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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
SECURITIES EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission File No.
December 31, 1996 0-15443
THERAGENICS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 58-1528626
(State of incorporation) (I.R.S. Employer Identification Number)
5325 Oakbrook Parkway
Norcross, Georgia 30093
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(770) 381-8338
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registerer
None None
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
Common Stock, par value $.01 per share, together with the associated
Common Stock Purchase Rights
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to
this Form 10-K _____.
As of March 18, 1997 the aggregate market value of the common
stock of the registrant held by non-affiliates of the registrant,
as determined by reference to the closing price of the Common Stock
as reported on the Nasdaq National Market system, was $244,272,249.
As of March 18, 1997 the number of shares of common stock, $.01 par value,
outstanding was 11,843,503.
Documents incorporated by Reference: Proxy Statement for the resigtrant's
1997 Annual Meeting of Stockholders - to be filed with the Securities and
Exchange Commission not later than 120 days after December 31, 1996, is
incorporated by reference in Part III herein.
Part I
Item 1. BUSINESS
General
Theragenics Corporation ("Theragenics" or the "Company") is a leader in the
production and marketing of implantable radiation devices used in the treatment
of prostate cancer. The Company produces and markets TheraSeed(R), an
FDA-licensed device based on Pd-103, a radioactive isotope. Management believes
the Company is the only producer of Pd-103 for use in medical devices. In the
treatment of prostate cancer, TheraSeeds(R) are implanted into the prostate in a
one-time, minimally invasive procedure. The radiation emitted by the seeds is
contained within the immediate prostate area, killing the tumor while sparing
surrounding organs. TheraSeed(R) has been shown in independent clinical studies
to offer success rates that are comparable to or better than other conventional
therapies, while being associated with a reduced incidence of side effects. In
addition, TheraSeed(R) offers significant quality of life and cost advantages.
Since 1987, TheraSeed(R) has been used by physicians in nearly 300 centers
across the United States in approximately 13,000 procedures for prostate cancer,
including approximately 4,000 procedures in 1996. Sales of TheraSeed(R)
increased 65% in 1995 and 58% in 1996 due to reliable production from the
Company's cyclotron-based manufacturing process and increased demand for
TheraSeed(R) as a result of significantly increased marketing efforts and the
release of favorable clinical data. TheraSeed(R) has also been used on a limited
basis to treat cancers of the pancreas, lung, head, neck, oral cavity, brain and
eye.
On February 24, 1997, the Company entered into a letter of intent with Indigo
Medical, Inc., a subsidiary of Johnson & Johnson, stating the intent to grant to
Indigo the exclusive worldwide right to market and sell TheraSeed(R) for the
treatment of prostate cancer. The letter of intent is subject to the completion
of definitive documentation and approval by the respective Boards of Directors
of the Company and Indigo. Management believes the proposed alliance with Indigo
would provide for sales growth and international expansion while allowing the
Company to focus its resources on maintaining its leadership in the production
of Pd-103 for prostate cancer treatment and other potential applications. By
leveraging the extensive worldwide marketing capability of Indigo and Johnson &
Johnson, the Company would eliminate the need to develop an extensive,
vertically integrated sales, marketing and education and training network.
Theragenics received an FDA license for TheraSeed(R) in 1986 and commenced
product sales in 1987. The Company has been profitable in every quarter
since 1991. In 1992, management increased its control over the
manufacture of TheraSeed(R) by integrating into the Company the production of
Pd-103. This significantly increased capacity for the production of TheraSeed(R)
while maintaining quality and regulatory compliance.
Industry Overview
Prostate Cancer
Prostate cancer is the most common form of cancer, and the second leading
cause of cancer deaths, in men. It is expected to account for approximately 43%
of all cancers to be diagnosed in men during 1997. Based on industry data, the
Company estimates that the cost of treating prostate cancer exceeded $3.0
billion in the United States in 1995. The American Cancer Society estimates new
cases of prostate cancer grew 30% in 1996 to 317,000 from 244,000 cases in 1995,
with deaths associated with the disease estimated to have grown to 41,400 in
1996 from 40,000 in 1995. Principal reasons for the significant increase in new
cases have been advances in diagnostic technology and increased media attention,
including publicity regarding several highly visible individuals who have made
public their battles with the disease. Estimates by the United States Bureau of
Census indicate that the number of men most prone to prostate cancer, those 40
to 80 years old, will grow to 55 million by 2006 from 45 million in 1996. The
Company estimates its market share in the treatment of localized, early-stage
prostate cancer to be approximately 2.5%.
The prostate is a walnut-sized gland surrounding the male urethra, located
below the bladder and adjacent to the rectum. The two most prevalent prostate
diseases are benign prostatic hyperplasia ("BPH") and prostate cancer. BPH is a
non-cancerous enlargement of the innermost part of the prostate. Prostate cancer
is a malignant tumor that begins most often in the periphery of the gland and,
like other forms of cancer, may spread beyond the prostate to other parts of the
body. If left untreated, prostate cancer can metastasize to the lung or bone,
resulting in death. The following table summarizes the various stages of
prostate cancer.
Classification Stage of Progression
A Clinically unsuspected
B Tumor confined to the prostate gland (localized)
C Tumor outside prostate capsule
D Metastasized into pelvic lymph nodes
D2 Metastasized into distant lymph nodes,
organs, soft tissues or bone
Source: American Urological Association Today
Prostate cancer can grow slowly or quickly and virulently, and its cause and
potential methods of prevention are currently unknown. The risk of developing
prostate cancer increases with age. By way of comparison, studies indicate that
one in five men in the United States can expect to develop the disease, whereas
one in eight women in the United States may expect to contract breast cancer.
With prompt treatment, the long-term outlook for men with localized,
early-stage prostate cancer is considered favorable.
Approximately 58% of new prostate cancer diagnoses are defined to be at the
localized stage of the disease. Prostate cancer is typically curable when
detected early, but the lack of early-stage symptoms makes diagnosis difficult.
Until 1988, the best method of routine examination had been the digital rectal
exam, which requires the existence of solid tumors for detection. In 1988, a
diagnostic test was developed that determines the amount of prostate specific
antigen ("PSA") present in the blood. PSA is found in a protein secreted by the
prostate, and elevated levels of PSA are associated with either prostatitis (a
noncancerous inflammatory condition) or a proliferation of cancer cells in the
prostate. The widespread acceptance of the PSA test greatly improved physicians'
ability to diagnose prostate cancer at an early stage and significantly
increased the number of new cases diagnosed annually. Industry studies have
shown that the PSA test can detect prostate cancer as many as five years earlier
than the digital rectal exam. The PSA test is currently part of the routine
medical check-up for prostate assessment. Transrectal ultrasound tests and
biopsies are typically performed on patients with elevated PSA readings to
confirm the existence of cancer.
Treatment Options
In addition to seeding, prostate cancer can be treated with radical
prostatectomy ("RP"), external beam radiation therapy ("EBRT"), hormone therapy,
chemotherapy and watchful waiting. Some of these therapies may be combined. The
treatments that have been most successful are those that remove or kill all of
the cancerous tissue while avoiding excessive damage to the surrounding healthy
tissue. When the cancerous tissue is not completely eliminated, the cancer
typically returns to the primary site, often with metastases to other areas. The
following is a summary of treatment options for prostate cancer other than
seeding.
Radical Prostatectomy is a major surgical procedure that involves the
complete removal of the prostate gland. This procedure has been used for 30
years and is considered to be the standard medical treatment for early-stage,
localized tumors. RP typically requires a three to seven day hospital stay and
a lengthy recovery period (generally four to six weeks). Side effects include
impotence and incontinence. The cost of RP ranges from $20,000 to $30,000 per
procedure, excluding treatment for side effects and postoperative complications.
Approximately 120,000 men underwent RP in 1995.
External Beam Radiation Therapy involves directing a beam of radiation at
the prostate gland to destroy tumorous tissue and has been a common technique
for treating many kinds of cancer since the 1950s. EBRT has typically been
reserved for early-stage prostate cancer in locally advanced cases where the
patient presents an inappropriate surgical risk. The therapy consists of a
series of daily treatments usually lasting from six to eight weeks. Rectal
complications resulting from damage to the rectal wall caused by the radiation
beam as it travels to the prostate are the most common side effects. Principal
side effects also include incontinence and impotence, but these side effects
generally occur with less frequency than they do following RP. EBRT is estimated
to cost between $12,000 to $15,000 per patient. Approximately 35,000 men
underwent EBRT in 1995.
Ancillary Therapies, primarily consisting of hormone therapy and
chemotherapy, are used to slow the growth of cancer and reduce tumor size, but
are generally not intended to be curative. Ancillary therapies are often used
during advanced stages of the disease to extend life and relieve symptoms. Side
effects of hormonal drug therapy include increased development of breasts,
impotence and decreased libido. In addition, many hormone pharmaceuticals
artificially lower PSA levels in patients, which can interfere with staging the
disease and monitoring its progress. Side effects of chemotherapy include
nausea, hair loss and fatigue. Drug therapy and chemotherapy require long-term,
repeated administration of medication on an outpatient basis.
Watchful Waiting is recommended by some physicians in certain circumstances
based on the severity and growth rate of the disease, as well as on the age and
life expectancy of the patient. The aim of watchful waiting is to monitor the
patient, treat some of the attendant symptoms and determine when more active
intervention is required. Watchful waiting requires periodic physician visits
and PSA monitoring.
In addition to the treatment options described above, other forms of
treatment are being developed and tested in clinical trials. Cryosurgery, which
freezes and destroys diseased tissue, has been used to treat prostate cancer,
but to the Company's knowledge has not demonstrated a long-term curative effect.
Photon radiosurgery, a developmental stage form of treatment that emits
low-energy x-rays from a probe and irradiates the tumor from the inside out, is
undergoing clinical studies for the treatment of metastatic brain tumors.
Clinical trials for prostate cancer are not anticipated to begin until late 1997
or early 1998.
The Theragenics Solution
Theragenics produces and markets TheraSeed(R), an FDA-licensed device
currently used principally in seeding for the treatment of prostate cancer. In
this application, TheraSeeds(R) are implanted throughout the prostate gland in a
minimally invasive surgical technique under ultrasound guidance. The radiation
emitted by the seeds is contained within the immediate prostate area, killing
the tumor while sparing surrounding organs. The seeds, whose capsules are
biocompatible, are not removed after delivering their radiation dose to the
prostate. TheraSeed(R) is best suited for solid localized tumors and is usually
classified as a treatment for early-stage disease.
Management believes TheraSeed(R) offers significant advantages over RP and
EBRT. Recent multi-year clinical studies indicate that seeding offers success
rates that are comparable to or better than those of RP or EBRT and reduced
complication rates. In addition, the TheraSeed(R) treatment is a one-time
outpatient procedure with a two to three day recovery period. By comparison, RP
is an inpatient procedure typically accompanied by a three to seven day hospital
stay and a four to six week recovery period, and EBRT involves six to eight
weeks of daily radiation treatments. Treatment with TheraSeed(R) costs $10,000
to $15,000 per procedure, which is substantially lower than the cost of RP and
comparable to the cost of EBRT. In addition, management believes TheraSeed(R)
offers significant competitive advantages over I-125, an alternative
radioisotope used in seeding, as a result of Pd-103's higher dose rate and
shorter half-life.
TheraSeed(R) is a radioactive "seed" approximately 4.5 millimeters long and
0.81 millimeters wide, or approximately the size of a grain of rice. Each seed
consists of a biocompatible titanium capsule containing the radioactive
substance Pd-103. The half-life of Pd-103, or the time required to reduce the
emitted radiation to one-half of its initial level, is 17 days, resulting in the
loss of almost all radioactivity in less than four months.
Treatment Protocol
Prostate cancer patients electing seed therapy first undergo a transrectal
ultrasound test or CT scan, which generates a two-dimensional image of the
prostate that is transformed into a three-dimensional image. With the assistance
of a computer program, a treatment plan is designed that calculates the number
and placement of the seeds required for the best possible distribution of
radiation to the prostate.
Once the implant model has been constructed, the procedure is scheduled and
the seeds are ordered. The number of seeds implanted ranges from 40 to 100, with
the number of seeds varying with the size of the prostate. The procedure is
usually performed under local anesthesia in an outpatient setting. An ultrasound
probe is first positioned in the rectum to guide needle placement and seed
location. Correct needle placement is facilitated by a template, or grid, that
covers the perineum (the area between the scrotum and rectum through which the
needles are inserted) and is attached to the ultrasound probe. Implant needles
loaded with seeds are assigned to the appropriate template holes as indicated in
the treatment plan. Each needle is guided through the template and then through
the perineum to its predetermined position within the prostate under direct
ultrasound visualization. The seeds are implanted as the needle is withdrawn
from the prostate. When all seeds have been inserted, the ultrasound image is
again reviewed to verify seed placement.
An experienced practitioner typically performs the procedure in approximately
60 to 90 minutes, with the patient often returning home at day's end. Recovery
time is typically two to three days. In contrast, RP generally requires up to
three hours to perform, with a three to seven-day hospital stay and a typical
recovery period of four to six weeks. EBRT requires daily outpatient radiation
treatments for a period of six to eight weeks. Seeding has been used as a
treatment for prostate cancer since the early 1970s, when I-125 seeds were
implanted in prostate tumors under open surgery. However, this "free hand"
technique fell into disfavor because the seeds were often haphazardly arranged
leading to inhomogeneous dosimetry, with suboptimal antitumor effect in
underdosed areas and significant damage to collateral tissues, particularly in
the urethra and rectum, in overdosed areas. Clinical results indicate that the
computer modeling and advanced imaging and other techniques used in seeding
today have virtually eliminated these drawbacks.
Clinical Results
Strong Efficacy Results. Clinical data indicates that seeding offers success
rates that are comparable to or better than those of RP or EBRT. In a study
described in Urology Times in September 1994, Drs. John Blasko and Haakon Ragde
of the Northwest Tumor Institute in Seattle, Washington, found, in a study of
298 men with early-stage prostate cancer, an actuarial local control rate of
96%, after treatment with either Pd-103 or I-125 seed implantation. A study
published in 1995 by Drs. Blasko and Ragde found 100% of the 111 patients
treated with TheraSeed(R) for localized early-stage prostate cancer showed no
localized prostate cancer after treatment follow-up ranging from 12-73 months,
with a median follow-up of 32 months. The actuarial disease-free rate at 54
months was 89%. Updating their previous study on patients treated with Pd-103
or I-125 for a paper prepared for the First International Consultation on
Prostate Cancer organized by the World Health Organization in June 1996,
Drs. Blasko and Ragde found a seven-year actuarial local disease-free rate
of 97% for 320 patients treated for localized early-stage prostate cancer. They
also presented therein an eight-year actuarial local disease-free rate of 87%
for 188 patients who were considered to represent higher risks of locally
advanced prostate cancer and were treated with a combination of Pd-103 or
I-125 seeding and a modified dose of EBRT. A study by Dr. Michael Dattoli of
University Community Hospital, Tampa, Florida and Dr. Kent Wallner of
Memorial Sloan-Kettering Cancer Center, New York, New York, published in
the International Journal of Radiation Oncology, Biology and Physics in
July 1996 found a three-year actuarial freedom from biochemical failure
(based on PSA scores) of 79% among 73 patients with clinically
localized, high risk prostate cancer who were treated with EBRT in combination
with Pd-103. This compares favorably to results reported for patients treated
with conventional dose EBRT alone. These locally advanced cases are significant
because RP guidelines would not classify them as suitable for surgical
treatment.
Reduced Incidence of Side Effects. Because TheraSeed(R) delivers a highly
concentrated and confined dose of radiation directly to the prostate, healthy
surrounding tissues and organs are spared excessive radiation exposure. This
results in significantly fewer and less severe side effects and complications
than are incurred with other conventional therapies. RP generally results in a
50-90% impotence rate and a 2-65% incontinence rate, and EBRT generally results
in impotence and incontinence rates of 40-60% and 10-25%, respectively. In
contrast, according to the 1995 study by the Northwest Tumor Institute described
above, it was reported that 85% of seed therapy patients under 70 years of age
who were potent before the procedure remained so. In addition, patients who had
not had a previous transurethral prostate resection ("TURP") suffered no
incontinence. Patients having a previous TURP have compromised urinary tracts
and can experience higher rates of incontinence. Patients receiving seeding can
expect some urinary urgency post-implantation as the Pd-103 delivers its
radiation dose.
Lower Treatment Cost. The total cost of seeding is approximately $10,000 to
$15,000 per procedure. This is approximately one-half the cost of RP, which
ranges from $20,000 to $30,000, excluding treatment for side effects and
post-operative complications, and is comparable to the cost of EBRT, which
ranges from $12,000 to $15,000 for a six-to-eight week course of treatment.
The following table compares the methods of treatment discussed above with a
minimum of five-year outcomes data:
- -------------------------------------- ----------------------------- ------------------------------ ------------------------------
External Beam
Radical Prostatectomy Radiation Therapy Seeding
- -------------------------------------- ----------------------------- ------------------------------ ------------------------------
Outpatient procedure One-time outpatient
Inpatient procedure with with daily treatments for procedure lasting
3-7 day hospital stay 6-8 weeks 60-90 minutes
Nature of Treatment
- -------------------------------------- ----------------------------- ------------------------------ ------------------------------
- -------------------------------------- ----------------------------- ------------------------------ ------------------------------
Targeted Cancer Stage A and B A, B and C A and B
- -------------------------------------- ----------------------------- ------------------------------ ------------------------------
- -------------------------------------- ----------------------------- ------------------------------ ------------------------------
Five Year Success Rate(a) 78-83% 50% 80-100%
- -------------------------------------- ----------------------------- ------------------------------ ------------------------------
- -------------------------------------- ----------------------------- ------------------------------ ------------------------------
Recovery Period Generally 4-6 weeks None after 6-8 weeks 2-3 days
- -------------------------------------- ----------------------------- ------------------------------ ------------------------------
- -------------------------------------- ----------------------------- ------------------------------ ------------------------------
Impotence Rate(b) 50-90% 40-60% 5-15%
- -------------------------------------- ----------------------------- ------------------------------ ------------------------------
- -------------------------------------- ----------------------------- ------------------------------ ------------------------------
Incontinence Rate(b) 2-65% 10-25% 0-2%
- -------------------------------------- ----------------------------- ------------------------------ ------------------------------
- -------------------------------------- ----------------------------- ------------------------------ ------------------------------
Cost Per Procedure $20,000-$30,000 $12,000-$15,000 $10,000-$15,000
- -------------------------------------- ----------------------------- ------------------------------ ------------------------------
(a) Calculated as the percent of patients disease-free after five years. Rates
may be actuarially computed.
(b) The percent of patients with normal continence and potency prior to
treatment not preserving such attributes. Excludes patients with previous
TURPs.
Management believes TheraSeed(R) represents the best available form of
seeding. Another radioactive isotope, Iodine-125 ("I-125"), is also commercially
available as a permanent implant. TheraSeed(R) is the first commercially
available alternative isotope to I-125 since I-125's introduction in the 1970s.
Management believes I-125 and Pd-103 are used with relatively equal frequency in
substantially all prostate cancer seeding procedures. Another technique known as
"temporary seeding," which involves the temporary placement of an Iridium-based
source in or near a tumor, is used in a very small percentage of cases.
Management believes Pd-103 has the following advantages over I-125: (i) Pd-103
delivers three times the dose rate of I-125, which can yield advantages in
treating aggressive cancers, (ii) Pd-103 has approximately one-third the
half-life of I-125, which shortens radiation induced side effects and exposure
to medical personnel in treatment follow-up; and (iii) unlike I-125, Pd-103 is
nontoxic and non-volatile as it decays. Management is not aware of any clinical
studies directly comparing the efficacy of Pd-103 and I-125.
Strategy
In an effort to enhance market penetration and maintain technological
leadership in the field of radiological treatment of diseases, the Company is
implementing the following strategies. In the event the Company enters into a
definitive agreement with Indigo, management anticipates that Indigo will assume
and expand upon certain of the strategic initiatives described below.
o Increase Physician Awareness of Seeding and TheraSeed(R).
Physician acceptance is critical to the increased use of seeding
as a form of treatment for prostate cancer. The primary
physician for the treatment of prostate cancer is the urologist.
RP has a long history as the treatment of choice for early-stage,
localized prostate cancer and urologists are accustomed to
performing this procedure. Compelling long-term outcomes data is
therefore key to the development of physician interest in seeding as
an alternative form of prostate cancer treatment. To promote such
interest, the Company is publishing the results of recent clinical
studies illustrating TheraSeed(R)'s effectiveness in treating
prostate cancer and is supporting related research and publication
efforts by physicians using TheraSeed(R). Management recognizes
the importance of well-trained physicians and the need for quality
training in advancing the growth of this product and is exploring
opportunities toward this end. Management has historically lent
financial support to training centers and expects to continue
this practice. By increasing physician awareness of TheraSeed(R) and
its effectiveness in treating prostate cancer, the Company plans to
increase demand for TheraSeed(R) within the medical community.
o Maintain A Strong Commitment to Providing Cancer Information Services to
Patients. Management believes that patients are taking an active role in
choosing their medical treatment. In response to this, Theragenics
intends to maintain its efforts to increase patient awareness of
alternative treatments and the importance of second opinions through its
Cancer Information Center as well as other avenues of increasing
awareness.
o Maintain Technological Leadership. Management believes the Company is
the only producer of Pd-103-based radioactive seeds. The Company's
strategy is to be a technological leader in the cancer treatment
industry and believes its proprietary technology possesses performance
advantages over competitive seed technology. The Company will also
continue to focus on production technology to maintain leadership in
this area.
o Explore and Evaluate Opportunities for Strategic Alliances. The
Company is negotiating the terms of a strategic alliance with Indigo
Medical, Inc., a subsidiary of Johnson & Johnson, and has stated an
intent to grant to Indigo the exclusive worldwide right to market
and sell TheraSeed(R) for the treatment of prostate cancer.
Management believes this alliance will enable the Company to focus
its resources on maintaining its leadership in the production of
Pd-103 for prostate cancer treatment and other potential
applications without being required to develop an extensive,
vertically integrated sales, marketing, education and training
network. Synergies with large healthcare-related companies may be
identified and Theragenics may pursue strategic relationships with
such companies on its own or through its relationship with Indigo.
Such relationships could relate to marketing, product development,
supply, distribution, research or other aspects of the Company's
operations. Potential strategic allies include large
pharmaceutical or medical device companies, health maintenance
organizations, outpatient treatment centers and companies, hospitals,
research centers, universities, start-up companies or other entities.
Management believes the Company's long-term growth and strong
competitive position could be enhanced through such alliances or
affiliations and intends to actively seek suitable opportunities
for such relationships.
o Promote Seeding to Health Care Payors. A substantial portion of the
cost of prostate cancer treatment in the United States is currently
reimbursed by the Medicare program and other third party payors.
The amount of reimbursement for prostate cancer treatment is
likely to have a significant impact on the decisions of urologists,
oncologists and other health care providers regarding treatment
options. The Company has been actively engaged in efforts to ensure
that adequate and fair reimbursement for seeding is available for the
doctors performing the procedure. The Company has long-standing
relationships with patient advocacy groups that share with the
Company a desire to ensure unrestricted access to the TheraSeed(R)
treatment alternative. The Company plans to continue these
activities as they relate to the Company's business.
o Explore New Distribution Channels and Product Applications. Management
believes significant long-term international marketing opportunities
exist for TheraSeed(R). Although no meaningful overseas market currently
exists for the product, management believes a variety of factors,
including international introduction of the PSA test, may create an
international market for TheraSeed(R) in the future. In addition,
although the Company has focused primarily on prostate cancer to date,
management believes TheraSeed(R) could be used increasingly to treat
other forms of cancer, including cancers of the pancreas, lung, head,
neck, oral cavity, brain and eye. Management plans to support
programs to identify additional oncological and non-oncological uses
for TheraSeed(R) and Pd-103.
Production
The production of TheraSeed(R) is dependent upon the availability of Pd-103,
as well as Rhodium-103 ("Rh-103"), titanium, graphite and lead. With the
exception of Pd-103, all of these raw materials are relatively inexpensive and
readily available from third party suppliers.
Pd-103 is a radioactive isotope that can be produced by neutron bombardment
of Pd-102 in a nuclear reactor, or by proton bombardment of Rh-103 in a
cyclotron. Following the production of Pd-103 from Rh-103 in the cyclotron, the
Pd-103 is harvested from the cyclotron and moved through a number of proprietary
production processes until it reaches its final seed form used by doctors.
Until 1993, the Company used the neutron bombardment method of producing
Pd-103. Under this method, the Company was required to contract with third
parties for the enrichment services necessary to produce a useable feed material
for production of Pd-103 in a nuclear reactor. Additionally, the Company was
dependent upon a university and a United States government reactor for the
irradiation of this feed material to yield Pd-103. The government facility was
subject to increasing political uncertainty regarding its control and funding,
and neither the university nor the government facility operated on a commercial
timetable. These factors combined to limit the Company's ability to obtain
Pd-103 on a timely and consistent basis.
To increase its control over timely and consistent availability, quality and
cost of Pd-103, the Company turned to the proton bombardment method of producing
Pd-103. To accomplish this alternative method of production, the Company
contracted in 1992 for the purchase of a cyclotron for in-house production of
Pd-103. After the cyclotron was delivered and reliable production of Pd-103 was
proven, the Company discontinued its reliance on outside vendors for enrichment
and irradiation services.
The Company has three cyclotrons in production and is currently installing
a fourth, which is scheduled to become operational during the first quarter of
1997. The Company has ordered four additional cyclotrons for installation in
fiscal 1998. The Company's cyclotrons are designed, built, installed and tested
by a Belgian company specializing in the construction of such equipment. A
number of proprietary design modifications are incorporated in the cyclotrons.
These modifications are subject to confidentiality agreements with the cyclotron
manufacturer and the Company's own personnel.
Due to the highly sophisticated and technical nature of the equipment, the
Company has encountered delays and difficulties in the construction,
installation and testing of its cyclotrons. Management cannot be certain that
such problems will not occur in connection with the construction, installation
and testing of the cyclotrons to be installed in 1998.
Cyclotron operations constitute only one component of the TheraSeed(R)
manufacturing process. Because the production of TheraSeed(R) is highly
sensitive and labor intensive, management is focusing significant attention and
effort on automating and otherwise improving all aspects of the Company's
manufacturing process. Although the automation process is difficult and time
consuming, management believes it will improve efficiency, further reduce
radiation exposure to personnel and provide additional production capacity for
TheraSeed(R).
Marketing
The Company's marketing program is aimed at increasing awareness of
TheraSeed(R) within the medical community and the potential patient population,
as well as adding value to its customers' medical practices.
Strategic Alliance. The Company recently entered into a letter of intent
with Indigo Medical, Inc., a subsidiary of Johnson & Johnson, stating the
intent to grant to Indigo the exclusive worldwide right to market and sell
Theraseed(R) for the treatment of prostate cancer. Indigo would also assume
responsibility for the education and training of urologists, radiation
oncologists and other personnel involved in the use of TheraSeed(R). The
letter of intent also contemplates that Indigo will have a first right of
negotiation with respect to additional uses of TheraSeed(R) and other products
that may be developed by the Company.
Management believes the proposed alliance with Indigo would provide for sales
growth and international expansion while allowing the Company to focus its
resources on maintaining its leadership in the production of Pd-103 for prostate
cancer treatment and other potential applications. By leveraging the extensive
worldwide marketing capability of Indigo and Johnson & Johnson, the Company
would eliminate the need to develop an extensive, vertically integrated sales,
marketing and education and training network. No assurance can be given,
however, that the Company and Indigo will enter into a definitive agreement or
that it will have the anticipated effect on the Company's operations.
Education/Awareness. Bringing attention to prostate cancer and its treatment
alternatives is a primary focus of the Company's marketing program. As part of
its pull marketing strategy, the Company works to disseminate prostate cancer
information through general interest stories in the print and broadcast media.
To accomplish this strategy, the Company uses its own in-house network of media
contacts as well as public relation firms. Theragenics also has an advertising
program aimed at men over 50 that promotes options for the treatment of prostate
cancer and stresses the importance of alternative treatments and obtaining
second opinions. The Company also staffs its own Cancer Information Center to
answer questions about the TheraSeed(R) treatment and assist cancer patients in
locating physicians trained in seeding. Representatives of the Company regularly
attend trade shows and conventions where the Company is visible to large numbers
of urologists, radiation oncologists and patients.
Advocacy. The Company has supported the writing and publication of a book by
a TheraSeed(R) patient, aided patient support groups, sponsored speakers on
prostate cancer, and has been active with cancer information hotlines such as
the American Cancer Society. Theragenics has fought and continues to fight for
adequate reimbursement for seed implantation from Medicare and other third party
payors. Theragenics has also advocated treatment opportunities for military
veterans.
Scholarship. The Company actively supports the writing of scholarly articles
by doctors using TheraSeed(R) and the publication of these articles in medical
journals. The Company also supports and encourages doctors using TheraSeed(R) to
present papers to and speak at seminars and symposiums on prostate disease.
Customer Service. The Company performs a value-added service to the
physician customer by directing patients seeking additional information from
Theragenics' Cancer Information Center to one of the nearly 300 centers across
the United States performing the TheraSeed(R) treatment. Theragenics also
provides assistance to physicians newly trained in the TheraSeed(R) treatment by
providing the doctor or the medical center with consultative advice on
increasing the visibility of the practice and the new treatment being performed
there. Theragenics retains a company specializing in medical reimbursement to
assist its customers in obtaining adequate reimbursement from third party
payors.
Physician Training. Management recognizes the marketing benefits that can be
generated by a well-trained seeding physician population and the need for
quality training to achieve that end. Physicians are currently trained at three
seeding education centers across the United States.
TheraSphere (R)
Theragenics has also participated in the development of TheraSphere(R), a
microscopic radioactive glass sphere designed for the treatment of liver cancer.
The Company holds a worldwide exclusive license from the University of Missouri
for the use of the technology required to produce TheraSphere(R). The Company
has granted to Nordion International, Inc. ("Nordion") an exclusive worldwide
sublicense to manufacture, distribute and sell TheraSphere(R) for any
application. TheraSphere(R) has been approved for distribution in Canada, but
has not been approved by the FDA for distribution in the United States. Under
the terms of the sublicense, Nordion has agreed to obtain the necessary
regulatory approvals for distribution of TheraSphere(R) in the United States and
other countries. The commercial development and regulatory approval of
TheraSphere(R) is still in its early stages, and management does not anticipate
significant revenues from TheraSphere(R) within the foreseeable future.
A TheraSphere(R) treatment dose contains approximately five million
yttrium-90 glass spheres that are each approximately half the diameter of a
human hair. The radiation dose is delivered to the tumor by introducing the
TheraSphere(R) by catheter into the hepatic artery, which carries arterial blood
to the liver. Because of greater blood flow to tumors compared to healthy liver
tissue, the microspheres concentrate in the capillaries feeding the tumor. The
concentration of microspheres in healthy tissue is much lower. Because of the
ability to place the radiation source in such close proximity to the tumor,
TheraSphere(R) can deliver a radiation dose to the tumor cells five times as
strong as that which can be delivered via external beam radiation.
Patents and Licenses; Trade Secrets
The Company's success is dependent upon protecting its proprietary
technology for the production of Pd-103. The Company relies in part on
combinations of patent, trademark and trade secrecy laws, along with contractual
provisions, to protect its intellectual property rights and its technology. The
effectiveness of these various types of protection can be limited, however, by
variations in laws and enforcement procedures from country to country. It is
possible that competitors may independently develop similar technology or
otherwise obtain access to the Company's intellectual property assets.
The Company holds United States patents directed to Pd-103 based on its
production using both cyclotrons and nuclear reactors. The Company also has
corresponding patents in Canada, South Africa, Japan and the 10 countries of the
European patent convention, and a PCT patent application on file for Japan,
Australia, New Zealand, Canada, and Europe (representing 16 European countries)
as well as a direct filing in Mexico. The Company may file additional patent
applications from time to time and considers the ownership of patents important,
but not necessarily essential, to its operations. The Company also uses a
strategy of confidentiality agreements and trade secret treatment to provide
primary protection to a number of proprietary design modifications in the
cyclotrons, as well as various production processes.
The Company also holds a worldwide exclusive license from the University of
Missouri for the use of technology required for producing TheraSphere(R).
Theragenics holds the rights to all improvements developed by the University of
Missouri on this technology. The Company, in turn, sublicenses exclusive
worldwide rights to this technology and all improvements to Nordion. Pursuant to
its license agreement with the University of Missouri, the Company is obligated
to pay the University the greater of a fixed annual amount or a percentage of
the gross sales amount derived from the sale of TheraSphere(R).
Theragenics holds patents for technology concerning methods for delivery of
TheraSphere(R) in several countries, including the United States, Canada,
Australia, Argentina, South Africa and the 10 countries of the European patent
convention, and has patent applications on file in other countries, including
Japan. The Company exclusively licenses this technology to Nordion for worldwide
use.
The Company relies to a significant degree on trade secrets, proprietary
know-how and technological advances that are either not patentable or which the
Company chooses not to patent. In particular, the Company has designed certain
modifications to its cyclotrons as well as various production processes that it
deems to be proprietary. The Company seeks to protect non-patented proprietary
information, in part, by confidentiality agreements with suppliers, employees
and consultants.
Competition
The Company competes in a market characterized by technological innovation,
extensive research efforts and significant competition. In general, TheraSeed(R)
competes with conventional methods of treating localized cancer such as RP and
EBRT. RP currently represents the standard medical treatment for early-stage,
localized prostate cancer. RP has a long history of favorable clinical results
and physicians have developed a high degree of familiarity and comfort with this
procedure. EBRT is also a well-established method of treatment and is widely
accepted for patients who do not represent a good surgical risk or whose
prostate cancer has advanced beyond the stage for which surgical treatment is
indicated. RP and EBRT are therefore well entrenched in the medical community
and in the universities and schools providing medical education. Management
believes that if general conversion from these established procedures to
TheraSeed(R) treatment does occur, such conversion will be the result of a
combination of equivalent or better efficacy, reduced incidence of side effects
and complications, lower cost, other quality of life issues and pressure by
health care providers and patients.
In addition, I-125 is commercially available as a permanent implant and
competes with TheraSeed(R). Management believes I-125 and Pd-103 are used with
relatively equal frequency in prostate cancer seeding procedures. I-125's dose
rate is approximately one-third that of Pd-103, however, and its half-life is
three times longer. Management believes Pd-103 enjoys a competitive advantage
over I-125 based on: (i) a higher dose rate, which can yield advantages in
treating aggressive cancers, (ii) a shorter half-life, which shortens radiation
induced side effects and exposure to medical personnel in treatment follow-up;
and (iii) Pd-103 is nontoxic and non-volatile as it decays. Management is aware
of no other similar radioactive products competing directly with TheraSeed(R).
Although a small Belgium start-up company has announced its intent to produce
Pd-103 for medical devices, to management's knowledge, Theragenics is the only
company in the world that commercially produces Pd-103 for medical devices.
Many companies, both public and private, are researching new and innovative
methods of treating cancer. In addition, many companies, including many large,
well-known pharmaceutical, medical device and chemical companies, are engaged in
radiological pharmaceutical and device research. Significant developments by any
of these companies could lessen or eliminate the demand for the Company's
products.
Government Regulation
The Company's present and intended future activities in the development,
manufacture and sale of cancer therapy products are subject to various laws,
regulations, regulatory approvals and guidelines. Within the United States, the
Company's therapeutic radiological devices must comply with the U.S. Federal
Food, Drug and Cosmetic Act, which is enforced by the FDA.
Before a new device can be marketed in the United States, the manufacturer
generally must obtain either (i) FDA clearance of a pre-market notification
under Section 510(k) of the Federal Food, Drug & Cosmetic Act or (ii) FDA
approval of a pre-market approval application (a "PMA"). Following submission of
the 510(k), the manufacturer may not market the new device until an order is
issued by the FDA finding the device to be "substantially equivalent" to a
legally marketed medical device (a "predicate device"). The 510(k) process can
be lengthy and expensive and the issuance of such clearance is often uncertain.
If a new device is not eligible for clearance under the 510(k) process, a PMA
application must be filed with and approved by the FDA before the product may be
marketed. The PMA process requires the performance of extensive clinical trials
to determine safety and efficacy, is significantly more complex, expensive and
time consuming than the 510(k) process and typically requires five to seven
years. In countries in which the Company's products are not currently approved,
the use or sale of the Company's commercial products will require approvals by
government agencies comparable to the FDA. The Company is also required to
adhere to applicable FDA regulations for Good Manufacturing Practices, including
extensive record keeping and reporting and periodic inspections of manufacturing
facilities. Similar requirements are imposed in other countries.
The Company obtained FDA 510(k) clearance in 1986 to market TheraSeed(R)
for, in general, the treatment of localized solid tumors. A new 510(k) clearance
is required for any modifications in the device or its labeling that could
significantly affect the safety or effectiveness of the original product. Under
the FDA's regulatory scheme, the decision whether to seek 510(k) clearance for a
modified device is left to the manufacturer in the first instance, and
management has thus far determined that no such clearance has been required. The
FDA has the right to review and revoke 510(k) clearance at any time. A PMA may
be required for future products or for future modifications to TheraSeed(R).
The Company's handling of radioactive materials is governed by the State of
Georgia in agreement with the NRC. The users of TheraSeed(R) are also required
to possess licenses issued either by the states in which they reside or the NRC
(depending upon which state is involved and which of two possible processes are
used by the Company to produce TheraSeed(R)). Use licenses also will be required
by some of the foreign jurisdictions in which the Company may attempt to market
its products. Although the regulatory standards applicable to products
containing radioactive materials produced as a by-product of nuclear fission
reactions are uniform nationally, uniform regulatory standards do not exist at
the present time with respect to TheraSeed(R) as produced by the Company's
current manufacturing process. To date, these standards have imposed no
impediment to marketing and management anticipates they will not pose an
impediment unless the regulatory environment changes or new rulings are adopted.
Furthermore, the Company's expansion plans require the Company to secure
additional permits and licenses from a number of environmental, health and
safety regulatory agencies. The Company believes, but cannot assure, that it
will be able to acquire the permits and licenses necessary for its planned
expansion of its manufacturing capacity in accordance with the Company's
timetable for its expansion. The Company to date has not experienced delays in
licensing any of its facilities or cyclotrons.
The Company is required under its radioactive materials license to maintain
radiation control and radiation safety personnel, procedures, equipment and
processes, and to monitor its facilities and its employees and contractors. The
Company is also required to provide financial assurance that end-of-life
radiological decommissioning of its cyclotrons and other radioactive areas of
its property that contain radioactive materials will be adequately funded by the
Company. The Company has so far been successful in explaining to the Georgia
Department of Natural Resources that it will not have to dispose of its
cyclotrons, but instead will be able to sell them for re-use if its ceases to
operate them. Thus, the Company is only required to estimate and provide
financial assurance for the end-of-life remediation and disposal costs
associated with ancillary structures, such as plumbing, laboratory equipment and
chemical processing facilities. The Company's decommissioning obligations will
increase as its production capacity is expanded. Moreover, if the Georgia
Department of Natural Resources were to require that the Company include the
cost of decommissioning its cyclotrons in its financial assurance demonstration,
the amount of money required to be set aside by the Company to cover
decommissioning costs could dramatically increase.
The Company disposes of low level radioactive waste to licensed commercial
radioactive waste treatment or disposal facilities for incineration or land
disposal. The amount of radioactive waste generated by the Company's operations
will increase following implementation of the Company's planned expansion of its
production capacity. There is a high degree of regulatory uncertainty associated
with commercial radioactive waste disposal facilities, and the cost of disposing
of radioactive waste has increased dramatically in recent years. To mitigate the
impact of a potential moratorium on radioactive waste disposal at the Company's
current disposal site, the Company sought and received a license from the
Georgia Department of Natural Resources for temporary on-site storage capacity.
The Company believes that it would be able to obtain additional licensure
necessary to enable it to continue production for a substantial period of time
in the event its current waste disposal contractor ceases to be able to receive
the Company's waste and an alternative disposal site is not readily available.
The Company also handles nonradioactive chemical substances in the normal course
of its manufacturing operations that are subject to a broad range of state and
federal environmental regulations, and which could cause harm to humans or to
the environment if improperly handled or released to the environment. Management
believes the Company is in compliance with all state and federal regulations.
The Company provides training and monitoring of its personnel with two full time
regulatory and safety officers to facilitate the proper handling of all
materials.
Employees
As of December 31, 1996, the Company had 59 full-time employees (including
executive personnel). Of this total, 37 were engaged in development and
production of the Company's products. The remainder were engaged in marketing
and general corporate activities. The Company's employees are not represented by
a union or a collective bargaining unit, and management considers employee
relations to be good.
Item 2. Properties
The Company owns a 15,245 square-foot, single-story building in Buford,
Georgia, leases a 10,752 square-foot, single-story building in Norcross,
Georgia, and leases a 2,692 square-foot suite of offices in a four-story office
building in Norcross, Georgia. The larger Norcross facility houses the Company's
assembly, shipping, marketing and administrative operations, the smaller
Norcross facility provides executive office space and the Buford facility houses
the Company's cyclotrons and its raw material processing operations. In 1996,
the Company purchased 30 acres of land adjacent to its Buford facility.
Management plans to use this land for long-term expansion of the Company's
production facilities as manufacturing expands to meet increasing sales demand
and eventually plans to relocate all functions currently housed in the leased
Norcross facilities to the facilities planned for construction on the 30 acres
of land adjacent to its current Buford facility.
Item 3. Legal Proceedings
There are currently no material legal proceedings pending or, to the
knowledge of management, threatened against the Company.
Item 4. Submission of Matters to a Vote of Security Holders
The Company did not submit any matter to a vote of its security holders during
the fourth quarter of calendar 1996.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
The Company's Common Stock is traded over the counter and reported on the
Nasdaq National Market ("Nasdaq"). The trading symbol for the Company's Common
Stock is "THRX." The high and low prices as reported on Nasdaq for the Company's
Common Stock for each quarterly period in 1995 and 1996 are as follows:
High Low
1995
First Quarter...................................... $3.75 $2.25
Second Quarter..................................... 6.50 3.13
Third Quarter...................................... 6.38 4.88
Fourth Quarter..................................... 12.50 4.88
1996
First Quarter...................................... 12.25 7.00
Second Quarter..................................... 18.63 8.63
Third Quarter...................................... 19.25 11.75
Fourth Quarter..................................... 25.63 16.00
As of March 18, 1997, the closing price of the Company's Common Stock was
$20-5/8 per share. Also, as of that date, there were approximately 743 holders
of record of the Company's Common Stock. The number of record holders does not
reflect the number of beneficial owners of the Company's Common Stock for whom
shares are held by depositary trust companies, brokerage firms and others.
On February 14, 1997, The Company's Board of Directors adopted a Stockholder
Rights Plan (the "Rights Plan"). The Rights Plan contains provisions to protect
the Company's stockholders in the event of an unsolicited offer to acquire the
Company, including offers that do not treat all stockholders equally, the
acquisition in the open market of shares constituting control without offering
fair value to all stockholders and other coercive, unfair or inadequate takeover
bids and practices that could impair the ability of the board of Directors to
represent stockholders' interests fully. Pursuant to the Rights Plan, the Board
of Directors declared and paid a dividend of one share purchase right (a
"Right") for each outstanding share of Common Stock held of record as of
February 28, 1997. The Rights, which will expire in February 2007, initially
will be represented by, and traded together with, the Common Stock. The Rights
are not currently execisable and do not become exercisable unless certain events
occur, including the acquisition of, or commencement of a tender offer for, 15%
or more of the outstanding Common Stock. Each Right represents the right to
purchase from the Company one share of Common Stock at a purchase price of
$120.00, subject to adjustment. In the event certain triggering events occur,
including the acquisition of 20% or more of the outstanding Common Stock each
Right that is not held by the 20% or more stockholder will entitle its holder to
purchase additional shares of Common Stock having a market value of twice the
purchase price. As a result, the Rights Plan could add substantially to the cost
of acquiring the Company, and consequently could delay or prevent a change in
control of the Company. These effects could adversely affect the market price of
the Common Stock. Prior to the time the Rights become exercisable, the Board of
Directors may redeem the Rights at a redemption price of $.01 per Right. The
description and terms of the Rights are set forth in a Rights Agreement dated as
of February 17, 1997 by and between the Company and SunTrust Bank, Atlanta, as
Rights Agent.
Dividend Policy
The Company has never declared or paid a cash dividend on its Common Stock.
It is the present policy of the Board of Directors to retain all earnings to
support operations and to finance expansion. Consequently, the Board of
Directors does not anticipate declaring or paying cash dividends on the Common
Stock in the foreseeable future. The Company's current credit facility limits
the amount of dividends payable on the Common Stock to a maximum of 25% of the
Company's annual net income after tax. Decisions on the payment and amount of
future dividends on the Common Stock will depend on the Company's results of
operations, capital requirements and financial condition and other relevant
factors as determined by the Board of Directors.
Item 6. Selected Financial Data
The selected financial data set forth below as of December 31, 1995 and 1996
and for each of the years in the three-year period ended December 31, 1996 have
been derived from the financial statements of the Company included elsewhere
herein, which have been audited by Grant Thornton LLP, independent certified
public accountants. The selected financial data as of December 31, 1992, 1993
and 1994 and for each of the years in the two-year period ended December 31,
1993 have been derived from the financial statements of the Company, which have
been audited by Grant Thornton LLP but are not included herein. The selected
financial data set forth below should be read in conjunction with the financial
statements of the Company and related notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere herein.
Year Ended December 31,
-----------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(Dollars and shares in thousands, except per share data)
Statement of Earnings
Data:
Product sales $4,379 $4,091 $4,723 $7,782 $12,257
Licensing fees -- -- -- 85 100
----- ------ ------ ------ ------
4,379 4,091 4,723 7,867 12,357
Cost of product sales 1,227 1,678 1,791 2,645 3,736
Selling, general and
administrative 1,639 1,607 1,844 2,396 3,198
Research and
development 63 36 15 18 7
----- ------ ------ ------ ------
2,929 3,321 3,650 5,059 6,941
Other income (expense) 68 (86) 110 64 36
----- ------ ------ ------ ------
Net earnings before
income taxes,
extraordinary credit
and cumulative effect
of change in accounting
principle 1,518 684 1,183 2,872 5,452
Income tax expense 582 254 453 1,100 2,067
----- ------ ------ ------ ------
Net earnings before
extraordinary credit
and change in accounting
method 936 430 730 1,772 3,385
Extraordinary credit 556 -- -- -- --
Change in accounting
method -- 2,860 -- -- --
----- ------ ------ ------ ------
Net earnings $1,492 $3,290 $ 730 $1,772 $3,385
====== ====== ====== ====== ======
Earnings per common
share before
extraordinary credit
and change in
accounting method $ 0.08 $ 0.04 $ 0.06 $ 0.15 $ 0.28
Earnings per common
share $ 0.13 $ 0.28 $ 0.06 $ 0.15 $ 0.28
Weighted average
shares 11,431 11,709 11,583 11,759 12,259
Year Ended December 31,
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(In thousands)
Balance Sheet Data:
Cash and short-term
investments $2,928 $3,083 $2,317 $3,266 $2,986
Property, plant and
equipment, net 3,404 5,647 8,458 10,073 17,586
Total assets 7,851 12,619 14,169 16,878 23,689
Long-term debt,
including current
installments -- 1,330 1,989 1,519 3,458
Shareholders' equity 7,445 11,034 11,810 14,769 19,385
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Theragenics was founded in 1981 and is engaged in the manufacture and sale of
TheraSeed(R), a rice-sized device used for the treatment of localized prostate
cancer in a one-time, minimally invasive procedure. In 1986, the Company
received FDA clearance for its principal product, TheraSeed(R), for use in any
solid localized tumor. Sales increased 65% in 1995 and 58% in 1996 due to
reliable production from the Company's cyclotrons and increased demand for
TheraSeed(R) as a result of significantly increased marketing efforts and the
release of favorable clinical data relating to the use of TheraSeed(R).
TheraSeed(R) has been used in an estimated 13,000 procedures for prostate cancer
since 1987, including approximately 4,000 procedures in 1996.
Production of Pd-103, the radioisotope supplying the therapeutic radiation of
TheraSeed(R), has always been a controlling factor in the Company's efforts to
generate sales. Until 1993, the Company used a manufacturing process that
required it to contract with third parties for enrichment services that were
necessary to produce a useable feed material for production of Pd-103 in a
nuclear reactor. Additionally, the Company was dependent on a university and a
United States government reactor for the irradiation of this feed material to
yield Pd-103. These factors combined to limit the availability of Pd-103 on a
timely and consistent basis.
To increase its control over the timely and consistent availability, quality
and cost of Pd-103, the Company converted to an alternative means of producing
Pd-103 using a cyclotron. In 1992, the Company contracted for the purchase of a
cyclotron for in-house production of Pd-103. After the cyclotron was delivered
and reliable production of Pd-103 was demonstrated, the Company discontinued its
reliance on outside vendors for enrichment and irradiation services.
In view of the scale of the investment necessary to add cyclotrons and the
Company's limited access to debt and equity capital, the Company undertook a
slow and measured roll-out of its TheraSeed(R) product. Management focused
primarily on the careful development of relationships with the physician
community and on ensuring that the Company's production capabilities could meet
demand for its product. The Company added additional cyclotrons in 1995 and
1996, and a fourth cyclotron is scheduled to become operational in early 1997.
Because a cyclotron does not become available for production until approximately
18 months after it is ordered, the accuracy of the Company's long-term plans can
significantly affect its results of operations. The delivery of cyclotrons prior
to a commensurate increase in demand could adversely impact margins, while
inadequate cyclotron capacity could limit the Company's ability to meet demand
and achieve maximum sales growth.
The Company has recently commenced a $20.0 million capital expansion project
that includes the purchase of four additional cyclotrons and the construction of
new production and administrative facilities. Although no assurances can be
given, management expects that one new cyclotron will become operational during
each quarter of fiscal 1998. Management intends to apply a substantial portion
of the net proceeds from an offering of two million shares of the Company's
Common Stock, planned for completion by the end of March 1997, toward the
purchase of the cyclotrons to be installed in fiscal 1998 and use the remainder
for working capital and other corporate purposes as appropriate. See "Liquidity
and Capital Resources."
On February 24, 1997, the Company entered into a letter of intent with
Indigo Medical, Inc., a subsidiary of Johnson & Johnson, stating the intent to
grant to Indigo the exclusive worldwide right to market and sell Theraseed(R)
for the treatment of prostate cancer. Under the terms of the proposed alliance,
the Company will receive a fixed price per seed sold by Indigo in the United
States and will participate in any unit price increases above a fixed gross
sales price. Indigo would also assume responsibility for the education and
training of urologists, radiation oncologists and other personnel involved in
the use of TheraSeed(R). The Company will continue to be responsible for all
manufacturing and distribution for TheraSeed(R). The terms of international
collaboration would be negotiated in the future.
Should a definitive agreement be reached, management expects that the
alliance would result in higher sales volume that would offset the reduced price
received by the Company for its product and would provide avenues for
international expansion. Based on the Company's ability to utilize Indigo's
sales, marketing and education and training network, management also anticipates
that an alliance with Indigo would significantly reduce the increases in
selling, general and administrative expense that would be necessary to generate
and respond to any future sales increases. In addition, management expects that
increased volume would require the Company to purchase additional cyclotrons and
plans to order additional cyclotrons at a rate commensurate with demand in the
event a definitive agreement with Indigo is reached. No assurance can be given,
however, that the Company and Indigo will successfully negotiate or execute a
definitive agreement or that it will have the anticipated effect on the
Company's results of operations.
Results of Operations
Year Ended December 31, 1996 Compared to Year Ended
December 31, 1995
Product sales were $12.3 million in 1996 compared to $7.8 million in 1995, an
increase of $4.5 million, or 57.7%. This increase was due to increased shipments
of TheraSeed(R) as a result of reliable production from the Company's
cyclotron-based manufacturing process and increased demand for TheraSeed(R) as a
result of significantly increased marketing efforts and the release of favorable
clinical data. During the periods presented, the Company engaged in significant
marketing efforts to educate both physicians and patients as to the availability
of this treatment option. Sales also reflect that the Company had two cyclotrons
available to meet sales demand throughout 1996 as compared to only one cyclotron
until April 1995.
Licensing fees represent royalty payments with respect to the Company's
licensed TheraSphere(R) technology. Management does not expect licensing fees to
become material in the foreseeable future. See Note F of Notes to Financial
Statements.
Cost of product sales was $3.7 million in 1996 compared to $2.6 million in
1995, an increase of $1.1 million, or 42.3%. This increase was due primarily to
incremental staffing and cyclotron related costs. Staffing increases were
necessary to respond to and anticipate sales growth. Cyclotron operating costs
and depreciation increased as the Company's second cyclotron ran for the entire
year and the third cyclotron was placed in service. The third cyclotron came
on-line behind schedule in the fourth quarter of 1996 and is experiencing
start-up difficulties. As cyclotrons come on-line, margins decline because each
machine represents excess capacity for a period while carrying its full
component of fixed costs, including depreciation. As a percentage of product
sales, cost of product sales decreased from 34.0% in 1995 to 30.5% in 1996. This
decrease resulted from economies of scale, offset in part by margin pressures
related to bringing the third cyclotron into production.
Selling, general and administrative expense was $3.2 million in 1996 compared
to $2.4 million in 1995, an increase of $803,000, or 33.5%. This increase
reflects higher expenditures in a number of areas to support increased sales.
Marketing expenditures increased, as did staffing costs in response to
increasing workloads and responsibilities brought on by growth. Some salaries
were increased to maintain competitiveness in the marketplace and thereby retain
and attract key employees. Additionally, as head count grew, space became
limited in the Company's two facilities. The Company rented and outfitted
off-site administrative space at additional expense. Also, an increase in
overall asset size resulted in higher insurance and property tax costs. Other
support expenses grew in direct response to sales and asset size. Despite these
increases, selling, general and administrative expense as a percentage of net
sales decreased from 30.8% in 1995 to 26.1% in 1996 due to economies of scale.
During the periods presented, the Company had no ongoing pure research
function. Development of processes incorporated in the Company's production
operations is incorporated in the manufacturing area and therefore is included
in the cost of goods sold category. Management may choose to develop a research
and development program if and when appropriate opportunities are identified and
resources are in place.
Other income (expense) during the periods presented consist principally of
interest income, interest expense and write off of unamortized loan costs as a
result of loan refinancing.
The Company's effective income tax rate in both 1996 and 1995 was
approximately 38%.
Year Ended December 31, 1995 Compared to Year Ended
December 31, 1994
Product sales were $7.8 million in 1995 compared to $4.7 million in 1994, an
increase of $3.1 million, or 64.8%. This increase was due to reliable production
from the Company's cyclotron-based manufacturing process and increased demand
for TheraSeed(R) as a result of significantly increased marketing efforts and
the release of favorable clinical data. During 1994, sales efforts remained
conservative while the Company addressed the lingering impact of the 1993
change-over from reactor-produced to cyclotron-produced Pd-103 and a lengthy
period of unexpected downtime on the Company's first cyclotron during the third
quarter of 1993. In 1993 and the first half of 1994, management delayed
increasing marketing efforts until reliable cyclotron production of Pd-103 was
demonstrated. Once demonstrated, the Company instituted a more aggressive
marketing program in mid-1994. Product sales for 1995 reflected the favorable
impact of this increased marketing effort.
Cost of product sales was $2.6 million in 1995 compared to $1.8 million in
1994, an increase of $855,000, or 47.8%. This increase resulted from the
increase in TheraSeed(R) sales. As a percentage of product sales, cost of
product sales decreased from 37.9% in 1994 to 34.0% in 1995, primarily as a
result of increased utilization of production capacity and economies of scale,
partially offset by increased depreciation.
Selling, general and administrative expense was $2.4 million in 1995
compared to $1.8 million in 1994, an increase of $552,000, or 29.9%. This
increase was due primarily to increased advertising and public relations expense
to support activities associated with increased sales. Headcount expenses also
increased in response to the additional workload created by the higher sales. As
a percentage of net sales, selling, general and administrative expense decreased
from 39.0% in 1994 to 30.8% in 1995 due to economies of scale.
Income Taxes. The Company's effective income tax rate in both 1995 and
1994 was approximately 38%.
Liquidity and Capital Resources
During 1994, 1995 and 1996, the Company's principal cash needs related to
capital spending to increase manufacturing capacity. To manufacture
TheraSeed(R), the Company purchases, installs and operates cyclotrons, which
involves significant capital investment. The Company has funded its operations
over this period principally from cash flows from operations and bank
borrowings.
The Company had cash and short-term investments of $2.3 million, $3.3 million
and $3.0 million at December 31, 1994, 1995 and 1996, respectively. Working
capital was $1.3 million at December 31, 1996, including $3.5 million
representing borrowings against the Company's credit facility. This compares to
$3.7 million at year end 1995, which included $511,000 representing the current
portion of long-term obligations. The Company's credit facility allows for the
conversion of, at the Company's option, the entire outstanding balance borrowed
against the credit facility to be converted to a five-year term loan on or
before June 30, 1997, provided the Company equals or exceeds certain financial
ratios. See Note E of Notes to Financial Statements. The Company currently
satisfies these conditions. If the Company were to meet these ratios on June 30,
1997, and choose to convert the December 31, 1996 balance of $3.5 million to a
five-year term loan, the pro forma restated working capital at December 31, 1996
would equal approximately $4.4 million.
Cash provided by operating activities was $1.6 million, $3.4 million and $5.7
million during 1994, 1995 and 1996, respectively. These amounts represent
primarily net income and adjustments for deferred income tax expense and
depreciation and amortization expense, offset in part by adjustments for
increases in accounts receivable related to sales growth.
Cash used in investing activities was $3.1 million, $2.4 million and $8.6
million in 1994, 1995 and 1996, respectively, consisting in each of these years
primarily of purchases of property and equipment. Spending in 1994 primarily
represented progress payments on a project to add a second cyclotron to the
Company's manufacturing facility. This project began in 1993 and was completed
in 1995. Spending in 1995 represents the beginning of a project to add
cyclotrons three and four to the facility, while spending in 1996 represents the
continuation of the project to add cyclotrons three and four to the facility,
the purchase of 30 acres of land for the Company's expansion project and
spending on an assembly automation project. The expansion project for the
addition of cyclotrons three and four that began in 1995 is estimated to cost
approximately $9.0 million and be completed in early 1997. As of January 23,
1997, approximately $8,500,000 has been spent on this expansion project.
On December 27, 1996, the Company entered into agreements for the purchase of
four additional cyclotrons. These four cyclotrons are part of a larger expansion
project that will also include new cyclotron, product assembly and
administrative facilities. Upon completion of the project, the Company plans to
consolidate its entire workforce at this one site. As of January 23, 1997, the
Company had already spent approximately $2.5 million on this project. Management
estimates the total cost of the project to be approximately $20.0 million.
Cash provided (used) by financing activities was $659,000, ($21,000) and
$2.6 million in 1994, 1995 and 1996, respectively. Cash flows from financing
activities relates principally to bank borrowings and repayments thereof and, in
1995 and 1996, proceeds from the exercise of stock options and warrants. In the
third quarter of 1994, Theragenics received funding on a $2.1 million loan
secured by the Company's cyclotron facility including a second cyclotron (the
"1994 Term Loan"). The 1994 Term Loan was to mature in 1998 and bore an interest
rate of 8.47% per annum. Of the $2.1 million loan, $1.4 million was used to pay
off an outstanding balance under an existing long-term financing while the
remainder was used to provide partial financing for the purchase of the second
cyclotron and the facility expansion to house it. As of December 8, 1996,
approximately $1.0 million remained outstanding on the 1994 Term Loan.
In December 1995, the Company amended and restated its existing bank credit
facility. The amended and restated bank credit facility (the "Bank Credit
Facility") initially consisted of a $1.0 million receivables credit facility and
an additional $2.0 million revolving credit facility. The Bank Credit Facility
was subsequently increased to $5.0 million. On December 9, 1996, the Company
amended and restated the Bank Credit Facility. The amended and restated Bank
Credit Facility (the "Second Credit Facility") consisted of an $11.0 million
revolving credit facility. Partial proceeds from the Second Credit Facility were
used to pay off the $1.0 million balance on the 1994 Term Loan, while borrowings
under the Bank Credit Facility were rolled over to the Second Credit Facility.
Borrowings under the Second Credit Facility are secured by substantially all of
the Company's assets. The Second Credit Facility contains certain covenants
limiting the payment of dividends, the amount of annual capital expenditures and
the incurrence of additional debt and requires the maintenance of certain
minimum financial ratios. As of December 31, 1996, the Company was in compliance
with all of such covenants. Borrowings under the Second Credit Facility may be
made, at the Company's option, at an interest rate equal to the London Interbank
Offered Rate ("LIBOR") plus 2% or the lender's prime rate as defined. At
year-end, $3.5 million was outstanding against the Second Credit Facility. The
Second Credit Facility terminates on June 30, 1997. At that time, the entire
amount outstanding against the credit facility may, at the Company's option, be
converted to a five-year term loan provided certain financial ratios are
attained. No assurances can be made that the Company will attain these ratios or
if it does that it will choose to convert said balance to the term loan. See
Note E of Notes to Financial Statements.
The Company has filed a registration statement with the Securities and
Exchange Commission with respect to an underwritten public offering of 2,300,000
shares of Common Stock by the Company (including an option for 300,000 shares
that may be exercised by the underwriters to cover over-allotments, if any).
The Company intends to utilize a portion of the net proceeds for the purchase
of four additional cyclotrons during the next two fiscal years and to
construct facilities to house the cyclotrons, assembly facilities and
additional executive and administrative office space. The remaining proceeds
will be used for working capital and for general corporate purposes,
including but not limited to expenses or capital expenditures incurred
in the purchase of additional cyclotrons, marketing, research and
development and automation. Management believes that the net proceeds of
the secondary offering planned for completion by the end of March, 1997,
together with current cash balances, cash from future operations and the
Second Credit Facility, will be sufficient to meet its working capital and
capital expenditure requirements for at least the next 24 months.
This document contains certain forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995, including statements
regarding the letter of intent with Indigo Medical, Inc., trends implied by
prostate cancer incidence and treatment data, future costs of sales, selling,
general and administrative expenses, the sufficiency of the Company's liquidity
and capital resources, and statements regarding matters other than historical
facts. These forward-looking statements are subject to certain risks,
uncertainties and other factors which could cause actual results to differ
materially from those anticipated, including risks associated with the
management of growth, government regulation of the therapeutic radiological
pharmaceutical and device business, dependence on health care professionals, and
competition from conventional and newly developed methods of treating localized
cancer.
Quarterly Results
The following table sets forth certain consolidated statements of operations
data for each of the Company's last eight quarters. This unaudited quarterly
information has been prepared on the same basis as the annual audited
information presented elsewhere in this Form 10K, reflects all adjustments
(consisting only of normal, recurring adjustments) necessary in management's
opinion for a fair presentation of the information for the periods covered and
should be read in conjunction with the financial statements and notes thereto.
The operating results for any quarter are not necessarily indicative of results
for any future period.
1995 1996
---- ----
First Second Third Fourth First Second Third Fourth
Qtr Qtr Qtr Qtr Qtr Qtr Qtr Qtr
--- --- --- --- --- --- --- ---
(Dollars and shares in thousands, except per share data)
Total revenues $1,834 $1,912 $1,926 $2,195 $2,798 $2,727 $3,144 $3,688
------ ------ ------ ------ ------ ------ ------ ------
Cost of product
sales 635 639 665 706 753 888 958 1,137
Selling,
general and
administrative 604 674 607 511 693 771 722 1,012
Research and
Development 7 7 3 1 1 1 1 4
Other income
(expense) 28 29 28 (21) 27 26 17 (34)
------ ------ ------ ------ ------ ------ ------ ------
Net earnings before
income taxes 616 621 679 956 1,378 1,093 1,480 1,501
Income tax expense 234 236 258 372 524 415 562 566
------ ------ ------ ------ ------ ------ ------ ------
Net earnings $ 382 $ 385 $ 421 $ 584 $ 854 $ 678 $ 918 $ 935
====== ====== ====== ====== ====== ====== ====== ======
Earnings per
common share $ 0.03 $ 0.03 $ 0.04 $ 0.05 $ 0.07 $ 0.06 $ 0.07 $ 0.08
Weighted average
shares 11,539 11,784 11,937 12,134 12,106 12,204 12,298 12,372
Inflation
Management does not believe that the relatively moderate levels of inflation
which have been experienced in the United States in recent years have had a
significant effect on the Company's net sales or profitability.
Item 8. Financial Statements and Supplementary Data
See Index to Financial Statements and following pages.
Item 9. Changes in and Disagreements on Accounting and Financial Disclosure
Not Applicable
PART III
Item 10. Directors and Executive Officers of Registrant*
Item 11. Executive Compensation*
Item 12. Security Ownership of Certain Beneficial Owners and
Management*
Item 13. Certain Relationships and Related Transactions*
- ------------------------------
*The information called for by Items 10, 11, 12 and 13 is omitted from this
Report and is incorporated by reference to the definitive Proxy Statement to
be filed by the Company not later than 120 days after December 31, 1996, the
close of its fiscal year.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.
a) The following documents are filed as part of this Report.
1. Financial Statements
See index to financial statements.
2. Financial Schedules
See the index to financial statements.
3. Exhibits
3.1 - Certificate of Incorporation (1)
3.2 - Certificate of Amendment to Certificate
of Incorporation (1)
3.3 - Certificate of Amendment to Certificate
of Incorporation (1)
3.4 - By-Laws (1)
4.1 - See Exhibits 3.1 - 3.4 for provisions in the
Company's Certificate of Incorporation and By-Laws
defining the rights of holders of the Company's Common
Stock.
4.2 - Form of Warrant issued to the
Representatives of the Underwriters of the
Company's Public Offering (1)
4.3 - Warrant Agreements dated May 1, 1989 between the
Company and James Devas (4)
4.4 - Warrant Agreement dated May 8, 1993 between
the Company and James Devas
10.1 - License Agreement with University of
Missouri, as amended (1)
10.2 - Agreement with Atomic Energy of Canada, Ltd. (1)
10.3 - Reassignment and Release Agreement among the Company,
John L. Russell, Jr., and Georgia Tech Research
Institute (1)
10.4 - 1986 Incentive and Non-Incentive Stock
Option Plan (1)
10.5 - Letter of Agreement between the Company and
Yale-New Haven Hospital (2)
10.6 - Lease between the Company and T. Rowe Price
Realty Income Fund II dated July 14, 1988 (2)
10.7 - Form of Purchase Agreement between the
Company and ten institutional investors (3)
10.8 - Form of Custody Agreement between the
Company and IBJ Schroder Bank & Trust
Company (3)
10.9 - 1990 Incentive and Non-Incentive Stock
Option Plan (5)*
10.10 - Employment Agreement of John V. Herndon
dated June 4, 1990 (5)
10.11 - Employment Agreement of Bruce W. Smith (5)
10.12 - Purchase Agreement between Theragenics
Corporation and Production Equipment
Manufacturer (6)
10.13 - Term Loan and Security Agreement between
Theragenics Corporation and Heller
Financial, Inc. (7)
10.14 - Purchase Agreement between Theragenics
Corporation and Production Equipment
Manufacturer (8)
10.15 - Amendment to Purchase Agreement between
Theragenics Corporation and Production
Equipment Manufacturer (9)
10.16 - Employment Agreement of John V. Herndon
dated August 1, 1993 (9)*
10.17 - Employment Agreement of M. Christine Jacobs
dated as of August 1, 1996.
10.18 - Lease between the Company and T. Rowe Price
Realty Income Fund II dated January 1, 1994
(9)
10.19 - Term Loan and Security Agreement between
Theragenics Corporation and Bank South, N.A (10)
10.20 - Agreement with Nordion International Inc.
(11)
10.21 - Purchase Agreements between Theragenics
Corporation and Production Equipment
Manufacturer (12)
10.22 - Line of Credit Facility and Revolving
Credit Facility between Theragenics Corporation
and Bank South, N.A. (13)
10.23(a) Purchase Agreement dated December 27, 1996 between
Theragenics Corporation and Ion Beam Applications
s.a. (14)
10.23(b) Purchase Agreement dated December 27, 1996
between Theragenics Corporation and Ion Beam
Applications s.a. (14)
10.23(c) Purchase Agreement dated December 27, 1996
between Theragenics Corporation and Ion Beam
Applications s.a. (14)
10.23(d) Purchase Agreement dated December 27, 1996 between
Theragenics Corporation and Ion Beam Applications
s.a. (14)
10.24 - Second Amended and Restated Loan and Security Agreement
by and between Theragenics Corporation and NationsBank,
N.A. (South), Dated as of December 9, 1996 (14)
10.25 - Rights Agreement dated as of February 17, 1997
between the Company and SunTrust Bank, Atlanta (15)
10.26 - Theragenics Corporation 1995 Stock Option Plan (16)
24.1 - Consent of Independent Public Accountants
for Incorporation by Reference of Audit
Statement into Registration Statement
* Management contract or compensatory plan or arrangement idendified
pursuant to Item 14(a)(3) of Form 10-K
(1) Incorporated by reference to the exhibits filed with the
Company's registration statement on Form S-1, File No.
33-7097, and post-effective amendments thereto.
(2) Incorporated by reference to the exhibits to the report on Form 10-K for
the period ended December 31, 1988.
(3) Incorporated by reference to the exhibits to the report on Form 10-Q for
the period ended June 30, 1989.
(4) Incorporated by reference to the exhibits to the report on Form 10-K for
the period ended December 31, 1989.
(5) Incorporated by reference to the exhibits to the report on Form 10-K for
the period ended December 31, 1990.
(6) Incorporated by reference to the exhibits to the report on Form 10-K for
the period ended December 31, 1991.
(7) Incorporated by reference to the exhibits to the report on Form 10-K for
the period ended December 31, 1992.
(8) Incorporated by reference to the exhibits to the report on Form 10-Q for
the period ended June 30, 1993.
(9) Incorporated by reference to the exhibits to the report on Form 10-K for
the period ended December 31, 1993.
(10) Incorporated by reference to the exhibits to the report on Form 10-K for
the period ended December 31, 1994.
(11) Incorporated by reference to the exhibits to the report on Form 8-K dated
March 23, 1995.
(12) Incorporated by reference to the exhibits to the report on Form 8-K dated
June 29, 1995.
(13) Incorporated by reference to the exhibits to the report on Form 10-K for
the period ended December 31, 1995.
(14) Incorporated by reference to the exhibits to the report on Form 8-K dated
January 13, 1997.
(15) Incorporated by reference to the exhibits to the Company's Registration
Statement on Form 8-A filed February 27, 1997.
(16) Footnote incorporated by reference to the exhibits to the Registration
Statement on Form S-8, File #333-15313.
(b) Reports on Form 8-K
The Company filed a report on Form 8-K dated January 13, 1997,
reporting the signing of four agreements each for the purchase of
one cyclotron and the signing of an agreement for a Line of Credit
Facility and Revolving Credit Facility between Theragenics
Corporation and NationsBank, N.A. (South).
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.
THERAGENICS CORPORATION
(Registrant)
By:/s/ M. Christine Jacobs
M. Christine Jacobs
Chief Executive Officer
Dated: March 18, 1997
Norcross, Georgia
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Name Title Date
/s/ M. Christine Jacobs Chief Executive Officer 3/18/97
M. Christine Jacobs (Principal Executive Officer);
Director
/s/ Bruce W. Smith Chief Financial Officer, 3/18/97
Bruce W. Smith Treasurer (Principal
Financial Officer) and
Secretary
/s/ Charles Klimkowski Director, Chairman 3/18/97
Charles Klimkowski
/s/ John V. Herndon Director 3/18/97
John V. Herndon
/s/ Orwin L. Carter Director 3/18/97
Orwin L. Carter
/s/ Peter A.A. Saunders Director 3/18/97
Peter A.A. Saunders
/s/ Otis W. Brawley Director 3/18/97
Otis W. Brawley
THERAGENICS CORPORATION
TABLE OF CONTENTS
Page
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ................37
(For the periods ended December 31, 1994, 1995 and 1996)
FINANCIAL STATEMENTS
Balance Sheets - December 31, 1995 and 1996 .............38
Statements of Earnings for the Three Years Ended
December 31, 1996 .......................................39
Statement of Shareholders' Equity for
the Three Years Ended December 31, 1996 .................40
Statements of Cash Flows for the Three Years Ended
December 31, 1996 .......................................42
NOTES TO FINANCIAL STATEMENTS ...........................44
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Theragenics Corporation
We have audited the balance sheets of Theragenics Corporation (a Delaware
corporation) as of December 31, 1995 and 1996, and the related statements of
earnings, shareholders' equity, and cash flows for each of the three years in
the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Theragenics Corporation as
of December 31, 1995 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
GRANT THORNTON LLP
Atlanta, Georgia
January 16, 1997
THERAGENICS CORPORATION
BALANCE SHEETS
December 31,
1995 1996
-------- --------
ASSETS
CURRENT ASSETS
Cash and short-term investments........ $3,266,338 $2,986,123
Trade accounts receivable.............. 1,335,645 2,258,936
Inventories............................ 166,955 229,298
Prepaid expenses and other current
assets................................. 67,521 133,625
---------- ----------
Total current assets........... 4,836,459 5,607,982
PROPERTY, PLANT AND EQUIPMENT -- AT COST
Building and improvements.............. 1,690,045 3,333,728
Leasehold improvements................. 138,978 138,978
Machinery and equipment................ 8,203,256 11,522,064
Office furniture and equipment......... 44,721 65,057
---------- ----------
10,077,000 15,059,827
Less accumulated depreciation.......... 2,194,164 3,237,684
---------- ----------
7,882,836 11,822,143
Land................................... 49,485 525,372
Construction in progress............... 2,140,894 5,238,056
---------- ----------
10,073,215 17,585,571
OTHER ASSETS
Deferred income tax asset.............. 1,810,000 360,000
Patent costs........................... 90,704 80,685
Other.................................. 67,804 55,183
---------- ----------
1,968,508 495,868
---------- ----------
$16,878,182 $23,689,421
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt...... 511,362 3,458,436
Trade accounts payable................. 348,191 330,375
Accrued salaries, wages and payroll
taxes 225,138 459,421
Other current liabilities 15,935 56,677
---------- ----------
Total current liabilities................ 1,100,626 4,304,909
LONG-TERM DEBT........................... 1,008,135 --
COMMITMENTS AND CONTINGENCIES............ -- --
SHAREHOLDERS' EQUITY
Common stock -- authorized 50,000,000
shares of $.01 par value; issued and
outstanding, 11,394,785 in 1995 and
11,814,278 in 1996 113,948............. 113,948 118,143
Additional paid-in capital............. 16,390,170 17,616,560
Retained earnings (accumulated deficit) (1,734,697) 1,649,809
---------- ----------
14,769,421 19,384,512
---------- ----------
$16,878,182 $23,689,421
========== ==========
The accompanying notes are an integral part of these statements.
THERAGENICS CORPORATION
STATEMENTS OF EARNINGS
Year ended December 31,
1994 1995 1996
---------- ---------- ----------
Revenue
Product sales........... $4,723,107 $7,781,962 $12,257,165
Licensing fees.......... -- 85,431 100,000
---------- ---------- ----------
4,723,107 7,867,393 12,357,165
---------- ---------- ----------
Costs and expenses
Cost of product sales... 1,790,450 2,645,730 3,735,669
Selling, general and
administrative ....... 1,844,239 2,395,846 3,198,663
Research and development 15,268 17,954 6,952
---------- ---------- ----------
3,649,957 5,059,530 6,941,284
---------- ---------- ----------
Other income (expense)
Interest income......... 135,888 143,424 126,953
Interest expense........ -- (51,967) (84,517)
Other................... (25,673) (26,995) (6,311)
---------- ---------- ----------
110,215 64,462 36,125
---------- ---------- ----------
Net earnings before
income taxes............. 1,183,365 2,872,325 5,452,006
Income tax expense....... 453,000 1,100,000 2,067,500
---------- ---------- ----------
Net earnings............. $ 730,365 $1,772,325 $3,384,506
========== ========== ==========
Earnings per common share $ .06 $ .15 $ .28
---------- ---------- ----------
Weighted average shares... 11,582,793 11,759,178 12,259,214
The accompanying notes are an integral part of these statements.
- ---------------------------------------------------------------------------------------------------------------------
STATEMENT OF SHAREHOLDERS' EQUITY
For the three years ended December 31, 1996
Common Stock
Retained
Par Additional Earnings
Number of Value Paid-in (accumulated
Shares $.01 Capital deficit) Total
---------- --------- ----------- ------------ ------------
Balance, December 31, 1993......... $10,912,937 $ 109,129 $15,161,942 $(4,237,387) $11,033,684
Exercise of stock options........ 49,900 499 49,401 -- 49,900
Common stock redeemed............ (950) (10) (3,890) -- (3,900)
Net earnings for the year........ -- -- -- 730,365 730,365
---------- ----------- ------------ ----------- -----------
Balance, December 31, 1994......... 10,961,887 109,618 15,207,453 (3,507,022) 11,810,049
Exercise of stock options.......... 450,000 4,500 576,370 -- 580,870
Common stock redeemed............ (17,102) (170) (106,653) -- (106,823)
Income tax benefit from stock
options exercised................ -- -- 713,000 -- 713,000
Net earnings for the year........ -- -- -- 1,772,325 1,772,325
---------- ----------- ----------- ----------- -----------
Balance, December 31, 1995......... 11,394,785 113,948 16,390,170 (1,734,697) 14,769,421
Exercise of stock options.......... 391,216 3,912 648,242 -- 652,154
Exercise of warrants............. 40,000 400 299,600 -- 300,000
Common stock redeemed............ (11,723) (117) (250,079) -- (250,196)
Income tax benefit from stock
options exercised................ -- -- 528,627 -- 528,627
Net earnings for the year........ -- -- -- 3,384,506 3,384,506
---------- ----------- ------------ ----------- -----------
Balance, December 31, 1996......... 11,814,278 $ 118,143 $17,616,560 $ 1,649,809 $19,384,512
========== =========== ============ =========== ===========
The accompanying notes are an integral part of this statement.
THERAGENICS CORPORATION
STATEMENTS OF CASH FLOWS
Year ended December 31,
1994 1995 1996
--------- ---------- ----------
Cash flows from operating activities:
Net earnings....................... $730,365 $1,772,325 $3,384,506
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Deferred income tax expense...... 433,000 1,082,000 1,972,000
Depreciation and amortization 571,615 828,072 1,114,919
Loss on disposal of property
and equipment.................... 1,571 1,677 --
Change in assets and liabilities:
Accounts receivable ............. (197,133) (603,221) (923,291)
Inventories...................... (32,834) 25,206 (62,343)
Prepaid expenses and other current
assets........................... 22,448 24,280 (66,104)
Other assets..................... (200) -- --
Trade accounts payable........... 78,402 121,982 (17,816)
Accrued salaries, wages and
payroll taxes.................... 21,400 115,006 234,283
Other current liabilities........ 14,942 (17,214) 47,369
--------- ---------- -----------
Net cash provided by operating
activities..................... 1,643,576 3,350,113 5,683,523
--------- ---------- ----------
Cash flows from investing activities:
Purchase and construction of
property and equipment.............. (3,376,967) (2,426,961) (8,555,876)
Maturities of marketable
securities.......................... 309,765 50,000 --
Patent costs........................ (587) (3,632) --
---------- ---------- ----------
Net cash used by investing
activities...................... (3,067,789) (2,380,593) (8,555,876)
---------- ---------- ----------
Cash flows from financing activities:
Proceeds from long-term debt........ 2,100,000 -- 2,450,225
Repayment of long-term debt......... (1,441,320) (469,622) (511,286)
Proceeds from exercise of stock
options and warrants ............... 49,900 580,870 952,154
Payment for redemption of common
stock............................... (3,900) (106,823) (250,196)
Debt issue costs.................... (46,025) (25,070) (48,759)
---------- ---------- ----------
Net cash (used) provided by
financing activities............ 658,655 (20,645) 2,592,138
---------- ---------- ----------
Net increase (decrease) in cash and
short-term investments................ (765,558) 948,875 (280,215)
Cash and short-term investments at
beginning of year.................... 3,083,021 2,317,463 3,266,338
---------- ---------- ----------
Cash and short-term investments at
end of year.......................... $2,317,463 $3,266,338 $2,986,123
========== ========== ==========
Supplemental Schedule of Non Cash Financing Activities
During 1995 and 1996, the Company realized an income tax benefit from the
exercise and early disposition of certain stock options, resulting in an
increase in the deferred tax asset and additional paid in capital of $713,000
and $528,627, respectively.
Supplementary Cash Flow Disclosure
Interest paid, net of
amounts capitalized... $ -- $ 53,843 $ 82,324
Income taxes paid..... 21,500 14,858 98,755
The accompanying notes are an integral part of these statements.
NOTES TO FINANCIAL STATEMENTS
December 31, 1995 and 1996
NOTE A -- ORGANIZATION AND DESCRIPTION OF BUSINESS
Theragenics Corporation (the "Company") was organized in November 1981 to
develop, manufacture, and market radiological pharmaceuticals and devices used
in the treatment of cancer. The Company manufactures and markets primarily one
product, which is used in the treatment of cancer. Use of the Company's product
is regulated by the U.S. Food and Drug Administration (FDA). The Company sells
its product primarily to hospitals, physicians and other health service
providers in the United States. The Company therefore is directly affected by
changes in technology, as it may apply to cancer treatment, and by FDA
regulations and the well being of the health care industry.
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in the
preparation of the accompanying financial statements follows:
1. Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles ("GAAP"), management is required to make certain estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the reporting period. Actual results
could differ from those estimates.
2. Accounts Receivable
The Company considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required. If amounts become
uncollectible, they will be charged to operations when that determination is
made.
3. Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the specific identification method which approximates the first-in,
first-out (FIFO) method. Inventories consist primarily of work in process.
4. Property, Equipment, Depreciation and Amortization
Property and equipment are recorded at historical cost. Depreciation is
provided for in amounts sufficient to relate the cost of depreciable assets to
operations over their estimated services lives on a straight-line basis.
Depreciation and amortization expense related to property and equipment charged
to operations was approximately $564,000, $810,000 and $1,044,000 for 1994, 1995
and 1996, respectively. Estimated services lives are as follows:
Building and improvements............................30 years
Machinery, leasehold improvements,
furniture and equipment........................... 5-10 years
A significant portion of the Company's depreciable assets are utilized in the
production of its product. Management periodically evaluates the realizability
of its depreciable assets in light of its current industry environment.
Management believes that no impairment of depreciable assets exists at December
31, 1996. It is possible, however, that management's estimates concerning the
realizability of the Company's depreciable assets could change in the near term
due to changes in the technological and regulatory environment.
5. Patent Costs
The Company capitalizes the costs of patent applications for its products.
Amortization is computed on a straight line basis over the estimated economic
lives of the patents, commencing at the date of grant of the related patent.
Patent costs are net of accumulated amortization of $37,276 and $47,295 at
December 31, 1995 and 1996, respectively. Amortization related to patent costs
charged to operations was approximately $7,800, $8,000 and $10,000 for 1994,
1995 and 1996, respectively.
6. Income Taxes
The Company accounts for income taxes using the asset and liability method.
Under this method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates applied to taxable income. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date. A valuation allowance is provided for deferred
tax assets when it is more likely than not that the asset will not be realized.
7. Research and Development Costs
The costs of research and development and consumable supplies and materials to
be used for the development of the Company's intended products are expensed when
incurred.
8. Advertising
The Company expenses the cost of advertising as incurred. Advertising expense
for the years ended December 31, 1994, 1995 and 1996 was approximately $16,000,
$139,000, and $229,000, respectively.
9. Net Earnings Per Common Share
Net earnings per common share is based on the weighted average number of
common shares and common equivalent shares outstanding during each period.
Fully diluted information is not presented, as fully diluted earnings per
share is not materially different from the primary earnings per share presented.
10. Stock Based Compensation
The Company's stock option plans are accounted for under the intrinsic value
method in which compensation expense is recognized for the amount, if any, that
the fair value of the underlying common stock exceeds the exercise price at the
date of grant.
11. Statements of Cash Flows
For purposes of reporting cash flows, cash and short-term investments
include cash on hand, cash in banks and commercial paper with original
maturities of less than 90 days.
12. Fair Value of Financial Instruments
The Company's financial instruments include cash, cash equivalents and
long-term debt. The carrying value of cash and cash equivalents approximates
fair value due to the relatively short period to maturity of the instruments.
The carrying value of the Company's long-term obligations approximates fair
value based upon borrowing rates currently available to the Company for
borrowings with comparable maturities.
NOTE C -- CONSTRUCTION IN PROGRESS
Construction in progress represents payments made for construction of
manufacturing equipment and facilities expansion. Total cost of this project is
expected to be approximately $20,000,000 and is expected to be completed in
various stages through 1998.
Construction of equipment and facilities totaling approximately $3,800,000
and $4,900,000 were completed and placed in service during 1995 and
1996,respectively.
NOTE D -- INCOME TAXES
The provision for income taxes is summarized as follows:
1994 1995 1996
--------- ---------- ----------
Current tax expense $20,000 $18,000 $95,500
Deferred tax expense 433,000 1,082,000 1,972,000
-------- ---------- ----------
$453,000 $1,100,000 $2,067,500
======== ========== ==========
The Company's temporary differences result in a deferred income tax asset,
summarized as follows:
December 31,
1995 1996
---- ----
Deferred tax assets:
Net operating loss carryforwards.......... $2,240,000 $ 870,000
Tax credit carryforwards.................. 90,000 174,000
Nondeductible accruals and allowances..... 38,000 50,000
Other..................................... 7,000 14,000
--------- ---------
Gross deferred tax asset............. 2,375,000 1,108,000
Deferred tax liabilities:
Depreciation.............................. 565,000 748,000
---------- ---------
Net deferred tax asset............... $1,810,000 $ 360,000
========== =========
The significant portion of the net operating loss carryforwards were
incurred while the Company was in the development stage. Upon receiving
clearance to market its "Theraseed" product from the U.S. Food and Drug
Administration (FDA) in 1986, the Company commenced manufacturing and
distribution of its product in 1987. Since emerging from the development stage
in 1989, the Company has utilized approximately $7,500,000 of these net
operating loss carryforwards through December 31, 1996 by generating taxable
income. In order to realize the income tax benefit from the remaining net
operating loss carryforwards at December 31, 1996, it will be necessary for the
Company to generate future taxable income of approximately $2,300,000, prior to
the expiration of the net operating loss carryforward periods. Based on the
Company's results of operations subsequent to receiving FDA clearance to market
its product, and on expected future results of operations, management believes
that currently it is more likely than not that the income tax benefits of the
net operating loss carryforwards will be realized within the carryforward
period. The amount of the deferred tax asset considered realizable, however,
could be reduced in the near term if estimates of future taxable income during
the carryforward period are reduced.
The provision for income taxes differs from the amount of income tax
determined by applying the applicable federal rates due to the following:
Year ending December 31,
1994 1995 1996
---- ---- ----
Tax at applicable federal rate of 34% $402,000 $977,000 $1,854,000
State tax, net 47,000 115,000 208,000
Other 4,000 8,000 5,500
-------- ---------- ---------
$453,000 $1,100,000 $2,067,500
======== ========== ==========
The Tax Reform Act of 1986 enacted an alternative minimum tax system for
corporations (the "AMT"). AMT is imposed at a 20% rate on the Company's AMT
income which is determined by making statutory adjustments to regular taxable
income. A company pays the greater of the taxes computed under the "regular" tax
system or the AMT system. Because AMT net operating loss carryforwards may only
be utilized to offset 90% of the AMT income, the Company was subject to the AMT
in 1994, 1995 and 1996, resulting in an alternative minimum tax of $20,000,
$18,000 and $95,500, respectively. These amounts will be allowed as a credit
carryover to reduce the regular tax liability in future years, but not below the
AMT of such years.
At December 31, 1996, the Company had approximate net federal operating loss
carryforwards for regular tax and AMT purposes as follows:
Net operating Net operating
Year of expiration loss (regular) loss (AMT)
-------------- -------------
2004........................ $1,698,000 $234,000
2005........................ 591,000 554,000
-------------- -------------
$2,289,000 $788,000
============== =============
NOTE E -- NOTES PAYABLE
In December 1996, the Company entered into an amended and restated loan and
security agreement (the "loan agreement") with a financial institution. This
loan agreement incorporated the Company's existing term loan and line of credit
(the "1995 loan agreement") with the same financial institution, which had an
outstanding balance of approximately $1,050,000. The 1995 loan agreement
required monthly payments of $51,862, including interest at 8.47%.
The loan agreement provides for a revolving credit facility of up to
$11,000,000. Interest on outstanding borrowings is payable monthly at the prime
rate or at the LIBOR rate plus 2% (effective rate of 8.25% at December 31,
1996). At December 31, 1996, $3,458,436 was outstanding under the revolving
credit facility.
All outstanding borrowings under the loan agreement are due on June 30,
1997. However, the outstanding principal can be repaid over sixty equal
consecutive monthly installments, commencing July 31, 1997, provided that the
Company meets the term-out requirements as specified in the agreement. The
term-out requirements include, among other things, the attainment of a certain
minimum net worth and other financial ratios for the quarter ending March 31,
1997. Commencing on June 30, 1997 the interest rate on outstanding borrowings
will be the prime rate or, at the Company's option, the LIBOR rate plus
1.75%-2.25% or a rate based on U.S. Treasury bills plus 2%-2.5%. The rate margin
on the LIBOR and Treasury rates are based upon the Company's debt service
coverage ratio, as defined in the loan agreement.
Outstanding borrowings under the loan agreement are collateralized by
substantially all of the Company's assets. Provisions of the loan agreement
limit the amount of annual capital expenditures, the incurrence of additional
debt and, among other things, require the maintenance of certain minimum
financial ratios. The loan agreement also limits the number of manufacturing
systems the Company can order and purchase, based upon quarterly revenues. As of
December 31, 1996, the Company was in compliance with the provisions of the loan
agreement.
NOTE F -- COMMITMENTS AND CONTINGENCIES
Licensing Agreement
The Company holds a worldwide exclusive license from the University of
Missouri for the use of technology, patented by the University, used in the
Company's "TheraSphere(R)" product. The licensing agreement provides for the
payment of royalties based on the level of sales and on lump sum payments
received pursuant to a licensing agreement with Nordion International, Inc. (see
below).
The Company has granted certain of its worldwide rights under the licensing
agreement with the University of Missouri to Nordion International, Inc.
("Nordion"), a Canadian company which is a producer, marketer and supplier of
radioisotope products and related equipment. Under the Nordion agreement,
entered into on March 23, 1995, the Company has received certain lump sum
payments and will receive a licensing fee for each geographic area in which
Nordion receives new drug approval. The Company will also be entitled to a
percentage of future revenues earned by Nordion as royalties under the
agreement. Royalties from this agreement for each of the three years in the
period ended December 31, 1996 were not significant.
In 1995 and 1996, the Company received approximately $85,000 and $100,000,
respectively, from Nordion for the right to use certain patents and to
manufacture, distribute, and sell "TheraSphere(R)" for all applications
worldwide.
Letter of Credit
The Company has a letter of credit outstanding for approximately $315,000
relating to regulatory requirements.
Lease Commitment
The Company leases space under two noncancelable leases which expire in
December 1998 and February 1999. Approximate minimum lease payments under the
leases are as follows: 1997, $112,000; 1998, $114,000; 1999, $7,500.
Rent expense was approximately $61,000, $61,500 and $76,000 for the years
ended December 31, 1994, 1995 and 1996, respectively.
NOTE G -- STOCK OPTIONS AND WARRANTS
Stock Options
The Company's board of directors has approved three stock option plans which
in aggregate cover up to 2,200,000 shares of common stock. The plans provide for
the expiration of options ten years from the date of grant and requires the
exercise price of the options granted to be at least equal to 100% of market
value on the date granted. Stock option transaction for each of the three years
in the period ended December 31, 1996 are summarized below:
1994 1995 1996
---- ---- ----
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
Outstanding
beginning
of year........ 1,258,116 $2.05 1,226,716 $2.09 997,716 $3.11
Granted........ 40,000 2.50 221,000 5.38 220,000 15.92
Exercised...... (49,900) 1.00 (450,000) 1.29 (391,216) 2.21
Forfeited...... (21,500) 2.74 -- -- -- --
---------- ----- --------- ----- -------- -----
Outstanding end
of year....... 1,226,716 $2.09 997,716 $3.11 826,500 $7.22
========== ===== ========= ===== ======== =====
The following table summarizes information about stock options outstanding
at December 31, 1996:
Options Outstanding Options Exercisable
Number
Number Weighted Exercisable at Weighted
Range of Outstanding at Weighted Average Average Average
Exercise December 31, Remaining December 31,
Price 1996 Contractual Life Exercise 1996 Exercise
-------- -------------- ---------------- Price -------------- Price
-------- --------
$1.00 - 3.50 245,000 3.9 $1.83 232,600 $1.75
$5.38 - 6.38 361,500 8.7 5.54 189,500 5.56
$15.25 -16.88 220,000 10.0 15.99 12,000 16.88
------- ---- ----- ------- -----
826,500 7.6 $7.22 434,100 $3.83
======= ==== ===== ======= =====
The Company follows the practice of recording amounts received upon the
exercise of options by crediting common stock and additional capital. No charges
are reflected in the statements of operations as a result of the grant or
exercise of options. The Company realizes an income tax benefit from the
exercise or early disposition of certain stock options. This benefit results in
an increase to the deferred tax asset and an increase in additional paid-in
capital.
The Company uses the intrinsic value method in accounting for its stock
option plans. In applying this method, no compensation cost has been recognized.
Had compensation cost for the Company's stock option plans been determined based
on the fair value at the grant dates for awards under those plans, the Company's
net earnings and earnings per share would have resulted in the pro forma amounts
indicated below:
1995 1996
---- ----
Net earnings
As reported.....................................$1,772,325 $3,384,506
Pro forma....................................... 1,750,736 3,015,123
Primary earnings per share
As reported..................................... $.15 $.28
Pro forma....................................... 15 .25
Fully diluted information is not presented, as reported and pro forma fully
diluted earnings per share is not materially different from the primary earnings
per share presented.
For purposes of the pro forma amounts above, the fair value of each option
grant was estimated on the date of grant using the Black-Scholes options-pricing
model with the following weighted-average assumptions used for grants in 1995
and 1996, respectively; expected volatility of 70% for each year, risk-free
interest rates of 5.86%, and 6.15%-6.46%; and expected lives of 5-7 years and 7
years.
Warrants
During 1996, 40,000 warrants were exercised, resulting in proceeds to the
Company of $225,000. The Company also has warrants outstanding at December 31,
1996 covering 60,000 shares of common stock. The warrants are exercisable at a
price of $7.50 per share and expire in May 1999.
NOTE H -- MAJOR CUSTOMERS
During 1994, there were sales to one major customer that equaled
approximately ten percent of sales. During 1995 and 1996, there were no
customers which individually comprised ten percent of sales.
NOTE I -- EMPLOYEE BENEFIT PLAN
The Company sponsors a defined contribution 401(k) Plan covering all
employees with at least six months of service and at least 21 years of age. The
Plan permits participants to defer a portion of their compensation through
payroll deductions. The Company may, at its discretion, contribute to the Plan
on behalf of participating employees. Company discretionary contributions were
approximately $27,700, $39,700 and $14,100 for 1994, 1995 and 1996,
respectively.
THERAGENICS CORPORATION
INDEX TO EXHIBITS
Page No.
10.17 Employment Agreement of M. Christine 53
Jacobs
24.1 Consent of Independent Public Accountants 73
for Incorporation by Regerence of Audit
Statement into Registration Statement
EMPLOYMENT AGREEMENT
THIS AGREEMENT entered into this 1st day of August, 1996, by and
between THERAGENICS CORPORATION, a Delaware Corporation (hereinafter called the
"Company") and M. CHRISTINE JACOBS, an individual residing at 2460 Peachtree
Road, N.W., Apartment 1212, Atlanta, Georgia 30305 (hereinafter called the
"Executive").
W I T N E S S E T H:
WHEREAS, the Company and the Executive desire to enter into an
employment agreement to establish the rights and obligations of the Executive
and the Company in such employment relationship;
WHEREAS, the terms of this Agreement have been approved by the Compensation
Committee of the Board of Directors of the Company; NOW, THEREFORE, and in
consideration of the mutual covenants herein contained, the Company and the
Executive hereby mutually agree as follows:
1. Employment and Duties. The Company hereby employs the Executive, and the
Executive hereby accepts employment with the Company upon the terms and
conditions hereinafter set forth. The Executive shall serve the Company as its
President and Chief Executive Officer. In such capacity, the Executive shall
have all powers, duties, and obligations as are normally associated with such
position. The Executive shall further perform such other duties related to the
business of the Company as may from time to time be reasonably requested of her
by the Company's Board of Directors. The Executive shall devote all of her
skills, time, and attention solely and exclusively to said position and in
furtherance of the business and interests of the Company except for:
(a) time spent in managing her personal, financial and legal
affairs and serving on corporate, civic or charitable boards or
committees, in each case only if and to the extent not
substantially interfering with the performance of such
responsibilities, and
(b) periods of vacation to which she is entitled.
Executive shall promptly notify the Company of her election or
appointment to any corporate, civic or charitable boards or
committees on or after the date of this Agreement.
2. Term of Employment. The term of employment shall begin, or be deemed to have
begun, on August 1, 1996 (the "Effective Date") and shall expire on July 31,
1999, subject, however, to prior termination or to extension, as herein
provided. On each August 1st while this Agreement is in force, the term of this
Agreement shall automatically be extended so that new term of the Agreement
expires three years from such date, unless either party notifies the other party
in writing of an intent not to renew at least ninety (90) days prior to the
applicable August 1st.
3. Base Salary. For such services, the Executive shall receive an initial
annual base salary (the "Base Salary") of $200,000.00, which shall be reviewed
annually by the Compensation Committee of the Board of Directors and which may
be increased, but not decreased, by the Company during the term of this
Agreement. In the event that the Company increases the Executive's initial Base
Salary, the amount of the initial Base Salary, together with any increase(s),
shall be her Base Salary. The Base Salary shall be payable in equal
installments, no less frequently than semi-monthly, in accordance with the
Company's regular payroll practices.
4. Bonus. For each fiscal year of the Company during which she is employed by
the Company on the last day of the fiscal year, the Executive shall be eligible
to receive an annual bonus ("Annual Bonus") under the bonus plan established by
the Compensation Committee of the Board for the Executive. Such Annual Bonus
shall be determined by the Compensation Committee of the Board. Each Annual
Bonus shall be paid in cash as soon as practical after the year for which the
Annual Bonus is earned or awarded, unless electively deferred by the Executive
pursuant to any deferral programs or arrangements that the Company may make
available to the Executive.
5. Fringe Benefits. The Company shall further provide the Executive with all
health and life insurance coverages, sick leave and disability programs,
tax-qualified retirement plans, stock option plans, paid holidays and vacations,
expense reimbursement policies, moving and relocation policies, perquisites, and
such other fringe benefits of employment as the Company may provide from time to
time to actively employed senior executives of the Company who are similarly
situated. Notwithstanding the preceding provisions of this Paragraph 5, during
the term of this Agreement (including extensions thereof) the Company shall
provide the Executive;
(a) reimbursement for all reasonable expenses incurred by the
Executive in connection with the conduct of the Company's
business on presentation of reasonable and appropriate receipts
and in accordance with the Company's regular reimbursement policy
applicable to senior executives;
(b) an individual disability insurance policy, at the Company's
expense, in addition to the long-term disability plan maintained
by the Company generally for its employees, which provides
long-term disability insurance which replaces at least $6,000 of
the Executive's monthly Base Salary; and
(c) a minimum of four (4) weeks of paid vacation per year.
6. Termination of Employment.
(a) Termination of Employment Other Than by Executive.
The Executive's employment hereunder may be terminated by the
Company without any breach of this Agreement under the following
circumstances:
(1) Death or Disability. The Executive's
employment hereunder shall terminate upon her
death, and may be terminated by the Company in the
event of her Disability for a continuous period of
at least one hundred eighty (180) days, provided
that the Executive does not return to work on a
substantially full-time basis within thirty (30)
days after Notice of Termination is given by the
Company pursuant to the provisions of Paragraphs
6(c) and 6(d)(2). A return to work of less than
thirty (30) days shall not interrupt a continuous
period of Disability.
(2) Cause. The Company may terminate the
Executive's employment hereunder for Cause.
(3) Without Cause. The Company may terminate
the Executive's employment hereunder without Cause.
(b) Termination of Employment by Executive. The
Executive may terminate her employment at any time with or
without Good Reason.
(c) Notice of Termination. Any termination of the Executive's
employment by the Company hereunder, or by the Executive other
than termination upon the Executive's death, shall be
communicated by written Notice of Termination to the other party.
For purposes of this Agreement, a "Notice of Termination" means a
notice that shall indicate the specific termination provision in
this Agreement relied upon, and shall set forth in reasonable
detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so
indicated. The failure by the Executive to set forth in the
Notice of Termination any fact or circumstance which contributes
to a showing of Good Reason shall not waive any right of the
Executive hereunder or preclude the Executive from asserting such
fact or circumstance in enforcing her rights hereunder.
(d) Date of Termination. "Date of Termination" means:
(1) If the Executive's employment is terminated
by her death, the date of her
death.
(2) If the Executive's employment is terminated by
the Company as a result of Disability pursuant to
Paragraph 6(a)(1), the date that is thirty (30)
days after Notice of Termination is given; provided
the Executive shall not have returned to the
performance of her duties on a full-time basis
during such thirty (30) day period.
(3) If the Executive terminates her employment for
Good Reason pursuant to Paragraph 6(b), the date
that is ten (10) days after Notice of Termination
is given (provided that the Company does not cure
such event during the ten (10) day period).
(4) If the Executive terminates her employment
other than for Good Reason, the date that is two
(2) weeks after Notice of Termination is given;
provided, in the sole discretion of the Company,
such date may be any earlier date after Notice of
Termination is given.
(5) If the Executive's employment is terminated by
the Company without Cause pursuant to Section
6(a)(3), the date that is two (2) weeks after
Notice of Termination is given.
(6) If the Executive's employment is terminated by
the Company for Cause pursuant to Paragraph
6(a)(2), the date on which the Notice of
Termination is given.
7. Amounts Payable Upon Termination of Employment or During Disability. Upon
the termination of the Executive's employment with the Company, the Company
shall have the following obligations (including the obligation to pay the cost
of all benefits provided by the applicable benefit plan to the Executive and the
Executive's family under this Section 7, except normal employee contributions
required by the applicable benefit plan of other participating executives with
comparable responsibilities), provided, however, that any item paid or payable
under this Agreement shall be reduced by any amount paid or payable to the
Executive and the Executive's family with respect to the same type of payment
under any severance plan or policy now maintained or at any time in the future
maintained by the Company. For this purpose, any payment under this Agreement or
any severance plan or policy made over time shall be discounted to present value
at the Interest Rate before reducing any payment under this Agreement by any
amount paid or payable to the Executive under such severance plan or policy.
(a) Death. If the Executive's employment is terminated by her
death, the Executive's beneficiary (as designated by the
Executive in writing with the Company prior to her death) shall
be entitled to payment of all Accrued Obligations. Unless
otherwise directed by the Executive all Accrued Obligations shall
be paid to the Executive's beneficiaries in a lump sum in cash
within thirty (30) days of the Date of Termination. In the
absence of a beneficiary designation by the Executive, or, if the
Executive's designated beneficiary does not survive the
Executive, benefits described in this Paragraph 7(a) shall be
paid to the Executive's estate. In addition, all stock options
that have been granted to the Executive at least one year prior
to the date of her death (measured from the date of grant of each
such stock option) shall be and become fully vested and may be
executed by the estate of the Executive for a period equal to the
earlier to occur of five (5) years from the date of the death of
the Executive or the date the option would have otherwise expired
without regard to the Executive's death or other termination of
employment. If the Executive dies before the first anniversary of
the date of grant of any stock options, the Executive's estate
may exercise any stock options which were then vested for a
period equal to the earlier to occur of five (5) years from the
date of the death of the Executive or the date the option would
have expired without regard to the Executive's death or other
termination of employment.
(b) Disability.
(1) During any period that the Executive fails to
perform her duties hereunder as a result of
incapacity due to physical or mental illness
("Disability Period"), the Executive shall continue
to receive her base salary at the rate then in
effect for such period until her employment is
terminated pursuant to Paragraph 6(a)(1); provided,
however, that payments of Base Salary so made to
the Executive shall be reduced by the sum of the
amounts, if any, that were payable to the Executive
at or before the time of any such salary payment
under any disability benefit plan or plans of the
Company and that were not previously applied to
reduce any payment of Base Salary.
(2) Upon her termination of employment because of
Disability (as described in Paragraph 6(a)(1)), the
Executive shall be entitled to the payments and
benefits described in Paragraph 7(a) as if the
Executive has died on her Date of Termination. In
the event of the Executive's death prior to the
time that all payments described in Paragraph 7(a)
have been completed, such payments and benefits
shall be paid to the Executive's beneficiary (as
designated pursuant to Paragraph 7(a)), or, in the
absence of a beneficiary designation of the
designated beneficiary does not survive the
Executive, to the Executive's estate.
(3) The Executive and the Executive's family shall
be entitled to receive disability and other welfare
plan benefits (other than continued group long-term
disability coverage) generally available to
executives with comparable responsibilities or
positions for a period of two (2) years from the
Date of Termination at the same cost to the
Executive as is charged to such executives from
time to time for comparable coverage.
(c) Termination by Company Without Cause, or Termination by
Executive for Good Reason. In the event that the Company
terminates the Executive's employment without Cause or the
Executive terminates her employment for Good Reason before the
expiration of the term of this Agreement, including any extension
thereof, the Executive shall be entitled to the following
payments and benefits:
(1) Those described in Paragraph 7(a) as if the
Executive had died on her Date of Termination.
(2) Payment of an amount equal to two (2) years of
the Base Salary applicable to the Executive on the
Date of Termination, payable in six (6) equal,
consecutive monthly installments commencing no
later than thirty (30) days after the Date of
Termination .
(3) All outstanding options, stock grants, share
of restricted stock or any other equity, incentive
compensation shall be and become fully vested and
nonforfeitable.
(4) The Executive and the Executive's family shall
be entitled to receive welfare plan benefits (other
than continued group long-term disability coverage)
generally available to executives with comparable
responsibilities or positions for a period of two
(2) years from the Date of Termination at the same
cost to the Executive as is charged to such
executives from time to time for comparable
coverage.
(d) Termination by Executive Other Than for Good Reason, or
Termination by Company for Cause. In the event that the
Executive terminates her employment other than for Good Reason
or the Company terminates her employment for Cause, the
Executive shall not be entitled to any compensation except as
set forth below:
(1) Any Base Salary that is accrued but unpaid,
any vacation that is accrued but unused, and any
business expenses that are unreimbursed -- all, as
of the Date of Termination.
(2) Any other rights and benefits (if any)
provided under plans and programs of the Company
(excluding any bonus program), determined in
accordance with the applicable terms and provisions
of such plans and programs.
(e) No Duty to Mitigate Damages. After any Date of Termination,
the Executive shall have no obligation to seek other employment,
but shall have the right to be otherwise employed, and any
compensation of any type whatsoever received by the Executive in
connection with such employment shall not be offset by the
Company against any of the obligations of the Company under this
Agreement.
8. Restrictive Covenants. The Executive agrees that, during the term of this
Agreement, including an extension thereof, and for a period of two (2) years
thereafter, she shall not, directly or indirectly:
(a) on Executive's own behalf or on behalf of any other person
or entity, solicit, contact, call upon, communicate with, or
attempt to communicate with any person or entity who was a
customer of the Company at any time within the two-year period
ending on the Date of Termination or any representative of any
such customer of the Company, with the intent or purpose of
selling or providing of any product or service competitive with
any product or service sold or provided or under development by
the Company during the period of two (2) years immediately
preceding termination of Executive's employment and which is
still being offered by or is still under development by the
Company; and
(b) employ or attempt to employ or assist anyone else in
employing in any Competing Business any person who, at any time
within the period commencing one year prior to the Date of
Termination and ending two (2) years after the Date of
Termination, was, is or shall be an employee of the Company
(whether or not such employment is full-time or is pursuant to a
written contract with the Company).
9. Confidential Information. The Executive agrees that:
(a) during the term of this Agreement and, with respect to
Confidential Information, for a period of five (5) years
following her Date of Termination, or with respect to Trade
Secrets, for so long as the respective information qualifies as a
trade secret under applicable law, she will receive and hold all
Company Information in trust and in strictest confidence;
(b) she will use her best effort to protect the Company
Information from disclosure and will in no event take any action
causing any Company Information to lose its character as Company
Information; and
(c) except as required by Executive's duties in the course of
employment by the Company, she will not, directly or indirectly,
use, publish, disseminate or otherwise disclose any Company
Information to any third party without the prior written consent
of the Company, which may be withheld in the Company's absolute
discretion.
All documents or tangible or intangible materials, including computer data,
provided to or obtained by Executive during the course of employment by
the Company which contain Company Information are the property of the Company
(collectively, the "Materials"). Executive will not remove from the Company's
premises or copy or reproduce any Materials (except as Executive's employment by
the Company shall require), and at the termination of Executive's employment,
regardless of the reason for such termination, Executive will leave with the
Company, or immediately return to the Company, all Materials or copies or
reproductions thereof in Executive's possession, power or control.
10. Acknowledgement; Remedies.
(a) Executive has carefully considered the nature and extent of
the restrictions upon her and the rights and remedies conferred
to the Company under Sections 8 and 9 of this Agreement, and
hereby acknowledges and agrees that the same are reasonable in
time, necessary to protect the business, interests and properties
of the Company, are designed to eliminate competition which would
be unfair to the Company, do not stifle the inherent skill and
experience of Executive, would not operate as a bar to
Executive's sole means of support, are fully required to protect
the legitimate interests of the Company and do not confer a
benefit upon the Company disproportionate to the detriment of
Executive.
(b) In the event of any violation of the provisions of Sections
8 or 9 of this Agreement by Executive, the parties hereby
recognize and acknowledge that remedy at law will be inadequate
and the Company may suffer irreparable injury. Accordingly,
Executive consents to injunctive and other appropriate equitable
relief upon the institution of proceedings therefor by the
Company in order to protect the Company's rights under such
Sections. Such relief shall be in addition to any other relief to
which the Company may be entitled at law or in equity. In
addition, any breach of the covenants contained in Sections 8 or
9 hereof shall be treated the same as a termination by the
Company for Cause and shall entitle the Company to cease the
provision of any welfare plan benefits being afforded to the
Executive or her family after the termination of her employment
with the Company, cease any payments to be made to the Executive
pursuant to this Agreement in connection with such termination
(other than accrued and unpaid Base Salary and vacation) or
recover from the Executive any payments made to the Executive
under this Agreement in respect of such termination (other than
accrued Base Salary and vacation). In no event shall such actions
preclude the Company from any equitable relief to which it may
otherwise be entitled and such remedies shall be cumulative.
11. Certain Further Payments by the Company.
(a) Tax Reimbursement Payment. In the event that any amount or
benefit paid or distributed to the Executive by the Company or
any Affiliated Company, whether pursuant to this Agreement or
otherwise (collectively, the "Covered Payments"), is or becomes
subject to the tax (the "Excise Tax") imposed under Section 4999
of the Code or any similar tax that may hereafter be imposed, the
Company shall pay to the Executive, at the time specified in
Section 11(e) below, the Tax Reimbursement Payment (as defined
below). The Tax Reimbursement Payment is defined as an amount,
which when added to the Covered Payments and reduced by any
Excise Tax on the Covered Payments and any federal, state and
local income tax and Excise Tax on the Tax Reimbursement Payment
provided for by this Agreement (but without reduction for any
federal, state or local income or employment tax on such Covered
Payments), shall be equal to the sum of (i) the amount of the
Covered Payments, and (ii) an amount equal to the product of any
deductions disallowed for federal, state or local income tax
purposes because of the inclusion of the Tax Reimbursement
Payment in the Executive's adjusted gross income and the highest
applicable marginal rate of federal, state or local income
taxation, respectively, for the calendar year in which the Tax
Reimbursement Payment is to be made.
(b) Determining Excise Tax. For purposes of determining whether
any of the Covered Payments will be subject to the Excise Tax
and the amount of such Excise Tax,
(1) such Covered Payments will be treated as
"parachute payments" within the meaning of Section
280G of the Code, and all "parachute payments" in
excess of the "base amount" (as defined under
Section 280G(b)(3) of the Code) shall be treated as
subject to the Excise Tax, unless, and except to
the extent that, in the opinion of the Company's
independent certified public accountants, which, in
the case of Covered Payments made after the Change
of Control Date, shall be the Company's independent
certified public accountants appointed prior to the
Change of Control Date, or tax counsel selected by
such accountants (the "Accountants"), such Covered
Payments (in whole or in part) either do not
constitute "parachute payments" or represent
reasonable compensation for services actually
rendered (within the meaning of Section 280G(b)(4)
of the Code) in excess of the "base amount", or
such "parachute payments" are otherwise not subject
to such Excise Tax, and
(2) the value of any non-cash benefits or any
deferred payment or benefit shall be determined by
the Accountants in accordance with the principles
of Section 280G of the Code.
(c) Applicable Tax Rates and Deductions. For purposes of
determining the amount of the Tax Reimbursement Payment, the
Executive shall be deemed:
(1) to pay federal income taxes at the highest
applicable marginal rate of federal income taxation
for the calendar year in which the Tax
Reimbursement Payment is to be made,
(2) to pay any applicable state and local income
taxes at the highest applicable marginal rate of
taxation for the calendar year in which the Tax
Reimbursement Payment is to be made, net of the
maximum reduction in federal income taxes which
could be obtained from the deduction of such state
or local taxes if paid in such year (determined
without regard to limitations on deductions based
upon the amount of the Executive's adjusted gross
income), and
(3) to have otherwise allowable deductions for
federal, state and local income tax purposes at
least equal to those disallowed because of the
inclusion of the Tax Reimbursement Payment in the
Executive's adjusted gross income.
(d) Subsequent Events. In the event that the Excise Tax is
subsequently determined by the Accountants to be less than the
amount taken into account hereunder in calculating the Tax
Reimbursement Payment made, the Executive shall repay to the
Company, at the time that the amount of such reduction in the
Excise Tax is finally determined, the portion of such prior Tax
Reimbursement Payment that has been paid to the Executive or to
federal, state or local tax authorities on the Executive's behalf
and that would not have been paid if such Excise Tax had been
applied in initially calculating such Tax Reimbursement Payment,
plus interest on the amount of such repayment at the rate
provided in Section 1274(b)(2)(B) of the Code. Notwithstanding
the foregoing, in the event any portion of the Tax Reimbursement
Payment to be refunded to the Company has been paid to any
federal, state or local tax authority, repayment thereof shall
not be required until actual refund or credit of such portion has
been made to the Executive, and interest payable to the Company
shall not exceed interest received or credited to the Executive
by such tax authority for the period it held such portion. The
Executive and the Company shall mutually agree upon the course of
action to be pursued (and the method of allocating the expenses
thereof) if the Executive's good faith claim for refund or credit
is denied.
In the event that the Excise Tax is later determined by the
Accountants to exceed the amount taken into account hereunder at the time the
Tax Reimbursement Payment is made (including, but not limited to, by reason of
any payment the existence or amount of which cannot be determined at the time of
the Tax Reimbursement Payment), the Company shall make an additional Tax
Reimbursement Payment in respect of such excess (which Tax Reimbursement Payment
shall include any interest or penalty payable with respect to such excess) at
the time that the amount of such excess is finally determined.
(e) Date of Payment. The portion of the Tax Reimbursement
Payment attributable to a Covered Payment shall be paid to the
Executive within ten (10) business days following the payment of
the Covered Payment. If the amount of such Tax Reimbursement
Payment (or portion thereof) cannot be finally determined on or
before the date on which payment is due, the Company shall pay to
the Executive an amount estimated in good faith by the
Accountants to be the minimum amount of such Tax Reimbursement
Payment and shall pay the remainder of such Tax Reimbursement
Payment (which Tax Reimbursement Payment shall include interest
at the rate provided in Section 1274(b)(2)(B) of the Code) as
soon as the amount thereof can be determined, but in no event
later than forty-five (45) calendar days after payment of the
related Covered Payment. In the event that the amount of the
estimated Tax Reimbursement Payment exceeds the amount
subsequently determined to have been due, such excess shall be
repaid or refunded pursuant to the provisions of Section 11(d)
above.
12. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit
the Executive's continuing or future participation in any benefit, bonus,
incentive or other plan or program provided by the Company or any of its
Affiliated Companies and for which the Executive may qualify, nor shall anything
herein limit or otherwise prejudice such rights as the Executive may have under
any other agreements with the Company or any Affiliated Companies, including,
but not limited to stock option or restricted stock agreements. Amounts which
are vested benefits or which the Executive is otherwise entitled to receive
under any plan or program of the Company or any Affiliated Companies at or
subsequent to the Date of Termination shall be payable in accordance with such
plan or program.
13. Full Settlement. Except as provided in Section 10, the Company's obligation
to make the payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any circumstances, including,
without limitation, any set-off, counterclaim, recoupment, defense or other
right which the Company may have against the Executive or others whether by
reason of the subsequent employment of the Executive or otherwise. In no event
shall the Executive be obligated to seek other employment by way of mitigation
of the amounts payable to the Executive under any of the provisions of this
Agreement. In the event that the Executive shall in good faith give a Notice of
Termination for Good Reason and it shall thereafter be determined that Good
Reason did not take place, the employment of the Executive shall, unless the
Company and the Executive shall otherwise mutually agree, be deemed to have
terminated, at the date of giving such purported Notice of Termination, by
mutual consent of the Company and the Executive and, except as provided in the
last preceding sentence, the Executive shall be entitled to receive only those
payments and benefits which she would have been entitled to receive at such date
had she terminated her employment voluntarily at such date under this Agreement.
14. Definitions.
(a) "Accountants" shall have the meaning set forth in Section
11(b).
(b) "Accrued Obligations" shall mean (i) the Executive's full
Base Salary through the Date of Termination, (ii) the product of
the Annual Bonus paid to the Executive for the last full fiscal
year of the Company and a fraction, the numerator of which is the
number of days in the current fiscal year of the Company through
the Date of Termination, and the denominator of which is 365,
(iii) any compensation previously deferred by the Executive
(together with any accrued earnings thereon) and not yet paid by
the Company and any accrued vacation pay for the current year not
yet paid by the Company, (iv) any amounts or benefits owing to
the Executive or to the Executive's beneficiaries under the then
applicable employee benefit plans or policies of the Company and
(v) any amounts owing to the Executive for reimbursement of
expenses properly incurred by the Executive prior to the Date of
Termination and which are reimbursable in accordance with the
reimbursement policy of the Company described in Section 5(a).
(c) "Affiliated Company" shall mean any company controlling,
controlled by or under common control with the Company.
(d) "Annual Bonus" shall have the meaning set forth in
Section 4.
(e) "Base Salary" shall have the meaning set forth in Section 3.
(f) "Board" shall mean the Board of Directors of the Company.
(g) "Cause" shall mean either:
(1) any act that constitutes, on the part of
the Executive, (A) fraud, dishonesty or a felony
and (B) that directly results in material injury
to the Company;
(2) Executive's conduct as the President
and Chief Executive Officer of the Company is
grossly inappropriate and demonstrably likely to
lead to material injury to the Company, as
determined by the Board reasonably and in good
faith; or
(3) the Executive otherwise materially breaches
this Agreement;
provided, however, that in the case of Clause (2) or (3) above, such conduct
shall not constitute Cause unless the Board shall have delivered to the
Executive notice setting forth with specificity (A) the conduct deemed to
qualify as Cause, (B) reasonable action that would remedy such objection, and
(C) a reasonable time (not less than thirty (30) days) within which the
Executive may take such remedial action, and the Executive shall not have taken
such specified remedial action within such specified reasonable time.
(h) A "Change of Control" means:
(1) the acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) (a "Person") of
beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of voting
securities of the corporation where such
acquisition causes such person to own thirty-five
percent (35%) or more of the combined voting power
of the then outstanding voting securities of the
Company entitled to vote generally in the election
of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes
of this Subsection (A), the following acquisitions
shall not be deemed to result in a Change of
Control: (i) any acquisition directly from the
Company, (ii) any acquisition by the Company, (iii)
any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the
Company or any corporation controlled by the
Company or (iv) any acquisition by any corporation
pursuant to a transaction that complies with
clauses (i), (ii) and (iii) of Subsection (3)
below; and provided, further, that if any Person's
beneficial ownership of the Outstanding Company
Voting Securities reaches or exceeds thirty-five
percent (35%) as a result of a transaction
described in clause (i) or (ii) above, and such
Person subsequently acquires beneficial ownership
of additional voting securities of the Company,
such subsequent acquisition shall be treated as an
acquisition that causes such Person to own
thirty-five percent (35%) or more of the
Outstanding Company Voting Securities; or
(2) individuals who as of the date hereof,
constitute the Board (the "Incumbent Board") cease
for any reason to constitute at least a majority of
the Board; provided, however, that any individual
becoming a director subsequent to the date hereof
whose election, or nomination for election by the
Company's shareholders, was approved by a vote of
at least two-thirds of the directors then
comprising the Incumbent Board shall be considered
as though such individual were a member of the
Incumbent Board, but excluding, for this purpose,
any such individual whose initial assumption of
office occurs as a result of an actual or
threatened election contest with respect to the
election or removal of directors or other actual or
threatened solicitation of proxies or consents by
or on behalf of a Person other than the Board; or
(3) the approval by the shareholders of the
Company of a reorganization, merger or
consolidation or sale or other disposition of all
or substantially all of the assets of the Company
("Business Combination") or, if consummation of
such Business Combination is subject, at the time
of such approval by shareholders, to the consent of
any government or governmental agency, the
obtaining of such consent (either explicitly or
implicitly by consummation); excluding, however,
such a Business Combination pursuant to which (i)
all or substantially all of the individuals and
entities who were the beneficial owners of the
Outstanding Company Voting Securities immediately
prior to such Business Combination beneficially
own, directly or indirectly, more than 60% of,
respectively, the then outstanding shares of common
stock and the combined voting power of the then
outstanding voting securities entitled to vote
generally in the election of directors, as the case
may be, of the corporation resulting from such
Business Combination (including, without
limitation, a corporation that as a result of such
transaction owns the Company or all or
substantially all of the Company's assets either
directly or through one or more subsidiaries) in
substantially the same proportions as their
ownership, immediately prior to such Business
Combination of the Outstanding Company Voting
Securities, (ii) no Person (excluding any employee
benefit plan (or related trust) of the Company or
such corporation resulting from such Business
Combination) beneficially owns, directly or
indirectly, thirty-five percent (35%) or more of,
respectively, the then outstanding shares of common
stock of the corporation resulting from such
Business Combination or the combined voting power
of the then outstanding voting securities of such
corporation except to the extent that such
ownership existed prior to the Business Combination
and (iii) at least a majority of the members of the
board of directors of the corporation resulting
from such Business Combination were members of the
Incumbent Board at the time of the execution of the
initial agreement, or of the action of the Board,
providing for such Business Combination; or
(4) approval by the shareholders of the Company
of a complete liquidation or dissolution of the
Company.
Notwithstanding the foregoing, no Change of Control shall be deemed to have
occurred for purposes of this Agreement by reason of any actions or events
in which the Executive participates in a capacity other than in her capacity as
Executive (or as a director of the Company or a Subsidiary, where applicable).
(i) "Change of Control Date" shall mean the date on which a
Change of Control shall be deemed to have occurred.
(j) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(k) "Company Information" means Confidential Information and
Trade Secrets.
(l) "Competing Business" means any business engaging in the
exploitation or development of radiological pharmaceutical
products or devices for the treatment of cancer in a manner
similar to the Company's products.
(m) "Confidential Information" means confidential data and
confidential information relating to the business of the Company
(which does not rise to the status of a trade secret under
applicable law) which is or has been disclosed to Executive or of
which Executive became aware as a consequence of or through her
employment with the Company and which has value to the Company
and is not generally known to its competitors and which is
designated by the Company as confidential. Confidential
Information shall not include any data or information that (i)
has been voluntarily disclosed to the general public by the
Company, (ii) has been independently developed and disclosed to
the general public by others, or (iii) otherwise enters the
public domain through lawful means.
(n) "Date of Termination" shall have the meaning set forth in
Section 6(d).
(o) "Disability" shall mean disability which would entitle the
Executive to receive full long-term disability benefits under the
Company's long-term disability plan on terms substantially
similar to those of the long-term disability plan as in effect on
the date of this Agreement.
(p) "Excise Tax" shall have the meaning as set forth in
Section 11(a).
(q) "Good Reason" shall mean the occurence of one of the
following events (provided the Company does not cure such event
on a retroactive basis to the extent possible within ten (10)
days following its receipt of the Executive's Notice of
Termination):
(1) The Executive's title, position, authority or
responsibilities (including reporting
responsibilities and authority) are changed in a
materially adverse manner.
(2) The Executive's base salary is reduced for any
reason other than in connection with the
termination of her employment.
(3) For any reason other than in connection with
the termination of the Executive's employment, the
Company materially reduces any fringe benefit
provided to the Executive under Section 5 below the
level of such fringe benefit provided generally
other actively employed similarly situated
executives of the Company. Notwithstanding the
foregoing, if the Company agrees to fully
compensate the Executive for any such material
reduction for a period ending on the earlier to
occur of (i) the date such fringe benefit is no
longer provided to other actively employed
similarly situated executives of the Company or
(ii) four (4) years, then such event shall not
constitute Good Reason.
(4) A change of over fifty (50) miles in either
the Executive's principal place of employment or
the headquarters of the Company other than a change
to the Metropolitan Atlanta, Georgia area or to
Buford, Georgia or another location in Hall County,
Georgia as is presently being contemplated by the
Company.
(5) The Company otherwise materially breaches, or
is unable to perform its obligations under this
Agreement.
(6) The occurrence of a Change of Control.
Notwithstanding the foregoing, the occurrence of one of the event in
Paragraphs (1) through (6) hereof shall not be considered Good Reason for the
Executive's termination, unless the Executive delivers a Notice of Termination
pursuant to Paragraphs 6(c) and 6(d)(3) hereof, within one hundred eighty (180)
days after the Executive has actual notice of the occurrence of any of the
events listed in Paragraphs (1) through (6) hereof.
(r) "Interest Rate" shall mean the interest rate payable on one
year Treasury Bills in effect on the day that is 30 business days
(days other than Saturday, Sunday or legal holidays in the City
of New York) prior to the Date of Termination.
(s) "Notice of Termination" shall have the meaning as set forth
in Section 6(c).
(t) "Subsidiary" shall mean any majority owned subsidiary of
the Company.
(u) "Tax Reimbursement Payment" shall have the meaning set
forth in Section 11(a).
(v) "Trade Secrets" means information of the Company, without
regard to form, including, but not limited to, technical or
nontechnical data, formulas, patterns, compilations, programs,
devices, methods, techniques, drawings, processes, financial
data, financial plans, product or service plans or lists of
actual or potential customers or suppliers which is not commonly
known by or available to the public and which information (1)
derives economic value, actual or potential, from not being
generally known to, and not being readily ascertainable by proper
means by, other persons who can obtain economic value from its
disclosure or use; and (2) is the subject of efforts that are
reasonable under the circumstances to maintain its secrecy.
15. Assignment and Survivorship of Benefits. The rights and obligations of the
Company under this Agreement shall inure to the benefit of, and shall be binding
upon, the successors and assigns of the Company. If the Company shall at any
time be merged or consolidated into, or with, any other company, or if
substantially all of the assets of the Company are transferred to another
company, then the provisions of this Agreement shall be binding upon and inure
to the benefit of the company resulting from such merger or consolidation or to
which such assets have been transferred, and this provision shall apply in the
event of any subsequent merger, consolidation, or transfer.
16. Notices. Any notice given to either party to this Agreement shall be in
writing, and shall be deemed to have been given when delivered personally or
sent by certified mail, postage prepaid, return receipt requested, duly
addressed to the party concerned, at the address indicated below or to such
changed address as such party may subsequently give notice of:
If to the Company:
Theragenics Corporation
Oakbrook Parkway
Norcross, Georgia 30093
Attn: Board of Directors
with a copy to:
Powell, Goldstein, Frazer & Murphy
Sixteenth Floor
Peachtree Street, N.E.
Atlanta, Georgia 30303
Attn: Richard Miller, Esq.
If to the Executive:
Christine Jacobs
Peachtree Road, N.W.
Apartment 1212
Atlanta, Georgia 30305
with a copy to:
Lightmas & Delk
Suite 1150
The Peachtree
Peachtree Street, N.E.
Atlanta, Georgia 30309
Attn: Frank Lightmas, Esq.
17. Indemnification. The Executive shall be indemnified by the Company, to
the extent provided in the case of officers under the Company's Certificate of
Incorporation or Bylaws, to the maximum extent permitted under applicable law.
18. Taxes. Anything in this Agreement to the contrary notwithstanding, all
payments required to be made hereunder by the Company to the Executive shall be
subject to withholding of such amounts relating to taxes as the Company may
reasonably determine that it should withhold pursuant to any applicable law or
regulations. In lieu of withholding such amounts, in whole or in part, however,
the Company may, in its sole discretion, accept other provision for payment of
taxes, provided that is satisfied that all requirements of the law affecting its
responsibilities to withhold such taxes have been satisfied.
19. Enforcement of Rights. All legal and other fees and expenses, including,
without limitation, any arbitration expenses, incurred by the Executive in
connection with seeking to obtain or enforce any right or benefit provided for
in this Agreement, or in otherwise pursuing any right or claim, shall be paid by
the Company, to the extent permitted by law, provided that the Executive is
successful in whole or in part as to such claims as the result of litigation,
arbitration, or settlement.
In the event that the Company refuses or otherwise fails to make a
payment when due and it is ultimately decided that the Executive is entitled to
such payment, such payment shall increased to reflect an interest equivalent for
the period of delay, compounded annually, equal to four (4) percentage points
over the Interest Rate in effect as of the date the payment was first due.
20. Governing Law/Captions/Severance. This Agreement shall be construed in
accordance with, and pursuant to, the laws of the State of Georgia. The captions
of this Agreement shall not be part of the provisions hereof, and shall have no
force or effect. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement. Except as otherwise specifically provided in this paragraph,
the failure of either party to insist in any instance on the strict performance
of any provision of this Agreement or to exercise any right hereunder shall not
constitute a waiver of such provision or right in any other instance.
21. Entire Agreement/Amendment. This instrument contains the entire agreement
of the parties relating to the subject matter hereof, and the parties have made
no agreement, representations, or warranties relating to the subject matter of
this Agreement that are not set forth herein. This Agreement may be amended at
any time by written agreement of both parties, but it shall not be amended by
oral agreement.
IN WITNESSETH WHEREOF, the parties have executed this Agreement on the
date first above written.
THERAGENICS CORPORATION
By: /s/ Bruce W. Smith
ATTEST: Title: Secretary, Treasurer
& Chief Financial Officer
/s/ Ronald A. Warren
Title: Assistant Secretary
[CORPORATE SEAL]
EXECUTIVE:
/s/ M. Christine Jacobs
M. CHRISTINE JACOBS
Exhibit 24.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Theragenics Corporation
We hereby consent to the incorporation by reference of our report dated January
16, 1997, appearing in your Annual Report on form 10-K for the year ended
December 31, 1996, in the Company's Registration Statement on Form S-8, file
numbers 333-15313 and 33-40737.
GRANT THORNTON LLP
Alanta, Georgia
March 19, 1997