Filed pursuant to
Rule 424(b)(3) for
PROSPECTUS File No. 333-3007
ANGEION CORPORATION
2,394,849 SHARES OF COMMON STOCK
This Prospectus relates to 2,394,849 shares (the "Shares") of Common
Stock, par value $.01 per share (the "Common Stock), of Angeion Corporation (the
"Company") that may be offered for sale for the account of certain shareholders
of the Company as stated herein under the heading "Selling Shareholders." The
Shares being offered by the Selling Shareholders hereunder include (i) 834,999
shares of Common Stock issuable upon the exercise of warrants originally issued
in connection with the Company's 1994 bridge financing (the "Bridge Warrants");
(ii) 359,850 shares of Common Stock issued upon the exercise of warrants
originally issued to the placement agent for the Company's public offering
completed on September 19, 1994 (the "Placement Agent Warrants"); (iii) 75,000
shares of Common Stock issuable upon the exercise of a warrant issued in July
1992 to Glen Taylor (the "Taylor Warrant") (collectively with the Placement
Agent Warrants and the Bridge Warrants, the "Warrants"); (iv) 875,000 shares of
Common Stock held by St. Jude Medical ("St. Jude") issuable upon conversion of
the Company's Series A Preferred Stock (the "Preferred Stock"); and (v) 250,000
shares of Common Stock held by St. Jude issuable upon conversion of the
Company's Convertible Subordinated Debenture (the "Debenture"). No period of
time has been fixed within which the Shares covered by this Prospectus may be
offered or sold.
The Selling Shareholders have advised the Company that sales of the
Shares offered hereunder by them, or by their pledgees, donees, transferees or
other successors in interest, may be made from time to time in the
over-the-counter market, through negotiated transactions or otherwise, at market
prices prevailing at the time of sale or at negotiated prices. The Shares may be
sold by one or more of the following methods: (a) a block trade in which the
broker or dealer so engaged will attempt to sell the Shares as agent but may
position and resell a portion of the block as principal to facilitate the
transaction; (b) purchases by a broker or dealer as principal and resale by such
broker or dealer for its account pursuant to this Prospectus; and (c) ordinary
brokerage transactions and transactions in which the broker solicits purchasers.
Sales may be made pursuant to this Prospectus to or through broker-dealers who
may receive compensation in the form of discounts, concessions or commissions
from the Selling Shareholders or the purchasers of Shares for whom such
broker-dealer may act as agent or to whom they may sell as principal, or both
(which compensation as to a particular broker-dealer may be in excess of
customary commissions). One or more supplemental prospectuses will be filed
pursuant to Rule 424 under the Securities Act of 1933, as amended (the
"Securities Act") to describe any material arrangements for the sales of the
Shares offered hereunder when such arrangements are entered into by any of the
Selling Shareholders and any other broker-dealers that participate in the sale
of the Shares. In addition, any Shares that qualify for sale pursuant to Rule
144 under the Securities Act may be sold, under Rule 144 rather than pursuant to
this Prospectus.
THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE CERTAIN RISKS. SEE
"RISK FACTORS" BEGINNING ON PAGE 4 OF THIS PROSPECTUS.
The Selling Shareholders and any broker-dealers or other persons acting
on their behalf in connection with the sale of Shares hereunder may be deemed to
be "underwriters" within the meaning of the Securities Act, and any commissions
received by them and any profit realized by them on the resale of Shares as
principals may be deemed to be underwriting commissions under the Securities
Act. As of the date hereof, there are no special selling arrangements between
any broker-dealer or other person and any Selling Shareholder.
The Company will not receive any part of the proceeds of any sales of
Shares pursuant to this Prospectus. Pursuant to the terms of the Warrants, the
Preferred Stock and the Debenture, the Company will pay all the expenses of
registering the Shares, except for selling expenses (including any fees and
commissions payable to broker-dealers or other persons) incurred by the Selling
Shareholders, which will be borne by the Selling Shareholders. In addition, the
Warrants, the Preferred Stock and the Debenture provide for certain other usual
and customary terms, including indemnification by the Company of the Selling
Shareholders against certain liabilities arising under the Securities Act.
The Company's Common Stock is traded on the Nasdaq National Market
under the symbol "ANGN." On June 19, 1996, the closing sale price of the Common
Stock on the Nasdaq National Market was $9.00 per share.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
No person has been authorized to give any information or to make any
representations not contained or incorporated by reference in this Prospectus in
connection with the offer described in this Prospectus and, if given or made,
such information and representations must not be relied upon as having been
authorized by the Company or the Selling Shareholders. Neither the delivery of
this Prospectus nor any sale made under this Prospectus shall under any
circumstances create any implication that there has been no change in the
affairs of the Company since the date hereof or since the date of any documents
incorporated herein by reference. This Prospectus does not constitute an offer
to sell or a solicitation of an offer to buy any securities other than the
securities to which it relates, or an offer or solicitation in any state to any
person to whom it is unlawful to make such offer in such state.
THE DATE OF THIS PROSPECTUS IS JUNE 21, 1996.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company pursuant to the Exchange
Act may be inspected and copied at the public reference facilities maintained by
the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549 and at the regional offices of the Commission located at Seven World Trade
Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can
also be obtained from the Public Reference Section of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates.
The Company has filed with the Commission a Registration Statement on
Form S-3 under the Securities Act. This Prospectus does not contain all of the
information, exhibits and undertakings set forth in the Registration Statement,
certain portions of which are omitted as permitted by the Rules and Regulations
of the Commission. Copies of the Registration Statement and the exhibits are on
file with the Commission and may be obtained, upon payment of the fee prescribed
by the Commission, or may be examined, without charge, at the offices of the
Commission set forth above. For further information, reference is made to the
Registration Statement and its exhibits.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by the Company (File
No. 0-17019) are incorporated into this Prospectus by reference: (a) Annual
Report on Form 10-K for the year ended July 31, 1995; (b) Quarterly Reports on
Form 10-Q for the quarters ended October 31, 1995, January 31, 1996 and April
30, 1996; (c) Current Report on Form 8-K, dated October 31, 1995; (d) Current
Report on Form 8-K, dated April 8, 1996, as amended on May 17, 1996; (e) all
other reports filed by the Company pursuant to Sections 13(a) or 15(d) of the
Exchange Act since July 31, 1995; (f) the description of the Company's Common
Stock contained in its Registration Statement on Form 8-A and any amendments or
reports filed for the purpose of updating such description; and (g) the
description of the Company's Series B Junior Preferred Stock and rights to
purchase Series B Junior Preferred Stock contained in its Registration Statement
on Form 8-A and any amendments or reports filed for the purpose of updating such
description.
All documents filed by the Company with the Commission pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus and prior to the termination of the offering of the Shares shall be
deemed to be incorporated by reference in this Prospectus and to be a part
hereof from the date of filing of such documents. Any statement incorporated or
deemed to be incorporated herein by reference shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated herein by reference modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy
of this Prospectus is delivered, upon written or oral request of such person, a
copy of any or all of the documents referred to above which are incorporated by
reference in this Prospectus, other than exhibits to such documents (unless such
exhibits are specifically incorporated by reference in such documents). Written
requests for such copies should be directed to Angeion Corporation, 3650
Annapolis Lane, Suite 170, Minneapolis, Minnesota 55447-5434, Attention: David
L. Christofferson, Chief Financial Officer; telephone number: (612) 550-9388.
THE COMPANY
Angeion Corporation is engaged in designing, developing and
manufacturing two types of products to treat irregular heartbeats (arrhythmias).
The Company's Implantable Technology Division is developing the Sentinel series
of implantable cardioverter defibrillators ("ICDs"), which are designed to treat
rapid heartbeats in the ventricular (or lower) chambers of the heart, a
condition known as ventricular tachycardia ("VT"), and a severe form of VT known
as ventricular fibrillation ("VF") which if not terminated will lead to a sudden
cardiac death ("SCD") episode. The Company believes, based upon industry
analyses and attendance by management at industry meetings, that its first
product, the Sentinel 2000, is the smallest and one of the most technologically
advanced ICDs under development today. The Company's Interventional Technology
Division is developing a radio frequency ("RF") catheter ablation system that it
believes offers a potential cure for certain forms of atrial arrhythmias (rapid
heartbeats originating in the upper chambers of the heart), and a laser catheter
ablation system that it believes offers a potential cure for certain forms of
VT.
The Company has a strategic alliance with Pacesetter, Inc.
("Pacesetter"), a subsidiary of St. Jude. This arrangement, among other things,
provides Pacesetter with worldwide original equipment manufacturer ("OEM")
marketing rights, on a co-exclusive basis with the Company, to certain of the
Company's products for a period that may not be less than seven years. The
Company retains the right to market and sell defibrillator and laser catheter
products worldwide under its own label and, subject to certain specified
limitations and qualifications, to manufacture the products it sells to
Pacesetter.
The Company, a Minnesota corporation organized in 1986, has its
principal executive offices at 3650 Annapolis Lane, Suite 170, Plymouth,
Minnesota 55447-5434. Its telephone number is (612) 550-9388.
RISK FACTORS
The following risk factors relating to the Company should be considered
in evaluating an investment in the Common Stock.
CONTINUING OPERATING LOSSES; PROFITABILITY UNCERTAIN; FLUCTUATIONS IN OPERATING
RESULTS
The Company has incurred net operating losses from continuing
operations in each year since its inception in 1986, due primarily to costs
incurred in the research and development of the Company's products, and the
Company expects to incur additional operating losses over the next several years
as the Company continues to fund research and development (including clinical
trials) relating to its ICDs and catheter ablation systems. The Company has had
no significant revenue since the sale of its Angeion Medical Products division
("AMP") in September 1992. The Company expects to incur additional operating
losses over the next several years as the Company continues to fund research and
development (including clinical trials) relating to its ICDs and catheter
ablation systems and invests in building its manufacturing and marketing
capabilities. The Company's ability to achieve profitability is dependent in
part on obtaining regulatory approvals for its products and developing the
capacity to manufacture and sell its products successfully. There can be no
assurance that the Company will obtain the required regulatory approvals on a
timely basis, it at all; successfully develop, commercialize, manufacture and
market its products; or achieve profitability. In addition, the Company's
results of operations may fluctuate significantly from quarter to quarter
depending upon a number of factors, including the availability of third party
reimbursement, the timing of regulatory approvals, progress of product
development and clinical trials, the extent to which the Company's products gain
market acceptance, marketing and manufacturing costs and competition.
IMPACT OF COMPETITION
Competition in the ICD market is intense. Although the Company's ICDs
will also compete with alternative treatments for VT, such as drug therapy, open
heart surgery and cardiac ablation, the Company believes that ICD manufacturers
constitute its primary competition. Three companies (Medtronic, Inc.
("Medtronic"), Cardiac Pacemakers, Inc. ("CPI"), a division of Guidant
Corporation, and Ventritex, Inc. ("Ventritex")) currently have PMA-approved
products in the ICD market and control virtually all of that market today.
Any product developed by the Company that gains regulatory approval
will have to compete for market acceptance and market share. The timing of
market introduction of competitive products could adversely affect the
competitiveness of the Company's products. Accordingly, the relative speed with
which the Company can develop products, complete clinical testing and the
regulatory approval process and supply commercial quantities of the product to
the market are expected to be important competitive factors. The Company expects
that competition will also be based on device size and weight, longevity, ease
of programmability, ability to provide diagnostic capability, product
reliability, physician familiarity with the device, patent protection, sales and
marketing capability, third-party reimbursement policies, reputation and price.
There can be no assurance that FDA approval will be obtained for the Company's
ICDs, that competitors will not introduce new products with similar features or
that the market will accept the SENTINEL series. Most of the Company's
competitors in the ICD market, however, have greater financial, manufacturing,
marketing, distribution and technical resources and greater name recognition
than the Company.
Although catheter ablation offers a potential cure, rather than a
treatment, of VT, catheter ablation technologies must nonetheless compete with
drug therapy, open heart surgery and ICDs. A number of companies, certain of
which have significantly greater resources than the Company, have developed RF
catheter ablation devices to treat SVT. There can be no assurance that
competitors of the Company will not be able to develop and introduce cardiac
ablation systems more quickly than the Company or systems that may be more
effective in treating SVT and VT than the Company's cardiac ablation systems. In
addition, there can be no assurance that the Company's catheter ablation systems
will receive FDA approval or, if approved, that the market will accept such
systems. In addition, catheter ablation technologies also compete with drug
therapy. While historically drug therapy has had limited effectiveness and
caused adverse side effects, new drugs under development may offer improved
treatment outcomes.
IMPORTANCE OF INTELLECTUAL PROPERTY PROTECTION
Patents and trademarks are critical in the medical device industry.
Although the Company has a number of U.S. and foreign patents and patent
applications, and also owns certain registered trademarks or has applied for
other trademarks in the U.S. and certain foreign countries, there can be no
assurance, however, that patents and trademarks will be granted in the future,
or that any patents and trademarks that the Company now holds or may be granted
or under which it has been granted licenses will be valid or otherwise be of
value to the Company. Even if the Company's patents and trademarks are valid,
others may be able to introduce non-infringing products that are competitive
with those of the Company.
Regardless of the Company's efforts to evaluate the potential
infringement of any proprietary rights of third parties, however, there can be
no assurance that such infringements do not exist or may not arise in the
future. There has been substantial litigation regarding patent and other
intellectual property rights in the medical device industry, particularly in the
ICD market. Litigation, which could result in substantial cost to and diversion
of effort by the Company, may be necessary to enforce patents issued to or
licensed by the Company, to protect trade secrets or know-how owned by the
Company or to defend the Company against claimed infringement of the rights of
others and to determine the scope and validity of the proprietary rights of
others. Adverse determinations in litigation could subject the Company to
significant liabilities to third parties or could require the Company to seek
licenses from third parties.
Although patent and intellectual property disputes in the medical
device area have often been settled through licensing or similar arrangements,
costs associated with such arrangements may be substantial and there can be no
assurance that necessary licenses would be available to the Company on
satisfactory terms or at all. Accordingly, an adverse determination in a
judicial or administrative proceeding or failure to obtain necessary licenses
could prevent the Company from manufacturing and selling its products, which
would have a material adverse effect on the Company's business, financial
condition and results of operations. In the event that litigation or licensing
of the Company's patents were to occur, the license agreement currently in
existence between the Company and Pacesetter may affect the ability of the
Company to settle any intellectual property disputes related to the Company's
products on reasonable terms or at all, which could have a material adverse
effect on the Company's business.
The Company also relies on trade secrets and proprietary know-how,
which it seeks to protect, in part, through confidentiality agreements with
employees, consultants and other parties. There can be no assurance, however,
that these agreements will not be breached, that the Company would have adequate
remedies for any breach, or that the Company's trade secrets will not otherwise
become known to or independently developed by competitors.
LACK OF PMA APPROVAL; LIMITED INITIAL REVENUES; COMPLIANCE WITH GOVERNMENT
REGULATIONS
The medical products the Company intends to market are subject to
regulation in the U.S. by the FDA. The process of complying with such
regulations with respect to new products can be costly and time-consuming. The
first stage of obtaining formal FDA premarket approval is submission of an
application for an Investigational Device Exemption ("IDE"). To obtain an IDE,
approval of the investigational plan for the applicable system is required from
the institutional review board within each participating medical institution as
well as from the FDA.
The Company's ICD products and its catheter ablation systems are also
subject to a lengthy and expensive pre-market approval process with the FDA.
Such process requires the Company to conduct lengthy human clinical trials with
respect to its products. The data collected in clinical trials (both in and
outside the U.S.) are used to prepare the Pre-Market Approval ("PMA")
applications for such products. If such PMA applications are accepted for filing
by the FDA, they will be reviewed further by the FDA and subsequently by the FDA
Circulatory System Devices Panel. After considering the panel's recommendation,
the FDA will determine whether to approve such PMA applications. Approval of the
Company's applications for PMAs for the SENTINEL series and its catheter
ablation systems will depend on a wide variety of factors, many of which are
outside the Company's control. Approval will also require an inspection by the
FDA to determine whether the Company's operations conform with the FDA's current
Good Manufacturing Practices. There can be no assurance that the Company will be
successful in obtaining a PMA for its products, in a timely manner, or at all.
Delays in obtaining marketing approvals and clearances in the U.S. could have
significant adverse consequences on the Company and its operations. The Company
is also subject to certain FDA regulations governing manufacturing practices,
packaging and labelling, and failure to comply with these requirements could
have a material adverse effect on the Company.
Until the Company receives PMA approval, the Company will be subject to
FDA-imposed limitations on the number of ICD implants and catheter ablation
procedures that may be performed as well as the number and location of clinical
sites at which implants and procedures may be performed. As the Company
approaches these limitations, it would be required to apply to the FDA for
approval of additional implants and procedures, but there can be no assurance
that such approval will be received on a timely basis, if at all. The Company
would be unable to sell additional ICDs on conduct additional catheter ablation
procedures in the U.S. should it reach the limits authorized by the FDA. The
timing of both the IDE and PMA review processes is unpredictable and uncertain,
and the failure to obtain the necessary approvals on a timely basis would have a
material adverse effect on the Company.
The Company's products are also subject to regulation by agencies
comparable to the FDA in foreign countries. Although the Company has obtained a
CE Mark for the SENTINEL 2000 that allows the Company to commence marketing of
the SENTINEL 2000 in countries that are members of the EU and the European Free
Trade Association, subject to limited regulations in certain countries, there
can be no assurance that the Company will be successful in obtaining CE Mark
approval for any other products on a timely basis or at all, which could have a
material adverse effect on the Company.
OBLIGATIONS UNDER PACESETTER RELATIONSHIP
The Company and Pacesetter are parties to a Preferred Stock, Preferred
Stock Option and Subordinated Debenture Purchase Agreement (the "Purchase
Agreement"), an OEM Marketing and Manufacturing Agreement (the "OEM Agreement")
and a License Agreement (the "License Agreement"). The Purchase Agreement
provides that, until one year after PMA approval of the Company's first ICD
(other than the SENTINEL 2000), Pacesetter will have a right of first refusal
any time the Company receives an offer for the purchase, license, lease or
transfer of all or a substantial portion of the Company's assets or business or
for the purchase of a majority interest in the capital stock of the Company. In
connection with this right of first refusal, Pacesetter will have 21 days after
notice to determine whether it will exercise its right by proceeding with the
transaction on the same terms and conditions as are set forth in the offer. This
right of first refusal could have the effect of delaying, deferring or
preventing a change in control of the Company, which could operate to deny
shareholders the receipt of a premium on their Common Stock and could have a
depressive effect on the market price for the Common Stock.
Pursuant to the OEM Agreement, if the Company fails to fulfill all
product quantity, quality and specification requirements with respect to the
Company's ICD and laser catheter ablation products, Pacesetter may elect to
manufacture these products and pay the Company a royalty that is less than the
transfer price payment the Company would have received had it manufactured the
products and sold them to Pacesetter. In addition, the Company may not market
and sell products under its own label until it has satisfied all of Pacesetter's
quantity requirements for such products. There can be no assurance that the
Company will be able to fulfill these requirements, and the failure to do so
could have a material adverse effect on the Company.
The License Agreement also grants Pacesetter a conditional right to
sublicense certain of the Company's ICD patents and patent applications in
existence at the time of the License Agreement (and certain continuation
applications) to up to three separate parties, provided that the Company
receives the same cross-licenses from the sublicensee as Pacesetter receives
(or, if Pacesetter also sublicenses 20 or more of its own patents or patent
applications, that Pacesetter uses its best efforts to secure such
cross-licenses for the Company). Pacesetter is under a pre-existing obligation,
by virtue of a previous license agreement with a major competitor, to license
certain patent rights that Pacesetter may acquire to such competitor, and the
Company is aware that a dispute has arisen between these parties with respect to
the ability of Pacesetter to receive royalties or negotiate cross-licenses with
such competitor in connection with the ICD patents and patent applications that
are subject to sublicensing under the License Agreement. Because the Company is
not a party to this dispute, the Company has no control over or knowledge of any
potential outcome of this dispute and is not necessarily bound by the outcome of
this dispute. Pacesetter has also recently initiated a lawsuit against CPI
relating to certain pacemaker and ICD patents. Pursuant to its rights under the
License Agreement to assert and enforce rights to the ICD patents and patent
applications of the Company that are subject to sublicensing under the License
Agreement, Pacesetter and the Company have agreed to join the Company as a party
to the CPI lawsuit and to include certain of such ICD patents and patent
applications in the CPI lawsuit. Accordingly, Pacesetter and the Company have
entered into an agreement with respect to the joint defense of the CPI lawsuit
which provides, among other items, for the payment by Pacesetter of the legal
fees, disbursements and expenses for such joint defense. There can be no
assurance that the Company will receive necessary cross-licenses from third
parties in exchange for the grant of sublicenses to the ICD patents and patent
applications that are subject to the License Agreement.
NEED FOR MARKET ACCEPTANCE
Market acceptance of the Company's products will depend, in part, on
the therapeutic capabilities and operating features of its products as compared
to competing products, the Company's ability to convince the medical community
of the clinical efficacy of its products and its ability to manufacture quality
products in sufficient quantities. Failure of the Company's products to gain
market acceptance would have a material adverse effect on the Company's
business, financial condition and results of operations. Although the markets
for the Company's products are expected to grow, there can be no assurance that
the Company will participate in such growth.
DEPENDENCE ON SENIOR MANAGEMENT AND OTHER KEY PERSONNEL
The Company's success depends largely on its senior management and
other key personnel. Competition for personnel with significant experience in
the medical device industry is intense. Accordingly, the loss of the services of
such individuals or the inability to hire additional key individuals as required
could have a material adverse effect on the Company, including its current and
future product development efforts. The Company has purchased a $2.0 million
key-person life insurance policy on its Chairman, President and Chief Executive
Officer.
UNCERTAINTY OF THIRD PARTY REIMBURSEMENT AND HEALTH CARE REFORM
The Company's ability to market its products successfully in the U.S.
and elsewhere will depend in part on the extent to which reimbursement for the
cost of such products and related treatment will be available from government
health administration authorities (such as the Health Care Financing
Administration ("HCFA"), which determines Medicare reimbursement levels),
private health insurers, health maintenance organizations and other third-party
payors. Payors are increasingly challenging the need for and prices of medical
products and services. Payors may deny reimbursement for procedures that they
deem experimental or for devices that are used other than for FDA-approved
indications. Currently, HCFA does not allow Medicare reimbursement for certain
kinds of products and related procedures that have not received PMA approval and
for which underlying questions of safety and effectiveness have not been
resolved, and certain private third-party payors have also begun denying such
reimbursement. Although the Company's products are currently being reimbursed by
HCFA and third-party payors, there can be no assurance that HCFA and the
third-party payors will continue to reimburse such products in the future. Even
if some products are approved for reimbursement, some payors may deny coverage
until the procedure becomes generally accepted by the medical profession. The
inability of hospitals and other providers to obtain reimbursement from
third-party payors for the Company's products and related procedures would have
a material adverse effect on the Company.
The Company expects that there will be continued pressure on
cost-containment throughout the U.S. health care system. Reforms may include
mandated basic health care benefits, controls on health care spending through
limitations on the growth of private health insurance premiums and Medicare and
Medicaid spending, the creation of large insurance purchasing groups and
fundamental changes to the health care delivery system. The Company anticipates
that Congress and state legislatures will continue to review and assess
alternative health care delivery systems and payment methodologies and public
debate of these issues will likely continue in the future. Due to uncertainties
regarding the ultimate features of reform initiatives and their enactment and
implementation, the Company cannot predict which, if any, of such reform
proposals will be adopted, when they may be adopted or what impact they may have
on the Company.
DEPENDENCE ON THIRD PARTY VENDORS
The Company relies on third party vendors for certain of the components
used in the Company's products and for certain contract manufacturing services.
A number of significant components, such as capacitors, batteries, integrated
circuits and lead systems, are purchased from sole source suppliers. For certain
components and manufacturing services, there are relatively few sources of
supply, and establishing additional or replacement suppliers for such components
or services cannot be accomplished quickly. In addition, each supplier and each
component must be qualified with the FDA, and the time required for such
qualification may be lengthy. Although the Company tries to maintain sufficient
quantities of inventory of such components to minimize production delays or
interruptions, there can be no assurance that the Company will find suitable
alternatives at reasonable prices, if at all, or that any such alternatives will
remain available to the Company. The Company's inability to obtain acceptable
components in a timely manner or find and maintain suitable replacement
suppliers of components or manufacturing services would have a material adverse
effect on the Company, including its ability to manufacture its products.
LIMITED MANUFACTURING AND MARKETING EXPERIENCE
To date, the Company's products have been manufactured in limited
quantities for clinical testing purposes and have not been manufactured on a
commercial scale. As a result, there can be no assurance that the Company will
not encounter difficulties in scaling up its manufacturing capabilities,
including problems involving production yields, quality control, component
supply and shortages of qualified manufacturing personnel. Any such difficulties
could also result in the inability of the Company to satisfy Pacesetter's
product requirements, which could result in a royalty from Pacesetter that is
significantly lower than the transfer price payment the Company would have
otherwise received. Any significant manufacturing difficulties could have a
material adverse effect on the Company.
Management of the Company has limited experience in marketing the
Company's ICD and catheter ablation products, sales of which to date have
consisted of limited quantities for use in clinical trials. There can be no
assurance that the Company will be able to recruit and retain the necessary
sales managers, direct salespersons or distributors needed or that the Company's
efforts to scale up its marketing capabilities will be successful.
POSSIBLE OBSOLESCENCE DUE TO TECHNOLOGICAL CHANGE
The medical device industry is subject to rapid technological
innovation and, consequently, the life cycle of a particular product tends to be
relatively short. The Company is engaged in a field characterized by extensive
research and development efforts. There can be no assurance that alternative
treatments or other discoveries and developments with respect to ICDs or
catheter ablation systems will not render the Company's products obsolete. The
greater financial and other resources of many of the Company's competitors may
permit such competitors to respond more rapidly than the Company to
technological advances.
NEED FOR ADDITIONAL FINANCING
The Company may need additional financing following completion of this
offering depending on a number of factors, including: progress with clinical
trials; time and costs involved in obtaining regulatory approvals; costs
involved in filing, prosecuting and enforcing patents or defending against
patent infringement claims; competing technological and market developments;
costs of manufacturing and marketing scale-up; and potential acquisitions. To
the extent that additional financing is needed, however, there can be no
assurance that such additional financing would be available on acceptable terms,
if at all, and the failure to obtain any such additional financing would have a
material adverse effect on the Company.
DILUTION
Purchasers of the shares of Common Stock offered hereby will experience
an immediate dilution in net tangible book value.
POTENTIAL INSUFFICIENCY OF PRODUCT LIABILITY INSURANCE
The testing, manufacturing, marketing and sale of medical devices
involves risk of liability claims and product recalls. As a result, the Company
currently carries product liability insurance covering its products with policy
limits of $5.0 million per occurrence and $5.0 million in the aggregate. It
cannot be predicted, however, whether such insurance is sufficient, or if not,
whether the Company will be able to obtain such insurance as is sufficient, to
cover the risks associated with the Company's business or whether such insurance
will be available at premiums that are commercially reasonable. Lack of
sufficient insurance could expose the Company to substantial damages in
connection with product liability claims or product recalls.
ANTI-TAKEOVER CONSIDERATIONS
The Company's Restated Articles of Incorporation (i) authorize the
Company's Board of Directors, without any action by the shareholders, to
establish the rights and preferences of up to 3,000,000 shares of undesignated
preferred stock (of which 1,225,000 shares remain undesignated as of the date of
this Prospectus) and (ii) provide that the affirmative vote of at least
two-thirds of the voting power of the shares entitled to vote is necessary in
connection with a merger, consolidation or transfer of substantially all of the
Company's assets. The Company also is subject to certain "anti-takeover"
provisions of the Minnesota Business Corporations Act. Moreover, the Purchase
Agreement with Pacesetter provides Pacesetter, for a certain period of time,
with a right of first refusal in connection with any sale of the Company or its
assets. In addition, in April 1996 the Company's Board of Directors adopted a
Shareholder Rights Plan designated to protect the Company and its shareholders
from unsolicited attempts or inequitable offers to acquire the Company. These
measures may, in certain circumstances, deter or discourage takeover attempts
and other changes in control of the Company not approved by the Board. As a
result, the Company's shareholders may lose opportunities to dispose of their
shares at the higher prices generally available in takeover attempts or that may
be available under a merger proposal. In addition, these measures may have the
effect of permitting the Company's current members of the Board to retain their
positions and place them in a better position to resist changes that
shareholders may wish to make if they are dissatisfied with the conduct of the
business of the Company.
LACK OF PROSPECTIVE DIVIDENDS
The Company has not paid dividends on its Common Stock and does not
anticipate paying cash dividends in the foreseeable future. The Company intends
to retain any earnings to finance the development of its business. In addition,
as long as shares of Preferred Stock are outstanding, in the event that
dividends are paid on the Common Stock, holders of such Preferred Stock shall be
entitled to an equivalent dividend on the basis of the number of shares of
Common Stock into which the Preferred Stock is then convertible. There can be no
assurance that the Company will ever pay cash dividends.
VOLATILITY OF STOCK PRICE
The market prices for securities of medical device companies have
historically been highly volatile, including the market price of shares of the
Company's Common Stock. Future announcements by the Company or its competitors,
including announcements concerning strategic collaborations, results of clinical
testing, technological innovations or new commercial products, changes in
government regulations, regulatory actions, health care legislation, proprietary
rights, litigation and public concerns as to safety of the Company's or its
competitors' products, as well as period-to-period variances in financial
results, could cause the market price of the Common Stock to fluctuate
substantially for reasons that may be unrelated or disproportionate to the
operations of the Company.
SELLING SHAREHOLDERS
Appendix A to this Prospectus sets forth certain information regarding
the Selling Shareholders. The Shares are being registered to permit the public
resale of the Shares, and the Selling Shareholders may offer the Shares for
resale from time to time. See the cover page of this Prospectus. Of the Shares
being offered by the Selling Shareholders, (i) an aggregate of 834,999 Shares
are issuable upon the exercise of the Bridge Warrants; (ii) an aggregate of
359,850 Shares were issued upon the exercise of the Placement Agent Warrants;
(iii) an aggregate of 75,000 Shares are issuable upon the exercise of the Taylor
Warrant; (iv) an aggregate of 875,000 Shares are issuable to St. Jude upon
conversion of the Company's Preferred Stock; and (v) an aggregate of 250,000
Shares are issuable to St. Jude upon conversion of the Debenture. The table in
Appendix A sets forth certain information, as of April 1, 1996, and as adjusted
to reflect the sale of the Shares offered hereby, with respect to the beneficial
ownership of the Common Stock by the Selling Shareholders. Upon the exercise of
the Bridge Warrants, the Taylor Warrant, the Preferred Stock and the Debenture
in accordance with their terms, unless otherwise noted, the Selling Shareholders
will possess sole voting and investment power with respect to the Shares shown
in Appendix A.
VALIDITY OF SHARES
Certain legal matters with respect to the validity of the Shares
offered hereby will be passed upon for the Company by Oppenheimer Wolff &
Donnelly, Minneapolis, Minnesota.
EXPERTS
The financial statements of the Company incorporated by reference in
this Registration Statement have been audited by KPMG Peat Marwick LLP,
independent certified public accountants, for the periods indicated in their
report thereon, which report is incorporated by reference in the Annual Report
on Form 10-K for the year ended July 31, 1995. The financial statements audited
by KPMG Peat Marwick LLP have been incorporated herein by reference in reliance
on their report given on their authority as experts in accounting and auditing.
To the extent that KPMG Peat Marwick LLP audits and reports on the financial
statements of the Company issued at future dates, and consents to the use of
their reports thereon, such financial statements will also be incorporated by
reference in the Registration Statement in reliance upon their reports and said
authority.
<TABLE>
<CAPTION>
APPENDIX A
SELLING SHAREHOLDERS
SHARES BENEFICIALLY
SHARES OF COMMON OWNED AFTER
STOCK BENEFICIALLY COMPLETION OF
OWNED PRIOR TO THE NUMBER OF SHARES THE OFFERING (3)
SELLING SHAREHOLDER OFFERING (1)(2) BEING OFFERED NUMBER PERCENT (4)
- ------------------- ------------------ ------------- ------ -------
<S> <C> <C> <C> <C>
St. Jude Medical 1,125,000 (5) 1,125,000 0 0
Raymond James &
Associates, Inc. 359,850 (6) 359,850 0 0
Glen Taylor 473,091 (7) 200,000 273,091 1.1%
Lyle D. Joyce 279,435 (8) 20,833 258,602 1.1%
Joseph C. Kiser 377,836 (9) 20,833 357,836 1.5%
Hanrow Financial Group Ltd. 651,667 (10) 41,666 610,000 2.6%
Hanrow Business Finance, Inc. 41,667 (11) 41,667 0 0
Darrel A. Carlson 54,400 12,500 41,900 *
Lawrence R. Commers 28,456 5,000 23,456 *
Craig W. Funk 30,875 12,500 18,375 *
Frank Gessell 19,242 6,250 12,992 *
David Gonyea 17,811 8,750 9,061 *
Thomas Hay 38,000 6,250 31,750 *
Jerry Mulder 44,000 10,000 34,000 *
Dennis J. and Shirley A. Truempi 68,400 6,250 62,150 *
Equity IRA FBO James H. Johnson 39,500 6,250 33,250 *
Frederick O. Watson Trust 22,500 12,500 10,000 *
Barry A. McLaughlin 64,500 39,500 25,000 *
Wesley C. Hayne 9,875 9,875 0 0
Kevin S. Miller 9,875 9,875 0 0
Best & Flanagan PLLP 9,875 9,875 0 0
Robert E. Youngquist 62,500 25,000 37,500 *
Dr. Lee S. Chapman 97,700 (12) 25,000 72,700 *
Thomas F. Fiedler 38,008 12,500 25,508 *
Joseph A. Fiedler 100,000 25,000 75,000 *
Walter S. Chapman 8,750 8,750 0 0
Access Leasing Corporation 114,500 114,500 0 0
Kenneth L. Rothman 37,800 18,750 19,050 *
Andrew K. Loft 10,500 10,500 0 0
Okabena Partnership K 50,000 50,000 0 0
Draft Co. 62,500 62,500 0 0
H. William Lurton 25,000 25,000 0 0
Allbrook & Co. 98,821 32,500 66,321 *
Dennis Brown 2,625 2,625 0 0
Sima Griffith 7,650 7,650 0 0
Jack Levi 7,650 7,650 0 0
P. Michael Trautner 850 850 0 0
Robert W. Fullerton 850 850 0 0
---------
2,394,849
=========
- --------------------------------------
* Less than one percent (1%).
</TABLE>
(1) Based upon questionnaires received from each Selling Shareholder, or a
representative of the Selling Shareholder, in connection with the
preparation of the Registration Statement on Form S-3, of which this
Prospectus is a part, showing beneficial ownership as of April 1, 1996.
(2) Shares not outstanding but deemed beneficially owned by virtue of the
right of a person or member of a group to acquire them within 60 days
are treated as outstanding only when determining the amount and
percentage owned by such person or group.
(3) This assumes that all Shares being offered and registered hereunder are
sold, although no Selling Shareholder is obligated to sell any Shares.
(4) Based upon 23,833,407 shares of Common Stock outstanding as of April 1,
1996.
(5) The Company has a strategic alliance with Pacesetter, a subsidiary of
St. Jude. See "The Company" and "Risk Factors - Requirements of
Pacesetter Relationship."
(6) Raymond James & Associates, Inc. ("Raymond James") has provided
investment banking services to the Company in the past and has an
agreement with the Company that expires in July 1998 to act as
investment banker to the Company in connection with certain matters.
Raymond James also makes a market in the Common Stock.
(7) Includes 5,000 shares which may be acquired within 60 days upon the
exercise of stock options. Mr. Taylor has served as a director of the
Company since 1992.
(8) Includes 91,000 shares held by the MTA Retirement Plan and Trust FBO
Lyle D. Joyce, 7,500 Bridge Warrants held by the MTA Retirement Plan
and Trust FBO Lyle D. Joyce, 128,602 shares held directly by Dr. Joyce,
and 39,000 shares which may be acquired by Dr. Joyce within 60 days
upon the exercise of stock options. Dr. Joyce has served as a director
of the Company since 1988.
(9) Includes 43,567 shares held by the MTA Retirement Plan and Trust FBO
Joseph C. Kiser, 253,436 shares held directly by Dr. Kiser, and 60,000
shares which may be acquired by Dr. Kiser within 60 days upon the
exercise of stock options. Dr. Kiser has served as a director of the
Company since 1988.
(10) Includes 610,000 shares of Common Stock beneficially owned by Hanrow
Financial Group Ltd. ("Hanrow Financial"). Hanrow Financial is the
general partner of Hanrow Capital Fund and Hanrow Capital Fund III,
which own 30,000 and 580,000 shares of Common Stock, respectively.
Dennis Evans, a director of the Company since 1990, is the President
and Chief Executive Officer of Hanrow Financial. Excludes shares
beneficially owned by Hanrow Business Finance, Inc.
(11) Hanrow Business Finance, Inc. is affiliated with Hanrow Financial.
Excludes shares beneficially owned by Hanrow Financial.
(12) Includes 53,700 shares of Common Stock held by the Dr. Lee S. Chapman
Profit Sharing Plan and Trust, of which Dr. Chapman serves as trustee.
