UNITED STATES DISTRICT COURT DISTRICT OF...

UNITED STATES DISTRICT COURT

DISTRICT OF MINNESOTA

ALEXIS G. MABRY, On Behalf of Herself and All Others Similarly Situated,

Plaintiffs,

vs.

SYNOVIS LIFE TECHNOLOGIES, INC., et al.,

Defendants.

) ) ) ) ) )) ) ) ) ) )

Civ. No. 04-3008 ADM/AJB (Consolidated)

CLASS ACTION DEMAND FOR JURY TRIAL

CONSOLIDATED COMPLAINT

FOR VIOLATION OF THE FEDERAL SECURITIES LAWS

Case 0:04-cv-03008-ADM-AJB Document 27-1 Filed 12/20/2004 of 46

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Plaintiffs have alleged the following based upon the investigation of plaintiffs’ counsel, which

included a review of the United States Securities and Exchange Commission’s (“SEC”) filings by Synovis

Life Technologies, Inc. (“Synovis” or the “Company”), as well as regulatory filings and reports, securities

analysts reports and advisories about the Company, press releases and other public statements issued by the

Company, and media reports about the Company, and plaintiffs believe that substantial additional evidentiary

support will exist for the allegations set forth herein after a reasonable opportunity for discovery.

NATURE OF THE ACTION

1. This is a federal class action on behalf of purchasers of the securities of Synovis between

May 21, 2003 and May 18, 2004, inclusive (the “Class Period”), seeking to pursue remedies under the

Securities Exchange Act of 1934 (the “Exchange Act”).

JURISDICTION AND VENUE

2. The claims asserted herein arise under and pursuant to §§10(b) and 20(a) of the Exchange Act

[15 U.S.C. §§78j(b) and 78t(a)] and Rule 10b-5 promulgated thereunder by the SEC [17 C.F.R. §240.10b-5].

3. This Court has jurisdiction over the subject matter of this action pursuant to 28 U.S.C.

§§1331 and 1337, and §27 of the Exchange Act.

4. Venue is proper in this District pursuant to §27 of the Exchange Act and 28 U.S.C. §1391(b).

Many of the acts complained of herein, including the preparation and dissemination of materially false and

misleading information, occurred in substantial part in this District and Synovis conducts business in this

District.

5. In connection with the acts alleged in this complaint, defendants, directly or indirectly, used

the means and instrumentalities of interstate commerce, including, but not limited to, the mails, interstate

telephone communications and the facilities of the national securities markets.

PARTIES

6. Plaintiffs Mark Hess, individually and on behalf of Hess Investments & Home Investments,

Harry J. Belli Trust and Clarence J. Richwalski, purchased Synovis securities at artificially inflated prices


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during the Class Period and have been damaged thereby. Plaintiffs were appointed lead plaintiffs on October

15, 2004.

7. Defendant Synovis is a corporation organized under the laws of Minnesota, with executive

offices located in St. Paul, Minnesota. Synovis describes itself as a diversified medical device company

engaged in developing, designing, manufacturing and bringing to market medical devices for the surgical and

interventional treatment of disease.

8. Defendant Karen Gilles Larson (“Larson”) was throughout the Class Period Synovis’ Chief

Executive Officer (“CEO”), President and a director.

9. Defendant Connie L. Magnuson (“Magnuson”) was throughout the Class Period Synovis’

Chief Financial Officer (“CFO”).

10. Defendants Larson and Magnuson are referred to herein as the “Individual Defendants.”

11. During the Class Period, the Individual Defendants, as senior executive officers and/or

directors of Synovis were privy to confidential and proprietary information concerning Synovis, its

operations, finances, financial condition and present and future business prospects. The Individual

Defendants also had access to material adverse non-public information concerning Synovis, as discussed in

detail below. Because of their positions with Synovis, the Individual Defendants had access to non-public

information about its business, finances, products, markets and present and future business prospects via

access to internal corporate documents, conversations and connections with other corporate officers and

employees, attendance at management and board of directors meetings and committees thereof and via reports

and other information provided to them in connection therewith. Because of their possession of such

information, the Individual Defendants knew or recklessly disregarded the fact that adverse facts specified

herein had not been disclosed to, and were being concealed from, the investing public.

12. The Individual Defendants are liable as direct participants in, and as co-conspirators with

respect to the wrongs complained of herein. In addition, the Individual Defendants, by reason of their status

as senior executive officers and/or directors were “controlling persons” within the meaning of §20 of the

Exchange Act and had the power and influence to cause the Company to engage in the unlawful conduct


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complained of herein. Because of their positions of control, the Individual Defendants were able to and did,

directly or indirectly, control the conduct of Synovis’ business.

13. The Individual Defendants, because of their positions with the Company, controlled and/or

possessed the authority to control the contents of its reports, press releases and presentations to securities

analysts and through them, to the investing public. The Individual Defendants were provided with copies of

the Company’s reports and press releases alleged herein to be misleading, prior to or shortly after their

issuance and had the ability and opportunity to prevent their issuance or cause them to be corrected. Thus, the

Individual Defendants had the opportunity to commit the fraudulent acts alleged herein.

14. Throughout the Class Period, defendants made statements about Synovis sales, present state

of business, and growth prospects, such as:

• “We continue to drive a very high growth rate across an expanding business.”

• “The surgical and interventional businesses are both strong contributors to the company’s vitality, each successfully capitalizing on their full pipeline opportunities.”

• “Our solid balance sheet and increasing profitability continue to provide us with the operating and investment capital necessary to internally fund a high growth rate.”

• “The result is that consolidated revenue and profit growth and very strong .... The opportunities that will define our future are already in the pipeline.”

• “Synovis ... reaffirms fiscal 2003 guidance ... to reach $50 million to $55 million ....”

• “Synovis ... has increased its revenue and earning guidance ... [and] expects revenue of $58 million to $59 million, with earnings of $0.43 to $0.46 per diluted share in fiscal 2003.”

• “Synovis ... anticipates consolidated revenue in the range of $75 million to $79 million, with earnings per diluted share of $0.56 to $0.60 for the upcoming fiscal year ended October 31, 2004.”

• “This has been a terrific year for Synovis, with strong organic revenue growth ....”

• “The bottom line is: Despite the slow start in the interventional business, Synovis is expecting a good year .... at this point in time, we have no basis to believe we will not reach our annual guidance.”

• “We ... [have] robust growth rates in the medical markets in which we participate.”

15. The true facts which were known to the defendants but actually concealed were as follows:

(a) The growth rates experienced by Synovis during 2003 were the result of selling

unusually high levels of product to companies beyond what they could sell through during equivalent periods,


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thereby loading them up with inventory which would have to be used or sold off before they could resume

purchasing at the same level or higher levels to meet defendants’ 2004 projected growth rates. As a result, the

reported actual and projected revenues for 2003 were grossly misleading.

(b) The Company’s surgical business was not on track for year-to-year growth. Even

defendants’ explanations for “why” the Company’s Peri-Strips sales fell short were grossly false and

misleading. Defendants claimed that sales fell due to capacity constraints, i.e., the number of surgeons

qualified to perform procedures had declined – taking sales down as well. This claim, however, appears false

for several reasons:

(i) Peri-Strips are only used in 25% of gastric by-pass procedures and therefore

growth would track with market acceptance. See ¶62.

(ii) Even if the number of gastric by-pass procedures did decline, the medical

communities conversion to the “laproscopic” method (which uses S-12 Peri-Strips) from the “open” method

(which used 103 Peri-Strips), would have stemmed this decline in the Company’s Peri-Strips sales. See id.

(iii) Rather, some analysts believe the Company’s Peri-Strips are losing market

share to competing WL Gore & Associates, Cook Group Incorporated, and Medical Ventures Corporation.

See id.

(c) The Company’s “interventional” side had little to zero 2004 growth prospects. In

fact, it appears that prior to and during the Class Period, the Company had shipped several quarters’ worth of

inventory of implantable cardioverter-defibrillators to the Company’s largest customer. This customer was

refusing to take delivery of anymore of the Company’s products until and unless it could actually sell the

already shipped product that was stuffed in the customers’ warehouses and had been idle for months.

(d) Synovis’ projections of fiscal 2004 EPS of $0.56-$0.60 and revenues of $75-$79

million were false and misleading, as they were without basis.

(e) Synovis was not generating sufficient capital through organic growth to provide the

Company with the operating and investment capital necessary to fund a high growth rate and, therefore, an

inflated stock price was necessary to raise the $39 million raised from the sale of stock in October 2003.


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16. As senior executive officers and/or directors and as controlling persons of a publicly traded

company whose common stock was, and is, registered with the SEC pursuant to the Exchange Act, and was

traded on the Nasdaq National Market (“NASDAQ”) and governed by the federal securities laws, the

Individual Defendants had a duty to promptly disseminate accurate and truthful information with respect to

Synovis’ financial condition and performance, growth, operations, financial statements, business, products,

markets, management, earnings and present and future business prospects, to correct any previously issued

statements that had become materially misleading or untrue, so that the market prices of Synovis securities

would be based upon truthful and accurate information. The Individual Defendants misrepresentations and

omissions during the Class Period violated these specific requirements and obligations.

17. The Individual Defendants are liable as participants in a fraudulent scheme and course of

conduct that operated as a fraud or deceit on purchasers of Synovis securities by disseminating materially

false and misleading statements and/or concealing material adverse facts. The scheme (a) deceived the

investing public regarding Synovis’ business, operations and management and the intrinsic value of Synovis

securities, and (b) caused plaintiffs and members of the class to purchase Synovis securities at artificially

inflated prices.

BACKGROUND

18. Synovis is now a diversified medical device company engaged in developing, manufacturing

and marketing products for the surgical and interventional treatment of disease. Its business is conducted

through two reportable segments: the surgical business and the interventional business, with segmentation

based upon the similarities of the underlying business operations, products and markets of each.

19. Synovis’ surgical business segment is comprised of: Synovis Surgical Innovations, based in

St. Paul, Minnesota; and Synovis Micro Companies Alliance, based in Birmingham, Alabama. The surgical

business develops, manufactures and markets implantable biomaterial products, devices for microsurgery and

surgical tools; all designed to reduce risk and facilitate critical surgeries.

20. Synovis’ interventional business segment is comprised of: Synovis Interventional Solutions,

based in Lino Lakes, Minnesota; Synovis Precision Engineering, also based in Lino Lakes, Minnesota; and


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Synovis Caribe, based in Dorado, Puerto Rico. The interventional business manufactures components and

devices used primarily in cardiac rhythm management, neurostimulation, and interventional vascular

procedures, including micro-wire components such as fixation helices, conducting coils, stylets, guidewires,

injection moulded and machined components.

MOTIVE

Growth by Acquisition

21. Synovis was founded in 1985 as Bio-Vascular, Inc. Shortly after, the company was spun-off

to the shareholders of its then parent company. In the spin-off, it acquired the rights to certain cardiovascular

products, including Peri-Guard and Flo-Rester. Its growth strategy since then was to acquire new companies

using its stock as currency: the higher its stock price, the cheaper the acquisition. For example, during a

conference call with financial analysts on May 19, 2004, defendant Larson stated:

As I have said and many times before, acquisitions is a significant part of our strategy. Cash of that nature [Synovis’ large cash position] allows us to consider acquisitions on a much broader range of size of company then we might have considered before and it seems wise to keep our powder dry to that effect.

22. In July 1998, the company completed the acquisition of Jer-Neen Manufacturing and

subsequently changed its name to Synovis Interventional Solutions in 2001.

23. In July 2001, Synovis Interventional Solutions acquired Micro Companies Alliance, Inc.

(“MCA”), a Birmingham, Alabama based company, which provided products to the niche market of micro-

surgery. MCA’s name was subsequently changed to Synovis Micro Companies Alliance.

24. Synovis Interventional Solutions acquired Emtech in March 2002, a privately held company

with manufacturing capabilities in injection molding, computer numerical control machining and tool

building. Emtech’s name was subsequently changed to Synovis Precision Engineering, a division of Synovis

Interventional Solutions. That year also saw the company change its name to Synovis Life Technologies.

25. In April 2003, the newly formed Synovis Caribe, Inc., a wholly owned subsidiary of Synovis

Interventional Solutions, commenced operations in Dorado, Puerto Rico at a leased 22,700 square foot

manufacturing facility.


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26. In September 2003, well into the Class Period as Synovis stock soared in response to

defendants’ scheme, Synovis completed a $39 million private placement of 1.5 million shares of its common

stock to institutional and other accredited investors.

27. After the Class Period, as the truth emerged and Synovis stock plummeted in value, thereby

depriving Synovis of cheap assets to use in buying other companies, Synovis announced that it was

terminating acquisition activity. In a press release dated August 18, 2004, Synovis reported:

Terminated Acquisition Activity

In the third quarter, Synovis recorded expenses totaling $133,000 incurred from March into July related to the company’s consideration of a significant acquisition. For a variety of reasons, the acquisition process was terminated.

Larson said, “We are fortunate to have the cash to consider and pursue acquisitions of a relatively significant scale as well as smaller ones, similar in size to those we have done in the past. We still believe this is the best use of cash given our objective of growth, both organic and through acquisition. Our balance sheet remains strong.”

Cash, cash equivalents and short-term investments totaled $41.0 million as of the end of the third quarter. Cash provided by operations was $1.4 million in the third quarter and $1.1 million year to date. The company invested $1.4 million in capital expenditures in the third quarter and has invested $4.6 million year to date.

Need for Cash

28. Defendants were motivated to inflate Synovis stock so that they could raise cash for further

acquisitions. As shown above, Synovis raised very little cash from operations. With the stock inflated, and

demand heavy, on September 19, 2003, the Star-Tribune reported that Synovis

whose stock has more than tripled this year, said Thursday it has sold 1.5 million common shares in a private placement, for gross proceeds of about $39 million.

Synovis said it plans to use the net proceeds of $36.5 million for working capital, general corporate purposes and potential acquisitions. Oppenheimer & Co. acted as placement agent.

For the nine months ended July 31, Synovis’ net income totaled $3.5 million, or 34 cents a share, up from $2.2 million, or 22 cents a share, in 2002. Revenue for the period jumped to $43 million from $28.2 million last year.

Chad Simmer, an analyst at Miller Johnson Steichen Kinnard, said he is projecting year-end earnings for the company of 48 cents a share, compared with 31 cents last year.

Steady top line growth as well as improved earnings have fueled a significant rise in Synovis’ stock price, from about $9 a share at the start of the year to a high of $31.97 a share earlier this month. The stock closed Thursday at $29.04, down about 2 percent for the day.


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The private placement increases the number of common shares outstanding to 11.4 million.

29. On September 22, 2003 Synovis announced in a press release that it

completed its previously announced $39 million private placement of shares of its common stock to institutional and other accredited investors. A total of 1.5 million shares of common stock were sold, bringing the company’s outstanding shares to 11.4 million. After deducting estimated closing costs and fees, the company received net proceeds of approximately $36.5 million. Net proceeds will be used for working capital, general corporate purposes and potential acquisitions. Oppenheimer & Co. Inc. acted as placement agent for the transaction.

“This financing provides the capital to support strong current and future growth,” said Karen Gilles Larson, president and chief executive officer. “The investors in this private placement have shown their confidence in our future, and we appreciate their support.”

Compensation

30. Defendant Larson also was motivated to inflate Synovis stock to raise her compensation.

31. Before the Class Period when defendants’ scheme began, the May 18, 2003 issue of the Star-

Tribune reported the 100 largest CEO compensation packages from about 150 Minnesota public companies

examined by the Star-Tribune. Defendant Larson, President and CEO, ranked 90 with a total compensation

of $344,000 for the year ended October 2002.

32. At the end of the Class Period, as the scheme was unraveling, the Star-Tribune’s 2003

Executive Compensation Survey issued May 9, 2004, listed defendant Larson as skyrocketing to a rank of 33

with a total compensation of $1,636,000 for the year ended October 2003, a rise of 195.5% with a base salary

of $300,000, which rose 20%, a bonus of $73,000 and stock gains of $1,262,000.

Stock Sales

33. Defendants were also motivated to commit the scheme, or to keep the material facts from the

investing public as it allowed them to make substantial profits on the exercise of options and sale of stock

during the Class Period. As demonstrated in Exhibits (“Ex.”) A and B, attached hereto, each of Synovis’

listed key officers and directors, except for non-executive director Anton Potami, who was ill during the Class

Period, sold significant amounts of stock at the same time at key times during the Class Period. These

officers and directors, including the Individual Defendants, are:


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(a) Defendant Larson served as President and CEO of the Company since July 1997 and

as a Director of the Company since August 1997. Prior to July 1997, Larson held the positions of CFO of the

Company from December 1990, Vice President of Finance from 1989, and Secretary from November 1991.

Larson has also served as the Director of Finance and Administration from April 1989 to December 1989.

Larson also serves on the Board of Directors of Chronimed, Inc. Larson sold 24,800 shares during the Class

Period for $466,092.

(b) Timothy Scanlan has served on the Board of Directors of the Company (“Board”)

since 1997 and as Chairman of the Board since 1998. Mr. Scanlan has served as President and CEO of the

Scanlan Group of Companies since 1976. The Scanlan Group of Companies – an 80-year-old organization

consisting of Scanlan International, Surgical Technologies, McLean Medical and Scientific and Scanlan

Group – designs, manufactures and distributes medical and surgical products and services worldwide. Mr.

Scanlan serves on the Board of Directors of Automated Management Technologies, Inc. and the Lillehei

Surgical Society. Mr. Scanlan sold 10,000 shares during the Class Period for $213,358.

(c) William Kobi has served on the Board of the Company since 1998. Mr. Kobi has

served as President, CEO and a Director of Acumen Healthcare Solutions, LLC since May 1997. Acumen

Healthcare Solutions is a medical software systems company founded in 1997, which is 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. Mr. Kobi sold 14,000 shares during the Class Period for $318,060.

(d) Richard Perkins has served on the Board of the Company since 1987. He has served

as President, CEO and a Director of Perkins Capital Management, Inc., an investment management firm,

since 1984. Mr. Perkins has also served on the Board of Directors of the following public companies:

LifeCore Biomedical, Inc., Intelefilm Corporation, CNS, Inc., Nortech Systems, Inc., PW Eagle, Inc., Vital


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Images, Inc., Two Way TV U.S., Inc. and Teledigital, Inc. Mr. Perkins sold 5,000 shares during the Class

Period for $82,500.

(e) Edward Strickland has served on the Board of the Company since 1988. Mr.

Strickland has been an independent financial consultant since 1986. Mr. Strickland sold 5,000 shares during

the Class Period for $91,638.

(f) Defendant Magnuson has served as CFO, Vice President, Finance and Secretary,

Senior Management and Executive Vice President since 2003. She joined the Company as CFO and Vice

President of Finance in November 1997, and has served as Corporate Secretary since February 1998. From

March 1997 to November 1997, Magnuson served as Treasurer of Northern Technologies International

Corporation. From 1996 to March 1997, Magnuson served as a private financial consultant. From 1983 to

1996, Magnuson held a series of positions with Deloitte and Touche, a public accounting firm, including

Audit Senior Manager and Director of Human Resources for their Minneapolis office. On October 8, 2003,

Magnuson exercised 5,867 options at a price of $3.75 per share.

(g) Fariborz Boor Boor served as Executive Vice President, Senior Management and

Vice President of Synovis and Chief Operating Officer (“COO”) of Synovis Surgical Innovations since 1998.

Mr. Boor Boor served as the President and COO of Synovis Interventional Solutions from November 2000 to

2003. Prior to November 2000, he held the positions of Vice President and COO of Synovis Interventional

Solutions from March 2000. Prior to March 2000, Mr. Boor Boor held the positions of Director of Operations

from April 1999, and Director of Quality and Regulatory Affairs from September 1998. From 1989 to 1998,

Mr. Boor Boor held various engineering, quality, and manufacturing management positions at Plastech

Corporation, a plastics injection molding company serving various industries including the medical device

industry. From 1979 to 1989, Mr. Boor Boor held various manufacturing management positions including the

division management of the fastener division of Phillips Plastics Corporation serving the automotive industry.

Mr. Boor Boor sold 10,800 shares during the Class Period for $247,637.

(h) David Buche has served as Vice President of Synovis, COO of Synovis Surgical

Innovations, and Senior Management and President of Synovis Micro Companies Alliance since 2001. Mr.


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Buche was promoted to COO of Synovis Surgical Innovations in May 2004. Prior to his promotion, Mr.

Buche has served as Vice President of Marketing and Sales since January 1998. Prior to this, he held the

positions of Director of Marketing from November 1997 and Director of International Marketing and Sales

from March 1995. From 1988 to February 1995, Mr. Buche held various product and sales management

positions at Spectranetics Corporation, a company that develops and markets technology for interventional

cardiovascular therapy. Mr. Buche sold 17,228 shares during the Class Period for $400,083.

(i) Michael Campbell has served as President of Synovis Micro Companies Alliance and

Senior Management, Vice President, Regulatory Affairs, Quality Insurance and Clinical Affairs since 2000.

Mr. Cambell served as President of MCA since July 6, 2001, the acquisition date of MCA by the Company.

Prior to the acquisition, he was President and COO of MCA from July 2000 through July 2001. From June

1999 to May 2000, Mr. Campbell served as Executive Vice President of PrimeSource Surgical, Inc., a

specialty operating room distributor. From 1979 to June 1999, he was with Futuretech, a specialty medical

distribution company serving the southeast United States, and served as Principal Board Member and Vice

President. Mr. Campbell sold 30,000 shares during the Class Period for $740,335.

(j) Mary Frick has served as Vice President, Regulatory Affairs, Quality Insurance and

Clinical Affairs, Senior Management, Vice President, Operations and Synovis Surgical Innovations since

1998. Ms. Frick has served as Vice President of Regulatory, Clinical and Quality Affairs since November

2000 and as Director of Regulatory, Clinical and Quality Affairs since November 1998. Prior to this, she held

the position of Group Manager of Regulatory, Clinical and Quality Affairs from June to November of 1998.

From 1984 to June 1998, Ms. Frick held a series of management positions in research, operations and

Regulatory, Clinical Affairs at INCSTAR Corporation, a diagnostic medical device manufacturer. From 1979

to 1984, Ms. Frick worked in research at the medical school, University of Minnesota. Ms. Frick sold 2,920

shares during the Class Period for $52,533.

(k) Evan Johnston has served as Vice President, Operations, Synovis Surgical

Inovations, Senior Management, Vice President, and Research and Development since 1998. Mr. Johnston

has served as Vice President of Operations since November 2000. Joining the Company in September 1998,


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Mr. Johnston served as Director of Operations from November 1999. From 1996 to 1998, Mr. Johnston held

the position of Director of Manufacturing and Operations at LecTec Corporation, a manufacturer of skin

interface medical devices. From 1995 to 1996, he served as Director of Manufacturing of Lakeside

Nameplate, a custom manufacturer of electronic membrane switches. Mr. Johnston served as Manager of

Industrial Engineering from 1990 to 1995 at Orthomet, a manufacturer of orthopedic implants and related

surgical instruments. From 1986 to 1990, Mr. Johnston held various project management positions for

Honeywell, control systems division, a developer of automation solutions for government and commercial

industries. Mr. Johnston sold 2,000 shares during the Class Period for $37,402.

(l) B. Nicholas Oray, Ph.D. has served as Vice President, Research and Development

and Senior Management. Dr. Oray joined the Company as Vice President of Research and Development in

April 1998. From 1997 to April 1998, he served as Director of Research and Development at Seatrace

Pharmaceuticals, Inc. From 1993 to 1996, Dr. Oray held a series of positions with CryoLife, Inc., including

Director of Bioadhesive Manufacturing and Associate Director of Biomedical Products laboratory. From

1991 to 1993, he held several positions with FACT, a clinical research organization, including Director of

Regulatory Affairs and Associate Director of Clinical Trials Operations. From 1988 to 1990, Dr. Oray served

as Director of Manufacturing, Director of Sterile Manufacturing and Director of Purification and Production

Group at Carrington Laboratories, Inc. Dr. Oray sold 5,876 shares during the Class Period for $958,300.

Performance and Promotions

34. Senior management was also motivated to participate in the scheme in order to be promoted

or to avoid being demoted or terminated, as was the pattern during the Class Period.

35. On November 6, 2003 Synovis announced the promotion of Mr. Boor Boor to Executive Vice

President. Mr. Boor Boor has served as President and COO of Synovis Interventional Solutions, a wholly

owned subsidiary, since 2000 and joined the Company in 1998. In his new position, the interventional

business management would report to Mr. Boor Boor and he was to build his involvement with Synovis’

surgical business. “‘It is with great pleasure that we announce Fariborz’ [sic] promotion,’ said Karen Gilles

Larson, Synovis Life Technologies president and chief executive officer. ‘Under Fariborz’ [sic] leadership,


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our interventional business has grown spectacularly, to $24.0 million for the first nine months of fiscal

2003 from $8.8 million for all of fiscal 2000. He has motivated his team to provide customers with best-in-

class engineering services, project management and quality high-volume manufacturing. As a result, the

interventional business has a strong and growing customer base.’” After the scheme unraveled, on August 12,

2004, Synovis issued a press release announcing the appointment of Richard W. Kramp as President and

COO of the Company’s interventional business effective August 30, 2004. Not surprisingly, Mr. Boor Boor,

who had led the Interventional segment, resigned.

36. On January 7, 2004, Synovis announced the promotion of Ms. Frick to Vice President of

Regulatory Affairs, Quality Assurance and Clinical Affairs, and Dr. Oray to Vice President of Research and

Development. Both had been Vice Presidents of Synovis Surgical Inovations. The press release stated that

Ms. Frick and Dr. Oray would oversee the above functions for the Company’s interventional business, as well

as its surgical business. Previously, both individuals held responsibilities for the surgical business only. “‘I

am pleased to give larger leadership roles to these two talented and accomplished Synovis Life executives,’

said Karen Gilles Larson, Synovis Life Technologies president and chief executive officer. ‘Mary and Nick

have done an excellent job for the company. I expect we will benefit significantly from their expanded

roles.’”


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Synovis Stock Price Deviated Unusually From Its Peers and NASDAQ

37. The following chart graphically demonstrates Synovis’ stock price during the Class Period, as

compared to the NASDAQ composite stock index showing the effect of Synovis’ statements in inflating its

stock price:

Synovis LifeVs. NASDAQ Composite

J F M A M J J A S O N D J F M A M J J A S O N D0

20406080

100120140160180200220240260280300320340360

Janu

ary

3, 2

003

= 1

00

January 3, 2003 - December 16, 2004

2003 2004

Sy nov is

Class PeriodMay 21, 2003 - May 18, 2004

NASDAQ Composite


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38. The following chart graphically demonstrates Synovis’ stock price to the companies it

compares itself against in its Proxy Statements, showing how it beat its peers during the beginning of the

Class Period, but that in the second half, its peers did not suffer from the same purported industry slow downs

or customer problems claimed by Synovis:

Synovis LifeVs. Proxy Peer Group (1)

(1) Source: 2004 Proxy. Equally weighted group consist ing of ATSI, PO O S, ROCM, ANGN & CMPX.

J F M A M J J A S O N D J F M A M J J A S O N D0

20

40

60

80

100

120

140

160

180

200

220

May

21,

200

3 =

100

January 3, 2003 - December 16, 2004

2003 2004

Sy nov is

Proxy Peer Grp.

Class PeriodMay 21, 2003 - May 18, 2004

Actual Knowledge

39. In addition to motive, supporting a strong inference of scienter, the following facts provide

additional support:

(a) The fact that Synovis’ strong growth in 2003 was so short lived, and that sales did not

recover throughout 2004, including to the date of this complaint (see ¶¶63-65), strongly suggests defendants

recklessly loaded their clients up with inventory beyond what they could use or sell through.


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(b) After the Class Period, the heir apparent to the CEO position, Mr. Boor Boor, who

headed the interventional division, despite having been promoted for his success in 2003, was forced out of

Synovis and replaced. See ¶35.

(c) Defendants’ explanations as to why they missed their forecasts did not make sense, or

hold credibility, with the securities analysts who followed the stock. See ¶62.

(d) Defendant Larson admitted in the May 19, 2004 teleconference that defendants did

not have a basis for giving guidance or forecast. For example, Larson admitted:

(i) “We don’t know how much our customers have in inventory.”

(ii) “We don’t know how much [our customers are] going to sell in the future.”

(iii) In response to an analyst’s question, “So you really don’t have an indication

clearly as to any approximate level of the inventories ... that they have in the interventional business?” Larson

responded: “We do not. And we don’t know how their sales and marketing is performing.”

(iv) With respect to orders in the surgical business, Larson responded: “There are

never any expected orders.” When an analyst asked “Wouldn’t it pay to stay in close contact with [Synovis

customers] and kind of find out what they’re doing?” Larson responded, “We talk to them every day. They

don’t share this information.”

FALSE AND MISLEADING STATEMENTS

40. On May 21, 2003, Synovis issued a press release entitled, “Surgical Business Revenue Rises

31 Percent, Led by 69 Percent Gain in Peri-Strips® Sales; Interventional Business Revenue Nearly Doubles”

and reported “record results and continuing robust growth for the second quarter and six months ended April

30, 2003.” The press release stated in relevant part:

Consolidated net revenue increased 61 percent to $15.3 million in the second quarter of fiscal 2003 from $9.5 million in the same period of fiscal 2002. Operating income rose to $1.9 million, up 63 percent over the year-ago quarter. Synovis generated net income of $1.2 million, or 12 cents per diluted share, versus $766,000, or eight cents per diluted share, in the second quarter of fiscal 2002.

For the first half of fiscal 2003, consolidated net revenue increased 59 percent to $27.8 million from $17.5 million in the first half of the prior year. The company produced operating income of $3.1 million compared to $1.9 million in the same period last year.


- 17 -

Consolidated net income rose to $2.0 million, or 20 cents per diluted share, in the first six months from $1.3 million, or 13 cents per diluted share, in the year-ago period.

Cash provided by operations totaled $549,000 in the first half of fiscal 2003, of which $2.2 million was generated during the second fiscal quarter. Working capital demands in the first half of the fiscal year used $2.6 million, primarily to support increases in accounts receivable and inventory accompanying the steep growth curve in both business segments.

“We continue to drive a very high growth rate across an expanding business,” said Karen Gilles Larson, Synovis Life Technologies president and chief executive officer. “The surgical and interventional businesses are both strong contributors to the company’s vitality, each successfully capitalizing on their full pipelines of opportunities. Our solid balance sheet and increasing profitability continue to provide us with the operating and investment capital necessary to internally fund a high growth rate.”

Surgical Device Business

Surgical device business revenue rose 31 percent in the second quarter to $6.3 million from $4.8 million in the prior-year quarter. This business generated a 118 percent increase in operating income, reaching $1.1 million in the second quarter versus $501,000 in the year-ago period. The higher operating income was driven by revenue growth, gross margin gains and lower operating expenses as a percent of revenue. The operating margin increased to 17 percent in the second quarter of 2003 from 10 percent in the previous year’s quarter. The surgical device business develops, manufactures and markets implantable biomaterial products, tools to facilitate cardiovascular surgeries and products for microsurgery.

Peri-Strips® was again the surgical product with the highest revenue growth, generating $2.8 million in the second quarter, up 69 percent over the year-ago quarter. For the fiscal year to date, Peri-Strips sales reached $5.5 million, an 86 percent increase over the same period last year, and accounted for 20 percent of consolidated net revenue.

Recent estimates indicate that there are more than 15 million morbidly obese Americans. Gastric bypass surgery, a specific surgical treatment for morbid obesity, is rapidly gaining acceptance as a treatment for this condition, and surgeons are using Peri-Strips with greater frequency as they experience its clinical value in preventing life-threatening complications. Forecasts project the number of gastric bypass procedures performed in the United States will reach at least 80,000 in 2003 and between 110,000 and 150,000 by 2004. An estimated 60,000 gastric bypass procedures were performed in 2002.

* * *

Interventional Business

The interventional business continues to deliver impressive revenue growth. Second-quarter net revenue grew 93 percent to $9.0 million, from $4.6 million in the year-ago period. Quarterly operating income from the interventional business climbed to $814,000, a 23 percent gain over $664,000 in the same period last year. This business segment serves interventional medical device companies, providing product engineering services and manufacturing fixation helices, conductor coils, stylets, guidewires and other micro-wire and plastic devices used in cardiac rhythm management, neurostimulation and vascular procedures.


- 18 -

* * *

Outlook for Fiscal 2003

Synovis Life Technologies reaffirms its fiscal 2003 guidance with consolidated revenue expected to reach $50 million to $55 million and fully diluted earnings per share anticipated in the range of 38 cents to 41 cents. This guidance represents a 25 percent to 37.5 percent increase in revenue and a 22 percent to 32 percent gain in earnings per share.

Larson concluded, “We are seeing the rewards of our strategy to diversify our business. While our interventional business is contributing faster revenue growth, the surgical business is generating stronger operating profits. The result is that consolidated revenue and profit growth are both very strong. Our immediate growth opportunities are yielding the obvious gains, while our emerging opportunities provide new potential. The opportunities that will define our future are already in the pipeline. Our investment in the overall business infrastructure and a full R&D pipeline are the basis for a dynamic business model with the capacity to provide strong sustainable growth and increasing profitability.”

Dow Jones News Service reported that same day that:

Second-quarter earnings beat a Thomson First Call consensus view of 8 cents a share by a wide margin, on continued strong growth in both its surgical device and interventional businesses.

The medical device company also reiterated its fiscal year earnings expectations of $0.38 to $0.41 a share on revenue of $50 million to $55 million.

The guidance represents growth of 22% to 32% in earnings per share and 25% to 37.5% in revenue. In fiscal 2002, the company earned $0.31 a share on revenue of $40.0 million.

A First Call survey of three analysts projects year earnings at $0.40 a share, with revenue projected at $52.6 million.

41. On June 10, 2004, The Wall Street Journal reported that “Synovis Life Technologies fell

1.94, or 8.8%, to 20.05, amid reports of a concentration of top-level insider sales of the St. Paul, Minn.,

medical-device maker’s stock, which hit a 52-week high of 22.07 on Friday.” See Exs. A and B.

42. On July 8, 2003, Synovis issued a press release entitled, “Synovis Life Technologies

Increases Revenue and Earnings Guidance for Fiscal 2003,” which stated, in pertinent part, as follows:

Synovis Life Technologies, Inc. has increased its revenue and earnings guidance for the fiscal year ending October 31, 2003. At current business levels, the company expects revenue of $58 million to $59 million, with earnings of $0.43 to $0.46 per diluted share in fiscal 2003. Previous company guidance for fiscal 2003 was $50 million to $55 million in revenue, and earnings of $0.38 to $0.41 per diluted share. The revised estimates represent 45 to 47.5 percent annual growth in consolidated revenue and a 39 to 49 percent rise in earnings per share over fiscal 2002. In fiscal 2002, the company reported a 40 percent increase in revenue and 63 percent gain in diluted earnings per share.


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“Strong gains in both our surgical and interventional businesses over fiscal 2002 provide a solid basis for raising fiscal 2003 guidance,” said Karen Gilles Larson, president and chief executive officer of Synovis Life Technologies. “The same factors that drove our growth in the first half of the year, increasing Peri-Strips sales and broad-based interventional business growth, are continuing into the third quarter. Where earnings fall within the new guidance range will depend on the company’s opportunities to accelerate business initiatives, the decisions relative to those opportunities and costs associated with them.”

Larson concluded, “This is an exciting time for all of us at Synovis. We are fully engaged in pushing our momentum into the future.”

43. On July 10, 2003, The Wall Street Journal reported “Synovis Life Technologies advanced

1.45, or 6.6%, to 23.55, as the St. Paul, Minn., medical-device maker raised its 2003 earnings target to

between 43 cents and 46 cents a share from 38 cents to 41 cents, attributing the gain to strong sales. In 2002,

the company earned 31 cents a share.”

44. On July 15, 2003, Synovis issued a press release designed to further stimulate demand for its

stock entitled, “Synovis Life Technologies Ranks 16th on Fortune Small Business 100 List,” which stated in

pertinent part:

Synovis Life Technologies, Inc., a diversified medical device manufacturer, ranks 16th on the recently announced Fortune Small Business (FSB) 100. The FSB list annually ranks the 100 fastest-growing public companies in America with less than $200 million in annual revenue.

“We are very pleased to be recognized by Fortune Small Business for our revenue and earnings success,” said Karen Gilles Larson, president and chief executive officer. “Synovis has recorded 23 uninterrupted quarters of revenue growth, averaging 35 percent annually. We continue to drive a very high growth rate across our surgical and interventional businesses that manufacture a range of medical devices. Our commitment to investing in growth opportunities has set the stage for a bright future for our shareholders and employees.”

Synovis recently increased its guidance for the fiscal year ending October 31, 2003. At current business levels, the company expects annual revenue of $58 million to $59 million, with earnings of $0.43 to $0.46 per diluted share. The revised estimates represent 45 to 47.5 percent annual growth in consolidated revenue and a 39 to 49 percent rise in earnings over fiscal 2002.

45. On August 18, 2003, Synovis issued another press release designed to stimulate demand for

its stock entitled, “Synovis Life Technologies Ranks 22nd On Fortune’s 100 Fastest-Growing Companies

List,” which stated, in pertinent part:

Synovis Life Technologies, Inc., a diversified medical device manufacturer, ranks 22nd on the recently announced Fortune 100 Fastest-Growing Companies list. The Fortune list


- 20 -

annually ranks the 100 fastest-growing public companies in America based on earnings growth, revenue growth and total investment returns. This marks Synovis’ first appearance on this Fortune list. Last month, Synovis ranked 16th on the Fortune Small Business 100, a list of the 100 fastest-growing companies with revenue under $200 million.

“We are very proud to be recognized by Fortune for our revenue and earnings growth,” said Karen Gilles Larson, president and chief executive officer. “Our accomplishments reflect the combined efforts and talents of our employees. Our ongoing investment in growth opportunities has set the stage for a bright future for our shareholders and employees.”

Synovis recently increased its guidance for the fiscal year ending October 31, 2003, and expects to report revenue of $58 million to $59 million with earnings per diluted share of $0.43 to $0.46 cents. The revised estimates represent 45 to 47.5 percent annual growth in consolidated revenue and a 39 to 49 percent rise in earnings per share over fiscal 2002.

46. On August 20, 2003, Synovis issued a press release entitled, “Synovis Life Technologies

Announces 43 Percent Revenue Growth and 64 Percent Jump in Net Income for Fiscal Third Quarter

Company Marks 24th Uninterrupted Quarter of Revenue Growth Averaging 36 Percent,” which stated, in

pertinent part, as follows:

Synovis Life Technologies, Inc., today reported record revenue and net earnings for the third quarter and nine months ended July 31, 2003.

Consolidated net revenue rose 43 percent to $15.3 million in the third quarter of fiscal 2003 from $10.7 million in the year-earlier period. Operating income reached $2.2 million, a 67 percent increase over the year-ago quarter. The company reported net income of $1.5 million, or 14 cents per diluted share, versus $895,000, or nine cents per diluted share, in the third quarter of fiscal 2002.

For the first nine months of fiscal 2003, consolidated net revenue rose 53 percent to $43.0 million from $28.2 million in the first nine months of the prior year. Operating income rose to $5.3 million versus $3.2 million in the same period last year. Consolidated net income increased to $3.5 million, or 34 cents per diluted share, in the first nine months from $2.2 million, or 22 cents per diluted share, in the year-ago period.

* * *

“Attaining 24 consecutive quarters of year-over-year revenue growth at a 36 percent average growth rate is a wonderful accomplishment for the company,” said Karen Gilles Larson, Synovis Life Technologies president and chief executive officer. “The exceptional performances delivered by both the surgical and interventional businesses have made this possible. The strength of these businesses and the strategies each has in place underlie our enthusiasm as we look ahead.”

* * *

In July, Synovis was added to the Russell 3000(R) Index. Membership in the Russell Index is determined primarily by market capitalization. The company ranked 16th on the


- 21 -

Fortune Small Business 100, a list of the 100 fastest-growing U.S. public companies with less than $200 million in annual revenue. In addition, Synovis just ranked 22nd on the Fortune list of the 100 Fastest- Growing Companies.

Surgical Device Business

Surgical device business revenue increased 24 percent in the third quarter to $6.6 million from $5.3 million in the prior-year quarter. Third-quarter operating income rose to $1.4 million, gaining 59 percent over $903,000 in the year-ago period. The operating margin grew to 22 percent in the third quarter of fiscal 2003 from 17 percent a year earlier, as a result of revenue growth, higher gross margin and lower operating expenses as a percent of revenue. The surgical device business develops, manufactures and markets implantable biomaterial products, tools to facilitate cardiovascular surgeries and products for microsurgery.

Sales of Peri-Strips®, a patent-protected biomaterial device, totaled $3.2 million, a 50 percent increase over the prior-year period. For the first nine months of fiscal 2003, Peri-Strip sales climbed to $8.7 million, a 71 percent rise over the year-ago period. In addition to gastric bypass surgery, the procedure driving current growth, Peri-Strips are used in lung volume reduction surgery, a treatment for late-stage emphysema.... Gastric bypass surgery is a treatment for morbid obesity, which affects more than 15 million Americans. Several factors are propelling Peri-Strips growth in this market. More surgeons are recognizing Peri-Strips’ value in reinforcing the staple line to reduce the risk of life-threatening complications. Gastric bypass procedures are increasing, with projections indicating at least 80,000 procedures in 2003, and 110,000 to 150,000 in 2004. Finally, more gastric bypass surgeries are being performed laparoscopically, a technique requiring more Peri-Strips per procedure than an open surgical procedure.

* * *


The interventional business again demonstrated exceptional momentum in the third quarter. Interventional revenue rose to $8.7 million, a 62 percent increase over $5.3 million in the prior-year quarter. This segment generated $790,000 in quarterly operating income, an 86 percent gain over the prior-year quarter....

In the third quarter, the gross margin for the interventional business was 28 percent, down slightly from 29 percent in the year-ago quarter. Product mix was the primary influence on the gross margin percentage, along with the ongoing costs of all aspects of rapid business expansion. The operating margin for the interventional business was 9 percent in the third fiscal quarter, up from 8 percent in the prior-year quarter.

* * *


Based on the strong performance of each business segment, Synovis Life Technologies, in July, increased its revenue and earnings guidance for the fiscal year ending October 31, 2003. At current business levels, the company expects revenue of $58 million to $59 million, with earnings of $0.43 to $0.46 per diluted share in fiscal 2003. Previous fiscal 2003 guidance called for $50 million to $55 million in revenue and earnings of $0.38 to $0.41 per diluted share. The revised estimates represent a 45 to 47.5 percent


- 22 -

annual consolidated revenue growth and a 39 to 49 percent gain in earnings per share over the previous year.

Larson concluded, “In tandem, the surgical and interventional businesses are producing outstanding solid top- and bottom-line growth. Individually, both businesses are performing very well and are positioned for continuing success. The interventional business is showing strong revenue growth with a 73 percent growth ate for the nine months, while the surgical business is leading operating income growth at 140 percent for the nine months. Technologies in our R&D pipeline have a strategic fit with our current products and provide future potential.”

47. On October 13, 2003, Synovis issued a press release, designed to stimulate demand for its

stock entitled, “Synovis Life Technologies Ranks 19th On Forbes 200 Best Small Companies List” which

stated, in pertinent part, as follows:

Synovis Life Technologies, Inc., a diversified medical device manufacturer, ranks 19th on the recently announced Forbes 200 Best Small Companies list. The Forbes list annually identifies the 200 best small public companies in America with sales between $5 million and $600 million. This marks Synovis’ first appearance on this Forbes list.

“We are especially proud that Synovis is among the top 10 percent of the companies on the Forbes list,” said Karen Gilles Larson, president and chief executive officer. “Investment and hard work over prior years have laid the groundwork for our strong performance in fiscal 2003. We are excited about the future and have the strategies in place to sustain our momentum.”

Synovis recently completed a private placement of 1.5 million shares of common stock, and received net proceeds of $36.5 million to use for working capital, general corporate purposes and potential acquisitions. For the fiscal year ending October 31, 2003, the company expects to report revenue of $58 million to $59 million with earnings per diluted share of $0.43 to $0.46. The revised estimates represent 45 to 47.5 percent annual growth in consolidated revenue and a 39 to 49 percent rise in earnings per share over fiscal 2002.

To qualify for the 200 Best Small Companies list, companies must be valued above $5 per share, and have a five-year return on equity of at least five percent. Additionally, companies must have gone public prior to January 1, 2001, and had no major litigation or management changes. Finally, companies are evaluated based on growth in sales, earnings and return on equity for the previous 12-month and five-year periods.

48. On October 16, 2003, Synovis issued a press release entitled, “Company Forecasts

Consolidated Revenue Range of $75 Million to $79 Million And EPS Range of 56 Cents to 60 Cents for

Fiscal 2004,” which stated, in pertinent part, as follows:

Synovis Life Technologies, Inc., a diversified medical device manufacturer, anticipates consolidated revenue in the range of $75 million to $79 million, with earnings per diluted share of $0.56 to $0.60 for the upcoming fiscal year ending October 31, 2004.

* * *


- 23 -

“Our fundamental strategies are producing results, and we are enthusiastic about our growth prospects in fiscal 2004 and beyond,” said Karen Gilles Larson, president and chief executive officer of Synovis Life Technologies. “The investments we have made in research and development, acquisitions, manufacturing capacity and infrastructure are delivering substantial gains in our interventional and surgical businesses, while positioning both businesses for future growth.”

49. The next day, October 17, 2003, Synovis issued a press release entitled, “Company’s High-

End EPS Guidance Exceeds Share-Adjusted EPS of Analysts Actively Covering the Company,” which stated,

in pertinent part, as follows:

Synovis Life Technologies, Inc., a diversified medical device manufacturer, in response to confusion in the marketplace is issuing this statement about the fiscal 2004 guidance the company released yesterday: The company stated that it anticipates earnings per diluted share of $0.56 to $0.60 for the upcoming fiscal year ending October 31, 2004. The release noted that the company’s guidance is based on 11.4 million shares outstanding, which includes 1.5 million shares from a private placement completed in September. The estimates of analysts actively covering the company referenced in various news reports yesterday, when adjusted for the new share count, are a consensus of $0.57 per diluted share for fiscal 2004. Therefore, the company’s guidance of earnings per diluted share of $0.56 to $0.60 exceeds the share-adjusted EPS consensus of analysts actively covering the company referenced in the media yesterday.

50. On December 3, 2004, Synovis issued a press release, reiterating its financial guidance for

fiscal 2004, and reported the results of the fourth quarter entitled, “Synovis Life Technologies Revenue

Grows 27 Percent and Net Income Gains 67 Percent in Fiscal Fourth Quarter,” which stated, in pertinent part,

as follows:

Fiscal 2003 EPS of 47 Cents on Revenue of $58 Million

Synovis Life Technologies, Inc., today reported strong growth in revenue, operating income, net income and earnings per share for the fourth quarter and fiscal year ended October 31, 2003.

Consolidated net revenue increased 27 percent to $14.9 million in the fourth quarter of fiscal 2003 from $11.8 million in the year-earlier period. Operating income rose 54 percent over the year-ago quarter to $2.0 million. The company posted a 67 percent gain in net income to $1.5 million, or 13 cents per diluted share, versus $878,000, or nine cents per diluted share, in the fourth quarter of fiscal 2002.

For fiscal 2003, consolidated net revenue rose 45 percent to $58.0 million from $40.0 million in the prior fiscal year. This increase is an acceleration over the 40 percent revenue growth rate between fiscal 2002 and fiscal 2001. In fiscal 2003, operating income grew 61 percent to $7.3 million compared to $4.6 million in the prior fiscal year. Consolidated net income reached $5.0 million, or 47 cents per diluted share, in fiscal 2003, up from $3.0 million, or 31 cents per diluted share, in fiscal 2002.


- 24 -

In September, the company significantly strengthened its balance sheet by adding $36.5 million in net proceeds from a private investment of public equity (PIPE) financing involving the placement of 1.5 million shares for $39 million....

“This has been a terrific year for Synovis, with strong organic revenue growth, bottom line leverage and EPS growth that exceeded all expectations – as well as the incredibly successful PIPE transaction that added cash of $36.5 million,” said Karen Gilles Larson, Synovis Life Technologies president and chief executive officer. “Our performance was recognized by inclusion in Fortune, Forbes and Investor’s Business Daily stock lists. Surgical business revenue rose 31 percent; the fifth consecutive year of increasing growth rates. Our interventional business demonstrated strong revenue growth with a 59 percent growth rate in fiscal 2003, following a 60 percent growth rate in fiscal 2002. In fiscal 2003, we increased our R&D investment by 68 percent to $3.8 million, and we plan to raise our R&D investment by as much as 44 percent in the coming year. We are constantly preparing the way for continuing success.”

Surgical Business

Surgical business revenue increased 27 percent in the fourth quarter to $6.6 million from $5.2 million in the year-ago period....

For fiscal 2003, surgical business revenue grew 31 percent to $25.6 million, while operating income rose 96 percent to $4.7 million....

“Peri-Strips®, our patent-protected biomaterial device, has been the leading growth driver in the surgical line,” said Larson. “With the upcoming opportunity from lung volume reduction surgery and a third application on the horizon, we expect this product to continue to deliver substantial growth.”

In fiscal 2003, Peri-Strips revenue grew to $11.7 million, a 62 percent rise over the previous year. Peri-Strips’ use in gastric bypass surgery, a treatment for morbid obesity that affects more than 15 million Americans, is driving the current sales momentum. Increasing numbers of surgeons are appreciating Peri-Strips’ value in reinforcing the staple line to reduce the risk of life-threatening complications, and increasing numbers of patients are seeking gastric bypass surgery. Projections call for at least 80,000 gastric bypass procedures in 2003, followed by 110,000 to 150,000 in 2004. Further, more gastric bypass surgeries are being performed laparoscopically, a technique in which surgeons generally use more Peri-Strips per surgery than an open surgical procedure.

International Peri-Strips sales rose 105 percent in the fourth quarter and 41 percent for the fiscal year, while domestic Peri-Strips revenue grew 39 percent in the quarter and 63 percent in fiscal 2003. In Europe, there is increasing interest in gastric bypass procedures as a treatment for morbid obesity, which led to the strong international sales increase.

In August 2003, the Centers for Medicare & Medicaid Services (CMS) announced its intent to provide reimbursement for certain patients undergoing lung volume reduction surgery (LVRS), a treatment for late-stage emphysema that involves the use of Peri-Strips.... In its fiscal 2004 guidance, Synovis included $1.5 million in revenue from LVRS. Synovis will, as always, adjust its guidance when and if it seems appropriate to do so.

Sales in the microsurgery product line rose 23 percent to $345,000 in the fourth quarter and showed a 26 percent year-over-year increase....


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* * *


Interventional business revenue grew to $8.3 million in the fourth quarter, up 27 percent over the same period last year.... Quarterly operating income reached $965,000, a 123 percent gain over the prior-year quarter.

Fiscal 2003 revenue increased 59 percent to $32.4 million, while operating income grew to $2.7 million, up 23 percent....

“Our interventional business revenue jumped 59 percent over fiscal 2002,” said Larson. “We have customarily experienced and come to expect inherent quarterly variations in revenue within this business, and this year was no exception. We continue to be excited about the multiple growth opportunities for the interventional business. In the fourth quarter and for the fiscal year, all interventional product categories showed significant increases. The products we provide to interventional device companies are used in a multitude of devices in fast-growing medical markets. Three customers each accounted for more than 10 percent of fiscal 2003 interventional business revenue, and all significantly increased their business with us. Further, finished goods inventory of $2.1 million at October 31, 2003, reflected our customers’ firm purchase orders.”

* * *


In mid-October, Synovis Life Technologies announced revenue and earnings guidance for fiscal 2004. The company anticipates consolidated revenue of $75 million to $79 million, a 29 to 36 percent increase over fiscal 2003 consolidated revenue. The company is projecting earnings per diluted share of 56 cents to 60 cents for fiscal 2004, a 19 to 28 percent gain over the just-completed year. This projection includes the impact of the 16 percent increase in outstanding shares as a result of the private placement.

Larson concluded, “We just finished a great year, and we are fully engaged in the process of continuing our growth and producing new opportunities in fiscal 2004 and beyond. We are well positioned. Both our interventional and surgical businesses have unique in-demand products in strong and growing markets. We are advancing and adapting our technologies and capabilities for opportunities ahead, seeking acquisitions with a sound strategic fit, and investing in R&D and infrastructure to set the stage for future growth.”

51. On January 13, 2004, Synovis issued a press release entitled, “Synovis Life Technologies

Reaffirms Annual Guidance Despite Slow Start In Intervention Business and Its Effect on First-Quarter

Results,” which stated, in pertinent part, as follows:

Synovis Life Technologies, Inc., a diversified medical device company, anticipates consolidated revenue and net earnings for its first fiscal quarter ending January 31, 2004, will be well below analysts’ estimates. The company does not provide quarterly guidance, in large part due to the inherent variability that occurs in the interventional business. Revenue is expected to be near first-quarter 2003 levels, with net earnings below first-quarter 2003 levels. In the first quarter of last year, the company reported $12.5 million in revenue and


- 26 -

net earnings of $793,000, or $0.08 per fully diluted share. The way the first quarter of fiscal 2004 is developing, interventional business revenue is expected to be around $5.5 million, while surgical business revenue is expected to be a record $7.0 million or greater. In the first quarter of fiscal 2003, interventional business revenue was $6.4 million, and surgical business revenue was $6.1 million. The company plans to announce 2004 first-quarter earnings on February 18, 2004.

“We understand the disappointment this announcement may cause our shareholders; however, we encourage them to look at the annual time horizon as a measure of our success, as we do,” said Karen Gilles Larson, president and chief executive officer of Synovis Life Technologies. “Many of us at the company, along with our directors, are significant shareholders. We believe this slow start to the year in the interventional business is a short-term situation, and while certainly not desirable in its perception, we are not discouraged by it. We know what our prospects are and remain very enthusiastic about them. Our current business opportunities, and those in our pipeline, provide the basis for our excitement. We are advancing these opportunities daily in both business segments. At this point in time, we have no basis to believe that we will not reach our annual guidance.”

The company reaffirmed its guidance for the current fiscal year ending October 31, 2004, for revenue in the range of $75 million to $79 million, with earnings per diluted share of $0.56 to $0.60. This guidance reflects revenue growth ranging from 29 percent to 36 percent, and growth in earnings per share of 19 percent to 28 percent over fiscal 2003.

Larson continued, “We are expecting record revenue in the first quarter in our surgical business, with our Peri-Strips(R) product leading the revenue growth. More and more Peri-Strips data are becoming available, adding to the long clinical history which confirms the benefits of this product and its excellent performance in gastric bypass surgery, lung volume reduction surgery, and other lung resection surgeries. We plan to submit two 510(k) applications for additional Peri-Strips indications in the first half of this fiscal year. One of these applications could have very significant potential. We expect that consolidated revenue and earnings will ramp up sharply in the second half of this fiscal year. Our expectations are based, among other things, on the estimated timelines for new indications of current products, the estimated progressive growth of lung volume reduction surgery as patient awareness increases and the timelines for completion of development work for new interventional business customers and the ensuing production revenue. The bottom line is: despite the slow start in the interventional business, Synovis is expecting a good year.”

52. On January 14, 2004, the St. Paul Pioneer Press reported:

Shares of Synovis Life Technologies fell as much as 27 percent in after-hours trading after the medical devices company said first-quarter revenue will be about the same as the $12.5 million it reported a year earlier. Net income for the quarter ending Jan. 31 will be less than the 8 cents reported for the same period a year earlier. The company had been forecast to earn 13 cents on $16.1 million in revenue, the average estimate of three analysts polled by Thomson First Call. The shares fell as much as $5.64 to $15 in after-hours trading. They slipped 71 cents to $20.64 in regular trading. Results will be released on Feb. 18.

53. On the same day, the Star-Tribune reported:

Shares of Synovis Life Technologies Inc. tumbled in after-hours trading after the St. Paul-based company revealed that its fiscal first-quarter revenue and earnings would be well below analysts’ estimates.


- 27 -

Synovis’ stock closed at $20.64 per share Tuesday, down 71 cents in normal trading. The diversified medical device company issued its annual guidance once the market closed, and its stock plunged 24 percent to $15.70 in after-hours trading.

The company attributed the setback to a slow start in its interventional business, which provides product development resources and manufacturing support for pacemakers, defibrillators and other medical devices.

The interventional business is sluggish, the company said, because customers increased inventories throughout much of fiscal 2003 and continue to draw on those supplies.

Synovis’ stock has been a high-flier in recent years, rising from about $5 a share in 1998 to a peak of around $32 last September.

“We understand the disappointment this announcement may cause shareholders; however, we encourage them to look at the annual time horizon as a measure of our success, as we do,” Karen Gilles Larson, Synovis’ president and CEO, said in a statement.

“The bottom line is: Despite the slow start in the interventional business, Synovis is expecting a good year,” she added. “At this point in time, we have no basis to believe that we will not reach our annual guidance.”

54. On February 18, 2004, Synovis released its financial and operational results for the first

quarter ended January 31, 2004, and provided the following details with respect to its guidance for fiscal

2004:

“Let me emphasize what I said in our pre-announcement: While we are certainly not pleased with our first-quarter performance, we have abundant reasons to be optimistic about fiscal 2004 and far beyond,” said Karen Gilles Larson, Synovis Life Technologies president and chief executive officer. “We continue to advance our opportunities, bringing them closer to realization. Specifically, the company filed four 510(k) submissions to the FDA during the last seven weeks.”

“The interventional side of our business has experienced decreased demand for cardiac rhythm management (CRM) components, particularly implantable cardioverter defibrillator (ICD) components,” Larson noted. “This is a dramatic swing from the 80 percent increase in demand in the first half of fiscal 2003. In addition, the customer draw rate did not improve to the degree we had expected as January developed. Other companies in the CRM market felt the results of the ICD shortfall, based on press releases issued in the last few weeks. These releases indicated that, while there had been substantial growth in the ICD markets in 2003, the growth was less than had been expected. As a result, it appears customers accumulated inventory, which directly affects demand for our production. Our customers’ efforts to move to just-in- time inventory management will also affect near-term demand for our CRM components. We expect interventional business CRM-related revenues to regain momentum as customers reduce inventories to reorder levels. Additionally, we expect new revenue sources throughout the fiscal year as current projects come to fruition and hit the revenue stream.”

* * *


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Larson continued, “We have a strong R&D pipeline and robust growth rates in the medical markets in which we participate. We expect to re-establish strong momentum going into the second half of fiscal 2004. We remain focused on building the business to increase the long-term value for all of our stakeholders.”

* * *

“Even though the first quarter results fell short of our expectations, we have not lost our determination or enthusiasm to continue our growth and business expansion for the balance of this fiscal year and beyond,” noted Fariborz Boor Boor, executive vice president of Synovis Life Technologies. “We have added seven new customers to our existing customer base, our newly structured devices group is working on several potentially large projects and our precision engineering group is experiencing good growth. We continue to expand our core competencies across all of our businesses and facilities. In addition, our first proprietary device should be cleared to market shortly. Simply stated, the future of our interventional group is very bright.”

Fiscal 2004 Outlook

In October 2003, Synovis Life Technologies issued fiscal 2004 annual guidance anticipating consolidated revenue of $75 million to $79 million and earnings per fully diluted share of 56 cents to 60 cents. The company reaffirmed its fiscal 2004 guidance in its pre-announcement press release of January 13, 2004. After just one quarter of the current fiscal year, the company has no compelling information to change its fiscal 2004 annual guidance. As stated previously, the company expects consolidated revenue and earnings will ramp up sharply in the second half of this fiscal year. The company’s expectations are based, among other things, on estimated timelines for new indications of current products, the estimated progressive growth of lung volume reduction surgery as patient awareness increases and the timelines for completing development for new interventional business customers and the ensuing production revenue. In fiscal 2003, the company reported consolidated revenue of $58.0 million and earnings per diluted share of 47 cents. The above earnings-per-share projection for fiscal 2004 includes the impact of the 16 percent increase in outstanding shares as a result of a September 2003 private placement which netted the company $36.5 million in proceeds.

DEFENDANTS’ SCHEME BEGINS TO UNRAVEL

55. On May 19, 2004, before the market opened, Synovis shocked the investing public when it

drastically cut its guidance for fiscal 2004. The press release stated, in pertinent part, as follows:

“At the halfway point of the year, we have fallen behind our own expectations and have clearly not met the expectations of the market,” said Karen Gilles Larson, Synovis Life Technologies president and chief executive officer. “While the interventional business showed significant sequential improvement during the second quarter, it is not yet back to fiscal 2003 levels. In the surgical business, several factors affecting the gastric bypass market evolved during the second quarter, constraining recent Peri-Strips sales growth and near-term growth prospects for Peri-Strips use in gastric bypass surgery. The magnitude of the revenue shortfall in the interventional business, combined with changes in the gastric bypass market, significantly reduce the likelihood of the strong year-over-year growth we expected in fiscal 2004.


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“In both businesses, we invested in staff and infrastructure to prepare for future growth, which has obviously been delayed. We have reviewed all expense categories thoroughly and are making prudent adjustments to manage costs without limiting future growth prospects.” Although second-quarter expenses increased 7 percent over the year-ago period, they are about 18 percent below what the company had planned.

* * *

Larson commented, “Coming off impressive growth over the last several years, in the first quarter of fiscal 2004, our interventional business, along with some of our industry counterparts, experienced a material slowdown in customer orders for components for cardiac rhythm management devices, including implantable cardioverter defibrillators (ICDs). This was due to customer accumulation of excess inventory. While revenue increased by 48 percent in the second quarter of this fiscal year compared to the first quarter, the order rate for these components has not yet fully recovered. The effect of the revenue decrease was exacerbated by additional infrastructure we put in place to support growth. We have already reduced expenses and, as mentioned earlier, we continue to review and cut expenses where we can without jeopardizing future growth. Further, we are actively seeking to reduce our market concentration which, in turn, will reduce our customer concentration. This should lessen the inherent variability in the current business composition. We are successfully bringing device opportunities into the development revenue stream, some of which could translate into significant manufacturing revenue and market diversification.”

* * *

Fiscal 2004 Guidance

Synovis Life Technologies today adjusted its revenue and earnings guidance for the fiscal year ending October 31, 2004, to reflect the current market conditions for the company’s surgical and interventional businesses as discussed above. The company now expects consolidated revenue of $60 million to $64 million, with earnings of $0.28 to $0.34 per diluted share. Previous company guidance for the current year was revenue of $75 million to $79 million, and earnings of $0.56 to $0.60 per diluted share.

56. Investor reaction was swift and negative, with Synovis stock falling from a close of $14.65 on

May 18, 2004 to a close of $9.25 on May 19, 2004, for a single-day decline of more than 36% on very heavy

trading volume.

57. Several commentaries following Synovis’ dramatic reduction of its guidance for fiscal 2004

provided additional details. A Dow Jones newswire article dated May 19, 2004, and entitled, “Synovis Shares

Fall as Firm Reduces Yearly Outlook,” stated, in pertinent part, as follows:

Synovis blamed the reduced guidance on weakness in both its interventional business – which makes components such as implantable cardioverter- defibrillators, or ICDs, to be used by other major medical device companies – and its surgical business, which makes products used for cardiovascular surgeries.

* * *


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A large chunk of revenue in the interventional business is derived from a single customer– which the company hasn’t disclosed. It warned Synovis last quarter that they overestimated demand for ICDs and, as a result, had built up excess inventory, said David Sterman, an analyst with Halpern Capital.

Synovis believed it would shortly resume normal business with that customer and expected business to rebound at some point during the second quarter, which didn’t transpire, Mr. Sterman said.

The more disappointing part of the business, Mr. Sterman said, was the surgical business, which suffered when a competing medical device maker, privately held Gore Medical, developed a product to compete with Synovis’ Peri- Strips, used to reduce risk of leakage and other complications related to surgical procedures. Peri-Strips are most commonly used in gastric bypass surgery.

Synovis had previously said the competing product wouldn’t pose a great threat to Peri-Strips’ growth, and expected Peri-Strips to be very strong in the second quarter, Mr. Sterman said. While Peri-Strips was the leading product in the surgical business in the second quarter, contributing $2.8 million in revenue, its growth was almost flat with the year-ago quarter.

58. An article appearing in SmartMoney.com dated May 19, 2004, and entitled, “Surgical

Complication,” provided the following additional details:

Investors just don’t have the stomach for Synovis Life Technologies’ (SYNO) stock any longer.

Shares of the medical-device maker plunged 37% to $9.25 Wednesday after Synovis reported disappointing quarterly earnings and warned of weaker-than-expected results for the full year. The St. Paul, Minn., company pinned part of the blame on slumping demand for its surgical product that’s used in gastric bypass and other procedures.

“Everybody was caught by surprise,” says David Sterman, an analyst at Halpern Capital, a Miami brokerage. “The company’s last comments three months ago were that everything is going great. Their comments at the time, we thought, suggested business was getting strong in the midterm. But in the subsequent months, management learned that wasn’t so.” According to Sterman, Synovis preannounced poor results for the first quarter, making Wednesday’s second-quarter earnings miss especially surprising.

* * *

“This will be a dead year as far as the company is concerned,” says Sterman of Halpern Capital. “This has quickly turned into a rebuilding year. It’s hard to pinpoint what’s going on. Management has changed its tune a couple of times, and right now it doesn’t have much credibility. They’ve done a poor job of communicating how business is going. Synovis had a great track record the past couple of years, and 2005 may see it become a good growth company again, but 2004 looks like a lost year.”

59. A Quarterly Update Report dated May 19, 2004 and issued by Halpern Capital and its analyst

David Sterman provided the following additional details:


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On the company’s conference call, a number of investors questioned why management failed to pre-announce the weak quarter, and why they waited this long to sharply take down full-year guidance. The response was quite weak. CEO Karen Gillis noted that as of three months ago on the last conference call, it still appeared as if business would rebound strongly. Clearly, the company has now known for a month or two that business remains weak. And to our view, they had a responsibility to communicate that with shareholders on a timely basis. Although the conference call was civil, there were clearly a number of investors that appeared dissatisfied with management’s non-response to this concern. On several occasions, we have heard from our clients that management appears to run Synovis as a “private company.” That clearly needs to change.

60. CNNfn’s New York Stock Exchange Update, hosted by Ali Velshi, Pat Kiernan, and Greg

Clarkin, on May 19, 2004, reported the defendants’ admission that they new undisclosed facts earlier that they

should have disclosed:

KIERNAN: Let’s look at Synovis.

CLARKIN: OK, Synovis. You guys are familiar with the stomach stapling procedures, correct?

VELSHI: Yes, we’ve heard about it.

CLARKIN: Well, insurance companies now are looking at these things. They roughly run about $30,000, these procedures. The insurers are look at these as they grapple with the rising cost, insurance companies that is. Insurance companies are reluctant to cover these procedures. They’re, obviously, used to treat obesity.

So one of the companies that’s suffering from the fallout here is Synovis. These folks make something called Peri Strips and that is a product that reinforces the staples used in the stomach stapling procedures. The CEO, the companies executives saying they really should have lowered their forecast probably a quarter ago when they saw these conditions were rising. They didn’t do it then. They did it today. They’re saying their full year fiscal forecast now earnings something in the neighborhood of 28 to 34 cents. They were expected to earn as much as 60 cents for the year. So they could be just over half of that.

And the executive saying, we saw this kind of a quarter ago. We probably should have done it then. But I don’t know if they figured things would turn around, the insurance business would change a little bit but, either way, these procedures are getting new found scrutiny.

VELSHI: All right, Greg, thanks very much for that. You will stick around with us. Greg Clarkin’s our stocks editor.

61. On the same day, CNNfn’s Stocks Ed’s Update, hosted by David Haffenreffer, Susan

Lisovicz, and Greg Clarkin, reported similar admissions by defendants:

DAVID HAFFENREFFER, CNNfn ANCHOR, MONEY & MARKETS: Our stocks editor Greg Clarkin joins us now. He’s got a look at more of the movers of the day. Hi, Greg.


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GREG CLARKIN, CNNfn CORRESPONDENT: Hi there Susan and David. Don’t take this the wrong way, but are you guys familiar with the stomach stapling procedures?

SUSAN LISOVICZ, CNNfn ANCHOR, MONEY & MARKETS: Not personally.

HAFFENREFFER: Not yet.

CLARKIN: OK, obviously familiar with it. We’ve got a stock story related to that. Insurance companies are really scrutinizing these procedures. They run upwards of $30,000 a pop. As an example, Blue Cross and Blue Shield of Florida saying next year they will stop covering these procedures. That has led a company called Synovis Life Technologies, which makes surgical products to lower their forecast for the full fiscal year. Now this company specifically makes a product called Peri-strips and that reinforces the staples used in this procedure.

The company saying about a quarter ago, they saw the conditions deteriorating. They probably should have warned then but they didn’t. What they do do now is warn for the full fiscal year. They’re looking at numbers something in the range of 28 to 34 cents a share in earnings for the full fiscal year. They had been expected to post as much as 60 cents a share in earnings, so again, less of these procedures means less of their staple reinforcement products and the stock today taking a pounding, down 36, almost 37 percent by the closing bell, a loss of $5.40 a share.

62. On May 20, 2004, a financial analyst with Miller Johnson, Steichen Kinnard, who was one of

a very small group of analysts long following Synovis – and unlike Oppenheimer had not been involved in the

October 2003 $39 million private placement – wrote a scathing Research Update advising investors to “sell”

Synovis stock as defendants’ explanations for their reduced guidance did “not make sense.” In pertinent part,

the report of Chad M. Simmer, CFA, states:

The surgical side of the business fell short as Peri-strip revenue did not grow year-over-year and was actually down sequentially. Management indicated that Peri-strip sales fell short due to capacity constraints in terms of surgeons being able to perform procedures. Apparently, the number of qualified surgeons has fallen. However, from our perspective, a lack of surgeon capacity reducing Peri-strip growth to zero does not make sense. First of all, Peri-strips are only used in 25% of gastric bypass procedures, therefore, there should be continued growth as Peri-strips gain market acceptance. Under a scenario of increasing marketing acceptance, some growth would occur even if the number of procedures were not increasing. Second, we were under the impression that the laparoscopic approach to gastric bypass surgery was steadily becoming more widely used. Since laparoscopic gastric bypass surgery uses 5-12 Peri-strips as opposed to 1-3 Peri-strips in the open approach, the conversion to the laparoscopic approach should also have provided growth even if the number of gastric bypass procedures were not increasing.

On the interventional side of the business, the same problem that plagued the company last quarter persisted into this quarter. The company’s largest customers did not place the orders management was expecting due tot hose customers continuing to work through an inventory build-up. Management is not sure when the issue will resolve itself.


- 33 -

Gross margins for the surgical and interventional businesses were 65.9% and 18.1% compared to our expectations of 65.5% and 29.0%, respectively. The shortfall in the interventional gross margin was due to lower revenue covering higher fixed costs. Synovis invested in the international business with the expectations for higher revenue and growth. Without the materialization of those expectations, the costs associated with that investment are negatively impacting results.

SG&A expense of $4.1mm (29.8% of sales) was lower than our projection of $4.2mm (23.9% of sales), but it was substantially higher as a percentage of sales. Management has indicated that expenses and investment in FY04 would come in at a higher rate than fiscal 2003 as the company plans for future growth. R&D expense of $910k (6.6% of sales) was lower than our projection of $1.2 mm (6.8% of sales) as management pares back expenses. The company closed the quarter with cash of $41.0mm.

GUIDANCE AND OUTLOOK

Given the poor results this quarter, management cut its FY04 revenue and EPS guidance to $60mm to $64mm and $0.28 to $0.34, respectively. Previous management was guiding to revenue of $75mm to $79mm and EPS of $0.56 to $0.60. We continue to remain concerned as to whether or not management will be able to meet its guidance. Given that the explanations for the Peri-strip shortfall do not make sense to us and that management has no visibility into when its contract manufacturing clients will work through their excess inventory, we are not confident in current guidance. Therefore, we are projecting fiscal 2004 revenue and EPS of $56.5mm and $0.24, respectively. We are initiating fiscal 2005 revenue and EPS projections of $67.8mm and $0.45.

On May 19, 2004, Oppenheimer blamed undisclosed “competition” as being the culprit for slowed growth in

Peri-Strip sales. Similarly, in August 19, 2004, Miller Johnson’s Chad Simmer revealed that unacknowledged

competition from WL Gore & Associates, Cook Group Incorporated and Medical Ventures Corporation may

be the real factor for the slowed growth in Peri-Strip sales.

Subsequent News

63. Subsequently, on June 16, 2004, Synovis reported revenue for the second fiscal quarter ended

April 30, 2004 of $13.7 million compared to $15.3 million, a 10% decrease from the same period last year

and a 19% sequential increase over the first quarter of fiscal 2004. The Company reported net income of

$483,000, or four cents per diluted share, versus net income of $1.2 million, or $0.12 per diluted share, in the

second quarter of fiscal 2003. In the first half of fiscal 2004, consolidated net revenue was $25.3 million

versus $27.8 million in the first 6 months of last fiscal year. Synovis generated operating income of $1.2

million compared to $3.1 million in the year-ago first half. Consolidated net income declined to $902,000, or

eight cents per diluted share, in the first 6 months from $2.0 million, or $0.20 per diluted share, in the first

half of last year. Peri-Strips was virtually the same as in the year-ago quarter. Interventional business


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revenue declined to $7.1 million in the fiscal 2004 second quarter from $9.0 million in the same period last

year and improved sequentially over the $4.8 million reported in the first quarter of fiscal 2004. The quarterly

operating loss was $323,000, versus operating income of $814,000 in the prior-year quarter. Synovis further

adjusted its revenue and earnings guidance for the fiscal year ending October 31, 2004. The Company

expected consolidated revenue of $60 million to $64 million, with earnings of $0.28 to $0.34 per diluted

share. Previous Company guidance for the current year was revenue of $75 million to $79 million, and

earnings of $0.56 to $0.60 per diluted share. These revised estimates represent 10% annual growth in

consolidated revenue at the top of the range and a 28% to 40% decrease in earnings per share. “Synovis Life

Technologies, Inc. Medical device company reports second quarter financial results,” Biotech Week, June 16,

2004.

64. On August 18, 2004, Synovis reported significantly lower fiscal third-quarter earnings from a

year ago, hurt by a decrease in its interventional segment’s operating income. As a result, the medical device

Company withdrew its annual guidance and said it won’t provide guidance for the fourth quarter, citing the

current complexities in the gastric bypass market and the unpredictability of key customers’ buying decisions.

In a press release, Synovis posted net income of $187,000, or 2 cents a share, for the quarter ended July 31,

down from $1.46 million, or 14 cents a share, a year ago. Revenue slipped 1% to $15.1 million for the

quarter from $15.3 million a year ago. Earnings missed a Thomson First Call projection of 8 cents a share,

while revenue fell short of an analysts’ average estimate of $15.8 million. Synovis said growth opportunities

slowed in its surgical and interventional businesses. “We experienced and supported tremendous growth in

prior years and anticipated and planned for continuing growth, although at a lower rate than the previous

year,” Chief Executive and President Karen Gilles Larson said in the release. Synovis blamed the reduced

guidance on weakness in both its interventional business – which makes components such as implantable

cardioverter defibrillators, or ICDs, to be used by other major medical device companies – and its surgical

business, which makes products used for cardiovascular surgeries. “Synovis 3Q EPS 2c Vs 14c,” Dow Jones

News Service, Aug. 18, 2004


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65. On December 1, 2004, Synovis shares dropped again when it posted a sharply lower profit in

the fourth quarter as revenue declined in both of its business segments. Shares of Synovis sank 14.3 percent,

or $1.69, to $10.16 during morning activity on the NASDAQ. Synovis said doubts over the safety of gastric

bypass surgery – an increasingly popular weight-loss procedure – this year slowed sales of Peri-Strip suture

reinforcements, driving down surgical sales by 1 percent to $6.5 million. Meanwhile, sales in its

interventional business slipped 3 percent to $8.1 million on waning demand from cardiac rhythm management

customers. For the year, Synovis posted earnings of $1.3 million, or 11 cents per share, on revenue of $55

million, compared with income of $5 million, or 47 cents, on revenue of $58 million in 2003. Its results fell

short of analyst expectations for a profit of 13 cents per share. Synovis, which previously withdrew its 2005

forecast, said it is not providing forward guidance but will consider giving an estimate “if and when market

conditions stabilize.” “Significant continuing factors affecting revenue include the current, unsettled situation

in the gastric bypass market, the unpredictability of key interventional customers’ demand for the company’s

products and services, given the indirect impact of CRM market growth rates and other variables, along with

the timing of such buying decisions,” the company said in a statement. “Synovis shares drop on weak 4Q

report,” Associated Press Newswires, Dec. 1, 2004.

UNDISCLOSED ADVERSE INFORMATION

66. The true facts which were known to the defendants but actually concealed were as follows:

(a) The growth rates experienced by Synovis during 2003 were the result of selling

unusually high levels of product to companies beyond what they could sell through during equivalent periods,

thereby loading them up with inventory which would have to be used or sold off before they could resume

purchasing at the same level or higher levels to meet defendants’ 2004 projected growth rates. As a result, the

reported actual and projected revenues for 2003 were grossly misleading.

(b) The Company’s surgical business was not on track for year-to-year growth. Even

defendants’ explanations for “why” the Company’s Peri-Strips sales fell short were grossly false and

misleading. Defendants claimed that sales fell due to capacity constraints, i.e., the number of surgeons


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qualified to perform procedures had declined – taking sales down as well. This claim, however, appears false

for several reasons:

(i) Peri-Strips are only used in 25% of gastric by-pass procedures and therefore

growth would track with market acceptance. See ¶62.

(ii) Even if the number of gastric by-pass procedures did decline, the medical

communities conversion to the “laproscopic” method (which uses S-12 Peri-Strips) from the “open” method

(which used 103 Peri-Strips), would have stemmed this decline in the Company’s Peri-Strips sales. See id.

(iii) Rather, some analysts believe the Company’s Peri-Strips are losing market

share to competing WL Gore & Associates, Cook Group Incorporated, and Medical Ventures Corporation.

See id.

(c) The Company’s “interventional” side had little to zero 2004 growth prospects. In

fact, it appears that prior to and during the Class Period, the Company had shipped several quarters’ worth of

inventory of implantable cardioverter-defibrillators to the Company’s largest customer. This customer was

refusing to take delivery of anymore of the Company’s products until and unless it could actually sell the

already shipped product that was stuffed in the customers’ warehouses and had been idle for months.

(d) Synovis’ projections of fiscal 2004 EPS of $0.56-$0.60 and revenues of $75-$79

million were false and misleading, as they were without basis.

(e) Synovis was not generating sufficient capital through organic growth to provide the

Company with the operating and investment capital necessary to fund a high growth rate and, therefore, an

inflated stock price was necessary to raise the $39 million raised from the sale of stock in October 2003.

67. As alleged herein, defendants acted with scienter in that defendants knew that the public

documents and statements issued or disseminated in the name of the Company were materially false and

misleading; and knew that such statements or documents would be issued, or acquiesced in the issuance or

dissemination of such statements or documents as primary violations of the federal securities laws. As set

forth elsewhere herein in detail, defendants, by virtue of their receipt of information reflecting the true facts

regarding Synovis, their control over, and/or receipt of information of Synovis’ allegedly materially


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misleading misstatements and/or their associations with the Company which made them privy to confidential

proprietary information concerning Synovis, participated in the fraudulent scheme alleged herein.

68. The market for Synovis securities was open, well-developed and efficient at all relevant

times. As a result of these materially false and misleading statements and failures to disclose, Synovis

securities traded at artificially inflated prices during the Class Period. Plaintiffs and other members of the

Class purchased or otherwise acquired Synovis securities relying upon the integrity of the market price of

Synovis securities and market information relating to Synovis, and have been damaged thereby.

69. During the Class Period, defendants materially misled the investing public, thereby inflating

the prices of Synovis securities, by publicly issuing false and misleading statements and omitting to disclose

material facts necessary to make defendants’ statements, as set forth herein, not false and misleading. Said

statements and omissions were materially false and misleading in that they failed to disclose material adverse

information and misrepresented the truth about the Company, its business and operations, as alleged herein.

70. At all relevant times, the material misrepresentations and omissions particularized in this

complaint directly or proximately caused or were a substantial contributing cause of the damages sustained by

plaintiffs and other members of the class. As described herein, during the Class Period, defendants made or

caused to be made a series of materially false or misleading statements about Synovis’ business, prospects and

operations. These material misstatements and omissions had the cause and effect of creating in the market an

unrealistically positive assessment of Synovis and its business, prospects and operations, thus causing the

Company’s securities to be overvalued and artificially inflated at all relevant times.

71. Defendants’ materially false and misleading statements during the Class Period resulted in

plaintiffs and other members of the class purchasing the Company’s securities at artificially inflated prices,

thus causing the damages complained of herein.

APPLICABILITY OF PRESUMPTION OF RELIANCE: FRAUD-ON-THE-MARKET DOCTRINE

72. At all relevant times, the market for Synovis securities was an efficient market for the

following reasons, among others:


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(a) Synovis’ stock met the requirements for listing, and was listed and actively traded on

the NASDAQ, a highly efficient and automated market;

(b) As a regulated issuer, Synovis filed periodic public reports with the SEC and the

NASDAQ;

(c) Synovis regularly communicated with public investors via established market

communication mechanisms, including through regular disseminations of press releases on the national

circuits of major newswire services and through other wide-ranging public disclosures, such as

communications with the financial press and other similar reporting services; and

(d) Synovis was followed by several securities analysts employed by major brokerage

firms who wrote reports, which were distributed to the sales force and certain customers of their respective

brokerage firms. Each of these reports was publicly available and entered the public marketplace.

73. As a result of the foregoing, the market for Synovis’ securities promptly digested current

information regarding Synovis from all publicly available sources and reflected such information in the prices

of Synovis’ securities. Under these circumstances, all purchasers of Synovis securities during the Class

Period suffered similar injury through their purchase of Synovis securities at artificially inflated prices and a

presumption of reliance applies.

NO SAFE HARBOR

74. The statutory safe harbor provided for forward-looking statements under certain

circumstances does not apply to any of the allegedly false statements pleaded in this complaint. Many of the

specific statements pleaded herein were not identified as “forward-looking statements” when made. To the

extent there were any forward-looking statements, there were no meaningful cautionary statements identifying

important factors that could cause actual results to differ materially from those in the purportedly forward-

looking statements. Alternatively, to the extent that the statutory safe harbor does apply to any forward-

looking statements pleaded herein, defendants are liable for those false forward-looking statements because at

the time each of those forward-looking statements was made, the particular speaker knew that the particular


- 39 -

forward-looking statement was false, and/or the forward-looking statement was authorized and/or approved

by an executive officer of Synovis who knew that those statements were false when made.

PLAINTIFFS’ CLASS ACTION ALLEGATIONS

75. Plaintiffs bring this action as a class action pursuant to Federal Rule of Civil Procedure 23(a)

and (b)(3) on behalf of a class consisting of all those who purchased the securities of Synovis during the Class

Period, and who were damaged thereby (the “Class”). Excluded from the Class are defendants, the officers

and directors of the Company, at all relevant times, members of their immediate families and their legal

representatives, heirs, successors or assigns and any entity in which defendants have or had a controlling

interest.

76. The members of the Class are so numerous that joinder of all members is impracticable.

Throughout the Class Period, Synovis securities were actively traded on the NASDAQ. While the exact

number of Class members is unknown to plaintiffs at this time and can only be ascertained through

appropriate discovery, plaintiffs believe that there are hundreds or thousands of members in the proposed

Class. Record owners and other members of the Class may be identified from records maintained by Synovis

or its transfer agent and may be notified of the pendency of this action by mail, using the form of notice

similar to that customarily used in securities class actions.

77. Plaintiffs’ claims are typical of the claims of the members of the Class as all members of the

Class are similarly affected by defendants’ wrongful conduct in violation of federal law that is complained of

herein.

78. Plaintiffs will fairly and adequately protect the interests of the members of the Class and have

retained counsel competent and experienced in class and securities litigation.

79. Common questions of law and fact exist as to all members of the Class and predominate over

any questions solely affecting individual members of the Class. Among the questions of law and fact

common to the Class are:

(a) whether the federal securities laws were violated by defendants’ acts as alleged

herein;


- 40 -

(b) whether statements made by defendants to the investing public during the Class

Period misrepresented material facts about the business and operations of Synovis; and

(c) to what extent the members of the Class have sustained damages and the proper

measure of damages.

80. A class action is superior to all other available methods for the fair and efficient adjudication

of this controversy since joinder of all members is impracticable. Furthermore, as the damages suffered by

individual Class members may be relatively small, the expense and burden of individual litigation make it

impossible for members of the Class to individually redress the wrongs done to them. There will be no

difficulty in the management of this action as a class action.

FIRST CLAIM

Violation of Section 10(b) of the Exchange Act and Rule 10b-5

Promulgated Thereunder Against All Defendants

81. Plaintiffs repeat and reallege each and every allegation contained above as if fully set forth

herein.

82. During the Class Period, Synovis and the Individual Defendants, and each of them, carried

out a plan, scheme and course of conduct which was intended to and, throughout the Class Period, did: (a)

deceive the investing public, including plaintiffs and other Class members, as alleged herein; (b) artificially

inflate and maintain the market price of Synovis securities; and (c) cause plaintiffs and other members of the

Class to purchase Synovis securities at artificially inflated prices. In furtherance of this unlawful scheme,

plan and course of conduct, defendants, and each of them, took the actions set forth herein.

83. Defendants (a) employed devices, schemes, and artifices to defraud; (b) made untrue

statements of material fact and/or omitted to state material facts necessary to make the statements made not

misleading; and (c) engaged in acts, practices, and a course of business which operated as a fraud and deceit

upon the purchasers of the Company’s securities in an effort to maintain artificially high market prices for

Synovis securities in violation of §10(b) of the Exchange Act and Rule 10b-5. All defendants are sued either


- 41 -

as primary participants in the wrongful and illegal conduct charged herein or as controlling persons as alleged

below.

84. In addition to the duties of full disclosure imposed on defendants as a result of their making

of affirmative statements and reports, or participation in the making of affirmative statements and reports to

the investing public, defendants had a duty to promptly disseminate truthful information that would be

material to investors in compliance with the integrated disclosure provisions of the SEC as embodied in SEC

Regulation S-X (17 C.F.R. §§210.01, et seq.) and Regulation S-K (17 C.F.R. §§229.10, et seq.) and other

SEC regulations, including accurate and truthful information with respect to the Company’s operations,

financial condition and earnings so that the market price of the Company’s securities would be based on

truthful, complete and accurate information.

85. Synovis and the Individual Defendants, individually and in concert, directly and indirectly, by

the use, means or instrumentalities of interstate commerce and/or of the mails, engaged and participated in a

continuous course of conduct to conceal adverse material information about the business, operations and

future prospects of Synovis as specified herein.

86. These defendants employed devices, schemes and artifices to defraud, while in possession of

material adverse non-public information, and engaged in acts, practices, and a course of conduct as alleged

herein in an effort to assure investors of Synovis’ value and performance and continued substantial growth,

which included the making of, or the participation in the making of, untrue statements of material facts and

omitting to state material facts necessary in order to make the statements made about Synovis and its business

operations and future prospects in the light of the circumstances under which they were made, not misleading,

as set forth more particularly herein, and engaged in transactions, practices and a course of business which

operated as a fraud and deceit upon the purchasers of Synovis securities during the Class Period.

87. The Individual Defendants’ primary liability, and controlling person liability, arises from the

following facts: (a) the Individual Defendants were high-level executives and/or directors at the Company

during the Class Period; (b) the Individual Defendants were privy to and participated in the creation,

development and reporting of the Company’s internal budgets, plans, projections and/or reports; and (c) the


- 42 -

Individual Defendants were aware of the Company’s dissemination of information to the investing public

which they knew or recklessly disregarded was materially false and misleading.

88. The defendants had actual knowledge of the misrepresentations and omissions of material

facts set forth herein, or acted with reckless disregard for the truth in that they failed to ascertain and to

disclose such facts, even though such facts were available to them. Such defendants’ material

misrepresentations and/or omissions were done knowingly or recklessly and for the purpose and effect of

concealing Synovis’ operating condition and future business prospects from the investing public and

supporting the artificially inflated prices of its securities. As demonstrated by defendants’ overstatements and

misstatements of the Company’s business, operations and earnings throughout the Class Period, defendants, if

they did not have actual knowledge of the misrepresentations and omissions alleged, were reckless in failing

to obtain such knowledge by deliberately refraining from taking those steps necessary to discover whether

those statements were false or misleading.

89. As a result of the dissemination of the materially false and misleading information and failure

to disclose material facts, as set forth above, the market prices of Synovis securities were artificially inflated

during the Class Period. In ignorance of the fact that market prices of Synovis’ publicly traded securities

were artificially inflated, and relying directly or indirectly on the false and misleading statements made by

defendants, or upon the integrity of the market in which the securities trade, and/or on the absence of material

adverse information that was known to or recklessly disregarded by defendants but not disclosed in public

statements made by defendants during the Class Period, plaintiffs and the other members of the Class

acquired Synovis securities during the Class Period at artificially high prices and were damaged thereby.

90. At the time of said misrepresentations and omissions, plaintiffs and other members of the

Class were ignorant of their falsity, and believed them to be true. Had plaintiffs and the other members of the

Class and the marketplace known of the true financial condition and business prospects of Synovis, which

were not disclosed by defendants, plaintiffs and other members of the Class would not have purchased or

otherwise acquired their Synovis securities, or, if they had acquired such securities during the Class Period,

they would not have done so at the artificially inflated prices which they paid.


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91. By virtue of the foregoing, defendants have violated §10(b) of the Exchange Act, and Rule

10b-5 promulgated thereunder.

92. As a direct and proximate result of defendants’ wrongful conduct, plaintiffs and the other

members of the Class suffered damages in connection with their respective purchases and sales of the

Company’s securities during the Class Period.

SECOND CLAIM

Violation of Section 20(a) of the Exchange Act Against All Defendants

93. Plaintiffs repeat and reallege each and every allegation contained above as if fully set forth

herein.

94. The Individual Defendants acted as a controlling person of Synovis within the meaning of

§20(a) of the Exchange Act as alleged herein. By virtue of their high-level positions, and their ownership and

contractual rights, participation in and/or awareness of the Company’s operations and/or intimate knowledge

of the statements filed by the Company with the SEC and disseminated to the investing public, the Individual

Defendants had the power to influence and control and did influence and control, directly or indirectly, the

decision-making of the Company, including the content and dissemination of the various statements which

plaintiffs contend are false and misleading. The Individual Defendants were provided with or had unlimited

access to copies of the Company’s reports, press releases, public filings and other statements alleged by

plaintiffs to be misleading prior to and/or shortly after these statements were issued and had the ability to

prevent the issuance of the statements or cause the statements to be corrected.

95. In particular, the Individual Defendants had direct and supervisory involvement in the day-to-

day operations of the Company and, therefore, are presumed to have had the power to control or influence the

particular transactions giving rise to the securities violations as alleged herein, and exercised the same.

Synovis controlled the Individual Defendants and all of its employees.

96. As set forth above, Synovis and the Individual Defendants each violated §10(b) and Rule

10b-5 by their acts and omissions as alleged in this Complaint. By virtue of their positions as controlling

persons, defendants are liable pursuant to §20(a) of the Exchange Act. As a direct and proximate result of


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Synovis’ and the Individual Defendants’ wrongful conduct, plaintiffs and other members of the Class suffered

damages in connection with their purchases of the Company’s securities during the Class Period.

PRAYER FOR RELIEF

WHEREFORE, plaintiffs pray for relief and judgment, as follows:

A. Determining that this action is a proper class action, designating plaintiffs as lead plaintiffs

and certifying plaintiffs as a class representative under Rule 23 of the Federal Rules of Civil Procedure and

plaintiffs’ counsel as lead counsel;

B. Awarding compensatory damages in favor of plaintiffs and the other Class members against

all defendants, jointly and severally, for all damages sustained as a result of defendants’ wrongdoing, in an

amount to be proven at trial, including interest thereon;

C. Awarding plaintiffs and the Class their reasonable costs and expenses incurred in this action,

including counsel fees and expert fees; and

D. Such other and further relief as the Court may deem just and proper.


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JURY TRIAL DEMANDED

Plaintiffs hereby demand a trial by jury.

DATED: December 20, 2004 REINHARDT WENDORF & BLANCHFIELD GARRETT D. BLANCHFIELD, JR. (#209855)

s/Garrett D. Blanchfield, Jr. GARRETT D. BLANCHFIELD, JR.

E-1250 First National Bank Building 332 Minnesota Street St. Paul, MN 55101 Telephone: 651/287-2100 651/287-2103 (fax)

Liaison Counsel

LERACH COUGHLIN STOIA GELLER RUDMAN & ROBBINS LLP REED R. KATHREIN STANLEY S. MALLISON 100 Pine Street, Suite 2600 San Francisco, CA 94111 Telephone: 415/288-4545 415/288-4534 (fax)

Lead Counsel for Plaintiffs T:\CasesSF\Synovis Life\CPT00016683.doc


1

EXHIBIT A

Stock Sales by Key Officers and Directors(By Name)

Date Insider Shares Price Total6/16/2003 Boor Boor 450 $23.20 $10,4406/16/2003 Boor Boor 100 $23.16 $2,3166/16/2003 Boor Boor 650 $23.16 $15,0546/16/2003 Boor Boor 700 $23.15 $16,2056/16/2003 Boor Boor 300 $23.14 $6,9426/16/2003 Boor Boor 300 $23.08 $6,9246/16/2003 Boor Boor 300 $23.06 $6,9186/16/2003 Boor Boor 700 $23.05 $16,1356/16/2003 Boor Boor 1,450 $23.01 $33,3656/16/2003 Boor Boor 200 $23.00 $4,6006/16/2003 Boor Boor 100 $22.95 $2,2956/16/2003 Boor Boor 100 $22.94 $2,2946/16/2003 Boor Boor 200 $22.91 $4,5826/16/2003 Boor Boor 400 $22.90 $9,1606/16/2003 Boor Boor 200 $22.90 $4,5806/16/2003 Boor Boor 400 $22.85 $9,1406/16/2003 Boor Boor 450 $22.81 $10,2656/16/2003 Boor Boor 395 $22.80 $9,0066/16/2003 Boor Boor 100 $22.76 $2,2766/16/2003 Boor Boor 1,700 $22.75 $38,6756/16/2003 Boor Boor 1,605 $22.72 $36,466TOTALS: 10,800 $247,637

5/27/2003 Buche 126 $18.36 $2,3135/27/2003 Buche 198 $18.31 $3,6255/27/2003 Buche 2,476 $18.23 $45,1375/27/2003 Buche 200 $18.27 $3,6546/17/2003 Buche 85 $25.14 $2,1376/17/2003 Buche 100 $24.27 $2,4276/17/2003 Buche 100 $24.63 $2,4636/17/2003 Buche 100 $24.66 $2,4666/17/2003 Buche 100 $24.73 $2,4736/17/2003 Buche 100 $24.90 $2,4906/17/2003 Buche 200 $24.90 $4,9806/17/2003 Buche 250 $24.60 $6,1506/17/2003 Buche 300 $24.98 $7,4946/17/2003 Buche 400 $24.90 $9,9606/17/2003 Buche 400 $25.12 $10,0486/17/2003 Buche 500 $24.61 $12,3056/17/2003 Buche 532 $24.45 $13,007

Case 0:04-cv-03008-ADM-AJB Document 27-2 Filed 12/20/2004 Page 1 of 7

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Date Insider Shares Price Total6/17/2003 Buche 771 $24.35 $18,7746/17/2003 Buche 1,500 $25.05 $37,5756/17/2003 Buche 1,500 $25.06 $37,5906/17/2003 Buche 1,562 $24.25 $37,87912/9/2003 Buche 100 $23.85 $2,38512/9/2003 Buche 100 $23.80 $2,38012/9/2003 Buche 400 $23.70 $9,48012/9/2003 Buche 2,000 $23.68 $47,36012/9/2003 Buche 632 $23.66 $14,95312/9/2003 Buche 2,000 $23.51 $47,02012/9/2003 Buche 496 $23.30 $11,557TOTALS: 17,228 $400,083

6/17/2003 Campbell 22,400 $24.63 $551,7126/17/2003 Campbell 500 $24.74 $12,3706/17/2003 Campbell 100 $24.81 $2,4816/17/2003 Campbell 100 $24.90 $2,4906/17/2003 Campbell 400 $24.84 $9,9366/17/2003 Campbell 4,900 $24.82 $121,6186/17/2003 Campbell 1,600 $24.83 $39,728TOTALS: 30,000 $740,335

6/6/2003 Frick 1,324 $21.21 $28,0823/17/2004 Frick 1,596 $15.32 $24,451TOTALS: 2,920 $52,533

5/28/2003 Johnston 200 $18.71 $3,7425/28/2003 Johnston 1,800 $18.70 $33,660TOTALS: 2,000 $37,402

12/9/2003 Kobi 14,000 $22.72 $318,060TOTALS: 14,000 $318,060

5/27/2003 Larson 2,500 $18.00 $45,0005/27/2003 Larson 1,500 $18.02 $27,0305/27/2003 Larson 1,000 $18.01 $18,0105/27/2003 Larson 1,500 $18.05 $27,0755/28/2003 Larson 700 $19.00 $13,3005/28/2003 Larson 37 $19.10 $7075/28/2003 Larson 263 $19.01 $5,0005/28/2003 Larson 100 $19.05 $1,9055/28/2003 Larson 100 $19.09 $1,9095/28/2003 Larson 100 $19.05 $1,9055/28/2003 Larson 170 $19.09 $3,2455/28/2003 Larson 100 $19.05 $1,905


3

Date Insider Shares Price Total5/28/2003 Larson 100 $19.01 $1,9015/28/2003 Larson 130 $19.00 $2,4705/28/2003 Larson 200 $19.08 $3,8165/28/2003 Larson 375 $19.00 $7,1255/28/2003 Larson 125 $19.00 $2,3755/28/2003 Larson 1,000 $19.15 $19,1505/28/2003 Larson 100 $19.10 $1,9105/28/2003 Larson 100 $19.08 $1,9085/28/2003 Larson 600 $19.08 $11,4485/28/2003 Larson 200 $19.13 $3,8265/28/2003 Larson 500 $18.95 $9,4765/28/2003 Larson 300 $19.10 $5,7305/30/2003 Larson 1,850 $18.10 $33,4855/30/2003 Larson 900 $18.11 $16,2995/30/2003 Larson 250 $18.05 $4,5135/30/2003 Larson 1,000 $18.25 $18,2505/30/2003 Larson 500 $18.00 $9,0005/30/2003 Larson 300 $18.12 $5,4365/30/2003 Larson 200 $18.12 $3,6245/30/2003 Larson 1,946 $18.15 $35,3205/30/2003 Larson 54 $18.16 $9815/30/2003 Larson 500 $18.20 $9,1006/2/2003 Larson 500 $18.25 $9,1256/2/2003 Larson 1,000 $18.20 $18,2006/2/2003 Larson 1,000 $18.00 $18,0006/9/2003 Larson 400 $22.00 $8,8006/9/2003 Larson 1,300 $22.18 $28,8346/9/2003 Larson 100 $22.24 $2,2246/9/2003 Larson 1,100 $22.31 $24,5416/9/2003 Larson 100 $22.36 $2,236TOTALS: 24,800 $466,092

6/16/2003 Oray 600 $23.62 $14,1726/16/2003 Oray 585 $23.63 $13,8246/16/2003 Oray 100 $23.78 $2,3786/16/2003 Oray 2,800 $23.61 $66,1086/16/2003 Oray 117 $23.63 $2,7656/16/2003 Oray 268 $23.63 $6,3336/16/2003 Oray 406 $23.51 $9,5457/7/2003 Oray 500 $22.01 $832,1767/7/2003 Oray 500 $22.00 $11,000TOTALS: 5,876 $958,300

5/23/2003 Perkins 5,000 $16.50 $82,500TOTALS: 5,000 $82,500


4

Date Insider Shares Price Total

6/2/2003 Scanlan 1,000 $18.66 $18,6606/2/2003 Scanlan 200 $18.85 $3,7706/2/2003 Scanlan 600 $18.77 $11,2626/2/2003 Scanlan 1,100 $18.89 $20,7796/2/2003 Scanlan 1,000 $19.11 $19,1106/2/2003 Scanlan 100 $18.88 $1,8886/2/2003 Scanlan 1,000 $19.00 $19,0006/16/2003 Scanlan 1,500 $23.75 $35,6256/16/2003 Scanlan 1,400 $23.77 $33,2786/16/2003 Scanlan 100 $23.78 $2,3786/16/2003 Scanlan 1,200 $23.80 $28,5606/16/2003 Scanlan 800 $23.81 $19,048TOTALS: 10,000 $213,358

5/27/2003 Strickland 5,000 $18.33 $91,638TOTALS: 5,000 $91,638

TOTALS: 12,7624 $3,615,704

T:\CasesSF\Synovis Life\NonPldgs\COMPLAINT EXHIBITS.doc


1

EXHIBIT B

Stock Sales by Key Officers and Directors(Chronological)

Date Insider Shares Price Total5/23/2003 Perkins 5,000 $16.50 $82,5005/27/2003 Buche 126 $18.36 $2,3135/27/2003 Buche 198 $18.31 $3,6255/27/2003 Buche 2,476 $18.23 $45,1375/27/2003 Buche 200 $18.27 $3,6545/27/2003 Larson 2,500 $18.00 $45,0005/27/2003 Larson 1,500 $18.02 $27,0305/27/2003 Larson 1,000 $18.01 $18,0105/27/2003 Larson 1,500 $18.05 $27,0755/27/2003 Strickland 5,000 $18.33 $91,6385/28/2003 Johnston 200 $18.71 $3,7425/28/2003 Johnston 1,800 $18.70 $33,6605/28/2003 Larson 700 $19.00 $13,3005/28/2003 Larson 37 $19.10 $7075/28/2003 Larson 263 $19.01 $5,0005/28/2003 Larson 100 $19.05 $1,9055/28/2003 Larson 100 $19.09 $1,9095/28/2003 Larson 100 $19.05 $1,9055/28/2003 Larson 170 $19.09 $3,2455/28/2003 Larson 100 $19.05 $1,9055/28/2003 Larson 100 $19.01 $1,9015/28/2003 Larson 130 $19.00 $2,4705/28/2003 Larson 200 $19.08 $3,8165/28/2003 Larson 375 $19.00 $7,1255/28/2003 Larson 125 $19.00 $2,3755/28/2003 Larson 1,000 $19.15 $19,1505/28/2003 Larson 100 $19.10 $1,9105/28/2003 Larson 100 $19.08 $1,9085/28/2003 Larson 600 $19.08 $11,4485/28/2003 Larson 200 $19.13 $3,8265/28/2003 Larson 500 $18.95 $9,4765/28/2003 Larson 300 $19.10 $5,7305/30/2003 Larson 1,850 $18.10 $33,4855/30/2003 Larson 900 $18.11 $16,2995/30/2003 Larson 250 $18.05 $4,5135/30/2003 Larson 1,000 $18.25 $18,2505/30/2003 Larson 500 $18.00 $9,0005/30/2003 Larson 300 $18.12 $5,4365/30/2003 Larson 200 $18.12 $3,6245/30/2003 Larson 1,946 $18.15 $35,320


2

Date Insider Shares Price Total5/30/2003 Larson 54 $18.16 $9815/30/2003 Larson 500 $18.20 $9,1006/2/2003 Larson 500 $18.25 $9,1256/2/2003 Larson 1,000 $18.20 $18,2006/2/2003 Larson 1,000 $18.00 $18,0006/2/2003 Scanlan 1,000 $18.66 $18,6606/2/2003 Scanlan 200 $18.85 $3,7706/2/2003 Scanlan 600 $18.77 $11,2626/2/2003 Scanlan 1,100 $18.89 $20,7796/2/2003 Scanlan 1,000 $19.11 $19,1106/2/2003 Scanlan 100 $18.88 $1,8886/2/2003 Scanlan 1,000 $19.00 $19,0006/6/2003 Frick 1,324 $21.21 $28,0826/9/2003 Larson 400 $22.00 $8,8006/9/2003 Larson 1,300 $22.18 $28,8346/9/2003 Larson 100 $22.24 $2,2246/9/2003 Larson 1,100 $22.31 $24,5416/9/2003 Larson 100 $22.36 $2,2366/16/2003 Boor Boor 450 $23.20 $10,4406/16/2003 Boor Boor 100 $23.16 $2,3166/16/2003 Boor Boor 650 $23.16 $15,0546/16/2003 Boor Boor 700 $23.15 $16,2056/16/2003 Boor Boor 300 $23.14 $6,9426/16/2003 Boor Boor 300 $23.08 $6,9246/16/2003 Boor Boor 300 $23.06 $6,9186/16/2003 Boor Boor 700 $23.05 $16,1356/16/2003 Boor Boor 1,450 $23.01 $33,3656/16/2003 Boor Boor 200 $23.00 $4,6006/16/2003 Boor Boor 100 $22.95 $2,2956/16/2003 Boor Boor 100 $22.94 $2,2946/16/2003 Boor Boor 200 $22.91 $4,5826/16/2003 Boor Boor 400 $22.90 $9,1606/16/2003 Boor Boor 200 $22.90 $4,5806/16/2003 Boor Boor 400 $22.85 $9,1406/16/2003 Boor Boor 450 $22.81 $10,2656/16/2003 Boor Boor 395 $22.80 $9,0066/16/2003 Boor Boor 100 $22.76 $2,2766/16/2003 Boor Boor 1,700 $22.75 $38,6756/16/2003 Boor Boor 1,605 $22.72 $36,4666/16/2003 Oray 600 $23.62 $14,1726/16/2003 Oray 585 $23.63 $13,8246/16/2003 Oray 100 $23.78 $2,3786/16/2003 Oray 2,800 $23.61 $66,1086/16/2003 Oray 117 $23.63 $2,7656/16/2003 Oray 268 $23.63 $6,333


3

Date Insider Shares Price Total6/16/2003 Oray 406 $23.51 $9,5456/16/2003 Scanlan 1,500 $23.75 $35,6256/16/2003 Scanlan 1,400 $23.77 $33,2786/16/2003 Scanlan 100 $23.78 $2,3786/16/2003 Scanlan 1,200 $23.80 $28,5606/16/2003 Scanlan 800 $23.81 $19,0486/17/2003 Buche 85 $25.14 $2,1376/17/2003 Buche 100 $24.27 $2,4276/17/2003 Buche 100 $24.63 $2,4636/17/2003 Buche 100 $24.66 $2,4666/17/2003 Buche 100 $24.73 $2,4736/17/2003 Buche 100 $24.90 $2,4906/17/2003 Buche 200 $24.90 $4,9806/17/2003 Buche 250 $24.60 $6,1506/17/2003 Buche 300 $24.98 $7,4946/17/2003 Buche 400 $24.90 $9,9606/17/2003 Buche 400 $25.12 $10,0486/17/2003 Buche 500 $24.61 $12,3056/17/2003 Buche 532 $24.45 $13,0076/17/2003 Buche 771 $24.35 $18,7746/17/2003 Buche 1,500 $25.05 $37,5756/17/2003 Buche 1,500 $25.06 $37,5906/17/2003 Buche 1,562 $24.25 $37,8796/17/2003 Campbell 22,400 $24.63 $551,7126/17/2003 Campbell 500 $24.74 $12,3706/17/2003 Campbell 100 $24.81 $2,4816/17/2003 Campbell 100 $24.90 $2,4906/17/2003 Campbell 400 $24.84 $9,9366/17/2003 Campbell 4,900 $24.82 $121,6186/17/2003 Campbell 1,600 $24.83 $39,7287/7/2003 Oray 500 $22.01 $832,1767/7/2003 Oray 500 $22.00 $11,00012/9/2003 Buche 100 $23.85 $2,38512/9/2003 Buche 100 $23.80 $2,38012/9/2003 Buche 400 $23.70 $9,48012/9/2003 Buche 2,000 $23.68 $47,36012/9/2003 Buche 632 $23.66 $14,95312/9/2003 Buche 2,000 $23.51 $47,02012/9/2003 Buche 496 $23.30 $11,55712/9/2003 Kobi 14,000 $22.72 $318,0603/17/2004 Frick 1,596 $15.32 $24,451

TOTALS 12,7624 $3,607,940

T:\CasesSF\Synovis Life\NonPldgs\COMPLAINT EXHIBITS.doc


UNITED STATES DISTRICT COURTDISTRICT OF MINNESOTA

ALEXIS G. MABRY, On Behalf of Herself )and All Others Similarly Situated, )

) Civ. No. 0:04-cv-03008-ADM-AJBPlaintiff, )

vs. ))

SYNOVIS LIFE TECHNOLOGIES, INC., )KAREN GILLES LARSON and CONNIE L. )MAGNUSON, )

)Defendants. )

CERTIFICATE OF SERVICE

The hereby certify that on December 20, 2004, I caused the following document(s):

Consolidated Complaint For Violation of the Federal Securities Laws

To be filed electronically with the Clerk of Court through ECF, and that ECF will send an e-noticeof the electronic filing to the following:

Mario Alba, [email protected]

Carolyn Glass [email protected] [email protected]

Theresa M. [email protected]@dorsey.com

Garrett D Blanchfield [email protected] [email protected]

Peter W Carter [email protected]@dorsey.com

Randall H Steinmeyer [email protected]

Heather J Klaas [email protected] [email protected]

David A. [email protected]

Samuel H [email protected]

William S Lerach [email protected] [email protected]

Darren J Robbins [email protected] [email protected]


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I further certify that I caused a copy of the foregoing documents and the notice of electronic filingto be mailed by first class, postage paid, to the following non-ECF participants:

Guri Ademi ADEMI & O’REILLY, LLP3620 East Layton AvenueCudahy, WI 53110

Charles H. JohnsonCharles H. Johnson & Associates, P.A.2599 Mississippi Street, Law CenterNew Brighton, MN 55112

Marc S. HenzelLw Offices of Marc S. Henzel273 Montgomery Avenue, Suite 202Bala Cynwyd, PA 19004

Mel E. LifshitzBernstein Liebhard & Lifshitz, LLP10 East 40th StreetNew York, NY 10016

Brian M. FelgoiseLaw Offices of Brian M. Felgoise, P.C.261 Old York Road, Suite 423Jenkintown, PA 19046

Reed KathreinStanley S. MallisonLerach Coughlin Stoia Geller Rudman & Robbins LLP100 Pine Street, Suite 2600San Francisco, CA 94111-5238

Gregory M. NespoleMatthew M. GuineyWolf Haldenstein Adler Freeman & Herz, LLP270 Madison AvenueNew York, NY 10016

Shawn R. PerryPerry Perry & Perry5401 amble Drive, Suite 270Minneapolis, MN 55416

Marc A. TopzaRichard A. ManiskasSchiffrin & Barroway LLPThree Bala Plaza East, Suite 400Bala Cynwyd, PA 19004

Michael A. SchwartzMarian P. RosnerRenee L. KaralianWolf Popper LLP845 Third AvenueNew York, NY 10022Dated: August 17, 2004

REINHARDT WENDORF & BLANCHFIELD

By: s/ Garrett D. Blanchfield


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