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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Mark One:
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 1997 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____ to ____
Commission file number 0-27214
GYNECARE, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-3197941
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
235 Constitution Drive, Menlo Park, CA 94025
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(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (415) 614-2500
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 requirement for the past 90 days.
Yes [ X ] No [ ]
The number of shares of Common Stock outstanding
as of May 9, 1997 was 8,300,004.
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TABLE OF CONTENTS
Page
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Part I. Financial Information
Item 1. Financial Statements
Condensed Balance Sheets at March 31, 1997
and December 31, 1996 3
Statements of Operations for the three months ended
March 31, 1997 and 1996 4
Statements of Cash Flows for the three months
ended March 31, 1997 and 1996 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GYNECARE, INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,029,000 $ 3,823,000
Short-term investments 6,331,000 9,248,000
Accounts receivable, net 388,000 457,000
Inventories 332,000 424,000
Prepaids and other current assets 198,000 254,000
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Total current assets 11,278,000 14,206,000
Property and equipment, net 1,381,000 1,419,000
Prepaid royalties 1,931,000 1,900,000
Other assets 868,000 873,000
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Total assets $15,458,000 $18,398,000
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LIABILITIES
Current liabilities:
Accounts payable $ 648,000 $ 481,000
Accrued expenses 582,000 634,000
Current portion of long-term debt 313,000 291,000
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Total current liabilities 1,543,000 1,406,000
Long-term debt, net of current portion 362,000 458,000
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Total liabilities 1,905,000 1,864,000
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STOCKHOLDERS' EQUITY
Common Stock 8,000 8,000
Additional paid-in-capital 33,751,000 33,748,000
Deferred compensation (347,000) (387,000)
Accumulated deficit (19,859,000) (16,835,000)
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Total stockholders' equity 13,553,000 16,534,000
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Total liabilities and stockholders' equity $15,458,000 $18,398,000
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</TABLE>
The accompanying notes are an integral part
of these condensed financial statements.
3
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GYNECARE, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-----------------------
1997 1996
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<S> <C> <C>
Revenues $ 269,000 $ 257,000
Cost of goods sold.................................. 398,000 321,000
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Gross profit...................................... (129,000) (64,000)
Operating expenses:
Research and development.......................... 1,202,000 1,161,000
Selling, general and administrative .............. 1,811,000 1,059,000
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Total operating expenses......................... 3,013,000 2,220,000
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Loss from operations................................ (3,142,000) (2,284,000)
Interest income, net................................ 118,000 236,000
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Net loss ........................................... $(3,024,000) $(2,048,000)
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Net loss per share.................................. $ (0.36) $ (0.25)
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Shares used in computing net loss per share......... 8,298,000 8,155,000
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</TABLE>
The accompanying notes are an integral part
of these condensed financial statements.
4
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GYNECARE, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-------------------------------
1997 1996
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<S> <C> <C>
Cash flows from operating activities:
Net loss................................................... $(3,024,000) $(2,048,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization.............................. 69,000 72,000
Amortization of deferred compensation...................... 40,000 41,000
Provision for doubtful accounts............................ 86,000 3,000
Changes in operating assets and liabilities:
Accounts receivable....................................... (17,000) (157,000)
Inventories............................................... 92,000 14,000
Prepaids and other current assets......................... 56,000 29,000
Other assets.............................................. (1,000) (8,000)
Accounts payable.......................................... 167,000 (497,000)
Accrued expenses.......................................... (52,000) 93,000
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Net cash used in operating activities.................... (2,584,000) (2,458,000)
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Cash flows from investing activities:
Acquisition of property and equipment...................... (56,000) (100,000)
Acquisition of patent rights and
related technical information............................. -- (400,000)
Purchase of investments.................................... -- (14,336,000)
Maturity of investments.................................... 2,917,000 --
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Net cash provided by/(used in) investing activities....... 2,861,000 (14,836,000)
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Cash flows from financing activities:
Proceeds from issuance of Common Stock..................... 3,000 --
Payments on debt........................................... (74,000) (73,000)
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Net cash used in financing activities..................... (71,000) (73,000)
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Net increase (decrease) in cash and cash equivalents......... 206,000 (17,367,000)
Cash and cash equivalents at beginning of period............. 3,823,000 22,330,000
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Cash and cash equivalents at end of period................... $ 4,029,000 $ 4,963,000
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Supplemental cash flow information:
Interest paid during the period............................ $ 18,000 $ 18,000
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</TABLE>
The accompanying notes are an integral part
of these condensed financial statements.
5
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GYNECARE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
1. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited financial
statements have been prepared by the Company in accordance with generally
accepted accounting principles for interim financial information and
pursuant to the rules and regulations of the Securities and Exchange
Commission. All adjustments, consisting of only normal recurring
adjustments, necessary for a fair presentation have been included. The
results of operations for the three month period ended March 31, 1997 are
not necessarily indicative of the results to be expected for any other
interim period or for the entire year.
The financial statements should be read in conjunction with the audited
financial statements and notes thereto included in Gynecare's
(the Company's) Annual Report on Form 10-K, for the year ended December 31,
1996, filed with the Securities and Exchange Commission pursuant to Section
13 of the Securities Exchange Act of 1934.
2. CASH, CASH EQUIVALENTS, SHORT-TERM INVESTMENTS AND INVESTMENTS
All highly liquid investments purchased with an original maturity of ninety
days or less are considered to be cash equivalents. The Company accounts
for investments under Statement of Financial Accounting Standards No. 115
"Accounting for Certain Investments in Debt and Equity Securities"
(SFAS No. 115), whereby investments that are deemed by management to be
held-to-maturity are reported at amortized cost. All investments as of
March 31, 1997 are classified as held-to-maturity and are carried at
amortized cost, which approximates fair market value.
3. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market. The components of inventory are:
March 31, December 31,
1997 1996
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Raw materials $148,000 $121,000
Work-in-process 45,000 105,000
Finished goods 139,000 198,000
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$332,000 $424,000
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4. RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128),
which specifies the computation, presentation and disclosure requirements
for earnings per share. SFAS 128 supercedes Accounting Principles Board
Opinion No. 15 and is effective for financial statements issued for periods
ending after December 15, 1997. SFAS 128 requires restatement of all
prior-period earnings per share data presented after the effective date.
SFAS will not have a material impact on the Company's financial position,
results of operations or cash flows.
6
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PART I. Continued
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
THIS SECTION OF THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE
COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED
IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A
DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN THE SUBSECTION
ENTITLED "FACTORS AFFECTING OPERATING RESULTS AND MARKET PRICE OF STOCK"
COMMENCING ON PAGE 8.
This Management's Discussion and Analysis of Financial Condition and Results
of Operations (MD&A) should be read in conjunction with the MD&A contained in
the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1996.
RESULTS OF OPERATIONS
Revenues increased 5% to $269,000 in the first quarter of fiscal 1997
from $257,000 in the first quarter of fiscal 1996. Substantially all of the
revenues to-date have been generated from international sales of the
ThermaChoiceTM Uterine Balloon TherapyTM system. The growth in revenues in
the first quarter of 1997 over the first quarter of fiscal 1996 was primarily
due to shipments of the VersaPointTM system. Shipments of the VersaPoint
system commenced during the fourth quarter of fiscal 1996.
Cost of goods sold increased 24% to $397,000 in the first quarter of
fiscal 1997 compared to $321,000 in the first quarter of fiscal 1996. This
increase was primarily the result of underutilized capacity at the Company's
new manufacturing facility in Menlo Park, California during the first three
months of fiscal 1997 compared to the corresponding period in 1996.
The Company's research and development expenses increased 4% to
$1,202,000 for the quarter ended March 31, 1997 from $1,161,000 for the
corresponding period in fiscal 1996. This increase was primarily due to
increased expenditures associated with the continuing development of the
ThermaChoice Uterine Balloon Therapy and VersaPoint systems.
The Company's selling, general and administrative expenses increased 71%
to $1,811,000 for the first quarter of fiscal 1997 from $1,059,000 for the
corresponding period in fiscal 1996. The increase was primarily the result
of Gynecare's increased investment in sales and marketing activities
including retention of direct marketing personnel in Canada and several other
European countries, the Company's ongoing efforts to obtain reimbursement in
international markets, and managing the international distributor network.
Growth in the Company's sales and marketing, accounting and administrative
staff from eleven employees at March 31, 1996 to twenty-one at March 31, 1997
further contributed to the increase in selling, general and administrative
expenses.
Net interest income decreased to $119,000 for the quarter ended March
31, 1997 from $236,000 for the corresponding period in fiscal 1996. The
decrease is primarily the result of the decreased level of cash and
investments held by the Company during the first quarter of fiscal 1997
compared to those held during fiscal 1996. This decreased level of cash and
investments is the result of expending such resources to fund continuing
operations.
As a result of all of the above factors, the Company's total net loss
increased to $3,022,000 for the quarter ended March 31, 1997 from $2,048,000
for the corresponding period ended March 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company's cash expenditures have significantly
exceeded its revenues, resulting in an accumulated deficit of $19,859,000 at
March 31, 1997. The Company has funded its operations primarily through the
private placement of equity securities aggregating $15,361,000 during 1994
and 1995 and the completion of its initial public offering in November 1995
aggregating net proceeds of $15,223,000.
7
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Cash used by the Company's operations was $2,584,000 for the quarter
ended March 31, 1997 as compared to $2,458,000 for the corresponding period
in fiscal 1996. Cash was used during the first quarter of fiscal 1997 to
primarily fund the expansion of marketing programs for the ThermaChoice
Uterine Balloon Therapy system in international markets, the costs of
obtaining reimbursement in existing markets, the ongoing development of the
Uterine Balloon Therapy and VersaPoint systems, and increased general and
administrative expenses to support expanded operations.
The Company's capital expenditures for the first quarter of fiscal 1997
and for the corresponding period in fiscal 1996 were $56,000 and $100,000,
respectively. The decreased level of capital expenditures during the first
quarter of fiscal 1997 compared to the corresponding period in fiscal 1996
was due primarily due to reduced capital requirements to support U.S.
clinical studies of the ThermaChoice Uterine Balloon Therapy system which
commenced in January 1996. The patient treatment phase of this study ended
in October 1996.
During the first quarter of fiscal 1996, the Company exercised its
option to extend its license and OEM supply agreement with Gyrus Medical,
Ltd. ("Gyrus") to include use of the VersaPoint technology in the field of
laparoscopy. A $400,000 deposit on this OEM supply agreement was made in
March 1996. Additional deposits of up to $600,000 will be due over the next
12 to 24 months.
At March 31, 1997, the Company had outstanding borrowings totaling
$675,000 under two secured credit facilities. Borrowings bear interest at
the bank's prime rate plus 1.25%-1.50% per annum, are required to be repaid
in monthly installments over 30 months, and are secured by a pledge of all of
the Company's equipment and fixtures.
The Company believes that its cash, cash equivalents and investments
together with interest thereon will be sufficient to fund its operations and
capital requirements through December 31, 1997. The estimate of this time
period is a forward-looking statement involving risks and uncertainties,
including the timing of FDA approval of the ThermaChoice Uterine Balloon
Therapy system and demand for and market acceptance of the Company's
products, the progress of the Company's clinical research and product
development programs, the receipt of and the time required to obtain
regulatory clearances and approvals, the resources the Company devotes to
developing, manufacturing and marketing its products, the resources required
to hire and develop a direct sales force in the United States, the resources
required to expand manufacturing capacity and facilities requirements, the
costs of obtaining reimbursement for use of the Company's ThermaChoice
Uterine Balloon Therapy and VersaPoint systems in new and existing markets,
and other factors. As such, there can be no assurance that the Company will
not require additional financing prior to the end of 1997 and, therefore, may
be required to seek to raise additional funds through bank facilities, debt
or equity offerings or other sources of capital prior to such time.
Additional funding may not be available when needed or on terms acceptable to
the Company, which would have a material adverse effect on the Company's
business, financial condition and results of operations.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
(SFAS 128), which specifies the computation, presentation and disclosure
requirements for earnings per share. SFAS 128 supersedes Accounting
Principles Board Opinion No. 15 and is effective for financial statements
issued for periods ending after December 15, 1997. SFAS 128 requires
restatement of all prior-period earnings per share data presented after the
effective date. SFAS will not have a material impact on the Company's
financial position, results of operations or cash flows.
FACTORS AFFECTING OPERATING RESULTS AND MARKET PRICE OF STOCK
Gynecare operates in a rapidly changing environment that involves a
number of uncertainties, some of which are beyond the Company's control. In
addition to the uncertainties described elsewhere in this report, these
uncertainties include:
DEPENDENCE ON A LIMITED NUMBER OF PRODUCTS. Currently, the ThermaChoice
Uterine Balloon Therapy and VersaPoint systems are the only products being
marketed by the Company. The Company will be required to obtain regulatory
approvals, including PMA approval from the FDA, before the ThermaChoice
Uterine Balloon Therapy system can be marketed in the United States and in
certain foreign countries, including Japan. There can be no assurance that the
8
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Company's efforts will be successful or that the ThermaChoice Uterine Balloon
Therapy system will be safe or effective, capable of being manufactured in
commercial quantities at acceptable costs, approved by appropriate regulatory
or reimbursement authorities or successfully marketed. The Company's
VersaPoint system has only recently received FDA clearance for marketing in
the United States, and the Company has made limited shipments of the system.
Furthermore, because the ThermaChoice Uterine Balloon Therapy and VersaPoint
systems represent the Company's principal near-term focus, the Company could
be required to cease operations if these products are not successfully
commercialized. In addition, the continuing follow-up phase of the U.S.
clinical trials of the ThermaChoice Uterine Balloon Therapy system may
identify significant technical or other obstacles to be overcome prior to
obtaining necessary regulatory or reimbursement approvals. Although there has
been a significant success rate in the patients treated to date under the
current protocol for the ThermaChoice Uterine Balloon Therapy system, there
is only limited follow-up data for such patients. As a result, there can be
no assurance that the success rate of the procedure will be sustainable or
will not decrease over time. If the ThermaChoice Uterine Balloon Therapy
system does not prove to be safe and effective in long-term follow up of
clinical trials, there would be a material adverse effect on the Company's
business, financial condition and results of operations.
LIMITED OPERATING HISTORY AND REVENUES; ANTICIPATED FUTURE LOSSES. The
Company has generated only limited revenues to date and has experienced net
losses since its inception. As of March 31, 1997, the Company had an
accumulated deficit of $19.9 million. The Company expects its operating
losses to continue for at least the next several years. In addition, the
Company expects that it will continue to expend substantial resources in
funding clinical trials in support of regulatory and reimbursement approvals,
expansion of marketing and sales activities and research and development.
There can be no assurance that the ThermaChoice Uterine Balloon Therapy and
VersaPoint systems will be successfully commercialized or that the Company
will achieve significant revenues from either international or domestic
sales. In addition, there can be no assurance that the Company will achieve
or sustain profitability in the future.
UNCERTAINTY OF MARKET ACCEPTANCE. The Company's success is dependent
upon acceptance of the ThermaChoice Uterine Balloon Therapy and VersaPoint
products by the medical community as reliable, safe and cost-effective
treatments for dysfunctional uterine bleeding and benign pathology. The
Company is unable to predict how quickly, if at all, its products will be
accepted by the medical community or, if accepted, the number of procedures
that will be performed. The medical indications that can be treated with the
ThermaChoice Uterine Balloon Therapy and VersaPoint systems can also be
treated by surgery, drugs or other medical devices. Although the Company
believes that its products have certain advantages over competing products
and technologies, the Company does not have long-term clinical data
demonstrating such advantages. There can be no assurance that any such
advantages will be clinically significant. The ThermaChoice Uterine Balloon
Therapy and VersaPoint systems are designed to be used with a local
anesthetic in a clinic or physician's office. If physicians recommend or
require that the procedures using the ThermaChoice or VersaPoint products be
performed under general anesthesia in a hospital or outpatient surgery center
instead of under local anesthesia in a clinic or physician's office, market
acceptance of the products would be adversely affected, which would have a
material adverse effect on the Company's business, financial condition and
results of operations. Although the Company believes that the ThermaChoice
system may be adaptable to other uterine bleeding disorders, there can be no
assurance that the product will be clinically effective for any other
indications, that regulatory approval of the product for such other
indications could be obtained, that treatment of such conditions would be
commercially feasible or that additional markets for any such indications
will develop. Obtaining FDA approval to market the ThermaChoice Uterine
Balloon Therapy system for other indications is likely to require a long
period of time and considerable expense. Patient population estimates are
subject to inherent uncertainties, and the Company is unable to determine
with any degree of certainty the number of patients for any indication or the
number of patients who are suitable for treatment.
POTENTIAL FLUCTUATIONS IN FUTURE QUARTERLY RESULTS. The Company expects
that its operating results will fluctuate significantly from quarter to
quarter in the future and will depend on a number of factors, many of which
are outside the Company's control. These factors include actions relating to
regulatory and reimbursement matters, the extent to which the Company's
products gain market acceptance, the rate at which the Company establishes
its network of distributors and direct sales personnel in the U.S. and
internationally, the timing and size of customer purchases, which may be
influenced by volume purchase discounts and extended payment terms, the
progress of the Company's PMA application to the FDA for the ThermaChoice
Uterine Balloon Therapy system, and competition.
9
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LIMITED MANUFACTURING EXPERIENCE; DEPENDENCE ON SINGLE CONTRACT
MANUFACTURERS AND SOLE SOURCE SUPPLIERS; SCALE-UP RISK. The Company only
recently commenced manufacture of certain components of its products and
depends on contract manufacturers for the production of certain components of
the ThermaChoice Uterine Balloon Therapy system and the entire VersaPoint
system. The Company expects to continue to depend on such manufacturers for
the foreseeable future. The integration of the Company's operations into new
facilities, which occurred in November 1995, has resulted and may continue to
result in inefficiencies. Specifically, manufacturers often encounter
difficulties in production of new products, including problems involving
production yields, quality control and assurance, component supply and
shortages of qualified personnel. The Company may experience a shortage of
manufacturing capacity if the new facility fails to operate as planned.
Although the Company intends to maintain sufficient levels of inventory to
avoid any material disruption resulting from the continuing scale-up of the
new facility and transition to in-house manufacturing, there can be no
assurance that the Company will be able to manufacture and supply sufficient
quantities of products to meet product requirements for commercial sales.
Additionally, any delay or difficulty in continuing manufacturing activities
at the new facility, or the inability of the Company's contract manufacturers
to supply required materials and the Company subsequently not being able to
successfully find an alternative source of supply in a timely manner, may
have a material adverse effect on the Company's business, financial condition
and results of operations. For the foreseeable future, the Company expects
that manufacturing start-up and overhead costs spread over low production
volumes combined with the cost of using contract manufacturers to produce the
ThermaChoice controller and VersaPoint system will continue to have an
adverse effect on gross margins.
LIMITED INTERNATIONAL DISTRIBUTION; NO U.S. DISTRIBUTION. To date,
substantially all of the Company's sales have been outside the United States,
and the Company anticipates that a significant portion of its revenues for
the next year will continue to be derived from international sales. The
Company currently markets and sells its products internationally through a
network of distributors. The Company's international sales are dependent
upon the marketing efforts of, and sales by, these distributors. The Company
may also rely on these distributors to assist it in obtaining reimbursement
approvals from both government and private insurers in certain international
markets. In general, the Company has chosen to operate through small
distribution firms because of its belief that these firms will devote greater
attention to the Company's products. The use of small distributors increases
the risks associated with financial instability, which includes the risk that
distributors will cease operations or will be unable to satisfy financial
obligations to the Company. If a distributor were to fail to invest adequate
capital promoting the Company's products or were to cease operations, the
Company would likely be unable to achieve significant sales in the territory.
Gynecare also does not currently have any distribution in the United States.
There can be no assurance that the Company will establish U.S. distribution
networks for the ThermaChoice Uterine Balloon Therapy and VersaPoint systems
in a timely manner. The failure to establish such distribution would have a
material adverse effect on the Company's business, financial condition and
results of operations.
A number of other risks are inherent in international operations and
transactions. International sales and operations may be limited or disrupted
by the imposition of government controls, export license requirements,
political instability, trade restrictions, changes in tariffs, difficulties
in managing international operations and fluctuations in foreign currency
exchange rates. There can be no assurance that the Company will be able to
successfully commercialize the ThermaChoice Uterine Balloon Therapy system,
VersaPoint system, or any future product in any market.
UNCERTAINTY RELATING TO THIRD-PARTY REIMBURSEMENT. The Company's
success will be dependent upon, among other things, its ability to obtain
satisfactory reimbursement from health care payers for the ThermaChoice
Uterine Balloon Therapy and VersaPoint systems. The Company does not expect
that third-party reimbursement will be available, if at all, for use of the
ThermaChoice Uterine Balloon Therapy system in the United States unless and
until FDA approval is received. Third-party reimbursement for the VersaPoint
system and the ThermaChoice Uterine Balloon Therapy system, once FDA approval
is received, would be dependent upon decisions by the HCFA for Medicare, as
well as by individual health maintenance organizations, private insurers and
other payors. While the Company believes that the ThermaChoice Uterine
Balloon Therapy procedure may be reimbursed in the United States under
existing procedure codes for endometrial ablation and that the VersaPoint
procedure may be reimbursed under existing procedure codes for surgical
resection, there can be no assurance that this will occur or that the
reimbursement under these codes will be adequate. Given the efforts to
control and decrease healthcare costs in recent years, there can be no
assurance that any reimbursement will be sufficient to assure profitability.
10
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Reimbursement systems in international markets vary significantly by
country, and by region within some countries, and reimbursement approvals
must be obtained on a country by country basis. Many international markets
have government managed health care systems that govern reimbursement for new
devices and procedures. In most markets, there are private insurance systems
as well as government managed systems. Large scale market acceptance of the
ThermaChoice Uterine Balloon Therapy and VersaPoint systems will depend on
the availability and level of reimbursement in international markets targeted
by the Company. Currently, neither the ThermaChoice Uterine Balloon Therapy
system nor the VersaPoint system has been approved for reimbursement in any
international market. Obtaining reimbursement approvals can require 12 to 18
months or longer. There can be no assurance that the Company will obtain
reimbursement in any country within a particular time, for a particular
amount, or at all.
GOVERNMENT REGULATION. The manufacture and sale of medical devices,
including the ThermaChoice Uterine Balloon Therapy and VersaPoint systems,
are subject to extensive regulation by numerous government authorities in the
United States and other countries. The ThermaChoice Uterine Balloon Therapy
system is subject to the FDA's PMA requirements. As a result, the Company
will not be able to commence marketing and commercial sales of the
ThermaChoice Uterine Balloon Therapy system in the United States unless and
until it receives PMA approval for marketing of such product from the FDA.
In October 1996, the Company completed the patient treatment phase of its
U.S. clinical study for the ThermaChoice Uterine Balloon Therapy system and
the follow-up data collected to-date has indicated overall success in patient
treatment. However, there can be no assurance as to whether long-term safety
and efficacy data collected during clinical trials will be sufficient to
support a PMA filing or whether the Company will receive PMA approval for the
ThermaChoice system. In addition, if approval is received, there can be no
assurance that it would not be for a more limited indication than the Company
has requested, which could limit the addressable market of the ThermaChoice
Uterine Balloon Therapy system and have a material adverse effect on the
Company's business, financial condition and results of operations. There can
be no assurance that the Company will not be required to conduct additional
clinical trials for the ThermaChoice Uterine Balloon Therapy system which may
result in substantial costs and delays. In addition, changes in existing
regulations or adoption of new government regulations or policies could
prevent or delay regulatory approval of the Company's products. Furthermore,
if PMA approval is granted, subsequent modifications to the approved device
or manufacturing process may require a PMA supplement or may require the
submission of a new PMA, which could require substantial additional clinical
efficacy data and FDA review. Failure to obtain PMA approval or to obtain
such approval on a timely basis would have a material adverse effect on the
Company's business, financial condition and results of operations.
In the United States, the VersaPoint system required clearance from the
FDA under a 510(k) application. This application was filed in June 1996 and
cleared in November 1996. However, if the Company wished to propose
modifications or enhancements to the VersaPoint system or use the system for
other indications such as laparoscopic indications, and such major changes
could affect the safety or effectiveness of the device, a new 510(k)
submission would be required. In such a case, the Company may be prohibited
from marketing the modified product until the 510(k) notice is cleared by the
FDA. Such a prohibition could have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company will be required to adhere to applicable FDA regulations
regarding Good Manufacturing Practices (GMP) and similar regulations in other
countries, which include testing, control and documentation requirements.
The Company's success will depend in part on its ability to manufacture its
products in compliance with GMP and EN 46001 and other regulatory
requirements, in sufficient quantities and in a timely manner, while
maintaining product quality and acceptable manufacturing costs. Failure to
increase production volumes in a timely or cost-effective manner or to
maintain compliance with GMP and EN 46001 and other regulatory requirements
could have a material adverse effect on the Company's business, financial
condition and results of operations.
Regulatory approvals, if granted, may include significant limitations on
the indicated uses for which the products may be marketed. FDA enforcement
policy strictly prohibits the marketing of approved medical devices for
unapproved uses. Failure to comply with applicable regulatory requirements,
including marketing products for unapproved uses, could result in, among
other things, FDA warning letters, fines, injunctions, civil penalties,
recall or seizure of products, total or partial suspension of production,
refusal of the government to grant premarket clearance or premarket approval
for devices, withdrawal of approvals and criminal prosecution, which would
have a material adverse effect on the Company's business, financial condition
and results of operations.
11
<PAGE>
Sales of medical devices outside of the United States are subject to
international regulatory requirements that vary from country to country. The
requirements for approval for sale internationally may differ from those
required for FDA approval. In Europe, the Company will be required to obtain
the certifications necessary to enable the CE mark to be affixed to the
Company's products by mid-calendar 1998 in order to continue commercial sales
in member countries of the European Union. Although the Company has obtained
all such certifications for its ThermaChoice Uterine Balloon Therapy system,
there can be no assurance that it will be able to obtain certifications for
its VersaPoint product or other future products in a timely manner, if at
all. A failure to obtain any such certifications could have a material
adverse effect on the Company's business, financial condition and results of
operations.
DEPENDENCE ON LICENSES, PATENTS AND PROPRIETARY TECHNOLOGY. The
Company's success depends in part on its ability to retain licenses, obtain
patent protection for products and processes, and preserve its trade secrets
and proprietary technology. The Company's one issued United States patent
was assigned to the Company by Origin pursuant to a royalty-bearing agreement
covering potential future modifications to the ThermaChoice Uterine Balloon
Therapy system. Additionally, pursuant to such agreement, the Company
granted to Origin a non-exclusive, royalty-free license under such patent for
use in fields other than gynecology. The validity and breadth of claims
covered in medical device technology patents involve complex legal and
factual questions and, therefore, may be highly uncertain. No assurance can
be given that any patents will be issued from pending patent applications or
from any future patent applications, that the scope of any patent protection
will exclude competitors or provide competitive advantages to the Company,
that any of the Company's patents will be held valid if subsequently
challenged or that others will not claim rights in or ownership of the
patents and other proprietary rights held by the Company. For example, one
of the Company's competitors filed a third party observation investigating
prior art patents as they relate to a European patent application licensed to
the Company for the ThermaChoice product. As a result, the claims were
amended and the patent will be issued. This competitor has filed a similar
action in connection with the Company's prosecution of corresponding patents
in Australia, the resolution of which is still pending. Further, the Company
believes such competitor recently filed in the U.S. Patent Trademark Office a
request for re-examination of two issued patents related to the Company's
ThermaChoice product which request for re-examination has been granted by the
Patent Trademark Office based on certain prior art references presented to
such office, certain of which were the subject of the European observation.
There can be no assurance that these patents will be held valid after the
re-examination proceeding or, that if held invalid, would not have a material
adverse effect on the Company's business, financial condition or results of
operations. Furthermore, certain of the Company's licenses provide that the
license rights revert back to the licensers in the event of material breach
of the license agreements, including failure to pay minimum royalty amounts
or milestone payments when due, or failure to purchase certain quantities of
product from the licenser. To the extent license rights are involved, the
Company is dependent upon technology licensers to prosecute their patents in
the United States and in foreign countries. The reversion of rights under
the Company's license agreements or failure of the licensers to fully
prosecute patents would have a material adverse effect on the Company's
business, financial condition and results of operations.
There has been substantial litigation regarding patent and other
intellectual property rights in the medical device industry. Litigation,
which could result in substantial cost to and diversion of effort by the
Company, may be necessary to enforce patents issued or licensed to the
Company, protect trade secrets or know-how owned by the Company, defend the
Company against claimed infringement of the rights of others or determine the
ownership, scope or validity of the proprietary rights of the Company and
others. An adverse determination in any such litigation could subject the
Company to significant liabilities to third parties, require the Company to
seek licenses from third parties and prevent the Company from manufacturing,
selling or using its products, any of which could have a material adverse
effect on the Company's business, financial condition and results of
operations. In the event of such an adverse determination, there can be no
assurance whether a license would be offered on terms acceptable to the
Company, or at all.
POTENTIAL VOLATILITY OF STOCK PRICE. The securities markets have, from
time to time, experienced significant price and volume fluctuations that may
be unrelated to the operating performance of particular companies. The
market prices of the Common Stock of many publicly-held medical device
companies have in the past been, and can in the future be expected to be,
especially volatile. Announcements of technological innovations or new
products by the Company or its competitors, developments or disputes
concerning patents or proprietary rights, regulatory developments, the
issuance of new or changed stock market analyst reports and recommendations,
and economic and other external factors, as well as
12
<PAGE>
period-to-period fluctuations in the Company's financial results, may have a
significant impact on the market price of the Common Stock.
FUTURE CAPITAL NEEDS. The Company's capital requirements depend on a
number of factors, including the timing of FDA approval of the ThermaChoice
Uterine Balloon Therapy system and demand for and market acceptance of the
Company's products, the progress of the Company's clinical research and
product development programs, the receipt of and the time required to obtain
regulatory clearances and approvals, the resources the Company devotes to
developing, manufacturing and marketing its products, the resources required
to hire and develop a direct sales force in the United States, the resources
required to expand manufacturing capacity and facilities requirements, the
costs of obtaining reimbursement for use of the Company's ThermaChoice
Uterine Balloon Therapy and VersaPoint systems in new and existing markets,
and other factors. Consequently, although there can be no assurance that the
Company will not require additional financing prior to the end of 1997, the
Company believes that its cash, cash equivalents and short-term investments
together with interest thereon will be sufficient to fund its operations and
capital requirements through December 31, 1997. The estimate of this time
period is a forward-looking statement involving risks and uncertainties and
actual results may differ materially as a result of a number of factors
including those noted above. Should additional be required, such funding may
not be available when needed or on terms acceptable to the Company, which
would have a material adverse effect on the Company's business, financial
condition and results of operations.
CONTROL BY DIRECTORS AND PRINCIPAL STOCKHOLDERS. The directors and
principal stockholders of the Company, and certain of their affiliates, own
approximately 64% of the Company's outstanding Common Stock. Accordingly,
these persons, individually and as a group, may be able to effectively
control the Company and direct its affairs and business, including any
determination with respect to the acquisition or disposition of assets by the
Company, future issuances of Common Stock or other securities by the Company,
declaration of dividends on the Common Stock and the election of directors.
Such concentration of ownership may also have the effect of delaying,
deferring or preventing a change in control of the Company.
PART II. OTHER INFORMATION
Item 6. (a) Exhibits
10.1 Employment Agreement between the Company and Roseanne
Hirsch dated as of April 21, 1997
11.1 Computation of Net Loss Per Share
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the quarter.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GYNECARE, INC.
By: /s/ MALCOLM M. FARNSWORTH, JR.
---------------------------------------
Malcolm M. Farnsworth, Jr.
Vice President, Finance and
Chief Financial Officer (Principal
Financial Officer), Secretary
Date: May 14, 1997
------------------------
14
<PAGE>
EXHIBIT 10.1
GYNECARE, INC
EMPLOYMENT AGREEMENT
This Agreement dated as of the sooner of April 21, 1997 (the "Effective
Date") or the earlier date you report for employment, is made by and between
Gynecare, Inc. (the "Company") and Roseanne Hirsch ("Employee").
1. Duties and Scope of Employment.
(a) Employment and Duties. Beginning on the Effective Date, the
Company agrees to employ the Employee, and Employee agrees to be employed as
Chief Executive Officer of the Company, with responsibilities and authority
comparable to CEO's of similarly situated companies. Employee shall assume
and discharge such duties as are mutually agreed upon by the Company and
Employee and as are commensurate with such position. During the term of the
Employee's employment with the Company, the Employee shall devote her full
time, skill and attention to her duties and responsibilities, which the
Employee shall perform faithfully, diligently and competently, and the
Employee shall use her best efforts to further the business of the Company
and its affiliated entities. Nothing in this paragraph shall prohibit
Employee from serving simultaneously as a director on the board of a
charitable organization or other company, provided that such service does not
substantially detract from her service to the Company.
(b) Term of Employment. Employee's employment with the Company is
for no specified period and constitutes at will employment and either
Employee or the Company may terminate Employee's employment with the Company
at any time with or without cause.
2. Base Compensation. The Company shall pay the Employee as
compensation for her services hereunder a base salary at the annualized rate
of $200,000 (the "Base Salary"). Such salary shall be paid periodically in
accordance with normal Company payroll practices. Employee's Base Salary
shall not be reduced during the term of her employment, except consistent
with salary reductions affecting other members of senior management.
3. Stock Options.
(a) Incentive Stock Options. The Company agrees to grant, at the
next meeting of the Board of Directors following the Effective Date, (i) an
incentive stock option entitling Employee to purchase up to 50,000 shares of
Common Stock which shall be fully vested and exercisable on the date of grant
and (ii) an incentive stock option entitling Employee to purchase up to
250,000 shares of Common Stock which shall vest over four years in accordance
with the Company's standard form of option agreement. The exercise prices of
both such options shall be the fair market value of the Company's Common
Stock as determined by the Board in accordance with the Company's stock
option plan on the date of grant and the term of such options shall be ten
years from the date of grant. In addition, such options shall be subject to
the stockholder approval of an increase in the Company's stock option pool of
the 1997 annual meeting of stockholders of the Company.
(b) Performance Based Bonus Option. The Company agrees to grant,
at the next meeting of the Board of Directors following the Effective Date,
an incentive stock option to purchase up to 150,000 shares of Common Stock
which shall vest upon satisfaction of milestones to be mutually agreed upon
by the Board and the Employee within 90 days after execution of this
Agreement (provided, however, that such option shall become vested in full,
if not already vested on the last business day prior to expiration of the
option). The exercise price of such option shall be the fair market value of
the Company's Common Stock as determined by the Board in accordance with the
Company's stock option plan on the date of grant and the term of such option
shall be ten years from the date of grant. In addition, such option shall be
15
<PAGE>
subject to the stockholder approval of an increase in the Company's stock
option pool of the 1997 annual meeting of stockholders of the Company.
(c) Acceleration of Vesting. The option agreement evidencing the
250,000 share option grant specified in section 3 (a)(ii) above shall provide
that in the event that Employee's employment with the Company is terminated
without Cause (as defined in Section 6 below) by the Company, such option
shall be exercisable as of the date of such termination for the number of
shares of Common Stock for which such option was vested on such date plus
that number of additional shares as would have become vested under the terms
of such option had Employee remained employed by the Company for a period of
12 months following the date of Employee's termination. In addition, the
option agreement evidencing the 250,000 share option grant specified in
Section 3 (a)(ii) above shall provide that in the event of (i) the Company's
sale of all or substantially all of its assets or (ii) the merger of the
Company with or into another corporation such that the holders of the
outstanding voting equity securities of the Company immediately prior to such
transaction hold fewer than fifty percent (50%) of the voting equity
securities of the surviving entity immediately following such transaction,
such option shall become fully vested and exercisable.
4. Employee Benefits. The employee shall be eligible to participate
in the employee benefit plans and executive compensation programs maintained
by the Company applicable to other executives of the Company, including
(without limitation) retirement plans, savings or profit sharing plans, stock
option, incentive or other bonus plans, life, disability, health, accident
and other insurance programs, and similar plans or programs, subject, in each
case, to the generally applicable terms and conditions of the applicable plan
or program in question and to the determination of any committee or employee
administering such plan or program. In addition, Employee shall accrue three
weeks of paid vacation per year, which may be carried over from year to year
if not used, in accordance with the Company's policies for other members of
senior management.
5. Expenses. The Company will pay or reimburse Employee for
reasonable travel, entertainment or other expenses incurred by Employee in
the furtherance of or in connection with the performance of Employee's duties
hereunder in accordance with the Company's established policies. Such
reimbursement shall not be limited by the extent to which expenses may be
deductible by the Company for federal income tax purposes. Employee shall
furnish the Company with evidence of the incurrence of such expenses within a
reasonable period of time from the date that they were incurred. The Company
will pay or reimburse Employee for reasonable relocation expenses mutually
agreed to by the Company and Employee, but not to exceed $25,000.
6. Termination.
(a) Termination by Company. If Employee is terminated for Cause
(as defined below), then Employee shall not be entitled to receive severance
or other benefits. If the Company terminates Employee's employment other
than for Cause, then Employee shall be entitled to receive her Base Salary
for a period of 12 months from the date of such termination (the "Payment
Period") (less applicable withholding taxes and such amounts, if any, owed by
Employee to the Company); provided, however, the amount of Base Salary that
the Employee shall be entitled to receive shall be reduced by any other
employment or consulting based compensation (including any deferred cash
compensation but not including stock options) that Employee receives after
the date of such termination and prior to the end of Payment Period. Such
amounts shall be paid periodically in accordance with the Company's normal
payroll practices. The payment of any remaining Base Salary shall be the
sole amount due to Employee upon such a termination and Employee shall have
no other remedy from Company for termination of employment. In case of any
termination of Employee's Employment, Employee shall have the right to
convert her health insurance benefits to individual coverage pursuant to
COBRA. Should Employee so elect, the Company shall reimburse Employee for
health care coverage through the Payment Period.
(b) Termination by Employee. If Employee voluntarily terminates
her employment with the Company, then Employee shall not be entitled to
receive severance benefits, except for those, if any, as may then be
established and applicable under the Company's severance and benefits plan
and policies existing at the time of such termination. This limitation shall
not affect Employee's right to accrued vacation pay or stock option rights
vested under separate agreements.
16
<PAGE>
(c) Definition of Cause. For purposes of this Agreement, the term
"Cause" is defined as any one or more of the following occurrences:
(i) Employee's continued failure to perform her duties and
responsibilities in good faith and to the best of her ability for a period of
30 days after written notice thereof from the Company to the Employee; or
(ii) Employee's conviction by, or entry of a plea of guilty
or nolo contendere in, a court of competent and final jurisdiction for any
crime which constitutes a felony in the jurisdiction involved; or
(iii) Employee's commission of an act of fraud or
misappropriation of funds, whether prior or subsequent to the date hereof,
upon the Company; or
(iv) Employee's breach of material provision of this Agreement
or Employee's Confidential Information and Invention Assignment Agreement
with the Company; or
(v) Gross negligence by Employee in the scope of her services
to the Company; or
(vi) Employee's commencement of employment (as an employee or
a consultant) with another employer while she is an employee of the Company
(not including limited service as a board member as permitted under paragraph
1(a)); or
(vii) Material nonconformance with the Company's standard
business practices and policies generally, including but not limited to
policies against racial or sexual discrimination or harassment, made known to
Employee or delivered in writing to Employee.
(d) If Employee, following Company's merger with another company
or Company's sale of substantially all of its assets, is assigned a position
which is not substantially comparable to her CEO position under this
Agreement (in authority, responsibility and compensation), and Employee
therefore decides to leave the Company, the resulting termination shall be
treated as a termination by Company under paragraph 6(a) and not as a
termination by Employee under paragraph 6(b). This provision shall be
binding on the Company's successors and assigns.
7. Arbitration; Consent to Personal Jurisdiction.
(a) Employee agrees that any dispute or controversy arising out
of, relating to, or in connection with this Agreement, or the interpretation,
validity, construction, performance, breach, or termination thereof, shall be
settled by binding arbitration to be held in San Francisco, California, in
accordance with the California Employment Dispute Resolution Rules then in
effect of the American Arbitration Association (the "Rules"). The arbitrator
may grant injunctions or other relief in such dispute or controversy. The
decision of the arbitrator shall be final, conclusive and binding on the
parties to the arbitration. Judgment may be entered on the arbitrator's
decision in any court having jurisdiction.
(b) The arbitrator(s) shall apply California law to the merits of
any dispute or claim, without reference to rules of conflicts of law. The
arbitration proceedings shall be governed by federal arbitration law and by
the Rules, without reference to state arbitration law.
(c) The Company and Employee shall each pay one-half of the costs
and expenses of such arbitration, and each shall separately pay its counsel
fees and expenses provided that the arbitrator may award such costs and fees
to the substantially prevailing party.
(d) EMPLOYEE HAS READ AND UNDERSTANDS THIS SECTION 7, WHICH
DISCUSSES ARBITRATION. EMPLOYEE UNDERSTANDS THAT BY SIGNING THIS AGREEMENT,
EMPLOYEE AGREES TO SUBMIT ANY CLAIMS ARISING OUT OF, RELATING TO, OR IN
CONNECTION WITH THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY,
CONSTRUCTION, PERFORMANCE BREACH OR TERMINATION THEREOF TO BINDING
ARBITRATION, AND THAT THIS ARBITRATION CLAUSE CONSTITUTES A WAIVER
17
<PAGE>
OF EMPLOYEE'S RIGHT TO A JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL
DISPUTES RELATING TO ALL ASPECTS OF THE EMPLOYER/EMPLOYEE RELATIONSHIP,
INCLUDING BUT NOT LIMITED TO, THE FOLLOWING CLAIMS:
(i) ANY AND ALL CLAIMS FOR WRONGFUL DISCHARGE OF EMPLOYMENT;
BREACH OF CONTRACT, BOTH EXPRESS AND IMPLIED; BREACH OF THE COVENANT OF GOOD
FAITH AND FAIR DEALING, BOTH EXPRESS AND IMPLIED; NEGLIGENT OR INTENTIONAL
INFLICTION OF EMOTIONAL DISTRESS; NEGLIGENT OR INTENTIONAL MISREPRESENTATION;
NEGLIGENT OR INTENTIONAL INTERFERENCE WITH CONTRACT OR PROSPECTIVE ECONOMIC
ADVANTAGE; AND DEFAMATION.
(ii) ANY AND ALL CLAIMS FOR VIOLATION OF ANY FEDERAL STATE OR
MUNICIPAL STATUTE, INCLUDING, BUT NOT LIMITED TO, TITLE VII OF THE CIVIL
RIGHTS ACT OF 1964, THE CIVIL RIGHTS ACT OF 1991, THE AGE DISCRIMINATION IN
EMPLOYMENT ACT OF 1967, THE AMERICANS WITH DISABILITIES ACT OF 1990, THE FAIR
LABOR STANDARDS ACT, THE CALIFORNIA FAIR EMPLOYMENT AND HOUSING ACT, AND
LABOR CODE SECTION 201, et seq;
(iii) ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER LAWS AND
REGULATIONS RELATING TO EMPLOYMENT OR EMPLOYMENT DISCRIMINATION.
8. General Provisions.
(a) Entire Agreement. This Agreement represents the entire
agreement and understanding between the parties as to the subject matter
hereof, and supersedes all prior or contemporaneous agreements, whether
written or oral. No waiver, alteration, or modification, if any, of the
provisions of this Agreement shall be binding unless in writing and signed by
duly authorized representatives of the parties hereto.
(b) Severability. If one or more of the provisions of this
Agreement are deemed void by law, then the remaining provisions will continue
in full force and effect.
(c) Successors.
(i) Company's Successors. Any successor to the Company
(whether direct or indirect and whether by purchase, lease, merger,
consolidation, liquidation or otherwise) to all or substantially all of the
Company's business and/or assets shall assume the obligations under this
Agreement and agree expressly to perform the obligations under this Agreement
in the same manner and to the same extent as the Company would be required to
perform such obligations in the absence of a succession. For all purposes
under this Agreement, the term "Company" shall include any successor to the
Company's business and/or assets which executes and delivers the assumption
agreement described in this subsection (a) or which becomes bound by the
terms of this Agreement by operation of law.
(ii) Employee's Successors. The terms of this Agreement and
all rights of the Employee hereunder shall inure to the benefit of, and be
enforceable by, the Employee's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devises and legatees.
(d) Conflicting Obligations. Employee represents that he has not
entered into, and will not enter into, any oral or written agreement in
conflict herewith.
(e) Counterparts. This Agreement may be executed by either of the
parties hereto in counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the
same instrument.
(f) Governing Law; Consent to Personal Jurisdiction. This
Agreement shall be governed by and construed in accordance with the internal
substantive laws, and not the choice of law rules, of the State of
California.
18
<PAGE>
Employee hereby consents to the personal jurisdiction of the state and
federal courts located in California for any action or proceeding arising
from or relating to this Agreement or relating to any arbitration in which
the parties are participants.
(g) Notice. Any notice or communication required or permitted
under this Agreement shall be made in writing and delivered personally to the
other party or sent by certified or registered mail, return receipt requested
and postage prepaid at the address set forth on the signature page below.
Date: 3-30-97 /s/ ROSEANNE HIRSCH
-----------------------------
Roseanne Hirsch
GYNECARE, INC.
Date: By: /s/ A. GRANT HEIDRICH
-----------------------
A. Grant Heidrich, Director of Gynecare, Inc.
19
<PAGE>
EXHIBIT A
LIST OF PRIOR INVENTIONS
AND ORIGINAL WORKS OF AUTHORSHIP
Title Date Identifying Number or Brief Description
- --------------------------------------------------------------------------------
x No inventions or improvements
- ---
Additional Sheets Attached
- ---
Signature of Employee: /s/ ROSEANNE HIRSCH
---------------------
Print Name of Employee: Roseanne Hirsch
---------------
Date: 3-30-97
-------
20
<PAGE>
EXHIBIT 11.1
COMPUTATION OF NET LOSS
PER SHARE (1)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
---------------
1997 1996
------------ --------------
<S> <C> <C>
Primary and Fully Diluted:
Weighted average common shares outstanding for
the period............................................ 8,298,000 8,155,000
------------ ------------
------------ ------------
Net loss................................................ $(3,024,000) $(2,048,000)
------------ ------------
------------ ------------
Net loss per share...................................... ($0.36) ($0.25)
------- -------
------- -------
</TABLE>
(1) Primary and fully diluted calculations are substantially the same.
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 4,029
<SECURITIES> 6,331
<RECEIVABLES> 388
<ALLOWANCES> 0
<INVENTORY> 332
<CURRENT-ASSETS> 11,278
<PP&E> 1,381
<DEPRECIATION> 0
<TOTAL-ASSETS> 15,458
<CURRENT-LIABILITIES> 1,543
<BONDS> 0
0
0
<COMMON> 8
<OTHER-SE> 13,545
<TOTAL-LIABILITY-AND-EQUITY> 15,458
<SALES> 269
<TOTAL-REVENUES> 269
<CGS> 398
<TOTAL-COSTS> 398
<OTHER-EXPENSES> 1,202
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,024)
<EPS-PRIMARY> (0.36)
<EPS-DILUTED> (0.36)
</TABLE>
