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UNITED STATES
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, 1997 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 ____________
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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
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 the 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. [ ]
As of October 17, 1997, 30,695,633 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 $140,769,213.
Portions of the Annual Report to Shareholders for the year ended July 31,
1997 (the "1997 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 November 7, 1997, for the Annual Meeting of Shareholders to be
held December 10, 1997 (the "1997 Proxy Statement"), are incorporated by
reference into Part III to the extent specific pages are referred to herein.
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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 customers'
specifications while it devoted its research and development capabilities to
designing proprietary products.
In July 1988, Angeion merged with Verde Ventures Incorporated, a public
company organized in March 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 to
assume responsibility for the intensified research efforts on the development of
a laser catheter ablation system, and in October 1990, the Company acquired a
company engaged in the development of an automatic implantable cardioverter
defibrillator ("ICD") system. In September 1992, the Company sold all of the
assets of the Company's medical accessory products division to Burron Medical
Inc., a wholly-owned subsidiary of B. Braun of America, Inc., and focused its
resources on development of its laser catheter ablation system and ICD system.
In February 1993, the Company and Siemens Pacesetter, Inc.
("Pacesetter"), at the time a subsidiary of Siemens Corporation and subsequently
acquired by St. Jude Medical, Inc. ("St. Jude"), entered into a strategic
relationship pursuant to which Angeion sold to Pacesetter shares of Series A
Convertible Preferred Stock and a convertible subordinated debenture, and
entered into certain OEM and license agreements. In May 1997, St. Jude acquired
Ventritex, Inc. and, in connection with such acquisition, the Company, St. Jude
and Pacesetter entered into a Cross-License Agreement and terminated their
previous OEM and license agreements. See "Narrative Description of
Business--Manufacturing" and "--Intellectual Property." In May 1997, Pacesetter
converted the shares of Series A Convertible Preferred Stock and the convertible
subordinated debenture into shares of Common Stock.
In October 1997, the Company entered into a strategic relationship with
Synthelabo, a French pharmaceutical company, pursuant to which Synthelabo will
purchase Common Stock and warrants from the Company under an Investment and
Master Strategic Relationship Agreement (the "Investment Agreement"). In
addition, ELA Medical, S.A., a subsidiary of Synthelabo, will market the
Company's products in European and Japanese markets and ELA Medical, Inc.,
another subsidiary of Synthelabo, will form a U.S. joint venture with the
Company that will combine the two companies' sales and marketing functions and
serve as the U.S. selling organization for both companies. The closing of the
Investment Agreement between the Company and Synthelabo is subject to the
expiration or early
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termination of the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended. See "Narrative Description of Business --
Recent Developments."
(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, manufactures and markets
products that treat irregular heartbeats (arrhythmias). The Company has
developed the SENTINEL(R) 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"). From September 1996 to March 1997, the Company has
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; received an IDE for and initiated U.S. clinical
studies of the SENTINEL 2010; received CE Mark approval to market its SENTINEL
2011 and 2012 ICD systems in the EU; and received permission to add the SENTINEL
models 2011 and 2012 to its U.S. clinical studies and to expand the number of
centers across the U.S. to 35. In June 1997, the Company submitted its
application for Pre-Market Approval ("PMA") for the SENTINEL 2000 and the
SENTINEL 2010 series to the FDA. In October 1997, Angeion initiated U.S.
clinical studies of its series of ANGEPASS(TM) single-pass lead systems as part
of FDA approved supplement to the Company's previous approved IDE for the two
SENTINEL ICDs and ANGEFLEX leads. Through this supplement, the Company has
approval to perform clinical trials of two ANGEPASS series of leads.
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 received an IDE from the FDA for its
RF catheter ablation system. The Company initiated limited clinical studies for
its ANGECOOL(TM) RF catheter ablation system in April 1997 and completed this
phase in August 1997. The Company is in the process of applying to the FDA for
permission to expand the clinicals to more patients and centers across the U.S.
RECENT DEVELOPMENTS
In October 1997, the Company entered into an Investment and Master
Strategic Relationship Agreement ("Investment Agreement") with Synthelabo, a
French pharmaceutical company, pursuant to which Synthelabo will purchase $15
million in Common Stock at a price equal to a premium to market
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price formula with respect to the Common Stock as of the initial closing. In
addition, Synthelabo will purchase up to an additional $15 million in Common
Stock (in installments of $5 million) at a price equal to a premium to the then
current market price formula with respect to the Common Stock upon the
achievement by the Company of certain milestones. In connection with each
installment of Common Stock purchased, Synthelabo will also receive warrants to
purchase, at the applicable investment price, shares of Common Stock equal to
60% of the number of shares purchased. The Investment Agreement generally limits
Synthelabo's ownership of Common Stock to 19.9% of the total issued and
outstanding shares, subject to anti-dilution adjustments. As part of this
investment, Synthelabo will be entitled to certain pre-emptive rights,
registration rights and anti-dilution protection and will be subject to certain
standstill provisions. Following consummation of the Investment Agreement,
Synthelabo will also be entitled to nominate one person to serve as a Director
of the Company.
In connection with the Investment Agreement, the Company also will
enter into a Manufacturing and Supply Agreement with ELA Medical, S.A., a
subsidiary of Synthelabo ("ELA Medical"), which provides for the marketing and
sale of the Company's ICD systems and support equipment by ELA Medical in the
European and Japanese markets. The Company's ICD products will be marketed under
ELA Medical's trademarks by ELA Medical's established global direct sales and
marketing network which services over 20 countries in these territories. In
addition, the Company will enter into a Limited Liability Company Operating
Agreement with ELA Medical, Inc., another subsidiary of Synthelabo, which will
provide for the formation of a U.S.-based joint venture company that will
combine the two companies' sales and marketing functions and serve as the U.S.
selling organization for both companies. The joint venture company will offer a
complete line of cardiac rhythm management products, following U.S. regulatory
approvals, including single and dual chamber ICD systems for the rapidly growing
tachyarrhythmia management market, as well as already U.S. market-released
pacemaker and lead systems for the established bradyarrhythmia market. The joint
venture company will be owned 50% by each party, and each party will have the
right to designate one-half of the Directors. Dennis L. Sellke, a current
Director of the Company, will cease to serve as a Director of the Company and
will serve as the Chief Executive Officer of the joint venture company,
reporting to the joint venture company's Board of Directors. The closing of the
Investment Agreement between the Company and Synthelabo and the joint venture
relationship is subject to the expiration or early termination of the waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.
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, among other things, 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 a 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.
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Industry analysts estimate that in excess of 1.0 million people in the
U.S. have some form of VT and that more than 400,000 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
a 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
permanently implanted in the patient and is connected to the heart via wires
called 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
required more energy than needed to treat the VT or VF; and had short device
lifespans, 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 implantation).
The worldwide market for ICDs and defibrillator leads has grown from
$160 million in 1990 to over $850 million in 1996, representing a compounded
annual growth rate in excess of 30%. It is estimated that in 1996 approximately
34,000 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 increased survival rate for those
experiencing SCD episodes; and (v) rapidly advancing ICD technology.
These market estimates may be revised upward based upon the results of
a 1996 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.
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The National Institutes of Health ("NIH") study on antiarrhythmics
versus implantable defibrillators ("AVID") provided further data that ICDs were
demonstrably more effective than antiarrhythmic drugs in treating patients with
life-threatening tachyarrhythmias. Researchers found 38% fewer deaths in the
first year with patients implanted with an ICD, 26% fewer deaths in the second
year and 30% fewer deaths in the third year.
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 400,000 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 has the
advantage 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.
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 $60 million in
1996, 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 incorporating RF energy for the
treatment of SVT is growing because atrial ablation sites are more easily
accessible using current catheter technology and the RF energy is able to
penetrate the thinner tissue of the atria. The Company believes a significant
market potential for catheter ablation devices also exists in the treatment of
VT using laser catheter ablation. Although the ventricular wall is too thick to
be fully penetrated by RF 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 alone 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.
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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 competitive
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(TM) Tuned(TM) biphasic waveform, demonstrated in clinical studies to lower
defibrillation thresholds. The SENTINEL 2000 features a programmable Hot Can(R)
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 implanted in human patients as part of a limited clinical study in Bonn,
Germany. 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 market its SENTINEL 2000 model in all EU
countries, subject to limited regulations in certain countries.
In March 1996, following IDE approval, the Company initiated U.S.
clinical studies of the SENTINEL 2000. This IDE allowed 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 and ANGEFLEX lead system as part
of its expanded U.S. clinical studies. In March 1997, the Company received
approval to expand its SENTINEL clinicals to a total of 35 centers nationwide.
In June 1997, the Company submitted its PMA application for the SENTINEL 2000
and the SENTINEL 2010 series and ANGEFLEX lead system to the FDA. In September
1997, the Company received FDA approval to supplement its current IDE to include
clinical trials of two ANGEPASS single-pass lead systems. See "Government
Regulation."
<PAGE>
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. In March 1997, as part of
the FDA's approval to expand the SENTINEL clinical studies, SENTINEL models 2011
and 2012 were added to the U.S. clinical studies.
2020 SERIES AND 2030 SERIES. The 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. The
Company expects to begin human clinical trials of the 2020 ICD by the end of
calendar 1997. Clinical trials on the 2030 ICD are expected to begin in 1998.
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) dual chamber pacing and sensing; (ii) smaller size and
weight; (iii) advanced lower defibrillation energy waveform; (iv) pulse
pretreatment therapy; (v) advanced anti-tachyarrhythmia pacing; (vi) rate
response; and (vii) 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 awaiting FDA Pre-Market
Approval.
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. 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 will be available in three sizes
to accommodate various patient needs. The ANGEPASS will offer smaller size and
flexibility in a single-pass configuration. Initial development, testing and
pre-clinical studies of this lead system have been completed. The Company
initiated U.S. clinical trials of this series of lead systems in October 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.
<PAGE>
COOLED TIP RF ABLATION CATHETER SYSTEM. The Company's cooled tip
ANGECOOL 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 tip through which saline solution 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.
In August 1997, the Company successfully completed a 20-patient
feasibility study at two centers, using the ANGECOOL RF ablation catheter to
treat SVT. The Company is currently developing a clinical protocol that will be
submitted to the FDA for approval to expand the RF clinical studies.
EXPANDED PRODUCT OFFERINGS
The Company is also evaluating several different ablation concepts that
may be used for the treatment of cardiac arrhythmias. These concepts include:
1. Cooled RF Linear Catheter Ablation System that is targeted at
the treatment of atrial fibrillation and atrial flutter using
RF energy to create long linear lesions in the atrium.
2. Cooled Laser Catheter Ablation System that is targeted at
treatment of VT using laser energy to create contiguous
transmural lesions in the ventricles.
3. Visual Ablation System that is targeted at treatment of VT
using a visually-assisted laser ablation technology. This type
of system uses an imaging fiber bundle to visually identify
the appropriate site for ablation. Following identification of
the site, a laser fiber is used to ablate the tissue.
The Company is currently evaluating possible partnerships with other
companies to develop and distribute ablation accessory products and mapping
catheters.
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. Four companies, Medtronic, Inc.
("Medtronic"), Cardiac Pacemakers, Inc., a division of Guidant Corporation
("CPI"), Sulzer Intermedics, Inc., a company of Sulzer Medica ("Intermedics")
and Ventritex, Inc. ("Ventritex"), a wholly-owned subsidiary of St. Jude,
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).
<PAGE>
The Company believes, based upon industry analyses and attendance by
management at industry meetings, that its product pipeline 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 may 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 for VT, 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'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 ("GMP") 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.
<PAGE>
In August 1996, the Company successfully completed an ISO 9002 surveillance
audit of its Minneapolis facility. The Company is preparing for ISO 9001 audits
in the fall of 1997.
The manufacturing process for the Company's products consists primarily
of the 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.
SALES AND MARKETING
The Company intends to market and sell its ICD products on a worldwide
basis through primarily two channels: (i) internationally, through its proposed
strategic relationship with ELA Medical, S.A., a subsidiary of Synthelabo, a
French pharmaceutical company (see discussion below), and (ii) in the United
States, through its proposed joint venture company between the Company and ELA
Medical, Inc., another subsidiary of Synthelabo. In addition to these primary
channels, Angeion has retained the rights to market its ICD products in Canada,
Mexico and Latin America and, upon consummation of its strategic relationship
with Synthelabo, will obtain the rights to market ELA Medical's products in
these same markets. The Company currently has no specific marketing plans for
selling either its own or ELA Medical's products in these markets. Additionally,
the Company currently has no specific marketing plans for selling its catheter
ablation products.
In October 1997, the Company entered into a strategic relationship with
Synthelabo and ELA Medical that is conditioned upon the expiration or early
termination of the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended. Upon the closing of the strategic
relationship, the Company will enter into a Manufacturing and Supply Agreement
("Supply Agreement") with ELA Medical, S.A. pursuant to which the Company will
grant ELA Medical exclusive sales and marketing rights to Angeion's ICD products
in Europe and Japan. ELA Medical will market the Company's ICD products using
ELA Medical's trademarks and its established global direct sales and marketing
network, which currently services over 20 countries in Europe and Japan. The
initial term of the Supply Agreement will be seven years, and ELA Medical may,
at its sole option, renew the Supply Agreement for an additional three-year term
if the minimum aggregate purchase requirement has been met or waived in all
territories during all years prior to the end of the initial seven-year term.
In addition, upon the closing of the strategic relationship, the
Company and ELA Medical, Inc. will form a U.S.-based joint venture company that
will combine the two companies' sales and marketing functions and serve as the
U.S. selling organization for both parties. The joint venture company will offer
a complete line of cardiac rhythm management products, including single and dual
chamber ICD systems for the rapidly growing tachyarrhythmia management market as
well as pacemaker and lead systems for the established bradyarrhythmia market.
The parties anticipate that the joint venture company will be a limited
liability company that will be owned 50% by each party. The property, affairs,
and business of the joint venture company will be managed by or under the
direction of a six-person Board of Directors, three of whom will be appointed by
Angeion and three of whom will be
<PAGE>
appointed by ELA Medical, Inc. The parties have agreed that Dennis L. Sellke, a
current Director of the Company, will cease to serve as a Director of the
Company and will serve as the Chief Executive Officer of the joint venture
company, reporting to the joint venture company's Board of Directors. The
initial term of the U.S.-based joint venture will be seven years, with an
automatic three-year extension, unless either member notifies the other that
they do not wish to extend the term of the joint venture beyond the initial
seven-year term.
By establishing the joint venture in the United States and granting
exclusive sales and marketing rights for Angeion's ICD products to ELA Medical
S.A. in the European and Japanese markets, Angeion hopes to increase sales of
its ICD products and gain an acceptable market share position in these markets.
While the Company anticipates that these collaborative efforts with ELA Medical
will significantly improve the Company's ability to sell its ICD products on a
worldwide basis, there can be no assurance that these efforts will be successful
or result in increased sales. Additionally, there can be no assurance that the
strategic relationship between the Company and ELA Medical will be completed or
that the U.S.-based joint venture company will ever be formed.
RESEARCH AND DEVELOPMENT
Research and development expenditures for continuing operations were
$16,953,294, $11,049,462 and $8,024,455 in fiscal 1997, 1996 and 1995,
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 89.1%, 89.2% and 86.4% of the Company's research
and development expenditures in fiscal 1997, 1996 and 1995, respectively, were
directly attributable to the 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,
1997, the Company had 85 U.S. issued patents, 12 U.S. patents which have been
allowed but have not yet issued, 22 U.S. patent applications pending, 24 foreign
patent applications pending, and additional U.S. patent applications in
preparation, relating to its research and development products.
Examples of 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 Biphasic Waveform, a more efficient
biphasic waveform that lowers defibrillation energy thresholds; (iii) the HOT
CAN electrode system, which uses the device's 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 ANGECOOL
RF catheter utilizes a patented porous metal electrode through which saline is
perfused during the ablation procedure. The Company's ANGELASE(TM) 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(R), for identifying the appropriate arrhythmogenic
tissue. There can be no assurance, however, that these or any other 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
<PAGE>
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 Cross-License Agreement with St. Jude, the Company and
St. Jude have agreed to a royalty-free, worldwide, nonexclusive,
nontransferable, nonsublicensable cross-license covering a total of more than
1,000 patents. The Cross License Agreement provides Angeion with access to more
than 840 arrhythmia management patents in St. Jude's portfolio, as well as any
patent applications filed as of the effective date of the agreement, including
all of the related intellectual property of St. Jude and its Pacesetter,
Ventritex and Telectronics subsidiaries. In turn, St. Jude has access to
Angeion's portfolio of about 150 patents and patent applications as of the
effective date of the agreement.
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 Health Care Financing Administration
("HCFA"), which determines Medicare reimbursement levels, private health
insurers, health maintenance organizations and other third-party payors. Payors
are increasingly challenging the 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
<PAGE>
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 series of ICDs
and the RF and laser catheter ablation systems are Category B devices and are
eligible for reimbursement 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, labeling, 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, 2010, 2011 and 2012 systems,
ANGEFLEX lead systems, and both the ANGECOOL 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 extensive 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.
<PAGE>
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 intended 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. In April 1997,
the Company received CE Mark approval of the SENTINEL 2011 and 2012 ICD Systems.
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 of 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 October 8, 1997, the Company had 238 full-time employees,
including 20 engaged in administration, 67 in manufacturing, 104 in research and
development, 20 in sales and marketing and 27 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 progress of product development and clinical trials;
(2) the timing of regulatory approvals;
(3) the ability of the Company to build effective distribution
channels;
(4) the availability of third party reimbursement;
<PAGE>
(5) the extent to which the Company's products gain market
acceptance;
(6) litigation regarding patent and other intellectual property
rights;
(7) the ability to obtain additional capital on acceptable terms;
(8) fluctuations in operating results;
(9) the ability of the Company to retain key personnel; and
(10) the introduction of competitive products by others.
ITEM 2. PROPERTIES.
The Company leases approximately 57,000 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, as
amended, extends through February 28, 1998. In June 1997, the Company entered
into a lease agreement for approximately 89,000 square feet of office and
manufacturing space in Brooklyn Park, Minnesota. The term of this lease
agreement commences on the date upon which the landlord finishes construction of
the premises and obtains a Certificate of Occupancy, which the Company
anticipates will be on March 1, 1998. This new lease agreement expires on
February 28, 2008, and the Company has the option to extend the term of the new
lease for one to two additional five-year terms. The monthly base rent for the
first five years under the terms of the new lease agreement is approximately
$41,700 plus the Company's pro rata share of operating expenses and real estate
taxes.
ITEM 3. LEGAL PROCEEDINGS.
In 1996, the Company and Pacesetter, Inc. jointly sued Cardiac
Pacemakers, Inc., in United States District Court, District of Minnesota, for
patent infringement of Pacesetter's bradycardia patents and the Company's
tachycardia patents. In connection with the Cross-License Agreement with St.
Jude, pursuant to a court order in July 1997, the Company is now the sole party
to the litigation involving the Company's tachycardia patents. Discovery is
scheduled to be completed by December 1997 and trial is scheduled for March
1998.
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.
<PAGE>
ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY.
The executive officers of the Company, their ages and the offices held,
as of October 30, 1997, are as follows:
NAME AGE TITLE
---- --- -----
Whitney A. McFarlin 57 Chairman of the Board, President and Chief
Executive Officer
David L. Christofferson 60 Vice President, Chief Financial Officer and
Secretary
Michael J. Kallok, Ph.D. 49 Vice President of Research
Robert S. Garin 55 Vice President of Human Resources
Jennifer M. Marrone 41 Vice President of Regulatory and Clinical
Affairs
Gary Payment 54 Vice President of Operations
T.V. Rao 54 Vice President of Sales and Marketing
Terrence W. Bunge 44 Vice President and General Manager of
Interventional Technologies
William J. Rissmann 48 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, was elected to the Board of Directors of
Angeion Europe Ltd. in December 1995 and was elected to the Board of Directors
of Angeion GmbH in October 1996. 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.
MICHAEL J. KALLOK, PH.D. joined the Company in November 1996 as Vice
President of Research. Prior to joining the Company, Dr. Kallok served in a
variety of positions over a 17 year period with Medtronic. From 1992 to November
1995, Dr. Kallok served as Director of Research, Clinical Research and
Regulatory Affairs. From 1988 to 1992, Dr. Kallok served as Director of
Medtronic's Physiological Research Laboratories.
<PAGE>
ROBERT S. GARIN joined the Company as Vice President of Human Resources
in January 1995. In October 1996, Mr. Garin was elected to the Board of
Directors of Angeion GmbH, and in December 1995, Mr. Garin was elected to the
Board of Directors of Angeion Europe Ltd. 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 October 1996, Mr. Rao was elected Chairman of the Board of
Directors of Angeion GmbH, and in December 1995, Mr. Rao was elected Chairman of
the Board of Directors of Angeion Europe Ltd. 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.
TERRENCE W. BUNGE joined the Company in February 1997 as Vice President
and General Manager of Interventional Technologies. Prior to joining the
Company, Mr. Bunge served in a number of positions with Medtronic over a period
of 16 years. From August 1994 to April 1996, Mr. Bunge served as Vice President
- - Far East Business Development for Medtronic. From 1990 to 1996, Mr. Bunge
served as Vice President and General Manager - Software and Instruments
Division. From 1980 to 1990, Mr. Bunge served in a variety of other positions
with Medtronic, including Business Director (Global Marketing Director) - Dual
Chamber Products, Director of Product Development, a Project Manager and a
Design Engineer.
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.
<PAGE>
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 1997 Annual Report
is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA.
The information under the caption "Selected Financial Data" on page 11
of the 1997 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 10 through 11 of the
1997 Annual Report is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated balance sheets of Angeion Corporation and subsidiaries
as of July 31, 1997 and 1996, 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, 1997, together with the related notes and the
independent auditors' report of KPMG Peat Marwick LLP, independent certified
public accountants, all contained on pages 12 through 19 of the Company's 1997
Annual Report, are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
<PAGE>
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 1997 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 established in May 1996 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.
As a supplement to its STAR team, 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 and Board of Directors
concerning the products being developed and their use by health professionals.
The number of Medical Advisors changes from time to time. 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.
(b) SECTION 16(a) OF THE EXCHANGE ACT BENEFICIAL OWNERSHIP REPORTING
COMPLIANCE
The information under the caption "Section 16(a) Beneficial Ownership
Reporting Compliance" in the Company's 1997 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 1997 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 1997 Proxy Statement, with
respect to security ownership of certain beneficial owners and management, is
incorporated herein by reference.
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information under the caption "Certain Transactions" in the
Company's 1997 Proxy Statement, with respect to certain relationships and
related transactions, is incorporated herein by reference.
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' 1997 Annual Report, excerpts of which are attached hereto as
Exhibit 13.1 (page numbers refer to such pages in the 1997 Annual Report):
Financial Statements: Page:
Independent Auditors' Report....................................... 12
Consolidated Balance Sheets as of July 31, 1997 and 1996........... 12
Consolidated Statements of Operations for the
years ended July 31, 1997, 1996 and 1995........................... 13
Consolidated Statements of Shareholders' Equity for the
years ended July 31, 1997, 1996 and 1995........................... 14
Consolidated Statements of Cash Flows for the
years ended July 31, 1997, 1996 and 1995........................... 15
Notes to Consolidated Financial Statements........................16-19
(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
24 through 27 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 17, 1997, 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. After March 1, 1998, requests should be sent to: David L.
Christofferson, Vice President, Chief Financial Officer and Secretary, Angeion
Corporation, 7601 Northland Drive, Brooklyn Park, MN 55428.
<PAGE>
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 (incorporated by reference to Exhibit 10.15
contained in the Annual Report on Form 10-K for the year ended July 31,
1996).
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).
I. Change in Control Agreement dated December 18, 1996 between the Company
and Whitney A. McFarlin (filed herewith).
J. Change in Control Agreement dated December 18, 1996 between the Company
and David L. Christofferson (filed herewith).
K. Form of Change in Control Agreement (filed herewith).
L. Consulting Agreement dated as of August 1, 1997 among the Company, ELA
Medical, S.A. and Dennis L. Sellke (filed herewith).
(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, 1997.
<PAGE>
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, 1997 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, 1997 in the capacities indicated.
/s/ Whitney A. McFarlin Director, Chairman, Chief Executive Officer
- ---------------------------------- and President (principal executive officer)
Whitney A. McFarlin
/s/ David L. Christofferson Vice President, Chief Financial Officer and
- ---------------------------------- Treasurer (principal financial officer and
David L. Christofferson 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
/s/ Donald D. Maurer Director
- ----------------------------------
Donald D. Maurer
/s/ Dennis L. Sellke Director
- ----------------------------------
Dennis L. Sellke
/s/ Glen Taylor Director
- ----------------------------------
Glen Taylor
<PAGE>
ANGEION CORPORATION
EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JULY 31, 1997
<TABLE>
<CAPTION>
Item No. Item Method of Filing
- -------- ---- ----------------
<S> <C> <C>
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 Amendment to the Company's Amended and Restated Incorporated by reference to Exhibit 4.3 contained
Articles of Incorporation in the Company's Registration Statement on Form
S-3 (File No. 333-36005).
3.3 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.
<PAGE>
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 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-K for the year ended July 31, 1991.
10.7 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.
10.8 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.
10.9 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.
10.10 Cross-License Agreement dated April 2, 1997 Incorporated by reference to Exhibit 10.1
among the Company, St. Jude Medical, Inc. and contained in the Company's Quarterly Report on
Pacesetter, Inc. Form 10-Q for the quarter ended April 30, 1997.
10.11 Employment Agreement with Whitney A. McFarlin, Incorporated by reference to Exhibit 10.15
effective as of September 15, 1996. contained in the Company's Annual Report on Form
10-K for the year ended July 31, 1996.
10.12 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.
10.13 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).
10.14 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).
10.15 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.
10.16 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.
10.17 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.
10.18 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.
10.19 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.
<PAGE>
10.20 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.
10.21 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.
10.22 Lease Agreement dated as of June 27, 1997 Filed herewith electronically.
between Ryan Companies US, Inc. and the Company
10.23 Change in Control Agreement dated December 18, Filed herewith electronically.
1996 between the Company and Whitney A.
McFarlin.
10.24 Change in Control Agreement dated December 18, Filed herewith electronically.
1996 between the Company and David L.
Christofferson.
10.25 Form of Change in Control Agreement. Filed herewith electronically.
10.26 Consulting Agreement dated as of August 1, Filed herewith electronically.
1997 among the Company, ELA Medical, S.A. and
Dennis L. Sellke.
10.27 Common Stock Investment Agreement dated as of File herewith electronically.
September 2, 1997 between the Company and
Promethean Investment Group, L.L.C.
13.1 Excerpts from the Company's 1997 Annual Report Filed herewith electronically.
to Shareholders incorporated by reference
herein
21.1 List of Subsidiaries Filed herewith electronically.
23.1 Independent Auditors' Consent Filed herewith electronically.
27.1 Financial Data Schedule Filed herewith electronically.
</TABLE>
EXHIBIT 10.22
LEASE AGREEMENT
This LEASE AGREEMENT, made as of this 27th day of June, 1997, between Ryan
Companies US, Inc. ("Landlord"), and Angeion Corporation ("Tenant");
WITNESSETH, THAT
1.1. PREMISES: Landlord, subject to the terms and conditions hereof, hereby
leases to Tenant certain premises ("Premises") shown crosshatched on the floor
plan attached hereto as Exhibit A, containing approximately 80,000 square feet
in the building to be situated in Brooklyn Park, Minnesota ("Building"). The
square footage of the Premises has been calculated by Landlord's architect by
measuring from the dominant portion of the outside face of the exterior walls of
the Building and from the centerline of the interior common walls of the
Premises. Promptly upon completion of the Premises, Landlord's architect shall
certify to Tenant the square foot area of the Premises. If Tenant fails to
contest the certification within thirty (30) days, the calculation of Landlord's
architect shall be deemed to be final. The Building, the land underlying and
contiguous thereto and all improvements thereon are hereinafter referred to as
the "Project". The land included in the Project is legally described on Exhibit
A. The Project, including the parking lot, drives and other common areas of the
Project, is depicted on Exhibit B attached hereto.
1.2. FIRST OPTION TO EXPAND: Tenant shall have the option to expand the Premises
("First Expansion Option") by up to approximately 31,778 square feet, as shown
on Exhibit B ("Expansion Premises"), provided, however, that (a) Tenant shall
select and include in its notice of exercise of the First Expansion Option that
portion of the Expansion Premises as to which it exercises the First Expansion
Option, which, if less than all of the Expansion Premises, shall be in
increments of space consisting of one full "bay" served by a separate loading
dock and beginning with the bay contiguous with, and then proceeding away from,
the Premises, and (b) no Monetary Default (as defined in Section 20) shall have
occurred and be continuing at the time of any such exercise. Tenant shall
exercise its option by giving written notice of such exercise to Landlord, at
any time prior to Landlord's delivery to Tenant of a bona fide third party offer
to lease in accordance with Section 1.4 of this Lease. Base Rent shall be at the
same per square foot rate as specified in Section 3.1 of this Lease. The term of
the Lease as to the Expansion Premises shall begin on the Expansion Commencement
Date and end on the date determined under the provisions of Section 2.1, subject
to extension under Section 2.2. Landlord shall provide an allowance for
leasehold improvements equal to $12.50 multiplied by the square foot area of the
Expansion Premises taken under the terms of this Section.
The term "Expansion Commencement Date" means (a) if Tenant gives notice of
exercise of the First Expansion Option on or before December 31, 1997, the same
day as the Term commences pursuant to Section 2.1, and (b) if such notice is
given thereafter, the date Tenant substantially completes its improvements in
the Expansion Premises and commences business operations therein or (ii) 90 days
after such notice is given by Tenant. If clause (a) applies, then the
improvements shall be completed as part of the completion of the leasehold
improvements for the original
<PAGE>
Premises. If clause (b) applies, then Tenant shall have access to the Expansion
Premises immediately for the construction of its leasehold improvements.
1.3 SECOND OPTION TO EXPAND: Tenant shall have the option to expand the Premises
("Second Expansion Option") by approximately 31,778 square feet, as shown on
Exhibit B, provided, however, that no Monetary Default shall have occurred and
be continuing at the time of any such exercise. Landlord shall give notice to
Tenant of the date on which the Expansion Premises is available, which date
shall not be earlier than the first day of the 48th full calendar month of the
initial Term nor later than the last day of the 72nd full calendar month of the
initial Term (the "Expansion Delivery Date"). Landlord shall, not sooner than
eleven (11) months and not later than nine (9) months before the Expansion
Delivery Date, give notice to Tenant of the Expansion Delivery Date and of
Landlord's best estimate of the Market Rent therefor. Tenant shall exercise its
option by giving written notice of such exercise to Landlord no later than eight
months prior to the Expansion Delivery Date. Landlord shall deliver vacant
possession of the Expansion Premises to Tenant on the Expansion Delivery Date,
and the Term with respect thereto shall commence on the earlier of (a) the date
Tenant substantially completes its improvements in the Expansion Premises and
commences business operations therein or (ii) 120 days after the Expansion
Delivery Date. Base Rent shall be at Market Rent.
1.4. RIGHT OF FIRST REFUSAL: At such time as Landlord receives a bona fide offer
from a party to lease any part of the Building that has not been previously
leased by Landlord, Landlord will give written notice to Tenant of such offer,
specifying the portion of the Building as to which such offer applies and rent,
term, concessions, allowances and other material terms and conditions of the
proposed lease. Tenant will have three (3) business days after actual receipt of
such notice in which to give written notice to Landlord that Tenant exercises
its option to lease such space. If Landlord does not receive such notice within
such three (3) business day period, Landlord may enter into a lease with such
other tenant, without any material deviation from the terms and conditions on
which the same was offered to Tenant. The lease of such space to Tenant shall be
on the terms and conditions of the offer from Landlord, including rent,
concessions, and allowances, provided that at Tenant's election made in its
notice of exercise of this option the offered premises shall become part of the
Premises under this Lease for the Term, in which event if the term of the
offered lease is greater or less than the then current term of this Lease,
amortization of any cost to Landlord in making such lease shall be amortized
over the remainder of the then term of this Lease with appropriate increase or
decrease in the rental rate that would otherwise apply.
1.5. MARKET RENT: The term "Market Rent" means the rent per square foot that a
willing landlord would accept and a willing tenant would pay, neither being
under any compulsion or unusual consideration, for space comparable to the
portion of the Building and for a term equivalent to the term for which the
Market Rent is then being determined hereunder and for a lease which is "net" to
the same extent as, and otherwise consistent with, this Lease, and taking into
account all relevant considerations, including transactions in comparable
buildings in the Northern Minneapolis Suburban corridor, all tenant or landlord
concessions, costs and allowances, such as (but without limitation) leasehold
improvement allowance, free rent and leasing commissions, including reduction in
such rental rate in the case of the Second Expansion Option and each Extended
Term to take into account that Tenant will not receive any allowance or
concession.
<PAGE>
In the event Landlord and Tenant are unable to agree on Market Rent within
twenty (20) days of Tenant's exercise of any Second Expansion Option or
extension option, then the current Market Rent shall be determined by
arbitration in accordance with the Commercial Arbitration Rules of the American
Arbitration Association. Within forty-five (45) days after appointment, the
arbitrator shall determine the current Market Rent. The cost of the arbitrator
shall be borne equally by Landlord and Tenant.
Within ten (10) days after receipt by Tenant of the written determination of
Market Rent by arbitration, Tenant may, by written notice to Landlord, rescind
its exercise of the Second Expansion Option or extension option in question,
provided that in the case of determination of Market Rent for any Extended Term,
if exercise of the rescission right is less than nine (9) months before the end
of the then Term, the Term shall be deemed extended at the Base Rent then in
effect for a period of nine (9) months after the date of such exercise. The
determination and award by the arbitrator shall be final and binding on Landlord
and Tenant.
2.1. TERM: Tenant takes the Premises from Landlord, upon the terms and
conditions herein contained for the term ("Term") of ten (10) years and zero (0)
months commencing on the date upon which a) Construction which is the
responsibility of Landlord (including all leasehold improvements under Section 8
and, if the First Expansion Option is exercised, Section 1.2(a)) is
substantially complete and ready for tenant's occupancy, with only minor
punchlist items, such as minor paint touch-up, replacement of damaged ceiling
tile, and the like, b) Tenant shall have had three (3) weeks of early access to
the Premises under Section 8.3 for the purpose of installing telephone, data
lines, equipment, furniture and for completion of move-in, and c) a Certificate
of Occupancy for the Premises is issued by the City of Brooklyn Park and
terminating on the last day of the one hundred twentieth full calendar month
following commencement unless sooner terminated as herein provided. Landlord has
represented to Tenant that the Building and the Premises will be complete,
subject only to delay permitted under Section 31, on March 1, 1998, with the
"clean room" substantially complete and ready for testing, inspection and
certification by governmental authorities on or before January 12, 1998 and with
the Premises sufficiently complete to permit Tenant access for its work as
provided in Section 8.3 on or before February 7, 1998. No Base Rent or
Additional Rent shall accrue prior to March 1, 1998, regardless of whether or
not the Term has commenced.
2.2. OPTION TO EXTEND: Tenant shall have the option to extend the Term of this
Lease with respect to the then entire Premises or for only that portion of the
then entire Premises originally demised by this Lease under Section 1.1. for two
(2) additional terms of five (5) years, each, (collectively, the "Extended
Terms", and individually, an "Extended Term"). Each Extended Term shall be upon
the same terms as provided in this Lease for the Term, except for the Base Rent
which shall be as set forth in Section 3 for each Extended Term. Landlord shall,
not sooner than twelve (12) and not later than ten (10), months before the end
of the then Term, give notice to Tenant or Tenant's upcoming extension option
and of Landlord's best estimate of the Market Rent for the Extended Term covered
thereby. The Tenant shall exercise its option by giving notice of such exercise
to Landlord not less than thirty (30) days after receipt of Landlord's notice of
the option and estimate of Market Rent or nine (9) months prior to the end of
the then Term, whichever
<PAGE>
is later, prior to the expiration of the Term or the then current Extended Term,
as the case may be. Should Tenant fail to exercise any option to extend the term
of this Lease within the time provided in this Section, all of Tenant's rights
to further extend the term hereof shall expire.
3.1. MONTHLY BASE RENT: Tenant agrees to pay to Landlord during the period from
the commencement of the Term through the sixtieth (60th) month of the Term a
monthly Base Rent ("Base Rent") of Forty One Thousand Six Hundred Sixty Six and
67/100 Dollars ($41,666.67); for the period from the 61st month through the
120th month of the Term a monthly Base Rent of Forty Six Thousand Six Hundred
Sixty Six and 67/100 Dollars ($46,666.67); and for the Extended Term(s) a
monthly Base Rent equal to the Market Rent payable on the first day of each
month in advance, without deduction or setoff of any kind, to Landlord and
delivered to Landlord's managing agent, Ryan Properties, Inc., 700 International
Centre, 900 Second Avenue South, Minneapolis, Minnesota 55402, or at such other
place as may from time to time be designated by Landlord.
The Base Rent rates stated above are based on an area of the Premises of 80,000
square feet. If the actual area of the Premises changes pursuant to Section 1.1,
then the Base Rent shall be appropriately adjusted to reflect the increase or
decrease in area.
Should Tenant elect to exercise its extension option for less than the entire
Premises, Tenant shall, at its sole expense, construct to Landlord's reasonable
specification a demising wall to define its Premises and separate utilities and
services between the Premises and all other areas of the Building. Such
construction will be completed with all due diligence during the Extended Term.
Tenant's work shall be limited to such separation and Landlord shall be
responsible at its sole expense for any re-configuration or other re-working of
the utilities and services within the areas of the Building no longer included
in the Premises.
3.2. Anything in section 3.1. above to the contrary notwithstanding, if Tenant
receives any additional allowance under Section 8.2, then from and after the
date of receipt by Tenant of the allowance in question the monthly Base Rent
shall be at the following rates instead of the rates set forth in Section 3.1:
If Tenant receives an increase in the allowance of $650,000.00 or more pursuant
to Section 8.2, then (a) with respect to the first $650,000.00 of such increase
in allowance, (i) the Base Rent shall be $50,200.00 through the sixtieth (60th)
month of the Term, and (ii) thereafter for the balance of the initial Term the
monthly Base Rent shall be $56,266.67, and (b) for each $1,000.00 of allowance
above the first $650,000.00, if any, (i) the Base Rent specified in the
preceding clause (a)(i) shall be increased by $7.02, and (ii) the Base Rent
specified in the preceding clause (a)(ii) shall be increased by $7.67. With
respect to any portion of the increased allowance which is not received on the
first day of a calendar month, the increase in Base Rent provided for above
shall be prorated as of the receipt by Tenant of such portion.
4. USE: Tenant shall use the Premises for any lawful business use. Landlord
represents and warrants that the Project is zoned Limited Industrial District
(I-1) , which does not include outdoor storage but does permit as permitted
uses, without necessity of any conditional, special or other use permit and
without variance of other special allowance, the uses contemplated by Tenant for
the Premises, which are the development, manufacture, assembly, warehouse and
distribution of
<PAGE>
medical devices, including cardioverter defibrillators and catheter ablation
systems, and related office and laboratory space (technical electronic testing
and building), with the office space including general administrative
(headquarters) office space, comprising approximately 50,000 square feet of the
initial Premises.
5. OPERATING COSTS: Tenant shall, for the entire Term, pay to Landlord as an
item of additional rent, without any setoff or deduction therefrom, its
Proportionate Share of costs ("Operating Costs") which Landlord may incur in
maintaining and operating the Project during each calendar year of the Term.
"Proportionate Share" is defined as the decimal equivalent of a fraction, the
numerator of which is the rentable area of the Premises and the denominator of
which is the rentable area within the entire Building. "Operating Costs" are
defined to include all reasonable expenses and costs (but not specific costs
which are separately billed to and paid by individual tenants, including Tenant)
which the Landlord shall pay or become obligated to pay because of or in
connection with the operation and maintenance of the Project and supporting
facilities of the Project, including but not limited to all real estate taxes
and annual installments of special assessments payable in such calendar year
with respect to the Project; costs of any contest of such taxes, including
reasonable attorney's fees; management fees (except that no management fee shall
be charged during such period(s) that Tenant elects to maintain and manage the
common areas pursuant to Section 10), insurance premiums, utility costs,
security costs, costs of wages, maintenance costs (relating to the Project
including sidewalks, landscaping and parking or service areas, common areas,
service contracts, equipment and supplies) and all other costs of any nature
whatsoever which for federal tax purposes may be expensed rather than
capitalized, all in accordance with Generally Accepted Accounting Principles,
consistently applied but exclusive only of leasing commissions, depreciation,
costs of leasehold improvements and payments of principal and interest on any
mortgages, deeds of trusts, or other security devices covering the Project.
Operating Costs shall also include the yearly amortization of capital costs
incurred by the Landlord for improvements or structural repairs to the Project
required to comply with any change after the commencement date in the laws,
rules or regulations of any governmental authority having jurisdiction, or for
purposes of reducing Operating Costs (other than by replacement of worn out and
obsolete equipment or building components), which costs shall be amortized over
the useful life of such improvements or repairs, as reasonably estimated by the
Landlord, but in no event in excess of the savings. The management fee shall not
exceed 3% of Tenant's Base Rent and Operating Costs (determined without
reference to any management fee or taxes and special assessments). Operating
Expenses shall not include any compensation or benefits for any off-site
manager, any administrative or overhead expenses, any special assessments or
charges in the nature of or in lieu of assessments which are now levied or
pending or which are hereafter imposed or levied in connection with or as a
consequence of the development of the Project.
As soon as reasonably practicable prior to the commencement of each calendar
year during the Term, Landlord shall furnish to Tenant an estimate of Operating
Costs for the ensuing calendar year and Tenant's Proportionate Share thereof.
Tenant shall pay, as additional rent hereunder together with each installment of
Base Rent, one-twelfth (1/12th) of its estimated annual Proportionate Share of
Operating Costs. As soon as reasonably practicable after the end of each
calendar year during the Term and in any event within 120 days, Landlord shall
furnish to Tenant a statement of the actual Operating Costs for the previous
calendar year, including Tenant's Proportionate Share
<PAGE>
of Operating Costs, and within thirty (30) days thereafter Tenant shall pay to
Landlord, or Landlord shall credit to the next rent payments due Landlord from
Tenant, as the case may be, any difference between the actual Operating Costs
and the estimated Operating Costs paid by Tenant. Tenant's Proportionate Share
of Operating Costs for the years in which this Lease commences and terminates
shall be prorated by multiplying the actual Operating Costs by a fraction the
numerator of which is the number of days of that year of the Term and the
denominator of which is 365. Notwithstanding any other provision herein to the
contrary, it is agreed that in the event that the Project is not fully occupied
at any time during the Term, an adjustment shall be made in computing the
management fee component of the Operating Costs for such year so that the
management fee component of the Operating Costs shall be computed for such year
as though the Project had been fully occupied during such year.
For a period of three (3) years following Tenant's receipt of Landlord's
statement of actual Operating Costs, Landlord shall keep available for Tenant's
inspection and/or audit complete books and records relating to Operating Costs.
During this period Tenant may copy, inspect and/or audit Landlord's Operating
Costs books and records upon reasonable notice to Landlord. The audit must be
performed during regular business hours in the offices where Landlord maintains
its accounting records. No subtenant will have the right to audit under this
provision. An assignee may have the right to audit as provided herein, however,
such right shall only apply to the assignee's term pursuant to the Lease. In the
event a discrepancy of three percent (3%) or more is found in favor of Tenant,
Landlord shall pay the cost of such audit. If the audit discloses an overcharge
by Landlord, Landlord shall reimburse Tenant for such overcharge within twenty
(20) days, unless Landlord disputes the result of the audit.
6. ADDITIONAL TAXES: Tenant shall pay as additional rent to Landlord, together
with each installment of Base Rent, the amount of any gross receipts tax, sales
tax or similar tax, or any tax imposed in lieu of real property taxes (but
excluding therefrom any income tax), payable by Landlord, by reason of the
receipt of such Base Rent and adjustments thereto. If any such tax is a
progressive tax with higher tax rates on higher receipts, then Tenant shall only
pay the amount of tax that would be payable if the Base Rent payable by Tenant
were the only amount subject to such tax.
7. SECURITY DEPOSIT: Intentionally Deleted.
8.1. LEASEHOLD IMPROVEMENTS: Landlord shall make and install or provide for the
installation of leasehold improvements in accordance with the plans,
specifications, terms and conditions set forth in Exhibit D. Landlord shall
provide Tenant a leasehold allowance of Six Hundred Fifty Thousand Dollars
($650,000.00). Any leasehold improvement costs in excess of the allowance shall
be paid directly by Tenant. Except as specifically provided for in this Lease,
Landlord shall have no obligation to repair, improve, redecorate or remodel the
Premises.
All contractors and subcontractors performing work at the Premises during the
initial build-out of the Building, whether for Landlord or Tenant, must be
recognized and approved by the AFL-CIO Building Trades Council having
jurisdiction and each such contractor or subcontractor must be bound by and a
signatory to an applicable bargaining agreement and observe area standards for
<PAGE>
wages and other terms and conditions of employment, including fringe benefits;
provided, however, that this requirement does not apply to or affect any
maintenance or similar type of workers performing services at the Premises or
employees of Tenant after the Premises are complete.
8.2. Anything in section 8.1. above to the contrary notwithstanding, if, at any
time after June 1, 1997 and prior to the date which is five (5) months after the
commencement of the Term:
a) Tenant shall on one or more occasions raise additional equity
capital resulting in aggregate gross proceeds to Tenant of
$20,000,000.00 or more, then the allowance provided for in Section
8.1 shall be increased by $650,000.00 with respect to the gross
proceeds of $20,000,000.00, and by $40,000.00 for each $1,000,000.00
(up to a maximum of an additional $10,000.000.00) of gross proceeds
above $20,000,000.00, and/or
b) Tenant shall merge with, or be acquired by (including by an
acquisition of all or substantially all of the assets of Tenant), an
entity with a net worth of at least $25,000,000.00, and which entity
(or, in the case of a merger, the surviving entity) is liable on
this Lease for obligations which thereafter accrue either as a
matter of law or by assumption agreement in form approved by
Landlord (which approval Landlord shall not unreasonably withhold),
then the allowance provided for in Section 8.1 shall be increased by
$1,050,000.00,
provided, however, that in any event (i) the allowance shall not be increased by
reason of this Section 8.2 by more than $1,050,000.00 in the aggregate and (ii)
Tenant may elect, by written notice to Landlord, to not receive all or any
portion of the increase in allowance provided for in this Section 8.2.
8.3. EARLY ACCESS: Tenant and its vendors shall have early access to the
Premises to install its equipment, telephone and data lines prior to completion
of its move-in and occupancy of the Premises in coordination with Landlord's
work and schedule for completion of the Building, provided however that, without
limiting the foregoing, Landlord shall cooperate in all reasonable respects with
Tenant in the installation of its equipment. All Tenant's vendors seeking access
to the Building prior to substantial completion thereof must be signatories to
the AFL-CIO Building Trades Council Contract.
8.4 Notwithstanding anything to the contrary in this Lease, any alterations,
improvements or additions to the Premises constructed prior to or during the
Term at Landlord's expense, whether directly by Landlord or by payment to Tenant
of the Leasehold Improvement Allowance pursuant to Section 8.1 and 8.2 of this
Lease (collectively, "Landlord Alterations"), shall be and remain the property
of Landlord, and Landlord shall be the sole party entitled to claim depreciation
with respect to any such Landlord Alterations; provided, however, that
Landlord's Alterations shall consist only of general leasehold improvements and
shall in no event include any of Tenant's trade fixtures. Without limiting the
generality of the foregoing, the following provisions shall apply to any
Landlord Alterations: (i) the design and construction of Landlord Alterations
shall be undertaken in accordance with this Lease, (ii) Landlord shall be
responsible
<PAGE>
for maintaining insurance on and paying any property taxes applicable to
Landlord Alterations, regardless of whether they are considered real or personal
property, (iii) in the event of damage, destruction or condemnation of the
Premises, Landlord shall be responsible for the repair and/or restoration of the
Landlord Alterations, (iv) Tenant shall be neither required nor allowed to
remove Landlord Alterations from the Premises at the expiration or earlier
termination of the Lease, (v) Tenant may make alterations, additions, deletions
and improvements to the Landlord Alterations in the manner and to the extent
provided for in the Lease, which shall not affect Landlord's ownership of the
Landlord Alterations, and (vi) the leasehold improvement allowance shall be
deemed applied first and only to general leasehold improvements and not to
Tenant's trade fixtures.
9. UTILITIES: Landlord shall, at its sole expense, provide mains and conduits as
described in Exhibit B to supply water, gas, electricity and sanitary sewage
service to the Premises. Tenant shall pay, when due, all charges for sewer usage
or rental, garbage disposal, refuse removal, water, electricity, gas, telephone
and/or other utility services or energy source furnished to the Premises during
the term of this Lease, or any renewal or extension thereof. If Landlord elects
to furnish any of the foregoing, the rate charged by Landlord for such utility
services or other services furnished or caused to be furnished by Landlord shall
not exceed the rate Tenant would be required to pay to a utility company or
service company furnishing any of the foregoing utilities or services. The
charges thereof shall be deemed additional rent. If any material interruption of
any utility service to the Premises shall occur and continue for a period of
more than three (3) days, then Base Rent and Tenant's Proportionate Share of
Operating Costs shall equitably abate for the period of interruption following
the third day until such service is restored.
10. CARE AND REPAIR OF PREMISES, BUILDING AND PROJECT: Tenant shall, at all
times throughout the terms of this Lease, including renewals and extensions, and
at its sole expense, keep and maintain the Premises in a clean, safe, sanitary
and good condition and, to the extent related to its particular use of the
Premises (with Landlord responsible for those which apply to the Building
generally), in compliance with all applicable laws, codes, ordinances, rules and
regulations. Tenant's obligations hereunder shall include but not be limited to
the maintenance, repair and replacement, if necessary, of all lighting, HVAC and
plumbing fixtures and equipment (but only to the extent such fixtures and
equipment service only the Premises), fixtures, motors and machinery, all
interior walls, partitions, doors and windows, including the regular painting
thereof, all exterior entrances, windows, doors and docks and the replacement of
all broken glass. When used in this provision, the term "repairs" shall include
replacements or renewals when necessary, and all such repairs made by the Tenant
shall be equal in quality and class to the original work. Subject to Tenant's
routine maintenance obligations, Tenant shall not be obligated to replace or
make capital improvements to any of the foregoing and, in addition, at the end
of the Term Tenant may surrender the Premises without any of such replacements
or capital improvements required to be made.
If Tenant fails, refuses or neglects to maintain or repair the Premises as
required in this Lease after notice shall have been given Tenant, Landlord may
make such repairs without liability to Tenant for any loss or damage that may
accrue to Tenant's merchandise, fixtures or other property or to Tenant's
business by reason thereof, and upon completion thereof, Tenant shall pay to
Landlord all
<PAGE>
costs plus 10% for overhead incurred by Landlord in making such repairs upon
presentation to Tenant of an invoice therefor.
Landlord shall keep the footings, foundation, exterior walls, interior weight
bearing walls and other structural elements (except plate glass or glass) and
roof, including roof structure of the Building, in good repair, and if necessary
or required by proper governmental authority, make modifications or replacements
thereof, except that Landlord, subject to its obligations under Section 14 and
18, shall not be required to make any such repairs, modifications or
replacements which become necessary or desirable by reason of the negligence of
Tenant, its agents, servants or employees, or by reason of anyone illegally
entering the Premises.
If Landlord fails, refuses or neglects to maintain or repair the Building as
required in this Lease after thirty (30) day notice shall have been given
Landlord and Landlord's first mortgage holder, Tenant may make such repairs, and
upon completion thereof, Landlord shall pay to Tenant all costs plus 10% for
overhead incurred by Tenant in making such repairs upon presentation to Tenant
of an invoice therefor. Provided such maintenance or repair is not (or to the
extent the same is not) the subject of a good faith dispute between Landlord and
Tenant, Tenant may, upon notice to Landlord, deduct from payments next due
Landlord the amount of said invoice.
Landlord shall operate, maintain and manage all common areas of the Project,
including grounds and parking areas in a manner mutually satisfactory to
Landlord and Tenant or as reasonably requested by Tenant. The cost of said
maintenance shall be prorated in accordance with Section 4 of this Lease. All
such maintenance which is provided by Landlord shall be provided as reasonably
necessary for the comfortable use and occupancy of the Premises during Tenant's
business hours, upon the condition that the Landlord shall not be liable for
damages for failure to do so due to causes beyond its control.
During such times as Tenant leases from Landlord the entire Building, Tenant
may, by written notice to Landlord, elect to maintain and manage all common
areas of the Project.
11. COVENANTS OF TENANT: Tenant agrees that it shall:
A. Observe such rules and regulations as from time to time may be put in
effect by Landlord for the general safety, comfort and convenience of
Landlord, occupants and tenants of the Building, subject, however, to
Tenant's approval of such rules and regulations, which approval shall not
be unreasonably withheld.
B. Give Landlord access to the Premises at all reasonable times, without
change or diminution of rent or interference with Tenant's business, to
enable Landlord to examine the same and to make such repairs, additions
and alterations as Landlord may deem advisable, and during the ninety (90)
days prior to the expiration of the Term, to exhibit the Premises to
prospective tenants and to place upon the door or in the windows of the
Premises any usual or ordinary "For Lease" signs. Tenant may deny Landlord
access to areas such as "clean rooms" reasonably designated by Tenant by
reason of security, confidentiality or function.
<PAGE>
C. Pay for all replacement electric lamps, starters and ballasts used in the
Premises.
E. Upon the termination of this Lease in any manner whatsoever, remove
Tenant's personal property and such of its equipment and trade fixtures as
it desires and those of any other person claiming under Tenant, and quit
and deliver up the Premises to Landlord peaceably and quietly in as good
order and condition as the same are now in or hereafter may be put in by
Landlord or Tenant, reasonable use and wear thereof and repairs which are
Landlord's obligation and damage by fire or other casualty excepted. Goods
and effects not removed by Tenant at the termination of this Lease,
however terminated, shall be considered abandoned and Landlord may dispose
of the same as it deems expedient.
F. Not assign this Lease or sublet all or any part of the Premises
voluntarily, involuntarily or by operation of law, without first obtaining
Landlord's written consent thereto. Landlord shall, within ten (10) days
of its receipt of Tenant's request, approve or reject the assignment or
sublease and, if rejected, Landlord shall specify its reason(s) for
withholding approval. Landlord's failure to respond within ten (10) days
shall be deemed approval. Landlord's consent will not be withheld provided
that (i) the occupancy of any such assignee or sublessee is not
inconsistent with the character of the Building; (ii) such assignee shall
assume in writing the performance of the covenants and obligations of
Tenant hereunder which arise after the effective date of the assignment;
(iii) a fully executed copy of any such assignment or sublease shall be
immediately delivered to Landlord and (iv) in the case of an assignment,
the assignee is reasonably creditworthy given the financial obligations
imposed by this Lease, but the making of such assignment or sublease shall
not be deemed to release Tenant from the payment and performance of any of
its obligations under this Lease, provided, however, that the assumption
of this Lease by a Tenant with a net worth not less than $25,000,000 shall
be deemed to release the assigning tenant from its obligations accruing
after the date of such assumption. Notwithstanding the foregoing,
Landlord's consent shall not be required for any assignment or sublease
made in connection with any merger, consolidation, or sale of all or
substantially all of the assets of Tenant which are related to the
business or division then operating at the Premises or to any affiliate of
Tenant.
G. Not place signs on or about the Premises without first obtaining
Landlord's written consent thereto. Tenant may, at its sole expense, erect
exterior signage not in excess of that permitted by applicable code and
regulation for the Premises.
H. Not do any act which may make void or voidable any insurance on the
Premises or the Building, or which may render an increased or extra
premium payable for any insurance deemed necessary or advisable by
Landlord, provided, however, that upon notice from Landlord, Tenant may
elect to pay such additional cost.
I. Not make any structural alterations or additions to the Premises without
obtaining the prior written approval of the Landlord thereto, and all
alterations, additions or improvements (including carpeting or other floor
covering which has been glued or otherwise affixed to the floor) which may
be made by either of the parties hereto upon the Premises, shall be the
<PAGE>
property of Landlord, and shall remain upon and be surrendered with the
Premises, as a part thereof, at the termination of this Lease. Office
furniture, trade fixtures and equipment shall be the property of Tenant
and may in accordance with Section 11E above be removed by Tenant and the
termination of this Lease.
Tenant may, at its sole expense with all appropriate government approvals,
cause a general contractor approved by Landlord to construct a mezzanine,
not to exceed 25% of the area leased by Tenant, which shall be located
within the front 25% of the Premises square feet of area, within that
portion of the Premises designated on Exhibit B. Tenant shall submit to
Landlord, for review and approval, such plans and specifications for the
mezzanine as Landlord may reasonably require. Landlord's consent shall not
be unreasonably withheld. For so long as the Project is owned by Ryan
Companies US, Inc., its affiliates or an entity which includes principals
of Ryan Companies US, Inc., Tenant shall engage Ryan Companies US, Inc.,
at competitive rates, as the general contractor for construction of the
mezzanine.
If the Term of this Lease expires for any reason other than casualty,
condemnation, or Landlord's default prior to the last day of the fifteenth
(15th) anniversary of its commencement, Landlord may, at its sole
discretion. require Tenant, at its sole expense, to remove the mezzanine.
J. Keep the Premises and the Project free from any mechanics', materialmen's,
contractors' or other liens arising from, or any claims for damages
growing out of, any work performed, materials furnished or obligations
incurred by or on behalf of Tenant. Provided, however, that Tenant shall
have the right to contest any such lien, in which event such lien shall
not be considered a default under this Lease until the existence of the
lien has been finally adjudicated and all appeal periods have expired.
Tenant shall indemnify and hold harmless Landlord from and against any
such lien, or claim or action thereon, reimburse Landlord promptly upon
demand therefor by Landlord for costs of suit and reasonable attorneys'
fees incurred by Landlord in connection with any such lien, claim or
action, and, upon written request of Landlord if Landlord reasonably deems
itself insecure with the prospect for payment by Tenant, provide Landlord
with a bond, letter of credit, cash deposit or other reasonable security
in an amount necessary to obtain a release of the Premises or the Project
from such lien if the lien claimant ultimately prevails.
K. Cause to be performed by a competent service company, preventative
maintenance of all HVAC units and warehouse unit heaters serving the
Premises, as recommended by the equipment manufacturer or otherwise in
accordance with accepted practices for good maintenance thereof.
L. Tenant shall, at its own expense, comply with the requirements, as to
Tenant's particular use, of insurance underwriters and insurance rating
bureaus and governmental authorities having jurisdiction.
<PAGE>
M. Maintain in full force and effect during the term hereof, a policy of
public liability insurance under which Landlord is named as additional
insured. The minimum limits of liability of such insurance shall be
$1,000,000.00 combined single limit as to bodily injury and property
damage. Tenant agrees to deliver a certificate of insurance evidencing
such coverage to Landlord. Such policy shall contain a provision requiring
thirty (30) days written notice to Landlord before cancellation of the
policy can be effected.
12. AMERICANS WITH DISABILITIES ACT: The parties agree that the liabilities and
obligations of Landlord and Tenant under that certain federal statute commonly
known as the Americans With Disabilities Act as well as the regulations and
accessibility guidelines promulgated thereunder as each of the foregoing is
supplemented or amended from time to time (collectively, the "ADA") shall be
apportioned as follows:
A. If any of the common areas of the Project, including, but not limited to,
exterior and interior routes of ingress and egress, off-street parking and
all rules and regulations applicable to the Premises, the Building or the
Project, fails to comply with the ADA, or if the Building and the Premises
as initially constructed does not conform to the requirements of the ADA
in effect at the time of substantial completion thereof, then in any such
case such nonconformity shall be promptly made to comply by Landlord at
its sole expense. Landlord shall also cause its manager of the Building
and the Project (the "Manager") to comply with the ADA in its operation of
the Building and the Project.
B. From and after the commencement date of the Lease, Tenant covenants and
agrees to conduct its operations within the Premises in compliance with
the ADA. If any of the Premises fails to comply with the ADA (by reason of
a change therein after the substantial completion of the Premises, which
shall be the responsibility of Landlord), such nonconformity shall be
promptly make to comply by Tenant. In the event that Tenant elects to
undertake any alterations to, for or within the Premises, excluding
initial build-out work, Tenant agrees to cause such alterations to be
performed in compliance with the ADA.
13. PARKING AND DRIVES: Tenant, its employees, and invitees shall have the
non-exclusive right to use the common driveways and parking lots along with the
other tenants and customers of the Building. The use of such driveways and
parking facilities are subject to such reasonable rules and regulations as the
Landlord may impose. Landlord shall, at its expense, in consultation with
Tenant, designate a reasonable number of parking spaces as being for visitors of
Tenant. Any changes, additions or deletions to such signage shall be at Tenant's
expense. Tenant further agrees not to use, or permit the use by its employees,
the parking areas for the overnight storage of automobiles or other vehicles
without the written consent of Landlord.
Landlord may not make any changes in the common area and other areas shown on
the Site Plan without Tenant's prior written consent.
During such time as Tenant leases the entire Building, Tenant may designate
parking as it sees fit.
<PAGE>
14. CASUALTY LOSS: If the Building or the Premises is damaged in part or whole
from any cause and the Building or the Premises can be substantially repaired
and restored within the Repair Period (as defined below) from the date of the
damage using standard working methods and procedures, Landlord shall at its
expense promptly and diligently repair and restore the Premises, including all
leasehold improvements, to substantially the same condition as existed before
the damage. This repair and restoration shall be made within the Repair Period
unless the delay is due to causes beyond Landlord's reasonable control. As soon
as reasonably possible and in any event within thirty (30) days after the
damage, Landlord shall notify Tenant in writing of the number of days required
for the completion of repairs from the date of the damage, including a date
certain for the completion thereof (the "Repair Completion Date"). If the Repair
Completion Date is more than 120 days, but less than 365 days, from the date of
damage, then Tenant may, at its election made by giving written notice thereof
to Landlord within ten (10) days after receipt of Landlord's notice, extend the
time for completion of repair through the Repair Completion Date. As used
herein, the "Repair Period" means the period commencing with the date of damage
and ending on the Repair Completion Date unless, in any case where the Repair
Completion Date is more than 120 days after the date of the damage, Tenant does
not elect, or does not have the right to elect, as provided above to extend the
time permitted for repair beyond said 120 day period, in which event the Repair
Period shall end 120 days after the of the damage.
If the Building or the Premises cannot be repaired and restored within the
Repair Period, then either party may, within ten (10) days after the
determination of the Repair Period as provided above, cancel the Lease by giving
notice to the other party. If the Building or the Premises is not repaired and
restored within the Repair Period, then Tenant may cancel the Lease at any time
thereafter and prior to completion of the repair. Tenant shall not be able to
cancel this Lease if its willful misconduct caused the damage unless Landlord is
not promptly and diligently repairing and restoring the Premises.
The Base Rent and Additional Rent shall abate to the extent fair and equitable
and the abatement shall include any period that Tenant is unable to occupy or
use the Premises or the Common Area, or its occupancy or use is materially
adversely affected by reason of any casualty or cause, whether or not the
Premises are "untenantable" and whether or not the Premises themselves are
damaged. The abatement shall consider the nature and extent of interference to
Tenant's ability to conduct business in the Premises and the need for access and
essential services. The abatement shall continue from the date the damage
occurred until thirty (30) business days after Landlord completes the repairs
and restoration, or until Tenant again uses the Premises or the part rendered
unusable, whichever is first.
Notwithstanding anything else in Section 14, Landlord is not obligated to repair
or restore damage to Tenant's trade fixtures, furniture, equipment, or other
personal property.
If the Lease is in the last twelve (12) months of its Term when material damage
to the Premises occurs, then Landlord may cancel this Lease unless Tenant makes
one of the following elections and gives notice thereof within ten (10) days
after receipt of notice of such cancellation from Landlord: 1) elects to extend
the Term of the Lease for the next available Extended Term, if any, or 2) elects
to continue its occupancy for the balance of the Term without requiring Landlord
to repair
<PAGE>
the damage. To cancel, Landlord must give notice to Tenant within ten (10) days
after the Landlord knows of the damage. The notice must specify the cancellation
date, which shall be at least thirty (30) but not more than sixty (60) days
after the date notice is given.
15. CONDEMNATION: If the entire Premises is taken by eminent domain or
transferred under threat of such taking, this Lease shall automatically
terminate as of the date of taking. If a portion of the Premises, or any portion
of the Building or common area, including parking, or good and sufficient access
thereto, is taken by eminent domain and it is unfeasible, in Tenant's reasonable
judgment, for Tenant to continue to operate its business in the portion of the
Premises remaining, Tenant shall have the right to terminate this Lease as of
the date of taking by giving written notice thereof to Landlord within ninety
(90) days after date of taking. If Landlord or Tenant does not elect to
terminate this Lease, Landlord shall, at its expense, restore the Premises,
including any improvements or other changes made therein by Tenant, to as near
the condition which existed immediately prior to the date of taking as
reasonably possible, and to the extent that the Premises or the Project ,
including the common areas and access thereto or the use thereof by Tenant is
adversely affected, the rent shall equitably abate. All damages awarded for a
taking under the power of eminent domain shall belong to and be the exclusive
property of Landlord, whether such damages be awarded as compensation for
diminution in value of the leasehold estate hereby created or to the fee of the
Premises; provided, however, that Landlord shall not be entitled to any separate
award made to Tenant for the value and cost of removal of its leasehold
improvements paid for by Tenant, personal property and fixtures or for
relocation benefits.
16. DELAY IN POSSESSION: If the Premises shall, on the scheduled date of
commencement of the Term, not be ready for occupancy by the Tenant due to the
possession or occupancy thereof by any person not lawfully entitled thereto, or
because construction has not yet been completed, or by reason of any building
operations, repair or remodeling to be done by Landlord, Landlord shall use due
diligence to complete such construction, building operations, repair or
remodeling and to deliver possession of the Premises to Tenant. The Landlord,
using such due diligence, shall be liable for failure to obtain possession of
the Premises for Tenant or to timely complete such construction, building
operations, repair or remodeling, and the rental and other charges payable by
Tenant hereunder shall be abated until the Premises shall, on Landlord's part,
be ready for occupancy by Tenant, this Lease remaining in all other respects in
full force and effect. Notwithstanding the foregoing, if the Project and the
Premises and all of Landlord's work required to complete the same (a) for
Tenant's installation and move-in under Section 8.3 are not completed on or
before February 7, 1998 or (b) for Tenant's occupancy are not substantially
complete, and the Term has not commenced, on or before February 28, 1998, then
in each case Landlord shall bear all costs and expenses, including holdover
costs (whether negotiated or by provision of the lease) and damages, of Tenant's
continued occupancy at its present locations, and/or if Tenant is required to
vacate any of the same, all costs and damages resulting therefrom, including
costs of additional moves, to the extent the same (including any which are a
consequence of (even though they relate to periods following) Tenant's holdover
or lease following such vacating), in the aggregate, are in excess of the Base
Rent and Additional Rent that would have been in effect under this Lease for the
period from and after such date to the day preceding the commencement date of
the Term of this Lease. In addition to the continued obligation of Landlord
under (a) and (b) above through the date of commencement or termination of this
Lease, if the Project (including the Common Area
<PAGE>
improvements) and the Premises are not substantially complete and ready for
Tenant's occupancy and the Term has not commenced on or before May 30, 1998 (and
regardless of whether such delay is permitted under Section 31), Tenant may
terminate this Lease at any time thereafter and prior to substantial completion
of the such work and commencement of the Term of this Lease. No such termination
of this Lease shall release Landlord of any liability for default in its
obligation to construct and complete such work in accordance with this Lease,
including Landlord's obligations under this Section 16.
17. LIABILITY AND INDEMNITY: Save for its negligence and that of its agents,
Landlord shall not be responsible or liable to Tenant for any loss or damage (i)
that may be occasioned by or through the acts or omissions of persons occupying
any part of the Building or any persons transacting any business in or about the
Building or persons present in or about the Building for any other purpose or
(ii) for any loss or damage resulting to Tenant or its property from burst,
stopping or leaking water, sewer, sprinkler or steam pipes or plumbing fixtures
or from any failure of or defect in any electric line, circuit or facility.
Subject to Section 18, Tenant shall defend, indemnify and save Landlord harmless
from and against all liabilities, damages, claims, costs, charges, judgments and
expenses, including, but not limited to, reasonable attorneys' fees, which may
be imposed upon or incurred or paid by or asserted against Landlord, the
Premises or any interest therein or in the Building by reason of or in
connection any negligent or tortious act on the part of Tenant or any of its
agents, contractors, servants, employees, licensees or invitees, any accident,
injury, death or damage to any person or property occurring in, the Premises or
any part thereof, provided, however, that nothing contained in this paragraph
shall be deemed to require Tenant to indemnify Landlord with respect to any
negligence or tortious act or omission committed by Landlord or its agents or
any other tenant, occupant, licensee or invitee, or to any extent prohibited by
law.
18. MUTUAL RELEASE/WAIVER OF SUBROGATION: Each of Landlord and Tenant hereby
releases the other from any and all liability or responsibility to the other or
anyone claiming through or under them by way of subrogation or otherwise for any
loss or damage to property caused by any of the all risk casualties insurable
under an all risk property insurance policy, even if such casualty shall have
been caused by the fault or negligence of the other party, or anyone for whom
such party may be responsible.
Landlord shall maintain at all times from and after the date hereof and through
the Term commercial general liability insurance in the amount of not less than
$1,000,000 on a combined single limit basis and name the Tenant as an additional
named insured thereon.
19. HAZARDOUS SUBSTANCES: Tenant shall use all reasonable efforts to not (either
with or without negligence) cause or permit the escape, disposal or release of
any biologically or chemically active or other hazardous substances or
materials. Tenant shall not allow the storage or use of such substances or
materials in any manner in violation of law or materially below the accepted
standards prevailing in the industry for the storage and use of such substances
or materials, nor allow to be brought into the Project any such materials or
substances except to use in the ordinary course of Tenant's business. After
written notice from Landlord requesting the identity of such substances or
materials, Tenant shall provide Landlord with a list of the same.
<PAGE>
Without limitation, hazardous substances and materials shall include those
described in the Comprehensive Environmental Response Compensation and Liability
Act of 1980, as amended, 42 U.S.C. Section 9601 et. seq., and applicable state
or local laws and the regulations adopted under these acts. If any lender or
governmental agency shall ever require testing to ascertain whether or not there
has been any release of hazardous materials, then the reasonable costs thereof
shall be reimbursed by Tenant to Landlord upon demand as additional charges if
such requirement applies to the Premises and Tenant has caused the release. In
addition, Tenant shall certify on a reasonable basis from time to time at
Landlord's request concerning Tenant's best knowledge and belief regarding the
presence of hazardous substances or materials on the Premises. In all events,
Tenant shall indemnify Landlord in the manner elsewhere provided in this Lease
from any release of hazardous materials on the Premises occurring while Tenant
is in possession, or elsewhere if caused by Tenant or persons acting under
Tenant. The within covenants shall survive the expiration or earlier termination
of the Term.
20. DEFAULT: Tenant hereby agrees that in case Tenant shall default in making
its payments hereunder or any of them or in performing any of the other
agreements, terms and conditions of this Lease and such default continues for
five days after written notice thereof as to the payment of Base Rent and
regular monthly installments of fixed estimates of operating costs (a "Monetary
Default") or thirty (30) days (or such longer period as Tenant, acting
diligently, may reasonably require) after written notice thereof as to all other
defaults, then, in any such event, Landlord, in addition to all other rights and
remedies available to Landlord by law or by other provisions hereof, may after
five days written notice, with due process, re-enter immediately into the
Premises and remove all persons and property therefrom, and, at Landlord's
option, annul and cancel this Lease as to all future rights of Tenant and Tenant
hereby expressly waives the service of any notice in writing of intention to
re-enter as aforesaid. Tenant further agrees that in case of any such
termination Tenant will indemnify the Landlord against all loss of rents and
other damage which Landlord incurs by reason of such termination, including, but
not being limited to, costs of restoring and repairing the Premises as required
by this Lease, costs of renting the Premises to another tenant, loss or
diminution of rents and other damage which Landlord may incur by reason of such
termination, and all reasonable attorney's fees and expenses incurred in
enforcing any of the terms of the Lease. Neither acceptance of rent by Landlord,
with or without knowledge of breach, nor failure of Landlord to take action on
account of any breach hereof or to enforce its rights hereunder shall be deemed
a waiver of any breach, and absent written notice or consent, said breach shall
be a continuing one.
21. NOTICES: All bills, statements, notices or communications which Landlord may
desire or be required to give to Tenant shall be deemed sufficiently given or
rendered if in writing and sent by registered or certified mail, or sent by a
nationally recognized overnight courier service addressed to Tenant, Attention:
Robert Garin, at 3650 Annapolis Lane, Suite 170, Minneapolis MN 55447 and, from
and after the date Tenant occupies and commences business operations at the
Premises and until further notice from Tenant, at the Premises and the time of
rendition thereof of the giving of such notice or communication shall be deemed
to be the time when the same is deposited in the mail or with such overnight
courier as herein provided. Any notice by Tenant to Landlord must be served by
registered or certified mail, or sent by a nationally recognized overnight
courier service addressed to Landlord at the address where the last previous
rental
<PAGE>
hereunder was payable, or in case of subsequent change upon notice given, to the
latest address furnished. Either Landlord or Tenant may, upon ten (10) days
prior written notice to the other as herein provided, change its address for
notices under this Lease.
22. HOLDING OVER: Should Tenant continue to occupy the Premises after expiration
or termination for any reason of the Term or any renewal or renewals thereof
such tenancy shall be from month to month and in no event from year to year or
for any longer term, and shall be on all the terms and conditions hereof
applicable to a month to month tenancy except that Base Rent shall equal one
hundred percent (100%) if in the initial term and one hundred twenty-five
percent (125%) if in an Extended Term of the Base Rent plus Tenant's
Proportionate Share of Operating Costs payable at the time of such expiration or
termination. Nothing in this Section 22, however, shall prevent Landlord from
removing Tenant forthwith and seeking all remedies available to Landlord in law
or equity.
23. SUBORDINATION: Subject to the non-disturbance provided for below, the rights
of Tenant shall be and are subject and subordinate at all times to the lien of
any first mortgage now or hereafter in force against the Project, and Tenant
shall, within twenty days (20) after request, execute such further instruments
subordinating this Lease to the lien of any such mortgage as shall be requested
by Landlord, which shall include agreement by Tenant to attorn to the holder of
such mortgage and covenant of nondisturbance of Tenant's occupancy by such
holder in the event that such holder, its successors or assigns, succeeds to the
interest of Landlord. All such instruments shall be in form and substance
satisfactory to Landlord and Tenant, both acting reasonably.
24. ESTOPPEL CERTIFICATE: Tenant and Landlord shall each at any time and from
time to time, upon not less than ten (10) days prior written notice from the
other, execute, acknowledge and deliver to the other and any other parties
designated by the other, a statement in writing certifying (a) that this Lease
is in full force and effect and is unmodified (or, if modified, stating the
nature of such modification), (b) the date to which the rental and other charges
payable hereunder have been paid in advance, if any, and (c) that there are, to
such party's actual knowledge, no uncured defaults on the part of the other
hereunder (or specifying such defaults if any are claimed). Any such statement
may be furnished to and relied upon by any prospective purchaser or
encumbrancer, assignee or sublessee of all or any portion of the Project.
25. SERVICE CHARGE: Tenant agrees to pay interest at the per annum rate equal to
two percent (2%) plus the prime rate announced as such from time to time in the
Wall Street Journal under the section "Money Rates" of any payment of monthly
Base Rent or additional charge payable by Tenant hereunder which is not paid
within five (5) days from the date due.
26. BINDING EFFECT: The work "Tenant", wherever used in this Lease, shall be
construed to mean tenants in all cases where there is more than one tenant, and
the necessary grammatical changes required to make the provisions hereof apply
to corporations, partnerships or individuals, men or women, shall in all cases
be assumed as though in each case fully expressed. Each provision hereof shall
extend to and shall, as the case may require, bind and inure to the benefit of
Landlord and Tenant and their respective heirs, legal representatives,
successors and assigns.
<PAGE>
27. TRANSFER OF LANDLORD'S INTEREST: In the event of any transfer or transfers
of Landlord's interest in the Premises or the Project, other than a transfer for
security purposes only, the transferor shall be automatically relieved of any
and all obligations and liabilities on the part of Landlord accruing from and
after the date of such transfer, provided that the transferee assumes this Lease
and agrees to pay and perform the obligations of Landlord which accrue
thereafter.
28. LIMITATION OF LIABILITY: In the event that Landlord is ever adjudged by any
court to be liable to Tenant in damages, Tenant specifically agrees to look
solely to Landlord for the recovery of any judgment from Landlord, it being
agreed that if Landlord is a partnership, its partners whether general or
limited, or if Landlord is a corporation, its directors, officers, or
shareholders, shall never be personally liable for any judgment. The provision
contained in the foregoing sentence is not intended to, and shall not, limit any
right that Tenant might otherwise have to obtain injunctive relief against
Landlord or Landlord's successor in interest, or to maintain any other action
not involving the personal liability of Landlord (or if Landlord is a
partnership, its partners whether general or limited, or if Landlord is a
corporation, requiring its directors, officers or shareholders to respond in
monetary damages from assets other than Landlord's in the Building) or to
maintain any suit or action in connection with enforcement or collection of
amounts which may become owing or payable under or on account of insurance
maintained by Landlord.
29. ADDITIONAL RENT AMOUNTS: Any amounts in addition to Base Rent payable to
Landlord by Tenant hereunder, including without limitation amounts payable
pursuant to Sections 5, 6, 9, 10K, 17 and Exhibit B, and hereof ("Additional
Rent") shall be an obligation of Tenant hereunder and all such Additional Rent
shall be due and payable within twenty (20) days after receipt of written demand
thereof, accompanied by reasonable substantiation in case of amounts which are
not fixed under this Lease.
30. INCORPORATION OF EXHIBITS: The following exhibits to this Lease are hereby
incorporated by reference for all purposes as fully set forth at length herein:
Exhibit A Legal Description
Exhibit B Preliminary Site Plan
Exhibit C Zoning
Exhibit D Leasehold Improvements Plans and Specifications
Exhibit E Construction Schedule
Exhibit F Elevation
31. FORCE MAJEURE: All of the obligations of Landlord and of Tenant under this
Lease are subject to and shall be postponed for a period equal to any delay or
suspension resulting from fire, strikes, acts of God, and other causes beyond
the control of the party delayed in its performance hereunder (except that
strikes and labor unrest; fire and other casualty which is attributable to the
negligence or other fault of Landlord or its contractors or subcontractors; and
default of any contractor or subcontractor shall not constitute an excuse to the
time of performance by Landlord and unavailability of funds shall not constitute
an excuse to the time of performance by either Landlord or Tenant), this Lease
remaining in all other respects in full force and effect and the
<PAGE>
Term not thereby extended. Landlord shall, with respect to the initial
construction of the Building and the Premises (including all leasehold
improvements), notify Tenant within five (5) days after Landlord or its general
contractor actually knows of the commencement of a cause beyond its control
which will constitute a permitted postponement of the time for performance of
its obligations under this Section, failing which such cause shall not
constitute an excused delay under this Section. With respect to any delay not
caused by Tenant in such initial construction of the Building and Premises
(including all leasehold improvements) otherwise excused under this Section, the
period of postponement allowed Landlord shall not exceed one day for each day
that the cause of delay exists and Landlord in any event shall, at its sole cost
and expense, exercise its best effort to make up for any such delay, including
by working overtime.
32. BROKERS: Landlord acknowledges and agrees that it is obligated to pay a
brokerage fee to Braman, Braman & Rekstad, Inc. in the amount of $171,150.00,
payable one-half on the first construction draw made by Landlord and the
second-half payable upon occupancy by Tenant, or termination of this Lease
pursuant to Section 4 or 8, whichever first occurs.
33. GENERAL: The submission of this Lease for examination does not constitute
the reservation of or an option for the Premises, and this Lease becomes
effective only upon execution and delivery hereof by Landlord and Tenant. This
Lease does not create the relationship of principal and agent or of partnership,
joint venture or any association between Landlord and Tenant, the sole
relationship between Landlord and Tenant being that of lessor and lessee. No
waiver of any default of Tenant hereunder shall be implied from any omission by
Landlord to take any action on account of such default if such default persists
or is repeated, and no express waiver shall affect any default other than the
default specified in the express waiver and that only for the time and to the
extent therein stated. Each term and each provision of this Lease performable by
Tenant shall be construed to be both a covenant and a condition. The topical
headings of the several paragraphs and clauses are for convenience only and do
not define, limit or construe the contents of such paragraphs or clauses. All
preliminary negotiations are merged into and incorporated in this Lease. This
Lease can only be modified or amended by an agreement in writing signed by the
parties hereto, their successors or assigns. All provisions hereof shall be
binding upon the heirs, successors and assigns of each party hereto.
Tenant may exercise and continue to exercise all of its rights under this Lease
upon the occurrence and during the continuance of any default under this Lease
up to the point of termination of this Lease, including but not limited to the
Right of First Refusal and the options to extend the Term.
Whenever the consent or approval of the Landlord or Tenant is required by this
Lease, such consent or approval shall not be unreasonably withheld or delayed.
Time is of the essence under this Lease.
34. SEVERABILITY: The invalidity of any provision, clause or phrase herein
contained shall not serve to render the balance of this Lease ineffective or
void and the same shall be construed as if such had not been herein set forth.
<PAGE>
35. ANTENNA(E) INSTALLATION: Subject to the following provisions of this Section
35, Landlord grants Tenant the right, in common with Landlord and other tenants,
to install, operate and maintain, at Tenant's expense and risk, and without rent
or other charge therefor, a lawfully permitted antenna(e), satellite dish and
associated equipment (the "Antenna Equipment") at a location on the Building to
be determined by Tenant and reasonably acceptable to Landlord (the "Antenna
Premises"):
a) Tenant shall submit to Landlord for its approval, a full set of
engineering plans and specifications for the proposed Antenna
Equipment installation, such approval not to be unreasonably
withheld, conditioned or delayed;
b) Tenant shall make all required conduit or cable connections between
Tenant's equipment in the Premises and the Antenna Equipment,
subject to approval of such connections by Landlord, which approval
shall not be unreasonably withheld, conditioned or delayed;
c) Any Antenna Equipment installed by Tenant shall be erected so as not
to interfere with the operation of any previously erected
antenna(e), and Landlord shall not erect or permit the erection of
any antenna(e) so as to interfere with the operation of any Antenna
Equipment previously erected by Tenant;
d) Tenant shall obtain all necessary municipal, state and federal
permits and authorizations required to install, maintain and operate
the Antenna(e) Equipment and pay any charges levied by government
agencies which are the sole result of Tenant having the Antenna
Equipment. Landlord agrees to fully cooperate with Tenant in
obtaining all such permits and authorizations, at no cost or expense
to Landlord;
e) Tenant agrees to maintain the Antenna Equipment and Antenna Premises
in a good state of repair and to save Landlord harmless from any
claims, liability or expenses resulting from the erection,
maintenance, existence or removal of the Antenna Equipment, provided
that such loss, costs or damages are not due, in whole or in part,
to the negligence or willful misconduct of Landlord, its agents,
employees or contractors;
f) At the conclusion of the Term, Tenant shall remove the Antenna
Equipment and surrender and restore the Antenna Premises to Landlord
in substantially as good condition as when entered, except for loss
or damages resulting from casualty, condemnation, act of God or
ordinary wear and tear; and
g) The liability insurance to be carried by Tenant pursuant to the
provisions of this Lease shall include coverage for Tenant's
activity on the Antenna Premises. Tenant shall pay any increase in
rates for insurance which Landlord is required to carry under the
Lease resulting from the installation and use of the Antenna
Equipment by Tenant, provided Landlord delivers to Tenant evidence,
reasonably satisfactory to Tenant, of such increase and the reasons
therefor.
36. ADDITIONAL PROVISIONS:
A. If Tenant shall pay any Base Rent, Additional Rent or any other
amount under protest and later shall be deemed to have not owed all
or some part of the amount paid under
<PAGE>
protest, then Tenant may recover the same from Landlord or offset
against installments of Base Rent, Additional Rent and other amounts
payable by Tenant hereunder the amount paid under protest and
determined not to have been owed, together with interest thereon
from and after the date of payment under protest to the date of
recovery or offset at the rate of interest equal to two percent (2%)
plus the prime rate announced as such from time to time in the Wall
Street Journal under the section "Money Rates."
B. Landlord shall reimburse Tenant, in an amount not to exceed
$33,000.00, for additional rent incurred by Tenant by reason of its
occupancy of 3650 Annapolis Lane, Minneapolis, Minnesota, for the
months of January and February, 1998, such reimbursement to be made
on January 1, 1998 and February 1, 1998 respectively.
C. Landlord represents and warrants to Tenant that:
a) Landlord has good title to the Project free and clear of any
encumbrances that materially affects Tenant's rights or
obligations under this Lease.
b) Landlord has full power, right and authority to execute and
perform this Lease and all corporate action necessary so to do
has been duly taken.
c) To the best of Landlord's knowledge, there does not exist any
toxic or hazardous waste or material, or any pollutant or any
substance regulated by any environmental law in, under or
above the Project or any part thereof.
If requested by Tenant, Landlord and Tenant shall enter into a short form
memorandum of lease in form and substance reasonably acceptable to Landlord and
Tenant for the purpose of reflecting on the record title to the Project,
Tenant's leasehold estate and other rights under this Lease.
IN WITNESS WHEREOF, the respective parties hereto have caused this Lease to be
executed the day and year first above written.
LANDLORD:
RYAN COMPANIES US, INC.
BY: /s/
-------------------------------------
Its: /s/
-------------------------------------
TENANT:
ANGEION CORPORATION
BY: /s/
-------------------------------------
Its: /s/
-------------------------------------
<PAGE>
ADDENDUM TO LEASE
Article 1. Construction
1.1 Construction by Landlord. Landlord shall, at its sole cost
and expense, construct the Building and other improvements, including all common
area improvements and landscaping contemplated by the Outline Specifications
attached hereto as Exhibit D ("Landlord's Work"). Landlord's Work includes all
design, engineering, labor and material referenced in, reasonably inferable from
or otherwise necessary to complete the improvements contemplated by the Outline
Specifications and as the same are extended in the Final Plans and
Specifications, with exterior design and finish consistent with the elevations
attached as Exhibit F. The Landlord's Work shall be performed in a good and
workmanlike manner, consistent with best practices in the industry and in
compliance with all applicable legal requirements. All so-called "general
conditions" costs shall be borne by Landlord.
1.2 Adjustments and Credits. Any adjustment to the contract
price between Landlord (as "Owner") and Landlord (as "contractor") under the
Outline Specifications shall be borne by Landlord and shall not increase the
cost to Tenant, provided that (a) any deletion, substitution or other
modification to the Landlord's Work which result in a cost savings shall accrue
to Tenant and (b) discretionary change order issued by Tenant pursuant to
Section 1.4.6 below which result in an increase in the cost of Landlord's Work
shall be at Tenant's cost to the extent provided in Section 1.4.6 below.
1.3 Tenant Approval. Landlord shall consult with Tenant during
the preparation of, and shall submit to Tenant for its approval, the final plans
and specifications for the Landlord's Work, which approval shall not be
unreasonably withheld.
1.4 Leasehold Improvements.
1.4.1 Landlord shall construct and complete all of the work
set forth in the plans and specifications prepared by Tenant (the "Leasehold
Improvements"). Landlord shall at all times provide knowledgeable personnel to
perform its duties with respect to such construction, and acknowledges and
accepts the position of trust and confidence which it holds with respect to
Tenant in respect thereof. Owner shall be responsible for all aspects of the
Leasehold Improvements, other than as specifically directed by Tenant in
writing, necessary for the complete construction thereof, ready to turn over to
Tenant on a "turnkey basis"; for coordination of plans prepared by or on behalf
of Tenant with the base building and Landlord's Work; processing and documenting
change orders requested by Tenant; securing all necessary approvals and
authorizations, including but not limited to building permits; securing
competitive bids; negotiation of all construction contracts; monitoring and
inspecting the work and the progress thereof to the extent being performed by
others; and preparation of a "punch list" of incomplete or defective work,
including as required under any construction contract or this Lease.
<PAGE>
1.4.2 Landlord (or an affiliate of Landlord) will act as
general contractor for the Leasehold Improvements. The work to be performed by
the general contractor's own forces will not exceed concrete, carpentry, general
labor and supervision. Such work shall be performed at a cost not to exceed the
competitive cost thereof and Tenant may require the same to be bid for the
purpose of establishing cost pursuant to Section 1.4.8. The general
contractor's fee for the Leasehold Improvements shall not exceed 8% of the cost
of the Leasehold Improvements which is payable by Tenant (less such fee).
1.4.3 The portion of the Leasehold Improvements not to be
performed by Landlord's own forces shall be bid separately from Landlord's Work
and shall be fixed price contract, unless otherwise agreed by Tenant. Except for
changes in the Leasehold Improvements which are requested in writing by Tenant
and documented by a written change order executed by Tenant setting forth the
net cost to Tenant of such change (excluding changes requested by Tenant due to
defective or inadequate construction or other deficiencies not the fault of
Tenant), the cost to Tenant for the Leasehold Improvements shall not exceed the
accepted bid price therefor.
1.4.4 Landlord shall submit to Tenant for Tenant's reasonable
approval a bid list of at least three qualified subcontractors to perform each
division of the Leasehold Improvements. Tenant shall have the right to submit
and add qualified contractors to such bid list, subject to Landlord's reasonable
approval. Landlord shall be responsible to solicit a minimum of three bids for
the work in such format and in accordance with such bid requirements and
specifications as may be reasonably approved by Tenant, including without
limitation the itemization of the entire or designated portions of each bid.
Landlord shall be responsible to review and tabulate the bids, to consult with
Tenant regarding the bids, and shall recommend to Tenant, for Tenant's approval,
the lowest and best bid to be selected. Tenant may require all bids to be
rejected or may, with or without making changes to the Leasehold Improvements in
order to reduce the cost thereof, negotiate, or direct Landlord to negotiate,
with one or more of such in order to achieve an acceptable price for the
Leasehold Improvements.
1.4.5 All construction contracts entered into by Landlord for
the Leasehold Improvements shall (a) have warranties which are reasonably
acceptable to and (b) and shall not provide for liquidated damages or other
penalty or specific monetary payment for failure to complete, or any bonus for
completion of, the Leasehold Improvements by a particular time. Any premium cost
included in any construction contract for the Leasehold Improvements above the
cost to perform the work without overtime and in the ordinary course shall be
borne by Landlord.
1.4.6 Tenant may from time to time require changes in the
Landlord's Work and the Leasehold Improvements by submitting a written change
order therefor to Landlord. No change order shall (a) increase the costs to
Tenant or (b) extend the time by which any of such work shall be substantially
completed unless Landlord states in such change order, in the case of (a) the
net increase in costs to Tenant and provides an explanation thereof in
reasonable detail and, in the case of (b), the delay in substantial completion
directly attributable to such delay, provided that (i) no such statement shall
be binding on Tenant unless Tenant specifically accepts
<PAGE>
such statement in such change order and (ii) there shall be no increase in cost
to Tenant and no extension of the time for completion of any such work to the
extent the change order directs the correction of defective or inadequate
construction or other deficiencies (including but not limited to failure to
comply with applicable legal requirements) not the fault of Tenant.
1.4.7 Landlord shall permit Tenant's space planner, architects
and other consultants to inspect the Premises and Landlord's Work and the
Leasehold Improvements at all reasonable times after the date hereof. No
inspection by Tenant or any such person, and no approval or failure to reject
any of the Landlord's Work or the Leasehold Improvements, shall waive or release
the obligation of Landlord to construct and deliver the Premises with the
Landlord's Work and the Leasehold Improvements completed in accordance with the
requirements of this Lease, including as the same may be changed pursuant to
change orders made in accordance with this Lease.
1.4.8 Upon receipt by Owner of any application for payment
from any contractors engaged by Owner, or any communication, whether oral or
written, from such contractors, inspecting architects or engineers, governmental
authorities which may have a material effect on the Landlord's Work or the
Leasehold Improvements (including but not limited to any deficiency or
irregularity with respect thereto), Landlord shall provide copies of such
application or written communication to Tenant and otherwise advise Tenant of
the substance of any such oral communication.
1.4.9 Landlord shall pay all applications for payment in
respect of the Leasehold Improvements if and to the extent properly due and
owing for work completed in accordance with the construction contract covering
such work and this Lease. Subject to the terms and conditions of this Lease, all
such payments made by Landlord shall be charged against the leasehold allowance
provided for in Section 8.1 and 8.2 and then, after exhaustion thereof, to
Tenant. Landlord shall provide a written accounting to Tenant on the 15th day of
each month following the first payment made by Landlord for Leasehold
Improvements, showing in reasonable detail the payments made by Landlord during
the preceding month and the aggregate payments made by Owner for the Leasehold
Improvements through the end of such month. Landlord shall make and retain for a
period of three (3) years, complete books and records, with substantiating
evidence of costs, application for payment and the like, in respect of the
Leasehold Improvements.
1.5 Schedule for Submissions, Approvals, etc. Attached hereto
as Exhibit E is a construction schedule for the design, bidding and construction
of the Project and the Leasehold Improvements. Landlord and Tenant shall each
perform their respective responsibilities consistent with such schedule. If
Tenant fails to perform its responsibilities within the time provided, and to
give approvals in a timely fashion consistent with such schedule, then, except
to the extent any such failure is attributable to the fault of Landlord, the
time for performance by Landlord shall be extended by one (1) day for each day
by which such failure by Tenant continues, but in any event only if and to the
extent Landlord is actually delayed by such failure.
<PAGE>
2. EMF. Landlord covenants and agrees that the level of
electromagnetic force (EMF) in any part of the Premises which results from
electric current outside the Premises shall not exceed 10.0 milligauss at any
time. Landlord shall use its best efforts, including taking economically
feasible measures, to reduce to the extent reasonably possible, EMF below said
limit. Tenant shall be responsible, at its sole cost, to test and monitor EMF
levels in the Premises.
EXHIBIT 10.23
December 18, 1996
Whitney A. McFarlin
460 Peavey Lane
Wayzata, MN 55391
Dear Whit:
The Board considers the establishment and maintenance of a sound and
vital management to be essential to protecting and enhancing the best interests
of the Company and its stockholders. In this connection, the Board recognizes
that the possibility of a Change in Control may arise and that such possibility
and the uncertainty and questions which it may raise among management may result
in the departure or distraction of management personnel to the detriment of the
Company and its stockholders.
Accordingly, the Board has determined that appropriate steps should be
taken to minimize the risk that Company management will depart prior to a Change
in Control, thereby leaving the Company without adequate management personnel
during such a critical period, and to reinforce and encourage the continued
attention and dedication of members of the Company's management to their
assigned duties without distraction in circumstances arising from the
possibility of a Change in Control. In particular, the Board believes it
important, should the Company or its stockholders receive a proposal for
transfer of control, that you be able to continue your management
responsibilities without being influenced by the uncertainties of your own
personal situation.
The Board recognizes that continuance of your position with the Company
involves a substantial commitment to the Company in terms of your personal life
and professional career and the possibility of foregoing present and future
career opportunities, for which the Company receives substantial benefits.
Therefore, to induce you to remain in the employ of the Company, this Agreement,
which has been approved by the Board, sets forth the benefits which the Company
agrees will be provided to you in the event your employment with the Company is
terminated in connection with a Change in Control under the circumstances
described below.
1. Definitions. The following terms will have the meaning set forth below unless
the context clearly requires otherwise. Terms defined elsewhere in this
Agreement will have the same meaning throughout this Agreement.
(a) "Affiliate" means (i) any corporation at least a majority of whose
outstanding securities ordinarily having the right to vote at elections
of directors is owned directly or indirectly by the Parent Corporation
or (ii) any other form of business entity in which the Parent
Corporation, by virtue of a direct or indirect ownership interest, has
the right to elect a majority of the members of such entity's governing
body.
<PAGE>
(b) "Agreement" means this letter agreement as amended, extended or
renewed from time to time in accordance with its terms.
(c) "Base Pay" means your annual base salary from the Company at the
rate in effect immediately prior to a Change in Control or at the time
Notice of Termination is given, whichever is greater. Base Pay includes
only regular cash salary and is determined before any reduction for
deferrals pursuant to any nonqualified deferred compensation plan or
arrangement, qualified cash or deferred arrangement or cafeteria plan.
(d) "Benefit Plan" means any
(i) employee benefit plan as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended;
(ii) cafeteria plan described in Code Section 125;
(iii) plan, policy or practice providing for paid vacation,
other paid time off or short- or long-term profit sharing,
bonus or incentive payments; or
(iv) stock option, stock purchase, restricted stock, phantom
stock, stock appreciation right or other equity-based
compensation plan that is sponsored, maintained or contributed
to by the Company for the benefit of employees (and/or their
families and dependents) generally or you (and/or your family
and dependents) in particular.
(e) "Board" means the board of directors of the Parent Corporation duly
qualified and acting at the time in question. On and after the date of
a Change in Control, any duty of the Board in connection with this
Agreement is nondelegable and any attempt by the Board to delegate any
such duty is ineffective.
(f) "Cause" means: (i) your gross misconduct; (ii) your willful and
continued failure to perform substantially your duties with the Company
(other than a failure resulting from your incapacity due to bodily
injury or physical or mental illness) after a demand for substantial
performance is delivered to you by the chair of the Board which
specifically identifies the manner in which you have not substantially
performed your duties and provides for a reasonable period of time
within which you may take corrective measures; or (iii) your conviction
(including a plea of nolo contendere) of willfully engaging in illegal
conduct constituting a felony or gross misdemeanor under federal or
state law which is materially and demonstrably injurious to the Company
or which impairs your ability to perform substantially your duties for
the Company. An act or failure to act will be considered "gross" or
"willful" for this purpose only if done, or omitted to be done, by you
in bad faith and without reasonable belief that it was in, or not
opposed to, the best interests of the Company. Any act, or failure to
act, based upon authority given pursuant to a resolution duly adopted
by the Company's board of directors (or a committee thereof) or based
upon the advice of counsel for the Company will be conclusively
presumed to be done, or omitted to be done, by you in good faith and in
the best interests of the Company. Notwithstanding the foregoing, you
may not be terminated for Cause unless and until there has been
delivered to you a copy of a resolution duly adopted by the affirmative
vote of not less than a majority of the entire membership of the Board
at a meeting of the Board called and held for the purpose (after
reasonable notice to you and an opportunity for you, together with your
counsel, to be heard before the Board), finding that in the
<PAGE>
good faith opinion of the Board you were guilty of the conduct set
forth above in clauses (i), (ii) or (iii) of this definition and
specifying the particulars thereof in detail.
(g) "Change in Control" means any of the following: (i) the sale,
lease, exchange or other transfer, directly or indirectly, of all or
substantially all of the assets of the Parent Corporation, in one
transaction or in a series of related transactions, to any Person; (ii)
the approval by the stockholders of the Parent Corporation of any plan
or proposal for the liquidation or dissolution of the Parent
Corporation; (iii) any Person, other than a "bona fide underwriter," is
or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of (a) 20 percent or more, but
not 50 percent or more, of the combined voting power of the Parent
Corporation'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 "continuity
directors" or (b) 50 percent or more of the combined voting power of
the Parent Corporation's outstanding securities ordinarily having the
right to vote at elections of directors (regardless of any approval by
the continuity directors); (iv) a merger or consolidation to which the
Parent Corporation is a party if the stockholders of the Parent
Corporation immediately prior to the effective date of such merger or
consolidation have, solely on account of ownership of securities of the
Parent Corporation at such time, "beneficial ownership" (as defined in
Rule 13d-3 under the Exchange Act) immediately following the effective
date of such merger or consolidation of securities of the surviving
company representing (a) more than 50 percent, but less than 80
percent, 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 continuity 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 continuity directors);
(v) the continuity directors cease for any reason to constitute at
least a majority the Board; or (vi) a change in control of a nature
that is determined by outside legal counsel to the Parent Corporation,
in a written opinion specifically referencing this provision of the
Agreement, to be required to be reported (assuming such event has not
been "previously reported") pursuant to Section 13 or 15(d) of the
Exchange Act, whether or not the Parent Corporation is then subject to
such reporting requirement.
For purposes of this Section 1(g), a "continuity director" means any
individual who is a member of the Board on December 18, 1996, while he
or she is a member of the Board, and any individual who subsequently
becomes a member of the Board whose election or nomination for election
by the Parent Corporation's stockholders was approved by a vote of at
least a majority of the directors who are continuity directors (either
by a specific vote or by approval of the proxy statement of the Parent
Corporation in which such individual is named as a nominee for director
without objection to such nomination). For purposes of this Section
1(g), a "bona fide underwriter" means a Person engaged in business as
an underwriter of securities that acquires securities of the Parent
Corporation through such Person's participation in good faith in a firm
commitment underwriting until the expiration of 40 days after the date
of such acquisition.
(h) "Code" means the Internal Revenue Code of 1986, as amended. Any
reference to a specific provision of the Code includes a reference to
such provision as it may be amended from time to time and to any
successor provision.
(i) "Company" means the Parent Corporation, any Successor and any
Affiliate.
<PAGE>
(j) "Date of Termination" following a Change in Control (or prior to a
Change in Control if your termination was either a condition of the
Change in Control or was at the request or insistence of any Person
related to the Change in Control) means: (i) if your employment is to
be terminated by you for Good Reason, the date specified in the Notice
of Termination which in no event may be a date more than 15 days after
the date on which Notice of Termination is given unless the Company
agrees in writing to a later date; (ii) if your employment is to be
terminated by the Company for Cause, the date specified in the Notice
of Termination; (iii) if your employment is terminated by reason of
your death, the date of your death; or (iv) if your employment is to be
terminated by the Company for any reason other than Cause or your
death, the date specified in the Notice of Termination, which in no
event may be a date earlier than 15 days after the date on which a
Notice of Termination is given, unless you expressly agree in writing
to an earlier date. In the case of termination by the Company of your
employment for Cause, if you have not previously expressly agreed in
writing to the termination, then within the 30-day period after your
receipt of the Notice of Termination, you may notify the Company that a
dispute exists concerning the termination, in which event the Date of
Termination will be the date set either by mutual written agreement of
the parties or by the judge or arbitrators in a proceeding as provided
in Section 11 of this Agreement. During the pendency of any such
dispute, you will continue to make yourself available to provide
services to the Company and the Company will continue to pay you your
full compensation and benefits in effect immediately prior to the date
on which the Notice of Termination is given (without regard to any
changes to such compensation or benefits that constitute Good Reason)
and until the dispute is resolved in accordance with Section 11 of this
Agreement. You will be entitled to retain the full amount of any such
compensation and benefits without regard to the resolution of the
dispute unless the judge or arbitrators decide(s) that your claim of a
dispute was frivolous or advanced by you in bad faith.
(k) "Employment Agreement" means that certain Employment Agreement,
dated as of September 15, 1996, between the Parent Corporation and you.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
amended. Any reference to a specific provision of the Exchange Act or
to any rule or regulation thereunder includes a reference to such
provision as it may be amended from time to time and to any successor
provision.
(m) "Good Reason" means:
(i) a change in your status, position(s), duties or
responsibilities as an executive of the Company as in effect
immediately prior to the Change in Control which, in your
reasonable judgment, is adverse (other than, if applicable,
any such change directly attributable to the fact that the
Parent Corporation is no longer publicly owned); provided,
however, that Good Reason does not include a change in your
status, position(s), duties or responsibilities caused by an
insubstantial and inadvertent action that is remedied by the
Company promptly after receipt of notice of such change is
given by you;
(ii) a reduction by the Company in your Base Pay, 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 cover you under Benefit
Plans that, in the aggregate, provide substantially similar
benefits to you and/or your family and dependents
<PAGE>
at a substantially similar total cost to you (e.g., premiums,
deductibles, co-pays, out of pocket maximums, required
contributions and the like) relative to the benefits and total
costs under the Benefit Plans in which you (and/or your family
or dependents) were participating at any time during the
90-day period immediately preceding the Change in Control;
(iv) the Company's requiring you to be based more than 30
miles from where your office is located immediately prior to
the Change in Control, except for required travel on the
Company's business, and then only to the extent substantially
consistent with the business travel obligations which you
undertook on behalf of the Company during the 90-day period
immediately preceding the Change in Control (without regard to
travel related to or in anticipation of the Change in
Control);
(v) the failure by the Company to obtain from any Successor
the assent to this Agreement contemplated by Section 5 of this
Agreement;
(vi) any purported termination by the Company of your
employment that is not properly effected pursuant to a Notice
of Termination and pursuant to any other requirements of this
Agreement, and, for purposes of this Agreement, no such
purported termination will be effective; or
(vii) any refusal by the Company to continue to allow you to
attend to matters or engage in activities not directly related
to the business of the Company which, at any time prior to the
Change in Control, you were not expressly prohibited in
writing by the Board from attending to or engaging in.
Your continued employment does not constitute consent to, or
waiver of any rights arising in connection with, any circumstances
constituting Good Reason. Your termination of employment for Good
Reason as defined in this Section 1(m) will constitute Good Reason for
all purposes of this Agreement notwithstanding that you may also
thereby be deemed to have retired under any applicable retirement
programs of the Company.
(n) "Notice of Termination" means a written notice given on or after
the date of a Change in Control (unless your termination before the
date of the Change in Control was either a condition of the Change in
Control or was at the request or insistence of any Person related to
the Change in Control) which indicates the specific termination
provision in this Agreement pursuant to which the notice is given. Any
purported termination by the Company or by you for Good Reason on or
after the date of a Change in Control (or before the date of a Change
in Control if your termination was either a condition of the Change in
Control or was at the request or insistence of any Person related to
the Change in Control) must be communicated by written Notice of
Termination to be effective; provided, that your failure to provide
Notice of Termination will not limit any of your rights under this
Agreement except to the extent the Company demonstrates that it
suffered material actual damages by reason of such failure.
(o) "Parent Corporation" means Angeion Corporation and any Successor.
(p) "Person" means any individual, corporation, partnership, group,
association or other "person," as such term is used in Section 14(d) of
the Exchange Act, other than the Parent
<PAGE>
Corporation, any Affiliate or any benefit plan(s) sponsored by the
Parent Corporation or an Affiliate.
(q) "Successor" means any Person that succeeds to, or has the practical
ability to control (either immediately or solely with the passage of
time), the Parent Corporation's business directly, by merger,
consolidation or other form of business combination, or indirectly, by
purchase of the Parent Corporation's outstanding securities ordinarily
having the right to vote at the election of directors or all or
substantially all of its assets or otherwise.
2. Term of Agreement. This Agreement is effective immediately and will continue
in effect until January 1, 1999; provided, however, that commencing on January
1, 1999 and each January 1 thereafter, the term of this Agreement will
automatically be extended for 12 additional months beyond the expiration date
otherwise then in effect, unless at least 90 calendar days prior to any such
January 1, the Company or you has given notice that this Agreement will not be
extended; and, provided, further, that if a Change in Control has occurred
during the term of this Agreement, this Agreement will continue in effect beyond
the termination date then in effect for a period of 24 months following the
month during which the Change in Control occurs or, if later, until the date on
which the Company's obligations to you arising under or in connection with this
Agreement have been satisfied in full.
3. Benefits upon a Change in Control Termination. You will become entitled to
the benefits described in this Section 3 if and only if (a) the Company
terminates your employment for any reason other than your death or Cause, or you
terminate your employment with the Company for Good Reason and (b) the
termination occurs either within the period beginning on the date of a Change in
Control and ending on the last day of the 24th month that begins after the month
during which the Change in Control occurs or prior to a Change in Control if
your termination was either a condition of the Change in Control or was at the
request or insistence of a Person related to the Change in Control.
(a) Cash Payment. Within 10 business days following the Date of
Termination, or, if later, within 10 business days following the date
of the Change in Control, the Company will make a lump-sum cash payment
to you in an amount equal to two times your Base Pay.
(b) Group Health Plans. During the continuation period, the Company
will maintain a group health plan(s) which by its terms covers you (and
your family members and dependents who were eligible to be covered at
any time during the 90-day period immediately prior to the date of a
Change in Control for the period after the Change in Control in which
such family members and dependents would otherwise continue to be
covered under the terms of the plan in effect immediately prior to the
Change in Control) under the same terms and at the same cost to you and
your family members and dependents as similarly situated individuals
who continue to be employed by the Company (without regard to any
reduction in such benefits that constitutes Good Reason). The
continuation period under applicable federal and state continuation
laws will begin to run from the date on which coverage pursuant to this
Section 3(b) ends. The "continuation period" is the period beginning on
your Date of Termination and ending on the earlier of (i) the last day
of the 24th month that begins after your Date of Termination or (ii)
the date after your Date of Termination on which you first become
eligible to participate as an employee in a plan of another employer
providing group health benefits to you and your eligible family members
and dependents which plan does not contain any exclusion or limitation
with respect to any pre-existing condition of you or any eligible
family member or dependent who would otherwise be covered under the
Company's plan but for this clause (ii). To the extent you incur a tax
liability (including federal,
<PAGE>
state and local taxes and any interest and penalties with respect
thereto) in connection with a benefit provided pursuant to this Section
3(b) which you would not have incurred had you been an active employee
of the Company participating in the Company's group health plan, the
Company will make a payment to you in an amount equal to such tax
liability plus an additional amount sufficient to permit you to retain
a net amount after all taxes (including penalties and interest) equal
to the initial tax liability in connection with the benefit. For
purposes of applying the foregoing, your tax rate will be deemed to be
the highest statutory marginal state and federal tax rate (on a
combined basis) then in effect. The payment pursuant to this Section
3(b) will be made within 10 days after your remittal of a written
request therefor accompanied by a statement indicating the basis for
and amount of the liability.
(c) Gross-Up Payments. Following a Change in Control, the Company will
cause its independent auditors promptly to review, at the Company's
sole expense, the applicability of Code Section 4999 to any payment or
distribution of any type by the Company to or for your benefit, whether
paid or payable or distributed or distributable pursuant to the terms
of this Agreement, any Benefit Plan or otherwise (the "Total
Payments"). If the auditor determines that the Total Payments result in
an excise tax imposed by Code Section 4999 or any comparable state or
local law, or any interest or penalties with respect to such excise tax
(such excise tax, together with any such interest and penalties, are
collectively referred to as the "Excise Tax"), the Company will make an
additional cash payment (a "Gross-Up Payment") to you within 10 days
after such determination equal to an amount such that after payment by
you of all taxes (including any interest or penalties imposed with
respect to such taxes), including any Excise Tax, imposed upon the
Gross-Up Payment, you would retain an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Total Payments. For purposes
of the foregoing determination, your tax rate will be deemed to be the
highest statutory marginal state and federal tax rate (on a combined
basis) then in effect. If no determination by the Company's auditors is
made prior to the time you are required to file a tax return reflecting
the Total Payments, you will be entitled to receive from the Company a
Gross-Up Payment calculated on the basis of the Excise Tax you reported
in such tax return, within 10 days after the later of the date on which
you file such tax return or the date on which you provide a copy
thereof to the Company. In all events, if any tax authority determines
that a greater Excise Tax should be imposed upon the Total Payments
than is determined by the Company's independent auditors or reflected
in your tax return pursuant to this Section 3(c), you will be entitled
to receive from the Company the full Gross-Up Payment calculated on the
basis of the amount of Excise Tax determined to be payable by such tax
authority within 10 days after you notify the Company of such
determination.
(d) Out Placement Assistance. The Company will pay up to five percent
of your Base Pay for out placement counseling to you. Such payments
will be made either directly to the counselor or to you within 10 days
after presentation of an invoice for services rendered or to be
rendered.
If, on or after the date of a Change in Control, an Affiliate is sold, merged,
transferred or in any other manner or for any other reason ceases to be an
Affiliate or all or any portion of the business or assets of an Affiliate are
sold, transferred or otherwise disposed of and the acquiror is not the Parent
Corporation or an Affiliate (a "Disposition"), and you remain or become employed
by the acquiror or an affiliate of the acquiror (as defined in this Agreement
but substituting "acquiror" for "Parent Corporation") in connection with the
Disposition, you will be deemed to have terminated employment on the effective
date of the Disposition for purposes of this Section 3 unless (x) the acquiror
and its affiliates jointly and severally expressly assume and agree, in a manner
that is enforceable by you, to perform the obligations of this
<PAGE>
Agreement to the same extent that the Company would be required to perform if
the Disposition had not occurred and (y) the Successor guarantees, in a manner
that is enforceable by you, payment and performance by the acquiror.
4. Indemnification. Following a Change in Control, the Company will indemnify
and advance expenses to you to the full extent permitted by law for damages,
costs and expenses (including, without limitation, judgments, fines, penalties,
settlements and reasonable fees and expenses of your counsel) incurred in
connection with all matters, events and transactions relating to your service to
or status with the Company or any other corporation, employee benefit plan or
other entity with whom you served at the request of the Company.
5. Successors. The Parent Corporation will seek to have any Successor, by
agreement in form and substance satisfactory to you, assent to the fulfillment
by the Company of the Company's obligations under this Agreement. Failure of the
Parent Corporation to obtain such assent at least three business days prior to
the time a Person becomes a Successor (or where the Parent Corporation does not
have at least three business days' advance notice that a Person may become a
Successor, within one business day after having notice that such Person may
become or has become a Successor) will constitute Good Reason for termination by
you of your employment. The date on which any such succession becomes effective
will be deemed the Date of Termination, and Notice of Termination will be deemed
to have been given on that date. A Successor has no rights, authority or power
with respect to this Agreement prior to a Change in Control.
6. Binding Agreement. This Agreement inures to the benefit of, and is
enforceable by, you, your personal and legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If you
die while any amount would still be payable to you under this Agreement if you
had continued to live, all such amounts, unless otherwise provided in this
Agreement, will be paid in accordance with the terms of this Agreement to your
devisee, legatee or other designee or, if there be no such designee, to your
estate.
7. No Mitigation. You will not be required to mitigate the amount of any
benefits the Company becomes obligated to provide to you in connection with this
Agreement by seeking other employment or otherwise. The benefits to be provided
to you in connection with this Agreement may not be reduced, offset or subject
to recovery by the Company by any benefits you may receive from other employment
or otherwise.
8. No Setoff. The Company has no right to setoff benefits owed to you under this
Agreement against amounts owed or claimed to be owed by you to the Company under
this Agreement or otherwise.
9. Taxes. All benefits to be provided to you in connection with this Agreement
will be subject to required withholding of federal, state and local income,
excise and employment-related taxes.
10. Notices. For the purposes of this Agreement, notices and all other
communications provided for in, or required under, this Agreement must be in
writing and will be deemed to have been duly given when personally delivered or
when mailed by United States registered or certified mail, return receipt
requested, postage prepaid and addressed to each party's respective address set
forth on the first page of this Agreement (provided that all notices to the
Company must be directed to the attention of the chair of the Board), or to such
other address as either party may have furnished to the other in writing in
accordance with these provisions, except that notice of change of address will
be effective only upon receipt.
<PAGE>
11. Disputes. If you so elect, any dispute, controversy or claim arising under
or in connection with this Agreement will be settled exclusively by binding
arbitration administered by the American Arbitration Association in Minneapolis,
Minnesota in accordance with the Commercial Arbitration Rules of the American
Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, that you may seek
specific performance of your right to receive benefits until the Date of
Termination during the pendency of any dispute or controversy arising under or
in connection with this Agreement. If any dispute, controversy or claim for
damages arising under or in connection with this Agreement is settled by
arbitration, the Company will pay, or if elected by you, reimburse, all fees,
costs and expenses incurred by you related to such arbitration. If you do not
elect arbitration, you may pursue all available legal remedies. The Company will
pay, or if elected by you, reimburse you for, all fees, costs and expenses
incurred by you in connection with any actual, threatened or contemplated
litigation relating to this Agreement to which you are or reasonably expect to
become a party, whether or not initiated by you, if you are successful in
recovering any benefit under this Agreement as a result of such action. The
parties agree that any litigation arising under or in connection with this
Agreement must be brought in a court of competent jurisdiction in the State of
Minnesota, and hereby consent to the exclusive jurisdiction of said courts for
this purpose and agree not to assert that such courts are an inconvenient forum.
The Company will not assert in any dispute or controversy with you arising under
or in connection with this Agreement your failure to exhaust administrative
remedies.
12. Related Agreements.
(a) Other than as provided in Section 12(b) of this Agreement, to the
extent that any provision of any other Benefit Plan or agreement
between the Company and you limits, qualifies or is inconsistent with
any provision of this Agreement, then for purposes of this Agreement,
while such other Benefit Plan or agreement remains in force, the
provision of this Agreement will control and such provision of such
other Benefit Plan or agreement will be deemed to have been superseded,
and to be of no force or effect, as if such other agreement had been
formally amended to the extent necessary to accomplish such purpose.
Nothing in this Agreement prevents or limits your continuing or future
participation in any Benefit Plan provided by the Company and for which
you may qualify, and nothing in this Agreement limits or otherwise
affects the rights you may have under any Benefit Plans or (other than
as provided in Section 12(b) of this Agreement) other agreements with
the Company. Amounts that are vested benefits or which you are
otherwise entitled to receive under any Benefit Plan or (other than as
provided in Section 12(b) of this Agreement) other agreement with the
Company at or subsequent to the Date of Termination will be payable in
accordance with such Benefit Plan or other agreement.
(b) This Agreement will not control or supersede the Employment
Agreement, which will control in the event of conflicts with this
Agreement; provided, however, that (i) following a Change in Control
(or prior to a Change in Control if your termination was either a
condition of the Change in Control or was at the request or insistence
of any Person related to the Change in Control), the definition of the
term "cause" will be superseded by the definition provided by this
Agreement and the rights and obligations of the Company and you with
respect to notice of termination and the date of termination will be as
provided by Sections 1(j) and 1(m) of this Agreement; (ii) the
definition of the terms "change in control" and "good reason" will at
all times be superseded by the definitions provided in this Agreement;
and (iii) in the event that you become entitled to benefits pursuant to
Section 3 of this Agreement (the determination of which will at all
times be made pursuant to the terms and conditions of this Agreement),
the severance benefits provided by Sections 7(a)(i), 7(b)(i) and
7(c)(i), and the limitations provided by Section 7(e), of the
<PAGE>
Employment Agreement will be deemed to have been superseded by this
Agreement. A conflict between this Agreement and the Employment
Agreement will only be deemed to exist in the event that the express
provisions of one agreement provide for the treatment of a specific
matter in a manner different from the treatment afforded by the express
provisions of the other agreement. A conflict will not be deemed to
exist simply because one agreement provides for the treatment of a
specific matter and the other agreement is silent on the treatment of
such specific matter.
13. No Employment or Service Contract. Nothing in this Agreement is intended to
provide you with any right to continue in the employ of the Company for any
period of specific duration or interfere with or otherwise restrict in any way
your rights or the rights of the Company, which rights are hereby expressly
reserved by each, to terminate your employment at any time for any reason or no
reason whatsoever, with or without cause.
14. Change of Affiliate Status. This Agreement will become null and void if,
prior to a Change in Control: (a) an Affiliate is sold, merged, transferred or
in any other manner or for any other reason ceases to be an Affiliate or all or
any portion of the business or assets of an Affiliate or sold, transferred or
otherwise disposed of and no Change in Control occurs in connection therewith;
(b) your primary employment duties are with the Affiliate at the time of the
occurrence of such event; and (c) you do not, in conjunction therewith, transfer
employment directly to the Company.
15. Funding and Payment. Benefits payable under this Agreement will be paid only
from the general assets of the Company. No person has any right to or interest
in any specific assets of the Company by reason of this Agreement. To the extent
benefits under this Agreement are not paid when due to any individual, he or she
is a general unsecured creditor of the Company with respect to any amounts due.
The Company with whom you were employed immediately before your Date of
Termination has primary responsibility for benefits to which you or any other
person are entitled pursuant to this Agreement but to the extent such Company is
unable or unwilling to provide such benefits, the Parent Corporation and each
other Affiliate are jointly and severally responsible therefor to the extent
permitted by applicable law. If you were simultaneously employed by more than
one Company immediately before your Date of Termination, each such Company has
primary responsibility for a portion of the benefits to which you or any other
person are entitled pursuant to this Agreement that bears the same ratio to the
total benefits to which you or such other person are entitled pursuant to this
Agreement as your Base Pay from the Company immediately before your Date of
Termination bears to your aggregate Base Pay from all such Companies.
16. Survival. The respective obligations of, and benefits afforded to, the
Company and you which by their express terms or clear intent survive termination
of your employment with the Company or termination of this Agreement, as the
case may be, will survive termination of your employment with the Company or
termination of this Agreement, as the case may be, and will remain in full force
and effect according to their terms.
17. Miscellaneous. No provision of this Agreement may be modified, waived or
discharged unless such modification, waiver or discharge is agreed to in a
writing signed by you and the chair of the Board. No waiver by any party to this
Agreement at any time of any breach by another party to this Agreement of, or of
compliance with, any condition or provision of this Agreement to be performed by
such party will be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject
<PAGE>
matter to this Agreement have been made by any party which are not expressly set
forth in this Agreement. This Agreement and the legal relations among the
parties as to all matters, including, without limitation, matters of validity,
interpretation, construction, performance and remedies, will be governed by and
construed exclusively in accordance with the internal laws of the State of
Minnesota (without regard to the conflict of laws principles of any
jurisdiction). Headings are for purposes of convenience only and do not
constitute a part of this Agreement. The parties to this Agreement agree to
perform, or cause to be performed, such further acts and deeds and to execute
and deliver or cause to be executed and delivered, such additional or
supplemental documents or instruments as may be reasonably required by the other
party to carry into effect the intent and purpose of this Agreement. The
invalidity or unenforceability of all or any part of any provision of this
Agreement will not affect the validity or enforceability of the remainder of
such provision or of any other provision of this Agreement, which will remain in
full force and effect. This Agreement may be executed in several counterparts,
each of which will be deemed to be an original, but all of which together will
constitute one and the same instrument.
If this letter correctly sets forth our agreement on the subject matter
discussed above, kindly sign and return to the Company the enclosed copy of this
letter which will then constitute our agreement on this subject.
Sincerely,
ANGEION CORPORATION
By: /s/ David L. Christofferson
-------------------------------------------
David L. Christofferson
Chief Financial Officer
Agreed to as of this 18th day of December, 1996.
/s/ Whitney A. McFarlin
------------------------------------------------
Whitney A. McFarlin
EXHIBIT 10.24
December 18, 1996
David L. Christofferson
13409 Xerxes Avenue South
Burnsville, MN 55337
Dear Dave:
The Board considers the establishment and maintenance of a sound and
vital management to be essential to protecting and enhancing the best interests
of the Company and its stockholders. In this connection, the Board recognizes
that the possibility of a Change in Control may arise and that such possibility
and the uncertainty and questions which it may raise among management may result
in the departure or distraction of management personnel to the detriment of the
Company and its stockholders.
Accordingly, the Board has determined that appropriate steps should be
taken to minimize the risk that Company management will depart prior to a Change
in Control, thereby leaving the Company without adequate management personnel
during such a critical period, and to reinforce and encourage the continued
attention and dedication of members of the Company's management to their
assigned duties without distraction in circumstances arising from the
possibility of a Change in Control. In particular, the Board believes it
important, should the Company or its stockholders receive a proposal for
transfer of control, that you be able to continue your management
responsibilities without being influenced by the uncertainties of your own
personal situation.
The Board recognizes that continuance of your position with the Company
involves a substantial commitment to the Company in terms of your personal life
and professional career and the possibility of foregoing present and future
career opportunities, for which the Company receives substantial benefits.
Therefore, to induce you to remain in the employ of the Company, this Agreement,
which has been approved by the Board, sets forth the benefits which the Company
agrees will be provided to you in the event your employment with the Company is
terminated in connection with a Change in Control under the circumstances
described below.
1. Definitions. The following terms will have the meaning set forth below unless
the context clearly requires otherwise. Terms defined elsewhere in this
Agreement will have the same meaning throughout this Agreement.
(a) "Affiliate" means (i) any corporation at least a majority of whose
outstanding securities ordinarily having the right to vote at elections
of directors is owned directly or indirectly by the Parent Corporation
or (ii) any other form of business entity in which the Parent
Corporation, by virtue of a direct or indirect ownership interest, has
the right to elect a majority of the members of such entity's governing
body.
<PAGE>
(b) "Agreement" means this letter agreement as amended, extended or
renewed from time to time in accordance with its terms.
(c) "Base Pay" means your annual base salary from the Company at the
rate in effect immediately prior to a Change in Control or at the time
Notice of Termination is given, whichever is greater. Base Pay includes
only regular cash salary and is determined before any reduction for
deferrals pursuant to any nonqualified deferred compensation plan or
arrangement, qualified cash or deferred arrangement or cafeteria plan.
(d) "Benefit Plan" means any
(i) employee benefit plan as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended;
(ii) cafeteria plan described in Code Section 125;
(iii) plan, policy or practice providing for paid vacation,
other paid time off or short- or long-term profit sharing,
bonus or incentive payments; or
(iv) stock option, stock purchase, restricted stock, phantom
stock, stock appreciation right or other equity-based
compensation plan that is sponsored, maintained or contributed
to by the Company for the benefit of employees (and/or their
families and dependents) generally or you (and/or your family
and dependents) in particular.
(e) "Board" means the board of directors of the Parent Corporation duly
qualified and acting at the time in question. On and after the date of
a Change in Control, any duty of the Board in connection with this
Agreement is nondelegable and any attempt by the Board to delegate any
such duty is ineffective.
(f) "Cause" means: (i) your gross misconduct; (ii) your willful and
continued failure to perform ----- substantially your duties with the
Company (other than a failure resulting from your incapacity due to
bodily injury or physical or mental illness) after a demand for
substantial performance is delivered to you by the chair of the Board
which specifically identifies the manner in which you have not
substantially performed your duties and provides for a reasonable
period of time within which you may take corrective measures; or (iii)
your conviction (including a plea of nolo contendere) of willfully
engaging in illegal conduct constituting a felony or gross misdemeanor
under federal or state law which is materially and demonstrably
injurious to the Company or which impairs your ability to perform
substantially your duties for the Company. An act or failure to act
will be considered "gross" or "willful" for this purpose only if done,
or omitted to be done, by you in bad faith and without reasonable
belief that it was in, or not opposed to, the best interests of the
Company. Any act, or failure to act, based upon authority given
pursuant to a resolution duly adopted by the Company's board of
directors (or a committee thereof) or based upon the advice of counsel
for the Company will be conclusively presumed to be done, or omitted to
be done, by you in good faith and in the best interests of the Company.
Notwithstanding the foregoing, you may not be terminated for Cause
unless and until there has been delivered to you a copy of a resolution
duly adopted by the affirmative vote of not less than a majority of the
entire membership of the Board at a meeting of the Board called and
held for the purpose (after reasonable notice to you and an opportunity
for you, together with
<PAGE>
your counsel, to be heard before the Board), finding that in the good
faith opinion of the Board you were guilty of the conduct set forth
above in clauses (i), (ii) or (iii) of this definition and specifying
the particulars thereof in detail.
(g) "Change in Control" means any of the following: (i) the sale,
lease, exchange or other transfer, directly or indirectly, of all or
substantially all of the assets of the Parent Corporation, in one
transaction or in a series of related transactions, to any Person; (ii)
the approval by the stockholders of the Parent Corporation of any plan
or proposal for the liquidation or dissolution of the Parent
Corporation; (iii) any Person, other than a "bona fide underwriter," is
or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of (a) 20 percent or more, but
not 50 percent or more, of the combined voting power of the Parent
Corporation'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 "continuity
directors" or (b) 50 percent or more of the combined voting power of
the Parent Corporation's outstanding securities ordinarily having the
right to vote at elections of directors (regardless of any approval by
the continuity directors); (iv) a merger or consolidation to which the
Parent Corporation is a party if the stockholders of the Parent
Corporation immediately prior to the effective date of such merger or
consolidation have, solely on account of ownership of securities of the
Parent Corporation at such time, "beneficial ownership" (as defined in
Rule 13d-3 under the Exchange Act) immediately following the effective
date of such merger or consolidation of securities of the surviving
company representing (a) more than 50 percent, but less than 80
percent, 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 continuity 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 continuity directors);
(v) the continuity directors cease for any reason to constitute at
least a majority the Board; or (vi) a change in control of a nature
that is determined by outside legal counsel to the Parent Corporation,
in a written opinion specifically referencing this provision of the
Agreement, to be required to be reported (assuming such event has not
been "previously reported") pursuant to Section 13 or 15(d) of the
Exchange Act, whether or not the Parent Corporation is then subject to
such reporting requirement.
For purposes of this Section 1(g), a "continuity director" means any
individual who is a member of the Board on December 18, 1996, while he
or she is a member of the Board, and any individual who subsequently
becomes a member of the Board whose election or nomination for election
by the Parent Corporation's stockholders was approved by a vote of at
least a majority of the directors who are continuity directors (either
by a specific vote or by approval of the proxy statement of the Parent
Corporation in which such individual is named as a nominee for director
without objection to such nomination). For purposes of this Section
1(g), a "bona fide underwriter" means a Person engaged in business as
an underwriter of securities that acquires securities of the Parent
Corporation through such Person's participation in good faith in a firm
commitment underwriting until the expiration of 40 days after the date
of such acquisition.
(h) "Code" means the Internal Revenue Code of 1986, as amended. Any
reference to a specific provision of the Code includes a reference to
such provision as it may be amended from time to time and to any
successor provision.
<PAGE>
(i) "Company" means the Parent Corporation, any Successor and any
Affiliate.
(j) "Date of Termination" following a Change in Control (or prior to a
Change in Control if your termination was either a condition of the
Change in Control or was at the request or insistence of any Person
related to the Change in Control) means: (i) if your employment is to
be terminated by you for Good Reason, the date specified in the Notice
of Termination which in no event may be a date more than 15 days after
the date on which Notice of Termination is given unless the Company
agrees in writing to a later date; (ii) if your employment is to be
terminated by the Company for Cause, the date specified in the Notice
of Termination; (iii) if your employment is terminated by reason of
your death, the date of your death; or (iv) if your employment is to be
terminated by the Company for any reason other than Cause or your
death, the date specified in the Notice of Termination, which in no
event may be a date earlier than 15 days after the date on which a
Notice of Termination is given, unless you expressly agree in writing
to an earlier date. In the case of termination by the Company of your
employment for Cause, if you have not previously expressly agreed in
writing to the termination, then within the 30-day period after your
receipt of the Notice of Termination, you may notify the Company that a
dispute exists concerning the termination, in which event the Date of
Termination will be the date set either by mutual written agreement of
the parties or by the judge or arbitrators in a proceeding as provided
in Section 11 of this Agreement. During the pendency of any such
dispute, you will continue to make yourself available to provide
services to the Company and the Company will continue to pay you your
full compensation and benefits in effect immediately prior to the date
on which the Notice of Termination is given (without regard to any
changes to such compensation or benefits that constitute Good Reason)
and until the dispute is resolved in accordance with Section 11 of this
Agreement. You will be entitled to retain the full amount of any such
compensation and benefits without regard to the resolution of the
dispute unless the judge or arbitrators decide(s) that your claim of a
dispute was frivolous or advanced by you in bad faith.
(k) "Employment Agreement" means that certain Employment Agreement,
dated as of April 20, 1993, between the Parent Corporation and you.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
amended. Any reference to a specific provision of the Exchange Act or
to any rule or regulation thereunder includes a reference to such
provision as it may be amended from time to time and to any successor
provision.
(m) "Good Reason" means:
(i) a change in your status, position(s), duties or
responsibilities as an executive of the Company as in effect
immediately prior to the Change in Control which, in your
reasonable judgment, is adverse (other than, if applicable,
any such change directly attributable to the fact that the
Parent Corporation is no longer publicly owned); provided,
however, that Good Reason does not include a change in your
status, position(s), duties or responsibilities caused by an
insubstantial and inadvertent action that is remedied by the
Company promptly after receipt of notice of such change is
given by you;
<PAGE>
(ii) a reduction by the Company in your Base Pay, 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 cover you under Benefit
Plans that, in the aggregate, provide substantially similar
benefits to you and/or your family and dependents at a
substantially similar total cost to you (e.g., premiums,
deductibles, co-pays, out of pocket maximums, required
contributions and the like) relative to the benefits and total
costs under the Benefit Plans in which you (and/or your family
or dependents) were participating at any time during the
90-day period immediately preceding the Change in Control;
(iv) the Company's requiring you to be based more than 30
miles from where your office is located immediately prior to
the Change in Control, except for required travel on the
Company's business, and then only to the extent substantially
consistent with the business travel obligations which you
undertook on behalf of the Company during the 90-day period
immediately preceding the Change in Control (without regard to
travel related to or in anticipation of the Change in
Control);
(v) the failure by the Company to obtain from any Successor
the assent to this Agreement contemplated by Section 5 of this
Agreement;
(vi) any purported termination by the Company of your
employment that is not properly effected pursuant to a Notice
of Termination and pursuant to any other requirements of this
Agreement, and, for purposes of this Agreement, no such
purported termination will be effective; or
(vii) any refusal by the Company to continue to allow you to
attend to matters or engage in activities not directly related
to the business of the Company which, at any time prior to the
Change in Control, you were not expressly prohibited in
writing by the Board from attending to or engaging in.
Your continued employment does not constitute consent to, or
waiver of any rights arising in connection with, any circumstances
constituting Good Reason. Your termination of employment for Good
Reason as defined in this Section 1(m) will constitute Good Reason for
all purposes of this Agreement notwithstanding that you may also
thereby be deemed to have retired under any applicable retirement
programs of the Company.
(n) "Notice of Termination" means a written notice given on or after
the date of a Change in Control (unless your termination before the
date of the Change in Control was either a condition of the Change in
Control or was at the request or insistence of any Person related to
the Change in Control) which indicates the specific termination
provision in this Agreement pursuant to which the notice is given. Any
purported termination by the Company or by you for Good Reason on or
after the date of a Change in Control (or before the date of a Change
in Control if your termination was either a condition of the Change in
Control or was at the request or insistence of any Person related to
the Change in Control) must be communicated by written Notice of
Termination to be effective; provided, that your failure to provide
Notice of
<PAGE>
Termination will not limit any of your rights under this Agreement
except to the extent the Company demonstrates that it suffered material
actual damages by reason of such failure.
(o) "Parent Corporation" means Angeion Corporation and any Successor.
(p) "Person" means any individual, corporation, partnership, group,
association or other "person," as such term is used in Section 14(d) of
the Exchange Act, other than the Parent Corporation, any Affiliate or
any benefit plan(s) sponsored by the Parent Corporation or an
Affiliate.
(q) "Successor" means any Person that succeeds to, or has the practical
ability to control (either immediately or solely with the passage of
time), the Parent Corporation's business directly, by merger,
consolidation or other form of business combination, or indirectly, by
purchase of the Parent Corporation's outstanding securities ordinarily
having the right to vote at the election of directors or all or
substantially all of its assets or otherwise.
2. Term of Agreement. This Agreement is effective immediately and will continue
in effect until January 1, 1999; provided, however, that commencing on January
1, 1999 and each January 1 thereafter, the term of this Agreement will
automatically be extended for 12 additional months beyond the expiration date
otherwise then in effect, unless at least 90 calendar days prior to any such
January 1, the Company or you has given notice that this Agreement will not be
extended; and, provided, further, that if a Change in Control has occurred
during the term of this Agreement, this Agreement will continue in effect beyond
the termination date then in effect for a period of 24 months following the
month during which the Change in Control occurs or, if later, until the date on
which the Company's obligations to you arising under or in connection with this
Agreement have been satisfied in full.
3. Benefits upon a Change in Control Termination. You will become entitled to
the benefits described in this Section 3 if and only if (a) the Company
terminates your employment for any reason other than your death or Cause, or you
terminate your employment with the Company for Good Reason and (b) the
termination occurs either within the period beginning on the date of a Change in
Control and ending on the last day of the 24th month that begins after the month
during which the Change in Control occurs or prior to a Change in Control if
your termination was either a condition of the Change in Control or was at the
request or insistence of a Person related to the Change in Control.
(a) Cash Payment. Within 10 business days following the Date of
Termination, or, if later, within 10 business days following the date
of the Change in Control, the Company will make a lump-sum cash payment
to you in an amount equal to two times your Base Pay.
(b) Group Health Plans. During the continuation period, the Company
will maintain a group health plan(s) which by its terms covers you (and
your family members and dependents who were eligible to be covered at
any time during the 90-day period immediately prior to the date of a
Change in Control for the period after the Change in Control in which
such family members and dependents would otherwise continue to be
covered under the terms of the plan in effect immediately prior to the
Change in Control) under the same terms and at the same cost to you and
your family members and dependents as similarly situated individuals
who continue to be employed by the Company (without regard to any
reduction in such benefits that constitutes Good Reason). The
continuation period under applicable federal and state continuation
laws will begin to run from the date on which coverage pursuant to this
Section 3(b) ends. The
<PAGE>
"continuation period" is the period beginning on your Date of
Termination and ending on the earlier of (i) the last day of the 24th
month that begins after your Date of Termination or (ii) the date after
your Date of Termination on which you first become eligible to
participate as an employee in a plan of another employer providing
group health benefits to you and your eligible family members and
dependents which plan does not contain any exclusion or limitation with
respect to any pre-existing condition of you or any eligible family
member or dependent who would otherwise be covered under the Company's
plan but for this clause (ii). To the extent you incur a tax liability
(including federal, state and local taxes and any interest and
penalties with respect thereto) in connection with a benefit provided
pursuant to this Section 3(b) which you would not have incurred had you
been an active employee of the Company participating in the Company's
group health plan, the Company will make a payment to you in an amount
equal to such tax liability plus an additional amount sufficient to
permit you to retain a net amount after all taxes (including penalties
and interest) equal to the initial tax liability in connection with the
benefit. For purposes of applying the foregoing, your tax rate will be
deemed to be the highest statutory marginal state and federal tax rate
(on a combined basis) then in effect. The payment pursuant to this
Section 3(b) will be made within 10 days after your remittal of a
written request therefor accompanied by a statement indicating the
basis for and amount of the liability.
(c) Gross-Up Payments. Following a Change in Control, the Company will
cause its independent auditors promptly to review, at the Company's
sole expense, the applicability of Code Section 4999 to any payment or
distribution of any type by the Company to or for your benefit, whether
paid or payable or distributed or distributable pursuant to the terms
of this Agreement, any Benefit Plan or otherwise (the "Total
Payments"). If the auditor determines that the Total Payments result in
an excise tax imposed by Code Section 4999 or any comparable state or
local law, or any interest or penalties with respect to such excise tax
(such excise tax, together with any such interest and penalties, are
collectively referred to as the "Excise Tax"), the Company will make an
additional cash payment (a "Gross-Up Payment") to you within 10 days
after such determination equal to an amount such that after payment by
you of all taxes (including any interest or penalties imposed with
respect to such taxes), including any Excise Tax, imposed upon the
Gross-Up Payment, you would retain an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Total Payments. For purposes
of the foregoing determination, your tax rate will be deemed to be the
highest statutory marginal state and federal tax rate (on a combined
basis) then in effect. If no determination by the Company's auditors is
made prior to the time you are required to file a tax return reflecting
the Total Payments, you will be entitled to receive from the Company a
Gross-Up Payment calculated on the basis of the Excise Tax you reported
in such tax return, within 10 days after the later of the date on which
you file such tax return or the date on which you provide a copy
thereof to the Company. In all events, if any tax authority determines
that a greater Excise Tax should be imposed upon the Total Payments
than is determined by the Company's independent auditors or reflected
in your tax return pursuant to this Section 3(c), you will be entitled
to receive from the Company the full Gross-Up Payment calculated on the
basis of the amount of Excise Tax determined to be payable by such tax
authority within 10 days after you notify the Company of such
determination.
(d) Out Placement Assistance. The Company will pay up to five percent
of your Base Pay for out placement counseling to you. Such payments
will be made either directly to the
<PAGE>
counselor or to you within 10 days after presentation of an invoice for
services rendered or to be rendered.
If, on or after the date of a Change in Control, an Affiliate is sold, merged,
transferred or in any other manner or for any other reason ceases to be an
Affiliate or all or any portion of the business or assets of an Affiliate are
sold, transferred or otherwise disposed of and the acquiror is not the Parent
Corporation or an Affiliate (a "Disposition"), and you remain or become employed
by the acquiror or an affiliate of the acquiror (as defined in this Agreement
but substituting "acquiror" for "Parent Corporation") in connection with the
Disposition, you will be deemed to have terminated employment on the effective
date of the Disposition for purposes of this Section 3 unless (x) the acquiror
and its affiliates jointly and severally expressly assume and agree, in a manner
that is enforceable by you, to perform the obligations of this Agreement to the
same extent that the Company would be required to perform if the Disposition had
not occurred and (y) the Successor guarantees, in a manner that is enforceable
by you, payment and performance by the acquiror.
4. Indemnification. Following a Change in Control, the Company will indemnify
and advance expenses to you to the full extent permitted by law for damages,
costs and expenses (including, without limitation, judgments, fines, penalties,
settlements and reasonable fees and expenses of your counsel) incurred in
connection with all matters, events and transactions relating to your service to
or status with the Company or any other corporation, employee benefit plan or
other entity with whom you served at the request of the Company.
5. Successors. The Parent Corporation will seek to have any Successor, by
agreement in form and substance satisfactory to you, assent to the fulfillment
by the Company of the Company's obligations under this Agreement. Failure of the
Parent Corporation to obtain such assent at least three business days prior to
the time a Person becomes a Successor (or where the Parent Corporation does not
have at least three business days' advance notice that a Person may become a
Successor, within one business day after having notice that such Person may
become or has become a Successor) will constitute Good Reason for termination by
you of your employment. The date on which any such succession becomes effective
will be deemed the Date of Termination, and Notice of Termination will be deemed
to have been given on that date. A Successor has no rights, authority or power
with respect to this Agreement prior to a Change in Control.
6. Binding Agreement. This Agreement inures to the benefit of, and is
enforceable by, you, your personal and legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If you
die while any amount would still be payable to you under this Agreement if you
had continued to live, all such amounts, unless otherwise provided in this
Agreement, will be paid in accordance with the terms of this Agreement to your
devisee, legatee or other designee or, if there be no such designee, to your
estate.
7. No Mitigation. You will not be required to mitigate the amount of any
benefits the Company becomes obligated to provide to you in connection with this
Agreement by seeking other employment or otherwise. The benefits to be provided
to you in connection with this Agreement may not be reduced, offset or subject
to recovery by the Company by any benefits you may receive from other employment
or otherwise.
8. No Setoff. The Company has no right to setoff benefits owed to you under this
Agreement against amounts owed or claimed to be owed by you to the Company under
this Agreement or otherwise.
<PAGE>
9. Taxes. All benefits to be provided to you in connection with this Agreement
will be subject to required withholding of federal, state and local income,
excise and employment-related taxes.
10. Notices. For the purposes of this Agreement, notices and all other
communications provided for in, or required under, this Agreement must be in
writing and will be deemed to have been duly given when personally delivered or
when mailed by United States registered or certified mail, return receipt
requested, postage prepaid and addressed to each party's respective address set
forth on the first page of this Agreement (provided that all notices to the
Company must be directed to the attention of the chair of the Board), or to such
other address as either party may have furnished to the other in writing in
accordance with these provisions, except that notice of change of address will
be effective only upon receipt.
11. Disputes. If you so elect, any dispute, controversy or claim arising under
or in connection with this Agreement will be settled exclusively by binding
arbitration administered by the American Arbitration Association in Minneapolis,
Minnesota in accordance with the Commercial Arbitration Rules of the American
Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, that you may seek
specific performance of your right to receive benefits until the Date of
Termination during the pendency of any dispute or controversy arising under or
in connection with this Agreement. If any dispute, controversy or claim for
damages arising under or in connection with this Agreement is settled by
arbitration, the Company will pay, or if elected by you, reimburse, all fees,
costs and expenses incurred by you related to such arbitration. If you do not
elect arbitration, you may pursue all available legal remedies. The Company will
pay, or if elected by you, reimburse you for, all fees, costs and expenses
incurred by you in connection with any actual, threatened or contemplated
litigation relating to this Agreement to which you are or reasonably expect to
become a party, whether or not initiated by you, if you are successful in
recovering any benefit under this Agreement as a result of such action. The
parties agree that any litigation arising under or in connection with this
Agreement must be brought in a court of competent jurisdiction in the State of
Minnesota, and hereby consent to the exclusive jurisdiction of said courts for
this purpose and agree not to assert that such courts are an inconvenient forum.
The Company will not assert in any dispute or controversy with you arising under
or in connection with this Agreement your failure to exhaust administrative
remedies.
12. Related Agreements.
(a) Other than as provided in Section 12(b) of this Agreement, to the
extent that any provision of any other Benefit Plan or agreement
between the Company and you limits, qualifies or is inconsistent with
any provision of this Agreement, then for purposes of this Agreement,
while such other Benefit Plan or agreement remains in force, the
provision of this Agreement will control and such provision of such
other Benefit Plan or agreement will be deemed to have been superseded,
and to be of no force or effect, as if such other agreement had been
formally amended to the extent necessary to accomplish such purpose.
Nothing in this Agreement prevents or limits your continuing or future
participation in any Benefit Plan provided by the Company and for which
you may qualify, and nothing in this Agreement limits or otherwise
affects the rights you may have under any Benefit Plans or (other than
as provided in Section 12(b) of this Agreement) other agreements with
the Company. Amounts that are vested benefits or which you are
otherwise entitled to receive under any Benefit Plan or (other than as
provided in Section 12(b) of this Agreement) other agreement with the
Company at or subsequent to the Date of Termination will be payable in
accordance with such Benefit Plan or other agreement.
<PAGE>
(b) This Agreement will not control or supersede the Employment
Agreement, which will control in the event of conflicts with this
Agreement; provided, however, that (i) following a Change in Control
(or prior to a Change in Control if your termination was either a
condition of the Change in Control or was at the request or insistence
of any Person related to the Change in Control), the definition of the
term "cause" will be superseded by the definition provided by this
Agreement and the rights and obligations of the Company and you with
respect to notice of termination and the date of termination will be as
provided by Sections 1(j) and 1(m) of this Agreement; and (ii) in the
event that you become entitled to benefits pursuant to Section 3 of
this Agreement (the determination of which will at all times be made
pursuant to the terms and conditions of this Agreement), the severance
benefits provided by Sections 6(a)(i), 6(b)(i) and 6(c)(i) of the
Employment Agreement will be deemed to have been superseded by this
Agreement. A conflict between this Agreement and the Employment
Agreement will only be deemed to exist in the event that the express
provisions of one agreement provide for the treatment of a specific
matter in a manner different from the treatment afforded by the express
provisions of the other agreement. A conflict will not be deemed to
exist simply because one agreement provides for the treatment of a
specific matter and the other agreement is silent on the treatment of
such specific matter.
13. No Employment or Service Contract. Nothing in this Agreement is intended to
provide you with any right to continue in the employ of the Company for any
period of specific duration or interfere with or otherwise restrict in any way
your rights or the rights of the Company, which rights are hereby expressly
reserved by each, to terminate your employment at any time for any reason or no
reason whatsoever, with or without cause.
14. Change of Affiliate Status. This Agreement will become null and void if,
prior to a Change in Control: (a) an Affiliate is sold, merged, transferred or
in any other manner or for any other reason ceases to be an Affiliate or all or
any portion of the business or assets of an Affiliate or sold, transferred or
otherwise disposed of and no Change in Control occurs in connection therewith;
(b) your primary employment duties are with the Affiliate at the time of the
occurrence of such event; and (c) you do not, in conjunction therewith, transfer
employment directly to the Company.
15. Funding and Payment. Benefits payable under this Agreement will be paid only
from the general assets of the Company. No person has any right to or interest
in any specific assets of the Company by reason of this Agreement. To the extent
benefits under this Agreement are not paid when due to any individual, he or she
is a general unsecured creditor of the Company with respect to any amounts due.
The Company with whom you were employed immediately before your Date of
Termination has primary responsibility for benefits to which you or any other
person are entitled pursuant to this Agreement but to the extent such Company is
unable or unwilling to provide such benefits, the Parent Corporation and each
other Affiliate are jointly and severally responsible therefor to the extent
permitted by applicable law. If you were simultaneously employed by more than
one Company immediately before your Date of Termination, each such Company has
primary responsibility for a portion of the benefits to which you or any other
person are entitled pursuant to this Agreement that bears the same ratio to the
total benefits to which you or such other person are entitled pursuant to this
Agreement as your Base Pay from the Company immediately before your Date of
Termination bears to your aggregate Base Pay from all such Companies.
<PAGE>
16. Survival. The respective obligations of, and benefits afforded to, the
Company and you which by their express terms or clear intent survive termination
of your employment with the Company or termination of this Agreement, as the
case may be, will survive termination of your employment with the Company or
termination of this Agreement, as the case may be, and will remain in full force
and effect according to their terms.
17. Miscellaneous. No provision of this Agreement may be modified, waived or
discharged unless such modification, waiver or discharge is agreed to in a
writing signed by you and the chair of the Board. No waiver by any party to this
Agreement at any time of any breach by another party to this Agreement of, or of
compliance with, any condition or provision of this Agreement to be performed by
such party will be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter to this Agreement have been made by any party which are not
expressly set forth in this Agreement. This Agreement and the legal relations
among the parties as to all matters, including, without limitation, matters of
validity, interpretation, construction, performance and remedies, will be
governed by and construed exclusively in accordance with the internal laws of
the State of Minnesota (without regard to the conflict of laws principles of any
jurisdiction). Headings are for purposes of convenience only and do not
constitute a part of this Agreement. The parties to this Agreement agree to
perform, or cause to be performed, such further acts and deeds and to execute
and deliver or cause to be executed and delivered, such additional or
supplemental documents or instruments as may be reasonably required by the other
party to carry into effect the intent and purpose of this Agreement. The
invalidity or unenforceability of all or any part of any provision of this
Agreement will not affect the validity or enforceability of the remainder of
such provision or of any other provision of this Agreement, which will remain in
full force and effect. This Agreement may be executed in several counterparts,
each of which will be deemed to be an original, but all of which together will
constitute one and the same instrument.
If this letter correctly sets forth our agreement on the subject matter
discussed above, kindly sign and return to the Company the enclosed copy of this
letter which will then constitute our agreement on this subject.
Sincerely,
ANGEION CORPORATION
By: /s/ Whitney A. McFarlin
---------------------------------------------
Whitney A. McFarlin
President and Chief Executive Officer
Agreed to as of this 18th day of December, 1996.
/s/ David L. Christofferson
---------------------------------------------
David L. Christofferson
EXHIBIT 10.25
[Name of Executive Officer]
[Address]
Dear _____________:
The Board considers the establishment and maintenance of a sound and
vital management to be essential to protecting and enhancing the best interests
of the Company and its stockholders. In this connection, the Board recognizes
that the possibility of a Change in Control may arise and that such possibility
and the uncertainty and questions which it may raise among management may result
in the departure or distraction of management personnel to the detriment of the
Company and its stockholders.
Accordingly, the Board has determined that appropriate steps should be
taken to minimize the risk that Company management will depart prior to a Change
in Control, thereby leaving the Company without adequate management personnel
during such a critical period, and to reinforce and encourage the continued
attention and dedication of members of the Company's management to their
assigned duties without distraction in circumstances arising from the
possibility of a Change in Control. In particular, the Board believes it
important, should the Company or its stockholders receive a proposal for
transfer of control, that you be able to continue your management
responsibilities without being influenced by the uncertainties of your own
personal situation.
The Board recognizes that continuance of your position with the Company
involves a substantial commitment to the Company in terms of your personal life
and professional career and the possibility of foregoing present and future
career opportunities, for which the Company receives substantial benefits.
Therefore, to induce you to remain in the employ of the Company, this Agreement,
which has been approved by the Board, sets forth the benefits which the Company
agrees will be provided to you in the event your employment with the Company is
terminated in connection with a Change in Control under the circumstances
described below.
1. Definitions. The following terms will have the meaning set forth below unless
the context clearly requires otherwise. Terms defined elsewhere in this
Agreement will have the same meaning throughout this Agreement.
(a) "Affiliate" means (i) any corporation at least a majority of whose
outstanding securities ordinarily having the right to vote at elections
of directors is owned directly or indirectly by the Parent Corporation
or (ii) any other form of business entity in which the Parent
Corporation, by virtue of a direct or indirect ownership interest, has
the right to elect a majority of the members of such entity's governing
body.
<PAGE>
(b) "Agreement" means this letter agreement as amended, extended or
renewed from time to time in accordance with its terms.
(c) "Base Pay" means your annual base salary from the Company at the
rate in effect immediately prior to a Change in Control or at the time
Notice of Termination is given, whichever is greater. Base Pay includes
only regular cash salary and is determined before any reduction for
deferrals pursuant to any nonqualified deferred compensation plan or
arrangement, qualified cash or deferred arrangement or cafeteria plan.
(d) "Benefit Plan" means any
(i) employee benefit plan as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended;
(ii) cafeteria plan described in Code Section 125;
(iii) plan, policy or practice providing for paid vacation,
other paid time off or short- or long-term profit sharing,
bonus or incentive payments; or
(iv) stock option, stock purchase, restricted stock, phantom
stock, stock appreciation right or other equity-based
compensation plan that is sponsored, maintained or contributed
to by the Company for the benefit of employees (and/or their
families and dependents) generally or you (and/or your family
and dependents) in particular.
(e) "Board" means the board of directors of the Parent Corporation duly
qualified and acting at the time in question. On and after the date of
a Change in Control, any duty of the Board in connection with this
Agreement is nondelegable and any attempt by the Board to delegate any
such duty is ineffective.
(f) "Cause" means: (i) your gross misconduct; (ii) your willful and
continued failure to perform substantially your duties with the Company
(other than a failure resulting from your incapacity due to bodily
injury or physical or mental illness) after a demand for substantial
performance is delivered to you by the chair of the Board which
specifically identifies the manner in which you have not substantially
performed your duties and provides for a reasonable period of time
within which you may take corrective measures; or (iii) your conviction
(including a plea of nolo contendere) of willfully engaging in illegal
conduct constituting a felony or gross misdemeanor under federal or
state law which is materially and demonstrably injurious to the Company
or which impairs your ability to perform substantially your duties for
the Company. An act or failure to act will be considered "gross" or
"willful" for this purpose only if done, or omitted to be done, by you
in bad faith and without reasonable belief that it was in, or not
opposed to, the best interests of the Company. Any act, or failure to
act, based upon authority given pursuant to a resolution duly adopted
by the Company's board of directors (or a committee thereof) or based
upon the advice of counsel for the Company will be conclusively
presumed to be done, or omitted to be done, by you in good faith and in
the best interests of the Company. Notwithstanding the foregoing, you
may not be terminated for Cause unless and until there has been
delivered to you a copy of a resolution duly adopted by the affirmative
vote of not less than a majority of the entire membership of the Board
at a meeting of the Board called and
<PAGE>
held for the purpose (after reasonable notice to you and an opportunity
for you, together with your counsel, to be heard before the Board),
finding that in the good faith opinion of the Board you were guilty of
the conduct set forth above in clauses (i), (ii) or (iii) of this
definition and specifying the particulars thereof in detail.
(g) "Change in Control" means any of the following: (i) the sale,
lease, exchange or other transfer, directly or indirectly, of all or
substantially all of the assets of the Parent Corporation, in one
transaction or in a series of related transactions, to any Person; (ii)
the approval by the stockholders of the Parent Corporation of any plan
or proposal for the liquidation or dissolution of the Parent
Corporation; (iii) any Person, other than a "bona fide underwriter," is
or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of (a) 20 percent or more, but
not 50 percent or more, of the combined voting power of the Parent
Corporation'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 "continuity
directors" or (b) 50 percent or more of the combined voting power of
the Parent Corporation's outstanding securities ordinarily having the
right to vote at elections of directors (regardless of any approval by
the continuity directors); (iv) a merger or consolidation to which the
Parent Corporation is a party if the stockholders of the Parent
Corporation immediately prior to the effective date of such merger or
consolidation have, solely on account of ownership of securities of the
Parent Corporation at such time, "beneficial ownership" (as defined in
Rule 13d-3 under the Exchange Act) immediately following the effective
date of such merger or consolidation of securities of the surviving
company representing (a) more than 50 percent, but less than 80
percent, 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 continuity 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 continuity directors);
(v) the continuity directors cease for any reason to constitute at
least a majority the Board; or (vi) a change in control of a nature
that is determined by outside legal counsel to the Parent Corporation,
in a written opinion specifically referencing this provision of the
Agreement, to be required to be reported (assuming such event has not
been "previously reported") pursuant to Section 13 or 15(d) of the
Exchange Act, whether or not the Parent Corporation is then subject to
such reporting requirement.
For purposes of this Section 1(g), a "continuity director" means any
individual who is a member of the Board on December 18, 1996, while he
or she is a member of the Board, and any individual who subsequently
becomes a member of the Board whose election or nomination for election
by the Parent Corporation's stockholders was approved by a vote of at
least a majority of the directors who are continuity directors (either
by a specific vote or by approval of the proxy statement of the Parent
Corporation in which such individual is named as a nominee for director
without objection to such nomination). For purposes of this Section
1(g), a "bona fide underwriter" means a Person engaged in business as
an underwriter of securities that acquires securities of the Parent
Corporation through such Person's participation in good faith in a firm
commitment underwriting until the expiration of 40 days after the date
of such acquisition.
<PAGE>
(h) "Code" means the Internal Revenue Code of 1986, as amended. Any
reference to a specific provision of the Code includes a reference to
such provision as it may be amended from time to time and to any
successor provision.
(i) "Company" means the Parent Corporation, any Successor and any
Affiliate.
(j) "Date of Termination" following a Change in Control (or prior to a
Change in Control if your termination was either a condition of the
Change in Control or was at the request or insistence of any Person
related to the Change in Control) means: (i) if your employment is to
be terminated by you for Good Reason, the date specified in the Notice
of Termination which in no event may be a date more than 15 days after
the date on which Notice of Termination is given unless the Company
agrees in writing to a later date; (ii) if your employment is to be
terminated by the Company for Cause, the date specified in the Notice
of Termination; (iii) if your employment is terminated by reason of
your death, the date of your death; or (iv) if your employment is to be
terminated by the Company for any reason other than Cause or your
death, the date specified in the Notice of Termination, which in no
event may be a date earlier than 15 days after the date on which a
Notice of Termination is given, unless you expressly agree in writing
to an earlier date. In the case of termination by the Company of your
employment for Cause, if you have not previously expressly agreed in
writing to the termination, then within the 30-day period after your
receipt of the Notice of Termination, you may notify the Company that a
dispute exists concerning the termination, in which event the Date of
Termination will be the date set either by mutual written agreement of
the parties or by the judge or arbitrators in a proceeding as provided
in Section 11 of this Agreement. During the pendency of any such
dispute, you will continue to make yourself available to provide
services to the Company and the Company will continue to pay you your
full compensation and benefits in effect immediately prior to the date
on which the Notice of Termination is given (without regard to any
changes to such compensation or benefits that constitute Good Reason)
and until the dispute is resolved in accordance with Section 11 of this
Agreement. You will be entitled to retain the full amount of any such
compensation and benefits without regard to the resolution of the
dispute unless the judge or arbitrators decide(s) that your claim of a
dispute was frivolous or advanced by you in bad faith.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as
amended. Any reference to a specific provision of the Exchange Act or
to any rule or regulation thereunder includes a reference to such
provision as it may be amended from time to time and to any successor
provision.
(l) "Good Reason" means:
(i) a change in your status, position(s), duties or
responsibilities as an executive of the Company as in effect
immediately prior to the Change in Control which, in your
reasonable judgment, is adverse (other than, if applicable,
any such change directly attributable to the fact that the
Parent Corporation is no longer publicly owned); provided,
however, that Good Reason does not include a change in your
status, position(s), duties or responsibilities caused by an
insubstantial and inadvertent action that is remedied by the
Company promptly after receipt of notice of such change is
given by you;
<PAGE>
(ii) a reduction by the Company in your Base Pay, 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 cover you under Benefit
Plans that, in the aggregate, provide substantially similar
benefits to you and/or your family and dependents at a
substantially similar total cost to you (e.g., premiums,
deductibles, co-pays, out of pocket maximums, required
contributions and the like) relative to the benefits and total
costs under the Benefit Plans in which you (and/or your family
or dependents) were participating at any time during the
90-day period immediately preceding the Change in Control;
(iv) the Company's requiring you to be based more than 30
miles from where your office is located immediately prior to
the Change in Control, except for required travel on the
Company's business, and then only to the extent substantially
consistent with the business travel obligations which you
undertook on behalf of the Company during the 90-day period
immediately preceding the Change in Control (without regard to
travel related to or in anticipation of the Change in
Control);
(v) the failure by the Company to obtain from any Successor
the assent to this Agreement contemplated by Section 5 of this
Agreement;
(vi) any purported termination by the Company of your
employment that is not properly effected pursuant to a Notice
of Termination and pursuant to any other requirements of this
Agreement, and, for purposes of this Agreement, no such
purported termination will be effective; or
(vii) any refusal by the Company to continue to allow you to
attend to matters or engage in activities not directly related
to the business of the Company which, at any time prior to the
Change in Control, you were not expressly prohibited in
writing by the Board from attending to or engaging in.
Your continued employment does not constitute consent to, or
waiver of any rights arising in connection with, any circumstances
constituting Good Reason. Your termination of employment for Good
Reason as defined in this Section 1(m) will constitute Good Reason for
all purposes of this Agreement notwithstanding that you may also
thereby be deemed to have retired under any applicable retirement
programs of the Company.
(m) "Notice of Termination" means a written notice given on or after
the date of a Change in Control (unless your termination before the
date of the Change in Control was either a condition of the Change in
Control or was at the request or insistence of any Person related to
the Change in Control) which indicates the specific termination
provision in this Agreement pursuant to which the notice is given. Any
purported termination by the Company or by you for Good Reason on or
after the date of a Change in Control (or before the date of a Change
in Control if your termination was either a condition of the Change in
Control or was at the request or insistence of any Person related to
the Change in Control) must be communicated by written Notice of
Termination to be effective; provided, that your failure to provide
Notice of
<PAGE>
Termination will not limit any of your rights under this Agreement
except to the extent the Company demonstrates that it suffered material
actual damages by reason of such failure.
(n) "Parent Corporation" means Angeion Corporation and any Successor.
(o) "Person" means any individual, corporation, partnership, group,
association or other "person," as such term is used in Section 14(d) of
the Exchange Act, other than the Parent Corporation, any Affiliate or
any benefit plan(s) sponsored by the Parent Corporation or an
Affiliate.
(p) "Successor" means any Person that succeeds to, or has the practical
ability to control (either immediately or solely with the passage of
time), the Parent Corporation's business directly, by merger,
consolidation or other form of business combination, or indirectly, by
purchase of the Parent Corporation's outstanding securities ordinarily
having the right to vote at the election of directors or all or
substantially all of its assets or otherwise.
2. Term of Agreement. This Agreement is effective immediately and will continue
in effect until January 1, 1999; provided, however, that commencing on January
1, 1999 and each January 1 thereafter, the term of this Agreement will
automatically be extended for 12 additional months beyond the expiration date
otherwise then in effect, unless at least 90 calendar days prior to any such
January 1, the Company or you has given notice that this Agreement will not be
extended; and, provided, further, that if a Change in Control has occurred
during the term of this Agreement, this Agreement will continue in effect beyond
the termination date then in effect for a period of 24 months following the
month during which the Change in Control occurs or, if later, until the date on
which the Company's obligations to you arising under or in connection with this
Agreement have been satisfied in full.
3. Benefits upon a Change in Control Termination. You will become entitled to
the benefits described in this Section 3 if and only if (a) the Company
terminates your employment for any reason other than your death or Cause, or you
terminate your employment with the Company for Good Reason and (b) the
termination occurs either within the period beginning on the date of a Change in
Control and ending on the last day of the 24th month that begins after the month
during which the Change in Control occurs or prior to a Change in Control if
your termination was either a condition of the Change in Control or was at the
request or insistence of a Person related to the Change in Control.
(a) Cash Payment. Within 10 business days following the Date of
Termination, or, if later, within 10 business days following the date
of the Change in Control, the Company will make a lump-sum cash payment
to you in an amount equal to two times your Base Pay.
(b) Group Health Plans. During the continuation period, the Company
will maintain a group health plan(s) which by its terms covers you (and
your family members and dependents who were eligible to be covered at
any time during the 90-day period immediately prior to the date of a
Change in Control for the period after the Change in Control in which
such family members and dependents would otherwise continue to be
covered under the terms of the plan in effect immediately prior to the
Change in Control) under the same terms and at the same cost to you and
your family members and dependents as similarly situated individuals
who continue to be employed by the Company (without regard to any
reduction in such benefits that constitutes Good Reason). The
continuation period under applicable federal and state continuation
laws will
<PAGE>
begin to run from the date on which coverage pursuant to this Section
3(b) ends. The "continuation period" is the period beginning on your
Date of Termination and ending on the earlier of (i) the last day of
the 24th month that begins after your Date of Termination or (ii) the
date after your Date of Termination on which you first become eligible
to participate as an employee in a plan of another employer providing
group health benefits to you and your eligible family members and
dependents which plan does not contain any exclusion or limitation with
respect to any pre-existing condition of you or any eligible family
member or dependent who would otherwise be covered under the Company's
plan but for this clause (ii). To the extent you incur a tax liability
(including federal, state and local taxes and any interest and
penalties with respect thereto) in connection with a benefit provided
pursuant to this Section 3(b) which you would not have incurred had you
been an active employee of the Company participating in the Company's
group health plan, the Company will make a payment to you in an amount
equal to such tax liability plus an additional amount sufficient to
permit you to retain a net amount after all taxes (including penalties
and interest) equal to the initial tax liability in connection with the
benefit. For purposes of applying the foregoing, your tax rate will be
deemed to be the highest statutory marginal state and federal tax rate
(on a combined basis) then in effect. The payment pursuant to this
Section 3(b) will be made within 10 days after your remittal of a
written request therefor accompanied by a statement indicating the
basis for and amount of the liability.
(c) Gross-Up Payments. Following a Change in Control, the Company will
cause its independent auditors promptly to review, at the Company's
sole expense, the applicability of Code Section 4999 to any payment or
distribution of any type by the Company to or for your benefit, whether
paid or payable or distributed or distributable pursuant to the terms
of this Agreement, any Benefit Plan or otherwise (the "Total
Payments"). If the auditor determines that the Total Payments result in
an excise tax imposed by Code Section 4999 or any comparable state or
local law, or any interest or penalties with respect to such excise tax
(such excise tax, together with any such interest and penalties, are
collectively referred to as the "Excise Tax"), the Company will make an
additional cash payment (a "Gross-Up Payment") to you within 10 days
after such determination equal to an amount such that after payment by
you of all taxes (including any interest or penalties imposed with
respect to such taxes), including any Excise Tax, imposed upon the
Gross-Up Payment, you would retain an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Total Payments. For purposes
of the foregoing determination, your tax rate will be deemed to be the
highest statutory marginal state and federal tax rate (on a combined
basis) then in effect. If no determination by the Company's auditors is
made prior to the time you are required to file a tax return reflecting
the Total Payments, you will be entitled to receive from the Company a
Gross-Up Payment calculated on the basis of the Excise Tax you reported
in such tax return, within 10 days after the later of the date on which
you file such tax return or the date on which you provide a copy
thereof to the Company. In all events, if any tax authority determines
that a greater Excise Tax should be imposed upon the Total Payments
than is determined by the Company's independent auditors or reflected
in your tax return pursuant to this Section 3(c), you will be entitled
to receive from the Company the full Gross-Up Payment calculated on the
basis of the amount of Excise Tax determined to be payable by such tax
authority within 10 days after you notify the Company of such
determination.
<PAGE>
(d) Out Placement Assistance. The Company will pay up to five percent
of your Base Pay for out placement counseling to you. Such payments
will be made either directly to the counselor or to you within 10 days
after presentation of an invoice for services rendered or to be
rendered.
If, on or after the date of a Change in Control, an Affiliate is sold, merged,
transferred or in any other manner or for any other reason ceases to be an
Affiliate or all or any portion of the business or assets of an Affiliate are
sold, transferred or otherwise disposed of and the acquiror is not the Parent
Corporation or an Affiliate (a "Disposition"), and you remain or become employed
by the acquiror or an affiliate of the acquiror (as defined in this Agreement
but substituting "acquiror" for "Parent Corporation") in connection with the
Disposition, you will be deemed to have terminated employment on the effective
date of the Disposition for purposes of this Section 3 unless (x) the acquiror
and its affiliates jointly and severally expressly assume and agree, in a manner
that is enforceable by you, to perform the obligations of this Agreement to the
same extent that the Company would be required to perform if the Disposition had
not occurred and (y) the Successor guarantees, in a manner that is enforceable
by you, payment and performance by the acquiror.
4. Indemnification. Following a Change in Control, the Company will indemnify
and advance expenses to you to the full extent permitted by law for damages,
costs and expenses (including, without limitation, judgments, fines, penalties,
settlements and reasonable fees and expenses of your counsel) incurred in
connection with all matters, events and transactions relating to your service to
or status with the Company or any other corporation, employee benefit plan or
other entity with whom you served at the request of the Company.
5. Successors. The Parent Corporation will seek to have any Successor, by
agreement in form and substance satisfactory to you, assent to the fulfillment
by the Company of the Company's obligations under this Agreement. Failure of the
Parent Corporation to obtain such assent at least three business days prior to
the time a Person becomes a Successor (or where the Parent Corporation does not
have at least three business days' advance notice that a Person may become a
Successor, within one business day after having notice that such Person may
become or has become a Successor) will constitute Good Reason for termination by
you of your employment. The date on which any such succession becomes effective
will be deemed the Date of Termination, and Notice of Termination will be deemed
to have been given on that date. A Successor has no rights, authority or power
with respect to this Agreement prior to a Change in Control.
6. Binding Agreement. This Agreement inures to the benefit of, and is
enforceable by, you, your personal and legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If you
die while any amount would still be payable to you under this Agreement if you
had continued to live, all such amounts, unless otherwise provided in this
Agreement, will be paid in accordance with the terms of this Agreement to your
devisee, legatee or other designee or, if there be no such designee, to your
estate.
7. No Mitigation. You will not be required to mitigate the amount of any
benefits the Company becomes obligated to provide to you in connection with this
Agreement by seeking other employment or otherwise. The benefits to be provided
to you in connection with this Agreement may not be reduced, offset or subject
to recovery by the Company by any benefits you may receive from other employment
or otherwise.
<PAGE>
8. No Setoff. The Company has no right to setoff benefits owed to you under this
Agreement against amounts owed or claimed to be owed by you to the Company under
this Agreement or otherwise.
9. Taxes. All benefits to be provided to you in connection with this Agreement
will be subject to required withholding of federal, state and local income,
excise and employment-related taxes.
10. Notices. For the purposes of this Agreement, notices and all other
communications provided for in, or required under, this Agreement must be in
writing and will be deemed to have been duly given when personally delivered or
when mailed by United States registered or certified mail, return receipt
requested, postage prepaid and addressed to each party's respective address set
forth on the first page of this Agreement (provided that all notices to the
Company must be directed to the attention of the chair of the Board), or to such
other address as either party may have furnished to the other in writing in
accordance with these provisions, except that notice of change of address will
be effective only upon receipt.
11. Disputes. If you so elect, any dispute, controversy or claim arising under
or in connection with this Agreement will be settled exclusively by binding
arbitration administered by the American Arbitration Association in Minneapolis,
Minnesota in accordance with the Commercial Arbitration Rules of the American
Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, that you may seek
specific performance of your right to receive benefits until the Date of
Termination during the pendency of any dispute or controversy arising under or
in connection with this Agreement. If any dispute, controversy or claim for
damages arising under or in connection with this Agreement is settled by
arbitration, the Company will pay, or if elected by you, reimburse, all fees,
costs and expenses incurred by you related to such arbitration. If you do not
elect arbitration, you may pursue all available legal remedies. The Company will
pay, or if elected by you, reimburse you for, all fees, costs and expenses
incurred by you in connection with any actual, threatened or contemplated
litigation relating to this Agreement to which you are or reasonably expect to
become a party, whether or not initiated by you, if you are successful in
recovering any benefit under this Agreement as a result of such action. The
parties agree that any litigation arising under or in connection with this
Agreement must be brought in a court of competent jurisdiction in the State of
Minnesota, and hereby consent to the exclusive jurisdiction of said courts for
this purpose and agree not to assert that such courts are an inconvenient forum.
The Company will not assert in any dispute or controversy with you arising under
or in connection with this Agreement your failure to exhaust administrative
remedies.
12. Related Agreements. To the extent that any provision of any other Benefit
Plan or agreement between the Company and you limits, qualifies or is
inconsistent with any provision of this Agreement, then for purposes of this
Agreement, while such other Benefit Plan or agreement remains in force, the
provision of this Agreement will control and such provision of such other
Benefit Plan or agreement will be deemed to have been superseded, and to be of
no force or effect, as if such other agreement had been formally amended to the
extent necessary to accomplish such purpose. Nothing in this Agreement prevents
or limits your continuing or future participation in any Benefit Plan provided
by the Company and for which you may qualify, and nothing in this Agreement
limits or otherwise affects the rights you may have under any Benefit Plans or
other agreements with the Company. Amounts which are vested benefits or which
you are otherwise entitled to receive under any Benefit Plan or other agreement
with the Company at or subsequent to the Date of Termination will be payable in
accordance with such Benefit Plan or other agreement.
<PAGE>
13. No Employment or Service Contract. Nothing in this Agreement is intended to
provide you with any right to continue in the employ of the Company for any
period of specific duration or interfere with or otherwise restrict in any way
your rights or the rights of the Company, which rights are hereby expressly
reserved by each, to terminate your employment at any time for any reason or no
reason whatsoever, with or without cause.
14. Change of Affiliate Status. This Agreement will become null and void if,
prior to a Change in Control: (a) an Affiliate is sold, merged, transferred or
in any other manner or for any other reason ceases to be an Affiliate or all or
any portion of the business or assets of an Affiliate or sold, transferred or
otherwise disposed of and no Change in Control occurs in connection therewith;
(b) your primary employment duties are with the Affiliate at the time of the
occurrence of such event; and (c) you do not, in conjunction therewith, transfer
employment directly to the Company.
15. Funding and Payment. Benefits payable under this Agreement will be paid only
from the general assets of the Company. No person has any right to or interest
in any specific assets of the Company by reason of this Agreement. To the extent
benefits under this Agreement are not paid when due to any individual, he or she
is a general unsecured creditor of the Company with respect to any amounts due.
The Company with whom you were employed immediately before your Date of
Termination has primary responsibility for benefits to which you or any other
person are entitled pursuant to this Agreement but to the extent such Company is
unable or unwilling to provide such benefits, the Parent Corporation and each
other Affiliate are jointly and severally responsible therefor to the extent
permitted by applicable law. If you were simultaneously employed by more than
one Company immediately before your Date of Termination, each such Company has
primary responsibility for a portion of the benefits to which you or any other
person are entitled pursuant to this Agreement that bears the same ratio to the
total benefits to which you or such other person are entitled pursuant to this
Agreement as your Base Pay from the Company immediately before your Date of
Termination bears to your aggregate Base Pay from all such Companies.
16. Survival. The respective obligations of, and benefits afforded to, the
Company and you which by their express terms or clear intent survive termination
of your employment with the Company or termination of this Agreement, as the
case may be, will survive termination of your employment with the Company or
termination of this Agreement, as the case may be, and will remain in full force
and effect according to their terms.
17. Miscellaneous. No provision of this Agreement may be modified, waived or
discharged unless such modification, waiver or discharge is agreed to in a
writing signed by you and the chair of the Board. No waiver by any party to this
Agreement at any time of any breach by another party to this Agreement of, or of
compliance with, any condition or provision of this Agreement to be performed by
such party will be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter to this Agreement have been made by any party which are not
expressly set forth in this Agreement. This Agreement and the legal relations
among the parties as to all matters, including, without limitation, matters of
validity, interpretation, construction, performance and remedies, will be
governed by and construed exclusively in accordance with the internal laws of
the State of Minnesota (without regard to the conflict of laws principles of any
jurisdiction). Headings are for purposes of convenience only and do not
constitute a part of this Agreement. The parties to this Agreement agree to
<PAGE>
perform, or cause to be performed, such further acts and deeds and to execute
and deliver or cause to be executed and delivered, such additional or
supplemental documents or instruments as may be reasonably required by the other
party to carry into effect the intent and purpose of this Agreement. The
invalidity or unenforceability of all or any part of any provision of this
Agreement will not affect the validity or enforceability of the remainder of
such provision or of any other provision of this Agreement, which will remain in
full force and effect. This Agreement may be executed in several counterparts,
each of which will be deemed to be an original, but all of which together will
constitute one and the same instrument.
If this letter correctly sets forth our agreement on the subject matter
discussed above, kindly sign and return to the Company the enclosed copy of this
letter which will then constitute our agreement on this subject.
Sincerely,
ANGEION CORPORATION
By:_____________________________________________
Whitney A. McFarlin
President and Chief Executive Officer
Agreed to as of this 18th day of December, 1996.
________________________________________________
[Name of Executive Officer]
EXHIBIT 10.26
CONSULTING AGREEMENT
This Agreement is entered into as of the 1st day of August, 1997, by
and between Angeion Corporation, 3650 Annapolis Lane, Suite 170, Minneapolis,
Minnesota 55447-5434, a Minnesota corporation and ELA Medical, 98-100 rue
Maurice Arnoux, 92120 Montrouge, France (the "Companies") and Dennis Sellke,
5480 Covington Road, Shorewood, MN 55441 ("Consultant")
WHEREAS, the Companies design, develop, manufacture and distribute
medical devices for the treatment of cardiac dysrhythmias and provide related
services; and are currently negotiating a potential Joint Venture between them;
and
WHEREAS, the Companies desire to engage Consultant for the purpose of
providing certain services to the Companies during the term of this Agreement;
and
WHEREAS, Consultant has represented that it has the knowledge,
experience and expertise necessary to effectively provide such services to the
Companies.
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and covenants contained below, the parties agree as follows:
1. Engagement. Upon the terms and subject to the conditions of this
Agreement, the Companies hereby engage Consultant, and Consultant hereby accepts
such engagement, as an independent contractor to use its best efforts to consult
with, provide services to and advise the Companies with respect to the matters
described in Exhibit A, which Exhibit may be amended from time to time by the
parties.
2. Status as Independent Contractor. Consultant's relationship with the
Companies under this Agreement shall be exclusively that of an independent
contractor. In no event shall Consultant claim to be or be deemed to be an
employee of the Companies. Consultant shall have exclusive control over the
manner and means of the performance of all services under this Agreement.
Consultant specifically agrees (a) to conduct itself strictly as an independent
contractor under this Agreement with respect to the Companies, (b) to comply
with all applicable laws, rules and regulations, including without limitation
those governing workmen's compensation and unemployment insurance and payment of
federal and state income taxes, self-employment taxes, estimated taxes, sales,
use and service taxes, and all other federal, state, local and foreign taxes of
any nature imposed with respect to any services under this Agreement or payments
therefor and that Consultant shall not be entitled to any of the benefits that
the Companies provide to its employees.
3. Scope of Authority. Unless specifically authorized in writing by the
Companies, Consultant shall have no authority to act on behalf of the Companies
(except by providing the services described in Exhibit A) or to bind the
Companies by any promise or representation.
<PAGE>
4. Term. This engagement shall continue in effect from the date of this
Agreement and shall terminate on January 31, 1998, unless sooner terminated in
accordance with section 8. Consultant's engagement hereunder may only be
continued and extended thereafter pursuant to a written agreement executed by
the Companies.
5. Compensation; Expenses.
(a) For the services described herein, the Companies shall each pay
Consultant compensation as set forth on Exhibit A.
(b) The Companies shall reimburse Consultant for all expenses incurred
by Consultant in performing services hereunder which are approved in writing by
the Companies in advance in accordance with the policies and procedures of the
Companies. Consultant shall be solely responsible for, and shall hold the
Companies harmless from, all other costs and expenses incurred by Consultant.
(c) Unless otherwise set forth in Exhibit A, Consultant shall invoice
each of the Companies on a monthly basis for time and expenses incurred during
the previous month and shall provide documentation of expenses satisfactory to
the Companies. Payment of fees and reimbursement for expenses shall be made
within thirty (30) days of receipt from Consultant of an itemized monthly
invoice and shall be made in the manner set forth in Exhibit A.
6. Confidential Information. Consultant has executed separate
Confidentiality Agreements with each Company and said Agreements shall continue
in force and effect during the term of this Consulting Agreement and thereafter
as called for in said Agreements.
7. No Violation of Other Agreements. Consultant hereby represents and
warrants that neither Consultant's entering into this Agreement nor Consultant's
carrying out of the provisions of this Agreement will (i) violate any other
agreement, oral or written, to which Consultant is a party or by which
Consultant is bound or (ii) conflict with any relationships or duties Consultant
performs for other parties. Without limiting the foregoing, Consultant agrees
that at no time shall Consultant utilize any trade secrets or other intellectual
property of any third party while performing services hereunder. The parties
understand that Consultant is a member of Angeion's Board of Directors and
likely will continue in that capacity during the term of this Agreement.
8. Termination. Any party may terminate this Agreement at any time and
for any reason, with or without cause, by giving 30 days' advance written notice
to the other parties. Upon termination Consultant shall provide Companies with
the results of Consultant's work as of the date of termination. Consultant shall
be paid by Companies up through the date of termination.
<PAGE>
9. Governing Law. This Agreement shall be construed in accordance with,
and any dispute or controversy arising from any breach or asserted breach of
this Agreement shall be governed by, the laws of the State of Minnesota.
10. Arbitration.
(a) Any dispute or controversy arising out of or relating to this
Agreement, whether during or after its term, shall be finally settled by
arbitration in accordance with the Commercial Arbitration Rules of the American
Arbitration Association ("AAA"), as hereinafter modified: (i) any notice
initiating arbitration shall be filed at the Regional Office of the AAA in
Minneapolis, Minnesota; (ii) the arbitration shall be held in Minneapolis,
Minnesota; (iii) the arbitration panel shall consist of one arbitrator appointed
by mutual agreement of the parties or, should the parties fail to so agree
within 45 days after service of the notice of arbitration, one arbitrator
appointed by the AAA; (iv) pre-hearing discovery by each party shall be limited
to five depositions, twenty-five interrogatories and receipt of copies of all
documents of the other party relating to the dispute; (v) the arbitrator shall
have authority, at the Companies' request with regard to the provisions of
section 6 to order a party to take or refrain from taking actions in breach of
this Agreement.
(b) Notwithstanding the foregoing, nothing in this section shall
prevent the Companies from seeking injunctive relief against Consultant from any
judicial or administrative authority of competent jurisdiction pending the
resolution of a dispute or controversy by arbitration to enjoin Consultant from
breaching any provision of this Agreement.
11. Entire Agreement. This Agreement, together with Exhibit A attached
hereto and incorporated as an integral part hereof, constitutes the entire
agreement and understanding between the Companies and Consultant with respect to
the subject matter hereof and supersedes all previous proposals, oral or
written, and all previous negotiations, conversations or discussions between the
parties related to this Agreement. Consultant acknowledges that it has not been
induced to enter into this Agreement by any representations or statements, oral
or written, not expressly contained herein.
12. Severability. Each section and provision of this Agreement shall be
considered severable and any invalidity of any provision shall not render
invalid or impair to any extent any other section or provisions hereof.
13. Notices. All notices, requests, demands, instructions and other
communications hereunder shall be in writing, shall refer specifically to this
Agreement and shall be deemed effective if delivered by hand, mailed by
registered or certified mail, return receipt requested, postage prepaid, or
delivered by express delivery service to the other party at the address set
forth below or at such other address as is furnished by written notice to such
other party from time to time:
<PAGE>
<TABLE>
<CAPTION>
To the Companies: To Consultant:
<S> <C> <C>
Angeion Corporation ELA Medical Dennis Sellke
3650 Annapolis Lane, Suite 170 98-100 rue Maurice Arnoux 5480 Covington Road
Minneapolis, MN 55447-5434 92120 Montrouge Shorewood MN 55331
U.S.A. France U.S.A.
Attn.: Chief Executive Officer Attn.: President
</TABLE>
All notices shall be deemed given on the date on which delivered or, if mailed,
on the date postmarked.
14. Amendment, Waiver. No provision in this Agreement may be altered,
amended, modified, waived or discharged in any way whatsoever except by written
agreement executed by all parties. No delay or failure of either party to
insist, in any one or more instances, upon performance of any of the terms and
conditions of this Agreement or to exercise any rights or remedies hereunder
shall constitute a waiver or a relinquishment of such rights or remedies or any
other rights or remedies hereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ /s/ /s/ Dennis Sellke
____________________ _____________________ _____________________
Angeion Corporation ELA Medical Consultant
</TABLE>
<PAGE>
EXHIBIT A
SERVICES, PROJECT DATES, COMPENSATION
1. - Business Plan Development for potential Joint Venture.
- Strategic Marketing Services as requested.
- Other related services as requested.
2. The Companies each shall pay consultant $7,710 per month.
Reimbursement of expenses specific to the potential Joint Venture
shall be shared 50/50 between the Companies. Consultant shall split
expenses specific to the potential Joint Venture between the two
invoices. Expenses for international travel must be approved in
advance by both Companies. Expenses for international travel
requested and approved by only one Company shall be billed to and
paid by said Company.
EXHIBIT 10.27
PROPRIETARY AND CONFIDENTIAL
COMMON STOCK
INVESTMENT AGREEMENT
Between
Promethean Investment Group L.L.C.
And
Angeion Corporation
Dated as of September 2, 1997
<PAGE>
INVESTMENT AGREEMENT dated as of September 2, 1997 between Promethean
Investment Group L.L.C., a limited liability company organized and existing
under the laws of the State of New York (together with its successors in
interest and assigns or its designees, the "Investor"), and Angeion Corporation,
a corporation duly organized and existing under the laws of the State of
Minnesota (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Investor shall invest up to $25,000,000 in
shares (the "Shares") of the Company's common stock, par value $.01 per share,
together with the preferred stock purchase rights attached thereto
(collectively, the "Common Stock"),
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
Definitions
Terms used herein which are not defined herein but are defined in the
Registration Rights Exhibit, which is annexed hereto, incorporated herein and
hereby made an integral part hereof shall have the same meaning herein as
therein (this Agreement, together with the Registration Rights Exhibit attached
hereto, referred to collectively herein as, the "Agreement").
ARTICLE II
Purchase and Sale of Common Stock
Section 2.1. Purchase and Sale of Common Stock. Upon the terms and conditions
set forth herein, the Company shall issue and sell to the Investor, and the
Investor shall purchase from the Company, up to $25,000,000 of the Common Stock.
Section 2.2. Delivery of Put Notices.
(a) At any time and from time to time during the period beginning on
the calendar day following the initial effective date of the Registration
Statement and ending on the earlier of (i) the date two years after the initial
effective date of the Registration Statement and (ii) termination of this
Agreement in accordance with Article VIII (the "Open Period"), the Company may,
in its sole discretion, deliver written notices to the Investor (each such
notice hereinafter referred to as a "Put Notice") stating a dollar amount (the
"Dollar Amount") of Common Stock which the
<PAGE>
Company intends to sell to the Investor within the seventeen Business Days (the
"Purchase Period") following the date (the "Put Notice Date") on which the Put
Notice is given to the Investor by the Company in accordance with this
Agreement. "Business Day" shall mean any day on which the Company's Principal
Market is open for trading. The Dollar Amount designated by the Company in any
given Put Notice shall be in increments of $250,000. Notwithstanding anything
herein to the contrary, (A) the Investor shall not be required to purchase
during the Purchase Period following a Put Notice Date a dollar amount of Common
Stock (the "Required Dollar Amount") which exceeds the lesser of (i) $5,000,000,
subject to reduction during the Purchase Period as hereinafter provided, or (ii)
ten percent of the aggregate Trading Dollar Value (hereinafter defined) during
those of the first fourteen (14) trading days of the Purchase Period during
which the average per share Trading Dollar Value is $2.00 or more, but (B) the
Investor may, at its election and pursuant to its Purchase Notices (hereinafter
defined), purchase during any such Purchase Period up to one hundred thirty
percent of the Required Dollar Amount; provided that (x) the Investor may not,
pursuant to clause (B) of this Section, invest all or any portion of any amount
in excess of a Required Dollar Amount, and (y) a Required Dollar Amount may not
in any event include an amount which, if invested by the Investor hereunder,
would result, in the case of either (x) or (y), in the Investor purchasing,
during a Purchase Period, shares of Common Stock at a price determined in
accordance with Section 2.3 hereof which, when aggregated with all other shares
of Common Stock acquired by the Investor pursuant to this Agreement in the 90
calendar days preceding such Purchase Period, would result in the Investor
having purchased pursuant to this Agreement, during such Purchase Period and
such period of 90 calendar days, shares of Common Stock totalling more than 4.9%
of the Common Stock outstanding on the Put Notice Date for such Purchase Period,
as determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act") and the regulations promulgated
thereunder. The Put Notice shall include a representation of the Company as to
the Common Stock outstanding on the Put Notice Date as determined in accordance
with Section 13(d) of the Exchange Act. In the event that the amount of Common
Stock outstanding as determined in accordance with Section 13(d) of the Exchange
Act and the regulations promulgated thereunder is different on any date during a
Purchase Period than on the Put Notice Date associated with such Purchase
Period, the amount of Common Stock outstanding on such date during such Purchase
Period shall govern for purposes of determining whether the Investor, when
aggregating all purchases of Common Stock made pursuant to this Agreement in the
90 calendar days preceding such date, would have acquired more than 4.9% of the
Common Stock during such period. The
<PAGE>
amount provided in clause (i) of this Section 2.2(a) shall be in effect at the
beginning of each Purchase Period but shall be reduced during such Purchase
Period by $357,143 for each trading day during the Purchase Period on which the
average per share Trading Dollar Value is less than $2.00 per share. For
purposes hereof "Trading Dollar Value" shall mean the dollar value of the Common
Stock traded on the Principal Market for the applicable day or period, provided
that individual trades of 15,000 shares or more on any trading day shall, for
this purpose, be treated as a trade of 5,000 shares at the average per share
price at which such trades of 15,000 shares or more were actually made.
(b) Notwithstanding any of the foregoing, the Company may not deliver a
Put Notice (i) if the Applicable Trading Price (hereinafter defined) on the day
prior to delivery of such Put Notice was less than $2.00 per share or (ii) if
trading of the Common Stock on the Principal Market is suspended or the Common
Stock is delisted or threatened to be delisted from the Principal Market, or
(iii) if the Common Stock is not registered under the Exchange Act or if the
Registration Statement is no longer effective or is subject to a stop order or
its use or the use of the prospectus which is a part thereof is otherwise
suspended. If (a) the Applicable Trading Price on any trading day during the
Purchase Period associated with an effective Put Notice shall be less than $2.00
per share or (b) any of the events described in clauses (ii) and (iii) above
occurs after an effective Put Notice is so delivered, and if any such
circumstance described in (a) or (b) above so occurs before the entire Required
Dollar Amount of Common Stock covered by such Put Notice shall have been
purchased during the Purchase Period, then the Investor shall have no further
obligation to purchase the balance of such Required Dollar Amount of Common
Stock during such Purchase Period; provided, however, that on any day during the
balance of such Purchase Period upon which such events described in clauses (ii)
and (iii) above do not exist or which follows a trading day upon which the
Applicable Trading Price shall be $2.00 per share or more, the Investor may in
its sole discretion but shall not be required to give the Company one or more
Purchase Notices covering some or all of such balance of the Required Dollar
Amount, as well as some or all of the additional amounts of Common Stock which
the Investor may elect to purchase during such Purchase Period pursuant to
Section 2.2(a)(B) above. For purposes of this Section 2.2(b), the "Applicable
Trading Price" with respect to the Common Stock on any day, shall mean the last
reported per share sales price of Common Stock reported on such Business Day or,
in case no sales take place on such day, the average of the closing bid and
asked prices on such prior day, in either case, as reported on the Bloomberg
Financial Markets for such day, or, if not reported on the Bloomberg Financial
Markets, the
<PAGE>
last quoted price on such prior day (or, if not so quoted, the average of the
last quoted high bid and low asked prices) in the over the counter market, as
reported by NASDAQ or such other system then in use, or, if on any such prior
day no bids are quoted by any such organization, the average of the closing bid
and asked prices on such prior day furnished by a professional market maker
making a market in Common Stock selected by the Board of Directors of the
Company, and, if on any such prior day, no market maker is making a market in
the Common Stock, the fair market value of the Common Stock as of such prior day
determined reasonably and in good faith by the Board of Directors of the
Company.
(c) During the Open Period, Put Notices may be delivered no more
frequently than once in each period of seventeen consecutive Business Days, such
that Put Notices and associated Purchase Periods do not overlap each other.
(d) The Investor shall not in any event be required to invest more than
$25,000,000 in the aggregate (excluding additional purchases which may be made
at the election or option of the Investor pursuant to Section 2.2(a)(B)), under
or pursuant to Put Notices given hereunder.
Section 2.3. Determination of Price Per Share. The prices (each, a
"Purchase Period Price Per Share") at which shares that the Company shall be
obligated to issue and sell and the Investor shall be obligated to purchase in
connection with a Put Notice (including, without limitations any such additional
purchases pursuant to Section 2.2(a)(B)) shall be 92% (the "Common Stock
Investment Percentage") of the lowest of the per share daily low trading prices
of the Common Stock on the Principal Market during the three Business Days
immediately preceding a Purchase Notice Date (hereinafter defined) upon which
shares of the Common Stock were traded on the Principal Market (the "Market
Stock Price"); provided, however, that if a sale of Common Stock shall have been
made by the Investor or an affiliate of the Investor at the low trading price on
any such trading day, such trade shall be disregarded for purposes of the
foregoing. The number of shares so to be purchased pursuant to each Purchase
Notice shall be rounded to the nearest whole number so as to avoid the issuance
of fractional shares.
Section 2.4. Purchase Closings.
(a) Purchases of Common Stock by the Investor during a Purchase Period
may be made at any time and from time to time during the Purchase Period
pursuant to one or more "Purchase Notices" given by the Investor to the Company
during the Purchase Period, each specifying
<PAGE>
the dollar amount to be invested by the Investor pursuant to such Purchase
Notice and the Purchase Period Price Per Share at which Common Stock is to be so
purchased pursuant to such Purchase Notice. If the entire Required Dollar Amount
of Common Stock required to be purchased during such Period shall not have been
covered by Purchase Notices before the last day of the Purchase Period, the
Investor shall be deemed so to have given the Company a Purchase Notice on the
last day of the Purchase Period specifying therein the balance of such Required
Dollar Amount of Common Stock so to be purchased during such Period and the
Purchase Period Price Per Share applicable to such purchase. Each date upon
which a Purchase Notice is or is deemed so to have been given is herein referred
to as a "Purchase Notice Date." In the event the Company does not deliver a Put
Notice to the Investor, the Investor shall have no right to deliver a Purchase
Notice to the Company, and no Purchase Notice will be deemed to have been given
to the Company.
(b) Each purchase and sale of Common Stock pursuant to a Purchase
Notice (a "Closing") shall take place on the third Business Day following the
giving of the Purchase Notice to which such Closing relates, or the earliest
date thereafter on which all conditions to Closing have been satisfied. Each
date on which a Closing occurs is referred to herein as a "Closing Date."
(c) (i) On each Closing Date, the Company shall deliver to the Investor
certificates representing the shares of Common Stock to be issued and sold to
the Investor on such date and registered in the name of the Investor or deposit
such shares into the accounts designated by the Investor for the benefit of the
Investor and (ii) on each Closing Date, the Investor shall deliver to the
Company the price to be paid for such shares, determined as aforesaid, by
cashier's check or wire transfer in immediately available funds to such account
as shall be designated in writing by the Company. In addition, each of the
Company and the Investor shall deliver all documents, instruments and writings
required to be delivered by either of them pursuant to this Agreement at or
prior to each Closing.
Section 2.5. Certain Adjustments. Market Stock Prices, Purchase Period
Prices Per Share, the Maximum Common Stock Issuance (hereinafter defined), the
$2.00 amounts provided in Sections 2.2(a) and 2.2(b) hereof and the $2.00
amounts provided in Section 5.2 shall be adjusted appropriately to reflect stock
splits, stock dividends, combinations and like transactions affecting the Common
Stock.
<PAGE>
Section 2.6. Delisting/Deregistration/Suspension. If at any time during
the Open Period or within thirty days after the end of the Open Period, (i) the
Common Stock is delisted from the Principal Market or (ii) the Common Stock is
not registered under the Exchange Act or (iii) trading of the Common Stock on
the Principal Market is suspended for more than two consecutive full trading
days or for any cause(s) or reason(s) which have or are likely to have,
individually or in the aggregate, a significant effect on the business,
operations, properties, prospects, or financial condition of the Company and any
other entities controlled by the Company, taken as a whole, which is material
and adverse to the Company and such entities, taken as a whole, and which,
during the ten trading days following public disclosure of such event, results
in a 30% or more decrease in the Applicable Trading Price of the Common Stock or
(iv) if any registration statement with respect to the Common Stock issued or
issuable hereunder (including the Registration Statement) is no longer effective
or subject to a stop order or otherwise suspended by the Company or as a result
of action or inaction by the Company, and if, in the case of the circumstances
described in clause (iv) of this Section 2.6, such circumstances shall exist for
periods in excess of those provided in Section 8 of the Registration Rights
Exhibit with respect thereto, the Investor shall have the right, at its option
in its sole discretion, which right shall be exercised within thirty days of
such event or occurrence, to sell to the Company, and the Company agrees to buy,
promptly upon the exercise of such right by the Investor and subject to the
limitations imposed by the Minnesota Business Corporation Act, all or any part
of the Common Stock issued to the Investor and then held by the Investor at a
price per share equal to the Market Stock Price at the time such share was
purchased or at the time such right pursuant to this Section 2.6 is exercised by
the Investor, whichever is greater; provided, however, that the number of Shares
of Common Stock subject to the Investor's option hereunder shall in no event
exceed the number of such Shares acquired by the Investor hereunder during the
60 trading days preceding the Investor's exercise of the option provided to it
in this Section 2.6 and during no part of which any of the circumstances
described in clause (i) through (iv) of this Section 2.6 existed.
Section 2.7. Overall Limit on Common Stock Issuable; Minimum Dollar
Amount. Notwithstanding anything herein contained to the contrary, the number of
shares of Common Stock issuable by the Company hereunder shall not exceed twenty
percent of the outstanding Common Stock of the Company as of the date hereof,
subject to appropriate adjustment for stock splits, stock dividends,
combinations or other similar recapitalization affecting the Common Stock, (the
"Maximum Common Stock Issuance"), unless the issuance of Common Stock hereunder
in
<PAGE>
excess of the Maximum Common Stock Issuance shall first be approved by the
Company's stockholders in accordance with applicable law and the by-laws of the
Company. Notwithstanding anything herein to the contrary, the Company will use
its best efforts and all due diligence to obtain its shareholders' approval of
the issuance and sale of the Common Stock or the substitute securities and all
transactions relating or pertaining thereto, as contemplated by this Agreement.
Without limiting the generality of the foregoing, such shareholders' approval
will duly authorize the issuance by the Company of shares of Common Stock
totalling twenty percent or more of the Company's Common Stock outstanding on
the date hereof. The parties understand and agree that the Company's failure to
obtain such approval shall in no way adversely affect the validity and due
authorization, as provided in Sections 4.4 and 4.6 hereof of the issuance and
sale of Common Stock hereunder, and that such approval pertains only to the
applicability of the Maximum Common Stock Issuance Limitation provided in this
Section 2.7.
ARTICLE III
Representations and Warranties of Investor
The Investor represents and warrants to the Company that:
Section 3.1. Intent. The Investor will be purchasing the Common Stock
to be purchased by it hereunder for its own account and the Investor has no
present arrangement (whether or not legally binding) at any time to sell any
such Common Stock to or through any person or entity; provided, however, that by
making the representations herein, the Investor does not agree to hold such
Common Stock for any minimum or other specific term and reserves the right to
dispose of such Common Stock at any time in accordance with federal and state
securities laws applicable to such disposition. The Investor understands that
such Common Stock must be held indefinitely unless such Common Stock is, either
at the time of purchase or subsequently, registered under the Securities Act or
an exemption from registration is available. The Investor has been advised or is
aware of the provisions of Rule 144 promulgated under the Securities Act.
Section 3.2. Sophisticated Investor. The Investor is a sophisticated
investor (as described in Rule 506(b)(2)(ii) of Regulation D promulgated under
the Securities Act ("Regulation D")) and an accredited investor (as defined in
Rule 501 of Regulation D), and the Investor has such experience in business and
financial matters that it is capable of evaluating the merits and risks of an
investment in such Common Stock.
<PAGE>
The Investor acknowledges that an investment in the Common Stock is speculative
and involves a high degree of risk.
Section 3.3. Authority. The Investor has full power and authority to
enter into and to perform this Agreement in accordance with its terms. This
Agreement has been duly authorized and validly executed and delivered by the
Investor and is a valid and binding agreement of the Investor enforceable
against it in accordance with its terms, subject to bankruptcy, insolvency or
similar laws relating to, or affecting generally the enforcement of creditors'
rights and remedies, and subject also to other equitable principles of general
application.
Section 3.4. No Brokers. The Investor has taken no action which would
give rise to any claim by any person for brokerage commission, finder fees, or
similar payments relating to this Agreement or the transactions contemplated
hereby.
Section 3.5. Not an Affiliate. The Investor is not an officer, director
or "affiliate" (as that term is defined in Rule 405 of the Securities Act) of
the Company.
Section 3.6. Organization and Standing. The Investor is duly organized,
validly existing, and in good standing under the laws of the place of its
organization set forth at the beginning of this Agreement. The Investor, if a
corporation, partnership, trust or other entity, has not been organized,
reorganized or recapitalized specifically for the purpose of investing in the
Company.
Section 3.7. Absence of Conflicts. The execution and delivery of this
Investment and any other documents or instruments executed in connection
herewith, and the consummation of the transactions contemplated hereby and
thereby, and compliance with the requirements thereof, will not violate the
Investor's organizational documents or any law, rule, regulation, order, writ,
judgment, injunction, decree or award applicable to the Investor, or the
provision of any indenture, instrument or agreement to which the Investor is a
party or is subject, or by which the Investor or any of its assets is bound, or
conflict with or constitute a material default thereunder, or result in the
creation or imposition of any lien pursuant to the terms of any such indenture,
instrument or agreement, or constitute a breach of any fiduciary duty owed by
the Investor to any third party, or require the approval of any third party
pursuant to any material contract, agreement, instrument, relationship or legal
obligation to which the Investor is subject or to which any of its assets,
operations or management may be subject.
<PAGE>
Section 3.8. Disclosure, Access to Information. The Investor has
received all documents, records, books and other information pertaining to
Investor's Common Stock investment in the Company that have been requested by
the Investor. The Investor further acknowledges that it understands that the
Company is subject to the periodic reporting requirements of the Exchange Act,
and the Investor has reviewed or received copies of any such reports that have
been requested by it. The Investor has carefully reviewed the representations
concerning the Company contained in this Agreement and has made inquiry
concerning the Company, its business and its personnel; the officers of the
Company have made available to the Investor any and all written information
which it has requested and have answered all inquiries made by the Investor; and
the Investor has sufficient knowledge and experience in investing in companies
similar to the Company so as to be able to evaluate the risks and merits of its
investment in the Company and is able financially to bear the risks thereof.
Section 3.9. Manner of Sale. At no time was the Investor presented with
or solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising with
respect to Investor's Common Stock investment.
Section 3.10. Reliance on Company. The Investor acknowledges that it
has had the opportunity to review this Agreement and the transactions
contemplated by this Agreement with its own legal counsel and tax advisors.
Except for any statements or representations of the Company made in this
Agreement and the SEC Documents (as defined below), the Investor is not relying
on any other statements or representations of the Company or any of its
representatives or agents with respect to such investment.
Section 3.11. Hart-Scott-Rodino. (A) The Person (as that term is
defined in 16 C.F.R. ss.801.1(a)(I)) of which the Investor is a part does not
have total assets or annual net sales of $100,000,000 or more, as measured under
the applicable rules and regulations interpreting the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, ("HSR"), and/or (B) for purposes
of ss.802.9 of HSR, the Investor's acquisition of Common Stock will be made
solely for the purposes of investment and, as a result of such acquisition and
any such conversion or exercise, the Investor will hold ten percent or less of
the voting securities of the Company outstanding on the date hereof, and/or (C)
as a result of such acquisition and any such conversion or exercise, the
Investor will not hold assets or voting securities of the Company valued at more
than $1,500,000, and/or (D) the Investor is an Institutional Investor for
<PAGE>
purposes of ss.802.64 of HSR, such voting securities of the Company will be
acquired directly by the Investor in the ordinary course of its business and
solely for the purpose of investment (for purposes of such ss.802.64) and, as a
result of any such acquisition the Investor will hold fifteen percent or less of
the voting securities of the Company outstanding on the date hereof or voting
securities of the issuer valued at $25,000,000 or less.
Section 3.12. Authorization, Enforcement. (i) The Investor has the
requisite power and authority to enter into and perform this Agreement all in
accordance with the terms hereof, (ii) the execution and delivery of this
Agreement and the consummation by the Investor of the transactions contemplated
hereby to be performed and observed by the Investor have been duly authorized by
the Investor, (iii) this Agreement has been duly executed and delivered by the
Investor, and (iv) this Agreement constitutes the valid and binding obligation
of the Investor enforceable against the Investor in accordance with its terms,
except where such enforceability may be limited by applicable bankruptcy,
insolvency, or similar laws relating to, or affecting generally the enforcement
of, creditors' rights and remedies or by other equitable principles of general
application or the limitations on indemnification and contribution that may be
imposed by Federal securities laws.
ARTICLE IV
Representations and Warranties of the Company
The Company represents and warrants to the Investor that:
Section 4.1. Company Status. The Company has registered its Common
Stock pursuant to Section 12(b) or 12(g) of the Exchange Act, is in compliance
in all material respects with all reporting requirements of the Exchange Act,
and the Company has maintained all requirements for the continued listing of its
Common Stock, and such Common Stock is currently listed on the Principal Market.
As of the date hereof the Company's "Principal Market" is the Nasdaq National
Market System.
Section 4.2. Current Public Information. The Company has furnished the
Investor with true and correct copies of the Company's latest proxy statement
and Annual Report on Form 10-K and all reports and other documents filed with
the SEC by the Company since July 31, 1996, pursuant to Sections 13(a), 13(c),
14 and 15(d) of the Exchange Act (collectively, the "SEC Documents")
Section 4.3. General Solicitation in Regard to this Transaction.
Neither the Company nor any of its affiliates nor any distributor or any
<PAGE>
person acting on its or their behalf has conducted any "directed selling
efforts" (as that term is defined in Rule 902(b) of Regulation S under the
Securities Act) with respect to the Common Stock which may be acquired
hereunder, nor has the Company conducted any general solicitation (as that term
is used in Rule 502(c) of Regulation D) with respect to any of such Common
Stock, nor have they made any offers or sales of any security or solicited any
offers to buy any security, under circumstances that would require registration
of such Common Stock under the Securities Act.
Section 4.4. Capitalization and Valid Issuance of Stock. As of the date
hereof, the Company has an authorized capitalization consisting of 50,000,000
shares of Common Stock, par value $.01, and 300,000 shares of Series B Junior
Preferred Stock, par value $01. As of the date hereof, the Company has issued
and outstanding 30,577,383 shares of Common Stock and no shares of Preferred
Stock. All options and warrants to acquire shares of the Company's Common Stock,
which were outstanding as of December 31, 1996 or which the Company was
obligated to issue as of December 31, 1996, are described as required in the SEC
Documents. As of the date hereof, the Company has outstanding stock options and
warrants to acquire a total of 3,339,016 and 92,000 shares, respectively, of the
Company's Common Stock, which outstanding options and warrants, to the extent
issued or granted prior to July 31, 1996, are described as required in the SEC
Documents and, to the extent granted since July 31, 1996, are upon terms which
are not materially different from the terms of those options and warrants as
have been issued or granted on or before July 31, 1996. Except as described in
the SEC Documents, the Company has not issued or granted and there are not now
outstanding, nor has the Company undertaken or become obligated to issue or
grant, any convertible securities or, apart from such stock options and warrants
outstanding on the date hereof, any options, warrants or other rights to acquire
Common Stock. All of the issued shares of Common Stock of the Company have been
duly and validly authorized and issued and are fully paid and non-assessable;
the Common Stock issuable pursuant to this Agreement, when issued, sold and
delivered against payment therefor in accordance with the terms of this
Agreement, will be duly and validly issued, fully paid and nonassessable; and
the holders of outstanding Common Stock of the Company are not and shall not be
entitled to preemptive or other rights afforded by the Company to subscribe for
the capital stock or other securities of the Company as a result of the sale of
the Common Stock to the Investor hereunder.
Section 4.5. Organization and Qualification. The Company is a
corporation duly incorporated, validly existing and in good standing under
<PAGE>
the laws of the State of Minnesota and has the requisite corporate power to own
its properties and to carry on its business as now being conducted. The Company
does not have any subsidiaries, except for those listed in the SEC Documents.
The Company and each such subsidiary, if any, is duly qualified as a foreign
corporation to do business and is in good standing in every jurisdiction in
which the nature of the business conducted or property owned by it makes such
qualification necessary, other than those in which the failure so to qualify
would not have a Material Adverse Effect. "Material Adverse Effect" means any
effect on the business, operations, properties, prospects, or financial
condition of the entity with respect to which such term is used and which is
material and adverse to such entity and other entities controlling or controlled
by such entity, taken as a whole, and/or any condition or situation which would
prohibit or otherwise interfere with the ability of the entity with respect to
which said term is used to enter into and perform its obligations under this
Agreement, including the Registration Rights Exhibit.
Section 4.6. Authorization, Enforcement. (i) The Company has the
requisite corporate power and authority to enter into and perform this Agreement
and to issue the Common Stock pursuant to this Agreement, all in accordance with
the terms hereof, (ii) the execution and delivery of this Agreement and the
issuance of such Common Stock by the Company and the consummation by the Company
of the transactions contemplated hereby to be performed and observed by the
Company have been duly authorized by all necessary corporate action, and no
further consent or authorization of the Company or its Board of Directors or
stockholders is required, (iii) this Agreement has been duly executed and
delivered by the Company, and (iv) this Agreement constitutes the valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, or similar laws relating to, or affecting generally the
enforcement of, creditors' rights and remedies or by other equitable principles
of general application or the limitations on indemnification and contribution
that may be imposed by Federal securities laws.
Section 4.7. Corporate Documents. The Company has furnished or made
available to the Investor true and correct copies of the Company's Articles of
Incorporation, as amended and in effect on the date hereof (the "Articles"), and
the Company's By-Laws, as amended and in effect on the date hereof (the
"By-Laws").
Section 4.8. No Conflicts. The execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby, including without
<PAGE>
limitation the issuance of the Common Stock, do not and will not (i) result in a
violation of the Company's Articles or By-Laws or (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of any material agreement, indenture or
instrument to which the Company or any of its subsidiaries is a party, or (iii)
result in a violation of any federal, state, local or foreign law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations) applicable to the Company or any of its subsidiaries or by
which any property or asset of the Company or any of its subsidiaries is bound
or affected (except in the case of any of clause (i), (ii) or (iii) for such
conflicts, defaults, terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect). The business of the Company is not being conducted in violation
of any law, ordinance or regulation of any governmental entity, except for
possible violations which either singly or in the aggregate do not and will not
have a Material Adverse Effect. The Company is not required under federal,
state, local or foreign law, rule or regulation to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under this Agreement or issue and/or sell such Common Stock in
accordance with the terms hereof (other than any SEC, NASD or state securities
filings which may be required or permitted to be made by the Company subsequent
to this date hereof, and any registration statement which may be filed incident
to this Agreement), provided that, for purposes of the representation made in
this sentence, the Company is assuming and relying upon the accuracy of the
relevant representations and agreements of the Investors herein. For purposes of
the Company's representations and warranties as to foreign law, rule or
regulation made in clause (iii) above and in the next preceding sentence of this
Section 4.8, such representations and warranties are made only to the best of
the Company's knowledge insofar as the execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby are or may be affected by the
status of the Investor under or pursuant to any such foreign law, rule or
regulation.
Section 4.9. SEC Documents. The Company has delivered or made available
to the Investor true and complete copies of the SEC Documents (including,
without limitation, proxy information and solicitation materials). The Company
has not provided to the Investor any information which, according to applicable
law, rule or regulation, should have been disclosed publicly prior to the date
hereof by the Company but
<PAGE>
which has not been so disclosed. As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the Exchange Act and
the rules and regulations of the SEC promulgated thereunder, and none of the SEC
Documents contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of the Company included in the SEC
Documents comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC. Such financial
statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved (except (i)
as may be otherwise indicated in such financial statements or the notes thereto
or (ii) in the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements or to the extent
they are subject to normal year-end audit adjustments) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).
Section 4.10. No Material Adverse Change. Since July 31, 1996, no event
which had or is likely to have a Material Adverse Effect on the Company has
occurred or exists that has not been publicly disclosed in the Company's SEC
Documents or otherwise.
Section 4.11. No Undisclosed Liabilities. The Company and its
subsidiaries have no liabilities or obligations which are material, individually
or in the aggregate, and which are not disclosed in the SEC Documents, other
than those incurred in the ordinary course of the Company's or its subsidiaries'
respective businesses since July 31, 1996, and which, individually or in the
aggregate, have had or are likely to have a Material Adverse Effect on the
Company and upon any of its subsidiaries.
Section 4.12. No Undisclosed Events or Circumstances. No event or
circumstance has occurred or exists with respect to the Company or its
subsidiaries or their respective businesses, properties, prospects, operations
or financial condition, which, under applicable law, rule or regulation,
requires public disclosure or announcement prior to the date hereof by the
Company but which has not been so publicly announced or disclosed.
<PAGE>
Section 4.13. No Integrated Offering. Prior to the date hereof, neither
the Company, nor any of its affiliates, nor any person acting on its or their
behalf has, directly or indirectly, made any offers or sales of any security or
solicited any offers to buy any security, other than pursuant to this Agreement,
under circumstances that would require registration under the Securities Act of
the Common Stock issuable hereunder.
Section 4.14. No Brokers. The Company has taken no action which would
give rise to any claim by any person for brokerage commissions, finder's fees or
similar payments by the Investor relating to this Agreement or the transactions
contemplated hereby and thereby.
Section 4.15. Litigation and Other Proceedings. Except as may be set
forth in the SEC Documents, there are no lawsuits or proceedings pending or to
the best knowledge of the Company threatened, against the Company, nor has the
Company received any written or oral notice of any such action, suit, proceeding
or investigation, which, if decided adversely, is reasonably expected to have a
Material Adverse Effect on the Company or which might materially and adversely
affect this Agreement or the transactions contemplated by this Agreement. Except
as set forth in the SEC Documents, no judgment, order, writ, injunction or
decree or award has been issued by or, so far as is known by the Company,
requested of any court, arbitrator or governmental agency which is reasonably
expected to result in a Material Adverse Effect on the Company or which might
materially and adversely affect the transactions contemplated by this Agreement.
ARTICLE V
Covenants of The Company
Section 5.1. Registration Rights. The Registration Rights Exhibit is
hereby incorporated herein by reference and is hereby made an integral part
hereof as though fully set forth herein.
Section 5.2. Reservation of Common Stock. As of the date hereof, the
Company has reserved and the Company shall continue to reserve and keep
available at all times, free of preemptive rights, shares of Common Stock for
the purpose of enabling the Company to satisfy any obligation to issue shares of
its Common Stock hereunder; provided, however, that the number of shares of
Common Stock initially so reserved, as of the beginning of each such fiscal
quarter, on the date hereof shall not be less than 6,000,000 shares and provided
further that in no event shall the number of shares so reserved be less than the
number which might
<PAGE>
thereafter be issued at the Market Stock Price of the Common Stock on the
Principal Market as of the last trading day of the immediately preceding fiscal
quarter. The number of shares so reserved from time to time, as theretofore
increased or reduced as hereinafter provided, may be reduced by the number of
shares of Common Stock actually delivered hereunder and the number of shares so
reserved shall be increased to reflect stock splits and stock dividends and
distributions and like transactions with respect to the Common Stock. In the
event that, notwithstanding the foregoing, the Company determines that it does
not have a sufficient number of authorized shares of Common Stock to reserve and
keep available for issuance as described in this Section 5.2, the Company shall
use its best efforts to increase the number of authorized shares of Common Stock
by seeking stockholder approval for the authorization of such additional shares.
Section 5.3. Listing of Shares. The Company hereby agrees, promptly
following the date hereof, to take such action required, if any, or that may be
required to cause all of the Common Stock which may be or become issuable
hereunder to be listed on the Principal Market as promptly as possible but no
later than sixty (60) days following the date hereof. The Company further
agrees, if the Company applies to have the Common Stock traded on any other
Principal Market, it will include in such application all of the Common Stock so
issuable and will take such other action as is necessary or desirable to cause
the Common Stock to be listed on such other Principal Market as promptly as
possible.
Section 5.4. Exchange Act Registration. The Company will use its best
efforts to cause its Common Stock to continue to be registered under Section
12(b) or 12(g) of the Exchange Act, will comply in all material respects with
its reporting and filing obligations under said Act, and will not take any
action or file any document (whether or not permitted by said Act or the rules
thereunder) to terminate or suspend such registration or to terminate or suspend
its reporting and filing obligations under said Act. The Company will take all
reasonable action necessary to continue the listing and trading of its Common
Stock on the Principal Market and will comply in all material respects with the
Company's reporting, filing and other obligations under the bylaws or rules of
the NASD and the Principal Market.
Section 5.5. A. Legends. Except as hereinafter provided, certificates
evidencing any Common Stock issued hereunder will bear the following legend (the
"Legend").
<PAGE>
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR
SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AS TO THE
SECURITIES UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS
UNLESS AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY IS OBTAINED TO
THE EFFECT THAT REGISTRATION UNDER SAID ACT IS NOT REQUIRED.
Prior to the Closing, the Company will issue to the transfer agent for
its Common Stock (and to any substitute or replacement transfer agent for its
Common Stock coterminous with the Company's appointment of any such substitute
or replacement transfer agent) instructions in substantially the form and
substance of the Transfer Agent Irrevocable Instruction Exhibit which is annexed
hereto and hereby made a part hereof. Such instructions shall be irrevocable by
the Company from and after the date hereof or from and after the issuance
thereof to any such substitute or replacement transfer agent, as the case may
be, except as otherwise expressly provided in the Registration Rights Exhibit.
Notwithstanding the foregoing, such Irrevocable Instruction may be revoked if
required by a change in law, as determined mutually by counsel to the Company
and counsel to the Investor or the successors and assigns of the Investor. It is
the intent and purpose of such instructions, as provided therein, to require the
transfer agent for the Common Stock from time to time to issue certificates
evidencing Common Stock free of the Legend and/or stock transfer restrictions
during the following periods and under the following circumstances and without
consultation by the transfer agent with the Company or its counsel and without
the need for any further advice or instruction to the transfer agent by or from
the Company or its counsel:
(a) For so long as the Registration Statement remains effective, other
than during any period of time (a "Black-Out Period") during which the
Registration Statement is not effective, for any reason or no reason, or during
which the Company has suspended the use of the Registration Statement pursuant
to Section 8 of the Registration Rights Exhibit,
(i) incident to the issuance of Common Stock hereunder by the
Company; and
<PAGE>
(ii) upon any surrender of one or more certificates evidencing
Common Stock and which bear the Legend;
provided that in connection with such event, a notice is provided to the
transfer agent representing that (i) the holder of or the person or entity
acquiring such shares of Common Stock has sold or intends promptly to sell such
shares pursuant to and in accordance with the Registration Statement, including
the prospectus delivery requirements applicable thereto, and that (ii) to the
holder's knowledge, which has been confirmed in writing by the Company, the
Registration Statement was or will be effective on the date of the sale and the
sale did not occur or will not occur during a Black-Out Period, and requesting
that certificates for the shares sold or to be sold be issued free of the Legend
to the transferee of the holder or to the holder, as the case may be; and
provided further that if, in the event of any such representation in accordance
with Clause (i) of the preceding proviso, such certificate evidencing the Common
Stock so sold or to be sold is not delivered incident to or for purposes of the
completion of such sale within ten (10) trading days after the receipt of such
certificate by the Holder or by the Holder's designee, the Holder will return
such certificate to the transfer agent for the purpose of enabling the transfer
agent to add the Legend to such Certificate and then return the legended
certificate to the Holder.
(b) At any time from and after the Closing Date, upon any surrender of
one or more certificates evidencing Common Stock and which bear the Legend, to
the extent accompanied by a notice requesting the issuance of new certificates
free of the Legend to replace those surrendered and containing or also
accompanied by an opinion of counsel satisfactory to the Company that (i) the
then holder thereof is permitted to dispose thereof pursuant to Rule 144(k)
under the Securities Act or (ii) such holder intends to effect the sale or other
disposition of such stock, whether or not pursuant to the Registration
Statement, to a purchaser or purchasers who will not be subject to the
registration requirements of the Act, or (iii) such holder or the disposition of
such Common Stock is not then subject to such requirements.
B. No Other Legend or Stock Transfer Restrictions. No other restrictive
legends have been or shall be placed on the share certificates representing such
Common Stock and no instructions or "stop transfers," so called, "stock transfer
restrictions," so called, or other restrictions have been or shall be given to
the Company's transfer agent with respect thereto, other than as expressly set
forth in Section 5.5 A. hereof.
<PAGE>
C. Investor's Compliance. Nothing in this Section 5.5 shall affect in
any way each holder's obligations under and agreement to comply with all
applicable securities laws upon resale of such Common Stock.
Section 5.6. Corporate Existence. The Company will take all steps
reasonably necessary to preserve and continue the corporate existence of the
Company.
Section 5.7. Additional SEC Documents. The Company will furnish to the
Investors, promptly after the originals thereof are submitted to the SEC for
filing, copies of all SEC Documents so furnished or submitted to the SEC.
ARTICLE VI
Preliminary Put Notice
In order to provide the Investor's designated representatives adequate
opportunity to conduct appropriate due diligence in connection with each Put
Notice, the Company shall deliver to the Investor, at least twelve (12) calendar
days prior to the delivery of each Put Notice, a Preliminary Put Notice, which
Notice shall state that the Company is considering delivery of a Put Notice to
the Investor twelve (12) or more calendar days following delivery of the
Preliminary Put Notice. In no event shall delivery of a Preliminary Put Notice
to the Investor obligate the Company to deliver any Put Notice to the Investor,
provided, however, that if the Company fails on more than two occasions in any
twelve month period to deliver a Put Notice within thirty days of delivery of a
Preliminary Put Notice, then the Company shall pay the reasonable due diligence
costs of the Investor with respect to each subsequent Preliminary Put Notice
delivered during such twelve month period, not to exceed $15,000 in each such
case.
ARTICLE VII
Conditions
Section 7.1. Conditions Precedent to the Obligation of the Company to
Sell Shares. The obligation hereunder of the Company to issue and/or sell the
Shares to the Investor is further subject to the satisfaction, at or before each
Closing, of each of the following conditions set forth below. These conditions
are for the Company's sole benefit and may be waived by the Company at any time
in its sole discretion.
<PAGE>
(a) Accuracy of the Investor Representations and Warranties. The
representations and warranties of the Investor shall be true and correct in all
material respects as of the date when made and as of each Closing Date as though
made at that time (except for representations and warranties that speak as of a
particular date or refer to a particular point in time ).
(b) Performance by the Investor. The Investor shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Investor at or prior to such date.
(c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
Section 7.2. Conditions Precedent to the Obligation of the Investor to
Purchase any Shares. The obligation of the Investor hereunder to acquire and pay
for Shares is subject to the satisfaction, at or before each Closing, of each of
the following conditions set forth below. These conditions are for the
Investor's sole benefit and may be waived by the Investor at any time in its
sole discretion.
(a) Accuracy of the Company's Representations and Warranties. The
representations and warranties of the Company shall be true and correct in all
material respects as of the date when made and as of each Closing Date, as
though made at that time (except for representations and warranties that speak
as of a particular date or refer to a particular point in time).
(b) Performance by the Company. The Company shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to such Closing.
(c) Principal Market. Trading in the Company's Common Stock shall not
have been suspended by the SEC or the Principal Market during the twenty trading
days prior to the delivery of a Put Notice, (except for any suspension of
trading of limited duration agreed to between the Company and the Principal
Market, solely to permit dissemination of material information regarding the
Company), and
<PAGE>
trading in securities generally as reported by the Principal Market, shall not
have been suspended or limited or minimum prices shall not have been established
on securities whose trades are reported by the Principal Market.
(d) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(e) Opinion of Counsel, Etc. At each Closing the Investor shall have
received an opinion of counsel to the Company, satisfactory to the Investor in
form and substance, dated the effective date of such Closing, and such other
certificates, opinions of other counsel and documents as the Investor or its
counsel shall reasonably require incident to such Closing; provided, however,
that if the Investor shall have received such an opinion incident to a Closing
which occurred no more than thirty days earlier, a new opinion shall not be
required of such counsel, other than updates of the earlier opinion provided
pursuant to counsel's undertaking therein to provide the same, and for all
purposes of the current Closing, the Investor may rely upon such earlier opinion
as the same may have been modified by such updates.
(f) Effectiveness of Registration Statement. The Registration Statement
shall be effective at the time of each Closing and no stop order suspending the
effectiveness of the Registration Statement shall have been instituted or shall
be pending.
(g) Accuracy of Registration Statement. At the time of each Closing,
the Registration Statement (including information or documents incorporated by
reference therein) and any amendments or supplements thereto shall not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(h) Auditor's Letter. Investor shall have received a letter of the
type, in the form and with the substance of the letter described in Section
2(b)(iii) of the Registration Rights Exhibit; provided, however, that if the
Investor shall have received such a letter incident to a Closing which occurred
no more than thirty days earlier, a new letter shall not be required of such
auditors, other than updates of the earlier letter provided pursuant to such
auditor's undertaking therein to provide the same, and
<PAGE>
for all purposes of the current Closing, the Investor may rely upon such earlier
letter as the same may have been modified by such updates.
(i) Officer's Certificate. At each Closing the Investor shall have
received a certificate(s) from the CEO and/or CFO of the Company relating to the
representations and warranties of the Company herein which shall be satisfactory
to the Investor in form and substance.
(j) No Bankruptcy Filing. There shall have been no filing of a petition
in bankruptcy, either voluntarily or involuntarily with respect to the Company
and there shall not have been commenced any proceedings under any bankruptcy or
insolvency laws, or any laws relating to the relief of debtors, readjustment of
indebtedness or reorganization of debtors, and there shall have been no calling
of a meeting of creditors of the Company or appointment of a committee of
creditors or liquidating agents or offering of a composition or extension to
creditors by, for, with or without the consent or acquiescence of the Company.
(k) No Adverse Opinion of Counsel. During the twelve (12) calendar day
period following a Preliminary Put Notice, the Investor's counsel shall not have
delivered to the Company a copy of an opinion addressed to the Investor stating
Investor's counsel's belief that there is a reasonable likelihood that the
Registration Statement contains an untrue statement of material fact or omits a
material fact required to make the statements contained therein, in light of the
circumstances in which they were made, not misleading. If any such opinion is
delivered, copies of the same shall be delivered to the Company's counsel and
Investor's counsel shall communicate the basis for such opinion to the Company's
counsel promptly after rendering such opinion to Investor. The Company shall
have no right or claim against Investor's counsel with respect to any such
opinion. In the event that the Company's counsel and the Investor's Counsel are
unable, within four Business Days of such delivery of such opinion of Investor's
counsel, to agree upon the appropriate resolution of such belief expressed by
Investor's counsel in order that this condition (k) may be satisfied, either
counsel may refer the matter to the Neutral Lawyer in accordance with Section
2(d) of the Registration Rights Exhibit. Pending resolution of such belief in
accordance with such Section 2(d), the Company shall not deliver any new Put
Notices to the Investor and, at the Investor's election, purchases of Common
Stock pursuant to Put Notices outstanding and under which the Required Dollar
Amount of Common Stock shall not have been fully purchased at the time any such
opinion of Investor's counsel shall have been delivered, shall be suspended and
the Purchase Period applicable thereto extended by three days for each day
<PAGE>
from delivery of such opinion to the date upon which such resolution has been
obtained and implemented.
ARTICLE VIII
Termination
Section 8.1. Optional Termination. This Agreement may be terminated at
any time by the mutual consent of the Company and the Investor, or at any time
upon written notice delivered to the Investor by the Company. The
representations, warranties and covenants contained in or incorporated into this
Agreement, insofar as applicable to the transactions consummated hereunder prior
to such termination, shall survive its termination for the period of any
applicable statute of limitations.
Section 8.2. Automatic Termination. This Agreement shall automatically
terminate without any further action of either party hereto when (a) the
Investor has invested an aggregate of $25,000,000 in the Common Stock of the
Company pursuant to this Agreement, apart from additional amounts which may be
invested pursuant to Section 2.2(a)(B); provided that the representations,
warranties and covenants contained in this Agreement insofar as applicable to
the transactions consummated hereunder prior to such termination, shall survive
the termination of this Agreement for the period of any applicable statute of
limitations or (b) the Open Period has ended.
All representations, warranties and covenants shall survive each
Closing and for six months after termination of this Agreement.
Section 8.3. Change in Control. From and after the date hereof upon any
Change of Control (as defined below), the Company shall no longer have the right
to deliver any Put Notice to the Investor, unless otherwise agreed by the
Investor. A "Change of Control" shall mean any transaction or series of
transactions which results in any person or affiliated group of persons becoming
the beneficial owner of 50% or more of the voting stock of the Company or
constituting 50% or more of the Company's board of directors.
ARTICLE IX
Miscellaneous
Section 9.1. Fees and Expenses. (a) Upon execution of this Agreement,
the Company shall issue to the Investor 100,000 shares of
<PAGE>
Common Stock of the Company, registered in the name of the Investor. The
Certificate representing such shares shall bear no restrictive legend except the
legend referenced in Section 5.5A and the Company shall not give its transfer
agent any "stop transfer" or "stock transfer restrictions" with respect to such
shares. The Company shall, promptly after the date hereof, file and use its best
efforts to cause to become effective, as promptly as possible and in any event
by the sixtieth (60th) calendar day after such filing date, at no cost to the
Investor a registration statement on Form S-3 under the Securities Act or, if
Form S-3 is not then available, another appropriate form covering the resale of
such shares of Common Stock by the Investor or its designee. The terms and
conditions of such registration, except as expressly provided in this Section,
shall be the same as those set forth in the Registration Rights Exhibit.
(b) As a further inducement to the Investor to enter into this
Agreement, the Company agrees to reimburse the Investor or its designees or
clients, as applicable, for expenses relating to the negotiation and execution
of this Agreement and any closings hereunder up to $50,000 in the aggregate.
Such amounts to be paid promptly upon submission of an invoice by the Investor
to the Company.
(c) Except as otherwise set forth in this Section 9.1 and Article VI,
each party shall pay the fees and expenses of its advisers, counsel, accountants
and other experts, if any, and all other expenses incurred by such party
incident to the negotiation, preparation, execution, delivery and performance of
this Agreement. Any attorneys' fees and expenses incurred by either the Company
or by any Holder in connection with the preparation, negotiation, execution and
delivery of any amendments to this Agreement or relating to the enforcement of
the rights of any party, after the occurrence of any breach of the terms of this
Agreement by another party or any default by another party in respect of the
transactions contemplated hereunder, shall be paid on demand by the party which
breached the Agreement and/or defaulted, as the case may be. The Company shall
pay all stamp and other taxes and duties levied in connection with the issuance
of any Shares issued pursuant hereto.
Section 9.2. Specific Enforcement; Consent to Jurisdiction.
(a) The Company and the Investor acknowledge and agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent or cure breaches of the provisions of this
Agreement and to enforce
<PAGE>
specifically the terms and provisions hereof, this being in addition to any
other remedy to which either of them may be entitled by law or equity.
(b) Each of the Company and the Investor (i) hereby irrevocably submits
to the exclusive jurisdiction of the United States District Court and other
courts of the United States sitting in New York City for the purposes of any
suit, action or proceeding arising out of or relating to this Agreement and, if
such court or courts shall lack or deny jurisdiction thereof, of the courts of
the State of New York sitting in New York City and having jurisdiction thereof
and (ii) hereby waives, and agrees not to assert in any such suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction of
such court, that the suit, action or proceeding is brought in an inconvenient
forum or that the venue of the suit, action or proceeding is improper. Each of
the Company and the Investor consents to process being served in any such suit,
action or proceeding by mailing a copy thereof to such party at the address in
effect for notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof Nothing in
this paragraph shall affect or limit any right to serve process in any other
manner permitted by law.
Section 9.3. Entire Agreement; Amendments. Other than with respect to
matters described in the Registration Rights Exhibit and documents and
agreements relating thereto and hereto, this Agreement contains the entire
understanding of the parties with respect to the transactions contemplated
hereby and, except as specifically set forth herein, neither the Company nor the
Investor makes any representation, warranty, covenant or undertaking with
respect to such matters. No provision of this Agreement may be waived or amended
other than by a written instrument signed by the party against whom enforcement
of any such amendment or waiver is sought.
Section 9.4. Notices. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be effective upon
hand delivery or delivery by facsimile at the address or number designated below
(if delivered on a business day during normal business hours where such notice
is to be received), or the first business day following such delivery (if
delivered other than on a business day during normal business hours where such
notice is to be received). The addresses for such communications shall be:
to the Company: Angeion Corporation
3650 Annapolis Lane
Suite 170
<PAGE>
Minneapolis, MN 55447
Attn: David L. Christofferson
Fax: 612-550-9487
with copies to: Oppenheimer Wolff & Donnelly
Plaza VII
45 South Seventh Street
Suite 3400
Minneapolis, MN 55402-1609
Attn: Thomas C. Thomas, Esq.
Fax: 612-607-7100
to the Investor: Promethean Investment Group, L.L.C.
40 West 57th Street, Suite 1520
New York, New York 10019
Attn: James F. O'Brien, Jr., Managing Member
Fax: 212-698-0505
with copies to:
Bingham, Dana & Gould LLP
150 Federal Street
Boston, Massachusetts 02110
Attn: James C. Stokes, Esq.
Fax: 617-951-8736
Any of the foregoing may from time to time change its address for notices under
this Section 9.4 by giving written notice of such changed address to the other
party hereto.
Section 9.5. Waivers. No waiver by either party of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any other
provision, condition or requirement hereof nor shall any delay or omission of
either party to exercise any right hereunder in any manner impair the exercise
of any such right accruing to it thereafter. The parties hereto waive any and
all rights to a jury trial in connection with any action or proceeding arising
under this Agreement or transactions contemplated hereby or thereby.
Section 9.6. Headings. The headings herein are for convenience only, do
not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.
Section 9.7. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors
<PAGE>
and assigns. The parties hereto may amend this Agreement without notice to or
the consent of any third party. Neither the Company nor the Investor shall
assign this Agreement or any rights or obligations hereunder without the prior
written consent of the other (which consent may be withheld for any reason in
the sole discretion of the party from whom consent is sought); provided,
however, that the Company may assign its rights and obligations hereunder to any
acquirer of substantially all of the assets or a controlling equity interest of
the Company provided that such assignment shall be subject to (i) the Change of
Control provisions contained in Section 8.3 above, (ii) Investor's prior written
consent which consent may not be unreasonably withheld; and provided further
that the Investor may assign its rights and obligations hereunder to any person
or entity either controlled by the Investor or whose portfolio investments are
made through accounts over which the Investor has discretionary authority
without the Company's consent, and other than those described in the immediately
preceding clause, with the Company's prior written consent, which consent may
not be unreasonably withheld. The assignment by a party of this Agreement or any
rights hereunder shall not affect the obligations of such party under this
Agreement.
Section 9.8. No Third Party Beneficiaries. This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
Section 9.9. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York without regard to the principles of conflict of laws.
Section 9.10. Execution. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counterpart. In the event any signature is delivered by facsimile
transmission, the party using such means of delivery shall cause four additional
executed signature pages to be physically delivered to the other party within
five days of the execution and delivery hereof.
Section 9.11. Publicity. The Company and the Investor shall consult and
cooperate with each other in issuing any press releases or otherwise making
public statements with respect to the transactions contemplated hereby, provided
the foregoing shall not interfere with the
<PAGE>
legal obligations of either party with respect to public disclosure; and
provided further, that neither the Company nor the Investor shall be required to
consult with the other if any such press release or public statement does not
specifically name the other.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date hereof.
ANGEION CORPORATION
By:______________________________________
Name:
Its
PROMETHEAN INVESTMENT
GROUP L.L.C.
By:______________________________________
James F. O'Brien, Jr.
Managing Member
FINANCIAL REVIEW
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION:
OVERVIEW:
The Company's operations consist of the research and development efforts of its
two divisions, the implantable cardioverter defibrillator (ICD) group and the
catheter ablation group. These divisions are developing medical devices to treat
various types of arrhythmias (irregular heartbeats). The Company established two
European subsidiaries, Angeion GmbH, effective October 31, 1996, and Angeion
Europe Ltd ("Angeion Europe"), effective November 1, 1995, to facilitate
clinical studies of its ICDs and expand its European business activities. The
results of the subsidiaries' 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, 1997, the Company's
accumulated deficit was $69,276,612. Losses have resulted principally from costs
incurred in the research and development of the Company's products and initial
startup of manufacturing operations. The Company has had limited revenue since
the sale of its accessory products business, AMP, in September 1992. The Company
expects to incur additional operating losses over the next few years as it
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 achieve 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, operating costs, competition,
progress of product development and clinical studies, the ability to establish
appropriate selling and clinical channels, and the extent to which the Company's
products gain market acceptance.
RESULTS OF OPERATIONS:
YEAR ENDED JULY 31, 1997 COMPARED TO 1996:
Net sales increased to $4,505,285 in Fiscal 1997 from $2,948,729 in Fiscal
1996. The increase was due to growth in sales of defibrillator products
associated with U.S. clinical studies and international activities offset by a
decline in sales to Pacesetter. See Note 5 of Notes to Financial Statements.
<PAGE>
Manufacturing expenses increased to $9,309,726 in Fiscal 1997 from
$4,456,152 in Fiscal 1996. The increase was substantially due to direct costs
associated with product sales, the ongoing costs associated with the
establishment of the Company's manufacturing operations and the write-off of
excess inventory associated with termination of the Pacesetter OEM Marketing and
Manufacturing Agreement. The Company's product sales do not currently generate a
profit because it has not achieved a scale of production that allows for the
recovery of fixed manufacturing costs.
Research and development expenses increased to $16,953,294 in Fiscal 1997
from $11,049,462 in Fiscal 1996. The increase of $5,903,832 was due to an
acceleration of research and development activity on the Sentinel series and
additional implantable cardioverter defibrillators. Research and development
activity related to the development of the Sentinel series accounted for
$15,097,165 of the expense for Fiscal 1997, while the catheter ablation
development activity accounted for $1,856,129 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 1998.
Selling, general and administrative expenses increased to $6,617,386 in
Fiscal 1997 from $3,665,156 in Fiscal 1996. This increase of $2,952,230 was
primarily due to an increase in costs associated with establishing the selling
and marketing activities in Europe, legal expenses, and the establishment of
administrative services to support a growing employee base related to the
Company's transition from a development stage company to an operating company.
Interest income increased to $1,569,895 in Fiscal 1997 from $1,156,885 in
Fiscal 1996. The increase was due to higher average cash balances during Fiscal
1997 as a result of net proceeds from the equity offering, which closed in July
1996, and warrants exercised during Fiscal 1997.
Interest expense decreased to $103,635 in Fiscal 1997 from $116,863 in
Fiscal 1996. The decrease was due to the conversion of the Pacesetter
convertible debenture into common stock in June 1997. See Note 5 of Notes to
Financial Statements.
<PAGE>
YEAR ENDED JULY 31, 1996 COMPARED TO 1995:
Net sales increased to $2,948,729 in Fiscal 1996 from $0 in Fiscal 1995.
The increase was due to the initiation of ICD sales to Pacesetter and sales
associated with U.S. and European clinical studies.
Manufacturing expenses increased to $4,456,152 in Fiscal 1996 from $0 in
Fiscal 1995. 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.
Research and development expenses increased to $11,049,462 in Fiscal 1996
from $8,024,455 in Fiscal 1995. This increase of $3,025,007 was primarily due to
an acceleration of research and development activity on its ICD systems.
Research and development activity relating to the development of its ICD systems
accounted for $9,854,448 of the expense for Fiscal 1996, while the catheter
ablation development activity accounted for $1,195,014 of the expense.
Selling, general and administrative expenses increased to $3,665,156 in
Fiscal 1996 from $1,640,312 in Fiscal 1995. This increase of $2,024,844 was
primarily due to an increase in payroll expenses and legal expenses.
Interest income increased to $1,156,885 in Fiscal 1996 from $292,578 in
Fiscal 1995. The increase was due to higher cash balances during Fiscal 1996.
Interest expense decreased to $116,863 in Fiscal 1996 from $271,162 in
Fiscal 1995. 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 6 of Notes to Financial Statements.
<PAGE>
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 development activities
of its ICD and catheter ablation divisions, scale-up and expansion of the
Company's manufacturing activities, selling and marketing activities, general
corporate purposes including working capital, and the potential for 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. As of July 31, 1997, the Company had realized
approximately $68,000,000 in net proceeds from offerings on its capital stock.
Net cash used in operating activities was $26,026,077 in Fiscal 1997
compared to $16,589,613 in Fiscal 1996 and $8,566,889 in Fiscal 1995. 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 1997 and Fiscal 1996 was also related to
the build-up of inventory and the increase in selling and marketing expenses.
The Company's expenditures for fixed assets were $3,432,601 for Fiscal 1997
and were $3,943,462 and $989,351 in Fiscal 1996 and 1995, 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 and development capabilities, fixed asset expenditures are expected to
continue at the Fiscal 1997 level.
At July 31, 1997, the Company's principal sources of liquidity consisted of
cash and cash equivalents of $6,372,119 and marketable securities of $8,050,181.
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 7 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.
<PAGE>
The Company has net operating loss carryforwards for federal income tax
purposes of approximately $69,000,000, 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 may cause 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.
On September 2, 1997, the Company entered into an equity-based line of
credit with an investment group that allows the Company to access up to $25
million, at the Company's sole discretion, through sale of its common stock. The
equity line will be available for a two-year period ending October 8, 1999. See
Note 14 of Notes to Financial Statements.
For 1998, the Company is required to adopt Statement of Financial
Accounting Standards ("SFAS") No. 128, Earnings per Share. SFAS No. 128 requires
dual presentation of basic earnings per share and diluted earnings per share.
Initial application of SFAS No. 128 is not expected to have a material effect of
reporting earnings (loss) per share.
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, 1997.
<TABLE>
<CAPTION>
YEARS ENDED JULY 31, 1997 1996 1995 1994 1993
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Net sales $ 4,505,285 $ 2,948,729 $ 0 $ 0 $ 137,982
Net loss* (26,908,861) (15,182,019) (9,643,351) (7,675,743) (2,708,438)
Net loss per share* $ (0.93) $ (0.66) $ (0.58) $ (0.72) $ (0.26)
Weighted average number of
common shares outstanding 29,064,994 22,898,538 16,550,915 10,657,311 10,296,812
AS OF JULY 31, 1997 1996 1995 1994 1993
BALANCE SHEET DATA:
Working capital (deficit) $ 18,490,175 $ 44,935,198 $ 1,669,554 $(1,175,384) $ 4,692,607
Total assets 30,896,363 55,183,896 5,751,194 4,752,630 7,329,146
Long-term debt 0 1,500,000 1,501,091 1,504,187 1,513,516
Shareholders' equity (deficit) $ 26,047,520 $ 49,463,672 $ 2,980,150 $ (596,320) $ 5,207,346
</TABLE>
*Net loss and net loss per share for the year 1993 include a gain on sale of
discontinued operations of $3,207,120 and $0.31 per share, respectively.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Angeion Corporation:
We have audited the accompanying consolidated balance sheets of Angeion
Corporation and subsidiaries as of July 31, 1997 and 1996, 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, 1997. 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 subsidiaries as of July 31, 1997 and 1996, and the results of
their operations and their cash flows for each of the years in the three-year
period ended July 31, 1997, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
September 8, 1997
<PAGE>
CONSOLIDATED BALANCE SHEETS
July 31, 1997 and 1996
<TABLE>
<CAPTION>
ASSETS 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,372,119 $ 35,183,919
Short-term marketable securities 8,050,181 7,368,290
Accounts receivable:
Trade, less allowance for doubtful accounts of
$0 for 1997 and $60,758 for 1996 1,315,570 2,330,742
Other 201,904 164,009
Inventories 7,161,977 3,949,350
Prepaid expenses and other current assets 237,267 159,112
- ----------------------------------------------------------------------------------------------------------
Total current assets 23,339,018 49,155,422
Property and equipment, net 6,722,076 4,819,820
Other assets, net 835,269 1,208,654
- ----------------------------------------------------------------------------------------------------------
Total assets $ 30,896,363 $ 55,183,896
==========================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable 2,248,622 2,970,237
Accrued payroll, vacation, and related costs 929,314 607,700
Other accrued expenses 939,657 642,287
Deferred income 731,250 0
- ----------------------------------------------------------------------------------------------------------
Total current liabilities 4,848,843 4,220,224
Long-term debt 0 1,500,000
- ----------------------------------------------------------------------------------------------------------
Total liabilities 4,848,843 5,720,224
- ----------------------------------------------------------------------------------------------------------
Shareholders' equity:
Convertible preferred stock, series A, $.01 par value
Authorized 1,475,000 shares; issued and outstanding
0 shares in 1997 and 875,000 shares in 1996 0 8,750
Common stock, $.01 par value. Authorized 50,000,000 shares; issued and
outstanding 30,558,133 shares in 1997 and 28,641,707 shares in 1996 305,581 286,417
Additional paid-in capital 95,089,691 91,536,256
Unamortized value of restricted stock (72,917) 0
Cumulative translation adjustment 1,777 0
Accumulated deficit (69,276,612) (42,367,751)
- ----------------------------------------------------------------------------------------------------------
Total shareholders' equity 26,047,520 49,463,672
- ----------------------------------------------------------------------------------------------------------
Commitments and contingencies (Notes 8, 12 and 13)
- ----------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 30,896,363 $ 55,183,896
==========================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended July 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
1997 1996 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 4,505,285 $ 2,948,729 $ 0
Operating expenses:
Manufacturing 9,309,726 4,456,152 0
Research and development 16,953,294 11,049,462 8,024,455
Selling, general and administrative 6,617,386 3,665,156 1,640,312
- -----------------------------------------------------------------------------------------------------
Total operating expenses 32,880,406 19,170,770 9,664,767
- -----------------------------------------------------------------------------------------------------
Operating loss (28,375,121) (16,222,041) (9,664,767)
- -----------------------------------------------------------------------------------------------------
Other income (expense):
Interest income 1,569,895 1,156,885 292,578
Interest expense (103,635) (116,863) (271,162)
- -----------------------------------------------------------------------------------------------------
Other income (expense), net 1,466,260 1,040,022 21,416
- -----------------------------------------------------------------------------------------------------
Net loss $(26,908,861) $(15,182,019) $(9,643,351)
=====================================================================================================
Net loss per common share $ (0.93) $ (0.66) $ (0.58)
=====================================================================================================
Weighted average number of common shares outstanding 29,064,994 22,898,538 16,550,915
=====================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended July 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Convertible
preferred stock Common stock Unamortized
------------------ --------------------- value of Cumulative
Number Par Number Par Additional restricted translation
of shares value of shares value paid-in capital stock adjustment
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at July 31, 1994 875,000 $ 8,750 11,152,935 $111,529 $16,825,782 $ 0 $ 0
Notes payable converted
into common stock 0 0 761,373 7,614 1,427,132 0 0
Shares and warrants issued
at $2.38 per share, net
of issuance costs 0 0 4,900,000 49,000 10,550,122 0 0
Stock options exercised 0 0 645,805 6,458 1,038,049 0 0
Director stock issued 0 0 40,416 404 95,596 0 0
Compensation expense
on grant of stock options 0 0 0 0 45,446 0 0
Net loss 0 0 0 0 0 0 0
- --------------------------------------------------------------------------------------------------------------------------
Balance at July 31, 1995 875,000 8,750 17,500,529 175,005 29,982,127 0 0
Shares issued at $6.50 per
share, net of issuance costs 0 0 3,400,000 34,000 20,293,045 0 0
Shares issued at $7.00 per
share, net of issuance costs 0 0 4,200,000 42,000 27,359,887 0 0
Stock options exercised 0 0 525,828 5,259 1,324,853 0 0
Warrants exercised 0 0 2,991,500 29,915 11,911,421 0 0
Director stock issued 0 0 11,530 115 87,885 0 0
Compensation expense
on grant of stock and
stock options 0 0 12,320 123 577,038 0 0
Net loss 0 0 0 0 0 0 0
- --------------------------------------------------------------------------------------------------------------------------
Balance at July 31, 1996 875,000 8,750 28,641,707 286,417 91,536,256 0 0
Preferred stock converted
into common stock (875,000) (8,750) 875,000 8,750 0 0 0
Notes payable converted
into common stock 0 0 250,000 2,500 1,415,500 0 0
Restricted stock grant 0 0 33,333 333 124,667 (72,917) 0
Stock options exercised 0 0 59,567 596 156,317 0 0
Warrants exercised 0 0 662,499 6,625 1,318,373 0 0
Director stock issued 0 0 36,027 360 111,640 0 0
Compensation expense
on grant of stock and
stock options 0 0 0 0 426,938 0 0
Cumulative translation
adjustment 0 0 0 0 0 0 1,777
Net loss 0 0 0 0 0 0 0
- --------------------------------------------------------------------------------------------------------------------------
Balance at July 31, 1997 0 $ 0 30,558,133 $305,581 $95,089,691 $(72,917) $1,777
==========================================================================================================================
<PAGE>
(WIDE TABLE CONTINUED FROM PREVIOUS PAGE)
Accumulated
deficit Total
- ----------------------------
<C> <C>
$(17,542,381) $ (596,320)
0 1,434,746
0 10,599,122
0 1,044,507
0 96,000
0 45,446
(9,643,351) (9,643,351)
- ----------------------------
(27,185,732) 2,980,150
0 20,327,045
0 27,401,887
0 1,330,112
0 11,941,336
0 88,000
0 577,161
(15,182,019) (15,182,019)
- ----------------------------
(42,367,751) 49,463,672
0 0
0 1,418,000
0 52,083
0 156,913
0 1,324,998
0 112,000
0 426,938
0 1,777
(26,908,861) (26,908,861)
- ----------------------------
$(69,276,612) $ 26,047,520
============================
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended July 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net loss $(26,908,861) $(15,182,019) $ (9,643,351)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation expense 1,520,181 726,416 385,453
Amortization expense 280,460 279,429 212,620
Compensation expense on grant of stock and stock options 591,022 665,161 141,446
Notes payable discount amortization 0 0 100,200
Changes in operating assets and liabilities:
Accounts receivable 1,050,194 (2,494,751) 183,675
Inventories (3,202,462) (3,550,562) (168,577)
Prepaid expenses and other current assets 14,770 13,843 (66,020)
Accounts payable (721,614) 2,133,936 366,776
Accrued expenses 618,983 818,934 (79,111)
Deferred income 731,250 0 0
- ------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (26,026,077) (16,589,613) (8,566,889)
- ------------------------------------------------------------------------------------------------------------------------
Investing activities:
Purchase of marketable securities (31,581,891) (20,368,290) 0
Proceeds from maturities of marketable securities 30,900,000 13,000,000 0
Payments for purchases of property and equipment (3,432,601) (3,943,462) (989,351)
Purchase of other assets 0 (279,170) (337,158)
- ------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (4,114,492) (11,590,922) (1,326,509)
- ------------------------------------------------------------------------------------------------------------------------
Financing activities:
Proceeds from issuance of common stock and warrants 0 47,728,932 10,599,122
Proceeds from exercise of stock options and warrants 1,326,993 13,271,448 1,044,507
Repayment of debt 0 (3,690) (1,509,825)
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 1,326,993 60,996,690 10,133,804
- ------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate on cash and cash equivalents 1,776 0 0
Net increase (decrease) in cash and cash equivalents (28,811,800) 32,816,155 240,406
Cash and cash equivalents:
Beginning of year 35,183,919 2,367,764 2,127,358
- ------------------------------------------------------------------------------------------------------------------------
End of year $ 6,372,119 $ 35,183,919 $ 2,367,764
========================================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 103,635 $ 116,813 $ 240,031
========================================================================================================================
Supplemental disclosure of noncash investing and financing activities:
Notes payable converted into common stock $ 1,500,000 $ 0 $ 1,434,746
========================================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
Years ended July 31, 1997, 1996 and 1995
(1) DESCRIPTION OF BUSINESS
Angeion Corporation (the Company) develops, manufactures and distributes
products for the treatment of cardiac arrhythmia patients.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. Angeion Europe Ltd. (Angeion Europe),
established November 1, 1995, and Angeion GmbH, established October 31, 1996,
were founded to facilitate clinical studies of its ICDs and expand its European
business operations. All intercompany transactions and balances are eliminated
in consolidation.
CASH EQUIVALENTS
Cash equivalents consist of temporary cash investments with maturities of
three months or less from the date of purchase. At July 31, 1997, cash
equivalents consisted of money market funds.
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 the estimated
useful lives of the assets which range from three to seven years. Leasehold
improvements are depreciated using the straight-line method over the shorter of
the lease term, or the estimated useful life of the asset. Expenditures for
repairs and maintenance are charged to expense as incurred.
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 direct sales of products are recognized at the date of
patient implant when delivered directly to hospitals and at date of shipment for
sales to distributors.
NET LOSS PER SHARE
Net loss per share is computed by dividing net loss for the year by the
weighted average number of shares of common stock outstanding during the year.
Common stock equivalent shares representing preferred stock and common stock
warrants and options were excluded for Fiscal years 1997, 1996 and 1995 because
of their antidilutive effect.
<PAGE>
FOREIGN CURRENCY TRANSLATION
The functional currency and denomination of all sales trans actions 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
(SFAS) 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.
The assets and liabilities for Angeion GmbH are translated into U.S.
dollars at year-end exchange rates while elements of the statement of operations
are translated at average exchange rates in effect during the year. The
resulting translation adjustments are recorded as a component of shareholders'
equity.
SHORT-TERM MARKETABLE SECURITIES
The Company accounts for its marketable debt securities in accordance with
the provisions of SFAS No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND
EQUITY SECURITIES. As of July 31, 1997, 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.
CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS
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 which emphasizes principal preservation. At year
end, the majority of investments consisted of U.S. Treasury Bills.
The Company grants credit primarily to hospitals and 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, 1997, $1,238,766 or 27% of the Company's sales were from sales to
Pacesetter, a St. Jude Medical company (see Note 5). Two additional companies
each represent 13% of sales for the year ended July 31, 1997. At July 31, 1997,
these companies represented $0, $362,889 and $545,400 of accounts receivable,
respectively.
STOCK-BASED COMPENSATION
The Company has adopted only the disclosure provisions of SFAS No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION, effective for Fiscal 1997, which
disclosures are presented in Note 7 Shareholders' Equity. Accordingly, the
Company continues to account for stock-based compensation using the intrinsic
value method as prescribed under Accounting Principles Board Opinion (APB) No.
25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES and related interpretations.
IMPAIRMENT OF LONG-LIVED ASSETS
Effective August 1, 1996, the Company adopted SFAS No. 121, ACCOUNTING FOR
THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED
OF, which establishes criteria for the recognition and measurement of impairment
loss associated with long-lived assets. The adoption of this statement had no
impact on the financial position or results of operations of the Company.
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.
<PAGE>
NEW ACCOUNTING PRONOUNCEMENTS
For Fiscal 1998, the Company is required to adopt SFAS No. 128, Earnings
per Share. SFAS No. 128 requires dual presentation of basic earnings per share
and diluted earnings per share. Implementation of this requirement is not
expected to have a material effect on reported earnings (loss) per share.
(3) INVENTORIES
Inventories consisted of the following at July 31:
1997 1996
------------------------------------------------------------
Raw materials $ 3,837,482 $2,921,643
Work-in-process 1,552,552 683,986
Finished goods 1,771,943 343,721
------------------------------------------------------------
$ 7,161,977 $3,949,350
============================================================
(4) PROPERTY AND EQUIPMENT
At July 31, property and equipment consisted of the following:
1997 1996
------------------------------------------------------------
Furniture and fixtures $ 816,683 $ 594,276
Equipment 8,676,218 5,496,052
Leasehold improvements 595,827 599,081
------------------------------------------------------------
10,088,728 6,689,409
Less accumulated depreciation
and amortization (3,366,652) (1,869,589)
------------------------------------------------------------
$ 6,722,076 $4,819,820
============================================================
(5) ALLIANCE AND LONG-TERM DEBT
On February 4, 1993, Angeion and Siemens Pacesetter Inc. (Pacesetter),
which was subsequently acquired by St. Jude Medical (St. Jude), 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 was converted
on a one-for-one basis into Angeion common stock on May 30, 1997. Pacesetter's
investment also included the purchase of a $1,500,000 convertible subordinated
debenture with an interest rate of 7.16%, interest payable semi-annually, which
was convertible at any time into Angeion common stock at $6.00 per share. On
June 19, 1997, this debenture, net of unamortized debt issuance costs, was
converted into 250,000 shares of common stock.
On November 20, 1996, the Company delivered to St. Jude a formal notice of
recission and termination of the OEM Marketing Agreement and the License
Agreement between the Company and Pacesetter, Inc. In April of 1997, the Company
signed a royalty-free cross license agreement with St. Jude and its
subsidiaries, Pacesetter, Ventritex and Telectronics. This agreement terminates
the OEM Marketing Agreement and supersedes the earlier License Agreement. St.
Jude's suit against the Company in U.S. District Court, concerning the 1993
License and OEM Marketing Agreement and Pacesetter's claim for overpayment was
dismissed in July 1997.
(6) 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 discounts, were converted into common stock and
$1,500,000 in Bridge Notes were repaid.
<PAGE>
(7) SHAREHOLDERS' EQUITY
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 work capital.
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 Weighted average
under option price per share
-------------------------------------------------------------------
Balance at July 31, 1994 2,009,090 $2.55
Granted 703,968 2.85
Exercised (522,174) 1.41
Forfeited (128,581) 1.92
-------------------------------------------------------------------
Balance at July 31, 1995 2,062,303 2.95
Granted 750,251 8.00
Exercised (347,933) 2.38
Forfeited (265,873) 5.60
-------------------------------------------------------------------
Balance at July 31, 1996 2,198,748 4.45
Granted 1,862,775 3.50
Exercised (35,567) 2.26
Forfeited (1,105,125) 6.79
-------------------------------------------------------------------
Balance at July 31, 1997 2,920,831 $2.94
===================================================================
As of July 31, 1997, the outstanding options had exercise prices ranging
from $.10 to $10.00 with a weighted average contractual life of eight years. At
July 31, 1997, 1,093,127 options were exercisable with a weighted average
exercise price of $2.43.
During Fiscal 1997 and 1996, the Company granted options, outside the Plan
to purchase 225,000 and 300,000 shares, respectively, of common stock at a
weighted average price of $3.19 and $8.14 per share. During the same respective
periods, 0 and 175,395 options, respectively, were exercised at a weighted
average price of $2.83. At July 31, 1997, 171,668 of these options were
exercisable at a weighted average exercise price of $3.48.
Under the Non-Employee Director Option Plan, options for 18,767 and 12,500
shares were granted at a weighted average price of $3.58 and $6.94 during 1997
and 1996, respectively. Options for 24,000 and 2,500 shares at a price of $3.19
and $2.44 were exercised during the same respective periods. At July 31, 1997,
67,767 shares at a weighted average price of $3.76 were outstanding and
exercisable under this plan. In connection with this plan, the Company has
granted common stock, valued at $16,000, to each non-employee director.
<PAGE>
Effective December 18, 1996, the Board of Directors reviewed the exercise
price of the options then outstanding, current market conditions, as well as
other factors and offered to reprice all of the outstanding options that had
exercise prices above market value. The new option price of $3.19 reflected the
market value on that day. The total number of repriced options was 1,231,375.
These repriced options cannot be exercised for twelve months from the election
date and then vest pursuant to the original terms.
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 6), warrants to purchase
834,999 shares of common stock were issued at an exercise price of $2.00 per
share. During 1997 and 1996, warrants for 662,499 and 155,500 shares of common
stock, respectively, were exercised. At July 31, 1997, 17,000 warrants were
outstanding and scheduled to expire on July 29, 1999.
PRO FORMA OPTION INFORMATION
In 1997, the Company adopted SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION which encourages, but does not require companies to recognize
compensation cost for stock-based compensation plans over the term of options
based upon the fair value of awards on the date of grant. However, the statement
allows the alternative of the continued use of the intrinsic value method as
prescribed in APB No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. Therefore,
as permitted, no compensation expense has been recognized by the Company for its
stock options to employees.
The estimated per share weighted average fair value of all stock options
granted during Fiscal 1997 and 1996 was $1.51 and $2.71, respectively, as of the
date of grant using the Black-Scholes option pricing model with the following
weighted average assumptions for 1997 and 1996:
1997 1996
-------------------------------------------------------------
Risk-free interest rate 6.20% 6.00%
Expected volatility factor .60 .60
Expected option term 5 years 5 years
=============================================================
Had compensation expense for the Company's stock-based compensation plans
been determined based on the fair value at the grant dates consistent with the
method of SFAS No. 123, the Company's net loss and net loss per share would have
been increased by approximately $1,055,000, or $.04 per share, in 1997 and
$690,000, or $.03 per share, in 1996.
Pro-forma net loss amounts reflect only options granted in 1997 and 1996.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro-forma net loss amounts presented
because compensation cost is reflected over the term of the option and
compensation cost for options granted prior to August 1, 1995 is not considered.
<PAGE>
NON-CASH COMPENSATION
During the years ended July 31, 1997, 1996 and 1995, the Company granted
in-the-money stock options and stock grants to employees, directors and
consultants in lieu of cash compensation, which amounted to $591,022, $665,161
and $141,446, 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 market value of securities granted.
RESTRICTED STOCK GRANTS
The Company's 1993 Stock Option Plan allows for issuance of restricted
stock grants. In Fiscal 1997, the Company issued 33,333 shares of restricted
stock in lieu of cash compensation totaling $125,000 to an employee. The value
of such stock was established by the market price on the date of the grant.
Unearned compensation is shown as a reduction of shareholders' equity in the
accompanying consolidated financial statements and is being amortized ratably
over the restricted period.
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 stock
into which Series A preferred stock is convertible. Each Right would entitle
shareowners to buy 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.
(8) 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 lessors underlying costs. In addition, the Company leases
certain equipment under cancelable operating leases. Rent expense for office and
production space was approximately $403,632, $246,000 and $138,000, for the
years ended July 31, 1997, 1996 and 1995, respectively.
The Company's lease at its current facility expires December, 1997.
However, the Company has negotiated an extension of two months in order to
complete its new leased facility in Brooklyn Park, MN. The future minimum lease
payment at the existing facility is $339,744 in Fiscal 1998. The future minimum
lease payments at the new facility are $208,333 in Fiscal 1998, $500,000 per
year in 1999 through 2002, and $3,091,674 thereafter.
(9) INCOME TAXES
The Company has a net operating loss carryforward at July 31, 1997, of
approximately $69,000,000 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.
<PAGE>
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:
1997 1996 1995
---------------------------------------------------------------
Federal statutory rate (34.0%) (34.0%) (34.0%)
State income taxes, net (6.0) (6.0) (6.0)
Miscellaneous 0.0 (0.0) 1.0
Change in valuation
allowance 40.0 40.0 39.0
---------------------------------------------------------------
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:
1997 1996
--------------------------------------------------------------------
Net operating loss carryforwards $ 27,693,000 $ 17,200,000
Other (240,000) (32,000)
--------------------------------------------------------------------
Total net deferred tax assets 27,453,000 17,168,000
Less valuation allowance (27,453,000) (17,168,000)
--------------------------------------------------------------------
Deferred income taxes$ $ 0 $ 0
====================================================================
The net deferred assets at July 31, 1997 and 1996, are fully offset by a
valuation allowance. The amount of the valuation allowance will be reviewed
annually.
(10) RETIREMENT SAVINGS PLAN
The Angeion Corporation Tax Deferred Savings and Employee 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.
(11) SEGMENT REPORTING
The Company operates in a single industry segment - medical products. For
management purposes, the Company is segmented into two geographic areas.
Information regarding operations in these two geographies for the years ended
July 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
Adjustments
YEAR ENDED JULY 31, 1997 United States Europe and Eliminations Consolidated
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers $ 3,063,766 $1,441,519 $ 0 $ 4,505,285
Loss from operations 27,628,560 746,561 0 28,375,121
Other income (expense) 1,492,255 (25,995) 0 1,466,260
Net loss 26,136,305 772,556 0 26,908,861
IDENTIFIABLE ASSETS AT JULY 31 $31,689,574 $1,448,530 $(2,241,741) $30,896,363
====================================================================================================================
Adjustments
YEAR ENDED JULY 31, 1996 United States Europe and Eliminations Consolidated
- --------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $ 2,610,729 $ 338,000 $ 0 $ 2,948,729
Loss from operations 15,992,122 229,919 0 16,222,041
Other income (expense) 1,045,393 (5,371) 0 1,040,022
Net loss 14,946,731 235,288 0 15,182,019
IDENTIFIABLE ASSETS AT JULY 31 $55,339,987 $ 444,049 $ (600,140) $55,183,896
====================================================================================================================
</TABLE>
<PAGE>
(12) 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, 1997 related to the above
commitment.
(13) 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.
(14) SUBSEQUENT EVENT
EQUITY-BASED LINE OF CREDIT
On September 2, 1997, the Company entered into an Equity-Based Line of
Credit agreement with an investment group that allows the Company, at its
discretion, to access up to $25,000,000 through sale of its common stock. If
used, such sales would be made at a price equal to an 8% discount of the then
current trading price and would be subject to certain other conditions. As a
commitment fee to the investment group for maintaining availability of the
equity line, the Company issued 100,000 shares of common stock on September 2,
1997. The agreement expires October 8, 1999.
STRATEGIC RELATIONSHIP (UNAUDITED)
On October 9, 1997, the Company established a marketing relationship with
ELA Medical (ELA), a subsidiary of Synthelabo, a French pharmaceutical group.
The relationship includes a manufacturing and supply agreement which provides
for the international marketing and sale of Angeion's products by ELA; and an
agreement which establishes a U.S. joint venture which will exclusively market
both companies' products throughout the United States. Each party will own 50
percent of the joint venture.
In addition, on October 9, 1997, the Company and Synthelabo entered into an
investment agreement which provides for a $15,000,000 equity investment by
Synthelabo in Angeion stock, and an additional $15,000,000 equity investment
subject to the achievement of certain milestones.
The Company has made a Hart-Scott-Rodino Filing with the Federal Trade
Commission (FTC); and these agreements are contingent upon expiration of the
associated waiting period.
<PAGE>
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 1995 through July 31, 1997, as reported
by Nasdaq under the symbol ANGN.
COMMON STOCK
-----------------------------------------------------------
1997 HIGH LOW
July 1997 $5.12 $4.18
Second calendar quarter $5.87 $3.93
First calendar quarter $5.56 $3.37
-----------------------------------------------------------
1996 HIGH LOW
Fourth calendar quarter $6.50 $2.43
Third calendar quarter $7.75 $5.87
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
As of October 17, 1996, the Company's Common Stock was held of record by 633
persons. Such record ownership reflects individual and nominee holdings. The
Company's securities are held beneficially by more than 13,786 persons.
Effective as of October 19, 1995, the Company's Common Stock began trading on
the Nasdaq National Market.
EXHIBIT 21.1
LIST OF SUBSIDIARIES
Angeion Europe Ltd., a company organized under the laws of England and Wales.
Angeion GmbH, a company organized under the laws of Germany.
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. 333-36005, 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 consolidated balance sheets of
Angeion Corporation and subsidiaries as of July 31, 1997 and 1996, 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, 1997, which
report is incorporated by reference in the July 31, 1997 annual report on Form
10-K of Angeion Corporation.
/s/ KPMG Peat Marwick LLP
Minneapolis, Minnesota
September 8, 1997
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<PERIOD-START> AUG-01-1996
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<CASH> 6,372,119
<SECURITIES> 8,050,181
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