Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________
FORM 10-K
_________________________________
☒ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2023
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 000-51470
____________________________________
AtriCure, Inc.
(Exact name of registrant as specified in its charter)
____________________________________
Delaware
State or other jurisdiction of
incorporation or organization
7555 Innovation Way, Mason, OH
(Address of principal executive offices)
34-1940305
(I.R.S. Employer
Identification Number)
45040
(Zip Code)
Registrant’s telephone number including area code: (513) 755-4100
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $.001 par value
Trading Symbol(s)
ATRC
Name of each exchange on which registered
NASDAQ Global Market
Securities Registered Pursuant to Section 12(g) of the Act:
None
_________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See
definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ☒
Accelerated Filer ☐
Non-Accelerated Filer ☐
Smaller Reporting Company ☐
Emerging Growth Company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act: ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section
404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to
previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that are required a recovery analysis of incentive-based compensation received by any of the registrant's executive
officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the voting Common Stock held by non-affiliates of the registrant, based upon the closing sale price of the Common Stock on June 30, 2023, the last business day of
the registrant’s most recently completed second fiscal quarter as reported on the NASDAQ Global Market, was approximately $2,276.4 million.
Class
Common Stock, $.001 par value
Outstanding February 13, 2024
47,587,966
Items 10, 11, 12, 13 and 14 of Part III of this Form 10-K incorporate information by reference from the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission within
120 days after the end of the fiscal year covered by this Form 10-K.
_________________________________
DOCUMENTS INCORPORATED BY REFERENCE
TABLE OF CONTENTS
Table of Contents
PART I
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 1C.
ITEM 2.
ITEM 3.
ITEM 4.
BUSINESS
RISK FACTORS
UNRESOLVED STAFF COMMENTS
CYBERSECURITY
PROPERTIES
LEGAL PROCEEDINGS
MINE SAFETY DISCLOSURES
PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
ITEM 6.
ITEM 7.
RESERVED
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A.
ITEM 9B.
ITEM 9C.
PART III
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
CONTROLS AND PROCEDURES
OTHER INFORMATION
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
ITEM 10.
ITEM 11.
ITEM 12.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
EXECUTIVE COMPENSATION
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
ITEM 13.
ITEM 14.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
PRINCIPAL ACCOUNTANT FEES AND SERVICES
PART IV
ITEM 15.
ITEM 16.
SIGNATURES
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
FORM 10-K SUMMARY
2
2
15
32
32
33
34
34
35
35
35
35
42
44
71
71
73
73
73
73
73
74
74
74
75
75
76
77
Table of Contents
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-K, including the sections titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Risk
Factors” and “Quantitative and Qualitative Disclosures about Market Risk” contains forward-looking statements regarding our future performance. All
forward-looking information is inherently uncertain and actual results may differ materially from assumptions, estimates or expectations reflected or
contained in the forward-looking statements as a result of various factors, including those set forth under “Risk Factors” and elsewhere in this Form 10-K.
There may be additional risks of which we are not presently aware or that we currently believe are immaterial which could have an adverse impact on our
business. Forward-looking statements often address our expected future business, financial performance, financial condition and results of operations, and
often contain words such as “intends,” “estimates,” “anticipates,” “hopes,” “projects,” “plans,” “expects,” “drives,” “seek,” “believes,” “see,”
“focus,” “should,” “will,” “would,” “opportunity,” “outlook,” “could,” “can,” “may,” “future,” “predicts,” “target,” “potential,” "forecast," "trend,"
"might" and similar expressions and the negative versions of those words, and may be identified by the context in which they are used. However, the
absence of these words does not mean that a statement is not forward-looking. Forward-looking statements include, without limitation, statements that
address activities, events, circumstances or developments that AtriCure expects, believes or anticipates will or may occur in the future, such as earnings
estimates (including projections and guidance), other predictions of financial performance, launches by AtriCure of new products, developments with
competitors and market acceptance of AtriCure’s products. Such statements are based largely upon current expectations of AtriCure. Any forward-looking
statement speaks only as of the date made. Reliance should not be placed on forward-looking statements because they involve known and unknown risks,
uncertainties and other factors which may cause actual results, performance or achievements to differ materially from those expressed or implied.
Forward-looking statements are based on AtriCure’s experience and perception of current conditions, trends, expected future developments and other
factors it believes are appropriate under the circumstances and are subject to numerous risks and uncertainties, many of which are beyond AtriCure’s
control. In other words, these statements are not guarantees of future performance and inherently involve a wide range of risks and uncertainties that are
difficult to predict. With respect to the forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in
the Private Securities Litigation Reform Act of 1995. These forward-looking statements speak only as of the date of this Form 10-K. We undertake no
obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise unless required
by law.
WEBSITE AND SOCIAL MEDIA DISCLOSURE
We use our website (www.atricure.com) and our corporate Facebook, Instagram, YouTube, LinkedIn and X (formerly known as Twitter) accounts as
channels of distribution of company information. The information we post through these channels may be deemed material. Accordingly, investors should
monitor these channels, in addition to following our press releases, Securities and Exchange Commission, or SEC, filings and public conference calls and
webcasts. The contents of our website and social media channels are not, however, a part of this report.
TRADEMARKS
We own or have the rights to use various trademarks referred to in this Annual Report on Form 10-K, including Isolator Synergy
®
Sense coagulation device, ENCOMPASS , AtriClip Flex·V , and cryoSPHERE probe, among others, and their respective logos. Solely for
convenience, we may refer to trademarks in this Annual Report on Form 10-K without the
in any way, that we will not assert, to the fullest extent permitted by law, our rights to our trademarks.
and symbols. Such references are not intended to indicate,
clamp, EPi-
TM
®
®
®
®
®
®
TM
MARKET AND INDUSTRY INFORMATION
Market data used throughout this Annual Report on Form 10-K is based on management’s knowledge of the industry and good faith estimates of
management. All of management’s estimates presented herein are based on industry sources, including analyst reports and management’s knowledge. We
also relied, to the extent available, upon management’s review of independent industry surveys and publications prepared by a number of sources and other
publicly available information. We are responsible for all of the disclosures in this Annual Report on Form 10-K, and while we believe that each of the
publications, studies and surveys used throughout this Annual Report on Form 10-K are prepared by reputable sources, we have not independently verified
market and industry data from third-party sources.
All of the market data used in this Annual Report on Form 10-K involves a number of assumptions and limitations, and you are cautioned not to give
undue weight to such estimates. While we believe the estimated market position, market opportunity and market size information included in this Annual
Report on Form 10-K is generally reliable, such information, which in part is derived from management’s estimates and beliefs, is inherently uncertain and
imprecise and
Table of Contents
has not been verified by any independent source. Projections, assumptions and estimates of our future performance and the future performance of the
industry in which we operate are subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Item 1A. Risk
Factors” of Part I of this Annual Report on Form 10-K and elsewhere in this Annual Report on Form 10-K. These and other factors could cause results to
differ materially from those expressed in our estimates and beliefs and in the estimates prepared by independent parties.
Table of Contents
(Dollar and share amounts referenced in this Part I are in thousands.)
PART I
ITEM 1. BUSINESS
Overview
We are a leading innovator in treatments for atrial fibrillation (Afib), left atrial appendage (LAA) management and post-operative pain management.
Afib is an irregular heartbeat, or arrhythmia, which affects over 37 million people worldwide, including more than eight million people in the United
States, and is a growing epidemic. It is the most common cardiac arrhythmia encountered in clinical practice and results in high utilization of healthcare
services and significant cost burden. Patients often progress from being in Afib intermittently (paroxysmal) to being in Afib continuously. The continuous
Afib patient population includes early persistent Afib, which lasts seven days to 6 months, persistent Afib, which lasts 6 months to one year, and long-
standing persistent Afib, which lasts longer than one year. It is estimated that over 3.5 million people in the United States currently suffer from long-
standing persistent Afib. Afib often occurs in conjunction with other cardiovascular diseases, including hypertension, congestive heart failure, left
ventricular dysfunction, coronary artery disease and valvular disease.
Our cardiac ablation and left atrial appendage management (LAAM) products are used by physicians during open-heart and minimally invasive
surgical procedures. In open-heart procedures, the physician is performing heart surgery for other conditions, such as a mitral valve repair or a coronary
artery bypass, and our products are used in conjunction with (“concomitant” to) such a procedure. Minimally invasive procedures are performed on a
standalone basis, and often include multi-disciplinary or “hybrid” approaches, combining surgical procedures using AtriCure ablation and AtriCure LAAM
products with catheter ablation performed by an electrophysiologist.
Our pain management solutions are used by physicians to freeze nerves during cardiothoracic or thoracic surgical procedures. Recovery from
cardiothoracic and thoracic surgery can be complicated and painful. Many surgeons use multi-modal pain management strategies that include oral delivery
of opioid and non-opioid pain medications. Our cryoICE cryoSPHERE probe for pain management (Cryo Nerve Block) provides temporary relief of post-
operative pain, allowing the patient's body to heal after surgery while the nerves regenerate and sensation is regained.
®
We sell our products to medical centers through our direct sales force in the United States, Germany, France, the United Kingdom, the Benelux
region, Canada and Australia. We also sell our products through distributors who in turn sell our products to medical centers in other international markets.
Our business is primarily transacted in U.S. Dollars; direct sales transactions outside the United States are transacted in Euros, British Pounds, Canadian
Dollars or Australian Dollars.
Market Overview
Afib is the most commonly diagnosed sustained cardiac arrhythmia, with over one million diagnoses annually in the United States alone. Afib is an
under-diagnosed condition due in large part to the fact that patients with Afib often have mild or no symptoms, and their Afib is diagnosed when they seek
treatment for an associated condition, such as a structural heart disease or stroke. Symptoms of Afib may include heart palpitations, dizziness, fatigue and
shortness of breath, and these symptoms may be debilitating and life threatening in some cases. When a patient is in Afib, abnormal electrical impulses
cause the atria, or upper chambers of the heart, to fibrillate, or beat rapidly, irregularly and in an uncoordinated fashion. As a result, blood in the atria may
be in stasis, increasing the risk that a blood clot will form and cause a stroke or other serious complications. In patients with Afib, a significant percentage
of those clots can form inside of the LAA. We believe that increasing awareness of Afib and improved diagnostic screening will result in an increased
number of patients diagnosed with Afib over time. Also, since the prevalence of Afib increases with age, there will likely be an increase in the number of
diagnosed Afib patients globally as the world population ages.
Afib is a condition that doctors often find difficult to treat and, historically, there has been no widely accepted long-term cure for Afib. This difficulty
is exacerbated with more serious forms of Afib, or persistent and long-standing persistent Afib. Over the past two decades, technology advancements have
made surgical ablation more effective, repeatable and available to cardiac surgeons and electrophysiologists around the world. Societal guideline changes
from the Society of Thoracic Surgeons (STS), Heart Rhythm Society (HRS) and American Association of Thoracic Surgery (AATS) now have Class I
recommendations for concomitant surgical ablation, meaning that it is a “recommended” treatment for patients who have structural heart disease and Afib.
Guidelines for the treatment of more serious forms of Afib for patients without structural heart disease have also been introduced in the past several years.
In 2023, the American College of Cardiology (ACC), American Heart Association (AHA), American College of Clinical Pharmacy (ACCP), and HRS
released Guidelines for Diagnosis and Management of Atrial Fibrillation, and upgraded Left Atrial Appendage
2
Table of Contents
Management to the highest recommendation of Class 1 and now include Hybrid AF™ Therapy as a Class 2 recommendation. These societal guidelines are
reflective of the scientific evidence suggesting that surgical and hybrid ablation is safe and effective for patients who have Afib.
Of the patients undergoing open-heart surgery globally on an annual basis, we estimate that over 300,000 are potential candidates for surgical
ablation using our products, as they have pre-operative Afib. Today, we estimate that less than 20% of those candidates are being treated with surgical
ablation. In addition, Afib is thought to be responsible for approximately 15% to 20% of the estimated 800,000 strokes that occur annually in the United
States. According to the American Heart Association, the risk of stroke is five times higher in people with Afib. Studies have also suggested that 90% of
clots that cause strokes in patients who have Afib originate from within the LAA. Recently, a large independent international randomized trial, Left Atrial
Appendage Occlusion Study (LAAOS) III, demonstrated a significant reduction in strokes when the LAA was managed during cardiac surgery. Afib
accounts for billions of dollars in hospitalization-related and office visit costs in the United States each year. Indirect costs, such as the management of
Afib-related strokes, are also believed to be significant. Because of the risk of stroke and the significant cost burden on the healthcare system, more and
more surgeons are routinely addressing the LAA, both in patients who have Afib and in those who do not have Afib but may be at increased risk of
developing the disease in the future. We believe that our AtriClip system is safer, more effective and easier to use than other products and techniques for
excluding the LAA during cardiac surgery. Therefore, we believe that the market for our ablation products and the AtriClip system represent significant
growth opportunities.
Many Afib patients without other underlying structural heart disease, especially those with more advanced forms of Afib, are symptomatic and
experience conditions such as palpitations, breathlessness and drowsiness. These patients tend to be motivated to seek treatment to alleviate their
symptoms. Patients who are symptomatic are often treated by an electrophysiologist using catheter ablation. Catheter ablation is considered a percutaneous
procedure that does not require the opening of the chest; rather, catheters are inserted through a small puncture in the groin. In addition to catheter ablation,
there are other treatment options for patients with Afib, including pharmacological therapy (anti-arrhythmic drugs) and implantable pacemakers. It is
estimated that approximately 350,000 to 450,000 Afib patients are treated by catheter ablation every year in the U.S., a number that is expected to grow 10
to 15% annually. While the majority of paroxysmal Afib patients treated by catheter ablation tend to experience freedom from Afib, less than a third of
long-standing persistent patients treated by catheter ablation are cured of their Afib at one year, and it declines even more thereafter. Randomized,
prospective, multi-center data from the CONVERGE™ IDE clinical trial, along with a number of other recent real-world studies performed by physician
investigators, show that these long-standing persistent Afib patients can experience more than double the success rate by adding an ablation on the outside
surface of the heart using AtriCure’s EPi-Sense ablation system. Thus, we believe the EPi-Sense ablation system used as a minimally invasive or Hybrid
AF therapy also represents a significant growth opportunity for the Company.
TM
Thoracic surgery involving an incision through the ribcage, typically referred to as thoracotomy access, and cardiothoracic surgery can often result in
significant post-operative pain and longer hospital recovery times as patients refrain from mobilizing their chest near the incision site. It is estimated that
each year approximately 150,0000 thoracic procedures and approximately 250,000 cardiothoracic procedures are performed in the United States. Hospital
recovery times can vary from two to fifteen days depending on the procedure, operative complications associated with the procedure, pain management
protocol and other factors. Most surgeons will employ a multi-modal pain management protocol that includes various pain management techniques,
including techniques such as epidural delivery of medication directly around the spinal cord, intravenous or oral delivery of opioid and non-opioid pain
medications, or other strategies. More focused, local techniques include syringe injections between vertebrates and Cryo Nerve Block which uses
cryothermic energy to ablate peripheral nerves, temporarily stopping the transmission of pain signals coming from the chest wall during surgery. The nerve
“scaffolds” remain intact, allowing axons to regenerate and restore nerve function over time. Cryo Nerve Block can be delivered using our cryoICE
cryoSPHERE probe, which is specifically designed for Cryo Nerve Block therapy. Depending on the degree of invasiveness, physicians and their nursing
staff will take advantage of multiple ways of managing pain for their patients. In recent years, prescription narcotics, or opioids, have come under heavy
scrutiny due to their potential for long-term dependency, overdose and possible death. Both federal and local governments in the United States have
proposed and implemented new regulations to curb the opioid overdose epidemic. It is also estimated that one in seven thoracic surgery patients develops
an unhealthy post-procedural addiction to prescription narcotics, making alternative, non-opioid pain management modalities, such as Cryo Nerve Block,
an increasingly important part of how physicians manage post-operative pain. We believe the market for our pain management ablation product represents a
significant growth opportunity. Further, applications for Cryo Nerve Block outside of thoracic surgery use are being studied by physician investigators and
represent future possible growth opportunities.
®
3
Table of Contents
AtriCure Solutions and Products
We believe that we are currently the market leader in the surgical treatment of Afib and left atrial appendage management, and pioneers of the
application of Cryo Nerve Block in thoracic procedures. We anticipate that substantially all our revenue for the foreseeable future will relate to products we
currently sell or are in the process of developing. Our products enable cardiothoracic surgeons to perform surgical ablation procedures with faster, less
invasive and less technically challenging approaches. We have completed, and continue to invest in, clinical studies for the use of our ablation and LAAM
products to treat Afib and reduce stroke. Leading cardiothoracic surgeons and electrophysiologists, including those who serve or who have served as
consultants to us, have published results of preclinical and clinical studies utilizing our devices. The results of these studies have assessed efficacy, ease of
use and safety endpoints.
Products for cardiac tissue ablation include those that create scar tissue using radio frequency (RF) energy or cryothermic modalities. Our ablation
products are part of platforms each consisting of disposable hand pieces which connect to either a RF generator or a cryothermic generator. We generally
place this capital equipment with our direct customers and sell to our distributors.
Products for open and minimally invasive ablation:
•
®
Isolator Synergy™ Clamps. Our Isolator Synergy Ablation System clamps are single-use disposable RF products with jaws that close in
a parallel fashion. We sell multiple configurations of our Isolator Synergy clamps. The various configurations provide the user with options
to address patient specific procedure requirements or anatomy; however, all the clamps provide consistent performance using the same core
technology. The parallel closure evenly compresses tissue and evacuates the blood and fluids from the energy pathway to make the ablation
more effective. The Isolator Synergy Ablation System has been studied in multiple FDA approved clinical trials, including the previously
completed ABLATE clinical trial which supported a pre-market approval (PMA) in 2011, as well as the ongoing DEEP AF IDE and HEAL-
IST clinical trials.
Our Isolator Synergy Ablation System includes multiple configurations approved by the United States Food and Drug Administration
(FDA) for the treatment of persistent and long-standing persistent Afib concomitant to other open-heart surgical procedures. Certain
products of our Isolator Synergy clamps bear the CE mark and may be commercially distributed throughout the member states of the
European Union and other countries that comply with or mirror the Medical Device Directive. These products are available for sale in a
number of other countries globally.
In April 2022, we launched our most recent configuration, the ENCOMPASS clamp, following 510(k) clearance in July 2021. The
ENCOMPASS clamp is indicated for cardiac soft tissue ablation. The configuration is designed to make concomitant surgical ablations
more efficient and is expected to drive deeper penetration of cardiac surgery procedures.
®
• Multifunctional Pens and Linear Ablation Devices. These devices are single-use disposable RF products that come in multiple
configurations. The MAX Pen devices enable surgeons to evaluate cardiac arrhythmias, perform temporary cardiac pacing, sensing and
stimulation and ablate cardiac tissue with the same device. Surgeons can readily toggle back and forth between these functions. The device
comes in multiple configurations that have unique tissue contacting and shaft lengths. The Coolrail device enables the user to make longer
linear lines of ablation. Surgeons generally use one or more of our pen and linear devices in combination with Isolator Synergy clamps.
®
All our pen and linear ablation devices are cleared for sale in the United States under FDA 510(k) clearances, with indications for the
ablation of cardiac tissue and/or the treatment of cardiac arrhythmias. Our Isolator Synergy pens bear the CE mark, and most configurations
may be commercially distributed throughout the member states of the European Union and other countries that comply with or mirror the
Medical Device Directive. These products are available for sale in a number of other countries globally.
Products for open ablation:
•
cryoICE Cryoablation System. The cryoICE cryoablation system is used in both open ablation procedures and cryoanalgesia. The system
consists of the cryoICE BOX generator along with a variety of single-use disposable probes. The primary differences between these
cryoablation probes is the form of the tissue-contacting distal end. The cryoICE devices enable the user to make linear ablations of varied
lengths. Surgeons may utilize the cryoICE devices in combination with Isolator Synergy clamps or independently.
4
Table of Contents
Our cryoablation devices are cleared for sale in the United States under FDA 510(k) clearances, bear the CE mark for commercial
distribution throughout the member states of the European Union and other countries that comply with or mirror the Medical Device
Directive. These products are available for sale in a number of other countries globally.
The ICE-AFIB clinical trial is studying the safety and efficacy of the cryoICE system for persistent and long-standing persistent Afib
treatment during concomitant on-pump cardiac surgery.
Products for minimally invasive ablation:
•
EPi-Sense Systems. The EPi-Sense Guided Coagulation System with VisiTrax technology and the new EPi-Sense ST Guided Coagulation
System utilize monopolar RF energy for the coagulation of tissue. Our EPi-Sense devices are single-use disposable ablation devices capable
of intraoperative cardiac signal sensing and recording when connected to an external recording device.
®
®
Our EPi-Sense System was studied through the CONVERGE clinical trial and was subsequently approved in 2021 by FDA for the
treatment of patients with systemic, drug refractory, long-standing persistent Afib when augmented with an endocardial ablation catheter.
Our EPi-Sense ST Guided Coagulation System was approved via PMA supplement in late 2022. Hybrid AF Therapy is the only FDA-
approved minimally invasive procedure to treat patients with long-standing persistent Afib and represents a proven option for patients with
advanced disease.
™
The EPi-Sense System bears the CE mark and is commercially distributed throughout the member states of the European Union and other
countries that comply with or mirror the Medical Device Directive. This system is available for sale in a number of other countries globally.
Products for pain management:
•
cryoSPHERE probe. The cryoSPHERE probe is used to apply cryothermic energy to targeted intercostal peripheral nerves in the ribcage
in order to provide temporary pain relief. This technique, called Cryo Nerve Block, is applied intraoperatively by cardiothoracic or thoracic
surgeons and results in temporary pain relief for up to 90 days after the procedure. Sensation typically returns to the affected region of the
chest after this period. Scientific data that has been published on the effects of Cryo Nerve Block has generally shown a significant
reduction in prescription of opioids, significantly reduced length of stay for patients in the hospital and other benefits.
The cryoSPHERE probe is 510(k) cleared for managing pain by temporarily ablating peripheral nerves and bears the CE mark for
commercial distribution throughout the member states of the European Union and other countries that comply with or mirror the Medical
Device Directive.
Products for appendage management:
• AtriClip System. The AtriClip LAA Exclusion System includes various combinations of an implantable device (AtriClip) coupled to a
®
single-use disposable applier. The AtriClip device is designed to exclude the left atrial appendage by mechanically clamping the appendage
from the outside of the heart. The left atrial appendage has been shown to be a source of arrhythmias. The exclusion of the LAA eliminates
blood flow between the left atrial appendage and the atrium while avoiding contact with circulating blood and provides electrical isolation
benefits after placement. We believe that the AtriClip system is potentially safer, more effective and easier to use than other techniques for
permanently excluding the left atrial appendage. The device comes in two geometries (a rectangular configuration which encircles the
targeted tissue and “V” shape which allows for an alternative lateral access) and a variety of lengths, which are matched to each patient's
anatomy. The appliers come in multiple forms tailored to specific procedural needs depending on the type of surgery and how the surgeon is
accessing the heart.
In the United States, our AtriClip LAA Exclusion System products are 510(k)-cleared with an indication for the exclusion of the LAA,
performed under direct visualization and in conjunction with other cardiac surgical procedures. Direct visualization, in this context, requires
that the surgeon can see the heart directly, with or without assistance from a camera, endoscope or other appropriate viewing technologies.
Certain products of our AtriClip LAA Exclusion System bear the CE mark for commercial distribution throughout the member states of the
European Union and other countries that comply with or mirror the Medical Device Directive. These products are available for sale in a
number of other countries globally.
5
Table of Contents
The AtriClip LAA Exclusion System is currently being evaluated under the Left Atrial Appendage Exclusion for Prophylactic Stroke
Reduction (LeAAPS™) IDE clinical trial.
We sell additional products and enabling technologies that hold 510(k) approvals and/or bear the CE mark. The LARIAT System is a solution for
®
soft-tissue closure that includes a suture loop coupled to a single-use disposable applier. The Lumitip™ dissector is used by surgeons to separate tissues to
provide access to key anatomical structures that are targeted for ablation. Other enabling technologies include our Glidepath™ guides for placement of our
clamps, Subtle™ Cannula’s to support access for our EPi-Sense catheters and a line of reusable cardiac surgery instruments.
Business Strategy
We are passionately focused on healing the lives of patients affected by Afib and pain after surgery. Our strategy is to expand the treatment options
for patients who suffer from Afib, have a high risk of stroke, or who suffer from post-operative pain, through the continued development of our
technologies and expansion of our product offerings, clinical science investments and global commercial expansion. The key elements of our strategy
include:
New Product and Procedure Innovation. Our product development pipeline includes projects which extend and improve our existing products, as
well as research and development projects for new technologies and new procedural techniques. We plan to continue to develop new and innovative
products and procedures, including those that allow us to enter new markets or expand our growth in existing markets.
Investments in Clinical Science. We continue to invest in landmark clinical trials to validate the long-term results of procedures using our products
and to support applications to regulatory agencies for expanded indications. We also make clinical research grants to support our product development
efforts and expand the body of clinical evidence. We believe publication of additional scientific evidence, in addition to robust ongoing research activities,
will ultimately create an increased demand for our products.
Build Physician and Societal Relationships. We have formed consulting relationships with cardiothoracic surgeons, cardiologists,
electrophysiologists, stroke neurologists and thoracic surgeons who work with us to develop and evaluate our products. Additionally, we regularly form
advisory boards made up of key opinion leaders in multiple specialties to provide input to our training and clinical programs. We are building these
relationships along with extended care professionals such as nurse practitioners and advanced practice providers, to provide insight regarding treatment
trends, input on future product direction and education for providers involved in treating the disease.
We are partnering with leading surgical and cardiology societies to increase the awareness of Afib treatment options. In the past five years, the
Society for Thoracic Surgeons (STS), Heart Rhythm Society (HRS), American College of Cardiology (ACC), American Heart Association (AHA) and
American College of Clinical Pharmacy (ACCP) have released new guidelines on the surgical treatment of Afib in both open-heart and minimally-invasive
settings.
Provide Training and Education. We have recruited and trained sales and physician education professionals to effectively communicate to our
customers the unique features and benefits of our technologies as they relate to their indications for use. Our highly trained professionals meet with
physicians at institutions around the world to provide education and technical training on the features, benefits and safe-and-effective use of our products.
With the approval of our Isolator Synergy System, we instituted a program to train providers on the use of the Isolator Synergy System to treat persistent
and long-standing persistent Afib in patients undergoing open-heart surgery. With the approval of the EPi-Sense System, we began programs to train
physicians on the use of the EPi-Sense system in a hybrid approach to treating patients with long-standing persistent Afib. More recently, we have
implemented multidisciplinary training programs focused on the heart team approach for creating and growing an arrhythmia treatment program and
managing post-operative pain. We believe these training and education programs have increased awareness about the surgical treatment of Afib, and we
will continue to make investments to serve our physician customers. As a result of the educational process, we believe that awareness of our technologies is
growing and will result in the increased use of our products.
Evaluate Acquisition Opportunities. We expect to continue to be opportunistic with respect to acquisitions. We evaluate acquisition opportunities on
a variety of factors, including product innovation, clinical differentiation and other strategic and financial criteria.
Research and Product Development
Our ongoing research and development activities support our business strategy to expand treatment options and increase awareness in our current
markets, as well as enabling expansion into adjacent markets. We are engaged in developing and researching new and existing products or concepts,
preclinical studies, clinical trials and other regulatory
6
Table of Contents
activities. We make significant investments in both product development and clinical science activities to drive the advancement and adoption of new
therapies in the marketplace.
In the United States, a significant risk device requires the prior submission of an application for an Investigational Device Exemption (IDE) to FDA
for approval before initiating a clinical trial. Clinical trials are required to support a pre-market approval (PMA) and are sometimes required for 510(k)
clearance. Some trials require a feasibility study followed by a pivotal trial. We are conducting several clinical trials to validate the long-term results of
procedures using our products and to support applications to regulatory agencies for expanded indications. In addition, we also conduct various studies to
gather clinical data regarding our products. Key trials and studies are:
LeAAPS. In April 2022, FDA approved the protocol for the Left Atrial Appendage Exclusion for Prophylactic Stroke Reduction (LeAAPS) IDE
clinical trial. The trial is designed to evaluate the effectiveness of prophylactic LAA exclusion using the AtriClip LAA Exclusion System for the prevention
of ischemic stroke or systemic arterial embolism in cardiac surgery patients without pre-operative AF diagnosis who are at risk for these events. This
prospective, multicenter, randomized trial evaluates safety at 30 days post-procedure to demonstrate no increased risk with LAA exclusion during cardiac
surgery and effectiveness with a minimum follow-up of five years post procedure for all subjects. The trial provides for enrollment of up to 6,500 subjects
at up to 250 sites worldwide. In January 2023, we enrolled our first patient; site initiation and enrollment is ongoing.
HEAL-IST. In February 2022, FDA approved the protocol for the Hybrid Epicardial and Endocardial Sinus Node Sparing Ablation Therapy for
Inappropriate Sinus Tachycardia (IST) clinical trial (HEAL-IST). The HEAL-IST clinical trial is designed to study the safety and efficacy of a hybrid sinus
node sparing ablation procedure using the Isolator Synergy Surgical Ablation System for the treatment of symptomatic, drug refractory or drug intolerant
IST. The trial is a prospective, multicenter, single arm trial that evaluates safety 30 days post-procedure and evaluates primary effectiveness of freedom
from IST (as specified) at 12 months post-procedure. The trial provides for enrollment of up to 142 patients at up to 40 sites in the United States, United
Kingdom and European Union. The first patient enrollment in the trial occurred in June 2022; site initiation and enrollment is ongoing.
CONVERGE. The CONVERGE IDE clinical trial proved the safety and efficacy of the EPi-Sense System to treat symptomatic persistent and long-
standing persistent Afib patients who are refractory or intolerant to at least one Class I and/or III anti-arrhythmic drug. In April 2021, we announced the
PMA approval of the EPi-Sense System for treatment of symptomatic, drug-refractory, long-standing persistent atrial fibrillation, when augmented with an
endocardial ablation catheter. We believe the Convergent procedure, or Hybrid AF therapy, provides the only compelling treatment option for a large and
vastly underpenetrated population of Afib patients. The CONVERGE trial demonstrated superiority in the hybrid therapy arm compared to endocardial
catheter ablation alone. In patients diagnosed with long-standing persistent Afib, the therapy arm showed a 29% absolute difference in efficacy at 12
months (78% relative improvement) and an absolute difference of 35% at 18 months (110% relative improvement). There was also a 33% absolute
difference in Afib burden reduction in favor of the Hybrid AF therapy at 12 months, which increased to 37% at 18 months. In April 2021, we also received
approval from FDA to conduct the CONVERGE Post Approval Study (PAS). This study allows for 325 patients to be enrolled at up to 50 sites. The first
patient enrollment in the trial occurred in June 2022; site initiation and enrollment is ongoing.
We have invested in other clinical trials to validate the long-term results of procedures using our products and to support applications to regulatory
agencies for expanded indications. The ICE-AFIB clinical trial is designed to study the safety and efficacy of the cryoICE system for persistent and long-
standing persistent Afib treatment during concomitant on-pump cardiac surgery. The trial provides for enrollment of up to 150 patients at up to 20 sites in
the United States, which was completed in May 2023. Patient follow-up for twelve months post ablation required by the study protocol remains ongoing.
During the second quarter of 2023, results from our CEASE-AF trial were presented at the European Heart Rhythm Association meeting and subsequently
published in July 2023. CEASE-AF is a prospective, multi-center randomized control trial that demonstrated superior freedom from atrial arrhythmias for
staged hybrid ablation compared to endocardial catheter ablation. During the fourth quarter of 2023, the 12-month follow-up results of enrolled patients
from the DEEP AF Pivotal study were presented at the American Heart Association meeting. The DEEP AF IDE pivotal trial evaluated the safety and
efficacy of the AtriCure Bipolar System when used in a staged approach where a minimally invasive surgical ablation procedure is first performed. The
patient undergoes the endocardial catheter procedure approximately 91-120 days later. The results from this single arm study demonstrated superior
freedom from atrial arrhythmias for staged hybrid ablation compared to a pre-specified performance goal. The Company is in the process of analyzing
additional trial data for publication, future development activities, or possible evaluation of label expansions.
®
7
Table of Contents
Sales, Marketing and Medical Education
Our global sales and marketing efforts focus on educating physicians about our unique technologies and their clinical benefits. We only promote our
products for uses described in their labeling as cleared or approved by relevant regulatory agencies, and train our sales force on the use of our products to
the extent the products are cleared or approved.
Our sales team in the United States has approximately 290 employees. We select our sales personnel based on their expertise, experience and
reputation in the medical device industry and their knowledge of cardiac and thoracic surgery procedures and technologies.
We market and sell our products in selected countries outside of the United States through a combination of independent distributors and direct sales
personnel. Our international sales team includes approximately 60 employees focused on our direct markets, such as Germany, France, the United
Kingdom, the Benelux region, Canada and Australia. We also maintain a network of distributors who market and sell our products in Asia and South
America, as well as certain countries in Europe. We continue to evaluate opportunities for further expansion into markets outside of the United States.
Competition
AtriCure has the only medical devices that are approved by FDA for treating long-standing persistent Afib: the Isolator Synergy Ablation, the first
medical device to receive FDA approval for the treatment of persistent Afib in a concomitant setting, and the EPi-Sense System, which received FDA
approval for standalone treatment of Afib with Hybrid AF Therapy. However, our industry is competitive, is subject to change and can be significantly
affected by new product introductions and other activities of industry participants. We compete with other companies and divisions of companies that sell a
single or limited number of competitive product lines or in certain geographies. Our primary competitor in the cardiac surgery market is Medtronic, plc,
who provides surgical ablation products and LAAM devices used by physicians for the treatment of Afib and related conditions. For standalone treatment
of Afib, several companies offer intracardiac catheter devices that are commonly used by electrophysiologists. These catheter devices are FDA-approved to
treat the paroxysmal and persistent forms of Afib, but they are not FDA indicated to treat long-standing persistent Afib. Our Hybrid AF Therapy involves
both epicardial and endocardial techniques, therefore, these catheters are complementary to our business and not competitive. We believe that our products
improve treatment outcomes for patients with non-paroxysmal forms of Afib when combined with intracardiac catheter devices.
AtriCure is monitoring other companies who are conducting clinical trials that may support FDA approval of their devices to treat persistent and
long-standing persistent Afib, although we are not aware of any ongoing FDA trials by other companies to study ablation of long-standing persistent Afib
patients. We are aware of other companies developing technology for cardiac tissue ablation and appendage management. New product introductions,
technological advances and regulatory clearances from competitors may impact the use of our products in cardiac procedures. In addition to the cardiac
surgery market, we also consider competition within the post-operative pain market. Currently, we are not aware of other companies in the United States
who are pursuing cryothermic nerve block therapies for thoracic surgery. There are other companies outside of the United States who market their devices
for a similar therapy.
Third-Party Reimbursement
Reimbursement for health care services in the United States is generally made by third-party payors. These payors include private insurers and
government insurance programs, such as Medicare and Medicaid. The Medicare program, the largest single payor in the United States, is a federal health
benefit program administered by the Centers for Medicare and Medicaid Services (CMS) and covers certain medical care items and services for eligible
beneficiaries, primarily individuals over 65 years old, as well as chronically disabled individuals. Because Medicare beneficiaries comprise a large
percentage of the populations for which our products are used, and private insurers may follow the coverage and payment policies for Medicare, Medicare’s
coding, coverage and payment policies for cardiothoracic surgical procedures are significant to our business.
Medicare’s Part A program pays hospitals for inpatient services, such as cardiothoracic surgery, under the Inpatient Prospective Payment System,
which provides a predetermined payment based on the patient’s discharge diagnoses and surgical procedure(s). Discharge diagnoses are grouped into
Medicare Severity Diagnosis Related Groupings (MS-DRG). There are several cardiac surgery MS-DRGs associated with the surgical treatment of Afib,
with and without a concomitant open-heart procedure. When an ablation device and/or LAAM device is used during a concomitant open-heart procedure,
Medicare’s hospital reimbursement is based upon the patient’s primary structural heart surgical procedure. In contrast, sole therapy minimally invasive
ablation or surgical LAAM procedures typically are reimbursed under a general cardiac surgery or intracardiac procedure MS-DRG. We believe hospital
reimbursement rates for sole therapy and concomitant therapy cardiac surgical ablation or surgical LAAM are adequate to cover the cost of our products
even when multiple procedures are performed. Similar to surgical ablation for Afib or surgical LAAM, cryoablation performed for post-operative pain
8
Table of Contents
management is reimbursed as part of the primary procedure, open thoracic or cardiac surgery, MS-DRG. We believe hospital reimbursement rates are
typically adequate in these situations.
Physicians are reimbursed for their services separately under the Medicare Part B physician fee schedule. When performing a surgical cardiac
ablation with and without a concomitant open-heart procedure, surgeons report Current Procedural Terminology (CPT) codes to receive a professional fee
payment. Multiple CPT codes may be reported by a physician during a procedure if multiple procedures are performed. There are category one CPT codes
for both concomitant and standalone surgical Afib treatment, as well as surgical LAAM. However, some providers utilize unlisted CPT codes to obtain
reimbursement when no appropriate CPT code exists, such as Cryo Nerve Block ablation when used for post operative pain control.
In addition to the Medicare program, many private payors look to CMS policies as a guideline in setting their coverage policies and payment
amounts. The current coverage policies of these private payors may differ from the Medicare program, and payment rates may be higher, lower, or the same
as the Medicare program. In some cases, certain private payors adopt negative coverage policies with respect to therapies involving our products. We
provide private payors information on FDA labels and new published studies to support positive coverage policies. We also engage third-party
reimbursement consultants that provide support to our customers in the event of a coverage denial.
Outside of the United States, third-party reimbursement varies widely by geography and by the type of therapy in which our devices are used. For
example, even though a new medical device may have been approved for commercial distribution, we may find limited demand for the device until
coverage and sufficient reimbursement levels have been obtained from governmental and private third-party payors. In addition, some private third-party
payors require that certain procedures or the use of certain products be authorized in advance as a condition of reimbursement. In some countries, cost
containment initiatives and health care policies may significantly reduce reimbursement for procedures using our medical devices or deny coverage for
those procedures altogether. We are actively working to pursue market access in certain geographies, which includes applying for new reimbursement for
therapies in which our devices are being used or pursuing specific reimbursement for utilization of our devices.
Government Regulation
Our products are medical devices and are subject to regulation in the United States by FDA and other federal agencies, and by comparable authorities
in the European Union (EU) and other countries worldwide.
US Regulation:
FDA regulations govern nearly all of the activities that we perform, or which are performed on our behalf, to ensure that medical products distributed
domestically or exported internationally are safe and effective for their intended uses. FDA regulates the total product lifecycle from early design,
development and testing, to manufacturing and commercialization activities, as well as post-market surveillance and reporting, including corrective actions,
removals and recalls. Unless an exemption applies, most medical devices distributed in the United States require either 510(k) clearance or PMA from
FDA.
510(k) Clearance Pathway. To obtain 510(k) clearance, we must submit a notification to FDA demonstrating that our proposed device is
substantially equivalent to a predicate device, i.e., a previously cleared and legally marketed 510(k) device or a device that was in commercial distribution
before May 28, 1976, for which FDA has not yet called for the submission of a PMA. Any modification to a 510(k)-cleared device that would constitute a
major change in its intended use, or a change in its design or manufacture that could significantly affect the safety or effectiveness of the device, requires a
new 510(k) clearance.
Premarket Approval Pathway. A PMA must be submitted to FDA if the device cannot be cleared through the 510(k) process and is not otherwise
exempt. A PMA must be supported by extensive data, including but not limited to technical, preclinical, clinical, real-world data, manufacturing and
labeling, to demonstrate the safety and effectiveness of the device for its intended use. A PMA supplement is required for changes affecting the safety or
effectiveness of a PMA-approved device, including but not limited to new indications for use, a different manufacturing facility, or changes in the
manufacturing process, labeling, or design specifications or components of the device.
Clinical Trials. Clinical trials are required to support a PMA and are sometimes required for 510(k) clearance. Clinical trials are subject to extensive
recordkeeping and reporting requirements. Our clinical trials must be conducted under the oversight of an Institutional Review Board (IRB) for the relevant
clinical trial sites and must comply with FDA regulations, including, but not limited to, those relating to current good clinical practices. We are also
required to obtain the written informed consent of patients in form and substance that complies with both FDA requirements and other human
9
Table of Contents
subject protection regulations established by FDA. We must conduct our clinical studies in compliance with state and federal privacy laws, including the
Health Insurance Portability and Accountability Act (HIPAA).
Educational Grants. FDA regulates the promotion of medical devices by manufacturers and prohibits the promotion by manufacturers of uses that
are not within the approved or cleared labeling of the device. FDA does not regulate the practice of medicine or the conduct or content of medical
education conducted by third parties, which may include uses that are not within approved or cleared device labeling. Manufacturers may provide
unrestricted financial support for independent third-party medical education programs in the form of educational grants intended to offset the cost of such
programs. If the manufacturer controls or unduly influences the content of such programs, FDA considers those programs to be promotional activities by
the manufacturer and thus subject to FDA regulation including promotional restrictions. We seek to ensure that our educational grants program is
conducted in accordance with FDA criteria for independent educational activities. However, we cannot provide an assurance that FDA or other government
authorities would view the third-party programs we have supported as being independent.
Pervasive and Continuing Regulation. There are numerous regulatory requirements that apply after a product is cleared or approved by FDA,
including, but not limited to: annual establishment registration and product listing; current good manufacturing practice for devices (GMP); labeling
requirements and advertising and promotion guidelines; assessing the significance of any changes to a device; monitoring and reporting serious and adverse
events and certain device malfunctions; and reporting certain device corrections and removals. Our manufacturing facilities and processes are also subject
to FDA inspections to ensure compliance with Quality System Regulations (QSR).
In addition to FDA regulation, the advertising and promotion of certain medical devices are also regulated by the Federal Trade Commission and by
state regulatory and enforcement authorities. On occasion, promotional activities for FDA-regulated products can be the subject of enforcement action
brought under healthcare reimbursement laws and consumer protection statutes. In addition, under the Federal Lanham Act and similar state laws,
competitors and others can initiate litigation relating to advertising claims.
Fraud, Abuse and False Claims. We are directly and indirectly subject to various federal and state laws governing our relationship with healthcare
providers. In particular, the Anti-Kickback Statute is a federal criminal law that applies broadly and prohibits the knowing and willful offer or payment of
remuneration to induce or reward patient referrals or the generation of business involving any item or service payable by a federal health care program. The
federal False Claims Act (FCA) imposes civil liability on any person or entity that submits, or causes the submission of, a false or fraudulent claim to the
United States government. Damages under the FCA consist of the imposition of fines and penalties and can be significant. The FCA also allows a private
individual or entity with knowledge of past or present fraud against the federal government to sue on behalf of the government to recover the civil penalties
and treble damages.
AtriCure is a member of the Advanced Medical Technology Association (AdvaMed), a voluntary United States trade association for medical device
manufacturers. This association has established guidelines and protocols for medical device manufacturers in their relationships with healthcare
professionals on matters including research and development, product training and education, grants and charitable contributions, support of third-party
educational conferences and consulting arrangements. Adoption of the AdvaMed Code of Ethics for Interactions with Healthcare Professionals (the
“AdvaMed Code”) by a medical device manufacturer is voluntary, and while the Office of the Inspector General and other federal and state healthcare
regulatory agencies encourage its adoption and may look to the AdvaMed Code, they do not view adoption of the AdvaMed Code as proof of compliance
with applicable laws. We have adopted the AdvaMed Code and incorporated its principles in our standard operating procedures, employee training
programs and relationships with medical professionals.
Regulation Outside of the United States:
Sales of medical devices outside of the United States are subject to foreign governmental regulations which vary substantially from country to
country. The time required to obtain certification or approval by a foreign country may be longer or shorter than that required for FDA clearance or
approval and the requirements may be different, but the general trend is toward increasing regulation and greater requirements for the manufacturer to
provide more bench testing and clinical evidence. In addition, regulatory agencies and authorities can halt distribution within the country or otherwise take
action in accordance with local laws.
Conformity Assessment Pathway. In the European Union, various directives regulate the design, manufacture and labeling of medical devices, and
more stringent conformity assessment requirements have been put in place with the 2017 Medical Device Regulation, effective May 26, 2021. The method
for assessing conformity varies depending on the type and class of the product, but typically involves a combination of quality system assessment and
product conformity
10
Table of Contents
assessment by a third-party notified body, an independent and neutral institution appointed by a country to conduct the conformity assessment. This third-
party assessment includes a review of documentation related to the device that may be as extensive as the documentation requirements that the United
States FDA requires for higher risk products. The notified body also audits the manufacturer’s quality system and performs a detailed review of the testing
of the manufacturer’s device. Successful completion of a conformity assessment procedure allows a manufacturer to issue a declaration of conformity with
the requirements of the relevant directive and affix the CE mark to the device. Devices that bear the CE mark may be commercially distributed throughout
the member states of the European Union and other countries that comply with or mirror the medical device regulations.
Pervasive and Continuing Regulation. There are numerous regulatory requirements that apply after a product has been approved by the notified
body for CE marking, including, but not limited to: labeling, advertising and promotion, reporting of device modifications, monitoring the safety of the
product and performing corrections and removals when necessary, maintaining “state of the art” requirements for the devices through compliance with
standards, and obtaining recertification of the quality system and individual device certificates on a periodic basis.
AtriCure is a member of MedTech Europe, a voluntary trade association for the medical technology industry including diagnostics, medical devices
and digital health. MedTech Europe and its members are committed to a high level of ethical business practices and have put in place strict guidelines to
advise medical technology manufacturers on how to collaborate ethically with healthcare professionals (HCPs). These guidelines are set out in the
MedTech Europe Code of Ethical Business Practice (MedTech Code), which regulates all aspects of the industry's relationships with HCPs and healthcare
organizations (HCOs). It covers medical education and research and development. It also introduces an independent enforcement mechanism and
transparency obligations. The Code sets clear and transparent rules for the industry's relationships with HCPs and HCOs, including company events, third-
party organized events, arrangements with consultants, gifts, research and financial support to medical education. We have adopted the MedTech Code and
incorporated its principles in our standard operating procedures, employee training programs and relationships with medical professionals.
Consulting Relationships
We have developed consulting relationships with scientists and physicians throughout the world to support our research and development, clinical
and training and education programs. We work closely with these thought leaders to understand unmet needs and emerging applications for the treatment of
Afib and other diseases and conditions.
Our physician consulting agreements are intended to satisfy the requirements of the personal services “Safe Harbor” regulation as well as the
AdvaMed Code and the MedTech Europe Code of Ethical Business Practice. As such, they provide for payment of a fair market value fee only for
legitimate services rendered to us. We do not expect or require the consultant to utilize or promote our products, and consultants are required to disclose
their relationship with us as appropriate, such as when publishing an article in which one of our products is discussed. Amounts paid to physicians in the
United States are disclosed by us in annual reports submitted to CMS under the federal “Open Payments” law. Amounts paid to physicians in certain other
countries are also disclosed by us in reports submitted to various governmental agencies in those countries, in accordance with the laws of the jurisdictions
where those physicians reside or practice, or where the payments are made.
Intellectual Property
Protection of our intellectual property is a priority for our business, and we rely on a combination of patent, copyright, trademark and trade secret
laws to protect our interests. Our ability to protect and use our intellectual property rights in the continued development and commercialization of our
technologies and products, operate without infringing the proprietary rights of others, and prevent others from infringing our proprietary rights is important
to our continued success. We will be able to protect our products and technologies from unauthorized use by third parties only to the extent that they are
covered by valid and enforceable patents, trademarks or copyrights, or are effectively maintained as trade secrets, know-how or other proprietary
information.
We hold numerous issued United States and international patents. We also have multiple pending United States and international patent applications.
We seek patent protection relating to technologies and products we develop in both the United States and in selected foreign countries. While we own much
of our intellectual property, including patents, patent applications, trademarks, trade secrets, know-how and proprietary information, we also license know-
how and related technology of importance to the commercialization of our products. To continue developing and commercializing our current and future
products, we may license intellectual property from commercial or academic entities to obtain the rights to technology that is required for our research,
development and commercialization activities.
11
Table of Contents
All of our employees and technical consultants are required to execute confidentiality agreements in connection with their employment and
consulting relationships with us. We also generally require them to agree to disclose and assign to us all inventions conceived in connection with their
relationship with us. We devote significant resources to obtaining patents and other intellectual property and protecting our other proprietary information. If
valid and enforceable, these patents may give us a means of blocking competitors from using infringing technology to compete directly with our products.
We also have proprietary information that may not be patentable. With respect to proprietary information that is not patentable, we have chosen to rely on
trade secret protection and confidentiality agreements to protect our interests.
Manufacturing
We assemble, inspect, test and package the majority of our products at our facilities in Ohio, and our products are sterilized by third parties.
Purchased components are often sourced from a single supplier, but alternatives to critical suppliers are available in the event this would be needed.
To minimize supply chain risks, we maintain inventory levels of components and raw materials specific to the respective part or device. We assess
tooling and equipment on an ongoing basis. Order quantities and lead times for components purchased from outside suppliers are based on our forecasts
derived from historical demand and anticipated future demand. Lead times may vary significantly depending on the size of the order, time required to
fabricate and test the components, specific supplier requirements and current market demand for the components and raw materials. To date, we have not
experienced significant product availability or delay issues directly related to obtaining any of our components.
We regularly audit our suppliers for compliance with our quality system requirements, the QSR and/or applicable International Organization of
Standardization (ISO) standards. We are an FDA-registered medical device manufacturer and certified to ISO 13485:2016. We routinely conduct internal
audits of our quality systems in accordance with various international standards. In addition, we have successfully participated in the Medical Device
Single Audit Program (MDSAP) and have been certified accordingly. The MDSAP program is recognized in Australia, Brazil, Canada, Japan and the
United States.
We are subject to numerous federal, state and local laws relating to such matters as laboratory practices, the experimental use of animals, the use and
disposal of hazardous or potentially hazardous substances, safe working conditions, manufacturing practices, environmental protection and fire hazard
control.
Human Capital Management
Successful execution of our strategy is dependent on attracting, developing and retaining key employees and members of our management team. As
of December 31, 2023, we had approximately 1,200 employees. Our Board of Directors, along with the Compensation Committee, provides oversight of
the human capital management including demographics, diversity and inclusion efforts, and aspects of employee compensation.
At AtriCure, our employees are crucial to the ongoing success of the company. The skills, experience and industry knowledge of our employees
significantly benefit our operations and performance. We continuously evaluate, modify and enhance our internal processes to increase employee
engagement, productivity and efficiency, as well as to recruit new employees to support our growth. Recognizing the significance of our employees to our
success, in 2022 we introduced a “people objective” to our annual incentive plan focused on attraction, development and retention of talent, in addition to
strategic Diversity, Equity and Inclusion (DE&I) initiatives.
Talent Attraction and Retention
We attract top talent to AtriCure and provide mechanisms for them to take ownership of their career paths to support their career aspirations so they
can build a long-term future with our company. Over the last five years, voluntary turnover rate among our employees has remained consistently below
10%, outperforming the industry average. We conduct engagement surveys of our employees at least annually with our last Organizational Health Survey
resulting in above average results when compared to similar size companies. In addition, our employees have voted us as a Top Workplace eight times in
the past nine years, and internationally, our employees have voted us a Great Place to Work for two consecutive years. We also promote employee retention
and development by supporting internal movement to create accretive experiences for our employees. We have made focused efforts to attract diverse
candidates in our pipeline and have expanded our recruiting channels to connect with new communities.
Talent Management and Development
Our philosophy of Talent Mastery is our aspirational commitment to spend as much time focusing on our talent as we do on our business strategies.
Under this philosophy, we believe our leaders will better help attract, develop and retain talent. We are committed to identifying and developing the talents
of our next-generation leaders, and conduct a
12
Table of Contents
comprehensive Talent and Organization Planning to position AtriCure with appropriate organization and leadership capability to meet current and future
business needs. In that process, we review existing leaders and prospective leaders throughout the organization and determine next best steps for their
future development.
Employee development is an important part of the way we drive retention and foster a strong culture of learning. We have invested in programs to
drive ongoing career development and provide a range of training courses and online resources for employees, and opportunities for coaching and
mentoring. Programs and offerings for development include AMPLIFY, our leadership development program for mid-level leaders across the company;
and AtriCure YOUniversity, a series of competency-based courses for global employees. In addition to development programs for all employees, we have
several functional development programs, such as the Engineering Development Program that offers four six-month rotations through different departments
as part of our differentiated early pipeline talent development. Lastly, we provide tuition reimbursement for employees pursuing undergraduate and
graduate degrees.
Diversity, Equity, and Inclusion (DE&I)
We are driven by the belief that diverse skills and experiences produce better outcomes and more innovative solutions to improve patients' lives. We
have an ongoing commitment to advancing DE&I throughout our workplace and the communities in which we operate. Our leaders lead from the front by
creating an environment that fosters a sense of belonging and ignites passion within their team. This leader-led approach to building an equitable and
inclusive workforce has a longstanding commitment to fostering a workplace that rejects discrimination, celebrates differences, and promotes equality. Our
DEI framework guides our long-term vision and is grounded in the following objectives:
• Attract and develop employees resembling the diversity of the communities, partners and patients we serve
•
•
•
•
•
Create a diverse talent pipeline by fostering awareness of STEM and healthcare careers for women and ethnically diverse groups
Foster a culture of inclusion and belonging where all employees are valued and empowered
Enhance DE&I understanding and behaviors through education and development
Increase awareness and advocate for diversity in medical research and clinical trials through healthcare partnerships
Explore opportunities to invest in local economic growth by supporting women and ethnically diverse groups, while collaborating with our partners to
engage communities to promote heart health awareness
Our DE&I efforts are overseen internally by our Chief Human Resources Officer who works with our leadership to further advance our commitment
and programs by fostering employee understanding, intentionality and measurable processes. This commitment is also reflected in the current makeup of
our Board of Directors, which helps to set the “tone at the top” for our DE&I initiatives.
Compensation and Benefits
Competitive compensation and benefits are an integral part of our efforts to attract and retain world-class talent. We are committed to regularly
analyzing and evaluating the effectiveness of our compensation and benefit programs and benchmarking our programs against the market and our industry
peers. Annual pay increases and other forms of incentive compensation are based on performance and market evaluation. Performance expectations are
communicated to employees at the time of hiring, as well as upon internal transfer or promotion, and documented through our annual performance
management process.
Benefits for eligible U.S.-based employees include medical, dental and vision insurance; paid leave for vacation, illness and volunteer time; parental
leave, fertility and adoption assistance; a 401(k) retirement plan that includes a company matching contribution; a stock purchase plan enabling employees
to purchase AtriCure stock at a reduced price; and life and disability insurance. Our international employee benefits vary due to local regulations and
offerings. We ensure compliance with all statutory and mandatory benefits which vary by country, such as medical, disability, retirement/pension, workers
compensation, accident, social benefits and paid leave. None of our employees are represented by a labor union, and we have never experienced any
employment-related work stoppages. We consider our employee relations to be in good standing. Our attrition rate is historically lower than the industry
average. AtriCure has a strong company culture, which is reflected in our employee engagement and overall success.
Safety for All Employees
We are committed to maintaining a safe workplace and promoting all our employees' well-being. We have implemented multiple safety programs and
regularly perform safety hazard evaluations within our facilities. Programs include our Emergency Site Action Plan for emergencies such as fire response,
severe weather threats and shelter in place
13
Table of Contents
incidents, as well as our Certified First Responders safety program that include Red Cross training of employees in CPR, AED Usage and First Aid
practices. We recognize that the use of tobacco is linked to many adverse health effects, including those that impact the heart, and we offer our employees
tobacco cessation programs. Since 2021, our Ohio office locations are entirely tobacco- and nicotine-free, and to the extent permitted in the states of our
other offices, those locations are also entirely tobacco- and nicotine-free.
Available Information
Our principal executive offices are located at 7555 Innovation Way, Mason, Ohio and our telephone number is 513-755-4100. We are subject to the
reporting requirements under the Securities Exchange Act of 1934. Consequently, we are required to file reports and information with the Securities and
Exchange Commission (SEC) including reports on the following forms: Form 10-K, Form 10-Q, Form 8-K, and amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. These reports and other information concerning us may be accessed
through the SEC’s website at http://www.sec.gov. You may also find, free of charge, on our website at http://www.atricure.com, electronic copies of our
Form 10-Ks, Form 10-Qs, Form 8-Ks and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act
of 1934. Such filings are placed on our website as soon as reasonably practicable after they are filed or furnished, as the case may be, with the SEC. Our
charters for our Audit, Compensation, Nominating and Corporate Governance, Strategy, and Compliance, Quality and Risk Committees and our Code of
Conduct are available on our website. In the event that we grant a waiver under our Code of Conduct to any of our officers or directors or make any
material amendments to the Code of Conduct, we will publish it on our website within four business days. Information on our website is not deemed to be a
part of this Form 10-K.
14
Table of Contents
ITEM 1A. RISK FACTORS
The following discussion of risk factors contains forward-looking statements. These risk factors may be important to understanding other statements
in this report. The following information should be carefully considered in addition to the other information set forth in this report, including the
Management’s Discussion and Analysis of Financial Conditions and Results of Operations section and Consolidated Financial Statements and
accompanying notes. If any of the risks or uncertainties described below actually occur or continue to occur, our business, reputation, financial condition,
results of operations, future prospects and stock price could be materially and adversely affected. The risks below are not the only risks we face and
additional risks not currently known to us or that we presently deem immaterial may emerge or become material at any time and may negatively impact our
business, reputation, financial condition, results of operations, future prospects or stock price. The order in which these factors appear should not be
construed to indicate their relative importance or priority.
Risk Factors Summary
The following is a summary of the principal risks that could adversely affect our business, operations, financial results and stock price.
Commercial Execution and Product Performance Risks
•
•
•
Failure to achieve widespread market acceptance domestically may harm operating results.
Competition from existing and new products and procedures may decrease our market share.
Clinical data may be negative, or our trials may not satisfy requirements of regulatory authorities, slowing or reversing the rate of adoption or reducing
use of our products by the medical community.
Reliance on independent distributors to sell our products in some international markets could adversely impact our sales.
•
Industry Condition Risks
• A prolonged downturn in macroeconomic conditions may materially adversely affect our business.
•
Rising healthcare costs may result in efforts by government and private payors to contain or reduce healthcare spending, including reimbursement for
procedures that utilize our products.
• Adverse changes in governmental and third-party payors’ policies toward coverage and reimbursement for surgical procedures would harm our ability
to promote and sell our products.
Operational Risks
• Unfavorable publicity relating to our business or industry could negatively impact our operations.
•
Reliance upon single and limited source third-party suppliers and service providers could harm our business if such third parties cannot provide
materials or products or perform services for us in a timely manner.
• Our manufacturing operations are highly centralized and disruption could harm our business.
•
•
If we fail to properly manage our anticipated growth, our business could suffer.
If we cannot retain our skilled and experienced officers and other employees, or recruit, hire, train and integrate sufficient additional qualified
personnel, our business may suffer.
• Disruptions of critical information systems or material breaches in the security of our systems could harm our business, customer relations and
financial condition.
• Our insurance may not cover our indemnification obligations and other liabilities associated with our operations.
Legal & Compliance Risks
• We could face substantial penalties if we do not fully comply with federal, state and foreign regulations.
• We may be subject to fines, injunctions and penalties if we fail to comply with extensive FDA regulations.
• Unless and until we obtain additional FDA approval for our products, we will not be able to promote them for treatment of Afib and/or to prevent
stroke, and our inability to maintain or grow our business could be harmed. We may be subject to fines, injunctions and penalties if we are found to be
promoting our products for unapproved or off-label uses.
• Modifications to our products may require new clearances or approvals by FDA; failure to obtain such clearances or approvals where required could
result in a recall of the modified products and limitation on future sales until cleared or approved.
15
Table of Contents
•
If we or our third-party vendors fail to comply with extensive FDA regulations relating to the manufacturing of our products we may be subject to
fines, injunctions and penalties.
• Any adverse finding, judgement, settlement or enforcement action against us as a result of the current qui tam lawsuit could negatively affect our
business.
The use of products we sell may result in injuries or other adverse events that lead to product liability claims.
•
• Our ability to compete in the marketplace could be affected if our intellectual property rights fail to provide meaningful commercial protection for our
•
products.
Litigation and administrative proceedings over patent and other intellectual property rights are common in our industry, and any litigation or claim
against us may cause us to incur substantial costs.
• We are subject to various regulatory and other risks related to selling our products internationally which could harm our revenue.
• Any allegation or determination of wrongdoing under the Foreign Corrupt Practices Act or other anti-corruption laws could have a material adverse
effect on our business.
Compliance with European Union medical device regulation may limit our ability to sell our products in European markets.
•
Financial Risks
• Our quarterly financial results are likely to fluctuate significantly.
• We have a history of net losses, and we may never become profitable.
• Governmental authorities may question our intercompany transfer pricing policies or change their laws in a manner that could increase our effective
tax rate.
• Our goodwill may become impaired which could adversely affect our financial performance.
• We may take inventory-related charges as a result of inaccurate forecasting or estimates of product life cycles which would negatively affect our gross
margins and results of operations.
• We are subject to credit risk from our accounts receivable related to our sales.
• We may be unable to comply with the covenants of our Loan Agreement.
Common Stock Risks
• We may fail to achieve our publicly announced guidance about our business which could cause a decline in our stock price.
•
Securities analysts may discontinue coverage for our common stock or issue reports which could have a negative impact on the market price of our
common stock.
• Our common stock may experience extreme fluctuations in the price and trading volume causing our stockholders to lose some or all of their
•
•
investment.
The sale of material amounts of common stock could encourage short sales by third parties and depress the price of our common stock causing our
stockholders to lose part or all of their investment.
Stockholder ownership of our common stock may be diluted if we sell common stock in a capital raising transaction or issue shares in a future
acquisition.
• Anti-takeover provisions in our amended and restated certificate of incorporation and amended and restated bylaws and under Delaware law could
inhibit a change in control or a change in management that stockholders consider favorable.
• Our stockholders must rely on stock appreciation for any return on investment as we do not expect to pay dividends in the foreseeable future.
16
Table of Contents
Commercial Execution and Product Performance Risks
If our products do not achieve widespread market acceptance in the United States, our operating results will be harmed, and we may not achieve
or sustain profitability.
Our success depends in large part on the medical community’s acceptance of our products in the United States, which is the largest revenue market in
the world for medical devices. Our ablation and LAAM product sales in the United States generate the majority of our revenue. We expect that sales of
these products will continue to account for a majority of our revenue for the foreseeable future and that our future revenue will depend on the increasing
acceptance by the medical community of our products as standard of care for treating Afib, managing the LAA and managing pain with Cryo Nerve Block
therapy. The U.S. medical community’s acceptance of our products will depend upon our ability to demonstrate the safety and efficacy, advantages, long-
term clinical performance and cost-effectiveness of our products. In addition, acceptance of products for the treatment of Afib is dependent upon, among
other factors, the level of awareness and education of the medical community about the surgical treatment of Afib and the existence, effectiveness and
safety of our products. Market acceptance and adoption of our products for the treatment of Afib also depends on the level of health insurer (including
Medicare) reimbursement to physicians and hospitals for procedures using our products. Negative publicity resulting from incidents involving our
products, or similar products could have a significant adverse effect on the overall acceptance of our products. If we encounter difficulties growing the
market for our products in the U.S., we may not be able to increase our revenue enough to achieve or sustain profitability, and our business and operating
results will be seriously harmed.
Competition from existing and new products and procedures may decrease our market share and may cause our revenue to decline, and could
adversely affect our operating results.
The medical device industry, including the market for the treatment of Afib, is highly competitive, is subject to rapid technological change and can
be significantly affected by new product introductions and promotional activities. There is no assurance that our products will compete effectively against
drugs, catheter-based ablation, implantable devices, other surgical ablation devices, other products or techniques to occlude the left atrial appendage or
other products and techniques to manage post-operative pain. Our products may become obsolete prior to the end of their anticipated useful lives, or we
may introduce new products or next-generation products prior to the end of the useful life of our current products, either of which may require us to dispose
of existing inventory and related capital equipment and/or write off their value or accelerate their depreciation. In addition, other products may be sold at
lower prices. Due to the size of our markets, we anticipate that new or existing competitors may develop competing products, procedures and/or clinical
solutions. There are few barriers to prevent new entrants or existing competitors from developing products to compete directly with ours. Companies also
compete with us to attract qualified scientific, technical and commercial personnel as well as funding. Most of our competitors and potential competitors
have greater financial, manufacturing, marketing and research and development capabilities than we have, and may obtain FDA approval or clearance for
their products. In 2023, Medtronic announced the FDA clearance of the Penditure
products, procedures or clinical solutions, or our competitors obtaining FDA approvals or clearances, such as Medtronic's Penditure device, may result in
price reductions, reduced margins, loss of market share, or may render our products obsolete, which could adversely affect our revenue and future
profitability.
Left Atrial Appendage Exclusion System. The introduction of new
TM
Any clinical data that is generated regarding our products may not be positive, and our current and planned clinical trials may not satisfy the
requirements of the FDA or other regulatory authorities.
Our clinical trials are expensive to conduct, typically taking many years to complete and have uncertain outcomes. Delays in patient enrollment or
failure of patients to consent or continue to participate in a clinical trial may cause an increase in costs and delays in the approval and attempted
commercialization of our products or result in the failure of the clinical trial. Conducting successful clinical studies may require the enrollment of large
numbers of clinical sites and patients, and suitable patients may be difficult to identify and recruit. Patient enrollment in clinical trials and completion of
patient participation and follow-up depends on many factors, including the size of the patient population; the nature of the trial protocol; the attractiveness
of, or the discomforts and risks associated with, the treatments received by enrolled subjects; the availability of appropriate clinical trial investigators,
support staff, and proximity of patients to clinical sites; and the ability to comply with the eligibility and exclusion criteria for participation in the clinical
trial and patient compliance.
Our products will be measured on their efficacy. We cannot provide any assurance that the data collected during our clinical trials will be compelling
to the medical community because it may not be scientifically meaningful, may identify unexpected safety concerns, and may not demonstrate that
procedures utilizing our products are an attractive option when
17
Table of Contents
compared against data from alternative procedures and products. Negative data could affect the use of our products and harm our business and prospects.
Conversely, positive results from clinical trial experience should not be relied upon as evidence that any of our products will gain market acceptance
or that they will satisfy regulatory requirements for product approval. There can be no assurance that the results of studies conducted by collaborators or
other third parties will be viewed favorably or are indicative of our own future study results. We may be required to demonstrate with substantial evidence
through well-controlled clinical trials that our product candidates are either (i) safe and effective for use in a diverse population for their intended uses or
(ii) are substantially equivalent to predicate devices under section 510(k) of the Food, Drug and Cosmetic Act (FDCA). Success in early clinical trials does
not mean that future clinical trials will be successful because product candidates in later-stage clinical trials may fail to demonstrate sufficient safety and
efficacy to the satisfaction of the FDA and other regulatory authorities despite having progressed through initial clinical trials.
Our devices and products may not be approved or cleared even though clinical or other data, in our view, are adequate to support an approval or
clearance. The FDA or other regulatory authorities may:
•
•
disagree with our trial design and our interpretation of data from preclinical studies and clinical trials;
change requirements for the approval or clearance of a product candidate even after reviewing and providing comment on a protocol for a pivotal
clinical trial;
•
•
•
approve or clear a product candidate for fewer or more limited indications or uses than we request;
grant approval or clearance contingent on the performance of costly post-marketing clinical trials; or
not approve the labeling claims necessary or desirable for the successful commercialization of our product candidates.
These factors would affect the rate and extent to which our products are adopted in the medical community.
We rely on independent distributors to market and sell our products in certain markets outside of the United States, and a failure of our
independent distributors to successfully market our products or any disruption in their ability to do so may adversely impact our sales.
We depend on independent third-party distributors to sell our products in certain markets outside of the United States, and if these distributors do not
perform, we may be unable to maintain or increase international revenue. We intend to grow our business outside of the United States, and to do so, we will
need to attract additional distributors or hire direct sales personnel to expand the territories in which we sell our products. Independent distributors may
terminate their relationship with us or devote insufficient sales efforts to our products. We are not able to control our independent distributors, and they may
not be successful in marketing our products. In addition, many of our independent distributors outside of the United States initially obtain and maintain
foreign regulatory approval for sale of our products in their respective countries. Our failure to maintain our relationships with our independent distributors
outside of the United States, or our failure to recruit and retain additional skilled independent distributors in these locations, could have an adverse effect on
our operations. Turnover among our independent distributors, even if replaced, may adversely affect our short-term financial results while we transition to
new independent distributors or direct sales personnel. The ability of these independent distributors to market and sell our products could also be adversely
affected by unexpected events, including, but not limited to, power failures, nuclear events, local economic and political conditions, natural or other
disasters and war or terrorist activities. In addition, the ability of our independent distributors to borrow money from their existing lenders or to obtain
credit from other sources to purchase our products may be impaired or our independent distributors could experience a significant change in their liquidity
or financial condition, all of which could impair their ability to distribute our products and eventually lead to distributor turnover, and may adversely
impact our sales.
Industry Conditions Risks
A prolonged downturn in macroeconomic conditions in which we operate may materially adversely affect our business.
A prolonged economic downturn as a result of the collateral effects of inflationary pressures, increases in interest rates, slower economic activity, a
future outbreak of COVID-19 or a similar infectious disease, among other factors, may adversely impact our business. Specifically, impacts to procedure
volumes and hospital staffing may result in reductions of our revenue and materially and adversely affect our results of operations and cash flows.
Geopolitical issues around the world have impacted the global supply chain and could materially adversely affect global economic growth, disrupt
discretionary spending habits and generally decrease demand for our products and services. Our customers’ ability to borrow money from their existing
lenders or to obtain credit from other sources to purchase our products may be impaired,
18
Table of Contents
resulting in a decrease in sales. We may experience diversion of healthcare resources away from the conduct of clinical trials, including the diversion of
hospitals serving as our clinical trial sites. We may also encounter interruption or delays in the operations of FDA or other regulatory authorities, which
may impact review and approval timelines. We are unable to predict the extent to which current or future worldwide economic conditions may impact our
business.
Healthcare costs have risen significantly over the past decade. There have been and may continue to be proposals by legislators, regulators and
third-party payors to keep, contain or reduce healthcare costs.
The continuing efforts of governments, insurance companies and other payors of healthcare costs to contain or reduce these costs, combined with
closer scrutiny of such costs, could lead to patients being unable to obtain approval for payment from these third-party payors. The cost containment
measures that healthcare providers are instituting both in the U.S. and internationally could harm our business. Some healthcare providers in the U.S. have
adopted or are considering a managed care system in which the providers contract to provide comprehensive healthcare for a fixed cost per person.
Healthcare providers may attempt to control costs by authorizing fewer elective surgical procedures, eliminating incremental procedure costs or by
requiring the use of the least expensive devices possible, which could adversely affect the demand for our products or the price at which we can sell our
products. Some healthcare providers have sought to consolidate and create new companies with greater market power, including hospitals. As the
healthcare industry consolidates, competition to provide products and services has become and will continue to become more intense. This has resulted and
likely will continue to result in greater pricing pressures and the exclusion of certain suppliers from important marketing segments.
Adverse changes in governmental and third-party payors’ policies toward coverage and reimbursement for surgical procedures would harm our
ability to promote and sell our products.
Third-party payors are increasingly exerting pressure on medical device companies to reduce their prices. Even to the extent that the use of our
products is reimbursed by private payors and governmental payors, adverse changes in payors’ policies toward coverage and reimbursement for surgical
procedures would also harm our ability to promote and sell our products. Payors continue to review their policies and can, without notice, deny coverage
for treatments that include the use of our products. Because each third-party payor individually approves coverage and reimbursement, obtaining these
approvals may be time-consuming and costly. In addition, third-party payors may require us to provide scientific and clinical support for the use of our
products. Adverse changes in coverage and reimbursement for surgical procedures could harm our business and reduce our revenue.
FDA does not regulate the practice of medicine. Physicians may use our products in circumstances where they deem it medically appropriate, such as
for the treatment of Afib or the reduction in stroke risk, even though FDA may not have approved or cleared our products to be marketed specifically for
those indications. Some payors may deny coverage or payment for the use of our products for indications not specifically approved or cleared by FDA.
Often, these denials can be overcome through an appeals process, but there is no guarantee of success in these cases.
Our revenue generated from sales outside of the United States is also dependent upon coverage and reimbursement within prevailing foreign
healthcare payment systems. Foreign healthcare payors generally do not provide the same level of reimbursement for sole-therapy minimally invasive
procedures utilizing ablation devices and related products as payors in the United States. In addition, healthcare cost containment efforts similar to those we
face in the United States are prevalent in many of the other countries in which we sell our products, and these efforts are expected to continue. To the extent
that the use of our devices has historically received reimbursement under a foreign healthcare payment system, such reimbursement, if any, has typically
been significantly less than the reimbursement provided in the United States. If coverage and adequate levels of reimbursement from governmental and
third-party payors outside of the United States are not obtained and maintained, sales of our products outside of the United States may decrease, and we
may fail to achieve or maintain significant sales outside of the United States.
Operational Risks
We may experience unfavorable publicity relating to our business or our industry. This publicity could have a negative impact on our sales, our
ability to attract and retain customers, clinical studies involving our products, our reputation and our stock price.
We may experience a negative impact on our business from newspaper articles or other media reports relating to, among other things, our compliance
with FDA regulations for medical device reporting, adverse patient and clinical outcomes, potential impact to our business from competitors or emerging
technology and concerns over disclosure of financial relationships between us and our consultants. We believe that such publicity would potentially have a
negative
19
Table of Contents
impact on our business, results of operations and financial condition and our clinical studies, or cause other adverse effects, including a decline in the price
of our stock.
We rely upon single and limited source third-party suppliers and third-party service providers, making us vulnerable to supply problems and
price fluctuations which could harm our business.
We rely on single and limited source third-party vendors for the manufacture and sterilization of components used in our products. For example, we
rely on one vendor to manufacture our RF generator, as well as separate vendors to manufacture our EPi-Sense System and related RF generator. It would
be a time consuming and lengthy process to secure these products from an alternative supplier. We have significant concentrations with a limited number of
vendors. Additionally, our devices are sterilized prior to use using ethylene oxide at third-party sterilizers. Recently, certain sterilization facilities have
experienced mandated temporary closures due to concerns over the impact of emissions of ethylene oxide from such facilities, and the Environmental
Protection Agency has proposed regulations aimed at reducing hazardous air pollutants. We also rely on third parties to handle our warehousing and
logistics functions for European and several other international markets on our behalf.
Our reliance on outside manufacturers, sterilizers and suppliers also subjects us to risks that could harm our business, including:
• we may not be able to obtain adequate supply in a timely manner or on commercially reasonable terms;
• we may have difficulty timely locating and qualifying alternative suppliers or sterilizers;
•
switching components may require product redesign and new submissions to FDA which would increase our costs and could significantly delay
production or, if FDA refuses to approve the changes, completely eliminate our ability to sell our products;
•
•
•
future regulatory actions to modify sterilization processes may cause sterilizers to close, even on a temporary basis, or require new regulatory
approvals for us to use, creating lost sterilization capacity and delays;
our suppliers manufacture products for a range of customers, and fluctuations in demand for the products those suppliers manufacture for others may
affect their ability to deliver components to us in a timely manner; and
our suppliers may encounter financial hardships unrelated to our demand for components, which could inhibit their ability to fulfill our orders and meet
our requirements.
Identifying and qualifying additional or replacement suppliers or sterilizers for any of the components used in our products or replacement of
warehousing and logistics providers, if required, may not be accomplished quickly and could involve significant additional costs. Any interruption or delay
in the supply of components, materials, sterilization or warehousing and logistics, or our inability to obtain components or materials from alternate sources
at acceptable prices in a timely manner, could impair our ability to meet the demand of our customers and cause them to cancel orders or switch to
competitive products and could therefore have a material adverse effect on our business, financial condition and results of operations.
Our manufacturing operations are highly centralized, and disruption at our manufacturing facilities could increase our expenses and decrease our
revenue.
Our manufacturing operations are highly centralized to our corporate headquarters. While we take precautions, such as qualifying a second building
for manufacturing, we do not maintain a backup manufacturing facility outside of our Ohio campus, making us dependent on the current facilities and
production workers for the continued operation of our business. A natural or other disaster could damage or destroy our manufacturing equipment and
cause substantial delays in our manufacturing operations, which could lead to additional expense and decreased revenue due to lack of supply. The
insurance we maintain may not be adequate to cover our losses. With or without insurance, damage to our facilities or our other property due to a natural
disaster or casualty event could have a material adverse effect on our business, financial condition and results of operations.
If we fail to properly manage our anticipated growth, our business could suffer.
We may experience periods of rapid growth and expansion, which could place a significant strain on our personnel, information technology systems
and other resources. In particular, the increase in our direct sales force requires significant management and other supporting resources. Any failure by us to
manage our growth effectively could have an adverse effect on our ability to achieve our development and commercialization goals.
20
Table of Contents
To achieve our revenue goals, we must successfully increase production output as required by customer demand. In the future, we may experience
difficulties in increasing production, including problems with production yields and quality control, component supply and shortages of qualified
personnel. These problems could result in delays in product availability and increases in expenses. Any such delay or increased expense could adversely
affect our ability to generate revenues and adversely impact our operating results.
Future growth will also impose significant added responsibilities on management, including the need to identify, recruit, train and integrate additional
employees. In addition, rapid and significant growth will place a strain on our administrative and operational infrastructure. In order to manage our
operations and growth, we will need to continue to improve our operational and management controls, reporting and information technology systems and
financial internal control procedures. If we are unable to manage our growth effectively, it may be difficult for us to execute our business strategy and our
operating results and business could suffer.
We depend on our officers and other skilled and experienced personnel to operate our business effectively. If we are not able to retain our current
employees or recruit, hire, train and integrate additional qualified personnel, our business will suffer and our future revenue and profitability will
be impaired.
We are highly dependent on the skills and experience of our President and Chief Executive Officer, Michael H. Carrel, and certain other officers and
key employees. We do not have any insurance in the event of the death or disability of key personnel. Our officers and key employees, with the exception
of our President and Chief Executive Officer, do not have employment agreements, and they may terminate their employment and work elsewhere without
notice and without cause or good reason. Currently we have non-compete agreements with our officers and other employees. Due to the specialized
knowledge of each of our officers with respect to our products and our operations and the limited pool of people with relevant experience in the medical
device field, the loss of service of one or more of these individuals could significantly affect our ability to operate and manage our business. The
announcement of the loss of one or more of our key personnel could negatively affect our stock price.
We depend on our scientific and technical personnel for successful product development and innovation, which are critical to the success of our
business. In addition, to succeed in the implementation of our business strategy, our management team must rapidly execute our sales strategy, obtain
expanded FDA clearances and approvals, achieve market acceptance for our products and further develop products, while managing anticipated growth by
implementing effective planning, manufacturing and operating processes. Managing this growth will require us to attract and retain additional management
and technical personnel. We rely primarily on direct sales employees to sell our products in the United States and in Europe, and failure to adequately train
them in the use and benefits of our products will prevent us from achieving our market share and revenue growth goals. We have key relationships with
physicians that involve procedure, product, market and clinical development and training. Our business could be negatively impacted if any of these
physicians end their relationship with us. We cannot assure you that we will be able to attract and retain the personnel and physician relationships necessary
to grow and expand our business and operations. If we fail to identify, attract, retain and motivate these highly skilled personnel and physicians, we may be
unable to continue our development and sales activities.
Disruptions of critical information systems or material breaches in the security of our systems could harm our business, customer relations and
financial condition.
In the ordinary course of our business, we collect and store sensitive data, including intellectual property, our proprietary business information and
that of our customers, suppliers and business partners, and personally identifiable information of our customers and employees in our data centers and on
our networks. The secure processing, maintenance and transmission of this information is critical to our operations and business strategy. Like many other
companies, we experience attempts to gain unauthorized access to our systems and information on a regular basis, and a number of our employees work
remotely, which may create additional opportunities for cybercriminals to exploit vulnerabilities. Despite our security measures, including employee
training, our information technology and infrastructure are vulnerable to cyber-attacks, malicious intrusions, breakdowns, destruction, loss of data privacy,
breaches due to employee error, malfeasance or other disruptions. Cyber-attacks are becoming more sophisticated and frequent, and our systems could be
the target of malware, ransomware and other cyber-attacks. We have invested in our systems and the protection of our data to reduce the risk of an intrusion
or interruption, and we monitor our systems on an ongoing basis for any current or potential threats. We can give no assurances that these measures and
efforts will prevent interruptions or breakdowns. If we are unable to detect or prevent a security breach or cyber-attack or other disruption from occurring,
then we could incur losses or damage to our data, or inappropriate disclosure of our confidential information or that of others. We have cyber-insurance
coverage that may not cover all possible events, and this insurance is subject to deductibles and coverage limitations. We could sustain damage to our
reputation and customer and employee relationships, suffer disruptions to our business and incur increased operating costs including costs to mitigate any
damage caused and protect against future damage, and be exposed to
21
Table of Contents
additional regulatory scrutiny or penalties and to civil litigation and possible financial liability, any of which could have a material adverse effect on our
business, operating margins, revenues and competitive position.
We also rely in part on information technology to store information, interface with customers, maintain financial accuracy, secure our data and
accurately produce our financial statements. In addition, some of our software systems are cloud-based data management applications, hosted by third-party
service providers whose security and information technology systems are subject to similar risks. The failure to protect either our or our service providers’
information technology infrastructure could disrupt our operations. If our information technology systems do not effectively and securely collect, store,
process and report relevant data for the operation of our business, whether due to equipment malfunction or constraints, software deficiencies, human error
or cyber incident, our ability to effectively plan, forecast and execute our business plan and comply with applicable laws and regulations could be
materially impaired. Any such impairment could have a material adverse effect on our results of operations, financial condition and the timeliness with
which we report our operating results.
Our insurance may not cover our indemnification obligations and other liabilities associated with our operations.
We maintain insurance designed to provide coverage for ordinary risks associated with our operations and our ordinary indemnification obligations,
which we believe to be customary for our industry. The coverage provided by such insurance may not be adequate for claims we may make or may be
contested by our insurance carriers. If our insurance is not adequate or available to pay liabilities associated with our operations, or if we are unable to
purchase adequate insurance at reasonable rates in the future, our business, financial condition, results of operations or cash flows may be materially
adversely impacted.
Legal & Compliance Risks
We spend considerable time and money complying with federal, state and foreign regulations in addition to FDA regulations, and, if we do not
fully comply with such regulations, we could face substantial penalties.
We are subject to extensive regulation by the federal government and foreign countries in which we conduct business. The laws that affect our ability
to operate our business in addition to the FDCA and FDA regulations include, but are not limited to, the following:
•
the Federal Anti-Kickback Statute, which prohibits persons from knowingly and willfully soliciting, offering, receiving or providing remuneration,
directly or indirectly, in cash or in kind, to induce either the referral of an individual, or furnishing or arranging for a good or service, for which
payment may be made under federal healthcare programs such as the Medicare and Medicaid Programs;
the Federal False Claims Act, which prohibits submitting a false claim or causing the submission of a false claim to the government;
•
• Medicare laws and regulations that prescribe the requirements for coverage and payment, including the amount of such payment, and laws prohibiting
false claims for reimbursement under Medicare and Medicaid;
•
•
•
•
•
state consumer protection, fraud and business practice laws, including the California Consumer Privacy Act (“CCPA”), which among other things,
requires disclosures to California consumers and provides consumers new abilities to opt out of certain sales of personal information;
state laws that prohibit the practice of medicine by non-doctors and by doctors not licensed in a particular state, and fee-splitting arrangements between
doctors and non-doctors, as well as state law equivalents to the Anti-Kickback Statute and the Stark Law, which may not be limited to government-
reimbursed items;
federal and state healthcare fraud and abuse laws or laws protecting the privacy of patient medical information, including the Health Insurance
Portability and Accountability Act (HIPAA) which protects medical records and other personal health information by limiting their use and disclosure,
giving individuals the right to access, amend and seek accounting reasonably necessary to accomplish the intended purpose;
laws and regulations, such as the General Data Protection Regulation in the European Union, that govern collection, use, disclosure, transfer and
storage of personal data that we may collect from our employees, consultants or in conjunction with clinical trials;
the Federal Trade Commission Act and similar laws regulating advertising and consumer protection; and
22
Table of Contents
•
similar and other regulations outside the United States.
Healthcare fraud and abuse regulations are complex, and even minor, inadvertent irregularities can potentially give rise to claims that a law has been
violated. Any violations of these laws could result in a material adverse effect on our business, financial condition and results of operations. If there is a
change in law, regulation or administrative or judicial interpretations, we may have to change our business practices or our existing business practices could
be challenged as unlawful, which could have a material adverse effect on our business, financial condition and results of operations.
Our manufacturing operations and research and development activities involve the use of biological materials and hazardous substances and are
subject to a variety of federal, state and local environmental laws and regulations relating to the storage, use, discharge, disposal, remediation of and human
exposure to hazardous substances. Our research and development and manufacturing operations may produce biological waste materials, such as animal
tissues and certain chemical waste. These operations are permitted by regulatory authorities, and the resultant waste materials are disposed of in compliance
with environmental laws and regulations. Compliance with these laws and regulations may be expensive, and non-compliance could result in substantial
liabilities. In addition, we cannot eliminate the risk of accidental contamination or injury to third parties from the use, storage, handling or disposal of these
materials. In the event of contamination or injury, we could be held liable for any resulting damages, and any liability could exceed any applicable
insurance coverage we may have. Our manufacturing operations may result in the release, discharge, emission or disposal of hazardous substances that
could cause us to incur substantial liabilities, including costs for investigation and remediation.
If our operations are found to be in violation of any of the laws described above or the other governmental regulations to which we, our distributors
or our customers are subject, we may be subject to the applicable penalty associated with the violation, including civil and criminal penalties, damages,
fines, exclusion from Medicare, Medicaid and other government programs and the curtailment or restructuring of our operations. If we are required to
obtain permits or licensure under these laws that we do not already possess, we may become subject to substantial additional regulation or incur significant
expense. Any penalties, damages, fines, curtailment or restructuring of our operations would adversely affect our ability to operate our business and our
financial results. The risk of our being found in violation of these laws is increased by the fact that many of them have not been fully or clearly interpreted
by the regulatory authorities or the courts, and their provisions are subject to a variety of interpretations and additional legal or regulatory change. Any
action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses, divert our
management’s attention from the operation of our business and damage our reputation.
If we fail to comply with the extensive FDA regulations relating to our business, we may be subject to fines, injunctions and penalties, and our
ability to commercially distribute and promote our products may be hurt.
Our products are classified by FDA as medical devices and, as such, are subject to extensive regulation by FDA and numerous other federal, state
and foreign governmental authorities. FDA regulations, guidance, notices and other issuances specific to medical devices are broad and regulate numerous
aspects of our business. Compliance with FDA, state and other regulations can be complex, expensive and time-consuming. FDA and other authorities have
broad enforcement powers. Furthermore, changes in the applicable governmental regulations could prevent further commercialization of our products and
technologies and could materially harm our business.
If a serious failure to comply with applicable regulatory requirements was determined, it could result in enforcement action by FDA or other state or
federal agencies, including the U.S. Department of Justice (USDOJ), which may include any of the following sanctions, among others:
• warning letters, fines, injunctions, consent decrees and civil penalties;
•
•
•
•
repair, replacement, refunds, recall or seizure of our products;
operating restrictions, partial suspension or total shutdown of production;
suspension or termination of our clinical trials;
refusing or delaying our pending requests for 510(k) clearance or PMAs, new intended uses or modifications to existing products;
• withdrawing 510(k) clearance or PMAs that have already been granted; and
•
criminal prosecution.
23
Table of Contents
If any of these events were to occur, we could lose customers and our production, product sales, business, results of operations and financial
condition would be harmed.
We are also subject to medical device reporting regulations that require us to file reports with FDA if our products may have caused or contributed to
a death or serious injury or, in the event of product malfunction, that if such malfunction were to recur, would likely cause or contribute to a death or
serious injury. There have been incidents, including patient deaths, which have occurred during or following procedures using our products that we have
not reported to FDA because we determined that our products did not malfunction and did not cause or contribute to the outcomes in these incidents. If
FDA disagrees with us, however, and determines that we should have submitted reports for these adverse events, we could be subject to significant
regulatory fines or other penalties. In addition, the number of medical device reports we make, or the magnitude of the problems reported, could cause us or
FDA to terminate or modify our clinical trials or recall or cease the sale of our products, and could hurt commercial acceptance of our products and harm
our reputation with customers.
Unless and until we obtain additional FDA approval for our products, we will not be able to promote them for the treatment of Afib and/or to
prevent stroke, and our ability to maintain and grow our business could be harmed. We may be subject to fines, penalties, injunctions and other
sanctions if we are deemed to be promoting the use of our products for unapproved, or off-label, uses.
Our business and future growth depend on the continued use of our products for the treatment of Afib. Unless the products are approved or cleared
by FDA specifically for the treatment of Afib or prevention of stroke, we may not make claims about the safety or effectiveness of our products for such
uses. In order to obtain additional FDA approvals to promote our products for the treatment of Afib or reduction in stroke risk, we will need to demonstrate
in clinical trials that our products are safe and effective for such use. Development of sufficient and appropriate clinical protocols to demonstrate quality,
safety and efficacy may be required and we may not adequately develop such protocols to support approval. We cannot assure you that any of our clinical
trials will be completed in a timely manner or successfully or that the results obtained will be acceptable to FDA. We, FDA or the IRB may suspend a
clinical trial at any time for various reasons, including a belief that the risks to study subjects outweigh the anticipated benefits.
These limitations present a material risk that FDA or other federal or state law enforcement authorities could determine that the nature and scope of
our sales, marketing and/or support activities, though designed to comply with all FDA requirements, constitute the promotion of our products for an
unapproved use in violation of the FDCA. We also face the risk that FDA or other governmental authorities might pursue enforcement based on past
activities that we have discontinued or changed, including sales activities, arrangements with institutions and doctors, educational and training programs
and other activities. Investigations concerning the promotion of unapproved uses and related issues, are typically expensive, disruptive and burdensome and
generate negative publicity. If our promotional activities are found to be in violation of the law, we may face significant fines and penalties and may be
required to substantially change our sales, promotion, grant and educational activities. There is also a possibility that we could be enjoined from selling
some or all of our products for any unapproved use.
Although our Isolator Synergy System and EPi-Sense System have received FDA approval for the treatment of some forms of Afib in certain
procedures, we have not received FDA clearance or approval to promote our other products for the treatment of Afib or the prevention of stroke. Unless
and until we obtain FDA clearance or approval for the use of our other products to treat Afib or prevent stroke, we, and others acting on our behalf, may not
claim in the U.S. that such products are safe and effective for such uses or otherwise promote them for such uses. Similar restrictions also exist outside of
the U.S. There is no assurance that future clearances or approvals of our products will be granted or that current or future clearances or approvals will not
be withdrawn. Failure to obtain a clearance or approval or loss of an existing clearance or approval, could hurt our ability to maintain and grow our
business.
Modifications to our products may require new clearances or approvals or may require us to cease promoting or to recall the modified products
until such clearances or approvals are obtained and FDA may not agree with our conclusions regarding whether new clearances or approvals were
required.
Any modification to a 510(k)-cleared device or PMA-approved device that would constitute a change in its intended use, design or manufacture
could require a new or supplemental 510(k) clearance or, possibly, submission and FDA approval of a PMA application or PMA supplement. FDA requires
every medical device company to make the determination as to whether a 510(k) must be filed, but FDA may review any medical device company’s
decision. We have made modifications to our products and concluded that such modifications did not require us to submit a new or supplemental 510(k).
FDA may not agree with our decisions regarding whether submissions were required.
24
Table of Contents
If FDA were to disagree with us and require us to submit a 510(k), PMA or a PMA supplement for then-existing modifications, we could be required
to cease promoting or to recall the modified product until we obtain clearance or approval. In addition, we could be subject to significant regulatory fines or
other penalties. Furthermore, our products could be subject to recall if FDA determines, for any reason, that our products are not safe or effective or that
appropriate regulatory submissions were not made. Delays in receipt or failure to receive clearances or approvals, the loss of previously received clearances
or approvals or the failure to comply with existing or future regulatory requirements could reduce our sales, profitability and future growth prospects.
If we or our third-party vendors fail to comply with extensive FDA regulations relating to the manufacturing of our products or component parts,
we may be subject to fines, injunctions and penalties, and our ability to commercially distribute and sell our products may be hurt.
Our manufacturing facilities and the manufacturing facilities of any of our third-party component manufacturers, critical suppliers or third-party
sterilization facilities are required to comply with FDA’s QSR, which sets forth minimum standards for the procedures, execution and documentation of the
design, testing, production, control, quality assurance, labeling, packaging, sterilization, storage and shipping of the products we sell. FDA may evaluate
our compliance with the QSR, among other ways, through periodic announced or unannounced inspections which could disrupt our operations and
interrupt our manufacturing. If in conducting an inspection of our manufacturing facilities or the manufacturing facilities of any of our third-party
component manufacturers, critical suppliers or third-party sterilization facilities, an FDA investigator observes conditions or practices believed to violate
the QSR, the investigator may document their observations on a Form FDA-483 that is issued at the conclusion of the inspection. A manufacturer that
receives an FDA-483 may respond in writing and explain any corrective actions taken in response to the inspection observations. FDA will typically review
the facility’s written response and may re-inspect to determine the facility’s compliance with the QSR and other applicable regulatory requirements. Failure
to take adequate and timely corrective actions to remedy objectionable conditions listed on an FDA-483 could result in FDA taking administrative or
enforcement actions. Among these may be FDA’s issuance of a Warning Letter to a manufacturer, which informs the manufacturer that FDA considers the
observed violations to be of “regulatory significance” that, if not corrected, could result in further enforcement action. FDA enforcement actions, which
include seizure, injunction and criminal prosecution, could result in total or partial suspension of a facility’s production and/or distribution, product recalls,
fines, suspension of FDA’s review of product applications and FDA’s issuance of adverse publicity. Thus, an adverse inspection could force a shutdown of
our manufacturing operations or a recall of our products. Adverse inspections could also delay FDA approval of our products and could have an adverse
effect on our production, sales and financial condition.
We and any of our third-party vendors may also encounter other problems during manufacturing including failure to follow specific protocols and
procedures, equipment malfunction and environmental factors, any of which could delay or impede our ability to meet demand. The manufacture of our
product also subjects us to risks that could harm our business, including problems relating to the sterilization of our products or facilities and errors in
manufacturing components that could negatively affect the efficacy or safety of our products or cause delays in shipment of our products. Interruption or
delay in the manufacture of the product or any of its components could impair our ability to meet the demand of our customers and cause them to cancel
orders or switch to competitive products and could, therefore, have a material adverse effect on our business, financial condition and results of operations.
We are currently defending against a lawsuit brought under the False Claims Act, and any adverse finding, judgement, or enforcement action
could materially and adversely affect our business, financial condition or results of operations.
As previously disclosed, on December 11, 2017, the Company received a Civil Investigative Demand (CID) from the US Department of Justice
(USDOJ) stating that it was investigating the Company to determine whether the Company has violated the False Claims Act, relating to the promotion of
certain medical devices related to the treatment of atrial fibrillation for off-label use and submitted or caused to be submitted false claims to certain federal
and state health care programs for medically unnecessary healthcare services related to the treatment of Afib. The Company provided the USDOJ with
documents and answers to the written interrogatories, and cooperated with the investigation. In 2021, USDOJ informed the Company that the investigation
resulted from a lawsuit by a private individual, or "relator", brought on behalf of the United States and various state and local governments under the qui
tam provisions of the federal and similar state and local laws. Although the USDOJ and all of the state and local governments declined to intervene, the
relator continues to pursue the lawsuit. During the third quarter of 2022, the relator filed a Fourth Amended Complaint, which dropped allegations of off-
label promotion and now alleges that the Company paid illegal kickbacks to healthcare providers in exchange for using or referring the Company’s
products, in violation of the federal Anti-Kickback Statute and various comparable state and local laws. While the Company is contesting the case, it is not
possible to predict when the lawsuit
25
Table of Contents
will be resolved, the outcome of the lawsuit or its potential impact on the Company. While the Company believes its practices are lawful, there can be no
assurance that the lawsuit will not result in findings of violations of federal laws that could lead to the imposition of damages, fines, penalties, restitution,
other monetary liabilities, sanctions, settlements or changes to the Company’s business practices or operations that could have a material adverse effect on
the Company’s business, financial condition or results of operations, or eliminate altogether the Company’s ability to operate its business.
The use of products we sell may result in injuries or other adverse events that lead to product liability suits, which could be costly to our business
or our customers’ businesses.
The use of our products may result in a variety of serious complications, including damage to the heart, nerves, internal bleeding, death, paralysis or
other adverse events. Serious complications are commonly encountered in connection with surgical procedures. If products we sell are defectively
designed, manufactured or labeled, contain inadequate warnings, contain defective components, are misused or are associated with serious injuries or
deaths, we may become subject to costly litigation by our customers or their patients. We carry product liability insurance that is limited in scope and
amount and may not be adequate to fully protect us against product liability claims. We could be required to pay damages that exceed our insurance
coverage, and such amounts could be significant. Any product liability claim, with or without merit, could also result in an increase in our insurance rates
or our inability to secure coverage on reasonable terms, if at all. Even in the absence of a claim, our insurance rates may rise in the future. Any product
liability claim, even a meritless or unsuccessful one, would be time-consuming and expensive to defend and could result in the diversion of our
management’s attention from our business and result in adverse publicity, withdrawal of clinical trial participants, injury to our reputation and loss of
revenue. Any of these events could negatively affect our financial condition.
Our intellectual property rights may not provide meaningful commercial protection for our products, which could enable third parties to use our
technology or methods, or very similar technology or methods, and could reduce our ability to compete.
Our success depends significantly on our ability to protect our proprietary rights to the technologies used in our products. We rely on patent
protection, as well as a combination of copyright, trade secret and trademark laws and nondisclosure, confidentiality and other contractual restrictions to
protect our proprietary technology. However, these legal means afford only limited protection and may not adequately protect our rights or permit us to
gain or keep any competitive advantage. Our patent applications may not issue as patents at all or in a form that will be advantageous to us. Our issued
patents and those that may be issued in the future may be challenged, invalidated or circumvented, which could limit our ability to stop competitors from
marketing related products.
Although we have taken steps to protect our intellectual property and proprietary technology, we cannot assure you that third parties will not be able
to design around our patents or, if they do infringe upon our technology, that we will be successful in or will have sufficient resources to pursue a claim of
infringement against those third parties. We believe that third parties may have developed or are developing products that could infringe upon our patent
rights. Any pursuit of an infringement claim by us may involve substantial expense or diversion of management attention. In addition, although we have
generally entered into confidentiality agreements and intellectual property assignment agreements with our employees, consultants, investigators and
advisors, such agreements may be breached, may not be enforceable or may not provide meaningful protection for our trade secrets or other proprietary
information in the event of unauthorized use or disclosure or other breaches of the agreements. Additionally, as is common in the medical device industry,
some of these individuals were previously employed at other medical equipment or biotechnology companies, including our competitors. Although no
claims are currently pending against us, we may be subject to claims that these individuals have used or disclosed trade secrets or other proprietary
information of their former employers.
The laws of foreign countries may not protect our intellectual property rights to the same extent as the laws of the United States. Foreign countries
generally do not allow patents to cover methods for performing surgical procedures. If our intellectual property does not provide significant protection
against foreign or domestic competition, any current or future competitors could compete more directly with us, which could result in a decrease in our
revenue and market share. All of these factors may harm our competitive position.
26
Table of Contents
The medical device industry is characterized by extensive litigation and administrative proceedings over patent and other intellectual property
rights and any litigation or claim against us may cause us to incur substantial costs, could place a significant strain on our financial resources,
divert the attention of management from our business and harm our reputation.
Despite measures taken to protect our intellectual property, unauthorized parties might copy aspects of our products or obtain and use information
that we regard as proprietary. Whether a product infringes a patent involves complex legal and factual issues, the determination of which is often uncertain.
Any patent dispute, even one without merit or an unsuccessful one, would be time-consuming and expensive to defend and could result in the diversion of
our management’s attention from our business and result in adverse publicity, the disruption of development and marketing efforts, injury to our reputation
and loss of revenue. Litigation also puts our patent applications at risk of being rejected and our patents at risk of being invalidated or interpreted narrowly
and may provoke third parties to assert claims against us. Any of these events could negatively affect our financial condition.
In the event of a patent dispute, if a third-party’s patents were upheld as valid and enforceable, and we were found to be infringing, or found to be
inducing infringement by others, we could be prevented from selling our products unless we were able to obtain a license to use technology or ideas
covered by such patent or are able to redesign our system to avoid infringement, or we may be ordered to pay substantial damages to the patent holders. A
license may not be available at all or on terms acceptable to us, and we may not be able to redesign our products to avoid any infringement. Modification of
our products or development of new products could require us to conduct additional clinical trials and to revise our filings with FDA and other regulatory
bodies, which would be time-consuming and expensive. If we are not successful in obtaining a license or redesigning our products, we may be unable to
sell our products and our business could suffer.
We sell our products outside of the United States, and we are subject to various regulatory and other risks relating to international operations,
which could harm our revenue and profitability.
Doing business outside of the United States exposes us to risks distinct from those we face in our domestic operations. For example, our operations
outside of the United States are subject to different regulatory requirements in each jurisdiction where we operate or have sales. Our failure, or the failure
of our distributors, to comply with current or future foreign regulatory requirements, or the assertion by foreign authorities that we or our distributors have
failed to comply, could result in adverse consequences, including enforcement actions, fines and penalties, recalls, cessation of sales, civil and criminal
prosecution, and the consequences could be disproportionate to the relative contribution of our international operations to our results of operations.
Moreover, if political or economic conditions deteriorate in these countries, or if any of these countries are affected by a natural disaster or other
catastrophe, our ability to conduct our international operations or collect on international accounts receivable could be limited and our costs could be
increased, which could negatively affect our operating results. Engaging in business outside of the United States inherently involves a number of other
difficulties and risks, including, but not limited to:
•
•
•
•
•
•
•
•
•
•
export restrictions and controls relating to technology;
pricing pressure that we may experience internationally;
difficulties in enforcing agreements and collecting receivables through certain foreign legal systems;
political and economic instability;
consequences arising from natural disasters and other similar catastrophes, such as hurricanes, tornados, earthquakes, floods and tsunamis;
potentially adverse tax consequences, tariffs and other trade barriers;
the need to hire additional personnel to promote our products outside of the United States;
international terrorism and anti-American sentiment;
fluctuations in exchange rates for future sales denominated in foreign currency, which represent a portion of our sales outside of the United States; and
difficulty in obtaining and enforcing intellectual property rights.
Our exposure to each of these risks may increase our costs and require significant management attention. We cannot assure you that one or more of
these factors will not harm our business.
27
Table of Contents
Due to the global nature of our business, we may be exposed to liabilities under the Foreign Corrupt Practices Act and various other anti-
corruption laws, and any allegation or determination that we violated these laws could have a material adverse effect on our business.
Our business practices in foreign countries must comply with anti-corruption laws, including the Foreign Corrupt Practices Act (FCPA), the UK
Anti-Bribery Act of 2010 and other U.S. and foreign anti-corruption laws, which prohibit companies from engaging in bribery including corruptly or
improperly offering, promising, or providing money or anything else of value to foreign officials and certain other recipients. In addition, the FCPA
imposes certain books, records and accounting control obligations on public companies and other issuers. We operate in parts of the world in which
corruption can be common and compliance with anti-bribery laws may conflict with local customs and practices. Our global operations face the risk of
unauthorized payments or offers being made by employees, consultants, sales agents and other business partners outside of our control or without our
authorization.
We have a compliance program in place designed to reduce the likelihood of potential violations of the FCPA and other U.S. and foreign anti-bribery
and anti-corruption laws. It is our policy to implement safeguards (including mandatory training) to prohibit these practices by our employees and business
partners with respect to our operations. However, irrespective of these safeguards, or as a result of monitoring compliance with such safeguards, it is
possible that we or certain other parties may discover or receive information at some point that certain employees, consultants, sales agents, or other
business partners may have engaged in corrupt conduct for which we might be held responsible.
Violations of the FCPA or other foreign anti-corruption laws may result in restatements of, or irregularities in, our financial statements as well as
severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating results and financial
condition. In some cases, companies that violate the FCPA may be debarred by the U.S. government and/or lose their U.S. export privileges. Changes in
anti-corruption laws or enforcement priorities could also result in increased compliance requirements and related costs which could adversely affect our
business, financial condition and results of operations. In addition, the U.S. or other governments may seek to hold us liable for successor liability FCPA
violations or violations of other anti-corruption laws committed by companies in which we invest or that we acquired or will acquire.
Compliance with developing European Union medical device regulations may limit our ability to maintain sales of our products in European
markets or to introduce new products into European markets.
Many foreign countries where we market or may market our products have regulatory bodies and restrictions similar to those of FDA. International
sales are subject to foreign government regulation, the requirements of which vary substantially from country to country. The time required to obtain
approval by a foreign country may be longer or shorter than that required for FDA clearance and the requirements may differ. In particular, marketing of
medical devices in the EU is subject to compliance with the Medical Device Directive 93/92/EEC (MDD). A medical device may be placed on the market
within the EU only if it conforms to certain “essential requirements” and bears the CE Mark. The most fundamental and essential requirement is that a
medical device must be designed and manufactured in such a way that it will not compromise the clinical condition or safety of patients, or the safety and
health of users and others. In addition, the device must achieve the essential performance intended by the manufacturer and be designed, manufactured and
packaged in a suitable manner.
In May 2017, the EU adopted a new Medical Device Regulation (EU) 2017/745 (MDR), which repealed and replaced the MDD effective May 26,
2021. The MDR clearly envisages, among other things, stricter controls of medical devices, including strengthening of the conformity assessment
procedures, increased expectations with respect to clinical data for devices and pre-market regulatory review of high-risk devices. The MDR also envisages
greater control over notified bodies and their standards, increased transparency, more robust device vigilance requirements and clarification of the rules for
clinical investigations. Under transitional provisions, medical devices with notified body certificates issued under the MDD prior to May 26, 2021, may
continue to be placed on the market until 2027 or 2028, depending on device classification, as long as those devices meet the requirements of 2017/745 as
amended by EU 2023/607. After the expiry of any applicable transitional period, only devices that have been CE marked under the MDR may be placed on
the market in the EU. If we fail to comply with the new MDR, we may not be able to continue to sell existing products in the EU or introduce new products
for sale in the EU, either of which could materially harm our results of operations and financial condition.
28
Table of Contents
Financial Risks
Our quarterly financial results are likely to fluctuate significantly because the pace of adoption of our products by clinicians are uncertain.
Due to differing rates of adoption of our devices, our quarterly operating results may fluctuate significantly. Current worldwide economic conditions,
natural disasters and other factors discussed in this “Risk Factors” section also may impact our sales results, causing our quarterly operating results to be
difficult to predict and may fluctuate significantly from quarter to quarter or from prior year to current year periods. These fluctuations may also affect our
annual operating results and may cause those results to fluctuate unexpectedly from year to year.
We have a history of net losses, and we may never become profitable.
Even though we reported net income of $50,199 in 2021, we have a history of net losses, including net losses of $30,438 in 2023, and $46,466 in
2022. As of December 31, 2023, we had an accumulated deficit of $357,057.
Our net losses have resulted principally from costs and expenses relating to sales, training and promotional efforts, research and development,
clinical trials, seeking regulatory clearances and approvals and general operating expenses. We expect to continue to incur substantial expenditures and to
potentially incur additional operating losses in the future as we further develop and commercialize our products. If sales of our products do not continue to
grow as we anticipate, we may not be able to achieve profitability. Our expansion efforts may prove to be more expensive than we currently anticipate, and
we may not succeed in increasing our revenue sufficiently to offset these higher expenses. Our losses have had, and are expected to continue to have, an
adverse impact on our working capital, total assets and accumulated deficit.
Governmental authorities may question our intercompany transfer pricing policies or change their laws in a manner that could increase our
effective tax rate or otherwise harm our business.
As a U.S. company doing business in international markets through subsidiaries, we are subject to foreign tax and intercompany transfer pricing
laws, including those relating to the flow of funds between the parent and subsidiaries. If tax authorities challenge our intercompany transfer pricing, our
operations may be negatively impacted and our effective tax rate may increase. Tax rates vary from country to country and if regulators determine that our
profits in one jurisdiction should be increased, we might not be able to fully offset any associated increase in tax expense in the other jurisdiction, which
would increase our effective tax rate. Additionally, the Organization for Economic Cooperation and Development, or OECD, has issued certain proposed
guidelines regarding base erosion and profit sharing including minimum taxation. As these guidelines are formally adopted by the OECD, it is possible that
separate taxing jurisdictions in which we operate may also adopt some form of these guidelines. In such case, we may need to change our approach to
intercompany transfer pricing in order to maintain compliance under the new rules. Our effective tax rate may increase or decrease, including changes in
minimum taxation, depending on the current location of global operations at the time of the change. Finally, we might not always be in compliance with all
applicable customs, exchange control, value added tax and transfer pricing laws despite our efforts to be aware of and to comply with such laws. In such
case, we may need to adjust our operating procedures and our business could be adversely affected.
If our goodwill becomes impaired, it could materially reduce the value of our assets and reduce our net income or increase our net loss for the year
in which the impairment occurs.
As of December 31, 2023, we had $234,781 in goodwill, which represents purchase price we paid in excess of the fair value of the net assets we
acquired. The Financial Accounting Standards Board’s (FASB) Accounting Standards Codification (ASC) 350, “Goodwill and Other Intangible Assets”
requires that goodwill be tested for impairment at least annually (absent any impairment indicators). We may have future impairment adjustments to our
recorded goodwill. Any finding that the value of our goodwill has been impaired would require us to record an impairment charge which could materially
reduce the value of our assets and reduce our net income or increase our net loss for the year in which the impairment charge occurs and increase our
accumulated deficit.
An inability to forecast future revenue or estimate life cycles of products may result in inventory-related charges that would negatively affect our
gross margins and results of operations.
To mitigate the risk of supply interruptions, we may choose to maintain additional inventory of our products or component parts. Managing our
inventory levels is important to our cash position and results of operations and is challenging in the current economic environment. As we grow and expand
our product offerings, managing our inventory levels becomes more difficult, particularly as we expand into new product areas and bring product
enhancements to market. While we rely on our personnel and information technology systems for inventory management, our personnel and
29
Table of Contents
information technology systems may fail to adequately perform these functions or may experience an interruption. An excessive amount of inventory
reduces our cash available for operations and may result in excess or obsolete materials. Conversely, inadequate inventory levels may make it difficult for
us to meet customer product demand, resulting in decreased revenue. An inability to forecast future revenue or estimated life cycles of products may result
in inventory-related charges that would negatively affect our gross margins and results of operations and increase our accumulated deficit.
We are subject to credit risk from our accounts receivable related to our sales, which include sales into countries outside the United States that
may experience economic turmoil.
The majority of our accounts receivable arise from sales in the United States. However, we also have significant receivable balances from customers
within the European Union and Asia. Our accounts receivable in the United States are primarily due from public and private hospitals. Our accounts
receivable outside the United States are primarily due from public and private hospitals and from independent distributors. Our historical write-offs of
accounts receivable have not been significant. We monitor the financial performance and credit worthiness of our customers so that we can properly assess
and respond to changes in their credit profile. Our independent distributors operate in certain countries where economic conditions continue to present
challenges to their businesses, and, thus, could place the amounts due to us at risk. These distributors are owed amounts from public hospitals that are
funded by their governments. Adverse financial conditions in these countries may negatively affect the length of time that it will take us to collect
associated accounts receivable or impact the likelihood of ultimate collection.
We may be unable to comply with the covenants of our Credit Agreement.
The Credit Agreement entered into on January 5, 2024, contains specific financial covenants and a minimum liquidity requirement, along with other
terms restricting indebtedness, liens, investments and acquisitions, asset dispositions, certain payments and other customary representations and warranties.
The Credit Agreement contains mandatory prepayment provisions which require prepayment of amounts outstanding (i) upon the receipt of proceeds from
the issuance of any non-permitted indebtedness and (ii) when there is an Availability shortfall, as defined. The occurrence of an event of default could
result in an obligation to repay all obligations in full and a right by our lenders to exercise all remedies available to them. If we are unable to pay those
amounts, our lenders could proceed against the collateral granted to it pursuant to the Credit Agreement, and we may in turn lose access to both our
collateral and our current source of borrowing availability.
Common Stock Risks
We may fail to meet our publicly announced guidance or other expectations about our business and future operating results, which could cause a
decline in our stock price.
We provide financial guidance about our business and future operating results. In developing this guidance, our management makes certain
assumptions and judgments about our future operating performance, including rate of adoption of our products, projected hiring to support our growth,
continued increase of our market share, potential impact from competitive devices and therapies, and stability of the macro-economic environment in our
key markets. Furthermore, analysts and investors may develop and publish their own projections of our business, which may form a consensus about our
future performance. Our business results may vary significantly from such guidance or that consensus due to a number of factors, many of which are
outside of our control and could adversely affect our operations and operating results. Furthermore, if we make downward revisions of our previously
announced guidance, or if our publicly announced guidance of future operating results fails to meet expectations of securities analysts, investors, or other
interested parties, the market price of our common stock could decline.
Securities analysts may not continue, or additional securities analysts may not initiate, coverage for our common stock or may issue negative
reports. This may have a negative impact on the market price of our common stock.
Several securities analysts provide research coverage of our common stock. Some analysts have already published statements that do not portray our
technology, products or procedures using our products in a positive light and others may do so in the future. If we are unable to educate those who publicize
such reports about the benefits we believe our business provides, or if one or more of the analysts who elects to cover us downgrades our stock, our stock
price would likely decline rapidly. If one or more of these analysts ceases coverage of our company, we could lose visibility in the market, which in turn
could cause our stock price to decline. The trading market for our common stock may be affected in part by the research and reports that industry or
financial analysts publish about us, our business or our markets. If sufficient securities analysts do not cover our common stock, the lack of research
coverage may adversely affect the market price of our common stock. It may be difficult for companies such as ours, with a smaller market capitalization,
to attract and
30
Table of Contents
maintain sufficient independent financial analysts that will cover our common stock. This could have a negative effect on the market price of our stock.
The price and trading volume of our common stock may experience extreme fluctuations and our stockholders could lose some or all of their
investment.
Because we operate within the medical device segment of the healthcare industry, our stock price is likely to be volatile. The market price of our
common stock has had and may continue to have substantial fluctuation due to a variety of factors, including, but not limited to those risk factors described
in the “Risk Factors” section herein. These factors, some of which are not within our control, may cause the price of our stock to fluctuate substantially. We
believe the quarterly and annual comparisons of our financial results are not necessarily meaningful and should not be relied upon as an indication of our
future performance.
The market prices of the securities of medical device companies, particularly companies like ours without consistent revenue and earnings, have been
highly volatile and are likely to remain highly volatile in the future. This volatility has often been unrelated to the operating performance of these particular
companies. In the past, companies that experience volatility in the market price of their securities have often faced securities class action litigation.
Whether or not meritorious, litigation brought against us could result in substantial costs, divert our management’s attention and resources and harm our
ability to grow our business.
The sale of material amounts of common stock could encourage short sales by third parties and depress the price of our common stock. As a
result, our stockholders may lose all or part of their investment.
The downward pressure on our stock price caused by the sale of a significant number of shares of our common stock or the perception that such sales
could occur by any of our significant stockholders could cause our stock price to decline, thus allowing short sellers of our stock an opportunity to take
advantage of any decrease in the value of our stock. The presence of short sellers in our common stock may further depress the price of our common stock.
Some of our directors and executive officers have entered into, or may enter into, Rule 10b5-1 trading plans pursuant to which they may sell shares of our
stock from time to time in the future. Actual or potential sales by these insiders, including those under a prearranged Rule 10b5-1 trading plan, could be
interpreted by the market as an indication that the insider has lost confidence in our stock and adversely impact the market price of our stock.
Sales of common stock by us in a capital raising transaction or our issuances of shares in an acquisition may dilute stockholder ownership of
common stock and cause a decline in the market price of our common stock.
We may need to raise capital in the future to fund our operations or new initiatives or reduce or pay in full our indebtedness. If we raise funds by
issuing equity securities, our stock price may decline and our existing stockholders may experience significant dilution. Furthermore, we may enter into
capital raising transactions or issue shares in acquisitions at prices that represent a substantial discount to market price. A negative reaction by investors and
securities analysts to any sale of our equity securities could result in a decline in the trading price of our common stock.
Anti-takeover provisions in our amended and restated certificate of incorporation and amended and restated bylaws and under Delaware law
could inhibit a change in control or a change in management that stockholders consider favorable.
Provisions in our certificate of incorporation and bylaws could delay or prevent a change of control or change in management that would provide a
premium to the market price of common stock. These provisions include those:
•
authorizing the issuance without further approval of “blank check” preferred stock that could be issued by our board of directors to increase the
number of outstanding shares and thwart a takeover attempt;
•
•
•
•
prohibiting cumulative voting in the election of directors, which would otherwise allow less than a majority of stockholders to elect director
candidates;
limiting the ability of stockholders to call special meetings of stockholders;
prohibiting stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of stockholders; and
establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted upon by
stockholders at stockholder meetings.
31
Table of Contents
In addition, Section 203 of the Delaware General Corporation Law limits business combination transactions with 15% stockholders that have not
been approved by our board of directors. These provisions and others could make it difficult for a third party to acquire us, or for members of our board of
directors to be replaced, even if doing so would be beneficial to our stockholders. Because our board of directors is responsible for appointing the members
of our management team, these provisions could, in turn, affect any attempt to replace the current management team. If a change of control or change in
management is delayed or prevented, stockholders may lose an opportunity to realize a premium on shares of common stock or the market price of our
common stock could decline.
We do not expect to pay dividends in the foreseeable future. As a result, stockholders must rely on stock appreciation for any return on
investment.
We do not anticipate paying cash dividends on our common stock in the foreseeable future. Any payment of cash dividends will also depend on our
financial condition, results of operations, capital requirements and other factors and will be at the discretion of our board of directors. Accordingly,
stockholders will have to rely on capital appreciation, if any, to earn a return on investment in our common stock. Furthermore, pursuant to our credit
facility, we are currently subject to restrictions on our ability to pay dividends and we may in the future become subject to other contractual restrictions on,
or prohibitions against, the payment of dividends.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 1C. CYBERSECURITY
Risk Management and Strategy
We are committed to preserving the trust and confidence of our stakeholders by taking appropriate technical and organizational measures for
maintaining information security and data privacy. Our cybersecurity program allows us to assess, identify and manage information security and
cybersecurity threats through robust risk assessment and prevention measures to facilitate communication, training, awareness and incident response
procedures. We have established policies and procedures to ensure timely and appropriate notifications to relevant parties and regulators as required for
cybersecurity threats and data breaches.
We have continued to expand investments in information security, including additional end-user training, using layered defenses, identifying and
protecting critical assets, strengthening monitoring and alerting mechanisms, and engaging experts. Information security awareness trainings are a
compliance requirement for employees. We regularly test defenses by performing simulations and drills at both a technical level (including through
penetration tests) and by reviewing our operational policies and procedures with third-party experts.
Our data breach response plan designates an incident response team comprised of senior leaders within information technology, finance, legal and
compliance functions to ensure timely diagnosis and mitigation of cyber events. The incident response team is responsible for determining whether a
cybersecurity incident is material and requires current reporting pursuant to SEC Form 8-K Item 1.05 (Material Cybersecurity Incidents). In conducting the
assessment, the team considers factors including, but not limited to: the probability of an adverse outcome; the potential significance of loss; the nature and
extent of harm to individuals, customers, and vendors; the nature and extent of harm to our competitive position or reputation; and the possibility of
litigation or regulatory investigations.
To ensure our cybersecurity programs adhere to industry best practices, we have adopted the National Institute of Standards and Technology (NIST)
Cybersecurity Framework and subscribed to the principles of Zero Trust. Both models represent recognized best practices for security and the capabilities
needed to identify, protect, detect and respond to cybersecurity risks and challenges. We evaluate our physical, electronic and administrative safeguards on
a continuous basis to ensure they are effectively deployed across the business.
We also work with trusted and recognized third parties to help us assess, strengthen and monitor the operations of our information security program.
We engage third-party services to conduct evaluations of our security controls, whether through penetration testing, independent audits or consulting on
best practices to address new challenges. These evaluations include testing both the design and operational effectiveness of security controls. We also share
and receive threat intelligence with information sharing and analysis centers and cybersecurity associations.
Assessing, identifying and managing cybersecurity related risks are integrated into our overall enterprise risk management (ERM) process, which,
evaluates and assesses top risks to the enterprise on a periodic basis. To the extent the ERM process identifies a heightened cybersecurity related risk, risk
owners are assigned to develop risk mitigation plans, which are then tracked to completion. The ERM process's risk assessment is presented to the Board of
Directors. In
32
Table of Contents
addition to assessing our own cybersecurity preparedness, we also consider cybersecurity risks associated with the use of third-party software and service
providers. Such providers are subject to security risk assessments at time of onboarding, contract renewal and upon detection of an increase in risk profile.
On an annual basis we review System and Organization Controls (SOC) 1 or SOC 2 reports for third-party service providers deemed significant to our
environment.
Despite the Company’s security measures and programs, our information technology and infrastructure are vulnerable to cybersecurity incidents,
intrusions and attacks, any of which could have a materially adverse effect on our business, financial results, revenues and competitive position. See “Part I
—Item 1A. Risk Factors” for further discussion of these risks.
Governance
Our Board of Directors is responsible for the oversight of cybersecurity risks and threats. The Board has delegated certain information security and
data privacy oversight to the Audit Committee and the Compliance, Quality and Risk Committee (CQRC) of the Board. The CQRC oversees compliance
with information security and data privacy laws, while the Audit Committee has oversight responsibility for cybersecurity risks related to accounting, audit
and financial matters. The CQRC, Audit Committee and management report to the Board on a periodic basis regarding our information security and data
privacy functions, including any cybersecurity threats.
The CQRC is responsible for oversight of our cybersecurity policy, procedures and risk mitigation. Our information technology (IT) leadership briefs
the CQRC on a periodic basis on information security matters, including the current cybersecurity landscape, progress on information security initiatives
and accomplishments, and reports on material cybersecurity incidents, as needed. Our enterprise risk management team reports address the Company’s
cybersecurity risk management processes. Our Chief Legal Officer oversees the management of our ERM program and has over a decade of experience in
risk management. The Chair of the CQRC is an expert in enterprise risk assessment and mitigation and holds a CERT Certificate in Cybersecurity
Oversight.
The Audit Committee is responsible for reviewing our disclosures on cybersecurity risk management, strategy and governance in our Annual Report
on Form 10-K. The Audit Committee assists in determining materiality for timely reporting of cybersecurity incidents and is notified immediately if the
incident response team has assessed that a material event may have occurred that may require filing an SEC Current Report on Form 8-K.
The Vice President of Information Technology, assisted by our broader IT team, is responsible for setting the strategic direction and priorities for
information security, coordination of enterprise-wide compliance with information security policies and procedures, as well as day-to-day information
security management. Our Vice President of IT has served in various roles in information technology and information security for over 20 years. Our
information security team has an aggregate of more than 60 years of experience in information technology roles across several industries.
ITEM 2. PROPERTIES
The Company operates in the following principal locations:
• AtriCure Corporate Headquarters Campus; Mason, Ohio – This campus encompasses three locations in Mason, Ohio, including our global
headquarters facility that contains the Company's administrative, clinical, regulatory, engineering, product development, quality and manufacturing
functions. The headquarters facility is approximately 106,000 square feet. The Mason Distribution Warehouse is primarily used for warehousing and
distribution activities and is approximately 40,000 square feet. The Mason Manufacturing Building is approximately 37,000 square feet and is used for
manufacturing, quality and engineering activities.
• Minnetonka, Minnesota – This location includes administrative, clinical, regulatory and product development space. The office is approximately
32,000 square feet.
•
Pleasanton, California – This location is used for product development activities and is approximately 6,000 square feet.
• Amsterdam, Netherlands – This location houses administrative functions for our international operations. The space is approximately 9,000 square
feet.
• Hertogenbosch, Netherlands – This location is used for service activities and is approximately 19,000 square feet.
The Company believes that its existing facilities are adequate to meet its immediate needs and that suitable additional space will be available in the
future on commercially reasonable terms as needed.
33
Table of Contents
ITEM 3. LEGAL PROCEEDINGS
We may from time to time become a party to additional legal proceedings that arise in the ordinary course of business. See Note 10 – Commitments
and Contingencies to our Consolidated Financial Statements.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
34
Table of Contents
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
Common Stock Market Price
Our common stock is traded on the NASDAQ Global Market under the symbol “ATRC.” As of February 13, 2024, the closing price of our common
stock on the NASDAQ Global Market was $31.71 per share, and the number of stockholders of record was 67.
Performance Graph
The following graph compares the cumulative total stockholder return on our common stock with the cumulative total return of the NASDAQ
Composite Index (“NASDAQ Composite”) and the NASDAQ Health Care Index (“NASDAQ Health Care”) for the period beginning on December 31,
2018, and ending on December 31, 2023.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among AtriCure, Inc., the NASDAQ Composite Index
and the NASDAQ Health Care Index
*$100 invested on 12/31/18 in stock or index, including reinvestment of dividends. Fiscal year ending December 31.
This graph assumes that $100.00 was invested on December 31, 2018, in our common stock, the NASDAQ Composite Index and the NASDAQ
Health Care Index, and that all dividends are reinvested. No dividends have been declared or paid on our common stock. Stock performance shown in the
above chart for our common stock is historical and should not be considered indicative of future price performance.
AtriCure, Inc.
NASDAQ Composite
NASDAQ Health Care
ITEM 6. [RESERVED]
12/31/2018
12/31/2019
12/31/2020
12/31/2021
12/31/2022
12/31/2023
$
$
$
100.00 $
100.00 $
100.00 $
106.24 $
136.69 $
110.75 $
181.93 $
198.10 $
140.85 $
227.22 $
242.03 $
126.71 $
145.03 $
163.28 $
95.29 $
116.63
236.17
96.06
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollar and share amounts referenced in this Item 7 are in thousands, except per share amounts.)
35
Table of Contents
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying
Consolidated Financial Statements and notes thereto contained in Item 8, “Financial Statements and Supplementary Data,” to provide an understanding of
our results of operations, financial condition and cash flows. This section of this Form 10-K generally discusses 2023 and 2022 items and year-to-year
comparisons between 2023 and 2022. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions.
The actual results may differ from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those set
forth under Item 1A “Risk Factors,” the cautionary statement regarding forward-looking statements at the beginning of Part I and elsewhere in this Form
10-K.
Year Ended December 31, 2022 compared to December 31, 2021
For a comparison of our results of operations for the years ended December 31, 2022 and December 31, 2021, see “Part II, Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations” of our annual report on Form 10-K for the year ended December 31, 2022, filed
with the SEC on February 22, 2023.
Overview
We are a leading innovator in treatments for atrial fibrillation (Afib), left atrial appendage (LAA) management and post-operative pain management.
Our ablation and left atrial appendage management (LAAM) products are used by physicians during both open-heart and minimally invasive procedures. In
open-heart procedures, the physician is performing heart surgery for other conditions, and our products are used in conjunction with (or “concomitant” to)
such a procedure. Minimally invasive procedures are performed on a standalone basis, and often include multi-disciplinary or “hybrid” approaches,
combining surgical procedures using AtriCure ablation and LAAM products with catheter ablation procedures performed by electrophysiologists. Our pain
management devices are used by physicians to freeze nerves during cardiothoracic or thoracic surgical procedures. We anticipate that substantially all of
our revenue for the foreseeable future will relate to products we currently sell or are in the process of developing.
We sell our products to medical centers through our direct sales force in the United States, Germany, France, the United Kingdom, the Benelux
region, Australia and Canada. We also sell our products to distributors who in turn sell our products to medical centers in other markets. Our business is
primarily transacted in U.S. Dollars; direct international sales transactions are transacted in Euros, British Pounds, Australian Dollars or Canadian Dollars.
In 2023, we realized significant global revenue growth and continued our strategic initiatives of product innovation, clinical science and expanding
physician awareness and adoption through superior training and education. Our worldwide revenues for the year ended December 31, 2023 of $399,245
was an increase of 20.8% over the prior year driven by growing adoption across key product lines. Historically there have been limited competitors in our
key markets, but we have begun to see more entrants that may cause variability in 2024 results. Highlights of the strategic and operational advancements in
2023 include:
PRODUCT INNOVATION. We received final labeling approval for the next generation EPi-Sense ST device and began a limited launch evaluation
in the fourth quarter of 2022, followed by full product launch in the second quarter of 2023. In October 2023, we received clearance for our next generation
cryoSPHERE probe for pain management and expect to launch in the first quarter of 2024. Additionally, we completed several 510k submissions to FDA
for new products in development. We also continue to make significant progress on European Medical Device Regulation (EU MDR) clearance
submissions for our products. As of the second quarter of 2023, all of our products have been submitted to our notified body under EU MDR. These
activities are in addition to several research and development programs currently underway.
CLINICAL SCIENCE. We continue to invest in studies to expand labeling claims, support various indications for our products and gather clinical
data regarding our products.
LeAAPS. The Left Atrial Appendage Exclusion for Prophylactic Stroke Reduction (LeAAPS) IDE clinical trial is designed to evaluate the
effectiveness of prophylactic LAA exclusion using the AtriClip LAA Exclusion System for the prevention of ischemic stroke or systemic arterial embolism
in cardiac surgery patients without pre-operative AF diagnosis who are at risk for these events. This prospective, multicenter, randomized trial evaluates
safety at 30 days post-procedure to demonstrate no increased risk with LAA exclusion during cardiac surgery, and efficacy over a minimum follow-up of
five years post procedure. The trial provides for enrollment of up to 6,500 subjects at up to 250 sites worldwide. In January 2023, the first patient was
enrolled in the trial, and we ended 2023 with nearly 1,400 patients enrolled. Site initiation and enrollment is ongoing.
ICE-AFIB. Trial enrollment was completed in the second quarter of 2023 for the ICE-AFIB clinical trial, which is designed to study the safety and
efficacy of our cryoICE system for persistent and long-standing persistent Afib treatment during concomitant on-pump cardiac surgery. The trial provided
for enrollment of up to 150 patients at up to 20 sites in the United States. Patient follow-up for twelve months post ablation required by the study protocol
remains ongoing.
®
36
Table of Contents
CEASE-AF. During the second quarter of 2023, results from our CEASE-AF trial were presented at the European Heart Rhythm Association meeting.
CEASE-AF is a prospective, multi-center randomized control trial for persistent and long-standing persistent Afib treatment that demonstrated superior
freedom from atrial arrhythmias for staged hybrid ablation compared to endocardial catheter ablation.
DEEP AF. During the fourth quarter of 2023, 12-month follow-up results of enrolled patients from our DEEP AF IDE trial were presented at the
American Heart Association meeting. The DEEP AF IDE pivotal trial evaluated the safety and efficacy of the AtriCure Bipolar System when used in a
staged approach where a minimally invasive surgical ablation procedure is first performed. The patient undergoes the endocardial catheter procedure
approximately 91-120 days later. The results from this single arm study for persistent and long-standing persistent Afib treatment demonstrated superior
freedom from atrial arrhythmias for staged hybrid ablation compared to a pre-specified performance goal.
TRAINING. Our professional education and marketing teams conduct virtual and in-person training programs for physicians and healthcare
professionals. These training methods ensure invaluable access to continuing education and awareness of our products and related procedures. During
2023, we launched new training courses for Advanced Practice Providers, pain management in pectus procedures, as well as a best practice course for
developing arrhythmia programs, with a primary focus on Hybrid therapies. These trainings allow for collaborative, hands-on engagement with our
physician partners and other healthcare professionals. Additionally, our professional education courses continue to benefit from use of inanimate models or
synthetic cadavers, known as CADets. These reusable CADets provide a sustainable alternative to the use of animals or cadavers, in addition to reducing
spend on training programs.
SOCIETY GUIDELINES. In 2023, the American College of Cardiology (ACC), American Heart Association (AHA), American College of Clinical
Pharmacy (ACCP), and HRS released Guidelines for Diagnosis and Management of Atrial Fibrillation, and they upgraded Left Atrial Appendage
Management to the highest recommendation of Class 1 and now include Hybrid AF™ Therapy as a Class 2 recommendation. These societal guidelines are
reflective of the scientific evidence suggesting that surgical and hybrid ablation is safe and effective for patients who have Afib.
Results of Operations
Year Ended December 31, 2023 compared to December 31, 2022
The following table sets forth, for the periods indicated, our results of operations expressed as dollar amounts and as percentages of total revenue:
Year Ended December 31,
2023
2022
Amount
% of
Revenue
Amount
% of
Revenue
Revenue
Cost of revenue
Gross profit
Operating expense (benefit):
Research and development expenses
Selling, general and administrative expenses
Total operating expenses
Loss from operations
Other expense, net
Loss before income tax expense
Income tax expense
Net loss
100.0 %
24.8
75.2
18.5
63.4
81.9
(6.7)
(0.8)
(7.5)
0.1
(7.6) % $
330,379
84,439
245,940
57,337
231,272
288,609
(42,669)
(3,529)
(46,198)
268
(46,466)
100.0 %
25.6
74.4
17.4
70.0
87.4
(12.9)
(1.1)
(14.0)
0.1
(14.1)%
$
$
399,245
98,875
300,370
73,915
253,138
327,053
(26,683)
(3,164)
(29,847)
591
(30,438)
37
Table of Contents
Revenue. The following table sets forth, for the periods indicated, our revenue by product type and geography expressed as dollar amounts and the
corresponding change in such revenues between periods, in both dollars and percentages:
Open ablation
Minimally invasive ablation
Pain management
Appendage management
Total United States
Total International
Total Revenue
Year Ended December 31,
Change
2023
2022
Amount
%
$
$
$
105,287 $
44,577
49,199
134,481
333,544 $
65,701
399,245 $
86,119 $
38,553
39,974
112,555
277,201 $
53,178
330,379 $
19,168
6,024
9,225
21,926
56,343
12,523
68,866
22.3 %
15.6 %
23.1 %
19.5 %
20.3 %
23.5 %
20.8 %
Worldwide revenue increased 20.8% (20.6% on a constant currency basis). In the United States, we experienced growth in all key product lines as a
result of deepening market penetration and expanding physician adoption. Key products contributing to the increase in revenue in the United States were:
•
•
•
•
the ENCOMPASS clamp in open ablation,
®
Hybrid AF™ Therapy procedures using the EPi-Sense System in minimally invasive ablation,
the cryoSPHERE probe for post-operative pain management and
®
the AtriClip Flex⋅V for appendage management.
®
®
International revenue increased 23.5% (22.1% on a constant currency basis), across all franchises and major geographic regions.
Revenue reported on a constant currency basis is a non-GAAP measure calculated by applying previous period foreign currency exchange rates,
which are determined by the average daily exchange rate, to each of the comparable periods. Revenue is analyzed on a constant currency basis to better
measure the comparability of results between periods. Because changes in foreign currency exchange rates have a non-operating impact on revenue, we
believe that evaluating growth in revenue on a constant currency basis provides an additional and meaningful assessment of revenue to both management
and investors.
Cost of revenue and gross margin. Cost of revenue increased $14,436 primarily reflecting higher sales volumes. The gross margin increase of 80
basis points was driven by favorable production efficiencies, partially offset by less favorable geographic and product mix.
Research and development expenses. Research and development expenses increased $16,578, or 28.9%. Expansion of product development,
regulatory and clinical teams resulted in $7,413 of additional personnel costs, including variable compensation and share-based compensation. Clinical trial
expenses increased $6,667 due to strong enrollment activity in the LeAAPS clinical trial throughout the year. Additionally, our expanding product pipeline
and domestic and international regulatory submissions drove a $2,389 increase in spending.
Selling, general and administrative expenses. Selling, general and administrative expenses increased $21,866, or 9.5%. Personnel costs increased
$26,971 as a result of growth in headcount, variable compensation and share-based compensation. Trade shows and marketing activities increased $1,538
and other administrative and operating expenses increased $2,274 as compared to the prior year. This increase was offset by a $4,019 decrease in training
costs as a result of growing efficiencies and enhancements to our global training programs and a net gain of $4,412 from non-recurring legal settlements
during the first half of 2023. Legal settlement activity included a $7,500 gain from proceeds on a legal matter settled during the first quarter of 2023,
partially offset by a $3,088 charge for settlement of an intellectual property matter during the second quarter of 2023. See Note 10 – Commitments and
Contingencies for further information.
Other income and expense. Other income and expense consists primarily of net interest expense and net foreign currency transaction losses. Net
interest expense was $3,133 for 2023 and $2,992 for 2022.
38
Table of Contents
Liquidity and Capital Resources
As of December 31, 2023, we had cash, cash equivalents and investments of $137,285 and borrowing capacity of approximately $28,750 under the
SVB Credit Facility. As a result of the new asset-based credit agreement with JPMorgan Chase Bank, N.A. entered into on January 5, 2024, unused
borrowing availability increased to approximately $61,885 (see Note 8 – Indebtedness for related discussion). All cash equivalents and investments and
most of our operating cash are held in United States financial institutions. A minor portion of our cash is held in foreign banks to support our international
operations. We had net working capital of $191,677 and an accumulated deficit of $357,057 as of December 31, 2023.
Uses of liquidity and capital resources. Our executive officers and Board of Directors review our funding sources and future capital requirements
in connection with our annual operating plan and periodic updates to the plan. Our principal cash requirements include costs of operations, capital
expenditures, debt service costs and other contractual obligations. Our future capital requirements depend on a number of factors, including, without
limitation: market acceptance of our current and future products; investments in working capital; costs to develop and support our products, including
professional training; costs to expand and support our sales and marketing efforts; operating and filing costs relating to changes in regulatory policies or
laws; costs for clinical trials and to secure regulatory approval for new products; costs to prosecute, defend and enforce our intellectual property rights;
maintenance and enhancements to our information systems and security; and possible acquisitions and joint ventures, including potential business
integration costs. We continue to evaluate additional measures to maintain financial flexibility, and we will continue to closely monitor macroeconomic
conditions including, but not limited to, inflationary pressures, rising interest rates, and fluctuations in currency exchange rates that may impact our
liquidity and access to capital resources.
Credit facility. As of December 31, 2023, we had a Loan and Security Agreement with Silicon Valley Bank (SVB), (SVB Loan Agreement). The
SVB Loan Agreement provides for a $60,000 term loan, with an option to make available an additional $30,000 in term loan borrowings, and a $30,000
revolving line of credit. The Loan Agreement has a five-year term and expires November 2026. The term loan accrues interest at the Prime Rate plus
1.25% and is subject to an additional 3.00% fee on the term loan principal amount at maturity. We had unused borrowing capacity of approximately
$28,750 under our revolving credit facility.
As of January 5, 2024, we entered into an asset-based credit agreement with JPMorgan Chase Bank, N.A. as Administrative Agent, JPMorgan Chase
Bank, N.A. and Silicon Valley Bank, a division of First-Citizen Bank and Trust Company, as Joint Lead Arrangers and Joint Bookrunners (Credit
Agreement) that provides for a $125,000 asset-based revolving credit facility (ABL Facility), with an option to increase the revolving commitment by an
additional $40,000. A portion of the ABL facility, limited to $5,000, is available for the issuance of letters of credit. The Credit Agreement has a three-year
term and expires January 5, 2027. Amounts available to be drawn from time to time under the ABL Facility are determined by calculating the applicable
borrowing base, which is based upon applicable percentages of the values of eligible accounts receivable, eligible inventory, eligible liquid assets, less
reserves as determined by the Administrative Agent, all as specified in the Credit Agreement. The borrowings bear interest at a rate per annum equal to, at
the Company's election: (i) an alternate base rate (ABR) plus an applicable margin or (ii) an adjusted term secured overnight financing rate (SOFR) plus an
applicable margin. At the time of closing, the Company borrowed $61,865 and had unused borrowing availability of approximately $61,885. The proceeds
of the ABL Facility were used to terminate the Company’s indebtedness under the SVB Loan Agreement. As a result of the new Credit Agreement, the
$60,000 borrowings outstanding under the SVB Loan Agreement as of December 31, 2023 are classified as noncurrent in the Consolidated Balance Sheet.
Our corporate headquarters lease agreement requires a $1,250 letter of credit which renews annually and remains outstanding as of December 31,
2023.
For additional information on the terms and conditions, as well as applicable interest and fee payments, see Note 8 – Indebtedness.
Capital Expenditures. We incur capital expenditures on an ongoing basis to continue investment in our growth and our ability to better serve our
customers. Throughout 2021 through 2023, we continued expansion and renovation of our manufacturing and engineering facilities in our Mason, Ohio
campus.
Other Contractual Obligations. Our future obligations include both current and long-term obligations. In 2022, the Company entered into a clinical
trial management agreement for the LeAAPS clinical trial. The terms of the agreement require we make milestone payments upon achievement of various
enrollment and project milestones over the estimated ten-year term, yet the agreement may be terminated early for any reason. Furthermore, we incur
additional variable costs, including pass through costs from clinical trial sites. We expect to disburse between $14,000 and $17,000 of fixed and
39
Table of Contents
variable costs based on estimated achievement of milestone payments, site initiation and trial enrollment within the next twelve months.
We have operating and finance leases primarily for our corporate offices, manufacturing and warehouse facilities and automobiles. Our finance leases
consist primarily of principal and interest payments related to our Mason, Ohio headquarters building. As of December 31, 2023, we have current finance
lease obligations of $1,086 and long-term obligations of $8,061. Our operating leases for office and warehouse space includes current obligations of $1,447
and long-term obligations of $3,307. For additional information, see Note 9 – Leases.
We have contractual obligations for contingent consideration payments related to the SentreHEART acquisition. Subject to the terms and conditions
of the SentreHEART merger agreement, such contingent consideration would be paid in AtriCure common stock and cash, up to a specified maximum
number of shares. As of December 31, 2023, we believe the likelihood of payment is remote, and the estimated fair value of the contingent consideration is
$0. See Note 2 – Fair Value.
Sources of liquidity. We believe that our current cash, cash equivalents and investments, along with the cash we expect to generate or use for
operations or access via our Credit Agreement, will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least
the next twelve months. However, we have on file with the SEC a shelf registration statement which allows us to sell any combination of debt securities,
common stock, preferred stock, warrants, depository shares and units in one or more offerings should we choose to do so in the future. We expect to
maintain the effectiveness of the shelf registration statement for the foreseeable future.
If our sources of cash are insufficient to satisfy our liquidity requirements, we may seek to sell additional equity or debt securities or obtain a revised
or additional credit facility. The sale of additional equity or convertible debt securities could result in dilution to our stockholders. If additional funds are
raised through the issuance of debt securities, these securities would have rights senior to those associated with our common stock and could contain
covenants that would restrict our operations. Finally, our Credit Agreement requires compliance with certain financial and other covenants. If we are unable
to maintain these financing arrangements, we may be required to reduce the scope of our planned research and development, clinical activities and selling,
training, education and marketing efforts.
Historical Cash Flow Activity. The following table summarizes our consolidated cash flow activities:
Net cash provided by (used in) operating activities
Net cash provided by investing activities
Net cash used in financing activities
Years Ended December 31,
2023
2022
Change
$
4,484 $
21,817
(32)
(22,141) $
44,006
(7,059)
26,625
(22,189)
7,027
Cash flows provided by (used in) operating activities. Net cash provided by operating activities increased $26,625 in 2023 as compared to 2022,
largely reflecting the improvement in operating results of $16,028 driven by higher sales, improvements to gross and operating margin and a net gain from
legal settlements. Cash used for working capital remained relatively flat year over year, with increased investment in inventories largely offset by increased
accruals for annual variable compensation payments due to improved operating performance.
Cash flows provided by investing activities. Net cash provided by investing activities decreased by $22,189 in 2023 compared to 2022, reflecting
the $30,000 acquisition of intellectual property, partially offset by a $4,883 decrease in purchases of property and equipment following our 2022
manufacturing facilities expansion and $2,928 increase in net maturities of available-for-sale securities.
Cash flows used in financing activities. Net cash from financing activities increased by $7,027 in 2023 compared to 2022, reflecting savings of
$5,644 due to fewer shares repurchased at a lower value for payment of taxes on stock awards and an increase of $1,536 of proceeds from the employee
stock purchase plan and stock option exercise activity.
Inflation
Inflationary pressures may have an adverse impact on our results of operations or financial condition in the foreseeable future. Inflation has impacted
our operating costs throughout 2023 and 2022. Continued increases in our cost of revenue may affect our ability to maintain our gross margin if the selling
prices of our products do not increase commensurately, while continued increases in our operating expenses may adversely affect our operating results and
the
40
Table of Contents
ability to make discretionary investments. We will continue to monitor the impact of inflation on our cost of revenue and operating expenses.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations is based upon our Consolidated Financial Statements, which have
been prepared in accordance with accounting principles generally accepted in the United States. The preparation of consolidated financial statements
requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenue and expenses, and disclosures of
contingent assets and liabilities at the date of the financial statements. On a periodic basis, we evaluate our estimates, using authoritative pronouncements,
historical experience and other assumptions as the basis for making estimates. We have described our significant accounting policies in Note 1 –
Description of Business and Summary of Significant Accounting Policies to our Consolidated Financial Statements included in this Form 10-K.
We believe the following critical accounting policies involve a significant level of estimation uncertainty and judgments that are reasonably likely to
have a material impact on our Consolidated Financial Statements. We base our judgments and estimates on historical experience, current conditions and
other reasonable factors. Actual results could differ from those estimates under different assumptions or conditions.
Revenue Recognition—Revenue is generated from the sale of medical devices. We recognize revenue in an amount that reflects the consideration we
expect to be entitled to in exchange for those devices when control of promised devices is transferred to customers. We account for revenue in accordance
with FASB ASC 606, “Revenue from Contracts with Customers”. Significant judgments and estimates involved in the Company’s recognition of revenue
include the estimation of a provision for returns. We estimate the provision for sales returns and allowances using the expected value method based on
historical experience and other factors that we believe could impact our expected returns, including defective or damaged products and invoice adjustments.
In the normal course of business, we are not obligated to accept product returns unless a product is defective as manufactured, and we do not provide
customers with the right to a refund.
Inventories—Our inventories are stated at the lower of cost or net realizable value based on the first-in, first-out cost method (FIFO) and consist of
raw materials, work in process and finished goods. Our industry is characterized by rapid product development and frequent new product introductions.
Uncertain timing of product approvals, variability in product launch strategies and variation in product sales all impact inventory reserves for excess,
obsolete and expired products. An increase to inventory reserves results in a corresponding increase in cost of revenue. Inventories are written off against
the reserve when they are physically disposed.
Share-Based Employee Compensation—We estimate the fair value of performance share awards with a performance condition initially based on the
closing stock price on the date of grant assuming the performance goal will be achieved. Such performance share awards have specified performance
targets based on the compound annual growth rate (CAGR) of our revenue over a three-year performance period. With respect to these performance share
awards, the number of shares that vest and are issued to the recipient is based upon revenue performance over the performance period. We may adjust the
expense over the performance period based on changes to estimates of performance target achievement. If such goals are not met or service is not rendered
for the requisite service period, no compensation cost is recognized, and any recognized compensation cost from prior periods will be reversed.
Income Taxes—Deferred income 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 and operating loss and tax credit carryforwards.
Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities from changes in tax rates is recognized in the
period that includes the enactment date.
Our estimate of the valuation allowance for deferred tax assets requires significant estimates and judgments about our future operating results.
Deferred income tax assets are reduced by valuation allowances if, based on the consideration of all available evidence, it is more-likely-than-not that a
deferred tax asset will not be realized. Significant weight is given to evidence that can be objectively verified. We evaluate deferred income tax assets on an
annual basis to determine if valuation allowances are required by considering all available evidence. Deferred income tax assets are realized by having
sufficient future taxable income to allow the related tax benefits to reduce taxes otherwise payable. The sources of taxable income that may be available to
realize the benefit of deferred tax assets are future taxable income, future reversals of existing taxable temporary differences, taxable income in prior
carryforward years and tax planning strategies that are both prudent and feasible. In evaluating the need for a valuation allowance, the existence of
cumulative losses in recent years is
41
Table of Contents
significant objectively verifiable negative evidence that must be overcome by objectively-verifiable positive evidence to avoid the need for a valuation
allowance. Our valuation allowance offsets substantially all net deferred income tax assets as it is more-likely-than-not that the benefit of such deferred
income tax assets will not be recognized in future periods.
Recent Accounting Pronouncements
See Note 1 – Description of Business and Summary of Significant Accounting Policies to the Consolidated Financial Statements in Item 8 of Part II
for more information regarding recent accounting pronouncements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
(Amounts referenced in this Item 7A are in thousands, except per share amounts.)
The Company is exposed to various market risks, which include potential losses arising from adverse changes in market rates and prices, such as
foreign exchange fluctuations and changes in interest rates.
Credit and Interest Rate Risk
The Company invests its cash primarily in money market accounts, U.S. government and agency obligations, corporate bonds, and asset-backed
securities. Although the Company believes it has invested in a conservative manner, with preservation being the primary investment objective, the value of
the securities held will fluctuate with changes in financial markets including, among other things, changes in interest rates, credit quality and general
volatility. This risk is managed by investing in high quality investment grade securities to maintain liquidity and preserve principal without significantly
increasing risk.
Financial instruments that potentially subject the Company to credit risk consist of cash equivalents and investments in corporate bonds. The
Company maintains deposit accounts in federally insured financial institutions in excess of federally insured limits. Cash held in financial institutions in
foreign countries is not significant. Although these depository accounts may exceed government insured depository limits, we have evaluated the credit
worthiness of these applicable financial institutions and determined the risk of material financial loss due to the exposure of such credit risk to be minimal.
The Company also maintains investments in money market funds that are not federally insured.
We are subject to interest rate risk as rate fluctuations impact cash payments for outstanding borrowings. Outstanding amounts under the Credit
Agreement bear interest at a rate per annum equal to, at the Company's election: (i) an alternate base rate (ABR) plus an applicable margin or (ii) an
adjusted term secured overnight financing rate (SOFR) plus an applicable margin. Alternate base rate is equal to the greatest of Prime, the NYFRB Rate
plus 0.50% and Adjusted Term SOFR Rate plus 1.00%. The applicable margin spread is 1.50% to 2.75%, as determined by the average excess availability
of the aggregate revolving commitment. All swingline loans bear interest at a rate per annum equal to the ABR plus the applicable margin under the Credit
Agreement. Interest periods for SOFR Term Benchmark borrowings range from one month, three months or six months, at the Company's election. Interest
rate risk is highly sensitive due to many factors, including United States monetary and tax policies and United states and international economic factors
beyond our control.
Foreign Currency Exchange Rate Risk
We sell our products to medical centers through our direct sales force in the United States, Germany, France, the United Kingdom, Australia and
Canada. We also sell our products to distributors who in turn sell our products to medical centers in Japan, China and other international markets. Our
business is primarily transacted in U.S. Dollars; direct international sales transactions are transacted in Euros, British Pounds, Australian Dollars or
Canadian Dollars. Sales to international distributors outside of Europe are under agreements primarily denominated in U.S. Dollars. If products are priced
in U.S. Dollars and competitors price their products in the local currency, an increase in the relative strength of the U.S. Dollar could result in the
Company’s price not being competitive in a market where business is not transacted in U.S. Dollars.
Products sold by AtriCure Europe, B.V. and its subsidiaries are primarily denominated in Euros or British Pounds. European product sales accounted
for 9.4% and 9.0% of the Company’s total revenue for 2023 and 2022. Accordingly, the Company is exposed to exchange rate fluctuations between the
Euro and the U.S. Dollar and between the British Pound and the Euro. To a lesser extent, the Company is also exposed to exchange rate fluctuations
between the Australian and Canadian Dollars to the U.S. Dollar. For 2023 and 2022, foreign currency transaction losses of $(101) and $(559) were
recorded primarily in connection with settlements of the intercompany balances and invoices transacted in British Pounds. For revenue denominated in
Euros, if there is an increase in the rate at which Euros are exchanged for U.S. Dollars, it will
42
Table of Contents
require more Euros to equal a specified amount of U.S. Dollars than before the rate increase. In such cases, the Company will receive less in U.S. Dollars
than was received before the rate increase went into effect. The Euro to U.S. Dollar conversion rate fluctuations may impact our reported revenue and
expenses.
In 2022, we entered into a clinical trial management agreement for the LeAAPS clinical trial. The terms of the agreement require we make fixed
milestone payments upon achievement of various enrollment and project milestones over the estimated ten-year term. Additional variable costs, including
pass through costs incurred at clinical trial sites, will be billed to us by the contracted party. Fixed milestone payments are denominated in Canadian
Dollars, while variable pass-through fees incurred at clinical trial sites outside the United States may be billed in U.S. Dollars or other local currencies.
Fluctuations in the conversation rates of the U.S. Dollar to the Canadian Dollar and local currencies of international trial sites may impact the cash outlay
required for future milestone payments and variable pass-through costs under the clinical trial management agreement.
43
Table of Contents
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ATRICURE, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Financial Statements:
Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34)
Consolidated Balance Sheets
Consolidated Statements of Operations and Comprehensive (Loss) Income
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
44
Page
45
47
48
49
50
51
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of
AtriCure, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of AtriCure, Inc. and subsidiaries (the "Company") as of December 31, 2023 and 2022, the
related consolidated statements of operations and comprehensive (loss) income, stockholders’ equity, and cash flows, for each of the three years in the
period ended December 31, 2023, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements
present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United
States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's
internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued
by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 16, 2024, expressed an unqualified opinion on
the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial
statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing
procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to
those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or
required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2)
involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion
on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical
audit matter or on the accounts or disclosures to which it relates.
45
Table of Contents
Valuation of Performance Share Awards with a Market Condition - Refer to Note 14 to the financial statements
Critical Audit Matter Description
Performance share awards (PSAs) granted in 2023 have two performance targets measured at the end of the three-year performance period: (i) the
Company's revenue compound annual growth rate, a performance condition; and (ii) relative total shareholder return (TSR), a market condition. The
performance and market condition payouts are determined independently.
The number of PSAs with a market condition that vest and are issued to the recipient is based upon the Company's TSR relative to the TSR of the selected
market index at the end of the three-year performance period. A Monte Carlo simulation was performed to estimate the fair value on the grant date, with
associated share-based compensation expense recognized over the requisite service period as the employee renders service.
The determination of the fair value on the date of grant is affected by the stock price of the Company and the market index, as defined by the award
agreement, at the beginning of the service period and grant date, the expected stock price volatility of the Company and the market index over the
performance period, the risk-free interest rate, and the correlation coefficient of the daily returns for the Company and the market index over the
performance period.
Given the level of judgment involved by management, including the use of a specialist, to determine the grant date fair value of the PSAs with a market
condition, audit procedures required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value
specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the Company's determination of the grant date fair value of the PSAs with a market condition included the following,
among others:
• We inquired with management regarding the key valuation assumptions and the Monte Carlo simulation methodology used in the determination of the
grant date fair value of the PSAs.
• We tested the design and operating effectiveness of the Company's internal controls over the determination of the grant date fair value of the PSAs.
• We tested the accuracy of the data used in measuring the awards by agreeing the underlying inputs, such as grant date, share price, and vesting
conditions, among others, back to source documents, such as compensation committee minutes or PSA agreements.
• With the assistance of our fair value specialists, we evaluated management's valuation of PSAs with a market condition by:
▪
▪
Evaluating the Monte Carlo simulation methodology and the reasonableness of the valuation assumptions, including the risk-free interest rate,
expected volatility, and the correlation coefficients.
Independently calculating a fair value estimate for the market condition PSAs using the underlying PSA agreement and independently calculated
valuation inputs.
/s/ Deloitte & Touche LLP
Cincinnati, Ohio
February 16, 2024
We have served as the Company's auditor since 2002.
46
Table of Contents
ATRICURE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2023 and 2022
(In Thousands, Except Per Share Amounts)
Assets
Current assets:
Cash and cash equivalents
Short-term investments
Accounts receivable, less allowance for credit losses of $500 and $230
Inventories
Prepaid and other current assets
Total current assets
Long-term investments
Property and equipment, net
Operating lease right-of-use assets
Intangible assets, net
Goodwill
Other noncurrent assets
Total Assets
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
Accrued liabilities
Current maturities of debt and leases
Total current liabilities
Long-term debt
Finance lease liabilities
Operating lease liabilities
Other noncurrent liabilities
Total Liabilities
Commitments and contingencies (Note 10)
Stockholders’ Equity:
Common stock, $0.001 par value, 90,000 shares authorized; 47,526 and 46,563 issued and outstanding
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Total Stockholders’ Equity
Total Liabilities and Stockholders’ Equity
See accompanying notes to consolidated financial statements.
47
2023
2022
84,310 $
52,975
52,501
67,897
8,563
266,246
—
42,435
4,324
63,986
234,781
2,160
613,932 $
27,354 $
44,682
2,533
74,569
60,593
8,061
3,307
1,234
147,764
48
824,170
(993)
(357,057)
466,168
613,932 $
58,099
63,014
42,693
45,931
5,477
215,214
51,509
38,833
3,787
39,339
234,781
1,985
585,448
19,898
33,022
5,472
58,392
56,834
9,147
3,095
1,226
128,694
47
787,422
(4,096)
(326,619)
456,754
585,448
$
$
$
$
Table of Contents
ATRICURE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
YEARS ENDED DECEMBER 31, 2023, 2022 and 2021
(In Thousands, Except Per Share Amounts)
2023
2022
2021
Revenue
Cost of revenue
Gross profit
Operating expenses (benefit):
Research and development expenses
Selling, general and administrative expenses
Change in fair value of contingent consideration (Note 2)
Intangible asset impairment (Note 4)
Total operating expenses
(Loss) income from operations
Other income (expense):
Interest expense
Interest income
Other
(Loss) income before income tax expense
Income tax expense
Net (loss) income
Net (loss) income per share:
Basic net (loss) income per share
Diluted net (loss) income per share
Weighted average shares outstanding:
Basic
Diluted
Comprehensive (loss) income:
Unrealized gain (loss) on investments
Foreign currency translation adjustment
Other comprehensive income (loss)
Net (loss) income
Comprehensive (loss) income, net of tax
$
$
$
$
$
$
399,245 $
98,875
300,370
330,379 $
84,439
245,940
73,915
253,138
—
—
327,053
(26,683)
(6,925)
3,792
(31)
(29,847)
591
(30,438) $
(0.66) $
(0.66) $
46,309
46,309
2,898 $
205
3,103
(30,438)
(27,335) $
57,337
231,272
—
—
288,609
(42,669)
(4,986)
1,994
(537)
(46,198)
268
(46,466) $
(1.02) $
(1.02) $
45,740
45,740
(2,811) $
(337)
(3,148)
(46,466)
(49,614) $
274,329
68,469
205,860
48,506
204,649
(184,800)
82,300
150,655
55,205
(4,918)
466
(366)
50,387
188
50,199
1.11
1.09
45,066
46,039
(941)
(319)
(1,260)
50,199
48,939
See accompanying notes to consolidated financial statements.
48
Table of Contents
ATRICURE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
YEARS ENDED DECEMBER 31, 2023, 2022, and 2021
(In Thousands)
Common Stock
Shares
Amount
Additional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
(Loss) Income
Total
Stockholders’
Equity
Balance—December 31, 2020
Issuance of common stock under equity incentive plans
Issuance of common stock under employee stock purchase
plan
Share-based employee compensation expense
Other comprehensive loss
Net income
Balance—December 31, 2021
Issuance of common stock under equity incentive plans
Issuance of common stock under employee stock purchase
plan
Share-based employee compensation expense
Other comprehensive loss
Net loss
Balance—December 31, 2022
Issuance of common stock under equity incentive plans
Issuance of common stock under employee stock purchase
plan
Share-based employee compensation expense
Other comprehensive income
Net loss
Balance—December 31, 2023
45,346
$
589
81
—
—
—
46,016
$
426
121
—
—
—
46,563
$
811
152
—
—
—
47,526
$
45
1
—
—
—
—
46
1
—
—
—
—
47
1
—
—
—
—
48
$
742,389 $
(330,352) $
312 $
(9,837)
4,181
28,078
—
—
—
—
—
—
50,199
$
764,811 $
(280,153) $
(10,385)
4,225
28,771
—
—
—
—
—
—
(46,466)
$
787,422 $
(326,619) $
(4,241)
5,261
35,728
—
—
—
—
—
—
(30,438)
$
824,170 $
(357,057) $
—
—
—
(1,260)
—
(948) $
—
—
—
(3,148)
—
(4,096)
$
—
—
—
3,103
—
(993) $
412,394
(9,836)
4,181
28,078
(1,260)
50,199
483,756
(10,384)
4,225
28,771
(3,148)
(46,466)
456,754
(4,240)
5,261
35,728
3,103
(30,438)
466,168
See accompanying notes to consolidated financial statements.
49
Table of Contents
ATRICURE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2023, 2022 and 2021
(In Thousands)
Cash flows from operating activities:
Net (loss) income
Adjustments to reconcile net (loss) income to net cash used in operating activities:
2023
2022
2021
$
(30,438) $
(46,466) $
Share-based compensation expense
Depreciation
Amortization of intangible assets
Amortization of deferred financing costs
Amortization of investments
Change in fair value of contingent consideration
Intangible asset impairment
Other non-cash adjustments
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Other current assets
Accounts payable
Accrued liabilities
Other noncurrent assets and liabilities
Net cash provided by (used in) operating activities
Cash flows from investing activities:
Purchases of available-for-sale securities
Sales and maturities of available-for-sale securities
Purchases of property and equipment
Acquisition of intellectual property
Net cash provided by investing activities
Cash flows from financing activities:
Proceeds from debt borrowings
Payments on debt and finance leases
Payment of debt fees
Proceeds from stock option exercises
Shares repurchased for payment of taxes on stock awards
Proceeds from issuance of common stock under employee stock purchase plan
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents—beginning of period
Cash and cash equivalents—end of period
Supplemental cash flow information:
Cash paid for interest
Cash paid for income taxes, net of refunds
Non-cash investing and financing activities:
Accrued purchases of property and equipment
35,728
9,460
5,353
486
632
—
—
1,503
(9,872)
(21,830)
(3,084)
6,177
11,562
(1,193)
4,484
—
63,815
(11,998)
(30,000)
21,817
—
(992)
(60)
2,316
(6,557)
5,261
(32)
(58)
26,211
58,099
28,771
8,057
3,653
507
1,478
—
—
739
(8,989)
(7,305)
(515)
2,677
(2,966)
(1,782)
(22,141)
(24,637)
85,524
(16,881)
—
44,006
—
(899)
—
1,816
(12,201)
4,225
(7,059)
(361)
14,445
43,654
$
$
84,310 $
58,099 $
6,376 $
395
1,427
4,270 $
192
272
50,199
28,078
7,534
2,907
759
2,482
(184,800)
82,300
1,607
(10,087)
(4,274)
(700)
4,710
8,271
(2,766)
(13,780)
(173,105)
206,362
(9,753)
—
23,504
5,000
(5,816)
(1,171)
8,175
(18,011)
4,181
(7,642)
(372)
1,710
41,944
43,654
4,223
190
1,552
See accompanying notes to consolidated financial statements.
50
Table of Contents
ATRICURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In Thousands, Except Per Share Amounts)
CAK
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of the Business—The “Company” or “AtriCure” consists of AtriCure, Inc. and its wholly-owned subsidiaries. The Company is a leading
innovator in surgical treatments and therapies for atrial fibrillation (Afib), left atrial appendage (LAA) management and post-operative pain management,
and sells its products to medical centers globally through its direct sales force and distributors.
Principles of Consolidation—The Consolidated Financial Statements include the accounts of AtriCure, Inc. and its wholly-owned subsidiaries. All
intercompany accounts and transactions have been eliminated in consolidation.
Cash and Cash Equivalents—The Company considers highly liquid investments with maturities of three months or less at the date of purchase as
cash equivalents. Cash equivalents include demand deposits and money market funds with financial institutions.
Investments—The Company invests primarily in government and agency obligations, corporate bonds, commercial paper and asset-backed securities
and classifies all investments as available-for-sale. Investments maturing in less than one year are classified as short-term investments. Investments are
recorded at fair value, with unrealized gains and losses recorded as accumulated other comprehensive income (loss). Gains and losses are recognized using
the specific identification method when securities are sold and are included in interest income.
Revenue Recognition—Revenue is generated primarily from the sale of medical devices. Sales of devices are categorized based on the type of
product as follows: open ablation, minimally invasive ablation, pain management and appendage management. The Company recognizes revenue when
control of promised devices is transferred to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for
those devices. Revenue is recognized at a point in time upon shipment or delivery of products. Shipping and handling activities performed after control
transfers to customers are considered activities to fulfill the promise to transfer the products. Revenue includes shipping and handling revenue of $1,860,
$1,496 and $1,354 in the years ended December 31, 2023, 2022 and 2021.
Products are sold primarily through a direct sales force and through distributors in certain international markets. Terms of sale are generally
consistent for both end-users and distributors, except that payment terms are generally net 30 days for end-users and net 60 days for distributors, with some
exceptions. The Company does not maintain any post-shipping obligations to customers; no installation, calibration or testing of products is performed
subsequent to shipment in order to render products operational. The Company expects to be entitled to the total consideration for the products ordered as
product pricing is fixed, and there are no adjustments for a significant financing component as payment terms fall within one year. The Company excludes
taxes assessed by governmental authorities on revenue-producing transactions from the measurement of the transaction price.
Costs associated with product sales include commission expense for product sales and royalties paid for sales of certain products. As revenue from
product sales are satisfied at a point in time, commission expense and royalties are incurred at that point in time rather than over time. Commissions are
included in selling, general and administrative expenses, while royalties are included in cost of revenue.
Significant judgments and estimates involved in the Company’s recognition of revenue include the estimation of a provision for returns. In the
normal course of business, the Company is not obligated to accept product returns unless a product is defective as manufactured. The Company does not
provide customers with the right to a refund.
Sales Returns and Allowances—The Company maintains a provision for potential returns of defective or damaged products, and invoice
adjustments. The Company adjusts the provision using the expected value method based on historical experience. Increases to the provision reduce
revenue, and the provision is included in accrued liabilities.
Allowance for Credit Losses on Accounts Receivable—The Company evaluates expected credit losses on accounts receivable, considering historical
credit losses, current customer-specific information and other relevant factors when determining the allowance. An increase to the allowance for credit
losses results in a corresponding increase in selling, general and administrative expenses. The Company charges off uncollectible receivables against the
allowance when all attempts to collect the receivable have failed. The Company’s history of write-offs has not been significant. Recoveries are recognized
when received as a reduction to the allowance for credit losses by decreasing bad debt expense. The following
51
Table of Contents
ATRICURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In Thousands, Except Per Share Amounts)
table provides a reconciliation of the changes in the allowance for estimated accounts receivable credit losses for the years ended December 31, 2023, 2022
and 2021:
Beginning balance - January 1
Provision for expected credit losses
Recovery
Ending balance - December 31
Year Ended December 31,
2023
2022
2021
$
$
230 $
270
—
500 $
1,096 $
190
(1,056)
230 $
1,096
65
(65)
1,096
Concentration of Credit Risk and Significant Customers — During 2023, 2022 and 2021, 8.8%, 9.7% and 10.5% of the Company’s total revenue
was derived from its top ten customers. During 2023, 2022 and 2021 no individual customer accounted for more than 10% of the Company’s revenue. As
of December 31, 2023 and 2022, 11.3% and 11.7% of the Company’s total accounts receivable were derived from its top ten customers. No individual
customer accounted for more than 10% of the Company’s accounts receivable as of December 31, 2023 and 2022.
Inventories—Inventories are stated at the lower of cost or net realizable value based on the first-in, first-out cost method (FIFO) and consist of raw
materials, work in process and finished goods. The Company’s industry is characterized by rapid product development and frequent new product
introductions. Uncertain timing of regulatory approvals, variability in product launch strategies and variation in product sales all impact inventory reserves
for excess, obsolete and expired products. An increase to inventory reserves results in a corresponding increase in cost of revenue. Inventories are written
off against the reserve when they are physically disposed.
Property and Equipment—Property and equipment is stated at cost less accumulated depreciation. Depreciation is determined using the straight-line
method over the estimated useful life. The estimated useful life of leasehold improvements is the shorter of the estimated life or the lease term. The
estimated useful lives of buildings is 15 to 20 years, while furniture, fixtures, computers and office equipment are depreciated from three to seven years.
The Company’s radiofrequency and cryothermic generators are generally placed with customers that purchase the Company’s disposable products. The
estimated useful lives of generators are based on anticipated usage by customers and may change in future periods with changes in usage or introduction of
new technology. Depreciation related to generators is recorded in cost of revenue over three years. Maintenance and repair costs are expensed as incurred.
The Company assesses the useful lives of property and equipment at least annually and retires assets no longer in use.
Intangible Assets—Technology intangible assets with determinable useful lives are amortized on a straight-line basis over the estimated fifteen year
period benefited. Patent intangible assets with determinable useful lives are amortized over the estimated useful life of five years in a pattern reflecting the
estimated economic benefit of the asset to the Company. Amortization of technology intangible assets is recorded in research and development expense,
while amortization of patent intangible assets is recorded in cost of revenue. The Company reviews intangible assets for impairment at least annually or
more often if impairment indicators are present using its best estimates based on reasonable and supportable assumptions and projections.
Goodwill—Goodwill represents the excess of purchase price over the fair value of the net assets acquired in business combinations. The Company’s
goodwill is accounted for in a single reporting unit representing the Company as a whole. The Company performs impairment testing annually on October
1 or more often if impairment indicators are present.
Long-lived Assets—The Company reviews property and equipment and intangible assets, excluding goodwill, for impairment whenever events or
changes in circumstances indicate the carrying amount of an asset may not be recoverable. When such an event occurs, management determines whether
there has been impairment by comparing the anticipated undiscounted future net cash flows to the related asset's carrying value.
Leases—The Company leases office, manufacturing and warehouse facilities and automobiles under leases that qualify as either financing or
operating leases, as determined at the inception of the lease arrangement. Lease assets represent the right to use an underlying asset for the lease term, and
lease liabilities represent the obligation to make payments under the lease. Lease assets and liabilities are measured and recorded at the commencement
date based on the present value of payments over the lease term.
52
Table of Contents
ATRICURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In Thousands, Except Per Share Amounts)
Lease assets and liabilities include lease incentives and options to extend or terminate when it is reasonably certain the Company will exercise that
option. The Company uses the implicit rate when readily determinable; however, as most leases do not provide an implicit rate, the Company generally
uses its incremental borrowing rate. The Company also applies the short-term lease recognition exemption, recognizing lease payments in profit or loss, for
lease terms of 12 months or less at commencement and with no option to extend the lease whose exercise is reasonably certain. The Company accounts for
the lease and non-lease components as a single lease component. Additionally, the portfolio approach is applied for operating leases based on the terms of
the underlying leases.
Operating leases are included in operating lease right-of-use (ROU) assets and operating lease liabilities, while finance leases are included in
property and equipment and finance lease liabilities. The short-term portions of lease liabilities are included in other current liabilities and current
maturities of debt and leases. Operating lease expense is recognized on a straight-line basis over the lease term. See Note 9 – Leases for further discussion.
Other Income (Expense)—Other income (expense) consists primarily of foreign currency transaction gains and losses generated by settlements of
intercompany balances denominated in Euros and customer invoices transacted in British Pounds, Australian Dollars and Canadian Dollars.
Income Taxes—Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the
financial statement carrying amounts of assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred income
tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred income tax assets and liabilities from a change in tax rates is recognized in the period that
includes the enactment date.
The Company’s estimate of the valuation allowance for deferred income tax assets requires significant estimates and judgments about future
operating results. Deferred income tax assets are reduced by valuation allowances if, based on the consideration of all available evidence, it is more-likely-
than-not that a deferred income tax asset will not be realized. Significant weight is given to evidence that can be objectively verified. The Company
evaluates deferred income tax assets on an annual basis to determine if valuation allowances are required by considering all available evidence. Deferred
income tax assets are realized by having sufficient future taxable income to allow the related tax benefits to reduce taxes otherwise payable. The sources of
taxable income that may be available to realize the benefit of deferred income tax assets are future taxable income, future reversals of existing taxable
temporary differences, taxable income in prior carryforward years and tax planning strategies that are both prudent and feasible. In evaluating the need for
a valuation allowance, the existence of cumulative losses in recent years is significant objectively-verifiable negative evidence that must be overcome by
objectively-verifiable positive evidence to avoid the need for a valuation allowance. The Company's valuation allowance offsets substantially all net
deferred income tax assets as it is more-likely-than-not that the benefit of the deferred income tax assets will not be recognized in future periods. The
Company has not reclassified income tax effects of the Tax Cuts and Jobs Act within accumulated other comprehensive (loss) income to retained earnings
due to its full valuation allowance.
Earnings Per Share—Basic earnings per share is computed by dividing net (loss) income available to common stockholders by the weighted
average number of shares of common stock outstanding during the period. Diluted earnings per share reflects net income available to common stockholders
divided by the weighted average number of common shares outstanding during the period and any dilutive common share equivalents, including shares
issuable upon the vesting of restricted stock awards and restricted stock units, exercise of stock options as well as shares issuable under the Company's
employee stock purchase plan (ESPP).
53
Table of Contents
ATRICURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In Thousands, Except Per Share Amounts)
Net (loss) income available to common stockholders
Basic weighted average common shares outstanding
Effect of dilutive securities
Diluted weighted average common shares outstanding
Basic net (loss) income per common share
Diluted net (loss) income per common share
Year Ended December 31,
2023
2022
2021
(30,438) $
(46,466) $
46,309
—
46,309
(0.66) $
(0.66) $
45,740
—
45,740
(1.02) $
(1.02) $
50,199
45,066
973
46,039
1.11
1.09
$
$
$
For the years ended December 31, 2023 and 2022, the number of shares calculated for basic net loss per share is also used for the diluted net loss per
share calculation, and net loss per share excludes the effect of 1,668 and 1,292 shares because the effect would be anti-dilutive. The computation of diluted
earnings per share in the year ended December 31, 2021 excludes 404 shares because the effect would be anti-dilutive.
Research and Development Costs—Research and development costs include compensation and other internal and external costs associated with the
development and research of new and existing products or concepts, preclinical studies, clinical trials and studies, and related regulatory activities, as well
as amortization of technology assets. Research and development costs are expensed as incurred. Clinical trial costs and other development costs incurred by
third parties are expensed as contracted work is performed or over the expected service period.
Advertising Costs—The Company expenses advertising costs as incurred. Advertising expense was $1,695, $1,233 and $907 during the years ended
December 31, 2023, 2022 and 2021.
Share-Based Compensation—The Company recognizes share-based compensation expense for all share-based payment awards, including stock
options, restricted stock awards, restricted stock units, performance share awards (PSAs) and stock purchases related to an employee stock purchase plan,
based on estimated fair values. The value of the portion of an award that is ultimately expected to vest is recognized as expense over the service period.
Prior to January 1, 2023, the Company estimated forfeitures at the time of grant and revised them, as necessary, in subsequent periods as actual forfeitures
differ from those estimates. Effective January 1, 2023, the Company's policy was amended to account for forfeitures as they occur rather than estimating at
the time of grant, and the effect on income from continuing operations and retained earnings is not significant.
The Company estimates the fair value of time-based options on the date of grant using the Black-Scholes option-pricing model (Black-Scholes
model). The Company’s determination of the fair value is affected by the Company’s stock price as well as several subjective assumptions, such as the
Company’s expected stock price volatility over the term of the awards and actual and projected employee stock option exercise behaviors. The Company
estimates the fair value of restricted stock awards and restricted stock units based upon the grant date closing market price of the Company’s common
stock.
The Company estimates the fair value of PSAs with a performance condition based on the closing stock price on the date of grant assuming the
performance target will be achieved and may adjust expense over the performance period based on changes to estimates of performance target
achievement. If such targets are not met or service is not rendered for the requisite service period, no compensation cost is recognized, and any recognized
compensation cost in prior periods will be reversed. For PSAs with a market condition, a Monte Carlo simulation is performed to estimate the fair value on
the date of grant, and compensation cost is recognized over the requisite service period as the employee renders service, even if the market condition is not
satisfied. The Company’s determination of the fair value is affected by the Company and market index stock performance, as defined by the award
agreement, at the beginning of the service period and grant date; the expected volatility of the Company and market index stock performance over the
performance period and the correlation coefficient of the daily returns for the Company and market index over the performance period.
The Company also has an employee stock purchase plan (ESPP) covering substantially all U.S. employees of the Company. Under the ESPP, shares
of the Company’s common stock may be purchased at a discount. The Company estimates the number of shares to be purchased under the ESPP at the
beginning of each purchase period based upon the
54
Table of Contents
ATRICURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In Thousands, Except Per Share Amounts)
fair value of the stock at the beginning of the purchase period using the Black-Scholes model and records estimated compensation expense during the
purchase period. Expense is adjusted at the time of stock purchase.
Use of Estimates—The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of
America (GAAP) requires estimates and assumptions that affect the reported amounts of assets and liabilities, including intangible assets, contingent assets
and liabilities and the reported amounts of revenue and expense during the reporting period. Estimates are based on historical experience, where applicable,
and other assumptions believed to be reasonable by management. Actual results could differ from those estimates.
Segments—The Company evaluates reporting segments in accordance with FASB ASC 280, “Segment Reporting”. The Company develops,
manufactures and sells devices designed primarily for the surgical ablation of cardiac tissue, systems designed for the exclusion of the left atrial appendage
and devices designed to block pain by temporarily ablating peripheral nerves. These devices are developed and marketed to a broad base of medical centers
globally. Management considers all such sales to be part of a single operating segment. The chief operating decision maker for the Company is the Chief
Executive Officer. The Chief Executive Officer reviews financial information presented on a consolidated basis, accompanied only by information about
revenue by product type and geographic area, for purposes of allocating resources and evaluating financial performance. Accordingly, the Company has
determined that it has a single operating segment. The Company’s long-lived assets are located in the United States, except for $3,432 as of December 31,
2023 and $1,616 as of December 31, 2022 located primarily in Europe.
Fair Value Disclosures—The Company classifies cash investments in U.S. government and agency obligations, accounts receivable, other current
assets, and accounts payable as Level 1. The carrying amounts of these assets and liabilities approximate their fair value due to their relatively short-term
nature. Cash equivalents and investments in corporate bonds, commercial paper and asset-backed securities are classified as Level 2 within the fair value
hierarchy. The fair value of fixed term debt is estimated by calculating the net present value of future debt payments at current market interest rates and is
classified as Level 2. The book value of the Company’s fixed term debt approximates its fair value because the interest rate varies with market rates.
Significant unobservable inputs with respect to the fair value measurements of the Level 3 contingent consideration liabilities are developed using
Company data. See Note 2 – Fair Value for further information on fair value measurements.
Recent Accounting Pronouncements—In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to
Reportable Segment Disclosures”. This guidance provides new segment disclosure requirements for entities with a single reportable segment and modifies
certain reportable segment disclosure requirements. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods
within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is in the process of assessing the impact of the
adoption of this guidance; however, adoption is not expected to have a material impact on the Company’s consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”. This guidance requires
disclosure of specific categories in the rate reconciliation and provide additional information for reconciling items that meet a specified quantitative
threshold. The guidance is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is in the process of
assessing the impact of the adoption of this guidance; however, adoption is not expected to have a material impact on the Company’s consolidated financial
statements.
2. FAIR VALUE
FASB ASC 820, “Fair Value Measurements and Disclosures”, defines fair value as the exchange price that would be received for an asset or paid to
transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants
on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of
unobservable inputs. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable,
that may be used to measure fair value:
•
Level 1—Quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. An
active market for the asset or liability is a market in which transactions for the asset or
55
Table of Contents
ATRICURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In Thousands, Except Per Share Amounts)
liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. The valuation under this approach does not
entail a significant degree of judgment.
•
•
Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices
in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the
assets or liabilities. The valuation technique for the Company’s Level 2 assets is based on quoted market prices for similar assets from observable
pricing sources at the reporting date.
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Unobservable inputs shall be used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which
there is little, if any, market activity for the asset or liability at the measurement date.
The following table represents the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as
of December 31, 2023:
Assets:
Money market funds
Government and agency obligations
Corporate bonds
Asset-backed securities
Total assets
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Other
Unobservable
Inputs
(Level 3)
$
$
— $
12,711
—
—
12,711 $
77,864 $
—
38,033
2,231
118,128 $
Total
77,864
12,711
38,033
2,231
130,839
— $
—
—
—
— $
The following table represents the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as
of December 31, 2022:
Assets:
Money market funds
Commercial paper
Government and agency obligations
Corporate bonds
Asset-backed securities
Total assets
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Other
Unobservable
Inputs
(Level 3)
$
$
— $
—
32,637
—
—
32,637 $
54,414 $
11,935
—
67,598
2,353
136,300 $
Total
54,414
11,935
32,637
67,598
2,353
168,937
— $
—
—
—
—
— $
There were no changes in the levels or methodology of measurement of financial assets and liabilities during the years ended December 31, 2023 and
2022.
Contingent Consideration. The Company's contingent consideration arrangements arising from the SentreHEART acquisition obligate the Company
to pay certain defined amounts to former shareholders of SentreHEART if specified milestones are met related to the aMAZE IDE clinical trial, including
PMA approval and reimbursement for the therapy involving SentreHEART's devices. The achievement periods for the PMA approval and reimbursement
milestones expire on December 31, 2023 and December 31, 2026, respectively. The contingent consideration liabilities are measured by
56
Table of Contents
ATRICURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In Thousands, Except Per Share Amounts)
applying the probability weighted scenario method using unobservable inputs, thus representing a Level 3 measurement within the fair value hierarchy.
During 2021, the Company was informed that data from the aMAZE clinical trial did not achieve statistical superiority, and the Company assessed the
projected probability of payment to be remote. The Company recorded a credit to operating expenses of $184,800 reflecting the change in fair value of the
contingent consideration. The Company continues to assess the projected probability of payment during the contractual achievement periods to be remote,
resulting in no fair value as of December 31, 2023 and 2022.
The following table represents the Company’s Level 3 fair value measurements using significant other unobservable inputs for acquisition-related
contingent consideration for each of the years ended December 31:
Beginning Balance – January 1
Amounts acquired
Changes in fair value of contingent consideration
Ending Balance – December 31
3. INVESTMENTS
Investments as of December 31, 2023 consisted of the following:
Corporate bonds
Government and agency obligations
Asset-backed securities
Total
Investments as of December 31, 2022 consisted of the following:
Corporate bonds
Government and agency obligations
Commercial paper
Asset-backed securities
Total
2023
2022
2021
— $
—
—
— $
— $
—
—
— $
184,800
—
(184,800)
—
Cost Basis
Unrealized
Losses
Fair Value
38,514 $
12,998
2,263
53,775 $
(481) $
(287)
(32)
(800) $
38,033
12,711
2,231
52,975
Cost Basis
Unrealized
Losses
Fair Value
69,832 $
33,971
11,935
2,483
118,221 $
(2,234) $
(1,334)
—
(130)
(3,698) $
67,598
32,637
11,935
2,353
114,523
$
$
$
$
$
$
The gross realized gains or losses from sales of available-for-sale investments were not material in the years ended December 31, 2023, 2022 and
2021.
The cost and fair value of investments in debt securities, by contractual maturity, as of December 31, 2023 were as follows:
Due in 1 year or less
Instruments not due at a single maturity date
Total
Available-for-sale
Amortized Cost
Fair Value
$
$
51,512 $
2,263
53,775 $
50,744
2,231
52,975
Instruments not due at a single maturity date consist of asset-backed securities. Actual maturities may differ from the contractual maturities due to
call or prepayment rights.
57
Table of Contents
ATRICURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In Thousands, Except Per Share Amounts)
4. INTANGIBLE ASSETS AND GOODWILL
The following table provides a summary of the Company’s intangible assets at December 31:
Technology
Patents
Total
2023
2022
Cost
Accumulated
Amortization
Cost
Accumulated
Amortization
$
$
46,470 $
30,000
76,470 $
10,084 $
2,400 $
12,484 $
46,470 $
— $
46,470 $
7,131
—
7,131
In May 2023, the Company acquired patents that are amortizable over an estimated useful life of five years, in a pattern reflecting the estimated
economic benefit of the patents to the Company. See Note 10 – Commitments and Contingencies for further information on the patent acquisition. During
2021, the Company recorded an impairment charge of $82,300 to reduce the carrying value of the aMAZE IPR&D asset to $0 as of December 31, 2021
resulting from the aMAZE clinical trial not achieving statistical superiority.
Amortization expense of intangible assets was $5,353, $3,653 and $2,907 for the years ended December 31, 2023, 2022 and 2021. The following
table summarizes the allocation of amortization expense of intangible assets:
2023
2022
2021
Cost of revenues
Selling, general and administrative expenses
Total
Future amortization expense is projected as follows:
$
$
2,400 $
2,953
5,353 $
— $
3,653
3,653 $
2024
2025
2026
2027
2028
2029 and thereafter
Total
$
$
The following table provides a summary of the Company’s goodwill, which is not amortized, but rather tested annually for impairment:
Net carrying amount as of December 31, 2021
Additions (Impairment)
Net carrying amount as of December 31, 2022
Additions (Impairment)
Net carrying amount as of December 31, 2023
$
$
58
—
2,907
2,907
7,453
8,353
9,553
10,453
6,553
21,621
63,986
234,781
—
234,781
—
234,781
Table of Contents
ATRICURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In Thousands, Except Per Share Amounts)
5. INVENTORIES
Inventories consisted of the following at December 31:
Raw materials
Work in process
Finished goods
Inventories
6. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31:
Buildings and improvements
Generators
Machinery and office equipment
Computer equipment and software
Construction in progress
Land
Total
Less accumulated depreciation
Property and equipment, net
2023
2022
36,751 $
3,582
27,564
67,897 $
19,880
2,959
23,092
45,931
2023
2022
29,193 $
23,407
24,076
9,845
7,332
1,006
94,859
(52,424)
42,435 $
28,947
21,354
20,184
10,251
3,909
1,006
85,651
(46,818)
38,833
$
$
$
$
Property and equipment depreciation expense was $9,460, $8,057 and $7,534 for the years ended December 31, 2023, 2022 and 2021. As of
December 31, 2023 and 2022, the net carrying value of generators was $4,912 and $4,447.
7. ACCRUED LIABILITIES
Accrued liabilities consisted of the following at December 31:
Accrued compensation and employee-related expenses
Other accrued liabilities
Sales returns and allowances
Total
8. INDEBTEDNESS
2023
2022
$
$
39,425 $
2,503
2,754
44,682 $
26,924
3,301
2,797
33,022
SVB Loan Agreement. As of December 31, 2023, the Company has a Loan and Security Agreement, as amended and modified effective February 8,
2021 and as further amended November 1, 2021 with Silicon Valley Bank (SVB) (SVB Loan Agreement). The SVB Loan Agreement includes a $60,000
term loan, with an option to make available an additional $30,000 in term loan borrowings, and a $30,000 revolving line of credit. The SVB Loan
Agreement has a five-year term, expiring November 2026.
Principal payments under the SVB Loan Agreement are to be made ratably commencing 24 months after inception through the loan's maturity date.
In November 2023, the Company exercised its option to extend the commencement of term loan principal payments for an additional twelve months. The
term loan accrues interest at the Prime Rate plus 1.25% and is subject to an additional 3.00% fee on the term loan principal amount at maturity. The
Company is accruing the 3.00% fee over the term of the SVB Loan Agreement, with $780 included in the outstanding loan balance as of December 31,
2023. Additionally, the unamortized financing costs related to the term loan of $187 are netted against the
59
Table of Contents
ATRICURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In Thousands, Except Per Share Amounts)
outstanding loan balance in the Consolidated Balance Sheets and are amortized ratably over the term of the SVB Loan Agreement.
The revolving line of credit is subject to an annual facility fee of 0.20% of the revolving line of credit, and any borrowings thereunder bear interest at
the Prime Rate. Borrowing availability under the revolving credit facility is based on the lesser of $30,000 or a borrowing base calculation as defined by the
SVB Loan Agreement. Financing costs related to the revolving line of credit are included in other assets in the Consolidated Balance Sheets and amortized
ratably over the twelve-month period of the annual fee. As of December 31, 2023, the Company had no borrowings under the revolving credit facility and
had borrowing availability of approximately $28,750.
The SVB Loan Agreement also provides for certain prepayment and early termination fees, as well as establishes a minimum liquidity covenant and
dividend restrictions, along with other customary terms and conditions. Specified assets have been pledged as collateral.
New Credit Agreement. On January 5, 2024, the Company entered into an asset-based credit agreement (Credit Agreement) among the Borrowers,
JPMorgan Chase Bank, N.A., as administrative agent, and JPMorgan Chase Bank, N.A., as bookrunner and lead arranger (JPMCB), and Silicon Valley
Bank, a Division of First-Citizen Bank & Trust Company, as Joint Lead Arrangers and Joint Bookrunners, and the lenders party thereto (Lenders). The
Credit Agreement provides for an asset based revolving credit facility (ABL Facility) in an amount of up to $125,000. The Company may request an
increase in the revolving commitment by up to $40,000 (not to exceed a total of $165,000). Borrowing availability under the ABL Facility is based on the
lesser of $125,000 or a borrowing base calculation as defined by the Credit Agreement. A portion of the ABL Facility, limited to $5,000, is available for the
issuance of letters of credit by JPMCB or other financial institutions. JPMCB in its sole discretion, may create swingline loans by advancing floating rate
revolving loans requested. Any such swingline loans will reduce availability under the ABL Facility on a dollar-for-dollar basis. The Credit Agreement has
a three-year term, expiring January 5, 2027.
The ABL facility is subject to a facility fee of 0.37% per annum of the daily available revolving commitment and paid on a quarterly basis.
Outstanding amounts under the Credit Agreement bear interest at a rate per annum equal to, at the Company's election: (i) an alternate base rate (ABR) plus
an applicable margin or (ii) an adjusted term secured overnight financing rate (SOFR) plus an applicable margin. All swingline loans bear interest at a rate
per annum equal to the ABR plus the applicable margin under the Credit Agreement. Alternate base rate is equal to the greatest of Prime, the NYFRB Rate
plus 0.50% and Adjusted Term SOFR Rate plus 1.00%. The applicable margin on borrowings will adjust ranging 1.50% to 1.75% per annum for ABR
borrowings and from 2.50% to 2.75% per annum for SOFR term borrowings determined by the average historical excess availability. Participation and
fronting fees are accrued and paid on a quarterly basis. At time of closing, the Company borrowed $61,865 and had $61,885 of available borrowing
capacity under the ABL facility. The proceeds of the ABL Facility were used to terminate the Company’s indebtedness under the SVB Loan Agreement.
The SVB Loan Agreement terminated on January 5, 2024 and was treated as a debt extinguishment. Certain prepayment and early termination fees under
the SVB Loan Agreement were waived at termination. The resulting loss on debt extinguishment in 2024 is not significant. As a result of the new Credit
Agreement, borrowings outstanding under the existing SVB Loan Agreement have been classified as long-term in the Consolidated Balance Sheet as of
December 31, 2023.
Outstanding borrowings are due upon maturity of the Credit Agreement in January 5, 2027. Through January 2025, the Company's required
minimum utilization of the ABL facility is 40% of the aggregate revolving commitment or $50,000. Subject to customary exceptions and restrictions, the
Company may voluntarily prepay outstanding amounts under the ABL Facility at any time thereafter without premium or penalty. Any voluntary
prepayments made will not reduce commitments under the ABL Facility. The Credit Agreement contains mandatory prepayment provisions which require
prepayment of amounts outstanding under the ABL Facility upon specified events or shortfall.
The ABL Facility is secured by the assets of the Company, whether consisting of personal, tangible or intangible property, including specified all of
the outstanding equity interests of the Company’s direct subsidiaries, subject to limitations specified in the Credit Agreement. The Credit Agreement
contains customary representations and warranties, events of default and financial, affirmative and negative covenants for facilities of this type, including
but not limited to financial covenants relating to a fixed charge coverage ratio, a minimum liquidity requirement and a minimum excess availability
requirement, and restrictions on indebtedness, liens, investments and acquisitions, asset dispositions, specified agreements, restricted payments and
prepayment of certain indebtedness.
60
Table of Contents
ATRICURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In Thousands, Except Per Share Amounts)
Future maturities of debt, after consideration of the new Credit Agreement on January 5, 2024, are projected as follows:
2024
2025
2026
2027
2028
Total long-term debt, of which $0 is current and $61,865 is noncurrent
9. LEASES
$
$
—
—
—
61,865
—
61,865
The Company has operating and finance leases for office, manufacturing and warehouse facilities and automobiles. The Company’s leases have
remaining lease terms of one to nine years. Options to renew or extend leases beyond their initial term have been excluded from measurement of the ROU
assets and lease liabilities as exercise is not reasonably certain.
The weighted average remaining lease term and the discount rate for the reporting periods are as follows:
Operating Leases
Weighted average remaining lease term (years)
Weighted average discount rate
Finance Leases
Weighted average remaining lease term (years)
Weighted average discount rate
As of
As of
As of
December 31, 2023
December 31, 2022
December 31, 2021
4.8
5.75 %
6.7
6.93 %
4.4
4.60 %
7.6
6.92 %
3.6
4.69 %
8.6
6.91 %
A letter of credit for $1,250 was issued to the lessor of the Company's corporate headquarters building at inception of the lease and is renewed
annually and remains outstanding as of December 31, 2023.
The components of lease expense are as follows:
Operating lease cost
Finance lease cost:
Amortization of right-of-use assets
Interest on lease liabilities
Total finance lease cost
Year Ended
Year Ended
Year Ended
December 31, 2023
December 31, 2022
December 31, 2021
1,284 $
1,133 $
1,052
1,020
673
1,693 $
1,016
735
1,751 $
1,019
792
1,811
$
$
Short term lease expense was not significant for the twelve months ended December 31, 2023, 2022 and 2021.
61
Table of Contents
ATRICURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In Thousands, Except Per Share Amounts)
Supplemental cash flow information related to leases was as follows:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases
Operating cash flows for finance leases
Financing cash flows for finance leases
$
Right-of-use assets obtained in exchange for lease obligations:
Operating Leases
Finance Leases
Supplemental balance sheet information related to leases was as follows:
Operating Leases
Operating lease right-of-use assets
Other current liabilities and current maturities of debt and leases
Operating lease liabilities
Total operating lease liabilities
Finance Leases
Property and equipment, at cost
Accumulated depreciation
Property and equipment, net
Other current liabilities and current maturities of debt and leases
Finance lease liabilities
Total finance lease liabilities
Maturities of lease liabilities as of December 31, 2023 were as follows:
Year Ended
Year Ended
Year Ended
December 31, 2023
December 31, 2022
December 31, 2021
1,235 $
673
992
1,509
—
845 $
735
899
—
62
998
620
792
3,752
—
As of December 31, 2023
As of December 31, 2022
$
$
$
$
$
$
4,324 $
1,447
3,307
4,754 $
14,620 $
(8,105)
6,515 $
1,086 $
8,061
9,147 $
3,787
1,147
3,095
4,242
14,645
(7,109)
7,536
992
9,147
10,139
2024
2025
2026
2027
2028
2029 and thereafter
Total payments
Less imputed interest
Total lease liabilities
Operating Leases
Finance Leases
$
$
$
1,449 $
1,188
848
842
458
767
5,552 $
(798)
4,754 $
1,689
1,638
1,671
1,703
1,725
3,099
11,525
(2,378)
9,147
62
Table of Contents
ATRICURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In Thousands, Except Per Share Amounts)
10. COMMITMENTS AND CONTINGENCIES
License Agreements. The Company had been party to a license agreement that required payments of 5% of specified product sales. In May 2023, the
Company entered into an agreement that terminated the license agreement and the Company's obligations to make royalty payments. See Legal section
below for additional information. Royalty expense was $1,333, $3,264 and $3,124 for the years ended December 31, 2023, 2022 and 2021.
Purchase Agreements. The Company enters into standard purchase agreements with suppliers in the ordinary course of business, generally with
terms that allow cancellation.
Legal. The Company may, from time to time, become a party to legal proceedings. Such matters are subject to many uncertainties and to outcomes of
which the financial impacts are not predictable with assurance and that may not be known for extended periods of time. A liability is established once
management determines a loss is probable and an amount can be reasonably estimated. The Company recognizes income from a favorable resolution of
legal proceedings when the associated cash or assets are received.
The Company received a Civil Investigative Demand (CID) from the U.S. Department of Justice (USDOJ) in December 2017 stating that it is
investigating the Company to determine whether the Company has violated the False Claims Act, relating to the promotion of certain medical devices
related to the treatment of atrial fibrillation for off-label use and submitted or caused to be submitted false claims to certain federal and state health care
programs for medically unnecessary healthcare services related to the treatment of atrial fibrillation. The CID covers the period from January 2010 to
December 2017 and required the production of documents and answers to written interrogatories. The Company had no knowledge of the investigation
prior to receipt of the CID. The Company maintains rigorous policies and procedures to promote compliance with the False Claims Act and other
applicable regulatory requirements. The Company provided the USDOJ with documents and answers to the written interrogatories. In March 2021, USDOJ
informed the Company that its investigation was based on a lawsuit brought on behalf of the United States and various state and local governments under
the qui tam provisions of federal and certain state and local False Claims Acts. Although the USDOJ and all of the state and local governments declined to
intervene, the relator continues to pursue the case. During the third quarter of 2022, the relator filed a Fourth Amended Complaint, which dropped
allegations of off-label promotion and alleges that the Company paid illegal kickbacks to healthcare providers in exchange for using or referring the
Company’s products, in violation of the federal Anti-Kickback Statute and various comparable state and local laws. While the Company is contesting the
case, it is not possible to predict when this matter may be resolved or what impact, if any, the outcome of this matter might have on our consolidated
financial position, results of operations or cash flows.
On August 23, 2022, the Cleveland Clinic Foundation (Clinic) and IDx Medical, Ltd. (IDx) filed a Demand for Arbitration against the Company with
the American Arbitration Association (AAA), alleging that the Company breached certain provisions of the License Agreement dated December 9, 2003,
among the Company, Clinic and IDx (License Agreement). Clinic and IDx allege the Company did not include the revenues from sales of certain products
in its calculation of royalty payments due under the License Agreement, and that the Company did not provide related notices required under the License
Agreement. The Company filed its Answering Statement and Counterclaims to the allegations in September 2022, denying each claim and counterclaiming
for breach of contract, correction of inventorship, declaratory judgment, patent prosecution and legal fees. In May 2023, the Company entered into an
Assignment and Agreement Regarding IDx and CCF Intellectual Property (Assignment Agreement) with Clinic and IDx. Pursuant to the Assignment
Agreement, during the second quarter of 2023, the Company made a one-time payment of $33,400 to Clinic and IDx for the acquisition of patents and
other intellectual property. The Assignment Agreement also required dismissal of the arbitration and release of payment for royalty obligations due to
Clinic and IDx under the License Agreement after March 31, 2023. The amount paid, together with transaction costs, was allocated between the acquired
intangible asset, the release of payment for royalty obligations and the settlement of the dispute. The intangible asset was assigned a value of $30,000 and
is being amortized over an estimated useful life of 5 years. The release of the royalty obligations was valued at $432. The remaining $3,088 was allocated
to the settlement and is included in selling, general and administrative expenses for the twelve months ended December 31, 2023.
During the first quarter of 2023, the Company entered into a legal settlement of $7,500 in connection with the settlement of claims filed against a
competitor. The Company recorded a $7,500 gain for the twelve months ended December 31, 2023 for the proceeds received as a reduction to selling,
general and administrative expenses.
63
Table of Contents
11. REVENUE
ATRICURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In Thousands, Except Per Share Amounts)
The Company develops, manufactures and sells devices designed primarily for surgical ablation of cardiac tissue, exclusion of the left atrial
appendage, and temporarily blocking pain by ablating peripheral nerves. These devices are marketed to a broad base of medical centers globally. The
Company recognizes revenue when control of promised goods is transferred to customers in an amount that reflects the consideration the Company expects
to be entitled to in exchange for those goods.
United States revenue by product type is as follows:
Open ablation
Minimally invasive ablation
Pain management
Total ablation
Appendage management
Total United States
International revenue by product type is as follows:
Open ablation
Minimally invasive ablation
Pain management
Total ablation
Appendage management
Total International
Revenue attributed to customer geographic locations is as follows:
United States
Europe
Asia-Pacific
Other International
Total International
Total Revenue
12. INCOME TAXES
2023
2022
2021
105,287 $
44,577
49,199
199,063 $
134,481
333,544 $
86,119 $
38,553
39,974
164,646 $
112,555
277,201 $
72,396
39,380
22,787
134,563
94,568
229,131
2023
2022
2021
31,483 $
6,670
2,013
40,166 $
25,535
65,701 $
26,809 $
5,986
558
33,353 $
19,825
53,178 $
23,194
6,409
61
29,664
15,534
45,198
2023
2022
2021
333,544 $
277,201 $
229,131
38,469
24,526
2,706
65,701
399,245 $
30,428
20,734
2,016
53,178
330,379 $
27,931
16,077
1,190
45,198
274,329
$
$
$
$
$
$
$
$
The Company files federal, state and foreign income tax returns in jurisdictions with varying statutes of limitations. The Company uses the asset and
liability method in accordance with FASB ASC 740, “Income Taxes”, under which deferred income taxes are provided for the temporary differences
between the financial reporting basis and the tax basis of the Company’s assets and liabilities. Deferred taxes are measured using provisions of currently
enacted tax laws. A valuation allowance against deferred tax assets is recorded when it is more likely than not that such assets will not be fully realized.
The Company's valuation allowance offsets substantially all its net deferred tax assets as it is more likely than not that the benefit of the deferred tax assets
will not be recognized in future periods.
64
Table of Contents
ATRICURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In Thousands, Except Per Share Amounts)
The Company’s provision for income taxes for each of the years ended December 31 is as follows:
2023
2022
2021
Current tax expense
Federal
State
Foreign
Total current tax expense
Deferred tax expense
Federal
State
Foreign
Change in valuation allowance
Total deferred tax expense
Total tax expense
The detail of deferred tax assets and liabilities at December 31 is as follows:
Deferred tax assets:
Net operating loss carryforwards
Research and development credit carryforwards
Research and experimental expenditures
Equity compensation
Finance and operating lease liabilities
Deferred interest
Inventories
Accruals and reserves
Property and equipment
Total deferred tax assets
Deferred tax liabilities:
Intangible assets
Right-of-use assets
Other
Total deferred tax liabilities
Valuation allowance
Net deferred tax assets
$
$
$
— $
389
217
606
(2,972) $
(928)
(3,671)
7,556
(15)
591 $
$
— $
142
118
260
(8,351) $
(459)
(1,636)
10,454
8
268 $
—
42
125
167
(30,925)
(4,803)
(826)
36,575
21
188
2023
2022
129,744 $
15,171
20,193
10,599
3,083
—
2,822
1,131
219
182,962
(8,568)
(2,160)
(444)
(11,172)
(171,766)
138,263
13,205
10,104
8,287
3,395
2,411
1,896
1,332
(2,568)
176,325
(9,278)
(2,626)
506
(11,398)
(164,918)
9
$
24 $
Provisions enacted in the Tax Cut and Jobs Act of 2017 related to the capitalization of research and experimental expenditures for tax purposes
became effective on January 1, 2022. These provisions require the Company to capitalize and amortize research and experimental expenditures for tax
purposes over five or fifteen years, depending on where research is conducted. The Company has federal net operating loss carryforwards of $276,866
which expire between 2024 and 2037 and $175,758 which have no expiration. The Company has state and local net operating loss carryforwards of
$301,639 which expire between 2024 to 2043. A portion of the Company’s federal and state net operating loss carryforwards are subject to certain
limitations under Internal Revenue Code Sections 382 and 383. The Company has federal research and development credit carryforwards of $15,171 which
expire between 2024 and 2043. Additionally, the Company has foreign net operating loss carryforwards of approximately $75,355 which have no
expiration.
65
Table of Contents
ATRICURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In Thousands, Except Per Share Amounts)
The Company’s 2023, 2022 and 2021 effective income tax rates differ from the federal statutory rate as follows:
Federal tax at statutory rate
Permanent differences
Valuation allowance
State income taxes
Federal R&D credit
Foreign income taxes
Federal deferred adjustments
Effective tax rate
2023
21.0 % $
(10.4)
(25.3)
1.8
6.6
3.4
0.9
(2.0)% $
(6,268)
3,092
7,556
(539)
(1,966)
(1,012)
(272)
591
2022
21.0 % $
(1.9)
(22.6)
0.7
4.2
(0.5)
(1.5)
(0.6)% $
(9,701)
876
10,454
(317)
(1,936)
215
677
268
2021
21.0 % $
(80.3)
72.6
(9.4)
(3.7)
0.7
(0.5)
0.4 % $
10,580
(40,439)
36,575
(4,760)
(1,878)
344
(234)
188
The Company’s pre-tax book (loss) income for domestic and international operations was $(17,822) and $(12,025) for 2023, $(38,008) and $(8,190)
for 2022, and $55,666 and $(5,279) for 2021.
The Company had undistributed earnings of foreign subsidiaries of approximately $444 at December 31, 2023. The Company does not consider
these earnings as permanently reinvested and has determined that no current and deferred taxes are required on such amounts.
Federal, state and local tax returns of the Company are routinely subject to examination by various taxing authorities. Federal income tax returns for
periods beginning in 2020 are open for examination. Generally, state and foreign income tax returns for periods beginning in 2019 are open for
examination. However, taxing authorities have the ability to audit net operating loss and tax credit carryforwards from years prior to these periods. The
Company has not recognized certain tax benefits because of the uncertainty of realizing the entire value of the tax position taken on income tax returns
upon review by the taxing authorities.
A reconciliation of the change in federal and state unrecognized tax benefits for 2023, 2022 and 2021 is presented below:
Balance at the beginning of the year
Increases (decreases) for prior year tax positions
Increases (decreases) for current year tax positions
Increases (decreases) related to settlements
Decreases related to statute lapse
Balance at the end of the year
2023
2022
2021
$
$
1,762 $
(90)
—
—
—
1,672 $
1,798 $
(36)
—
—
—
1,762 $
1,798
—
—
—
—
1,798
The balance of unrecognized tax benefits at December 31, 2023, 2022 and 2021 includes $1,672, $1,762 and $1,798 of tax benefits that, if
recognized, would result in adjustments to other tax accounts, primarily deferred taxes and valuation allowance. The Company does not expect that its
unrecognized tax benefits for research credits will significantly change within twelve months of December 31, 2023.
13. EMPLOYEE BENEFIT PLANS
The Company sponsors the AtriCure, Inc. 401(k) Plan (401(k) Plan), a defined contribution plan covering substantially all U.S. employees of the
Company. Eligible employees may contribute pre-tax annual compensation up to specified maximums under the Internal Revenue Code. During the years
ended December 31, 2023 and 2022, the Company matched contributions of 50% on the first 8% of employee contributions to the 401(k) Plan. During the
year ended December 31, 2021, the Company matched contributions of 50% on the first 6% of employee contributions to the 401(k) Plan. The Company’s
matching contributions in 2023, 2022 and 2021 were $4,949, $4,447 and $2,651. Additional amounts may be contributed to the 401(k) Plan at the
discretion of the Company’s Board of Directors; however, no such discretionary contributions were made in 2023, 2022 or 2021. The Company also
provides retirement benefits for
66
Table of Contents
ATRICURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In Thousands, Except Per Share Amounts)
employees of its foreign subsidiaries. Total contributions to foreign retirement plans were $503, $446 and $349 in 2023, 2022 and 2021.
14. EQUITY COMPENSATION PLANS
The Company has two share-based incentive plans: the 2023 Stock Incentive Plan (2023 Plan) and the 2018 Employee Stock Purchase Plan (ESPP).
Stockholders approved the 2023 Plan at the 2023 Annual Meeting of Stockholders. Pursuant to its terms, the 2023 Plan supersedes and replaces the 2014
Stock Incentive Plan (Prior Plan).
Stock Incentive Plan
Under the 2023 Plan, the Board of Directors may grant restricted stock awards or restricted stock units (collectively RSAs), nonstatutory stock
options, performance share awards (PSAs) or stock appreciation rights to Company employees, directors and consultants, and may grant incentive stock
options to Company employees. The Compensation Committee of the Board of Directors, as the administrator of the 2023 Plan, has the authority to
determine the terms of any awards, including the number of shares subject to each award, the exercisability of the awards and the form of consideration. As
of December 31, 2023, 2,287 shares of common stock had been reserved for issuance under the 2023 Plan and 2,238 shares were available for future grants.
The Company issues registered shares of common stock for stock option exercises, restricted stock grants and performance award grants.
The following table summarizes total share-based compensation expense related to employees, directors and consultants for 2023, 2022 and 2021.
The expense was allocated as follows:
Cost of revenue
Research and development expenses
Selling, general and administrative expenses
Total
2023
2022
2021
1,817 $
5,802
28,109
35,728 $
1,868 $
4,544
22,359
28,771 $
2,243
4,206
21,629
28,078
$
$
Performance Share Awards. The award agreements for the PSAs provide that each PSA that vests represents the right to receive one share of the
Company’s common stock at the end of the performance period. The number of shares that vest and are issued to the recipient is based upon the Company’s
performance with respect to specified targets at the end of the three-year performance period. PSAs granted since 2021 have two weighted performance
targets: (i) the Company’s compound annual growth rate (CAGR), a performance condition and (ii) relative total shareholder return (TSR), a market
condition, both measured over the three-year performance period. TSR is measured against the Nasdaq Health Care Index constituents and the 20-trading-
day average stock price prior to the start and end of the performance period. PSAs granted in 2021 have payout opportunities ranging from 0% to 200% of
the target amount, based on equally weighted performance targets. PSAs granted beginning in 2022 have payout opportunities ranging from 0% to 300% of
the target amount. PSAs granted in 2022 are weighted 60% on the CAGR performance target and 40% on the TSR performance target. PSAs granted in
2023 are weighted 75% on the CAGR performance target and 25% on the TSR performance target. These ranges are used to determine the number of
shares that will be issuable when the award vests. The performance and market condition payouts will be determined independently and accumulated to
determine the total payout for the three-year performance period, subject to the maximum payout defined in the PSA agreements. All or a portion of the
PSAs may vest following a change of control or a termination of service by reason of death or disability.
67
Table of Contents
ATRICURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In Thousands, Except Per Share Amounts)
PSA activity at target attainment under the plans during 2023 was as follows:
Performance Share Awards
Outstanding at January 1, 2023
Awarded
Vested
Forfeited
Outstanding at December 31, 2023
Number of Shares
Outstanding
Weighted
Average
Grant Date
Fair Value
213 $
236
(96)
—
353 $
90.70
46.16
89.36
—
61.09
During the year ended December 31, 2023, the 2021 PSAs with a TSR performance target vested at the target threshold, while 2021 PSAs with a
CAGR performance target vested over the target threshold. An additional 43 shares were earned that are excluded from plan activity above. The total fair
value of performance share awards vested during 2023, 2022 and 2021 was $4,955, $5,185 and $8,165.
In determining compensation expense, the fair value of performance share awards with a performance condition is based on the market value of the
Company’s stock on the grant date of the awards. The fair value of performance share awards with a market condition is estimated on the grant date using a
Monte Carlo simulation and includes the following assumptions:
Stock price
Expected term (years)
Company volatility
Market index average volatility
Market index average correlation
Risk-free interest rate
Dividend yield
$
2023
2022
2021
38.81
2.8
44.80%
91.00%
32.20%
4.60%
0.00%
$39.94 - $69.59 $
2.6 to 2.8
43.50 - 46.90%
90.30 - 92.00%
33.50 - 35.40%
1.40 - 2.70%
0.00%
66.31
2.8
42.10%
91.00%
31.50%
0.20%
0.00%
The expected term is estimated as the remaining performance period at the grant date. Expected volatility is estimated based on the Company and
daily trading prices of the market index, adjusted for dividends and stock splits over the remaining performance period. The risk-free interest rate is based
upon the US Constant Maturity yield curve at the time of grant for the expected term of the performance share awards. Based on the assumptions above, the
weighted average estimated grant date fair value per share and expense was as follows:
Weighted average estimated grant date fair value
Expense
2023
2022
2021
$
46.16 $
11,417
91.05 $
8,731
89.36
8,095
As of December 31, 2023, $11,610 of unrecognized compensation costs related to non-vested performance share awards are expected to be
recognized over a weighted-average period of 1.7 years.
68
Table of Contents
ATRICURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In Thousands, Except Per Share Amounts)
Restricted Stock Awards and Units. Restricted stock awards and restricted stock units granted generally vest at a rate of 33.3% on the first, second
and third anniversaries of the grant date. Activity under the plans during 2023 was as follows:
Restricted Stock Awards
Outstanding at January 1, 2023
Awarded
Released
Forfeited
Outstanding at December 31, 2023
RSA
Shares
Outstanding
Weighted
Average
Grant Date
Fair Value
598 $
751
(338)
(29)
982 $
60.00
39.21
54.08
50.25
46.43
The total fair value of restricted stock vested during 2023, 2022 and 2021 was $13,824, $23,242 and $40,510.
In determining compensation expense, the fair value of restricted stock awards and restricted stock units is based on the market value of the
Company’s stock on the grant date of the awards. The weighted average estimated grant date fair value per share and expense was as follows:
Weighted average estimated grant date fair value
Expense
2023
2022
2021
$
39.21 $
21,797
63.14 $
17,621
67.51
17,746
As of December 31, 2023, $28,202 of unrecognized compensation costs related to non-vested performance share are expected to be recognized over
a weighted-average period of 1.9 years.
Stock Options. Stock options granted generally vest at a rate of 33.3% on the first, second and third anniversaries of the grant date and expire ten
years from the date of grant. Activity under the plans during 2023 was as follows:
Time-Based Stock Options
Outstanding at January 1, 2023
Granted
Exercised
Forfeited
Outstanding at December 31, 2023
Vested and expected to vest
Exercisable at December 31, 2023
Number of
Shares
Outstanding
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
481 $
—
(137)
(12)
332 $
332 $
308 $
29.34
—
16.93
64.93
33.20
33.15
30.22
4.0 $
4.0 $
3.7 $
3,584
3,584
3,584
The total intrinsic value of options exercised during the years ended December 31, 2023, 2022 and 2021 was $2,982, $5,565 and $27,318. As a result
of the Company’s full valuation allowance on its net deferred tax assets, no tax benefit was recognized related to the stock option exercises. The exercise
price per share of each option is equal to the fair market value of the underlying share on the date of grant. For 2023, 2022 and 2021, $2,316, $1,816 and
$8,175 in cash proceeds from the exercise of stock options were included in the Consolidated Statements of Cash Flows.
The fair value of options is estimated on the grant date using the Black-Scholes model. No options were granted during 2023 or 2022.
69
Table of Contents
ATRICURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In Thousands, Except Per Share Amounts)
Options granted in 2021 included the following assumptions:
Range of risk-free interest rate
Range of expected life of stock options (years)
Range of expected volatility of stock
Weighted-average volatility
Dividend yield
2021
0.43 - 1.22%
5.3 to 5.7
40.00 - 43.00%
41.84%
0.00%
The Company’s estimate of volatility is based solely on the Company’s stock price over the expected option life. The risk-free interest rate
assumption is based upon the U.S. treasury yield curve at the time of grant for the expected option life. The Company estimates the expected terms of
options using historical employee exercise behavior. Based on the assumptions noted above, the weighted average estimated grant date fair value per share
and expense was as follows:
Weighted average estimated grant date fair value
Expense
2023
2022
2021
$
— $
765
— $
1,012
27.31
981
As of December 31, 2023, $287 of unrecognized compensation costs related to non-vested stock options are expected to be recognized over a
weighted-average period of 0.5 years.
Employee Stock Purchase Plan
Under the ESPP, shares of the Company’s common stock may be purchased at a discount (15%) to the lesser of the closing price of the Company’s
common stock on the first or last trading day of the offering period. The offering period (currently six months) and the offering price are subject to change.
Participants may not purchase more than $25 of the Company’s common stock in a calendar year and may not purchase a value of more than 3 shares
during an offering period. As of December 31, 2023, 782 shares are available for future issuance under the ESPP. ESPP expense was $1,749, $1,407 and
$1,256 for the years ended December 31, 2023, 2022 and 2021.
15. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
In addition to net (loss) income, comprehensive (loss) income includes foreign currency translation adjustments and unrealized losses on
investments. Accumulated other comprehensive income (loss) consisted of the following, net of tax:
Total accumulated other comprehensive (loss) income at beginning of period
Unrealized (losses) gains on investments
Balance at beginning of period
Other comprehensive income (loss) before reclassifications
Amounts reclassified from accumulated other comprehensive income (loss) to interest
income
Balance at end of period
Foreign currency translation adjustment
Balance at beginning of period
Other comprehensive income (loss) before reclassifications
Amounts reclassified from accumulated other comprehensive (loss) income to other
(expense) income
Balance at end of period
Total accumulated other comprehensive loss at end of period
$
$
$
$
$
$
2023
2022
2021
(4,096) $
(948) $
(3,698) $
2,898
—
(800) $
(398) $
154
51
(193) $
(993) $
(887) $
(2,739)
(72)
(3,698) $
(61) $
(774)
437
(398) $
(4,096) $
312
54
(941)
—
(887)
258
(768)
449
(61)
(948)
70
Table of Contents
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of the President and Chief Executive Officer (the Principal Executive Officer) and Chief
Financial Officer (the Principal Accounting and Financial Officer), has evaluated the effectiveness of the Company’s disclosure controls and procedures as
defined in Rule 13(a) – 15(e) of the Securities Exchange Act of 1934 (Exchange Act), as of the end of the period covered by this report. Based on this
evaluation, we concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective in providing
reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SEC’s forms and rules, and the material information relating to the Company is
accumulated and communicated to management, including the President and Chief Executive Officer and Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosures.
Control systems, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that control objectives are met.
Because of inherent limitations in all control systems, no evaluation of controls can provide assurance that all control issues and instances of fraud, if any,
within a company will be detected. Additionally, controls can be circumvented by individuals, by collusion of two or more people or by management
override. Over time, controls can become inadequate because of changes in conditions or the degree of compliance may deteriorate. Further, the design of
any system of controls is based in part upon assumptions about the likelihood of future events. There can be no assurance that any design will succeed in
achieving its stated goals under all future conditions. Because of the inherent limitations in any cost-effective control system, misstatements due to errors or
fraud may occur and not be detected.
Changes in Internal Control over Financial Reporting
In the ordinary course of business, we routinely enhance our information systems by either upgrading current systems or implementing new ones.
There were no changes in our internal control over financial reporting that occurred during the three or twelve months ended December 31, 2023 that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Annual Report on Internal Control Over Financial Reporting
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s
internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
Internal control over financial reporting includes policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures
of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect
on the financial statements. The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of
December 31, 2023. No matter how well designed, because of inherent limitations in all control systems, internal control over financial reporting may not
prevent or detect misstatements should they occur. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls
may become inadequate because of changes in conditions, or that the degree of compliance with the control procedures may deteriorate. In making this
assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal
Control-Integrated Framework (2013). Based on such assessment, management has concluded that the Company’s internal control over financial reporting
was effective as of December 31, 2023.
Deloitte & Touche LLP, the Company’s independent registered public accounting firm, has audited the Consolidated Financial Statements included
in this Annual Report on Form 10-K and, as part of its audit, has issued an attestation report on the effectiveness of the Company’s internal control over
financial reporting.
71
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of
AtriCure, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of AtriCure, Inc. and subsidiaries (the “Company”) as of December 31, 2023, based on criteria
established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023,
based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated
financial statements as of and for the year ended December 31, 2023, of the Company and our report dated February 16, 2024, expressed an unqualified
opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Cincinnati, Ohio
February 16, 2024
72
Table of Contents
ITEM 9B. OTHER INFORMATION
During the quarter ended December 31, 2023, except as described below, none of our executive officers or directors adopted or terminated a "Rule
10b5-1(c) trading arrangement" or a “non-Rule 10b5-1 trading arrangement” (as each term is defined in Item 408 of Regulation S-K).
On December 12, 2023, Justin J. Noznesky, our Chief Marketing and Strategy Officer, adopted a trading plan intended to satisfy the affirmative
defense conditions of Rule 10b5-1(c). Mr. Noznesky's plan covers the sale of up to 9,273 shares of our common stock between March 12, 2024 and June
28, 2024. Transactions under the plan were based upon pre-established dates and stock price thresholds.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
None.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
The information required by this item with respect to the Company’s Directors is contained in our definitive proxy statement (the “Proxy Statement”)
for our 2024 Annual Meeting of Stockholders under the heading “Proposal One—Election of Directors” and is incorporated herein by reference.
The information required by this item with respect to the Company’s Executive Officers is contained in the Proxy Statement under the heading
“Management” and is incorporated herein by reference.
The information required by this item with respect to compliance with Section 16(a) of the Exchange Act is contained in the Proxy Statement under
the heading “Delinquent Section 16(a) Reports” and is incorporated herein by reference.
The information required by this item with respect to the Company’s code of ethics that applies to directors, officers and employees, including the
Company’s principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions, is
contained in the Proxy Statement under the heading “Corporate Governance Guidelines—Code of Conduct” and is incorporated herein by reference.
The information required by this item with respect to the procedures by which security holders may recommend nominees to the Board is contained
in the Proxy Statement under the heading “Questions and Answers” and is incorporated herein by reference.
The information required by this item with respect to the Company’s Audit Committee, including the Audit Committee’s members and its financial
experts, is contained in the Proxy Statement under the heading “Committees of the Board—Audit Committee” and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item with respect to executive compensation and director compensation is contained in the Proxy Statement under
the headings “Executive Compensation” and “Director Compensation” and is incorporated herein by reference.
The information required by this item with respect to compensation committee interlocks and insider participation is contained in the Proxy
Statement under the heading “Compensation Committee Interlocks and Insider Participation” and is incorporated herein by reference.
The Compensation Committee report required by this item is contained in the Proxy Statement under the heading “Executive Compensation—Report
of the Compensation Committee of the Board of Directors” and is incorporated herein by reference.
The information required by this item with respect to compensation policies and practices as they relate to the Company’s risk management is
contained in the Proxy Statement under the heading “Compensation Discussion and Analysis” and is incorporated herein by reference.
73
Table of Contents
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
The following table summarizes information about our equity compensation plans as of December 31, 2023.
Plan Category
Equity compensation plans approved by security
holders
(3)
Equity compensation plans not approved by security
holders
Total
Number of securities
to be issued upon
exercise of
outstanding options,
(1)
warrants and rights
(a)
Weighted-average
exercise price of
outstanding options,
(2)
warrants and rights
(b)
Number of securities remaining
available for future issuance
under equity compensation
plans (excluding securities
reflected in column (a))
(c)
1,667,626 $
—
1,667,626 $
33.20
—
33.20
2,237,742
—
2,237,742
(1)
(2)
(3)
Represents outstanding stock options, restricted stock awards and performance shares as of December 31, 2023.
The weighted average exercise price is calculated without taking into account restricted stock that will become issuable, without any cash consideration or other payment, as vesting
requirements are achieved.
Amounts include awards under our 2023 Stock Incentive Plan (and prior plans, the 2005 Equity Incentive Plan and 2014 Stock Incentive Plan) but exclude shares purchased under our
2018 Employee Stock Purchase Plan.
The information required by this item with respect to security ownership of certain beneficial owners and management is contained in the Proxy
Statement under the heading “Security Ownership of Certain Beneficial Owners and Management” and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item with respect to director independence is contained in the Proxy Statement under the heading “Corporate
Governance and Board Matters – Independence of the Board” and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item with respect to audit fees, tax fees and the Audit Committee’s pre-approval policies and procedures are
contained in the Proxy Statement under the heading “Proposal Two-Ratification of Appointment of Independent Registered Public Accounting Firm” and is
incorporated herein by reference.
74
Table of Contents
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(1) The financial statements required by Item 15(a) are filed in Item 8 of this Form 10-K.
(2) The financial statement schedules required by Item 15(a) are filed in Item 8 of this Form 10-K.
(3) The following exhibits are included in this Form 10-K or incorporated by reference in this Form 10-K:
Exhibit No.
3.1
3.2
4.1
10.1#
10.2#
10.3#
10.4#
10.5#
10.6#
10.7
10.8
10.9
10.10#
10.11#
10.12#
10.13
10.14
10.15
10.16
Description
Second Amended and Restated Certificate of Incorporation (incorporated by reference to our Current Report on Form 8-K filed on May
27, 2016).
Fourth Amended and Restated Bylaws (incorporated by reference to our Current Report on Form 8-K filed on February 16, 2018).
Description of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 (incorporated by
reference to our Annual Report on Form 10-K filed on February 24, 2020).
Employment Agreement, dated as of November 1, 2012, between AtriCure, Inc. and Michael H. Carrel (incorporated by reference to
our Current Report on Form 8-K filed on November 1, 2012).
2005 Equity Incentive Plan, as amended on September 19, 2007 and on March 6, 2013 (incorporated by reference to our Annual Report
on Form 10-K filed on March 8, 2013).
AtriCure, Inc. 2014 Stock Incentive Plan (Amended and Restated as of May 25, 2022) (incorporated by reference to our Current Report
on Form 8-K filed on May 27, 2022).
AtriCure, Inc. 2023 Stock Incentive Plan (incorporated by reference to our Current Report on Form 8-K filed on May 26, 2023).
AtriCure, Inc. 2018 Employee Stock Purchase Plan (Amended and Restated as of May 25, 2023) (incorporated by reference to our
Current Report on Form 8-K filed on May 26, 2023).
Form of Change in Control Agreement between AtriCure and AtriCure Executive Officers (incorporated by reference to our Annual
Report on Form 10-K filed on March 8, 2013).
Loan and Security Agreement dated as of February 23, 2018 by and among Silicon Valley Bank, AtriCure, Inc., AtriCure, LLC,
Endoscopic Technologies, LLC and nContact Surgical, LLC (incorporated by reference to our Current Report on Form 8-K filed on
February 26, 2018).
Lease Agreement Dated August 20, 2014 between LM-VP AtriCure, LLC, as Landlord, and AtriCure, Inc., as Tenant (incorporated by
reference to our Current Report on Form 8-K filed on August 25, 2014).
JPMorgan Credit Agreement, dated January 5, 2024 (incorporated by reference to our Current Report on Form 8-K filed on January 8,
2024).
Form of Restricted Stock Award Agreement under the Amended and Restated AtriCure, Inc. 2014 Stock Incentive Plan (incorporated
by reference to our Quarterly Report on Form 10-Q, filed on July 31, 2019).
Form of Stock Option Award Agreement under the Amended and Restated AtriCure, Inc. 2014 Stock Incentive Plan (incorporated by
reference to our Quarterly Report on Form 10-Q, filed on July 31, 2019).
Form of Restricted Share Unit Award Agreement under the Amended and Restated AtriCure, Inc. 2014 Stock Incentive Plan
(incorporated by reference to our Quarterly Report on Form 10-Q, filed on July 31, 2019).
First Loan Modification Agreement dated December 28, 2018 among AtriCure, Inc., Silicon Valley Bank, the lenders named therein,
AtriCure, LLC, Endoscopic Technologies, LLC and nContact Surgical, LLC (incorporated by reference to our Current Report on Form
8-K filed on January 3, 2019).
Second Amendment to Loan and Security Agreement dated August 12, 2019 among AtriCure, Inc., Silicon Valley Bank, and the other
parties named therein (incorporated by reference to our Current Report on Form 8-K filed on August 11, 2019).
Joinder and Third Amendment to Loan and Security Agreement dated September 27, 2019 (incorporated by reference to our Quarterly
Report on Form 10-Q filed on October 31, 2019).
Fourth Amendment to Loan and Security Agreement dated April 29, 2020 among AtriCure, Inc., Silicon Valley Bank and the other
parties named therein (incorporated by reference to our Current Report on Form 8-K filed on April 29, 2020).
75
Table of Contents
Exhibit No.
10.17
10.18§
10.19#
10.20#
10.21#
10.22#
10.23#
10.24#
14
19
21
23.1
31.1
31.2
32.1
32.2
97
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
104
Description
Fifth Amendment to Loan and Security Agreement dated February 8, 2021 among AtriCure, Inc., Silicon Valley Bank and the other
parties named therein (incorporated by reference to our Annual Report on Form 10-K filed on February 26, 2021).
Sixth Amendment to Loan and Security Agreement dated November 1, 2021 among AtriCure, Inc., Silicon Valley Bank and other
parties named therein (incorporated by reference to our Quarterly Report on Form 10-Q filed on November 4, 2021).
Form of Performance Share Award Agreement for Awards Granted in 2021 (incorporated by reference to our Annual Report on Form
10-K filed on February 26, 2021).
Form of Performance Share Award Agreement for Awards Granted in 2022 (incorporated by reference to our Annual Report on Form
10-K filed on February 22, 2023).
AtriCure, Inc. Executive Leadership Severance Policy (incorporated by referenced to our Annual Report on Form 10-K filed on
February 17, 2022).
Form of Performance Share Award Agreement for Awards Granted in 2023.
Form of Restricted Stock Award Agreement under the AtriCure, Inc. 2023 Stock Incentive Plan.
Form of Restricted Share Unit Award Agreement under the AtriCure, Inc. 2023 Stock Incentive Plan.
Code of Conduct (incorporated by reference to our Annual Report on Form 10-K filed on February 22, 2023).
Insider Trading Policy.
Subsidiaries of the Registrant.
Consent of Deloitte & Touche LLP.
Rule 13a-14(a) Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Rule 13a-14(a) Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification pursuant to 18 U.S.C. Section 1350 by the Chief Executive Officer, as adopted, pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.
Certification pursuant to 18 U.S.C. Section 1350 by the Chief Financial Officer, as adopted, pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.
Incentive Compensation Recoupment Policy.
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Definition Linkbase Document
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document
Cover Page Interactive Data File
_________________________
# Compensatory plan or arrangement.
§ Certain portions of this exhibit have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The omitted information is not material and would
likely cause competitive harm to the Registrant if publicly disclosed. The Registrant hereby agrees to furnish a copy of any omitted portion to the
SEC upon request.
ITEM 16. FORM 10-K SUMMARY
Not provided.
76
Table of Contents
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Form 10-K to be signed on our behalf by the
undersigned, thereunto duly authorized.
SIGNATURES
Date: February 16, 2024
Date: February 16, 2024
AtriCure, Inc.
(REGISTRANT)
/s/ Michael H. Carrel
Michael H. Carrel
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Angela L. Wirick
Angela L. Wirick
Chief Financial Officer
(Principal Accounting and Financial Officer)
KNOW ALL WOMEN AND MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Michael H.
Carrel and Angela L. Wirick, her or his attorney-in-fact, with the power of substitution, for her or him in any and all capacities, to sign any and all
amendments to this Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the U.S. Securities and
Exchange Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done therewith, as fully to all intents and purposes as she or he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact, and any of them or her or his substitute or substitutes, may do or cause to be done by virtue thereof.
77
Table of Contents
Pursuant to the requirements of the Securities Exchange Act of 1934, this Form 10-K has been signed by the following persons on behalf of the
registrant and in the capacities indicated on February 16, 2024.
Signature
/s/ B. Kristine Johnson
B. Kristine Johnson
/s/ Michael H. Carrel
Michael H. Carrel
/s/ Regina E. Groves
Regina E. Groves
/s/ Shlomo Nachman
Shlomo Nachman
/s/ Karen N. Prange
Karen N. Prange
/s/ Deborah H. Telman
Deborah H. Telman
/s/ Sven A. Wehrwein
Sven A. Wehrwein
/s/ Robert S. White
Robert S. White
/s/ Maggie Yuen
Maggie Yuen
Title(s)
B. Kristine Johnson
Chair of the Board
Michael H. Carrel
Director, President and Chief Executive Officer
(Principal Executive Officer)
Regina E. Groves
Director
Shlomo Nachman
Director
Karen N. Prange
Director
Deborah H. Telman
Director
Sven A. Wehrwein
Director
Robert S. White
Director
Maggie Yuen
Director
78
ATRICURE, INC.
2014 STOCK INCENTIVE PLAN
PERFORMANCE SHARE AWARD AGREEMENT
Exhibit 10.22
Summary of Performance Share Award Grant
AtriCure, Inc., a Delaware corporation (the “Company”), grants to the Grantee named below, in accordance with the terms of the
2014 Stock Incentive Plan (as amended and restated from time to time, the “Plan”), and this Performance Share Award
Agreement (the “Agreement”), Performance Shares as follows:
Name of Grantee:
Grant Number:
Grant Date:
Performance Goals:
Performance Period:
Terms of Agreement
As set forth on Exhibit A
As set forth on Exhibit A
1.
Grant of Performance Shares. Subject to and upon the terms, conditions, and restrictions set forth in this
Agreement and in the Plan, the Company grants to the Grantee as of the Grant Date, Performance Share Award consisting of, the
maximum number Common Stock of the Company (“Performance Shares”) as provided in Exhibit A, upon the terms and
conditions of this Agreement.
2.
Eligibility. The Grantee shall hold a position within the Company or any Subsidiary that is recommended by the
Company’s Chief Executive Officer and/or the award contemplated hereby shall be approved by the Compensation Committee of
the Company (“Committee”).
3.
Vesting and Earning of Performance Shares.
(a)
The period during which the Performance Goals are measured shall be a three-year period, beginning in
the year of the Grant Date and ending on December 31 of the third year (the “Performance Period”).
(b)
The number of Performance Shares earned by the Grantee will be determined at the end of the
Performance Period based on the Performance Goals set forth on Exhibit A. Except as provided in Section 4 or Exhibit A,
Performance Shares will vest and become nonforfeitable, if at all, on the last day of the Performance Period provided that the
Grantee has remained continuously employed by the Company or any Subsidiary from the Grant Date through the last day of the
Performance Period (the “Vesting Date”).
(c)
If the Grantee is hired by the Company or promoted within the Company prior to October 1 of any fiscal
year within the Performance Period and is thereby granted Performance Shares under this Agreement, the Performance Shares
shall be earned on a pro-rata basis beginning on the effective date of this Agreement until the end of the Performance Period as
set forth on Exhibit A.
(d)
Following the completion of the Performance Period and no later than 90 days following the end of the
Performance Period, the Committee shall determine in writing the extent, if any, that the Performance Goals have been satisfied
and shall determine the number of Performance Shares that Grantee shall earn, if any, subject to this Agreement. The Company
shall deliver to the Grantee any and all Performance Shares earned by Grantee not later than 90 days after the completion of the
Performance Period. The Committee may, in its sole discretion, modify the Performance Goals, in whole or in part, as the
Committee deems appropriate and equitable to reflect a change in the business (including, without limitation, the Company’s
acquisition of another business or company), operations, corporate structure or capital structure of the Company or its
Subsidiaries, the manner in which it conducts its business, or other events or circumstances.
4.
Termination of Continuous Employment.
(a)
Except as otherwise provided in Sections 4(b), 4(c), or 4(d), if the Grantee’s continuous employment with
the Company or a Subsidiary is terminated prior to the Vesting Date, the Grantee’s unvested Performance Shares shall be
automatically forfeited upon such termination of continuous employment and neither the Company nor any Subsidiary shall have
any further obligations under this Agreement.
(b)
If the Grantee’s continuous employment with the Company or any Subsidiary terminates due to a
permanent and total disability (a “Permanent Disability”) within the meaning of Section 22(e)(3) of the Code, the Grantee’s
employment with the Company or any Subsidiary shall, for all purposes under this Agreement, be deemed to continue. If Grantee
dies while suffering a Permanent Disability, Grantee’s estate shall have the rights to Shares underlying Performance Shares on the
terms set forth in Section 4(c).
(c)
If a “Change in Control” (as defined in the Plan) described in Section 2(i) of the Plan occurs while the
Grantee is employed by the Company or any Subsidiary or if the Grantee dies, in either case at any time prior to the end of the
Performance Period, then the Grantee shall be deemed to have earned the number of Performance Shares equal to the greater of
(A) the Target Number of Performance Shares identified on Exhibit A to this Agreement or (B) the number of Performance
Shares which would have vested based on the actual performance of the Company had the Performance Period ended on the date
of the last fiscal quarter immediately prior to the date that the Company executes a definitive agreement (“CIC Date”) pursuant to
which a Change in Control occurs. Upon such Change in Control or death of the Grantee, as the case may be, the Company shall
deliver to Grantee (or Grantee’s estate in the case of death) the Shares underlying all Performance Shares earned in accordance
with this Section 4(c). The Committee shall have the authority to determine the extent to which Performance Goals with respect
to the Performance Period (as shortened to end on the CIC Date) have been met based on such audited or unaudited financial
information or other information, such as the Company’s stock price or the performance of the Nasdaq Health Care Index
constituents, then available that the Committee deems relevant so that the vesting contemplated by this Section 4(c) reflects the
actual performance of the Company achieved immediately prior to the CIC Date.
(d)
Notwithstanding anything contained in this Agreement to the contrary, the Committee may, in its sole
discretion, accelerate the time at which the Shares underlying any
2
Performance Shares become vested and nonforfeitable on such terms and conditions as it deems appropriate upon a Change in
Control or the death or Permanent Disability of Grantee.
5.
Transferability. The Performance Shares may not be transferred and shall not be subject in any manner to
assignment, alienation, pledge, encumbrance or charge, unless otherwise provided under the Plan. Any purported transfer or
encumbrance in violation of the provisions of this Section 5 shall be void, and the other party to any such purported transaction
shall not obtain any rights to or interest in such Performance Shares.
6.
Dividend, Voting and Other Rights. Neither the Grantee nor any person claiming under or through the Grantee
has any of the rights or privileges of a shareholder of the Company in respect of shares of Common Stock that may become
deliverable hereunder unless and until certificates representing such shares of Common Stock have been issued, recorded on the
records of the Company or its transfer agents or registrars, and delivered in certificate or book entry form to the Grantee or any
person claiming under or through the Grantee.
7.
Continuous Employment. For purposes of this Agreement, the continuous employment of the Grantee with the
Company and its Subsidiaries shall not be deemed to have been interrupted, and the Grantee shall not be deemed to have ceased
to be an employee of the Company and its Subsidiaries, by reason of the transfer of his employment among the Company and its
Subsidiaries.
8.
No Employment Contract. Nothing contained in this Agreement shall confer upon the Grantee any right with
respect to continuance of employment by the Company and its Subsidiaries, nor limit or affect in any manner the right of the
Company and its Subsidiaries to terminate the employment or adjust the compensation of the Grantee.
9.
Relation to Other Benefits. Any economic or other benefit to the Grantee under this Agreement or the Plan shall
not be taken into account in determining any benefits to which the Grantee may be entitled under any profit-sharing, retirement or
other benefit or compensation plan maintained by the Company or a Subsidiary and shall not affect the amount of any life
insurance coverage available to any beneficiary under any life insurance plan covering employees of the Company or a
Subsidiary.
10.
Taxes and Withholding. To the extent that the Company or any Subsidiary is required to withhold any federal,
state, local, foreign or other tax in connection with the Performance Shares pursuant to this Agreement, it shall be a condition to
earning the award that the Grantee make arrangements satisfactory to the Company or such Subsidiary for payment of such taxes
required to be withheld. The Committee may, in its sole discretion, require the Grantee to satisfy such required withholding
obligation by surrendering to the Company a portion of the Shares earned by the Grantee under this Agreement, and the Shares so
surrendered by the Grantee shall be credited against any such withholding obligation at the Fair Market Value of such Shares on
the date of surrender.
11.
Adjustments. The number and kind of Shares deliverable pursuant to the Performance Shares are subject to
adjustment as provided in the Plan.
12.
Compliance with Law. The Company shall make reasonable efforts to comply with all applicable federal and
state securities laws and listing requirements with respect to the Performance Shares; provided, however, notwithstanding any
other provision of this Agreement, the Company shall not be obligated to deliver any Shares pursuant to this Agreement if the
delivery of this Agreement would result in a violation of any such law or listing requirement.
3
13.
Amendments. Subject to the terms of the Plan, the Committee may modify this Agreement upon written notice to
the Grantee. Any amendment to the Plan shall be deemed to be an amendment to this Agreement to the extent that the
amendment is applicable to this Agreement. Notwithstanding the foregoing, no amendment of the Plan or this Agreement shall
adversely affect the rights of the Grantee under this Agreement without the Grantee’s consent unless the Committee determines,
in good faith, that such amendment is required for the Agreement to either be exempt from the application of, or comply with, the
requirements of Section 409A of the Code, or as otherwise may be provided in the Plan.
14.
Compliance with Section 409A of the Code. It is intended that this Agreement shall either be exempt from the
application of, or comply with, the requirements of Section 409A of the Code. This Agreement shall be construed, administered,
and governed in a manner that effects such intent, and the Committee shall not take any action that would be inconsistent with
such intent. Without limiting the foregoing, the Performance Shares shall not be deferred, accelerated, extended, paid out, settled,
adjusted, substituted, exchanged or modified in a manner that would cause the award to fail to satisfy the conditions of an
applicable exception from the requirements of Section 409A of the Code or otherwise would subject the Grantee to the additional
tax imposed under Section 409A of the Code. The amounts payable pursuant to this Agreement are intended to be separate
payments that qualify for the “short-term deferral” exception to Section 409A of the Code to the maximum extent possible.
15.
Severability. In the event that one or more of the provisions of this Agreement shall be invalidated for any reason
by a court of competent jurisdiction, any provision so invalidated shall be deemed to be separable from the other provisions of
this Agreement, and the remaining provisions of this Agreement shall continue to be valid and fully enforceable.
16.
Relation to Plan. This Agreement is subject to the terms and conditions of the Plan. This Agreement and the Plan
contain the entire agreement and understanding of the parties with respect to the subject matter contained in this Agreement, and
supersede all prior written or oral communications, representations and negotiations with respect to this Agreement. In the event
of any inconsistency between the provisions of this Agreement and the Plan, the Plan shall govern. Capitalized terms used of this
Agreement without definition shall have the meanings assigned to them in the Plan. The Committee acting pursuant to the Plan,
as constituted from time to time, shall, except as expressly provided otherwise of this Agreement, have the right to determine any
questions which arise in connection with the grant of the Performance Shares.
17.
Successors and Assigns. Without limiting Section 5, the provisions of this Agreement shall inure to the benefit of,
and be binding upon, the successors, administrators, heirs, legal representatives and assigns of the Grantee, and the successors
and assigns of the Company.
18.
Governing Law. The interpretation, performance, and enforcement of this Agreement shall be governed by the
laws of the State of Delaware, without giving effect to the principles of conflict of laws of this Agreement.
19.
Electronic Delivery. The Grantee consents and agrees to electronic delivery of any documents that the Company
may elect to deliver (including, but not limited to, prospectuses, prospectus supplements, grant or award notifications and
agreements, account statements, annual and quarterly reports, and all other forms of communications) in connection with this and
any other award made or offered under the Plan. The Grantee understands that, unless earlier revoked by the Grantee by giving
written notice to the Chief Financial Officer of the Company, this consent shall be effective for the duration of the Agreement.
The Grantee also understands that he or she shall have the right at any time to request that the Company deliver written copies of
any and all materials referred to above at no charge. The Grantee consents to
4
any and all procedures the Company has established or may establish for an electronic signature system for delivery and
acceptance of any such documents that the Company may elect to deliver, and agrees that his or her electronic signature is the
same as, and shall have the same force and effect as, his or her manual signature. The Grantee consents and agrees that any such
procedures and delivery may be effected by a third party engaged by the Company to provide administrative services related to
the Plan.
20.
Clawback. In the event the Company is required to prepare an accounting restatement due to the material
noncompliance of the Company with any financial reporting requirement under federal securities laws, the Board of Directors
shall require reimbursement to the Company of any Performance Shares made to Grantee where: (i) the payment was predicated
upon achieving certain financial results that were subsequently the subject of a substantial restatement of Company financial
statements filed with the SEC; (ii) the members of the Board of Directors who are considered “independent” for purposes of the
listing standards of Nasdaq determine Grantee engaged in intentional misconduct that caused or substantially caused the need for
the accounting restatement; and (iii) a lower payment would have been made to Grantee based upon the restated financial results.
In each such instance, the Company will, to the extent practicable, seek to recover from Grantee the amount by which any
Performance Shares paid to such Grantee for the relevant period exceeded the lower payment that would have been made based
on the restated financial results.
5
The Company has caused this Agreement to be executed on its behalf by its duly authorized officer and the Grantee has
also executed this Agreement, as of the Grant Date.
ATRICURE, INC.
By:_______________________
Name: Michael H. Carrel
Title: President & Chief Executive Officer
ATRICURE, INC.
By:_______________________
Name: Angela L. Wirick
Title: Chief Financial Officer
The undersigned acknowledges that a copy of the Plan, Plan Summary and Prospectus, and the Company’s most recent Annual
Report and Proxy Statement (the “Prospectus Information”) are available for viewing on the Company’s internet site at
www.atricure.com. The Grantee consents to receiving this Prospectus Information electronically, or, in the alternative, agrees to
contact the Company’s Chief Financial Officer at (513) 755-4100 to request a paper copy of the Prospectus Information at no
charge. The Grantee represents that he or she is familiar with the terms and provisions of the Prospectus Information and accepts
the award of Performance Shares on the terms and conditions set forth of this Agreement and in the Plan.
Grantee
Date:
ALTERNATIVE FOR ELECTRONIC SIGNATURE
You may accept the award online or by telephone in accordance with the procedures established by the Company and the Plan
administrator. By accepting your award in accordance with these procedures, you acknowledge that a copy of the Plan, Plan
Summary and Prospectus, and the Company’s most recent Annual Report and Proxy Statement (the “Prospectus Information”)
either have been received by you or are available for viewing on the Company’s internet site at www.atricure.com, and consent to
receiving this Prospectus Information electronically, or, in the alternative, agree to contact the Company’s Chief Financial Officer
at (513) 755-4100 to request a paper copy of the Prospectus Information at no charge. You also represent that you are familiar
with the terms and provisions of the Prospectus Information and accept the award on the terms and conditions set forth of this
Agreement and in the Plan. These terms and conditions constitute a legal contract that will bind both you and the Company as
soon as you accept the award as described above.
6
PERFORMANCE GOALS AND PERFORMANCE PERIOD
EXHIBIT A
Performance will be measured 75% on revenue growth (Revenue CAGR) and 25% on relative total shareholder return (TSR), as
described further below
Performance on each metric will be measured over a three-year (2023-2025) period
Performance for the Revenue CAGR is relative to fiscal year 2022 (Base Year)
•
•
• The revenue and TSR component payouts (in shares) will be determined independently and then added together for
the total payout for the three-year performance period, subject to the maximum defined in the payout range below
Possible Payout as a Percentage of Target Award
2023-2025
0% - 300%
December 31, 2025
Payout Range*
Scheduled Vest Date**
*Payout as a percentage of target number of Performance Shares subject to this award
** Subject to Section 3 of the Agreement, Scheduled Vest Date is later of date
indicated or the date the Committee determines whether and the extent to which the
performance criteria have been satisfied and the number of Performance Shares
earned, if any [March 1, 2026]
• Revenue compound annual growth rate (CAGR)
• Acquisitions and other business developments may result in adjustments pursuant to Section 3
Revenue CAGR Component (75%)
of the Agreement
Maximum
Stretch
Target
Threshold
Below Threshold
2023-2025
>=26%
22%
18%
14%
<14%
Revenue CAGR
Payout*
300%
200%
100%
50%
0%
*Payout as a percentage of target number of Performance
Shares subject to this award; linear interpolation between
goals
Number of Performance Shares
0
A-1
Relative Total Shareholder Return (TSR) Component (25%)
•TSR measured against the Nasdaq Health Care Index constituents
•TSR will be measured as the 20-trading-day average stock price prior to the end of the
performance period over the 20-trading-day average stock price prior to the beginning of the
performance period
•Payout under this component will be capped at target if AtriCure’s TSR is negative
Relative TSR (expressed in percentiles)
2023-2025
>=95th
80th
55th
30th
<30th
Maximum
Stretch
Target
Threshold
Below Threshold
*Payout as a percentage of target number of Performance
Payout*
300%
200%
100%
50%
0%
0
Number of Performance Shares
Shares subject to this award; linear interpolation between
goals
The maximum number of Performance Shares in which the Grantee can vest on the basis of the actual level of Performance
Goal attainment shall in no event exceed in the aggregate 300% of the number of Performance Shares set forth above.
A-2
Exhibit 10.23
ATRICURE, INC. 2023 STOCK INCENTIVE PLAN
RESTRICTED STOCK AWARD AGREEMENT FOR EMPLOYEES
ATRICURE, INC. (the “Company”), pursuant to the 2023 Stock Incentive Plan, as may be amended from time to time
(the “Plan”), hereby irrevocably grants you (the “Participant”), on , 2023 (the “Grant Date”) a Restricted Stock Award (the
“Restricted Stock Award”) of forfeitable shares of the Company’s Common Stock, par value $0.001 per share (the “Restricted
Stock”) subject to the restrictions, terms and conditions herein.
WHEREAS, the Participant is an employee of the Company or a Subsidiary.
WHEREAS, the Compensation Committee (the “Committee”) of the Board has determined that it would be in the best
interests of the Company and its stockholders to grant the award provided for herein to the Participant, on the terms and
conditions described in this Restricted Stock Award Agreement (the “Agreement”).
NOW, THEREFORE, for and in consideration of the promises and the covenants of the parties contained in this
Agreement, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto, for themselves, and their permitted successors and assigns, hereby agree as follows:
1.
Terms and Conditions.
(a)
Vesting. Subject to the terms and conditions contained in this Agreement and the Plan, including Section
14(b) of the Plan, the restrictions on the Restricted Stock shall lapse over the three years after the Grant Date (the “Restricted
Period”) as follows: (i) with respect to one third of the Restricted Stock, on the first anniversary of the Grant Date (the “First
Vesting Date”); (ii) with respect to one third of the Restricted Stock, on the second anniversary of the Grant Date (the “Second
Vesting Date”); and (iii) with respect to one third of the Restricted Stock, on the third anniversary of the Grant Date (the “Third
Vesting Date”, and collectively with the First Vesting Date and the Second Vesting Date, the “Vesting Dates”). Shares of
Restricted Stock that have not yet vested pursuant to Section 1(a) shall be forfeited automatically without further action or notice
if the Participant ceases to be employed by the Company or a Subsidiary other than as provided below. Subject to the terms and
conditions of the Plan, including without limitation, Section 14(b) of the Plan, all of the Restricted Stock shall vest in full prior to
the Vesting Dates upon the occurrence of any of the following: (A) the Participant dies while in the employ of the Company or a
Subsidiary; (B) the Participant has a Disability that results in a separation from employment with Company or a Subsidiary; (C)
the Participant satisfies the requirements for Retirement, including separation of service from the Company or a Subsidiary; or
(D) a Change in Control occurs. If an offer letter or employment agreement to which Participant is a party with the Company or a
Subsidiary provides for vesting in other circumstances, such as the Company or a Subsidiary terminating Participant’s
employment without Cause or Participant terminating employment for Good Reason, the terms and conditions relating to vesting
in such offer letter or employment agreement shall apply.
(b)
Book Entry; Payment. Upon vesting, the Committee shall cause _________ shares of Common Stock to be
registered in the name of the Participant and held in book-entry form subject to the Company’s directions. The Company’s
obligations with respect to
the Restricted Stock Award shall be satisfied in full upon such registration of the shares of Common Stock.
(c)
Forfeiture. Except as otherwise determined by the Committee in its sole discretion or as set forth in this
Agreement or the Plan, unvested shares of Restricted Stock shall be forfeited without consideration to the Participant upon the
Participant’s termination of service with the Company or a Subsidiary for any reason.
2.
Restrictive Covenant Agreement; Clawback; Incorporation by Reference.
(a)
Restrictive Covenant Agreement. This Restricted Stock Award is conditioned upon the Participant’s
agreement to this Agreement and compliance with any Restrictive Covenant and Confidentiality Agreement executed by the
Participant in favor of the Company (“Restrictive Covenant Agreement”).
(b)
Clawback/Forfeiture. Notwithstanding anything to the contrary contained herein, the Restricted Stock
Award may be forfeited without consideration if the Participant, as determined by the Committee in its sole discretion (i) engages
in an activity that is in conflict with or adverse to the interests of the Company or any Affiliate, including but not limited to fraud
or conduct contributing to any financial restatements or irregularities, or (ii) without the consent of the Company, while employed
by or providing services to the Company or any Affiliate or after termination of such employment or service, violates a non-
competition, non-solicitation or non-disclosure covenant or agreement between the Participant and the Company or any Affiliate,
including without limitation, any Restrictive Covenant Agreement. If the Participant engages in any activity referred to in the
preceding sentence, the Participant shall, at the sole discretion of the Committee, forfeit the amount of shares paid in respect of
the Restricted Stock Award, including, without limitation, any and all shares and dividend equivalents, and repay such to the
Company. If the Participant is subject to the reporting requirements of Section 16 of the Exchange Act, this Restricted Stock
Award shall be subject to any other applicable compensation recovery policy adopted by the Company pursuant to Exchange Act
Rule 10D.
(c)
Incorporation by Reference. The provisions of the Plan are hereby incorporated herein by reference.
Except as otherwise expressly set forth herein, this Agreement shall be construed in accordance with the provisions of the Plan
and any capitalized terms not otherwise defined in this Agreement shall have the definitions set forth in the Plan. In the event that
any provision of this Agreement is inconsistent with the terms of the Plan, the terms of this Agreement shall control. The
Committee acting pursuant to the Plan, as constituted from time to time, shall, except as expressly provided otherwise herein,
have the right to determine any questions which arise in connection with the grant of the Restricted Stock Award. The number
and kind of shares deliverable pursuant to the Restricted Stock Award are subject to adjustment as provided in Section 12 of the
Plan.
3.
Compliance with Legal Requirements. The granting and delivery of the Restricted Stock Award, and any other
obligations of the Company under this Agreement, shall be subject to all applicable federal, state, local and foreign laws, rules
and regulations and to such approvals by any regulatory or governmental agency as may be required.
4.
Transferability. No share of Restricted Stock may be assigned, alienated, pledged, attached, sold or otherwise
transferred or encumbered by the Participant (with respect to Restricted Stock), until it has vested in accordance with Section
1(a), other than by will or by the laws of descent and distribution and any such purported assignment, alienation, pledge,
attachment, sale, transfer or encumbrance shall be void and unenforceable against the Company or any Affiliate.
2
5.
Dividend, Voting and Other Rights. The Participant shall possess all incidents of ownership (including, without
limitation, dividend and voting rights) with respect to the Restricted Stock Award granted pursuant to this Agreement as of the
Grant Date. Notwithstanding the foregoing, any dividends or distributions on the Restricted Stock Award to be delivered to
Participant shall be paid on the Vesting Date. Any accrued and unpaid dividends or distributions related to forfeited or cancelled
share of Restricted Stock shall be forfeited and cancelled.
6.
Relation to Other Benefits. Any economic or other benefit to the Participant under this Agreement or the Plan
shall not be taken into account in determining any benefits to which the Participant may be entitled under any profit-sharing,
retirement or other benefit or compensation plan maintained by the Company or a Subsidiary and shall not affect the amount of
any life insurance coverage available to any beneficiary under any life insurance plan covering employees of the Company or a
Subsidiary.
7.
Taxes and Withholding. To the extent that the Company or any Subsidiary is required to withhold any federal,
state, local, foreign or other tax in connection with the Restricted Shares pursuant to this Agreement, it shall be a condition to
earning the award that the Participant make arrangements satisfactory to the Company or such Subsidiary for payment of such
taxes required to be withheld. The Committee may, in its sole discretion, require the Participant to satisfy such required
withholding obligation by surrendering to the Company a portion of the shares of Common Stock earned by the Participant under
this Agreement, and the shares of Common Stock so surrendered by the Participant shall be credited against any such
withholding obligation at the Fair Market Value of such shares of Common stock on the date of surrender.
8.
Adjustments. The number and kind of shares of Common Stock deliverable pursuant to the Restricted Stock
Award are subject to adjustment as provided in Section 12 of the Plan.
9.
Section 409A. This Agreement is intended to be exempt from or comply with Section 409A of the Code and shall
be construed and interpreted in a manner that is consistent with the requirements for avoiding additional taxes and penalties under
Section 409A of the Code. Notwithstanding the foregoing, the Company makes no representations that the Restricted Stock
Award provided under this Agreement complies with Section 409A of the Code and in no event shall the Company be liable for
all or any portion of any taxes, penalties, interest or other expenses that may be incurred by the Participant on account of non-
compliance with Section 409A of the Code.
10.
Section 280G. If any payment or benefit due under this Restricted Stock Award, together with all other payments
and benefits that the Participant is entitled to receive from the Company or any of its Affiliates, would (if paid) constitute an
“excess parachute payment” (as defined in Code Section 280G(b)(1)), the amounts otherwise payable under this Restricted Stock
Award may, at the discretion of the Committee, be limited to the minimum extent necessary to ensure that no portion thereof will
fail to be tax-deductible to the Company (or an Affiliate) by reason of Code Section 280G or result in an excise tax payable
pursuant to Code Section 4999. The determination of whether any payment or benefit would (if paid or provided) constitute an
“excess parachute payment” will be made by the Committee.
11.
Electronic Delivery. The Participant consents and agrees to electronic delivery of any documents that the
Company may elect to deliver (including, but not limited to, prospectuses, prospectus supplements, grant or award notifications
and agreements, account statements, annual and quarterly reports, and all other forms of communications) in connection with this
and any other award made or offered under the Plan. The Participant understands that,
3
unless earlier revoked by the Participant by giving written notice to the Chief Financial Officer of the Company, this consent shall
be effective for the duration of the Agreement. The Participant also understands that he or she shall have the right at any time to
request that the Company deliver written copies of any and all materials referred to above at no charge. The Participant consents
to any and all procedures the Company has established or may establish for an electronic signature system for delivery and
acceptance of any such documents that the Company may elect to deliver, and agrees that his or her electronic signature is the
same as, and shall have the same force and effect as, his or her manual signature. The Participant consents and agrees that any
such procedures and delivery may be effected by a third party engaged by the Company to provide administrative services related
to the Plan.
12. Miscellaneous.
(a) Waiver. Any right of the Company contained in this Agreement may be waived in writing by the
Committee. No waiver of any right hereunder by any party shall operate as a waiver of any other right, or as a waiver of the
same right with respect to any subsequent occasion for its exercise, or as a waiver of any right to damages. No waiver by any
party of any breach of this Agreement shall be held to constitute a waiver of any other breach or a waiver of the continuation of
the same breach.
(b)
Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement and each other provision of this Agreement shall be severable
and enforceable to the extent permitted by law.
(c)
No Right to Retention. Nothing contained in this Agreement shall be construed as giving the Participant
any right to be retained, in any position, as an employee, consultant, or director of the Company or its Affiliates or shall interfere
with or restrict in any way the right of the Company or its Affiliates, which are hereby expressly reserved, to remove, terminate
or discharge the Participant with or without Cause at any time for any reason whatsoever. For purposes of this Agreement, the
continuous employment of the Participant with the Company and its Affiliates shall not be deemed to have been interrupted, and
the Participant shall not be deemed to have ceased to be an employee of the Company and its Affiliates, by reason of the transfer
of the Participant’s employment among the Company and its Affiliates or a leave of absence approved by the Committee.
(d)
Successors. The terms of this Agreement shall be binding upon and inure to the benefit of the Company,
its successors and assigns, the Participant and the beneficiaries, executors, administrators, heirs and successors of the Participant.
(e)
Entire Agreement. This Agreement and the Plan contain the entire agreement and understanding of the
parties hereto with respect to the subject matter contained herein and supersede all prior communications, representations and
negotiations in respect thereto. No change, modification or waiver of any provision of this Agreement shall be valid unless the
same be in writing and signed by the parties hereto, except for any changes permitted without consent of the Participant under the
Plan.
(f)
Governing Law. This Agreement shall be construed and interpreted in accordance with the laws of the
State of Delaware without regard to principles of conflicts of law thereof, or principles of conflicts of laws of any other
jurisdiction which could cause the application of the laws of any jurisdiction other than the State of Delaware.
4
(g)
Headings. The headings of the Sections hereof are provided for convenience only and are not to serve as a
basis for interpretation or construction and shall not constitute a part of this Agreement.
(h)
Amendments. Subject to the terms of the Plan, the Committee may modify this Agreement upon written
notice to the Participant. Any amendment to the Plan shall be deemed to be an amendment to this Agreement to the extent that
the amendment is applicable hereto; provided, however, no amendment of the Plan or this Agreement shall adversely affect the
rights of the Participant under this Agreement without the Participant's consent unless the Committee determines, in good faith,
that such amendment is required for the Agreement to either be exempt from the application of, or comply with, the requirements
of Section 409A of the Code, or as otherwise may be provided in the Plan.
The undersigned acknowledges that a copy of the Plan, Plan Summary and Prospectus, and the Company’s most
recent Annual Report and Proxy Statement (the “Prospectus Information”) are available for viewing on the Company’s
intranet site at www.atricure.com. The Participant consents to receiving this Prospectus Information electronically, or, in the
alternative, agrees to contact the Company’s Chief Financial Officer at (513) 755-4100 to request a paper copy of the
Prospectus Information at no charge. The Participant represents that he or she is familiar with the terms and provisions of
the Prospectus Information and accepts the Award described herein on the terms and conditions set forth in this Agreement
and in the Plan.
By accepting this Agreement through the online acceptance tool on E-Trade website, the Participant agrees to all of the terms
and conditions in this Agreement and the Plan.
PARTICIPANT
__________________________
ATRICURE, INC.
By:
Michael H. Carrel
President and Chief Executive Officer
By:
Angela L. Wirick
Chief Financial Officer
5
Exhibit 10.24
ATRICURE, INC. 2023 STOCK INCENTIVE PLAN
RESTRICTED STOCK UNIT AWARD AGREEMENT FOR EMPLOYEES
ATRICURE, INC. (the “Company”), pursuant to the 2023 Stock Incentive Plan, as it may be amended from time to time
(the “Plan”), hereby irrevocably grants you (the “Participant”), on _________, 2023 (the “Grant Date”) a forfeitable Restricted
Stock Unit Award (the “Restricted Unit Award”) representing the right to receive shares of Company common stock, $.001 par
value per share (“Common Stock”), subject to the restrictions, terms and conditions herein.
WHEREAS, the Participant is an employee of the Company or a Subsidiary.
WHEREAS, the Compensation Committee (the “Committee”) of the Board of Directors of the Company (the “Board”)
has determined that it would be in the best interests of the Company and its stockholders to grant the award provided for herein to
the Participant, on the terms and conditions described in this Restricted Stock Unit Award Agreement (including any Appendix
attached hereto, the “Agreement”).
NOW, THEREFORE, for and in consideration of the promises and the covenants of the parties contained in this
Agreement, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto, for themselves, and their permitted successors and assigns, hereby agree as follows:
1.
Terms and Conditions.
(a)
Grant; Vesting. Subject to and upon the terms, conditions, and restrictions set forth in this Agreement and
in the Plan, the Company hereby grants to the Participant as of the Grant Date, a total of __________ restricted stock units
(“Restricted Units”) which shall be credited in a book entry account established for the Participant until payment in accordance
with Section 1(b). Subject to the other terms and conditions contained in this Agreement and the Plan, the restrictions on the
Restricted Units shall lapse over the three years after the Grant Date (the “Restricted Period”) as follows: (i) with respect to one
third of the Restricted Units, on the first anniversary of the Grant Date (the “First Vesting Date”); (ii) with respect to one third of
the Restricted Units, on the second anniversary of the Grant Date (the “Second Vesting Date”); and (iii) with respect to one third
of the Restricted Units, on the third anniversary of the Grant Date (the “Third Vesting Date”, and collectively with the First
Vesting Date and the Second Vesting Date, the “Vesting Dates”). Restricted Units that have not yet vested pursuant to this Section
1(a) shall be forfeited automatically without further action or notice if the Participant ceases to be employed by the Company
other than as provided below. Subject to the terms and conditions of the Plan, including without limitation, Section 14(b) of the
Plan, all of the Restricted Units shall vest in full prior to the Vesting Dates upon the occurrence of any of the following: (A) the
Participant dies while in the employ of the Company or a Subsidiary; (B) the Participant has a Disability that results in a
separation from employment with Company or a Subsidiary; (C) the Participant satisfies the requirements for Retirement,
including separation of service from the Company- or a Subsidiary; or (D) a Change in Control occurs. If an offer letter or
employment agreement to which Participant is a party with the Company or a Subsidiary provides for vesting in other
circumstances, such as the Company or a Subsidiary terminating Participant’s employment without Cause or Participant
terminating employment for Good Reason, the terms and conditions relating to vesting in such offer letter or employment
agreement shall apply.
(b)
Payment; Share Ownership; Dividend Equivalents. The Company shall settle as soon as administratively
possible after the applicable Vesting Date, any vested portion of the Restricted Unit Award by the payment to the Participant of
one share of Common Stock (a “Share”) for each vested Restricted Unit, subject to any applicable tax withholding requirements.
If the Participant is deemed a Specified Employee at the time of the Vesting Date, then such payment will be delayed until the
earlier of the date that is six months following the Vesting Date and the Participant’s death. At no time prior to such Vesting Date
shall the Participant be deemed for any purpose to be the owner of shares of Common Stock in connection with a Restricted Unit
Award and the Participant shall have no right prior to applicable Vesting Dates to vote Shares in respect of the Restricted Unit
Award. However, the Participant shall possess dividend equivalent payment rights with respect to the Restricted Units granted
pursuant to this Agreement as of the Grant Date. Any dividend equivalent payment on the Restricted Units shall be based on the
number of Restricted Units credited to the Participant as of the dividend record date and such credited dividend equivalent
payment amount shall be paid in accordance with quarterly dividend declarations by the Board of Directors on the Common
Stock. The Participant will not have any rights of a shareholder of the Company with respect to the Restricted Units until the
delivery of the underlying Shares. The obligations of the Company under this Agreement will be merely that of an unfunded and
unsecured promise of the Company to deliver Shares in the future, and the rights of the Participant will be no greater than that of
an unsecured general creditor. No assets of the Company will be held or set aside as security for the obligations of the Company
under this Agreement.
(c)
Forfeiture. Except as otherwise determined by the Committee in its sole discretion or as set forth in
Section 1(a), the unvested portion of Restricted Unit Awards shall be forfeited without consideration to the Participant upon the
Participant’s termination of employment with the Company or its Affiliates for any reason.
2.
Restrictive Covenant Agreement; Clawback; Incorporation by Reference.
(a)
Restrictive Covenant Agreement. This Restricted Unit Award is conditioned upon the Participant’s
agreement to this Agreement and compliance with any applicable Restrictive Covenant and Confidentiality Agreement executed
by the Participant in favor of the Company (“Restrictive Covenant Agreement”).
(b)
Clawback/Forfeiture. Notwithstanding anything to the contrary contained herein, the Restricted Unit
Award may be forfeited without consideration if the Participant, as determined by the Committee in its sole discretion (i) engages
in an activity that is in conflict with or adverse to the interests of the Company or any Affiliate, including but not limited to fraud
or conduct contributing to any financial restatements or irregularities, or (ii) without the consent of the Company, while employed
by or providing services to the Company or any Affiliate or after termination of such employment or service, violates a non-
competition, non-solicitation or non-disclosure covenant or agreement between the Participant and the Company or any Affiliate,
including without limitation, any Restrictive Covenant Agreement. If the Participant engages in any activity referred to in the
preceding sentence, the Participant shall, at the sole discretion of the Committee, forfeit the amount of Shares paid in respect of
the Restricted Unit Award, including, without limitation, any and all Shares and dividend equivalents, and repay such to the
Company.
(c)
Incorporation by Reference. The provisions of the Plan are hereby incorporated herein by reference.
Except as otherwise expressly set forth herein, this Agreement shall be construed in accordance with the provisions of the Plan
and any capitalized terms not otherwise defined in this Agreement shall have the definitions set forth in the Plan. In the event that
any provision of this Agreement is inconsistent with the terms of the Plan, the terms of this Agreement shall control. The
Committee acting pursuant to the Plan, as constituted from time to
2
time, shall, except as expressly provided otherwise herein, have the right to determine any questions which arise in connection
with the grant of the Restricted Unit Award. The number and kind of Shares deliverable pursuant to the Restricted Unit Award are
subject to adjustment as provided in Section 12 of the Plan.
3.
Compliance with Legal Requirements. The granting and delivery of Restricted Unit Award, as applicable, and any
other obligations of the Company under this Agreement, shall be subject to all applicable federal, state, local and foreign laws,
rules and regulations and to such approvals by any regulatory or governmental agency as may be required.
4.
Transferability. No Restricted Unit Award may be assigned, alienated, pledged, attached, sold or otherwise
transferred or encumbered by the Participant other than by will or by the laws of descent and distribution and any such purported
assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be void and unenforceable against the Company
or any Affiliate.
5.
Section 280G. If any payment or benefit due under this Restricted Unit Award, together with all other payments
and benefits that the Participant is entitled to receive from the Company or any of its Affiliates, would (if paid) constitute an
“excess parachute payment” (as defined in Code Section 280G(b)(1)), the amounts otherwise payable under this Restricted Unit
Award may, at the discretion of the Committee, be limited to the minimum extent necessary to ensure that no portion thereof will
fail to be tax-deductible to the Company (or a related entity) by reason of Code Section 280G or result in an excise tax payable
pursuant to Code Section 4999. The determination of whether any payment or benefit would (if paid or provided) constitute an
“excess parachute payment” will be made by the Committee.
6.
Miscellaneous.
(a) Waiver. Any right of the Company contained in this Agreement may be waived in writing by the
Committee. No waiver of any right hereunder by any party shall operate as a waiver of any other right, or as a waiver of the
same right with respect to any subsequent occasion for its exercise, or as a waiver of any right to damages. No waiver by any
party of any breach of this Agreement shall be held to constitute a waiver of any other breach or a waiver of the continuation of
the same breach.
(b)
Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement and each other provision of this Agreement shall be severable
and enforceable to the extent permitted by law.
(c)
No Right to Employment. Nothing contained in this Agreement shall be construed as giving the
Participant any right to be retained, in any position, as an employee, consultant, or director of the Company or its Affiliates or
shall interfere with or restrict in any way the right of the Company or its Affiliates, which are hereby expressly reserved, to
remove, terminate or discharge the Participant with or without Cause at any time for any reason whatsoever. Although over the
course of employment terms and conditions of employment may change, the at-will term of employment of the Participant will
not change. For purposes of this Agreement, the continuous employment of the Participant with the Company and its Affiliates
shall not be deemed to have been interrupted, and the Participant shall not be deemed to have ceased to be an employee of the
Company and its Affiliates, by reason of the transfer of the Participant’s employment among the Company and its Affiliates or a
leave of absence approved by the Committee.
3
(d)
Successors. The terms of this Agreement shall be binding upon and inure to the benefit of the Company,
its successors and assigns, the Participant and the beneficiaries, executors, administrators, heirs and successors of the Participant.
(e)
Relation to Other Benefits. Any economic or other benefit to the Participant under this Agreement or the
Plan shall not be taken into account in determining any benefits to which the Participant may be entitled under any profit-sharing,
retirement or other benefit or compensation plan maintained by the Company or a Subsidiary and shall not affect the amount of
any life insurance coverage available to any beneficiary under any life insurance plan covering employees of the Company or a
Subsidiary.
(f)
Taxes and Withholding. To the extent that the Company or any of its Affiliates is required to withhold any
federal, state, local, foreign or other tax in connection with the Restricted Units or dividend equivalent payments thereon pursuant
to this Agreement, it shall be a condition to earning the award that the Participant make arrangements satisfactory to the
Company or any of its Affiliates for payment of such taxes required to be withheld. The Committee may, in its sole discretion,
require the Participant to satisfy such required withholding obligation by surrendering to the Company a portion of the Shares
earned by the Participant hereunder, and the Shares so surrendered by the Participant shall be credited against any such
withholding obligation at the Fair Market Value of such Shares on the date of surrender or in such other reasonable manner as
determined by the Company.
(g)
Amendments. Subject to the terms of the Plan, the Committee may modify this Agreement upon written
notice to the Participant. Any amendment to the Plan shall be deemed to be an amendment to this Agreement to the extent that
the amendment is applicable hereto; provided, however, no amendment of the Plan or this Agreement shall adversely affect the
rights of the Participant under this Agreement without the Participant's consent unless the Committee determines, in good faith,
that such amendment is required for the Agreement to either be exempt from the application of, or comply with, the requirements
of Section 409A of the Code, or as otherwise may be provided in the Plan.
(h)
Section 409A of the Code. It is intended that the Restricted Units shall be exempt from the application of,
or comply with, the requirements of Section 409A of the Code. The terms of this Agreement shall be construed, administered,
and governed in a manner that effects such intent, and the Committee shall not take any action that would be inconsistent with
such intent. Without limiting the foregoing, the Restricted Units shall not be deferred, accelerated, extended, paid out, settled,
adjusted, substituted, exchanged or modified in a manner that would cause the award to fail to satisfy the conditions of an
applicable exception from the requirements of Section 409A of the Code or otherwise would subject the Participant to the
additional tax imposed under Section 409A of the Code. Notwithstanding the foregoing, the Company makes no representation
that the Restricted Stock Units provided under this agreement comply with Section 409A of the Code and in no event shall the
Company be liable for all or any portion of any taxes, penalties, interest or other expenses that may be incurred by the Participant
on account of non-compliance with Section 409A of the Code.
(i)
Entire Agreement. This Agreement, the Plan and, if applicable, the Restrictive Covenant Agreement
contain the entire agreement and understanding of the parties hereto with respect to the subject matter contained herein and
supersede all prior communications, representations and negotiations in respect thereto; provided, however, the Participant
understands that the Participant may have an existing agreement(s) with the Company, through prior awards, acquisition of a
prior employer or otherwise, that may include the same or similar covenants as those in any Restrictive Covenant Agreement, and
acknowledges that any Restrictive Covenant Agreement is meant to supplement any such agreement(s) such that the covenants in
the agreements that provide the Company with the
4
greatest protection enforceable under applicable law shall control, and that the parties do not intend to create any ambiguity or
conflict that would release the Participant from the obligations the Participant has assumed under the restrictive covenants in any
of these agreements, including any Restrictive Covenant Agreement. No change, modification or waiver of any provision of this
Agreement shall be valid unless the same be in writing and signed by the parties hereto, except for any changes permitted without
consent of the Participant under the Plan.
(j)
Governing Law. This Agreement shall be construed and interpreted in accordance with the laws of the
State of Delaware without regard to principles of conflicts of law thereof, or principles of conflicts of laws of any other
jurisdiction which could cause the application of the laws of any jurisdiction other than the State of Delaware.
(k)
Headings. The headings of the Sections hereof are provided for convenience only and are not to serve as a
basis for interpretation or construction and shall not constitute a part of this Agreement.
(l)
Electronic Delivery. The Participant consents and agrees to electronic delivery of any documents that the
Company may elect to deliver (including, but not limited to, prospectuses, prospectus supplements, grant or award notifications
and agreements, account statements, annual and quarterly reports, and all other forms of communications) in connection with this
and any other award made or offered under the Plan. The Participant understands that, unless earlier revoked by the Participant
by giving written notice to the Chief Financial Officer of the Company, this consent shall be effective for the duration of the
Agreement. The Participant also understands that he or she shall have the right at any time to request that the Company deliver
written copies of any and all materials referred to above at no charge. The Participant consents to any and all procedures the
Company has established or may establish for an electronic signature system for delivery and acceptance of any such documents
that the Company may elect to deliver, and agrees that his or her electronic signature is the same as, and shall have the same force
and effect as, his or her manual signature. The Participant consents and agrees that any such procedures and delivery may be
effected by a third party engaged by the Company to provide administrative services related to the Plan.
5
The undersigned acknowledges that a copy of the Plan, Plan Summary and Prospectus, and the Company’s most
recent Annual Report and Proxy Statement (the “Prospectus Information”) are available for viewing on the Company’s
intranet site at www.atricure.com. The Participant consents to receiving this Prospectus Information electronically, or, in the
alternative, agrees to contact the Company’s Chief Financial Officer at (513) 755-4100 to request a paper copy of the
Prospectus Information at no charge. The Participant represents that he or she is familiar with the terms and provisions of
the Prospectus Information and accepts the Award described herein on the terms and conditions set forth in this Agreement
and in the Plan.
By accepting this Agreement through the online acceptance tool on E-Trade website, the Participant agrees to all of
the terms and conditions in this Agreement and the Plan.
ATRICURE, INC.
By:______________________
Michael H. Carrel
President & Chief Executive Officer
By:______________________
Angela L. Wirick
Chief Financial Officer
PARTICIPANT
_________________________
Name:
6
APPENDIX
ATRICURE, INC. 2023 STOCK INCENTIVE PLAN
RESTRICTED STOCK UNIT AWARD AGREEMENT
(Non-U.S. Employees)
This Appendix includes additional terms and conditions that govern the Restricted Stock Units granted to the Participant if the
Participant resides in one of the countries listed herein. The Appendix forms part of the Agreement. Capitalized terms used but
not defined herein shall have the meanings ascribed to them in the Agreement and the Plan.
This Appendix also includes information regarding exchange controls and certain other issues of which the Participant should be
aware with respect to the Participant’s participation in the Plan. The information is based on the securities, exchange control and
other laws in effect in the respective countries as of December 1, 2008. Such laws are often complex and change frequently. As
a result, the Company strongly recommends that the Participant not rely on the information noted herein as the only source of
information relating to the consequences of the Participant’s participation in the Plan because the information may be out of date
at the time the Participant vests in the Restricted Units or sells the shares acquired under the Plan.
In addition, the information contained herein is general in nature and may not apply to the Participant’s particular situation, and
the Company is not in a position to assure the Participant of any particular result. Accordingly, the Participant is advised to seek
appropriate professional advice as to how the relevant laws in the Participant’s country may apply to the Participant’s situation.
Finally, if the Participant is a citizen or resident of a country other than the one in which the Participant is currently working, the
information contained herein may not be applicable to the Participant.
Australia
Settlement of RSUs. Notwithstanding any discretion in the Plan or anything to the contrary in the Agreement, this grant of RSUs
does not provide any right for you to receive a cash payment and RSUs are payable in Shares only.
Securities Law Information. If you acquire Shares under the Plan and you offer such Shares for sale to a person or entity
resident in Australia, the offer may be subject to disclosure requirements under Australian law. You should obtain legal advice on
your disclosure obligation prior to making any such offer.
No country-specific terms apply.
Employee Tax Treatment
Belgium
Canada
For Canadian federal income tax purposes, the RSU is intended to be treated as an agreement by the Company to sell or
issue shares to the Employee and, as such, is intended to be subject to the rules in section 7 of the Income Tax Act (Canada).
Under those rules, the Participant will be considered to have received an employment benefit at the time of settlement
7
of the vested RSUs equal to the full value of the Shares received, which amount will be taxed as employment income and will be
subject to withholding at source.
Settlement
Notwithstanding any discretion in the Plan, the Notice or the Agreement to the contrary, settlement of the RSUs shall only
be made in Shares issued by the Company from treasury and not, in whole or in part, in the form of cash or other consideration.
Foreign Share Ownership Reporting
If you are a Canadian resident, your ownership of certain foreign property (including shares of foreign corporations) in
excess of $100,000 may be subject to ongoing annual reporting obligations. Please refer to CRA Form T1135 (Foreign Income
Verification Statement) and consult your tax advisor for further details. It is your responsibility to comply with all applicable tax
reporting requirements.
Securities Law Notice
The security represented by the Agreement was issued pursuant to an exemption from the prospectus requirements of
applicable securities legislation in Canada. Participant acknowledges that as long as the Company is not a reporting issuer in any
jurisdiction in Canada, the RSUs and the underlying Shares will be subject to an indefinite hold period and that the RSUs and the
underlying Shares are subject to restrictions on their transfer pursuant to such applicable securities legislation. Participant further
acknowledges that (i), unless permitted under applicable securities legislation, the Participant is not permitted to transfer the
RSUs or the underlying Shares before the date that is 4 months and a day after the later of (a) the date of this Agreement and (b)
the date the Company became a reporting issuer (as such term is defined under applicable securities legislation) in any province
of territory in Canada; (ii) the certificates representing the RSUs and the underlying Shares will bear the legend required by
applicable securities legislation indicating that the resale of such securities is restricted; and (iii) the Participant has been advised
to consult the Participant's own legal counsel for full particulars of the resale restrictions applicable to the Participant.
Quebec: Consent to Receive Information in English
The following applies if you are a resident of Quebec: The parties acknowledge that it is their express wish that this
Agreement, as well as all documents, notices and legal proceedings entered into, given or instituted pursuant hereto or relating
directly or indirectly hereto, be drawn up in English. Les parties reconnaissent avoir exigé la redaction en anglais de cette
convention, ainsi que de tous documents exécutés, avis donnés et procedures judiciaries intentées, directement ou indirectement,
relativement à la présente convention.
Exchange Control Information. The Participant must comply with the exchange control regulations in France. The Participant
may hold stock outside of France, provided the Participant declares any bank or stock account opened, held or closed abroad to
the French tax authorities on an annual basis. Furthermore, the Participant must declare to the customs and excise authorities any
cash or securities the Participant imports or exports without the use of a financial institution when the value of the cash or
securities exceeds €7,600 outside of the European Union.
France
8
Germany
Exchange Control Information. Cross-border payments in excess of €12,500 must be reported monthly to the German Federal
Bank. If the Participant uses a German bank to effect a cross-border payment in excess of €12,500 in connection with the sale of
shares acquired under the Plan, the bank will make the report for the Participant. In addition, the Participant must report any
receivables or payables or debts in foreign currency exceeding an amount of €5,000,000 on a monthly basis. Finally, the
Participant must report, on an annual basis, shares that exceed 10% of the total voting capital of the Company.
Hong Kong
Delivery of Shares. This provision supplements Section 5 of the Award Agreement:
Shares received under the Plan are accepted as a personal investment. In the event the Restricted Stock Units vest and shares of
stock are paid to Participant within six months of the Grant Date, Participant agrees that he or she will not dispose of the shares
acquired prior to the six-month anniversary of the Grant Date.
Securities Law Information. Securities Warning: This offer of Restricted Stock Units and the shares to be issued pursuant to
the Award is not a public offer of securities and is available only for Plan Participants. The Award Agreement, including this
Appendix, the Plan and other incidental Award documentation have not been prepared in accordance with and are not intended to
constitute a “prospectus” for a public offering of securities under the applicable securities legislation in Hong Kong, nor has the
Award documentation been reviewed by any regulatory authority in Hong Kong. The Restricted Stock Units are intended only for
the personal use of each eligible Plan Participant and the Company and may not be distributed to any other person. If you are in
any doubt about any of the contents of the Award Agreement, including this Appendix, or the Plan, you should obtain
independent professional advice.
Nature of Scheme. The Company specifically intends that the Plan will not be an occupational retirement scheme for purposes
of the Occupational Retirement Schemes Ordinance.
Data Privacy Consent.
Italy
The Participant hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other
form, of the Participant’s personal data as described in this Agreement by and among, as applicable, the Company and its
Subsidiaries for the exclusive purpose of implementing, administering and managing the Participant’s participation in the
Plan. The Participant understands that the Company and any Subsidiary may hold certain personal information about the
Participant, including, but not limited to, the Participant’s name, address and telephone number, date of birth, social security
number or other identification number, salary, nationality, job title, and shares or directorships held in the Company or any
Subsidiary, details of all RSUs or any other entitlement to shares awarded, canceled, exercised, vested, unvested or outstanding in
the Participant’s favor, for the purpose of implementing, administering and managing the Plan (the “Data”). The Participant also
understands that providing the Company with the Data is necessary for the performance of the Plan and that the Participant’s
refusal to provide such Data would make it impossible for the Company to perform its contractual obligations and may affect the
Participant’s ability to participate in the Plan. The Controller of personal data processing is AtriCure, Inc., 7555 Innovation Way,
Mason, Ohio 45040, United States of America, and, pursuant to Legislative Decree no. 196/2003, its representative in Italy is
_______________ with registered offices
9
at___________________________, Italy. The Participant understands that the Data will not be publicized, but it may be
transferred to banks, other financial institutions or brokers involved in the management and administration of the Plan. The
Participant understands that the Data may also be transferred to the independent registered public accounting firm engaged by the
Company. The Participant further understands that the Company and/or any Subsidiary will transfer the Data among themselves
as necessary for the purpose of implementing, administering or managing the Participant’s participation in the Plan, and that the
Company or Subsidiary may each further transfer the Data to third parties assisting the Company in the implementation,
administration and management of the Plan, including any requisite transfer of the Data to a broker or other third party with
whom the Participant may elect to deposit any Shares acquired at vesting of the RSUs. Such recipients may receive, possess, use,
retain and transfer the Data in electronic or other form, for the purposes of implementing, administering and managing the
Participant’s participation in the Plan. The Participant understands that these recipients may be located outside the European
Economic Area, such as in the United States or elsewhere. Should the Company exercise its discretion in suspending all
necessary legal obligations connected with the management and administration of the Plan, it will delete the Data as soon as it
has completed all the necessary legal obligations connected with the management and administration of the Plan. The Participant
understands that the Data processing related to the purposes specified above shall take place under automated or non-automated
conditions, anonymously where possible, that comply with the purposes for which the Data is collected and with confidentiality
and security provisions, as set forth by applicable laws and regulations with specific reference to Legislative Decree no.
196/2003. The processing activity, including communication, the transfer of the Data abroad, including outside of the European
Economic Area, as herein specified and pursuant to applicable laws and regulations, does not require the Participant’s consent
thereto, as the processing is necessary to performance of contractual obligations related to implementation, administration and
management of the Plan. The Participant understands that, pursuant to Section 7 of the Legislative Decree no. 196/2003, the
Participant has the right to, for example but not by way of limitation, access, delete, update, correct or terminate, for legitimate
reason, the Data processing. Furthermore, the Participant is aware that the Data will not be used for direct-marketing purposes. In
addition, Data provided can be reviewed and questions or complaints can be addressed by contacting the Participant’s local
human resources representative with the Company.
Plan Document Acknowledgment. By accepting the RSUs, the Participant acknowledges that (1) the Participant has received a
copy of the Plan, the Agreement and this Appendix; (2) the Participant has reviewed those documents in their entirety and fully
understands the contents thereof; and (3) the Participant accepts all provisions of the Plan, the Agreement and this Appendix. The
Participant further acknowledges that the Participant has read and specifically and expressly approves, without limitation, the
following sections of the Agreement: No Right to Employment; Taxes and Withholding; Data Privacy; as replaced by the above
consent; Governing Law.
The Netherlands
Securities Law Information. In the event the Participant acquires shares from the Company pursuant to the vesting
or payment of the RSUs, it is prohibited for the Participant to ubsequently offer such shares to the public in the Netherlands
unless a prospectus approved by the Dutch Authority for the Financial Markets (Autoritiet Financiele Markten), in accordance
with the Prospectus Directive (2003/71/EC), as amended and implemented in the Netherlands, is made generally available or
unless an exemption to the aforementioned prospectus requirement applies under Dutch law.
The Participant must comply with all applicable local securities laws when offering acquired shares to the public. Before any
offer (or invitation to offer) of the shares is made the Participant
10
must obtain expert advice from a legal advisor in order to ensure compliance with local securities laws. Breach of securities laws
may lead to considerable administrative penalties and/or imprisonment.
Securities Law Notice
New Zealand
This is an offer of Restricted Stock Units in AtriCure, Inc. AtriCure shares give you a stake in the ownership of AtriCure.
You may receive a return if dividends or dividend equivalents are paid. If AtriCure runs into financial difficulties and is wound
up, shareholders will only be paid after all creditors have been paid. You may lose some or all of your investment.
New Zealand law normally requires people who offer financial products to give information to investors before they
invest. This information is designed to help investors to make an informed decision. The usual rules do not apply to this offer
because it is made under an employee share purchase scheme. As a result, you may not be given all the information usually
required. You will also have fewer other legal protections for this investment. Ask questions, read all documents carefully, and
seek independent financial advice before committing yourself.
RSUs may not be transferred other than by will or by the laws of descent or distribution, subject to the terms of the RSU
Agreement. If you receive shares upon vesting of RSUs, you may sell such shares, subject to any applicable insider trading laws
or other regulations and any other trading restrictions imposed by AtriCure. AtriCure shares are traded on NASDAQ. This means
you may be able to sell them on the NASDAQ if there are interested buyers. You may get less than you invested. The price will
depend on the demand for the AtriCure shares.
Securities Law Notice
Singapore
This grant of the RSU and the Common Stock to be issued upon vesting of the RSU shall be made available only to an
employee of the Company or its Subsidiary, in reliance of the prospectus exemption set out in Section 173(1)(f) of the Securities
and Futures Act (Chapter 289) of Singapore. In addition, you agree, by your acceptance of this grant, not to sell any Common
Stock within six months of the date of grant. Please note that neither this Agreement nor any other document or material in
connection with this offer of the RSU and the Common Stock thereunder has been or will be lodged, registered or reviewed by
any regulatory authority in Singapore.
Director Reporting
If you are a director or shadow director of the Company or an affiliate, you may be subject to special reporting
requirements with regard to the acquisition of shares or rights over shares. Please contact your personal legal advisor for further
details if you are a director or shadow director.
Exit Tax / Deemed Exercise Rule
If you have received RSUs in relation to your employment in Singapore, please note that if, prior to the vesting of your
RSUs, you are 1) a permanent resident of Singapore and leave Singapore permanently or are transferred out of Singapore; or 2)
neither a Singapore citizen nor permanent resident and either cease employment in Singapore or leave Singapore for any period
11
exceeding 3 months, you will likely be taxed on your unvested RSUs on a “deemed exercise” basis, even though your RSUs have
not yet vested. You should discuss your tax treatment with your personal tax advisor.
Foreign Share Ownership Reporting
Spain
If you are a Spanish resident, your acquisition, purchase, ownership, and/or sale of foreign-listed stock may be subject to ongoing
reporting obligations with the Dirección General de Politica Comercial e Inversiones Exteriores (“DGPCIE”) of the Ministerio de
Economia, the Bank of Spain, and/or the tax authorities. These requirements change periodically, so you should consult your
personal advisor to determine the specific reporting obligations. Currently, you must declare the acquisition of Shares to DGPCIE
for statistical purposes. You must also declare the ownership of any Shares with the DGPCIE each January while the shares are
owned. The relevant forms are Form D6 and, depending on the amount of assets, Form D8. In addition, if you perform
transactions with non-Spanish residents or hold a balance of assets and liabilities with foreign parties higher than EUR 1,000,000,
you may be required to report such transactions and accounts to the Bank of Spain. The frequency (monthly, quarterly or
annually) of the notification will vary depending on the total value of the transactions or the balance of assets and liabilities. If
you hold assets or rights outside of Spain (including Shares acquired under the Plan), you may also have to file Form 720 with
the tax authorities, generally if the value of your foreign investments exceeds €50,000. Please note that reporting requirements
are based on what you have previously disclosed and the increase in value and the total value of certain groups of foreign assets.
Terms and Conditions
Withholding taxes. This provision supplements the Award.
United Kingdom
The Participant agrees that if the Participant does not pay or the Employer or the Company does not withhold from the
Participant the full amount of income tax that the participant owes due to the vesting of the Restricted Stock Units, or the release
or assignment of the Restricted Stock Units for consideration, or the receipt of any other benefit in connection with the Restricted
Stock Units (the “Taxable Event”) within 90 days of the Taxable Event, or such other period specified in Section 222(1) (c) of the
U.K. Income Tax (Earnings and Pensions) Act 2003, then the amount that should have been withheld shall constitute a loan owed
by the Participant to the Employer, effective 90 days after the Taxable Event. The Participant agrees that the loan will bear
interest at the then current rate of Her Majesty’s Revenue and Customs (“HMRC”) and will be immediately due and repayable by
the Participant, and the Company and/or Employer may recover it at any time thereafter by withholding the funds from salary,
bonus or any other funds due to the Participant by the Employer, by withholding in shares issued upon vesting and settlement of
the RSU’s or from the cash proceeds from the sale of shares or by demanding cash or a cheque from the Participant. The
Participant also authorizes the Company to delay the issuance of any shares to the Participant unless and until the loan is repaid in
full.
Notwithstanding the foregoing, if the Participant is an officer or executive director (as within the meaning of Section 13(k) of the
U.S. Securities and Exchange Act of 1934, as amended), the terms of the immediately foregoing provision will not apply. In the
event that the Participant is an officer or executive director and income tax is not collected from or paid by the Participant within
90 days of the Taxable Event, the amount of any uncollected income tax may constitute a benefit to the Participant on which
additional income tax and national insurance contributions
12
may be payable. The Participant acknowledges that the Company or the Employer may recover any such additional income tax
and national insurance contributions at any time thereafter by any of the means referred to in Section 11 of the Award. However,
the Participant is also responsible for reporting and paying any income tax and national insurance contributions due on this
additional benefit directly to HMRC under the self-assessment regime.
Restricted Stock Units payable in shares. Notwithstanding any discretion in the Plan or anything to the contrary in the Award,
Restricted Stock Units granted to the Participant in the United Kingdom does not provide any right for the Participant to receive a
cash payment; the Restricted Stock Units are payable in shares only.
13
ATRICURE, INC.
Exhibit 19
INSIDER TRADING POLICY
and
Guidelines with Respect to Certain Transac ons in Securi es
Amended and restated effec ve as of March 1, 2023
Execu ve Summary
Insider Trading –
(a)
It is a viola on of US law for directors, officers, employees, and other individuals who possess material nonpublic
informa on regarding the Company to execute transac ons in Company Securi es.
• All individuals bear personal responsibility for determining if they are in possession of material, non-public
informa on before seeking to engage in any Company Securi es transac ons.
It is not a defense that the person did not “use” the informa on for the transac on.
•
(b)
(c)
Both (1) disclosing material nonpublic informa on to others who then execute transac ons on the basis of the
informa on and (2) making recommenda ons or expressing opinions on transac ons while in the possession of
material nonpublic informa on are also illegal. Both the person sharing such informa on or recommenda on and the
person ac ng on it may be legally liable.
Covered Persons (defined below) are required to pre-clear any transac ons in Company Securi es. “Covered Persons”
include the following:
•
•
•
•
all members of the Board of Directors
all execu ve officers
all employees who hold a tle of “director,” “vice president” and any other comparable tle or tle senior to
those tles are defined herein
any other person no fied in wri ng from me to me by the Chief Financial Officer
(d)
You are required to disclose any viola ons of this Policy to the Chief Financial Officer.
Blackout Periods –
(a)
The Company u lizes automa c blackout periods coinciding with quarterly earnings, and may also announce a
blackout period where there is increased risk of insider trading. During a blackout period, iden fied individuals are
prohibited from execu ng transac ons in Company securi es unless they have entered into special agreements
permi ed by the SEC.
Whether or not you are subject to blackout periods or are subject to one at any given me, you remain subject to the
prohibi ons on trading on the basis of material nonpublic informa on and any other applicable restric ons in this
Policy.
(b)
Other Restric ons and Requirements – A wide variety of addi onal restric ons on securi es transac ons and repor ng
requirements are covered by the following Policy and guidelines.
Please review this en re document, as the execu ve summary above does not purport to cover all restricted behavior and
contact the Chief Financial Officer with any ques ons.
-2-
TABLE OF CONTENTS
I. Introduction
II. Persons Subject to the Policy
III. Transactions Subject to the Policy
IV. Individual Responsibility
V. Administration of the Policy
VI. Statement of Policy
VII. Definition of Material Nonpublic Information
VIII. Transactions by Family Members and Others
IX. Transactions by Entities that You Influence or Control
X. Transactions Under Company Stock Incentive Plans
XI. Gifts
XII. Special and Prohibited Transactions
XIII. Additional Procedures
XIV. Rule 10b5-1 Plans
XV. Post-Termination Transactions
XVI. Section 16: Insider Reporting Requirements, Short-Swing Profits and Short Sales
XVII. Rule 144
XVIII. Internet Message Boards, Chat Rooms, and Discussion Groups
XIX. Company Assistance
XX. Certification
-3-
Page
4
4
4
5
5
5
6
8
8
8
9
9
11
13
17
17
18
19
19
19
I.
Introduc on
The purchase or sale of securi es while aware of material nonpublic informa on, or the disclosure of material nonpublic
informa on to others who then trade in Company Securi es (defined below), is prohibited by federal and state laws. Insider
trading viola ons are pursued vigorously by the U.S. Securi es and Exchange Commission (“SEC”), U.S. A orneys and state
enforcement authori es. Punishment for insider trading viola ons is severe, and could include significant fines and
imprisonment. While the regulatory authori es concentrate their efforts on the individuals who trade, or who p inside
informa on to others who trade, the federal securi es laws also impose poten al liability on companies and other “controlling
persons” if they fail to take reasonable steps to prevent insider trading by company personnel.
An employee’s failure to comply with this Insider Trading Policy (the “Policy”) may subject the employee to Company-imposed
sanc ons, including dismissal for cause, whether or not the employee’s failure to comply results in a viola on of law. If a
member of the Board of Directors (a “director”) fails to comply with this Policy, the Company reserves the right to remove that
person from the Board of Directors, whether or not her/his failure to comply results in a viola on of law. If a consultant engaged
by the Company fails to comply with this policy, the Company reserves the right to discon nue the Company’s engagement with
the consultant, whether or not the consultant’s failure to comply results in a viola on of law. Needless to say, a viola on of law,
or even an SEC inves ga on that does not result in prosecu on, can tarnish a person’s reputa on and irreparably damage a
career.
This Policy provides guidelines with respect to transac ons in the securi es of AtriCure, Inc. (the “Company” or “AtriCure”) and
the handling of confiden al informa on about AtriCure and the companies with which it does business. The Company’s Board
of Directors has adopted this Policy to promote compliance with federal, state and foreign securi es laws that prohibit persons
who are aware of material nonpublic informa on about a company from: (i) trading in securi es of that company; or (ii)
providing material nonpublic informa on to other persons who may trade on the basis of that informa on.
II.
Persons Subject to the Policy
This Policy applies to all officers of the Company and its subsidiaries, all directors and all employees of the Company and its
subsidiaries. The Company may also determine that other persons should be subject to this Policy, such as contractors or
consultants who have access to material nonpublic informa on. This Policy also applies to family members, other members of a
person’s household and en es controlled by a person covered by this Policy, as described below.
III.
Transac ons Subject to the Policy
This Policy applies to transac ons in the Company’s securi es (collec vely referred to in this Policy as “Company Securi es”),
including the Company’s common stock, op ons to purchase common stock, or any other type of securi es that the Company
may issue, including (but not limited to) preferred stock, conver ble debentures and warrants, as well as deriva ve securi es
that are not issued by the Company, such as exchange-traded put or call op ons or swaps rela ng to the Company’s Securi es.
Transac ons in mutual funds that are invested in Company Securi es are not transac ons subject to this Policy.
IV.
Individual Responsibility
Persons subject to this Policy have ethical and legal obliga ons to maintain the confiden ality of informa on about the
Company and to not engage in transac ons in Company Securi es
-4-
while in possession of material nonpublic informa on. Persons subject to this policy must not engage in illegal trading and must
avoid the appearance of improper trading. Each individual is responsible for making sure that he or she complies with this
Policy, and that any family member, household member or en ty whose transac ons are subject to this Policy, as discussed
below, also comply with this Policy. In all cases, the responsibility for determining whether an individual is in possession of
material nonpublic informa on rests with that individual, and any ac on on the part of the Company, the Chief Financial Officer
or any other employee or director pursuant to this Policy (or otherwise) does not in any way cons tute legal advice or insulate
an individual from liability under applicable securi es laws. You could be subject to severe legal penal es and disciplinary ac on
by the Company for any conduct prohibited by this Policy or applicable securi es laws.
V.
Administra on of the Policy
The Chief Financial Officer shall administer this Policy, and in the Chief Financial Officer’s absence, the Chief Legal Officer or
another employee designated by the Chief Financial Officer shall be responsible for administra on of this Policy. All
determina ons and interpreta ons by the Chief Financial Officer or her/his designee shall be final and not subject to further
review.
VI.
Statement of Policy
It is the policy of the Company that no director, officer or other employee of the Company, or any other person designated by
the Chief Financial Officer as subject to this Policy, who is aware of material nonpublic informa on rela ng to the Company may,
directly, or indirectly through family members or other persons or en es:
A.
B.
C.
Engage in transac ons in Company Securi es, except as otherwise specified in this Policy under the headings
“Transac ons Under Company Stock Incen ve Plans,” “Gi s” and “Rule 10b5-1 Plans;”
Recommend the purchase or sale of any Company Securi es;
Disclose material nonpublic informa on to persons within the Company whose jobs do not require them to have
that informa on, or outside of the Company to other persons, including, but not limited to, family, friends,
business associates, investors and expert consul ng firms, unless any such disclosure is made in accordance with
the Company’s policies regarding the protec on or authorized external disclosure of informa on regarding the
Company; or
D.
Assist anyone engaged in the above ac vi es.
In addi on, it is the policy of the Company that no director, officer or other employee of the Company, or any other person
designated by the Chief Financial Officer as subject to this Policy, who, in the course of working for the Company, learns of
material nonpublic informa on about a company with which the Company does business, including a customer or supplier of
the Company, may trade in that other company’s securi es un l the informa on becomes public or is no longer material.
There are no excep ons to this Policy, except as specifically noted herein. Transac ons that may be jus fiable for independent
reasons (such as the need to raise money for an emergency expenditure), or small transac ons, are not excepted from this
Policy. The securi es laws do not recognize any mi ga ng circumstances. Further, even the appearance of an improper
transac on must be avoided to preserve the Company’s reputa on for adhering to the highest standards of conduct.
-5-
VII.
Defini on of Material Nonpublic Informa on
A.
Material Informa on. Informa on is considered “material” if a reasonable investor would consider that
informa on important in making a decision to buy, hold or sell securi es. Any informa on that could be expected
to affect a company’s stock price, whether it is posi ve or nega ve, should be considered material. There is no
bright-line standard for assessing materiality; rather, materiality is based on an assessment of all of the facts and
circumstances, and is o en evaluated by enforcement authori es with the benefit of hindsight. While it is not
possible to define all categories of material informa on, some examples of informa on that ordinarily would be
regarded as material are:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
Projec ons of future earnings or losses, or other earnings guidance;
Changes to previously announced earnings guidance, or the decision to suspend earnings guidance;
A pending or proposed merger, acquisi on or tender offer;
A pending or proposed acquisi on or disposi on of a significant asset;
A pending or proposed joint venture;
A Company restructuring;
Results of clinical trials rela ng to the Company’s products or significant ac ons by regulators (e.g., the
FDA) with respect to the Company;
New major contracts, orders, suppliers, customers, or finance sources, or the loss thereof;
Major discoveries or significant changes or developments in products or product lines, research, pricing or
technologies;
Significant related party transac ons;
A change in dividend policy, the declara on of a stock split, or an offering of addi onal securi es;
Bank borrowings or other financing transac ons out of the ordinary course;
The establishment of a repurchase program for Company Securi es;
Significant changes or developments in supplies or inventory, including significant product defects, recalls,
or product returns;
Significant changes in execu ve officers;
A change in auditors or no fica on that the auditor’s reports may no longer be relied upon;
Development of a significant new product, process, or service;
-6-
18.
19.
20.
21.
Pending or threatened significant li ga on or inves ga ons, or the resolu on of such li ga on or
inves ga ons;
Impending bankruptcy or the existence of severe liquidity problems;
A significant cybersecurity incident, such as a data breach or any other significant disrup on in the
Company’s opera ons, or loss, poten al loss, breach or unauthorized access of Company property or
assets, whether at its facili es or through its informa on technology infrastructure; or
The imposi on of an event-specific restric on on trading in Company Securi es or the securi es of
another company or the extension or termina on of such restric on.
B.
When Informa on is Considered Public. Informa on that has not been disclosed to the public is generally
considered to be nonpublic informa on. In order to establish that the informa on has been disclosed to the
public, it may be necessary to demonstrate that the informa on has been widely disseminated. Informa on
generally would be considered widely disseminated if it has been disclosed through the Dow Jones “broad tape,”
newswire services, a broadcast on widely available radio or television programs, conference calls and webcasts
conducted in a manner compliant with Regula on FD preceded by a related Form 8-K filing, publica on in a
widely available newspaper, magazine or news website, or public disclosure documents filed with the SEC that
are available on the SEC’s website. By contrast, informa on would likely not be considered widely disseminated if
it is available only to the Company’s employees, or if it is only available to those who may owe the Company a
duty of confiden ality such as a select group of analysts, brokers and ins tu onal investors.
Once informa on is widely disseminated, it is s ll necessary to provide the inves ng public with sufficient me to absorb the
informa on. As a general rule, informa on should not be considered fully absorbed by the marketplace un l a er the second
trading day (usually 48 hours) a er the informa on is released. If, for example, the Company were to make an announcement
on a Monday a er the close of trading, you should not trade in Company Securi es un l Thursday morning. Depending on the
par cular circumstances, the Company may determine that a longer period should apply to the release of specific material
nonpublic informa on.
VIII.
Transac ons by Family Members and Others
This Policy applies to your family members who reside with you (including a spouse, a child, a child away at college,
stepchildren, grandchildren, parents, stepparents, grandparents, siblings and in-laws), anyone else who lives in your household,
and any family members who do not live in your household but whose transac ons in Company Securi es are directed by you
or are subject to your influence or control, such as parents or children who consult with you before they trade in Company
Securi es (collec vely referred to as “Family Members”). You are responsible for the transac ons of these other persons and
therefore should make them aware of the need to confer with you before they trade in Company Securi es, and you should
treat all such transac ons for the purposes of this Policy and applicable securi es laws as if the transac ons were for your own
account. This Policy does not, however, apply to personal securi es transac ons of Family Members where the purchase or sale
decision is made by a third party not controlled by, influenced by or related to you or your Family Members.
IX.
Transac ons by En es that You Influence or Control
-7-
This Policy applies to any en es that you influence or control, including any corpora ons, business en es, partnerships or
trusts (collec vely referred to as “Controlled En es”), and transac ons by these Controlled En es should be treated for the
purposes of this Policy and applicable securi es laws as if they were for your own account.
X.
Transac ons Under Company Stock Incen ve Plans
This Policy does not apply in the case of the following transac ons, except as specifically noted:
A.
B.
C.
Stock Op on Exercises. This Policy does not apply to the exercise of an employee stock op on acquired pursuant
to the Company’s stock incen ve plans, or to the exercise of a tax withholding right pursuant to which a person
has elected to have the Company withhold shares subject to an op on to sa sfy tax withholding requirements, in
each case where no open market sale of Company Securi es occurs (i.e., cash exercise and hold). This Policy does
apply, however, to any sale of stock as part of a broker-assisted cashless exercise of an op on, or any other
market sale for the purpose of genera ng the cash needed to pay the exercise price of an op on.
Other Stock Awards. This Policy does not apply to the ves ng of restricted stock, including, without limita on,
performance share awards, or the exercise of a tax withholding right pursuant to which you elect to have the
Company withhold shares of stock to sa sfy tax withholding requirements upon the ves ng of any restricted
stock. The Policy does apply, however, to any market sale of restricted stock.
Employee Stock Purchase Plan. This Policy does not apply to purchases of Company Securi es in the employee
stock purchase plan resul ng from your periodic contribu on of money to the plan pursuant to the elec on you
made at the me of your enrollment in the plan. This Policy does apply, however, to your elec on to par cipate
in the plan for any enrollment period, changes to an elec on, and to your sales of Company Securi es purchased
pursuant to the plan.
XI.
Gi s
Bona fide gi s (i.e., gi s made in good faith and without the inten on of circumven ng federal securi es laws) are permi ed
during an open “Window Period” (described in Sec on XIII.C. below). A Covered Person making a gi during an open “Window
Period” is subject to the requirements described below under the heading “Addi onal Procedures.” Gi s are permi ed to be
made outside of an open “Window Period” only if the person making the gi first obtains and provides to the Chief Financial
Officer wri en confirma on that the recipient of the gi will not sell the securi es gi ed prior to the next open “Window
Period.”
XII.
Special and Prohibited Transac ons
The Company has determined that there is a heightened legal risk and/or the appearance of improper or inappropriate conduct
if the persons subject to this Policy engage in certain types of transac ons. It therefore is required that any persons covered by
this Policy may not engage in any of the following transac ons, or should otherwise consider the Company’s preferences as
described below:
A.
Short-Term Trading. Short-term trading of Company Securi es may be distrac ng to the person and may unduly
focus the person on the Company’s
-8-
short-term stock market performance instead of the Company’s long-term business objec ves. For these reasons,
any director or officer of the Company subject to Sec on 16 of the Securi es Exchange Act of 1934 (the
“Exchange Act”) who purchases Company Securi es in the open market may not sell any Company Securi es of
the same class during the six months following the purchase (or vice versa). Compliance with this provision of the
Policy is the individual responsibility of each director or officer subject to Sec on 16 of the Exchange Act. (Please
refer to addi onal discussion in the sec on below cap oned “Sec on 16: Insider Repor ng Requirements, Short-
Swing Profits and Short Sales”.)
Short Sales. Short sales of Company Securi es (i.e., the sale of a security that the seller does not own) may
evidence an expecta on on the part of the seller that the securi es will decline in value, and therefore have the
poten al to signal to the market that the seller lacks confidence in the Company’s prospects. In addi on, short
sales may reduce a seller’s incen ve to seek to improve the Company’s performance. For these reasons, short
sales of Company Securi es are prohibited. In addi on, Sec on 16(c) of the Exchange Act prohibits officers and
directors from engaging in short sales. Short sales arising from certain types of hedging transac ons are governed
by the paragraph below cap oned “Hedging Transac ons.” (Please refer to addi onal discussion in the sec on
below cap oned “Sec on 16: Insider Repor ng Requirements, Short-Swing Profits and Short Sales”.)
Publicly Traded Op ons. Given the rela vely short term of publicly traded op ons, transac ons in op ons may
create the appearance that a director, officer or employee is trading based on material nonpublic informa on
and focus a director’s, officer’s or other employee’s a en on on short-term performance at the expense of the
Company’s long-term objec ves. Accordingly, transac ons in put op ons, call op ons or other deriva ve
securi es, on an exchange or in any other organized market, are prohibited by this Policy.
Hedging Transac ons. Hedging or mone za on transac ons can be accomplished through a number of possible
mechanisms, including through the use of financial instruments such as prepaid variable forwards, equity swaps,
collars and exchange funds. Such transac ons may permit a director, officer or employee to con nue to own
Company Securi es obtained through employee benefit plans or otherwise, but without the full risks and
rewards of ownership. When that occurs, the director, officer or employee may no longer have the same
objec ves as the Company’s other shareholders. Therefore, directors, officers and employees are prohibited from
engaging in any such transac ons.
Margin Accounts and Pledged Securi es. Securi es held in a margin account as collateral for a margin loan may
be sold by the broker without the customer’s consent if the customer fails to meet a margin call. Similarly,
securi es pledged (or hypothecated) as collateral for a loan may be sold in foreclosure if the borrower defaults
on the loan. Because a margin sale or foreclosure sale may occur at a me when the pledgor is aware of material
nonpublic informa on or otherwise is not permi ed to trade in Company Securi es, directors, officers and other
employees are prohibited from holding Company Securi es in a margin account or otherwise pledging Company
Securi es as collateral for a loan.
B.
C.
D.
E.
F.
Standing and Limit Orders. Standing and limit orders (except standing and limit orders under approved Rule 10b5-
1 Plans, as described below) create
-9-
heightened risks for insider trading viola ons similar to the use of margin accounts. There is no control over the
ming of purchases or sales that result from standing instruc ons to a broker, and as a result the broker could
execute a transac on when a director, officer or other employee is in possession of material nonpublic
informa on. The Company therefore discourages placing standing or limit orders on Company Securi es unless
such orders are (i) approved by the Chief Financial Officer and (ii) limited to execu ng transac ons during an
open trading window under this Policy. If a person subject to this Policy determines that they must use a standing
order or limit order, the order should be limited to short dura on and should otherwise comply with the
restric ons and procedures outlined below under the heading “Addi onal Procedures.”
XIII.
Addi onal Procedures
The Company has established addi onal procedures in order to assist the Company in the administra on of this Policy, to
facilitate compliance with laws prohibi ng insider trading while in possession of material nonpublic informa on, and to avoid
the appearance of any impropriety.
A.
Pre-Clearance Procedures. Covered Persons, as well as the Family Members and Controlled En es of Covered
Persons, may not engage in any transac on in Company Securi es without first obtaining pre-clearance of the
transac on from the Chief Financial Officer. A request for pre-clearance must be in wri ng (including e-mail) and
must be submi ed to and approved by the Chief Financial Officer in advance of the proposed transac on.
When a Covered Person requests pre-clearance to trade in Company Securi es, she/he should carefully consider
whether she/he may be aware of any material nonpublic informa on about the Company, and should describe
fully those circumstances to the Chief Financial Officer. The Covered Person, if such Covered Person is subject to
the requirements of Sec on 16 of the Exchange Act by virtue of the fact that such Covered Person is a director or
execu ve officer, should also indicate whether he or she has effected any non-exempt “opposite-way”
transac ons within the past six months, and should be prepared to report the proposed transac on on an
appropriate Form 4 or Form 5. The Covered Person, if such Covered Person is subject to the requirements of Rule
144 of the Securi es Act of 1933, as amended (the “Securi es Act”) by virtue of the fact that such Covered
Person is a director or execu ve officer, should also be prepared to comply with SEC Rule 144 and file Form 144, if
necessary, at the me of any sale. Rule 144 does not apply to purchases.
The Chief Financial Officer is under no obliga on to approve a transac on submi ed for pre-clearance, and may
determine not to permit the transac on. If a person seeks pre-clearance and permission to engage in the
transac on is denied, then he or she should refrain from ini a ng any transac on in Company Securi es, and
should not inform any other person of the restric on.
B.
Dura on of Clearance: Pre-cleared trades must be effected within five trading days of receipt of pre-clearance
unless an excep on is granted. Transac ons not effected within the me limit are subject to repeated pre-
clearance.
The Chief Financial Officer from me to me may establish coordinated procedures with the Company’s Payroll
func on and/or through the Company’s
-10-
stock plan administra on pla orm and brokerage firm. Such procedures shall supplement this Policy.
C.
Quarterly Trading Restric ons. Covered Persons, and anyone designated by the Chief Financial Officer as subject
to this restric on, as well as their Family Members or Controlled En es, may not conduct any transac ons
involving the Company’s Securi es (other than as specified by this Policy), during a “Blackout Period” beginning
fourteen (14) calendar days prior to the end of each fiscal quarter and ending on the second trading day
following the date of the public release of the Company’s financial results for that quarter. In other words,
Covered Persons may only conduct transac ons in Company Securi es during the open “Window Period”
beginning on the second trading day following the public release of the Company’s quarterly financial results and
ending two (2) weeks prior to the close of the next fiscal quarter.
D.
Examples of Permissible Timing of Trades Following Public Announcements:
1.
2.
3.
Financial results for the quarter ending September 30 are released to the public through a press release
issued at 7 a.m. on a Tuesday in November. Trading in Company Securi es is not permi ed from
September 16 un l Thursday of that week in November, at least 48 hours a er Tuesday’s announcement.
12:00 noon press release—trading permi ed at noon the second trading day a er the release.
Friday 5:00 p.m. press release—trading not permi ed un l market open on the following Wednesday
(even though more than 48 hours).
Event-Specific Trading Restric on Periods. From me to me, an event may occur that is material to the Company
and is known by only a few directors, officers and/or employees. So long as the event remains material and
nonpublic, the persons designated by the Chief Financial Officer may not trade Company Securi es. In addi on,
the Company’s financial results may be sufficiently material in a par cular fiscal quarter that, in the judgment of
the Chief Financial Officer, designated persons should refrain from trading in Company Securi es even sooner
than the typical Blackout Period described above. In that situa on, the Chief Financial Officer may no fy these
persons that they should not trade in the Company’s Securi es, without disclosing the reason for the restric on.
The existence of an event-specific trading restric on period or extension of a Blackout Period will not be
announced to the Company as a whole, and should not be communicated to any other person. Even if the Chief
Financial Officer has not designated you as a person who should not trade due to an event-specific restric on,
you should not trade while aware of material nonpublic informa on. Excep ons will not be granted during an
event-specific trading restric on period.
Excep ons. The quarterly trading restric ons and event-specific trading restric ons do not apply to those
transac ons to which this Policy does not apply, as described above under the heading “Transac ons Under
Company Stock Incen ve Plans.” Further, the requirement for pre-clearance, the quarterly trading restric ons
and event-specific trading restric ons do not apply to transac ons conducted pursuant to approved Rule 10b5-1
plans, described under the heading “Rule 10b5-1 Plans.”
E.
F.
-11-
XIV.
Rule 10b5-1 Plans
Rule 10b5-1 under the Exchange Act provides a defense from insider trading liability. In order to be eligible to rely on this
defense, a person subject to this Policy must enter into a Rule 10b5-1 trading plan for transac ons in Company Securi es that
meets certain condi ons specified in the Rule (a “Rule 10b5-1 Plan”). If the plan meets the requirements of Rule 10b5-1,
Company Securi es may be purchased or sold without regard to certain insider trading restric ons. To comply with the Policy, a
Rule 10b5-1 Plan must be approved by the Chief Financial Officer and meet the requirements of Rule 10b5-1. Persons entering
into a Rule 10b5-1 Plan must act in good faith with respect to the plan. A Rule 10b5-1 Plan must be entered into at a me when
the person entering into the plan is not aware of material nonpublic informa on. Addi onally, Rule 10b5-1 Plans may not be
entered into during a Blackout Period. Once the plan is adopted, the person must not exercise any influence over the amount of
securi es to be traded, the price at which they are to be traded or the date of the trade.
Any Rule 10b5-1 Plan must be submi ed for approval prior to the entry into the Rule 10b5-1 Plan. No further pre-approval of
transac ons conducted pursuant to the Rule 10b5-1 Plan will be required.
A.
B.
Wri en Trading Plan Requirements. The wri en Rule 10b5-1 Plan must be a binding contract, instruc on, or
other arrangement under specified terms and condi ons for the purchase or sale of securi es. SEC rules require
Covered Persons to include representa ons in their wri en Rule 10b5-1 Plans cer fying, at the me of the
adop on of a new or modified plan, that: (1) they are not aware of material nonpublic informa on about the
Company or its securi es; and (2) they are adop ng the plan in good faith and not as part of a plan or scheme to
evade the prohibi ons of Rule 10b-5. The wri en Rule 10b5-1 Plan also must:
(i)
(ii)
(iii)
expressly specify the amount, price, and date of trades;
include a wri en formula or algorithm, or computer program, for determining amounts, prices, and
dates; or
not permit the Covered Person to exercise any subsequent influence over the amount of securi es to be
traded, the price at which they are to be traded or the date of the trade; provided, in addi on, that any
other person who does exercise such influence is not aware (or is deemed to be unaware of the material
nonpublic informa on when doing so).
Cooling-Off A er Adop on. All Rule 10b5-1 Plans of Covered Persons must have “cooling-off” periods between
the date the Rule 10b5-1 Plan is adopted and when trading under the plan commences. For Covered Persons, the
cooling-off period is the later of (i) 90 days a er the adop on of the Rule 10b5-1 Plan or (ii) two business days
following the filing of the Form 10-Q or Form 10-K for the fiscal quarter in which the plan was adopted. In any
event, the required cooling-off period for Covered Persons must not exceed 120 days following the Rule 10b5-1
Plan adop on. For employees who are not Covered Persons, the applicable cooling-off period is 30 days a er the
adop on of the Rule 10b5-1 Plan.
C.
Mul ple 10b5-1 Plans. No Covered Person may maintain or use mul ple overlapping Rule 10b5-1 Plans for open
market transac ons involving Company
-12-
Securi es except as described below. This prohibi on does not apply where a person transacts directly with the
Company such as in a dividend reinvestment plan or employee stock ownership plan, which are not executed on
the open market. Also, the prohibi on does not apply to plans authorizing an agent to sell only enough securi es
as are necessary to sa sfy tax withholding obliga ons arising exclusively from the ves ng of a compensatory
award, such as on the ves ng and se lement of restricted stock units (“sell-to-cover” Rule 10b5-1 Plans),
provided that the award holder is not permi ed to exercise control over the ming of such sales. Also, a Covered
Person may maintain two separate Rule 10b5-1 Plans for open market purchases or sales of Company Securi es if
trading under the later-commencing plan is not authorized to begin un l a er all trades under the earlier-
commencing plan are completed or expire without execu on. If the first plan is terminated early, the first trade
under the later-commencing plan, however, must not be scheduled to occur un l a er the effec ve cooling-off
period following the termina on of the earlier plan which, as explained above, is the later of (i) 90 days a er
termina on of the Rule 10b5-1 Plan or (ii) two business days following the filing of the Form 10-Q or Form 10-K
for the fiscal quarter in which the plan was terminated. In any event, as explained above, the required cooling-off
period for Covered Persons must not exceed 120 days following the Rule 10b5-1 Plan termina on.
D.
E.
Single Trade Plans. A Covered Person may enter into only one single-trade Rule 10b5-1 Plan during any
consecu ve twelve-month period. A Rule 10b5-1 Plan will not be treated as a single-trade plan if it gives the
Covered Person’s agent discre on over whether to execute the plan as a single transac on, or provides that the
agent’s future acts will depend on events or data not known at the me the plan is entered into and it is
reasonably foreseeable at the me the plan is entered into that the plan might result in mul ple trades. For the
avoidance of doubt, sell-to-cover Rule 10b5-1 Plans are exempt from the limita on on single-trade plans.
Plan Amendment and Revoca on. A person ac ng in good faith may amend a Rule 10b5-1 Plan so long as such
amendments are made outside of a quarterly trading Blackout Period and at a me when the Rule 10b5-1 Plan
par cipant does not possess material, non-public informa on.
Revoca on of Rule 10b5-1 Plans should occur only in unusual circumstances. Effec veness of any revoca on or
amendment of a Rule 10b5-1 Plan will be subject to the prior review and approval of the Chief Financial Officer.
Revoca on is effected upon wri en no ce to the broker.
Under certain circumstances, a Rule 10b5-1 Plan must be revoked. This may include circumstances such as the
announcement of a merger or the occurrence of an event that would cause the transac on either to violate the
law or to have an adverse effect on the Company. The Chief Financial Officer or administrator of the Company's
stock plans is authorized to no fy the broker in such circumstances, thereby insula ng the person in the event of
revoca on.
The Company reserves the right from me to me to suspend, discon nue or otherwise prohibit any transac on
in the Company's securi es, even pursuant to a previously approved Rule 10b5-1 Plan, if the Chief Financial
Officer or the Board of Directors, in its discre on, determines that such suspension, discon nua on or other
prohibi on is in the best interests of the Company. Any Rule 10b5-1 Plan submi ed for approval hereunder
should explicitly
-13-
acknowledge the Company's right to suspend, discon nue or prohibit transac ons in the Company's securi es.
Failure to discon nue purchases and sales as directed shall cons tute a viola on of the terms of this Policy and
result in a loss of the exemp on set forth herein.
For Covered Persons, the cooling-off period a er a plan revoca on or amendment is the later of (i) 90 days a er
the revoca on or amendment of the Rule 10b5-1 Plan or (ii) two business days following the filing of the Form
10-Q or Form 10-K for the fiscal quarter in which the plan was revoked or amended. In any event, the required
cooling-off period for Covered Persons must not exceed 120 days following the Rule 10b5-1 Plan revoca on or
amendment. For employees who are not Covered Persons, the applicable cooling-off period is 30 days a er the
revoca on or amendment of the Rule 10b5-1 Plan.
During a “Window Period”, trades differing from Rule 10b5-1 Plan instruc ons that are already in place are
allowed as long as the Rule 10b5-1 Plan con nues to be followed.
F.
Sec on 16 Liability and Repor ng
Rule 10b5-1 Plans do not exempt individuals from complying with Sec on 16 short- swing profit rules or
liability.
Although transac ons effected under a Rule 10b5-1 Plan will not require further pre-clearance at the me of the
trade, any transac on (including the quan ty and price) made pursuant to a Rule 10b5-1 Plan of a Sec on 16
repor ng person must be reported to the Company promptly on the day of each trade to permit the Company's
filing coordinator to assist in the prepara on and filing of a required Form 4. Such repor ng must be in wri ng
(including, without limita on, by e-mail) and should include the iden ty of the repor ng person, the type of
transac on, the date of the transac on, the number of shares involved and the purchase or sale price. However,
the ul mate responsibility, and liability, for mely filing remains with the Sec on 16 repor ng person.
G.
H.
Public Announcements. The Company may make a public announcement that Rule 10b5-1 Plans are being
implemented in accordance with Rule 10b5-1. It will consider in each case whether a public announcement of a
par cular Rule 10b5-1 Plan should be made. It may also make public announcements or respond to inquiries
from the media as transac ons are made under a Rule 10b5-1 Plan.
Limita on on Liability. None of the Company, the Chief Financial Officer, the Company's other employees or any
other person will have any liability for any delay in reviewing, or refusal of, a Rule 10b5-1 Plan submi ed
pursuant to this Policy or a request for pre-clearance submi ed pursuant to this Policy. Notwithstanding any
review of a 10b5-1 Plan pursuant to this Policy or pre-clearance of a transac on pursuant to this Policy, none of
the Company, the Chief Financial Officer, the Company's other employees or any other person assumes any
liability for the legality or consequences of such Rule 10b5-1 Plan or transac on to the person engaging in or
adop ng such Rule 10b5-1 Plan or transac on.
XV.
Post-Termina on Transac ons
-14-
This Policy con nues to apply to transac ons in Company Securi es even a er termina on of service to the Company. Except as
expressly provided in this Policy, if your rela onship with the Company terminates during a Blackout Period, you shall
nevertheless be required to refrain from trading un l the Blackout Period terminates in accordance with the terms of this policy,
and at all mes while in possession of material nonpublic informa on.
XVI.
Sec on 16: Insider Repor ng Requirements, Short-Swing Profits and Short Sales
A.
B.
C.
Repor ng Obliga ons Under Sec on 16(a): SEC Forms 3, 4 and 5. Sec on 16(a) of the Exchange Act generally
requires all officers, directors and 10% stockholders ("insiders"), within 10 days a er the insider becomes an
officer, director or 10% stockholder, to file with the SEC an "Ini al Statement of Beneficial Ownership of
Securi es" on SEC Form 3 lis ng the amount of the Company's stock (including grants of restricted stock or
performance shares), op ons and warrants which the insider beneficially owns. Following the ini al filing on SEC
Form 3, changes in beneficial ownership of the Company's stock, op ons and warrants must be reported on SEC
Form 4, generally within two business days a er the date on which such change occurs, or in certain cases on
Form 5, within 45 days a er fiscal year end. A Form 4 must be filed even if, as a result of balancing transac ons,
there has been no net change in holdings. In certain situa ons, purchases or sales of Company stock made within
six months prior to the filing of a Form 3 must be reported on Form 4. Similarly, certain purchases or sales of
Company stock made within six months a er an officer or director ceases to be an insider must be reported on
Form 4.
Recovery of Profits Under Sec on 16(b). For the purpose of preven ng the unfair use of informa on which may
have been obtained by an insider, any profits realized by any officer, director or 10% stockholder from any
"purchase" and "sale" of Company stock during a six-month period, so called "short-swing profits," may be
recovered by the Company. When such a purchase and sale occurs, good faith is no defense. The insider is liable
even if compelled to sell for personal reasons, and even if the sale takes place a er full disclosure and without
the use of any inside informa on.
The liability of an insider under Sec on 16(b) of the Exchange Act is only to the Company itself. The Company,
however, cannot waive its right to short swing profits, and any Company stockholder can bring suit in the name
of the Company. No suit may be brought more than two years a er the date the profit was realized. However, if
the insider fails to file a report of the transac on under Sec on 16(a), as required, the two-year limita on period
does not begin un l a er the transac ons giving rise to the profit have been disclosed.
Short Sales Prohibited Under Sec on 16(c). Sec on 16(c) of the Exchange Act prohibits insiders from making
short sales of the Company Securi es. Short sales include sales of stock which the insider does not own at the
me of sale, or sales of stock against which the insider does not deliver the shares within 20 days a er the sale.
Under certain circumstances, the purchase or sale of put or call op ons, or the wri ng of such op ons, can result
in a viola on of Sec on 16(c). Insiders viola ng Sec on 16(c) face criminal liability.
The Chief Financial Officer should be consulted if you have any ques ons regarding repor ng obliga ons, short-swing
profits or short sales under Sec on 16.
XVII. Rule 144
-15-
Rule 144 provides a safe harbor exemp on to the registra on requirements of the Securi es Act for certain resales of
"restricted securi es" and "control securi es." "Restricted securi es" are securi es acquired from an issuer, or an affiliate of an
issuer, in a transac on or chain of transac ons not involving a public offering. "Control securi es" are any securi es owned by
directors, execu ve officers or other "affiliates" of the issuer, including stock purchased in the open market and stock received
upon exercise of stock op ons. Sales of Company restricted and control securi es must comply with the requirements of Rule
144, which are summarized below:
A.
B.
C.
D.
E.
Holding Period. Restricted securi es must be held for at least six months before they may be sold in the market.
Current Public Informa on. The Company must have filed all SEC-required reports during the last 12 months or
such shorter period that the Company was required to file such reports.
Volume Limita ons. For affiliates, total sales of Company common stock for any three-month period may not
exceed the greater of: (i) 1% of the total number of outstanding shares of Company common stock, as reflected
in the most recent report or statement published by the Company, or (ii) the average weekly reported volume of
such shares traded during the four calendar weeks preceding the filing of the requisite Form 144.
Method of Sale. For affiliates, the shares must be sold either in a "broker’s transac on" or in a transac on
directly with a "market maker." A "broker's transac on" is one in which the broker does no more than execute
the sale order and receive the usual and customary commission. Neither the broker nor the selling person can
solicit or arrange for the sale order. In addi on, the selling person must not pay any fee or commission other than
to the broker. A "market maker" includes a specialist permi ed to act as a dealer, a dealer ac ng in the posi on
of a block posi oner, and a dealer who holds himself out as being willing to buy and sell Company common stock
for his own account on a regular and con nuous basis.
No ce of Proposed Sale. For affiliates, a no ce of the sale (a Form 144) may be required to be filed with the SEC
at the me of the sale. Such a no ce is required if the sale involves more than 5,000 shares or the aggregate
dollar amount is greater than $50,000 in any three-month period. Brokers generally have internal procedures for
execu ng sales under Rule 144 and will assist you in comple ng the Form 144 and in complying with the other
requirements of Rule 144.
If you are subject to Rule 144, you must instruct your broker who handles trades in Company Securi es to follow the brokerage
firm's Rule 144 compliance procedures in connec on with all trades.
XVIII.
Internet Message Boards, Chat Rooms, and Discussion Groups
If you communicate about AtriCure or its products through social media, be sure that you are always following all applicable
policies, including those rela ng to confiden al informa on and insider trading. Addi onally, keep the following guidelines in
mind:
•
Because you can’t control who views or shares what you post, treat everything on social media as public
-16-
• Always act in a professional manner that reflects well on you and AtriCure, and never give the impression that you speak
on behalf of the Company
• Don’t make unfounded or unsupported statements or misrepresent any facts
XIX.
Company Assistance
Any person who has a ques on about this Policy or its applica on to any proposed transac on may obtain addi onal guidance
from the Chief Financial Officer, who can be reached by telephone at (513) 755-5334 or by e-mail at awirick@atricure.com.
XX.
Cer fica on
All persons subject to this Policy must cer fy their understanding of, and intent to comply with, this Policy.
-17-
I cer fy that:
CERTIFICATION
1.
I have read and understand the Company’s Insider Trading Policy (the “Policy”). I understand that the Chief Financial
Officer is available to answer any ques ons I have regarding the Policy.
2. Since March 1, 2023, date the Policy became effec ve, or such shorter period of me that I have been an employee,
director, contractor or consultant of the Company, I have complied with the Policy.
3.
I will con nue to comply with the Policy for as long as I am subject to the Policy.
Print name:_______________________
Signature:________________________
Date:____________________________
SUBSIDIARIES OF ATRICURE, INC.
Exhibit 21
AtriCure Europe, B.V., incorporated in the Netherlands
AtriCure, LLC, a Delaware limited liability company
SentreHEART LLC, a Delaware limited liability company
AtriCure Spain, S.L., incorporated in Spain
AtriCure Germany GmbH, incorporated in Germany
AtriCure UK Limited, incorporated in the United Kingdom
AtriCure Canada, Inc., incorporated in Canada
AtriCure Hong Kong Limited, incorporated in Hong Kong
AtriCure (Beijing) Medicine Information Consulting Service Co., Ltd., incorporated in Beijing
AtriCure Asia Pacific, Ltd., incorporated in Singapore
AtriCure Japan Co., Ltd., incorporated in Japan
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement No. 333-262819 on Form S-3 and Registration Statement Nos. 333-273446, 333-
273445, 333-266485, 333-240190, 333-232912, 333-226541, 333-226540, 333-219535, 333-216704, 333-199744, 333-194481, 333-187123, 333-180037,
333-173204, 333-173203, 333-165781, 333-165780, 333-157974, 333-157972, 333-152014, and 333-152013 on Form S-8 of our reports dated
February 16, 2024, relating to the consolidated financial statements of AtriCure, Inc. and subsidiaries (the “Company”), and the effectiveness of the
Company’s internal control over financial reporting, appearing in the Annual Report on Form 10-K of AtriCure, Inc. for the year ended December 31,
2023.
Exhibit 23.1
/s/ Deloitte & Touche LLP
Cincinnati, Ohio
February 16, 2024
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO
SECTION 13(a) OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.1
I, Michael H. Carrel, certify that:
1.I have reviewed this annual report on Form 10-K of AtriCure, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
a.
b.
c.
d.
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.
b.
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
Date: February 16, 2024
By:
/s/ Michael H. Carrel
Michael H. Carrel
President and Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO
SECTION 13(a) OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.2
I, Angela L. Wirick, certify that:
1. I have reviewed this annual report on Form 10-K of AtriCure, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
a.
b.
c.
d.
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.
b.
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
Date: February 16, 2024
By:
/s/ Angela L. Wirick
Angela L. Wirick
Chief Financial Officer
(Principal Accounting and Financial Officer)
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the annual report of AtriCure, Inc. (the “Company”) on Form 10–K for the year ended December 31, 2023 as filed with the Securities
and Exchange Commission on the date hereof (the “Report”), I, Michael H. Carrel, President and Chief Executive Officer of the Company, certify, pursuant
to Rule 13a–14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: February 16, 2024
By:
/s/ Michael H. Carrel
Michael H. Carrel
President and Chief Executive Officer
(Principal Executive Officer)
A signed original of this written statement or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form
within the electronic version of this written statement has been provided to AtriCure, Inc. and will be retained by AtriCure, Inc. and furnished to the
Securities and Exchange Commission or its staff upon request.
The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350,
Chapter 63 of Title 18, United States Code) and is not being filed as part of the report or as a separate disclosure document.
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the annual report of AtriCure, Inc. (the “Company”) on Form 10–K for the year ended December 31, 2023 as filed with the Securities
and Exchange Commission on the date hereof (the “Report”), I, Angela L. Wirick, Chief Financial Officer of the Company, certify, pursuant to Rule 13a–
14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: February 16, 2024
By:
/s/ Angela L. Wirick
Angela L. Wirick
Chief Financial Officer
(Principal Accounting and Financial Officer)
A signed original of this written statement or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form
within the electronic version of this written statement has been provided to AtriCure, Inc. and will be retained by AtriCure, Inc. and furnished to the
Securities and Exchange Commission or its staff upon request.
The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350,
Chapter 63 of Title 18, United States Code) and is not being filed as part of the report or as a separate disclosure document.
Exhibit 97
Incentive Compensation Recoupment Policy (the “Policy”)
1.
Recoupment. If AtriCure, Inc. (the “Company”) is required to prepare a Restatement, the Company’s board of
directors (the “Board”) shall, unless the Board’s Compensation Committee determines it to be Impracticable, take reasonably
prompt action to recoup all Recoverable Compensation from any Covered Person. Subject to applicable law and compliance with
Internal Revenue Code Section 409A and the rules and regulations promulgated thereunder, the Board may seek to recoup
Recoverable Compensation by requiring a Covered Person to repay such amount to the Company; by adding “holdback” or
deferral policies to incentive compensation; by adding post-vesting “holding” or “no transfer” policies to equity awards; by set-
off of a Covered Person’s other compensation; by reducing future compensation; or by such other means or combination of
means as the Board, in its sole discretion, determines to be appropriate. This Policy is in addition to (and not in lieu of) any right
of repayment, forfeiture or off-set against any Covered Person that may be available under applicable law (whether implemented
prior to or after adoption of this Policy). The Board may, in its sole discretion and in the exercise of its business judgment,
determine whether and to what extent additional action is appropriate to address the circumstances surrounding any Restatement
to minimize the likelihood of any recurrence and to impose such other discipline as it deems appropriate.
2.
Administration of Policy. The Board shall have full authority to administer, amend or terminate this Policy. The
Board shall, subject to the provisions of this Policy, make such determinations and interpretations and take such actions in
connection with this Policy as it deems necessary, appropriate or advisable. All determinations and interpretations made by the
Board shall be final, binding and conclusive. The Board may delegate any of its powers under this Policy to the Compensation
Committee of the Board or any subcommittee or delegate thereof.
3.
No Indemnification. Notwithstanding the terms of any of the Company’s organizational documents, any
corporate policy or any contract, no Covered Person shall be indemnified against the loss of any Recoverable Compensation.
4.
Disclosures. The Company shall make all disclosures and filings with respect to this Policy and maintain all
documents and records that are required by the applicable rules and forms of the U.S. Securities and Exchange Commission (the
“SEC”) (including, without limitation, Rule 10D-1 promulgated under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”)) and any applicable exchange listing standard.
5.
Definitions. In addition to terms otherwise defined in this Policy, the following terms, when used in this Policy,
shall have the following meanings:
“Applicable Period” means the three completed fiscal years preceding the earlier of: (i) the date that the Board, a
committee of the Board, or the officer or officers of the Company authorized to take such action if Board action is not required,
concludes, or reasonably should have concluded, that the Company is required to prepare a Restatement; or (ii) the date a court,
regulator, or other legally authorized body directs the Company to prepare a Restatement.
“Covered Person” means any person who receives Recoverable Compensation.
“Executive Officers” means the Company’s officers under the definition of Exchange Act Rule 16a-1(f) as identified by
the Board.
“Financial Reporting Measure” means a measure that is determined and presented in accordance with the accounting
principles used in preparing the Company’s financial statements
(including “non-GAAP” financial measures, such as those appearing in earnings releases), and any measure that is derived
wholly or in part from such measure. Examples of Financial Reporting Measures include measures based on: revenues, net
income, operating income, financial ratios, EBITDA, liquidity measures, return measures (such as return on assets), profitability
of one or more segments, sales per square foot, same store sales, revenue per user, and cost per employee. Stock price and total
shareholder return (“TSR”) also are Financial Reporting Measures.
“Impracticable” means, after exercising a normal due process review of all the relevant facts and circumstances and
taking all steps required by Exchange Act Rule 10D-1 and any applicable exchange listing standard, the Compensation
Committee determines that recovery of the Incentive-Based Compensation is impracticable because: (i) it has determined that the
direct expense that the Company would pay to a third party to assist in recovering the Incentive-Based Compensation would
exceed the amount to be recovered; (ii) it has concluded that the recovery of the Incentive-Based Compensation would violate
home country law adopted prior to November 28, 2022; or (iii) it has determined that the recovery of Incentive-Based
Compensation would cause a tax-qualified retirement plan, under which benefits are broadly available to the Company’s
employees, to fail to meet the requirements of 26 U.S.C. 401(a)(13) or 26 U.S.C. 411(a) and regulations thereunder.
“Incentive-Based Compensation” includes any compensation that is granted, earned, or vested based wholly or in part
upon the attainment of a Financial Reporting Measure; however it does not include: (i) base salaries; (ii) discretionary cash
bonuses; (iii) awards (either cash or equity) that are based upon subjective, strategic or operational standards; and (iv) equity
awards that vest solely on the passage of time.
“Received” – Incentive-Based Compensation is deemed “Received” in any Company fiscal period during which the
Financial Reporting Measure specified in the Incentive-Based Compensation award is attained, even if the payment or grant of
the Incentive-Based Compensation occurs after the end of that period.
“Recoverable Compensation” means all Incentive-Based Compensation (calculated on a pre-tax basis) Received on or
after October 2, 2023 by a person: (i) after beginning service as an Executive Officer; (ii) who served as an Executive Officer at
any time during the performance period for that Incentive-Based Compensation; (iii) while the Company had a class of securities
listed on a national securities exchange or national securities association; and (iv) during the Applicable Period, that exceeded the
amount of Incentive-Based Compensation that otherwise would have been Received had the amount been determined based on
the Financial Reporting Measures, as reflected in the Restatement. With respect to Incentive-Based Compensation based on stock
price or TSR, when the amount of erroneously awarded compensation is not subject to mathematical recalculation directly from
the information in an accounting restatement, the amount must be based on a reasonable estimate of the effect of the Restatement
on the stock price or TSR upon which the Incentive-Based Compensation was received.
“Restatement” means an accounting restatement of any of the Company’s financial statements due to the Company’s
material noncompliance with any financial reporting requirement under U.S. securities laws, including any required accounting
restatement to correct an error in previously issued financial statements that is material to the previously issued financial
statements (often referred to as a “Big R” restatement), or that would result in a material misstatement if the error were corrected
in the current period or left uncorrected in the current period (often referred to as a “little r” restatement). A Restatement does not
include situations in which financial statement changes did not result from material non-compliance with financial reporting
requirements, such as, but not limited to retrospective: (i) application of a change in accounting principles; (ii) revision to
reportable segment information due to a change in the structure of the Company’s internal organization; (iii) reclassification due
to a discontinued operation; (iv) application of a change in reporting entity, such as from a reorganization of entities under
common control; (v) adjustment to provision amounts in connection with a prior business
combination; and (vi) revision for stock splits, stock dividends, reverse stock splits or other changes in capital structure.
Adopted by the Board of Directors effective December 1, 2023.
The Board shall provide notice to and seek written acknowledgement of this Policy from each Executive Officer in the form
provided below; provided that the failure to provide such notice or obtain such acknowledgement shall have no impact on the
applicability or enforceability of this Policy.
ANNEX A
ATTESTATION AND ACKNOWLEDGEMENT OF
INCENTIVE COMPENSATION RECOUPMENT POLICY
By my signature below, I acknowledge and agree that:
I have received and read the attached Incentive Compensation Recoupment Policy (this “Policy”).
I hereby agree to abide by all of the terms of this Policy both during and after my employment with the Company,
including, without limitation, by promptly repaying or returning any Recoverable Compensation to the Company
as determined in accordance with this Policy.
EXECUTIVE OFFICER
Signature
Print Name
Date