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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NO. 001-13543
ANGEION CORPORATION
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1579150
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
350 Oak Grove Parkway, St. Paul, Minnesota 55127
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (651) 484-4874
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
Preferred Stock Purchase Rights
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of March 31, 2000, 3,379,724 shares of Common Stock of the
Registrant were outstanding, and the aggregate market value of the Common
Stock of the Registrant as of that date (based upon the last reported sale
price of the Common Stock at that date as reported by the Nasdaq National
Market), excluding outstanding shares beneficially owned by directors and
executive officers) was approximately $9,608,000.
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PART I
ITEM 1. BUSINESS.
UNLESS THE CONTEXT REQUIRES OTHERWISE, REFERENCES IN THIS FORM 10-K TO
ANGEION MEANS ANGEION CORPORATION, WHILE REFERENCES TO MEDICAL GRAPHICS OR
MEDGRAPHICS REFERS TO MEDICAL GRAPHICS CORPORATION, A WHOLLY-OWNED SUBSIDIARY OF
ANGEION. ANGEION ACQUIRED MEDICAL GRAPHICS IN DECEMBER 1999. FOR PERIODS AFTER
DECEMBER 21, 1999 ANGEION AND MEDICAL GRAPHICS ARE COLLECTIVELY REFERRED TO AS
THE "COMPANY."
(a) GENERAL DEVELOPMENT OF BUSINESS.
Angeion Corporation was incorporated in Minnesota in May 1986 for the
purpose of developing, manufacturing and selling medical products. The Company
initially used its engineering and manufacturing technologies to custom design
and manufacture products to customers' specifications while it devoted its
research and development capabilities to designing proprietary products. In July
1988, Angeion merged with Verde Ventures Incorporated, a public company
organized in March 1987 that had no operations at the time of the merger. Verde
Ventures Incorporated, the surviving legal entity, changed its name to Angeion
Corporation and continued the business of the pre-merger Angeion Corporation.
In August 1990, the Company established a subsidiary to assume
responsibility for the intensified research efforts on the development of a
laser catheter ablation system, and in October 1990, the Company acquired a
company engaged in the development of an automatic implantable cardioverter
defibrillator ("ICD") system. Subsequent to this acquisition, Angeion designed,
developed, manufactured and marketed products, including ICDs, that treat
irregular heartbeats (arrhythmias). ICDs are designed to treat abnormally rapid
heartbeats in the ventricular (or lower) chambers of the heart, a condition
known as ventricular tachycardia ("VT"), and a severe form of VT known as
ventricular fibrillation ("VF"), that if not terminated will lead to sudden
cardiac death. ICDs are electronic devices that are implanted within the body
and are connected to the heart with defibrillator leads. These devices monitor
the patient's heartbeat and, in the event of VT or VF, deliver an electrical
shock to return the heartbeat to normal rhythm.
In February 1993, the Company and Siemens Pacesetter, Inc.
("Pacesetter"), at the time a subsidiary of Siemens Corporation and subsequently
acquired by St. Jude Medical, Inc. ("St. Jude"), entered into a strategic
relationship pursuant to which Angeion sold to Pacesetter shares of Series A
Convertible Preferred Stock and a convertible subordinated debenture, and
entered into certain OEM and license agreements. In May 1997, St. Jude acquired
Ventritex, Inc. and, in connection with such acquisition, the Company, St. Jude
and Pacesetter entered into a Cross-License Agreement and terminated their
previous OEM and license agreements.
In October 1997, the Company entered into a strategic relationship with
Synthelabo, a French pharmaceutical company, pursuant to which Synthelabo
purchased Common Stock and warrants from the Company under an Investment and
Master Strategic Relationship Agreement (the "Investment
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Agreement"). In May 1999, Synthelabo and Sanofi, S.A. merged and created a new
French pharmaceutical company, Sanofi-Synthelabo. All future references in this
Form 10-K to this entity will be to Sanofi-Synthelabo. In addition, ELA Medical,
S.A., a subsidiary of Sanofi-Synthelabo, marketed the Company's products in
European and Japanese markets and ELA Medical, Inc., another subsidiary of
Sanofi-Synthelabo, formed a U.S. joint venture ("Joint Venture") with the
Company that combined the two companies' sales and marketing functions and
served as the U.S. selling organization for both companies. Pursuant to the
Investment Agreement, Sanofi-Synthelabo made equity investments totaling $20
million prior to December 31, 1998.
Through December 31, 1998, the Company had incurred operating losses
every year since inception and at December 31, 1998 had an accumulated deficit
since inception of $123.0 million and a shareholder's deficit of $6.3 million.
During the year ended December 31, 1998, the Company had net sales of $4.6
million and an operating loss of $36.6 million.
In January 1999, the Company announced a restructuring plan (the
"January 1999 Restructuring") to help reduce its cash flow burn rate. As a
result of the January 1999 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.
On March 5, 1999, the Company received U.S. Food and Drug
Administration ("FDA") Premarket Approval ("PMA") for its Lyra-TM- 2020 Series
ICDs and AngePass-TM- lead series, which allowed Angeion 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. 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.
In April 1999, the Company announced a second restructuring plan (the
"April 1999 Restructuring") to refocus its business and reduce operating
expenses. As a result of the April 1999 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 the
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.
On April 5, 1999, the Company reached a settlement of its ongoing
litigation with Cardiac Pacemakers, Inc. ("CPI") and its parent company, Guidant
Corporation ("Guidant"). ("April 1999 CPI Agreement") In connection with the
settlement, the Company granted to CPI a non-exclusive license (the "CPI
License") under all of the Company's patents that covered cardiac stimulation
devices and CPI made a one-time payment of $35,000,000 to the Company to settle
claims for past damages and for the CPI License. After payment of legal fees and
other expenses associated with the litigation, the Company retained
approximately $31,000,000 in cash from this settlement. In connection with the
settlement of
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the CPI/Guidant litigation, Guidant agreed not to sue the Company for future
infringement with respect to the Company's current model Series 2020 and next
generation model Series 2030 ICD product lines, thus allowing the Company to pay
a reasonable royalty and market its most advanced ICD products free from claims
of infringement.
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. All share and per share information
contained in this report on Form 10-K has been retroactively adjusted to reflect
the impact of the reverse stock split.
On May 11, 1999, the Company entered into a withdrawal agreement
("Withdrawal Agreement") pursuant to which the Company withdrew from its
membership in the Joint Venture. Under the terms of the Withdrawal Agreement,
ELA Medical received sole responsibility for the operations of the Joint
Venture. In addition, ELA Medical 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 retained potential product
liability obligations from patients and 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 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 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 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.
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On August 3, 1999, the Company announced that it had entered into an
agreement (the "1999 ELA Agreement") to transfer certain assets and grant a
one-way, non-exclusive, fully paid-up, royalty 1999 free, and perpetual
worldwide license to its patents and patent applications relating to cardiac
stimulation devices to ELA Medical. As part of the 1999 ELA Agreement, the
Company agree to 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 would
receive all 745,994 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 was 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").
Upon closing of the transactions contemplated by the 1999 ELA
Agreement, the Company would 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 are governed by the manufacturing and supply agreement entered
into as part of the Withdrawal Agreement. Also upon closing, the Company would
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
1999 ELA Agreement would 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 would be required to 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.
As of September 30, 1999, the Company had 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
equipment and fixtures, respectively. The write-down of equipment and fixtures
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 were being held for sale. Those 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 "1999
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
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worldwide license to the Company's patents and patent applications relating to
cardiac stimulation devices. As consideration therefore, Medtronic agreed to 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 1999 Medtronic
Agreement was subject to the approval of the Company's shareholders and consent
by the Company's Note Holders.
The Company believed that there was an issue (i) whether consummation
of the transactions contemplated by the 1999 ELA Agreement and the 1999
Medtronic Agreement, taken as a whole, may have constituted a sale of all or
substantially all of the property or assets of the Company pursuant to Section
302A.661 of the Minnesota Business Corporation Act and (ii) whether the two
transactions, taken as a whole, would constitute a change in control within the
meaning of the Indenture (as defined below) covering the Notes. Accordingly, the
Company decided to hold a meeting of shareholders to approve these two
transactions and to simultaneously request consent of the Note Holders to
supplement the Indenture to prevent any obligation of the Company to repurchase
or accelerate payment with respect to the outstanding Notes in connection with
the closing of each of the 1999 ELA Agreement and the 1999 Medtronic Agreement.
Both transactions were approved by the Company's shareholders in February 2000,
but did not receive Note Holder consent and were not consummated. As discussed
below, in March 2000, however, Angeion entered into and closed similar
transactions.
On September 23, 1999, the Company announced that it had entered into
an agreement with Medical Graphics Corporation, 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 for aggregate consideration of
approximately $16.3 million in cash. The Company announced that upon
consummation of the Merger, it was the Company's intention to focus its efforts
primarily on the cardiopulmonary and respiratory markets served by Medical
Graphics. Consummation of the Merger was subject to approval of the shareholders
of Medical Graphics. The Medical Graphics acquisition was completed on December
21, 1999.
Subsequent to the April 1999 Restructuring announcement, the Company
communicated with Holders of its 7 1/2% Convertible Notes due 2003 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
terms of the Indenture by allegedly selling all or substantially all of its
assets by virtue of certain transactions with, including a September 1998
agreement with Cordis-Webster, a division of Johnson-Johnson, ("1998
Cordis-Webster Agreement") the April 1999 CPI Agreement, the Withdrawal
Agreement, the January 1999 Restructuring and April 1999 Restructuring. If true,
the transactions would constitute a "designated event" under the Indenture and
could result in the Company being obligated to repurchase the Notes at a
purchase price equal to 101% of the principal amount. The Company believed that
it had complied with all of the terms of the Indenture and disagreed with the
assertion of the Note Holders that a "designated event" had occurred.
Representatives of the Company met with the Trustee in August 1999 to respond to
the Note Holders concerns.
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On September 24, 1999, the Trustee, on behalf of the Note Holders
brought suit against the Company in Hennepin County District Court, the
Fourth Judicial District, State of Minnesota. The lawsuit sought declaratory
judgment, breach of contract and related relief. The Trustee alleged that
certain actions taken by Angeion in 1998 and 1999 constituted the sale of all
or substantially all of Angeion's assets, and thereby constituted a
Designated Event under the terms of the Indenture governing the Notes. The
Trustee sought to obligate Angeion to accelerate payment of the Notes and/or
to impose a trust on an amount of funds not less than $23 million of the
Company's assets. Specifically, the Trustee claimed that the Company violated
the terms of the Indenture by allegedly selling all or substantially all of
its assets by virtue of the 1998 Cordis-Webster Agreement, the April 1999 CPI
Agreement, the Withdrawal Agreement and the January 1999 Restructuring and
April 1999 Restructuring. On October 14, 1999, the Company filed its Answer
to the Trustee's complaint, denying that a Designated Event had occurred or
that a Designated Event Offer was required. The Company also filed a
counterclaim against the Trustee, claiming that the Trustee's complaint was
brought in bad faith.
On October 20, 1999, the Trustee filed a 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 opposed the Trustee's
request on grounds that, for legal and equitable reasons, the Trustee was not
entitled to obtain such prejudgment relief. The matter was heard by the Court
on November 16, 1999. By order of the Court dated November 30, 1999, the
Court denied the Trustee's request for a temporary injunction. The Trustee
has appealed this Order.
On November 15, 1999, Angeion filed a motion for complete dismissal
of the Trustee's complaint. On November 30, 1999 the Trustee filed a motion
for complete dismissal of Angeion's counterclaims. A hearing was held on both
motions on December 28, 1999. By written order dated February 7, 2000, the
Court granted both motions. The Court specifically ruled that the
transactions of which the Trustee complained did not constitute the sale of
all or substantially all of the assets of Angeion, that no Designated Event
had occurred, and that the Note holders were not entitled to prepayment of
their notes. The Trustee has appealed this order.
On March 6, 2000, Angeion announced preliminary unaudited revenues for
its Medical Graphics subsidiary of approximately $6.0 million and $22.2 million
for the three months and twelve months ended December 31, 1999 compared to
revenues of $5.8 million and $20.4 million for the three months and twelve
months ended December 31, 1998, respectively. Operating income before interest
and taxes for the Medical Graphics subsidiary was expected to be more than
$450,000 and $1.3 million for the fourth quarter and year ended December 31,
1999, respectively.
At that time, Angeion also announced that it had largely completed its
assimilation of the Medical Graphics business and intended to focus its future
efforts primarily on the markets served by and business operations of Medical
Graphics and the acquisition and development of future businesses that
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contribute to shareholder value. Additionally, Angeion announced that Medical
Graphics now comprised a majority of the total assets of Angeion and generated a
majority of the revenues of Angeion. Angeion indicated that as a result, it
decided to pursue the license or transfer of its ICD technology and intended to
discontinue the ICD product line and expected the last sales of ICD products to
occur during the first half of 2000.
On March 15, 2000, the Company, through Medical Graphics, acquired the
operating assets of AeroSport, Inc., a privately held Ann Arbor, Michigan
corporation, and obtained an exclusive worldwide license to AeroSport's patented
technology. AeroSport is a leading global supplier of gas exchange metabolic
analyzers for the health, fitness, and research and education markets. The
acquisition of the assets included the purchase of inventory, fixed assets and
certain intellectual property for approximately $450,000. In addition, Medical
Graphics entered into an exclusive worldwide license agreement for AeroSport's
patented technology for royalty payments of 5% of net sales of products covered
by those patents up to a maximum of $850,000, with a $700,000 minimum over seven
years required to retain those rights.
On March 23, 2000, the Company executed and closed a Settlement,
License and Asset Purchase Agreement with Medtronic under which the Company
granted Medtronic a one-way, non-exclusive, fully paid-up, royalty free license
for its cardiac stimulation technology ("2000 Medtronic agreement"). The
agreement was similar to the 1999 Medtronic Agreement that was never
consummated. As part of the agreement, the Company sold to Medtronic certain
unfiled patent disclosures relating to cardiac stimulation devices. Under the
agreement, the Company and Medtronic also agreed to release each other from any
patent infringement claims for products sold or used prior to the closing date.
In connection with the transaction, Medtronic made a one-time payment of
$9,000,000 to the Company.
On March 24, 2000, the Company executed and closed an Asset Purchase
Agreement, together with a separate License agreement and ancillary documents,
with ELA Medical and Sanofi-Synthelabo under which the Company granted to ELA
Medical a one-way, non-exclusive, fully paid-up, royalty free license for its
cardiac stimulation technology ("2000 ELA agreement"). The 2000 ELA agreement
was similar to the 1999 ELA agreement. As part of the 2000 ELA Agreement, the
Company sold to Sanofi-Synthelabo and ELA Medical certain of its assets and
liabilities related to the manufacture and sale of cardiac stimulation devices.
In connection with the transaction, Sanofi-Synthelabo surrendered 745,994 shares
of the Company's common stock and warrants to purchase an additional 1,897,186
shares, including warrants to purchase 909,017 shares at ten cents per share.
The agreements with Medtronic and with ELA Medical and
Sanofi-Synthelabo have added approximately $8,400,000 in cash to the Company,
net of certain transaction costs, and decreased the number of outstanding shares
of the Company by approximately 18 percent.
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(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
The Company operates in a single industry segment: the research,
development, manufacture and marketing of medical devices.
(c) NARRATIVE DESCRIPTION OF BUSINESS.
GENERAL
Angeion, through its Medical Graphics Corporation subsidiary, designs
products and related software that assist health care professionals in the
prevention, early detection and cost-effective treatment of heart and lung
disease and the evaluation of sleep disorders. Medical Graphics products include
pulmonary function testing equipment, cardiopulmonary exercise testing systems
and computerized sleep diagnostic systems.
PULMONARY FUNCTION TESTING SYSTEMS. Pulmonary function testing helps
health care professionals diagnose lung diseases, such as asthma and emphysema,
and manage treatment of their patients. Pulmonary function testing applications
include screening asthma patients, assessing preoperative and post-operative
risk of heart and lung surgery patients, evaluating lung damage from
occupational exposures and documenting responses to therapy.
MedGraphics pulmonary function testing systems are operated with its
proprietary BreezePF Windows 98/NT software, which is designed to operate in a
simple, easy-to-use manner. These pulmonary function testing systems are sold
under the Profiler name.
The MedGraphics pulmonary function products use a patented "expert
system" to assist physicians in the interpretation of patient test results.
MedGraphics pulmonary function products also use the preVent pneumotach, a
patented disposable mouthpiece/flow device that eliminates concern over the
transmission of infectious diseases. The preVent gives all MedGraphics products
the capability to perform spirometry, which measures the flow rates and
mechanical properties of the lung.
Additional capabilities are available with the Profiler Series systems.
- The Profiler DL performs spirometry and also measures how efficiently
the lungs diffuse certain gases. The Profiler measures this lung
function by using a gas chromatograph measures gas concentrations
before the patient inhales the gas and after the patient breathes the
gas out. This is referred to as diffusion testing.
- The Profiler DX has all the abilities of the Profiler DL, plus the
ability to measure the total volume of air in the lungs. This is done
with a patented nitrogen analyzer that measures the amount of nitrogen
in a person's breath.
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The Profiler systems' compact design and mobility option attract a wide
variety of customers, including pulmonary laboratories in hospitals, clinics,
physician offices, occupational medicine clinics, asthma centers and clinical
research centers.
BODY PLETHYSMOGRAPH SYSTEMS. The Elite Series comprises MedGraphics'
body plethysmograph systems. A body plethysmograph is an enclosed metal and
clear acrylic chamber that offers the most sensitive method for measuring lung
function. The patient sits inside the chamber and undergoes diagnostic pulmonary
function tests.
- The Elite D performs spirometry and measures the total volume of air
in the lungs and the resistance to airflow in a person's lungs.
- The Elite DL performs the same tests as the Elite D, and performs the
diffusion test the same way as the Profiler DL.
- The Elite DX performs all the tests as an Elite DL, and adds the lung
volume test from the Profiler DX.
The Elite Series systems applications include diagnosing lung diseases
and managing their treatment, assessing the surgical risk of lung transplant and
lung reduction candidates and evaluating the impact of diseases, such as
neuromuscular disease, on breathing. The system's design optimizes patient
comfort with a clear-view acrylic enclosure and allows testing of a broad
population including pediatric patients and individuals in wheelchairs.
CARDIOPULMONARY EXERCISE TESTING SYSTEMS. MedGraphics' cardiopulmonary
exercise testing systems measure fitness or conditioning levels as well as help
physicians diagnose heart and lung diseases. They do this by measuring the
concentrations of the oxygen and carbon dioxide in a person's lungs and how the
concentrations change as a person exercises on a bike or treadmill. They can
also measure the gas concentrations of a person at rest to determine nutritional
requirements of critically ill patients. This measurement method is called the
nutrition or MAX option. The systems measure the gas concentrations of every
breath using a patented breath by breath methodology. The cardiopulmonary
systems use the same patented preVent pneumotach as the pulmonary function
testing systems and also include a patented oxygen analyzer and a carbon dioxide
analyzer.
The cardiopulmonary testing systems are sold in several different
configurations.
- The basic exercise testing system is a CPX/D which measures patient
fitness levels while exercising.
- The basic nutrition assessment system is a CCM/D which measures the
basic nutritional requirements of a patient at rest.
- A CPX/MAX/D is a CPX/D with the nutrition option added.
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- A Cardio2 is a CPX/D with a 12-lead electrocardiogram stress option
added. The electrocardiogram, which measures heart functions, is
generally referred to as an ECG.
- A Cardio2/MAX/D is a CPX/D with a 12-lead ECG and the Nutrition
option.
- A CPX Express is a smaller version of the CPX/D designed for use in a
laboratory or physician's office. Like the CPX/D, it can be used with a
nutrition option and/or interfaced with a 12-lead ECG system.
The CPX/D and CPX Express can also be used in conjunction with other
manufacturer's stand-alone ECG systems.
Applications for the cardiopulmonary systems include distinguishing
between cardiovascular and pulmonary disease, screening for early signs of
cardiac and pulmonary dysfunction, establishing exercise prescriptions and
training programs and evaluating the efficacy of prescribed therapy. MedGraphics
holds several patents relating to data reporting, including two expert system
software packages for evaluating the information. Customers include hospital
cardiopulmonary laboratories, cardiology and pulmonary office-based clinics,
critical care units, cardiac rehabilitation units, human performance
laboratories and health clubs.
On March 15, 2000, Medical Graphics acquired the operating assets of
AeroSport, a leading global supplier of gas exchange metabolic analyzers for
health, fitness, and research and education and received an exclusive worldwide
license to AeroSport's patented technology. After the acquisition, Medical
Graphics began selling the Aeroporst product line which consists of the Teem
100, KB1-C and VO 2000 metabolic analyzers. Gas exchange metabolic analyzers
measure the body's energy expenditure. AeroSport's gas exchange metabolic
analyzers include a new wearable device, about twice the size of a typical
"walkman" radio/cassette player, that transmits data via telemetry.
CYCLE ERGOMETERS. MedGraphics offers several models of cycle ergometers
providing healthcare professionals and patients a tool for more successful
outcomes in clinical rehabilitation and athletic training. A cycle ergometer is
a specially designed stationary exercise bicycle that can operate at a broad
spectrum of resistance levels. MedGraphics has cycle ergometers that are used in
diagnostic, rehabilitation, training and sports medicine applications. The
ergometers are used and controlled by MedGraphics' cardiopulmonary exercise
testing systems.
SLEEP DIAGNOSTICS SYSTEMS. The clinical assessment of sleep disorders,
such as sleep apnea, restless leg syndrome and sleep seizures is performed with
polysomnography, which literally means "making many recordings during sleep."
Although Polysomnography is most commonly performed in a sleep lab, with
technologies such as the P-Series portable recorder, sold by MedGraphics, the
testing can now be performed in remote clinics or the patient's home.
The all-night polysomnograph recording typically requires electrodes be
placed on the head to measure brain activity, eye movement and muscle tension in
the chin. The measurement of brain activity is called an Electroencephalogram,
often referred to as an EEG. Electrodes are also applied to monitor
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ECG. In addition, respiration, leg movements and body position are monitored
with specially developed sensors. From the records of all these physiologic
signals, the clinician can determine the different stages of sleep, the number
and duration of any abnormal breathing events, and any other unusual activity
that the patient may experience during sleep.
The diagnostic sleep systems that are sold by Medical Graphics include
software and hardware technology to help the technician and clinician gather,
analyze and report the results from all-night recordings accurately and
efficiently. The sleep diagnostic systems sold by Medical Graphics are
manufactured by Compumedics Sleep Pty Ltd, an Australian corporation.
In April 1997, Medical Graphics and Compumedics entered into a three
year original equipment manufacturer distribution agreement in which Compumedics
granted Medical Graphics rights to promote, market and distribute Compumedics
diagnostic sleep systems in the United States under the MedGraphics label. Under
terms of the Agreement, Medical Graphics is required to supply a product manager
for the Compumedics account, as well as make quarterly reports on its actual
marketing and sales activity. Medical Graphics is also responsible for payment
of all applicable United States import duties for all products and service parts
ordered. Additionally, the Agreement requires that Medical Graphics inform
Compumedics in writing 120 days prior to the effective date of any agreement for
additional sleep diagnostic products, giving Compumedics the opportunity to
provide a comparable product, if it so decides. Compumedics' obligations under
the Agreement include providing marketing and service training to Medical
Graphics' designated personnel, promotional materials, FDA documentation and
notice of any adverse events that may effect the sale or recall of the products.
The Agreement contains additional customary provisions regarding (i) the use and
disclosure of proprietary information during and after the termination of the
Agreement, (ii) the intellectual property rights of Compumedics, its products
and future products, (iii) warranties of Compumedics products, (iv) mutual
indemnification, and (v) regulatory compliance. After its original term, the
Agreement automatically renews annually unless terminated by either party by
giving notice.
The parties modified the Agreement in December 1997 with a Memorandum
of Understanding ("MOU") to expand Medical Graphics' rights to cover an
additional Compumedics product line. Collectively, the Agreement and MOU have
been subsequently amended on several occasions to reflect changes to various
provisions, including those related to pricing and obligations upon termination.
Under the Agreement as amended, Medical Graphics has the rights to sell
Compumedics sleep diagnostic products in all hospitals, clinics, physician
offices and free standing sleep centers in the United States. Medical Graphic's
rights are exclusive with respect to most of Compumedics sleep diagnostic
products and non-exclusive with respect to others. Although sales of sleep
diagnostic systems accounted for 6.9% and 19.5% of revenues in 1999 and 1998,
respectively, there can be no assurance that sales of sleep diagnostic systems
will be a significant component of product sales in future years.
All MedGraphics' cardiorespiratory and sleep diagnostic systems, except
for some of the AeroSport products, use a personal computer with a Pentium
processor, a full color monitor, a printer and other peripherals.
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COMPETITION
The industry for companies selling cardiopulmonary diagnostic systems
and sleep disorders diagnostic systems is competitive. Medical Graphics'
competitors include large medical companies, some of which have greater
financial and technical resources and broader product lines than it. The Company
believes that the principal competitive factors in its markets are product
features, price, quality, customer service, performance, market reputation,
breadth of product offerings and effectiveness of sales and marketing efforts.
The Company's success depends on its ability to anticipate changes in
technology and industry standards, to develop and successfully introduce new and
enhanced products on a timely basis and to promote market acceptance of such
products. There are a number of companies that currently offer, or are in the
process of developing, products that compete with products offered by Medical
Graphics. Some of these competitors may have greater capital resources, research
and development staffs and experience in the medical device industry, including
experience with respect to regulatory compliance in the development, manufacture
and sale of medical products similar to those offered by Medical Graphics. The
principal competitors for Medical Graphics' traditional products are
SensorMedics Corporation, a subsidiary of Thermo Electron Corporation, and Erich
Jaeger GmbH. On July 26, 1999, Thermedics, Inc, a Thermo Electron company
announced that it had completed its acquisition of Erich Jaeger GmbH.
The Company believes that its principal competitors in the sleep
diagnostic market are SensorMedics, Healthdyne Technologies, Inc. and Nellcor
Puritan Bennett. There can be no assurance that some of these competitors will
not succeed in developing technologies and products that are more effective than
those currently used or produced by Medical Graphics or that would render some
products offered by it obsolete or non-competitive.
Competition based on price is expected to become an increasingly
important factor in customer purchasing patterns as a result of cost containment
pressures on, and consolidation in, the health care industry. This competition
has exerted, and is likely to continue to exert, downward pressure on the prices
the Company is able to charge for its products. There can be no assurance that
it will be able to offset such downward price pressure through corresponding
cost reductions. Any failure to offset such pressure could have an adverse
effect on our business, results of operations or financial condition.
Any product developed by the Company that gains regulatory approval
will have to compete for market acceptance and market share. The timing of
market introduction of competitive products could adversely affect the
competitiveness of the Medical Graphics' products. Accordingly, the relative
speed with which the Company can develop products, complete clinical testing and
the regulatory approval process and supply commercial quantities of the product
to the market are important competitive factors. The Company expects that
competition will also be based on many factors, including device size and
weight, longevity, ease of programmability, ability to provide diagnostic
capability, product reliability, physician familiarity with the device, patent
protection, sales and marketing capability, third-party reimbursement policies,
reputation and price.
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MANUFACTURING
Medical Graphics currently manufactures and assembles all major
analyzer components of its pulmonary systems including a waveform analyzer, gas
chromatograph, nitrogen analyzer and oxygen analyzer. Sheet metal, electrical
components and some measurement devices are purchased from outside vendors and
are tested, assembled and packaged by Medical Graphics personnel into fully
integrated systems. Medical Graphics also acquires general purpose computers,
monitors and printers from a variety of sources and integrates its proprietary
transducer modules into these systems. Medical Graphics acquires its cycle
ergometers and the hardware and software for its sleep diagnostic systems from
third parties. Although some of Medical Graphics' components are purchased from
only one or a limited number of suppliers, Medical Graphics believes that if it
is unable to obtain components from these suppliers, it would be able to obtain
comparable components from other sources without significant additional expense
or interruption of business.
During 1997, Medical Graphics began to convert to a modified form of
cellular manufacturing, a process that has continued into 2000. Cellular
manufacturing utilizes an employee team to plan and schedule production,
manufacture the product and ensure the achievement of quality standards. This
process facilitates faster throughput of manufactured product and requires lower
inventory support levels. Medical Graphics has already benefitted from
continually improving manufacturing efficiencies.
MARKETING AND DISTRIBUTION
Medical Graphics markets its products in the United States through a
direct sales force that targets customers located in hospitals, university-based
medical centers and office-based clinics. Each salesperson is responsible for a
specific geographic area and sells Medical Graphics' complete product line to
customers, including hospitals and office-based physicians, within that area.
Medical Graphics salespersons are compensated with a base salary, expenses and a
revenue-based commission.
Medical Graphics markets its products outside the United States through
sales organizations that operate primarily as distributors. During 1999, Medical
Graphics used approximately 33 international sales organizations to sell its
products into 45 countries. These organizations typically carry a limited
inventory of Medical Graphics products and sell Medical Graphics systems in
specific geographic areas, generally on an exclusive basis. International sales
accounted for 11.1% and 13.1% of total sales in 1999 and 1998, respectively. All
of Medical Graphics' international sales are made on a United States
dollar-denominated basis to distributors. For this reason, the Company does not
believe that the impact of the conversion by eleven member states of the
European Union to a common currency, the "euro," will be material to its
business or financial condition.
Sales into foreign countries involve certain risks not ordinarily
associated with domestic business including fluctuations in exchange rates even
when product sales are denominated in dollars, reliance on distributors and
fluctuations in sales resulting from changes in local economies.
Medical Graphics believes that demonstration of its products'
capabilities to potential customers is one of the most significant factors in
achieving sales. Consequently, the main thrust of domestic and
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international promotional efforts is product demonstrations at trade shows and
customer facilities. Other promotional efforts include educational seminars,
print advertisements, direct mail campaigns and a Medical Graphics web site
(www.medgraph.com).
RESEARCH AND DEVELOPMENT
Medical Graphics' research and development expenses for 1999 reflected
continuing efforts to convert its products to the Windows 98/NT platform. Two
new Windows 98/NT pulmonary function software products were introduced during
1998. The gas exchange product line is expected to be converted to the Windows
98/NT platform during 2000. In addition, Medical Graphics is continuing to add
product improvements designed to enhance product reliability and improve
margins. Medical Graphics is also developing new products targeted for new
growth markets. The Company believes ongoing research and development efforts
have been and will remain important to its continuing success. Research and
development expenses associated with continuing operations were $1,453,000 in
1999 compared to $1,550,000 in 1998 and $1,867,000 in 1997.
INTELLECTUAL PROPERTY
Patents and trademarks are critical in the medical device industry.
The Company believes strongly in protecting its intellectual property and has
a long history of obtaining patents, when available, in connection with its
research and product development programs. The Company also relies upon trade
secrets and proprietary know-how. As of March 31, 2000, Angeion had a
portfolio of approximately 158 patents and patent applications that Angeion
owns, consisting of 139 U.S. issued patents, 19 foreign patent issued, and
additional U.S. patent applications in preparation relating to its research
and development products.
Medical Graphics relies on a combination of patent, trademark and trade
secret laws to establish proprietary rights in its products. Medical Graphics
currently owns 18 United States domestic patents that cover the basic aspects of
Medical Graphics' core technologies, including gas pressure, flow measurement,
breath-by-breath assessment of gas exchange and some expert systems. In
addition, Medical Graphics has a number of foreign patents with respect to
technologies covered by its United States patents. The United States patents
were issued during the period from 1984 through 1999.
Medical Graphics' material United States patents are as follows:
<TABLE>
<CAPTION>
Patent Name Serial No. Issue Date Expiration Date
----------- ---------- ---------- ---------------
<S> <C> <C> <C>
Pulmonary Diagnostic System 4,796,639 January 10, 1989 January 9, 2007
Flow Meter System 5,038,773 August 13, 1991 August 12, 2009
Drying Sample Line 5,042,500 August 27, 1991 August 26, 2009
Multifunction Disposable Patient Valve 5,119,825 June 9, 1992 June 8, 2010
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Dynamic Transit Time Compensation 5,398,695 March 21, 1995 March 20, 2013
Dynamic Gas Density 5,502,660 March 26, 1996 March 25, 2014
</TABLE>
Foreign patents generally expire 20 years after the date of original
application, but vary from country to country. Medical Graphics intends to
aggressively enforce its intellectual property rights and has successfully done
so in the past. There can be no assurance, however, that these patents, or any
patents that may be issued as a result of existing or future application, will
offer any degree of protection from competitors.
Both Angeion and Medical Graphics also own registered trademarks and
have applied for other trademarks in the U.S. and certain foreign countries.
Although patent and intellectual property disputes in the medical
device area have often been settled through licensing agreements or similar
arrangements, costs associated with such arrangements may be substantial, and
there can be no assurance that necessary licenses would be available to the
Company on satisfactory terms, if at all. Accordingly, an adverse determination
in a judicial or administrative proceeding or failure to obtain necessary
licenses could prevent the Company from manufacturing and selling its products,
which would have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company seeks to protect its trade secrets and proprietary
know-how, in part, through confidentiality agreements noncompete agreement and
assignment of inventions provisions in agreements with employees, consultants
and other parties, as well as through contractual exclusivity with certain
suppliers. There can be no assurance, however, that these agreements will not be
breached, that the Company would have adequate remedies for any breach, or that
the Company's trade secrets will not otherwise become known to or independently
developed by competitors.
The Company conducts ongoing evaluations of potential infringement of
any proprietary rights of third parties by the products the Company intends to
market. Regardless of the Company's efforts to evaluate the potential
infringement of any proprietary rights of third parties, however, there can be
no assurance that such infringements do not exist or may not arise in the
future. There has been substantial litigation regarding patent and other
intellectual property rights in the medical device industry. Litigation, which
will result in substantial cost to and diversion of effort by the Company, may
be necessary to enforce patents issued to or licensed by the Company, to protect
trade secrets or know-how owned by the Company, to defend the Company against
claimed infringement of the rights of others, and to determine the scope and
validity of the proprietary rights of others. Adverse determinations in
litigation could subject the Company to significant liabilities to third parties
or could require the Company to seek licenses from third parties.
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GOVERNMENT REGULATION
Products manufactured by the Company are "devices" as defined in the
Federal Food, Drug and Cosmetic Act (the "Act") and are subject to regulatory
authority of the Food and Drug Administration ("FDA"), which regulates the
manufacture, distribution, related record keeping, labeling and advertising of
such devices. Following the enactment of the Medical Device Amendments to the
Act in May 1976 (the "Amendments"), the FDA classified medical devices in
commercial distribution into one of three classes, Class I, II or III. This
classification is based on the controls necessary to reasonably ensure the
safety and efficacy of medical devices.
Many Class I devices have been exempted from pre-market notification
requirements by the FDA. These products can be adequately regulated by the same
types of controls the FDA has used on devices since the passage of the Act in
1938. These "general controls" include provisions related to labeling, producer
registration, defect notification, records and reports and good manufacturing
practices. The good manufacturing practice regulation has been recently replaced
by a more comprehensive Quality System Regulation ("QSR"). As noted below, QSRs
include implementation of quality assurance programs, written manufacturing
specifications and processing procedures, written distribution procedures and
record keeping requirements.
Class II devices are products for which the general controls of Class I
devices are deemed not sufficient to assure the safety and effectiveness of the
device and thus require special controls. Special controls for Class II devices
include performance standards, post-market surveillance, patient registries and
the use of FDA guidelines. Standards may include both design and performance
requirements. Class III devices have the most restrictive controls and require
pre-market approval by the FDA. Generally, Class III devices are limited to
life-sustaining, life-supporting or implantable devices. All of Medical Graphics
products are Class II devices. Angeion's ICD products are classified as Class
III devices.
If the Company does not comply with applicable regulatory requirements,
including marketing products only for approved uses, it could be subject to
fines, injunctions, civil penalties, recall or seizure of products, total or
partial suspension of production, refusal of the government to grant premarket
clearance or premarket approval for products, withdrawal of approvals and
criminal prosecution. In addition, changes in existing regulations or adoption
of new governmental regulations or policies could prevent or delay regulatory
approval of our products or result in increased regulatory costs. Furthermore,
once clearance or approval is granted, subsequent modifications to the approved
product or manufacturing process may require a new round of clearances or
approvals, that could require substantial additional clinical data and FDA
review.
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CLASS II REQUIREMENTS
Section 510(k) of the Act requires individuals or companies
manufacturing medical devices intended for use with humans to file a notice with
the FDA at least 90 days before introducing a product not exempted from
notification requirements into the marketplace. The notice (a "510(k)
Notification") must state the class in which the device is classified and the
action taken to comply with performance standards or pre-market approval that
may be needed if the device is a Class II or Class III device, respectively.
Under Section 510(k), a medical device can be marketed if the FDA determines
that the device is substantially equivalent to similar devices marketed prior to
May 28, 1976. In the past, Medical Graphics has filed notifications with the FDA
of its intent to market its systems pursuant to Section 510(k) of the
Amendments, the FDA subsequently cleared these systems for commercial sale and
Medical Graphics is now marketing the devices under Section 510(k). The action
of the FDA does not, however, constitute approval by the FDA of Medical
Graphics' products or pass upon their safety and effectiveness.
In addition to the requirements described above, the Act requires that
all medical device manufacturers and distributors register with the FDA annually
and provide the FDA with a list of those medical devices that they distribute
commercially. The Act also requires that all manufacturers of medical devices
comply with labeling requirements and manufacture devices in accordance with
QSRs. QSRs require that companies manufacture their products and maintain their
documents in a prescribed manner with respect to manufacturing, testing and
quality control. In addition, these manufacturers are subject to inspection on a
routine basis for compliance with the QSRs. The FDA's Medical Device Reporting
regulation requires that companies provide information to the FDA on death or
serious injuries alleged to have been associated with the use of their products,
as well as product malfunctions that would likely cause or contribute to death
or serious injury if the malfunction were to recur. The FDA further requires
that certain medical devices not cleared with the FDA for marketing in the
United States meet specific requirements before they are exported. Medical
Graphics is registered as a manufacturer with the FDA and successfully passed an
FDA audit in 1998 with no negative observations.
The Company is subject to certain FDA regulations governing
manufacturing practices, labels, packaging, defective products and complaints
about its products. The FDA has authority to inspect the Company's facilities to
ensure compliance with the FDC Act and regulations thereunder. Failure to comply
with these regulations could have a material adverse effect on the Company's
business, financial condition and results of operations. Further, the FDA
regulates the export of medical devices that have not been approved or cleared
for marketing in the United States.
REGULATION BY FOREIGN GOVERNMENTS
The Company's products are also subject to similar regulation in
various foreign countries. ISO 9001 certification indicates that a company's
development and manufacturing processes comply with standards for quality
assurance and manufacturing process control. ISO 9001 certification evidences
compliance with the requirements that enable a company to affix the "CE Mark" to
its products. The CE Mark denotes conformity with European standards for safety
and allows certified devices to be placed on the market in all European Union
("EU") countries. After June 1998, medical devices may not be sold in EU
countries unless they display the CE Mark. Medical Graphics received ISO 9001
certification for its
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development and manufacturing processes in 1998 and passed its recertification
audit in 1999. Medical Graphics has achieved CE certification for its primary
cardiopulmonary testing products. There can be no assurance, however, that
Medical Graphics will be able to obtain regulatory approvals or clearances for
its products in foreign countries.
EMPLOYEES
As of March 31, 2000, the Company had 136 full-time employees,
including 10 engaged in administration, 23 in manufacturing, 17 in research and
development and 3 in regulatory and clinical. No employees are represented by
labor organizations and there are no collective bargaining agreements. The
Company believes that its relations with its employees are good.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains certain forward-looking
statements. For this purpose, any statements contained in this Form 10-K that
are not statements of historical fact may be deemed to be forward-looking
statements. Without limiting the foregoing, words such as "may," "will,"
"expect," "believe," "anticipate," "estimate" or "continue" or comparable
terminology are intended to identify forward-looking statements. These
statements by their nature involve substantial risks and uncertainties. The
Company's actual results could differ materially from those anticipated in such
forward-looking statements as a result of certain factors, including those set
forth in the following risk factors and elsewhere in this Annual Report on Form
10-K. These forward-looking statements are made as of the date of this Annual
Report on Form 10-K and the Company assumes no obligation to update such
forward-looking statements, or to update the reasons why actual results could
differ materially from those anticipated in such forward-looking statements.
CERTAIN RISK FACTORS
IMPORTANCE OF INTELLECTUAL PROPERTY PROTECTION. Patents and trademarks
are critical in the medical device industry, and the Company believes strongly
in protecting its intellectual property and has a long history of obtaining
patents, when available, in connection with its research and product development
programs. As of March 31, 2000, the Company had a portfolio of approximately 158
patents consisting of 139 U.S. issued patents, 19 foreign patents issued, and
additional U.S. patent applications in preparation relating to its research and
development products. The Company also owns certain registered trademarks, and
has applied for other trademarks in the U.S. and certain foreign countries.
There can be no assurance, that patents and trademarks will be granted in the
future, or that any patents and trademarks that the Company now holds or may be
granted, or under which it has held license rights, will be valid or otherwise
be of value to the Company. Even if the Company's patents and trademarks are
valid, others may be able to introduce non-infringing products that are
competitive with those of the Company. Competitors of the Company may also hold
or be granted patents that are not licensed to the Company.
Although patent and intellectual property disputes in the medical
device area have often been settled through licensing agreements or similar
arrangements, costs associated with such arrangements
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may be substantial, and there can be no assurance that necessary licenses would
be available to the Company on satisfactory terms if at all. Accordingly, an
adverse determination in a judicial or administrative proceeding or failure to
obtain necessary licenses could prevent the Company from manufacturing and
selling its products, which would have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company seeks to protect its trade secrets and proprietary
know-how, in part, through confidentiality agreements noncompete agreement and
assignment of inventions provisions in agreements with employees, consultants
and other parties, as well as through contractual exclusivity with certain
suppliers. There can be no assurance, however, that these agreements will not be
breached, that the Company would have adequate remedies for any breach, or that
the Company's trade secrets will not otherwise become known to or independently
developed by competitors.
NEED FOR MARKET ACCEPTANCE. Market acceptance of the Company's products
will depend, in part, on the therapeutic capabilities and operating features of
its products as compared to competing products, the Company's ability to
convince the medical community of the clinical efficacy of its products, the
timeliness of its product introductions compared to competing products and its
ability to manufacture quality products profitably in sufficient quantities.
Failure of the Company's products to gain market acceptance would have a
material adverse effect on the Company's business, financial condition and
results of operations. Although the markets for the Company's products are
expected to grow, there can be no assurance that the Company will participate in
such growth.
DEPENDENCE ON SENIOR MANAGEMENT AND OTHER KEY PERSONNEL. The Company's
success depends largely on its senior management and other key personnel.
Competition for qualified personnel with sufficient and relevant experience in
the medical device industry is intense. Accordingly, the loss of the services of
such individuals, or the inability to hire additional key individuals as
required, could have a material adverse effect on the Company, including its
current and future product development efforts.
DEPENDENCE ON THIRD PARTY VENDORS. The Company relies on third party
vendors for certain components used in the Company's products. A number of
significant components, such as capacitors, batteries and integrated circuits,
are purchased from sole source suppliers. Medical Graphics acquires its cycle
ergometers and the hardware and software for its sleep diagnostic systems from
third parties. Although some of Medical Graphics' components are purchased from
only one or a limited number of suppliers, the Company believes that if it is
unable to obtain components from these suppliers, it would be able to obtain
comparable components from other sources without significant additional expense
or interruption of business. Although the Company tries to maintain sufficient
quantities of inventory of such components to minimize production delays or
interruptions, there can be no assurance that the Company will find suitable
alternatives at reasonable prices, if at all, or that any such alternatives will
remain available to the Company. The Company's inability to obtain acceptable
components in a timely manner or find and maintain suitable replacement
suppliers for components would have a material adverse effect on the Company,
including its ability to manufacture its products.
PRODUCT LIABILITY AND POTENTIAL INSUFFICIENCY OF PRODUCT LIABILITY
INSURANCE. The testing, manufacturing, marketing and sale of medical devices
involves risk of liability claims and product recalls.
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The Company has in the past experienced difficulties related to the development,
testing and government approval of its products. For example, in November 1997,
the Company announced a revision to the clinical trial protocol of its Sentinel
2000 Model and 2010 Model ICDs and a temporary suspension of clinical implants
due to a component issue. The Company subsequently incorporated a new ceramic
capacitor to replace the component at issue and received FDA approval in January
1998 to resume clinical implants of its Sentinel 2000 Model and 2010 Model ICDs.
The Company's products are highly complex and some are, or will be, used in
medical procedures and in situations where there is a potential risk of serious
injury, adverse side effects or death. As a result, the Company currently
carries product liability insurance covering its products with policy limits per
occurrence and in the aggregate which the Company has deemed to be sufficient.
It cannot be predicted, however, whether such insurance is sufficient, or if
not, whether the Company will be able to obtain such insurance as is sufficient,
to cover the risks associated with the Company's business or whether such
insurance will be available at premiums that are commercially reasonable.
Although the Company has discontinued its ICD business, a successful claim
against or settlement by the Company in excess of its insurance coverage or the
Company's inability to maintain insurance in the future could have a material
adverse effect on the Company's business, results of operations and financial
condition.
POSSIBLE VOLATILITY OF COMMON STOCK PRICES. The market price of the
Common Stock has experienced substantial fluctuations in the past and may
continue to be volatile depending on news announcements or changes in general
market conditions. In particular, news announcements regarding quarterly results
of operations, competitive developments, product developments, litigation or
governmental regulatory actions impacting the Company may adversely affect the
Common Stock price.
EFFECT OF CERTAIN ANTI-TAKEOVER PROVISIONS. The Company is governed by
the provisions of Sections 302A.671 and 302A.673 of the Minnesota Business
Corporation Act. These anti-takeover provisions could potentially operate to
deny shareholders the receipt of a premium on their Common Stock and may also
have a depressive effect on the market price of the Company's Common Stock.
Section 302A.671 generally provides that the shares of a corporation acquired in
a "control share acquisition" have no voting rights unless voting rights are
approved by the shareholders in a prescribed manner. A "control share
acquisition" is generally defined as an acquisition of beneficial ownership of
shares that would, when added to all other shares beneficially owned by the
acquiring person, entitle the acquiring person to have voting power of 20% or
more in the election of directors. Section 302A.673 prohibits a public
corporation from engaging in a "business combination" with an "interested
shareholder" for a period of four years after the date of the transaction in
which the person became an interested shareholder, unless the business
combination is approved in a prescribed manner. A "business combination"
includes mergers, asset sales and other transactions. An "interested
shareholder" is a person who is the beneficial owner of 10% or more of the
corporation's voting stock. Reference is made to the detailed terms of Sections
302A.671 and 302A.673 of the Minnesota Business Corporation Act.
Furthermore, Section 3.5 of Article III of the Company's Restated
Articles of Incorporation provides that the affirmative vote of the holders of
two-thirds of the voting power of the shares entitled to vote is required for
shareholder approval of a plan of merger, exchange of securities, or transfer of
assets, as described in Section 302A.601 of the Minnesota Business Corporation
Act. In addition, the Company has adopted a Shareholder Rights Plan that may
have an anti-takeover effect in that any person or group
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acquiring control of the Company without the consent of the Company's Board of
Directors could suffer substantial dilution through operation of the Shareholder
Rights Plan. The Company has also entered into agreements with certain executive
officers that provide for certain benefits upon a change of control.
ITEM 2. PROPERTIES.
The Company currently leases a 52,250 square foot building for its
office, assembly and warehouse facilities located in suburban Saint Paul,
Minnesota. The building is also the location of the Company's Medical Graphics
subsidiary. The lease expires June 30, 2002, at which time the Company has an
option to renew the lease for an additional four years. The Company has the
option to purchase the building at the end of each lease expiration period at
the building's fair market value. Annual rental costs will be approximately
$345,000 over the next two years. Rent expense for both of the years ended
December 31, 1999 and 1998 was $345,000.
The Company also leases approximately 80,000 square feet of office and
manufacturing space in Plymouth/Brooklyn Park, Minnesota. The lease agreement
for this facility expires on February 28, 2008. The monthly base rent for the
first five years under the terms of the lease agreement is approximately
$48,040, plus the Company's pro rata share of operating expenses and real estate
taxes. In connection with the Company's acquisition of Medical Graphics in
December 1999, and its decision to pursue the license or transfer of its ICD
product line, the Company is seeking to sublease its Brooklyn Park/Plymouth,
Minnesota facilities.
ITEM 3. LEGAL PROCEEDINGS.
NOTE HOLDER LITIGATION
On September 24, 1999, U.S. Bank National Association, as Trustee on
behalf of Holders of certain Angeion 7 1/2% Senior Convertible Notes due 2003
in the principal amount of $22,150,000, brought suit against the Company in
Hennepin County District Court, the Fourth Judicial District, State of
Minnesota. The lawsuit sought declaratory judgment, breach of contract,
and related relief. The Trustee alleged that certain actions taken by
Angeion in 1998 and 1999 constituted a sale of all or substantially all of
Angeion's assets, and thereby constituted a Designated Event under the terms
of the Indenture governing the Notes. The Trustee sought to obligate Angeion
to accelerate payment of the Notes and/or to impose a trust on an
amount of funds not less than $23 million of the Company's assets. On October
14, 1999, the Company filed its Answer to the Trustee's complaint and also
filed a counterclaim against the Trustee, claiming that the Trustee's
complaint was brought in bad faith.
On October 23, 1999, the Trustee filed an 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. The Company opposed the Trustee's request on grounds that, for legal
and equitable reasons, it is not entitled to such
21
<PAGE>
prejudgment relief. By order of the Court dated November 30, 1999, the Court
denied the Trustee's request for a temporary injunction. The Trustee has
appealed this order.
On November 15, 1999, Angeion filed a motion for complete dismissal
of the Trustee's complaint. On November 30, 1999 the Trustee filed a motion
for complete dismissal of Angeion's counterclaims. A hearing was held on both
motions on December 28, 1999. By written order dated February 7, 2000, the
Court granted both motions. The Court specifically ruled that the
transactions of which the Trustee complained did not constitute the sale of
all or substantially all of the assets of Angeion, that no Designated Event
had occurred, and that the Note holders were not entitled to prepayment of
their notes. The Trustee has appealed this order.
OTHER MATTERS
The Company is also subject to certain claims and lawsuits that have
been filed in the ordinary course of business. It is management's opinion that
the settlement of all litigation would not have a material effect on the
financial position of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On December 31, 1999, the Company held its 1999 Annual Meeting of
Shareholders. At the meeting, the shareholders of the Company took the actions
listed below. The meeting was convened on December 31, 1999, and all items were
approved on that date, except for approval of the ELA Medical and Medtronic
transactions. The Company adjourned the meeting with respect to these two items
until January 19, 2000, and later to February 4, 2000 and to February 17, 2009,
when these two items were approved.
ELECTION OF DIRECTORS
The shareholders elected the following persons to serve as directors of
the Company for a period of one year or until their successor were elected and
qualified:
<TABLE>
<CAPTION>
NAME VOTES FOR VOTES WITHHELD
---- --------- --------------
<S> <C> <C>
Whitney A. McFarlin 3,670,107 152,168
Arnold A. Angeloni 3,685,718 136,577
Dennis E. Evans 3,685,478 136,797
James B. Hickey, Jr 3,683,049 139,226
Lyle D. Joyce, M.D., Ph.D. 3,694,923 127,352
Joseph C. Kiser, M.D. 3,692,105 130,170
Donald D. Maurer 3,687,235 135,040
Glen Taylor 3,687,355 134,920
Stephen L. Wilson 3,687,875 134,400
</TABLE>
22
<PAGE>
APPROVAL OF TRANSACTION WITH ELA MEDICAL, INC.
The shareholders approved the Company's proposal to consummate an Asset
Purchase Agreement dated as of August 2, 1999 with ELA Medical, Inc. by the
following vote:
<TABLE>
<S> <C>
For: 2,707,691
Against: 110,955
Abstain: 27,211
Broker Non-vote 976,418
</TABLE>
APPROVAL OF TRANSACTION WITH MEDTRONIC, INC.
The shareholders approved the Company's proposal to consummate the
Settlement, License and Asset Purchase Agreement dated as of September 16, 1999
with Medtronic, Inc. by the following vote:
<TABLE>
<S> <C>
For: 2,698,017
Against: 123,481
Abstain: 24,359
Broker Non-vote: 976,418
</TABLE>
INCREASE IN AUTHORIZED SHARES
The shareholders authorized an increase in the number of authorized
shares of Common Stock, par value $.01 per share (the "Common Stock"), of the
Company from 7,500,000 to 10,000,000 by the following vote:
<TABLE>
<S> <C>
For: 3,597,074
Against: 189,337
Abstain: 35,864
Broker Non-vote: -0-
</TABLE>
AMENDMENTS TO THE COMPANY'S 1994 NON-EMPLOYEE DIRECTOR PLAN.
The shareholders approved amendments to the Company's 1994 Non-Employee
Director Plan, as amended (the "Director Plan"), to (i) extend the term of the
Director Plan by five years to October 7, 2004, and (ii) increase the number of
shares covered by the Director Plan from 20,000 to 250,000;
<TABLE>
<S> <C>
For: 2,062,477
Against: 334,644
Abstain: 47,220
Broker Non-vote: 1,377,934
</TABLE>
23
<PAGE>
APPROVAL OF AUDITORS
The shareholders ratified the appointment of KPMG LLP as independent
auditors of the Company for the fiscal year ending December 31, 1999 by the
following vote:
<TABLE>
<S> <C>
For: 3,761,937
Against: 41,629
Abstain: 18,709
Broker Non-vote: -0-
</TABLE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS.
The Company's common stock is traded on the Nasdaq National Market
under the symbol "ANGN." The prices below are the last high and low last
sales prices as reported in each quarter of the last two calendar years.
Prices for dates prior to May 17, 1999 are adjusted to reflect the Company's
1- for-10 reverse stock split effective at the close of business on that date.
Angeion Common Stock Prices
<TABLE>
<CAPTION>
Calendar Years 1999 and 1998 High Low
---- ---
<S> <C> <C>
1999
Fourth calendar quarter $ 2.19 $ 1.75
Third calendar quarter $ 2.75 $ 2.25
Second calendar quarter $ 2.56 $ 2.25
First calendar quarter $ 0.75 $ 0.72
1998
Fourth calendar quarter $ 1.16 $ 1.03
Third calendar quarter $ 2.19 $ 2.06
Second calendar quarter $ 2.19 $ 2.13
First calendar quarter $ 3.88 $ 3.06
</TABLE>
As of March 31, 2000, the Company's Common Stock was held of record
by 686 persons. In addition, a number of shares were held in street name by
nominees for a number of additional shareholders.
24
<PAGE>
DIVIDENDS
The Company has not paid any dividends on its common stock. The
Company currently intends to retain any earnings for use in its operations
and does not anticipate paying any cash dividends in the foreseeable future.
25
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data as of and for the years ended December
31, 1999 and 1998, the five month period ended December 31, 1997 and the years
ended July 31, 1997, 1996 and 1995 are derived from the audited financial
statements of the Company. The selected financial data as of and for the five
month transition period ended December 31, 1996 are derived from unaudited
financial statements of the Company. In the opinion of management the
unaudited financial statements reflect all normal recurring adjustments
necessary to present fairly the financial data for the unaudited period
described above. This unaudited financial data is presented for comparative
purposes as a result of the Company's change in year end from July 31 to
December 31 in 1997.
<TABLE>
<CAPTION>
Five Month
Periods Ended
(In thousands) Years Ended December 31, December 31, Years Ended July 31,
- ------------------------------ ------------------------ ----------------------- -----------------------------
1999 1998 1997 1996 1997 1996 1995
----------- ---------- --------- ---------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Statements of Operations Data
Net sales from operations,
including discontinued
operations $ 5,783 $ 4,567 $ 865 $ 2,276 $ 4,505 $ 2,949 0
=========== ========== ========= ========== ========== ========== =======
Net income (loss) from:
Continuing operations 28,416 (9) (52) 556 866 440 (579)
Discontinued operations (26,850) (38,829) (14,889) (8,291) (27,775) (15,622) (9,064)
Total $ 1,566 $ (38,838) $ (14,941) $ (7,735) $ (26,909) (15,182) (9,643)
=========== ========== ========= ========== ========== ========== =======
</TABLE>
<TABLE>
<CAPTION>
December 31 July 31
------------------------------------------- --------------------------------
Balance Sheet Data: 1999 1998 1997 1996 1997 1996 1995
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Working capital $8,933 $3,496 $18,509 $37,018 $18,490 $44,935 $1,670
Total Assets 33,737 22,893 28,884 46,797 30,896 55,184 5,751
Long-term debt 20,198 22,150 0 0 0 1,500 1,501
Shareholders' equity $7,291 $(6,280) $25,751 $42,117 $26,048 $49,464 2,980
(deficit)
</TABLE>
26
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
During March 2000, the Company announced the discontinuance of its
historical business, the research, development, manufacturing and marketing
of implantable cardioverter defibrillators ("ICD"). Although the Company had
received a Pre-market Approval ("PMA") from the U.S. Food and Drug
Administration ("FDA") for its model Series 2020 ICD product line in March
1999, had favorably settled its outstanding litigation against CPI/Guidant in
April 1999 and reduced the cash burn rate through the restructurings
announced in January and April, 1999, the Board of Directors determined that
the costs associated with internally developing new ICD products would render
the Company's long-term financial performance objectives unattainable.
Accordingly, the Company decided to pursue the license or transfer of its ICD
technology and to discontinue the ICD product line. The last sales of these
products is expected to occur during the first half of 2000. The Company
intends to focus its future efforts on the markets served by and business
operations of Medical Graphics and the acquisition and development of future
businesses that contribute to shareholder value.
The Company has incurred net operating losses from continuing
operations in each year since its inception in 1986. At December 31, 1999,
the Company's accumulated deficit was $121,490,000. Historically, the losses
have resulted principally from costs incurred in the research and development
of the Company's ICD products and initial startup of manufacturing
operations. The Company has had limited revenue since the sale of its
accessory products business, AMP, in September 1992. The Company expected to
incur additional operating losses from the ICD business. The Company's
ability to generate profits from its ICD product line was ultimately
dependent on obtaining regulatory approvals, attaining revenue levels that
would generate operating profits, and developing the manufacturing capacity
to achieve those revenue levels. There was no assurance that the Company
would obtain the required regulatory approvals on a timely basis, if at all;
successfully develop, commercialize, manufacture and market its ICD products
or achieve profitability of the ICD product line. In addition, the Company's
results of operations could fluctuate significantly from quarter to quarter
depending upon a number of factors including; the availability of third party
reimbursement, the timing of regulatory approvals, operating costs,
competition, progress of product development and clinical studies and the
extent to which the Company's ICD products gain market acceptance.
The table presented in Item 6, "Selected Financial Data," sets forth
the sales and net losses experienced by the Company from its discontinued ICD
business as well as the sales and earnings from Medical Graphics after
December 21, 1999. The decision to discontinue this product line represented
a significant change for the Company. As a result of the December 21, 1999
merger, Medical Graphics now comprises a majority of the total assets of the
Company and generates a majority of its sales. The Company now intends to
focus its future efforts primarily on the markets served by and business
operations of Medical Graphics. Given this decision and new focus, the
following discussion is directed at the Company's newly acquired subsidiary,
Medical Graphics Corporation. The following table summarizes selected
financial data relating to Medical Graphics for the three years ended
December 31, 1999.
27
<PAGE>
28
<PAGE>
<TABLE>
<CAPTION>
(In thousands) Years Ended December 31,
- --------------------- ----------------------------------------
Pro Forma
Angeion Medical Graphics
--------- ----------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net Sales $ 22,188 $ 20,449 $ 19,173
Gross margin 10,112 8,008 7,004
-------- -------- --------
Operating Expenses:
Selling and marketing 5,113 5,653 6,282
General and administrative 2,779 1,927 2,228
Research and development 1,453 1,550 1,867
Infrequent charges - - 1,738
-------- -------- --------
9,345 9,130 12,115
Operating income (loss) 767 (1,122) (4,911)
Other income (expense)
Net proceeds from settlement
of lawsuits and grant of
license rights 30,790 - -
Gain (loss) on disposal of assets (337) - 128
Interest income 1,058 - -
Interest expense (2,892) (454) (329)
-------- -------- --------
28,619 (454) (201)
-------- --------- --------
Income (loss) before taxes 29,386 (1,576) (5,112)
Provision for income taxes (171) - -
Loss from discontinued operations (26,850)
-------- --------- --------
Net income (loss) $ 2,365 $ (1,576) $ (5,112)
======== ========= ========
</TABLE>
29
<PAGE>
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 (PRO FORMA, UNAUDITED) COMPARED TO 1998
REVENUE. Total revenue increased 8.5% to $22,188,000 in 1999 from
$20,449,000 in 1998. Domestic revenue increased 12.7% to $17,827,000 in 1999
from $15,824,000 in 1998. This growth is due to a 37.7% increase in sales of
cardiopulmonary products, including our new pulmonary function testing
systems and software upgrade products, including those sold to customers for
year 2000 compliance, offset by a 61.7% decline in sales of sleep diagnostic
systems. Internationally, revenue decreased 8.2% to $2,458,000 in 1999
compared to $2,679,000 in 1998 because of previous changes in our European
distribution channels and a stronger dollar versus other international
currencies, offset by renewed interest in our new pulmonary function testing
systems. Service revenue decreased slightly to $1,903,000 in 1999 from
$1,946,000 in 1998.
GROSS MARGIN. The gross margin percentage increased to 45.6% in 1999
from 39.2% in 1998. Margin increases reflect Medical Graphic's continuing
efforts to decrease its costs of manufacturing through increased efficiencies
and value engineering. In addition, product mix changes from reduced sales of
lower margin sleep diagnostic systems and increased sales of higher margin
cardiopulmonary systems and software upgrade products have favorably
influenced gross margin percentages.
SELLING AND MARKETING. Selling and marketing expenses decreased 9.6%
to $5,113,000 in 1999 from $5,653,000 in 1998. Reduced headcount has led to
lower personnel costs and reductions in travel expenses. Those savings
combined with lower expenses associated with trade shows have resulted in
reductions aggregating $618,000, which is offset by a $61,000 increase in
costs associated with demonstrating equipment to customers. These overall
decreases are the result of cost containment measures implemented during the
last half of 1998.
GENERAL AND ADMINISTRATIVE. General and administrative expenses
increased 44.2% to $2,779,000 in 1999 from $1,927,000 in 1998. As a percent
of revenue, general and administrative expenses increased to 12.5% in 1999
from 9.4% in 1998. This overall increase of $852,000 included higher
personnel costs, professional fees, higher provision for doubtful accounts,
as well as $600,000 representing the Company's pro forma general and
administrative expenses, offset by a $162,000 decrease in consulting expenses.
RESEARCH AND DEVELOPMENT. Research and development expenses
decreased 6.3% to $1,453,000 in 1999 from $1,550,000 in 1998 and as a
percentage of revenue decreased to 6.5% in 1999 from 7.6% in 1998. Medical
Graphics continues to use in-house software engineers rather than independent
software contractors as part of its transition of its product software to a
Windows 98/NT platform. Additionally, the 1998 costs associated with
re-engineering our pulmonary function testing hardware are not being incurred
in 1999.
OTHER INCOME (EXPENSE). The net proceeds from settlement of lawsuits
and grant of license rights represents the 1999 settlement of all ongoing
litigation with CPI and its parent company, Guidant Corporation. The
settlement also provided that the Company grant CPI a non-exclusive license
under all
30
<PAGE>
of the Company's patents that cover cardiac stimulation devices. See Item 3,
"Legal Proceedings" and Item 7, "Liquidity and Capital Resources" for
expanded discussions of this litigation.
Interest income resulted from the short term investment of excess
operating cash that was generated through settlement of the CPI litigation.
Interest expense for 1999 includes both Medical Graphics interest of $546,000
and the Company's interest of $2,346,000.
DISCONTINUED OPERATIONS. The 1999 loss from discontinued operations
of $26,850,000 reflects the Company's results associated with operating its
ICD business. See Item 7, "Overview" for an expanded discussion regarding the
Company's decision to discontinue its historical ICD business.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO 1997
REVENUE. Total revenue increased 6.7% to $20,449,000 in 1998 from
$19,173,000 in 1997. Domestic revenue increased 13.4% and service increased
15.3% over 1997 to offset a 24.2% decline in revenue from international
sources. Revenue from domestic sales, international sources and service
represented 77.4%, 13.1% and 9.5% of 1998 revenue, respectively, compared to
72.8%, 18.4% and 8.8%, respectively, for 1997.
The increase in domestic revenue was driven by both sales of
pulmonary diagnostics systems as well as strong sales of its new sleep
diagnostic systems. Medical Graphics introduced updated models of its
pulmonary function systems in September 1998 and initial results reflected
strong customer interest in these new products. In addition, Medical Graphics
enjoyed revenue for all of 1998 from its new diagnostics systems for sleep
disorders that were introduced in late September 1997.
International revenue for 1998 continued to be depressed from the
closing of Medical Graphics' German office at the end of 1996 as part of its
overall cost reduction strategy. In addition, international revenue has been
impacted by weaker economic conditions and a stronger dollar versus the local
currencies.
GROSS MARGIN. The gross margin percentage increased to 39.2% of
revenue in 1998 from 37.6% in 1997. This margin increase was achieved through
manufacturing efficiencies resulting from the 1997 adoption of a modified
version of cellular manufacturing under which major systems are produced in
one continuous process over a shorter period of time rather than producing
several subassemblies requiring longer throughput times. These process
revisions not only reduce manufacturing costs but require significantly lower
levels of inventory.
SELLING AND MARKETING. Selling and marketing expenses decreased
10.0% to $5,653,000 in 1998 from $6,282,000 in 1997. Selling expenses as a
percent of revenue decreased to 27.6% in 1998 compared to 32.8% in 1997.
Increased commissions of $245,000 on higher domestic revenue and increased
31
<PAGE>
expenses associated with expanding Medical Graphics domestic sales force were
offset by savings related to the following actions. Medical Graphics saved
$348,000 due to its 1997 decision to sell the asthma business unit and reduce
its focus on the sports medicine market. Moreover, nearly $500,000 in savings
resulted from reductions of marketing costs, primarily personnel and related
travel.
GENERAL AND ADMINISTRATIVE. General and administrative expenses
decreased 13.5% to $1,927,000 in 1998 from $2,228,000 in 1997. As a percent
of revenue, general and administrative expenses decreased to 9.4% in 1998
compared to 11.6% in 1997. This decrease reflects lower consulting and bank
refinancing expenses associated with 1997 restructuring activities along with
a $145,000 decrease in the provision for doubtful accounts receivable.
RESEARCH AND DEVELOPMENT. Research and development expenses
decreased 17.0% to $1,550,000 in 1998 from $1,867,000 in 1997 and as a
percentage of revenue decreased to 7.6% in 1998 from 9.7% in 1997. Medical
Graphics has continued to reduce its dependence on independent software
contractors in favor of in-house software engineers. Lower costs also reflect
an increasing proficiency of Medical Graphics employees developing product
software upgrades.
INFREQUENT CHARGES. Infrequent expenses of $1,738,000 for the year
ended December 31, 1997 represented expenses associated with the cost
reduction strategies implemented in the first quarter of 1997. Each component
is described and quantified in the following table.
<TABLE>
<CAPTION>
DESCRIPTION AMOUNT
- ------------------------------------------------------------------------- -------------
<S> <C>
Professional fees $239,000
Consulting expenses:
Stock granted to Mr. Sheffert 101,000
Warrants and options granted to Mr. Sheffert and a former chairperson 429,000
Manchester Business Services, Inc. fees 243,000
Terminated 31 employees 344,000
Terminated 2 officers 382,000
-------------
$1,738,000
=============
</TABLE>
Professional and consulting fees included legal, accounting and
other consulting expenses associated with the development and implementation
of Medical Graphic's restructuring activities. The amounts listed for
terminated employees and officers represent their respective severance costs.
These terminations included 7 employees in Germany and 26 employees in the
United States.
The stock granted to Mr. Sheffert was valued at $2.25 per share, the
closing price of Medical Graphic's stock on the grant date. The options
granted to Mr. Sheffert were valued using the Black
32
<PAGE>
Scholes model. Warrants granted to Mr. Sheffert and a former chairperson of
the board were also valued using the Black Scholes model.
INTEREST EXPENSE. Interest expense increased by 38.0% to $454,000 in
1998 from $329,000 in 1997. This increase reflects higher average loan
balances in 1998 compared to 1997 along with slightly increased interest
rates.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs have related to expansion of clinical
studies, research and development activities of its ICD product lines and
scale-up and expansion of the Company's manufacturing activities and general
corporate purposes including working capital. The Company has financed its
liquidity needs over the last several fiscal years through the sale of common
stock, other equity securities, and debt.
On March 5, 1999, the Company received FDA PMA approval for its Lyra
2020 ICD Series and AngePass 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.
The Company announced in April 1999 that it had settled all ongoing
litigation with CPI and its parent company, Guidant Corporation, 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
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 December 21, 1999, the Company completed its acquisition of
Medical Graphics Corporation, a leader in the design and production of
noninvasive diagnostic systems used in the prevention, early detection and
cost-effective treatment of heart and lung disease. The acquisition, recorded
under the purchase method of accounting, included the purchase of all the
outstanding shares of common stock of Medical Graphics Corporation at $2.15
per share which, plus acquisition costs, resulted in a total purchase price
of $16.8 million.
Net cash provided by operating activities in the year ended December
31, 1999 was $10,208,000. This increase in cash was principally due to
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 and
April Restructuring plans.
Investing activities used cash of $16,076,000, primarily for the
purchase of Medical Graphics on December 21, 1999.
33
<PAGE>
At December 31, 1999, the Company had cash and cash equivalents of
$5,263,000 and there are no material commitments for 2000 capital
expenditures. The Company believes that its revenues from operations together
with its existing cash will be adequate to satisfy its liquidity and capital
resource needs through 2000.
Subsequent to December 31, 1999, and as described elsewhere above,
the Company entered into a licensing agreement pursuant to which it received
net cash of $8,500,000.
YEAR 2000 COMPLIANCE
All companies that use computers must address problems that could
occur when the year changed 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 for the year 2000.
The Company developed and implemented a plan to achieve Year 2000
compliance, including the creation of area-specific Year 2000 Oversight
teams. As of January 1, 2000, all computer and related electronic systems and
services have functioned appropriately with no interruptions to normal
business functions. To date, no apparent issues have arisen with vendors
providing products and services. All of the Company's current and future
products are designed, manufactured and tested to perform correctly without
any Year 2000 problems. The total cost of Year 2000 compliance is estimated
to be no more than $200,000.
The Company believes its efforts adequately addressed its Year 2000
concerns. Although the Company believes that no significant Year 2000 matters
will arise and have a material impact on its business, financial conditions
and results of operations, it cannot assure that all potential Year 2000
issues that may affect the Company have been resolved.
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISKS.
During 1999 and prior years, because the financial results of the
Company's two subsidiaries, Angeion Europe and Angeion GmbH, are translated
into U.S. dollars in consolidation, the Company's primary market risk of
exposure to foreign exchange rate fluctuations related to the British pound
sterling and the German deutschemark as against the U.S. dollar. The
Company's exposure to foreign exchange rate fluctuations also arise from
certain inter-company payable or receivable balances. All sales made by
Medical Graphics are denominated in the U.S. dollar and have no foreign
currency exchange rate risk to the Company.
All of the Company's foreign subsidiaries are not operating
currently and are being liquidated. Balances remaining with those
subsidiaries are currently minimal and the Company's corresponding exposure
to foreign exchange rate fluctuations is likewise minimal.
34
<PAGE>
EURO CONVERSION
Effective January 1, 1999, 11 of the 15 member countries of the
European Union (EU) adopted the euro as the common legal currency. On that
date, the participating countries fixed euro conversion rates between their
existing local currencies and the euro. During the three-and-a-half year
transition period following its introduction, participating countries will be
allowed to transact business both in the euro and in their local currencies.
On July 1, 2002, the euro will be the sole official currency in the
participating EU countries.
The Company sells and distributes its products globally, including
sales in Europe. As noted above, all of the Company's foreign subsidiaries
are currently being liquidated and not operating and all sales made by
Medical Graphics are denominated in the U.S. dollar. The U.K. is one of the
four countries of the EU that did not adopt the euro as its legal currency
effective January 1, 1999. However, the U.K. may convert to the euro at a
later date.
During 1999, the Company did not incur any material increase in
costs attributed to the euro conversion. While the Company will continue to
evaluate the impact of the euro conversion over time, based upon currently
available information, management does not believe that continued conversion
to the euro currency will have a material impact on the Company's financial
condition or over-all trends in results of operations.
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. SFAS No. 133, as
amended by SFAS No. 137, 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.
In December 1999, the Securities and Exchange Commission (SEC)
issued Staff Accounting Bulletin (SAB) No. 101 which provides the staff's
views in applying generally accepted accounting principles to selected
revenue recognition issues. On March 24, 2000, the SEC issued SAB No. 101A.
(DEFERRAL OF THE EFFECTIVE DATE OF SAB 101) AND IMPLEMENTATION ISSUES RELATED
TO SAB 101 which defers the effective date of SAB 101 by one quarter for
certain registrants. SAB 101 is now effective beginning the second quarter of
all fiscal years beginning after December 15, 1999 for registrants with
fiscal years that begin between December 16, 1999 and March 15, 2000. The
Company will be required to adopt the guidance of this bulletin, beginning
with the second quarter of fiscal 2000. The impact of adoption on the
Company's financial statements has not yet been determined.
35
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Board of Directors and Shareholders
Angeion Corporation:
We have audited the accompanying consolidated balance sheets of
Angeion Corporation and subsidiaries as of December 31, 1999 and 1998, and
the related consolidated statements of operations, shareholders' equity
(deficit), and cash flows for the years ended December 31, 1999 and 1998, the
five-month transition period ended December 31, 1997 and the year ended July
31, 1997. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Angeion Corporation and subsidiaries as of December 31, 1999 and 1998, and
the results of their operations and their cash flows for the years ended
December 31, 1999 and 1998, the five-month transition period ended December
31, 1997, and the year ended July 31, 1997, in conformity with generally
accepted accounting principles.
KPMG LLP
Minneapolis, Minnesota
March 27, 2000
36
<PAGE>
ANGEION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
(in thousands except share and per share data)
<TABLE>
<CAPTION>
1999 1998
--------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 5,263 $ 1,828
Accounts receivable, net of allowance for doubtful
accounts of $100 4,790 -
Inventories 4,953 -
Net current assets of discontinued operations - 1,989
Prepaid expenses and other current assets 175 24
--------- --------
Total current assets 15,181 3,841
--------- --------
Net non-current assets of discontinued operations 2,354 10,173
Equipment and fixtures, net 2,225 278
Deferred tax assets 1,868 -
Intangible assets 10,298 -
Other assets, net 1,250 1,924
Goodwill 561 -
--------- --------
$ 33,737 $ 16,216
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 1,455 -
Employee compensation 699 -
Deferred income 853 -
Warranty reserve 304 -
Net current liabilities of discontinued operations 2,101 -
Other liabilities and accrued expenses 836 346
--------- --------
Total current liabilities 6,248 346
LONG-TERM DEBT 20,198 22,150
--------- --------
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock, $.01 par value. Authorized 7,500,000 shares;
issued and outstanding 4,105,718 shares in 1999 and
3,879,655 shares in 1998 41 388
Additional paid-in capital 128,749 116,531
Unamortized value of restricted stock - (118)
Cumulative translation adjustment (9) (25)
Accumulated deficit (121,490) (123,056)
--------- --------
Total shareholders' equity (deficit) 7,291 (6,280)
--------- --------
COMMITMENTS AND CONTINGENCIES (Notes 12, 15 and 20)
--------- --------
$ 33,737 $ 16,216
========= ========
</TABLE>
See accompanying notes to financial statements
37
<PAGE>
ANGEION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share amounts)
<TABLE>
<CAPTION>
Five Month Year
Period Ended Ended
Pro Forma Year Ended December 31, December 31, July 31,
Angeion ---------------------- ------------ --------
1999 1999 1998 1997 1997
(Note 5)
(Unaudited)
----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
REVENUES $ 22,188 $ 608 $ - $ - $ -
COST OF GOODS SOLD 12,076 331 - - -
-------- -------- -------- -------- --------
GROSS MARGIN 10,112 277 - - -
-------- -------- -------- -------- --------
OPERATING EXPENSES:
Selling and marketing 5,113 140 - - -
General and administrative 2,779 660 600 250 600
Research and development 1,453 40 - - -
-------- -------- -------- -------- --------
9,345 840 600 250 600
-------- -------- -------- -------- --------
OPERATING INCOME (LOSS) 767 (563) (600) (250) (600)
-------- -------- -------- -------- --------
OTHER INCOME (EXPENSE):
Net proceeds from settlement of lawsuits
and grant of license rights 30,790 30,790 2,050 - -
Loss on disposal of assets (337) (337)
Interest income 1,058 1,058 669 203 1,570
Interest expense (2,892) (2,361) (2,128) (5) (104)
-------- -------- -------- -------- --------
28,619 29,150 591 198 1,466
-------- -------- -------- -------- --------
INCOME (LOSS) BEFORE TAXES 29,386 28,587 (9) (52) 866
Provision for taxes 171 171 - - -
-------- -------- -------- -------- --------
NET INCOME (LOSS) FROM CONTINUING OPERATIONS 29,215 28,416 (9) (52) 866
LOSS FROM DISCONTINUED OPERATIONS (26,850) (26,850) (38,829) (14,889) (27,775)
-------- -------- -------- -------- --------
NET INCOME (LOSS) $ 2,365 $ 1,566 $(38,838) $(14,941) $(26,909)
======== ======== ======== ======== ========
NET INCOME (LOSS) PER SHARE - BASIC
Continuing operations $ 7.31 $ 7.11 $ (0.00) $ (0.02) $ 0.30
Discontinued operations (6.72) (6.72) (11.22) (4.80) (9.56)
Net income (loss) 0.59 0.39 (11.23) (4.82) (9.26)
NET INCOME (LOSS) PER SHARE - DILUTED
Continuing operations 6.20 6.03 (0.00) (0.02) 0.30
Discontinued operations (5.70) (5.70) (11.22) (4.80) (9.56)
Net income (loss) 0.50 0.33 (11.23) (4.82) (9.26)
======== ======== ======== ======== ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic 3,996 3,996 3,460 3,100 2,906
Diluted 4,709 4,709 3,460 3,100 2,906
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements
38
<PAGE>
ANGEION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(in thousands)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK
--------------------- --------------------
NUMBER NUMBER
OF SHARES PAR VALUE OF SHARES PAR VALUE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
BALANCES AT JULY 31, 1996 88 $ 9 2,864 $287
Preferred stock converted
into common stock (88) (9) 88 9
Notes payable converted
into common stock 25 2
Restricted stock grant 3 -
Stock options exercised 6 1
Warrants exercised 66 7
Director stock issued 4 -
Compensation expense on grant
of stock and stock options
Cumulative translation adjustment
Net loss
------- ----- ------ ------
BALANCES AT JULY 31, 1997 - - 3,056 306
Restricted stock grant 2 -
Stock options exercised 3 -
Warrants exercised
Director stock issued 4 1
Compensation expense on grant
of stock and stock options
Amortization of restricted stock
Promethian stock grant 10 1
Synthelabo investment 225 22
Cumulative translation adjustment
Net loss
------- ----- ------ ------
BALANCES AT DECEMBER 31, 1997 - - 3,300 330
Restricted stock grant 21 2
Stock options exercised 10 1
Director stock issued 1 -
Compensation expense on grant
of stock and stock options
Amortization of restricted stock
Rose Glen 2 -
Warrants on convertible debenture
Synthelabo investment 521 52
Short swing profit
Employee stock purchase plan 25 3
Cumulative translation adjustment
Net loss
------- ----- ------ ------
BALANCES AT DECEMBER 31, 1998 - - 3,880 388
Notes payable converted
into common stock 128 12
Cancellation of restricted stock grants (6)
Stock options exercised
Director stock issued 96
Director cash compensation -
Compensation expense on grant
of stock and stock options
Amortization of restricted stock
Amortization of debt issuance costs
Synthelabo investment
One-for-ten reverse stock split (360)
Employee stock purchase plan 7
Cumulative translation adjustment
Net income
------- ----- ------ ------
BALANCES AT DECEMBER 31, 1999 - $ - 4,105 $ 41
======= ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
UNAMORTIZED
ADDITIONAL VALUE OF CUMULATIVE
PAID-IN RESTRICTED TRANSLATION ACCUMULATED
CAPITAL STOCK ADJUSTMENT DEFICIT TOTAL
------------ ------------ ------------ ------------ ------
<S> <C> <C> <C> <C> <C>
BALANCES AT JULY 31, 1996 $91,536 $ - $ - $(42,368) $49,464
Preferred stock converted
into common stock
-
Notes payable converted
into common stock 1,416 1,418
Restricted stock grant 125 (73) 52
Stock options exercised 156 157
Warrants exercised 1,318 1,325
Director stock issued 112 112
Compensation expense on grant
of stock and stock options 427 427
Cumulative translation adjustment 1 1
Net loss (26,909) (26,909)
------- ----- -------- -------- -------
BALANCES AT JULY 31, 1997 95,090 (73) 1 (69,277) 26,047
Restricted stock grant 79 (30) 49
Stock options exercised 87 87
Warrants exercised
-
Director stock issued 49 50
Compensation expense on grant
of stock and stock options 88 88
Amortization of restricted stock 52 52
Promethian stock grant (21) (20)
Synthelabo investment 14,310 14,332
Cumulative translation adjustment 5 5
Net loss (14,941) (14,941)
------- ----- -------- -------- -------
BALANCES AT DECEMBER 31, 1997 109,682 (51) 6 (84,218) 25,749
Restricted stock grant 509 (112) 399
Stock options exercised 149 150
Director stock issued 158 158
Compensation expense on grant
of stock and stock options 208 208
Amortization of restricted stock 45 45
Rose Glen 311 311
Warrants on convertible debenture 286 286
Synthelabo investment 4,899 4,951
Short swing profit 13 13
Employee stock purchase plan 316 319
Cumulative translation adjustment (31) (31)
Net loss (38,838) (38,838)
------- ----- -------- -------- -------
BALANCES AT DECEMBER 31, 1998 116,531 (118) (25) (123,056) (6,280)
Notes payable converted
into common stock 1,939 1,951
Cancellation of restricted stock grants (40) 40
-
Stock options exercised
-
Director stock issued 189
Director cash compensation (60) (60)
Compensation expense on grant
of stock and stock options 116 116
Amortization of restricted stock 78 78
Amortization of debt issuance costs (283) (283)
Synthelabo investment 9,983 9,983
One-for-ten reverse stock split 360
-
Employee stock purchase plan 14 14
Cumulative translation adjustment 16 16
Net income 1,566 1,566
------- ----- -------- --------- -------
BALANCES AT DECEMBER 31, 1999 $128,749 $ - $ (9) $(121,490) $7,291
======== ===== ======== ========= =======
</TABLE>
See accompanying notes to financial statements
39
<PAGE>
ANGEION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
FIVE MONTH YEAR
YEAR ENDED DECEMBER 31, PERIOD ENDED ENDED
------------------------ DECEMBER 31, JULY 31,
1999 1998 1997 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,566 $(38,838) $(14,941) $(26,909)
Adjustments to reconcile net income (loss) to net cash
flows provided by operating activities net of
operating assets and liabilities acquired:
Loss from discontinued operations 26,850 38,829 14,889 27,775
Compensation expenses on grant of stock and
stock options 190 809 239 591
Changes in operating assets and liabilities:
Prepaid expenses and other current assets (54) 2 (13) 16
Accrued expenses 141 346 - (12)
--------- --------- --------- ---------
Net cash provided in continuing operations 28,693 1,148 174 1,461
Net cash used in discontinued operations (18,485) (30,416) (14,339) (27,488)
--------- --------- --------- ---------
Net cash provided (used) in operating activities 10,208 (29,268) (14,165) (26,027)
========= ========= ========= =========
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities - - - (31,582)
Proceeds from maturities of marketable securities - - 8,050 30,900
Proceeds from sale of discontinued operating assets 599 - - -
Acquisition of subsidiary, less cash received (16,623) - - -
--------- --------- --------- ---------
Net cash provided (used) in continuing operations (16,024) - 8,050 (682)
Net cash used in discontinued operations (52) (8,085) (611) (3,432)
========= ========= ========= =========
Net cash provided (used) in investing activities (16,076) (8,085) 7,439 (4,114)
========= ========= ========= =========
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of debt and warrants 5,790 25,025 - -
Proceeds from issuance of common stock and warrants 9,998 4,951 14,334 -
Proceeds from exercise of stock options and warrants - 481 66 1,327
Payments under capital lease obligations - (297) - -
Repayments of debt (6,501) (5,000) - -
--------- --------- --------- ---------
Net cash provided by financing activities 9,287 25,160 14,400 1,327
--------- --------- --------- ---------
EFFECT OF EXCHANGE RATE ON CASH AND CASH EQUIVALENTS 16 (31) 6 2
--------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,435 (12,224) 7,680 (28,812)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,828 14,052 6,372 35,184
--------- --------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,263 $ 1,828 $ 14,052 $ 6,372
========= ========= ========= =========
CASH PAID FOR INTEREST EXPENSE $ 1,750 $ 945 $ 5 $ 104
========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements
40
<PAGE>
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(1) DESCRIPTION OF BUSINESS
Angeion Corporation (the "Company") developed, manufactured and
distributed products for the treatment of cardiac arrhythmia patients. On
December 21, 1999, the Company acquired Medical Graphics Corporation which
designs and produces innovative noninvasive diagnostic systems used in the
prevention, early detection and cost-effective treatment of heart and lung
disease. During March, 2000, the Company's board of directors decided to
discontinue its historical business.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND INVESTMENT IN JOINT VENTURE
The consolidated financial statements include the accounts of
Angeion Corporation and all of its wholly owned subsidiaries and its 50
percent-owned Joint Venture, ELA*Angeion, LLC ("ELA*Angeion"). The Company's
wholly owned subsidiaries include Angeion Europe Ltd. ("Angeion Europe"),
Angeion GmbH, Medical Graphics Corporation and Medical Graphics Corporation,
GmbH. All inter-company transactions and balances are eliminated in
consolidation. See Note "Equity in Loss of Joint Venture."
CASH EQUIVALENTS
Cash equivalents consist of temporary cash investments with
maturities of three months or less from the date of purchase. At December 31,
1999, cash equivalents consisted of checking accounts and money market funds.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined on a first in, first out basis.
EQUIPMENT AND FIXTURES
Equipment and fixtures are carried at cost or liquidation value.
Equipment and furniture and fixtures are depreciated using the straight-line
method over the estimated useful lives of the assets that range from three to
eight years. Leasehold improvements are depreciated using the straight-line
method over the shorter of the lease term, or the estimated useful life of
the asset. Expenditures for repairs and maintenance are charged to expense as
incurred. See Note "Asset Impairment."
41
<PAGE>
GOODWILL AND OTHER INTANGIBLES
The cost of business acquisitions accounted for using the purchase
method of accounting is allocated first to identifiable assets and
liabilities based on estimated fair values. The excess of cost over
identifiable assets and liabilities is recorded as goodwill.
Goodwill is amortized on a straight-line basis over the expected
period to be benefited, 20 years. Intangible assets, consisting of trade
name, patents, assembled workforce and proprietary technology, are amortized
on a straight-line basis over 7 to 20 years.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
REVENUE RECOGNITION
Revenues from sales of products are recognized at the date of
shipment. Amounts billed to customers under service contracts are deferred
and recognized as income over the term of the agreement and related costs are
recognized as incurred.
NET INCOME (LOSS) PER SHARE
Basic earnings per share are computed by dividing net earnings by
the weighted average shares outstanding during the reporting period. Diluted
earnings per share are computed similar to basic earnings per chare except
that the weighted average shares outstanding are increased to include
additional shares from the assumed exercise of stock options, warrants or
convertible debt, if dilutive. The number of additional shares is calculated
by assuming that outstanding stock options or warrants were exercised and
that the proceeds from such exercise were used to acquire shares of common
stock at the average market price during the reporting period. If the Senior
Convertible Notes are dilutive, the associated interest expense and
amortization of debt issuance costs, net of taxes, are removed from
operations and the shares issued are assumed to be outstanding for the
dilutive period.
FOREIGN CURRENCY TRANSLATION
The functional currency and denomination of all sales transactions
of Angeion Europe are the U.S. dollar. Accordingly, the financial statements
of Angeion Europe, which are maintained in the local currency, are remeasured
into U.S. dollars in accordance with Statement of Financial Accounting
Standards (SFAS) No. 52, FOREIGN CURRENCY TRANSLATION. All exchange gains or
losses from remeasurement of monetary assets and liabilities that are not
denominated in U.S. dollars are recognized currently in income.
42
<PAGE>
The assets and liabilities for Angeion GmbH are translated into U.S.
dollars at year-end exchange rates while elements of the statement of
operations are translated at average exchange rates in effect during the
year. The resulting translation adjustments are recorded as a component of
shareholders' equity.
SHORT-TERM MARKETABLE SECURITIES
As of December 31, 1999, the Company's marketable debt securities
are classified as available-for-sale. However, because the maturities of the
Company's debt securities are less than one year, they are reported at
amortized cost that approximates fair value.
CONCENTRATION OF CREDIT RISK
Financial instruments that subject the Company to concentration of
credit risk consist principally of cash investments and trade accounts
receivable. Cash in excess of current operating needs is invested in
accordance with the Company's investment policy that emphasizes principal
preservation. At December 31, 1999, the majority of investments consisted of
checking and money market account balances.
STOCK-BASED COMPENSATION
The Company applies the intrinsic value method as prescribed under
Accounting Principles Board Opinion (APB) No. 25, ACCOUNTING FOR STOCK ISSUED
TO EMPLOYEES, and related interpretations to account for the issuance of
stock incentives to employees and directors. Accordingly, no compensation
expense related to employees' and directors' stock incentives has been
recognized in the financial statements. In accordance with the provisions of
SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, the Company has
presented pro forma information reflecting compensation cost for such
issuances.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED
OF
The Company assesses the recoverability of goodwill and other
long-lived assets whenever events or changes in circumstances indicate that
expected future undiscounted cash flows may not be sufficient to support the
carrying value of an asset. Recoverability of assets to be held and used is
measured by a comparison of the carrying value of an asset to future net cash
flows expected to be generated by the asset. If such assets are considered to
be impaired, the impairment to be recognized is measured as the amount by
which the carrying value of the assets exceeds the fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying amount or
fair value less costs to sell.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
43
<PAGE>
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
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.
In December 1999, the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin ("SAB") No. 101, which provides the staff's
views in applying generally accepted accounting principles to selected
revenue recognition issues. On March 24, 2000, the SEC issued SAB 101A,
(DEFERRAL OF THE EFFECTIVE DATE OF SAB 101) AND IMPLEMENTATION ISSUES RELATED
TO SAB 101 which defers the effective date of SAB 101 by one quarter for
certain registrants. SAB 101 is now effective beginning the second quarter of
all fiscal years beginning after December 15, 1999 for registrants with
fiscal years that begin between December 16, 1999 and March 15, 2000. The
Company will be required to adopt the guidance of this bulletin, beginning
with the second quarter of fiscal 2000. The impact of adoption on the
Company's financial statements has not yet been determined.
(3) PURCHASE OF MEDICAL GRAPHICS CORPORATION
On December 21, 1999, the Company completed its acquisition of
Medical Graphics Corporation, a leader in the design and production of
noninvasive diagnostic systems used in the prevention, early detection and
cost-effective treatment of heart and lung disease. The acquisition, recorded
under the purchase method of accounting, included the purchase of all the
outstanding shares of common stock of Medical Graphics Corporation at $2.15
per share which, plus acquisition costs, resulted in a total purchase price
of $16.6 million, net of $190,000 in cash acquired. A portion of the purchase
price has been allocated to assets acquired and liabilities assumed based on
estimated fair market value at the date of acquisition. The balance of the
purchase price has been assigned to goodwill. The estimated fair value of
assets acquired and liabilities assumed is summarized below:
<TABLE>
<CAPTION>
(in thousands) Amount
-------------------------------------------- ----------
<S> <C>
Current assets $ 10,030
Liabilities assumed (7,862)
Equipment and Fixtures 1,896
Deferred tax assets 1,868
44
<PAGE>
Other intangibles 10,298
Goodwill 561
---------
16,791
Less cash acquired 190
---------
$ 16,601
=========
</TABLE>
Goodwill and other intangibles are being amortized on a
straight-line basis over their useful lives, which range from 7 to 20 years.
Other intangibles include values assigned to trade name, patents, assembled
workforce and proprietary software.
(4) DISCONTINUED OPERATIONS
During March 2000, the Company announced its decision to discontinue
its development, manufacture and distribution of medical devices that treat
irregular heartbeats (arrhythmias), products known as implantable
cardioverter defibrillator ("ICD") systems. Accordingly, the ICD business is
accounted for as a discontinued operation and amounts in the financial
statements and related notes for all periods shown have been restated to
reflect discontinued operations accounting. Operating results of the
discontinued ICD business are summarized as follows:
<TABLE>
<CAPTION>
Five Month Year
Year Ended Year Ended Period Ended Ended
(in thousands, except per December 31, December 31, December 31, July 31,
share amounts) 1999 1998 1997 1997
--------------------------------- ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C>
Net sales $ 5,175 $ 4,567 $ 865 $ 4,505
Loss from discontinued operations (26,850) (38,829) (14,889) (27,775)
============ ============ ============ ==========
</TABLE>
The net assets of the discontinued ICD business were as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
-------------------------------------------------------------- --------- ---------
<S> <C> <C>
Accounts receivable $ 49 $ 1,690
Inventories 75 6,377
Prepaid expenses - 599
Accounts payable (15) (2,459)
Current portion of long-term debt - (501)
Accrued employee compensation (382) (983)
Deferred income - (1,198)
Other accrued expenses (1,828) (1,536)
--------- ---------
Net current assets (liabilities) of discontinued operations $ (2,101) $ 1,989
========= =========
Equipment and fixtures $ 828 $ 6,603
Investment in Joint Venture, net 1,526 3,221
Deferred tax asset, net of valuation allowance - -
Other assets - 349
--------- ---------
Net non-current assets of discontinued operations $ 2,354 $ 10,173
========= =========
</TABLE>
45
<PAGE>
(5) PRO FORMA ANGEION
The decision to discontinue the ICD product line represents a
significant change for the Company. As a result of the December 21, 1999
merger, Medical Graphics now comprises a majority of the total assets of the
Company and generates a majority of its sales. The pro forma statement of
operations for 1999 is presented because the Company intends to focus its
future efforts primarily on the markets served by and business operations of
Medical Graphics. To present the supplemental pro forma disclosure
requirements of APB 16, the Pro Forma Angeion 1999 data would need to present
the acquisition as if it had occurred on January 1, 1999. The resulting
adjustment to affect this presentation is the amortization of intangibles of
$1,452,000 for the twelve months ended December 31, 1999.
(6) INVENTORIES
Inventories consisted of the following at December 31:
<TABLE>
<CAPTION>
(in thousands) 1999
---------------------------------- -----------
<S> <C>
Raw materials $ 2,974
Work-in process 109
Finished goods 1,870
-----------
$ 4,953
===========
</TABLE>
(7) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
---------------------------------- ----------- ---------
<S> <C> <C>
Furniture and fixtures $ 1,432 $ 216
Equipment 3,936 222
Leasehold improvements 866 -
----------- ---------
6,234 438
Less: accumulated depreciation (4,009) (160)
----------- ---------
$ 2,225 $ 278
=========== =========
</TABLE>
(8) OTHER ASSETS
Others assets primarily consists of the unamortized value of debt
issuance expenses associated with the Senior Convertible Notes due 2003.
(9) LONG-TERM DEBT
On March 11, 1998, the Company borrowed $5,000,000 from RGC
International Investors, IDC ("Rose Glen") pursuant to a Convertible Senior
Note (the "Interim Financing"). In connection with the Interim Financing, the
Company issued Rose Glen warrants to purchase an aggregate of 97,000 shares
of the Company's common stock at an exercise price of $29.93. On April 15,
1998, the Company repaid the Interim Financing together with accrued
interest, in full. In consideration of early payment, warrants for an
aggregate of 24,250 shares of common
46
<PAGE>
stock were canceled. The remaining warrant for 72,750 shares of common stock
is exercisable until March 11, 2003.
On April 14, 1998, the Company completed a private placement of
$22,150,000 principal amount of 7 1/2 percent Senior Convertible Notes due
2003 (the "Notes"), which resulted in net proceeds to the Company of
approximately $20,000,000. The Notes were issued pursuant to an indenture
(the "Indenture") between the Company and U.S. Bank National Association (the
"Trustee"). Interest on the Notes is payable semi-annually on April 15 and
October 15 of each year, commencing on October 15, 1998. The Notes are
convertible into common stock at any time after July 13, 1998, and prior to
maturity, unless previously redeemed. The Notes had an initial conversion
price ("Conversion Price") of $30.516 per share subject to adjustment upon
the occurrence of certain events ("Events"). These Events stipulated that the
Conversion Price would be adjusted on December 18, 1998 to the lower of: (a)
the previously applicable Conversion Price or (b) the average of the last
reported sale price of the common stock as reported by the Nasdaq National
Market for the five consecutive business days ending on the last full trading
day prior to December 18, 1998; provided, however, that in no event will the
Conversion Price be reduced below $15.258. On December 18, 1998 the
Conversion Price was adjusted to $15.258.
On or after April 14, 2001, the Notes will be redeemable at the
option of the Company, in whole or in part, upon not less than 30 nor more
than 60 days prior written notice at a redemption price equal to 100 percent
of the principal amount thereof, together with accrued and unpaid interest
and liquidated damages, if any, up to the redemption date. Upon the
occurrence of a "change in control" or the delisting of the common stock so
that it no longer trades on the Nasdaq National Market or Nasdaq Small Cap
Market, each holder of the Notes has the right to require the Company to
repurchase all or any part of such holder's Notes at a repurchase price equal
to 101 percent of the principal amount thereof, together with accrued and
unpaid interest and liquidated damages, if any. Upon the occurrence of an
"Event of Default" under the Indenture, the Trustee or the holders of at
least 25 percent in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately. As of December 31,
1999, $20,198,000 of the Notes remained outstanding. See Note "Litigation and
Contingencies".
In January 1999, the Company entered into financing agreements with
Norwest Business Credit (the "Bank") in which the Bank made two term loans
(the "Loans") to the Company in the amounts of $4,000,000 and $2,000,000.
Individual investors, including a director of the Company guaranteed the
Loans. The Loans were secured by a security interest in all of the Company's
intellectual property that the Company was free to pledge for such purpose.
The Loans were repaid in May 1999.
The Company's Medical Graphics subsidiary has a credit agreement
with Wells Fargo Business Credit, Inc. (Wells Fargo) that provides for total
borrowings, based on available collateral as defined, of up to $4,500,000, at
the discretion of Wells Fargo. The credit line allows the subsidiary to
borrow up to 80% of eligible domestic accounts receivable, 40% of eligible
domestic inventory (not to exceed $1,500,000), and 90% of eligible foreign
accounts receivable. The subsidiary's accounts receivable and inventories
secure total borrowings outstanding under
47
<PAGE>
the credit agreement. The credit agreement contains certain restrictive
covenants, including maintenance of minimum net worth (as defined), earnings
requirements, and debt service requirements as well as limitations on capital
expenditures and payment of dividends. Borrowings under the line of credit
bear interest at the Wells Fargo "base" rate plus 4.0% (12.5% at December 31,
1999). The "base" rate is equal to the interest rate publicly announced by
Norwest Bank Minnesota, National Association from time to time as its "base"
rate. The line of credit contains a minimum monthly interest charge of
$15,000. The credit agreement expires at March 31, 2000.
(10) SHAREHOLDERS' EQUITY (DEFICIT)
COMMON STOCK
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 restructuring plan
discussed below. See Note "Restructurings." All share and per share
information contained in this report has been retroactively adjusted to
reflect the impact of the reverse stock split.
SANOFI-SYNTHELABO TRANSACTIONS
In October 1997, the Company entered into an Investment and Master
Strategic Relationship Agreement (the "Agreement") with Sanofi-Synthelabo, a
French pharmaceutical company, which, in addition to creating the ELA*Angeion
Joint Venture, resulted in equity investments of $15,000,000 and $5,000,000
in 1997 and 1998, respectively. Total shares of common stock and warrants
issued in 1997 were 225,141 and 135,085, respectively, and in 1998 were
136,240 and 81,744, respectively. The Agreement included a re-pricing
provision which automatically re-priced the original shares of common stock
and warrants as if this investment had been made at a price based on the
average Company stock price for the fifteen day trading period prior to the
one year anniversary of the initial investment. Pursuant to the Agreement, on
October 9, 1998, the initial 225,141 shares of common stock and 135,085
warrants were re-priced to reflect the re-pricing provision of the Agreement
resulting in an additional 384,615 shares of common stock and an additional
230,769 warrants being issued to Sanofi-Synthelabo. The new totals for the
initial investment are: 609,756 shares of common stock issued at $24.60 per
share and warrants which allow Sanofi-Synthelabo to purchase an additional
365,854 shares of the Company's common stock at a price of $24.60 per share
with an expiration date of October 9, 2001. The 136,240 shares of common
stock issued in 1998 were issued at $36.70 per share and the warrants allow
Sanofi-Synthelabo to purchase an additional 81,744 shares of the Company's
common stock at a price of $36.70 per share with an expiration date of
September 1, 2001. During 1999, Sanofi-Synthelabo invested an additional
$10,000,000 in the Company pursuant to the Investment Agreement. In exchange
for this investment, the Company issued Sanofi-Synthelabo warrants to
purchase 909,017 and 540,541 shares of common stock for $.10 and $11.10 per
share, respectively, with expiration dates of March 12, 2009 and March 12,
2002, respectively.
48
<PAGE>
On August 3, 1999, the Company announced that it had entered into an
agreement (the "1999 ELA Agreement") to transfer certain assets and grant a
one-way, non-exclusive, fully paid-up, royalty free, and perpetual worldwide
license for its patents and patent applications relating to cardiac
stimulation devices to ELA Medical, a wholly-owned subsidiary of
Sanofi-Synthelabo. As part of the agreement, the Company agreed to 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 would receive all
745,994 shares of the Company's common stock owned by Sanofi-Synthelabo and
all warrants owned by Sanofi-Synthelabo to purchase approximately 1.9 million
shares of the Company's common stock. These transactions, by their terms,
were subject to shareholder approval and consent of the holders of the
Company's Notes. Shareholder approval was obtained in February 2000, but Note
holder consent was not obtained. The Company entered into and closed a new
Asset Purchase Agreement with Sanofi-Synthelabo and ELA Medical under terms
similar to the 1999 ELA Agreement (the "2000 ELA Agreement"), transferred
ownership of the flat capacitor technology, and granted a non-exclusive
license to ELA Medical for ICD technology of Angeion and reacquired the
common stock and warrants held by Sanofi-Synthelabo.
Upon closing of the transactions contemplated by the 2000 ELA
Agreement on March 24, 2000, the Company was relieved of all further
obligations to supply implantable cardiac defibrillator ("ICD") products 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 described
in the Note "Restructurings." Also upon closing, the Company was relieved of
its obligation under the Investment Agreement to enter into a patent and
related intellectual property cross license with Sanofi-Synthelabo.
STOCK OPTIONS
The Company's shareholders have approved the 1993, 1991, 1989, and
1988 Stock Incentive Plans (the "Plans"). The Plans provide that incentive
stock options and nonqualified stock options to purchase shares of common
stock may be granted at prices determined by the Compensation Committee,
except that the purchase price of incentive stock options may not be less
than 100% of the fair market value of the stock at date of grant. All options
expire no later than ten years from date of grant.
<TABLE>
<CAPTION>
Weighted
Average
Shares Price
----------- ---------
<S> <C> <C>
Outstanding at July 31, 1996 219,875 44.50
Granted 186,278 35.00
Exercised (3,557) 22.61
Expired or canceled (110,513) 67.90
-----------
Outstanding at July 31, 1997 292,083 29.37
Granted 12,980 50.00
Exercised (1,783) 22.62
49
<PAGE>
Expired or canceled (5,660) 37.64
-----------
Outstanding at December 31, 1997 297,620 30.15
Granted 91,159 21.32
Exercised (9,450) 15.91
Expired or canceled (33,258) 34.75
-----------
Outstanding at December 31, 1998 346,071 27.77
Granted 7,500 10.47
Exercised -- --
Expired or canceled (184,410) 30.31
-----------
Outstanding at December 31, 1999 169,161 24.24
=========== ==========
</TABLE>
As of December 31, 1999, the outstanding options in the 1993, 1991,
1989 and 1988 Stock Incentive Plans had exercise prices ranging from $19.70
to $41.60 with a weighted average contractual life of .19 years. At December
31, 1999, 155,282 options were exercisable, with a weighted-average exercise
price of $24.42. The following table summarizes information concerning
options outstanding and exercisable at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------- ---------------------------
Weighted Weighted Weighted
average average average
Range of remaining exercise exercise
exercise price Number years price Number price
--------------------------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$19.70 - $21.88 50,025 .09 $ 21.87 50,025 $ 21.87
$22.03 68,158 .13 22.03 54,540 22.03
$23.10 - $41.60 50,978 .24 26.99 50,717 26.95
---------- ----------
169,161 .19 $ 24.24 155,282 $ 24.42
========== ========= ========== ========== ==========
</TABLE>
During the years ended December 31, 1999 and 1998, the five month
transition period ended December 31, 1997, the year ended July 31, 1997, the
Company granted options, outside the Plans, to purchase 0, 81,842, 0, and
22,500 shares, respectively, of common stock at a weighted average price of
$0.00, $22.03, $0.00, and $31.88 per share, respectively. During 1999, none
of these options were exercised. At December 31, 1999, 27,960 of these
options were exercisable at a weighted average exercise price of $25.51.
Under the Non-Employee Director Option Plan, options for 31,250,
150, 1,800, and 1,877 shares were granted at a weighted average price of
$1.97, $21.40, $35.94 and $35.84 during the years ended December 31, 1999 and
1998, the five month transition period ended December 31, 1997, the year
ended July 31, 1997, respectively. Options for 0, 0, 1,600, and 2,400 shares
at a price of $0.00, $0.00, $29.38, and $31.88 were exercised during the same
respective periods. At December 31, 1999, 6,077 shares at a weighted average
price of $40.22 were outstanding and exercisable under this plan.
On November 25, 1996, the Board of Directors reviewed the exercise
price of the options then outstanding, current market conditions, as well as
other factors, and offered to re-price all of the outstanding options that
had exercise prices above market value. The new option price
50
<PAGE>
reflected the market value on December 18, 1996. The total number of
re-priced options was 123,138. These re-priced options could not be exercised
for twelve months from the election date and then vested pursuant to their
original terms.
WARRANTS
In connection with the Investment Agreement entered into with
Sanofi-Synthelabo in October 1997, the Company issued 135,085 warrants. As
allowed for in the Investment Agreement and as discussed above, these 135,085
warrants were subject to re-pricing provisions, which resulted in the
issuance of additional warrants totaling 230,769 in October 1998. These
warrants allow Sanofi-Synthelabo to purchase 365,854 shares of common stock
at $24.60 per share and expire on October 9, 2001. In addition, in connection
with the additional $5,000,000 investment received from Sanofi-Synthelabo in
August 1998, an additional 81,744 warrants were issued. These warrants allow
Sanofi-Synthelabo to purchase 81,744 shares of common stock at $36.70 per
share and expire on September 1, 2001.
During 1999, Sanofi-Synthelabo invested an additional $10,000,000 in
the Company pursuant to the Investment Agreement. In exchange for the
investment, the Company issued Sanofi-Synthelabo warrants to purchase 909,017
and 540,541 shares of common stock for $.10 and $11.10 per share,
respectively, with expiration dates of March 12, 2009 and March 12, 2002,
respectively.
In connection with the private placement of $22,150,000 principal of
7 1/2 percent Senior Convertible Notes due 2003 (the "Notes"), the Company
issued 18,147 warrants each to HSBC Securities, Inc. ("HSBC") and Prudential
Securities, Inc. ("Prudential"), respectively. These warrants allow both HSBC
and Prudential to purchase 18,147 shares of common stock at a price of
$15.258 per share. These warrants expire on April 15, 2003. The fair value of
the warrants at the time of issuance was determined to be $286,202. This
value is being ratably amortized over the term of the debt, adjusted for any
conversions. The unamortized value at December 31, 1999 is included in other
assets along with other debt issuance expenses.
In connection with a $5,000,000 Convertible Senior Note agreement,
the Company entered into with RGC International Investors, IDC, the Company
issued warrants to purchase an aggregate of 97,000 shares of the Company's
common stock at an exercise price of $29.93. On April 15, 1998, the Company
repaid the Interim Financing together with accrued interest, in full. In
consideration of early payment, warrants for an aggregate of 24,250 shares of
common stock were canceled. The remaining warrants for 72,750 shares of
common stock are exercisable until March 11, 2003.
In connection with the issuance of a note payable to a shareholder
in fiscal 1992, the Company issued a warrant to such shareholder to purchase
7,500 shares of common stock at $25.00 per share. This warrant expired on
July 27, 1999.
In connection with 1994 Bridge Financing, warrants to purchase
83,500 shares of common stock were issued at an exercise price of $20,00 per
share. During 1997 and 1996,
51
<PAGE>
warrants for 66,250 and 15,550 shares of common stock, respectively, were
exercised. The remaining 1,700 warrants expired on July 29, 1999.
PRO FORMA OPTION INFORMATION
The Company applies APB No. 25 in accounting for the compensation
costs of employee stock options. Had the Company determined compensation
costs based on the fair value at the date of grant for its options, the
Company's net income (loss) would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
Five Month Year
Year Ended Year Ended Period Ended Ended
(in thousands, except per December 31, December 31, December 31, July 31,
share amounts) 1999 1998 1997 1997
------------------------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Net income (loss):
As reported $ 1,566 $ (38,838) $ (14,941) $ (26,909)
Pro forma 323 (40,983) (15,490) (27,964)
============ =========== ========== ==========
Net income (loss) per share
As reported $ 0.39 $ (11.23) $ (4.82) $ (9.26)
Pro forma 0.08 (11.85) (5.00) (9.62)
============ =========== ========== ==========
</TABLE>
The estimated per share weighted-average fair value of all stock
options granted during the fiscal years ended December 31, 1999 and 1998, the
five month transition period ended December 31, 1997 and the fiscal year
ended July 31,1997 was $1.00, $14.34, $32.42 and $15.17, respectively, as of
the grant date using the Black-Scholes option pricing model with the
following weighted average assumptions for the respective periods:
<TABLE>
<CAPTION>
Five Month
Year Ended Year Ended Period Ended
December 31, December 31, December 31, Year Ended July
1999 1998 1997 31, 1997
------------ ------------ ------------ ---------------
<S> <C> <C> <C> <C>
Risk-free interest rate 6.20% 5.00% 5.80% 6.20%
Expected volatility factor 1.21 1.72 1.65 1.34
Expected option term 3 years 5 years 5 years 5 years
============ ============ ============ ===============
</TABLE>
Pro-forma net income excludes options granted in fiscal 1995 and
prior. Therefore, the full impact of calculating compensation cost for stock
options under SFAS No. 123 is not reflected in the pro forma net income
amounts presented because compensation cost is reflected over the term of the
option and compensation cost for options granted prior to August 1, 1995 is
not considered.
NON-CASH COMPENSATION
52
<PAGE>
During the years ended December 31, 1999 and 1998, the five month
transition period ended December 31, 1997, and the year ended July 31, 1997,
the Company granted in-the-money stock options and stock grants to employees,
directors and consultants in lieu of cash compensation, which amounted to
$190,000, $809,194, $239,320, and $591,022, respectively. For securities
issued to employees, expense was recognized for the stock and stock option
grants based on the intrinsic value method in accordance with APB Opinion 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. For stock issued to non-employees,
expense was recognized based on the fair value of securities granted.
RESTRICTED STOCK GRANTS
The Company's 1993 Stock Option Plan allows for issuance of
restricted stock grants. During the years ended December 31, 1999 and 1998,
the five month transition period ended December 31, 1997 and the year ended
July 31, 1997, the Company issued 0, 21,000, 1,500, and 3,333 shares of
restricted stock, respectively, in lieu of cash compensation totaling $0,
$510,946, $79,688, and $125,000, respectively. The value of such stock was
established by the market price on the grant date. During 1999, all remaining
outstanding restricted stock grants were either canceled or the restrictions
were removed. For any shares with restrictions removed, the remaining
unearned compensation expense, if any, was recognized as non-cash
compensation during 1999. Unearned compensation for prior years is shown as a
reduction of shareholders' equity in the accompanying consolidated financial
statements and was amortized ratably over the estimated restricted period.
SHAREHOLDER RIGHTS PLAN
On April 8, 1996, the Board of Directors declared a dividend
distribution of one common stock purchase right (a "Right") for each share of
the Company's common stock outstanding on April 30, 1996, and one Right for
each common stock into which Series A preferred stock are convertible. Each
Right would entitle shareowners to buy one-thousandth share of a new series
of preferred stock at an exercise price of $70.00 per share, subject to
adjustment. The Rights will not be exercisable or separable from the common
stock until a party acquires beneficial ownership of 15 percent or more (or
as low as 10 percent as the Board of Directors may determine) of the
Company's common stock or after a person or group announces an offer, the
consummation of which would result in such party owning 15 percent or more of
the common stock. The Rights expire on April 7, 2006, unless redeemed or
exchanged by the Company earlier.
(11) 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, a wholly owned
subsidiary of Sanofi-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 was recognized 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 an
agreement with ELA Medical. Prior to its withdrawal from the Joint Venture,
the Company's proportional share of sales, cost of sales
53
<PAGE>
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. 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.
The Company's remaining investment in the Joint Venture was
$1,526,000 at December 31, 1999. This investment, which is included with net
non-current assets of discontinued operations on the balance sheet, was
recovered through consideration received in connection with closing of the
ELA Agreement during March 2000.
(12) LEASES
The Company leases office and manufacturing space, a van and various
office accessories. The building lease expires in 2002, at which time the
Company has an option to renew the lease for an additional four years. The
Company has the option to purchase the building at the end of each lease
expiration period for the building's fair market value. The Company has
relocated its offices to this facility leased by its subsidiary.
In connection with the Company's discontinued ICD business, it
leases office and production space under a non-cancelable operating lease.
The lease provides for executory costs that are subject to escalation based
on increases in the lessor's underlying costs. In addition, the Company
leased certain equipment under cancelable operating leases. The Company is
planning to sublet the unused facility in order to reduce or eliminate the
future leasing costs. At December 31, 1999, the Company had accrued $604,000
in future rent expense that it does not believe will be recovered. The
remaining operating leases that were associated with the discontinued ICD
business have been canceled. Rent expense for office and production space
used in the discontinued ICD business was approximately $590,000, $572,000,
$176,000, and $404,000, for the years ended December 31, 1999 and 1998, the
five month transition period ended December 31, 1997, the year ended July 31,
1997, respectively.
<TABLE>
<CAPTION>
(in thousands) Continuing Discontinued
Year ended December 31, Operations Operations
---------------------------------- ---------- ------------
<S> <C> <C>
2000 $ 459 $ 576
2001 357 576
2002 172 576
2003 -- 634
2004 -- 646
Thereafter -- 2,046
---------- ------------
$ 988 $ 5,054
========== ============
</TABLE>
(13) INCOME TAXES
The Company has a federal net operating loss carry-forward at
December 31, 1999, of approximately $124,129,000 which is available to reduce
income taxes payable in future years. If not used, this carry-forward will
expire in years 2004 through 2019. Under the Tax Reform Act of 1986,
54
<PAGE>
the utilization of these tax loss carry-forwards may be limited as a result
of significant changes in ownership.
In December 1999, the Company completed its acquisition of Medical
Graphics Corporation. The net operating losses and tax credits of Medical
Graphics Corporation on the date of the acquisition are subject to annual
limitation under Internal Revenue Code Sections 382 and 383, respectively. The
Company does not believe the utilization of the carry forwards will be
significantly limited under the Internal Revenue Code provisions.
The actual tax expense attributable to income from continuing
operations differs from the expected tax expense (benefit) computed by
applying the U.S. federal corporate income tax rate of 34% to the net loss as
follows:
<TABLE>
<CAPTION>
Five Month
Period
Year Ended Year Ended Ended Year Ended
December December December July 31,
31, 1999 31,1998 31, 1997 1997
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Federal statutory rate (34.0%) (34.0%) (34.0%) (34.0%)
State income taxes, net (5.5) (6.0) (6.0) (6.0)
Miscellaneous (0.0) (0.0) (0.0) (0.0)
Change in valuation
allowance 38.9 40.0 40.0 40.0
Effective income taxes 0.6% 0.0% 0.0% 0.0%
========== ========== =========== ==========
</TABLE>
The tax effects of temporary differences arising out of
continuing operations that give rise to significant portions of the
deferred taxes are presented below:
<TABLE>
<CAPTION>
Five Month
Period
Year Ended Year Ended Ended Year Ended
December December December July 31,
(in thousands) 31, 1999 31,1998 31, 1997 1997
------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net operating loss carry-forwards $ 4,470 $ 0 $ 0 $ 0
Other 448 0 0 0
----------- ----------- ----------- -----------
Net deferred tax assets 4,918 0 0 0
Less valuation allowance (3,050) 0 0 0
----------- ----------- ----------- -----------
Deferred income taxes $ 1,868 $ 0 $ 0 $ 0
=========== =========== =========== ===========
</TABLE>
The total deferred tax asset above does not include $48,800,000 of
deferred tax assets attributable to discontinued operations. The deferred tax
assets arose primarily from net operating losses attributable to discontinued
operations. Additionally, the valuation allowance above does not include a
valuation allowance of $48,800,000 attributable to discontinued operations
which was used to completely offset the deferred tax asset attributable to
discontinued operations.
The valuation allowance for deferred tax assets attributable to
continuing operations as of January 1, 1999 and 1998 was -0- and -0-,
respectively. The net change in the total valuation allowance for the years
ended December 31, 1999 and 1998 was an increase of $3,050,000 and -0-,
respectively. In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that some portion or
all of the deferred tax assets will not be realized. The ultimate realization
of deferred tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become
deductible. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income and tax planning strategies in
making this assessment. In order to fully realize the deferred tax asset, the
Company will need to generate future taxable income of approximately
$5,500,000 prior to the expiration of the net operating loss carryforwards.
The amount of deferred tax assets
55
<PAGE>
considered realizable, however, could be reduced in the near future if
estimates of future taxable income during the carryforward period are reduced.
(14) RETIREMENT SAVINGS PLAN
The Angeion Corporation Tax Deferred Savings and Employee Stock
Ownership Plan provides for contributions in the form of a salary reduction
cash or deferred arrangement, discretionary matching employer contribution,
discretionary supplemental employer contributions, and voluntary after-tax
contributions by participating employees. Generally, all employees of the
Company who have completed six months of service with the Company are
eligible to participate in the plan. Contribution expense was insignificant
in all years presented.
(15) ROYALTY COMMITMENTS
The Company announced in April 1999 that it had settled all ongoing
litigation with Cardiac Pacemakers, Inc. ("CPI") and its parent company,
Guidant Corporation ("Guidant"), for $30,790,000, net of related expenses. 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 and CPI made a one-time payment 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. As of December 31, 1999, the Company has incurred royalty
expense related to this commitment totaling $82,000.
On August 13, 1998, the Company agreed to pay royalties to
Children's Medical Center Corporation for sales related to specified
identified patents. Royalty rates related to this agreement are as follows: 2
1/2 percent of the first $2,000,000 of net product sales after market
release; 5 percent of all net product sales over and above the first
$2,000,000; and 10 percent on all third-party income. The Company has
incurred $0 and $34,000 in royalty expense for the years ended December 31,
1999 and 1998, respectively, related to the above commitment.
The Company acquired the technology for its continuous-wave laser
catheter system. As part of this acquisition, the Company agreed to pay a
royalty of 5% on sales of patented products incorporating this technology for
the life of any patent on this technology. Additionally, in exchange for a
doctor's efforts in connection with the laser catheter ablation system, the
Company has agreed to pay the doctor and Carolinas Medical Center a royalty,
when certain conditions are met, of 2% and 3%, respectively, on all paid
sales of tachycardia devices. The Company has incurred no royalty expense
through December 31, 1999 related to this commitment.
(16) 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
56
<PAGE>
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 and September 30,
1999 include the reversal of $30,000 and $20,000, respectively, for employee
outplacement services not utilized. Details of the January Restructuring
activity follow.
<TABLE>
<CAPTION>
Employee
(in thousands) Severance
---------------------------------------- -----------
<S> <C>
Provision $ 720
Payments (618)
Adjustments -
-----------
Balance March 31, 1999 102
Provision -
Payments (52
Adjustments (30)
-----------
Balance June 30, 1999 20
Provision -
Payments -
Adjustments (20)
-----------
Balance September 30, 1999 $ -
-----------
</TABLE>
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 under the terms of
its amended supply agreements. For the three months ended June 30, 1999, the
Company recorded a restructuring charge of approximately $3,784,000. The
activity for the three months ended September 30 and December 31, 1999
includes the reversal of $10,000 and $10,000, respectively, for employee
outplacement services not utilized. The Company completed the April
Restructuring during January, 2000. Details of the April Restructuring
activity follow.
<TABLE>
<CAPTION>
Employee Equipment
(in thousands) Severance & Fixtures Inventory Total
------------------------------ ----------- ------------ ---------- ---------
<S> <C> <C> <C> <C>
Provision $ 1,627 $ 500 $ 1,657 $ 3,784
Payments (1,597) (500) (1,657) (3,754)
Adjustments - - - -
----------- ------------ ---------- ---------
Balance - June 30, 1999 30 - - 30
Provision - - - -
Payments (5) - - (5)
Adjustments (10) - - (10)
----------- ------------ ---------- ---------
Balance September 30, 1999 15 - - 15
Provision - - - -
Payments (5) - - (5)
57
<PAGE>
Adjustments (10) - - (10)
----------- ------------ ---------- ---------
Balance - December 31, 1999 $ - $ - $ - $ -
=========== ============ ========== =========
</TABLE>
On May 11, 1999, the Company entered into a 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 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.
On March 24, 2000, the Company executed an Asset Purchase Agreement,
together with a separate License agreement and ancillary documents, with ELA
Medical and Sanofi-Synthelabo under which the Company granted to ELA Medical
a one-way, non-exclusive, fully paid-up, royalty free license for its cardiac
stimulation technology. As part of the agreements, the Company sold to
Sanofi-Synthelabo and ELA Medical certain of its assets and liabilities
related to the manufacture and sale of cardiac stimulation devices. In
connection with the transaction, Sanofi-Synthelabo surrendered 745,994 shares
of the Company's common stock and warrants to purchase additional 1,897,186
shares, including warrants to purchase 909,017 shares
58
<PAGE>
at ten cents per share. This transaction is described in Note 10,
"Shareholders' Equity (Deficit)" as the ELA 2000 Agreement.
(17) ASSET IMPAIRMENT
The Company fulfilled its current contractual obligations to supply
ICD products to ELA Medical and related entities during the year ended
December 31, 1999. 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, fixtures and inventory, the
Company recorded asset impairment charges during the third quarter of 1999 of
$1,157,000 for inventory and $2,746,000 related to the write-down of
equipment and fixtures. During the fourth quarter of 1999, the Company
recorded additional asset impairment charges of $152,000 for inventory and
$426,000 for equipment and fixtures. The write-down of equipment and fixtures
and the write-off of inventory consisted of assets that were either disposed
of during 1999 or which were being held for sale or held for future use by
the Company. Those 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.
(18) REPORTING COMPREHENSIVE INCOME
The Company's net loss and comprehensive loss are substantially
equivalent and are not presented separately because components of
comprehensive income consist only of immaterial foreign currency translation
adjustments.
(19) SEGMENT REPORTING
The Company operates in a single industry segment, medical products.
For management purposes, the Company is segmented into two geographic areas.
Net sales and long-lived assets for these areas are shown in the following
table. The data includes the relevant information associated with
discontinued operations.
<TABLE>
<CAPTION>
Five Month
Period
Year Ended Year Ended Ended Year Ended
December December December July 31,
(in thousands) 31, 1999 31,1998 31, 1997 1997
----------------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales to unaffiliated
customers
United States $ 3,359 $ 2,977 $ 759 $ 3,064
Foreign countries 2,424 1,590 106 1,441
------------- ------------- ------------- -------------
$ 5,783 $ 4,567 $ 865 $ 4,505
============= ============= ============= =============
Net long-lived assets
United States $ 2,229 $ 6,879 $ 6,437 $ 6,624
Foreign countries - 2 87 98
------------- ------------- ------------- -------------
$ 2,229 $ 6,881 $ 6,524 $ 6,722
============= ============= ============= =============
</TABLE>
Sales attributed to geographic area are based upon customer
location. Long-lived assets consist of equipment and fixtures located at the
Company's facilities in the United States, United Kingdom and Germany.
59
<PAGE>
(20) LITIGATION AND CONTINGENCIES
On September 24, 1999, U. S. Bank National Association, as Trustee
on behalf of Holders of certain Angeion 7 1/2% Senior Convertible Notes due
2003, filed a lawsuit against the Company in the Hennepin County District
Court, the Fourth Judicial District, State of Minnesota. The lawsuit claimed
that a series of transactions constituted a so-called "Designated Event"
thereby triggering the acceleration and payment of $22,150,000 owed to the
Note holders.
On October 20, 1999, the Trustee filed a 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 opposed the Trustee's
request on grounds that, for legal and equitable reasons, the Trustee was not
entitled to obtain such prejudgment relief. By order of the Court dated
November 30, 1999, the Court denied the temporary injunction. The Trustee has
appealed from this order.
On November 15, 1999, Angeion filed a motion for complete dismissal
of the Trustee's complaint. On November 30, 1999 the Trustee filed a motion
for complete dismissal of Angeion's counterclaims. A hearing was held on both
motions on December 28, 1999. By written order dated February 7, 2000, the
Court granted both motions. The Court specifically ruled that the
transactions of which the Trustee complained did not constitute the sale of
all or substantially all of the assets of Angeion, that no Designated Event
had occurred, and that the Note holders were not entitled to prepayment of
their notes. The Trustee has appealed this order.
The Company is also subject to certain claims and lawsuits that have
been filed in the ordinary course of business. It is management's opinion
that the settlement of all other litigation would not have a material effect
on the financial position of the Company.
(21) SUBSEQUENT EVENTS
During March 2000, the Company, through its subsidiary Medical
Graphics, acquired the operating assets of AeroSport, Inc., a privately held
Ann Arbor, Michigan corporation, and obtained an exclusive worldwide license
to AeroSport's patented technology. AeroSport is a leading global supplier of
gas exchange metabolic analyzers for the health, fitness, and research and
education markets. The acquisition of the assets includes the purchase of
inventory, fixed assets and certain intellectual property for approximately
$450,000. In addition, Medical Graphics entered into an exclusive worldwide
license agreement for AeroSport's patented technology for royalty payments of
5% of net sales of products covered by those patents up to a maximum of
$850,000, with a $700,000 minimum over seven years required to retain those
rights.
60
<PAGE>
On March 23, 2000, the Company executed a Settlement, License and
Asset Purchase Agreement with Medtronic, Inc. under which the Company granted
Medtronic a one-way, non-exclusive, fully paid-up, royalty free license for
its cardiac stimulation technology. As part of the agreement, the Company
sold to Medtronic certain unfiled patent disclosures relating to cardiac
stimulation devices. Under the agreement, the Company and Medtronic also
agreed to release each other from any patent infringement claims for products
sold or used prior to the closing date. In connection with the transaction,
Medtronic made a one-time payment of $9,000,000 to the Company.
The agreements with Medtronic, Inc. and with ELA Medical and
Sanofi-Synthelabo have added approximately $8,400,000 in cash to the Company,
net of certain transaction costs, and decreased the number of outstanding
shares of the Company by approximately 18 percent.
(22) QUARTERLY FINANCIAL DATA (unaudited)
The historical quarterly financial results are not presented due to
discontinued operations accounting. The 1999 pro forma Angeion quarterly
financial results are presented below:
<TABLE>
<CAPTION>
(in thousands except
per share amounts) First Second Third Fourth
-------------------------------------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue from continuing operations $ 4,883 $ 5,548 $ 5,697 $ 6,060
============ =========== =========== ===========
Net income (loss)
Continuing operations (792) 30,500 (309) (184)
Discontinued operations (7,621) (7,376) (7,237) (4,616)
------------ ----------- ----------- -----------
Total (8,413) 23,124 (7,546) (4,800)
============ =========== =========== ===========
Net income (loss) per share - basic
Continuing operations (0.20) 7.61 (0.08) (0.05)
Discontinued operations (1.92) (1.84) (1.80) (1.15)
------------ ----------- ----------- -----------
Total (2.12) 5.77 (1.88) (1.20)
============ =========== =========== ===========
Net income (loss) per share - diluted
Continuing operations (0.20) 4.92 (0.08) (0.05)
Discontinued operations (1.92) (1.19) (1.80) (1.15)
------------ ----------- ----------- -----------
Total $ (2.12) $ 3.73 $ (1.88) $ (1.20)
============ =========== =========== ===========
Weighted average shares outstanding
Basic 3,962 4,005 4,010 4,008
Diluted 3,962 6,207 4,010 4,008
============ =========== =========== ===========
</TABLE>
Income (loss) per common share is computed based upon the weighted
average number of shares outstanding during each period.
61
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information required under this section will be incorporated by
reference from the Company's definitive Proxy Statement, a definitive copy of
which will be filed with the Commission within 120 days of the close of the
fiscal year or will be filed on an amendment to this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
Information required under this section will be incorporated by
reference from the Company's definitive Proxy Statement, a definitive copy of
which will be filed with the Commission within 120 days of the close of the
fiscal year or will be filed on an amendment to this Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information required under this section will be incorporated by
reference from the Company's definitive Proxy Statement, a definitive copy of
which will be filed with the Commission within 120 days of the close of the
fiscal year or will be filed on an amendment to this Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information required under this section will be incorporated by
reference from the Company's definitive Proxy Statement, a definitive copy of
which will be filed with the Commission within 120 days of the close of the
fiscal year or will be filed on an amendment to this Form 10-K.
62
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
[TO BE UPDATED AND CONFORMED TO INDEX IN BACK]
(a) 1. Financial Statements of Registrant
The following financial statements of Angeion Corporation and
subsidiaries are set forth in Item 8 of this Form 10-K:
Consolidated Balance Sheets as of December 31, 1999 and 1998
Consolidated Statements of Operations for the years ended December 31,
1999 and 1998, the five-month transition period ended December 31, 1997 and
the year ended July 31, 1997.
Consolidated Statements of Shareholders' Equity (Deficit) for the
years ended December 31, 1999 and 1998, the five-month transition period
ended December 31, 1997 and the year ended July 31, 1997.
Consolidated Statements of Cash Flow for the years ended December 31,
1999 and 1998, the five-month transition period ended December 31, 1997 and
the year ended July 31, 1997.
Notes to Consolidated Financial Statements.
(a) 2. Financial Statement Schedules of Registrant
None.
(a) 3. Exhibits
3.1 Angeion Articles of Incorporation, as in effect on April 13,
2000.
3.2 Angeion Amended Bylaws (incorporated by reference to Exhibit
4.2 contained in the Company's Registration Statement on
Form S-3 (File No. 333-04993)).
4.1 Amended Form of the Company's Common Stock Certificate
(incorporated by reference to Exhibit 4.3 contained in the
Company's Registration Statement on Form S-3 (File No.
333-04993)).
4.2 Warrant dated July 27, 1992 in the name of Glen Taylor
(incorporated by reference to Exhibit 10.10 contained in the
Company's Annual Report on Form 10-K for the year ended July
31, 1991).
4.3 Form of Rights Agreement dated as of April 8, 1996 between
Angeion Corporation and Norwest Bank Minnesota, N.A.
(incorporated by reference to Exhibit 4.1 contained in the
Company's Current Report on Form 8-K dated April 8, 1996).
4.3.1 First Amendment to Rights Agreement dated as of October 9,
1997 between the Company and Norwest Bank Minnesota, N.A.
(incorporated by reference to Exhibit 10.5 contained in the
Company's Quarterly Report on 10-Q for the quarter ended
October 31, 1997).
4.3.2 Second Amendment to Rights Agreement dated as of October 9,
1997 between the Company and Norwest Bank Minnesota, N.A.
(incorporated by reference to Exhibit 10.6 contained in the
Company's Quarterly Report on 10-Q for the quarter ended
October 31, 1997).
4.4 Form of 7 1/2% Senior Convertible Notes due 2003 (incorporated
by reference to Exhibit 4.7 to the Company's Registration
Statement on Form S-3 (File No. 333-50557)).
4.5 Indenture, dated as of April 14, 1998, between the Company and
U.S. Bank National Association, as Trustee (incorporated by
reference to Exhibit 4.6 to the Company's Registration
Statement on Form S-3 (File No. 333-50557)).
4.6 Registration Rights Agreement, dated as of April 14, 1998,
between the Company and the subscribers named on the signature
pages thereof (incorporated by reference to Exhibit 4.8 to the
Company's Registration Statement on Form S-3 (File No.
333-50557)).
4.7 Form of Warrant Agreement between the Company and HSBC
Securities, Inc., dated as of April 14, 1998 (incorporated by
reference to Exhibit 4.10 to the Company's Registration
Statement on Form S-3 (File No. 333-50557)).
4.8 Form of Warrant Agreement between the Company and Prudential
Securities
63
<PAGE>
Incorporated, dated as of April 14, 1998 (incorporated by
reference to Exhibit 4.11 to the Company's Registration
Statement on Form S-3 (File No. 333-50557)).
4.9 Warrant dated as of March 11, 1998 to purchase 727,500 shares
of Common Stock of the Company held by RGC International
Investors, LDC (incorporated by reference to Exhibit 4.12 to
the Company's Registration Statement on Form S-3 (File No.
333- 50557)).
4.10 Securities Purchase Agreement dated as of March 11, 1998
between the Company and RGC International Investors, LDC
(incorporated by reference to Exhibit 4.13 to the Company's
Registration Statement on Form S-3 (File No. 333-50557)).
10.1 Angeion 1998 Stock Option Plan (incorporated by reference to
Exhibit 10 contained in the Company's Annual Report on
Form 10-K for the year ended April 30, 1998).
10.2 Angeion 1989 Omnibus Stock Option Plan, as amended effective
May 16, 1989 (incorporated by reference to Exhibit 10.2
contained in the Company's Annual Report on Form 10-K for the
year ended July 31, 1990).
10.3 Angeion 1991 Stock Incentive Plan (incorporated by reference
to Exhibit 99.1 contained in the Company's Registration
Statement of Form S-8 (File No. 33-81594)).
10.4 Angeion 1993 Stock Incentive Plan (incorporated by reference
to Exhibit 99.1 contained in the Company's Registration
Statement of Form S-8 (File No. 333-04189)).
10.5 OEM Distribution Agreement dated April 7, 1997 between
Compumedics Sleep Pty Ltd and Medical Graphics, as amended
by OEM Distribution Memorandum of Understanding dated
December 7, 1997, Addendum dated December 1, 1998 and
Addendum dated March 8, 1999 (incorporated by reference to
Exhibit 10.15 in the Medical Graphics Corporation Amendement
No. 1 on Form 10-K/A to the Form 10-K for the year ended
December 31, 1998).
10.6 Lease Agreement dated as of June 27, 1997 between Ryan
Companies, US, Inc. and the Company (incorporated by reference
to Exhibit 10.22 contained in the Company's Annual Report on
Form 10-K for the year ended July 31, 1997).
10.7 Form of Change in Control Agreement (incorporated by reference
to Exhibit 10.25 contained in the Company's Annual Report on
Form 10-K for the year ended July 31, 1997).
10.8 Common Stock Investment Agreement dated as of September 2,
1997 between the Company and Promethean Investment Group,
L.L.C. (incorporated by reference to
64
<PAGE>
Exhibit 10.27 contained in the Company's Annual Report on
Form 10-K for the year ended July 31, 1997).
10.9 1994 Non-Employee Director Plan (as amended through December
31, 1999).
10.10 Employment Agreement dated December 21, 1999 between
Angeion and Richard E. Jahnke
10.11.1 Seventh Amendment to Lease for 350 Oak Grove Parkway, St.
Paul, Minnesota (incorporated by reference to Exhibit 10(b)
contained in Medical Graphics Corporation's Annual Report
on Form 10-KSB for the year ended December 31, 1994
(File No. 0-9899)).
10.11.2 Eighth Amendment to Lease for 350 Oak Grove Parkway, St.
Paul, Minnesota (incorporated by reference to Exhibit 10.12
contained in Medical Graphics Corporation's Annual Report
on Form 10-KSB for the year ended December 31, 1997
(File No. 0-9899)).
22.1 List of Subsidiaries.
23.1 Independent Auditors' Consent of KPMG LLP.
27.1 Financial Data Schedule.
* Confidential treatment has been granted by the Securities and
Exchange Commission for certain portions contained within this
exhibit.
# Management contract, compensatory plan or arrangement required
to be filed as an exhibit to this Form 10-K.
(b) Reports on Form 8-K
On October 5, 1999 Angieon Filed a Form 8-K dated September 22, 1999
reporting its execution of a merger agreement with Medical Graphics
Corporation. On January 5, 2000, Angeion filed a Form 8-K dated December 21,
1999 reporting that it completed the acquisition of Medical Graphics on
December 21, 1999.
65
<PAGE>
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) 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
(Registrant)
April 14, 2000 By /s/ Richard E. Jahnke
--------------------------------------
Richard E. Jahnke
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Each person whose signature appears below constitutes and appoints
Dennis E. Evans and Richard E. Jahnke as his true and lawful
attorneys-in-fact and agents, each acting alone, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any of all amendments to this Annual Report
on Form 10-K and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, each acting
alone, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully
to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all said attorneys-in-fact and agents, each acting
alone, or his substitute or substitutes, may lawfully do or cause to be done
by virtue thereof.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Richard E. Jahnke President, Chief Executive Officer
- -------------------------------------- (Principal Executive Officer)
Richard E. Jahnke
/s/ Dale H. Johnson Chief Financial Officer
- -------------------------------------- (Principal Financial and Accounting
Dale H. Johnson Officer)
/s/ Arnold A. Angeloni Director
- --------------------------------------
Arnold A. Angeloni
66
<PAGE>
/s/ Dennis E. Evans Director
- --------------------------------------
Dennis E. Evans
/s/ James B. Hickey, Jr. Director
- --------------------------------------
James B. Hickey, Jr.
/s/ John C. Penn Director
- --------------------------------------
John C. Penn
/s/ Mark W. Sheffert Director
- --------------------------------------
Mark W. Sheffert
/s/ Glen Taylor Director
- --------------------------------------
Glen Taylor
</TABLE>
67
<PAGE>
Exhibit 3.1
ARTICLES OF INCORPORATION
OF
ANGEION CORPORATION
ARTICLE I
The name of this corporation shall be Angeion Corporation.
ARTICLE II
The registered office of this corporation in the State of Minnesota
shall be 350 Oak Grove Parkway, Saint Paul, Minnesota 55127.
ARTICLE III
3.1 This corporation shall have the authority to issue an aggregate of
ten million (10,000,000) shares of Common Stock, each with $.01 par value. Such
shares shall be designed as this corporation's "Common Stock."
3.2 This corporation shall have the authority to issue an aggregate of
three million (3,000,000) shares of Preferred Stock, which may be issued in one
or more series as determined from time to time by the Board of Directors. Such
shares shall be designated as the "Preferred Stock, Series _____." The shares of
Preferred Stock of any series authorized for issuance by the Board of Directors
shall be senior to the Common Stock with respect to any distribution (as such
term is defined in Section 302A.011, Subd. 10, Minnesota Statutes) if so
designated by the Board of Directors upon issuance of the shares of that series.
The Board of Directors is hereby granted the express authority to fix by
resolution any other designations, powers, preferences, rights, qualifications,
limitations or restrictions with respect to any particular series of Preferred
Stock prior to issuance thereof.
3.3 Except as otherwise required by law, the holders of Common Stock
shall have the sole voting rights of this corporation.
3.4 There shall be no cumulative voting by the holders of the Common
Stock.
3.5 The shareholders shall take action by the affirmative vote of the
holders of a majority of the voting power of the shares represented and voting
at a duly held meeting, except where the affirmative vote of a greater number is
required by statute and where the holders of a
<PAGE>
class or series are entitled by statute to vote as a class or series (whether or
not such holders are otherwise entitled to vote); provided, however, that the
affirmative vote of the holders of two-thirds (2/3) of the voting power of the
shares entitled to vote shall be required for shareholder approval of a plan of
merger, exchange of securities, or transfer of assets, as described in Section
302A.601, Minnesota Revised Statutes. Notwithstanding any provisions of these
Articles of Incorporation, and notwithstanding that a lesser percentage may be
specified by law, the affirmative vote of the holders of two-thirds (2/3) of the
voting power of the shares entitled to vote shall be required to amend or repeal
the foregoing two-thirds (2/3) supermajority vote requirement.
3.6 The shareholders of this corporation shall have no preemptive
rights to subscribe for or otherwise acquire (i) any new or additional shares of
stock of this corporation of any class whether now authorized or authorized
hereafter, or (ii) any options or warrants to purchase, subscribe for or
otherwise acquire any such new or additional shares of any class, or any shares,
bonds, notes, debentures, or (iii) other securities convertible into or carrying
options or warrants to purchase, subscribe for, or otherwise acquire any such
new or additional shares of any class.
ARTICLE IV
In addition to, and not by way of limitation of, the power granted to
the Board of Directors by Chapter 302A, Minnesota Revised Statutes, the Board of
Directors of this corporation shall have the following powers and authority:
4.1 To fix by resolution any designation, power, preference, right,
qualification, limitation or restriction with respect to the issuance of any
series of the Preferred Stock of this corporation authorized by these Articles
of Incorporation.
4.2 To issue shares of a class or series to holders of shares of
another class or series to effectuate share dividends, splits, or conversion of
its outstanding shares.
4.3 To fix the terms, provisions and conditions of and to authorize the
issuance, sale, pledge or exchange of bonds, debentures, notes, or other
evidence of indebtedness of this corporation.
4.4 To issue authorized securities of this corporation and rights to
acquire such securities and to reserve securities of this corporation for
issuance upon exercise of such rights.
4.5 To adopt, amend or repeal all or any of the Bylaws of this
corporation by the vote of a majority of its members, subject to the power of
the shareholders to adopt, amend or repeal such Bylaws.
4.6 As to any member of the Board, to give advance written consent or
opposition to
2
<PAGE>
a resolution stating an action to be taken by the Board. If such member is not
present at the meeting at which action is taken upon such resolution, such
consent or opposition does not constitute presence for purposes of determining
the existence of a quorum, but shall be counted as a vote in favor of or against
the resolution and shall be entered in the minutes or other record of action
taken by the Board at the meeting if the resolution acted upon by the Board at
the meeting is substantially the same or has substantially the same effect as
the resolution to which the member of the Board has consented or objected.
4.7 To adopt an indemnity plan and to purchase and maintain insurance
for officers, directors, employees and agents against liability asserted against
them and incurred in any such capacity or arising out of their status as such,
and to enter into contracts for indemnification of such persons, to the fullest
extent permissible under the provisions of Chapter 302A, Minnesota Revised
Statutes. Except as expressly provided in Section 302A.251, Subd. 4, Minnesota
Revised Statutes, a member of the Board of Directors of this corporation shall
have no personal liability to this corporation or to the shareholders for
monetary damages for breach of fiduciary duty as a member of the Board of
Directors. Amendment or repeal of this Section 4.7 shall not adversely affect
any right of indemnification or limitation of liability of any officer,
director, employee or agent with respect to any liability or alleged liability
arising out of any act or omission occurring prior to such amendment or repeal.
4.8 To take any action required or permitted to be taken at a meeting
of the Board by written action signed by the number of directors that would be
required to take same action at a meeting of the Board at which all directors
were present, including action requiring shareholder approval, provided, that
any action taken in writing which requires shareholder approval shall be signed
by all directors.
3
<PAGE>
Exhibit 10.9
ANGEION CORPORATION
1994 NON-EMPLOYEE DIRECTOR PLAN
(AS AMENDED THROUGH DECEMBER 31, 1999)
1. PURPOSE OF PLAN.
The purpose of the Angeion Corporation 1994 Non-Employee Director Plan
(the "Plan") is to advance the interests of Angeion Corporation (the "Company")
and its shareholders by enabling the Company to attract and retain the services
of experienced and knowledgeable non-employee directors and to increase the
proprietary interests of such non-employee directors in the Company's long-term
success and progress and their identification with the interests of the
Company's shareholders.
2. DEFINITIONS.
The following terms will have the meanings set forth below, unless the
context clearly otherwise requires:
2.1 "Adjustment Ratio" means a fraction, (i) the numerator of which is
the number of days between the date of grant of the Pro-Rata Option and Pro-Rata
Stock Award and the beginning of the fiscal year of the Company that first
follows such date of grant, and (ii) the denominator of which is 365.
2.2 "Board" means the Board of Directors of the Company.
2.3 "Code" means the Internal Revenue Code of 1986, as amended.
2.4 "Committee" means the group of individuals administering the Plan,
as provided in Section 3 of the Plan.
2.5 "Common Stock" means the common stock of the Company, par value
$0.01 per share, or the number and kind of shares of stock or other securities
into which such Common Stock may be changed in accordance with Section 4.3 of
the Plan.
2.6 "Disability" means the disability of an Eligible Director such as
would entitle the Eligible Director to receive disability income benefits
pursuant to the long-term disability plan of the Company then covering the
Eligible Director or, if no such plan exists or is applicable to the Eligible
Director, the permanent and total disability of the Eligible Director within the
meaning of Section 22(e)(3) of the Code.
<PAGE>
2.7 "Eligible Directors" means all directors of the Company who are not
employees of the Company or any subsidiary of the Company.
2.8 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
2.9 "Fair Market Value" means, with respect to the Common Stock, as of
any date (or, if no shares were traded on such date, as of the next preceding
date on which there was such a trade), the average of the reported high and low
sales prices of the Common Stock as reported by the Nasdaq National Market.
2.10 "Full Option" means a right to purchase 3,000 shares of Common
Stock (subject to adjustment as provided in Section 4.3 of the Plan) that is
granted to an Eligible Director pursuant to Section 5 of the Plan, which option
will not qualify as an "incentive stock option" within the meaning of Section
422 of the Code.
2.11 "Full Stock Award" means shares of Common Stock granted to an
Eligible Director pursuant to Section 5 of the Plan in an amount (rounded to the
nearest whole share) equal to $24,000 divided by the Fair Market Value of one
share of Common Stock on the date of grant.
2.12 "Incentive Awards" means Options and Stock Awards.
2.13 "Options" means Full Options and Pro-Rata Options.
2.14 "Pro-Rata Option" means a right to purchase the number of shares
of Common Stock (rounded to the nearest whole share) determined by multiplying
the number of shares subject to a Full Option by the Adjustment Ratio, which
option will not qualify as an "incentive stock option" within the meaning of
Section 422 of the Code.
2.15 "Pro-Rata Stock Award" means shares of Common Stock granted to an
Eligible Director in an amount (rounded to the nearest whole share) equal to the
number of shares subject to a Full Stock Award multiplied by the Adjustment
Ratio.
2.16 "Retirement" means termination of employment or service pursuant
to and in accordance with the regular (or, if approved by the Board for purposes
of the Plan, early) retirement/pension plan or practice of the Company or any
subsidiary of the Company then covering the Participant.
2.17 "Securities Act" means the Securities Act of 1933, as amended.
2.18 "Stock Awards" means Full Stock Awards and Pro-Rata Stock Awards.
3. PLAN ADMINISTRATION.
The Plan will be administered by a committee (the "Committee")
consisting solely of two or more members of the Board. All questions of
interpretation of the Plan
<PAGE>
will be determined by the Committee, each determination, interpretation or
other action made or taken by the Committee pursuant to the provisions of the
Plan will be conclusive and binding for all purposes and on all persons, and
no member of the Committee will be liable for any action or determination made
in good faith with respect to the Plan or any Incentive Award granted under
the Plan. The Committee, however, will have no power to determine the
eligibility for participation in the Plan, the number of shares of Common
Stock to be subject to Incentive Awards, or the timing, pricing or other terms
and conditions of Incentive Awards.
4. SHARES AVAILABLE FOR ISSUANCE.
4.1 MAXIMUM NUMBER OF SHARES AVAILABLE. Subject to adjustment as
provided in Section 4.3 of the Plan, the maximum number of shares of Common
Stock that will be available for issuance under the Plan will be 250,000 shares.
The shares available for issuance under the Plan shall be authorized but
unissued shares.
4.2 ACCOUNTING FOR INCENTIVE AWARDS. Shares of Common Stock that are
issued under the Plan or that are subject to outstanding Incentive Awards will
be applied to reduce the maximum number of shares of Common Stock remaining
available for issuance under the Plan. Any shares of Common Stock that are
subject to an Option that lapses, expires, or for any reason is terminated
unexercised will automatically again become available for issuance under the
Plan.
4.3 ADJUSTMENTS TO SHARES AND INCENTIVE AWARDS. In the event of any
reorganization, merger, consolidation, recapitalization, liquidation,
reclassification, stock dividend, stock split, combination of shares, rights
offering, divestiture or extraordinary dividend (including a spin-off) or any
other change in the corporate structure or shares of the Company, the Committee
(or, if the Company is not the surviving corporation in any such transaction,
the board of directors of the surviving corporation) will make appropriate
adjustment (which determination will be conclusive) as to the number and kind of
securities available for issuance under the Plan and, in order to prevent
dilution or enlargement of the rights of Eligible Directors, the number, kind
and, where applicable, exercise price of securities subject to outstanding
Incentive Awards.
5. INCENTIVE AWARDS.
5.1 GRANT. Each Eligible Director who is elected or re-elected at an
annual meeting of shareholders of the Company, and each Eligible Director, if
any, whose class is not up for re-election at such annual meeting of
shareholders and who therefore continues to serve as an Eligible Director
following such annual meeting of shareholders, will be granted, effective as of
the date of each such annual meeting of shareholders of the Company, a Full
Option and a Full Stock Award. In the event that Eligible Directors are elected
or appointed to the Board of Directors to fill new directorships or to fill
vacancies during the period following an annual meeting of shareholders but
prior to the beginning of the next succeeding fiscal year, such Eligible
Directors will be granted,
<PAGE>
effective as of the date of such election or appointment, a Pro-Rata Option
and a Pro-Rata Stock Award.
5.2 EXERCISE PRICE OF OPTIONS. The per share price to be paid by an
Eligible Director upon exercise of an Option will be 100% of the Fair Market
Value of one share of Common Stock on the date of grant. The total purchase
price of the shares to be purchased upon exercise of an Option will be paid
entirely in cash (including check, bank draft or money order).
5.3 EXERCISABILITY AND DURATION OF OPTIONS. Each Option will become
exercisable in full six months following its date of grant and will expire and
will no longer be exercisable 10 years from its date of grant.
5.4 MANNER OF EXERCISE OF OPTIONS. An Option may be exercised by an
Eligible Director in whole or in part from time to time, subject to the
conditions contained in the Plan and in the agreement evidencing such Option, by
delivery in person, by facsimile or electronic transmission or through the mail
of written notice of exercise to the Company at its principal executive office
in Plymouth, Minnesota and by paying in full the total exercise price for the
shares of Common Stock to be purchased in accordance with Section 5.2 of the
Plan.
6. EFFECT OF TERMINATION OF SERVICE AS DIRECTOR.
6.1 TERMINATION DUE TO DEATH, DISABILITY OR RETIREMENT. In the event an
Eligible Director's service as a director of the Company is terminated by reason
of death, Disability or Retirement, all outstanding Options then held by the
Eligible Director will become immediately exercisable in full and will remain
exercisable for a period of one year after such death, Disability or Retirement
(but in no event after the expiration date of any such Options).
6.2 TERMINATION FOR REASONS OTHER THAN DEATH, DISABILITY OR RETIREMENT.
In the event an Eligible Director's service as a director of the Company is
terminated for any reason other than death, Disability or Retirement, all
outstanding Options then held by the Eligible Director will remain exercisable
to the extent exercisable as of such termination for a period of three months
after such termination (but in no event after the expiration date of any such
Options).
6.3 DATE OF TERMINATION. An Eligible Director's service as a director
of the Company will, for purposes of the Plan, be deemed to have terminated on
the date recorded on the personnel or other records of the Company, as
determined by the Committee based upon such records.
7. RIGHTS OF ELIGIBLE DIRECTORS; TRANSFERABILITY OF INTERESTS.
7.1 SERVICE AS A DIRECTOR. Nothing in the Plan will interfere with or
limit in any way the right of the Company to terminate any Eligible Director at
any time, and neither
<PAGE>
the Plan, nor the granting of an Incentive Award nor any other action taken
pursuant to the Plan, will constitute or be evidence of any agreement or
understanding, express or implied, that the Company will retain an Eligible
Director for any period of time or at any particular rate of compensation.
7.2 RIGHTS AS A SHAREHOLDER. An Eligible Director will have no rights
as a shareholder unless and until a Stock Award is issued or an Option is
exercised and the Eligible Director becomes the holder of record of such shares.
Except as otherwise provided in the Plan, no adjustment will be made for
dividends or distributions with respect to Incentive Awards as to which there is
a record date preceding the date the Eligible Director becomes the holder of
record of such shares.
7.3 RESTRICTIONS ON TRANSFER OF INTERESTS. Except pursuant to
testamentary will or the laws of descent and distribution or as otherwise
expressly permitted by the Plan, no right or interest of any Eligible Director
in an Option prior to the exercise of such Option will be assignable or
transferable, or subjected to any lien, during the lifetime of the Eligible
Director, either voluntarily or involuntarily, directly or indirectly, by
operation of law or otherwise. An Eligible Director will, however, be entitled
to designate a beneficiary to receive an Option upon such Eligible Director's
death, and in the event of an Eligible Director's death, payment of any amounts
due under the Plan will be made to, and exercise of any Options (to the extent
permitted pursuant to Section 6 of the Plan) may be made by, the Eligible
Director's legal representatives, heirs and legatees.
7.4 NON-EXCLUSIVITY OF THE PLAN. Nothing contained in the Plan is
intended to modify or rescind any previously approved compensation plans or
programs of the Company or create any limitations on the power or authority of
the Board to adopt such additional or other compensation arrangements as the
Board may deem necessary or desirable.
8. SECURITIES LAW AND OTHER RESTRICTIONS.
Notwithstanding any other provision of the Plan or any agreements
entered into pursuant to the Plan, the Company will not be required to issue any
shares of Common Stock under this Plan, and an Eligible Director may not sell,
assign, transfer or otherwise dispose of shares of Common Stock issued in
connection with an Incentive Award granted under the Plan, unless (a) there is
in effect with respect to such shares a registration statement under the
Securities Act and any applicable state securities laws or an exemption from
such registration under the Securities Act and applicable state securities laws,
and (b) there has been obtained any other consent, approval or permit from any
other regulatory body which the Committee, in its sole discretion, deems
necessary or advisable. The Company may condition such issuance, sale or
transfer upon the receipt of any representations or agreements from the parties
involved, and the placement of any legends on certificates representing shares
of Common Stock, as may be deemed necessary or advisable by the Company in order
to comply with such securities law or other restrictions.
<PAGE>
9. PLAN AMENDMENT, MODIFICATION AND TERMINATION.
The Board may suspend or terminate the Plan or any portion thereof at
any time, and may amend the Plan from time to time in such respects as the Board
may deem advisable in order that Incentive Awards granted under the Plan will
conform to any change in applicable laws or regulations or in any other respect
the Board may deem to be in the best interests of the Company; provided,
however, that (a) no amendments to the Plan will be effective without approval
of the shareholders of the Company if shareholder approval of the amendment is
then required pursuant to Rule 16b-3 under the Exchange Act or the rules of the
National Association of Securities Dealers, Inc., and (b) to the extent
prohibited by Rule 16b-3 of the Exchange Act, the Plan may not be amended more
than once every six months. No termination, suspension or amendment of the Plan
may adversely affect any outstanding Incentive Award without the consent of the
affected Eligible Director; provided, however, that this sentence will not
impair the right of the Committee to take whatever action it deems appropriate
under Section 4.3 of the Plan.
10. EFFECTIVE DATE AND DURATION OF THE PLAN.
The Plan, as amended, is effective as of October 1, 1999, the date it
was adopted by the Board. The Plan will terminate at midnight on October 7,
2004, but may be terminated prior thereto by Board action. No Incentive Awards
may be granted after such termination, but Options outstanding upon termination
of the Plan may continue to be exercised in accordance with their terms.
11. MISCELLANEOUS.
11.1 GOVERNING LAW. The validity, construction, interpretation,
administration and effect of the Plan and any rules, regulations and actions
relating to the Plan will be governed by and construed exclusively in accordance
with the laws of the State of Minnesota, notwithstanding any conflicts of law
principles.
11.2 SUCCESSORS AND ASSIGNS. The Plan will be binding upon and inure to
the benefit of the successors and permitted assigns of the Company and the
Eligible Directors.
<PAGE>
December 21, 1999
Mr. Richard E. Jahnke
25 Neptune Street
Mahtomedi, MN 55155
Dear Mr. Jahnke:
The execution of this letter agreement is a condition of Angeion Corporation
("the Company") to the closing of the merger of Medical Graphics Corporation
("Medical Graphics") with a wholly-owned subsidiary of the Company pursuant to
an Agreement and Plan of Merger by and among Medical Graphics, the Company and
ANG Acquisition Corp., dated September 22, 1999 (the "Merger" and the "Merger
Agreement"). As a result of the Merger, Medical Graphics will become a wholly
owned subsidiary of the Company. In connection with the Merger each of us
desires to enter into a new employment agreement with the Company that would
supercede the terms of your existing employment with Medical Graphics, effective
at the Effective Time of the Merger.
1. EMPLOYMENT.
The Company hereby agrees to employ you, and you agree to be employed by
the Company, on the terms and conditions hereinafter set forth. Effective
January 3, 2000, you will serve as the President and Chief Executive Officer of
the Company and, at no additional compensation, be elected as a member of the
Board of Directors of the Company, and in such other directorships, Board
committee memberships and offices of the Company and its subsidiaries to which
you may from time to time be elected or appointed by the Chairman of the Board
of the Company (including President and Chief Executive Officer of Medical
Graphics). You agree to serve the Company faithfully and, to the best of your
ability, to promote the Company's interest, and to devote your full working
time, energy and skill to the Company's business. You may attend to personal
business and investment, engage in charitable activities and community affairs,
and serve on a reasonable number of corporate, educational and civic boards, so
long as those activities do not interfere with your duties under this Agreement
and provided that service on any corporate boards on which you did not serve as
of the date hereof shall be subject to prior approval by the Board of Directors.
You will have such authority, powers, functions, duties, and
responsibilities as are normally accorded chief executive officers. You will
discharge your duties at all times in accordance with any and all policies
established by the Board of Directors and will report to, and be subject to the
direction of, the Board of Directors.
2. BASE SALARY.
As partial compensation for all of your services (including services as
director, Board committee member or officer of the Company and its subsidiaries)
during your
<PAGE>
term of employment hereunder, you will receive a base salary at an annual
rate of Two Hundred Sixty-five Thousand Dollars ($265,000), payable in
biweekly installments. Such base salary shall be reviewed annually at the
discretion of the Board.
3. CASH BONUS; STOCK AWARDS AND OPTIONS.
(a) As additional compensation for your services, you shall be eligible to
earn cash bonus compensation for each fiscal year up to a target of 35% of your
annual salary, and an over achievement bonus of up to an additional 35% of your
annual salary. Bonuses each year will be determined by the Board of Directors in
accordance with a bonus plan to be established by mutual agreement between you
and the Board of Directors for that year.
(b) Your eligibility for stock awards and stock options of the Company is
set forth in a separate letter from the Company to you dated September 22, 1999
and embodied in separate stock award and stock option agreement executed
concurrently herewith.
4. FRINGE BENEFITS.
(a) You will be eligible to participate in any and all Company sponsored
insurance (including medical, dental, life and disability insurance),
retirement, and other fringe benefit programs that it maintains for its
executive officers, subject to and on a basis consistent with the terms of each
such plan or program.
(b) You will be entitled to four weeks of paid vacation annually.
(c) The Company will pay or reimburse you $600 per month for all costs
associated with a private automobile selected by you, including, but not limited
to, lease costs, gas, repairs, general maintenance and insurance.
5. EXPENSES.
During the term of your employment, the Company will reimburse you for your
reasonable travel and other expenses incident to your rendering of services in
conformity with its regular policies regarding reimbursement of expenses as in
effect from time to time. Payments to you under this paragraph will be made upon
presentation of expense vouchers in such detail as the Company may from time to
time reasonably require.
6. TERM AND TERMINATION.
(a) TERM. Your employment with the Company will continue unless and until
terminated in accordance with the terms of this Agreement.
(b) TERMINATION. Your employment under this Agreement may be terminated as
follows:
<PAGE>
(i) By your resignation upon 30 days prior written notice to the
Company.
(ii) By the Company for Cause (as defined in this Agreement)
immediately upon written notice to you.
(iii) By the Company for any reason and at any time upon 30 days prior
written notice to you.
(iv) By the Company at any time in the event of your Disability (as
defined in this Agreement).
In the event of your termination of employment for any of the foregoing reasons,
you shall immediately resign as a director of the Company and any of its
subsidiaries.
(c) DEATH. This Agreement will automatically terminate upon your death.
7. CONSEQUENCES OF TERMINATION.
(a) TERMINATION FOR CAUSE; RESIGNATION PRIOR TO CHANGE IN CONTROL OR
MORE THAN 24 MONTHS AFTER CHANGE IN CONTROL. If your employment is
terminated at any time by the Company for Cause or if you resign
prior to a Change in Control (as defined in the separate
Change-in-Control Agreement attached hereto (the "Change-in-Control
Agreement")) or more than 24 months after a Change in Control, then
you will be paid your base salary to the date of termination and the
unpaid portion of any bonus or incentive amount earned by you for
the fiscal year ending prior to the termination of your employment
which you are entitled to receive under the terms of the annual
incentive plan. You will not be entitled to receive any base salary
or fringe benefits for any period after the date of termination,
except for the right to receive benefits which have become vested
under any benefit plan or to which you are entitled as a matter of
law.
(b) TERMINATION WITHOUT CAUSE PRIOR TO CHANGE IN CONTROL OR MORE THAN 24
MONTHS AFTER CHANGE IN CONTROL. If the Company terminates your
employment without Cause prior to a Change in Control or more than 24
months after a Change in Control, then:
(i) The Company will pay you a lump sum equal to 18 months of your
current base salary, less applicable tax withholdings; and
(ii) The Company will pay the unpaid portion of any bonus or
incentive amount earned by you for the fiscal year
<PAGE>
ending prior to the termination of your employment which you are
entitled to receive under the terms of the applicable incentive
plan; and
(iii) You will be entitled to continued participation in the health
care coverage, and life insurance benefit plans of the
Company, as in effect on the date of your termination as
permitted by law. The Company will continue to pay its share
of the health care and life insurance premiums for this
coverage for a period of up to 18 months, and YOU SHALL PAY
YOUR SHARE OF THE COST ASSOCIATED WITH THAT coverage as if
you were still actively employed by the Company. If you
cannot be covered under any of the Company's group plans or
policies, the Company will reimburse you for your full cost
of obtaining comparable alternative or individual coverage
elsewhere, less any contribution that you would have been
required to make under the Company's group plans or policies.
If, during the aforesaid 18-month period, you are employed by
a third party and become eligible for any health care and/or
life insurance coverage provided by that third party, the
Company will not, thereafter, be obligated to provide you
with the insurance benefits described in this paragraph
(b)(iii). This 18-month coverage shall run concurrently with
COBRA and thereafter you shall be responsible for the full
cost of any coverage thereafter.
(c) TERMINATION IN THE EVENT OF DEATH OR DISABILITY. If your employment
terminates due to your death or if the Company terminates your
employment due to a Disability, then
(i) The Company will continue to pay your base salary to your estate
or to you for the remainder of the month in which your death
occurs or in which your employment is terminated due to
Disability, together with the unpaid portion of any bonus or
incentive amount earned by you for the fiscal year ending prior
to the termination of your employment which you are entitled to
receive under the terms of the applicable incentive plan; and in
the event of termination due to Disability, you will continue to
receive, during that month, all of the fringe benefits then being
paid or provided to you;
(ii) You will be entitled to receive all Disability and other
benefits, such as continued health coverage or life
<PAGE>
insurance proceeds, provided in accordance with the terms and
conditions of the health care coverage, life insurance,
disability, or other employee benefit plans of the Company and
applicable law.
(d) TERMINATION WITHIN 24 MONTHS AFTER CHANGE IN CONTROL. If, within 24
months after a Change in Control, your employment terminates, your
rights shall be governed by the Change-in-Control Agreement attached
hereto and executed concurrently herewith.
(e) The benefits provided you under this Section 7 or in the
Change-in-Control Agreement are in lieu of any benefits that would
otherwise be provided to you under any severance pay or other policies
of the Company.
8. NO MITIGATION. Following termination of your employment for any reason
you will be under no obligation to mitigate your damages by seeking other
employment, and there will be no offset against the amounts due you under
Section 7, except as specifically provided in Section 7(b)(iii) or for any
claims which the Company may have against you.
9. PROPERTY RIGHTS, CONFIDENTIALITY, NON-SOLICIT AND NON-COMPETE
PROVISIONS.
(a) COMPANY'S PROPERTY.
(i) You shall promptly disclose to the Company in writing all
inventions, discoveries, and works of authorship, whether or not patentable
or copyrightable, which are conceived, made, discovered, written, or
created by you alone or jointly with another person, group, or entity,
whether during the normal hours of employment at the Company or on your own
time, during the term of this Agreement. You agree to assign all rights to
all such inventions and works of authorship to the Company. You further
agree to give the Company any of the assistance it reasonably requires in
order for the Company to perfect, protect and use its rights to inventions
and works of authorship.
This provision shall not apply to an invention, discovery, or work of
authorship for which no equipment, supplies, facility, or trade secret
information of the Company was used and which was developed entirely on
your own time and which does not relate to the business of the Company, to
the Company's anticipated research or developments, or does not result from
any work performed by you for the Company.
(ii) You shall not remove any records, documents, or any other
tangible items (excluding your personal property) from the premises of the
<PAGE>
Company in either original or duplicate form, except as is needed in the
ordinary course of conducting business for the Company.
(iii) You shall immediately deliver to the Company, upon termination
of employment with the Company, or at any other time upon the Company's
request, any property, records, documents, and other tangible items
(excluding your personal property) in your possession or control, including
data incorporated in word processing, computer, and other data storage
media, and all copies of such records, documents, and information,
including all Confidential Information, as defined below.
(b) CONFIDENTIAL INFORMATION. During the course of your employment you will
develop, become aware of, and accumulate expertise, knowledge, and information
regarding the Company's and its subsidiaries' organization strategies, business,
and operations and their past, current, or potential customers, and suppliers.
The Company considers such expertise, knowledge, and information to be valuable,
confidential, and proprietary, and it shall be considered Confidential
Information for purposes of this Agreement. During this Agreement and at all
times thereafter you will agree not to use such Confidential Information or
disclose it to other persons or entities except as is necessary for the
performance of your duties for the Company or as has been expressly permitted in
writing by the Company. Provided, however, that the foregoing covenant shall not
apply to any information possessed by you prior to your employment by the
Company, or to any information which is in or has entered the pubic domain or
has been disclosed with any industry segment in which the Company or any
subsidiary or affiliated company of the Company operates by or pursuant to the
authority of the Company or any subsidiary or affiliated company of the Company.
(c) NON-SOLICITATION. During (i) the term of this Agreement, and (ii) the
greater of (A) any period for which you are receiving payments under Section 7
of this Agreement, or (B) one year after the termination of this Agreement or
the date on which you are no longer employed by the Company in any capacity,
whichever shall last occur, you shall not directly or indirectly attempt to hire
away any then-current employee of the Company or any subsidiary or to persuade
any such employee to leave employment with the Company or any subsidiary.
(d) NON-COMPETITION. During (i) the term of this Agreement and (ii) the
greater of (A) any period for which you are receiving payments under Section 7
of this Agreement, or (B) one year after termination of this Agreement or the
date on which you are no longer employed by the Company in any capacity,
whichever shall last occur, you shall not engage or participate, either
individually or as an employee, consultant, or principal, partner, agent,
trustee, officer, or director of a corporation, partnership, or other business
entity, in any business in which the Company or any subsidiary of the Company
has a more than 20 percent equity interest, was engaged prior to the termination
of this Agreement. Provided, however, that mere ownership of not more than 5% of
the outstanding common stock of a company the securities of which are publicly
traded shall not constitute competition for purposes of this Section 9(d).
<PAGE>
The provisions of this Section 9 shall survive the termination of this
Agreement.
10. ARBITRATION. Any disputes arising under or in connection with this
Agreement (including without limitation the making of this Agreement) shall be
resolved by final and binding arbitration to be held in Minneapolis, Minnesota
in accordance with the rules and procedures of the American Arbitration
Association. The parties shall select a mutually agreeable single arbitrator to
resolve the dispute or if they fail or are unable to do so, each side shall
within the following ten (10) business days select a single arbitrator and the
two so selected shall select a third arbitrator within the following ten (10)
business days. The arbitration award or other resolution may be entered as a
judgment at the request of the prevailing party by any court of competent
jurisdiction in Minnesota or elsewhere. The arbitrator shall have no power to
award any punitive or exemplary damages. The arbitrator may construe or
interpret, but shall not ignore or vary the terms of this Agreement, and shall
be bound by controlling law. You acknowledge that your failure to comply with
the terms of the Agreement regarding Confidential Information, Inventions, and
Non-Competition could cause immediate and irreparable injury to the Company and
that therefore, the arbitrators, or a court of competent jurisdiction, if an
arbitration panel cannot immediately be convened, will be empowered to provide
injunctive relief, including temporary or preliminary relief, to restrain any
such failure to comply. Each party shall bear its own costs and attorneys' fees
in connection with the arbitration.
11. DEFINITIONS. For purposes of this Agreement, the following terms will
have the meanings set forth below:
(a) CAUSE. "Cause" has the meaning given to it in the Change-in-Control
Agreement.
(b) DISABILITY. "Disability" means that you are deemed to be disabled
under the terms of the Company's long term disability plan and have satisfied
the qualifying period for entitlement to benefits under such plan.
12. GENERAL PROVISIONS.
(a) This Agreement may not be amended or modified except by a written
agreement signed by both of us.
(b) In the event that any provision or portion of this agreement is
determined to be invalid or unenforceable for any reason, the
remaining provisions of this Agreement will remain in full force and
effect to the fullest extent permitted by law.
(c) This Agreement shall bind and benefit the parties hereto and their
respective successors and assigns, but none of your rights or
obligations hereunder may be assigned by either party hereto without
the written consent of the other, except by operation of law upon your
death.
<PAGE>
(d) This Agreement has been made in and shall be governed and construed in
accordance with the laws of the State of Minnesota without giving
effect to the principles of conflict of laws of any jurisdiction.
(e) No failure on the part of either party to exercise, and no delay in
exercising, any right or remedy under this Agreement will operate as a
waiver; nor will any single or partial exercise of any right or remedy
preclude any other or further exercise of any right or remedy.
(f) Any notice or other communication under this Agreement must be in
writing and will be deemed given when delivered in person, by
overnight courier (with receipt confirmed), by facsimile transmission
(with receipt confirmed by telephone or by automatic transmission
report), or upon receipt if sent by certified mail, return receipt
requested, as follows (or to such other persons and/or addresses as
may be specified by written notice to the other party):
If to Angeion Corporation.:
Angeion Corporation
Attention: Chairman of the Board of Directors
350 Oak Grove Parkway
St. Paul, MN 55127
If to Richard E. Jahnke:
Richard E. Jahnke
25 Neptune Street
Mahtomedi, MN 55115
(g) This Agreement, the Change-in-Control Agreement and the stock awards
and stock option agreements ancillary hereto, contains our entire
understanding and agreement with respect to these matters and
supersedes all previous agreements, discussions, or understandings,
whether written or oral, between or on the same subjects.
(h) In the event any provision of this Agreement is held unenforceable,
that provision will be severed and shall not affect the validity or
enforceability of the remaining provisions. In the event any provision
is held to be overbroad, that provision shall be deemed amended to
narrow its application to the extent necessary to render the provision
enforceable according to applicable law.
(i) All terms of this Agreement intended to be observed and performed
after the termination of this Agreement will survive such termination
and will continue in full force and effect thereafter, including
without limitation, Sections 7, 8, 9, 10, 11 and 12.
<PAGE>
(j) The headings contained in this Agreement are for convenience only and
shall in no way restrict or otherwise affect the construction of the
provisions hereof. Unless otherwise specified herein, references in
this Agreement to Sections or Exhibits are to the sections or exhibits
to this Agreement. This Agreement may be executed in multiple
counterparts, each of which shall be an original and all of which
together shall constitute one and the same instrument.
If the foregoing correctly sets forth your understanding of our agreement,
please indicate so by signing and returning to us a copy of this letter.
Very truly yours,
ANGEION CORPORATION
/s/ James B. Hickey, Jr.
------------------------
Its President
Accepted and agreed to:
/s/ Richard E. Jahnke
- -----------------------
Richard E. Jahnke
<PAGE>
EXHIBIT 21.1
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
State or Other Jurisdiction
Name of Organization
------ ------------------------------
<S> <C>
Angeion Europe Ltd. England/Whales
Angeion GmbH Germany
Medical Graphics Corporation Minnesota
Medical Graphics GmbH Germany
Medical Graphics FSC, Inc. U. S. Virgin Islands
</TABLE>
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Angeion Corporation:
We consent to incorporation by reference in the Registration Statements (Nos.
333-04189, 33-88882, 33-56784, 33-81594 and 333-42931) on Form S-8,
Registration Statements (Nos. 333-36005, 333-03007, 333-04993, 33-45600,
33-85902, and 33-80274) on Form S-3, and Registration Statement (No. 33-82084)
on Form S-2 of Angeion Corporation of our report dated March 27, 2000,
relating to the consolidated balance sheets of Angeion Corporation and
subsidiaries as of December 31, 1999 and 1998, and the related consolidated
statements of operations, shareholders' equity (deficit), and cash flows for
the years ended December 31, 1999 and 1998, the five-month transition period
ended December 31, 1997, and for the year ended July 31, 1997, which report is
incorporated by reference in the December 31, 1999, annual report on Form 10-K
of Angeion Corporation.
/s/ KPMG LLP
Minneapolis, Minnesota
April 14, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 5,263
<SECURITIES> 0
<RECEIVABLES> 4,890
<ALLOWANCES> (1000)
<INVENTORY> 4,953
<CURRENT-ASSETS> 15,181
<PP&E> 6,234
<DEPRECIATION> (4,009)
<TOTAL-ASSETS> 33,737
<CURRENT-LIABILITIES> 6,248
<BONDS> 0
0
0
<COMMON> 41
<OTHER-SE> 7,250
<TOTAL-LIABILITY-AND-EQUITY> 33,737
<SALES> 608
<TOTAL-REVENUES> 608
<CGS> 331
<TOTAL-COSTS> 1,171
<OTHER-EXPENSES> 337
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,361
<INCOME-PRETAX> 28,587
<INCOME-TAX> 171
<INCOME-CONTINUING> 28,416
<DISCONTINUED> (26,850)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,566
<EPS-BASIC> 0.39
<EPS-DILUTED> 0.33
</TABLE>
