SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. ____)
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[ ] 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 (S) 240.14a-11(c) or (S) 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):
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BIO-VASCULAR, INC.
January 27, 1998
Dear Shareholder:
You are cordially invited to attend the 1998 Annual Meeting of Shareholders of
Bio-Vascular, Inc. The meeting will be held on Tuesday, February 24, 1998, 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 consist of 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 in
accordance with your instructions.
Sincerely,
/s/ M. KAREN GILLES
M. Karen Gilles
President, Chief Executive Officer
and Corporate Secretary
BIO-VASCULAR, INC.
2575 University Avenue
St. Paul, Minnesota 55114-1024 USA
________________
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 24, 1998
________________
The Annual Meeting of Shareholders of Bio-Vascular, Inc. (the "Company") will be
held at 3:45 p.m., local time, on Tuesday, February 24, 1998, 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 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 7, 1998 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
President, Chief Executive Officer
and Corporate Secretary
Dated: January 27, 1998
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
FEBRUARY 24, 1998
_________________________
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 24, 1998, 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 election as directors of the nominees listed in this Proxy
Statement.
THE BOARD RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE ELECTION AS DIRECTORS OF
EACH OF THE NOMINEES LISTED IN THIS PROXY STATEMENT.
The Company expects that this Proxy Statement, the Proxy and Notice of Meeting
will first be mailed to shareholders on or about January 27, 1998.
SPIN-OFF OF VITAL IMAGES, INC.
Effective May 12, 1997, the Company completed the spin-off distribution (the
"Distribution") of all of the common stock of its wholly owned subsidiary, Vital
Images, Inc. ("Vital Images") to the holders of record of the Company's Common
Stock on May 5, 1997 (the "Record Date"). One share of Vital Images Common
Stock was distributed with respect to each two shares of Company Common Stock
held as of the Record Date, with cash paid in lieu of fractional shares. As a
result, Vital Images became an independent public company, continuing the
medical imaging software business historically conducted by Vital Images as a
subsidiary of the Company.
In connection with the Distribution, the exercise price of each outstanding
option to purchase Company Common Stock as of the Record Date was adjusted, and
each holder of such an option was also granted an option to purchase Vital
Images Common Stock. These adjustments and grant of Vital Images options were
made in such a manner so that the aggregate intrinsic value of the adjusted
option and the new Vital Images option was equal to the intrinsic value of the
pre-Distribution Company option, based on the relative post-Distribution trading
values of the Common Stock and Vital Images Common Stock for a specified period.
Restricted shares of Vital Images Common Stock were also distributed with
respect to all restricted shares of Common Stock as of the Record Date. The
information set forth in this Proxy Statement reflects the adjustment of Company
options, but does not reflect the value or holdings of Vital Images Common Stock
or options to purchase such stock by any person.
VOTING OF SHARES
Only holders of record of the Common Stock at the close of business on January
7, 1998 will be entitled to vote at the Annual Meeting. On January 7, 1998, the
Company had 9,487,918 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.
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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, 1997 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 the 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 PERCENTAGE OWNERSHIP
BENEFICIALLY OWNED(1)
- ------------------------------------------------------------------------------------------------
Perkins Capital Management, Inc.(2) 589,825 6.2%
730 East Lake Street
Wayzata, MN 55391-1769
- ------------------------------------------------------------------------------------------------
Heartland Advisors, Inc.(3) 500,000 5.2%
790 North Milwaukee Street
Milwaukee, WI 53202
- ------------------------------------------------------------------------------------------------
William G. Kobi - -
- ------------------------------------------------------------------------------------------------
James F. Lyons(4) 191,250 2.0%
- ------------------------------------------------------------------------------------------------
Richard W. Perkins(5) 171,750 1.8%
- ------------------------------------------------------------------------------------------------
Anton R. Potami 500 *
- ------------------------------------------------------------------------------------------------
Timothy M. Scanlan - -
- ------------------------------------------------------------------------------------------------
Edward E. Strickland(6) 202,000 2.1%
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M. Karen Gilles(7) 78,688 *
- ------------------------------------------------------------------------------------------------
John T. Karcanes(8) 98,220 1.0%
- ------------------------------------------------------------------------------------------------
Frank H. Stephenson(9) 42,521 *
- ------------------------------------------------------------------------------------------------
Kemal Schankereli(10) 44,943 *
- ------------------------------------------------------------------------------------------------
All Executive Officers and 732,652 7.4%
Directors as a Group (10
persons) (11)
- ------------------------------------------------------------------------------------------------
* 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, 1997, there were 9,583,399 shares of
Common Stock outstanding.
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(2) 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"). PCM disclaims beneficial
ownership of the 589,825 shares ("PCM Shares") held for the account of its
clients. Of the 589,825 shares, PCM has sole investment power with regard
to all such shares and sole voting power over 170,750 of such shares.
(3) Based upon Schedule 13G filed as of February 14, 1997 with the Securities
and Exchange Commission.
(4) Includes 102,000 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 32,000 shares Mr. Perkins has the right to acquire within 60 days
upon the exercise or options. Excludes the 589,825 PCM Shares. Mr. Perkins
disclaims beneficial ownership of the PCM Shares.
(6) Includes 52,000 shares Mr. Strickland has the right to acquire within 60
days upon the exercise of options.
(7) Includes 54,611 shares Ms. Gilles has the right to acquire within 60 days
upon the exercise of options.
(8) Includes 85,720 shares Mr. Karcanes has the right to acquire within 60 days
upon the exercise of options.
(9) Includes 36,632 shares Mr. Stephenson has the right to acquire within 60
days upon the exercise of options.
(10) Includes 32,367 shares Mr. Schankereli has the right to acquire within 60
days upon the exercise of options.
(11) Includes 310,610 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, with
the exception of Mr. Kobi, are members of the current Board. Mr. James Lyons, a
current director of the Company, has chosen not to stand for re-election at the
Annual Meeting. Mr. Lyons has agreed to continue his relationship with the
Company in an advisory capacity as a consultant to management and the Board of
Directors. The Company would like to thank Mr. Lyons for his service on the
Board and as Chairman of 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
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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,
1997, by the persons who have been nominated by the Board to serve as directors
for the ensuing year.
Director
Name Age Title Since
- ---------------------- --- --------------------------------------------- --------
M. Karen Gilles 55 President, Chief Executive Officer, Secretary 1997
and Director
William G. Kobi 53 Nominee N/A
Richard W. Perkins 66 Director 1987
Anton R. Potami 54 Director 1997
Timothy M. Scanlan 51 Director 1997
Edward E. Strickland 70 Director 1988
OTHER INFORMATION ABOUT NOMINEES
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. Ms. Gilles has served as Secretary of the Company since November 1991.
Prior to July 1997, Ms. Gilles held the positions of Chief Financial Officer of
the Company from December 1990 and Vice President of Finance from April 1989.
Ms. Gilles served as the Director of Finance and Administration of the Company
from April 1989 to December 1989. From 1985 to April 1989, Ms. Gilles served as
Controller for VEE Corporation, a production company, and Colin Companies, a
related concession company. From 1983 to 1985, Ms. Gilles was an accountant
with McGladrey & Pullen, a public accounting firm.
William G. Kobi 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 and as Vice President of
Worldwide Sales for its cardiovascular division.
5
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., Eagle
Pacific Industries, Inc., Quantech Ltd. and Vital Images, 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 and institutions, including Minnesota Cooperation Office,
International Hearing Foundation, Minnesota Technology Corridor and Advance
Transportation Research Association.
Timothy M. Scanlan Mr. Scanlan has served on the Board of the Company since
1997. 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 and the Lillehei Surgical Society.
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.,
Vital Images, Inc., and as Chair of the Board of Directors of Reuter
Manufacturing, Inc.
INFORMATION ABOUT THE BOARD AND ITS COMMITTEES
The Board met four times during the fiscal year ended October 31, 1997. 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 1997 fiscal year. The committees of the Board during the 1997
fiscal year are listed below:
Audit Compensation Nominating
- ------------------------------ -------------------------- ----------------------
Edward E. Strickland (Chair) Richard W. Perkins (Chair) James F. Lyons (Chair)
Timothy M. Scanlan Timothy M. Scanlan Richard W. Perkins
Anton R. Potami Anton R. Potami Edward E. Strickland
Timothy M. Scanlan
Anton R. Potami
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.
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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 1997 fiscal year, the Audit and Nominating Committees each met one
time and the Compensation Committee met two times.
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 beginning one year after 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.
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. Members of the
Audit and Compensation Committees also receive additional compensation of $250
for each such committee meeting attended. No additional compensation is paid to
directors 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 during the
fiscal years ending October 31, 1997, 1996 and 1995 paid to or earned by each
person serving as Chief Executive Officer of the Company and the two other most
highly compensated executive officers of the Company whose salary and bonus
exceeded $100,000 in the fiscal year ended October 31, 1997. No other executive
officers were paid or earned in excess of $100,000 in the year ended October 31,
1997.
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SUMMARY COMPENSATION TABLE
Name and Principal Year Annual Compensation Long Term Compensation
Position ------------------------------------------------------------------------
Salary ($) Bonus ($) Restricted Securities All Other
Stock Underlying Compensation
Award ($) (1) Options (#) ($) (2)
- --------------------------------------------------------------------------------------------------------
M. Karen Gilles (3)
President and Chief 1997 $135,833 $ 7,500 $ 0 150,000 $ 0
Executive Officer 1996 105,000 0 0 0 0
1995 84,000 20,000 33,602(4) 14,148 0
- -------------------------------------------------------------------------------------------------------------
John T. Karcanes (5)
President and Chief 1997 $138,751 $ 0 $ 0 0 $140,250
Executive Officer 1996 187,000 0 0 0 0
1995 187,000 98,000 0 0 0
- ---------------------------------------------------------------------------------------------------------------
Frank H. Stephenson (6)
Vice President-Sales 1997 $120,625 $ 5,000 $ 0 0 $ 0
and Marketing 1996 110,000 0 0 0 0
1995 90,210 30,000 49,999(7) 48,842 10,642
- ----------------------------------------------------------------------------------------------------------------
Kemal Schankereli (8)
Vice President- 1997 $136,875 $ 6,000 $ 0 30,000 $ 0
Research and 1996 105,000 0 0 0 0
Development 1995 90,000 20,000 36,000(9) 15,156 0
- ---------------------------------------------------------------------------------------------------------------
(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. The value of the restricted stock
awards does not include the value of restricted shares of Vital Images
Common Stock received by the foregoing individuals pursuant to the terms of
the Distribution.
(2) "All Other Compensation" paid to Mr. Karcanes consists of a severance
payment.
(3) Ms. Gilles was named President and Chief Executive Officer of the Company
in July 1997, having served as Vice President-Finance and Chief Financial
Officer up to such time.
(4) As of October 31, 1997, Ms. Gilles had aggregate unearned restricted stock
holdings of 1,768 shares, valued at $6,630 as of such date. Effective
January 3, 1995, Ms. Gilles was granted a restricted stock award in the
amount of 7,074 shares, which vested in two installments of 1,769 shares on
October 31, 1995 and 1996 and one installment of 1,768 shares on October
31, 1997. The remaining 1,768 shares will vest on October 31, 1998.
(5) Mr. Karcanes resigned from the Company and relinquished his positions as
President and Chief Executive Officer effective July 1, 1997.
(6) Mr. Stephenson resigned from the Company and relinquished his position as
Vice President-Sales and Marketing subsequent to the end of fiscal year
1997.
(7) As of October 31, 1997, Mr. Stephenson had aggregate unearned restricted
stock holdings of 2,106 shares valued at $7,898 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 each successive October 31 following the
date of grant, with a final installment of 2,106 shares that was to vest on
October 31, 1998 and has been forfeited upon his resignation.
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(8) Mr. Schankereli resigned from the Company and relinquished his position as
Vice President-Research and Development subsequent to the end of fiscal
year 1997.
(9) As of October 31, 1997, Mr. Schankereli had aggregate unearned restricted
stock holdings of 1,894 shares, valued at $7,103 as of such date. Effective
January 3, 1995, Mr. Schankereli was granted a restricted stock award in
the amount of 7,579 shares, vesting in three installments of 1,895 shares
on each successive October 31 following the date of grant, with a final
installment of 1,894 shares that was to vest on October 31, 1998 and has
been forfeited upon his resignation.
OPTION GRANTS AND EXERCISES
The following tables provide information for the year ended October 31, 1997 as
to individual grants and aggregate exercises of options to purchase shares of
the Common Stock by each of the executive officers named in the Summary
Compensation Table and the potential realizable value of the options held by
such persons at October 31, 1997.
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
------------------------------------------------------------
Name Number of % of Total Exercise Market Expiration Potential Realizable Value at
Securities Options or Base Price at Date Assumed Annual Rates of Stock
Underlying Granted to Price Date of Appreciation for Option Term(2)
Options Employees ($/Sh) Grant
Granted (1) in Fiscal
Year -----------------------------------
0% 5% 10%
- -------------------------------------------------------------------------------------------------------------------
M. Karen Gilles 150,000(3) 41.7% $4.3750 $4.3750 8/21/07 - $412,712 $1,045,894
- -------------------------------------------------------------------------------------------------------------------
John T. Karcanes - - - - - - - -
- -------------------------------------------------------------------------------------------------------------------
Frank H.
Stephenson - - - - - - - -
- -------------------------------------------------------------------------------------------------------------------
Kemal
Schankereli 30,000(4) 8.34% 4.0000 5.0000 2/12/05 $30,000 107,799 210,090
- -------------------------------------------------------------------------------------------------------------------
(1) Does not reflect the grant of Vital Images options pursuant to the terms of
the Distribution.
(2) 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. No value is reflected for the aggregate value of Vital Images
Common Stock underlying Vital Images stock options received by such
individuals pursuant to the terms of the Distribution.
9
(3) Reflects a grant of 150,000 stock options to Ms. Gilles on August 21, 1997,
at the fair market value of the underlying stock on that date, under the
Company's 1995 Stock Option Plan. Options totaling 30,000 vested on the
date of grant with four additional annual installments of 30,000 vesting on
each successive August 21, commencing in 1998. The options expire ten years
after the date of grant.
(4) Reflects a grant of 30,000 stock options granted to Mr. Schankereli on
February 12, 1997, under the Company's 1995 Stock Option Plan. The options
vest in three annual installments of 10,000 on each successive February 12
commencing in 1998 and expire five years after the date of vest. The
exercise price for this option was increased to $4.2541 in accordance with
the formula adjustment made in connection with the Distribution. All such
options were subsequently forfeited upon Mr. Schankereli's resignation from
the Company.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
Shares Number of Securities
Acquired Underlying Unexercised Value of Unexercised
on Options at In-the-Money Options at
Exercise Value October 31, 1997 October 31, 1997 (2)
Name (#) 1 Realized ($) ----------------------------------------------------------
Exercisable Unexercisable Exercisable Unexercisable
- --------------------------------------------------------------------------------------------------------
M. Karen Gilles 2,250 $5,063(3) 61,611 123,537 - -
- --------------------------------------------------------------------------------------------------------
John T. Karcanes(4) - - 85,720 - - -
- --------------------------------------------------------------------------------------------------------
Frank H. Stephenson(5) - - 36,632 12,210 - -
- --------------------------------------------------------------------------------------------------------
Kemal Schankereli(5) - - 32,367 33,789 $2,041 -
- --------------------------------------------------------------------------------------------------------
(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 31,
1997 of $3.75, as reported by the NASDAQ National Market, less the exercise
price.
(3) Reflects the value realized by Ms. Gilles upon the exercise of options to
purchase 2,250 shares of Common Stock at an exercise price of $4.75 per
share on November 14, 1996, based upon a closing sale price of $7.00 per
share of Common Stock on that date, as reported by NASDAQ National Market.
(4) Pursuant to Mr. Karcanes' severance agreement with the Company, these
options will continue to be exercisable consistent with the terms of the
original grant and were not affected by his resignation.
(5) Each option exercisable by the named individual as of the date of
resignation will continue to be exercisable for a period of three months
thereafter, and all unexercised options have been forfeited.
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:
10
. 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
. Administer the Company's stock-based compensation plans and the Employee
Stock Purchase Plan. The Compensation Committee determines who will
participate in the Company's stock-based compensation 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 overall 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 1997, each of the Company's executive officers, with the exception of
Mr. Karcanes, received an increase in the base salary component of his or her
compensation following a review of the above factors. Mr. Karcanes, the
Company's former Chief Executive Officer, did not receive an increase as the
Board of Directors believed his base salary was appropriate based on the above
factors. Ms. Gilles, the Company's current Chief Executive Officer, received an
increase in her base salary in her position as Vice President-Finance and Chief
Financial Officer based on the above factors. Upon becoming President and Chief
Executive Officer, Ms. Gilles received a new base salary commensurate with her
new responsibilities.
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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 Ms. Gilles.
Ms. Gilles is eligible to receive an annual cash incentive compensation bonus
based on criteria mutually determined by Ms. Gilles and the Board of Directors.
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
net revenue goals, 40% on the achievement of 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.
Net revenue and operating income goals of the Company were not achieved in
fiscal 1997, therefore, the Compensation Committee did not award the 80%
component of cash incentive compensation. Each officer earned all or part of
the cash incentive compensation based on personal goals and achievements. 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. Ms. Gilles received a cash bonus
of $7,500 based on the Compensation Committee's subjective evaluation of her
performance and effort during the fiscal year.
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 Stock Incentive Plan (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.
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
12
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 1997, Ms. Gilles was granted an award of 150,000 stock options
concurrent with assuming the positions of President and Chief Executive Officer
of the Company in recognition of her increased responsibilities and to align her
interests with those of the Company's shareholders.
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.
None of the Company's named executive officers received an award of restricted
stock during fiscal 1997, based on the Compensation Committee's belief that the
stock options and restricted stock awards previously granted to the executive
officers were sufficient to provide them with a competitive compensation package
and to align their interests with those of the Company's shareholders.
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 1997.
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 1997, 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.
Members of the Compensation Committee
Richard W. Perkins (Chair)
Timothy M. Scanlan
Anton R. Potami
13
MANAGEMENT AGREEMENTS
The Company has entered into employment agreements with the following executive
officers named in the Summary Compensation Table.
KARCANES SEVERANCE AGREEMENT Pursuant to a letter agreement effective July 1,
1997, Mr. Karcanes and the Company agreed to the terms of Mr. Karcanes'
resignation. In exchange for certain standard representations and promises, the
agreement provided for a lump sum payment of $140,250 to Mr. Karcanes, equal to
nine months of his then current base salary. Additionally, the Company agreed to
accelerate the vesting of 21,430 stock options to July 1, 1997, with all other
terms and conditions of the options remaining the same.
CHANGE IN CONTROL AGREEMENTS Each of the executive officers of the Company
named in the Summary Compensation Table has entered into a severance agreement
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.
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
14
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.
CERTAIN TRANSACTIONS
In October 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 a director of
the Company and is the President and Chief Executive Officer of the parent
company of Scanlan International. There was no sales activity resulting from
this agreement during the fiscal year ended October 31, 1997.
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
10/30/92 100.000 100.000 100.000
10/29/93 76.316 128.850 93.966
10/31/94 115.790 129.550 88.506
10/31/95 300.000 174.489 164.849
10/31/96 134.211 205.947 136.154
10/31/97 102.632 271.155 118.405
The index level for all series was set to 100.0 on 10/30/92.
Companies in the self-determined peer group:
ATS Medical, Inc. Medivators Inc.
Everest Medical Corporation Possis Medical, Inc.
Minntech Corporation Rochoester Medical Corporation
Rehabilicare Inc.
Angeion Corporation
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, 1997: (1) Dr. Argiro failed to file on a timely basis a report on Form 4
required by Section 16 of the Exchange Act, relating to a single repurchase of
shares by the Company to satisfy income tax withholding on stock compensation;
and (2) Dr. Donald Gardner, Vice President of Regulatory Affairs and Quality
Assurance, failed to file on a timely basis a report on Form 3 required by
Section 16 of the
15
Exchange Act, reporting his appointment as an executive officer of the Company,
and the grant of stock and stock options to Dr. Gardner 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, 1998. 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, 1998. 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 September 29, 1998.
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, 1997 TO EACH
PERSON WHO WAS A SHAREHOLDER OF THE COMPANY AS OF JANUARY 7, 1998, 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. REQUESTS MAY
ALSO BE SENT 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 27, 1998
St. Paul, Minnesota
16
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. held of record
by the undersigned on January 7, 1998, at the Annual Meeting of
Shareholders to be held on February 24, 1998, or any adjournment thereof.
(TO BE SIGNED ON REVERSE SIDE)
SEE REVERSE
SIDE
PLEASE MARK YOUR
/ X / VOTES AS IN THIS
EXAMPLE.
FOR ALL NOMINEES AGAINST
LISTED BELOW (EXCEPT ALL NOMINEES
AS MARKED TO THE LISTED
CONTRARY BELOW). 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, administra-
tor, trustee or guardian, please give full title as such. If a corpo-ration,
please sign in full corporate name by President or other authorized officer.
If a partnership, please sign in partnership name by authorized person.
Dated: __________________________________________, 1998
_________________________________________________
Signature
_________________________________________________
Signature if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.