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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended October 31, 2003
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ___ to ____
Commission file number: 0-13907
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SYNOVIS LIFE TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
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Minnesota 41-1526554
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(State of Incorporation) (I.R.S. Employer Identification No.)
2575 UNIVERSITY AVENUE W., ST. PAUL, MINNESOTA 55114-1024
(Address of principal executive offices)
TELEPHONE NUMBER: (651) 603-3700
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
Common Stock Purchase Rights
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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 an accelerated filer (as
defined in Rule 26-2 of the Act). Yes [X] No [ ]
As of April 30, 2003, 9,737,400 shares of Common Stock of the Registrant were
outstanding, and the aggregate market value of the Registrant's outstanding
Common Stock (based upon the last reported sale price of the Common Stock on
that date by the Nasdaq National Market), excluding shares owned beneficially by
executive officers and directors, was approximately $132,457,596.
Parts I and II of this Annual Report on Form 10-K incorporate by reference
information (to the extent specific sections are referred to herein) from the
Registrant's Annual Report to Shareholders for the fiscal year ended October 31,
2003 (the "2003 Annual Report"). Part III of this Annual Report on Form 10-K
incorporates by reference (to the extent specific sections are referred to
herein) information from the Registrant's Proxy Statement for its Annual Meeting
of Shareholders to be held February 24, 2004 (the "2004 Proxy Statement").
REGISTERED PATENTS AND TRADEMARKS:
APEX Processing(TM), Peri-Strips(R), Peri-Strips Dry(R), PSD Gel(TM),
Dura-Guard(R), Vascu-Guard(R), Supple Peri-Guard(R), Peri-Guard(R), CV
Peri-Guard(R), Biograft(R), Flo-Rester(R), Vascular Probe, Flo-Thru Intraluminal
Shunt(TM), Veritas(R) and Synovis(TM) are trademarks of the Company.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Annual Report on Form 10-K are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. For this purpose, any statements contained in
this Form 10-K that are not statements of historical fact may be deemed to be
forward-looking statements. Without limiting the foregoing, words such as "may",
"will", "expect", "believe", "anticipate", "estimate" or "continue" or the
negative or other variations thereof or comparable terminology are intended to
identify forward-looking statements. All forward-looking statements in this
document are based on information available to the Company as of the date
hereof, and the Company assumes no obligation to update any forward-looking
statements. Such statements involve known and unknown risks uncertainties and
other factors which may cause the actual results to differ materially from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors may include, among others, those
factors set forth under the heading "Important Factors" on page 10.
PART I
ITEM 1 - BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
INTRODUCTION
Synovis Life Technologies, Inc., a diversified medical device company, develops,
manufactures and markets products for the surgical and interventional treatment
of disease. Our business is conducted in two reportable segments, the surgical
business and the interventional business, with segmentation based upon the
similarities of the underlying business operations, products and markets of
each.
Our surgical business develops, manufactures and markets implantable biomaterial
products, devices for microsurgery and surgical tools, all designed to reduce
risk and/or facilitate critical surgeries, leading to better patient outcomes
and lower costs.
Our interventional business provides development, engineering, rapid prototyping
and manufacturing of coils, helices, stylets, guidewires and other complex
micro-wire, polymer and machined components used in interventional devices for
cardiac rhythm management, neurostimulation and vascular procedures.
HISTORY
Synovis Life Technologies, Inc., formerly named Bio-Vascular, Inc., was
incorporated in July of 1985. In 1985, the Company was spun-off to the
shareholders of its then parent company, thereafter operating as a separate
public company. In the spin-off, the Company acquired the rights to certain
cardiovascular products. Only two of these products, Peri-Guard and Flo-Rester,
remain today.
In July 1998, we completed the acquisition of Jer-Neen Manufacturing Co., Inc.,
and subsequently changed Jer-Neen's name to Synovis Interventional Solutions,
Inc. in 2001. This business provides services in development, engineering, rapid
prototyping and manufacturing of complex micro-wire forms used in interventional
devices for cardiac rhythm management, neurostimulation and vascular procedures.
In July 2001, we acquired Micro Companies Alliance, Inc. ("MCA") a Birmingham,
Alabama company which provides products to the niche market of microsurgery.
MCA's surgical products include the Microvascular
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Anastomotic Coupler, a patented technology for connecting small arteries and/or
veins faster, easier and as effectively as conventional suturing. MCA's name was
subsequently changed to Synovis Micro Companies Alliance, Inc.
In March 2002, Synovis Interventional Solutions, Inc. acquired Emtech, Inc., a
privately held company with manufacturing capabilities in injection molding,
computer numerical control machining and tool building. Subsequently, the
Company expanded the capabilities of this business to include swiss-screw
machining, which serves the medical device, pharmaceutical, biotechnology, and
precision OEM markets. Emtech, Inc.'s name was subsequently changed to Synovis
Precision Engineering, a division of Synovis Interventional Solutions, Inc.
In April 2003, the newly formed Synovis Caribe, Inc., a wholly owned subsidiary
of Synovis Interventional Solutions, Inc., commenced operations in Dorado,
Puerto Rico at a leased 22,700 square foot manufacturing facility. The new
facility is designed to increase the manufacturing capacity of our
interventional business and strategically position the Company to capture new
business.
In September 2003, we completed a $39,000,000 private placement of 1,500,000
shares of our common stock to institutional and other accredited investors. Net
proceeds were approximately $36,500,000 after deducting closing costs and
related placement fees. A registration statement covering resales of the shares
sold in the placement was declared effective by the Securities and Exchange
Commission on October 9, 2003.
Synovis Life Technologies' principal executive offices are located at 2575
University Avenue W., St. Paul, Minnesota 55114-1024. The Company can be
contacted by telephone at (651) 603-3700, by facsimile at (651) 642-9018, or by
electronic mail at [email protected]. The Company's website is
www.synovislife.com. We make available free of charge on our website our annual
report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K, and amendments to those reports filed or furnished pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably
practicable after filing such material with, or furnishing it to the Securities
and Exchange Commission.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The information under the caption "Segment Information" on page 28 of our 2003
Annual Report is incorporated herein by reference.
(c) NARRATIVE DESCRIPTION OF BUSINESS
The table below summarizes the revenue contributed by our significant products
or product lines for the periods indicated.
Years Ended October 31,
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2003 2002 2001
($ in thousands) ---------------- --------------- ---------------
NET REVENUE:
Biomaterial Products
Peri-Strips and Peri-Strips Dry.................. $ 11,722 20% $ 7,237 18% $ 5,266 18%
Other Biomaterial Products....................... 8,135 14% 6,783 17% 6,257 22%
Surgical Tools and Microsurgical Products............. 4,527 8% 4,461 11% 3,381 12%
Other................................................. 1,239 2% 1,065 3% 833 3%
-------- -- ------- -- ------- --
Total Surgical Business............................... 25,623 44% 19,546 49% 15,737 55%
Coils and Helices..................................... 18,122 31% 10,888 27% 6,286 22%
Stylets and Other Wireforms........................... 10,204 18% 6,617 17% 5,190 18%
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Guidewires............................................ 4,040 7% 2,911 7% 1,322 5%
-------- --- ------- --- ------- ---
Total Interventional Business......................... 32,366 56% 20,416 51% 12,798 45%
Total Net Revenue......................... $ 57,989 100% $39,962 100% $28,535 100%
======== === ======= === ======= ===
PRODUCTS, MARKETS AND COMPETITION
Description of the Surgical Business
The surgical business develops, manufactures and markets implantable biomaterial
products, devices for microsurgery and surgical tools, all designed to reduce
risk and/or facilitate critical surgeries, leading to better patient outcomes
and lower costs. These products are sold by third party distributors and
independent sales representatives to surgeons and hospitals under the Synovis
brand name.
Biomaterial Product Line
The development and manufacture of implantable biomaterial products for use by
surgeons in various procedures where reinforcing, reconstructing and repairing
tissue and preventing leaks of air, blood or other body fluids is necessary for
the achievement of a favorable outcome is a core competency of the surgical
business. The historical choice when tissue repair is necessary has been to use
autologous tissues, requiring the surgeon to excise tissue from another part of
the patient's body. Harvesting tissue from the second surgical site may increase
the procedural cost and time and increase the risk of complications, leading to
additional pain and recovery time for the patient. Use of an available,
off-the-shelf implantable medical product, whether tissue-based or synthetic, is
an alternative to harvesting autologous tissue from the patient and is a means
to reduce surgical costs and improve patient outcomes.
Our biomaterial products are produced from bovine pericardium. Many of the
product characteristics and competitive advantages are derived from the
pericardium's collagen composition. Collagen, a fibrous protein found in
animals, makes the pericardium durable and provides superior handling
characteristics, similar to autologous tissue. Host cells deposit a collagen
matrix on the surface of the pericardial product allowing the biomaterial
product to integrate into the host tissue. The bovine pericardium is processed
using proprietary and patented technologies.
Peri-Strips. More than half of our biomaterial sales are derived from
Peri-Strips and Peri-Strips Dry (collectively Peri-Strips), soft tissue stapling
buttresses which are used as reinforcement at the surgical staple line to reduce
the risk of potentially fatal fluid leaks, most significantly in gastric bypass
surgery, a treatment for morbid obesity and in lung volume reduction surgery
("LVRS"), a treatment for a segment of the late stage emphysema patient
population. By 2004, the number of gastric procedures performed in the United
States is expected to reach 110,000 to 150,000, up from an estimated 80,000
procedures performed in 2003. This, along with the trend toward laparoscopic
procedures, could expand the United States gastric bypass market potential for
staple line buttresses to an estimated $50 million annually. In August of 2003,
the Center of Medicare and Medicaid Services ("CMS") announced its intent to
cover LVRS following the outcome of a study that spanned seven years.
Peri-Strips have been used in this procedure since 1994, but revenue from
Peri-Strips usage in LVRS declined substantially after Medicare made a national
non-coverage decision related to the surgery effective January 1996. In fiscal
1995, the only full year of reimbursement for the surgery, Peri-Strips revenue
from this procedure reached $5,550,000. We have continued to derive Peri-Strips
revenue from LVRS following the national non-coverage decision, but revenue
declined each year until surgeons began using the product in gastric bypass. We
expect increased revenue from Peri-Strips as a result of the CMS decision,
although the amount and timing of such revenue will be impacted by the coverage
implementation date, the frequency with which the procedure is performed, and
the extent to which Peri-Strips are utilized in such procedures.
Other Biomaterials. Our other biomaterials product group includes Tissue-Guard
and Veritas. Our Tissue-Guard product line is composed of biomaterial products
used to repair and replace damaged tissue in cardiac, vascular, thoracic and
abdominal surgeries and to repair the membrane covering the brain following
neurosurgery. Tissue-Guard products accounted for 30% of our surgical business'
revenue for fiscal 2003 compared to 35% during fiscal 2002.
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In 2001, we introduced a new tissue format, Veritas Collagen Matrix. Veritas
products are biocompatible, acellular, strong, handle like autologous tissue and
are derived from bovine pericardium. Veritas tissue is remodelable, as
demonstrated in animal studies with the formation of new blood vessels and host
cell in-growth occurring into the Veritas patch in as early as 28 days. FDA
market clearance was received for Veritas products in pelvic floor
reconstruction procedures, stress urinary incontinence treatment (using the
product as a "sling" to support the urethra) and vaginal and rectal prolapse
repair. These products have also received market clearance for soft tissue
repair.
Surgical Tools and Microsurgical Products
In addition to its biomaterial product line, our surgical business offers
surgical tools designed to enhance productivity in a variety of cardiovascular
and other surgical procedures. The surgical tool which the Company believes to
have the greatest potential is the Microvascular Anastomotic Coupler (the
"Coupler"), a patented mechanical anastomotic product comprised of a pair of
implantable, single-use rings and pins combination. The Coupler is available in
five sizes, ranging from 1mm to 3mm in diameter, to fit varying vessel
diameters. The Coupler enables microsurgeons in numerous surgical specialties,
including plastic and reconstructive, head and neck, orthopedic and hand, to
perform highly effective anastomotic surgical procedures (the connecting of
miniscule veins and arteries) faster, more easily and as or more dependably than
traditional suture or sleeve anastomosis. The current device is used primarily
in veins.
Competition
Our surgical devices compete primarily on the basis of product performance and
service. The surgical markets in which we compete are characterized by intense
competition. This market is dominated by very large, established manufacturers
that have broader product lines, greater distribution capabilities,
substantially greater capital resources and larger marketing, research and
development staffs and facilities than we have. Many of these competitors offer
broader product lines within our specific product market, particularly in our
surgical tool markets and/or in the general field of medical devices and
supplies. Broad product lines give many of our competitors the ability to
negotiate exclusive, long-term medical device supply contracts and,
consequently, the ability to offer comprehensive pricing for their products,
including those that compete with our products. By offering a broader product
line in the general field of medical devices and supplies, competitors may also
have an advantage in marketing competing products to group purchasing
organizations, health maintenance organizations and other managed care
organizations that increasingly seek to reduce costs by centralizing and
consolidating their purchasing functions.
Competition with our biomaterial products are primarily from synthetic
materials, other biological tissues and cadaveric tissue. The ability of these
alternative products to compete with biomaterial products varies based on each
such product's indication for use, relative feature benefits and surgical
preference. There can be no assurance that competing products will not achieve
greater acceptance or that future products developed by competitors will not
offer similar or enhanced performance advantages relative to the biomaterial
products.
Synthetic materials are generally cheaper to produce and to the extent that
comparable synthetic materials are available and effective in surgical
procedures, we face significant price competition for our biomaterial products.
There are other multi-purpose patches made from bovine and other types of animal
tissue that compete with our products. We do not believe that these alternative
bovine pericardium products have specific FDA marketing clearance for all
surgical specialty markets in which we compete.
Patent protection is an important component of the our competitive position. The
method by which Peri-Strips are attached to surgical staplers offers an ease of
use advantage and is patent protected with regard to any and all materials. In
addition, our remodelable Veritas is patented.
Cadaveric tissue from tissue banks or from commercial distributors is sometimes
utilized in neurological and ophthalmic surgery and is often the choice for
urologic procedures. We believe that the collagen characteristics exclusive to
biologic tissue, the strength of the multi-directional fibers of the pericardium
substrate, the special configuration of its biomaterial products, and the
proprietary tissue-fixation and purification processes it employs,
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offer significant benefits in product performance over cadaveric tissue and
synthetic materials. Biomaterial products also offer advantages of product
availability, tissue uniformity and ideal handling characteristics.
Description of the Interventional Business
Our interventional business manufactures fixation helices, conductor coils,
stylets, guidewires and other micro-wire, micro-metal, polymer and machined
components used in interventional devices for cardiac rhythm management,
neurostimulation and vascular procedures, and provides product development
engineering and rapid prototyping services. These products are sold primarily to
other medical device manufacturing companies, who incorporate them into their
own products. Additionally, our interventional business is pursuing its own
proprietary medical devices, complementary to our customers products, that we
intend to offer for sale to our customers.
During the second quarter of fiscal 2003, our interventional business opened
Synovis Caribe, Inc., a manufacturing facility in Puerto Rico, expanding the
capacity of the interventional business. The new facility is designed to
increase the manufacturing capacity of our interventional business and
strategically position them to capture new business. The facility also provides
our customers with a second location at which their products can be
manufactured.
Coils and Helices. Micro precision coils are intricately complex precision wire
components, comprised normally of several strands of specialty wire materials
wound into specific configurations. These coils are manufactured utilizing
proprietary processes and typically involve the use of specialty metals such as
medical grade stainless steel, silver, platinum, and various other metal alloys.
These micro coils are used to carry the electrical signal required for operation
of a medical device that is implanted within the patient's body. A subcategory
of coils is called helices, which compose the distal portion of many pacing and
defibrillation leads that are used to actively fix the lead tip to the
endocardium.
Stylets and Other Wireforms. Stylets and other critically defined delivery
devices are produced through the application of proprietary processes using
medical grade stainless steel and plastic cap and body components. Stylets are
typically used in the placement of cardiovascular and neurostimulation leads.
Guidewires. Guidewire components and subassemblies are made of medical grade
stainless steel, nitinol, and/or precious metals. These are manufactured through
a combination of proprietary processes that include coiling, grinding, and
joining technologies. A guidewire is typically used at the beginning of a
surgical procedure to locate and provide a channel for the placement of a
diagnostic or therapeutic device.
Competition
Our interventional business competes on the basis of superior quality of
processes and production, rapid and flexible customer response, early
development partnering and a fair price. The component part usually comprises a
minor portion of the total device-level price. Accordingly, vendor performance
and responsiveness are generally more critical factors. There are several
competitors to our core interventional business, most of which are substantially
larger. Given the concentration of the wire component product industry, we
believe that medical device customers are generally motivated to promote healthy
competition among their various suppliers in order to ensure multiple supply
sources for their critical device components.
The primary medical device companies involved in the interventional cardiac and
neurological markets include Medtronic, Guidant Corporation, St. Jude Medical
(through its Pacesetter unit), Boston Scientific and Johnson and Johnson Cordis.
In addition, numerous early stage companies are pursuing new technologies in
cardiovascular and interventional medicine, especially neurological
intervention. We anticipate that the cardiovascular and interventional medicine
industry will continue to experience significant consolidation with the
acquisition of earlier stage companies by the major industry participants.
Although there can be no assurance, we believe that this consolidation will not
hinder segment's growth opportunity as the major participants are expected to
continue to seek multiple supply sources for critical device components such as
those we offer.
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INTELLECTUAL PROPERTY
Surgical Business
In our surgical business, we protect our technology through patents, trade
secrets, and proprietary know-how. We also seek to protect this technology
through confidentiality agreements with employees, consultants and other
parties. Supple Peri-Guard, which is used in the manufacture of the majority of
our Tissue-Guard products, is protected exclusively by trade secrets. We hold
the United States patents related to Peri-Strips, Peri-Strips Dry, Ocu-Guard and
Veritas Collagen Matrix. We also have the exclusive, worldwide, perpetual
license to make, use and sell our Flo-Rester and Microvascular Anastomotic
Coupler System products.
Interventional Business
In our interventional business, we rely exclusively on trade secret protection
for our processes. We seek to practice a strict trade secret discipline with all
employees, consultants, customers and other parties. We also maintain a
non-disclosure protocol on behalf of each of our customers, consistent with the
business sensitivity to customer expectations and needs. The technology and
equipment used in the interventional product manufacturing process is a
combination of proprietary know-how and adaptation and development utilizing
readily available components and equipment.
MARKETING AND CUSTOMERS
Surgical Business
Our surgical business' marketing and sales strategies include supporting our
superior quality products with innovative and effective sales and marketing
programs. These programs include advertising and direct mail campaigns,
participation in surgical trade shows, support of the gathering, publication and
presentation of clinical data and new product information by key surgeons, and
the development/maintenance of strategic physician alliances. An important
Company strategy is to identify and assess customer needs. This is accomplished
by developing and maintaining a close working relationship with the hospitals
and surgeons who purchase and use our products and through observations and
interactions with these customers.
Our surgical business sells the majority of its products through a combination
of third-party distributors and independent sales representatives. The Company's
marketing and sales group works closely with these distributors and
representatives to implement marketing strategies and to provide product
training and support. Written agreements with distribution partners generally
impose limited geographic exclusivity and minimum purchase requirements which
approximate the distributor's estimates of growth that can be accomplished.
These agreements are typically terminable upon breach of the agreement by the
distributor, including breach of the minimum sales obligations imposed by the
agreement. We do not act arbitrarily in this regard, recognizing these minimum
requirements to be estimates.
Interventional Business
Our interventional business strategy is to proactively seek significant business
relationships with both the large participants and early development firms in
major markets including cardiac rhythm management ("CRM"), neurostimilation and
vascular intervention. The primary marketing strategy is to provide a rapid,
flexible and creative response to customer needs, coupled with state of the art,
high quality production. Additionally, our interventional businesses' marketing
strategy seeks to differentiate itself from competitors by promoting its custom
development and engineering capabilities, supported by its relatively large
engineering and technical staff, and extensive medical device experience amongst
its professional employees. We utilize our Technology Development Center ("TDC")
for design, development and prototype services. The utilization of these highly
technical solutions and timely, effective delivery of development prototypes is
believed to provide a key competitive advantage to both the customer and our
interventional business. Synovis Interventional Solutions is ISO 9001-2000
certified, which is a demonstration to our customers of our quality commitment.
Systems are positioned to comply with appropriate FDA Quality Systems
Regulations.
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Information regarding our significant customers under the caption "Major
Customers and Net Revenue by Geographic Area" on page 33 of our 2003 Annual
Report is incorporated herein by reference.
ADDITIONAL INFORMATION REGARDING THE SURGICAL AND INTERVENTIONAL BUSINESSES
Backlog
At October 31, 2003, our surgical business did not have any customer order
backlogs representing customer orders not yet shipped due to insufficient
inventory levels. Because our interventional business is "build-to-order", it
has customer purchase orders awaiting manufacture and release based on customer
specified future delivery dates over the next 12 months. This order backlog in
our interventional business was $14,593,000 at October 31, 2003 as compared to
$10,363,000 at October 31, 2002. We do not expect any difficulty fulfilling
these backlog orders. Based on experience, we believe that backlog is not a
meaningful predictor of future revenue levels in our interventional business.
Raw Materials
We acquire bovine pericardium for use in the biomaterial product line from
United States Department of Agriculture ("USDA") inspected meat-packing
facilities. We acquire human umbilical cords for use in Biograft from various
hospitals throughout the United States. The supply of raw materials, including
wire, precious metals and plastics required for our products and in our
manufacturing activities, is currently adequate. We have not experienced any
product shortages arising from interruptions in the supply of any raw materials
or components, and have identified alternative sources of supply for significant
raw materials and components.
Research and Development
As a component of our business growth strategy, we continue to make a
significant investment in research and development as well as new product design
and engineering in both our surgical and interventional businesses. Our
consolidated research and development expense for fiscal 2003, 2002 and 2001 was
$3,806,000, $2,272,000 and $1,638,000, respectively, and could increase up to
44% for fiscal 2004.
Our surgical business' fiscal 2003 research and development initiatives included
investment in research clinical studies evaluating new indications for
Peri-Strips and Veritas Collagen Matrix and advancing the technology of the
Coupler. In October 2002, we filed a patent on anastomotic devices (including
the Coupler) which incorporate the ability to detect and measure blood flow and
other critical medical parameters. Our surgical business' longer-term
initiatives, among others, include expansion of the Coupler into the coronary
market and development of new Peri-Strips and Veritas applications. Some of
these projects have long development timelines, but have the potential for
significant returns.
Our interventional business, through its TDC, is focused on helping our
customers develop their new devices. We create product concepts, prototypes and
manufacturing solutions to accelerate customers' project timelines and help
bring the products to market faster. Additionally, the TDC has been working on
designing and developing proprietary Synovis devices which will complement our
customers' existing device technologies, including technology platforms for a
steerable stylet and an adjustable stiffness stylet. The steerable stylet
technology will initially be used for placement of cardiac rhythm management
("CRM") and neurostimulation leads. Other indications within the minimally
invasive surgery market, where the steerable stylet technology could deliver
devices and therapy, are also being investigated. The adjustable stiffness
stylet will be used primarily for placing CRM and neurostimulation leads.
GOVERNMENTAL REGULATION
General
The medical device industry in which our surgical business and the customers of
the Company's interventional business operate is subject to extensive and
rigorous regulation by the Food and Drug Administration ("FDA") and
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by comparable agencies in foreign countries. In the United States, the FDA
regulates the design control, development, manufacturing, labeling, record
keeping and surveillance procedures for medical devices including the Company's
surgical devices and medical devices incorporating the interventional business
components.
Food and Drug Administration
FDA regulations classify medical devices based on perceived risk to public
health as either Class I, II or III devices, which are subject to general
controls, special controls or pre-market approval ("PMA") requirements,
respectively. While most Class I devices are exempt from pre-market submission,
it is necessary for most Class II devices to be cleared by a 510(k) pre-market
notification prior to marketing. This establishes that the device is
"substantially equivalent" to a device that was legally marketed prior to May
28, 1976, the date on which the Medical Device Amendments of 1976 became
effective. The 510(k) pre-market notification must be supported by data
establishing the claim of substantial equivalence to the satisfaction of the
FDA. The process of obtaining a 510(k) clearance typically can take several
months to a year or longer. If the product is notably new or different and
substantial equivalence cannot be established, the FDA will require the
manufacturer to submit a PMA application for a class III device that must be
reviewed and approved by the FDA prior to sale and marketing of the device in
the United States. The PMA application must contain the results of clinical
trials and relevant prototype tests, laboratory and animal studies. The process
of obtaining PMA can be expensive, uncertain, lengthy and frequently requires
anywhere from one to several years from the date of FDA submission, if approval
is obtained at all. FDA controls the indicated uses for which a product may be
marketed and strictly prohibits the marketing of medical devices for unapproved
uses. FDA can withdraw products from the market for failure to comply with laws
or the occurrence of safely risks.
Of our current medical device products, Biograft is a Class III device. All
other surgical products have been classified as Class II medical devices and
have received 510(k) marketing clearance from the FDA.
Our surgical and interventional business' manufacturing operation is subject to
periodic inspections by the FDA, whose primary purpose is to audit the Company's
compliance with the Quality System Regulations published by the FDA and other
applicable government standards. Strict regulatory action may be initiated in
response to audit deficiencies or to product performance problems. We believe
that our manufacturing and quality control procedures are in compliance with the
requirements of the FDA regulations.
International Regulation
International regulatory bodies have established varying regulations governing
product standards, packaging and labeling requirements, import restrictions,
tariff regulations and duties and tax. Many of these regulations are similar to
those of the FDA. With the exception of the European Union ("EU"), Canada and
Australia, we typically rely on our independent distributors for that country to
comply with the majority of the foreign regulatory requirements, including
registration of the Company's devices with the appropriate governmental
authorities. To date, and to the best of our knowledge, we have complied with
the regulatory requirements in the foreign countries in which our surgical
devices are marketed. See the discussion on risk factors of bovine tissue
products on page 13 of this Report.
The registration system in the EU for our surgical devices require that our
quality system conform with international quality standards and that our
surgical devices conform with "essential requirements" set forth by the Medical
Device Directive ("MDD"). The Company's manufacturing facilities and processes
under which our surgical devices are produced were inspected and audited by the
British Standards Institute ("BSI") to verify our compliance with the essential
requirements of the MDD. BSI verifies that our quality system conforms with the
international quality standard and that its products conform with the "essential
requirements" set forth by the MDD for the class of surgical devices we produce.
BSI certifies our conformity with both the quality standards and the MDD
essential requirements, entitling us to place the "CE" mark on all our current
surgical devices, except Biograft, which is exempt. See our discussion on the
risk factors of Biograft on page 13 of this Report.
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THIRD PARTY REIMBURSEMENT
Our surgical devices are purchased primarily by hospitals and other users,
while the interventional business' products are sold directly to medical device
manufacturers which sell finished medical devices to hospitals and other
end-uers. Hospitals and end-users of such products, in turn, bill various third
party payers for the services provided to the patients. These payers, which
include Medicare, Medicaid, private health insurance plans and managed care
organizations, reimburse all or part of the costs and fees associated with
the procedures utilizing our products and/or components.
The availability and level of reimbursement from third-party payers is
significant to our business. In Medicare beneficiaries, Centers for Medicare and
Medicaid Services ("CMS") may establish a national coverage policy, including
the amount to be reimbursed, for coverage of claims submitted for reimbursement
related to a specific procedure. Private health insurance plans and managed care
organizations make their own determinations regarding coverage and reimbursement
based either upon "usual and customary" fees or, increasingly, upon a
prospective payment system.
In response to the focus of national attention on rising health care costs, a
number of changes to reduce costs have been proposed or have begun to emerge.
There have been, and may continue to be, proposals by legislators and regulators
and third party payers to curb these costs. The development or increased use of
more cost effective treatments for diseases could cause such payers to decrease
or deny reimbursement for surgeries or to favor non-surgical alternatives to
those surgical procedures currently utilizing our surgical products. There has
also been a significant increase in the number of Americans enrolling in some
form of managed care plan. Higher managed care utilization typically drives down
the payments for health care procedures, which in turn places pressure on
medical supply prices. This causes hospitals to implement tighter vendor
selection and certification processes, by reducing the number of vendors used,
purchasing more products from fewer vendors and trading discounts on price for
guaranteed higher volumes to vendors. Hospitals have also sought to control and
reduce costs over the last decade by joining group purchasing organizations or
purchasing alliances. The Company cannot predict what continuing or future
impact these practices, the existing or proposed legislation, or such
third-party payer measures within a constantly changing healthcare landscape may
have on its future business, financial condition or results of operations.
EMPLOYEES
At October 31, 2003, we employed approximately 425 full-time and part-time
individuals, with approximately 175 employees in our surgical business and 250
in our interventional business. Our employees are not represented by a union,
and we considers our relationship with our employees to be good.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
The information under the caption "Major Customers and Net Revenue by Geographic
Area" on page 33 of the Company's 2003 Annual Report is incorporated herein by
reference.
ITEM 1A - IMPORTANT FACTORS
The following factors are important and should be considered carefully in
connection with any evaluation of the Company's business, financial condition,
results of operations and prospects. Additionally, the following factors could
cause the Company's actual results to materially differ from those reflected in
any forward-looking statements of the Company.
WE MAY NOT BE ABLE TO SUSTAIN OR MANAGE OUR SIGNIFICANT GROWTH.
We have achieved significant growth through successful acquisitions and in-house
development of new technologies and products. There can be no assurance that we
can manage the significant challenges that accompany such growth, including
management of an increasingly diverse product portfolio, oversight of operations
in multiple locations and provision of necessary infrastructure. In addition,
there can be no assurance that we will be able to continue to identify and
successfully consummate acquisitions or develop new products to sustain rates of
revenue growth and profitability in future periods comparable to those
experienced in the past several years.
10
WE FACE SIGNIFICANT COMPETITION FROM ESTABLISHED COMPETITORS IN THE MEDICAL
PRODUCTS INDUSTRY.
We face intense competition. The medical products industry is highly competitive
and characterized by rapid innovation and technological change. We expect
technology to continue to develop rapidly, and our success will depend to a
large extent on our ability to maintain a competitive position with our
technology. There can be no assurance that we will be able to compete
effectively in the marketplace or that products developed by our competitors
will not render our products obsolete or non-competitive. Similarly, there can
be no assurance that our competitors will not succeed in developing or marketing
products that are viewed by physicians as providing superior clinical
performance or are less expensive relative to the products we currently market
or may develop.
Established companies manufacture and sell products that compete with each of
our products. Some of the companies with whom we compete have greater sales
and/or distribution capabilities, substantially greater capital resources and
larger marketing, research and development staffs and facilities than we have.
In addition, many of our competitors offer broader product lines within our
specific product markets. Broad product lines may give our competitors the
ability to negotiate exclusive, long-term medical product or interventional
supply contracts and the ability to offer comprehensive pricing for their
products, including those that compete with our products. There can be no
assurance that we will be able to compete effectively with such manufacturers.
WE ARE DEPENDENT ON A SINGLE CUSTOMER FOR A LARGE PERCENTAGE OF THE SALES OF OUR
INTERVENTIONAL BUSINESS.
One customer accounts for a large percentage of the sales of our interventional
business. This customer represented 52% and 59% of this business segment's
revenue for the years ended October 31, 2003 and 2002, respectively. We provide
multiple products to this customer, which are ultimately incorporated into a
variety of medical devices. There can be no assurance that we will be able to
maintain our relationship with this significant customer, or, in the event of a
deterioration or termination of the relationship, that we will be able to
replace production levels with new or existing customers. The significant
deterioration or loss of this significant customer could materially adversely
affect our business, financial condition and results of operations.
WE MAY NOT BE ABLE TO ADEQUATELY ENFORCE OR PROTECT OUR INTELLECTUAL PROPERTY
RIGHTS OR TO PROTECT OURSELVES AGAINST THE INFRINGEMENT CLAIMS OF OTHERS.
In our surgical business, we protect our technology through patents, trade
secrets, and proprietary know-how. We also seek to protect this technology
through confidentiality agreements with employees, consultants and other
parties. Supple Peri-Guard, which is used in the manufacture of the majority of
our Tissue-Guard products, is protected exclusively by trade secrets. We hold
the United States patents related to Peri-Strips, Peri-Strips Dry, Ocu-Guard and
Veritas Collagen Matrix. We also have the exclusive, worldwide, perpetual
license to make, use and sell our Flo-Rester and Microvascular Anastomotic
Coupler System products.
In our interventional business, we rely exclusively on trade secret protection
for our processes. We seek to practice a strict trade secret discipline with all
employees, consultants, customers and other parties. We also maintain a
non-disclosure protocol on behalf of each of our customers, consistent with the
business sensitivity to customer expectations and needs. The technology and
equipment used in the interventional product manufacturing process is a
combination of proprietary know-how and adaptation and development utilizing
readily available components and equipment.
There can be no assurance that our trade secrets or confidentiality agreements
will adequately protect our proprietary information or, in the event of a breach
of any confidentiality agreement, that we will have adequate remedies.
Additionally, there can be no assurance that any pending or future patent
applications will result in issued patents, or that any current or future
patent, regardless of whether we are an owner or licensee of such patent, will
not be challenged, invalidated or circumvented or that the rights granted
thereunder or under our licensing agreements will provide a competitive
advantage to us. Furthermore, there can be no assurance that others will not
independently develop similar technologies or duplicate any technology developed
by us, or that our technology does not or will not infringe patents or other
rights owned by others.
The medical product industry is characterized by frequent and substantial
intellectual property litigation, and competitors may resort to intellectual
property litigation as a means of competition. Intellectual property litigation
11
is complex and expensive, and the outcome of such litigation is difficult to
predict. Any future litigation, regardless of the outcome, could result in
substantial expense to us and significant diversion of the efforts of our
technical and management personnel. Litigation may also be necessary to enforce
patents issued to us and license agreements entered into by us, to protect our
trade secrets or know-how or to determine the enforcement, scope and validity of
the proprietary rights of others. An adverse determination in any such
proceeding could subject us to significant liabilities of third parties or
require us to seek licenses from third parties or pay royalties that may be
substantial. Furthermore, there can be no assurance that the necessary licenses
would be available to us on satisfactory terms, if at all. Accordingly, an
adverse determination in a judicial or administrative proceeding or failure to
obtain necessary licenses could prevent us from manufacturing or selling certain
of our products, which, in turn, would have a material adverse effect on our
business, financial condition and results of operations.
OUR FAILURE TO OBTAIN REGULATORY CLEARANCE/APPROVAL AND MAINTAIN REGULATORY
COMPLIANCE FOR ANY OF OUR PRODUCTS WOULD IMPACT OUR ABILITY TO GENERATE REVENUE
FROM THOSE PRODUCTS.
We must comply with FDA regulations to market our products in the United States.
The medical device industry in which our surgical business and the customers of
our interventional business operate is subject to extensive and rigorous
regulation by the FDA and by comparable agencies in foreign countries. In the
United States, the FDA regulates the design control, development, manufacturing,
labeling, record keeping and surveillance procedures for medical devices
including our surgical devices, any future interventional devices and those
medical devices which incorporate our interventional business component
products.
The process of obtaining marketing clearance or approvals from the FDA for new
products and new applications for existing products can be time-consuming and
expensive, and there is no assurance that such clearance/approvals will be
granted, or that the FDA review will not involve delays that would adversely
affect our ability to commercialize additional products or additional
applications for existing products. Some of our surgical products and those
devices incorporating interventional products that are in the research and
development stage may be subject to a lengthy and expensive pre-market approval
process with the FDA. FDA has the authority to control the indicated uses of a
medical device. Products can also be withdrawn from the market due to failure to
comply with regulatory standards or the occurrence of unforeseen problems. FDA
regulations depend heavily on administrative interpretation, and there can be no
assurance that future interpretations made by the FDA or other regulatory
bodies, with possible retroactive effect, will not adversely affect us.
Our manufacturing facilities and processes are subject to regulation. The FDA,
various state agencies and foreign regulatory agencies inspect our manufacturing
facilities for surgical products from time to time to determine whether we are
in compliance with various regulations relating to quality systems, such as
manufacturing practices, validation, testing, quality control, product labeling
and product surveillance. A determination that we are in violation of such
regulations could lead to imposition of civil penalties, including fines,
product recalls or product seizures and, in extreme cases, criminal sanctions,
depending on the nature of the violation. To the extent our interventional
business facilities manufacture completed interventional devices in the future,
they are also subject to these FDA and other regulatory agency standards.
We must obtain regulatory approvals to market our products internationally. The
registration scheme in the majority of international markets (e.g. Europe,
Canada, Australia, Japan) for our surgical business' products requires that our
quality system conforms to international quality standards. Compliance with
these requirements as well as product standards allows their sale in these
countries. There can be no assurance that we will be able to maintain compliance
with these regulations. In addition, there can be no assurance that we will be
successful in obtaining registration for new product introductions. Devices
incorporating our interventional products are also subject to these
requirements, and there can be no assurance that the interventional business
customers will be successful in obtaining or maintaining compliance with the
international regulatory scheme for their current or future products.
Further, international regulatory bodies have established varying additional
regulations governing product standards, packaging requirements, labeling
requirements, import restrictions, tariff regulations, duties and tax
requirements. We rely, in part, on independent distributors to comply with such
foreign regulatory requirements. As a result, our communication with foreign
regulatory agencies may be indirect as it occurs through the foreign
distributor. The inability or failure of independent distributors to comply with
the varying regulations or the imposition of new
12
regulations could restrict such distributors' ability to sell our surgical
products internationally and thereby adversely affect our business, financial
condition and results of operations.
BECAUSE CERTAIN OF OUR PRODUCTS ARE BASED UPON BOVINE PERICARDIUM, PERCEPTIONS
ABOUT BOVINE SPONGIFORM ENCEPHALOPATHY MAY IMPACT OUR SALES.
Under the direction of the USDA, the U.S. government has had an active program
of surveillance and import controls since the late 1980s designed to prevent the
introduction of Bovine Spongiform Encephalopathy ("BSE") into U.S. cattle. The
USDA program includes certain feed restrictions beginning in 1997. While BSE had
previously been endemic to certain European Union markets, the first and only
known case involving U.S. cattle was reported in December 2003. The World Health
Organization has categorized the levels of BSE infectivity of tissue and fluids
on a scale of 1 to 4, with category 4 representing no detectable infectivity.
Raw pericardium has been classified in category 4 along with milk and gelatin.
Our notified body under the medical device directive, the British Standards
Institute, and French authorities have specifically reviewed our biomaterial
sourcing and manufacturing processes and have also certified our bovine
pericardium products.
We obtain all of the raw pericardium for our biomaterial products from
USDA-inspected slaughterhouses. The pericardium is collected under strict
conditions; a USDA inspector examines each heart for disease and anomalies prior
to harvesting the pericardium. Additional measures are also taken by the
inspector to ensure brain and spinal cord matter does not come into contact with
the pericardium. Since 1999, the vast majority of our tissue products have been
manufactured with sodium hydroxide, a processing technique recommended by
international experts to remove or inactivate the prion, the agent believed to
cause BSE. If BSE in U.S. cattle escalates and/or the perception of risk
associated with BSE increases, it could have a material adverse effect on our
business, financial condition and results of operations.
The Dura-Guard product has not been approved for sale in France, nor are any of
our bovine-based products currently approved for sale in Japan. We understand
that regulatory approvals will not be granted in the present environment within
those countries for use of animal derived products, including bovine
pericardium, unless traceability to the specific source can be established.
Total international sales of our bovine pericardium products accounted for 4.7%
of our consolidated net sales for the year ended October 31, 2003, and increased
22% over the previous year. Any prohibition by certain other countries of bovine
pericardium products as a result of concerns related to BSE could have an
adverse effect on our ability to maintain or grow international sales of these
products.
Effective in 2004, the EU has enacted medical device regulations that require
product specific evaluation of bovine-based products for potential BSE patient
health risks. All bovine-based surgical products currently sold in the EU are
subject to this evaluation and will require regulatory approval by September
2004 in order to continue to be marketed. New bovine-based surgical products
will be subject to this evaluation by April 2004. There can be no assurance that
such approvals will be granted, as such approvals depend heavily on
administrative interpretation.
ONE OF OUR PRODUCTS, THE BIOGRAFT, CONTAINS HUMAN TISSUE PRODUCTS THAT MAY
BECOME SUBJECT TO MORE STRICT REGULATION IN THE UNITED STATES AND EUROPE.
Spurred by incidents of the transmission of human disease during tissue
transplantation, both the United States and Europe have recently focused
attention on the safety of tissue banks. In the United States, regulations
drafted by the FDA have outlined requirements for tissue banks. Proposed rules
indicate that medical devices containing human tissue may be subject to
additional controls, although the current regulations specifically exclude from
regulation medical devices subject to FDA review, including umbilical cord vein
grafts such as our Biograft product. As a result, Biograft may be subject to
tissue bank regulations in the United States and the related expensive donor
screening and donor testing procedures at some later date. There can be no
assurance that Biograft would be able to meet any such new requirements.
The long-term regulatory environment for Biograft in Europe is uncertain. The
medical device directive issued by the EU explicitly excludes medical devices
from human tissue; however, there is an effort to include such devices under a
comprehensive regulatory program. We understand that a consensus on such a
directive is in development. As a result, Biograft may be subject to additional
regulations in Europe, which could make it uneconomical to sell Biograft in
Europe even under a regulatory program.
13
WE MAY FACE THE RISK OF PRODUCT LIABILITY CLAIMS AND PRODUCT RECALLS THAT COULD
RESULT IN COSTLY AND TIME CONSUMING LITIGATION AND SIGNIFICANT LIABILITY.
The medical product industry historically has been litigious, and the
manufacture and sale of our products inherently entail a risk of product
liability claims. In particular, our principal surgical devices and a
significant portion of our interventional products are designed to be
permanently placed in the human body, and production or other errors could
result in an unsafe product and injury to the patient. Although we maintain
product liability insurance in amounts believed to be adequate based upon the
nature and risks of our business in general and our actual experience to date,
there can be no assurance that one or more liability claims will not exceed the
coverage limits of such policies or that such insurance will continue to be
available on commercially reasonable terms, if at all. Furthermore, we do not
expect to be able to obtain insurance covering our costs and losses as the
result of any recall of our products due to alleged defects, whether such a
recall is instituted by us or required by a regulatory agency. A product
liability claim, recall or other claim with respect to uninsured liabilities or
in excess of insured liabilities could have a material adverse effect on our
business, financial condition and results of operations.
WE SELL MOST OF OUR SURGICAL PRODUCTS THROUGH INDEPENDENT DISTRIBUTORS AND SALES
REPRESENTATIVES.
We utilize independent distributors and sales representatives to transact
essentially all of our current surgical business. The loss of a significant
distributor or sales representative, or a significant number of other
distributors or sales representatives, could materially adversely affect our
business, financial condition and results of operations if a new distributor or
other suitable sales organization could not be found on a timely basis in the
relevant geographic market.
DUE TO THE UNPREDICTABILITY OF THE HEALTH CARE INDUSTRY, OUR CUSTOMERS MAY NOT
BE ABLE TO RECEIVE THIRD PARTY REIMBURSEMENT FOR THE SURGICAL PROCEDURES
UTILIZING OUR PRODUCTS.
Our surgical products are purchased primarily by hospitals and other users, and
we sell our interventional products directly to medical device manufacturers who
distribute finished medical products to hospitals and other end-users. Hospitals
and end-users of our products, in turn, bill various third-party payers,
including government health programs, private health insurance plans, managed
care organizations and other similar programs, for the health care goods and
services provided to their patients. Third-party payers may deny reimbursement
if they determine that a procedure was not in accordance with established
third-party payer protocol regarding treatment methods. Our surgical products
are reimbursed as a component of the overall surgical procedure reimbursement
obtained from the third party payer.
Third-party payers are also increasingly challenging the prices charged for
medical products and services and, in some instances, have put pressure on
medical device suppliers to lower their prices. While we believe our pricing is
appropriate for the niche markets and technology of our products, we are unable
to predict what changes will be made in the reimbursement methods used by
third-party payers. There can be no assurance that procedures in which our
products are directly or indirectly used will continue to be considered
cost-effective by third-party payers, that reimbursement for such procedures
will be available or, if available, will continue, or that third-party payers'
reimbursement levels will not adversely affect our ability to sell our products
on a profitable basis. The cost of health care has risen significantly over the
past decade, and there have been and may continue to be proposals by
legislators, regulators and third-party payers to curb these costs.
Failure by hospitals and other users of our products to obtain reimbursement for
from third-party payers for procedures in which our products are used, changes
in third-party payers' policies towards reimbursement for procedures directly or
indirectly using our products or legislative action could have a material
adverse effect on our business, financial condition and results of operations.
WE DEPEND ON HIGHLY SPECIALIZED EQUIPMENT TO MANUFACTURE OUR PRODUCTS AND LOSS
OF OR DAMAGE TO OUR MANUFACTURING FACILITIES COULD RESULT IN SIGNIFICANT LOSSES.
We operate a single manufacturing facility for our surgical business and three
manufacturing facilities for our interventional business, with certain
overlapping capabilities for manufacturing stylets, coils and helices. The loss
of or damage to any manufacturing facility due to natural disaster, equipment
failure or other difficulty could result in
14
significant delays in production. Locating third party manufacturers to produce
our products in such event would likely be difficult given the specialized
equipment and processes necessary to produce those products. Although we
maintain business interruption insurance to address the financial impact on our
business, any sustained period of suspended production would likely have a
material adverse effect on our business, financial condition and results of
operations.
OUR STRATEGY TO ACQUIRE COMPLEMENTARY BUSINESSES AND TECHNOLOGIES INVOLVES RISK
AND MAY RESULT IN DISRUPTIONS TO OUR BUSINESS BY, AMONG OTHER THINGS,
DISTRACTING MANAGEMENT TIME AND DIVERTING FINANCIAL RESOURCES.
One of our growth strategies is the acquisition of complementary businesses and
technologies. We may not be able to identify suitable acquisition candidates, or
if we do, we may not be able to make such acquisitions on commercially
acceptable terms or at all. If we make acquisitions, a significant amount of
management time and financial resources may be required to complete the
acquisition and integrate the acquired business into our existing operations.
Even with this investment of management time and financial resources, an
acquisition may not produce the revenue, earnings or business synergies that we
anticipated. Acquisitions involve numerous other risks including: assumption of
unanticipated operating problems or legal liabilities, problems integrating the
purchased operations, technologies or products, diversion of management's
attention from our core businesses, adverse effects on existing business
relationships with suppliers and customers, incorrect estimates made in the
accounting for acquisitions and amortization of acquired intangible assets which
would reduce future reported earnings, and potential loss of customers or key
employees of acquired businesses.
ITEM 2 - PROPERTIES
The Company has three leases for the corporate headquarters and surgical
business, totaling 70,000 square feet, located at 2575 University Ave. W., St.
Paul, Minnesota.
- The base rent of the first lease for 36,000 square feet, which
commenced August 1, 1995 was due to expire July 31, 2005, is
approximately $255,000 annually. An extension of the first lease was
completed, extending the term to December 31, 2008, at a base rent to
be determined based on market price at the commencement date in 2005.
- The base rent of the second lease for 5,000 square feet, which
commenced October 15, 2002 and expires January 31, 2004, is
approximately $46,000 annually.
- Additionally, the Company has signed a third lease to expand the
office and manufacturing space at 2575 University Ave. W., St. Paul,
Minnesota, by 29,000 square feet beginning on January 1, 2004 through
December 31, 2008. Annual base rent for the additional 29,000 square
feet from January 2004 through December 2006 is approximately
$316,000, and from January 2007 through December 2008 is approximately
$330,000.
The Company also has leases on three facilities for its interventional business
totaling 33,000 square feet at 471 and 475 Apollo Drive, Lino Lakes, Minnesota.
- The first lease (475 Apollo Drive) for 25,000 square feet, commenced
December 1, 1997 and is scheduled to expire on December 31, 2007. The
base rent is approximately $113,000 annually.
- The base rent of the second lease (471 Apollo Drive, Suite 40) for
4,000 square feet, which commenced April 1, 1999 and expires on March
31, 2004 is approximately $34,500 annually. The Company has a
subsequent five-year option available for this lease.
- The base rent of the third lease (471 Apollo, Suite 50) for 4,000
square feet, which commenced on December 1, 2003 and expires on March
31, 2009, is approximately $27,000.
The Company leases approximately 22,700 square feet for its Caribe facility at
Road 693, Km. 7.3, Dorado, Puerto Rico. The base rent of this lease which
commenced January 1, 2003 and expires February 28, 2008, is approximately
$93,000 annually.
The Company leases approximately 3,750 square feet for its MCA facility at 439
Industrial Lane, Birmingham, Alabama. The base rent of this lease, which
commenced July 1, 2002 and expires June 30, 2005, is $33,600 annually.
15
The Company pays apportioned real estate taxes and common costs on its St. Paul
and Lino Lakes leased facilities. The Company also owns a 20,000 square foot
facility at 400 Apollo Drive, Lino Lakes, Minnesota, which was acquired in
conjunction with the acquisition of Emtech, Inc. in March 2002.
ITEM 3 - LEGAL PROCEEDINGS
The Company is currently involved in litigation which is ordinary, routine
litigation incidental to its business. Management believes losses, if any, that
might eventually be sustained from such litigation would not be material to the
Company's consolidated financial position, results of operations or cash flows
for any period. Further, product liability claims may be asserted in the future
relative to events not known to management at the present time. Management
believes that the Company's risk management practices, including its insurance
coverage, are reasonably adequate to protect against potential material product
liability losses.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth quarter
of the fiscal year covered by this Report.
ITEM 4A - EXECUTIVE OFFICERS OF THE REGISTRANT
The Company's executive officers, their ages, and their offices held as of
December 31, 2003 are as follows:
NAME AGE TITLE
---- --- -----
Karen Gilles Larson 61 President, Chief Executive Officer and Director
Fariborz Boor Boor 45 Executive Vice President
David A. Buche 42 Vice President of Marketing and Sales of Synovis Surgical Innovations
Michael K. Campbell 52 President of Synovis Micro Companies Alliance, Inc.
Mary L. Frick 50 Vice President of Regulatory/Clinical/Quality Affairs
Evan S. Johnston 43 Vice President of Operations of Synovis Surgical Innovations
Connie L. Magnuson 42 Vice President of Finance, Chief Financial Officer and Corporate Secretary
B. Nicholas Oray, Ph.D. 52 Vice President of Research and Development
Karen Gilles Larson. Ms. Larson has served as President and Chief Executive
Officer of the Company since July 1997 and as a Director of the Company since
August 1997. Prior to July 1997, Ms. Larson held the positions of Chief
Financial Officer of the Company from December 1990, Vice President of Finance
from 1989, and Secretary of the Company from November 1991. Ms. Larson served as
the Director of Finance and Administration of the Company from April 1989 to
December 1989. Ms. Larson serves on the Board of Directors of Chronimed Inc.
Fariborz Boor Boor. Mr. Boor Boor was named Executive Vice President of the
Company on November 1, 2003. Prior to November 2003, Mr. Boor Boor served as the
President and Chief Operating Officer of Synovis Interventional Solutions
("Synovis IS") from November 2000, Vice President and Chief Operating Officer of
Synovis IS from March 2000, Director of Operations from April 1999 and Director
of Quality and Regulatory Affairs from September 1998. From 1989 to 1998, Mr.
Boor Boor held various engineering, quality, and manufacturing management
positions at Plastech Corporation, a plastics injection molding company serving
various industries including the medical device industry. From 1979 to 1989, Mr.
Boor Boor held various manufacturing management positions including the Division
management of the Fastener Division of Phillips Plastics Corporation serving the
automotive industry.
David A. Buche. Mr. Buche has served as Vice President of Marketing and Sales of
Synovis Surgical Innovations since January 1998. Prior to January 1998, Mr.
Buche held the positions of Director of Marketing from November 1997 and
Director of International Marketing and Sales from March 1995. From 1988 to
February 1995, Mr. Buche held various product and sales management positions at
Spectranetics Corporation, a company that develops and markets technology for
interventional cardiovascular therapy.
16
Michael K. Campbell. Mr. Campbell has served as President of Synovis Micro
Companies Alliance (Synovis MCA) since July 6, 2001, the acquisition date of
MCA by the Company. Prior to the acquisition he was President and CEO of MCA
from July 2000 through July 2001. From June 1999 to May 2000, Mr. Campbell
served as Executive Vice President of PrimeSource Surgical, a specialty
operating room distributor. From 1979 to June 1999, he was with Futuretech,
Inc., a specialty medical distribution company serving the southeastern United
States, and served as principal board member and Vice President.
Mary L. Frick, M.S.C. Ms. Frick has served as Vice President of
Regulatory/Clinical/Quality Affairs of the Company since November 2003. She has
previously served in several positions within the surgical business, including
Vice President of Regulatory/Clinical/Quality Affairs since November 2000,
Director of Regulatory/Clinical/Quality Affairs since November 1998 and as Group
Manager of Regulatory/Clinical/Quality Affairs from June to November of 1998.
From 1984 to June 1998, Ms. Frick held a series of management positions in
Research, Operations and Regulatory/Clinical Affairs at INCSTAR Corporation, a
diagnostic medical device manufacturer. From 1979 to 1984, Ms. Frick worked in
research at the University of Minnesota-Medical School.
Evan S. Johnston. Mr. Johnston has served as Vice President of Operations of
Synovis Surgical Innovations since November 2000. Joining the Company in
September 1998, Mr. Johnston served as Director of Operations from November
1999. From 1996 to 1998, Mr. Johnston held the position of Director of
Manufacturing and Operations at LecTec Corp., a manufacturer of skin interface
medical devices. From 1995 to 1996, he served as Director of Manufacturing of
Lakeside Nameplate Co., a custom manufacturer of electronic membrane switches.
Mr. Johnston served as Manager of Industrial Engineering from 1990 to 1995 at
Orthomet Inc., a manufacturer of orthopedic implants and related surgical
instruments. From 1986 to 1990, Mr. Johnston held various project management
positions for Honeywell, Control Systems Division, a developer of automation
solutions for government and commercial industries.
Connie L. Magnuson. Ms. Magnuson joined the Company as Chief Financial Officer
and Vice President of Finance in November 1997 and has served as Corporate
Secretary since February 1998. From March 1997 to November 1997, Ms. Magnuson
served as Treasurer of Northern Technologies International Corporation. From
1983 to 1996, Ms. Magnuson held a series of positions with Deloitte and Touche
LLP, a public accounting firm, including Audit Senior Manager and Director of
Human Resources for their Minneapolis office.
B. Nicholas Oray, Ph.D. Dr. Oray has served as Vice President of Research and
Development since November 2003. Prior to that, Dr. Oray served as Vice
President of Research and Development of Synovis Surgical Innovations since
April 1998. From 1997 to April 1998, he served as Director of Research and
Development at Seatrace Pharmaceuticals Inc. From 1993 to 1996, Dr. Oray held a
series of positions with CryoLife Inc., including Director of Bioadhesive
Manufacturing and Associate Director of Biomedical Products Laboratory. From
1991 to 1993, he held several positions with F.A.C.T., a clinical research
organization, including Director of Regulatory Affairs and Associate Director of
Clinical Trials Operations. From 1988 to 1990, Dr. Oray served as Director of
Manufacturing, Director of Sterile Manufacturing and Director of Purification
and Production Group at Carrington Laboratories, Inc.
17
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information under the caption "Common Stock Information" on page 35 of the
Company's 2003 Annual Report is incorporated herein by reference.
On September 22, 2003, the Company completed a private placement of 1,500,000
shares of its Common Stock at an aggregate price of $39,000,000, resulting in
net proceeds of $36,486,000 after deducting the agent's commission of $2,340,000
and other expenses. The sale of securities was made to "accredited investors" as
defined in Rule 501(a) of the Securities Act of 1933 and in reliance on
Regulation D and Section 4(2) under the Securities Act of 1933, as amended.
Oppenheimer & Co., Inc. of New York, New York acted as the Company's agent in
the private placement.
The Company intends to use the net proceeds from this offering to fund working
capital, general corporate purposes and potential acquisitions.
ITEM 6 - SELECTED FINANCIAL DATA
The financial information in the tables and charts under the captions "Summary
Statement of Operations Data" and "Summary Balance Sheet Data" on page 2 of the
Company's 2003 Annual Report is incorporated herein by reference.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 16-20 of the Company's
2003 Annual Report is incorporated herein by reference.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's quantitative and qualitative disclosures about market risk are
included in Item 7.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's Consolidated Financial Statements and related Notes thereto on
pages 21-33 and the Independent Auditors' Report on page 34 of the Company's
2003 Annual Report are incorporated herein by reference, as is the unaudited
information set forth under the caption "Quarterly Results" on page 35 of the
Company's 2003 Annual Report.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A - CONTROLS AND PROCEDURES
The Chief Executive Officer (CEO) and Chief Financial Officer (CFO) evaluated
the effectiveness of the design and operation of the Company's disclosure
controls and procedures as of the date of this annual report. Based on that
evaluation, the CEO and CFO concluded that the Company's disclosure controls and
procedures were effective. There have been no significant changes in the
Company's internal controls subsequent to the date the CEO and CFO completed
their evaluation.
18
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Directors of the Registrant:
The information under the captions "Election of Directors - Information
About Nominees" and "Election of Directors - Other Information About
Nominees" in the Registrant's 2004 Proxy Statement is incorporated herein
by reference.
(b) Executive Officers of the Registrant:
Information concerning Executive Officers of the Company is included in
this Report on pages 16 and 17 under Item 4A, "Executive Officers of the
Registrant."
(c) Compliance with Section 16(a) of the Exchange Act:
The information under the caption "Section 16(a) Beneficial Ownership
Reporting Compliance" in the Registrant's 2004 Proxy Statement is
incorporated herein by reference.
(d) Audit Committee Financial Expert:
The information under the caption "Membership and Role of the Audit
Committee" in the Registrant's 2004 Proxy Statement is incorporated herein
by reference.
(e) Code of Ethics:
We have adopted a Code of Ethics that applies to our Chief Executive
Officer and senior financial officers. A copy of the Code of Ethics is
attached hereto as Exhibit 14.1.
ITEM 11 - EXECUTIVE COMPENSATION
The information under the captions "Executive Compensation" and "Election of
Directors - Directors' Compensation" in the Registrant's 2004 Proxy Statement is
incorporated herein by reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under the captions "Equity Based Compensation," "Equity
Compensation Plan Information" and "Principal Shareholders and Beneficial
Ownership of Management" in the Registrant's 2004 Proxy Statement is
incorporated herein by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the caption "Certain Relationships and Related
Transactions" in the Registrant's 2004 Proxy Statement is incorporated herein by
reference.
ITEM 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES
(a) Audit Fees:
The information under the caption "Audit Fees" in the Registrant's
2004 Proxy Statement is incorporated herein by reference.
(b) Audit Related Fees:
19
The information under the caption "Audit Related Fees" in the
Registrant's 2004 Proxy Statement is incorporated herein by reference.
(c) Tax Fees:
The information under the caption "Tax Fees" in the Registrant's 2004
Proxy Statement is incorporated herein by reference.
(d) All Other Fees:
The information under the caption "All Other Fees" in the Registrant's
2004 Proxy Statement is incorporated herein by reference.
PART IV
ITEM 15 - EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) List of documents filed as part of this Report:
1) Financial Statements, Related Notes and the Independent
Auditors' Report:
All of the following items are incorporated herein by
reference from the pages indicated in the Company's 2003
Annual Report:
Page
----
- Consolidated Statements of Income for the years ended
October 31, 2003, 2002 and 2001 21
- Consolidated Balance Sheets as of
October 31, 2003 and 2002 22
- Consolidated Statements of Shareholders' Equity for the
years ended October 31, 2003, 2002 and 2001 23
- Consolidated Statements of Cash Flows for the years ended
October 31, 2003, 2002 and 2001 24
- Notes to Consolidated Financial Statements 25-33
- Independent Auditors' Report of Deloitte & Touche LLP 34
The unaudited selected quarterly financial data included under
the caption "Quarterly Results" on page 35 of the Company's
2003 Annual Report is incorporated herein by reference.
2) Financial Statement Schedule:
The following financial statement schedule and Independent
Auditors' Report thereon are included herein and should be
read in conjunction with the Consolidated Financial Statements
referred to above (page numbers refer to pages in this Report
on Form 10-K):
Page
----
- Independent Auditors' Reports on Schedule 23
- Schedule II - Valuation and Qualifying Accounts 24
All other financial statement schedules not listed have been
omitted because the required information is included in the
Consolidated Financial Statements or the Notes thereto, or is
not applicable.
20
3) Exhibits:
The exhibits to this Report on Form 10-K are listed in the
Exhibit Index on pages E-1 to E-3 of this Report.
The Company will furnish a copy of any exhibit to a
shareholder who requests a copy in writing to the Company.
Requests should be sent to: Chief Financial Officer, Synovis
Life Technologies, Inc., 2575 University Avenue W., St. Paul,
Minnesota 55114-1024.
The following is a list of each management contract or
compensatory plan or arrangement required to be filed as an
exhibit to this Annual Report of Form 10-K pursuant to Item
15(c):
A. 1995 Stock Incentive Plan, as amended (incorporated
by reference to Exhibit 10.15 to the Company's Annual
Report of Form 10-K for the year ended October 31,
1998 (File No. 0-13907)).
B. Employee Stock Purchase Plan, as amended
(incorporated by reference to Exhibit 10.16 to the
Company's Annual Report of Form 10-K for the year
ended October 31, 2000 (File No. 0-13907)).
C. Form of Change in Control Agreement entered into
between the Company and Karen Gilles Larson
(incorporated by reference to Exhibit 10.28 to the
Company's Annual Report on Form 10-K for the year
ended October 31, 1994 (File No. 0-13907)).
D. Form of Change in Control Agreement entered into
between the Company and each of Connie L. Magnuson
dated January 12, 1998 and David A. Buche dated
January 29, 1998 (incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the period ended January 31, 1998 (File
No. 0-13907)).
E. Change in Control Agreement dated February 1, 1999
between the Company and Dr. B. Nicholas Oray
(incorporated by reference to Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the
period ended January 31, 1999 (File No. 0-13907)).
F. Change in Control Agreement dated March 1, 2000
between the Company and Fariborz Boor Boor
(incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the
period ended April 30, 2000 (File No. 0-13907)).
G. Amendment to form of change in control agreement
between the Company and Karen Gilles Larson, Connie
L. Magnuson, David A. Buche, Dr. B. Nicholas Oray and
Fariborz Boor Boor (incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the period ended July 31, 2000 (File
No. 0-13907)).
H. Change in control agreement dated November 1, 2000
between the Company and each of the following: Mary
Frick and Evan Johnston (incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the period ended January 31, 2001 (File
No. 0-13907)).
I. Employment agreement, including a change of control
agreement, dated July 6, 2001 between the Company and
Michael K. Campbell (incorporated by reference to
Exhibit 10.2 to the Company's Quarterly Report on
Form 10-Q for the period ended July 31, 2001 (File
No. 0-13907)).
21
(b) Reports on Form 8-K:
1- On August 20, 2003, Synovis Life Technologies, Inc. (Synovis)
furnished a report on Form 8-K reporting in accordance with
"Item 12 - Results of Operations and Financial Condition" the
press release announcing its earnings for the third quarter
ended July 31, 2003 and the nine months ended July 31, 2003.
2- On September 18, 2003, Synovis filed a Form 8-K reporting in
accordance with "Item 5 - Other Events and Regulation FD
Disclosure" the press release announcing the Company had
entered into definitive agreements with certain institutional
and other accredited investors with respect to the sale of 1.5
million shares of its stock in a private placement.
3- On September 22, 2003, Synovis filed a Form 8-K reporting in
accordance with "Item 5 - Other Events and Regulation FD
Disclosure" the Form of Securities Purchase Agreement dated
September 17, 2003 and the press release announcing the
completion of the sale of 1.5 million shares of its stock in a
private placement.
4- On October 17, 2003, Synovis furnished a Form 8-K reporting in
accordance with "Item 9 - Regulation FD Disclosure" the October
16, 2003 press release announcing its earnings guidance for
fiscal 2004 and the October 17, 2003 press release clarifying
market confusion related to the earnings guidance for fiscal
2004.
(c) Exhibits:
The response to this portion of Item 15 is included as a separate
section of this Report on Form 10-K on pages E-1 to E-3.
(d) Financial Statement Schedule:
The response to this portion of Item 15 is included as a separate
section of this Report on Form 10-K beginning on page 20.
22
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Synovis Life Technologies, Inc.
We have audited the consolidated balance sheets of Synovis Life Technologies,
Inc. and subsidiaries (the "Company") as of October 31, 2003 and 2002 and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the three years in the period ended October 31, 2003, and have
issued our report thereon dated December 3, 2003; such financial statements and
report are included in your 2003 Annual Report to Shareholders and are
incorporated herein by reference. Our audits also included the financial
statement schedule of the Company, listed in Item 15(a)(2). This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such 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/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
December 3, 2003
23
SCHEDULE II
SYNOVIS LIFE TECHNOLOGIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
Balance at Charged to Balance
beginning cost and at end of
Description of period expenses Deductions period
----------- --------- -------- ---------- ------
Allowance for doubtful accounts:
Year ended October 31, 2003................ $ 155,000 $ 40,000 $ 40,000 $ 155,000
Year ended October 31, 2002................ 111,000 78,000 34,000 155,000
Year ended October 31, 2001................ 115,000 29,000 33,000 111,000
24
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.
SYNOVIS LIFE TECHNOLOGIES, INC.
By /s/ Karen Gilles Larson
--------------------------
Karen Gilles Larson, President
and Chief Executive Officer
(Principal Executive Officer)
Dated: January 23, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on January 23, 2004 by the following persons
on behalf of the registrant and in the capacities indicated.
/s/ Karen Gilles Larson
------------------------
Karen Gilles Larson
President, Chief Executive Officer and Director
/s/ Connie L. Magnuson
----------------------
Connie L. Magnuson
Vice President of Finance, Chief Financial Officer and Corporate Secretary
(Principal Financial and Accounting Officer)
/s/ Timothy M. Scanlan
----------------------
Timothy M. Scanlan
Chairman, Board of Directors
/s/ Richard W. Perkins
----------------------
Richard W. Perkins, Director
/s/ Anton R. Potami
-------------------
Anton R. Potami, Director
/s/ William G. Kobi
-------------------
William G. Kobi, Director
/s/ Edward E. Strickland
------------------------
Edward E. Strickland, Director
25
SYNOVIS LIFE TECHNOLOGIES, INC.
EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED OCTOBER 31, 2003
3.1 Restated Articles of Incorporation of the Company, as amended,
(incorporated by reference to Exhibit 3.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended April 30, 1997 (File No.
0-13907)).
3.2 Amendment to Restated Articles of Incorporation of the Company, as
amended, dated March 20, 1997 (incorporated by reference to Exhibit 3.2
to the Company's Quarterly Report on Form 10-Q for the quarter ended
April 30, 1997 (File No. 0-13907)).
3.3 Amended and Restated Bylaws of the Company (incorporated by reference
to Exhibit 3.2 to the Company's Registration Statement on Form S-4
(File No. 33-74750)).
3.4 Amendment to the Articles of Incorporation, effective May 1, 2002,
regarding the Company name Change from `Bio-Vascular, Inc.' to `Synovis
Life Technologies, Inc.' (incorporated by reference to Exhibit 3.1 to
the Company's Quarterly Report on Form 10-Q for the quarter ended April
30, 2002 (File No. 0-13907)).
4.1 Form of common stock Certificate of the Company (incorporated by
reference to Exhibit 4.1 to the Company's registration statement on
Form 10 (File No. 0-13907)).
4.2 Form of Rights Agreement, dated as of June 12, 1996, between
Bio-Vascular, Inc. and American Stock Transfer & Trust Company, which
includes as Exhibit A the form of Rights Certificate (incorporated by
reference to Exhibit 4.1 to the Company's Current Report on Form 8-K
dated June 12, 1996 (File No. 0- 13907)).
4.3 Restated Articles of Incorporation of the Company, as amended (see
Exhibit 3.1).
4.4 Amendment to Restated Articles of Incorporation of the Company, as
amended, dated March 20, 1997 (see Exhibit 3.2).
4.5 Amended and Restated Bylaws of the Company (see Exhibit 3.3).
10.1 1995 Stock Incentive Plan, as amended (incorporated by reference to
Exhibit 10.15 to the Company's Annual Report of Form 10-K for the year
ended October 31, 1998 (File No. 0-13907)).
10.2 Employee Stock Purchase Plan, as amended (incorporated by reference to
Exhibit 10.16 to the Company's Annual Report of Form 10-K for the year
ended October 31, 2000 (File No. 0-13907)).
10.3 Form of Change in Control Agreement entered into between the Company
and Karen Gilles Larson (incorporated by reference to Exhibit 10.28 to
the Company's Annual Report on Form 10-K for the year ended October 31,
1994 (File No. 0-13907)).
10.4 Form of Change in Control Agreement entered into between the Company
and each of Connie L. Magnuson dated January 12, 1998 and David A.
Buche dated January 29, 1998 (incorporated by reference to Exhibit 10.1
to the Company's Quarterly Report on Form 10-Q for the period ended
January 31, 1998 (File No. 0-13907)).
10.5 Change in Control Agreement dated February 1, 1999 between the Company
and Dr. B. Nicholas Oray (incorporated by reference to Exhibit 10.2 to
the Company's Quarterly Report on Form 10-Q for the period ended
January 31, 1999 (File No. 0-13907)).
10.6 Change in Control Agreement dated March 1, 2000 between the Company and
Fariborz Boor Boor (incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the period ended April 30,
2000 (File No. 0-13907)).
E-1
SYNOVIS LIFE TECHNOLOGIES, INC.
EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED OCTOBER 31, 2003
10.7 Amendment to form of change in control agreement between the Company
and Karen Gilles Larson, Connie L. Magnuson, David A. Buche, B.
Nicholas Oray and Fariborz Boor Boor (incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the
period ended July 31, 2000 (File No. 0-13907)).
10.8 Change in control agreement dated November 1, 2000 between the Company
and each of the following: Mary Frick and Evan Johnston (incorporated
by reference to Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the period ended January 31, 2001 (File No. 0-13907)).
10.9 Acquisition Agreement and Plan of Reorganization by and among the
Company, MCA Acquisition, Inc., Medical Companies Alliance, Inc. and
Michael K. Campbell, dated July 6, 2001 (incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the
period ended July 31, 2001 (File No. 0-13907)).
10.10 Employment agreement, including a change of control agreement, dated
July 6, 2001 between the Company and Michael K. Campbell (incorporated
by reference to Exhibit 10.2 to the Company's Quarterly Report on Form
10-Q for the period ended July 31, 2001 (File No. 0-13907)).
10.11 Lease Agreement effective August 1, 1995 between the Company and CSM
Investors, Inc. (incorporated by reference to Exhibit 10.25 to the
Company's Annual Report on Form 10-K for the year ended October 31,
1995 (File No. 0-13907)).
10.12 Lease Agreement effective August 27, 1997 between Jer-Neen
Manufacturing Co., Inc. (d/b/a Synovis Interventional Solutions, Inc.)
and F&G Incorporated (incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the period ended January
31, 1999 (File No. 0-13907)).
10.13 Acquisition agreement and Plan of Reorganization by and among the
Company and Emtech, Inc., dated March 6, 2002 (incorporated by
reference to Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the period ended April 30, 2002 (File No. 0-13907)).
10.14 Amendment to Lease Agreement effective August 1, 1995 between the
Company and CSM Investors, Inc., dated September 19, 2002 (incorporated
by reference to Exhibit 10.14 to the Company's Annual Report on Form
10-K for the period ended October 31, 2002 (File No. 0-13907)).
10.15 Amendment to Lease Agreement between Synovis Interventional Solutions,
Inc. and Sentry Real Estate, Inc., dated October 15, 2002 (incorporated
by reference to Exhibit 10.1.1 to the Company's Quarterly Report on
Form 10-Q for the period ended January 31, 2003 (File No. 0-13907)).
13.1 Portions of the Company's 2003 Annual Report to Shareholders
incorporated herein by reference (filed herewith electronically).
14.1 Code of Ethics for Chief Executive Officer and Senior Financial
Officers (filed herewith electronically).
21.1 List of Subsidiaries of the Company (incorporated by reference to
Exhibit 21.1 to the Company's Annual Report on Form 10-K for the period
ended October 31, 2002 (file No. 0-13907)).
23.1 Consent of Deloitte and Touche LLP (filed herewith electronically).
31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of
the Securities Exchange Act of 1934 (filed herewith electronically).
E-2
SYNOVIS LIFE TECHNOLOGIES, INC.
EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED OCTOBER 31, 2003
31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of
the Securities Exchange Act of 1934 (filed herewith electronically).
32.1 Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith
electronically).
E-3