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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For quarterly period ended January 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___ to ____
Commission File Number 0-13907
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BIO-VASCULAR, INC.
(Exact name of Registrant as specified in its charter)
State of Incorporation: Minnesota
I.R.S. Employer Identification No.: 41-1526554
Principal Executive Offices: 2575 University Avenue
St. Paul, Minnesota 55114
Telephone Number: (612) 603-3700
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
On February 28, 1998, there were 9,355,972 shares of the Registrant's common
stock, par value $.01 per share, outstanding.
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
BIO-VASCULAR, INC.
CONDENSED BALANCE SHEETS
AS OF JANUARY 31, 1998 AND OCTOBER 31, 1997
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<TABLE>
<CAPTION>
January 31, October 31,
1998 1997
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ..................................... $ 1,560,184 $ 6,766,687
Marketable securities, short-term ............................. 10,159,651 7,229,934
Accounts receivable, net ...................................... 1,792,001 1,846,519
Inventories ................................................... 1,686,142 1,619,395
Deferred income taxes ......................................... 177,254 144,549
Other ......................................................... 711,872 480,955
------------ ------------
Total current assets ....................................... 16,087,104 18,088,039
Equipment and leasehold improvements, net ..................... 1,725,529 1,670,446
Intangible assets, net ........................................ 950,760 1,003,251
Marketable securities, long-term .............................. 4,754,521 3,989,896
Deferred income taxes ......................................... 484,676 382,819
------------ ------------
Total Assets ............................................... $ 24,002,590 $ 25,134,451
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable .............................................. $ 641,001 $ 616,941
Accrued expenses .............................................. 505,329 565,275
------------ ------------
Total current liabilities .................................. 1,146,330 1,182,216
------------ ------------
Shareholders' Equity:
Preferred stock: authorized 5,000,000 shares of $.01 par value;
none issued or outstanding at January 31, 1998 and
October 31, 1997 ............................................ -- --
Common stock: authorized 20,000,000 shares of $.01 par value;
issued and outstanding, 9,361,937 at January 31, 1998 and
9,563,609 at October 31, 1997 ............................... 93,619 95,636
Additional paid-in capital .................................... 28,865,376 29,664,715
Unearned compensation ......................................... (538,059) (447,254)
Unrealized marketable securities holding gain ................. 2,389 1,288
Accumulated deficit ........................................... (5,567,065) (5,362,150)
------------ ------------
Total shareholders' equity ................................. 22,856,260 23,952,235
------------ ------------
Total Liabilities and Shareholders' Equity ................. $ 24,002,590 $ 25,134,451
============ ============
</TABLE>
The accompanying notes are an integral part of the interim unaudited financial
statements.
2
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BIO-VASCULAR, INC.
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JANUARY 31, 1998 AND 1997
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<TABLE>
<CAPTION>
Three Months Ended
January 31,
(unaudited)
1998 1997
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<S> <C> <C>
Net revenue ................................................ $ 2,462,554 $ 2,325,442
Cost of revenue ............................................ 1,038,220 1,004,040
----------- -----------
Gross margin ............................................... 1,424,334 1,321,402
Operating expenses:
Selling, general, and administrative ....................... 1,512,768 1,176,180
Research and development ................................... 464,867 213,684
----------- -----------
Operating loss ............................................. (553,301) (68,462)
Other income, net .......................................... 245,820 282,020
----------- -----------
Income (loss) from continuing operations before income taxes (307,481) 213,558
Provision for (benefit from) income taxes .................. (102,566) 89,000
----------- -----------
Income (loss) from continuing operations ................... (204,915) 124,558
Loss from operations of discontinued business, net of income
tax benefit ............................................. -- --
----------- -----------
Net income (loss) .......................................... $ (204,915) $ 124,558
=========== ===========
Basic and diluted earnings per share:
Continuing operations ...................................... $ (.02) $ .01
Discontinued operations .................................... -- --
----------- -----------
Net income (loss) .......................................... $ (.02) $ .01
=========== ===========
</TABLE>
The accompanying notes are an integral part of the interim unaudited financial
statements.
3
<PAGE>
BIO-VASCULAR, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JANUARY 31, 1998 AND 1997
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Three Months Ended
January 31,
(unaudited)
1998 1997
----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES ..................................... $ (412,764) $ 228,317
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment and improvements ............ (151,958) (238,478)
Purchase of intangibles .......................... (12,823) (29,235)
Investments in marketable securities .............. (5,687,293) --
Maturities of marketable securities ............... 2,000,000 --
Discontinued operations, net ...................... -- (1,845,788)
----------- -----------
Net cash used in investing activities ............. (3,852,074) (2,113,501)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds related to stock options, employee
stock purchase plan
and restricted stock ............................ 20,872 115,575
Purchase of common stock .......................... (962,537) --
----------- -----------
Net cash provided by (used in) financing activities (941,665) 115,575
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS ......... (5,206,503) (1,769,609)
----------- -----------
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD ......................................... 6,766,687 5,736,650
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ........ $ 1,560,184 $ 3,967,041
=========== ===========
The accompanying notes are an integral part of the interim unaudited financial
statements.
4
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BIO-VASCULAR, INC.
NOTES TO FINANCIAL STATEMENTS
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(1) BASIS OF PRESENTATION:
The accompanying unaudited financial statements of Bio-Vascular, Inc.
("Bio-Vascular" or "the Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments considered necessary, including
items of a normal recurring nature, for a fair presentation have been included.
Operating results for the three months ended January 31, 1998 are not
necessarily indicative of the results that may be expected for the year ending
October 31, 1998. For further information, refer to the financial statements and
footnotes thereto included in the Company's Annual Report to Shareholders and in
the Form 10-K for the year ended October 31, 1997.
(2) SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION:
January 31, October 31,
1998 1997
----------- -----------
Inventories:
Raw materials and supplies ............ $ 644,524 $ 580,354
Work-in-process ....................... 346,213 405,736
Finished goods ........................ 1,073,976 1,006,305
Less reserve for inventory obsolescence (378,570) (373,000)
----------- -----------
$ 1,686,142 $ 1,619,395
=========== ===========
Condensed Statements of Cash Flows:
In August 1997, the Company's Board of Directors adopted a stock repurchase plan
(the "Plan") and authorized the purchase of up to 500,000 shares of its common
stock. During the first quarter of 1998, the Company repurchased 245,100 shares
of its common stock bringing the total common stock repurchased to 282,000
shares since the inception of the Plan.
In conjunction with the May 1997 spin-off of Vital Images, net cash used by
Discontinued Operations during the first quarter of 1997 represents cash
contributed by the Company to Vital Images in accordance with the Distribution
Agreement and related transaction costs.
5
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BIO-VASCULAR, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
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(3) EARNINGS PER SHARE:
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 128,
EARNINGS PER SHARE, during the quarter ended January 31, 1998. As required by
this Statement, earnings per share of prior periods are presented in accordance
with the provisions of SFAS No. 128. There are no significant reconciling items
between net income (loss) as presented in the statement of operations and net
income (loss) available to common stockholders used in the calculation of
earnings per share. The following table sets forth the computation of basic and
diluted earnings per share:
Three Months Ended
January 31,
(Unaudited)
1998 1997
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Numerator:
Net income (loss) ............................. $ (204,915) $ 124,558
=========== ===========
Denominator:
Denominator for basic earnings per share-
weighted-average shares .................... 9,401,963 9,487,299
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Effect of dilutive securities:
Shares associated with deferred compensation .. -- 45,569
Shares associated with option plans ........... -- 296,273
----------- -----------
Dilutive potential common shares .............. -- 341,842
----------- -----------
Denominator for diluted earnings per share-
adjusted weighted-average shares and assumed
conversions ................................ 9,401,963 9,829,141
=========== ===========
Basic and diluted earnings per share:
Continuing operations ......................... $ (.02) $ .01
Discontinued operations ....................... -- --
----------- -----------
Net income (loss) ............................. $ (.02) $ .01
=========== ===========
Options to purchase 1,200,427 and 465,757 shares of common stock were
outstanding during the first quarter of fiscal 1998 and 1997, respectively, but
were not included in the computation of diluted earnings per share because the
options' exercise price was greater than the average market price of the common
shares and, therefore, the effect would be anti-dilutive. Had the Company not
incurred a loss during the first quarter of 1998 the denominator in the
computation of diluted earnings per share would have additionally been increased
by 154,786 potentially dilutive common shares related to deferred compensation
and option plans.
6
<PAGE>
BIO-VASCULAR, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
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(4) MAJOR CUSTOMERS AND SALES BY GEOGRAPHIC AREA:
International net revenues amounted to 20% and 21% of total net revenues for the
three month periods ended January 31, 1998 and 1997, respectively. Substantially
all of the Company's international revenues are negotiated, invoiced and paid in
U.S. dollars. The following tables summarize significant customers and
international revenues by geographic area:
PERCENTAGE PERCENTAGE
SIGNIFICANT OF OF ACCOUNTS
CUSTOMER GROSS SALES RECEIVABLE
----------- ----------- -----------
Period ended January 31, 1998 ......Futuretech 19% 15%
Life Systems 13% 10%
Cardio Medical 14% 12%
Pacific West Medical 9% 13%
Period ended January 31, 1997 ......Futuretech 19% 16%
Life Systems 15% 13%
Cardio Medical 12% 13%
Pacific West Medical 7% 12%
Three Months Ended
January 31,
1998 1997
-------- --------
Europe and Middle East ..................... $331,063 $331,671
Asia and Pacific Region .................... 109,154 143,190
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Net revenue for the quarter was up 6% over the same quarter in 1997 due to
continued revenue growth from the Company's core TISSUE-GUARD(TM) product line.
This was the second consecutive quarter in which net revenues were higher than
in the comparabLE quarter since the government's January 1996 non-coverage
decision on lung volume reduction surgery ("LVRS"). Revenues from the
TISSUE-GUARD product line, excluding PERI-STRIPS(R), were up 22% over the first
quarter of 1997. Most of this increase came froM DURA-GUARD(R), the product used
to repair openings in the covering of the brain and spinal cord, which gained
34% and now represents over one-half of the TISSUE-GUARD product line net
revenues, exclusive of PERI-STRIPS. VASCU-GUARD(R) also had revenue increases of
52% over the respective prior year quarter.
Aggregate revenues from PERI-STRIPS and PERI-STRIPS DRY(TM) were up $17,000, or
2%, from the first quarter of 1997. This improvement primarily from domestic
revenues occurred absent any revenues from surgical centers participating in the
National Emphysema Treatment Trial ("NETT") which as of the date of this report
is still in the early stages of patient enrollment with only one surgery having
been performed. The Company had expected surgeries would commence under the
study at the earliest in January 1998.
In February 1998, the Japanese Ministry of Health and Welfare approved the
Company's application for National Health Insurance reimbursement of PERI-STRIPS
when used to buttress the surgical staple line in LVRS. This is an important
market for the Company and one that it has worked with the Japanese government
for more than a year to open. The Company believes the Japanese market is
important to its international growth strategy. The Company expects to see
increased PERI-STRIPS revenue from Japan starting in the second quarter.
The Company has experienced excellent acceptance of its PERI-STRIPS DRY product,
introduced last July, with over one-half of this quarter's combined PERI-STRIPS
sales coming from the PERI-STRIPS DRY product. The Company believes that
PERI-STRIPS DRY, an advanced version of PERI-STRIPS, provides significant
advantages for thorascopic surgical procedures over the original PERI-STRIPS
"sleeve" design. Extraction of the sutured sleeve backing, that was part of the
original design, was found to be cumbersome during a thorascopic procedure.
PERI-STRIPS DRY eliminates the need to extract the sutured sleeve backing. A
specially formulated PSD GEL(TM) adheres the PERI-STRIPS DRY strip to the
surgical stapler. In the U.S., PERI-STRIPS DRY is expected to ultimately replace
the original PERI-STRIPS sleeve configuration for thorascopic procedures.
OCU-GUARD(TM), the newest member of the TISSUE-GUARD product line was cleared to
market by the U.S. Food and Drug Administration (the "FDA") in December 1997.
The Company also received the European Medical Directive "CE" mark authority
with respect to OCU-GUARD. Devices with the CE mark may be marketed freely
throughout the 15-country European Union and the European Free Trade
Association. The Company generated its first sales from OCU-GUARD in February
1998. OCU-GUARD is made from the Company's SUPPLE PERI-GUARD(R) tissue and is
intended to be used by ophthalmic surgeons to wrap ophthalmic orbital implants
following enucleation surgery. Wrapping the orbital implant decreases the
likelihood of exposure of the orbital implant and allows for attachment of eye
muscles to the implant, providing the implant with tracking capabilities. The
majority of the estimated 12,000 to 15,000 procedures performed annually in the
United States require the use of a wrapping material. Currently, the most
commonly used wrapping material is cadaver sclera. OCU-GUARD represents another
successful step in the Company's strategy to identify markets for its tissue and
develop a product that meets surgeons' needs.
The Company also expects to receive marketing clearance from the FDA for its CV
PERI-Guard(TM) product by the end of the second quarter. CV PERI-GUARD is made
from the Company's PERI-GUARD(R) tissue and will be part of
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS--CONTINUED
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the TISSUE-GUARD product line. CV PERI-GUARD is expected to have indications for
use as an adult intra-cardiac patch for use in procedures such as septal defect
repair, valve repair and aneurysm repair.
RESULTS OF CONTINUING OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED JANUARY 31, 1998 WITH
THE THREE MONTHS ENDED JANUARY 31, 1997
Net revenue was $2,463,000 for the 1998 quarter up from $2,325,000 for the 1997
quarter, primarily as a result of the increase in revenue from TISSUE-GUARD
sales, excluding PERI-STRIPS and PERI-STRIPS DRY. Revenue from sales of
TISSUE-GUARD products, DURA-GUARD, VASCU-GUARD, SUPPLE PERI-GUARD and
PERI-GUARD, increased $179,000, or 22%, to $980,000 from $801,000. Aggregate
revenue from PERI-STRIPS and PERI-STRIPS DRY increased $17,000, or 2%, to
$779,000 in the 1998 quarter from $762,000 in the 1997 quarter. BIOGRAFT(R)
revenue decreased by $28,000, or 14%, comparing the 1998 and 1997 quarters,
continuing a trend representative of the late stage of this product's life
cycle. Revenue from sales of surgical productivity tools (FLO-RESTER(R) and the
BIO-VASCULAR PROBE(R)) decreased $31,000, or 6%, to $527,000 from $558,000. The
Company believes that the decrease in surgical productivity tool revenues is not
considered indicative of a sales trend, but rather reflects the uneven sales
pattern of these products.
The gross margin percentage was 58% in the 1998 quarter and 57% in the 1997
quarter. During fiscal 1997, the gross margin percentages declined through the
quarters, primarily due to decreases in the production volume in response to
decreases in demand for PERI-STRIPS as a result of the LVRS non-coverage
decision. It is expected that the gross margin percentage will increase slightly
during the 1998 year from its first quarter level. This forward-looking
statement will be influenced primarily by the accuracy of the Company's current
estimates of product costs, product mix and production volume, and would be
impacted by significant increases or decreases in actual results as compared to
these estimates.
Selling, general and administrative expense increased $337,000, or 29%, to
$1,513,000 from $1,176,000. The general and administrative expense increase
accounted for $237,000, or a 38% increase as compared to first quarter 1997.
This increase is primarily due to increased spending on product development
management and regulatory and clinical affairs. Selling expense increased
$100,000, or 18% primarily due to increased compensation, travel and convention
costs.
Research and development ("R&D") expense increased $251,000, or 118%, to
$465,000 from $214,000 in the 1997 quarter. The Company has several projects
under development. R&D expense is expected to increase as these and other
projects continue to progress. This forward-looking statement will be influenced
primarily by the number of projects, the related R&D personnel requirements, the
development path and success of each project, the expected costs, and the timing
of these costs.
Operations had a loss in the 1998 quarter of $553,000 compared to a loss of
$68,000 in the 1997 quarter. Other income, primarily interest income, was
$246,000 and $282,000 in the 1998 and 1997 quarters, respectively. As a result,
operations had a loss before income taxes in the 1998 quarter of $307,000 as
compared to income before income taxes in the 1997 quarter of $214,000.
The Company recorded a benefit from income taxes of $103,000 for the 1998
quarter as compared to a provision
9
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS--CONTINUED
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for income taxes of $89,000 in the 1997 quarter. The net loss was $205,000, or
$.02 per share for the 1998 quarter. The 1997 quarter had net income of
$124,000, or $.01 per share.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended January 31, 1998, continuing operations used $413,000
of cash as compared to $228,000 of net cash provided in the same period in 1997.
Cash was used by continuing operations, in the first quarter of fiscal 1998, due
to increases in prepaid expenses, non-trade receivables, inventory and decreases
in accrued expenses. These cash uses were partially offset by non-cash expenses
and decreases in accounts receivable.
The Company invested $152,000 in equipment and leasehold improvements primarily
related to new manufacturing capacity related to PERI-STRIPS DRY. Financing
activities used $942,000 and primarily represents cash used to repurchase shares
of the Company's common stock . The Company announced in August 1997 its
intention to repurchase up to 500,000 shares of its common stock. Such purchases
will continue to be made in the open market from time-to-time as price
opportunities arise.
The Company has cash and investments totaling $16,474,000 at January 31, 1998.
The Company believes its existing cash and investments will be sufficient to
satisfy its cash requirements for the foreseeable future.
NEW ACCOUNTING STANDARDS
In June 1997, SFAS No. 130 (SFAS 130) , COMPREHENSIVE INCOME, was issued by the
Financial Accounting Standards Board. SFAS 130 establishes standards for
reporting and displaying comprehensive income and its components (revenues,
expenses, gains and losses) in the financial statements. Also issued in June
1997 was SFAS No. 131 (SFAS 131), DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE
AND RELATED INFORMATION, which establishes new standards for the way public
business enterprises report information about operating segments. The Company
must adopt SFAS 130 and SFAS 131 in fiscal year 1999. Management is currently
evaluating the effect of these changes on its financial reporting.
CERTAIN IMPORTANT FACTORS
This Form 10-Q contains certain forward-looking statements. For this purpose,
any statements contained in this Form 10-Q that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, words such as "may", "will", "expect", "believe", "anticipate",
"estimate", "continue" or comparable terminology are intended forward-looking
statements. These statements by their nature involve substantial risks and
uncertainties, and actual results may differ materially depending on a variety
of factors, including the availability of third party reimbursement, the extent
to which the Company's products gain market acceptance, litigation regarding
patent and other intellectual property rights, the introduction of competitive
products by others, the progress of product development and clinical studies,
and the receipt and timing of regulatory approvals, among others.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
10
<PAGE>
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PART II. OTHER INFORMATION
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ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS. The exhibits to this quarterly report on Form 10-Q are listed in
the exhibit index beginning on page 13.
(b) FORM 8-K. No reports on Form 8-K were filed by the Company during the
quarter ended January 31, 1998.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
BIO-VASCULAR, INC.
Dated: March 12, 1998. /S/ CONNIE L. MAGNUSON
----------------------------------
Connie L. Magnuson
Vice - President Finance and Chief
Financial Officer
(Principal Financial Officer)
12
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BIO-VASCULAR, INC.
INDEX TO EXHIBITS
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10.1 Form of Change in Control Agreement entered into between the Company and
each of Mr. Donald E. Gardner, Ms. Connie L. Magnuson and Mr. Thomas J.
Pepin dated January 12, 1998 and Mr. David Buche dated January 29, 1998.
(Filed herewith electronically.)
27.1 Financial Data Schedule for the three month period ended January 31, 1998.
(Filed herewith electronically.)
13
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CHANGE IN CONTROL AGREEMENT
January ,1998
Dear :
-----------------
You are presently the Vice President of _____________ of Bio-Vascular, Inc., a
Minnesota corporation (the "Company"). The Company considers the establishment
and maintenance of a sound and vital management to be essential to protecting
and enhancing the best interests of the Company and its shareholders. In this
connection, the Company recognizes that, as is the case with many publicly held
corporations, the possibility of a Change in Control may arise and that such
possibility and the uncertainty and questions which it may raise among
management may result in the departure or distraction of management personnel to
the detriment of the Company and its shareholders.
Accordingly, the Board has determined that appropriate steps should be taken to
minimize the risk that Company management will depart prior to a Change in
Control, thereby leaving the Company without adequate management personnel
during such a critical period, and that appropriate steps also be taken to
reinforce and encourage the continued attention and dedication of members of the
Company's management to their assigned duties without distraction in
circumstances arising from the possibility of a Change in Control. In
particular, the Board believes it important, should the Company or its
shareholders receive a proposal for transfer of control, that you be able to
continue your management responsibilities without being influenced by the
uncertainties of your own personal situation.
The Board recognizes that continuance of your position with the Company involves
a substantial commitment to the Company in terms of your personal life and
professional career and the possibility of foregoing present and future career
opportunities, for which the Company receives substantial benefits. Therefore,
to induce you to remain in the employ of the Company, this Agreement, which has
been approved by the Board, sets forth the benefits which the Company agrees
will be provided to you in the event your employment with the Company is
terminated in connection with a Change in Control under the circumstances
described below.
The following terms will have the meaning set forth below unless the context
clearly requires otherwise. Terms defined elsewhere in this Agreement will have
the same meaning throughout this Agreement.
ARTICLE I.
DEFINITIONS
1. "AFFILIATE" means (i) any corporation at least a majority of whose
outstanding securities ordinarily having the right to vote at elections of
directors is owned directly or indirectly by the Company or (ii) any other
form of business entity in which the Company, by virtue of a direct or
indirect ownership interest, has the right to elect a majority of the
members of such entity's governing body.
2. "AGREEMENT" means this letter agreement as amended, extended or renewed
from time to time in accordance with its terms.
3. "BOARD" means the board of directors of the Company duly qualified and
acting at the time in question. On and after the date of a Change in
Control, any duty of the Board in connection with
<PAGE>
Page 2
this Agreement is nondelegable and any attempt by the Board to delegate any
such duty is ineffective.
4. "CAUSE" means:
a. your gross misconduct;
b. your willful and continued failure to perform substantially your
duties with the Company (other than any such failure (1) resulting
from your Disability or incapacity due to bodily injury or physical or
mental illness or (2) relating to changes in your duties after a
Change in Control which constitute Good Reason) after a demand for
substantial performance is delivered to you by the chair of the Board
which specifically identifies the manner in which you have not
substantially performed your duties and provides for a reasonable
period of time within which you may take corrective actions; or
c. your conviction (including a plea of nolo contendere) of willfully
engaging in illegal conduct constituting a felony or gross misdemeanor
under federal or state law which is materially and demonstrably
injurious to the Company or which impairs your ability to perform
substantially your duties for the Company.
An act or failure to act will be considered "gross" or "willful" for this
purpose only if done, or omitted to be done, by you in bad faith and
without reasonable belief that it was in, or not opposed to, the best
interests of the Company. Any act, or failure to act, based upon authority
given pursuant to a resolution duly adopted by the Company's board of
directors (or a committee thereof) or based upon the advice of counsel for
the Company will be conclusively presumed to be done, or omitted to be
done, by you in good faith and in the best interests of the Company. It is
also expressly understood that your attention to matters not directly
related to the business of the Company will not provide a basis for
termination for Cause so long as the Board did not expressly disapprove in
writing of your engagement in such activities either before or within a
reasonable period of time after the Board knew or could reasonably have
known that you engaged in those activities. Notwithstanding the foregoing,
you may not be terminated for Cause unless and until there has been
delivered to you a copy of a resolution duly adopted by the affirmative
vote of not less than a majority of the entire membership of the Board at a
meeting of the Board called and held for the purpose (after reasonable
notice to you and an opportunity for you, together with your counsel, to be
heard before the Board), finding that in the good faith opinion of the
Board you were guilty of the conduct set forth above in clauses a., b. or
c. of this definition and specifying the particulars thereof in detail.
5. "CHANGE IN CONTROL" means any of the following:
a. the sale, lease, exchange or other transfer, directly or indirectly,
of all or substantially all of the assets of the Company in one
transaction or in a series of related transactions, to any Person;
b. the approval by the shareholders of the Company of any plan or
proposal for the liquidation or dissolution of the Company, as the
case may be;
c. any Person is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of (1) 20
percent or more, but not more than 50
<PAGE>
Page 3
percent, of the combined voting power of the outstanding securities of
the Company ordinarily having the right to vote at elections of
directors, unless the transaction resulting in such ownership has been
approved in advance by the "continuity directors" or (2) more than 50
percent of the combined voting power of the outstanding securities of
the Company ordinarily having the right to vote at elections of
directors (regardless of any approval by the continuity directors);
d. a merger or consolidation to which the Company is a party if the
shareholders of the Company immediately prior to the effective date of
such merger or consolidation have, solely on account of ownership of
securities of the Company at such time, "beneficial ownership" (as
defined in Rule 13d-3 under the Exchange Act) immediately following
the effective date of such merger or consolidation of securities of
the surviving company representing (1) 50 percent or more, but not
more than 80 percent, of the combined voting power of the surviving
corporation's then outstanding securities ordinarily having the right
to vote at elections of directors, unless such merger or consolidation
has been approved in advance by the continuity directors, or (2) less
than 50 percent of the combined voting power of the surviving
corporation's then outstanding securities ordinarily having the right
to vote at elections of directors (regardless of any approval by the
continuity directors);
e. the continuity directors cease for any reason to constitute at least a
majority the Board; or
f. a change in control of a nature that is determined by outside legal
counsel to the Company, in a written opinion specifically referencing
this provision of the Agreement, to be required to be reported
(assuming such event has not been "previously reported") pursuant to
section 13 or 15(d) of the Exchange Act, whether or not the Company is
then subject to such reporting requirement, as of the effective date
of such change in control.
For purposes of this Section 1(e), a "continuity director" means any
individual who is a member of the Board on _____________, while he or she
is a member of the Board, and any individual who subsequently becomes a
member of the Board whose election or nomination for election by the
Company's shareholders was approved by a vote of at least a majority of the
directors who are continuity directors (either by a specific vote or by
approval of the proxy statement of the Company in which such individual is
named as a nominee for director without objection to such nomination).
6. "CODE" means the Internal Revenue Code of 1986, as amended. Any reference
to a specific provision of the Code includes a reference to such provision
as it may be amended from time to time and to any successor provision.
7. "COMPANY" means Bio-Vascular, Inc. and/or any Affiliate.
8. "CONFIDENTIAL INFORMATION" means information which is proprietary to the
Company or proprietary to others and entrusted to the Company, whether or
not trade secrets. It includes information relating to business plans and
to business as conducted or anticipated to be conducted, and to past or
current or anticipated products or services. It also includes, without
limitation, information concerning research, development, purchasing,
accounting, marketing and selling. All information which you have a
reasonable basis to consider confidential is Confidential Information,
whether or not originated by you and without regard to the manner in which
you obtain access to that and any other proprietary information.
<PAGE>
Page 4
9. "DATE OF TERMINATION" following a Change in Control (or prior to a Change
in Control if your termination was either a condition of the Change in
Control or was at the request or insistence of any Person related to the
Change in Control) means:
a. if your employment is to be terminated for Disability, 30 days after
Notice of Termination is given (provided that you have not returned to
the performance of your duties on a full-time basis during such 30-day
period);
b. if your employment is to be terminated by the Company for Cause or by
you for Good Reason, the date specified in the Notice of Termination,
which date may not be less than 30 days or more than 60 days after the
date on which the Notice of Termination is given unless you and the
Company otherwise expressly agree;
c. if your employment is to be terminated by the Company for any reason
other than Cause, Disability, death or Retirement, the date specified
in the Notice of Termination, which in no event may be a date earlier
than 90 days after the date on which a Notice of Termination is given,
unless an earlier date has been expressly agreed to by you in writing
either in advance of, or after; receiving such Notice of Termination;
or
d. if your employment is terminated by reason of death or Retirement, the
date of death or Retirement, respectively.
In the case of termination by the Company of your employment for Cause, if
you have not previously expressly agreed in writing to the termination,
then within 30 days after receipt by you of the Notice of Termination with
respect thereto, you may notify the Company that a dispute exists
concerning the termination, in which event the Date of Termination will be
the date set either by mutual written agreement of the parties or by the
judge or arbitrators in a proceeding as provided in Section 13 of this
Agreement. During the pendency of any such dispute, you will continue to
make yourself available to provide services to the Company and the Company
will continue to pay you your full compensation and benefits in effect
immediately prior to the date on which the Notice of Termination is given
(without regard to any changes to such compensation or benefits which
constitute Good Reason) and until the dispute is resolved in accordance
with Section 13 of this Agreement. You will be entitled to retain the full
amount of any such compensation and benefits without regard to the
resolution of the dispute unless the judge or arbitrators decide(s) that
your claim of a dispute was frivolous or advanced by you in bad faith.
10. "DISABILITY" means a disability as defined in the Company's long-term
disability plan as in effect immediately prior to the Change in Control or;
in the absence of such a plan, means permanent and total disability as
defined in section 22(e)(3) of the Code.
11. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. Any
reference to a specific provision of the Exchange Act or to any rule or
regulation thereunder includes a reference to such provision as it may be
amended from time to time and to any successor provision.
12. "GOOD REASON" means:
a. change in your status, position(s), duties or responsibilities as an
executive of the Company as in effect immediately prior to the Change
in Control which, in your reasonable judgment, is an adverse change
(other than, if applicable, any such change directly
<PAGE>
Page 5
attributable to the fact that the Company is no longer publicly owned)
except in connection with the termination of your employment for
Cause, Disability or Retirement or as a result of your death or by you
other than for Good Reason;
b. a reduction by the Company in your base salary (or an adverse change
in the form or timing of the payment thereof) as in effect immediately
prior to the Change in Control or as thereafter increased;
c. the failure by the Company to continue in effect any Plan in which you
(and/or your family) are eligible to participate at any time during
the 90-day period immediately preceding the Change in Control (or
Plans providing you (and/or your family) with at least substantially
similar benefits) other than as a result of the normal expiration of
any such Plan in accordance with its terms as in effect immediately
prior to the 90-day period immediately preceding the time of the
Change in Control, or the taking of any action, or the failure to act,
by the Company which would adversely affect your (and/or your
family's) continued eligibility to participate in any of such Plans on
at least as favorable a basis to you (and/or your family) as is the
case on the date of the Change in Control or which would materially
reduce your (and/or your family's) benefits in the future under any of
such Plans or deprive you (and/or your family) of any material benefit
enjoyed by you (and/or your family) at the time of the Change in
Control;
d. the Company's requiring you to be based more than 30 miles from where
your office is located immediately prior to the Change in Control,
except for required travel on the Company's business, and then only to
the extent substantially consistent with the business travel
obligations which you undertook on behalf of the Company during the
90-day period immediately preceding the Change in Control (without
regard to travel related to or in anticipation of the Change in
Control);
e. the failure by the Company to obtain from any Successor the assent to
this Agreement contemplated by Section 6 of this Agreement;
f. any purported termination by the Company of your employment which is
not properly effected pursuant to a Notice of Termination and pursuant
to any other requirements of this Agreement, and for purposes of this
Agreement, no such purported termination will be effective;
g. any refusal by the Company to continue to allow you to attend to
matters or engage in activities not directly related to the business
of the Company which, at any time prior to the Change in Control, you
were not expressly prohibited in writing by the Board from attending
to or engaging in; or
h. your termination of your employment with the Company for any reason
other than death, Disability or Retirement during the twelfth (12th)
month following the month in which a Change in Control occurs.
13. "HIGHEST MONTHLY COMPENSATION" means one-twelfth of the highest amount of
your compensation for any 12 consecutive calendar-month period during the
36 consecutive calendar-month period prior to the month that includes the
Date of Termination. For purposes of this definition, "compensation" means
the amount reportable by the Company, for federal income tax purposes, as
<PAGE>
Page 6
wages paid to you by the Company, increased by the amount of contributions
made by the Company with respect to you under any qualified cash or
deferred arrangement or cafeteria plan that is not then includable in your
income by reason of the operation of section 402(a)(8) or section 125 of
the Code, and increased further by any other compensation deferred for any
reason.
14. "NOTICE OF TERMINATION" means a written notice given on or after the date
of a Change in Control (unless your termination before the date of the
Change in Control was either a condition of the Change in Control or was at
the request or insistence of any Person related to the Change in Control)
which indicates the specific termination provision in this Agreement
pursuant to which the notice is given. Any purported termination by the
Company or by you for Good Reason on or after the date of a Change in
Control (or before the date of a Change in Control if your termination was
either a condition of the Change in Control or was at the request or
insistence of any Person related to the Change in Control) must be
communicated by written Notice of Termination to be effective; provided,
that your failure to provide Notice of Termination will not limit any of
your rights under this Agreement except to the extent the Company
demonstrates that it suffered material actual damages by reason of such
failure.
15. "PERSON" means any individual, corporation, partnership, group, association
or other "person," as such term is used in section 14(d) of the Exchange
Act, other than the Company, any Affiliate or any employee benefit plan(s)
sponsored by the Company or an Affiliate.
16. "PLAN" means any compensation plan, program, policy or agreement (such as a
stock option, restricted stock plan or other equity-based plan), any bonus
or incentive compensation plan, program, policy or agreement, any employee
benefit plan, program, policy or agreement (such as a thrift, pension,
profit sharing, medical, dental, disability, accident, life insurance,
relocation, salary continuation, expense reimbursements, vacation, fringe
benefits, office and support staff plan or policy) or any other plan,
program, policy or agreement of the Company intended to benefit employees
(and/or their families) generally, management employees (and/or their
families) as a group or you (and/or your family) in particular.
17. "RETIREMENT" means termination of employment on or after the day on which
you attain the age of 65.
18. "SUCCESSOR" means any Person that succeeds to, or has the practical ability
to control (either immediately or solely with the passage of time), the
Company's business directly, by merger, consolidation or other form of
business combination, or indirectly, by purchase of the Company's
outstanding securities ordinarily having the right to vote at the election
of directors or, all or substantially all of its assets or otherwise.
<PAGE>
Page 7
ARTICLE II.
TERM OF AGREEMENT
This Agreement is effective immediately and will continue in effect until
________________; provided, however; that commencing on ____________ and each
_____________ thereafter, the term of this Agreement will automatically be
extended for 12 additional months beyond the expiration date otherwise then in
effect, unless at least 90 calendar days prior to any such _______________, the
Company or you has given notice that this Agreement will not be extended; and,
provided, further; that if a Change in Control has occurred during the term of
this Agreement, this Agreement will continue in effect beyond the termination
date then in effect for a period of 12 months following the month during which
the Change in Control occurs or, if later, until the date on which the Company's
obligations to you arising under or in connection with this Agreement have been
satisfied in full.
ARTICLE III.
CHANGE IN CONTROL BENEFITS
1. BENEFITS UPON A CHANGE IN CONTROL TERMINATION. You will become entitled to
the payments and benefits described in clauses (a) and (b) of this Article
III., subject to the limitations described in clause (c) of this Article
III., and to the benefit of the provisions described in clause (d), if and
only if (i) your employment with the Company is terminated for any reason
other than death, Cause, Disability or Retirement, or if you terminate your
employment with the Company for Good Reason; and (ii) the termination
occurs either within the period beginning on the date of a Change in
Control and ending on the last day of the twelfth month that begins after
the month during which the Change in Control occurs or prior to a Change in
Control if your termination was either a condition of the Change in Control
or was at the request or insistence of a Person related to the Change in
Control.
a. CASH PAYMENT. Within five business days following the Date of
Termination or, if later, within five business days following the date
of the Change in Control, the Company will make a lump-sum cash
payment to you in an amount equal to the product of (i) your Highest
Monthly Compensation multiplied by (ii) 36.
b. WELFARE PLANS. The Company will maintain in full force and effect, for
the continued benefit of you and your dependents for a period
terminating 36 months after the Date of Termination, all insured and
self-insured employee welfare benefit Plans (including, without
limitation, medical, life, dental, vision and disability plans) in
which you were eligible to participate at any time during the 90-day
period immediately preceding the Change in Control, provided that your
continued participation is possible under the general terms and
provisions of such Plans and any applicable funding media and without
regard to any discretionary amendments to such Plans by the Company
following the Change in Control (or prior to the Change in Control if
amended as a condition or at the request or insistence of a Person
(other than the Company) related to the Change in Control) and
provided that you continue to pay an amount equal to your regular
contribution under such Plans for such participation (based upon your
level of benefits and employment status most favorable to you at any
time during the 90-day period immediately preceding the Change in
Control). The continuation period under federal and state continuation
laws, to the extent applicable, will begin to run from the date on
which coverage pursuant to this clause (b) ends. If, at the end of the
36-month period, you have not previously received or are not
<PAGE>
Page 8
then receiving equivalent benefits from a new employer (including
coverage for any pre-existing conditions), the Company will arrange,
at its sole cost and expense, to enable you to convert your and your
dependents' coverage under such Plans to individual policies or
programs upon the same terms as executives of the Company may apply
for such conversions. In the event that your or your dependents'
participation in any such Plan is barred, the Company, at its sole
cost and expense, will arrange to have issued for the benefit of you
and your dependents individual policies of insurance providing
benefits substantially similar (on a federal, state and local income
and employment after-tax basis) to those which you otherwise would
have been entitled to receive under such Plans pursuant to this clause
(b) or; if such insurance is not available at a reasonable cost to the
Company, the Company will otherwise provide you and your dependents
equivalent benefits (on a federal, state and local income and
employment after-tax basis). You will not be required to pay any
premiums or other charges in an amount greater than that which you
would have paid in order to participate in such Plans.
c. LIMITATION ON PAYMENTS AND BENEFITS. Notwithstanding anything in this
Agreement to the contrary, if any of the payments or benefits to be
made or provided in connection with this Agreement, together with any
other payments, benefits or awards which you have the right to receive
from the Company, or any corporation which is a member of an
"affiliated group" (as defined in section 1504(a) of the Code without
regard to section 1504(b) of the Code) of which the Company is a
member ("Affiliate"), constitute an "excess parachute payment" (as
defined in section 280G(b) of the Code), such payments, benefits or
awards to be made or provided in connection with this Agreement, or
any other agreement between you and the Company or its Affiliates, may
be reduced, eliminated, modified or waived to the extent necessary to
prevent all, or any portion, of such payments, benefits or awards from
becoming "excess parachute payments" and therefore subject to the
excise tax imposed under section 4999 of the Code. You will have the
sole right and discretion to determine whether the payments, benefits
or awards to be made or provided in connection with this Agreement, or
any other agreement between you and the Company, should be reduced,
whether or not such other agreement with the Company or an Affiliate
expressly addresses the potential application of Sections 280G or 4999
of the Code (including, without limitation, that "payments" under such
agreement be reduced). You will also have the right to designate the
particular payments, benefits or awards that are to be reduced,
eliminated, modified or waived; provided that no such adjustment will
be made if it results in additional expense to the Company in excess
of expenses the Company would have experienced if no adjustment had
been made. The determination as to whether any such decrease in the
payments or benefits is necessary must be made in good faith by legal
counsel or a certified public accountant selected by you and
reasonably acceptable to the Company, and such determination will be
conclusive and binding upon you and the Company. The Company will pay
or reimburse you on demand for the reasonable fees, costs and expenses
of the counsel or accountant selected to make the determinations under
this clause (c).
2. DISPOSITION. If, on or after the date of a Change in Control, an Affiliate
is sold, merged, transferred or in any other manner or for any other reason
ceases to be an Affiliate or all or any portion of the business or assets
of an Affiliate are sold, transferred or otherwise disposed of and the
acquiror is not the Company or an Affiliate (a "Disposition"), and you
remain or become employed by the acquiror or an affiliate of the acquiror
(as defined in this Agreement but substituting "acquiror" for
<PAGE>
Page 9
"Company") in connection with the Disposition, you will be deemed to have
terminated employment on the effective date of the Disposition for purposes
of this section unless (a) the acquiror and its affiliates jointly and
severally expressly assume and agree, in a manner that is enforceable by
you, to perform the obligations of this Agreement to the same extent that
the Company would be required to perform if the Disposition had not
occurred and (b) the Successor guarantees, in a manner that is enforceable
by you, payment and performance by the acquiror.
ARTICLE IV.
INDEMNIFICATION
Following a Change in Control, the Company will indemnify and advance expenses
to you to the full extent permitted by law and the Company's articles of
incorporation and bylaws for damages, costs and expenses (including, without
limitation, judgments, fines, penalties, settlements and reasonable fees and
expenses of your counsel) incurred in connection with all matters, events and
transactions relating to your service to or status with the Company or any other
corporation, employee benefit plan or other entity with whom you served at the
request of the Company.
ARTICLE V.
CONFIDENTIALITY
You will not use, other than in connection with your employment with the
Company, or disclose any Confidential Information to any person not employed by
the Company or not authorized by the Company to receive such Confidential
Information, without the prior written consent of the Company; and you will use
reasonable and prudent care to safeguard and protect and prevent the
unauthorized disclosure of Confidential Information. Nothing in this Agreement
will prevent you from using, disclosing or authorizing the disclosure of any
Confidential Information: (a) which is or hereafter becomes part of the public
domain or otherwise becomes generally available to the public through no fault
of yours; (b) to the extent and upon the terms and conditions that the Company
may have previously made the Confidential Information available to certain
persons; or (c) to the extent that you are required to disclose such
Confidential Information by law or judicial or administrative process.
ARTICLE VI.
SUCCESSORS
The Company will seek to have any Successor, by agreement in form and substance
satisfactory to you, assent to the fulfillment by the Company of the Company's
obligations under this Agreement. Failure of the Company to obtain such assent
at least three business days prior to the time a Person becomes a Successor (or
where the Company does not have at least three business days' advance notice
that a Person may become a Successor, within one business day after having
notice that such Person may become or has become a Successor) will constitute
Good Reason for termination by you of your employment. The date on which any
such succession becomes effective will be deemed the Date of Termination and
Notice of Termination will be deemed to have been given on that date. A
Successor has no rights, authority or power with respect to this Agreement prior
to a Change in Control.
ARTICLE VII.
OTHER PROVISIONS
1. FEES AND EXPENSES. The Company, upon demand, will pay or reimburse you for
all reasonable legal fees, court costs, experts' fees and related costs and
expenses incurred by you in connection
<PAGE>
Page 10
with any actual, threatened or contemplated litigation or legal,
administrative, arbitration or other proceeding relating to this Agreement
to which you are or reasonably expect to become a party, whether or not
initiated by you, including, without limitation: (a) all such fees and
expenses, if any, incurred in contesting or disputing any such termination;
or (b) your seeking to obtain or enforce any right or benefit provided by
this Agreement; provided, however; you will be required to repay (without
interest) any such amounts to the Company to the extent that a court issues
a final and non-appealable order setting forth the determination that the
position taken by you was frivolous or advanced by you in bad faith.
2. BINDING AGREEMENT. This Agreement inures to the benefit of, and is
enforceable by, you, your personal and legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
you die while any amount would still be payable to you under this Agreement
if you had continued to live, all such amounts, unless otherwise provided
in this Agreement, will be paid in accordance with the terms of this
Agreement to your devisee, legatee or other designee or; if there be no
such designee, to your estate.
3. NO MITIGATION. You will not be required to mitigate the amount of any
payments or benefits the Company becomes obligated to make or provide to
you in connection with this Agreement by seeking other employment or
otherwise. The payments or benefits to be made or provided to you in
connection with this Agreement may not be reduced, offset or subject to
recovery by the Company by any payments or benefits you may receive from
other employment or otherwise.
4. NO SETOFF. The Company has no right to setoff payments or benefits owed to
you under this Agreement against amounts owed or claimed to be owed by you
to the Company under this Agreement or otherwise.
5. TAXES. All payments and benefits to be made or provided to you in
connection with this Agreement will be subject to required withholding of
federal, state and local income, excise and employment-related taxes.
6. NOTICES. For the purposes of this Agreement, notices and all other
communications provided for in, or required under, this Agreement must be
in writing and will be deemed to have been duly given when personally
delivered or when mailed by United States registered or certified mail,
return receipt requested, postage prepaid and addressed to each party's
respective address set forth on the first page of this Agreement (provided
that all notices to the Company must be directed to the attention of the
chair of the Board), or to such other address as either party may have
furnished to the other in writing in accordance with these provisions,
except that notice of change of address will be effective only upon
receipt.
7. DISPUTES.If you so elect, any dispute, controversy or claim arising under
or in connection with this Agreement will be settled exclusively by binding
arbitration administered by the American Arbitration Association in
Minneapolis, Minnesota in accordance with the Commercial Arbitration Rules
of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction;
provided, that you may seek specific performance of your right to receive
payment or benefits until the Date of Termination during the pendency of
any dispute or controversy arising under or in connection with this
Agreement. The Company will be entitled to seek an injunction or
restraining order in a court of competent jurisdiction (within or without
the State of Minnesota) to enforce the provisions of Section 5 of this
Agreement.
<PAGE>
Page 11
8. JURISDICTION. Except as specifically provided otherwise in this Agreement,
the parties agree that any action or proceeding arising under or in
connection with this Agreement must be brought in a court of competent
jurisdiction in the State of Minnesota, and hereby consent to the exclusive
jurisdiction of said courts for this purpose and agree not to assert that
such courts are an inconvenient forum.
9. RELATED AGREEMENTS. To the extent that any provision of any other Plan or
agreement between the Company and you limits, qualifies or is inconsistent
with any provision of this Agreement, then for purposes of this Agreement,
while such other Plan or agreement remains in force, the provision of this
Agreement will control and such provision of such other Plan or agreement
will be deemed to have been superseded, and to be of no force or effect, as
if such other agreement had been formally amended to the extent necessary
to accomplish such purpose. Nothing in this Agreement prevents or limits
your continuing or future participation in any Plan provided by the Company
and for which you may qualify, and nothing in this Agreement limits or
otherwise affects the rights you may have under any Plans or other
agreements with the Company. Amounts which are vested benefits or which you
are otherwise entitled to receive under any Plan or other agreement with
the Company at or subsequent to the Date of Termination will be payable in
accordance with such Plan or other agreement.
10. NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Agreement is intended to
provide you with any right to continue in the employ of the Company for any
period of specific duration or interfere with or otherwise restrict in any
way your rights or the rights of the Company, which rights are hereby
expressly reserved by each, to terminate your employment at any time for
any reason or no reason whatsoever, with or without cause.
11. FUNDING AND PAYMENT. Benefits payable under this Agreement will be paid
only from the general assets of the Company. No person has any right to or
interest in any specific assets of the Company by reason of this Agreement.
To the extent benefits under this Agreement are not paid when due to any
individual, he or she is a general unsecured creditor of the Company with
respect to any amounts due. The Company with whom you were employed
immediately before your Date of Termination has primary responsibility for
benefits to which you or any other person are entitled pursuant to this
Agreement but to the extent such Company is unable or unwilling to provide
such benefits, the Company and each other Affiliate are jointly and
severally responsible therefor to the extent permitted by applicable law.
If you were simultaneously employed by more than one Company immediately
before your Date of Termination, each such Company has primary
responsibility for a portion of the benefits to which you or any other
person are entitled pursuant to this Agreement that bears the same ratio to
the total benefits to which you or such other person are entitled pursuant
to this Agreement as your base pay from the Company immediately before your
Date of Termination bears to your aggregate base pay from all such
Companies.
12. SURVIVAL.The respective obligations of, and benefits afforded to, the
Company and you which by their express terms or clear intent survive
termination of your employment with the Company or termination of this
Agreement, as the case may be, including without limitation the provisions
of Articles III, IV, V and VI and Sections 1, 4, 5, 6 and 7 of Article VII
of this Agreement, will survive termination of your employment with the
Company or termination of this Agreement, as the case may be, and will
remain in full force and effect according to their terms.
<PAGE>
Page 12
ARTICLE VIII.
MISCELLANEOUS
1. MODIFICATION AND WAIVER. No provision of this Agreement may be modified,
waived or discharged unless such modification, waiver or discharge is
agreed to in a writing signed by you and the chair of the Board. No waiver
by any party to this Agreement at any time of any breach by another party
to this Agreement of, or of compliance with, any condition or provision of
this Agreement to be performed by such party will be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior
or subsequent time.
2. ENTIRE AGREEMENT. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter to this Agreement
have been made by any party which are not expressly set forth in this
Agreement.
3. GOVERNING LAW. This Agreement and the legal relations among the parties as
to all matters, including, without limitation, matters of validity,
interpretation, construction, performance and remedies, will be governed by
and construed exclusively in accordance with the internal laws of the State
of Minnesota (without regard to the conflict of laws principles of any
jurisdiction).
4. HEADINGS. Headings are for purposes of convenience only and do not
constitute a part of this Agreement.
5. FURTHER ACTS. The parties to this Agreement agree to perform, or cause to
be performed, such further acts and deeds and to execute and deliver or
cause to be executed and delivered, such additional or supplemental
documents or instruments as may be reasonably required by the other party
to carry into effect the intent and purpose of this Agreement.
6. SEVERABILITY. The invalidity or unenforceability of all or any part of any
provision of this Agreement will not affect the validity or enforceability
of the remainder of such provision or of any other provision of this
Agreement, which will remain in full force and effect.
7. COUNTERPARTS. This Agreement may be executed in several counterparts, each
of which will be deemed to be an original, but all of which together will
constitute one and the same instrument.
<PAGE>
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If this letter correctly sets forth our agreement on the subject matter
discussed above, kindly sign and return to the Company the enclosed copy of this
letter which will then constitute our agreement on this subject.
Sincerely,
BIO-VASCULAR, INC.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
Agreed to this day of JANUARY , 1998.
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<TABLE> <S> <C>
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS AND RELATED NOTES FOR THE PERIOD ENDED JANUARY 31, 1998 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1997
<PERIOD-END> JAN-31-1998
<CASH> 1,560,184
<SECURITIES> 14,914,172
<RECEIVABLES> 1,815,101
<ALLOWANCES> 23,100
<INVENTORY> 1,686,142
<CURRENT-ASSETS> 16,087,104
<PP&E> 2,843,400
<DEPRECIATION> 1,117,871
<TOTAL-ASSETS> 24,002,590
<CURRENT-LIABILITIES> 1,146,330
<BONDS> 0
0
0
<COMMON> 93,619
<OTHER-SE> 22,762,641
<TOTAL-LIABILITY-AND-EQUITY> 24,002,590
<SALES> 2,462,554
<TOTAL-REVENUES> 2,462,554
<CGS> 1,038,220
<TOTAL-COSTS> 645,186
<OTHER-EXPENSES> 1,332,449
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (307,481)
<INCOME-TAX> (102,566)
<INCOME-CONTINUING> (204,915)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (204,915)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
