10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)
x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2009
OR
o	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: 0-27605

VASCULAR SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)

Minnesota	41-1859679
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

6464 Sycamore Court
Minneapolis, Minnesota 55369
(Address of principal executive offices, including zip code)

(763) 656-4300
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:	Name of each exchange on which registered:
Common Stock, par value $.01 per share	The NASDAQ Global Market
Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x

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 o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or ofr such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (section 229.406 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated, or a smaller reporting company. See the definitions of “large accelerated filer,” accelerated filer,” and smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o Accelerated filer x Non-accelerated filer o Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x

The aggregate market value of voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold on June 30, 2009 was $122,687,487.

As of January 29, 2010, the number of shares outstanding of the registrant’s common stock was 16,732,610.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s Proxy Statement for its 2010 Annual Meeting of Shareholders to be held on April 22, 2010 are incorporated by reference in Part III of this Annual Report on Form 10-K.

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PART I

ITEM 1. BUSINESS

Overview

          Vascular Solutions, Inc. (we, us or Vascular) is a medical device company focused on bringing clinically advanced solutions to interventional cardiologists and interventional radiologists worldwide. We were incorporated in the state of Minnesota in December 1996, and began operations in February 1997. Our main product lines consist of the following:

• Hemostat (blood clotting) products, principally consisting of the D-Stat^® Dry hemostat, a topical thrombin-based pad with a bandage used to control surface bleeding, and the D-Stat Flowable, a thick yet flowable thrombin-based mixture for preventing bleeding in subcutaneous pockets,

• Extraction catheters, principally consisting of the Pronto^® V3 and Pronto LP extraction catheters, mechanical systems for the removal of soft thrombus from arteries,

• Vein products, principally consisting of the Vari-Lase^® endovenous laser, a laser and procedure kit used for the treatment of varicose veins,

• Access products, principally consisting of micro-introducer kits, MICRO Elite™ and EXPRO Elite™ snares, the Guardian^® hemostasis valve, and guidewires used in connection with percutaneous access to the vasculature, and

• Specialty catheters, consisting of a variety of catheters for clinical niches including the Langston^® dual lumen catheters, Twin-Pass^® dual access catheters, GuideLiner™ catheter, Minnie™ support catheter, and Gopher™ catheter.

          In 2000 we received FDA clearance for our first product, the Duett™ sealing device, which is used to seal the puncture site following catheterization procedures. In 2001, due to competitive developments in the sealing device market, we made the strategic decision to develop additional products and de-emphasize the promotion of our Duett sealing device. We have grown from net revenue of $6.2 million in 2000 solely from the Duett device to net revenue of $68.4 million in 2009, with 99% of our 2009 net revenue coming from products other than the Duett device. This increase in revenue represents a compound annual growth rate of 31% and was driven by our commitment to the research and development of multiple new devices to diagnose and treat existing and new vascular conditions.

          As a vertically-integrated medical device company, we generate ideas, create new interventional medical devices and then deliver these devices directly to the physician through our direct domestic sales force and our international distribution network. We are currently developing several additional products that leverage our existing infrastructure to bring additional solutions to the interventional cardiologist and interventional radiologist.

Interventional Cardiology and Interventional Radiology Industry Background

          An estimated 80 million Americans have one or more types of cardiovascular disease—diseases of the heart and blood vessels. Cardiovascular disease is the number one cause of death in the United States and is replacing infectious disease as the world’s pre-eminent health risk. Advances in medicine have enabled physicians to perform an increasing number of diagnostic and therapeutic treatments of cardiovascular disease using minimally invasive methods, such as catheters placed inside the arteries, instead of highly invasive open surgery. Cardiologists and radiologists use diagnostic procedures, such as angiography, to confirm, and interventional procedures, such as angioplasty and stenting, to treat diseases of the coronary and peripheral arteries. Based on industry statistics, we estimate that cardiologists and radiologists performed over nine million diagnostic and interventional catheterization procedures worldwide in 2009. The number of catheterization procedures performed is expected to continue to grow as the incidence of cardiovascular disease continues to increase and the diagnosis and treatment of cardiovascular disease expands worldwide. The worldwide market for interventional medical devices in 2009 exceeded $5 billion.

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          Each angiographic procedure using a catheter requires a puncture in an artery, usually the femoral artery in the groin area and sometimes the radial artery in the wrist of the patient to gain access for the catheter. The catheter then is deployed through an introducer sheath and into the vessel to be diagnosed or treated. Upon completion of the procedure and removal of the catheter, the physician must seal this puncture in the artery and the tissue tract that leads from the skin surface to the artery to stop bleeding.

          For information about our revenue, profits or losses and total assets, see our Consolidated Financial Statements included in Item 8 of Part II of this 10-K.

Hemostat Products

          Our hemostat products utilize thrombin, a powerful bovine-derived blood clotting protein, to deliver a rapid seal of bleeding with a variety of shelf-stable product configurations. Through internal development we developed a proprietary manufacturing process to terminally sterilize our thrombin-based hemostats, which has resulted in our ability to create unique advantages in storage, shipping, preparation and application of our hemostat products.

          Our most popular hemostat product is the D-Stat Dry hemostat bandage. In September 2003 we received regulatory clearance and commenced sales of our D-Stat Dry hemostat bandage in the United States and international markets. The D-Stat Dry hemostat bandage is a version of our proprietary blood clotting substance that is lyophilized (freeze-dried) into a gauze pad and combined with an adhesive bandage for application. The D-Stat Dry is used as an adjunct to manual compression for managing bleeding after catheterization procedures.

          The traditional method for sealing the puncture site after catheterization procedures has been a manual process whereby a healthcare professional applies direct pressure to the puncture site, sometimes using a sand bag or a large C-clamp, for 20 minutes to an hour in order to form a blood clot. The healthcare professional then monitors the patient, who must remain immobile in order to prevent dislodging of the clot, for an additional two to 24 hours. Patients subjected to manual compression generally experience significant pain and discomfort during compression of the puncture site and during the period in which they are required to be immobile. Many patients report that this pain is the most uncomfortable aspect of the catheterization procedure. In addition, patients can develop a substantial coagulated mass of blood, or hematoma, around the puncture site. Finally, the need for healthcare personnel to provide compression and the use of hospital beds during the recovery period results in substantial costs to the institution, which, under virtually all current healthcare payment systems, are not separately reimbursed.

          Until 1996, manual compression was used following virtually all catheterization procedures. In late 1995, the first vascular sealing device which did not rely on compression was introduced in the United States. In addition to invasive (below the skin surface) sealing devices, starting in 2000, non-invasive “patches” began to be used as an assist to manual compression following catheterizations. Non-invasive patches are used by physicians who (principally due to cost, complexity or risk of complications) do not wish to use invasive sealing devices, and for those patients who are contra-indicated for an invasive sealing device. Based on the number of catheterization procedures performed annually by cardiologists and radiologists, industry sources report that the total market opportunity for vascular sealing devices (invasive and non-invasive) is more than $1 billion annually.

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          We completed a 376-patient, five center randomized clinical study that demonstrated a 50% reduction in the median time-to-hemostasis when using the D-Stat Dry bandage compared to simple manual compression. In the third quarter of 2006 we received Food and Drug Administration (FDA) clearance of our claim that the D-Stat Dry reduces the time-to-hemostasis in diagnostic catheterizations. In the first quarter of 2008 we received FDA clearance and began selling two new versions of the original D-Stat Dry bandage. The first new version, the D-Stat^® Dry Clear hemostatic bandage, is packaged with a clear bandage which allows for better visibility of the site while the bandage is in place. The second new version, Thrombix^®, uses a lower cost manufacturing process which offers price flexibility within the product line. In the first quarter of 2009 we received FDA clearance and began selling a new version of the original D-Stat Dry bandage. This new product, the D-Stat^® Dry Wrap hemostatic bandage, contains a pre-cut specifically designed for the control of bleeding around indwelling lines. We believe that the market for hemostat pads following catheterization procedures has grown substantially since the first competitive patch was introduced in 2000, with a market size greater than $50 million in 2009.

          We have developed additional configurations of our hemostat technology for specialized medical procedures. Our D-Stat Radial hemostat band is a version of the D-Stat Dry that includes a compression band to allow it to be applied over the radial artery in the wrist. In approximately 5% of all catheterizations in the United States, the radial artery in the wrist instead of the femoral artery in the groin is used to gain arterial access. In these cases using the radial artery, a variety of compression splints and tapes have been used for controlling bleeding following the procedure. The D-Stat Radial is the first device that contains an active blood clotting agent together with a compression collar for this purpose. We received regulatory clearance for the D-Stat Radial hemostat band in September 2003, and made manufacturing improvements to the product before launching it in the United States in early 2004. In December 2009, we made further manufacturing improvements and launched a new version called the D-Stat Rad-Band™ in the United States.

          Our D-Stat Flowable hemostat, which we began selling worldwide in February 2002, is a thick yet flowable mixture of collagen, thrombin and diluent that can be delivered topically and into voids and open spaces to control active bleeding. The D-Stat Flowable hemostat can be used in a wide variety of procedures as an adjunct to hemostasis. In December 2006 we received FDA approval of our premarket approval (PMA) supplement for the use of D-Stat Flowable in the prepectoral pockets created in pacemaker and implantable cardioverter defibrillator (ICD) implants. Our PMA supplement was supported by the results of our 269-patient “Pocket Protector” clinical study that demonstrated a 48% reduction in the incidence of clinically relevant hematomas through the use of D-Stat Flowable compared to the standard of care. We estimate that the U.S. market opportunity for this prepectoral pocket indication is greater than 100,000 procedures or $10 million annually.

          Our original Duett sealing device is designed to provide a complete seal of the puncture site following catheterization procedures such as angiography, angioplasty and stenting. The Duett sealing device combines an easy-to-use balloon catheter delivery mechanism with a biological procoagulant mixture, which we believe offers advantages over both manual compression and competitive vascular sealing devices. We began selling our Duett sealing device in Europe in February 1998 and in the United States in June 2000. In the fourth quarter of 2001 we introduced the Diagnostic Duett version of the Duett sealing device, which utilizes a lower dose of procoagulant for the less-challenging diagnostic subset of catheterization procedures.

          At the end of the first quarter of 2004 we received regulatory clearance in the United States for the Thrombi-Pad^® trauma bandage. The Thrombi-Pad trauma bandage is a larger-sized version of our D-Stat Dry designed for use in trauma indications, does not require mixing or special storage requirements and can be quickly applied to even severely bleeding wounds. During the second quarter of 2005 we received regulatory clearance in the United States for the Thrombi-Gel^® hemostatic foam. The Thrombi-Gel hemostatic product contains a gelatin foam pad (instead of the non-resorbable gauze pad in the D-Stat Dry) to provide a unique, premixed, sterile, gelatin/thrombin hemostat. An additional version of the Thrombi-Gel in development is the Thrombi-Paste™, which adds a liquid to make a thick thrombin-based gel. Because the Thrombi-Pad, Thrombi-Gel and Thrombi-Paste products are expected to be utilized outside of our core market of interventional procedures, we have licensed the distribution of these products to King Pharmaceuticals, Inc., as described under “Agreements with King Pharmaceuticals, Inc.” below.

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Extraction Catheters

          Our Pronto products consist of a catheter with a proprietary distal tip and large extraction lumen that can be delivered into arteries to mechanically remove blood clots using simple vacuum suction. The Pronto extraction catheter was initially developed by Dr. Pedro Silva of Milan, Italy, who exclusively licensed the design to us in 2002. We received CE mark approval and commenced international sales of the Pronto in August 2003, and received FDA clearance in December 2003 and commenced sales in the United States in early 2004. In the fourth quarter of 2005 we launched the third generation design of the Pronto, named the Pronto V3. The V3 version of the Pronto resulted in a substantial increase in Pronto sales in 2006. The FDA cleared the Pronto V3 catheter for specific use within the coronary system in December 2006. We believe that the market size for the removal of soft thrombus is greater than $100 million per year worldwide.

          We have developed four additional versions of extraction catheters -- the Pronto-Short, Pronto .035”, Pronto LP and QXT^®. The Pronto-Short is a shorter and larger version designed for use in clotted dialysis grafts that was launched in August 2005. The Pronto .035” is a much larger version designed for use in large vessel peripheral indications that was launched in August 2007. The Pronto LP is a low profile version that is designed for use in smaller vessels and was launched in January 2008. The QXT is a low-cost version that is designed to be sold in certain international markets and was launched in March 2008.

Vein Products

          Our Vari-Lase endovenous laser products consist of a laser console, procedure kits and accessories used in the treatment of reflux of the great saphenous vein, commonly referred to as varicose veins. More than one million people in the United States seek treatment each year for varicose veins. Left untreated, varicose veins can result in serious clinical consequences, including limited mobility and venous stasis ulcers. Historically, an invasive surgical procedure known as vein stripping was the only treatment for severe varicose veins. While vein stripping is still performed, since 2002 a non-surgical procedure using endovenous laser energy to treat and close the diseased vein has become a preferred alternative. Recent clinical data on endovenous laser therapy has demonstrated excellent clinical results and outstanding patient satisfaction. During the fourth quarter of 2004 the Center for Medicare and Medicaid Services (CMS) published the Medicare Physicians Fee Schedule which established favorable reimbursement rates for the endovenous laser procedure starting January 1, 2005. Private insurance companies also have issued reimbursement coverage decisions resulting in more physicians adding endovenous laser therapy to their practice. We believe the current market size for treating varicose veins using endovenous therapy is greater than $140 million per year.

          The first product we launched in our vein product line was our Vari-Lase^® procedure kit in July 2003 in the United States. Our Vari-Lase procedure kit is custom-designed for the endovenous procedure, with features supporting ease-of-use and safety, and is compatible with many of the competitive laser consoles used in this procedure. In December 2003, we received FDA clearance for our Vari-Lase laser console, which is manufactured to our specifications by MedArt, a leading Denmark-based medical laser manufacturer. Since 2004 we have continued our expansion by adding several accessory items to our vein product line. In April 2007 we launched the Vari-Lase Bright Tip™ fiber which utilizes a ceramic sleeve to the distal tip of the laser fiber to provide improved ultrasound visibility and prevent contact between the energy-transmitting fiber tip and the vein wall during the application of laser energy.

Specialty Catheters

          Specialty catheters consist of a variety of catheters designed to perform unique functions within clinical niches in interventional medicine. At the end of the third quarter of 2004 we received regulatory clearance in the United States for the Langston dual lumen pigtail catheter. The Langston catheter is used for the precise measurement of intravascular pressure gradients, primarily measured to diagnose aortic valve stenosis. We believe our Langston catheter is the only dual lumen pigtail catheter on the U.S. market that can be used for this intended indication. We believe the U.S. market opportunity for the Langston catheter product line is $10 million annually.

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          During 2006 we launched the Twin-Pass dual access catheter. The Twin-Pass is a two lumen catheter designed to be used in conjunction with steerable guidewires to access discrete regions of the coronary and peripheral arterial vasculature and for use during procedures utilizing two guidewires. We believe the Twin-Pass addresses a market opportunity of between $1 million and $5 million annually within interventional cardiology.

          In July of 2007 we launched the Gopher support catheter. The Gopher catheter is designed to assist in the passage of interventional devices through arterial lesions by utilizing a unique rotational force. In August 2009 we launched our new version of this catheter, referred to as the Gopher™ Gold catheter. The Gopher Gold is designed for use when treating coronary and peripheral stenoses over an existing in-place 0.014” guidewire and contains a highly radiopaque gold-plated distal tip. We believe the market opportunity of the Gopher is in excess of $2 million per year.

          In January 2009 we launched the Minnie support catheter. The Minnie support catheter is designed to provide superior guidewire support and exchange for complex interventions. We believe the current market size for support catheters is greater than $15 million per year.

          In November 2009 we launched the GuideLiner catheter. The GuideLiner catheter is a unique coaxial “mother and child” guide extension with rapid exchange convenience that enables deep seating, guide back-up support and selective intubation in challenging coronary interventions. We believe the market opportunity of the GuideLiner is in excess of $15 million per year.

Access Products

          Access products are used to gain percutaneous access to the vasculature for a wide variety of arterial and venous procedures. We started selling access products in July 2003. Our access products include a full line of micro-introducer kits and a variety of specialty guidewires.

          During 2007 we entered into an agreement with Zerusa Limited, whereby we agreed to act as the exclusive U.S. distributor of Zerusa’s Guardian^® hemostatic valve. The Guardian hemostatic valve is a valve used in catheterization procedures to allow the placement of multiple devices simultaneously in the artery with a unique push-button operation that is designed to minimize blood loss. In November 2009 we launched a second generation version called the Guardian II hemostatic valve. The Guardian II has a shorter overall length and clear rotating components.

          During 2008 we entered into an agreement with Radius Medical to distribute their Micro Elite™ and Expro Elite™ Snares within the United States. The Elite snares feature a highly torqueable shaft design for control and maneuverability when accessing distal targets. We believe the market opportunity for the Micro Elite Snare is in excess of $2 million per year and the market opportunity for the Expro Snares is in excess of $5 million per year.

          During 2009 we entered into an agreement with Perouse Medical to distribute their Flamingo inflation device within the United States. The Flamingo is designed for use during cardiovascular procedures to create, maintain and monitor pressures.

          In March 2009 we launched the Grebset™ micro-introducer kit and in November 2009 we launched the PiggyBack™ wire converter. The Grebset is a unique micro-introducer kit with an angled tip that facilitates steerability. The PiggyBack converts the 0.014” guidewire into a 0.035” delivery device, preserving the position of the 0.014” guidewire and eliminating the need to switch-out or exchange guidewires.

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Other Products

          We have developed and offer several additional clinical niche products, and additional products in international markets which are not yet approved in the United States. During the second quarter of 2002 we acquired the Acolysis^® ultrasound thrombolysis system. The Acolysis system uses ultrasound energy generated by the Acolysis controller that is delivered by the disposable Acolysis probe to lyse blood clots and plaque within the artery. The Acolysis controller and probes are sold only in international markets, where it has been sold principally for the treatment of peripheral vascular disease.

          The amount of total revenue contributed by each of our product lines and by geographic areas for the last three fiscal years is set forth in Notes 2 and 11 to our Consolidated Financial Statements in Item 8 of Part II of this Form 10-K.

Agreements with King Pharmaceuticals, Inc.

          In January 2007, we entered into three agreements with King Pharmaceuticals, Inc., consisting of a License Agreement, a Device Supply Agreement and a Thrombin-JMI^® Supply Agreement.

          The effect of these three agreements was to forge a new relationship between us and King having essentially three components. First, King is selling through its direct sales force, and we are manufacturing and supplying to King, our Thrombi-Pad trauma bandage and Thrombi-Gel hemostat products (and in the future our Thrombi-Paste hemostat product). Second, we are working with King to develop additional hemostat products to be sold by King outside of our direct sales force’s call point of cardiac, peripheral and electrophysiology catheterization laboratories. Third, King is selling Thrombin-JMI^® to us for use in the manufacture of our hemostatic products under a 10-year, fixed price arrangement.

          Under the terms of the License Agreement, we granted to King an exclusive, royalty-free, fully-paid up, perpetual, worldwide right and license to all of our patents and know-how relating to the development, manufacture, use, sale, importation or other exploitation of our Thrombi-Pad trauma bandage, Thrombi-Gel 10, 40 and 100 hemostats, Thrombi-Paste hemostat (collectively, the “Products”) and all future medical devices having application in the Field (as defined below) and intended to produce hemostasis by accelerating the clotting process of blood (a “hemostat device”). The “Field” is defined as all applications of hemostat devices in all areas other than catheterization laboratories (cardiac and peripheral), electrophysiology laboratories and holding and recovery rooms for such laboratories. Upon execution of the License Agreement, King paid us a one-time payment of $6.0 million. No other payments are due from King to us under the License Agreement. The term of the License Agreement commenced on January 9, 2007 and continues until the later of the expiration of each licensed patent or King’s relinquishment of its license rights under the licensed know-how.

          Under the terms of the Device Supply Agreement, we agreed to manufacture and supply the Products to King and King agreed to purchase the Products from us for King’s exclusive commercialization, distribution, sale and use of the Products in the Field. King does not have any minimum purchase obligations under the Device Supply Agreement. The Device Supply Agreement does not limit our ability to manufacture the Products for our own commercialization, distribution, sale and use outside of the Field. The transfer prices are fixed for each Product under the Device Supply Agreement and are adjusted for cost and inflation increases according to a market index. Upon the first commercial sale by King of a Thrombi-Gel hemostat (which occurred in May 2007), King made a one-time, non-refundable milestone payment to us of $1.0 million. Upon the first commercial sale by King of a Thrombi-Paste hemostat product, King will be required to make another one-time, non-refundable milestone payment to us of $1.0 million. As directed by King, we will continue to perform the regulatory work necessary to obtain surgical approvals for the Thrombi-Gel products. King has directed us to suspend the regulatory work on the Thrombi-Paste products until further notice. King has agreed to reimburse us for our expenses in obtaining these approvals. If, after undertaking and completing the development and regulatory plans with respect to the Thrombi-Gel and Thrombi-Paste products, such development and regulatory efforts have not resulted in regulatory approval for surgical use, we have agreed to make a one-time, non-creditable, non-refundable payment of $2.5 million to King for both the Thrombi-Gel products and Thrombi-Paste products if they are not approved by the FDA for surgical use. We believe the probability of making these one-time payments to King is remote. Under the Device Supply Agreement, King also has certain rights of first refusal with respect to any hemostatic devices for use in the Field that we may develop on our own or at the request of King. The Device Supply Agreement has an initial term of 10 years, followed by successive automatic one-year extensions, subject to termination by the parties under certain circumstances, including termination by King without cause anytime after the third anniversary of its execution upon two years prior written notice to us.

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          Under the terms of the Thrombin-JMI^® Supply Agreement, King agreed to manufacture and supply thrombin to us on a non-exclusive basis. King agreed to supply us with such quantity of thrombin as we may order for use in devices not intended for sale by King in the Field at a fixed price throughout the term of the Thrombin-JMI^® Supply Agreement as adjusted for inflation, variations in potency and other factors. King also agreed to provide thrombin to us under the Thrombin-JMI^® Supply Agreement at no cost for incorporation into Products and hemostat devices intended for sale in the Field by King. The Thrombin-JMI^® Supply Agreement has an initial term of 10 years, followed by successive automatic one-year extensions, subject to termination by the parties under certain circumstances, including (1) termination by King without cause anytime after the fifth anniversary of its execution upon five years prior written notice to us and (2) termination by us without cause anytime after the fifth anniversary of its execution upon five years prior written notice to King provided that the Device Supply Agreement has expired on its terms or the parties have agreed to terminate it.

Business Strategy

          Our primary objective is to establish ourselves as a leading supplier of clinically superior medical devices for substantial, unique opportunities within interventional medicine. The key steps in achieving our primary objective are the following:

• Maintain and Improve our Clinically-Oriented Direct Sales Force in the United States. During 2000 we commenced sales of our products in the United States through a direct sales force of clinically trained account managers who sell and train interventional cardiologists, radiologists and catheterization laboratory personnel on the use of our products. As our product lines have increased, we have increased the size of our sales force to 92 at the end of 2009, which provides substantially complete geographic coverage of the United States.

• Expand our Existing Products to Our Existing Market. Starting in 2003 we have launched multiple new products in the United States through our direct sales force to our existing markets. Pursuing this multiple product strategy has generated material sales growth, and we believe that each of our current product lines has the potential to generate continued sales growth during 2010 and beyond.

• Develop New Devices to be Sold Through our Direct Sales Force to our Existing Customers. We intend to continue to leverage our direct sales force by bringing additional products to the interventional physician.

• Explore Corporate Partnerships for the Distribution of Products Through our Direct Sales Force to our Existing Customers. We intend to continue to leverage our direct sales force by bringing additional products to the interventional physician through distribution agreements. Over the past three years we have partnered with Radius Medical, Zerusa Limited and Perouse Medical to distribute their products in the United States. We are in discussions with additional potential distribution partners and expect to distribute additional products as they become available.

• Explore Corporate Relationships to Augment our Direct Sales Force. In markets for our products beyond the interventional physician (such as occurred with our Thrombi-Gel, Thrombi-Paste and Thrombi-Pad products) and in other situations where synergistic sales can result, we intend to enter into corporate relationships to broaden our products’ reach and increase our revenues without distracting our direct sales force.

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Sales, Marketing and Distribution

          In 2000 we commenced sales of our Duett sealing device in the United States through our direct sales organization. As of December 31, 2009, our worldwide sales force consisted of approximately 92 employees who sell our entire line of interventional products. We believe that the majority of interventional catheterization procedures in the United States are performed in high volume catheterization laboratories, and that these institutions can be served by our focused direct sales force.

          As part of our sales strategy, our sales force is clinically trained and is able to train physicians and other healthcare personnel on the use of our products. We believe that effective training is a key factor in encouraging physicians to use interventional medical devices. We have created, and will continue to work to improve, an in-the-field training program for the use of all of our products. We also develop and maintain close working relationships with our customers to continue to receive input concerning our product development plans.

          We are focused on building market awareness and acceptance of our products. Our marketing department provides a wide range of programs, materials and events that support our sales force. These include product training, conference and trade show appearances and sales literature and promotional materials.

          Our international sales and marketing strategy has been to sell to interventional cardiologists and interventional radiologists through established independent distributors in major international markets, subject to required regulatory approvals. In Germany, we created a wholly-owned subsidiary to sell directly to customers in the German market beginning in the fourth quarter of 2000. In the first quarter of 2008 we transitioned our sales in Germany to an independent distributor and closed our German subsidiary. We have entered into multi-year written distribution agreements with each of our independent distributors, and we ship our products to these distributors upon receipt of purchase orders. Each of our independent distributors has the exclusive right to sell our products within a defined territory. These distributors also market other medical products, although they have agreed not to sell directly competitive products. Our independent distributors purchase our products from us at a discount from list price and resell the device to hospitals and clinics. Sales to international distributors are denominated in United States dollars, with the exception of the Germany distributor where sales are denominated in Euros. The end-user price is determined by the distributor and varies from country to country.

New Product Development

          Our research and development staff is currently focused on developing new products to sell to our existing customer base through our direct sales force and on developing next generation versions of our existing products. We incurred expenses of $7,847,000 in 2009, $6,333,000 in 2008, and $5,418,000 in 2007 for research and development activities. To further leverage our efficiencies, our research and development group continues to develop in-house capabilities to manufacture some of the components currently produced by outside vendors.

          We expect our research and development activities to continue to expand to include evaluation of new concepts and products for the interventional cardiology and interventional radiology field. We believe that there are many potential new interventional products that would fit within the development, clinical, manufacturing and distribution network we have created for our existing products.

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Manufacturing

          We manufacture our products in our facilities located in the suburbs of Minneapolis, Minnesota. The catheter manufacturing and packaging processes occur under a controlled clean room environment. Our quality system, manufacturing facilities and processes have been certified to be compliant with the applicable European standards EN46001 and the succeeding EN13485 since July 1998. Our quality system was most recently audited by the FDA in February 2009 with no deficiencies noted.

          We purchase components from various suppliers and rely on single sources for several parts of our products. We purchase our United States product requirements for thrombin (a component in the Duett and in all of the D-Stat products) under the Thrombin-JMI^® Supply Agreement with King Pharmaceuticals, Inc. We purchase our International product requirements for thrombin under a supply agreement with Sigma-Aldrich Fine Chemicals, an operating division of Sigma-Aldrich, Inc. To date, we have not experienced any significant adverse effects resulting from shortages of components.

          The manufacture and sale of our products entails significant risk of product liability claims. Although we have product liability insurance coverage in an amount which we consider reasonable, it may not be adequate to cover potential claims. Any product liability claims asserted against us could result in costly litigation, reduced sales and significant liabilities and divert the attention of our technical and management personnel away from the development and marketing of our products for significant periods of time.

Competition

          Competition in the interventional medical device industry is intense and dominated by very large and experienced companies such as Medtronic Inc., Abbott Laboratories, Johnson & Johnson and Boston Scientific Corporation. We compete on the basis of our clinically differentiated products and focused opportunities within this interventional medical device market.

          Our D-Stat Dry hemostatic bandage competes in the noninvasive topical patch market segment of sealing devices. These patches are applied directly over the puncture site and held in place with adjunctive manual compression for a period of 10-20 minutes. Competitive patches include the SyvekPatch^®, which is manufactured and marketed by Marine Polymer Technologies, Inc., and the HemCon^® Patch, which is distributed by Cardinal Health, Inc. and manufactured by Hemcon Medical Technologies, Inc.

          The Pronto extraction catheter competes in the market segment for removal of thrombus from the arterial system. There are many companies that are selling or have developed products in this segment, including MedRad, Inc., Medtronic, Inc. and Spectranetics Corporation.

          We are aware of many companies that sell a product for the endovenous laser treatment of varicose veins, including AngioDynamics Inc., biolitec, Dornier MedTech, and CoolTouch. Each of the competitive products contains similar types of components for performing endovenous laser therapy but differ in procedural training, laser wavelength, custom-designed features and customer support. In addition, Covidien sells an alternative endovenous procedure that utilizes radiofrequency as opposed to laser energy for the treatment of varicose veins.

          There are many companies that are selling or have developed hemostats which compete generally with our D-Stat Flowable hemostat. Virtually all of these devices, however, are positioned as hemostats for the surgical market and are not designed specifically for use in electrophysiology procedures.

          We have several competitors in the specialty catheter and access product lines, including Cook® Medical.

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          In each of our product areas, we believe that several other companies are developing new devices. The medical device industry is characterized by rapid and significant technological changes as well as the frequent emergence of new technologies. There are likely to be research and development projects related to these market areas of which we are currently unaware. A new technology or product may emerge that results in a reduced need for our products or results in a product that renders our product noncompetitive.

Regulatory Requirements

United States

          Our products are regulated in the United States as medical devices by the FDA under the Federal Food, Drug and Cosmetic Act. The FDA classifies medical devices into one of three classes based upon controls the FDA considers necessary to reasonably ensure their safety and effectiveness. Class I devices are subject to general controls such as labeling, adherence to good manufacturing practices and maintenance of product complaint records, but are usually exempt from premarket notification requirements. Class II devices are subject to the same general controls and also are subject to special controls such as performance standards, and FDA guidelines, and may also require clinical testing prior to approval. Class III devices are subject to the highest level of controls because they are used in life-sustaining or life-supporting implantable devices. Class III devices require rigorous clinical testing prior to their approval and generally require a premarket approval (PMA) or supplement application prior to their sale.

          If a medical device manufacturer can establish that a device is “substantially equivalent” to a legally marketed Class I or Class II device, or to an unclassified device, or to a Class III device for which the FDA has not called for PMAs, the manufacturer may seek clearance from the FDA to market the device by filing a 510(k) premarket notification. The 510(k) notification must be supported by appropriate data establishing the claim of substantial equivalence to the satisfaction of the FDA. Following submission of the 510(k) notification, the manufacturer may not place the device into commercial distribution in the United States until an order is issued by the FDA.

          Manufacturers must file an investigated device exemption (IDE) application if human clinical studies of a device are required and if the FDA considers experimental use of the device to represent significant risk to the patient. The IDE application must be supported by data, typically including the results of animal and mechanical testing of the device. If the IDE application is approved by the FDA, human clinical studies may begin at a specific number of investigational sites with a maximum number of patients, as approved by the FDA. The clinical studies must be conducted under the review of an independent institutional review board to ensure the protection of the patients’ rights.

          Generally, upon completion of these human clinical studies, a manufacturer seeks approval of a Class III medical device from the FDA by submitting a PMA application. A PMA application must be supported by extensive data, including the results of the clinical studies, as well as literature to establish the safety and effectiveness of the device.

          Our Duett sealing device is classified as a Class III device and is subject to the PMA requirements. Our D-Stat Flowable is dually classified as both a Class III and Class II device based on the three distinct indications for use that have been assigned to this product.

          Our D-Stat Dry, Pronto, Vari-Lase, specialty catheters and access products product lines generally are classified as Class II products and therefore require clearance of a 510(k) notification by the FDA prior to being sold in the United States. Each of the devices within these product lines was subject to a 510(k) notification which was determined to be “substantially equivalent” to a legally marketed predicate device by the FDA, thereby allowing commercial marketing in the United States.

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          Our Thrombi-Gel and Thrombi-Paste product lines are indicated for use as topical hemostats and, as such, are classified as Class II products. Approval for expanded use as surgical hemostats will place these products into the Class III designation subject to the PMA requirements.

          We also are subject to FDA regulations concerning manufacturing processes and reporting obligations. These regulations require that manufacturing steps be performed according to FDA standards and in accordance with documentation, control and testing standards. We also are subject to inspection by the FDA on an on-going basis. We are required to provide information to the FDA on adverse incidents as well as maintain a documentation and record keeping system in accordance with FDA guidelines. The advertising of our products also is subject to both FDA and Federal Trade Commission jurisdiction. If the FDA believes that we are not in compliance with any aspect of the law, it can institute proceedings to detain or seize products, issue a recall, stop future violations and assess civil and criminal penalties against us, our officers and our employees.

International

          The European Union has adopted rules which require that medical products receive the right to affix the CE mark, an international symbol of adherence to quality assurance standards and compliance with applicable European medical device directives. As part of the CE mark compliance, manufacturers are required to comply with the European quality systems standards. We received the CE mark approval for our Duett sealing device and certification of our quality system in July 1998, and we have subsequently received the CE mark approval for other products within our product lines.

          Our hemostatic products contain bovine-derived thrombin and are subject to additional regulatory review within the European Union to minimize the risk of exposure to viral and BSE pathogens. The regulations in this area continue to evolve and our products may be subject to additional regulatory scrutiny in the future.

          International sales of our products are subject to the regulatory requirements of each country in which we sell. These requirements vary from country to country but generally are less stringent than those in the United States. We have obtained regulatory approvals where required for us to sell our products in those countries.

Third Party Reimbursement

          In the United States, healthcare providers that purchase medical devices generally rely on third-party payors, principally the Centers for Medicare and Medicaid Services or CMS (formerly the Health Care Financing Administration, or HCFA) and private health insurance plans, to reimburse all or part of the cost of catherization procedures. We believe that in the current United States reimbursement system, the cost of vascular sealing devices is incorporated into the overall cost of the catheter procedure. Our other products are subject to reimbursement rules depending on the specific medical procedure in which they are utilized.

          CMS and the AMA Current Procedure Terminology (CPT) panel finalized the implementation of reimbursement codes for the endovenous laser ablation procedure beginning in January 2005. This action cleared the way for a consistent means of billing the Medicare program for medically necessary vein treatments using laser technologies and resulted in a favorable reimbursement rate. Reimbursement for these procedures is now well-established but adjusted annually in accordance with the normal adjustment procedures of CMS.

          Market acceptance of our products in international markets is dependent in part upon the availability of reimbursement from healthcare payment systems. Reimbursement and healthcare payment systems in international markets vary significantly by country. The main types of healthcare payment systems in international markets are government-sponsored healthcare and private insurance. Countries with government-sponsored healthcare, such as the United Kingdom, have a centralized, nationalized healthcare system. New devices are brought into the system through negotiations between departments at individual hospitals at the time of budgeting. In most foreign countries, there are also private insurance systems that may offer payments for alternative therapies.

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Patents and Intellectual Property

          We file patent applications to protect technology, inventions and improvements that are significant to the development of our business, and use trade secrets and trademarks to protect other areas of our business. We currently have 10 U.S. patents issued and 12 additional patents pending concerning our Duett sealing device, Pronto catheter, Langston dual lumen pigtail catheter, D-Stat Dry, the Vari-Lase product line, and other products. We also have pursued international patent applications.

          The interventional medical device market in general and the endovenous laser therapy field in particular, are characterized by frequent and substantial intellectual property litigation. Currently, we are involved in litigation with AngioDynamics, Inc., who has filed a lawsuit against us alleging that we have infringed U.S. Patent No. 7,273,478 and U.S. Patent No. 7,559,329. (See “Legal Proceedings” in Item 3 of Part I of this Form 10-K.) The interpretation of patents involves complex and evolving legal and factual questions. Intellectual property litigation in recent years has proven to be complex and expensive, and the outcome of such litigation is difficult to predict.

          We may become the subject of additional intellectual property claims in the future related to our products. Our defense of any intellectual property claims, regardless of the merits of the complaint, could divert the attention of our technical and management personnel away from the development and marketing of our products for significant periods of time. The costs incurred to defend these claims could be substantial and adversely affect us, even if we are ultimately successful.

          We also rely on trade secret protection for certain aspects of our technology. We typically require our employees, consultants and vendors for major components to execute confidentiality agreements upon their commencing services with us or before we disclose confidential information to them. These agreements generally provide that all confidential information developed or made known to the other party during the course of that party’s relationship with us is to be kept confidential and not disclosed to third parties, except in special circumstances. The agreements with our employees also provide that all inventions conceived or developed in the course of providing services to us shall be our exclusive property.

          We also register the trademarks and trade names through which we conduct our business. To date, we have registered and use the trademarks “Acolysis^®,” “Acolysis System^®,” “Acolysis System Therapeutic Ultrasound Thrombolysis^®,” “Auto-Fill^®,” “D-Stat^®,” “Gandras^®,” “Langston^®,” “Pronto^®,” “QXT Extraction Catheter^®,” “Skyway^®,” “Thrombix^®,” “Thrombi-Gel^®,” “Twin-Pass^®,” and “Vari-Lase^®,” and we use the following trademarks “Axis™,” “Bright Tip™,” “Gator™,” “Gopher™,” “GrebSet™,” “GuideLiner™,” “InnerChange™,” “Jiffy™,” “Max-Support™,” “Minnie™,” “PiggyBack™,” “Rad-Band™,” “Trespass™,” and the Duett stylized logo. We acquired the registered trademark “Acolysis” in connection with our acquisition of the Acolysis therapeutic ultrasound business in 2002. U.S. trademark registrations are generally for a term of 10 years, renewable every 10 years as long as the trademark is used in the regular course of trade.

Employees

          As of December 31, 2009, we had 266 full-time employees. Of these employees, 77 were in manufacturing activities, 119 were in sales and marketing activities, 28 were in research and development activities, 23 were in regulatory, quality assurance and clinical research activities and 19 were in general and administrative functions. We have never had a work stoppage and none of our employees are covered by collective bargaining agreements. We believe our employee relations are good. We are an Equal Opportunity Employer.

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Executive Officers of the Registrant

          Our executive officers as of January 31, 2010 are as follows:

Name	Age	Position
Howard Root	49	Chief Executive Officer and Director
James Hennen	37	Chief Financial Officer, Vice President of Finance and Corporate Secretary
Jonathan Hammond	42	Vice President of Manufacturing
Brett Demchuk	46	Vice President of Quality
William Rutstein	57	Vice President of International Sales
Susan Christian	41	Vice President of Sales Operations
Carrie Powers	35	Vice President of Marketing

          Howard Root has served as Chief Executive Officer and a member of our Board of Directors since he co-founded Vascular Solutions in February 1997. From 1990 to 1995, Mr. Root was employed by ATS Medical, Inc., a mechanical heart valve company, most recently as Vice President and General Counsel. Prior to joining ATS Medical, Mr. Root practiced corporate law, specializing in representing emerging growth companies, at the law firm of Dorsey & Whitney LLP for over five years. Mr. Root is also a member of the Board of Directors of the Medical Device Manufacturers Association (MDMA).

          James Hennen has served as our Chief Financial Officer since January 2004. Mr. Hennen served as our Controller & Director of Finance from February 2002 through December 2003. Prior to joining us, Mr. Hennen served in various accounting positions, most recently as International Controller with WAM!NET, Inc., a globally networked information technology company for media transfer, where he worked from December 1997 through February 2002. From October 1995 through December 1997, Mr. Hennen was a Senior Auditor for Ernst & Young, LLP. Mr. Hennen is a Certified Public Accountant (inactive).

          Jonathan Hammond has served as our Vice President of Manufacturing since January 2010. Mr. Hammond previously served as our Director of Process Development from January 2008 to December 2009, our Process Development Manager from January 2007 to December 2007, and our Senior Process Development Engineer from the time he joined us in July of 2005 until December 2006. Prior to joining us, Mr. Hammond served as Senior Manufacturing Engineer with Enpath Medical, a leading supplier of venous vessel introducers, where he worked from November 2002 through June of 2005. From March 1993 through October 2002, Mr. Hammond served in various engineering and technical product management roles for MICROVENA Corporation (ev3).

          Brett Demchuk has served as our Vice President of Quality since July 2007. Prior to joining us, Mr. Demchuk worked at ATS Medical, Inc. where he was Senior Director of Operations from 1998 to July 2007 and Quality Manager from 1992 to 1998. Prior to this time, he held quality assurance engineering positions at Orthomet and GV Medical.

          Bill Rutstein has served as our Vice President of International Sales since October 2008. Mr. Rutstein served as our Senior Director of International Sales from January 2008 to September 2008 and was our Director of International Sales since joining Vascular Solutions in August 1999. Prior to joining us, Mr. Rutstein was the Business Unit Director for the cardiosurgery division of Minntech Corporation, a medical device company, from April 1997 to July 1999. From November 1988 to March 1997, Mr. Rutstein worked for Daig Corporation (a St. Jude Medical Company), a medical device company specializing in cardiology and electrophysiology catheters, where he served as Regional Sales Manager, National Sales Manager, OEM Sales Manager and International Sales Manager.

          Susan Christian has served as our Vice President of Sales Operations since October 2008. Ms. Christian previously served as our Senior Director of Sales Operations and Director of Sales Administration since she joined the company in September 2006. Prior to joining us, Ms. Christian served as the Senior Vice President of Finance & Operations of Tad Ware & Company, Inc., a marketing communications agency, where she worked from April 1992 to September 2006. From August 1990 through March 1992, Ms. Christian was a Tax Accountant for Arthur Anderson & Co. Ms. Christian is a Certified Public Accountant (inactive).

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          Carrie Powers has served as our Vice President of Marketing since July 2009. Ms. Powers previously served as our Senior Director of Product Management and Training from July 2008 to June 2009, Director of Training from March 2007 to July 2008, Product Manager for the Hemostasis Product Line from July 2006 to March 2007 and began her employment with us as an Associate Product Manager for the Hemostasis Product Line from January 2006 to July 2006. Prior to joining us, Ms. Powers was employed by St. Mary’s Hospital in Madison, WI from 2002 to 2006, most recently as a Registered Nurse in an Interventional Cardiac Catheterization Lab. Prior to this time, Ms. Powers worked in the areas of home health, cardiac rehabilitation and community health education.

          There are no family relationships among any of our executive officers.

Available Information

          We make available free of charge on or through our internet website at www.vascularsolutions.com our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the Exchange Act) as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

ITEM 1A. RISK FACTORS

          The risks and uncertainties described below are not the only ones facing our company. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. If any of the following risks occur, our business, financial condition or results of operations could be seriously harmed.

We will not be successful if the interventional medical device community does not adopt our new products.

          We have launched over 50 new products since 2003. Our success will depend on the continued launch of new products and the medical community’s acceptance of our new products. We cannot predict how quickly, if at all, the medical community will accept our new products, or, if accepted, the continuation or extent of their use. Our potential customers must:

• believe that our products offer benefits compared to the methodologies and/or devices that they are currently using;

• use our products and obtain acceptable clinical outcomes;

• believe that our products are worth the price that they will be asked to pay; and

• be willing to commit the time and resources required to change their current methodology.

          Because we are often selling a new technology, we have limited ability to predict the level of growth or timing in sales of these products. If we encounter difficulties in growing our sales of our new medical devices in the United States, our business will be seriously harmed.

We have a limited history of profitability and may not be profitable in the future.

          From 1997 to 2007 we incurred net losses primarily from costs relating to the development and commercialization of our new products. At December 31, 2009, we had an accumulated deficit of $48.3 million. We believe that we have achieved a level of consistent profitability from our continuing operations; however, there is no assurance that this will continue, and we cannot be certain that we can sustain or increase profitability on a quarterly or annual basis.

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We are involved in and may face additional litigation claims which could prevent us from manufacturing and selling our products or result in our incurring substantial costs and liabilities.

          The interventional medical device industry is characterized by numerous patent filings and frequent and substantial intellectual property litigation. Companies in the interventional medical device industry have employed intellectual property litigation in an attempt to gain a competitive advantage. Intellectual property litigation has proven to be very complex, and the outcome of such litigation is difficult to predict. While we do not believe that any of our products infringe any existing patent, it is highly likely that we will continue to become subject to intellectual property claims with respect to our new or existing products. Currently, we are involved in litigation with AngioDynamics, Inc., who has filed a lawsuit against us alleging that we have infringed U.S. Patent No. 7,273,478 and U.S. Patent No. 7,559,329. (See “Legal Proceedings” in Item 3 of Part I of this Form 10-K.)

          An adverse determination in any intellectual property litigation or interference proceedings could prohibit us from selling a product, subject us to significant immediate payments to third parties and require us to seek licenses from third parties. The costs associated with these license arrangements may be substantial and could include substantial up-front payments and ongoing royalties. Furthermore, the necessary licenses may not be available to us on satisfactory terms, if at all. Adverse determinations in a judicial or administrative proceeding or failure to obtain necessary licenses could prevent us from manufacturing and selling a product.

          Our defense of intellectual property claims whether ongoing or filed in the future, regardless of the merits of the complaint, could divert the attention of our technical and management personnel away from the development and marketing of our products for significant periods of time. The costs incurred to defend these claims could be substantial and seriously harm us, even if our defense is ultimately successful.

Our future operating results are difficult to predict and may vary significantly from quarter to quarter, which may adversely affect the price of our common stock.

          The ongoing introduction of new products that affect the overall product mix make the prediction of future operating results difficult. You should not rely on our past revenue growth as any indication of future growth rates or operating results. The price of our common stock will likely fall in the event that our operating results do not meet the expectations of analysts and investors. Comparisons of our quarterly operating results are an unreliable indication of our future performance because they are likely to vary significantly based on many factors, including:

• the level of sales of our products in the United States market;

• our ability to introduce new products and enhancements in a timely manner;

• the demand for and acceptance of our products;

• the success of our competition and the introduction of alternative products;

• our ability to command favorable pricing for our products;

• the growth of the market for our devices;

• the expansion and rate of success of our direct sales force in the United States and our independent distributors internationally;

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• actions relating to ongoing FDA compliance;

• the effect of intellectual property disputes;

• the size and timing of orders from independent distributors or customers;

• the attraction and retention of key personnel, particularly in sales and marketing, regulatory, manufacturing and research and development;

• unanticipated delays or an inability to control costs;

• general economic conditions as well as those specific to our customers and markets; and

• seasonal fluctuations in revenue due to the elective nature of some procedures.

We may face product liability claims that could result in costly litigation and significant liabilities.

          The manufacture and sale of medical products entail significant risk of product liability claims. Any product liability claims, with or without merit, could result in costly litigation, reduced sales, cause us to incur significant liabilities and divert our management’s time, attention and resources. We cannot be sure that our product liability insurance coverage is adequate or that it will continue to be available to us on acceptable terms, if at all.

The market for interventional medical devices is highly competitive and will likely become more competitive, and our competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements that may render our products obsolete.

          The existing market for interventional medical devices is intensely competitive. We expect competition to increase further as companies develop new products and/or modify their existing products to compete directly with ours. Each of our products encounters competition from several medical device companies, including Medtronic Inc., Boston Scientific Corporation, Covidien plc and St. Jude Medical Inc. Each of these companies has:

• better name recognition;

• broader product lines;

• greater sales, marketing and distribution capabilities;

• significantly greater financial resources;

• larger research and development staffs and facilities; and

• existing relationships with some of our potential customers.

          We may not be able to effectively compete with these companies. In addition, broad product lines may allow our competitors to negotiate exclusive, long-term supply contracts and offer comprehensive pricing for their products. Broader product lines may also provide our competitors with a significant advantage in marketing competing products to group purchasing organizations and other managed care organizations that are increasingly seeking to reduce costs through centralized purchasing. Greater financial resources and product development capabilities may allow our competitors to respond more quickly to new or emerging technologies and changes in customer requirements that may render our products obsolete.

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Our international sales are subject to a number of risks that could seriously harm our ability to successfully commercialize our products in any international market.

          Our international sales are subject to several risks, including:

• the ability of our independent distributors to sell our products;

• the impact of recessions in economies outside the United States;

• greater difficulty in collecting accounts receivable and longer collection periods;

• unexpected changes in regulatory requirements, tariffs or other trade barriers;

• weaker intellectual property rights protection in some countries;

• potentially adverse tax consequences; and

• political and economic instability.

          The occurrence of any of these events could seriously harm our future international sales and our ability to successfully commercialize our products in any international market.

Our business and results of operations may be seriously harmed by changes in third-party reimbursement policies.

          We could be seriously harmed by changes in reimbursement policies of governmental or private healthcare payors, particularly to the extent any changes affect reimbursement for catheterization procedures in which our products are used. Failure by physicians, hospitals and other users of our products to obtain sufficient reimbursement from healthcare payors for procedures in which our products are used or adverse changes in governmental and private third-party payors’ policies toward reimbursement for such procedures would seriously harm our business.

          In the United States, healthcare providers, including hospitals and clinics that purchase medical devices such as our products, generally rely on third-party payors, principally federal Medicare, state Medicaid and private health insurance plans, to reimburse all or part of the cost of catheterization procedures. Any changes in this reimbursement system could seriously harm our business.

          In international markets, acceptance of our products is dependent in part upon the availability of reimbursement within prevailing healthcare payment systems. Reimbursement and healthcare payment systems in international markets vary significantly by country. Our failure to receive international reimbursement approvals could have a negative impact on market acceptance of our products in the markets in which these approvals are sought.

Our products and our manufacturing activities are subject to extensive governmental regulation that could prevent us from selling our products in the United States or introducing new and improved products.

          Our products and our manufacturing activities are subject to extensive regulation by a number of governmental agencies, including the FDA and comparable international agencies. We are required to:

• obtain the clearance of the FDA and international agencies before we can market and sell our products;

• satisfy these agencies’ content requirements for all of our labeling, sales and promotional materials; and

• undergo rigorous inspections by these agencies.

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          Compliance with the regulations of these agencies may delay or prevent us from introducing any new model of our existing products or other new products. Furthermore, we may be subject to sanctions, including temporary or permanent suspension of operations, product recalls and marketing restrictions if we fail to comply with the laws and regulations pertaining to our business.

          We are also required to demonstrate compliance with the FDA’s quality system regulations. The FDA enforces its quality system regulations through pre-approval and periodic post-approval inspections. These regulations relate to product testing, vendor qualification, design control and quality assurance, as well as the maintenance of records and documentation. If we are unable to conform to these regulations, the FDA may take actions which could seriously harm our business. In addition, government regulation may be established that could prevent, delay, modify or rescind regulatory clearance or approval of our products.

ITEM 1B. UNRESOLVED STAFF COMMENTS

          None.

ITEM 2. PROPERTIES

          Our offices are located in two buildings totaling approximately 93,000 square feet of leased space in two suburbs of Minneapolis, Minnesota (Maple Grove and Plymouth). These facilities include approximately 37,000 square feet used for manufacturing activities and approximately 7,000 square feet used for research and laboratory activities, with the remainder used for warehouse and general office space. On November 12, 2007, we amended both lease agreements to extend the terms of the leases through September 30, 2015, with additional renewal options.

ITEM 3. LEGAL PROCEEDINGS

          On May 11, 2005 we initiated a lawsuit for product disparagement and false advertising against Marine Polymer Technologies, Inc., a Delaware corporation (Marine Polymer). In the lawsuit, we alleged that Marine Polymer made defamatory and disparaging statements concerning our D-Stat Dry hemostatic bandage. We sought relief in the form of an injunction to enjoin Marine Polymer from continuing to defame and disparage our products, damages as a result of such statements, and other costs, disbursements and attorneys’ fees. Marine Polymer brought a counter-claim against us including, among other claims, business defamation and product disparagement for statements allegedly made by us concerning Marine Polymer’s SyvekPatch^®. Marine Polymer sought relief in the form of monetary damages, costs, disbursements and attorneys’ fees. The trial commenced on March 24, 2008 in the U.S. District Court for the District of Massachusetts. At the conclusion of the trial on April 7, 2008 the jury returned a verdict in our favor and against Marine Polymer for product disparagement concerning statements made regarding the safety of our D-Stat Dry hemostat product. In its verdict, the jury found that Marine Polymer’s statements were false and disparaged the D-Stat Dry product and awarded us $4,500,000 in monetary damages. The jury rejected Marine Polymer’s counterclaims in their entirety. Following post trial motions, on June 30, 2008, the Court upheld the jury verdict, granted our request for a permanent injunction against Marine Polymer for the statements that the jury found were false, and added prejudgment interest on the jury verdict award in the amount of $592,124.

          On July 14, 2008, Marine Polymer filed a Notice of Appeal with the U.S. First Circuit Court of Appeals seeking to overturn the monetary damages and injunction issued against them. Oral arguments on Marine Polymer’s appeal were held on February 4, 2009. On December 23, 2009, the U.S. First Circuit Court of Appeals affirmed the judgment against Marine Polymer for product disparagement. As a result, the permanent injunction issued at the conclusion of the trial will remain in effect, prohibiting Marine Polymer and its representatives from making, publishing or disseminating certain disparaging statements concerning the safety of our D-Stat products. Addressing the jury’s award of $4.5 million in damages, the Court determined that, due to differences in opinion among the judges, we could either accept a $2.7 million award of damages, plus interest, or insist upon a new trial limited to the issue of determining the reasonable amount of damages. We accepted the $2.7 million award of damages plus interest, and received $3.56 million from Marine Polymer on January 22, 2010. We will record a litigation gain of $3.56 million in the first quarter of 2010.

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          On July 29, 2009 AngioDynamics, Inc. (AngioDynamics) filed a lawsuit against us in the U.S. District Court for the District of Delaware, alleging that we have infringed U.S. Patent No. 7,273,478 and U.S. Patent No. 7,559,329. Specifically, AngioDynamics alleges that doctors using our Bright Tip fibers and procedure kits are using the methods claimed in those patents, and accuses us of inducing and contributing to infringement. AngioDynamics has requested injunctive relief and compensatory damages. On December 1, 2009 we filed our answer, a counterclaim, and a separate motion to transfer the litigation to the U.S. District Court for the District of Minnesota.

          We have also filed an inter partes request for reexamination of both the ‘478 and ‘329 patents with the United States Patent Office. The Patent Office granted our inter partes requests for reexamination for both the ‘478 and ‘329 patents. We expect the reexamination process for each patent will take at least three years to conclude. On January 27, 2010, we filed a motion with the U.S. District Court for the District of Delaware to stay all proceedings in the litigation pending the outcome of the inter partes reexaminations.

          From time to time we are involved in additional legal proceedings arising in the normal course of our business. As of the date of this report we are not a party to any legal proceedings not described in this section in which an adverse outcome would reasonably be expected to have a material adverse effect on our results of operations or financial condition.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

          None.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

          Our common stock is traded on the NASDAQ Global Market under the symbol “VASC”. The following table sets forth, for the periods indicated, the high and low sales prices for our common stock as reported by the NASDAQ Global Market.

		High		Low
2009
	First Quarter	$	9.55	$	5.04
	Second Quarter		8.70		5.70
	Third Quarter		8.80		7.10
	Fourth Quarter		9.80		7.60
2008
	First Quarter	$	6.80	$	5.63
	Second Quarter		7.66		6.19
	Third Quarter		9.06		6.04
	Fourth Quarter		9.75		6.78

          During the quarter ended December 31, 2009, we repurchased shares of common stock from our employees to satisfy income tax withholding obligations upon vesting of outstanding restricted share awards for those employees. Shares purchase activity for the fourth quarter of fiscal 2009 was as follows:

Date	Total Number of Shares Purchased(1)	Average Price Paid per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs
October 1 - 31, 2009	1,614	$9.03	—	—
November 1 - 30, 2009	—	—	—	—
December 1 - 31, 2009	—	—	—	—

(1) At the request of our employees and pursuant to the terms of their Restricted Stock Awards, we purchased 1,614 shares of common stock at the fair market value of the common stock on the day their awards vested to satisfy income tax withholding obligations for those employees.

Holders

          As of December 31, 2009, we had 140 shareholders of record. Such number of record holders does not reflect shareholders who beneficially own common stock in nominee or street name.

Dividends

          We have paid no cash dividends on our common stock, and do not intend to pay cash dividends on our common stock in the future.

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          The following graph shows a comparison of cumulative total returns for our common stock, the NASDAQ Stock Market Index (U.S.) and the NASDAQ Medical Industry Index (Medical Devices, Instruments and Supplies), assuming the investment of $100 in our common stock and each index on December 31, 2004 and the reinvestment of dividends, if any.

ITEM 6. SELECTED FINANCIAL DATA

          The following selected financial data as of December 31, 2009 and 2008 and for the three years ended December 31, 2009, 2008 and 2007 are derived from, and should be read together with, our consolidated financial statements included elsewhere in this Form 10-K. The following selected financial data as of December 31, 2007, 2006 and 2005 and for the fiscal years ended December 31, 2006 and 2005 are derived from consolidated financial statements not included herein. The information set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the Consolidated Financial Statements and Notes thereto and other financial information included elsewhere in this Form 10-K.

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	Year Ended December 31,
	2009			2008			2007			2006			2005
	(in thousands, except per share amounts)
Statements of Operations Data:
Revenue:
Product revenue	$	66,726		$	59,757		$	51,414		$	43,310		$	32,786
License and collaboration revenue		1,701			1,464			1,450			—			—
Total revenue		68,427			61,221			52,864			43,310			32,786
Product costs and operating expenses:
Cost of sales		22,917			20,690			17,002			14,231			9,386
Cost of sales related to thrombin inventory		—			670			—			—			—
Collaboration expenses		850			632			685			—			—
Research and development		7,847			6,333			5,481			4,578			3,789
Clinical and regulatory		2,886			3,220			3,168			2,493			2,006
Sales and marketing		21,206			20,482			19,603			17,097			13,681
General and administrative		4,555			4,695			5,304			3,716			2,810
Thrombin qualification		—			—			147			2,802			1,620
Litigation		—			1,484			5,800			—			—
Amortization of purchased technology		—			—			—			72			218
Total product costs and operating expenses		60,261			58,206			57,190			44,989			33,510
Operating income (loss)		8,166			3,015			(4,326	)		(1,679	)		(724	)
Other income (expenses):
Interest income		48			203			444			99			163
Interest expense		(38	)		(62	)		(148	)		(206	)		—
Foreign exchange loss		(10	)		(28	)		—			—			—
Income (loss) before income taxes		8,166			3,128			(4,030	)		(1,786	)		(561	)
Income tax benefit (expense)		(2,788	)		13,045	*		(276	)		—			—
Net income (loss)	$	5,378		$	16,173		$	(4,306	)	$	(1,786	)	$	(561	)
Net income (loss) per common share – Basic	$	0.34		$	1.04		$	(0.28	)	$	(0.12	)	$	(0.04	)
Net income (loss) per common share – Diluted	$	0.33		$	1.01		$	(0.28	)	$	(0.12	)	$	(0.04	)
Weighted average number of common shares outstanding		16,047			15,588			15,238			14,910			14,515

          * A complete discussion of the facts and circumstances surrounding this amount can be found on page 27 of this 10-K.

	As of December 31,
	2009		2008		2007		2006		2005
	(in thousands)
Balance Sheet Data:
Cash, cash equivalents and available-for-sale securities (includes restricted cash)	$	17,794	$	7,209	$	10,759	$	2,557	$	4,282
Working capital (includes restricted cash)		35,145		22,677		14,530		11,472		10,887
Total assets		51,755		44,180		31,278		20,967		19,896
Total shareholders’ equity		40,399		31,826		12,825		14,467		14,107

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

          The following discussion of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and Notes thereto, and the other financial information included elsewhere in this Form 10-K. This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains descriptions of our expectations regarding future trends affecting our business. These forward-looking statements and other forward-looking statements made elsewhere in this document that are not strictly historical fact are made in reliance upon safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on management’s current expectations as of the date of this report but involve risks, uncertainties and other factors which may cause actual results to differ materially from those contemplated by such forward looking statements. Item 1A of Part I of this Form 10-K sets forth certain factors we believe could cause actual results to differ materially from those contemplated by the forward-looking statements. We do not intend to update any of these forward-looking statements after the date of this Form 10-K to conform them to actual results.

Overview

          We are a medical device company focused on bringing solutions to interventional cardiologists and interventional radiologists. As a vertically-integrated medical device company, we generate ideas and create new interventional medical devices, and then deliver those products directly to the physician through our direct domestic sales force and international distribution network. We continue to develop new products and new applications for our existing products.

Results of Operations

          The following table sets forth, for the periods indicated, certain items from our statements of operations expressed as a percentage of net sales:

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	Year Ended December 31,
	2009			2008			2007
Revenue:
Product revenue		98	%		98	%		97	%
License and collaboration revenue		2	%		2	%		3	%
Total revenue		100	%		100	%		100	%
Product costs and operating expenses:
Cost of sales		34	%		34	%		32	%
Cost of sales related to thrombin inventory		—			1	%		—
Collaboration expenses		1	%		1	%		1	%
Research and development		11	%		10	%		11	%
Clinical and regulatory		4	%		5	%		6	%
Sales and marketing		31	%		34	%		37	%
General and administrative		7	%		8	%		10	%
Thrombin qualification		—			—			—
Litigation		—			2	%		11	%
Total product costs and operating expenses		88	%		95	%		108	%
Operating income (loss)		12	%		5	%		(8	%)
Interest income/expense and foreign exchange loss, net		—			—			1	%
Income (loss) before income taxes		12	%		5	%		(7	%)
Income tax benefit (expense)		(4	%)		21	%		(1	%)
Net Income (loss)		8	%		26	%		(8	%)

          Our primary products are categorized into five product lines. The following table sets forth, for the periods indicated, net revenue by product line along with the change from the previous year:

	For Years Ended December 31,
	2009					2008					2007
			Percent Change					Percent Change					Percent Change
	Net Revenue					Net Revenue					Net Revenue
Hemostat products	$	24,428,000		4	%	$	23,475,000		(5%	)	$	24,712,000		14	%
Extraction catheters		16,897,000		13	%		14,992,000		36	%		11,016,000		22	%
Vein products		11,225,000		12	%		10,035,000		16	%		8,629,000		22	%
Access products		7,298,000		31	%		5,561,000		99	%		2,790,000		74	%
Specialty catheters		5,905,000		29	%		4,563,000		36	%		3,363,000		8	%
Other products		973,000		(14	%)		1,131,000		25	%		904,000		18	%
License & Collaboration		1,701,000		16	%		1,464,000		1	%		1,450,000		N/A
Total Net Revenue	$	68,427,000		12	%	$	61,221,000		16	%	$	52,864,000		22	%

Year ended December 31, 2009 compared to the years ended December 31, 2008 and December 31, 2007.

          Net revenue increased 12% to $68,427,000 for the year ended December 31, 2009 from $61,221,000 for the year ended December 31, 2008. The increase in net revenue was primarily the result of an increased market penetration in all five of our product categories as well as the introduction of new products. Approximately 87% of our net revenue was earned in the United States and 13% of our net revenue was earned in international markets for both years ended December 31, 2009 and December 31, 2008. Net revenue increased 16% to $61,221,000 for the year ended December 31, 2008 from $52,864,000 for the year ended December 31, 2007.

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          We recognized $850,000 of licensing revenue during the year ended December 31, 2009 as the result of our License Agreement and Device Supply Agreement with King and our distribution agreement with Nicolai in Germany. We also recognized $851,000 of collaboration revenue during the year ended December 31, 2009 as a result of performing clinical and development work for King under the Device Supply Agreement. We expect to recognize approximately $850,000 of license revenue in 2010. We expect collaboration revenue will continue in 2010 but at a lower level due to us completing the enrollment of one of the clinical projects for King.

          Gross margin across all product lines increased to 66% for the year ended December 31, 2009 compared to 65% for the year ended December 31, 2008. We expect product gross margins to be in the range of 65% to 67% in 2010, subject to changes in our selling mix between our lower margin products such as the Vari-Lase products and our higher margin products such as the D-Stat Dry. Gross margin across all product lines declined to 65% for the year ended December 31, 2008 compared to 67% for the year ended December 31, 2007.

          Cost of sales related to thrombin inventory expenses were $-0- for the year ended December 31, 2009, compared to $670,000 for the year ended December 31, 2008. Cost of sales related to thrombin inventory expenses relate to a reserve we have recorded for the amount of thrombin we anticipate expiring prior to being used in the manufacturing of our international hemostat products. We do not anticipate incurring additional charges related to thrombin inventory during 2010.

          Collaboration expenses were $850,000 for the year ended December 31, 2009, compared to $632,000 for the year ended December 31, 2008 and $685,000 for the year ended December 31, 2007. Collaboration expenses primarily are the result of our collaboration revenue related to the pre-clinical and clinical projects we are performing for King. We expect collaboration expenses to be approximately 2% of revenue during 2010, dependent upon the timing of the collaboration revenue.

          Research and development expense for the year ended December 31, 2009 totaled $7,847,000, or 11% of revenue, compared to $6,333,000, or 10% of revenue for the year ended December 31, 2008 and $5,481,000, or 11% of revenue for the year ended December 31, 2007. The increase in research and development expenses resulted from additional new products moving through our development system in 2009. We expect our continuing research and development expenses to be approximately 10% to 12% of revenue in 2010 as we continue to pursue additional new products and to move our longer term development projects forward.

          Clinical and regulatory expense for the year ended December 31, 2009 totaled $2,886,000, or 4% of revenue, compared to $3,220,000, or 5% of revenue for the year ended December 31, 2008 and $3,168,000, or 6% of revenue for the year ended December 31, 2007. Clinical and regulatory expenses fluctuate due to the timing of clinical studies and the number of new products coming through the regulatory system. We expect clinical and regulatory expenses to be approximately 4% to 5% of revenue in 2010.

          Sales and marketing expense for the year ended December 31, 2009 totaled $21,206,000, or 31% of revenue, compared to $20,482,000, or 34% of revenue for the year ended December 31, 2008 and $19,603,000, or 37% of revenue for the year ended December 31, 2007. The primary reason for the increase in sales and marketing expenses was a $467,000, or 13% increase in our commissions paid to our direct sales force due to increased sales in 2009 over 2008. We expect to maintain the same relative size of our direct sales force during 2010 at between 85 and 90 full-time sales employees. As a result, we expect our sales and marketing expenses to continue to decrease as a percent of revenue from approximately 31% to 32% of revenue at the beginning of 2010 to between 27% and 29% of revenue by the end of 2010.

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          General and administrative expense for the year ended December 31, 2009 totaled $4,555,000, or 7% of revenue, compared to $4,695,000, or 8% of revenue for the year ended December 31, 2008 and $5,304,000, or 10% of revenue for the year ended December 31, 2007. The decrease was primarily the result of lower legal fees of approximately $380,000 as we settled the Diomed and Covidien litigation matters in the second half of 2008 (see Note 14 to the Consolidated Financial Statements included in Item 8 of Part II of this Form 10-K). We expect general and administrative expenses to be approximately 6% to 7% of revenue during 2010.

          Litigation expenses were $-0- for the year ended December 31, 2009, compared to $1,484,000 for the year ended December 31, 2008 and $5,800,000 for the year ended December 31, 2007. For the year ended December 31, 2009 we did not recognize any gain resulting from the Marine Polymer jury verdict. We received $3.56 million from Marine Polymer on January 22, 2010 and the gain will be recognized in the first quarter of 2010 (see Note 16 to the Consolidated Financial Statements included in Item 8 of Part II of this Form 10-K). In the second quarter of 2008 we recorded a gain of $1,659,000 due to the settlement of our litigation with Diomed (reflecting a reduction from the $5,245,000 litigation expense incurred in 2007 due to the Diomed jury verdict) and a litigation expense of $3,116,000 upon the settlement of the litigation with Covidien (see Note 14 to the Consolidated Financial Statements included in Item 8 of Part II of this Form 10-K).

          Interest income decreased to $48,000 for the year ended December 31, 2009, compared to $203,000 for the year ended December 31, 2008 and $444,000 for the year ended December 31, 2007. The decrease in interest income was primarily the result of lower interest rates being paid on our deposit funds held at the bank.

          Interest expense decreased to $38,000 for the year ended December 31, 2009, compared to $62,000 for the year ended December 31, 2008 and $148,000 for the year ended December 31, 2007. The decrease in interest expense was as a result of repaying our equipment line of credit during the year ended December 31, 2008.

          Foreign exchange loss decreased to $10,000 for the year ended December 31, 2009, compared to $28,000 for the year ended December 31, 2008 and $-0- for the year ended December 31, 2007.

          Income tax expense increased to $2,788,000 on income before taxes of $8,166,000 resulting in an income tax rate of 34% for the year ended December 31, 2009, compared to an income tax benefit of $13,045,000 for the year ended December 31, 2008 and income tax expense of $276,000 for the year ended December 31, 2007.

          We assess the likelihood that our deferred tax assets will be recovered from future taxable income during the fourth quarter of each year. We consider projected future taxable income and ongoing tax planning strategies in assessing the amount of the valuation allowance necessary to offset our deferred tax assets that will not be recoverable. Based upon management’s assessment of all available evidence, including our cumulative pretax net income for fiscal years 2009 and 2008, estimates of future profitability and the overall prospects of our business, we determined that our current deferred tax assets are adequate at December 31, 2009. In the fourth quarter of 2008 we determined it was more likely than not that we would be able to realize a portion of our deferred tax assets in the future, and as a result recorded a $13.2 million income tax benefit. To determine the amount of the reduction in the valuation allowance, we projected our income over the next five years, which approximates the ten-year life of our three most significant products at this time. The amount of the valuation allowance reduction was based on our discounted projected taxable income. We will continue to assess the potential realization of our deferred tax assets on an annual basis or on an interim basis if circumstances warrant. If our actual results and updated projections vary significantly from our prior estimates, we expect to increase or decrease our valuation allowance against our gross deferred tax assets. Any adjustment to our earnings for the deferred tax would occur in the period we make the determination. With the exception of 2009 and 2008, we have not generated any significant pre-tax income in any year and therefore have not paid any federal income taxes since our inception in December 1996.

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          As of December 31, 2009, we had approximately $40.3 million and $4.5 million of federal and state net operating loss carryforwards available to offset future taxable income which begin to expire in the year 2020. As of December 31, 2009, we also had federal and state research and development tax credit carryforwards of approximately $4.0 million which begin to expire in the year 2012. As of December 31, 2009, we also had a foreign tax loss carryforward of approximately $357,000, which does not expire. Under the United States Tax Reform Act of 1986, the amounts of and benefits from net operating loss carryforwards may be impaired or limited in certain circumstances, including significant changes in ownership interests. Future use of our existing net operating loss carryforwards may be restricted due to changes in ownership or from future tax legislation.

Liquidity and Capital Resources

          Our cash and cash equivalents totaled $17,794,000 at December 31, 2009 compared to $7,209,000 in cash and cash equivalents at December 31, 2008, an increase of $10,585,000. Our cash equivalents are invested in a money market fund invested in all types of high quality, short-term money market instruments denominated in U.S. dollars such as debt instruments guaranteed by the governments of the United States, Western Europe, Australia, Japan and Canada, high quality corporate issuers and bank obligations. The money market fund’s assets are rated in the highest short-term category by nationally recognized rating agencies, such as Moody’s or Standard & Poor’s.

          Cash provided by operations. We generated $10,374,000 of cash from operations during the year ended December 31, 2009. The cash generated during 2009 primarily resulted from our income before taxes of $8,166,000 since essentially all of our income taxes are offset by our deferred tax assets.

          Cash used for investing activities. We used $1,325,000 of cash in investing activities during the year ended December 31, 2009. We incurred capital expenditures of $1,325,000 relating primarily to additional manufacturing equipment, leasehold improvements as part of our facility expansion and additional research and development equipment.

          Cash provided by financing activities. We generated $1,536,000 of cash in financing activities during the year ended December 31, 2009. We used $354,000 of cash to repurchase shares that vested under outstanding restricted stock awards for income tax withholding purposes. This was offset by our receipt of $1,890,000 of cash we received under our Employee Stock Purchase Plan and upon the exercise of outstanding stock options.

          We have a $10 million revolving line of credit with US Bank, which has a 12-month term, bears interest at the rate of LIBOR plus 1.60% and is secured by a first security interest on all of our assets. The credit facility includes one covenant that we cannot have a maximum cash flow leverage ratio greater than 2.5 to 1. The calculation of this covenant is determined by multiplying our annual lease expenses times six and adding any loans, then dividing this amount by the sum of our earnings before interest, taxes, depreciation, amortization and our annual operating lease payments. We were in compliance with this covenant on December 31, 2009. As of December 31, 2009, we had no outstanding balance on the $10 million revolving line of credit with an availability of $10 million.

          The following table summarizes our contractual cash commitments as of December 31, 2009:

	Payments Due by Period
			Less than 1 year						More than 5 years
Contractual Obligation	Total				1 - 3 years		3 - 5 years
Facility operating leases	$	4,679,000	$	761,000	$	1,605,000	$	1,682,000	$	631,000

We do not have any other significant cash commitments related to supply agreements, nor do we have any significant commitments for capital expenditures.

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          We currently anticipate that we will experience positive cash flow from our normal operating activities for the foreseeable future. We currently believe that our working capital of $35.1 million at December 31, 2009 will be sufficient to meet all of our operating and capital requirements for the foreseeable future. However, our actual liquidity and capital requirements will depend upon numerous unpredictable factors, including the amount of revenues from sales of our existing and new products; the cost of maintaining, enforcing and defending patents and other intellectual property rights; competing technological and market developments; developments related to regulatory and third party reimbursement matters; and other factors.

Critical Accounting Policies

          Management’s Discussion and Analysis of Financial Condition and Results of Operations addresses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of our consolidated financial statements requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, we evaluate these estimates and judgments. We base our estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

          Our accounting policies are described in Note 2 to the consolidated financial statements. We set forth below those material accounting policies that we believe are the most critical to an investor’s understanding of our financial results and condition and that require complex management judgment.

Inventory

          We state our inventory at the lower of cost (first-in, first-out method) or market. The estimated value of excess, obsolete and slow-moving inventory as well as inventory with a carrying value in excess of its net realizable value is established by us on a quarterly basis through review of inventory on hand and assessment of future demand, anticipated release of new products into the market, historical experience and product expiration. Our stated value of inventory could be materially different if demand for our products decreased because of competitive conditions or market acceptance, or if products become obsolete because of advancements in the industry. We have approximately $1.3 million of Sigma thrombin in inventory at December 31, 2009, which we expect to use in our hemostat products sold in international markets. We received regulatory approval in February 2008 allowing us to use the Sigma thrombin in our international hemostat products. In the fourth quarter of 2008 we wrote off $670,000 of our Sigma thrombin which we expect will expire before we are able to use it. We will continue to review our Sigma thrombin needs and we will write off any amounts we anticipate will not be used.

Revenue Recognition

          We recognize revenue in accordance with generally accepted accounting principles as outlined in the Securities and Exchange Commission’s Staff Accounting Bulletin No. 104 Revenue Recognition, [ASC 605-10-S99], which requires that four basic criteria be met before revenue can be recognized: (i) persuasive evidence of an arrangement exists; (ii) the price is fixed or determinable; (iii) collectability is reasonably assured; and (iv) product delivery has occurred or services have been rendered. We recognize revenue as products are shipped based on FOB shipping point terms when title passes to customers. We negotiate credit terms on a customer-by-customer basis and products are shipped at an agreed upon price. All product returns must be pre-approved and, if approved, customers are subject to a 20% restocking charge.

          We also generate revenues from license agreements and research collaborations and recognizes these revenues when earned. In accordance with Emerging Issues Task Force (EITF) Issue No. 00-21, Revenue Arrangements with Multiple Deliverables, [ASC 605-25], for deliverables which contain multiple deliverables, the Company separates the deliverables into separate accounting units if they meet the following criteria: (i) the delivered items have a stand-alone value to the customer; (ii) the fair value of any undelivered items can be reliably determined; and (iii) if the arrangement includes a general right of return, delivery of the undelivered items is probable and substantially controlled by the seller. Deliverables that do not meet these criteria are combined with one or more other deliverables into one accounting unit. Revenue from each accounting unit is recognized based on the applicable accounting literature, primarily Staff Accounting Bulletin (SAB) 104, Revenue Recognition, [ASC 605-10-S99].

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          Effective April 1, 2008 we entered into a five-year distribution agreement with Nicolai, GmbH. As a result of entering into this distribution agreement, we no longer maintain a direct sales force in Germany. In connection with this distribution agreement, we received 500,000 Euros from Nicolai, GmbH in 2008. The payment was deferred and is being recognized ratably over the five-year term of the distribution agreement. The distribution agreement also includes provisions requiring us to pay Nicolai, GmbH specific amounts if we terminate the distribution agreement prior to the end of the five-year term. We do not intend to terminate the distribution agreement and, as such, have not recorded a liability relating to these potential future payments to Nicolai, GmbH.

          On January 9, 2007, we entered into three separate agreements with King, consisting of a License Agreement, a Device Supply Agreement and a Thrombin-JMI^® Supply Agreement. We licensed the exclusive rights to our products Thrombi-Pad, Thrombi-Gel and Thrombi-Paste to King for a one-time payment of $6 million. We continue to manufacture the licensed products for sale to King under the Device Supply Agreement. The Device Supply Agreement requires King to pay us a $1 million milestone payment upon the first commercial sale of Thrombi-Gel and again upon the first commercial sale of Thrombi-Paste. On May 30, 2007 we received the first $1 million payment related to King’s first commercial sale of Thrombi-Pad. In 2009 King decided to suspend indefinitely the clinical development of the Thrombi-Paste product. We are amortizing the $6 million license fee received on January 9, 2007 and the $1 million milestone payment received on May 30, 2007 on a straight-line basis over the remaining 10 years. We will amortize the second $1 million milestone payment over the remaining 10-year license period from the date it is received.

          As part of the Device Supply Agreement, we agreed to conduct clinical studies for Thrombi-Gel and Thrombi-Paste, with the expected costs related to the clinical studies to be paid by King. Additionally, on May 18, 2007, we entered into a Product Development & Supply Agreement with a third party company by which we agreed to develop, manufacture and sell to this company a specialty version of our Twin-Pass dual access catheter, with the costs related to the development paid by this company. We have recognized collaboration revenue on these development agreements as it was earned under the agreements with King and the third party company. No revenue was recognized under the Product Development & Supply Agreement with the third party company for the year ended December 31, 2009 and none is expected in 2010.

          In addition, we have reviewed the provisions of EITF Issue No. 07-01, Accounting for Collaborative Arrangements, [ASC 808-10], and believe the adoption of this EITF will have no impact on the amounts recorded under these agreements.

          We analyze the rate of historical returns when evaluating the adequacy of the allowance for sales returns, which is included with the allowance for doubtful accounts on our balance sheet. At December 31, 2009, this reserve was $45,000 compared to $25,000 at December 31, 2008. If the historical data we use to calculate these estimates does not properly reflect future returns, revenue could be overstated.

Allowance for Doubtful Accounts

          We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. This allowance is regularly evaluated by us for adequacy by taking into consideration factors such as past experience, credit quality of the customer base, age of the receivable balances, both individually and in the aggregate, and current economic conditions that may affect a customer’s ability to pay. At December 31, 2009, this reserve was $105,000 compared to $95,000 at December 31, 2008. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

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Warranty Costs

          We provide a warranty for certain products against defects in material and workmanship for periods of up to 24 months. We record a liability for warranty claims at the time of sale. The amount of the liability is based on the amount we are charged by our original equipment manufacturer to cover the warranty period. The original equipment manufacturer includes a one year warranty with each product sold to us. We record a liability for the uncovered warranty period offered to a customer, provided the warranty period offered exceeds the initial one year warranty period covered by the original equipment manufacturer. At December 31, 2009, this warranty provision was $73,000 compared to $49,000 at December 31, 2008. If the assumptions used in calculating the provision were to materially change, resulting in more defects than anticipated, an additional provision may be required.

Income Taxes

          The carrying value of our net deferred tax assets assumes that we will be able to generate sufficient taxable income in the United States based on estimates and assumptions. We record a valuation allowance to reduce the carrying value of our net deferred tax asset to the amount that is more likely than not to be realized. For the year ended December 31, 2009, we recorded a $14.4 million valuation allowance and a $727,000 reserve related to our net deferred tax assets of $25.5 million as a result of our adoption of Financial Accounting Standards Board Interpretation 48 (FIN 48), Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109, [ASC 740-10]. At December 31, 2009, we have accrued $-0- for the payment of tax related interest and there was no tax interest or penalties recognized in the statements of operations. In the fourth quarter of 2008, based upon management’s assessment of all available evidence, including our cumulative adjusted pretax net income for fiscal years 2008 and 2007 adjusted for certain non-recurring items allowed by FAS 109, [ASC 740-10], estimates of future profitability and the overall prospects of our business, we determined that it is more likely than not that we will be able to realize a portion of our deferred tax assets in the future, and as a result recorded a $13.2 million income tax benefit. To determine the amount of the reduction in the valuation allowance, we projected our income over the next five years, which approximates the ten-year life of our three most significant products at this time. The amount of the valuation allowance reduction was based on our discounted projected taxable income. We continue to assess the potential realization of our deferred tax assets on an annual basis, or on an interim basis if circumstances warrant. If our actual results and updated projections vary significantly from our projections, we would need to increase or decrease our valuation allowance against our gross deferred tax assets. We would adjust our earnings for the deferred tax in the period we make the determination. No additional income tax benefits have been recorded for the year ended December 31, 2009.

New Accounting Pronouncement

          In June 2009, the FASB issued Statement of Financial Accounting Standards No. 168, The FASB Accounting Standards Codification™ and the Hierarchy of Generally Accepted Accounting Principles a Replacement of FASB Statement No. 162 (“FAS 168”), [ASC 105-10]. This Standard establishes the FASB Accounting Standards Codification™ (the “Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with U.S. GAAP. The Codification does not change current U.S. GAAP, but is intended to simplify user access to all authoritative U.S. GAAP by providing all the authoritative literature related to a particular topic in one place. The Codification was effective for interim and annual periods ending after September 15, 2009, and as of the effective date, all existing accounting standard documents have been superseded. The Codification was effective for us in the third quarter of 2009, and accordingly, our Quarterly Report on Form 10-Q for the quarter ending September 30, 2009 and all subsequent public filings will reference the Codification as the sole source of authoritative literature.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

          Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivables. We maintain our accounts for cash and cash equivalents principally at one major bank and one investment firm in the United States. We have a formal written investment policy that restricts the placement of investments to issuers evaluated as creditworthy. We have not experienced any losses on our deposits of our cash and cash equivalents.

          With respect to accounts receivable, we perform credit evaluations of our customers and do not require collateral. There have been no material losses on accounts receivables.

          In the United States we sell our products directly to hospitals and clinics. In international markets, we sell our products to independent distributors who, in turn, sell to medical clinics. We sell our product in these countries through independent distributors denominated in United States dollars, with the exception of Germany, where sales are denominated in Euros.

          We do not believe our operations are currently subject to significant market risks for interest rates, foreign currency exchange rates, commodity prices or other relevant market price risks of a material nature. A change of 0.1 in the Euro exchange would result in an increase or decrease of approximately $21,000 in the amount of United States dollars we receive in payment on accounts receivable from Nicolai, GmbH. Under our current policies, we do not use foreign currency derivative instruments to manage exposure to fluctuations in the Euro exchange rate.

          We currently have no indebtedness, but if we were to borrow amounts from our revolving credit line, we would be exposed to changes in interest rates. Advances under our revolving credit line bear interest at an annual rate indexed to LIBOR. We will thus be exposed to interest rate risk with respect to amounts outstanding under the line of credit to the extent that interest rates rise. As we had no amounts outstanding on the line of credit at December 31, 2009, we have no exposure to interest rate changes on this credit facility. Under our current policies, we do not use interest rate derivative instruments to manage exposure to interest rate changes. Additionally, we will be exposed to declines in the interest rates paid on deposited funds. A 1% decline in the current market interest rates paid on deposits would result in interest income being reduced by approximately $178,000 on an annual basis.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

          The Consolidated Financial Statements and Notes thereto required pursuant to this Item begin on page 40 of this Annual Report on Form 10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

          None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures.

          Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective.

32

Changes in Internal Controls.

          During the fiscal quarter ended December 31, 2009, there has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Management’s Report on Internal Control Over Financial Reporting.

          Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Our internal control system was designed to provide reasonable assurance to our management and board of directors regarding the preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

          Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control — Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2009.

          Baker Tilly Virchow Krause, LLP, an independent registered public accounting firm, has issued an attestation report on our internal control over financial reporting as of December 31, 2009.

Attestation Report of Independent Registered Public Accounting Firm.

          Baker Tilly Virchow Krause, LLP, an independent registered public accounting firm, has issued an attestation report on our internal control over financial reporting as of December 31, 2009. The attestation report of Baker Tilly Virchow Krause, LLP, on our internal control over financial reporting as of December 31, 2009 is included on page 40 and incorporated by reference herein.

ITEM 9B. OTHER INFORMATION

          None.

33

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPRATE GOVERNANCE

          Incorporated herein by reference to the Sections under the headings “Proposal 1: Election of Directors,” “Committees of the Board of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance” contained in the Proxy Statement for our Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission within 120 days of the close of the year ended December 31, 2009.

          See the section under the heading “Executive Officers of the Registrant” in Item 1 of Part I herein for information regarding our executive officers.

Code of Ethics

          We have adopted a code of ethics that applies to all of our directors, officers (including our chief executive officer, chief financial officer, chief accounting officer, and any person performing similar functions) and employees. We have posted our Code of Ethics in the “Corporate Governance” section of our website, http://www.vascularsolutions.com.

ITEM 11. EXECUTIVE COMPENSATION

          Incorporated herein by reference to the Sections under the headings “Director Compensation” and “Executive Compensation” contained in the Proxy Statement for our Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission within 120 days of the close of the year ended December 31, 2009.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

          Incorporated herein by reference to the Section under the heading “Security Ownership of Certain Beneficial Owners and Management” contained in the Proxy Statement for our Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission within 120 days of the close of the year ended December 31, 2009.

34

Equity Compensation Plans

          The following table sets forth the securities authorized to be issued under our current equity compensation plans as of December 31, 2009:

Plan category	Number of securities to be issued upon exercise of outstanding options and rights		Weighted-average exercise price of outstanding options and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding outstanding options and rights)
Equity compensation plans approved by security holders		1,030,000	$	6.06		3,651,000	(1)(2)
Equity compensation plans not approved by security holders		None		None		None
Total		1,030,000	$	6.06		3,651,000

(1)	Includes 2,800,000 shares reserved and available for issuance under our Stock Option and Stock Award Plan. The shares available for issuance under our Stock Option and Stock Award Plan automatically increases on an annual basis through 2016, by the lesser of:
		•	500,000 shares;
		•	5% of the common-equivalent shares outstanding at the end of our prior fiscal year; or
		•	a smaller amount determined by our Board of Directors or the committee administering the plan.
(2)	Includes 851,000 shares reserved and available for issuance under our Employee Stock Purchase Plan. The shares available for issuance under our Employee Stock Purchase Plan automatically increases on an annual basis through 2010, by the lesser of:
		•	200,000 shares;
		•	2% of the common-equivalent shares outstanding at the end of our prior fiscal year; or
		•	a smaller amount determined by our Board of Directors or the committee administering the plan.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

          Incorporated herein by reference to the Sections under the headings “Related Person Transaction Policy” and “Proposal 1: Election of Directors” contained in the Proxy Statement for our Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission within 120 days of the close of the year ended December 31, 2009.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

          Incorporated herein by reference to the Section under the heading “Additional Information about our Independent Registered Public Accounting Firm” contained in the Proxy Statement for our Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission within 120 days of the close of the year ended December 31, 2009.

35

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Documents filed as part of this Report.

(1)	The following financial statements are filed herewith in Item 8 in Part II.
	(i)	Reports of Independent Registered Public Accounting Firm
	(ii)	Consolidated Balance Sheets
	(iii)	Consolidated Statements of Operations
	(iv)	Consolidated Statements of Changes in Shareholders’ Equity
	(v)	Consolidated Statements of Cash Flows
	(vi)	Notes to Consolidated Financial Statements
(2)	Financial Statement Schedules

          Schedule II – Valuation and Qualifying Accounts. Such schedule should be read in conjunction with the consolidated financial statements. All other supplemental schedules are omitted because of the absence of conditions under which they are required.

(3) Exhibits

Exhibit Number	Description
3.1	Amended and Restated Articles of Incorporation of Vascular Solutions, Inc. (incorporated by reference to Exhibit 3.1 to Vascular Solutions’ Form 10-Q for the quarter ended September 30, 2000).
3.2	Amended and Restated Bylaws of Vascular Solutions, Inc. (incorporated by reference to Exhibit 3.1 of Vascular Solutions’ Form 8-K dated October 19, 2007).
4.1	Specimen of Common Stock certificate (incorporated by reference to Exhibit 4.1 of Vascular Solutions’ Registration Statement on Form S-1 (File No. 333-84089)).
10.1	Lease Agreement dated December 28, 2006 by and between IRET - Plymouth, LLC as Landlord and Vascular Solutions, Inc. as Tenant (incorporated by reference to Exhibit 10.4 of Vascular Solutions’ Form 10-K for the year ended December 31, 2006).
10.2	Amendment to Lease Agreement, dated November 12, 2007, by and between IRET - Plymouth, LLC as Landlord and Vascular Solutions, Inc. as Tenant (incorporated by reference to Exhibit 99.1 of Vascular Solutions’ Form 8-K dated November 14, 2007).
10.3	Amendment to Lease Agreement, dated November 12, 2007, by and between IRET – Plymouth, LLC as Landlord and Vascular Solutions, Inc. as Tenant (incorporated by reference to Exhibit 99.2 of Vascular Solutions’ Form 8-K dated November 14, 2007).
10.4	Mutual and General Release dated November 9, 1998 by and between Vascular Solutions, Inc., Dr. Gary Gershony and B. Braun Medical, Inc. (incorporated by reference to Exhibit 10.5 of Vascular Solutions’ Registration Statement on Form S-1 (File No. 333-84089)).
10.5	Purchase and Sale Agreement dated September 17, 1998 by and between Vascular Solutions, Inc. and Davol Inc. (incorporated by reference to Exhibit 10.8 of Vascular Solutions’ Registration Statement on Form S-1 (File No. 333-84089)).

36

Exhibit Number	Description
10.7**	Form of Employment Agreement by and between Vascular Solutions, Inc. and each of its executive officers (incorporated by reference to Exhibit 10.5 of Vascular Solutions’ Form 10-Q for the quarter ended March 31, 2004).
10.8	Form of Distribution Agreement (incorporated by reference to Exhibit 10.12 of Vascular Solutions’ Registration Statement on Form S-1 (File No. 333-84089)).
10.9**	Vascular Solutions, Inc. Employee Stock Purchase Plan, as amended (incorporated by reference to Exhibit 10.14 to Vascular Solutions’ Form 10-K for the year ended December 31, 2000).
10.10***	Supply Agreement dated October 18, 2004 by and between Vascular Solutions and Sigma-Aldrich Fine Chemicals, an operating division of Sigma-Aldrich, Inc. (incorporated by reference to Exhibit 10.12 to Vascular Solutions’ Form 10-K for the year ended December 31, 2004).
10.11***	Amendment to Supply Agreement dated December 15, 2006 by and between Vascular Solutions and Sigma-Aldrich Fine Chemicals, an operating division of Sigma-Aldrich, Inc. (incorporated by reference to Exhibit 10.12 of Vascular Solutions’ Form 10-K for the year ended December 31, 2006).
10.12*	Credit Agreement, dated December 21, 2009, between U.S. Bank Association and Vascular Solutions, Inc.
10.13*	Security Agreement, dated December 21, 2009, between U.S. Bank Association and Vascular Solutions, Inc.
10.14*	Promissory Note, dated December 21, 2009, between U. S. Bank Association and Vascular Solutions, Inc.
10.15**	Form of Incentive Stock Option Agreement (incorporated by reference to Exhibit 10.1 of Vascular Solutions’ Form 8-K dated September 22, 2004).
10.17**	Form of Nonqualified Stock Option Agreement (incorporated by reference to Exhibit 10.2 of Vascular Solutions’ Form 8-K dated September 22, 2004).
10.18**	Form of Board of Directors Stock Option Agreement, as amended December 9, 2005 (incorporated by reference to Exhibit 10.2 of Vascular Solutions’ Form 8-K dated December 9, 2005).
10.19**	Form of Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.3 of Vascular Solutions’ Form 8-K dated December 9, 2005).
10.20	License agreement dated January 9, 2007 by and between Vascular Solutions and King Pharmaceuticals, Inc. (incorporated by reference to Exhibit 10.22 of Vascular Solutions’ Form 10-K for the year ended December 31, 2006).
10.21***	Device Supply agreement dated January 9, 2007 by and between Vascular Solutions and King Pharmaceuticals, Inc. (incorporated by reference to Exhibit 10.23 of Vascular Solutions’ Form 10-K for the year ended December 31, 2006).
10.22***	Thrombin-JMI® Supply Agreement dated January 9, 2007 by and between Vascular Solutions and King Pharmaceuticals, Inc. (incorporated by reference to Exhibit 10.24 of Vascular Solutions’ Form 10-K for the year ended December 31, 2006).
10.23**	Vascular Solutions, Inc. Stock Option and Stock Award Plan, as amended January 25, 2006, effective April 18, 2006 (incorporated by reference to Exhibit 10.1 of Vascular Solutions’ Form 10-Q for the quarter ended March 31, 2006).
10.24	Settlement Agreement dated April 8, 2008 between Vascular Solutions, Inc. and Diomed, Inc. (incorporated by reference to Exhibit 10.1 of Vascular Solutions’ Form 8-K dated April 10, 2008).
10.25***	Settlement Agreement dated June 2, 2008 among VNUS Medical Technologies, Inc. (acquired by Covidien), AngioDynamics, Inc. and Vascular Solutions, Inc. (incorporated by reference to Exhibit 10.2 of Vascular Solutions’ Form 10-Q for the quarter ended June 30, 2008).
10.26**	Separation Agreement and General Release dated December 31, 2009 between Vascular Solutions, Inc. and James H. Quackenbush (incorporated by reference to Exhibit 10.1 of Vascular Solutions’ Form 8-K dated December 31, 2009).
23.1*	Consent of Baker Tilly Virchow Krause, LLP.
24.1	Power of Attorney (included on signature page).

37

Exhibit Number	Description
31.1*	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Filed herewith.

**Management contract or compensatory plan or arrangement required to be filed as an Exhibit to this Form 10-K.

*** Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, confidential portions of these exhibits have been deleted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.

38

SIGNATURES

          Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 2^nd day of February 2010.

VASCULAR SOLUTIONS, INC.
By:	/s/ Howard Root
	Howard Root
	Chief Executive Officer and Director

          KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Howard Root and James Hennen (with full power to act alone), as his true and lawful attorneys-in-fact and agents, with full powers of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to the Annual Report on Form 10-K of Vascular Solutions, Inc. for the year ended December 31, 2009, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, lawfully do or cause to be done by virtue hereof.

          Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on the 2^nd day of February 2010, by the following persons in the capacities indicated.

	Signature		Title
/s/ Howard Root		Chief Executive Officer and Director
Howard Root		(principal executive officer)
/s/ James Hennen		Vice President, Finance and Chief Financial Officer and Secretary
James Hennen		(principal financial officer)
/s/ Timothy Slayton		Controller
Timothy Slayton		(principal accounting officer)
/s/ Richard Nigon		Director
Richard Nigon
		Director
Michael Kopp
/s/ Paul O’Connell		Director
Paul O’Connell
/s/ John Erb		Director
John Erb
/s/ Jorge Saucedo		Director
Jorge Saucedo
/s/ Charmaine Sutton		Director
Charmaine Sutton

39

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders
Vascular Solutions, Inc.

Under date of February 2, 2010, we reported on the consolidated balance sheets of Vascular Solutions, Inc. as of December 31, 2009 and 2008, and the related consolidated statements of operations, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2009 as contained in the annual report on Form 10-K for the year ended December 31, 2009. In connection with our audits of the aforementioned consolidated financial statements, we have also audited the related financial statement schedule as listed in the accompanying index. This financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion on this financial statement schedule based on our audits.

In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

	/s/ Baker Tilly Virchow Krause, LLP
Minneapolis, Minnesota
February 2, 2010

40

SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007

Description	Balance at Beginning of Year		Additions Charged to Costs and Expenses		Less Deductions			Balance at End of Year
YEAR ENDED DECEMBER 31, 2009:
Sales return allowance	$	25,000	$	20,000	$	—		$	45,000
Allowance for doubtful accounts		95,000		62,000		(52,000	)		105,000
Total	$	120,000	$	82,000	$	(52,000	)	$	150,000
YEAR ENDED DECEMBER 31, 2008:
Sales return allowance	$	40,000	$	—	$	(15,000	)	$	25,000
Allowance for doubtful accounts		90,000		58,000		(53,000	)		95,000
Total	$	130,000	$	58,000	$	(68,000	)	$	120,000
YEAR ENDED DECEMBER 31, 2007:
Sales return allowance	$	45,000	$	—	$	(5,000	)	$	40,000
Allowance for doubtful accounts		65,000		37,000		(12,000	)		90,000
Total	$	110,000	$	37,000	$	(17,000	)	$	130,000

41

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders, Audit Committee and Board of Directors
Vascular Solutions, Inc.
Minneapolis, MN

We have audited the accompanying consolidated balance sheets of Vascular Solutions, Inc. as of December 31, 2009 and 2008, and the related consolidated statements of operations, shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2009. We also have audited Vascular Solutions, Inc.’s internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Vascular Solutions, Inc.’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting included in Item 9A Controls and Procedures. Our responsibility is to express an opinion on these consolidated financial statements and an opinion on the company’s internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Vascular Solutions, Inc. as of December 31, 2009 and 2008, and the consolidated results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2009 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, Vascular Solutions, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

/s/ Baker Tilly Virchow Krause, LLP

Minneapolis, Minnesota

February 2, 2010

42

Vascular Solutions, Inc.

Consolidated Balance Sheets

	December 31
	2009			2008
Assets
Current assets:
Cash and cash equivalents	$	17,794,000		$	7,209,000
Accounts receivable, net of reserves of $150,000 and $120,000 at December 31, 2009 and 2008, respectively		9,143,000			8,706,000
Inventories		8,977,000			9,974,000
Prepaid expenses		1,520,000			1,045,000
Current portion of deferred tax assets		4,500,000			2,680,000
Total current assets		41,934,000			29,614,000
Property and equipment, net		3,793,000			3,887,000
Intangible assets, net		193,000			193,000
Deferred tax assets, net of current portion and liabilities		5,835,000			10,486,000
Total assets	$	51,755,000		$	44,180,000
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable	$	1,396,000		$	2,022,000
Accrued compensation		2,978,000			2,584,000
Accrued expenses		865,000			848,000
Accrued royalties		621,000			576,000
Current portion of deferred revenue		929,000			907,000
Total current liabilities		6,789,000			6,937,000
Long-term deferred revenue, net of current portion		4,567,000			5,417,000
Commitments and contingencies
Shareholders’ equity:
Common stock, $0.01 par value:
Authorized shares – 40,000,000
Issued and outstanding shares – 16,557,669 – 2009; 16,027,519 – 2008		166,000			160,000
Additional paid-in capital		88,481,000			85,292,000
Other		84,000			84,000
Accumulated deficit		(48,332,000	)		(53,710,000	)
Total shareholders’ equity		40,399,000			31,826,000
Total liabilities and shareholders’ equity	$	51,755,000		$	44,180,000

See accompanying notes.

43

Vascular Solutions, Inc.

Consolidated Statements of Operations

	Year Ended December 31
	2009			2008			2007
Revenue:
Product revenue	$	66,726,000		$	59,757,000		$	51,414,000
License and collaboration revenue		1,701,000			1,464,000			1,450,000
Total revenue		68,427,000			61,221,000			52,864,000
Product costs and operating expenses:
Cost of goods sold		22,917,000			20,690,000			17,002,000
Cost of goods sold related to thrombin inventory		—			670,000			—
Collaboration expenses		850,000			632,000			685,000
Research and development		7,847,000			6,333,000			5,481,000
Clinical and regulatory		2,886,000			3,220,000			3,168,000
Sales and marketing		21,206,000			20,482,000			19,603,000
General and administrative		4,555,000			4,695,000			5,304,000
Litigation		—			1,484,000			5,800,000
Thrombin qualification		—			—			147,000
Total product costs and operating expenses		60,261,000			58,206,000			57,190,000
Operating income (loss)		8,166,000			3,015,000			(4,326,000	)
Other income (expenses):
Interest income		48,000			203,000			444,000
Interest expense		(38,000	)		(62,000	)		(148,000	)
Foreign exchange loss		(10,000	)		(28,000	)		—
Income (loss) before income taxes		8,166,000			3,128,000			(4,030,000	)
Income tax benefit (expense)		(2,788,000	)		13,045,000			(276,000	)
Net income (loss)	$	5,378,000		$	16,173,000		$	(4,306,000	)
Basic net income (loss) per common share	$	0.34		$	1.04		$	(0.28	)
Diluted net income (loss) per common share	$	0.33		$	1.01		$	(0.28	)
Shares used in computing basic net income (loss) per common share		16,046,534			15,588,135			15,237,836
Shares used in computing diluted net income (loss) per common share		16,474,708			15,954,631			15,237,836

See accompanying notes.

44

Vascular Solutions, Inc.

Consolidated Statements of Changes in Shareholders’ Equity

						Additional Paid-In Capital
	Common Stock											Accumulated Deficit
	Shares			Amount					Other						Total
Balance at December 31, 2006		15,141,181			151,000		79,841,000			52,000			(65,577,000	)		14,467,000
Exercise of stock options		208,781			2,000		473,000			—			—			475,000
Issuance of common stock under the Employee Stock Purchase Plan		102,194			1,000		666,000			—			—			667,000
Stock option compensation		154,500			2,000		1,455,000			—			—			1,457,000
Deferred compensation related to option grants		—			—		21,000			(21,000	)		—			—
Amortization of deferred compensation		—			—		—			26,000			—			26,000
Comprehensive loss:
Net loss		—			—		—			—			(4,306,000	)		(4,306,000	)
Translation adjustment		—			—		—			39,000			—			39,000
Total comprehensive loss																(4,267,000	)
Balance at December 31, 2007		15,606,656			156,000		82,456,000			96,000			(69,883,000	)		12,825,000
Exercise of stock options		184,860			2,000		617,000			—			—			619,000
Issuance of common stock under the Employee Stock Purchase Plan		133,274			1,000		701,000			—			—			702,000
Stock option compensation		130,000			1,000		1,676,000			—			—			1,677,000
Cancellation of common stock upon the vesting of restricted shares		(27,271	)		—		(158,000	)		—			—			(158,000	)
Amortization of deferred compensation		—			—		—			9,000			—			9,000
Comprehensive income:
Net income		—			—		—			—			16,173,000			16,173,000
Translation adjustment		—			—		—			(21,000	)		—			(21,000	)
Total comprehensive income																16,152,000
Balance at December 31, 2008		16,027,519		$	160,000	$	85,292,000		$	84,000		$	(53,710,000	)	$	31,826,000
Exercise of stock options		247,990			3,000		1,140,000			—			—			1,143,000
Issuance of common stock under the Employee Stock Purchase Plan		140,790			1,000		746,000			—			—			747,000
Stock option compensation		180,500			2,000		1,657,000			—			—			1,659,000
Repurchase and cancellation of common stock upon the vesting of restricted shares		(39,130	)		—		(354,000	)		—			—			(354,000	)
Amortization of deferred compensation		—			—		—			—			—			—
Comprehensive income:
Net income		—			—		—			—			5,378,000			5,378,000
Translation adjustment		—			—		—			—			—			—
Total comprehensive income																5,378,000
Balance at December 31, 2009		16,557,669		$	166,000	$	88,481,000		$	84,000		$	(48,332,000	)	$	40,399,000

See accompanying notes.

45

Vascular Solutions, Inc.

Consolidated Statements of Cash Flows

	Year Ended December 31
	2009			2008			2007
Operating activities
Net income (loss)	$	5,378,000		$	16,173,000		$	(4,306,000	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation		1,418,000			1,469,000			1,376,000
Stock-based compensation		1,659,000			1,677,000			1,457,000
Deferred compensation expense		—			9,000			26,000
Deferred taxes, net		2,832,000			(13,194,000	)		28,000
Loss on disposal of fixed assets		—			26,000			—
Change in accounts receivable allowance		30,000			(10,000	)		20,000
Changes in operating assets and liabilities:
Accounts receivable		(467,000	)		(1,330,000	)		(848,000	)
Inventories		996,000			(1,667,000	)		(1,080,000	)
Prepaid expenses		(474,000	)		(235,000	)		(14,000	)
Accounts payable		(626,000	)		1,000			758,000
Accrued compensation and expenses		456,000			(5,091,000	)		5,524,000
Deferred license fees received		—			731,000			7,000,000
Amortization of deferred license fees and other deferred revenue		(828,000	)		(845,000	)		(562,000	)
Net cash provided by (used in) operating activities		10,374,000			(2,286,000	)		9,379,000
Investing activities
Purchase of property and equipment, net		(1,325,000	)		(1,536,000	)		(1,545,000	)
Cash deposits transferred from (to) restricted cash		—			5,473,000			(5,473,000	)
Net cash provided by (used in) investing activities		(1,325,000	)		3,937,000			(7,018,000	)
Financing activities
Net proceeds from the exercise of stock options and stock warrants		1,143,000			619,000			475,000
Net proceeds from the sale of common stock, employee stock purchase plan		747,000			702,000			667,000
Payments on long-term debt borrowings		—			(867,000	)		(800,000	)
Repurchase and cancellation of common shares		(354,000	)		(158,000	)		—
Net cash provided by financing activities		1,536,000			296,000			342,000
Effect of exchange rate changes on cash and cash equivalents		—			(24,000	)		26,000
Increase in cash and cash equivalents		10,585,000			1,923,000			2,729,000
Cash and cash equivalents at beginning of year		7,209,000			5,286,000			2,557,000
Cash and cash equivalents at end of year	$	17,794,000		$	7,209,000		$	5,286,000
Supplemental disclosure of cash flow
Cash paid for interest	$	39,000		$	68,000		$	155,000
Cash paid for taxes	$	191,000		$	252,000		$	149,000

See accompanying notes.

46

1. Description of Business

Vascular Solutions, Inc. (the Company) is a medical device company focused on bringing clinically advanced solutions to interventional cardiologists and interventional radiologists. The Company’s main product lines consist of the following:

• Hemostat (blood clotting) products, principally consisting of the D-Stat^® Dry hemostat, a topical thrombin-based pad with a bandage used to control surface bleeding, and the D-Stat Flowable, a thick yet flowable thrombin-based mixture for preventing bleeding in subcutaneous pockets,

• Extraction catheters, principally consisting of the Pronto^® V3 and Pronto LP extraction catheters, mechanical systems for the removal of soft thrombus from arteries,

• Vein products, principally consisting of the Vari-Lase^® endovenous laser, a laser and procedure kit used for the treatment of varicose veins,

• Access products, principally consisting of micro-introducer kits, MICRO Elite™ and EXPRO Elite™ snares, the Guardian^® hemostasis valve, and guidewires used in connection with percutaneous access to the vasculature, and

• Specialty catheters, consisting of a variety of catheters for clinical niches including the Langston^® dual lumen catheters, Twin-Pass^® dual access catheters, GuideLiner™ catheter, Minnie™ support catheter, and Gopher™ catheter.

As a vertically-integrated medical device company, the Company generates ideas and creates new interventional medical devices and then delivers the products directly to the physician through a direct domestic sales force and an international distribution network. The Company was incorporated in the state of Minnesota in December 1996 and began operations in February 1997.

2. Summary of Significant Accounting Policies

Basis of Consolidation

The consolidated financial statements include the accounts of Vascular Solutions, Inc. and its wholly owned subsidiary, Vascular Solutions GmbH, after elimination of intercompany accounts and transactions.

Segment Reporting

A business segment is a distinguishable component of an enterprise that is engaged in providing an individual product or service or a group of related products or services and that is subject to risks and returns that are different from those of other business segments. The Company’s segments have similar economic characteristics and are similar in the nature of the products sold, type of customers, methods used to distribute the Company’s products and regulatory environment. Management believes that the Company meets the criteria for aggregating its operating segments into a single reporting segment.

47

2. Summary of Significant Accounting Policies (Continued)

Our primary products are categorized into five product lines. The following table sets forth, for the periods indicated, net revenue by product line along with the percent change from the previous year:

	For Years Ended December 31,
	2009					2008					2007
	Net Revenue		Percent Change			Net Revenue		Percent Change			Net Revenue		Percent Change
Hemostat products	$	24,428,000		4	%	$	23,475,000		(5	%)	$	24,712,000		14	%
Extraction catheters		16,897,000		13	%		14,992,000		36	%		11,016,000		22	%
Vein products		11,225,000		12	%		10,035,000		16	%		8,629,000		22	%
Access products		7,298,000		31	%		5,561,000		99	%		2,790,000		74	%
Specialty catheters		5,905,000		29	%		4,563,000		36	%		3,363,000		8	%
Other products		973,000		(14	%)		1,131,000		25	%		904,000		18	%
License & Collaboration		1,701,000		16	%		1,464,000		1	%		1,450,000		N/A
Total Net Revenue	$	68,427,000		12	%	$	61,221,000		16	%	$	52,864,000		22	%

Foreign Currency Translation and Transactions

The Company’s German subsidiary Vascular Solutions, GmbH accounted for its transactions in its functional currency, the Euro. Foreign assets and liabilities are translated into United States dollars using the year-end exchange rates. Equity is translated at average historical exchange rates. Results of operations are translated using the average exchange rates throughout the year. Translation gains or losses are accumulated as a separate component of shareholders’ equity.

Effective April 1, 2008 the Company began to sell products to a new international distributor in Germany at prices denominated in Euros. The Company also purchases a small number of inventory items at prices denominated in Euros. As a result, the Company is exposed to foreign exchange movements during the time between the shipment of the product and payment. The Company currently has terms of net 60 days with this distributor and net 30 days with vendors under the agreements providing for payments in Euros.

Comprehensive Loss

The components of comprehensive income (loss) are net income (loss) and the effects of foreign currency translation adjustments. The accumulated other comprehensive income (loss) for the foreign currency translation adjustment at December 31, 2009 and 2008 was $84,000 and $84,000, respectively.

Fair Value of Financial Instruments

The carrying amount for cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses approximates fair value due to the immediate or short-term maturity of these financial instruments. The fair value of long-term debt approximated their carrying value because the terms are equivalent to borrowing rates currently available to the Company for debt with similar terms and maturities.

48

2. Summary of Significant Accounting Policies (Continued)

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of deferred tax assets and liabilities, as well as other amounts in the financial statements and accompanying notes. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company classifies all highly liquid investments with initial maturities of three months at the date of purchase or less as cash equivalents. Cash equivalents consist of cash and money market funds and are stated at cost, which approximates market value. The Company deposits its cash in high quality financial institutions. The balances, at times, may exceed federally insured limits.

Credit Risk and Allowance for Doubtful Accounts

The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. This allowance is regularly evaluated by the Company for adequacy by taking into consideration factors such as past experience, credit quality of the customer base, age of the receivable balances, both individually and in the aggregate, and current economic conditions that may affect a customer’s ability to pay. Accounts receivable over 60 days past due are considered past due. The Company does not accrue interest on past due accounts receivable. Receivables are written off only after all collection attempts have failed and are based on individual credit evaluation and the specific circumstances of the customer. At December 31, 2009 and 2008, the allowance for doubtful accounts was $105,000 and $95,000, respectively.

All product returns must be pre-approved and, if approved, customers are subject to a 20% restocking charge. The Company analyzes the rate of historical returns when evaluating the adequacy of the allowance for sales returns, which is included with the allowance for doubtful accounts on its balance sheet. At December 31, 2009 and 2008, the sales and return allowance was $45,000 and $25,000, respectively.

Accounts receivable are shown net of the combined total of the allowance for doubtful accounts and allowance for sales returns of $150,000 and $120,000 at December 31, 2009 and 2008, respectively.

Inventories

Inventories are stated at the lower of cost (first-in, first-out method) or market. Appropriate consideration is given to deterioration, obsolescence and other factors in evaluating net realizable value. Inventories are comprised of the following at December 31:

	2009		2008
Raw materials	$	4,382,000	$	4,943,000
Work-in-process		858,000		871,000
Finished goods		3,737,000		4,160,000
	$	8,977,000	$	9,974,000

49

2. Summary of Significant Accounting Policies (Continued)

Cost of sales related to thrombin inventory expenses were $670,000 for the year ended December 31, 2008. Cost of sales related to thrombin inventory expenses relate to a reserve the Company has recorded for the amount of thrombin the Company anticipates will expire prior to being used in the manufacturing of international hemostat products. The Company has not incurred additional charges related to thrombin inventory during 2009 and does not anticipate incurring additional charges related to thrombin inventory during 2010.

Property and Equipment

Property and equipment are stated at cost. Depreciation is provided on a straight-line basis over the estimated useful lives of the assets as follows:

Manufacturing equipment	1 to 8 years
Office and computer equipment	1 to 5 years
Furniture and fixtures	3 to 8 years
Leasehold improvements	Shorter of useful life or remaining term of the lease
Research and development equipment	3 to 7 years

Impairment of Long-Lived Assets

The Company will record impairment losses on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amount. The amount of impairment loss recorded will be measured as the amount by which the carrying value of the assets exceeds the fair value of the assets. To date, the Company has determined that no impairment of long-lived assets exists.

Revenue Recognition

In the United States the Company sells its products directly to hospitals and clinics. Revenue is recognized in accordance with generally accepted accounting principles as outlined in the Securities and Exchange Commission’s Staff Accounting Bulletin No. 104, Revenue Recognition (SAB 104), [Accounting Standards Codification (“ASC”) 605-10-S99], which requires that four basic criteria be met before revenue can be recognized: (i) persuasive evidence of an arrangement exists; (ii) the price is fixed or determinable; (iii) collectibility is reasonably assured; and (iv) product delivery has occurred or services have been rendered. The Company recognizes revenue as products are shipped based on FOB shipping point terms when title passes to customers. The Company negotiates credit terms on a customer-by-customer basis and products are shipped at an agreed-upon price. All product returns must be pre-approved and, if approved, customers are subject to a 20% restocking charge.

In all international markets, the Company sells its products to international distributors which subsequently resell the products to hospitals and clinics. The Company has agreements with each of its distributors which provide that title and risk of loss pass to the distributor upon shipment of the products to the distributor. The Company warrants that its products are free from manufacturing defects at the time of shipment to the distributor. Revenue is recognized upon shipment of products to distributors following the receipt and acceptance of a distributor’s purchase order. Allowances are provided for estimated returns and warranty costs at the time of shipment. Sales and use taxes are reported on a net basis, excluding them from revenue.

50

2. Summary of Significant Accounting Policies (Continued)

The Company’s revenues from license agreements and research collaborations are recognized when earned (see Note 14). In accordance with Emerging Issues Task Force (EITF) Issue No. 00-21, Revenue Arrangements with Multiple Deliverables, [ASC 605-25], for deliverables which contain multiple deliverables, the Company separates the deliverables into separate accounting units if they meet the following criteria: (i) the delivered items have a stand-alone value to the customer; (ii) the fair value of any undelivered items can be reliably determined; and (iii) if the arrangement includes a general right of return, delivery of the undelivered items is probable and substantially controlled by the seller. Deliverables that do not meet these criteria are combined with one or more other deliverables into one accounting unit. Revenue from each accounting unit is recognized based on the applicable accounting literature, primarily Staff Accounting Bulletin (SAB) 104, Revenue Recognition, [ASC 605-10-S99].

The Company currently has a license agreement with King Pharmaceuticals, Inc. (King) under which the Company licensed the exclusive rights of Thrombi-Pad^TM, Thrombi-Gel^® and Thrombi-Paste^TM products to King in exchange for a license fee. The Company is amortizing the license fees on a straight-line basis over the projected 10 year economic life of the products. The Company determines the economic life of the products under its license agreements by evaluating similar products the Company has launched or other similar products in the medical industry. In addition, the Company has a five-year license agreement with Nicolai, GmbH in which the Company is amortizing the license fee on a straight-line basis over the five-year life of the agreement.

As part of the agreements with King, the Company agreed to conduct clinical studies for the Thrombi-Gel and Thrombi-Paste products, with the costs related to the clinical studies paid by King. Additionally, on May 18, 2007, the Company entered into a Product Development & Supply Agreement with a third party company pursuant to which the Company agreed to develop, manufacture and sell to this company a specialty version of its Twin-Pass dual access catheter, with the costs related to the development paid by this company. The Company is recognizing the collaboration revenue on these development agreements as it is earned in accordance with Emerging Issues Task Force 01-14, Income Statement Characterizations of Reimbursements Received for “Out-of-Pocket” Expenses Incurred, [ASC 605-45-45], and SAB104, [ASC 605-10-S99]. In 2009 King decided to suspend indefinitely further development of the Thrombi-Paste products.

In addition, the Company has reviewed the provisions of EITF Issue No. 07-01, Accounting for Collaborative Arrangements, [ASC 808-10], and believes the adoption of this EITF will have no impact on the amounts recorded under these agreements.

Shipping and Handling Costs

In accordance with the Emerging Issues Task Force (EITF) issue 00-10, Accounting for Shipping and Handling Fees and Costs, [ASC 605-45-45], the Company includes shipping and handling revenues in net sales and shipping and handling costs in cost of goods sold.

Research and Development Costs

All research and development costs are charged to operations as incurred.

Warranty Costs

Certain of the Company’s products are covered by warranties against defects in material and workmanship for periods of up to 24 months. The Company records a liability for warranty claims at the time of sale. The amount of the liability is based on the amount the Company is charged from its original equipment manufacturer to cover the warranty period. The original equipment manufacturer includes a one year warranty with each product sold to the Company. The Company records a liability for the uncovered warranty period offered to a customer, provided the warranty period offered exceeds the initial one year warranty period covered by the original equipment manufacturer.

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2. Summary of Significant Accounting Policies (Continued)

Warranty provisions and claims for the years ended December 31, 2009, 2008 and 2007, were as follows:

	2009			2008			2007
Beginning balance	$	49,000		$	34,000		$	46,000
Warranty provisions		80,000			66,000			28,000
Warranty claims		(56,000	)		(51,000	)		(40,000	)
Ending balance	$	73,000		$	49,000		$	34,000

Advertising Costs

The Company follows the policy of charging production costs of advertising to expense as incurred. Advertising expense was $116,000, $110,000, and $77,000 for the years ended December 31, 2009, 2008 and 2007, respectively.

Stock-Based Compensation

The Company has various types of stock-based compensation plans. These plans are administered by the compensation committee of the Board of Directors, which selects persons to receive awards and determines the number of shares subject to each award and the terms, conditions, performance measures and other provisions of the award. Refer to Notes 8, 9 and 10 for additional information related to these stock-based compensation plans.

Effective January 1, 2006, the Company adopted Statement No. 123R, Share-Based Payment (SFAS 123R), [ASC 718], which requires companies to measure and recognize compensation expense for all stock-based payments at fair value. SFAS 123R, [ASC 718], is being applied on the modified prospective basis. Prior to the adoption of SFAS 123R, [ASC 718], the Company accounted for its stock-based compensation plans under the recognition and measurement principles of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations, and accordingly, recognized no compensation expense related to the stock-based plans.

Under the modified prospective approach, SFAS 123R, [ASC 718], applies to new awards and to awards that were outstanding on January 1, 2006 that are subsequently modified, repurchased, cancelled or vest. Under the modified prospective approach, compensation cost recognized in 2006 includes compensation cost for all share-based payments granted prior to, but not yet vested on, January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R, [ASC 718], and compensation cost for all shared-based payments granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R, [ASC 718]. Prior periods were not restated to reflect the impact of adopting the new standard.

52

2. Summary of Significant Accounting Policies (Continued)

The following amounts have been recognized as stock-based compensation expense in the Consolidated Statements of Operations:

	2009		2008		2007
Stock-based compensation included in:
Cost of goods sold	$	199,000	$	207,000	$	154,000
Research and development		234,000		170,000		164,000
Clinical and regulatory		38,000		132,000		102,000
Sales and marketing		608,000		601,000		422,000
General and administrative		580,000		567,000		615,000
	$	1,659,000	$	1,677,000	$	1,457,000

The Company uses the Black-Scholes option-pricing model to estimate fair value of stock-based awards with the following weighted average assumptions:

	2009		2008		2007
Stock Options and Awards:
Expected life (years)		5.50		5.50		5.50
Expected volatility		52%		50%		51%
Dividend yield		0%		0%		0%
Risk-free interest rate		1.8%		2.75%		4.64%
Employee Stock Purchase Plan:
Expected life (years)		2.0		2.0		2.0
Expected volatility		52%		42%		36%
Dividend yield		0%		0%		0%
Risk-free interest rate		1.03%		2.04%		3.48%

Restricted stock awards fair value is calculated as the market price on the date of grant for the years ended December 31, 2009 and 2008 and the fair value is amortized on a straight line basis over the requisite service period of four years for the award. The weighted average fair value of restricted stock awards granted during 2009, 2008 and 2007 was $9.14, $6.09 and $10.37, respectively.

The weighted average fair value of stock options granted with an exercise price equal to the deemed stock price on the date of grant during 2009, 2008 and 2007 was $2.65, $2.82 and $4.51, respectively.

The Company calculates expected volatility for stock options and awards using historical volatility. The starting point for the historical period used is based on a material change in the Company’s operations that occurred in the third quarter of 2003. The Company uses a 10% forfeiture rate for key employees and a 15% forfeiture rate for non-key employees for stock options and awards. The Company calculates expected volatility for employee stock purchase plan shares using historical volatility over a two-year period. A two-year period is used to coincide with the maximum two-year offering period under the employee stock purchase plan. The risk-free rates for the expected terms of the stock options and awards and the employee stock purchase plan is based on the U.S. Treasury yield curve in effect at the time of grant.

53

2. Summary of Significant Accounting Policies (Continued)

Income Taxes

Income taxes are accounted for under the liability method. Deferred income taxes are provided for temporary differences between the financial reporting and the tax bases of assets and liabilities. Deferred tax assets are reduced by a valuation allowance to the extent that realization of the related deferred tax asset is not assured. If the Company determines in the future that it is more likely than not that the Company will realize all or a portion of the deferred tax assets, the Company will adjust the valuation allowance in the period the determination is made (Note 7).

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation 48 (FIN 48), Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109, [ASC 740-10], which clarifies the accounting for uncertain income tax positions. This interpretation prescribes a financial statement recognition threshold and measurement attribute for any tax position taken or expected to be taken in a tax return. The interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Effective January 1, 2007, the Company adopted FIN 48, [ASC 740-10]. Upon adoption, the Company had $425,000 of unrecognized income tax benefits and the adoption of FIN 48, [ASC 740-10], had no effect on shareholders’ equity. The Company has recorded FIN 48, [ASC 740-10], reserves of $727,000 and $597,000 at December 31, 2009 and 2008. The impact of tax related interest and penalties is recorded as a component of income tax expense. At December 31, 2009, the Company has recorded $-0- for the payment of tax related interest and there were no tax penalties or interest recognized in the statements of operations

Net Income (Loss) Per Common Share

In accordance with SFAS No. 128, Earnings Per Share, [ASC 260-10], basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average common shares outstanding during the periods presented. Diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted average common and potential dilutive common shares outstanding computed in accordance with the treasury stock method.

54

2. Summary of Significant Accounting Policies (Continued)

The number of shares used in earnings per share computations is as follows for the years ended December 31:

	2009		2008		2007
Weighted average common shares outstanding—basic		16,046,534		15,588,135		15,237,836
Dilutive effect of stock options and warrants		428,174		366,496		—
Weighted average common shares outstanding—diluted		16,474,708		15,954,631		15,237,836

The dilutive effect of stock options and warrants in the above table excludes 396,000, 448,500, and 441,500 of options and warrants for which the exercise price was higher than the average market price for the years ended December 31, 2009, 2008 and 2007, respectively. In addition, dilutive potential common shares of 1,017,400 were excluded from diluted weighted average common shares outstanding for the year ended December 31, 2007, as they would be anti-dilutive due to the Company’s net loss for that year.

Goodwill and Other Intangible Assets

In fiscal 2002, the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets, [ASC 350-20 and 350-30]. Goodwill is tested for impairment annually in the fourth quarter or more frequently if changes in circumstances or the occurrence of events suggest impairment exists. The Company has concluded that no impairment of goodwill existed as of December 31, 2009.

Other intangible assets consist of purchased technology. Purchased technology was amortized using the straight-line method over its estimated useful life of four years. The Company reviewed intangible assets for impairment as changes in circumstances or the occurrence of events suggested the remaining value was not recoverable.

Leases and Deferred Rent

The Company leases all office space. Leases are accounted for under the provisions of SFAS No. 13, Accounting for Leases, as amended, [ASC 840-10 and 840-20], which requires that leases be evaluated and classified as operating or capital leases for financial reporting purposes. As of December 31, 2009, all of the Company’s leases were accounted for as operating leases. For leases that contain rent escalations, the Company records the total rent payable during the lease term on a straight-line basis over the term of the lease and records the difference between the rents paid and the straight-line rent as a deferred rent. For any lease incentives the Company receives for items such as leasehold improvements, the Company records a deferred credit for the amount of the lease incentive and amortizes it over the lease term, which may or may not equal the amortization period of the leasehold improvements in accordance with FASB Technical Bulletin 88-1 “Issues Relating to Accounting for Leases,” [ASC 840-20].

New Accounting Pronouncement

In June 2009, the FASB issued Statement of Financial Accounting Standards No. 168, The FASB Accounting Standards Codification™ and the Hierarchy of Generally Accepted Accounting Principles a Replacement of FASB Statement No. 162 (“FAS 168”), [ASC 105-10]. This Standard establishes the FASB Accounting Standards Codification™ (the “Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with U.S. GAAP. The Codification does not change current U.S. GAAP, but is intended to simplify user access to all authoritative U.S. GAAP by providing all the authoritative literature related to a particular topic in one place. The Codification was effective for interim and annual periods ending after September 15, 2009, and as of the effective date, all existing accounting standard documents will be superseded. The Codification was effective for the Company in the third quarter of 2009, and accordingly, the Quarterly Report on Form 10-Q for the quarter ending September 30, 2009 and all subsequent public filings will reference the Codification as the sole source of authoritative literature.

55

3. Goodwill and Other Intangible Assets

The Company has adopted SFAS No. 141, Business Combinations, [ASC 805-10 and 805-20]. The Company acquired developed technology from Angiosonics, Inc. in April 2002 and subsequently amortized the amount over its useful life of four years. The goodwill of $193,000 acquired as part of this transaction is not being amortized.

4. Property and Equipment

Property and equipment consists of the following at December 31:

	2009			2008
Property and equipment:
Manufacturing equipment	$	5,908,000		$	5,067,000
Office and computer equipment		1,888,000			1,815,000
Furniture and fixtures		424,000			463,000
Leasehold improvements		1,495,000			1,275,000
Research and development equipment		504,000			436,000
Construction-in-process		61,000			213,000
		10,280,000			9,269,000
Less accumulated depreciation and amortization		(6,487,000	)		(5,382,000	)
Net property and equipment	$	3,793,000		$	3,887,000

5. Lines of Credit

On December 21, 2009, the Company entered into a secured asset-based revolving credit agreement with U.S. Bank National Association. The revolving credit agreement is a one-year, $10,000,000 facility with availability based primarily on eligible customer receivables, inventory and property and equipment. The revolving credit agreement bears interest equal to the one-month LIBOR rate plus 1.60% and is secured by a first security interest on all of the Company’s assets. The revolving credit agreement requires a quarterly payment based on an annual fee of 0.125% of the average unused portion of the committed revolving line as determined by the bank and reviewed by management.

The revolving credit agreement includes one covenant that the Company cannot have a maximum cash flow leverage ratio greater than 2.5 to 1. The calculation of this covenant is determined by multiplying annual lease expense times six and adding any loans, then dividing this amount by the sum of earnings before interest, taxes, depreciation, amortization and annual operating lease payments. The covenant is computed quarterly based on a rolling 12-month period. The Company was in compliance with all of the covenants as of December 31, 2009.

As of December 31, 2009, the Company had no outstanding balance against the revolving credit agreement. Based on the Company’s eligible customer receivables, inventory, property and equipment and cash balances, $10,000,000 was available for borrowing as of December 31, 2009.

56

6. Leases

The Company leases two buildings totaling approximately 93,000 square-feet under separate operating leases. On November 12, 2007, both leases were amended to extend the terms until September 2015, with options to renew both leases. Rent expense related to the operating leases was approximately $1,133,000, $755,000 and $596,000 for the years ended December 31, 2009, 2008, and 2007, respectively.

Future minimum lease commitments under these operating leases as of December 31, 2009 were as follows:

2010	$	761,000
2011		797,000
2012		808,000
2013		841,000
2014		841,000
Thereafter		631,000
	$	4,679,000

7. Income Taxes

At December 31, 2009, the Company had net operating loss carryforwards of approximately $40,276,000 and $4,521,000 for federal and state income tax purposes that are available to offset future taxable income and begin to expire in the year 2019. Included in the U.S. amount are approximately $4.1 million of deductions resulting from disqualifying dispositions of stock options. When these deductions from disqualifying dispositions are realized for financial statement purposes they will not result in a reduction in income tax expense, rather the benefit will be recorded as additional paid-in-capital. At December 31, 2009, the Company also had federal research and development tax credit carryforwards of approximately $3,272,000 and Minnesota research and development tax credit carryforwards of approximately $760,000, which begin to expire in the year 2012. At December 31, 2009, the Company has foreign tax loss carryforwards of approximately $357,000 that do not expire. The adoption of FIN 48, Accounting for Uncertainty in Income Taxes, [ASC 740-10], has had no impact on the reported carryforwards at December 31, 2009.

The Company adopted the provisions of FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes - an Interpretation of SFAS No. 109, [ASC 740-10], on January 1, 2007. This interpretation prescribes a financial statement recognition threshold and measurement attribute for any tax position taken or expected to be taken in a tax return. The interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Upon adoption, there was $425,000 of unrecognized income tax benefits and the adoption of FIN 48, [ASC 740-10], had no effect on shareholders’ equity. The impact of tax related interest and penalties will be recorded as a component of income tax expense. At December 31, 2009, the Company has accrued zero for the payment of tax related interest and there were no tax interest or penalties recognized in the statements of operations.

The Company is subject to income tax in numerous jurisdictions and at various rates and the use of estimates is required in determining the provision for income taxes. For the year ended December 31, 2009, the Company recorded a tax provision of $2,788,000 on income before tax of $8,166,000 resulting in an effective income tax rate of 34%.

The Company is subject to income tax examinations in the U.S. Federal jurisdiction, as well as in the Germany and various state jurisdictions. At December 31, 2009, the Company was not under examination by any of these taxing authorities and the open tax years are 2007 to 2009.

57

7. Income Taxes (Continued)

A reconciliation of the beginning and ending amount of unrecognized tax benefit is as follows:

Balance at December 31, 2007	$	512,000
Increases as a result of tax positions taken during a prior period		5,000
Increases as a result of tax positions taken during the current period		80,000
Reductions as a result of lapse of the applicable statute of limitations		—
Decreases relating to settlements with taxing authorities		—
Balance at December 31, 2008		597,000
Increases as a result of tax positions taken during a prior period		2,000
Increases as a result of tax positions taken during the current period		128,000
Reductions as a result of lapse of the applicable statute of limitations		—
Decreases relating to settlements with taxing authorities		—
Balance at December 31, 2009	$	727,000

The components of the Company’s deferred tax assets and liabilities as of December 31, 2009 and 2008 are as follows:

	2009			2008
Deferred tax assets:
Net operating loss carryforwards	$	16,942,000		$	19,538,000
Tax credit carryforwards		4,759,000			4,274,000
Deferred revenue		2,049,000			2,353,000
Depreciation and amortization		171,000			206,000
Accrued compensation		335,000			304,000
Stock-based compensation		609,000			530,000
Federal and state AMT credits		143,000			195,000
Inventory reserve		325,000			334,000
Other		155,000			138,000
Gross deferred tax assets		25,488,000			27,872,000
Deferred tax liability		(38,000	)		(34,000	)
Net deferred taxes assets before FIN48 Reserve and valuation allowances		25,450,000			27,838,000
FIN48 Reserve		(727,000	)		(597,000	)
Less valuation allowances		(14,388,000	)		(14,075,000	)
Net deferred tax asset / (liability)	$	10,335,000		$	13,166,000
Deferred taxes recorded on the balance sheet:
Net deferred tax assets / (liabilities) – current	$	4,500,000		$	2,680,000
Net deferred tax assets / (liabilities) – long-term		5,835,000			10,486,000
Net deferred tax assets	$	10,335,000		$	13,166,000

58

7. Income Taxes (Continued)

The Company regularly assesses the likelihood that the deferred tax assets will be recovered from future taxable income. The Company considers projected future taxable income and ongoing tax planning strategies, then records a valuation allowance to reduce the carrying value of the net deferred taxes to an amount that is more likely than not to be realized. For the year ended December 31, 2008, based upon the Company’s assessment of all available evidence, including the previous three year cumulative income before unusual and infrequent expenses (litigation and thrombin qualification expenses), estimates of future profitability, and the Company’s overall prospects of future business, the Company determined that it was more likely than not that the Company would be able to realize a portion of the deferred tax assets in the future, and as a result recorded a $13,200,000 income tax benefit. To determine the amount of the reduction in the valuation allowance, the Company used a discounted projection of its revenue and income for the years ending December 31, 2009 through 2013, which would approximate the ten-year life of the Company’s three most significant products at this time. The amount of the valuation allowance reduction at December 31, 2008, was based on the Company’s projected discounted taxable income. The Company continues to assess the potential realization of deferred tax assets on an annual basis, or an interim basis if circumstances warrant. If the Company’s actual results and updated projections vary significantly from the projections used as a basis for this determination, the Company may need to increase or decrease the valuation allowance against the gross deferred tax assets. The Company would adjust earnings for the deferred tax in the period the determination was made. At December 31, 2009 and 2008, the valuation allowance was $14,388,000 and $14,075,000, respectively. Of these amounts, $530,000 as of December 31, 2008 was attributable to increases in the net operating loss carry forwards resulting from the exercise of stock options. This amount will be recorded as an increase to additional paid-in-capital if it is determined in the future that this portion of the valuation allowance is no longer required. The increase (decrease) in the valuation allowance was $313,000, ($14,997,000) and $1,360,000 for the years ended December 31, 2009, 2008 and 2007, respectively. For the year ended December 31, 2009 the Company recorded a stock option tax deduction of $1,062,000, which will be recorded against “additional paid-in capital” at the time at which it reduces taxes payable.

Reconciliation of the statutory federal income tax rate to the Company’s effective tax rate is as follows:

	2009			2008			2007
Tax at statutory rate		34.0	%		34.0	%		(34.0	)%
Permanent differences		(1.4	)		9.6			13.5
State income taxes, net of federal benefit		4.5			3.7			(3.7	)
Change in valuation reserve		6.2			(476.4	)		33.6
R&D credits generated		(6.1	)		(18.1	)		(24.8	)
FIN48 reserve		1.6			2.8			12.7
Change in effective deferred tax rate		(2.1	)		25.4			4.0
Other adjustments		(2.6	)		2.0			5.5
Effective income tax rate		34.1	%		(417.0	)%		6.8	%
	2009			2008			2007
Current taxes		(0.1	)%		3.7	%		(3.7	)%
Deferred taxes		34.2			1.3			10.5
Benefit from release of valuation reserve		—			(422.0	)		—
Effective income tax rate		34.1	%		(417.0	)%		6.8	%

59

8. Stock Options and Restricted Shares

Stock Option and Stock Award Plan

The Company has a stock option and stock award plan (the Stock Option Plan) which provides for the granting of stock options, restricted shares and stock appreciation rights to employees, directors, and consultants. Incentive stock options may be granted only to employees of the Company. Options which do not qualify as incentive stock options and awards of restricted shares may be granted to both employees and to non-employee directors and consultants. As of December 31, 2009, the Company had reserved 5,900,000 shares of common stock under the Stock Option Plan. Under the Stock Option Plan, stock options must be granted at an exercise price not less than the fair market value of the Company’s common stock on the grant date. Vesting requirements of all awards under this plan are time based and vary by individual grant. The options expire on the date determined by the Board of Directors but may not extend more than 10 years from the grant date. The incentive stock options generally become exercisable over a four-year period and the nonqualified stock options generally become exercisable over a two-year period. Vested and unexercised options are canceled three-months after termination, and unvested awards are canceled on the date of termination of employment and become available under the Stock Option Plan for future grants.

During 2007 to 2009, the Company granted stock options to its directors under the Stock Option Plan. The ten-year options issued to the Company’s directors vest over a one-year period based on the continuation of service as a director of the Company. The Company uses a 0% forfeiture rate for all director options granted.

Option activity is summarized as follows:

	Shares Available for Grant (exclusive of restricted shares issued)			Plan Options Outstanding			Exercise Price		Weighted Average Exercise Price		Aggregate Intrinsic Value
Balance at December 31, 2006		1,991,000			1,512,000		$	0.78–$12.00	$	5.24
Shares reserved		500,000			—			—		—
Granted		(75,000	)		75,000			9.41– 9.58		9.44
Exercised		—			(116,000	)		0.78– 9.46		2.01
Forfeited		3,000			(3,000	)		0.84– 9.46		8.27
Expired		9,000			(9,000	)		0.78– 9.46		4.24
Balance at December 31, 2007		2,428,000			1,459,000		$	0.78–$12.00	$	5.74
Shares reserved		500,000			—			—		—
Granted		(60,000	)		60,000			6.36		6.36
Exercised		—			(185,000	)		0.84– 6.74		3.35
Forfeited		5,000			(5,000	)		6.74– 9.46		9.45
Expired		83,000			(83,000	)		6.74– 12.00		9.52
Balance at December 31, 2008		2,956,000			1,246,000		$	0.78–$11.62	$	5.84
Shares reserved		500,000			—			—		—
Granted		(60,000	)		60,000			6.39		6.39
Exercised		—			(248,000	)		0.81– 6.74		4.61
Forfeited		2,000			(2,000	)		6.00– 11.62		10.22
Expired		26,000			(26,000	)		9.46– 11.62		11.55
Balance at December 31, 2009		3,424,000			1,030,000		$	0.78–$10.89	$	6.06	$	2,849,000
Exercisable at December 31, 2009					1,010,000				$	6.05	$	2,809,000

The weighted average remaining contractual term of options exercisable at December 31, 2009, was 4.3 years. The total intrinsic value of options exercised during fiscal 2009, 2008 and 2007, was $879,000, $909,000 and $903,000, respectively.

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8. Stock Options and Restricted Shares (Continued)

The following table summarizes information about stock options outstanding at December 31, 2009:

	Options Outstanding					Options Exercisable
Range of Exercise Prices	Outstanding as of December 31, 2009		Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Exercisable as of December 31, 2009		Weighted Average Exercise Price
$0.78–$0.84		243,000	2.4	$	0.84		243,000	$	0.84
0.85– 2.51		76,000	1.9		2.39		76,000		2.39
2.52– 6.50		128,000	8.4		6.34		108,000		6.33
6.51– 7.48		187,000	2.9		6.93		187,000		6.93
7.49– 9.27		73,000	5.9		8.23		73,000		8.23
9.28– 10.89		323,000	5.2		9.72		323,000		9.72
		1,030,000	4.3	$	6.06		1,010,000	$	6.05

As of December 31, 2009, there was $12,000 of total unrecognized compensation costs related to the outstanding stock options, which is expected to be recognized over a weighted average period of 0.18 years.

The holder of a restricted share award is generally entitled at all times on and after the date of issuance of the restricted shares to exercise the rights of a shareholder of the Company, including the right to vote the shares and the right to receive dividends on the shares. These shareholders do not have the ability to sell, transfer or otherwise encumber the restricted share awards until they fully vest. During 2009, 2008 and 2007 the Company granted restricted shares to employees under the Stock Option Plan. The restricted shares vest over a four-year period based on the continuation of employment.

Restricted share activity is summarized as follows:

	Shares Outstanding			Weighted Average Grant Date Fair Value
Balance at December 31, 2006		159,000		$	5.42
Granted		174,000			10.37
Vested		—			—
Forfeited		(20,000	)		8.03
Expired		—			—
Balance at December 31, 2007		313,000			8.01
Granted		174,000			6.09
Vested		(73,000	)		5.50
Forfeited		(44,000	)		7.55
Expired		—			—
Balance at December 31, 2008		370,000			7.68
Granted		211,000			9.14
Vested		(106,000	)		8.86
Forfeited		(30,000	)		8.15
Expired		—			—
Balance at December 31, 2009		445,000		$	8.07

61

8. Stock Options and Restricted Shares (Continued)

As of December 31, 2009, there was $1,112,000 of total unrecognized compensation costs related to the outstanding restricted shares, which is expected to be recognized over a weighted average period of 1.22 years. The Company estimates the forfeiture rate for restricted stock using 10% for key employees and 15% for non-key employees.

The net remaining shares available for grant under the Stock Option and Stock Award Plan is 2,800,000 shares.

Deferred Compensation

In 2009, 2008, and 2007, the Company recorded $-0-, $-0- and $21,000, respectively, of deferred compensation in connection with certain nonqualified stock options granted to medical advisory board members. The weighted average fair value of these options was $4.23. The deferred compensation recorded was amortized ratably over the period that the options vest and was adjusted for options which have been canceled. Vesting requirements for nonqualified stock options under this plan will vary by individual grant. Deferred compensation expense was $-0-, $9,000 and $26,000 for the years ended December 31, 2009, 2008, and 2007, respectively.

9. Employee Stock Purchase Plan

The Company has an Employee Stock Purchase Plan (the Purchase Plan) under which 2,100,000 shares of common stock have been reserved for issuance. Eligible employees may contribute 1% to 10% of their compensation to purchase shares of the Company’s common stock at a discount of 15% of the market value at certain plan-defined dates up to a maximum of 2,000 shares per purchasing period. The Purchase Plan terminates in July 2010. In fiscal 2009, 2008 and 2007, 140,800 shares, 133,300 shares, and 102,200 shares, respectively, were issued under the Purchase Plan. At December 31, 2009, 851,000 shares were available for issuance under the Purchase Plan.

As of December 31, 2009, there was $98,000 of total unrecognized compensation costs related to the Purchase Plan, which is expected to be recognized over a weighted average period of 0.24 years.

10. Employee Retirement Savings Plan

The Company has an employee 401(k) retirement savings plan (the Plan). The Plan provides eligible employees with an opportunity to make tax-deferred contributions into a long-term investment and savings program. All employees over the age of 21 are eligible to participate in the Plan beginning with the first quarterly open enrollment date following start of employment. The Plan allows eligible employees to contribute up to 50% of their annual compensation, subject to a maximum limit determined by the Internal Revenue Service, with the Company contributing an amount equal to 25% of the first 5% contributed to the Plan. The Company recorded an expense of $157,000, $117,000 and $144,000 for contributions to the Plan for the years ended December 31, 2009, 2008, and 2007, respectively.

11. Concentrations of Credit and Other Risks

In the United States the Company sells its products directly to hospitals and clinics. In all international markets, the Company sells its products to distributors who, in turn, sell to medical clinics. Loss, termination, or ineffectiveness of distributors to effectively promote the Company’s product could have a material adverse effect on the Company’s financial condition and results of operations.

No customer represented more than 10% of total revenue for any year ended December 31, 2009, 2008 and 2007.

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11. Concentrations of Credit and Other Risks (Continued)

The Company performs credit evaluations of its customers and does not require collateral to establish an account receivable. No customer represented more than 10% of gross accounts receivable at December 31, 2009 and 2008. There have been no material losses on customer receivables.

Product revenue by geographic destination as a percentage of total product revenues were as follows for the years ended December 31:

	2009		2008		2007
Domestic	87	%	87	%	87	%
Foreign	13		13		13

12. Related Party Activity

During the years ended December 31, 2009, 2008 and 2007, the Company sold $458,000, $495,000 and $489,000, respectively, of product to a company of which a board member of the Company is an officer. As of December 31, 2009 and 2008, the Company had an accounts receivable balance due of $103,000 and $47,000, respectively, from this related party. In addition, the Company purchases product from this related party and during the years ended December 31, 2009, 2008 and 2007 the Company purchased $15,000, $16,000 and $24,000, respectively, of product from this related party. As of December 31, 2009 and 2008, the Company had an accounts payable balance due of $-0- to this related party.

In July 2008 the Company began utilizing the consulting services from a company owned by a board member. During the years ended December 31, 2009 and 2008, the Company utilized services in the amount of $354,000 and $170,000, respectively, from this vendor. At December 31, 2009 and 2008, the Company had an accounts payable balance due of $25,000 and $68,000 to this related party.

In July 2009 the Company began utilizing development consulting services from a company owned by the spouse of a board member. During the year ended December 31, 2009 the Company utilized services in the amount of $55,000 from this vendor. At December 31, 2009 the Company had an accounts payable balance due of $4,000 to this related party.

13. Dependence on Key Suppliers

King Pharmaceuticals

The Company purchases certain key components from single-source suppliers. Any significant component delay or interruption could require the Company to qualify new sources of supply, if available, and could have a material adverse effect on the Company’s financial condition and results of operations. The Company purchases its requirements for thrombin (a component in the Hemostat products) under a Thrombin-JMI Supply Agreement entered into with King Pharmaceuticals, Inc. (King) on January 9, 2007. Under the terms of the Thrombin-JMI Supply Agreement, King agrees to manufacture and supply thrombin to the Company on a non-exclusive basis. The Thrombin-JMI Supply Agreement does not contain any minimum purchase requirements. King agrees to supply the Company with such quantity of thrombin as the Company may order at a fixed price throughout the term of the Thrombin-JMI Supply Agreement as adjusted for inflation, variations in potency and other factors. The Thrombin-JMI Supply Agreement has an initial term of 10 years, followed by successive automatic one-year extensions, subject to termination by the parties under certain circumstances, including: (i) termination by King without cause any time after the fifth anniversary of the date of the Thrombin-JMI Supply Agreement upon five years prior written notice to the Company, and (ii) termination by the Company without cause any time after the fifth anniversary of the date of the Thrombin-JMI Supply Agreement upon five years prior written notice to King provided that the Device Supply Agreement, which the Company also entered into with King on January 9, 2007, has expired on its terms or the parties have agreed to terminate it.

63

14. Commitments and Contingencies

All legal cost related to litigation are charged to operations as incurred, except settlements which are expensed when a claim is probable and estimatable.

Diomed Litigation

On March 4, 2004, the Company was named as the defendant in an intellectual property lawsuit brought by Diomed Inc. (Diomed) in the United States District Court for the District of Massachusetts (the “Court”). The complaint requested a judgment that sales of the Company’s Vari-Lase^® procedure kit and Vari-Lase laser console infringe on a single method patent (No. 6,398,777) held by Diomed and asked for relief in the form of an injunction that would prevent the Company from selling the Company’s Vari-Lase products, compensatory and treble damages caused by the manufacture and sale of the Company’s products, and other costs, disbursements and attorneys’ fees. The trial commenced on March 12, 2007, and concluded on March 28, 2007, when the jury reached a verdict that the Company contributed to and induced infringement of Diomed’s patent and awarded monetary damages in the amount of $4,100,000, plus pre-judgment interest. The jury concluded there was no willful infringement by the Company and therefore the award was not subject to treble damages or attorneys’ fees. To settle Diomed’s claims for pre-judgment interest and for additional damages for sales not considered by the jury, the Company agreed to amend the judgment amount to $4,975,000 and accrued this amount together with additional costs and attorney’s fees as of June 30, 2007 in the aggregate amount of $5,690,000. On June 20, 2007 the Company posted a supersedeas bond and appealed the jury verdict to the U.S. Court of Appeals for the Federal Circuit in Washington, D.C. On April 8, 2008, the Company announced that it entered into a settlement agreement with Diomed. Pursuant to the settlement agreement, (i) on April 29, 2008, the Company made a one-time payment of $3,586,000 to Diomed, (ii) the Company and Diomed jointly dismissed the appeal with the United States Court of Appeals for the Federal Circuit, and (iii) Diomed provided to the Company a satisfaction of judgment, releasing the Company from the monetary obligations of the judgment imposed by the Court in its entirety.

Marine Polymer Technologies, Inc.

On May 11, 2005 the Company initiated a lawsuit for product disparagement and false advertising against Marine Polymer Technologies, Inc., a Delaware corporation (Marine Polymer). In the lawsuit, the Company alleged that Marine Polymer made defamatory and disparaging statements concerning the Company’s D-Stat^® Dry hemostatic bandage. The Company sought relief in the form of an injunction to enjoin Marine Polymer from continuing to defame and disparage the Company’s products, damages as a result of such statements, and other costs, disbursements and attorneys’ fees. Marine Polymer brought a counter-claim against the Company including, among other claims, business defamation and product disparagement for statements allegedly made by the Company concerning Marine Polymer’s SyvekPatch^®. Marine Polymer sought relief in the form of monetary damages, costs, disbursements and attorneys’ fees. The trial commenced on March 24, 2008 in the United States District Court for the District of Massachusetts. At the conclusion of the trial on April 7, 2008 the jury returned a verdict in favor of the Company and against Marine Polymer for product disparagement concerning statements made regarding the safety of the Company’s D-Stat Dry hemostat product. In its verdict, the jury found that Marine Polymer’s statements were false and disparaged the D-Stat Dry product and awarded the Company $4,500,000 in monetary damages. The jury rejected Marine Polymer’s counter-claims in their entirety. Following post trial motions, on June 30, 2008, the Court upheld the jury verdict, granted the Company’s request for a permanent injunction against Marine Polymer for the statements that the jury found were false, and added prejudgment interest on the jury verdict award in the amount of $592,124.

64

14. Commitments and Contingencies (Continued)

On July 14, 2008, Marine Polymer filed a Notice of Appeal with the U.S. First Circuit Court of Appeals seeking to overturn the monetary damages and injunction issued against them. Marine Polymer did not appeal the Court’s rejection of its counter-claims against the Company. On February 4, 2009, oral arguments by both parties on Marine Polymer’s appeal were heard by the U.S. First Circuit Court of Appeals. On December 23, 2009, the U.S. First Circuit Court of Appeals affirmed the judgment against Marine Polymer for product disparagement. As a result, the permanent injunction issued at the conclusion of the trial will remain in effect, prohibiting Marine Polymer and its representatives from making, publishing or disseminating certain disparaging statements concerning the safety of our D-Stat products. Addressing the jury’s award of $4.5 million in damages, the Court determined that, due to differences in opinion among the judges, the Company could either accept a $2.7 million award of damages (plus interest) or insist upon a new trial limited to the issue of determining the reasonable amount of damages. The Company has accepted the $2.7 million award of damages plus interest, received $3.56 million from Marine Polymer on January 22, 2010, and will record the amount as litigation gain during the first quarter of 2010 (See Note 16).

VNUS^® Medical Technologies (acquired by Covidien) Litigation

On October 13, 2005, the Company was named as one of three defendants in an intellectual property lawsuit brought by VNUS^® Medical Technologies, Inc. (VNUS) in the United States District Court for the Northern District of California. The complaint requested a judgment that the Company’s Vari-Lase^® procedure kit and Vari-Lase^® laser console infringe on four patents held by VNUS and asked for relief in the form of an injunction that would prevent the Company from selling the Company’s Vari-Lase^® products, compensatory and treble damages caused by the manufacture and sale of these products, and other costs, disbursements and attorneys’ fees. VNUS subsequently indicated that it was not pursuing its allegation of infringement concerning one of the four patents. On June 2, 2008, the Company entered into a settlement agreement with VNUS for the purpose of resolving the lawsuit. Under the terms of the settlement agreement, (i) on June 4, 2008, the Company paid VNUS a royalty payment in the aggregate amount of $3,116,000 related to all Vari-Lase products shipped within the United States through the end of the first quarter of 2008, (ii) the Company agreed to pay a quarterly royalty on all on-going U.S. shipments of Vari-Lase laser and kit products payable quarterly during the remaining life of the applicable patents, (iii) VNUS granted the Company a non-exclusive and non-sublicensable license to the applicable patents for use in endovenous laser therapy, and (iv) all litigation between the parties was dismissed.

AngioDynamics, Inc. Litigation

On July 29, 2009 AngioDynamics, Inc. (AngioDynamics) filed a lawsuit against the Company in the U.S. District Court for the District of Delaware, alleging that the Company has infringed U.S. Patent No. 7,273,478 and U.S. Patent No. 7,559,329. Specifically, AngioDynamics alleges that doctors using the Company’s Bright Tip fibers and procedure kits are using the methods claimed in those patents, and accuses the Company of inducing and contributing to infringement. AngioDynamics has requested injunctive relief and compensatory damages. On December 1, 2009 the Company filed its answer, a counterclaim, and a motion to transfer the case to the U.S. District Court for the District of Minnesota.

The Company has also filed an inter partes request for reexamination of both the ‘478 and ‘329 patents with the United States Patent Office. The Patent Office granted the inter partes requests for reexamination for both the ‘478 and ‘329 patents. The Company expects the reexamination process for each patent will take at least three years to conclude. On January 27, 2010, the Company filed a motion with the U.S. District Court for the District of Delaware to stay all proceedings in the litigation pending the outcome of the inter partes reexaminations.

65

14. Commitments and Contingencies (Continued)

From time to time, the Company is involved in additional legal proceedings arising in the normal course of business. As of the date of this report the Company is not a party to any legal proceeding not described in this section in which an adverse outcome would reasonably be expected to have a material adverse effect on the Company’s results of operations or financial condition.

King Agreements

On January 9, 2007, the Company entered into three separate agreements with King: a License Agreement, a Device Supply Agreement and a Thrombin-JMI^® Supply Agreement. Under the License Agreement, the Company licensed the exclusive rights to the Company’s products Thrombi-Pad, Thrombi-Gel and Thrombi-Paste to King in exchange for a one-time license fee of $6,000,000. Under the Device Supply Agreement, the Company agreed to manufacture the licensed products for sale to King in exchange for two separate $1,000,000 milestone payments; one upon the first commercial sale of Thrombi-Gel (which was received on May 31, 2007), and one upon the first commercial sale of Thrombi-Paste. The Company is amortizing the $6,000,000 license fee on a straight-line basis over 10 years. The Company is amortizing the $1,000,000 milestone payment that was received on May 31, 2007 over the remaining 10-year license period and will amortize the additional $1,000,000 milestone payment over the remaining 10-year license period when it is received. In 2009 King suspended further development of all Thrombi-Paste products. The unamortized license fee was $4,945,000, $5,649,000 and $6,353,000 at December 31, 2009, 2008 and 2007, respectively. The amortization of license fee was $704,000, $704,000 and $647,000 for the years ended December 31, 2009, 2008 and 2007, respectively.

Under the Device Supply Agreement the Company agreed to pursue a surgical indication for the use of the Thrombi-Gel and Thrombi-Paste products from the FDA. The Device Supply Agreement requires the Company to make a one-time payment of $2,500,000 to King if the FDA does not approve the surgical indication of Thrombi-Gel and a one-time payment of $2,500,000 to King if the FDA does not approve the surgical indication of Thrombi-Paste after performing a clinical study and submitting the application. The Company believes the probability of paying these one-time payments to King is remote, and therefore has not recorded any provision for these payments.

Nicolai, GmbH Agreement

Effective April 1, 2008 the Company entered into a five-year distribution agreement with Nicolai, GmbH. As a result of entering into this distribution agreement, the Company no longer maintains a direct sales force in Germany. In connection with this distribution agreement, the Company received 500,000 Euros from Nicolai, GmbH. which was deferred and is being recognized ratably over the five-year term of the distribution agreement.

The agreement also includes provisions requiring the Company to pay Nicolai, GmbH specific amounts if the Company terminates the distribution agreement prior to the end of the five-year term. The Company does not intend to terminate the distribution agreement and, as such, has not recorded a liability relating to these potential future payments to Nicolai, GmbH. The unamortized license fee was $472,000 and $617,000 at December 31, 2009 and 2008, respectively. The amortization of license fee was $145,000 and $114,000 for the year ended December 31, 2009 and 2008, respectively.

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15. Quarterly Financial Data (Unaudited, in Thousands, Except per Share Data)

2009	Fourth Quarter		Third Quarter		Second Quarter			First Quarter
Revenue:
Product	$	17,712	$	16,817	$	16,781		$	15,416
License and collaboration		510		411		385			395
Total revenue		18,222		17,228		17,166			15,811
Selected costs and expenses:
Product		6,219		5,718		5,765			5,215
Collaboration		295		199		173			183
Total selected costs and expenses:		6,514		5,917		5,938			5,398
Operating income (loss)		2,228		2,178		2,247			1,513
Net income (loss)		1,623		1,431		1,386			938
Basic net income (loss) per share	$	0.10	$	0.09	$	0.09		$	0.06
Diluted net income (loss) per share	$	0.10	$	0.09	$	0.09		$	0.06
2008
Revenue:
Product	$	16,059	$	15,089	$	14,872		$	13,737
License and collaboration		345		376		366			377
Total revenue		16,404		15,465		15,238			14,114
Selected costs and expenses:
Product		5,619		5,130		5,360			4,581
Collaboration		126		138		187			181
Total selected costs and expenses:		5,745		5,268		5,547			4,762
Operating income (loss)		1,457		1,748		(444	)		254
Net income (loss)		14,684		1,722		(468	)		235
Basic net income (loss) per share	$	0.93	$	0.11	$	(0.03	)	$	0.02
Diluted net income (loss) per share	$	0.90	$	0.11	$	(0.03	)	$	0.01

16. Subsequent Event

On January 22, 2010 the Company received $3.56 million dollars as payment in full for the judgment against Marine Polymer in the lawsuit initiated by the Company for product disparagement and false advertising which was affirmed by the U.S. First Circuit Court of Appeals on December 23, 2009. The Company will record the $3.56 million as a litigation gain in the first quarter of 2010.

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EX-10.12

CREDIT AGREEMENT

          THIS CREDIT AGREEMENT, dated as of December 21, 2009, is by and between Vascular Solutions, Inc., a Minnesota corporation (the “Borrower”), and U.S. Bank National Association, a national banking association (the “Bank”).

RECITALS:

          A.          The Borrower has requested that the Bank make available to the Borrower the Revolving Credit Facility (defined below).

          B.          The Borrower will use the proceeds of advances under the Revolving Credit Facility for the Borrower’s general working capital purposes.

AGREEMENTS:

          IN CONSIDERATION of the foregoing premises, and the mutual covenants set forth herein, the parties agree as follows:

ARTICLE 1 DEFINITIONS AND ACCOUNTING TERMS

          Section 1.1     Defined Terms. In addition to the terms defined elsewhere in this Agreement, the following terms shall have the meanings set out respectively after each (and such meanings shall be equally applicable to both the singular and plural form of the terms defined, as the context may require):

          Advance(s): Any advance(s) of loan proceeds made by Bank to the Borrower in accordance with the terms of this Agreement.

          Adverse Effect: A negative event related to the business, operations, property, assets or financial condition of the Borrower that depletes 50% of the Borrower’s current cash and cash equivalents (as determined by the most recent publicly-available financial statements).

          Affiliate: Any Person (i) which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, the Borrower or any of its Subsidiaries, or (ii) five percent (5%) or more of the equity interest of which is held beneficially or of record by the Borrower or any of its Subsidiaries. Control for purposes of this definition means the possession, directly or indirectly, of the power to cause the direction of management and policies of a Person, whether through the ownership of voting securities or otherwise.

          Agreement: This Credit Agreement, as it may be amended, modified, supplemented, restated or replaced from time to time.

          Borrowing Base: At any time an amount equal to the sum of:

(a)	80% of Eligible Receivables; plus
(b)	the lesser of $5,000,000 or 50% of Eligible Inventory; plus
(c)	the lesser of $2,000,000 or 50% of Eligible Property and Equipment;

provided the foregoing Borrowing Base is subject to change from time to time in the Banks’ discretion, including without limitation, following the result of any collateral exam performed by the Bank in accordance with Section 8.6 hereof.

          Borrowing Base Certificate: The borrowing base certificate in the form of Exhibit B attached hereto, or such form as the Bank may require from time to time.

          Borrowing Base Deficiency: At the time of any determination, the amount, if any, by which the principal balance of the Revolving Credit Facility under this Agreement exceeds the Borrowing Base.

          Business Day: Any day (other than a Saturday, Sunday or legal holiday in the State of New York) on which commercial banks are open for business in New York, New York.

          Capitalized Lease: Any lease which is or should be capitalized on the books of the lessee in accordance with GAAP.

          Code: The Internal Revenue Code of 1986, as amended, or any successor statute, together with regulations thereunder.

          Commitment: The commitment of the Bank to make Advances to the Borrower in accordance with the terms of this Agreement and to issue Letters of Credit for the account of the Borrower in an aggregate principal amount not to exceed the lesser of (i) $10,000,000.00, and (ii) the Borrowing Base.

          Collateral: As defined in Section 5.1.

          Compliance Certificate: The compliance certificate in such form as the Bank may require from time to time to be delivered by the Borrower to the Bank demonstrating the Borrower’s compliance (or non-compliance) with Sections 8.2(a) and 8.2(b), and stating that as of the end of such period there did not exist any Default or Event of Default.

          Credit Party: The Borrower, any Subsidiary of the Borrower, any other Person who at any time guaranties or pledges any assets to secure the Obligations, or any one or more of them.

          Default: Any event which, with the giving of notice to the Borrower or lapse of time, or both, would constitute an Event of Default.

          EBITDA [or Earnings Before Interest, Taxes, Depreciation, and Amortization]: For any period of determination, the net income of a Person before deductions for Interest Expense, cash payment of federal, state and local income taxes, depreciation, and amortization.

          EBITDAR: EBITDA plus Operating Lease expense.

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          Eligible Inventory: The dollar value of all raw materials and finished goods inventory held for sale or lease which is merchantable, not unsaleable or obsolete, owned solely by the Borrower that is at all times subject to a first priority perfected security interest in favor of the Bank and is not subject to any other Liens and which the Bank deems to be Eligible Inventory; provided, that, without limiting the generality of the foregoing, Eligible Inventory shall not include (i) work-in-process inventory, (ii) inventory subject to consignment or otherwise in the possession of a third party, (iii) inventory that is in-transit or not located within the United States, (iv) inventory identified to be purchased under a contract under which the Borrower has received, or is entitled to receive, an advance payment, (v) inventory which is comprised of returns, rejected items, re-work items, non-standard items, or odd-lots, (vi) supplies, packaging, maintenance parts or sample inventory, and (vii) inventory that is located at any warehouse or other premises and not covered by a landlord’s waiver and consent. Inventory which is at any time Eligible Inventory but which subsequently fails to meet any of the foregoing requirements shall forthwith cease to be Eligible Inventory. The value of Eligible Inventory shall be the lower of the cost or market value of the Eligible Inventory computed in accordance with GAAP on a first in, first out basis and shall be determined from the Borrowing Base Certificate and supporting reports delivered to the Bank pursuant to this Agreement.

          Eligible Property and Equipment: The net book value of all goods and equipment (as such terms are defined in the Uniform Commercial Code as adopted in the State of Minnesota) owned solely by the Borrower that is at all times subject to a first priority perfected security interest in favor of the Bank and is not subject to any other Liens, other than inventory, farm products, or consumer goods.

          Eligible Receivables: The dollar value of any account receivable owing to the Borrower for services rendered or to be rendered or goods sold in the ordinary course of business that has been invoiced to its customer by the Borrower, is owned solely by the Borrower and is subject to a first priority perfected security interest in favor of the Bank at the time it comes into existence and continues to meet the same until it is collected in full and is not subject to any other Liens. Without limiting the generality of the foregoing, a receivable shall not be an Eligible Receivable if:

            (a)          it has been unpaid more than 90 days past the invoice date thereof;

            (b)          it is subject to any Lien, other than the security interest of the Bank;

            (c)          it is not a valid, legally enforceable obligation of the account debtor to the full extent of its amount;

            (d)          it is subject to any setoff, counterclaim, credit allowance, retainage, current claim against the warranty or adjustment by the account debtor thereunder, or to any claim by such account debtor denying liability thereunder in whole or in part, or such account debtor has refused to accept or has returned or offered to return any of the goods which are subject to such receivable;

            (e)          the account debtor is also a supplier or creditor of the Borrower, to the extent of any contra account;

            (f)          it did not arise in the ordinary course of the Borrower’s business;

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            (g)          any notice of the bankruptcy, insolvency or financial impairment of the account debtor thereunder has been received by the Borrower;

            (h)          it arose out of any contract or order which by its terms, forbids or makes void or unenforceable its assignment by the Borrower to the Bank;

            (i)          it is a receivable owing by (1) the United States government or any department, agency or other subdivision thereof (except to the extent that the Borrower complies with the Federal Assignment of Claims Act of 1940, as amended); (2) a Person located in any jurisdiction outside the United States; or (3) any Affiliate, shareholder or employee of the Borrower;

            (j)          it relates to accounts that have been extended, restructured, amended or modified; or

            (k)          it relates to retainages or progress billings.

A receivable which is at any time an Eligible Receivable but which subsequently fails to meet any of the foregoing requirements shall forthwith cease to be an Eligible Receivable. Further, (1) if 10% or more of the receivables are from the same or related account debtor, the portion of the obligations from such account debtor in excess of 10% shall be excluded from Eligible Receivables, and (2) if 10% or more of the receivables from any account debtor are more than 90 days past the invoice date, all obligations owed by the account debtor shall be excluded from Eligible Receivables. The amount of Eligible Receivables shall be determined from the Borrowing Base Certificate and supporting reports delivered to the Bank pursuant to the terms of this Agreement.

          ERISA: The Employee Retirement Income Security Act of 1974, as amended, and any successor statute, together with regulations thereunder.

          ERISA Affiliate: Any trade or business (whether or not incorporated) that is a member of a group of which the Borrower is a member and which is treated as a single employer under Section 414 of the Code.

          Event of Default: Any event described in Section 10.1.

          GAAP: Generally accepted accounting principles as in effect from time to time in the United States, consistently applied.

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          Indebtedness: Without duplication, all indebtedness for borrowed money or credit extended to or for the account of the Borrower or any Subsidiary, including without limitation, (a) obligations secured by any mortgage, pledge, security interest, lien, charge or other encumbrance existing on property owned or acquired subject thereto, whether or not the obligation secured thereby shall have been assumed and whether or not the obligation secured is the obligation of the owner or another party; (b) any obligation on account of deposits or advances; (c) any obligation for the deferred purchase price of any property or services; (d) any obligation as lessee under any Capitalized Lease; (e) all guaranties, endorsements and other contingent obligations respecting Indebtedness of others; and (f) undertakings or agreements to reimburse or indemnify issuers of letters of credit. Notwithstanding the foregoing, “Indebtedness” shall not include Trade Accounts Payable. For all purposes of this Agreement (i) the Indebtedness of any Person shall include the Indebtedness of any partnership in which such Person is a general partner, and (ii) the Indebtedness of any Person shall include the Indebtedness of any joint venture in which such Person is a joint venturer.

          Interest Expense: For any period of determination, the aggregate amount, without duplication, of interest paid, accrued or scheduled to be paid in respect of any Liabilities of a Person, including (a) all but the principal component of payments in respect of conditional sale contracts, Capitalized Leases and other title retention agreements of such Person, (b) commissions, discounts and other fees and charges with respect to letters of credit and bankers’ acceptance financings and (c) net costs under interest rate protection agreements, in each case determined in accordance with GAAP.

          Investment: The acquisition, purchase, making or holding of any stock or other security, any loan, advance, contribution to capital, extension of credit (except for trade and customer accounts receivable for inventory sold or services rendered in the ordinary course of business and payable in accordance with customary trade terms), any acquisitions of real or personal property (other than real and personal property acquired in the ordinary course of business) and any purchase or commitment or option to purchase stock or other debt or equity securities of or any interest in another Person or any integral part of any business or the assets comprising such business or part thereof. Investments do not include advances or loans, which in the aggregate do not exceed $1,000,000.00, made to vendors who will ultimately provide products to Borrower.

          Letters of Credit: Any letters of credit issued by Bank, and subject to Bank’s approval, for the account of Borrower, each of which is herein sometimes individually called a “Letter of Credit”, as the same may be amended, supplemented, extended or confirmed from time to time.

          Letter of Credit Obligations: The aggregate amount of all possible drawings under all Letters of Credit plus all amounts drawn under any Letter of Credit and not reimbursed by the Borrower hereunder.

          LIBOR Rate: The one-month LIBOR rate quoted by Lender from Reuters Screen LIBOR01 Page or any successor thereto, which shall be that one-month LIBOR rate in effect and reset each New York Banking Day, adjusted for any reserve requirement and any subsequent costs arising from a change in government regulation, such rate rounded up to the nearest one-sixteenth percent. The term “New York Banking Day” means any date (other than a Saturday or Sunday) on which commercial banks are open for business in New York, New York.

5

          Liabilities: Means with respect to any Person (1) indebtedness or liability for borrowed money; (2) obligations evidenced by bonds, debentures, notes, or other similar instruments; (3) obligations for the deferred purchase price of property or services (including trade obligations); (4) obligations as lessee under Capital Leases and Operating Leases; (5) current liabilities in respect of unfunded vested benefits under Plans covered by ERISA; (6) obligations under letters of credit; (7) obligations under acceptance facilities; (8) all guaranties, endorsements (other than for collection or deposit in the ordinary course of business), and other contingent obligations to purchase, to provide funds for payment, to supply funds to invest in any Person or entity, or otherwise to assure a creditor against loss; and (9) obligations secured by any Liens, whether or not the obligations have been assumed.

          Lien: Any security interest, mortgage, pledge, lien, hypothecation, judgment lien or similar legal process, charge, encumbrance, title retention agreement or analogous instrument or device (including, without limitation, the interest of the lessors under Capitalized Leases and the interest of a vendor under any conditional sale or other title retention agreement).

          Loan(s): Any loan(s) made by the Bank to the Borrower under the Revolving Credit Facility.

          Loan Documents: This Agreement, the Note, the Security Agreement, and each other instrument, document, financing statement, guaranty, security agreement, pledge agreement, mortgage, or other agreement executed and delivered by the Borrower or any guarantor or party granting security interests in connection with this Agreement, the Loans or any collateral for the Loans.

          Maturity Date: The Revolving Credit Expiration Date.

          Note: That certain Revolving Promissory Note, dated the date hereof, executed by the Borrower and made payable to the order of the Bank in the original principal amount of Ten Million and 00/100 Dollars ($10,000,000), as it may be amended, modified, supplemented, restated or replaced from time to time.

          Obligations: The obligation of the Borrower: (a) to pay the principal of and interest on the Note in accordance with the terms hereof and thereof, and to satisfy all of the Borrower’s other obligations to the Bank, whether hereunder or otherwise, whether now existing or hereafter incurred, whether matured or unmatured, whether direct or contingent, whether joint, several or joint and several, including without limitation the Letter of Credit Obligations, obligations with respect to any interest rate swaps, caps, collars or other derivative or hedging products, including without limitation, any obligations to or credit from others in which the Bank has a direct or indirect interest (including without limitation participations), including any extensions, modifications, renewals thereof and substitutions therefor; (b) to repay to the Bank all amounts advanced by the Bank hereunder or otherwise on behalf of the Borrower, including, but without limitation, advances for principal or interest payments to prior secured parties, mortgagees or lienors, or for taxes, levies, insurance, rent, repairs to or maintenance or storage of any of the Collateral; and (c) to pay all of the Bank’s expenses and costs, together with the fees and expenses of its counsel in connection with this Agreement or any other Loan Document(s), and any amendments thereto, and the documents required hereunder or thereunder, excluding costs and attorneys’ fees incurred in the negotiation and preparation of this Agreement and the other initial Loan Documents, or any proceedings brought or threatened to enforce payment of any of the Obligations described in clauses (a) or (b) above.

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          Operating Accounts: All operating and depositary accounts of Borrower (whether one or more), including all accounts for depositing revenues and paying expenses relating to Borrower’s operations.

          Operating Lease: A lease agreement, rental agreement or similar agreement for the use of real or personal property (tangible or intangible) which are not required to be classified and accounted for as a Capitalized Lease

          Organizational Documents: The following documents each of which shall be in form and substance acceptable to the Lender:

(i)	a copy of the Borrower’s Articles of Incorporation, duly certified as of a current date by the Minnesota Secretary of State, along with any amendments to the same;
(ii)	a copy of the Borrower’s Bylaws;
(iii)	a Certificate of Good Standing of the Borrower, duly issued as of a current date by the Minnesota Secretary of State; and
(iv)	a copy of the resolutions of the Borrower’s board of directors authorizing execution, delivery and performance of the Loan Documents and the transactions contemplated thereby.

          PBGC: The Pension Benefit Guaranty Corporation, established pursuant to Subtitle A of Title IV of ERISA, and any successor thereto or to the functions thereof.

          Permitted Lien: Any Lien of a kind specified in paragraphs (a)-(d) of Section 9.11.

          Person: Any natural person, corporation, partnership, joint venture, firm, association, trust, unincorporated organization, government or governmental agency or political subdivision or any other entity, whether acting in an individual, fiduciary or other capacity.

          Plan: An employee benefit plan or other plan, maintained for employees of the Borrower or of any ERISA Affiliate, and subject to Title IV of ERISA or Section 412 of the Code.

          Prohibited Transaction: A transaction prohibited by either Section 4975 of the Code or Section 406 of ERISA, but excluding any exempt transactions as provided thereunder.

          Reportable Event: A reportable event as defined in Section 4043 of ERISA and the regulations issued under such Section, with respect to a Plan, excluding, however, such events as to which the PBGC by regulation has waived the requirement of Section 4043(a) of ERISA that it be notified within 30 days of the occurrence of such event, provided that a failure to meet the minimum funding standard of Section 412 of the Code and Section 302 of ERISA shall be a reportable event regardless of the issuance of any such waivers in accordance with Section 412(d) of the Code.

7

          Revolving Credit Expiration Date: The date that first occurs: (i) December 21, 2010, or (ii) the date on which the Revolving Credit Facility is terminated pursuant to Section 10.2.

          Revolving Credit Facility: The revolving credit facility under which the Bank may issue Letters of Credit and make Loans to the Borrower in accordance with Article 2 and the Note up to an aggregate principal amount at any one time outstanding not to exceed the Commitment.

          Revolving Interest Rate: The annual rate of interest that shall at all times be equal to the LIBOR Rate plus one and sixty-hundredths percent (1.60%). The Revolving Interest Rate shall change on the effective date of any change in the LIBOR Rate. Notwithstanding the foregoing, from and after the occurrence of any Default or Event of Default and continuing thereafter until such Default or Event of Default shall be remedied to the written satisfaction of the Bank, the Revolving Interest Rate shall, at the election of the Bank, be that rate of interest that would otherwise be then in effect plus 5.0%. The Bank may lend to its customers at rates that are at, above, or below the Revolving Interest Rate.

          Security Agreement: That certain Security Agreement, dated the date hereof, executed by the Borrower and delivered to the Bank, as it may be amended, modified, supplemented, restated or replaced from time to time pursuant to which Borrower grants a security interest to Bank in all of Borrower’s property.

          Subsidiary: Any Person of which or in which the Borrower and its other Subsidiaries own directly or indirectly 50% or more of: (a) the combined voting power of all classes of stock having general voting power under ordinary circumstances to elect a majority of the board of directors of such Person, if it is a corporation, (b) the capital interest or profit interest of such Person, if it is a partnership, joint venture or similar entity, or (c) the beneficial interest of such Person, if it is a trust, association or other unincorporated organization.

          Total Cash Flow Leverage Ratio: For any specified period, the ratio of Person’s (a) Total Funded Indebtedness to (b) EBITDAR. Each component of the Total Cash Flow Leverage Ratio shall be determined for or as of any period in accordance with GAAP, unless this Agreement specifically references a cash payment as part of the calculation. The Total Cash Flow Leverage Ratio shall be tested as of the last day of each fiscal quarterly period, with Total Funded Indebtedness calculated as of each such date, and with EBITDAR calculated on an aggregate basis covering the prior twelve (12) consecutive months ending on each such date.

          Total Funded Indebtedness: At the time of any determination (without duplication) with respect to any Person, the sum of the outstanding principal balance and capitalized balance of the following Liabilities of such Person, (a) six times the prior twelve consecutive months rent and lease expense under Operating Leases, plus (b) the Loans under this Agreement, plus (c) any other interest bearing indebtedness or liability for borrowed money (other than Trade Accounts Payable).

          Trade Accounts Payable: The trade accounts payable of any Person with a maturity of not greater than 90 days (or such longer period of time as may be permitted by the terms of such payable) incurred in the ordinary course of such Person’s business.

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          Section 1.2     Accounting Terms and Calculations. Except as may be expressly provided to the contrary herein, all accounting terms used herein shall be interpreted and all accounting determinations hereunder (including, without limitation, determination of compliance with financial ratios and restrictions in Articles 8 and 9 hereof) shall be made in accordance with GAAP consistently applied.

          Section 1.3     Other Definitional Terms. The words “hereof,” “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. References to Sections, Exhibits, Schedules and like references are to this Agreement unless otherwise expressly provided.

ARTICLE 2 TERMS OF LENDING

          Section 2.1     Revolving Credit Facility. Subject to and upon the terms and conditions hereof and in reliance upon the representations and warranties of the Borrower herein, the Bank agrees to make advances (the “Advances”) to the Borrower under this Section 2.1 from time to time from the date hereof until the Revolving Credit Expiration Date, during which period the Borrower may repay and reborrow in accordance with the provisions hereof, provided, that the aggregate unpaid principal amount of all outstanding Advances under this Section 2.1 plus the Letter of Credit Obligations shall not exceed the Commitment at any time. If, at any time, or for any reason, the principal amount outstanding under the Loan pursuant to Advances and all Letter of Credit Obligations exceeds the Commitment, the Borrower shall immediately pay to the Bank, in cash, the amount of such excess.

          Section 2.2     Borrowing Procedures for Revolving Loan. Each time the Borrower desires an Advance under the Revolving Credit Facility pursuant to Section 2.1, such request shall be in writing (which may be by telecopy) or by telephone, and must be given so as to be received by the Bank not later than 11:00 a.m., Minneapolis time, on the date of the requested advance. Each request for an Advance shall specify (i) the borrowing date (which shall be a Business Day), and (ii) the amount of such Advance, (iii) the purpose of such Advance, and (iv) any additional information required by this Agreement or reasonably requested by Bank. Any request for an Advance shall be deemed to be a representation that no event has occurred and is continuing, or will result from such Advance, which constitutes a Default or an Event of Default, and that the Borrower’s representations and warranties contained in Article 7 are true and correct as of the date of the Advance as though made on and as of such date. Unless the Bank determines that any applicable condition specified in Article 6 has not been satisfied, the Bank will agree to make the amount of the requested Advance available to the Borrower at the Bank’s office located in Minneapolis, Minnesota, or such other location as the Bank may designate from time to time, in immediately available funds not later than 5:00 p.m., Minneapolis time, on the date requested. The Borrower shall be obligated to repay all Advances the Bank reasonably determines were requested on behalf of the Borrower notwithstanding the fact that the person requesting the same was not in fact authorized to do so.

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          Section 2.3     The Note. The obligation of the Borrower to repay any and all Advances made under Section 2.1, shall be evidenced by the Note. The Bank shall enter in its records the amount of each advance under, and the payments made on, the Revolving Credit Facility, and such records shall be deemed conclusive evidence of the subject matter thereof, absent manifest error.

          Section 2.4     Use of Proceeds. The proceeds of the Advances from the Bank shall be used for working capital purposes or general corporate purposes.

          Section 2.5     Letters of Credit. The Bank shall have no obligation to issue Letters of Credit exceeding an aggregate limit of $4,750,000.00. The Bank’s issuance of each Letter of Credit shall, in addition to the terms and conditions of this facility, be subject to the conditions precedent that the Borrower shall have executed and delivered such applications and other instruments and agreements relating to such Letter of Credit as the Bank shall have reasonably requested. Borrower hereby indemnifies and holds harmless the Bank from and against any and all claims and damages, losses, liabilities, costs or expenses which the Bank may incur (or which may be claimed against the Bank by any person whatsoever), in connection with the execution and delivery of any Letter of Credit or transfer of or payment or failure to pay under any Letter of Credit; provided that the Borrower shall not be required to indemnify any party seeking indemnification for any claims, damages, losses, liabilities, costs or expenses to the extent, but only to the extent, caused by the negligence, gross negligence or willful misconduct of the party seeking indemnification.

ARTICLE 3 INTEREST AND COSTS

          Section 3.1     Interest on Revolving Loan. The unpaid principal amount of the Loan shall bear interest at the Revolving Interest Rate.

          Section 3.2     Computation. Interest on the Note shall be computed on the basis of a year consisting of 360 days, but charged for the actual days the principal remains outstanding.

          Section 3.3     Payment Dates. Interest accruing on the Loan shall be due and payable as specified in the Note. Interest will accrue on any Advance beginning on the date of such Advance and continuing up to and including the date that such Advance is repaid.

          Section 3.4     Late Fees. In the event that any interest is not paid within 10 days after the due date thereof, the Borrower shall pay to the Bank upon demand a late charge equal to 5% of such overdue interest amount or $5.00, whichever is greater. This late charge is in addition to any default rate of interest that may be imposed.

          Section 3.5     Non-Use Fee. On the tenth (10th) day of the first month following the end of each quarter during the term of the Loan commencing April 10, 2010 and continuing every three months thereafter (July 10, October 10, January 10, April 10) until the Obligations are satisfied in full, and on the Maturity Date, Borrower shall pay Bank a fee (the “Unused Revolving Credit Fee”) in an amount equal to one-eighth of one percent (0.125%) per annum multiplied by the difference between the maximum Commitment and the average daily outstanding principal balance of the Revolving Credit Facility for the immediately preceding calendar quarter, as calculated by Bank. If applicable, the first and last payment of the Unused Revolving Credit Fee shall be prorated if the period of time between the date of this Agreement and the first payment date or the period of time between the most recent payment date and the Revolving Credit Expiration Date is more or less than a full calendar quarter.

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          Section 3.6     Fees and Expenses. On the date of this Agreement, the Borrower shall pay to the Bank all of the Bank’s reasonable fees and expenses, including reasonable legal fees. The Borrower shall pay to Bank an annual letter of credit fee of equal to the Revolving Interest Rate for each Letter of Credit the Bank issues pursuant to this Agreement.

ARTICLE 4 PAYMENTS AND PREPAYMENTS

          Section 4.1     Repayment. Principal of the Loan shall be due and payable as specified in the Note and herein.

          Section 4.2     Accelerated Payments. Upon the occurrence of an Event of Default and the acceleration of any Note, pursuant to and as permitted by Section 10.2, the Note and all other Obligations, shall be immediately due and payable as provided in Section 10.2 and in the Note.

          Section 4.3     Payments. Payments and prepayments of principal of, and interest on, the Note and all fees, expenses and other obligations under the Loan Documents shall be made without set-off or counterclaim in immediately available funds not later than 2:00 p.m., Minneapolis time, on the dates due at the Bank’s office as specified in the Note or pursuant to other written instructions from the Bank. Funds received on any day after such time shall be deemed to have been received on the next Business Day. Whenever any payment to be made hereunder or on any Note shall be stated to be due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time shall be included in the computation of any interest or fees.

          Section 4.4     Debits; Advances. The Bank is hereby authorized to pay accrued interest on the Note, the principal of the Note, any and all other amounts when they become due and payable under the Loan Documents, and any checks presented for payment, by debiting any account of the Borrower at the Bank or by making one or more advances under the Loan, all without further authorization of the Borrower.

          Section 4.5     Application of the Payments. Any voluntary prepayment shall be applied first to the payment of accrued interest and then to the reduction of principal of such Note in inverse order of maturity. Any prepayment resulting from an acceleration of the Note shall be applied to any and all of the Note in such order and such amounts as the Bank may from time to time determine and direct, notwithstanding any contrary instructions or directions of the Borrower.

          Section 4.6     Optional Prepayments. The Borrower may, upon notice to the Bank, prepay the Note in whole or in part with accrued interest to the date of such prepayment on the amount prepaid, without premium or penalty.

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          Section 4.7     Mandatory Prepayment. In the event of a Borrowing Base Deficiency or in the event that the aggregate outstanding principal amount of all Advances plus all Letter of Credit Obligations shall at any time exceed the Commitment, the Borrower shall within 5 days following notice from the Bank pay to the Bank the amount of such excess together with the amount of accrued interest to the date of such prepayment on the amount prepaid.

ARTICLE 5 COLLATERAL SECURITY

          Section 5.1     Composition of the Collateral. The property in which a security interest is, or is intended to be, granted pursuant to this Agreement, the Security Agreement, or any other Loan Document and the provisions of Section 5.2 is herein collectively called the “Collateral.” The Collateral, together with all the Borrower’s other property of any kind held by the Bank, shall stand as one general, continuing collateral security for all of the Obligations, and may be retained by the Bank until all Obligations have been indefeasibly satisfied in full, and the Revolving Credit Facility has terminated.

          Section 5.2     Rights in Property Held by the Bank. As security for the prompt satisfaction of all Obligations, the Borrower hereby assigns, transfers and sets over to the Bank all of its right, title and interest in and to, and grants to the Bank a lien on and a present and continuing security interest in, any amounts which may be owing from time to time by the Bank to the Borrower in any capacity, including, but without limitation, (a) the Operating Accounts, (b) all other contract rights, claims and privileges in respect of such accounts, and (c) all cash, checks, money orders and other items of value of Borrower now or hereafter deposited in such accounts, and all proceeds of the foregoing, which lien and security interest shall be independent of any right of setoff which the Bank may have. Borrower represents and warrants that there are no perfected liens or encumbrances with respect to the accounts described in items (a) through (c) above, except for the rights of Bank, and covenants with Bank that it shall not enter into any acknowledgment or agreement that gives any other person or entity except Bank control over, or any other security interest, lien or title in, such accounts. Bank shall hold such accounts as additional security for all of Borrower’s obligations under the Loan Documents. At any such time that no Event of Default is continuing, Borrower shall have the right to use the Operating Accounts and may withdraw funds from the Operating Accounts as the Borrower deems necessary in the conduct of its normal business operations. Following the occurrence of an Event of Default, and while an Event of Default is continuing, neither Borrower nor any other person or entity, acting through or under Borrower, shall have any control over the use of, or have any right to withdraw any amount from, such accounts, without the prior written consent of Bank, except as provided herein.

          Section 5.3     Priority of Liens. The liens as provided for under this Agreement, the Security Agreement and the other Loan Documents shall be first and prior liens, except that Borrower may have first and prior liens for specific items of equipment separate from the Agreement, the Security Agreement, and other Loan Documents, the aggregate of which will not exceed $250,000 at any given time.

          Section 5.4     Financing Statements. The Borrower will authorize, execute and deliver such security agreements, assignments, and UCC financing statements (including amendments thereto and continuation statements thereof) in form satisfactory to the Bank as the Bank may specify and will pay or reimburse the Bank for all costs of filing or recording the same in such public offices as the Bank may designate, and take such other steps as the Bank shall direct, including the noting of the Bank’s lien on the chattel paper or any vehicle certificates of title, in order to perfect the Bank’s interest in the Collateral.

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ARTICLE 6 CONDITIONS PRECEDENT

          Section 6.1     Conditions of Initial Loan. The obligation of the Bank to make the initial Advance hereunder shall be subject to the satisfaction of the conditions precedent, in addition to the conditions precedent set forth in Section 6.2 below, that the Bank shall have received all of the items set forth on Exhibit A attached hereto, in form and substance satisfactory to the Bank, each duly executed and certified or dated the date hereof or such other date as is satisfactory to the Bank.

          Section 6.2     Conditions Precedent to all Loans. The obligation of the Bank to make any Advance hereunder shall be subject to the satisfaction of the following conditions precedent (and any request for an Advance) shall be deemed a written certification that such conditions precedent have been satisfied):

          (a)     Before and after giving effect to such Advance, the representations and warranties contained in Article 7 shall be true and correct, as though made on the date of such Advance.

          (b)     Before and after giving effect to such Advance, no Default or Event of Default shall have occurred and be continuing.

          (c)     Before and after giving effect to such Advance, the Borrower shall be in compliance with all conditions set forth in Section 6.1.

          (d)     No license, permit or other governmental consent material to the operation of Borrower’s business shall have been revoked or the issuance thereof subjected to challenge before any court or other governing authority.

          Section 6.3     No Waiver. The making of any Advance prior to fulfillment of any condition thereof shall not be construed as a waiver of such condition, and the Bank reserves the right to require fulfillment of any and all such conditions prior to making any subsequent Advances.

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ARTICLE 7 REPRESENTATIONS AND WARRANTIES

          To induce the Bank to enter into this Agreement, and to grant the Revolving Credit Facility and to make Advances hereunder, the Borrower represents and warrants to the Bank:

          Section 7.1     Organization, Standing, Etc of Borrower. The Borrower is a corporation duly organized, validly existing and in good standing under the laws of the State of Minnesota, and has all requisite corporate power and authority to carry on its businesses as now conducted and as proposed to be conducted, to enter into the Loan Documents and to perform its obligations under the Loan Documents. The Borrower is duly qualified and in good standing as a foreign corporation in each jurisdiction in which the character of the properties owned, leased or operated by it or the business conducted and as proposed to be conducted by it makes such qualification necessary, and where the failure to so qualify could reasonably be expected to have a material adverse effect on the business. The Borrower holds all certificates of authority, licenses and permits reasonably necessary to carry on its business as presently conducted and as proposed to be conducted in each jurisdiction in which it carries or proposes to carry on such business.

          Section 7.2     Authorization and Validity. The execution, delivery and performance by the Borrower of the Loan Documents have been duly authorized by all necessary corporate action by the Borrower, and the Loan Documents constitute the legal, valid and binding obligations of the Borrower, enforceable against the Borrower in accordance with their respective terms, subject to limitations as to enforceability which might result from bankruptcy, insolvency, moratorium and other similar laws affecting creditors’ rights generally and subject to limitations on the availability of equitable remedies.

          Section 7.3     No Conflict; No Default. The execution, delivery and performance by the Borrower of the Loan Documents will not (a) violate any provision of any law, statute, rule or regulation or any order, writ, judgment, injunction, decree, determination or award of any court, governmental agency or arbitrator presently in effect having applicability to the Borrower, (b) violate or contravene any provisions of the Borrower’s Articles of Incorporation or the Borrower’s Bylaws or Shareholder Control Agreement (as applicable), or (c) result in a breach of or constitute a default under any indenture, loan or credit agreement or any other license, permit, agreement, lease or instrument to which the Borrower is a party or by which it or any of its properties may be bound or result in the creation of any Lien on any asset of the Borrower, other than Permitted Liens. The Borrower is not in default under or in violation of any such law, statute, rule or regulation, order, writ, judgment, injunction, decree, determination or award or any such indenture, loan or credit agreement or other agreement, lease or instrument in any case in which the consequences of such default or violation could reasonably be expected to have an Adverse Effect.

          Section 7.4     Government Consent. No order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by, any governmental or public body or authority is required on the part of the Borrower to authorize, or is required in connection with the execution, delivery and performance of, or the legality, validity, binding effect or enforceability of, the Loan Documents.

          Section 7.5     Financial Statements and Condition. The financial statements of the Borrower, as heretofore furnished to the Bank by the Borrower, fairly present in all material respects the financial condition of the Borrower as at the dates specified therein and the results of its operations and changes in financial position for the periods ended as of the dates specified therein. As of the dates of such financial statements, the Borrower has not had any material obligation, contingent liability, liability for taxes or long-term lease obligation which is not reflected in such financial statements or in the notes thereto. The Borrower is not aware of any fact which casts doubt on the material accuracy or completeness thereof.

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          Section 7.6     Litigation. There are no actions, suits or proceedings pending or threatened against or affecting the Borrower or any of their properties before any court or arbitrator, or any governmental department, board, agency or other instrumentality which, if determined adversely to the Borrower could reasonably be expected to have an Adverse Effect.

          Section 7.7     Compliance. The Borrower is in material compliance with all licenses, permits, statutes and governmental rules and regulations applicable to it.

          Section 7.8     Environmental, Health and Safety Laws. There does not exist any violation by the Borrower of any applicable federal, state or local law, rule or regulation or order of any government, governmental department, board, agency or other instrumentality relating to environmental, pollution, health or safety matters which will or threatens to impose a material liability on the Borrower or which would require a material expenditure by the Borrower to cure. The Borrower has not received, any notice to the effect that any part of its operations or properties is not in material compliance with any such law, rule, regulation or order or notice that it or its property is the subject of any governmental investigation evaluating whether any remedial action is needed to respond to any release of any toxic or hazardous waste or substance into the environment, the consequences of which non-compliance or remedial action could reasonably be expected to have an Adverse Effect.

          Section 7.9     ERISA. Each Plan complies with all material applicable requirements of ERISA and the Code and with all material applicable rulings and regulations issued under the provisions of ERISA and the Code setting forth those requirements. No Reportable Event, other than a Reportable Event for which the reporting requirements have been waived by regulations of the PBGC, has occurred and is continuing with respect to any Plan. All of the minimum funding standards applicable to such Plans have been satisfied and there exists no event or condition which would permit the institution of proceedings to terminate any Plan under Section 4042 of ERISA. The current value of the Plans’ benefits guaranteed under Title IV of ERISA does not exceed the current value of the Plans’ assets allocable to such benefits.

          Section 7.10     Margin Stock. The Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (as defined in Regulation U of the Federal Reserve Board) and no part of the proceeds of any Loan will be used to purchase or carry margin stock or for any other purpose which would violate any of the margin requirements of the Federal Reserve Board.

          Section 7.11     Ownership of Property: Liens. The Borrower has good and sufficient title to its properties, including all properties and assets referred to as owned by the Borrower in the financial statements of the Borrower referred to in Section 7.5 (other than property disposed of since the date of such financial statement in the ordinary course of business), except that Borrower may have property subject to Permitted Liens. None of the properties, revenues or assets of the Borrower is subject to a Lien, except for Permitted Liens.

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          Section 7.12     Taxes. The Borrower has filed all federal, state and local tax returns required to be filed by it and its Subsidiaries and has paid or made provision for the payment of all taxes due and payable pursuant to such returns and pursuant to any assessments made against it or any of its property and all other taxes, fees and other charges imposed on it or any of its property by any governmental authority (other than taxes, fees or charges the amount or validity of which is currently being contested in good faith by appropriate proceedings and with respect to which reserves in accordance with GAAP have been provided on the books of the Borrower). No tax Liens have been filed and no material claims are being asserted with respect to any such taxes, fees or charges. The charges, accruals and reserves on the books of the Borrower in respect of taxes and other governmental charges are adequate.

          Section 7.13     Licenses and Infringement. The Borrower possesses adequate licenses, agreements, permits, franchises, patents, copyrights, trademarks and trade names, or rights thereto, to conduct its business substantially as now conducted and as presently proposed to be conducted. Borrower has not been notified of another party’s assertion that Borrower is or may be liable with respect to any claim of infringement regarding any franchise, patent, copyright, trademark or trade name possessed or used by the Borrower, except as listed on Schedule 7.13.

          Section 7.14     Investment Company Act. The Borrower is not an “investment company” or a company “controlled” by an investment company within the meaning of the Investment Company Act of 1940, as amended.

          Section 7.15     Subsidiaries. The Borrower does not have any Subsidiaries, except a wholly-owned subsidiary Vascular Solutions, GmbH.

          Section 7.16     Partnerships and Joint Ventures. The Borrower is not a partner (limited or general) in any partnerships and the Borrower is not a joint venturer in any joint ventures.

          Section 7.17     Use of Proceeds. The Borrower will use the proceeds as set forth in Section 2.4 above.

          Section 7.18     Completeness of Disclosures. No representation or warranty by the Borrower contained herein or in any other Loan Document, or in any certificate or other document furnished heretofore or concurrently with the signing of this Agreement or any other Loan Document by the Borrower to the Bank in connection with the transactions contemplated hereunder or under any other Loan Document, contains any untrue statement of a material fact or omits to state a material fact which would prevent or materially inhibit the Borrower from performing this Agreement or any other Loan Document according to its terms.

          Section 7.19     Survival of Representations. All of the representations and warranties set forth in the immediately preceding subsections shall survive until all the Obligations shall have been indefeasibly satisfied in full, and the Revolving Credit Facility has been terminated.

Each of the foregoing warranties and representations shall be deemed to be repeated and reaffirmed on and as of the date any Advance is made hereunder by the Bank to the Borrower.

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ARTICLE 8 AFFIRMATIVE COVENANTS

          From the date of this Agreement and thereafter until the Revolving Credit Facility is terminated or expires and the Obligations have been paid in full, unless the Bank shall otherwise expressly consent in writing, the Borrower agrees that the Borrower will do all of the following and will cause each Subsidiary, if any, to do all of the following:

          Section 8.1     Financial Statements and Reports. Furnish to the Bank:

          (a)     As soon as available and in any event within 90 days after the end of each fiscal year of the Borrower, the consolidated annual report of the Borrower and its Subsidiaries, prepared and audited by a certified public accounting firm in conformity with GAAP, consisting of at least statements of income, cash flow and members’ equity for such year, and a balance sheet as at the end of such year, all in reasonable detail as required by Bank.

          (b)     As soon as available and in any event within 45 days after the end of each fiscal quarter, a copy of the company-prepared consolidated financial statements of the Borrower and its Subsidiaries prepared in the same manner as the financial statements referred to in Section 8.1(a), signed by the Borrower’s Chief Financial Officer, consisting of at least statements of income, cash flow and members’ equity for such fiscal quarter, and a balance sheet as at the end of such fiscal quarter.

          (c)     As soon as available and in any event within 45 days after the end of each fiscal quarter a Compliance Certificate signed by the Borrower’s Chief Financial Officer, and such other supporting documentation as may be requested by Bank to support the information contained in the Compliance Certificate.

          (d)     While any portion of the Revolving Credit Facility remains outstanding, as soon as available and in any event within 30 days after the end of each calendar month a Borrowing Base Certificate signed by the Borrower’s Chief Financial Officer, and such other supporting documentation as may be requested by Bank to support the information contained in the Borrowing Base Certificate.

          (e)     While any portion of the Revolving Credit Facility remains outstanding, as soon as available and in any event within 30 days after the end of each calendar month, a detailed accounts receivable aging report in form and substance acceptable to Bank.

          (f)     Promptly upon becoming aware of the occurrence, with respect to any Plan, of any Reportable Event (other than a Reportable Event for which the reporting requirements have been waived by PBGC regulations) or any “prohibited transaction” (as defined in Section 4975 of the Code), a notice specifying the nature thereof and what action the Borrower proposes to take with respect thereto, and, when received, copies of any notice from PBGC of intention to terminate or have a trustee appointed for any Plan.

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          (g)     Promptly upon becoming aware of the occurrence thereof, notice of the commencement of any judicial or administrative proceeding (i) related to permits or licenses that are material to the operations of the Borrower in which an adverse determination or result could reasonably be expected to result in the revocation of or have a material adverse effect on the permits or licenses, or (ii) which reasonably alleges a material liability on the Borrower to any Person and an adverse determination could have an Adverse Effect.

          (h)     From time to time, such other information regarding the Collateral and the business, operation and financial condition of the Borrower and the other Credit Parties as the Bank may reasonably request.

          Section 8.2     Total Cash Flow Leverage Ratio. The Borrower will not permit the Borrower’s Total Cash Flow Leverage Ratio to be greater than 2.50 to 1.0.

          Section 8.3     Corporate Existence. Maintain its corporate existence and the corporate or limited liability company existence of its Subsidiaries in good standing under the laws of its jurisdiction of formation and its qualification to transact business in each jurisdiction in which the character of the properties owned, leased or operated by it or the business conducted by it makes such qualification necessary. Without limiting the generality of the foregoing, the Borrower will maintain, and cause its Subsidiaries to maintain, all of its certificates, permits, licenses and agreements of any kind or nature necessary to the operation of its business in full force an effect and in good standing.

          Section 8.4     Insurance. Maintain with financially sound and reputable insurance companies such insurance in such amounts and against such risks as is reasonably requested by the Bank or as may be required by law or as may be customary in the case of reputable corporations engaged in the same or similar business and similarly situated, including, without limitation, property, hazard, fire, wind, hail, theft, collapse, comprehensive general public liability, and business interruption insurance, and worker’s compensation or similar insurance. The Borrower shall furnish to the Bank full information and written evidence as to the insurance maintained by the Borrower or any Subsidiary. All policies shall contain the insurer’s promise not to cancel the policy without 30 days prior written notice to the Bank at its address set forth below. All policies shall name the Bank as an additional insured or lender loss payee, as appropriate, as its interests may appear.

          Section 8.5     Payment of Taxes and Claims. File all tax returns and reports which are required by law to be filed by it and pay before they become delinquent all taxes, assessments and governmental charges and levies imposed upon it or its property and all claims or demands of any kind (including, without limitation, those of suppliers, mechanics, carriers, warehouses, landlords and other like Persons) which, if unpaid, might result in the creation of a Lien upon its property; provided that the foregoing items need not be paid if they are being contested in good faith by appropriate proceedings, and as long as its title to its property is not materially adversely affected, its use of such property in the ordinary course of its business is not materially interfered with and adequate reserves with respect thereto have been set aside on its books in accordance with GAAP. In addition, and without limitation, promptly pay all Trade Accounts Payable.

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          Section 8.6     Inspection; Collateral Audits. Permit any Person designated by the Bank to visit and inspect any of its properties, corporate books and financial records, to examine and to make copies of its books of accounts and other financial records, to discuss its affairs, finances and accounts with, and to be advised as to the same by, its officers, and to conduct such collateral audits and appraisals, at such times and intervals as the Bank may reasonably designate, which may be at annual or shorter intervals. The expenses of the Bank for such visits, inspections, examinations, audits and appraisals shall be at the expense of the Borrower during any period while a Default or Event of Default exists and is continuing, otherwise the same shall be at the Bank’s expense. Bank may also perform a collateral exam if Borrower’s aggregate balance of unrestricted cash in Operating Accounts with the Bank is less than $10,000,000 at any time, the cost of which exam shall be at Borrower’s sole cost and expense once in any 12 month period.

          Section 8.7     Maintenance of Properties. Maintain its properties used or useful in the conduct of its business in good condition, repair and working order, and supplied with all necessary equipment, and make all necessary repairs, renewals, replacements, betterments and improvements thereto, all as may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times.

          Section 8.8     Books and Records. Keep adequate and proper records and books of account in which full and correct entries will be made of its dealings, business and affairs.

          Section 8.9     Compliance. Comply with the requirements of all applicable state and federal laws, and of all rules, regulations, orders, writs, judgments, injunctions, decrees or awards, the failure to comply with which would have a material adverse effect on the business of Borrower.

          Section 8.10     ERISA. Maintain each Plan in compliance with all material applicable requirements of ERISA and of the Code and with all material applicable rulings and regulations issued under the provisions of ERISA and of the Code.

          Section 8.11     Environmental Matters. Observe and comply with all laws, rules, regulations and orders of any government or government agency relating to health, safety, pollution, hazardous materials or other environmental matters to the extent non-compliance could reasonably be likely to result in a material liability or otherwise have an Adverse Effect.

          Section 8.12     Notice of Litigation. Promptly provide written notice to the Bank of all litigation, arbitration or mediation proceedings, and of all proceedings by or before any court or governmental or regulatory agency affecting the Borrower, which alone or in the aggregate seeks in excess of $1,500,000, describing the nature thereof and the steps being taken with respect to such proceeding.

          Section 8.13     Notice of Default. Promptly provide written notice to the Bank of any Default or Event of Default, describing the nature thereof and what action the Borrower proposes to take with respect thereto.

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          Section 8.14     Accounts. Maintain the Borrower’s primary depository accounts at the Bank, including without limitation, the Operating Accounts.

          Section 8.15     Letters of Credit. If a draft is submitted under a Letter of Credit, the Borrower shall pay to Bank on demand and in immediately available funds the amount of the draft together with interest accrued from the date of the draft until payment in full at the rate of interest specified in the Note. In its sole discretion Bank may, and it is irrevocably authorized to, make an Advance in an amount sufficient to discharge the Borrower’s obligation to make payment to Bank under this paragraph.

ARTICLE 9 NEGATIVE COVENANTS

          From the date of this Agreement and thereafter until the Revolving Credit Facility is terminated or expires and the Obligations have been paid in full and all outstanding Letters of Credit shall have expired or the liability of the Bank thereon shall have been discharged, unless the Bank shall otherwise expressly consent in writing, the Borrower agrees that the Borrower will not do any of the following and the Borrower will not cause or allow any of its Subsidiaries, if any, to do any of the following:

          Section 9.1      Indebtedness. Create, incur, issue, assume or suffer to exist any Indebtedness, except the Obligations, and except for equipment financing or leasing separate from the Obligations not to exceed $250,000.00 in the aggregate.

          Section 9.2     Merger. Merge or consolidate or enter into any analogous reorganization or transaction with any Person.

          Section 9.3     Sale of Assets. Sell, transfer, assign, lease or otherwise convey all or any part of its assets (whether in one transaction or in a series of related transactions) to any Person other than in the ordinary course of business if the value of the assets meets or exceeds 50% of the Borrower’s current cash and cash equivalents (as determined by the most recent publicly-available financial statements).

          Section 9.4     Purchase of Assets. Purchase or acquire any right, title or interest in or to, any real or personal property not directly related to or necessary in connection with its present operations if the value of the real or personal property meets or exceeds 50% of the Borrower’s current cash and cash equivalents (as determined by the most recent publicly-available financial statements)..

          Section 9.5     Change in Nature of Business. Make any material change in the nature of its business as carried on by the Borrower prior to the date hereof, and as proposed as of the date hereof to be carried on by the Borrower after the date hereof.

          Section 9.6     Subsidiaries, Partnerships, Joint Ventures. Do any of the following: (a) form or acquire any entity which would thereby become a Subsidiary; or (b) form or enter into any partnership as a limited or general partner or into any joint venture.

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          Section 9.7     Other Agreements. Enter into any agreement, bond, note or other instrument with or for the benefit of any Person other than the Bank, the value of which meets or exceeds 50% of the Borrower’s current cash and cash equivalents (as determined by the most recent publicly-available financial statements), (a) which would prohibit the Borrower from granting, or otherwise limit its ability to grant, to the Bank any Lien on any of its assets or properties; or (b) be violated or breached by its performance of its obligations under the Loan Documents. Notwithstanding the foregoing, the Borrower may only lease an aggregate of $250,000 of equipment without the Lender’s prior consent.

          Section 9.8     Restricted Payments. Either: (a) purchase or redeem or otherwise acquire for value any outstanding equity ownership interests of the Borrower, declare or pay any dividends or distributions, or make any distribution on, or payment on account of the purchase, redemption, defeasance or other acquisition or retirement for value of, any outstanding equity ownership interests of the Borrower or set aside any funds for any such purpose, if after giving effect thereto, the Borrower would violate any of the covenants set forth in Section 8.2; or (b) directly or indirectly make any payment on, or redeem, repurchase, defease, or make any sinking fund payment on account of, or any other provision for, or otherwise pay, acquire or retire for value, any of its Indebtedness that is subordinated in right of payment to the Loans (whether pursuant to its terms or by operation of law), except for regularly-scheduled payments of interest and principal (which shall not include payments contingently required upon occurrence of a change of control or other event) that are not otherwise prohibited hereunder or under the document or agreement stating the terms of such subordination; or (c) directly or indirectly make any payment or distribution of proceeds of any Loan or Collateral to any Subsidiary or Affiliate.

          Section 9.9     Investments. Acquire for value, make, have or hold any Investments except:

          (a)        direct obligations of the United States of America;

          (b)        extensions of credit in the nature of accounts receivable or notes receivable arising from the sale of goods and services in the ordinary course of business;

          (c)        commercial paper issued by U.S. corporations rated “A-1” by Standard & Poor Corporation or “P-1” by Moody’s Investors Service or certificates of deposit or bankers’ acceptances having a maturity of one year or less issued by members of the Federal Reserve System having deposits in excess of $100,000,000 (which certificates of deposit or bankers’ acceptances are fully insured by the Federal Deposit Insurance Corporation); or

          (d)        Investments, the aggregate of which do not exceed 50% of the Borrower’s current cash and cash equivalents (as determine by the most recent publicly-available financial statements). If Borrower’s current cash basis declines during a fiscal quarter, Borrower will have one fiscal quarter to remedy the deficiency by increasing available cash, decreasing the outstanding investments, or obtaining consent from the Lender to maintain the Investments.

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          Section 9.10     Plans. Permit any condition to exist which causes the PBGC to institute proceedings to have such Plan terminated or a trustee appointed to administer such Plan, permit any Plan to terminate under any circumstances which would cause the lien provided for in Section 4068 of ERISA to attach to any of its properties, revenues or assets or permit the underfunded amount of Plan benefits guaranteed under Title IV of ERISA to exceed $250,000.

           Section 9.11    Liens. Create, incur, assume or suffer to exist any Lien with respect to any property, revenues or assets now owned or hereafter arising or acquired, except:

          (a)           Liens in favor of the Bank;

          (b)           Deposits or pledges to secure payment of workers’ compensation, unemployment insurance, old age pensions or other social security obligations, in the ordinary course of its business;

          (c)           Liens for taxes, fees, assessments and governmental charges not delinquent or to the extent that payments therefor shall not at the time be required to be made in accordance with the provisions of Section 8.5;

          (d)           Liens of carriers, warehousemen, mechanics and materialmen, and other like Liens arising in the ordinary course of business, for sums not due or to the extent that payment therefor shall not at the time be required to be made in accordance with the provisions of Section 8.5;

          (e)           Liens for specific items of equipment separate from the Agreement, the Security Agreement, and other Loan Documents, the aggregate of which will not exceed $250,000 at any given time, and all of which may have Liens that take priority over the Bank’s liens.

          Section 9.12     Contingent Payments or Liabilities. Either: (i) endorse, guarantee, contingently agree to purchase or to provide funds for the payment of, or otherwise become contingently liable upon, any obligation of any other Person, except by the endorsement of negotiable instruments for deposit or collection (or similar transactions) in the ordinary course of business, or (ii) agree to maintain the net worth or working capital of, or provide funds to satisfy any other financial test applicable to, any other Person.

          Section 9.13     Unconditional Purchase Obligations. Enter into or be a party to any contract for the purchase or lease of materials, supplies or other property or services if such contract requires that payment be made by it regardless of whether or not delivery is ever made of such materials, supplies or other property or services.

          Section 9.14     Transactions with Affiliates. Enter into or be a party to any transaction or arrangement, including, without limitation, the purchase, sale, lease or exchange of property or the rendering of any service, with any Affiliate, except in the ordinary course of and pursuant to the reasonable requirements of its business and upon fair and reasonable terms no less favorable to it than would be obtained in a comparable arm’s-length transaction with a Person not an Affiliate.

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          Section 9.15     Use of Proceeds. Permit any proceeds of the Loans to be used, either directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of “purchasing or carrying any margin stock” within the meaning of Regulation U of the Federal Reserve Board, as amended from time to time, and furnish to the Bank, upon its request, a statement in conformity with the requirements of Federal Reserve Form U-1 referred to in Regulation U.

          Section 9.16     Government Regulation. The Borrower shall not (a) be or become subject at any time to any law, regulation, or list of any government agency (including, without limitation, the U.S. Office of Foreign Asset Control list) that prohibits or limits the Bank from making any advance or extension of credit to the Borrower or from otherwise conducting business with the Borrower, or (b) fail to provide documentary and other evidence of the Borrower’s identity as may be requested by the Bank at any time to enable the Bank to verify the Borrower’s identity or to comply with any applicable law or regulation, including, without limitation, Section 326 of the USA Patriot Act of 2001, 31 U.S.C. Section 5318.

          Section 9.17     Amendments or Modifications. Amend or modify any agreement material to the Borrower in any way that affects the Collateral or the Borrower’s ability to repay the Loans.

          Section 9.18     Accounts. Voluntarily, involuntarily or by operation of law agree to, cause, suffer or permit any assignment, pledge, lien, sale, or other transfer or conveyance of any interest of the Borrower in the Operating Accounts.

          Section 9.19     Transfers of Shares. Except in accordance with a Plan, Employee Stock Purchase Plan (or any similar future plan), or Board-approved stock and option grants, Borrower shall not voluntarily, involuntarily, or by operation of law agree to, cause, suffer or permit any sale, transfer, pledge or encumbrance of any of the shares in the Borrower without, in each instance, the prior written consent of the Lender. Nothing in this provision is intended to restrict the purchase or sale of shares of stock by shareholders.

ARTICLE 10 EVENTS OF DEFAULT AND REMEDIES

          Section 10.1     Events of Default. The occurrence of any one or more of the following events shall constitute an Event of Default:

          (a)           The Borrower shall fail to make when due, whether by acceleration or otherwise, any payment of principal of the Note, or any interest on the Note, or any fee or other amount required to be made to the Bank pursuant to the Loan Documents, and such failure continues uncured for ten (10) days; or

          (b)           Any representation or warranty made or deemed to have been made by or on behalf of the Borrower or any other Credit Party in the Loan Documents or on behalf of the Borrower or any other Credit Party in any certificate, statement, report or other writing furnished by or on behalf of the Borrower or any other Credit Party to the Bank pursuant to the Loan Documents or any other instrument, document or agreement shall prove to have been false or misleading in any material respect on the date as of which the facts set forth are stated or certified or deemed to have been stated or certified, and such false or misleading representations and warranties are not corrected or remedied to the satisfaction of the Lender within thirty (30) days of their discovery; or

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          (c)           The Borrower shall fail to comply with Section 8.1, Section 8.2 or Section 8.4 hereof or any Section of Article 9 hereof; or

          (d)           The Borrower or any other Credit Party shall fail to comply with any agreement, covenant, condition, provision or term contained in the Loan Documents (and such failure shall not constitute an Event of Default under any of the other provisions of this Section 10.1) and such failure to comply shall continue for a period of thirty (30) days after the earlier of: (i) the date the Borrower gives notice of such failure to the Bank, (ii) the date the Borrower should have given notice of such failure to the Bank pursuant to Section 8.13, or (iii) the date the Bank gives notice of such failure to the Borrower; or

          (e)           The Borrower or any other Credit Party, or any one or more of them shall (1) be or become insolvent, or (2) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee, liquidator or the like of the Borrower or any other Credit Party or of all or a substantial part of the Borrower or any other Credit Party’s property, or (3) commence a voluntary case under any bankruptcy, insolvency, reorganization, arrangement, readjustment of debt, dissolution, liquidation or similar proceeding under the laws of any jurisdiction, or (4) file a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, winding up or composition or adjustment of debts, or (5) admit in writing the Borrower or any other Credit Party’s inability to pay its debts as they mature, or (6) make an assignment for the benefit of its creditors; or (ii) a proceeding or case shall be commenced, without the application or consent of the Borrower or any other Credit Party, in any court of competent jurisdiction, and such proceeding or case shall not be dismissed within 60 days after commencement, seeking (1) the liquidation, reorganization, dissolution, winding up or the composition or adjustment of debts of the Borrower or any other Credit Party, (2) the appointment of a trustee, receiver, custodian or liquidator or the like of the Borrower or any other Credit Party or of all or any substantial part of its property, or (3) similar relief in respect of the Borrower or any other Credit Party under any law relating to bankruptcy, insolvency, reorganization, winding up or composition or adjustment of debts

          (f)           A judgment or judgments for the payment of money in excess of 50% of the Borrower’s current cash and cash equivalents (as determined by the most recent publicly-available financial statements) is rendered against the Borrower or any other Credit Party and the Borrower or such other Credit Party does not, within thirty (30) days of the date of the entry of judgment or such longer period during which execution of such judgment is stayed: (i) pay, (ii) discharge, (iii) provide for its discharge in accordance with its terms, (iv) procure a stay of execution thereof, prior to any execution on such judgments by such judgment creditor, or (v) appeal and cause the execution thereof to be stayed during such appeal; or

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          (g)           Any property of the Borrower or any other Credit Party (including, without limitation, the Collateral) shall be garnished or attached in any proceeding and such garnishment or attachment shall remain undischarged for a period of 30 days during which execution is not effectively stayed; or

          (h)           The termination of any Plan, if as a result of the termination the Borrower or any ERISA Affiliate would be required to make a contribution to such Plan, or would incur a liability or obligation to such Plan, in excess of $250,000, or the institution by the PBGC of steps to terminate any Plan; or

          (i)           The maturity of any Indebtedness of the Borrower or any other Credit Party (other than Indebtedness under this Agreement) owed to the Bank, or the maturity of any Indebtedness of the Borrower or any other Credit Party in an aggregate amount equal to or greater than $250,000 owed to others, shall be accelerated, or the Borrower or any other Credit Party shall fail to pay any such Indebtedness when due or, in the case of such Indebtedness payable on demand, when demanded, and all cure periods related thereto have expired and such debt has been accelerated, or any event shall occur or condition shall exist and shall continue for more than the period of grace, if any, applicable thereto and shall have the effect of causing or permitting (any required notice having been given and grace period having expired) the Bank or the holder of any such Indebtedness in such aggregate amount or any trustee or other Person acting on behalf of such holder to cause, such Indebtedness to become due prior to its stated maturity or to realize upon any collateral given as security therefor; or

          (j)           The Borrower or any other Credit Party shall fail to pay, withhold, collect or remit any tax or tax deficiency when assessed or due in an amount greater than or equal to $250,000, unless contested in good faith pursuant to Section 8.5, or notice of any state or federal tax lien shall be filed or issued; or

          (k)           Any event of default (as defined therein) shall occur under any other Loan Document and not be cured within any applicable cure period;

          (l)           There shall be a draw made against a Letter of Credit and Borrower fails to reimburse Bank the amount of such draw within 5 days after written notice from Bank; or all Letters of Credit shall not be released by the holders thereof and returned to Bank cancelled and undrawn (or the outstanding Letter of Credit Obligations otherwise satisfied) on or before the Revolving Credit Expiration Date;

          (m)           Bank shall receive any written notice from Borrower’s landlord that such landlord is repossessing any premises in which the Collateral is held and Borrower has not, within 30 days thereafter, reached agreement with such landlord on retaining possession of such premises or taken such other action to protect the Collateral reasonably acceptable to Bank; or

          (n)           The occurrence of any event that has an Adverse Effect which is not cured within thirty (30) days after discovery by Borrower.

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          Section 10.2     Remedies. If (a) any Event of Default described in Section 10.1(e) shall occur, the Revolving Credit Facility shall automatically terminate and the outstanding unpaid principal balance of the Note, the accrued interest thereon and all other obligations of the Borrower to the Bank under the Loan Documents shall automatically become immediately due and payable; or (b) any other Event of Default shall occur and be continuing, then the Bank may take any or all of the following actions: (i) declare the Revolving Credit Facility to be terminated, whereupon the Revolving Credit Facility shall terminate, and (ii) declare that the outstanding unpaid principal balance of the Note, the accrued and unpaid interest thereon and all other obligations of the Borrower to the Bank under the Loan Documents to be forthwith due and payable, whereupon such Notes, all accrued and unpaid interest thereon and all such obligations shall immediately become due and payable, in each case without further demand or notice of any kind, all of which are hereby expressly waived, anything in this Agreement or in the Notes to the contrary notwithstanding. In addition, upon any Event of Default, the Bank may exercise all rights and remedies under any other instrument, document or agreement between the Borrower or any other Credit Party and the Bank, and enforce all rights and remedies under any applicable law, including without limitation the rights and remedies available upon default to a secured party under the Uniform Commercial Code as adopted in the State of Minnesota, including, without limitation, the right to take possession of the Collateral, or any evidence thereof, proceeding without judicial process or by judicial process (without a prior hearing or notice thereof, which the Borrower hereby expressly waives) and the right to sell, lease or otherwise dispose of any or all of the Collateral, and, in connection therewith, the Borrower will on demand assemble the Collateral and make it available to the Bank at a place to be designated by the Bank.

          Section 10.3     Offset. In addition to the remedies set forth in Section 10.2, the Bank or any other holder of any Note may offset any and all balances, credits, deposits (general or special, time or demand, provisional or final), accounts or monies of the Borrower then or thereafter with the Bank or such other holder, or any obligations of the Bank or such other holder of such Note, against the Indebtedness then owed by the Borrower to the Bank. Nothing in this Agreement shall be deemed a waiver or prohibition of the Bank’s rights of banker’s lien, offset, or counterclaim, which right the Borrower hereby grants to the Bank.

          Section 10.4     Letter of Credit Reimbursement. In addition to the remedies set forth in Section 10.2 and Section 10.3, immediately upon the commencement of any proceeding under any bankruptcy law by or against the Borrower, and at Bank’s option upon the occurrence of any other Event of Default, within 5 days of receiving notice, the Borrower shall pay to Bank a sum equal to the then outstanding amount of the Letters of Credit.. The Borrower grants Bank a first lien and security interest in all such funds paid to Bank, including without limitation all instruments evidencing such funds, and all products and proceeds of the foregoing, as security for all now existing and hereafter arising debts, obligations and liabilities of the Borrower to Bank in connection with the Revolving Credit Facility.

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ARTICLE 11 MISCELLANEOUS

          Section 11.1     Waiver and Amendment. No failure on the part of the Bank or the holder of any Note to exercise and no delay in exercising any power or right hereunder or under any other Loan Document shall operate as a waiver thereof; nor shall any single or partial exercise of any power or right preclude any other or further exercise thereof or the exercise of any other power or right. The remedies herein and in any other instrument, document or agreement delivered or to be delivered to the Bank hereunder or in connection herewith are cumulative and not exclusive of any remedies provided by law or in equity. No notice to or demand on the Borrower not required hereunder or under any Note shall in any event entitle the Borrower to any other or further notice or demand in similar or other circumstances or constitute a waiver of the right of the Bank or the holder of any Note to any other or further action in any circumstances without notice or demand. No amendment, modification or waiver of any provision of this Agreement or consent to any departure by the Borrower therefrom shall be effective unless the same shall be in writing and signed by the Bank, and then such amendment, modification, waiver or consent shall be effective only in the specific instances and for the specific purpose for which given.

          Section 11.2     Expenses and Indemnities. The Borrower agrees to reimburse the Bank upon demand for all reasonable expenses paid or incurred by the Bank (including any reasonable fees and expenses of legal counsel) in connection with the transactions contemplated by this Agreement, and the preparation and negotiation of this Agreement or any amendment, or any modification, interpretation, collection and enforcement of the Loan Documents, excluding costs and attorneys’ fees incurred in the negotiation and preparation of this Agreement and the other initial Loan Documents. The Borrower agrees to indemnify and hold the Bank harmless from any loss or expense claimed by a third party which may arise or be created by the acceptance of instructions for making Loans or disbursing the proceeds thereof. The obligations of the Borrower under this Section 11.2 shall survive any termination or expiration of the Revolving Credit Facility and payment in full of the Obligations.

          Section 11.3     Notices. Except when telephonic notice is expressly authorized by this Agreement, any notice or other communication to any party in connection with this Agreement shall be in writing and shall be sent by manual delivery, facsimile transmission or overnight courier for next Business Day delivery addressed to such party at the address specified on the signature page hereof, or at such other address as such party shall have specified to the other party hereto in writing. All periods of notice shall be measured from the date of delivery thereof if manually delivered, from the date of sending thereof if sent by facsimile transmission, or from a first Business Day after the date of sending if sent by overnight courier for next Business Day delivery; provided, however, that any notice to the Bank under Article 2 hereof shall be deemed to have been given only when received by the Bank. If notice to the Borrower of any intended disposition of the Collateral or any other intended action is required by law in a particular instance, such notice shall be deemed commercially reasonable if given at least ten calendar days prior to the date of intended disposition or other action.

          Section 11.4     Successors. This Agreement shall be binding on the Borrower and the Bank and their respective successors and assigns, and shall inure to the benefit of the Borrower and the Bank, and the successors and assigns of the Bank. The Borrower shall not assign its rights or duties hereunder without the written consent of the Bank.

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          Section 11.5     Severability. Any provision of the Agreement which is prohibited or unenforceable in any jurisdiction shall, in such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction.

          Section 11.6     Captions. The captions or headings herein are for convenience only and in no way define, limit or describe the scope or intent of any provision of this Agreement.

          Section 11.7     Entire Agreement. This Agreement and the Note, and the other Loan Documents, embody the entire agreement and understanding between the Borrower and the Bank with respect to the subject matter hereof and thereof. This Agreement supersedes all prior agreements and understandings relating to the subject matter hereof, including without limitation, any commitment letters from the Bank to the Borrower.

          Section 11.8     Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and either of the parties hereto may execute this Agreement by signing any such counterpart.

          Section 11.9     Governing Law and Construction. THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICTS OF LAWS PRINCIPLES THEREOF. Whenever possible, each provision of this Agreement and the other Loan Documents and any other statement, instrument or transaction contemplated hereby or thereby or relating hereto or thereto shall be interpreted in such manner as to be effective and valid under such applicable law, but, if any provision of this Agreement, the other Loan Documents or any other statement, instrument or transaction contemplated hereby or thereby or relating hereto or thereto shall be held to be prohibited or invalid under such applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement, the other Loan Documents or any other statement, instrument or transaction contemplated hereby or thereby or relating hereto or thereto.

          Section 11.10    Consent to Jurisdiction. AT THE OPTION OF THE BANK, THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS MAY BE ENFORCED IN ANY FEDERAL COURT OR MINNESOTA STATE COURT SITTING IN HENNEPIN COUNTY, MINNESOTA; AND THE BORROWER CONSENTS TO THE JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT THAT VENUE IN SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT THE BORROWER COMMENCES ANY ACTION IN ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT THEORY ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS AGREEMENT, THE BANK AT ITS OPTION SHALL BE ENTITLED TO HAVE THE CASE TRANSFERRED TO ONE OF THE JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF SUCH TRANSFER CANNOT BE ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED WITHOUT PREJUDICE.

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          Section 11.11     Waiver of Jury Trial. EACH OF THE BORROWER AND THE BANK IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

          Section 11.12     USA Patriot Act Notification. The following notification is provided to the Borrower pursuant to Section 326 of the USA Patriot Act of 2001, 31 U.S.C. Section 5318:

IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT. To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify, and record information that identifies each person or entity that opens an account, including any deposit account, treasury management account, loan, other extension of credit, or other financial services product. What this means for the Borrower: When the Borrower opens an account, the Bank will ask for the Borrower’s name, taxpayer identification number, business address, and other information that will allow the Bank to identify the Borrower. The Bank may also ask to see the Borrower’s legal organizational documents or other identifying documents.

          Section 11.13     Borrower Acknowledgments. The Borrower hereby acknowledges that (a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Loan Documents, (b) the Bank has no fiduciary relationship to the Borrower, the relationship being solely that of debtor and creditor, (c) no joint venture exists between the Borrower and the Bank, and (d) the Bank undertakes no responsibility to the Borrower to review or inform the Borrower of any matter in connection with any phase of the business or operations of the Borrower and the Borrower shall rely entirely upon its own judgment with respect to its business, and any review, inspection or supervision of, or information supplied to, the Borrower by the Bank is for the protection of the Bank and neither the Borrower nor any third party is entitled to rely thereon.

(The signature page follows.)

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          THE PARTIES HERETO have caused this Credit Agreement to be executed as of the date first above written.

VASCULAR SOLUTIONS, INC.
By:		/s/ James Hennen
Its:	Chief Financial Officer
6464 Sycamore Court
Minneapolis, MN 55369
Attention:			CEO and General Counsel
Telephone:				(763) 656-4300

Fax:		(763) 656-4250
U.S. BANK NATIONAL ASSOCIATION
By:	/s/ Greg Guttormsson
Its:	Vice President
800 Nicollet Mall, Third Floor
BC-MN-HO3W
Minneapolis, MN 55402
Attention: Gregory Guttormsson

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EXHIBIT A

CONDITIONS PRECEDENT

1.	The Note, duly executed by the Borrower.
2.	The Security Agreement, duly executed by the Borrower.
3.	Certificate of Good Standing respecting the Borrower, as of a recent date and issued by the Secretary of State of Minnesota.
4.	The Organizational Documents of the Borrower.
5.	A Secretary’s Certificate of the Borrower certifying (1) a copy of any Bylaws or Shareholder Control Agreement (as applicable), (2) a copy of its resolutions authorizing the execution, delivery and performance of the Loan Documents to which it is a party, and (3) the names, titles, and signatures of its managers/officers authorized to execute and perform the Loan Documents to which it is a party.
6.	Legal opinion of Borrower’s counsel.
7.	Evidence acceptable to the Bank in its discretion showing that the insurance required by the Loan Documents is in full force and effect and that the Bank is listed as “additional insured” and “lender loss payee” (as applicable).
8.	UCC lien, tax lien, judgment litigation and bankruptcy searches (against Borrower, and any other names used within the past five years in all relevant jurisdictions).
9.	Payoff letter from each of the Borrower’s current lenders.
10.	Such termination statements and releases as the Bank requires.
11.	Payment of the Bank’s legal fees and expenses.
12.	Such other documents or instruments as the Bank may request to consummate the transaction contemplated hereby.

A-1

EXHIBIT B

BORROWING BASE CERTIFICATE

[See attached]

B-1

BORROWING BASE CERTIFICATE

          The undersigned officer of VASCULAR SOLUTIONS, INC., a Minnesota corporation (the “Borrower”), pursuant to and in accordance with that certain Loan Agreement dated December ___, 2009, as amended (as so amended, the “Loan Agreement”), hereby certifies to and U.S. BANK, NATIONAL ASSOCIATION, a national banking association under the laws of the United States of America (the “Bank”), as follows:

          As of the close of business on _____________________, ____________, the Borrowing Base and the unpaid principal balance of the Revolving Note were as follows:

1.	Total Accounts Receivable			$_____________________ (1)
2a.	Less Ineligible Accounts Receivable:
	Over 90 days (past invoice date)		$____________________
	Disputed Accounts; Setoffs		$____________________
	Contra Accounts	$____________________
	Bankrupt, Insolvent, Impaired Debtor		$____________________
	Restructured Accounts		$____________________
	Progress Billings, (Retainage)		$____________________
	Concentrations1		$____________________
	10% Rule – Cross Agings2	$____________________
	Receivables from Affiliates		$____________________
	Receivables from Officers/Employees		$____________________
	Receivables from Foreign Entities	$____________________
	Receivables from Government		$____________________
	Other Ineligibles (as determined by Bank)	$____________________
2b.	Total Ineligible Receivables			$_____________________ (2)
3.	Eligible Accounts Receivable (Line 1 minus Line 2)			$_____________________ (3)
4.	80% of Line 3			$_____________________ (4)
5.	Total Inventory			$_____________________ (5)
6a.	Less Ineligible Inventory:
	Work in Process	$____________________
	Consigned; 3rd Party Possession		$____________________
	Advance payments Inventory		$____________________
	No Landlord Waiver		$____________________
	Other Ineligibles (as determined by Bank)	$____________________
6b.	Total Ineligible Inventory			$_____________________ (6)
7.	Eligible Inventory (Line 5 minus Line 6)			$_____________________ (7)
8.	The lesser of $5,000,000 or 50% of Line 7			$_____________________ (8)

1	If 10% or more of the receivables are from the same or related account debtor, the portion of the obligations from such account debtor in excess of 10% shall be excluded from Eligible Receivables.
2	If 10% or more of the receivables from any account debtor are more than 90 days past the invoice date, all obligations owed by the account debtor shall be excluded from Eligible Receivables.

9.	Eligible Property and Equipment		$_____________________ (9)
10.	The lesser of $2,000,000 or 50% of Line 9		$_____________________ (10)
11.	The lesser of $10,000,000 or total of
	Line 4 plus Line 8 plus Line 10 (the “Borrowing Base”)	$_____________________ (11)
12.	Unpaid Principal Balance of Revolving Note
	plus Letter of Credit Obligations		$_____________________ (12)
13.	Availability or (Shortfall) (Line 11 minus Line 12)		$_____________________ (13)
Date of Certificate: _______________________, 20___

BORROWER:

Vascular Solutions, Inc.,

a Minnesota corporation

By:

Its:

SCHEDULE 7.13

LICENSES AND INFRINGEMENT

On July 29, 2009 AngioDynamics, Inc. (“AngioDynamics”) filed a lawsuit against Vascular Solutions, Inc. (“Vascular Solutions”) in the United States District Court for the District of Delaware, alleging that Vascular Solutions has infringed U.S. Patent No 7,273,498 and U.S. patent No. 7,559,329 by making, using and selling Vari-Lase® products, including its Bright Tip fibers and procedure kits. AngioDynamics has requested injunctive relief and compensatory damages. Vascular Solutions believes that its Vari-Lase products do not infringe any valid AngioDynamics patent.

EX-10.13

SECURITY AGREEMENT

          This Security Agreement (this “Agreement”) is made as of December 21, 2009, by and between Vascular Solutions, Inc., a Minnesota corporation (the “Debtor”) and U.S. Bank, National Association, a national banking association (the “Secured Party”).

RECITALS:

          A.          The Borrower and the Secured Party have entered into a Credit Agreement of even date herewith (as the same may hereinafter be amended or restated from time to time, the “Credit Agreement”), setting forth the terms on which the Secured Party may make certain loans or other financial accommodations to or for the benefit of the Borrower.

          B.          The Debtor desires to grant to the Secured Party a security interest in all of the Debtor’s property, all as provided herein.

          NOW, THEREFORE, in consideration of the mutual covenants contained in the Credit Agreement and herein, the parties hereby agree as follows:

          1.          Grant of Security Interest and Collateral. In order to secure payment and performance of each and every debt, liability and obligation of every type and description which Debtor may now or at any time hereafter owe to the Secured Party under or pursuant to the Credit Agreement or any promissory note issued pursuant thereto, whether it is or may be direct or indirect, due or to become due, absolute or contingent, primary or secondary, liquidated or unliquidated, or sole, joint, several or joint and several (all such debts, liabilities and obligations and any amendments, extensions, renewals or replacements thereof are herein collectively referred to as the “Obligations”), Debtor hereby grants the Secured Party a security interest (the “Security Interest”) in all of Debtor’s property other than Excluded Assets (the “Collateral”), including without limitation the following:

            (a)          Inventory and Goods: All inventory of Debtor, whether now owned or hereafter acquired and wherever located and other tangible personal property held for sale or lease or furnished or to be furnished under contracts of service or consumed in Debtor’s business, and all goods of Debtor, whether now owned or hereafter acquired and wherever located, including without limitation all computer programs embedded in goods, and all other Inventory (“Inventory”) and Goods (“Goods”), as each such term may be defined in the Uniform Commercial Code as in effect in the state of Minnesota from time to time (the “UCC”), of the Debtor, whether now owned or hereafter acquired;

            (b)          Equipment: All equipment of Debtor, whether now owned or hereafter acquired and wherever located, including but not limited to all present and future equipment, machinery, tools, motor vehicles, trade fixtures, furniture, furnishings, office and recordkeeping equipment and all goods for use in Debtor’s business, and all other Equipment (as such term may be defined in the UCC) of the Debtor, whether now owned or hereafter acquired, together with all parts, equipment and attachments relating to any of the foregoing (“Equipment”);

	(c)          Accounts, Contract Rights and Other Rights to Payment: Each and every right of Debtor to the payment of money, whether such right to payment now exists or hereafter arises, whether such right to payment arises out of a sale, lease, license, assignment or other disposition of goods or other property by Debtor, out of a rendering of services by Debtor, out of a loan by Debtor, out of the overpayment of taxes or other liabilities of Debtor, or otherwise arises under any contract or agreement, whether such right to payment is or is not already earned by performance, and howsoever such right to payment may be evidenced, together with all other rights and interests (including all liens and security interests) which Debtor may at any time have by law or agreement against any account debtor or other obligor obligated to make any such payment or against any of the property of such account debtor or other obligor; all including but not limited to all present and future debt instruments, chattel papers, accounts, license fees, contract rights, loans and obligations receivable and tax refunds, and all other Accounts (as such term may be defined in the UCC) of the Debtor, whether now owned or hereafter acquired (“Accounts”);
	(d)          Instruments: All instruments, chattel paper, letters of credit or other documents of Debtor, whether now owned or hereafter acquired, including but not limited to promissory notes, drafts, bills of exchange and trade acceptances; all rights and interests of Debtor, whether now existing or hereafter created or arising, under leases, licenses or other contracts, and all other Instruments (as such term may be defined in the UCC) of the Debtor, whether now owned or hereafter acquired (“Instruments”);
	(e)          Deposit Accounts and Investment Property: All right, title and interest of Debtor in all deposit and investment accounts maintained with any bank, savings and loan association, broker, brokerage, or any other financial institution, together with all monies and other property deposited or held therein, including, without limitation, any checking account, savings account, escrow account, savings certificate and margin account, and all securities, whether certificated or uncertificated, security entitlements, securities accounts, commodity contracts, and commodity accounts, and all other Deposit Accounts (“Deposit Accounts”) and Investment Property (“Investment Property”) (as each such terms may be defined in the UCC) of the Debtor, whether now owned or hereafter acquired;
	(f)          General Intangibles: All general intangibles of Debtor, whether now owned or hereafter acquired, including, but not limited to, applications for patents, patents, copyrights, trademarks, trade secrets, good will, tradenames, customer lists, permits and franchises, software, and the right to use Debtor’s name, and any and all membership interests, governance rights, and financial rights in each and every limited liability company, and all payment intangibles, and all other General Intangibles (as such term may be defined in the UCC) of the Debtor, whether now owned or hereafter acquired (“General Intangibles”);
	(g)          Chattel Paper: All Chattel Paper (as such term may be defined in the UCC) of the Debtor, whether tangible or electronic, and whether now owned or hereafter acquired (“Chattel Paper”); and
	(h)          Documents, Embedded Software, Etc.: All of Debtor’s rights in promissory notes, documents, embedded software, letter of credit rights and supporting obligations (and security interests and liens securing them) (as any such term may be defined in the UCC) whether now owned or hereafter acquired;
together with all substitutions and replacements for and products of any of the foregoing property and proceeds of any and all of the foregoing property and, in the case of all tangible Collateral, together with (i) all accessories, attachments, parts, equipment, accessions, repairs and embedded software, now or hereafter attached or affixed to or used in connection with any such goods, (ii) all warehouse receipts, bills of lading and other documents of title now or hereafter covering such goods, and (iii) all books and records of Debtor.

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For purposes of this Agreement, “Excluded Assets” shall mean (a) Equipment subject to a purchase money lien or capital lease to the extent that the instrument or other agreement evidencing the purchase money indebtedness or capital lease obligation, as the case may be, secured by such lien or capital lease on such Equipment limits a Debtor’s ability to grant a security interest therein to the Secured Party; provided however, that such Equipment shall be excluded from the Collateral only to the extent of $250,000 in the aggregate and only for so long as such purchase money indebtedness or capital lease obligation, as the case may be, remains outstanding and upon the earlier of the termination of such limitation or the satisfaction of such indebtedness, such Equipment shall be included in the term “Collateral” without any further action on the part of Debtor or the Secured Party, and (b) that certain License Agreement effective as of January 7, 2009, by and between Debtor and King Pharmaceuticals Research and Development, Inc., as amended.
2.          Representations, Warranties and Agreements. Debtor represents, warrants and agrees that:
	(a)          Debtor is a corporation duly incorporated, validly existing and in good standing under the laws of the state of Minnesota. This Agreement has been duly and validly authorized by all necessary corporate action. Debtor has the requisite corporate power and authority to execute this Agreement, to perform Debtor’s obligations hereunder and to subject the Collateral to the Security Interest. Debtor’s organizational charter number is 9L-421.
	(b)          The Collateral is used primarily for business purposes outlined in the Credit Agreement.
	(c)          Debtor’s chief place of business is: 6464 Sycamore Court, Minneapolis, Minnesota 55369. Debtor’s records concerning the Collateral are kept at such address and the Collateral is located at such address, except when being transported in the ordinary course of business. Debtor will give at least 30 days’ advance written notice to Secured Party of any change in Debtor’s name or jurisdiction of organization or chief place of business and any change in or addition of any Collateral location (except for Collateral being transported in the ordinary course of business) or any change in the location of Debtor’s records concerning the Collateral.
	(d)          Debtor has (or will have at the time Debtor acquires rights in Collateral hereafter arising) and will maintain marketable title to each item of Collateral free and clear of all security interests, liens and encumbrances, except the Security Interest and any lien filed by a third party for equipment as permitted in the Credit Agreement, and will defend the Collateral against all claims or demands of all persons other than Secured Party and any permitted lien filed by a third party.
	(e)          Except as otherwise provided in the Credit Agreement, Debtor will not sell or otherwise transfer or dispose of the Collateral or any interest therein.
	(f)          Debtor will not permit any tangible Collateral to be located in any state (and, if a county filing is required, in any county) in which a financing statement covering such Collateral is required to be, but has not in fact been, filed.

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            (g)          All rights to payment and all instruments, documents, chattel papers and other agreements constituting or evidencing Collateral are (or will be when arising or issued) the valid, genuine and legally enforceable obligation, subject to no defense, set-off or counterclaim (other than those arising in the ordinary course of business) of each account debtor or other obligor named therein or in Debtor’s records pertaining thereto as being obligated to pay such obligation. Debtor will not agree to any modification, amendment or cancellation of any such obligation without Secured Party’s prior written consent except discounts provided by Debtor in the ordinary course of business, and will not subordinate any such right to payment to claims of other creditors of such account debtor or other obligor.

            (h)          Debtor will keep all tangible Collateral in good repair, working order and condition, normal depreciation excepted, and will, from time to time, replace any worn, broken or defective parts thereof.

            (i)          Except as otherwise provided in the Credit Agreement, Debtor will promptly pay all taxes and other governmental charges levied or assessed upon or against any Collateral or upon or against the creation, perfection or continuance of the Security Interest.

            (j)          Debtor will promptly notify Secured Party of any material loss of or damage to any Collateral or of any adverse change in the prospect of payment of any material sums due on or under any instrument, chattel paper, account or contract right constituting Collateral.

            (k)          Debtor will if Secured Party at any time so requests (whether the request is made before or after the occurrence of an Event of Default), promptly deliver to Secured Party any instrument, document or chattel paper constituting Collateral, duly endorsed or assigned by Debtor to Secured Party.

            (l)          Debtor will at all times keep all tangible Collateral insured against risks of fire (including so-called extended coverage), theft, and such other risks and in such amounts as Secured Party may reasonably request, with any loss payable to Secured Party to the extent of its interest.

            (m)          Debtor hereby authorizes the filing of such financing statements as Secured Party may deem necessary or useful to be filed in order to perfect the Security Interest and, if any Collateral is covered by a certificate of title, Debtor will from time to time execute such documents as may be required to have the Security Interest properly noted on a certificate of title. In addition, Debtor authorizes Secured Party to file from time to time such financing statements against the Collateral described as “all personal property” or “all assets” or the like as Secured Party deems necessary or useful to perfect the Security Interest.

            (n)          Debtor will pay when due or reimburse Secured Party on demand for all reasonable costs of collection of any of the Obligations and all other reasonable out-of-pocket expenses (including in each case all reasonable attorneys’ fees) incurred by Secured Party in connection with the creation, perfection, satisfaction or enforcement of the Security Interest or the execution or creation, continuance or enforcement of this Security Agreement or any or all of the Obligations.

            (o)          Debtor will take all such actions as Secured Party may reasonably request to permit the Secured Party to establish and perfect the Security Interest in all jurisdictions Secured Party deems necessary. Without in any way limiting the generality of the foregoing, Debtor will execute, deliver or endorse any and all instruments, documents, assignments, security agreements and other agreements and writings which Secured Party may at any time reasonably request in order to secure, protect, perfect or enforce the Security Interest and Secured Party’s rights under this Agreement.

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	(p)          Debtor will not knowingly use or keep any Collateral, or permit it to be used or kept, for any unlawful purpose or in violation of any federal, state or local law, statute or ordinance.
	(q)          All items of Equipment and Inventory existing on the date of this Agreement are located at the places specified on Schedule I hereto. The Debtor will immediately notify the Secured Party of any additional state or county in which any item of Inventory or Equipment is hereafter located. The Debtor will from time to time at the request of the Secured Party provide the Secured Party with current lists as to the locations of the Equipment and Inventory. The Debtor will not permit any Inventory, Equipment, Chattel Paper or Documents or any records pertaining to Accounts and General Intangibles to be located in any state or county in which, in the event of such location, a financing statement covering such Collateral would be required to be, but has not in fact been, filed in order to perfect the Security Interest.
If Debtor at any time fails to perform or observe any of the foregoing agreements, immediately upon the occurrence of such failure, without notice or lapse of time, Secured Party may (but need not) perform or observe such agreement on behalf and in the name, place and stead of Debtor (or, at Secured Party’s option, in Secured Party’s own name) and may (but need not) take any and all other actions which Secured Party may reasonably deem necessary to cure or correct such failure (including, without limitation, the payment of taxes, the satisfaction of security interests, liens, or encumbrances, the performance of obligations under contracts or agreements with account debtors or other obligors, the procurement and maintenance of insurance, the execution of financing statements, the endorsement of instruments, and the procurement of repairs, transportation or insurance); and, except to the extent that the effect of such payment would be to render any loan or forbearance of money usurious or otherwise illegal under any applicable law, Debtor shall thereupon pay Secured Party on demand the amount of all reasonable moneys expended and all reasonable costs and expenses (including reasonable attorneys’ fees) incurred by Secured Party in connection with or as a result of Secured Party’s performing or observing such agreements or taking such actions, together with interest thereon from the date expended or incurred by Secured Party at the highest rate then applicable to any of the Obligations. To facilitate the performance or observance by Secured Party of such agreements of Debtor, Debtor hereby irrevocably appoints (which appointment is coupled with an interest) Secured Party, or its delegate, as the attorney-in-fact of Debtor with the right (but not the duty) from time to time to create, prepare, complete, execute, deliver, endorse or file, in the name and on behalf of Debtor, any and all instruments, documents, financing statements, applications for insurance and other agreements and writings required to be obtained, executed, delivered or endorsed by Debtor under this Section 2.
3.          Lock Box; Collateral Account. If Secured Party so requests at any time after the occurrence and during the continuance of an Event of Default (as defined in Section 7 of this Agreement), Debtor will direct each of its account debtors to make payments due under the relevant account or chattel paper directly to a special lock box to be under the control of Secured Party (the “Lock Box”). Debtor hereby authorizes and directs Secured Party to deposit into a special collateral account to be established and maintained with Secured Party (the “Collateral Account”) all checks, drafts, and cash payments received in the Lock Box. All deposits in the Collateral Account shall constitute proceeds of Collateral and shall not constitute payment of any Obligation. Secured Party shall promptly apply finally collected funds on deposit in the Collateral Account to the payment of the Obligations in such order of application as Secured Party may determine, or permit Debtor to withdraw all or any part of the balance. If a Lock Box is so established, Debtor agrees that it will promptly deliver to Secured Party, for deposit into the Lock Box, all payments on accounts and chattel paper received by it. All such payments shall be delivered to Secured Party in the form received (except for Debtor’s endorsement where necessary). Until so deposited, all such payments on accounts and chattel paper received by Debtor shall be held in trust by Debtor for and as the property of Secured Party and shall not be commingled with any funds or property of Debtor. Once an Event of Default has been cured, Debtor will regain control over the Lock Box.

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4.          Account Verification and Collection Rights of Secured Party. At any time after the occurrence and during the continuance of an Event of Default (as defined in the Credit Agreement), Secured Party shall have the right to verify any accounts in the name of Debtor or in Secured Party’s own name; and Debtor, whenever requested, shall furnish Secured Party with duplicate statements of the accounts, which statements may be mailed or delivered by Secured Party for that purpose. Whether or not Secured Party exercises its rights under Section 3 of this Agreement, after the occurrence and during the continuance of an Event of Default, Secured Party may at any time notify any account debtor or any other person obligated to pay any amount due, that such chattel paper, account or other right to payment has been assigned or transferred to Secured Party for security and shall be paid directly to Secured Party. If Secured Party so requests at any time (after the occurrence and during the continuance of an Event of Default), Debtor will so notify such account debtors and other obligors in writing and will indicate on all invoices to such account debtors or other obligors that the amount due is payable directly to Secured Party. At any time after Secured Party or Debtor gives such notice to an account debtor or other obligor, Secured Party may (but need not), in Secured Party’s own name or in Debtor’s name, demand, sue for, collect or receive any money or property at any time payable or receivable on account of, or securing, any such chattel paper, account or other right to payment, or grant any extension to, make any compromise or settlement with or otherwise agree to waive, modify, amend or change the obligations (including collateral obligations) of any such account debtor or other obligor.
5.          Assignment of Insurance. Debtor hereby assigns to Secured Party, as additional security for the payment of the Obligations, any and all moneys, to the extent of the Obligations (including but not limited to proceeds of insurance and refunds of unearned premiums) due or to become due under, and all other rights of Debtor under or with respect to, an interest in any and all policies of insurance covering the Collateral, and Debtor hereby directs the issuer of any such policy to pay any such moneys directly to Secured Party to the extent of the Obligations in an Event of Default. After the occurrence and during the continuance of an Event of Default, Secured Party may (but need not), in Secured Party’s own name or in Debtor’s name, execute and deliver proofs of claim, receive all such moneys (to the extent of the Obligations), endorse checks and other instruments representing payment of such moneys, and adjust, litigate, compromise or release any claim against the issuer of any such policy to the extent of the Obligations. Notwithstanding the foregoing, Debtor shall be entitled to use any such insurance proceeds to repair or replace any Collateral so long as no Event of Default then exists.
6.          Right to Offset. Nothing in this Agreement shall be deemed a waiver or prohibition of Secured Party’s right of banker’s lien, offset, or counterclaim, which right Debtor hereby grants to Secured Party.
7.          Events of Default. Any one or more of the following occurrences shall constitute an “Event of Default” under this Agreement:
	(a)          the Debtor shall fail to observe or perform any representation, warranty, covenant or agreement applicable to the Debtor under this Agreement, subject to any applicable cure period as set forth in the Credit Agreement; or
	(b)          any Event of Default however denominated shall occur under the Credit Agreement or any agreement, document or instrument executed in connection therewith.

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8.          Remedies Upon Event of Default. All rights and remedies of Secured Party shall be cumulative and may be exercised singularly or concurrently, at Secured Party’s option, and the exercise or enforcement of any one such right or remedy shall neither be a condition to nor bar the exercise or enforcement of any other. Upon the occurrence and continuance of an Event of Default, in addition to the remedies as afforded under the Credit Agreement (or any other agreement, document or instrument executed in connection with the Credit Agreement), the Secured Party shall have the following rights and remedies:
	(a)          The Secured Party may accelerate the payment of and declare that all Obligations are immediately due and payable, whether matured or unmatured, whereupon all of the Obligations shall be immediately due and payable, and the same shall thereafter be immediately due and payable, without presentment of other notice or demand.
	(b)          The Secured Party may exercise and enforce any and all rights and remedies available to a secured party under the UCC or as set forth or available to it under this Agreement, without limitation.
	(c)          The Secured Party shall have the right to enter upon and into and take possession of all or such part or parts of the properties of the Debtor, including lands, plants, buildings, Equipment, Inventory and other property as may be necessary or appropriate in the judgment of the Secured Party to permit or enable the Secured Party to process, store or sell all or any part of the Collateral, as the Secured Party may elect, and to use and operate said properties for said purposes and for such length of time as the Secured Party may deem necessary or appropriate for said purposes without the payment of any compensation to Debtor therefor. The Secured Party may require the Debtor to, and the Debtor hereby agrees that it will, at its expense and upon request of the Secured Party forthwith, assemble all or part of the Collateral as directed by the Secured Party and make it available to the Secured Party at a place or places to be designated by the Secured Party.
	(d)          Any sale of Collateral may be in one or more parcels at public or private sale, at any of the Secured Party’s offices or elsewhere, for cash, on credit, or for future delivery, and upon such other terms as the Secured Party may reasonably believe are commercially reasonable. If notice to the Debtor of any intended disposition of Collateral or any other intended action is required by law in a particular instance, such notice shall be deemed commercially reasonable if given in the manner specified for the giving of notice in the Credit Agreement at least ten (10) calendar days prior to the date of intended disposition or other action, and the Secured Party may exercise or enforce any and all other rights or remedies available by law or agreement against the Collateral, against the Debtor, or against any other person or property. The Secured Party shall not be obligated to make any sale of Collateral regardless of notice of sale having been given, and the Secured Party may adjourn any public or private sale from time to time by announcement made at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned.
	(e)          The Secured Party is hereby granted a non-exclusive, worldwide license, or sub-license in the event such property is licensed to Debtor, or other right to use, without charge, all of the Debtor’s property, including, without limitation, all of the Debtor’s labels, trademarks, copyrights, patents and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in completing sale and selling any Collateral, and the Debtor’s rights under all licenses and all franchise agreements shall inure to the Secured Party’s benefit until the Obligations are paid in full, provided that Secured Party may assign such rights in connection with the sale of the other Collateral.

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	(f)          At any time and from time to time, without notice to Debtor (any such notice being expressly waived by Debtor), to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by Secured Party to or for the credit or the account of Debtor against any and all of the Obligations, irrespective of whether or not the Secured Party shall have made demand under this Agreement or the Credit Agreement (or any agreement, document or instrument executed and delivered by Debtor in connection therewith) and although the Obligations may be unmatured. Secured Party agrees to promptly notify the Debtor after any such set off and application, provided that the failure to give such notice shall not affect the validity of such set off and application.
	(g)          The Secured Party may exercise or enforce any or all other rights or remedies available to Secured Party by law or agreement against the Collateral, against Debtor or against any other person or property.
9.          Other Personal Property. If at the time Secured Party takes possession of any tangible Collateral, any goods, papers or other properties of Debtor, not affixed to or constituting a part of such Collateral, are located or to be found upon or within such Collateral, Debtor agrees to notify Secured Party in writing of that fact, describing the property so located or to be found, within seven (7) calendar days after the date on which Secured Party took possession. Unless and until Secured Party receives such notice from Debtor, Secured Party shall not be responsible or liable to Debtor for any action taken or omitted by or on behalf of Secured Party with respect to such property without actual knowledge of the existence of any such property or without actual knowledge of the fact that it was located or to be found upon such Collateral.
10.          The Secured Party’s Duties. The powers conferred on the Secured Party under this Agreement are solely to protect its interest in the Collateral and shall not impose any duty upon it to exercise any such powers. Without limiting the generality of the foregoing, the Secured Party shall not be obligated to perfect or be liable for the failure to perfect the Security Interest, nor shall the Secured Party be obligated to seize or otherwise realize upon the Collateral or any part thereof or be bound to institute proceedings to seize, collect, realize or otherwise obtain possession of and sell the Collateral or any part thereof. The Secured Party shall be deemed to have exercised reasonable care in the safekeeping of any Collateral in its possession if such Collateral is accorded treatment substantially equal to the safekeeping which the Secured Party accords its own property of like kind. Except for the safekeeping of any Collateral in its possession and the accounting for monies and for other properties actually received by it hereunder, the Secured Party shall have no duty, as to any Collateral, as to ascertaining or taking action with respect to the taking of any necessary steps to preserve rights against any persons or any other rights pertaining to any Collateral.
11.          Costs and Expenses; Indemnity. The Debtor will pay or reimburse the Secured Party on demand for all reasonable out-of-pocket expenses (including in each case all filing and recording fees and taxes and all reasonable fees and expenses of counsel and of any experts and agents) incurred by the Secured Party in connection with the creation, perfection, amendment, continuation, protection, satisfaction, defense, foreclosure or enforcement of the Security Interest and the creation, preparation, administration, continuance, protection, amendment, defense or enforcement of this Agreement, including expenses incurred in any litigation, bankruptcy, or insolvency proceedings, and all such costs and expenses shall be part of the Obligations secured by the Security Interest. The Debtor shall indemnify and hold the Secured Party harmless from and against any and all claims, losses and liabilities brought by third parties (including reasonable attorneys’ fees) arising out of or resulting from this Agreement and the Security Interest hereby created (including enforcement of this Agreement) or the Secured Party’s actions pursuant hereto, except claims, losses or liabilities resulting from the Secured Party’s bad faith, gross negligence or willful misconduct as determined by a final judgment of a court of competent jurisdiction. Any liability of the Debtor to indemnify and hold the Secured Party harmless pursuant to the preceding sentence shall be part of the Obligations secured by the Security Interest. The obligations of the Debtor under this Section shall survive any termination of this Agreement.

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          12.          Waiver of Defenses. Except as otherwise described in the Credit Agreement, the Debtor waives the benefit of any and all defenses and discharges available to a guarantor, surety, endorser or accommodation party, dependent on its character as such. Without limiting the generality of the foregoing, the Debtor (in such capacity) waives presentment, demand for payment, and notice of nonpayment or protest of any note or any other instrument evidencing any of the Obligations; and the Debtor agrees that its liability hereunder and the Security Interest hereby created shall not be affected or impaired in any way by any of the following acts and things (which the Secured Party may do from time to time without notice to the Debtor): (a) by any sale, pledge, surrender, compromise, settlement, release, renewal, extension, indulgence, alteration, substitution, exchange, change in, modification, or other disposition of any of the Obligations or any evidence thereof or any collateral therefor, (b) by any acceptance or release of collateral for or guarantors of any of the Obligations, (c) by any failure, neglect or omission to realize upon or protect any of the Obligations, or to obtain, perfect, enforce or realize upon any collateral therefor, or to exercise any Lien upon or right of appropriation of any moneys, credits or property toward the liquidation of any of the Obligations, or (d) by any application of payments or credits upon any of the Obligations. The Secured Party shall not be required, before exercising its rights under this Agreement, to first resort for payment of any of the Obligations to the Debtor or any other persons, its or their properties or estates, or any collateral, property, Liens or other rights or remedies whatsoever. The Debtor agrees not to exercise any right of contribution, recourse, subrogation or reimbursement available to the Debtor against any other person or property, unless and until all Obligations and all other debts, liabilities and obligations owed by the Debtor to the Secured Party have been paid and discharged. The Debtor hereby waives any rights it may have at equity or in law to require the Secured Party to apply any rights of marshalling or other equitable doctrines in the circumstances. The Debtor expects to derive benefits from the transactions resulting in the creation of the Obligations. The Secured Party may rely conclusively on the continuing warranty, hereby made, that the Debtor continues to be benefitted by the Secured Party’s extension of credit accommodations to the Debtor and the Secured Party shall have no duty to inquire into or confirm the receipt of any such benefits, and this Agreement shall be effective and enforceable by the Secured Party without regard to the receipt, nature or value of any such benefits.

          13.          Amendment; Waivers. This Agreement can be waived, modified, amended, terminated or discharged, and the Security Interest can be released, only explicitly in a writing signed by Secured Party and Debtor. A waiver shall be effective only in the specific instance and for the specific purpose given. Mere delay or failure to act shall not preclude the exercise or enforcement of any of Secured Party’s rights or remedies.

          14.          Notices. All notices to be given to Debtor shall be deemed sufficiently given if given in the manner specified in the Credit Agreement.

          15.          Entire Agreement. This Agreement and the Credit Agreement (and the other agreements, documents and instruments executed and delivered in connection with the Credit Agreement) embody the entire agreement and understanding between the Debtor and Secured Party with respect to the subject matter hereof and thereof. Nothing contained in this Agreement or in the Credit Agreement, expressed or implied, is intended to confer upon any persons other than the parties hereto any rights, remedies, obligations or liabilities hereunder or thereunder.

          16.          Debtor Acknowledgements. The Debtor hereby acknowledges that (a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement, (b) the Secured Party has no fiduciary relationship to the Debtor, the relationship being solely that of debtor and creditor, and (c) no joint venture exists between the Debtor and the Secured Party.

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          17.          Continuing Security Interest & Assignment. This Agreement shall (a) create a continuing security interest in the Collateral to secure repayment of the Obligations, (b) be binding upon the Debtor, its successors and permitted assigns, and (c) inure to the benefit of, and be enforceable by, the Secured Party and its successors, transferees, and assigns. Without limiting the generality of the foregoing clause (c), the Secured Party may assign or otherwise transfer all or any portion of its rights under this Agreement without the consent of the Debtor. The Debtor may not assign its rights or obligations, in whole or in part, under this Agreement without the prior express written consent of the Secured Party.

          18.          Governing Law and Construction. THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES THEREOF, EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE MANDATORILY GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF MINNESOTA. Whenever possible, each provision of this Agreement and any other statement, instrument or transaction contemplated hereby or relating hereto shall be interpreted in such manner as to be effective and valid under such applicable law, but, if any provision of this Agreement or any other statement, instrument or transaction contemplated hereby or relating hereto shall be held to be prohibited or invalid under such applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement or any other statement, instrument or transaction contemplated hereby or relating hereto.

          19.          Consent to Jurisdiction. AT THE OPTION OF THE SECURED PARTY, THIS AGREEMENT MAY BE ENFORCED IN ANY FEDERAL COURT OR MINNESOTA STATE COURT SITTING IN HENNEPIN COUNTY, MINNESOTA; AND THE DEBTOR CONSENTS TO THE JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT THAT VENUE IN SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT THE DEBTOR COMMENCES ANY ACTION IN ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT THEORY ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS AGREEMENT, THE SECURED PARTY AT ITS OPTION SHALL BE ENTITLED TO HAVE THE CASE TRANSFERRED TO ONE OF THE JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF SUCH TRANSFER CANNOT BE ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED WITHOUT PREJUDICE.

          20.          Waiver of Notice and Hearing. THE DEBTOR HEREBY WAIVES ALL RIGHTS TO A JUDICIAL HEARING OF ANY KIND PRIOR TO THE EXERCISE BY THE SECURED PARTY OF ITS RIGHTS TO POSSESSION OF THE COLLATERAL WITHOUT JUDICIAL PROCESS OR OF ITS RIGHTS TO REPLEVY, ATTACH, OR LEVY UPON THE COLLATERAL WITHOUT PRIOR NOTICE OR HEARING. THE DEBTOR ACKNOWLEDGES THAT IT HAS BEEN ADVISED BY COUNSEL OF ITS CHOICE WITH RESPECT TO THIS PROVISION AND THIS AGREEMENT.

          21.          Survival of Representations and Warranties. All representations and warranties contained in this Agreement shall survive the execution, delivery and performance of this Agreement and the creation and payment of the Obligations.

          22.          Waiver of Acceptance. The Debtor waives notice of the acceptance of this Agreement by the Secured Party.

          23.          Captions and Headings. Captions in this Agreement are for reference and convenience only and shall not affect the interpretation or meaning of any provision of this Agreement.

10

SECURITY AGREEMENT

[Signature Page]

          IN WITNESS WHEREOF, Secured Party and Debtor have caused this Agreement to be duly executed and delivered by their officers thereunto duly authorized as of the date first written above.

DEBTOR:
VASCULAR SOLUTIONS, INC.,
a Minnesota corporation
By:	/s/ James Hennen
Name:		James Hennen
Its:	Chief Financial Officer
SECURED PARTY:
U.S. BANK, NATIONAL ASSOCIATION
By:	/s/ Greg Guttormsson
Name:		Greg Guttormsson
Its:	Vice President

EXHIBIT A

BORROWER INFORMATION

Legal Name	Jurisdiction of Organization	Chief Executive Office	Organizational Identification Number	Federal Employer Identification Number
Vascular Solutions, Inc.	Minnesota	6464 Sycamore Court Minneapolis, MN 55369	9L-421	41-1859679

SCHEDULE 1

LOCATION OF EQUIPMENT AND INVENTORY

Locations:

Vascular Solutions, Inc.
6464 Sycamore Court
Maple Grove, MN 55369

Vascular Solutions, Inc.
5025 Cheshire Lane
Plymouth, MN 55446

Debtor’s field representatives are provided with office Equipment in connection with their job responsibilities

EX-10.14

REVOLVING PROMISSORY NOTE

	December 21, 2009
$10,000,000	Minneapolis, Minnesota

          FOR VALUE RECEIVED, VASCULAR SOLUTIONS, INC., a Minnesota corporation (“Borrower”) hereby promises to pay to the order of U.S. BANK NATIONAL ASSOCIATION, a national banking association organized under the laws of the United States, its endorsees, successors and assigns (the “Lender”), in lawful money of the United States of America and in immediately available funds at Lender’s principal office located in Minneapolis, Minnesota or such other place as the Lender may from time to time designate, and on the terms provided below, the principal amount of up to TEN MILLION AND NO/100 DOLLARS ($10,000,000.00), or, if less, the aggregate unpaid principal amount of all Advances made by the Lender under the Credit Agreement (as defined below).

          Interest on each advance hereunder shall accrue at a varying annual rate equal to one and sixty-hundredths percent (1.60%) plus the one-month LIBOR rate quoted by Lender from Reuters Screen LIBOR01 Page or any successor thereto, which shall be that one-month LIBOR rate in effect and reset each New York Banking Day, adjusted for any reserve requirement and any subsequent costs arising from a change in government regulation, such rate rounded up to the nearest one-sixteenth percent. The term “New York Banking Day” means any date (other than a Saturday or Sunday) on which commercial banks are open for business in New York, New York. Lender’s internal records of applicable interest rates shall be determinative in the absence of manifest error

          Borrower shall repay this Note as follows:

          (y)          Interest is payable beginning January 21, 2010, and on the same date of each consecutive month thereafter (except that if a given month does not have such a date, the last day of such month), plus a final interest payment with the final payment of principal.

          (z)          Principal is payable on December 21, 2010, the maturity date (“Maturity Date”).

          In all cases, interest hereunder shall be calculated on the basis of a year of three hundred sixty (360) days but charged on the basis of the actual number of days principal is unpaid. This Note may be prepaid in whole or in part without penalty or premium at any time.

          This Note is the Note referred to in that certain Credit Agreement dated as of the date hereof (as amended, modified, supplemented or restated from time to time, the “Credit Agreement”) between the undersigned and the Lender (capitalized terms in this Note shall have the meaning indicated in the Credit Agreement, unless otherwise defined in this Note). Payments of principal and interest in respect of this Note are due and payable when and as required by the terms, conditions and provisions hereof and in accordance with the Credit Agreement, which terms, conditions and provisions are hereby incorporated herein by reference. Subject to the terms of the Credit Agreement, the Borrower may borrow against this Note and repay and reborrow, in whole or in part, without regard to the cumulative amount of advances up to the Commitment (as defined in the Credit Agreement) outstanding at any time.

          This Note is secured, and its maturity is subject to acceleration, in each case, upon the terms provided in the Credit Agreement. On the Maturity Date or earlier acceleration, all remaining unpaid principal and accrued interest hereunder shall be due and payable in full. All payments hereunder shall be applied first to interest and then to principal. This Note may be prepaid in whole or in part at any time, subject to the provisions of the Credit Agreement.

          Time is of the essence. No delay or omission on the part of the Lender in exercising any right hereunder shall operate as a waiver of such right or of any other remedy under this Promissory Note. A waiver on any one occasion shall not be construed as a bar to or waiver of any such right or remedy on a future occasion.

          If a payment due hereunder is not made within ten (10) days after the date when due, Borrower shall pay to Lender a late payment charge of five percent (5.0)% of the amount of the overdue payment to compensate Lender for a portion of the cost related to handling the overdue payment. After an Event of Default, the entire principal sum evidenced by this Note, together with all accrued and unpaid interest, shall, at the option of the Lender, bear interest at the rate per annum (the “Default Rate”) equal to five percent (5.0%) in excess of the rate of interest per annum which would otherwise be payable hereunder during the entire period during which such Event of Default shall occur and be continuing, and become immediately due and payable without further notice, demand or presentment for payment, and without any relief whatever from any valuation or appraisement laws. Failure to exercise any option provided herein shall not constitute a waiver of the right to exercise the same in the event of any subsequent default. Borrower agrees that if, and as often as, this Note is given to an attorney for collection or to defend or enforce any of Lender’s rights hereunder, Borrower will pay Lender’s reasonable attorneys’ fees together with all court costs and other reasonable expenses paid by Lender.

          In the event of any default hereunder, the undersigned agrees to pay the actual out-of-pocket costs and expenses of collection, including reasonable attorney’s fees.

          Except as otherwise provided in the Credit Agreement, Borrower waives presentment, protest and demand, notice of protest, demand and of dishonor and nonpayment of this Note and any lack of diligence or delays in collection or enforcement of this Note. Borrower agrees that this Note, or any payment hereunder, may be extended from time to time, and Borrower consents to the release of any party liable for the obligation evidenced by this Note, the release of any of the security for this Note, the acceptance of any other security therefor, or any other indulgence or forbearance whatsoever, all without notice to any party and without affecting the liability of Borrower.

          All agreements between the Borrower and the Lender are hereby expressly limited so that in no contingency or event whatsoever, whether by reason of acceleration of maturity of the indebtedness evidenced hereby or otherwise, shall the rate of interest paid or agreed to be paid to the Lender for the use, forbearance, loaning or detention of the indebtedness evidenced hereby exceed the maximum permissible rate of interest under applicable law, and if from any circumstances the Lender should ever receive as interest an amount which would exceed the highest lawful rate of interest, such amount which would be in excess of such lawful rate of interest shall be applied to the reduction of the principal balance evidenced hereby and not to the payment of interest.

          THIS NOTE SHALL BE CONSTRUED UNDER AND GOVERNED BY THE LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS OR PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS OF THE UNITED STATES APPLICABLE TO NATIONAL BANKS. WHENEVER POSSIBLE, EACH PROVISION OF THIS NOTE AND ANY OTHER STATEMENT, INSTRUMENT OR TRANSACTION CONTEMPLATED HEREBY OR RELATING HERETO, SHALL BE INTERPRETED IN SUCH MANNER AS TO BE EFFECTIVE AND VALID UNDER SUCH APPLICABLE LAW, BUT, IF ANY PROVISION OF THIS NOTE OR ANY OTHER STATEMENT, INSTRUMENT OR TRANSACTION CONTEMPLATED HEREBY OR RELATING HERETO SHALL BE HELD TO BE PROHIBITED OR INVALID UNDER SUCH APPLICABLE LAW, SUCH PROVISION SHALL BE EFFECTIVE ONLY TO THE EXTENT OF SUCH PROHIBITION OR INVALIDITY, WITHOUT INVALIDATING THE REMAINDER OF SUCH PROVISION OR THE REMAINING PROVISIONS OF THIS NOTE OR ANY OTHER STATEMENT, INSTRUMENT OR TRANSACTION CONTEMPLATED HEREBY OR RELATING HERETO.

2

          AT THE OPTION OF LENDER, THIS NOTE MAY BE ENFORCED IN ANY FEDERAL OR STATE COURT SITTING IN MINNESOTA; AND BORROWER CONSENTS TO THE JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT THAT VENUE IN SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT BORROWER COMMENCES ANY ACTION IN ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT THEORY ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS NOTE, LENDER AT ITS OPTION SHALL BE ENTITLED TO HAVE THE CASE TRANSFERRED TO ONE OF THE JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF SUCH TRANSFER CANNOT BE ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED WITHOUT PREJUDICE.

          THE LENDER BY ITS ACCEPTANCE HEREOF AND THE BORROWER HEREBY VOLUNTARILY, KNOWINGLY, AND INTENTIONALLY WAIVE ANY AND ALL RIGHTS TO TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING ARISING UNDER THIS NOTE OR CONCERNING THE INDEBTEDNESS EVIDENCED HEREBY AND/OR ANY COLLATERAL SECURING SUCH INDEBTEDNESS, REGARDLESS OF WHETHER SUCH ACTION OR PROCEEDING CONCERNS ANY CONTRACTUAL OR TORTIOUS OR OTHER CLAIM. THE BORROWER ACKNOWLEDGES THAT THIS WAIVER OF JURY TRIAL IS A MATERIAL INDUCEMENT TO THE LENDER IN EXTENDING CREDIT TO THE BORROWER, THAT THE LENDER WOULD NOT HAVE EXTENDED SUCH CREDIT WITHOUT THIS JURY TRIAL WAIVER, AND THAT THE BORROWER HAS BEEN REPRESENTED BY AN ATTORNEY OR HAS HAD AN OPPORTUNITY TO CONSULT WITH AN ATTORNEY IN CONNECTION WITH THIS JURY TRIAL WAIVER AND UNDERSTANDS THE LEGAL EFFECT OF THIS WAIVER.

          Executed as of the date first above written.

VASCULAR SOLUTIONS, INC.
By:	/s/ James Hennen
Name:		James Hennen
Its:	Chief Financial Officer

3

EX-31.1

EXHIBIT 31.1

CERTIFICATIONS

I, Howard Root, certify that:
1.	I have reviewed this annual report on Form 10-K of Vascular Solutions, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	(a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	(b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	(c)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
	(d)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	February 2, 2010	By:	/s/ Howard Root
			Howard Root
			Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATIONS

I, James Hennen, certify that:
1.	I have reviewed this annual report on Form 10-K of Vascular Solutions, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	(a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	(b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	(c)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
	(d)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	(a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	(b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	February 2, 2010	By:	/s/ James Hennen
			James Hennen
			Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Vascular Solutions, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2009, as filed with the Securities and Exchange Commission (the “Report”), I, Howard Root, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Howard Root

Howard Root

Chief Executive Officer

February 2, 2010

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Vascular Solutions, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2009, as filed with the Securities and Exchange Commission (the “Report”), I, James Hennen, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ James Hennen

James Hennen

Chief Financial Officer

February 2, 2010