<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended June 30, 1997 Commission file number 0-28492
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- --------------------------------------------------------------------------------
INNOVASIVE DEVICES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-3132641
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
734 Forest Street, Marlborough MA 01752
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(Address of principal executive offices)
Registrant's telephone number, including area code 508/460-8229
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N/A
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report.
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.
(1) YES X NO
---- ----
(2) YES X NO
---- ----
The number of shares outstanding of the registrant's common stock as of
August 14, 1997 was 9,154,072.
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INNOVASIVE DEVICES, INC.
INDEX
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Page
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<S> <C>
Part I: Financial Information
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheet at June 30, 1997 (unaudited)
and December 31, 1996 3
Condensed Consolidated Statement of Operations (unaudited) for
the Three and Six Months Ended June 30, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows (unaudited) for
the Six Months Ended June 30, 1997 and 1996 5
Notes to Unaudited Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. Other Information 11
Signatures 13
Exhibit Index 14
</TABLE>
2
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<TABLE>
<CAPTION>
Part I - Financial Information
Item 1. Financial Statements
INNOVASIVE DEVICES, INC.
Condensed Consolidated Balance Sheet
(in thousands)
ASSETS June 30, December 31,
1997 1996
---------------------------
<S> <C> <C>
(unaudited)
Current assets:
Cash and cash equivalents $ 4,170 $ 12,825
Marketable securities 14,789 9,861
Accounts receivable, net of
allowance for doubtful
accounts of $99 at June 30, 1997
and $89 at December 31, 1996,
respectively 1,152 759
Inventories 1,786 859
Prepaid expenses 206 112
---------------------------
Total current assets 22,103 24,416
Fixed assets, net 1,832 922
Other assets, net 1,256 25
---------------------------
$ 25,191 $ 25,363
===========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 778 $ 628
Accounts payable to related party 343 170
Other current liabilities 806 777
Current portion of note payable 73 -
---------------------------
Total current liabilities 2,000 1,575
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Note payable 529 -
---------------------------
Stockholders' equity:
Common stock 1 1
Additional paid-in capital 54,989 39,789
Accumulated deficit (31,501) (16,002)
Deferred compensation (827) -
---------------------------
22,662 23,788
---------------------------
$ 25,191 $ 25,363
===========================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
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<TABLE>
<CAPTION>
INNOVASIVE DEVICES, INC.
Condensed Consolidated Statement of Operations
(In thousands, except per share data; unaudited)
Three months ended Six months ended
June 30, June 30,
------------------------------------------------
1997 1996 1997 1996
------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 1,751 $ 1,088 $ 3,414 $ 1,890
Cost of sales 510 414 1,020 752
------------------------------------------------
Gross profit 1,241 674 2,394 1,138
Selling, general and administrative
expenses 1,856 1,157 3,351 2,248
Research and development 927 596 1,757 1,178
Purchased in-process research and
development 13,370 - 13,370 -
------------------------------------------------
Loss from operations (14,912) (1,079) (16,084) (2,288)
Interest income, net 286 112 585 174
------------------------------------------------
Net loss ($ 14,626) ($ 967) ($ 15,499) ($ 2,114)
================================================
Net loss per share ($ 2.00) ($ 0.16) ($ 2.12) ($ 0.37)
================================================
Shares used in computing net loss
per share 7,328 5,882 7,294 5,669
================================================
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements.
4
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INNOVASIVE DEVICES, INC.
Condensed Consolidated Statement of Cash Flows
(In thousands; unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
---------------------
1997 1996
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<S> <C> <C>
Cash flows from operating activities
Net loss $ (15,499) $(2,114)
Adjustments to reconcile net loss
to net cash
provided by (used for)
operating activities:
Depreciation and amortization 191 138
Purchased in-process research
and development 13,370 -
Changes in assets and
liabilities:
Accounts receivable, net (381) (383)
Inventories (692) (252)
Prepaid expenses (83) (79)
Other assets - ( 6)
Accounts payable 6 (220)
Accounts payable to
related party 173 93
Other current liabilities (62) 349
---------- ---------
Net cash used for operating activities (2,977) (2,474)
---------- ---------
Cash flows from investing activities
Purchases of fixed assets (404) (179)
Purchases of marketable securities (8,125) -
Redemption of marketable securities 3,197 -
Acquisition of business, net of
cash acquired (372) -
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Net cash used for investing activities (5,704) (179)
---------- ---------
Cash flows from financing activities
Proceeds from issuance of
preferred stock, net of
issuance costs - 926
Proceeds from issuance of common
stock, net of issuance costs 26 21,496
---------- ---------
Net cash provided by financing
activities 26 22,422
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Net increase (decrease) in cash and
cash equivalents (8,655) 19,769
Cash and cash equivalents at beginning
of period 12,825 5,052
---------- ---------
Cash and cash equivalents at end of
period $ 4,170 $24,821
========== =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
INNOVASIVE DEVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Innovasive Devices, Inc. (the "Company") include, in the opinion of management,
all adjustments (consisting of normal recurring adjustments) considered
necessary for a fair presentation of the Company's financial position as of June
30, 1997 and the results of operations for the three and six month periods ended
June 30, 1997 and 1996. Results of operations for interim periods are not
necessarily indicative of those to be achieved for the full year.
Pursuant to accounting requirements of the Securities and Exchange Commission
(the "SEC") applicable to quarterly reports on Form 10-Q , the accompanying
unaudited condensed consolidated financial statements and these notes do not
include all disclosures required by generally accepted accounting principles for
complete financial statements. Accordingly, these statements should be read in
conjunction with the financial statements and accompanying notes contained in
the Company's Annual Report on Form 10-K for the year ended December 31, 1996
filed with the SEC on March 26, 1997.
2. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------------------
(unaudited)
<S> <C> <C>
Raw materials $ 930 $ 282
Work-in-process 203 117
Finished goods 653 460
------------------------
Totals $1,786 $ 859
========================
</TABLE>
3. Net Loss Per Share (unaudited)
Net loss per share is determined by dividing the net loss by the weighted
average number of common stock outstanding during the period. The weighted
average number of common stock outstanding during the period prior to and
including the Company's initial public offering ("IPO") on June 5, 1996 includes
the effect of the assumed conversion of all convertible preferred stock prior to
the actual conversion which occurred upon the closing of the Company's IPO.
Accordingly, net loss per share for the three and six month period ending June
30, 1996 is presented on a pro forma basis.
Pursuant to SEC Staff Accounting Bulletin 83, common stock equivalents,
although anti-dilutive, issued at prices below the offering price per share
during the twelve months preceding the initial public offering of the Company's
common stock have also been included in the calculation of net loss per share
using the treasury stock method as if outstanding from January 1, 1996 through
March 31, 1996.
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No.128 ("SFAS No. 128"), "Earnings
Per Share." This statement establishes and simplifies standards for computing
and presenting earnings per share. SFAS No. 128 will be effective for interim
and annual periods ending after December 15, 1997, and requires the restatement
of all previously reported earnings per share data that are presented. Early
adoption of SFAS 128 is not permitted. SFAS No. 128 replaces primary and fully
diluted earnings per share with basic and diluted earnings per share. As the
Company has historically reported net losses, earnings per share as computed
under the provisions of SFAS No. 128 will not differ from the earnings per share
amounts previously reported by the Company.
6
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INNOVASIVE DEVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
4. Deferred compensation
In 1997, the Company issued, under the 1996 Omnibus Stock Plan, 21,500 common
stock options to members of its scientific advisory board and 127,000 common
stock options to certain consultants in conjunction with the acquisition of
MedicineLodge, Inc. (Note 4). The estimated value of these options totaled
approximately $848 and was recorded as deferred compensation which is being
amortized over the vesting period of the options. The estimated value of each
option grant was calculated on the date of grant using the Black-Scholes option-
pricing model.
5. Acquisition
On June 27, 1997, the Company, through a newly formed subsidiary, acquired
substantially all of the operating assets of MedicineLodge, Inc. ("MLI"), in
exchange for 1,885,000 shares of the Company's common stock valued at $14,326
and the assumption of certain liabilities. The acquisition has been accounted
for under the purchase method and, accordingly, the purchase price has been
allocated based on the estimated fair value of assets purchased and liabilities
assumed upon acquisition. A portion of the purchase price was allocated to in-
process research and development, resulting in a charge to the Company's
operations of $13,370. The excess of cost over the fair value of net assets
acquired (goodwill) of $1,231 is being amortized over ten years on a straight-
line basis. The operating results of MLI are included in the Company's results
from the date of acquisition.
The following unaudited pro forma summary combines the results of operations of
the Company and MLI as if the acquisition had occurred at the beginning of 1997
and 1996, after giving effect to certain adjustments, including the write off of
purchased in-process research and development and amortization of goodwill. The
unaudited pro forma summary does not necessarily reflect the results of
operations as they would have been if the Company and MLI had constituted a
single entity during such periods.
<TABLE>
<CAPTION>
Six months ended
June 30,
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1997 1996
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<S> <C> <C>
Net sales $ 3,958 $ 2,657
Net loss (16,453) (15,522)
Net loss per share (1.79) (2.05)
</TABLE>
7
<PAGE>
INNOVASIVE DEVICES, INC.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
OVERVIEW
Since its inception, Innovasive Devices, Inc. (the "Company") has been primarily
engaged in the development, manufacture and marketing of proprietary devices and
instrumentation which facilitate the reattachment of soft tissue structures,
such as ligaments and tendons, to bones and other tissues. The Company has a
limited operating history and has expended significant resources to fund
research and development, the establishment of its manufacturing capabilities
and the expansion of its marketing and sales organization. The Company plans to
continue investing aggressively in these areas. The Company's sales are
principally derived from the sale of its family of ROC tissue fasteners and
related surgical instrumentation. The Company commenced commercial shipments of
its first ROC fastener during 1994 and has since expanded its product offering
to include the IDeal Arthroscopic Suture Fastener System, the ROC XS and Mini
ROC suture fasteners and the Innovasive COR system for the repair of
osteochondral defects.
On June 27, 1997, the Company acquired substantially all of the assets,
including intellectual property related to orthopaedic medicine, and assumed
substantially all of the liabilities of MedicineLodge, Inc., a Delaware
corporation ("MLI") in exchange for 1,885,000 shares of the Company's common
stock. MLI was a privately held designer, developer and manufacturer of
orthopaedic medical devices, particularly implantable systems and related
instrumentation used in minimally invasive arthroscopic procedures to repair
injuries to the knee, and had approximately 30 employees located at its Logan,
Utah offices. A portion of the purchase price was allocated to in-process
research and development, resulting in a charge to the Company's operations of
$13,370,000. The excess of cost over the fair value of net assets acquired
(goodwill) of $1,231,000 is being amortized over ten years on a straight-line
basis. The operating results of MLI are included in the Company's results from
the date of acquisition.
The following information should be read in conjunction with the unaudited
condensed financial statements and notes thereto included in this Quarterly
Report and with the Financial Statements and Management's Discussion and
Analysis of Financial Condition and Results of Operations contained in the
Company's Annual Report on Form 10-K filed with the SEC on March 26, 1997.
Any statements in this report expressing the beliefs and expectations of
management regarding the Company's future results and performance are forward-
looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. Such forward-looking statements are based on current
expectations that involve a number of risks and uncertainties. The Company
wishes to caution readers not to place undue reliance on any such forward-
looking statements, which speak only as of the date made. Such forward looking
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from historical earnings and those presently
anticipated or projected. These risks include the receipt of regulatory
approvals, progress of product development programs, clinical efficacy of and
market demand for the products. Certain of such risks and uncertainties are
described in Exhibit 99 of the Company's Annual Report on Form 10-K filed with
the Securities and Exchange Commission on March 26, 1997.
Results of Operations
Three Months Ended June 30, 1997 compared to the Three Months Ended June 30,
1996
Net sales for the second quarter of 1997 of $1,751,000 increased $663,000 from
$1,088,000 for the same period in the prior year. This increase resulted
primarily from sales of the Innovasive COR system and increased unit sales of
ROC suture fasteners. The COR system, introduced in October
8
<PAGE>
1996, is used to repair osteochondral defects in the knee. In June 1997, the
Company introduced the ROC EZ, an improved version of the original ROC fastener
used in hardbone applications, and the CuffLink, used to augment tunnels made in
the bone for rotator cuff repair procedures. Domestic net sales increased during
the second quarter of 1997 over the second quarter of 1996 as a result of an
increase in the unit sales of the Company's ROC, ROC XS and Mini Roc suture
fasteners and COR systems. International net sales decreased during the second
quarter of 1997 from the second quarter of 1996 primarily as a result of an
initial stocking sale of ROC tissue fasteners and related surgical instruments
to a distributor in Japan in the second quarter of 1996.
Gross profit increased to $1,241,000 in the second quarter of 1997 from $674,000
in the second quarter of 1996. As a percentage of sales, gross profit
increased to 70.9% in the second quarter of 1997 from 61.9% in the second
quarter of 1996. The increase in gross profit was due primarily to the improved
mix of ROC suture fasteners and COR systems sold in the period and higher sales
volumes which resulted in improved manufacturing efficiencies.
Selling, general and administrative expenses increased to $1,856,000 in the
second quarter of 1997 from $1,157,000 in the second quarter of 1996. The
increase resulted primarily from the expansion of the domestic direct sales
force, increased salary and travel costs, higher selling commissions resulting
from higher sales volume, increased advertising costs and the increased
administrative costs associated with operating as a public company.
Research and development expenses increased to $927,000 in the second quarter of
1997 from $596,000 in the second quarter of 1997. The increase was primarily
attributable to higher salary and recruitment costs associated with additional
personnel required to support new product development. Increases also occurred
in expenses related to product development costs and patent preparation and
filing costs associated with product development programs.
As a result of the Company's transaction with MLI, the Company incurred a charge
to operations of $13,370,000 representing the portion of the purchase price
allocated to in-process research and development.
Interest income increased to $286,000 in the second quarter of 1997 from
$112,000 in the second quarter of 1996, primarily as a result of the interest
received on the investment of the proceeds of the initial public offering closed
during the second quarter of 1996.
As a result of the foregoing, the net loss for the second quarter of 1997 was
$14,626,000. The net loss, prior to the in-process research and development
charge of $13,370,000, increased to $1,256,000 from a loss of $967,000 in the
second quarter of 1996.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Net sales for the first six months of 1997 of $3,414,000 increased $1,524,000
from $1,890,000 for the same period in the prior year. This increase resulted
primarily from sales of the Innovasive COR system and increased unit sales of
ROC suture fasteners. The COR system, introduced in October 1996, is used to
repair osteochondral defects in the knee. In June 1997, the Company introduced
the ROC EZ, an improved version of the original ROC fastener used in hardbone
applications, and the CuffLink, used to augment tunnels made in the bone for
rotator cuff repair procedures. Domestic net sales increased during the first
six months of 1997 over the same period in the prior year as a result of an
increase in the unit sales of the Company's ROC, ROC XS and Mini Roc suture
fasteners and COR systems. International net sales decreased during the first
six months of 1997 from the same
9
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period in the prior year primarily as a result of an initial stocking sale of
ROC tissue fasteners and related surgical instruments to a distributor in Japan
in the second quarter of 1996.
Gross profit increased to $2,394,000 for the first six months of 1997 from
$1,138,000 for the first six months of 1996. As a percentage of sales, gross
profit increased to 70.1% for the first six months of 1997 from 60.2% for the
first six months of 1996. The increase in gross profit was due primarily to the
improved mix of ROC suture fasteners and COR systems sold in the period and
higher sales volumes which resulted in improved manufacturing efficiencies.
Selling, general and administrative expenses increased to $3,351,000 for the
first six months of 1997 from $2,248,000 for the first six months of 1996. The
increase resulted primarily from the expansion of the domestic direct sales
force, increased salary and travel costs, higher selling commissions resulting
from higher sales volume, increased sample expenses and the increased costs
associated with operating as a public company.
Research and development expenses increased to $1,757,000 for the first six
months of 1997 from $1,178,000 for the first six months of 1996. The increase
was primarily attributable to product development costs and patent preparation
and filing costs associated with product development programs. Increases also
occurred in expenses related to salary and recruitment costs associated with
additional personnel required to support new product development.
As a result of the Company's transaction with MLI, the Company incurred a charge
to operations of $13,370,000 representing the portion of the purchase price
allocated to in-process research and development.
Net interest income increased to $585,000 for the first six months of 1997 from
$174,000 for the first six months of 1996, primarily as a result of the interest
received on the investment of the proceeds of the initial public offering closed
during the second quarter of 1996.
As a result of the foregoing, the net loss for the first six months of 1997 was
$15,499,000. The net loss, prior to the in-process research and development
charge of $13,370,000, increased to $2,129,000 for the first six months of 1997
from a loss of $2,114,000 for the same period in the prior year.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1997, working capital amounted to $20.1 million as compared to
$22.8 million at December 31, 1996.
Cash used in the Company's operations amounted to $3.0 million for the first six
months of 1997 and was comprised of the net loss of $15.5 million, less a non-
cash adjustment of $13.4 million for in process research and development
resulting from the transaction with MLI, and a net increase in working
capital requirements including an increase in accounts receivable as a result of
higher sales levels and an increase in inventories to support new product
introductions, partially offset by an increase in trade payables.
Cash used for investing activities totaled $5.7 million for the first six months
of 1997 resulting from net purchases of marketable securities totaling $4.9
million, capital equipment expenditures totaling $404,000 and direct transaction
costs related to the MLI transaction of $372,000. The Company invests its excess
cash in marketable securities with maturities of less than two years.
The Company expects that its balance of cash, cash equivalents and marketable
securities will be adequate to fund the near term cash requirements for
operations, working capital and fixed assets.
10
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INNOVASIVE DEVICES, INC.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
None
ITEM 2. CHANGES IN SECURITIES
---------------------
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
-------------------------------
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
The Company's Annual and Special Meeting of Stockholders was held on June 27,
1997 in Boston, Massachusetts. All matters submitted to a vote of the Company's
stockholders were described in the Company's Proxy Statement dated June 6, 1997.
At the meeting, the shareholders:
(1) elected the following directors for terms expiring in 1999 and 2000:
<TABLE>
<CAPTION>
TERM TOTAL VOTE FOR TOTAL VOTE WITHHELD
EXPIRES EACH DIRECTOR FROM EACH DIRECTOR
------- -------------- -------------------
<S> <C> <C> <C>
Thomas C. McConnell 2000 5,754,592 431,999
Robert R. Momsen 2000 6,184,991 1,600
Richard B. Caspari, M.D. 2000 6,184,891 1,700
Alan Chervitz 1999 5,699,900 486,691
</TABLE>
(2) approved the acquisition of MedicineLodge, Inc. assets and liabilities and
the issuance of common stock therefor;
For 5,106,870
Against 3,250
Abstain 430,699
Broker Non-Votes 645,772
(3) approved the Company's 1996 Omnibus Stock Plan as amended by the Board of
Directors;
For 4,459,631
Against 868,899
Abstain 212,289
Broker Non-Votes 645,772
(4) approved the Company's 1996 Non-Employee Directors Stock Option Plan as
Amended by the Board of Directors;
For 4,621,167
Against 487,502
Abstain 471,950
11
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Broker Non-Votes 605,972
(5) ratified the Board of Directors' selection of Price Waterhouse LLP as the
Company's independent auditors for the fiscal year ending December 31,
1997.
For 6,100,475
Against 500
Abstain 53,516
Broker Non-Votes 32,100
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
---------------------------------
a. See Exhibit Index, Page 14
b. Reports on Form 8-K
On July 10, 1997 the Company filed a Current Report on Form 8-K, as
amended on Form 8-K/A filed on July 30, 1997, to disclose, under the
heading of Item 2, Acquisition or Disposition of Assets, the acquisition
of substantially all of the assets, including intellectual property
related to orthopaedic medicine, and assumption of substantially all of
the liabilities of MedicineLodge, Inc., a Delaware corporation.
12
<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.
INNOVASIVE DEVICES, INC,
Date: August 14, 1997 By:/s/ Richard D. Randall
--------------------------
Richard D. Randall
President, Chief Executive Officer
and Director
(Principal Executive Officer)
Date: August 14, 1997 By:/s/ James V. Barrile
------------------------
James V. Barrile
Executive Vice President of Finance,
Chief Financial Officer and Treasurer
(Principal Financial Officer)
13
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INNOVASIVE DEVICES, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
<S> <C>
10.1 EMPLOYMENT AGREEMENT, DATED JUNE 27, 1997, BETWEEN REGISTRANT 15
AND ALAN CHERVITZ
10.2 EMPLOYMENT AGREEMENT, DATED JUNE 27, 1997, BETWEEN REGISTRANT 21
AND T. WADE FALLIN
10.3 CONSULTING AGREEMENT, DATED JUNE 27, 1997, BETWEEN REGISTRANT 27
AND RICHARD B. CASPARI, M.D.
11.1 STATEMENT REGARDING COMPUTATION OF NET LOSS PER SHARE 33
</TABLE>
14
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EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, made and entered into as of June 27, 1997, by
and between Innovasive Devices, Inc., a Massachusetts corporation (the
"Company"), and Alan Chervitz (the "Employee"), a resident of Logan, Utah.
WITNESSETH:
WHEREAS, the Company has entered into an Asset Purchase Agreement,
dated as of February 4, 1997 (the "Purchase Agreement"), with MedicineLodge,
Inc. and certain of the shareholders of MedicineLodge, Inc. pursuant to which it
is contemplated that Innovasive Acquisition Corporation, a wholly-owned
subsidiary of the Company will purchase certain of the assets and assume certain
of the liabilities of MedicineLodge, Inc. (the "Purchase") in a tax free
reorganization; and
WHEREAS, in contemplation of the Purchase and in consummation of the
transactions and satisfaction of the conditions to the parties' obligations to
close the transactions contemplated in the Purchase Agreement, the Employee is
entering into this Agreement with the Company to provide for the continued
employment of the Employee by the Company at least for the period of time
specified herein and on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual promises, undertakings
and agreements set forth in this Agreement, and other good and valuable
consideration the receipt and sufficiency of which are acknowledged by the
Employee, the Company and the Employee agree as follows:
1. Term. This Agreement will be effective as of the Closing Date as that
----
term is defined in the Purchase Agreement (the "Closing Date"). The term of
this Agreement will be a period of forty-eight months beginning on the Closing
Date (the "Agreement Term"), unless it is earlier terminated by either party in
accordance with the terms hereof. Notwithstanding the termination of the
Employee's employment under this Agreement, the provisions of Section 5 through
10 hereof shall remain in effect in accordance with their terms.
2. Duties and Authority. The Employee will serve as Executive Vice
--------------------
President of the Company. Pursuant to such employment, the Employee will be
responsible for general management of the Logan, Utah facility and company-wide
executive management team participation and also will perform such additional
duties consistent with the position of Executive Vice President as may be
assigned to him by the Chief Executive Officer of the Company. The Employee
agrees to devote substantially all of his business time and energies to the
business of the Company and to faithfully, diligently and competently perform
his duties under this Agreement. The provisions of this Agreement, including
but not limited to compensation, shall be renegotiated between the parties
should the Employee be asked to take a more senior position with the Company or
one with greater responsibilities.
3. Compensation and Benefits. In full consideration for services rendered
-------------------------
by the Employee during the Agreement Term, the Employee will receive the
following:
(a) Salary. Commencing as of the Closing Date, the Company will pay
------
the Employee in substantially equal installments, not less frequently than bi-
weekly or at such more frequent intervals in accordance with the customary
payroll practices of the Company, an annual salary of not less than $135,000.
Employee will be eligible for annual salary raises consistent with the customary
practices and policies of the Company. Also, as a part of the compensation of
the Employee, the Company will pay all premiums and other costs associated with
the continuation in force and effect of the disability policy that has been and
is being maintained for the Employee's benefit by MedicineLodge, Inc.
(b) Expense Reimbursement. The Company will reimburse the Employee
---------------------
for all ordinary and customary business and travel expenses incurred by the
Employee in the performance of his duties hereunder in accordance with the
Company's expense reporting and reimbursement policies.
15
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(c) Other Benefits. The Employee will be a full participant in: (i) a
--------------
bonus program providing for a bonus of up to 25% of the Employee's base salary,
a portion of which will be tied to the Company's meeting its annual objectives
and a portion of which will be tied to the Employee's meeting his own annual
objectives, and which is subject to the approval of the Board of Directors of
the Company; and (ii) all other employee benefits plans, policies and practices,
now or hereafter maintained by or on behalf of the Company, in accordance with
the terms of those plans, policies and practices ((i) and (ii) are collectively
referred to as the "Employee Benefits"). The Employee will also receive a grant
of stock options by the Company in the total amount of 35,000 shares subject to
vesting and other terms and conditions set forth in an agreement between the
parties pursuant to the Company's 1996 Omnibus Stock Plan which is to be entered
into simultaneously with the signing hereof .
(d) Relocation. Any relocation of the Employee from Logan, Utah that
----------
is desired by the Company shall occur only upon the mutual consent of both
parties to revised terms of this Agreement providing for the payment of the
Employee's family moving expenses and reasonable compensation adjustments
reflecting the change in cost of living.
4. Early Termination of Employment.
-------------------------------
(a) Termination Rights. The Company may terminate the employment of
------------------
the Employee at any time during the term hereof with or without "Cause" (as
defined below) upon prior written notice to him, and the Employee's employment
will terminate on the date specified in such notice. In the event of a
termination of the employment of the Employee by the Company without Cause prior
to expiration of the Agreement Term, the severance payment obligations of the
Company to the Employee shall be as provided under Section 5. If the Company
terminates the employment of the Employee without Cause and so long as it
continues to pay the Severance Payments owed hereunder, or if the Company
terminates the employment of the Employee with Cause, the Employee shall be
obligated to comply with the non-competition covenants of Section 6 for one year
after the termination of employment. In all instances, the Employee shall be
required to comply with the confidentiality covenant of Section 7 and the
remedies provision of Section 8.
(b) Death or Disability. In the event of the Employee's death, the
-------------------
Employee's employment will terminate as of the date of the Employee's death and
the heirs, distributees or legal representatives of the Employee will be
entitled to receive the salary and other compensation set forth in Section 3(a),
the Employee Benefits and other entitlements under the Company's programs and
policies accrued or earned for all periods through the date of death. In the
event of the Employee's disability due to physical or mental illness which
renders him unable to perform his employment duties for a continuous period of
90 days or more, the Company may terminate the employment of Employee hereunder
at any time on or after the 90th day following the commencement of his
disability, provided such disability has continued through the termination date.
In such event, the Employee or his legal representatives will be entitled to
receive all amounts payable under the disability policy maintained by the
Company for the Employee and, for a period of twelve months following the date
of disability, payments from the Company equal to the difference between the
amounts payable under the disability policy and the Employee's base salary
applicable on the date of disability, which difference shall be paid by the
Company in installments consistent with the ordinary payroll practices of the
Company. If the Employee is terminated by reason of disability, the Employee
will be required to comply with the confidentiality covenant of Section 7 and
will be bound by the remedies provision of Section 8.
(c) For purposes of this Agreement, "Cause" means:
(i) the failure or inability for any reason of the Employee to devote
substantially all of his time during normal business hours to the business of
the Company and its affiliates (except for vacations or absence due to illness
or other permitted leave reasons); or
(ii) the commission by the Employee of any dishonest act, or
fraudulent conduct by the Employee, or conduct by the Employee which constitutes
a felony or a malfeasance or a breach of fiduciary duties by the Employee, or
other conduct by which materially and adversely affects the business or
reputation of the Company or its affiliates; or
16
<PAGE>
(iii) any material or continuing breach by the Employee of any of the
terms of, or any material or continuing failure by the Employee to perform any
covenant contained in, this Agreement to be performed by the Employee which has
not been cured or performed within a period of thirty (30) days after written
notice of the breach or failure to the Employee; or
(iv) any breach by the Employee of the Company's policies with respect
to equal employment opportunity and sexual harassment.
5. Severance Payments Upon Early Termination.
-----------------------------------------
If the employment of the Employee is terminated by the Company prior
to the expiration of the Agreement Term without Cause, then, unless waived by
the mutual agreement in writing of the Company and the Employee: (i) the Company
will remain obligated to pay the Employee the salary and other compensation set
forth in Section 3(a), the Employee Benefits and other entitlements (excluding
any bonus payments) under the Company's programs and policies accrued or earned
for all periods through the date of termination and for 12 months thereafter,
and (ii) the Employee will continue to retain and vest in the stock option
granted to him pursuant to the Company's 1996 Omnibus Stock Plan consistent with
the terms thereof just as he would have had he remained employed by the Company
for the 12 months following termination. The Employee shall give the Company
prompt written notice of whether he elects to require the Company to continue to
pay him pursuant to subsection (i) of the immediately preceding sentence, in
which case he will be obligated to the non-competition provisions of Section
6(a) below, or to not require that such payments continue in which case he will
not be obligated to the non-competition provisions of Section 6(a) below. If
the employment of the Employee is terminated by the Company prior to the
expiration of the Agreement Term with Cause or due to the death of the Employee,
the Company will only be obligated to pay the Employee the salary and other
compensation set forth in Section 3(a), the Employee Benefits and other
entitlements under the Company's programs and policies accrued or earned for all
periods through the date of termination. If the employment of the Employee is
terminated by the Company prior to the expiration of the Agreement Term due to
the disability of the Employee, the Company will only be obligated to pay the
Employee or his legal representatives all amounts payable under the disability
policy maintained by the Company for the Employee and, for a period of twelve
months following the date of disability, payments from the Company equal to the
difference between the amounts payable under the disability policy and the
Employee's base salary applicable on the date of disability, which difference
shall be paid by the Company in installments consistent with the ordinary
payroll practices of the Company.
6. Non-Competition Covenant.
------------------------
(a) Competitive Activities. The Employee agrees that, unless waived
----------------------
by the mutual agreement in writing of the Company and the Employee, while he is
employed by the Company hereunder, and for 12 months thereafter, if either (i)
his employment is terminated by the Company with Cause prior to expiration of
the Agreement Term, or (ii) his employment is terminated by the Company without
Cause prior to expiration of the Agreement Term and the Company continues to
make all payments required under Section 5 (i) above, then the Employee will
not, without the prior written consent of the Company, directly or indirectly,
in any capacity, (i) engage in any aspect of the sale, distribution or
development of arthroscopic and sports medicine surgical devices, or render any
of services to any person or entity engaged in any such business, for or on
behalf of any person or entity other than the Company; or (ii) solicit or
encourage, or assist other persons or entities to solicit or encourage, any
employees, agents, representatives or customers of the Company, or any of its
affiliates, to terminate or materially alter their relationship with the Company
or any of its affiliates, to become employed by any other person or entity, or
establish a relationship with or become a customer of any other person or entity
in any aspect of the sale, distribution or development of arthroscopic and
sports medicine surgical devices.
(b) Geographic Scope. The provisions of Section 6(a) shall be
----------------
effective only in the areas of the world in which the Company or affiliates
actually engage in business during, or at the time of the termination of, the
Employee's employment.
(c) Term of Non-Competition Covenant. The provisions of Section 6(a)
--------------------------------
shall be effective
17
<PAGE>
and binding upon the Employee for 12 months after the termination of his
employment only if the Employee's employment is terminated by the Company with
Cause or if the Employee's employment is terminated by the Company without Cause
and the Company continues to make all payments required of it under Section 5
(i) above.
(d) Further Understanding. The Employee understands and agrees that
---------------------
the covenants in this Section 6 prohibit him from owning (other than ownership
of less than one percent (1%) of the outstanding capital stock of a publicly-
owned company), directly or indirectly, any business involved in the sale,
distribution or development of arthroscopic and sports medicine surgical devices
(or any person or entity that owns any capital stock or equity interest in any
such business), or from accepting employment with or rendering services to any
such business either as a director, officer, agent, representative, employee or
consultant for the period of time specified in Section 6 (c).
7. Proprietary Information Covenants.
---------------------------------
(a) The Employee acknowledges that, during the term of this
Agreement, he will have access to and will become familiar with various trade
secrets and proprietary and confidential information of the Company and its
subsidiaries and affiliates including proprietary technology, processes, know-
how, computer programs, compilations of information, records, sales lists,
customer lists, methods of doing business, employee payroll and other personnel
information, contractual provisions with customers, vendors and other agents or
representatives, and other information that the Company treats as confidential
(collectively referred to as "Trade Secrets"). The Employee acknowledges and
agrees that he will not use in any way or disclose any of the Trade Secrets,
directly or indirectly (except as required in the course of employment). All
files, records, documents, information, data and similar items relating to the
business of the Company and its subsidiaries and affiliates or the Trade
Secrets, whether prepared by the Employee or otherwise coming into his
possession, will remain the exclusive property of the Company and will not be
removed by the Employee from its premises under any circumstances (except in the
ordinary course of performance of his duties), and in the event will be promptly
delivered to the Company or the appropriate subsidiary or affiliate upon
termination of this Agreement.
(b) Employee agrees that during the term of this Agreement and for the
period that he is obligated to any non-competition covenant under Section 6 (a)
above; (i) he will promptly disclose to the Company or any persons designated by
the Company, all inventions, improvements, formulas, processes, techniques,
know-how, data, analysis and other proprietary information, whether or not
patentable, in the field of arthroscopic and sports medicine surgical devices
made, conceived or first reduced to practice by Employee, either alone or
jointly with others, during the term of this Agreement and for the period that
he is obligated to any non-competition covenant under Section 6 (a) above
(hereinafter referred to as "Inventions"); (ii) all Inventions shall be the
property of the Company and its assigns; (iii) Employee will execute and deliver
to the Company assignments, in form satisfactory to the Company, and take all
other lawful action requested by the Company to vest title to all said
Inventions in the Company and its assigns; and (iv) Employee will do or cause to
be done all other reasonable acts requested by the Company, at Company's
expense, for the preparation of applications for, and the procurement, issuance,
and maintenance of patents and/or copyrights related to said Inventions, or any
of them, under the applicable laws of the United States and any foreign
countries.
8. Remedy for Breach. The Employee acknowledges that the Company will be
-----------------
irrevocably damaged if the provisions of Sections 6 and 7 are not specifically
enforced. Accordingly, the Employee agrees that, in addition to any other
relief to which the Company may be entitled, the Company will be entitled to
seek and obtain injunctive relief from a court of competent jurisdiction for the
purpose of restraining the Employee from any actual or overtly threatened breach
of Sections 6 or 7. The Company shall use its reasonable efforts, in such
event, to notify the Employee or, if known to the Company, the Employee's
counsel, not less than twenty-four (24) hours prior to any hearing or proceeding
in which such injunctive relief is to be sought.
9. Validity of Covenants. The Employee agrees that the covenants
---------------------
contained in Sections 6, 7 and 8 are reasonably necessary to protect the
legitimate interests of the Company, are reasonable with respect to time and
territory and do not interfere with the interests of the public. The Employee
18
<PAGE>
further agrees that the descriptions of the covenants contained in Sections 6, 7
and 8 are sufficiently accurate and definite to inform the Employee of the scope
of the covenants. Finally, the Employee agrees that the compensation set forth
in this Agreement is full, fair and adequate to support the Employee's
obligations under Sections 6, 7 and 8.
10. Miscellaneous.
-------------
(a) Notices. Any notice, consent or other communication made or
-------
given in connection with this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or five
days after mailing by United States registered or certified mail,
return receipt requested, to the parties at the following
addresses or at such other address as a party may specify by
notice to the other:
To the Employee: Mr. Alan Chervitz
10 Stoney Brook Road
Hopkinton, Massachusetts 01748-1162
With a copy to:
Theodore L. Chandler, Esq.
Williams, Mullen, Christian & Dobbins
1021 E. Cary Street, 16th Floor
Richmond, VA 23219
To the Company: Innovasive Acquisition Corporation
c/o Innovasive Devices, Inc.
734 Forest Street
Marlboro, MA 01752-3032
Attn: James V. Barrile
With a copy to: Roslyn G. Daum, Esquire
Choate, Hall & Stewart
Exchange Place
53 State Street
Boston, MA 02109-2891
(b) Entire Agreement; Amendment. This Agreement shall supersede any
---------------------------
and all existing agreements between the Employee and the Company or
MedicineLodge, Inc. relating to the terms of his employment and any and all such
previously existing agreements are hereby terminated. This Agreement contains
the entire agreement and understanding of the parties with respect to the
subject matter hereof and there are no agreements, undertakings or
understandings, whether oral or written, that are not fully set forth herein and
therein. No provision of this Agreement or any exhibits or appendices attached
hereto shall be amended, modified, waived or discharged except as agreed to in
writing by the Employee and the Company.
(c) Waiver. The failure of a party to insist upon strict adherence to
------
any term of this Agreement or any occasion shall not be considered a waiver
thereof or deprive that party of the right thereafter to insist upon strict
adherence to that term or any other term of this Agreement.
(d) Assignment. This Agreement shall be binding upon and inure to the
----------
benefit of the Employee and his heirs, distributees and legal representatives,
and the Company and its permitted assigns. Neither this Agreement nor any of
the rights of the parties hereunder may be transferred to or assigned by either
party hereto, except that, if the Company shall merge or consolidate with or
into, or sell or otherwise transfer substantially all of its assets to, another
corporation or entity and after such transaction, 50% or more of the equity
interest in such corporation or entity is directly or indirectly (through one or
more entities) owned by the Company and such other corporation or entity shall
assume, either expressly or by operation of law, the Company's obligations under
this
19
<PAGE>
Agreement and the Company may and shall assign its rights and obligations
hereunder to such corporation or entity. No such assignment and assumption
shall operate to relieve the Company of any obligations to the Employee under
this Agreement that have accrued through the date of such assignment. Any
assignment or transfer of this Agreement in violation of this Section 10(d)
shall be void.
(e) Governing Law; Legal Fees. This Agreement shall be governed by
-------------------------
and construed in accordance with the laws of the Commonwealth of Massachusetts
applicable to agreements made and to be wholly performed in that Commonwealth.
In the event one party ("Plaintiff") retains legal counsel in connection with
the enforcement of its rights under this Agreement, and the other party
("Defendant") is found by a court having competent jurisdiction to have breached
its obligations hereunder, after all appeals therefrom have been exhausted, the
Defendant shall be liable for the payment of the reasonable legal fees and
related reasonable charges and disbursements of the Plaintiff in connection with
such enforcement action.
(f) Headings. Section headings are used herein for convenience of
--------
reference only and shall not affect the meaning of any provisions of this
Agreement.
(g) Severability. The Employee agrees that if any provision of this
------------
Agreement, or any portion thereof, shall be adjudged by any court of competent
jurisdiction to be invalid or unenforceable for any reason, such determination
shall be confined to the operation of the provision at issue and shall not
affect or invalidate any other provision of this Agreement and such court shall
be empowered to substitute, to the extent enforceable, provisions similar
thereto or other provisions so as to provide to the Company to the fullest
extent permitted by applicable law the benefits intended by such provisions.
(h) Withholding. The Company shall be authorized to withhold from
-----------
any benefit provided or payment due hereunder the amount of
withholding rates due any federal, state or local authority in
respect of such benefit or payment and to take such other action
as may be necessary in the opinion of the Company to satisfy all
obligations for the payment of such withholding taxes.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first written above.
EMPLOYEE INNOVASIVE DEVICES, INC.
- ----------------------- ---------------------------------
/s/ Alan Chervitz /s/ Richard D. Randall, President
20
<PAGE>
Exhibit 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, made and entered into as of June 27, 1997, by
and between Innovasive Devices, Inc., a Massachusetts corporation (the
"Company"), and T. Wade Fallin (the "Employee"), a resident of Logan, Utah.
WITNESSETH:
WHEREAS, the Company has entered into an Asset Purchase Agreement,
dated as of February 4, 1997 (the "Purchase Agreement"), with MedicineLodge,
Inc. and certain of the shareholders of MedicineLodge, Inc. pursuant to which it
is contemplated that Innovasive Acquisition Corporation, a wholly-owned
subsidiary of the Company will purchase certain of the assets and assume certain
of the liabilities of MedicineLodge, Inc. (the "Purchase") in a tax free
reorganization; and
WHEREAS, in contemplation of the Purchase and in consummation of the
transactions and satisfaction of the conditions to the parties' obligations to
close the transactions contemplated in the Purchase Agreement, the Employee is
entering into this Agreement with the Company to provide for the continued
employment of the Employee by the Company at least for the period of time
specified herein and on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual promises, undertakings
and agreements set forth in this Agreement, and other good and valuable
consideration the receipt and sufficiency of which are acknowledged by the
Employee, the Company and the Employee agree as follows:
1. Term. This Agreement will be effective as of the Closing Date as that
----
term is defined in the Purchase Agreement (the "Closing Date"). The term of
this Agreement will be a period of forty-eight months beginning on the Closing
Date (the "Agreement Term"), unless it is earlier terminated by either party in
accordance with the terms hereof. Notwithstanding the termination of the
Employee's employment under this Agreement, the provisions of Section 5 through
10 hereof shall remain in effect in accordance with their terms.
2. Duties and Authority. The Employee will serve as Vice President of the
--------------------
Company. Pursuant to such employment, the Employee will be responsible for
general management of the Logan, Utah facility and also will perform such
additional duties consistent with the position of Vice President as may be
assigned to him by the Chief Executive Officer or the Executive Vice President
of the Company. The Employee agrees to devote substantially all of his business
time and energies to the business of the Company and to faithfully, diligently
and competently perform his duties under this Agreement. The provisions of this
Agreement, including but not limited to compensation, shall be renegotiated
between the parties should the Employee be asked to take a more senior position
with the Company or one with greater responsibilities.
3. Compensation and Benefits. In full consideration for services rendered
-------------------------
by the Employee during the Agreement Term, the Employee will receive the
following:
(a) Salary. Commencing as of the Closing Date, the Company will pay
------
the Employee in substantially equal installments, not less frequently than bi-
weekly or at such more frequent intervals in accordance with the customary
payroll practices of the Company, an annual salary of not less than $110,000.
Employee will be eligible for annual salary raises consistent with the customary
practices and policies of the Company.
(b) Expense Reimbursement. The Company will reimburse the Employee
---------------------
for all ordinary and customary business and travel expenses incurred by the
Employee in the performance of his duties hereunder in accordance with the
Company's expense reporting and reimbursement policies.
21
<PAGE>
(c) Other Benefits. The Employee will be a full participant in: (i) a
--------------
bonus program providing for a bonus of up to 20% of the Employee's base salary,
a portion of which will be tied to the Company's meeting its annual objectives
and a portion of which will be tied to the Employee's meeting his own annual
objectives, and which is subject to the approval of the Board of Directors of
the Company; and (ii) all other employee benefits plans, policies and practices,
now or hereafter maintained by or on behalf of the Company, in accordance with
the terms of those plans, policies and practices ((i) and (ii) are collectively
referred to as the "Employee Benefits"). The Employee will also receive a grant
of stock options by the Company in the total amount of 25,000 shares subject to
vesting and other terms and conditions set forth in an agreement between the
parties pursuant to the Company's 1996 Omnibus Stock Plan which is to be entered
into simultaneously with the signing hereof.
4. Early Termination of Employment.
-------------------------------
(a) Termination Rights. The Company may terminate the employment of
------------------
the Employee at any time during the term hereof with or without "Cause" (as
defined below) upon prior written notice to him, and the Employee's employment
will terminate on the date specified in such notice. In the event of a
termination of the employment of the Employee by the Company without Cause prior
to expiration of the Agreement Term, the severance payment obligations of the
Company to the Employee shall be as provided under Section 5. If the Company
terminates the employment of the Employee without Cause and so long as it
continues to pay the Severance Payments owed hereunder, or if the Company
terminates the employment of the Employee with Cause, the Employee shall be
obligated to comply with the non-competition covenants of Section 6 for one year
after the termination of employment. In all instances, the Employee shall be
required to comply with the confidentiality covenant of Section 7 and the
remedies provision of Section 8.
(b) Death or Disability. In the event of the Employee's death, the
-------------------
Employee's employment will terminate as of the date of the Employee's death and
the heirs, distributees or legal representatives of the Employee will be
entitled to receive the salary and other compensation set forth in Section 3(a),
the Employee Benefits and other entitlements under the Company's programs and
policies accrued or earned for all periods through the date of death. In the
event of the Employee's disability due to physical or mental illness which
renders him unable to perform his employment duties for a continuous period of
90 days or more, the Company may terminate the employment of Employee hereunder
at any time on or after the 90th day following the commencement of his
disability, provided such disability has continued through the termination date.
In such event, the Employee or his legal representatives will be entitled to
receive any amounts payable under any disability policy that may be applicable
to the Employee. If the Employee is terminated by reason of disability, the
Employee will be required to comply with the confidentiality covenant of Section
7 and will be bound by the remedies provision of Section 8.
(c) For purposes of this Agreement, "Cause" means:
(i) the failure or inability for any reason of the Employee to devote
substantially all of his time during normal business hours to the business of
the Company and its affiliates (except for vacations or absence due to illness
or other permitted leave reasons); or
(ii) the commission by the Employee of any dishonest act, or
fraudulent conduct by the Employee, or conduct by the Employee which constitutes
a felony or a malfeasance or a breach of fiduciary duties by the Employee, or
other conduct by which materially and adversely affects the business or
reputation of the Company or its affiliates; or
(iii) any material or continuing breach by the Employee of any of the
terms of, or any material or continuing failure by the Employee to perform any
covenant contained in, this Agreement to be performed by the Employee which has
not been cured or performed within a period of thirty (30) days after written
notice of the breach or failure to the Employee; or
(iv) any breach by the Employee of the Company's policies with respect
to equal employment opportunity and sexual harassment.
5. Severance Payments Upon Early Termination.
-----------------------------------------
If the employment of the Employee is terminated by the Company prior
to the expiration
22
<PAGE>
of the Agreement Term without Cause, then, unless waived by the mutual agreement
in writing of the Company and the Employee: (i) the Company will remain
obligated to pay the Employee the salary and other compensation set forth in
Section 3(a), the Employee Benefits and other entitlements (excluding any bonus
payments) under the Company's programs and policies accrued or earned for all
periods through the date of termination and for 12 months thereafter, and (ii)
the Employee will continue to retain and vest in the stock option granted to him
pursuant to the Company's 1996 Omnibus Stock Plan consistent with the terms
thereof just as he would have had he remained employed by the Company for the 12
months following termination. The Employee shall give the Company prompt written
notice of whether he elects to require the Company to continue to pay him
pursuant to subsection (i) of the immediately preceding sentence, in which case
he will be obligated to the non-competition provisions of Section 6(a) below, or
to not require that such payments continue in which case he will not be
obligated to the non-competition provisions of Section 6(a) below. If the
employment of the Employee is terminated by the Company prior to the expiration
of the Agreement Term with Cause or due to the death or disability of the
Employee, the Company will only be obligated to pay the Employee the salary and
other compensation set forth in Section 3(a), the Employee Benefits and other
entitlements under the Company's programs and policies accrued or earned for all
periods through the date of termination.
6. Non-Competition Covenant.
------------------------
(a) Competitive Activities. The Employee agrees that, unless waived
----------------------
by the mutual agreement in writing of the Company and the Employee, while he is
employed by the Company hereunder, and for 12 months thereafter, if either (i)
his employment is terminated by the Company with Cause prior to expiration of
the Agreement Term, or (ii) his employment is terminated by the Company without
Cause prior to expiration of the Agreement Term and the Company continues to
make all payments required under Section 5 (i) above, then the Employee will
not, without the prior written consent of the Company, directly or indirectly,
in any capacity, (i) engage in any aspect of the sale, distribution or
development of arthroscopic and sports medicine surgical devices, or render any
of services to any person or entity engaged in any such business, for or on
behalf of any person or entity other than the Company; or (ii) solicit or
encourage, or assist other persons or entities to solicit or encourage, any
employees, agents, representatives or customers of the Company, or any of its
affiliates, to terminate or materially alter their relationship with the Company
or any of its affiliates, to become employed by any other person or entity, or
establish a relationship with or become a customer of any other person or entity
in any aspect of the sale, distribution or development of arthroscopic and
sports medicine surgical devices.
(b) Geographic Scope. The provisions of Section 6(a) shall be
----------------
effective only in the areas of the world in which the Company or affiliates
actually engage in business during, or at the time of the termination of, the
Employee's employment.
(c) Term of Non-Competition Covenant. The provisions of Section 6(a)
--------------------------------
shall be effective and binding upon the Employee for 12 months after the
termination of his employment only if the Employee's employment is terminated by
the Company with Cause or if the Employee's employment is terminated by the
Company without Cause and the Company continues to make all payments required of
it under Section 5 (i) above.
(d) Further Understanding. The Employee understands and agrees that
---------------------
the covenants in this Section 6 prohibit him from owning (other than ownership
of less than one percent (1%) of the outstanding capital stock of a publicly-
owned company), directly or indirectly, any business involved in the sale,
distribution or development of arthroscopic and sports medicine surgical devices
(or any person or entity that owns any capital stock or equity interest in any
such business), or from accepting employment with or rendering services to any
such business either as a director, officer, agent, representative, employee or
consultant for the period of time specified in Section 6 (c).
7. Proprietary Information Covenants.
---------------------------------
(a) The Employee acknowledges that, during the term of this
Agreement, he will have access to and will become familiar with various trade
secrets and proprietary and confidential information of the Company and its
subsidiaries and affiliates including proprietary technology,
23
<PAGE>
processes, know-how, computer programs, compilations of information, records,
sales lists, customer lists, methods of doing business, employee payroll and
other personnel information, contractual provisions with customers, vendors and
other agents or representatives, and other information that the Company treats
as confidential (collectively referred to as "Trade Secrets"). The Employee
acknowledges and agrees that he will not use in any way or disclose any of the
Trade Secrets, directly or indirectly (except as required in the course of
employment). All files, records, documents, information, data and similar items
relating to the business of the Company and its subsidiaries and affiliates or
the Trade Secrets, whether prepared by the Employee or otherwise coming into his
possession, will remain the exclusive property of the Company and will not be
removed by the Employee from its premises under any circumstances (except in the
ordinary course of performance of his duties), and in the event will be promptly
delivered to the Company or the appropriate subsidiary or affiliate upon
termination of this Agreement.
(b) Employee agrees that during the term of this Agreement and for the
period that he is obligated to any non-competition covenant under Section 6 (a)
above; (i) he will promptly disclose to the Company or any persons designated by
the Company, all inventions, improvements, formulas, processes, techniques,
know-how, data, analysis and other proprietary information, whether or not
patentable, in the field of arthroscopic and sports medicine surgical devices
made, conceived or first reduced to practice by Employee, either alone or
jointly with others, during the term of this Agreement and for the period that
he is obligated to any non-competition covenant under Section 6 (a) above
(hereinafter referred to as "Inventions"); (ii) all Inventions shall be the
property of the Company and its assigns; (iii) Employee will execute and deliver
to the Company assignments, in form satisfactory to the Company, and take all
other lawful action requested by the Company to vest title to all said
Inventions in the Company and its assigns; and (iv) Employee will do or cause to
be done all other reasonable acts requested by the Company, at Company's
expense, for the preparation of applications for, and the procurement, issuance,
and maintenance of patents and/or copyrights related to said Inventions, or any
of them, under the applicable laws of the United States and any foreign
countries.
8. Remedy for Breach. The Employee acknowledges that the Company will be
-----------------
irrevocably damaged if the provisions of Sections 6 and 7 are not specifically
enforced. Accordingly, the Employee agrees that, in addition to any other
relief to which the Company may be entitled, the Company will be entitled to
seek and obtain injunctive relief from a court of competent jurisdiction for the
purpose of restraining the Employee from any actual or overtly threatened breach
of Sections 6 or 7. The Company shall use its reasonable efforts, in such
event, to notify the Employee or, if known to the Company, the Employee's
counsel, not less than twenty-four (24) hours prior to any hearing or proceeding
in which such injunctive relief is to be sought.
9. Validity of Covenants. The Employee agrees that the covenants
---------------------
contained in Sections 6, 7 and 8 are reasonably necessary to protect the
legitimate interests of the Company, are reasonable with respect to time and
territory and do not interfere with the interests of the public. The Employee
further agrees that the descriptions of the covenants contained in Sections 6, 7
and 8 are sufficiently accurate and definite to inform the Employee of the scope
of the covenants. Finally, the Employee agrees that the compensation set forth
in this Agreement is full, fair and adequate to support the Employee's
obligations under Sections 6, 7 and 8.
10. Miscellaneous.
-------------
(a) Notices. Any notice, consent or other communication made or
-------
given in connection with this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or five
days after mailing by United States registered or certified mail,
return receipt requested, to the parties at the following
addresses or at such other address as a party may specify by
notice to the other:
To the Employee: Mr. T. Wade Fallin
210 East 200 South
Hyde Park, UT 84318
24
<PAGE>
With a copy to: Theodore L. Chandler, Esq.
Williams, Mullen, Christian & Dobbins
1021 E. Cary Street, 16th Floor
Richmond, VA 23219
To the Company: Innovasive Acquisition Corporation
c/o Innovasive Devices, Inc.
734 Forest Street
Marlboro, MA 01752-3032
Attn: James V. Barrile
With a copy to:
Roslyn G. Daum, Esquire
Choate, Hall & Stewart
Exchange Place
53 State Street
Boston, MA 02109-2891
(b) Entire Agreement; Amendment. This Agreement shall supersede any
---------------------------
and all existing agreements between the Employee and the Company or
MedicineLodge, Inc. relating to the terms of his employment and any and all such
previously existing agreements are hereby terminated. This Agreement contains
the entire agreement and understanding of the parties with respect to the
subject matter hereof and there are no agreements, undertakings or
understandings, whether oral or written, that are not fully set forth herein and
therein. No provision of this Agreement or any exhibits or appendices attached
hereto shall be amended, modified, waived or discharged except as agreed to in
writing by the Employee and the Company.
(c) Waiver. The failure of a party to insist upon strict adherence to
------
any term of this Agreement or any occasion shall not be considered a waiver
thereof or deprive that party of the right thereafter to insist upon strict
adherence to that term or any other term of this Agreement.
(d) Assignment. This Agreement shall be binding upon and inure to the
----------
benefit of the Employee and his heirs, distributees and legal representatives,
and the Company and its permitted assigns. Neither this Agreement nor any of
the rights of the parties hereunder may be transferred to or assigned by either
party hereto, except that, if the Company shall merge or consolidate with or
into, or sell or otherwise transfer substantially all of its assets to, another
corporation or entity and after such transaction, 50% or more of the equity
interest in such corporation or entity is directly or indirectly (through one or
more entities) owned by the Company and such other corporation or entity shall
assume, either expressly or by operation of law, the Company's obligations under
this Agreement and the Company may and shall assign its rights and obligations
hereunder to such corporation or entity. No such assignment and assumption
shall operate to relieve the Company of any obligations to the Employee under
this Agreement that have accrued through the date of such assignment. Any
assignment or transfer of this Agreement in violation of this Section 10(d)
shall be void.
(e) Governing Law; Legal Fees. This Agreement shall be governed by
-------------------------
and construed in accordance with the laws of the Commonwealth of Massachusetts
applicable to agreements made and to be wholly performed in that Commonwealth.
In the event one party ("Plaintiff") retains legal counsel in connection with
the enforcement of its rights under this Agreement, and the other party
("Defendant") is found by a court having competent jurisdiction to have breached
its obligations hereunder, after all appeals therefrom have been exhausted, the
Defendant shall be liable for the payment of the reasonable legal fees and
related reasonable charges and disbursements of the Plaintiff in connection with
such enforcement action.
(f) Headings. Section headings are used herein for convenience of
--------
reference only and
25
<PAGE>
shall not affect the meaning of any provisions of this Agreement.
(g) Severability. The Employee agrees that if any provision of this
------------
Agreement, or any portion thereof, shall be adjudged by any court of competent
jurisdiction to be invalid or unenforceable for any reason, such determination
shall be confined to the operation of the provision at issue and shall not
affect or invalidate any other provision of this Agreement and such court shall
be empowered to substitute, to the extent enforceable, provisions similar
thereto or other provisions so as to provide to the Company to the fullest
extent permitted by applicable law the benefits intended by such provisions.
(h) Withholding. The Company shall be authorized to withhold from any
-----------
benefit provided or payment due hereunder the amount of withholding rates due
any federal, state or local authority in respect of such benefit or payment and
to take such other action as may be necessary in the opinion of the Company to
satisfy all obligations for the payment of such withholding taxes.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first written above.
EMPLOYEE INNOVASIVE DEVICES, INC.
- --------------------- -----------------------------
/s/ T. Wade Fallin /s/ Richard D. Randall, President
26
<PAGE>
EXHIBIT 10.3
CONSULTING AGREEMENT
--------------------
THIS CONSULTING AGREEMENT is entered into effective as of June 27, 1997 ,
by and between INNOVASIVE DEVICES, INC. (the "Company") and Richard B. Caspari,
M.D. (the "Consultant").
WHEREAS, Consultant has extensive experience and national recognition in
the field of orthopedics; and
WHEREAS, the Company has contracted to purchase certain of the assets and
to assume certain of the liabilities of MedicineLodge, Inc., a Delaware
corporation, (the "Purchase") pursuant to the terms and conditions of that
certain Asset Purchase Agreement by and among the Company, MedicineLodge, Inc.,
and certain shareholders of MedicineLodge, Inc. dated February 4, 1997 (the
"Asset Purchase Agreement"); and
WHEREAS, the Company wishes to engage the services of Consultant from and
after the Closing Date, as that term is defined in the Asset Purchase Agreement,
and Consultant is desirous of providing such services to the Company, upon the
terms and conditions set forth herein:
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein contained, the parties hereto agree as follows:
1. Consultant is hereby retained by the Company to render consulting
services to the Company in the field of arthroscopic and sports
medicine surgical devices and the Consultant agrees to render such
consulting services to the Company for a period of four years from the
date first set forth above subject to the terms and conditions
hereinafter contained.
2. In consideration of the services to be rendered by Consultant
hereunder, the Company agrees to grant to Consultant an option to
acquire 40,000 shares of common stock of Company (the "Option")
pursuant to the Company's 1996 Omnibus Stock Plan and shall be
evidenced by, and subject to the terms and conditions of, the Stock
Option Agreement which is set forth as Exhibit 8.1(e) to the Asset
Purchase Agreement. If this Agreement is terminated pursuant to
Section 9 below or due to the death or disability of the Consultant
during any of the option vesting periods set forth above, then that
portion of the number of option shares as would have vested on the
next vesting date after such termination as is proportional to the pro
rata portion of the vesting period occurring prior to the date of
termination, death or disability, as the case may be, shall vest and
become immediately exercisable.
3. Consultant shall be reimbursed for his reasonable business
expenses incurred at the Company's request and agreed to by Consultant
upon presentation of vouchers for such expenses. Major travel and
expenditure items shall be pre-approved and incurred in accordance
with normal Company travel and expense policies.
27
<PAGE>
4. It is understood that Consultant shall be an independent
contractor who shall render consulting services to the Company, and
shall not be considered nor treated as an employee of the Company.
5. Consultant shall consult for and on behalf of the Company in
areas of arthroscopic and sports medicine surgical devices, including
but not limited to surgeon workshop training, conduct of required
training symposia and customer visitations from time to time as
requested by the Company, but at such times as to not interfere
unreasonably with his other activities set forth on Schedule 4.13(c)
of the Asset Purchase Agreement. Consultant shall not be obligated to
render any services in a given month if not requested to do so by the
Company. It is anticipated that Consultant will, at a minimum, render
50 hours per quarter in consulting services to the Company.
6. (a) Consultant agrees that all data, reports, equipment and other
property furnished to Consultant by the Company or produced by
Consultant in the course of and as part of his performance of
consulting services hereunder shall remain, during the term of this
Consulting Agreement or any time thereafter, the property of the
Company.
(b) Consultant agrees not to disclose to any person, entity, firm or
corporation, either during the term of this Consulting Agreement or at any time
thereafter, any confidential or proprietary information concerning the conduct,
affairs, research, development, inventions, processes, techniques, technical
information, products, plans, employees, business prospects or assets of the
Company, nor shall Consultant use any such information for his own benefit or
for the benefit of a third party; provided, however, that the Consultant may
-------- -------
disclose any proprietary or confidential information to third parties that
affects the safety or efficacy of any product and may also disclose any such
information in the context of academic writings and presentations so long as he
does not disclose trade secrets of the Company or patentable information of the
Company that is not yet the subject of a filed patent application.
(c) Consultant agrees that during the term of this Consulting
Agreement: (i) he will promptly disclose to the Company or any persons
designated by the Company, all inventions, improvements, formulas, processes,
techniques, know-how, data, analysis or other proprietary information, whether
or not patentable, related to the consulting services to be performed hereunder,
and made, conceived, first reduced to practice, or learned by Consultant, either
alone or jointly with others, in the course of and as part of the performance of
consulting services hereunder (hereinafter referred to as "Inventions"); (ii)
all Inventions shall be works made for hire and, therefore, the property of the
Company and its assigns; (iii) the Consultant will execute and deliver to the
Company assignments, in form satisfactory to the Company, and take all other
lawful action requested by the Company to vest title to all said Inventions in
the Company and its assigns; (iv) the Consultant will do or cause to be done all
other reasonable acts requested by the Company, at
28
<PAGE>
Company's expense, for the preparation of applications for, and the procurement,
issuance, and maintenance of patents and/or copyrights related to said
Inventions, or any of them, under the applicable laws of the United States and
any foreign countries; and (v) except as noted on Schedule 4.13(c) to the Asset
Purchase Agreement, and in accordance with the procedure set forth in the
immediately following sentence, Consultant will not, without the prior written
consent of the Company, directly or indirectly, in any capacity, engage in any
aspect of the sale, distribution, invention, manufacture or development of
arthroscopic and sports medicine surgical devices for or on behalf of any person
or entity other than the Company or solicit or encourage, or assist other
persons or entities to solicit or encourage, any employees, agents,
representatives or customers of the Company, or any of its affiliates, to
terminate or materially alter their relationship with the Company or any of its
affiliates, to become employed by any other person or entity. If the Consultant
seeks the consent of the Company in order to engage in the activities set forth
in Section 6(c)(v), the Consultant will notify the Chief Financial Officer of
the Company in writing of the Consultant's desire to engage in such activity and
request the consent of the Company as such, and the Company will have up to 90
days in which to give its written consent or state in writing its intention to
retain the technology to which the Consultant's request applies and thus decline
to consent to such request; provided, however, that if the Company fails to
respond within 90 days of the Consultant's initial written request, the Company
will be deemed to have declined its consent, in which case the Consultant may
submit a second written request to the Company's Chief Financial Officer, and
the Company will have an additional 30 days after such second request in which
to respond in writing as to its consent or demurral; provided, further, that if
the Company fails to respond in writing within such 30 days, the Company will be
deemed to have given its consent to such second request.
(d) Notwithstanding anything to the contrary herein contained, this
Agreement shall not be applicable to any technology, inventions, improvements,
machines, appliances, processes, products, techniques, data, discoveries,
analyses, or proprietary information to which any Pre-existing Agreement is
applicable. "Pre-existing Agreement" means any agreement entered into by
Consultant prior to the date hereof and set forth on Schedule 4.13(c) of the
Asset Purchase Agreement.
7. Consultant understands and agrees that his obligations hereunder
will be enforced to the fullest extent possible under the laws of any
jurisdiction in which enforcement is sought. In the event there is a
breach or threatened breach of the provisions of this Consulting
Agreement, the Company shall be entitled to injunctive relief
restraining Consultant from such breach or threatened breach.
8. (a) Consultant's performance of consulting services hereunder
shall terminate on the death of Consultant. This Consulting Agreement
may be terminated by the Company at any time upon:
(i) the disability of Consultant (as hereinafter defined); or
29
<PAGE>
(ii) justifiable cause (as hereinafter defined).
(b) For the purpose of the foregoing, the term "disability" shall mean
the inability of Consultant, due to illness, accident, or any other physical or
m ental incapacity, to perform substantially all of his consulting duties
pursuant to this Agreement in a normal manner for a period of ten (10)
consecutive weeks or for a total of twenty (20) weeks (whether or not
consecutive) in any twelve-month period during the term of this Consulting
Agreement.
(c) For the purpose of the foregoing, the term "justifiable cause"
shall include any willful breach by Consultant of his obligations under this
Consulting Agreement or disclosure by Consultant to any person, firm or
corporation other than the Company and its directors, officers or employees of
any confidential information or trade secret of the Company or any attempt by
Consultant to secure wrongfully any personal profit in connection with the
business of the Company.
9. This Consulting Agreement may be terminated by the Consultant at
any time after he receives notice that the Company will be or has been
acquired in a merger or other transaction whereby the Company ceases
to exist, that substantially all of the assets of the Company will be
or have been acquired by an unaffiliated entity or that there will be
or has been a change in control of the Company which shall be defined
as a change in the ownership or voting control of at least 50% of its
issued and outstanding Common Stock. The Company shall give the
Consultant written notice of any such transaction promptly following
the first public disclosure that it has occurred or will occur.
10. Consultant represents and warrants that: (i) he is able to perform
the Consulting Services and he does not have any understanding or
agreement with anyone else which restricts his ability to perform such
services other than under the Preexisting Agreements; (ii) any
services he provides and information or materials he develops for or
discloses to the Company shall not in any way be based upon any
information derived from any source other than the Company that he
knew to be confidential or proprietary at the time of the services,
development or disclosure, as the case may be, unless the Consultant
is specifically authorized in writing by such source to use such
proprietary information; and (iii) if the Company is held to be liable
as a result of or arising from any breach by the Consultant of (i) or
(ii) above, the Consultant shall indemnify the Company and hold it
harmless from and against all liability and expense, including
reasonable attorney's fees, provided that the Company notifies the
Consultant of any such claim of liability promptly after the Company
receives notice of it and cooperates with the Consultant in defendant
against the claim. The Consultant shall notify the Company promptly if
he ever becomes aware of such claim.
11. This Consulting Agreement shall inure to the benefit of and be
binding upon the successors and assigns of the Company. This
Consulting Agreement shall not be
30
<PAGE>
assignable by Consultant. This Consulting Agreement may be terminated
by the Consultant in his sole discretion at any time during the term
hereof for any reason in which case there shall be no further vesting
of his stock options under the Stock Option Agreement entered into
concurrently herewith and the Consultant shall, for the remainder of
the original four-year term of this Agreement, continue to be bound to
the terms of Section 6(b) and (c) above which provisions shall, for
such purpose, survive any such termination by the Consultant.
12. In case any one or more of the provisions contained in the
Consulting Agreement shall for any reason be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality
or unenforceability shall not affect any other provision of this
Consulting Agreement, but such provision shall be deemed deleted (or
limited in accordance with the following sentence), and such deletion
or limitation s hall not affect the validity of the other provisions
of this Consulting Agreement. If any one or more of the provisions
contained in this Consulting Agreement shall for any reason be held to
be excessively broad as to duration, activity or subject, any such
provision shall be construed by limiting and reducing it so as to be
enforceable to the extent compatible with the applicable law as it
shall then appear.
13. This Consulting Agreement together with the Stock Option Agreement
entered into concurrently herewith (the "Related Agreements") contains
the entire agreement of the parties and may not be changed orally, but
only upon a writing signed by the party against whom enforcement of
any such changes are sought. It is agreed that a waiver by either
party or a breach of any provision of this Consulting Agreement shall
not operate or be construed as a waiver of any subsequent breach by
that same party. This Consulting Agreement shall be governed by the
laws of the State of Massachusetts.
14. This Consulting Agreement may be executed in counterparts by the
parties hereto which shall together constitute a single document.
15. Any notice which is required or permitted to be given to either
party to this Agreement shall be deemed to have been given only if
such notice is reduced to writing and delivered, either personally or
by United States mail, with postage prepaid and return receipt
requested, to the Company at the address set forth below and to the
Consultant at the address set forth below.
The Company: Innovasive Devices, Inc.
734 Forest Street
Marlboro, MA 01752
Fax: (508) 460-8997
31
<PAGE>
The Consultant: Richard B. Caspari, M.D.
4405 Cox Road, #120
Glen Allen, VA 23060
Fax: (804) 556-6865
Either party may change his or its address by giving notice of such change
in the manner set forth above. Delivery of notice by mail shall be deemed
complete two days after the deposit of such notice in the United States mail.
16. The Company shall indemnify, defend, and hold the Consultant
harmless from and against any and all claims, demands, suits or
actions presented or brought by third parties (including reasonable
attorneys' fees incurred in connection with the investigation or
defense of any of the foregoing) for injuries or deaths to persons
caused by or arising out of, or alleged to have been caused by or to
have arisen out of, the design manufacture, sale or use of the
Company's products.
17. In the event there is a dispute between the parties, the aggrieved
party shall give the other party written notice of the existence of a
dispute, including the basis of the dispute. Such notice shall be
given within 30 days of the initiation of the dispute. The parties
shall, in good faith, negotiate to resolve the dispute amongst
themselves for a period of 60 days from the notice date. If, following
the 60-day period, the parties have been unable to resolve the
dispute, then such dispute shall be resolved through binding
arbitration in accordance with the Commercial Arbitration Rules of the
American Arbitration Association before a single arbitrator who has
experience in intellectual property law and medical devices. Such
arbitration shall be held in Boston, Massachusetts. The arbitrator
shall have the right to grant such relief as he or she deems
appropriate, including awarding legal and other costs of the
proceeding. The award of the arbitrator shall be final and binding
upon all the parties, and may be enforced in any court having
jurisdiction over the parties.
* * *
IN WITNESS WHEREOF, the parties hereto have executed this Consulting
Agreement as of the day and year first above written.
CONSULTANT: INNOVASIVE DEVICES, INC.
/s/ Richard B. Caspari By: /s/ Richard D. Randall
- ------------------------ ---------------------------
Richard B. Caspari, M.D.
32
<PAGE>
EXHIBIT 11.1
INNOVASIVE DEVICES, INC.
Statement Regarding Computation of Pro Forma Net Loss Per Common Share
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
--------------------------- ---------------------------
1997 1996 1997 1996
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net loss $(14,626,000) $ (967,000) $(15,499,000) $(2,114,000)
============ ========== ============ ===========
Weighted average common shares
outstanding:
a. Shares attributable
to common stock outstanding 7,327,672 3,311,477 7,294,456 2,561,746
b. Shares attributable to
mandatorily convertible preferred
stock 2,570,242 3,044,249
c. Shares attributable to common
stock options pursuant to
APB 15 and SAB 83 63,219
----------- ---------- ------------ ------------
Weighted average common shares
outstanding 7,327,672 5,881,719 7,294,456 5,669,214
============ ========== ============ ===========
Net loss per share $(2.00) $(0.16) $(2.12) $(0.51)
============ ========== ============ ===========
</TABLE>
33
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 4,170
<SECURITIES> 14,789
<RECEIVABLES> 1,152
<ALLOWANCES> 99
<INVENTORY> 1,786
<CURRENT-ASSETS> 22,103
<PP&E> 2,641
<DEPRECIATION> 809
<TOTAL-ASSETS> 25,191
<CURRENT-LIABILITIES> 2,000
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 22,935
<TOTAL-LIABILITY-AND-EQUITY> 22,662
<SALES> 3,414
<TOTAL-REVENUES> 3,414
<CGS> 1,020
<TOTAL-COSTS> 1,020
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (15,499)
<INCOME-TAX> 0
<INCOME-CONTINUING> (15,499)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,499)
<EPS-PRIMARY> (2.12)
<EPS-DILUTED> (2.12)
</TABLE>
