SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JULY 31, 1996 COMMISSION FILE NO. 0-17019
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
ANGEION CORPORATION
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1579150
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3650 ANNAPOLIS LANE, SUITE 170, MINNEAPOLIS, MINNESOTA 55447-5434
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (612) 550-9388
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
WARRANT TO PURCHASE ONE-HALF OF A SHARE OF COMMON STOCK
PREFERRED STOCK PURCHASE RIGHTS
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES_X_ NO___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X].
As of October 14, 1996, 28,662,457 shares of Common Stock of the
Registrant were outstanding, and the aggregate market value of the Common Stock
of the Registrant as of that date (based upon the last reported sale price of
the Common Stock at that date as reported by the Nasdaq National Market),
excluding outstanding shares beneficially owned by directors and executive
officers, was approximately $156,278,807.
Portions of the Annual Report to Shareholders for the year ended July 31,
1996 (the "1996 Annual Report") are incorporated by reference into Parts II and
IV to the extent specific pages are referred to herein. Portions of the proxy
statement, dated October 30, 1996 for the Annual Meeting of Shareholders to be
held December 11, 1996 (the "1996 Proxy Statement"), are incorporated by
reference into Part III to the extent specific pages are referred to herein.
PART I
This Form 10-K contains certain forward-looking statements. For this
purpose, any statements contained in this Form 10-K that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, words such as "may," "will," "expect," "believe," "anticipate,"
"estimate" or "continue" or comparable terminology are intended to identify
forward-looking statements. These statements by their nature involve substantial
risks and uncertainties, and actual results may differ materially depending on a
variety of factors, including those set forth in the section below entitled
"Certain Important Factors."
ITEM 1. BUSINESS.
(a) GENERAL DEVELOPMENT OF BUSINESS.
Angeion Corporation ("Angeion" or the "Company") was incorporated in
Minnesota in May 1986 for the purpose of developing, manufacturing, and selling
medical products. The Company initially used its engineering and manufacturing
technologies to custom design and manufacture products to a customer's
specification while it devoted its research and development capabilities to
designing proprietary products.
On July 1, 1988, Angeion merged with Verde Ventures Incorporated, a
public company organized on March 10, 1987, which had no operations at the time
of the merger. Verde Ventures Incorporated, the surviving legal entity, changed
its name to Angeion Corporation and has continued the business of the pre-merger
Angeion Corporation. In August 1990, the Company established a subsidiary,
AngeLase, Inc. ("AngeLase"), to assume responsibility for the intensified
research efforts on the development of a laser catheter ablation system. In
October 1990, the Company received approximately $1.6 million in cash from the
sale of its common stock, $.01 par value (the "Common Stock") to an investor and
transferred such amount, together with two patents, four patent applications and
other technology to AngeLase. In December 1990, the Company acquired a 94%
interest in XMED, Inc. ("XMED"), a company engaged in limited research and
development activities, in exchange for 27,000 shares of unregistered Angeion
Common Stock, valued by the Company at $5.85 per share, for an aggregate
consideration of $158,000. XMED was renamed AngeMed, Inc. ("AngeMed"), and
assumed responsibility for the development of an automatic implantable
cardioverter defibrillator ("ICD") system.
On September 22, 1992, the Company completed the sale of all of the
assets of the Company's medical products division (the "AMP Division") to Burron
Medical Inc., a Pennsylvania corporation which is a wholly owned subsidiary of
B. Braun of America, Inc. The AMP Division, which was a separate line of
business from the activities of AngeLase and AngeMed, had been involved in the
manufacture of extruded and molded medical products for diagnostic and
therapeutic use. The sale price of the AMP Division's assets was $6,200,000
cash, plus deferred payments equal to 10% of the AMP Division's net sales for
each of the four consecutive three-month periods following the closing date of
the sale and 5% of the AMP Division's net sales for each of the four consecutive
three-month periods thereafter.
On February 4, 1993, the Company and Siemens Pacesetter, Inc.
("Pacesetter"), a subsidiary of Siemens Corporation, entered into (a) a stock
purchase agreement pursuant to which Angeion sold to Pacesetter 875,000 shares
of Series A Convertible Preferred Stock (the "Preferred Stock") at $4.00 per
share, and a $1,500,000 convertible subordinated debenture, bearing interest at
7.16%, with a 10-year term with principal repaid over the last five years and a
$6.00 per share conversion price; (b) an OEM Marketing and Manufacturing
Agreement (the "OEM Agreement") relating to the Company's defibrillator and
laser catheter products; and (c) a License Agreement (the "License Agreement")
relating to the Company's defibrillator and laser catheter patents. See
"Narrative Description of Business--Manufacturing," "--Sales and Marketing," and
"--Intellectual Property." On September 30, 1994, St. Jude Medical, Inc. ("St.
Jude") acquired the worldwide cardiac rhythm management business of Siemens AG,
including Pacesetter.
Effective December 20, 1993, AngeMed and AngeLase, the two
greater-than-90%-owned subsidiaries of the Company, were merged into the
Company. In connection with the merger of AngeMed, each share of common stock of
AngeMed was converted into 1.299 shares of Company Common Stock, and, in
connection with the merger of AngeLase, each share of common stock of AngeLase
was converted into .58 of a share of Company Common Stock. In addition, in
connection with such mergers, options to purchase the common stock of AngeMed
and AngeLase were converted into options to purchase Company Common Stock based
upon the merger exchange ratio applicable to each such subsidiary. As a result
of these mergers, including the settlement of certain dissenters' claims related
to such mergers, a total of 663,609 shares of Company Common Stock and options
to purchase 551,846 shares of Company Common Stock were issued.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
The Company operates in a single industry segment: the research,
development, manufacture and marketing of medical devices.
(c) NARRATIVE DESCRIPTION OF BUSINESS.
GENERAL
Angeion Corporation designs, develops and manufactures products that
treat irregular heartbeats (arrhythmias). The Company is developing the
SENTINEL(TM) series of implantable cardioverter defibrillatoRS ("ICDs"), which
it believes are among the smallest and most technologically advanced ICDs in
clinical studies or market approved today. ICDs are designed to treat abnormally
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 sudden
cardiac death ("SCD"). ICDs are electronic devices that are implanted within the
body and are connected to the heart with defibrillator leads. These devices
monitor the patient's heartbeat and, in the event of VT or VF, deliver an
electrical shock to return the heartbeat to normal rhythm. Following receipt of
an Investigational Device Exemption ("IDE") from the U.S. Food and Drug
Administration ("FDA"), the Company commenced U.S. clinical studies of its first
SENTINEL model, the SENTINEL 2000, in March 1996. In April 1996, the Company
received CE Mark approval to market the SENTINEL 2000 in the European Union
("EU"). In September 1996, the Company received FDA approval to expand its U.S.
clinical studies of the SENTINEL 2000 and ANGEFLEX(TM) lead system to 25 centers
across the U.S. and to conduCT additional patient evaluations. In October 1996,
the Company received an IDE for and initiated U.S. clinical studies of the
SENTINEL 2010. Based on its clinical studies progress to date, the Company plans
to submit its application for Pre-Market Approval ("PMA") for the SENTINEL 2000
and the SENTINEL 2010 series to the FDA in the first half of calendar 1997.
The Company is also 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 received an IDE from the FDA for
both its RF and laser catheter ablation systems. The Company plans to commence
clinical studies for its RF catheter ablation systems in the second half of
calendar 1996. The Company also plans to expand clinical studies of its laser
catheter ablation systems in calendar 1997.
BACKGROUND AND MARKETS
Arrhythmias (abnormal rhythms of the heart muscle) arise from numerous
causes, including congenital defects, tissue damage due to previous heart
attacks or atherosclerosis and certain other heart diseases. Arrhythmias
originate in either the atria (upper two chambers of the heart) where they are
generally not life-threatening, or the ventricles (the lower two chambers of the
heart), where they can significantly interfere with the pumping of oxygenated
blood and can therefore be life-threatening. VT occurs when the ventricles beat
at an abnormally rapid rate, depriving the ventricles of sufficient time to fill
with blood prior to each contraction and therefore reducing the amount of blood
pumped out of the heart. As a result, tissues and organs are deprived of the
oxygen carried by the blood, causing dizziness, unconsciousness, cardiac arrest
and possibly death.
Episodes of VT occur unpredictably and tend to become more serious over
time. VT can progress to the most serious type of cardiac arrhythmia, VF. In VF,
the heart's normal electrical impulses become disorganized and erratic. Unlike
VT, where the heart continues to contract in an organized fashion, though at an
abnormally high rate, in VF the heart ceases to pump blood through the body. If
VF is not terminated quickly, the individual will experience an SCD episode
resulting in unconsciousness due to the heart's failure to pump oxygenated blood
to the body's tissues and organs. Without prompt medical intervention, the
individual typically will die.
Industry analysts estimate that in excess of 1.0 million people in the
U.S. have some form of VT and that more than 300,000 people in the U.S. die from
SCD episodes each year. It is estimated that approximately 100,000 people
worldwide survive SCD episodes each year, and approximately 150,000 people are
diagnosed each year with chronic or sustained VT in the U.S. Individuals with
chronic or sustained VT are considered to have a very high risk of experiencing
an SCD episode. Current treatments for SCD survivors and sustained chronic VT
patients consist primarily of medication, ICDs and open heart surgery.
IMPLANTABLE CARDIOVERTER DEFIBRILLATORS
One of the most effective treatments for individuals at risk of
experiencing VT or VF is an ICD. An ICD is an electronic device that is
implanted in the patient and is connected to the heart with defibrillator leads.
The ICD is designed to monitor the patient's heartbeat and, in the event of VT
or VF, to deliver electric pulses or shocks that return the heartbeat to normal
rhythm. Early ICD devices were larger than today's devices, requiring more
invasive implantation and longer hospital stays; delivered primarily high-energy
shocks that were painful to the patient and provided more energy than needed to
treat the VT or VF; and had short life spans, requiring replacement every two or
three years.
The limitations of these early devices led to the development of more
sophisticated ICDs which are currently on the market and which are characterized
by: (i) reduced size and weight allowing for pectoral implant capability; (ii) a
biphasic waveform (an electrical shock of alternating polarity); (iii) greater
longevity; (iv) transvenous lead systems (allows implantation of the lead
through a vein so that open chest surgery is not required); (v) electrogram
storage capability (storage of intercardiac EKG); (vi) tiered therapy
(electrical shocks of varying intensity depending on the type and severity of
the arrhythmia); (vii) use of the ICD housing as an electrode; and (viii)
programmability (allows the physician to customize therapy to the patient's
condition both before and, more importantly, after implant).
The worldwide market for ICDs and defibrillator leads has grown from
$160 million in 1990 to over $650 million in 1995, representing a compounded
annual growth rate in excess of 30%. It is estimated that in 1995 approximately
25,000 ICDs were implanted worldwide. The ICD market is expected to continue to
grow at an annual rate of approximately 20% to 25% to reach a worldwide market
size of approximately $1.8 billion by the end of the decade. The growth rate for
this market is attributable to a number of factors, including: (i) expansion of
the indications for use of an ICD; (ii) smaller devices allowing for less
invasive and less costly surgical procedures; (iii) less effective performance
of drug therapy compared with ICDs; (iv) an increasing survival rate for SCD
episodes; and (v) rapidly advancing ICD technology.
These market estimates may be revised upward based upon the results of
a recent study known as the Multicenter Automatic Defibrillator Implantation
Trial (the "MADIT Study"). This five-year study evaluated the outcomes of high
risk, post-heart attack patients who were treated with drugs compared with those
post-heart attack patients implanted with an ICD. The MADIT study indicated that
patients implanted with an ICD had 54% fewer deaths than those who underwent
conventional drug therapies. The principal clinical investigator for the MADIT
Study estimates that an additional 80,000 people per year could benefit from an
ICD. This potential market size increase, however, may develop slowly until
referral patterns from cardiologists to electrophysiologists become more
established and may not be realized unless Medicare begins reimbursing for some
or all of the costs of a prophylactic implant of an ICD.
Recent developments in automated external defibrillators have the
potential to increase the number of first responders with the capability to
treat victims of SCD. Because SCD causes more than 300,000 deaths annually in
the U.S., any increase in the survival rate of such victims may increase the
potential market for ICDs. Although the market for the Company's ICD products is
expected to grow, there can be no assurance that the Company will participate in
such growth.
INTERVENTIONAL TECHNOLOGIES
Catheter ablation is an emerging therapeutic procedure that, in many
cases, offers the curative benefit of surgery but has the advantages of being a
minimally invasive procedure that exposes the patient to a lower risk of
complications or death, reduces hospitalization and is much less expensive than
open chest surgery. In catheter ablation procedures, an electrophysiological
mapping catheter is guided through an artery or vein into the patient's heart
and to the site of the arrhythmogenic tissue (oxygen deprived heart tissue and
areas of scar tissue resulting from sustained VT which conduct electrical
impulses more slowly than normal tissue and increase the risk of arrhythmia).
The mapping catheter identifies the specific site(s) of electrical malfunction.
A catheter attached to an energy source is then used to transmit energy from an
external source into the arrhythmogenic tissue in an amount sufficient to
thermally damage the tissue. When the ablated tissue is replaced with scar
tissue, the pathway generating the conflicting electrical impulse is eliminated
and the normal conduction of electrical activity is restored.
Although the market for catheter ablation devices in the treatment of
arrhythmias is much less defined and in an earlier stage of development than the
ICD market, the worldwide ablation market grew to approximately 110,000
procedures in 1995, primarily for the treatment of one form of atrial arrhythmia
known as supraventricular tachycardia ("SVT"). If cardiac ablation becomes an
accepted treatment for atrial fibrillation, atrial flutter or VT, the aggregate
market for cardiac ablation could further increase.
The potential growth of the catheter ablation market depends upon the
condition to be treated. The use of catheters utilizing RF energy for the
treatment of SVT is growing because atrial ablation sites are easily accessible
using current catheter technology and the RF energy is able to penetrate the
thinner tissue of the atria. The Company believes a more significant market
potential for catheter ablation devices, however, is in the treatment of VT
using laser catheter ablation. Although the ventricular wall is too thick to be
fully penetrated by RE energy, ventricular arrhythmias, such as VT, may
potentially be treatable with the application of laser energy. The market for VT
laser catheter ablation is supported by the same patient population for whom
drug therapy is not an acceptable treatment regimen. The following factors are
driving the growth of the overall catheter ablation market: (i) catheter
ablation offers a potential cure for certain forms of arrhythmia rather than
simply managing its symptoms; (ii) catheter ablation is a cost-effective,
minimally invasive procedure; and (iii) advancements in electrophysiology
mapping technology, known as "global mapping," are expected to allow more
effective identification of the source of the arrhythmia. Although the market
for the Company's ablation products is expected to grow, there can be no
assurance that the Company will participate in such growth.
PRODUCTS
The Company's competitive product strategy is to maintain a broad
product pipeline driven by innovative technologies. The medical device industry,
particularly the ICD portion, is characterized by significant investment in new
technologies. In addition to research in cardiac electrophysiology, the Company
intends to invest significant resources in concurrent new product development
programs. For all products, there can be no assurance that the Company will be
able to meet its development schedules.
IMPLANTABLE CARDIOVERTER DEFIBRILLATOR SYSTEM
The Company believes its ICDs offer certain benefits over competitors'
ICDs currently in clinical studies or market-approved, including reduced size
and weight, increased longevity and greater flexibility in treatment options.
The Company's ICD products currently under development, in clinical studies or
market approved are described below.
SENTINEL 2000. THE SENTINEL 2000 system consists of the SENTINEL model
2000 ICD, the ANGEFLEX transvenous defibrillation lead system that connects the
ICD to the patient's heart, a specialized lap top computer programmer connected
to a programming wand (Smart Wand) and an external defibrillation test system.
The SENTINEL 2000 ICD is characterized by small size (60 cc) and weight
(110 gm), which allows for universal pectoral implantation. Pectoral
implantation in combination with transvenous leads eliminates the need for
abdominal surgery and thoracotomy (open chest surgery). Pectoral implantation
reduces patient trauma, recovery time and hospitalization costs and increases
physician and patient acceptance. Additionally, this product offers extended
longevity through the use of a dual battery system and other product design
features. The SENTINEL 2000 also utilizes the Company's proprietary Small Cap
Tuned biphasic waveform, demonstrated in clinical studies to lower
defibrillation thresholds. The SENTINEL 2000 features a programmable Hot Can
electrode system, which uses the SENTINEL 2000 housing as an electrode that can
be programmed on and off, and programmable shock configuration to add implant
flexibility and further reduce defibrillation thresholds.
In January 1995, the first fully functional model of the SENTINEL 2000
was successfully implanted in human patients as part of a limited clinical study
in Bonn, Germany. Follow-up evaluations of these initial patients have confirmed
that the SENTINEL 2000 is performing as anticipated. Additional implants have
taken place in the United Kingdom and Italy. In April 1996, the Company received
CE Mark approval for the SENTINEL 2000. The CE Mark is a worldwide standard
recognizing safety and quality assurance. This approval allows the Company to
begin marketing its SENTINEL 2000 model in all EU countries, subject to limited
regulations in certain countries. The Company is in the process of building
inventory for commercial introduction of the SENTINEL 2000 and SENTINEL 2010
(described below) in the EU.
In March 1996, the Company initiated U.S. clinical studies of the
SENTINEL 2000 following IDE approval. This IDE allows the Company to perform up
to 60 implants in up to 15 centers nationwide. In September 1996, the Company
received approval to expand its U.S. clinical studies to a total of 25 centers
nationwide with additional patient evaluations. The Company has supplemented its
SENTINEL 2000 IDE to include the SENTINEL 2010 series as part of its expanded
U.S. clinical studies. Based on its clinical studies progress to date, the
Company believes that it will submit its PMA application for the SENTINEL 2000
and the SENTINEL 2010 series to the FDA in the first half of calendar 1997. See
"Government Regulation."
SENTINEL 2010 SERIES. The SENTINEL 2010 series consists of the 2010,
2011 and 2012 models and contains all of the features of the SENTINEL 2000 plus
5.5 minutes of electrogram storage capability and enhanced programming
flexibility for the electrophysiologist. These models also have a coupled shock
fibrillation feature, which provides testing convenience for the
electrophysiologist. The difference between the three models in the 2010 series
relates to lead connector configuration. The model 2010, like the model 2000,
provides a universal four-port connector for an additional subcutaneous
electrode. The model 2011 is two cubic centimeters smaller than the model 2010
because of its two port low profile connector. The model 2012 four-port
connector is compatible with competitors' lead systems for replacement
applications without the use of adapters. In May 1996, the SENTINEL 2010 ICD was
introduced into human clinical evaluation in Europe. In August 1996, the Company
received CE Mark approval for the SENTINEL 2010. In October 1996, the Company
received an IDE for and commenced U.S. clinical studies of the SENTINEL 2010 as
part of its expanded SENTINEL 2000 clinical studies.
SENTINEL 2020 SERIES AND SENTINEL 2030 SERIES. The SENTINEL 2020 series
and 2030 series are under development to provide enhanced patient therapy and
are expected to represent product line extensions of the SENTINEL 2000 and
SENTINEL 2010 series. Both series of products are scheduled to begin human
implants in calendar 1997.
2100 SERIES. The Company's 2100 series ICDs will be a new generation of
ICDs, designed to offer significant therapeutic enhancements and flexibility
over the prior SENTINEL series ICDs. The Company expects that the 2100 series
will have all the features of the prior SENTINEL series ICDs, plus the following
additional features: (i) smaller size and weight; (ii) advanced lower
defibrillation energy waveform; (iii) pulse pretreatment therapy; (iv) advanced
anti-tachyarrhythmia pacing; (v) dual chamber pacing and sensing; and (vi)
atrial therapy.
LEAD SYSTEMS. The Company has developed a transvenous lead system, the
ANGEFLEX model 4020 series, which is available in four lengths. This lead system
has been approved for commercial sale in Europe and is currently being evaluated
in U.S. clinical studies.
The Company is currently testing an alternate OEM transvenous lead
system for use with the SENTINEL series. This lead system is intended to provide
single pass lead defibrillation, pacing and sensing for physicians preferring
this configuration. The Company anticipates filing for IDE approval for this
product by early calendar 1997. Concurrently, the Company is developing its own
single pass transvenous lead system, the ANGEPASS series, that will include
pacing, sensing and defibrillation functions. This lead system is intended to
incorporate the technology of the ANGEFLEX series and will offer smaller size
and flexibility in a single pass configuration. Initial development and testing
of this lead system has commenced and pre-clinical studies are expected to begin
in the first half of calendar 1997.
CATHETER ABLATION SYSTEMS
The Company's objective in the area of ablative arrhythmia management
is to develop a broad product base to serve the needs of the
electrophysiologist. The Company's focus is directed both at atrial arrhythmias
(SVT, atrial fibrillation and atrial flutter) and ventricular arrhythmias (VT
and VF). The Company is developing four catheter-based systems for non-surgical
percutaneous elimination of various forms of cardiac arrhythmias: a cooled tip
RF ablation catheter; a cooled RF linear ablation catheter; a cooled laser
ablation catheter; and a visual ablation catheter. The Company is also
developing catheter accessory products that include a series of open lumen
steerable guide/mapping catheters that can be used in conjunction with both its
RF and laser catheter ablation systems.
COOLED TIP RF ABLATION CATHETER SYSTEM. The Company's cooled tip
ANGEPORE(TM) RF ablation catheter systEM consists of the Company's proprietary
single use, disposable catheter coupled to a standard RF generator and infusion
pump. Additional support devices are supplied by the hospital. The Company
believes that its RF catheter offers many features not offered by RF catheters
currently in clinical studies or market-approved. The effectiveness of catheters
that are currently in clinical studies or market-approved is somewhat limited by
blood coagulation on overheated catheter electrodes, which requires removal,
cleaning and reinsertion of the catheter for continued use during the procedure.
To address this problem, the Company's RF catheter utilizes a proprietary porous
metal electrode through which saline is perfused during the ablation procedure.
The saline irrigation fluid both insulates the electrode from blood contact and
cools the electrode tip, thereby minimizing coagulum formation on the electrode
while maximizing lesion size.
The Company has completed preclinical studies with respect to the RF
catheter ablation system at Enders Pediatric Research Center in Boston. These
studies demonstrated the ability of the cooled tip RF catheter to produce larger
lesions in the atrium and ventricle without coagulum formation. In February
1996, the Company received IDE approval to commence a feasibility study in human
patients. This IDE allows the Company to perform 20 procedures at four centers
nationwide for the treatment of SVT. The Company is currently investigating
several clinical sites and anticipates the commencement of clinical studies in
the fourth quarter of calendar 1996.
COOLED RF LINEAR ABLATION CATHETER SYSTEM. The Company's cooled RF
linear ablation catheter is an extension of its cooled tip RF catheter ablation
system. The RF linear ablation catheter, currently under development, is
intended for use in atrial flutter and atrial fibrillation, where linear lesions
are considered a more effective therapy. Competitors' catheters use a series of
ring electrodes that are sequentially activated with RF energy. The Company's RF
linear ablation catheter will use a cooled metal electrode with an adjustable
length feature. Using current RF generators, this catheter can form a linear
lesion with one application of energy, thereby reducing procedure time and
enhancing therapeutic effectiveness.
To date, the Company has constructed prototypes and demonstrated in
engineering studies the ability to make narrow linear lesions with the RF linear
ablation catheter. The Company intends to collaborate with a medical research
institution to complete development of this catheter. Based on its progress to
date, the Company anticipates filing an IDE for the treatment of atrial
fibrillation with the RF linear ablation catheter in the first half of calendar
1997.
COOLED LASER ABLATION CATHETER SYSTEM. The Company's cooled ANGELASE
(TM) laser catheter ablation system Is targeted at the VT market. Laser energy
produces full transmural lesions of the size and depth most likely to achieve
consistently favorable results in the ventricle with minimal trauma. The
Company's proprietary technology uses a two-piece construction consisting of an
inner laser catheter for delivering energy to the tissue and an outer steerable
mapping catheter for identifying the appropriate arrhythmogenic tissue. The
inner catheter consists of a laser fiber housed in a plastic tube that also
contains irrigation channels, electrical wires and temperature instrumentation.
The catheter is coupled to a laser commonly used in urology and surgery. During
delivery of laser light, saline is perfused through the tip to prevent
coagulation of blood and vaporization of tissue. Temperature sensors in the
laser catheter are embedded in the tissue to safely deliver energy to cardiac
tissue.
The Company's laser technology was developed in conjunction with the
experience of Dr. Robert Svenson, a Medical Advisor to the Company, at the
Carolinas Medical Center. Dr. Svenson has treated 60 VT patients in open chest
laser ablation procedures over a six-year period with favorable long term
results. Currently, the Company is conducting an IDE feasibility study to
demonstrate the ability of the laser catheter system to eliminate VT through a
minimally invasive percutaneous procedure. In September 1991, the Company
initially received approval to perform ten procedures at the Carolinas Medical
Center. In February 1996, the Company received approval to expand these clinical
studies to treat additional patients at two centers nationwide. These studies
will be conducted in calendar 1997.
VISUAL ABLATION SYSTEM. The Company is developing a visually assisted
laser ablation system for certain cardiac therapies that may be anatomically
guided. This visually assisted laser ablation technology incorporates much of
the technology from the Company's current laser ablation system. The visual
ablation system technology integrates an imaging fiber bundle and an expandable
balloon into the Company's steerable mapping catheter. Once inside the heart,
the balloon is filled with saline to a diameter of several centimeters. The
imaging fiber is connected to an endoscopic viewing system to show the internal
surfaces of the heart. Once the appropriate anatomical structures are
identified, a laser fiber is positioned within the balloon to deliver energy to
the interior surface of the heart. To date, the Company has performed several
experiments to verify the ability of this catheter to visualize the interior
surfaces of the heart. After the Company finalizes the design of this product,
it will conduct the necessary studies to file an IDE application with the FDA.
CATHETER ABLATION ACCESSORY PRODUCTS. The Company plans to provide a
broad line of catheter ablation accessory products for the electrophysiologist.
These accessories may include introducers, fixed mapping catheters, steerable
guide/mapping catheters and extension wires. The Company anticipates that some
of these products will be developed as an extension of its ablation technologies
while others will be purchased from other companies on an OEM basis or
otherwise.
The Company has developed a series of open lumen, steerable
guide/mapping catheters that allow point mapping and accurate, flexible
positioning of the ablation catheter at the proper site. This steerable
guide/mapping catheter can be used with both the Company's RF and laser catheter
ablation systems. The steerable guide/mapping catheter, the ANGEGUIDE(TM), has
been studied in preclinical studies and has been approved by the FDA for use in
connection with the Company's laser catheter human clinical studies. Early
indications are that this steerable guide/mapping catheter will allow a
physician to position accurately the ablation catheter within the ventricular
chambers of the heart.
FUTURE PRODUCTS. One of the barriers to increased utilization of
ablation therapies is the time required to perform the mapping necessary to
identify the site of the arrhythmogenic tissue. To be as efficient as procedures
like angioplasty, ablation procedure times must be reduced to minutes rather
than hours. Such a reduction in procedure time will be possible only with more
sophisticated techniques for measuring electrical patterns in the heart. Current
point mapping systems require the electrophysiologist to manipulate an electrode
catheter inside the heart and then develop a mental image from the electrical
signals. It is anticipated that procedure times will decrease and catheter
placement accuracy will increase if point mapping systems are replaced by
simultaneous mapping from many electrodes (global mapping), whose signals are
computer analyzed and displayed as a three dimensional graph. Such refined
global mapping technology has not yet been fully developed. The Company is
considering many alternatives in the global mapping area, including entering
into a strategic alliance with another company or research institution to
develop a global mapping system, or a direct investment in a technology or
business.
COMPETITION
IMPLANTABLE CARDIOVERTER DEFIBRILLATORS
Competition in the ICD market is intense and most of the Company's
primary competitors have substantially greater financial, manufacturing,
marketing, distribution and technical resources than the Company. While
antiarrhythmic drugs and cardiac ablation therapies (like the Company's laser
catheter ablation system) compete in this market, other manufacturers of ICD
devices have claimed a significant share of the market and are believed to be
the Company's primary competitors. Three companies, Medtronic, Inc.
("Medtronic"), Cardiac Pacemakers, Inc., a division of Guidant Corporation
("CPI"), and Ventritex, Inc. ("Ventritex"), currently have PMA-approved products
in the ICD market and control virtually all of that market today. In August
1985, the FDA approved CPI's first commercial defibrillator to be marketed in
the U.S. Medtronic was the second company to receive FDA approval (February
1993) and Ventritex was the third (April 1993). In October 1996, St. Jude
entered into a definitive agreement with Ventritex that would merge Ventritex
into St. Jude's subsidiary, Pacesetter.
The Company believes, based upon industry analyses and attendance by
management at industry meetings, that its SENTINEL series of ICDs are among the
smallest and most technologically advanced ICDs currently in clinical studies or
market-approved. Competitors of the Company, however, many of whom have greater
financial and technical resources than the Company, are developing and
conducting human clinical studies of ICDs with certain comparable features.
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.
CATHETER ABLATION
Although catheter ablation offers a potential cure for, rather than a
treatment of, SVT and VT, catheter ablation technologies must nonetheless
compete with drug therapy, open heart surgery and ICDs. While drug therapy has
in the past experienced limited effectiveness and adverse side effects, new
drugs currently under development may potentially offer improved treatment
outcomes. Catheter ablation does not currently compete, to a significant extent,
with ICDs since catheter ablation is currently used as a treatment for SVT
rather than for VT. As ablation products evolve and demonstrate efficacy in the
treatment of VT, the Company believes that ablation will increasingly compete
with ICDs
Competition in the current catheter ablation market includes C.R. Bard,
Inc., Cordis Corporation (a subsidiary of Johnson & Johnson), Boston Scientific
Corporation, Medtronic, EP Technologies, Inc., Cardiac Pathways Corporation,
Electro-Catheter Corp. and St. Jude (which purchased Daig Corporation). These
companies are primarily involved in the treatment of SVT with RF energy-based
catheters. Although RF catheters are not currently considered effective
treatments relating to the ventricle, certain companies are experimenting with
the use of RF energy, as well as other forms of energy, in the ventricle.
MANUFACTURING
The Company's manufacturing strategy is focused on the extensive use of
proven process vendors and the utilization of key component suppliers, with
final product assembly, testing, inspection and packaging at the Company's
facilities. The use of outside process vendors minimizes facility and equipment
investment, while providing access to resources that provide a high level of
technical ability with minimal production volume constraints. Key process
vendors provide laser welding, electronic assembly, sterilization and other
process requirements. Component suppliers provide the Company with high quality
materials and the ability to increase production levels.
The Company currently manufactures its products at its U.S. facility in
Minneapolis, Minnesota. The Minneapolis facility received ISO 9002 certification
in February 1996. ISO 9002 registration certifies the quality management systems
for the facility, with a primary emphasis on manufacturing. The Company has
recently notified its contract manufacturer in Scotland that it will terminate
manufacturing activities at this facility as of January 31, 1997. The Company's
manufacturing facilities are required to meet and adhere to all applicable
requirements of U.S. and international regulatory agencies, including current
Good Manufacturing Practice regulations and Active Implantable Medical Device
Directive ("AIMDD") standards. These facilities are subject to periodic
inspection and surveillance audits by both U.S. and international regulatory
agencies. In August 1996, the Company successfully completed an ISO 9002
surveillance audit of its Minneapolis facility.
The manufacturing process for the Company's products consists primarily
of assembly of purchased components, testing and inspection operations,
packaging and sterilization. Components are purchased according to the Company's
specifications. A number of significant components, such as capacitors,
batteries, integrated circuits and lead systems, are purchased from sole source
suppliers. For certain of these components, there are relatively few sources of
supply, and establishing additional or replacement suppliers for such components
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 would have a material adverse effect on the Company's ability to
manufacture its products.
Pursuant to the OEM Agreement with Pacesetter, 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
substantially less than the transfer price payment the Company would have
received had it manufactured the products and sold them to Pacesetter. Even if
the Company has fulfilled all product quantity, quality and specification
requirements, Pacesetter may elect to manufacture up to 50% of Pacesetter's
aggregate product requirements but will be required to pay to the Company a
payment that equals the net margin, as determined in the OEM Agreement, on the
products had the Company manufactured the products and sold them to Pacesetter.
To date, Pacesetter has not elected to manufacture any of the Company's
products.
SALES AND MARKETING
The Company intends to market and sell its ICD and catheter ablation
products on a worldwide basis through multiple channels: a direct Company sales
force in the United States; direct sales representatives and independent
distributors outside the United States; and OEM distribution by Pacesetter. In
preparation for product launch of the SENTINEL 2000 in Europe, the Company has
formed Angeion Europe Ltd. ("Angeion Europe") and established distributorships
in a number of European countries.
The Company will directly market and sell its products under its own
label through its own sales force and through independent distributors. Under
the OEM Agreement with Pacesetter, however, such independent distributors may
not also sell ICDs or laser catheter products that are manufactured by other
companies. 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. The Company has distributors in Italy, the United Kingdom,
Belgium, Austria and Holland, and direct sales representation in Germany. In
December 1995, the Company established its United Kingdom subsidiary, Angeion
Europe, to facilitate its clinical studies of the SENTINEL series of ICDs and
expand its European sales and distribution activities. The Company is in the
process of forming a German subsidiary, Angeion GmbH, to coordinate the
Company's direct sales efforts in Germany.
Pursuant to the OEM Agreement, Pacesetter was granted worldwide
marketing and distribution rights on a co-exclusive basis with the Company to
the SENTINEL 2000, the SENTINEL 2010 series and all other ICD products that are
commercially marketed within two years of the first commercial sales of the
SENTINEL 2010 model ICD. Pacesetter has similar rights with respect to laser
catheter products that are commercially marketed within two years of the first
commercial sale of a laser catheter product. Pacesetter's co-exclusive marketing
period will continue for at least seven years from the date of the OEM Agreement
(February 1993), and thereafter will be contingent upon certain defined minimum
product purchases by Pacesetter and its affiliates. Pacesetter's marketing
rights will continue on a non-exclusive basis in the event that the exclusive
period terminates.
The OEM Agreement with Pacesetter was intended to assist the Company in
launching its own products into the marketplace and ramping up sales while the
Company built its own clinical studies and distributor networks. Accordingly, in
fiscal 1996, approximately 67% of the Company's sales were pursuant to this OEM
Agreement. In October 1996, St. Jude, Pacesetter's parent company, announced
that it had entered into a definitive agreement with Ventritex providing for the
merger of Ventritex into Pacesetter. The merger is subject to Ventritex
shareholder approval and government review and is expected to close in the first
quarter of calendar 1997. While it was anticipated that sales under the OEM
Agreement would decline as Pacesetter introduced its own ICD products, the
Pacesetter-Ventritex merger, if consummated, will likely accelerate this
process. Pacesetter has not, however, indicated how its OEM needs may change as
a result of the merger, and the Company is not therefore in a position to
determine the impact of this merger on the Company's operations. Nevertheless,
there can be no assurance that the Pacesetter-Ventritex merger will not have a
material adverse effect on the Company and its operations.
RESEARCH AND DEVELOPMENT
Research and development expenditures for continuing operations were
$5,262,946, $8,024,455 and $11,049,462 in fiscal 1994, 1995 and 1996,
respectively. The Company's research and development is primarily directed at
the development of its existing products and the clinical studies relating to
such products. Approximately 77.2%, 86.4% and 89.2% of the Company's research
and development expenditures in fiscal 1994, 1995 and 1996, respectively, were
directly attributable to the SENTINEL ICD products. The Company expects that
research and development expenses will continue to increase as the Company
expands human clinical studies and enhances current products while accelerating
the development of potential new products.
INTELLECTUAL PROPERTY
The Company believes strongly in protecting its intellectual property
and intends to undertake efforts to obtain patents, when available, in
connection with its research and product development programs. As of October 1,
1996, the Company had 73 U.S. issued patents, 10 U.S. patents which have been
allowed but have not yet issued, 25 U.S. patent applications pending, 45 foreign
patent applications pending, and additional U.S. patent applications in
preparation, relating to its research and development products.
The Company's patented features and technologies with respect to its
ICDs include: (i) its Application Specific Electro-Chemistry (ASEC(TM)) dual
battery system; (ii) TUNED(TM) Biphasic Waveform, a more efficient biphasic
waveform that lowers defibrillation energy thresholds; (iii) the HOT CAN(TM)
electrode system, which uses tHE SENTINEL housing as an electrode that can be
programmed on and off; and (iv) ENERGY STEERING(TM), an energy delivery system
that permits the ICD to increase shock effectiveness by directing the current
more uniformly throughout the heart. In addition, the Company's ANGEPORE RF
catheter utilizes a patented porous metal electrode through which saline is
perfused during the ablation procedure, and the Company's ANGELASE laser
catheter utilizes a patented two-piece construction consisting of an inner laser
catheter for delivering energy to the tissue and an outer steerable mapping
catheter, the ANGEGUIDE, for identifying the appropriate arrhythmogenic tissue.
There can be no assurance, however, that any patents held by the Company will be
valid or otherwise of value to the Company or that any patent applied for will
be granted.
The Company conducts an ongoing evaluation of potential infringement of
any proprietary rights of third parties by the products the Company intends to
market. Regardless of the Company's efforts to evaluate the potential
infringement of any proprietary rights of third parties and the Company's policy
of respecting such rights and not knowingly or willfully infringing such rights,
there can be no assurance that allegations of such infringement will not be
made, or that if made such allegations would not be sustained if litigated.
There has been substantial litigation regarding patent and other intellectual
property rights in the medical device industry, particularly in the ICD market.
To date, many patent and intellectual property disputes in the medical device
area have been settled through licensing or similar arrangements. In
contemplation of such an environment, the Company has developed a strategy of
expanding its patent portfolio in those areas where the Company believes
litigation is most likely to develop in the ICD market, and where the Company
has proven expertise, including defibrillation waveforms, electrode systems,
additional therapies, reduced size and increased device lifetime. While no
assurance can be given that the Company's strategy will be effective or that the
Company's patents in these areas will be adjudicated to be valid if challenged,
or otherwise will be of value in potential negotiations with third parties, the
Company continues to pursue patents in those areas which it has identified as
critical to ICD development.
The Company also relies on trade secrets and proprietary technology.
The Company typically requires its key technical employees and consultants to
agree in writing to keep its proprietary information confidential and, within
certain limitations, to assign all inventions relating to the Company's business
to the Company. The Company acquired the technology for its continuous-wave
laser catheter system from Dr. Jeffrey Isner and Dr. Richard Clark in 1989.
Pursuant to the assignment agreement, the Company agreed to pay Dr. Isner and
Dr. Clark a royalty of 5% on sales of patented products incorporating this
technology for the life of any patent on this technology. Additionally, in
exchange for Dr. Robert Svenson's efforts in connection with the development of
the laser catheter ablation system, the Company has agreed to pay Dr. Svenson
and Carolinas Medical Center a royalty, when certain conditions are met, of 2%
and 3%, respectively, on all paid sales of the Company's laser catheter ablation
products.
Pursuant to the License Agreement with Pacesetter, the Company and
Pacesetter have agreed to cross-license certain of their patents and patent
applications. Under this License Agreement, Pacesetter grants the Company
certain non-exclusive rights to certain patents and patent applications relating
to Pacesetter's ICD products as well as to manufacturing improvements made by
Pacesetter with respect to the Company's ICD products. With respect to the
Company's ICD products, the License Agreement divides the Company's patents and
patent applications into two categories: a first category for which the License
Agreement grants certain exclusive rights for a limited exclusive period, and a
second category for which the License Agreement grants certain non-exclusive
rights. The License Agreement also grants certain non-exclusive rights to the
Company's laser catheter patents and patent applications. The License Agreement
also gives Pacesetter the right to enforce the first category of ICD patents and
patent applications during the limited exclusive period. The License Agreement
provides that the Company always has the right to sublicense all of its patents
and patent applications to third parties to avoid or settle a pending patent
infringement lawsuit, provided that during the limited exclusive period the
Company obtains for Pacesetter as part of any such settlement the same rights
and benefits received by the Company with respect to any patents that are
required or useful to Pacesetter in manufacturing and marketing the Company's
products.
The License Agreement also grants Pacesetter a conditional right to
sublicense the first category of ICD patents and patent applications (and
certain continuation applications) to up to three separate parties, provided
that the Company receives the same cross-license 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-license rights for the Company). The Company has been advised that
Pacesetter is under a pre-existing obligation, by virtue of a previous license
agreement with a major competitor, to license or offer 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 first category of ICD patents and patent applications.
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 right under the License Agreement to assert and enforce rights
to the Company's ICD patents and patent applications 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.
Because the License Agreement only requires Pacesetter to secure (or,
in certain circumstances, to use its best efforts to secure) for the Company the
same cross-license rights that it receives from third parties in connection with
sublicenses under the License Agreement, 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 first category of ICD patents and patent
applications. These ICD patents and patent applications, however, represent less
than one-half of the Company's current ICD patent portfolio. As a result, even
if the Company does not receive necessary cross-licenses from third parties in
connection with sublicenses under the License Agreement, the Company believes
that the balance of its patent portfolio should be sufficient to enable the
Company to independently negotiate cross-licenses or otherwise settle
intellectual property disputes with competitors with respect to the Company's
products. Any reduction in the number of patents available to the Company in
connection with any such intellectual property disputes, however, could affect
the ability of the Company to ultimately settle any such disputes on reasonable
terms, if at all, which could have a material adverse effect on the Company.
THIRD-PARTY REIMBURSEMENT
The Company's ability to commercialize its products successfully 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 HCFA, which determines Medicare
reimbursement levels, private health insurers, health maintenance organizations
and other third-party payors. Payors are increasingly challenging the prices of
medical products and services.
In November 1995, the FDA and HCFA entered into an interagency
agreement establishing a process pursuant to which the FDA will place all IDEs
that it approves into one of two categories, Category A or Category B. Category
A devices are considered experimental and for which the "absolute risk" of the
device type has not been established (i.e., initial questions of safety and
effectiveness have not been resolved for the device type) and will not be
eligible for Medicare reimbursement. Category B devices are considered
non-experimental or investigative devices where the incremental risk is the
primary risk in question (i.e., underlying questions of safety and effectiveness
of that device type have been resolved), or it is known that the device type can
be safe and effective because, for example, other manufacturers have obtained
FDA approval for that device type. A Category B device will be eligible for
Medicare reimbursement if it meets all other Medicare coverage requirements. The
SENTINEL 2000 ICD, and the RF and laser catheter ablation systems are Category B
devices and are currently being reimbursed by HCFA and third-party payors.
Even if the Company obtains PMAs for its products, some payors may deny
coverage until the procedures become generally accepted by the medical
profession. There can be no assurance that HCFA and third-party payors will
continue to reimburse any of the Company's products. The inability of hospitals
and other providers to obtain reimbursement from third-party payors for the
Company's products would have a material adverse effect on the Company. The
Company expects that there will be continued pressure on cost-containment
throughout the United States health care system. This pressure could adversely
affect the prices of the Company's products.
GOVERNMENT REGULATION
The Company's products are all classified as medical devices by the
Food, Drug and Cosmetic Act (the "FDC Act"), and as such, are subject to
regulation and supervision by the FDA, and to regulation by foreign governmental
authorities. These medical devices are also subject to ongoing controls and
regulations under the FDC Act, including registration by the manufacturer,
compliance with established manufacturing practices, device tracking,
record-keeping, advertising, packaging and compliance to standards. Comparable
agencies in certain states and foreign countries also regulate the Company's
activities. The Company's products are subject to recall at any time by the FDA
or the Company if it appears that use of the products could result in
unwarranted health risks.
All medical devices intended for human use that are to be marketed in
the United States are placed into one of three regulatory classifications,
depending on the degree of regulatory control to which the device will be
subject. Class III devices, which include life support and life sustaining
devices or implants, are subject to the most stringent controls and require FDA
approval prior to marketing. The Company's ICD products and its catheter
ablation systems are classified as Class III devices.
FDA requirements for both the Company's ICD and catheter ablation
products involve obtaining formal FDA pre-market approval. The first stage of
obtaining formal FDA pre-market approval is submission of an application for an
IDE. The IDE permits clinical evaluations of products on human subjects under
controlled experimental conditions by designated qualified medical institutions.
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 has received IDE
approval with respect to its SENTINEL 2000 and 2010 systems and both the
ANGEPORE RF and ANGELASE laser catheter ablation systems.
The second stage of formal FDA pre-market approval is the PMA
application. The PMA, which is submitted after clinical evaluations are
completed under an IDE, is a comprehensive report of all data and information
obtained by the applicant throughout the product's development and testing. The
FDA will grant a PMA if it finds that the safety and effectiveness of the
product have been sufficiently demonstrated and that the product complies with
all applicable regulations and standards. The FDA may require further clinical
evaluation of the product, terminate the clinical studies, grant pre-market
approval but restrict the number of devices distributed, or require additional
patient follow-up for an indefinite period of time. There can be no assurance
that the Company will be successful in obtaining a PMA for any products, which
is necessary to market the Company's products commercially in the U.S. in a
timely manner, if at all. Delays in obtaining marketing approvals and clearances
in the U.S. could have a material adverse effect on the Company.
The Company is required to maintain detailed records relating both to
its maintenance of good manufacturing practices and to defective products and
complaints about its products. The FDA has authority to inspect the Company's
facilities to assure compliance with the FDC Act and regulations thereunder.
Many foreign countries have similar regulatory requirements concerning
the marketing of new medical devices. In January 1995, the AIMDD was fully
implemented in the EU, which is expected to make EU regulatory requirements more
consistent. The time required to obtain approvals required by foreign countries
may be longer or shorter than that required for FDA approval and requirements
for licensing may differ from FDA requirements.
Under AIMDD, the Company is subject to "prior notice" of intent to
conduct clinical studies in the EU. This process, similar to the FDA IDE
process, requires regulatory documents and test information to be submitted to
the governmental agency of each country in which the Company intends to conduct
clinical studies. In order to commence commercial marketing of its products in
the EU, the Company is required to file for a CE Mark approval. In April 1996
and August 1996, the Company received CE Mark approval for the SENTINEL 2000 and
SENTINEL 2010, respectively, from TUV Product Service, an organization that
certifies the safety of medical device products and the quality assurance
systems put in place by the manufacturer of the medical device. There can be no
assurance, however, that the Company will be successful in obtaining CE Mark
approval for any other products in a timely manner, if at all, which could have
a material adverse effect on the Company.
The Company is also subject to certain FDA regulations governing
manufacturing practices, packaging and labeling. Further, the FDA regulates the
export of medical devices that have not been approved or cleared for marketing
in the United States. The Company expects to export products directly to the EU,
under the provisions by the FDA Export Reform and Enhancement Act of 1996. In
certain instances, however, the Company may need to apply for export approval
from the FDA.
EMPLOYEES
As of September 30, 1996, the Company had 199 full-time employees,
including 19 engaged in administration, 77 in manufacturing, 75 in research and
development, 4 in sales and marketing and 24 in regulatory and clinical. There
are no unions representing the Company's employees. The Company believes that
its relations with its employees are good.
CERTAIN IMPORTANT FACTORS
In addition to the factors identified above, there are several
important factors that could cause the Company's actual results to differ
materially from those anticipated by the Company or which are reflected in any
forward-looking statements of the Company. These factors, and their impact on
the success of the Company's operations and its ability to achieve its goals,
include the following:
(1) the expectation that the Company will continue to incur additional
operating losses and net losses over the next few years and the fluctuation in
the Company's operating results;
(2) the impact of competition in the ICD market;
(3) new product development cycles and the market acceptance of the
Company's products;
(4) the Company's ability to protect its intellectual property rights
and to resolve any intellectual property disputes on reasonable terms;
(5) the Company's ability to meet its obligations under, and the impact
of the Pacesetter-Ventritex merger on, the agreements with Pacesetter;
(6) the current lack of PMA approval for the Company's products and the
resulting effect on the Company's revenues;
(7) continued third party reimbursement for the Company's products;
(8) the ability of the Company to continue to built its own clinical
and distribution networks; and
(9) the ability of the Company to retain key personnel and to manage
successfully the Company's growth.
ITEM 2. PROPERTIES.
The Company leases approximately 52,000 square feet of office and
manufacturing space in Minneapolis, Minnesota. This space serves as the
Company's corporate headquarters, as well as the research and development and
manufacturing facilities for the ICD and catheter ablation system programs. Rent
payments under the lease are approximately $502,000 per year, including shared
real estate taxes and operating expenses. The primary lease agreement extends
through December 31, 1997. The Company's current space may not be adequate to
satisfy the needs of the Company through the end of the lease. The Company is
currently reviewing its facilities requirements to ascertain its space needs for
the future. The Company believes that it will be able to secure additional or
alternative space at a commercially reasonable price when needed.
ITEM 3. LEGAL PROCEEDINGS.
There are no other material pending or threatened legal, governmental,
administrative or other proceedings to which the Company is a party or of which
any of its property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this Report.
ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY.
The executive officers of the Company, their ages and the offices held,
as of October 25, 1996, are as follows:
NAME AGE TITLE
Whitney A. McFarlin 56 Chairman of the Board, President and Chief
Executive Officer
David L. Christofferson 59 Vice President, Chief Financial Officer
and Secretary
Robert S. Garin 54 Vice President of Human Resources
Jennifer M. Marrone 40 Vice President of Regulatory and Clinical Affairs
Gary Payment 53 Vice President of Operations
T.V. Rao 53 Vice President of Sales and Marketing
William J. Rissmann 47 Vice President of Engineering
Information regarding the business experience of the executive officers
of the Company is set forth below.
WHITNEY A. MCFARLIN has been President, Chief Executive Officer and
Chairman of the Board of the Company since September 1993. From June 1990 to
September 1993, Mr. McFarlin was President, Chief Executive Officer, Chairman of
the Board and a founder of Clarus Medical Systems, Inc. ("Clarus"), a private
medical device company manufacturing neuroendoscopy products. Prior to founding
Clarus, Mr. McFarlin was President and Chief Executive Officer of Everest &
Jennings International, Ltd., a manufacturer of durable medical equipment, from
June 1985 to May 1990. From December 1977 to May 1985, Mr. McFarlin was an
officer of Medtronic, most recently as Executive Vice President, where he was
responsible for the U.S. pacing business. He serves on the Board of Directors of
several corporations including Clarus and Zero Corp., both public companies.
DAVID L. CHRISTOFFERSON joined the Company as Vice President and Chief
Financial Officer in January 1991. Mr. Christofferson was elected as the
Company's Secretary in April 1993, and was elected to the Board of Directors of
Angeion Europe in December 1995. From April 1988 to December 1990, he was a
Division Manager for Excel Office Products, a company he founded in 1986, and
which was acquired in 1988 by General Office Products Company. From 1987 through
1989, he was Chairman and Chief Financial Officer of Medical Wellness
Technologies, Inc., a distributor of pain control devices. Prior to 1986, Mr.
Christofferson was employed by Medtronic for over 13 years in various management
positions, most recently as Director of Finance and Administration for the Drug
Administration Devices and Systems Division.
ROBERT S. GARIN joined the Company as Vice President of Human Resources
in January 1995. In December 1995, Mr. Garin was elected to the Board of
Directors of Angeion Europe. Prior to joining the Company, Mr. Garin served as a
management consultant to the Company. From 1985 through 1993, Mr. Garin was a
partner in Garin and Associates, a management and human resources consulting
firm. From 1971 to 1985, Mr. Garin was employed by Medtronic in various
positions including Director of Lead Operations and Director of Human Resources
for Latin American Manufacturing and Sales Operations.
JENNIFER M. MARRONE joined the Company in April 1995 as Vice President
of Regulatory and Clinical Affairs. From November 1993 to April 1995, Ms.
Marrone was Director of Regulatory, Clinical and Quality Assurance/Compliance at
Empi, Inc., a manufacturer of noninvasive biomedical devices. From 1979 to 1993,
Ms. Marrone served in a number of capacities at Medtronic including Manager of
Regulatory Affairs for the bradyarrhythmia and tachyarrhythmia products, where
she prepared and managed Medtronic's PMA applications for its tachyarrhythmia
management devices and transvenous leads. She joined Medtronic in 1979 as Study
Director in Preclinical Research.
GARY L. PAYMENT joined the Company in September 1994 as Vice President
of Operations. From 1985 to 1994, Mr. Payment held various positions at CPI,
most recently as Director of Manufacturing. Prior to joining CPI, Mr. Payment
held several positions at Medtronic, including Director of Operations,
Manufacturing Program Manager and Director of Quality Assurance.
T.V. RAO joined the Company in August 1995 as Vice President of Sales
and Marketing. In December 1995, Mr. Rao was elected Chairman of the Board of
Directors of Angeion Europe. From 1994 to 1995, Mr. Rao served as Vice President
of Sales and Marketing for Brunswick Biomedical Corporation, a medical device
company. From 1980 to 1994, Mr. Rao served in a number of capacities at
Medtronic, including Director of Product Management for the Tachyarrhythmia
Division, Director of International Marketing for pacing products, Product
Marketing Manager for tachyarrhythmia, and Manufacturing Engineering Manager for
the Energy Technology Division. From 1969 to 1980, Mr. Rao served in various
manufacturing engineering capacities at Onan Corporation.
WILLIAM J. RISSMANN joined the Company in November 1994 as Vice
President of Engineering. Most recently, Mr. Rissmann was Director of Research
and Development in the Advanced Tachy Products Division at CPI. From 1990 to
1994, he held several positions at CPI, including Director of Quality Control
and Test Engineering and Manager of Product Planning and Administration.
Mr. Rissmann also has prior experience at St. Jude Medical and Medtronic.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS.
The information under the captions "Price Range of the Company's
Securities" and "Dividends" on the inside back cover of the 1996 Annual Report
is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA.
The information under the caption "Selected Financial Data" on
page 13 of the 1996 Annual Report is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The information under the caption "Management's Discussion and Analysis
of Results of Operations and Financial Condition" on pages 12 through 13 of the
1996 Annual Report is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The balance sheets of Angeion Corporation as of July 31, 1996 and 1995,
and the related statements of operations, shareholders' equity (deficit) and
cash flows for each of the years in the three-year period ended July 31, 1996,
together with the related notes and the independent auditors' report of KPMG
Peat Marwick LLP, independent certified public accountants, all contained on
pages 14 through 20 of the Company's 1996 Annual Report, are incorporated herein
by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
(a) DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The information under the caption "Election of Directors" in the
Company's 1996 Proxy Statement, with respect to directors of the Company, is
incorporated herein by reference. The information concerning executive officers
of the Company is included in this Report under Item 4A, "Executive Officers of
the Company".
In addition to the Company's Board of Directors and full-time
employees, the Company maintains a number of medical advisors who possess
knowledge and experience in technical and medical areas related to the Company's
products (the "Medical Advisors"). The Medical Advisors consult with management
of the Company concerning the products being developed and their use by health
professionals and Board of Directors. The following persons are Medical Advisors
to the Company: Robert G. Hauser, M.D.; Lyle D. Joyce, M.D., Ph.D.; Joseph C.
Kiser, M.D.; Fabio Leonelli, M.D.; J. Philip Saul, M.D.; Robert H. Svenson,
M.D.; and Mark A. Wood, M.D.
The number of Medical Advisors may be expanded in the future. The
duties of the Medical Advisors are based upon the specific requests of the
Company and at the convenience of the individuals. The Medical Advisors may
limit time spent on such Company matters as they desire and receive fees
determined on an hourly, monthly or other basis as may be agreed in writing for
specific tasks undertaken at the request of the Company. The individuals are
reimbursed for their expenses in meeting with the Company. In addition, on a
case by case basis, the Company grants options to purchase shares of the
Company's Common Stock to certain of the non-employee Medical Advisors at an
exercise price equal to the fair market value of the Common Stock on the date of
grant. Options to purchase an aggregate of 90,000 shares of Common Stock have
been granted to the Medical Advisors.
As a supplement to its Medical Advisors, in May 1996 the Company
established its Strategic Tachyarrhythmia Advisory Resource Team (the "STAR
Team"). The STAR Team is made up of leading electrophysiologists, who are
recognized as experts in the use of biomedical devices for the management and
treatment of cardiac arrhythmias. The following persons are members of the STAR
Team: David G. Benditt, M.D.; Francis E. Marchlinski, M.D.; Sanjeev Saksena,
M.D.; John F. Swartz III, M.D.; and Patrick J. Tchou, M.D.
Options to purchase 45,000 shares of Common Stock have been granted to
each member of the STAR Team.
(b) SECTION 16(A) OF THE EXCHANGE ACT BENEFICIAL OWNERSHIP REPORTING
COMPLIANCE
The information under the caption "Section 16(a) of the Exchange Act
Beneficial Ownership Reporting Compliance" in the Company's 1996 Proxy Statement
is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information under the captions "Executive Compensation and Other
Benefits" and "Election of Directors -- Compensation of Directors" in the
Company's 1996 Proxy Statement, with respect to executive compensation, is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information under the caption "Principal Shareholders and
Beneficial Ownership of Management" in the Company's 1996 Proxy Statement, with
respect to security ownership of certain beneficial owners and management, is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K.
(a)1. FINANCIAL STATEMENTS OF REGISTRANT
The following items are included in this Report by reference to the
Registrants' 1996 Annual Report, excerpts of which are attached hereto as
Exhibit 13.1 (page numbers refer to such pages in the 1996 Annual Report):
Financial Statements: Page:
Independent Auditors' Report.........................................14
Balance Sheets as of July 31, 1996 and 1995..........................14
Statements of Operations for the
years ended July 31, 1996, 1995 and 1994.............................15
Statements of Shareholders' Equity (Deficit) for the
years ended July 31, 1996, 1995 and 1994.............................16
Statements of Cash Flows for the
years ended July 31, 1996, 1995 and 1994.............................17
Notes to Financial Statements................................... 18-20
(a)2. FINANCIAL STATEMENT SCHEDULES OF REGISTRANT
Financial statement schedules are omitted because of the absence of
the conditions under which they are required or because the information required
is included in the consolidated financial statements or notes thereto.
(A)3. EXHIBITS
Reference is made to the Exhibit Index hereinafter contained, at pages
23 through 26 of this Report.
A copy of any exhibits listed or referred to herein will be furnished
at a reasonable cost to any person who was a shareholder of the Company as of
October 14, 1996, upon written request from any such person. Requests should be
sent to: David L. Christofferson, Vice President, Chief Financial Officer and
Secretary, Angeion Corporation, 3650 Annapolis Lane, Suite 170, Minneapolis, MN
55447-5434.
The following is a list of each management contract or compensatory
plan or arrangement required to be filed as an exhibit to this Annual Report on
Form 10-K pursuant to Item 14(a)(3):
A. 1988 Stock Option Plan (incorporated by reference to Exhibit 10
contained in the Annual Report on Form 10-K for the year ended
April 30, 1988).
B. 1989 Omnibus Stock Option Plan, as amended effective May 16, 1989
(incorporated by reference to Exhibit 10.2 contained in the Annual
Report on Form 10-K for the year ended July 31, 1990).
C. 1991 Stock Incentive Plan (incorporated by reference to Exhibit 99.1
contained in the Registration Statement on Form S-8
(File No. 33-81594)).
D. Non-Employee Director Plan (incorporated by reference to Exhibit 10.3
contained in the Annual Report on Form 10-K for the year ended
July 31, 1992).
E. 1993 Stock Incentive Plan (incorporated by reference to Exhibit 99.1
contained in the Company's Registration Statement on
Form S-8 (File No. 333-04189).
F. 1994 Non-Employee Director Option Plan (incorporated by reference to
Exhibit 10.23 contained in the Annual Report on Form 10-K for the year
ended July 31, 1994).
G. Employment Agreement with Whitney A. McFarlin, effective as of
September 15, 1996 (filed herewith electronically).
H. Employment Agreement with David L. Christofferson dated April 20, 1993
(incorporated by reference to Exhibit 10.21 contained in the Annual
Report on Form 10-K for the year ended July 31, 1993).
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the fourth quarter of the
fiscal year ended July 31, 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ANGEION CORPORATION
Dated: October 29, 1996 By /s/ Whitney A. McFarlin
-----------------------
Whitney A. McFarlin
Chairman, Chief Executive
Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant on October 29, 1996 in the capacities indicated.
/s/ Whitney A. McFarlin Director, Chairman, Chief Executive Officer
Whitney A. McFarlin (principal executive officer) and President
/s/ David L. Christofferson Vice President, Chief Financial Officer and
David L. Christofferson Treasurer (principal financial officer
and principal accounting officer)
/s/ Joseph C. Kiser, M.D. Director
Joseph C. Kiser, M.D.
/s/ Lyle D. Joyce, M.D., Ph.D. Director
Lyle D. Joyce, M.D., Ph.D.
/s/ Arnold A. Angeloni Director
Arnold A. Angeloni
/s/ Dennis E. Evans Director
Dennis E. Evans
Director
Donald D. Maurer
/s/ Glen Taylor Director
Glen Taylor
<TABLE>
<CAPTION>
ANGEION CORPORATION
EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JULY 31, 1996
<S> <C> <C>
Item No. Item Method of Filing
3.1 Articles of Merger, including Amended and Incorporated by reference to Exhibit 3A contained
Restated Articles of Incorporation in the Company's Registration Statement on Form
8-A (File No. 0-17019).
3.2 Amended Bylaws Incorporated by reference to Exhibit 4.2 contained
in the Company's Registration Statement on Form
S-3 (File No. 333-04993).
4.1 Amended Form of the Company's Common Stock Incorporated by reference to Exhibit 4.3 contained
Certificate in the Company's Registration Statement on Form
S-3 (File No. 333-04993).
4.2 Certificate of Designation of Preferred Stock, Incorporated by reference to Exhibit 4.1 contained
Series A in the Company's Current Report on Form 8-K filed
February 9, 1993.
4.3 Form of Rights Agreement dated as of April 8, Incorporated by reference to Exhibit 4.1 contained
1996 between Angeion Corporation and Norwest in the Company's Current Report on Form 8-K dated
Bank Minnesota, N.A. April 8, 1996.
4.4 Certificate of Designation of Series B Junior Incorporated by reference to Exhibit 4.1 contained
Preferred Stock in the Company's Current Report on Form 8-K dated
April 8, 1996 (Exhibit A to Exhibit 4.1)
10.1 1988 Stock Option Plan Incorporated by reference to Exhibit 10 contained
in the Company's Annual Report on Form 10-K for
the year ended April 30, 1988
10.2 1989 Omnibus Stock Option Plan, as amended Incorporated by reference to Exhibit 10.2
effective May 16, 1989 contained in the Company's Annual Report on Form
10-K for the year ended July 31, 1990.
10.3 Non-Employee Director Plan Incorporated by reference to Exhibit 10.3
contained in the Company's Annual Report on
Form 10-K for the year ended July 31, 1992.
10.4 Development Agreement between AngeLase, Inc. Incorporated by reference to Exhibit 10.7
and Dr. Robert H. Svenson dated January 15, contained in the Company's Annual Report on Form
1991. 10-K for the year ended July 31, 1991.
10.5 Stock Purchase Agreement dated September 21, Incorporated by reference to Exhibit 10.9
1990 relating to the acquisition of XMED, Inc. contained in the Company's Annual Report on Form
10-K for the year ended July 31, 1991.
10.6 Form of Warrant to purchase an aggregate of Incorporated by reference to Exhibit 10.10
250,000 shares dated December 1, 1990. contained in the Company's Annual Report on Form
10-K for the year ended July 31, 1991.
10.7 Warrant dated July 27, 1992 in the name of Incorporated by reference to Exhibit 10.10
Glen Taylor. contained in the Company's Annual Report on
Form 10-Kf or the year ended July 31, 1991.
10.8 CryoLife Joint Venture Agreement for Incorporated by reference to Exhibit 10A contained
Development of Biological Pacemaker in the Company's Annual Report on Form 10-K for
the year ended July 31, 1989.
10.9 Agreement with Jeffrey Isner, M.D. for Laser Incorporated by reference to Exhibit 10B contained
Catheter Technology in the Company's Annual Report on Form 10-K for
the year ended July 31, 1989.
10.10 Stock Purchase Agreement dated September 13, Incorporated by reference to Exhibit 10.10
1990 between Hanrow Financial Group, Ltd. and contained in the Company's Annual Report on Form
the Company 10-K for the year ended July 31, 1990.
10.11 Preferred Stock, Preferred Stock Option and Incorporated by reference to Exhibit 28.1
Subordinated Debenture Purchase Agreement contained in the Company's Current Report on
dated February 4, 1993 between the Company, Form 8-K filed February 9, 1993.
AngeMed, AngeLase and Siemens Pacesetter, Inc.
10.12 Convertible Subordinated Debenture dated Incorporated by reference to Exhibit 28.3
February 4, 1993. contained in the Company's Current Report on
Form 8-K filed February 9, 1993.
10.13 OEM Marketing and Manufacturing Agreement Incorporated by reference to Exhibit 28.4
dated February 4, 1993 between the Company and contained in the Company's Current Report on
Siemens Pacesetter, Inc. Form 8-K filed February 9, 1993.
10.14 License Agreement dated February 4, 1993 Incorporated by reference to Exhibit 28.5
between the Company and Siemens Pacesetter, contained in the Company's Current Report on
Inc. Form 8-K filed February 9, 1993.
10.15 Employment Agreement with Whitney A. McFarlin, Filed herewith electronically.
effective as of September 15, 1996.
10.16 Employment Agreement with David L. Incorporated by reference to Exhibit 10.21
Christofferson dated April 20, 1993. contained in the Company's Annual Report on Form
10-K for the year ended July 31, 1993.
10.17 1991 Stock Incentive Plan Incorporated by reference to Exhibit 99.1
contained in the Company's Registration Statement
on Form S-8 (File No. 33-81594).
10.18 1993 Stock Incentive Plan Incorporated by reference to Exhibit 99.1
contained in the Company's Registration Statement
on Form S-8 (File No. 333-04189).
10.19 1994 Non-Employee Director Option Plan Incorporated by reference to Exhibit 10.23
contained in the Company's Annual Report on Form
10-K for the year ended July 31, 1994.
10.20 Lease Agreement dated January 21, 1991 with Incorporated by reference to Exhibit 10.26
Gopher XI, a Texas limited partnership contained in the Company's Annual Report on Form
10-K for the year ended July 31, 1994.
10.21 Addendum No. 1 to Lease Agreement dated June Incorporated by reference to Exhibit 10.27
26, 1991 contained in the Company's Annual Report on Form
10-K for the year ended July 31, 1994.
10.22 Addendum No. 2 to Lease Agreement dated Incorporated by reference to Exhibit 10.28
February 24, 1992 contained in the Company's Annual Report on Form
10-K for the year ended July 31, 1994.
10.23 Lease Agreement dated September 23, 1992 Incorporated by reference to Exhibit 10.29
contained in the Company's Annual Report on Form
10-K for the year ended July 31, 1994.
10.24 Addendum No. 3 to Lease Agreement dated Incorporated by reference to Exhibit 10.30
September 24, 1992 contained in the Company's Annual Report on Form
10-K for the year ended July 31, 1994.
10.25 Sublease Agreement effective as of October 26, Incorporated by reference to Exhibit 10.31
1994 with Sharpe Endosurgical Corporation contained in the Company's Annual Report on Form
10-K for the year ended July 31, 1994.
13.1 Excerpts from the Company's 1996 Annual Report Filed herewith electronically.
to Shareholders incorporated by reference
herein
23.1 Independent Auditors' Consent Filed herewith electronically.
27.1 Financial Data Schedule Filed herewith electronically.
</TABLE>
EXHIBIT 10.15
EMPLOYMENT AGREEMENT
THIS AGREEMENT is effective as of September 15, 1996 between ANGEION
CORPORATION, a Minnesota corporation (the "Company"), and WHITNEY A. MCFARLIN
(the "Employee").
WHEREAS, the parties wish to provide for the employment of the Employee
by the Company;
NOW, THEREFORE, in consideration of the mutual promises contained
herein, the Company and the Employee, each intending to be legally bound, agree
as follows:
1. Employment. Subject to all of the terms and conditions of this
Agreement, the Company agrees to employ the Employee as the Chief Executive
Officer and President of the Company , and the Employee accepts
this employment.
2. Duties.
(a) The Employee will diligently and conscientiously perform
the duties of Chief Executive Officer and President of the Company
within the general guidelines to be determined by the Board of
Directors of the Company (the "Board"). The Employee will make the best
use of his energy, knowledge and training in advancing the Company's
interests and will not actively be engaged in other employment with any
other entity or concern.
(b) During the term of this Agreement, the Employee will also
serve as a director of the Company and will perform all duties incident
to such service.
3. Term. The Employee's initial term of employment will commence on the
date of this Agreement and will continue for a period of two years, subject to
earlier termination in accordance with Section 4 hereof. Thereafter, the term of
this Agreement will be extended automatically without action by either the
Company or the Employee for consecutive one-year terms, unless either party
gives written notice to the other not to renew such employment within 60 days
before the expiration of the then current term.
4. Termination. Subject to the respective continuing obligations of the
Company and the Employee under Sections 8, 9, 10 and 11 hereof:
(a) This Agreement may be terminated by the Company on 10
days' written notice to the Employee "for cause," with the basis for
termination specified in such notice.
(b) This Agreement may be terminated upon the Employee's death
or Total Disability. For purposes of this Agreement, "Total Disability"
will be as defined in the long-term disability plan of the Company then
in effect or, if no such plan exists, will mean such disability that
prevents the Employee from performing his duties under Section 2 of
this Agreement for a continuous period of 90 days.
(c) This Agreement may be terminated by either the Company or
the Employee at any time upon 30 days' written notice to the Company or
the Employee, as the case may be.
(d) For purposes of this Agreement, "for cause" will mean (i)
dishonesty, fraud, gross misrepresentation, embezzlement or material
and deliberate injury or attempted injury, in each case related to the
Company or its business, (ii) any unlawful or criminal activity of a
serious nature, (iii) any willful breach of duty, habitual neglect of
duty or, if not corrected within 60 days after written notice thereof,
unreasonable job performance, or (iv) a material breach of any
provision of this Agreement.
5. Compensation.
(a) Base Salary. In consideration of the Employee's services
under this Agreement, the Company agrees to pay the Employee an annual
base salary (the "Base Salary"), which will be determined on each
anniversary of this Agreement by the Board in its discretion. The Base
Salary will initially be set at $243,000 and will increase to $255,150
on the first anniversary of this Agreement. Thereafter, the Board will
conduct a performance and salary review at the end of each year of this
Agreement for the purpose of determining the Base Salary for each
ensuing year of this Agreement, which review will be based upon both
individual and corporate performance. The Base Salary will be payable
in accordance with the standard payroll practices of the Company.
(b) Bonuses. During the period commencing on the date hereof
and ending on March 15, 1996, the Employee will diligently work with
the Board to agree upon the milestones and other terms and conditions
to be used in connection with a bonus program for the Employee.
(c) Tax Preparation. During the term of this Agreement, the
Employee will be entitled to receive reimbursement from the Company for
reasonable costs associated with the Employee's annual personal tax
preparation; provided, however, that such reimbursement may not exceed
$3,500 during any year of this Agreement.
(d) Benefit Plans. The Employee will be eligible to
participate in and receive benefits under any other benefit plans or
programs or additional compensation or remuneration plans or programs
of the Company of the type and in an amount comparable to that provided
to other executive officers of the Company; provided, however, that the
Company is not obligated to adopt or continue any such benefit plans or
programs during the term of this Agreement, and the Employee's
participation in any such plans or programs will be subject to the
provisions, limitations and rules applicable to such plans or programs.
In addition to the life insurance provided by the Company to all
employees of the Company, so long as the costs to the Company are
reasonable the Company agrees to provide the Employee with such
additional life insurance as is necessary to provide the Employee at
all times during the term of this Agreement with personal life
insurance benefits totaling $500,000.
(e) Expenses. The Company will pay or reimburse the Employee
for all reasonable expenses (including, without limitation, expenses
for entertainment, travel, personal business education, meals, hotel
accommodations) that the Employee incurs while performing his duties
under this Agreement, provided that the Employee accounts properly for
such expenses to the Company in accordance with Company policies.
(f) Automobile. The Employee will be entitled to an automobile
allowance of $750 per month during the term of this Agreement, plus
reasonable costs for fuel and automobile insurance.
6. Change in Control.
(a) For purposes of this Section 6, a "Change in Control" of
the Company will mean the following:
(i) the sale, lease, exchange or other
transfer, directly or indirectly, of substantially all of the
assets of the Company (in one transaction or in a series of
related transactions) to a person or entity that is not
controlled by the Company;
(ii) the approval by the shareholders of the
Company of any plan or proposal for the liquidation or
dissolution of the Company;
(iii) a merger or consolidation to which the
Company is a party if the shareholders of the Company
immediately prior to effective date of such merger or
consolidation have "beneficial ownership" (as defined in Rule
13d-3 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act")), immediately following the effective
date of such merger or consolidation, of securities of the
surviving corporation representing (A) more than 50%, but not
more than 80%, of the combined voting power of the surviving
corporation's then outstanding securities ordinarily having
the right to vote at elections of directors, unless such
merger or consolidation has been approved in advance by the
Incumbent Directors, or (B) 50% or less of the combined voting
power of the surviving corporation's then outstanding
securities ordinarily having the right to vote at elections of
directors (regardless of any approval by the Incumbent
Directors);
(iv) any person becomes after the effective
date of this Agreement the "beneficial owner" (as defined in
Rule 13d-3 of the Exchange Act), directly or indirectly, of
(A) 20% or more, but not 50% or more, of the combined voting
power of the Company's outstanding securities ordinarily
having the right to vote at elections of directors, unless the
transaction resulting in such ownership has been approved in
advance by the Incumbent Directors, or (B) 50% or more of the
combined voting power of the Company's outstanding securities
ordinarily having the right to vote at elections of directors
(regardless of any approval by the Incumbent Directors);
(v) the Incumbent Directors cease for any
reason to constitute at least a majority of the Board; or
(vi) any other change in control of the
Company of a nature that would be required to be reported
pursuant to Section 13 or 15(d) of the Exchange Act, whether
or not the Company is then subject to such reporting
requirements.
(b) For purposes of this Section 6, the Incumbent Directors
will mean any individual who is a member of the Board on the effective
date of this Agreement and any individual who subsequently becomes a
member of the Board whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least a majority
of the Incumbent Directors (either by specific vote or by approval of
the proxy statement of the Company in which such individual is named as
a nominee for director without objection to such nomination).
7. Payments Upon Termination.
(a) If this Agreement is terminated by the Company pursuant to
Section 4(a) of this Agreement or is terminated by the Employee
pursuant to Section 4(c) of this Agreement, the Employee will be paid
(i) his Base Salary through the date of termination, (ii) any benefits
payable to the Employee pursuant to the terms and conditions of any
benefit plan in which the Employee participated during the term of his
employment, the right to which had vested on the date of his
termination under the terms and conditions of such plans, and (iii) any
unpaid expense reimbursement.
(b) If this Agreement is terminated pursuant to Section 4(b)
of this Agreement, the Employee will be paid (i) his Base Salary
through the end of the month following his death or termination as a
result of Total Disability, (ii) any bonus, determined in accordance
with Section 5(b) of this Agreement, to which the Employee would have
been entitled for the fiscal year in which his death or termination for
Total Disability occurred, pro rated to the end of the month following
his death or termination for Total Disability, (iii) any benefits
payable to the Employee pursuant to the terms and conditions of any
benefit plan in which the Employee participated during the term of his
employment, the right to which had vested on the date of his death or
termination under the terms and conditions of such plans, and (iv) any
unpaid expense reimbursement.
(c) If this Agreement is terminated by the Company pursuant to
Section 4(c) of this Agreement or, following a Change in Control, is
terminated by the Employee pursuant to Section 4(c) of this Agreement
for Good Reason, the Employee (i) will continue to be paid his then
current Base Salary, at the same times and in the same manner as prior
to his termination, for the remainder of the then current term of this
Agreement and for one year thereafter, provided that such payments will
continue only so long as the Employee continues to comply with all of
the terms and conditions of Sections 8, 9 and 10 of this Agreement,
(ii) will be paid any bonus, determined in accordance with Section 5(b)
of this Agreement, to which the Employee would have been entitled for
the entire fiscal year in which he was terminated had his employment
with the Company not been terminated; (iii) will be paid any benefits
payable to the Employee pursuant to the terms and conditions of any
benefit plan in which the Employee participated during the term of his
employment, the right to which had vested on the date of his
termination under the terms and conditions of such plans, and (iv) will
be paid any unpaid expense reimbursement.
(d) For purposes of this Section 7, "Good Reason" will mean
the good faith determination by the Employee, in his sole judgment,
that any one or more of the following events has occurred, without the
Employee's written consent, following a Change in Control:
(i) an adverse change in the Employee's
status or position as an executive of the Company as in effect
immediately prior to the Change in Control, including, without
limitation, any adverse change in the Employee's status or
position as a result of a material diminution in his or her
duties or responsibilities (other than, if applicable, any
such change directly attributable to the fact that the Company
is no longer publicly owned) or the assignment to the Employee
of any duties or responsibilities that, in the Employee's
reasonable judgment, are inconsistent with such status or
position, or any removal of the Employee from or any failure
to reappoint or reelect the Employee to such position (except
in connection with the termination of his employment "for
cause" or as a result of his death or Total Disability or by
the Employee other than for Good Reason); provided, however,
that Good Reason will not include an adverse change in the
Employee's status or position caused by an insubstantial and
inadvertent action that is remedied by the Company promptly
after receipt of notice of such change is given by the
Employee;
(ii) a reduction by the Company in the
Employee's annual Base Salary, or an adverse change in the
form or timing of the payment thereof, as in effect
immediately prior to the Change in Control or as thereafter
increased;
(iii) the failure by the Company to continue
in effect any benefit plan in which the Employee (including,
for purposes of this paragraph, his family or dependents) is
participating at any time during the 90-day period immediately
preceding the Change in Control (or benefit plans providing
the Employee with at least substantially similar benefits)
other than as a result of the normal expiration of any such
benefit plan in accordance with its terms as in effect
immediately prior to the 90-day period immediately preceding
the Change in Control, or the taking of any action, or the
failure to act, by the Company that would adversely affect an
Employee's continued participation in any of such benefit
plans on at least as favorable a basis to such Employee as is
the case immediately prior to the Change in Control or that
would materially reduce the Employee's benefits in the future
under any such benefit plans or deprive an Employee of any
material benefit enjoyed by such Employee immediately prior to
the Change in Control;
(iv) the Company's requiring the Employee to
be based more than 30 miles from where his or her office is
located immediately prior to the Change in Control, except for
required travel pursuant to the Company's business travel
obligations that the Employee undertook on behalf of the
Company during the 90-day period immediately preceding the
Change in Control;
(v) the failure of the Company to obtain an
assumption of the obligations of the Company to perform this
Agreement by any successor to the Company; or
(vi) any material breach of this Agreement
by the Company.
(e) Notwithstanding any other provisions of this Agreement or
any other agreement, contract or understanding heretofore or hereafter
entered into between the Company and the Employee, if any "payments"
(including, without limitation, any benefits or transfers of property
or the acceleration of the vesting of any benefits) in the nature of
compensation under any arrangement that is considered contingent on a
Change in Control for purposes of Section 280G of the Internal Revenue
Code of 1986, as amended (the "Code"), together with any other payments
that the Employee has the right to receive from the Company or any
corporation that is a member of an "affiliated group" (as defined in
Section 1504(a) of the Code without regard to Section 1504(b) of the
Code) of which the Company is a member, would constitute a "parachute
payment" (as defined in Section 280G of the Code), such payments will
be reduced to the largest amount as will result in no portion of such
payments being subject the excise tax imposed by Section 4999 of the
Code; provided, however, that the Employee will be entitled to
designate those payments that will be reduced or eliminated in order to
comply with the foregoing provision.
8. Inventions.
(a) "Inventions," as used in this Section 8, means any
discoveries, improvements, formulae, proprietary rights or data, trade
secrets, shop rights, ideas and know-how (whether or not they are in
writing or reduced to practice) or works of authorship (whether or not
they can be patented or copyrighted) that the Employee makes, authors,
or conceives (either alone or with others) and that:
(i) concern directly the Company's business
or the Company's present or possible future research or
development;
(ii) result from any work the Employee
performs for the Company;
(iii) use the Company's equipment, supplies,
facilities, or trade secret information; or
(iv) the Employee develops during any such
time that Section 2 above obligates him to perform his
employment duties.
(b) The Employee agrees that all Inventions he makes during or
within six months after the term of this Agreement will be the
Company's sole and exclusive property. The Employee will, with respect
to any such Invention:
(i) keep current, accurate, and complete
records, which will belong to the Company and be kept and
stored on the Company's premises while the Employee is
employed by the Company;
(ii) promptly and fully disclose the
existence and describe the nature of the Invention to the
Company in writing (and without request);
(iii) assign (and the Employee does hereby
assign) to the Company all of his rights to the Invention, any
applications he makes for patents or copyrights in any
country, and any patents or copyrights granted to him in any
country; and
(iv) acknowledge and deliver promptly to the
Company any written instruments, and perform any other acts
necessary in the Company's opinion to preserve property rights
in the Invention against forfeiture, abandonment, or loss and
to obtain and maintain letters patents and/or copyrights on
the Invention and to vest the entire right and title to the
Invention in the Company.
The requirements of this subsection 8(b) do not apply to an Invention
for which no equipment, supplies, facility or trade secret information
of the Company was used and which was developed entirely on the
Employee's own time, and (x) which does not relate directly to the
Company's business or to the Company's actual or demonstrably
anticipated research or development, or (y) which does not result from
any work the Employee performed for the Company. Except as previously
disclosed to the Company in writing, the Employee does not have, and
will not assert, any claims to or rights under any Inventions as having
been made, conceived, authored or acquired by the Employee prior to his
employment by the Company.
9. Confidential Information.
(a) "Confidential Information," as used in this Section 9,
means information that is not generally known and that is proprietary
to the Company or that the Company is obligated to treat as
proprietary. This information includes, without limitation:
(i) trade secret information about the
Company and its products;
(ii) "Inventions," as defined in Section
8(a) hereof;
(iii) information concerning the Company's
business, as the Company has conducted it during the last five
years or as it may conduct it in the future; and
(iv) information concerning any of the
Company's past, current, or possible future products,
including (without limitation) information about the Company's
research, development, engineering, purchasing, manufacturing,
accounting, marketing, selling or leasing.
Any information that the Employee reasonably considers or that the
Company treats as Confidential Information will be presumed to be
Confidential Information (whether the Employee or others originated it
and regardless of how he obtained it).
(b) Except as required in his duties to the Company, the
Employee will never, either during or after his employment by the
Company, use or disclose Confidential Information to any person not
authorized by the Company to receive it. When the Employee's employment
with the Company ends, he will promptly turn over to the Company all
records and any compositions, articles, devices, apparatus and other
items that disclose, describe or embody Confidential Information,
including all copies, reproductions and specimens of the Confidential
Information in his possession, regardless of who prepared them.
10. Competitive Activities. The Employee agrees that during his
employment with the Company and, unless the Employee is terminated following a
Change in Control other than for cause, for a period of three years after his
employment with the Company ends:
(a) He will not alone, or in any capacity with another firm:
(i) directly or indirectly engage in any
commercial activity that competes with the Company's business,
as the Company has conducted it during the five years before
the Employee's employment with the Company ends, (A) within
any state in the United States, or (B) within any country in
which the Company directly or indirectly markets or services
products or provides services or reasonably intends during
such period to market or service products or provide services;
(ii) in any way interfere or attempt to
interfere with the Company's relationships with any of its
current or potential customers; or
(iii) employ or attempt to employ any of the
Company's then employees on behalf of any other entity
competing with the Company.
(b) He will, prior to accepting employment with any new
employer, inform that employer of this Agreement and provide that
employer with a copy of this Agreement.
(c) The Employee may, however, accept employment with an
entity competing with the Company so long as the business of such
entity is diversified and, as to a separately managed and operated part
of its business, does not compete with the Company; provided, however,
that prior to accepting such employment, the Employee and such
competing entity will provide the Company with written assurances
satisfactory to the Company that the Employee will not render services
directly or indirectly to any part of such entity's business that
competes with the business of the Company.
11. Conflicting Business. The Employee agrees that he will not transact
business with the Company personally, or as agent, owner, partner or shareholder
of any other entity; provided, however, that the Employee may enter into any
business transaction that is, in the opinion of the Board, reasonable, prudent
or necessary to the Company, so long as any such business transaction is at
arm's-length as though between independent and prudent individuals.
12. No Adequate Remedy. The Employee understands that if he fails to
fulfill his obligations under this Agreement, the damages to the Company would
be very difficult to determine. Therefore, in addition to any other rights or
remedies available to the Company at law, in equity or by statute, the Employee
hereby consents to the specific enforcement by the Company of Sections 8, 9 and
10 of this Agreement through an injunction or restraining order issued by an
appropriate court.
13. Miscellaneous.
(a) Successors and Assigns. Except as provided in the next
sentence, this Agreement may not be assigned without the Employee's
consent, which consent will not be unreasonably withheld. In any event,
the Company may assign this Agreement without the consent of the
Employee in connection with a merger, consolidation, assignment, sale,
or other disposition of substantially all of its assets or business.
(b) Modification. This Agreement may be modified or amended
only by a writing signed by each of the parties hereto.
(c) Governing Law. The laws of the State of Minnesota will
govern the validity, construction, and performance of this Agreement,
without regard to the conflict of laws provisions of any jurisdictions.
Any legal proceeding related to this Agreement will be brought in an
appropriate Minnesota court, and each of the parties hereto hereby
consents to the exclusive jurisdiction of that court for this purpose.
(d) Construction. Wherever possible, each provision of this
Agreement will be interpreted so that it is valid under applicable law.
If any provision of this Agreement is to any extent invalid under
applicable law in any jurisdiction, that provision will still be
effective to the extent it remains valid. The remainder of this
Agreement also will continue to be valid, and the entire Agreement will
continue to be valid in other jurisdictions.
(e) Non-Waiver. No failure or delay by either the Company or
the Employee in exercising any right or remedy under this Agreement
will waive any provision of the Agreement. Nor will any single or
partial exercise by either the Company or the Employee of any right or
remedy under this Agreement preclude either of them from otherwise or
further exercising these rights or remedies, or any other rights or
remedies granted by any law or any related document.
(f) Counterparts. This Agreement may be executed in two or
more counterparts, each of which will constitute an original, but all
of which, when taken together, will constitute one and the same
instrument.
(g) Entire Agreement. This Agreement supersedes all previous
and contemporaneous oral negotiations, commitments, writings, and
understandings among the parties hereto concerning the matters in this
Agreement, including, without limitation, any policy or personnel
manuals of the Company or any of its subsidiaries or affiliates.
(h) Notices. All notices and other communications required or
permitted under this Agreement will be in writing and hand delivered or
sent by registered first-class mail, postage prepaid, and will be
effective upon receipt if hand delivered, and five (5) business days
after mailing if sent by mail, to the following addresses or such other
addresses as either party will have notified the other party:
If to the Company: Angeion Corporation
3650 Annapolis Lane
Plymouth, Minnesota 55447
If to the Employee: Whitney A. McFarlin
460 Peavey Lane
Wayzata, Minnesota 55391
IN WITNESS WHEREOF, the Company and the Employee have executed this
Agreement as of the date first above written.
ANGEION CORPORATION
By: /s/David L. Christofferson
Its: Chief Financial Officer
/s/Whitney A. McFarlin
Whitney A. McFarlin
Financial
- ---------
REVIEW
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION:
- --------------------------------------------------------------------------------
The Company's operations consist of the research and development
efforts of its two divisions, the implantable cardioverter defibrillator group
and the catheter ablation group. These divisions are developing medical devices
to treat various types of arrhythmias (irregular heartbeats). The operations
conducted by these divisions were previously conducted by AngeMed, Inc., and
AngeLase, Inc., the Company's two greater-than-90% owned subsidiaries, which
were merged into the Company. See Note 3 of Notes to Financial Statements.
Effective November 1, 1995, the Company established a European subsidiary,
Angeion Europe Ltd. ("Angeion Europe"), to facilitate clinical studies of its
ICDs and expand its European business activities. The results of its operations
are included in the consolidated financial statements of the Company.
The Company has incurred net operating losses from continuing operations
in each year since its inception in 1986. At July 31, 1996, the Company's
accumulated deficit was $42,367,751. Losses have resulted principally from costs
incurred in the research and development of the Company's products. The Company
has had limited revenue since the sale of 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 studies)
related to its ICD and catheter ablation systems and invest in building its
manufacturing and marketing capabilities. The Company's ability to achieve
profitability is ultimately dependent on obtaining regulatory approvals for its
products, attaining revenue levels which generate operating profits, and
developing the manufacturing capacity to meet these revenue levels. There can be
no assurance that the Company will obtain the required regulatory approvals on a
timely basis, if 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 studies, the extent to which the Company's products
gain market acceptance, operating costs, and competition.
RESULTS OF OPERATIONS:
YEAR ENDED JULY 31, 1996 COMPARED TO 1995:
Net sales increased from $0 in Fiscal 1995 to $2,948,729 in Fiscal 1996.
The increase was due to the initiation of sales of defibrillator products,
primarily to Pacesetter, and sales in connection with European and U.S. clinical
studies.
Manufacturing expenses increased from $0 in Fiscal 1995 to $4,456,152 in
Fiscal 1996. The increase was due to the cost of products sold during the
period, as well as start-up costs associated with the establishment of the
Company's manufacturing operations. Manufacturing costs were higher than net
sales as the Company's sales were not sufficient to cover the overhead
allocation related to the start-up of manufacturing.
Research and development expenses increased from $8,024,455 in Fiscal
1995 to $11,049,462 in Fiscal 1996. This increase of $3,025,007 was due to an
acceleration of research and development activity on the Sentinel series of
implantable cardioverter defibrillators. Research and development activity
related to the development of the Sentinel series accounted for $9,854,448 of
the expense for Fiscal 1996, while the catheter ablation development activities
accounted for $1,195,014 of the expense. Research and development expenses will
continue to increase, reflecting the Company's intent to move these and other
new products through their development and human clinical studies as rapidly as
possible during Fiscal 1997.
Selling, general and administrative expenses increased from $1,640,312 in
Fiscal 1995 to $3,665,156 in Fiscal 1996. This increase of $2,024,844 was
primarily due to an increase in payroll expenses and legal expenses related to
the Company's transition from a development stage company to an operating
company.
Interest income increased from $292,578 in Fiscal 1995 to $1,156,885 in
Fiscal 1996. The increase was due to higher average cash balances during Fiscal
1996, as a result of the two equity offerings closed and warrants exercised
during the year.
Interest expense decreased from $271,162 in Fiscal 1995 to $116,863 in
Fiscal 1996. The decrease was primarily due to the amortization of the remaining
discount on notes payable and interest incurred on the notes payable retired
during 1995. See Note 7 of Notes to Financial Statements.
The net loss for Fiscal 1996 was $15,182,019, or $.66 per share, compared
to a net loss of $9,643,351, or $.58 per share, for Fiscal 1995.
YEAR ENDED JULY 31, 1995 COMPARED TO 1994:
Research and development expenses increased from $5,262,946 in Fiscal
1994 to $8,024,455 in Fiscal 1995. This increase of $2,761,509 was primarily due
to an acceleration of research and development activity on the implantable
cardioverter defibrillator. Research and development activity relating to the
development of an automatic implantable cardioverter defibrillator accounted for
$6,933,950 of the expense for Fiscal 1995, while the catheter ablation
development activities accounted for $1,090,505 of the expense.
During Fiscal 1994, there was also a charge of $1,450,499 representing
the purchase of in-process research and development in connection with the
mergers of AngeLase, Inc., and AngeMed, Inc. into the Company. See Note 3 of
Notes to Financial Statements.
Selling, general and administrative expenses increased from $1,356,216 in
Fiscal 1994 to $1,640,312 in Fiscal 1995. This increase of $284,096 was
primarily due to an increase in payroll expenses and legal expenses.
Interest income increased from $72,250 in Fiscal 1994 to $292,578 in
Fiscal 1995. The increase was due to higher cash balances during Fiscal 1995.
Interest expense increased from $161,185 in Fiscal 1994 to $271,162 in
Fiscal 1995. The increase was primarily due to the amortization of the remaining
discount on notes payable and interest incurred on the notes payable. See Note 7
of Notes to Financial Statements.
Royalty income of $482,853 in Fiscal 1994 resulted from proceeds of
royalty payments on the net sales of AMP.
The net loss for Fiscal 1995 was $9,643,351, or $.58 per share, compared
to a net loss of $7,675,743, or $.72 per share, for Fiscal 1994.
LIQUIDITY AND CAPITAL RESOURCES
- --------------------------------------------------------------------------------
The Company's liquidity needs have related to, and are expected to
continue to relate to, expansion of clinical studies, research and develop-
ment activities of its ICD and catheter ablation divisions, scale-up and
expansion of the Company's manufacturing and marketing activities, general
corporate purposes including working capital, and the acquisition of businesses,
products and technologies. The Company has financed its liquidity needs over the
last three fiscal years through the sale of common stock and other equity
securities, issuance of long-term debt and notes payable and the proceeds from
the sale of AMP.
Net cash used in operating activities was $16,589,613 in Fiscal 1996
compared to $8,566,889 in Fiscal 1995 and $5,151,520 in Fiscal 1994. The cash
used during these periods was primarily related to research and development
activities of the Company's ICD and catheter ablation divisions (including
clinical studies) and, during Fiscal 1996, was also related to the build-up of
inventory and the increase in selling and marketing expenses. These increases
were partially offset by increases in accounts payable and accrued expenses, as
the Company expanded its manufacturing and marketing activities.
The Company continues to expand its patent and trademark portfolio
through internal proprietary development and the acquisition of developed
technologies. The Company's investment in patents and trademarks for Fiscal 1996
totaled $279,170. The Company invested $337,158 and $311,767 in patents and
trademarks in Fiscal 1995 and 1994, respectively. The Company intends to
continue to invest in proprietary technologies.
The Company's expenditures for fixed assets were $3,943,462 for Fiscal
1996 and were $989,351 and $244,254 in Fiscal 1995 and 1994, respectively. Fixed
asset expenditures related primarily to computer equipment, office furniture,
production equipment for the ICD division and research and development
equipment. As the Company expands its ICD production and catheter ablation
research capabilities, fixed asset expenditures are expected to continue to
increase.
At July 31, 1996, the Company had cash and cash equivalents of
$35,183,919, and marketable securities of $7,368,290. In July 1996, the Company
completed a public offering of 4.2 million shares of common stock that resulted
in net proceeds of $27,401,887. In March 1996, an additional $11,630,337 in net
proceeds was received from the exercise of warrants. In August 1995, the Company
completed a public offering of 3.4 million shares of common stock that resulted
in net proceeds of $20,327,045. In September 1994, the Company completed a
public offering of 4.9 million shares of common stock and 4.9 million warrants
that resulted in net proceeds of $10,599,122. See Note 8 of Notes to Financial
Statements.
The Company may need additional capital depending on a number of factors,
including: progress with clinical studies; 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 of businesses, products, and technologies. However, there
can be no assurance that such additional capital would be available on
acceptable terms, if at all, and the failure to obtain any additional capital
would have a material adverse effect on the Company.
The Company has net operating loss carryforwards for financial reporting
and federal income tax purposes of approximately $42,500,000, which can be used
to offset taxable income in future years. Future equity offerings combined with
sales of the Company's equity during the preceding years have caused changes in
ownership under Section 382 of the Internal Revenue Code of 1986, which limits
the use of the Company's net operating loss carryforwards existing as of the
date of the ownership change. Since the Company anticipates continued losses
during the next few years, it is not anticipated that any limitation would have
a material adverse effect on the Company.
For 1997, the Company is required to adopt Statement of Financial
Accounting Standards ("SFAS") No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, and SFAS No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION. SFAS No. 121 prescribes accounting and
reporting standards when circumstances indicate that the carrying amount of an
asset may not be recoverable. Initial application of SFAS No. 121 is not
expected to result in recognition of a cumulative effect of a change in
accounting principle by the Company. SFAS No. 123 prescribes accounting and
reporting standards for all stock-based compensation plans. Since the Company
intends to elect continued recognition of certain stock-based compensation using
the intrinsic value method prescribed under Accounting Principles Board Opinion
No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, no material effect on the
Company's expense recognition is expected.
SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------
The following is a summary of certain financial information with respect to the
Company for each of the years in the five-year period ended July 31, 1996.
<TABLE>
<CAPTION>
YEARS ENDED JULY 31, 1996 1995
STATEMENT OF OPERATIONS DATA:
<S> <C> <C>
Net sales $ 2,948,729 $ 0
Net loss from continuing operations (15,182,019) (9,643,351)
Gain on sale of discontinued operations 0 0
Loss from discontinued operations 0 0
Net loss (15,182,019) (9,643,351)
Net loss per share from continuing operations $ (0.66) $ (0.58)
Net (income) loss per share from discontinued operations 0.00 0.00
Net loss per share $ (0.66) $ (0.58)
Weighted average number of common shares outstanding 22,898,538 16,550,915
AS OF JULY 31, 1996 1995
BALANCE SHEET DATA:
Working capital (deficit) $ 44,935,198 $ 1,669,554
Total assets 55,244,654 5,751,194
Long-term debt, less current installments 1,500,000 1,501,091
Shareholders' equity (deficit) $ 49,463,672 $ 2,980,150
</TABLE>
(WIDE TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Net sales $ 0 $ 137,982 $ 77,615
Net loss from continuing operations (7,675,743) (5,915,558) (4,054,919)
Gain on sale of discontinued operations 0 3,207,120 0
Loss from discontinued operations 0 0 (106,536)
Net loss (7,675,743) (2,708,438) (4,161,455)
Net loss per share from continuing operations $ (0.72) $ (0.57) $ (0.41)
Net (income) loss per share from discontinued operations 0.00 0.31 (0.01)
Net loss per share $ (0.72) $ (0.26) $ (0.42)
Weighted average number of common shares outstanding 10,657,311 10,296,812 9,901,592
AS OF JULY 31, 1994 1993 1992
BALANCE SHEET DATA:
Working capital (deficit) $ (1,175,384) $ 4,692,607 $ 2,989,426
Total assets 4,752,630 7,329,146 5,905,146
Long-term debt, less current installments 1,504,187 1,513,516 76,045
Shareholders' equity (deficit) $ (596,320) $ 5,207,346 $ 4,404,409
</TABLE>
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
The Board of Directors and Shareholders
Angeion Corporation:
We have audited the accompanying consolidated balance sheets of Angeion
Corporation and subsidiary as of July 31, 1996 and 1995, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the years in the three-year period ended July 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Angeion
Corporation and subsidiary as of July 31, 1996 and 1995, and the results of
their operations and their cash flows for each of the years in the three-year
period ended July 31, 1996, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
September 13, 1996
BALANCE SHEETS July 31, 1996 and 1995
<TABLE>
<CAPTION>
Assets 1996 1995
- ------ ------------ ------------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 35,183,919 2,367,764
Short-term investments 7,368,290 0
Accounts receivable:
Trade, less allowance for doubtful accounts of $60,758 in 1996 2,330,742 0
Other 164,009 0
Inventories 3,949,350 398,788
Prepaid expenses and other current assets 159,112 172,955
------------ ------------
Total current assets 49,155,422 2,939,507
Property and equipment, net 4,819,820 1,602,774
Patents and trademarks, net 1,079,785 1,055,229
Other assets 128,869 153,684
------------ ------------
Total assets $ 55,183,896 5,751,194
============ ============
Liabilities and Shareholders' Equity
- ------------------------------------
Current liabilities:
Accounts payable 2,970,237 836,301
Accrued payroll, vacation, and related costs 607,700 238,599
Other accrued expenses 642,287 196,144
------------ ------------
Total current liabilities 4,220,224 1,271,044
Long-term debt 1,500,000 1,500,000
------------ ------------
Total liabilities 5,720,224 2,771,044
------------ ------------
Shareholders' equity:
Convertible preferred stock, series A, $.01 par value
Authorized 1,475,000 shares; issued and outstanding
875,000 shares in 1996 and 1995 8,750 8,750
Common stock, $.01 par value. Authorized 35,000,000 shares;
issued and outstanding 28,641,707 and 17,500,529 shares in 1996 and 1995 286,417 175,005
Additional paid-in capital 91,536,256 29,982,127
Accumulated deficit (42,367,751) (27,185,732)
------------ ------------
Total shareholders' equity 49,463,672 2,980,150
Commitments (Notes 10, 13 and 14)
------------ ------------
Total liabilities and shareholders' equity $ 55,183,896 5,751,194
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
CONSOLIDATED STATEMENTS OF OPERATIONS Years ended July 31, 1996, 1995, and 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $ 2,948,729 0 0
Operating expenses:
Manufacturing 4,456,152 0 0
Research and development 11,049,462 8,024,455 5,262,946
Selling, general and administrative 3,665,156 1,640,312 1,356,216
Merger expense for in-process research
and development 0 0 1,450,499
------------ ------------ ------------
Total operating expenses 19,170,770 9,664,767 8,069,661
------------ ------------ ------------
Operating loss (16,222,041) (9,664,767) (8,069,661)
------------ ------------ ------------
Other income (expense):
Interest income 1,156,885 292,578 72,250
Interest expense (116,863) (271,162) (161,185)
Royalty income 0 0 482,853
------------ ------------ ------------
Other income (expense) 1,040,022 21,416 393,918
------------ ------------ ------------
Net loss $(15,182,019) (9,643,351) (7,675,743)
------------ ------------ ------------
Net loss per common share $ (0.66) (0.58) (0.72)
------------ ------------ ------------
Weighted average number of common shares outstanding 22,898,538 16,550,915 10,657,311
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Years Ended July 31, 1996, 1995 and 1994
Convertible
preferred stock Common stock
------------------------- ----------------------
Number Number
of shares Par value of shares Par value
--------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at July 31, 1993 875,000 $ 8,750 10,322,225 $ 103,222
Shares issued in connection
with merger of subsidiaries 0 0 663,610 6,636
Stock options exercised 0 0 115,530 1,155
Director stock issued 0 0 36,570 366
Stock issued for consulting services 0 0 15,000 150
Compensation expense on
grant of stock options 0 0 0 0
Issuance of common stock warrants 0 0 0 0
Net loss 0 0 0 0
----------- ----------- ----------- -----------
Balance at July 31, 1994 875,000 8,750 11,152,935 111,529
Notes payable converted into
common stock 0 0 761,373 7,614
Shares and warrants issued at
$2.38 per share, net of issuance costs 0 0 4,900,000 49,000
Stock options exercised 0 0 645,805 6,458
Director stock issued 0 0 40,416 404
Compensation expense on
grant of stock options 0 0 0 0
Net loss 0 0 0 0
----------- ----------- ----------- -----------
Balance at July 31, 1995 875,000 8,750 17,500,529 175,005
Shares issued at $6.50 per share,
net of issuance costs 0 0 3,400,000 34,000
Shares issued at $7.00 per share,
net of issuance costs 0 0 4,200,000 42,000
Stock options exercised 0 0 525,828 5,259
Warrants exercised 0 0 2,991,500 29,915
Director stock issued 0 0 11,530 115
Compensation expense on grant
of stock and stock options 0 0 12,320 123
Net loss 0 0 0 0
----------- ----------- ----------- -----------
Balance at July 31, 1996 875,000 $ 8,750 28,641,707 $ 286,417
=========== =========== =========== ===========
</TABLE>
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
Additional Accumulated
paid-in capital deficit Total
--------------- ----------- -----------
<S> <C> <C> <C>
Balance at July 31, 1993 14,962,012 (9,866,638) 5,207,346
Shares issued in connection
with merger of subsidiaries 1,443,863 0 1,450,499
Stock options exercised 4,222 0 5,377
Director stock issued 95,634 0 96,000
Stock issued for consulting services 52,350 0 52,500
Compensation expense on
grant of stock options 67,301 0 67,301
Issuance of common stock warrants 200,400 0 200,400
Net loss 0 (7,675,743) (7,675,743)
----------- ----------- -----------
Balance at July 31, 1994 16,825,782 (17,542,381) (596,320)
Notes payable converted into
common stock 1,427,132 0 1,434,746
Shares and warrants issued at
$2.38 per share, net of issuance costs 10,550,122 0 10,599,122
Stock options exercised 1,038,049 0 1,044,507
Director stock issued 95,596 0 96,000
Compensation expense on
grant of stock options 45,446 0 45,446
Net loss 0 (9,643,351) (9,643,351)
----------- ----------- -----------
Balance at July 31, 1995 29,982,127 (27,185,732) 2,980,150
Shares issued at $6.50 per share,
net of issuance costs 20,293,045 0 20,327,045
Shares issued at $7.00 per share,
net of issuance costs 27,359,887 0 27,401,887
Stock options exercised 1,324,853 0 1,330,112
Warrants exercised 11,911,421 0 11,941,336
Director stock issued 87,885 0 88,000
Compensation expense on grant
of stock and stock options 577,038 0 577,161
Net loss 0 (15,182,019) (15,182,019)
----------- ----------- -----------
Balance at July 31, 1996 91,536,256 (42,367,751) 49,463,672
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended July 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Operating activities:
Net loss $(15,182,019) (9,643,351) (7,675,743)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation expense 726,416 385,453 322,874
Amortization expense 279,429 212,620 178,151
Compensation expense on grant of stock and stock options 665,161 141,446 215,801
Notes payable discount amortization 0 100,200 33,000
Merger expense for in-process research and development 0 0 1,450,499
Changes in operating assets and liabilities:
Accounts receivable (2,494,751) 183,675 70,175
Inventories (3,550,562) (168,577) (90,452)
Prepaid expenses and other current assets 13,843 (66,020) (62,886)
Accounts payable 2,133,936 366,776 101,903
Accrued expenses 818,934 (79,111) 305,158
------------ ------------ ------------
Net cash used in operating activities (16,589,613) (8,566,889) (5,151,520)
------------ ------------ ------------
Investing activities:
Purchase of short-term investments (20,368,290) 0 0
Proceeds from maturities of short-term investments 13,000,000 0 0
Payments for purchases of property and equipment (3,943,462) (989,351) (244,254)
Purchase of other assets (279,170) (337,158) (311,767)
------------ ------------ ------------
Net cash used in investing activities (11,590,922) (1,326,509) (556,021)
------------ ------------ ------------
Financing activities:
Proceeds from issuance of common stock and warrants 47,728,932 10,599,122 200,400
Proceeds from exercise of stock options and warrants 13,271,448 1,044,507 5,377
Proceeds from issuance of notes payable 0 0 2,800,000
Repayments of debt (3,690) (1,509,825) (12,911)
------------ ------------ ------------
Net cash provided by financing activities 60,996,690 10,133,804 2,992,866
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 32,816,155 240,406 (2,714,675)
Cash and cash equivalents:
Beginning of year 2,367,764 2,127,358 4,842,033
------------ ------------ ------------
End of year $ 35,183,919 2,367,764 2,127,358
============ ============ ============
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 116,813 240,031 59,115
============ ============ ============
Supplemental disclosure of noncash investing and financing activities:
During 1995, $1,434,746 of notes payable were converted into common stock.
During 1994, 15,000 shares of common stock valued at $52,500 were issued as compensation for consulting services.
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
CONSOLIDATED NOTES TO
- -------------------------------------------------------------------------------
FINANCIAL STATEMENTS
Years ended July 31, 1996, 1995, and 1994
(1) DESCRIPTION OF BUSINESS
- --------------------------------------------------------------------------------
Angeion Corporation (Angeion) (the Company) is developing arrhythmia and
electrophysiology products.
Effective November 1, 1995, the Company established a European subsidiary,
Angeion Europe Ltd. (Angeion Europe), to facilitate clinical studies of its ICDs
and expand its European business activities.
(2) SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned foreign subsidiary. All intercompany transactions and
balances are eliminated in consolidation.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
on a first in, first out basis.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Equipment and furniture and
fixtures are depreciated using the straight-line method over five to seven
years. Leasehold improvements are depreciated using the straight-line method
over the shorter of the lease term, or the useful life of the asset.
Expenditures for repairs and maintenance are charged to expense as incurred.
PATENTS AND TRADEMARKS
The costs incurred to register patents and trademarks are capitalized as
incurred. Amortization of these costs commences when the related patent or
trademark is filed. The costs are amortized over the estimated useful life of
the patent or trademark.
INCOME TAXES
Under the asset and liability method of accounting for income taxes,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.
REVENUE RECOGNITION
Revenues from sales of products are recognized upon shipment.
NET LOSS PER SHARE
Net loss per share is computed by dividing net loss for the period by the
weighted average number of shares of common stock and common equivalent shares
outstanding during the period. Common equivalent shares representing stock
warrants and options were excluded for Fiscal years 1996, 1995, and 1994 because
of their antidilutive effect.
FOREIGN CURRENCY TRANSLATION
The functional currency and denomination of all sales transactions of
Angeion Europe are the U.S. dollar. Accordingly, the financial statements of
Angeion Europe, which are maintained in the local currency, are remeasured into
U.S. dollars in accordance with Statement of Financial Accounting Standards No.
52, Foreign Currency Translation. All exchange gains or losses from
remeasurement of monetary assets and liabilities that are not denominated in
U.S. dollars are recognized currently in income.
SHORT-TERM INVESTMENTS
The Company accounts for its marketable debt securities in accordance with
the provisions of Statement of Financial Accounting Standards (SFAS) No. 115,
ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES. As of July 31,
1996, the Company's marketable debt securities are classified as
available-for-sale. However, because the maturities of the Company's debt
securities are less than one year, they are reported at amortized cost which
approximates fair value.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMER
Financial instruments that subject the Company to concentration of credit
risk consist principally of cash investments and trade accounts receivable. Cash
in excess of current operating needs is invested in accordance with the
Company's investment policy. This policy emphasizes principal preservation, so
it requires strong issuer credit ratings and limits the amount of credit
exposure from any one issuer or industry.
The Company grants credit primarily to distributors of the Company's
products in the normal course of business. Customer credit worthiness is
routinely monitored and collateral is not normally required. During the year
ended July 31, 1996, $1,966,517 or 67% of the Company's sales were to
Pacesetter, Inc., a St. Jude Medical company (see Note 6). At July 31, 1996,
$1,719,375 or 74% of the Company's accounts receivable were from Pacesetter.
NEW ACCOUNTING PRONOUNCEMENTS
For 1997, the Company is required to adopt Statement of Financial
Accounting Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, and SFAS No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION. SFAS No. 121 prescribes accounting and reporting
standards when circumstances indicate that the carrying amount of an asset may
not be recoverable. Initial application of SFAS No. 121 is not expected to
result in recognition of a cumulative effect of a change in accounting principle
by the Company. SFAS No. 123 prescribes accounting and reporting standards for
all stock-based compensation plans. Since the Company intends to elect continued
recognition of certain stock-based compensation using the intrinsic value method
prescribed under Accounting Principles Board Opinion No. 25, ACCOUNTING FOR
STOCK ISSUED TO EMPLOYEES, no effect on the Company's expense recognition is
expected.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform with the
current year presentation.
(3) MERGER OF SUBSIDIARIES
- --------------------------------------------------------------------------------
On December 20, 1993, AngeMed, Inc. (AngeMed) and AngeLase, Inc.
(AngeLase), greater-than-90% owned subsidiaries of the Company, were merged with
and into the Company (the Mergers), with the Company being
the surviving entity after the Mergers. The fair market value of the Company's
common stock issued in connection with the Mergers was accounted for as the
purchase of in-process research and development and, accordingly, a charge of
$1,450,499 is included in the statement of operations with an offsetting credit
to shareholders' equity.
(4) INVENTORIES
- --------------------------------------------------------------------------------
Inventories consisted of the following at July 31, 1996:
Raw materials $ 2,921,643
Work-in-process 683,986
Finished goods 343,721
- --------------------------------------------------------------------------------
$ 3,949,350
================================================================================
Inventories as of July 31, 1995, consisted primarily of raw materials.
(5) PROPERTY AND EQUIPMENT
- --------------------------------------------------------------------------------
At July 31 property and equipment consisted of the following:
1996 1995
- --------------------------------------------------------------------------------
Production equipment $1,735,684 630,953
Furniture and fixtures 594,276 177,365
Computer equipment 2,735,887 848,906
Research and development
equipment 1,024,481 750,197
Leasehold improvements 599,081 338,526
- --------------------------------------------------------------------------------
6,689,409 2,745,947
Less accumulated depreciation
and amortization (1,869,589) (1,143,173)
- --------------------------------------------------------------------------------
$4,819,820 1,602,774
================================================================================
(6) ALLIANCE AND LONG-TERM DEBT
- --------------------------------------------------------------------------------
On February 4, 1993, Angeion and Siemens Pacesetter Inc. (Pacesetter),
which was subsequently acquired by St. Jude Medical, entered into an agreement
which provided for an investment by Pacesetter in Angeion and the grant by
Angeion of certain licensing, manufacturing, and marketing rights with respect
to certain of the products being developed by the Company. The investment by
Pacesetter consisted of the purchase of 875,000 shares of Angeion preferred
stock, class A, at $4.00 per share. The preferred stock is convertible at any
time on a one-for-one basis into Angeion common stock. Pacesetter's investment
also includes the purchase of a $1,500,000 convertible subordinated debenture
with an interest rate of 7.16%, interest payable semi-annually, which is
convertible at any time into Angeion common stock at $6.00 per share. The
debenture is due in semi-annual installments of $150,000, beginning July 1, 1998
through July 1, 2003.
(7) NOTES PAYABLE
- --------------------------------------------------------------------------------
During 1994, the Company raised a total of $3,000,000 in the form of 12%
short-term bridge loans (Bridge Financing or Bridge Notes) to fund its
operations until it could complete an equity financing. In connection with such
loans, each lender received a warrant to purchase, at an exercise price of $2.00
per share, that number of shares of common stock equal to 50% of the principal
amount of the loan divided by the exercise price of the warrant. The warrants
issued were valued at $200,400 which was reflected as a discount and was
amortized over the term of the Bridge Notes. During September 1994, $1,434,746
in Bridge Notes, net of discount were converted into common stock and $1,500,000
in Bridge Notes were repaid.
(8) PUBLIC OFFERING OF COMMON STOCK
- --------------------------------------------------------------------------------
During Fiscal 1996, the Company issued 7.6 million shares of common stock
for net proceeds of $47,728,932. Additionally, warrants issued in connection
with a prior offering were exercised, which generated net proceeds of
$11,630,337. During Fiscal 1995, the Company issued 4.9 million shares of common
stock and 4.9 million warrants, to purchase one-half of a share of common stock
per warrant, for net proceeds of $10,599,122. The Company has used and will
continue to use net proceeds from the sale of securities for research and
development, leasehold improvements, and general corporate purposes, including
working capital.
(9) SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
STOCK OPTIONS
The Company's shareholders have approved the 1993, 1991, 1989, and 1988
Stock Incentive Plans (the Plans). The Plans provide that incentive stock
options and nonqualified stock options to purchase shares of common stock may be
granted at prices determined by the Compensation Committee, except that the
purchase price of incentive stock options may not be less than 100% of the fair
market value of the stock at date of grant. All options expire not later than
ten years from date of grant.
Shares Range of option
under option price per share
- --------------------------------------------------------------------------------
Balance at July 31, 1993 818,586 $ 0.100 - 9.062
Granted 818,296 1.970 - 3.500
Conversion of subsidiary
options 541,738 0.032 - 2.160
Exercised (115,530) 0.032 - 0.100
Forfeited (54,000) 2.062 - 4.062
- --------------------------------------------------------------------------------
Balance at July 31, 1994 2,009,090 0.032 - 9.062
Granted 703,968 1.970 - 7.000
Exercised (522,174) 0.032 - 5.000
Forfeited (128,581) 0.032 - 3.875
- --------------------------------------------------------------------------------
Balance at July 31, 1995 2,062,303 0.032 - 9.062
Granted 750,251 0.032 -11.062
Exercised (347,933) 0.032 - 8.375
Forfeited (265,873) 0.032 - 9.437
- --------------------------------------------------------------------------------
Balance at July 31, 1996 2,198,748 $ 0.032 -11.062
================================================================================
Under the Plans, options for the purchase of 884,076 shares were exercisable at
July 31, 1996.
During 1996 and 1995, the Company granted options, outside the Plans, to
purchase 300,000 and 272,063 shares, respectively, of common stock at prices
ranging from $2.50 to $9.69 per share. During the same respective periods,
175,395 and 0 options, respectively, were exercised at prices ranging from $2.50
to $3.63. At July 31, 1996, 129,168 of these options were exercisable.
Under the Non-Employee Director Option Plan options for 12,500 and 63,000
shares were granted at prices ranging from $2.44 to $6.94 during 1996 and 1995,
respectively. Options for 2,500 and 0 shares at a price of $2.44 were exercised
during the same respective periods. At July 31, 1996, options for 73,000 shares
at prices ranging from $2.44 to $6.94 were outstanding and exercisable under
this plan. In connection with this plan, annual stock grants of common stock,
valued at $16,000, also were awarded to each non-employee director.
WARRANTS
In connection with the issuance of a note payable to a shareholder in
Fiscal 1992, the Company issued a warrant to such shareholder to purchase 75,000
shares of common stock at $2.50 per share. This warrant expires on July 27,
1999.
In connection with the Bridge Financing (see Note 7), warrants to purchase
835,000 shares of common stock were issued at an exercise price of $2.00 per
share. These warrants expire on June 8, 1997. During 1996, warrants for 155,500
shares of common stock were exercised. At July 31, 1996, 679,500 shares were
outstanding.
NON-CASH COMPENSATION
During the years ended July 31, 1996, 1995 and 1994, the Company granted
in-the-money stock options and stock grants to employees, directors and
consultants in lieu of cash compensation, which amounted to $665,161, $141,446
and $215,801, respectively. For securities issued to employees, expense was
recognized for the stock and stock option grants based on the intrinsic value
method in accordance with APB Opinion 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES. For stock issued to non-employees, expense was recognized based on
fair value of securities granted.
SHAREHOLDER RIGHTS PLAN
On April 8, 1996, the Board of Directors declared a dividend distribution
of one common stock purchase right (a "Right") for each share of the Company's
common stock outstanding on April 30, 1996, and one Right for each common share
into which Series A preferred stock are convertible. Each Right would entitle
shareowners to buy one one-thousandth share of a new series of preferred stock
at an exercise price of $70.00 per share, subject to adjustment. The Rights will
not be exercisable or separable from the common stock until a party acquires
beneficial ownership of 15 percent or more (or as low as 10 percent as the Board
of Directors may determine) of the Company's common stock or after a person or
group announces an offer, the consummation of which would result in such party
owning 15 percent or more of the common stock. The Rights expire on April 7,
2006, unless redeemed or exchanged by the Company earlier.
(10) LEASES
- --------------------------------------------------------------------------------
The Company leases office and production space under an operating lease.
The lease provides for executory costs which are subject to escalation based on
increases in the lessor's underlying costs. In addition, the Company leases
certain equipment under cancelable operating leases. Rent expense for office and
production space was approximately $246,000, $138,000, and $116,000 for the
years ended July 31, 1996, 1995, and 1994, respectively.
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) are approximately
$501,829, $501,829, and $215,204 in 1997, 1998, and 1999, respectively.
(11) INCOME TAXES
- --------------------------------------------------------------------------------
The Company has a net operating loss carryforward at July 31, 1995, of
approximately $42,500,000 which is available to reduce income taxes payable in
future years. If not used, this carryforward will begin to expire in 2004. Under
the Tax Reform Act of 1986, the utilization of these carryforwards may be
limited as a result of significant changes in ownership.
The actual tax expense differs from the expected tax expense (benefit)
computed by applying the U.S. federal corporate income tax rate of 34% to the
net loss as follows:
1996 1995 1994
- --------------------------------------------------------------------------------
Federal statutory rate (34.0%) (34.0%) (34.0%)
State income taxes, net (6.0) (6.0) (6.0)
Expense on mergers of
subsidiaries 0.0 0.0 6.4
Miscellaneous 0.0 1.0 1.0
Change in valuation
allowance 40.0 39.0 32.6
- --------------------------------------------------------------------------------
Effective income
tax rate 0.0% 0.0% 0.0%
- --------------------------------------------------------------------------------
Deferred taxes, calculated using an effective tax rate of 40% as of July 31
consist of the following:
1996 1995
- --------------------------------------------------------------------------------
Net operating loss
carryforwards $ 17,200,000 10,200,000
Other (32,000) 65,000
- --------------------------------------------------------------------------------
Total net deferred
tax assets 17,168,000 10,265,000
Less valuation allowance (17,168,000) (10,265,000)
- --------------------------------------------------------------------------------
Deferred income taxes $ 0 0
================================================================================
The net deferred assets at July 31, 1996 and 1995, are fully offset by a
valuation allowance. The amount of the valuation allowance will be reviewed
annually.
(12) RETIREMENT SAVINGS PLAN
- --------------------------------------------------------------------------------
The Angeion Corporation Tax Deferred Savings and Employees Stock Ownership
Plan (the Plan) provides for contributions in the form of a salary reduction
cash or deferred arrangement, discretionary matching employer contribution,
discretionary supplemental employer contributions, and voluntary after-tax
contributions by participating employees. Generally, all employees of the
Company who have completed six months of service with the Company are eligible
to participate in the Plan. Contribution expense was insignificant in all years
presented.
(13) ROYALTY COMMITMENTS
- --------------------------------------------------------------------------------
The Company acquired the technology for its continuous-wave laser catheter
system. As part of this acquisition, the Company agreed to pay a royalty of 5%
on sales of patented products incorporating this technology for the life of any
patent on this technology. Additionally, in exchange for a doctor's efforts in
connection with the laser catheter ablation system, the Company has agreed to
pay the doctor and Carolinas Medical Center a royalty, when certain conditions
are met, of 2% and 3%, respectively, on all paid sales of tachycardia devices.
The Company has incurred no royalties through July 31, 1996 related to the above
commitment.
(14) CONTINGENCIES
- --------------------------------------------------------------------------------
The Company is subject to certain claims and lawsuits that have been filed
in the ordinary course of business. It is management's opinion that the
settlement of all litigation would not have a material adverse effect on the
financial position of the Company.
DIVIDENDS
- --------------------------------------------------------------------------------
The Company has not paid any dividends on its common stock. The Company
currently intends to retain any earnings for use in its operations and does not
anticipate paying any cash dividends in the foreseeable future.
PRICE RANGE OF THE COMPANY'S SECURITIES
- --------------------------------------------------------------------------------
The following table sets forth the high and low prices of the Company's common
stock from the third calendar quarter of 1994 through July 31, 1996, as reported
by Nasdaq under the symbol ANGN.
Common Stock
- --------------------------------------------------------------------------------
1996 HIGH Low
July, 1996 $ 7.62 $6.12
Second calendar quarter $12.00 $9.56
First calendar quarter $11.12 $7.62
- --------------------------------------------------------------------------------
1995 HIGH Low
Fourth calendar quarter $9.25 $5.75
Third calendar quarter $8.38 $4.88
Second calendar quarter $4.88 $3.38
First calendar quarter $3.75 $2.50
- --------------------------------------------------------------------------------
1994 HIGH Low
Fourth calendar quarter $3.12 $2.38
Third calendar quarter $3.00 $2.00
As of October 14, 1996, the Company's common stock was held of record by 616
persons. Such record ownership reflects individual and nominee holdings. The
Company's securities are held beneficially by more than 13,802 persons.
Effective as of October 19, 1995, the Company's common stock began trading on
the Nasdaq National Market.
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Angeion Corporation:
We consent to incorporation by reference in the Registration Statements (Nos.
333-04189, 33-88882, 33-56784 and 33-81594) on Form S-8, Registration Statements
(Nos. 333-03007, 33-45600, 33-85902 and 33-80274) on Form S-3, and Registration
Statement (No. 33-82084) on Form S-2 of Angeion Corporation of our report dated
September 13, 1996, relating to the balance sheets of Angeion Corporation and
subsidiary as of July 31, 1996 and 1995, and the related statements of
operations, shareholders' equity, and cash flows for each of the years in the
three-year period ended July 31, 1996, which report is incorporated by reference
in the July 31, 1996 annual report on Form 10-K of Angeion Corporation.
/s/ KPMG Peat Marwick LLP
Minneapolis, Minnesota
October 29, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-END> JUL-31-1996
<CASH> 35,183,919
<SECURITIES> 7,368,290
<RECEIVABLES> 2,494,751
<ALLOWANCES> 60,758
<INVENTORY> 3,949,350
<CURRENT-ASSETS> 49,155,422
<PP&E> 6,689,409
<DEPRECIATION> 1,869,589
<TOTAL-ASSETS> 55,183,896
<CURRENT-LIABILITIES> 4,220,224
<BONDS> 0
0
8,750
<COMMON> 286,417
<OTHER-SE> 49,168,501
<TOTAL-LIABILITY-AND-EQUITY> 55,183,896
<SALES> 2,948,729
<TOTAL-REVENUES> 2,948,729
<CGS> 4,456,152
<TOTAL-COSTS> 4,456,152
<OTHER-EXPENSES> 14,714,618
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 116,863
<INCOME-PRETAX> (15,182,019)
<INCOME-TAX> 0
<INCOME-CONTINUING> (15,182,019)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,182,019)
<EPS-PRIMARY> (.66)
<EPS-DILUTED> 0
</TABLE>
