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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
EXCHANGE ACT OF 1934
For quarterly period ended January 31, 1999
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: (651) 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 March 1, 1999, there were 9,379,689 shares of the Registrant's common stock,
par value $.01 per share, outstanding.
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
BIO-VASCULAR, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS/
AS OF JANUARY 31, 1999 AND OCTOBER 31, 1998
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<TABLE>
<CAPTION>
January 31, October 31,
1999 1998
------------ ------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents ..................................... $ 5,509,179 $ 4,383,366
Marketable securities, short-term ............................. 1,993,611 3,990,839
Accounts receivable, net ...................................... 2,367,834 2,456,018
Inventories, net .............................................. 2,502,263 2,305,924
Deferred income taxes ......................................... 172,106 219,754
Other ......................................................... 376,690 527,402
------------ ------------
Total current assets ...................................... 12,921,683 13,883,303
Equipment and leasehold improvements, net ..................... 4,481,765 4,353,876
Goodwill and other intangible assets, net ..................... 7,079,846 7,240,772
Deferred income taxes ......................................... 701,695 504,268
------------ ------------
Total assets .............................................. $ 25,184,989 $ 25,982,219
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable .............................................. $ 499,199 $ 460,337
Accrued expenses .............................................. 1,192,295 1,421,054
Current maturities of long-term obligations ................... 365,564 615,961
------------ ------------
Total current liabilities ................................. 2,057,058 2,497,352
Capital lease obligations ..................................... 327,154 392,845
Other noncurrent liabilities .................................. 629,210 661,648
------------ ------------
Total liablities .......................................... 3,013,422 3,551,845
------------ ------------
Contingencies (Note 6)
Shareholders' equity:
Preferred stock: authorized 5,000,000 shares of $.01 par value;
none issued or outstanding at January 31, 1999 and
October 31, 1998 .......................................... -- --
Common stock: authorized 20,000,000 shares of $.01 par value;
9,350,561 issued and outstanding at January 31, 1999 and
9,317,183 at October 31, 1998 ............................. 93,506 93,172
Additional paid-in capital .................................... 28,823,584 28,695,840
Unearned compensation ......................................... (581,918) (514,538)
Accumulated other comprehensive income ........................ (273) 1,103
Accumulated deficit ........................................... (6,163,332) (5,845,203)
------------ ------------
Total shareholders' equity ................................ 22,171,567 22,430,374
------------ ------------
Total liabilities and shareholders' equity ................ $ 25,184,989 $ 25,982,219
============ ============
</TABLE>
The accompanying notes are an integral part of the interim unaudited
consolidated financial statements.
2
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BIO-VASCULAR, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE-MONTH PERIODS ENDED JANUARY 31, 1999 AND 1998
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Three Months Ended
January 31,
1999 1998
----------- -----------
(Unaudited)
Net revenue ................................. $ 3,829,183 $ 2,462,554
Cost of revenue ............................. 1,912,183 1,038,220
----------- -----------
Gross margin ................................ 1,917,000 1,424,334
Operating expenses:
Selling, general and administrative ......... 2,024,849 1,512,768
Research and development .................... 332,611 464,867
----------- -----------
Operating loss .............................. (440,460) (553,301)
Other income, net ........................... 59,731 245,820
----------- -----------
Loss before benefit from income taxes ....... (380,729) (307,481)
Benefit from income taxes ................... (62,600) (102,566)
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Net loss .................................... $ (318,129) $ (204,915)
=========== ===========
Basic and diluted earnings per share:
Net loss .................................... $ (.03) $ (.02)
=========== ===========
The accompanying notes are an integral part of the interim unaudited
consolidated financial statements.
3
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BIO-VASCULAR, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE-MONTH PERIODS ENDED JANUARY 31, 1999 AND 1998
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<TABLE>
<CAPTION>
Three Months Ended
January 31,
1999 1998
----------- -----------
(Unaudited)
<S> <C> <C>
NET CASH USED IN OPERATING ACTIVITIES ......................... $ (119,331) $ (412,764)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment and improvements ........................ (327,717) (151,958)
Investments in marketable securities .......................... (986,806) (5,687,293)
Proceeds upon maturities of marketable securities ............. 2,990,850 2,000,000
Investments in patents and trademarks ......................... (26,902) (12,823)
Payment of transaction costs related to acquisition of Jer-Neen (51,229) --
----------- -----------
Net cash provided by (used in) investing activities ........... 1,598,196 (3,852,074)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of bank note ....................................... (260,774) --
Proceeds related to stock options, Employee Stock Purchase
Plan and restricted stock ................................. 1,725 20,872
Repurchase of the Company's common stock ...................... (6,250) (962,537)
Repayments of capital lease obligations ....................... (55,042) --
Repayments of other long-term obligations ..................... (32,711) --
----------- -----------
Net cash used in financing
activities .................................................... (353,052) (941,665)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .......... 1,125,813 (5,206,503)
----------- -----------
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD .................................................... 4,383,366 6,766,687
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CASH AND CASH EQUIVALENTS AT END OF PERIOD .................... $ 5,509,179 $ 1,560,184
=========== ===========
</TABLE>
The accompanying notes are an integral part of the interim unaudited
consolidated financial statements.
4
<PAGE>
BIO-VASCULAR, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
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(1) BASIS OF PRESENTATION:
The accompanying unaudited consolidated condensed financial statements of
Bio-Vascular, Inc. ("Bio-Vascular" or "the Company") have been prepared by the
Company 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. For further information, refer to the financial statements
and footnotes thereto included in the Company's 1999 Annual Report to
Shareholders and incorporated by reference in the Company's Form 10-K for the
year ended October 31, 1998.
In the opinion of management, all adjustments considered necessary, consisting
only of items of a normal recurring nature, for a fair presentation of the
financial position, results of operations and cash flows of the Company as of
and for the interim periods presented have been included. Operating results and
cash flows for the three months ended January 31, 1999 are not necessarily
indicative of the results of operations and cash flows of the Company that may
be expected for the year ending October 31, 1999.
(2) ACQUISITION OF BUSINESS:
On July 31, 1998, the Company completed the acquisition of Jer-Neen
Manufacturing Co., Inc. ("Jer-Neen") of Lino Lakes, Minnesota. Jer-Neen is a
value-added manufacturer of precision component products used within the medical
device industry. Jer-Neen's product line includes micro coils, wire forms and
spring components used in implantable defibrillation, interventional medicine
and other surgical applications. The acquisition has been accounted for as a
purchase.
Since the acquisition occurred in July 1998 and was accounted for as a purchase,
the results of operations and cash flows for the three-month period ended
January 31, 1998 do not include Jer-Neen's results of operations and cash flows
for that period.
(3) SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION:
January 31, October 31,
1999 1998
---- ----
(Unaudited)
Inventories, net:
Raw materials and supplies................ $ 1,345,268 $ 1,242,003
Work in process........................... 506,964 519,424
Finished goods............................ 1,157,451 1,024,317
Less reserve for inventory obsolescence... (507,420) (479,820)
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$ 2,502,263 $ 2,305,924
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Consolidated Condensed Statements of Cash Flows:
In 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.
In 1998, the Company's Board of Directors amended the Plan to authorize the
repurchase of up to 1,500,000 shares. As of January 31, 1999, the Company has
repurchased 1,017,166 shares of its common stock totaling $4,251,000 since the
inception of the Plan.
5
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BIO-VASCULAR, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - CONTINUED
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(4) EARNINGS PER SHARE:
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 128,
Earnings Per Share, during fiscal year 1998. Earnings per share for the periods
presented have been prepared in accordance with the provisions of SFAS No. 128.
The following table sets forth the computation of shares outstanding used in the
calculation of basic and diluted earnings per share:
Three Months Ended
January 31,
1999 1998
---- ----
(Unaudited)
Denominator for basic earnings per share -
weighted-average common shares ..................... 9,200,611 9,401,963
--------- ---------
Effect of dilutive securities:
Shares associated with deferred compensation .......... -- --
Shares associated with option plans ................... -- --
--------- ---------
Dilutive potential common shares ...................... -- --
--------- ---------
Denominator for diluted earnings per share -
adjusted weighted-average common shares and dilutive
potential common shares ............................ 9,200,611 9,401,963
========= =========
As of January 31,
1999 1998
---- ----
(Unaudited)
Options outstanding.............................. 1,387,888 1,236,295
Exercise prices.................................. $1.87 - $13.03 $1.87 - $13.03
Expiration dates................................. 1999 - 2007 1998 - 2006
Options outstanding with exercise prices greater
than the average market price of the Company's
common stock for the three-month period ended
January 31 ................................... 1,244,669 1,200,427
For the three-month periods ended January 31, 1999 and 1998, none of the options
outstanding were included in the computation of diluted earnings per share for
those periods because the Company had incurred net losses, and the inclusion of
options would have been anti-dilutive.
6
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BIO-VASCULAR, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - CONTINUED
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(5) MAJOR CUSTOMERS AND NET REVENUE BY GEOGRAPHIC AREA:
Substantially all of the Company's international net revenues are negotiated,
invoiced and paid in U.S. dollars. The following tables summarize significant
customer information and international net revenues by geographic area:
January 31, October 31,
1999 1998
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(Unaudited)
Percent of accounts receivable by significant
customers:
A............................................ 10% 9%
B............................................ 9% 11%
C............................................ 10% 11%
D............................................ 18% 13%
Three Months Ended
January 31,
1999 1998
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(Unaudited)
Percent of net revenues by significant customers:
A............................................ 13% 20%
B............................................ 8% 14%
C............................................ 8% 15%
D............................................ 25% -
E............................................ 6% 10%
Three Months Ended
January 31,
1999 1998
---- ----
(Unaudited)
International net revenues by geographic area:
Europe....................................... $ 437,887 $ 326,586
Asia and Pacific Region...................... 119,497 107,215
Canada....................................... 63,342 74,429
Other........................................ 28,242 10,734
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Total........................................ $ 648,968 $ 518,964
========= =========
Percent of total net revenues................ 17% 21%
In June 1997, SFAS No. 131, Disclosures about Segments of an Enterprise and
Related Information ("SFAS 131"), was issued by the Financial Accounting
Standards Board. SFAS 131 establishes new standards for the way public business
enterprises report information about operating segments. The Company must adopt
SFAS 131 for fiscal year end 1999. Management is in the process of evaluating
the effect on its financial reporting.
7
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BIO-VASCULAR, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - CONTINUED
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(6) CONTINGENCIES:
The Company is currently involved in litigation which is ordinary and incidental
to its business. Management believes losses, if any, that might eventually be
sustained from such litigation would not be material to the Company's financial
position, results of operations, or cash flows for any period. Further, product
liability claims may be asserted in the future relative to events not known to
management at the present time. Management believes that the Company's risk
management practices, including insurance coverage, are reasonably adequate to
protect against potential material product liability losses.
(7) COMPREHENSIVE INCOME:
Effective November 1, 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income, which establishes standards for reporting and displaying
comprehensive income and its components (revenues, expenses, gains and losses)
in the financial statements. The Company's only component of other comprehensive
income is the unrealized gain/loss on available-for-sale investments.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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Forward-Looking Statements:
Certain statements contained in this Form 10-Q include "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. All forward-looking statements in this document are based upon
information available to the Company as of the date hereof, and the Company
assumes no obligation to update any forward-looking statements. Such statements
involve known and unknown risks, uncertainties and other factors which may cause
the actual results to differ materially from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors may include, among others, the risk factors listed from time to time in
the Company's filings with the Securities and Exchange Commission, such as the
year-end Annual Report on Form 10-K.
Overview
The Company develops, manufactures and markets branded proprietary and patented
specialty medical products for use in thoracic, cardiac, neuro, ophthalmic and
vascular surgery. The Company's branded products include the Tissue-Guard(TM)
product line, the Biograft(R) peripheral vascular graft and surgical
productivity tools used in cardiac and vascular surgery. Tissue-Guard products
are made from bovine pericardium, the thin membrane surrounding the heart of
cattle, processed using proprietary tissue-fixation technology. The Company's
wholly-owned subsidiary, Jer-Neen Manufacturing Co., Inc. ("Jer-Neen"), is a
value added manufacturer of precision, unbranded wire component products such as
micro coils, wire forms and spring components used in implantable
defibrillation, interventional medicine and other surgical applications within
the medical industry. Jer-Neen was purchased by the Company on July 31, 1998,
the end of the Company's fiscal 1998 third quarter.
Results of Operations
Comparison of the Three Months Ended January 31, 1999 with
the Three Months Ended January 31, 1998
Revenue increased $1,366,000, or 55%, to $3,829,000 from $2,463,000. The
Jer-Neen component business contributed net revenues of $1,402,000, exceeding
management's expectations. The branded products business reported revenues of
$2,427,000 down $36,000 from the 1998 revenue level of $2,463,000. The branded
products business experienced 17% revenue growth from its Tissue-Guard product
line, exclusive of Peri-Strips(R), with all products contributing incremental
revenue over the prior year's quarter. Peri-Strips decreased 21% to $612,000
from $779,000 as the product felt the effects of increased competition in the
domestic marketplace. This competition was often in the form of pricing. The
Company expects to regularly contend with a strong element of competition in
attractive markets, such as Lung Volume Reduction Surgery. Additionally, the
Japanese acceptance of Lung Volume Reduction Surgery has been much lower than
expected and thereby affecting the near-term expected growth potential for
Peri-Strips. Biograft revenue decreased $13,000, or 8%, to $163,000 from
$176,000, continuing a downward trend. Revenue from sales of surgical
productivity tools decreased 4% to $506,000 from $527,000. However, the Company
expects revenues from productivity tools to show an annual increase when
compared to the prior year. This forward looking statement is influenced
primarily by the Company's estimate of customer demand for its products and the
competition experienced in the marketplace.
The Company's gross margin percentage was 50% for the 1999 quarter as compared
to 58% for the 1998 quarter. In the 1999 quarter, the component product line
margin was 38%, while the branded products' margin was 57%. The Company expects
the gross margin percentage for fiscal year 1999 to be lower than the fiscal
1998 level as the component product business will be included in the
consolidated operating results for the full year in 1999 rather than one
9
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED
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quarter as in 1998.
Selling, general and administrative (SG&A) expense increased $512,000, or 34%,
between 1999 and 1998. The inclusion of the component business accounts for over
three-fourths of the overall quarter to quarter increase in SG&A expense. Since
Jer-Neen has less SG&A infrastructure than does the branded products business,
SG&A as a percentage of net revenues decreased from 61% for the 1998 quarter to
53% for the 1999 quarter. The remaining SG&A increase is primarily due to
increased sales and marketing costs within the branded products segment.
Increased sales and marketing costs were primarily related to increased
personnel costs, conventions costs (including the related employee travel) and
marketing materials launching the new Bio-Vascular corporate logo and image.
Research and development (R&D) expense decreased $132,000, or 28%, between 1999
and 1998 due to the timing of clinical study activity between the comparative
quarters. Product development activities in the first quarter of 1999 continued
to focus on a number of both near- and long-term opportunities. The near-term
opportunities focused on furthering the Company's current tissue expertise
through product line expansions and enhancements. Long-term projects focused on
product designs which utilize new tissue technologies. R&D expense is expected
to increase as projects under development continue to progress. This
forward-looking statement will be influenced primarily by the number of projects
and the related R&D personnel requirements, development and regulatory approval
path, expected costs and the timing of those costs for each project.
The operating loss in the 1999 quarter was $440,000 as compared to an operating
loss of $553,000 for the first quarter of 1998. The component business
contributed $50,000 in operating income to the fiscal 1999 first quarter.
Other income, primarily net interest income, was $60,000 in 1999 and $246,000 in
1998. The decrease in net interest income is related to significantly lower cash
and investment balances in 1999, primarily due to cash expenditures for the
Company's stock repurchase program and the Jer-Neen acquisition, and interest
expense related to acquired liabilities and capital equipment leases. Operations
had a loss before income taxes of $381,000 in 1999 as compared to a loss of
$307,000 in 1998.
The Company recorded a benefit from income taxes of $63,000 in 1999, an
effective tax rate of 16%, as compared to a effective tax rate of 33% in 1998.
The 1999 effective tax rate is less than the statutory rates primarily due to
the impact of permanent differences, including nondeductible goodwill related to
the acquisition of Jer-Neen, partially offset by the impact of research and
experimental credits.
The first quarter 1999 net loss from operations was $318,000, or $0.03 per
share, compared to a net loss of $205,000, or $0.02 per share in 1998.
Liquidity and Capital Resources
Cash, cash equivalents and marketable securities were $7,500,000 at January 31,
1999 as compared to $8,400,000 at October 31, 1998, a reduction of $900,000.
Operating activities used cash of $119,000 in the first three months of 1999, as
compared to $413,000 in the first three months of fiscal 1998. Cash was used by
continuing operations through an increase in inventory levels and by reducing
accrued expenses. These cash uses were offset by non-cash expenses in excess of
the loss from operations and receivable collection efforts which generated a
reduction in receivables.
Investing activities included $328,000 used for the purchase of equipment and
leasehold improvements, $27,000 invested in intangible assets and $51,000 used
for acquisition costs related to Jer-Neen.
10
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED
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Financing activities used $334,000 of cash to repay a bank note and other
liability obligations of Jer-Neen, including capital equipment lease
obligations. The Company has long-term obligations of $956,000 at January 31,
1999. Payments are required through 2004.
The Company believes existing cash and investments will be sufficient to satisfy
its cash requirements for the foreseeable future. This forward looking
statement, as well as the Company's long term cash requirements, will be a
function of a number of variables, including research & development priorities,
stock repurchase program activities, acquisition opportunities, and the growth
and profitability of the business.
New Accounting Standards
Effective November 1, 1998, the Company adopted SFAS No. 130 ("SFAS 130"),
Reporting Comprehensive Income, which establishes standards for reporting and
displaying comprehensive income and its components (revenues, expenses, gains
and losses) in the financial statements. The Company's only component of other
comprehensive income is the unrealized gain/loss on available-for-sale
investments.
SFAS No. 131 ("SFAS 131"), Disclosures about Segments of an Enterprise and
Related Information, establishes new standards for the way public business
enterprises report information about operating segments. The Company must adopt
SFAS 131 for fiscal year end 1999 and management is in the process of evaluating
the effect on its financial reporting.
Year 2000 Readiness - Update
The following Year 2000 disclosure update is required by the rules and
regulations of the Securities and Exchange Commission and constitutes a "Year
2000 Readiness Disclosure" as defined in the Year 2000 Information and Readiness
Disclosure Act.
The "Year 2000" or "Y2K" problem references the problem caused by computer
systems that have historically been written using two digits rather than four
digits to define the applicable year. Additionally, Y2K includes a problem
calculating leap year if a computer system does not correctly identify the year
2000 as being a leap year. Company computer systems and other equipment and
technology having date sensitive software may recognize a date using "00" as the
year 1900 rather than the year 2000 and may not recognize the year 2000 as a
leap year. The Company has instituted a Year 2000 readiness program (the "Y2K
Plan") in order to identify, evaluate and address its exposure to these
problems.
For purposes of its Y2K Plan, the Company defines "Year 2000 compliant" to mean
that a product or service accurately process dates and times into and between
the twentieth and twenty-first centuries, into and between the years 1900 and
2000, performs correct leap year calculations and properly exchanges date and
time information with other products or services when used in combination. The
goal of the Y2K Plan is to ensure that the Company's equipment, systems and
processes and those of its significant business partners are sufficiently Year
2000 compliant such that no date/time issue will have any adverse impact on the
services or products that the Company provides its customers or the timely and
accurate processing of transactions.
State of Readiness. As part of the Company's Y2K Plan, management has
substantially completed its evaluation of its information technology ("IT") and
non-information technology ("non-IT") systems, including manufacturing
equipment, telephone and mechanical systems and other equipment and systems
having embedded, date sensitive technology for Year 2000 compliance. The
Company's Y2K Plan is focused on assessing and assuring compliance in the
following areas: IT and non-IT hardware, operating systems, software
applications and custom applications.
11
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED
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Additionally, the Company is in the process of reviewing the Year 2000
compliance status of its customers, vendors and other service providers.
Hardware. The Company has substantially completed its assessment of its IT and
non-IT hardware for Y2K compliance. The Company estimates that most of its IT
and non-IT hardware has either been upgraded for Y2K compliance or has been
certified internally or through the appropriate vendor to be compliant. As of
January 31, 1999, certain non-IT hardware systems remain under review. The
Company expects that these remaining systems will be upgraded or certified as
Y2K compliant by June 30, 1999.
Operating Systems. The Company's operating systems are Novell Netware, Microsoft
NT and Microsoft Windows 95. Novell has certified Netware to be Y2K compliant.
Microsoft has certified Windows 95 to be compliant. Microsoft has certified that
its NT 4.x software is compliant upon installation of the most recent service
patches released or the installation of a software upgrade released in December
1998. The Company expects to install the Microsoft NT software upgrade by April
30, 1999.
Software Applications. The Company's primary information system applications
consist of Micro-MAX MRP system, Great Plains Accounting and DataWorks Vantage.
Micro-MAX released a service upgrade in 1998 that addressed its Y2K compliance.
Great Plains Accounting has been certified Y2K compliant for a number of years
and DataWorks has certified Vantage to be Y2K compliant. The Company's secondary
software systems consist of "off-the-shelf" software. The Company has
substantially completed the process of obtaining from its vendors certification
that each secondary software package is compliant. None of these secondary
software programs are critical to the Company's ability to accurately and timely
process transactions. The Company expects that all remaining secondary software
applications will either be assessed to be not dependent on date/time accuracy,
certified by the vendor to be Y2K compliant or replaced by June 30, 1999.
Custom Applications. The Company has only a few custom applications written in
"off-the-shelf" software. These applications were written in versions of
software which have been determined not to be Y2K compliant. In each instance
the Company has determined that date/time is either not essential to the
functioning of the application, can be worked around, or that the application's
function can either be accomplished manually or completed in another manner
using alternative software. Accordingly, the Company may choose not to address
the Y2K issues related to these custom applications.
Third Party Relationships. Because Y2K issues may also impact the Company by
affecting the business and operations of the Company's vendors, customers and
other business partners, the Company is in the process of communicating with
these parties in order to determine their Y2K compliant status. The Company has
begun to communicate with its customers, vendors and other business partners
regarding their Y2K compliance status. However, the Company has not been able to
determine if the failure of a third-party to be Y2K compliant will have a
material adverse affect on the Company. The Company anticipates that this part
of its Y2K plan will be substantially complete by June 30, 1999.
Costs to Address Year 2000 Issues. Although the ultimate cost of attaining Year
2000 compliance is not fully known at this time, management anticipates that
external costs will not be material. These costs will be funded from operations.
The Company does not track internal personnel time spent on IT projects,
including the Y2K project. To date, no IT projects have been delayed as a result
of the Company's Y2K project. In the event the Company's Y2K Plan is not
successful or timely implemented, the Company may need to devote more resources
to the process and additional costs may be incurred. Such a situation could have
a material adverse effect on the Company's financial condition and results of
operations.
The costs of Year 2000 compliance and the expected completion dates are the best
estimates of Company management. Estimated costs of the Company's Y2K project
and projected completion dates are forward-looking statements that may be
impacted by the Company's current belief as to the extent of its internal
exposure to the Y2K
12
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED
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problem, the timeliness and accuracy of information provided by the Company's
vendors, customers and other business partners in response to Y2K compliance
inquiries by the Company, the cost and availability of upgrades, corrections or
replacements for IT and non-IT systems identified as non-compliant, and the cost
of and the Company's ability to procure the services of consultants or qualified
personnel to assist with its Y2K Plan.
Worst Case Scenario. The Company believes that its most reasonably likely, worst
case scenario as a result of the Year 2000 problem will be the failure of one or
more significant vendors, customers or business partners to become Year 2000
complaint and the inability of the Company to determine or react on a timely
basis in order to mitigate the effects on the Company. If the operations of any
significant vendor, customer or other business partner are disrupted due to the
Year 2000 problem and the Company is unable to develop and implement an
effective contingency plan, the Company's ability to carry on essential
activities could be materially impacted. Even though the Company is undertaking
its Y2K Plan in an effort to mitigate its risks, there can be no assurance that
this scenario or any other impact of the Y2K problem will not have a material
adverse effect on the Company's business, financial condition and results of
operations.
Contingency Plans. To date, the Company has not yet developed any detailed
contingency plans to address Year 2000 compliance deficiencies, as it is still
in the process of gathering data from its customers, vendors and other business
partners regarding their Year 2000 compliance and otherwise implementing its Y2K
Plan. To the extent that the Company identifies Year 2000 compliance issues that
cannot be addressed on a timely basis, it will seek to develop appropriate
contingency plans in order to mitigate its risks.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
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PART II. OTHER INFORMATION
- --------------------------------------------------------------------------------
ITEM 1. LEGAL PROCEEDINGS
The Company is currently involved in litigation which is ordinary and incidental
to its business. In the opinion of management, the ultimate resolution of the
pending legal proceeding will not have a material adverse effect on the
Company's future business, financial condition, results of operations or cash
flows.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
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 16.
(b) Form 8-K. During the quarter ended January 31, 1999 the Company filed the
following report on Form 8-K in connection with the acquisition of
Jer-Neen:
Amendment No. 3 to Current Report on Form 8-K/A dated July 31, 1998,
reporting Item 7 - Financial Statements and Exhibits. This amendment
included audited financial statements of Jer-Neen as of and for the year
ended October 31, 1997, unaudited interim financial statements as of July
31, 1998 and for the nine-month periods ended July 31, 1998 and 1997, and
pro forma financial information for the year ended October 31, 1997 and for
the nine-month period ended July 31, 1998.
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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, 1999 /s/ Connie L. Magnuson
-----------------------------------
Connie L. Magnuson
Vice-President of Finance and Chief
Financial Officer
(Principal Financial Officer)
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BIO-VASCULAR, INC.
INDEX TO EXHIBITS
- --------------------------------------------------------------------------------
10.1 Lease Agreement effective August 27, 1997 between Jer-Neen
Manufacturing Co., Inc. and F&G Incorporated (filed herewith
electronically).
10.2 Change in Control Agreement dated February 1, 1999 between the Company
and B. Nicholas Oray (filed herewith electronically).
27.1 Financial Data Schedule for the three-month period ended January 31,
1999 (filed herewith electronically).
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EXHIBIT 10.1
8/20/97
OFFICE/WAREHOUSE
AND MANUFACTURING/ASSEMBLY LEASE
THIS LEASE, made in triplicate, dated, for reference purposes only
August 27th, 1997, by and between F&G Incorporated, a Minnesota corporation
(hereinafter called "Landlord") and Jer-Neen Manufacturing Co., Inc., a
Minnesota corporation (hereinafter called "Tenant", whether singular or plural).
WITNESSETH:
1. PREMISES:
Landlord hereby leases to Tenant, and Tenant hereby leases from
Landlord, that certain space (herein the "Demised Premises") as outlined in red
on Exhibit "A" attached hereto, containing approximately 25,000 square feet
being all of the rentable space within that certain building (herein the
"Building") known as Lino Lakes Business Center, 475 Apollo Drive, Lino Lakes,
Minnesota 55014 (Phase II).
2. TERM:
The Term of this Lease shall commence upon the "Commencement Date,"
which shall be late of (i) November 1, 1997, and (ii) 60 days following the date
the Landlord delivers possession of the Demised Premises to Tenant with
Landlord's Work substantially completed in accordance with Exhibits "B" and "C";
provided that if Tenant commences conducting business in any portion of the
Demised Premises prior thereto, the Commencement Date shall be the date Tenant
so commences conducting business. Following the Commencement Date the term of
this lease shall continue for five years and no months plus, if the Commencement
Date is not the first day of a calendar month, the partial calendar month in
which the Commencement Date occurs. Any entry by Tenant prior to the
Commencement Date shall be subject to all of the terms and conditions of this
Lease other than the obligation to pay any rent.
3. RENT:
Tenant agrees to pay Landlord as rent for the Demised Premises the
annual sum of One Hundred Two Thousand Five Hundred and No/100 dollars
($102,500.00) payable in monthly installments of Eight Thousand Five Hundred
Forty One and 67/100 Dollars ($8,541.67), each in advance on the first day of
each and every month of said Term, without deduction or offset, at the office of
Landlord, as Landlord may form time to time designate. The Landlord acknowledges
receipt of the Tenant's check in the amount of $25,416.67, of which $12,708.33
is to be applied toward the base rent and operating costs due with of the term
$4,166.67 is to be applied to the second month's rent under the terms hereof,
and $8,541.67 is to be held as a security deposit for Tenant's compliance with
the terms, covenants and conditions of this Lease.
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4. USE:
Tenant shall use the Demised Premises for any legally permitted use
including without limitation manufacturing and assembly purposes and
office/warehouse purposes and shall not use or permit the Demised Premises to be
used for any other purpose without the prior written consent of Landlord.
Tenant shall not do or permit anything to be done in or about the Demised
Premises or bring or keep anything therein which will in any way increase the
existing or available rate of fire or other insurance upon the Building or any
of its contents or cause cancellation of any insurance policy covering the
Building or any part thereof or any of its contents, but the parties agree that
Tenant's proposed manufacturing, assembly, office and warehouse use shall be
deemed not to violate this provision. Tenant shall not do or permit anything to
be done in or about the Demised Premises that will unreasonably obstruct or
interfere with the rights of other tenants or occupants of the Building or
injure them or use or allow the Demised Premises to be used for any unlawful
purpose, nor shall Tenant cause, maintain, or permit any nuisance in, on or
about the Demise Premises, including, without limitation, any unreasonable
noise, vibration or offensive odor or act, whether or not the same be of a
continuous nature, Tenant shall not commit or suffer to be committed any waste
in or upon the Demised Premises.
5. POSSESSION:
If construction of the Demised Premises is not completed at the time of
execution of this Lease, Landlord agrees to complete such construction in
accordance with an Outline Specification and floor plan, which shall be attached
hereto, marked Exhibit "B" and exhibit "C" respectively, and made a part hereof.
The Demised Premises shall be considered to be ready to be delivered to the
Tenant when the Demised Premises are substantially completed and generally
suitable for occupancy. Landlord shall permit Tenant to occupy the Demised
Premises prior to the Commencement Date; such occupancy shall be subject to all
of the provisions of this Lease, but such early possession shall not advance the
expiration date set forth herein. Tenant shall complete the construction of the
Demised Premises using such contractors, subcontractors and suppliers as it
shall select in its sole discretion and in accordance with plans and
specifications selected by it, and Landlord hereby consents to such selections
and to the plans and specifications proposed by Tenant
6. COMPLIANCE WITH LAW:
Tenant shall not use the Demised Premises or permit anything to be done
in or about the Demised Premises which will in any way conflict with any law,
statue, ordinance, or governmental rule or regulation now in force or which may
hereafter be enacted or promulgated. Tenant shall, at its sole cost and expense,
promptly comply with all laws, statutes, ordinances, and governmental rules,
regulation, or requirements now in force or which may hereafter be in force
relating to or affecting the condition, use or occupancy of the Demised
Premises, excluding structural changes not related to or affected by Tenant's
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improvements or acts or other matters addressing Tenant's specific use of the
Demised Premises. Landlord warrants to Tenant that the base building provided by
Landlord does not violate any applicable building code, regulation, or ordinance
in effect at the time this Lease is executed. Except as provided in Paragraph 5
hereof and in the preceding sentence of this date of execution hereof, subject
to deficiencies noted within 90 days of the date of acceptance of the Demised
Premises by the Tenant or latent defects.
7. ALTERATIONS AND ADDITIONS:
Except for the initial improvements to the Demised Premises, Tenant
shall not make or suffer to be made any alterations, additions, or improvements
to or of the Demised Premises or any part thereof without the prior written
consent of landlord, except for alterations that do not have a material adverse
effect on the structure or any building system of the Building or alterations
that cost, in the aggregate, less than $10,000, which (in either case) shall not
require the consent of the Landlord. If landlord consents to the making of any
alterations, additions, or improvements to the Demised Premises by Tenant, the
same shall be made by Tenant at Tenant's sole cost and expense, and Tenant
agrees to obtain reasonable security against mechanic's liens. If any mechanic's
lien is filed against the Demise Premises for work done for, or materials
provided to, Tenant, such mechanic's lien shall be discharged by Tenant within
ten days thereafter, at Tenant's sole cost and expense, by the payment thereof
or by making any deposit required by law.
8. REPAIRS AND TERMINAL CONDITION; SERVICES AND UTILITIES:
Tenant shall, at Tenant's sole cost and expense, keep in good order,
condition, and repair the Demised Premises and every part thereof, including,
without limiting the generality of the foregoing, all heating and air
conditioning units, plumbing, electrical, and lighting fixtures and equipment,
fixtures, interior wall and ceilings, floors, windows, doors, plate glass and
skylights located within the Demised Premises, but excluding all other
structural repairs. Landlord shall make all necessary repairs to the outer
walls, roof, downspouts, gutters and structural elements of the Building.
Landlord shall keep the plumbing, sewage, electrical, natural gas and telephone
services to the Building in good order and repair, and shall keep the common
areas of the facility (including without limitation the grounds and parking
areas) in good order and repair. Landlord's obligations hereunder shall include
an obligation to contract for preventative maintenance to heating and air
conditioning equipment with at least four (4) annual inspections including
filter changes, oil and grease work, etc. Tenant may install in the Demised
Premises from time to time fixtures, trade fixtures and personal property. Trade
fixtures and personal property installed in the Demised Premises by Tenant may
be removed from the Demised Premises at any time. Upon the expiration or sooner
termination of this Lease and recovery of possession by Landlord, Tenant shall
leave the Demised Premises, including the leasehold improvements therein, in
broom clean condition, without any obligation to remove or restore any
alterations or to patch, repair or replace finish work, such as wallcoverings,
paint and carpeting, or to patch, repair or cover holes in the walls or floor
left by the removal of Tenant's property (unless such removal caused
extraordinary damage to the Demised Premises), or to restore the same to any
particular condition existing prior thereto. Notwithstanding the foregoing,
Tenant agrees not to remove any lighting fixtures or bulbs from the Demised
Premises. Thirty day prior to the
3
<PAGE>
end of the term of this Lease, Landlord and Tenant, or their representatives,
shall inspect the Demised Premises and settle any differences in accordance with
the terms of this Lease, and arrange for termination of utilities and adjustment
of Tenant's pro rata share of Operating Expenses, as set forth in Paragraph 34
hereof.
During the Term of this Lease, Landlord shall furnish the following to the
Building and the Demised Premises:
(a) heat, ventilation and air conditioning services to the
Building in good operating condition;
(b) water and sewer service, electrical power and telephone
service to the Building in good operating condition;
(c) maintenance, repair and replacement obligations as set
out in this Lease;
(d) exterior cleaning of the Building, including without
limitation window washing as necessary;
(e) maintenance and repair of the grounds, including without
limitation plowing of the parking area and sidewalks,
trimming of shrubs and trees, watering and cutting of
grass, removal of trash and debris, and all related
maintenance and repairs.
All such services and utilities shall be provided in a manner consistent
with those in first class office/warehouse and manufacturing facilities in the
Minneapolis/St. Paul metropolitan area.
9. INSURANCE:
Tenant agrees, at Tenant's expense, to maintain in force continuously
throughout the term of this Lease and any extension thereof (a) public liability
insurance covering all acts of Tenant, its employees, representatives and guests
on or about the Demise Premises, with a combined single limit of liability of
$1,000,000.00 for any one occurrence for bodily injury and property damage, and
(b) "all risk" property insurance covering Tenant's leasehold improvements,
trade fixtures and personal property within the Demised Premises. Such policy or
policies shall name Landlord as an additional insured. Memorandum copies or
certificates of all such insurance policies procured by Tenant shall be
delivered to Landlord, together with satisfactory evidence of payment of
premiums thereon, before the commencement date of the term demised herein or
Tenant's occupancy of the Demised Premises, whichever occurs first. All such
policies shall provide for notice of cancellation to be given in writing to
Landlord at least thirty (30) days before the effective date of such
cancellation. All renewal policies or memorandum copies or certificates thereof
shall be delivered to Landlord at least ten (10) days before the expiration date
of the policy then in force. Landlord agrees to purchase in advance, and to
carry in full force and effect (a) "all risk" property insurance coverage on the
Building, exclusive of Tenant's leasehold improvements, for the full replacement
cost of the Building, and (b) comprehensive general public liability insurance
covering
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the Lino Lakes Business Center, in a combined single limit of not less than
$1,000,000, and written on an "occurrence" Lease.
10. WAIVER OF SUBROGATION:
Landlord and Tenant each waives any and all rights of recovery against
the other or against the officers, employees, agents, and representatives of the
other, for loss of or damage to such waiving party or its property or the
property of other under its control, where such loss or damage is insured
against under any insurance policy in force at the time of such loss or damage,
or is insurable pursuant to the provisions of this Lease.
11. INDEMNITY AND HOLD HARMLESS:
Tenant shall indemnify and hold harmless Landlord against and from any
and all claims arising out of Tenant's use of the Demised Premises for the
conduct of its business or from any activity, work or other thing done,
permitted, or suffered by the Tenant in and about the Building, and shall
further indemnify and hold harmless Landlord against and from any and all claims
arising from any breach or default in the performance of any obligation on
Tenant's part to be performed under the terms of this Lease or arising from any
negligence of Tenant, or any officer, agent, employee, guest, or invitee of
Tenant, and from all costs, attorneys' fees, expenses, and liabilities incurred
in connection with any such claim or any action or proceeding brought thereon,
and in case any action or proceeding be brought against Landlord by reason of
any such claim, Tenant, upon notice from Landlord, shall defend the same at
Tenant's expense by counsel reasonably satisfactory to Landlord, Tenant hereby
assumes all risk of damage to property or injury to persons in, upon, or about
the Demised Premises from any cause other than Landlord's negligence, and Tenant
hereby waives all claims in respect thereof against Landlord, In addition,
Landlord shall indemnify and hold harmless Tenant, or any officer, agent,
employee, guest, or invitee of Tenant, against and from any and all claims
arising out of the use of the common areas in the vicinity of the Building by
persons other than Tenant, or any officer, agent, employee, guest, or invitee of
Tenant, and shall further indemnify and hold harmless Tenant against and from
any and all claims arising from any breach or default in the performance of any
obligation on Landlord's part to be performed under the terms of this Lease or
arising from any negligence of Landlord, or any officer, agent, employee, guest
or invitee of Landlord, and from all cost, attorneys' fees, expenses, and
liabilities incurred in connection with any claim or any action or proceeding
brought thereon.
Landlord, its agents, and its employees, shall not be liable for any damage to
property entrusted to employees of the Building or for loss or damage to any
property by theft or otherwise, or for any injury to or damage to persons or
property resulting from fire, smoke, explosion, falling ceilings or wall
coverings, gas leakage, electrical malfunction or failure, dampness, water or
rain which may leak from any part of the Building or from pipes, appliances, or
plumbing works therein or from the roof, street, or subsurface or from any other
place or resulting from any other cause whatsoever, unless caused by the
negligence of Landlord, its agent, servants, or employees.
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<PAGE>
Tenant shall give prompt notice to Landlord in case of fire or accidents in the
Demised Premises or in the Building or defects therein or in the fixtures or
equipment thereof.
12. FIRE OR OTHER CASUALTY:
If the Demised Premises or the Building, or any part thereof is damaged
by fire or other casualty, Landlord shall repair such damage, and this lease
shall remain in full force and effect, except that Tenant shall be entitled to a
proportionate reduction of rent while such repairs are being made, such
proportionate reduction to be based upon the extent to which such damage and the
making of such repairs shall interfere materially with the business carried on
by Tenant in the Demised Premises; provided, however, that if the Demised
Premises or the Building are damaged to such extent that damage cannot, in
either Landlord's or Tenant's reasonable determination, be repaired within
ninety (90) days after the date of such damage, then either landlord or Tenant
my terminate this Lease and the term herein granted by giving the other party
written notice of such termination as of the date specified in such notice,
which date shall be no less than thirty (30) days and not more than sixty (60)
days after the giving of such notice, and the rent payable hereunder, reduced by
the proportionate amount described above, shall be paid up to the date of such
termination. Landlord shall be required to restore the Demised Premises to
substantially the same condition as they were in when possession was first
delivered to Tenant.
13. CONDEMNATION:
If the whole of the Demised Premises is taken under power of eminent
domain or is sold to any entity having the power of eminent domain under the
threat of condemnation, this Lease shall terminate on the day on which the
condemnor or buyer takes possession thereof. In the event of such a taking or
sale of only a part of the Demised Premises which shall substantially interfere
with Tenant's use or occupancy thereof, Tenant my terminate this lease by giving
Landlord written notice thereof not more than ninety (90) days after the
condemnor or buyer takes possession of the part taken or sold. If a partial
taking or sale shall not substantially interfere with Tenant's use or occupancy
of the Demised Premises, or if Tenant does not terminate the lease as
hereinbefore provided, then, on the day on which the condemnor or buyer takes
possession of the part taken or sold, the rent payable hereunder thereafter
accruing shall be reduced in proportion to the value of the part of the Demised
Premises so taken or sold, and Tenant shall, to the extent partial, restore the
remaining portion of the Demised Premises to its condition prior to such partial
taking or sale, at Tenant's expense, anything elsewhere in this lease regarding
repair or replacement to the contrary notwithstanding. Landlord shall reimburse
Tenant for such part of the cost of such restoration which is not in excess of
the award or sales price received by Landlord for such partial taking or sale of
a portion of the Demised Premises. Tenant shall not otherwise by entitled to any
part of the award made or sales price received for such taking or sale of all or
any part of the Demised Premises and will assign, and does hereby assign, any
and all award or sales price received for such taking or sale and will execute
any assignments or other documents necessary to effect the transfer of such
award or sales price to Landlord. The foregoing shall not affect or limit the
right of the Tenant to reimbursements, if any, payable by the
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condemnor or buyer for relocation expenses incurred or paid by the Tenant as the
result of such taking or sale.
14. ASSIGNMENT:
Tenant shall not assign or sublet the Demised Premises without the prior
consent of Landlord, which consent shall not be unreasonably withheld or
delayed. In the event Tenant request that Landlord consent to such assignment of
subletting, Tenant agrees:
a) To pay Landlord $100 toward the costs incurred by
Landlord in connection with the review of such request,
and
b) That neither such assignments or subletting nor
Landlord's consent thereto shall in any way affect,
impair, or terminate Tenant's continuing covenant and
obligation to perform fully the obligations of Tenant
for the full remaining term of this Lease, and in
consideration of Landlord's consent to any such
assignment, Tenant hereby guarantees the performance of
all of the covenants and conditions contained in this
Lease for the full remaining term thereof.
Notwithstanding anything to the contrary in this paragraph 14, Tenant
may assign, sublease or otherwise transfer its rights under this Lease without
Landlord's consent to any entity controlled by, controlling or under common
control with Tenant, or any entity that acquires all or substantially all of the
assets of Tenant. Any such assignment sublease or other transfer shall not in
any way affect, impair or terminate Tenant's covenant and continuing obligation
to perform fully the obligations of Tenant for the full remaining term of this
Lease. In addition, the Tenant shall not be required to obtain Landlord's
consent to any such subleases or transfers of all or any portion of the
Expansion Building (as defined in paragraph 45 of this Lease).
At the time Tenant requests Landlord's consent to any proposed
assignment or subletting, Tenant shall provide Landlord with the terms of such
proposed assignment or subletting.
15. INSPECTION AND DESPLAY BY LANDLORD:
Landlord or its agents may, at any reasonable time or times, inspect any
part of the Demised Premises and make repairs thereon for the protection and
preservation thereof; provided, however, that such right shall not impose upon
Landlord any duty or obligation to make any such repairs. Any inspections and
repairs shall occur only after provision of reasonable and proper notice and
during normal business hours, except for emergency repairs. Tenant reserves the
right to accompany Landlord during any inspections and take other measures to
protect Tenant's trade secrets. Landlord shall have the right during the term of
this Lease to place and maintain on the grounds adjacent to the building
reasonable "For Sale" signs and to exhibit the Demised Premises to prospective
purchasers. Landlord shall have the right during the last three (3) months of
the term of
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this Lease to place and maintain on the grounds adjacent to the building
reasonable "For Rent" signs and to exhibit the Demised Premises to prospective
tenants.
16. INSOLVENCY
Any of the following:
a) Tenant filing a voluntary petition in bankruptcy, or
b) The filing of an involuntary petition in bankruptcy or
the filing of a petition for the appointment of a
receiver against Tenant, either of which is not
dismissed with thirty (30) days after such filing,
shall constitute a breach of this Lease by Tenant.
17. DEFAULTS:
Should Tenant breach any of the terms of this Lease, other than the
covenant to pay rent or the provisions contained in the paragraph captioned
"Insolvency or Assignment", Landlord shall give Tenant notice of such breach and
Tenant shall commence to cure such breach within thirty (30) days following the
giving of such notice and shall diligently proceed with and complete the curing
of such breach within a reasonable time.
If Tenant (a) fails to pay the rent herein reserved within 10 days of the due
date therefor, and said rent remains unpaid for 72 hours after notice form
Landlord to Tenant, (b) commits or suffers any act in violation of the covenants
contained in the paragraph captioned "Insolvency", or (c) breaches any of the
other covenants or obligations of this Lease and fails to cure such breach after
notice as hereinabove provided, Landlord shall have the option to terminate this
Lease or to re-enter and take possession of the Demised Premises without
terminating this Lease. If Landlord elects to re-enter and take possession
without terminating this Lease, Landlord may relet the Demised Premises or any
part thereof upon such terms and conditions as Landlord in its sole discretion
shall deem advisable.
All rent received by Landlord as a result of such reletting shall be
applied as follows:
a) to reimburse landlord for all expenses incurred in
re-entering and reletting;
b) To reimburse Landlord for cost of curing any breach of
this Lease by Tenant, including Landlord's legal fee;
c) To arrearages in rent due hereunder;
d) Any remainder shall be retained by Landlord.
Such re-entry shall not be deemed to relieve Tenant form any covenant contained
in or any obligation arising out of this Lease, provided, however, that Landlord
may itself
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perform or fulfill such covenant or obligation, and Tenant shall pay Landlord
the cost of same upon demand. No re-entry or retaking of possession shall be
deemed to constitute a termination of this Lease unless Landlord gives Tenant
notice to that effect either prior to or subsequent to such re-entry or retaking
of possession. Landlord shall be required to make all reasonable effort to relet
the Demised Premises and to otherwise mitigate its damages. In the event that
any advance rental has been paid hereunder, the entire amount thereof shall be
retained by Landlord and applied the same as rent received by Landlord as a
result of such reletting.
18. SUBORDINATION:
At Landlord's option, this Lease shall be subordinate to or prior to any
existing mortgage on the Demised Premises and to any future mortgage which may
be place upon the Demised Premises, and Tenant shall execute any and all
documents necessary to establish whether this Lease is subordinate or prior,
provided, however, that this Lease shall not be subordinate to a future mortgage
unless the mortgagee thereunder consents in writing to permit Tenant's quiet
enjoyment of the Demised Premises so long as Tenant observes and performs all of
the obligations and covenants herein contained.
19. NOVATION IN EVENT OF SALE OR TRANSFER:
In the event of the sale of the Building or the transfer of the title
thereto, Landlord shall be relieved of all of the covenants and obligations
created by this Lease, except as to breaches thereof occurring prior to such
sale or transfer, and such sale or transfer shall automatically result in the
purchaser or transferee assuming and agreeing to carry out all of the covenants
and obligations of Landlord herein form and after such sale or transfer.
20. NOTICE
Whenever notice is required or permitted by the terms hereof, it shall
be given in writing by certified or registered mail addressed to Tenant at the
Demised Premises and to Landlord at the place designated by Landlord for the
payment of rent. As in all provisions herein, times is of the essence.
21. ESTOPPEL STATEMENT:
Either Landlord or Tenant shall at any time, and from time to time, upon
not less than ten (10) days prior written notice from the other party, execute,
acknowledge, and deliver to such other party a statement in writing (a)
certifying that this Lease is unmodified and in full force and effect or, if
modified, stating the nature of such modification and certifying that this
lease, as so modified, is in full force and effect, and the date to which the
rent and other charges hereunder are paid in advance, if any, and (b)
acknowledging that, to such party's knowledge, there are no uncured defaults on
the part of the requesting party hereunder or specifying such defaults if any
are claimed. And such statement may be relied upon by any prospective purchaser
or encumbrances of all or any portion of the real property of which the Demised
Premises are a part
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22. WAIVERS:
The waiver by Landlord or Tenant of any term, covenant, or condition
herein contained shall not be deemed to be a waiver of such term, covenant, or
condition on a subsequent breach of the same or of any other term, covenant, or
condition herein contained. The subsequent acceptance of rent hereunder by
Landlord shall not be deemed to be a waiver of any then existing breach by
Tenant of any term, covenant, or condition of this Lease, other than the failure
of Tenant to pay the rent so accepted, regardless of Landlord's knowledge of any
such existing breach at the time of the acceptance of such rent.
23. DISPLAYS:
Tenant shall not display or suffer to display on the outside of the
Demised Premises, on the outside of the Building or on the sidewalks, driveways,
or parking areas adjoining the Building any goods or merchandise whatsoever,
except with Landlord's written consent.
24. CONDITION OF DEMISED PREMISES:
Tenant shall not allow any ashes, refuse, garbage, or other loose or
objectionable material to accumulate in or about the Demised Premises and will,
at all time, keep the Demised Premises in a clean and wholesome condition.
25. HOLDING OVER:
In the event that Tenant shall continue to occupy the Demised Premises
following the expiration of the term of this Lease, Landlord may, at its option,
convert such occupancy into either a holding over from month to month under the
same terms and conditions as prevailed during the last month of the term
demised, with the exception of rent, which shall be at a monthly rate of 1.5
times that payable during the last month of the term demised. Landlord may give
to Tenant notice of its intention to convert such continued occupancy into a
holding over from month to month or a holding over for a three-month period
within ten (10) days following the expiration of the term of this Lease, which
notice shall be effective notwithstanding that Tenant may have vacated the
Demised Premises prior to the giving of such notice. If such notice is not given
by Landlord, such holding over shall give Tenant no right of Possession or right
to receive notice to vacate, and Tenant shall pay Landlord an amount equal to a
prorate share of the last month's rent for the period of actual occupancy. In
any such event, Tenant shall also be liable to Landlord for any damage which
Landlord may incur as a result of such holding over, including, but not limited
to, damages incurred because of loss of a prospective successor tenant. In the
event that Tenant is a month-to-month hold-over Tenant, if Tenant should
continue to occupy the Demised Premises following the termination of such
hold-over period (by proper notice as to such month-to-month tenancy), then the
foregoing provisions of this paragraph shall apply in the same manner as when
Tenant continued in occupancy following the expiration of the original term of
the Lease.
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26. INTERRUPTION OF SERVICES:
No liability shall attach to Landlord for any inconvenience, loss, or
damage sustained by Tenant or any other person, or to the property of Tenant or
such other person, due to interruption of electric power, water, or gas to the
Building or to the Demised Premises or by reason of the failure of any piping,
wiring, or apparatus in the Building or any inconvenience, loss, or damage
sustained by Tenant as a result of any of the causes set forth in the paragraph
captioned "Indemnify and Hold Harmless", or caused by any act or thing done or
suffered to be done by any other tenant of the Building or any servant,
employee, agent, invites, or customer of Tenant. However, the Landlord shall
make all reasonable effort to remedy such interruption of service and shall
diligently pursue the re-establishment of all services.
27. DELINQUENCIES:
Landlord shall be entitled to assess interest at the rate of 1.5% per
month on all sums due from Tenant to Landlord from the date any such payment is
due until the date of payment thereof. Such interest charges shall be payable
within ten (10) days after receipt of invoice from Landlord.
28. RULES AND REGULATIONS:
Tenant shall abide by, keep, and observe all reasonable rules and
regulations which Landlord may make from time to time for the management,
safety, care, and cleanliness of the Building and grounds, the parking of
vehicles, and the preservation of good order therein, as well as for the
convenience of other tenants, occupants, and visitors to the Building, provided
that a copy of the same is delivered to Tenant. Landlord acknowledges that no
such rules or regulations exist as of the date of this Lease. Landlord hereby
approves Tenant's use of the rear service area near the building for exclusive
parking for its employee.
29. ZONING:
The Landlord covenants that the Demised Premises are properly zoned to
permit the Tenant's intended use of the Demised Premises. Any changes with
respect to the interior finishing of the premises in order to comply with any
local or municipal by-law shall be at the sole expense of the Tenant.
30. QUIET ENJOYMENT:
Conditional upon the faithful performance of the terms, covenant and
provisions herein contained by the Tenant, Landlord covenants that Tenant shall
quietly have, hold and enjoy the Demised Premises for the term hereof except or
otherwise herein provided.
31. ENTRY DURING CONSTRUCTION:
It is understood that the Landlord, its agents, contractors or employees
may at any reasonable time during the currency of this lease, enter the Demised
Premises for
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purposes of undertaking any reasonable construction work which may be necessary
to facilitate the occupancy of adjacent premises by tenants.
32. UTILITIES:
Tenant shall pay for all water, gas, heat, light, power, and other
utilities and services supplied to the Demised Premises, together with any taxes
thereon. If any such services are not separately metered to Tenant, then Tenant
shall pay a ratable share of all charges jointly metered with other portions of
the Building, such ratable share to be calculated as the percent the Tenant's
gross rentable area is of the total gross rentable area of the "Building".
Gas and Power are separately metered while Sewer and Water and "Common Area"
lighting charges are to be pro-rated as above.
33. JANITORIAL SERVICES:
Tenant shall provide all janitorial and refuse removal services for the
Demised Premises, at the expense of Tenant.
34. OPERATING EXPENSES:
As used herein, "Operating Expenses" means all costs paid or incurred by
Landlord with respect to the Building and with respect to the entire parcel of
land on which the Building is situated, including, but not limited to, the
following: operation; maintenance, management fees; repairing; lighting;
cleaning; removal of refuse, garbage, trash, snow and ice; landscape
maintenance; supervising; policing and security; maintenance, replacement and
operation of common areas and facilities, sidewalks, driveways, parking areas,
lighting standards, and exterior of Building; property insurance premiums; real
estate taxes and assessments (which shall be paid over the longest period
permitted by such taxing authority); and any other municipal taxes assessed
against the Building or Land; cost of contesting tax assessments; labor;
materials and supplies; and water sewer charges, and the cost of any capital
improvement made by Landlord to the Building or the parcel of land on which the
Building is situated which will result in a reduction of Operating Expenses
amortized over such a reasonable period of time as Landlord shall determine,
provided that the annual amount of such capital costs includable in any Lease
Year's Operating Expenses shall not exceed the actual reduction in Operating
Expenses, with any excess payable solely by Landlord. The Landlord warrants to
act as a prudent owner would in making decisions regarding management of common
areas. Notwithstanding anything to the contrary in this paragraph 34, Operating
Expenses shall not include: (a) any costs or expenses for goods or services that
exceed average competitive costs for comparable goods or for such services
rendered by persons of similar skill, competence and experience, other than by a
subsidiary or affiliate of Landlord; (b) depreciation and amortization, except
as expressly provided for above; (c) costs of a capital nature, except as
expressly provided for above; (d) the costs or correcting defects in, of
inadequacy of, the design or construction of the Building or the materials used
in the construction of the Building, all costs and expenses directly or
indirectly resulting from or relating to fire, windstorm or other casualty
damage (whether
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insured or insurable); and (e) costs or expenses resulting from the negligence
or intentional misconduct of Landlord or its employees, agents or contractors.
Tenant covenants to pay, within thirty (30) days from the date of receipt of
invoice therefore from Landlord, its ratable share of such Operating Expenses,
determined by application of the following formula:
Gross Rentable Area
Of Demised Premises Total Tenant's
------------------- X Operating = Ratable
Total Gross Rentable Expenses Share
Area of Building
At the time of such invoicing, Landlord shall also provide Tenant with a
statement showing in reasonable detail the total Operating Expenses and the
computation used in determining Tenant's share.
If the premiums on the building insurance increase as a direct result of
Tenant's use of the Demised Premises, Tenant shall pay landlord the amount of
such increase, provided, however, that Tenant shall not be required to pay any
portion of any increase in such insurance premiums resulting from the use made
by any other tenant of the space in the Building occupied by such other tenant.
In the event that the Landlord determines that the Tenant is using a
disproportionate share (as defined by its square footage relative to the total
Building square footage) of any common area charge, including energy and water
charges, then the Landlord reserves the right to make a reasonable determination
of the actual cost of such disproportionate use and assess the Tenant separately
for such disproportionate use prior to pro-rating the balance of such charges to
all Tenants in common. Notwithstanding anything to the contrary in paragraphs 34
to 37 of this Lease, Landlord and Tenant hereby agree that during the first four
(4) years of the Lease Term the Operating Expenses for the Demised Premises
shall be $50,000 per year. In addition, if at any time during the fifth lease
year Landlord receives any benefit from any tax increment financing arrangement
with the City of Lino Lakes, then the Operating Expenses payable by Tenant shall
be $50,000 for such fifth year. In the event that Landlord receives no such
benefit during the fifth lease year, Landlord shall be obligated to demonstrate
to Tenant's satisfaction that Landlord has derived no such benefit, and in such
event Tenant's share of Operating Expenses shall be calculated in accordance
with this paragraph 34 and paragraph 37. During any extension term, Tenant shall
pay Operating Expenses in accordance with said Paragraphs 34 and 37.
35. SIGNS AND LETTERING:
Tenant shall place no signs or lettering on or in the Building, except
flat lettering of a size and color as approved by the Landlord and on the
designated sign areas on the outside of the Building or as Landlord may
otherwise approve in writing. Landlord acknowledges that it has approved of
Tenant's proposed sign. Tenant may use the outside walls or roof of the Building
or the grounds near the building for reasonably acceptable signs or canopy
identifying Tenant, provided that said signs are in compliance
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with applicable city codes. Landlord shall at its sole expense, install and
maintain the structural elements of a monument sign for Tenant's exclusive use
during the term of this Lease.
36. HEAT:
Tenant shall, for such time during the term of this Lease as shall be
necessary, keep the Demised Premises properly and sufficiently heated and warm.
37. MONTHLY PAYMENT ON PRO-RATED EXPENSES:
The Tenant agrees to pay an estimated share of all pro-rated charges on
a monthly basis (as per Sections 32 and 34 of this Agreement). At least once per
annum the Landlord shall reasonably estimate to the Tenant such charges and the
Tenant shall include a monthly amount with the monthly rental payment. At least
once per year the Landlord shall adjust such payments against actual charges and
either reimburse the Tenant for any over-payments or invoice the Tenant for
additional charges still owing.
38. DEFINITIONS:
Whenever used herein, the singular shall include the plural unless the
contest otherwise requires, and the word "its" shall mean "his", "her", or
"their" as the contest may require.
39. MEMORANDUM:
Upon the request of either Landlord or Tenant, the parties shall enter
into a memorandum, in recordable form, setting forth a summary of the terms
hereof relating only to the description of the Demised Premises, the term
hereof, and the conditions of assignment or subletting.
40. HEADINGS:
The captions and paragraph headings hereof have been inserted for
convenience only and shall not be construed to modify, limit, or amplify the
meaning of the terms and provisions hereof.
41. BINDING EFFECT:
All of the covenants, obligations, and agreements contained in this
Lease shall be binding upon and shall inure to the benefit of the successors and
assigns of Landlord and Tenant, except as set forth in the paragraph captioned
"Novation in Event of Sale or Transfer", and except that this paragraph shall
not be deemed to authorize any assignment of Tenant's interest in this Lease
without Landlord's prior written consent.
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42. TENANT ALLOWANCES:
Landlord agrees to pay to Tenant an allowance (the "Allowance") on
account of all direct and indirect costs and expenses (including both so-called
"hard" and "soft" costs) incurred by Tenant in connection with the design and
construction of the improvements (including without limitation all architectural
fees, design fees and construction and supply costs, and changes to the standard
ceiling, core and shell that are not Landlord's responsibility under this Lease)
and furnishing of the Demised Premises for occupancy and the conduct of business
therein, including without limitation leasehold improvements, trade fixtures,
equipment, machinery, decorating, furniture, furnishings and personal property,
purchased by Tenant for use in the Demised Premises (collectively, "Qualifying
Costs"). The Allowance shall be in an amount equal to the lessor of (a)
$62,000.00 or (b) the aggregate amount of Qualifying Costs incurred by Tenant.
The Allowance shall be paid from time to time as Tenant respect to the Demised
Premised. Payment of the Allowance shall be paid by Landlord directly to Tenant
or, at the request of Tenant, to Tenant's contractor or others as to whom Tenant
owes any Qualifying Costs. The amounts paid to Tenant pursuant to this Section
42 shall be in addition to the amounts loaned to Tenant pursuant to Section 43
hereof. Tenant shall have the right, at Tenant's expense, to construct leasehold
improvement to the Demised Premises to accommodate its manufacturing operations.
43. LEASEHOLD IMPROVEMENT COSTS:
In addition to the allowances described in Section 42 herein, Landlord
agrees to provide funds for Tenant's use as set forth in this Section 43.
Landlord agrees to provide to Tenant an amount equal to 75% of all Qualifying
Costs, not to exceed $300,000.00. The amount so provided to Tenant shall be
designated as "10% Leasehold Improvement Costs'" and Tenant shall pay to
Landlord, as additional rent due under this Lease, the 10% Leasehold Improvement
Costs (plus an amount equal to 1% of the 10% Leasehold Improvement Costs) on a
monthly basis, amortized over a five year period at an interest rate of 10% per
annum. In addition, an amount equal to 1% of the 10% Leasehold Improvement Costs
shall be payable at the time the 10% Leasehold Improvement Costs are provided to
Tenant. The aggregate 2% fee represents Landlord's fee for supplying such finds.
If the full $300,000.00 is provided to Tenant pursuant to this Section 43, 1% of
such amount is $3,000.00 and the monthly amortized payment due to Landlord will
be $6,437.85. In addition to the 10% Leasehold Improvement Costs, Landlord shall
provide to Tenant, at Tenant's request, an amount up to $50,000 (the amount so
provided shall hereinafter be referred to as the "12% Leasehold Improvement
Costs"). This $50,000.00 will be made available to Tenant if the Qualifying
Costs exceed $400,000.00 but the amount so provided shall not be more than 75%
of the amount of Qualifying Costs in excess of $400,000.00. Tenant shall pay to
Landlord, as additional rent due under this Lease, the 12% Leasehold Improvement
costs (plus an amount equal to 1% of the 12% Leasehold Improvement Costs) on a
monthly basis, amortized over a five year period at an interest rate of 12% per
annum. In addition, an amount equal to 1% of the 12% Leasehold Improvement Costs
shall be payable at the time the 12% Leasehold Improvement Costs are provided to
Tenant. The aggregate 2% fee represents Landlord's fee for supplying such finds.
If the full $50,000.00 is provided to Tenant pursuant to this
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Section 43, 1% of such amount is $500.00 and the monthly amortized payment due
to Landlord will be $1,123.34.
44. OPTION TO EXPAND:
Landlord proposes to construct a second building, of similar type and
quality, adjacent to the Building (the "Expansion Building"). Landlord agrees
that it shall not commence construction on the Expansion Building prior to May
1, 1998, or to enter into any leases or other contracts related to the Expansion
Building that are inconsistent with the rights granted to Tenant hereunder.
Attached hereto as Exhibit D are plans and specifications for the Expansion
Building, or, if no Exhibit D is attached, Landlord agrees that any plans and
specifications for the Expansion Building are subject to Tenant's prior
approval, which shall not be unreasonably withheld. In any event, Landlord
agrees that the Expansion Building shall not contain more that 20,000 rentable
square feet without the Tenant's prior written approval.
On or before May 1, 1998, Tenant may notify Landlord that it desires to lease
all of the space in the Expansion Building, in which event (a) Landlord shall
promptly commence and diligently pursue to completion the construction of the
Expansion Building, (b) the Expansion Building shall be constructed in a
location selected by Tenant, which location may be abutting the Building, and
(c) upon substantial completion of the Expansion Building, this Lease shall be
amended to include all of the rentable space in the Expansion Building, and all
references in this Lease to the Demised Premises shall be deemed to include all
of the rentable space in the Expansion Building, and all references in this
Lease to the Building shall be deemed to include the Expansion Building, except
that the base rent for space within the Expansion Building shall be calculated
at a rate of $4.40 per square foot per year until the end of the initial Term of
this Lease. (The base rent for space within the original Building shall remain
at$4.10 per square foot per year.)
If the Tenant does not deliver such notice to Landlord on or before May 1, 1998,
Landlord shall nevertheless promptly commence and diligently pursue to
completion the construction of the Expansion Building, but such Expansion
Building need not about the Building. Tenant shall have a right of first refusal
(the "Refusal Option") to lease all or any portion of the Expansion Building
that landlord from time to time intends to lease to third parties. Tenant's
Refusal Option shall be continuous and shall apply as often and to every lease
intended to be made by Landlord of the Expansion Building whether or not Tenant
exercises or fails to exercise the Refusal Option as to the space in question.
Landlord shall not lease any of the Expansion Building, or grant any superior
rights in the Expansion Building, except subject to the provisions in this
paragraph 44. Whenever and as often as Landlord will lease any of the Expansion
Building to a third party, Landlord shall make such lease expressly contingent
on the non-exercise by Tenant of its Refusal Option with respect thereto and
shall offer such space to Tenant in writing (the "Notice"). The Notice shall
identify the prospective tenant and include a copy of the executed letter of
intent between Landlord and the prospective tenant. Tenant may, by giving
written notice of such election to Landlord within ten days after receipt of any
Notice, elect to exercise the Refusal Option to lease the space in question at
the base rental rate of $4.40 per square foot per year and on all of the other
terms and conditions of this Lease, including without limitation the Term of
this Lease. If the Refusal Option is exercised
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with respect to any space in the Expansion Building, all references in this
Lease to the Demised Premises shall be deemed to include all of the space in the
Expansion Building affected by such exercise and all references in this Lease to
the Building shall be deemed to include the Expansion Building.
45. BROKERAGE FEE:
Upon occupancy of the Demised Premises by Tenant pursuant to this Lease,
Landlord agrees to pay a brokerage fee of $12,812.50 to Thomas P. Immen of
Northco Real Estate Services.
46. OPTION TO RENEW:
Providing Tenant is not in default of any of the Lease terms and
conditions, Tenant shall have the right to renew the lease for a five year
period at a flat base (net) rental rate of $4.50 per square foot per year.
Tenant shall notify Landlord in writing prior to the Lease expiration of its
intent to execute its option hereunder. In addition to the original Demised
Premises, said option may include any space in the Expansion Building leased by
Tenant.
IN WITNESS THEREOF, Landlord and Tenant have caused this lease to be executed in
form and manner sufficient in law.
LANDLORD: TENTANT:
F&G INCORPORATED JER-NEEN MANUFACTURING CO.
INC.
By_________________________ By__________________________
Its______________________ Its_______________________
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EXHIBIT B
Outline Specifications for Landlord's Work
------------------------------------------
Landlord shall provide the following base building conditions:
Concrete Slab: A concrete slab with a minimum depth of 5" and suitably flat
for operation of a forklift
Natural Gas: A natural gas manifold suitable for the building, fitted
with a single meter.
Waste Lines: Prior to pouring concrete slab, Landlord shall install waste
lines to the areas designated by Tenant.
Sprinklers: Sprinklers distributed throughout the Demised Premises at a
standard of Ordinary Hazard Group #2 as defined in NFPA 13.
Landlord will provide Tenant with results from water float
tests conducted on the Building.
Electrical: 1000 Amp main fusible distribution panel at 208 volt-3 phase
and 4 wire in accordance with the attached riser diagram.
12 exterior wall pack security lights
Prior to pouring concrete slab, Landlord shall install 3"
empty PVC conduit to five locations designated by Tenant and
one electrical/telephone floor box (Hubbell FB1) with 2 -
3/4" PVC conduit.
Service Doors: Furnish and install 1 - 10' x 10' drive in door at location
identified by Tenant. Furnish and install 2 - 8' x 10'dock
doors at locations shown on plans.
Landlord shall block in any unused overhead service doors
and man door openings
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EXHIBIT 10.2
CHANGE IN CONTROL AGREEMENT
February 1, 1999
B. Nicholas Oray, PhD.
9552 Hillingdon Road
Woodbury, Minnesota 55125
Dear Mr. Oray:
You are presently the Vice President of Research and Development 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
<PAGE>
B. Nicholas Oray
Page 2
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 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
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B. Nicholas Oray
Page 3
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 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.
<PAGE>
B. Nicholas Oray
Page 4
For purposes of this Section 1(e), a "continuity director" means any
individual who is a member of the Board on January 16, 1998, 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.
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
<PAGE>
B. Nicholas Oray
Page 5
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 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
<PAGE>
B. Nicholas Oray
Page 6
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 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.
<PAGE>
B. Nicholas Oray
Page 7
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>
B. Nicholas Oray
Page 8
ARTICLE II.
TERM OF AGREEMENT
-----------------
This Agreement is effective immediately and will continue in effect until April
20, 1999; provided, however; that commencing on April 20, 1999 and each April 20
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 April 20, 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
<PAGE>
B. Nicholas Oray
Page 9
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 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
<PAGE>
B. Nicholas Oray
Page 10
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 "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.
<PAGE>
B. Nicholas Oray
Page 11
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 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.
<PAGE>
B. Nicholas Oray
Page 12
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.
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
<PAGE>
B. Nicholas Oray
Page 13
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>
B. Nicholas Oray
Page 14
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.
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.
<PAGE>
B. Nicholas Oray
Page 15
By: /s/ M. Karen Gilles
-------------------------------------
Name: M. Karen Gilles
-----------------------------------
Title: President and CEO
----------------------------------
Agreed to this 1st day of February, 1999
/s/ B. Nicholas Oray
-----------------------------------------
B. Nicholas Oray
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS AND RELATED NOTES FOR THE PERIOD ENDED JANUARY 31, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1998
<PERIOD-END> JAN-31-1998
<CASH> 5,509,179
<SECURITIES> 1,993,611
<RECEIVABLES> 2,493,756
<ALLOWANCES> 125,922
<INVENTORY> 2,502,263
<CURRENT-ASSETS> 12,921,683
<PP&E> 6,180,540
<DEPRECIATION> 1,698,775
<TOTAL-ASSETS> 25,184,989
<CURRENT-LIABILITIES> 2,057,058
<BONDS> 0
0
0
<COMMON> 93,506
<OTHER-SE> 22,171,567
<TOTAL-LIABILITY-AND-EQUITY> 25,184,989
<SALES> 3,829,183
<TOTAL-REVENUES> 3,829,183
<CGS> 1,912,183
<TOTAL-COSTS> 853,594
<OTHER-EXPENSES> 1,503,865
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (380,729)
<INCOME-TAX> (62,600)
<INCOME-CONTINUING> (318,129)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (318,129)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
