SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
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Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
BIO-VASCULAR, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
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(3) Per unit price or other underlying value of transaction computed
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[_] Check box if any part of the fee is offset as provided by Exchange
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Notes
[Bio-Vascular logo]
February 20, 1997
Dear Shareholder:
You are cordially invited to attend the 1997 Annual Meeting of Shareholders of
Bio-Vascular, Inc. The meeting will be held on Wednesday, March 19, 1997, at
3:45 p.m., at the Minneapolis Marriott City Center Hotel, 30 South 7th Street,
Minneapolis, Minnesota.
The attached Notice of Annual Meeting and Proxy Statement describe the formal
business to be transacted at the meeting. Items requiring shareholder approval
at the meeting are the election of directors and approval of a proposed
amendment to the Company's Restated Articles of Incorporation, as amended, to
create a class of Preferred Stock, issuable in series.
The Company has previously announced the spin-off of its wholly owned
subsidiary, Vital Images, Incorporated, through a pro rata distribution of all
of the issued and outstanding shares of capital stock of Vital Images.
Information regarding the spin-off may be found in the Company's 1997 Annual
Report to Shareholders, enclosed with these materials. Further information
regarding the spin-off, as well as the business and operations of Vital Images,
will be provided in an Information Statement to be sent to the Company's
shareholders prior to the spin-off.
Whether or not you can attend the meeting, please complete, sign, date and mail
the enclosed proxy card promptly so that your shares can be voted at the meeting
in accordance with your instructions.
Sincerely,
/s/ JOHN T. KARCANES
John T. Karcanes
President and Chief Executive Officer
BIO-VASCULAR, INC.
2575 University Avenue
St. Paul, Minnesota 55114-1024 USA
________________
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MARCH 19, 1997
________________
The Annual Meeting of Shareholders of Bio-Vascular, Inc. (the "Company")
will be held at 3:45 p.m., local time, on Wednesday, March 19, 1997, at the
Minneapolis Marriott City Center Hotel, 30 South 7th Street, Minneapolis,
Minnesota for the following purposes as described in more detail in the
accompanying Proxy Statement:
1. To elect six (6) directors to hold office until the next Annual Meeting of
Shareholders or until their successors are duly elected and qualified;
2. To consider and act upon a proposal to amend the Company's Restated
Articles of Incorporation, as amended, to create a class of Preferred
Stock, issuable in series.
3. To transact such other business as may properly come before the Annual
Meeting or any adjournment thereof.
Only shareholders of record at the close of business on January 27, 1997,
are entitled to notice of and to vote at the Annual Meeting or any adjournments
thereof.
All shareholders are invited to attend the Annual Meeting in person. If
you are unable to do so, please be sure you are represented at the Annual
Meeting by promptly completing and returning the accompanying proxy. Any
shareholder who executes and returns a proxy may revoke it at any time prior to
the voting of the proxies by giving written notice to the Secretary of the
Company, by executing a later-dated proxy, or by attending the Annual Meeting
and giving written notice to the Secretary of the Company.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ M. KAREN GILLES
M. Karen Gilles
Vice President of Finance, Chief Financial Officer
and Corporate Secretary
Dated: February 20, 1997
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE SIGN AND DATE THE PROXY
FORM EXACTLY AS YOUR NAME(S) APPEARS ON IT AND RETURN IT IN THE ENCLOSED
ENVELOPE.
BIO-VASCULAR, INC.
2575 University Avenue
St. Paul, Minnesota 55114-1024 USA
_________________________
PROXY STATEMENT FOR
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD
MARCH 19, 1997
_________________________
INTRODUCTION
The Annual Meeting of Shareholders of Bio-Vascular, Inc. (the "Company")
will be held at 3:45 p.m., local time, on Wednesday, March 19, 1997, at the
Minneapolis Marriott City Center Hotel, Minneapolis, Minnesota, or at any
adjournment thereof (the "Annual Meeting"), for the purposes set forth in the
Notice of Meeting.
A proxy card is enclosed for your use. You are solicited on behalf of the
Board of Directors to SIGN AND RETURN THE PROXY CARD IN THE ACCOMPANYING
ENVELOPE. No postage is required if mailed within the United States. The cost
of soliciting proxies, including the preparation, assembly and mailing of the
proxies and soliciting material, as well as the cost of forwarding such material
to the beneficial owners of the Company's common stock (the "Common Stock"),
will be borne by the Company. Directors, officers and regular employees of the
Company may, without compensation other than their regular compensation, solicit
proxies by telephone, telegraph or personal conversation. The Company may
reimburse brokerage firms and others for expenses in forwarding proxy material
to the beneficial owners of Common Stock.
Any shareholder giving a proxy may revoke it any time prior to its use at
the Annual Meeting either by giving written notice of such revocation to the
Secretary of the Company, by filing a duly executed proxy bearing a later date
with the Secretary of the Company, or by appearing at the Annual Meeting and
filing written notice of revocation with the Secretary of the Company prior to
use of the proxy. Proxies will be voted as specified by shareholders. Proxies
that are signed by shareholders but that lack any such specification will be
voted in favor of the proposals set forth in the Notice of Meeting and in favor
of the election as directors of the nominees listed in this Proxy Statement.
THE BOARD RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE APPROVAL OF THE
PROPOSALS SET FORTH IN THE NOTICE OF MEETING.
The Company expects that this Proxy Statement, the Proxy and Notice of
Meeting will first be mailed to shareholders on or about February 20, 1997.
2
VOTING OF SHARES
Only holders of record of the Common Stock at the close of business on
January 27, 1997 will be entitled to vote at the Annual Meeting. On January 27,
1997, the Company had 9,499,502 outstanding shares of Common Stock, each such
share entitling the holder thereof to one vote on each matter to be voted on at
the Annual Meeting. The holders of 33-1/3% of the shares entitled to vote and
represented in person or by proxy at the Annual Meeting will constitute a quorum
for the transaction of business at the Annual Meeting. In general, shares of
Common Stock represented by a properly signed and returned proxy card will be
counted as shares present and entitled to vote at the meeting for purposes of
determining a quorum, without regard to whether the card reflects abstentions
(or is left blank) or reflects a "broker non-vote" on a matter (i.e., a card
returned by a broker because voting instructions have not been received and the
broker has no discretionary authority to vote). Holders of shares of Common
Stock are not entitled to cumulate voting rights.
The election of a nominee for director and the approval of each of the
other proposals described in this Proxy Statement require the approval of a
majority of the shares present and entitled to vote in person or by proxy on
that matter (and at least a majority of the minimum number of votes necessary
for a quorum to transact business at the Annual Meeting). Shares represented by
a proxy card voted as abstaining on any of the proposals will be treated as
shares present and entitled to vote that were not cast in favor of a particular
matter, and thus will be counted as votes against the matter. Shares
represented by a proxy card indicating any broker non-vote on a matter will be
treated as shares not entitled to vote on that matter, and thus will not be
counted in determining whether that matter has been approved.
3
PRINCIPAL SHAREHOLDERS AND BENEFICIAL
OWNERSHIP OF MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of the Common Stock as of December 31, 1996 unless otherwise noted,
(a) by each shareholder who is known by the Company to own beneficially more
than 5% of the outstanding Common Stock, (b) by each director and each nominee,
(c) by each executive officer named in the Summary Compensation Table below, and
(d) by all executive officers and directors as a group. Unless otherwise noted,
each of the shareholders listed in the table or included within a group listed
in the table possesses sole voting and investment power with respect to the
shares indicated.
---------------------------------------------------------------------------------------------------
BENEFICIAL OWNER NUMBER OF SHARES BENEFICIALLY PERCENTAGE OWNERSHIP
OWNED/1/
----------------------------------------------------------------------------------------------------
Perkins Capital Management, Inc./2/ 794,700 8.4%
730 East Lake Street
Wayzata, MN 55391-1769
- ----------------------------------------------------------------------------------------------------
Vincent Argiro, Ph.D. /3/ 484,000 5.1%
505 North 4th Street
Fairfield, IA 52556
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James F. Lyons /4/ 209,250 2.2%
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Richard W. Perkins /5/ 164,750 1.7%
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Lawrence Perlman /6/ 40,000 *
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Anton R. Potami --- ---
- ----------------------------------------------------------------------------------------------------
Timothy M. Scanlan --- ---
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Edward E. Strickland /7/ 195,000 2.0%
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John T. Karcanes /8/ 112,500 1.2%
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Andrew M. Weiss /9/ 47,766 *
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Frank H. Stephenson /10/ 29,067 *
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M. Karen Gilles /11/ 51,294 *
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Kemal Schankereli /12/ 39,949 *
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All Executive Officers and Directors as 1,447,989 13.2%
a Group (13 persons) /13/
- ----------------------------------------------------------------------------------------------------
*Less than 1%.
/1/ Shares not outstanding but deemed beneficially owned by virtue of the right
of a person or member of a group to acquire them within 60 days are treated as
outstanding only when determining the amount and percent owned by such person or
group. As of December 31, 1996 there were 9,486,270 shares of Common Stock
outstanding.
4
/2/ Based upon a Schedule 13G filed as of January 22, 1997 with the Securities
and Exchange Commission. Excludes shares beneficially owned by Richard W.
Perkins, a director of the Company and the controlling shareholder of Perkins
Capital Management, Inc., a registered investment advisor ("PCM"). Of the
794,700 shares held for the account of clients of PCM, for which beneficial
ownership has been disclaimed by PCM (the "PCM Shares"), PCM has sole investment
power with regard to all such shares and sole voting power over 72,400 of such
shares.
/3/ Based on a Form 4 filing with the Securities and Exchange Commission as of
December 31, 1996. Includes 14,000 shares Dr. Argiro has the right to acquire
within 60 days upon the exercise of options.
/4/ Includes 120,000 shares Mr. Lyons has the right to acquire within 60 days
upon the exercise of options.
/5/ Includes 5,000 shares held by the Perkins Foundation, 78,500 shares held by
various trusts of which Mr. Perkins is the sole trustee, and 56,250 shares held
by Quest Venture Partners, of which Mr. Perkins is a 40% partner. Also includes
25,000 shares Mr. Perkins has the right to acquire within 60 days upon the
exercise or options. Excludes the 794,700 PCM Shares. Mr. Perkins disclaims
beneficial ownership of the PCM Shares.
/6/ Includes 40,000 shares that Mr. Perlman has the right to acquire within 60
days upon the exercise of options.
/7/ Includes 65,000 shares Mr. Strickland has the right to acquire within 60
days upon the exercise of options.
/8/ Includes 100,000 shares Mr. Karcanes has the right to acquire within 60 days
upon the exercise of options.
/9/ Includes 47,766 shares Mr. Weiss has the right to acquire within 60 days
upon the exercise of options.
/10/ Includes 24,422 shares Mr. Stephenson has the right to acquire within 60
days upon the exercise of options.
/11/ Includes 28,074 shares Ms. Gilles has the right to acquire within 60 days
upon the exercise of options.
/12/ Includes 28,578 shares Mr. Schankereli has the right to acquire within 60
days upon the exercise of options.
/13/ Includes 540,698, shares which may be acquired within 60 days upon the
exercise of options.
ELECTION OF DIRECTORS
NOMINATION
The Bylaws of the Company provide that the Board of Directors (the "Board")
shall consist of one or more members, with the number of directors determined by
the shareholders at each regular meeting of the shareholders, subject to
adjustment by the Board or the shareholders between such meetings. The number
of directors is currently set at five (5).
The Board has nominated the six (6) individuals named below to serve as
directors of the Company until the next annual meeting of shareholders or until
their respective successors have been elected and qualified. The election of
the six nominees by the shareholders at the Annual Meeting will determine the
number of directors in accordance with the Bylaws. All of the nominees, with
the exception of Messrs. Potami and Scanlan, are members of the current Board.
Mr. Lawrence Perlman, a current director of the
5
Company, has chosen not to stand for re-election at the Annual Meeting. The
Company would like to thank Mr. Perlman for his service on the Board.
The election of each nominee requires the affirmative vote of a majority of
the shares of the Common Stock present and entitled to vote in person or by
proxy for the election of directors at the Annual Meeting, and at least a
majority of the minimum number of votes necessary for a quorum to transact
business. The Board recommends a vote FOR the election of each of the nominees
listed below. In the absence of other instructions, the proxies will be voted
FOR the election of the nominees named below. If prior to the Annual Meeting
the Board should learn that any nominee will be unable to serve by reason of
death, incapacity or other unexpected occurrence, the proxies that otherwise
would have been voted for such nominee will be voted for such substitute nominee
as selected by the Board. Alternatively, the proxies, at the Board's
discretion, may be voted for such fewer number of nominees as results from such
death, incapacity or other unexpected occurrence. The Board has no reason to
believe that any of the nominees will be unable to serve.
INFORMATION ABOUT NOMINEES
The following information has been furnished to the Company, as of December
31, 1996, by the persons who have been nominated by the Board to serve as
directors for the ensuing year.
Director
Name Age Title Since
---- --- ----- -----
John T. Karcanes 50 President, Chief Executive Officer and Director 1994
James F. Lyons 66 Chairman of the Board and Director 1990
Richard W. Perkins 66 Director 1987
Anton R. Potami 53 Nominee N/A
Timothy M. Scanlan 50 Nominee N/A
Edward E. Strickland 69 Director 1988
OTHER INFORMATION ABOUT NOMINEES
John T. Karcanes. Mr. Karcanes has served as President and a director of
the Company since April 1994 and as Chief Executive Officer since November 1994.
From April 1994 to November 1994, Mr. Karcanes served as Chief Operating Officer
of the Company. From June 1992 to April 1994, Mr. Karcanes acted as an
independent consultant and an interim executive officer, working primarily with
early-stage technology companies. From 1987 to June 1992, Mr. Karcanes served
as President and Chief Executive Officer of Crossfield Lightspeed, Inc., a
technology company serving the publishing industry. Mr. Karcanes served as
President of Palladian Software, Inc., a software development company, from 1984
to 1986, and from 1981 to 1984, he served in a number of executive positions in
international operations and sales and
6
marketing with Cullinet Software, Inc., a database and application software
company, and Computer Pictures Corporation, a software company specializing in
executive information systems.
James F. Lyons. Mr. Lyons has served on the Board of the Company since 1990
and has been Chairman since November 1991. Mr. Lyons served as the Company's
Chief Executive Officer from September 1993 through October 1994. From 1977
through 1990, Mr. Lyons served as President and Chief Executive Officer of Bio-
Medicus, Inc., a manufacturer of medical devices. Mr. Lyons has been employed in
the health care industry for more than 30 years. Mr. Lyons also serves on the
Board of Directors of ATS Medical, Inc., Spine-Tech, Inc. and Quantech Ltd.
Richard W. Perkins. Mr. Perkins has served on the Board of the Company
since 1987. He has served as President, Chief Executive Officer and a director
of Perkins Capital Management, Inc., an investment management firm, since 1984.
Mr. Perkins also serves on the Board of Directors of LifeCore Biomedical, Inc.,
Children's Broadcasting Corporation, CNS, Inc., Nortech Systems, Inc., Garment
Graphics, Inc., Peerless Industrial Group, Inc., Eagle Pacific Industries, Inc.
and Quantech Ltd.
Anton R. Potami. Mr. Potami has served as President and Chief Executive
Officer of the William C. Norris Institute since September 1996. The William C.
Norris Institute is a non-profit organization established to operate as a
catalyst to change educational processes and for the development of small,
technology-based businesses. From 1983 to September 1996, Mr. Potami was
Associate Vice President in the Office of Research and Technology Transfer at
the University of Minnesota. Mr. Potami serves on the Board of Directors of
several private organizations and institutions, including Minnesota Cooperation
Office, International Hearing Foundation, Minnesota Technology Corridor and
Advance Transportation Research Association.
Timothy M. Scanlan. Mr. Scanlan has served as President and Chief Executive
Officer of the Scanlan Group of Companies since 1976. The Scanlan Group of
Companies, a 75 year old organization consisting of Scanlan International, Inc.,
Surgical Technologies, Inc., McLean Medical and Scientific, Inc., and Scanlan
Group BV, designs, manufactures and distributes medical and surgical products
and services worldwide. Mr. Scanlan has been active in the health care field for
28 years. Mr. Scanlan serves on the Board of Directors of the Association of
Operating Room Nurses Foundation, Lillehei Surgical Society and Saint Thomas
Academy. The only publicly held company Board of Directors that Mr. Scanlan
serves on currently, is Bio-Vascular.
Edward E. Strickland. Mr. Strickland has served on the Board of the Company
since 1988. Mr. Strickland has been an independent financial consultant since
1986. Mr. Strickland serves on the Board of Directors of AVECOR Cardiovascular
Inc., Communications Systems, Inc., Hector Communications, Inc., Quantech Ltd.
and as Chairman of the Board of Reuter Manufacturing, Inc., formerly Green Isle
Environmental Services, Inc.
INFORMATION ABOUT THE BOARD AND ITS COMMITTEES
The Board met five times during the fiscal year ended October 31, 1996.
Each of the directors attended, either in person or by telephonic conference, at
least 75% of the meetings of the Board and all such committees on which such
director served during the 1996 fiscal year. The committees of the Board and
their chairmen, during the 1996 fiscal year (unless otherwise noted), are listed
below:
7
Audit Compensation Nominating
----- ------------ ----------
Lawrence Perlman Richard W. Perkins James F. Lyons
(Chairman) (Chairman) (Chairman)
James F. Lyons Edward E. Strickland Richard W. Perkins
Edward E. Strickland
Lawrence Perlman
The Audit Committee is responsible for the selection of the auditors and
the review of the auditor's engagement letter. The Audit Committee receives the
auditor's report and may recommend changes in the accounting systems of the
Company, if so warranted.
The Compensation Committee's function is to determine compensation for the
officers of the Company, to provide for management continuity and to administer
the Company's stock-based compensation plans. See "Compensation Committee Report
on Executive Compensation" below for a more detailed discussion of the function
of the Compensation Committee.
The Nominating Committee is responsible for the selection and nomination of
qualified candidates to serve on the Board. While the Nominating Committee will
consider nominees recommended by the Company's shareholders, it has neither
actively solicited nominations nor established any procedures for this purpose.
During the 1996 fiscal year, the Audit Committee met five times, the
Compensation Committee met two times, and the Nominating Committee met one time.
DIRECTORS' COMPENSATION.
Upon election to the Board and as compensation for their services as
directors, each non-employee director receives options under the Bio-Vascular,
Inc. 1992 Directors' Stock Option Plan (the "Director Plan") to purchase 18,000
shares of Common Stock. These options vest in equal one-third increments on each
successive October 31 beginning one year after the date of grant and are
exercisable at a price equal to the fair market value of one share of Common
Stock on the date of grant. On the third and sixth anniversaries of each non-
employee director's election to the Board, such non-employee director will
receive options under the Director Plan to purchase 21,000 and 24,000 shares of
Common Stock, respectively, vesting in one-third increments on each successive
October 31 following the date of grant at an exercise price equal to the fair
market value on the date of grant. Options granted under the Director Plan have
a term of eight years and are exercisable for a period of five years after
vesting, but only while the recipient remains a director of the Company.
Mr. Perlman did not receive an automatic grant of options under the
Director Plan upon his election to the Board. Upon his election to the Board on
December 1, 1994, Mr. Perlman, instead, received a non-plan option to purchase
60,000 shares of Common Stock at an exercise price equal to the fair market
value on the date of grant. The options granted to Mr. Perlman become
exercisable in one third increments on each of the first three anniversaries of
the date of grant, with each such increment expiring three years from the date
such options became exercisable. Mr. Perlman has decided not to stand for re-
election to the Board of
8
Directors. As a result, options for 20,000 shares of Common Stock, of the option
grant of 60,000 shares, will terminate before becoming exercisable.
The Board currently meets periodically throughout the year and at the
annual meeting of the Company's shareholders. Directors receive compensation of
$500 per month for being a member of the Board and $500 for each Board meeting
attended. In addition, all members of the Board are reimbursed for out of pocket
expenses in connection with attending a Board meeting. Committee members do not
receive any additional compensation by reason of their service on such
committee(s).
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION.
The following table sets forth the cash and non-cash compensation paid or
earned during the fiscal years ending October 31, 1996, 1995 and 1994 by the
Chief Executive Officer of the Company and the five other most highly
compensated executive officers of the Company whose salary and bonus exceeded
$100,000 in the fiscal year ended October 31, 1996.
SUMMARY COMPENSATION TABLE
- ---------------------------------------------------------------------------------------------------------------------
Name and Principal Position Year Annual Compensation Long Term Compensation
--------------------------------------------------------------------------------
Salary ($) Bonus ($) Restricted Securities All Other
Stock Underlying Compensation
Award ($) /1/ Options (#) ($) /2/
- ---------------------------------------------------------------------------------------------------------------------
John T. Karcanes /3/ 1996 $187,000 $ 0 $ 0 0 $ 0
President and Chief 1995 187,000 98,000 0 0 0
Executive Officer 1994 95,461 0 43,750 /4/ 200,000 39,221
- ---------------------------------------------------------------------------------------------------------------------
Andrew M. Weiss /5/ 1996 $150,000 $50,000 $ 0 231,064 $88,510
Vice President-Bio-Vascular, 1995 2,308 50,000 0 0 0
President-Vital Images 1994 --- --- --- --- ---
- ---------------------------------------------------------------------------------------------------------------------
Frank H. Stephenson /6/ 1996 $110,000 $ 0 $ 0 0 $ 0
Vice President-Sales and 1995 90,210 30,000 49,999 /7/ 48,842 10,642
Marketing 1994 --- --- --- --- ---
- ---------------------------------------------------------------------------------------------------------------------
Vincent Argiro, Ph.D. /8/ 1996 $105,000 $ 0 $ 0 0 $ 0
Vice President-Bio-Vascular, 1995 79,800 20,000 0 0 0
Chief Technology Officer and 1994 29,403 50,000 42,120 /9/ 21,000 2,000
Executive Vice President-
Vital Images
- ---------------------------------------------------------------------------------------------------------------------
M. Karen Gilles, 1996 $105,000 $ 0 $ 0 0 $ 0
Vice President-Finance and 1995 84,000 20,000 33,602 /10/ 14,148 ---
Chief Financial Officer 1994 61,468 13,800 36,578 0 5,500
- ---------------------------------------------------------------------------------------------------------------------
Kemal Schankereli, 1996 $105,000 $ 0 $ 0 0 $ 0
Vice President-Research and 1995 90,000 20,000 36,000 /11/ 15,156 ---
Development 1994 75,000 10,500 42,116 14,000 4,400
- ---------------------------------------------------------------------------------------------------------------------
9
/1/ Restricted stock grants are valued at the market price on the day of grant
regardless of whether such shares have vested. To date, the Company has not paid
dividends on its Common Stock, including shares of Common Stock subject to
restricted stock grants.
/2/ "All Other Compensation" paid to Mr. Karcanes includes automobile and
relocation expense reimbursement. "All Other Compensation" paid to Mr.
Stephenson and Mr. Weiss is comprised entirely of relocation expense
reimbursement. "All Other Compensation" paid to Ms. Gilles, Mr. Schankereli and
Dr. Argiro is comprised entirely of automobile expense reimbursement.
/3/ Mr. Karcanes was named as President and Chief Operating Officer of the
Company in April 1994. On November 1, 1994, Mr. Karcanes was named Chief
Executive Officer of the Company, relinquishing the title of Chief Operating
Officer.
/4/ Mr. Karcanes was awarded 12,500 shares of Common Stock in April 1994, which
shares were fully vested on the date of grant. Upon the date of grant, the
market value of the shares was $43,750.
/5/ Mr. Weiss was named a Vice President of the Company and President of Vital
Images in October 1995. Mr. Weiss will relinquish the position of Vice President
of the Company effective with the spin-off of Vital Images, which is projected
to occur about March 31, 1997.
/6/ Mr. Stephenson was named as Vice President of Sales and Marketing of the
Company in December 1994.
/7/ As of October 31, 1996, Mr. Stephenson had aggregate restricted stock
holdings (rights to restricted shares not yet vested) of 4,211 shares, valued at
$26,845 as of such date. Effective January 3, 1995, Mr. Stephenson was granted
a restricted stock award in the amount of 2,105 shares, which shares were fully
vested on the date of grant. Effective January 3, 1995, Mr. Stephenson was also
granted a restricted stock award in the amount of 8,421 shares, vesting in three
installments of 2,105 shares on exch successive October 31 following the date of
grant, with a final installment vesting of 2,106 shares vesting on October 31,
1998.
/8/ Dr. Argiro's employment with the Company commenced May 24, 1994, in
connection with the acquisition of Vital Images, Incorporated.
/9/ As of October 31, 1996, Dr. Argiro had aggregate restricted stock holdings
of 4,320 shares, valued at $27,540 as of such date. Effective May 24, 1994, Dr.
Argiro was granted a restricted stock award in the amount of 12,960 shares,
vesting in three equal installments of 4,320 shares on each successive May 24
following the date of grant.
/10/ As of October 31, 1996, Ms. Gilles had aggregate restricted stock holdings
(rights to restricted shares not yet vested) of 3,536 shares, valued at $22,542
as of such date. Effective November 1, 1993, Ms. Gilles was granted a restricted
stock award in the amount of 10,641 shares, vesting in three equal installments
of 3,547 shares on each successive October 31 following the date of grant.
Effective January 3, 1995, Ms. Gilles was granted a restricted stock award in
the amount of 7,074 shares, vesting in two installments of 1,769 shares on
October 31, 1995 and 1996 and two installments of 1,768 shares on October 31,
1997 and 1998.
/11/ As of October 31, 1996, Mr. Schankereli had aggregate restricted stock
holdings (rights to restricted shares not yet vested) of 3,789 shares, valued at
$24,155 as of such date. Effective November 1, 1993, Mr. Schankereli was granted
a restricted stock award in the amount of 12,252 shares, vesting in three equal
installments of 4,084 shares on each successive October 31 following the date of
grant. Effective January 3, 1995, Mr. Schankereli was granted a restricted stock
award in the amount of 7,579 shares, vesting in three installments of 1,895
shares on each successive October 31 following the date of grant, with a final
installment of 1,894 shares vesting on October 31, 1998.
10
OPTION GRANTS AND EXERCISES.
The following tables provide information for the year ended October 31,
1996 as to individual grants and aggregate exercises of options to purchase
shares of the Common Stock by each of the executive officers named in the
Summary Compensation Table and the potential realizable value of the options
held by such persons at October 31, 1996.
OPTION GRANTS IN LAST FISCAL YEAR
- --------------------------------------------------------------------------------------------------
Individual Grants
------------------------------------------------
Name Number of % of Total Exercise Expiration Potential Realization Value
Securities Options or Base Date at Assumed Annual Rates
Underlying Granted to Price of Stock Appreciation for
Options Employees ($/Sh) Option Term /1/
----------------------------
Granted in Fiscal 5% 10%
Year
- -------------------------------------------------------------------------------------------------
John T. Karcanes 0 --- --- --- --- ---
- -------------------------------------------------------------------------------------------------
Andrew M. Weiss 200,000 /2/ 65.82 $10.000 10/25/07 $1,902,428 $4,773,085
31,064 /3/ 10.22 12.875 10/25/04 123,715 390,637
- -------------------------------------------------------------------------------------------------
Frank H. 0 --- --- --- --- ---
Stephenson
- -------------------------------------------------------------------------------------------------
Vincent Argiro 0 --- --- --- --- ---
- -------------------------------------------------------------------------------------------------
M. Karen Gilles 0 --- --- --- --- ---
- -------------------------------------------------------------------------------------------------
Kemal Schankereli 0 --- --- --- --- ---
- -------------------------------------------------------------------------------------------------
/1/ Potential realizable value is calculated based on an assumption that the
price of the Company's Common Stock will appreciate at the assumed annual rates
shown (5% and 10%), compounded annually from the date of grant of the option
until the end of the option term. These assumed annual rates are applied
pursuant to Securities and Exchange Commission rules and therefore are not
intended to forecast possible future appreciation, if any, of the Common Stock.
Actual gains, if any, on stock option exercises are dependent on the future
performance of the Common Stock, overall market conditions and the continued
employment of the named executive by the Company. There can be no assurance that
the amounts reflected in this table will be realized.
/2/ Reflects a non-plan grant of 200,000 options to Mr. Weiss on December 18,
1995, vesting in five annual installments of 40,000 on each successive October
25 thereafter. The options expire seven years from the date of vest.
/3/ Reflects the grant of 31,064 options to Mr. Weiss on December 18, 1995 under
the Company's 1988 Incentive Stock Option Plan (the "1988 Plan"), vesting in
four annual installments of 7,766 on each successive October 25 thereafter. To
the extent not already exercisable, options under the 1988 Plan become
immediately exercisable in full upon any change in control of the Company. Under
the 1988 Plan, a "change in control" occurs when (i) any person is or becomes
the beneficial owner 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
11
with or into another corporation. Generally, upon termination of employment of
an optionee under the 1988 Plan, options under the 1988 Plan which are
exercisable upon the date of termination will remain exercisable for a period of
time set forth in the 1988 Plan or the expiration of the term of the options,
whichever is earlier; provided, however, that if the termination is for cause,
options granted under the 1988 Plan may be canceled.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
- ------------------------------------------------------------------------------------------------------
Shares Value Number of Securities Value of Unexercised
Acquired Realized Underlying Unexercised In-the-Money Options at
Name on ($) Options at October 31, 1996/2/
Exercise October 31, 1996
(#)/1/
-----------------------------------------------------------------------------------------------------
Exercisable Unexercisable Exercisable Unexercisable
- ------------------------------------------------------------------------------------------------------
John T. Karcanes 0 $ 0 100,000 100,000 $287,500 $287,500
- ------------------------------------------------------------------------------------------------------
Andrew M. Weiss 0 0 47,766 183,298 0 0
- ------------------------------------------------------------------------------------------------------
Frank H. Stephenson
0 0 24,422 24,420 39,686 39,683
- ------------------------------------------------------------------------------------------------------
Vincent Argiro 0 0 14,000 7,000 43,750 21,875
- ------------------------------------------------------------------------------------------------------
M. Karen Gilles 10,100 56,813 /3/ 30,324 7,074 54,527 11,495
- ------------------------------------------------------------------------------------------------------
Kemal Schankereli 0 0 28,578 7,578 77,064 12,314
- ------------------------------------------------------------------------------------------------------
/1/ The 1988 Plan provides that the exercise price of options must be paid in
cash, except that the Compensation Committee, in its sole discretion, may allow
payment by delivery of shares of Common Stock having an aggregate fair market
value equal to the exercise price or may allow the exercise price to be financed
by the Company upon such terms and conditions as the Compensation Committee may
determine.
/2/ Based upon the market value of the underlying Common Stock at fiscal year
end, less the exercise price.
/3/ Reflects the value realized by Ms. Gilles upon the exercise of options to
purchase 10,100 shares of Common Stock at an exercise price of $4.125 per share
on February 28, 1996, based upon a closing sale price of $9.75 per share of
Common Stock on that date, as reported by Nasdaq.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION.
OVERVIEW AND PHILOSOPHY. The Compensation Committee is currently composed
of two of the Company's outside directors. The Compensation Committee's
responsibilities are to:
. Review and recommend compensation policies and compensation levels for
the Company's executive officers to the Board;
. Review and recommend plans to provide management continuity to the
Board; and
12
. Administer the Company's stock based compensation plans and the
Employee Stock Purchase Plan. The Compensation Committee determines
who will participate in such plans and the extent and terms of such
participation.
The Compensation Committee's objectives in recommending executive
compensation policies and compensation levels for the Company's executive
officers are: (i) to attract and retain qualified executive officers; (ii) to
align the interests of those executive officers with those of the Company's
shareholders; and (iii) to encourage the development of a cohesive management
team. The Compensation Committee believes that base salaries need to be
moderately to aggressively competitive to attract and retain qualified executive
officers, that the executive officers need to be provided with stock ownership
opportunities to align their interests with those of the Company's shareholders
and that incentive compensation should be based primarily on the accomplishment
of Company performance in the interest of building a cohesive management team.
EXECUTIVE COMPENSATION PROGRAM COMPONENTS. The Company's executive
compensation program focuses on Company and individual performance as measured
against goals confirmed by the Compensation Committee. The Compensation
Committee places primary emphasis on Company performance rather than individual
performance in order to inspire the Company's executives to work as a team to
accomplish Company objectives. Components of the Company's executive officer
compensation program include base salary, annual cash incentive compensation,
stock option grants and restricted stock awards, as well as various benefits
which are presently available to all employees of the Company. Each component of
the executive officer compensation program is discussed in greater detail below.
Base Salary. The Compensation Committee's recommendations regarding the
base salary of each of the Company's executive officers are based on a number of
factors, including the executive officer's experience and past performance, the
level of skill and responsibility required by the executive's position and his
or her qualifications for the position. The Compensation Committee also
considers competitive salary information gathered by outside consultants and
through comparative surveys pertaining specifically to the medical device
industry as well as to companies of similar size in other industries. As a
result, the population of companies for which competitive salary data is
obtained is broader than the industry peer group established to compare
shareholder returns in the Performance Graph set forth below. In general, the
Compensation Committee seeks to set executive officer base salary at moderately
to aggressively competitive levels in relation to the companies with which the
Company competes for executives. Base salaries are determined prior to the
beginning of each fiscal year following a review of the above factors by the
Compensation Committee and may also be adjusted based on Company performance and
the executive officer's impact thereon, cost of living, promotion or merit
factors.
In fiscal 1996, each of the Company's executive officers, with the
exception of Mr. Karcanes and Mr. Weiss, received an increase in the base salary
component of his or her compensation following a review of the above factors.
Mr. Weiss did not receive an increase as his employment with the Company began
in October 1995, two weeks before the beginning of fiscal 1996. Mr. Karcanes,
the Chief Executive Officer, did not receive an increase as the Board of
Directors believes his 1995 base salary is appropriate based on the above
factors.
13
Annual Cash Incentive Compensation. The Company's annual cash incentive
compensation program is designed to provide a direct financial incentive to the
Company's executive officers for the achievement of specific Company and
individual performance goals.
Under general guidelines established by the Compensation Committee, each of
the Company's executive officers are eligible to receive up to 20% of their base
salary in annual cash incentive compensation based on certain criteria
established by the Compensation Committee, with the exception of Mr. Karcanes
and Mr. Weiss. Mr. Karcanes and Mr. Weiss are eligible to receive up to 50% of
their base pay in annual cash incentive compensation based on criteria mutually
determined by Mr. Karcanes and Mr. Weiss, individually, and the Board of
Directors. See "Management Agreements - Karcanes Employment Agreement and Weiss
Employment Agreement", below. Of the 20% amounts for which the other executive
officers are eligible, the Compensation Committee's guidelines provide that 40%
is based on achievement of internal segment net revenue goals, 40% on the
achievement of internal segment operating income goals and the remaining 20% on
a subjective evaluation by the Compensation Committee of the individual
executive officer's performance during the period. At the Compensation
Committee's discretion, the amount of annual cash incentive compensation may be
increased to more than 20% of an executive officer's base salary in the event of
performance by that executive above and beyond what is normally called for by
the executive's position. The Compensation Committee may also pay a cash hiring
bonus at the time an executive officer joins the Company.
While the Compensation Committee determined that all of the executive
officers of the Company performed their responsibilities well during fiscal
1996, as a result of external developments that could not reasonably have been
foreseen regarding Medicare reimbursement affecting sales of the Company's Peri-
Strip product, none of the officers, with the exception of Mr. Weiss, received
annual cash incentive compensation in fiscal 1996. Due to the adverse impact of
these external developments on the Company's capacity for near-term net revenue
and operating income growth, 80% of each executive officer's incentive
compensation (the 40% based on net revenue and the 40% based on operating
income) was not earned. Additionally, the executive officers agreed to forgo the
remaining 20% of annual incentive compensation based on individual criteria.
This decision was made to align the interests of the executive officers with
those of the shareholders, even though executive performance was not responsible
for the interruption of revenue and net income growth. Mr. Weiss, who under the
terms of his employment offer, is eligible to receive up to 50% of his base
salary in incentive compensation was guaranteed two-thirds of his fiscal 1996
bonus potential as an inducement to join the Company.
Stock Option Program. By granting options to purchase Common Stock to the
executive officers of the Company, the Compensation Committee seeks to align the
long-term interests of the Company's executive officers with those of its
shareholders by creating a strong and direct nexus between executive
compensation and shareholder return and to enable executives to develop and
maintain a significant ownership position in the Company.
The 1995 Plan authorizes the Compensation Committee to issue executive
officers incentive stock options having an exercise price not less than the fair
market value of the Common Stock on the date of grant (or, for an incentive
option granted to a person holding more than 10% of the Company's voting stock,
at not less than 110% of fair market value), and non-statutory options having an
exercise price not less than 85% of the fair market value of the Common Stock on
the date of grant. Options granted under the 1995 Plan have a term fixed by the
Compensation Committee at the time of grant, which term may not exceed 10 years.
14
All other terms of options granted under the 1995 Plan may be determined by the
Compensation Committee and different restrictions may be established with
respect to different recipients of stock options.
General guidelines established by the Compensation Committee provide for
the grant to each executive officer of options having a value up to 20% of such
executive officer's base salary on the date of grant, calculated on the basis of
the fair market value of the Common Stock underlying the options on the date of
grant. The Compensation Committee determines the number of options and the terms
and conditions of such options based on certain factors, including the past
performance of the executive officer, the executive officer's potential impact
on the achievement of the Company's objectives, past grants or awards of stock-
based compensation and on comparative compensation data regarding option grants
by companies within the medical device industry as well as within a broader
group of companies of comparable size and complexity. Additionally, options may
be granted to an executive officer as an incentive at the time the executive
officer joins the Company.
None of the Company's executive officers, other than Mr. Weiss, received
awards of stock options during fiscal 1996. During fiscal 1995, all of the
Company's executive officers, other than Mr. Karcanes, Dr. Argiro and Mr. Weiss,
received four-year option grants equal to 20% of their base salary annually,
vesting in equal installments annually through October 31, 1998. Options
received by Mr. Weiss were determined based on the nature and amount of total
compensation necessary to induce him to join the Company. See "Management
Agreements -- Weiss Employment Agreement" below.
Restricted Stock Awards. The Compensation Committee may also grant stock-
based compensation to the Company's executive officers in the form of restricted
stock awards. Under general guidelines established by the Compensation
Committee, executive officers of the Company are eligible to receive awards of
restricted stock having a value equal to up to 10% of their base salary in a
given year, divided by the market price of the Common Stock on the date of
grant. Although each award of restricted stock is subject to terms and
conditions established by the Compensation Committee, such awards generally
consist of four-year grants of the number of shares determined as provided
above, which vest in equal installments over the four year period conditioned on
the executive's continued employment by the Company. In determining whether to
grant shares of restricted stock to an executive officer of the Company, the
Compensation Committee evaluates the past performance of the executive officer,
the executive officer's potential impact on the achievement of the Company's
objectives and past grants or awards of stock-based compensation to the
executive officer. Restricted stock may also be awarded by the Compensation
Committee upon the hiring of executive officers as an incentive to join the
Company.
During fiscal 1996, none of the Company's executive officers received an
award of restricted stock, however, during fiscal 1995, all of the Company's
executive officers, with the exception of Mr. Karcanes, Mr. Weiss and Dr.
Argiro, received four-year awards of restricted stock, vesting in equal
installments annually through October 31, 1998. Mr. Karcanes and Dr. Argiro did
not receive awards of restricted stock in fiscal 1995 based on the Compensation
Committee's belief that the stock options granted to Mr. Karcanes and Dr. Argiro
upon their employment by the Company are currently sufficient to provide them
with a competitive compensation package and to align their interests with those
of the Company's shareholders, although the Compensation Committee may determine
to award restricted stock to Mr. Karcanes and Dr. Argiro in the future.
15
Benefits. The Company provides medical, dental and life and disability
insurance benefits as well as a 401(k) retirement plan and a stock purchase plan
to the executive officers. The same benefits are available to all Company
employees. The amount of perquisites, as determined in accordance with the rules
of the Securities and Exchange Commission relating to executive compensation,
did not exceed 10% of each executive officer's annual salary for fiscal 1996.
Section 162(m). Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"), limits the deductibility of certain compensation paid to
each of the chief executive officer and the four other most highly compensated
executives of a publicly held corporation to $1,000,000. In fiscal 1995, the
Company did not pay "compensation" within the meaning of Section 162(m) to such
executive officers in excess of $1,000,000 and does not believe it will do so in
the near future. Therefore, the Company does not have a policy at this time
regarding qualifying compensation paid to its executive officers for
deductibility under Section 162(m), but will formulate such a policy if
compensation levels ever approach $1 million.
Richard W. Perkins (Chairman)
Edward E. Strickland
Members of the Compensation Committee
MANAGEMENT AGREEMENTS.
The Company has entered into employment agreements with the following
executive officers named in the Summary Compensation Table.
KARCANES EMPLOYMENT AGREEMENT. Pursuant to a letter agreement dated April
7, 1994, which became effective as of April 27, 1994, Mr. Karcanes and the
Company agreed to the terms of Mr. Karcanes' employment with the Company. The
agreement established a base salary for Mr. Karcanes of $175,000 per year.
Pursuant to the terms of the agreement, Mr. Karcanes also received a grant of
options to purchase 200,000 shares of the Common Stock at an exercise price
equal to the fair market value of the Common Stock on the date of grant (which
was $3.50 per share). The options have a term of seven years with a vesting on
each of the first four anniversaries of the date of grant. The agreement also
provided Mr. Karcanes with the right to receive an annual cash bonus equal to up
to 50% of his base salary in the event certain performance criteria mutually
established by the Board and Mr. Karcanes are fulfilled, a guaranteed bonus for
1994 of $43,750 payable in the form of immediately vested shares of Common
Stock, a car allowance of $1,000 per month and reimbursement of certain
relocation and moving expenses.
The terms of Mr. Karcanes' employment by the Company have subsequently been
modified by oral agreement between Mr. Karcanes and the Company to combine the
base annual salary of $175,000 and the annual automobile expense reimbursement
of $12,000 into an annual base salary of $187,000.
WEISS EMPLOYMENT AGREEMENT. Pursuant to a letter agreement dated October
19, 1995, which became effective as of October 25, 1995, Mr. Weiss and the
Company agreed to the terms of Mr. Weiss' employment with the Company. The
agreement established a base salary for Mr. Weiss of $150,000 per year and a
signing bonus of $50,000. Pursuant to the terms of the agreement, Mr. Weiss also
received a grant of options to purchase 200,000 shares of the Common Stock at an
exercise price of $10 per share. The fair market value of the Company's Common
Stock on the date of grant was $12.875 per share. As a result the Company
recorded compensation expense which is being amortized ratably as the options
vest. The options
16
have a term of seven years, and vest equally on each of the first five
anniversaries of the date of grant. The agreement also provided for a grant of
options equal in value to $100,000 (the number of shares times the fair market
value on the date of grant) on the date of grant. The agreement also provided
Mr. Weiss with the right to receive an annual cash bonus equal to up to 50% of
his base salary in the event certain performance criteria mutually established
by the Board and Mr. Weiss are fulfilled. Two-thirds of this bonus was
guaranteed for fiscal 1996 as an inducement for Mr. Weiss to join the Company.
Under the agreement, Mr. Weiss received reimbursement of certain relocation and
moving expenses, grossed up to cover the related taxes. Additionally, the
agreement provides the right to twelve months of base salary and acceleration of
unvested stock options under the following conditions: (i) termination for any
reason other than cause; (ii) if during the first 24 months of Mr. Weiss'
employment, Mr. Karcanes resigns or is terminated and Mr. Weiss chooses to
resign; or (iii) Dr. Argiro is terminated or resigns and Mr. Weiss chooses to
resign.
STEPHENSON EMPLOYMENT AGREEMENT. Pursuant to a letter agreement dated
November 28, 1994, which became effective as of December 13, 1994, Mr.
Stephenson and the Company agreed to the terms of Mr. Stephenson's employment
with the Company. The agreement established a base salary for Mr. Stephenson of
$100,000 per year. Pursuant to the terms of the agreement, Mr. Stephenson also
received restricted stock having a value of $10,000, vesting in four equal
installments on each anniversary of the date of grant and conditioned on Mr.
Stephenson's continued employment by the Company, and a grant of options to
purchase 32,000 shares of Common Stock at an exercise price equal to the
reported low bid price on the date of grant (which was $4.75 per share). The
options have a term of seven years with 25% vesting on each of the first four
anniversaries of the date of grant. The agreement also provides Mr. Stephenson
with the right to receive an annual cash bonus equal to up to 20% of his base
salary, up to 20% of his base salary in stock options, and up to 10% of his base
salary in restricted stock in the event certain performance criteria established
by Mr. Karcanes and Mr. Stephenson are fulfilled, as well as reimbursement of
certain moving, travel and living expenses related to Mr. Stephenson's
relocation, which have been paid by the Company.
The terms of the letter agreement between the Company and Mr. Stephenson
were amended in January 1995 to provide for payment of a lump sum cash bonus of
$10,000 to Mr. Stephenson in January 1995, and to reflect that the options to
purchase 32,000 shares of Common Stock provided for in the initial agreement
were granted on January 2, 1995 and will vest in increments of 25% per year,
beginning on October 31, 1995. The terms of Mr. Stephenson's employment by the
Company have subsequently been modified by oral agreement with the Company
increasing his base salary to $110,000 annually.
ARGIRO EMPLOYMENT AGREEMENT. Pursuant to an agreement dated and effective
May 24, 1994, Dr. Argiro and the Company agreed to the terms of Dr. Argiro's
employment with the Company. The agreement established a base salary for Dr.
Argiro of $70,200 per year and auto allowance of $4,800 per year. Pursuant to
the terms of the agreement, Dr. Argiro also received restricted stock equal to
20% of his base salary, vesting in three equal installments on each anniversary
of the date of grant and conditioned on Dr. Argiro's continued employment by the
Company, and a grant of options to purchase 21,000 shares of Common Stock at an
exercise price equal to the reported low bid price on the date of grant (which
was $3.25 per share). The options have a term of eight years with 25% vesting on
each of the first four anniversaries of the date of grant and expiring five
years from the date of vest. Dr. Argiro also received a signing bonus of
$50,000. The term of the agreement is three years from the effective date.
17
The terms of Dr. Argiro's employment by the Company were modified by oral
agreement between Dr. Argiro and the Company in 1995 to combine the annual base
salary of $70,200 and the annual automobile expense reimbursement of $4,800 into
an annual base salary of $75,000. In fiscal 1995 and again in fiscal 1996, the
employment agreement was modified by oral agreement increasing Dr. Argiro's
annual base salary to $86,000 and $105,000, respectively.
CHANGE IN CONTROL AGREEMENTS. Each of the executive officers of the Company
named in the Summary Compensation Table, except for Mr. Weiss, has entered into
a severance agreement with the Company. These severance agreements provide for
certain payments in the event that within twelve months subsequent to a change
in control of the Company or, in certain circumstances, immediately prior to a
change in control of the Company, the officer's employment is terminated
involuntarily by the Company or by the executive officer due to a material
change of position or benefits of the executive officer (a "Qualifying
Termination"). As defined in these agreements, a "change in control" means: (i)
the sale, lease, exchange, or other transfer of all or substantially all of the
assets of the Company (in one transaction or in a series of related
transactions) to any third party; (ii) the approval by the shareholders of the
Company of any plan or proposal for the liquidation or dissolution of the
Company; or (iii) a change in control of a nature that would be required to be
reported (assuming such event has not been "previously reported") in response to
Item 1(a) of a Current Report on Form 8-K pursuant to Section 13 or 15(d) of the
Exchange Act, whether or not the Company is then subject to such reporting
requirement; provided that, without limitation, such a change in control will be
deemed to have occurred at such time as: (A) any third party is or becomes the
beneficial owner, directly or indirectly, of 50% or more of the combined voting
power of the Company's outstanding securities ordinarily having the right to
vote for elections of directors, or (B) individuals who constitute the Board on
the date of the agreement (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board, provided that any individual
becoming a director subsequent to the date of the agreement whose election, or
nomination for election, by the Company's shareholders, was approved by a vote
of at least a majority of the directors comprising the Incumbent Board (either
by a specific vote or by approval of the proxy statement of the Company in which
such individual is named as a nominee for director without objection to such
nomination) will, for purposes of this clause (B), be deemed to be a member of
the Incumbent Board.
Upon a Qualifying Termination, in addition to salary and benefits then due
and in addition to any other benefits due under the Company's compensation
plans, the terminated executive officer is entitled to: (a) a lump sum payment
equal to the product of the executive officer's highest monthly compensation for
the previous twelve month period multiplied by thirty-six (36); (b)
reimbursement for all legal fees and expenses incurred by the executive officer
as a result of such termination; and (c) for a thirty-six (36) month period
following such termination, life and health insurance benefits substantially
similar to those the executive officer was receiving at the time of termination.
The severance agreements for the named executive officers provide that in
the event that any payment or benefit received by the executive officer pursuant
to the severance agreement or any other payments the officer has the right to
receive from the Company in connection with a change in control of the Company
would not be deductible by the Company under Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code"), such severance payments will be
reduced so that no portion of such payments is not deductible by reason of
Section 280G of the Code.
18
PERFORMANCE GRAPH.
In accordance with the rules of the Securities and Exchange Commission, the
following performance graph compares the performance of the Company's Common
Stock on the Nasdaq SmallCap Market prior to September 21, 1995, and on the
Nasdaq National Market thereafter, to an index for the Nasdaq Stock Market (U.S.
Companies) prepared by the Center for Research in Securities Prices and to a
self-determined peer group of eight companies identified at the bottom of the
graph. The graph compares the cumulative total stockholder return as of the end
of each of the Company's last five fiscal years on $100 invested at the
beginning of the period and assumes reinvestment of all dividends.
Date Company Index Market Index Peer Index
10/31/91 100.000 100.000 100.000
10/30/92 89.412 112.759 79.497
10/29/93 68.235 145.286 74.700
10/31/94 103.529 146.069 70.360
10/31/95 268.235 196.730 131.271
10/31/96 120.000 232.245 108.395
The index level for all series was set to 100.0 on 10/31/91.
19
PROPOSAL TO AMEND THE COMPANY'S RESTATED ARTICLES OF INCORPORATION, AS AMENDED,
TO CREATE A CLASS OF PREFERRED STOCK
DESCRIPTION OF PROPOSAL
At present, the Company's Restated Articles of Incorporation, as amended,
(the "Articles") authorize the issuance of 20,000,000 shares of Common Stock,
par value $0.01 per share, and do not authorize the issuance of any shares of
preferred stock.
The Board of Directors has unanimously proposed that the Articles be
further amended to establish authority for the issuance, in series, of up to
5,000,000 shares of Preferred Stock. Accordingly, if this amendment is approved
by the shareholders, 5,000,000 shares of Preferred Stock will be available for
future issuance.
As permitted by Minnesota law and the Articles, if so amended, the Board of
Directors will be empowered to issue the shares of Preferred Stock in series,
and to determine the number, designation, relative rights, preferences and
limitations of the shares of each series. Among the determinations to be made by
the Board of Directors for each series would be (i) the dividend rate, if any,
and whether dividends would be cumulative; (ii) whether, and the extent to
which, the shares would be entitled to a preference over the Common Stock upon
any distribution of the assets of the Company, whether by dividend or by
liquidation; (iii) whether there would be conversion rights allowing holders of
Preferred Stock to convert their shares into shares of Common Stock, and the
terms of conversion; (iv) whether, and the extent to which, there would be
voting rights, including without limitation the right to vote separately as a
series on designated matters and the right to vote with the holders of shares of
Common Stock as if the Preferred Stock were considered to be Common Stock; (v)
the rights upon liquidation, dissolution or winding up; and (vi) whether the
Company would have the right to redeem such shares, and the terms of any
redemption. These determinations would be made by the Board of Directors,
without further shareholder approval, at the time it established a particular
series of preferred stock and would take into account the circumstances at that
time. Before any series would be issued, a certificate would be filed pursuant
to Minnesota law, setting forth the number of shares and the designations,
relative rights, preferences and limitations of that series as fixed by the
Board of Directors.
PURPOSE AND EFFECTS OF PROPOSED AMENDMENT
The Board of Directors believes that it is necessary and desirable to
authorize a class of Preferred Stock in order to give the Board additional
flexibility to raise equity capital, make acquisitions through the use of
capital stock, facilitate the operation of the Company's Shareholder Rights Plan
(the "Rights Plan"), and to issue Preferred Stock for any other proper corporate
purpose. The flexibility inherent in having the authority to issue shares of
Preferred Stock and to vary features in the respective series of Preferred Stock
(such as dividend, voting and conversion rights) to meet the needs of particular
situations will, in the opinion of the Board of Directors, be advantageous to
the Company in any negotiations involving the issuance of such stock. If
authorization of the additional shares of Preferred Stock were deferred until a
specific need existed, the time and expense required in connection with
obtaining the necessary shareholder action for each proposed issuance could
deprive the Company of the flexibility that the Board of Directors believes will
result in the most efficient use of such shares.
20
In June 1996, the Board of Directors adopted the Rights Plan, pursuant to
which Common Stock Purchase Rights ("Rights") have been issued in respect of,
and currently are attached to and trade with, each share of the Company's Common
Stock. Upon the occurrence of certain events, including: (i) a person or group
acquiring 15% or more of the Company's outstanding Common Stock; (ii) a third
party announcing an offer to purchase a 15% or greater stake in the Company; or
(iii) the Board of Directors declaring a 10% or greater shareholder to be an
"adverse person" based upon the Board's belief that such person's shares were
acquired for short-term financial gain or that the shareholder might otherwise
adversely affect the Company's business or prospects, the Rights become
exercisable and entitle each holder thereof (other than the acquiring person or
"adverse person") to purchase a significant number of shares of Common Stock (or
other securities of the Company) at one-half their market value, subject to the
ability of the Board to approve of any such transaction or redeem the Rights
prior to their becoming exercisable. If the Rights were to become exercisable,
the number of shares of Common Stock reserved under the Articles could likely be
inadequate for issuance pursuant to the Rights. In such event, the Rights Plan
permits the Company to issue other equity securities, such as shares of
Preferred Stock, upon exercise of the Rights. If the proposed amendment to the
Articles is approved, the Preferred Stock could be used by the Board of
Directors for this purpose.
If this proposed amendment is adopted, no additional action or
authorization by the Company's shareholders will be necessary prior to the
issuance of shares of Preferred Stock, unless required by applicable law or
regulation or the rules or policies of the National Association of Securities
Dealers, Inc. related to the Nasdaq National Market, or unless deemed desirable
or advisable by the Board of Directors. Except for any potential use of the
Preferred Stock in connection with the Rights Plan, as discussed above, the
Board of Directors has no immediate plans, understandings, agreements or
commitments to issue any shares of Preferred Stock.
If adopted, the proposal will not, by itself have any effect on the rights
of holders of presently issued and outstanding shares of Common Stock. The
issuance of one or more series of Preferred Stock in the future could affect the
holders of Common Stock in a number of respects, including the following: the
issuance of Preferred Stock may have the effect of subordinating the Common
Stock to the Preferred Stock in terms of dividend and liquidation rights, since
Preferred Stock typically entitles its holders to satisfaction in full of
specified dividend and liquidation rights before any payment of dividends or
distribution of assets on liquidation is made on the Common Stock; if voting or
conversion rights are granted to the holders of Preferred Stock the voting power
of the Common Stock (including stock held by any persons who may seek to obtain
control of the Company) will be diluted; the issuance of Preferred Stock may
result in a dilution of earnings per share of the Common Stock; and certain
fundamental matters requiring shareholder approval (such as mergers,
consolidations, sales of assets and future amendments to the Company's Restated
Articles of Incorporation, as amended) may require approval by the separate vote
of each series of Preferred Stock.
Under the Articles, the shareholders of the Company do not have preemptive
rights with respect to the capital stock of the Company. Thus, should the Board
of Directors elect to issue shares of Preferred Stock, existing shareholders
would not have any preferential rights to purchase such shares.
The amendment to the Articles adding a class of Preferred Stock, issuable
in series, could, under certain circumstances, discourage or make more difficult
an attempt by a person or organization to gain control of the Company by tender
offer or proxy contest, or to consummate a merger or consolidation with the
Company after acquiring control, and to remove incumbent management, even if
such transactions were
21
favorable to the shareholders of the Company. Shares of the Preferred Stock
could be issued with voting or conversion rights making a change in control of
the Company more difficult, especially if the shares were issued in a private
placement to a person sympathetic to management and opposed to any attempt to
gain control of the Company. As discussed above, shares of Preferred Stock could
become issuable under the Rights Plan, which could deter unsolicited attempts to
acquire the Company or any other attempt to acquire the Company in a manner or
on terms not approved by the Board of Directors. Accordingly, this proposal to
amend the Articles may be deemed (under certain circumstances which may or may
not occur) to be an anti-takeover measure. However, the proposal is not being
presented as, nor is it part of, any plan to adopt a series of anti-takeover
measures. The Board of Directors has no knowledge of any specific effort by any
identified persons or organizations to accumulate shares of the Company or
otherwise gain control of the Company. See "Outstanding Shares" for a listing of
certain significant shareholders of the Company.
PROPOSED RESOLUTION
A resolution in substantially the following form will be submitted to the
Company's shareholders at the Annual Meeting:
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 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.
22
BOARD OF DIRECTORS' RECOMMENDATION
The Board of Directors recommends a vote FOR approval of this amendment to
the Articles. The affirmative vote of the holders of a majority of shares of
Common Stock of the Company present and entitled to vote in person or by proxy
on this matter, and at least a majority of the minimum number of votes necessary
for a quorum, is necessary for approval. Unless a contrary choice is specified,
proxies solicited by the Board of Directors will be voted FOR the approval of
this amendment to the Articles.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers, and persons who own more than
10% of the Company's Common Stock, to file with the Securities and Exchange
Commission (the "SEC") initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. Executive
officers, directors and greater than 10% shareholders are required by SEC
regulations to furnish the Company with copies of all Section 16(a) reports they
file. To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company during, or with respect to, the period ended
October 31, 1996: (1) Mr. Lyons failed to file on a timely basis a report on
Form 4 required by Section 16 of the Exchange Act, relating to the exercise of
stock options; (2) Dr. Argiro failed to file on a timely basis a report on Form
4 required by Section 16 of the Exchange Act, relating to the repurchase of
shares by the Company to satisfy income tax withholding on stock compensation;
and (3) Mr. David Davis, Vice President Sales and Marketing of Vital Images,
Incorporated, failed to file on a timely basis a report on Form 3 required by
Section 16 of the Exchange Act, reporting his appointment as an executive
officer of Vital Images, Incorporated, and the grant of options to Mr. Davis in
connection with his employment.
INDEPENDENT AUDITORS
The Board of Directors, upon recommendation of the Audit Committee, has
approved the engagement of Coopers & Lybrand L.L.P. as independent certified
public accountants to audit the Company's financial statements for the year
ending October 31, 1997. The Company does not intend to request that the
shareholders approve the selection of the independent public accountants for the
fiscal year ended October 31, 1997. The Company has requested and expects a
representative of Coopers & Lybrand L.L.P. to be present at the Annual Meeting,
to make a statement if he or she so desires and to respond to appropriate
questions.
PROPOSALS FOR THE NEXT ANNUAL MEETING
Shareholder proposals intended to be presented in the proxy materials
relating to the next Annual Meeting of Shareholders must be received by the
Company on or before October 23, 1997.
23
OTHER BUSINESS
The Company knows of no business that will be presented for consideration
at the Annual Meeting other than that described in this Proxy Statement. As to
other business, if any, that may properly come before the Annual Meeting, it is
intended that proxies solicited by the Board will be voted in accordance with
the judgment of the person or persons voting the proxies.
ANNUAL REPORT
THE COMPANY WILL FURNISH WITHOUT CHARGE A COPY OF ITS ANNUAL REPORT ON FORM
10-K (EXCLUSIVE OF EXHIBITS) FOR THE FISCAL YEAR ENDED OCTOBER 31, 1996 TO EACH
PERSON WHO WAS A SHAREHOLDER OF THE COMPANY AS OF JANUARY 27, 1997, UPON RECEIPT
FROM ANY SUCH PERSON OF A WRITTEN REQUEST FOR SUCH AN ANNUAL REPORT. SUCH
REQUEST SHOULD BE SENT TO: BIO-VASCULAR, INC., 2575 UNIVERSITY AVENUE, #180, ST.
PAUL, MINNESOTA, 55114-1024; ATTN: SHAREHOLDER INFORMATION.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ JOHN T. KARCANES
John T. Karcanes
President and Chief Executive Officer
February 20, 1997
St. Paul, Minnesota
24
BIO-VASCULAR, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints JOHN T. KARCANES and M. KAREN GILLES, and each
of them, as Proxies, each with full power of substitution, and hereby authorizes
each of them to represent and to vote, as designated below, all the shares of
Common Stock of Bio-Vascular, Inc. held of record by the undersigned on January
27, 1997, at the Annual Meeting of Shareholders to be held on March 19, 1997, or
any adjournment thereof.
1. ELECTION OF DIRECTORS.
[_] FOR all nominees listed below (except [-] AGAINST all nominees
as marked to the contrary below). listed below
(INSTRUCTION: TO VOTE AGAINST ANY INDIVIDUAL NOMINEE, STRIKE A LINE THROUGH THE
NOMINEE'S NAME.)
John T. Karcanes Anton R. Potami
James F. Lyons Timothy M. Scanlan
Richard W. Perkins Edward E. Strickland
2. PROPOSAL TO AMEND THE COMPANY'S RESTATED ARTICLES OF INCORPORATION, AS
AMENDED, TO CREATE A CLASS OF PREFERRED STOCK, ISSUABLE IN SERIES.
[_] FOR [_] AGAINST [_] ABSTAIN
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSAL 2 AND FOR ALL NOMINEES NAMED IN PROPOSAL 1 ABOVE. Please
sign exactly as name appears below. When shares are held by joint tenants, both
should sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such. If a corporation, please sign in full
corporate name by President or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
Dated:_________________,1997 Dated:__________________________
________________________________
Signature
________________________________
Signature if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.