months
beginning on the date of the termination of Rasmusson's employment with the
Company on September 1, 1998 and ending on November 30, 1998 (the
"Termination Period"), Rasmusson shall be available to the Company on an as
reasonably-requested basis to assist the Company with its management
transition and such requested services shall be consistent in scope and
concept with Rasmusson's duties and responsibilities while he was employed by
the Company; however, such services shall not be deemed to be consulting
services as described in Section 2 hereof, and such transition services shall
be billed separately. Rasmusson shall be paid a daily fee of $1,079 for an
8-hour day in which he performs such transition services for the Company, at
Company's request. It is anticipated that Rasmusson will be requested to
work 4 to 5 days a week for the first few weeks, 3 to 4 days a week for the
next few weeks and 1 to 2 days a week thereafter. Rasmusson shall submit a
statement to the Company for the number of whole days worked no less often
than once a month and no more often than once every two weeks. Rasmusson
shall be paid within five business days after the Company's receipt of such
statement. If Rasmusson
7
<PAGE>
moves out of his residence in Andover prior to the expiration of the
Transition Period, then the Company shall reimburse Rasmusson for room and
board in an amount not to exceed $150.00 per day. Rasmusson shall report to
and take direction from the CEO in performing such services.
9. PAYMENT FOR UNUSED VACATION. Company agrees to pay Rasmusson for
his unused and accrued vacation existing as of and paid on September 1, 1998.
The amount paid to Rasmusson for his unused and accrued vacation shall be
determined by multiplying the number of such unused and accrued vacation days
by $1,079.00.
10. MEDICAL AND DENTAL INSURANCE COVERAGE. Company agrees to pay for
and maintain medical and dental coverage provided under Company's group
medical and dental plan whether as continuation coverage or conversion to
individual coverage, as provided under the terms of the plans as amended from
time to time, at the same percentage of the total cost for such benefits and
on the same terms that the Company provided to Rasmusson and his eligible
dependents immediately prior to his termination, until Rasmusson reaches the
age of 65, on April 3, 2008, so long as he is retired and not eligible for
medical coverage from another employer or, if married, through his spouse's
employer. Currently, the Company pays its portion of approximately $105.40 a
month for Rasmusson as a single person, and Rasmusson shall continue to pay
his portion of approximately $28.00 per month. If during the term of
coverage as set forth herein Rasmusson is or becomes married, then the
Company's portion shall be the percentage of the premium the Company would
pay for a married employee at such time, and Rasmusson's portion shall be the
remainder.
11. SPLIT-DOLLAR LIFE INSURANCE. The Company shall terminate the one
million dollar split-dollar life insurance policy contracted for on
Rasmusson's life through New England Financial, Policy No. YO 23910 and
Rasmusson shall not be required to pay any premium with
8
<PAGE>
respect to said policy in calendar year 1998 or thereafter. Any cash value
on such policy shall accrue to the Company. With respect to the two $500,000
split-dollar life insurance policies on Rasmusson's life contracted for
through New England Financial, Policy Nos. 8681808 and 8731790, those two
policies shall be maintained by the Company for so long as Rasmusson pays and
maintains his portion of the monthly premiums on said policies in a timely
manner, currently in the approximate annual amount of $1,800. If the Company
fails to maintain payments and/or terminates either or both of said policies
or if the policies cancel or terminate for any reason other than Rasmusson's
death, Rasmusson shall receive all of the cash value and/or termination
value, including Rasmusson's and the Company's shares, respectively, with
respect to said policies pursuant to the records of New England Financial.
Upon Rasmusson's death, the benefits under said maintained policies shall be
paid out according to the terms of said policies.
12. ESOP SHARES. Rasmusson shall, pursuant to the ESOP Plan, as
amended, maintain the ESOP shares attributable to him prior to the current
plan year as part of the Company's Employee Stock Ownership Plan, which
currently amount to approximately 10,869 shares. In consideration of the
transfer of the 18 1/2 foot Alumacraft boat, 175 horse and 9.9 horse Mercury
motors, electronics and accessories, and Spartan Trailer to Rasmusson by or
through the Company, Rasmusson hereby releases and waives any right, title
and/or interest in and to the ESOP shares attributable or that would have
been attributable to Rasmusson in the current plan year.
13. RASMUSSON'S RELEASE OF COMPANY. For good and valuable
consideration, but not limited to, the mutual agreements set forth in this
Agreement, the receipt and sufficiency of which consideration Rasmusson
expressly acknowledges, Rasmusson, for himself and for each of his heirs,
executors, administrators, insurers, employers, attorneys, agents,
successors, and
9
<PAGE>
assigns, hereby releases and forever discharges Company, and each of its
parent and subsidiary corporations, affiliates, predecessors, successors,
assigns, insurers, indemnitors, directors, officers, attorneys, employees,
agents and representatives, of and from any and all past and present claims,
demands, liabilities, judgments, and causes of action, at law or in equity,
known or unknown, asserted or unasserted, liquidated or unliquidated,
absolute or contingent, accrued or not accrued, which Rasmusson ever had,
presently has, claims to have, or claims to have had against Company and its
directors as of the effective date of this Agreement, including, without
limitation, any claims for payment of wages and commissions; claims for
discrimination under the Age Discrimination in Employment Act (the "ADEA"),
Title VII of the Civil Rights Act of 1964, as amended, the Americans with
Disabilities Act, the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), the Minnesota Human Rights Act or other federal, state or
local civil rights laws based on age or any other protected status; claims
for breach of contract; breach of fiduciary duty; fraud or misrepresentation;
unpaid wages and benefits; unpaid sick or vacation pay; defamation;
intentional or negligent infliction of emotional distress; breach of a
covenant of good faith and fair dealing; promissory estoppel; negligence;
hostile work environment; wrongful termination of employment; any other
claims for unlawful employment practices; or under any other theory, whether
legal or equitable, that arose prior to the effective date of this Agreement.
Notwithstanding the foregoing, this release specifically excludes any claims
Rasmusson may have against the Company for violations of federal and state
securities laws as determined by a court of competent jurisdiction and
excludes any and all claims or demands Rasmusson may have against the Company
or Outdoors for the indemnification of any claims made under Minn. Stat.
Section 302A.521 or Minn. Stat. Section 181.970. This exception to
Rasmusson's release is intended to fully and completely preserve and protect
Rasmusson's rights
10
<PAGE>
to indemnification to the extent provided to him under Minnesota or Federal
law, whether such claims are raised by shareholders, employees, governmental
agencies, or any other person or entity.
14. COMPANY'S RELEASE OF RASMUSSON. For good and valuable
consideration, including, but not limited to, the mutual agreements set forth
in this Agreement, the receipt and sufficiency of which consideration the
Company and Outdoors expressly acknowledge, the Company and Outdoors, for
themselves and for each of their respective subsidiaries, parents,
affiliates, predecessors, successors, assigns, insurers, indemnitors,
directors, attorneys, officers, agents and representatives, hereby release
and forever discharge Rasmusson his heirs, executors, administrators,
insurers, employers, attorneys, agents, successors, and assigns of and from
any and all past and present claims, demands, liabilities, judgments, and
causes of action, at law or in equity, known or unknown, asserted or
unasserted, liquidated or unliquidated, absolute or contingent, accrued or
not accrued, direct, indirect, or derivative, which the Company and/or
Outdoors ever had, presently have, claim to have, or claim to have had
against Rasmusson as of the date this Agreement is executed, but excluding
any claims the Company may have against Rasmusson for violations of federal
and state securities laws as determined by a court of competent jurisdiction
and excluding eligibility issues under Minn. Stat. Section 302A.251, subd. 4;
however, until such time that a court of competent jurisdiction has
determined that Rasmusson has violated federal and/or state securities laws,
the Company shall hold Rasmusson harmless and indemnify and defend Rasmusson,
subject to the Company's claim for reimbursement for any and all costs, fees
and expenses attributable to Rasmusson in the event of a determination of
violations by a court of competent jurisdiction. The Company hereby
indemnifies and holds Rasmusson harmless from and against any and all claims
by employees of the Company and
11
<PAGE>
Outdoors arising prior to the effective date of this Agreement; however, such
indemnification and hold harmless obligation shall not apply to claims
against Rasmusson for acts or failure to act which are outside the scope of
Rasmusson's authority as an officer and/or director of the Company and/or
Outdoors.
15. NON-DISPARAGEMENT AGREEMENT. Both Rasmusson and the Company agree
that they shall make no defamatory (untrue) statements concerning each other
to any person, firm, entity, or governmental entity. Any statement made,
given or communicated to any governmental or regulatory entity must
immediately be communicated to the other party thereto. Any truthful
statement made, given or communicated to any governmental entity shall not be
deemed to be disparaging.
16. CONFIDENTIALITY. Rasmusson and the Company agree not to disclose
the terms of this Agreement to any person who is not a director, officer, or
attorney of the parties; provided, however, that the terms of this Agreement
may be disclosed as necessary to satisfy any ordinary tax and accounting
reporting requirements or any regulatory requirement, including, but not
limited to, the requirements of the SEC, NASD or IRS, or if under oath or
subpoena; however, Rasmusson may disclose the general terms and conditions of
this Agreement to a prospective employer or consulting client with prior
written notice if possible, if not then within twenty-four (24) hours after
such disclosure, to the Company and after obtaining an agreement of
confidentiality with respect to such information from the prospective
employer or client, substantially in the form attached as Exhibit G.
17. MAINTENANCE OF OTHER AGREEMENTS. The Company and Rasmusson agree
that the Royalty Sharing Agreement dated November 21, 1995 ("Royalty Sharing
Agreement") between and among the Company, Rasmusson, Outdoors and Haase, and
the Consulting and
12
<PAGE>
Royalty Sharing Agreement effective October 9, 1996 between and among
Outdoors, Rasmusson and Ralph Jon Fritz, as amended, shall remain in full
force and effect according to their terms, and that no party hereto is
waiving or releasing any claims under either of these agreements. The breach
by Rasmusson of any of the maintained agreements shall not be deemed to be a
breach of this Agreement, and such breach shall be governed by the terms and
conditions of the agreement under which the breach arises.
18. RASMUSSON NONRELIANCE. Rasmusson warrants and represents that he
has consulted with his attorneys regarding the effect of this Agreement, and
that he has executed this Agreement fully aware of its content, purpose and
effect, based upon his sole judgment, belief and knowledge, and upon advice
of his own attorneys, and that he is not relying on representations or
statements made by the Company or by anyone representing the Company, other
than those specifically set forth in this Agreement.
19. COMPANY NONRELIANCE. The Company warrants and represents that it
has consulted with its attorneys regarding the effect of this Agreement, and
that it has executed this Agreement fully aware of its content, purpose and
effect, based upon its sole judgment, belief and knowledge, and upon advice
of its own attorneys, and that it is not relying on representations or
statements made by Rasmusson or by anyone representing Rasmusson, other than
those specifically set forth in this Agreement.
20. NO ADMISSION OF LIABILITY. Each of the parties to this Agreement
agree that neither its content nor its or his entry into this Agreement is to
be construed as an admission of liability by it or him, and that each of them
expressly denies any such liability.
21. GOVERNING LAW. The parties of this Agreement agree that the
interpretation and effect of this Agreement shall be governed by the laws of
the State of Minnesota.
13
<PAGE>
22. JURISDICTION. The parties to this Agreement hereby consent to the
jurisdiction of the District Court, Fourth Judicial District, County of
Anoka, State of Minnesota, for the enforcement of any and all provisions of
this Agreement, both now or in the future.
23. INTERPRETATION. Should any of the provisions of this Agreement
require judicial interpretation, it is agreed that the court interpreting or
construing the same shall not apply a presumption that the terms of this
Agreement shall be more strictly construed against one or more parties hereto
by reason of the rule of construction that a document is to be construed more
strictly against the party who prepared the document, it being acknowledged
and agreed that all of the parties and their attorneys have participated in
the preparation and review of this Agreement.
24. COMPLETE AGREEMENT. The parties to this Agreement each agree that
this Agreement, including the exhibits hereto, contains the entire agreement
between them, and supersedes all prior or contemporaneous agreements and
understandings, oral or written, between the parties hereto as of the date
hereof regarding the matters described herein.
25. MODIFICATIONS AND WAIVERS. No term or provision of this Agreement
may be varied, changed, modified, waived or terminated orally, but only by an
instrument in writing signed by the party against whom the enforcement of the
variation, change, modification, waiver or termination is sought. The waiver
by any party hereto of any breach of any provision of this Agreement shall
not constitute or operate as a waiver of any other breach of such provisions
or of any other provision hereof, nor shall any failure to enforce any
provision hereof operate as a waiver at such time or at any future time of
such provision or of any other provision hereof.
14
<PAGE>
26. NOTICE. Any notice required or permitted hereunder shall be in
writing and shall be deemed to have been given, if mailed, registered or
certified, postage prepaid, on the date posted, or if personally delivered,
when addressed and delivered to the address indicated below:
TO RASMUSSON:
Mr. Larry A. Rasmusson
1485 - 139th Lane N.W.
Andover, MN 55304
WITH COPY TO:
(ATTORNEY FOR LARRY A. RASMUSSON)
TO OXBORO:
Chairman of the Board of Directors
Oxboro Medical International, Inc.
13828 Lincoln Street N.E.
Ham Lake, MN 55304
WITH COPY TO:
Thomas Judd
Moss & Barnett, P.A.
4800 Norwest Center
Minneapolis, MN 55402
27. COMPANY AUTHORITY. The Company represents and warrants that the
undersigned representative is duly authorized to execute this Agreement on
its behalf and to bind it to the terms of this Agreement.
28. EXECUTION IN COUNTERPARTS. This Agreement may be signed in any
number of counterparts, with the same effect as if the signature thereto were
upon the same instrument. Complete sets of counterparts shall be lodged with
and delivered to each party to this Agreement.
29. RASMUSSON RESCISSION RIGHTS. Mr. Rasmusson understands that he has
been given a period of 21 days to review and consider this Agreement before
signing it. Mr.
15
<PAGE>
Rasmusson further understands that he may use as much or as little of this
21-day periods Mr. Rasmusson wishes prior to signing it. Rasmusson may
rescind this Agreement within fifteen (15) calendar days after his execution
of this Agreement. To be effective, the rescission must be in writing, and
delivered to the Company by hand or mail within the 15-day period. If
delivered by mail, the rescission must be (1) postmarked within the 15-day
period; (2) properly addressed to the persons set forth in paragraph 28
above; and (3) sent by certified mail, return receipt requested. If
Rasmusson exercises his right of rescission, he agrees to return to the
Company all payments that may have been made to him under this Agreement,
with the exception of any vacation pay.
30. NON-RELEASE OF FUTURE CLAIMS. This Agreement does not waive or
release any rights or claims that Rasmusson may have under the Minnesota
Human Rights Act or the Age Discrimination in Employment Act, or any of the
Company's benefit plans, which arise after Rasmusson signs this Agreement, or
which arise out of acts occurring after he signs this Agreement.
/s/ Larry A. Rasmusson
- --------------------------------- ---------------------------------
Dated: Sept. 21 , 1998. Larry A. Rasmusson
------------------
- ---------------------------------
OXBORO MEDICAL INTERNATIONAL, INC.
- --------------------------------- By /s/ Robert S. Garin
-------------------------------
Dated: 27 Aug. , 1998. Its Chairman of the Board
------------------ -------------------------
- ---------------------------------
- ---------------------------------
OXBORO OUTDOORS, INC.
Dated: 27 Aug. , 1998 By /s/ Robert S. Garin
------------------ -------------------------------
Its Chairman of the Board
-------------------------
16
<PAGE>
OXBORO MEDICAL INTERNATIONAL, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
January 28, 1998
Dear Mr. Garin:
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 $1.25 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 $1.25 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 January 29,
2003.
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 Jan. 28, 1998.
-------
/s/ Robert S. Garin
------------------------------
Robert S. Garin
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 January 28, 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: _______________, 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 January
28, 1998.
___________________________________
Optionee
4
<PAGE>
OXBORO MEDICAL INTERNATIONAL, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
March 20, 1998
Dear Mr. Sayer:
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 $2.00 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 $2.00 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 March 21, 2003.
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 Feb. 20, 1998.
-------
/s/ John Sayer
---------------------------------------
John Sayer
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 March 20, 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: _______________, 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 March 20,
1998.
________________________________________
Optionee
4
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1998, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<CASH> 70,125
<SECURITIES> 0
<RECEIVABLES> 740,822
<ALLOWANCES> 23,808
<INVENTORY> 1,926,925
<CURRENT-ASSETS> 2,920,469
<PP&E> 2,258,443
<DEPRECIATION> 1,015,809
<TOTAL-ASSETS> 4,578,383
<CURRENT-LIABILITIES> 1,259,098
<BONDS> 0
0
0
<COMMON> 24,386
<OTHER-SE> 2,812,858
<TOTAL-LIABILITY-AND-EQUITY> 4,578,383
<SALES> 5,002,489
<TOTAL-REVENUES> 5,002,489
<CGS> 2,623,271
<TOTAL-COSTS> 2,623,271
<OTHER-EXPENSES> 3,801,497
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 55,916
<INCOME-PRETAX> (1,453,544)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,453,544)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,453,544)
<EPS-PRIMARY> (.52)
<EPS-DILUTED> (.52)
</TABLE>
