SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only
(as permitted by 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.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
-------------------------------------------------------------------------
Bio-Vascular, Inc.
January 25, 2000
Dear Shareholder:
You are cordially invited to attend the 2000 Annual Meeting of Shareholders of
Bio-Vascular, Inc. The meeting will be held on Tuesday, February 22, 2000, 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, which will include the election of
directors.
Whether or not you can attend the meeting, please complete, sign, and mail the
enclosed proxy card promptly so that your shares can be voted at the meeting
according to your instructions.
Sincerely,
/s/ M. Karen Gilles
M. Karen Gilles
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 FEBRUARY 22, 2000
----------------
The Annual Meeting of Shareholders of Bio-Vascular, Inc. (the "Company") will be
held at 3:45 p.m., local time, on Tuesday, February 22, 2000, 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; and
2) 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 5, 2000 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 voting in
person.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Connie L. Magnuson
Connie L. Magnuson
Vice President-Finance, Chief Financial Officer
and Corporate Secretary
Dated: January 25, 2000
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE SIGN AND DATE THE PROXY
FORM EXACTLY AS YOUR NAME(S) APPEARS ON THE FORM 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
FEBRUARY 22, 2000
--------------------
INTRODUCTION
The Annual Meeting of Shareholders of Bio-Vascular, Inc. (the "Company") will be
held at 3:45 p.m., local time, on Tuesday, February 22, 2000, 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, personal conversation, facsimile or other electronic
communication. 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 attending the Annual Meeting and voting
in person. Proxies will be voted as specified by shareholders. Proxies that are
signed by shareholders, but lack any such specification, will be voted in favor
of the election as directors of the nominees listed in this Proxy Statement.
THE BOARD RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR EACH OF THE DIRECTOR
NOMINEES NAMED HEREIN.
The Company expects that this Proxy Statement, the Proxy and Notice of Meeting
will first be mailed to shareholders on or about January 25, 2000.
VOTING OF SHARES
Only holders of record of shares of Common Stock at the close of business on
January 5, 2000 will be entitled to vote at the Annual Meeting. On January 5,
2000, the Company had 8,973,552 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 requires 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.
2
PRINCIPAL SHAREHOLDERS AND BENEFICIAL
OWNERSHIP OF MANAGEMENT
The following table sets forth information regarding the beneficial ownership of
the Common Stock as of November 30, 1999, 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.
- -------------------------------------------------------------------------
Number of Shares Percentage
Beneficial Owner Beneficially Owned/1/ Ownership
- -------------------------------------------------------------------------
Perkins Capital Management, Inc./2/ 602,950 6.7%
730 East Lake Street
Wayzata, MN 55391-1769
- -------------------------------------------------------------------------
William G. Kobi/3/ 9,000 *
- -------------------------------------------------------------------------
Richard W. Perkins/4/ 174,750 1.9%
- -------------------------------------------------------------------------
Anton R. Potami/5/ 13,000 *
- -------------------------------------------------------------------------
Timothy M. Scanlan/6/ 14,000 *
- -------------------------------------------------------------------------
Edward E. Strickland/7/ 272,000 3.0%
- -------------------------------------------------------------------------
M. Karen Gilles/8/ 145,929 1.6%
- -------------------------------------------------------------------------
David A. Buche/9/ 30,288 *
- -------------------------------------------------------------------------
Connie L. Magnuson/10/ 22,351 *
- -------------------------------------------------------------------------
B. Nicholas Oray/11/ 10,997 *
- -------------------------------------------------------------------------
James F. Pfau/12/ 94,364 1.1%
- -------------------------------------------------------------------------
All Executive Officers and Directors
as a Group (10 persons)/13/ 786,679 8.5%
- -------------------------------------------------------------------------
* 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 November 30, 1999, there were 8,973,552 shares of
Common Stock outstanding.
3
/2/ Excludes shares beneficially owned by Richard W. Perkins, a director of the
Company and the controlling shareholder of Perkins Capital Management, Inc.
("PCM"), a registered investment advisor. PCM disclaims beneficial
ownership of the 602,950 shares (the "PCM shares") held for the account of
its clients. Of the 602,950 shares, PCM has sole investment power with
regard to all such shares and sole voting power over 61,000 of such shares.
/3/ Includes 6,000 shares Mr. Kobi has the right to acquire within 60 days upon
the exercise of options.
/4/ 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 35,000 shares Mr. Perkins has the right to acquire within 60 days
upon the exercise of options. Excludes the 602,950 PCM Shares. Mr. Perkins
disclaims beneficial ownership of the PCM Shares.
/5/ Includes 12,000 shares Mr. Potami has the right to acquire within 60 days
upon the exercise of options.
/6/ Includes 12,000 shares Mr. Scanlan has the right to acquire within 60 days
upon the exercise of options.
/7/ Includes 55,000 shares Mr. Strickland has the right to acquire within 60
days upon the exercise of options.
/8/ Includes 115,183 shares Ms. Gilles has the right to acquire within 60 days
upon the exercise of options.
/9/ Includes 23,086 shares Mr. Buche has the right to acquire within 60 days
upon the exercise of options.
/10/ Includes 11,734 shares Ms. Magnuson has the right to acquire within 60 days
upon the exercise of options.
/11/ Includes 7,314 shares Dr. Oray has the right to acquire within 60 days upon
the exercise of options.
/12/ Includes 7,437 shares Mr. Pfau has the right to acquire within 60 days upon
the exercise of options.
/13/ Includes 284,754 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 six (6).
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 are members of
the current Board.
4
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 November 30,
1999, by the persons who have been nominated by the Board to serve as directors
for the ensuing year.
Director
Name Age Title Since
---- --- ----- -----
Timothy M. Scanlan 53 Chairman of the Board and Director 1997
M. Karen Gilles 57 President, Chief Executive Officer 1997
and Director
William G. Kobi 55 Director 1998
Richard W. Perkins 68 Director 1987
Anton R. Potami 56 Director 1997
Edward E. Strickland 72 Director 1988
Other Information About Nominees
Timothy M. Scanlan. Mr. Scanlan has served on the Board of the Company since
1997 and as Chairman of the Board since 1998. Mr. Scanlan has served as
President and Chief Executive Officer of the Scanlan Group of Companies since
1976. The Scanlan Group of Companies, a 79-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 serves on the
Board of Directors of the Association of Operating Room Nurses Foundation,
Automated Management Technologies and the Lillehei Surgical Society.
M. Karen Gilles. Ms. Gilles has served as President and Chief Executive Officer
of the Company since July 1997 and as a Director of the Company since August
1997. Prior to July 1997, Ms. Gilles held the positions of Chief Financial
Officer of the Company from December 1990, Vice President of Finance from 1989
and Secretary of the Company from November 1991. Ms. Gilles served as the
Director of Finance and Administration of the Company from April 1989 to
December 1989. Ms. Gilles also serves on the Board of Directors of Reuter
Manufacturing Inc.
5
William G. Kobi. Mr. Kobi has served on the Board of the Company since 1998. Mr.
Kobi has served as President, Chief Executive Officer and a director of Acumen
Healthcare Solutions, Inc. since May 1997. Acumen is a medical software systems
company, founded in 1997, involved in the electronic data collection for
clinical trials, medical device tracking and managed care. From 1988 to April
1997, Mr. Kobi was owner of Kobi's Karvings and Log Home Supply, a non-medical
business in northern Minnesota. From 1976 to 1988, Mr. Kobi was employed by
SCIMED Life Systems Inc., in the positions of Director of Sales, Director of
Marketing, Director of International Sales and as Vice President of Worldwide
Sales for its cardiovascular division.
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 the following public companies:
LifeCore Biomedical, Inc., IntelliFilm Corporation, CNS, Inc., Nortech Systems,
Inc., Eagle Pacific Industries, Inc., Quantech Ltd., Vital Images, Inc. and
Harmony Holdings, Inc.
Anton R. Potami. Mr. Potami has served on the Board of the Company since 1997.
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, institutions, and companies including the Minnesota Cooperation
Office, International Hearing Foundation, Minnesota Wave Tech, Inc. and Impact
Energy Controls, Inc.
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 Communications Systems,
Inc., Hector Communications, Inc., Quantech Ltd. and Reuter Manufacturing, Inc.
Information About the Board and its Committees
The Board met five times during the fiscal year ended October 31, 1999. 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 1999 fiscal year. The committees of the Board during the 1999
fiscal year, and the members of those committees, are listed below:
Audit Compensation Nominating
----- ------------ ----------
Edward E. Strickland Richard W. Perkins Timothy M. Scanlan
(Chair) (Chair) (Chair)
William G. Kobi William G. Kobi William G. Kobi
Anton R. Potami Anton R. Potami Richard W. Perkins
Anton R. Potami
Edward E. Strickland
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.
6
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 1999 fiscal year, the Audit, Compensation and Nominating Committees
each met once.
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.
The Board currently meets periodically throughout the year and at the annual
meeting of the Company's shareholders. Directors receive compensation of $1,000
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 receive
additional compensation of $250 for each Audit and/or Compensation Committee
meeting attended. No additional compensation is received for service on the
Nominating Committee.
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, 1999, 1998 and 1997 by the Chief
Executive Officer of the Company and the four other executive officers of the
Company whose salary and bonus exceeded $100,000 in the fiscal year ended
October 31, 1999.
7
Summary Compensation Table
- --------------------------------------------------------------------------------------------------------------------
Name and Principal Position Year Annual Compensation Long Term Compensation
--------------------------- ----------------------------- -----------------
Salary ($) Bonus ($) Restricted Securities All Other
Stock Underlying Compensation
Award ($)/1/ Options (#) ($)
- --------------------------------------------------------------------------------------------------------------------
M. Karen Gilles/2/ 1999 $ 200,000 $ 32,000 $ 80,110/3/ 44,138 $ -
President and Chief Executive 1998 175,000 12,000 - - -
Officer 1997 135,833 7,500 - 150,000 -
- --------------------------------------------------------------------------------------------------------------------
David A. Buche/4/ 1999 $ 120,000 $ 18,000 $ - - $ -
Vice President of Sales and 1998 106,250 4,400 41,251/5/ 27,308 -
Marketing 1997 79,000 23,326 - - -
- --------------------------------------------------------------------------------------------------------------------
Connie L. Magnuson/6/ 1999 $ 120,000 $ 19,200 $ - - $ -
Vice President of Finance 1998 107,532 6,400 43,999/7/ 30,467 -
and Chief Financial Officer 1997 - - - - -
- --------------------------------------------------------------------------------------------------------------------
B. Nicholas Oray, Ph.D./8/ 1999 $ 120,000 $ 12,000 $ - - $18,501/10/
Vice President of Research 1998 64,154 2,600 41,999/9/ 24,066 10,452/10/
and Development 1997 - - - - -
- --------------------------------------------------------------------------------------------------------------------
James F. Pfau/11/ 1999 $ 132,000 $ 30,000 $ - - $ -
President of Jerneen 1998 35,000 4,000 42,097/12/ 26,335 -
1997 - - - - -
- --------------------------------------------------------------------------------------------------------------------
/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/ Ms. Gilles was named President and Chief Executive Officer of the Company
in July 1997, having served as Vice President of Finance and Chief
Financial Officer up to such time.
/3/ As of October 31, 1999, Ms. Gilles had aggregate unearned restricted stock
holdings of 16,551 shares valued at $37,240 as of such date. Effective
February 23, 1999, Ms. Gilles was granted 22,069 shares of restricted
stock, vesting in one installment of 5,518 shares on October 31, 1999 and
three installments of 5,517 shares on October 31, 2000, 2001 and 2002.
/4/ Mr. Buche was named Vice President of Sales and Marketing of the Company in
January 1998 having served as Marketing Director from November 1997 up to
such time and as International Sales Manager through October 1997.
/5/ As of October 31, 1999, Mr. Buche had aggregate unearned restricted stock
holdings of 5,415 shares, valued at $12,184 as of such date. Effective
January 16, 1998, Mr. Buche was granted 10,154 shares of restricted stock,
vesting in one installment of 2,031 shares on October 31, 1998, two
installments of 2,708 shares on October 31, 1999 and 2000 and 2,707 shares
on October 31, 2001.
/6/ Ms. Magnuson was named Vice President of Finance and Chief Financial
Officer of the Company in November 1997.
8
/7/ As of October 31, 1999, Ms. Magnuson had aggregate unearned restricted
stock holdings of 5,866 shares valued at $13,199 as of such date. Effective
November 10, 1997, Ms. Magnuson was granted 11,733 shares of restricted
stock, vesting in one installment of 2,934 shares on October 31, 1998 and
three installments of 2,933 shares on October 31, 1999, 2000 and 2001.
/8/ Dr. Oray was named Vice President of Research and Development of the
Company in April 1998.
/9/ As of October 31, 1999, Dr. Oray had aggregate unearned restricted stock
holdings of 4,876 shares valued at $10,971 as of such date. Effective April
20, 1998, Dr. Oray was granted 8,533 shares of restricted stock, vesting in
one installment of 1,219 shares on October 31, 1998 and three installments
of 2,438 shares on October 31, 1999, 2000 and 2001.
/10/ "All Other Compensation" paid to Dr. Oray is comprised entirely of
relocation-related expenses.
/11/ Mr. Pfau was named the President of Jerneen upon the Company's acquisition
of Jerneen on July 31, 1998.
/12/ As of October 31, 1999, Mr. Pfau had aggregate unearned restricted stock
holdings of 5,949 shares valued at $13,385 as of such date. Effective July
31, 1998, Mr. Pfau was granted 9,668 shares of restricted stock, vesting in
one installment of 744 shares at October 31, 1998, two installments of
2,975 shares on October 31, 1999 and 2000 and 2,974 shares on October 31,
2001.
Option Grants and Exercises
The following tables provide information for the year ended October 31, 1999 as
to individual grants and aggregate exercises of options to purchase shares of
the Common Stock by each of the executive officers named in the Summary
Compensation Table and the potential realizable value at October 31, 1999 of the
options granted to such persons in fiscal 1999.
Option Grants in Last Fiscal Year
- -------------------------------------------------------------------------------------------------------------------
Individual Grants
---------------------------------------------------------
Name Number of % of Total Exercise Expiration Potential Realization Value
Securities Options or Base Date at Assumed Annual Rates of
Underlying Granted to Price Stock Appreciation for
Options Employees in ($/Sh) Option Term/1/
Granted Fiscal Year
------------------------------
5% 10%
- -------------------------------------------------------------------------------------------------------------------
M. Karen Gilles 44,138/2/ 18.6% $ 3.63 10/31/07 $ 87,393 $ 216,718
- -------------------------------------------------------------------------------------------------------------------
David A. Buche - - - - - -
- -------------------------------------------------------------------------------------------------------------------
Connie L. Magnuson - - - - - -
- -------------------------------------------------------------------------------------------------------------------
B. Nicholas Oray, Ph.D. - - - - - -
- -------------------------------------------------------------------------------------------------------------------
James F. Pfau - - - - - -
- -------------------------------------------------------------------------------------------------------------------
9
/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 (the "SEC") 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 grant of 44,138 stock options to Ms. Gilles during fiscal 1999,
exercisable at the fair market value of the underlying stock on the date of
grant, under the Company's 1995 Stock Incentive Plan. The options vest in
two installments of 11,035 on October 31, 1999 and 2000 and two
installments of 11,034 on October 31, 2001 and 2002. The options expire
five years after the vest date.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
- --------------------------------------------------------------------------------------------------------------------
Shares Value Number of Securities
Acquired Realized ($) Underlying Unexercised Options Value of Unexercised
Name on at In-the-Money Options at
Exercise October 31, 1999 October 31, 1999/2/
(#)/1/ -------------------------------- -----------------------------
Exercisable Unexercisable Exercisable Unexercisable
- --------------------------------------------------------------------------------------------------------------------
M. Karen Gilles - - 115,183 93,103 - -
- --------------------------------------------------------------------------------------------------------------------
David A. Buche - - 23,086 19,496 - -
- --------------------------------------------------------------------------------------------------------------------
Connie L. Magnuson - - 11,734 18,733 - -
- --------------------------------------------------------------------------------------------------------------------
B. Nicholas Oray, Ph.D. - - 7,314 16,752 - -
- --------------------------------------------------------------------------------------------------------------------
James F. Pfau - - 7,437 18,898 - -
- --------------------------------------------------------------------------------------------------------------------
/1/ The Company's option plans generally provide 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 on October 29,
1999 of $2.25, as reported by the Nasdaq National Market, less the exercise
price.
10
Compensation Committee Report on Executive Compensation
Overview and Philosophy
The Compensation Committee is currently composed of three of the Company's
outside directors. The Compensation Committee's responsibilities are to:
o Review and recommend compensation policies and compensation levels for the
Company's executive officers to the Board;
o Review and recommend plans to provide management continuity to the Board;
and
o Administer the Company's stock based compensation plans. The Compensation
Committee determines who will participate in such plans and the extent and
terms of such participation, and approves all transactions involving stock
based compensation.
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
11
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.
The base salary compensation component for each executive officer, other than
Ms. Gilles, was determined by Ms. Gilles and reviewed and approved by the
Compensation Committee based on the factors discussed above. Ms. Gilles'
compensation was increased in July 1997 in conjunction with her appointment as
Chief Executive Officer of the Company. Based on the timing of the increase in
July 1997, the Board of Directors did not increase Ms. Gilles' fiscal 1998 base
salary. In fiscal 1999, based upon the aforementioned factors, Ms. Gilles' base
salary was increased by $25,000 to $200,000 per year.
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. Of this amount, 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. Cash incentive
compensation for Ms. Gilles and Ms. Magnuson is determined according to the
above guidelines taking both of the Company's segments into account equally. The
Compensation Committee may also pay a cash-hiring bonus at the time an executive
officer joins the Company. Incentive compensation for fiscal 1999 was earned by
all executive officers in accordance with the plan discussed above.
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 enabling 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.
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.
12
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.
During fiscal 1999, based upon the aforementioned guidelines and factors, Ms.
Gilles was awarded a four-year option grant equal to 20% of her base salary,
vesting in annual installments through October 31, 2002. As of October 31, 1998,
Ms. Gilles became fully vested in her final installment of the four-year option
grant received in 1995 in connection with her position as Vice President of
Finance and Chief Financial Officer.
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 1999, based upon the aforementioned guidelines and factors, Ms.
Gilles was granted a four-year award of restricted stock equal to 10% of her
base salary, vesting in annual installments through October 31, 2002. As of
October 31, 1998, Ms. Gilles became fully vested in her final installment of the
four-year restricted stock award received in 1995 in connection with her
position as Vice President of Finance and Chief Financial Officer.
13
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 1999.
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 1999, 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 (Chair)
William G. Kobi
Anton R. Potami
Members of the Compensation Committee
Management Agreements
Each of the executive officers of the Company named in the Summary Compensation
Table has entered into a severance agreement providing severance benefits upon
termination resulting from a change of control 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.
14
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 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.
Certain Transactions
In 1997, the Company entered into a distribution agreement with Scanlan
International, Inc. ("Scanlan International"), a medical and surgical products
distributor, granting Scanlan International the exclusive right to act as a
sales representative for the Company's products within Latin America. In
exchange for marketing and selling the Company's products, Scanlan International
will be paid a commission of 20% on net sales to Latin America during the term
of the agreement. The agreement has an initial term ending October 31, 2000,
subject to annual renewal thereafter. Mr. Timothy M. Scanlan is the Chairman of
the Board of Directors of the Company and is the President and Chief Executive
Officer of the parent company of Scanlan International. Commissions paid to
Scanlan International totaled $4,000 and $2,000 for fiscal 1999 and 1998,
respectively. There was no sales activity resulting from this agreement in
fiscal 1997.
15
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 seven 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.
[GRAPH}
- --------------------------------------------------------------------------------
Legend
Date Company Index Market Index Peer Index
- -------- ------------- ------------ ----------
10/31/94 100.0 100.0 100.0
10/31/95 259.1 134.6 189.2
10/31/96 115.9 158.9 156.0
10/31/97 88.6 209.2 135.7
10/30/98 84.2 234.1 94.5
10/29/99 53.2 390.8 97.9
Companies in the Self-Determined Peer Group
ATS MEDICAL INC. ANGEION CORPORATION
EVEREST MEDICAL CORPORATION MINNTECH CORPORATION
POSSIS MEDICAL INC. REHABILICARE INC.
ROCHESTER MEDICAL CORPORATION
Notes:
A. The lines represent monthly index levels derived from compounded daily
returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization on the
previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a trading
day, the preceding trading day is used.
D. The index level for all series was set to $100.0 on 10-31-1994.
- --------------------------------------------------------------------------------
16
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 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, 1999: (1) In April 1999, Ms. M. Karen
Gilles, President and Chief Executive Officer, filed a report one month late on
Form 4 (required by Section 16 of the Exchange Act) in connection with the
Company's grant of shares of restricted stock and stock options to her, and (2)
Mr. Edward E. Strickland, director, failed to file on a timely basis a report on
Form 4 (required by Section 16 of the Exchange Act), relating to his June 1999
open market purchase of 12,000 shares of Common Stock.
INDEPENDENT AUDITORS
The Audit Committee has not yet met to select the independent certified public
accountants to audit the Company's financial statements for the year ending
October 31, 2000. PricewaterhouseCoopers LLP was the Company's independent
public accounting firm for fiscal 1999. The Company has requested and expects a
representative of PricewaterhouseCoopers LLP 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 September 26, 2000 and must satisfy the requirements of the proxy rules
promulgated by the Securities and Exchange Commission.
A shareholder who wishes to make a proposal at the next Annual Meeting without
including the proposal in the Company's proxy statement must notify the Company
by December 8, 2000. If a shareholder fails to give notice by this date, then
the persons named as proxies in the proxies solicited by the Company for the
next Annual Meeting will have discretionary authority to vote on the proposal.
17
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, 1999 TO EACH
PERSON WHO WAS A SHAREHOLDER OF THE COMPANY AS OF JANUARY 5, 2000, 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, OR BY ELECTRONIC
MAIL TO INFO@BIOVASCULAR.COM.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ M. Karen Gilles
M. Karen Gilles
President and Chief Executive Officer
January 25, 2000
St. Paul, Minnesota
18
Please mark your
[X] votes as in this
example.
FOR all nominees listed
below (except as marked to AGAINST all nominees
the contrary below). listed below
1. Election of [ ] [ ]
Directors
(Instruction: To vote against any individual nominee, strike a line through
the nominee's name.)
M. KAREN GILLES ANTON R. POTAMI
WILLIAM G. KOBI TIMOTHY M. SCANLAN
RICHARD W. PERKINS EDWARD E. STRICKLAND
2. 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 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: ________________________________, 2000
_____________________________________________
Signature
_____________________________________________
Signature if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
BIO-VASCULAR, INC.
This Proxy is solicited by the Board of Directors
The undersigned hereby appoints M. KAREN GILLES and CONNIE L. MAGNUSON, 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. (the "Company") held of
record by the undersigned on January 5, 2000, at the Annual Meeting of
Shareholders to be held on February 22, 2000, or any adjournment thereof.
(To be Signed on Reverse Side)
---------------
SEE REVERSE
SIDE
---------------