After two decades, future bright for Catheter Research Inc.

Catheter Research Inc. should have disappeared a long time ago.

But the Indianapolis company has persevered
through numerous challenges—17 straight profitless years, a bankruptcy reorganization, a stint
as a subsidiary of Biomet Inc., and a dispute among its owners.

It now is flying high—even in the midst of a bad economy.

Catheter Research grew its sales 20 percent to 30 percent in each of the past two years, reaching
$10 million in 2008.

In
December, CEO and owner John Steen sold 30 percent of the company to his 100 employees to form an employee stock ownership
plan—or ESOP.

"We’ve
just kind of been struggling along," said Steen, a lanky 63-year-old dressed casually in a green
sweater and open-collared shirt. But in 2007, he added, "We turned the corner."

Catheter Research makes plastic-based catheters
on contract for other companies. It also directly sells some of its own catheters under the brand name
Thomas Medical to OB/GYN doctors and to hospitals.

Catheters are tube-like devices inserted in the body for various purposes, from inserting balloons
into clogged arteries to injecting contrast liquid needed for imaging tests. Among its clients is Suros
Surgical Systems Inc., which uses the tubes in breast biopsy devices.

Companies that sell medical equipment to hospitals and doctors have been faring better than most
in a recessionary economy that has been shedding jobs rapidly.

But operators of companies large and small are being cautious.

"Nobody’s immune," said Greg Maurer, managing director of Indianapolis-based Heron Capital,
which owns stakes in several small medical-device firms. For companies already producing revenue, Maurer
said, "We’re telling them to take a new look at their projections and keep a close eye on their
cash position."

Michigan-based
Stryker Corp. reported mixed sales results of its equipment for medical and surgical procedures.

"The challenging economic environment placed
considerable pressure on hospital capital budgets during Q4, which translated into slower growth in two
of our med-surge businesses," said Stryker CEO Stephen McMillan, during a Jan. 27 conference call
with analysts. Overall sales of Stryker’s medical-surgical products grew 6 percent in the fourth quarter.

His outlook for 2009 is murky, too.

"We are assuming hospital capital budget
pressures will continue," McMillan said.

Catheter Research is more upbeat, however. It won’t equal last year’s torrid sales growth—which
would have been difficult in any economy. Still, the company predicts a 10-percent surge this year.

"Medical products, it’s not slowing down
yet and we don’t think it will," Steen said.

General Manager Christine Cook attributes Catheter Research’s success to low turnover among its
employees and reliable performance for its customers. Reputation has led to many of the company’s recent
sales wins, Cook said.

"You treat your employees right and you treat your customers right," she said. "The rest will come."

That’s part of why Steen implemented the ESOP.
Such programs are essentially retirement savings plans that transfer privately held shares of a company
to employees over time.

In Catheter Research’s case, it borrowed money from banks, then used the money to buy shares from Steen. The company is now
holding the shares on behalf of employees.

In the last year, Indiana Treasurer Richard Mourdock has strongly promoted ESOPs as a way to keep Indiana companies locally
owned and locally based. Indeed, Steen decided to do the ESOP only after rejecting two buyout bids.

He said both buyout deals would have ended Catheter
Research’s Indiana presence within five years.

Other Indianapolis companies that have an ESOP include accounting firm Katz, Sapper & Miller and
manufacturer Wood-Mizer Products Inc.

Ups and downs

The goal of ESOPs is for employees to share in the profits and increasing value of the company.
But for most of Catheter Research’s life, there have been no profits.

The company incorporated in 1987, five years after Zionsville engineer William McCoy came up with
an idea for a catheter made of a special metal that bent into a predetermined shape when heated. The
feature allowed doctors to push the catheter through a patient’s arteries, instead of pulling it through
veins using wires.

Catheter
Research raised $6 million in venture capital and private financing and won approval from the U.S. Food and Drug
Administration in 1992.

But doctors never warmed to the new approach to catheters. There was little financial incentive for them to change their habits.
And the catheter applied to fewer patients than McCoy had assumed.

Catheter Research’s venture investors, led by San Francisco-based H&Q Ventures, pushed out
McCoy in 1991 and made Steen CEO. He tried to keep the company afloat by branching into contract manufacturing
and product development work.

But by 1995, Catheter Research declared Chapter 11 bankruptcy. Its investors lost much of their money, including such people
as local surgeon Dr. Douglas Zipes and former Indianapolis City-County Councilor Thomas C. Hasbrook.

Warsaw-based Biomet Inc., which provided both
money and sales personnel to help Catheter Research, bought it out of bankruptcy. Biomet’s idea was for
Catheter Research to serve as a development shop for a new line of surgical products.

But sales of those products never really took off, Steen said, reaching little more than $3 million
a year.

"We weren’t
contributing to the bottom line or the top line," Steen said. So in May 2004, Biomet sold Catheter Research to
three of its managers—Greg Walker, Jose Vazquez and Steen.

Nearly simultaneously, Catheter Research acquired one of its customers, Georgia-based Thomas Medical
Inc. It paid $200,000 plus future royalties and the assumption of $160,000 in liabilities.

For the first time in its life, Catheter Research
became a profitable company.

But those profits evaporated in 2006 after Walker became majority owner and took over as CEO from Steen. The loss of a big
customer and heavy spending on marketing sent Catheter Research spiraling to a loss once more.

"We spent money we didn’t have," Steen said. He bought out Walker and Vazquez in November
2006. Contact information could not be found for either of the former partners.

Steen credits his staff, especially Cook, for
guiding the company back to profitability and paying down debts.

But Jim Coles, a Bose McKinney & Evans attorney who serves as Catheter Research’s general
counsel, credits Steen for righting the company more than once when it went astray.

"If they had continued down that [early]
path, I think they probably wouldn’t be here today," Coles said of Catheter Research. "Being
agile and being able to identify the need to diversify was very helpful."