UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-13543
ANGEION CORPORATION
(Exact name of registrant as specified in its charter)
Minnesota 41-1579150
(State of Incorporation) (IRS Employer Identification No.)
7601 Northland Drive, Brooklyn Park, MN 55428-1088
(Address of principal (Zip Code)
executive offices)
(612) 315-2000
(Telephone number)
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
Common stock, par value $.01 per share: 4,009,109 shares
outstanding as of November 11, 1999
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM DESCRIPTION Page
- ---- ----------- ----
ITEM 1. FINANCIAL STATEMENTS.
Consolidated Balance Sheets (unaudited) 1
- September 30, 1999 and December 31, 1998.
Consolidated Statements of Operations (unaudited) 2
- For the Three and Nine Months Ended September 30, 1999 and 1998.
Consolidated Statements of Cash Flows (unaudited) 3
- For the Nine Months Ended September 30, 1999 and 1998.
Notes to Consolidated Financial Statements (unaudited). 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 8
CONDITION AND RESULTS OF OPERATIONS.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. 19
SIGNATURES. 20
EXHIBIT INDEX. 21
<PAGE>
ANGEION CORPORATION
Consolidated Balance Sheets
September 30, 1999 and December 31, 1998
(unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- -------------
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 27,071,736 $ 1,827,637
Accounts receivable, net:
Trade 502,724 1,587,669
Other 162,930 102,426
Inventories 226,598 6,377,359
Prepaid expenses and other current assets 1,224,630 623,573
------------- -------------
TOTAL CURRENT ASSETS 29,188,618 10,518,664
Property and equipment, net 1,885,401 6,880,822
Investment in joint venture, net 1,526,340 3,221,003
Other assets, net 1,658,768 2,272,918
------------- -------------
TOTAL ASSETS $ 34,259,127 $ 22,893,407
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
- ----------------------------------------------
Current liabilities:
Accounts payable $ 301,350 $ 2,959,755
Accrued payroll, vacation and related costs 54,432 983,060
Other accrued expenses 1,352,683 1,882,268
Deferred income -- 1,198,021
------------- -------------
TOTAL CURRENT LIABILITIES 1,708,465 7,023,104
Long-term debt 20,198,000 22,150,000
------------- -------------
TOTAL LIABILITIES 21,906,465 29,173,104
------------- -------------
Shareholders' equity (deficit):
Common stock, $.01 par value. Authorized
7,500,000 shares; issued and outstanding
4,009,109 shares at September 30, 1999,
and 3,879,656 shares at December 31, 1998 40,091 38,797
Additional paid-in capital 128,679,410 116,879,840
Unamortized value of restricted stock -- (118,066)
Cumulative translation adjustment (8,757) (24,650)
Accumulated deficit (116,358,082) (123,055,618)
------------- -------------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) 12,352,662 (6,279,697)
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 34,259,127 $ 22,893,407
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
Page 1
<PAGE>
ANGEION CORPORATION
Consolidated Statements of Operations
For the Three and Nine Months Ended September 30, 1999 and 1998
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 1,178,316 $ 1,613,863 $ 5,174,601 $ 3,081,978
------------ ------------ ------------ ------------
Operating expenses:
Manufacturing 6,059,219 2,585,432 10,987,783 6,452,491
Research and development 924,285 5,391,486 6,372,246 15,943,033
Selling, general and administrative 1,235,979 1,924,077 4,235,261 5,573,220
Restructuring -- -- 4,503,979 --
------------ ------------ ------------ ------------
Total operating expenses 8,219,483 9,900,995 26,099,269 27,968,744
------------ ------------ ------------ ------------
OPERATING LOSS (7,041,167) (8,287,132) (20,924,668) (24,886,766)
------------ ------------ ------------ ------------
Other income (expense), net:
Equity in net loss of joint venture -- (432,622) (1,694,664) (1,596,987)
Gain on sale of patents and
technology -- 2,050,000 -- 2,050,000
Loss on disposal of fixed assets (156,134) -- (155,145) --
Royalties (28,680) -- (64,979) --
Net proceeds (expense)
from settlement of lawsuits
and grant of license rights (316,692) -- 30,790,392 --
Interest expense (517,780) (603,996) (1,835,707) (1,549,554)
Interest income 328,165 140,483 753,368 462,870
------------ ------------ ------------ ------------
Other income (expense) (691,121) 1,153,865 27,793,265 (633,671)
------------ ------------ ------------ ------------
Net income (loss) before taxes (7,732,288) (7,133,267) 6,868,597 (25,520,437)
Provision for income taxes 57,000 -- 171,060 --
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (7,789,288) $ (7,133,267) $ 6,697,537 $(25,520,437)
============ ============ ============ ============
NET INCOME (LOSS) PER COMMON SHARE:
Basic $ (1.94) $ (2.11) $ 1.68 $ (7.65)
Assuming dilution $ (1.94) $ (2.11) $ 1.25 $ (7.65)
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING:
Basic 4,009,659 3,381,536 3,992,324 3,336,435
Assuming dilution 4,009,659 3,381,536 6,225,106 3,336,435
</TABLE>
See accompanying notes to consolidated financial statements.
Page 2
<PAGE>
ANGEION CORPORATION
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 1999 and 1998
(unaudited)
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 6,697,537 $(25,520,437)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 1,880,626 1,771,337
Compensation expense on grant of stock and stock options 251,922 1,222,004
Gain on sale of patents and technology -- (2,050,000)
Loss on disposal of fixed assets 155,146 316,084
Loss on asset impairment 4,402,446 --
Equity in net loss of joint venture 1,694,664 1,596,987
Changes in operating assets and liabilities:
Accounts receivable 1,024,440 (1,821,242)
Inventory 4,994,025 (2,044,552)
Prepaid expenses and other current assets (716,416) (581,620)
Accounts payable (2,157,944) 748,619
Accrued expenses (1,458,213) 1,304,511
Deferred income (1,198,020) 1,237,680
------------ ------------
Net cash provided by (used in) operating activities 15,570,213 (23,820,629)
------------ ------------
INVESTING ACTIVITIES:
Proceeds from the sale of fixed assets 422,974 --
Investments in joint venture -- (5,561,595)
Payments for purchases of property and equipment (52,215) (2,245,632)
------------ ------------
Net cash provided by (used in) investing activities 370,759 (7,807,227)
------------ ------------
FINANCING ACTIVITIES:
Net proceeds from issuance of debt and warrants 5,790,073 19,769,397
Net proceeds from issuance of common stock and warrants 9,997,622 5,000,000
Proceeds from exercise of stock options and warrants -- 314,688
Repayment of debt (6,500,461) --
------------ ------------
Net cash provided by financing activities 9,287,234 25,084,085
EFFECT OF EXCHANGE RATE ON CASH AND CASH EQUIVALENTS 15,893 (33,619)
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 25,244,099 (6,577,390)
Cash and cash equivalents:
Beginning of period 1,827,637 14,052,115
------------ ------------
End of period $ 27,071,736 $ 7,474,725
============ ============
Supplemental disclosure of cash flow information:
- -------------------------------------------------
Cash paid during the period for interest $ 992,883 $ 36,442
Non-cash investing and financing activity:
- ------------------------------------------
Conversion of debt to equity $ 1,951,994 $ --
Transfer of property and equipment to joint venture -- 438,405
Property acquired subject to capital leases -- 800,000
</TABLE>
See accompanying notes to consolidated financial statements.
Page 3
<PAGE>
ANGEION CORPORATION
Form 10-Q
September 30, 1999
Notes to Consolidated Financial Statements
1. BASIS OF PRESENTATION
The unaudited consolidated financial statements have been prepared by the
Company in accordance with generally accepted accounting principles for interim
financial reporting pursuant to the published rules and regulations of the
Securities and Exchange Commission. Accordingly, certain information and
footnote disclosures normally included in financial statements have been omitted
or condensed pursuant to such rules and regulations. In the opinion of
management, all adjustments (consisting of normal recurring adjustments and
non-recurring adjustments related to restructuring and asset impairment charges)
considered necessary for fair presentation of the financial statements have been
included. See Note 6 and 7. The consolidated results of operations for any
interim period are not necessarily indicative of results for the full year. The
accompanying unaudited consolidated financial statements should be read in
conjunction with the consolidated financial statements and related notes
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1998.
The condensed consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. Intercompany balances and
transactions have been eliminated in consolidation.
2. NET INCOME (LOSS) PER SHARE
Basic income (loss) per share is calculated by dividing net income (loss) by the
weighted-average common shares outstanding during the period. Income (loss) per
share assuming dilution reflects the potential dilution to basic income (loss)
per share that could occur upon conversion or exercise of securities, options,
or other such items, to common shares using the if-converted and treasury stock
methods based upon the weighted-average fair value of the Company's common
shares during the period.
3. EQUITY IN LOSS OF JOINT VENTURE
On January 1, 1998, ELA*Angeion, LLC (the "Joint Venture"), a joint venture
owned equally by the Company and ELA Medical, Inc. ("ELA Medical"), a wholly
owned subsidiary of Sanofi-Synthelabo (formerly Synthelabo), a French
pharmaceutical company, began operations. A proportional amount of the loss from
the Joint Venture is accounted for under the equity method and appears as a
component of Other Income (Expense) in the Company's Consolidated Statements of
Operations. In May 1999, the Company withdrew from the Joint Venture under a
withdrawal agreement with ELA Medical (the "Withdrawal Agreement"). Prior to its
withdrawal from the Joint Venture, the Company's proportional share of sales,
cost of sales and any resultant gain or loss related to assets sold to the Joint
Venture remaining on the books of the Joint Venture at the end of the applicable
reporting period had been eliminated. As a result of the Withdrawal Agreement,
the Company's remaining investment in the Joint Venture will be recovered. The
Company's proportional share of sales and cost of sales and resultant gain or
loss related to assets sold to the Joint Venture, were entirely recognized in
May 1999. During the third quarter of 1999, ELA*Angeion, LLC changed its name to
ELA Medical, LLC.
At September 30, 1999, the remaining investment in the Joint Venture of
$1,526,340 will be recovered through consideration to be received in connection
with the planned closing of the ELA Agreement described in Note 5.
4. REPORTING COMPREHENSIVE INCOME
Components of comprehensive income consist only of immaterial foreign currency
translation adjustments. The Company's net income (loss) and comprehensive
income (loss) are substantially equivalent and are not presented separately.
5. SHAREHOLDERS' EQUITY (DEFICIT)
On March 5, 1999, the Company received U.S. Food and Drug Administration ("FDA")
Pre-market Approval
Page 4
<PAGE>
("PMA") for its Lyra(TM) 2020 Series ICDs and AngePass(TM) lead series, which
allows the Company to market these products in the U.S. As a result of the PMA,
the Company received the final two $5,000,000 equity investments from its
strategic partner, Sanofi-Synthelabo, pursuant to the Investment and Master
Strategic Relationship Agreement (the "Investment Agreement"), the Company
entered into with Sanofi-Synthelabo in October 1997. In exchange for the
$10,000,000 equity investment, the Company issued Sanofi-Synthelabo warrants to
purchase 909,017 and 540,541 shares of the Company's Common Stock at prices of
$0.10 and $11.10 per share, respectively.
On May 7, 1999, the Company's Board of Directors approved a one-for-ten reverse
stock split of the Company's Common Stock for shareholders of record at the
close of business on May 17, 1999. The reverse stock split was implemented as
part of the Company's previously announced restructuring plan discussed below.
All share and per share information contained in this report has been
retroactively adjusted to reflect the impact of the reverse stock split.
On August 3, 1999, the Company announced that it had entered into an agreement
(the "ELA Agreement") to transfer certain assets and grant a one-way,
non-exclusive, fully paid-up, royalty free, and perpetual worldwide license to
its patents and patent applications relating to cardiac stimulation devices to
ELA Medical. As part of the ELA Agreement, the Company will transfer ownership
of its flat capacitor technology and its AngePass 4040, 4080 and 4090 Series
lead systems, including related regulatory approvals and obligations, to ELA
Medical. In exchange, the Company will receive all 745,996 shares of the
Company's Common Stock owned by Sanofi-Synthelabo and the warrants owned by
Sanofi-Synthelabo to purchase approximately 1.9 million shares of the Company's
Common Stock. Closing of the transactions contemplated by the ELA Agreement is
subject to the approval of the Company's shareholders and consent by the holders
(the "Note Holders") of the Company's 7 1/2% Senior Convertible Notes Due 2003
(the "Notes"). See Note 6.
Upon closing of the transactions contemplated by the ELA Agreement, the Company
will be relieved of all further obligations to supply implantable cardiac
defibrillator products "ICDs" to ELA Medical outside of the United States. The
Company's obligations to supply ICDs to ELA Medical in the United States is
governed by the manufacturing and supply agreement entered into as part of the
Withdrawal Agreement. See Note 6. Also upon closing, the Company will be
relieved of its obligation under the Investment Agreement to enter into a patent
and related intellectual property cross license with Sanofi-Synthelabo. In
certain circumstances pursuant to which the transactions contemplated by the ELA
Agreement do not close, including but not limited to a failure of either the
shareholders to approve, or the Note Holders to consent to such transactions,
the Company will enter into a cross-license agreement with ELA Medical pursuant
to which the Company would provide ELA Medical with a non-exclusive, fully
paid-up, royalty-free and perpetual worldwide license to the Company's patents
and patent applications related to cardiac stimulation devices in consideration
for the granting by ELA Medical to the Company of a non-exclusive, fully
paid-up, royalty-free and perpetual worldwide license to ELA Medical's patents
and patent applications related to cardiac stimulation devices.
6. RESTRUCTURINGS
In January 1999, the Company announced a restructuring plan (the "January
Restructuring") to help reduce its cash flow burn rate. As a result of the
January Restructuring, the Company reduced approximately 20 percent of its total
employee base, including 40 percent of the Company's senior management team. The
Company took a restructuring charge in the first quarter of 1999 of
approximately $720,000 for expenses related to severance costs and other
employee benefits associated with the reduction in work force. The activity for
the quarters ended June 30, 1999 and September 30, 1999 consisted principally of
related severance and employee benefits and includes the reversal of $30,000 and
$20,000, respectively, for employee outplacement services not utilized. The
January Restructuring was completed during the current quarter. Details of the
January Restructuring activity are as follows:
Employee
severance
and benefits
----------------
Initial January Restructuring $ 720,000
Activity for the quarter ended March 31, 1999 (618,000)
---------
Page 5
<PAGE>
Accrued restructuring at March 31, 1999 102,000
Activity for the quarter ended June 30, 1999 (82,000)
---------
Accrued restructuring at June 30, 1999 20,000
Activity for the quarter ended Sept. 30, 1999 (20,000)
---------
Accrued restructuring at Sept. 30, 1999 --
=========
In April 1999, the Company announced a second restructuring plan (the "April
Restructuring") to refocus its business and reduce operating expenses. As a
result of the April Restructuring, the Company reduced its workforce by
approximately 75 percent of its total employee base, while retaining the staff
necessary to support its ongoing operations and clinical, regulatory and
engineering staff needed to provide customer support for the Company's Lyra
series of ICDs and existing implants. In addition, the Company continued to
provide agreed-upon amounts of product to ELA Medical under the terms of its
amended supply agreements. For the three-month period ended June 30, 1999, the
Company recorded a restructuring charge of approximately $3,784,000. The
activity for the quarter ended September 30, 1999 includes the reversal of
$10,000 for employee outplacement services not utilized. The Company anticipates
completing the April Restructuring by the end of the current fiscal year.
Details of the April Restructuring activity are as follows:
<TABLE>
<CAPTION>
Employee
severance Fixed asset Inventory Total April
and benefits write-down write-off Restructuring
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Initial April Restructuring $ 1,627,000 $ 500,000 $ 1,657,000 $ 3,784,000
Activity for the quarter ended June 30, 1999 (1,597,000) (500,000) (1,657,000) (3,754,000)
----------- --------- ----------- -----------
Accrued restructuring at June 30, 1999 30,000 -- -- 30,000
Activity for the quarter ended Sept. 30, 1999 (15,000) -- -- (15,000)
----------- --------- ----------- -----------
Accrued restructuring at Sept. 30, 1999 15,000 -- -- 15,000
=========== ========= =========== ===========
</TABLE>
On May 11, 1999, the Company entered into the Withdrawal Agreement pursuant to
which the Company withdrew from its membership in the Joint Venture. Under the
terms of the Withdrawal Agreement, ELA Medical has sole responsibility for the
operations of the Joint Venture. In addition, ELA Medical has assumed certain
warranty coverage, technical service and regulatory compliance services for
which the Company was responsible under (i) applicable law, (ii) the supply
agreement between the Company and the Joint Venture, and (iii) contracts with
third parties for Model 2000 and 2010 Series ICD products and associated leads
and programmers supplied to such third parties and implanted in human beings in
the United States (including associated programmers for such ICD models). The
Company retains potential product liability obligations from patients and has
agreed to maintain at its own expense through May 10, 2004, product liability
insurance with limits of liability at least as high as those in place as of the
date of the Withdrawal Agreement, subject to availability on commercially
reasonable terms.
In connection with the consummation of the transactions contemplated by the
Withdrawal Agreement, the Company entered into the following related
transactions: (i) the Company amended and terminated its supply agreement with
the Joint Venture and entered into a new manufacturing and supply agreement with
ELA Medical for supply of ICD products in the United States under which the
Company has agreed to supply a limited number of ICD products to the Joint
Venture according to the terms of its supply agreement and provide any future
ICD products directly to ELA Medical; (ii) the Company amended its manufacturing
and supply agreement with ELA Medical S.A., an affiliate of ELA Medical, to
limit certain of the Company's obligations to supply ICD products
Page 6
<PAGE>
thereunder and to provide for the assumption by ELA Medical S.A. of warranty
coverage, technical service and regulatory compliance services for which the
Company was responsible under (a) applicable law, (b) the supply agreement
between the Company and ELA Medical S.A., and (c) contracts with third parties
for Model 2000 and 2010 Series ICD products and associated leads and programmers
supplied to such third parties and implanted in human beings in Europe and Japan
(including associated programmers for such ICD models); (iii) the Company
amended the Investment Agreement with Sanofi-Synthelabo to allow for the actions
contemplated by the Withdrawal Agreement to occur; and (iv) the Company, ELA
Medical and ELA Medical S.A. entered into a Settlement Agreement and Mutual
Release releasing each party thereto and all of its affiliates from any and all
claims made by such other party in connection with, arising from or related to
the Joint Venture and certain of the contractual obligations arising from or
contemplated by the terms of the joint venture relationship.
7. ASSET IMPAIRMENT
In the three-month period ended September 30, 1999, the Company fulfilled its
current contractual obligations to supply ICD products to ELA Medical and
related entities. Due to the fact that anticipated future orders for ICDs from
ELA Medical and others were insufficient for the Company to recover its existing
investment in manufacturing equipment and inventory, the Company recorded asset
impairment charges in the third quarter of 1999 of approximately $1.2 million
and $2.7 million related to the write-off of inventory and the write-down of
property and equipment, respectively. The write-down of property and equipment
and the write-off of inventory consisted of assets no longer utilized in the
operations of the business that were either disposed of during the nine-months
ended September 30, 1999 or which are being held for sale. These assets are
carried at liquidation value with depreciation suspended. The liquidation value
for such assets was determined by a third party and was the basis for such
write-down.
8. SETTLEMENT AND GRANT OF TECHNOLOGY LICENSE
On September 16, 1999, the Company entered into an agreement (the "Medtronic
Agreement") with Medtronic, Inc. ("Medtronic") to (i) settle any potential
claims between the Company and Medtronic with respect to certain intellectual
property rights relating to ICDs, (ii) sell certain unfiled patent disclosures
of the Company to Medtronic relating to the Company's cardiac stimulation
devices, and (iii) grant to Medtronic a one-way, non-exclusive, fully paid-up,
royalty-free and perpetual worldwide license to the Company's patents and patent
applications relating to cardiac stimulation devices. As consideration
therefore, Medtronic will pay to the Company cash in the amount of $9.0 million
(of which the Company will net approximately $8.5 million after payment of
certain transaction-related expenses). Closing of the transactions contemplated
by the Medtronic Agreement is subject to the approval of the Company's
shareholders and consent by the Company's Note Holders.
The Company believes that consummation of the transactions contemplated by the
ELA Agreement and the Medtronic Agreement, taken as a whole, may constitute a
sale of substantially all of the property or assets of the Company pursuant to
Section 302A.661 of the Minnesota Business Corporation Act. Accordingly, the
Company plans to hold a meeting of shareholders to approve such transactions and
to simultaneously request consent of the Note Holders to supplement the
indenture related to the Notes to prevent any requirement of the Company to
repurchase or accelerate payment with respect to the outstanding Notes in
connection with the closing of each of the ELA Agreement and the Medtronic
Agreement.
9. ACQUISITION OF MEDICAL GRAPHICS
On September 23, 1999, the Company announced that it had entered into an
agreement (the "Medical Graphics Agreement") with Medical Graphics, Inc., a
publicly held Minnesota corporation ("Medical Graphics"), pursuant to which the
Company will acquire Medical Graphics through the merger (the "Merger") of
Medical Graphics with a wholly-owned subsidiary of the Company. The
consideration to be paid by the Company in connection with the Merger is
approximately $16.3 million cash. Upon consummation of the Merger, it is the
Company's intention to focus its efforts primarily on the cardiopulmonary and
respiratory markets served by Medical Graphics. Consummation of the Merger is
subject to approval of the shareholders of Medical Graphics.
10. LITIGATION AND CONTINGENCIES
Subsequent to the April Restructuring announcement, the Company communicated
with the Note Holders in order to discuss its financial condition and address
concerns of the Note Holders related to the Indenture (the "Indenture") dated
April 14, 1998, between the Company and U.S. Bank National Association, as
Trustee for the Notes (the "Trustee").
Page 7
<PAGE>
In July 1999, approximately 25% of the Note Holders contacted the Trustee to ask
that the Trustee determine whether or not the Company violated the terms of the
Indenture by allegedly selling all or substantially all of its assets by virtue
of certain transactions with Cordis-Webster and Guidant Medical, the Withdrawal
Agreement and its restructurings which, if true, could result in the Company
being obligated to repurchase the Notes at a purchase price equal to 101% of the
principal amount. The Company believes that it has complied with all of the
terms of the Indenture and disagrees with the assertion of the Note Holders that
a "designated event" has occurred. Representatives of the Company met with the
Trustee in August 1999 to respond to the Note Holders concerns.
On September 24, 1999, the Trustee on behalf of the Note Holders brought suit
against the Company in the District Court for the Fourth Judicial District of
Minnesota in the County of Hennepin. The lawsuit seeks a declaratory judgment
and related relief requiring the Company to commence a Designated Event Offer
under the terms of the Indenture to repurchase the Notes in the principal amount
of $20,198,000 at a premium as provided in the Indenture and awarding the
Trustee its costs, disbursements and attorneys' fees and other damages as may be
appropriate. The lawsuit further seeks to impose a trust on an amount of not
less than $23 million of the Company's assets. Specifically, the Trustee has
claimed that the Company violated the terms of the Indenture by allegedly
selling all or substantially all of its assets by virtue of certain transactions
with Cordis-Webster and Guidant Medical, the Withdrawal Agreement and the
January Restructuring and April Restructuring. On October 14, 1999, the Company
filed its Answer and Counterclaim against the Trustee, denying that a Designated
Event had occurred or that a Designated Event Offer was required and asserting
claims against the Trustee for tortious interference with prospective economic
advantage, abuse of process, breach of contract and declaratory relief to the
effect that no Designated Event has occurred and that the Note Holders are not
entitled to have their Notes repurchased as requested by the Trustee. The
Trustee has yet to answer the Counterclaim.
The Trustee has filed an interlocutory motion with the Court seeking the
issuance of a temporary injunction mandating that the Company immediately
commence a Designated Event Offer pursuant to the Indenture and ordering the
Company to deposit, in a separate interest-bearing account at a federally
insured bank, the sum of $23 million for the benefit of the Trustee and subject
to further Order of the Court. The Company has opposed the Trustee's request on
grounds that, for numerous legal and equitable reasons, it is not entitled to
obtain such prejudgment relief. The matter has been set for hearing before the
Court on November 16, 1999. The Company has also noticed its Motion to dispose
of the Trustee's lawsuit on the merits and with prejudice which will be heard by
the Court on December 13, 1999. The Company's moving papers will be served and
filed on November 15, 1999 in accordance with the Rules of Court.
Unless the Trustee is successful in obtaining a Court order requiring the
Company to deposit funds for the benefit of the Trustee, the Company has
adequate funds to consummate the Merger (without giving effect to the
transactions contemplated by either of the ELA Agreement or the Medtronic
Agreement) and intends to do so upon the satisfaction of the conditions to the
Merger. Accordingly, the Company plans and is contractually obligated under the
Medical Graphics Agreement, to consummate the Merger whether or not the
shareholders approve the Company's plan to engage in transactions that may
result in a sale of substantially all of the Company's property or assets or the
Note Holders consent to supplement the Indenture related to the Notes to prevent
any requirement of the Company to repurchase or accelerate payment with respect
to the outstanding Notes in connection with the closing of each of the ELA
Agreement and the Medtronic Agreement.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The Company's operations consist primarily of its efforts related to its
implantable cardioverter defibrillator ("ICD") products.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1998
Page 8
<PAGE>
Total sales decreased to $1,178,316 for the three-month period ended September
30, 1999, compared to $1,613,863 for the three-month period ended September 30,
1998, due primarily to reduced sales of ICDs and leads. In the three-month
period ended September 30, 1999, revenue consisted primarily of sales of ICDs
and leads to ELA*Angeion, LLC (the "Joint Venture"), a joint venture owned
equally by the Company and ELA Medical, Inc. ("ELA Medical"), a wholly owned
subsidiary of Sanofi-Synthelabo (formerly Synthelabo), a French pharmaceutical
company, and international sales to ELA Medical.
Manufacturing expense increased 134 percent to $6,059,219 for the three-month
period ended September 30, 1999, compared to $2,585,432 for the three-month
period ended September 30, 1998. The increase was primarily due to the write-off
of obsolete inventory totaling approximately $1.2 million and the write-down of
property and equipment of approximately $2.7 million, partially offset by
reduced spending and lower production volume for the three-month period ended
September 30, 1999, compared to the three-month period ended September 30, 1998.
Research and development expense decreased to $924,285 for the three-month
period ended September 30, 1999, compared to $5,391,486 for the three-month
period ended September 30, 1998. This decrease was primarily due to reduced
payroll and expense spending related to the January and April Restructuring
plans that allowed the Company to decrease its cash flow burn rate. For the
three-month period ended September 30, 1999, expenses consisted primarily of
depreciation, salaries, wages and contractual settlements.
Selling, general and administrative expense decreased to $1,235,979 for the
three-month period ended September 30, 1999, compared to $1,924,077 for the
three-month period ended September 30, 1998. This decrease was primarily the
result of efforts to reduce spending, lower payroll expenses and lower expenses
related to sales and marketing.
Interest expense decreased to $517,780 for the three-month period ended
September 30, 1999, compared to $603,996 for the three-month period ended
September 30, 1998. Interest expense for these periods related primarily to the
7 1/2% Senior Convertible Notes (the "Notes") issued in April 1998 and the
amortization of debt issuance costs. The decrease in interest expense can be
attributed to lower debt amortization expenses as a result of a lower average
balance outstanding during the three-month period ended September 30, 1999,
compared to the three-month period ended September 30, 1998.
Interest income increased 134 percent to $328,165 for the three-month period
ended September 30, 1999, compared to $140,483 for the three-month period ended
September 30, 1998. The increase was due to the higher average invested cash
balances in the period due primarily to funds received in the settlement of
lawsuits with Cardiac Pacemakers, Inc. ("CPI").
The Company recorded a net loss of $7,789,288, or $1.94 per share, in the
three-month period ended September 30, 1999, compared to a net loss of
$7,133,267, or $2.11 per share, in the three-month period ended September 30,
1998. The increased net loss for the three-month period ended September 30, 1999
was primarily the result of the write-down of property and equipment of
approximately $2.7 million, the write-off of inventory of approximately $1.2
million and lower sales of products and patents and technology, partially
off-set by lower research and development expense.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
30, 1998
Total sales increased to $5,174,601 for the nine-month period ended September
30, 1999, compared to $3,081,978 for the nine-month period ended September 30,
1998, due primarily to an increase in sales of ICDs and leads and the
recognition of previously deferred income. In the nine-month periods ended
September 30, 1999 and 1998, revenue consisted primarily of sales to the Joint
Venture and international sales to ELA Medical. Sales to the Joint Venture,
through the date of withdrawal, included a sales elimination entry to reflect
the Company's proportional share of product still held by the Joint Venture as
of the end of the period. As a result of the Company's withdrawal from the Joint
Venture in the second quarter of 1999, the Company recognized previously
deferred income during the nine-month period ended September 30, 1999. In
addition, sales for the nine-month period ended September 30, 1998 were limited
as a result of a temporary suspension of ICD
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<PAGE>
clinical implants during the latter part of 1997 and the first part of 1998 due
to technical issues. The Company received approval from the FDA in January 1998
to resume clinical studies.
Manufacturing expense increased 70 percent to $10,987,783 for the nine-month
period ended September 30, 1999, compared to $6,452,491 for the nine-month
period ended September 30, 1998. The increase was primarily due to increased
sales, increased production volume, the write-off of obsolete inventory totaling
approximately $1.2 million and the write-down of property and equipment of
approximately $2.7 million for the period ended September 30, 1999, partially
offset by efforts to reduce spending by the Company in order to decrease its
cash flow burn rate.
Research and development expense decreased 60 percent to $6,372,246 for the
nine-month period ended September 30, 1999, compared to $15,943,033 for the
nine-month period ended September 30, 1998. This decrease was primarily due to
reduced spending by the Company in order to decrease its cash flow burn rate.
Expenses during the nine-month period ended September 30, 1999 consisted
primarily of salaries, wages, depreciation and other research and development
activities.
Selling, general and administrative expense decreased 24 percent to $4,235,261
for the nine-month period ended September 30, 1999, compared to $5,573,220 for
the nine-month period ended September 30, 1998. This decrease was primarily due
to lower payroll expenses and efforts to reduce spending for the nine-month
period ended September 30, 1999, compared to the nine-month period ended
September 30, 1998.
Interest expense increased to $1,835,707 for the nine-month period ended
September 30, 1999, compared to $1,549,554 for the nine-month period ended
September 30, 1998. The increase was due to a higher average balance of
outstanding Notes for the period and interest related to two term loans entered
into in January of 1999.
Interest income increased 63 percent to $753,368 for the nine-month period ended
September 30, 1999, compared to $462,870 for the nine-month period ended
September 30, 1998. The increase was due to higher average invested cash
balances in the nine-month period ended September 30, 1999 as a result of funds
received in the settlement of lawsuits with CPI.
Restructuring charges for the nine-month period ended September 30, 1999 totaled
$4,503,979 offset by $60,000 of employee outplacement services not utilized.
These expenses related primarily to employee severance, other employee benefits,
inventory write-offs and write-downs of property and equipment as a result of
the Company's January Restructuring and April Restructuring.
The Company recorded a net profit of $6,697,537, or $1.68 per share, in the
nine-month period ended September 30, 1999, compared to a net loss of
$25,520,437, or $7.65 per share, in the nine-month period ended September 30,
1998. The net profit per share is primarily a result of the net proceeds from
the settlement of lawsuits with, and grant of a non-exclusive license to, CPI,
partially off-set by operating losses, the write-down of certain property and
equipment and the write-off of inventory. See "Restructuring and Asset
Impairment."
LIQUIDITY AND CAPITAL RESOURCES
On March 5, 1999, the Company received FDA PMA approval for its Lyra(TM) 2020
Series ICDs and AngePass(TM) Lead Series, which allows the Company to market
these products in the U.S. As a result of the PMA, the Company received the
final two $5,000,000 equity investments from its strategic partner,
Sanofi-Synthelabo, pursuant to the Investment Agreement the Company entered into
with Sanofi-Synthelabo in October 1997. In exchange for the $10,000,000 equity
investment, the Company issued Sanofi-Synthelabo warrants to purchase 909,017
and 540,541 shares of the Company's Common Stock at prices of $0.10 and $11.10
per share, respectively.
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<PAGE>
The Company announced in April 1999 that it had settled all ongoing litigation
with CPI and its parent company, Guidant Corporation ("Guidant"), for
$35,000,000. As a result of the settlement, the Company granted to CPI a
non-exclusive license under all of the Company's patents that cover cardiac
stimulation devices. CPI made a one-time payment of $35,000,000 to settle claims
for past damages and for the license. CPI and Guidant agreed not to sue the
Company for future infringement with respect to the Company's Lyra 2020 and
Model 2030 Series of ICD product lines. The Company agreed to pay a pass-through
royalty for those products to the Estate of Dr. Michel Mirowski, which owns
certain patents licensed to CPI. After the payment of legal fees and other
expenses associated with the lawsuits, the Company retained approximately
$31,100,000 of net proceeds from the CPI settlement.
On August 3, 1999, the Company announced that it had entered into an agreement
(the "ELA Agreement") to transfer certain assets and grant a one-way,
non-exclusive, fully paid-up, royalty free, and perpetual worldwide license to
its patents and patent applications relating to cardiac stimulation devices to
ELA Medical. As part of the ELA Agreement, the Company will transfer ownership
of its flat capacitor technology and its AngePass 4040, 4080 and 4090 Series
lead systems, including related regulatory approvals and obligations, to ELA
Medical. In exchange, the Company will receive all 745,996 shares of the
Company's Common Stock owned by Sanofi-Synthelabo and the warrants owned by
Sanofi-Synthelabo to purchase approximately 1.9 million shares of the Company's
Common Stock. Closing of the transactions contemplated by the ELA Agreement is
subject to the approval of the Company's shareholders and consent by the holders
(the "Note Holders") of the Notes. See Note 6.
Upon closing of the transactions contemplated by the ELA Agreement, the Company
will be relieved of all further obligations to supply implantable cardiac
defibrillator products "ICDs" to ELA Medical outside of the United States. The
Company's obligations to supply ICDs to ELA Medical in the United States is
governed by the manufacturing and supply agreement entered into as part of the
Withdrawal Agreement. See Note 6. Also upon closing, the Company will be
relieved of its obligation under the Investment Agreement to enter into a patent
and related intellectual property cross license with Sanofi-Synthelabo. In
certain circumstances pursuant to which the transactions contemplated by the ELA
Agreement do not close, including but not limited to a failure of either the
shareholders to approve, or the Note Holders to consent to such transactions,
the Company will enter into a cross-license agreement with ELA Medical pursuant
to which the Company would provide ELA Medical with a non-exclusive, fully
paid-up, royalty-free and perpetual worldwide license to the Company's patents
and patent applications related to cardiac stimulation devices in consideration
for the granting by ELA Medical to the Company of a non-exclusive, fully
paid-up, royalty-free and perpetual worldwide license to ELA Medical's patents
and patent applications related to cardiac stimulation devices.
In the three-month period ended September 30, 1999, the Company fulfilled its
current contractual obligations to supply ICD products to ELA Medical and
related entities. Due to the fact that anticipated future orders for ICDs from
ELA Medical and others were insufficient for the Company to recover its existing
investment in manufacturing equipment and inventory, the Company recorded asset
impairment charges in the third quarter of 1999 of approximately $1.2 million
and $2.7 million related to the write-off of inventory and the write-down of
property and equipment, respectively. The write-down of property and equipment
and the write-off of inventory consisted of assets no longer utilized in the
operations of the business that were either disposed of during the nine-months
ended September 30, 1999 or which are being held for sale. These assets are
carried at liquidation value with depreciation suspended. The liquidation value
for such assets was determined by a third party and was the basis for such
write-down.
On September 16, 1999, the Company entered into an agreement (the "Medtronic
Agreement") with Medtronic, Inc. ("Medtronic") to (i) settle any potential
claims between the Company and Medtronic with respect to certain intellectual
property rights relating to ICDs, (ii) sell certain unfiled patent disclosures
of the Company to Medtronic relating to the Company's cardiac stimulation
devices, and (iii) grant to Medtronic a one-way, non-exclusive, fully paid-up,
royalty-free and perpetual worldwide license to the Company's patents and patent
applications relating to cardiac stimulation devices. As consideration
therefore, Medtronic would pay to the Company cash in the amount of $9.0 million
(of which the Company will net approximately $8.5 million after payment of
certain transaction-related expenses). Closing of the transactions contemplated
by the Medtronic Agreement is subject to the approval of the Company's
shareholders and consent by the Company's Note Holders.
The Company believes that consummation of the transactions contemplated by the
ELA Agreement and the Medtronic Agreement, taken as a whole, may constitute a
sale of substantially all of the property or assets of the Company pursuant to
Section 302A.661 of the Minnesota Business Corporation Act. Accordingly, the
Company plans to hold a meeting of shareholders to approve such transactions and
to simultaneously request consent of the Note Holders to supplement the
indenture related to the Notes to prevent any requirement of the Company to
repurchase or accelerate payment with respect to the outstanding Notes in
connection with the closing of each of the ELA Agreement and the Medtronic
Agreement.
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<PAGE>
On September 23, 1999, the Company announced that it had entered into an
agreement (the "Medical Graphics Agreement") with Medical Graphics, Inc., a
publicly held Minnesota corporation ("Medical Graphics"), pursuant to which the
Company would acquire Medical Graphics through the merger (the "Merger") of
Medical Graphics with a wholly-owned subsidiary of the Company. The
consideration to be paid by the Company in connection with the Merger is
approximately $16.3 million cash. Upon consummation of the Merger, it is the
Company's intention to focus its efforts primarily on the cardiopulmonary and
respiratory markets served by Medical Graphics. Consummation of the Merger is
subject to approval of the shareholders of Medical Graphics and other customary
conditions.
Subsequent to the April Restructuring announcement, the Company communicated
with the Note Holders in order to discuss its financial condition and address
concerns of the Note Holders related to the Indenture (the "Indenture") dated
April 14, 1998, between the Company and U.S. Bank National Association, as
Trustee for the Notes (the "Trustee"). In July 1999, approximately 25% of the
Note Holders contacted the Trustee to ask that the Trustee determine whether or
not the Company violated the terms of the Indenture by allegedly selling all or
substantially all of its assets by virtue of certain transactions with
Cordis-Webster and Guidant Medical, the Withdrawal Agreement and its
restructurings which, if true, could result in the Company being obligated to
repurchase the Notes at a purchase price equal to 101% of the principal amount.
The Company believes that it has complied with all of the terms of the Indenture
and disagrees with the assertion of the Note Holders that a "designated event"
has occurred. Representatives of the Company met with the Trustee in August 1999
to respond to the Note Holders concerns.
On September 24, 1999, the Trustee on behalf of the Note Holders brought suit
against the Company in the District Court for the Fourth Judicial District of
Minnesota in the County of Hennepin. The lawsuit seeks a declaratory judgment
and related relief requiring the Company to commence a Designated Event Offer
under the terms of the Indenture to repurchase the Notes in the principal amount
of $20,198,000 at a premium as provided in the Indenture and awarding the
Trustee its costs, disbursements and attorneys' fees and other damages as may be
appropriate. The lawsuit further seeks to impose a trust on an amount of not
less than $23 million of the Company's assets. Specifically, the Trustee has
claimed that the Company violated the terms of the Indenture by allegedly
selling all or substantially all of its assets by virtue of certain transactions
with Cordis-Webster and Guidant Medical, the Withdrawal Agreement and the
January Restructuring and April Restructuring. On October 14, 1999, the Company
filed its Answer and Counterclaim against the Trustee, denying that a Designated
Event had occurred or that a Designated Event Offer was required and asserting
claims against the Trustee for tortious interference with prospective economic
advantage, abuse of process, breach of contract and declaratory relief to the
effect that no Designated Event has occurred and that the Note Holders are not
entitled to have their Notes repurchased as requested by the Trustee. The
Trustee has yet to answer the Counterclaim.
The Trustee has filed an interlocutory motion with the Court seeking the
issuance of a temporary injunction mandating that the Company immediately
commence a Designated Event Offer pursuant to the Indenture and ordering the
Company to deposit, in a separate interest-bearing account at a federally
insured bank, the sum of $23 million for the benefit of the Trustee and subject
to further Order of the Court. The Company has opposed the Trustee's request on
grounds that, for numerous legal and equitable reasons, it is not entitled to
obtain such prejudgment relief. The matter has been set for hearing before the
Court on November 16, 1999. The Company has also noticed its Motion to dispose
of the Trustee's lawsuit on the merits and with prejudice which will be heard by
the Court on December 13, 1999. The Company's moving papers will be served and
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<PAGE>
filed on November 15, 1999 in accordance with the Rules of Court.
Unless the Trustee is successful in obtaining a Court order requiring the
Company to deposit funds for the benefit of the Trustee, the Company has
adequate funds to consummate the Merger (without giving effect to the
transactions contemplated by either of the ELA Agreement or the Medtronic
Agreement) and intends to do so upon the satisfaction of the conditions to the
Merger. Accordingly, the Company plans and is contractually obligated under the
Medical Graphics Agreement, to consummate the Merger whether or not the
shareholders approve the Company's plan to engage in transactions that may
result in a sale of substantially all of the Company's property or assets or the
Note Holders consent to supplement the Indenture related to the Notes to prevent
any requirement of the Company to repurchase or accelerate payment with respect
to the outstanding Notes in connection with the closing of each of the ELA
Agreement and the Medtronic Agreement.
Net cash provided by operating activities in the nine-month period ended
September 30, 1999 were $15,570,213, compared to net cash used in operating
activities of $23,820,629 in the nine-month period ended September 30, 1998. The
change was primarily due to the settlement of the lawsuits with CPI and
continued efforts to reduce spending by the Company, partially offset by cash
used as a result of the January Restructuring and April Restructuring.
Investing activities provided cash of $370,759 and $7,807,227 for the nine-month
periods ended September 30, 1999 and 1998, respectively. In the nine-month
period ended September 30, 1998, the Company invested $5,561,595 in the Joint
Venture and used cash of $2,245,632 for purchases of property and equipment
primarily related to research and development equipment and the opening of the
Company's new offices. Net cash provided by investing activities for the
nine-month period ended September 30, 1999 consisted primarily of proceeds from
the sale of fixed assets.
At September 30, 1999, the Company had cash and cash equivalents of $27,071,736.
RESTRUCTURING AND ASSET IMPAIRMENT
In January 1999, the Company announced a restructuring plan (the "January
Restructuring") to help reduce its cash flow burn rate. As a result of the
January Restructuring, the Company reduced approximately 20 percent of its total
employee base, including 40 percent of the Company's senior management team. The
Company took a restructuring charge in the first quarter of 1999 of
approximately $720,000 for expenses related to severance costs and other
employee benefits associated with the reduction in work force. The activity for
the quarters ended June 30, 1999 and September 30, 1999 consisted principally of
related severance and employee benefits and includes the reversal of $30,000 and
$20,000, respectively, for employee outplacement services not utilized. The
January Restructuring was completed during the current quarter. Details of the
January Restructuring activity are as follows:
Employee
severance
and benefits
----------------
Initial January Restructuring $ 720,000
Activity for the quarter ended March 31, 1999 (618,000)
---------
Accrued restructuring at March 31, 1999 102,000
Activity for the quarter ended June 30, 1999 (82,000)
---------
Accrued restructuring at June 30, 1999 20,000
Activity for the quarter ended Sept. 30, 1999 (20,000)
---------
Accrued restructuring at Sept. 30, 1999 --
=========
In April 1999, the Company announced a second restructuring plan (the "April
Restructuring") to refocus its business and reduce operating expenses. After a
thorough analysis by its Board of Directors and management, the Company decided
to limit its participation in the ICD marketplace in order to re-deploy its
resources toward
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opportunities that may result in greater shareholder value. As part of the April
Restructuring, the Company continued to explore strategic alternatives for the
Company, including the potential license or sale of certain of its assets. The
Board of Directors also began contacting numerous investment bankers and other
industry sources on a non-exclusive basis, to explore business expansion
opportunities. The Company targeted affordable, profitable medical device
companies with management infrastructure and proven technology to serve as a
platform for growth and increasing shareholder value. As a result of this
process, on September 23, 1999, the Company announced that it had entered into
the Medical Graphics Agreement, pursuant to which the Company would acquire
Medical Graphics through the merger of Medical Graphics with a wholly-owned
subsidiary of the Company. The consideration to be paid by the Company in
connection with the Merger is approximately $16.3 million cash. Upon
consummation of the Merger, it is the Company's intention to focus its efforts
on the markets served by and business operations of Medical Graphics.
Consummation of the Merger is subject to approval of the shareholders of Medical
Graphics.
As a result of the April Restructuring, the Company reduced its workforce by
approximately 75 percent of its total employee base, while retaining the staff
necessary to support its ongoing operations and clinical, regulatory and
engineering staff needed to provide customer support for the Company's Lyra
series of ICDs and existing implants. In addition, the Company continued to
provide agreed-upon amounts of product to ELA Medical under the terms of its
amended supply agreements. For the three-month period ended June 30, 1999, the
Company recorded a restructuring charge of approximately $3,784,000. The
activity for the quarter ended September 30, 1999 includes the reversal of
$10,000 for employee outplacement services not utilized. The Company anticipates
completing the April Restructuring by the end of the current fiscal year.
Details of the April Restructuring activity are as follows:
<TABLE>
<CAPTION>
Employee
severance Fixed asset Inventory Total April
and benefits write-down write-down Restructuring
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Initial April Restructuring $ 1,627,000 $ 500,000 $ 1,657,000 $ 3,784,000
Activity for the quarter ended June 30, 1999 (1,597,000) (500,000) (1,657,000) (3,754,000)
----------- --------- ----------- -----------
Accrued restructuring at June 30, 1999 30,000 -- -- 30,000
Activity for the quarter ended Sept. 30, 1999 (15,000) -- -- (15,000)
----------- --------- ----------- -----------
Accrued restructuring at Sept. 30, 1999 15,000 -- -- 15,000
=========== ========= =========== ===========
</TABLE>
On May 11, 1999, the Company entered into a Withdrawal Agreement (the
"Withdrawal Agreement") with ELA Medical pursuant to which the Company withdrew
from its membership in the Joint Venture. Under the terms of the Withdrawal
Agreement, ELA Medical has sole responsibility for the operations of the Joint
Venture. In addition, ELA Medical has assumed certain warranty coverage,
technical service and regulatory compliance services for which the Company was
responsible under (i) applicable law, (ii) the supply agreement between the
Company and the Joint Venture, and (iii) contracts with third parties for Model
2000 and 2010 Series ICD products and associated leads and programmers supplied
to such third parties and implanted in human beings in the United States
(including associated programmers for such ICD models). The Company retains
potential product liability obligations from patients and has agreed to maintain
at its own expense through May 10, 2004, product liability insurance with limits
of liability at least as high as those in place as of the date of the Withdrawal
Agreement, subject to availability on commercially reasonable terms.
In connection with the consummation of the transactions contemplated by the
Withdrawal Agreement, the Company entered into the following related
transactions: (i) the Company amended and terminated its supply agreement with
the Joint Venture and entered into a new manufacturing and supply agreement with
ELA Medical for supply of ICD products in the United States under which the
Company has agreed to supply a limited number of ICD products to the Joint
Venture according to the terms of its supply agreement and provide any future
ICD products directly to ELA Medical; (ii) the Company amended its manufacturing
and supply agreement with ELA Medical S.A., an affiliate of ELA Medical, to
limit certain of the Company's obligations to supply ICD products thereunder and
to provide for the assumption by ELA Medical S.A. of warranty coverage,
technical service and regulatory compliance services for which the Company was
responsible under (a) applicable law, (b) the supply
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<PAGE>
agreement between the Company and ELA Medical S.A., and (c) contracts with third
parties for Model 2000 and 2010 Series ICD products and associated leads and
programmers supplied to such third parties and implanted in human beings in
Europe and Japan (including associated programmers for such ICD models); (iii)
the Company amended the Investment Agreement with Sanofi-Synthelabo to allow for
the actions contemplated by the Withdrawal Agreement to occur; and (iv) the
Company, ELA Medical and ELA Medical S.A. entered into a Settlement Agreement
and Mutual Release releasing each party thereto and all of its affiliates from
any and all claims made by such other party in connection with, arising from or
related to the Joint Venture and certain of the contractual obligations arising
from or contemplated by the terms of the joint venture relationship.
On August 3, 1999, the Company announced that it had entered into an agreement
(the "ELA Agreement") to transfer certain assets and grant a one-way,
non-exclusive, fully paid-up, royalty free, and perpetual worldwide license to
its patents and patent applications relating to cardiac stimulation devices to
ELA Medical. As part of the ELA Agreement, the Company will transfer ownership
of its flat capacitor technology and its AngePass 4040, 4080 and 4090 Series
lead systems, including related regulatory approvals and obligations, to ELA
Medical. In exchange, the Company will receive all 745,996 shares of the
Company's Common Stock owned by Sanofi-Synthelabo and the warrants owned by
Sanofi-Synthelabo to purchase approximately 1.9 million shares of the Company's
Common Stock. Closing of the transactions contemplated by the ELA Agreement is
subject to the approval of the Company's shareholders and consent of the holders
(the "Note Holders") of the Notes. See Note 6.
Upon closing of the transactions contemplated by the ELA Agreement, the Company
will be relieved of all further obligations to supply implantable cardiac
defibrillator products "ICDs" to ELA Medical outside of the United States. The
Company's obligations to supply ICDs to ELA Medical in the United States is
governed by the manufacturing and supply agreement entered into as part of the
Withdrawal Agreement. See Note 6. Also upon closing, the Company will be
relieved of its obligation under the Investment Agreement to enter into a patent
and related intellectual property cross license with Sanofi-Synthelabo. In
certain circumstances pursuant to which the transactions contemplated by the ELA
Agreement do not close, including but not limited to a failure of either the
shareholders to approve, or the Note Holders to consent to such transactions,
the Company will enter into a cross-license agreement with ELA Medical pursuant
to which the Company would provide ELA Medical with a non-exclusive, fully
paid-up, royalty-free and perpetual worldwide license to the Company's patents
and patent applications related to cardiac stimulation devices in consideration
for the granting by ELA Medical to the Company of a non-exclusive, fully
paid-up, royalty-free and perpetual worldwide license to ELA Medical's patents
and patent applications related to cardiac stimulation devices.
In the three-month period ended September 30, 1999, the Company fulfilled its
current contractual obligations to supply ICD products to ELA Medical and
related entities. Due to the fact that anticipated future orders for ICDs from
ELA Medical and others were insufficient for the Company to recover its existing
investment in manufacturing equipment and inventory, the Company recorded asset
impairment charges in the third quarter of 1999 of approximately $1.2 million
and $2.7 million related to the write-off of inventory and the write-down of
property and equipment, respectively. The write-down of property and equipment
and the write-off of inventory consisted of assets no longer utilized in the
operations of the business that were either disposed of during the nine-months
ended September 30, 1999 or which are being held for sale. These assets are
carried at liquidation value with depreciation suspended. The liquidation value
for such assets was determined by a third party and was the basis for such
write-down.
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<PAGE>
IMPACT OF YEAR 2000
All companies that use computers must address problems that could occur when the
year changes from 1999 to 2000. In the past, many computers and software used
two digits instead of four to identify the year when storing and processing
dates. This practice could cause a computer to use or calculate an incorrect
date as the year 2000 approaches.
The Company has a Year 2000 Oversight team in place, and has commenced efforts
to address all potential Year 2000 issues. The team has divided the project into
the following areas: products; manufacturing and test equipment; business
systems; facilities; and third parties. Each area has been evaluated and has
been brought into compliance using the following five phases:
1. Inventory - A complete list of systems that may be affected by the turn of
the century.
2. Assessment - Review and document the impact and severity of the Year 2000
issues for each system on the list.
3. Solutions - Identify the various methods for resolving each issue, select
the best solutions and establish an implementation plan.
4. Implementation - Carry out the plan to resolve the issues.
5. Verification - Test solutions prior to the year 2000 as required by the
implementation plan.
All of the Company's past and current products were designed, manufactured and
tested to perform correctly in the next century. All equipment used to
manufacture and test these products is inventoried and has been updated, if
necessary, to Year 2000 compliance. The Company has completed its analysis of
both critical and non-critical business systems and the Company believes they
are Year 2000 compliant. The Company has, and will continue to, require written
documentation from third party vendors indicating that they are Year 2000
compliant. The Company has an extremely limited number of past products that
have been distributed and may still be in use. The Company's assessment of
liability related to the ability of these products to perform correctly in the
next century as a result of the date change from 1999 to 2000 is that there is
no liability with respect to these products.
Many of the Company's systems were purchased or implemented within the last few
years and are Year 2000 compliant, keeping remediation costs relatively low. The
total expenditures to comply with the Year 2000 issues are estimated to be no
more than $200,000, however, additional unforeseen expenses that surface may
cause actual expenses to be materially greater than expected.
If the Company is not successful in its efforts to bring its systems in
compliance, the Company's ability to procure merchandise in a timely and
cost-effective manner may be impaired, daily business processes may be delayed
by manual procedures, or business processes may be interrupted if no alternative
methodology is available, any of which could have a material adverse effect on
the Company's operations.
MARKET RISK
There have been no material changes in reported market risks faced by the
Registrant since December 31, 1998, as discussed in the Company's Annual Report
for the year ended December 31, 1998 filed on Form 10-K.
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<PAGE>
NEW ACCOUNTING PRONOUNCEMENTS
In 1998, the Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 133 ("SFAS No. 133"), ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities.
The statement requires that an entity recognize all derivatives as either assets
or liabilities in the statement of financial position and measure those
instruments at fair value. In 1999, the FASB issued SFAS No. 137, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - DEFERRAL OF THE EFFECTIVE DATE
OF FASB NO. 133, AN AMENDMENT OF FASB STATEMENT NO. 133 which defers the
effective date of SFAS No. 133 by one year. SFAS No. 133 is now effective for
all fiscal quarters of all fiscal years beginning after June 15, 2000. The
Company is currently evaluating SFAS No. 133, but does not expect that it will
have a material effect on its financial statements.
CERTAIN IMPORTANT FACTORS
The discussion above contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. These statements by their
nature involve substantial risks and uncertainties. Actual results may differ
materially depending on a variety of factors, including, but not limited to the
following: approval of the transactions contemplated by the Sanofi-Synthelabo
agreement and the Medtronic Agreement by the Company's shareholders and Note
Holders; satisfaction of certain other conditions to the closing of the
transactions contemplated by the ELA Agreement and the Medtronic Agreement;
successful resolution of the litigation related to the Company's 7 1/2% Senior
Convertible Notes due 2003; the costs to support the Company's ongoing
operations and to provide customer support for the Company's products; the
demand for and cost of supplying the Company's products; the costs associated
with refocusing the Company's business; the ability of the Company to conduct
its business with a reduced workforce; the satisfaction of the conditions to the
closing of the transactions contemplated by the Medical Graphics Agreement and
the closing of such transactions; the ability of the Company to successfully use
an acquired business as a platform for growth and increasing shareholder value;
and continued listing on the Nasdaq National Market. Additional information with
respect to the risks and uncertainties faced by the Company may be found in, and
the prior discussion is qualified in its entirety by, the Risk Factors contained
in the Company's Annual Report of Form 10-K for the year ended December 31,
1998, as filed with the Securities and Exchange Commission ("SEC") and the
Company's other periodic filings with the SEC, copies of which are available
upon request.
PART II
ITEM 1. LEGAL PROCEEDINGS.
On September 24, 1999, U.S. Bank National Association, as Trustee, on behalf of
holders of 7 1/2% Senior Convertible Notes Due 2003 ("Trustee") brought suit
against the Company in the District Court for the Fourth Judicial District of
Minnesota in the County of Hennepin. The lawsuit seeks a declaratory judgment
and related relief requiring the Company to commence a Designated Event Offer
under the terms of the Indenture, dated April 14, 1998, between the Company and
Trustee (the "Indenture"), to repurchase the Notes in the principal amount of
$20,198,000 at a premium as provided in the Indenture and awarding the Trustee
its costs, disbursements and attorneys' fees and other damages as may be
appropriate. The lawsuit further seeks to impose a trust on an amount of not
less than $23 million of the Company's assets. Specifically, the Trustee has
claimed that the Company violated the terms of the Indenture by allegedly
selling all or substantially all of its assets by virtue of certain transactions
with Cordis-Webster and Guidant Medical, the Withdrawal Agreement and its
January Restructuring and April Restructuring. On October 14, 1999, the Company
filed its Answer and Counterclaim against the Trustee, denying that a Designated
Event had occurred or that a Designated Event Offer was required and asserting
claims against the Trustee for tortious interference with prospective economic
advantage, abuse of process, breach of contract and declaratory relief to the
effect that no Designated Event has occurred and that the Note Holders are not
entitled to have their Notes repurchased as requested by the Trustee. The
Trustee has yet to reply to the Counterclaim.
Page 17
<PAGE>
The Trustee has filed an interlocutory motion with the Court seeking the
issuance of a temporary injunction mandating that the Company immediately
commence a Designated Event Offer pursuant to the Indenture and ordering the
Company to deposit, in a separate interest-bearing account at a federally
insured bank, the sum of $23 million for the benefit of the Trustee and subject
to further Order of the Court. The Company has opposed the Trustee's request on
grounds that, for numerous legal and equitable reasons, it is not entitled to
obtain such prejudgment relief. The matter has been set for hearing before the
Court on November 16, 1999. The Company has also noticed its Motion to dispose
of the Trustee's lawsuit on the merits and with prejudice which will be heard by
the Court on December 13, 1999. The Company's moving papers will be served and
filed on November 15, 1999 in accordance with the Rules of Court.
Unless the Trustee is successful in obtaining a Court order requiring the
Company to deposit funds for the benefit of the Trustee, the Company has
adequate funds to consummate the Merger (without giving effect to the
transactions contemplated by either of the ELA Agreement or the Medtronic
Agreement) and intends to do so upon the satisfaction of the conditions to the
Merger. Accordingly, the Company plans and is contractually obligated under the
Medical Graphics Agreement, to consummate the Merger whether or not the
shareholders approve the Company's plan to engage in transactions that may
result in a sale of substantially all of the Company's property or assets or the
Note Holders consent to supplement the Indenture related to the Notes to prevent
any requirement of the Company to repurchase or accelerate payment with respect
to the outstanding Notes in connection with the closing of each of the ELA
Agreement and the Medtronic Agreement.
Page 18
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Item No. Item
-------- ----
3.1 Articles of Merger, including Amended and Restated Articles of
Incorporation (incorporated by reference to Exhibit 3A
contained in the Company's Registration Statement on Form 8-A
(File No. 0-17019)).
3.2 Amendment to the Company's Amended and Restated Articles of
Incorporation (incorporated by reference to Exhibit 4.3
contained in the Company's Registration Statement on Form S-3
(File No. 333-36005)).
3.3 Amendment to the Company's Amended and Restated Articles of
Incorporation (incorporated by reference to Exhibit 4.4 to the
Company's Registration Statement on Form S-3 (File No.
333-50557)).
3.4 Amended Bylaws (incorporated by reference to Exhibit 4.2
contained in the Company's Registration Statement on Form S-3
(File No. 333-04993)).
10.1 Asset Purchase Agreement dated as of August 2, 1999 between
the Company and Sanofi-Synthelabo.
10.2 Settlement, License and Asset Purchase Agreement dated
September 16, 1999 between the Company and Medtronic, Inc.
10.3 Agreement and Plan of Merger by and among Medical Graphics
Corporation, a Minnesota Corporation, Angeion Corporation, a
Minnesota Corporation, and ANG Acquisition Corporation, a
Minnesota Corporation, dated as of September 22, 1999
(incorporated by reference to Exhibit 2 to the Company's
Current Report of Form 8-K dated September 22, 1999 (File No.
1-13543)).
# 10.4 Letter Agreement with James B. Hickey, Jr. dated October 8,
1999.
12 Computation of ratio of earnings to fixed charges.
27 Financial Data Schedule.
# Management contract, compensatory plan or arrangement
required to be filed as an exhibit to this Form 10-Q.
(b) Reports on Form 8-K
A Form 8-K was filed on October 5, 1999 related to the proposed merger
between the Company and Medical Graphics Corporation, based on an
Agreement and Plan of Merger dated September 22, 1999.
Page 19
<PAGE>
SIGNATURES
Pursuant to the requirements 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: November 15, 1999 By: /s/ James B. Hickey, Jr.
----------------------------
James B. Hickey, Jr.
President and Chief Executive Officer
(principal executive officer and acting
principal financial officer)
Page 20
<PAGE>
EXHIBIT INDEX
Exhibit Description of Document Method of Filing
- ------- ----------------------- ----------------
3.1 Articles of Merger, including Amended and Incorporated by
Restated Articles of Incorporation (incorporated reference
by reference to Exhibit 3A contained 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
Articles of Incorporation (incorporated by reference
reference to Exhibit 4.3 contained in the
Company's Registration Statement on Form S-3
(File No. 333-36005)).
3.3 Amendment to the Company's Amended and Restated Incorporated by
Articles of Incorporation (incorporated by reference
reference to Exhibit 4.4 to the Company's
Registration Statement on Form S-3 (File No.
333-50557)).
3.4 Amended Bylaws (incorporated by reference to Incorporated by
Exhibit 4.2 contained in the Company's reference
Registration Statement on Form S-3 (File No.
333-04993)).
10.1 Asset Purchase Agreement dated as of August 2, Filed herewith
1999 between the Company and Sanofi-Synthelabo.
10.2 Settlement, License and Asset Purchase Agreement Filed herewith
dated September 16, 1999 between the Company and
Medtronic, Inc.
10.3 Agreement and Plan of Merger by and among Incorporated by
Medical Graphics Corporation, a Minnesota reference
Corporation, Angeion Corporation, a Minnesota
Corporation, and ANG Acquisition Corporation, a
Minnesota Corporation, dated as of September 22,
1999 (incorporated by reference to Exhibit 2 to
the Company's Current Report of Form 8-K dated
September 22, 1999 (File No. 1-13543)).
# 10.4 Letter Agreement with James B. Hickey, Jr. dated Filed herewith
October 8, 1999.
12 Computation of ratio of earnings to fixed Filed herewith
charges.
27 Financial Data Schedule. Filed herewith
# Management contract, compensatory plan or arrangement required to
be filed as an exhibit to this Form 10-Q.
Page 21
EXHIBIT 10.1
- --------------------------------------------------------------------------------
ASSET PURCHASE AGREEMENT
BY AND AMONG
ANGEION CORPORATION
SANOFI-SYNTHELABO
AND
ELA MEDICAL
DATED
AUGUST 2, 1999
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I PURCHASE AND SALE OF ASSETS..................................................................1
1.1 PURCHASE AND SALE OF ASSETS..................................................................1
1.2 ASSUMED LIABILITIES..........................................................................2
ARTICLE II PURCHASE PRICE; CLOSING......................................................................3
2.1 PURCHASE PRICE...............................................................................3
2.2 TIME AND PLACE...............................................................................3
2.3 DELIVERIES...................................................................................3
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER.....................................................5
3.1 ORGANIZATION AND GOOD STANDING...............................................................5
3.2 AUTHORITY; BINDING EFFECT; PERFORMANCE.......................................................5
3.3 CONSENTS AND APPROVALS; NO VIOLATIONS........................................................6
3.4 ABSENCE OF UNDISCLOSED LIABILITIES...........................................................6
3.5 NO CLAIMS OR LITIGATION......................................................................6
3.6 TITLE TO ASSETS AND RELATED MATTERS..........................................................7
3.7 INTELLECTUAL PROPERTY........................................................................7
3.8 CONTRACTS....................................................................................8
3.9 PERMITS......................................................................................8
3.10 COMPLIANCE WITH APPLICABLE LAW...............................................................8
3.11 BROKERS AND FINDERS..........................................................................8
3.12 ABSENCE OF OTHER AGREEMENT FOR SALE OF ASSETS................................................8
3.13 PROXY STATEMENT..............................................................................9
3.14 DISCLOSURE...................................................................................9
3.15 RELIANCE.....................................................................................9
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER.......................................9
4.1 ORGANIZATION AND GOOD STANDING...............................................................9
4.2 AUTHORITY; BINDING EFFECT; PERFORMANCE.......................................................9
4.3 CONSENTS AND APPROVALS; NO VIOLATIONS.......................................................10
4.4 BROKERS AND FINDERS.........................................................................10
ARTICLE V COVENANTS...................................................................................10
5.1 CONDUCT PENDING CLOSING.....................................................................10
5.2 PROXY STATEMENT.............................................................................11
5.3 ACCESS TO INFORMATION.......................................................................13
5.4 NOTICE AND CURE.............................................................................13
5.5 BEST EFFORTS................................................................................13
ARTICLE VI CONDITIONS TO THE OBLIGATIONS OF PARENT AND
PURCHASER...................................................................................14
6.1 REPRESENTATIONS AND WARRANTIES TRUE.........................................................14
</TABLE>
i
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<TABLE>
<S> <C> <C>
6.2 PERFORMANCE.................................................................................14
6.3 APPROVALS, PERMITS, CONSENTS................................................................14
6.4 SHAREHOLDER AND SENIOR NOTE HOLDER APPROVAL.................................................14
6.5 DELIVERY OF CLOSING DOCUMENTS...............................................................14
6.6 ABSENCE OF CERTAIN EVENTS...................................................................14
ARTICLE VII CONDITIONS TO THE OBLIGATIONS OF SELLER.....................................................15
7.1 REPRESENTATIONS AND WARRANTIES TRUE.........................................................15
7.2 PERFORMANCE.................................................................................15
7.3 APPROVALS, PERMITS, CONSENTS................................................................15
7.4 SHAREHOLDER AND SENIOR NOTE HOLDER APPROVAL.................................................15
7.5 DELIVERY OF CLOSING DOCUMENTS...............................................................15
7.6 ABSENCE OF CERTAIN EVENTS...................................................................15
ARTICLE VIII TERMINATION.................................................................................16
8.1 TERMINATION.................................................................................16
8.2 EFFECT OF TERMINATION.......................................................................16
ARTICLE IX POST-CLOSING COVENANTS......................................................................17
9.1 ACCESS AFTER CLOSING........................................................................17
9.2 FURTHER ASSURANCES..........................................................................17
9.3 SUPPLY AGREEMENTS...........................................................................17
ARTICLE X INDEMNIFICATION; SURVIVAL OF REPRESENTATIONS AND WARRANTIES.................................17
10.1 INDEMNITY OBLIGATIONS OF SELLER.............................................................17
10.2 INDEMNITY OBLIGATIONS OF PARENT AND PURCHASER...............................................18
10.3 INDEMNIFICATION PROCEDURES..................................................................19
10.4 DURATION....................................................................................19
ARTICLE XI MISCELLANEOUS PROVISIONS....................................................................20
11.1 EXPORT CONTROLS.............................................................................20
11.2 FEES AND EXPENSES...........................................................................20
11.3 SEVERABILITY................................................................................20
11.4 ENTIRE AGREEMENT; AMENDMENTS................................................................20
11.5 NOTICES.....................................................................................21
11.6 SUCCESSORS AND ASSIGNMENT...................................................................22
11.7 NO THIRD PARTY BENEFICIARIES................................................................22
11.8 NO WAIVER...................................................................................22
11.9 PUBLICITY...................................................................................22
11.10 COUNTERPARTS................................................................................23
11.11 HEADINGS....................................................................................23
11.12 ENGLISH LANGUAGE CONTROLS; ENTIRE AGREEMENT.................................................23
11.13 GOVERNING LAW...............................................................................23
11.14 RELATIONSHIP OF THE PARTIES.................................................................23
11.15 SOVEREIGN IMMUNITY; EXCLUSIONS..............................................................23
11.16 CONSULTATION AND ARBITRATION................................................................24
</TABLE>
ii
<PAGE>
EXHIBITS
Exhibit A Warranty Bill of Sale and Assignment
Exhibit B Patent Assignment
Exhibit C Termination Agreement
Exhibit D License Agreement
Exhibit E FIRTPA Certificate
Exhibit F Settlement Agreement and Mutual Release
Exhibit G Assumption Agreement
Exhibit H Cross-License Agreement
iii
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT, dated as of this 2nd day of August,
1999, is entered into by and among Angeion Corporation, a corporation organized
and existing under the laws of the State of Minnesota ("Seller"),
Sanofi-Synthelabo, a societe anonyme organized and existing under the laws of
the Republic of France ("Parent"), and ELA Medical, a societe anonyme organized
and existing under the laws of the Republic of France and a subsidiary of Parent
("Purchaser").
W I T N E S S E T H :
WHEREAS, Seller has expertise in, and is engaged in the business of,
the design, development, manufacture, distribution and sale of certain cardiac
stimulation devices (the "Cardiac Stimulation Device Business");
WHEREAS, Seller is currently considering certain strategic
alternatives, including, but not limited to, refocusing its operations so that
it would no longer be engaged in the Cardiac Stimulation Device Business; and
WHEREAS, Purchaser desires to purchase from Seller, and Seller desires
to sell to Purchaser, on the terms and conditions set forth herein, subject to
the approval of the shareholders of Seller and the approval of the Senior Note
Holders (as hereinafter defined), all of Seller's right, title and interest in
and to certain defibrillator leads used in implantable cardioverter
defibrillators and all of Seller's right, title and interest in and to the
research and development of a flatpack, photoflash capacitor being developed for
use in an implantable medical device, as more fully described below.
NOW, THEREFORE, in consideration of the mutual promises contained
herein, and intending to be legally bound hereby, the parties hereby agree as
follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
1.1 PURCHASE AND SALE OF ASSETS. Upon the terms and subject to the
conditions herein set forth, Seller hereby agrees to sell, convey, transfer,
assign, grant and deliver to Purchaser at the Closing (as hereinafter defined),
and Purchaser hereby agrees to purchase from Seller at the Closing, all of
Seller's right, title and interest in and to all technology, intellectual
property, patents, patent applications, including continuations, and know-how,
including licenses, development agreements and supply agreements from third
parties, to the extent assignable, owned or used by Seller with respect to
Seller's model Series 4040, 4080 and 4090 Leads (the "Leads") and the research
and development of a flatpack, photoflash capacitor being developed for use in
an implantable medical device (the "Flat Capacitor") (collectively, the
"Assets"), free and clear of all Encumbrances (as hereinafter defined), other
than those Encumbrances arising under the Assumed Contracts (as hereinafter
defined), including, without limitation,
(i) all technical specifications for the Leads and Flat Capacitor;
<PAGE>
(ii) all trade secrets, inventions, patent disclosures, protocols,
know-how, formulae, processes, procedures, records of
inventions, test information, drawings, diagrams, designs,
operating manuals and other proprietary information for the
Leads and Flat Capacitor;
(iii) all patents and patent applications for the Leads and Flat
Capacitor, including Patent No. 5649974 and Patent No.
5454839, subject only to existing non-exclusive licenses in
favor of St. Jude Medical Inc., Guidant CPI and Medtronic,
Inc. (to the extent that Medtronic's license is held to be
valid) (collectively, the "Assigned Patents");
(iv) all documentation and all copyrights in such documentation for
the Leads and Flat Capacitor;
(v) all permits, licenses, franchises, approvals and
authorizations issued by governmental or regulatory
authorities or bodies for the Leads and Flat Capacitor, to the
extent assignable by Seller;
(vi) all testing and validation results for the Leads and Flat
Capacitor, and all test fixtures that relate specifically to
the Leads and Flat Capacitor and are not generally used with
respect to other assets of Seller used in the Cardiac
Stimulation Device Business. Purchaser acknowledges that
Cardiac Control Systems, Inc. presently owns certain
manufacturing equipment and fixtures which may be useful in
production of the Leads, and that any such equipment and
fixtures owned by Cardiac Control Systems, Inc. are not
included in the definition of Leads for purposes of this
Agreement;
(vii) all samples on hand of the Leads and Flat Capacitor; and
(viii) all of Seller's right, title and interest in and to the supply
and development agreements listed in Schedule 1.1 hereto (the
"Assumed Contracts").
For the avoidance of doubt, the parties acknowledge and agree that the Assets do
not include (i) non-proprietary software, (ii) any rights to any work of Seller
in respect of middle cardiac vein leads (model Series 4300), single pass dual
chamber leads (model Series 4060), single pass RV/SVC leads (model Series 4050)
or atrial defibrillation leads (model Series 4200), (iii) finished inventory or
work-in-progress or (iv) the physical tools and other assets listed in the
Disclosure Schedule.
1.2 ASSUMED LIABILITIES. Purchaser shall assume, pay, perform in
accordance with their terms, or otherwise satisfy, as of the Closing Date (as
hereinafter defined):
(i) the liabilities and obligations of Seller in respect of the
Assumed Contracts, and
(ii) all liabilities, obligations or undertakings of any nature
whatsoever, whether accrued, absolute, fixed or contingent,
known or unknown, arising out of or relating to the Assets,
including, without limitation, (a) any action brought or claim
made by third parties, which relate to the periods following
the Closing Date, and (b) any and all claims which relate to
Leads or Flat Capacitors manufactured and sold by Purchaser
-2-
<PAGE>
after the Closing Date.
The liabilities assumed by Purchaser pursuant to this Section 1.2 are
sometimes referred to as the "Assumed Liabilities". Except as expressly provided
in this Section 1.2, Purchaser shall not assume any liabilities or obligations
of (or claimed through) Seller, whether relating to the Assets or otherwise, it
being expressly acknowledged and agreed by the parties that all such liabilities
and obligations, and any claims or disputes relating thereto, whether existing
as of the Closing Date or arising thereafter, fixed or contingent, known or
unknown, asserted or unasserted, are and shall remain the liabilities and
obligations of Seller for all purposes (the "Excluded Liabilities").
ARTICLE II
PURCHASE PRICE; CLOSING
2.1 PURCHASE PRICE. (a) Subject to the terms and conditions of this
Agreement, the purchase price payable for the purchase of the Assets (the
"Purchase Price") shall be an amount equal to the fair market value of the
Securities (as hereinafter defined). The Purchase Price shall be payable as
follows: on the Closing Date, as consideration for the purchase of the Assets,
Parent shall deliver to Seller, and Seller shall accept from Parent, all of the
shares of common stock, par value $.01 per share, of Seller ("Seller Common
Stock") owned by Parent, directly or indirectly, and all of the warrants to
purchase shares of Seller Common Stock owned by Parent, directly or indirectly,
in each case as of the Closing Date and as set forth on Schedule 2.1(a) hereto
(collectively, the "Securities").
(b) The parties shall mutually determine the allocation of the
value of the Purchase Price among the Assets.
2.2 TIME AND PLACE. The closing for the sale and purchase of the Assets
(the "Closing") shall take place at 10:00 a.m. at the offices of Faegre & Benson
LLP, 2200 Norwest Center, Minneapolis, Minnesota 55402 on such date, or at such
other location, as the parties shall mutually agree in writing (the "Closing
Date").
2.3 DELIVERIES.
(a) Deliveries by Seller. Seller shall deliver to Purchaser at
the Closing the following:
(i) a Warranty Bill of Sale and Assignment in form
attached hereto as Exhibit A, together with such other bills of sale,
assignments and other instruments of transfer, in form reasonably
satisfactory to Purchaser and its counsel, as Purchaser and its counsel
shall deem reasonably necessary or appropriate to vest and confirm in
Purchaser good and marketable title to the Assets;
(ii) a Patent Assignment in the form attached hereto as
Exhibit B;
(iii) an executed counterpart of a Termination of
Implantable Cardioverter Defibrillator Product Manufacturing and Supply
Agreement (the "Termination Agreement"), pursuant to which Seller and
Purchaser agree to terminate certain supply
-3-
<PAGE>
arrangements between such parties with respect to the Cardiac
Stimulation Device Business, in the form attached hereto as Exhibit C;
(iv) an executed counterpart of a License Agreement (the
"License Agreement") with respect to the Licensed Patents (as that term
is defined in the License Agreement) in the form attached hereto as
Exhibit D;
(v) a copy, certified as of the Closing Date by the
Secretary of Seller, of (A) the resolutions of the Board of Directors
of Seller authorizing the execution, delivery and performance of this
Agreement by Seller and (B) the resolutions or other actions of the
shareholders of Seller approving the sale by Seller of the Assets to
Purchaser and the other actions contemplated hereunder, as required
under the Minnesota Business Corporation Act ("MBCA") and Seller's
Articles of Incorporation and By-Laws, as amended;
(vi) a certificate of Seller ("FIRPTA Certificate") in
the form attached hereto as Exhibit E certifying that Seller is not a
"foreign person" within the meaning of Section 1445 of the Internal
Revenue Code of 1986, as amended;
(vii) all third party consents to the sale of the Assets
hereunder as set forth in Schedule 2.3(a)(vii) hereto;
(viii) transfer of all items of tangible personal
property included among the Assets and all documents, computer files
and other mediums which contain or evidence the Intellectual Property
Rights (as hereinafter defined);
(ix) a certificate, dated the Closing Date and executed
by a proper officer of Seller, to the effect that (A) each of the
representations and warranties of Seller made herein is true and
correct in all material respects on the Closing Date as though such
representations and warranties were made on such date and (B) Seller
has performed and complied in all material respects with all covenants,
conditions and obligations under this Agreement which are required to
be performed or complied with by Seller on or prior to the Closing
Date;
(x) evidence satisfactory to Purchaser and its counsel as
to the release of all Encumbrances created with respect to the Assets;
(xi) a written opinion of counsel for Seller, dated the
Closing Date and addressed to Parent and Purchaser, in a form to be
mutually agreed to by the parties;
(xii) an executed counterpart of a Settlement Agreement
and Mutual Release in the form attached hereto as Exhibit F (the
"Settlement Agreement and Mutual Release");
(xiii) an executed counterpart of an Assumption Agreement
(the "Assumption Agreement") in the form attached hereto as Exhibit G;
and
(xiv) an acknowledgment of receipt of the items to be
delivered by Parent and Purchaser at the Closing.
-4-
<PAGE>
(b) Deliveries by Parent and Purchaser. Parent or Purchaser, as
applicable, shall deliver to Seller at the Closing the following:
(i) an executed counterpart of the Assumption Agreement;
(ii) an executed counterpart of the Termination
Agreement;
(iii) an executed counterpart of the License Agreement;
(iv) the Securities, duly endorsed in blank or with stock
powers duly endorsed in blank attached thereto;
(v) a certificate, dated as of the Closing Date and
executed by a proper officer of Purchaser, to the effect that (A) each
of the representations and warranties of Purchaser made herein is true
and correct in all material respects on the Closing Date as though such
representations and warranties were made on such date and (B) Purchaser
has performed and complied in all material respects with all covenants
and obligations under this Agreement which are to be performed or
complied with by Purchaser on or prior to the Closing Date;
(vi) a written opinion of counsel for Parent and
Purchaser, dated the Closing Date and addressed to Seller, in a form to
be mutually agreed to by the parties;
(vii) an executed counterpart of the Settlement Agreement
and Mutual Release; and
(viii) an acknowledgment of receipt of the items to be
delivered by Seller at the Closing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby makes the representations and warranties set forth in
this Article III, each of which is true and correct as of the date hereof and
will be true and correct as of the Closing Date, except as set forth in the
Disclosure Schedule to be delivered by Seller to Purchaser on the date hereof
(the "Disclosure Schedule") (which Disclosure Schedule sets forth the exceptions
to the representations and warranties contained in this Article III):
3.1 ORGANIZATION AND GOOD STANDING. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Minnesota and has all requisite corporate power and authority to own, lease and
operate the properties and assets it now owns, leases or operates and to carry
on its business as presently conducted. Seller is qualified to do business and
is in good standing in each jurisdiction where the ownership, leasing or
operations of the Assets or the conduct of its business requires such
qualification, except where such failure to be so qualified and in good standing
would not have a material adverse effect on the business or financial condition
of Seller as presently conducted.
3.2 AUTHORITY; BINDING EFFECT; PERFORMANCE. Seller has all requisite
corporate power
-5-
<PAGE>
and authority to execute and deliver and, subject to the approval of its
shareholders and the approval of the Senior Note Holders, to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
The execution, delivery and performance of this Agreement by Seller, and the
consummation of the transactions contemplated hereby, have been duly authorized
by the Board of Directors of Seller. With the exception of shareholder approval
and the approval of the Senior Note Holders, which approvals shall be obtained
by the Closing Date, no other corporate action on the part of Seller is
necessary to authorize the execution, delivery or performance of this Agreement
by Seller or the consummation of the transactions contemplated hereby. This
Agreement has been duly executed and delivered on behalf of Seller and
constitutes the legal, valid and binding obligation of Seller, enforceable
against Seller in accordance with its terms, except that the enforceability of
this Agreement is subject to bankruptcy, insolvency, reorganization and similar
laws of general applicability relating to or affecting creditors' rights and
limitations on the availability of the remedy of specific performance and other
equitable relief.
3.3 CONSENTS AND APPROVALS; NO VIOLATIONS. The execution, delivery and
performance of this Agreement by Seller, and the consummation of the
transactions contemplated hereby, will not (i) violate or conflict with any
provision of the Articles of Incorporation or By-Laws of Seller; (ii) except
with respect to the Indenture dated as of April 14, 1998 (the "Indenture")
between Seller and U.S. Bank, national association, with respect to the 7 1/2%
Senior Convertible Notes due 2003 of Seller, violate or conflict with, result in
the breach of, constitute an event of default (or an event which, with the lapse
of time or the giving of notice or both, would constitute an event of default)
under, or result in the creation in any party of any right to accelerate,
modify, cancel or terminate, any contract or other instrument to which Seller is
a party, or by which Seller or any of the Assets is bound, or result in the
creation of any Encumbrance or other right of any third party upon any of the
Assets; (iii) violate or conflict with any law, rule, regulation, ordinance,
code, judgment, order, writ, injunction or decree of any court or any
governmental body or agency thereof of any jurisdiction to which Seller or any
of the Assets may be subject; or (iv) require any registration, declaration or
filing with, or permit, license, exemption, order, franchise, approval, consent
or other authorization of, or the giving of notice to, any governmental or
regulatory body, agency or authority.
3.4 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth in the
Disclosure Schedule, there are no material liabilities or obligations relating
to the Assets, whether known or unknown, fixed or contingent.
3.5 NO CLAIMS OR LITIGATION. There are no suits, actions, claims,
proceedings (including, without limitation, arbitral and administrative
proceedings) or investigations pending or, to the knowledge of Seller,
threatened against Seller (or any of its directors, officers, employees,
stockholders or agents) relating to or affecting, directly or indirectly, the
Assets. There are no such suits, actions, claims, proceedings or investigations
pending or, to the knowledge of Seller, threatened against Seller or challenging
the validity or propriety of this Agreement or the transactions contemplated
hereby. There is no judgment, order, injunction, decree or award issued by any
court, arbitrator, governmental body or agency thereof of competent jurisdiction
to which Seller is a party or by which any of the Assets, including the
Intellectual Property Rights, are bound, which is unsatisfied or which requires
continuing compliance therewith by Seller, other than an arbitration concerning
a potential non-exclusive license to the Assigned Patents by Medtronic to which
Seller was not a party and disputes the outcome thereof or being bound thereby.
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3.6 TITLE TO ASSETS AND RELATED MATTERS. (a) Seller has good and
marketable title to the Assets, free and clear of any and all mortgages,
pledges, security interests, liens, charges, equities, claims, conditional sales
contracts, licenses, restrictions, reservations, options, rights and other
encumbrances of any nature whatsoever (collectively, "Encumbrances"), other than
those Encumbrances arising under the Assumed Contracts. On the Closing Date,
Seller shall convey to Purchaser, and Purchaser shall acquire from Seller, good
and marketable title to the Assets, free and clear of any Encumbrances, other
than those Encumbrances arising under the Assumed Contracts. There is no
agreement, arrangement or understanding with any person to which Seller is a
party, or any judgment, order, writ, injunction or decree of any court or
governmental body or agency thereof of any jurisdiction that is binding on
Seller, that would prevent the use by Purchaser of the Assets from and after the
Closing Date.
(b) The Assets include all of the Intellectual Property Rights
(as hereinafter defined). Seller has not assigned or conveyed any Intellectual
Property to any third party, other than as set forth in the Disclosure Schedule.
3.7 INTELLECTUAL PROPERTY. The Disclosure Schedule sets forth a
complete and correct list of all worldwide patents, patent applications,
copyrights, whether or not registered, trademarks and service marks, trademark
and service mark registrations (and applications therefor), trade names,
business names, brand names and logos, devices, insignias, formats, titles and
subtitles and all registrations issued and all applications pending with respect
to the foregoing, all technical specifications, know-how, trade secrets,
inventions, patent disclosures, protocols, formulae, processes, procedures,
records of inventions, test information, testing and validation results, test
fixtures (other than generic test fixtures), drawings, diagrams, designs,
operating manuals and other proprietary information currently owned or used by
Seller in connection with the Leads and the Flat Capacitor, excluding
non-proprietary software (collectively, the "Intellectual Property Rights"), all
of which are valid and subsisting and are included in the Assets. Except as set
forth on the Disclosure Schedule, Seller is the sole, rightful and exclusive
owner of, and has good and marketable title to, all of the Intellectual Property
Rights and the goodwill associated therewith, free and clear of all
Encumbrances. All patents, applications and registrations described in the
Disclosure Schedule are valid and in full force and effect, and no filings or
other action is required for at least 10 days after the Closing Date to maintain
the patents, registrations or applications described in the Disclosure Schedule
in full force and effect. Except as set forth on the Disclosure Schedule, there
are no licenses, agreements or commitments outstanding or effective granting any
other person any right to make, use, sell, import, operate under, license or
sublicense, or otherwise concerning, the Intellectual Property Rights. The
Intellectual Property Rights do not infringe, or otherwise conflict with, any
proprietary or other rights of any other person. Seller has no knowledge that
any of the Intellectual Property Rights infringe upon or conflict with the
rights of any other person and has not received any notice or claim of such
infringement or conflict, including from the U.S. Patent and Trademark Office.
To the knowledge of Seller, there is no infringement or violation by any other
person of Seller's rights in any of the Intellectual Property Rights. The
consummation of the transactions contemplated hereby will not result in any
modification of or create any right of termination, cancellation or abandonment
with respect to the Intellectual Property Rights. Seller has paid in full (or
otherwise to the satisfaction of the invoicing party) all invoiced fees and
expenses of domestic and foreign counsel for work done and disbursements
incurred on behalf of Seller relating to the Intellectual Property Rights
through and including the Closing Date.
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3.8 CONTRACTS. Except for the Assumed Contracts, there are no written
or oral contracts, arrangements and understandings relating to the Assets,
except those license agreements currently in effect which grant to any person
any rights with respect to any of the Intellectual Property Rights as set forth
in the Disclosure Schedule and standard employment, patent assignment, work for
hire, confidentiality agreements and consulting agreements between Seller and
employees or consultants of Seller, pursuant to which such employees and
consultants have assigned to Seller any rights that they have with respect to
the Intellectual Property Rights. Seller has previously delivered or made
available to Purchaser complete and correct copies (or, in the case of oral
contracts, a complete and correct description) of each Assumed Contract. Except
as set forth in the Disclosure Schedule, (i) each Assumed Contract is in full
force and effect; (ii) neither Seller nor (to the knowledge of Seller) any other
party is in default under any such contract, and no event has occurred which
constitutes, or with the lapse of time or the giving of notice or both would
constitute, a default by Seller or (to the knowledge of Seller) a default by any
other party under such contract; (iii) to the knowledge of Seller, there are no
disputes or disagreements between Seller and any other party with respect to any
such contract; (iv) Seller is not currently renegotiating any of such contracts,
nor is Seller paying liquidated damages in lieu of performing any of such
contracts; and (v) there are no amounts due and payable by Seller under any of
the Assumed Contracts and no amounts will be owing under any of the Assumed
Contracts in the future except with respect to products delivered or services
rendered after the Closing Date or as otherwise disclosed on the Disclosure
Schedule.
3.9 PERMITS. The Disclosure Schedule sets forth a complete and correct
list of all permits, licenses, franchises, approvals and authorizations issued
by governmental or regulatory authorities for the Leads and Flat Capacitor.
Except with respect to the 4090 Series leads, Seller is in compliance with all
such permits, licenses, franchises, approvals and authorizations, except where
the failure to be so in compliance would not have a material adverse effect on
the Assets or the use thereo, and has not received notification by any
governmental or regulatory authority of any violation by Seller of any such
permits, licenses, franchises, approvals and authorizations.
3.10 COMPLIANCE WITH APPLICABLE LAW. Seller is not in violation of any
applicable foreign or domestic laws, rules, regulations, ordinances, codes,
judgments, orders, injunctions, writs or decrees of any Federal, state, local or
foreign court or governmental body or agency thereof to which it may be subject
which are applicable to or which could materially adversely affect any of the
Assets. No claims have been filed against Seller, and Seller has not received
any notice alleging, any such violation, nor, to the knowledge of Seller, is
there any inquiry, investigation or proceedings relating thereto.
3.11 BROKERS AND FINDERS. Except for Raymond James & Associates, no
broker, finder or investment banker has been retained by Seller or is entitled
to any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement. Seller agrees to pay Raymond James
& Associates, and indemnify and hold each of Parent and Purchaser harmless in
respect of, all fees, commissions or other amounts payable to Raymond James &
Associates.
3.12 ABSENCE OF OTHER AGREEMENT FOR SALE OF ASSETS. There are no
agreements, arrangements or understandings to which Seller is a party or by
which any of the Assets are bound providing for or involving the purchase, sale
or other disposition of the Assets, whether through a sale of assets or
otherwise, other than this Agreement.
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3.13 PROXY STATEMENT. The Proxy Statement (as hereinafter defined) will
comply in all material respects with the applicable requirements of the
Securities Exchange Act of 1934, as amended, except that no representation or
warranty is being made by Seller with respect to any information supplied to
Seller by Purchaser or any of its affiliates specifically for inclusion in the
Proxy Statement. The Proxy Statement will not, at the time the Proxy Statement
is filed with the Securities and Exchange Commission (the "SEC") or first sent
to shareholders of Seller or at the time of the Special Meeting (as hereinafter
defined) contain any untrue statement of a material fact or omit to state any
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 or necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the meeting of
Seller's shareholders held for approval of the transactions contemplated by this
Agreement which has become false or misleading.
3.14 DISCLOSURE. No representation and warranty of Seller contained in
this Agreement (including, without limitation, the Disclosure Schedule hereto),
nor any other statement, schedule, certificate or other document delivered or to
be delivered by Seller to Purchaser pursuant hereto or in connection with the
transactions contemplated by this Agreement, contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
necessary in order to make the statements made herein or therein, in the light
of the circumstances in which they were made, not misleading. All information
required to be disclosed by Seller under this Agreement and all other material
information concerning the Assets have been disclosed by Seller in this
Agreement, the Disclosure Schedule hereto or any other statement, schedule,
certificate or other document delivered to Purchaser by Seller under this
Agreement.
3.15 RELIANCE. The foregoing representations and warranties are made by
Seller with the knowledge and expectation that Purchaser is placing complete
reliance thereon in entering into, and performing its obligations under, this
Agreement, and the same shall not be affected in any respect whatsoever by any
investigation heretofore conducted by or on behalf of either of them whether in
contemplation of this Agreement or otherwise.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
Parent and Purchaser, jointly and severally, make the representations
and warranties set forth in this Article IV, each of which is true and correct
as of the date hereof and will be true and correct as of the Closing Date:
4.1 ORGANIZATION AND GOOD STANDING. Each of Parent and Purchaser is a
societe anonyme duly organized, validly existing and in good standing under the
laws of the Republic of France and has all requisite corporate power and
authority to own, lease and operate the properties and assets it now owns,
leases or operates and to carry on its business as presently conducted.
4.2 AUTHORITY; BINDING EFFECT; PERFORMANCE. Each of Parent and
Purchaser has all requisite corporate power and authority to execute, deliver
and perform its obligations under this Agreement. The execution, delivery and
performance of this Agreement by Parent and Purchaser has been duly authorized
by all necessary corporate action on the part of Parent and Purchaser. This
Agreement has been duly executed and delivered on behalf of Parent and Purchaser
and constitutes
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the legal, valid and binding obligation of each of them, enforceable against
each of them in accordance with its terms, except that the enforceability of
this Agreement is subject to bankruptcy, insolvency, reorganization and similar
laws of general applicability relating to or affecting creditors' rights and
limitations on the availability of the remedy of specific performance and other
equitable relief.
4.3 CONSENTS AND APPROVALS; NO VIOLATIONS. The execution and delivery
of this Agreement by Parent and Purchaser, and the consummation of the
transactions contemplated hereby, will not (i) violate or conflict with any
provision of the organizational documents of either Parent or Purchaser; (ii)
violate or conflict with, result in the breach of or constitute a default (or an
event which, with the lapse of time or the giving of notice or both, will
constitute a default) under, any contract or other instrument to which either
Parent or Purchaser is a party or by which either Parent or Purchaser or any of
their assets are bound, except for any such violation, conflict, breach, event
of default, acceleration, modification, cancellation or termination which,
individually or in the aggregate, would not have a material adverse effect on
the business, financial condition or results of operations of either Parent or
Purchaser; (iii) violate or conflict with any law, rule, regulation, judgment,
order, writ, injunction or decree of any court or any governmental body or
agency thereof of any jurisdiction to which either Parent or Purchaser is
subject; or (iv) require any filing with, or license, permit, order, franchise,
approval, consent or other authorization of, any governmental body or agency
thereof.
4.4 BROKERS AND FINDERS. No broker, finder or investment banker has
been retained by Purchaser or is entitled to any brokerage, finder's or other
fee or commission in connection with the transactions contemplated by this
Agreement.
ARTICLE V
COVENANTS
5.1 CONDUCT PENDING CLOSING. Seller hereby makes the following
covenants and agreements with Purchaser:
(a) AFFIRMATIVE COVENANTS. Between the date hereof and the
Closing Date, unless otherwise consented to in writing by Purchaser, Seller
shall:
(i) use its best efforts to preserve the Assets;
(ii) remain in material compliance with all permits,
laws, rules and regulations, consent orders, and all other orders of
applicable courts, regulatory agencies and similar governmental
authorities applicable to the Assets and the Licensed Patents;
(iii) promptly advise Purchaser in writing of the
commencement or, if known to Seller, threat of any suit, proceeding or
investigation which could have a material adverse effect on the Assets
and the Licensed Patents, whether or not covered by insurance;
(iv) promptly advise Purchaser in writing of the
existence or occurrence of (i) any condition or event which could have
a material adverse effect on the Assets and the Licensed Patents and
(ii) any event, condition or state of facts which will or is
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reasonably likely to result in the failure to satisfy any of the
conditions specified in Article VI hereof; and
(v) maintain the policies of insurance on the Assets in
effect as of the date hereof in full force and effect without reduction
in coverage.
(b) NEGATIVE COVENANTS. Between the date hereof and the Closing
Date, unless otherwise consented to in writing by Purchaser, Seller shall not:
(i) make any change in the Articles of Incorporation or
By-Laws, or other constituent documents, of Seller;
(ii) enter into any contract or commitment, or series of
related contracts or commitments, in respect of the Assets, except with
the prior written consent of Purchaser;
(iii) subject to Section 5.1(b)(vii) hereof, create or
permit to become effective any Encumbrances on the Assets and the
Licensed Patents;
(iv) sell, assign, lease or otherwise transfer or dispose
of any of the Assets, abandon any of the Licensed Patents, grant any
exclusive license with respect to or, subject to Section 5.1(b)(vii)
hereof, sell, assign, or otherwise transfer or dispose of any of the
Licensed Patents;
(v) commit a material breach of or amend any agreement,
permit, license or other right of Seller in respect of the Assets;
(vi) enter into any other transaction in respect of the
Assets outside the ordinary course of business or prohibited hereunder;
or
(vii) enter into any agreement or commitment to do any of
the foregoing, provided, however, that Seller shall not be prohibited
from (1) entering into an agreement or agreements for the sale of all
or substantially all of the Licensed Patents, so long as the purchaser
acknowledges that such sale will be subject to the rights of Purchaser
and its affiliates under the License Agreement or the Cross-License
Agreement referred to in Section 8.2 hereof, as the case may be, (2)
entering into a security agreement in which all or substantially all of
the Licensed Patents are used as collateral, so long as the lender
acknowledges that such security interest will be subject to the rights
of Purchaser and its affiliates under the License Agreement or the
Cross-License Agreement referred to in Section 8.2 hereof, as the case
may be or (3) entering into a non-exclusive license with respect to any
of the Licensed Patents.
5.2 PROXY STATEMENT.
(a) Subject to Section 5.2(b) hereof, Seller, acting through its
Board of Directors, shall:
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(i) duly call, give notice of, convene and hold a special
meeting of its shareholders (the "Special Meeting") as soon as
practicable following the date hereof for the purpose of considering
and taking action upon this Agreement;
(ii) prepare and file with the SEC a preliminary proxy
relating to this Agreement no later than August 20, 1999 and obtain and
furnish the information required to be included by the SEC in the Proxy
Statement and, after consultation with Purchaser, use its best efforts
to respond promptly to any comments made by the SEC with respect to the
preliminary proxy and cause a definitive proxy (as amended or
supplemented, the "Proxy Statement") to be mailed to its shareholders;
(iii) include in the Proxy Statement the written opinion
of Seller's financial advisor that the consideration to be received by
Seller hereby is fair from a financial point of view; and
(iv) use its reasonable best efforts to obtain the
approval of this Agreement and the transactions contemplated hereby by
(A) the holders of the requisite number of issued and outstanding
shares of capital stock of Seller, and (B) the holders (the "Senior
Note Holders") of a majority of the issued and outstanding 7 1/2%
Senior Convertible Notes of Seller due April 14, 2004 (the "Senior
Notes").
(b) The Board of Directors of Seller shall recommend approval
and adoption of this Agreement and the transactions contemplated hereby by
Seller's shareholders and the Senior Note Holders. The Board of Directors of
Seller shall not be permitted to withdraw, amend or modify in a manner adverse
to Purchaser such recommendation (or announce publicly its intention to do so),
except that prior to the Special Meeting, the Board of Directors of Seller shall
be permitted to withdraw, amend or modify its recommendation (or announce
publicly its intention to do so) but only if the Board of Directors of Seller
shall have determined in its good faith judgment, based upon the advice of
outside counsel, that it is obligated by its fiduciary obligations under
applicable law to withdraw, amend or modify such recommendation. If the Special
Meeting is being held, the recommendation of the Board of Directors of Seller
shall be included in the Proxy Statement. Nothing contained in this Section
5.2(b) shall prohibit Seller from making any disclosure to Seller's shareholders
or the Senior Note Holders if, in the good faith judgment of the Board of
Directors of Seller, upon the advice of counsel, failure to make such disclosure
would be inconsistent with applicable laws.
(c) Each of Parent and Purchaser agrees that it will provide
Seller with the information concerning it required to be included in the Proxy
Statement and will vote, or cause to be voted, all of the shares of Seller
Common Stock then owned by it, directly or indirectly, or over which it has the
power to vote, in favor of approval of this Agreement and the transactions
contemplated hereby. Parent and Purchaser shall have the right to review in
advance all characterizations and information related to them, this Agreement
and the transactions contemplated hereby which appear in the Proxy Statement.
(d) Each of Parent, Purchaser and Seller agrees promptly to
correct any information provided by it for use in the Proxy Statement as and to
the extent it shall have become false or misleading in any material respect and
to supplement the information provided by it
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specifically for use in the Proxy Statement to include any information that
shall have become necessary, in order to make statements contained therein, in
light of the circumstances in which they were made, not misleading, and Seller
further agrees to take all steps necessary to cause the Proxy Statement, as so
corrected or supplemented, to be filed with the SEC and to be disseminated to
its shareholders and the Senior Note Holders, in each case as and to the extent
required by applicable federal securities laws.
5.3 ACCESS TO INFORMATION. From the date hereof until the Closing Date,
Seller and its representatives shall cooperate fully in all reasonable respects
with Purchaser in its investigation of the Assets. Without limiting the
foregoing, such persons shall allow the employees, attorneys, accountants and
other representatives of Purchaser to meet with the management of Seller and its
representatives at reasonable times, to have free and full access at reasonable
times to the premises, properties, books and records (including the right to
make extracts therefrom or copies thereof) of Seller in respect of the Assets,
and shall furnish to Purchaser or its authorized representatives such additional
information pertaining to the Assets as, in the reasonable discretion of
Purchaser, are required for Purchaser to conduct such investigation.
5.4 NOTICE AND CURE. Seller will notify Purchaser of, and will use all
commercially reasonable efforts to cure before the Closing, any event,
transaction or circumstance, as soon as practicable after it becomes known to
Seller, that causes or will cause any covenant or agreement of Seller under this
Agreement to be breached or that renders or will render untrue any
representation or warranty of Seller contained in this Agreement. Seller shall
also notify Purchaser in writing of, and will use all commercially reasonable
efforts to cure, before the Closing, any violation or breach, as soon as
practicable after it becomes known to Seller, of any representation, warranty,
covenant or agreement made by Seller in this Agreement. No notice given pursuant
to this Section 5.4 shall have any effect on the representations, warranties,
covenants or agreements contained in this Agreement for purposes of determining
satisfaction of any condition contained herein.
5.5 BEST EFFORTS. Subject to the terms and conditions of this
Agreement, each of the parties agrees that it shall use its commercially
reasonable best efforts to take, or cause to be taken, all actions, and to do,
or cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement, including, but not limited to, (i) obtaining all
consents from governmental authorities and other third parties required for the
consummation of the transactions contemplated hereby, (ii) timely making all
necessary filings under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), if any, and (iii) having vacated, dismissed or
withdrawn any order, stay, decree, judgment or injunction of any governmental
authority which temporarily, preliminarily or permanently prohibits or prevents
the transactions contemplated by this Agreement; provided, however, that Parent,
Purchaser and Seller hereby agree that commercially reasonable best efforts
shall not include making any payment to, or otherwise satisfying any claims of,
the Senior Note Holders in order to obtain their approval of the consummation of
the transactions contemplated by this Agreement. Upon the terms and subject to
the conditions hereof, each of the parties agrees to use its commercially
reasonable best efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary to satisfy the other conditions of the
Closing set forth herein.
ARTICLE VI
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CONDITIONS TO THE OBLIGATIONS OF PARENT AND PURCHASER
The obligations of Parent and Purchaser to consummate the transactions
contemplated hereunder shall be subject to the satisfaction of each of the
following conditions at or prior to the Closing, unless waived by Parent and
Purchaser in writing:
6.1 REPRESENTATIONS AND WARRANTIES TRUE. All of the representations and
warranties of Seller contained in this Agreement (including, without limitation,
the Schedules hereto) shall be true and correct in all material respects on the
Closing Date as though such representations and warranties were made on such
date and Seller shall have delivered the certificate to that effect which is
described in Section 2.3(a)(ix) above.
6.2 PERFORMANCE. Seller shall have performed and complied in all
material respects with all covenants and obligations under this Agreement which
are required to be performed or complied with by Seller on or prior to the
Closing Date and Seller shall have delivered the certificate to that effect
which is described in Section 2.3(a)(ix) above.
6.3 APPROVALS, PERMITS, CONSENTS. All material consents,
authorizations, approvals, exemptions, licenses or permits of, or material
registrations, qualifications, declarations or filings with, any governmental
body or agency thereof that are required in connection with the sale and
transfer of the Assets to Purchaser pursuant to this Agreement and the
consummation of the transactions contemplated hereby shall have been duly
obtained or made in form and substance reasonably satisfactory to Purchaser and
its counsel and shall be effective at and as of the Closing Date and, if
applicable, the specified waiting periods under the HSR Act shall have expired
without the receipt of any objections from the appropriate governmental agency.
Seller shall have delivered to Purchaser duly executed written consents of third
parties to the sale of Assets to Purchaser required pursuant to any agreement to
which Seller is a party or by which it is bound.
6.4 SHAREHOLDER AND SENIOR NOTE HOLDER APPROVAL. This Agreement and the
transactions contemplated hereby shall have been duly approved by the
shareholders of Seller in accordance with the MBCA and the Articles of
Incorporation and By-Laws of Seller and by the Senior Note Holders in accordance
with the Indenture.
6.5 DELIVERY OF CLOSING DOCUMENTS. Seller shall have delivered to
Purchaser the documents referred to in Section 2.3(a) hereof, in form and
substance reasonably satisfactory to Purchaser and its counsel.
6.6 ABSENCE OF CERTAIN EVENTS. No statute, rule or regulation shall
have been enacted or promulgated which would make any of the transactions
contemplated by this Agreement illegal or would otherwise prevent the
consummation thereof. No order, decree, writ or injunction shall have been
issued and shall remain in effect by any court or governmental body or agency
thereof which restrains, enjoins or otherwise prohibits the consummation of the
transactions contemplated hereby, and no action, suit or proceeding before any
court or governmental body or agency thereof shall be pending or, to the
knowledge of Seller, threatened by any person (or instituted or threatened by
any governmental body or agency thereof), and no investigation by any
governmental body or agency thereof shall be pending or, to the knowledge of
Seller, threatened with respect to the transactions contemplated hereby.
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ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF SELLER
The obligations of Seller to consummate the transactions contemplated
hereunder shall be subject to the satisfaction of each of the following
conditions on or prior to the Closing, unless waived by Seller in writing:
7.1 REPRESENTATIONS AND WARRANTIES TRUE. All of the representations and
warranties of Parent and Purchaser contained in this Agreement (including,
without limitation, the Schedules hereto) shall be true and correct in all
material respects on the Closing Date as though such representations and
warranties were made on such date and Purchaser shall have delivered the
certificates to that effect which are described in Section 2.3(b)(v) above.
7.2 PERFORMANCE. Parent and Purchaser shall have performed and complied
in all material respects with all covenants and obligations under this Agreement
which are required to be performed or complied with by them on or prior to the
Closing Date and Purchaser shall have delivered the certificates to that effect
which are described in Section 2.3(b)(v) above.
7.3 APPROVALS, PERMITS, CONSENTS. All material consents,
authorizations, approvals, exemptions, licenses or permits of, or material
registrations, qualifications, declarations or filings with, any governmental
body or agency thereof that are required in connection with the sale and
transfer of the Assets to Purchaser pursuant to this Agreement and the
consummation of the transactions contemplated hereby shall have been duly
obtained or made in form and substance reasonably satisfactory to Seller and its
counsel and shall be effective at and as of the Closing Date and, if applicable,
the specified waiting periods under the HSR Act shall have expired without the
receipt of any objections from the appropriate governmental agency.
7.4 SHAREHOLDER AND SENIOR NOTE HOLDER APPROVAL. This Agreement and the
transactions contemplated hereby shall have been duly approved by the
shareholders of Seller in accordance with the MBCA and the Articles of
Incorporation and By-Laws of Seller and by the Senior Note Holders in accordance
with the Indenture.
7.5 DELIVERY OF CLOSING DOCUMENTS. Seller shall have received the
documents referred to in Section 2.3(b) hereof in form and substance reasonably
satisfactory to Seller and its counsel.
7.6 ABSENCE OF CERTAIN EVENTS. No statute, rule or regulation shall
have been enacted or promulgated which would make any of the transactions
contemplated by this Agreement illegal or would otherwise prevent the
consummation thereof. No order, decree, writ or injunction shall have been
issued and shall remain in effect, by any court or governmental body or agency
thereof which restrains, enjoins or otherwise prohibits the consummation of the
transactions contemplated hereby, and no action, suit or proceeding before any
court or governmental body or agency thereof shall be pending or, to the
knowledge of Seller, threatened by any person (or instituted or threatened by
any governmental body or agency thereof), and no investigation by any
governmental body or agency thereof shall be pending or, to the knowledge of
Seller, threatened with respect to the transactions contemplated hereby.
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ARTICLE VIII
TERMINATION
8.1 TERMINATION. This Agreement may be terminated at any time prior to
the Closing Date:
(a) by the mutual written consent of Parent, Purchaser and
Seller;
(b) by any of Parent, Purchaser or Seller:
(i) if any statute, rule or regulation has been enacted
which would make any of the transactions contemplated by this Agreement
illegal or would otherwise prevent the consummation thereof or if any
court or governmental body or agency thereof shall have issued any writ
or injunction, or taken any other action, restraining, enjoining or
otherwise prohibiting the transactions contemplated hereby and all
appeals and means of appeal therefrom have been exhausted;
(ii) if the Closing shall not have occurred on or prior
to December 31, 1999; provided, however, that the right to terminate
this Agreement pursuant to this Section 8.1(b)(ii) shall not be
available to any party whose breach of any representation or warranty
or failure to perform or comply with any covenant or obligation under
this Agreement has been the cause of, or resulted in, the failure of
the Closing to occur on or before such date;
(c) by Parent or Purchaser, if this Agreement and the
transactions contemplated hereunder shall not have been duly approved by the
shareholders of Seller at the Special Meeting or by the Senior Note Holders at
the time of the Special Meeting;
(d) by Parent or Purchaser, if any of the conditions specified
in Article VI shall not have been met or waived prior to such time as such
condition can no longer be satisfied;
(e) by Seller, if the Board of Directors of Seller determines in
good faith, based upon the advice of outside counsel, that it is obligated by
its fiduciary obligations under applicable law to terminate this Agreement; or
(f) by Seller, if any of the conditions specified in Article VII
shall not have been met or waived prior to such time as such condition can no
longer be satisfied.
8.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement by any party as provided in Section 8.1 hereof, this Agreement shall
forthwith become null and void and there shall be no liability or obligation on
the part of any party hereto or their respective officers or directors, except
for the provisions of Article XI, which shall remain in full force and effect,
and except that nothing herein shall relieve any party hereto from liability for
a breach of this Agreement prior to the termination hereof. Notwithstanding the
foregoing, in the event that this Agreement is terminated by Parent or Purchaser
pursuant to Section 8.1(c) or (d) or by Seller pursuant to Section 8.1 (e) or
(f), Seller and Purchaser hereby agree to forthwith enter into a Cross-License
Agreement in the form attached hereto as Exhibit H.
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ARTICLE IX
POST-CLOSING COVENANTS
9.1 ACCESS AFTER CLOSING. (a) Each of Purchaser and Seller agree to
retain all accounting, business, financial and tax records in its possession
relating to the Assets for a period of three years from the Closing Date,
provided that, after such date, each party shall make reasonable arrangements
for the other party's continued access to any such records which it does not
otherwise destroy under its normal document retention policies. Prior to any
liquidation, Seller shall take all steps reasonably necessary to provide
Purchaser with continued access to such records following such liquidation. In
addition, from and after the Closing Date, Purchaser and Seller agree that,
subject to receiving appropriate assurances of confidentiality and restrictions
on use, each will not unreasonably withhold access by the other party and its
attorneys, accountants and other representatives (after reasonable notice and at
times to be mutually agreed, provided that such access does not disrupt the
normal operations of the other party), to such personnel, books, records and
documents relating to the Assets as the other party may reasonably deem
necessary to properly prepare for, file, prove, answer, prosecute and/or defend
any financial statements, tax return, filing, audit, judicial or administrative
proceeding, protest, claim, suit, inquiry or other proceeding relating to the
Assets.
(b) The party requesting assistance hereunder shall pay to the
party whose assistance is requested the reasonable costs of the party providing
such assistance.
9.2 FURTHER ASSURANCES. Seller shall, at any time and from time to time
after the Closing, upon the request and at the expense of Purchaser but without
further consideration, do, execute, acknowledge, deliver and file, or shall
cause to be done, executed, acknowledged, delivered and filed, all such further
acts, deeds, transfers, conveyances, assignments or assurances as may be
reasonably requested by Purchaser to transfer, convey and assign the Assets to
Purchaser's possession and use and to comply with all applicable legal
requirements, including, without limitation, making any required governmental
filings, in connection with the purchase of the Assets by Purchaser. Without
limiting the foregoing, upon the request and at the expense of Purchaser, at any
time during the period commencing on the Closing Date and ending on the third
anniversary of the Closing Date, Seller shall take all steps necessary to assign
all licenses, permits, exemptions, consents, authorizations or approvals in
respect of the Assets to Purchaser in cases where such assignment is permitted
and to reasonably cooperate with and assist Purchaser in connection with the
issuance of new licenses, permits, exemptions, consents, authorizations and
approvals in cases where such assignment is not permitted.
9.3 SUPPLY AGREEMENTS. In the event that Purchaser or any of its
affiliates enters into a supply agreement for the Flat Capacitor with Barker
Microfarads, Inc., Seller shall have the right to purchase Flat Capacitors from
Purchaser for use in the Model 2030 ICD on a cost plus basis.
ARTICLE X
INDEMNIFICATION; SURVIVAL OF REPRESENTATIONS AND WARRANTIES
10.1 INDEMNITY OBLIGATIONS OF SELLER. (a) Seller hereby agrees to
indemnify and hold Purchaser and each of its stockholders, officers, directors,
affiliates, employees and agents (each, a "Purchaser Indemnitee") harmless from,
and to reimburse any Purchaser Indemnitee for, on an
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after-tax basis, any Purchaser Indemnity Claims (as hereinafter defined) arising
under this Agreement. For purposes of this Agreement, the term "Purchaser
Indemnity Claim" shall mean any loss, damage, deficiency, diminution in value,
claim, liability, obligation, suit, proceeding, action, demand, fee, cost, fine,
levy, penalty, surcharge or expense of any nature whatsoever including, without
limitation, reasonable out-of-pocket expenses, reasonable investigation costs
and reasonable fees and disbursements of counsel (collectively, "Damages")
suffered or incurred by a Purchaser Indemnitee (subject to Section 10.4) arising
out of, based upon or resulting from (i) the Excluded Liabilities or Seller's
failure to pay and discharge in full, or to cause to be paid and discharged in
full, all Excluded Liabilities in a full and timely manner from and after the
Closing Date; (ii) any breach of any representation and warranty of Seller which
is contained in this Agreement or any Schedule hereto or (iii) any breach or
nonfulfillment of, or any failure to perform, any of the covenants, agreements
or undertakings of Seller contained in or made pursuant to this Agreement.
(b) The indemnification obligations of Seller under this Article
X shall apply with respect to, without limitation, Damages arising out of any
and all actions, claims, suits, proceedings, demands, assessments, judgments,
recoveries, damages, costs and expenses or deficiencies incident to the disposal
of any Purchaser Indemnity Claim under this Section 10.1, together with any
interest, penalties, costs and expenses of any Purchaser Indemnitee (including,
without limitation, reasonable out-of-pocket expenses, reasonable investigation
expenses and reasonable fees and disbursements of accountants and counsel)
arising out of or related to any such Purchaser Indemnity Claims.
(c) Seller shall be liable to a Purchaser Indemnitee for any
Damages (i) only if the aggregate amount of all Damages exceeds $100,000 (the
"Basket Amount"), in which case Seller shall be obligated to indemnify the
Purchaser Indemnitee for the aggregate amount of all such Damages including the
Basket Amount, and (ii) in an amount not to exceed the Purchase Price (the "Cap
Amount"); provided, however, that the foregoing restriction shall not apply to
any claim based on (a) the untruth or inaccuracy of any representation or
warranty of Seller contained in Sections 3.1, 3.2 and 3.5 hereof, or (b) the
untruth or inaccuracy of any other representation or warranty made herein or in
any statement, certificate or schedule furnished hereunder with an intent to
deceive or defraud or with reckless disregard for the truth or accuracy thereof.
10.2 INDEMNITY OBLIGATIONS OF PARENT AND PURCHASER. (a) Parent and
Purchaser jointly and severally agree to indemnify and hold Seller and each of
its stockholders, officers, directors, affiliates, employees and agents (each, a
"Seller Indemnitee") harmless from, and to reimburse any Seller Indemnitee for,
on an after-tax basis, any Seller Indemnity Claims (as hereinafter defined)
arising under this Agreement. For purposes of this Agreement, the term "Seller
Indemnity Claim" shall mean any Damages suffered or incurred by Seller (subject
to Section 10.4) arising out of, based upon or resulting from (i) the Assumed
Liabilities; (ii) any breach of any representation and warranty of Purchaser
which is contained in this Agreement or any Schedule hereto; or (iii) any breach
or nonfulfillment of, or any failure to perform, any of the covenants,
agreements or undertakings of Purchaser contained in or made pursuant to the
terms and conditions of this Agreement.
(b) The indemnification obligations of Purchaser shall apply
with respect to, without limitation, Damages arising out of any and all actions,
claims, suits, proceedings, demands, assessments, judgments, recoveries,
damages, costs and expenses or deficiencies incident to the
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disposal of any such Seller Indemnity Claim under this Section 10.2, together
with any interest, penalties, costs and expenses of any Seller Indemnitee
(including, without limitation, reasonable out-of-pocket expenses, reasonable
investigation expenses and reasonable fees and disbursements of accountants and
counsel) arising out of or related to any such Seller Indemnity Claims.
10.3 INDEMNIFICATION PROCEDURES. If a party seeks indemnification
hereunder for a matter that involves a claim by a third party, the party seeking
indemnification (an "Indemnitee") shall promptly notify the indemnifying party
(the "Indemnitor") of and shall provide reasonable information and details
concerning the nature of such claim. Indemnitor shall, to the extent applicable,
have the right to assume the defense at its expense of all third party claims
and shall pay all costs and damages finally awarded against the Indemnitor and
the Indemnitee in conjunction with such third party claims, provided that (i)
the Indemnitee provides prompt written notice to the Indemnitor of its receipt
of service of any such claim; (ii) the Indemnitor controls the defense of the
third party claim on behalf of all Parties; (iii) the Indemnitee consents to
representation in such claims by counsel selected by and representing the
Indemnitor; provided, however, that if outside counsel to the Indemnitee
reasonably advises the Indemnitee and the Indemnitor in a written opinion that
such joint representation raises a potential conflict of interest as between the
Indemnitee and the Indemnitor (other than a conflict concerning the right to
indemnification under this Agreement), then the Indemnitee shall have the right
to retain separate counsel to represent its interests in such third party claim
and the reasonable costs, fees and expenses thereof shall be borne equally by
the Indemnitee and the Indemnitor; and (iv) upon request of the Indemnitor, the
Indemnitee uses its best efforts to cooperate with the Indemnitor in defending
such third party claim by providing the Indemnitor with all necessary business
information and relevant documents under its control related to the third party
claim and cooperating with such other reasonable requests of the Indemnitor at
the Indemnitor's expense in accordance with Applicable Law. The Parties'
indemnity obligations under this Article X shall not apply to amounts paid in
settlement of any loss, claim, liability or action if such settlement is
effected without the consent of the Indemnitor, which consent shall not be
unreasonably withheld. The Indemnitee's failure to deliver notice to the
Indemnitor within a reasonable time after the commencement of any such action,
if materially prejudicial to the Indemnitor's ability to defend such action,
shall relieve the Indemnitor of any liability to the Indemnitee under this
Article X, but not any liability that it may have to the Indemnitee otherwise
than under this Article X.
10.4 DURATION. (a) Notwithstanding anything to the contrary in this
Agreement, all representations, warranties, covenants, undertakings and
agreements of the parties contained in or made pursuant to this Agreement, and
the rights of the parties to seek indemnification with respect thereto, shall
survive the Closing; provided, however, that, except in respect of any claims
for indemnification as to which written notice shall have been duly given to the
Indemnifying Party prior to the Indemnity Termination Date in accordance with
the terms of this Agreement, and subject to the remaining provisions of this
Section 10.4, such representations, warranties, covenants, undertakings and
agreements, and the rights of the parties to seek indemnification with respect
thereto, shall expire on the date which is eighteen (18) months after the date
hereof (the "Indemnity Termination Date").
(b) Any claim for indemnification under this Article X which is
made in good faith and in writing prior to the expiration of such claim on the
Indemnity Termination Date shall survive such expiration until mutually resolved
or otherwise determined hereunder, as applicable,
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and the Indemnity Termination Date for all purposes hereunder shall
automatically be extended with respect to such claim until such claim is so
mutually resolved or otherwise determined hereunder. Any such claim not so made
in writing prior to the expiration of such claim on the Indemnity Termination
Date shall be deemed to have been waived.
ARTICLE XI
MISCELLANEOUS PROVISIONS
11.1 EXPORT CONTROLS. (a) It is understood and acknowledged that each
party is subject to regulation by governmental authorities, including the U.S.
Department of Commerce, which prohibit export or diversion of certain products
and technology to certain countries. Any and all obligations of the parties
under this Agreement shall be subject in all respects to such laws and
regulations as shall from time to time govern the export of technology and
products abroad by persons subject to the jurisdiction of such governmental
authorities, including the U.S. Export Administration Act of 1979, as amended,
any successor legislation, and the U.S. Export Administration Regulations
("EAR") issued by the U.S. Department of Commerce, International Trade
Administration, Bureau of Export Administration ("BXA"). Each party warrants
that it will comply in all material respects with all export and re-export
restrictions applicable to the Assets shipped to Purchaser hereunder.
(b) Without limiting the foregoing, Purchaser agrees that it
shall not knowingly export, re-export or transship, directly or indirectly, to
countries identified in Part 746 of the EAR which are subject to comprehensive
BXA controls (currently consisting of: Cuba, Iraq, Iran, Libya and North Korea)
any of the Assets provided to Purchaser hereunder.
11.2 FEES AND EXPENSES. Except as expressly set forth herein, each
party shall be solely responsible for the payment of 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.
11.3 SEVERABILITY. If any provision of this Agreement is held by a
court of competent jurisdiction or panel of arbitrators (including pursuant to
enforcement of an arbitration award under this Agreement) to be invalid,
unlawful or unenforceable, it shall be modified, if possible, to the minimum
extent necessary to make it valid, lawful and enforceable or, if such
modification is not possible, it shall be stricken from this Agreement, and the
remaining provisions of this Agreement shall continue in full force and effect;
provided, however, that if a provision is so stricken and is of a nature so as
to fundamentally alter the economic arrangements of this Agreement, the party
adversely affected may terminate this Agreement by giving to the other parties
hereto sixty (60) days written notice of termination.
11.4 ENTIRE AGREEMENT; AMENDMENTS. This Agreement, and the Exhibits and
Schedules hereto, contain the entire understanding of the parties with respect
to the matters referred to hereby and, except as specifically set forth herein,
neither Purchaser nor Seller makes any representation, warranty, covenant or
undertaking with respect to such matters. No provision of this Agreement may be
amended or supplemented other than by a written instrument signed by the party
against whom enforcement of any such amendment or supplement is sought.
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11.5 NOTICES. Any notice or other communication required or permitted
to be given herein shall be in writing and shall be effective (i) upon hand
delivery or delivery by telecopy or 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) or (ii) on the third business day following
the date of mailing by express courier service, fully prepaid, addressed to such
address, or upon actual receipt of such mailing, whichever shall first occur.
The addresses for such communications shall be:
(a) if to Seller at:
Angeion Corporation
7601 Northland Drive
Brooklyn Park, MN 55428-1088
Attention: Chief Executive Officer
Facsimile: (612) 315-2059
With copies to:
Faegre & Benson LLP
2200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402-3901
Attention: Steven C. Kennedy, Esq.
Facsimile: (612) 336-3026
(b) if to Purchaser to:
ELA Medical
Centre d'Affaires la Boursidiere
92357 Le Plessis Robinson
Cedex, France
Attention: President
Facsimile: 33-1-46-01-33-15
Sanofi-Synthelabo
22 avenue Galilee
B.P. 82
92355 Le Plessis Robinson
Cedex, France
Attention: General Counsel
Facsimile: 33-1-45-37-58-04
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with copies to:
Coudert Brothers
1114 Avenue of the Americas
New York, New York 10036
Facsimile: (212) 626-4120
Attention: David A. Boillot, Esq.
Any party hereto may from time to time change its address for notices
under this Section 11.5 by giving at least ten (10) days' written notice of such
changed address to the other parties hereto. All such notices and communications
hereunder shall be deemed given when received, as evidenced by the signed
acknowledgment of receipt of the person to whom such notice or communication
shall have been personally delivered, confirmed answer back or other evidence of
transmission or the acknowledgment of receipt returned to the sender by the
applicable postal authorities. Receipt of notices sent by facsimile shall be
confirmed by telephone.
11.6 SUCCESSORS AND ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and assigns.
Neither this Agreement nor any interest hereunder shall be assigned or
transferred, whether directly or indirectly, including by operation of law
("Assign" or "Assignment"), by any party without the prior express written
consent of the other parties (which consent may be withheld for any reason in
the sole discretion of the party from whom consent is sought), and any such
attempt at Assignment shall be null and void. The assignment by a party of this
Agreement or any rights hereunder shall not affect the obligations of such party
under this Agreement. Notwithstanding the foregoing, any party may Assign this
Agreement to an affiliate of such party so long as any assignment is made to an
affiliate that is directly or indirectly 100% owned by, or under 100% common
control with, that party. Any permitted Assignment made pursuant to this Section
shall be valid only if (i) the assigning party remains liable under this
Agreement, and (ii) the relevant affiliate or other entity assumes in writing
all of the assigning party's obligations under this Agreement.
11.7 NO THIRD PARTY BENEFICIARIES. Neither this Agreement or any
provision hereof nor any Schedule, certificate or other instrument delivered
pursuant hereto, nor any agreement to be entered into pursuant hereto or any
provision hereof, is intended to create any right, claim or remedy in favor of
any person or entity, other than the parties hereto and their respective
successors and permitted assigns.
11.8 NO WAIVER. 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 of this Agreement, or a waiver of any other
provision, condition or request of this Agreement, nor shall any delay or
omission of any party to exercise any right hereunder in any manner impair the
exercise of any such right accruing to it thereafter.
11.9 PUBLICITY. Each party agrees, and shall cause its affiliates, not
to issue any press release disclosing the terms of, or relating to, this
Agreement, without the prior written consent of the other parties; provided,
however, that neither party or its affiliates shall be prevented from complying
with any duty of disclosure it may have pursuant to applicable law. Such
disclosing party shall use its best efforts to consult with the other parties
regarding the issuance of any such
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press release, or with regard to any public statement disclosing the terms of
this Agreement and shall use its best efforts to obtain confidential treatment
for any confidential information where such press release or other public
statement is required to be made by applicable law.
11.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
11.11 HEADINGS. The article and section headings contained in this
Agreement are solely for convenience of reference, are not part of the agreement
of the parties and shall not be used in construing this Agreement or in any way
affect the meaning or interpretation of this Agreement.
11.12 ENGLISH LANGUAGE CONTROLS; ENTIRE AGREEMENT. The original and
controlling version of this Agreement shall be the version using the English
language. All translations of this Agreement into other languages shall be for
the convenience of the parties only, and shall not control the meaning or
application of this Agreement. All notices and other communications required or
permitted by this Agreement must be in English, and the interpretation and
application of such notices and other communications shall be based solely upon
the English language version thereof. This Agreement, and the Schedules,
certificates and other instruments and documents delivered pursuant hereto,
together with the other agreements referred to herein and to be entered into
pursuant hereto, embody the entire agreement of the parties hereto in respect
of, and there are no other agreements or understandings, written or oral, among
the parties relating to, the subject matter hereof. This Agreement supersedes
all prior agreements and understandings, written or oral, between the parties
with respect to the subject matter hereof. The invalidity, illegality or
unenforceability for any reason of any one or more provisions of this Agreement
shall not affect the validity, legality or enforceability of the remainder of
this Agreement.
11.13 GOVERNING LAW. This Agreement, and the respective rights, duties
and obligations of the parties hereunder, shall be governed by and construed and
enforced in accordance with the laws of the State of New York, without giving
effect to principles of conflicts of law thereunder.
11.14 RELATIONSHIP OF THE PARTIES. For all purposes of this Agreement,
Purchaser and Seller shall be deemed to be independent entities and, anything in
this Agreement to the contrary notwithstanding, nothing herein shall be deemed
to constitute Purchaser and Seller as partners, joint venturers, co-owners, an
association or any entity separate and apart from each party itself, nor shall
this Agreement constitute any party hereto an employee or agent, legal or
otherwise, of the other for any purposes whatsoever. Neither party hereto is
authorized to make any statements or representations on behalf of the other
party or in any way obligate the other party, except as expressly authorized in
writing by the other party. Anything in this Agreement to the contrary
notwithstanding, no party hereto shall assume nor shall be liable for any
liabilities or obligations of the other party, whether past, present or future.
11.15 SOVEREIGN IMMUNITY; EXCLUSIONS. (a) Each party hereto agrees
that, to the extent that it or any of its property is or becomes entitled at any
time to any immunity on the grounds of sovereignty or otherwise from any legal
action, suit or proceeding, from set off or counterclaim, from the jurisdiction
of any set off or counterclaim, from the jurisdiction of any competent court,
from service of process, from attachment prior to judgment, from attachment in
aid of execution,
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from execution prior to judgment or from any other legal process in any
jurisdiction, it, for itself and its property, expressly, irrevocably and
unconditionally waives, and agrees not to plead or claim any such immunity with
respect to its obligations, liabilities or any other matter under or arising out
of or in connection with this Agreement or the subject matter of this Agreement
(including without limitation any obligation for the payment of money). Each
party hereto is not subject to withdrawal in any jurisdiction or under any
statute, including, without limitation, the Foreign Sovereign Immunities Act, 28
U.S.C. ss.ss. 1602 et seq. The foregoing waiver shall constitute a present
waiver of immunity at any time any action is initiated against any party hereto
with respect to this Agreement.
(b) The parties hereby agree to exclude application of the
following instruments and documents: United Nations Convention on the
International Sale of Goods, UNCITRAL Arbitration Rules and 1990 International
Chamber of Commerce Incoterms.
11.16 CONSULTATION AND ARBITRATION
(a) Dispute Resolution: General Dispute Principles.
(i) All disputes among Parent, Purchaser and Seller
and/or any of their affiliates under this Agreement shall be settled,
if possible, through good faith negotiations between the relevant
parties. For purposes of this Section 11.16, Purchaser, Parent and
Seller shall be referred to individually as a "Party" and together as
the "Parties".
(ii) Prior to resolving any dispute by means of
arbitration or by means of any suit, action or legal proceeding
permitted under Section 11.16(b), the relevant parties involved in such
dispute shall refer such dispute to their respective chief executive
officer or equivalent, who shall meet in person to negotiate in good
faith the possible resolution thereof on at least two occasions within
30 days before any such party commences arbitration or such litigation
(provided that if any such party fails or refuses to have a
representative attend such meetings within such 30 day period, the
procedures of Section 11.16(b) shall be applicable after the conclusion
of such 30 day period); and further provided, that (i) any legal
proceedings seeking interim equitable relief (including a temporary
restraining order or preliminary injunction) until such time as such
interim equitable relief can be addressed through arbitration; (ii)
proceedings for provisional relief contemplated by Section 11.16(b)(ix)
below; and (iii) third party legal proceedings under Section
11.16(a)(iii) below may be commenced immediately.
(iii) If a Party or any of its affiliates is subject to a
claim, demand, action or proceeding by a third party and is permitted
by law or arbitral rules to join another party to such proceeding, this
Section 11.16 shall not prevent such joinder. This Section 11.16 shall
also not prevent either Party or any such affiliate from pursuing any
legal action against a third party.
(b) Arbitration of Other Disputes.
(i) In the event such good faith negotiations are
unsuccessful, either Party may, after 30 days written notice to the
other, submit any controversy or claim arising out of, relating to or
in connection with this Agreement, or the breach thereof, to
arbitration administered by the American Arbitration Association
("AAA") in accordance with its then
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existing International Arbitration rules, except that Sections
29 and 31 of the Commercial Arbitration Rules in effect on the
date hereof, a copy of which is attached hereto as Schedule
11.16(b), shall govern in the event of any conflict therewith
(collectively, the "AAA Rules") and judgment upon the award
rendered by the arbitrator may be entered in any court having
jurisdiction thereof.
(ii) To the extent this Section 11.16 is deemed a
separate agreement, independent from this Agreement, the remaining
provisions of Article XI shall be incorporated herein by reference.
Either party (the "Initiating Party") may commence an arbitration by
submitting a demand for arbitration ("Demand for Arbitration") under
the AAA Rules and by notice to the other Party (the "Respondent") in
accordance with Section 11.16. Such notice shall set forth in
reasonable detail the basic operative facts upon which the Initiating
Party seeks relief and specific reference to the clauses of this
Agreement, the amount claimed, if any, and any nonmonetary relief
sought against the Respondent. After the Demand for Arbitration,
response and counterclaim, if any, and reply to counterclaim, if any,
have been submitted, either Party may propose additional issues for
resolution in the pending proceedings only if expressly so ordered by
the arbitrators.
(iii) The place of arbitration shall be New York, New
York, and the award shall be deemed a U.S. award for purposes of the
Convention on the Recognition and Enforcement of Foreign Arbitral
Awards of 1958 (the "New York Convention").
(iv) The parties shall attempt, by agreement, to nominate
a sole arbitrator for confirmation by the AAA. If the Parties fail so
to nominate a sole arbitrator within 30 days from the date when the
Initiating Party's Demand for Arbitration has been communicated to the
Respondent, a board of three arbitrators shall be appointed by the
Parties jointly or, if the Parties cannot agree as to three arbitrators
within 30 days after the commencement of the arbitration proceeding,
then one arbitrator shall be appointed by each of the Initiating Party
and the Respondent within 60 days after the commencement of the
arbitration proceeding and the third arbitrator shall be appointed by
mutual agreement of such two arbitrators. If such two arbitrators shall
fail to agree within 75 days after commencement of the arbitration
proceeding upon the appointment of the third arbitrator, the third
arbitrator shall be appointed by the AAA in accordance with the AAA
Rules. Notwithstanding the foregoing, if either Party shall fail to
appoint an arbitrator within the specified time period, such arbitrator
and the third arbitrator shall be appointed by the AAA in accordance
with its then existing rules. For purposes of this Section, the
"commencement of the arbitration proceeding" shall be deemed to be the
date upon which the Demand for Arbitration has been delivered to the
Parties in accordance with Section 11.16. Any award shall be rendered
by a majority of the arbitrators. A hearing on the matter in dispute
shall commence within 90 days following selection of the arbitrators,
and the decision of the arbitrators shall be rendered no later than 90
days after commencement of such hearing.
(v) An award rendered in connection with an arbitration
pursuant to this Section shall be final and binding upon the Parties,
and the Parties agree and consent that the arbitral award shall be
conclusive proof of the validity of the determinations of the
arbitrators set forth in the award and any judgment upon such an award
may be entered and enforced in any court of competent jurisdiction.
-25-
<PAGE>
(vi) The Parties agree that the award of the arbitral
tribunal will be the sole and exclusive remedy between them regarding
any and all claims and counterclaims between them with respect to the
subject matter of the arbitrated dispute. The Parties hereby waive all
IN PERSONAM jurisdictional defenses in connection with any arbitration
hereunder or the enforcement of an order or award rendered pursuant
thereto (assuming that the terms and conditions of this arbitration
clause have been complied with).
(vii) The Parties hereby agree that for purposes of the
New York Convention, the relationship between the Parties is commercial
in nature, and that any disputes between the Parties related to this
Agreement shall be deemed commercial.
(viii) The arbitrators shall issue a written explanation
of the reasons for the award and a full statement of the facts as found
and the rules of law applied in reaching their decision to both
Parties. The arbitrators shall apportion to each Party all costs
(including attorneys' and witness fees, if any) incurred in conducting
the arbitration in accordance with what the arbitrators deem just and
equitable under the circumstances. Any provisional remedy which would
be available to a court of law shall be available from the arbitrators
pending arbitration of the dispute. Either Party may make an
application to the arbitrators seeking injunctive or other interim
relief, and the arbitrators may take whatever interim measures they
deem necessary in respect of the subject matter of the dispute,
including measures to maintain the status quo until such time as the
arbitration award is rendered or the controversy is otherwise resolved.
The arbitrator shall have the authority to award any remedy or relief
(except as ex parte relief) that a court of the State of New York could
order or grant, including, without limitation, specific performance of
any obligation created under this Agreement, the issuance of an
injunction, or the imposition of sanctions for abuse or frustration of
the arbitration process, but specifically excluding punitive damages.
(ix) The Parties may file an application in any proper
court for a provisional remedy in connection with an arbitrable
controversy, but only upon the ground that the award to which the
application may be entitled may be rendered ineffectual without
provisional relief. The Parties may also commence legal action in lieu
of any arbitration under this Section 11.16(b) in connection with any
third party litigation proceedings or for any matter involving disputes
related to Intellectual Property Rights.
(x) After the appointment of the arbitrators, the parties
to the arbitration shall have the right to take depositions, ask
interrogatories, obtain documentation and to obtain other discovery
regarding the subject matter of the arbitration, and, to that end to
use and exercise all the same rights, remedies and procedures, and be
subject to all of the same duties, liabilities and obligations in the
arbitration with respect to the subject matter thereof, as if the
subject matter of the arbitration were pending in a civil action before
a United States District Court for the Southern District of New York
and such persons, documents or other requested material were located in
State of New York. The parties shall reach agreement with the
arbitrator on a streamlined and expedited discovery program in order to
save costs and avoid unnecessary delay in completing any arbitration
and may present to the arbitrator for a ruling any reasons for limiting
such discovery in order to save costs and avoid delay.
-26-
<PAGE>
(xi) For purposes of any suit, action or legal proceeding
permitted under this Section 11.16, each Party (a) hereby irrevocably
submits itself to and consents to the non-exclusive jurisdiction of the
United States District Court for the Southern District of New York for
the purposes of any suit, action or legal proceeding in connection with
this Agreement including to enforce an arbitral resolution, settlement,
order or award made pursuant to this Agreement (including pursuant to
the New York Convention, the U.S. Arbitration Act, or otherwise), and
(b) to the extent permitted by applicable law, hereby waives, and
agrees not to assert, by way of motion, as a defense, or otherwise, in
any such suit, action or legal proceeding pending in such event, any
claim that it is not personally subject to the jurisdiction of such
court, that the suit, action or legal proceeding is brought in an
inconvenient forum or that the venue of the suit, action or legal
proceeding is improper. Each Party hereby agrees to the entry of an
order to enforce any resolution, settlement, order or award made
pursuant to this Section by the United States District Court for the
Southern District of New York and in connection therewith hereby
waives, and agrees not to assert by way of motion, as a defense, or
otherwise, any claim that such resolution, settlement, order or award
is inconsistent with or violative of the laws or public policy of the
laws of the State of New York or any other jurisdiction.
(xii) All claims arising under this Agreement brought by
the Parties and/or their affiliates at substantially the same time
shall be referred to a single arbitration to the extent arbitrable
under this Section 11.16.
-27-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
ANGEION CORPORATION
By: /S/ JAMES B. HICKEY, JR.
-----------------------------------------
Name: James B. Hickey, Jr.
Title: President and CEO
ELA MEDICAL
By: /S/ MICHAEL MOUNIER
-----------------------------------------
Name: Michael Mounier
Title: President and CEO
Medical Devices Division
SANOFI-SYNTHELABO
By: /S/ JEAN-PIERRE CHARLET
-----------------------------------------
Name: Jean-Pierre Charlet
Title: V.P. Deputy Director
Legal Affairs
-28-
Exhibit 10.2
SETTLEMENT, LICENSE AND ASSET PURCHASE AGREEMENT
This Settlement, License and Asset Purchase Agreement (the "Agreement")
is made this 16th day of September, 1999, by and between Medtronic, Inc., a
Minnesota corporation having its principal place of business at 7000 Central
Avenue N.E., Minneapolis, Minnesota 55432, and its predecessors, successors,
affiliates, assigns, parents, subsidiaries and related corporations and entities
(hereinafter collectively defined as "Medtronic"); and Angeion Corporation, a
Minnesota corporation having its principal place of business at 7601 Northland
Drive, Brooklyn Park, Minnesota 55428-1088, and its predecessors, successors,
affiliates, assigns, parents, subsidiaries and related corporations and entities
(hereinafter collectively defined as "Angeion").
RECITALS
A. Angeion contends that various models of Cardiac Stimulation Devices
that Medtronic has made, used, or sold since 1995, and continues to make, use or
sell, infringe one or more of Angeion's patents relating to Cardiac Stimulation
Devices.
B. Medtronic contends that, as a result of a 1992 license agreement
between Medtronic and Siemens and a 1993 license agreement between Angeion and
Siemens-Pacesetter, Medtronic has a license to certain Angeion patents.
Medtronic further contends that its Cardiac Stimulation Devices do not infringe
Angeion's patents and that such patents are invalid and unenforceable. Angeion
disputes these contentions.
C. The parties desire to settle their disputes upon the terms and
conditions set forth herein, subject to the approval of Angeion's shareholders
and Senior Note Holders.
D. As part of the settlement, Medtronic desires to purchase certain
Unfiled Disclosures related to Cardiac Stimulation Devices from Angeion, and
Angeion is willing to sell such Unfiled Disclosures to Medtronic, subject to the
approval of Angeion's shareholders and Senior Note Holders.
The parties agree as follows:
<PAGE>
Section 1. Definitions. For purposes of this Agreement, the
following terms shall have the meaning specified below.
Section 1.01. Cardiac Stimulation Devices. "Cardiac
Stimulation Devices" means devices for electrically monitoring, stimulating or
shocking the heart.
Section 1.02. Effective Date. "Effective Date" means
September 16, 1999. This Agreement shall be effective as of the Effective Date
only upon receipt of the one-time payment provided for in Section 3 below and
only upon approval of this Agreement by Angeion's shareholders and Senior Note
Holders.
Section 1.03. Licensed Patents. "Licensed Patents"
means the patents and patents issuing from patent applications relating to
Cardiac Stimulation Devices that are owned by Angeion and listed on Exhibit 1
hereto and any patents which may be:
a. issued in any country after the Effective Date, and which patent is
a counterpart of a patent or patent application listed on Exhibit 1,
regardless of whether such patent matures from a provisional,
continuation, continuation-in-part, and divisional application,
reissue, or reexamination of such patent or patent application listed
on Exhibit 1, and regardless of whether such patent matures from a
convention or non-convention case, or any other substitution, renewal,
extension, addition, utility model, or other patent, foreign or U.S.;
or
b. issued in any country after the Effective Date from, or claiming the
benefit of (in whole or in part), patent applications listed on Exhibit
1, including all patents maturing from provisionals, continuations,
continuations-in-part, and divisional applications or reissues or
reexaminations of such patents or patent applications listed on Exhibit
1, and further including all patents which are counterparts of the
patents described in this subparagraph (b), regardless of whether such
patent matures from a convention or non-convention case, or any other
substitution, renewal, extension, addition, utility model, or other
patent, foreign or U.S.
2
<PAGE>
Licensed Patents shall not include the patents and patents issuing from patent
applications that are owned by Angeion and listed on Exhibit 4 hereto.
Collectively, Exhibit 1 and Exhibit 4 are to the best of Angeion's knowledge,
information and belief an accurate and complete listing of all patents and
patent applications owned by Angeion and not abandoned or expired as of the
Effective Date.
Section 1.04. Unfiled Disclosures. "Unfiled
Disclosures" means the unfiled patent disclosures relating to Cardiac
Stimulation Devices owned by Angeion that are listed on Exhibit 2 hereto.
Unfiled Disclosures shall not include the unfiled patent disclosures relating to
Cardiac Stimulation Devices owned by Angeion that are listed on Exhibit 5
hereto. Collectively, Exhibit 2 and Exhibit 5 are to the best of Angeion's
knowledge, information and belief an accurate and complete listing of all
unfiled patent disclosures relating to Cardiac Stimulation Devices owned by
Angeion as of the Effective Date that are not abandoned, suppressed or concealed
as of the Effective Date.
Section 1.05. Senior Note Holders. "Senior Note
Holders" means the holders of the issued and outstanding 7 1/2% Senior
Convertible Notes of Angeion due in 2003.
Section 1.06. Sublicensable Patents. "Sublicensable
Patents" shall mean all patents or patents issuing from patent applications in
any country, which relate to Cardiac Stimulation Devices and which are the
subject of licenses, assignments, options to obtain licenses, or other
agreements with third parties in existence as of the Effective Date and which
licenses, assignment, options or agreements convey rights to Angeion, as
licensee or grantee, to make, use, sell or supply Cardiac Stimulation Devices or
components thereof and that include the right to grant sublicenses to third
parties. Exhibit 3 is to the best of Angeion's knowledge, information and belief
an accurate and complete listing of all Sublicensable Patents subject to
licenses, assignments, options to obtain licenses, or other agreements with
third parties as of the Effective Date.
Section 2. Mutual Releases.
a. Settlement and Release of Medtronic.
Angeion hereby forever and completely releases and discharges Medtronic and its
respective officers, employees, agents and attorneys from all actions, causes of
action, suits, debts, accounts, contracts, agreements, promises,
3
<PAGE>
demands, claims, damages, and judgments whatsoever, in law or in equity, whether
present or future, known or unknown, asserted or unasserted, suspected or
unsuspected, arising out of or in any manner relating to claims that Cardiac
Stimulation Devices made, used or sold by or for Medtronic prior to the
Effective Date infringe any of the Licensed Patents.
b. Settlement and Release of Angeion.
Medtronic hereby forever and completely releases and discharges Angeion and its
respective officers, employees, agents and attorneys from all actions, causes of
action, suits, debts, accounts, contracts, agreements, promises, demands,
claims, damages, and judgments whatsoever, in law or in equity, whether present
or future, known or unknown, asserted or unasserted, suspected or unsuspected,
arising out of or in any manner relating to claims that Cardiac Stimulation
Devices made, used or sold by or for Angeion prior to the Effective Date
infringe any patents owned by or exclusively licensed to Medtronic and related
to Cardiac Stimulation Devices.
Section 3. One-Time Monetary Payment. Within five (5) days of
approval of this agreement by Angeion's shareholders and Senior Note Holders,
Medtronic shall transfer to Angeion by wire transfer a one-time payment in the
amount of Nine Million Dollars ($9,000,000) in accordance with wire transfer
instructions to be provided by Angeion.
Section 4. Non-Exclusive, Royalty-Free, Paid-Up License
Section 4.01. License. Subject to the terms,
conditions and limitations set forth herein, and subject to the approval of this
Agreement by Angeion's shareholders and Senior Note Holders, Angeion hereby
grants to Medtronic, a non-exclusive, royalty-free, fully paid-up worldwide
license without the right to sublicense under the Licensed Patents to make, have
made, use, have used, sell and have sold Cardiac Stimulation Devices; to supply
or cause to be supplied components of Cardiac Stimulation Devices; and to import
into any jurisdiction where Licensed Patents of Angeion are effective, Cardiac
Stimulation Devices or components of Cardiac Stimulation Devices which are
manufactured in accord with any Licensed Patents.
4
<PAGE>
Section 4.02. Sublicensable Patents. Angeion hereby
grants or will grant to Medtronic the right and option to obtain a non-exclusive
sublicense under any Sublicensable Patent on such terms and conditions specified
for sublicensees under the license, assignment or other agreement for that
Sublicensable Patent. It is the intention of the parties under this Section 4.02
that if a sublicense under Sublicensable Patents is acquired by Medtronic,
Medtronic shall be required to make only current payments based on current usage
and that no previously paid "front end" payments be recovered by Angeion under
such sublicensing arrangement.
Section 4.03. Conditions, Limitations and
Understandings. The license granted hereunder is expressly made subject to the
following conditions, limitations and understandings:
a. Angeion shall have the right, in its sole discretion, to control the
maintenance, abandonment, enforcement, extension and licensing of the
Licensed Patents;
b. Angeion shall have the right to enforce the Licensed Patents in its
sole discretion against all persons and organizations, other than
Medtronic, that make, have made, use, have used, sell, or have sold
Cardiac Stimulation Devices;
c. The license of Section 4 shall not extend to any technical
proprietary design, manufacture, marketing, and/or processing
information, designs, drawings, specifications or other documents
pertinent to the use of the Licensed Patents, or any trademarks or
trade names of Angeion, and the parties acknowledge that there is no
obligation upon any party to provide such information, designs,
drawings, specifications or other documents;
d. Any sublicenses under the Sublicensable Patents will only be granted
to the extent Angeion has the right to grant such sublicenses, and only
on such terms permitted by the license, assignment or other agreement
for such Sublicensable Patent.
Section 4.04. Disclaimers. Nothing contained in the
Agreement shall be construed as:
5
<PAGE>
a. A warranty or representation by any party hereto as to the validity
or scope of any Licensed Patents or Sublicensable Patents; or
b. A warranty or representation by any party hereto that anything made,
used, sold or otherwise disposed of under any license granted in the
Agreement is or will be free from infringement of patents of third
parties; or
c. A warranty or representation by any party hereto with regard to the
commercial utility or viability, medical efficacy, biocompatibility or
any other aspect of the design or performance of any thing, method or
product by process that is made, used, sold or otherwise disposed of by
Medtronic under any license granted in the Agreement; or
d. An obligation to bring or prosecute actions or suits against third
parties for patent infringement; or
e. A representation, warranty or extension of warranties of any kind,
expressed or implied, or an assumption of responsibility by any party
with respect to the use, sale or other disposition by Medtronic or its
agents, representatives, distributors or users of products
incorporating or made by use of inventions licensed under the
Agreement.
Section 4.05. Term. The licenses granted herein with
respect to each of the Licensed Patents shall continue during the full life of
each patent described therein and are not revocable. The loss of any patent or
application embraced by the term "Licensed Patents" by Angeion through
declaration of invalidity or otherwise, shall not be cause to terminate the
Agreement or the licenses granted hereunder with respect to all other Licensed
Patents and such loss or declaration of invalidity shall not be deemed a failure
of consideration.
Section 5. Purchase and Sale of Unfiled Disclosures.
6
<PAGE>
Section 5.01. Purchase and Sale of Unfiled
Disclosures. Upon the terms and conditions herein set forth, Angeion hereby
agrees to sell and assign to Medtronic, all of Angeion's right, title, and
interest in the Unfiled Disclosures.
Section 5.02. Further Assistance. Angeion further
agrees upon written request made within two (2) years of the Effective Date of
this Agreement, to execute assignments or other documents reasonably necessary
to effectuate such assignment of Angeion's rights in and to the Unfiled
Disclosures to Medtronic.
Section 5.03. No Representations and Warranties.
Medtronic accepts the purchase of the Unfiled Disclosures on an "as is" basis
and Angeion makes no representations or warranties as to the patentability,
validity or enforceability of any patents issuing from patent applications filed
from or related to such Unfiled Disclosures or with regard to the commercial
utility or viability, medical efficacy, biocompatibility or any other aspect of
the design or performance of any thing, method or product by process that is
made, used, sold or otherwise disposed of by Medtronic that in any way embodies
any aspect of the subject matter of the Unfiled Disclosures.
Section 5.04. Assistance of Employees and
Consultants. Medtronic further acknowledges that any patent applications filed
from or related to such Unfiled Disclosures may require the signatures of one or
more former Angeion employees or consultants in connection with the filing and
assignment of any patent applications based upon the Unfiled Disclosures. Within
a period not to exceed two (2) years of the Effective Date, Angeion shall
reasonably cooperate with Medtronic, at Medtronic's written request and expense,
in reasonable efforts to secure the signatures and assistance of such employees
and consultants in perfecting the filing and assignment of any patent
applications based upon the Unfiled Disclosures; however, Angeion makes no
warranty that such efforts with its former employees or consultants shall be
successful.
Section 5.05. Indemnification. With regard to any
thing, method or product by process that is made, used, sold or otherwise
disposed of by Medtronic and in any way embodies any aspect of the subject
matter of the Unfiled Disclosures, Medtronic shall indemnify and hold Angeion
harmless from any and all loss or liability for any and all claims, causes of
action, suits, proceedings,
7
<PAGE>
damages, demands, fees, expenses, fines, penalties and costs (including without
limitation reasonable attorneys' fees, costs and disbursements) arising from any
injury or alleged injury to any person or business for property damage,
infringement, personal injury or incidental, special or consequential damages.
Section 6. Representations And Warranties. Each of the parties
represents and warrants to the other party as follows:
a. Angeion represents that it is the sole holder and owner of the
full, undivided right, title and interest in and to each of
the Licensed Patents.
b. Each party hereto has the requisite power and authority,
corporate and otherwise, to execute and perform this
Agreement; provided, however, that this Agreement is subject
to the approval of Angeion's shareholders and Senior Note
Holders.
Section 7. Disclosure of this Agreement/Approval by Angeion's
Shareholders and Senior Note Holders. This Agreement is a material event for
Angeion which must be publicly disclosed under applicable securities laws and
the rules of the NASDAQ Stock Exchange. Angeion shall issue a press release
concerning this Agreement in the form attached hereto as Exhibit 6. The parties
agree that this Agreement is subject to the approval of Angeion's shareholders
and Senior Note Holders, and that if such approval is not obtained, this
Agreement will be of no force or effect. The parties further agree that in the
event this Agreement does not become effective, evidence of this Agreement or
its terms, any and all public or private summaries of or references to the
subject matter of this Agreement, and communications relating to the negotiation
of the Agreement, shall not be used for any purpose, shall not be discoverable,
and shall be inadmissible for any purpose under Rule 408 of the Federal Rules of
Evidence or other similar rule of evidence in any dispute or lawsuit between
Medtronic and Angeion relating to claims of patent infringement.
Section 8. General Provisions.
Section 8.01. Entire Agreement. This Agreement, and
the Exhibits attached hereto, constitutes the entire agreement of the parties,
the consideration for which is the mutual
8
<PAGE>
representations, warranties, and agreements herein contained, along with the
one-time monetary payment set forth in Section 3 above. This Agreement, and the
Exhibits attached hereto, supercedes any and all prior negotiations,
correspondence, understandings and agreements, whether written or oral, between
the parties respecting the subject matter hereof. No change, modification,
addition or amendment shall be valid unless in writing, indicating an intent to
modify the Agreement or the Exhibits attached hereto, and duly executed by the
parties.
Section 8.02. Notices. In the case of any need to
communicate with regard to this Agreement, such communication shall be in
writing and shall be directed to the following designated employees:
For Medtronic - General Counsel for Medtronic, Inc. or his or
her designee.
For Angeion - Legal Counsel for Angeion Corporation or his or
her designee.
Section 8.03. Assignment and Transfer. This Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
successors and permitted assigns. This Agreement may be freely transferred by
Medtronic to any party not engaged in the Cardiac Stimulation Device business at
the time of such transfer or assignment.
Section 8.04. Governing Law. All matters affecting
the interpretation, form, validity and performance of this Agreement shall be
decided under the laws of the State of Minnesota.
Section 8.05. Captions. The captions in the Agreement
are intended solely as a matter of convenience and for reference and shall be
given no effect in the construction or interpretation of the Agreement.
Section 8.06. Severability of Provisions. Should any
part or provision of the Agreement be held unenforceable or in conflict with the
law of any jurisdiction, the validity of the remaining parts or provisions shall
not be affected by such holding.
Section 8.07. No Agency. At no time shall the parties
hold themselves out to be the agent, employee, lessee, sublessee, partner, or
joint venture partner of the other parties. Nothing in
9
<PAGE>
the Agreement shall be construed to create any relationship between the parties
other than as expressly set forth in this Agreement. The parties shall not have
any express or implied right or authority to assume or create any obligations on
behalf of or in the name of the other parties or to bind the other parties with
regard to any other contract, agreement, or undertaking with a third party.
Section 8.08. Construction Against Waiver. No waiver
of any term, provision or condition of the Agreement, whether by conduct or
otherwise, in any one or more instances shall be deemed to be construed as a
further or continuing waiver of any such term, provision or condition of the
Agreement; nor shall any failure to enforce any provision hereof operate as a
waiver of such provision or of any other provision.
IN WITNESS WHEREOF, the parties hereto have caused the Agreement to be
executed and duly attested by their corporate officers duly authorized for this
purpose.
ANGEION CORPORATION
By: /s/ James B. Hickey, Jr.
--------------------------------------
Title: President and CEO
-----------------------------------
Date: 9/16/199
-----------------------------------
ATTEST:
By: /s/ Marcus Magnuson
-----------------------------
MEDTRONIC, INC.
By: /s/ Michael D. Ellwein
--------------------------------------
Title: V.P. CDO
-----------------------------------
Date: Sept. 16, 1999
-----------------------------------
ATTEST:
By: /s/
-----------------------------
10
Exhibit 10.3
Angeion Corporation
7601 Northland Drive
Brooklyn Park, Minnesota 55428-1088
USA
Telephone: 612/315-2000
Facsimile: 612/315-2099
October 8, 1999
James B. Hickey, Jr.
4608 Edina Boulevard
Edina, MN 55424
Dear Jim:
As previously discussed, your employment with Angeion Corporation will
terminate on the earlier of (i) one week after closing the Medical Graphics
transaction or (ii) December 31, 1999, unless a new date is mutually agreed
upon. You will, of course, continue to receive your regular salary and benefits
for your continued employment through that date, and you will be paid the value
of your accrued, unused paid time off at the end of your employment. Additional
information about other benefits upon termination of employment is provided in
the enclosed benefits summary.
As you know, Angeion is in the process of gaining approvals for two
business transactions that could ultimately result in a Change in Control (as
that term is defined in your current Change in Control Agreement with Angeion
dated July 27, 1998, a copy of which is enclosed). While we are hopeful that
both of these transactions will be consummated in the very near future, there is
no assurance that either will occur on or prior to the date of your termination
of employment with Angeion, or whether the consummation of such transaction will
ultimately result in a Change in Control.
In light of this uncertainty regarding whether a Change in Control will
occur prior to the date your employment with Angeion terminates, and in order to
ensure that you will be eligible for payments to ease your transition to new
employment, Angeion is offering you the following severance package:
o Lump-sum payment of $260,000 less applicable tax withholdings, payable on
the date that you are scheduled to receive your final payroll check. (You
must continue your employment at Angeion through your designated
termination date in order to receive this payment.)
o Continued medical, dental and life insurance coverage for a period of one
year after the termination of your employment, at no additional cost to
you. Such coverage will be provided either through continued participation
in Angeion's group insurance plans or through alternative insurance
coverage to be secured by Angeion for you. In either case, coverage will
continue at levels and under terms comparable to those that currently are
available to you under Angeion's plans.
<PAGE>
James B. Hickey, Jr.
October 8, 1999
Page 2
o $15,000 for outplacement services obtained from a provider of your choice.
(Angeion will need to approve the program before you begin and will make
payments for such services directly to the outplacement service provider to
which we agree.)
This severance package, if accepted by you, will be in lieu of any
benefits to which you could otherwise become entitled under your Change in
Control Agreement with Angeion. Thus, as a condition of accepting and receiving
the benefits as outlined above, you will be required to sign the enclosed
agreement terminating your Change in Control Agreement. You also will be
required to sign a release of claims, which is enclosed. As an additional
consideration for your signing these documents, Angeion will release you from
the non-competition portion (paragraph 3) of your Agreement Regarding
Non-Disclosure of Confidential Information, Non-Competition and Ownership of
Intellectual Property, and indemnify you to the fullest extent permitted by
Minn. Stat. 302A.521 with respect to claims or demands made against you based on
your service as a board member for any entity related to or affiliated with
Angeion.
Again, I want to express my sincere appreciation for your service to
Angeion, and I look forward to continuing our work together in this time of
transition.
Please keep in mind the information set forth in this letter and the
information we have discussed as part of this transition is confidential.
Sincerely,
/s/ Donald D. Maurer
Donald D. Maurer
Chairman, Compensation Committee
of the Angeion Board of Directors
Agreed and accepted this 11 day of October, 1999
/s/ James B. Hickey, Jr.
- ------------------------
James B. Hickey, Jr.
EXHIBIT 12
Nine months ended September 30,
1999 1998
------------- --------------
Net income (loss) $ 6,697,537 $ (25,520,437)
Interest expense 1,344,325 857,399
Amortization of debt costs 491,382 692,155
Income tax 171,060 --
------------- -------------
Income (loss) before fixed charges 8,704,304 (23,970,883)
Fixed charges 2,006,767 1,549,554
Ratio of net income (loss) before fixed
charges to fixed charges 4.3 N/A
Sufficiency of earnings to cover fixed
charges $ 6,697,537 $ N/A
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 27,071,736
<SECURITIES> 0
<RECEIVABLES> 665,654
<ALLOWANCES> 0
<INVENTORY> 226,598
<CURRENT-ASSETS> 29,188,618
<PP&E> 7,217,757
<DEPRECIATION> 5,332,356
<TOTAL-ASSETS> 34,259,127
<CURRENT-LIABILITIES> 1,708,465
<BONDS> 0
0
0
<COMMON> 40,091
<OTHER-SE> 12,312,571
<TOTAL-LIABILITY-AND-EQUITY> 34,259,127
<SALES> 5,174,601
<TOTAL-REVENUES> 5,174,601
<CGS> 10,987,783
<TOTAL-COSTS> 10,987,783
<OTHER-EXPENSES> 15,111,486
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,835,707
<INCOME-PRETAX> 6,868,597
<INCOME-TAX> 171,060
<INCOME-CONTINUING> 6,697,537
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,697,537
<EPS-BASIC> 1.68
<EPS-DILUTED> 1.25
</TABLE>
