-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JtOy164RlnguM9PZx8Iwc8kDWOHB5tYFysjJHP/jGVbxlBADtRDX2982G5lQJ41D ZFB2M4HiwGTSpzzEIJmbhw== 0000950137-07-003940.txt : 20070316 0000950137-07-003940.hdr.sgml : 20070316 20070316141453 ACCESSION NUMBER: 0000950137-07-003940 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 20061231 FILED AS OF DATE: 20070316 DATE AS OF CHANGE: 20070316 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ATS MEDICAL INC CENTRAL INDEX KEY: 0000824068 STANDARD INDUSTRIAL CLASSIFICATION: ORTHOPEDIC, PROSTHETIC & SURGICAL APPLIANCES & SUPPLIES [3842] IRS NUMBER: 411595629 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-18602 FILM NUMBER: 07699416 BUSINESS ADDRESS: STREET 1: 3905 ANNAPOLIS LA STREET 2: SUITE 105 CITY: MINNEAPOLIS STATE: MN ZIP: 55447 BUSINESS PHONE: 6125537736 MAIL ADDRESS: STREET 1: 3905 ANNAPOLIS LANE STREET 2: SUITE 105 CITY: MINNEAPOLIS STATE: MN ZIP: 55447 FORMER COMPANY: FORMER CONFORMED NAME: ATS MEDCIAL INC DATE OF NAME CHANGE: 19920803 10-K 1 c13073e10vk.txt ANNUAL REPORT ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------- FORM 10-K Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006 COMMISSION FILE NO. 0-18602 ATS MEDICAL, INC. (Exact name of registrant as specified in its charter) MINNESOTA 41-1595629 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 3905 ANNAPOLIS LANE NORTH MINNEAPOLIS, MINNESOTA 55447 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (763) 553-7736 Securities registered pursuant to Section 12(b) of the Act: Common Stock $.01 par value Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes[ ] No [X] Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes[ ] No [X] Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act (Check one): Large accelerated filer [ ] Accelerated filer [X] Non-accelerated filer [ ] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [X] The aggregate market value of voting and non-voting stock held by non-affiliates of the registrant as of June 30, 2006, was approximately $74,047,860 (based on the last sale price of such stock as reported by the NASDAQ Global Market on such date). The number of shares outstanding of the registrant's common stock, $.01 par value per share, as of March 2, 2007, was 40,832,221 shares. DOCUMENTS INCORPORATED BY REFERENCE Pursuant to General Instruction G, the responses to Items 10, 11, 12, 13 and 14 of Part III of this report are incorporated herein by reference to certain information contained in the registrant's definitive Proxy Statement for its 2007 Annual Meeting of Shareholders. ================================================================================ PART I ITEM 1. BUSINESS OVERVIEW ATS Medical, Inc. (hereinafter the "Company," "ATS," "we," "us," or "our") is a Minnesota corporation established in 1987. Our common shares are traded on the NASDAQ Global Market under the symbol ATSI. We develop, manufacture, and market medical devices primarily for use by cardiovascular or cardiothoracic surgeons during cardiac surgery. Our core mission is to create a company with a diversified product portfolio focused exclusively on the cardiac surgeon. Our objectives are to establish ATS mechanical and tissue heart valves as the standard of care for patients requiring heart valve replacement and to selectively add new products, primarily through acquisitions and strategic product development or distribution agreements. Sales of our mechanical heart valves represented approximately 82% of our sales in 2006, 90% of our sales in 2005 and 100% of our sales in 2004. Our mechanical bileaflet heart valve has a unique open pivot design. Our valve is used to treat heart valve disease caused by the natural aging process, rheumatic heart disease, prosthetic valve failure and congenital defects. Mechanical heart valves have been in use since the early 1960s. According to MILLENIUM RESEARCH GROUP 2006, the worldwide market for mechanical heart valves exceeds $347 million, representing approximately 30% of the worldwide heart valve market. In the United States, the mechanical heart valve market approximates $95 million. The current total worldwide heart valve market approximates $1.2 billion, including tissue heart valves and heart valve repair. On September 29, 2006, we acquired 3F Therapeutics, Inc. ("3F"), an early stage medical device company with a portfolio of tissue heart valves. 3F's tissue technologies are at the forefront of the emerging field of minimally invasive beating heart tissue valve replacement. The acquisition of 3F is viewed as a major step in executing our longstanding vision of obtaining a leadership position in all segments of the cardiac surgery market. We expect to commence sales of the first generation of 3F products in selected international markets in 2007. The ATS Open Pivot(R) Heart Valve ("ATS Open Pivot") was designed to be an evolutionary improvement upon other available mechanical heart valves by incorporating a pivot consisting of protruding spheres upon which the leaflets of the valve pivot to open and close. This unique open pivot was designed to eliminate the cavity created by the pivot of other bileaflet valves and to improve blood flow through the valve while minimizing the potential for clot formation. We began selling the ATS Open Pivot Heart Valve in international markets in 1992. In October 2000, we received FDA approval to sell the ATS Open Pivot Heart Valve in the United States. More than 140,000 of our ATS Open Pivot Heart Valves have been implanted in patients worldwide since its introduction. CarboMedics, Inc., ("CarboMedics," f/k/a Sulzer CarboMedics) developed the basic design from which the ATS Open Pivot Heart Valve evolved. CarboMedics is a large and experienced manufacturer of pyrolytic carbon components used in mechanical heart valves. CarboMedics has also designed and patented numerous mechanical valves. CarboMedics offered to license a patented and partially developed valve to us if we would complete the development of the valve and agree to purchase carbon components from CarboMedics. We hold an exclusive, royalty-free, worldwide license to an open pivot, bileaflet mechanical heart valve design from which the ATS Open Pivot Heart Valve has evolved. In addition, we have an exclusive, worldwide right and license to use CarboMedics' pyrolytic carbon technology to manufacture components for the ATS Open Pivot Heart Valve, and a non-exclusive worldwide right and license to use the technology to produce pyrolytic carbon components for other devices and manufacturers, including, after 2008, other heart valve manufacturers. We are currently engaged in litigation with CarboMedics regarding the disposition of a long standing carbon supply agreement with them. The litigation is described in more detail under Item 3. "Legal Proceedings." The supply agreement is discussed in more detail under "Our Markets and Products - Prosthetic Heart Valve Market - Relationship with CarboMedics" below. In order to pursue our mission to create a diversified cardiac surgery-focused company, we have entered into several agreements, commencing in 2004, for the development, marketing and distribution of additional cardiac surgery-related medical devices and services. The marketing and sales of these products leverage both our sales and marketing infrastructure and broaden our relationships with cardiac surgeons. Sales from these new products have 1 grown to 18% of our total revenue in 2006, up from 10% of our total revenue in 2005. We had no revenue from these new products in 2004. These new product additions to our portfolio include products for the surgical treatment of cardiac arrhythmias, allograft tissue for cardiovascular procedures, valve repair products and surgical accessories. Our acquisition of 3F in 2006 provides us with access to its portfolio of tissue heart valves. SURGICAL ATRIAL FIBRILLATION CARDIAC ABLATION MARKET: In November 2004, we completed a global partnership agreement with CryoCath Technologies, Inc. ("CryoCath") to market CryoCath's surgical cryotherapy products for the ablation of cardiac arrhythmias. The agreement with CryoCath resulted in revenues for ATS commencing in the first quarter of 2005. The ablation market within cardiac surgery is currently estimated to total approximately $100 million and is growing at over 38% annually, according to HEALTH RESEARCH INTERNATIONAL 2007. HEART VALVE REPAIR MARKET: In June 2005, we entered into an exclusive development, supply and distribution agreement with Genesee BioMedical, Inc. ("GBI"), under which GBI develops, manufactures and supplies cardiac surgical products, including valve repair products and accessories, and we have the exclusive worldwide rights to market and sell these products. Sales of these products commenced in the first quarter of 2006. The repair segment of heart valve therapy totals $132 million and is growing at a rate of approximately 6% per year, according to MILLENIUM RESEARCH GROUP 2006. SURGICAL ACCESSORIES: During 2005, we entered into an agreement to market a new, proprietary line of minimally invasive cardiac surgery tools for application in robotic heart valve surgery. In connection with this agreement, we introduced our ATS Medical(R) Thoracic Port System in the third quarter of 2005. During 2006, we entered into a distribution agreement with Novare Surgical Systems Inc. ("Novare") under which we obtained the exclusive distribution rights to Novare's Enclose Anastomosis Assist device, a product designed to simplify the surgical process of attaching a coronary bypass graft to the aorta during coronary bypass surgery. We recognized our first sales of the Enclose product in the fourth quarter of 2006. CARDIAC SURGERY BLOOD FILTRATION MARKET: We are also engaged in the development of a new patented technology, Particle Separation by Ultrasound (PARSUS) for auto-transfusion during cardiac surgery. In April 2004 we signed an agreement with ErySave AB ("ErySave"), a Swedish research firm, for exclusive worldwide rights to ErySave's PARSUS filtration technology for cardiac surgery procedures. We have not recognized any revenues related to this development project nor do we expect revenues from our PARSUS technology during 2007. TISSUE HEART VALVE MARKET: The first generation of 3F tissue valves, the ATS 3F Aortic Bioprosthesis(TM), has received CE Mark and is available for sale in certain international jurisdictions. We anticipate a commercial launch of the ATS 3F Aortic Bioprosthesis in international markets in the first half of 2007 and, subject to FDA approval of our pre-market approval application, in the United States during the fourth quarter of 2007. Our next generation tissue valves, the Enable and Entrata valves, are intended to reduce (Enable) and eliminate (Entrata) the time a patient undergoing heart valve replacement is on a heart and lung bypass machine. The Enable and Entrata valves are currently undergoing clinical and preclinical evaluations, respectively. CARDIOVASCULAR ALLOGRAFT TISSUE VALVE MARKET: In June 2005, we entered into a marketing services agreement with Regeneration Technologies, Inc. - Cardiovascular ("RTI-CV," a/k/a Alabama Tissue Center), a subsidiary of Regeneration Technologies, Inc. Under the terms of this agreement, we are marketing and servicing RTI - CV processed cardiovascular allograft tissue. First sales of this product commenced in the third quarter of 2005. In January 2007 our marketing services agreement with RTI was amended as a result of RTI's sale of their cardiac tissue processing business. The amended agreement provides for a reduction in the performance criteria, an increase in commission rates, a minimum annual commission amount, and reduces the term of the agreement by 6 months to December 31, 2007. BUSINESS STRATEGY The key components of our business strategy to create a profitable, diversified, cardiac surgery-focused company include: - - Increase market share of our core product, the ATS Open Pivot Heart Valve. - - Broaden our relationships with cardiac surgeons by selectively adding new medical devices to our product portfolio. - - Leverage our investments in our marketing and sales infrastructure. - - Lower our cost of goods sold. 2 OUR MARKETS AND PRODUCTS PROSTHETIC HEART VALVE MARKET OVERVIEW There are two types of replacement heart valves: tissue and mechanical. Tissue valves are made from animal or cadaver tissue or, in some cases, the patient's own tissue. While tissue valves have a lower level of risk for blood clotting around the valve compared with mechanical valves, they also have limited durability due to calcification and deterioration. If a tissue valve fails, a new valve must be implanted, requiring another open heart surgery. Mechanical valves are made from durable materials such as metals and carbon. In-vitro testing of current pyrolytic carbon mechanical valves has yielded estimated useful lives in excess of any patient's lifetime. Mechanical valves currently require the use of anti-coagulants to prevent formation of blood clots; tissue valves generally do not require anti-coagulant treatment. In general, tissue valves are prescribed for patients who are less able to tolerate anti-coagulants due to conditions such as gastrointestinal ulcers or liver dysfunction, elderly patients, and women in their childbearing years. The choice of valve type is based on several factors such as life expectancy, medical conditions, and patient preference. Cardiac surgeons choose a particular type of mechanical valve based on a number of factors. A principal factor in the choice of a valve is the potential for forming blood clots, or thrombus, resulting from areas in the valve where the blood can stagnate. Blood clots can impair the performance of a valve and, if the clot detaches and moves through the bloodstream (an embolism), result in an arterial blockage or stroke. Another principal factor in the choice of a mechanical valve is the blood flow efficiency, or hemodynamics, of the valve. A mechanical valve should allow blood to flow easily through the valve with minimal pressure required to open the valve and minimal backflow of blood when the valve closes. The valve also should not exert force on the blood that could damage the fragile blood cells. Other factors that are important in a surgeon's choice of a mechanical valve are the ease in implanting and monitoring the valve's performance, the patient's quality of life and the physician's familiarity with and confidence in the valve. In addition to cardiac surgeons, administrators or business managers at hospitals and clinics have become increasingly influential in the purchase decision-making process in recent years. The increasing emphasis on medical cost containment in most world markets has elevated the decision-making power of the administrator. The administrator tends to focus on cost-effectiveness and, in some markets, primarily on the cost of the valve. OUR ATS OPEN PIVOT HEART VALVE PRODUCT Our product was designed to improve upon existing mechanical heart valves by combining a proprietary open pivot design and other innovative features with the widely accepted biocompatibility and durability of pyrolytic carbon. The standard ATS Open Pivot Heart Valve is available in seven sizes ranging from 19mm to 31mm in diameter, with sewing cuffs for either aortic valve or mitral valve replacement. In 1994, we introduced the Advanced Performance series of the ATS Open Pivot Heart Valve in international markets. This valve is available in seven sizes ranging from 16mm to 28mm in diameter. Our 16mm valve is currently the world's smallest commercially available mechanical valve, although not all valve sizes are available in all geographies. The major design features of the ATS Open Pivot Heart Valve are: - OPEN PIVOT AREAS - The proprietary open pivot areas of the ATS Open Pivot Heart Valve feature spherical protrusions from the orifice that match spherical notches in the leaflets. The pivot areas protrude into the orifice and are exposed to the washing action of the blood flowing through the heart valve. All other currently marketed bileaflet valves contain pivot cavities in the orifice wall into which protrusions from the semi-circular leaflets extend to allow the leaflets to open and close. The open pivot design also features angled inflow and outflow pivot stops. 3 - A THIN BUT DURABLE ORIFICE - The orifice of the ATS Open Pivot Heart Valve is manufactured using a mandrel that is coated with pyrolytic carbon. The mandrel is then removed, leaving a solid pyrolytic carbon orifice. Some competitive products use an orifice composed of a soft graphite substrate coated with pyrolytic carbon. By eliminating the graphite substrate, we have made the orifice wall thinner, resulting in a larger average inside diameter. The orifice is surrounded by a titanium strengthening band that eliminates orifice distortion and potential leaflet escape or impingement and can be rotated. - LOW PROFILE DESIGN - The ATS Open Pivot Heart Valve has a low profile design. The profile of a mechanical heart valve refers to the extension of the orifice and leaflets above and below the natural tissue annulus, or location of the natural heart valve. The inflow side of the orifice of the ATS Open Pivot Heart Valve is flat, unlike the most widely used cavity pivot valve that has upstream protrusions on the orifice to house the cavity. - AN ADVANCED SEWING CUFF - The sewing cuff surrounding the orifice of the ATS Open Pivot Heart Valve is made of double velour polyester and includes a surgical felt ring for ease of sewing. The Advanced Performance series offers an alternative sewing cuff design that allows a valve with a larger inside diameter to be used, which is particularly helpful in the small aortic root. - PYROLYTIC CARBON - Pyrolytic carbon has been used in mechanical heart valves for more than 25 years. The orifice of our heart valve is fabricated entirely from pyrolytic carbon, while the leaflets are fabricated by coating pyrolytic carbon on graphite substrates. Pyrolytic carbon used in other mechanical valves has been tested to function longer than any patient's lifetime. Pyrolytic carbon is believed to be superior to metal and plastics in terms of the human body's acceptance of the material, thus resulting in lower rates of thrombosis and thromboembolism compared with other materials. Due to its durability and biocompatibility, pyrolytic carbon is used in virtually every mechanical heart valve on the market. - TWO LEAFLETS - Bileaflet valve designs are found in substantially all mechanical heart valves being marketed today. The leaflets in the ATS Open Pivot Heart Valve have tungsten impregnated in the substrate to make them visible under x-ray. The ATS Open Pivot Heart Valve is designed to provide the following five, primary advantages over other currently available mechanical heart valves: - LOW RATES OF THROMBOEMBOLIC COMPLICATIONS - The pivot cavities found in other bileaflet heart valves are areas of blood flow stagnation and possible blood clot formation. By eliminating the cavities in the orifice and placing the pivot areas within the normal blood flow, the improved washing action in the ATS Open Pivot Heart Valve is intended to lower the likelihood of blood clot formation and the resulting incidence of thromboembolism. The open pivot design as well as the angled inflow and outflow pivot stops also result in low levels of hemolysis (damage to blood cells), which may contribute to a low rate of thromboembolic complications and allow for modified anticoagulation regimens. - IMPROVED PATIENT QUALITY OF LIFE THROUGH LOWER NOISE LEVELS - Patients implanted with other mechanical heart valves complain of disturbances resulting from the clicking sound created as the valve closes. These disturbances range from irritability and insomnia to paranoia and depression. Spouses of patients with competitive mechanical heart valves also report disturbances resulting from the noise of the valve. Based on peer reviewed publications and informal surveys, we believe that the ATS Open Pivot Heart Valve is quieter than other valves and below the threshold of hearing of many patients. We believe that the reduced noise level of our product further improves the quality of life of the patient. - IMPROVED BLOOD FLOW EFFICIENCIES - We have made the orifice of our product durable and thin, resulting in a large inside diameter. The large inside diameter of the ATS Open Pivot Heart Valve is intended to produce lower pressure gradients. The term "gradients" refers to the pressure difference between the inflow and outflow side of the valve needed to support the required blood flow through 4 the valves. The ATS Open Pivot Heart Valve is also designed to have low regurgitation, or backflow of blood when the valve is closed, due to the geometry of its angled inflow and outflow pivot stops that minimize the direct leakage paths. These design characteristics are intended to result in superior blood flow efficiencies that reduce the workload on the heart. - EASE OF IMPLANT - Our product was designed for ease of use by the cardiac surgeon. The low profile of the ATS Open Pivot Heart Valve is intended to minimize implant complications. Leaflets that extend significantly below the natural tissue annulus in the mitral position may obstruct blood outflow or interfere with the septum or other parts of the heart. Protrusions on the inflow side of the annulus in the aortic position may snag sutures used to attach the mechanical valve to the heart. In addition, because the orifice can be rotated, the surgeon can optimize valve orientation by adjusting the position of the leaflets after the ATS Open Pivot Heart Valve has been sutured in the natural anatomical position in the patient's heart. Suturing the ATS Open Pivot Heart Valve into the heart is made easier by reducing the number of layers of polyester material in the aortic and mitral cuffs and by adding the surgical felt ring in the sewing cuff, thereby easing the passage of the suture needle through the sewing cuff. The packaging and accessories of the ATS Open Pivot Heart Valve also are designed to facilitate the implant procedure by including all of the required items pre-assembled in a sterilized dual barrier container. - IMPROVED FOLLOW-UP DIAGNOSTIC CAPABILITY - Our product facilitates the follow-up diagnostic process by being more easily visible to x-rays. The titanium strengthening band provides a clear image on x-rays when taken from any angle. The leaflets also have a high density of tungsten impregnated in the substrate, making them more visible to x-rays. RELATIONSHIP WITH CARBOMEDICS CarboMedics developed the basic design from which the ATS Open Pivot Heart Valve evolved. CarboMedics is a large and experienced manufacturer of pyrolytic carbon components used in mechanical heart valves. CarboMedics has also designed and patented numerous mechanical valves. We have entered into three agreements with CarboMedics: a license agreement and a long-term carbon supply agreement entered into in September 1990, and a carbon technology agreement entered into in December 1999. Under the terms of the license agreement with CarboMedics, we hold an exclusive, royalty-free, worldwide license to an open pivot, bileaflet mechanical heart valve design from which the ATS Open Pivot Heart Valve has evolved. The license agreement does not include the right to manufacture the pyrolytic carbon components of the ATS Open Pivot Heart Valve, except if CarboMedics were unable to produce the components. In that case, we would have the right and license to make the components or have them made for us. There currently is not a third party that can produce the pyrolytic carbon components for the ATS Open Pivot Heart Valve. After making certain design changes in the valve, we finalized the design of the ATS Open Pivot Heart Valve and filed and received our own U.S. patent covering the design of the ATS Open Pivot Heart Valve. The design modifications and the resulting U.S. patent covering the new design are the exclusive property of ATS. In connection with the execution of the license agreement, we were also required to enter into a long-term supply agreement with CarboMedics under which we acquired a large inventory of pyrolytic carbon components for the ATS Open Pivot Heart Valve. In June 2002, the supply agreement was amended to suspend our purchase obligations for the remainder of 2002 (with the exception of approximately eight weeks of work in process) along with 100% of our purchase obligations for 2003, 2004, 2005 and 2006. The 2002 through 2006 purchase obligations were scheduled to resume, beginning in 2007. In January 2007, CarboMedics served a complaint on us, seeking to enforce the contractual purchase obligations and monetary damages. This litigation is described in detail at Item 3. "Legal Proceedings." In December 1999, we entered into a carbon technology agreement with CarboMedics under which we obtained an exclusive, worldwide right and license to use CarboMedics' pyrolytic carbon technology to manufacture components for the ATS Open Pivot Heart Valve, and a non-exclusive worldwide right and license to use the technology to produce pyrolytic carbon components for other devices and manufacturers, including, after 2008, for other heart valve manufacturers. Under the agreement, CarboMedics also agreed to assist us in designing, building, equipping, qualifying and commencing operations in a pyrolytic carbon component production facility in 5 Minneapolis, Minnesota. In return, we agreed to pay CarboMedics a license fee totaling $41 million. We were also obligated under the carbon technology agreement to pay all of the costs of establishing the new carbon production facility, including hourly fees and out-of-pocket expenses of the CarboMedics employees assigned to assist us in setting up the facility. In August 2003, we satisfied all of our payment obligations under the carbon technology agreement. OUR TISSUE HEART VALVES In September 2006, we acquired 3F, a medical device company based in Lake Forest, California. 3F is an early stage medical device company at the forefront of the emerging field of less invasive and minimally invasive beating heart tissue valve replacement. We view the acquisition of 3F as a major step in executing our longstanding vision of obtaining a leadership position in all segments of the cardiac surgery market. There are three principal products in our tissue heart valve portfolio: ATS 3F AORTIC BIOPROSTHESIS. We have completed the development of our first generation product, the ATS 3F Aortic Bioprosthesis. The ATS 3F Aortic Bioprosthesis, a biological replacement aortic heart valve, has received a CE Mark and is available for commercial release in Europe and other foreign countries. This is the only replacement heart valve that has the ability to be collapsed for implantation without suffering damage while also maintaining excellent dynamic flow characteristics after implant. Over 400 implantations of this device have been successfully conducted in Europe and the United States under regulated protocols governing human use. The initial results have shown properties that compare favorably with both mechanical and biological valves presently in the market. 3F submitted the final clinical module of its premarket approval application to the FDA for the ATS 3F Aortic Bioprosthesis during the third quarter of 2006. MINIMALLY INVASIVE AND OFF-PUMP AORTIC HEART VALVE REPLACEMENT TECHNOLOGY. We believe that substantial growth in the future within the heart valve industry will be the result of the introduction of minimally invasive and off-pump products. To address this future demand, we are currently developing various minimally invasive and off-pump aortic valve concepts. Our first product in this exciting arena is the Enable Aortic Heart Valve(TM), which is intended to reduce surgical cross-clamp and cardio-pulmonary bypass time. The Enable Aortic Heart Valve is presently in clinical studies outside the United States. We are also developing an off-pump aortic valve, the Entrata Aortic Valve System(TM), using technology and intellectual property licensed from Edwards Lifesciences. SURGICAL CARDIAC ABLATION MARKET OVERVIEW Atrial fibrillation ("AF") has become the most common complication of cardiovascular surgery. AF is electrical activity in the atrium that is uncoordinated and chaotic. During AF, the atrium begins to quiver in a rapid and chaotic fashion as a result of the electrical impulses. This resulting chaotic quivering can lead to deterioration of the atrial mechanical activity whereby blood is not fully expelled from the atrium to the ventricle and begins to pool. The pooled blood can coagulate and form clots. These clots can move, become lodged in critical areas, restrict blood flow, and potentially cause a stroke. In addition, if left untreated, AF can lead to atrial remodeling, contributing to congestive heart failure. Cryotherapy involves the use of extremely cold temperatures to kill or ablate specific tissues while leaving underlying connective tissues largely unaffected. In AF, this enables the surgeon to encircle the pulmonary veins with lines of scar tissue to block transmission of erratic electrical signals that trigger AF. Cryotherapy also offers two advantages when compared to the more prevalent heat-based therapies because freezing preserves tissue integrity and minimizes the risk of endocardial thrombus associated with heat-based energy sources. OUR CRYOCATH SURGICAL CRYOTHERAPY PRODUCTS We market and sell surgical cryotherapy products for the ablation of cardiac arrhythmias through our partnership with CryoCath. We currently market and sell three CryoCath products, including SurgiFrost 6, SurgiFrost 10 and FrostByte, which are single-use probes for freezing tissue in seconds. These probes are very malleable to conform to an individual's anatomy. To date, the cryotherapy products we have sold have been focused on open chest surgical procedures performed concomitantly with other cardiac surgery procedures. 6 Pursuant to this partnership, entered into in November 2004, we have been granted co-promotion rights in the United States, earning an agency commission on sales to accounts as specified in the partnership agreement, and distribution rights in the rest of the world. We started marketing and selling this technology in the United States in the first quarter of 2005 and in markets outside of the United States in the second quarter of 2005. During 2007 we expect to launch a new product, the SurgiFrost XL, which will provide us with an entrance into the market for stand-alone surgical treatment of AF. HEART VALVE REPAIR MARKET OVERVIEW Depending on the type and severity of someone's heart valve disease, it is sometimes preferable to repair their damaged valve as opposed to complete removal and replacement with either a mechanical or a tissue heart valve. The worldwide market for heart valve repair is estimated at $125 million and growing approximately 6% per year, according to MILLENIUM RESEARCH GROUP 2006. OUR HEART VALVE REPAIR PRODUCTS We commenced development and manufacturing of a line of cardiac surgical products in 2005 pursuant to our exclusive worldwide development, supply and distribution agreement with GBI. In February 2006, we began to market and sell these products, including annuloplasty repair rings, c-rings and accessories. Our partnership with GBI provides us with access to a portfolio of patents, intellectual property and important manufacturing and product development experience specific to heart valve repair and the related tools and accessories for entry into this segment of the heart valve therapy market. CARDIAC SURGERY BLOOD FILTRATION MARKET OVERVIEW We are currently developing blood filtration technology for potential use by patients requiring cardiac surgery procedures, including heart valve repair or replacement and coronary artery bypass. The objective of our PARSUS filtration technology is to enable highly effective filtering by using ultrasound waves to suspend particles that become mixed in the blood during cardiac surgery procedures. We believe that PARSUS, if successfully developed, will enable a surgeon to re-infuse/autotransfuse a patient's lost blood in a safer and more efficient manner and avoid the complications commonly associated with currently available autotransfusion products or third-party blood transfusions. OUR CARDIAC SURGERY BLOOD FILTRATION TECHNOLOGY In April 2004 we signed an agreement with ErySave for exclusive worldwide rights to ErySave's PARSUS filtration technology for cardiac surgery procedures. We are currently in the development phase with this technology. To date we have had no revenues from this technology and do not expect to have any revenues from this technology in 2007. CARDIOVASCULAR ALLOGRAFT MARKET OVERVIEW When considering a surgical procedure for tissue repair, cardiovascular surgeons can choose from several different treatment options including xenograft (animal) tissue, autograft (harvested from another site on the patient's body) tissue or allograft (from a deceased human donor) tissue. OUR CARDIOVASCULAR ALLOGRAFT PRODUCTS Commencing in the third quarter of 2005, we began marketing and servicing cardiovascular allograft tissue, including heart valve and vascular allograft tissue, to doctors, hospitals, and clinics throughout North America through our exclusive marketing services agreement with RTI-CV. Our marketing services agreement with RTI-CV will terminate at the end of 2007. 7 MARKETING, SALES AND DISTRIBUTION OVERVIEW A key component of our business strategy is to leverage the investments we have made in our marketing, sales and distribution resources through higher sales of our ATS Open Pivot Heart Valve, and through the sales of additional products, which we began selling in 2005. We have been steadily building both our domestic and international sales and marketing infrastructure. Because sales prices in the United States exceed selling prices in most other markets, we believe that our future success will, in large measure, depend on achieving increased market share and leveraging our sales force through the introduction of new products in the United States. Our U.S. sales have grown to 39% of overall sales in 2006, up from 38% in 2005, and 33% in 2004. In 2000, U.S. sales represented 4% of overall sales. Sales to one independent distributor represented more than 10% of our net sales in 2006. See Note 15 of "Notes to Consolidated Financial Statements" in Item 8 of this Report for more information regarding our sales to customers. U.S. MARKETING AND SALES Our sales organization in the United States consists of five area directors managing multiple sales territories. The number of sales territories has steadily increased since early 2003 and currently totals 26 sales territories. Our representation within these territories consists of both direct sales representatives and independent agents. We focus our sales and marketing efforts on increasing awareness of our products in the approximately 950 U.S. open heart centers. INTERNATIONAL MARKETING, SALES AND DISTRIBUTION During 2006, we opened an administrative office in Austria, which we plan to use as the European support center for our current and future direct selling operations in Europe. We have direct sales organizations in France (since 2003), Germany (since 2005), and the United Kingdom (since 2006) and a direct marketing organization in China (since 2004). In France, Germany and the United Kingdom, we maintain consignment inventories at in-country hospitals. In addition to our direct sales organizations in France, Germany, the United Kingdom and China, we sell through an independent distribution network in other markets throughout the world. We believe that our distribution partners have provided a rapid and cost efficient means of increasing market penetration and commercial acceptance of the ATS Open Pivot Heart Valve in key international markets. We have been able to attract experienced mechanical valve sales organizations and people familiar with local markets and customs to serve as our representatives. Each of our independent distributors has the exclusive right to sell the ATS Open Pivot Heart Valve within a defined territory. These distributors, in some instances, also market other medical products, although they have agreed not to sell other mechanical heart valves. Under most of the distributor agreements, we may, at our option, terminate the agreement upon the departure of certain key employees of the distributor, if we experience a change in control or if key performance criteria, including sales quotas, are not met. We sell the ATS Open Pivot Heart Valve to each distributor F.O.B. Minneapolis, Minnesota. Sales to international distributors are denominated in U.S. dollars. One independent distributor accounted for more than 10% of our gross sales in 2006. See Note 15 of "Notes to Consolidated Financial Statements" in Item 8 of this Report for information on our net sales by geographic region. Net sales both inside and outside the United States are also discussed in Item 7 of this Form 10-K. Our sales, marketing and customer service personnel provide professional sales, marketing and promotional support to our independent distributors. COMPETITION The prosthetic heart valve market is highly competitive with St. Jude Medical, Inc. as the mechanical valve market share leader and Edwards Lifesciences as the tissue valve market leader. Other companies that sell mechanical valves include Medtronic, Inc., CarboMedics, Sorin Biomedica sPa (only outside the United States), and Medical 8 Carbon Research, Inc. St. Jude Medical, Medtronic, Edwards Lifesciences, Sorin Biomedica and CryoLife sell tissue valves. We are aware of several companies that are developing new prosthetic heart valves. Several companies are developing and testing new autologous (created from the patient's own tissue) valves, potentially more durable tissue valves and new bileaflet and trileaflet mechanical designs. Advancements also are being made in surgical procedures such as mitral valve reconstruction, whereby the natural mitral valve is repaired, delaying the need for a replacement valve. Other companies are pursuing biocompatible coatings to be applied to mechanical valves in an effort to reduce the incidence of thromboembolic events and to treat tissue valves to forestall or eliminate calcific degeneration in these valves. Competition within the prosthetic heart valve market is based on, among other things, clinical performance record, minimizing complications, ease-of-use for the surgeon, patient comfort and quality of life and cost effectiveness. We believe that the most important factors in a heart surgeon's selection of a particular prosthetic valve are the perceived benefits of the valve and the heart surgeon's confidence in the valve design. As a result, valves that have developed a favorable clinical performance record have a significant marketing advantage over new valves. In addition, negative publicity resulting from isolated incidents can have a significant negative effect on a valve's overall acceptance. Our success is dependent upon the surgeon's willingness to use a new prosthetic heart valve as well as the future clinical performance of the ATS Open Pivot Heart Valve and the ATS 3F tissue heart valves compared with the more established competition. Competition in the medical device industry is intense and is characterized by extensive research efforts and rapid technological progress. We believe that the primary competitive factors include quality, technical capability, innovation, distribution capabilities, and price. Many of our competitors in the heart valve market have greater resources, more widely accepted products, greater technical capabilities and stronger name recognition than we do. Our competitive capability is affected by our ability to support our products, ensure regulatory compliance for our products, protect the proprietary technology of our products and their manufacturing processes, effectively market our products, and maintain and establish distribution relationships. In order to maintain these capabilities ATS must continuously attract and retain skilled and dedicated employees and develop and maintain excellent relationships with physicians and suppliers. We believe that mechanical heart valves are currently being marketed to hospitals at prices that vary significantly from country to country due to market conditions, currency valuations, distributor mark-ups and government regulations. In many markets, government agencies are imposing or proposing price controls or restrictions on medical products. We work with our independent distributors to price the ATS Open Pivot Heart Valve in each market to meet these limitations. In addition, our primary competitors have the ability, due to economies of scale, to manufacture their valves at a lower cost than we can currently manufacture the ATS Open Pivot Heart Valve. The market leader has occasionally used price as a method to compete in several markets. The surgical ablation of cardiac arrhythmias is highly competitive. Other companies that market products for the treatment of cardiac arrhythmias are Medtronic, Guidant, and Atricure. The cardiovascular allograft market is supply constrained dependent upon amount of donor tissue available. Other companies marketing in the cardiovascular allograft market include CryoLife, Lifenet, and Northwest Tissue Service Center. MANUFACTURING AND SUPPLY Our mechanical heart valves are manufactured in ISO 13485 certified facilities. We have two mechanical heart valve production facilities in close proximity in Plymouth, a suburb of Minneapolis, Minnesota, for our manufacturing activities. Our pyrolytic carbon components are manufactured in one facility and we assemble the ATS heart valve in a controlled clean room environment in the other facility. Most of the materials we purchase for our products are supplied by a limited number of vendors. We are currently operating one manufacturing shift at our valve assembly facility. At our pyrolytic carbon facility, most processes are operating one manufacturing shift while some operate up to three manufacturing shifts. We have been ramping up our pyrolytic carbon manufacturing facility over the past two years under an initiative to become a low-cost, self-supplier of the critical carbon components necessary in the manufacture of our mechanical heart valves. While this initiative has resulted in ramp- 9 up and start-up expenses, low initial production yields, and higher-than-normal scrap costs, our gross margins have improved in both 2005 and 2006. We anticipate our manufacturing yields and efficiencies will continue to improve over time as we gain experience and expertise manufacturing our own carbon components and as the scale of our operation increases. Our ATS 3F tissue heart valves are manufactured in our ISO 9001 certified facility in Lake Forest, California. Most of the materials used to construct the valve leaflets are supplied by a limited number of vendors. We currently operate one manufacturing shift at the Lake Forest facility. During the fourth quarter of 2006 we began ramping up our tissue valve production in preparation for a 2007 market launch of the ATS 3F Aortic Bioprosthesis. In addition, we also manufacture significant quantities of our next generation tissue valves for use in preclinical and clinical testing. These initiatives have resulted in low production yields and inefficiencies. As our tissue valve volume increases, we expect our yields will rise and our process will become more efficient. We do not manufacture or produce products we sell or service for the surgical treatment of cardiac arrhythmias, heart valve repair, or cardiovascular allograft tissues. We believe that our properties are adequate to serve our business operations for the foreseeable future. At our Plymouth, Minnesota facility and our sales offices for our foreign subsidiaries in France and Germany, we warehouse our mechanical valve inventories and products for cardiac arrhythmias and heart valve repair. We maintain a comprehensive quality assurance and quality control program, which includes documentation of all material specifications, operating procedures, equipment maintenance, and quality control test methods. Our documentation systems comply with appropriate Food and Drug Administration (FDA) and ISO 13485 requirements. RESEARCH AND DEVELOPMENT Our research and development activities include developing new products, improving our current products, and the clinical and regulatory activities to support our products. These activities are carried out in our Plymouth facilities, although we work with physicians, research hospitals, and universities around the world. None of this work is funded by customers or other outside institutions. The development process for any new product can range from several months to several years, primarily depending on the regulatory pathway required for approval. Research and development expenses totaled $3.4 million, net of $14.4 million of in-process research and development related to the 3F acquisition, in 2006, $1.7 million in 2005 and $1.0 million in 2004. At the end of 2006 our research and development headcount totaled 17 employees. FINANCIAL INFORMATION ABOUT SEGMENTS Since our inception, we have operated in the single industry segment of developing, manufacturing, and marketing medical devices. SEASONALITY Our sales and operating results have varied and are expected to continue to vary significantly from quarter to quarter as a result of seasonal patterns. We expect that our business will be seasonal, with the third quarter of each year typically having the lowest sales, due to vacation and time-off periods in our international markets, especially Europe. PATENTS AND PROPRIETARY TECHNOLOGY Our policy is to protect our proprietary position by obtaining U.S. and foreign patents to protect technology, inventions and improvements important to the development of our business. The original patent obtained by CarboMedics under which our valve was developed expired in 2004. We subsequently made modifications to the basic design. We were issued a U.S. patent covering our design improvements to the ATS Open Pivot Heart Valve in October 1994. This patent expires in 2011. We have also filed patent applications in Japan, Belgium, France, Germany, Netherlands, Spain, Switzerland and the United Kingdom relating to the design improvements. Patents have been granted in all of these countries. We cannot be certain that any patents will not be challenged or circumvented by competitors. 10 We also rely on trade secrets and technical know-how in the manufacture and marketing of the ATS Open Pivot Heart Valve. We typically require our employees, consultants and contractors to execute confidentiality agreements with respect to our proprietary information. We claim trademark protection on ATS Medical(TM) and ATS Open Pivot(R). U.S. trademark and service mark registrations are generally for a term of 10 years, renewable every 10 years as long as the trademark is used in the regular course of trade. We have also been granted rights by certain partners to use their trademark(s) in our sales and marketing activities of their products and services. Our ATS 3F tissue valves are supported by an extensive intellectual property portfolio. We own 35 issued U.S. patents that protect our core technology in the tissue valve market. In addition, we have filed for a number of patents and extended patent coverages for relevant geographies outside the United States. These patents expire on various dates ranging from May 2009 to February 2024, with 12 of the patents expiring in 2013, and 12 in the period from 2021 to 2024. The effect of these patents is to give us the right to preclude third parties from making, using, selling or offering to sell products which infringe upon the claims made in each of these patents within the jurisdiction of the country where the patent is issued. We believe that the claims covered by the issued patents are broad, and cover many unique attributes of the products we plan for commercialization and the processes we use to fabricate these products. GOVERNMENT REGULATION UNITED STATES Numerous governmental authorities, principally the FDA and corresponding state and foreign regulatory agencies, strictly regulate our products and research and development activities. The Federal Food, Drug, and Cosmetic Act, the regulations promulgated under this act, and other federal and state statutes and regulations, govern, among other things, the pre-clinical and clinical testing, design, manufacture, safety, efficacy, labeling, storage, record keeping, advertising and promotion of medical devices. The FDA classifies our ATS Open Pivot Heart Valve as a Class III device, which is subject to the highest level of controls. Generally, before we can market a new medical device, we must obtain marketing clearance through a 510(k) premarket notification, approval of a premarket approval application ("PMA") or approval of product development protocol ("PDP"). A PMA or PDP application must be submitted if a proposed device does not qualify for a 510(k) premarket clearance procedure. It generally takes several months from the date of a 510(k) submission to obtain clearance, but it may take longer, particularly if a clinical trial is required. The PMA and PDP process can be expensive, uncertain, require detailed and comprehensive data and generally take significantly longer than the 510(k) process. If human clinical trials of a device are required, either for a 510(k) submission or a PMA application, the sponsor of the trial, usually the manufacturer or the distributor of the device, must file an investigational device exemption ("IDE") application prior to commencing human clinical trials. The IDE application must be supported by data, typically including the results of animal and/or laboratory testing. If the IDE application is approved by the FDA and one or more appropriate institutional review boards ("IRBs"), human clinical trials may begin at a specific number of investigational sites with a specific number of patients, as approved by the FDA. If the device presents a non-significant risk to the patient, a sponsor may begin the clinical trial after obtaining approval for the study by the IRBs without separate approval from the FDA. Submission of an IDE does not give assurance that the FDA will approve the IDE and, if it is approved, there can be no assurance the FDA will determine that the data derived from the studies support the safety and efficacy of the device or warrant the continuation of clinical trials. An IDE supplement must be submitted to and approved by the FDA before a sponsor or investigator may make a change to the investigational plan that may affect its scientific soundness, study indication or the rights, safety or welfare of human subjects. We are also subject to FDA regulations concerning manufacturing processes and reporting obligations. These regulations require that manufacturing steps be performed according to FDA standards and in accordance with documentation, control and testing standards. The FDA monitors compliance with its good manufacturing practices 11 regulations by conducting periodic inspections. We are required to provide information to the FDA on adverse incidents as well as maintain a detailed record keeping system in accordance with FDA guidelines. The advertising of our products is also subject to both FDA and Federal Trade Commission regulations. In addition, we will be subject to the "fraud and abuse" laws and regulations promulgated by the U.S. Department of Health and Human Services and the U.S. Health Care Finance Administration if we sell the ATS Open Pivot Heart Valve to Medicare or Medicaid patients. Under these regulations, it is a criminal offense (subject to certain exceptions) to knowingly or willfully offer, pay, solicit, or receive remuneration in order to induce business for which reimbursement may be provided under a federal healthcare program. If the FDA believes we are not in compliance with law, it can institute proceedings to detain or seize products, issue a recall, enjoin future violations and assess civil and criminal penalties against us and our officers and employees. If we fail to comply with these regulatory requirements, our business, financial condition and operating results could be harmed. In addition, regulations regarding the manufacture and sale of our products are subject to change. We cannot predict the effect, if any, that these changes might have on our business, financial condition and operating results. INTERNATIONAL In order to market our products in European and other foreign countries, we must obtain required regulatory approvals and comply with extensive regulations governing product safety, quality and manufacturing processes. These regulations vary significantly from country to country and with respect to the nature of the particular medical device. The time required to obtain these foreign approvals to market our products may be longer or shorter than in the United States, and requirements for licensing may differ from FDA requirements. In order to market our products in the member countries of the European Union, we are required to comply with the medical devices directive and obtain CE mark certification. The CE mark denotes conformity with European standards for safety and allows certified devices to be sold in all European Union countries. Under the medical devices directives, all medical devices, including active implants and in vitro diagnostic products, must qualify for CE marking. THIRD-PARTY REIMBURSEMENT In the United States, healthcare providers that purchase medical devices, including our products, generally rely on third-party payors, including Medicare, Medicaid, private health insurance carriers and managed care organizations, to reimburse all or part of the cost and fees associated with the procedures performed using these devices. The commercial success of the ATS Open Pivot Heart Valve will depend on the ability of healthcare providers to obtain adequate reimbursement from third-party payors for the surgical procedures in which our products are used. Third-party payors are increasingly challenging the pricing of medical products and procedures. Even if a procedure is eligible for reimbursement, the level of reimbursement may not be adequate. In addition, third-party payors may deny reimbursement if they determine that the device used in the treatment was not cost-effective or was used for a non-approved indication. In international markets, market acceptance of the ATS Open Pivot Heart Valve depends in part upon the availability of reimbursement from healthcare payment systems. Reimbursement and healthcare payment systems in international markets vary significantly by country. The main types of healthcare payment systems in international markets are government-sponsored healthcare and private insurance. Countries with government-sponsored healthcare, such as the United Kingdom, have a centralized, nationalized healthcare system. New devices are brought into the system through negotiations between departments at individual hospitals at the time of budgeting. In many of the countries where we market, the government sets an upper limit of reimbursement for various valve types. In most foreign countries, there are also private insurance systems that may offer payments for alternative devices. We have pursued reimbursement for our ATS Open Pivot Heart Valve internationally through our independent distributors. While the healthcare financing issues in these countries are substantial, we have been able to sell the ATS Open Pivot Heart Valve to private clinics and nationalized hospitals in each of the countries served by our distributors. 12 All third-party reimbursement programs, whether government-funded or insured commercially, inside the United States or outside, are developing increasingly sophisticated methods of controlling health care costs through prospective reimbursement and capitation programs, group purchasing, redesign of benefits, second opinions required prior to major surgery, careful review of bills, encouragement of healthier lifestyles and exploration of more cost-effective methods of delivering healthcare. These types of programs can potentially limit the amount that healthcare providers may be willing to pay for medical devices. PRODUCT LIABILITY AND INSURANCE Cardiovascular device companies are subject to an inherent risk of product liability and other liability claims in the event that the use of their products results in personal injury. Mechanical heart valves are life-sustaining devices, and the failure of any heart valve usually results in the death of the patient. We have not received any reports of mechanical failure of our valves implanted to date. Any product liability claim could subject us to costly litigation, damages and adverse publicity. We currently maintain a product liability insurance policy with an annual coverage limit of $25 million in the aggregate. We are financially responsible for any uninsured claims or claims which exceed the insurance policy limits. Product liability insurance is expensive for mechanical valves. If insurance becomes completely unavailable, we must either develop a self-insurance program or sell without insurance. The development of a self-insurance program would require significant capital. EMPLOYEES As of December 31, 2006, we employed approximately 254 full-time and part-time employees. Our employees are vital to our success. We believe we have been successful in attracting and retaining qualified personnel. We believe our employee relations are good. EXECUTIVE OFFICERS OF THE REGISTRANT Our executive officers are as follows:
Name Age Position - ------------------- --- ---------------------------------------------------- Michael D. Dale 47 Chief Executive Officer, President and Director Maria-Teresa Ajamil 59 Vice President, International Markets Richard A. Curtis 42 Vice President, Corporate Development W. Allen Putnam 59 Vice President, Regulatory, Clinical and Quality Michael R. Kramer 30 Acting Chief Financial Officer David R. Elizondo 39 Vice President, Research and Development and General Manager, Tissue Operations
MICHAEL D. DALE has served as our Chief Executive Officer, President and Director since October 2002. From 2000 to 2002, Mr. Dale was Vice-President of Worldwide Sales and Marketing at Endocardial Solutions, Inc., a company that develops, markets and distributes an advanced cardiac mapping system. Mr. Dale joined Endocardial Solutions, Inc. in December 1998 as Vice President Worldwide Sales. From 1996 to 1998, Mr. Dale was Vice President of Global Sales for Cyberonics, Inc., a medical device company, and was managing director of Cyberonics Europe S.A. From 1988 to 1996, Mr. Dale served in several capacities at St. Jude Medical, Inc., a cardiovascular medical device company, and most recently served as the Business Unit Director for St. Jude Europe. Mr. Dale is on the Board of Directors of Enpath Medical, Inc., a medical products company that designs, develops, manufactures and markets percutaneous delivery solutions. MARIA-TERESA (TERRIE) AJAMIL was appointed an executive officer of ATS in September 2005. Ms. Ajamil joined ATS in January 2004 as General Manager of Asia Pacific Markets and has served as Vice President, International Markets since September 2004. Prior to joining ATS, Ms. Ajamil was Vice President of Emerging Markets at St. Jude Medical, Inc., a cardiovascular medical device company, from September 1993 to December 2002. In 1992 and 1993, Ms. Ajamil served as Vice President of Marketing for Pharmacia Deltec, a medical device company. Ms. 13 Ajamil also spent 16 years at 3M, Inc., a multi-national diversified technology and consumer products company, in numerous positions of international operations, marketing and sales in several of 3M's healthcare divisions. RICHARD A. CURTIS joined ATS as our Vice President of Marketing and Business Development in December 2002 and was appointed Vice President of Corporate Development in December 2006. Prior to joining ATS, Mr. Curtis was Vice President of Corporate Development at Cardinal Health, Inc., a provider of healthcare products and services, from September 2001 to November 2002. From 1999 to 2001, Mr. Curtis was Vice President of Business Development for Hill-Rom, Inc., a provider of patient care environment and therapy solutions, and from 1997 to 1999, he was a Director of Corporate Development at Hillenbrand Industries, a health care and funeral services provider. W. ALLEN PUTNAM has served as our Vice President of Regulatory, Clinical and Quality since March 2006. Prior to joining ATS, Mr. Putnam was engaged by the Company as a consultant. Mr. Putnam founded RCQ Strategies, a regulatory, clinical and quality consulting proprietorship in 2000, and consulted for numerous companies prior to his employment with the Company. For approximately eight months during 2004, Mr. Putnam was employed as the Principle Investigator for Phygen, Inc., a privately-held medical product sterilization company. From 1993 to 2000, Mr. Putnam was Vice President of Regulatory, Clinical and Quality for Urologix, Inc., a medical device company, and from 1992 to 1993, he was President and Chief Operating Officer of Uroplasty, Inc., also a medical device company. Mr. Putnam was Vice President of Regulatory and Quality for St. Jude Medical, Inc., a cardiovascular medical device company, from 1989 to 1992. MICHAEL R. KRAMER has served as our Senior Director of Finance since September 2006 and was appointed Acting Chief Financial Officer in February 2007. Prior to joining ATS, Mr. Kramer was engaged by the Company as an independent financial consultant. From February 2005 to May 2006, Mr. Kramer was the Controller at CABG Medical, Inc., a cardiovascular device manufacturer. During 2004, Mr. Kramer was a Corporate Finance Manager at Ecolab, Inc., a developer and marketer of products and services to the hospital, foodservice, healthcare and industrial markets. From December 1999 through July 2004, Mr. Kramer worked at Ernst & Young LLP, a global professional services firm, where he served as a manager in the assurance and advisory services practice from September 2002 until his departure. DAVID R. ELIZONDO has served as our Vice President of Research and Development and General Manager, Tissue Operations, since September 2006. From July 2000 to August 2006, Mr. Elizondo served in several capacities at Boston Scientific Corporation, a developer of technologies and products for interventional and surgical procedures, and most recently served as the Director of New Business Development for Boston Scientific's Cardiology Division. AVAILABLE INFORMATION Copies of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished to the Securities and Exchange Commission pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (Exchange Act) are available free of charge through our website (www.atsmedical.com) as soon as reasonably practicable after we electronically file the material with, or furnish it to, the Securities and Exchange Commission. ITEM 1A. RISK FACTORS Our business faces many risks. Any of the risks discussed below, or elsewhere in this Form 10-K or our other filings with the Securities and Exchange Commission, could have a material impact on our business, financial condition or operating results. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also impair our business operations. IF OUR MECHANICAL HEART VALVE DOES NOT ACHIEVE WIDESPREAD MARKET ACCEPTANCE IN THE UNITED STATES, OUR OPERATING RESULTS WILL BE HARMED AND WE MAY NOT ACHIEVE PROFITABILITY. Our success will depend, in large part, on the medical community's acceptance of the ATS mechanical heart valve in the United States, which is the largest revenue market in the world for heart valves. The U.S. medical community's acceptance of the ATS heart valve will depend upon our ability to demonstrate the safety and efficacy, advantages, long-term clinical performance and cost-effectiveness of the ATS heart valve as compared to other prosthetic heart valves. We cannot predict whether the U.S. medical community will accept the ATS heart valve or, 14 if accepted, the extent of its use. Negative publicity resulting from isolated incidents involving the ATS heart valve or other prosthetic heart valves could have a significant adverse effect on the overall acceptance of our heart valve. If we encounter difficulties developing a market for the ATS heart valve in the United States, we may not be able to increase our revenue enough to achieve profitability, and our business and operating results will be seriously harmed. WE CURRENTLY RELY ON THE ATS HEART VALVE AS OUR PRIMARY SOURCE OF REVENUE. IF WE ARE NOT SUCCESSFUL IN SELLING THIS PRODUCT, OUR OPERATING RESULTS WILL BE HARMED. While we commenced marketing additional products during 2005 that totaled 18% of net revenues for the year ended December 31, 2006 there can be no assurance that these new products will decrease our dependence on the sales of mechanical heart valves. Increasing revenues from new products cannot be guaranteed. Even if we were to develop additional products, regulatory approval would likely be required to sell them. Clinical testing and the approval process itself are very expensive and can take many years. Therefore, we do not expect to be in a position to sell additional products in the foreseeable future. Adverse rulings by regulatory authorities, product liability lawsuits, the failure to achieve widespread U.S. market acceptance, the loss of market acceptance outside of the United States, or other adverse publicity may significantly and adversely affect our sales of the ATS heart valve, and, as a result, would adversely affect our business, financial condition and operating results. THE ANTICIPATED BENEFITS OF ACQUIRING 3F MAY NOT BE REALIZED. We completed the acquisition of 3F on September 29, 2006 and expect that the merger will result in various benefits, including, among others, an expanded heart valve product line, enhanced revenues, a strengthened market position for ATS in the heart valve industry, cross-selling opportunities, technology, cost savings and operating efficiencies. However, achieving the anticipated benefits of the merger is subject to a number of uncertainties, including whether 3F's development-stage products are ultimately marketable, whether we are able to integrate 3F in an efficient and effective manner, and general competitive factors in the marketplace. Failure to achieve these anticipated benefits could result in increased costs, decreases in the amount of expected revenues and diversion of management's time and energy, and could materially impact our business, financial condition and operating results. WE MAY HAVE DIFFICULTY INTEGRATING 3F AND MAY INCUR SUBSTANTIAL COSTS IN CONNECTION WITH THE INTEGRATION. Integrating 3F's operations into our business will be a complex, time-consuming and expensive process. Before the merger, ATS and 3F operated independently, each with its own business, products, customers, employees, culture and systems. We may experience material unanticipated difficulties or expenses in connection with the integration of 3F due to various factors, including: - retaining and integrating management and other key employees of the combined company; - costs and delays in implementing common systems and procedures and integrating 3F's products and operations into our business; - difficulty comparing financial reports due to differing financial and accounting systems; - diversion of management resources from the business of the combined company; - reduction or loss of customer sales due to the potential for market confusion, hesitation and delay; and - difficulty in combining distribution arrangements for the combined company's products and services. 15 We do not have experience in integrating operations on the scale represented by the merger with 3F, and it is not certain that we can successfully integrate 3F in a timely or efficient manner, or at all, or that any of the anticipated benefits of the merger will be realized. Failure to do so could have a material adverse effect on the business, financial condition and operating results of the combined company. In addition, many of the factors listed above are outside the control of either company. The time and expense associated with converting the businesses into a single, combined company may exceed management's expectations and limit or delay the intended benefits of the transaction. To the extent any of these events occur, the benefits of the transaction may be reduced, at least for a period of time. In addition, it is possible that unexpected transaction costs, such as taxes, fees or professional expenses, or unexpected future operating expenses, such as increased personnel costs, as well as other types of unanticipated adverse developments, could have a material adverse effect on our business, financial condition and operating results. IN 2002, WE BEGAN USING A COMBINATION OF DIRECT SALES PERSONS AND INDEPENDENT MANUFACTURING REPRESENTATIVES TO SELL OUR VALVES IN THE UNITED STATES. IF OUR U.S. SALES STRATEGY IS NOT SUCCESSFUL, WE WILL NOT BE ABLE TO CONTINUE OUR OPERATIONS AS PLANNED. Our sales approach for the sale of the ATS heart valve in the United States consists primarily of direct salespersons with a few independent manufacturers' representatives. We will need to continue to expend significant funds and management resources to develop and maintain this hybrid sales force. We believe that there is significant competition for sales personnel and independent manufacturing representatives with the advanced sales skills and technical knowledge we need. If we are unable to recruit, retain and motivate qualified personnel and representatives, U.S. sales of the ATS heart valve could be adversely affected. The loss of key salespersons or independent manufacturer's representatives could have a material adverse effect on our sales or potential sales to current customers and prospects serviced by such salespersons or representatives. Further, we cannot assure the successful expansion of our network of independent manufacturer's representatives on terms acceptable to ATS, if at all, or the successful marketing of our products by our hybrid sales force. To the extent we rely on sales through independent manufacturer's representatives, any revenues we receive will depend primarily on the efforts of these parties. We do not control the amount and timing of marketing resources that these third parties devote to our product. If our U.S. sales strategy is not successful, we may be forced to change our U.S. sales strategy again. Any such change could disrupt sales in the United States. Further, any change in our U.S. sales strategy could be expensive and would likely have a material adverse impact on our operating results. WE CURRENTLY DEPEND ON THE MARKETING AND SALES EFFORTS OF INTERNATIONAL INDEPENDENT DISTRIBUTORS. The ATS mechanical and tissue heart valves are sold internationally through independent distributors. The loss of an international distributor could seriously harm our business and operating results if a new distributor could not be found on a timely basis in the relevant geographic market. We do not control the amount and timing of marketing resources that these third parties devote to our product. Furthermore, to the extent we rely on sales through independent distributors, any revenues we receive will depend primarily on the efforts of these parties. WE ARE DEPENDENT UPON SALES OUTSIDE THE UNITED STATES, WHICH ARE SUBJECT TO A NUMBER OF RISKS INCLUDING A DROP IN SALES DUE TO CURRENCY FLUCTUATIONS. For the year ended December 31, 2006, 61% of our net sales were derived from international operations. We expect that international sales will account for a substantial majority of our revenue until the ATS mechanical heart valve receives wider market acceptance from U.S. customers and until 3F obtains pre-market approval to sell its 3F Aortic Bioprosthesis or other products in the United States. Accordingly, any material decrease in foreign sales may materially and adversely affect our operating results. We sell in U.S. dollars to most of our customers abroad. An increase in the value of the U.S. dollar in relation to other currencies can and has adversely affected our sales outside of the United States. In prior years, the decrease in sales was due primarily to the change in the value of the U.S. dollar against the Euro, as well as competitor price pressure. Our dependence on sales outside of the United States will continue to expose us to U.S. dollar currency fluctuations for the foreseeable future. 16 Our future operating results could also be harmed by risks inherent in doing business in international markets, including: - unforeseen changes in regulatory requirements and government health programs; - weaker intellectual property rights protection in some countries; - new export license requirements, changes in tariffs or trade restrictions; - political and economic instability in our target markets; - greater difficulty in collecting payments from product sales; and - lengthy/extended credit terms WE HAVE A HISTORY OF NET LOSSES. IF WE DO NOT HAVE NET INCOME IN THE FUTURE, WE MAY BE UNABLE TO CONTINUE OUR OPERATIONS. We are not currently profitable and have a very limited history of profitability. We had net losses of approximately $16.6 million for the 2004 fiscal year, $14.4 million for the 2005 fiscal year and $27.7 million for the 2006 fiscal year. As of December 31, 2006, we had an accumulated deficit of approximately $109.6 million. We expect to incur significant expenses over the next several years as we continue to devote substantial resources to the commercialization and marketing of the ATS heart valve in the United States. We will not generate net income unless we are able to significantly increase revenue from U.S. sales. If we continue to sustain losses, we may not be able to continue our business as planned. In addition, if the benefits of the merger with 3F do not exceed the associated costs, the combined company could be adversely affected by incurring additional or even increased losses from its operations. Our ability to succeed after the merger depends on making our combined operations profitable through increased revenue and reduced expenses for the combined company. If we fail to make our combined operations profitable through increased revenue and decreased expenses, it would harm our business, financial condition and operating results. PURCHASE ACCOUNTING TREATMENT OF THE MERGER WITH 3F COULD RESULT IN NET LOSSES FOR THE FORESEEABLE FUTURE. We have accounted for the merger with 3F using the purchase method of accounting. Under purchase accounting, the estimated market value of shares of our common stock issued in the merger and the amount of the merger transaction costs will be recorded as the cost of acquiring 3F. That cost has been allocated to the individual assets acquired and liabilities assumed, including various identifiable intangible assets such as acquired technology, acquired trademarks and tradenames, based on their estimated fair values at the date of acquisition. The excess of the purchase price over the fair market value of the net assets has been allocated as goodwill. The amount of initial purchase price currently allocated to goodwill and the other intangible assets in connection with the acquisition of 3F is approximately $12.2 million. Our estimates are based upon currently available information and assumptions that we believe are reasonable. We continue the process of gathering information to finalize the valuation of certain assets, primarily the valuation of acquired intangible assets. However, there can be no assurance that the actual useful lives will not differ significantly from the current estimates. The amortization of other intangible assets could result in net losses for ATS for the foreseeable future, which could have a material adverse effect on the market value of our common stock. WE HAVE A HISTORY OF REGULARLY RAISING FUNDS AND INCURRING DEBT TO FUND NET LOSSES. IF OUR CURRENT CASH AND INVESTMENT BALANCES ARE INADEQUATE TO CARRY US TO PROFITABILITY, WE MAY NEED TO RAISE EQUITY OR INCUR DEBT IN THE FUTURE. During the last three years, we have completed financings to fund our operations. If our future operations require greater cash than our current balances, we would again be required to raise equity or issue debt. Furthermore, there may be delays in obtaining necessary governmental approvals of our products or introducing products to market or other events that may cause actual cash requirements to exceed those for which we have budgeted. In such event, we would need additional financing. If we were unable to raise these funds, we may not be able to continue our business as planned. 17 THE MARKET FOR PROSTHETIC HEART VALVES IS HIGHLY COMPETITIVE, AND A NUMBER OF OUR COMPETITORS ARE LARGER AND HAVE MORE FINANCIAL RESOURCES. IF WE DO NOT COMPETE EFFECTIVELY, OUR BUSINESS WILL BE HARMED. The market for prosthetic heart valves is highly competitive. We expect that competition will intensify as additional companies enter the market or modify their existing products to compete directly with us. Our primary competitor in mechanical heart valves, St. Jude Medical, Inc., currently controls approximately 50% of the worldwide market. Edwards Lifesciences PVT, Inc., our primary competitor in the tissue heart valve market, currently controls approximately 60% of the worldwide market. Many of our competitors have long-standing FDA approval for their valves and extensive clinical data demonstrating the performance of their valves. In addition, they have greater financial, manufacturing, marketing and research and development capabilities than we have. For example, many of our competitors have the ability, due to their internal carbon manufacturing facilities and economies of scale, to manufacture their heart valves at a lower cost than we can manufacture our ATS heart valve. Our primary competitor has recently used price as a method to compete in several international markets. If heart valve prices decline significantly, we might not be able to compete successfully, which would harm our business, financial condition and operating results. OUR FUTURE RESULTS WILL BE HARMED IF THE USE OF MECHANICAL HEART VALVES DECLINES OR IF OUR TISSUE HEART VALVES CANNOT BE SUCCESSFULLY MARKETED. Our business could suffer if the use of mechanical heart valves declines. Historically, mechanical heart valves have accounted for over two-thirds of all heart valve replacements. Recently, there has been an increase in the use of tissue valves. We estimate that mechanical heart valves are currently being used in 40% to 65% of all heart valve replacements, depending on the geographic market, down from 65% to 75% roughly ten years ago. We believe the tissue manufacturers' claims of improvements in tissue valve longevity and an increase in the average age of valve patients have contributed to the recent increase in the use of tissue valves. In addition, there can be no guarantee that we will be able to successfully market and sell our tissue heart valves or that our tissue heart valves will be approved or gain market acceptance. OUR BUSINESS MAY BE ADVERSELY AFFECTED IF WE ARE UNABLE TO MAINTAIN OUR STRATEGIC DISTRIBUTION ARRANGEMENTS. In 2006, revenues from non-mechanical heart valve products increased to 18% of total revenue from 0% in 2004. Some of our distributed products contain performance criteria which we must obtain to retain our rights under these arrangements. Additionally, these arrangements provide certain circumstances under which our rights may be terminated (i.e. change-in-control). If we are unable to maintain these arrangements, our business, financial condition and operating results may be adversely affected. WE ULTIMATELY MAY EXPERIENCE A DELAY IN INTRODUCING, OR MAY NOT SUCCESSFULLY COMPLETE DEVELOPMENT OF, PRODUCTS THAT ARE CURRENTLY UNDER DEVELOPMENT, RESULTING IN HARM TO OUR BUSINESS. We are in the process of developing certain products, including but not limited to, the Enable and Entrata products. The Enable product is currently in the early phases of clinical trials, and the Entrata product is still under development. Successfully completing the development of these products and technologies presents substantial technical, medical and engineering challenges, as well as regulatory hurdles. In 2006, ongoing clinical trial results in Europe resulted in our undertaking a review of the Enable valve cuff design. We may not successfully complete the development of these products, or these products may fail to work in the manner intended. If we are unable to successfully develop the products that are currently under development, we may suffer financial difficulties, which may have a material adverse effect on our business, financial condition and operating results. NEW PRODUCTS OR TECHNOLOGIES DEVELOPED BY OTHERS COULD RENDER OUR PRODUCT OBSOLETE. The medical device industry is characterized by significant technological advances. Several companies are developing new prosthetic heart valves based on new or potentially improved technologies. Significant advances are also being made in surgical procedures, which may delay the need for replacement heart valves. A new product or technology may emerge that renders the ATS heart valve noncompetitive or obsolete. This could materially harm our operating results or force us to cease doing business altogether. 18 THE MERGER WITH 3F MAY RESULT IN A LOSS OF CUSTOMERS AND SUPPLIERS. Some customers may seek alternative sources of products and/or services after the effectiveness of the 3F merger due to, among other reasons, a desire not to do business with the combined company or perceived concerns that the combined company may not continue to support and develop certain product lines. The combined company could experience some customer attrition after the merger. Difficulties in combining operations also could result in the loss of providers and potential disputes or litigation with customers, providers or others. WE LICENSE PATENTED TECHNOLOGY AND OTHER PROPRIETARY RIGHTS FROM CARBOMEDICS. IF THESE AGREEMENTS ARE BREACHED OR TERMINATED, OUR RIGHT TO MANUFACTURE THE ATS MECHANICAL HEART VALVE COULD BE TERMINATED. Under our carbon technology agreement with CarboMedics, we have obtained a license to use CarboMedics' pyrolytic carbon technology to manufacture components for the ATS heart valve. If this agreement is breached or terminated, we would be unable to manufacture our own product. If our inventory is exhausted and we do not have any other sources of carbon components, we would be forced to cease doing business. A DELAY OR INTERRUPTION IN OUR MANUFACTURING OF PYROLYTIC CARBON COMPONENTS COULD DELAY PRODUCT DELIVERY OR FORCE US TO CEASE OPERATIONS. Although we anticipate that our manufacturing capacity will be sufficient to meet our current and foreseeable carbon component needs, if our inventory is exhausted and we are unable to manufacture carbon components, it is unlikely that we will be able to obtain the necessary carbon components from any other source. If we are unable to obtain these carbon components from other sources, we could be forced to reduce or cease operations. BECAUSE WE LACK MANUFACTURING EXPERIENCE, WE MAY NOT REALIZE EXPECTED SAVINGS FROM MANUFACTURING OUR OWN PRODUCT. IN ADDITION, WE COULD EXPERIENCE PRODUCTION DELAYS AND SIGNIFICANT ADDITIONAL COSTS. Under our agreement with CarboMedics, we have been granted an exclusive worldwide license to manufacture pyrolytic carbon components for the ATS heart valve. We cannot be certain that our strategy to establish internal manufacturing capabilities will result in a cost-effective means for manufacturing the ATS heart valve. We have limited experience in manufacturing pyrolytic carbon. Although we have an FDA-approved carbon manufacturing facility, we have only started increasing our production. In the future, as we continue to increase production, we may encounter difficulties in maintaining and expanding our manufacturing operations, including problems involving: - production yields; - quality control; - per unit manufacturing costs; - shortages of qualified personnel; and - compliance with FDA and international regulations and requirements regarding good manufacturing practices. Difficulties encountered by us in establishing or maintaining a commercial-scale manufacturing facility may limit our ability to manufacture our heart valve and therefore could seriously harm our business, financial condition and operating results. OUR BUSINESS COULD BE SERIOUSLY HARMED IF THIRD-PARTY PAYERS DO NOT REIMBURSE THE COSTS FOR OUR HEART VALVE. Our ability to successfully commercialize the ATS mechanical heart valve depends on the extent to which reimbursement for the cost of our product and the related surgical procedure is available from third-party payers, such as governmental programs, private insurance plans and managed care organizations. Third-party payers are increasingly challenging the pricing of medical products and procedures that they consider not to be cost-effective or are used for a non-approved indication. The failure by physicians, hospitals and other users of our products to 19 obtain sufficient reimbursement from third-party payers would seriously harm our business, financial condition and operating results. In recent years, there have been numerous proposals to change the health care system in the United States. Some of these proposals have included measures that would limit or eliminate payment for medical procedures or treatments. In addition, government and private third-party payers are increasingly attempting to contain health care costs by limiting both the coverage and the level of reimbursement. In international markets, reimbursement and health care payment systems vary significantly by country. Furthermore, we have encountered price resistance from government-administered health programs. Significant changes in the health care system in the United States or elsewhere, including changes resulting from adverse trends in third-party reimbursement programs, could have a material adverse effect on our business, financial condition and operating results. WE MAY FACE PRODUCT LIABILITY CLAIMS, WHICH COULD RESULT IN LOSSES IN EXCESS OF OUR INSURANCE COVERAGE AND WHICH COULD NEGATIVELY AFFECT OUR ABILITY TO ATTRACT AND RETAIN CUSTOMERS. The manufacture and sale of mechanical heart valves and tissue heart valves entails significant risk of product liability claims and product recalls. Both mechanical heart valves and tissue heart valves are life-sustaining devices, and the failure of any mechanical heart valve usually results in the patient's death or need for re-operation. A product liability claim or product recall, regardless of the ultimate outcome, could require us to spend significant time and money in litigation or to pay significant damages and could seriously harm our business. We currently maintain product liability insurance coverage in an aggregate amount of $25 million. However, we cannot be assured that our current insurance coverage is adequate to cover the costs of any product liability claims made against us. Product liability insurance is expensive and does not cover the costs of a product recall. In the future, product liability insurance may not be available at satisfactory rates or in adequate amounts. A product liability claim or product recall could also materially and adversely affect our ability to attract and retain customers. OUR BUSINESS WOULD BE ADVERSELY AFFECTED IF WE ARE NOT ABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS. Our success depends in part on our ability to maintain and enforce our patents and other proprietary rights. We rely on a combination of patents, trade secrets, know-how and confidentiality agreements to protect the proprietary aspects of our technology. These measures afford only limited protection, and competitors may gain access to our intellectual property and proprietary information. The patent positions of medical device companies are generally uncertain and involve complex legal and technical issues. Litigation may be necessary to enforce our intellectual property rights, to protect our trade secrets and to determine the validity and scope of our proprietary rights. Any litigation could be costly and divert our attention from the growth of the business. We cannot assure you that our patents and other proprietary rights will not be successfully challenged, or that others will not independently develop substantially equivalent information and technology or otherwise gain access to our proprietary technology. WE MAY BE SUED BY THIRD PARTIES CLAIMING THAT OUR PRODUCTS INFRINGE ON THEIR INTELLECTUAL PROPERTY RIGHTS. ANY SUCH SUITS COULD RESULT IN SIGNIFICANT LITIGATION OR LICENSING EXPENSES OR WE MIGHT BE PREVENTED FROM SELLING OUR PRODUCT. We may be exposed to future litigation by third parties based on intellectual property infringement claims. Any claims or litigation against us, regardless of the merits, could result in substantial costs and could harm our business. In addition, intellectual property litigation or claims could force us to: - cease manufacturing and selling our product, which would seriously harm us; - obtain a license from the holder of the infringed intellectual property right, which license may not be available on reasonable terms, if at all; or - redesign our product, which could be costly and time-consuming. WE MAY ENCOUNTER LITIGATION THAT COULD HAVE A MATERIAL IMPACT ON OUR BUSINESS. In addition to product liability claims, potential litigation over intellectual property infringement claims and the CarboMedics litigation described in Item 3. "Legal Proceedings," we also may be subject to other lawsuits, proceedings and claims arising in the ordinary course of business or otherwise. Although we do not believe that any 20 lawsuits, claims or proceedings arising in the ordinary course of business will have a material adverse impact on our business, operating results or financial condition, it is possible that unfavorable resolutions of any lawsuits, claims or proceedings could have an adverse effect on our business, results of operation or financial condition because of the uncertainty inherent in litigation. WE ARE SUBJECT TO EXTENSIVE GOVERNMENTAL REGULATION, WHICH IS COSTLY, TIME CONSUMING AND CAN SUBJECT US TO UNANTICIPATED DELAYS OR COULD ULTIMATELY PRECLUDE US FROM MARKETING AND SELLING OUR PRODUCTS. Our heart valve and our manufacturing activities are subject to extensive regulation by a number of governmental agencies, including the FDA and comparable international agencies, as well as other federal, state, local and international authorities. We are required to: - obtain the approval of the FDA or international regulatory authorities where our heart valves are not yet marketed; - after obtaining approval or clearance of the FDA or international regulatory authorities, maintain the approval of the FDA and international regulatory authorities to continue selling and manufacturing our heart valves; - satisfy content requirements for all of our labeling, sales and promotional materials; - comply with manufacturing and reporting requirements; and - undergo rigorous inspections by these agencies. Compliance with the regulations of these governmental authorities may delay or prevent us from introducing any new or improved products. The governmental authorities in charge of making and implementing these laws or related regulations may change the laws, impose additional restrictions, or adopt interpretations of existing laws or regulations that could have a material adverse effect on us. Violations of these laws or regulatory requirements may result in fines, marketing restrictions, product recall, withdrawal of approvals and civil and criminal penalties. We also may incur substantial costs associated with complying and overseeing compliance with the laws and regulations of these governmental authorities. We ultimately may not be able to obtain the necessary governmental approvals or clearances in the United States or other jurisdictions, including FDA and CE approvals and clearances, for products that are now under development, including our 3F Aortic Bioprosthesis, Enable and Entrata products. Obtaining these governmental approvals or clearances is uncertain, and the regulatory approval process is likely to be time-consuming and expensive. If we are unable to obtain such governmental approvals or clearances, then our ability to market and sell products currently under development may be delayed or may never occur. Our potential inability to market and sell our products currently under development, together with the potential expenses associated with obtaining the necessary governmental approvals or clearances, may cause us to suffer financial difficulties, which could have a material adverse effect on our business, financial condition and prospects. THE PRICE OF OUR COMMON STOCK HAS BEEN VOLATILE, WHICH MAY RESULT IN LOSSES TO INVESTORS. Historically, the market price of our common stock has fluctuated over a wide range and it is likely that the price of our common stock will fluctuate in the future. The market price of our common stock could be impacted by the following: - the success of our management in operating ATS effectively; - the failure of our heart valves to gain market acceptance in the United States; - announcements of technical innovations or new products by our competitors; - the status of component supply arrangements; - changes in reimbursement policies; - government regulation; - developments in patent or other proprietary rights; 21 - public concern as to the safety and efficacy of products developed by us or others; and - general market conditions. In addition, due to one or more of the foregoing factors, in future years our operating results may fall below the expectations of securities analysts and investors. In that event, the market price of our common stock could be materially and adversely affected. Finally, in recent years the stock market has experienced extreme price and volume fluctuations. This volatility has had a significant effect on the market prices of securities issued by many companies for reasons unrelated to their operating performance. These broad market fluctuations may materially adversely affect our stock price, regardless of our operating results. OUR CHARTER DOCUMENTS AND MINNESOTA LAW MAY DISCOURAGE AND COULD DELAY OR PREVENT A TAKEOVER OF OUR COMPANY. Provisions of our articles of incorporation, bylaws and Minnesota law could make it more difficult for a third party to acquire us, even if doing so would be beneficial to our shareholders. These provisions include the following: - No cumulative voting by shareholders for directors; - The ability of our Board of Directors to control its size, to create new directorships and to fill vacancies; - The ability of our Board of Directors, without shareholder approval, to issue preferred stock, which may have rights and preferences that are superior to our common stock; - The ability of our Board of Directors to amend the bylaws; and - Restrictions under Minnesota law regarding mergers or other business combinations between us and any holder of 10% or more of our outstanding common stock. ITEM 1B. UNRESOLVED STAFF COMMENTS Not Applicable. ITEM 2. PROPERTIES We lease approximately 56,000 square feet of space in two buildings in Plymouth, Minnesota. One lease, covering approximately 33,000 square feet, expires on March 31, 2009 and is used for administrative, production and engineering purposes. The lease on the other 23,000 square feet expires July, 2008 and is used for carbon manufacturing. We also lease approximately 16,000 square feet of space in Lake Forest, California. This lease expires on September 30, 2009 and is used for research and development and manufacturing purposes. Outside the United States, we lease four sales and marketing offices in China, France, Germany, and Austria. We believe that our facilities are adequate for our current needs. ITEM 3. LEGAL PROCEEDINGS Abbey Litigation On January 23, 2006, following execution of the Merger Agreement between the Company and 3F, 3F was informed of a summons and complaint dated January 19, 2006, which was filed in the U.S. District Court in the Southern District of New York by Arthur N. Abbey ("Abbey") against 3F Partners Limited Partnership II (a major stockholder of 3F, "3F Partners II"), Theodore C. Skokos (the then chairman of the board and a stockholder of 3F), 3F Management II, LLC (the general partner of 3F Partners II), and 3F (collectively, the "Defendants") (the "Abbey I Litigation"). The summons and complaint alleges that the Defendants committed fraud under federal securities laws, common law fraud and negligent misrepresentation in connection with the purchase by Abbey of certain securities of 3F Partners II. In particular, Abbey claims that the Defendants induced Abbey to invest $4 million in 3F Partners II, which, in turn, invested $6 million in certain preferred stock of 3F, by allegedly causing Abbey to believe, among other things, that such investment would be short-term. Pursuant to the complaint, Abbey is seeking 22 rescission of his purchase of his limited partnership interest in 3F Partners II and return of the amount paid therefore (together with pre-and post-judgment interest), compensatory damages for the alleged lost principal of his investment (together with interest thereon and additional general, consequential and incidental damages), general damages for all alleged injuries resulting from the alleged fraud in an amount to be determined at trial and such other legal and equitable relief as the court may deem just and proper. Abbey did not purchase any securities directly from 3F and is not a stockholder of 3F. On March 23, 2006, 3F filed a motion to dismiss the complaint. Under the Private Securities Litigation Reform Act, no discovery will be permitted until the judge rules upon the motion to dismiss. On May 15, 2006, 3F filed and served a reply memorandum of law in further support of its motion to dismiss Abbey's complaint with prejudice. On or about June 14, 2006, Abbey commenced a second civil action in the Court of Chancery in the State of Delaware by serving 3F with a complaint naming both 3F and Mr. Skokos as defendants (the "Abbey II Litigation"). The complaint alleges, among other things, fraud and breach of fiduciary duties in connection with the purchase by Abbey of his partnership interest in 3F Partners II. The Delaware action seeks: (1) a declaration that (a) for purposes of the merger, Abbey was a record stockholder of 3F and was thus entitled to withhold his consent to the merger and seek appraisal rights after the merger was consummated and (b) the irrevocable stockholder consent submitted by 3F Partners II to approve the merger be voided as unenforceable; and (2) damages based upon allegations that 3F aided and abetted Mr. Skokos in breaching Mr. Skokos's fiduciary duties of loyalty and faith to Abbey. On July 17, 2006, 3F filed a motion to dismiss the complaint in the Abbey II Litigation, or, alternatively, to stay the action pending adjudication of the Abbey I Litigation. On October 10, 2006, the Delaware Chancery Court entered an order staying the Delaware action pending the outcome of the Abbey I litigation. 3F has been notified by its director and officer insurance carrier that such carrier will defend and cover all defense costs as to 3F and Mr. Skokos in the Abbey I Litigation and Abbey II Litigation, subject to policy terms and full reservation of rights. In addition, under the merger agreement, 3F and the 3F stockholder representative have agreed that the Abbey I Litigation and Abbey II Litigation are matters for which express indemnification is provided. As a result, the escrow shares and milestone shares, if any, may be used by ATS to satisfy, in part, ATS's set-off rights and indemnification claims for damages and losses incurred by 3F or ATS, and their directors, officers and affiliates, that are not otherwise covered by applicable insurance arising from the Abbey I Litigation and Abbey II Litigation. See Note 2 of "Notes to Consolidated Financial Statements" in this Report for a description of the escrow and milestone shares. We believe that the Abbey I Litigation and Abbey II Litigation will not result in a material impact on our financial position or operating results. CarboMedics Litigation On January 26, 2007, we were served with a complaint filed by CarboMedics against ATS in United States District Court in the District of Minnesota on November 22, 2006. The complaint alleges that we have breached certain contractual obligations, including an alleged obligation to purchase $22 million of MHV carbon components under a long-term supply agreement with CarboMedics which obligation CarboMedics contends had been scheduled to re-commence in 2007. See "Item 1. Business - Our Markets and Products - Prosthetic Heart Valve Market - - Relationship with CarboMedics" in this Form 10-K for more information regarding our relationship with CarboMedics. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Contractual Obligations" in this Form 10-K for more information regarding the purchase obligation. The complaint seeks specific enforcement of the supply agreement, revocation of certain intellectual property rights purchased by ATS from CarboMedics, and monetary damages in excess of $75,000. We believe that the complaint filed by CarboMedics is without merit, that CarboMedics has repudiated and breached the long-term supply agreement, and that we have affirmative claims against CarboMedics. On February 16, 2007, we filed our answer and counterclaim to the complaint, including counterclaims for breach of contract, anticipatory repudiation, deceptive trade practice and business disparagement, and a request for monetary damages. On March 14, 2007 we also filed a motion for judgment on the pleadings regarding CarboMedics request for specific performance of the supply agreement. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable. 23 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES MARKET INFORMATION Our common stock is traded on the NASDAQ Global Market under the symbol "ATSI." The following table sets forth, for the periods indicated, the high and low closing sales prices per share of our common stock as reported on the NASDAQ Global Market. These prices do not include adjustments for retail mark-ups, mark-downs, or commissions.
High Low ----- ----- Fiscal Year 2005: First Quarter $4.58 $3.55 Second Quarter $3.78 $2.99 Third Quarter $3.84 $3.35 Fourth Quarter $3.79 $2.72
High Low ----- ----- Fiscal Year 2006: First Quarter $3.15 $2.46 Second Quarter $3.00 $2.27 Third Quarter $2.80 $2.06 Fourth Quarter $2.63 $2.05
HOLDERS As of March 2, 2007, we had approximately 520 holders of record of our common stock. DIVIDENDS We have never declared or paid cash dividends. We intend to retain all future earnings for the operation and expansion of our business. We do not anticipate declaring or paying cash dividends on our common stock in the foreseeable future. REPURCHASES OF COMMON STOCK We did not repurchase any of our securities during the fourth quarter of 2006. SALES OF UNREGISTERED SECURITIES We had no sales of unregistered securities during 2006 that have not been previously disclosed in a Current Report on Form 8-K or Quarterly Report on Form 10-Q. 24 PERFORMANCE GRAPH The graph below compares the cumulative total shareholder return on our common stock since December 31, 2001 with the cumulative return of the Standard & Poor's 500 Stock Index and the NASDAQ Medical Devices, Instruments and Supplies Index over the same period (assuming the investment of $100 in each vehicle on December 31, 2001 and reinvestment of all dividends). [PERFORMANCE GRAPH]
Name 2001 2002 2003 2004 2005 2006 - --------------------------------- ------- ------- ------- ------- ------- ------- NASDAQ Medical Dev/Ins/Sup $100.00 $ 80.89 $119.67 $140.20 $153.92 $162.34 Standard & Poor's 500 Stock Index 100.00 76.63 96.85 105.56 108.73 123.54 ATS Medical, Inc. 100.00 8.49 76.42 87.92 52.08 39.06
25 PART II ITEM 6. SELECTED FINANCIAL DATA
Year Ended December 31, --------------------------------------------------------- (in thousands, except per share data) 2006 2005 2004 2003 2002 - ---------------------------------------------- --------- --------- --------- --------- --------- STATEMENT OF OPERATIONS DATA: Net sales $ 40,449 $ 34,636 $ 28,015 $ 18,484 $ 13,301 Cost of sales 19,568 22,828 21,227 17,632 12,307 -------- -------- -------- -------- -------- Gross profit 20,881 11,808 6,788 852 994 Operating expenses: Sales and marketing 21,008 18,948 16,520 10,180 2,425 Research and development 3,381 1,733 1,011 1,764 3,312 In-process research and development 14,400 - - - - General and administrative 8,892 7,314 5,954 4,350 3,114 Impairment of technology license - - - - 8,100 Reorganization expense - - - - 1,130 Distributor termination expense 733 - - - 821 Gain on extinguishment of debt - - - (2,575) - -------- -------- -------- -------- -------- Total operating expenses 48,414 27,995 23,485 13,719 18,902 -------- -------- -------- -------- -------- Operating loss (27,533) (16,187) (16,697) (12,867) (17,908) Interest income (expense) (1,669) (338) 54 (425) (304) Change in value of derivative liability bifurcated from convertible senior notes 1,528 2,131 - - - -------- -------- -------- -------- -------- Loss before income taxes (27,674) (14,394) (16,643) (13,292) (18,212) Income tax expense - - - - - -------- -------- -------- -------- -------- Net loss $(27,674) $(14,394) $(16,643) $(13,292) $(18,212) ======== ======== ======== ======== ======== Net loss per share: Basic $ (0.83) $ (0.46) $ (0.58) $ (0.55) $ (0.82) Diluted $ (0.83) $ (0.46) $ (0.58) $ (0.55) $ (0.82) Weighted average number of shares outstanding: Basic 33,537 31,009 28,856 24,076 22,259 Diluted 33,537 31,009 28,856 24,076 22,259
As of December 31, --------------------------------------------------------- (in thousands) 2006 2005 2004 2003 2002 - ---------------------------------------------- --------- --------- --------- --------- --------- BALANCE SHEET DATA: Cash, cash equivalents and short-term investments $ 10,704 $ 21,709 $ 15,994 $ 8,475 $ 9,974 Working capital 32,976 46,417 41,459 31,275 21,674 Total assets 85,840 85,443 79,051 76,134 91,756 Long-term liabilities, excluding current maturities 18,588 19,679 1,826 307 9,514 Shareholders' equity 57,890 57,529 69,441 72,803 74,127
26 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS EXECUTIVE OVERVIEW We develop, manufacture, and market medical devices. Our primary interest lies with devices used by cardiovascular surgeons in the cardiac surgery operating theater. Currently, we participate in the markets for mechanical bileaflet replacement heart valves, tissue heart valves, allograft tissues, the surgical treatment of atrial fibrillation, and valve repair products, surgical tools and accessories. We also are engaged in a development project for autotransfusion products. CarboMedics developed the basic design from which the ATS mechanical heart valve evolved. CarboMedics is a large and experienced manufacturer of pyrolytic carbon components used in mechanical heart valves. CarboMedics has also designed and patented numerous mechanical valves. In 1990, CarboMedics offered to license a patented and partially developed valve to us if we would complete the development of the valve and agree to purchase carbon components from CarboMedics. As a result, we now hold an exclusive, royalty-free, worldwide license to an open pivot, bileaflet mechanical heart valve design owned by CarboMedics from which the ATS heart valve has evolved. In addition, we have an exclusive, worldwide right and license to use CarboMedics' pyrolytic carbon technology to manufacture components for the ATS heart valve. We commenced selling the ATS mechanical heart valve in international markets in 1992. In October 2000, we received FDA approval to sell the ATS Open Pivot(R) MHV and commenced sales and marketing of our valve in the United States. The original sales forecasts as well as the pricing models that were used when our original supply agreement was signed with CarboMedics proved to be too optimistic. Accordingly, to keep the supply agreement active and the license to sell the valve exclusive, we purchased quantities of inventory far in excess of demand. Because our inventory purchases exceeded our sales through the years, we built up our inventory levels. Since 2002, we have sold these paid-for inventories and used the cash it generated to fund operations. During 2004 and 2005, we developed and implemented a plan to ramp-up our own manufacturing facility for pyrolytic carbon. By the end of 2005, this process was substantially complete. From 1990 through 2003, we paid CarboMedics approximately $125 million for the development of our valve, the technology to manufacture pyrolytic carbon components, and for pyrolytic valve components manufactured by CarboMedics. By the end of 2002, we had remaining payments due under the technology agreement that totaled $28 million. In 2003, we negotiated an accelerated but reduced payment for all outstanding debts to CarboMedics related to the technology agreement and we paid $12 million to satisfy all future obligations under this agreement. During 2002, we reorganized the Company, laying off more than half of our work force, including all executive management. With the hiring of a new president late in 2002, we started the process of rebuilding our sales and marketing teams, especially in the United States. This rebuilding is the most significant factor in our operating expense levels during the last four fiscal years. Because sales prices in the United States exceed selling prices in most other markets, we believe that our future success will depend on achieving increased market share in the United States. Our U.S. sales as a percentage of our overall sales have grown from 4% in 2000 to 39% in 2006. During 2004, we made our first investments outside the mechanical heart valve market by completing two business development agreements. The first, signed in April, was with ErySave AB, for exclusive worldwide rights to ErySave's PARSUS filtration technology for cardiac surgery procedures. We had no revenues in 2005 and 2006 from this technology, nor do we expect to generate any revenue from this technology in 2007. In November 2004, we completed a global partnership agreement with CryoCath Technologies, Inc. to market CryoCath's surgical cryotherapy products for the ablation of cardiac arrhythmias. The agreement with CryoCath has resulted in revenues for our Company since 2005. During 2005 we continued to develop our business outside the mechanical heart valve market. In June 2005, we entered into an exclusive development, supply and distribution agreement with Genesee BioMedical, Inc., under which GBI will develop, supply, and manufacture cardiac surgical products to include annuloplasty repair rings, 27 c-rings and accessories, and we will have exclusive worldwide rights to market and sell such products. Our agreement with GBI produced revenues for us in 2006. In June 2005, we entered into a marketing services agreement with Regeneration Technologies, Inc. - Cardiovascular. Under the terms of the agreement, RTI-CV appointed us as its exclusive marketing services representative to promote, market and solicit orders for RTI-CV's processed cardiovascular allograft tissue from doctors, hospitals, clinics and patients throughout North America. The agreement with RTI-CV resulted in revenues for our Company in both 2005 and 2006. However, the cardiovascular tissue processing business of RTI-CV was sold during 2006 and as such RTI-CV is discontinuing its cardiovascular tissue processing operations. Our distribution agreement with RTI-CV will terminate at the end of 2007. In September 2006, we completed the acquisition of all the voting and non-voting stock of 3F, a privately-held medical device company specializing in manufacturing tissue heart valves. We view the acquisition of 3F as a significant step in executing our vision of obtaining a leadership position in all segments of the cardiac surgery market. The acquisition was consummated pursuant to an agreement and plan of merger dated January 23, 2006, as amended (the "Merger Agreement"). Under the terms of the Merger Agreement, upon closing, we paid each 3F stockholder its pro-rata portion of an initial payment of 9 million shares of our common stock, subject to certain adjustments. In addition to the initial closing payment, we are obligated to make additional contingent payments to 3F stockholders of up to 10 million shares of our common stock with shares issuable upon obtaining each of the CE mark and FDA approval of certain key products on or prior to December 31, 2013. Milestone share payments may be accelerated upon completion of certain transactions involving these key products. The first generation tissue valve, the ATS 3F Aortic Bioprosthesis, has received CE mark and is available for sale in Europe and certain other international geographies. We expect FDA approval of this product in the second half of 2007. Also in September 2006, we entered into an exclusive distribution agreement with Novare Surgical Systems, Inc. Novare is the owner of the Enclose II(R) cardiac anastomosis assist device (the "Product"), which is a device used by cardiac surgeons to attach a bypass vessel to the aorta during coronary artery bypass graft surgery. Under the terms of the agreement, we hold the exclusive right to market, sell and distribute the Product in the United States, Germany, France and the United Kingdom. We agreed to pay to Novare a transfer price for each box of Product we purchase. Starting in 2007, we are required to purchase an annual minimum amount of the Product, which increases 15% each year. CRITICAL ACCOUNTING POLICIES AND ESTIMATES We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. This discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect (1) the reported amounts of assets, liabilities, revenues, and expenses and (2) the related disclosure of contingent liabilities. At each balance sheet date, we evaluate our estimates, including but not limited to, those related to accounts receivable, inventories, long-lived assets, and income taxes. The critical accounting policies that are most important in fully understanding and evaluating the financial condition and results of operations are discussed below. REVENUE RECOGNITION POLICY. A significant portion of our revenue in the United States, Canada, France, Germany and the U.K. is generated from consigned inventory maintained at hospitals or with field representatives. In these situations, revenue is recognized at the time that the product has been implanted or used. In all other instances, revenue is recognized at the time product is shipped. Certain independent distributors in select international markets receive rebates against invoiced sales amounts. In these situations, we accrue for these rebates at the time of the original sale. The total of these accrued rebates was $0.05 million and $0.10 million as of December 31, 2006 and 2005, respectively. These rebates are treated as a reduction of revenue. The Company includes shipping and handling costs, net of shipping charges invoiced to customers, in cost of goods sold. ALLOWANCE FOR DOUBTFUL ACCOUNTS. We maintain an allowance for doubtful accounts that is calculated using subjective judgments and estimates to establish this valuation account. Our distribution in international markets through independent distributors concentrates relatively large amounts of receivables in relatively few customer 28 accounts. We have successfully done business with most of these distributors for many years. We monitor amounts that are not paid according to terms. We attempt to accrue for potential losses due to non-payment. Financial conditions in international markets can change very quickly and our allowance for doubtful accounts cannot anticipate all potential changes. Our allowance for doubtful accounts was approximately $0.5 million and $0.4 million at December 31, 2006 and 2005, respectively. As a percentage of total accounts receivable, the allowance was 4.3% at December 31, 2006 and 3.3% at December 31, 2005. The increase in allowance as a percent of total accounts receivable is due primarily to increasing collection exposures connected with international distributors, primarily in Europe and the Middle East. INVENTORY VALUATION. Inventories are recorded at the lower of manufacturing cost or net realizable value. We have historically had manufacturing costs exceeding net realizable values in certain international markets requiring us to record write-downs to our inventories due to future selling prices being lower than manufacturing costs in select international markets. These write-downs resulted in lower-of-cost-or-market ("LCM") inventory reserves, which were used as high-cost pyrolytic carbon components purchased from CarboMedics were sold into low selling-price international markets. LCM write-downs were $0.7 million and $0.8 million during 2005 and 2004, respectively. During the first quarter of 2006, the remaining LCM reserves were fully utilized in connection with the depletion of our high-priced, but paid-for, inventories of carbon components discussed above. Consequently, no LCM write-downs were recorded in 2006 and future LCM inventory write-downs are not anticipated. We maintain an obsolescence allowance against certain finished goods inventories to cover resterilization costs for expired or near-expired items. This allowance totaled $0.2 million at December 31, 2006 and 2005. In addition, we maintain a reserve against work-in-process ("WIP") inventories to cover scrap costs associated with the completion of this WIP inventory. This reserve totaled $0.2 million and $0.3 million at December 31, 2006 and 2005, respectively. We also maintain a finished goods obsolescence reserve against 3F tissue inventories with less than one year shelf-life remaining. This reserve totaled $0.4 million at December 31, 2006. INTANGIBLE ASSETS. We assess the carrying value of our goodwill and other indefinite-lived intangible assets annually in accordance with the provisions of Statement of Financial Accounting Standard ("SFAS") No. 142, Goodwill and Other Intangible Assets. The assessment of potential impairment requires certain judgments and estimates, including the determination of an event indicating impairment, the future cash flows to be generated by the asset, risks associated with those cash flows, and the discount rate to be utilized. As of December 31, 2006, we believe that the carrying value of our intangible assets, including indefinite-lived intangibles, specifically the CarboMedics carbon technology license, the CryoCath agency and distribution agreements and the goodwill recorded in connection with our acquisition of 3F, are recoverable and no impairment charge is currently necessary. Based on our year-end review of our indefinite-lived intangibles, we have determined that our carbon technology license has a finite life and, pending a final analysis in the first quarter of 2007, we will begin amortizing this asset. DEFERRED TAX ASSETS. We have incurred tax losses of approximately $135 million. The losses are carried forward for U.S. and state corporate income taxes and can be used to reduce future taxable income. As a result, at December 31, 2006 we had net deferred tax assets totaling approximately $47.1 million. We have recorded a full valuation allowance against these assets because of the limited lives of the carryforwards and our lack of earnings history, which has resulted in our conclusion that it is not more than likely we will be able to utilize our loss carryforwards. CONVERTIBLE DEBT AND DERIVATIVE INSTRUMENTS. We account for embedded derivatives related to our Convertible Senior Notes under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and related Emerging Issues Task Force ("EITF") Interpretations and Securities and Exchange Commission ("SEC") rules, which require certain embedded derivative financial instruments to be bifurcated from the debt agreement and accounted for as a liability. Our Convertible Senior Notes contain several embedded derivatives. The valuation of derivatives requires management to make certain judgments and estimates, including the potential future fair value of our common stock, the probability of a change in control of the Company and the probability that the debt may be put back to or called by us. STOCK-BASED COMPENSATION. We account for our stock-based employee compensation plans under the recognition and measurement principles of SFAS No. 123 (Revised 2004), Share-Based Payment ("Statement 123(R)"), which revises SFAS No. 123, Accounting for Stock-Based Compensation, supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends SFAS No. 95, Statement of Cash Flows. Generally, the approach in Statement 123(R) is similar to the approach described in SFAS No. 123. However, Statement 123(R) requires all 29 share-based payments to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. We adopted Statement 123(R) on January 1, 2006, using the modified prospective transition method. In accordance with the modified prospective transition method, we have not restated our consolidated financial statements for prior periods. Under this transition method, stock-based compensation expense for 2006 includes stock-based compensation expense related to our stock-based compensation awards granted in 2006 and those awards granted prior to, but not yet vested as of, January 1, 2006, based on the grant-date fair value estimated in accordance with the provision of SFAS No. 123. Stock-based compensation expense for all stock-based compensation awards granted on or after January 1, 2006 will be based on the grant-date fair value estimated in accordance with the provisions of Statement 123(R). Prior to the adoption of Statement 123(R), we accounted for our stock-based employee compensation plans under the recognition and measurement principles of Accounting Principles Board ("APB") Opinion No. 25 and related interpretations. During 2006, we recognized $1.1 million of stock-based compensation expense and we have $2.0 million of unrecognized compensation expense that will be recognized over a weighted average period of approximately two years. RESULTS OF OPERATIONS The following table provides the dollar and percentage change in our Statements of Operations for 2006 compared to 2005 and 2005 compared to 2004.
INCREASE INCREASE (in thousands) 2006 2005 (DECREASE) % 2005 2004 (DECREASE) % - ------------------------------- --------- --------- ---------- ------ --------- --------- ---------- ------- Net sales $ 40,449 $ 34,636 $ 5,813 16.8% $ 34,636 $ 28,015 $ 6,621 23.6% Cost of sales 19,568 22,828 (3,260) -14.3% 22,828 21,227 1,601 7.5% -------- -------- -------- ----- -------- -------- -------- ------ Gross profit 20,881 11,808 9,073 76.8% 11,808 6,788 5,020 74.0% Operating expenses: Sales and marketing 21,008 18,948 2,060 10.9% 18,948 16,520 2,428 14.7% Research and development 3,381 1,733 1,648 95.1% 1,733 1,011 722 71.4% In-process R&D 14,400 - 14,400 - - - - - Distributor termination expense 733 - 733 - - - - - General and administrative 8,892 7,314 1,578 21.6% 7,314 5,954 1,360 22.8% -------- -------- -------- ----- -------- -------- -------- ------ Total operating expenses 48,414 27,995 20,419 72.9% 27,995 23,485 4,510 19.2% -------- -------- -------- ----- -------- -------- -------- ------ Operating loss (27,533) (16,187) (11,346) 70.1% (16,187) (16,697) 510 3.1% Interest income (expense) (1,669) (338) (1,331) 393.8% (338) 54 (392) -725.9% Change in value of derivative liability bifurcated from convertible senior notes 1,528 2,131 (603) 28.3% 2,131 - 2,131 - -------- -------- -------- ----- -------- -------- -------- ------ Net loss $(27,674) $(14,394) $(13,280) 92.3% $(14,394) $(16,643) $ 2,249 13.5% ======== ======== ======== ===== ======== ======== ======== ======
30 The following table presents the statement of operations as a percentage of sales for 2006, 2005, and 2004.
2006 2005 2004 ------ ------ ------ Net sales 100.0% 100.0% 100.0% Cost of sales 48.4% 65.9% 75.8% ----- ----- ----- Gross profit 51.6% 34.1% 24.2% Operating expenses: Sales and marketing 51.9% 54.7% 59.0% Research and development 8.4% 5.0% 3.6% In-process R&D 35.6% 0.0% 0.0% Distributor termination expense 1.8% 0.0% 0.0% General and administrative 22.0% 21.1% 21.3% ----- ----- ----- Total operating expenses 119.7% 80.8% 83.8% ----- ----- ----- Operating loss -67.0% -46.7% -59.6% Interest income (expense) -4.1% -1.0% 0.2% Change in value of derivative liability bifurcated from convertible senior notes 3.8% 6.2% 0.0% ----- ----- ----- Net loss -68.4% -41.6% -59.4% ===== ===== =====
NET SALES. The following table provides the dollar and percentage change in net sales inside and outside the United States and Canada for 2006 compared to 2005 and 2005 compared to 2004.
(in thousands) 2006 2005 INCREASE % 2005 2004 INCREASE % - --------------------- ------- ------- -------- ----- ------- ------- -------- ----- United States $15,704 $13,194 $ 2,510 19.0% $13,194 $ 9,330 $ 3,864 41.4% Outside United States 24,745 21,442 3,303 15.4% 21,442 18,685 2,757 14.8% ------- ------ ------- ---- ------- ------- ------- ---- Total $40,449 $34,636 $ 5,813 16.8% $34,636 $28,015 $ 6,621 23.6% ======= ======= ======= ==== ======= ======= ======= ====
The following table provides net sales inside and outside the United States and Canada as a percentage of total net sales for 2006, 2005, and 2004.
2006 2005 2004 ------ ------ ------ Share of net sales: United States 38.8% 38.1% 33.3% Outside United States 61.2% 61.9% 66.7% ----- ----- ----- Total 100.0% 100.0% 100.0% ===== ===== =====
Our primary product line continues to be the mechanical heart valve ("MHV"), which comprised approximately 82% of our worldwide sales base in 2006 and 90% in 2005. Worldwide MHV sales increased 6.6% in 2006 and 10.9% in 2005 compared to the prior year. Since late 2002, we have been building a new sales organization in the United States, which has grown to five area directors managing more than 25 sales territories. Our representation within these territories consists of both direct sales representatives and independent agents. U.S. and Canadian MHV sales dollars were relatively flat in 2006 and increased 13.4% in 2005 as compared to the prior year. U.S. and Canadian MHV unit sales increased 3.4% in 2006 and 10.2% in 2005 compared to the prior year. The overall mechanical valve market in the United States continues to decline on an annual basis as encroachment of tissue valves persist. 31 During the last four years we aggressively entered several international markets that represent opportunities for greater mechanical heart valve sales unit growth, but at prices lower than our other direct markets. We believed this strategy was appropriate because it allowed us to increase our market share while reducing our high priced, but paid-for, inventories. We also believe that our current lower product costs, related to carbon components manufactured internally, allows us to now achieve incremental profit margins in these international markets. MHV sales dollars in international markets increased 12.0% in 2006 and increased 9.7% in 2005, compared to the prior year. International MHV unit sales increased 16.4% in 2006 and increased 17.3% in 2005 compared to the prior year. International ASP was approximately 5% lower for 2006 compared to 2005 due to a shift in sales mix from higher-margin industrialized countries to lower-margin lesser-developed countries. This mix shift was due in part to negotiations in 2006 on a new distribution arrangement with one of our larger industrialized-country distributors. Both domestic and international net sales in 2006 have been favorably impacted by revenue from the new business initiatives and partnerships discussed above, mainly revenue derived from surgical cryotherapy products, annuloplasty repair rings, c-rings and accessories and processed cardiovascular allograft tissue. Approximately 18% of our worldwide revenue in 2006 was derived from non-mechanical heart valve products commercialized within the past 24 months, up from 10% in 2005. COST OF GOODS SOLD AND GROSS PROFIT. Our gross profit as a percentage of net sales has improved over the last several years due in part to increased sales in the United States where our MHV average selling prices are much higher than in international markets. Our 2006 gross profit benefited in particular from sales of lower cost valves which are now manufactured entirely in our own facilities. By the end of the first quarter of 2006, we had substantially depleted our high-priced, but paid-for, inventories of carbon components purchased from CarboMedics, and had moved into lower-cost, internally-produced carbon material cost layers. This transition to full in-house manufacture of heart valves favorably impacted our 2006 full-year gross profit by approximately $5.3 million and improved our 2006 gross profit percentage of net sales by approximately 13 percentage points. Our gross profit as a percentage of net sales was also favorably impacted by our new business initiatives and partnerships discussed above. Revenue and gross profits from our new business initiatives also caused 2006 and 2005 full-year gross profit percentages to be higher by approximately 2.7 and 4.0 percentage points, respectively, as compared to the prior year. Our 2006 gross profit as a percentage of net sales was negatively impacted by 1) lower international ASPs, as discussed above, 2) 3F manufacturing variances incurred during the transition and integration into ATS, and 3) year-end foreign currency translation adjustments. These three factors combined to lower our 2006 full-year gross margin as a percentage of net sales by approximately 2.7 percentage points. During 2005 and 2004, we developed and implemented a plan to ramp-up our manufacturing facility for pyrolytic carbon. By the end of 2005, this process was substantially complete. Ramp-up costs totaled approximately $1.8 million and $1.9 million, lowering our full-year gross margin as a percentage of net sales by 5.1 and 6.7 percentage points for 2005 and 2004, respectively. We made write-downs to our inventories from 2001 through 2005 due to future selling prices being lower than manufacturing costs in select international markets. These write-downs resulted in LCM inventory reserves, which were used as high-cost pyrolytic carbon components purchased from CarboMedics were sold into low selling-price international markets. We recorded LCM write-downs of $0.7 million in 2005 and $0.8 million in 2004, which lowered our full-year gross profit percentage of net sales by 2.0 and 2.9 percentage points, respectively. During the first quarter of 2006, the remaining LCM reserves were fully utilized in connection with the depletion of our high-priced but paid-for inventories of carbon components discussed above. Consequently, there were no LCM inventory write-downs recorded in 2006. The ATS mechanical heart valve is made of materials that do not deteriorate. Other than the need to resterilize the valves periodically, there is no risk of perishability. Pyrolytic carbon, which is the substrate used in manufacturing our valves, has been the only material used to manufacture mechanical heart valves for humans for many years and remains the most advanced raw material for our products. The other sources of prosthetic heart valves for humans are cadaver and animal tissues. For our mechanical heart valves, obsolescence issues are remote due to certain advantages offered by mechanical heart valves, including superior durability. Similarly, we believe that, given the 32 lead time that would be required, there is no material risk that there would be the introduction and FDA approval of another substrate that would replace pyrolytic carbon prior to the end of the period over which we expect to sell our inventory of valves. SALES AND MARKETING. In the United States, our sales and marketing costs rose approximately 6% in both 2006 and 2005 over the prior year, to $14.4 million and $13.6 million, respectively. The 2006 increase is due primarily to $0.6 million of stock compensation expense recognized in 2006 as we implemented Statement 123(R) effective January 1, 2006. Sales and marketing costs in the United States have increased in both 2006 and 2005 as a result of the development of marketing programs to support new products and services and to increase the U.S. market share of our mechanical heart valve. During the past four years, our domestic sales and marketing organization has steadily grown to more than 25 sales territories in the United States and now includes a marketing department with 15 employees. Internationally, our sales and marketing costs increased over the prior year approximately 23% in 2006 and 46% in 2005, to $6.6 million and $5.4 million, respectively. The increases in 2006 reflect our continued investment in international markets, including the early 2005 set up of direct sales operations in Germany, the establishment of a European support office in the third quarter of 2006 to support the expansion of our direct operations in Europe and higher sales and marketing expenses in Eastern Europe, Asia and China. The cost increases in 2005 also reflect separation costs in France and increased sales management. During the last four years we have established sales and/or distribution operations in France (2003), China (2004), Germany (2005), and Austria (2006). RESEARCH AND DEVELOPMENT. Research and development ("R & D") increased 95% in 2006 and 71% in 2005 over the prior year due to costs to develop and improve current and future products and the costs for regulatory and clinical activities for these products. The 2006 increase in R & D reflects the addition, in the fourth quarter of 2006, of approximately $1.3 million of research, clinical and regulatory costs for 3F. The increases in R & D spending for both 2006 and 2005 also reflect staff additions, as well as an increase in the number of R & D programs. IN-PROCESS R & D. In connection with our acquisition of 3F, we recorded a non-recurring in-process R & D charge of $14.4 million in the third quarter of 2006. See Note 2 of "Notes to Consolidated Financial Statements" in this report for additional information disclosing the acquisition, including the purchase price and the preliminary allocation of the purchase price. The in-process R & D relates to the Enable sutureless tissue valve product line. We used the income approach to determine the fair value of IPR&D, applying a risk adjusted discount rate of 37% to the development project's projected cash flows. Enable clinical trials have begun in Europe. European market approval is anticipated in 2009 or 2010 with United States approval to follow approximately 1 year later. The development effort is subject to risks associated with the ultimate clinical efficacy of the Enable product line as well as the results and high costs of the clinical trials. DISTRIBUTOR TERMINATION EXPENSE. In December 2006, we executed agreements with an international distributor in Europe providing for the termination of the distributor, the conversion of the distributor to a commissioned sales representative effective January 1, 2007, and the buy-back of the distributor's remaining inventory stock. At December 31, 2006, we accrued termination payments to be made to the distributor totaling approximately $0.7 million, payable in two equal installments in the fourth quarter of 2007 and the first quarter of 2008. The value of the inventory to be bought back in 2007 totals approximately $0.7 million. GENERAL AND ADMINISTRATIVE. During 2006, major cost increases in general and administrative ("G & A") expenses over 2005 were incurred for outside consulting, legal and professional services of $0.8 million, bad debt expense of $0.5 million ($0.3 million of which related to the termination of an international distributor); $0.3 million for bonuses and incentive compensation, and $0.1 million for amortization of intangible assets acquired in connection with our acquisition of 3F. These increases were partially offset by the allocation of 401(k) company match expense from G & A to individual operating departments beginning in 2006. During 2005, major cost increases in G & A expenses were for employee salary and benefits of $0.3 million, non-cash stock compensation and bonus expense of $0.6 million, legal fees of $0.3 million in support of business development, corporate insurance costs of $0.1 million and outside consulting services of $0.1 million relating primarily to Board of Directors fees. 33 We recognized total stock compensation expense in 2006 of $1.1 million, of which $0.5 million was included in G & A expenses and $0.6 million in sales and marketing expenses. Of the $1.1 million total stock compensation expense for 2006, approximately $0.5 million was attributable to the implementation of Statement 123(R). Stock compensation expense for 2005 totaled $0.6 million, all of which was charged to G & A. In December 2005, we authorized the acceleration of vesting of all otherwise unvested stock options held by our employees with an exercise price of $3.00 or greater that had been granted under the Stock Incentive Plan or as a free standing option not under any plan. Options to purchase 1,294,232 shares of common stock (affecting 86 employees) were subject to this acceleration. The decision to accelerate vesting of these options was made primarily to minimize future compensation expense that we would otherwise recognize in our consolidated statement of operations with respect to these options pursuant to Statement 123(R). NET INTEREST INCOME (EXPENSE). In 2006 and 2005, net interest expense was attributable primarily to the October 2005 sale of $22.4 million aggregate principal amount of 6% Convertible Senior Notes, discussed further below. Interest expense on these Notes in 2006 and 2005 was $2.1 million and $0.4 million, respectively, which also includes amortization of (1) financing costs, (2) the discount related to the implied value of common stock warrants sold with the Notes, and (3) the discounts related to the bifurcated Convertible Senior Notes derivatives. See Note 7 of "Notes to Consolidated Financial Statements" in this Report for more information regarding the Convertible Senior Notes conversion feature. Interest expense in 2004 through 2006 was also attributable to the credit facility and bank notes with Silicon Valley Bank, as well as the amortization of the financing costs to set up the credit facility. Interest income was $0.7 million, $0.3 million, and $0.2 million in 2006, 2005 and 2004, respectively, and is attributable to the investment of our cash balances. CHANGE IN VALUE OF DERIVATIVE LIABILITY BIFURCATED FROM CONVERTIBLE SENIOR NOTES. During 2006 and 2005, we recorded non-operating favorable adjustments totaling $1.5 million and $2.1 million, respectively, for the change in the Convertible Senior Notes derivative liability to fair value. See Note 7 of "Notes to Consolidated Financial Statements" in this Report for more information regarding the Convertible Senior Notes derivative liability and our accounting for the related derivative financial instruments under SFAS No.133, Accounting for Derivative Instruments and Hedging Activities. INCOME TAXES. We have accumulated approximately $135 million of net operating loss ("NOL") carryforwards for U.S. tax purposes. We believe that our ability to fully utilize the existing NOL carryforwards could be restricted on a portion of the NOL for changes in control that may have occurred or may occur in the future and our ability to generate net income. We have not conducted a formal study of whether a change in control of ATS has occurred in the past that impairs our NOL carryforwards because we are unable to utilize such NOL carryforwards until we achieve profitability and because this study would be very expensive to complete. When we attain profitability, we will conduct a formal study of any restrictions on our carryforwards. We have not recorded any deferred tax asset related to our NOL carryforwards and other deferred items as we currently cannot determine that it is more likely than not that this asset will be realized and we, therefore, have provided a valuation allowance for the entire asset. NET LOSS. Our net losses in 2006, 2005 and 2004 were $27.7 million, $14.4 million and $16.6 million. The decrease in our net loss from 2004 to 2005 was due primarily to net sales increasing more than operating expenses. In 2006, the increase in net sales was offset by the $14.4 million non-recurring, in-process R & D charge discussed above. LIQUIDITY AND CAPITAL RESOURCES Cash, cash equivalents, and short-term investments totaled $10.7 million and $21.7 million at December 31, 2006 and December 31, 2005, respectively. OPERATING ACTIVITIES. During 2006, we received cash payments from customers of approximately $41.5 million and made payments to employees and suppliers of approximately $49.4 million. During 2005, we received cash payments from customers of approximately $32.1 million and made payments to employees and suppliers of approximately $42.5 million. Our operating losses during 2004, 2005 and 2006 were significantly funded through the depletion of inventories. Since 2002, we have incurred significant expenses to commercialize the ATS heart valve in the United States. As we build sales in future periods and our cost of inventories decrease, we believe our 34 operating losses will decrease and we will move steadily towards a cash flow breakeven on sales and eventually to profitability. INVESTING ACTIVITIES. In 2006, we incurred $3.3 million of transaction costs related to the acquisition of 3F, including professional, investment banking, attorneys and accounting fees, offset by $2.6 million in cash acquired in the transaction. In connection with our global partnership agreements with CryoCath, we have made license fee payments totaling $0.2 million in 2006 and $1.6 million in 2005. These payments are refundable to us upon cancellation of the agreements. In connection with our exclusive development and licensing agreement with ErySave, we have made milestone payments totaling $0.3 million in 2006, $0.3 million in 2005 and $0.2 million in 2004. Future payments under the ErySave agreement, based upon the attainment of developmental milestones, could total an additional $0.7 million. These payments are expected to occur during 2007 and 2008. We purchased property and equipment of $1.2 million, $2.3 million and $2.9 million during 2006, 2005 and 2004, respectively. Capital purchases during 2005 and 2004 were mainly in support of increasing production in our pyrolytic carbon facility. During 2006, our spending on property and equipment declined as a significant portion of our pyrolytic carbon facility was completed by the end of 2005. FINANCING ACTIVITIES. We received net proceeds of $0.1 million, $0.5 million and $0.8 million during 2006 and 2005 and 2004, respectively, from the issuance of common stock through exercises of stock options and purchases under our employee stock purchase plan. In 2004, we raised $12.4 million through a private placement equity offering, net of offering costs. Also in 2004 we entered into a secured credit facility consisting of a $2.5 million term note and a $6.0 million line of credit. We fully drew down the $2.5 million term note, which was used to fund equipment purchases for our pyrolytic carbon facility. The term note calls for equal installment payments over 36 months, which commenced in 2005. Accordingly, we made repayments on the note totaling $0.8 million in both 2006 and 2005. In March 2006, we entered into an amendment to the secured credit facility whereby the bank agreed to waive the prohibition set forth in the credit facility agreement with respect to our acquisition of 3F, and the bank consented to such acquisition. In addition, the bank agreed to provide for advances of up to $1.5 million that we could use to finance or refinance eligible equipment purchased on or after June 1, 2005 and on or before May 31, 2006. We fully drew down the $1.5 million advance amount. Such equipment advances will be amortized over a 60 month period and carry an interest rate of prime plus 1.75%. Repayments on this note in 2006 totaled $0.1 million. We were subject to certain financial covenants under the secured credit facility agreement, as amended, to maintain a liquidity ratio of not less than 2.0 to 1.0 and a net tangible net worth of at least $40 million. At December 31, 2006, the Company was not in compliance with the liquidity ratio covenant. On February 20, 2007, the Company entered into an amendment to the agreement whereby the liquidity ratio was decreased to be equal to or greater than 1.6 to 1.0 and the tangible net worth requirement was eliminated, bringing the Company into compliance with the liquidity ratio covenant at December 31, 2006. The February 2007 amendment also terminated the line of credit under which we had no outstanding balance at December 31, 2006. In October 2005, we sold a combined $22.4 million aggregate principal amount of 6% Convertible Senior Notes ("Notes") due in 2025, warrants to purchase 1,344,000 shares of our common stock ("Warrants") and certain embedded derivatives. The Warrants are exercisable at $4.40 per share and expire in 2010. We are using the proceeds from the Notes for general corporate purposes, working capital, capital expenditures and to fund business development opportunities. The first two interest payments on these Notes were paid in April and October 2006. The Notes are convertible into common stock at any time at a fixed conversion price of $4.20 per share, subject to certain adjustments. If fully converted, the Notes would convert into approximately 5,333,334 shares of our common stock. If the Notes are converted under certain circumstances on or prior to October 15, 2008, we will pay the investors the interest they would have received on the Notes through that date. We have the right to redeem the Notes at 100% of the principal amount plus accrued interest at any time on or after October 20, 2008, and the investors have the right to require us to repurchase the Notes at 100% of the principal amount plus accrued interest on October 15 in 2010, 2015 and 2020. See Note 7 of "Notes to Consolidated Financial Statements" in this Form 10-K for a full description of the terms and provisions of the Notes. 35 CASH MANAGEMENT We estimate that operating costs will remain high in comparison to sales during 2007 and will require the use of cash to fund operations. We will draw down cash balances to fund operations during 2007. Based upon the current forecast of sales and operating expenses, we anticipate having cash to fund our operations through 2007. We may raise additional cash in 2007 to provide operating plan leverage, to fund our strategic investments and accelerate the development platforms for our 3F tissue technologies and PARSUS, or to opportunistically add accretive products to our distribution network. As identified in Item 1A of this Form 10-K, any adverse change that affects our revenue, access to the capital markets or future demand for our products will affect our long-term viability. Maintaining adequate levels of working capital depends in part upon the success of our products in the marketplace, the relative profitability of those products and our ability to control operating and capital expenses. Funding of our operations in future periods may require additional investments in ATS in the form of equity or debt. Any sale of additional equity or issuance of debt securities may result in dilution to our stockholders, and we cannot be certain that additional public or private financing will be available in amounts or on terms acceptable to us, or at all. If we are unable to obtain this additional financing when needed, we may be required to delay, reduce the scope of, or eliminate one or more aspects of our business development activities, which could harm the growth of our business. OFF-BALANCE SHEET ARRANGEMENTS We do not have any "off-balance sheet arrangements" (as such term is defined in Item 303 of Regulation S-K) that are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, operating results, liquidity, capital expenditures or capital resources. CONTRACTUAL OBLIGATIONS The following table sets forth our future payment obligations:
Payments Due By Period ------------------------------------------------- Less One to Three to More than Than Three Five Five (in thousands) Total One year Years Years Years - ----------------------------- ------- -------- -------- -------- --------- Convertible notes payable (1) $47,936 $ 1,344 $ 4,032 $ 4,032 $38,528 Bank notes payable (1) 2,674 1,308 1,366 -- -- Operating leases 2,711 812 1,856 43 -- Purchase obligations (2) 21,750 5,000 15,000 1,750 -- ------- ------- ------- ------- ------- Total $75,071 $ 8,464 $22,254 $ 5,825 $38,528 ======= ======= ======= ======= =======
(1) Includes interest payments. (2) Includes MHV component purchases under our supply agreement with CarboMedics. CarboMedics has filed a complaint against us alleging that we breached certain obligations including an alleged obligation to purchase these components. We believe that the complaint is without merit, that CarboMedics has repudiated and breached the supply agreement, and that we have affirmative claims against CarboMedics. See Item 3 "Legal Proceedings - CarboMedics Litigation." CAUTIONARY STATEMENTS This document contains forward-looking statements within the meaning of federal securities laws that may include statements regarding intent, belief or current expectations of ATS and our management. The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements to encourage companies to provide prospective information without fear of litigation so long as those statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause 36 actual results to differ materially from those projected in the statement. We desire to take advantage of these "safe harbor" provisions. Accordingly, we have identified in Item 1A of this Form 10-K important risk factors which could cause our actual results to differ materially from any such results which may be projected, forecast, estimated or budgeted by us in forward-looking statements made by us from time to time in reports, proxy statements, registration statements and other written communications, or in oral forward-looking statements made from time to time by our officers and agents. We do not intend to update any of these forward-looking statements after the date of this Form 10-K to conform them to actual results. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The primary objective of our investment activities is to preserve principal while at the same time maximizing the income we receive from our investments without significantly increasing risk. Some of the securities that we invest in may have market risk. This means that a change in prevailing interest rates may cause the fair market value of the principal amount of the investment to fluctuate. For example, if we hold a security that was issued with a fixed interest rate at the then prevailing rate and the prevailing interest rate later rises, the fair value of the principal amount of our investment will probably decline. To minimize this risk, our portfolio of cash equivalents and short-term investments may be invested in a variety of securities, including commercial paper, money market funds, and both government and non-government debt securities. The average duration of all our investments has generally been less than one year. Due to the short-term nature of these investments, we believe we have no material exposure to interest rate risk arising from our investments. In the United States, Canada, the United Kingdom, France and Germany, we sell our products directly to hospitals. In other international markets, we sell our products to independent distributors who, in turn, sell to medical hospitals. Loss, termination, or ineffectiveness of distributors to effectively promote our product would have a material adverse effect on our financial condition and results of operations. Transactions with U.S. and non-U.S. customers and distributors, other than in France, Germany and the United Kingdom, are entered into in U.S. dollars, precluding the need for foreign currency hedges on such sales. Sales through our French and German subsidiaries are in Euros and sales to the United Kingdom through our European export company are denominated in pounds, so we are subject to profitability risk arising from exchange rate movements. We have not used foreign exchange contract or similar devices to reduce this risk. We will evaluate the need to use foreign exchange contracts or similar devices, if sales in France and Germany increase substantially. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Our Consolidated Financial Statements and the reports of our registered public accounting firm are included in this Annual Report on Form 10-K beginning on page F-1. The index to this report and the financial statements is included in Item 15 below. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not Applicable. ITEM 9A. CONTROLS AND PROCEDURES EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES We maintain disclosure controls and procedures, which are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer, or CEO, and acting chief financial officer, or acting CFO, as appropriate to allow timely decisions regarding required disclosure. 37 Under the supervision and with the participation of our management, including our CEO and acting CFO, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this annual report. Based on that evaluation, our management, including the CEO and acting CFO, concluded that our disclosure controls and procedures were effective as of December 31, 2006. MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Our internal control system was designed to provide reasonable assurance to our management and Board of Directors regarding the preparation and fair presentation of our published financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Under the supervision and with the participation of our management, including our CEO and acting CFO, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in "Internal Control -- Integrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). During 2006, we acquired 3F. As permitted by the Securities and Exchange Commission ("SEC"), we excluded the 3F operations from our assessment of internal controls over financial reporting as of December 31, 2006. 3F constituted approximately 17 percent of total assets as of December 31, 2006 and less than one percent of net sales for the year then ended. Based on our evaluation under the framework in "Internal Control -- Integrated Framework," our management concluded that our internal control over financial reporting was effective as of December 31, 2006. Management's assessment of the effectiveness of internal control over financial reporting as of December 31, 2006, has been audited by Grant Thornton LLP, the independent registered public accounting firm who also has audited our consolidated financial statements as of and for the year ended December 31, 2006, included in this Form 10-K. Grant Thornton's attestation report on management's assessment of our internal control over financial reporting appears on page F-2 of this Form 10-K. CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the fiscal quarter ended December 31, 2006 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 38 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE See Part I of this Report for certain information regarding our executive officers. Pursuant to General Instruction G (3), reference is made to information contained under the headings "Proposal 1 - Election of Directors", "Committees of the Board of Directors", "Nominations", "Code of Conduct", and "Section 16(a) Beneficial Ownership Reporting Compliance" in our definitive proxy statement for our 2007 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission on or before April 30, 2007, which information is incorporated herein. ITEM 11. EXECUTIVE COMPENSATION Pursuant to General Instruction G (3), reference is made to information contained under the headings "Executive Compensation" and "Compensation of Directors" in our definitive proxy statement for our 2007 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission on or before April 30, 2007, which information is incorporated herein. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Pursuant to General Instruction G (3), reference is made to information contained under the heading "Security Ownership of Certain Beneficial Owners and Management" and "Equity Compensation Plans" in our definitive proxy statement for our 2007 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission on or before April 30, 2007, which information is incorporated herein. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Pursuant to General Instruction G (3), reference is made to information contained under the headings "Director Independence" and "Related Person Transaction Policy" in our definitive proxy statement for our 2007 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission on or before April 30, 2007, which information is incorporated herein. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Reference is made to information contained under the heading "Independent Registered Public Accounting Firm Fees" in our definitive proxy statement for our 2007 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission on or before April 30, 2007, which information is incorporated herein. 39 PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES FINANCIAL STATEMENTS Our Consolidated Financial Statements and the Independent Registered Public Accounting Firm's Reports thereon are included herein (page numbers refer to pages following the signature page of this Annual Report on Form 10-K): Reports of Independent Registered Public Accounting Firms Page F-1 through F-4 Consolidated Balance Sheets as of December 31, 2006 and 2005 Page F-5 Consolidated Statements of Operations for the years ended December 31, 2006, 2005, and 2004 Page F-6 Consolidated Statement of Changes in Shareholders' Equity for the years ended December 31, 2006, 2005, and 2004 Page F-7 Consolidated Statements of Cash Flows for the years ended December 31, 2006, 2005, and 2004 Page F-8 Notes to Consolidated Financial Statements for the years ended December 31, Page F-9 through 2006, 2005, and 2004 F-27
40 FINANCIAL STATEMENT SCHEDULES ATS MEDICAL, INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (in thousands)
ADDITIONS - ------------------------ CHARGED TO BALANCE AT CHARGED TO OTHER BALANCE AT BEGINNING COSTS AND ACCOUNTS - DEDUCTIONS - END OF DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD - ------------------------------------- ---------- ---------- ----------- ------------ ---------- VALUATION ACCOUNTS: Deducted from asset accounts: YEAR ENDED DECEMBER 31, 2006: Allowance for doubtful accounts $360 $493 $ 11(4) $(327)(1) $537 Allowance for obsolete inventories $215 $ 50 $436(3) $ (93)(2) $608 YEAR ENDED DECEMBER 31, 2005: Allowance for doubtful accounts $388 $ 0 $ 0 $ (28)(1) $360 Allowance for obsolete inventories $200 $ 50 $ 0 $ (35)(2) $215 YEAR ENDED DECEMBER 31, 2004: Allowance for doubtful accounts $270 $150 $ 0 $ (32)(1) $388 Allowance for obsolete inventories $200 $ 0 $ 0 $ 0 $200
(1) Uncollectible accounts written off, net of recoveries. (2) Changes in estimate recovered through a reduction in expenses. (3) Obsolescence reserve for inventories recorded in connection with the purchase accounting for the 3F acquisition. (4) Allowance for doubtful accounts recorded in connection with the purchase accounting for the 3F acquisition. All other schedules have been omitted because of absence of conditions under which they are required or because the required information is included in the financial statements or notes thereto. EXHIBITS EXHIBIT NUMBER DESCRIPTION - ------ -------------------------------------------------------------------- 2.1*** Agreement and Plan of Merger, dated as of January 23, 2006, by and among ATS Medical, Inc., Seabiscuit Acquisition Corp.; 3F Therapeutics, Inc.; and Boyd D. Cox, as Stockholder Representative (Incorporated by reference to Exhibit 10.1of the Company's Current Report on Form 8-K filed on January 26, 2006). 2.2 Amendment No. 1 to Agreement and Plan of Merger, dated as of June 13, 2006, by and among ATS Medical, Inc., Seabiscuit Acquisition Corp., 3F Therapeutics, Inc. and Boyd D. Cox, as stockholder representative (Incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed on June 19, 2006). 2.3 Amendment No. 2 to Agreement and Plan of Merger, dated as of August 10, 2006, by and among the Company, Seabiscuit Acquisition Corp., 3F Therapeutics, Inc. and Boyd D. Cox, as stockholder representative (Incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed on August 15, 2006). 2.4 Escrow Agreement, effective as of September 29, 2006, by and among the Company, Boyd D. Cox, as stockholder representative and Wells Fargo Bank, N.A., filed herewith. 41 2.5*** Option and Asset Purchase Agreement, dated as of May 31, 2005, by and among ATS Medical, Inc., em Vascular, Inc., Keith L. March, M.D., John Havek, Walter L. Sembrowich and James E. Shapland II, filed herewith. 2.6 Letter Amendment, dated as of November 29, 2006, to the Option and Asset Purchase Agreement, dated as of May 31, 2005, by and among ATS Medical, Inc., em Vascular, Inc., Keith L. March, M.D., John Havek, Walter L. Sembrowich and James E. Shapland II, filed herewith. 3.1 Second Restated Articles of Incorporation of ATS Medical, Inc. (Incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2006 (the "September 2006 Form 10-Q")). 3.2 Bylaws of the Company, as amended February 13, 2007 (Incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on February 20, 2007). 4.1 Specimen certificate for shares of common stock of the Company (Incorporated by reference to Exhibit 4.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997 (the "1997 Form 10-K")). 4.2 Indenture, dated as of October 7, 2005, between ATS Medical, Inc. and Wells Fargo Bank, National Association, as Trustee (Incorporated by reference to Exhibit 4.1 of the Company's Current Report on Form 8-K filed on October 12, 2005 (the "October 12, 2005 Form 8-K")). 4.3 First Supplemental Indenture, dated October 13, 2005, to the Indenture dated as of October 7, 2005, by and between ATS Medical, Inc. and Wells Fargo Bank, National Association, as Trustee (Incorporated by reference to Exhibit 4.3 of the Company's October 18, 2005 Form 8-K). 4.4 Form of 6% Convertible Senior Notes due 2025 (Incorporated by reference to Exhibit 4.1 of the Company's Current Report on Form 8-K filed on October 18, 2005 (the "October 18, 2005 Form 8-K")). 4.5 Form of Warrant (Incorporated by reference to Exhibit 4.2 of the Company's October 18, 2005 Form 8-K). 10.1** 1987 Stock Option and Stock Award Plan, as restated and amended to date (Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997). 10.2** ATS Medical Inc. 2000 Stock Incentive Plan, as amended through September 25, 2006 (Incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on September 29, 2006). 10.3 Reserved. 10.4 Lease Agreement between the Company and Crow Plymouth Land Limited Partnership dated December 22, 1987 (Incorporated by reference to Exhibit 10(d) to the Company's Registration Statement on Form S-18, File No. 33-34785-C (the "Form S-18")). 10.5 Amendment No. 1 to Lease Agreement between the Company and Crow Plymouth Land Limited Partnership, dated January 5, 1989 (Incorporated by reference to Exhibit 10(e) to the Form S-18). 10.6 Amendment No. 2 to Lease Agreement between the Company and Crow Plymouth Land Limited Partnership, dated January 1989 (Incorporated by reference to Exhibit 10(f) to the Form S-18). 10.7 Amendment No. 3 to Lease Agreement between the Company and Crow Plymouth Land Limited Partnership, dated June 14, 1989 (Incorporated by reference to Exhibit 10(g) to the Form S-18). 42 10.8 Amendment No. 4 to Lease Agreement between the Company and Plymouth Business Center Limited Partnership, dated February 10, 1992 (Incorporated by reference to Exhibit 10.8 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996 (the "1996 Form 10-K")). 10.9* O.E.M. Supply Contract dated September 24, 1990, with CarboMedics, Inc. (Incorporated by reference to Exhibit 10.10 to the 1996 Form 10-K). 10.10* License Agreement dated September 24, 1990, with CarboMedics, Inc. (Incorporated by reference to Exhibit 10.11 to the 1996 Form 10-K). 10.11** Employment Agreement between the Company and Michael D. Dale dated September 18, 2002 (Incorporated by reference to Exhibit 10.12 to the Company's Form 10-K for the year ended 2002 (the "2002 Form 10-K")). 10.12 Helix BioCore, Inc. Self-Insurance Trust Agreement dated February 28, 1991 (Incorporated by reference to Exhibit 10.13 to the 1996 Form 10-K). 10.13* Amendment 1 to License Agreement dated December 16, 1993, with CarboMedics, Inc. (Incorporated by reference to Exhibit 10.17 to the 1993 Form 10-K). 10.14* Amendment 4 to O.E.M. Supply Contract dated December 16, 1993, with CarboMedics, Inc. (Incorporated by reference to Exhibit 10.18 to the 1993 Form 10-K). 10.15* Amendment 5 to O.E.M. Supply Contract dated September 1, 1994, with CarboMedics, Inc. (Incorporated by reference to Exhibit 10.19 to the 1994 Form 10-K). 10.16 Letter Agreement between the Company and Sulzer CarboMedics, Inc., dated June 27, 2002 (Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 20, 2002). 10.17 Form of International Distributor Agreement (Incorporated by reference to Exhibit 10.22 to the 1994 Form 10-K). 10.18 Reserved. 10.19 Amendment No. 5 to Lease Agreement between the Company and St. Paul Properties, Inc., dated May 30, 1996 (Incorporated by reference to Exhibit 10.22 to the 1996 Form 10-K). 10.20 Reserved. 10.21 Amendment No. 6 to Lease Agreement between the Company and St. Paul Properties, Inc., dated November 25, 1997 (Incorporated by reference to Exhibit 10.23 to the 1997 Form 10-K). 10.22 1998 Employee Stock Purchase Plan, as amended through September 25, 2006 (Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on September 29, 2006). 10.23 Reserved. 10.24* Carbon Agreement by and between Sulzer CarboMedics, Inc. and ATS Medical, Inc., dated December 29, 1999 (Incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K filed on January 13, 2000 (the "January 2000 Form 8-K"). 10.25* Amendment 7 to OEM Supply Contract by and between Sulzer CarboMedics, Inc. and ATS Medical, Inc., dated December 29, 1999 (Incorporated by reference to Exhibit 99.2 to the January 2000 Form 8-K). 43 10.26* Amendment 2 to License Agreement by and between Sulzer CarboMedics, Inc. and ATS Medical, Inc., dated December 29, 1999 (Incorporated by reference to Exhibit 99.3 to the January 2000 Form 8-K). 10.27 Amendment No. 7 to Lease Agreement between the Company and St. Paul Properties, Inc., dated May 18, 2000 (Incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000). 10.28 Lease Agreement between the Company and St. Paul Properties, Inc., dated April 29, 2000 (Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000). 10.29 Amendment No. 8 to Lease Agreement between the Company and St. Paul Properties, Inc., dated December 14, 2000 (Incorporated by reference to Exhibit 10.32 to the Company's Annual Report on Form 10-K for the year ended December 31, 2000 (the "2000 Form 10-K")). 10.30* Amendment 8 to OEM Supply Contract by and between Sulzer CarboMedics, Inc. and ATS Medical, Inc., dated November 3, 2000 (Incorporated by reference to Exhibit 10.33 to the 2000 Form 10-K). 10.31 Form of U.S. Distribution Agreement (Incorporated by reference to Exhibit 10.34 to the 2002 Form 10-K). 10.32 Amendment No. 9 to Lease Agreement between the Company and St. Paul Properties, Inc., dated September 8, 2003 (Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2003). 10.33** Form of Employee Stock Option Agreement under the company's 2000 Stock Incentive Plan (Incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report of Form 10-Q for the quarter ended September 30, 2004 (the "September 2004 Form 10-Q")). 10.34** Form of Non-Qualified Stock Option Agreement under the Company's 2000 Stock Incentive Plan (Incorporated by reference to Exhibit 10.3 to the Company's September 2004 Form 10-Q). 10.35** Form of Non-Plan Non-Qualified Stock Option Agreement (Incorporated by reference to Exhibit 10.4 to the Company's September 2004 Form 10-Q). 10.36* Development and License Agreement dated as of April 26, 2004 between the Company and ErySave AB (Incorporated by reference to Exhibit 10.1 to the Company's September 2004 Form 10-Q). 10.37 Credit Agreement between Silicon Valley Bank and the Company, dated July 28, 2004 (Incorporated by reference to Exhibit 10.1 to the Company's September 2004 Form 10-Q). 10.38 Amendment No. 10 to Lease Agreement between the Company and St. Paul Properties, Inc. dated as of October 1, 2004 (Incorporated by reference to Exhibit 10.40 to the Company's Annual Report on Form 10-K for the year ended December 31, 2004 (the "2004 Form 10-K")). 10.39* Agent Agreement dated November 9, 2004 between the Company and CryoCath Technologies, Inc. (Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on May 10, 2005). 10.40* Distribution Agreement dated November 9, 2004 between the Company and CryoCath Technologies, Inc. (Incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on May 10, 2005). 44 10.41 Letter Agreement between the Company and Centerpulse USA Holding Co. dated July 9, 2003 (Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on September 26, 2003). 10.42 Amendment dated June 22, 2005, to Development and License Agreement between the Company and ErySave AB (Incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the quarter June 30, 2005 (the "June 2005 Form 10-Q")). 10.43* Marketing Services Agreement with Alabama Tissue Center, Inc. (also known as Regeneration Technologies, Inc. - Cardiovascular), a subsidiary of Regeneration Technologies, Inc., effective as of July 21, 2005 (Incorporated by reference to Exhibit 10.43 of the Company's Annual Report on Form 10-K for the year ended December 31, 2005 (the "2005 Form 10-K")). 10.44* Exclusive Development, Supply and Distribution Agreement with Genesee BioMedical, Inc., dated June 23, 2005 (Incorporated by reference to Exhibit 10.44 of the 2005 Form 10-K). 10.45 Amendment Agreement, dated March 24, 2005, to the Credit Agreement between Silicon Valley Bank and the Company, dated July 28, 2004 (Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on March 30, 2005). 10.46** 2005 ATS Medical Management Incentive Compensation Plan (Incorporated by reference to Exhibit 10.2 of the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2005). Quarterly Report on Form 10-Q for the quarter ended March 31, 2005). 10.47 Securities Purchase Agreement, dated as of October 6, 2005, by and among ATS Medical, Inc. and the Buyers listed on the Schedule of Buyers attached thereto as Exhibit A (Incorporated by reference to Exhibit 10.1 of the Company's October 12, 2005 Form 8-K). 10.48 Amendment No. 1, dated October 12, 2005, to the Securities Purchase Agreement by and among ATS Medical, Inc. and the Buyers listed therein, dated as of October 6, 2005 (Incorporated by reference to Exhibit 10.1 of the Company's October 18, 2005 Form 8-K). 10.49 Registration Rights Agreement, dated as of October 7, 2005, by and among ATS Medical, Inc. and the Buyers listed on the Schedule of Buyers attached thereto as Exhibit A (Incorporated by reference to Exhibit 10.2 of the Company's October 12, 2005 Form 8-K). 10.50 Amendment No. 1, dated October 13, 2005, to the Registration Rights Agreement by and among ATS Medical, Inc. and the Buyers listed therein, dated as of October 7, 2005 (Incorporated by reference to Exhibit 10.2 of the Company's October 18, 2005 Form 8-K). 10.51 Warrant Agent Agreement, dated as of October 7, 2005, between ATS Medical, Inc. and Wells Fargo Bank, National Association, as Warrant Agent (Incorporated by reference to Exhibit 10.3 of the Company's October 12, 2005 Form 8-K). 10.52** Form of Lock-Up Agreement with Executive Officers (Incorporated by reference to Exhibit 99.1 of the Company's Current Report on Form 8-K filed on December 29, 2005). 10.53** Form of Restricted Stock Unit Agreement under the Company's 2000 Stock Incentive Plan (Incorporated by reference to Exhibit 10.53 of the 2005 Form 10-K). 10.54 Amendment, dated March 29, 2006, to the Loan and Security Agreement between Silicon Valley Bank and the Company, dated July 28, 2004 (Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on April 3, 2006). 10.55** 2006 ATS Medical Management Incentive Compensation Plan (Incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2006 (the "June 2006 Form 10-Q")). 45 10.56** Form of Change in Control Agreement executed by executive officers of the Company (Incorporated by reference to Exhibit 10.2 to the Company's June 2006 Form 10-Q). 10.57* Exclusive Distribution Agreement, effective as of October 1, 2006, by and between the Company and Novare Surgical Systems, Inc. (Incorporated by reference to Exhibit 10.1 to the Company's September 2006 Form 10-Q). 10.58 Amendment No. 2 dated September 1, 2006, to Original Lease Agreement dated April 29, 2000, by and between the Company and St. Paul Properties, Inc. (Incorporated by reference to Exhibit 10.2 to the Company's September 2006 Form 10-Q). 10.59 Amendment No. 11 dated September 1, 2006, to Original Lease Agreement dated December 22, 1987, by and between the Company and St. Paul Properties, Inc. (Incorporated by reference to Exhibit 10.3 to the Company's September 2006 Form 10-Q). 10.60 Amendment, dated August 15, 2006, to the Loan and Security Agreement between Silicon Valley Bank and the Company, dated July 28, 2004 (Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on August 17, 2006). 10.61* Amendment, effective as of January 1, 2007, to Marketing Services Agreement with Alabama Tissue Center, Inc., (also known as Regeneration Technologies, Inc. - Cardiovascular), filed herewith. 10.62** Restricted Stock Unit Award Agreement, dated as of December 7, 2006, between the Company and Richard A. Curtis (Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on December 13, 2006). 10.63** Form of Restricted Stock Unit Award Agreement for awards to Non-Employee Directors under 2000 Stock Incentive Plan (Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on February 20, 2007). 10.64 Amendment Agreement, dated February 15, 2007, to the Loan and Security Agreement between Silicon Valley Bank and the Company, dated July 28, 2004 (Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on February 23, 2007). 21 List of Subsidiaries. 23.1 Consent of Grant Thornton LLP. 23.2 Consent of Ernst & Young LLP. 31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, filed herewith. 31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, filed herewith. 32.1 Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith. 32.2 Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith. 46 - ---------- * Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, confidential portions of these exhibits have been deleted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment. ** Represents a management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 15 of Form 10-K. *** Exhibits and Schedules to the Merger Agreement have been omitted but will be provided supplementally to the Securities and Exchange Commission upon request. 47 SIGNATURES Pursuant to the requirements of 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. Dated: March 15, 2007 ATS MEDICAL, INC. By /s/ Michael D. Dale ----------------------------------- Michael D. Dale 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 indicated on March 15, 2007. SIGNATURE TITLE Chief Executive Officer, President and Chairman of the Board /s/ Michael D. Dale (principal executive officer) - -------------------------------- Michael D. Dale Acting Chief Financial Officer /s/ Michael R. Kramer (principal financial and accounting officer) - -------------------------------- Michael R. Kramer /s/ Steven M. Anderson Director - -------------------------------- Steven M. Anderson /s/ Theodore C. Skokos Director - -------------------------------- Theodore C. Skokos /s/ Robert E. Munzenrider Director - -------------------------------- Robert E. Munzenrider /s/ Eric W. Sivertson Director - -------------------------------- Eric W. Sivertson 48 Report of Independent Registered Public Accounting Firm Board of Directors and Shareholders ATS Medical, Inc. We have audited the accompanying consolidated balance sheet of ATS Medical, Inc. (the "Company") as of December 31, 2006, and the related consolidated statements of operations, changes in shareholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2006, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 1 to the consolidated financial statements, effective January 1, 2006, the Company changed its method of accounting for share-based payments to adopt Statement of Financial Accounting Standards No. 123(R), Share-Based Payment. Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying Schedule II is presented for purposes of additional analysis and is not a required part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company's internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control -- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 13, 2007 expressed an unqualified opinion on management's assessment of the effectiveness of the Company's internal control over financial reporting and an unqualified opinion on the effectiveness of the Company's internal control over financial reporting. /s/ Grant Thornton LLP Minneapolis, Minnesota March 13, 2007 F-1 Report of Independent Registered Public Accounting Firm The Board of Directors and Shareholders ATS Medical, Inc. We have audited the accompanying consolidated balance sheet of ATS Medical, Inc. (the "Company") as of December 31, 2005 and the related consolidated statements of operations, changes in shareholders' equity and cash flows for each of the two years in the period ended December 31, 2005. Our audits also included the financial statement schedule presented at Item 15. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 consolidated financial position of the Company as of December 31, 2005, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2005, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/ ERNST & YOUNG LLP Minneapolis, Minnesota March 6, 2006, except for Note 7, as to which the date is July 13, 2006 F-2 Report of Independent Registered Public Accounting Firm Board of Directors and Shareholders ATS Medical, Inc. We have audited management's assessment, included in the accompanying Management's Report on Internal Control over Financial Reporting, that ATS Medical, Inc. (the "Company") maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control -- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the Company's internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions. A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of effectiveness of the internal control over financial reporting to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. As indicated in the accompanying "Management's Report on Internal Control over Financial Reporting," management's assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of 3F Therapeutics, Inc. ("3F"), which is included in the December 31, 2006 consolidated financial statements of ATS Medical, Inc. and constituted approximately 17 percent of total assets as of December 31, 2006, and less than one percent of net sales for the year then ended. Management did not assess the effectiveness of internal control over financial reporting at 3F as permitted by the Securities and Exchange Commission for entities acquired within the latest fiscal year. Our audit of internal control over financial reporting of ATS Medical, Inc. also did not include an evaluation of the internal control over financial reporting of 3F. In our opinion, management's assessment that the Company maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on criteria established in Internal Control -- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control -- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. F-3 We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule of the Company as of and for the year ended December 31, 2006, and our report dated March 13, 2007 expressed an unqualified opinion on those financial statements and financial statement schedule and included an explanatory paragraph related to the Company's change, effective January 1, 2006, in its method of accounting for share-based payments. /s/ GRANT THORNTON LLP Minneapolis, Minnesota March 13, 2007 F-4 ATS Medical, Inc. Consolidated Balance Sheets (In Thousands, Except Share Data)
DECEMBER 31 ------------------- 2006 2005 -------- -------- ASSETS Current assets: Cash and cash equivalents $ 4,612 $ 16,620 Short-term investments 6,092 5,089 -------- -------- 10,704 21,709 Accounts receivable, less allowance of $537 in 2006 and $360 in 2005 11,677 10,453 Inventories 18,782 21,286 Prepaid expenses 1,175 1,204 -------- -------- Total current assets 42,338 54,652 Leasehold improvements, furniture, and equipment, net 8,213 8,330 Goodwill 5,092 - Other intangible assets 29,263 22,015 Other assets 934 446 -------- -------- Total assets $ 85,840 $ 85,443 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current maturities of note payable $ 1,133 833 Accounts payable 3,183 3,598 Accrued compensation 2,589 2,394 Accrued distributor liabilities 1,024 752 Other accrued liabilities 1,433 658 -------- -------- Total current liabilities 9,362 8,235 Convertible senior notes payable, net of unamortized discounts and bifurcated derivatives of $5,006 in 2006 and $3,624 in 2005 17,394 18,776 Bank notes payable 1,194 903 Shareholders' equity: Common stock, $0.01 par value: Authorized shares - 100,000,000 Issued and outstanding shares - 40,320,487 in 2006 and 31,114,131 in 2005 403 311 Additional paid-in capital 166,411 139,743 Accumulated deficit (109,569) (81,895) Accumulated other comprehensive income (loss) 645 (64) Unearned compensation - (566) -------- -------- Total shareholders' equity 57,890 57,529 -------- -------- Total liabilities and shareholders' equity $ 85,840 $ 85,443 ======== ========
See accompanying notes. F-5 ATS Medical, Inc. Consolidated Statements of Operations (In Thousands, Except Per Share Amounts)
YEAR ENDED DECEMBER 31 --------------------------------- 2006 2005 2004 --------- --------- --------- Net sales $ 40,449 $ 34,636 $ 28,015 Cost of goods sold 19,568 22,828 21,227 --------- --------- --------- Gross profit 20,881 11,808 6,788 Operating expenses: Sales and marketing 21,008 18,948 16,520 Research and development 3,381 1,733 1,011 In-process research and development 14,400 - - Distributor termination expense 733 - - General and administrative 8,892 7,314 5,954 --------- --------- --------- Total operating expenses 48,414 27,995 23,485 --------- --------- --------- Operating loss (27,533) (16,187) (16,697) Interest income 725 323 156 Interest expense (2,394) (661) (102) Change in value of derivative liability bifurcated from convertible senior notes 1,528 2,131 - --------- --------- --------- Net loss $ (27,674) $ (14,394) $ (16,643) ========= ========= ========= Net loss per share: Basic and diluted $ (0.83) $ (0.46) $ (0.58) ========= ========= ========= Weighted average number of shares outstanding: Basic and diluted 33,537 31,009 28,856 ========= ========= =========
See accompanying notes. F-6 ATS Medical, Inc. Consolidated Statement of Changes in Shareholders' Equity (In Thousands)
ACCUMULATED COMMON STOCK ADDITIONAL OTHER --------------- PAID-IN ACCUMULATED OMPREHENSIVE UNEARNED SHARES AMOUNT CAPITAL DEFICIT CINCOME (LOSS) COMPENSATION TOTAL ------- ------ ---------- ----------- -------------- ------------ ----------- Balance at December 31, 2003 26,779 $ 268 $ 123,412 $ (50,858) $ 51 $ (70) $ 72,803 Stock issued under the Employee Stock Purchase Plan 90 1 297 - - - 298 Stock options exercised 334 3 458 - - - 461 Stock issued in private placement, net of offering costs 3,687 37 12,381 - - - 12,418 Unearned compensation related to stock options - - 14 - - (14) - Amortization of unearned compensation - - - - - 60 60 Comprehensive loss: Change in foreign currency translation - - - - 44 - 44 Net loss for the year - - - (16,643) - - (16,643) ----------- Comprehensive loss (16,599) ------ ------ ---------- ----------- -------------- ------------ ----------- Balance at December 31, 2004 30,890 309 136,562 (67,501) 95 (24) 69,441 Stock issued under the Employee Stock Purchase Plan 120 1 347 - - - 348 Stock options exercised 104 1 185 - - - 186 Warrants issued in connection with sale of convertible debt securities - - 1,522 - - - 1,522 Unearned compensation related to stock options and awards - - 1,127 - - (1,127) - Amortization of unearned - - - - - 585 585 compensation Comprehensive loss: Change in foreign currency translation - - - - (159) - (159) Net loss for the year - - - (14,394) - - (14,394) ----------- Comprehensive loss (14,553) ------ ------ ---------- ----------- -------------- ------------ ----------- Balance at December 31, 2005 31,114 311 139,743 (81,895) (64) (566) 57,529 Stock issued under the Employee Stock Purchase Plan 104 1 217 - - - 218 Stock options exercised 48 - 44 - - - 44 Stock issued in connection with the acquisition of 3F Therapeutics 9,000 90 26,010 - - - 26,100 Stock compensation expense - - 1,103 - - - 1,103 Stock issuance costs - - (45) - - - (45) Reclassification of unearned compensation in accordance with the adoption of SFAS 123R - - (566) - - 566 - Restricted stock units 54 1 (95) - - - (94) issued Comprehensive loss: Change in foreign currency translation - - - - 709 - 709 Net loss for the year - - - (27,674) - - (27,674) ----------- Comprehensive loss (26,965) ------ ------ ---------- ----------- -------------- ------------ ----------- BALANCE AT DECEMBER 31, 2006 40,320 $ 403 $ 166,411 $ (109,569) $ 645 $ - $ 57,890 ====== ====== ========== =========== ============== ============ ===========
See accompanying notes. F-7 ATS Medical, Inc. Consolidated Statements of Cash Flows (In Thousands)
YEAR ENDED DECEMBER 31 ------------------------------------ 2006 2005 2004 --------- ----------- ---------- OPERATING ACTIVITIES Net loss $ (27,674) $ (14,394) $ (16,643) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,924 1,563 1,088 Loss on disposal of equipment 26 35 17 Non-cash interest expense 463 138 12 Stock based compensation 1,103 585 60 Change in value of derivative liability bifurcated from convertible senior notes (1,528) (2,131) - In-process research and development charge related to 3F acquisition 14,400 - - Lower of cost or market adjustment - 700 819 Changes in operating assets and liabilities, net of acquisition: Accounts receivable 1,010 (2,560) (2,954) Inventories 2,845 5,317 9,255 Accounts payable and accrued expenses (2,075) 292 3,779 Other (324) (163) (543) --------- ----------- ---------- Net cash used in operating activities (9,830) (10,618) (5,110) INVESTING ACTIVITIES Purchases of short-term investments (10,326) (5,503) (8,688) Maturities of short-term investments 9,336 8,106 2,999 Payments for acquisition, net of cash acquired (717) - - Payments for other intangibles (521) (1,817) (232) Purchases of leasehold improvements, furniture, and equipment (1,208) (2,278) (2,860) --------- ----------- ---------- Net cash used in investing activities (3,436) (1,492) (8,781) FINANCING ACTIVITIES Proceeds from sale of convertible senior notes, warrants and embedded derivatives, net of financing costs - 20,817 - Advances on bank notes payable 1,500 - 2,500 Payments on bank notes payable (909) (764) - Net proceeds from issuance of common stock 123 534 13,177 --------- ----------- ---------- Net cash provided by financing activities 714 20,587 15,677 Effect of exchange rate changes 544 (159) 44 --------- ----------- ---------- (Decrease) increase in cash and cash equivalents (12,008) 8,318 1,830 Cash and cash equivalents at beginning of year 16,620 8,302 6,472 --------- ----------- ---------- Cash and cash equivalents at end of year $ 4,612 $ 16,620 $ 8,302 ========= =========== ========== SUPPLEMENTAL CASH FLOW INFORMATION Net cash paid during the year for interest $ 1,642 $ 201 $ 82 ========= =========== ========== SIGNIFICANT NON-CASH TRANSACTIONS: Reclassification of unearned compensation to additional paid-in capital in accordance with the adoption of SFAS 123R $ 566 - - Reclassification of convertible note derivative liability against related discount (1,627) - - Stock issued for acquisition 26,100 - - ========= =========== ==========
See accompanying notes. F-8 ATS Medical, Inc. Notes to Consolidated Financial Statements 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUSINESS ACTIVITY ATS Medical, Inc. (the "Company") develops, manufactures, and markets medical devices. The Company operates in one business segment and its interest lies with devices used by cardiovascular surgeons in the cardiac surgery operating theater. Currently, the Company participates in the markets for mechanical bileaflet and live tissue replacement heart valves, allograft tissues, the surgical treatment of atrial fibrillation, and other cardiac surgery devices, tools and accessories. The Company has recognized net losses of approximately $16.6 million in 2004, $14.4 million in 2005, and $27.7 million in 2006 and has an accumulated deficit of $109.6 million at December 31, 2006. The Company believes it has sufficient cash resources to meet its cash needs through 2007, but it may need to raise additional funds for 2008 and beyond. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and wholly owned sales and distribution subsidiaries in the U.S., France, Germany (since its inception in February 2005) and Austria (since its inception in July 2006), after elimination of intercompany accounts and transactions. Effective January 1, 2006, the U.S. sales and distribution subsidiary was merged into ATS Medical, Inc. CASH EQUIVALENTS The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents. Cash equivalents are carried at cost which approximates market value, and include $0.9 million and $0.4 million in Euro-denominated foreign banks at December 31, 2006 and 2005, respectively. SHORT-TERM INVESTMENTS Short-term investments are comprised of debt securities and are classified as available-for-sale. Available-for-sale securities are carried at cost which approximates fair value. ACCOUNTS RECEIVABLE Credit is extended based on evaluation of a customer's financial condition and, generally, collateral is not required. Accounts receivable are generally due within 30-180 days and are stated at amounts due from customers net of an allowance for doubtful accounts. Accounts receivable outstanding longer than the contractual payment terms are considered past due. The Company determines its allowance by considering a number of factors, including the length of time trade accounts receivable are past due, the Company's previous loss history, the customer's current ability to pay its obligation to the Company, and the condition of the general economy and the industry as a whole. The Company writes off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts. INVENTORIES The Company carries and relieves inventories at the lower of cost (first-in, first-out basis) or market. Prior to 2006, write-downs were recorded on a portion of its inventories to provide for the lower of cost or market value expected to be realized on future sales in lesser-developed countries. The write-downs were $0.7 million and $0.8 million in 2005 and 2004, respectively. These write-downs were included in cost of goods sold in the statements of operations. F-9 At December 31, 2006 and 2005, inventories consisted of the following (in thousands):
2006 2005 --------- --------- Raw materials $ 4,615 $ 5,047 Work-in-process 2,948 4,462 Finished goods 11,219 11,777 --------- --------- $ 18,782 $ 21,286 ========= =========
OTHER ASSETS Prior to obtaining directors' and officers' liability insurance, the Company had placed monies into a self-insurance trust to provide coverage for potential losses. At December 31, 2006 and 2005, the deposits within the trust amounted to $0.5 million and $0.4 million, respectively, and are included in other assets. LEASEHOLD IMPROVEMENTS, FURNITURE, AND EQUIPMENT Leasehold improvements, furniture, and equipment are stated at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the assets as follows: Furniture and fixtures 7 years Equipment 5 to 17 years Computers 2 years
Leasehold improvements are amortized over the remaining related lease term or estimated useful life, whichever is shorter. INDEFINITE-LIVED INTANGIBLE ASSETS Indefinite-lived intangible assets include technology licenses and agreements and goodwill (see Note 6) and are carried at cost. The Company applies Statement of Financial Accounting Standard ("SFAS") No. 142 "Goodwill and Other Intangible Assets" to its intangible assets, which prohibits the amortization of intangible assets with indefinite useful lives and requires that these assets be reviewed for impairment at least annually. Management reviews indefinite-lived intangible assets for impairment annually as of the last day of the second quarter, or more frequently if a change in circumstances or occurrence of events suggests the remaining value may not be recoverable. The test for impairment requires management to make estimates about fair-value which are based either on the expected undiscounted future cash flows or on other measures of value such as the market capitalization of the Company. If the carrying amount of the assets is greater than the measures of fair value, impairment is considered to have occurred and a write-down of the asset is recorded. Management completed the annual impairment tests in the second quarter of 2006 and determined that the Company's indefinite-lived intangible assets were not impaired. REVENUE RECOGNITION A significant portion of the Company's revenue in the United States, Canada, France, Germany and the United Kingdom is generated from consigned inventory maintained at hospitals or with field representatives. In these situations, revenue is recognized at the time that the product has been implanted or used. In all other instances, revenue is recognized at the time product is shipped. Certain independent distributors in select international markets receive rebates against invoiced sales amounts. In these situations, the Company accrues for these rebates at the time of the original sale. The total of these accrued rebates was $0.05 million and $0.10 million as of December 31, 2006 and 2005, respectively. These rebates are treated as a reduction of revenue. The Company includes shipping and handling costs, net of shipping charges invoiced to customers, in cost of goods sold. F-10 USE OF ESTIMATES The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. ADVERTISING AND PROMOTIONAL COSTS Advertising and promotional costs are charged to operations in the year incurred. Advertising and promotional costs charged to operations during 2006, 2005, and 2004 were $0.2 million, $0.1 million and $0.1 million, respectively. FOREIGN CURRENCY TRANSLATION The financial statements for the Company's European operations are maintained in Euros. All assets and liabilities of the Company's international subsidiaries are translated to U.S. dollars at year-end exchange rates, while the statement of operations is translated at average exchange rates in effect during the year. Translation adjustments arising from the use of differing exchange rates are included in accumulated other comprehensive income (loss) in shareholders' equity. Gains and losses on foreign currency transactions were not significant during 2006, 2005, or 2004. Intercompany receivables/payables are deemed to be of a long-term nature and any transaction gains/losses are recognized in accumulated other comprehensive income (loss). INCOME TAXES The Company accounts for income taxes under SFAS No. 109 "Accounting for Income Taxes." Deferred taxes are provided on an asset and liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the amounts of assets and liabilities recorded for income tax and financial reporting purposes. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. WARRANTIES The Company adheres to Financial Accounting Standards Board ("FASB") Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Indebtedness to Others ("FIN 45"). FIN 45 requires disclosures concerning the Company's obligations under certain guarantees. The Company has indemnified a supplier of its valve components against claims made or damages assessed as the result of the supplier's manufacture of the valve components. The Company has determined that given its history of no reports of product failures or liability claims, the likelihood of claims and subsequent payments is remote, and accordingly, no liabilities in conjunction with this indemnification have been accrued. STOCK-BASED COMPENSATION The Company has stock-based employee compensation plans, which are described more fully in Note 9. The Company accounts for its stock-based employee compensation plans under the recognition and measurement principles of SFAS No. 123 (Revised 2004), Share-Based Payment ("Statement 123(R)"), which revises SFAS No. 123, Accounting for Stock-Based Compensation, supersedes Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and amends SFAS No. 95, Statement of Cash Flows. Generally, the approach in Statement 123(R) is similar to the approach described in SFAS No. 123. However, Statement 123(R) requires all share-based payments to be F-11 recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. Statement 123(R) was adopted by the Company on January 1, 2006. The Company adopted Statement 123(R) using the modified prospective transition method. In accordance with the modified prospective transition method, the Company has not restated its consolidated financial statements for prior periods. Under this transition method, stock-based compensation expense for 2006 includes stock-based compensation expense related to the Company's stock-based compensation awards granted in 2006 and those awards granted prior to, but not yet vested as of, January 1, 2006, based on the grant-date fair value estimated in accordance with the provision of SFAS No. 123. Stock-based compensation expense for all stock-based compensation awards granted on or after January 1, 2006 will be based on the grant-date fair value estimated in accordance with the provisions of Statement 123(R). NET LOSS PER SHARE Basic net loss per share is computed by dividing net loss by the weighted average shares outstanding and excludes any dilutive effects of restricted stock units, options, warrants, and convertible securities. For all periods presented, diluted net loss per share is equal to basic net loss per share because the effect of including potential common shares for stock options outstanding would have been anti-dilutive. Had net income been achieved, approximately 860,000, 1,214,000 and 1,838,000 shares of common stock equivalents would have been included in the computation of diluted net income per share for the years ended December 31, 2006, 2005 and 2004, respectively. CONVERTIBLE DEBT AND DERIVATIVE INSTRUMENTS The Company accounts for embedded derivatives related to its convertible senior notes under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and related Emerging Issues Task Force ("EITF") and Securities and Exchange Commission ("SEC") rules, which require certain embedded derivative financial instruments to be bifurcated from the debt agreement and accounted for as a liability. The Company determines the value of these derivatives by making judgments and estimates of the probability that future conditions giving rise to such derivatives may occur. 2. ACQUISITION OF 3F THERAPEUTICS, INC. On September 29, 2006, the Company completed the acquisition of all the voting and non-voting stock of 3F Therapeutics, Inc. ("3F"), a privately-held medical device company specializing in manufacturing heart tissue valve replacement components. The Company views the acquisition of 3F as a significant step in executing its vision of obtaining a leadership position in all segments of the cardiac surgery market. The acquisition was consummated pursuant to an agreement and plan of merger dated January 23, 2006, as amended (the "Merger Agreement"). Under the terms of the Merger Agreement, upon closing, the Company paid each 3F stockholder its pro-rata portion of an initial payment of 9 million shares of the Company's common stock, subject to certain adjustments. The Company deposited 1,425,000 shares of the closing payment in escrow to be held for at least 18 months ("escrow period") after closing of the merger to cover potential indemnification claims and certain contingencies. At the conclusion of the escrow period, the balance of the escrow account will be distributed pro-rata to the former holders of 3F capital stock. In addition to the initial closing payment, the Company is obligated to make additional contingent payments to 3F stockholders of up to 10 million shares of the Company's common stock with 5 million shares issuable upon obtaining each of the CE mark and FDA approval of certain key products on or prior to December 31, 2013. Milestone share payments may be accelerated upon completion of certain transactions involving these key products. These contingent payments are subject to certain rights of offset for indemnification claims and certain other events. PURCHASE PRICE The Company has accounted for the acquisition of 3F as a purchase under U.S. generally accepted accounting principles. Under the purchase method of accounting, the assets and liabilities of 3F were recorded as of the acquisition date, at their respective fair values, and consolidated with those of the F-12 Company. The purchase price allocation is based upon preliminary estimates of the fair value of assets acquired and liabilities assumed. The Company is in the process of gathering information to finalize its valuation of certain assets, primarily the valuation of acquired intangible assets. The purchase price allocation will be finalized once the Company has all the necessary information to complete its estimate, but no later than one year from the acquisition date. The valuation requires the use of significant assumptions and estimates. Critical estimates included, but were not limited to, future expected cash flows and the applicable discount rates. These estimates were based on assumptions that the Company believes to be reasonable. However, actual results may differ from these estimates. The preliminary purchase price is as follows as of December 31, 2006 (amounts in thousands): Fair value of ATS common stock $26,100 Other estimated acquisition-related costs 3,316 ------- $29,416 =======
PRELIMINARY PURCHASE PRICE ALLOCATION The following table summarizes the preliminary purchase price allocation for the 3F acquisition as of December 31, 2006 (amounts in thousands): Cash $ 2,599 Other current assets 2,530 Intangible assets subject to amortization 7,150 Goodwill 5,092 Other long-term assets 519 Acquired in-process research and development 14,400 Current liabilities (2,874) -------- Total preliminary purchase price allocation $ 29,416 ========
The excess of the purchase price over the fair value of net tangible assets acquired was allocated to specific intangible asset categories and in-process research and development as follows:
Weighted Average Amount Amortization (in thousands) Assigned Period - --------------------------------------------- -------- ---------------- Definite-lived intangible assets: Technology - core $ 5,200 20 years Technology - developed 700 9 years Tradenames and trademarks 1,200 15 years Other 50 7 years -------- -------- Total definite-lived intangible assets $ 7,150 18 years ======== ======== Goodwill $ 5,092 ======== Acquired in-process research and development $ 14,400 ========
The Company believes that the estimated intangible assets so determined represent the fair value at the date of acquisition. The Company used the income approach to determine the fair value of the amortizable intangible assets. The $14.4 million acquired in-process research and development (IPR&D) associated with the acquisition relates to the Enable sutureless tissue valve product line and has been recorded as a non-recurring charge to operations for the year ended December 31, 2006. The Company used the income approach to determine the fair value of IPR&D, applying a risk adjusted discount rate of 37% to the development project's projected cash flows. Enable clinical trials have begun in Europe. European market approval is anticipated in 2009 or 2010 with United States approval to follow approximately 1-2 years later. The F-13 development effort is subject to risks associated with the ultimate clinical efficacy of the Enable product line as well as the results and high costs of the clinical trials. The results of 3F's operations since the acquisition have been included in the consolidated financial statements. PRO FORMA RESULTS OF OPERATIONS The following unaudited pro forma information presents a summary of consolidated results of operations of the Company as if the acquisition of 3F had occurred at the beginning of the earliest period presented. The historical consolidated financial information has been adjusted to give effect to pro forma events that are directly attributable to the merger and are factually supportable. The unaudited pro forma condensed consolidated financial information is presented for informational purposes only. The pro forma information is not necessarily indicative of what the financial position or results of operations actually would have been had the acquisition been completed at the dates indicated. In addition, the unaudited pro forma condensed consolidated financial information does not purport to project the future financial position or operating results of the Company after completion of the acquisition.
Year Ended December 31, --------------------------------- (in thousands, except per share data) 2006 2005 2004 --------- --------- --------- Net sales $ 40,535 $ 34,962 $ 28,249 License revenue 11,031 8,618 - --------- --------- --------- Total revenue $ 51,566 $ 43,580 $ 28,249 ========= ========= ========= Net loss $ (13,877) $ (19,042) $ (28,451) ========= ========= ========= Net loss per share - basic and diluted $ (0.34) $ (0.48) $ (0.71) ========= ========= =========
License revenue relates to license, supply and training agreements that 3F had with Edwards Lifesciences ("Edwards"). The Edwards agreements were terminated in the fourth quarter of 2006 and no additional license revenue will be recognized. The pro forma net losses for each year include $0.5 million for the amortization of purchased intangible assets and the increase in depreciation expense of 3F related to the step-up of fixed assets to fair value. The unaudited pro forma financial information for all years excludes the $14.4 million non-recurring charge for acquired in-process research and development. 3. SHORT-TERM INVESTMENTS At December 31, 2006 and 2005, the cost of short-term investments held by the Company of $6.1 million and $5.1 million, respectively, had maturity dates of approximately one year or less, approximated their fair value and consisted of the following (in thousands):
2006 2005 ------ ------ Corporate bonds $1,879 $2,008 Certificates of deposit - 1,367 U.S. agency 2,273 1,008 Commercial paper 1,940 706 ------ ------ $6,092 $5,089 ====== ======
F-14 4. LEASEHOLD IMPROVEMENTS, FURNITURE, AND EQUIPMENT, NET At December 31, 2006 and 2005, leasehold improvements, furniture, and equipment consisted of the following (in thousands):
2006 2005 --------- ---------- Furniture and fixtures $ 556 $ 625 Equipment 10,967 9,674 Leasehold improvements 3,473 3,346 Construction in progress 542 810 --------- ---------- 15,538 14,455 Less accumulated depreciation 7,325 6,125 --------- ---------- $ 8,213 $ 8,330 ========= ==========
5. PRIVATE PLACEMENT OF COMMON STOCK In June 2004, the Company completed a private placement of common stock selling 3.7 million shares at $3.55 a share for gross proceeds of $13.1 million. The proceeds were used for general working capital purposes. 6. GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill and intangible assets activity is summarized as follows (in thousands):
ASSETS SUBJECT TO AMORTIZATION ASSETS NOT SUBJECT TO AMORTIZATION ------------------------------------------ ------------------------------------------------- ERYSAVE 3F CRYOCATH DEFERRED DEVELOPMENT TECHNOLOGY AGENCY & CARBON FINANCING & LICENSING & DISTRIBUTION TECHNOLOGY COSTS AGREEMENT TRADEMARKS AGREEMENTS LICENSE GOODWILL TOTAL ------------ ------------ ----------- ------------ ------------ ---------- -------- Balance at December 31, 2004 $ 32 $ 188 - - $ 18,500 - $ 18,720 Payments 1,583 262 - $ 1,555 - - 3,400 Amortization (105) - - - - - (105) --------- ------- ------- ------- -------- ------- -------- Balance at December 31, 2005 1,510 450 - 1,555 18,500 - 22,015 Acquisition of 3F $ 7,150 $ 5,092 12,242 Payments 7 304 210 - - 521 Amortization (317) - (106) - - - (423) --------- ------- ------- ------- -------- ------- -------- BALANCE AT DECEMBER 31, 2006 $ 1,200 $ 754 $ 7,044 $ 1,765 $ 18,500 $ 5,092 $ 34,355 ========= ======= ======= ======= ======== ======= ======== Aggregate Amortization Expense - Next five years $ 1,200 $ 2,125 ========= =======
The deferred financing costs at December 31, 2006 are in connection with the 6% Convertible Senior Notes disclosed in Note 7 below and are being amortized over five years. Amortization of deferred financing costs is estimated at $0.3 million per year for 2007 through 2010 and amortization of 3F technology and trademarks is estimated at $0.4 million per year for 2007 through 2010. In April 2004, the Company signed an exclusive development and licensing agreement with ErySave AB ("ErySave") and made an initial milestone licensing fee payment of approximately $0.2 million. The agreement grants the Company worldwide rights for ErySave's filtration technology for cardiac surgery procedures. In both 2006 and 2005 the Company made additional licensing fee payments of $0.3 million to ErySave. Future payments under this agreement, based upon the attainment of developmental milestones, could total an additional $0.7 million. Upon payment of all milestones, an evaluation of the life of the technology will be made and an amortization period will be set. In November 2004, the Company signed an exclusive agency agreement and a distribution agreement with Canadian-based CryoCath Technologies, Inc. ("CryoCath"). The agreements grant the Company F-15 co-promotion rights in the United States as well as exclusive distribution rights in the rest of the world including Europe and Asia for CryoCath's cryotherapy products for the ablation of cardiac arrhythmias. The Company made $0.2 million and $1.6 million in licensing fee payments to CryoCath during 2006 and 2005, respectively. These payments are refundable upon cancellation of the agreements. The Company holds an exclusive, worldwide right and license to use CarboMedics, Inc.'s ("CarboMedics") pyrolytic carbon technology. The license was originally obtained in 1999. License fee milestone payments were made or accrued from 1999 through 2002, totaling $29 million. An impairment charge of $8.1 million and imputed interest of $2.4 million were charged against the carrying value of the license in 2002. Based on the Company's year-end review of its indefinite-lived intangibles, the Company has determined that the carbon technology license has a finite life and, pending a final analysis in the first quarter of 2007, the Company will begin amortizing this asset. The Company expects the amortization to be approximately $1.2 million per year. As disclosed in Note 2, the Company acquired certain intangible assets in connection with the September 2006 acquisition of 3F. SFAS No. 142, Goodwill and Other Intangible Assets, guides the accounting treatment for the Company's intangible assets. Under SFAS 142, the CarboMedics license and the exclusive distribution and agency agreements with CryoCath are considered indefinite-lived assets and are therefore not subject to amortization. These intangible assets are considered indefinite-lived due, in the case of the CarboMedics license, to the broad scope and general nature of the technology licensed and, in the case of the CryoCath agreements, to unique contract provisions that encourage renewal of the agreements and provides for agreement cancellation payments which would likely exceed the original license payments made by the Company. Under SFAS 142, the goodwill acquired in the 3F acquisition is not subject to amortization, but must be analyzed for impairment on an annual basis. The goodwill recognized in connection with the acquisition is not tax deductible. 7. LONG-TERM DEBT CONVERTIBLE NOTES PAYABLE On October 7, 2005 and October 12, 2005, the Company sold a combined $22.4 million aggregate principal amount of 6% Convertible Senior Notes due 2025 ("Notes"), warrants to purchase 1,344,000 shares of the Company's common stock ("Warrants"), and embedded derivatives. Interest is payable under the Notes each April and October. The Warrants are exercisable at $4.40 per share and expire in 2010. The Company has reserved 105% of the shares necessary for the exercise of the warrants. The Warrants were valued at $1.13 per share using the Black-Scholes valuation model. The total value of the Warrants on the date of issuance was $1.5 million and was recorded as a discount on the Notes and is being amortized to interest expense over the 20 year life of the Notes using the effective interest method. The Notes are convertible into common stock at any time at a fixed conversion price of $4.20 per share, subject to adjustment under certain circumstances including, but not limited to, the payment of cash dividends on common stock. If fully converted, the Notes would convert into 5,333,334 shares of the Company's common stock. At the date of issuance of the Notes, the Company had only 19,222 authorized shares of its common stock available for the Note holders if conversion was elected. This shortfall in authorized shares resulted in the Company having to recognize an embedded derivative as explained further in this note. The Note holders have the right to require the Company to repurchase the Notes at 100% of the principal amount plus accrued and unpaid interest on October 15 in 2010, 2015 and 2020 or in connection with certain corporate change of control transactions. If the Note holders elect to convert the Notes prior to October 15, 2010 in connection with certain corporate change of control transactions, the Company will increase the conversion rate for the Notes surrendered for conversion by a number of additional shares based on the stock price of the Company on the date of the change of control. F-16 The Company has the right to redeem the Notes at 100% of the principal amount plus accrued and unpaid interest at any time on or after October 20, 2008. At any time prior to maturity, the Company may also elect to automatically convert some or all of the Notes into shares of its common stock if the closing price of the common stock exceeds $6.40 for a period as specified in the indenture. If an automatic conversion of the Notes occurs prior to October 15, 2008, the Company will make an additional payment to the Note holders equal to three full years of interest, less any interest actually paid or provided for prior to the conversion date. This payment can be made, at the option of the Company, in either cash or common stock. The Company agreed to file a Registration Statement on Form S-3 covering the resale of all of the shares of the Company's common stock issuable upon conversion of the Notes and exercise of the Warrants using its best efforts to have the Registration Statement declared effective within 120 days of the closing. Depending on the length of time after this 120 day period for the Registration Statement to be declared effective, the penalty could have ranged from .8% to 1.2% of the principal amount of the Notes and Warrants. The maximum penalty that could have been incurred was approximately $0.6 million. At December 31, 2006, the Company had accrued $0.3 million in Registration Statement penalties. The Registration Statement on Form S-3 was declared effective by the SEC on February 13, 2007. The Company analyzed all of the above provisions in the Notes and related agreements for embedded derivatives under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and related EITF interpretations and SEC rules. The Company has determined that four such provisions in the convertible debt agreement are considered derivatives under SFAS No. 133: - The embedded written option relating to the common stock that may be potentially issuable upon conversion ("conversion feature derivative") - The option for Note holders to put back debt to the Company in connection with certain corporate change of control transactions - The provision relating to an additional payment in connection with the automatic conversion of the Notes prior to October 15, 2008 - The provision to increase the conversion rate in the event of a change in control transaction The Company prepared valuations of each of the above derivatives and recorded a $5.5 million liability on the date of issuance of the Notes, with an offsetting discount on the Notes. The discount is being amortized to interest expense over the 20 year life of the Notes, using the effective interest method. At its annual shareholder meeting held on September 25, 2006, the Company received approval from its shareholders to increase its authorized shares to 100,000,000, eliminating the previous deficiency in authorized shares. Since the Company then had sufficient authorized shares to settle the Notes if converted, the conversion feature derivative no longer was required to be accounted for as an embedded derivative under SFAS No. 133. The remaining balance of $1.4 million was reclassified against the discount on the Notes. The derivative liability is adjusted to fair value on a quarterly basis. The derivative liability was adjusted to fair value at each quarter end during 2006, with the resulting $1.5 million change in valuation for the year credited to other income. The remaining liability was $0.2 million at December 31, 2006. The derivative liability is presented in the balance sheet within the same line as the Convertible Senior Notes payable. BANK NOTES PAYABLE In 2004, the Company entered into a secured credit facility with a bank, consisting of a $2.5 million term note and a $6.0 million line of credit. The Company fully drew down the $2.5 million term note, which calls for equal installment payments over 36 months, which commenced in February 2005. In March 2006, the Company entered into an amendment to the secured credit facility whereby the bank agreed to waive the prohibition set forth in the credit facility agreement with respect to the Company's acquisition of 3F, and the bank consented to such acquisition. In addition, the bank agreed to provide for advances of up to $1.5 million, which the Company could use to finance or refinance eligible equipment purchased on or after June 1, 2005 and on or before May 31, 2006. Such equipment advances are being amortized over a F-17 60-month period and carry an interest rate of prime plus 1.75%. The Company fully drew down the $1.5 million advance amount, of which $1.4 million was outstanding at December 31, 2006. All Company assets are pledged as collateral on the credit facility. The Company was subject to certain financial covenants under the secured credit facility agreement, as amended, to maintain a liquidity ratio of not less than 2.0 to 1.0 and a net tangible net worth of at least $40 million. At December 31, 2006, the Company was not in compliance with the liquidity ratio covenant. On February 20, 2007, the Company entered into an amendment to the agreement whereby, effective December 31, 2006, the liquidity ratio was decreased to be equal to or greater than 1.6 to 1.0 and the tangible net worth requirement was eliminated, bringing the Company into compliance with the covenants as amended. The February 2007 amendment also terminated the line of credit. The Company had not drawn any advances and had no outstanding balance on the line of credit at December 31, 2006. Future maturities of bank notes payable are as follows: 2007 $ 1,133 2008 369 2009 300 2010 300 2011 225 ------------ $ 2,327 ============
8. EMPLOYEE STOCK PURCHASE PLAN In May 1998, the Company implemented the 1998 ATS Medical, Inc. Employee Stock Purchase Plan. Under the terms of the plan, employees are eligible to purchase common stock of the Company on a quarterly basis. Employees can purchase common stock at 85% of the lesser of the market price of the common stock on the first day of the quarter or the last day of the quarter. The Employee Stock Purchase Plan is deemed to be a compensatory plan under Statement No. 123(R) and the related expense is included in stock compensation expense. The following table summarizes the shares issued and issuance prices under the Plan:
FISCAL YEAR NUMBER OF SHARES PRICE RANGE - ----------- ---------------- ---------------- 2006 103,947 $1.95 - $ 2.38 2005 120,465 $2.54 - $ 3.14 2004 90,203 $2.93 - $ 4.34
9. COMMON STOCK AND STOCK OPTIONS The Company accounts for its stock-based employee compensation plans under the recognition and measurement principles of SFAS No. 123 (Revised 2004), Share-Based Payment, Statement 123(R), which revises SFAS No. 123, Accounting for Stock-Based Compensation, supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends SFAS No. 95, Statement of Cash Flows. Generally, the approach in Statement 123(R) is similar to the approach described in SFAS No. 123. However, Statement 123(R) requires all share-based payments to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. The Company adopted Statement 123(R) on January 1, 2006, using the modified prospective transition method. In accordance with the modified prospective transition method, the Company has not restated its consolidated financial statements for prior periods. Under this transition method, stock-based compensation expense for 2006 includes stock-based compensation expense related to the Company's stock-based compensation awards granted in 2006 and those awards granted prior to, but not yet vested as of, January 1, 2006, based on the grant-date fair value estimated in accordance with the provision of SFAS No. 123. Stock-based compensation expense for all stock-based compensation awards granted on or after January 1, 2006 will be based on the grant-date fair value estimated in accordance with the provisions of Statement 123(R). F-18 The Company uses the Black-Scholes-Merton ("Black-Scholes") option pricing model as its method for determining fair value of stock option grants, which was also used by the Company for its pro forma information disclosures of stock-based compensation expense as required under SFAS No. 123, prior to the adoption of Statement 123(R). The weighted average per share fair value of these option grants is shown below and was estimated at the date of grant using the Black-Scholes model with the following weighted average assumptions:
2006 2005 2004 ------------- -------------- ------------- Assumptions used: Expected volatility 0.83 0.87 0.89 Risk-free interest rate 4.8% 3.8% 4.0% Expected life 5 YEARS 7 years 7 years Dividend yield 0% 0% 0% Weighted average per share fair $ 2.03 $ 2.73 $ 3.32 value of options granted
The expected volatility is a measure of the amount by which the Company's stock price is expected to fluctuate during the expected term of options granted. The Company determines the expected volatility solely based upon the historical volatility of the Company's common stock over a period commensurate with the option's expected life. The Company does not believe that the future volatility of its common stock over an option's expected life is likely to differ significantly from the past. The risk-free interest rate is the implied yield available on U.S. Treasury issues with a remaining term equal to the option's expected life on the grant date. The expected life of options granted represents the period of time for which options are expected to be outstanding and is derived from the Company's historical stock option exercise experience and option expiration data. For purposes of estimating the expected life, the Company has aggregated all individual option awards into one group as the Company does not expect substantial differences in exercise behavior among its employees. The dividend yield is zero since the Company has never declared or paid any cash dividends on its common stock and does not expect to do so in the foreseeable future. The fair value of restricted stock unit awards ("RSUs") is determined based on the closing market price on the award date. The Company uses the single option (i.e. straight-line) method of attributing the value of stock-based compensation expense for all stock option grants. Upon adoption of Statement 123(R), the Company changed its method of attributing the value of stock-based compensation expense on RSUs from the multiple-option (i.e. accelerated) approach to the single option method. Compensation expense for RSUs awarded prior to January 1, 2006 will continue to be subject to the accelerated multiple option method specified in FASB Interpretation No. 28 ("FIN 28"), Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans, while compensation expense for RSUs awarded on or after January 1, 2006 will be recognized using the single option method. Stock compensation expense for all stock-based grants and awards is recognized over the service or vesting period of each grant or award. Statement 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates in order to derive the Company's best estimate of awards ultimately expected to vest. Forfeitures represent only the unvested portion of a surrendered option and are typically estimated based on historical experience. Based on an analysis of the Company's historical data, the Company applied forfeiture rates of 9.90%, 9.57%, 10.14% and 11.85% to stock options outstanding in determining its Statement 123(R) stock compensation expense for the quarters ended December 31, 2006, September 30, 2006, June 30, 2006 and March 31, 2006, respectively, which it believes is a reasonable forfeiture estimate for these periods. In the Company's pro forma information required under SFAS No. 123 for the periods prior to 2006, the Company accounted for forfeitures as they occurred. The Company has a Stock Incentive Plan (the "Plan") under which stock options to purchase common stock of the Company may be granted or RSUs may be awarded to employees and non-employees of the Company. Stock options may be granted under the Plan as incentive stock options ("ISO") or as non-qualified stock options ("non-ISO"). The Company also has stock options outstanding from a previous F-19 equity compensation plan as well as free-standing options not under any plan. In addition, the Company has an Employee Stock Purchase Plan ("ESPP") under which employees are eligible to purchase common stock of the Company on a quarterly basis at 85% of the lesser of the market price of the common stock on the first day of the quarter or the last day of the quarter. All stock issued under options exercised, RSUs awarded or ESPP shares purchased are new shares of the Company's common stock. Option grants generally carry contractual terms of up to ten years. RSU awards generally carry contractual terms of up to five years. The following table summarizes the changes in stock options outstanding under the Company's stock-based compensation plans:
Stock Options Outstanding Weighted Under the Plans Average Option ------------------------------------ Non-Plan Exercise Price ISO Non-ISO Options Total Per Share ------------- --------------- ------------ ----------- ----------------- Balance at December 31, 2003 1,295,296 888,500 2,725,000 4,908,796 $ 3.32 Options granted 25,000 50,000 916,000 991,000 4.30 Options exercised (45,750) (120,000) (167,944) (333,694) 1.38 Options canceled (34,596) (358,000) (487,500) (880,096) 5.43 --------- --------- ---------- ---------- -------- Balance at December 31, 2004 1,239,950 460,500 2,985,556 4,686,006 3.27 Options granted 750 15,000 293,000 308,750 3.49 Options exercised (52,125) (2,500) (49,404) (104,029) 1.82 Options canceled (181,875) (123,000) (331,250) (636,125) 4.78 --------- --------- ---------- ---------- -------- Balance at December 31, 2005 1,006,700 350,000 2,897,902 4,254,602 3.09 Options granted - 5,000 - 5,000 2.95 Options exercised (7,625) - (40,202) (47,827) 0.92 Options canceled (81,450) (56,000) (325,000) (462,450) 4.57 --------- --------- ---------- ---------- -------- Balance at December 31, 2006 917,625 299,000 2,532,700 3,749,325 $ 2.94 ========= ========= ========== ========== ========
The following table summarizes the ranges of exercise prices for outstanding and exercisable stock options as of December 31, 2006:
Options Outstanding at Options Exercisable at December 31, 2006: December 31, 2006: ------------------------------------------------------ --------------------------------------- Weighted Weighted Average Average Weighted Range of Number Remaining Exercise Number Average Exercise Exercise Prices Outstanding Contractual Life Price Exercisable Price - ------------------------------ ---------------- ----------------- -------------- ----------------- ------------------- $0.37 - $ 0.52 766,000 5.89 years $ 0.44 716,000 $ 0.44 0.79 - 2.35 642,000 6.26 years 1.44 459,500 1.46 2.51 - 3.36 695,200 6.30 years 2.97 608,200 3.02 3.46 - 3.80 911,750 7.01 years 3.70 904,250 3.70 3.99 - 8.50 679,375 5.65 years 5.51 679,375 5.51 9.88 - 12.44 55,000 3.51 years 10.57 55,000 10.57 - ----------------------- --------- ---------------- --------- --------- -------- $0.37 - $ 12.44 3,749,325 6.23 years $ 2.94 3,422,325 $ 3.07 ========= =========
As of December 31, 2006, the aggregate intrinsic value of options outstanding and exercisable was $1.7 million and $1.5 million, respectively. The aggregate intrinsic value of options exercised for the year ended December 31, 2006 was approximately $0.1 million. The aggregate intrinsic value represents the total pre-tax intrinsic value (the difference between the closing price of the Company's common stock on December 31, 2006 of $2.07 per share and the exercise price of each-in-the-money option) that would have been received by the option holders had all option holders exercised their options on December 31, 2006. F-20 The following table summarizes restricted stock awards activity:
Weighted Weighted Average Average Award Date Remaining Number of Shares Fair Value Contractual Term ------------------------ ------------------ ----------------- Unvested at December 31, 2004 - - - Awards granted 351,000 $ 3.37 - Awards forfeited (3,000) 3.66 - --------- ------ ---------- Unvested at December 31, 2005 348,000 3.25 1.53 years Awards granted 967,272 2.73 Awards vested (87,000) 3.38 Awards forfeited (58,750) 3.11 --------- ------ ---------- Unvested at December 31, 2006 1,169,522 $ 2.83 2.03 YEARS ========= ------ ----------
As of December 31, 2006, the aggregate intrinsic value of RSU awards outstanding was $2.4 million. The aggregate intrinsic value represents the total pre-tax value of common stock RSU holders would have received (based on the closing price of the Company's common stock on December 31, 2006 of $2.07 per share) had all RSUs vested and common stock been issued to the RSU holders on December 31, 2006. The Company had a total of 5,956,325 shares of common stock reserved for stock option grants and RSU awards at December 31, 2006, of which 1,037,478 shares were available for future grants or awards under the Plan. For the year ended December 31, 2006, the Company recognized $0.5 million of stock compensation expense in connection with the adoption of Statement 123(R). Total stock compensation expense recognized during the year ended December 31, 2006 totaled $1.1 million (or $0.03 per share), of which $0.5 million was included in general and administrative expenses and $0.6 million was included in sales and marketing expenses. Because the Company maintained a full valuation allowance on its U.S. deferred tax assets, the Company did not recognize any net tax benefit related to its stock-based compensation expense for the year ended December 31, 2006. As of December 31, 2006, the Company had $0.1 million of total unrecognized compensation expense, net of estimated forfeitures, related to stock options that will be recognized over a weighted average period of less than one year, and $1.9 million of total unrecognized compensation expense, net of estimated forfeitures, related to RSU awards that will be recognized over a weighted average period of approximately two years. Prior to the adoption of Statement 123(R), the Company accounted for its stock-based employee compensation plans under the recognition and measurement principles of APB Opinion No. 25 and related interpretations. The exercise price of the Company's employee stock options generally equaled the market price of the underlying stock on the date of grant for all options granted, and thus, under APB Opinion No. 25, no compensation expense was recognized. Pro forma information regarding net loss and net loss per share is required by SFAS No. 123 and has been determined as if the Company had accounted for its employee stock options under the fair value method of SFAS No. 123. F-21 The following table illustrates the pro forma effect on net loss and net loss per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation. Since stock-based compensation expense for the year ended December 31, 2006, was calculated and recorded under the provisions of Statement 123(R), no pro forma disclosure for 2006 is presented.
(in thousands, except per share data) 2005 2004 - ------------------------------------------------------------ ------------ ------------ Net loss, as reported $(14,394) $ (16,643) Less: Total stock-based employee compensation expense determined under fair value based method for all awards (5,301) (2,350) -------- -------- Pro forma net loss $(19,695) $(18,993) ======== ======== Net loss per share: As reported Basic and diluted $ (0.46) $ (0.58) ======== ======== Pro forma Basic and diluted $ (0.64) $ (0.66) ======== ========
In December 2005, the Company authorized the acceleration of vesting of all otherwise unvested stock options held by its employees with an exercise price of $3.00 or greater granted under its Stock Incentive Plan or as a free- standing option not under any plan. Options to purchase 1,294,232 shares of common stock (affecting 86 employees) were subject to this acceleration. The decision to accelerate vesting of these options was made primarily to minimize future compensation expense that the Company would otherwise recognize in its consolidated statement of operations with respect to these options pursuant to Statement 123(R). The aggregate future expense eliminated as a result of the acceleration of the vesting of these options was approximately $3.3 million. 10. LEASES The Company has operating leases for its facilities. These leases expire at various dates through November 2011. Future minimum lease payments under these agreements are as follows (in thousands): Year ending December 31: 2007 $ 812 2008 776 2009 726 2010 354 2011 43 ------ $2,711 ======
Rent expense was $0.7 million, $0.6 million, and $0.4 million for 2006, 2005 and 2004, respectively. 11. INCOME TAXES At December 31, 2006, the Company had net operating loss carryforwards of approximately $136 million ($47 million related to 3F) and credits for increasing research and development costs of approximately $0.9 million ($0.7 million related to 3F), which are available to offset future taxable income or reduce taxes payable through 2026. These loss carryforwards will begin expiring in 2007. The credits continue to expire in 2007 through 2025. Included as part of the Company's net operating loss carryforwards are approximately $3.4 million in tax deductions that resulted from the exercise of stock options. When these loss carryforwards are realized, the corresponding change in valuation allowance will be recorded as additional paid-in capital. The Company's ability to utilize its net operating loss carryforwards to offset future taxable income are subject to certain limitations under Section 382 of the Internal Revenue Code due to changes in the equity ownership of the Company. F-22 Components of deferred tax assets and liabilities are as follows (in thousands):
DECEMBER 31 --------------------------------------- 2006 2005 ---------------- ---------------- Current deferred tax assets $ 493 $ 250 Long-term deferred tax assets (liabilities): Net operating loss carryforwards 50,153 29,886 Foreign net operating loss carryforwards 711 832 Research and development credits 897 285 Alternative minimum tax credits 31 31 Inventory reserves 64 80 Depreciation 854 847 Compensation accruals and reserves 495 210 Deferred financing costs 108 - Convertible senior notes derivatives (1,305) (779) Technology license amortization (1,311) (456) Other intangible assets and goodwill (2,606) - Other 409 259 ------------- ------------- Net long-term deferred tax assets 48,500 31,195 ------------- ------------- Net deferred tax assets before valuation allowance 48,993 31,445 Less valuation allowance (48,993) (31,445) ------------- ------------- Net deferred tax assets $ - $ - ============= =============
The valuation allowance above includes 3F net deferred tax assets (primarily net operating loss carryforwards) of $15.5 million. If realized, 3F tax assets will be recorded first as reductions to goodwill and intangible assets ($12.1 million at December 31, 2006), and then as income tax benefits ($3.4 million at December 31, 2006). Reconciliation of the statutory federal income tax rate to the Company's effective tax rate is as follows:
2006 2005 2004 ----------- --------- ---------- Tax at statutory rate (34.0)% (34.0)% (34.0)% State income taxes (4.0) (4.0) (4.0) Acquired in-process research and development 17.7 - - Impact of changes in valuation allowance 20.3 38.0 38.0 ----- ----- ----- - % - % - % ===== ===== =====
12. COMMITMENTS In 2002 the Company amended long-term supply and technology transfer agreements with CarboMedics, a wholly owned subsidiary of Sorin, a European company based in Italy. The amendment to the supply agreement suspended component set purchases until January 2007. This postponed component purchases totaling approximately $21.5 million for the years ended December 31, 2002 to 2006. The 2002 through 2006 purchase obligations were to resume, beginning in 2007. In January 2007, CarboMedics served a complaint on the Company, alleging breach of contract with respect to the long-term supply agreement, discussed more fully in Note 18. The Company believes that the complaint filed by CarboMedics is without merit, that CarboMedics has repudiated and breached the supply agreement, and that the Company has affirmative claims against CarboMedics. F-23 13. DISTRIBUTOR TERMINATION In December 2006, the Company and an international distributor in Europe executed agreements providing for the termination of the distributor, the conversion of the distributor to a commissioned sales representative effective January 1, 2007 and the buy-back by the Company of the distributor's remaining inventory stock. The value of the inventory to be bought back totaled approximately $0.7 million at December 31, 2006. In addition, termination payments will be made by the Company to the distributor totaling approximately $0.7 million, payable in two equal installments in the fourth quarter of 2007 and the first quarter of 2008. The 2008 installment carries interest at 6%. 14. BENEFIT PLAN The Company has a defined contribution salary deferral plan covering substantially all employees under Section 401(k) of the Internal Revenue Code. Under the plan, the Company contributes an amount equal to 25% of the first 12% of each employee's contribution. The Company recognized expense for contributions to the plan of $0.2 million, $0.2 million and $0.1million for 2006, 2005 and 2004, respectively. 15. SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK Since its inception, the Company has operated in a single industry segment: developing, manufacturing, and marketing medical devices. As a result, the information disclosed herein materially represents all of the financial information related to the Company's principal operating segment. The Company derived the following percentages of its net sales from the following geographic regions:
2006 2005 2004 --------- --------- --------- United States 39% 38% 33% Europe 28% 28 28 Asia Pacific 25% 26 33 Other Markets 8% 8 6
Sales to one customer, Century Medical-Japan, represented 11%, 13% and 16% of the Company's net sales for the years ended December 31, 2006, 2005, and 2004, respectively. The Company had balances owing from three customers that aggregated 19% of its accounts receivable balances at December 31, 2006. The Company had balances owing from five customers that represented 37% of its accounts receivable balances at December 31, 2005 and balances owing from two customers that represented 24% of its accounts receivable at December 31, 2004. 16. QUARTERLY FINANCIAL DATA (UNAUDITED) Quarterly data for 2006 and 2005 was as follows (in thousands, except loss per share):
QUARTER ------------------------------------------------------------------- FIRST SECOND THIRD FOURTH -------------- ------------ ---------- ---------- YEAR ENDED DECEMBER 31, 2006 Net sales $ 9,730 $ 10,857 $ 9,122 $ 10,740 Gross profit 4,732 5,447 5,228 5,474 Net loss (1,575) (2,764) (17,255) (6,080) Net basic and diluted loss per share $ (0.05) $ (0.09) $ (0.55) $ (0.15) Year ended December 31, 2005 Net sales $ 7,063 $ 9,307 $ 8,333 $ 9,933 Gross profit 2,762 3,833 2,619 2,594 Net loss (3,959) (3,133) (4,078) (3,224) Net basic and diluted loss per share $ (0.13) $ (0.10) $ (0.13) $ (0.10)
F-24 The Company recorded a $0.7 million charge related to the termination of a European distributor in the fourth quarter of 2006, as disclosed in Note 13 above. In connection with the acquisition of 3F disclosed in Note 2 above, the Company acquired $14.4 million of in-process research and development, recorded as a non-recurring charge to operations in the third quarter of 2006. The conversion feature liability related to of the Company's Senior Convertible Notes, disclosed in Note 7 above, was adjusted to fair value at each quarter end throughout 2006 and 2005, resulting in a $1.2 million change in valuation credit to other income in the first quarter of 2006 and a $2.1 million credit to other income in the fourth quarter of 2005. The Company charged $1.8 million of production variances and ramp-up costs related to its pyrolytic carbon manufacturing activities to cost of goods sold in the fourth quarter of 2005. 17. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In December 2004, the FASB issued SFAS No. 123 (Revised 2004), Share-Based Payment, Statement 123(R), which revises SFAS No. 123, Accounting for Stock-Based Compensation, supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends SFAS No. 95, Statement of Cash Flows. Statement 123(R) was adopted by the Company on January 1, 2006. The impact of adopting this Standard is discussed above in Note 9, "Common Stock and Stock Options." In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections ("Statement 154"), which replaces APB Opinion No. 20, Accounting Changes, and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements. Statement 154 changes the requirements for the accounting for and reporting of a change in accounting principle, and applies to all voluntary changes in accounting principles, as well as changes required by an accounting pronouncement in the unusual instance it does not include specific transition provisions. Specifically, this Statement requires retrospective application to prior periods' financial statements, unless it is impracticable to determine the period-specific effects or the cumulative effect of the change. When it is impracticable to determine the effects of the change, the new accounting principle must be applied to the balances of assets and liabilities as of the beginning of the earliest period for which retrospective application is practicable and a corresponding adjustment must be made to the opening balance of retained earnings for that period rather than being reported in an income statement. When it is impracticable to determine the cumulative effect of the change, the new principle must be applied as if it were adopted prospectively from the earliest date practicable. The adoption of SFAS No. 154 did not have an impact on the Company's consolidated financial statements. In July 2006, the FASB issued FASB interpretation ("FIN") No. 48, Accounting for Uncertainty in Income Taxes-an interpretation of SFAS No. 109. FIN 48 prescribes a comprehensive model for recognizing, measuring, presenting and disclosing in the financial statements tax positions taken or expected to be taken on a tax return, including the decision whether to file or not to file in a particular jurisdiction. FIN 48 is effective for fiscal years beginning after December 15, 2006. If there are changes in net assets as a result of the application of FIN 48, these will be accounted for as an adjustment to retained earnings. The Company does not expect the adoption of FIN 48 to have a material impact on its consolidated financial position and results of operations. In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS No. 157 establishes a common definition for fair value to be applied to U.S. GAAP guidance requiring use of fair value, establishes a framework for measuring fair value, and expands disclosure about such fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. The Company is currently assessing the impact of SFAS No. 157 on its consolidated financial position and results of operations. In September 2006, the SEC staff issued Staff Accounting Bulletin ("SAB") 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements. SAB 108 requires that public companies utilize a "dual-approach" to assessing the quantitative effects of financial misstatements. This dual-approach includes both an income statement focused assessment and a F-25 balance sheet focused assessment. The guidance in SAB 108 must be applied to annual financial statements for fiscal years ending after November 15, 2006. The adoption of SAB 108 did not have an impact on the Company's consolidated financial statements. 18. LITIGATION Abbey Litigation On January 23, 2006, following execution of the Merger Agreement between the Company and 3F, 3F was informed of a summons and complaint dated January 19, 2006, which was filed in the U.S. District Court in the Southern District of New York by Arthur N. Abbey ("Abbey") against 3F Partners Limited Partnership II (a major stockholder of 3F, "3F Partners II"), Theodore C. Skokos (the then chairman of the board and a stockholder of 3F), 3F Management II, LLC (the general partner of 3F Partners II), and 3F (collectively, the "Defendants") (the "Abbey I Litigation"). The summons and complaint alleges that the Defendants committed fraud under federal securities laws, common law fraud and negligent misrepresentation in connection with the purchase by Abbey of certain securities of 3F Partners II. In particular, Abbey claims that the Defendants induced Abbey to invest $4 million in 3F Partners II, which, in turn, invested $6 million in certain preferred stock of 3F, by allegedly causing Abbey to believe, among other things, that such investment would be short-term. Pursuant to the complaint, Abbey is seeking rescission of his purchase of his limited partnership interest in 3F Partners II and return of the amount paid therefore (together with pre-and post-judgment interest), compensatory damages for the alleged lost principal of his investment (together with interest thereon and additional general, consequential and incidental damages), general damages for all alleged injuries resulting from the alleged fraud in an amount to be determined at trial and such other legal and equitable relief as the court may deem just and proper. Abbey did not purchase any securities directly from 3F and is not a stockholder of 3F. On March 23, 2006, 3F filed a motion to dismiss the complaint. Under the Private Securities Litigation Reform Act, no discovery will be permitted until the judge rules upon the motion to dismiss. On May 15, 2006, 3F filed and served a reply memorandum of law in further support of its motion to dismiss Abbey's complaint with prejudice. On or about June 14, 2006, Abbey commenced a second civil action in the Court of Chancery in the State of Delaware by serving 3F with a complaint naming both 3F and Mr. Skokos as defendants (the "Abbey II Litigation"). The complaint alleges, among other things, fraud and breach of fiduciary duties in connection with the purchase by Abbey of his partnership interest in 3F Partners II. The Delaware action seeks: (1) a declaration that (a) for purposes of the merger, Abbey was a record stockholder of 3F and was thus entitled to withhold his consent to the merger and seek appraisal rights after the merger was consummated and (b) the irrevocable stockholder consent submitted by 3F Partners II to approve the merger be voided as unenforceable; and (2) damages based upon allegations that 3F aided and abetted Mr. Skokos in breaching Mr. Skokos's fiduciary duties of loyalty and faith to Abbey. On July 17, 2006, 3F filed a motion to dismiss the complaint in the Abbey II Litigation, or, alternatively, to stay the action pending adjudication of the Abbey I Litigation. On October 10, 2006, the Delaware Chancery Court entered an order staying the Delaware action pending the outcome of the Abbey I litigation. 3F has been notified by its director and officer insurance carrier that such carrier will defend and cover all defense costs as to 3F and Mr. Skokos in the Abbey I Litigation and Abbey II Litigation, subject to policy terms and full reservation of rights. In addition, under the merger agreement, 3F and the 3F stockholder representative have agreed that the Abbey I Litigation and Abbey II Litigation are matters for which express indemnification is provided. As a result, the escrow shares and milestone shares, if any, may be used by ATS to satisfy, in part, ATS's set-off rights and indemnification claims for damages and losses incurred by 3F or ATS, and their directors, officers and affiliates, that are not otherwise covered by applicable insurance arising from the Abbey I Litigation and Abbey II Litigation. See Note 2 of "Notes to Consolidated Financial Statements" in this Report for a description of the escrow and milestone shares. The Company believes that the Abbey I Litigation and Abbey II Litigation will not result in a material impact on the Company's financial position or operating results. F-26 CarboMedics Litigation On January 26, 2007, the Company was served with a complaint filed by CarboMedics against ATS in United States District Court in the District of Minnesota on November 22, 2006. The complaint alleges that the Company has breached certain contractual obligations, including an alleged obligation to purchase $22 million of MHV carbon components under a long-term supply agreement with CarboMedics which obligation CarboMedics contends had been scheduled to re-commence in 2007. The complaint seeks specific enforcement of the supply agreement, revocation of certain intellectual property rights purchased by ATS from CarboMedics, and monetary damages in excess of $75,000. The Company believes that the complaint filed by CarboMedics is without merit, that CarboMedics has repudiated and breached the long-term supply agreement, and that the Company has affirmative claims against CarboMedics. On February 16, 2007, the Company filed its answer and counterclaim to the complaint, including counterclaims for breach of contract, anticipatory repudiation, deceptive trade practice and business disparagement, and a request for monetary damages. On March 14, 2007 the Company also filed a motion for judgment on the pleadings regarding CarboMedics request for specific performance of the supply agreement. 19. SUBSEQUENT EVENTS On January 26, 2007, the Company issued 224,416 shares of its common stock pursuant to the exercise of its option to purchase certain assets of EM Vascular, Inc., ("EM Vascular"), under a May 2005 Option and Asset Purchase Agreement ("Agreement"). The payment in shares was at the option of the Company and was in lieu of a $0.5 million cash payment. The most significant asset acquired as part of this purchase is technology that may potentially allow for a non-invasive, non-pharma therapy for the treatment of such disorders as atherosclerotic plaque and blood hyper-cholesterolemia. Under the terms of the Agreement, the Company will also be obligated to make additional contingent payments to EM Vascular of $1.0 million in the form of ATS common stock upon obtaining FDA approval to market a product that is covered by EM Vascular patents or patent applications ("EM Vascular Products"), of quarterly cash payments equal to 4% of the revenue from the sale of Products for a period of ten years from the date of the first commercial sale of an EM Vascular Product, and of $1.2 million in the form of ATS common stock following the end of the first quarter in which the Company recognizes cumulative revenues of $10 million from the sale of EM Vascular Products in a quarter. These contingent payments are subject to certain rights of set-off for indemnification claims and certain other events. Also on January 26, 2007, the Company and Regeneration Technologies, Inc. ("RTI-CV") entered into an Amendment to a 2005 Marketing Services Agreement (the "Amendment") effective as of January 1, 2007. Under the terms of the 2005 agreement, RTI-CV appointed the Company as it's exclusive marketing services representative to promote, market and solicit orders for RTI-CV's processed cardiovascular allograft tissue from doctors, hospitals, clinics and patients throughout North America. The Amendment was entered into as a result of RTI-CV's sale of its cardiovascular business to CryoLife, Inc. and discontinuation of its cardiovascular tissue processing operations. Under the terms of the Amendment, the Company will be compensated for soliciting orders for RTI-CV's remaining inventory of processed tissue based on a percentage of the fee paid by customers for the processed tissue, net of transportation charges and discounts. The Company will be entitled to a minimum level of compensation of $175,000 per calendar quarter. The Agreement, as amended, will terminate on December 31, 2007. F-27 EXHIBIT INDEX
Exhibit Number Description - ------ ------------------------------------------------------------------------ 2.4 Escrow Agreement, effective as of September 29, 2006, by and among the Company, Boyd D. Cox, as stockholder representative and Wells Fargo Bank, N.A., filed herewith. 2.5*** Option and Asset Purchase Agreement, dated as of May 31, 2005, by and among ATS Medical, Inc., em Vascular, Inc., Keith L. March, M.D., John Havek, Walter L. Sembrowich and James E. Shapland II, filed herewith. 2.6 Letter Amendment, dated as of November 29, 2006, to the Option and Asset Purchase Agreement, dated as of May 31, 2005, by and among ATS Medical, Inc., em Vascular, Inc., Keith L. March, M.D., John Havek, Walter L. Sembrowich and James E. Shapland II, filed herewith. 10.61* Amendment, effective as of January 1, 2007, to Marketing Services Agreement with Alabama Tissue Center, Inc., (also known as Regeneration Technologies, Inc. - Cardiovascular), filed herewith. 21 List of Subsidiaries. 23.1 Consent of Grant Thornton LLP. 23.2 Consent of Ernst & Young LLP. 31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended. 31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended. 32.1 Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
- -------------------------- *Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, confidential portions of these exhibits have been deleted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment. *** Exhibits and Schedules to the Merger Agreement have been omitted but will be provided supplementally to the Securities and Exchange Commission upon request. EX-2.4 2 c13073exv2w4.txt ESCROW AGREEMENT Exhibit 2.4 ESCROW AGREEMENT THIS ESCROW AGREEMENT (this "Escrow Agreement"), effective as of September 29, 2006, is entered into by and among ATS Medical, Inc., a Minnesota corporation ("Parent"), Boyd D. Cox, an individual resident of the state of Arkansas (the "Stockholder Representative"), as representative of the holders of the capital stock of 3F Therapeutics, Inc., a Delaware corporation (the "Company", the holders of the Company Capital Stock are the "Stockholders", who are listed on Schedule A, attached hereto), and Wells Fargo Bank, N.A., a national banking association principally located in Minneapolis, Minnesota (the "Escrow Agent"). Parent and the Stockholder Representative are sometimes together referred to herein as the "Parties" and each individually as a "Party." WHEREAS, pursuant to the Agreement and Plan of Merger, dated as of January 23, 2006, as amended by Amendment No.1 to Agreement and Plan of Merger, dated as of June 13, 2006, and as amended by Amendment No. 2 to Agreement and Plan of Merger, dated as of August 10, 2006, each entered into by and among Parent, Seabiscuit Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of Parent ("Merger Subsidiary"), the Company and the Stockholder Representative (the "Merger Agreement"), Merger Subsidiary will be merged with and into the Company (the "Merger") and each share of the Company common stock, $0.001 par value (the "Company Common Stock"), and the Company Preferred Stock (the Company Common Stock and the Company Preferred Stock may be collectively referred to as the "Company Capital Stock") issued and outstanding immediately prior to the Effective Time will be converted into the right to receive that number of shares of the common stock of the Parent, $0.01 par value per share (the "Parent Common Stock"), as is determined in accordance with the terms and subject to the conditions of the Merger Agreement (all such shares of Parent Common Stock, collectively, the "Merger Consideration"); WHEREAS, Section 2.1(b) of the Merger Agreement provides that if one or more of certain milestones are achieved, Parent will pay the Stockholders additional shares of Parent Common Stock (constituting a portion of the Merger Consideration), assuming there are no outstanding indemnification claims or rights of set off by Parent at that time; WHEREAS, Article 9 of the Merger Agreement provides that, in certain circumstances, shares of Parent Common Stock that would otherwise be required to be issued by Parent to the Stockholders from time to time after the Merger upon the achievement of one or more milestones (known as "Milestone Shares" under the Merger Agreement) may instead be deposited by Parent with the Escrow Agent (the "Set-Off Shares") and held by the Escrow Agent in escrow for the purpose described herein; WHEREAS, the Merger Agreement provides that a portion of the Merger Consideration, equal to the number of shares of Merger Consideration to which all holders of Outstanding Options would have been entitled had such holders exercised such Outstanding Options prior to the date that was 10 days before the Effective Time (the "Reserved Shares"), is to be reserved for issuance when and if such Outstanding Options are exercised, but as of the date of this Agreement, the Parties acknowledge and agree that no Reserved Shares are needed because the 1 records of the Company indicate that all Outstanding Options were in fact exercised or terminated prior to the Effective Time; WHEREAS, pursuant to the terms of the Merger Agreement and as part of the transactions contemplated thereby, the Parties agreed to enter into this Escrow Agreement and deposit with the Escrow Agent for the purposes set forth in the Merger Agreement a portion of the (a) Initial Merger Consideration consisting of 1,400,000 fully paid and nonassessable shares of Parent Common Stock (the "Escrow Shares") and Distributions (as defined below) related thereto and (b) Milestone Shares as Set-Off Shares and Distributions related thereto (both groups of shares and Distributions related thereto may be collectively referred to as the "Escrow Fund"); WHEREAS, pursuant to the terms of the Merger Agreement, the Parties agreed that the Escrow Shares and the Set-Off Shares shall provide security for Parent and consideration for satisfaction of any (a) pending indemnification claims that Parent may have against the Stockholders pursuant to the terms of the Merger Agreement; (b) payment obligations of Stockholders required to satisfy Parent's right to a net operating assets adjustment under Section 2.3 of the Merger Agreement; and (c) set-off rights of Parent arising under Section 5.21 of the Merger Agreement regarding recovery of the Edwards Holdback Amount. WHEREAS, pursuant to Section 12.13 of the Merger Agreement, the Stockholder Representative has authority to do, on behalf of the Stockholders, but is not limited to doing, the following after the Effective Time: (a) amend this Escrow Agreement or the Merger Agreement; (b) execute and deliver all documents and instruments which may be executed and delivered pursuant to this Escrow Agreement or the Merger Agreement; (c) make and receive notices and other communications pursuant to this Escrow Agreement or the Merger Agreement; (d) settle and dispute, any claim, action, suit or proceeding arising out of or related to this Escrow Agreement or the Merger Agreement; and (e) pay expenses incurred or which may be incurred on behalf of the Stockholders; WHEREAS, pursuant to the terms of the Merger Agreement, the Parties agreed that Parent shall deposit Escrow Shares and Set-Off Shares, if any, with the Escrow Agent to hold until instructed otherwise in accordance with the terms hereof and the Merger Agreement, and that the Escrow Shares and Escrow Share Distributions related thereto or Set-Off Shares and Set-Off Share Distributions related thereto shall be distributed only in accordance with the terms of this Agreement and the Merger Agreement; WHEREAS, the Parties and the Escrow Agent desire to more specifically set forth their rights and obligations with respect to the Escrow Shares and Escrow Share Distributions related thereto and the Set-Off Shares and Set-Off Share Distributions related thereto and the distribution and release thereof; WHEREAS, Parent, the Company, and Wells Fargo Bank, N.A., have entered into a separate agreement, dated as of the date hereof, pursuant to which Wells Fargo Bank, N.A., acting in its capacity as exchange agent thereunder ("Exchange Agent"), will, among other things, distribute to the Stockholders any Escrow Shares and Escrow Share Distributions related thereto and any Set-Off Shares and Set-Off Distributions related thereto that the Stockholders 2 become entitled to receive under the Merger Agreement or this Escrow Agreement (the "Exchange Agreement"); and WHEREAS, the execution and delivery of this Escrow Agreement is a condition precedent to the closing of the Merger under the Merger Agreement. NOW, THEREFORE, in consideration of the premises and covenants contained herein, and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Appointment of and Acceptance by the Escrow Agent. The Escrow Agent is hereby appointed by the Parties as the Escrow Agent in accordance with the instructions set forth herein. The Escrow Agent hereby accepts such appointment. 2. Establishment of Escrow. On the date hereof, in consideration of the transactions contemplated by the Merger Agreement, and in order to induce Parent to consummate the transactions contemplated by the Merger Agreement, and in order to secure the indemnification and payment obligations of the Stockholders and the set-off rights of Parent as provided for under Sections 2.3 and 5.21 of the Merger Agreement, Parent shall deposit or cause to be deposited into escrow by issuing to the Escrow Agent, in the name of the Escrow Agent, a certificate representing the Escrow Shares. Parent may also deposit or cause to be deposited into escrow by issuing to the Escrow Agent, in the name of the Escrow Agent, a certificate or certificates representing the Set-Off Shares pursuant to this Escrow Agreement. As so deposited, the Escrow Shares and Set-Off Shares shall be referred to as the "Deposited Shares" and shall include any dividends, distributions, income, property or other rights distributed (including, without limitation, upon a stock split, stock dividend or other recapitalization of Parent) with respect to or in exchange for, or otherwise attaching or related to, the Escrow Shares (which have not been released from the escrow established by this Escrow Agreement) or the Set-Off Shares (which have not been released from the escrow established by this Escrow Agreement) (the "Escrow Share Distributions" and the "Set-Off Share Distributions", respectively; the Escrow Share Distributions and the Set-Off Share Distributions may be collectively referred to as the "Distributions"). The Deposited Shares, together with any Distributions, shall be held by the Escrow Agent, for the account of Parent, in order to satisfy any pending claims for indemnification made by Parent pursuant to Article 9 of the Merger Agreement, to satisfy Parent's rights regarding the Abbey Claims under Section 9(b) hereof, to satisfy Parent's right to a Net Operating Assets Adjustment, if any, pursuant to Section 2.3 of the Merger Agreement and to satisfy Parent's set off rights under Section 5.21 of the Merger Agreement regarding recovery of the Edwards Holdback Amount, if any. The Escrow Agent agrees to accept delivery of the Deposited Shares and the Distributions, and to hold the Escrow Fund in escrow subject to the terms and conditions of this Agreement. The Escrow Shares and the Escrow Share Distributions shall be held by the Escrow Agent (the "Escrow Shares Account"), and the Set-Off Shares and the Set-Off Share Distributions shall be held by the Escrow Agent (the "Set-Off Shares Account" and, together with the Escrow Shares Account (the "Escrow Accounts")). No portion of the Escrow Fund shall be subject to any consensual lien, attachment, trustee process, or other judicial process of any kind whatsoever of any creditor of any of the parties hereto. 3 3. Investment of Cash Distributions. (a) The Escrow Agent shall be permitted to deposit, transfer, hold, and invest any cash Distributions received by the Escrow Agent pursuant to this Agreement in one or more Wells Fargo Advantage Money Market Funds (the "Wells Fargo Advantage Funds") upon the completion by Parent of the Agency and Custody Account Direction for Cash Balances, a form of which is attached hereto as Appendix A. In the absence of written instructions from Parent, the Escrow Agent is hereby directed to invest cash Distributions in the Wells Fargo Advantage 100% Treasury Money Market Fund, Service Class Shares. The investments in the Wells Fargo Advantage Funds are not obligations of, or endorsed or guaranteed by, the Escrow Agent or its affiliates and are not insured by the Federal Deposit Insurance Corporation. All income earned on invested funds, if any, shall be distributed to the Exchange Agent for distribution to the Stockholders or to Parent, as the case may be, concurrently with the release of the related shares held in the Escrow Fund. (b) The Escrow Agent shall be entitled to sell or redeem any such investments as is necessary to make any distributions required under this Agreement. The Escrow Agent shall have no responsibility or liability for any loss which may result from any investment made pursuant to this Agreement, or for any loss resulting from the sale of such investment. The Parties acknowledge that the Escrow Agent is not providing investment supervision, recommendations, or advice. 4. Separate Accounts. The Escrow Agent shall keep a separate accounting for the Escrow Shares and the Set-Off Shares such that, in the event Parent or the Stockholders, as the case may be, become entitled to the Escrow Shares and Escrow Share Distributions related thereto or Set-Off Shares and Set-Off Share Distributions related thereto pursuant to the Merger Agreement, the appropriate number of Escrow Shares or Set-Off Shares will be available for distribution, in addition to the appropriate Distributions related thereto. 5. Information Regarding Company Stockholders. Schedule A attached hereto is a complete and correct list of the Stockholders as of the Effective Time, including their respective holdings of Company Capital Stock, their percentage interest in the outstanding shares of Company Capital Stock as of the Effective Time, and their respective mailing addresses. Schedule A may be revised from time to time by Parent to reflect any updates to information contained on such schedules. At the time of such revision, a copy or copies of the revised schedule(s) shall be provided by Parent to the Stockholder Representative. 6. Company Stockholders' Escrow Account Interest. At the time any distribution of all or any portion of the Escrow Shares and Escrow Share Distributions related thereto or Set-Off Shares and Set-Off Share Distributions related thereto is to be made by the Escrow Agent to the Exchange Agent for distribution to the Stockholders, the Stockholders shall each be entitled to its percentage interest of the Escrow Shares or Set-Off Shares or Distributions or other property related thereto being so distributed in proportion to the ratio by which the number of shares of Company Capital Stock held by each Company Stockholder at time of any such distribution bears to the aggregate number of outstanding shares of Company Capital Stock at time of any such distribution (the "Escrow Account Interest" or collectively the "Escrow Account Interests"). 7. Distributions, Voting and Rights of Ownership regarding Escrow Shares and Set-Off Shares. Any Distributions with respect to the Escrow Shares or the Set-Off Shares will be 4 issued or distributed by Parent to the Escrow Fund as an additional contribution to the Escrow Fund by the Parent with such dividends or distributions retained by the Escrow Agent pursuant to the terms of this Escrow Agreement. The Stockholders, the Stockholder Representative, and the Escrow Agent shall not have any voting rights with respect to the Escrow Shares and Escrow Share Distributions related thereto, or the Set-Off Shares and the Set-Off Share Distributions related thereto while such shares or Distributions related thereto are held in escrow by the Escrow Agent. The Stockholders and the Stockholder Representative have disclaimed any right to such voting rights and agreed not to attempt to exercise or claim a right to exercise any such voting rights with respect to such Escrow Shares and Escrow Share Distributions related thereto, or Set-Off Shares and Set-Off Share Distributions related thereto. Unless and until distributed to the Stockholders through the Exchange Agent, or distributed to Parent, as the case may be, in accordance with the provisions hereof, the Escrow Shares and Escrow Share Distributions related thereto and the Set-Off Shares and the Set-Off Share Distributions related thereto shall be registered in the name of Wells Fargo Bank, N.A., in its sole capacity as Escrow Agent. Except for distributions of the Escrow Shares to Parent or to the Exchange Agent for distribution to the Stockholders as herein required, the Escrow Agent shall not sell, transfer, pledge, assign, encumber, or otherwise attempt to dispose or transfer any (i) Escrow Shares and Escrow Share Distributions related thereto or (ii) Set-Off Shares and Set-Off Share Distributions related thereto held pursuant to this Escrow Agreement. 8. No Transfer of Escrow Shares and Set-Off Shares. Each Stockholder shall not sell, transfer, pledge, assign, encumber, or otherwise attempt to dispose or transfer of their Escrow Account Interest, or the underlying shares or property related thereto, any portion thereof, or any interest therein, unless and until such Escrow Account Interest or the underlying shares or property related thereto, portion thereof, or interest therein is delivered by the Exchange Agent to such Stockholder pursuant to the terms of the Exchange Agreement. Each Stockholder shall not allow its Escrow Account Interest or the underlying shares or property related thereto, a portion thereof, or any interest therein to be taken or reached by any legal or equitable process in satisfaction of any debt or other liability of the Stockholder unless and until such Escrow Account Interest or the underlying shares or property related thereto, portion thereof, or interest therein is delivered by the Exchange Agent to such Stockholder pursuant to the terms of the Exchange Agreement. Any purported transfer in violation of any of the foregoing restrictions in this Section 8 shall be null, void and of no force or effect and the Escrow Agent shall not recognize any request for such purported transfer. 9. Procedure for Making Claims Against the Escrow Shares or Set-Off Shares. (a) General. If Parent makes a claim or sends an Indemnification Notice (as defined in Section 9.4(a) of the Merger Agreement) pursuant to the terms of the Merger Agreement, Parent, either on behalf of itself or on behalf of Company, or its agent, may make, by delivering to the Stockholder Representative with a copy provided to the Escrow Agent, a written notice of an indemnification claim and each such Indemnification Notice (a "Claim Notice"), one or more claims (each such claim in a Claim Notice and each such claim described in an Indemnification Notice, a "Claim") against either: (a) the Escrow Shares or Distributions related thereto up to eighteen (18) months after the Effective Date (the "Escrow Shares Cut-Off Period"), or (b) the Set-Off Shares or Distributions related thereto (including any Escrow Shares remaining in the Escrow Fund that have not been previously distributed to Parent or to the 5 Exchange Agent for distribution to the Stockholders pursuant to the terms of the Exchange Agreement) until the earlier of: (i) the date on which all Milestone Consideration has been issued or paid or set-off against to create Set-Off Shares as provided in the Merger Agreement, or (ii) the expiration of the Contingent Period (the "Final Cut-Off Period"). Each Claim Notice, a form of which is attached hereto as Exhibit A, shall (i) describe in reasonable detail the basis of each Claim asserted by Parent, (ii) provide an estimate of the total amount of the Claim(s) described in the Claim Notice, and (iii) state that a copy of the Claim Notice has been provided by Parent to the Stockholder Representative in a timely manner and in accordance with the Escrow Agreement. It is expressly agreed that Claims shall include indemnification claims brought by Parent during the applicable periods against either the Escrow Shares or the Set-Off Shares. As contemplated in the Merger Agreement, Parent, either on behalf of itself or on behalf of Company, or its agent, may make one or more Claims using (Escrow Shares, if not distributed prior thereto in accordance with the terms and conditions of this Escrow Agreement) or Set-Off Shares or Distributions related thereto prior to December 31, 2013 or the final Milestone Date, whichever occurs first, so long as the Claim Notice was delivered to the Stockholder Representative by the end of the Final Cut-Off Period. Parent may make any such Claims before or after the certificates representing Escrow Shares and Escrow Share Distributions related thereto are delivered to the Escrow Agent, but Parent must make any such Claims before the certificates representing the Set-Off Shares and Set-Off Share Distributions related thereto are delivered to the Escrow Agent (which would follow achievement of Milestones, if any). If on March 29, 2008, and subject to Section 9(b) of this Escrow Agreement, Parent has no then pending Claim and Parent has not given notice to the Escrow Agent directing the Escrow Agent not to distribute the Escrow Shares and the Escrow Distributions, the parties agree that the Escrow Agent shall distribute all of the then remaining Escrow Shares and Escrow Distributions to the Exchange Agent for distribution to the Stockholders. Nothing herein shall be deemed to modify, supersede, or amend the provisions of the Merger Agreement as to the time periods, limits, methodology, or the like of making Claims for which indemnification may be sought. (b) Acknowledgment of Bona Fide Indemnification Claim Resulting from Breach Concerning Abbey Claims. The Parties hereto acknowledge receipt of a copy of that certain Indemnification Notice (or Claim) dated September 12, 2006 from Parent to the Company (the "September 12, 2006 Claim Notice"). In consideration of the acknowledgement by the Company and the Stockholder Representative that the existence of the Abbey Claims constitutes a breach by the Company of certain of its representations and warranties under Article 3 of the Merger Agreement, including without limitation Section 3.20 (Litigation), as provided in Section 2(o) of Amendment No. 1 to the Merger Agreement, and that, notwithstanding Section 5.9 of the Merger Agreement and the disclosure of the Abbey Claims on the Company's Supplement and Amendment to the Disclosure Schedule, the Company and the Stockholder Representative have acknowledged that the Parent's Claim with respect to the Abbey Claims is a bona fide indemnification claim under the Merger Agreement, the Company and the Stockholder Representative agree that Damages incurred by the Indemnified Parties (as defined under the September 12, 2006 Claim Notice) arising from the acknowledged breach are the responsibility of the Indemnifying Parties (as defined under the September 12, 2006 Claim Notice), regardless of when such Damages (if any) are actually incurred. Within a reasonably prompt time after Damages are actually incurred by the Indemnified Parties, Parent may send an additional Claim Notice specifying the final amount of Damages incurred, and thereafter the Stockholder Representative, pursuant to Section 10 hereof, may dispute or object to the final 6 amount of such Claim, or the Payment of Claims provision in Section 11 hereof may be implemented, as the case may be. In order to confirm the arrangements concerning the Escrow Shares (and the Set-Off Shares, as the case may be) as security for the Stockholders' indemnification obligation for the acknowledged breach, and notwithstanding Section 5.9 of the Merger Agreement and the disclosure of the Abbey Claims on the Company's Supplement and Amendment to the Disclosure Schedule, each of the Company, the Stockholder Representative and the Parent hereby acknowledges and agrees that the Stockholders' indemnification obligation under the Merger Agreement for Damages by reason of or resulting from the acknowledged breach extends through the time of final resolution of the Abbey Claims, subject to the agreement of Parent and the Stockholder Representative to endeavor, consistent with Section 2.2 of the Merger Agreement, beginning March 29, 2008, at such times as definitive material developments involving the Abbey Claims occur, in good faith to determine a reasonable estimate of the maximum amount of Damages relating to such Claim, so that the Parent and Stockholder Representative may agree on the number of Escrow Shares and Set-Off Shares that will continue to be retained in the Escrow Fund (or established as Set-Off Shares to be deposited into the Escrow Fund) to cover such reasonable estimate of the maximum amount of Damages relating to such Claim. The Stockholder Representative confirms that it has no dispute and has no objection with respect to the September 12, 2006 Claim Notice, it being understood that no specific Claim for immediate payment of Damages incurred by Parent or its Indemnified Parties has been made in such Claim Notice, but may be made by the Indemnified Parties when such Damages (if any) are incurred, subject to the terms hereof. 10. Disputed Claims. Within ten (10) business days of the Stockholder Representative receiving a Claim Notice, the Stockholder Representative, acting on behalf of the Stockholders, may dispute or object to any Claim, in whole or in part, by delivering to the Escrow Agent a copy of Parent's Claim Notice and a written notice of objection, a form of which is attached hereto as Exhibit B, (an "Objection Notice") stating: (a) that the Stockholder Representative disputes or objects to such Claim; (b) that the Stockholder Representative has delivered a copy of the Objection Notice to Parent in a timely manner and in accordance with this Escrow Agreement; and (c) the portion of the Claim set forth in the Claim Notice, if any, that is not disputed or objected to. If an Objection Notice is not delivered in a timely manner in accordance with this Section 10, the Stockholder Representative shall be deemed to have given its consent to the entire amount of the Claim. In that case, both Parent and the Stockholder Representative authorize the Escrow Agent to release promptly to Parent the number of Deposited Shares required to satisfy the Claim. The number of Deposited Shares to be released shall be calculated in accordance with this Escrow Agreement. Parent and the Stockholder Representative agree that all disputed Claims shall be resolved in accordance with the procedures set forth in Article 10 of the Merger Agreement. 7 11. Payment of Claims. If the Escrow Agent receives from the Stockholder Representative written notice of consent or agreement to all or part of a Claim, or receives notice of a Final Decision (as defined in Section 12(a) below) with respect to a Claim in favor of Parent, the Escrow Agent shall thereupon promptly deliver to Parent from the Deposited Shares a number of Deposited Shares having a value equal to the aggregate amount of such Claim as specified in such written notice of consent or agreement from the Stockholder Representative or in the Final Decision, as the case may be, such value to be determined as hereinafter prescribed. If the Deposited Shares are not sufficient to satisfy in full such Claim (as consented or agreed to by Stockholder Representative or as finally determined by a Final Decision), the Escrow Agent shall deliver to Parent such Deposited Shares as are available and satisfy the remainder of such Claim from Distributions (to the extent of such Distributions) and/or from any future Set-Off Shares, to the extent such will be or have been deposited. To the extent the Deposited Shares are not sufficient to satisfy in full any such Claim, but the Final Cut-Off Period has not yet occurred, a pending excess Claim will be recorded by the Parties hereto until future Set-Off Shares, if any, are to be deposited (resulting from future achievement of Milestones, if any). Claims satisfied by payment in the form of Deposited Shares shall be satisfied by returning to Parent from the Deposited Shares the number of whole shares of Parent Common Stock equal to the quotient of the aggregate Claim(s) being so satisfied divided by the Average Market Price (as defined below), so adjusted, if appropriate, in the event that there occurs any stock dividend, stock split, or similar event with respect to the Parent Common Stock after the Effective Time. "Average Market Price" means (i) with respect to Escrow Shares, the average of the closing sale price (such closing price as reported by The NASDAQ Stock Market at the end of regular trading) of one share of Parent Common Stock on the NASDAQ National Market System (or such other national securities trading system as Parent Common Stock is approved and listed for trading) on each of the sixty (60) trading days ending on (and including) the Distribution Date, and (ii) with respect to Set-Off Shares, the Parent Milestone Share Price. Such Average Market Price and the number of Deposited Shares to satisfy such Claim shall be provided in writing to the Escrow Agent by Parent and the Stockholder Representative, which notice shall be provided promptly following consent or agreement by the Stockholder Representative of the Claim or the Final Decision, as the case may be. 12. Distribution of Escrow Fund to Exchange Agent for Distribution to Stockholders. (a) After the expiration of the Escrow Shares Cut-Off Period or Final Cut-Off Period, as the case may be and which date shall be provided in writing to the Escrow Agent by Parent, but only after disbursements have been made to Parent with respect to all resolved Claims and only after resolution of all pending unresolved Claims made prior to expiration of the Escrow Shares Cut-Off Period or the Final Cut-Off Period, as the case may be, and subject to Section 15 and Section 16 of this Agreement, the Escrow Agent shall, after taking the actions described in this Section 12, remit the balance of the Escrow Fund (excluding any shares that are returned, or required to be returned, back to Parent pursuant to the terms of this Escrow Agreement) then remaining to the Exchange Agent for distribution to the Stockholders. In addition, prior to such proposed distribution to the Exchange Agent, the Escrow Agent shall notify Parent and the Stockholder Representative of the pending distribution(s) and the proposed number of Deposited Shares to be remitted to the Exchange Agent for distribution to the Stockholders. In the event that there exists as of the date of the proposed distribution any Claim that has not been satisfied in full or if Parent has provided written notice to the Escrow Agent 8 and to the Stockholder Representative that states the reasons why pursuant to the Merger Agreement or by law that the Escrow Agent should not distribute all or any portion of the Escrow Fund to the Exchange Agent for distribution to the Stockholders, Parent and the Stockholder Representative shall endeavor in good faith to determine a reasonable estimate of the maximum amount of such Claim and shall jointly instruct the Escrow Agent to deliver any excess amount in the Escrow Fund to the Exchange Agent for distribution to the Stockholders. The Escrow Agent shall continue to hold such portion of the Escrow Fund in dispute until the Escrow Agent receives written instructions signed by each of Parent and the Stockholder Representative directing the Escrow Agent to deliver the Escrow Fund (or any portion thereof) or until there is a Final Decision (as hereinafter defined) with respect to a disputed Claim directing delivery of the Escrow Fund (or any portion thereof), in which case the Escrow Agent shall deliver the Escrow Fund (or such portion thereof) in accordance with the Final Decision. "Final Decision" means a decision, order, judgment or decree of an arbitrator or court having jurisdiction that is either not subject to appeal or as to which notice of appeal has not been timely filed or served. Upon the issuance of a Final Decision, an authorized representative of Parent and Stockholders Representative agree to provide a joint written instruction to the Escrow Agent directing the Escrow Agent to deliver the Escrow Fund (or such portion thereof) in accordance with the Final Decision. Notwithstanding anything herein to the contrary, the Escrow Agent is authorized to take any action with respect to the Escrow Fund upon receipt of a joint instructions notice signed by an authorized representative of Parent and the Stockholder Representative, provided the Escrow Agent has prior to such time received an incumbency certificate satisfactory to it for such representative of Parent. (b) Deposited Shares issued to the Stockholders shall be bifurcated into shares deemed to represent Merger Consideration and shares deemed to represent imputed interest, with separate share certificates with respect to Merger Consideration and imputed interest issued to each Stockholder. If the Stockholder Representative agrees to such allocation of Deposited Shares then remaining in the applicable Escrow Account, the Stockholder Representative shall so notify Parent and Parent shall provide the Escrow Agent with such necessary stock certificates in the name of each such Stockholder (with separate certificates for the Merger Consideration and the imputed interest) representing such number of Deposited Shares, and the Escrow Agent shall remit such number of Deposited Shares to the Exchange Agent for distribution to each such Stockholder. 13. Duration of Escrow. The Escrow Agent shall hold all Escrow Shares and Set-Off Shares and other property constituting a part thereof until the Escrow Shares or Set-Off Shares, or other property constituting a part thereof that corresponds to the Distribution(s), is delivered to the Exchange Agent for distribution to the Stockholders or to Parent, as the case may be, pursuant to the terms of this Escrow Agreement. 14. Fractional Shares. Notwithstanding any other provision of this Escrow Agreement to the contrary, no certificates representing fractional shares of Parent Common Stock shall be remitted to the Exchange Agent for conveyance to the Stockholders upon distribution from the Escrow Shares and Escrow Share Distributions related thereto or Set-Off Shares and Set-Off Share Distributions related thereto. In lieu of any fractional shares of Parent Common Stock to which any Stockholder may be entitled or which would otherwise be held as shares in escrow, Parent shall remit to the Exchange Agent for payment to such Stockholder or to 9 the escrow account an amount of cash (without interest) determined by multiplying the fair market value of one share of Parent Common Stock on the Final Escrow Distribution Date (as defined below) by the fractional share interest to which such Stockholder would otherwise be entitled or which would otherwise be delivered to the escrow account (determined after taking into account all shares of Company Common Stock held by each such Stockholder immediately prior to the Effective Time). Parent will make available to the Escrow Agent all cash necessary for this purpose. If Parent becomes entitled to receive from each Stockholder any fraction of a share of Parent Common Stock from any Stockholder pursuant hereto, then Parent will receive the next higher whole number of shares and pay to such Stockholder an amount of cash (without interest) determined by multiplying the Average Market Price by the fractional share interest received by Parent as a result of the rounding up of the shares transferred by the Stockholder(s). 15. Release and Return of Deposit Shares to Parent for Recovery of Edwards Holdback Amount. Pursuant to Section 5.21 of the Merger Agreement, Parent shall be entitled to all or any portion of the Edwards Holdback Amount not received on or prior to January 15, 2007 by Parent or the Surviving Corporation, which may be the entire Edwards Holdback Amount of Two Million Dollars ($2,000,000). If the Edwards Holdback Amount is not paid in full by January 15, 2007, then in accordance with Section 5.21 of the Merger Agreement, Parent shall have the right to, in its sole and absolute discretion, immediately notify the Escrow Agent in writing to return to Parent the number of Escrow Shares as provided herein or, in its sole and absolute discretion, the number of Set-Off Shares from shares of Parent Common Stock that may be issued to the Stockholders as Milestone Shares. The number of such Escrow Shares (or Set-Off Shares, as the case may be) that shall be used to satisfy the Edwards Holdback Amount that was not paid to Parent or the Surviving Corporation shall be equal to: (a) the portion of the Edwards Holdback Amount (which may be the entire amount) not received on or prior to January 15, 2007, divided by (b) the average of the closing sale prices (such closing price as reported by the Nasdaq Stock Market at the end of regular trading) of one share of Parent Common Stock on the NASDAQ National Market System (or such other national securities trading system as the Parent Common Stock is approved and listed for trading) on each of the sixty (60) trading days ending on (and including) January 15, 2007. If Parent exercises its right to set-off pursuant to Section 5.21 of the Merger Agreement and so notifies the Escrow Agent to return the applicable number of Escrow Shares (or Set-Off Shares, as the case may be) to Parent as recovery of the Edwards Holdback Amount, such shares will automatically return to the status of authorized and unissued common stock of the Parent. 16. Release and Return of Escrow Shares to Parent for Net Operating Assets Adjustment. Upon final resolution of an Adjustment Amount, if any, pursuant to Section 2.3 of the Merger Agreement requiring shares to be returned to Parent, Parent shall give written notice thereof to the Escrow Agent and the Stockholder Representative of the exercising of Parent's right to withdraw Escrow Shares in order to give effect to the Net Operating Assets Adjustment as provided in Section 2.3 of the Merger Agreement, specifying therein (a) the number of Escrow Shares to be so withdrawn and (b) evidence of calculation or other rationale providing for the withdrawal of such number of Escrow Shares. 10 17. Termination. This Escrow Agreement shall terminate as follows: (a) At the close of business on December 31, 2014, or one year after the final Milestone Date (but in any case not before March 29, 2008), whichever occurs first (the "Final Escrow Distribution Date"), provided that there are no claims then pending against the Escrow Shares and Escrow Share Distributions related thereto or the Set-Off Shares and Set-Off Share Distributions related thereto that were made by proper delivery of a Notice of Claim on or prior to such date, in which event the Escrow Agent shall promptly thereafter deliver any remaining Escrow Shares and Escrow Share Distributions related thereto, or Set-Off Shares and Set-Off Share Distributions related thereto, to the Exchange Agent for distribution to the Stockholders; or (b) Upon Final Decision of any claims of Parent that are pending against the Escrow Shares and Escrow Share Distributions related thereto, or the Set-Off Shares and Set-Off Share Distributions related thereto on the Final Escrow Distribution Date, provided that such claims were made by proper delivery of Notices of Claims on or before the Final Escrow Distribution Date, in which event the remaining Escrow Shares and Escrow Share Distributions related thereto, or the Set-Off Shares and Set-Off Share Distributions related thereto shall be distributed by the Escrow Agent to the Exchange Agent for distribution to the Stockholders in accordance with the Exchange Agreement; or (c) Upon the mutual written agreement to terminate this Escrow Agreement executed by Parent and the Stockholder Representative. 18. Authority of Escrow Agent. Parent and the Stockholder Representative, by execution and delivery of this Escrow Agreement, constitute and appoint the Escrow Agent as their true and lawful agent and attorney-in-fact to assign and transfer the Escrow Shares and Escrow Share Distributions related thereto and the Set-Off Shares and the Set-Off Share Distributions related thereto, for and on behalf of Parent and the Stockholder Representative, respectively, and in the name, place and stead of Parent and the Stockholder Representative, respectively, as fully and to all the same extent as Parent or the Stockholder Representative, respectively, could do on their own behalf, as shall from time to time be required in accordance with the provisions of this Escrow Agreement. In furtherance of the foregoing and not in limitation thereof, the Escrow Agent is specifically authorized to forward any of the Escrow Shares, the Set-Off Shares, any Distributions related thereto, or any other property constituting a part of the Escrow Shares and the Set-Off Shares pursuant to this Escrow Agreement to (i) Parent in satisfaction of the Stockholders' indemnification obligations in the Merger Agreement, and/or payment obligations of the Stockholders in the Merger Agreement and under Section 9(b) hereof, and/or in satisfaction of Parent's set-off rights to recovery for the Edwards Holdback Amount pursuant to Section 5.21 of the Merger Agreement, and/or in satisfaction of Parent's right to give effect to a Net Operating Assets Adjustment pursuant to Section 2.3 of the Merger Agreement, if any, and as may be necessary to accomplish the intent and purposes of this Escrow Agreement, or (ii) provided Parent has no outstanding claims for indemnification, the Exchange Agent for purposes of having any such consideration or other property delivered to the respective Stockholders in accordance with the terms of the Exchange Agreement. Such authority of the Escrow Agent shall not be affected by the subsequent bankruptcy, insolvency, death, disability or incompetence of Parent or the Stockholder Representative, respectively. 11 19. Successors, General Duties, Reporting, Liability, Resignation, Removal and Indemnification of Escrow Agent. (a) Any corporation into which the Escrow Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Escrow Agent will be a party, or any corporation to which substantially all the corporate trust business of the Escrow Agent may be transferred, shall be the Escrow Agent under this Escrow Agreement without further act. (b) The duties and responsibilities of the Escrow Agent shall be limited to those expressly set forth in this Escrow Agreement and the Escrow Agent shall not be obligated to recognize any other agreement between any of the parties hereto, including the Merger Agreement, even though reference thereto may be made herein and whether or not the Escrow Agent has knowledge thereof. All references in this Escrow Agreement to any other agreement are for the convenience of the parties hereto other than the Escrow Agent, and the Escrow Agent has no duties or obligations with respect thereto. The Escrow Agent will hold and administer the Escrow Shares and Set-Off Shares, together with all Distributions related thereto, in accordance with the provisions of this Escrow Agreement. (c) Each quarter during the term of this Escrow Agreement, the Escrow Agent shall prepare and send to the Parent and Stockholder Representative a report describing in reasonable detail a summary of receipts and disbursements from each Escrow Account. The Escrow Agent will maintain complete and accurate records concerning all receipts and distributions to and from each Escrow Account, including, but not limited to, the date and amount of each distribution made to Parent or to the Exchange Agent for distribution to the Stockholders. The Escrow Agent will be deemed in compliance with this Section 19(c) if it maintains copies of all reports delivered from time to time pursuant to this Section 19(c). In the event that the Escrow Agent seeks indemnification pursuant to the terms of this Escrow Agreement, the Escrow Agent shall, in addition to the report required pursuant to this Section 19(c), prepare and send to Parent and the Stockholder Representative on a monthly basis a detailed summary of the Escrow Agent's fees and expenses, which shall include legal fees and expenses. (d) The Escrow Agent shall not be personally liable for any action taken or omitted to be taken hereunder if taken or omitted to be taken by the Escrow Agent in good faith or in the exercise by the Escrow Agent of its own best judgment unless it acts grossly negligent or with willful misconduct. The Escrow Agent shall also be fully protected in relying upon any written notice, demand, certificate or document that the Escrow Agent in good faith believes to be genuine unless it is grossly negligent or acts with willful misconduct. (e) Provided it acts in the absence of gross negligence, bad faith, and willful misconduct; the Escrow Agent shall not be responsible for the sufficiency or accuracy of the form, execution, validity or genuineness of notices, documents or securities now or hereafter deposited or delivered under this Escrow Agreement, or of any endorsement thereof, or for any lack of endorsement thereof, or for any description therein, nor shall the Escrow Agent be responsible or liable in any respect on account of the identity, authority or rights of the persons 12 executing or delivering or purporting to execute or deliver this Escrow Agreement or any such document, notice, security or endorsement. (f) The Escrow Agent may resign upon sixty (60) days' advance written notice to the Parties hereto or be removed by the mutual consent of Parent and the Stockholder Representative. No resignation or removal of the Escrow Agent and no appointment of a successor Escrow Agent, however, shall be effective until the acceptance of appointment by the successor Escrow Agent in the manner herein provided. In the event of the resignation or removal of the Escrow Agent, Parent and the Stockholder Representative shall agree upon a successor Escrow Agent. Any successor Escrow Agent shall execute and deliver to the predecessor Escrow Agent, Parent and the Stockholder Representative an instrument accepting such appointment and the transfer of the Escrow Shares and the Set-Off Shares, together with Distributions related thereto, and agreeing to the terms of this Escrow Agreement, and thereupon such successor Escrow Agent shall, without further act, become vested with all the estates, properties, rights, powers and duties of the predecessor Escrow Agent as if originally named herein. In the event Parent and the Stockholder Representative are unable to agree upon a successor Escrow Agent within twenty (20) days of the creation of the vacancy, Parent and the Stockholder Representative shall submit the dispute for arbitration as provided in the Merger Agreement and the arbitrator shall select a successor Escrow Agent within sixty (60) days of such arbitrator's appointment. (g) Parent, the Stockholders, and the Stockholder Representative (but in the case of the Stockholder Representative not to exceed the amount of cash and Parent Common Stock held in the Representative's Escrow Account from time to time), jointly and severally, hereby indemnify and hold harmless the Escrow Agent from and against any and all loss, liability, cost, damage and expense, including, without limitation, reasonable counsel fees, which the Escrow Agent may suffer or incur by reason of any action, claim or proceeding brought against the Escrow Agent arising out of or relating in any way to this Escrow Agreement or any transaction to which this Escrow Agreement relates unless such action, claim or proceeding is the result of the willful misconduct or gross negligence of the Escrow Agent. The Escrow Agent may consult counsel in respect of any question arising under this Escrow Agreement and the Escrow Agent shall not be liable for any actions taken or omitted in good faith upon advice of such counsel. 20. Actions Relating to the Escrow Accounts. The Parties to this Agreement acknowledge and agree that: (a) The Stockholder Representative may initiate any legal proceeding against any party regarding, or defend any claim or action against or involving, the Escrow Fund and may assert counterclaims in such claims or actions, pursuant to the terms and conditions of the Merger Agreement. Pursuant to the terms and conditions of the Merger Agreement, in any action taken by the Stockholder Representative, the Stockholder Representative will be the sole and exclusive representative of the Stockholders in connection with all matters arising under the Merger Agreement and the agreements and transactions contemplated thereby including without limitation, representing the Stockholders in the event of any claim pursuant to Article 9 of the Merger Agreement, and will be deemed to represent all of the Stockholders' interests in the Escrow Accounts, and no Stockholder shall have the right independently to be a party to such 13 action, and the Stockholders will be bound by the action taken by the Stockholder Representative hereunder. The Stockholder Representative is authorized only to represent such Stockholders in their capacities as Stockholders hereunder and as Stockholders under the Merger Agreement, and not in any other capacity. (b) No Company Stockholder will be entitled to act independently with respect to any actions required with respect to any claims for indemnification asserted against or on behalf of the Stockholders pursuant to the Merger Agreement or any other action relating to the Merger Agreement, the other agreements and the transactions contemplated thereby and any such actions will be taken solely by the Stockholder Representative. The Stockholder Representative will have full power and authority to act on behalf of the Stockholders with respect to such matters and the Stockholders will be bound by any and all such actions. Boyd D. Cox is the Stockholder Representative for purposes of this Escrow Agreement, the Merger Agreement, and all the agreements and transactions contemplated thereby, and that until notice of a change in the Stockholder Representative is given pursuant to Sections 22 and 23 of this Escrow Agreement, Parent and the Escrow Agent will be entitled to rely upon the power and authority of the Stockholder Representative to act on behalf of the Stockholders and will be fully protected in acting on and relying upon any notice, direction, request, waiver, consent, receipt or other paper or document signed or presented by the Stockholder Representative. (c) In the event the Escrow Agent becomes a party to or otherwise involved in an action regarding the Escrow Accounts, the Escrow Agent will cooperate with the Stockholder Representative and Parent and participate in the compromise, dismissal or settlement of such action only at the direction of, and with the written consent of, the Stockholder Representative and Parent. The Stockholder Representative and Parent may compromise, dismiss or settle any action involving the Escrow Accounts without the written consent of any of the Stockholders or the Escrow Agent, except in the case of the Escrow Agent, any compromise, dismissal or settlement that adversely affects the Escrow Agent. (d) The Stockholder Representative will have the full power and authority to file such proofs of claim and other papers as may be necessary or appropriate in order to have the claims of the Stockholder Representative or the Stockholders allowed in any judicial proceeding. Nothing contained in this Section 20 will be deemed to authorize the Escrow Agent to consent to or accept, on behalf of the Stockholder Representative or the Stockholders, any plan of reorganization, arrangement or adjustment affecting the rights of the Stockholder Representative or the Stockholders, or to authorize the Escrow Agent to vote in respect of the claims of the Stockholder Representative or any Stockholders in any such proceeding. 21. Escrow Agent's Fee. The Escrow Agent shall be entitled to compensation for its services as stated in the fee exhibit attached hereto as Appendix B. The Escrow Agent shall send a copy of each invoice to both Parent and the Stockholder Representative. Parent shall pay such compensation in cash upon receipt of the Escrow Agent's invoice. The fee agreed upon for the services rendered hereunder is intended as full compensation for the Escrow Agent's services as contemplated by this Escrow Agreement; provided, however, that in the event that the Escrow Agent renders any material service not contemplated in this Escrow Agreement, or there is any assignment of interest in the subject matter of this Escrow Agreement, or any material modification hereof, or if any material controversy arises hereunder, or the Escrow Agent is 14 made a party to any litigation pertaining to this Escrow Agreement, or the subject matter hereof, then the Escrow Agent shall be reasonably compensated for such extraordinary services and reimbursed for all costs and expenses, including reasonable attorney's fees (the "Extraordinary Expenses"), occasioned by any delay, controversy, litigation or event. The Escrow Agent may recover such Extraordinary Expenses from either Parent or the Stockholder Representative. The Parties agree, that amongst themselves, the Extraordinary Expenses shall be apportioned one-half (1/2) to Parent and one-half (1/2) to the Stockholder Representative (or the Stockholders pro rata pursuant to their Escrow Account Interest if the Stockholder Representative is unable to pay) upon receipt of the Escrow Agent's invoice by each Party. 22. Removal; Successor Stockholder Representative. The Stockholder Representative may resign at any time by giving five (5) Business Days' written notice to the Stockholders, Parent and the Escrow Agent. Such resignation shall take effect five (5) Business Days after the date of the receipt of such notice by the Escrow Agent or at any later time specified therein, and if no time be specified, at the time of its receipt by the Escrow Agent. The acceptance of a resignation will not be necessary to make it effective, unless so specified therein. Holders of a majority of the Escrow Account Interest will be entitled to remove and replace the Stockholder Representative at any time and for any reason upon sending written notice thereof to Parent. In the event of the death or disability of the Stockholder Representative, the Alternative Stockholder Representative shall automatically become the Stockholder Representative. In the event of the resignation or removal of the Stockholder Representative, the Alternative Stockholder Representative shall automatically become the Stockholder Representative (unless the holders of a majority of the Escrow Account Interest select a different Stockholder Representative). Parent shall (i) forward, if received by Parent, a copy of the written notice received from the holders of a majority of the Escrow Account Interest naming the new Stockholder Representative in the case of removal or (ii) provide written notice to the Escrow Agent informing the Escrow Agent as to whom the Escrow Agent shall recognize as the Alternative Stockholder Representative in the case of death, disability, or resignation of the Stockholder Representative. Parent and the Escrow Agent, as the case may be, shall be entitled to rely upon all actions authorized and all documents, certificates and instructions executed or issued by the Stockholder Representative until such time as Parent and the Escrow Agent, as the case may be, receive written notice of such resignation or removal of the Stockholder Representative from the Stockholder Representative. 23. Notice Provisions. All notices, requests, demands, and other communications required or permitted hereunder shall be in writing. Any notice, request, demand, or other communication hereunder shall be deemed duly given (a) if personally delivered, when so delivered, (b) if mailed, two (2) Business Days after having been sent by registered or certified mail, return receipt requested, postage prepaid and addressed to the intended recipient as set forth below, (c) if given by facsimile, once such notice or other communication is transmitted to the facsimile number specified below and electronic confirmation is received; provided, however, that such notice or other communication is promptly thereafter mailed in accordance with the provisions of clause (b) above, or (d) if sent through an overnight delivery service in circumstances to which such service guarantees next day delivery, the day following being so sent, and further provided, however that regardless of which method of notice under Sections 23 (a), (b), (c) or (d) is utilized, then in every such case a copy of such notice, request, demand or other communication hereunder shall also be sent to the Stockholder Representative at 15 Boydcox@aol.com, and when so sent, once such notice or other communication is so transmitted: If to the Company or to Parent or Merger Subsidiary: To: ATS Medical, Inc. 3905 Annapolis Lane #105 Minneapolis, Minnesota 55447 Attn: Rick Curtis, Vice President Marketing and Business Development Fax: (763) 553-1492 With a copy to: Oppenheimer Wolff & Donnelly LLP 3300 Plaza VII 45 South Seventh Street Minneapolis, Minnesota 55402 Attn: Thomas A. Letscher, Esq. Fax: (612) 607-7100 or to such other address as the Company, Parent, or Merger Subsidiary shall furnish to the other parties hereto in writing in accordance with this subsection. If to the Stockholder Representative: To: Boyd D. Cox P.O. Box 573 Fayetteville, Arkansas 72702 Or, Boyd D. Cox 75 N. East Avenue Suite 506 Fayetteville, Arkansas 72701 (Fax) 479-521-4169 With a copy to: Reed Smith LLP 1901 Avenue of the Stars, Suite 700 Los Angeles, California 90067 Attn: Michael Sanders, Esq. Fax: (310) 734-5299 or to such other address as the Stockholder Representative shall furnish to the other parties hereto in writing in accordance with this subsection. 16 If to the Escrow Agent: Wells Fargo Bank, N.A., Corporate Trust Customized Fiduciary Services 45 Broadway, 14th Floor New York, New York 10006 Attn: Joseph H. Clark Fax: (212) 515-1589 or to such other address as the Escrow Agent shall furnish to the other parties hereto in writing in accordance with this subsection. 24. Tax Information. (a) Each of the Parties will complete and return to the Escrow Agent any and all tax forms or reports required to be maintained or obtained by the Escrow Agent in connection with its administration of this Escrow Agreement. The Parties agree that, for tax reporting purposes, all income from the investment of cash Distributions shall, as of the end of each calendar year, be reported as having been earned by Parent. (b) With respect to the disbursement of any Distributions or Deposited Shares pursuant to this Escrow Agreement, the Stockholder Representative shall be responsible for determining any tax reporting and withholding relating to any disbursement made to the Exchange Agent for disbursement to the Stockholders. Parent shall be responsible for determining any tax reporting and withholding relating to any such disbursement to Parent. The Stockholder Representative or Parent, as the case may be, shall instruct the Escrow Agent with respect to any and all tax reporting and withholding by (i) specifying in writing the amount of any withholding prior to any disbursement, (ii) instructing the Escrow Agent in writing as to the specific version of the tax form to be distributed, (iii) furnishing any information required in such tax reporting forms that the Escrow Agent may reasonably request, and (iv) furnishing any guidance or direction in writing as may be reasonably requested by the Escrow Agent. The Escrow Agent will, in accordance with written instruction given in accordance with this Section 24, print and mail tax reporting forms to persons receiving distributions pursuant to this Escrow Agreement and transmit withholding amounts in accordance with its standard policies and procedures. The Escrow Agent shall not be considered the payor with respect to any payments made under this Agreement, and the Parties acknowledge that the Escrow Agent is not in a position to characterize the nature of the payment made to recipients for tax purposes. The Escrow Agent further shall not be considered the payor with respect to any payments made to any non-resident aliens and, accordingly, is not the "withholding agent" for purposes of any such payments as that term is defined under the regulations of the Internal Revenue Service ("IRS"). Any tax certifications received as a result of solicitations made by the Escrow Agent at the request of any Party will be forwarded to such Party for its review and analysis. The Escrow Agent shall not have any liability for any withholding, interest, or penalties assessed by the IRS due to a failure to withhold or report the proper amount of tax. 17 25. General. (a) Execution in Counterparts. This Escrow Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same document. (b) Waivers. No waiver of any term, covenant or condition of this Escrow Agreement shall be effective unless made in a written instrument duly executed by or on behalf of the party against whom the waiver is to be effective. (c) Amendments. The parties may agree to the amendment or modification of this Escrow Agreement by an agreement in writing executed in the same manner as this Escrow Agreement. (d) Assignment. This Escrow Agreement may not be assigned by any of the parties hereto except pursuant to written consent of each of the parties hereto, which shall include the Escrow Agent. (e) Binding Effect. This Escrow Agreement shall be binding upon the successors and assigns of the parties hereto. (f) Governing Law. This Escrow Agreement and the legal relations among the parties hereto shall be governed by and construed in accordance with the internal substantive laws of the State of Delaware (without regard to the laws of conflict that might otherwise apply) as to all matters, including, without limitations, matters of validity, construction, effect, performance and remedies. (g) Captions. The captions of this Escrow Agreement are for convenience of reference only and shall not affect in any manner any of the terms, covenants or conditions hereof. (h) Definitions. Capitalized terms used in this Escrow Agreement but not defined herein shall have the meanings ascribed thereto in the Merger Agreement. (i) Injunctive Relief. It is expressly agreed among the parties hereto that monetary damages would be inadequate to compensate a party hereto for any breach by any other party of its covenants and agreements herein. Accordingly, the parties agree and acknowledge that any such violation or threatened violation will cause irreparable injury to the others and that, in addition to any other remedies which may be available, such party will be entitled to injunctive relief against the threatened breach hereof or the continuation of any such breach without the necessity of proving actual damages and may seek to specifically enforce the terms hereof. [Remainder of Page Intentionally Left Blank] 18 IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the day and year first above written. PARENT: ATS MEDICAL, INC. By: /s/ Richard A. Curtis ------------------------------------ Name: Richard A. Curtis Title: Vice President ESCROW AGENT: WELLS FARGO BANK, N.A. By: /s/ Joseph Clark ------------------------------------ Name: Joseph Clark Title: Vice President STOCKHOLDER REPRESENTATIVE: /s/ Boyd D. Cox ---------------------------------------- Boyd D. Cox [SIGNATURE PAGE TO ESCROW AGREEMENT] SIGNATURE PAGE ESCROW AGREEMENT SCHEDULE A LIST OF COMPANY STOCKHOLDERS, MAILING ADDRESSES, AND CAPITAL STOCK HOLDINGS See Attached. EXHIBIT A NOTICE OF CLAIM/INDEMNIFICATION NOTICE UNDER ESCROW AGREEMENT ______, 20__ [Escrow Agent] [Address] [Stockholder Representative] [Address] Ladies and Gentlemen: This Notice of Claim/Indemnification Notice is being delivered pursuant to Section 9 of the Escrow Agreement dated as of September 29, 2006 by and among ATS Medical, Inc., a Minnesota corporation, the Stockholder Representative _______________, as representative for the holders of the capital stock of 3F Therapeutics, Inc., a Delaware corporation, and Wells Fargo Bank, N.A., as escrow agent. The basis for the claim(s) asserted by ATS Medical, Inc. under the Escrow Agreement and the dollar amount(s) thereof are as follows: [specify claims in reasonable detail] ATS Medical, Inc. estimates the total amount of the claim(s) described in the preceding paragraph is equal to $___________________________. The number of Escrow Shares and Escrow Share Distributions related thereto or Set-Off Shares and Set-Off Share Distributions related thereto necessary to discharge such claim(s) is __________ based on a per share valuation of $________________ per share of the Common Stock of ATS Medical, Inc., as determined in the manner provided in the Escrow Agreement. Parent has delivered to the Stockholder Representative a copy of this Claim Notice/Notice of Indemnification in a timely manner and in accordance with the terms of the Escrow Agreement. Sincerely, ATS MEDICAL, INC. By: --------------------------------- Name: ------------------------------- Title: ------------------------------ EXHIBIT B OBJECTION NOTICE UNDER ESCROW AGREEMENT ______, 20___ [Escrow Agent] [Address] ATS Medical, Inc. [preferred address] Ladies and Gentlemen: This Objection Notice is being delivered pursuant to Section 10 of the Escrow Agreement dated as of September 29, 2006 by and among ATS Medical, Inc., a Minnesota corporation, the Stockholder Representative _______________, as representative for the holders of the capital stock of 3F Therapeutics, Inc., a Delaware corporation, and Wells Fargo Bank, N.A., as escrow agent, to dispute, to the extent described below, the claims of ATS Medical, Inc. asserted in its Notice of Claim dated _______, 20___ (the "Notice of Claim"). The claim(s) asserted by ATS Medical, Inc. that are disputed by the Stockholder Representative and the basis for such dispute(s) are as follows: [specify basis for dispute(s) in reasonable detail] _________________. The Stockholder Representative does not object to or dispute $________________ of the claim(s) described in the Notice of Claim. The Stockholder Representative delivered a copy of this Objection Notice to Parent in a timely manner and in accordance with the terms of the Escrow Agreement. Sincerely, - ------------------------------------- Stockholder Representative APPENDIX A FORM OF AGENCY AND CUSTODY ACCOUNT DIRECTION FOR CASH BALANCES Direction to use Wells Fargo Advantage Funds for Cash Balances in the following account(s): Account Names: __________________ Account Number(s): ______________ You are hereby directed to invest, as indicated below or as I shall direct further from time to time, all cash in the Account in the following money market portfolio of Wells Fargo Advantage Funds (the "Fund") or another permitted investment of my choice (Check One): [ ] Wells Fargo Advantage Funds, Cash Investment Money Market Fund [ ] Wells Fargo Advantage Funds, Treasury Plus Money Market Fund [ ] Wells Fargo Advantage Funds, 100% Treasury Money Market Fund [ ] Wells Fargo Advantage Funds, Government Money Market Fund [ ] Wells Fargo Advantage Funds, National Tax-Free Money Market Fund I acknowledge that I have received, at my request, and reviewed the Fund's prospectus and have determined that the Fund is an appropriate investment for the Account. I understand from reading the Fund's prospectus that Wells Fargo Funds Management, LLC, ("Wells Fargo Bank") a wholly-owned subsidiary of Wells Fargo & Company provides investment advisory and other administrative services for the Wells Fargo Advantage Funds. Other affiliates of Wells Fargo & Company provide sub-advisory and other services for the Funds. Boston Financial Data Services serves as transfer agent for the Funds. The Funds are distributed by Stephens Inc., Member NYSE/SIPC. Wells Fargo & Company and its affiliates are not affiliated with Stephens Inc. I also understand that Wells Fargo & Company will be paid, and its bank affiliates may be paid, fees for services to the Funds and that those fees may include Processing Organization fees as described in the Fund's prospectus. I understand that you will not exclude amounts invested in the Fund from Account assets subject to fees under the Account agreement between us. I understand that investments in the Fund are not obligations of, or endorsed or guaranteed by, Wells Fargo Bank or its affiliates and are not insured by the Federal Deposit Insurance Corporation. I acknowledge that I have full power to direct investments of the Account. I understand that I may change this direction at any time and that it shall continue in effect until revoked or modified by me by written notice to you. I understand that if I choose to communicate this investment direction solely via facsimile, then the investment direction will be understood to be enforceable and binding. - ------------------------------------- Signature - ------------------------------------- Date APPENDIX B Escrow Agent Fees See Attached. EX-2.5 3 c13073exv2w5.txt OPTION AND ASSET PURCHASE AGREEMENT Exhibit 2.5 EXECUTION COPY OPTION AND ASSET PURCHASE AGREEMENT THIS OPTION AND ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered into as of May 31, 2005 (the "Agreement Date"), by and among (i) ATS Medical, Inc., a Minnesota corporation (the "Purchaser"), and (ii) em Vascular, Inc., a Minnesota corporation (the "Company"), and (iv) Keith L. March, M.D., John Hauck, Walter L. Sembrowich and James E Shapland II, acting in each case in his capacity as a stockholder of the Company (individually, a "Principal Shareholder" and collectively, the "Principal Shareholders"). Capitalized terms used herein without definition shall have the respective meanings set forth in Article 9 hereof. WHEREAS, the Company is developing cardiovascular medical products for treating ischemic vascular disease using electrical stimulation. WHEREAS, the parties hereto wish to provide for the terms and conditions upon which the Company will grant to the Purchaser the Option (as defined below) to acquire substantially all the Assets (as defined below) of the Company and upon which the Purchaser will provide certain financial assistance to the Company during the term of the Option. WHEREAS, the parties hereto wish to make certain representations, warranties, covenants and agreements in connection with the grant of the Option and, in the event Purchaser exercises the Option, in connection with the purchase of the Assets. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements herein contained and intending to be legally bound hereby, the Purchaser and the Company and the Principal Shareholders hereby agree as follows: ARTICLE 1 OPTION AND ASSET PURCHASE 1.1 Grant of Option. (a) Subject to the other terms and conditions of this Agreement, the Company hereby grants to the Purchaser the irrevocable and unconditional right, privilege and option (the "Option") to acquire from the Company the Assets (as defined in Section 1.2(d)). (b) The Option vests and is exercisable in full with respect to the Assets immediately on the Agreement Date. Subject to the terms and conditions contained in this Agreement, the Purchaser may exercise this Option at any time during the Option Period. (c) In connection with the exercise of the Option, and subject to the terms and conditions set forth this Agreement, on the Asset Purchase Closing Date (as defined in Section 1.2(c)), the Company shall sell, convey, assign, transfer and deliver to the Purchaser, and the Purchaser shall purchase, acquire and accept from the Company, all of the Assets, free and clear of all mortgages, pledges, liens, encumbrances and security interests of any kind or nature except for Permitted Liens. (d) Notwithstanding anything to the contrary in this Agreement, (i) none of the parties hereto shall have any obligation to consummate the Asset Purchase (as defined in Section 1.2) unless and until the Purchaser delivers an Option Exercise Notice (as defined in Section 1.2(b)) and (ii) Purchaser is under no obligation to deliver any Option Exercise Notice at any time. (e) Upon expiration of the Option Period without the Purchaser having timely delivered an Option Exercise Notice, the Option shall expire and terminate and shall be of no further force and effect. 1.2 Asset Purchase. Subject to the other terms and conditions of this Agreement, including those set forth in Article 6 hereof, the purchase of the Assets by Purchaser (the "Asset Purchase") shall be consummated under the following circumstances: (a) Disclosure Schedules. Attached hereto as Exhibit A is a schedule of disclosures and exceptions to the representations and warranties made by the Company in Article 2 hereof (the "Disclosure Schedule"). At any time and from time to time during the Option Period, the Purchaser may, upon notice to the Company (the "Disclosure Schedule Request"), require that the Company prepare an updated schedule of disclosures and exceptions to the representations and warranties of the Company contained in Article 2 hereof (each, an "Updated Disclosure Schedule"), as if such representations and warranties were made as of the date of such Updated Disclosure Schedule, except to the extent any such representations and warranties refer expressly to an earlier date. Within twenty (20) business days after receipt of the Disclosure Schedule Request, the Company shall prepare and deliver to the Purchaser an Updated Disclosure Schedule. The Updated Disclosure Schedule shall refer only to (i) disclosures contained on the Disclosure Schedule attached to this Agreement or (ii) disclosures in existence on the date of such Updated Disclosure Schedule that have occurred or been discovered since the Agreement Date, and the Updated Disclosure Schedule shall not otherwise limit or modify any of the representations and warranties made in this Agreement. (b) Election by Purchaser to Cause the Asset Purchase. The Purchaser may exercise the Option by providing written notice (the "Option Exercise Notice") of exercise to the Company at any time during the Option Period. Such Notice must (i) identify the Option, (ii) specify a proposed closing date of the Asset Purchase (which shall be no more than sixty (60) days after the date of the Option Exercise Notice), (iii) be signed by an officer of the Purchaser, and (iv) be given during the Option Period in accordance with Section 10.1 of this Agreement. (c) Consummation of the Asset Purchase. Subject to the fulfillment or waiver of all of the conditions contained in Article 6, as soon as is reasonably practicable on or after the closing date specified in the Option Exercise Notice, which closing date shall be scheduled to occur no more than sixty (60) days after the date of the Option Exercise Notice (or such other date as the parties may agree upon), a closing (the "Asset Purchase Closing") will be held at the offices of Oppenheimer Wolff & Donnelly LLP in Minneapolis, Minnesota (or such other place as the parties may agree). The date on which the Asset Purchase Closing is actually held is 2 referred to herein as the "Asset Purchase Closing Date." On the Asset Purchase Closing Date, the Purchaser and the Company shall cause the Asset Purchase to be consummated by exchanging the documents and instruments reasonably necessary or appropriate to effect the transactions contemplated by this Agreement. All matters at the Asset Purchase Closing shall be considered to have taken place simultaneously and no delivery of any document shall be deemed complete until all transactions and deliveries of documents are completed. (d) Assets to be Purchased. Upon satisfaction of all conditions to the obligations of the parties contained herein (other than such conditions as will have been waived in accordance with the terms hereof), the Company will sell, transfer, convey, assign and deliver to the Purchaser and the Purchaser will purchase from the Company, at the Asset Purchase Closing hereunder, free and clear of all mortgages, pledges, liens, encumbrances and security interests of any kind or nature, except for Permitted Liens, all right, title and interest of the Company in and to the following assets: (1) all production equipment that is owned or leased by the Company, as listed in Section 2.25 of the Disclosure Schedule, provided, however, that with respect to such production equipment that is leased by the Company, such production equipment shall be subject to the liens, encumbrances and security interests of the lessor(s) of such equipment; (2) all patents and patent applications owned by or licensed to the Company, as listed in Section 2.8(a) of the Disclosure Schedule, including all rights to sue for past infringements, provided, however, that with respect to such patents and patent applications which are licensed to the Company, such patents and applications are subject to the provisions of the applicable license with respect to such patents and applications; (3) all research, development, manufacturing processes, trade secrets, know-how, inventions, invention disclosures and clinical, manufacturing, engineering and other technical information and documentation (collectively "Technical Information"), whether owned by the Company or licensed from third parties by the Company, provided, however, with respect to Technical Information licensed from third parties, such Technical Information is subject to the provisions of the applicable license with respect to such Technical Information; (4) all trade names, logos, URLs, domain names, service marks, trade dress, trademarks, trademark applications and trademark registrations listed in Section 2.8(a) of the Disclosure Schedule, including the goodwill associated therewith, and all rights to sue for past infringements; (5) all works of authorship, writings, designs, copyrights subsisting in any of the foregoing, copyright applications and copyright registrations as set forth in Section 2.8(a) of the Disclosure Schedule, including all rights to sue for past infringements; (6) the agreements and contracts listed in Section 2.10 of the Disclosure Schedule, to the extent that such agreements and contracts are assignable and any required consent to such assignment has been obtained; (7) all prepaid expenses and deposits related to inventory, patents, trademarks and manufacturing equipment included in the Assets; 3 (8) all quantities of inventory, including, but not limited to, inventory ordered but not yet delivered, all raw materials, components, sub-assemblies, work-in-process and finished goods of the Company all as more fully described in Section 2.26 of the Disclosure Schedule; (9) all purchase orders and advance payments for the Company's Products; (10) all rights of the Company under or pursuant to all warranties, representations and guarantees made by suppliers, manufacturers and contractors; (11) all rights of the Company to any research and development data, internally and externally developed or generated, from any animal, clinical or marketing trials; (12) all consents from any Governmental Authority for the manufacture, marketing or sale of the Company's Products, including all files and documents related thereto, to the extent that such consents may be assigned to the Purchaser; (13) all customer, prospect and vendor lists of the Company, and all of the Company's files and documents (including credit information) relating to such customers, prospects and vendors, and other Company business and financial records, files, books and documents, including without limitation regulatory files, computer programs, operating manuals, instructions for use, clinical data, sales and marketing materials, training materials, sales, distribution and purchase correspondence; (14) all books, records, documents and related information in possession of the Company relating to any of the foregoing and necessary for the design, development, manufacture, marketing or sale of the Products; and (15) all other assets owned or leased by the Company that are specifically identified on Exhibit B attached hereto. The foregoing are sometimes collectively referred to as the "Assets." (e) Excluded Assets. The Purchaser and the Company acknowledge and agree that the only assets of the Company to be sold to the Purchaser are the Assets specifically identified in Section 1.2(d) and that no other assets of the Company are being sold under this Agreement. Notwithstanding anything to the contrary contained in Section 1.2(d) or elsewhere in this Agreement, the following interests of the Company are not part of the sale and purchase contemplated by this Agreement, are excluded from the Agreement and will be retained by the Company and remain the property of the Company following the Asset Purchase Closing: (1) all cash and bank accounts; (2) all accounts or notes receivable; (3) any right to recovery by Company arising out of litigation relating to the Assets that is pending prior to the Asset Purchase Closing Date; 4 (4) all insurance policies of the Company and all rights of the Company of any nature and description under or arising out of such insurance policies; (5) all losses, carryovers and rights to receive refunds in the respect to any and all Taxes of the Company or its Shareholders of every nature and description, including interest payable with respect thereto. (6) all rights of the Company under this Agreement and any other agreements between the Company and Buyer entered into on or after the date of this Agreement; (7) the Company's records relating to the organization, maintenance, existence and good standing of the Company as a corporation, namely the Company's (i) corporate charter, (ii) qualifications to conduct business as a foreign corporation, (iii) taxpayer and other identification numbers, (iv) minute books, (v) stock records, (vi) tax records, (vii) books of account and (vii) corporate seals; and (8) any records that the Company is required by Law to retain in its possession (provided, that copies of any such records that are not "Excluded Assets" by another provision of this Section 1.2 will, to the extent permitted by Law, be provided to Buyer at the Asset Purchase Closing); (f) No Liabilities Assumed. Except as set forth in this Section 1.2(f), the Purchaser will not assume, and will not be liable for, any liabilities or obligations of the Company, whether known, unknown, contingent, absolute, determined, indeterminable or otherwise on the Asset Purchase Closing Date, whether incurred or accruing prior to, on or after the Asset Purchase Closing Date, and whether or not relating to or arising from the Products or the Assets (the "Retained Liabilities"). From and after the Asset Purchase Closing Date, the Purchaser shall assume, pay, perform and will be responsible for all obligations under the contracts and agreements set forth in Section 2.10 of the Disclosure Schedule to the extent that such obligations are incurred, accruing or arising on or after the Asset Purchase Closing Date. 1.3 Option Consideration. In consideration for the grant of the Option, on the Agreement Date, the Purchaser shall pay to the Company the non-refundable amount of one hundred thousand dollars ($100,000) by check or wire transfer (the Option Payment"). The Option Payment shall not be credited against or applied to the purchase price of the Assets set forth in Section 1.4 of this Agreement. 1.4 Asset Purchase Consideration. In the event that the Asset Purchase is consummated, subject to the holdback provisions set forth in Section 1.5, the set-off rights of the Purchaser pursuant to Sections 1.8 and 8.5 and completion of the milestones set forth in this Section 1.4, the Purchaser shall make the purchase price payments, in aggregate Two Million Seven Hundred Thousand Dollars ($2,700,000.00) plus a percentage of Net Product Revenue, to the Company as set forth in this Section 1.4 and subject to the terms of Section 1.4, 1.6 and 1.7. (a) Initial Payment. On the Asset Purchase Closing Date, the Purchaser shall make an initial payment to the Company of five hundred thousand dollars ($500,000) (the "Initial Payment"), payable in the form of Purchaser Common Stock, in accordance with Sections 1.5 and 1.7, or, at the election of the Purchaser, in cash by check or wire transfer. 5 (b) First Contingent Payment. Following receipt by the Purchaser of FDA approval to market a Product, the Purchaser shall make a contingent payment to the Company of one million dollars ($1,000,000) (the "First Contingent Payment"), payable in the form of Purchaser Common Stock, in accordance with Sections 1.6 and 1.7. (c) Second Contingent Payment. For a period of ten (10) years from the date the Purchaser, its affiliates, representatives, agents, successors or assigns (collectively "Purchaser Affiliates") makes its first commercial sale of a Product (the "Second Contingent Payment Period"), the Purchaser shall make a contingent payment to the Company in an amount equal to four percent (4%) of Net Product Revenue (the "Second Contingent Payment"), payable in cash by check or wire transfer, in accordance with Section 1.6. (d) Third Contingent Payment. Following the end of the first quarter in which Purchaser has recognized cumulative Net Product Revenues of ten million dollars ($10,000,000), the Purchaser shall make a contingent payment to the Company of one million two hundred thousand dollars ($1,200,000) (the "Third Contingent Payment"), payable in the form of Purchaser Common Stock, in accordance with Sections 1.6 and 1.7. 1.5 Initial Payment/Holdback. In the event the Asset Purchase is consummated, on the Asset Purchase Closing Date, the Purchaser shall issue to the Company, in accordance with Section 1.7, a number of shares of Purchaser Common Stock valued at five hundred thousand dollars ($500,000) (the "Initial Payment Shares"). The Company shall execute stock powers in blank and re-deliver to the Purchaser a number of shares of Purchaser Common Stock valued at one hundred fifty thousand dollars ($150,000) (the "Holdback Shares"), to secure indemnification obligations of the Company under Section 8.3 below. The Holdback Shares shall be released by the Purchaser, and delivered to the Company, within ten days following the first anniversary of the Asset Purchase Closing Date, unless there is a pending indemnification claim subject to Section 8.3 and the Purchaser determines in its good faith judgment that such actual claim for indemnification subject to Section 8.3 could exceed the amount of the Holdback Shares. All dividends or other rights (including voting rights) or distributions with respect to such Holdback Shares shall belong to and be distributed to the Company as if such shares were not Holdback Shares; provided, however, dividends payable in stock or stock issued in connection with a stock split with respect to Holdback Shares shall be returned to the Purchaser and held as and be deemed to be Holdback Shares. If, upon payment from the Purchaser, any portion of such Purchaser Common Stock is treated as the payment of imputed interest to the Company, separate share certificates for such Purchaser Common Stock representing imputed interest will be issued to the Company. 1.6 Contingent Payments. (a) Calculation of Net Product Revenues. (i) During the Second Contingent Payment Period, the Purchaser shall deliver to the Company, no later than thirty (30) days following the end of each fiscal quarter of such period, a statement with reasonable detail reflecting the Purchaser's calculation of Net Product Revenues for such quarter and cumulative Net Product Revenues from the beginning of the Second Contingent Payment Period through the end of such quarter, which such statement 6 shall be prepared in accordance with GAAP on a basis consistent with the accounting principles and revenue recognition policies followed by the Purchaser in the preparation of its financial statements (the "Net Product Revenue Statement"). (ii) The Purchaser's calculation of Net Product Revenues set forth in the Net Product Revenue Statement will be deemed to be accepted by the Company and shall be conclusive for purposes of determining the amount of the respective Second Contingent Payment and the timing of the Third Contingent Payment, unless the Company shall have delivered to the Purchaser within forty-five (45) days following delivery of the Net Product Revenue Statement, a written statement objecting to any of the information contained in the statement. (iii) In the event of a dispute or disagreement relating to a Net Product Revenue Statement which the Company and the Purchaser are unable to resolve by good faith discussions, either the Company or the Purchaser may elect to have all such disputes or disagreements resolved by an accounting firm of nationally recognized standing to be mutually selected by the Company and the Purchaser. Such designated accounting firm shall make a resolution of the Purchaser's calculation of Net Product Revenue for the disputed period, which shall be final, binding and enforceable as an arbitration award for all purposes. The designated accounting firm shall be instructed to use every reasonable effort to perform its services within thirty (30) days of submission of the calculation of Net Product Revenue to it and, in any case, as soon as practicable after such submission. In the event any such audit reveals any discrepancy less than three percent (3%) of the Net Product Revenue for the disputed period, the Company shall pay the entire costs and expenses for the services of the designated accounting firm. In the event any such audit reveals any discrepancy greater than or equal to three percent (3%) of the Net Product Revenue for the disputed period, the Purchaser shall pay the entire costs and expenses for the services of the designated accounting firm. Any additional amount determined to be payable to the Company through good faith discussion or by the designated accounting firm shall be payable in accordance with Section 1.5. (b) Payment of First Contingent Payment. Subject to Section 8.5, within thirty (30) days of receipt by the Purchaser or any Purchaser Affiliate of FDA approval to market a Product, the Purchaser shall issue and deliver to the Company a number of shares of Purchaser Common Stock valued at one million dollars ($1,000,000) in accordance with Section 1.7. (c) Payment of Second Contingent Payment. Subject to Section 8.5, within fifteen (15) days following final determination of the Second Contingent Payment pursuant to Section 1.6(a) for each fiscal quarter during the Second Contingent Payment Period, the Purchaser shall pay to the Company the Second Contingent Payment, if any, for such fiscal quarter. (d) Payment of Third Contingent Payment. Subject to Section 8.5, within fifteen (15) days following final determination of the timing of the Third Contingent Payment pursuant to Section 1.6(a), the Purchaser shall issue and deliver to the Company a number of shares of Purchaser Common Stock valued at one million two hundred thousand dollars ($1,200,000) in accordance with Section 1.7. 7 1.7 Payment of Purchaser Common Stock. (a) Purchaser Common Stock. The Purchaser shall make the Initial Payment, the First Contingent Payment and the Third Contingent Payment by issuing to the Company that number of shares of Purchaser Common Stock equal to the quotient obtained by dividing (i) the amount of the respective payment by (ii) either the Reference Market Value on the date of the Option Exercise Notice, in the case of the Initial Payment, or the Reference Market Value on the date that the milestone is achieved, in the case of the Contingent Payments. (b) No Fractional Shares. With respect to any Contingent Payment paid in the form of shares of Purchaser Common Stock, no certificates or scrip representing fractional shares of Purchaser Common Stock shall be issued, and such fractional share interests will not entitle the owner thereof to vote or to any other rights of a stockholder of the Purchaser. Upon payment to the Company of any Contingent Payment in the form of shares of Purchaser Common Stock, instead of the Company receiving a fractional share interest, the Purchaser shall pay to the Company an amount in cash equal to the product obtained by multiplying (i) such fractional share interest to which the Company would otherwise be entitled, by (ii) the Reference Market Value of a share of Purchaser Common Stock applicable to such Contingent Payment as provided for in Section 1.7(a) above. (c) Legend. Any certificates issued to the Company representing shares of Purchaser Common Stock that have not been registered under the Securities Act shall be imprinted with the following legend (or the substantial equivalent thereof): "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF, IN WHOLE OR IN PART, OTHER THAN PURSUANT TO REGISTRATION UNDER SAID ACT OR IN CONFORMITY WITH THE LIMITATIONS OF RULE 144 OR OTHER SIMILAR RULE OR EXEMPTION AS THEN IN EFFECT, WITHOUT FIRST OBTAINING (I) IF REQUIRED BY THE COMPANY, A WRITTEN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, WHICH MAY BE COUNSEL TO THE COMPANY, TO THE EFFECT THAT THE CONTEMPLATED SALE OR OTHER DISPOSITION WILL NOT BE IN VIOLATION OF SAID ACT, OR (II) A 'NO-ACTION' OR INTERPRETIVE LETTER FROM THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION TO THE EFFECT THAT SUCH STAFF WILL TAKE NO ACTION IN RESPECT OF THE CONTEMPLATED SALE OR OTHER DISPOSITION." 8 In the event that any certificate issued to the Company representing shares of Purchaser Common Stock is imprinted with the foregoing legend (or a similar legend), the Purchaser shall cause such legends to be removed in connection with any resale of such shares of Purchaser Common Stock that is made in compliance with, or pursuant to a valid exemption from, the registration provisions of the Securities Act. (d) Filing of Reports. Upon issuance of any shares of Purchaser Common Stock pursuant to this Section 1.7, the Purchaser shall, from and after such time as it has issued such shares make timely filings of such reports as are required to be filed by it with the SEC so that Rule 144 under the Securities Act or any successor provision thereto will be available to the security holders of the Company who are otherwise able to take advantage of the provisions of such rule. (e) Registration Rights. The shares of Purchaser Common Stock issued pursuant to this Agreement shall have the registration rights set forth in Section 5.16 below. 1.8 No Right of Set-Off. Notwithstanding anything to the contrary in this Agreement, the obligation of the Purchaser to make any Contingent Payment shall not be subject to any set-off rights of the Purchaser. ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY As a material inducement to the Purchaser to enter into this Agreement, with the understanding that the Purchaser will be relying thereon in consummating the transactions contemplated hereunder, the Company hereby represents and warrants to the Purchaser that, except as set forth in the Disclosure Schedule, the statements contained in this Article 2 are true and correct. The Disclosure Schedule is arranged in sections corresponding to the sections and subsections of this Article 2, and disclosure in one section of the Disclosure Schedule shall constitute disclosure for all sections of the Disclosure Schedule only to the extent to which the applicability of such disclosure is specifically identified (by cross-reference or otherwise) in the Disclosure Schedule as being qualified by such exception, except where the relevance of such exception to another representation or warranty is clear on the face of the disclosure. 2.1 Organization; Good Standing and Qualification. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Minnesota and has all requisite corporate power and authority to carry on its business as now conducted. The Company is duly qualified to transact business and is in good standing in each jurisdiction in which the nature of its business or its ownership of property requires it to be so qualified except for those jurisdictions in which the failure to so qualify would not have a Material Adverse Effect. The Company has all requisite corporate power and authority to own and operate its properties and assets, to execute and deliver this Agreement and the applicable Related Agreements, and to perform its obligations under, and carry out the provisions of, this Agreement and the applicable Related Agreements, and to carry on its business as presently conducted. 9 2.2 Capitalization of the Company. The authorized capital stock of the Company consists of 50,000,000 shares, $.01 par value, of which 20,000,000 shares are designated as common stock (the "Company Common Stock") and 30,000,000 shares are undesignated (the "Undesignated Stock"). As of the date hereof, 2,760,000 shares of Company Common Stock are the only issued and outstanding capital stock of the Company. Section 2.2 of the Disclosure Schedule lists the registered and beneficial owners of the Company Common Stock and the number of shares of Company Common Stock held by such Shareholders (collectively, the "Company Shares"). Except as set forth in Section 2.2 of the Disclosure Schedule, all of the Shareholders are accredited investors (as defined in, and determined in accordance with, Rule 501(a) of Regulation D under the Securities Act). As of the Agreement Date and as of the Asset Purchase Closing Date not more than 35 Shareholders of the Company are or will be non-accredited investors. The Company Shares represent all of the issued and outstanding capital stock of the Company. All of the issued and outstanding shares of Company Common Stock are duly authorized, validly issued, fully paid, nonassessable and free of preemptive rights. There are 500,000 shares of Company Common Stock reserved for issuance pursuant to Company Stock Option Plan (including 426,000 shares subject to outstanding Company Stock Options). Except as set forth in this Section 2.2 and Section 2.2 of the Disclosure Schedule, there are outstanding (a) no shares of capital stock or other voting securities of the Company, (b) no securities of the Company convertible into or exchangeable for shares of capital stock or voting securities of the Company, (c) no options, warrants, contracts, understandings, agreements or other rights to purchase or acquire from the Company, and, no obligations of the Company to issue, any capital stock, voting securities or securities convertible into or exchangeable for capital stock or voting securities of the Company, and (d) no equity equivalent interests in the ownership or earnings of the Company or other similar rights (collectively, "Company Securities"). There are no outstanding obligations of the Company to repurchase, redeem or otherwise acquire any Company Securities. Except as set forth in Section 2.2 of the Disclosure Schedule, there are no stockholder agreements, voting trusts or other agreements or understandings to which the Company is a party or by which it is bound relating to the voting or registration of any shares of capital stock of the Company. 2.3 Subsidiaries. The Company does not presently own or control, directly or indirectly, any interest in any other corporation, association, partnership, limited liability company or other business entity. The Company is not a participant in any joint venture or similar arrangement. 2.4 Authorization; Binding Obligations; Governmental Consents. (a) All corporate action on the part of the Company, its officers, directors and Shareholders necessary for the authorization, execution and delivery of this Agreement and the Related Agreements, the performance of all obligations of the Company hereunder and thereunder have been taken prior to the Agreement Date. This Agreement and the Related Agreements are valid and legally binding obligations of the Company, enforceable in accordance with their respective terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors' rights, and (ii) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies. 10 (b) No consent, approval, permit, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state or local governmental authority on the part of the Company is required in connection with the execution and delivery of this Agreement or the Related Agreements and the consummation of the transactions contemplated hereby or thereby. 2.5 Financial Statements. (a) The Company has made available to the Purchaser, and included in the Disclosure Schedule are the balance sheet of the Company dated February 20, 2005, the statement of accounts payable dated February 20, 2005, and the statement of capital equipment as of February 20, 2005 (collectively, the "Financial Statements"). The Financial Statements are complete and correct in all material respects. The Financial Statements accurately set out and describe the financial condition of the Company as of the dates and during the periods indicated therein, subject to normal year-end adjustments, which are neither individually nor in the aggregate material. (b) Except for Indebtedness reflected in the Financial Statements, the Company has no Indebtedness outstanding at the date hereof. The Company is not in default with respect to any outstanding Indebtedness or any instrument relating thereto, nor is there any event which, with the passage of time or giving of notice, or both, would result in a default, and no such Indebtedness or any instrument or agreement relating thereto purports to limit the issuance of any Securities by the Company or the operation of the business of the Company. Complete and correct copies of all instruments (including all amendments, supplements, waivers and consents) relating to any Indebtedness of the Company have been furnished to the Purchaser. 2.6 Liabilities. Except as and to the extent reflected in the Financial Statements, the Company has no liabilities or obligations (whether accrued, absolute, contingent, unliquidated or otherwise, whether due or to become due, whether known or unknown, and regardless of when asserted) arising out of transactions or events heretofore entered into, or any action or inaction, or any state of facts existing, with respect to or based upon transactions or events heretofore occurring, except (a) liabilities or obligations that have arisen after the date of the latest balance sheet in the ordinary course of the Company's business, or (b) liabilities or obligations under agreements or matters listed on any schedule to this Agreement. 2.7 Litigation. There is no action, suit, proceeding or investigation pending or, to the Company's knowledge, threatened against the Company or any Principal Shareholder. The foregoing includes, without limitation, actions, suits, proceedings or investigations pending or threatened involving the use by any of the Company's employees in connection with the Company's business of any information or techniques allegedly proprietary to any of their former employers, or their obligations under any agreements with prior employers. The Company is not a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality. There is no action, suit, proceeding or investigation by the Company currently pending or that the Company intends to initiate. 11 2.8 Intellectual Property. (a) Section 2.8(a) of the Disclosure Schedule sets forth a complete and accurate list of (i) all Intellectual Property owned, licensed or used by the Company, and (ii) all written agreements relating to patents, technology, know-how and processes that the Company has licensed to or from third parties or has otherwise authorized for use by others. (b) The operation of the business of the Company as currently conducted does not infringe upon, misappropriate or otherwise violate the Intellectual Property rights of any third party, and no action or claim is pending or, to the Company's knowledge, threatened alleging that the operation of such business interferes with, infringes upon, misappropriates or otherwise violates the Intellectual Property rights of any third party and, to the knowledge of the Company, there is no basis therefor. (c) The Company is the sole and exclusive owner of all right, title and interest in and to, Company Owned Intellectual Property and has a valid, unexpired license or other legal right to Company Licensed Intellectual Property used in or necessary to the operation of its business as presently conducted. (d) Except as set forth in Section 2.8(d) of the Disclosure Schedule, there are no outstanding options, licenses, or agreements of any kind relating to the Company's Owned Intellectual Property, nor is the Company bound by or a party to any options, licenses or agreements of any kind with respect to the patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, proprietary rights and processes of any other person. (e) To the Company's knowledge, neither the Company Owned Intellectual Property nor the Company Licensed Intellectual Property are invalid or unenforceable, and the same have not been adjudged invalid or unenforceable in whole or in part. The Company Owned Intellectual Property and the Company Licensed Intellectual Property constitute all of the Intellectual Property necessary for the operation of the business of the Company as currently conducted. The Company has complied in all material respects with all of its obligations of confidentiality in respect of the claimed trade secrets or proprietary information of others and knows of no violation of such obligations of confidentiality owed to it. (f) No written claims or actions have been asserted, are pending or, to the knowledge of the Company, threatened against the Company (i) challenging or seeking to deny or restrict the ownership of the Company in the Company Owned Intellectual Property or the license rights of the Company in the Company Licensed Intellectual Property, (ii) alleging that any services provided by, processes used by, or products manufactured or sold by the Company infringe or misappropriate any Intellectual Property right of any third party, or (iii) alleging that the Company Licensed Intellectual Property is being licensed or sublicensed in conflict with the terms of any license or other agreement, and, to the knowledge of the Company, there is no reasonable basis for such a claim. (g) As of the Agreement Date, to the knowledge of the Company, no person is engaging in any activity that infringes or misappropriates the Company Owned Intellectual Property or Company Licensed Intellectual Property. Except as set forth in Section 2.8(g) of the 12 Disclosure Schedule, the Company has not granted any license or other right to any third party with respect to the Company Owned Intellectual Property or Company Licensed Intellectual Property. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated by this Agreement by the Company will not breach, violate or conflict with any instrument or agreement concerning the Company Owned Intellectual Property, will not cause the forfeiture or termination, or give rise to a right of forfeiture or termination of any of the Company Owned Intellectual Property or Company Licensed Intellectual Property, or materially impair the right of the Purchaser to license or dispose of, or to bring any action for infringement of Company Owned Intellectual Property or Company Licensed Intellectual Property. (h) The Company has delivered or made available to the Purchaser correct and complete copies of all licenses falling within the definition of Company Licensed Intellectual Property, other than licenses of commercial off-the-shelf computer software. With respect to each such delivered or made available license: (1) such license is valid and binding upon the Company and in full force and effect and represents the entire agreement between the respective licensor and licensee with respect to the subject matter of such license; (2) such license will not cease to be valid and binding upon the Company and in full force and effect on terms identical in all material respects to those currently in effect as a result of the consummation of the transactions contemplated by this Agreement, nor will the consummation of the transactions contemplated by this Agreement constitute a material breach or default under such license or otherwise so as to give the licensor or any other person a right to terminate such license; (3) the Company has not (A) received any written notice of termination or cancellation under such license, (B) received any written notice of breach or default under such license, which breach has not been cured, or (C) granted to any other third party any rights, adverse or otherwise, under such license that would constitute a material breach of such license; and (4) neither the Company nor, to the knowledge of the Company, any other party to such license is in material breach or default thereof, and, to the knowledge of the Company, no event has occurred that, with notice or lapse of time, would constitute such a material breach or default or permit termination, modification or acceleration under such license. (i) Except as set forth in Section 2.8(i) of the Disclosure Schedule, the Company is not aware that any of its respective employees, officers, directors, or consultants is (1) subject to confidentiality restrictions in favor of any third person the breach of which could subject the Company to any liability, or (2) obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with their duties to the Company, as applicable, or that would conflict with the Company's business as presently conducted. Each current employee and current officer of and current consultant to the Company and the Company's former employees, Brian Pederson and John Hauck, and the Company's 13 former consultant, Keith L. March, M.D., has executed a proprietary information and inventions agreement in the form of Exhibit C attached hereto, or in the case of Mr. Pederson and Dr. March in a form substantially similar to Exhibit C as approved by the Purchaser. There are no former employees, former officers, or former consultants that developed or worked on the Company Owned Intellectual Property, other than Brian Pederson, Keith L. March, M.D. and John Hauck. Except as set forth in Section 2.8(i) of the Disclosure Schedule, no current or former employee or officer of or consultant to the Company has excluded works or inventions made prior to his or her employment or relationship with the Company from his or her assignment of inventions pursuant to such employee, officer or consultant's proprietary information and inventions agreement. (j) The Company has taken reasonable steps in accordance with normal industry practice to maintain the confidentiality of its trade secrets and other confidential Intellectual Property. To the knowledge of the Company, (1) there has been no misappropriation of any Company Owned Intellectual Property or Company Licensed Intellectual Property; (2) no employee, independent contractor or agent of the Company has misappropriated any trade secrets from any third party during the course of his performance as an employee, independent contractor or agent of the Company; and (3) no employee, independent contractor or agent of the Company is in material default or breach of any term of any employment agreement, non-disclosure agreement, assignment of invention agreement or similar agreement or contract relating in any way to the protection, ownership, development, use or transfer of Company Owned Intellectual Property or Company Licensed Intellectual Property. (k) Neither the execution nor delivery of this Agreement or the Related Agreements, nor the carrying on of the Company's business by the employees of and consultants to the Company, as the case may be, nor the conduct of the Company's business as presently conducted, will, to the knowledge of the Company, conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract, covenant or instrument under which any of such employees is now obligated. Except to the extent already assigned or licensed to the Company, the Company does not believe that it is, or will be, necessary to utilize any inventions or proprietary information of any of its employees (or people it currently intends to hire) made prior to their employment by the Company, as the case may be. 2.9 Compliance with Other Instruments. The Company is not in violation or default of any provision of its Articles of Incorporation or Bylaws, or of any mortgage, indenture, contract, agreement, instrument, judgment, order, writ, decree or contract to which it is a party or by which it is bound or, to the Company's knowledge, of any material provision of any federal or state statute, rule or regulation applicable to the Company, which violation or default would have a Material Adverse Effect on the Company. The execution, delivery and performance of this Agreement and the Related Agreements will not result in any such violation or be in conflict with or constitute, with or without the passage of time or giving of notice, either a default under any such provision, instrument, judgment, order, writ, decree or material contract, or result in the creation of any mortgage, pledge, lien, charge or encumbrance upon any of the properties or assets of the Company or the suspension, revocation, impairment, forfeiture, or nonrenewal of any permit, license, authorization, or approval applicable to the business, operations or any of the assets or properties the Company. 14 2.10 Agreements; Actions. (a) Except as set forth in Section 2.10(a) of the Disclosure Schedule, there are no agreements, understandings or proposed transactions between the Company and any of its officers, directors, Shareholders, Affiliates, or any Affiliate thereof. (b) Section 2.10(b) of the Disclosure Schedule sets forth all agreements, understandings, instruments, contracts, proposed transactions, judgments, orders, writs or decrees to which the Company is a party or by which it is bound that involve (1) obligations (contingent or otherwise) of, or payments to, the Company that may not be extinguished on thirty (30) days notice or less, (2) the license, assignment or transfer of any patent, copyright, trade secret or other proprietary right to or from the Company (other than licenses to the Company arising from the purchase of "off the shelf' or other standard products), (3) the manufacture, marketing, sale or distribution of any products of the Company in any jurisdiction, or any restrictions on the Company's exclusive rights to develop, manufacture, assemble, distribute, market and sell its products, (4) indemnification by the Company with respect to infringements of proprietary rights (other than indemnification obligations arising from purchase, sale or license agreements entered into in the ordinary course of business), (5) any supply agreements or (6) other agreements that are otherwise material to the business of the Company. (c) The Company has delivered, has caused to be delivered or made available to the Purchaser correct and complete copies of each contract, agreement or other arrangement listed in Section 2.10(b) of the Disclosure Schedule, as such contracts, agreements and arrangements are amended to date. Each such contract, agreement or other arrangement is a valid, binding and enforceable obligation of the Company, as applicable, and, to the knowledge of the Company, of the other party or parties thereto, and is in full force and effect. Except as set forth in Section 2.10(c) of the Disclosure Schedule, neither the Company nor, to the knowledge of the Company, the other party or parties thereto, is in breach or non-compliance, or is considered to be in breach or noncompliance by the other party thereto, of any material term of any such contract, agreement or other arrangement. Except as set forth in Section 2.10(c) of the Disclosure Schedule, the Company has not received written notice of any default or threat thereof with respect to any such contract, agreement or other arrangement and the Company has no reasonable basis for suspecting that any such default exists or will be forthcoming. Subject to obtaining any necessary consents by the other party or parties to any such contract, agreement or other arrangement (as further set forth in Section 2.10(c) of the Disclosure Schedule), no contract, agreement or other arrangement listed in Section 2.10 of the Disclosure Schedule includes or incorporates any provision the effect of which would be to enlarge or accelerate any obligations of the Company or give additional rights to any other party thereto or will in any other way be materially adversely affected by, or terminate or lapse by reason of, the transactions contemplated by this Agreement or the Related Agreements. (d) Since January 1, 2004, the Company has not (1) declared or paid any dividends or authorized or made any distribution upon or with respect to any class or series of its capital stock, (2) incurred any Indebtedness for money borrowed or any other liabilities, (3) made any loans or advances to any person, other than ordinary advances for travel and other business expenses, or (4) sold, exchanged or otherwise disposed of any of its assets or rights, other than the sale of its inventory in the ordinary course of business. 15 2.11 Related-Party Transactions. No employee, officer, director, Shareholder or consultant to the Company, or member of his or her immediate family, is indebted to the Company, nor is the Company indebted (or committed to make loans or extend or guarantee credit) to any of them other than (1) for payment of salary, bonus or fees (in the case of consultants) for services rendered, (2) reimbursement or advances for reasonable expenses incurred on behalf of the Company, and (3) for other standard employee benefits made generally available to all employees (including stock option agreements outstanding under any stock option plan approved by the Company's board of directors. To the knowledge of the Company, no employee, officer, director, Shareholder or member of his or her immediate family has any direct or indirect ownership interest in any firm or corporation with which the Company is affiliated, has a business relationship or has a material contract, or any firm or corporation that competes with the Company, except that employees, officers, directors and Shareholders of the Company and members of their immediate families may own stock in publicly-traded companies that may compete or do business with the Company. Except as may be disclosed in the Financial Statements, the Company is not a guarantor or indemnitor of any Indebtedness of any other person. 2.12 Changes. Since the end of the latest completed fiscal year of the Company and except as set forth in Section 2.12 of the Disclosure Schedule, there has not been: (a) Any change in the assets, liabilities, financial condition or operations of the Company from that reflected in the Financial Statements, other than changes in the ordinary course of business consistent with past practice, none of which individually or in the aggregate has had or could reasonably be expected to have a Material Adverse Effect; (b) Any resignation or termination of any key officers or employees of the Company; (c) Any material change, except in the ordinary course of business consistent with past practice, in the contingent obligations of the Company by way of guaranty, endorsement, indemnity, warranty or otherwise; (d) Any damage, destruction or loss, whether or not covered by insurance, to the Company's assets or properties which has had or could reasonably be expected to have a Material Adverse Effect; (e) Any waiver by the Company of a right or of a debt owed to it of a material nature or material amount; (f) Any direct or indirect loans made by the Company to any Shareholder, employee, officer or director of the Company, or a subsidiary of the Company to any shareholder, employee, officer or director of such subsidiary, other than advances made in the ordinary course of business consistent with past practice; (g) Any material change in any compensation arrangement or agreement with any employee, officer or director of the Company; 16 (h) Any declaration or payment of any dividend or other distribution to the Shareholders of the Company of the assets of the Company; (i) Any labor organization activity; (j) Any Indebtedness, obligation or liability incurred, assumed or guaranteed by the Company, except those for immaterial amounts and for current liabilities incurred in the ordinary course of business consistent with past practice; (k) Any sale, assignment, transfer or license of any patents, trademarks, copyrights, trade secrets or other intangible assets of the Company; (l) Any change in any agreement disclosed in Section 2.10 of the Disclosure Schedule which has had or could reasonably be expected to have a Material Adverse Effect; or (m) Any other event or condition of any character that, either individually or cumulatively, has had or could reasonably be expected to have a Material Adverse Effect. 2.13 Compliance with Laws; Permits. The Company is not in violation in any material respect of any applicable statute, rule, regulation, order, judgment, decree, writ or restriction of any domestic or foreign government or any instrumentality or agency thereof in respect of the conduct of its business or the ownership of its properties. The Company has all franchises, permits, licenses, and any similar authority necessary for the conduct of its business as now being conducted by it (the "Permits"). As of the date hereof, no suspension or cancellation of any of the Permits is pending or, to the knowledge of the Company, threatened. The term Permits shall not include any Company License as defined in Section 2.19. 2.14 Environmental; Zoning and Safety Laws. Except as set forth in Section 2.14 of the Disclosure Schedule, (a) neither the activities carried on by the Company at the facilities, offices or properties leased by the Company, nor such facilities, offices or properties, are in material violation of any judgment, decree, order, law, license, rule or regulation pertaining to environmental matters, including those arising under any federal, state or local statute, regulation, ordinance, order or decree relating to the environment or occupational health and safety (hereinafter "Environmental Laws"), or to the knowledge of the Company any other zoning, health or safety law or regulation; (b) neither the Company nor, to the knowledge of the Company, any operator of its past or present properties, is or has been in material violation, or alleged material violation, of, or has any liability or, to the knowledge of the Company, threatened liability under, any Environmental Laws; (c) to the knowledge of the Company, none of the properties currently or formerly owned, leased or operated by the Company (including, without limitation, soils and surface and ground waters) are contaminated with any Hazardous Substance; (d) to the knowledge of the Company, the Company is not actually, potentially or allegedly liable for any off-site contamination by Hazardous Substances; (e) to the knowledge of the Company, the Company is not actually, potentially or allegedly liable under any Environmental Law (including, without limitation, pending or threatened liens); (f) the Company has all permits, licenses and other authorizations required under any Environmental Law ("Environmental Permits") (g) the Company has always been and is in compliance in all material respects with its Environmental Permits; and (h) neither the execution of this Agreement nor the 17 consummation of the transactions contemplated hereby will require any investigation, remediation or other action with respect to Hazardous Substances, or any notice to or consent of Governmental Authorities or third parties, pursuant to any applicable Environmental Law or Environmental Permit. 2.15 Manufacturing and Marketing Rights. Except as set forth in Section 2.15 of the Disclosure Schedule, the Company has not granted rights to manufacture, produce, assemble, license, market, or sell its products to any other person and is not bound by any agreement that affects the Company's exclusive right to develop, manufacture, assemble, distribute, market or sell its products. 2.16 Disclosure. The Company has provided or made available to the Purchaser all the information that the Purchaser has requested for deciding whether to execute this Agreement. Neither this Agreement (including all the exhibits and schedules hereto), the Related Agreements, nor any other statements or certificates made or delivered in connection herewith or therewith contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements herein or therein not misleading in light of the circumstances under which they were made. 2.17 Insurance. Since the Company's inception, the Company has not carried any form of insurance. The Company has not been denied any form of insurance and no policy of insurance has been revoked or rescinded since the Company's inception. There are no outstanding claims and, to the knowledge of the Company, no facts exists which could lead to such claims, under any such terminated insurance policy or that would otherwise be covered by an insurance policy if such policy was maintained by the Company. 2.18 Employee Benefit Plans. There are no facts or circumstances which could, directly or indirectly, subject the Purchaser or any of its Affiliates to any liability of any nature with respect to any pension, welfare, incentive, perquisite, paid time off, severance or other benefit plan, policy, practice or agreement sponsored, maintained or contributed to by the Company or any of its Affiliates, to which the Company or any of its Affiliates is a party or with respect to which the Company or any of its Affiliates could have any liability. 2.19 FDA and Regulatory Matters. (a) (i) With respect to the Company Products, (1) the Company has obtained all necessary and applicable approvals, clearances, authorizations, licenses and registrations required by United States or foreign governments or government agencies, to permit the design, development, pre-clinical and clinical testing, manufacture, labeling, sale, distribution and promotion of its Products in jurisdictions where it currently conducts such activities (the "Company Activities to Date") with respect to each of its Products (collectively, the "Company Licenses"); (2) the Company is in compliance in all material respects with the terms and conditions of each Company License and with all applicable Laws pertaining to the Company Activities to Date with respect to each Company Product which is not required to be the subject of a Company License; (3) the Company is in compliance in all material respects with all applicable Laws regarding registration, license, certification for each site at which a Company Product is manufactured, labeled, sold, or distributed; and (4) to the extent any Company Product 18 has been exported from the United States, the Company has exported such Company Product in compliance in all material respects with applicable Law; (ii) all manufacturing operations performed by or on behalf of the Company have been and are being conducted in all material respects in compliance with the quality systems regulations of the FDA and, to the extent applicable to the Company, counterpart regulations in the European Union and all other countries where compliance is required; (iii) all non-clinical laboratory studies of Company Products under development, sponsored by the Company and intended to be used to support regulatory clearance or approval, have been and are being conducted in compliance in all material respects with the FDA's good laboratory practice for non-clinical studies regulations (21 CFR Part 58) in the United States and, to the extent applicable to the Company, counterpart regulations in the European Union and all other countries; and (iv) the Company is in compliance in all material respects with all applicable reporting requirements for all Company Licenses or plant registrations described in clause (i) above, including, but not limited to, applicable adverse event reporting requirements in the United States and outside of the United States under applicable Law. (b) The Company is in compliance in all material respects with all FDA and non-United States equivalent agencies and similar state and local Laws applicable to the maintenance, compilation and filing of reports, including medical device reports, with regard to the Company Products. Section 2.19(b) of the Disclosure Schedule sets forth a list of all applicable adverse event reports related to the Company Products, including any Medical Device Reports (as defined in 21 CFR 803). Set forth on Section 2.19(b) of the Disclosure Schedule are complaint review and analysis reports of the Company through the date hereof, including information regarding complaints by product and root cause analysis of closed complaints, which reports are correct in all material respects. (c) The Company has not received any written notice or other written communication from the FDA or any other Governmental Authority (i) contesting the pre-market clearance or approval of, the uses of or the labeling and promotion of any of the Company Products or (ii) otherwise alleging any violation of any Laws by the Company. (d) There have been no recalls, field notifications or seizures ordered or adverse regulatory actions taken (or to the knowledge of the Company threatened) by the FDA or any other Governmental Authority with respect to any of the Company Products, including any facilities where any such Company Products are produced, processed, packaged or stored and the Company has not within the last three years, either voluntarily or at the request of any Governmental Authority, initiated or participated in a recall of any Company Product or provided post-sale warnings regarding any Company Product. (e) The Company has conducted all of its clinical trials with reasonable care and in all material respects in accordance with all applicable Laws and the stated protocols for such clinical trials. (f) All filings with and submissions to the FDA and any corollary entity in any other jurisdiction made by the Company with regard to the Company Products, whether oral, written or electronically delivered, were true, accurate and complete in all material respects as of the date made, and, to the extent required to be updated, as so updated remain true, accurate and 19 complete in all material respects as of the date hereof, and do not materially misstate any of the statements or information included therein, or omit to state a material fact necessary to make the statements therein not misleading. 2.20 Brokers; Expenses. No finder, broker, financial advisor, agent or other intermediary has acted for or on behalf of the Company or the Principal Shareholders in connection with the negotiation of this Agreement or the Related Agreements or the consummation of the transactions contemplated hereby or thereby. 2.21 Consents. Except as set forth in Section 2.21 of the Disclosure Schedule, no permit, approval, authorization or consent of any person (excluding Governmental Authorities) is required in connection with the execution, delivery and performance by the Company of this Agreement or the Related Agreements, or the consummation of the transactions contemplated hereby or thereby. 2.22 Taxes. The Company has filed (or caused to be filed) all Tax Returns required to be filed by the Company and has paid (or caused to be paid) all Taxes properly due in connection therewith, including interest and penalties. There are no liens, encumbrances, claims or charges of any kind for Taxes on any Assets. 2.23 Minute Book. The Company has made available to the Purchaser copies of minutes of all meetings of directors and shareholders and/or written consent resolutions of directors and shareholders since the time of incorporation, and such minutes reflects all transactions referred to in such minutes accurately in all material respects. 2.24 Employees. The Company has no collective bargaining agreements with any of its employees. There is no labor union organizing activity pending or, to the Company's knowledge, threatened with respect to the Company. To the Company's knowledge, no employee of the Company, nor any consultant with whom the Company has contracted, is in material violation of any term of any employment contract, proprietary information agreement or any other agreement relating to the right of any such individual to be employed by, or to contract with, the Company because of the nature of the business to be conducted by the Company; and to the Company's knowledge the continued employment by the Company of its present employees, and the performance of the Company's contracts with its independent contractors, will not result in any such violation. The Company has not received any notice alleging that any such violation has occurred. No employee of the Company has been granted the right to continued employment by the Company or to any material compensation following termination of employment with the Company. 2.25 Title to Properties and Assets; Liens; Etc. The Company has good and marketable title to all of its properties and assets, including the properties and assets reflected in the most recent balance sheet included in the Financial Statements and the Assets, and good title to its leasehold estates, in each case subject to no mortgage, pledge, lien, lease, encumbrance or charge, other than (a) those resulting from Taxes which have not yet become delinquent, (b) minor liens and encumbrances which do not materially detract from the value of the property subject thereto or materially impair the operations of the Company, and (c) those that have otherwise arisen in the ordinary course of business. Section 2.25 of the Disclosure Schedule sets 20 forth a complete list of all facilities, machinery, equipment, fixtures, vehicles and other properties owned, leased or used by the Company, all of which are in good operating condition and repair and are reasonably fit and usable for the purposes for which they are being used. The Company is in compliance with all material terms of each lease to which it is a party or is otherwise bound. 2.26 Inventory. Section 2.26 of the Disclosure Schedule sets forth a complete and accurate list of the inventories of the Company. All inventories of the Company reflected in the Financial Statements and on the Disclosure Schedule (a) consist of items of merchantable quality and quantity usable and salable at its carrying value in the ordinary course of business, consistent with past practice and (b) conform in all material respects to the specifications established therefor. 2.27 Orders; Commitments and Returns. All accepted and unfulfilled orders for the sale of products and the performance of services entered into by the Company and all outstanding contracts or commitments for the purchase of supplies, materials and services by or from the Company were made in bona fide transactions in the ordinary course of business. There are no material claims against the Company to return products by reason of alleged over-shipments, defective products or otherwise, or of products in the hands of customers, retailers or distributors under an understanding that such products would be returnable. 2.28 Product Liability Claims. The Company has never received a written claim, or, to its knowledge, incurred any uninsured or insured liability, for or based upon failure to warn, breach of product warranty (other than warranty service and repair claims incurred in the ordinary course of business and expensed as warranty expense on the Financial Statements for the period in which incurred), strict liability in tort, general negligence, negligent manufacture of a Company Product, negligent provision of services or any other allegation of liability, including or resulting in, but not limited to, product recalls, arising from the materials, design, testing, manufacture, packaging, labeling (including instructions for use) or sale of its products or from the provision of services. 2.29 Warranties. All products manufactured or sold, and all services provided, by the Company have materially complied, and are in material compliance with all contractual requirements, warranties or covenants, express or implied, applicable thereto, and with all applicable governmental, trade association or regulatory specifications therefor or applicable thereto. No product or service manufactured, sold, delivered or performed by the Company is subject to any guaranty, warranty or other indemnity beyond the applicable standard terms and conditions set forth in the Disclosure Schedule. The Disclosure Schedule sets forth or references the terms of all standard and all material non-standard product and service warranties and product return, sales credit, discount, warehouse allowance, advertising allowance, demo sales and credit policies of the Company. The Company has delivered or made available to the Purchaser prior to the date hereof complete and accurate copies of all such warranties and policies. 2.30 Relations with Suppliers and Customers. No material current supplier of the Company has canceled any contract or order for provision of, and, to the knowledge of the Company's officers, there has been no threat by any such supplier not to provide, raw materials, 21 products, supplies or services to the businesses of the Company either prior to or following the Agreement Date. The Company has not received any information from any customer that accounted for more than five percent (5%) of the revenues of the Company during the last full fiscal year to the effect that such customer intends to materially decrease the amount of business it does with the businesses of the Company either prior to or following the Agreement Date. Section 2.30 of the Disclosure Schedule lists each supplier to the Company that is the source of a particular raw material, product, supply or service with respect to which locating and qualifying a replacement source would, to the Company's knowledge, involve significant cost or delay. 2.31 Absence of Certain Business Practices. Neither the Company nor any director, officer, employee of the Company, agent or Principal Shareholder of the Company, nor any other person acting on behalf of the Company, has, directly or indirectly, given or agreed to give any gift or similar benefit or agreed to make or made any payment to any customer, supplier, governmental employee or other person who is or may be in a position to help or hinder the business of the Company, taken as a whole (or assist it in connection with any actual or proposed transaction) which (a) would reasonably be expected to subject the Company to any damage or penalty in any civil, criminal or governmental litigation proceeding, or (b) violated or violates any applicable Law. 2.32 Investment Representations. The Company also represents and warrants to the Purchaser that: (a) The Company and the Shareholders have obtained all information about the Purchaser as they believe relevant to their decision to acquire the shares of Purchaser Common Stock to be issued pursuant to this Agreement. The Company and the Shareholders have also had the opportunity to ask questions of, and to receive answers from, the Purchaser, its officers and directors, or other agents or representatives of the Purchaser concerning the business and affairs of the Purchaser and to obtain any additional information necessary to verify such information, and the Company and the Shareholders have received such information concerning the Purchaser as they consider necessary or advisable in order to form a decision regarding acquiring the Purchaser Common Stock. (b) The Company and the Shareholders realize that their acquisition of the Purchaser Common Stock involves a high degree of risk, and they are able to bear the economic risk of their acquisition of the Purchaser Common Stock, including the total loss of their investment in such shares. The Company and Shareholders are experienced and knowledgeable in financial and business matters and are capable of evaluating the merits and risks of acquiring the Purchaser Common Stock. (c) The Company will use commercially reasonable efforts to obtain a completed and executed Investment Certificate in the form attached hereto as Exhibit D (the "Investment Certificate") from each of the Shareholders, at or prior to the Asset Purchase Closing Date. (d) The state in which the Company's principal office is located is the state set forth in the Company's address in Section 10.1 below. The state in which the Shareholders reside, or, if applicable, where any Shareholder's principal office is located, is the state set forth 22 in the Investment Certificate completed by each such Shareholder and as set forth in Section 2.32 of the Disclosure Schedule. (e) The Company and the Shareholders understand that: (i) the Purchaser has engaged legal counsel to represent Purchaser in connection with the transactions contemplated by this Agreement; (ii) legal counsel engaged by Purchaser does not represent the Company or the Shareholders or any of their respective interests; and (iii) neither the Company nor any Shareholder is relying on legal counsel engaged by Purchaser. The Company and the Shareholders have had the opportunity to engage, and obtain advice from, their own respective legal counsel with respect to an investment in the Purchaser Common Stock. (f) Except as set forth in Section 2.32 of the Disclosure Schedule, the Company and each of the Shareholders is an "Accredited Investor" as defined in Rule 501(a) of Regulation D under the Securities Act. To the extent that any of the Shareholders are not "Accredited Investors" as defined in Rule 501(a) of Regulation D under the Act, the Company represents that it has no more than 35 non-Accredited Investor Shareholders in total. (g) The Company and the Shareholders are acquiring, or will acquire, the shares of Purchaser Common Stock pursuant to this Agreement for investment purposes only and for their own respective accounts and not with a view to, or for resale in connection with, any distribution or public offering. (h) The Company and the Shareholders understand and acknowledge (i) that, while the Purchaser has agreed pursuant to the provisions of Section 5.16 to file a registration statement covering the resale of the Purchaser Common Stock by the Shareholders, none of the shares of the Purchaser Common Stock to be issued in connection with the transactions contemplated by this Agreement will be registered as of the Asset Purchase Closing Date under the Securities Act, or under any applicable state securities laws, and that such shares will be issued in connection with the transactions contemplated by this Agreement in reliance on exemptions from the registration requirements of the Securities Act and applicable state securities laws, (ii) that the reliance of the Purchaser upon these exemptions is predicated in part upon the representations by the Company made in this Section 2.32, (iii) that the shares of Purchaser Common Stock may not be sold, assigned or transferred except pursuant to an appropriate registration statement under the Securities Act and any applicable state securities laws or an appropriate exemption such registration requirements, and (iv) that a legend reflecting these restrictions will be placed on any certificates representing such shares of Purchaser Common Stock. 2.33 Investigation by the Purchaser. Notwithstanding anything to the contrary in this Agreement, (a) no investigation by the Purchaser shall affect the representations and warranties of the Company under this Agreement or contained in any other writing to be furnished to the Purchaser in connection with the transactions contemplated hereunder and (b) such representations and warranties shall not be affected or deemed waived by reason of the fact that Purchaser should have known that any of the same is or might be inaccurate in any respect. 2.34 Voting Agreements. Concurrently with the execution and delivery of this Agreement, the Company has delivered to the Purchaser voting agreements, in the form attached 23 hereto as Exhibit E (the "Voting Agreement"), from each Shareholder of the Company that owns, beneficially or of record, 80,000 or more shares of Company Common Stock as of the Agreement Date, which Shareholders hold a number of shares of Company Common Stock sufficient to adopt and approve this Agreement and the Asset Purchase as of the date of this Agreement. 2.35 March Agreement. Notwithstanding anything to the contrary in this Agreement, the Company is not required to deliver to the Purchaser any consent or release from Keith March, M.D. regarding his reversion rights to certain intellectual property of the Company upon the occurrence of certain events as set forth in that certain Assignment and Release Agreement among the Company, Dr. Keith March and Advanced Research and Technology Institute, dated as of February 15, 2003. ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER The Purchaser hereby represents and warrants to the Company as of the Agreement Date as follows, subject in each case to such exceptions as are specifically contemplated by this Agreement. 3.1 Organization; Good Standing and Qualification. The Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Minnesota. The Purchaser has all requisite corporate power and authority to own and operate its properties and assets, to execute and deliver this Agreement, to carry out the provisions of this Agreement and those of the Related Agreements to which it is a party, and to perform its obligations under, and carry out the provisions of, this Agreement and such Related Agreements, and to carry on its business as presently conducted and as presently proposed to be conducted. The Purchaser is duly qualified to transact business and is in good standing in each jurisdiction where such qualification is required and in which failure to so qualify would have a Material Adverse Effect on Purchaser. 3.2 Authorization; Binding Obligations; Governmental Consents. (a) All corporate actions on the part of the Purchaser and its officers, directors and Shareholders necessary for the authorization of this Agreement and those of the Related Agreements to which its is a party and the performance of all obligations of the Purchaser hereunder and thereunder have been taken; provided, that as of the Agreement Date, the Board of Directors of the Purchaser has not authorized the delivery of an Option Exercise Notice or the performance of any of its obligations that arise after delivery of the Option Exercise Notice, including the consummation of the Asset Purchase. This Agreement and those of the Related Agreements to which it is a party are the valid and binding obligations of the Purchaser, enforceable against such party in accordance with their respective terms, except as such enforcement may be limited by (i) the effect of bankruptcy, insolvency, reorganization, receivership, conservatorship, arrangement, moratorium or other laws affecting or relating to the rights of creditors generally, or (ii) the rules governing the availability of specific performance, injunctive relief or other equitable remedies and general principles of equity, regardless of whether considered in a proceeding in law or equity. 24 (b) No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state or local Governmental Authority on the part of the Purchaser is required in connection with the consummation by the Purchaser of the transactions contemplated by this Agreement and those of the Related Agreements to which it is a party, except for (i) such consents, approvals, orders authorizations, registrations, declarations and filings as may be required under applicable state and federal securities laws and the securities laws of any foreign country in connection with the possible issuance of Purchaser Common Stock in the Asset Purchase; (ii) such filings as may be required under any applicable state or foreign anti-takeover and similar laws; and (iii) such other consents, authorizations, filings, approvals and registrations which, if not obtained or made, would not have a Material Adverse Effect on Purchaser and would not prevent, or materially alter or delay any of the transactions contemplated by this Agreement. 3.3 Compliance with Other Instruments. The execution, delivery and performance of this Agreement and those of the Related Agreements to which the Purchaser is a party, the issuance of the Purchaser Common Stock and the performance by the Purchaser of each such agreement in accordance with their respective terms will not (a) violate the Articles of Incorporation or Bylaws of the Purchaser, (b) breach or result in a violation of any Law applicable to the Purchaser or the transactions contemplated by this Agreement and the Related Agreements or (c) constitute a material breach of the terms, conditions, provisions of, or constitute a default under, any judgment, order, or decree of any court or arbitrator to which the Purchaser is a party or any material contract of Purchaser. 3.4 Brokers. The Purchaser has not incurred, nor will it incur, any liability for brokerage or finders' fees or agents' commissions or investment bankers' fees or any similar charges in connection with this Agreement or the consummation of the transactions contemplated hereby or thereby. 3.5 Capitalization. The shares of Purchaser Common Stock to be issued pursuant to Section 1.7(a) of this Agreement, at the time of issuance, will be duly authorized and reserved for issuance, and upon issuance thereof in accordance with this Agreement, will be validly issued, fully paid and nonassessable. 3.6 Purchaser SEC Reports; Financial Statements. The Purchaser has filed with the SEC, at or prior to the time due, and has made available to the Company and the Shareholders (via EDGAR) true and complete copies of all forms, reports, schedules, registration statements and definitive proxy statements (together with all information incorporated therein by reference, the "Purchaser SEC Reports") required to be filed by it with the SEC since January 1, 2003. As of their respective dates, the Purchaser SEC Reports complied as to form in all material respects with the requirements of the Exchange Act or the Securities Act, as the case may be, and the rules and regulations of the SEC thereunder applicable to such Purchaser SEC Reports. As of their respective dates and as of the date any information from such Purchaser SEC Reports has been incorporated by reference, the Purchaser SEC Reports did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. Each of the financial statements of the Purchaser (including the related notes) included or incorporated by reference in the Purchaser SEC Reports (including any similar 25 documents filed after the date of this Agreement) comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with GAAP (except, in the case of unaudited statements, as permitted by Form 10-Q of the SEC) applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly present the consolidated financial position of the Purchaser and its consolidated Purchaser Subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject to normal year-end adjustments in the case of any unaudited interim financial statements). Except for liabilities and obligations incurred in the ordinary course of business consistent with past practice and which could not reasonably be expected to have, individually or in the aggregate, a Purchaser Material Adverse Effect, since the date of the most recent audited consolidated balance sheet included in the Purchaser SEC Reports, the Purchaser has no liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise) required by GAAP to be set forth on a consolidated balance sheet of the Purchaser or in the notes thereto. 3.7 Litigation. There are no claims, actions suits, proceedings or investigations pending against the Purchaser or, to the Purchaser's knowledge, threatened against the Purchaser (a) that if determined adversely to the Purchaser would be reasonably likely to have a Material Adverse Effect on the Purchaser or (b) that challenge or seek to prevent, enjoin, alter or delay any of the transactions contemplated hereby. ARTICLE 4 CONDUCT OF BUSINESS PENDING THE ASSET PURCHASE AND RELATED COVENANTS 4.1 Conduct of Business of the Company. The Company covenants and agrees that, during the period beginning on the Agreement Date and ending as of the earliest of the termination or expiration of the Option Period or the occurrence of the Asset Purchase Closing Date, unless the Purchaser shall otherwise consent in writing, which shall not be unreasonably withheld or delayed, the business of the Company shall be conducted only in, and the Company shall not take any action except in, the ordinary course of business and in a manner consistent with past practice or consistent with prudent business practice for similarly situated companies; and the Company shall use commercially reasonable efforts to preserve intact its business organization. Without limiting the foregoing, the Company shall not, during the period beginning on the Agreement Date and ending as of the earliest of the termination or expiration of the Option Period or the occurrence of the Asset Purchase Closing Date, directly or indirectly do, or propose to do, any of the following without the prior written consent of the Purchaser, which shall not be unreasonably withheld or delayed, with it being understood that each of such clauses below shall constitute an independent obligation of the Company, not qualified by any other such clause, and shall be deemed to be cumulative: (a) Issuance of Securities. Issue, deliver or sell or authorize or propose the issuance, delivery or sale of, or purchase or propose the purchase of, any shares of its capital stock or securities or other instruments convertible into, or subscriptions, rights, warrants or options to acquire, or other agreements or commitments of any character obligating it to issue any such shares or other convertible instruments or securities; 26 (b) Distributions. Prior to payment in full of all Indebtedness, liabilities and obligations reflected in the Financial Statements pursuant to Sections 2.5 and 2.6, declare, pay or set aside for payment any dividend or other distribution in respect of its capital stock or other securities (including without limitation distributions in redemption or liquidation) or redeem, purchase or otherwise acquire any shares of its capital stock or other securities; (c) Intellectual Property. Sell, license, assign or transfer any Intellectual Property of the Company of any material value to any other person other than the Purchaser, or encumber any Intellectual Property of the Company; (d) Marketing or Other Rights. Enter into or amend any agreement pursuant to which any other party is granted manufacturing, marketing or other development or distribution rights of any type or scope with respect to any of the Company's products or technology, or enter into any agreement that would limit the ability of the Purchaser or any Affiliate of the Purchaser to operate in a specific area of business or specific geographic area after the closing of the Asset Purchase; (e) Dispositions. Sell, lease, license or otherwise dispose of or encumber any of its properties or assets which are material, individually or in the aggregate, taken as a whole; (f) Indebtedness. Except for purchase orders or commitments entered into in the ordinary course of business, incur any indebtedness for borrowed money or guarantee any such indebtedness or issue or sell any debt securities or guarantee any debt securities of others; (g) Leases. Enter into any operating leases; (h) Capital Expenditures. Make any capital expenditures, capital additions or capital improvements; (i) Employee Benefit Plans; New Hires; Pay Increases. Except in the ordinary course of business consistent with past practices or consistent with prudent business practices for similarly situated companies, (1) adopt or amend any employee benefit plan (other than the Company Stock Option Plan), pay any special bonuses or special remuneration or make any loan or advance to any employee or director (other than pre-existing obligations), (2) increase the salaries, bonuses or wage rates of its employees, or (3) enter into any agreement or arrangement with any director, officer, employee or Shareholder; (j) Lawsuits. Commence a lawsuit other than (1) for the routine collection of bills, (2) in such cases where it in good faith determines that failure to commence suit would result in the material impairment of a valuable aspect of its business, provided that it consults with the Purchaser prior to the filing of such a suit, or (3) with respect to this Agreement or the Related Agreements; (k) Acquisitions; Other Transactions. Become a party to any asset acquisition or disposition, exchange, reorganization, recapitalization, liquidation, dissolution or other similar corporate transaction, or organize any new subsidiary, acquire any capital stock or other equity securities or other ownership interest in, or assets of, any person or entity or otherwise make any 27 investment by purchase of stock or securities, contributions to capital, property transfer or purchase of any properties or assets of any person or entity; (l) Related Party Transactions. Enter into or be a party to any transaction with any director, officer, employee, significant shareholder or family member of or consultant to any such person, corporation or other entity of which any such person beneficially owns 10% or more of the equity interests or has 10% or more of the voting power, or subsidiary or Affiliate of the Company; or (m) General. Authorize, commit to, agree to take, or permit to occur any of the foregoing actions. ARTICLE 5 ADDITIONAL AGREEMENTS 5.1 Notices; Consents; Filings. From and after the delivery of an Option Exercise Notice, the Company shall use commercially reasonable efforts, at the Company's expense, to obtain the consents described in Section 2.21 of the Disclosure Schedule. In the event that the Company shall fail to obtain any third party consent necessary for the consummation of the transactions contemplated hereby, the Company shall use commercially reasonable efforts, and take any such actions reasonably requested by the Purchaser, to minimize any adverse effect upon the Company and the Purchaser and their respective businesses resulting, or which could reasonably be expected to result after the Asset Purchase Closing Date, from the failure to obtain such consent. 5.2 Access to Information. The Company will afford to the Purchaser and its directors, officers, employees, counsel, accountants, investment advisors and other authorized representatives and agents at the Purchaser's expense, reasonable access to the facilities, properties, books and records of the Company in order that the Purchaser may have full opportunity to make such investigations as it shall desire to make of the affairs of the Company; provided, however, that any such investigation shall be conducted in such a manner as not to interfere unreasonably with business operations; and the Company shall furnish such additional financial and operating data and other information as the Purchaser shall, from time to time, reasonably request, including without limitation access to the working papers of their independent certified public accountants; and, provided, further, that any such investigation shall not affect or otherwise diminish or obviate in any respect any of the representations and warranties of the Company herein. 5.3 Confidentiality. Each of the parties hereto agrees that it will not use, or permit the use of, any of the information relating to any other party hereto furnished or made available to it in connection with the transactions contemplated herein ("Information") for any purpose or in any manner other than solely in connection with its evaluation or consummation of the transactions contemplated by this Agreement in a manner that the disclosing party has approved and shall in no event use or permit the use of any of such Information in a manner or for a purpose detrimental to such other party, and that they will not disclose, divulge, provide or make accessible (collectively, "Disclose" or "Disclosure"), or permit the Disclosure of, any of the Information to any person or entity, other than solely to their responsible directors, officers, 28 employees, investment advisors, accountants, counsel and other authorized representatives and agents (collectively, the "Representatives") who have a "need to know" to carry out the purposes of this Agreement, except as may be required by judicial or administrative process or, in the opinion of such party's regular counsel, by other requirements of applicable Law; provided, however, that prior to any Disclosure of any Information permitted hereunder, the disclosing party shall first obtain the recipients' undertaking to comply with the provisions of this subsection with respect to such Information. The term "Information" as used herein shall not include any information relating to a party which the party receiving such information can show: (i) to have been rightfully in its possession prior to its receipt from another party hereto; (ii) to be now or to later become generally available to the public through no fault of the receiving party; (iii) to have been received separately by the receiving party in an unrestricted manner from a person entitled to disclose such information; or (iv) to have been developed independently by the receiving party without regard to any Information received in connection with this transaction. Each party hereto also agrees to promptly return to the party from whom originally received all original and duplicate copies of materials containing Information and to destroy any summaries, analyses or extracts thereof or based thereon (whether in hard copy form or intangible media) should the transactions contemplated herein not occur or upon the request of the providing party. A party hereto shall be deemed to have satisfied its obligations to hold the Information confidential if it exercises the same care as it takes with respect to its own similar information, which shall in no event be less than reasonable care. The provisions of this Section 5.3 shall survive indefinitely any termination of this Agreement. 5.4 Research and Development by the Purchaser. (a) Grant of Access to Purchaser. The Company hereby grants to the Purchaser the irrevocable and unconditional right and privilege to conduct, at its own cost and expense, research and development activities related to the Products during the Option Period, and agrees to take reasonable steps to accommodate such activities, including providing to the Purchaser's employees and agents such access to the Company's data and equipment as is reasonably necessary for the Purchaser to conduct such activities. (b) Research and Development Plan. Within 90 days following the Agreement Date, the Purchaser shall, after consulting with the company and considering the Company comments on its R&D Proposed Plan, complete a research and development plan (the "R&D Plan"), in connection with the research and development activities to be performed by the Purchaser pursuant to Section 5.4(a). The Purchaser shall provide an authorized representative of the Company, who shall initially be John Hauck (the "Company Representative"), with all results of its research and development activities in a timely manner and the Company Representative will have the right to provide the Purchaser with any comments the Company Representative may have on such results. The Purchaser will not be allowed to disclose or publish any such results during the Option Period or, if the Purchaser does not exercise the Option, following the Option Period without the prior consent of the Company. Within 180 days following the Agreement Date, the Purchaser shall begin implementation of the R&D Plan and shall have committed to spend during the Option Period at lease $150,000 implementing the R&D Plan with HCA in Milwaukee and other vendors. 29 (c) Ownership of Intellectual Property. (1) Purchaser Ownership. All Intellectual Property owned by the Purchaser as of the Agreement Date, along with any and all Intellectual Property developed or created by or on behalf of Purchaser following the Agreement Date (the "Purchaser Owned Intellectual Property"), and any and all Intellectual Property conceived of and/or constructively or actually reduced to practice by the Purchaser, employees or agents of the Purchaser, the Company or employees or agents of the Company as a result of the research and development performed by the Purchaser pursuant to paragraphs 5.4(a) and (b) above, whether developed jointly with the Company or alone by any party, and whether or not constituting a new use, modification, enhancement or improvement to the Products (the "R&D Intellectual Property" and collectively with the Purchaser Owned Intellectual Property, the "Purchaser Intellectual Property") is, and shall be, owned solely and exclusively by the Purchaser and shall be, and remain, the sole and exclusive property of Purchaser, subject to the license, if any, granted the Company pursuant to Section 5.4(d) below. The Company, any employees or agents of the Company and/or the Principal Shareholders shall assign (and do hereby assign) to the Purchaser all of their right, title and interest in and to any and all R&D Intellectual Property, and the Company, any employees or agents of the Company and/or the Principal Shareholders shall execute and deliver, at no charge, all agreements or instruments deemed reasonably necessary to effectuate any assignment of right. (2) Company Ownership. All Company Owned Intellectual Property shall be, and remain, the sole and exclusive property of the Company, unless and until the Asset Purchase Closing Date, if any. Subject to the other provisions of this Section 5.4, the Company shall secure and maintain, at its cost, the Company Owned Intellectual Property in such applicable countries and in such manner as the Company shall elect after reasonable consideration of the views of the Purchaser. Except as provided in Section 5.4(e), the Company shall pay all costs associated with the filing, prosecution and maintenance of the Company Owned Intellectual Property. The Company shall notify the Purchaser of any change in the status of any Company Owned Intellectual Property within ten (10) days of the Company's knowledge thereof. If during the Option Period, the Company files any continuations in part on any patents which are part of the Company Owned Intellectual Property, the Purchaser shall have the right to review any such continuation in parts prior to filing and the right to claim priority to the parent application if any such continuations in part contains any R&D Intellectual Property. In addition, if the Company intends to file any reissue applications on such patents during the Option Period (whether within or outside of the United States) that broaden the claims of such patents, the Company agrees that it will not file any such reissue application until the Purchaser has had an opportunity to review such reissue application. If the Company files such reissue application and, at the time of filing, the Purchaser objects to the contents of such reissue application, the parties agree that the additional claims included in the filed reissue application shall not be included in the defined term "Company Owned Intellectual Property," and the Purchaser shall have the right to treat the Company in breach of this Agreement and exercise any rights and remedies provided in this Agreement and any and all rights and remedies available at law or in equity. Notwithstanding any other provision of this Agreement, if (A) the Asset Purchase Closing occurs, and (B) the Purchaser fails to spend at least $100,000 (including both internal and out-of-pocket costs) on research, development, marketing and sale of a Product in each twelve-month period beginning with the first full calendar month following the Asset 30 Purchase Closing Date and ending (1) with the last such twelve-month period that immediately precedes payment by the Purchaser of the Third Contingent Payment, or (2) after ten such twelve-month periods, whichever is earlier, then the Company shall have the right to purchase from the Purchaser the Assets, including all Company Owned Intellectual Property, to the extent such assets exist at such time for an aggregate price equal to the total payments made by Purchaser under Section 1.4. (d) Licenses; Sublicenses. In the event the Purchaser does not exercise pursuant to the terms of this Agreement the Option during the Option Period or if the Option is properly exercised, but an Asset Purchase Closing Date does not occur, the Purchaser hereby automatically grants to the Company as of the termination or expiration of the Option Period a non-exclusive, fully paid-up, irrevocable, perpetual, worldwide right and license to the R&D Intellectual Property for the sole purpose of making, using, offering and selling Products solely in the Field of Use. To the extent Purchaser shall need a license to any Company Owned Intellectual Property or a sublicense to the Company Licensed Intellectual Property during the Option Period in connection with or as a result of the research and development activities performed pursuant to Sections 5.4(a) and (b), the Company hereby automatically grants to the Purchaser as of the Agreement Date a world-wide, fully paid-up, non-exclusive license, without a right of sublicense, to such Company Owned Intellectual Property and a sublicense to such Company Licensed Intellectual Property, solely for use during the Option Period as part of such research and development activities in furtherance of the R&D Plan. (e) Patent Prosecution and Enforcement. (1) The Company and the Principal Shareholders hereby grant to the Purchaser, for the duration of the Option Period, the exclusive right to initiate suit and take any action, in the name of the Company, to enforce the Company Owned Intellectual Property and the Company agrees to join any such suit, action or proceeding and, at Purchaser's request and expense, shall execute all documents and perform such other acts as may be reasonably required. Purchaser shall have the exclusive right to employ counsel of its own selection and to direct and control the litigation or any settlement thereof and shall be entitled to all damages awarded in any such suit, action or proceeding. In any such action, Company shall, at its own expense, have the right to non-controlling participation through counsel of its own selection. During the Option Period, the Company and the Principal Shareholders agree to cooperate as reasonably requested by the Purchaser to effectuate the rights granted to Purchaser in this Section 5.4. (2) During the Option Period, Purchaser shall have the exclusive right to prosecute and maintain the Company Owned Intellectual Property before all applicable examining authorities including responding to official actions and taking such other actions as deemed necessary by Purchaser. In conjunction therewith, Purchaser shall (i) pay when due all maintenance and annuity fees; (ii) pay reasonable and customary costs and expenses incurred in connection with the prosecution and maintenance of the Company Owned Intellectual Property; (iii) consult with Company regarding in which foreign countries Company desires patent protection; and (iv) keep Company apprised of all proceedings concerning prosecution of the Company Owned Intellectual Property before the applicable examining authority by providing copies of correspondence and official actions within 10 days of receipt thereof from any such examining authority; by providing Company copies of all correspondence, filings and responses 31 to official actions at least 30 days in advance of the deadline for any such filing with such authorities; and by providing Company with an opportunity to comment. Purchaser shall not unreasonably refuse to include such input in its response to the official action. If Purchaser (i) elects not to prosecute; (ii) desires to abandon any of patent applications included in the definition of Company Owned Intellectual Property; (iii) desires not to maintain any patent or patent application included in the definition of Company Owned Intellectual Property; or (iv) does not desire to file a patent application in any foreign country in which Company has expressed an interest, it shall so notify Company in writing allowing sufficient time for Company to (w) assume the prosecution of any such patent application prior to any abandonment thereof; (x) prevent any actual abandonment of any patent or patent application; (y) make maintenance and annuity fee payments in advance of any abandonment thereof; and (z) file patent applications in foreign countries of Company's choice. 5.5 Exclusivity. From the Agreement Date through the earlier of (a) the termination or expiration of the Option, (b) the termination of this Agreement or (c) the Asset Purchase Closing Date, the Company will refrain from, directly or indirectly, including through any officer, director, agent, representative or otherwise, and will cause its officers, directors, agents and representatives to refrain from, (i) soliciting, initiating, encouraging, promoting, recommending or accepting any other inquiries, proposals or offers from any person relating to (1) any transaction for the purchase of all or any significant portion of the capital stock or a material portion of the assets of the Company, (2) any business combination with the Company, or (3) any extraordinary business transaction involving Company Owned Intellectual Property or Company Licensed Intellectual Property, or (ii) participating in any discussions, conversations, negotiations or other communications with any other person regarding any of the foregoing, other than to inform any such third party of the Company's obligation not to participate in any such discussions or conversations. The Company agrees to inform or cause its representatives to inform the Purchaser in reasonable detail (including the proposed purchase price and a description of the principal terms of such proposal) within two business days of its receipt of any such inquiry, proposal or offer. 5.6 Public Announcements. Prior to the Asset Purchase Closing Date, the Purchaser shall not, without the prior written consent of the Company, issue any press release or otherwise make any public statements with respect to this Agreement or the Asset Purchase and related transactions, except as may be required by (i) law, (ii) the SEC, (iii) the Securities Act or Exchange Act, or (iv) the National Association of Securities Dealers, Inc. or any national securities exchange to which the Purchaser is subject. Nothing herein express or implied shall require the Purchaser to consult with the Company following the Asset Purchase Closing Date. The Company shall not, without the prior written consent of the Purchaser, issue any press release or otherwise make any public statements with respect to this Agreement or the Asset Purchase and related transactions at any time. 5.7 FDA Approval Matters. The Company shall notify Purchaser of any substantive communications with the FDA or any corollary entity in any other jurisdiction, including outside of the United States of America, or any other Governmental Authority, whether written or oral, as soon as reasonably practicable, but in no event later than ten (10) days after the receipt of such substantive communication, and within such same time period, the Company shall provide the Purchaser with copies of any such written communications and written summaries of any such 32 substantive oral communications. The Company shall immediately, and in any event within three (3) business days of the FDA Approval Date notify Purchaser, in writing and with reasonable specificity, of such FDA Approval, and shall provide copies of all relevant correspondence regarding receipt of FDA Approval. 5.8 Notice of Developments. The Purchaser, on the one hand, and the Company, on the other hand, shall be required to give prompt written notice to the other party of any material development causing a breach of any of its own representations and warranties in this Agreement. 5.9 Tax Returns. The Company shall timely file all of its material Tax Returns that are due (taking all timely filed proper extension requests into account) on or before the Asset Purchase Closing Date, all such Tax Returns shall be true, correct and complete, and the Company shall timely pay or contest all Taxes shown as due on such Tax Returns. 5.10 Shareholders Meeting. If requested by the Purchaser in writing (a "Meeting Request") at any one time during the Option Period, the Company, shall (i) cause a meeting of the Company Shareholders (a "Shareholders Meeting"), to be called for purposes of approving, reapproving or ratifying the Asset Purchase and this Agreement, or (ii) circulate a solicitation for written consent in lieu of such Shareholders Meeting for the same purposes. In the event that the Purchaser delivers a Meeting Request pursuant to this Section 5.10, the Company shall cause a Shareholders Meeting to be held on such date as may be reasonably requested by the Purchaser and set forth in the Meeting Request, and shall distribute on a timely basis to all Shareholders of the Company any soliciting materials relating to such meeting (including a Joint Statement in accordance with Section 5.11 below, and any other information statement, proxy statement or prospectus prepared by the Purchaser), together with a copy of the unanimous recommendation of the Company's board of directors that the Company's Shareholders vote "FOR" the approval and adoption of the Asset Purchase and this Agreement. In the event that the Purchaser circulates a solicitation for written consent in lieu of such Shareholders Meeting, the Company shall distribute to the Company's Shareholders, together with such written consent, any materials that would have been required to be distributed to the Company's Shareholders in connection with a Shareholders Meeting. 5.11 Information/Proxy Statement. In connection with a Shareholders Meeting, the Purchaser and the Company shall jointly prepare and furnish to the Company's Shareholders a written proxy/information statement (the "Joint Statement") which shall (i) solicit, on behalf of the Company's board of directors, the Company's Shareholders' written consent to the ratification and approval of this Agreement and the Asset Purchase, and (ii) constitute a disclosure document for the offer and issuance of the shares of Purchaser Common Stock that may be received by the Company's Shareholders in the Asset Purchase. Each of the Company and the Purchaser shall use their commercially reasonable best efforts to cause any Joint Statement to comply with all applicable requirements of federal and state securities Laws, and Minnesota Law. Each of the Purchaser and the Company hereby (i) consents to the use of its name and, on behalf of its subsidiaries and Affiliates, the names of such subsidiaries and Affiliates and to the inclusion of financial statements and business information relating to such party and its subsidiaries and Affiliates (in each case, to the extent reasonably required by applicable federal and state securities Laws or as otherwise deemed reasonably appropriate by 33 the Company or the Purchaser) in any Joint Statement, (ii) agrees to provide promptly to the other such information concerning it and its respective Affiliates, directors, officers and shareholders as may be reasonably required or appropriate for inclusion in any Joint Statement, or in any amendments or supplements thereto, and (iii) agrees to cause its counsel and auditors to cooperate with the other's counsel and auditors in the preparation of any Joint Statement. The Company will promptly advise the Purchaser, and the Purchaser will promptly advise the Company, in writing if at any time prior to the adoption and approval of this Agreement and the Asset Purchase by the Company's Shareholders in connection with any Shareholders Meeting, either the Company or the Purchaser shall obtain knowledge of any facts that might make it necessary or appropriate to amend or supplement any Joint Statement in order to make the statements contained or incorporated by reference therein not misleading or to comply with applicable Law. Any Joint Statement shall contain the recommendation of the Company's board of directors that the Company's Shareholders approve and adopt this Agreement and the Asset Purchase, and the conclusion of the Company's board of directors that the terms and conditions of the Asset Purchase are fair and reasonable and in the best interests of the Company and its Shareholders, and shall include no other recommendations or statements of the Company's board of directors that are inconsistent with such purpose. 5.12 Investment Certificates. The Company shall prepare and deliver to its Shareholders, along with the Joint Statement, an Investment Certificate in the form attached hereto as Exhibit D, which form shall be acceptable to Purchaser and Purchaser's counsel, to be completed and returned by each Shareholder of the Company. The Company agrees that it shall use commercially reasonable efforts to obtain a completed Investment Certificate from each Shareholder of the Company prior to the Asset Purchase Closing Date and that it will not deliver any shares of Purchaser Common Stock to a Shareholder until such Shareholder has completed and returned an Investment Certificate. 5.13 Further Assurances. (a) Following the delivery of an Option Exercise Notice, each of the Purchaser and the Company will: (i) use its commercially reasonable efforts to take, or cause to be taken, all appropriate action, and to do, or cause to be done, all things necessary, proper or advisable under applicable Laws and regulations to consummate and make effective the Asset Purchase and the transactions contemplated hereby, including using its commercially reasonable efforts to obtain all permits, consents, approvals, authorizations, qualifications and orders of Governmental Authorities as are necessary for the consummation of the Asset Purchase and the other transactions contemplated hereby and to fulfill the conditions set forth in Article 6. In case, at any time after the Asset Purchase Closing Date, any further action is necessary or desirable to carry out the purposes of this Agreement, the proper officers and directors of each party to this Agreement shall use their commercially reasonable efforts to take all such action; and (ii) cooperate and use its commercially reasonable efforts to vigorously contest and resist any action, including administrative or judicial action, and to have vacated, lifted, reversed or overturned any decree, judgment, injunction or other order (whether temporary, preliminary or permanent) that is in effect and that restricts, prevents or prohibits 34 consummation of the Asset Purchase and the other transactions contemplated hereby, including by vigorously pursuing all available avenues of administrative and judicial appeal. (b) During the period beginning on the Agreement Date and terminating as of the earliest of the termination or expiration of the Option Date or the occurrence of the Asset Purchase Closing Date, if the Purchaser has delivered an Option Exercise Notice, the parties hereto will take all further action that is necessary or desirable to carry out the purposes of this Agreement, and the proper officers and directors of each party to this Agreement shall use their commercially reasonable efforts to take all such action and shall refrain from taking any actions which would be contrary to, inconsistent with or against, or would frustrate the essential purposes of, the transactions contemplated by this Agreement. 5.14 Board Observation Rights. During the Option Period, the Company shall permit a representative of the Purchaser to attend all meetings of the Company's board of directors in a nonvoting observer capacity and, in this respect, shall give such representative copies of all notices, minutes, consents and other materials that the Company provides to its directors, except for materials that are protected by attorney-client privilege. 5.15 Voting Agreements. Following the Agreement Date and prior to the Asset Purchase Closing Date, the Company agrees that it shall obtain a completed Voting Agreement, in the form attached hereto as Exhibit E, from each Shareholder of the Company that owns or becomes the owner of 80,000 or more shares of Company Common Stock. In addition, the Company agrees that during the Option Period it will use reasonable efforts to obtain from each holder of an outstanding Company Stock Option who exercises such option, a Voting Agreement signed by such holders. 5.16 Registration of Purchaser Common Stock. The Purchaser, at its expense, will prepare, with the cooperation of the Company and Shareholders, and file with the SEC registration statements (the "Registration Statements") covering the resale by the Shareholders of the shares of Purchaser Common Stock to be issued pursuant to this Agreement (a) after the Initial Payment, (b) after the First Contingent Payment, and (c) after the Third Contingent Payment, within thirty (30) days following receipt of each written notice from the Company that all of the Purchaser Common Stock to be issued to the Company in each of the payments (a) through (c) above pursuant to this Agreement has been distributed to the Shareholders in accordance with and pursuant to all applicable laws. Purchaser may, at its option, satisfy its obligations under this Section 5.16 by filing an amendment (the "Amendment") to an effective resale registration statement previously filed with the SEC to include the shares of Purchaser Common Stock to be issued hereunder. The Purchaser will cause the Registration Statements or Amendment, as applicable, to comply as to form in all material respects with the applicable provisions of the Securities Act, and the rules and regulations thereunder, and the Minnesota Business Corporation Act (the "MBCA"). The Shareholders will furnish to the Purchaser all information concerning such Shareholders as the Purchaser may reasonably request in connection with the preparation of the Registration Statements or Amendment, as the case may be. To the extent a particular Registration Statement or Amendment is not reviewed by the SEC, the Purchaser shall file, no later than two business days following the SEC's determination not to review such Registration Statement or Amendment, an acceleration request with the SEC requesting that effectiveness of such Registration Statement or Amendment occur as soon as 35 practicable, but in any event no later than the expiration of such two-day period. If the SEC determines to review such Registration Statement or Amendment, then the Purchaser shall promptly respond to SEC comments, and shall use its reasonable best efforts to clear SEC comments and cause such Registration Statement or Amendment, as applicable, to become effective as promptly as practicable, and to keep such Registration Statement or Amendment, as applicable, effective with respect to the Purchaser Common Stock issued pursuant to this Agreement until all shares of the Purchaser Common Stock are eligible for immediate sale by the Shareholders under Rule 144(k) promulgated under the Securities Act. Prior to the filing of a Registration Statement or Amendment, as the case may be, the Purchaser will take all action required under any applicable federal or state securities laws in connection with the issuance of the shares of Purchaser Common Stock pursuant to this Agreement. The Purchaser will promptly advise the Shareholders after it receives notice that a particular Registration Statement or Amendment, as applicable, has been filed with the SEC or after it receives notice of the issuance of any stop order, the suspension of the qualification of the shares of Purchaser Common Stock issuable pursuant to this Agreement or any request by the SEC for amendment of such Registration Statement or comments thereon and responses thereto or requests by the SEC for additional information. At no time shall the Purchaser have any obligation or liability, or become obligated or liable, for any information specifically provided by the Shareholders for inclusion in the Registration Statements or Amendment, as applicable. ARTICLE 6 CONDITIONS TO THE ASSET PURCHASE 6.1 Conditions to the Obligations of Each Party. The obligations of the Company and the Purchaser to consummate the Asset Purchase are subject to the satisfaction of each of the following conditions: (a) no order, stay, decree, judgment or injunction shall have been entered, issued or enforced by any court of competent jurisdiction which prohibits consummation of the Asset Purchase, and there shall not be any action taken by any Governmental Authority, or any statute, rule, regulation or order enacted, entered, enforced or deemed applicable to the Asset Purchase, which makes the consummation of the Asset Purchase illegal or substantially deprives the Purchaser, the Company or the Shareholders of any of the anticipated benefits of the Asset Purchase or the related transactions, taken as a whole; (b) all actions by or in respect of or filings with any Governmental Authority required to permit the consummation of the Asset Purchase in accordance with the terms hereof shall have been obtained (other than those actions or filings which, if not obtained or made prior to the consummation of the Asset Purchase, would not have a Material Adverse Effect on the Company prior to or after the Asset Purchase Closing Date or a Material Adverse Effect on Purchaser after the Asset Purchase Closing Date or be reasonably likely to subject the Company, the Purchaser, the Company or any of their respective officers or directors to substantial penalties or criminal liability); and (c) the Purchaser shall have delivered to the Company an Option Exercise Notice in accordance with Section 1.1(b) and such Option Exercise Notice shall not have been withdrawn or revoked in any manner by the Purchaser. 36 6.2 Conditions to the Obligations of the Purchaser. The obligations of the Purchaser to consummate the Asset Purchase are subject to the satisfaction of the following further conditions (any one of which may be waived in whole or part by the Purchaser in its sole discretion by giving written notice to the Company in compliance with Section 10.1 hereof): (a) (i) the Company shall have performed all of its material obligations hereunder required to be performed by it at or prior to the Asset Purchase Closing Date; and (ii) the Purchaser shall have received a certificate signed by an executive officer of the Company to the foregoing effect; (b) each of the representations and warranties of the Company and the Principal Shareholders contained in this Agreement shall have been true and correct in all material respects at the time originally made and shall be true and correct in all material respects as of the Asset Purchase Closing Date with the same force and effect as if such representations and warranties had been made at and as of the Asset Purchase Closing Date; provided, that for purposes of determining the accuracy of such representations and warranties of the Company as of the Asset Purchase Closing Date, such representations and warranties shall be deemed to be qualified by the Updated Disclosure Schedule pursuant to the first paragraph of Article 1 hereof; and (ii) the Company shall deliver to the Purchaser at the Asset Purchase Closing a certificate, dated as of the date of the Asset Purchase Closing and signed by the Company's President or Chief Executive Officer, certifying to that effect; (c) no Material Adverse Effect with respect to the Company, shall have occurred or been discovered by the Purchaser since the date of delivery of an Updated Disclosure Schedule; (d) no injunction or other decree shall have been issued by any court of competent jurisdiction prohibiting the sale of the Company Product by the Company or the Purchaser on the basis of any rights held by a third party (including without limitation any rights of any third party in any Intellectual Property); (e) legal counsel to the Company approved by the Purchaser will have issued a legal opinion in the form attached hereto as Exhibit F; (f) the Company shall have delivered a properly executed statement, dated as of the Asset Purchase Closing Date, in a form tendered to Company by Purchaser at least five (5) days prior to the Asset Purchase Closing Date, conforming to the requirements of Treasury Regulation Section 1.1445-2(c)(3); (g) the Company shall have obtained the consent or approval of each person whose consent or approval shall be required in connection with the Asset Purchase under all notes, bonds, mortgages, indentures, contracts, agreements, leases, licenses, permits, franchises and other instruments or obligations to which it is a party; (h) the Principal Shareholders shall have performed all of their obligations required to be performed by them at or prior to the Asset Purchase Closing Date; 37 (i) the Company shall have held a Shareholders Meeting and the Company's Shareholders shall have approved the execution of this Agreement by the Company and the consummation of the transactions contemplated hereby, including the Asset Purchase; (j) John Hauck shall have executed and delivered a Consulting Agreement, substantially in the form attached hereto as Exhibit G (the "Hauck Consulting Agreement"), which shall be effective as of the Agreement Date; (k) the Company shall have used commercially reasonable efforts to obtain a completed and executed Investment Certificate from each Shareholder of the Company at or prior to the Asset Purchase Closing Date; (l) the Purchaser shall have received a copy of an executed Voting Agreement from each Shareholder of the Company that owns 80,000 or more shares of the Company Common Stock as of the Asset Purchase Closing Date; and (m) the Purchaser shall have received an executed copy of a sublicense acknowledgment pursuant to Section 2.1.1 of the Technology License Agreement, dated April 7, 2003, between the Company and Heart Care Associates, LLC, as amended (the "HCA Agreement"); and (n) the Purchaser shall have received an executed copy of an inventions assignment agreement, in a form substantially similar to Exhibit C attached hereto and approved by the Purchaser, between the Company and Keith L. March, M.D. on the Agreement Date. 6.3 Conditions to the Obligations of the Company. The obligations of the Company to consummate the Asset Purchase are subject to the satisfaction of the following further conditions (any one of which may be waived in whole or part by the Company): (a) the Purchaser shall have performed all of its respective material obligations hereunder required to be performed by them at or prior to the Asset Purchase Closing Date; and (ii) the Company shall have received a certificate from the Purchaser signed by an executive officer of the Purchaser to the foregoing effect; (b) each of the representations and warranties of the Purchaser contained in this Agreement shall have been true and correct in all material respects at the time made and shall be true and correct in all material respects as of the Asset Purchase Closing Date with the same force and effect as if such representations and warranties had been made at and as of the Asset Purchase Closing Date; (c) Oppenheimer Wolff & Donnelly LLP ("Oppenheimer"), legal counsel to the Purchaser, will have issued a legal opinion in the form attached hereto as Exhibit H; (d) the Company shall have received an executed copy of a sublicense acknowledgment pursuant to Section 2.1.1 of the HCA Agreement; (e) no material Adverse Effect with respect to the Purchaser shall have occurred or been discovered by the Company since the Agreement Date; provided, however, that 38 the foregoing conditions shall not be applicable if the Purchaser makes the Initial Payment in cash in lieu of Purchaser Common Stock; (f) the Purchaser shall have received a copy of each completed and executed Investment Certificate from each Shareholder of the Company, which shall confirm that not more than 35 Shareholders are not "Accredited Investors" as defined in Rule 501(a) of Regulation D under the Securities Act; and (g) the Company's Shareholders shall have approved the execution of this Agreement by the Company and the consummation of the transactions contemplated hereby, including the Asset Purchase. ARTICLE 7 TERMINATION 7.1 Termination. This Agreement may be terminated and the Asset Purchase may be abandoned at any time prior to the Asset Purchase Closing Date, notwithstanding any requisite approval and adoption of this Agreement and the transactions contemplated hereby by the Shareholders of the Company: (a) by mutual written consent of the Purchaser, the Company and the Principal Shareholders; (b) by the Purchaser, or by the Company, if the Asset Purchase Closing Date shall not have occurred before the 60th day (the "Termination Date") after the closing date specified in Option Exercise Notice; provided, however, that (i) in the event that (x) one or both of the Purchaser and the Company (or any shareholder thereof) are required to seek any governmental approvals or authorizations as may be reasonably necessary in connection with the closing of the Asset Purchase, or the payment of the consideration required to be paid to the Company in connection with the Asset Purchase, including any filings or notifications as may be reasonably necessary that are to be made with or to the SEC or under the Minnesota Uniform Securities Act, subject to clause (ii) of this Section 7.1(b), either party may extend the Termination Date until the tenth (10th) business day after the date on which any applicable waiting periods thereunder have expired or been terminated or such other approvals and authorizations are received, but not more than sixty (60) days after the initial Termination Date, or (y) the Purchaser elects to cause the Company to hold a Shareholders Meeting (or to circulate a written consent in lieu thereof) pursuant to Section 5.10 hereof, subject to clause (ii) of this Section 7.1(b), either party may extend the Termination Date until a date no later than ten (10) business days after, pursuant to Section 5.10, a Shareholders Meeting is held or after the written consent of the holders of Securities representing not less than that amount of the voting power of the issued and outstanding shares of Company Common Stock that would be required at such time to approve this Agreement, the Related Agreements and the Asset Purchase pursuant to Minnesota Law and the Company's Articles of Incorporation is obtained, but not more than sixty (60) days after the initial Termination Date, and (ii) the right to terminate this Agreement under this Section 7.1(b) shall not be available to the Purchaser in the event that the failure of the Asset Purchase Closing Date to occur on or before such date arises out of or is related to the Purchaser's failure to fulfill any obligation under this Agreement and the right to terminate this 39 Agreement under this Section 7.1(b) shall not be available to the Company in the event that the failure of the Asset Purchase Closing Date to occur on or before such date arises out of or is related to the failure by the Company to fulfill any obligation under this Agreement or any of the Related Agreements; (c) automatically if there shall be any Law that makes consummation of the Asset Purchase illegal or otherwise prohibited or if any court of competent jurisdiction or Governmental Authority shall have issued an order, decree, ruling or taken any other action restraining, enjoining or otherwise prohibiting the Asset Purchase and such order, decree, ruling or other action shall have become final and non-appealable; (d) by the Company, in the event of a material breach by the Purchaser of any representation, warranty, covenant or agreement contained herein at any time after delivery of an Option Exercise Notice (including in any event, any breach which results in a condition to the Asset Purchase not being satisfied), which breach has not been cured or waived within thirty (30) calendar days following delivery of notice of such breach by the Company to the Purchaser; (e) by the Purchaser, in the event of a material breach by the Company or Principal Shareholder of any representation, warranty or agreement contained herein (including in any event, any breach which results in a condition to the Asset Purchase not being satisfied), which breach has not been cured or waived within thirty (30) calendar days following delivery of notice of such breach by the Purchaser to the Company; (f) by the Purchaser, by giving written notice to the Company at any time prior to the Asset Purchase Closing, in the event that the Company has given the Purchaser any notice pursuant to Section 5.9 above, if the breach or breaches described in such notice would, individually or in the aggregate, preclude the satisfaction prior to the Asset Purchase Closing of any condition to the Asset Purchase contained in Sections 6.1 and 6.2 hereof; (g) by the Company, after delivery of an Option Exercise Notice, by giving written notice to the Purchaser at any time prior to the Asset Purchase Closing in the event that the Purchaser has given the Company any notice pursuant to Section 5.9 above, if the breach or breaches described in such notice would, individually or in the aggregate, preclude the satisfaction prior to the Asset Purchase Closing of any condition to the Asset Purchase contained in Sections 6.1 and 6.3 hereof; or (h) automatically, upon expiration or upon termination of the Option Period without an Option Exercise Notice having been delivered by the Purchaser. 7.2 Effect of Termination. If this Agreement is terminated as provided herein: (a) each party will, upon request, return all documents, work papers and other material of any other party (and all copies thereof) relating to the transactions contemplated herein, whether so obtained before or after the execution hereof, to the party furnishing the same; (b) the obligations of Sections 5.3, 5.4(c), 5.4(d), 5.6, 10.3, 10.8 and 10.9 and this Article 7 will continue to be applicable; and 40 (c) any and all remedies available to each party either in law or equity shall be preserved and survive the termination of this Agreement. ARTICLE 8 SURVIVAL AND INDEMNIFICATION 8.1 Survival. The representations and warranties of each party contained in this Agreement, and the indemnification obligations of the parties with respect thereto or the time to bring any claim arising out of or relating a breach of any representation or warranty under this Agreement, will survive the Asset Purchase Closing and shall expire one (1) year after the Asset Purchase Closing Date, except that any claim based on fraud shall survive for the applicable stature of limitations. Notwithstanding the foregoing, any representation or warranty that would otherwise terminate in accordance with this Section 8.1 shall continue to survive, if a notice of claim pursuant to this Article 8 shall have been timely given under Section 8.4 on or prior to such termination date, until the related claim has been satisfied or otherwise resolved as provided herein. The covenants set forth in this Agreement shall survive the Asset Closing indefinitely, unless a covenant expires sooner by its terms. The right to indemnification or any other remedy based on representations, warranties, covenants and obligations in this Agreement will not be affected by any investigation conducted with respect to, or any knowledge acquired (or capable of being acquired) at any time, whether before or after the execution and delivery of this Agreement or the Asset Purchase Closing Date, with respect to the accuracy or inaccuracy of or compliance with, any such representation, warranty, covenant or obligation. The waiver of any condition based on the accuracy of any representations or warranty, or on the performance of or compliance with any covenant or obligation, will be deemed a waiver of similar matters that arise following such waiver. 8.2 Indemnification by Purchaser. Subject to the limitation set forth in Section 8.6, from and after the Asset Purchase Closing Date, the Purchaser will indemnify, defend, and hold harmless the Company, and its directors, officers, employees, shareholders, representatives and other Affiliates, from and against any and all Damages related to or arising out of or in connection with: (a) any breach by the Purchaser of any representation, warranty, covenant, such waiver, agreement, obligation, or undertaking made by the Purchaser in this Agreement (including any schedule or exhibit hereto), or any other agreement, instrument, certificate, or other document delivered by or on behalf of the Purchaser in connection with this Agreement, the Asset Purchase, or any of the other transactions contemplated hereby; (b) the conduct of business by the Purchaser or the development, manufacture, distribution, sale or use of Products on or subsequent to the Asset Purchase Closing Date; or (c) any actual or alleged liability for death or injury to person or property as a result of any actual or alleged defect in any product manufactured or sold by the Purchaser at or subsequent to the Asset Purchase Closing Date, or any actual or alleged warranty, recall or similar liability for any product sold by or for the Purchaser at or subsequent to the Asset Purchase Closing Date, or any statutory liability or any liability assessed with respect to any failure to warn arising out of products sold at or subsequent to the Asset Purchase Closing Date (collectively, "Purchaser Product Liability Claims"). 8.3 Indemnification by the Company and the Principal Shareholders. Subject to the limitations set forth in Section 8.6, from and after the Asset Purchase Closing Date, each of the Company and the Principal Shareholders will indemnify, defend and hold harmless the Purchaser 41 and its directors, officers, employees, shareholders, representatives and other Affiliates, from and against any and all Damages related to or arising out of or in connection with: (a) any breach by the Company or any Principal Shareholder of any representation, warranty, covenant, agreement, obligation or undertaking made by such party in this Agreement (including any schedule or exhibit hereto), or any other agreement, instrument, certificate, or other document delivered by or on behalf of the Company or any Principal Shareholder in connection with this Agreement, the Asset Purchase, or any of the other transactions contemplated hereby; (b) all Retained Liabilities; (c) any actual or alleged liability for death or injury to person or property as a result of any actual or alleged defect in any product manufactured or sold by the Company at or prior to the Asset Purchase Closing Date, or any actual or alleged warranty, recall or similar liability for any product sold by or for the Company at or prior to the Asset Purchase Closing Date, or any statutory liability or any liability assessed with respect to any failure to warn arising out of products sold at or prior to the Asset Purchase Closing Date (collectively, "Product Liability Claims"); or (d) any of the matters described in Section 2.7 of the Disclosure Schedule or Section 2.7 of any Updated Disclosure Schedule (the "Known Claims"). 8.4 Third-Party Claims. (a) In the event that any Indemnified Party desires to make a claim against an Indemnifying Party (which term shall be deemed to include all Indemnifying Parties if more than one) in connection with any third-party litigation, arbitration, action, suit, proceeding, claim or demand at any time instituted against or made upon it for which it may seek indemnification hereunder (a "Third-Party Claim"), the Indemnified Party will promptly notify the Indemnifying Party (or, if the Indemnifying Party is the Company or the Principal Shareholders, the Company), of such Third-Party Claim and of its claims of indemnification with respect thereto; provided, that failure to promptly give such notice will not relieve the Indemnifying Party of its indemnification obligations under this Section 8.3, except to the extent, if any, that the Indemnifying Party has actually been prejudiced thereby. (b) The Indemnifying Party will have the right to assume the defense of the Third-Party Claim with counsel of its choice reasonably satisfactory to the Indemnified Party by written notice to the Indemnified Party within twenty (20) calendar days after the Indemnifying Party has received notice of the Third-Party Claim; provided, however, that the Indemnifying Party must conduct the defense of the Third-Party Claim actively and diligently thereafter in order to preserve its rights in this regard; and provided, further, that the Indemnified Party may retain separate co-counsel at its sole cost and expense and participate in the defense of the Third-Party Claim. (c) The Indemnifying Party will not consent to the entry of any judgment or enter into any settlement with respect to the Third-Party Claim without the prior written consent of the Indemnified Party (which consent will not be unreasonably withheld or delayed) unless the 42 judgment or proposed settlement (i) includes an unconditional release of all liability of each Indemnified Party with respect to such Third-Party Claim, and (ii) involves only the payment of money damages that are fully covered by the Indemnifying Party (including Holdback Funds or amounts set-off from the Contingent Payments to be made by Purchaser) and does not impose an injunction or other equitable relief upon the Indemnified Party. So long as the Indemnifying Party has assumed and is conducting the defense of the Third-Party Claim in accordance with Section 8.3(b) above, the Indemnified Party will not consent to the entry of any judgment or enter into any settlement with respect to the Third-Party Claim without the prior written consent of the Indemnifying Party (which consent will not be unreasonably conditioned, withheld or delayed by the Indemnifying Party). (d) In the event the Indemnifying Party fails to assume the defense of the Third-Party Claim in accordance with Section 8.3(b) above, (i) the Indemnified Party may defend against, and consent to the entry of any judgment or enter in to any settlement with respect to, the Third-Party Claim in any manner it reasonably may deem appropriate (and the Indemnified Party need not consult with, or obtain any consent from, the Indemnifying Party in connection therewith), and (ii) the Indemnifying Party will remain responsible for any Damages the Indemnified Party may suffer as a result of such Third-Party Claim to the extent subject to indemnification under this Article 8. (e) Notwithstanding the foregoing, the Purchaser and the Company may agree that the Purchaser will assume the defense of a Third-Party Claim, and the Purchaser shall be responsible for the prosecution and defense of all Product Liability Claims and any claims relating to the Intellectual Property of the Company (collectively, the "Purchaser-Handled Claims"). Except to the extent that any such disclosure could cause a waiver of applicable attorney-client privilege, the Company shall have the right to monitor the progress of Purchaser-Handled Claims, to review on a timely basis all pleadings and other filings relating thereto and to discuss with counsel to the Purchaser such matters relating to Purchaser-Handled Claims as may be reasonably appropriate. The Purchaser shall pursue in good faith, through counsel of their selection (who must be reasonably satisfactory to the Company), the prosecution or defense of all Purchaser-Handled Claims. Purchaser shall, to the extent that the Purchaser are entitled to indemnification for Damages pursuant to this Article 8, (i) provide the Company with access to all relevant employees and representatives of the Purchaser for the purpose of discussing matters relating to Purchaser-Handled Claims as the Company may from time to time reasonably request and (ii) permit the Company, upon its reasonable request, to participate in the process of any settlement or other resolution of any Purchaser-Handled Claims pursuant to this Article 8; provided, that Purchaser shall not be entitled to settle, compromise or otherwise dispose of Purchaser-Handled Claims without first obtaining the written consent of the Indemnified Party. 8.5 Payment of Claims. (a) In the event of any bona fide claim for indemnification hereunder, the Indemnified Party will advise the Indemnifying Party that is required to provide indemnification therefor in writing of the claim and, when known, the facts constituting the basis for such claim. If the Indemnifying Party is of the opinion that the Indemnified Party is not entitled to indemnification, or is not entitled to indemnification in the amount claimed in such notice, the Indemnifying Party will deliver, within thirty (30) calendar days after the receipt of such notice, 43 a written objection to such claim and written specifications in reasonable detail of the aspects or details objected to, and the grounds for such objection. If the Indemnifying Party files timely written notice of objection to any claim for indemnification, the validity and amount of such claim will be determined by arbitration pursuant to Section 10.9. If timely notice of objection is not delivered or if a claim by an Indemnified Party is admitted in writing by an Indemnifying Party or if an arbitration award is made in favor of an Indemnified Party, (i) the Indemnifying Party will pay the full amount thereof in accordance with Section 8.4(b) if the Indemnifying Party is the Company or the Principal Shareholders and Section 8.4(c) if the Indemnifying Party is the Purchaser, and (ii) the Indemnifying Party, as a non exclusive remedy, will have the right to set-off the amount from such claim or award against any amount yet owed, whether due or to become due, by the Indemnified Party or any subsidiary thereof to any Indemnifying Party by reason of this Agreement or any agreement or arrangement or contract to be entered into at the Asset Purchase Closing. (b) If from time to time and at any time the Purchaser shall be entitled to be paid amounts under this Article 8, the Purchaser shall be entitled, if it so elects, to set-off such amounts against any amounts then due or to become due by the Purchaser to the Company, including, without limitation, amounts due as Holdback Funds or amounts due or to become due under future Contingent Payments pursuant to Section 1.5 and 1.6 above. In addition, if the Purchaser files timely written notice of objection to any claim for indemnification, and the Holdback Funds are insufficient to satisfy such claim, then the Purchaser will have the right to set off the amount of such deficiency against any future Contingent Payments otherwise due to the Company pursuant to this Agreement and to hold such funds as additional Holdback Funds. Any such addition Holdback Funds shall be held by the Purchaser until final resolution of such indemnification claim pursuant to Section 8.5(a) or 10.9. The Purchaser and the Company agree and acknowledge that, except as set forth in Section 8.6(c) (or except for equitable remedies), the Holdback Funds and the offset against the Contingent Payments shall be the Purchaser's exclusive remedy or method of receiving or satisfying indemnification claims or other claims for monetary damage from the Company or the Principal Shareholders. (c) Any indemnification obligations of the Company and the Principal Shareholders pursuant to this Article 8 that have been finally determined in accordance with Section 8.5(a) or 10.9 shall be paid first from the Holdback Funds to the extent available and then by setting off any remaining such amounts against any Contingent Payments otherwise due to the Company pursuant to this Agreement or any indemnity payments owed by the Purchaser pursuant to Section 8.2. (d) Any indemnification obligations of the Purchaser pursuant to this Article 8 that have been finally determined in accordance with Section 8.5(a) shall be paid, at Purchaser's election (i) in cash, (ii) by issuing Purchaser Common Stock (each share of which shall be valued for such purpose at the Reference Market Value of Purchaser Common Stock as of the date of such issuance), subject to the conditions set forth in Section 1.8(b) above, or (iii) through a combination of the methods specified in clauses (i) and (ii). The parties agree that to the greatest extent possible the payment of any indemnity hereunder shall be treated as an adjustment to the Asset Purchase Consideration paid by Purchaser hereunder for Tax purposes. 44 8.6 Indemnification Limits. (a) Except as expressly provided otherwise herein, neither the Purchaser nor the Company will be entitled to indemnification under this Article 8 unless the aggregate of all Damages is more than Seventy-Five Thousand Dollars ($75,000) (the "Basket Amount"). When the aggregate amount of all such Damages hereunder equals or exceeds the Basket Amount, the Purchaser or the Company, as the case may be, will be entitled to full indemnification of all claims, including the Seventy-Five Thousand Dollars ($75,000) that amounted to the Basket Amount. The parties hereto agree that the Basket Amount is not a deductible amount, nor that the Basket Amount will be deemed to be a definition of "material" for any purpose in this Agreement. (b) Except as set forth in section 8.6(c): (i) the Company's liability under Section 8.3 shall be limited to the total amount of the Initial Payment and the Contingent Payment that the Company has paid or becomes obligated to pay under Section 1.4; (ii) each Principal Shareholder's liability for an indemnification obligation of the Company under Section 8.3 shall be limited to the portion of the Initial Payment and the Contingent Payment that such Principal Shareholder has received or becomes entitled to receive under Section 1.4 (the "Maximum Amount"); and (iii) no Principal Shareholder shall have any liability under Section 8.3 for any breach by another Principal Shareholder of any representation, warranty or covenant in this Agreement. (c) If any of the Principal Shareholders or the Company have breached a representation, warranty, covenant or agreement, and such breach constitutes fraud, the person who committed such fraud will promptly pay the Purchaser the full indemnification claim without regard to the Basket Amount or the Maximum Amount set forth in this Section 8.6. ARTICLE 9 DEFINITIONS 9.1 Certain Definitions. The following terms, as used herein, have the following meanings: (a) "Affiliate" means, with respect to any person, any person that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such person. Until the consummation of the Asset Purchase, the Company shall not be deemed for any purposes of this Agreement to be an Affiliate of the Purchaser. (b) "Asset Purchase Consideration" means the aggregate amount of the Asset Purchase Closing Payment and all Contingent Payments. (c) "business day" (whether such term is capitalized or not) means any day other than Saturday, Sunday or a legal holiday that banks located in Minneapolis, Minnesota are open for business. (d) "Company Licensed Intellectual Property" means all (i) Intellectual Property licensed by any third party to the Company and (ii) Intellectual Property licensed by the Company to any third party. 45 (e) "Company Owned Intellectual Property" means all Intellectual Property owned by the Company as of the Agreement Date. (f) "Contingent Payments" means the First Contingent Payment, the Second Contingent Payment, and the Third Contingent Payment, collectively. (g) "Company Stock Option" means any option award granted by the Company to any eligible recipient pursuant to the Company Stock Option Plan. (h) "Company Stock Option Plan" means the E.M. Vascular, Inc. Incentive and Stock Option Plan, adopted by the Company's board of directors on April 11, 2000, and any amendments to such plan. (i) "Damages" means all damages, losses, costs, and expenses incurred or suffered by a party, net of any Tax benefit and insurance coverage, with respect to or relating to an event, circumstance or state of facts, but specifically excluding any consequential or incidental damages. Damages shall specifically include court costs and the reasonable fees and expenses of legal counsel arising out of or relating to any direct or third-party claims, demands, actions, causes of action, suits, litigations, arbitrations or liabilities. (j) "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. (k) "FDA" means the U.S. Food and Drug Administration. (l) "Field of Use" means the application of the R&D Intellectual Property for the field of electrical stimulation of tissue either through angiogenesis of muscle tissue or anti-arteriolosclerosis or anti-mineralization of the vascular system without the use of a separate bio-medical device. (m) "GAAP" means generally accepted accounting principles consistently applied in the United States. (n) "Governmental Authority" (whether such term is capitalized or not) means any United States (federal, state or local) or foreign government, or governmental, regulatory or administrative authority, agency or commission. (o) "Hazardous Substances" means (i) those substances defined in or regulated under the following federal statutes and their state counterparts and all regulations thereunder: the Hazardous Materials Transportation Act, the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Clean Water Act, the Safe Drinking Water Act, the Atomic Energy Act, the Federal Insecticide, Fungicide, and Rodenticide Act and the Clean Air Act; (ii) petroleum and petroleum products, including crude oil and any fractions thereof; (iii) natural gas, synthetic gas, and any mixtures thereof; (iv) polychlorinated biphenyls, asbestos and radon; (v) any other contaminant; and (vi) any substance, material or waste regulated by any federal, state, local or foreign Governmental Authority pursuant to any Environmental Laws. 46 (p) "Holdback Shares" means the amounts of Purchaser Common Stock retained by the Purchaser pursuant to the provisions of Sections 1.5 hereof. (q) "Indebtedness" means, as applied to any person, (i) all indebtedness for borrowed money, whether current or funded, or secured or unsecured, (ii) all indebtedness for the deferred purchase price of property or services represented by a note or other security, (iii) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (iv) all indebtedness secured by a purchase money mortgage or other lien to secure all or part of the purchase price of property subject to such mortgage or lien, (v) all obligations under leases which shall have been or must be, in accordance with GAAP, recorded as capital leases in respect of which such person is liable as lessee, (vi) any liability in respect of banker's acceptances or letters of credit, and (vii) all indebtedness referred to in clause (i), (ii), (iii), (iv), (v) or (vi) above which is directly or indirectly guaranteed by or which such person has agreed (contingently or otherwise) to purchase or otherwise acquire or in respect of which it has otherwise assured a creditor against loss. (r) "Indemnified Party" means any person entitled to seek indemnification pursuant to the provisions of Article 8. (s) "Indemnifying Party" means any person against whom indemnification may be sought pursuant to the provisions of Article 8. (t) "Intellectual Property" means intellectual property or proprietary rights of any description including (i) rights in any patent, patent application (including any provisionals, continuations, divisions, continuations-in-part, extensions, renewals, reissues, revivals and reexaminations, any national phase PCT applications, any PCT international applications, and all foreign counterparts and including the Patents), (ii) copyright, industrial design, URL, domain name, trademark, service mark, logo, trade dress or trade name, and related registrations and applications for registration, (iii) trade secrets, moral rights or publicity rights, (iv) inventions, discoveries, improvements, modifications, know-how, techniques, methodology, writings, works of authorship, designs or data, whether or not patented, patentable, copyrightable or reduced to practice, including any of the foregoing embodied or disclosed in any: (1) computer source codes (human readable format) and object codes (machine readable format); (2) specifications; (3) manufacturing, assembly, test, installation, service and inspection instructions and procedures; (4) engineering, programming, service and maintenance notes and logs; (5) technical, operating and service and maintenance manuals and data; (6) hardware reference manuals; (7) user documentation, help files or training materials, and (v) good will related to any of the foregoing. (u) "Law" means any United States or foreign judgment, decree, order, law, license, statute, ordinance, rule or regulation. (v) "Material Adverse Effect" means with respect to the Company or the Purchaser, as the case may be, any change or effect that, when taken individually or together with all other adverse changes or effects, is or is reasonably likely to be materially adverse to the 47 business, prospects, results of operations and financial condition of the Company or the Purchaser, as the case may be, and their respective subsidiaries, taken as a whole. (w) "Net Product Revenue" means the Purchaser's properly recognized consolidated aggregate gross revenue received from all sales of the Products by Purchaser and Purchaser Affiliates for any use or indication, less the sum of the following deductions paid by the Purchaser (or Purchaser Affiliates) where applicable and not otherwise reimbursed by distributors, customers or another third party: shipping, handling, freight and similar costs of the Purchaser or Purchaser Affiliates; sales, use or other excise or similar taxes imposed upon particular sales of the Products (excluding income taxes); customs duties; allowances or credits to customers because of rejections or returns of Product; commercially reasonable trade or quantity discounts and fees given by the Purchaser or a Purchaser Affiliate to distributors or customers, as calculated in accordance with GAAP consistently applied by the Purchaser in accordance with its revenue recognition policies. (x) "Option Period" means the period beginning on the Agreement Date and ending on the date that is eighteen (18) months after the Agreement Date. (y) "Permitted Liens" means (i) liens for Taxes or governmental assessments, charges or claims the payment of which is not yet due, or for Taxes the validity of which are being contested in good faith by appropriate proceedings; (ii) statutory liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen and other similar persons and other liens imposed by applicable law incurred in the ordinary course of business for sums not yet delinquent or being contested in good faith; (iii) liens relating to deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security or to secure the performance of leases, trade contracts or other similar agreements; and (iv) other liens set forth on the Disclosure Schedule; provided, however, that, with respect to each of clauses (i) through (iv), to the extent that any such lien on any of the Company's assets arose prior to the date of the Financial Statements and relates to, or secures the payment of, a liability that is required to be accrued for under GAAP, such lien shall not be a Permitted Lien unless all such liabilities have been fully accrued or otherwise reflected on the Financial Statements. Notwithstanding the foregoing, no lien arising under the Code or ERISA with respect to the operation, termination, restoration or funding of any employee benefit plan sponsored by, maintained by or contributed to by the Company or any of its affiliates or arising in connection with any excise tax or penalty tax with respect to such employee benefit plan shall be a Permitted Lien. (z) "person" means an individual, corporation, partnership, limited partnership, limited liability company, syndicate, person (including a "person" as defined in Section 13(d)(3) of the Exchange Act), trust, association or entity or government, political subdivision, agency or instrumentality of a government. (aa) "Purchaser Common Stock" means duly authorized, validly issued, fully paid and non-assessable shares of the voting common stock, $.01 par value per share, of the Purchaser. 48 (bb) "Product" or "Products" means any product that falls within the scope of any claim of any patent included in the definition of Company Owned Intellectual Property or Company Licensed Intellectual Property. (cc) "Principal Business" means the development, manufacturing, marketing and sale of the Products. (dd) "Reference Market Value" means the average closing sale price, as reported by the Nasdaq Stock Market of a share of Purchaser Common Stock for the twenty (20) consecutive trading day period ending three (3) business days prior to the date on which such Reference Market Value is determined. (ee) "Related Agreements" means the Investment Certificates, Voting Agreements, Hauck Consulting Agreement and any other agreement required to be executed in connection with this Agreement. (ff) "SEC" means the Securities and Exchange Commission. (gg) "Securities" means all shares of the capital stock of the Company, including all Company Common Stock and Undesignated Stock, all outstanding options, warrants, convertible notes, rights of conversion and other rights to acquire capital stock of the Company, and all shares issuable upon exercise or conversion of outstanding options, warrants, convertible notes, rights of conversion and other rights to acquire stock of the Company, outstanding from time to time, whether or not then currently vested, exercisable or convertible. (hh) "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. (ii) "Shareholders" means any person that is the registered and beneficial owner of shares of the capital stock of the Company as of and following the date of this Agreement. (jj) "Subsidiary" or "Subsidiaries" (whether or not capitalized) of any person means any corporation, partnership, limited liability company, association, trust, joint venture or other legal entity of which such person (either above or through or together with any other subsidiary), owns, directly or indirectly, more than 50% of the stock or other equity interests the holders of which are generally entitled to vote for the election of the board of directors or other governing body of such corporation or other legal entity. (kk) "Tax" or "Taxes" means any taxes, additions to tax, penalties, interest, fines, duties, withholdings, assessments, and charges assessed or imposed by any Governmental Authority, including, but not limited to, all federal, state, county, local or foreign income, profits, gross receipts, import, ad valorem, franchise, estimated, alternative minimum, add-on minimum, sales, use, transfer, registration, value added, excise, natural resources, severance, stamp, withholding, occupation, premium, windfall profits, environmental, customs, duties, real and personal property, capital stock, net worth, intangibles, social security, unemployment, disability, payroll, license, employee, or other tax or similar obligation or levy, of any kind whatsoever. "Tax" or "Taxes" will also include any liability arising as a result of being (or ceasing to be) a 49 member of any affiliated, consolidated, combined or unitary group as well as any liability under any tax allocation, tax sharing, tax indemnity or similar agreement. (ll) "Tax Return" means any return, declaration, report, claim for refund, information return, or other document (including any related or supporting estimates, elections, schedules, statements, or information) filed or required to be filed in connection with the determination, assessment, or collection of any Tax or the administration of any laws, regulations, or administrative requirements relating to any Tax. ARTICLE 10 GENERAL PROVISIONS 10.1 Notices. All notices, claims and demands hereunder, and all other communications which are required to be given in writing pursuant to this Agreement, shall be in writing and shall be given (and shall be deemed to have been duly given upon receipt) by delivery in person or facsimile (received at the facsimile machine to which it is transmitted prior to 5 p.m., local time, on a business day for the party to which it is sent, or if received after 5 p.m., local time, as of the next business day) or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties at the following addresses (or at such other address for a party as shall be specified in a notice given in accordance with this Section 10.1): if to the Purchaser: ATS Medical, Inc. 3905 Annapolis Lane, Suite 105 Minneapolis, MN 55447 USA Attention: Vice President of Marketing and Business Development Facsimile: 763-553-0052 with a copy to: Oppenheimer Wolff & Donnelly LLP Plaza VII, Suite 3300 45 South Seventh Street Minneapolis, MN 55402 USA Attention: Thomas Letscher Facsimile: 612-607-7100 if to the Company: em Vascular, Inc. 3976 Hazel Street White Bear Lake, MN 55110 Attention: Tom Rice, CEO With a copy to: 50 Dorsey & Whitney LLP 50 South Sixth Street Minneapolis, Minnesota 55402 Attention: Kenneth L. Cutler Facsimile: 612-340-7800 If to the Principal Shareholders: c/o John A. Hauck 5900 Hodgson Road Shoreview, MN 55126 Facsimile: 651-523-6969 10.2 Amendments; No Waivers. (a) Subject to applicable Law, any provision of this Agreement may be amended or waived if, and only if, such amendment or waiver is in writing and signed, in the case of an amendment, by all parties hereto, or in the case of a waiver, by the party against whom the waiver is to be effective. (b) No waiver by a party of any default, misrepresentation or breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepresentation or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent occurrence. No failure or delay by a party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be exclusive of any rights or remedies provided by law with respect to monetary damages. 10.3 Expenses. All costs, fees and expenses incurred in connection with the negotiation, preparation, execution, delivery and performance of this Agreement and in closing and carrying out the transactions contemplated hereby shall be paid by the party incurring such cost or expense. This Section 10.3 shall survive the termination of this Agreement. 10.4 Severability. If any provision of this Agreement, or the application thereof to any Person, place or circumstance, shall be held by a court of competent jurisdiction to be invalid, unenforceable or void, the remainder of this Agreement and such provisions as applied to other Persons, places and circumstances shall remain in full force and effect only if, after excluding the portion deemed to be unenforceable, the remaining terms shall provide for the consummation of the transactions contemplated hereby in substantially the same manner as originally set forth at the later of the date this Agreement was executed or last amended. 10.5 Entire Agreement. This Agreement (including the Disclosure Schedule, all Exhibits and Schedules and all other agreements referred to herein or therein which are hereby incorporated by reference and the other agreements executed simultaneously herewith) constitutes the entire agreement between the parties with respect to the subject matter hereof and 51 supersedes all prior agreements, understandings and negotiations, both written and oral, between the parties with respect to the subject matter of this Agreement. Neither this Agreement nor any provision hereof is intended to confer upon any person other than the parties hereto any rights or remedies hereunder. 10.6 Parties in Interest. This Agreement shall be binding upon and inure solely to the benefit of each party hereto and nothing in this Agreement, express or implied is intended to or shall confer upon any other person any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement. 10.7 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. No party hereto may assign either this Agreement or any of its rights, interests or obligations hereunder without the prior written approval of each other party. 10.8 Governing Law. This Agreement shall be governed by, construed and enforced in accordance with the laws of the State of Minnesota. 10.9 Arbitration. (a) Except for (a) the audit and resolution of disputes related to the calculation of Net Product Revenues pursuant to Section 1.5, (b) any controversy, claim or dispute arising out of the failure by any party to this Agreement to consummate the Asset Purchase and the transactions contemplated by this Agreement, (c) and except pursuant to the last sentence of this Section 10.9(a), any controversy, claim or dispute of whatever nature arising between the parties under this Agreement or in connection with the transactions contemplated hereunder, including those arising out of or relating to the breach, termination, enforceability, scope or validity hereof, whether such claim existed prior to or arises on or after the Asset Purchase Closing Date, shall be resolved by binding arbitration in accordance with this Section 10.9. The arbitration shall be conducted pursuant to the American Arbitration Association ("AAA") Commercial Arbitration Rules then in effect (the "AAA Commercial Arbitration Rules"), as such rules may be modified by this Agreement or by agreement of the parties. Any such arbitration shall be conducted in Minneapolis, Minnesota by one neutral arbitrator. Each party irrevocably and unconditionally consents to the jurisdiction of any such proceeding and waives any objection that it may have to personal jurisdiction or the laying of venue of any such proceeding. The parties will use commercially reasonable efforts to agree upon a mutually acceptable arbitrator within ten (10) calendar days of receipt from the AAA of the initial list of potential arbitrators. If the parties are unable to agree upon an arbitrator within such ten (10) calendar day period, then the parties shall have an additional thirty (30) calendar day period to agree upon an arbitrator pursuant to the AAA Commercial Arbitration Rules. The parties shall be entitled to conduct relevant discovery related to the dispute subject to any arbitration proceeding. Nothing herein shall prevent the parties from settling any dispute by mutual agreement at any time. The agreement to arbitrate contained in this Section 10.9 shall continue in full force and effect despite the expiration, rescission or termination of this Agreement. Notwithstanding the foregoing, prior to the Asset Purchase Closing, either party may seek injunctive relief with respect to any controversy or claim arising out of or relating to any provision of this Agreement in any court of competent jurisdiction. 52 (b) The arbitrator shall apply the substantive laws of the State of Minnesota, without regard for any choice or conflict of laws rule or principle that would result in the application of the substantive law of any other jurisdiction. The arbitrator shall have the authority to award costs and expenses of the arbitration (including but not limited to legal fees) of one party to the other party, in his or her discretion. Any decision rendered by the arbitrator(s) shall be final and binding upon the parties. Judgment upon the decision may be entered in any court of competent jurisdiction. 10.10 Headings; Interpretation. The descriptive headings contained in this Agreement are included for convenience of reference only and shall not affect in any way the meaning or interpretation of this Agreement. All references to an Article or Section include all subparts thereof. Whenever the word "include," "includes," or "including" appears in this Agreement, it shall be deemed in each instance to be followed by the words "without limitation." 10.11 Counterparts. This Agreement may be signed in one or more counterparts and the signatures delivered by facsimile, each of which when executed and delivered shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. Facsimile execution and delivery of this Agreement shall be legal, valid and binding execution and delivery for all purposes. 10.12 Third Party Beneficiaries. No provision of this Agreement shall create any third party beneficiary rights in any Person, including any employee of Parent or Merger Subsidiary or employee or former employee of the Company or any Affiliate thereof (including any beneficiary or dependent thereof). [Signature page follows] 53 IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above written. ATS MEDICAL, INC. By: /s/ Michael D. Dale ------------------------------------ Name: Michael D. dale Title: President & CEO EM VASCULAR, INC. By: /s/ Thomas K. Rice ------------------------------------ Name: Thomas K. Rice Title: CFO PRINCIPAL SHAREHOLDERS /s/ Keith L. March, M.D. ---------------------------------------- Keith L. March, M.D. /s/ John Hauck ---------------------------------------- John Hauck /s/ Walter L. Sembrowich ---------------------------------------- Walter L. Sembrowich /s/ James E. Shapland II ---------------------------------------- James E Shapland II SIGNATURE PAGE TO ASSET PURCHASE AGREEMENT 54 LIST OF EXHIBITS Exhibit A Disclosure Schedule Exhibit B Other Assets Owned or Leased by the Company Exhibit C Form of Proprietary Information and Inventions Agreement Exhibit D Form of Investment Certificate Exhibit E Form of Voting Agreement Exhibit F Legal Opinion of Company's Counsel (Asset Purchase Closing Date) Exhibit G Hauck Consulting Agreement Exhibit H Legal Opinion of Oppenheimer (Asset Purchase Closing Date) EX-2.6 4 c13073exv2w6.txt LETTER AMENDMENT Exhibit 2.6 November 29, 2006 VIA MESSENGER AND FACSIMILE em Vascular, Inc. 3976 Hazel Street White Bear Lake, MN 55110 Attention: Thomas K. Rice Chief Executive Officer RE: OPTION AND ASSET PURCHASE AGREEMENT Dear Mr. Rice We are pleased to inform you that ATS Medical, Inc. ("ATS") has delivered its Option Exercise Notice dated November 29, 2006 and has exercised its Option to purchase the Assets of em Vascular, Inc. (the "Company") pursuant to that certain Option and Asset Purchase Agreement, entered into as of May 31, 2005 (the "Agreement"), by and among ATS, the Company, Keith L. March, M.D., John Hauck, Walter L. Sembrowich and James E. Shapland II. Please find enclosed with this letter a copy of the Option Exercise Notice. Capitalized terms used herein will have the meanings ascribed to them in the Agreement. To start our closing preparations, we request pursuant to Section 1.2(a) of the Agreement that the Company prepare and deliver to us an Updated Disclosure Schedule as soon as practicable, and, in any case, no later than December 28, 2006. We would also like the Company to review and respond to the enclosed updated due diligence request list, which will help us complete our due diligence review of the Company's operations over the last eighteen months and facilitate our review of the Updated Disclosure Schedule. As we work towards a successful closing of the asset purchase, we think it would be prudent to confirm one of the basic terms in the deal. Section 1.8 of the Agreement incorrectly states that ATS has no set-off right against future contingent payments to cover the Company's indemnification obligations under the Agreement. This is not only contradictory to the parties' clear intentions set forth in Section 8.5, where this right was thoughtfully negotiated and carefully drafted, and the rest of the Agreement, but Section 1.8 also contradicts the plain disclosure summary of ATS' set-off rights in the information statement drafted by the parties and provided by the Company to its shareholders prior to their vote in favor of this transaction. Accordingly, we request that you sign below on behalf of the Company to acknowledge and confirm that Section 1.8 of the Agreement is null and void under the Agreement and shall be of no force and effect. I suggest that we schedule a call to discuss the timelines and processes going forward at your earliest convenience. My colleague, Rick Curtis, and I will be heading up our efforts. Please em Vascular, Inc. November 29, 2006 Page 2 give me or Rick a call at (763) 557-2237 or send us an email so that we can arrange a mutually convenient time that will work for you. Sincerely, /s/ David R. Elizondo - ---------------------------------------- David R. Elizondo Vice President, Research and Development ATS MEDICAL, INC. Acknowledged and Agreed to this Nov. 29, 2006. EM VASCULAR, INC. By: /s/ Thomas K. Rice --------------------------------- Name: Thomas K. Rice ------------------------------- Its: CEO -------------------------------- cc: Dorsey & Whitney LLP 50 South Sixth Street Minneapolis, MN 55402 Attention: Kenneth L. Cutler EX-10.61 5 c13073exv10w61.txt AMENDMENT TO MARKETING SERVICES AGREEMENT Exhibit 10.61 AMENDMENT TO MARKETING SERVICES AGREEMENT THIS AMENDMENT TO MARKETING SERVICES AGREEMENT (this "Amendment") is made and entered into as of January 1, 2007 (the "Amendment Effective Date") by and between Regeneration Technologies, Inc. - Cardiovascular ("RTI-CV") formerly known as Alabama Tissue Center, Inc. an Alabama corporation, and ATS Medical, Inc. ("ATS Medical"), a Minnesota corporation. WHEREAS, RTI-CV and ATS MEDICAL are parties to a Marketing Services Agreement having an effective date of July 21, 2005 (the "Agreement"); and, WHEREAS, RTI-CV and ATS MEDICAL desire to resolve and settle, by agreeing on the terms and conditions set forth herein, all current disputes that they may have against each other arising out of the Agreement; and WHEREAS, RTI-CV and ATS MEDICAL desire to amend the Agreement on the terms and conditions set forth herein; AGREEMENT NOW THEREFORE, in consideration of the representations, warranties, covenants and agreements contained herein, and in consideration of RTI-CV's agreement to rescind its termination of ATS MEDICAL'S exclusivity, and for other valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties mutually agree as follows: I. Amendment. The parties mutually agree that the Agreement shall be amended and restated as of the Amendment Effective Date as follows: A. Section 1.16 is added and reads as follows: "'Compensation Minimum' shall mean one hundred seventy five thousand dollars ($175,000) per calendar quarter." B. Section 1.9 is deleted and replaced in its entirety with the following: "'Minimum Performance Level' shall mean total orders received by RTI-CV for Processed Tissue that are at least twenty percent (20%) of the dollar value of the fees associated with the finished Processed Tissue existing in RTI_CV's inventory on the last day of the prior quarter." ** The appearance of a double asterisk denotes confidential information that has been omitted from the exhibit and filed separately, accompanied by a confidential treatment request, with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934. C. Section 3.6.1 is deleted and replaced in its entirety with the following: "After the Amendment Effective Date, ATS MEDICAL shall be entitled to Service Compensation as listed below or the Compensation Minimum, whichever is greater. 1. ** of Net Invoice Amount for items in high demand as identified on Exhibit A. 2. ** of Net Invoice Amount for items with secondary demand as identified on Exhibit A. 3. ** of Net Invoice Amount for items that are in low demand as identified on Exhibit A. Exhibit A in the original agreement is deleted and replaced in its entirety with the attached Exhibit A. Notwithstanding the foregoing, if ATS MEDICAL fails to achieve the Minimum Performance Level for two consecutive quarters, ATS MEDICAL shall not be entitled to the Compensation Minimum for the second consecutive quarter in which ATS MEDICAL failed to achieve the Minimum Performance Level, as well as any subsequent quarter where ATS MEDICAL does not achieve the Minimum Performance Level." During each quarter remaining in the Agreement, RTI-CV will use commercially reasonable efforts to release for distribution tissue which is eligible medically and in process as of December 31, 2006. Proportions of high demand, secondary demand and low demand tissues available in Finished Goods inventory at the end of each quarter will be representative of the historical experience of RTI-CV. ATS will use commercially reasonable efforts to distribute all available tissues in cooperation with customer service personnel of RTI-CV during the remaining period of the Agreement. In addition, during the remaining term of the Agreement ATS and RTI-CV will meet, at a minimum, on a monthly basis to discuss marketing and processing fees discount strategies, marketing activities and progress toward the minimum order level goals for the quarter. As long as ATS continues to use commercially reasonable efforts to distribute all available tissues RTI will agree not to exercise its rights under Section 2.4 and Section 2.5. D. Section 8.1 is deleted and replaced in its entirety with the following: "The term of this Agreement shall commence on the Amendment Effective Date herein and shall terminate on December 31, 2007, unless otherwise terminated as provided herein." II. Ratification. Except as amended hereby, the Agreement is hereby ratified and confirmed in all respects. As amended by Section I of this Amendment, the Agreement shall be read and construed as one and the same instrument. The execution of this Amendment is not intended to be, and shall not be construed as, a waiver by either party of any breach of any provision hereof. III. Settlement and Release. In consideration of their respective agreement to this Amendment, the parties hereby settle and release all claims that either party may have against the other as of the Amendment Effective Date that arose out of the Agreement, including, without limitation, any claim for breach under the Agreement arising prior to the Amendment Effective Date. In addition, RTI-CV hereby rescinds its letter to ATS Medical dated January 5, 2007, which purported to terminate ATS Medical's right to exclusivity under the Agreement. [remainder of page intentionally left blank] IN WITNESS WHEREOF, each of the parties has caused this AMENDMENT TO MARKETING SERVICES AGREEMENT to be executed by their respective duly authorized representatives as of the date first above written. REGENERATION TECHNOLOGIES, INC. - CARDIOVASCULAR. By: /s/ Thomas F. Rose ------------------------------------ Print name: Thomas F. Rose Its: Vice President & CFO Date: 1/26/07 ATS MEDICAL, INC. By: /s/ Richard A. Curtis ------------------------------------ Print name: Richard A. Curtis Its: Vice President Date: 1/26/07 EXHIBIT A RTI CARDIOVASCULAR - CURRENT INVENTORY IDT Product Code: (ALL) Tissue Type: (ALL) Blood Type: (ALL)
PROD LABEL CURRENT COMMISSION COMMISSION DONOR BLOOD TISSUE MEAS MEAS MEAS MEAS CODE DESCRIPTION ID LIST ABC RATE POTENTIAL EXPIRATION ID AGE TYPE RH TYPE QUALITY 1 2 3 4 - ------ ------------------ ------- ------- --- ---------- ---------- ---------- ----- --- ----- -- ------ ------- ---- ---- ---- ---- 581018 AORTIC VALVES - 18MM to 20MM 1983008 ** ** ** ** 4/17/2012 ** ** ** ** ** ** ** ** ** ** 1983245 ** ** ** ** 9/24/2013 ** ** ** ** ** ** ** ** ** ** 2130790 ** ** ** ** 11/15/2013 ** ** ** ** ** ** ** ** ** ** 1984600 ** ** ** ** 9/26/2009 ** ** ** ** ** ** ** ** ** ** 1984963 ** ** ** ** 9/9/2009 ** ** ** ** ** ** ** ** ** ** 2181165 ** ** ** ** 2/22/2014 ** ** ** ** ** ** ** ** ** ** 1984089 ** ** ** ** 3/25/2013 ** ** ** ** ** ** ** ** ** ** 1984666 ** ** ** ** 12/20/2012 ** ** ** ** ** ** ** ** ** ** 1984667 ** ** ** ** 12/17/2009 ** ** ** ** ** ** ** ** ** ** 1984692 ** ** ** ** 6/27/2011 ** ** ** ** ** ** ** ** ** ** 1984701 ** ** ** ** 7/6/2012 ** ** ** ** ** ** ** ** ** ** 2176487 ** ** ** ** 2/14/2014 ** ** ** ** ** ** ** ** ** ** 1984700 ** ** ** ** 1/16/2012 ** ** ** ** ** ** ** ** ** ** 3256928 ** ** ** ** 5/26/2016 ** ** ** ** ** ** ** ** ** ** 1984498 ** ** ** ** 3/10/2012 ** ** ** ** ** ** ** ** ** ** 1984363 ** ** ** ** 1/12/2011 ** ** ** ** ** ** ** ** ** ** 1984671 ** ** ** ** 8/7/2010 ** ** ** ** ** ** ** ** ** ** 2176423 ** ** ** ** 2/1/2014 ** ** ** ** ** ** ** ** ** ** 2175595 ** ** ** ** 4/25/2014 ** ** ** ** ** ** ** ** ** ** 3256688 ** ** ** ** 4/4/2016 ** ** ** ** ** ** ** ** ** ** 2478606 ** ** ** ** 2/8/2015 ** ** ** ** ** ** ** ** ** ** 2476424 ** ** ** ** 12/9/2014 ** ** ** ** ** ** ** ** ** ** 2476833 ** ** ** ** 12/29/2014 ** ** ** ** ** ** ** ** ** ** 3256170 ** ** ** ** 7/12/2016 ** ** ** ** ** ** ** ** ** ** 2476029 ** ** ** ** 9/29/2014 ** ** ** ** ** ** ** ** ** ** 3256966 ** ** ** ** 6/1/2016 ** ** ** ** ** ** ** ** ** ** 2175908 ** ** ** ** 5/27/2014 ** ** ** ** ** ** ** ** ** ** 2182317 ** ** ** ** 7/19/2014 ** ** ** ** ** ** ** ** ** ** 2478515 ** ** ** ** 1/21/2015 ** ** ** ** ** ** ** ** ** ** 2175721 ** ** ** ** 5/6/2014 ** ** ** ** ** ** ** ** ** ** 1984965 ** ** ** ** 10/4/2010 ** ** ** ** ** ** ** ** ** ** 1984973 ** ** ** ** 6/18/2008 ** ** ** ** ** ** ** ** ** ** 1983895 ** ** ** ** 9/3/2013 ** ** ** ** ** ** ** ** ** ** 2181387 ** ** ** ** 3/30/2014 ** ** ** ** ** ** ** ** ** ** 2476786 ** ** ** ** 12/17/2014 ** ** ** ** ** ** ** ** ** ** 1984713 ** ** ** ** 7/13/2011 ** ** ** ** ** ** ** ** ** ** 3256143 ** ** ** ** 7/7/2016 ** ** ** ** ** ** ** ** ** ** 3257051 ** ** ** ** 9/26/2016 ** ** ** ** ** ** ** ** ** ** 1984497 ** ** ** ** 7/2/2009 ** ** ** ** ** ** ** ** ** ** 3257119 ** ** ** ** 10/6/2016 ** ** ** ** ** ** ** ** ** ** 1984527 ** ** ** ** 8/11/2008 ** ** ** ** ** ** ** ** ** ** 1983732 ** ** ** ** 8/7/2013 ** ** ** ** ** ** ** ** ** ** 1983772 ** ** ** ** 9/29/2013 ** ** ** ** ** ** ** ** ** ** 2129972 ** ** ** ** 12/15/2013 ** ** ** ** ** ** ** ** ** ** 2478718 ** ** ** ** 3/1/2015 ** ** ** ** ** ** ** ** ** **
RTI CARDIOVASCULAR - CURRENT INVENTORY IDT Product Code: (ALL) Tissue Type: (ALL) Blood Type: (ALL)
PROD LABEL CURRENT COMMISSION COMMISSION DONOR BLOOD TISSUE MEAS MEAS MEAS MEAS CODE DESCRIPTION ID LIST ABC RATE POTENTIAL EXPIRATION ID AGE TYPE RH TYPE QUALITY 1 2 3 4 - ------ ------------------ ------- ------- --- ---------- ---------- ---------- ----- --- ----- -- ------ ------- ---- ---- ---- ---- 2478724 ** ** ** ** 3/2/2015 ** ** ** ** ** ** ** ** ** ** 2181394 ** ** ** ** 3/31/2014 ** ** ** ** ** ** ** ** ** ** 1984792 ** ** ** ** 11/26/2011 ** ** ** ** ** ** ** ** ** ** 3256167 ** ** ** ** 7/12/2016 ** ** ** ** ** ** ** ** ** ** 1984812 ** ** ** ** 7/6/2012 ** ** ** ** ** ** ** ** ** ** 2129995 ** ** ** ** 12/23/2013 ** ** ** ** ** ** ** ** ** ** 1984478 ** ** ** ** 5/28/2011 ** ** ** ** ** ** ** ** ** ** 3256675 ** ** ** ** 4/1/2016 ** ** ** ** ** ** ** ** ** ** 2175678 ** ** ** ** 5/4/2014 ** ** ** ** ** ** ** ** ** ** 2478769 ** ** ** ** 3/11/2015 ** ** ** ** ** ** ** ** ** ** 1983765 ** ** ** ** 8/12/2013 ** ** ** ** ** ** ** ** ** ** 3257011 ** ** ** ** 9/16/2016 ** ** ** ** ** ** ** ** ** ** 3257095 ** ** ** ** 10/1/2016 ** ** ** ** ** ** ** ** ** ** 1984731 ** ** ** ** 10/9/2010 ** ** ** ** ** ** ** ** ** ** 1984733 ** ** ** ** 1/3/2012 ** ** ** ** ** ** ** ** ** ** 2129642 ** ** ** ** 11/1/2013 ** ** ** ** ** ** ** ** ** ** 3256703 ** ** ** ** 4/7/2016 ** ** ** ** ** ** ** ** ** ** 2479808 ** ** ** ** 9/4/2014 ** ** ** ** ** ** ** ** ** ** 1984745 ** ** ** ** 3/6/2011 ** ** ** ** ** ** ** ** ** ** 1984748 ** ** ** ** 4/2/2011 ** ** ** ** ** ** ** ** ** ** 2183500 ** ** ** ** 1/28/2014 ** ** ** ** ** ** ** ** ** ** 1984494 ** ** ** ** 9/7/2008 ** ** ** ** ** ** ** ** ** ** 2182452 ** ** ** ** 8/1/2014 ** ** ** ** ** ** ** ** ** ** 2476902 ** ** ** ** 1/7/2015 ** ** ** ** ** ** ** ** ** ** 2476357 ** ** ** ** 11/25/2014 ** ** ** ** ** ** ** ** ** ** 2476718 ** ** ** ** 11/17/2014 ** ** ** ** ** ** ** ** ** ** 2476794 ** ** ** ** 12/21/2014 ** ** ** ** ** ** ** ** ** ** 2182495 ** ** ** ** 8/6/2014 ** ** ** ** ** ** ** ** ** ** 3256779 ** ** ** ** 4/21/2016 ** ** ** ** ** ** ** ** ** ** 3256204 ** ** ** ** 7/19/2016 ** ** ** ** ** ** ** ** ** ** 1984945 ** ** ** ** 2/18/2010 ** ** ** ** ** ** ** ** ** ** 2175674 ** ** ** ** 5/4/2014 ** ** ** ** ** ** ** ** ** ** 1984543 ** ** ** ** 1/28/2013 ** ** ** ** ** ** ** ** ** ** 2476848 ** ** ** ** 12/31/2014 ** ** ** ** ** ** ** ** ** ** 2476318 ** ** ** ** 11/19/2014 ** ** ** ** ** ** ** ** ** ** 2129604 ** ** ** ** 10/24/2013 ** ** ** ** ** ** ** ** ** ** 2476427 ** ** ** ** 12/10/2014 ** ** ** ** ** ** ** ** ** ** 2476291 ** ** ** ** 11/17/2014 ** ** ** ** ** ** ** ** ** ** 1984533 ** ** ** ** 9/30/2012 ** ** ** ** ** ** ** ** ** ** 2479633 ** ** ** ** 8/15/2014 ** ** ** ** ** ** ** ** ** ** 2479575 ** ** ** ** 8/11/2014 ** ** ** ** ** ** ** ** ** ** 2478683 ** ** ** ** 2/22/2015 ** ** ** ** ** ** ** ** ** ** 2476940 ** ** ** ** 1/12/2015 ** ** ** ** ** ** ** ** ** ** 1984878 ** ** ** ** 6/16/2012 ** ** ** ** ** ** ** ** ** **
RTI CARDIOVASCULAR - CURRENT INVENTORY IDT Product Code: (ALL) Tissue Type: (ALL) Blood Type: (ALL)
PROD LABEL CURRENT COMMISSION COMMISSION DONOR BLOOD TISSUE MEAS MEAS MEAS MEAS CODE DESCRIPTION ID LIST ABC RATE POTENTIAL EXPIRATION ID AGE TYPE RH TYPE QUALITY 1 2 3 4 - ------ ------------------ ------- ------- --- ---------- ---------- ---------- ----- --- ----- -- ------ ------- ---- ---- ---- ---- 1984880 ** ** ** ** 10/22/2012 ** ** ** ** ** ** ** ** ** ** 1983804 ** ** ** ** 8/18/2013 ** ** ** ** ** ** ** ** ** ** 1984549 ** ** ** ** 1/1/2012 ** ** ** ** ** ** ** ** ** ** 2476837 ** ** ** ** 12/29/2014 ** ** ** ** ** ** ** ** ** ** 2476010 ** ** ** ** 9/27/2014 ** ** ** ** ** ** ** ** ** ** 2476531 ** ** ** ** 10/10/2014 ** ** ** ** ** ** ** ** ** ** 3257008 ** ** ** ** 9/15/2016 ** ** ** ** ** ** ** ** ** ** 2479668 ** ** ** ** 8/17/2014 ** ** ** ** ** ** ** ** ** ** 2129649 ** ** ** ** 11/2/2013 ** ** ** ** ** ** ** ** ** ** 2476422 ** ** ** ** 12/9/2014 ** ** ** ** ** ** ** ** ** ** 2476325 ** ** ** ** 11/21/2014 ** ** ** ** ** ** ** ** ** ** 1984804 ** ** ** ** 1/26/2013 ** ** ** ** ** ** ** ** ** ** 1984486 ** ** ** ** 1/30/2009 ** ** ** ** ** ** ** ** ** ** 1984487 ** ** ** ** 3/18/2009 ** ** ** ** ** ** ** ** ** ** 1984416 ** ** ** ** 5/5/2008 ** ** ** ** ** ** ** ** ** ** 2182173 ** ** ** ** 7/1/2014 ** ** ** ** ** ** ** ** ** ** 2182223 ** ** ** ** 7/7/2014 ** ** ** ** ** ** ** ** ** ** 2476993 ** ** ** ** 1/20/2015 ** ** ** ** ** ** ** ** ** ** 2479545 ** ** ** ** 8/9/2014 ** ** ** ** ** ** ** ** ** ** 2478554 ** ** ** ** 1/31/2015 ** ** ** ** ** ** ** ** ** ** 3256766 ** ** ** ** 4/18/2016 ** ** ** ** ** ** ** ** ** ** 2479701 ** ** ** ** 8/22/2014 ** ** ** ** ** ** ** ** ** ** 1983918 ** ** ** ** 9/6/2013 ** ** ** ** ** ** ** ** ** ** 1984633 ** ** ** ** 9/6/2011 ** ** ** ** ** ** ** ** ** ** 2182253 ** ** ** ** 7/12/2014 ** ** ** ** ** ** ** ** ** ** 2181275 ** ** ** ** 3/12/2014 ** ** ** ** ** ** ** ** ** ** 2476876 ** ** ** ** 1/3/2015 ** ** ** ** ** ** ** ** ** ** 1983028 ** ** ** ** 9/15/2013 ** ** ** ** ** ** ** ** ** ** 1984525 ** ** ** ** 3/17/2013 ** ** ** ** ** ** ** ** ** ** 1984601 ** ** ** ** 8/19/2010 ** ** ** ** ** ** ** ** ** ** 2175746 ** ** ** ** 5/10/2014 ** ** ** ** ** ** ** ** ** ** 2478534 ** ** ** ** 1/24/2015 ** ** ** ** ** ** ** ** ** ** 2129857 ** ** ** ** 12/29/2013 ** ** ** ** ** ** ** ** ** ** 3256946 ** ** ** ** 5/28/2016 ** ** ** ** ** ** ** ** ** ** 1984707 ** ** ** ** 12/9/2012 ** ** ** ** ** ** ** ** ** ** 1983600 ** ** ** ** 11/20/2013 ** ** ** ** ** ** ** ** ** ** 1984749 ** ** ** ** 5/25/2011 ** ** ** ** ** ** ** ** ** ** 3256953 ** ** ** ** 5/29/2016 ** ** ** ** ** ** ** ** ** ** 2175638 ** ** ** ** 4/29/2014 ** ** ** ** ** ** ** ** ** ** 2176245 ** ** ** ** 12/28/2013 ** ** ** ** ** ** ** ** ** ** 1984757 ** ** ** ** 4/28/2011 ** ** ** ** ** ** ** ** ** ** 1984548 ** ** ** ** 5/7/2011 ** ** ** ** ** ** ** ** ** ** 1984978 ** ** ** ** 4/15/2012 ** ** ** ** ** ** ** ** ** ** 2183419 ** ** ** ** 6/8/2014 ** ** ** ** ** ** ** ** ** **
RTI CARDIOVASCULAR - CURRENT INVENTORY IDT Product Code: (ALL) Tissue Type: (ALL) Blood Type: (ALL)
PROD LABEL CURRENT COMMISSION COMMISSION DONOR BLOOD TISSUE MEAS MEAS MEAS MEAS CODE DESCRIPTION ID LIST ABC RATE POTENTIAL EXPIRATION ID AGE TYPE RH TYPE QUALITY 1 2 3 4 - ------ ------------------ ------- ------- --- ---------- ---------- ---------- ----- --- ----- -- ------ ------- ---- ---- ---- ---- 2183458 ** ** ** ** 6/15/2014 ** ** ** ** ** ** ** ** ** ** 1984364 ** ** ** ** 3/18/2011 ** ** ** ** ** ** ** ** ** ** 2476549 ** ** ** ** 10/13/2014 ** ** ** ** ** ** ** ** ** ** 2479809 ** ** ** ** 9/4/2014 ** ** ** ** ** ** ** ** ** ** 1984612 ** ** ** ** 2/4/2012 ** ** ** ** ** ** ** ** ** ** 3256275 ** ** ** ** 8/1/2016 ** ** ** ** ** ** ** ** ** ** 3256678 ** ** ** ** 4/1/2016 ** ** ** ** ** ** ** ** ** ** 1984446 ** ** ** ** 7/10/2011 ** ** ** ** ** ** ** ** ** ** 2476386 ** ** ** ** 12/1/2014 ** ** ** ** ** ** ** ** ** ** 2476113 ** ** ** ** 10/15/2014 ** ** ** ** ** ** ** ** ** ** 1984512 ** ** ** ** 10/24/2008 ** ** ** ** ** ** ** ** ** ** 2181145 ** ** ** ** 12/4/2013 ** ** ** ** ** ** ** ** ** ** 1984568 ** ** ** ** 11/11/2009 ** ** ** ** ** ** ** ** ** ** 2181405 ** ** ** ** 4/1/2014 ** ** ** ** ** ** ** ** ** ** 1984936 ** ** ** ** 5/17/2009 ** ** ** ** ** ** ** ** ** ** 3256930 ** ** ** ** 5/26/2016 ** ** ** ** ** ** ** ** ** ** 2478713 ** ** ** ** 3/1/2015 ** ** ** ** ** ** ** ** ** ** 2478621 ** ** ** ** 2/10/2015 ** ** ** ** ** ** ** ** ** ** 2476115 ** ** ** ** 10/15/2014 ** ** ** ** ** ** ** ** ** ** 2478569 ** ** ** ** 2/3/2015 ** ** ** ** ** ** ** ** ** ** 2478670 ** ** ** ** 2/18/2015 ** ** ** ** ** ** ** ** ** ** 2183484 ** ** ** ** 6/18/2014 ** ** ** ** ** ** ** ** ** ** 2181183 ** ** ** ** 2/25/2014 ** ** ** ** ** ** ** ** ** ** 2182251 ** ** ** ** 7/12/2014 ** ** ** ** ** ** ** ** ** ** 2476286 ** ** ** ** 11/16/2014 ** ** ** ** ** ** ** ** ** ** 2175714 ** ** ** ** 5/6/2014 ** ** ** ** ** ** ** ** ** ** 2476349 ** ** ** ** 11/24/2014 ** ** ** ** ** ** ** ** ** ** 2129745 ** ** ** ** 12/3/2013 ** ** ** ** ** ** ** ** ** ** 1984943 ** ** ** ** 1/5/2009 ** ** ** ** ** ** ** ** ** ** 1984946 ** ** ** ** 7/19/2010 ** ** ** ** ** ** ** ** ** ** 1984849 ** ** ** ** 10/14/2012 ** ** ** ** ** ** ** ** ** ** 1984538 ** ** ** ** 2/19/2011 ** ** ** ** ** ** ** ** ** ** 2990209 ** ** ** ** 11/27/2015 ** ** ** ** ** ** ** ** ** ** 1984399 ** ** ** ** 8/7/2011 ** ** ** ** ** ** ** ** ** ** 1984408 ** ** ** ** 1/22/2009 ** ** ** ** ** ** ** ** ** ** 1984628 ** ** ** ** 1/28/2012 ** ** ** ** ** ** ** ** ** ** 1984432 ** ** ** ** 2/25/2009 ** ** ** ** ** ** ** ** ** ** 1983041 ** ** ** ** 11/22/2013 ** ** ** ** ** ** ** ** ** ** 2129901 ** ** ** ** 12/3/2013 ** ** ** ** ** ** ** ** ** ** 1984622 ** ** ** ** 3/3/2013 ** ** ** ** ** ** ** ** ** ** 2175744 ** ** ** ** 5/9/2014 ** ** ** ** ** ** ** ** ** ** 2175971 ** ** ** ** 6/2/2014 ** ** ** ** ** ** ** ** ** ** 1983819 ** ** ** ** 8/21/2013 ** ** ** ** ** ** ** ** ** ** 2175699 ** ** ** ** 5/5/2014 ** ** ** ** ** ** ** ** ** **
RTI CARDIOVASCULAR - CURRENT INVENTORY IDT Product Code: (ALL) Tissue Type: (ALL) Blood Type: (ALL)
PROD LABEL CURRENT COMMISSION COMMISSION DONOR BLOOD TISSUE MEAS MEAS MEAS MEAS CODE DESCRIPTION ID LIST ABC RATE POTENTIAL EXPIRATION ID AGE TYPE RH TYPE QUALITY 1 2 3 4 - ------ ------------------ ------- ------- --- ---------- ---------- ---------- ----- --- ----- -- ------ ------- ---- ---- ---- ---- 2476588 ** ** ** ** 10/21/2014 ** ** ** ** ** ** ** ** ** ** 1984581 ** ** ** ** 5/14/2010 ** ** ** ** ** ** ** ** ** ** 1984585 ** ** ** ** 7/15/2012 ** ** ** ** ** ** ** ** ** ** 1984378 ** ** ** ** 12/25/2012 ** ** ** ** ** ** ** ** ** ** 1984386 ** ** ** ** 9/26/2009 ** ** ** ** ** ** ** ** ** ** 2176343 ** ** ** ** 1/16/2014 ** ** ** ** ** ** ** ** ** ** 2175958 ** ** ** ** 6/2/2014 ** ** ** ** ** ** ** ** ** ** 2476863 ** ** ** ** 1/1/2015 ** ** ** ** ** ** ** ** ** ** 2175997 ** ** ** ** 6/5/2014 ** ** ** ** ** ** ** ** ** ** 2478542 ** ** ** ** 1/28/2015 ** ** ** ** ** ** ** ** ** ** 2477543 ** ** ** ** 1/27/2015 ** ** ** ** ** ** ** ** ** ** 1984906 ** ** ** ** 10/5/2012 ** ** ** ** ** ** ** ** ** ** 2175513 ** ** ** ** 4/17/2014 ** ** ** ** ** ** ** ** ** ** 2176447 ** ** ** ** 2/5/2014 ** ** ** ** ** ** ** ** ** ** 2479955 ** ** ** ** 9/22/2014 ** ** ** ** ** ** ** ** ** ** 1984537 ** ** ** ** 1/12/2009 ** ** ** ** ** ** ** ** ** ** 1984572 ** ** ** ** 7/14/2010 ** ** ** ** ** ** ** ** ** ** 2477668 ** ** ** ** 4/6/2015 ** ** ** ** ** ** ** ** ** ** 2477503 ** ** ** ** 1/17/2015 ** ** ** ** ** ** ** ** ** ** 2175808 ** ** ** ** 5/16/2014 ** ** ** ** ** ** ** ** ** ** 1984396 ** ** ** ** 9/6/2008 ** ** ** ** ** ** ** ** ** ** 1984397 ** ** ** ** 1/21/2009 ** ** ** ** ** ** ** ** ** ** 1984725 ** ** ** ** 10/1/2011 ** ** ** ** ** ** ** ** ** ** 2476400 ** ** ** ** 12/3/2014 ** ** ** ** ** ** ** ** ** ** 3256863 ** ** ** ** 5/13/2016 ** ** ** ** ** ** ** ** ** ** 1984500 ** ** ** ** 11/22/2012 ** ** ** ** ** ** ** ** ** ** 1984196 ** ** ** ** 4/18/2013 ** ** ** ** ** ** ** ** ** ** 3257132 ** ** ** ** 10/9/2016 ** ** ** ** ** ** ** ** ** ** 1984556 ** ** ** ** 11/14/2012 ** ** ** ** ** ** ** ** ** ** 1984640 ** ** ** ** 4/22/2011 ** ** ** ** ** ** ** ** ** ** 1984642 ** ** ** ** 1/7/2012 ** ** ** ** ** ** ** ** ** ** 1984648 ** ** ** ** 10/20/2010 ** ** ** ** ** ** ** ** ** ** 3256726 ** ** ** ** 4/11/2016 ** ** ** ** ** ** ** ** ** ** 2476275 ** ** ** ** 11/15/2014 ** ** ** ** ** ** ** ** ** ** 2478722 ** ** ** ** 3/2/2015 ** ** ** ** ** ** ** ** ** ** 2181480 ** ** ** ** 4/13/2014 ** ** ** ** ** ** ** ** ** ** 3256317 ** ** ** ** 8/9/2016 ** ** ** ** ** ** ** ** ** ** 1984469 ** ** ** ** 11/19/2011 ** ** ** ** ** ** ** ** ** ** 1984583 ** ** ** ** 8/22/2010 ** ** ** ** ** ** ** ** ** ** 1984589 ** ** ** ** 11/15/2010 ** ** ** ** ** ** ** ** ** ** 2990250 ** ** ** ** 12/5/2015 ** ** ** ** ** ** ** ** ** ** 2181242 ** ** ** ** 3/6/2014 ** ** ** ** ** ** ** ** ** ** 3256761 ** ** ** ** 4/17/2016 ** ** ** ** ** ** ** ** ** ** 3256977 ** ** ** ** 6/3/2016 ** ** ** ** ** ** ** ** ** **
RTI CARDIOVASCULAR - CURRENT INVENTORY IDT Product Code: (ALL) Tissue Type: (ALL) Blood Type: (ALL)
PROD LABEL CURRENT COMMISSION COMMISSION DONOR BLOOD TISSUE MEAS MEAS MEAS MEAS CODE DESCRIPTION ID LIST ABC RATE POTENTIAL EXPIRATION ID AGE TYPE RH TYPE QUALITY 1 2 3 4 - ------ ------------------ ------- ------- --- ---------- ---------- ---------- ----- --- ----- -- ------ ------- ---- ---- ---- ---- 2478689 ** ** ** ** 2/22/2015 ** ** ** ** ** ** ** ** ** ** 2181208 ** ** ** ** 2/28/2014 ** ** ** ** ** ** ** ** ** ** 2476730 ** ** ** ** 11/22/2014 ** ** ** ** ** ** ** ** ** ** 581200 DESCENDING AORTA - ALL 2130209 ** ** ** ** 9/18/2013 ** ** ** ** ** ** ** ** ** ** 1984926 ** ** ** ** 4/2/2013 ** ** ** ** ** ** ** ** ** ** 2177284 ** ** ** ** 3/8/2014 ** ** ** ** ** ** ** ** ** ** 1983821 ** ** ** ** 8/22/2013 ** ** ** ** ** ** ** ** ** ** 1983685 ** ** ** ** 7/29/2013 ** ** ** ** ** ** ** ** ** ** 2181463 ** ** ** ** 4/12/2014 ** ** ** ** ** ** ** ** ** ** 1984779 ** ** ** ** 9/11/2013 ** ** ** ** ** ** ** ** ** ** 2176277 ** ** ** ** 1/4/2014 ** ** ** ** ** ** ** ** ** ** 2129638 ** ** ** ** 11/12/2013 ** ** ** ** ** ** ** ** ** ** 2181196 ** ** ** ** 2/27/2014 ** ** ** ** ** ** ** ** ** ** 2181454 ** ** ** ** 4/11/2014 ** ** ** ** ** ** ** ** ** ** 1984959 ** ** ** ** 9/15/2013 ** ** ** ** ** ** ** ** ** ** 1984362 ** ** ** ** 11/24/2012 ** ** ** ** ** ** ** ** ** ** 1984348 ** ** ** ** 9/11/2013 ** ** ** ** ** ** ** ** ** ** 2181266 ** ** ** ** 3/11/2014 ** ** ** ** ** ** ** ** ** ** 2181324 ** ** ** ** 3/22/2014 ** ** ** ** ** ** ** ** ** ** 2129651 ** ** ** ** 11/3/2013 ** ** ** ** ** ** ** ** ** ** 1983146 ** ** ** ** 9/21/2013 ** ** ** ** ** ** ** ** ** ** 2479501 ** ** ** ** 3/7/2014 ** ** ** ** ** ** ** ** ** ** 1983811 ** ** ** ** 9/24/2013 ** ** ** ** ** ** ** ** ** ** 2175539 ** ** ** ** 4/20/2014 ** ** ** ** ** ** ** ** ** ** 2129840 ** ** ** ** 11/22/2013 ** ** ** ** ** ** ** ** ** ** 2129497 ** ** ** ** 11/7/2013 ** ** ** ** ** ** ** ** ** ** 2176247 ** ** ** ** 12/28/2013 ** ** ** ** ** ** ** ** ** ** 1983153 ** ** ** ** 9/22/2013 ** ** ** ** ** ** ** ** ** ** 2129986 ** ** ** ** 12/19/2013 ** ** ** ** ** ** ** ** ** ** 1983781 ** ** ** ** 8/15/2013 ** ** ** ** ** ** ** ** ** ** 1984629 ** ** ** ** 3/3/2013 ** ** ** ** ** ** ** ** ** ** 1983152 ** ** ** ** 9/22/2013 ** ** ** ** ** ** ** ** ** ** 1983392 ** ** ** ** 9/30/2013 ** ** ** ** ** ** ** ** ** ** 1983024 ** ** ** ** 1/29/2013 ** ** ** ** ** ** ** ** ** ** 2129925 ** ** ** ** 12/18/2013 ** ** ** ** ** ** ** ** ** ** 2181392 ** ** ** ** 3/30/2014 ** ** ** ** ** ** ** ** ** ** 1983936 ** ** ** ** 9/7/2013 ** ** ** ** ** ** ** ** ** ** 1984044 ** ** ** ** 6/4/2013 ** ** ** ** ** ** ** ** ** ** 2130782 ** ** ** ** 11/15/2013 ** ** ** ** ** ** ** ** ** ** 1983818 ** ** ** ** 8/20/2013 ** ** ** ** ** ** ** ** ** ** 2181484 ** ** ** ** 4/14/2014 ** ** ** ** ** ** ** ** ** ** 2181496 ** ** ** ** 4/16/2014 ** ** ** ** ** ** ** ** ** ** 1983621 ** ** ** ** 11/22/2013 ** ** ** ** ** ** ** ** ** ** 2177286 ** ** ** ** 3/8/2014 ** ** ** ** ** ** ** ** ** **
RTI CARDIOVASCULAR - CURRENT INVENTORY IDT Product Code: (ALL) Tissue Type: (ALL) Blood Type: (ALL)
PROD LABEL CURRENT COMMISSION COMMISSION DONOR BLOOD TISSUE MEAS MEAS MEAS MEAS CODE DESCRIPTION ID LIST ABC RATE POTENTIAL EXPIRATION ID AGE TYPE RH TYPE QUALITY 1 2 3 4 - ------ ------------------ ------- ------- --- ---------- ---------- ---------- ----- --- ----- -- ------ ------- ---- ---- ---- ---- 1983165 ** ** ** ** 9/22/2013 ** ** ** ** ** ** ** ** ** ** 2129629 ** ** ** ** 11/14/2013 ** ** ** ** ** ** ** ** ** ** 585000 AORTO ILLIAC - ALL 2129813 ** ** ** ** 11/18/2013 ** ** ** ** ** ** ** ** ** ** 2181175 ** ** ** ** 2/23/2014 ** ** ** ** ** ** ** ** ** ** 1983814 ** ** ** ** 8/18/2013 ** ** ** ** ** ** ** ** ** ** 2478653 ** ** ** ** 2/15/2015 ** ** ** ** ** ** ** ** ** ** 2480881 ** ** ** ** 2/4/2016 ** ** ** ** ** ** ** ** ** ** 2479660 ** ** ** ** 8/17/2014 ** ** ** ** ** ** ** ** ** ** 2181179 ** ** ** ** 2/24/2014 ** ** ** ** ** ** ** ** ** ** 2175961 ** ** ** ** 6/2/2014 ** ** ** ** ** ** ** ** ** ** 2181161 ** ** ** ** 2/21/2014 ** ** ** ** ** ** ** ** ** ** 2175531 ** ** ** ** 4/19/2014 ** ** ** ** ** ** ** ** ** ** 3256541 ** ** ** ** 2/20/2016 ** ** ** ** ** ** ** ** ** ** 1983815 ** ** ** ** 8/19/2013 ** ** ** ** ** ** ** ** ** ** 2176471 ** ** ** ** 2/10/2014 ** ** ** ** ** ** ** ** ** ** 2175946 ** ** ** ** 6/1/2014 ** ** ** ** ** ** ** ** ** ** 2477729 ** ** ** ** 5/11/2015 ** ** ** ** ** ** ** ** ** ** 2176278 ** ** ** ** 1/4/2014 ** ** ** ** ** ** ** ** ** ** 2176297 ** ** ** ** 1/9/2014 ** ** ** ** ** ** ** ** ** ** 2181258 ** ** ** ** 3/9/2014 ** ** ** ** ** ** ** ** ** ** 2181325 ** ** ** ** 3/22/2014 ** ** ** ** ** ** ** ** ** ** 2175540 ** ** ** ** 4/20/2014 ** ** ** ** ** ** ** ** ** ** 1984000 ** ** ** ** 9/17/2013 ** ** ** ** ** ** ** ** ** ** 1983164 ** ** ** ** 9/22/2013 ** ** ** ** ** ** ** ** ** ** 2129801 ** ** ** ** 11/17/2013 ** ** ** ** ** ** ** ** ** ** 2181424 ** ** ** ** 4/6/2014 ** ** ** ** ** ** ** ** ** ** 2129987 ** ** ** ** 12/19/2013 ** ** ** ** ** ** ** ** ** ** 2175533 ** ** ** ** 4/19/2014 ** ** ** ** ** ** ** ** ** ** 3256637 ** ** ** ** 3/20/2016 ** ** ** ** ** ** ** ** ** ** 2181265 ** ** ** ** 3/11/2014 ** ** ** ** ** ** ** ** ** ** 2176420 ** ** ** ** 1/31/2014 ** ** ** ** ** ** ** ** ** ** 2181267 ** ** ** ** 3/11/2014 ** ** ** ** ** ** ** ** ** ** 2176452 ** ** ** ** 2/6/2014 ** ** ** ** ** ** ** ** ** ** 2181346 ** ** ** ** 3/24/2014 ** ** ** ** ** ** ** ** ** ** 2177287 ** ** ** ** 3/8/2014 ** ** ** ** ** ** ** ** ** ** 581300 Posterior Hemi Aorta 2989604 ** ** ** ** 8/6/2015 ** ** ** ** ** ** ** ** ** ** 2990042 ** ** ** ** 8/31/2015 ** ** ** ** ** ** ** ** ** ** 2989932 ** ** ** ** 10/22/2015 ** ** ** ** ** ** ** ** ** ** 2990277 ** ** ** ** 12/11/2015 ** ** ** ** ** ** ** ** ** ** 2990258 ** ** ** ** 12/7/2015 ** ** ** ** ** ** ** ** ** ** 2990002 ** ** ** ** 7/23/2015 ** ** ** ** ** ** ** ** ** ** 2989911 ** ** ** ** 10/16/2015 ** ** ** ** ** ** ** ** ** ** 2990333 ** ** ** ** 12/22/2015 ** ** ** ** ** ** ** ** ** ** 2990321 ** ** ** ** 12/20/2015 ** ** ** ** ** ** ** ** ** **
RTI CARDIOVASCULAR - CURRENT INVENTORY IDT Product Code: (ALL) Tissue Type: (ALL) Blood Type: (ALL)
PROD LABEL CURRENT COMMISSION COMMISSION DONOR BLOOD TISSUE MEAS MEAS MEAS MEAS CODE DESCRIPTION ID LIST ABC RATE POTENTIAL EXPIRATION ID AGE TYPE RH TYPE QUALITY 1 2 3 4 - ------ ------------------ ------- ------- --- ---------- ---------- ---------- ----- --- ----- -- ------ ------- ---- ---- ---- ---- 2989873 ** ** ** ** 10/10/2015 ** ** ** ** ** ** ** ** ** ** 2990111 ** ** ** ** 10/28/2015 ** ** ** ** ** ** ** ** ** ** 2990221 ** ** ** ** 11/29/2015 ** ** ** ** ** ** ** ** ** ** 2990395 ** ** ** ** 1/3/2016 ** ** ** ** ** ** ** ** ** ** 2990180 ** ** ** ** 11/22/2015 ** ** ** ** ** ** ** ** ** ** 2989587 ** ** ** ** 8/3/2015 ** ** ** ** ** ** ** ** ** ** 2989759 ** ** ** ** 9/10/2015 ** ** ** ** ** ** ** ** ** ** 2989776 ** ** ** ** 9/14/2015 ** ** ** ** ** ** ** ** ** ** 2990361 ** ** ** ** 12/28/2015 ** ** ** ** ** ** ** ** ** ** 2990273 ** ** ** ** 12/11/2015 ** ** ** ** ** ** ** ** ** ** 2989534 ** ** ** ** 7/27/2015 ** ** ** ** ** ** ** ** ** ** 2477952 ** ** ** ** 7/20/2015 ** ** ** ** ** ** ** ** ** ** 2989925 ** ** ** ** 10/19/2015 ** ** ** ** ** ** ** ** ** ** 2990138 ** ** ** ** 11/7/2015 ** ** ** ** ** ** ** ** ** ** 2477928 ** ** ** ** 7/17/2015 ** ** ** ** ** ** ** ** ** ** 2989966 ** ** ** ** 11/6/2015 ** ** ** ** ** ** ** ** ** ** 2989621 ** ** ** ** 8/9/2015 ** ** ** ** ** ** ** ** ** ** 2989654 ** ** ** ** 8/16/2015 ** ** ** ** ** ** ** ** ** ** 2990091 ** ** ** ** 10/24/2015 ** ** ** ** ** ** ** ** ** ** 2477930 ** ** ** ** 7/17/2015 ** ** ** ** ** ** ** ** ** ** 2989915 ** ** ** ** 10/17/2015 ** ** ** ** ** ** ** ** ** ** 2990082 ** ** ** ** 10/10/2015 ** ** ** ** ** ** ** ** ** ** 2989939 ** ** ** ** 10/23/2015 ** ** ** ** ** ** ** ** ** ** 2990245 ** ** ** ** 12/4/2015 ** ** ** ** ** ** ** ** ** ** 581301 Anterior Hemi Aorta 2989620 ** ** ** ** 8/9/2015 ** ** ** ** ** ** ** ** ** ** 2990244 ** ** ** ** 12/4/2015 ** ** ** ** ** ** ** ** ** ** 2989938 ** ** ** ** 10/23/2015 ** ** ** ** ** ** ** ** ** ** 2990320 ** ** ** ** 12/20/2015 ** ** ** ** ** ** ** ** ** ** 2989931 ** ** ** ** 10/22/2015 ** ** ** ** ** ** ** ** ** ** 2990257 ** ** ** ** 12/7/2015 ** ** ** ** ** ** ** ** ** ** 2990005 ** ** ** ** 7/23/2015 ** ** ** ** ** ** ** ** ** ** 2990276 ** ** ** ** 12/11/2015 ** ** ** ** ** ** ** ** ** ** 2990332 ** ** ** ** 12/22/2015 ** ** ** ** ** ** ** ** ** ** 2990110 ** ** ** ** 10/28/2015 ** ** ** ** ** ** ** ** ** ** 2990220 ** ** ** ** 11/29/2015 ** ** ** ** ** ** ** ** ** ** 2989872 ** ** ** ** 10/10/2015 ** ** ** ** ** ** ** ** ** ** 2989586 ** ** ** ** 8/3/2015 ** ** ** ** ** ** ** ** ** ** 2989533 ** ** ** ** 7/27/2015 ** ** ** ** ** ** ** ** ** ** 2989758 ** ** ** ** 9/10/2015 ** ** ** ** ** ** ** ** ** ** 2990360 ** ** ** ** 12/28/2015 ** ** ** ** ** ** ** ** ** ** 2990394 ** ** ** ** 1/3/2016 ** ** ** ** ** ** ** ** ** ** 2989775 ** ** ** ** 9/14/2015 ** ** ** ** ** ** ** ** ** ** 2477927 ** ** ** ** 7/17/2015 ** ** ** ** ** ** ** ** ** ** 2477951 ** ** ** ** 7/20/2015 ** ** ** ** ** ** ** ** ** **
RTI CARDIOVASCULAR - CURRENT INVENTORY IDT Product Code: (ALL) Tissue Type: (ALL) Blood Type: (ALL)
PROD LABEL CURRENT COMMISSION COMMISSION DONOR BLOOD TISSUE MEAS MEAS MEAS MEAS CODE DESCRIPTION ID LIST ABC RATE POTENTIAL EXPIRATION ID AGE TYPE RH TYPE QUALITY 1 2 3 4 - ------ ------------------ ------- ------- --- ---------- ---------- ---------- ----- --- ----- -- ------ ------- ---- ---- ---- ---- 2989924 ** ** ** ** 10/19/2015 ** ** ** ** ** ** ** ** ** ** 2989603 ** ** ** ** 8/6/2015 ** ** ** ** ** ** ** ** ** ** 2989965 ** ** ** ** 11/6/2015 ** ** ** ** ** ** ** ** ** ** 2990090 ** ** ** ** 10/24/2015 ** ** ** ** ** ** ** ** ** ** 2989653 ** ** ** ** 8/16/2015 ** ** ** ** ** ** ** ** ** ** 2477929 ** ** ** ** 7/17/2015 ** ** ** ** ** ** ** ** ** ** 2989914 ** ** ** ** 10/17/2015 ** ** ** ** ** ** ** ** ** ** 2990137 ** ** ** ** 11/7/2015 ** ** ** ** ** ** ** ** ** ** 2989910 ** ** ** ** 10/16/2015 ** ** ** ** ** ** ** ** ** ** 2990081 ** ** ** ** 10/10/2015 ** ** ** ** ** ** ** ** ** ** 2990179 ** ** ** ** 11/22/2015 ** ** ** ** ** ** ** ** ** ** 2990272 ** ** ** ** 12/11/2015 ** ** ** ** ** ** ** ** ** ** 581501 VEINS - 17-29CM - A 1984558 ** ** ** ** 3/11/2013 ** ** ** ** ** ** ** ** ** ** 3256372 ** ** ** ** 8/19/2016 ** ** ** ** ** ** ** ** ** ** 1984552 ** ** ** ** 8/7/2012 ** ** ** ** ** ** ** ** ** ** 2479727 ** ** ** ** 8/26/2014 ** ** ** ** ** ** ** ** ** ** 2476912 ** ** ** ** 1/8/2015 ** ** ** ** ** ** ** ** ** ** 3256756 ** ** ** ** 4/17/2016 ** ** ** ** ** ** ** ** ** ** 2476708 ** ** ** ** 11/11/2014 ** ** ** ** ** ** ** ** ** ** 2479640 ** ** ** ** 8/16/2014 ** ** ** ** ** ** ** ** ** ** 3256138 ** ** ** ** 7/5/2016 ** ** ** ** ** ** ** ** ** ** 3257054 ** ** ** ** 9/23/2016 ** ** ** ** ** ** ** ** ** ** 3256208 ** ** ** ** 7/19/2016 ** ** ** ** ** ** ** ** ** ** 1983907 ** ** ** ** 9/4/2013 ** ** ** ** ** ** ** ** ** ** 3257020 ** ** ** ** 9/19/2016 ** ** ** ** ** ** ** ** ** ** 2476199 ** ** ** ** 10/29/2014 ** ** ** ** ** ** ** ** ** ** 3256323 ** ** ** ** 8/9/2016 ** ** ** ** ** ** ** ** ** ** 2175631 ** ** ** ** 4/29/2014 ** ** ** ** ** ** ** ** ** ** 3257193 ** ** ** ** 10/24/2016 ** ** ** ** ** ** ** ** ** ** 3257210 ** ** ** ** 10/27/2016 ** ** ** ** ** ** ** ** ** ** 2182260 ** ** ** ** 7/13/2014 ** ** ** ** ** ** ** ** ** ** 2183488 ** ** ** ** 6/19/2014 ** ** ** ** ** ** ** ** ** ** 2476206 ** ** ** ** 10/29/2014 ** ** ** ** ** ** ** ** ** ** 3256016 ** ** ** ** 6/10/2016 ** ** ** ** ** ** ** ** ** ** 3256017 ** ** ** ** 6/10/2016 ** ** ** ** ** ** ** ** ** ** 3256018 ** ** ** ** 6/10/2016 ** ** ** ** ** ** ** ** ** ** 3256115 ** ** ** ** 6/30/2016 ** ** ** ** ** ** ** ** ** ** 2175761 ** ** ** ** 5/12/2014 ** ** ** ** ** ** ** ** ** ** 1983718 ** ** ** ** 4/19/2012 ** ** ** ** ** ** ** ** ** ** 3256860 ** ** ** ** 5/11/2016 ** ** ** ** ** ** ** ** ** ** 3256427 ** ** ** ** 8/29/2016 ** ** ** ** ** ** ** ** ** ** 2476593 ** ** ** ** 10/21/2014 ** ** ** ** ** ** ** ** ** ** 2476638 ** ** ** ** 11/3/2014 ** ** ** ** ** ** ** ** ** ** 3256759 ** ** ** ** 4/18/2016 ** ** ** ** ** ** ** ** ** **
RTI CARDIOVASCULAR - CURRENT INVENTORY IDT Product Code: (ALL) Tissue Type: (ALL) Blood Type: (ALL)
PROD LABEL CURRENT COMMISSION COMMISSION DONOR BLOOD TISSUE MEAS MEAS MEAS MEAS CODE DESCRIPTION ID LIST ABC RATE POTENTIAL EXPIRATION ID AGE TYPE RH TYPE QUALITY 1 2 3 4 - ------ ------------------ ------- ------- --- ---------- ---------- ---------- ----- --- ----- -- ------ ------- ---- ---- ---- ---- 3256760 ** ** ** ** 4/18/2016 ** ** ** ** ** ** ** ** ** ** 2182103 ** ** ** ** 6/23/2014 ** ** ** ** ** ** ** ** ** ** 2476415 ** ** ** ** 12/6/2014 ** ** ** ** ** ** ** ** ** ** 1984451 ** ** ** ** 1/5/2013 ** ** ** ** ** ** ** ** ** ** 3256169 ** ** ** ** 7/12/2016 ** ** ** ** ** ** ** ** ** ** 3256116 ** ** ** ** 6/30/2016 ** ** ** ** ** ** ** ** ** ** 2478659 ** ** ** ** 2/17/2015 ** ** ** ** ** ** ** ** ** ** 2182189 ** ** ** ** 7/3/2014 ** ** ** ** ** ** ** ** ** ** 2479932 ** ** ** ** 9/18/2014 ** ** ** ** ** ** ** ** ** ** 2476627 ** ** ** ** 11/2/2014 ** ** ** ** ** ** ** ** ** ** 2476628 ** ** ** ** 11/2/2014 ** ** ** ** ** ** ** ** ** ** 1984440 ** ** ** ** 5/6/2013 ** ** ** ** ** ** ** ** ** ** 1984441 ** ** ** ** 5/6/2013 ** ** ** ** ** ** ** ** ** ** 2175859 ** ** ** ** 5/22/2014 ** ** ** ** ** ** ** ** ** ** 2183449 ** ** ** ** 6/14/2014 ** ** ** ** ** ** ** ** ** ** 2479741 ** ** ** ** 8/26/2014 ** ** ** ** ** ** ** ** ** ** 1984998 ** ** ** ** 3/1/2012 ** ** ** ** ** ** ** ** ** ** 2182397 ** ** ** ** 7/25/2014 ** ** ** ** ** ** ** ** ** ** 2479704 ** ** ** ** 8/23/2014 ** ** ** ** ** ** ** ** ** ** 1983550 ** ** ** ** 7/7/2013 ** ** ** ** ** ** ** ** ** ** 2177019 ** ** ** ** 2/17/2014 ** ** ** ** ** ** ** ** ** ** 3256046 ** ** ** ** 6/14/2016 ** ** ** ** ** ** ** ** ** ** 1984559 ** ** ** ** 3/11/2013 ** ** ** ** ** ** ** ** ** ** 2477580 ** ** ** ** 3/2/2015 ** ** ** ** ** ** ** ** ** ** 2477610 ** ** ** ** 3/18/2015 ** ** ** ** ** ** ** ** ** ** 1983080 ** ** ** ** 9/20/2013 ** ** ** ** ** ** ** ** ** ** 2476416 ** ** ** ** 12/6/2014 ** ** ** ** ** ** ** ** ** ** 2477593 ** ** ** ** 3/8/2015 ** ** ** ** ** ** ** ** ** ** 2175870 ** ** ** ** 5/23/2014 ** ** ** ** ** ** ** ** ** ** 2478663 ** ** ** ** 2/18/2015 ** ** ** ** ** ** ** ** ** ** 2175518 ** ** ** ** 4/18/2014 ** ** ** ** ** ** ** ** ** ** 2182275 ** ** ** ** 7/14/2014 ** ** ** ** ** ** ** ** ** ** 2479756 ** ** ** ** 8/27/2014 ** ** ** ** ** ** ** ** ** ** 1983607 ** ** ** ** 7/16/2013 ** ** ** ** ** ** ** ** ** ** 2175710 ** ** ** ** 5/6/2014 ** ** ** ** ** ** ** ** ** ** 3256065 ** ** ** ** 6/16/2016 ** ** ** ** ** ** ** ** ** ** 2476610 ** ** ** ** 10/25/2014 ** ** ** ** ** ** ** ** ** ** 1983816 ** ** ** ** 10/10/2013 ** ** ** ** ** ** ** ** ** ** 2476972 ** ** ** ** 1/17/2015 ** ** ** ** ** ** ** ** ** ** 2478639 ** ** ** ** 2/12/2015 ** ** ** ** ** ** ** ** ** ** 3256139 ** ** ** ** 7/5/2016 ** ** ** ** ** ** ** ** ** ** 2176226 ** ** ** ** 12/22/2013 ** ** ** ** ** ** ** ** ** ** 3256856 ** ** ** ** 5/9/2016 ** ** ** ** ** ** ** ** ** ** 1983433 ** ** ** ** 10/4/2013 ** ** ** ** ** ** ** ** ** **
RTI CARDIOVASCULAR - CURRENT INVENTORY IDT Product Code: (ALL) Tissue Type: (ALL) Blood Type: (ALL)
PROD LABEL CURRENT COMMISSION COMMISSION DONOR BLOOD TISSUE MEAS MEAS MEAS MEAS CODE DESCRIPTION ID LIST ABC RATE POTENTIAL EXPIRATION ID AGE TYPE RH TYPE QUALITY 1 2 3 4 - ------ ------------------ ------- ------- --- ---------- ---------- ---------- ----- --- ----- -- ------ ------- ---- ---- ---- ---- 1983679 ** ** ** ** 7/27/2013 ** ** ** ** ** ** ** ** ** ** 1983763 ** ** ** ** 8/12/2013 ** ** ** ** ** ** ** ** ** ** 3257055 ** ** ** ** 9/23/2016 ** ** ** ** ** ** ** ** ** ** 3256841 ** ** ** ** 5/5/2016 ** ** ** ** ** ** ** ** ** ** 581016 AORTIC VALVES - 16MM to 17MM 1984695 ** ** ** ** 2/19/2013 ** ** ** ** ** ** ** ** ** ** 1983863 ** ** ** ** 8/29/2013 ** ** ** ** ** ** ** ** ** ** 2129868 ** ** ** ** 11/25/2013 ** ** ** ** ** ** ** ** ** ** 3256724 ** ** ** ** 4/10/2016 ** ** ** ** ** ** ** ** ** ** 2479579 ** ** ** ** 8/11/2014 ** ** ** ** ** ** ** ** ** ** 2176434 ** ** ** ** 2/2/2014 ** ** ** ** ** ** ** ** ** ** 581021 AORTIC VALVES - 21MM to 22MM 2476271 ** ** ** ** 11/14/2014 ** ** ** ** ** ** ** ** ** ** 2478840 ** ** ** ** 4/27/2015 ** ** ** ** ** ** ** ** ** ** 2476846 ** ** ** ** 12/30/2014 ** ** ** ** ** ** ** ** ** ** 2989598 ** ** ** ** 8/5/2015 ** ** ** ** ** ** ** ** ** ** 3256768 ** ** ** ** 4/18/2016 ** ** ** ** ** ** ** ** ** ** 3256140 ** ** ** ** 7/6/2016 ** ** ** ** ** ** ** ** ** ** 3256809 ** ** ** ** 4/28/2016 ** ** ** ** ** ** ** ** ** ** 3256908 ** ** ** ** 5/23/2016 ** ** ** ** ** ** ** ** ** ** 2478780 ** ** ** ** 3/13/2015 ** ** ** ** ** ** ** ** ** ** 3256334 ** ** ** ** 8/11/2016 ** ** ** ** ** ** ** ** ** ** 2476192 ** ** ** ** 10/27/2014 ** ** ** ** ** ** ** ** ** ** 2477857 ** ** ** ** 6/26/2015 ** ** ** ** ** ** ** ** ** ** 3256100 ** ** ** ** 6/27/2016 ** ** ** ** ** ** ** ** ** ** 3257137 ** ** ** ** 10/12/2016 ** ** ** ** ** ** ** ** ** ** 3256419 ** ** ** ** 8/26/2016 ** ** ** ** ** ** ** ** ** ** 2477877 ** ** ** ** 7/6/2015 ** ** ** ** ** ** ** ** ** ** 2476882 ** ** ** ** 1/4/2015 ** ** ** ** ** ** ** ** ** ** 3256893 ** ** ** ** 5/19/2016 ** ** ** ** ** ** ** ** ** ** 2990057 ** ** ** ** 9/17/2015 ** ** ** ** ** ** ** ** ** ** 2477831 ** ** ** ** 6/19/2015 ** ** ** ** ** ** ** ** ** ** 2990260 ** ** ** ** 12/7/2015 ** ** ** ** ** ** ** ** ** ** 2989732 ** ** ** ** 9/4/2015 ** ** ** ** ** ** ** ** ** ** 2477591 ** ** ** ** 3/8/2015 ** ** ** ** ** ** ** ** ** ** 2990065 ** ** ** ** 9/24/2015 ** ** ** ** ** ** ** ** ** ** 2476221 ** ** ** ** 11/1/2014 ** ** ** ** ** ** ** ** ** ** 2476559 ** ** ** ** 10/17/2014 ** ** ** ** ** ** ** ** ** ** 2477733 ** ** ** ** 5/12/2015 ** ** ** ** ** ** ** ** ** ** 2989557 ** ** ** ** 7/30/2015 ** ** ** ** ** ** ** ** ** ** 3256035 ** ** ** ** 6/12/2016 ** ** ** ** ** ** ** ** ** ** 2476237 ** ** ** ** 11/10/2014 ** ** ** ** ** ** ** ** ** ** 2180990 ** ** ** ** 6/4/2015 ** ** ** ** ** ** ** ** ** ** 2989658 ** ** ** ** 8/19/2015 ** ** ** ** ** ** ** ** ** ** 3256998 ** ** ** ** 6/8/2016 ** ** ** ** ** ** ** ** ** ** 2476775 ** ** ** ** 12/8/2014 ** ** ** ** ** ** ** ** ** **
RTI CARDIOVASCULAR - CURRENT INVENTORY IDT Product Code: (ALL) Tissue Type: (ALL) Blood Type: (ALL)
PROD LABEL CURRENT COMMISSION COMMISSION DONOR BLOOD TISSUE MEAS MEAS MEAS MEAS CODE DESCRIPTION ID LIST ABC RATE POTENTIAL EXPIRATION ID AGE TYPE RH TYPE QUALITY 1 2 3 4 - ------ ------------------ ------- ------- --- ---------- ---------- ---------- ----- --- ----- -- ------ ------- ---- ---- ---- ---- 3256048 ** ** ** ** 6/14/2016 ** ** ** ** ** ** ** ** ** ** 2476322 ** ** ** ** 11/20/2014 ** ** ** ** ** ** ** ** ** ** 2478785 ** ** ** ** 3/14/2015 ** ** ** ** ** ** ** ** ** ** 2476452 ** ** ** ** 12/13/2014 ** ** ** ** ** ** ** ** ** ** 2479784 ** ** ** ** 9/1/2014 ** ** ** ** ** ** ** ** ** ** 3256282 ** ** ** ** 8/3/2016 ** ** ** ** ** ** ** ** ** ** 2477527 ** ** ** ** 1/19/2015 ** ** ** ** ** ** ** ** ** ** 2990425 ** ** ** ** 1/7/2016 ** ** ** ** ** ** ** ** ** ** 2989765 ** ** ** ** 9/12/2015 ** ** ** ** ** ** ** ** ** ** 2478776 ** ** ** ** 3/13/2015 ** ** ** ** ** ** ** ** ** ** 2990033 ** ** ** ** 8/19/2015 ** ** ** ** ** ** ** ** ** ** 2182148 ** ** ** ** 6/29/2014 ** ** ** ** ** ** ** ** ** ** 2478626 ** ** ** ** 2/11/2015 ** ** ** ** ** ** ** ** ** ** 2478654 ** ** ** ** 2/15/2015 ** ** ** ** ** ** ** ** ** ** 3256238 ** ** ** ** 7/24/2016 ** ** ** ** ** ** ** ** ** ** 2479618 ** ** ** ** 8/14/2014 ** ** ** ** ** ** ** ** ** ** 583002 Branch Patch All 3256371 ** ** ** ** 8/19/2016 ** ** ** ** ** ** ** ** ** ** 581601 VEINS - 30-49CM - A 3256373 ** ** ** ** 8/19/2016 ** ** ** ** ** ** ** ** ** ** 2990270 ** ** ** ** 12/9/2015 ** ** ** ** ** ** ** ** ** ** 2990271 ** ** ** ** 12/9/2015 ** ** ** ** ** ** ** ** ** ** 3257021 ** ** ** ** 9/19/2016 ** ** ** ** ** ** ** ** ** ** 3256754 ** ** ** ** 4/17/2016 ** ** ** ** ** ** ** ** ** ** 3256861 ** ** ** ** 5/12/2016 ** ** ** ** ** ** ** ** ** ** 3256889 ** ** ** ** 5/18/2016 ** ** ** ** ** ** ** ** ** ** 3256197 ** ** ** ** 7/18/2016 ** ** ** ** ** ** ** ** ** ** 3256187 ** ** ** ** 7/15/2016 ** ** ** ** ** ** ** ** ** ** 2990151 ** ** ** ** 11/12/2015 ** ** ** ** ** ** ** ** ** ** 3256753 ** ** ** ** 4/17/2016 ** ** ** ** ** ** ** ** ** ** 3256310 ** ** ** ** 8/8/2016 ** ** ** ** ** ** ** ** ** ** 3256441 ** ** ** ** 9/1/2016 ** ** ** ** ** ** ** ** ** ** 3256808 ** ** ** ** 4/27/2016 ** ** ** ** ** ** ** ** ** ** 3256868 ** ** ** ** 5/14/2016 ** ** ** ** ** ** ** ** ** ** 582026 PULMONIC VALVES - 26MM to 28MM 1984301 ** ** ** ** 4/25/2013 ** ** ** ** ** ** ** ** ** ** 2479925 ** ** ** ** 9/17/2014 ** ** ** ** ** ** ** ** ** ** 3256414 ** ** ** ** 8/25/2016 ** ** ** ** ** ** ** ** ** ** 2182250 ** ** ** ** 7/12/2014 ** ** ** ** ** ** ** ** ** ** 2182324 ** ** ** ** 7/19/2014 ** ** ** ** ** ** ** ** ** ** 3256821 ** ** ** ** 5/2/2016 ** ** ** ** ** ** ** ** ** ** 1984993 ** ** ** ** 2/17/2013 ** ** ** ** ** ** ** ** ** ** 2989664 ** ** ** ** 8/20/2015 ** ** ** ** ** ** ** ** ** ** 1984930 ** ** ** ** 2/4/2013 ** ** ** ** ** ** ** ** ** ** 2990144 ** ** ** ** 11/11/2015 ** ** ** ** ** ** ** ** ** ** 2477898 ** ** ** ** 7/11/2015 ** ** ** ** ** ** ** ** ** ** 3256999 ** ** ** ** 6/8/2016 ** ** ** ** ** ** ** ** ** **
RTI CARDIOVASCULAR - CURRENT INVENTORY IDT Product Code: (ALL) Tissue Type: (ALL) Blood Type: (ALL)
PROD LABEL CURRENT COMMISSION COMMISSION DONOR BLOOD TISSUE MEAS MEAS MEAS MEAS CODE DESCRIPTION ID LIST ABC RATE POTENTIAL EXPIRATION ID AGE TYPE RH TYPE QUALITY 1 2 3 4 - ------ ------------------ ------- ------- --- ---------- ---------- ---------- ----- --- ----- -- ------ ------- ---- ---- ---- ---- 3256049 ** ** ** ** 6/14/2016 ** ** ** ** ** ** ** ** ** ** 1984584 ** ** ** ** 10/3/2010 ** ** ** ** ** ** ** ** ** ** 581100 AORTIC NON-VALVE CONDUIT - ALL 1984696 ** ** ** ** 3/24/2013 ** ** ** ** ** ** ** ** ** ** 1983007 ** ** ** ** 8/31/2011 ** ** ** ** ** ** ** ** ** ** 1983886 ** ** ** ** 9/1/2013 ** ** ** ** ** ** ** ** ** ** 1984718 ** ** ** ** 12/7/2012 ** ** ** ** ** ** ** ** ** ** 2129709 ** ** ** ** 1/8/2014 ** ** ** ** ** ** ** ** ** ** 1984789 ** ** ** ** 7/3/2011 ** ** ** ** ** ** ** ** ** ** 1984810 ** ** ** ** 12/8/2011 ** ** ** ** ** ** ** ** ** ** 1984949 ** ** ** ** 3/29/2012 ** ** ** ** ** ** ** ** ** ** 1984867 ** ** ** ** 2/10/2012 ** ** ** ** ** ** ** ** ** ** 1984905 ** ** ** ** 4/2/2013 ** ** ** ** ** ** ** ** ** ** 1984985 ** ** ** ** 11/19/2011 ** ** ** ** ** ** ** ** ** ** 1984990 ** ** ** ** 12/13/2012 ** ** ** ** ** ** ** ** ** ** 1984798 ** ** ** ** 9/2/2011 ** ** ** ** ** ** ** ** ** ** 2129818 ** ** ** ** 11/19/2013 ** ** ** ** ** ** ** ** ** ** 1983784 ** ** ** ** 8/15/2013 ** ** ** ** ** ** ** ** ** ** 1984499 ** ** ** ** 6/7/2012 ** ** ** ** ** ** ** ** ** ** 1984758 ** ** ** ** 6/23/2011 ** ** ** ** ** ** ** ** ** ** 1984761 ** ** ** ** 7/6/2012 ** ** ** ** ** ** ** ** ** ** 2179812 ** ** ** ** 1/22/2014 ** ** ** ** ** ** ** ** ** ** 1984839 ** ** ** ** 9/24/2012 ** ** ** ** ** ** ** ** ** ** 1983518 ** ** ** ** 7/1/2013 ** ** ** ** ** ** ** ** ** ** 1983999 ** ** ** ** 9/15/2013 ** ** ** ** ** ** ** ** ** ** 1984444 ** ** ** ** 7/5/2011 ** ** ** ** ** ** ** ** ** ** 1984448 ** ** ** ** 3/24/2012 ** ** ** ** ** ** ** ** ** ** 1984425 ** ** ** ** 1/5/2011 ** ** ** ** ** ** ** ** ** ** 1983058 ** ** ** ** 11/22/2013 ** ** ** ** ** ** ** ** ** ** 1984573 ** ** ** ** 9/23/2010 ** ** ** ** ** ** ** ** ** ** 1984915 ** ** ** ** 3/7/2012 ** ** ** ** ** ** ** ** ** ** 1984916 ** ** ** ** 9/12/2012 ** ** ** ** ** ** ** ** ** ** 1984376 ** ** ** ** 10/22/2011 ** ** ** ** ** ** ** ** ** ** 2181315 ** ** ** ** 3/19/2014 ** ** ** ** ** ** ** ** ** ** 1984902 ** ** ** ** 2/10/2013 ** ** ** ** ** ** ** ** ** ** 1983626 ** ** ** ** 11/21/2013 ** ** ** ** ** ** ** ** ** ** 1984657 ** ** ** ** 11/30/2012 ** ** ** ** ** ** ** ** ** ** 1983162 ** ** ** ** 9/22/2013 ** ** ** ** ** ** ** ** ** ** 583001 Aortic Patch 2990255 ** ** ** ** 12/6/2015 ** ** ** ** ** ** ** ** ** ** 2990365 ** ** ** ** 12/30/2015 ** ** ** ** ** ** ** ** ** ** 2990079 ** ** ** ** 9/30/2015 ** ** ** ** ** ** ** ** ** ** 2990291 ** ** ** ** 12/14/2015 ** ** ** ** ** ** ** ** ** ** 2990350 ** ** ** ** 12/25/2015 ** ** ** ** ** ** ** ** ** ** 2989996 ** ** ** ** 12/21/2015 ** ** ** ** ** ** ** ** ** ** 2989878 ** ** ** ** 10/11/2015 ** ** ** ** ** ** ** ** ** **
RTI CARDIOVASCULAR - CURRENT INVENTORY IDT Product Code: (ALL) Tissue Type: (ALL) Blood Type: (ALL)
PROD LABEL CURRENT COMMISSION COMMISSION DONOR BLOOD TISSUE MEAS MEAS MEAS MEAS CODE DESCRIPTION ID LIST ABC RATE POTENTIAL EXPIRATION ID AGE TYPE RH TYPE QUALITY 1 2 3 4 - ------ ------------------ ------- ------- --- ---------- ---------- ---------- ----- --- ----- -- ------ ------- ---- ---- ---- ---- 2989902 ** ** ** ** 10/15/2015 ** ** ** ** ** ** ** ** ** ** 2990212 ** ** ** ** 11/27/2015 ** ** ** ** ** ** ** ** ** ** 2989674 ** ** ** ** 8/21/2015 ** ** ** ** ** ** ** ** ** ** 2990268 ** ** ** ** 12/9/2015 ** ** ** ** ** ** ** ** ** ** 2990331 ** ** ** ** 12/22/2015 ** ** ** ** ** ** ** ** ** ** 2989677 ** ** ** ** 8/22/2015 ** ** ** ** ** ** ** ** ** ** 2989959 ** ** ** ** 11/1/2015 ** ** ** ** ** ** ** ** ** ** 2990326 ** ** ** ** 12/21/2015 ** ** ** ** ** ** ** ** ** ** 2990198 ** ** ** ** 11/26/2015 ** ** ** ** ** ** ** ** ** ** 2989918 ** ** ** ** 10/19/2015 ** ** ** ** ** ** ** ** ** ** 2989926 ** ** ** ** 10/19/2015 ** ** ** ** ** ** ** ** ** ** 2989886 ** ** ** ** 10/12/2015 ** ** ** ** ** ** ** ** ** ** 2989888 ** ** ** ** 10/12/2015 ** ** ** ** ** ** ** ** ** ** 2990343 ** ** ** ** 12/23/2015 ** ** ** ** ** ** ** ** ** ** 2989935 ** ** ** ** 10/22/2015 ** ** ** ** ** ** ** ** ** ** 2990311 ** ** ** ** 12/18/2015 ** ** ** ** ** ** ** ** ** ** 2989847 ** ** ** ** 10/3/2015 ** ** ** ** ** ** ** ** ** ** 2990175 ** ** ** ** 11/21/2015 ** ** ** ** ** ** ** ** ** ** 2989922 ** ** ** ** 10/19/2015 ** ** ** ** ** ** ** ** ** ** 2989860 ** ** ** ** 10/7/2015 ** ** ** ** ** ** ** ** ** ** 2989955 ** ** ** ** 10/30/2015 ** ** ** ** ** ** ** ** ** ** 2990121 ** ** ** ** 10/30/2015 ** ** ** ** ** ** ** ** ** ** 2990442 ** ** ** ** 1/11/2016 ** ** ** ** ** ** ** ** ** ** 2990113 ** ** ** ** 10/28/2015 ** ** ** ** ** ** ** ** ** ** 2990070 ** ** ** ** 9/25/2015 ** ** ** ** ** ** ** ** ** ** 2990140 ** ** ** ** 11/9/2015 ** ** ** ** ** ** ** ** ** ** 2990308 ** ** ** ** 12/18/2015 ** ** ** ** ** ** ** ** ** ** 2990407 ** ** ** ** 1/4/2016 ** ** ** ** ** ** ** ** ** ** 2989640 ** ** ** ** 8/12/2015 ** ** ** ** ** ** ** ** ** ** 2990133 ** ** ** ** 11/7/2015 ** ** ** ** ** ** ** ** ** ** 2990072 ** ** ** ** 9/25/2015 ** ** ** ** ** ** ** ** ** ** 581502 VEINS - 17-29CM - B 3256746 ** ** ** ** 4/15/2016 ** ** ** ** ** ** ** ** ** ** 2476755 ** ** ** ** 12/3/2014 ** ** ** ** ** ** ** ** ** ** 2181293 ** ** ** ** 3/17/2014 ** ** ** ** ** ** ** ** ** ** 2476104 ** ** ** ** 10/14/2014 ** ** ** ** ** ** ** ** ** ** 3256313 ** ** ** ** 8/8/2016 ** ** ** ** ** ** ** ** ** ** 2479600 ** ** ** ** 8/13/2014 ** ** ** ** ** ** ** ** ** ** 2129835 ** ** ** ** 11/22/2013 ** ** ** ** ** ** ** ** ** ** 2476103 ** ** ** ** 10/14/2014 ** ** ** ** ** ** ** ** ** ** 2182442 ** ** ** ** 7/31/2014 ** ** ** ** ** ** ** ** ** ** 2478567 ** ** ** ** 2/3/2015 ** ** ** ** ** ** ** ** ** ** 3256027 ** ** ** ** 6/11/2016 ** ** ** ** ** ** ** ** ** ** 581604 VEINS - 30-49CM - O 2478844 ** ** ** ** 4/27/2015 ** ** ** ** ** ** ** ** ** ** 3256934 ** ** ** ** 5/26/2016 ** ** ** ** ** ** ** ** ** **
RTI CARDIOVASCULAR - CURRENT INVENTORY IDT Product Code: (ALL) Tissue Type: (ALL) Blood Type: (ALL)
PROD LABEL CURRENT COMMISSION COMMISSION DONOR BLOOD TISSUE MEAS MEAS MEAS MEAS CODE DESCRIPTION ID LIST ABC RATE POTENTIAL EXPIRATION ID AGE TYPE RH TYPE QUALITY 1 2 3 4 - ------ ------------------ ------- ------- --- ---------- ---------- ---------- ----- --- ----- -- ------ ------- ---- ---- ---- ---- 3257082 ** ** ** ** 9/28/2016 ** ** ** ** ** ** ** ** ** ** 3257144 ** ** ** ** 10/13/2016 ** ** ** ** ** ** ** ** ** ** 2990115 ** ** ** ** 10/28/2015 ** ** ** ** ** ** ** ** ** ** 2990262 ** ** ** ** 12/7/2015 ** ** ** ** ** ** ** ** ** ** 3256714 ** ** ** ** 4/9/2016 ** ** ** ** ** ** ** ** ** ** 3256069 ** ** ** ** 6/18/2016 ** ** ** ** ** ** ** ** ** ** 3257145 ** ** ** ** 10/13/2016 ** ** ** ** ** ** ** ** ** ** 3256814 ** ** ** ** 4/30/2016 ** ** ** ** ** ** ** ** ** ** 3256867 ** ** ** ** 5/14/2016 ** ** ** ** ** ** ** ** ** ** 3256854 ** ** ** ** 5/9/2016 ** ** ** ** ** ** ** ** ** ** 3256244 ** ** ** ** 7/25/2016 ** ** ** ** ** ** ** ** ** ** 581503 VEINS - 17-29CM - AB 3256694 ** ** ** ** 4/6/2016 ** ** ** ** ** ** ** ** ** ** 1985000 ** ** ** ** 3/28/2012 ** ** ** ** ** ** ** ** ** ** 2175590 ** ** ** ** 4/25/2014 ** ** ** ** ** ** ** ** ** ** 2476073 ** ** ** ** 10/2/2014 ** ** ** ** ** ** ** ** ** ** 1984022 ** ** ** ** 5/1/2013 ** ** ** ** ** ** ** ** ** ** 2476074 ** ** ** ** 10/2/2014 ** ** ** ** ** ** ** ** ** ** 2476567 ** ** ** ** 10/19/2014 ** ** ** ** ** ** ** ** ** ** 2476663 ** ** ** ** 11/5/2014 ** ** ** ** ** ** ** ** ** ** 1984393 ** ** ** ** 5/9/2013 ** ** ** ** ** ** ** ** ** ** 3256009 ** ** ** ** 6/9/2016 ** ** ** ** ** ** ** ** ** ** 3257053 ** ** ** ** 9/23/2016 ** ** ** ** ** ** ** ** ** ** 581504 VEINS - 17-29CM - O 3256829 ** ** ** ** 5/3/2016 ** ** ** ** ** ** ** ** ** ** 3256203 ** ** ** ** 7/19/2016 ** ** ** ** ** ** ** ** ** ** 3256052 ** ** ** ** 6/14/2016 ** ** ** ** ** ** ** ** ** ** 3256053 ** ** ** ** 6/14/2016 ** ** ** ** ** ** ** ** ** ** 3256265 ** ** ** ** 7/28/2016 ** ** ** ** ** ** ** ** ** ** 3256148 ** ** ** ** 7/7/2016 ** ** ** ** ** ** ** ** ** ** 3256837 ** ** ** ** 5/4/2016 ** ** ** ** ** ** ** ** ** ** 3256164 ** ** ** ** 7/11/2016 ** ** ** ** ** ** ** ** ** ** 3256352 ** ** ** ** 8/14/2016 ** ** ** ** ** ** ** ** ** ** 3256798 ** ** ** ** 4/24/2016 ** ** ** ** ** ** ** ** ** ** 3256199 ** ** ** ** 7/18/2016 ** ** ** ** ** ** ** ** ** ** 3256079 ** ** ** ** 6/20/2016 ** ** ** ** ** ** ** ** ** ** 3256067 ** ** ** ** 6/17/2016 ** ** ** ** ** ** ** ** ** ** 2479992 ** ** ** ** 10/6/2014 ** ** ** ** ** ** ** ** ** ** 3256291 ** ** ** ** 8/4/2016 ** ** ** ** ** ** ** ** ** ** 3256296 ** ** ** ** 8/6/2016 ** ** ** ** ** ** ** ** ** ** 3256853 ** ** ** ** 5/9/2016 ** ** ** ** ** ** ** ** ** ** 3256321 ** ** ** ** 8/9/2016 ** ** ** ** ** ** ** ** ** ** 3256838 ** ** ** ** 5/4/2016 ** ** ** ** ** ** ** ** ** ** 3256445 ** ** ** ** 9/2/2016 ** ** ** ** ** ** ** ** ** ** 3256851 ** ** ** ** 5/9/2016 ** ** ** ** ** ** ** ** ** ** 581402 VEINS - <17CM - B 2479862 ** ** ** ** 9/10/2014 ** ** ** ** ** ** ** ** ** **
RTI CARDIOVASCULAR - CURRENT INVENTORY IDT Product Code: (ALL) Tissue Type: (ALL) Blood Type: (ALL)
PROD LABEL CURRENT COMMISSION COMMISSION DONOR BLOOD TISSUE MEAS MEAS MEAS MEAS CODE DESCRIPTION ID LIST ABC RATE POTENTIAL EXPIRATION ID AGE TYPE RH TYPE QUALITY 1 2 3 4 - ------ ------------------ ------- ------- --- ---------- ---------- ---------- ----- --- ----- -- ------ ------- ---- ---- ---- ---- 1983188 ** ** ** ** 10/31/2013 ** ** ** ** ** ** ** ** ** ** 1983187 ** ** ** ** 9/23/2013 ** ** ** ** ** ** ** ** ** ** 581023 AORTIC VALVES - 23MM to 34MM 2990410 ** ** ** ** 1/5/2016 ** ** ** ** ** ** ** ** ** ** 2990313 ** ** ** ** 12/19/2015 ** ** ** ** ** ** ** ** ** ** 2480873 ** ** ** ** 2/3/2016 ** ** ** ** ** ** ** ** ** ** 2480885 ** ** ** ** 2/4/2016 ** ** ** ** ** ** ** ** ** ** 3256450 ** ** ** ** 9/3/2016 ** ** ** ** ** ** ** ** ** ** 3256820 ** ** ** ** 5/2/2016 ** ** ** ** ** ** ** ** ** ** 2476382 ** ** ** ** 11/30/2014 ** ** ** ** ** ** ** ** ** ** 3256161 ** ** ** ** 7/11/2016 ** ** ** ** ** ** ** ** ** ** 3256407 ** ** ** ** 8/23/2016 ** ** ** ** ** ** ** ** ** ** 581702 VEINS - 50-68 CM - B 3257048 ** ** ** ** 9/23/2016 ** ** ** ** ** ** ** ** ** ** 584100 FEMORAL ARTERIES - ALL 1984784 ** ** ** ** 8/24/2012 ** ** ** ** ** ** ** ** ** ** 581603 VEINS - 30-49CM - AB 3256913 ** ** ** ** 5/23/2016 ** ** ** ** ** ** ** ** ** ** 584001 FEMORAL VEINS - ALL 1984987 ** ** ** ** 9/17/2013 ** ** ** ** ** ** ** ** ** ** 1984893 ** ** ** ** 11/19/2012 ** ** ** ** ** ** ** ** ** ** 1984894 ** ** ** ** 11/19/2012 ** ** ** ** ** ** ** ** ** ** 1984832 ** ** ** ** 11/2/2012 ** ** ** ** ** ** ** ** ** ** 1984510 ** ** ** ** 10/4/2012 ** ** ** ** ** ** ** ** ** ** 1984843 ** ** ** ** 11/23/2012 ** ** ** ** ** ** ** ** ** ** 1984852 ** ** ** ** 11/9/2012 ** ** ** ** ** ** ** ** ** ** 1984892 ** ** ** ** 11/4/2012 ** ** ** ** ** ** ** ** ** ** 1984897 ** ** ** ** 11/3/2012 ** ** ** ** ** ** ** ** ** ** 581401 VEINS - <17CM - A 2182329 ** ** ** ** 7/19/2014 ** ** ** ** ** ** ** ** ** ** 1983079 ** ** ** ** 9/20/2013 ** ** ** ** ** ** ** ** ** ** 1983551 ** ** ** ** 7/7/2013 ** ** ** ** ** ** ** ** ** ** 1984614 ** ** ** ** 3/9/2013 ** ** ** ** ** ** ** ** ** ** 582022 PULMONIC VALVES - 22MM to 25MM 2476116 ** ** ** ** 10/15/2014 ** ** ** ** ** ** ** ** ** ** 3257278 ** ** ** ** 11/14/2016 ** ** ** ** ** ** ** ** ** ** 581602 VEINS - 30-49 CM - B 3256166 ** ** ** ** 7/11/2016 ** ** ** ** ** ** ** ** ** ** ** **
RTI CV TIP Inventory
DONOR LABEL CURRENT COMM COMM TISSUE BLOOD ID ID PRODCODE LIST ABC RATE POTENTIAL TYPE TYPE MEAS1 UNIT1 MEAS2 UNIT2 MEAS3 UNIT3 MEAS4 UNIT4 - ----- ------- -------- ------- --- ---- --------- ------ ----- ----- ----- ----- ----- ----- ----- ----- ----- ** 3257032 580000 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2476773 580007 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257102 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257103 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256127 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256128 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257002 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256399 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256044 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257178 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256179 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256826 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256825 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256137 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256277 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257246 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257143 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256107 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256229 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256110 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256468 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257124 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256731 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256730 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256733 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257075 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256466 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256434 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257074 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256433 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256819 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256099 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257107 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257106 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257251 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2479997 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2479996 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257240 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257235 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257227 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256424 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** **
RTI CV TIP Inventory
DONOR LABEL CURRENT COMM COMM TISSUE BLOOD ID ID PRODCODE LIST ABC RATE POTENTIAL TYPE TYPE MEAS1 UNIT1 MEAS2 UNIT2 MEAS3 UNIT3 MEAS4 UNIT4 - ----- ------- -------- ------- --- ---- --------- ------ ----- ----- ----- ----- ----- ----- ----- ----- ----- ** 3256493 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256316 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257131 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257031 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257007 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256374 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256375 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256007 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257043 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256405 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256415 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257169 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256437 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257216 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256339 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256340 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256500 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257194 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257003 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257004 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256430 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256698 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256235 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256280 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256281 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256200 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256025 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256026 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257040 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256404 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256228 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257159 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257158 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257163 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2476495 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2479772 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2477506 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2476583 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2476584 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2479568 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2479771 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** **
RTI CV TIP Inventory
DONOR LABEL CURRENT COMM COMM TISSUE BLOOD ID ID PRODCODE LIST ABC RATE POTENTIAL TYPE TYPE MEAS1 UNIT1 MEAS2 UNIT2 MEAS3 UNIT3 MEAS4 UNIT4 - ----- ------- -------- ------- --- ---- --------- ------ ----- ----- ----- ----- ----- ----- ----- ----- ----- ** 2476826 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2479569 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257130 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257129 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257098 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257042 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257041 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257199 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256447 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256812 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257140 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257117 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256333 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256097 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256043 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256378 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257242 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257161 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257253 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257087 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257088 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256336 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256337 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257187 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256436 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256184 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256034 580101 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256351 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256380 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256196 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257264 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256440 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256932 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256397 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256257 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256194 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256045 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257177 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256178 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257070 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256712 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** **
RTI CV TIP Inventory
DONOR LABEL CURRENT COMM COMM TISSUE BLOOD ID ID PRODCODE LIST ABC RATE POTENTIAL TYPE TYPE MEAS1 UNIT1 MEAS2 UNIT2 MEAS3 UNIT3 MEAS4 UNIT4 - ----- ------- -------- ------- --- ---- --------- ------ ----- ----- ----- ----- ----- ----- ----- ----- ----- ** 3256418 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257142 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256109 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256469 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257283 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257123 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256732 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256984 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256467 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256818 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256429 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257149 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257337 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257345 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257349 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257234 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257303 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256301 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256302 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257299 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257300 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257172 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256211 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256406 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256300 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256885 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257168 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256802 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257307 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256395 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257170 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257217 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256394 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257038 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257296 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257334 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2990490 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256923 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256922 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256130 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256499 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** **
RTI CV TIP Inventory
DONOR LABEL CURRENT COMM COMM TISSUE BLOOD ID ID PRODCODE LIST ABC RATE POTENTIAL TYPE TYPE MEAS1 UNIT1 MEAS2 UNIT2 MEAS3 UNIT3 MEAS4 UNIT4 - ----- ------- -------- ------- --- ---- --------- ------ ----- ----- ----- ----- ----- ----- ----- ----- ----- ** 3256697 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257276 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256042 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2477636 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256125 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257326 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257039 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257348 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257171 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256227 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256206 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257274 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257324 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257261 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2476890 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2476587 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2476891 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2182106 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2181435 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2476825 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256454 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257146 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256898 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256899 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257220 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256813 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257097 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256456 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257128 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257160 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256186 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257252 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257006 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257255 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257198 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2989515 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256129 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257319 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256183 580102 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2480929 580103 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256195 580103 ** ** ** ** ** ** ** ** ** ** ** ** ** **
RTI CV TIP Inventory
DONOR LABEL CURRENT COMM COMM TISSUE BLOOD ID ID PRODCODE LIST ABC RATE POTENTIAL TYPE TYPE MEAS1 UNIT1 MEAS2 UNIT2 MEAS3 UNIT3 MEAS4 UNIT4 - ----- ------- -------- ------- --- ---- --------- ------ ----- ----- ----- ----- ----- ----- ----- ----- ----- ** 3256439 580103 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257152 580103 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257150 580103 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257281 580103 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2480910 580103 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2480909 580103 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256886 580103 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256438 580103 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256477 580103 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257268 580103 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2989538 580103 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256041 580103 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2480861 580103 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257010 580103 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2480860 580103 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257325 580103 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257164 580103 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2477514 580103 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257219 580103 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2990304 580103 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256379 580103 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2990184 580103 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256435 580104 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257100 580104 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257101 580104 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257310 581006 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2477632 581006 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257200 581006 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2175685 581006 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2479865 581006 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257015 581006 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257046 581006 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256061 581011 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256487 581011 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2478699 581011 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257203 581011 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257329 581011 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257317 581011 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257279 581011 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256090 581011 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256416 581011 ** ** ** ** ** ** ** ** ** ** ** ** ** **
RTI CV TIP Inventory
DONOR LABEL CURRENT COMM COMM TISSUE BLOOD ID ID PRODCODE LIST ABC RATE POTENTIAL TYPE TYPE MEAS1 UNIT1 MEAS2 UNIT2 MEAS3 UNIT3 MEAS4 UNIT4 - ----- ------- -------- ------- --- ---- --------- ------ ----- ----- ----- ----- ----- ----- ----- ----- ----- ** 2479845 581011 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2476884 581011 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2183437 581011 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2476547 581011 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2476089 581011 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2476467 581011 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2476465 581011 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2175711 581011 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257322 581011 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257089 581016 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256376 581016 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256189 581016 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256278 581016 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257346 581016 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256271 581016 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2476613 581016 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2476038 581016 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257213 581018 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256495 581018 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256462 581018 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257076 581018 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256941 581018 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256233 581018 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2477695 581018 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2476946 581018 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2990302 581018 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256720 581018 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256306 581018 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256224 581018 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256219 581018 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256497 581018 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257221 581018 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257206 581018 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256910 581018 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256481 581018 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2476139 581018 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2476543 581018 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2476585 581018 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256464 581018 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257237 581018 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256460 581018 ** ** ** ** ** ** ** ** ** ** ** ** ** **
RTI CV TIP Inventory
DONOR LABEL CURRENT COMM COMM TISSUE BLOOD ID ID PRODCODE LIST ABC RATE POTENTIAL TYPE TYPE MEAS1 UNIT1 MEAS2 UNIT2 MEAS3 UNIT3 MEAS4 UNIT4 - ----- ------- -------- ------- --- ---- --------- ------ ----- ----- ----- ----- ----- ----- ----- ----- ----- ** 2990263 581018 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256690 581018 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256368 581021 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256358 581021 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257288 581021 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256822 581021 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257272 581021 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256474 581021 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256402 581021 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2476147 581021 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256457 581021 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257126 581021 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256881 581021 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257301 581023 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257114 581023 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257320 581023 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2477532 581023 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2478656 581023 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256201 581023 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256975 581023 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256492 581023 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256478 581023 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257312 581023 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2990417 581023 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256974 581023 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2476444 581023 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2477512 581023 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256032 581023 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256472 581501 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256285 581502 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257197 581504 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256878 581504 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257260 581601 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257229 581601 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257230 581601 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257245 581602 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256286 581602 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256062 582006 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257263 582006 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256463 582006 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256488 582006 ** ** ** ** ** ** ** ** ** ** ** ** ** **
RTI CV TIP Inventory
DONOR LABEL CURRENT COMM COMM TISSUE BLOOD ID ID PRODCODE LIST ABC RATE POTENTIAL TYPE TYPE MEAS1 UNIT1 MEAS2 UNIT2 MEAS3 UNIT3 MEAS4 UNIT4 - ----- ------- -------- ------- --- ---- --------- ------ ----- ----- ----- ----- ----- ----- ----- ----- ----- ** 3257311 582006 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2480912 582006 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2478700 582006 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2477633 582006 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257228 582006 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256377 582006 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257201 582006 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257033 582006 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256190 582006 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257071 582006 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257286 582006 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257318 582006 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256091 582006 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257280 582006 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256417 582006 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2476548 582006 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2183438 582006 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2479846 582006 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2476466 582006 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2476039 582006 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2476885 582006 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2479866 582006 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2175712 582006 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2175686 582006 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2476090 582006 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257323 582006 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257016 582006 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256461 582006 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2477696 582020 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2990303 582020 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257243 582020 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257205 582020 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257247 582020 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257347 582020 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256272 582020 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257092 582020 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2990264 582020 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257214 582022 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256496 582022 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257316 582022 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256369 582022 ** ** ** ** ** ** ** ** ** ** ** ** ** **
RTI CV TIP Inventory
DONOR LABEL CURRENT COMM COMM TISSUE BLOOD ID ID PRODCODE LIST ABC RATE POTENTIAL TYPE TYPE MEAS1 UNIT1 MEAS2 UNIT2 MEAS3 UNIT3 MEAS4 UNIT4 - ----- ------- -------- ------- --- ---- --------- ------ ----- ----- ----- ----- ----- ----- ----- ----- ----- ** 3257335 582022 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257202 582022 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257294 582022 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257122 582022 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256234 582022 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257289 582022 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2476947 582022 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256721 582022 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256225 582022 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2478851 582022 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256616 582022 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256307 582022 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256498 582022 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256172 582022 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257056 582022 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256070 582022 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257222 582022 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257035 582022 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257207 582022 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256911 582022 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257273 582022 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257244 582022 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256403 582022 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3225598 582022 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2476140 582022 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2180962 582022 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2476544 582022 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2476148 582022 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2476586 582022 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257045 582022 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256480 582022 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257306 582022 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256131 582022 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2990278 582022 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256882 582022 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256033 582022 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2477517 582026 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256202 582026 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2478657 582026 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256976 582026 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257277 582026 ** ** ** ** ** ** ** ** ** ** ** ** ** **
RTI CV TIP Inventory
DONOR LABEL CURRENT COMM COMM TISSUE BLOOD ID ID PRODCODE LIST ABC RATE POTENTIAL TYPE TYPE MEAS1 UNIT1 MEAS2 UNIT2 MEAS3 UNIT3 MEAS4 UNIT4 - ----- ------- -------- ------- --- ---- --------- ------ ----- ----- ----- ----- ----- ----- ----- ----- ----- ** 2476961 582026 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257147 582026 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256465 582026 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2477602 583000 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2477619 583000 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2477533 583000 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2476290 583000 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2477513 583000 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2476499 583000 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2476623 583000 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2476289 583000 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2476445 583000 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2476935 583000 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257215 583002 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256357 583002 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257078 583002 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256298 583002 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257341 583002 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257339 583002 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257266 583002 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257157 583002 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256471 583003 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257342 583003 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257115 583003 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256356 583003 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257196 583003 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257284 583003 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257293 583003 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257291 583003 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256359 583003 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257239 583003 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256299 583003 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256942 583003 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257321 583003 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257090 583003 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257340 583003 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257350 583003 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257308 583003 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257285 583003 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257295 583003 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257085 583003 ** ** ** ** ** ** ** ** ** ** ** ** ** **
RTI CV TIP Inventory
DONOR LABEL CURRENT COMM COMM TISSUE BLOOD ID ID PRODCODE LIST ABC RATE POTENTIAL TYPE TYPE MEAS1 UNIT1 MEAS2 UNIT2 MEAS3 UNIT3 MEAS4 UNIT4 - ----- ------- -------- ------- --- ---- --------- ------ ----- ----- ----- ----- ----- ----- ----- ----- ----- ** 3257256 583003 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257344 583003 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256823 583003 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257012 583003 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257314 583003 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256390 583003 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256152 583003 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256479 583003 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257338 583003 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257343 583003 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257332 583003 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257162 583003 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256907 583003 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257297 583003 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257271 583003 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257298 583003 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257275 583003 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257211 583003 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257309 583003 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257060 583003 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256279 583003 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257265 583003 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256475 583003 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256216 583003 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257125 583003 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257005 583003 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256482 583003 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257116 583003 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257257 583003 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257156 583003 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256455 583003 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256476 583003 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257238 583003 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256458 583003 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256483 583003 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257127 583003 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256473 583003 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256182 583003 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257328 584000 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257331 584000 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257226 584000 ** ** ** ** ** ** ** ** ** ** ** ** ** **
RTI CV TIP Inventory
DONOR LABEL CURRENT COMM COMM TISSUE BLOOD ID ID PRODCODE LIST ABC RATE POTENTIAL TYPE TYPE MEAS1 UNIT1 MEAS2 UNIT2 MEAS3 UNIT3 MEAS4 UNIT4 - ----- ------- -------- ------- --- ---- --------- ------ ----- ----- ----- ----- ----- ----- ----- ----- ----- ** 3257141 584000 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257270 584000 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257327 584000 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2990463 584000 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257204 584000 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257184 584000 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257267 584000 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 2990418 584000 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257304 584000 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257282 584000 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257292 584000 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257315 584000 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257241 584000 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257254 584000 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257313 584010 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257249 584010 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257290 584011 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257077 584011 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257302 584011 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257305 584011 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257258 584011 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257333 584012 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257259 584020 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257336 585000 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3256486 585000 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 3257195 585000 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** Total Donors: 377 Total Labels: 582
EX-21 6 c13073exv21.txt SUBSIDIARIES Exhibit 21 ATS MEDICAL, INC. LIST OF SUBSIDIARIES ATS Medical Sales, Inc., a Minnesota corporation (merged into ATS Medical, Inc. on December 31, 2005) ATS Medical France, SARL, a French corporation ATS Medical Gmbh, a German corporation ATS Medical Export Gmbh, an Austrian corporation (Incorporated in June, 2006) 3F Therapeutics, Inc., a California corporation (acquired by ATS Medical, Inc. on September 29, 2006) 1 EX-23.1 7 c13073exv23w1.txt CONSENT Exhibit 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We have issued our reports dated March 13, 2007, accompanying the consolidated financial statements and schedule and management's assessment of the effectiveness of internal control over financial reporting included in the Annual Report of ATS Medical, Inc. on Form 10-K for the year ended December 31, 2006. We hereby consent to the incorporation by reference of said reports in the Registration Statements of ATS Medical, Inc. on Forms S-8 (File Nos. 333-55154, 333-49985, 333-49985, 333-125795, 333-117332, and 333-138147) and on Form S-4 (File No. 333-133341) and Forms S-3 (File Nos. 333-108150, 333-43360, 333-39288, 113-117331, and 333-129521). /s/ GRANT THORNTON LLP Minneapolis, Minnesota March 13, 2007 EX-23.2 8 c13073exv23w2.txt CONSENT OF ERNST & YOUNG LLP Exhibit 23.2 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in the following Registration Statements of ATS Medical, Inc. (the "Company") and each related Prospectus of our report dated March 6, 2006, except for Note 7, as to which the date is July, 13, 2006, with respect to the consolidated financial statements and schedule of the Company included in the Annual Report (Form 10-K) for the year ended December 31, 2006. FORM DESCRIPTION Form S-8 2000 Stock Incentive Plan (No. 333-55154) Form S-8 1998 Employee Stock Purchase Plan (No. 333-49985) Form S-8 1987 Stock Option and Stock Award Plan of ATS Medical, Inc. (formerly Helix Biocore, Inc.) (No. 33-44940 and 333-49985) Form S-3 Registration Statement pertaining to 4,400,000 shares of ATS Medical, Inc. (No. 333-108150) Form S-3 Registration Statement pertaining to 2,727,273 shares of ATS Medical, Inc. common stock (No. 333-43360) Form S-3 Registration Statement pertaining to 1,100,000 shares of ATS Medical, Inc. common stock (No. 333-39288) Form S-3 Registration Statement pertaining to 3,687,183 shares of ATS Medical, Inc. common stock (No. 113-117331) Form S-3 Registration Statement pertaining to $22,400,000 6% Convertible Senior Notes due 2025, warrants to purchase 1,344,000 shares of its common stock and 7,011,200 shares of its common stock issuable upon conversion of the Notes and cash exercise of the warrants (No. 333-129521) Form S-8 Registration Statement pertaining to 2,113,000 shares of ATS Medical, Inc. common stock (No. 333-125795) Form S-8 Registration Statement pertaining to 1,516,000 options (No. 333-117332) Form S-4 Registration Statement pertaining to 19,000,000 shares of ATS Medical, Inc. common stock (No. 333-133341) /s/ ERNST & YOUNG LLP Minneapolis, Minnesota March 13, 2007 EX-31.1 9 c13073exv31w1.txt CERTIFICATION Exhibit 31.1 CERTIFICATION I, Michael D. Dale, certify that: 1. I have reviewed this Annual Report on Form 10-K of ATS Medical, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation, and d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected or is reasonably likely to materially affect the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors; a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 15, 2007 /s/ Michael D. Dale - ------------------------------------- Name: Michael D. Dale Title: Chief Executive Officer EX-31.2 10 c13073exv31w2.txt CERTIFICATION Exhibit 31.2 CERTIFICATION I, Michael R. Kramer, certify that: 1. I have reviewed this Annual Report on Form 10-K of ATS Medical, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation, and d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected or is reasonably likely to materially affect the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors; a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 15, 2007 /s/ Michael R. Kramer - ------------------------------------- Name: Michael R. Kramer Title: Acting Chief Financial Officer EX-32.1 11 c13073exv32w1.txt CERTIFICATION Exhibit 32.1 CERTIFICATION I, Michael D. Dale, Chief Executive Officer of ATS Medical, Inc. (the Company), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that: The Annual Report on Form 10-K of the Company for the year ended December 31, 2006 (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: March 15, 2007 /s/ Michael D. Dale - ------------------------------------- Name: Michael D. Dale Title: Chief Executive Officer EX-32.2 12 c13073exv32w2.txt CERTIFICATION Exhibit 32.2 CERTIFICATION I, Michael R. Kramer, Acting Chief Financial Officer of ATS Medical, Inc. (the Company), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that: The Annual Report on Form 10-K of the Company for the year ended December 31, 2006 (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: March 15, 2007 /s/ Michael R. Kramer - ------------------------------------- Name: Michael R. Kramer Title: Acting Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----