-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OwcEy2H+h7ZWe2dqS6Im2MJqYYmEeVyvnwmQQgCxcFvsIJn+q9/po9PhdqASINRw PBhFdsNytCv6aeEo1vuWmw== 0000950131-97-003635.txt : 19970528 0000950131-97-003635.hdr.sgml : 19970528 ACCESSION NUMBER: 0000950131-97-003635 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19970430 FILED AS OF DATE: 19970527 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BIO VASCULAR INC CENTRAL INDEX KEY: 0000780127 STANDARD INDUSTRIAL CLASSIFICATION: ORTHOPEDIC, PROSTHETIC & SURGICAL APPLIANCES & SUPPLIES [3842] IRS NUMBER: 411526554 STATE OF INCORPORATION: MN FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-13907 FILM NUMBER: 97614110 BUSINESS ADDRESS: STREET 1: 2575 UNIVERSITY AVENUE CITY: ST PAUL STATE: MN ZIP: 55114-1024 BUSINESS PHONE: 6126313529 10-Q 1 FORM 10-Q - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 - -------------------------------------------------------------------------------- FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended April 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to --- --- Commission File Number 0-13907 --------------------------------------------------- BIO-VASCULAR, INC. (Exact name of Registrant as specified in its charter) State of Incorporation: Minnesota I.R.S. Employer Identification No.: 41-1526554 Principal Executive Offices: 2575 University Avenue St. Paul, Minnesota 55114 Telephone Number: (612) 603-3700 --------------------------------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- --------------------------------------------------- On May 19, 1997, there were 9,543,394 shares of the Registrant's common stock, par value $.01 per share, outstanding. ITEM 1. FINANCIAL STATEMENTS BIO-VASCULAR, INC. BALANCE SHEETS AS OF APRIL 30, 1997 AND OCTOBER 31, 1996 - -------------------------------------------------------------------------------
ASSETS April 30, October 31, 1997 1997 --------- ----------- (Unaudited) CURRENT ASSETS: Cash and cash equivalents..................................... $ 5,638,409 $ 5,736,650 Marketable securities, short-term............................. 8,694,825 13,761,050 Accounts receivable, net of an allowance for doubtful accounts of $24,500 at April 30, 1997 and $21,400 at October 31, 1996......................................... 1,656,035 1,465,809 Other receivables............................................. 602,255 632,386 Inventories................................................... 1,516,027 1,972,728 Prepaid expenses.............................................. 379,728 284,811 Deferred income taxes......................................... 157,750 914,300 ---------- ---------- Total current assests......................................... 18,645,029 24,767,734 ----------- ----------- Equipment and leasehold improvements, net....................... 1,614,051 1,370,256 Intangible assets, net.......................................... 1,123,366 1,213,600 Marketable securities, long-term................................ 4,219,062 10,173,086 Deferred income taxes........................................... 177,643 182,200 Net assets of discontinued operations........................... -- 174,403 ---------- ---------- TOTAL ASSETS.............................................. $25,779,151 $37,881,279 =========== ===========
(The accompanying notes are an integral part of the interim unaudited financial statements.) 2 BIO-VASCULAR, INC. BALANCE SHEETS AS OF APRIL 30, 1997 AND OCTOBER 31, 1996 - -------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY April 30, October 31, 1997 1996 --------- ----------- (Unaudited) CURRENT LIABILITIES: Accounts payable............................................ $ 383,881 $ 306,376 Accrued expenses............................................ 424,229 554,368 Accrued loss on disposal of discontinued operations......... 204,612 1,800,000 ----------- ----------- Total current liabilities............................... 1,012,722 2,660,744 ----------- ----------- COMMITMENTS AND CONTINGENCY (NOTE 4) SHAREHOLDERS' EQUITY: Common stock: authorized 20,000,000 shares of $.01 Par value issued and outstanding, 9,543,394 at April 30, 1997 and 9,484,898 at October 31, 1996........... 95,434 94,849 Additional paid-in capital.................................. 29,546,360 39,500,239 Accumulated deficit......................................... (4,536,665) (3,838,537) Unrealized marketable securities holding loss............... (61,495) (51,107) Unearned compensation....................................... (277,205) (484,909) ----------- ----------- Total shareholders' equity.................................... 24,766,429 35,220,535 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................... $25,779,151 $37,881,279 =========== ===========
(The accompanying notes are an integral part of the interim unaudited financial statements.) 3 BIO-VASCULAR, INC. STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED APRIL 30, 1997 AND 1996 - --------------------------------------------------------------------------------
Three Months Ended Six Months Ended April 30, April 30, (unaudited) (unaudited) 1997 1996 1997 1996 ---- ---- ---- ---- Net Revenue............................................... $2,481,038 $2,493,696 $4,806,479 $5,330,421 Cost of Revenue........................................... 1,017,955 715,785 2,021,994 1,518,076 ---------- ---------- ---------- ---------- Gross margin............................................ 1,463,083 1,777,911 2,784,485 3,812,345 Operating Expenses: Selling, general, and administrative.................... 1,336,616 1,500,282 2,512,796 2,729,098 Research and development................................ 249,203 202,641 462,887 416,474 ---------- ---------- ---------- ---------- Income (loss) from operations............................. (122,736) 74,988 (191,198) 666,773 Other income, net......................................... 294,050 291,636 576,070 564,879 ---------- ---------- ---------- ---------- Income from continuing operations before income taxes..... 171,314 366,624 384,872 1,231,652 Provision for income taxes................................ 74,000 104,000 163,000 445,000 ---------- ---------- ---------- ---------- Income from continuing operations......................... 97,314 262,624 221,872 786,652 Loss from discontinued operations, net of income taxes.... (920,000) (286,979) (920,000) (605,615) ---------- ---------- ---------- ---------- Net income (loss)......................................... $ (822,686) $ (24,355) $ (698,128) $ 181,037 ========== ========== ========== ========== Per share amounts Continuing operations................................... 0.01 0.03 0.02 0.08 Discontinued operations................................. (0.10) (0.03) (0.10) (0.06) ---------- ---------- ---------- ---------- Net income (loss)....................................... $ (0.09) $ 0.00 $ (0.07) $ 0.02 ========== ========== ========== ========== Weighted average shares outstanding....................... 9,511,000 9,439,000 9,501,000 9,903,000 ========== ========== ========== ==========
(The accompanying notes are an integral part of the interim unaudited financial statements.) 4 BIO-VASCULAR, INC. STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED APRIL 30, 1997 AND 1996 - --------------------------------------------------------------------------------
Six Months Ended April 30 (unaudited) 1997 1996 ---- ---- NET CASH PROVIDED BY CONTINUING OPERATIONS............................................... $ 273,253 $ 258,960 NET CASH USED IN DISCONTINUED OPERATIONS................................................. -- (591,760) ----------- ------------ NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES...................................... 273,253 (332,800) ----------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Disposition of equipment................................................................. 10,000 -- Purchases of equipment and improvements.................................................. (435,583) (229,663) Additions to intangibles................................................................. (32,845) (512,773) Investments in marketable securities..................................................... (3,000,000) (10,034,938) Maturities of marketable securities...................................................... 6,000,000 3,000,000 Cash investment in discontinued subsidiary............................................... (3,733,489) -- Discontinued operations, net............................................................. 586,677 (182,800) ----------- ------------ Net cash used in investing activities.................................................... (605,240) (7,960,174) ----------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Costs related to sale of stock........................................................... -- (87,327) Proceeds related to the exercise of stock options, net of restricted stock repurchased... 233,746 324,480 ----------- ------------ Net cash provided by financing activities................................................ 233,746 237,153 ----------- ------------ NET DECREASE IN CASH AND CASH EQUIVALENTS................................................ (98,241) (8,055,821) ----------- ------------ CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD......................................... 5,736,650 15,424,969 ----------- ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD............................................... $ 5,638,409 $ 7,369,148 =========== ============
(The accompanying notes are an integral part of the interim unaudited financial statements.) 5 BIO-VASCULAR, INC. NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- (1) BASIS OF PRESENTATION: The accompanying unaudited financial statements of Bio-Vascular ("Bio-Vascular" or "the Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary, including items of a normal recurring nature, for a fair presentation have been included. Operating results for the six months ended April 30, 1997 are not necessarily indicative of the results that may be expected for the year ending October 31, 1997. For further information, refer to the financial statements and footnotes thereto included in the Company's Annual Report to Shareholders and in Form 10-K for the year ended October 31, 1996. (2) DISCONTINUED OPERATIONS: On October 28, 1996, the Bio-Vascular Board of Directors approved the spin-off ("the Distribution") of Vital Images, Inc. ("Vital Images") to the shareholders of Bio-Vascular. On May 12, 1997, the Company distributed all of the shares of Vital Images to Bio-Vascular shareholders and on that date Vital Images began operating as an independent public company. All Bio-Vascular shareholders of record as of May 5, 1997 received one share of Vital Images common stock for each two shares of Bio-Vascular stock held on that date. Cash will be issued in lieu of fractional shares. The Company has attempted to structure the transaction as tax-free, but since no revenue ruling will be sought, no assurance can be made about the final tax treatment of the transaction. In anticipation of the Distribution, Bio-Vascular assigned to Vital Images, $10,000,000 in cash, cash equivalents and marketable securities, effective November 1, 1996. At the date of Distribution, Bio-Vascular contributed to Vital Images an additional $1,845,000 of cash equivalents, bringing Vital Images cash, cash equivalents and marketable securities balances on that date, again to $10,000,000. Additionally, Bio-Vascular made capital contributions to Vital Images of $3,079,000 representing net advances of cash made to Vital Images over the period beginning May 24, 1994, the date on which Vital Images was acquired by the Company, and ending May 11, 1997, the last date on which Vital Images was a part of the Company. The accompanying unaudited financial statements of the Company as of April 30, 1997 reflect all of these transactions. The Company recorded the distribution of Vital Images common stock to its shareholders as of March 19, 1997, the date the Board of Directors of the Company gave final approval for the transaction. The distribution was recorded by reducing shareholders' equity by $10,183,000, which represents the $10 million contribution and the carrying value of Vital Images' net assets. The accompanying unaudited financial statements of the Company as of April 30, 1997 reflect all of these transactions. As a result of the Company's spin-off of Vital Images, the Company's financial statements and notes report Vital Images as discontinued operations. Prior years' financial statements and notes have been restated accordingly. Net revenue of the discontinued business for the three and six months ended April 30, 1996 was $293,000 and $435,000, respectively. Because an additional six weeks were required to complete the spin-off, the 6 BIO-VASCULAR, INC. NOTES TO FINANCIAL STATEMENTS--CONTINUED - -------------------------------------------------------------------------------- Company reported an additional loss on discontinued operations of $920,000. This amount relates entirely to Vital Images' net losses and spin-off related costs that exceeded those estimated and accrued on October 31, 1996, the end of the previous fiscal year. (3) SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION:
April 30, October 31, 1997 1996 ---------- ----------- Inventories: Raw materials and supplies.................. $ 461,763 $ 511,683 Work-in-process............................. 389,260 544,278 Finished goods.............................. 665,004 916,767 ---------- ---------- $1,516,027 $1,972,728 ========== ==========
Condensed Statements of Cash Flows: During the six months ended April 30, 1997, the Company contributed approximately $8,000,000 of marketable securities to Vital Images, along with cash and cash equivalents of approximately $3,733,000 and related accrued interest receivable. (4) CONTINGENCY: In late 1996, the Company received notice of a suit brought against it in Japan by a former Japanese distributor, claiming wrongful termination and economic damage of $500,000. The Company believes the claim to be completely without merit and intends to pursue this matter vigorously. (5) MAJOR CUSTOMERS:
Percentage Significant Gross Percentage of of Accounts Customer Sales Gross Sales Receivable -------- ----- ----------- ---------- Period ended April 30, 1997...... Futuretech $1,014,066 20% 17% Life Systems 749,084 15% 14% CardioMedical 507,300 10% 11% Pacific West 364,425 7% 10% Period ended April 30, 1996...... Futuretech $ 982,693 17% 11% Life Systems 837,823 15% 18% CardioMedical 629,082 11% 11%
7 BIO-VASCULAR, INC. NOTES TO FINANCIAL STATEMENTS--CONTINUED - -------------------------------------------------------------------------------- Net export sales amounted to 22%, and 21% for the six month period ended April 30, 1997 and 1996, respectively. Substantially all of the Company's export sales are negotiated, invoiced and paid in U.S. dollars. Gross export sales by geographic area are summarized as follows:
Six Months Ended April 30, 1997 1996 ---- ---- Europe and Middle East................................. $650,966 $719,023 Asia and Pacific Region................................ 337,057 312,150 Canada................................................. 99,080 122,639 Latin America and Others............................... 6,461 30,516
8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The Spin-off of Vital Images On October 28, 1996, the Bio-Vascular Board of Directors approved the spin-off ("the Distribution") of Vital Images, Inc. ("Vital Images") to the shareholders of Bio-Vascular, believing that strategically and financially, the timing and circumstances were right to separate the Company's Surgical and Medical Visualization Businesses for the long-term benefit of the shareholders. Both organizations, it is believed, will benefit from a tighter focus on their respective markets, will be able to invest in research and development at levels appropriate to their respective stages of development and will be able to evolve unique organizational and marketing structures to better serve their substantially different markets. On May 12, 1997, the Company distributed all of the shares of Vital Images to shareholders of Bio-Vascular and on that date, Vital Images began operating as an independent public company. Vital Images is currently traded on the OTC Bulletin Board under the symbol VTAL. All Bio-Vascular shareholders of record as of May 5, 1997 received one share of Vital Images common stock for each two shares of Bio-Vascular stock held on that date. Cash will be issued in lieu of fractional shares. As a result of the Company's spin-off of Vital Images, the Company's financial statements and notes thereto report the business of Vital Images as discontinued operations. Based on the Company's original estimate that the Distribution would be effective on or about March 31, 1997, the Company recorded a Loss on Disposal at October 31, 1996 of $1,348,000, which included estimates of Vital Images net losses from November 1, 1996 through March 31, 1997, along with the estimated transaction costs related to the spin-off, net of an estimated tax benefit. Because an additional six weeks were required to complete the spin-off, the Company reported an additional loss on discontinued operations of $920,000. This amount relates entirely to Vital Images' net losses and spin-off related costs that exceeded those estimated and accrued on October 31, 1996, the end of the previous fiscal year. The Company's continuing business develops, manufactures and markets proprietary specialty medical products for use in thoracic, cardiac, neuro and vascular surgery. Medicare Non-Coverage Decision The Health Care Financing Administration ("HCFA"), the agency of the Federal Government that administers Medicare, made a non-coverage decision for lung volume reduction surgery ("LVRS"), a surgical treatment for late-stage emphysema, that was effective January 1, 1996. This decision significantly impacted the Company's revenue from sales of Peri-Strips. Peri-Strips, which were cleared to market by the Food and Drug Administration in April of 1994, are used to enable LVRS. At the time that this non-coverage decision was put into effect, the Company estimates that approximately 70% of the patients undergoing LVRS were Medicare patients. There has been no Medicare reimbursement for this procedure since the January 1, 1996 effective date of the non-coverage decision. While the Company understands that several private insurance companies and managed care organizations are currently reimbursing LVRS based 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--CONTINUED - -------------------------------------------------------------------------------- on their own evaluation of the procedure and its outcomes, it is unknown whether these private payers will change their reimbursement practices in the future. The National Institute of Health (NIH), in collaboration with HCFA, has outlined and is in the process of organizing a seven year, prospective, randomized study of LVRS to determine whether it is safe and efficacious. The study, as it is currently designed, is limited to 2,580 patients, of which 1,380 would be eligible to have the LVRS procedure. Members of Congress, responding to the concerns of their constituents and supported by a significant number of favorable peer-reviewed published medical articles bearing out the safety and efficacy of LVRS, are questioning HCFA's study as it is currently planned. Because HCFA and NIH appear intent on proceeding with the study, no assumption can be made as to whether the efforts of Congress or the mounting evidence regarding the benefits of this procedure will cause them to alter the study. The Company, however, continues to work for restoration of coverage of LVRS for Medicare dependent patients. Results of Continuing Operations Comparison of the Three Months Ended April 30, 1997 with the Three Months Ended April 30, 1996 Net revenue was essentially flat at $2,481,000 for the 1997 quarter compared to $2,494,000 for the 1996 quarter, primarily as a result of the decrease in revenue from Peri-Strips. Peri-Strips revenue decreased $152,000, or 16% to $780,000 in the 1997 quarter from $932,000 in the 1996 quarter, however, Peri- Strips revenue increased slightly over the 1997 first quarter level of $762,000. The Company believes that the higher Peri-Strip revenue in the second quarter of 1996 was largely due to the number of cases being performed at no charge for selected Medicare patients that were awaiting LVRS when HCFA made its non- coverage decision. Revenue from sales of other Tissue-Guard products, Dura- Guard, Vascu-Guard, Supple Peri-Guard and Peri-Guard, increased $117,000, or 14% to $946,000 from $829,000. Growing market share for the Dura-Guard and Vascu- Guard products were responsible for the increase. Biograft revenue decreased by $18,000, or 8%, comparing the 1997 and 1996 quarters, continuing a trend representative of the late stage of this product's life cycle. Revenue from sales of surgical productivity tools (Flo-Rester and the Bio- Vascular Probe) increased $39,000, or 8% to $543,000 from $504,000. The Company believes that the growth in revenue, which is attributable to Flo-Rester, is due to its use in minimally invasive coronary bypass surgery, a procedure which is increasing. The gross margin percentage was 59% in the 1997 quarter and 71% in the 1996 quarter. During fiscal 1996, the gross margin percentages declined through the quarters, primarily due to decreases in the production volume in response to decreases in expected demand for Peri-Strips as a result of the HCFA decision. The gross margin percentage was 62% by the fourth quarter of 1996 and was 57% in the first quarter of 1997. It is expected that the gross margin percentage will increase slightly during the year from the first quarter 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--CONTINUED - -------------------------------------------------------------------------------- level due to anticipated increases in production volume. This forward-looking statement will be influenced primarily by the accuracy of the Company's current estimates of production volume for 1997, and would be impacted by significant increases or decreases in actual production volume as compared to the estimate, by material changes in the Company's product mix and by the accuracy of the Company's estimates of standard costs. Selling, general and administrative expense decreased $164,000, or 11% to $1,337,000 from $1,500,000. The decrease is primarily due to the management of discretionary expenses. General and administrative expense decreased $136,000, or 16%, while selling expense decreased $28,000, or 4%. Research and development ("R&D") expense increased $47,000, or 23% to $249,000 from $203,000 in the 1996 quarter. The Company has several projects under development and R&D expense is expected to increase as these projects progress. This forward-looking statement will be influenced primarily by the number of projects, the related R&D personnel requirements, the development path of each project, the expected costs, and the timing of these costs. Primarily due to lower gross margins, continuing operations had an operating loss in the 1997 quarter of $123,000 compared to operating income from continuing operations of $75,000 in the 1996 quarter. Other income, primarily interest income, was $294,000 and $292,000 in the 1997 and 1996 quarters, respectively. As a result, continuing operations had income before income taxes in the 1997 and 1996 quarters of $171,000 and $367,000, respectively. The Company recorded a provision for income taxes of $74,000 for the 1997 quarter, which is based on the Company's estimate of its annual effective rate for fiscal 1997. In the 1996 quarter, the Company allocated its provision for income taxes to continuing and discontinued operations based on their respective pretax income contribution and tax attributes. As a result, the amount of the provision allocated to continuing operations in the 1996 quarter was $104,000. Income from continuing operations was $97,000, or $0.01 per share for the 1997 quarter, and $263,000, or $0.03 per share for the 1996 quarter. The loss from discontinued operations in the 1997 quarter was $920,000, or $0.10 per share, resulting in a net loss for the 1997 quarter of $823,000, or $0.09 per share. The loss from discontinued operations in the 1996 quarter was $287,000, or $0.03 per share, resulting in a net loss for the 1996 quarter of $24,000, or no cents per share. Comparison of the Six Months Ended April 30, 1997 with the Six Months Ended April 30, 1996 Net revenue decreased $524,000, or 10% to $4,806,000 from $5,330,000, primarily as a result of the decrease in revenue from Peri-Strips. Peri-Strips revenue decreased $898,000, or 37% to $1,542,000 from $2,440,000. The decrease in revenue from Peri-Strips is primarily due to the Medicare LVRS non-coverage decision which affects all of the 1997 period and only part of the 1996 period. Revenue from sales of other 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--CONTINUED - -------------------------------------------------------------------------------- Tissue-Guard products, Dura-Guard, Vascu-Guard, Supple Peri-Guard and Peri- Guard, increased $345,000, or 25% to $1,748,000 from $1,403,000, primarily due to increases in revenue from the sales of Dura-Guard and Vascu-Guard, arising from market share gains. Biograft revenue decreased by $92,000, or 18%, comparing the first halves of 1997 and 1996, continuing a trend representative of the late stage of this product's life cycle. Revenue from sales of surgical productivity tools (Flo-Rester and the Bio- Vascular Probe) increased $119,000, or 12% to $1,099,000 from $980,000, with the majority of the increase in revenue from sales of Flo-Rester. The Company believes that the growth in revenue from Flo-Rester is due to its use in minimally invasive coronary bypass surgery, a procedure which is increasing. The gross margin percentage was 58% in 1997 and 72% in 1996. In fiscal 1996, the gross margin percentages declined through the quarters, primarily due to decreases in the production volume in response to decreases in expected demand for Peri-Strips as a result of the HCFA decision. The gross margin percentage was 62% by the fourth quarter of 1996, 57% in the first quarter of 1997, and 59% in the second quarter of 1997. It is expected that the gross margin percentage will continue to increase slightly during the year from the first quarter level due to anticipated increases in production volume. This forward-looking statement will be influenced primarily by the accuracy of the Company's current estimates of production volume for 1997, and would be impacted by significant increases or decreases in actual production volume as compared to the estimate, by material changes in the Company's product mix and by the accuracy of the Company's estimates of standard costs. Selling, general and administrative expense decreased $216,000, or 8% to $2,513,000 from $2,729,000. The decrease is primarily due to the management of discretionary expenses. General and administrative expense decreased $107,000, or 7%, while selling expense decreased $109,000, or 9%. R&D expense increased $46,000, or 11% to $463,000 from $416,000. The Company has several projects under development and R&D expense is expected to increase as these projects progress. This forward-looking statement will be influenced primarily by the number of projects, the related R&D personnel requirements, the development path of each project, the expected costs, and the timing of these costs. Primarily due to the decrease in revenue from Peri-Strips, compounded by lower gross margins, continuing operations had an operating loss in the first six months of 1997 of $191,000 compared to operating income from continuing operations of $667,000 in the first six months of 1996. Other income, primarily interest income, was $576,000 and $565,000 in the 1997 and 1996 quarters, respectively. As a result, continuing operations had income before income taxes in the 1997 and 1996 quarters of $384,000 and $1,232,000, respectively. The Company's recorded provision for income taxes for the first half of 1997 is $163,000 and is based on the Company's estimate of its annual effective rate for fiscal 1997. In the first half of 1996, the Company allocated its provision for income taxes to continuing and discontinued operations based on their respective pretax income contribution and tax attributes. As a result, the amount of the provision allocated to 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--CONTINUED - -------------------------------------------------------------------------------- continuing operations in the first half of 1996 quarter was $445,000. Income from continuing operations was $222,000, or $0.02 for 1997 and $787,000, or $0.08 per share for 1996. The loss from discontinued operations for 1997 was $920,000, or $0.10 per share, resulting in a net loss for 1997 of $698,000, or $0.07 per share (difference due to rounding). The loss from discontinued operations in 1996 was $606,000, or $0.06 per share, resulting in net income for 1996 of $181,000, or $0.02 per share. Liquidity and Capital Resources In anticipation of the Distribution, Bio-Vascular assigned to Vital Images, $10,000,000 in cash, cash equivalents and marketable securities, effective November 1, 1996. At the date of Distribution, May 12, 1997, Bio-Vascular contributed an additional $1,845,000, bringing Vital Images' cash, cash equivalents and marketable securities balances on that date, again to $10,000,000. Additionally, Bio-Vascular made capital contributions of $3,079,000 representing net advances of cash made to Vital Images over the period beginning May 24, 1994, the date on which Vital Images was acquired by the Company, to May 11, 1997, the last date on which Vital Images was a part of the Company. These transactions are all included in the April 30, 1997 financial statements of Bio- Vascular. At April 30, 1997, after accounting for all the transactions of the Distribution, the Company has cash, cash equivalents and marketable securities totaling $18,553,000. At April 30, 1997, working capital was $17,632,000 and the current ratio is 18 to 1. Operating activities provided $276,000. The Company invested $436,000 in equipment and leasehold improvements primarily related to new manufacturing processes related to both an existing and a new product. Financing activities provided $234,000 and represents stock option exercises, net of restricted stock repurchased and a tax benefit associated with the option exercises. Finally, the Company made the final investment in Vital Images, using $1,845,000 to bring their cash balances to $10,000,000 at the date of Distribution. Historically, the cash needs of the Company have been met by cash generated from operations and investments. The Company believes its cash, cash equivalents and marketable securities of $18,552,000, which is fully adjusted for the Distribution, along with cash provided by continuing operations, will be sufficient to satisfy its cash requirements for the foreseeable future. New Accounting Standard In February 1997, Statement of Financial Accounting Standards No. 128 (SFAS No. 128), Earnings per Share (EPS) was issued by the Financial Accounting Standards Board. This standard, which the Company must adopt effective with its first quarter of fiscal 1998, requires dual presentation of basic and diluted EPS on the face of the statement of operations. Net income per common share currently presented by the Company is comparable to the basic EPS required under SFAS 128. Diluted EPS for the Company would be calculated 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--CONTINUED - -------------------------------------------------------------------------------- based on both common shares outstanding and consideration of the dilutive effects of common stock equivalents. Certain Important Factors This Form 10-Q contains certain forward-looking statements. For this purpose, any statements contained in this Form 10-Q that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as "may", "will", "expect", "believe", "anticipate", "estimate", or "continue" or comparable terminology are intended forward-looking statements. These statements by their nature involve substantial risks and uncertainties, and actual results may differ materially depending on a variety of factors, including the availability of third party reimbursement, the extent to which the Company's products gain market acceptance, litigation regarding patent and other intellectual property rights, the introduction of competitive products by others, the progress of product development and clinical studies, and the receipt and timing of regulatory approvals, among others. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. 14 - -------------------------------------------------------------------------------- PART II. OTHER INFORMATION - -------------------------------------------------------------------------------- ITEM 1. LEGAL PROCEEDINGS None. ITEM 2. CHANGES IN SECURITIES None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The following is a report of the voting results of the Company's annual shareholders meeting held on March 19, 1997. 1. Proposal to elect six directors was approved. John T. Karcanes, James F. Lyons, Richard W. Perkins, Edward E. Strickland, Timothy M. Scanlan and Anton R. Potami were elected until the next annual meeting of shareholders or until their successors are duly elected and qualified. There were no broker non-votes. The tabulation was as follows:
Director Votes For Votes Against -------- --------- ------------- John T. Karcanes 8,766,185 54,373 James F. Lyons 8,764,125 56,430 Richard W. Perkins 8,764,108 56,447 Anton R. Potami 8,763,952 56,603 Timothy M. Scanlan 8,764,632 55,923 Edward E. Strickland 8,761,955 58,600
2. Proposal to amend the Corporation's Restated Articles of Incorporation, as amended, to create a class of Preferred Stock, issuable in series, was approved. There were 3,471,740 votes cast in favor and 1,036,122 votes cast against the proposal, with 62,225 shares abstaining. There were 4,250,468 broker non-votes, which were treated as shares not entitled to vote on the proposal. 15 ITEM 5. OTHER INFORMATION Effective as of May 12, 1997 (the "Distribution Date") the Company completed the spin-off distribution (the "Distribution") of all of the issued and outstanding shares of common stock, $.01 par value per share, together with certain preferred stock purchase rights attached thereto ("Vital Images Common Stock"), of Vital Images, Inc. ("Vital Images"). Prior to the Distribution, Vital Images was a wholly-owned subsidiary of the Company engaged in the Company's Medical Visualization Business. The Distribution was made to holders of record of the Company's common stock, $.01 par value per share ("Bio-Vascular Common Stock"), as of May 5, 1997, on the basis of one share of Vital Images Common Stock for each two shares of Bio- Vascular Common Stock held as of that date. No holder of Bio-Vascular Common Stock was required to pay any cash or other consideration for the shares of Vital Images Common Stock received in the Distribution, to surrender or exchange any shares of Bio-Vascular Common Stock, or to take any other action in order to receive the shares of Vital Images Common Stock to which they were entitled in the Distribution. No certificates or scrip representing fractional shares of Vital Images Common Stock were issued to the Company's shareholders in the Distribution. Pursuant to an agreement among the Company, Vital Images and American Stock Transfer & Trust Company as distribution agent (the "Distribution Agent") the Distribution Agent was directed to aggregate all fractional shares of Vital Images Common Stock otherwise issuable in the Distribution into whole shares and sell them in the open market at then-prevailing prices on behalf of shareholders who would have otherwise been entitled to receive such fractional share interests. Cash payments in the amount of the pro rata share of such total sale proceeds, net of any commissions incurred in connection with such sales, will be made in lieu of such fractional interests. In anticipation of the Distribution, the Company agreed to assign to Vital Images $10,000,000 in cash, cash equivalents and marketable securities, effective November 1, 1996. Subsequently, the Company's Board of Directors determined, effective as of the Distribution Date, to make such additional capital contributions to Vital Images as necessary to bring Vital Images' cash, cash equivalents and marketable securities balances to a combined $10,000,000, resulting in an additional $1,845,000 contribution by Bio-Vascular as of that date. Upon completion of the Distribution, Vital Images became an independent public company, separate from the Company. However, in order to provide for an orderly transition of Vital Images to an independent company, the Company and Vital Images entered into certain agreements regarding corporate matters relating to the Distribution, transition services to be provided to Vital Images by the Company for a limited period following the Distribution, employee benefit matters and tax and indemnification matters. Each of these agreements is intended to set forth, on an arms-length basis, the agreement of the parties with respect to the subject matter thereof. Following the Distribution, the Company and Vital Images have separate management and Boards of Directors. Two individuals, Messrs. Richard W. Perkins and Edward E. Strickland, currently serve as directors of both the Company and Vital Images, although it is expected that Mr. Perkins will only serve as a director of Vital Images for a transitional period of approximately 12 to 18 months and will not seek reelection as a director of Vital Images thereafter. 16 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. The exhibits to this quarterly report on Form 10-Q are listed in the exhibit index beginning on page 19. (b) Form 8-K. No reports on Form 8-K were filed by the Company during the quarter ended April 30, 1997. 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BIO-VASCULAR, INC. May 27, 1997 /s/ M. Karen Gilles ----------------------------- M. Karen Gilles Vice President of Finance and Chief Financial Officer (Principal Financial Officer) 18 BIO-VASCULAR, INC. INDEX TO EXHIBITS - ------------------------------------------------------------------------------- 3.1 Restated Articles of Incorporation of the Company, as amended (filed herewith electronically). 3.2 Amendment to Restated Articles of Incorporation, as amended, dated March 20, 1997 (filed herewith electronically). 4.1 Restated Articles of Incorporation of the Company, as amended (see Exhibit 3.1). 4.2 Amendment to Restated Articles of Incorporation, as amended, dated March 20, 1997 (see Exhibit 3.2). 10.1 1988 Stock Option Plan, as amended (filed herewith electronically). 10.2 1995 Stock Incentive Plan, as amended (filed herewith electronically). 11.1 Computation of income (loss) per share (filed herewith electronically). 27.1 Financial Data Schedule for the three month period ended April 30, 1997 (filed herewith electronically). 27.2 Restated Financial Data Schedule for the three month period ended April 30, 1996 (filed herewith electronically). EX-3.1 2 RESTATED ARTICLES OF INCORPORATION Exhibit 3.1 COMPOSITE COPY REFLECTING AMENDMENTS FILED JUNE 21, 1995, AUGUST 12, 1996 AND MARCH 20, 1997 RESTATED ARTICLES OF INCORPORATION OF BIO-VASCULAR, INC. ARTICLE 1 - NAME ---------------- 1.1 The name of the corporation shall be Bio-Vascular, Inc. ARTICLE 2 - REGISTERED OFFICE ----------------------------- 2.1 The location and office address of the registered office of the corporation in this state shall be 2575 University Avenue, St. Paul, Minnesota 55114-1024. ARTICLE 3 - CAPITAL STOCK ------------------------- 3.1 Authorized Shares. The aggregate number of shares of stock which the corporation shall have authority to issue is twenty-five million (25,000,000) shares, twenty million (20,000,000) of which shall be designated common stock, $0.01 par value (hereinafter referred to as "Common Stock") and five million (5,000,000) of which shall be designated preferred stock, $0.01 par value (hereinafter referred to as "Preferred Stock"). The Board of Directors is authorized to establish, from the authorized shares of Preferred Stock, one or more classes or series of shares, to designate each such class and series, and to fix the rights and preferences of each such class and series. Without limiting the authority of the Board of Directors granted hereby, each such class or series of Preferred Stock shall have such voting powers, full or limited, or no voting powers, such preferences and relative, participating, optional or other special rights, and such qualifications, limitations or restrictions as shall be stated and expressed in the resolution or resolutions providing for the issue of such class or series of Preferred Stock as may be adopted from time to time by the Board of Directors prior to the issuance of any shares thereof. Except as provided in the resolution or resolutions of the Board of Directors creating any class or series of Preferred Stock, the shares of Common Stock shall have the 1 exclusive right to vote for the election and removal of directors and for all other purposes. Each holder of Common Stock shall be entitled to one vote for each share held. 3.2 Issuance of Shares. The Board of Directors of the corporation is authorized from time to time to accept subscription for, issue, sell and deliver shares of stock of any class or series of the corporation, and rights to purchase any such shares of the corporation, to such persons, at such time, for such consideration, and upon such terms and conditions as the Board shall determine. ARTICLE 4 - RIGHTS OF SHAREHOLDERS ---------------------------------- 4.1 No Pre-emptive Rights. No shareholder of the corporation shall have any pre-emptive right to subscribe for, purchase or acquire any shares of stock of any class or series of the corporation now or hereafter authorized or issued. 4.2 No Cumulative Voting Rights. No shareholder shall have the right to cumulate votes for the election of directors. ARTICLE 5 - WRITTEN ACTION BY DIRECTORS --------------------------------------- 5.1 Any action required or permitted to be taken at a Board meeting may be taken by written action signed by all of the directors or, in cases where the action need not be approved by the shareholders, by written action signed by the number of directors that would be required to take the same action at a meeting of the Board at which all directors were present. ARTICLE 6 - MERGER, EXCHANGE, SALE OF ASSETS AND DISSOLUTION 6.1 Where approval of shareholders is required by law, the affirmative vote of the holders of at least a majority of the voting power of all shares entitled to vote shall be required to authorize the corporation (i) to merge into or with one or more other corporations, (ii) to exchange its shares for shares of one or more other corporations, (iii) to sell, lease, transfer or otherwise dispose of all or substantially all of its property and assets, including its good will, or (iv) to commence voluntary dissolution. 2 ARTICLE 7 - AMENDMENT OF ARTICLES OF INCORPORATION -------------------------------------------------- 7.1 Any provision contained in these Articles of Incorporation may be amended, altered, changed or repealed by the affirmative vote of the holders of at least a majority of the voting power of the shares present and entitled to vote at a duly held meeting or such greater percentage as may be otherwise prescribed by the laws of the State of Minnesota. 3 EX-3.2 3 AMENDMENT TO RESTATED ARTICLES OF INCORPORATION Exhibit 3.2 AMENDMENT TO ARTICLES OF INCORPORATION OF BIO-VASCULAR, INC. Filed March 20, 1997 -------------------- RESOLVED, that Article 3.1 of the Company's Restated Articles of Incorporation, as amended, is hereby amended in its entirety to read as follows: 3.1 Authorized Shares. The aggregate number of shares of stock which the corporation shall have authority to issue is twenty-five million (25,000,000) shares, twenty million (20,000,000) of which shall be designated common stock, $0.01 par value (hereinafter referred to as "Common Stock") and five million (5,000,000) of which shall be designated preferred stock, $0.01 par value (hereinafter referred to as "Preferred Stock"). The Board of Directors is authorized to establish, from the authorized shares of Preferred Stock, one or more classes or series of shares, to designate each such class and series, and to fix the rights and preferences of each such class and series. Without limiting the authority of the Board of Directors granted hereby, each such class or series of Preferred Stock shall have such voting powers, full or limited, or no voting powers, such preferences and relative, participating, optional or other special rights, and such qualifications, limitations or restrictions as shall be stated and expressed in the resolution or resolutions providing for the issue of such class or series of Preferred Stock as may be adopted from time to time by the Board of Directors prior to the issuance of any shares thereof. Except as provided in the resolution or resolutions of the Board of Directors creating any class or series of Preferred Stock, the shares of Common Stock shall have the exclusive right to vote for the election and removal of directors and for all other purposes. Each holder of Common Stock shall be entitled to one vote for each share held. RESOLVED FURTHER, that, appropriate officers of the Company are hereby authorized and directed to make, execute, acknowledge and file such certificates and documents as may be required by law with respect to the foregoing resolution. EX-10.1 4 1988 STOCK OPTION PLAN, AS AMENDED BIO-VASCULAR, INC. 1988 STOCK OPTION PLAN (As amended as of March 19, 1997) 1. PURPOSE The purpose of this 1988 Stock Option Plan (the "Plan") is to promote the interests of Bio-Vascular Inc., a Minnesota corporation (the "Company"), by providing employees of the Company with an opportunity to acquire a proprietary interest in the Company, and thereby develop a stronger incentive to contribute to the Company's continued success and growth. In addition, the opportunity to acquire a proprietary interest in the Company by the offering and availability of stock options will assist the Company in attracting and retaining key personnel of outstanding ability. In connection with the Company's distribution of all of the outstanding shares of the common stock of Vital Images, Inc. ("Vital Images") (the "Spin-Off"), certain amendments to the Plan have been effected in order to allow awards under the Plan made to Vital Images employees to continue following the effective date of the Spin-Off. 2. DEFINITIONS Wherever used in the Plan, the following terms have the meanings set forth below: 2.1. "Board" means the Board of Directors of the Company. 2.2. "Code" means the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder. 2.3. "Committee" means the Committee which may be designated from time to time by the Board pursuant to Section 3.5 of the Plan. 2.4. "Employer" means the Company if the Participant renders employment or other services to the Company or any Subsidiary of the Company, and means Vital Images if the Participant renders employment or other services to Vital Images or any Subsidiary of Vital Images. 2.5. "Incentive Stock Option" or "ISO" means a stock option which is intended to qualify as an incentive stock option as defined in Section 422A of the Code. 2.6. "Non-Statutory Stock Option" or "NSO" means a stock option to purchase stock that does not qualify as an incentive stock option as defined in Section 422A of the Code. 2.7. "Option" means, where required by the context of the Plan, an ISO and/or NSO granted pursuant to the Plan. 2.8. "Optionee" means a Participant in the Plan who has been granted one or more Options under the Plan. 2.9. "Participant" means an individual described in Section 5 of this Plan who may be granted Options under the Plan. 2.10. "Stock" means the Common Stock, $.01 par value, of the Company. 2.11. "Subsidiary" means (i) when used in reference to the Company, any corporation or entity, other than the Company, in an unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation or entity in the unbroken chain owns 50% or more of the voting stock in one of the other corporations or entities in such chain or (ii) when used in reference to Vital Images, any corporation or entity, other than Vital Images, in an unbroken chain of corporations beginning with Vital Images if each of the corporations or entities other than the last corporation or entity in the unbroken chain owns 50% or more of the voting stock in one of the other corporations or entities in such chain. 2.12. "Vital Images Committee" means the group of individuals administering the Vital Images, Inc. Incentive Stock Option Adjustment Plan. 3. ADMINISTRATION 3.1. The Plan shall be administered by the Board, which shall have full power, subject to the provisions of the Plan, to grant Options, construe and interpret the Plan, establish rules and regulations with respect to the Plan and Options granted hereunder, and perform all other acts, including the delegation of administrative responsibilities, that it believes reasonable and necessary. 3.2. The Board shall have the sole discretion, subject to the provisions of the Plan, to determine the Participants eligible to receive Options pursuant to the Plan and the amount, type, and terms of any Options and the terms and conditions of option agreements relating to any Option. 3.3. The Board may correct any defect, supply any omission, or reconcile any inconsistency in the Plan or in any Option granted hereunder in the manner and to the extent it shall deem necessary to carry out the terms of the Plan. 3.4. Any decision made, or action taken, by the Board arising out of or in connection with the interpretation and administration of the Plan shall be final, conclusive and binding upon Optionee. 3.5. The Board may designate a Committee from time to time to administer the Plan. If designated, the Committee shall be composed of not less than three persons (who shall be members of the Board) who are appointed from time to time by the Board. If the Board has appointed a Committee pursuant to this Section 3.5, then the 2 Committee pursuant to this Section 3.5, then the Committee may administer the Plan and exercise all of the rights and powers granted to the Board in this Plan, including without limitation the right to grant Options pursuant to the Plan and to establish the Option price as provided in the Plan. 3.6. The Committee and the Vital Images Committee will reasonably cooperate with each other to promote the purposes of the Plan. 4. SHARES SUBJECT TO THE PLAN 4.1. Number. The total number of shares of Stock reserved for issuance upon exercise of Options under the Plan is 850,000. Such shares shall consist of authorized but unissued Stock. If any Option granted under the Plan lapses or terminates for any reason before being completely exercised, the shares covered by the unexercised portion of such Option may again be made subject to Options under the Plan. 4.2. Changes in Capitalization. Subject to the provisions of paragraphs 4.2(a-c), in the event of any change in the outstanding shares of Stock of the Company by reason of any stock dividend, split, recapitalization, reorganization, merger, consolidation, combination, exchange of shares, or rights offering to purchase stock at a price substantially below fair market value, or other similar corporate change, the aggregate number of shares which may be subject to Options under the Plan and the terms of any outstanding Option, including the number and kind of shares subject to such Options and the purchase price per share thereof, shall be appropriately adjusted by the Board, in its sole discretion, may deem equitable to prevent substantial dilution or enlargement of the rights granted to or available for Optionees. Notwithstanding the preceding sentence, in no event shall any fraction of a share of Stock be issued upon the exercise of an Option. (a) Change in Control. In the event of a "Change in Control" of the Company, as defined in paragraph (b) below, then the following acceleration and valuation provisions shall apply: (i) Except as otherwise determined by the Board, in its discretion, prior to the occurrence of a Change in Control, any Options outstanding on the date such Change in Control is determined to have occurred that are not yet exercisable and vested on such date shall become fully exercisable and vested; (ii) Except as otherwise determined by the Board, in its discretion, prior to the occurrence of a Change in Control, the value of all outstanding Options, to the extent they are exercisable and vested (including Options that shall become exercisable and vested pursuant to subparagraph (i) above), shall be cashed out at the Change in Control Price, (reduced by the exercise price applicable to such Options). The cash out proceeds shall be paid to the Optionee 3 or, in the event of an Optionee prior to payment, to the estate of the Optionee or to a person who acquired the right to exercise the Option by bequest or inheritance. (b) Definition of "Change in Control". For purposes of this Section 4.2, a "Change in Control" means the happening of any of the following, provided that it occurs after the date on which the Company distributes (pursuant to that certain Distribution Agreement, dated as of May 2, 1997, between Vital Images and the Company (the "Distribution Agreement")) all of the outstanding shares of Vital Images' common stock to the Company's shareholders of record on the Record Date (as defined in the Distribution Agreement): (i) When any "person", as such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than the Company, a Subsidiary or a Company employee benefit plan, including any trustee of such plan acting as trustee) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the combined voting power of the Company's then outstanding securities; or (ii) The occurrence of a transaction requiring shareholder approval, and involving the sale of all or substantially all of the assets of the Company or the merger of the Company with or into another corporation. (c) Change in Control Price. For purposes of this Section 4.2, "Change in Control Price" shall be, as determined by the Board, (i) the highest Fair Market Value of a Share within the 60 day period immediately preceding the date of determination of the Change in Control Price by the Board (the "60-Day Period"), or (ii) the highest price paid or offered per Share, as determined by the Board, in any bona fide transaction or bona fide offer related to the Change in Control of the Company, at any time within the 60-Day Period, or (iii) some lower price as the Board, in its discretion, determines to be a reasonable estimate of the fair market value of a Share. 5. ELIGIBLE PARTICIPANTS The following persons are eligible to participate in the Plan: 5.1. Participation Generally. Participants in the Plan will be (a) those employees of the Company or any Subsidiary, including officers and directors who are also employees of the Company or any Subsidiary, who, in the judgment of the Committee, have contributed, are contributing or are expected to contribute to the achievement of economic objectives of the Company or any Subsidiaries; and (b) 4 those individuals employed by Vital Images as of the effective date of the Spin-Off who held Options as of such date, whose Options will continue thereafter according to the terms and conditions of the Plan. 5.2. Incentive Stock Options. Incentive Stock Options may be granted only to employees of the Employer or any Subsidiary of the Employer, including officers and directors who are also employees of the Employer or any Subsidiary of the Employer. 5.3. Non-Statutory Stock Options. Non-statutory stock options may be granted to (i) any employee of the Employer or any Subsidiary of the Employer, including any officer or director who is also an employee of the Employer or any Subsidiary of the Employer; (ii) any non- employee director of the Employer or any Subsidiary of the Employer; and (iii) any consultant to, or other independent contractor of, the Employer. 6. GRANT OF OPTIONS Subject to the terms, conditions, and limitations set forth in this Plan, the Company, by action of its Board, may from time to time grant Options to purchase shares of the Company's Stock to those eligible Participants as may be selected by the Board, in such amounts and on such other terms as the Board in its sole discretion shall determine. Such Options may be (i) "Incentive Stock Options" so designated by the Board and which, when granted, are intended to qualify as incentive stock options as defined in Section 422A of the Code; (ii) "Non-Statutory Stock Options" so designated by the Board and which, when granted, do not qualify as incentive stock options under Section 422A of the Code; or (iii) a combination of both. The date on which the Board approves the granting of an Option shall be the date of grant of such Option. Notwithstanding the foregoing, with respect to the grant of any Incentive Stock Option under the Plan, the aggregate fair market value of Stock (determined as of the date the Option is granted) with respect to which such Options are exercisable for the first time by an Optionee in any calendar year (under all such stock option plans of the Company or Subsidiaries) shall not exceed $100,000. Each grant of an Option under the Plan shall be evidenced by a written stock option agreement between the Company and the Optionee setting forth the terms and conditions, not inconsistent with the Plan, under which the Option so granted may be exercised pursuant to the Plan and containing such other terms with respect to the Option as the Board in its sole discretion may determine. 7. OPTION PRICE AND FORM OF PAYMENT The purchase price for a share of Stock subject to an Option granted hereunder shall not be less than 100% of the fair market value of the Stock. For purposes of this Section 7, the "fair market value" of the Stock shall be determined as follows: 5 (a) if the Stock of the Company is listed or admitted to unlisted trading privileges on a national securities exchange, the fair market value on any given day shall be the closing sale price for the Stock, or if no sale is made on such day, the closing bid price for such day on such exchange; (b) if the Stock is not listed or admitted to unlisted trading privileges on a national securities exchange, the fair market value on any given day shall be the closing sale price for the Stock as reported on the NASDAQ National Market System on such day, or if no sale is made on such day, the closing bid price for such day as entered by a market maker for the Stock; (c) if the Stock is not listed on a national securities exchange, is not admitted to unlisted trading privileges on any such exchange, and is not eligible for inclusion in the NASDAQ National Market System, the fair market value on any given day shall be the closing price of the stock as reported by the NASDAQ SmallCap Market, OTC Electronic Bulletin Board or the National Quotation Bureau, Inc. or, if the Stock is so not quoted, then the closing price or average of bid and asked prices of the Stock as reported in any publicly available compilation of prices of the Stock in any over-the-counter market on which the Stock is traded; or (d) if there exists no public trading market for the Stock, the fair market value on any given day shall be an amount determined in good faith by the Board in such manner as it may reasonably determine in its discretion, provided that such amount shall not be less than the book value per share, as reasonably determined by the Board as of the date of determination, or less than the par value of the Stock. Notwithstanding the foregoing, in the case of an Incentive Stock Option granted to any Optionee then owning more than 10% of the voting power of all classes of the Company's stock, the purchase price per share of the Stock subject to such Option shall not be less than 110% of the fair market value of the Stock on the date of grant of the Incentive Stock Option, determined as provided above. Except as provided herein, the purchase price of each share of Stock purchased upon the exercise of any Option shall be paid: (a) in United States dollars in cash or by check, bank draft or money order payable to the order of the Company; or (b) at the discretion of the Board, through the delivery of shares of Stock, having initially or as a result of successive exchanges of shares, an aggregate fair market value (as determined in the manner provided under this Plan) equal to the Option price; or 6 (c) at the discretion of the Board, by a combination of both (a) and (b) above; or (d) by such other method as may be permitted in the written stock option agreement between the Company and the Optionee. If such form of payment is permitted, the Board shall determine procedures for tendering Stock as payment upon exercise of an Option and may impose such additional limitations and prohibitions on the use of Stock as payment upon the exercise of an Option as it deems appropriate. If the Board in its sole discretion so agrees, the Company may finance the amount payable by an Optionee upon exercise of any Option upon such terms and conditions as the Board may determine at the time such Option is granted under this Plan, provided, however, that the amount financed shall not exceed the "good faith loan value" (as that term is defined in Section 207.2(e) of Regulation G of the Federal Reserve Board) of the shares of Stock to be acquired upon exercise of an Option. 8. EXERCISE OF OPTIONS 8.1. Manner of Exercise. An Option, or any portion thereof, shall be exercised by delivering a written notice of exercise to the Board and paying to the Company the full purchase price of the Stock acquired upon the exercise of the Option. Until certificates for the Stock acquired upon the exercise of an Option are issued to an Optionee, such Optionee shall not have any rights as a shareholder of the Company. 8.2. The Limitations and Conditions on Exercise of Options. In addition to any other limitations or conditions contained in this Plan or that may be imposed by the Board from time to time or in the stock option agreement to be entered into with respect to Options granted hereunder, the following limitations and conditions shall apply to the exercise of Options granted under this Plan: (a) No Incentive Stock Option may be exercisable by its terms after the expiration of 10 years from the date of the grant thereof. (b) No Incentive Stock Option granted to an eligible Participant then owning more than 10% of the voting power of all classes of the Company's stock may be exercisable by its terms after the expiration of five years from the date of the grant thereof. 9. INVESTMENT PURPOSES Unless a registration statement under the Securities Act of 1933 is in effect with respect to Stock to be purchased upon exercise of Options to be granted under the Plan, the Company shall require that an Optionee agree with and represent to the Company in writing that he or she is acquiring such shares of Stock for the purpose of investment and with no present intention to transfer, sell or otherwise dispose of such shares of Stock 7 other than by transfers which may occur by will or by the laws of descent and distribution, and no shares of Stock may be transferred unless, in the opinion of counsel to the Company, such transfer would be in compliance with applicable securities laws. In addition, unless a registration statement under the Securities Act of 1933 is in effect with respect to the Stock to be purchased under the Plan, each certificate representing any shares of Stock issued to an Optionee hereunder shall have endorsed thereon a legend in substantially the following form: "THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") AND WITHOUT REGISTRATION UNDER ANY APPLICABLE STATE SECURITIES LAWS, IN RELIANCE UPON EXEMPTION(S) CONTAINED THEREIN. NO TRANSFER OF THESE SHARES OR ANY INTEREST THEREIN MAY BE MADE EXCEPT PURSUANT TO EFFECTIVE REGISTRATION STATEMENTS UNDER SAID LAWS UNLESS THE CORPORATION HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO IT THAT SUCH TRANSFER OR DISPOSITION DOES NOT REQUIRE REGISTRATION UNDER SAID LAWS AND, FOR ANY SALES UNDER RULE 144 OF THE ACT, SUCH EVIDENCE AS IT SHALL REQUEST FOR COMPLIANCE WITH THAT RULE, OR APPLICABLE STATE SECURITIES LAWS." 10. TRANSFERABILITY OF OPTIONS No Option granted under the Plan shall be transferable by an Option (whether by sale, assignment, hypothecation or otherwise) other than by will or the laws of descent and distribution, and Options shall be exercisable during the Optionee's lifetime only by the Optionee. 11. TERMINATION OF EMPLOYMENT 11.1. Generally. The transfer by a Participant of employment or other service from one Employer or its Subsidiaries to the other Employer or its Subsidiaries will not be deemed to constitute a termination of employment or other service for purposes of this Plan. Except as otherwise provided in this Section 11, if an Optionee's employment with the Employer and all of its Subsidiaries is terminated (hereinafter "Termination") other than by death or Disability (as hereinafter defined), the Optionee may exercise any Option granted under the Plan, to the extent the Optionee was entitled to exercise the Option at the date of Termination, for a period of 3 months after the date of Termination or until the term of the Option has expired, whichever date is earlier. 11.2. Death or Disability of Optionee. In the event of the death or Disability of an Optionee prior to expiration of an Option held by him or her, the following provisions shall apply: 8 (a) If the Optionee is at the time of his or her Disability employed by the Employer or a Subsidiary of the Employer and has been in continuous employment (as determined by (x) the Committee if the Employer is the Company or a Subsidiary of the Company or (y) the Vital Images Committee if the Employer is Vital Images or a Subsidiary of Vital Images) since the date of grant of the Option, then the Option may be exercised by the Optionee until the earlier of one year following the date of such Disability or the expiration date of the Option, but only to the extent the Optionee was entitled to exercise such Option at the time of his or her Disability. For the purpose of this Section, the term "Disability" shall have the meaning given to it in Section 22(e) (3) of the Code. The determination of whether an Optionee has a Disability within the meaning of Section 22(e) (3) shall be made by (x) the Board, in its sole discretion, if the Employer is the Company or a Subsidiary of the Company or (y) the Vital Images Committee, in its sole discretion, if the Employer is Vital Images or a Subsidiary of Vital Images. (b) If the Optionee is at the time of his or her death employed by the Employer or a Subsidiary of the Employer and has been in continuous employment (as determined by (x) the Committee if the Employer is the Company or a Subsidiary of the Company or (y) the Vital Images Committee if the Employer is Vital Images or a Subsidiary of Vital Images) since the date of grant of the Option, then the Option may be exercised by the Optionee's estate or by a person who acquired the right to exercise the Option by will or the laws of descent and distribution, until the earlier of one year from the date of the Optionee's death or the expiration date of the Option, but only to the extent the Optionee was entitled to exercise the Option at the time of death. (c) If the Optionee dies within three months after Termination, the Option may be exercised until the earlier of nine months following the date of death or the expiration date of the Option, by the Optionee's estate or by a person who acquires the right to exercise the Option by will or the laws of descent or distribution, but only to the extent the Optionee was entitled to exercise the Option at the time of Termination. 11.3. Termination for Cause. If the employment of an is terminated by the Employer or a Subsidiary of the Employer for cause (as determined by (x) the Committee if the Employer is the Company or a Subsidiary of the Company or (y) the Vital Images Committee if the Employer is Vital Images or a Subsidiary of Vital Images), then the Board shall have the right to cancel any Options granted to the Optionee under the Plan. 9 12. AMENDMENT AND TERMINATION OF PLAN 12.1. The Board, without approval by the shareholders of the Company, may at any time and from time to time suspend or terminate the Plan in whole or in part or amend it from time to time in such respects as may be in the best interests of the Company; provided, however, that no such amendment shall be made without approval of the shareholders if it would: (a) materially modify the eligibility requirements for Participants; (b) increase the total number of shares of Stock which may be issued pursuant to Options, except in accordance with Section 4.2 of the Plan; (c) reduce the minimum Option price per share as set forth in Section 7 of the Plan, except in accordance with Section 4.2 of the Plan; (d) extend the period of granting Options; or (e) materially increase in any other way the benefits accruing to Optionees. 12.2. No amendment, suspension or termination of this Plan shall, without the Optionee's consent, alter or impair any of the rights or obligations under any Option theretofore granted to the Optionee under the Plan. 12.3. The Board may amend the Plan, subject to the limitations cited above, in such manner as it deems necessary to permit the granting of Incentive Stock Options meeting the requirements of future amendments to the Code or regulations promulgated thereunder. 13. MISCELLANEOUS PROVISIONS 13.1. Right to Continued Employment. No person shall have any claim or right to be granted an Option under the Plan, and the grant of an Option under the Plan shall not be construed as giving an Optionee the right to continued employment with the Employer or any Subsidiary of the Employer. The Employer further expressly reserves the right at any time to dismiss an Optionee or reduce an Optionee's compensation with or without cause, free from any liability, or any claim under the Plan, except as provided herein or in a stock option agreement. 13.2. Withholding Taxes. The Employer shall have the right to require that payment or provision for payment of any and all withholding taxes due upon the grant or exercise of an Option hereunder or the disposition of any Stock or other property acquired upon exercise of an Option be made by an Optionee. In connection therewith, the Employer shall have the right to establish such rules and regulations or impose such terms and conditions in any agreement relating to an Option granted hereunder with respect to such withholding as the Employer may deem necessary and appropriate. 13.3. Governing Law. The Plan shall be administered in the State of Minnesota, and the validity, construction, interpretation, and administration of the Plan and all rights relating to the Plan shall be determined solely in accordance with the laws of such state, unless controlled by applicable federal law, if any. 10 14. EFFECTIVE DATE The effective date of the Plan is November 13, 1987. No Option may be granted after November 13, 1997, provided, however, that the Plan and all outstanding Options shall remain in effect until such outstanding Options have expired or been canceled. 11 EX-10.2 5 1995 STOCK INCENTIVE PLAN, AS AMENDED Exhibit 10.2 BIO-VASCULAR, INC. 1995 STOCK INCENTIVE PLAN (As Amended Effective March 19, 1997) Section 1. Purpose of Plan. The purpose of the Bio-Vascular, Inc. 1995 Stock Incentive Plan (the "Plan") is to advance the interests of Bio-Vascular, Inc. (the "Company") and its shareholders by enabling the Company and its Subsidiaries to attract and retain persons of ability to perform services for the Company and its Subsidiaries by providing an incentive to such individuals through equity participation in the Company and by rewarding such individuals who contribute to the achievement by the Company of its economic objectives. In connection with the Company's distribution of all of the outstanding shares of the common stock of Vital Images, Inc. ("Vital Images") (the "Spin-Off"), certain amendments to the Plan have been effected in order to allow awards under the Plan made to Vital Images employees to continue following the effective date of the Spin-Off. Section 2. Definitions. The following terms will have the meanings set forth below, unless the context clearly otherwise requires: (a) "Board" means the Board of Directors of the Company. (b) "Broker Exercise Notice" means a written notice pursuant to which a Participant, upon exercise of an Option, irrevocably instructs a broker or dealer to sell a sufficient number of shares or loan a sufficient amount of money to pay all or a portion of the exercise price of the Option and/or any related withholding tax obligations and remit such sums to the Company and directs the Company to deliver stock certificates to be issued upon such exercise directly to such broker or dealer. (c) "Change in Control" means an event described in Section 12(a) of the Plan. (d) "Code" means the Internal Revenue Code of 1986, as amended. (e) "Committee" means the group of individuals administering the Plan, as provided in Section 3 of the Plan. (f) "Common Stock" means the common stock of the Company, par value $.01 per share, or the number and kind of shares of stock or other securities into which such Common Stock may be changed in accordance with Section 4(c) of the Plan. (g) "Disability" means the disability of the Participant such as would entitle the Participant to receive disability income benefits pursuant to the long-term disability plan of the Employer or Subsidiary of the Employer then covering the Participant or, if no such plan exists or is applicable to the Participant, the permanent and total disability of the Participant within the meaning of Section 22(e)(3) of the Code. (h) "Eligible Recipients" means all employees, non-employee directors, consultants and independent contractors of the Company or any Subsidiary of the Company. (i) "Employer" means the Company if the Participant renders employment or other services to the Company or any Subsidiary of the Company and means Vital Images if the Participant renders employment or other services to Vital Images or any Subsidiary of Vital Images. (j) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (k) "Fair Market Value" means, with respect to the Common Stock, the following: (i) if the Common Stock is listed or admitted to unlisted trading privileges on any national securities exchange or is not so listed or admitted but transactions in the Common Stock are reported on the Nasdaq National Market, the closing price of the Common Stock on such exchange or reported by the Nasdaq National Market as of such date (or, if no shares were traded on such day, as of the next preceding day on which there was such a trade). (ii) if the Common Stock is not so listed or admitted to unlisted trading privileges or reported on the Nasdaq National Market, and prices therefor in the over-the-counter market are reported by the Nasdaq SmallCap Market or the National Quotation Bureau, Inc. (or any comparable reporting service), the closing price as of such date, as so reported by the Nasdaq SmallCap Market, or, if not so reported thereon, as reported by the National Quotation Bureau, Inc. (or such comparable reporting service). (iii) if the Common Stock is not so listed or admitted to unlisted trading privileges, or reported on the Nasdaq National Market, and such bid and asked prices are not so reported, such price as the Committee determines in good faith in the exercise of its reasonable discretion. The Committee shall not be required to obtain an appraisal within six months of the adoption of the Plan. The Committee's determination as to the current value of the Common Stock shall be final, conclusive and binding for all purposes and on all persons, including, without limitation, the Company, the shareholders of the Company, the Participants and their respective successors-in-interest. No member of the Board of the Committee shall be liable for any determination regarding current value of the Common Stock that is made in good faith. (l) "Incentive Award" means an Option, Restricted Stock Award, Performance Unit or Stock Bonus granted to an Eligible Recipient pursuant to the Plan. (m) "Incentive Stock Option" means a right to purchase Common Stock granted to an Eligible Recipient pursuant to Section 6 of the Plan that qualifies as an "incentive stock option" within the meaning of Section 422 of the Code. (n) "Non-Statutory Stock Option" means a right to purchase Common Stock granted to an Eligible Recipient pursuant to Section 6 of the Plan that does not qualify as an Incentive Stock Option. (o) "Option" means an Incentive Stock Option or a Non-Statutory Stock Option. (p) "Participant" means an Eligible Recipient who receives one or more Incentive Awards under the Plan. (q) "Performance Unit" means a right granted to an Eligible Recipient pursuant to Section 8 of the Plan to receive a payment from the Company, in the form of stock, cash or a combination of both, upon the achievement of established performance or other goals. (r) "Previously Acquired Shares" means shares of Common Stock that are already owned by the Participant or, with respect to any Incentive Award, that are to be issued upon the grant, exercise or vesting of such Incentive Award. 2 (s) "Restricted Stock Award" means an award of Common Stock granted to an Eligible Recipient pursuant to Section 7 of the Plan that is subject to the restrictions on transferability and the risk of forfeiture imposed by the provisions of such Section 7. (t) "Retirement" means termination of employment or service pursuant to and in accordance with the regular (or, if approved by the Board of Directors of the Employer for purposes of the Plan, early) retirement/pension plan or practice of the Employer or Subsidiary of the Employer then covering the Participant, provided that if the Participant is not covered by any such plan or practice, the Participant will be deemed to be covered by the Employer's plan or practice, for purposes of this determination. (u) "Securities Act" means the Securities Act of 1933, as amended. (v) "Stock Bonus" means an award of Common Stock granted to an Eligible Recipient pursuant to Section 9 of the Plan. (w) "Subsidiary" means (i) when used in reference to the Company, any entity that is directly or indirectly controlled by the Company or any entity in which the Company has a significant equity interest, as determined by the Committee or (ii) when used in reference to Vital Images, any entity that is directly or indirectly controlled by Vital Images or any entity in which Vital Images has a significant equity interest, as determined by the Vital Images Committee. (x) "Tax Date" means the date any withholding tax obligation arises under the Code for a Participant with respect to an Incentive Award. (y) "Vital Images Committee" means the group of individuals administering the Vital Images, Inc. 1995 Stock Incentive Adjustment Plan. Section 3. Plan Administration. (a) The Committee. So long as the Company has a class of its equity securities registered under Section 12 of the Exchange Act, the Plan will be administered by a committee (the "Committee") consisting solely of not less than two members of the Board who are "disinterested persons" within the meaning of Rule 16b-3 under the Exchange Act. To the extent consistent with corporate law, the Committee may delegate to any officers of the Company the duties, power and authority of the Committee under the Plan pursuant to such conditions or limitations as the Committee may establish; provided, however, that only the Committee may exercise such duties, power and authority with respect to Eligible Recipients who are subject to Section 16 of the Exchange Act. Each determination, interpretation or other action made or taken by the Committee pursuant to the provisions of the Plan will be conclusive and binding for all purposes and on all persons, and no member of the Committee will be liable for any action or determination made in good faith with respect to the Plan or any Incentive Award granted under the Plan. (b) Authority of the Committee. (i) In accordance with and subject to the provisions of the Plan, the Committee will have the authority to determine all provisions of Incentive Awards as the Committee may deem necessary or desirable and as consistent with the terms of the Plan, including, without limitation, the following: (A) the Eligible Recipients to be selected as Participants; (B) the nature and extent of the Incentive Awards to be made to each Participant (including the number of shares of Common Stock to be subject to each Incentive Award, any exercise price, the manner in which 3 Incentive Awards will vest or become exercisable and whether Incentive Awards will be granted in tandem with other Incentive Awards) and the form of written agreement, if any, evidencing such Incentive Award; (C) the time or times when Incentive Awards will be granted; (D) the duration of each Incentive Award; and (E) the restrictions and other conditions to which the payment or vesting of Incentive Awards may be subject. In addition, the Committee will have the authority under the Plan in its sole discretion to pay the economic value of any Incentive Award in the form of cash, Common Stock or any combination of both. (ii) The Committee will have the authority under the Plan to amend or modify the terms of any outstanding Incentive Award in any manner, including, without limitation, the authority to modify the number of shares or other terms and conditions of an Incentive Award, extend the term of an Incentive Award, accelerate the exercisability or vesting or otherwise terminate any restrictions relating to an Incentive Award, accept the surrender of any outstanding Incentive Award or, to the extent not previously exercised or vested, authorize the grant of new Incentive Awards in substitution for surrendered Incentive Awards; provided, however that the amended or modified terms are permitted by the Plan as then in effect and that any Participant adversely affected by such amended or modified terms has consented to such amendment or modification. No amendment or modification to an Incentive Award, however, whether pursuant to this Section 3(b) or any other provisions of the Plan, will be deemed to be a regrant of such Incentive Award for purposes of this Plan. (iii) In the event of (A) any reorganization, merger, consolidation, recapitalization, liquidation, reclassification, stock dividend, stock split, combination of shares, rights offering, extraordinary dividend or divestiture (including a spin-off) or any other change in corporate structure or shares, (B) any purchase, acquisition, sale or disposition of a significant amount of assets or a significant business, (C) any change in accounting principles or practices, or (D) any other similar change, in each case with respect to the Company or any other entity whose performance is relevant to the grant or vesting of an Incentive Award, the Committee (or, if the Company is not the surviving corporation in any such transaction, the board of directors of the surviving corporation) may, without the consent of any affected Participant, amend or modify the vesting criteria of any outstanding Incentive Award that is based in whole or in part on the financial performance of the Company (or any Subsidiary or division thereof) or such other entity so as equitably to reflect such event, with the desired result that the criteria for evaluating such financial performance of the Company or such other entity will be substantially the same (in the sole discretion of the Committee or the board of directors of the surviving corporation) following such event as prior to such event; provided, however, that the amended or modified terms are permitted by the Plan as then in effect. (c) Cooperation Between Committees. The Committee and the Vital Images Committee will reasonably cooperate with each other to promote the purposes of the Plan. Section 4. Shares Available for Issuance. (a) Maximum Number of Shares Available. Subject to adjustment as provided in Section 4(c) of the Plan, the maximum number of shares of Common Stock that will be available for issuance under the Plan will be 410,000 shares of Common Stock, plus any shares of Common Stock which, as of the date the Plan is approved by the shareholders of the Company, are reserved for issuance under the Company's 1988 Stock Option Plan, the 1990 Management Incentive Stock Option Plan and the 1992 Stock Option Plan and which are not thereafter issued or which have been issued but are subsequently 4 forfeited and which would otherwise have been available for further issuance under such plans. Notwithstanding any other provisions of the Plan to the contrary, no Participant in the Plan may be granted any Options, or any other Incentive Awards with a value based solely on an increase in the value of the Common Stock after the date of grant, relating to more than 50,000 shares of Common Stock in the aggregate in any fiscal year of the Company (subject to adjustment as provided in Section 4(c) of the Plan); provided, however, that a Participant who is first appointed or elected as an officer, hired as an employee or retained as a consultant by the Company or who receives a promotion that results in an increase in responsibilities or duties may be granted, during the fiscal year of such appointment, election, hiring, retention or promotion, Options or such other Incentive Awards relating to up to 200,000 shares of Common Stock (subject to adjustment as provided in Section 4(c) of the Plan). (b) Accounting for Incentive Awards. Shares of Common Stock that are issued under the Plan or that are subject to outstanding Incentive Awards will be applied to reduce the maximum number of shares of Common Stock remaining available for issuance under the Plan. Any shares of Common Stock that are subject to an Incentive Award that lapses, expires, is forfeited or for any reason is terminated unexercised or unvested and any shares of Common Stock that are subject to an Incentive Award that is settled or paid in cash or any form other than shares of Common Stock will automatically again become available for issuance under the Plan. Any shares of Common Stock that constitute the forfeited portion of a Restricted Stock Award, however, will not become available for further issuance under the Plan. (c) Adjustments to Shares and Incentive Awards. In the event of any reorganization, merger, consolidation, recapitalization, liquidation, reclassification, stock dividend, stock split, combination of shares, rights offering, divestiture or extraordinary dividend (including a spin-off) or any other change in the corporate structure or shares of the Company, the Committee (or, if the Company is not the surviving corporation in any such transaction, the board of directors of the surviving corporation) will make appropriate adjustment (which determination will be conclusive) as to the number and kind of securities available for issuance under the Plan and, in order to prevent dilution or enlargement of the rights of Participants, the number, kind and, where applicable, exercise price of securities subject to outstanding Incentive Awards. Section 5. Participation. Participants in the Plan will be those Eligible Recipients who, in the judgment of the Committee, have contributed, are contributing or are expected to contribute to the achievement of economic objectives of the Employer or its Subsidiaries; provided, however, that Participants will also include those individuals employed by Vital Images as of the effective date of the Spin-Off who held Awards as of such date, whose Awards will continue thereafter according to the terms and conditions of the Plan. Eligible Recipients may be granted from time to time one or more Incentive Awards, singly or in combination or in tandem with other Incentive Awards, as may be determined by the Committee in its sole discretion. Incentive Awards will be deemed to be granted as of the date specified in the grant resolution of the Committee, which date will be the date of any related agreement with the Participant. Section 6. Options. (a) Grant. An Eligible Recipient may be granted one or more Options under the Plan, and such Options will be subject to such terms and conditions, consistent with the other provisions of the Plan, as may be determined by the Committee in its sole discretion. The Committee may designate whether an Option is to be considered an Incentive Stock Option or a Non-Statutory Stock Option. To the extent that any Incentive Stock Option granted under the Plan ceases for any reason to qualify as an "incentive 5 stock option" for purposes of Section 422 of the Code, such Incentive Stock Option will continue to be outstanding for purposes of the Plan but will thereafter be deemed to be a Non-Statutory Stock Option. (b) Exercise Price. The per share price to be paid by a Participant upon exercise of an Option will be determined by the Committee in its discretion at the time of the Option grant, provided that (i) such price will not be less than 100% of the Fair Market Value of one share of Common Stock on the date of grant with respect to an Incentive Stock Option (110% of the Fair Market Value if, at the time the Incentive Stock Option is granted, the Participant owns, directly or indirectly, more than 10% of the total combined voting power of all classes of stock of the Company or any parent or subsidiary corporation of the Company), and (ii) such price will not be less than 85% of the Fair Market Value of one share of Common Stock on the date of grant with respect to a Non-Statutory Stock Option. (c) Exercisability and Duration. An Option will become exercisable at such times and in such installments as may be determined by the Committee in its sole discretion at the time of grant; provided, however, that no Option may be exercisable after 10 years from its date of grant. (d) Payment of Exercise Price. The total purchase price of the shares to be purchased upon exercise of an Option will be paid entirely in cash (including check, bank draft or money order); provided, however, that the Committee, in its sole discretion and upon terms and conditions established by the Committee, may allow such payments to be made, in whole or in part, by tender of a Broker Exercise Notice, Previously Acquired Shares, a promissory note (on terms acceptable to the Committee in its sole discretion) or by a combination of such methods. (e) Manner of Exercise. An Option may be exercised by a Participant in whole or in part from time to time, subject to the conditions contained in the Plan and in the agreement evidencing such Option, by delivery in person, by facsimile or electronic transmission or through the mail of written notice of exercise to the Company (Attention: Secretary) at its principal executive office in St. Paul, Minnesota and by paying in full the total exercise price for the shares of Common Stock to be purchased in accordance with Section 6(d) of the Plan. Section 7. Restricted Stock Awards. (a) Grant. An Eligible Recipient may be granted one or more Restricted Stock Awards under the Plan, and such Restricted Stock Awards will be subject to such terms and conditions, consistent with the other provisions of the Plan, as may be determined by the Committee in its sole discretion. The Committee may impose such restrictions or conditions, not inconsistent with the provisions of the Plan, to the vesting of such Restricted Stock Awards as it deems appropriate, including, without limitation, that the Participant remain in the continuous employ or service of the Employer or a Subsidiary of the Employer for a certain period or that the Participant or the Employer (or any Subsidiary or division thereof) satisfy certain performance goals or criteria. (b) Rights as a Shareholder; Transferability. Except as provided in Sections 7(a), 7(c) and 13(c) of the Plan, a Participant will have all voting, dividend, liquidation and other rights with respect to shares of Common Stock issued to the Participant as a Restricted Stock Award under this Section 7 upon the Participant becoming the holder of record of such shares as if such Participant were a holder of record of shares of unrestricted Common Stock. (c) Dividends and Distributions. Unless the Committee determines otherwise in its sole discretion (either in the agreement evidencing the Restricted Stock Award at the time of grant or at any 6 time after the grant of the Restricted Stock Award), any dividends or distributions (including regular quarterly cash dividends) paid with respect to shares of Common Stock subject to the unvested portion of a Restricted Stock Award will be subject to the same restrictions as the shares to which such dividends or distributions relate. In the event the Committee determines not to pay such dividends or distributions currently, the Committee will determine in its sole discretion whether any interest will be paid on such dividends or distributions. In addition, the Committee in its sole discretion may require such dividends and distributions to be reinvested (and in such case the Participants consent to such reinvestment) in shares of Common Stock that will be subject to the same restrictions as the shares to which such dividends or distributions relate. (d) Enforcement of Restrictions. To enforce the restrictions referred to in this Section 7, the Committee may place a legend on the stock certificates referring to such restrictions and may require the Participant, until the restrictions have lapsed, to keep the stock certificates, together with duly endorsed stock powers, in the custody of the Company or its transfer agent or to maintain evidence of stock ownership, together with duly endorsed stock powers, in a certificateless book-entry stock account with the Company's transfer agent. Section 8. Performance Units. An Eligible Recipient may be granted one or more Performance Units under the Plan, and such Performance Units will be subject to such terms and conditions, consistent with the other provisions of the Plan, as may be determined by the Committee in its sole discretion. The Committee may impose such restrictions or conditions, not inconsistent with the provisions of the Plan, to the vesting of such Performance Units as it deems appropriate, including, without limitation, that the Participant remain in the continuous employ or service of the Employer or any Subsidiary of the Employer for a certain period or that the Participant or the Employer (or any Subsidiary or division thereof) satisfy certain performance goals or criteria. The Committee will have the sole discretion either to determine the form in which payment of the economic value of vested Performance Units will be made to the Participant (i.e., cash, Common Stock or any combination thereof) or to consent to or disapprove the election by the Participant of the form of such payment. Section 9. Stock Bonuses. An Eligible Recipient may be granted one or more Stock Bonuses under the Plan, and such Stock Bonuses will be subject to such terms and conditions, consistent with the other provisions of the Plan, as may be determined by the Committee. The Participant will have all voting, dividend, liquidation and other rights with respect to the shares of Common Stock issued to a Participant as a Stock Bonus under this Section 9 upon the Participant becoming the holder of record of such shares; provided, however, that the Committee may impose such restrictions on the assignment or transfer of a Stock Bonus as it deems appropriate. Section 10. Effect of Termination of Employment or Other Service. The transfer by a Participant of employment or other service from one Employer or its Subsidiaries to the other Employer or its Subsidiaries will not be deemed to constitute a termination of employment or other service for purposes of this Plan. (a) Termination Due to Death, Disability or Retirement. In the event a Participant's employment or other service with the Employer and all of its Subsidiaries is terminated by reason of death, Disability or Retirement: (i) All outstanding Options then held by the Participant will become immediately exercisable in full and will remain exercisable for a period of one year (three months in the case 7 of Retirement) after such termination (but in no event after the expiration date of any such Option); (ii) All Restricted Stock Awards then held by the Participant will become fully vested; and (iii) All Performance Units and Stock Bonuses then held by the Participant will vest and/or continue to vest in the manner determined by the Committee and set forth in the agreement evidencing such Performance Units or Stock Bonuses. (b) Termination for Reasons Other than Death, Disability or Retirement. (i) In the event a Participant's employment or other service is terminated with the Employer and all of its Subsidiaries for any reason other than death, Disability or Retirement, or a Participant is in the employ or service of a Subsidiary and the Subsidiary ceases to be a Subsidiary of the Employer (unless the Participant continues in the employ or service of an Employer or another Subsidiary thereof), all rights of the Participant under the Plan and any agreements evidencing an Incentive Award will immediately terminate without notice of any kind, and no Options then held by the Participant will thereafter be exercisable, all Restricted Stock Awards then held by the Participant that have not vested will be terminated and forfeited, and all Performance Units and Stock Bonuses then held by the Participant will vest and/or continue to vest in the manner determined by the Committee and set forth in the agreement evidencing such Performance Units or Stock Bonuses; provided, however, that if such termination is due to any reason other than termination by the Employer or any Subsidiary of the Employer for "cause," all outstanding Options then held by such Participant will remain exercisable to the extent exercisable as of such termination for a period of three months after such termination (but in no event after the expiration date of any such Option). (ii) For purposes of this Section 10(b), "cause" (as determined by (x) the Committee if the Employer is the Company or a Subsidiary of the Company or (y) the Vital Images Committee if the Employer is Vital Images or a Subsidiary of Vital Images) will be as defined in any employment or other agreement or policy applicable to the Participant or, if no such agreement or policy exists, will mean (A) dishonesty, fraud, misrepresentation, embezzlement or deliberate injury or attempted injury, in each case related to the Employer or any Subsidiary, (B) any unlawful or criminal activity of a serious nature, (C) any intentional and deliberate breach of a duty or duties that, individually or in the aggregate, are material in relation to the Participant's overall duties, or (D) any material breach of any employment, service, confidentiality or noncompete agreement entered into with either Employer or any Subsidiary thereof. (c) Modification of Rights Upon Termination. Notwithstanding the other provisions of this Section 10, upon a Participant's termination of employment or other service with the Employer and all Subsidiaries of the Employer, the Committee may, in its sole discretion (which may be exercised at any time on or after the date of grant, including following such termination), cause Options (or any part thereof) then held by such Participant to become or continue to become exercisable and/or remain exercisable following such termination of employment or service and Restricted Stock Awards, Performance Units and Stock Bonuses then held by such Participant to vest and/or continue to vest or become free of transfer restrictions, as the case may be, following such termination of employment or service, in each case in the manner determined by the Committee; provided, however, that no Option may remain exercisable beyond its expiration date. 8 (d) Breach of Confidentiality or Noncompete Agreements. Notwithstanding anything in the Plan to the contrary, in the event that a Participant materially breaches the terms of any confidentiality or noncompete agreement entered into with either Employer or any Subsidiary thereof, whether such breach occurs before or after termination of such Participant's employment or other service with the Employer or any Subsidiary of the Employer, the Committee in its sole discretion may immediately terminate all rights of the Participant under the Plan and any agreements evidencing an Incentive Award then held by the Participant without notice of any kind. (e) Date of Termination of Employment or Other Service. Unless the Committee otherwise determines in its sole discretion, a Participant's employment or other service will, for purposes of the Plan, be deemed to have terminated on the date recorded on the personnel or other records of the Employer or any Subsidiary of the Employer for which the Participant provides employment or other service, as determined by the Committee or the Vital Images Committee, as the case may be, in its sole discretion based upon such records. Section 11. Payment of Withholding Taxes. (a) General Rules. The Employer is entitled to (i) withhold and deduct from future wages of the Participant (or from other amounts that may be due and owing to the Participant from the Employer or any Subsidiary of the Employer), or make other arrangements for the collection of, all legally required amounts necessary to satisfy any and all federal, state and local withholding and employment-related tax requirements attributable to an Incentive Award, including, without limitation, the grant, exercise or vesting of, or payment of dividends with respect to, an Incentive Award or a disqualifying disposition of stock received upon exercise of an Incentive Stock Option, or (ii) require the Participant promptly to remit the amount of such withholding to the Employer before taking any action, including issuing any shares of Common Stock, with respect to an Incentive Award. (b) Special Rules. The Committee may, in its sole discretion and upon terms and conditions established by the Committee, permit or require a Participant to satisfy, in whole or in part, any withholding or employment- related tax obligation described in Section 11(a) of the Plan by electing to tender Previously Acquired Shares, a Broker Exercise Notice or a promissory note (on terms acceptable to the Committee in its sole discretion), or by a combination of such methods. Section 12. Change in Control. (a) Change in Control. For purposes of this Section 12, a "Change in Control" of the Company will mean the following, provided that it occurs after the date on which the Company distributes (pursuant to that certain Distribution Agreement, dated as of May 2, 1997, between Vital Images and the Company (the "Distribution Agreement")) all of the outstanding shares of Vital Images' common stock to the Company's shareholders of record on the Record Date (as defined in the Distribution Agreement): (i) the sale, lease, exchange or other transfer, directly or indirectly, of substantially all of the assets of the Company (in one transaction or in a series of related transactions) to a person or entity that is not controlled by the Company; (ii) the approval by the shareholders of the Company of any plan or proposal for the liquidation or dissolution of the Company; 9 (iii) a merger or consolidation to which the Company is a party if the shareholders of the Company immediately prior to effective date of such merger or consolidation have "beneficial ownership" (as defined in Rule 13d-3 under the Exchange Act), immediately following the effective date of such merger or consolidation, of securities of the surviving corporation representing (A) more than 50%, but not more than 80%, of the combined voting power of the surviving corporation's then outstanding securities ordinarily having the right to vote at elections of directors, unless such merger or consolidation has been approved in advance by the Incumbent Directors (as defined in Section 12(b) below), or (B) 50% or less of the combined voting power of the surviving corporation's then outstanding securities ordinarily having the right to vote at elections of directors (regardless of any approval by the Incumbent Directors); (iv) any person becomes after the effective date of the Plan the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of (A) 20% or more, but not 50% or more, of the combined voting power of the Company's outstanding securities ordinarily having the right to vote at elections of directors, unless the transaction resulting in such ownership has been approved in advance by the Incumbent Directors, or (B) 50% or more of the combined voting power of the Company's outstanding securities ordinarily having the right to vote at elections of directors (regardless of any approval by the Incumbent Directors); (v) the Incumbent Directors cease for any reason to constitute at least a majority of the Board; or (vi) any other change in control of the Company of a nature that would be required to be reported pursuant to Section 13 or 15(d) of the Exchange Act, whether or not the Company is then subject to such reporting requirements. (b) Incumbent Directors. For purposes of this Section 12, "Incumbent Directors" of the Company will mean any individuals who are members of the Board on the effective date of the Plan and any individual who subsequently becomes a member of the Board whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the Incumbent Directors (either by specific vote or by approval of the Company's proxy statement in which such individual is named as a nominee for director without objection to such nomination). (c) Acceleration of Vesting. Without limiting the authority of the Committee under Section 3(b) of the Plan, if a Change in Control of the Company occurs, then, unless otherwise provided by the Committee in its sole discretion either in an agreement evidencing an Incentive Award at the time of grant or at any time after the grant of an Incentive Award, (i) all Options will become immediately exercisable in full and will remain exercisable for the remainder of their terms, regardless of whether the Participants to whom such Options have been granted remain in the employ or service of the Employer or any Subsidiary of the Employer; (ii) all outstanding Restricted Stock Awards will become immediately fully vested; and (iii) all Performance Units and Stock Bonuses then held by the Participant will vest and/or continue to vest in the manner determined by the Committee and set forth in the agreement evidencing such Performance Unit or Stock Bonuses. (d) Cash Payment for Options. If a Change in Control of the Company occurs, then the Committee, if approved by the Committee in its sole discretion either in an agreement evidencing an Incentive Award at the time of grant or at any time after the grant of an Incentive Award, and without the consent of any Participant effected thereby, may determine that some or all Participants holding 10 outstanding Options will receive, with respect to some or all of the shares of Common Stock subject to such Options, as of the effective date of any such Change in Control of the Company, cash in an amount equal to the excess of the Fair Market Value of such shares immediately prior to the effective date of such Change in Control of the Company over the exercise price per share of such Options. (e) Limitation on Change in Control Payments. Notwithstanding anything in Section 12(c) or 12(d) of the Plan to the contrary, if, with respect to a Participant, the acceleration of the vesting of an Incentive Award as provided in Section 12(c) or the payment of cash in exchange for all or part of an Incentive Award as provided in Section 12(d) (which acceleration or payment could be deemed a "payment" within the meaning of Section 280G(b)(2) of the Code), together with any other "payments" which such Participant has the right to receive from the Company or any corporation that is a member of an "affiliated group" (as defined in Section 1504(a) of the Code without regard to Section 1504(b) of the Code) of which the Company is a member, would constitute a "parachute payment" (as defined in Section 280G(b)(2) of the Code), then the "payments" to such Participant pursuant to Section 12(c) or 12(d) of the Plan will be reduced to the largest amount as will result in no portion of such "payments" being subject to the excise tax imposed by Section 4999 of the Code; provided, however, that if a Participant is subject to a separate agreement with the Company or a Subsidiary that expressly addresses the potential application of Sections 280G or 4999 of the Code (including, without limitation, that "payments" under such agreement or otherwise will not be reduced or that the Participant will have the discretion to determine which "payments" will be reduced), then the limitations of this Section 12(e) will not apply, and any "payments" to a Participant pursuant to Section 12(c) or 12(d) of the Plan will be treated as "payments" arising under such separate agreement. Section 13. Rights of Eligible Recipients and Participants; Transferability. (a) Employment or Service. Nothing in the Plan will interfere with or limit in any way the right of the Employer or any Subsidiary of the Employer to terminate the employment or service of any Eligible Recipient or Participant at any time, nor confer upon any Eligible Recipient or Participant any right to continue in the employ or service of the Employer or any Subsidiary of the Employer. (b) Rights as a Shareholder. As a holder of Incentive Awards (other than Restricted Stock Awards and Stock Bonuses), a Participant will have no rights as a shareholder unless and until such Incentive Awards are exercised for, or paid in the form of, shares of Common Stock and the Participant becomes the holder of record of such shares. Except as otherwise provided in the Plan, no adjustment will be made for dividends or distributions with respect to such Incentive Awards as to which there is a record date preceding the date the Participant becomes the holder of record of such shares, except as the Committee may determine in its discretion. (c) Restrictions on Transfer. Except pursuant to testamentary will or the laws of descent and distribution or as otherwise expressly permitted by the Plan, no right or interest of any Participant in an Incentive Award prior to the exercise or vesting of such Incentive Award will be assignable or transferable, or subjected to any lien, during the lifetime of the Participant, either voluntarily or involuntarily, directly or indirectly, by operation of law or otherwise. A Participant will, however, be entitled to designate a beneficiary to receive an Incentive Award upon such Participant's death, and in the event of a Participant's death, payment of any amounts due under the Plan will be made to, and exercise of any Options (to the extent permitted pursuant to Section 10 of the Plan) may be made by, the Participant's legal representatives, heirs and legatees. 11 (d) Non-Exclusivity of the Plan. Nothing contained in the Plan is intended to modify or rescind any previously approved compensation plans or programs of either Employer or any Subsidiary thereof or create any limitations on the power or authority of the Board to adopt such additional or other compensation arrangements as the Board may deem necessary or desirable. Section 14. Securities Law and Other Restrictions. Notwithstanding any other provision of the Plan or any agreements entered into pursuant to the Plan, the Company will not be required to issue any shares of Common Stock under this Plan, and a Participant may not sell, assign, transfer or otherwise dispose of shares of Common Stock issued pursuant to Incentive Awards granted under the Plan, unless (i) there is in effect with respect to such shares a registration statement under the Securities Act and any applicable state securities laws or an exemption from such registration under the Securities Act and applicable state securities laws, and (ii) there has been obtained any other consent, approval or permit from any other regulatory body which the Committee, in its sole discretion, deems necessary or advisable. The Company may condition such issuance, sale or transfer upon the receipt of any representations or agreements from the parties involved, and the placement of any legends on certificates representing shares of Common Stock, as may be deemed necessary or advisable by the Company in order to comply with such securities law or other restrictions. Section 15. Plan Amendment, Modification and Termination. The Board may suspend or terminate the Plan or any portion thereof at any time, and may amend the Plan from time to time in such respects as the Board may deem advisable in order that Incentive Awards under the Plan will conform to any change in applicable laws or regulations or in any other respect the Board may deem to be in the best interests of the Company; provided, however, that no amendments to the Plan will be effective without approval of the stockholders of the Company if stockholder approval of the amendment is then required pursuant to Rule 16b-3 under the Exchange Act, Section 422 of the Code or the rules of any stock exchange or Nasdaq. No termination, suspension or amendment of the Plan may adversely affect any outstanding Incentive Award without the consent of the affected Participant; provided, however, that this sentence will not impair the right of the Committee to take whatever action it deems appropriate under Sections 4(c) and 12 of the Plan. Section 16. Effective Date and Duration of the Plan. The Plan is effective as of December 18, 1995, the date it was adopted by the Board. The Plan will terminate at midnight on December 18, 2005, and may be terminated prior to such time to by Board action, and no Incentive Award will be granted after such termination. Incentive Awards outstanding upon termination of the Plan may continue to be exercised, or become free of restrictions, in accordance with their terms. Section 17. Miscellaneous. (a) Governing Law. The validity, construction, interpretation, administration and effect of the Plan and any rules, regulations and actions relating to the Plan will be governed by and construed exclusively in accordance with the laws of the State of Minnesota. (b) Successors and Assigns. The Plan will be binding upon and inure to the benefit of the successors and permitted assigns of the Company and the Participants. 12 EX-11.1 6 COMPUTATION OF INCOME (LOSS) PER SHARE EXHIBIT 11.1 BIO-VASCULAR, INC. COMPUTATION OF INCOME (LOSS) PER SHARE (In thousands, except share data)
Three Months Ended Six Months Ended April 30, April 30, (unaudited) (unaudited) ------------------ ------------------ 1997 1996 1997 1996 ---- ---- ---- ---- Net income (loss) data: Income from continuing operations........................................ $ 97 $ 263 $ 222 $ 787 Income from discontinued operations...................................... (920) (287) (920) (606) --------- --------- --------- --------- Net income............................................................... $ (823) $ (24) $ (698) $ 181 ========= ========= ========= ========= Net income (loss) per common and common equivalent share, primary: Continuing operations.................................................... $ .01 $ .03 $ .02 $ .08 Discontinued operations.................................................. (.10) (.03) (.10) (.06) --------- --------- --------- --------- Net income............................................................... $ (.09) $ .00 $ (.07) $ .02 ========= ========= ========= ========= Net income (loss) per common and common equivalent share, fully diluted: Continuing operations.................................................... $ .01 $ .03 $ .02 $ .08 Discontinued operations.................................................. (.10) (.03) (.10) (.06) --------- --------- --------- --------- Net income............................................................... $ (.09) $ .00 $ (.07) $ .02 ========= ========= ========= ========= WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES Primary: Weighted average number of common shares outstanding..................... 9,511,389 9,438,617 9,501,050 9,383,526 Common equivalent shares: Dilutive stock options and warrants, using Treasury Stock Method....... -- -- -- 515,321 --------- --------- --------- --------- 9,511,389 9,438,617 9,501,050 9,898,847 ========= ========= ========= ========= Fully diluted: Weighted average number of common shares outstanding..................... 9,511,389 9,438,617 9,501,050 9,383,526 Common equivalent shares: Dilutive stock options and warrants, using Treasury Stock Method....... -- -- -- 519,473 --------- --------- --------- --------- 9,511,389 9,438,617 9,501,050 9,902,999 ========= ========= ========= =========
EX-27.1 7 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the financial statements and related notes for the period ended April 30, 1997 and is qualified in its entirety by reference to such financial statements. 6-MOS OCT-31-1997 NOV-01-1996 APR-30-1997 5,638,409 12,913,887 1,680,535 24,500 1,516,027 18,645,029 2,652,159 1,038,108 25,779,151 1,012,722 0 0 0 95,434 24,670,995 25,779,151 4,806,479 4,806,479 2,021,994 2,975,683 0 0 0 384,872 163,000 221,872 (920,000) 0 0 (698,128) .07 .07
EX-27.2 8 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the financial statements and related notes for the period ended April 30, 1996 and the financial statements and related notes for the period ended April 30, 1997 and is qualified in its entirety by reference to such financial statements. 6-MOS OCT-31-1996 NOV-01-1995 APR-30-1996 7,181,068 21,907,447 2,164,985 66,600 2,360,181 23,110,359 3,519,150 1,609,090 36,992,027 1,256,270 0 0 0 94,386 35,641,371 36,992,027 5,330,421 5,330,421 1,518,076 3,145,572 0 0 0 1,231,652 445,000 786,652 (605,615) 0 0 181,037 .02 .02
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