<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 28, 1996
REGISTRATION NO. 333-3542
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
IMAGYN MEDICAL, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
CALIFORNIA 3845 77-0230712
(prior to reincorporation) (Primary Standard Industrial (I.R.S. Employer
DELAWARE Classification Code Number) Identification Number)
(after reincorporation)
(State or other jurisdiction of
incorporation or organization)
</TABLE>
---------------------
27651 LA PAZ ROAD
LAGUNA NIGUEL, CALIFORNIA 92677
(714) 362-2500
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
------------------------
FRANKLIN D. BROWN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
IMAGYN MEDICAL, INC.
27651 LA PAZ ROAD
LAGUNA NIGUEL, CALIFORNIA 92677
(714) 362-2500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
J. CASEY MCGLYNN, ESQ. CRAIG E. DAUCHY, ESQ.
CHRISTOPHER D. MITCHELL, ESQ. MATTHEW B. HEMINGTON, ESQ.
WILSON SONSINI GOODRICH & ROSATI COOLEY GODWARD CASTRO HUDDLESON & TATUM
PROFESSIONAL CORPORATION 3000 SAND HILL ROAD
650 PAGE MILL ROAD BUILDING 3, SUITE 230
PALO ALTO, CALIFORNIA 94304 MENLO PARK, CALIFORNIA 94025
(415) 493-9300 (415) 843-5000
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
---------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / __________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / __________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM
AMOUNT TO PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED (1) PER SHARE (2) PRICE (2) FEE (3)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.001 par value.......... 2,875,000 shares $15.00 $43,125,000.00 $14,871.00
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 375,000 shares that the Underwriters have the option to purchase to
cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(a).
(3) $12,888.00 of this amount has been previously paid.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
IMAGYN MEDICAL, INC.
-------------------
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING LOCATION IN
PROSPECTUS OF PART I ITEMS OF FORM S-1
<TABLE>
<CAPTION>
ITEM NUMBER AND HEADING IN
FORM S-1 REGISTRATION STATEMENT LOCATION OF CAPTION IN PROSPECTUS
-------------------------------------------------- --------------------------------------------------
<S> <C> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus................... Forepart of Registration Statement; Outside Front
Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus....................................... Inside Front Cover Page; Outside Back Cover Page
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges........................ Prospectus Summary; Risk Factors
4. Use of Proceeds................................... Use of Proceeds
5. Determination of Offering Price................... Outside Front Cover Page; Underwriting
6. Dilution.......................................... Dilution
7. Selling Security Holders.......................... Not Applicable
8. Plan of Distribution.............................. Outside and Inside Front Cover Pages;
Underwriting; Outside Back Cover Page
9. Description of Securities to be Registered........ Prospectus Summary; Dividend Policy;
Capitalization; Description of Capital Stock;
Shares Eligible for Future Sale
10. Interests of Named Experts and Counsel............ Legal Matters; Experts
11. Information with Respect to the Registrant........ Outside and Inside Front Cover Pages; Prospectus
Summary; Risk Factors; The Company; Use of
Proceeds; Dividend Policy; Capitalization;
Dilution; Selected Consolidated Financial Data;
Management's Discussion and Analysis of Financial
Condition and Results of Operations; Business;
Management; Certain Transactions; Principal
Stockholders; Description of Capital Stock;
Shares Eligible for Future Sale; Consolidated
Financial Statements; Additional Information;
Outside Back Cover Page
12. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities... Not Applicable
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 28, 1996
2,500,000 SHARES
[IMAGYN LOGO]
Common Stock
The 2,500,000 shares of Common Stock, par value $0.001 per share (the
"Common Stock"), offered hereby (this "Offering") are being offered by Imagyn
Medical, Inc. ("Imagyn" or the "Company"). Prior to this Offering there has been
no public market for the Common Stock. It is currently estimated that the
initial public offering price will be between $13.00 and $15.00 per share. See
"Underwriting" for the factors to be considered in determining the initial
public offering price.
The Common Stock has been approved for quotation on the Nasdaq National
Market ("Nasdaq") under the symbol "IGYN."
For a discussion of certain risks of an investment in the shares of Common
Stock offered hereby, see "Risk Factors" on pages 5 to 15.
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions* Company+
<S> <C> <C> <C>
Per Share........................ $ $ $
Total++.......................... $ $ $
</TABLE>
- ------------
* The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting."
+ Before deducting expenses of this Offering payable by the Company estimated
to be $800,000.
++ The Company has granted the Underwriters a 30-day option to purchase up to
375,000 additional shares of Common Stock on the same terms per share solely
to cover over-allotments, if any. If such option is exercised in full, the
total price to public will be $ , the total underwriting discounts and
commissions will be $ and the total proceeds to the Company will be
$ . See "Underwriting."
-------------------
The Common Stock is being offered by the Underwriters as set forth under
"Underwriting" herein. It is expected that the delivery of certificates therefor
will be made through the offices of Dillion, Read & Co. Inc., New York, New
York, on or about , 1996, against payment therefor in New York funds. The
Underwriters include:
DILLON, READ & CO. INC. MONTGOMERY SECURITIES
The date of this Prospectus is , 1996
<PAGE>
The MicroLap
System
[artwork depicting MicroLap system in use]
The MicroLap system includes a proprietary microlaparoscope, disposable
introducers (for placement of the MicroLap and microsurgical instruments into
the abdomen) and a broad line of microsurgical instruments for use with
the system. Imagyn has sold over 850 MicroLap microlaparoscopes.
Imagyn's proprietary micro-optics technology has enabled the development of
a 2 millimeter-diameter microlaparoscope with resolution and light efficiency
characteristics which the Company believes are comparable to conventional
laparoscopes.
Using the MicroLap system, physicians are able to perform a wide variety of
diagnostic and operative procedures outside the hospital without general
anesthesia and at a reduced cost, with less patient discomfort and with shorter
recovery time.
[diagram of a 10 millimeter-diameter cylinder]
[diagram of a 2 millimeter-diameter cylinder]
The MicroLap microlaparoscope, at slightly less than 2 millimeters in diameter,
is 80% smaller than conventional 10 millimeter-diameter laparoscopes.
Imagyn's disposable introducers facilitate atraumatic insertion and secure
placement of the MicroLap and microsurgical instruments through the abdominal
wall.
[photo of components of MicroLap system]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL ON THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IMAGYN-REGISTERED TRADEMARK-, IMAGYN MEDICAL, INC., LEC-REGISTERED TRADEMARK-,
OVATION, MICROLAP, MICROSPAN AND THE IMAGYN LOGO ARE TRADEMARKS OF THE COMPANY.
THIS PROSPECTUS ALSO INCLUDES TRADEMARKS OF COMPANIES OTHER THAN THE COMPANY.
2
<PAGE>
The MicroSpan
System
[artwork depicting MicroSpan system in use]
The MicroSpan system incorporates a new high resolution microhysteroscope
and a new uterine access device to enable the physician to atraumatically access
and visualize the interior of the uterus.
The disposable micro-access device provides simultaneous transcervical access to
the uterus for both the microhysteroscope and microsurgical instruments without
the need for cervical dilation required by conventional hysteroscopy systems.
The design of the Company's proprietary micro-access device will enable the
physician to use surgical instruments of the same diameter used in standard
hysteroscopy procedures for effective tissue sampling and removal of many
uterine lesions.
Using the MicroSpan system, physicians are able to perform a wide variety of
diagnostic and operative procedures outside the hospital without general
anesthesia and at reduced cost, with less patient discomfort and with shorter
recovery time.
[photo of components of MicroSpan system]
The MicroSpan system includes a proprietary microhysteroscope, a proprietary
disposable micro-access device and a line of microsurgical instruments.
THE MICROSPAN MICROHYSTEROSCOPY SYSTEM HAS NOT BEEN CLEARED BY THE FDA FOR
COMMERCIAL SALE IN THE UNITED STATES. THE PROCESS OF OBTAINING FDA CLEARANCE MAY
BE LENGTHY, AND THERE CAN BE NO ASSURANCE THAT THE MICROSPAN SYSTEM WILL BE
CLEARED BY THE FDA.
<PAGE>
[artwork of Ovation Falloposcopy system and Tubal Recanalization system in use]
[artwork depicting step 1 of the deployment of Ovation catheter]
1. The tip of the Ovation catheter is placed near the opening of the fallopian
tube.
[artwork depicting step 2 of the deployment of Ovation catheter]
2. The membrane is slowly unrolled in the fallopian tube after applying fluid
pressure into the catheter.
[artwork depicting step 3 of the deployment of Ovation catheter]
3. The falloposcope is advanced through the central channel of the balloon
membrane to allow for visualization.
The Ovation
Systems
The Ovation falloposcopy and tubal recanalization systems are designed to
enable the physician to access, navigate and view the entire length of the
fallopian tube.
The Ovation falloposcopy system enables the physician to view and accurately
evaluate the patency and overall health of the interior of the fallopian tube.
Due to the unique self-steering characteristics of the Ovation system, visual
guidance with hysteroscopy or ultrasound is not required nor is there the need
for concurrent laparoscopic manipulation of the fallopian tube. The Ovation
falloposcopy system has been specifically designed to facilitate fallopian tube
diagnosis in the physician's office.
The Ovation tubal recanalization system has been shown in a controlled,
multi-center clinical trial in Japan to unblock occluded fallopian tubes, a
process known as tubal recanalization. The Company has received approval from
the Japanese Ministry of Health and Welfare to market the Ovation tubal
recanalization system.
[photo of components of Ovation Falloposcopy and Tubal Recanalization systems]
The Ovation falloposcopy and tubal recanalization systems consist of a
proprietary 0.5 millimeter-diameter, flexible falloposcope, a proprietary
catheter and a specially designed irrigation pump. Imagyn has sold over 6,000
Ovation catheters.
THE OVATION FALLOPOSCOPY AND TUBAL RECANALIZATION SYSTEMS ARE INVESTIGATIONAL
DEVICES AND HAVE NOT BEEN APPROVED BY THE FDA FOR COMMERCIAL SALE IN THE UNITED
STATES. THE PROCESS OF OBTAINING FDA APPROVAL MAY BE LENGTHY, AND THERE CAN BE
NO ASSURANCE THAT THE OVATION SYSTEMS WILL BE APPROVED BY THE FDA.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO
APPEARING ELSEWHERE IN THIS PROSPECTUS, INCLUDING THE INFORMATION UNDER "RISK
FACTORS." EXCEPT AS SET FORTH IN THE FINANCIAL STATEMENTS OR OTHERWISE
INDICATED, ALL INFORMATION IN THIS PROSPECTUS (I) ASSUMES THE UNDERWRITERS'
OVER-ALLOTMENT OPTION IS NOT EXERCISED, (II) ASSUMES THE COMPANY'S
REINCORPORATION IN THE STATE OF DELAWARE, WHICH WILL BE COMPLETED PRIOR TO THE
CLOSING OF THIS OFFERING, (III) REFLECTS A 1-FOR-1.4814 REVERSE STOCK SPLIT
EFFECTED IN APRIL 1996, (IV) ASSUMES THE FILING OF THE COMPANY'S RESTATED
CERTIFICATE OF INCORPORATION, AUTHORIZING A CLASS OF 5,000,000 SHARES OF
UNDESIGNATED PREFERRED STOCK AND INCREASING THE NUMBER OF SHARES OF AUTHORIZED
COMMON STOCK TO 50,000,000, WHICH WILL BE EFFECTIVE UPON THE CLOSING OF THIS
OFFERING, AND (V) GIVES EFFECT TO THE CONVERSION OF ALL OUTSTANDING SHARES OF
THE COMPANY'S PREFERRED STOCK INTO COMMON STOCK UPON THE CLOSING OF THIS
OFFERING. SEE "DESCRIPTION OF CAPITAL STOCK," "CAPITALIZATION" AND
"UNDERWRITING."
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS OF OPERATIONS COULD DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN SUCH FORWARD-LOOKING STATEMENTS AS A RESULT
OF CERTAIN FACTORS SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS
PROSPECTUS.
The Company
Imagyn Medical, Inc. ("Imagyn" or the "Company") designs, develops and
markets micro-invasive, cost-effective devices for diagnosis and treatment of
gynecological and reproductive disorders. The Company's proprietary technology
platform based on micro-optics and micro-access devices provides physicians with
the ability to atraumatically access and visualize the abdominal cavity, the
uterus and the fallopian tubes. Imagyn's proprietary micro-optics enable
physicians to visualize a patient's internal anatomy with the resolution and
light efficiency of larger, more invasive devices commonly used today. Imagyn's
proprietary, disposable micro-access devices enable physicians to perform
certain procedures outside the hospital without the need for general anesthesia.
The Company's principal product systems based on these core technologies are the
MicroLap microlaparoscopy system, the MicroSpan microhysteroscopy system and the
Ovation systems for infertility indications. Compared to traditional procedures,
the Company's product systems facilitate earlier definitive diagnosis and
treatment, significantly lower the procedure cost associated with more invasive
surgery and reduce patient discomfort, recovery time and morbidity. To date, the
Company has sold over 850 MicroLap microlaparoscopes and over 6,000 Ovation
catheters.
Imagyn's diagnostic and operative micro-invasive product systems address a
broad continuum of gynecological and reproductive disorders affecting a large
number of women, including pelvic pain, uterine disorders and infertility, and
provide a less invasive procedure for tubal sterilization. Because of the high
incidence of these disorders and the popularity of tubal sterilization as a
contraceptive method, large markets exist for devices that treat such disorders
and that facilitate tubal sterilization. First, pelvic pain affects
approximately 6 million women in the United States and can be caused by a number
of serious conditions, including endometriosis, adhesions and pelvic
inflammatory disease. Second, uterine disorders affect approximately 25 million
women in the United States and may lead to significant complications including
uterine bleeding, acute pain and infertility. Third, infertility is an
increasingly common and often emotionally traumatic condition which affects
approximately 5 million women in the United States. Finally, tubal sterilization
is chosen as a permanent contraceptive method by approximately 800,000 women
annually in the United States. Despite the large size of these markets, there
can be no assurance that the Company's product systems will be accepted and will
compete effectively in any of these markets. Market acceptance of the Company's
product systems will be dependent upon, among other things, physicians'
determinations that the Company's product systems and the procedures in which
they are intended to be used are safe and effective alternatives to current
hospital-based procedures and demonstrate clincial utility, and can be used in a
cost-effective manner.
The Company's product systems enable physicians to access and visualize all
of the organs of a woman's reproductive system outside the hospital without the
need for general anesthesia. The MicroLap system, which enables the physician to
access the abdominal cavity without the need for post-operative sutures,
includes a 2 millimeter-diameter microlaparoscope with resolution and light
efficiency characteristics which the Company believes are comparable to those of
standard 10 millimeter-diameter laparoscopes. The MicroSpan system incorporates
a new high resolution microhysteroscope and a new uterine access device to
enable the physician to atraumatically access and visualize the interior of the
uterus. The MicroLap and MicroSpan systems enable physicians to access the
abdominal cavity and the uterus for treatment with the Company's microsurgical
instruments. The Ovation systems are designed to enable the physician to
atraumatically access, navigate and visualize the entire length of the fallopian
tubes. Imagyn's product systems are designed to offer significant advantages for
physicians, patients and health care payors. For physicians, Imagyn's systems
facilitate improved diagnosis and enhanced practice management. The Company
believes that the MicroLap and MicroSpan systems require limited training for
physicians familiar with standard laparoscopy and hysteroscopy techniques,
although more training will be required for use of the Ovation systems. For
patients, Imagyn's systems reduce trauma and the risk of complications and
shorten recovery times as compared to traditional, more invasive procedures. For
payors, Imagyn's systems can reduce cost, provide earlier, definitive diagnosis
and increase patient satisfaction. Due to the small size of the Company's
micro-access devices, the Company's product systems are generally not
appropriate for use in procedures which involve the removal of substantial
amounts of tissue or organs, such as the laparoscopic removal of the gall
bladder. In addition, procedures using the Company's product systems should be
avoided with patients who have a heightened risk of uncontrollable bleeding, are
pregnant, have advanced cardiovascular disease or are excessively obese.
The Company's marketing and distribution strategy consists of two key
elements: (i) focusing its direct sales and marketing resources on gynecology
group practices, surgery centers and infertility specialists and (ii)
establishing strategic marketing alliances with major medical products companies
to accelerate sales growth, increase geographic market coverage and access
3
<PAGE>
particular markets and customers that can be more effectively addressed by the
sales organizations of these companies. To date, the Company has entered into
two strategic marketing alliances, an exclusive international and co-exclusive
domestic distribution agreement with United States Surgical Corporation ("USSC")
for the MicroLap system and an agreement with Terumo Corporation ("Terumo") for
Japanese distribution and manufacturing rights for the Ovation systems.
To date, the Company has received United States Food and Drug Administration
("FDA") 510(k) clearances for the MicroLap system for diagnostic and/or
operative use for pelvic pain, tubal sterilization and other indications. The
Company has submitted 510(k) clearance applications for the MicroSpan system to
the FDA. The Ovation tubal recanalization system, which unblocks occluded
fallopian tubes, recently received Japanese regulatory approval. The Ovation
falloposcopy system, which is designed to enable physicians to visually diagnose
the interior of fallopian tubes, is undergoing clinical trials in the United
States under an investigational device exemption ("IDE") issued by the FDA. The
Company anticipates completion of the clinical trials, with a targeted
enrollment of 100 patients, in 1996. There can be no assurance that the
MicroSpan system or the Ovation systems will be cleared or approved by the FDA
for their intended uses on a timely basis, if at all.
Risk Factors
An investment in the shares of Common Stock offered hereby involves a
significant degree of risk, including the risk that the Company's product
systems may not gain market acceptance, the Company's limited manufacturing
capacity and experience, the Company's dependence upon sole and limited source
suppliers and strategic marketing alliances, the Company's limited sales and
marketing experience, fluctuations in the Company's results of operations and
risks associated with government regulation and the regulatory approval process.
Investors should refer to "Risk Factors" set forth at pages 5 to 15.
The Company will not be able to market the MicroSpan microhysteroscopy
system or the Ovation falloposcopy system in the United States unless and until
it obtains clearance or approval from the FDA and there can be no assurance that
the Company will obtain FDA clearance or approval for such product systems on a
timely basis, if at all.
The Offering
<TABLE>
<S> <C>
Common Stock Offered by the Company......... 2,500,000 shares
Common Stock Outstanding after this
Offering................................... 7,244,155 shares(1)
Use of Proceeds............................. To fund product introduction, sales and marketing,
research and development, capital expenditures and for
working capital and general corporate purposes
Proposed Nasdaq National Market Symbol...... IGYN
</TABLE>
Summary Consolidated Financial Data
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three
Months
Ended
Year ended December 31, March 31,
----------------------------------------------------- ---------
1991 1992 1993 1994 1995 1995
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Consolidated Statements of Operations Data:
Net sales.............................................. $ 15 $ 1,238 $ 1,047 $ 1,005 $ 2,243 $ 335
Gross profit (loss).................................... 4 536 41 (263) 432 70
Other operating income................................. -- 1,000 -- -- 3,500 --
Loss from operations................................... (2,549) (3,406) (5,177) (5,485) (2,428) (1,066)
Interest income (expense), net......................... 56 178 337 175 (217) 16
Net loss............................................... (2,493) (3,228) (4,840) (5,311) (2,645) (1,050)
Net loss per share(2).................................. $ (0.59) $ (0.76) $ (1.16) $ (1.26) $ (0.59) $ (0.25)
Shares used in computing net loss per share(2)......... 4,233 4,233 4,240 4,263 4,573 4,252
<CAPTION>
1996
---------
<S> <C>
Consolidated Statements of Operations Data:
Net sales.............................................. $ 1,467
Gross profit (loss).................................... 245
Other operating income................................. --
Loss from operations................................... (1,687)
Interest income (expense), net......................... 120
Net loss............................................... (1,569)
Net loss per share(2).................................. $ (0.29)
Shares used in computing net loss per share(2)......... 5,334
</TABLE>
<TABLE>
<CAPTION>
March 31, 1996
----------------------------
Pro
Forma(3) As Adjusted(4)
----------- ---------------
<S> <C> <C>
Consolidated Balance Sheet Data:
Cash, cash equivalents and short term investments.............................................. $ 7,772 $ 39,522
Working capital................................................................................ 8,796 40,546
Total assets................................................................................... 11,368 42,959
Accumulated deficit............................................................................ (22,112) (22,112)
Stockholders' equity........................................................................... 8,403 40,153
</TABLE>
- ------------------------------
(1) Excludes 665,059 shares of Common Stock reserved for issuance pursuant to
stock options outstanding as of April 1, 1996. Also excludes 1,081,872
shares of Common Stock reserved for future issuance under the Company's 1995
Stock Plan, 1996 Director Option Plan and 1996 Employee Stock Purchase Plan.
See Notes 12 and 18 of Notes to Consolidated Financial Statements,
"Management-- Stock Plans" and "Description of Capital Stock."
(2) See Note 14 of Notes to Consolidated Financial Statements for information
concerning the computation of net loss per share.
(3) Pro forma stockholders' equity assumes the conversion of all outstanding
shares of Preferred Stock into Common Stock.
(4) Adjusted to give effect to the receipt of the net proceeds from the sale of
the 2,500,000 shares of Common Stock offered hereby (at an assumed initial
public offering price of $14.00 per share and after deducting the estimated
underwriting discounts and commissions and estimated offering expenses
payable by the Company).
4
<PAGE>
RISK FACTORS
IN EVALUATING THE COMPANY'S BUSINESS, PROSPECTIVE INVESTORS SHOULD CAREFULLY
CONSIDER THE FOLLOWING RISK FACTORS IN ADDITION TO THE OTHER INFORMATION
APPEARING IN THIS PROSPECTUS.
Uncertainty of Market Acceptance
Imagyn is substantially dependent upon the success and market acceptance of
its MicroLap microlaparoscopy system, MicroSpan microhysteroscopy system and
Ovation systems. The Company's MicroLap and Ovation systems have generated
limited revenue to date and the MicroSpan system has not been commercially
introduced. The Company believes that physicians will not use the Company's
product systems unless they determine that such product systems and the
procedures in which they are intended to be used are safe and effective
alternatives to current hospital-based procedures and demonstrate clinical
utility, and can be used in a cost-effective manner. There can be no assurance
that any of the Company's existing or future products will gain any significant
degree of market acceptance among physicians, patients and health care payors,
even if necessary international and United States regulatory and reimbursement
approvals are obtained.
The Company believes that market acceptance of the MicroLap system will
depend on the Company's and USSC's ability to provide evidence to the medical
community of the effectiveness of micro-invasive laparoscopic procedures and of
the benefits to patients, physicians and payors of such micro-invasive surgery
performed outside the hospital. Market acceptance will also be dependent upon
the durability and performance of the MicroLap. The Company believes that market
acceptance of its MicroSpan system will depend on the Company's ability to
demonstrate the utility of diagnostic and operative hysteroscopy. In particular,
market acceptance of diagnostic microhysteroscopy may be limited because some
physicians and payors view hysterectomy, the surgical removal of the uterus, as
the appropriate therapy for a variety of uterine disorders as a hysterectomy
precludes the recurrence of the uterine disorders it was performed to treat.
Such physicians or payors may be reluctant to perform or pay for diagnostic
microhysteroscopy to visualize the uterus if the ultimate treatment outcome is
likely to be a hysterectomy. In addition, several less-invasive alternatives to
operative hysteroscopy are either under development, in clinical trials or have
recently been introduced. Market acceptance of diagnostic use of the MicroSpan
system may also therefore be dependent upon acceptance of these less invasive
alternatives to hysterectomy. Market acceptance of the MicroLap and MicroSpan
systems will also be dependent upon the willingness of physicians to perform
laparoscopic and hysteroscopic procedures, which have traditionally been
performed in the hospital under general anesthesia, in an office or clinic. Such
market acceptance may also be dependent upon the ability of MicroLap
laparoscopes and MicroSpan microhysterscopes to be used with a broad variety of
sterilization methods. Addition of other sterilization methods to the MicroLap
microlaparoscope labelling may require submission of a new 510(k) clearance
application to the FDA. Preferred sterilization methods may differ among users
of the Company's products with, for example, physician's offices preferring
different methods than hospitals or surgery centers. The MicroLap
microlaparoscope is currently labelled for use only with a particular
sterilization method, and the Company is aware that certain users of its
products are using, and prefer to use, other sterilization methods. In addition,
physician acceptance of microlaparoscopy and microhysteroscopy may be affected
by the unwillingness of physicians to perform these procedures under conscious
sedation rather than under general anesthesia, availability in the physician's
office of necessary ancillary capital equipment such as medical video cameras
and light sources, and availability of a sufficiently large patient base to
support an office-based microsurgery practice.
The Company believes that market acceptance of the Ovation systems will
depend on the Company's ability to demonstrate the utility of falloposcopy and
recanalization in diagnosing and managing infertility and generate an interest
on the part of physicians to be trained to perform such procedures using the
Company's Ovation systems. There can be no assurance that physicians and other
potential users of the Company's products will be willing to learn to perform
microlaparoscopy, microhysteroscopy or falloposcopy with the Company's products
or that the Company will be able to train such users to learn these techniques.
Market acceptance will also be dependent upon the availability of third-party
reimbursement for procedures performed using the Company's products. See
"Business--Third-Party Reimbursement."
Because the success of each of the Company's product systems depends upon
acceptance by physicians and health care payors of such product systems and the
procedures in which they are intended to be used, the Company believes that
recommendations and endorsements by influential physicians will be essential for
market acceptance
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of the Company's products. There can be no assurance that any such
recommendations or endorsements will be obtained. Failure of the Company's
products to achieve significant market acceptance would have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business--Product Systems."
Limited Operating History; Commercial Scale-Up Risk
The Company has a limited history of operations. Since its inception in
August 1989, the Company has been engaged primarily in research and development
of its Ovation systems, MicroLap microlaparoscopy system and MicroSpan
microhysteroscopy system. The Company has sustained substantial operating losses
since inception and there can be no assurance that the Company will achieve or
sustain profitability. To date, the Company has generated only limited revenues,
primarily from sales of its Ovation systems in international markets and sales
of its MicroLap system in both the United States and international markets. The
Company does not have experience in manufacturing, marketing or selling its
products in the quantities that will be necessary for the Company to achieve
significant product revenues or profitability. There can be no assurance that
any of the Company's products will be successfully commercialized or that the
Company will achieve significant revenues. Whether the Company can successfully
manage the transition to a larger-scale commercial enterprise will depend upon a
number of factors, including the Company's ability to increase its commercial
manufacturing capability and establish marketing and sales capabilities and its
ability to develop additional distribution relationships in targeted
international markets. There can be no assurance that the Company will not
experience future difficulties related to the Company's transition to a
larger-scale commercial enterprise, which could have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Limited Manufacturing Capacity and Experience
The Company has only limited experience in manufacturing its products in
commercial quantities and has not manufactured any of its products in the
quantities that will be necessary for achievement of significant product sales
or profitability. The Company manufactures its proprietary microlaparoscopes,
falloposcopes, linear everting catheters and micro-invasive access devices in a
clean room at its facility, and plans to expand its manufacturing facilities and
operations in 1996. The manufacturing processes for microlaparoscopes and linear
everting catheters are complex and require precision in producing, assembling
and testing finished products. Many of the steps in the assembly process, such
as grinding and polishing lenses and optical fibers, are performed under a
microscope, requiring up to 80x magnification. In addition to manufacturing
certain of its products, Imagyn purchases other components of its product
systems from outside vendors. Light sources, medical video cameras and the
microsurgical instruments used in conjunction with the MicroLap are manufactured
to the Company's specifications by various vendors. None of such vendors is
obligated to continue to supply the Company with such products, nor is the
Company obligated to purchase from any particular vendor. The Company currently
contracts with third parties to manufacture certain components of its products.
Final assembly and packaging is currently performed by the Company in-house and
sterilization is performed by outside vendors.
The Company has limited manufacturing capacity and will be required to
increase both its in-house manufacturing capability and the size of its
manufacturing facilities. There can be no assurance that the Company will be
able to complete its facility expansion, attract, train and retain the required
personnel, including personnel skilled in micro-optics assembly processes,
obtain regulatory approval to manufacture its products in these facilities, or
increase its manufacturing capability and capacity in a timely manner. There can
be no assurance that reliable, high-volume manufacturing can be established or
maintained at commercially reasonable costs on a timely basis, or at all.
Manufacturers often encounter difficulties in scaling up production of their
products, including problems involving production yields, quality control and
assurance, component supply and shortages of qualified personnel. If the Company
is unable to increase its in-house manufacturing capability or successfully
complete the expansion of its manufacturing facilities in a timely manner, the
Company may need to obtain alternative manufacturing facilities or establish
contract manufacturing for its products, and delays associated with, or
inability to establish, such additional capacity could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business--Manufacturing."
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Dependence Upon Sole and Limited Source Suppliers
The Company currently obtains certain components of its product systems from
single source suppliers. These components include the optic image fiber used in
the MicroLap, a similar version of which will also be used in the MicroSpan, and
the camera and light source used in connection with the Ovation tubal
recanalization system. Currently, the Company has a supply agreement with the
MicroLap image fiber supplier; however, there can be no assurance that such
supplier will be able to or will continue to supply image fibers to the Company
in the amounts and at the times needed by the Company or that other disruptions
in supply will not occur. The number of manufacturers capable of making such
optical image fibers is limited and, to date, the Company has not qualified
additional suppliers for such optical image fibers. There can be no assurance as
to when or whether the Company will be able to qualify such additional
suppliers. The Company's prior supplier of medical video cameras and light
sources for the Ovation System ceased manufacturing such products in late 1995
as a result of financial difficulties, which resulted in a temporary inability
of the Company to supply such components to Terumo. As a result, the Company was
unable to ship Ovation medical video cameras and light sources to Terumo for a
period of approximately six months. There can be no assurance that future supply
disruptions for such components will not occur. The Company also uses a single
vendor for sterilization of its products, and disruptions in sterilization of
finished products could adversely affect the Company. Furthermore, there can be
no assurance that the Company will not encounter future component shortages or
other disruptions in supply of materials or services. Delays associated with any
future raw materials or component shortages could have a material adverse effect
on the Company's business, financial condition and results of operations,
particularly as the Company scales up its manufacturing activities. See
"Business--Manufacturing."
Dependence Upon Strategic Marketing Alliances
A key element of the Company's strategy has been and is expected to continue
to be the establishment of strategic marketing alliances with major medical
products companies. To date, the Company has entered into two such agreements.
Product sales to Terumo and USSC accounted for 25% and 11%, respectively, of net
sales in 1995. Product sales to USSC accounted for 89% of net sales in the three
months ended March 31, 1996. The Company anticipates that it will continue to be
dependent upon these companies for a significant portion of its future product
sales.
In October 1995, the Company entered into a distribution agreement with USSC
pursuant to which USSC was granted exclusive international marketing rights for
the Company's MicroLap system in all international markets (excluding China and
India). As a result, the Company is dependent upon USSC for international sales
of these products. USSC was also granted, on a co-exclusive basis with the
Company, marketing rights to the MicroLap system in the United States. The USSC
agreement contains certain provisions limiting the amount of price increases
that may be passed on to USSC by Imagyn. These provisions may adversely affect
the Company's future gross margins on MicroLap products sold to USSC. USSC also
has the right to require the Company, if it is unable during specified time
periods to meet USSC's requirements for MicroLap products, to grant certain
manufacturing rights to USSC. In the event that Imagyn were to fail to meet such
requirements and USSC exercised such rights, Imagyn's business, financial
condition and results of operations could be materially and adversely affected.
The Company's agreement with USSC may be terminated by USSC upon six months
notice at any time after October 23, 1997. Imagyn may terminate the agreement at
any time if USSC introduces products which compete with the MicroLap
microlaparoscope, which could have a material adverse effect on the Company's
ability to market and sell the MicroLap in the future.
In November 1992, the Company entered into a license, manufacturing and
distribution agreement with Terumo for exclusive rights to the Company's Ovation
systems for sales and distribution in Japan. Imagyn is obligated to transfer to
Terumo by August 1997 the manufacturing know-how necessary to enable Terumo to
manufacture linear everting catheter systems for sale to customers in Japan.
Once Terumo begins manufacturing products for resale in Japan, Terumo will be
obligated to pay Imagyn royalties on products sold in Japan. The transfer of
manufacturing know-how involves certain risks. In particular, in the event
Imagyn is unable to transfer such manufacturing know-how, Imagyn may be subject
to certain financial penalties pursuant to the agreement. Terumo may also
experience difficulties in manufacturing linear everting systems, including
difficulties associated with manufacturing scale-up, quality control and other
manufacturing-related problems that could affect Terumo's
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product sales, which in turn would adversely affect Imagyn's royalty income.
Terumo also does not have other significant products for the gynecology or
infertility market and Terumo's lack of experience in these markets could
adversely affect Terumo's ability to market and sell Imagyn's linear everting
systems in Japan.
The Company is dependent upon USSC and Terumo for marketing, sales and
distribution of the products covered by their respective agreements in their
respective territories. The Company is also dependent upon USSC and Terumo
devoting sufficient resources to the promotion of their respective products in
their respective territories. In addition, the Company's products may represent
relatively small market segments for both USSC and Terumo and, as a result,
either USSC or Terumo may not devote sufficient attention to the Company's
products. Furthermore, although the Company has certain contractual rights under
its agreements with USSC and Terumo, any legal remedies the Company may have
under such agreements in the event of breach would be costly to exercise and may
not provide the Company with meaningful relief. In the event that USSC or Terumo
are unable to obtain necessary regulatory approvals for their respective
products in their respective territories, fail to devote sufficient resources to
promote the Company's products, or fail to support reimbursement approvals,
sales of the products covered by the agreements with USSC and Terumo could be
materially and adversely affected, which in turn would have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company has also agreed to indemnify both USSC and Terumo against claims of
infringement of intellectual property rights. Furthermore, the Company's rights
to terminate the agreements with USSC and Terumo are limited, and, accordingly,
the Company may be unable to establish alternative marketing or distribution
arrangements if the agreements with USSC and Terumo are not successful. The
failure or loss of strategic alliances with USSC and Terumo, or the Company's
inability to enter into future necessary strategic alliances, would have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business-- Strategic Marketing Alliances."
Limited Sales and Marketing Experience
The Company has only limited experience marketing and selling its products,
and does not have experience marketing and selling its products in commercial
quantities. The Company currently does not have a direct sales force in the
United States and has only three direct international sales personnel.
Domestically, the Company is marketing the MicroLap system primarily through its
collaborative relationship with USSC. The Company anticipates establishing a
domestic sales force and increasing the scope of its marketing efforts to
support sales of the MicroLap system and future commercial introduction of the
MicroSpan microhysteroscopy system and the Ovation systems in the United States.
Establishing marketing and sales capability sufficient to support sales in
commercial quantities will require significant resources and will be
time-consuming, and there can be no assurance that the Company will be able to
recruit and retain qualified marketing personnel, direct sales personnel or
contract sales representatives in a timely manner or that future sales and
marketing efforts of the Company will be successful. There can be no assurance
that the Company will be successful in establishing marketing, sales and
distribution channels in the United States or internationally. The failure to
establish and maintain effective distribution channels for the Company's
products, or to retain qualified sales personnel to support commercial sales of
the Company's products, would have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business--Marketing, Sales and Distribution."
Government Regulation
The manufacture and sale of medical devices, such as the Company's MicroLap
system, MicroSpan microhysteroscopy system and Ovation systems, are subject to
extensive regulation by numerous government authorities, both in the United
States and internationally. In the United States, the principal regulatory
authorities are the FDA and corresponding state agencies, such as the California
Department of Health Services ("CDHS"). The process of obtaining and maintaining
required regulatory clearances and approvals is lengthy, expensive and
uncertain. The FDA requires companies desiring to market a new medical device or
an existing medical device for a major change in intended use to obtain either a
premarket notification clearance under Section 510(k) of the Federal Food, Drug,
and Cosmetic Act ("510(k)") or a premarket approval ("PMA") prior to the
introduction of such medical device into the market. In addition, changes to a
medical device that significantly affect the safety or efficacy of the device
are also subject to FDA review and clearance or approval. Although generally
believed to be a shorter, less costly regulatory path than a PMA, the process of
obtaining a 510(k) clearance generally requires the submission of supporting
data, which may include data from clinical trials of the device. The time period
required to assemble and
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compile this data can be extensive and can extend the regulatory process for a
considerable length of time. The PMA process can take several years or longer
from initial filing and requires the submission of extensive clinical data and
supporting information.
Sales of medical devices outside of the United States are subject to
international regulatory requirements that vary from country to country. The
time required to obtain approval for sale internationally may be longer or
shorter than that required for FDA approval, and the requirements may differ.
USSC is responsible for obtaining appropriate product registrations and
regulatory approvals for the MicroLap system in those markets in which USSC
plans to distribute the system. Terumo has obtained regulatory approval for
marketing the Ovation tubal recanalization system in Japan from the Japanese
Ministry of Health and Welfare. However, such approval is subject to continuing
compliance by Terumo with the requirements of the Ministry of Health and Welfare
and such approval could be suspended in the event Terumo fails to comply with
such requirements. In Europe, the Company will be required to obtain the
certifications necessary to enable the CE mark, an international symbol of
adherence to quality assurance standards and compliance with applicable European
Union Medical Device Directives, to be affixed to the Company's products by
mid-1998 in order to continue sales in member countries of the European Union.
The Company has not obtained such certifications, and there can be no assurance
that it will be able to do so in a timely manner, if at all. Many countries in
which the Company currently operates or intends to operate either do not
currently regulate medical devices or have minimal registration requirements;
however, these countries may develop more extensive regulations in the future
that could adversely affect the Company's ability to market its products. In
addition, significant costs and requests by regulators for additional
information may be encountered by the Company in its efforts to obtain
regulatory approvals. Any such events could substantially delay or preclude the
Company from marketing its products in the United States or internationally.
There can be no assurance that the Company will be able to obtain necessary
510(k) clearances or PMA approvals to market its products in the United States
for their intended uses on a timely basis or at all, and delays in receipt of or
failure to receive such approvals, the loss of previously received approvals or
failure to comply with existing or future regulatory requirements, could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Regulatory clearances or approvals, if granted, may include significant
limitations on the indicated uses for which the Company's products may be
marketed. Furthermore, if safety or efficacy problems occur after the product
reaches the market, the FDA may take steps to prevent or limit further marketing
of the product. In addition, in order for companies to obtain such approvals,
the FDA and certain foreign regulatory authorities impose numerous additional
requirements with which medical device manufacturers must comply. FDA
enforcement policy strictly prohibits the promotion or marketing of approved
medical devices for uses other than those specifically cleared for marketing by
the FDA. The Company will be required to adhere to applicable FDA regulations
regarding Good Manufacturing Practices ("GMP") and similar regulations in other
countries, which include testing, control, and documentation requirements. The
Company has obtained and is required to maintain a medical device manufacturing
license from the CDHS. Ongoing compliance with GMP and other applicable
regulatory requirements will be monitored through periodic inspections by
federal and state agencies, including the FDA and the CDHS, and by comparable
agencies in other countries. Failure to comply with applicable regulatory
requirements, could result in, among other things, warning letters, fines,
injunctions, civil penalties, recall or seizure of products, total or partial
suspension of production, refusal of the government to grant premarket clearance
or premarket approval for devices, withdrawal of approvals and criminal
prosecution. Changes in existing laws and regulations or adoption of new
government regulations or policies could prevent or delay regulatory approval of
the Company's products, and there can be no assurance that the Company would not
be required to incur significant costs in the future to comply with such laws,
regulations or policies. See "Business--Government Regulation."
Reliance on Patents and Protection of Proprietary Technology
The Company's ability to compete effectively will depend substantially on
its ability to develop and maintain proprietary aspects of its technology. As of
April 15, 1996, the Company held 13 issued United States patents and 3 issued
foreign patents and had 11 United States and 10 foreign patent applications
pending, covering various aspects of the Company's product systems. The
Company's issued United States patents cover technology underlying the Ovation
systems. The expiration dates of these patents range from October 2011 to May
2014.
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In addition to its patents and patent applications, the Company holds a
license from Baxter Healthcare Corporation ("Baxter") and Thomas J. Fogarty,
M.D. ("Fogarty"), the inventor of the linear everting catheter, that grants
Imagyn the exclusive, perpetual, worldwide use of patented technology and
know-how related to the linear everting catheter technology in the fields of
obstetrics, gynecology, and infertility, in exchange for royalty payments. As of
April 15, 1996, Baxter and Fogarty held, and Imagyn has been granted the
exclusive license for, 11 issued United States patents and numerous issued
foreign patents and pending applications covering aspects of linear everting
catheter technology. The license agreement requires that Baxter maintain and
prosecute all patents and patent applications relating to the linear everting
catheter technology.
No assurance can be given that any patents from pending patent applications
or from any future patent applications will be issued, that the scope of any
patent protection will exclude competitors or provide competitive advantages to
the Company, that any of the Company's patents will be held valid if
subsequently challenged or that others will not claim rights in or ownership of
the patents and other proprietary rights held by the Company. Furthermore, there
can be no assurance that others have not developed or will not develop similar
products, duplicate any of the Company's products or design around the Company's
patents. In addition, others may hold or receive patents or file patent
applications which contain claims having a scope that covers products developed
by the Company.
The medical device industry has been characterized by extensive litigation
regarding patents and other intellectual property rights, and companies in the
industry have employed intellectual property litigation to gain a competitive
advantage. There can be no assurance that the Company will not in the future
become subject to patent infringement claims and litigation or interference
proceedings declared by the United States Patent and Trademark Office ("USPTO")
to determine the priority of inventions. The defense and prosecution of
intellectual property suits, USPTO interference proceedings and related legal
and administrative proceedings are both costly and time consuming. Litigation
may be necessary to enforce patents issued to the Company, to protect the
Company's trade secrets or know-how or to determine the enforceability, scope
and validity of the proprietary rights of others. Furthermore, the Company has
obligations to idenmify USSC, Terumo and other international distributors
against claims of intellectual property infringement and, as a result of these
provisions, could become involved in, or forced to defend, litigation or other
legal proceedings relating to intellectual property rights.
Any litigation or interference proceedings involving the Company will result
in substantial expense to the Company and significant diversion of effort by the
Company's technical and management personnel. An adverse determination in
litigation or interference proceedings to which the Company may become a party
could subject the Company to significant liabilities to third parties or require
the Company to seek licenses from third parties. Although patent and
intellectual property disputes in the medical device area have often been
settled through licensing or similar arrangements, costs associated with such
arrangements may be substantial and could include ongoing royalties.
Furthermore, there can be no assurance that necessary licenses would be
available to the Company on satisfactory terms, if at all. Adverse
determinations in a judicial or administrative proceeding or failure to obtain
necessary licenses could prevent the Company from manufacturing and selling its
products, which would have a material adverse effect on the Company's business,
financial condition and results of operations.
In addition to patents, the Company relies on trade secrets and proprietary
know-how, which it seeks to protect, in part, through appropriate
confidentiality and proprietary information agreements. These agreements
generally provide that all confidential information developed or made known to
the individual by the Company during the course of the individual's relationship
with the Company is to be kept confidential and not disclosed to third parties,
except in specific circumstances. The agreements also generally provide that all
inventions conceived by the individual in the course of rendering services to
the Company shall be the exclusive property of the Company. There can be no
assurance that proprietary information or confidentiality agreements with
employees, consultants and others will not be breached, that the Company will
have adequate remedies for any breach, or that the Company's trade secrets will
not otherwise become known to or independently developed by competitors. See
"Business--Patents, Trade Secrets and Licenses."
Uncertainty Relating to Third-Party Reimbursement
In the United States, health care providers, such as hospitals and
physicians, that purchase the Company's products and other medical devices,
generally rely on third-party payors, private health insurance plans, federal
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Medicare and state Medicaid to reimburse all or part of the cost of the
procedure in which the medical device is being used. Reimbursement for
traditional laparoscopy and hysteroscopy procedures performed using devices that
have received FDA approval has generally been available in the United States.
Nevertheless, there are no specific reimbursement codes for microlaparoscopy or
microhysteroscopy procedures. There can be no assurance that reimbursement will
be available for procedures performed using the Company's existing products or
future products. Because infertility procedures have not historically been
reimbursed by health care payors, the Company believes that it will be very
difficult, if not impossible, to obtain reimbursement for procedures performed
using its Ovation systems in the United States. In addition, certain health care
providers are moving toward a managed care system in which such providers
contract to provide comprehensive health care for a fixed cost per covered
individual. The Company is unable to predict what changes will be made in the
reimbursement methods utilized by third-party health care payors, and the
Company could be adversely affected by changes in reimbursement policies of
governmental or private health care payors, particularly to the extent any such
changes affect reimbursement for procedures in which the Company's products are
used. Failure by physicians, hospitals and other users of the Company's products
to obtain sufficient reimbursement from health care payors for procedures in
which the Company's products are used or adverse changes in governmental and
private third-party payors' policies toward reimbursement for such procedures
would have a material adverse effect on the Company's business, financial
condition and results of operations.
Market acceptance of the Company's products in international markets may be
dependent in part upon the availability of reimbursement within prevailing
health care payment systems. Reimbursement and health care payment systems in
international markets vary significantly by country, and include both government
sponsored and private health insurance. The Company is relying on its
international distributors to seek reimbursement approvals for procedures
performed using its products in international markets. In particular, Terumo
recently applied for Japanese reimbursement approval for the Ovation tubal
recanalization system. There can be no assurance that such Japanese
reimbursement approval or any other international reimbursement approvals will
be obtained in a timely manner, or at all. Failure to receive international
reimbursement approvals could have a material adverse effect on market
acceptance of the Company's products in international markets and therefore
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Third-Party Reimbursement."
History of Losses and Expectation of Future Losses; Fluctuations in Operating
Results
The Company has experienced significant operating losses since inception
and, as of March 31, 1996, had an accumulated deficit of $22.1 million. The
Company expects to incur substantial additional losses due to increased
operating expenditures primarily attributable to the expansion of marketing,
sales and manufacturing activities, research and development and clinical trials
in support of regulatory and reimbursement approvals. Results of operations may
fluctuate significantly from quarter to quarter and will depend upon numerous
factors, including the extent to which the Company's products gain market
acceptance, the timing and volume of orders from USSC, Terumo, other
international distributors and the Company's other customers, actions relating
to regulatory and reimbursement matters, progress of clinical trials,
introduction of alternative means for microlaparoscopy, microhysteroscopy and
fallopian tube visualization by competitors of the Company, pricing of
competitive products, the cost and effect of promotional discounts and marketing
programs in which the Company may be required to engage and the absence of a
backlog of orders. Results of operations will also depend upon the amount of
royalties payable under the license from Baxter and Fogarty relating to the
linear everting catheter technology used in the Ovation systems. There can be no
assurance that the Company will successfully commercialize any of its current
products or any future products or achieve significant revenues or
profitability. Profitability, if achieved, may not be sustained. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Competition; Uncertainty of Technological Change
The medical device industry and the market for treatment of gynecological
disorders and infertility, in particular, are intensely competitive and
characterized by rapidly evolving technology. The Company expects competition to
increase for devices to diagnose and treat female reproductive disorders. A
number of the Company's competitors are currently marketing products for use in
micro-invasive procedures for the diagnosis and treatment of gynecological
disorders. Olympus America, Inc., Origin Medsystems, Inc., a subsidiary of
Guidant Corporation, Medical Dynamics, Inc. and Karl Storz Instrument Co., are
currently marketing laparoscopes with
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diameters ranging from 1.2 millimeters to 3.0 millimeters. Circon-Cabot Corp.
currently markets a microhysteroscope, and Conceptus, Inc. is currently pursuing
FDA approval for a guidewire-based falloposcopy system. The Company also faces
potential competition from medical device or pharmaceutical manufacturers that
currently market or may be developing other medical devices or drugs, such as
hormonal therapies, for the treatment of uterine disorders. Other companies may
choose to enter these markets at a later date and would represent competition
for the Company. In addition, the Company competes with other companies for
sites to conduct clinical trials.
There can be no assurance that the Company's competitors will not succeed in
developing technologies and products that are more effective or less costly than
any which have been or are being developed by the Company or that would render
the Company's technologies or products obsolete or not competitive, or that such
competitors will not succeed in obtaining regulatory approval for, introducing
or commercializing any such products prior to the Company. There can be no
assurance that the Company will be able to compete successfully or that
competition will not have a material adverse effect on the Company's business,
financial condition or results of operations. See "Business--Competition."
Dependence Upon International Distributors and Sales
Since inception, a majority of the Company's sales have been outside the
United States. USSC has distribution rights for the MicroLap system in all
international markets other than China and India and Terumo has distribution
rights for the Ovation systems in Japan. The Company has a limited number of
international distributors for its Ovation systems in certain countries. The
Company's international sales of these products in these countries are dependent
upon the marketing efforts of, and sales by, its distributors. The Company
relies on these distributors to assist it in obtaining product registration and
reimbursement approvals in certain international markets. The Company has
limited sell-through experience with certain of its distributors and has in the
past experienced situations in which distributors placed initial stocking orders
for quantities that were in excess of their end user requirements. In addition,
if a distributor were to fail to invest adequate capital promoting the Company's
products and training physicians in the proper techniques for utilizing the
Company's products, or were to experience financial difficulty or cease
operations, the Company would likely be unable to achieve significant sales in
the subject territory. Management of international distributors can be
time-consuming and can be complicated by dissimilarities among international
markets. Furthermore, the Company currently does not have distributors in a
number of international markets that it has targeted and anticipates that it
will need to establish additional international distribution relationships.
There can be no assurance that the Company will engage qualified distributors in
these markets in a timely manner, if at all, or that distributors will
adequately market the Company's products. The failure of distributors to
adequately promote the Company's products or the failure of the Company to
engage additional distributors would have a material adverse effect on the
Company's business, financial condition and results of operations.
Risks of International Sales
A number of risks are inherent in international operations and transactions.
International sales and operations may be limited or disrupted by the imposition
of government controls, changes in regulatory requirements or interpretations
thereof, export license requirements, political instability, trade restrictions,
changes in tariffs, financial instability of distributors, differences in
purchasing systems for medical products, and difficulties in staffing,
coordinating and managing international operations. Additionally, the Company's
business, financial condition and results of operations may be adversely
affected by fluctuations in international currency exchange rates as well as
constraints on the Company's ability to maintain or increase prices. There can
be no assurance that the Company will be able to successfully commercialize its
current or future products in any international market. See
"Business--Marketing, Sales and Distribution."
Risk of Market Withdrawal or Product Recall
The Company's products are complex devices designed for use inside and
around the organs of the female reproductive system. To date, the Company has
only limited experience regarding the reliability of its products in the field.
Component failures, manufacturing errors or design defects could result in an
unsafe condition or injury to the patient. If any such failures or defects were
material, the Company could be required to undertake a market withdrawal or
recall of products. Even if regulatory approvals are obtained, there can be no
assurance that a market
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withdrawal or product recall will not occur. Costs of a market withdrawal or
product recall could be significant and could have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Business--Manufacturing."
Possible Future Capital Requirements; Risks Associated with Potential
Acquisitions
The Company's capital requirements depend on numerous factors, including the
extent to which the Company's products gain market acceptance, actions relating
to regulatory and reimbursement matters, progress of clinical trials,
introduction of alternative means for microlaparoscopy, microhysteroscopy and
fallopian tube visualization by competitors of the Company, pricing of
competitive products, the cost and effect of promotional discounts and marketing
programs in which the Company may be required to engage, the resources the
Company devotes to marketing, manufacturing and developing its products, and
other factors. The timing and amount of such capital requirements cannot
accurately be predicted. Consequently, although the Company believes the
proceeds from this Offering, together with cash generated from revenues, will
provide adequate funding for its capital requirements through 1997, there can be
no assurance that the Company will not require additional funding or that such
additional funding, if needed, will be available on terms satisfactory to the
Company, or at all. Any additional equity financing may be dilutive to
stockholders, and debt financing, if available, may involve restrictive
covenants. Failure to raise capital when needed could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Use of Proceeds" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
The Company may make acquisitions in the future, and the Company regularly
evaluates such opportunities. Product and technology acquisitions entail
numerous risks, including difficulties in the assimilation of acquired
operations and products, diversion of management's attention to other business
concerns, amortization of acquired intangible assets and potential loss of key
employees of acquired companies. The Company has no experience in assimilating
acquired organizations and products into its operations. No assurance can be
given as to the ability of the Company to integrate successfully any operations,
personnel or products that might be acquired in the future, and the failure of
the Company to do so could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Use of Proceeds."
Uncertainty Relating to New Product Development
The Company's strategy involves the design and development of new products.
In microlaparoscopy, the Company is developing new electrocautery and other
microsurgical instruments. Enhancements under development for the Company's
microhysteroscopy technology include microhysteroscopic biopsy and
electrocautery devices. In addition, Imagyn is directing research and
development efforts toward perfecting and enhancing its proprietary micro-access
technology for both microhysteroscopy and microlaparoscopy. The Company is also
developing new applications for its proprietary linear everting catheter
technology. The product development process is time-consuming and costly, and
there can be no assurance that product development will be successfully
completed, that necessary regulatory approvals or clearances will be granted by
the FDA on a timely basis, or at all, or that any new products developed and
introduced by the Company will achieve market acceptance. Failure by the Company
to develop, obtain necessary regulatory clearances or approvals for, or
successfully market, new products could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business--Research and Development."
Product Liability Risk; Limited Insurance Coverage
The development, manufacture and sale of medical devices entail significant
risk of product liability claims and device failures. There can be no assurance
that the Company's existing insurance coverage limits are adequate to protect
the Company from any liabilities it might incur in connection with the clinical
trials or sales of its products. In addition, the Company may require increased
product liability coverage if its products are commercialized. Such insurance is
expensive and in the future may not be available on acceptable terms, if at all.
A successful product liability claim or series of claims brought against the
Company in excess of its insurance coverage, or a recall of the Company's
products, could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Product Liability
and Insurance."
13
<PAGE>
Dependence Upon Key Personnel
The Company is dependent upon a number of key management and technical
personnel. The loss of the services of one or more key employees could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company's success will also depend on its ability to
attract and retain additional highly qualified management and technical
personnel. The Company faces intense competition for qualified personnel, many
of whom are often subject to competing employment offers, and there can be no
assurance that the Company will be able to attract and retain such personnel.
Furthermore, the Company relies on the services of several medical and
scientific consultants, all of whom are employed on a full-time basis by
hospitals or academic or research institutions. Such consultants are therefore
not available to devote their full time or attention to the Company's affairs.
See "Business--Employees" and "Management."
Broad Discretion of Management to Allocate Offering Proceeds
The Company expects that the proceeds of this Offering will be used for
development activities and expansion of marketing, sales and manufacturing
activities for the MicroLap system, the MicroSpan system, the Ovation systems
and other products, working capital and general corporate purposes. The Company
is not currently able to estimate the allocation of proceeds among such uses,
and the timing and amount of expenditures will vary depending upon numerous
factors. The Company's management will have broad discretion to allocate the
proceeds of this Offering and to determine the timing of expenditures. See "Use
of Proceeds."
Possible Volatility of Stock Price
The stock market has from time to time experienced significant price and
volume fluctuations that are unrelated to the operating performance of
particular companies. These broad market fluctuations may adversely affect the
market price of the Company's Common Stock. In addition, the market price of the
shares of Common Stock is likely to be highly volatile. Factors such as
fluctuations in the Company's results of operations, failure of such results of
operations to meet the expectations of public market analysts and investors,
announcements of technological innovations or new products by the Company or its
competitors, FDA and international regulatory actions, actions with respect to
reimbursement matters, developments with respect to patents or proprietary
rights, public concern as to the safety of products developed by the Company or
others, changes in health care policy in the United States and internationally,
changes in stock market analyst recommendations regarding the Company, other
medical device companies or the medical device industry generally, and general
market conditions may have a significant adverse effect on the market price of
the Common Stock. In addition, it is likely that during a future quarterly
period, the Company's results of operations will fail to meet the expectations
of stock market analysts and investors and, in such event, the Company's stock
price could be materially and adversely effected.
Control by Directors, Executive Officers and Affiliated Entities
The Company's directors, executive officers and entities affiliated with
them will, in the aggregate, beneficially own approximately 39% of the Company's
outstanding Common Stock following the completion of this Offering. These
stockholders, if acting together, would be able to control substantially all
matters requiring approval by the stockholders of the Company, including the
election of directors and the approval of mergers or other business combination
transactions. Such concentration of ownership could prevent a change in control
of the Company. See "Principal Stockholders."
No Prior Public Trading Market
Prior to this Offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will develop
or, if one does develop, that it will be maintained. The initial public offering
price, which was established by negotiations between the Company and the
Underwriters, may not be indicative of prices that will prevail in the trading
market. See "Underwriting."
Possible Anti-Takeover Effect of Certain Charter and Bylaw Provisions
Certain provisions of the Company's Certificate of Incorporation and Bylaws
may have the effect of making it more difficult for a third party to acquire, or
of discouraging a third party from attempting to acquire, control of the
Company. Such provisions could limit the price that certain investors might be
willing to pay in the future for shares of the Company's Common Stock. Certain
of these provisions allow the Company to issue Preferred Stock without any vote
or further action by the stockholders, provide for a classified board of
directors, eliminate the right of
14
<PAGE>
stockholders to act by written consent without a meeting and eliminate
cumulative voting in the election of directors. These provisions may make it
more difficult for stockholders to take certain corporate actions and could have
the effect of delaying or preventing a change in control of the Company. In
addition, the Company has not elected to be excluded from the provisions of
Section 203 of the Delaware General Corporation Law, which imposes certain
limitations on transactions between a corporation and "interested stockholders,"
as defined in such provision. See "Management" and "Description of Capital
Stock."
Shares Eligible for Future Sale and Potential Adverse Effect on Market Price
Sales of Common Stock (including shares issued upon the exercise of
outstanding options) in the public market after this Offering could materially
adversely affect the market price of the Common Stock. Such sales also might
make it more difficult for the Company to sell equity securities or
equity-related securities in the future at a time and price that the Company
deems appropriate. Upon the completion of this Offering, the Company will have
7,244,155 shares of Common Stock outstanding, assuming no exercise of options
after April 1, 1996. Of these outstanding shares of Common Stock, the 2,500,000
shares sold in this Offering will be freely tradable without restriction under
the Securities Act, unless purchased by "affiliates" of the Company, as that
term is defined in Rule 144 under the Securities Act. The remaining 4,744,155
shares of Common Stock held by existing stockholders are "restricted securities"
as that term is defined in Rule 144 under the Securities Act, and were issued
and sold by the Company in reliance on exemptions from the registration
requirements of the Securities Act. These shares may be sold in the public
market only if registered or pursuant to an exemption from registration, such as
Rule 144, Rule 144(k) or Rule 701 under the Securities Act. All holders of
Common Stock and options to purchase Common Stock have agreed pursuant to
certain lock-up agreements that they will not offer, sell, contract to sell,
grant any option to sell or otherwise dispose of, directly or indirectly, any
shares of Common Stock owned by them or that could be purchased by them through
the exercise of options to purchase Common Stock for a period of 180 days after
the date of this Prospectus without the prior written consent of Dillon, Read &
Co. Inc. Upon expiration of the lock-up agreements, approximately 713,811 shares
of Common Stock held by existing stockholders will be eligible for sale without
restriction pursuant to Rule 144(k) or Rule 701, and approximately 1,020,112
shares held by existing stockholders will be eligible for sale subject to the
volume and other restrictions of Rule 144. The remaining 3,010,232 shares held
by existing stockholders will become eligible for sale pursuant to Rule 144 upon
the expiration of their two-year holding periods. As of April 1, 1996, 665,059
shares were subject to outstanding options. All of these shares are subject to
the lock-up agreements described above. Upon the expiration of such lock-up
agreements, 244,168 shares subject to such options will be vested. 4,102,223 of
the shares outstanding immediately following the completion of this Offering
will be entitled to registration rights with respect to such shares upon
termination of lock-up agreements. The number of shares sold in the public
market could increase if registration rights are exercised. See "Description of
Capital Stock--Registration Rights" and "Shares Eligible for Future Sale."
Dilution
The initial public offering price is substantially higher than the net
tangible book value per share of Common Stock. Investors purchasing shares of
Common Stock in this Offering will therefore incur immediate and substantial net
tangible book value dilution. See "Dilution."
Absence of Dividends
The Company has never paid cash dividends on its Common Stock and does not
anticipate paying cash dividends in the foreseeable future. See "Dividend
Policy."
15
<PAGE>
THE COMPANY
Imagyn was incorporated in California in August 1989 to advance the
development of gynecological applications of novel catheter technology licensed
by the Company from Baxter Healthcare Corporation ("Baxter") and Thomas J.
Fogarty, M.D. ("Fogarty"). In mid-1994, the Company was repositioned to focus on
the development of a broad range of products for gynecological and reproductive
disorders based on its proprietary technology. The Company anticipates that it
will reincorporate in Delaware prior to the completion of this Offering. Unless
the context otherwise requires, references in this Prospectus to "Imagyn" and
the "Company" refer to Imagyn Medical, Inc., a Delaware corporation, and where
applicable, its predecessor corporation, Imagyn Medical, Inc., a California
corporation, and its subsidiary, Imagyn International, Inc. The Company's
principal executive offices are located at 27651 La Paz Road, Laguna Niguel,
California 92677. Its telephone number is (714) 362-2500.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,500,000 shares of
Common Stock offered hereby are estimated to be approximately $31,750,000
($36,632,500 if the Underwriters' over-allotment option is exercised in full),
at an assumed initial public offering price of $14.00 per share, after deducting
the underwriting discounts and commissions and estimated offering expenses.
The Company estimates that approximately $7.0 million of the net proceeds
will be used to fund product introduction, build a sales and marketing
organization and develop and sponsor physician training programs, approximately
$5.0 million will be used for research and development of current and future
products including clinical trials, approximately $1.5 million will be used for
capital equipment purchases and that the remainder of the net proceeds will be
used for working capital and general corporate purposes. The foregoing represent
estimates only, and management of the Company does not have specific plans
regarding the precise allocation of the Offering proceeds among these
anticipated uses. The actual amounts expended by the Company for these purposes
and the timing of such expenditures will depend on numerous factors, including
the status of the Company's development efforts, actions relating to regulatory
matters, the extent to which the Company's products gain market acceptance and
competition. The Company may use a portion of the net proceeds to acquire
complementary businesses, products or technologies. Although the Company
currently has no agreements to acquire such businesses, products or
technologies, the Company has in the past and expects to continue to discuss
such opportunities with interested third parties. Pending use of the net
proceeds of this Offering, the Company plans to invest the net proceeds in
interest-bearing, investment grade securities. Although the Company believes
that the net proceeds from this Offering together with existing cash and cash
equivalents will be sufficient to maintain its current and planned operations
through the end of 1997, there can be no assurance that the Company will not
require additional financing within this time frame. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain any future earnings for funding
growth and, therefore, does not anticipate paying any cash dividends in the
foreseeable future.
16
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1996 (i) on a pro forma basis to give effect to the filing of the Company's
Restated Certificate of Incorporation to authorize 5,000,000 and 50,000,000
shares of Preferred Stock and Common Stock, respectively, and to reflect the
conversion of all outstanding shares of the Company's Preferred Stock into
Common Stock upon the closing of this Offering and (ii) as adjusted to reflect
the sale of the 2,500,000 shares of Common Stock offered hereby at an assumed
initial public offering price of $14.00 per share and after deducting the
estimated underwriting discounts and commissions and estimated offering expenses
payable by the Company.
<TABLE>
<CAPTION>
March 31, 1996
------------------------------
Pro Forma As Adjusted
-------------- --------------
(in thousands)
<S> <C> <C>
Stockholders' equity:
Preferred Stock: $0.001 par value; 5,000,000 shares authorized, pro
forma and as adjusted; none issued and outstanding, pro forma and as
adjusted............................................................. $ -- $ --
Common Stock: $0.001 par value; 50,000,000 shares authorized, pro
forma and as adjusted; 4,751,740 shares issued and outstanding, pro
forma; 7,251,740 shares issued and outstanding, as adjusted(1)....... 5 7
Additional paid-in capital............................................ 31,671 63,419
Unearned compensation................................................. (965) (965)
Amounts due from stockholders......................................... (196) (196)
Accumulated deficit................................................... (22,112) (22,112)
-------------- --------------
Total stockholders' equity.......................................... 8,403 40,153
-------------- --------------
Total capitalization.............................................. $ 8,403 $ 40,153
-------------- --------------
-------------- --------------
</TABLE>
- ------------------------
(1) Includes 7,585 shares of Common Stock which were repurchased by the Company
subsequent to March 31, 1996. Excludes 665,059 shares of Common Stock
reserved for issuance pursuant to stock options outstanding as of April 1,
1996. Also excludes 1,081,872 shares of Common Stock reserved for future
issuance under the Company's 1995 Stock Plan, 1996 Director Option Plan and
1996 Employee Stock Purchase Plan. See Notes 12 and 18 of Notes to
Consolidated Financial Statements, "Management--Stock Plans" and
"Description of Capital Stock."
17
<PAGE>
DILUTION
The pro forma net tangible book value of the Common Stock as of March 31,
1996 was $8,402,721, or approximately $1.77 per share. Pro forma net tangible
book value per share represents the amount of the Company's total tangible
assets less total liabilities, divided by the pro forma number of shares of
Common Stock outstanding. Net tangible book value dilution per share represents
the difference between the amount per share paid by purchasers of shares of
Common Stock in this Offering and the net tangible book value per share of
Common Stock immediately after completion of this Offering. After giving effect
to the sale by the Company of the 2,500,000 shares of Common Stock offered
hereby at an assumed initial public offering price of $14.00 per share and after
deducting the estimated underwriting discounts and commissions and estimated
offering expenses payable by the Company, the pro forma net tangible book value
of the Company as of March 31, 1996 would have been $40,152,721, or
approximately $5.54 per share. This represents an immediate increase in net
tangible book value of $3.77 per share to existing stockholders and an immediate
dilution in net tangible book value of $8.46 per share to new investors in this
Offering.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price per share............................. $ 14.00
Pro forma net tangible book value per share before this Offering.... $ 1.77
Increase per share attributable to new investors.................... 3.77
---------
Pro forma net tangible book value per share after this Offering..... 5.54
---------
Dilution per share to new investors................................. $ 8.46
---------
---------
</TABLE>
The following table sets forth, on an unaudited pro forma basis at March 31,
1996, the difference between the number of shares of Common Stock purchased from
the Company, the total consideration paid and the average price per share paid
by the existing holders of Common Stock and by the new investors, before
deducting the underwriting discounts and commissions and estimated offering
expenses payable by the Company, at an assumed initial public offering price of
$14.00 per share.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
---------------------- ------------------------- Price
Number Percent Amount Percent Per Share
---------- ---------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders...................... 4,751,740 65.5% $ 31,675,529 47.5% $ 6.67
New investors.............................. 2,500,000 34.5 35,000,000 52.5 14.00
---------- ----- ------------- -----
Total.................................... 7,251,740 100.0% $ 66,675,529 100.0%
---------- ----- ------------- -----
---------- ----- ------------- -----
</TABLE>
The foregoing table (i) assumes the conversion of all Preferred Stock into
Common Stock upon the closing of this Offering, (ii) assumes no exercise of the
Underwriters' over-allotment option, (iii) includes 7,585 shares of Common Stock
which were repurchased by the Company subsequent to March 31, 1996 and (iv)
excludes 665,059 shares of Common Stock reserved for issuance pursuant to stock
options outstanding as of April 1, 1996, and 1,081,872 shares of Common Stock
reserved for future issuance under the Company's 1995 Stock Plan, 1996 Director
Option Plan and 1996 Employee Stock Purchase Plan. See Notes 12 and 18 of Notes
to Consolidated Financial Statements, "Management--Stock Plans," and
"Description of Capital Stock."
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data and
other operating data of the Company. The selected consolidated financial data
set forth below with respect to the Company's consolidated statements of
operations data for the years ended December 31, 1993, 1994 and 1995 and
consolidated balance sheet data at December 31, 1994 and 1995 are derived from
the audited consolidated financial statements of the Company included elsewhere
in this Prospectus that have been audited by Coopers & Lybrand L.L.P.,
independent accountants. The consolidated statements of operations data for the
years ended December 31, 1991 and 1992 and consolidated balance sheet data at
December 31, 1991, 1992 and 1993 also are derived from consolidated financial
statements audited by Coopers & Lybrand L.L.P. which are not included in this
Prospectus. The selected consolidated financial data as of March 31, 1996, and
for the three month periods ended March 31, 1995 and 1996 have been derived from
the Company's unaudited consolidated financial statements, which reflect all
adjustments of a normal recurring nature which the Company considers necessary
for a fair presentation of the results for such period. The historical results
are not necessarily indicative of the results of operations to be expected in
the future. The data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and Notes related thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
Year ended December 31, (unaudited)
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(in thousands, except per share data)
Consolidated Statements of Operations Data:
Net sales...................................... $ 15 $ 1,238 $ 1,047 $ 1,005 $ 2,243 $ 335 $ 1,467
Cost of sales.................................. 11 702 1,006 1,268 1,811 265 1,222
--------- --------- --------- --------- --------- --------- ---------
Gross profit (loss)............................ 4 536 41 (263) 432 70 245
Cost and expenses:
Sales and marketing.......................... 59 1,665 2,397 2,317 3,296 459 746
Research and development..................... 1,643 1,917 1,917 1,797 1,811 403 740
General and administrative................... 851 1,360 904 1,108 1,253 274 446
--------- --------- --------- --------- --------- --------- ---------
Total costs and expenses................... 2,554 4,942 5,218 5,222 6,360 1,136 1,932
--------- --------- --------- --------- --------- --------- ---------
Other operating income......................... -- 1,000 -- -- 3,500 -- --
--------- --------- --------- --------- --------- --------- ---------
Loss from operations....................... (2,549) (3,406) (5,177) (5,485) (2,428) (1,066) (1,687)
--------- --------- --------- --------- --------- --------- ---------
Interest income (expense), net................. 56 178 337 175 (217) 16 120
--------- --------- --------- --------- --------- --------- ---------
Net loss....................................... $ (2,493) $ (3,228) $ (4,840) $ (5,311) $ (2,645) $ (1,050) $ (1,569)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net loss per share(1).......................... $ (0.59) $ (0.76) $ (1.16) $ (1.26) $ (0.59) $ (0.25) $ (0.29)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Shares used in computing net loss per
share(1)...................................... 4,233 4,233 4,240 4,263 4,573 4,252 5,334
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
As of March 31,
As of December 31, (unaudited)
----------------------------------------------------- -----------------
1991 1992 1993 1994 1995 1996
--------- --------- --------- --------- --------- -----------------
<S> <C> <C> <C> <C> <C> <C>
(in thousands)
Consolidated Balance Sheet Data:
Cash, cash equivalents and short term
investments................................... $ 5,716 $ 12,859 $ 7,269 $ 2,021 $ 9,340 $ 7,772
Working capital................................ 5,690 12,897 7,763 2,672 10,431 8,796
Total assets................................... 6,271 14,287 9,388 4,174 12,024 11,368
Convertible redeemable preferred stock......... 9,600 19,950 20,030 20,122 9,936 9,936
Accumulated deficit............................ (3,612) (7,527) (12,447) (17,838) (20,543) (22,112)
Stockholders' deficit.......................... (3,558) (7,524) (12,525) (17,912) (97) (1,533)
</TABLE>
- ------------------------------
(1) See Note 14 of Notes to Consolidated Financial Statements for information
concerning the computation of net loss per share and pro forma net loss per
share.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Consolidated
Financial Statements and the related Notes thereto included elsewhere in this
Prospectus. The following Management's Discussion and Analysis of Financial
Condition and Results of Operations contains forward-looking statements that
involve risks and uncertainties. The Company's actual results of operations
could differ materially from those anticipated in such forward-looking
statements as a result of certain factors set forth under "Risk Factors" and
elsewhere in this Prospectus.
Background
Imagyn was formed in 1989 to advance the development of gynecological
applications of novel catheter technology licensed by the Company from Baxter
and Fogarty. In 1992, the Company commenced commercial shipments of its Ovation
systems, based on this technology, to international distributors for resale to
physicians and hospitals. During 1992 and 1993, the Company required
distributors to make substantial initial purchases of Ovation systems in lieu of
payment of distribution fees for exclusivity in specific territories. As a
result, sales in 1992 and 1993 were not representative of the actual level of
sales to physicians and hospitals in these markets. In 1994 and 1995, the
Company realigned its international distribution for the Ovation systems. This
realignment involved both a reduction in the number of distributors and the
establishment of direct sales activities through a limited number of employees
and agents in the Company's most important markets, the United Kingdom, Germany
and Australia.
In November 1992, the Company entered into an agreement with Terumo for the
sale and licensed manufacture of the Ovation systems in Japan. In connection
with the granting of the distribution and license rights under this agreement,
Terumo paid the Company distribution and license fees aggregating $2.1 million.
Based on the Company's continuing obligations under the agreement to transfer
manufacturing know-how for the Ovation systems to Terumo, the license fees of
$1.0 million have been treated as deferred income until such time as the Company
completes the transfer of the manufacturing know-how pursuant to the agreement.
The Company is required to complete such transfer by August 1997, after which
the Company will receive royalties on product sales by Terumo. During 1993 and
1994, Terumo conducted clinical trials in Japan for the purpose of supporting
regulatory and reimbursement approvals for the Ovation system. See
"Business--Strategic Marketing Alliances."
In January 1994, the Company was notified by the FDA that its PMA
application for the Ovation falloposcopy system submitted to the FDA in May 1992
was deficient in certain respects, particularly with respect to the design of
the clinical study, which was not structured as a controlled, randomized study,
and the breadth of the Company's visualization claims. The Company attempted to
address the FDA's concerns by providing a reevaluation of its clinical data;
however, the FDA did not find this analysis acceptable and, in September 1995,
the Company withdrew this PMA application.
Due in part to the regulatory concerns relating to the PMA application for
the Ovation falloposcopy system, the Board of Directors determined that the
Company needed to be repositioned to focus on the development of a broad range
of products for gynecological and reproductive disorders based on its
proprietary technology. In October 1994, Franklin D. Brown was hired as
President and Chief Executive Officer to lead the repositioning effort and to
formulate a new strategy. During 1995, the Company sought new financing to
implement this repositioning effort, including the advancement of development
efforts to broaden the Company's product line. In September 1995, the Company
completed an equity recapitalization which included a reverse 1-for-5 stock
split of all outstanding stock, the conversion of all Preferred Stock into
Common Stock, and the sale of $9.9 million of new Preferred Stock. The Company
has since received FDA approval of an IDE for a new multicenter clinical trial
for the Ovation falloposcopy system in diagnosing the presence of blocked
fallopian tubes in infertile women. This clinical study is currently underway.
In 1994, the Company commenced international commercial shipments of the
initial product in its broadened product line, the MicroLap system. By February
1995, the Company had received three FDA 510(k) clearances for the MicroLap
system, after which the Company commenced marketing the system in the United
States. The Company engaged the services of non-stocking sales representative
organizations to promote sales of the MicroLap system.
20
<PAGE>
In 1995, the Company received FDA 510(k) clearance for use of the Ovation
intrauterine insemination system and several additional 510(k) clearances for
other indications for the MicroLap system. The Company also began evaluating use
of its micro-optics and micro-access technologies in a microhysteroscopy system.
In August 1995, Terumo received Japanese regulatory approval for marketing of
the Ovation tubal recanalization system. Following this approval, Terumo
commenced planning for the 1996 commercial introduction of the Ovation tubal
recanalization system in Japan. Terumo has applied for, but has not yet
obtained, Japanese reimbursement approval.
In October 1995, the Company entered into a distribution agreement with USSC
pursuant to which USSC was granted exclusive international marketing rights for
the MicroLap system in all international markets (excluding China and India).
USSC was also granted, on a co-exclusive basis with the Company, marketing
rights to the MicroLap system in the United States. As a result of the agreement
with USSC, the Company has initiated the termination of all of its international
distributors for the MicroLap system and, in connection with these terminations,
the Company made certain payments to these distributors. In addition, the
Company reached agreement with all of its previous sales representative
organizations in the United States for the termination of their activities in
connection with the marketing of the MicroLap system and, in connection with
these agreements, made certain termination-related payments. Following execution
of the agreement with USSC, the Company began increasing its manufacturing
capacity to support USSC's introduction of the MicroLap system and, in January
1996, the Company completed training of certain USSC sales personnel.
The Company manufactures the Ovation systems and certain of its MicroLap
system products, including its proprietary microlaparoscope and micro-access
devices, at its manufacturing facilities and has only recently begun the
manufacture of these products in commercial quantities. The Company has limited
manufacturing capacity and will be required to increase both its in-house
manufacturing capability and the size of its manufacturing facilities. Although
the Company has leased the space which it will use to expand its manufacturing
facilities, there can be no assurance that the Company will be able to complete
its facility expansion, attract, train and retain the required personnel,
including personnel skilled in micro-optics assembly processes, or increase its
manufacturing capability and capacity in a timely manner. There can be no
assurance that reliable, high-volume manufacturing can be established or
maintained at commercially reasonable costs on a timely basis, or at all. If the
Company is unable to increase its in-house manufacturing capability or
successfully complete the expansion of its manufacturing facilities in a timely
manner, the Company may need to obtain alternative manufacturing facilities or
to establish contract manufacturing for its products. Delays associated with, or
inability to establish, such capacity could have a material adverse affect on
the Company's business, financial condition and results of operations. The
Company currently obtains certain components of its product systems from single
source suppliers. These components include the optic image fiber used in the
MicroLap, a similar version of which will also be used in the MicroSpan, and the
medical video camera and light source used in connection with the Ovation tubal
recanalization system. There can be no assurance that the Company will not
encounter future component shortages or other disruptions in supply of
materials. Delays associated with any future raw materials or component
shortages could have a material adverse effect on the Company's business,
financial condition and results of operations, particularly as the Company
scales up its manufacturing activities.
Future revenues and results of operations may fluctuate significantly from
quarter to quarter and will depend upon, among other factors, the extent to
which the Company's products gain market acceptance, the timing and volume of
orders from USSC, Terumo, other international distributors and the Company's
other customers, actions relating to regulatory and reimbursement matters,
progress of clinical trials, introduction of alternative means for
microlaparoscopy, microhysteroscopy and fallopian tube visualization by
competitors of the Company, pricing of competitive products, the cost and effect
of promotional discounts and marketing programs in which the Company may be
required to engage and the absence of a backlog of orders. Results of operations
will also depend upon the amount of royalties payable under the license from
Baxter and Fogarty relating to the linear everting catheter technology used in
the Ovation systems. The Company has a limited history of operations and has
experienced significant operating losses since inception. Operating losses are
expected to continue for at least the next two years as the Company continues to
expend substantial resources to expand its marketing and sales activities in the
United States, fund clinical trials in support of regulatory and reimbursement
approvals, and fund research and development and the introduction of new
products.
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Results of Operations
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
NET SALES. Net sales for the three months ended March 31, 1996 increased to
$1.5 million from $335,000 for the three months ended March 31, 1995. The
increase was primarily the result of MicroLap system sales to USSC. There were
no sales to USSC during the three months ended March 31, 1995. For the three
months ended March 31, 1996, 7% of the Company's sales were to international
customers; for the three months ended March 31, 1995, 91% of the Company's sales
were to international customers. The decrease in the percentage of the Company's
sales to international customers is primarily the result of the increase in
United States sales and the termination of the Company's international
distributors for the MicroLap system. The Company records all sales to USSC as
domestic sales; however, sales of the Company's products by USSC are expected to
include sales to international customers made through Autosuture, Inc., a
subsidiary of USSC.
COST OF SALES. Cost of sales for the three months ended March 31, 1996
increased to $1.2 million from $265,000 for the three months ended March 31,
1995. The increase was attributable to the increase in sales as well as costs
associated with increased manufacturing support expenditures. Cost of sales
during the three months ended March 31, 1996 also included non-recurring
production costs and inefficiencies associated with the rapid increase and
expansion of production operations at the Company's current manufacturing
facilities. As a result of these costs and expenditures, the Company believes
that gross profit margins for the three months ended March 31, 1996 were not
representative of the gross profit margins that would be anticipated by the
Company at similar sales levels.
SALES AND MARKETING. Sales and marketing expenses for the three months
ended March 31, 1996 increased to $746,000 from $459,000 for the three months
ended March 31, 1995. The increase was primarily associated with the increase in
the number of the Company's marketing and sales personnel and in customer
support expenses.
RESEARCH AND DEVELOPMENT. Research and development expenses for the three
months ended March 31, 1996 increased to $740,000 from $403,000 for the three
months ended March 31, 1995. This increase was attributable to increased
expenditures for product development and enhancements and costs associated with
clinical trials of the Ovation falloposcopy system in the United States.
GENERAL AND ADMINISTRATIVE. General and administrative expenses for the
three months ended March 31, 1996 increased to $446,000 from $274,000 for the
three months ended March 31, 1995. The increase was primarily associated with
the hiring of additional personnel and the amortization of non-cash deferred
compensation charges associated with grants of stock options to employees. There
was no amortization of deferred compensation charges during the three months
ended March 31, 1995.
INTEREST INCOME (EXPENSE), NET. Net interest income for the three months
ended March 31, 1996 increased to $120,000 from $16,000 for the three months
ended March 31, 1995. This increase was attributable to interest earned on
higher cash balances held by the Company during the three months ended March 31,
1996.
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NET SALES. Net sales for the year ended December 31, 1995 increased to $2.2
million from $1.0 million for the year ended December 31, 1994. The increase was
primarily the result of the commencement of sales in the United States in 1995
of the MicroLap system, increase of sales of the MicroLap systems in
international markets and the initial sales of the Company's Ovation systems to
Terumo. In 1995, sales to Terumo were approximately 25% of the Company's total
sales. These sales included products purchased by Terumo in anticipation of
their 1996 commercial introduction in Japan. Sales to USSC in 1995 were
approximately 11% of the Company's total sales. In 1995, 72% of the Company's
sales were to international customers; in 1994, virtually all of the Company's
sales were to international customers. Net sales for the year ended December 31,
1994 of $1.0 million were approximately equal to the $1.0 million for the year
ended December 31, 1993, primarily due to the substantial purchases of the
Company's products made by international distributors in 1993.
COST OF SALES. Cost of sales increased to $1.8 million for the year ended
December 31, 1995 from $1.3 million for the year ended December 31, 1994. The
increase was attributable to the increase in the volume of sales of the
Company's products as well as to costs associated with the hiring of ten
additional manufacturing personnel, expansion of manufacturing and assembly
operations and engineering and manufacturing support functions. Cost of
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sales for the year ended December 31, 1994 increased to $1.3 million from $1.0
million for the year ended December 31, 1993, primarily as the result of
$298,000 in reserves for inventory obsolescence. Cost of sales for the years
ended December 31, 1995, 1994 and 1993 included $225,000, $298,000 and $0,
respectively, in reserves for inventory obsolescence.
SALES AND MARKETING. Sales and marketing expenses increased to $3.3 million
for the year ended December 31, 1995 from $2.3 million for the year ended
December 31, 1994. The increase was primarily due to sales and marketing
expenses associated with the introduction of the Company's MicroLap products in
the United States, including expenses of $418,000 associated with termination of
international distributors and United States sales representatives for the
MicroLap system in connection with the USSC agreement. Sales and marketing
expenses of $2.3 million for the year ended December 31, 1994 were approximately
equal to the $2.4 million for the year ended December 31, 1993.
RESEARCH AND DEVELOPMENT. Research and development ("R&D") expenses, which
include clinical and regulatory expenses, of $1.8 million for the year ended
December 31, 1995 were approximately equal to the $1.8 million for the year
ended December 31, 1994. R&D expenses of $1.8 million for the year ended
December 31, 1994 were approximately equal to the $1.9 million for the year
ended December 31, 1993. The Company anticipates that R&D expenditures will
increase in the next several years to support development of new products,
clinical trials of the Ovation falloposcopy system under the Company's recently
approved IDE and other clinical and regulatory activities.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
to $1.3 million for the year ended December 31, 1995 from $1.1 million for the
year ended December 31, 1994. The increase was primarily the result of the
amortization of non-cash deferred compensation charges associated with grants of
stock options to employees. General and administrative expenses increased to
$1.1 million for the year ended December 31, 1994 from $904,000 for the year
ended December 31, 1993. This increase primarily resulted from expenses
associated with recruiting and hiring a new Chief Executive Officer.
OTHER OPERATING INCOME. Other operating income of $3.5 million for the year
ended December 31, 1995 resulted from nonrecurring payments in connection with
various marketing rights for certain products. There was no such income for the
years ended December 31, 1994 and 1993.
INTEREST INCOME (EXPENSE), NET. Net interest expense was $217,000 for the
year ended December 31, 1995, as compared to interest income of $175,000 for the
year ended December 31, 1994. The interest expense was primarily attributable to
interest incurred by the Company on short term notes payable issued and
converted into Preferred Stock in 1995. Interest income (expense), net decreased
to $175,000 for the year ended December 31, 1994 from $337,000 for the year
ended December 31, 1993. The decrease was attributable to the reduction of
Company's cash balances and interest earned thereon.
Income Taxes
The Company has not generated any taxable income to date and therefore has
not paid any federal income taxes since its inception. The Company accounts for
income taxes under Statement of Financial Accounting Standards No. 109 ("FAS
109"). Realization of deferred tax assets is dependent on future earnings, if
any, the timing and amount of which are uncertain. Accordingly, valuation
allowances, in amounts equal to the net deferred tax assets as of December 31,
1995 and 1994, have been established in each period to reflect these
uncertainties.
At December 31, 1995, the Company had federal and state net operating loss
carryforwards of $12.4 million and $5.9 million, respectively, and federal and
state research and experimentation credit carryforwards of $560,000 and
$220,000, respectively, that will expire at various dates beginning in 1997
through 2010, if not utilized. Utilization of net operating loss and tax credit
carryforwards will be subject to a substantial annual limitation due to the
ownership change limitations of the Internal Revenue Code of 1986, as amended,
and similar state provisions. The annual limitation is likely to result in the
expiration of most of the Company's net operating loss and tax credit
carryforwards before full utilization as a result of the September 1995
recapitalization.
Liquidity and Capital Resources
Since inception, the Company's expenses have significantly exceeded its net
sales, resulting in an accumulated deficit of $22.1 million as of March 31,
1996. The Company has funded its operations since incorporation primarily
through the private placement of equity securities and other operating income.
Through March 31, 1996, the
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Company had raised $30.3 million from the private placement of equity
securities, of which $9.9 million was raised in the Company's September 1995
recapitalization. Through March 31, 1996, the Company had received $5.6 million
in fees relating to two distribution agreements.
At March 31, 1996, the Company's principal source of liquidity consisted of
cash, cash equivalents and short-term investments of $7.8 million. Cash used in
the Company's operations increased to $1.5 million for the three months ended
March 31, 1996 from $1.2 million for the three months ended March 31, 1995. This
increase was primarily due to an increase in accounts receivable for the period.
Cash used in the Company's operations decreased to $2.2 million for the year
ended December 31, 1995 from $5.1 million for the year ended December 31, 1994.
This decrease was due to the receipt of $3.5 million of other operating income
in 1995, which was offset by increased sales and marketing expenses and
increased working capital requirements. The Company's capital expenditures
during the year ended December 31, 1995 and the three months ended March 31,
1996 were $163,000 and $92,000, respectively. The Company anticipates that
capital expenditures will increase in 1996 due to expansion of manufacturing
operations and facilities. The Company intends to finance its capital needs
principally from the net proceeds of this Offering and interest thereon, and its
existing capital resources. The Company has not sought to obtain any credit
facilities to provide additional working capital.
Imagyn believes that the anticipated net proceeds from this Offering
together with interest thereon and the Company's existing capital resources will
be sufficient to fund its operations through 1997. However, the Company's future
liquidity and capital requirements will depend on numerous factors, including
the extent to which the Company's products gain market acceptance, actions
relating to regulatory and reimbursement matters, progress of clinical trials,
introduction of alternative means for microlaparoscopy, microhysteroscopy and
fallopian tube visualization by competitors of the Company, pricing of
competitive products, the cost and effect of promotional discounts and marketing
programs in which the Company may be required to engage and the resources that
the Company devotes to marketing, manufacturing and developing its products. The
Company's capital requirements will also depend on, among other things, the
resources required to hire and develop a direct sales force in the United States
and the resources required to expand manufacturing capacity and facilities
requirements. Accordingly, there can be no assurance that the Company will not
require additional financing within this time frame. There can be no assurance
that additional funding, if needed, will be available on terms satisfactory to
the Company, or at all. Any additional equity financing may be dilutive to
stockholders, and debt financing, if available, may involve restrictive
covenants. Failure to raise capital when needed could have a material adverse
affect on the business, financial condition and results of operations of the
Company.
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BUSINESS
Imagyn designs, develops and markets micro-invasive, cost-effective devices
for diagnosis and treatment of gynecological and reproductive disorders. The
Company's proprietary technology platform based on micro-optics and micro-access
devices provides physicians with the ability to atraumatically access and
visualize the abdominal cavity, the uterus and the fallopian tubes. Imagyn's
proprietary micro-optics enable physicians to visualize a patient's internal
anatomy with the resolution and light efficiency of larger, more invasive
devices commonly used today. Imagyn's proprietary, disposable micro-access
devices enable physicians to perform certain procedures outside the hospital
without the need for general anesthesia. The Company's principal product systems
based on these core technologies are the MicroLap microlaparoscopy system, the
MicroSpan microhysteroscopy system and the Ovation systems for infertility
indications. Compared to traditional procedures, the Company's product systems
facilitate earlier definitive diagnosis and treatment, significantly lower the
procedure cost associated with more invasive surgery and reduce patient
discomfort, recovery time and morbidity. To date, the Company has sold over 850
MicroLap microlaparoscopes and over 6,000 Ovation catheters. An additional
approximately 150 MicroLap microlaparoscopes have been shipped to distributors
for use as demonstration units in connection with the introduction of the
MicroLap system, and an additional approximately 2,000 Ovation catheters have
been shipped for use in connection with clinical studies and product
evaluations.
Imagyn's diagnostic and operative micro-invasive product systems address a
broad continuum of gynecological and reproductive disorders affecting a large
number of women, including pelvic pain, uterine disorders and infertility, and
provide a less invasive procedure for tubal sterilization. Because of the high
incidence of these disorders and the popularity of tubal sterilization as a
contraceptive method, large markets exist for devices that treat such disorders
and that facilitate tubal sterilization. First, pelvic pain affects
approximately 6 million women in the United States and can be caused by a number
of serious conditions, including endometriosis, adhesions and pelvic
inflammatory disease. Second, uterine disorders affect approximately 25 million
women in the United States and may lead to significant complications including
uterine bleeding, acute pain and infertility. Third, infertility is an
increasingly common and often emotionally traumatic condition which affects
approximately 5 million women in the United States. Finally, tubal sterilization
is chosen as a permanent contraceptive method by approximately 800,000 women
annually in the United States. Despite the large size of these markets, there
can be no assurance that the Company's product systems will be accepted and will
compete effectively in any of these markets. Market acceptance of the Company's
product systems will be dependent upon, among other things, physicians'
determinations that the Company's product systems and the procedures in which
they are intended to be used are safe and effective alternatives to current
hospital-based procedures and demonstrate clinical utility, and can be used in a
cost-effective manner.
The Company's product systems enable physicians to access and visualize all
of the organs of a woman's reproductive system outside the hospital without the
need for general anesthesia. The MicroLap system, which enables the physician to
access the abdominal cavity without the need for post-operative sutures,
includes a 2 millimeter-diameter microlaparoscope with resolution and light
efficiency characteristics which the Company believes are comparable to those of
standard 10 millimeter-diameter laparoscopes. The MicroSpan system incorporates
a new, high resolution microhysteroscope and a new uterine access device to
enable the physician to atraumatically access and visualize the interior of the
uterus. The Microlap and MicroSpan systems enable physicians to access the
abdominal cavity and the uterus for treatment with the Company's microsurgical
instruments. The Ovation systems are designed to enable the physician to
atraumatically access, navigate and visualize the entire length of the fallopian
tubes. Imagyn's product systems are designed to offer significant advantages for
physicians, patients and health care payors. For physicians, Imagyn's systems
facilitate improved diagnosis and enhanced practice management. The Company
believes that the MicroLap and MicroSpan systems require limited training for
physicians familiar with standard laparoscopy and hysteroscopy techniques,
although more training will be required for use of the Ovation systems. For
patients, Imagyn's systems reduce trauma and the risk of complications and
shorten recovery times as compared to traditional, more invasive procedures. For
payors, Imagyn's systems can reduce cost, provide earlier, definitive diagnosis
and increase patient satisfaction.
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The Female Reproductive System
The female reproductive system includes the uterus, the fallopian tubes and
the ovaries. The uterus is a pear-shaped organ connected to the fallopian tubes
and to the vagina. The interior wall of the uterus consists of a layer of soft,
spongy tissue called the endometrium. The base or neck of the uterus is called
the cervix, which serves as the point of exit and entry from the vagina to the
uterus. Under normal conditions, the cervix is virtually closed (less than one
millimeter in diameter), providing a natural barrier between the vagina and the
uterus. Because the cervix is extremely sensitive, especially to any dilation,
access through the cervix into the uterine cavity for diagnostic and operative
procedures can be difficult and extremely painful.
On each side of the uterus is a fallopian tube, which extends outward toward
the ovaries. The junction of the uterus and each fallopian tube is called an
ostium. The fallopian tube is the channel through which the egg enters the
uterus during the monthly menstrual cycle. It is also the conduit for sperm to
reach the egg and is the site where fertilization occurs. Fallopian tubes are
long and narrow, contain many folds, and are fragile and delicate. The fallopian
tubes are lined with epithelial cells whose ciliary motion assists the sperm and
egg in their migration. Each fallopian tube is 7-14 centimeters long and only
1-3 millimeters in diameter. The fallopian tubes may become blocked or diseased,
preventing conception.
The diagram below depicts the principal elements of the female reproductive
system.
[Diagram of Female Reproductive System]
Disorders of the female reproductive system include pelvic pain and related
disorders, uterine disorders and infertility.
Pelvic Pain and Related Disorders
The prevalence of pelvic pain in women is widespread, with approximately 7
million outpatient gynecology visits annually in the United States related to
symptoms of pelvic pain. Pelvic pain can often be intense and persistent and can
severely impair a woman's health and lifestyle. It is often difficult to
accurately isolate the location and diagnose the cause of discomfort since many
women with pelvic pain may suffer from several disorders or multiple disease
sites. For example, scar tissue from infection or prior surgery may mask
endometrial lesions which may lead a physician to an inaccurate or incomplete
diagnosis. Pelvic pain, in both acute and chronic forms, can be caused by a
number of serious conditions including endometriosis, adhesions and pelvic
inflammatory disease.
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Endometriosis, a common cause of pelvic pain and also a significant factor
contributing to infertility, is a disorder in which abnormal growths of
endometrial tissue are present outside of the uterus. Endometrial lesions are
usually found on the reproductive organs and adjacent tissues in the pelvic
cavity. It is estimated that 5 million women suffer from endometriosis in the
United States. Endometriosis is one of the most common gynecological causes for
hospitalization of women of reproductive age.
Scar tissue, or pelvic adhesions, which can form as a result of
endometriosis, infection, prior surgery, hemorrhage or tissue injury, is another
common cause of pelvic pain. Pelvic adhesions form in the healing process of
more than half of abdominal surgeries. Early intervention after surgery has been
demonstrated to reduce the risk of formation of dense, permanent adhesions.
Pelvic adhesions can also lead to serious long-term complications such as
infertility and intestinal obstruction. Post-operative adhesions may affect up
to 2 million women in the United States.
Pelvic inflammatory disease, another common cause of pelvic pain, is a
genital tract infection that is often a complication of sexually transmitted
diseases. It can cause scarring of the fallopian tubes as the infection ascends
into the uterus and tubal structures. In its most serious form, it can lead to
infertility and ectopic (tubal) pregnancy, a life-threatening condition. It is
estimated that pelvic inflammatory disease affects more than 1 million women
each year in the United States.
CURRENT DIAGNOSIS AND TREATMENT
Diagnosis and identification of the cause or causes of pelvic pain is
difficult. Since there are currently no accurate non-invasive diagnostic tests
available, visual inspection of the abdomen and pelvic cavity by means of
laparoscopic surgery is the current method of choice for diagnosing pelvic pain.
In a traditional laparoscopic surgery procedure, the patient is typically placed
under general anesthesia. In order to create a space between the abdominal wall
and the internal organs to facilitate the insertion of instruments, the
patient's abdomen is insufflated, or inflated, with a significant quantity of
carbon dioxide gas delivered through a specialized needle, known as a Veress
needle. After the patient is properly insufflated, two to three punctures, each
of which can be up to 10 millimeters in diameter, are made with a sharp,
spike-like device called a trocar. A cannula, a hollow, sleeve-like device, is
then placed in the puncture opening. A laparoscope is placed into the abdomen
through one of the cannulas to enable the gynecologist to view the outer
surfaces of the patient's internal organs. Surgical instruments can be inserted
through cannulas placed at the other trocar puncture sites. Following the
procedure, the trocar sites must be closed with sutures and the patient may
require significant recovery time due to the effects of the puncture wounds, gas
insufflation and general anesthesia. Approximately 1 million laparoscopic
surgeries are performed annually by gynecologists in the United States.
During a traditional laparoscopic surgery procedure, the physician examines
the internal abdominal organs in an attempt to locate abnormalities which may be
causing pelvic pain. The physician may also use surgical instruments inserted
into the abdomen to treat some abnormalities, such as by removing adhesions, or
to biopsy (remove a sample of) tissue for subsequent laboratory evaluation. The
administration of general anesthesia during the procedure complicates the
determination of the exact cause of pelvic pain because the anesthetized patient
is unable to provide any feedback to the physician.
THE IMAGYN MICROLAP SYSTEM FOR PELVIC PAIN
Imagyn's proprietary MicroLap system is designed to enable the physician to
perform laparoscopic procedures outside the hospital. The MicroLap system
includes the proprietary MicroLap microlaparoscope, a specialized disposable
introducer for placement of the microlaparoscope into the abdomen and a broad
line of microsurgical instruments. The 2 millimeter-diameter MicroLap has
resolution and light efficiency characteristics which the Company believes are
comparable to those of standard 10 millimeter-diameter laparoscopes. The
MicroLap is attached to a light source and medical video camera, allowing the
physician to visually examine the interior of the pelvic cavity in a manner
similar to that of traditional laparoscopic procedures.
In contrast to the traditional laparoscopic surgery procedure, the patient
in a microlaparoscopic procedure is not placed under general anesthesia.
Instead, sedation and local analgesic protocols are used to achieve a level of
sedation commonly termed "conscious sedation." An introducer is inserted into
the patient's abdomen, carrying the Veress needle and providing access to the
abdominal cavity. The patient's abdomen is then partially insufflated to
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permit visualization and the insertion of instruments, but with a much smaller
quantity of carbon dioxide gas than is required in traditional laparoscopy.
After the patient is properly insufflated, the Veress needle is withdrawn and
the introducer is kept in place, providing access to the abdominal cavity
without the need for trocar punctures. The MicroLap is then inserted through the
introducer into the abdomen, allowing the physician to visually examine the
abdominal organs, in a manner similar to traditional laparoscopy. The small size
of the MicroLap requires only the very small puncture created by the introducer
to insert the MicroLap into the abdomen. Additional introducer sites may be
created for the insertion of microsurgical instruments. Sutures are not required
to close these small puncture sites, significantly reducing post-surgical
complications due to bleeding and pain at the puncture sites. This combination
of very small diameter puncture sites and the reduced requirement for gas
insufflation enables microlaparoscopic procedures to be performed using the
MicroLap system under conscious sedation rather than general anesthesia. Using
conscious sedation and the MicroLap system, physicians have been able to perform
a wide variety of diagnostic and operative procedures in a surgery center,
office or clinic at a significantly reduced cost and with less patient
discomfort and a typical recovery time of approximately one day.
Additionally, because microlaparoscopy does not require general anesthesia,
the MicroLap system has enabled the development of "conscious pain mapping," a
new diagnostic method for pinpointing the cause of pelvic pain which is
performed while the patient is awake. Through the use of microlaparoscopy and
regional anesthesia, the physician systematically probes the inside of the
woman's pelvis to identify the exact source and location of the pain with the
assistance of feedback from the patient. The Company believes that "conscious
pain mapping" procedures using the MicroLap will significantly improve the
diagnosis and treatment of pelvic pain.
Studies indicate that diagnostic laparoscopy procedures performed using the
MicroLap system cost approximately $1,250, as compared to the approximately
$5,000 to $7,000 cost of a traditional hospital-based laparoscopic procedure
performed under general anesthesia.
Uterine Disorders
The uterus is prone to a number of common disorders including fibroids and
polyps, as well as endometrial cancer, each of which can lead to serious
complications including abnormal uterine bleeding, significant pain and
infertility. Women may experience one or more of these disorders at the same
time. Industry sources estimate that approximately 9% to 14% of menstruating
women experience abnormal uterine bleeding that prompts them to seek medical
attention at some time in their lives. In 1995, there were approximately 13
million visits to gynecologists for abnormal uterine bleeding in the United
States.
Fibroids, or benign muscular tumors, are among the most common causes of
abnormal uterine bleeding. Fibroids usually grow during the reproductive years
and can produce a variety of problems including hemorrhage, pain and
infertility. Although not all of the approximately 15 million women in the
United States suffering from fibroids are symptomatic, it is estimated that 35%
to 50% of all women with fibroids have symptoms that are serious enough to lead
them to seek medical attention.
Polyps, benign fingerlike protrusions of tissue extending into the uterine
cavity, are also a common cause of abnormal uterine bleeding. Approximately 13
million women in the United States develop uterine polyps during their lifetime,
and approximately 25% of these women require medical attention.
Endometrial cancer may also present initially as abnormal uterine bleeding,
particularly in women over the age of 50. Approximately 31,000 new cases of
endometrial cancer were reported in the United States in 1994. Early and
accurate diagnosis is critically important because endometrial cancer can often
be cured if detected and treated at an early stage; however, if undetected and
untreated, endometrial cancer can lead to serious complications or death.
CURRENT DIAGNOSIS AND TREATMENT
Definitive diagnosis of uterine disorders requires direct visual inspection
of the uterine cavity and tissue biopsy of suspicious areas. The standard
procedures for collecting an adequate biopsy sample of uterine tissue for
diagnosis are dilitation and curettage ("D&C") and hysteroscopy. D&C is a blind
procedure in which the physician dilates the cervix, places a surgical scraping
device, known as a curette, into the uterus and scrapes the uterine lining to
remove tissue for examination by a pathologist. Because D&C is performed without
visual guidance, it is difficult for the physician to sample the entire uterine
lining and, as a result, significant abnormalities may be missed. It is
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estimated that, in most cases, approximately half of the uterine cavity is
actually sampled and as many as 30% of lesions may be missed. D&C is usually
performed in a hospital under intravenous sedation or general anesthesia. The
procedure can lead to a number of serious complications including hemorrhage,
infection and perforation and scarring of the uterus. An estimated 500,000
diagnostic D&C procedures are performed annually in the United States.
The need to visualize the uterus for accurate diagnosis of uterine disorders
led to the development of hysteroscopy. In traditional hysteroscopy, the
physician dilates the patient's cervix and inserts a device known as a
hysteroscope through the cervix into the uterus. The hysteroscope is attached to
a light source and camera allowing the physician to visually examine the uterine
lining. The physician can also introduce surgical instruments through the cervix
to selectively sample or remove suspicious lesions. Introducer sheaths used in
current hysteroscopy procedures, which accommodate both the hysteroscope and
surgical instruments, range in size from approximately 5 to 7 millimeters. The
cervical dilation necessitated by the diameter of these devices can result in
significant pain and discomfort for the patient. Hysteroscopy has historically
been performed in the hospital under general anesthesia. Industry sources
estimate that approximately 500,000 hysteroscopic procedures are performed
annually in the United States.
Current treatments for uterine disorders include various drug therapies and
surgical approaches. Treatment of uterine bleeding usually begins with drug
therapy and, if necessary, proceeds to more invasive surgical methods. Current
surgical procedures for abnormal uterine bleeding include D&C, hysterectomy,
myomectomy (fibroid removal by open surgery), endometrial resection, and
endometrial ablation (coagulation of the endometrium).
THE IMAGYN MICROSPAN SYSTEM FOR UTERINE DISORDERS
Imagyn's diagnostic and operative MicroSpan microhysteroscopy system is
designed specifically for use outside the hospital. The Company's new
proprietary uterine access device enables the physician to atraumatically access
the uterus without the need for cervical dilation. Once positioned, the
micro-access device, with its very low profile, will permit the simultaneous use
of the microhysteroscope and the Company's specialty diagnostic and operative
microsurgical instruments.
Without the need for painful dilation of the cervix prior to insertion of
the device, the patient can remain comfortable with only local anesthesia.
Microhysteroscopy can be performed in a low-stress environment such as the
physician's office and the patient will typically require only a short
post-operative recovery period, in some cases as little as 30 minutes. Patients
can usually resume normal activities by the following day.
For the physician, the MicroSpan system reduces the amount of time required
for procedures and provides the flexibility to perform both diagnostic and
operative procedures in the office. The MicroSpan system provides high
resolution and light efficiency comparable to traditional, large diameter
hysteroscopes. The design of the Company's proprietary micro-access device will
enable the physician to use surgical instruments of the same diameter used in
standard hysteroscopy procedures for effective tissue sampling and removal of
many uterine lesions including adhesions, polyps and small fibroids. The ability
to use such effective surgical instruments in conjunction with the
microhysteroscope will allow physicians to treat many uterine disorders with
accurate micro-invasive procedures, thus reducing the need for more invasive
surgical procedures.
Industry sources estimate that the cost of a D&C procedure under general
anesthesia is approximately $2,400 to $3,000. The Company estimates that the
cost of a standard hysteroscopy procedure under general anesthesia is
approximately $2,600 to $3,500 and that an office-based microhysteroscopy
procedure will cost approximately $650 to $1,000.
Infertility
Infertility is one of the most common and emotionally traumatic of
reproductive disorders. Female infertility appears to be increasing because of
both the increase in diseases which damage the fallopian tubes and the
increasing tendency of women to defer childbearing until later in life when
fertility begins to decline naturally. In general, couples who have not
conceived after one year of unprotected intercourse are considered infertile. In
the United States, recent government data estimates that approximately 5 million
women of child-bearing age suffer
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from an impaired ability to have children. Despite the limited availability of
reimbursement for infertility diagnosis and assisted reproductive procedures
such as intrauterine insemination and in-vitro fertilization, approximately $2
billion is spent on the treatment of infertility annually in the United States.
The causes of infertility can be complex and are often difficult to
identify. A recent study indicates that abnormalities of the fallopian tubes are
responsible for 30% to 50% of infertility cases. The fallopian tubes are the
sites where fertilization occurs and at least one fallopian tube must be open to
permit the passage of sperm to provide fertilization of the egg and enable the
fertilized egg to pass to the uterus. The fallopian tubes are very narrow and
tortuous, delicate and difficult to access. As a result, they do not lend
themselves to easy study and treatment. Current non-surgical techniques for
diagnosing and treating fallopian tube disorders often do not adequately or
accurately delineate the nature, extent and location of tubal pathology.
CURRENT DIAGNOSIS AND TREATMENT
Currently, there are two diagnostic procedures utilized by physicians to
determine whether the fallopian tubes are patent (open) or occluded. The most
commonly performed diagnostic procedure is hysterosalpingography ("HSG"), which
involves the high-pressure injection of an x-ray contrast medium (or dye)
transcervically into the uterus to allow the physician to observe and evaluate
the flow of dye through the fallopian tubes under x-ray fluoroscopy. This
procedure is often painful, primarily due to the high-pressure injection
process, and is also highly inaccurate, with as many as 25% of HSG cases being
inaccurately classified as blocked (false positive). Nevertheless, due in part
to the absence of more accurate, non-invasive diagnostic techniques, over
200,000 HSGs are performed annually in the United States.
Due to the frequent inaccuracy of HSG, in the event that an HSG indicates a
blockage of the fallopian tube, the physician will likely perform an additional
procedure, known as laparoscopic chromopertubation. This procedure is similar to
HSG, but involves the use of a laparoscope surgically positioned in the abdomen
to observe the flow of transcervically-injected dye through the fallopian tubes.
This procedure has a lower rate (12%) of false positive diagnoses of tubal
blockage, but involves the potential complications associated with the more
invasive laparoscopic surgical procedure. The Company estimates that there are
approximately 180,000 chromopertubations performed annually in the United
States.
Although HSG and laparoscopic chromopertubation can provide some diagnostic
information regarding the patency of fallopian tubes, these procedures do not
provide any information regarding the health of the interior of the fallopian
tubes, which can be a significant factor contributing to infertility. Recently,
a procedure known as falloposcopy has been developed, in which a catheter device
containing a visualization scope is inserted through the cervix into the
fallopian tubes to enable the physician to visualize the interior of the
fallopian tube. One such system uses a guidewire-based catheter device in
conjunction with other procedures, such as laparoscopy, hysteroscopy or
ultrasound, to assist in guiding the catheter into and through the fallopian
tubes. Because falloposcopy enables the physician to visualize the interior of
the fallopian tube and assess its health, use of falloposcopy can enable
physicians to make more informed recommendations to patients regarding the next
course of action. Such courses of action could include tubal surgery, assisted
reproductive techniques such as in-vitro fertilization or further attempts at
natural conception.
Several surgical approaches are currently used to address infertility. These
procedures include laparotomy, or open abdominal surgery, and laparoscopic
surgery. Both of these procedures are performed in the hospital under general
anesthesia and, as a result, involve several risks, including infection. In
addition, the recovery period is long, extending to many weeks for patients
undergoing laparotomy. Furthermore, the effectiveness of these procedures is
limited as pregnancy is achieved in only approximately 20% to 25% of surgical
cases. As a result of the invasiveness and limited efficacy of these procedures,
few such procedures are performed in the United States and there is no
well-accepted method for opening blocked fallopian tubes.
Consequently, rather than undergo tubal surgery, many patients attempt
in-vitro fertilization. In-vitro fertilization involves drug-induced
superovulation, harvesting of multiple eggs through an aspiration needle
inserted into the ovary and fertilization of the harvested eggs with semen in a
laboratory test-tube fertilization procedure. Embryos are then transferred into
the uterus using a catheter placed through the cervix. In-vitro fertilization is
costly, with a single harvest and transfer, known as a cycle, costing an average
of $7,800, and is generally not
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reimbursed by third-party payors. Furthermore, many patients undergo multiple
cycles. The drugs administered to induce superovulation are powerful and can
have significant side effects. Finally, the success rates for in-vitro
fertilization are low. However, notwithstanding the cost, lack of reimbursement,
need to administer powerful drugs and limited efficacy, approximately 38,000
in-vitro fertilization procedures are performed annually in the United States.
THE IMAGYN OVATION SYSTEMS
Imagyn's Ovation falloposcopy system and Ovation tubal recanalization system
are designed to enable the physician to access, navigate and view the entire
length of the fallopian tube using a flexible catheter and small scope. Unlike
HSG and chromopertubation, the Ovation falloposcopy system enables the physician
to view and accurately evaluate the patency and overall health of the interior
of the fallopian tube. Due to the unique self-steering characteristics of the
Ovation falloposcopy and tubal recanalization systems, visual guidance with
hysteroscopy or ultrasound, which is required with other falloposcopy systems,
is not required nor is there the need for concurrent laparoscopic manipulation
of the fallopian tube. The Ovation falloposcopy system has been specifically
designed to facilitate fallopian tube diagnosis in the physician's office. Over
6,000 Ovation catheters have been sold by the Company.
The Ovation tubal recanalization system has been shown in a controlled,
multi-center clinical trial in Japan to unblock occluded fallopian tubes. The
Company has received approval from the Japanese Ministry of Health and Welfare
to market the Ovation tubal recanalization system for fallopian tube
recanalization.
The Company has developed a modified version of the Ovation system for use
in intrauterine insemination ("IUI"), a procedure in which sperm are introduced
into the uterine cavity. The Ovation IUI system permits the traversal of the
cervix for the purpose of delivering sperm into the uterine cavity without
trauma to the delicate lining of the uterus in those cases in which the cervix
is very narrow and difficult to access.
Tubal Sterilization
Tubal ligation, a procedure for fallopian tube sterilization, involves
surgically cutting and cauterizing the fallopian tubes. Tubal ligation is chosen
as a permanent contraceptive method by approximately 800,000 women annually in
the United States.
CURRENT TUBAL LIGATION PROCEDURE
Tubal ligation is most commonly performed in the hospital, under general
anesthesia, by means of traditional laparoscopic surgery in which surgical
devices are used to isolate and close the fallopian tube. Current tubal ligation
procedures require multiple large trocar punctures which must be sutured closed
at the conclusion of the procedure, gas insufflation to inflate the pelvic
cavity and general anesthesia. Patients are subjected to pain associated with
the trocar punctures and gas insufflation as well as the risks and possible
complications associated with general anesthesia.
THE IMAGYN MICROLAP SYSTEM FOR TUBAL STERILIZATION
The MicroLap system enables physicians to visualize the performance of tubal
sterilization outside the hospital under conscious sedation, reducing procedure
time and cost, as well as recovery time and patient discomfort. A recently
published study has indicated that office-based tubal ligation can reduce the
cost of the procedure to approximately $1,000, as compared to the approximately
$6,000 to $8,000 cost of a hospital-based tubal ligation procedure.
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Advantages of Imagyn's Product Systems
Imagyn's product systems enable the micro-invasive diagnosis and treatment
of a broad continuum of gynecological and reproductive disorders outside the
hospital, thereby reducing the cost, trauma and complications associated with
operating room procedures. Imagyn's product systems have been designed to meet
the needs of physicians, patients and payors.
ADDRESSING THE NEEDS OF PHYSICIANS
- Improved diagnosis. Imagyn's product systems provide physicians with the
necessary visualization and access to facilitate more accurate diagnosis
of gynecological and reproductive disorders. For example, the Ovation
falloposcopy system is designed to allow physicians to view and accurately
evaluate the patency and overall health of the interior of the fallopian
tubes.
- Minimal training threshold. Imagyn believes that the MicroLap and
MicroSpan product systems require only minimal training for physicians.
For example, physicians using the MicroLap will employ the same procedural
techniques as are used in traditional laparoscopy. Because falloposcopy is
a relatively new procedure, more training will be required for use of the
Ovation falloposcopy system.
- Enhanced practice management. Imagyn's product systems are designed to be
used in the office and with reduced procedure time, resulting in increased
physicians' practice productivity. For example, the Company believes that
the procedure using the MicroLap system outside the hospital takes
one-half to one-third the time required for traditional diagnostic
laparoscopy in an operating room.
ADDRESSING THE NEEDS OF PATIENTS
- Reduced trauma. Imagyn's small profile product systems reduce access
trauma, thereby reducing pain and the number and size of puncture wounds.
For example, due to the small size of the MicroLap, only very small
punctures are required to insert it into the abdomen and sutures are not
required to close the puncture sites.
- Fewer complications. Imagyn's product systems are designed to be used
without general anesthesia, enabling patients to avoid many of the risks
and complications associated with current invasive procedures. For
example, the small diameter of the MicroSpan system eliminates the need
for dilation of the cervix so the patient will remain comfortable with
only local anesthesia, thereby avoiding complications of general
anesthesia such as allergic reaction, pneumonia, nausea, and respiratory
depression.
- Faster recovery. Imagyn's product systems generally enable patients to
return to normal activities within a 24-hour period following a procedure.
For example, a patient undergoing a MicroLap procedure can generally
resume normal activities the next day, while several days of recuperation
are often necessary for women undergoing traditional laparoscopy.
ADDRESSING THE NEEDS OF PAYORS
- Lower cost. Imagyn's product systems can deliver significant cost savings
to all payors by moving procedures from the hospital to offices, clinics
and outpatient settings, eliminating the need for general anesthesia, and
reducing the potential for costly complications. For example, the MicroLap
system has been shown to reduce costs for diagnostic laparoscopy by as
much as 80% when performed in a physician's office rather than a hospital.
- Earlier, definitive diagnosis. Imagyn's product systems facilitate
earlier, definitive diagnosis, reducing the likelihood that costly
diagnostic procedures will need to be repeated and that unnecessary
operative procedures will be performed. For example, the MicroLap system
can be used to perform "conscious pain mapping" to accurately identify the
sources of pelvic pain thereby eliminating the need for further diagnostic
or unnecessary operative procedures or expensive drug therapies.
- Higher patient satisfaction. Imagyn's product systems provide
time-efficient and micro-invasive care. The Company believes that patients
will be drawn to those providers who can reduce recovery time and risk
through the adoption of micro-invasive procedures.
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The MicroLap system, the MicroSpan system and the Ovation systems represent
new approaches for the diagnosis and treatment of gynecological and reproductive
disorders and for tubal sterilization. Market acceptance of the MicroLap system,
the MicroSpan system and the Ovation systems will be dependent upon, among other
things, physicians' determinations that the Company's product systems and the
procedures in which they are intended to be used are safe and effective
alternatives to current hospital-based procedures and demonstrate clinical
utility, and can be used in a cost-effective manner. In addition, due to the
small size of the Company's micro-access devices, the Company's product systems
are generally not appropriate for use in procedures which involve the removal of
substantial amounts of tissue or organs, such as the laparoscopic removal of the
gall bladder. In addition, procedures using the Company's product systems should
be avoided with patients who have a heightened risk of uncontrollable bleeding,
are pregnant, have advanced cardiovascular disease or are excessively obese.
Product Systems
The following table summarizes the portfolio of Imagyn's current product
systems:
<TABLE>
<CAPTION>
Regulatory Status U.S. Marketing Status Int'l Marketing Status
--------------------------- --------------------------- ---------------------------
<S> <C> <C> <C>
MICROLAP SYSTEM
- -Microlaparoscope 510(k) clearance for Imagyn currently marketing Product launch by USSC in
- -Disposable introducer microlaparoscope, product Europe in Q2 1996
- -Microsurgical instruments introducer and Product launch by USSC in Product launch by USSC in
microsurgical instruments Q1 1996 other markets in Q3 and Q4
for diagnostic and/or 1996
operative use, including
for pelvic pain; tubal
sterilization; diagnosis of
endometriosis, pelvic
inflammatory disease, small
pelvic tumors; infertility
workup; evaluation of
ovarian pathology and
additional indications
MICROSPAN SYSTEM
- -Microhysteroscope 510(k) clearance Imagyn to launch following Imagyn anticipates launch
- -Disposable micro-access applications submitted in 510(k) clearance in Q4 1996
devices April 1996
- -Microsurgical instruments
OVATION SYSTEMS
Falloposcopy
- -Linear everting catheter IDE approval for PMA application to be Direct and distributor
- -Falloposcope falloposcopy in U.S. submitted sales in Europe and
- -Irrigation pump Clinical trials commenced Australia
in January 1996
Tubal Recanalization
- -Linear everting catheter Japanese approval received Imagyn does not currently Japanese market
- -Falloposcope intend to market for this introduction by Terumo in
- -Irrigation pump indication in U.S. Q1 1996
Intrauterine Insemination
- -Linear everting catheter 510(k) clearance received Imagyn anticipates launch Imagyn anticipates launch
- -Transfer catheter in Q4 1996 in Q4 1996
</TABLE>
MICROLAP SYSTEM
The MicroLap system includes a proprietary microlaparoscope, the MicroLap,
disposable introducers (for placement of the MicroLap and microsurgical
instruments into the abdomen) and a broad line of microsurgical instruments for
use with the system. The MicroLap is a reusable laparoscope which, at slightly
less than 2 millimeters in diameter, is 80% smaller than conventional 10
millimeter-diameter laparoscopes. The Company's
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proprietary micro-optics technology has enabled the development of
small-diameter laparoscopes having resolution and light efficiency
characteristics which the Company believes are comparable to those of
conventional laparoscopes of much larger diameter. By combining unique
micro-lens design with fused image fiber bundle technology, the Company has
achieved up to five times the illumination and up to three times the resolution
of similar sized microlaparoscopes. Additionally, the Company's optics design
provides consistent and uniform edge-to-edge focus. Despite its small size, the
MicroLap is as durable as traditional rod or fixed lens laparoscopes due to its
fiber optic construction. The MicroLap is designed to be utilized by physicians
in a manner similar to larger laparoscopes. The MicroLap is compatible with all
existing medical video cameras and light sources and does not require any
additional specialized or ancillary equipment for its use.
Imagyn's disposable introducers facilitate atraumatic insertion and secure
placement of the MicroLap and microsurgical instruments through the abdominal
wall. The introducer is designed to be placed through the abdominal wall in a
single step with a standard Veress needle and without the need for a trocar or a
separate puncture site for insufflation. The introducer's anchoring system
prevents inadvertent withdrawal during the procedure and allows the introducer
to be pulled up tightly against the interior wall of the abdomen, thereby
providing maximum working area in the abdomen. The introducer incorporates a
side port for gas insufflation and a one-way check valve to prevent gas leakage.
Typically, several introducers are used during a microlaparoscopy procedure, one
for the MicroLap and others to permit the insertion of microsurgical
instruments.
The Company has also designed a broad line of stainless steel, reusable
microsurgical instruments, all of which are 2 millimeters in diameter and
compatible with the MicroLap introducer. The Company's current line of
microsurgical instruments includes several graspers and scissors, a biopsy punch
for tissue sampling, irrigation and aspiration cannulae, palpation probes and
monopolar electrocautery probes for the cauterization and removal of small
endometrial lesions and adhesions.
CLINICAL AND REGULATORY STATUS. The Company has received 510(k) marketing
clearances for the MicroLap, MicroLap introducer and a variety of microsurgical
instruments for general laparoscopic procedures. USSC, which has exclusive
distribution rights in international markets (excluding China and India), has
responsibility for individual regulatory approvals in those markets. See
"--Strategic Marketing Alliances" and "--Government Regulation."
MICROSPAN SYSTEM
The MicroSpan system is comprised of a microhysteroscope, a proprietary
disposable micro-access device and a line of microsurgical instruments. Because
the microhysteroscope utilizes the proprietary micro-optic technology used in
the MicroLap, it is significantly smaller than current rod, or fixed, lens
hysteroscopes. The disposable micro-access device provides simultaneous
transcervical access to the uterus for both the microhysteroscope and
microsurgical instruments without the need for the cervical dilation required by
currently available hysteroscopy systems. Imagyn has also designed a line of
reusable hysteroscopic microsurgical instruments to be used with the MicroSpan
system. These instruments include several graspers and scissors, a biopsy punch
for tissue sampling, palpation probes and monopolar electrocautery probes for
the cauterization and removal of small fibroids, polyps and adhesions. The
MicroSpan system is compatible with all existing medical video cameras and light
sources and does not require any additional specialized or ancillary equipment
for its use.
CLINICAL AND REGULATORY STATUS. The Company has submitted 510(k) clearance
applications for the microhysteroscope and microhysteroscopic micro-access
devices. The Company plans to seek regulatory approval in those countries
outside the United States in which it intends to sell these products. There can
be no assurance as to when or whether such approvals will be received. See
"--Government Regulation."
OVATION SYSTEMS
Imagyn has developed the Ovation falloposcopy system for falloposcopy, the
Ovation tubal recanalization system for tubal recanalization and the Ovation IUI
system for intrauterine insemination. The Ovation falloposcopy and tubal
recanalization systems consist of a proprietary 0.5 millimeter diameter,
flexible falloposcope, a proprietary catheter, and a specially designed
irrigation pump. The linear everting catheter is designed to enable the
physician to access, navigate and view the entire length of the fallopian tube
and incorporates three elements: an inner delivery catheter, an outer catheter
and an everting balloon membrane. A sliding mandrel straightens and stiffens
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the catheter tip for placement through a non-dilated cervix and an integral
falloposcope controller provides one-finger control of the advancement and
withdrawal of the falloposcope. The linear everting catheter's curved ball tip
is designed to enable the catheter to atraumatically engage the tubal ostium,
facilitating unguided access to the fallopian tubes from within the uterus. The
combination of these elements in a single device, together with the linear
everting catheter's unique "unrolling" design, allows for complete fallopian
tube access and visualization without the need for concurrent laparoscopic
guidance or hysteroscopic placement through the cervix, and without the need for
ancillary devices, such as guidewires for accessing the fallopian tubes. The
Ovation falloposcopy and tubal recanalization systems are compatible with all
existing medical video cameras and light sources and does not require any
additional specialized or ancillary equipment for its use.
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The diagram below depicts the principal elements of the Ovation linear
everting catheter.
[Diagram of Ovation Linear Everting Catheter]
After the catheter tip is placed through the cervix, the tip is rotated
toward either the right or left fallopian tube to engage the tubal ostium. Fluid
pressure is applied to the everting balloon membrane by means of an inflation
device and, in combination with the manual advancement of the inner delivery
catheter, propels the everting balloon membrane forward into the fallopian tube.
As the balloon membrane gently unrolls from the inside out, it carries the
falloposcope forward without exerting any shear force against the delicate
lining of the fallopian tube. In contrast to guidewire-based catheter access
systems, the linear everting catheter's unique unrolling mechanism enables it to
traverse the tortuous tubal anatomy without the need to push guidewires through
the fallopian tube or independently manipulate the fallopian tube with
laparoscopic or other ancillary assistance. Once the Ovation system is
positioned, it is designed to enable the physician is to view the entire length
of the fallopian tube as the catheter and falloposcope are withdrawn by
rerolling the catheter's everting balloon membrane.
The Ovation IUI system is a modified catheter that incorporates the
Company's linear everting catheter technology for IUI, a procedure in which
sperm are introduced into the uterine cavity. The Ovation IUI system permits
traversal of the cervix in those cases in which the cervix is very narrow and
difficult to access without trauma to the delicate lining of the uterus.
Following placement of the Ovation IUI system through the cervix, the everting
balloon membrane is unrolled a pre-set distance into the uterus. A transfer or
delivery catheter containing sperm is placed through the central channel of the
catheter and the balloon membrane is slowly peeled back, exposing the tip of the
transfer catheter. The sperm are then expelled into the uterine cavity.
CLINICAL AND REGULATORY STATUS. In August 1995, the Ovation tubal
recanalization system was approved for marketing for tubal recanalization in
Japan by the Japanese Ministry of Health and Welfare, and an application for
reimbursement approvals within the Japanese health care system is pending. The
Company has also received regulatory clearances in Germany, the United Kingdom,
Australia and several additional international markets for the Ovation
falloposcopy system. The Japanese approval was based on a multi-center clinical
study involving women who had experienced over four years of infertility. Of the
60 patients in the study who had been diagnosed with bilateral tubal blockages
by HSG and laparoscopic chromopertubation or some other modality, 49 patients,
or 82%, had tubal patency demonstrated by falloposcopy and confirmed with an HSG
procedure two months after undergoing tubal recanalization with the Ovation
tubal recanalization system. Of the 55 patients in the Japanese clinical study
who were followed after tubal recanalization to determine pregnancy prognosis,
17 patients, or 31%, became pregnant during a period of up to two years
following the tubal recanalization procedure. This post-tubal recanalization
pregnancy rate compares with an approximately 20% pregnancy rate for in-vitro
fertilization in Japan.
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The Ovation falloposcopy and tubal recanalization systems have also
undergone clinical evaluation in Australia. The diagnostic information obtained
through falloposcopy of 200 infertility patients enabled physicians to make more
informed recommendations regarding subsequent courses of action. This resulted
in a change in clinical management in approximately 70% of cases, with many
patients being advised to again attempt natural conception. Of the 192 patients
followed after falloposcopy, 67 achieved pregnancy within two years, 42 of whom
achieved pregnancy naturally. As a result, unnecessary and costly assisted
reproductive procedures were avoided.
In the United States, the Ovation falloposcopy system has not been approved
by the FDA. The system is currently in a controlled, randomized multi-center
clinical trial under an IDE approved by the FDA in September 1995. The purpose
of the study is to assess the accuracy of the Ovation falloposcopy system in
diagnosing the presence of blocked fallopian tubes in infertile women. To date,
five participating centers have received institutional review board approval to
commence the study, and the first patient was enrolled in February 1996. The
Company anticipates completion of the clinical study, with a targeted enrollment
of 100 patients, during 1996, although there can be no assurance that enrollment
will be completed within this time frame. Further, during the IDE study, the FDA
has the authority to review, limit and/or terminate the study at any time.
Following completion of the study, the Company will submit a PMA application to
the FDA for approval to market the Ovation falloposcopy system for fallopian
tube diagnosis in the United States. Previously, under an FDA approved IDE, the
Company conducted a multicenter clinical trial during 1991 and 1992 for the
purpose of establishing the safety and efficacy of the linear everting catheter
system for falloposcopy to access and visualize the fallopian tubes. In May
1992, a PMA application was submitted to the FDA based on the data from this
clinical study. In January 1994, the FDA notified the Company of deficiencies in
its PMA application, particularly with respect to the design of the clinical
study, which was not structured as a controlled, randomized study, and the
breadth of the Company's visualization claims. Thereafter, the Company
unsuccessfully attempted to address the FDA's concerns by providing a
reevaluation of its clinical data and, in September 1995, the Company withdrew
this PMA application. Although the Company believes that it has reached an
understanding with the FDA regarding the design and clinical endpoints of the
current Ovation falloposcopy system clinical study, there can be no assurance
that the clinical study will be successful in demonstrating the efficacy of the
Ovation falloposcopy system in diagnosing fallopian tube blockages or that the
Company will receive FDA approval of a PMA for the system.
The Company received 510(k) clearance for the Ovation IUI system in May 1995
and is currently conducting market evaluation prior to commencement of
commercial sales and distribution of the Ovation IUI system for this
application.
Marketing, Sales and Distribution
The Company's marketing and distribution strategy consists of two key
elements: (i) focusing its direct sales and marketing resources on gynecology
group practices, surgery centers and infertility specialists and (ii)
establishing strategic marketing alliances with major medical products companies
to accelerate sales growth, increase geographic market coverage and access
particular markets and customers that can be more effectively addressed by the
sales organizations of these companies.
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There are approximately 33,000 practicing gynecologists in the United
States, approximately 33% of whom perform laparoscopic surgery, approximately
15% of whom are skilled in hysteroscopy and approximately 80% of whom provide
some type of infertility services to their patients. Imagyn intends to focus its
direct sales activities on the approximately 1,400 larger gynecology group
practices, the approximately 1,700 outpatient surgery centers and the
approximately 1,000 infertility specialists in the United States which the
Company believes represent the highest concentration of demand for the Company's
products. Gynecology practices consisting of five or more physicians typically
have a sufficient number of patients to support an office-based micro-surgery
practice. The Company believes outpatient surgery centers are seeking new
procedures that can be performed in their facilities. The Company believes
infertility specialists, most of whom are associated with the approximately 300
infertility centers in the United States, are seeking new approaches to diagnose
and address infertility problems.
Imagyn plans to build a specialized regional sales force in the United
States to market its products directly to gynecology group practices, surgery
centers and infertility specialists. The Company has recently hired a Vice
President of Sales and intends to hire approximately 25 sales personnel,
consisting of both field sales personnel and regional managers, in the United
States during the next 12 months. The Company's direct sales force will also
provide training in the applications for and the use of its products, as well as
financial models of clinical practice designed to demonstrate to payors and
physicians the cost advantages of using the Company's products.
In addition to selling directly to physicians and administrators in these
target markets, Imagyn plans to develop relationships with opinion leaders in
these markets by sponsoring workshops and conferences to promote the discussion
of clinical issues and treatments. The Company also plans to generate acceptance
of its products by establishing training programs at leading medical
institutions, such as its training centers for the use of its MicroLap system at
Yale University Medical School and Baylor College of Medicine.
The Company intends to focus a substantial portion of its sales and
marketing efforts on facilitating the acceptance and adoption of its
procedure-specific systems by third-party payor organizations. Imagyn plans to
take advantage of current trends in managed health care, under which the
traditional fee-for-service system is being replaced by integrated health care
delivery systems, preferred provider organizations ("PPOs") and health
maintenance organizations ("HMOs"), by improving patient care, reducing trauma
and facilitating the movement of procedures that have historically been
performed in the hospital to physicians' offices, clinics and outpatient surgery
centers.
The Company also intends to sponsor patient education programs and increase
women's awareness of the benefits of the Company's micro-invasive product
systems.
Internationally, the Company currently markets the Ovation systems in the
United Kingdom, Germany and Australia through a limited number of direct sales
personnel who are assisted by agents. The Ovation systems are marketed by
distributors in Italy, Austria and Spain. Imagyn also intends to establish a
network of distributors for its MicroSpan system in certain international
markets. The distribution agreements with distributors of the Ovation systems
grant the distributors the exclusive right to sell the Ovation systems within
defined territories in exchange for covenants prohibiting them from marketing
medical devices that compete directly with these products. The distributors
purchase the products from the Company at a discount from list price in
transactions denominated in United States dollars. The end-user prices are
determined by the distributors and vary from country to country.
The Company has only limited experience marketing and selling its products,
and does not have experience marketing and selling its products in commercial
quantities. Establishing marketing and sales capability sufficient to support
sales in commercial quantities will require significant resources and will be
time-consuming, and there can be no assurance that the Company will be able to
recruit and retain qualified marketing personnel, direct sales personnel or
contract sales representatives in a timely manner or that future sales and
marketing efforts of the Company will be successful. There can be no assurance
that the Company will be successful in establishing marketing, sales and
distribution channels in the United States or internationally. The failure to
establish and maintain effective distribution channels for the Company's
products, or to retain qualified sales personnel to support commercial sales of
the Company's products, would have a material adverse effect on the Company's
business, financial condition and results of operations.
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Strategic Marketing Alliances
UNITED STATES SURGICAL CORPORATION
In October 1995, the Company entered into an agreement with United States
Surgical Corporation ("USSC") pursuant to which USSC was granted exclusive
international marketing rights for the Company's MicroLap system in all
international markets (excluding China and India). USSC was also granted, on a
co-exclusive basis with the Company, marketing rights to the MicroLap system in
the United States. Under the terms of the agreement, Imagyn will manufacture
private label products for USSC for sale and distribution in the United States
and international markets. USSC is required to obtain appropriate international
product registrations and regulatory approvals in those markets in which USSC
plans to distribute the MicroLap system, except that the Company is required, at
its expense, to obtain a CE mark for the system. USSC is also responsible for
all sales and marketing expenses in connection with the sale of MicroLap
systems. Furthermore, USSC is subject to minimum annual purchase requirements.
The Company's agreement with USSC may be terminated by USSC upon six months
notice at any time after October 23, 1997. Imagyn may terminate the agreement at
any time if USSC introduces products which compete with the MicroLap
microlaparoscope.
USSC has a substantial sales force that markets products primarily for use
in hospital-based surgical procedures. Because most laparoscopy procedures are
currently performed in a hospital, the Company believes that the ability to
expose physicians to the MicroLap system in a hospital setting will accelerate
the adoption of the MicroLap system by physicians and will facilitate the
movement of microlaparoscopy procedures out of the hospital. Therefore, the
Company believes that the efforts of its direct sales organization, which will
be focused on gynecology group practices, surgery centers and infertility
specialists, will be complementary to the sales and marketing efforts of USSC.
TERUMO CORPORATION
In August 1995, Terumo Corporation ("Terumo") obtained Japanese regulatory
approval for use of the Ovation tubal recanalization system pursuant to an
agreement between the Company and Terumo for the distribution and licensed
manufacture of the Ovation systems in Japan. Under the agreement, Terumo, a
Japan-based multinational hospital products supplier, has been granted sales and
distribution rights for the Ovation systems in Japan. Under the agreement,
Terumo is responsible for obtaining Japanese regulatory and reimbursement
approvals as well as for the cost of all sales and marketing activities for
these products in Japan. Terumo recently applied to the Japanese Ministry of
Health and Welfare for reimbursement approval of the Ovation tubal
recanalization system in Japan. Through August 1997, Terumo may purchase
products, denominated in United States dollars, from Imagyn at a discount from
United States list price and resell the products to hospitals, clinics and
physicians. The end-user price is determined solely at the discretion of Terumo.
At the end of this two year period, Imagyn is obligated to transfer the
manufacturing know-how necessary to permit Terumo to manufacture the Ovation
catheters and falloposcopes for sale in Japan. Terumo is required to pay Imagyn
royalties on the sales of these products until such time as the Japanese patents
covering these products expire. Terumo may, at its option, continue to purchase
other ancillary products from Imagyn that are used in connection with the
Ovation systems.
The Company is dependent upon USSC and Terumo for marketing, sales and
distribution of the products covered by their respective agreements in their
respective territories. The Company is dependent upon Terumo for regulatory and
reimbursement approvals in Japan, and, although Terumo has obtained approval of
the linear everting system for tubal recanalization, there can be no assurance
that Terumo will comply with the conditions of such approval or that Terumo will
be able to obtain reimbursement approvals in Japan. The Company is dependent
upon USSC to obtain appropriate international product registrations and
regulatory approvals in those markets in which USSC plans to distribute the
MicroLap system, except that Imagyn is obligated, at its expense, to obtain a CE
mark, an international symbol of adherence to quality assurance standards and
compliance with applicable European Union Medical Device Directives, for the
MicroLap system. The Company is dependent upon Terumo and USSC to support
reimbursement approval for their respective products in their respective
territories. In the event that USSC and Terumo are unable to obtain necessary
regulatory approvals for their respective products in their respective
territories, fail to devote sufficient resources to promote the Company's
products, or fail to support reimbursement approvals, sales of the products
covered by the agreements with USSC and Terumo could be materially and adversely
affected, which in turn would have a material adverse effect on the Company's
business,
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financial condition and results of operations. The Company has also agreed to
indemnify USSC and Terumo against claims of infringement of intellectual
property rights. Furthermore, the Company's rights to terminate the agreements
with USSC and Terumo are limited, and, accordingly, the Company may be unable to
establish alternative marketing or distribution arrangements if the agreements
with USSC and Terumo are not successful. The failure or loss of strategic
alliances with USSC and Terumo, or the Company's inability to enter into future
necessary strategic alliances, would have a material adverse effect on the
Company's business, financial condition and results of operations.
Research and Development
Imagyn's research and development activities are performed in-house by a
group consisting of 11 engineers and technicans. The efforts of the research and
development group are supplemented by outside physician experts and consultants.
The Company also makes use of technical and engineering consultants as required.
In microlaparoscopy, the Company is developing new electrocautery and other
microsurgical instruments to broaden its MicroLap product line and the
applications for the MicroLap system. Enhancements under development for the
Company's microhysteroscopy technology include microhysteroscopic biopsy and
electrocautery devices. In addition, Imagyn is directing research and
development efforts toward enhancing its proprietary micro-access technology for
both microhysteroscopy and microlaparoscopy. The Company is also developing new
applications for its proprietary linear everting catheter technology as well as
a curved proboscis tip for the Ovation falloposcopy system that is designed to
improve visualization during falloposcopy.
The product development process is time-consuming and costly, and there can
be no assurance that any new product development will be successfully completed,
that necessary regulatory clearances or approvals will be granted by the FDA or
international regulatory authorities on a timely basis, or at all, or that any
new products developed and introduced by the Company will receive market
acceptance. Failure by the Company to develop, obtain necessary regulatory
clearances or approvals for, or successfully market new products, could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company's research and development expenditures totaled approximately
$1.8, $1.8 and $1.9 million in the years ended December 31, 1995, 1994 and 1993,
respectively.
Manufacturing
The Company manufactures its proprietary microlaparoscopes, falloposcopes,
linear everting catheters and micro-access devices in a clean room at its
facility in Laguna Niguel, California. The Company plans to expand its
operations in 1996 to increase manufacturing capacity by adding an additional
clean room and quality control space, and the Company has leased the space
necessary for this expansion.
Components are purchased from a variety of vendors, subjected to stringent
quality specifications and assembled by Imagyn's highly skilled manufacturing
technicians into finished products. Final assembly and packaging is currently
performed by the Company in-house and sterilization is performed by an outside
vendor. The manufacturing processes for microlaparoscopes and linear everting
catheters are complex and require precision in producing, assembling and testing
components and finished products. Many of the steps in the assembly process,
such as grinding and polishing lenses and optical fibers, are performed under a
microscope, requiring up to 80x magnification.
The Company has only limited experience in manufacturing its products in
commercial quantities and has not manufactured any of its products in the
quantities that will be necessary for achievement of significant commercial
sales or profitability. In addition to manufacturing certain of its products,
Imagyn purchases other components of its product systems from outside vendors.
The Company has limited manufacturing capacity and will be required to increase
both its in-house manufacturing capability and the size of its manufacturing
facilities. Although the Company has leased the space that it will use to expand
its manufacturing facilities, there can be no assurance that the Company will be
able to complete its facility expansion, attract, train and retain the required
personnel, including personnel skilled in micro-optics assembly processes, or
increase its manufacturing capability and capacity in a timely manner. There can
be no assurance that reliable, high-volume manufacturing can be established or
maintained at commercially reasonable costs on a timely basis, or at all.
Manufacturers often encounter difficulties in scaling up production of their
products, including problems involving production yields, quality control and
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assurance, component supply and shortages of qualified personnel. If the Company
is unable to increase its in-house manufacturing capability or successfully
complete the expansion of its manufacturing facilities in a timely manner, the
Company may need to obtain alternative manufacturing facilities or establish
contract manufacturing for its products, and delays associated with, or
inability to establish, such additional capacity could have a material adverse
effect on the Company's business, financial condition and results of operations.
Certain of the components used in the Company's product systems, including
the optic image fiber used in the MicroLap, a similar version of which will also
be used in the MicroSpan and the medical video camera and light source used in
connection with the Ovation tubal recanalization system, are currently purchased
from single sources. Currently, the Company has a supply agreement with the
MicroLap image fiber supplier; however, there can be no assurance that such
supplier will be able to or will continue to supply image fibers to the Company
in the amounts and at the times needed by the Company or that other disruptions
in supply will not occur. The number of manufacturers capable of making such
optical image fibers is limited and, to date, the Company has not qualified
additional suppliers for such optical image fibers. The Company believes it can
qualify an additional source for such optical image fiber; however, there can be
no assurance as to when or whether the Company will be able to qualify such
supplier. The Company's prior supplier of Ovation medical video cameras and
light sources ceased manufacturing such products in late 1995 as a result of
financial difficulties, which resulted in an temporary inability of the Company
to supply such components to Terumo. As a result, the Company was unable to ship
Ovation medical video cameras and light sources to Terumo for a period of
approximately six months. Although the Company has qualified a replacement
supplier, there can be no assurance that future supply disruptions for such
components will not occur. The Company also uses a single vendor for
sterilization of its products, and disruptions in sterilization of finished
products could adversely affect the Company. Furthermore, there can be no
assurance that the Company will not encounter future component shortages or
other disruptions in supply of materials or services. Delays associated with any
future raw materials or component shortages could have a material adverse effect
on the Company's business, financial condition and results of operations,
particularly as the Company scales up its manufacturing activities.
The Company's products are complex devices designed for use inside and
around the organs of the female reproductive system. To date, the Company has
only limited experience regarding the reliability of its products in the field.
Component failures, manufacturing errors or design defects could result in an
unsafe condition or injury to the patient. If any such failures or defects were
material, the Company could be required to undertake a market withdrawal or
recall of products. Even if regulatory approvals are obtained, there can be no
assurance that a market withdrawal or product recall will not occur. Costs of a
market withdrawal or product recall could be significant and could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Patents, Trade Secrets and Licenses
Imagyn's ability to compete effectively will depend in part on its ability
to develop and maintain proprietary aspects of its technology. Imagyn seeks to
protect its proprietary position aggressively by, among other things, filing
United States and foreign patent applications to protect technology, inventions
and improvements that are important to the development of its business.
As of April 15, 1996, the Company held 13 issued United States patents and 3
issued foreign patents and had 11 United States and 10 foreign patent
applications pending, covering various aspects of the Company's product systems.
The Company's issued United States patents cover technology underlying the
Ovation systems. The expiration dates of these patents range from October 2011
to May 2014.
In addition to its patents and patent applications, the Company holds a
license from Baxter Healthcare Corporation ("Baxter") and Thomas J. Fogarty,
M.D. ("Fogarty"), the inventor of the linear everting catheter, that grants
Imagyn the exclusive, perpetual, worldwide use of patented technology and
know-how related to the linear everting catheter technology in the fields of
obstetrics, gynecology, and infertility, in exchange for royalty payments. As of
April 15, 1996, Baxter and Fogarty held, and Imagyn has been granted the
exclusive license for, 11 issued United States patents and numerous issued
foreign patents and pending applications covering aspects of linear everting
catheter technology. The license agreement requires that Baxter maintain and
prosecute all patents and patent applications relating to the linear everting
catheter technology.
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No assurance can be given that any patents from pending patent applications
or from any future patent applications will be issued, that the scope of any
patent protection will exclude competitors or provide competitive advantages to
the Company, that any of the Company's patents will be held valid if
subsequently challenged or that others will not claim rights in or ownership of
the patents and other proprietary rights held by the Company. Furthermore, there
can be no assurance that others have not developed or will not develop similar
products, duplicate any of the Company's products or design around the Company's
patents. In addition, others may hold or receive patents or file patent
applications which contain claims having a scope that covers products developed
by the Company.
The medical device industry has been characterized by extensive litigation
regarding patents and other intellectual property rights, and many companies in
the industry have employed intellectual property litigation to gain a
competitive advantage. There can be no assurance that the Company will not
become subject to patent infringement litigation or an interference proceeding
declared by the United States Patent and Trademark Office ("USPTO") to determine
the priority of inventions. The defense and prosecution of patent suits, USPTO
interference proceedings and related legal and administrative proceedings are
both costly and time consuming. Litigation may be necessary to enforce patents
issued to the Company, to protect the Company's trade secrets or know-how or to
determine the enforceability, scope and validity of the proprietary rights of
others.
Any litigation or interference proceedings involving the Company would
result in substantial expense to the Company and significant diversion of effort
by the Company's technical and management personnel. An adverse determination in
litigation or interference proceedings to which the Company may become a party
could subject the Company to significant liabilities to third parties or require
the Company to seek licenses from third parties. Although patent and
intellectual property disputes in the medical device area have often been
settled through licensing or similar arrangements, costs associated with such
arrangements may be substantial and could include ongoing royalties.
Furthermore, there can be no assurance that necessary licenses would be
available to the Company on satisfactory terms, if at all. Adverse
determinations in a judicial or administrative proceeding or failure to obtain
necessary licenses could prevent the Company from manufacturing and selling its
products, which would have a material adverse effect on the Company's business,
financial condition and results of operations.
In addition to patents, the Company relies on trade secrets and proprietary
know-how to compete, which it seeks to protect, in part, through appropriate
confidentiality and proprietary information agreements. These agreements
generally provide that all confidential information developed or made known to
individuals by the Company during the course of the relationship with the
Company is to be kept confidential and not disclosed to third parties, except in
specific circumstances. The agreements also generally provide that all
inventions conceived by the individual in the course of rendering service to the
Company shall be the exclusive property of the Company. There can be no
assurance that proprietary information or confidentiality agreements with
employees, consultants and others will not be breached, that the Company will
have adequate remedies for any breach, or that the Company's trade secrets will
not otherwise become known to or independently developed by competitors.
Government Regulation
UNITED STATES
The research, development, testing, manufacture, labeling, storage,
distribution and marketing of the Company's products are subject to extensive
and rigorous regulation by the FDA and, to varying degrees, by state and foreign
regulatory agencies. The Company's products are regulated in the United States
as medical devices by the FDA under the Federal Food, Drug, and Cosmetic Act
("FDC Act") and most require clearance or approval by the FDA prior to
commercialization. In addition, certain material changes or modifications to
medical devices also are subject to regulatory review and clearance or approval.
Under the FDC Act, the FDA regulates the research, clinical testing,
manufacturing, safety, labeling, storage, record keeping, distribution, sale and
promotion of medical devices in the United States. The testing for, preparation
of and subsequent review of applications by the FDA and foreign regulatory
authorities is expensive, lengthy and uncertain. The failure by the Company to
comply with FDA requirements could result in warning letters, fines,
injunctions, civil penalties, recall or seizure of products, total or partial
suspension of production, the government's refusal to grant, or withdrawal of,
premarket clearance or premarket approval for devices, and criminal prosecution.
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The FDA also has the authority to require clinical testing of certain
medical devices. If clinical testing of a device is required and if the device
presents a "significant risk," an Investigational Device Exemption ("IDE")
application must be approved prior to commencing clinical trials. The IDE
application must be supported by data, typically including the results of
laboratory and animal testing. If the IDE application is approved by the FDA,
clinical trials may begin at a specified number of investigational sites
involving a specified maximum number of patients, as approved by the FDA. The
clinical trials are required to be conducted under the auspices of an
Institutional Review Board ("IRB"). During the IDE study, the FDA has authority
to review, limit, or terminate the study at any time. Discontinuance of the
study could have a material adverse effect on the Company's business, financial
condition and results of operations.
Before a new medical device may be introduced into the market in the United
States, the manufacturer or distributor generally must obtain marketing
clearance from the FDA through either a 510(k) premarket notification or a
premarket approval ("PMA") application. If the manufacturer or distributor can
establish, among other things, that a device is "substantially equivalent" in
that it has the same intended use and the same technological characteristics as
the predicate device or has different technological characteristics that do not
raise different questions of safety and efficacy than the predicate device, the
manufacturer or distributor may seek clearance to market the device by
submitting a 510(k) premarket notification. Following submission of the 510(k)
premarket notification, the manufacturer or distributor may not place the device
into commercial distribution unless and until a finding of substantial
equivalence is issued by the FDA. In response to a 510(k) premarket
notification, the FDA may declare that the device is substantially equivalent to
a predicate device and allow the proposed device to be marketed in the United
States. Alternatively, the FDA may require further information, including
clinical data, to make its determination regarding substantial equivalence, or
the FDA may determine that the proposed device is not substantially equivalent
to the predicate device, and require the manufacturer or distributor to submit a
PMA. An FDA request for additional information or a determination that the
device is not substantially equivalent would delay market introduction of the
products that are the subject of the 510(k) premarket notification.
As of April 15, 1996, the Company had received eleven 510(k) clearances for
certain diagnostic and/or therapeutic indications of its microlaparoscopy,
microhysteroscopy and linear everting catheter intrauterine insemination product
systems.
If the manufacturer or distributor cannot establish that a proposed device
is substantially equivalent to a legally marketed predicate device, the
manufacturer or distributor must seek premarket approval of the proposed device
through submission of a PMA application. A PMA application must be supported by
extensive data, including laboratory, preclinical and clinical trial data to
prove the safety and efficacy of the device, as well as extensive manufacturing
information. If the FDA determines, upon initial review, that a submitted PMA
application is sufficiently complete to permit substantive review, the FDA will
accept the PMA application for filing. FDA review of a PMA application generally
takes approximately two years or more from the date of acceptance for filing,
but review times vary depending upon FDA resources and workload demands and the
complexity of PMA submissions. There can be no assurance that the FDA will
review and approve the PMA in a timely manner, if at all. Failure to obtain PMA
approvals could have a material adverse effect on the Company's business,
financial condition and results of operations. Additionally, as one of the
conditions for approval, the FDA will inspect the manufacturing establishment at
which the subject device will be manufactured to determine whether the quality
control and manufacturing procedures conform to GMP regulations. If granted, the
PMA approval may include significant limitations on the indicated uses for which
the device may be marketed.
The Company does not have FDA approval for its Ovation falloposcopy system
or tubal recanalization system, and intends to file a PMA application for the
Ovation falloposcopy system. Under an FDA approved IDE, the Company conducted a
multi-center, United States clinical trial for the purpose of establishing the
safe and effective use of the linear everting catheter system for falloposcopy
to access and visualize the fallopian tubes. In May 1992, the Company submitted
a PMA application to the FDA, which included data from the clinical trial. In
January 1994, the FDA notified the Company of deficiencies in its PMA
application, particularly with respect to the study design and breadth of the
visualization claim. The Company attempted to address the FDA's concerns by
providing a reevaluation of its clinical data; however, the FDA did not find
this analysis acceptable and, in September 1995, the Company withdrew this PMA
application. In July 1995, the FDA and the Company agreed on a new study design,
and an IDE for the study was approved by the FDA in September 1995. The
indication was narrowed from
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that in the previous PMA (i.e., from "to access and visualize the fallopian
tubes" to "diagnosis of the presence of occlusions in the fallopian tubes of
infertile women"). Five participating United States centers have received
necessary IRB approvals for the study, and the first patient was enrolled in the
study in February 1996.
There can be no assurance that the Company will be able to obtain necessary
510(k) clearances or PMA approvals to market its products in the United States
for their intended uses on a timely basis, if at all, and delays in receipt of
or failure to receive such approvals, the loss of previously received approvals,
or failure to comply with existing or future regulatory requirements could have
a material adverse effect on the Company's business, financial condition and
results of operations.
The Company is also required to register with the FDA and with state
agencies such as the California Department of Health Services ("CDHS") as a
medical device manufacturer, and to list its products with the FDA.
Consequently, the Company's facilities will be inspected periodically by both
the FDA and CDHS to determine whether the Company manufactures its products in
compliance with FDA Good Manufacturing Practices ("GMP") and other applicable
regulations. In November 1995, the Company's facility was inspected by the FDA
for a routine GMP inspection. The FDA noted several observations, to which the
Company responded. The Company has received FDA confirmation of the adequacy of
its responses.
The Company is also required, upon commercialization, to provide information
to the FDA concerning any death or serious injury that its medical devices may
have allegedly caused or contributed to, as well as any product malfunction that
would likely cause or contribute to death or serious injury if the malfunction
were to recur. Also, if safety or efficacy problems occur after the product
reaches the market, the FDA may take steps to prevent or limit further marketing
of the product. In addition, the FDA prohibits the marketing of approved devices
for uses other than those specifically cleared for marketing by the FDA. Failure
to comply with applicable FDA regulations can result in FDA warning letters, FDA
refusal to approve or clear products, revocation or withdrawal of approvals
previously granted, civil penalties, product seizures, injunctions, recalls,
operating restrictions and criminal prosecution and penalties. Consequently,
failure by the Company to comply with regulatory requirements could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The promotion of most products regulated by the FDA is subject to the
jurisdiction of the FDA, Federal Trade Commission and related state authorities.
The Company also is subject to various federal, state and local laws and
regulations relating to occupational safety, laboratory and manufacturing
practices, and the use, handling and disposal of hazardous or potentially
hazardous substances. There can be no assurance that the Company will not be
required to incur significant costs in the future to comply with such laws or
will be able to continue to comply with such laws and regulations, which are
subject to change. FDA regulations regarding the research, development, testing,
manufacture, labeling, storage, distribution and marketing of the Company's
products are subject to change. The Company cannot predict what effect, if any,
such changes might have on its business, financial condition or results of
operations.
INTERNATIONAL
Sales of medical devices outside the United States are subject to foreign
regulatory requirements that vary widely from country to country. The time
required to obtain registrations or approvals required by foreign countries may
be longer or shorter than that required for FDA clearance or approval, and
requirements for licensing may differ significantly from FDA requirements. Some
countries have historically permitted human studies earlier in the product
development cycle than regulations in the United States permit. Other countries,
such as Japan, have requirements similar to those of the United States. This
disparity in the regulation of medical devices may result in slower product
clearance in certain countries than in others. Many countries in which the
Company operates or intends to operate either do not currently regulate medical
devices or have minimal device registration requirements; however, these
countries may develop more extensive regulations in the future that could
adversely affect the Company's ability to market its products.
Pursuant to the Company's distributorship agreement with USSC, USSC is
required to obtain appropriate international regulatory registrations and
approvals in those markets in which USSC plans to distribute the Company's
MicroLap system, except that the Company is required to obtain a CE mark for the
system.
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In August 1995, following completion of a clinical trial, Terumo received
import approval from the Japanese Ministry of Health for the sale and
distribution of the Company's linear everting catheter system in Japan for use
in fallopian tube recanalization.
The Company has received registrations and approvals to market its Ovation
systems in Australia, Austria, France, Germany, Italy, Singapore, South Korea,
Taiwan, the United Kingdom, Switzerland, Denmark and The Netherlands.
All of the medical devices currently manufactured by the Company which are
distributed in the European Union ("EU") will be subject to the Medical Devices
Directive ("MDD") when the transition period for the MDD expires on June 13,
1998. To comply with the MDD, the Company will need to obtain the right to affix
the CE mark on its medical devices. The right to affix the CE mark must be
obtained from one of the organizations in the EU, known as "Notified Bodies,"
which are designated by individual member states as competent to grant to
companies the right to affix the CE mark on their medical devices. The CE mark
will show that the Company is entitled to market its medical devices in the EU
because they meet all the essential requirements of the MDD. The CE mark will
permit the Company's medical devices to circulate freely throughout the EU.
Without receipt of the right to affix the CE mark on its medical devices, the
Company's medical devices will not be able to be marketed anywhere in the EU.
The Company is currently in the process of taking the steps that will be
necessary to comply with the essential requirements of the MDD, but there can be
no assurance that by taking these steps, the Company will be granted the right
to affix the CE mark on any of its medical devices by a Notified Body.
In the EU, some accessories to the Company's products, such as cameras,
pumps and light sources, are subject to the Electromagnetic Compatibility
Directive ("EMC Directive") or similar laws of EU member states. The transition
period for the EMC Directive expired on December 31, 1995. Due to the volume of
electrical and electronic devices of all types, including medical devices, which
must be tested in order to determine whether they comply with the EMC
Directive's requirements, many companies have not been able to complete their
testing and review obligations through the Notified Bodies that must confirm EMC
Directive compliance. In acknowledgment of industry delays, an informal
understanding has been reached between member states of the EU and EU Commission
officials that enforcement/compliance actions relating to the EMC Directive will
similarly be delayed until January 1, 1997. The Company is currently undertaking
the necessary steps to be in compliance with the EMC Directive by January 1,
1997.
Export sales of investigational PMA devices or devices not cleared for
commercial sale in the United States are subject to FDA export permit
requirements. In order to obtain an export permit, the exporter must provide the
FDA with documentation from the medical device regulatory authority of the
country in which the purchaser is located, stating that the sale of the device
is not a violation of that country's medical device laws. The Company has
received certain export approvals for the Ovation systems for Australia, The
Netherlands, Denmark, France, Italy, Norway, Sweden and Switzerland, and is
seeking export approvals for other countries. Recently proposed FDA regulations
would eliminate export approval requirements for export of investigational
devices that are the subjects of FDA-approved IDEs to certain countries that
have expressed approval of the importation of such devices. There can be no
assurance, however, that the final regulations will contain the same language as
the proposed regulations, and the final regulations may revise the proposed
regulations in such a way that could adversely affect the Company's existing or
future export operations.
Third-Party Reimbursement
In the United States, hospitals, physicians and other health care providers
that purchase medical devices, such as Imagyn's products, generally rely on
third-party payors, principally private health insurance plans and, to a lesser
extent, federal Medicare and state Medicaid, to reimburse all or part of the
cost of the procedure in which the medical device is being used.
Reimbursement in the United States for procedures performed in hospitals,
ambulatory care centers or physicians' offices using the Company's
microlaparoscopy products is currently available from most third-party payors,
including most major private health care insurance plans and Medicaid, under
existing procedure codes. However, there is currently no specific reimbursement
code for office-based microlaparoscopy procedures. The Company does not expect
that third-party reimbursement in the United States will be available for
procedures
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performed using the Company's MicroSpan or Ovation systems unless and until FDA
clearance or approval for such products is received. If FDA clearances or
approvals are received, third-party reimbursement for these products will be
dependent upon decisions by individual health maintenance organizations, private
insurers and other payors. The Company believes that procedures performed using
Imagyn's MicroSpan system could, following receipt of FDA clearances for such
system, be reimbursed in the United States under existing procedure codes for
diagnostic and therapeutic hysteroscopy procedures. However, there can be no
assurance that such procedure codes will be available with respect to the
Company's products or that the reimbursement under these codes will be adequate.
To the extent cost containment measures imposed by third party payors adversely
affect the hospital and private practice markets, demand for and pricing of the
Company's products could be adversely affected as well.
Certain health care providers are moving toward a managed care system in
which such providers contract to provide comprehensive health care for a fixed
cost per person. Imagyn is unable to predict what changes will be made in the
reimbursement methods utilized by third-party health care payors. Imagyn
anticipates that hospital administrators and physicians would justify the use of
its products by the attendant cost savings and clinical benefits that the
Company believes would be derived from the use of its products. However, there
can be no assurance that this will be the case. Furthermore, the Company could
be adversely affected by changes in reimbursement policies of government or
private health care payors, particularly to the extent any such changes affect
reimbursement for the procedure in which the Company's products are used.
Failure by physicians, hospitals and other users of the Company's products to
obtain sufficient reimbursement from health care payors for the procedure in
which the Company's products are used or adverse changes in government and
private third-party payors' policies toward reimbursement for such procedures
could have a material adverse effect on the Company's business, financial
condition and results of operations.
Reimbursement systems in international markets vary significantly by country
and, within some countries, by region. Reimbursement approvals must be obtained
on a country-by-country basis. Many countries have government managed health
care systems that determine whether reimbursement will be granted for new
medical devices and procedures, as well as private insurance systems.
Broad-based foreign market acceptance of the Company's MicroLap, MicroSpan and
Ovation systems will depend in part on the availability and level of
reimbursement in the international markets targeted by the Company. The
Company's Ovation falloposcopy system has been approved for reimbursement in
Australia and Germany. Terumo recently applied to the Japanese Ministry of
Health and Welfare for reimbursement approval of the Ovation tubal
recanalization system in Japan. The process of obtaining reimbursement approvals
can be lengthy and unpredictable, and there can be no assurance that the Company
will obtain reimbursement approvals in Japan or in any other country within a
particular time, for a particular amount, or at all. Even if reimbursement
approval is obtained, due to the pressure of rising health care costs in many
countries, there can be no assurance that such approval will not be limited or
withdrawn at any time. Failure to obtain or maintain such approvals for some or
all of the Company's products could have a material adverse effect on the
Company's business, financial condition and results of operations.
Physician adoption of the Company's products and physician advocacy of
reimbursement of procedures performed using them will be necessary in order to
obtain reimbursement from government and private payors for procedures performed
using Imagyn's products. The availability of reimbursement will depend on the
clinical efficacy and cost of the Company's products and systems. There can be
no assurance that reimbursement for the Company's products will be available in
the United States or in international markets under either government or private
reimbursement systems, or that physicians will support and advocate
reimbursement for use of the Company's systems for all uses intended by the
Company. Failure by physicians, hospitals and other users of the Company's
products to obtain sufficient reimbursement from health care payors or adverse
changes in government and private third-party payors' policies toward
reimbursement for procedures performed using the Company's products would have a
material adverse effect on the Company's business, financial condition and
results of operations.
Competition
The medical device industry and the market for treatment of gynecological
disorders and infertility, in particular, are intensely competitive and
characterized by rapidly evolving technology. Compared to traditional
45
<PAGE>
laparoscopes and hysteroscopes, the Company believes that the principal
competitive factors are product performance, cost-effectiveness, degree of
invasiveness, patient recovery time and level of side effects. The Company's
proprietary micro-optics technology provides visualization and product
performance comparable to traditional laparoscopes and hysteroscopes, and when
used in combination with the Company's micro-access devices are less invasive
than products used in traditional laparoscopy and hysteroscopy procedures. As a
result, the Company's systems can be used without general anesthesia, thus
reducing patent recovery time and risk of complications. Imagyn believes that
less-invasive procedures performed with the Company's MicroLap and MicroSpan
systems will be substantially less traumatic and costly than more invasive,
traditional surgical procedures currently in widespread use.
Competition in the market for micro-invasive diagnosis and treatment of
gynecological disorders is intense and is expected to increase. The Company
believes that the principal competitive factors in the markets for
microlaparoscopes and microhysteroscopes are quality of visualization, product
performance, durability and compatibility with capital equipment already owned
by the user. The Company believes that it competes favorably with respect to
each of these factors, particularly with regard to visualization and product
performance. A number of the Company's competitors are currently marketing
products for use in such less-invasive procedures. Olympus America, Inc., Origin
Medsystems, Inc., a subsidiary of Guidant Corporation, Medical Dynamics, Inc.
and Karl Storz Instrument Co., are currently marketing laparoscopes with
diameters ranging from 1.2 millimeters to 3.0 millimeters. Circon-Cabot Corp.
currently markets a microhysteroscope.
Competition in the market for falloposcopy and tubal recanalization is also
expected to increase. Conceptus, Inc. is currently pursuing FDA approval of a
guidewire-based falloposcopy system. The Company believes that the principal
competitive factors in this market will be product performance and ability to
perform procedures in a non-hospital setting without the concurrent use of
laparoscopy. The Company believes it competes favorably with respect to each of
these factors.
The Company also faces potential competition from medical device or
pharmaceutical manufacturers that currently market or may be developing other
medical devices or drugs, such as hormonal therapies, for the treatment of
uterine disorders. Other companies may choose to enter these markets at a later
date and would represent competition for the Company. In addition, the Company
competes with other companies for sites to conduct clinical trials.
There can be no assurance that the Company's competitors will not succeed in
developing technologies and products that are more effective or less costly than
any which have been or are being developed by the Company or that would render
the Company's technologies or products obsolete or not competitive, or that such
competitors will not succeed in obtaining regulatory approval for, introducing
or commercializing any such products prior to the Company. There can be no
assurance that the Company will be able to compete successfully or that
competition will not have a material adverse effect on the Company's business,
financial condition or results of operations.
Product Liability and Insurance
The development, manufacture and sale of medical devices entail significant
risk of financial exposure to product liability claims. Although the Company has
not experienced any product liability claims to date, there can be no assurance
that the Company will be able to avoid significant product liability claims and
potential related adverse publicity. The Company maintains product liability
insurance with coverage limits of $5,000,000 per occurrence and an annual
maximum of $5,000,000, which the Company believes is comparable to that
maintained by other companies of similar size serving similar markets. However,
there can be no assurance that such coverage limits are adequate to protect the
Company from any liabilities it might incur in connection with the development,
manufacture and sale of its products. Product liability insurance is expensive
and in the future may not be available to the Company on acceptable terms, if at
all. A successful product liability claim or series of claims brought against
the Company in excess of its insurance coverage could have a material adverse
effect on the Company's business, financial condition and results of operations.
46
<PAGE>
Employees
As of April 15, 1996, Imagyn had 58 full-time employees, 11 of whom were
engaged in research and development activities, six in regulatory and quality
assurance, 23 in manufacturing, ten in sales and marketing, and eight in finance
and administration. None of Imagyn's employees is covered by a collective
bargaining agreement, and the Company believes that it maintains good relations
with its employees.
Facilities
The Company recently expanded its facilities in Laguna Niguel, California
with the lease of an additional 11,000 square foot facility adjacent to the
Company's current 16,000 square foot facility. These facilities comprise the
Company's administrative offices and manufacturing and warehouse operations. The
leases for these facilities extend through 1998. Imagyn believes that this space
is adequate for its current needs, and that it will be able to renew its leases
and obtain additional space if necessary.
Legal Proceedings
The Company is not currently a party to any legal proceedings.
47
<PAGE>
MANAGEMENT
Executive Officers, Directors and Certain Key Employees
The following table sets forth certain information with respect to the
executive officers, directors and certain key employees of the Company as of
April 15, 1996.
<TABLE>
<CAPTION>
Name Age Position
- --------------------------------------- --- ----------------------------------------------
<S> <C> <C>
Franklin D. Brown(5) 52 President, Chief Executive Officer and
Chairman of the Board
J.C. MacRae 44 Vice President and Chief Financial Officer
Susan E. Dube 49 Vice President of Business Development
Christopher F. Bova 38 Vice President of United States Sales
Thomas A. Hazen 54 Vice President of Manufacturing
Kristine F. Lahman 42 Vice President of Regulatory Affairs, Quality
Assurance and Clinical Programs
Keith V. Tholin 46 Vice President of Marketing
Gary M. Woker 45 Vice President of Research and Development
David W. Chonette(1)(3) 60 Director
Samuel D. Colella(2)(5) 58 Director
Elizabeth B. Connell, M.D.(4) 70 Director
Richard S. Schneider, Ph.D.(1)(2)(4) 55 Director
</TABLE>
- ------------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) Class I director.
(4) Class II director.
(5) Class III director.
Franklin D. Brown joined Imagyn as President, Chief Executive Officer and
Chairman of the Board in October 1994 and has served as a Director of the
Company since that time. Mr. Brown, who has over 25 years of health care
experience, previously served as President and Chief Executive Officer of
Pharmacia Deltec, Inc. ("Pharmacia Deltec"), a manufacturer of medical devices
for ambulatory drug delivery, from 1986 until he joined the Company. Pharmacia
Deltec is currently SIMS Deltec, a subsidiary of Smiths Industries plc. Prior to
Pharmacia Deltec, he held a variety of general management, sales and marketing
positions in the health care industry, including President of the Healthcare
Group of Pharmacia Inc., a biomedical/pharmaceutical company. Mr. Brown is
currently a director of Xillix Technologies, a publicly-held Canadian company
that develops and markets cancer detection products. In 1991, Mr. Brown was
awarded an Ernst & Young Entrepreneur of the Year Award for the Midwest region
for the success of Pharmacia Deltec. Mr. Brown holds an M.B.A. from the
University of Michigan and a B.A. from Western Michigan University.
J.C. MacRae joined Imagyn as Vice President and Chief Financial Officer in
June 1992. Since November 1993, Mr. MacRae has also served as a director of
Imagyn International, Inc., a wholly owned subsidiary of the Company. From April
1991 until he joined the Company, Mr. MacRae served as an independent consultant
to several medical device manufacturers, including the Company. From 1987 to
April 1991, Mr. MacRae was employed by Retroperfusion Systems, Inc., a
manufacturer of cardiovascular devices, serving as Chief Financial Officer from
1987 to 1990 and President from January 1990 to April 1991. From 1984 to 1987,
he was Vice President and Treasurer of Cruttenden Roth Incorporated, an
investment banking and venture capital firm. From 1981 to 1984 he was Vice
President and Chief Financial Officer of VLI Corporation, a publicly-held
manufacturer of women's health products. Mr. MacRae holds an M.B.A. from
California State University Fullerton and a B.A. from the University of
California Irvine.
48
<PAGE>
Susan E. Dube joined Imagyn as Vice President of Business Development in
January 1996. Ms. Dube has over 20 years of experience in health care, with a
particular emphasis on women's health. From August 1995 to December 1995 Ms.
Dube served as a consultant for LifeScience Economics, Inc., a health care
consulting company, during which time she consulted for the Company. From June
1994 until August 1995, Ms. Dube served as President and Chief Executive Officer
of BioInterventions, Inc., a women's pharmaceutical company. From August 1993 to
April 1994 she served as an independent consultant to a number of health care
companies. From May 1991 to August 1993, she was Executive Vice President and
Chief Operating Officer of Adeza Biomedical, Inc., a women's health diagnostic
company. Ms. Dube was Vice President of Ventures at Brigham and Women's Hospital
in Boston from 1985 to April 1991. Ms. Dube holds an M.B.A. from Harvard
University and a B.A. from Simmons College.
Christopher F. Bova joined Imagyn as Vice President of United States Sales
in August 1995. From 1986 until he joined the Company, Mr. Bova served in a
variety of sales and sales management positions with Pharmacia Deltec and SIMS
Deltec. Most recently he was Director of Sales of the vascular access division
of SIMS Deltec. Mr. Bova holds a B.A. from Muskingum College.
Thomas A. Hazen joined Imagyn as Vice President of Manufacturing in June
1992. From May 1991 until he joined the Company, Mr. Hazen served as Senior Vice
President and General Manager of Medical Imaging Corporation of America, a
medical imaging service provider. From 1988 to 1990, Mr. Hazen served as
President of Dolphin Imaging Systems, Inc., a manufacturer of orthodontic
diagnostic medical devices. From 1978 to 1988, he held a variety of
manufacturing and research and development positions with American Hospital
Supply Inc., a medical device company. Mr. Hazen holds an M.B.A. from the
University of California Los Angeles and a B.S. from the University of Arizona.
Kristine F. Lahman has served as Imagyn's Vice President of Regulatory
Affairs, Quality Assurance and Clinical Programs since May 1995. From February
1993 until she joined the Company, Ms. Lahman was Vice President of Clinical and
Regulatory Affairs of Pharmacia, Inc., Ophthalmics Division, a manufacturer of
ophthalmic surgical products. From 1991 until February 1993, Ms. Lahman served
as Director of Clinical and Regulatory Affairs for Baxter Healthcare Corp.,
Critical Care Division, a medical device manufacturer. From 1988 to 1991, Ms.
Lahman served as Vice President of Clinical and Regulatory Affairs of IatroMed,
Inc., a manufacturer of orthopedic medical devices. From 1980 to 1988 she
directed the clinical and regulatory groups of Syntex Ophthalmics, Inc., a
division of Syntex Corporation specializing in ophthalmic medical devices. Ms.
Lahman holds a B.A. from Northwestern University.
Keith V. Tholin has served as Imagyn's Vice President of Clinical Marketing
since October 1989. From 1988 until he joined the Company, Mr. Tholin served as
General Partner of Advanced Marketing Decisions, a biomedical marketing firm.
From 1981 to 1988, Mr. Tholin also served in various business development and
marketing management positions with Baxter Edwards, a manufacturer of medical
devices for cardiology, cardiovascular and orthopedic applications. Mr. Tholin
holds an M.B.A. from the University of Chicago and a B.S. from the University of
Illinois.
Gary M. Woker has served as Imagyn's Vice President of Research and
Development since December 1990. From 1989 until he joined the Company, Mr.
Woker served as Vice President of Engineering of MCM Laboratories, Inc., a
manufacturer of medical laser devices. From 1986 to 1989, Mr. Woker was Vice
President of Engineering and cofounder of California Laboratories Inc., also a
manufacturer of medical laser devices. From 1982 to 1986, Mr. Woker served as
Manager of New Product Development for Cooper Lasersonics, also a medical laser
manufacturer. Mr. Woker holds a B.S. from California Polytechnic University.
David W. Chonette has served as a director of Imagyn since January 1990.
Since 1986, Mr. Chonette has been a general partner of Brentwood Associates, a
venture capital firm. Prior to 1986, Mr. Chonette served as President of
American Edwards Laboratories, a division of American Hospital Supply
Corporation. Mr. Chonette is a director of KeraVision, Inc., an optical device
company, and Biopsys Medical, Inc., a breast cancer biopsy device company. Mr.
Chonette holds a B.S. in Engineering from the Massachusetts Institute of
Technology.
Samuel D. Colella has served as a director of Imagyn since January 1990.
Since 1984, Mr. Colella has been a general partner of Institutional Venture
Partners, a venture capital firm. From 1971 to 1984, Mr. Colella served as
49
<PAGE>
President of Spectra-Physics, Inc., a laser manufacturer. Mr. Colella also
serves as a director of Biosys, Inc., a biopesticide company, Genta, Inc., a
drug delivery/antisense company, Pharmacopeia, Inc., a pharmaceutical discovery
company, Vivus, Inc., a manufacturer of therapeutic products for erectile
dysfunction, and Onyx Pharmaceuticals, a molecular oncology company. Mr. Colella
holds an M.B.A. from Stanford University and a B.S. in Business and Engineering
from the University of Pittsburgh.
Elizabeth B. Connell, M.D. has served as a director of Imagyn since January
1994. Since 1981, Dr. Connell has been a professor of Gynecology and Obstetrics
at Emory University School of Medicine. She has served as a Chairperson of the
FDA Obstetrics and Gynecology Devices Panel from 1988 to 1992; as a member of
the FDA Panel on Review of Obstetrical and Gynecological Devices from 1976 to
1979; and as a member of the FDA Obstetrics and Gynecology Advisory Committee
from 1970 to 1978. Dr. Connell also serves as a director of UroMed Corp., and
Gynecare, Inc., both medical device companies. Dr. Connell holds an M.D. from
the University of Pennsylvania and an A.B. from the University of Pennsylvania.
Richard S. Schneider, Ph.D. has served as a director of Imagyn since
September 1995. Since August 1990, Dr. Schneider has been a general partner of
Domain Associates, a venture capital firm. Prior to joining Domain Associates,
Dr. Schneider served as Vice President of 3i Ventures Corporation, a venture
capital firm, from April 1986 to July 1990. From 1983 to 1989, he was President
of Biomedical Consulting Associates. From 1967 to 1983, Dr. Schneider was Vice
President and founder of Syva Company, a diagnostics company that was part of
Syntex Corporation, a pharmaceutical company. Dr. Schneider also serves as a
director of Landec Corporation, a polymer applications research and design
company. Dr. Schneider holds a Ph.D. in organic chemistry from the University of
Wisconsin, completed post-doctoral studies at the Massachusetts Institute of
Technology, attended the Stanford Graduate School of Business and holds a B.S.
degree in Chemistry from the University of California, Berkeley.
Board of Directors
Currently, all directors hold office until the next annual meeting of
stockholders or until their successors have been elected and qualified. The
Company's Certificate of Incorporation, however, provides that upon the
effective date of this Offering, the Board of Directors, without further action
by the stockholders, will be divided into three classes. Each class of directors
will consist of one or two directors; Class I, II and III directors will serve
for one, two or three year periods, respectively, or until their successors are
elected and qualified. Thereafter, directors will serve for staggered three year
terms. See "Description of Capital Stock--Certain Change of Control Provisions."
The Board of Directors has a Compensation Committee, consisting of Messrs.
Colella and Schneider, which makes recommendations concerning salaries and
incentive compensation for employees of the Company and administers the
Company's equity incentive plans, and an Audit Committee, consisting of Messrs.
Chonette and Schneider, which reviews the results and scope of the audit and
other services provided by the Company's independent accountants. Until March
1996, Mr. Brown, the President and Chief Executive Officer of the Company,
served as a member of the Compensation Committee. There are no family
relationships among any of the directors or executive officers of the Company.
Each officer is elected by and serves at the discretion of the Board of
Directors. Each of the Company's officers and directors, other than nonemployee
directors, devotes substantially full time to the affairs of the Company. The
Company's nonemployee directors devote such time to the affairs of the Company
as is necessary to discharge their duties. There are no family relationships
among any of the directors, officers or key employees of the Company.
Compensation of Directors
Directors do not currently receive any cash compensation from the Company
for their service as members of the Board of Directors, although they are
reimbursed for certain expenses incurred in connection with their attendance at
Board and Committee meetings. However, the Company has entered into an agreement
with Elizabeth B. Connell, M.D., a director of the Company, which provides for a
minimum annual payment of $15,000 for Dr. Connell's attendance at board meetings
and other Company related activities. Dr. Connell has received a grant of an
option to purchase an aggregate of 8,101 shares of Common Stock. Under the
Company's 1996 Director Option Plan, each director who is not also an employee
of the Company (an "Outside Director") will automatically receive an option to
purchase 15,000 shares of Common Stock on the date of this Prospectus or, if
later, upon
50
<PAGE>
joining the Board of Directors. In addition, beginning on the first business day
of 1997, and each year thereafter, each Outside Director who has served on the
Board of Directors for at least the preceding six months and continues to serve
as a director on the date of such grant will be granted an option to purchase
5,000 shares of Common Stock. See "--Stock Plans."
Compensation Committee Interlocks and Insider Participation
The Compensation Committee is responsible for determining salaries,
incentive compensation and other forms of compensation for directors, officers
and other employees of the Company. The Compensation Committee also administers
various incentive compensation plans. The Compensation Committee consists of
Messrs. Colella and Schneider. Mr. Brown, who is the Company's President, Chief
Executive Officer and Chairman of the Board, participates in all discussions and
decisions regarding salaries and incentive compensation for all employees of and
consultants to the Company, except that Mr. Brown is excluded from discussions
regarding his own salary and incentive compensation. Until March 1996, Mr. Brown
served as a member of the Compensation Committee.
Executive Compensation
The following table sets forth the compensation paid by the Company during
the year ended December 31, 1995 to the Chief Executive Officer and to the
Company's other highly compensated executive officers who earned more than
$100,000 during the year ended December 31, 1995 (the "Named Executive
Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term Compensation
---------------------------
Awards
---------------------------
Annual Compensation Securities
Fiscal --------------------------- Restricted Underlying All Other
Name and Principal Position(1) Year Salary Bonus Stock Awards Options Compensation
- --------------------------------------- --------- ------------- ------------ -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Franklin D. Brown ..................... 1995 $ 225,000 -- $ 0(2) -- $ 187,504(3)
President, Chief Executive Officer and
Chairman of the Board
Gary M. Woker ......................... 1995 $ 112,500 -- -- 94,506 --
Vice President of
Research and Development
J.C. MacRae ........................... 1995 $ 114,577 -- -- 77,630 --
Vice President and
Chief Financial Officer
Christopher F. Bova ................... 1995 $ 42,605(4) $ 21,500(5) -- 67,504 $ 42,992(6)
Vice President of United States Sales
</TABLE>
- ------------------------
(1) Certain information about other highly compensated individuals is provided
below: Susan E. Dube joined the Company as Vice President of Business
Development in January 1996. She is paid an annual salary of $125,000, will
receive a bonus of $25,000 in 1996 and has been reimbursed $10,000 for
moving expenses. Ms. Dube also received a one-time, nonrecurring $10,000
bonus upon commencement of employment and an option to purchase 67,504
shares of Common Stock. Kristine F. Lahman joined the Company as Vice
President of Regulatory Affairs, Quality Assurance and Clinical Programs in
May 1995. She was paid $9,167 per month ($110,000 per annum) for the period
of her employment during 1995 and will be paid an annual salary of $120,000
in 1996. In addition, Ms. Lahman received a $14,740 bonus during 1995 and
will receive a bonus of $12,000 in 1996. Ms. Lahman also received an option
to purchase 47,253 shares of Common Stock.
(2) Mr. Brown purchased 328,069 shares of Common Stock for $0.22 per share, the
fair market value at the time of issue as determined by the Company's Board
of Directors.
(3) Consists of reimbursed relocation expenses comprising $59,315 to reimburse
costs associated with the purchase of a residence in California, $42,900 to
reimburse costs associated with the sale of Mr. Brown's former residence and
$85,289 to cover tax liability for such reimbursements.
51
<PAGE>
(4) Christopher F. Bova joined the Company as Vice President of United States
Sales in August 1995. During 1995, he was paid $9,583 per month ($115,000
per annum).
(5) Mr. Bova received a one-time, nonrecurring $10,000 bonus upon joining the
Company and an additional one-time, nonrecurring $11,500 bonus divided
evenly and distributed monthly after joining the Company until December
1995.
(6) Consists of reimbursed relocation expenses comprising $25,721 to reimburse
costs associated with the purchase of a residence in California and $17,271
to cover tax liability for such reimbursement.
Stock Option Information
The following table sets forth certain information concerning stock options
granted during the fiscal year ended December 31, 1995 to the Named Executive
Officers under the Company's 1995 Stock Plan. Options were also granted during
the same fiscal year under the Company's 1990 Incentive Stock Option Plan (the
"1990 Option Plan"). All such options were cancelled in connection with the
Recapitalization and are not included in the table below. In accordance with the
rules of the Securities and Exchange Commission, the following table also sets
forth the potential realizable value over the term of the options (the period
from the grant date to the expiration date) based on assumed rates of stock
appreciation of 5% and 10%, compounded annually. These amounts do not represent
the Company's estimate of future stock price. Actual realizable values, if any,
of stock options will depend on the future performance of the Common Stock.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable
Individual Grants Value at Assumed
-------------------------- Annual Rates of
Number of % of Total Stock Price
Securities Options Appreciation for
Underlying Granted in Option Term(5)
Options Fiscal Exercise or Expiration --------------------
Name(1) Granted(2) Year(3) Base Price(4) Date 5% 10%
- ----------------------------------------- ------------- ----------- --------------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Franklin D. Brown........................ -- -- -- -- -- --
Gary M. Woker............................ 94,506(6) 16.9% $ 0.22 09/08/05 $ 13,076 $ 33,136
J.C. MacRae.............................. 77,630(6) 13.8% $ 0.22 09/08/05 $ 10,741 $ 27,219
Christopher F. Bova...................... 67,504 12.0% $ 0.22 09/08/05 $ 9,340 $ 23,668
</TABLE>
- ------------------------
(1) Certain information about the individuals named in footnote 1 to the Summary
Compensation Table is provided below: In January 1996, Susan E. Dube was
granted an option to purchase 67,504 shares of Common Stock at $0.22 per
share. In September 1995, Kristine F. Lahman was granted an option to
purchase 47,253 shares of Common Stock at $0.22 per share. Ms. Lahman was
also granted an option to purchase 10,801 shares of Common Stock at an
exercise price of $3.70 per share under the Company's 1990 Option Plan in
June 1995. Such option was cancelled pursuant to the Recapitalization.
(2) Options were granted under the Company's 1995 Stock Plan and generally vest
over four years from the date of commencement of employment. Mr. Woker's and
Mr. MacRae's options vest over 36 months.
(3) Based on an aggregate of 560,696 options granted by the Company in the year
ended December 31, 1995 under the Company's 1995 Stock Plan to all employees
of and consultants to the Company, including the Named Executive Officers.
The Company also granted 29,635 options in the year ended December 31, 1995
under the 1990 Option Plan. All unexercised options ever granted under the
1990 Option Plan were cancelled in August 1995, except for an option to
purchase 40,833 shares held by Glen French, a former officer and director of
the Company, which option was exercised in March 1996. As of April 1, 1996,
there were no options outstanding under the 1990 Option Plan.
(4) The exercise price per share of each option was equal to the fair market
value of the Common Stock on the date of grant as determined by the Board of
Directors.
(5) The potential realizable value is calculated based on the term of the option
at its time of grant (ten years). It is calculated assuming that the fair
market value of Common Stock on the date of grant appreciates at the
indicated annual rate compounded annually for the entire term of the option
and that the option is exercised and sold on the last day of its term for
the appreciated stock price.
52
<PAGE>
(6) Mr. Woker and Mr. MacRae were each granted an option to purchase 3,376
shares of Common Stock at an exercise price of $3.70 per share under the
1990 Option Plan in January 1995. Such options were cancelled pursuant to
the Recapitalization.
Option Exercises and Fiscal Year End Option Values
There were no option exercises by the Named Executive Officers in the
Summary Compensation Table above for the year ended December 31, 1995. The
following table sets forth certain information with respect to the value of
stock options held by such individuals as of December 31, 1995.
Fiscal Year End Option Values
<TABLE>
<CAPTION>
Number of Securities
Value of Unexercised
Underlying Unexercised
Options at Fiscal Year In-the-Money Options
End at Fiscal Year End
---------------------- ----------------------
Name Vested Unvested Vested Unvested
- --------------------------------------------------------------------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Franklin D. Brown.................................................... -- -- $ -- $ --
Gary M. Woker........................................................ -- 94,506 -- --
J.C. MacRae.......................................................... -- 77,630 -- --
Christopher F. Bova.................................................. -- 67,504 -- --
</TABLE>
Employment Agreements
The Company has entered into employment agreements with Franklin D. Brown,
its President, Chief Executive Officer and Chairman of the Board, Kristine F.
Lahman, its Vice President of Regulatory Affairs, Quality Assurance and Clinical
Programs, and Christopher F. Bova, its Vice President of United States Sales.
Mr. Brown's employment agreement provides for base pay of $225,000 per annum and
performance bonus based upon criteria established by the Board of Directors, and
for six months of base pay as severance compensation following termination
without cause. Ms. Lahman's employment agreement provides for base pay of
$120,000 and a bonus of $12,000 in 1996, and for six or three months of base pay
and bonus as severance compensation following termination without cause before
May 1996 or November 1996, respectively. Mr. Bova's employment agreement
provides for six months of base pay as severance compensation following
termination without cause prior to August 1996.
Stock Plans
1995 STOCK PLAN. The Company's 1995 Stock Plan (the "1995 Stock Plan") was
adopted by the Board of Directors and approved by the stockholders in September
1995. The 1995 Stock Plan was amended by the Board of Directors in April 1996
and approved by the stockholders in May 1996. The 1995 Stock Plan replaced the
1990 Option Plan, which was terminated pursuant to the Recapitalization. A total
of 1,675,000 shares of Common Stock have been authorized for issuance under the
1995 Stock Plan. As of April 1, 1996, options to purchase an aggregate of
665,059 shares were outstanding, 328,069 shares had been issued pursuant to a
grant of a restricted stock purchase award and 681,872 shares were available for
future grant. As of April 1, 1996, there were no options authorized or
outstanding under the 1990 Option Plan. The 1995 Stock Plan provides for the
grant of incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), nonqualified stock
options and stock purchase rights to employees and consultants of the Company.
Incentive stock options may be granted only to employees. The 1995 Stock Plan is
administered by a committee of the Board of Directors, which determines the
terms of awards granted, including recipient, type of award, exercise price,
number of shares subject to the award and vesting terms. No employee may be
granted an option or options to purchase more than 750,000 shares in any fiscal
year.
The exercise price of incentive stock options granted under the 1995 Stock
Plan must be at least equal to the fair market value of the Company's Common
Stock on the date of grant. The exercise price of an incentive stock option
granted to an employee holding more than 10% of the outstanding stock of the
Company must be at least 110% of the fair market value. The exercise price of
nonqualified stock options is set by the administrator of the 1995 Stock Plan
and must be no less than 85% of the fair market value of the Company's Common
Stock on the date of grant. The maximum term of an option granted under the 1995
Stock Plan is 10 years. In the event of a
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<PAGE>
merger of the Company with or into another corporation or the sale of all or
substantially all of the assets of the Company, each outstanding option may be
assumed or an equivalent option may be substituted by the successor corporation,
or a parent or subsidiary of such successor corporation. If, in such event, an
option is not assumed or substituted, the option shall become fully exercisable
prior to the closing of the merger.
Restricted stock purchase awards granted under the 1995 Stock Plan may be
granted subject to a repurchase option in favor of the Company in accordance
with a service vesting schedule determined by the Board of Directors. The
purchase price for shares repurchased pursuant to the repurchase option shall be
the original price paid by the
purchaser.
1996 DIRECTOR OPTION PLAN. The Company's 1996 Director Option Plan (the
"Director Plan") was adopted by the Board of Directors in April 1996 and
approved by the stockholders in May 1996. A total of 200,000 shares of Common
Stock have been authorized for issuance to the directors of the Company pursuant
to nonstatutory stock options under the Director Plan. Under the Director Plan,
each director who is not also an employee of the Company (each an "Outside
Director") will automatically receive an option to purchase 15,000 shares of
Common Stock (the "Initial Option") on the date of this Prospectus or, if later,
upon joining the Board of Directors. Beginning on the first business day of 1997
and continuing on the first business day of each year thereafter, each Outside
Director will receive an annual grant of an option to purchase 5,000 shares of
Common Stock (the "Subsequent Option"), provided the Outside Director has served
as an Outside Director for at least the preceding six months and continues to
serve as a director on the date of such grant. The exercise price of each of
these options will be equal to the fair market value of the Common Stock on the
date of grant. Each option granted under the Director Plan shall be exercisable
only while the Outside Director remains a director of the Company. Each Initial
Option and each Subsequent Option will vest monthly over four years. In the
event of a merger of the Company with or into another corporation or the sale of
all or substantially all of the assets of the Company, outstanding options must
be assumed by any surviving or successor corporation or its parent, or all
options granted under the Director Plan will become fully vested and
exercisable. Options granted under the Director Plan and assumed by a surviving
or successor corporation or its parent will become fully vested and exercisable
if the optionee's status as a director of such surviving or successor
corporation or parent is terminated other than upon the optionee's voluntary
resignation. The maximum term of options granted under the Director Plan is ten
years. The Director Plan shall be in effect for a term of ten years unless
terminated earlier pursuant to its terms.
1996 EMPLOYEE STOCK PURCHASE PLAN. The Company's 1996 Employee Stock
Purchase Plan (the "Purchase Plan") was adopted by the Board of Directors in
April 1996 and approved by the stockholders in May 1996. A total of 200,000
shares of Common Stock have been authorized for issuance under the Purchase
Plan. No shares have been issued under the Purchase Plan. The Purchase Plan,
which is intended to qualify under Section 423 of the Code, will be administered
by the Board of Directors of the Company or by a committee appointed by the
Board of Directors. Under the Purchase Plan, the Company will withhold a
specified percentage (not to exceed 10%) of each salary payment to participating
employees over certain offering periods. Any employee who is currently employed
for at least 20 hours per week for at least five consecutive months in a
calendar year, either by the Company or by a majority-owned subsidiary of the
Company, will be eligible to participate in the Purchase Plan. Unless the Board
of Directors or its committee determines otherwise, each offering period will
run for 24 months and will be divided into four consecutive purchase periods of
approximately six months. The first offering period and the first purchase
period will commence on the date of this Prospectus. New 24-month offering
periods will commence approximately every six months thereafter. The price at
which Common Stock will be purchased under the Purchase Plan is equal to 85% of
the fair market value of the Common Stock on the first day of the applicable
offering period or the last day of the applicable purchase period, whichever is
lower. Employees may end their participation in the offering at any time during
the offering period, and participation ends automatically on termination of
employment with the Company. The number of shares that a participant may
purchase in any purchase period is determined by dividing the payroll deductions
accumulated during the purchase period by the purchase price. However, no person
may purchase shares under the Purchase Plan to the extent such person would own
5% or more of the total combined value or voting power of all classes of the
capital stock of the Company or of any of its subsidiaries, or to the extent
that such person's rights to purchase stock under all employee stock purchase
plans would accrue at a rate that exceeds $25,000 worth of stock for any
calendar year, determined as of the first day of the applicable offering period.
In the event of a merger of the Company with or into another corporation, or the
sale of all or substantially all of the
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<PAGE>
assets of the Company, the offering period then in progress will be shortened.
The Board may amend the Purchase Plan at any time. The Purchase Plan shall be in
effect for a term of ten years unless terminated earlier pursuant to its terms.
Incentive Bonus Plan
The Company's Board of Directors has approved a 1996 Management Incentive
Bonus program ("Bonus Plan") for officers and other eligible employees. The
Bonus Plan provides for bonuses of up to 20% of base compensation, provided that
certain specific performance criteria are met. No bonuses are payable unless the
Company achieves 200% or more of the combined percentage of its 1996 Operating
Plan revenues and operating profit.
Section 401(k) Plan
The Company has established a 401(k) plan and provides administrative
services under the plan without charge to those employees who participate in the
plan. The plan is entirely self-contributory and the Company does not make any
contributions on behalf of participants.
Limitations on Directors' Liability and Indemnification
The Company's Certificate of Incorporation limits the liability of directors
to the maximum extent permitted by Delaware law. Delaware law provides that
directors of a corporation will not be personally liable for monetary damages
for breach of their fiduciary duties as directors, except liability for (i) any
breach of their duty of loyalty to the corporation or its stockholders, (ii)
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) unlawful payments of dividends or unlawful stock
repurchases or redemptions, or (iv) any transaction from which the director
derived an improper personal benefit. Such limitation of liability does not
apply to liabilities arising under the federal securities laws and does not
affect the availability of equitable remedies such as injunctive relief or
rescission.
The Company's Bylaws provide that the Company shall indemnify its directors
and executive officers and may indemnify its other officers and employees and
other agents to the fullest extent permitted by law. The Company believes that
indemnification under its Bylaws covers at least negligence and gross negligence
on the part of indemnified parties. The Company's Bylaws also permit it to
secure insurance on behalf of any officer, director, employee or other agent for
any liability arising out of his or her actions in such capacity, regardless of
whether the Bylaws permit such indemnification.
The Company has entered into agreements to indemnify its directors and
executive officers, in addition to the indemnification provided for in the
Company's Bylaws. These agreements, among other things, indemnify the Company's
directors and executive officers for certain expenses (including attorneys'
fees), judgments, fines and settlement amounts incurred by any such person in
any action or proceeding, including any action by or in the name of the Company
arising out of such person's services as a director or executive officer of the
Company, any subsidiary of the Company or any other company or enterprise to
which the person provides services at the request of the Company. The Company
believes that these provisions and agreements are necessary to attract and
retain qualified persons as directors and executive officers.
At present, there is no pending litigation or proceeding involving a
director or officer of the Company in which indemnification is required or
permitted and the Company is not aware of any threatened litigation or
proceeding that may result in a claim for such indemnification.
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<PAGE>
CERTAIN TRANSACTIONS
In September 1995, the Company completed an equity recapitalization (the
"Recapitalization"). The following events occurred as part of the
Recapitalization: (i) the conversion of all outstanding shares of Series A,
Series B and Series C Preferred Stock (together constituting the "Prior
Preferred") on a 1-for-1 basis into shares of Common Stock, (ii) a reverse
1-for-5 split of all outstanding Common Stock and options to purchase Common
Stock, (iii) the issuance of 2,153,484 shares of New Series A Preferred Stock at
$3.66 per share, (iv) the conversion of outstanding bridge financing notes
totaling $2,056,586 into 562,062 shares of new Series A Preferred Stock, (v) the
conversion of bridge financing warrants into 281,034 shares of Common Stock, and
(vi) amendments to the stock option plans.
During 1995, the Company obtained $2,056,586 in bridge note financing from
several of its stockholders. Interest at the rate of prime plus 1%, and totaling
$59,468, was paid in cash. In addition, the Company granted a warrant to
purchase a share of the new Series A Preferred Stock with an exercise price of
$3.66 per share for each two shares of new Series A Preferred Stock into which
the bridge financing notes were convertible. Warrants to purchase a total of
281,034 shares of new Series A Preferred Stock were so granted (the "Bridge
Financing Warrants"). Such Bridge Financing Warrants were exchanged for 281,034
shares of Common Stock for no additional consideration as part of the
Recapitalization.
The following entities affiliated with directors and 5% stockholders
exchanged indebtedness for new Series A Preferred Stock and exchanged Bridge
Financing Warrants for shares of Common Stock and paid cash as indicated below:
<TABLE>
<CAPTION>
Series A Common Stock
Common Stock issued issued upon issued in
upon conversion of conversion exchange Series A issued
Name Prior Preferred of notes for warrants for cash
- ------------------------------------------------- --------------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C>
Entities Affiliated with Directors
Entities Affiliated with Domain Associates..... -- -- -- 546,589(1)
Entities Affiliated with Institutional Venture
Partners...................................... 269,210(2) 204,972(3) 102,487(4) 314,289(5)
Brentwood Associates V, L.P. (6)............... 300,837 136,648 68,324 --
Other 5% Stockholders
BankAmerica Ventures........................... -- -- -- 546,590(7)
New York Life Insurance Company................ 60,829 109,318 54,659 68,324
Biotechnology Investments Limited (8).......... -- 546,589
</TABLE>
- ------------------------
(1) Includes 528,105 shares held by Domain Partners III, L.P. and 18,484 shares
held by DP III Associates, L.P. Richard S. Schneider, Ph.D., a director of
the Company, is a general partner of the General Partner of the entities
affiliated with Domain Associates.
(2) Includes 265,167 shares held by Institutional Venture Partners IV, L.P.
("IVP IV") and 4,043 shares held by Institutional Venture Management IV,
L.P. ("IVM IV"). Samuel D. Colella, a director of the Company, is a general
partner of the General Partner of the entities affiliated with Institutional
Venture Partners.
(3) Includes 201,897 shares held by IVP IV and 3,075 shares held by IVM IV.
(4) Includes 100,949 shares held by IVP IV and 1,538 shares held by IVM IV.
(5) Includes 309,575 shares held by IVP IV and 4,714 shares held by IVM IV.
(6) David W. Chonette, a director of the Company, is a general partner of
Brentwood Associates, the General Partner of Brentwood Associates V, L.P.
(7) Includes 491,930 shares held by BankAmerica Ventures and 54,660 shares held
by BA Venture Partners I.
(8) Old Court Limited is the record holder of the shares as custodian for
Biotechnology Investments Limited.
The Company has entered into an agreement dated February 1994 with Elizabeth
B. Connell, M.D., a director of the Company, which provides for a minimum annual
payment of $15,000 for Dr. Connell's attendance at meetings of the Board of
Directors and other consulting activities.
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<PAGE>
In October 1994, the Company issued 45,903 shares to Franklin D. Brown, the
President, Chief Executive Officer and Chairman of the Board, at a price of
$3.70 per share in exchange for a $170,000 promissory note executed by Mr.
Brown. Such shares were repurchased by the Company in August 1995 in exchange
for cancellation of the $170,000 promissory note executed by Mr. Brown. Also in
October 1994, Mr. Brown was granted options to purchase 20,252 shares of Common
Stock at an exercise price of $3.70 per share. Those options were cancelled as
part of the Recapitalization.
In October 1995, the Company sold 328,069 shares of Common Stock to Mr.
Brown at a purchase price of $0.22 per share in exchange for a $72,900
promissory note executed by Mr. Brown pursuant to a stock purchase agreement. A
separate agreement dated April 1996 provided the Company with a right to
repurchase such shares, at a price of $0.22 per share. The promissory note bears
interest at 6.31% per annum with all principal and interest due on October 30,
2000. The promissory note is collateralized by the related shares of Common
Stock. The repurchase option, which matches the vesting terms of the shares,
expires with respect to 35% of the shares in September 1996 and, for the
remaining shares, on a monthly pro rata basis through September 1998.
The Company has entered into an agreement dated March 1996 with Guy R.
Lowery, a former officer and director of the Company. The agreement includes,
among other matters, provisions regarding resignation, consulting services, and
certain amendments to a pledge agreement made in connection with a secured
promissory note for $75,000 collateralized by 47,253 shares of Common Stock. The
agreement provides for the repayment of the principal of and accrued interest on
the promissory note with shares of Common Stock, and in connection with such
repayment, for the repurchase by the Company of 7,585 shares of Common Stock at
$11.00 per share.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information known to the Company with respect
to the beneficial ownership of its Common Stock as of April 15, 1996, and as
adjusted to reflect the sale of Common Stock offered by the Company hereby and
conversion of all outstanding shares of Preferred Stock into shares of Common
Stock, for (i) each person who is known by the Company to own beneficially more
than 5% of the Company's Common Stock, (ii) each of the Company's directors,
(iii) each Named Executive Officer and (iv) all directors and Named Executive
Officers as a group.
<TABLE>
<CAPTION>
Percent Beneficially
Owned(1)(2)(3)
Number of ------------------------
Shares Percent Percent
Directors, Named Executive Officers, 5% Stockholders, and Beneficially Before After
Directors and Named Executive Officers as a Group Owned(1)(2) Offering Offering
- ------------------------------------------------------------------------------ ------------- ----------- -----------
<S> <C> <C> <C>
Entities affiliated with Institutional Venture Partners(4).................... 890,958 18.8% 12.3%
Samuel D. Colella
3000 Sand Hill Road
Building 2, Suite 290
Menlo Park, CA 94025
BankAmerica Ventures(5)....................................................... 546,590 11.5% 7.6%
950 Tower Lane, Suite 700
Foster City, CA 94404
Entities affiliated with Domain Associates(6)................................. 546,589 11.5% 7.6%
Richard S. Schneider, Ph.D.
One Palmer Square, Suite 515
Princeton, NJ 08542
Biotechnology Investments Limited(7).......................................... 546,589 11.5% 7.6%
Post Office Box 58
St. Julian's Court, St. Peter's Port
Guernsey, Channel Islands
Brentwood Associates V, L.P.(8)............................................... 505,809 10.7% 7.0%
David W. Chonette
1920 Main Street, Suite 820
Irvine, CA 92714
New York Life Insurance Company............................................... 293,130 6.2% 4.0%
51 Madison Avenue, Room 203
New York, NY 10010
Franklin D. Brown(9).......................................................... 328,069 6.9% 4.6%
J.C. MacRae................................................................... -- * *
Gary M. Woker................................................................. -- * *
Christopher F. Bova........................................................... -- * *
David W. Chonette(8).......................................................... 505,809 10.7 % 7.0 %
Samuel D. Colella(4).......................................................... 890,958 18.8 % 12.3 %
Elizabeth B. Connell, M.D. (10)............................................... 2,603 * *
Richard S. Schneider, Ph.D.(6)(11)............................................ 1,093,178 23.0 % 15.1 %
All Directors and Named Executive Officers as a group (8 persons)............. 2,820,617 59.4 % 38.9 %
</TABLE>
- ------------------------
* Less than 1%
(1) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have sole
voting and investment power with respect to all shares of Common Stock.
(2) The number of shares of Common Stock beneficially owned includes the shares
issuable pursuant to stock options that may be exercised within 60 days
after April 15, 1996. Shares issuable pursuant to such options are
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<PAGE>
not deemed outstanding for purposes of computing the percentage of any other
person. The number of shares of Common Stock outstanding after this Offering
includes the 2,500,000 shares of Common Stock being offered for sale by the
Company in this Offering.
(3) Assumes no exercise of the Underwriters' over-allotment option. See
"Underwriting." Applicable percentage ownership is based upon 4,751,740
shares of Common Stock outstanding as of April 15, 1996 together with
applicable options for each stockholder.
(4) Includes 877,588 shares beneficially owned by Institutional Venture
Partners IV, L.P. and 13,370 shares beneficially owned by Institutional
Venture Management IV, L.P. Mr. Colella, a director of the Company, is a
general partner of the General Partner of Institutional Venture Partners IV,
L.P. and Institutional Venture Management IV, L.P. Mr. Colella disclaims
beneficial ownership of the shares beneficially owned by such entities
except to the extent of his proportionate partnership interest therein.
(5) Includes 491,930 shares beneficially owned by BankAmerica Ventures and
54,660 shares beneficially owned by BA Venture Partners I.
(6) Includes 528,105 shares beneficially owned by Domain Partners III, L.P. and
18,484 shares beneficially owned by DP III Associates, L.P. Dr. Schneider, a
director of the Company, is a general partner of One Palmer Square
Associates III, L.P., the general partner of Domain Partners III, L.P. and
DP III Associates, L.P. Dr. Schneider has indirect beneficial ownership of
these shares. Dr. Schneider disclaims beneficial ownership of the shares
beneficially owned by such entities except to the extent of his
proportionate partnership interest therein.
(7) Old Court Limited is the record holder of the shares as custodian for
Biotechnology Investments Limited.
(8) Mr. Chonette, a director of the Company, is a general partner of the
General Partner of Brentwood Associates V, L.P. Mr. Chonette disclaims
beneficial ownership of the shares beneficially owned by Brentwood
Associates V, L.P. except to the extent of his proportionate partnership
interest therein.
(9) Includes 328,069 shares beneficially owned by Mr. Brown subject to a
repurchase option in favor of the Company. Such repurchase option lapses
with respect to 114,824 shares in September 1996 and 8,886 shares each month
thereafter.
(10) Includes 2,603 shares issuable upon exercise of options exercisable within
60 days of April 15, 1996 held by Dr. Connell.
(11) Also includes 546,589 shares beneficially owned by Biotechnology
Investments Limited. Old Court Limited is the record holder of the shares as
custodian for Biotechnology Investments Limited. Pursuant to a contractual
agreement, Domain Associates is the U.S. venture capital advisor to
Biotechnology Investments Limited. Dr. Schneider is a general partner of
Domain Associates. Domain Associates has neither voting nor investment power
over Biotechnology Investments Limited and Dr. Schneider and Domain
Associates disclaim beneficial ownership of the Biotechnology Investments
Limited shares. Dr. Schneider disclaims beneficial ownership of shares held
by One Palmer Square Associates III, L.P. except to the extent of his
proportionate partnership interest therein.
59
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 50,000,000 shares of
Common Stock and 5,000,000 shares of Preferred Stock, after giving effect to the
restatement of the Company's Certificate of Incorporation upon the closing of
this Offering. The following summaries of certain provisions of the Common Stock
and Preferred Stock do not purport to be complete and are subject to, and
qualified in their entirety by, the provisions of the Company's Certificate of
Incorporation, which is included as an exhibit to the Registration Statement of
which this Prospectus forms a part, and by applicable law.
Common Stock
As of April 15, 1996, there were 4,744,155 shares of Common Stock
outstanding held by 47 stockholders of record.
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding Preferred Stock, the holders of Common Stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the Board of Directors out of funds legally available for that
purpose. See "Dividend Policy." In the event of a liquidation, dissolution or
winding up of the Company, the holders of Common Stock are entitled to share
ratably in all assets remaining after payment of liabilities, subject to prior
distribution rights of Preferred Stock, if any, then outstanding. The Common
Stock has no preemptive or conversion rights or other subscription rights. There
are no redemption or sinking fund provisions applicable to the Common Stock. All
outstanding shares of Common Stock are fully paid and nonassessable, and the
shares of Common Stock to be issued upon the closing of this Offering will be
fully paid and nonassessable.
Preferred Stock
The Board of Directors has the authority, without action by the
stockholders, to designate and issue shares of Preferred Stock in one or more
series and to designate the rights, preferences and privileges of each series,
any or all of which may be greater than the rights of the Common Stock. It is
not possible to state the actual effect of the issuance of any shares of
Preferred Stock upon the rights of holders of the Common Stock until the Board
of Directors determines the specific rights of the holders of such Preferred
Stock. However, the effects might include, among other things, restricting
dividends on the Common Stock, diluting the voting power of the Common Stock,
impairing the liquidation rights of the Common Stock and delaying or preventing
a change in control of the Company without further action by the stockholders.
The Company has no present plans to issue any shares of Preferred Stock.
Reincorporation in Delaware
The Company intends to reincorporate in Delaware in connection with this
Offering. The Company believes that Delaware law provides flexibility and the
Delaware courts have particular expertise with matters affecting public
companies and their stockholders. Except as otherwise noted, all information in
the Prospectus assumes the reincorporation has occurred.
Registration Rights of Certain Holders
The holders of 4,102,223 shares of Common Stock (the "Registrable
Securities") or their transferees are entitled to certain rights with respect to
the registration of such shares under the Securities Act. These rights are
provided under the terms of an agreement between the Company and the holders of
Registrable Securities. Subject to certain limitations in the agreement, the
holders of at least 40% of the Registrable Securities may require, on two
occasions after December 31, 1996, that the Company use its best efforts to
register the Registrable Securities for public resale. If the Company registers
any of its Common Stock either for its own account or for the account of other
security holders, the holders of Registrable Securities are entitled to include
their shares of Common Stock in the registration, subject to the ability of the
underwriters to limit the number of shares included in the offering (but to not
less than 25% of the offering). The holders of at least 20% of the Registrable
Securities may also require the Company, on four occasions to register all or a
portion of their Registrable Securities on Form S-3 when use of such form
becomes available to the Company, provided, among other limitations, that the
proposed aggregate selling
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<PAGE>
price (net of any underwriters' discounts or commissions) is at least $1.0
million. All registration expenses must be borne by the Company and all selling
expenses relating to Registrable Securities must be borne by the holders of the
securities being registered.
Delaware Law and Certain Charter Provisions
The Company is a Delaware corporation and is subject to Section 203 of the
Delaware General Corporation Law, an anti-takeover law. In general, Section 203
prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years
following the date the person became an interested stockholder, unless (with
certain exceptions) the "business combination" or the transaction in which the
person became an interested stockholder is approved in a prescribed manner.
Generally, a "business combination" includes a merger, asset or stock sale, or
other transaction resulting in a financial benefit to the interested
stockholder. Generally, an "interested stockholder" is a person who, together
with affiliates and associates, owns (or within three years prior to the
determination of interested stockholder status, did own) 15% or more of a
corporation's voting stock. The existence of this provision would be expected to
have an anti-takeover effect with respect to transactions not approved in
advance by the Board of Directors, including discouraging takeover attempts that
might result in a premium over the market price for the shares of Common Stock
held by stockholders.
The Company's Certificate of Incorporation will provide that, upon the
closing of this Offering, the Board of Directors will be divided into three
classes of directors with each class serving a staggered three-year term. The
classification system of electing directors may tend to discourage a third party
from making a tender offer or otherwise attempting to obtain control of the
Company and may maintain the incumbency of the Board of Directors, as the
classification of the Board of Directors generally increases the difficulty of
replacing a majority of the directors. The Company's Certificate of
Incorporation will also eliminate the right of stockholders to act by written
consent without a meeting. The Certificate of Incorporation and Bylaws do not
provide for cumulative voting in the election of directors. The authorization of
undesignated Preferred Stock makes it possible for the Board of Directors to
issue Preferred Stock with voting or other rights or preferences that could
impede the success of any attempt to change control of the Company. These and
other provisions may have the effect of delaying or preventing hostile takeovers
or delaying changes in control or management of the Company. The amendment of
any of these provisions would require approval by holders of at least 66 2/3% of
the outstanding Common Stock.
Transfer Agent and Registrar
The transfer agent and registrar for the Common Stock is Norwest Bank
Minnesota, N.A. Its telephone number is (800) 468-9716.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no market for the Common Stock of the
Company. Future sales of substantial amounts of Common Stock in the public
market could adversely affect market prices prevailing from time to time.
Furthermore, since only a limited number of shares will be available for sale
shortly after this Offering because of certain contractual and legal
restrictions on resale (as described below), sales of substantial amounts of
Common Stock of the Company in the public market after the restrictions lapse
could adversely affect the prevailing market price and the ability of the
Company to raise equity capital in the future.
Upon the completion of this Offering, the Company will have 7,244,155 shares
of Common Stock outstanding, assuming no exercise of options after April 1,
1996. Of these outstanding shares of Common Stock, the 2,500,000 shares sold in
this Offering will be freely tradable without restriction under the Securities
Act, unless purchased by "affiliates" of the Company, as that term is defined in
Rule 144 under the Securities Act. The remaining 4,744,155 shares of Common
Stock held by existing stockholders are "restricted securities" as that term is
defined in Rule 144 under the Securities Act, and were issued and sold by the
Company in reliance on exemptions from the registration requirements of the
Securities Act. These shares may be sold in the public market only if registered
or pursuant to an exemption from registration, such as Rule 144, 144(k) or 701
under the Securities Act.
All holders of Common Stock and options to purchase Common Stock have agreed
pursuant to certain lock-up agreements that they will not offer, sell, contract
to sell, grant any option to sell or otherwise dispose of, directly
61
<PAGE>
or indirectly, any shares of Common Stock owned by them or that could be
purchased by them through the exercise of options to purchase Common Stock of
the Company for a period of 180 days after the date of this Prospectus without
the prior written consent of Dillon, Read & Co. Inc. The Company has entered
into a similar agreement, except that the Company may grant options and issue
stock under its current stock option and stock purchase plans and pursuant to
other currently outstanding options. In addition, during the 180-day lock-up
period, the Company may issue shares of Common Stock in connection with
acquisitions of products, technologies or businesses, provided that (i) any such
shares shall be subject to the foregoing lock-up restrictions for the balance of
the 180-day lock-up period remaining at the time of issuance and (ii) the
Company notifies Dillon, Read & Co. Inc. in advance of any such issuance. In
addition, in the event that during the first 90 days of the 180-day lock-up
period the number of shares that the Company proposes to issue in connection
with any such acquisition is in excess of 10% of the number of shares offered
hereby, the Company will obtain the prior written consent of Dillon, Read & Co.
Inc. to such issuance.
Assuming no shares are released from the lock-up agreements before the
180-day period, upon such expiration, approximately 713,811 shares of Common
Stock held by existing stockholders will be eligible for sale without
restriction pursuant to Rule 144(k) or Rule 701, and approximately 1,020,112
shares held by existing stockholders will be eligible for sale subject to the
volume and other restrictions of Rule 144. The remaining 3,010,232 shares held
by existing stockholders will become eligible for sale pursuant to Rule 144 upon
the expiration of their two-year holding periods. 4,102,223 of the shares
outstanding immediately following the completion of this Offering will be
entitled to registration rights with respect to such shares upon the release of
lock-up agreements. The number of shares sold in the public market could
increase if such rights are exercised.
As of April 1, 1996, 665,059 shares were subject to outstanding options. All
of these shares are subject to the lock-up agreements described above.
Approximately 30 days after the date of this Prospectus, the Company intends to
file a Registration Statement on Form S-8 to register all shares issuable under
the Company's 1995 Stock Plan (including shares subject to then outstanding
options under such plans), 1996 Director Option Plan and 1996 Employee Stock
Purchase Plan, thus permitting the resale of such shares in the public market,
subject to Rule 144 volume limitations applicable to affiliates, without
restriction under the Securities Act after expiration of the applicable lock-up
agreements. Upon the expiration of such lock-up agreements, 244,168 shares
subject to such options will be vested.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least two
years (including the holding period of any prior owner, except an affiliate) is
entitled to sell in a "broker's transaction" or to a market maker, within any
three-month period commencing 90 days after the date of this Prospectus, a
number of shares that does not exceed the greater of (i) one percent of the
number of shares of Common Stock then outstanding (approximately 73,000 shares
immediately after this Offering) or (ii) the average weekly trading volume of
the Common Stock during the four calendar weeks preceding the required filing of
a Form 144 with respect to such sale. Sales under Rule 144 are generally subject
to certain manner of sale provisions and notice requirements and to the
availability of current public information about the Company. Under Rule 144(k),
a person who is not deemed to have been an affiliate of the Company at any time
during the 90 days preceding a sale, and who has beneficially owned the shares
proposed to be sold for at least three years, is entitled to sell such shares
without having to comply with the manner of sale, public information, volume
limitation or notice provisions of Rule 144. Under Rule 701, persons who
purchase shares upon exercise of options granted prior to the effective date of
this Offering are entitled to sell such shares 90 days after the effective date
of this Offering in reliance on Rule 144, without having to comply with the
holding period requirements of Rule 144 and, in the case of non-affiliates,
without having to comply with the public information, volume limitation or
notice provisions of Rule 144.
The Securities and Exchange Commission has recently proposed reducing the
Rule 144 holding period to one year and the Rule 144(k) holding period to two
years. There can be no assurance as to when or whether such rule changes will be
enacted. If enacted, such modifications will have a material effect on the times
when shares of the Company's Common Stock become eligible for resale.
62
<PAGE>
UNDERWRITING
The names of the Underwriters of the shares of Common Stock offered hereby
and the aggregate number of shares which each has severally agreed to purchase
from the Company (subject to the terms and conditions specified in the
Underwriting Agreement) are as follows:
<TABLE>
<CAPTION>
Underwriters Number of Shares
- ----------------------------------------------------------------- -----------------
<S> <C>
Dillon, Read & Co. Inc...........................................
Montgomery Securities............................................
--------
Total...................................................... 2,500,000
--------
--------
</TABLE>
The Managing Underwriters are Dillon, Read & Co. Inc. and Montgomery
Securities.
If any of the shares of Common Stock offered hereby are purchased by the
Underwriters, all such shares will be so purchased. The Underwriting Agreement
contains certain provisions whereby if any Underwriter defaults in its
obligation to purchase such shares and if the aggregate obligations of the
Underwriters so defaulting do not exceed 10% of the shares offered hereby, the
remaining Underwriters, or some of them, must assume such obligations.
The shares of Common Stock offered hereby are being offered severally by the
Underwriters for sale at the price set forth on the cover page hereof, or at
such price less a concession not to exceed $ per share on sales to certain
dealers. The Underwriters may allow, and such dealers may reallow, a concession
not to exceed $ per share on sales to certain other dealers. The offering of
the shares of Common Stock is made for delivery when, as, and if accepted by the
Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offer without notice. The Underwriters reserve the right to
reject any order for the purchase of the shares. After the shares are released
for sale to the public, the public offering price, the concession and the
reallowance may be changed by the Managing Underwriters.
The Company has granted to the Underwriters an option to purchase up to an
additional 375,000 shares of Common Stock on the same terms per share. If the
Underwriters exercise this option, each of the Underwriters will have a firm
commitment, subject to certain conditions, to purchase approximately the same
proportion of the aggregate shares so purchased as the number of shares to be
purchased by it shown in the above table bears to the total number of shares in
such table. The Underwriters may exercise such option on or before the thirtieth
day from the date of the public offering of the shares offered hereby and only
to cover over-allotments made of the shares in connection with this Offering.
The Company, its executive officers and directors and all of its existing
stockholders and optionholders have agreed that they will not, without the prior
written consent of Dillon, Read & Co. Inc., sell, contract to sell, grant any
option to sell, transfer or otherwise dispose of, directly or indirectly, any
shares of the Common Stock, or any securities convertible into, or exercisable
or exchangeable for, Common Stock or warrants or other rights to purchase Common
Stock, prior to the expiration of 180 days from the date of the consummation of
this Offering, except that the Company may grant options and issue stock under
its current stock option and stock purchase plans and pursuant to other
currently outstanding options. In addition, during the 180-day lock-up period,
the Company may issue shares of Common Stock in connection with acquisitions of
products, technologies or businesses, provided that (i) any such shares shall be
subject to the foregoing lock-up restrictions for the balance of the 180-day
lock-up period remaining at the time of issuance and (ii) the Company notifies
Dillon, Read & Co. Inc. in advance
63
<PAGE>
of any such issuance. In addition, in the event that during the first 90 days of
the 180-day lock-up period the number of shares that the Company proposes to
issue in connection with any such acquisition is in excess of 10% of the number
of shares offered hereby, the Company will obtain the prior written consent of
Dillon, Read & Co. Inc. to such issuance.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including any liabilities under the Securities Act, or to
contribute to payments the Underwriters may be required to make in respect
thereof.
Prior to this Offering, there was no public market for the Common Stock.
Consequently, the initial public offering price for the Common Stock was
determined by negotiation between the Managing Underwriters and the Company.
Factors considered in determining such price were prevailing market conditions,
the state of the Company's development, recent financial results of the Company,
the future prospects of the Company and its industry, market valuations of
securities of companies engaged in activities deemed by the Managing
Underwriters to be similar to those of the Company, and other factors deemed
relevant.
The Underwriters do not intend to confirm sales to accounts over which they
exercise discretionary authority.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California. Certain legal matters will be passed upon for the Underwriters
by Cooley Godward Castro Huddleson & Tatum, Menlo Park, California. As of the
date of this Prospectus, certain members of Wilson Sonsini Goodrich & Rosati,
Professional Corporation and investment partnerships of which such persons are
partners beneficially own 7,914 shares of the Company's Common Stock.
EXPERTS
The consolidated balance sheets as of December 31, 1995 and 1994, and the
related consolidated statements of operations, shareholders' deficit and cash
flows for the years ended December 31, 1995, 1994, and 1993 included in this
Prospectus and Registration Statement have been so included in reliance on the
report of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing.
The statements in this Prospectus under the caption "Risk Factors--Reliance
on Patents and Protection of Proprietary Technology" and "Business--Patents,
Trade Secrets and Licenses" have been reviewed and approved by Myers, Uxa &
Stout, special patent counsel to the Company, as experts in such matters, and
are included herein in reliance upon such review and approval.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form S-1
under the Securities Act with respect to the shares of Common Stock offered
hereby. This Prospectus, which is part of the Registration Statement, does not
contain all the information set forth in the Registration Statement and the
exhibits and schedules filed therewith. For further information with respect to
the Company and such Common Stock, reference is made to the Registration
Statement and to the exhibits and schedules filed therewith. Statements
contained in this Prospectus as to the contents of any contract or other
document referred to are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. A copy of the Registration Statement, including
the exhibits and schedules filed therewith, may be inspected by anyone without
charge at the Commission's principal office in Washington, D.C., and copies of
all or any part of the Registration Statement may be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, upon payment of certain fees prescribed by the Commission.
64
<PAGE>
IMAGYN MEDICAL, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Report Of Independent Accountants.......................................................................... F-2
Consolidated Balance Sheets At December 31, 1994 And 1995, And At March 31, 1996 (unaudited)............... F-3
Consolidated Statements Of Operations For The Years Ended December 31, 1993, 1994 And 1995, And For The
Three Months Ended March 31, 1995 (unaudited) And For The Three Months Ended March 31, 1996 (unaudited)... F-4
Consolidated Statements Of Stockholders' Deficit For The Years Ended December 31, 1993, 1994 And 1995 And
For The Three Months Ended March 31, 1996 (unaudited)..................................................... F-5
Consolidated Statements Of Cash Flows For The Years Ended December 31, 1993, 1994 And 1995, And For The
Three Months Ended March 31, 1995 (unaudited) And For The Three Months Ended March 31, 1996 (unaudited)... F-6
Notes To Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Imagyn Medical, Inc.
Laguna Niguel, California
We have audited the accompanying consolidated balance sheets of Imagyn
Medical, Inc. as of December 31, 1994 and 1995, and the related consolidated
statements of operations, stockholders' deficit, and cash flows for each of the
three years in the period ended December 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Imagyn Medical, Inc. as of December 31, 1994 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Newport Beach, California
April 8, 1996
F-2
<PAGE>
IMAGYN MEDICAL, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS:
<TABLE>
<CAPTION>
UNAUDITED
PRO FORMA
DECEMBER 31, MARCH 31, STOCKHOLDERS'
---------------------------- ------------- EQUITY AT
1994 1995 1996 MARCH 31, 1996
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Current assets:
Cash and cash equivalents.......................... $ 2,021,359 $ 2,359,773 $ 3,277,055
Short-term investments............................. 6,980,454 4,495,338
Restricted cash.................................... 131,000 131,000
Accounts receivable, net of allowance for doubtful
accounts of $60,000 in 1994, 1995 and March 31,
1996.............................................. 470,139 909,139 1,402,261
Inventories........................................ 996,457 1,063,867 1,255,863
Other current assets............................... 147,343 172,760 199,983
------------- ------------- -------------
Total current assets........................... 3,635,298 11,616,993 10,761,500
Furniture, fixtures and equipment, net............... 459,412 389,787 430,750
Other assets......................................... 78,879 17,642 176,226
------------- ------------- -------------
Total assets................................... $ 4,173,589 $ 12,024,422 $ 11,368,476
------------- ------------- -------------
------------- ------------- -------------
LIABILITIES, REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT):
Current liabilities:
Accounts payable................................... $ 273,158 $ 441,868 $ 975,293
Accrued salaries and benefits...................... 142,293 83,158 94,390
Accrued liabilities................................ 547,546 660,889 896,071
------------- ------------- -------------
Total current liabilities...................... 962,997 1,185,915 1,965,754
------------- ------------- -------------
Deferred income...................................... 1,000,000 1,000,000 1,000,000
------------- ------------- -------------
Commitments and contingencies (Note 13)
Convertible redeemable preferred stock, 1,076,988,
2,715,546 and 2,715,546 shares issued and
outstanding in 1994, 1995 and March 31, 1996,
respectively, no shares pro forma................... 20,122,343 9,935,981 9,935,981 $ --
------------- ------------- -------------
Stockholders' equity (deficit):
Preferred stock, $0.001 par value, 5,000,000 shares
authorized, no shares issued and outstanding......
Common stock, no par value ($0.001 par value pro
forma), 50,000,000 shares authorized, 353,278,
1,995,361 and 2,036,194 shares issued and
outstanding in 1994, 1995 and March 31, 1996,
respectively, 4,751,740 shares pro forma.......... 218,933 21,395,137 21,739,548 4,752
Additional paid-in capital......................... 31,670,777
Unearned compensation.............................. (753,640) (964,911) (964,911)
Amounts due from stockholders...................... (293,000) (195,900) (195,900) (195,900)
Accumulated deficit................................ (17,837,684) (20,543,071) (22,111,996) (22,111,996)
------------- ------------- ------------- --------------
Total stockholders' equity (deficit)........... (17,911,751) (97,474) (1,533,259) $ 8,402,722
------------- ------------- ------------- --------------
--------------
Total liabilities, redeemable preferred stock
and stockholders' equity (deficit)............ $ 4,173,589 $ 12,024,422 $ 11,368,476
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
IMAGYN MEDICAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
YEARS ENDED DECEMBER 31,
------------------------------------------- ----------------------------
1993 1994 1995 1995 1996
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Net sales............................. $ 1,047,110 $ 1,004,742 $ 2,242,655 $ 335,321 $ 1,467,418
Cost of sales......................... 1,005,675 1,267,968 1,810,849 264,987 1,222,261
------------- ------------- ------------- ------------- -------------
Gross profit (loss)............... 41,435 (263,226) 431,806 70,334 245,157
------------- ------------- ------------- ------------- -------------
Sales and marketing expenses.......... 2,397,120 2,317,423 3,295,842 459,376 746,070
Research and development expenses..... 1,917,029 1,796,563 1,810,759 403,012 739,947
General and administrative expenses... 903,827 1,107,418 1,252,820 274,154 446,024
------------- ------------- ------------- ------------- -------------
5,217,976 5,221,404 6,359,421 1,136,542 1,932,041
------------- ------------- ------------- ------------- -------------
Other operating income................ 3,500,000
------------- ------------- ------------- ------------- -------------
Loss from operations.............. (5,176,541) (5,484,630) (2,427,615) (1,066,208) (1,686,884)
Other income (expense), net:
Interest income..................... 337,766 175,063 174,114 16,936 120,411
Interest expense.................... (694) (234) (391,086) (548)
------------- ------------- ------------- ------------- -------------
Other income (expense), net....... 337,072 174,829 (216,972) 16,388 120,411
------------- ------------- ------------- ------------- -------------
Loss before provision for income
taxes............................ (4,839,469) (5,309,801) (2,644,587) (1,049,820) (1,566,473)
------------- ------------- ------------- ------------- -------------
Provision for income taxes............ 800 800 800 2,452
------------- ------------- ------------- ------------- -------------
Net loss.......................... $ (4,840,269) $ (5,310,601) $ (2,645,387) $ (1,049,820) $ (1,568,925)
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Net loss applicable to common
stock................................ $ (4,920,269) $ (5,390,601) $ (2,705,387) $ (1,069,820) $ (1,568,925)
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Net loss per common share and common
equivalent share..................... $ (1.16) $ (1.26) $ (0.59) $ (0.25) $ (0.29)
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Weighted average common shares and
common equivalent shares
outstanding.......................... 4,240,000 4,263,000 4,573,000 4,252,000 5,334,000
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
IMAGYN MEDICAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK AMOUNTS TOTAL
--------------------- UNEARNED DUE FROM ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT COMPENSATION STOCKHOLDERS DEFICIT DEFICIT
--------- ---------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1993................... 285,058 $ 2,413 $(7,526,814) $(7,524,401)
Common stock issued upon exercise of stock
options.................................... 18,255 43,104 43,104
Accretion of convertible redeemable
preferred stock............................ (80,000) (80,000)
Amount loaned to stockholders............... $ (123,000) (123,000)
Net loss for the year ended December 31,
1993....................................... (4,840,269) (4,840,269)
--------- ---------- ------------- ------------ ------------ ------------
Balances, December 31, 1993................. 303,313 45,517 (123,000) (12,447,083) (12,524,566)
Common stock issued upon exercise of stock
options.................................... 4,062 3,416 3,416
Accretion of convertible redeemable
preferred stock............................ (80,000) (80,000)
Amount due from stockholder from the sale of
common stock............................... 45,903 170,000 (170,000)
Net loss for the year ended December 31,
1994....................................... (5,310,601) (5,310,601)
--------- ---------- ------------- ------------ ------------ ------------
Balances, December 31, 1994................. 353,278 218,933 (293,000) (17,837,684) (17,911,751)
Common stock issued upon conversion of
preferred stock (less costs of $90,730).... 1,076,969 20,091,613 20,091,613
Common stock issued upon exercise of stock
options.................................... 1,576 2,953 2,953
Cancelation of common stock and amount due
from stockholder........................... (45,903) (170,000) 170,000
Amount due from stockholder from sale of
common stock............................... 328,069 72,900 (72,900)
Issuance of bridge financing warrants,
subsequently exchanged for common stock.... 281,034 331,618 331,618
Common stock issued for consulting
services................................... 338 1,250 1,250
Accretion of convertible redeemable
preferred stock............................ (60,000) (60,000)
Unearned compensation related to stock
options granted, net of cancelations of
$14,557.................................... 845,870 $(845,870)
Compensation related to stock options
vesting.................................... 92,230 92,230
Net loss for the year ended December 31,
1995....................................... (2,645,387) (2,645,387)
--------- ---------- ------------- ------------ ------------ ------------
Balances, December 31, 1995................. 1,995,361 21,395,137 (753,640) (195,900) (20,543,071) (97,474)
Common stock issued upon exercise of stock
options (unaudited)........................ 40,833 45,368 45,368
Unearned compensation related to stock
options granted (unaudited)................ 299,043 (299,043)
Compensation related to stock options
vesting (unaudited)........................ 87,772 87,772
Net loss for the three months ended March
31, 1996 (unaudited)....................... (1,568,925) (1,568,925)
--------- ---------- ------------- ------------ ------------ ------------
Balances, March 31, 1996 (unaudited)........ 2,036,194 $21,739,548 $(964,911) $ (195,900) ($22,111,996) $(1,533,259)
--------- ---------- ------------- ------------ ------------ ------------
--------- ---------- ------------- ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
IMAGYN MEDICAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
YEARS ENDED DECEMBER 31, 31,
------------------------------------- ------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net loss.............................................. $(4,840,269) $(5,310,601) $(2,645,387) $(1,049,820) $(1,568,925)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization....................... 158,237 188,610 210,180 51,214 51,794
Loss on disposal of furniture, fixtures and
equipment.......................................... 24,014
Provision for doubtful accounts..................... 60,000
Noncash interest expense on bridge financing
warrants........................................... 331,618
Common stock issued for consulting services......... 1,250
Compensation related to stock options vesting....... 92,230 87,772
Increase in accounts receivable..................... (119,822) (285,860) (439,000) (82,202) (493,122)
(Increase) decrease in inventories.................. (428,160) 35,780 (67,410) (104,331) (191,996)
(Increase) decrease in other current assets......... 70,640 (47,189) (25,417) (45,456) (27,222)
(Increase) decrease in other assets................. (143,662) 127,413 58,837 31,377 (159,186)
Increase (decrease) in accounts payable............. (118,416) (43,901) 168,710 18,040 533,425
Increase (decrease) in accrued salaries and
benefits........................................... 1,846 48,950 (59,135) (31,416) 11,233
Increase (decrease) in other accrued liabilities.... 51,482 150,301 113,343 (24,237) 235,182
----------- ----------- ----------- ----------- -----------
Net cash used by operating activities............. (5,368,124) (5,076,497) (2,236,167) (1,236,831) (1,521,045)
----------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Cash proceeds from sale of furniture, fixtures and
equipment............................................ 875
Purchase of furniture, fixtures and equipment......... (217,333) (111,830) (163,044) (21,203) (92,157)
Purchase of short-term investments.................... (6,980,454) (976,133)
Sale of short-term investments........................ 3,461,249
Loans to stockholders................................. (48,000) (75,000)
Increase in restricted cash........................... (131,000)
----------- ----------- ----------- ----------- -----------
Net cash provided (used) by investing
activities....................................... (265,333) (186,830) (7,273,623) (21,203) 2,392,959
----------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of bridge financing notes...... 2,056,586
Proceeds from sale of convertible redeemable preferred
stock................................................ 12,339 7,879,395
Costs of equity issuances............................. (90,730)
Proceeds from exercise of stock options............... 43,104 3,416 2,953 2,953 45,368
----------- ----------- ----------- ----------- -----------
Net cash provided by financing activities......... 43,104 15,755 9,848,204 2,953 45,368
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents...................................... (5,590,353) (5,247,572) 338,414 (1,255,081) 917,282
Cash and cash equivalents, beginning.................... 12,859,284 7,268,931 2,021,359 2,021,359 2,359,773
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents, ending....................... $ 7,268,931 $ 2,021,359 $ 2,359,773 $ 766,278 $ 3,277,055
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Income taxes........................................ $ 800 $ 800 $ 800 $ -- $ 2,452
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Interest............................................ $ 694 $ 234 $ 60,568 $ 548 $ --
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Supplemental schedule of noncash investing and financing
activities:
Sale of 45,903 shares of common stock to an officer in
exchange for a promissory note. Such shares and
promissory note were canceled in 1995................ $ (170,000) $ 170,000
Sale of 328,069 shares of common stock to an officer
in exchange for a promissory note.................... 72,900
Accretion of Series C convertible redeemable preferred
stock against the accumulated deficit................ $ 80,000 80,000 60,000 $ 20,000
Accrual of stockholder loan that was not disbursed as
of year-end.......................................... 75,000
Exchange of Series A, B and C convertible redeemable
preferred stock for common stock..................... 20,182,343
Conversion of bridge financing notes to new Series A
preferred stock...................................... 2,056,586
Exchange of bridge financing warrants for common
stock................................................ 331,618
Common stock issued for consulting services........... 1,250
Unearned compensation related to stock options
granted.............................................. 845,870 $ 299,043
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
IMAGYN MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The Company:
Imagyn Medical, Inc. (the "Company") was incorporated in 1989. The Company
designs, develops and markets micro-invasive, cost effective devices for the
diagnosis and treatment of gynecological and reproductive disorders.
Imagyn International, Inc. was organized as a wholly-owned subsidiary of the
Company in 1993. Imagyn International, Inc. was created to facilitate the
marketing, sales and distribution of the Company's products in international
markets.
2. Summary Of Significant Accounting Policies:
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiary. All significant intercompany
accounts and transactions have been eliminated in consolidation.
REVENUE RECOGNITION
Sales and related cost of goods sold are recognized when goods are shipped
to customers. The majority of the Company's customers are distributors which
sell goods to third-party end-users. The Company is not contractually obligated
to repurchase any inventory from its distributors. The Company records a
warranty accrual at the time of sale for estimated claims.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash in banks, certificates of deposit,
and short-term investments with acquired maturities of three months or less. The
carrying amount of cash and cash equivalents approximates market value.
SHORT-TERM INVESTMENTS
The short-term investments are managed by an outside brokerage firm and
consist primarily of commercial paper, certificates of deposit, and short-term
bond instruments with acquired maturities of one year or less. The carrying
amount of short-term investments is the cost plus interest earned as of December
31, 1995, which approximates market value.
RESTRICTED CASH
The Company collateralized a letter of credit in the amount of $117,187 with
a certificate of deposit for $131,000. The certificate of deposit has an
interest rate of 4.5% and a maturity date of June 30, 1996, and is therefore
classified as a current asset on the accompanying consolidated balance sheet.
INVENTORIES
Inventories are stated at the lower of cost or market, cost being determined
on the first-in, first-out (FIFO) basis.
FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment are stated at cost and depreciated using
the straight-line method over the estimated useful lives of the assets which
range from three to five years. Leasehold improvements are amortized on a
straight-line basis over the lesser of the term of the related lease or its
estimated useful life.
Repairs and maintenance are expensed as incurred while renewals or
betterments are capitalized. Upon the sale or retirement of furniture, fixtures
and equipment, the accounts are relieved of the cost and the related accumulated
depreciation and amortization, and any resulting gain or loss is included in
operations.
F-7
<PAGE>
IMAGYN MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary Of Significant Accounting Policies: (Continued)
INCOME TAXES
The Company follows Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," which requires the recognition of deferred tax
liabilities and assets for the expected future tax consequences of events that
have been included in the financial statements or tax returns. Under this
method, deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year-end based on enacted tax laws and
statutory rates applicable to the periods in which the differences are expected
to affect taxable income. Valuation allowances are established, when necessary,
to reduce deferred tax assets to the amount expected to be realized. The
provision for income taxes represents the tax payable for the period and the
change during the period in deferred tax assets and liabilities.
COMMON STOCK OPTIONS
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation." SFAS No. 123 defines a fair
value based method of accounting for an employee stock option. Fair value of the
stock option is determined by considering factors such as the exercise price,
the expected life of the option, the current price of the underlying stock and
its volatility, expected dividends on the stock and the risk-free interest rate
for the expected term of the option. Under the fair value based method,
compensation cost is measured as of the grant date based on the fair value of
the award and is recognized over the service period. A company may elect to
adopt SFAS No. 123 or elect to continue accounting for its stock option or
similar equity awards using the intrinsic method, where compensation cost is
measured at the date of grant based on the excess of the market value of the
underlying stock over the exercise price. If a company elects not to adopt SFAS
No. 123, then it must provide pro forma disclosure of net income and earnings
per share, as if the fair value based method had been applied.
SFAS No. 123 is effective for transactions entered into for fiscal years
beginning after December 15, 1995. Pro forma disclosures for entities that elect
to continue to measure compensation cost under the intrinsic method must include
the effects of all awards granted in fiscal years that begin after December 15,
1994. It is currently anticipated that the Company will continue to account for
stock-based compensation plans under the intrinsic method and the impact of SFAS
No. 123 has not yet been determined.
ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INTERIM FINANCIAL INFORMATION
The financial information at March 31, 1996 and for the three month periods
ended March 31, 1995 and 1996 is unaudited but includes all adjustments
(consisting only of normal recurring adjustments) which the Company considers
necessary for a fair presentation of the financial position at such date and the
operating results and cash flows for those periods. Results of the March 31,
1996 period are not necessarily indicative of the results for the entire year.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1993 and 1994 consolidated
financial statements to conform to the 1995 presentation.
3. Recapitalization:
On September 8, 1995, the Company completed an equity recapitalization (the
"Recapitalization"). The following events occurred as part of the
Recapitalization: (i) the conversion of all outstanding shares of Series A,
Series B and Series C preferred stock on a 1-for-1 basis into shares of common
stock, (ii) a reverse 1-for-5 split of all
F-8
<PAGE>
IMAGYN MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Recapitalization: (Continued)
then outstanding common stock and common stock options, (iii) the issuance of
2,153,484 shares of new Series A Preferred stock at $3.66 per share for cash of
$7,879,395, (iv) the conversion of outstanding bridge financing notes of
$2,056,586 into 562,062 shares of new Series A preferred stock, (v) conversion
of bridge financing warrants into 281,034 shares of common stock, and (vi)
amendments to the stock option plans.
Prior to the completion of the Recapitalization, the Company obtained
$2,056,586 in bridge note financing. Interest at the rate of prime plus 1%, and
totaling $59,468, was paid in cash. In addition, the Company granted a warrant
to purchase a share of the new Series A preferred stock for $3.66 per share, for
each two shares of new Series A preferred stock received after conversion of the
bridge financing notes, or total warrants to acquire 281,034 shares of new
Series A preferred stock (the "bridge financing warrants"). These bridge
financing warrants were later exchanged for 281,034 shares of common stock for
no additional consideration in the Recapitalization. The Company has recognized
a one-time non-cash charge of $331,618 to interest expense in connection with
this transaction, with such amount representing the then fair market value, as
determined by an independent third-party valuation, of such shares.
All share and per share amounts have been adjusted to give retroactive
effect to the reverse stock split for all periods presented.
4. Related Party Transactions:
During 1994, the Company sold 45,903 shares of common stock to an officer of
the Company in exchange for a $170,000 recourse promissory note. These shares
were returned to the Company and the promissory note was canceled in August 1995
as part of the Company's Recapitalization. On October 31, 1995, the Company sold
328,069 shares of common stock to the same officer in exchange for a $72,900
recourse promissory note. The promissory note bears interest at 6.31% per annum
with all principal and interest due on October 30, 2000. The promissory note is
collateralized by the related shares of common stock. The Company has an option
to repurchase the shares at $0.222 per share. The repurchase option, which
matches the vesting terms of the shares, expires with respect to 35% of the
shares on September 7, 1996 and, for the remaining shares, on a monthly pro rata
basis through September 7, 1998.
The Company has a License Agreement with two of its stockholders relating to
patents, patent applications and other know-how on certain medical equipment
technology. Royalties pursuant to the License Agreement are payable for a period
of ten years following the date of the first commercial sale or the expiration
date of the last applicable patent, whichever occurs later. For the years ended
December 31, 1993, 1994 and 1995, total royalty expense under this agreement was
$14,226, $18,703 and $28,315, respectively.
During 1993, the Company loaned two stockholders $75,000 and $48,000,
respectively. The loans bear interest at 4.92% and 5%, respectively, and have
five-year terms. The loans are collateralized by shares of the Company's common
stock. Subsequent to December 31, 1995, terms of the $75,000 loan were amended
to provide for the payment of principal and interest on the earlier of: (i) the
date on which the Company files a registration statement on Form S-1 for the
sale of common stock, or (ii) June 30, 1996.
During 1992, the Company entered into a License, Manufacturing and
Distribution Agreement (the "Agreement") with Terumo Corporation ("Terumo"), a
stockholder, granting Terumo the right to manufacture and distribute the
Company's products in Japan. Under the terms of the Agreement, Terumo was
required to pay the Company $1.1 million, nonrefundable, for the right to
distribute the Company's products in Japan and $1 million as a license fee for
the right to manufacture certain of the Company's products for sale in Japan.
The Agreement also requires Terumo to pay royalties to the Company upon sales of
products manufactured by Terumo under the terms of the Agreement. The Company is
required to provide manufacturing know-how, training and documentation to Terumo
for the purpose of establishing manufacturing capability relating to such
products within two years after Japanese government approval of the product,
which was obtained in August 1995. In the event the Company does
F-9
<PAGE>
IMAGYN MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Related Party Transactions: (Continued)
not meet its obligation for the transfer of manufacturing know-how, the license
fee is subject to refund with interest at 10%. Based on the Company's continuing
obligations under the license portion of the Agreement, the Company has deferred
income recognition of the $1 million license fee.
5. Cash And Cash Equivalents:
Cash and cash equivalents consisted of the following:
<TABLE>
<CAPTION>
December 31, March 31,
-------------------------- ------------
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
(unaudited)
Cash................................................ $ 89,914 $ 189,664 $ 26,903
Cash equivalents.................................... 1,931,445 2,170,109 3,250,152
------------ ------------ ------------
$ 2,021,359 $ 2,359,773 $3,277,055
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The cash equivalents are managed by an outside brokerage firm and consist
primarily of money market funds, commercial paper and short-term bond
instruments with initial maturities of 90 days or less.
6. Inventories:
Inventories consisted of the following:
<TABLE>
<CAPTION>
December 31, March 31,
------------------------ ------------
1994 1995 1996
---------- ------------ ------------
<S> <C> <C> <C>
(unaudited)
Raw material.......................................... $ 278,298 $ 372,730 $ 528,803
Work in-process....................................... 221,490 248,097 273,458
Finished goods........................................ 496,669 443,040 453,602
---------- ------------ ------------
$ 996,457 $ 1,063,867 $1,255,863
---------- ------------ ------------
---------- ------------ ------------
</TABLE>
7. Furniture, Fixtures And Equipment:
Furniture, fixtures and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31, March 31,
-------------------------- ------------
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
(unaudited)
Equipment........................................... $ 743,601 $ 859,603 $ 914,572
Furniture and fixtures.............................. 136,771 133,451 164,199
Leasehold improvements.............................. 78,930 77,929 84,369
------------ ------------ ------------
959,302 1,070,983 1,163,140
Accumulated depreciation and amortization........... (499,890) (681,196) (732,390)
------------ ------------ ------------
$ 459,412 $ 389,787 $ 430,750
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
F-10
<PAGE>
IMAGYN MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Accrued Liabilities:
Accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
December 31, March 31,
---------------------- ------------
1994 1995 1996
---------- ---------- ------------
<S> <C> <C> <C>
(unaudited)
Warranty expenses....................................... $ 106,829 $ 204,348 $ 417,498
Distributor termination expenses........................ 200,000 325,000 227,730
Deferred offering costs................................. 131,652
Employee relocation expenses............................ 116,000
Foreign branch assessments.............................. 53,500 30,000 30,000
Other................................................... 71,217 101,541 89,191
---------- ---------- ------------
$ 547,546 $ 660,889 $ 896,071
---------- ---------- ------------
---------- ---------- ------------
</TABLE>
9. Income Taxes:
The following table presents the current and deferred income tax provision
for federal and state income taxes:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal.............................................................. $ -- $ -- $ --
State................................................................ 800 800 800
--- --- ---
800 800 800
--- --- ---
Deferred:
Federal.............................................................. -- -- --
State................................................................ -- -- --
--- --- ---
$ 800 $ 800 $ 800
--- --- ---
--- --- ---
</TABLE>
The tax effects of temporary differences which give rise to the deferred tax
provision (benefit) for the years ended December 31, consist of:
<TABLE>
<CAPTION>
1993 1994 1995
------------ ------------- -------------
<S> <C> <C> <C>
Property and equipment...................................... $ (26,922) $ (26,920)
Accrued liabilities......................................... 22,291 $ (40,132) 21,978
Capitalized costs........................................... (327,035) (169,225) 301,985
Accounts receivable allowance............................... (25,980)
Inventory reserve........................................... (248,326) (119,075)
Stock options............................................... (39,936)
Income tax credit carryforwards............................. (161,916) (154,133) (100,002)
Net operating loss carryforwards............................ (1,585,404) (1,419,836) (1,202,514)
Other....................................................... (1,185) 858
------------ ------------- -------------
(2,078,986) (2,058,817) (1,163,626)
Valuation allowance......................................... 2,078,986 2,058,817 1,163,626
------------ ------------- -------------
$ -- $ -- $ --
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
F-11
<PAGE>
IMAGYN MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Income Taxes: (Continued)
The provision (benefit) for income taxes differs from the amount that would
result from applying the federal statutory rate as follows:
<TABLE>
<CAPTION>
Years Ended
December 31,
-------------------------------------
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Statutory regular federal income tax rate.............................. (34.0)% (34.0)% (34.0)%
Change in valuation allowance.......................................... 35.5 35.2 36.1
Other.................................................................. (1.5) (1.2) (2.1)
----- ----- -----
Effective tax rate..................................................... 0.0% 0.0% 0.0%
----- ----- -----
----- ----- -----
</TABLE>
The components of the deferred tax assets at December 31 are as follows:
<TABLE>
<CAPTION>
1994 1995
------------- -------------
<S> <C> <C>
Deferred revenue......................................................... $ 433,000 $ 433,000
Capitalized costs........................................................ 2,167,500 1,892,449
Accrued liabilities...................................................... 141,590 119,883
Accounts receivable allowance............................................ 25,980 25,980
Inventory reserve........................................................ 248,326 367,401
Stock options............................................................ 39,936
Income tax credit carryforwards.......................................... 704,925 804,927
Net operating loss carryforwards......................................... 3,554,081 4,756,867
Other.................................................................... 1,415
------------- -------------
7,276,817 8,440,443
Valuation allowance...................................................... (7,276,817) (8,440,443)
------------- -------------
Net deferred tax assets.................................................. $ -- $ --
------------- -------------
------------- -------------
</TABLE>
At December 31, 1995, the Company had net operating loss carryforwards for
federal and state purposes of approximately $12,400,000 and $5,900,000,
respectively. The net operating loss carryforwards begin expiring in 2005 and
1997, respectively. The Company also has research and experimentation credit
carryforwards for federal and state purposes of approximately $560,000 and
$220,000, respectively. The research and experimentation credits begin to expire
in 2005 for federal purposes and carry forward indefinitely for state purposes.
The Company has federal foreign tax credit carryforwards of approximately
$25,000 which expire in 1998. The utilization of net operating loss and tax
credit carryforwards will be subject to a substantial annual limitation due to
the ownership change limitations under the provisions of Internal Revenue Code
Section 382 and similar state provisions. The annual limitation is likely to
result in the expiration of most of the Company's net operating loss and tax
credit carryforwards before full utilization.
10. Convertible Redeemable Preferred Stock:
All previously outstanding Series A, B and C Convertible Redeemable
Preferred Stock was converted to common stock on a 1-for-1 basis as part of the
Company's Recapitalization and the new Series A preferred stock was then issued
(Note 3).
<TABLE>
<CAPTION>
NEW SERIES A Shares Amount
- ----------------------------------------------------------------------------- ---------- ------------
<S> <C> <C>
Balance, December 31, 1995................................................... 2,715,546 $ 9,935,981
---------- ------------
---------- ------------
</TABLE>
The Company is authorized to issue 5,000,000 shares, no par value, new
Series A and 5,000,000 shares, no par value, new Series A1 Voting Convertible
Redeemable Preferred Stock. There were no shares issued of new Series A1
preferred stock as of December 31, 1995.
F-12
<PAGE>
IMAGYN MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. Convertible Redeemable Preferred Stock: (Continued)
The holders of new Series A and new Series A1 preferred stock are entitled
to voting rights equal to the number of shares of common stock into which the
shares of preferred stock could be converted.
The holders of new Series A and new Series A1 preferred stock are entitled
to noncumulative dividends at an annual rate of $.33 per share, when declared,
and can convert their shares, at any time, into shares of common stock at a
conversion price of $3.66 per share, with adjustments to the conversion price as
defined in the Company's Articles of Incorporation. No dividends have been
declared as of December 31, 1995. The preferred shares automatically convert to
common stock on the closing of a public offering of the Company's common stock
if aggregate gross proceeds exceed $15,000,000 and the per share issuance price
is equal to or greater than $7.41. Holders of new Series A preferred stock have
the right of first refusal to purchase a pro rata portion of certain new equity
securities offered by the Company.
The new Series A and new Series A1 preferred stock have a liquidation
preference (the "liquidation preference") of $3.66 per share plus any declared
and unpaid dividends. After the payment or setting apart of this liquidation
preference, the holders of new Series A, new Series A1 and common stock shall
receive pro rata, on an as converted basis, the remaining assets of the Company
until such time the holders of new Series A and new Series A1 have received
aggregate liquidation distributions of $10.98 per share. Thereafter, any
remaining assets will be distributed to the holders of common stock.
A majority of the Series A and Series A1 preferred stockholders may elect a
mandatory redemption after December 31, 2002 at $3.66 per share, payable in two
equal annual installments.
SERIES C (RETIRED)
The excess of the redemption value over the carrying value of the old Series
C preferred stock of $400,000 was being accreted beginning January 1, 1993 by
annual charges to retained earnings of $80,000 using the straight-line method
which approximated the interest method. The 1995 accretion through the
Recapitalization date was $60,000.
11. 1990 Incentive Stock Option Plan:
The Company had a 1990 Incentive Stock Option Plan (the "1990 Option Plan")
under which options were granted at the then estimated fair market value of the
Company's common stock as determined by the Board of Directors. The 1990 Option
Plan was terminated during the Recapitalization and outstanding options, except
for the options to acquire 40,833 shares of common stock discussed below, were
canceled. Certain of the canceled options were replaced with new options under
the 1995 Stock Plan.
F-13
<PAGE>
IMAGYN MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. 1990 Incentive Stock Option Plan: (Continued)
A summary of the option activity under the 1990 Option Plan is as follows:
<TABLE>
<CAPTION>
Shares Option Price
Under Options Per Share
-------------- --------------
<S> <C> <C>
Outstanding at January 1, 1993......................................... 114,994 $0.37 - $2.22
Granted................................................................ 29,027 $3.70
Exercised.............................................................. (18,255) $0.37 - $3.70
Canceled............................................................... (13,236) $0.37 - $3.70
-------------- --------------
Outstanding at December 31, 1993....................................... 112,530 $0.37 - $3.70
Granted................................................................ 53,316 $3.70
Exercised.............................................................. (4,062) $0.37 - $3.70
Canceled............................................................... (19,484) $0.37 - $3.70
-------------- --------------
Outstanding at December 31, 1994....................................... 142,300 $0.37 - $3.70
Granted................................................................ 29,635 $0.74
Exercised.............................................................. (1,914) $0.37 - $0.44
Canceled............................................................... (129,188) $0.37 - $3.70
-------------- --------------
Outstanding at December 31, 1995....................................... 40,833 $1.11
Exercised (unaudited).................................................. (40,833) $1.11
-------------- --------------
Outstanding at March 31, 1996 (unaudited).............................. -- --
-------------- --------------
-------------- --------------
</TABLE>
12. 1995 Stock Plan:
The Company has adopted the 1995 Stock Plan (the "1995 Stock Plan") under
which options may be granted to purchase up to 1,074,002 shares of common stock
less the 40,833 outstanding shares under option at December 31, 1995 from the
1990 Option Plan. The 1995 Stock Plan provides for the options issued to be
either incentive stock options or nonstatutory stock options as defined under
Section 422A of the Internal Revenue Code. The exercise price of the shares
under option shall equal or exceed 85% and 100% of the fair market value of the
shares at the date of option grant for nonqualified and incentive stock options,
respectively. The 1995 Stock Plan expires in the year 2005 unless terminated
earlier. The options generally vest over a 3-4 year period.
The term of any stock option may not exceed 10 years from the date of grant
except for an incentive stock option granted to an optionee who owns stock
representing more than 10% of the voting power of all classes of stock of the
Company, in which case the term of the option shall be five years.
A summary of the option activity under the 1995 Stock Plan is as follows:
<TABLE>
<CAPTION>
Shares Option Price
Under Options Per Share
-------------- -----------------
<S> <C> <C>
Granted.............................................................. 888,765 $0.222
Exercised............................................................ (328,069) $0.222
Canceled............................................................. (15,797) $0.222
-------------- -----------------
Outstanding at December 31, 1995..................................... 544,899 $0.222
Granted (unaudited).................................................. 99,908 $0.222 - $7.406
-------------- -----------------
Outstanding at March 31, 1996 (unaudited)............................ 644,807 $0.222 - $7.406
-------------- -----------------
-------------- -----------------
Exercisable at March 31, 1996 (unaudited)............................ 8,162 $0.222
-------------- -----------------
-------------- -----------------
</TABLE>
F-14
<PAGE>
IMAGYN MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. 1995 Stock Plan: (Continued)
The difference between the exercise price and the fair market value, as
determined by an independent third-party valuation, of the options at the date
of grant of $845,870, net of cancelations of $14,557, at December 31, 1995, is
accounted for as unearned compensation and will be amortized to expense over the
related service period. During the three months ended March 31, 1996, an
additional $299,043 of unearned compensation was recognized. During the year
ended December 31, 1995, amortized compensation expense was $92,230, and for the
three months ended March 31, 1996 amortized compensation expense was $87,772.
13. Commitments And Contingencies:
LEASES
The Company leases office and manufacturing facilities in the United States
having a noncancellable lease term of 36 months. In addition, the Company leases
office equipment with lease terms ranging from 21 to 36 months. As of December
31, 1995, future minimum annual lease payments for the years ending December 31
are as follows:
<TABLE>
<S> <C>
1996...................................................................... $ 169,064
1997...................................................................... 168,121
1998...................................................................... 165,792
---------
$ 502,977
---------
---------
</TABLE>
Rent expense for the years ended December 31, 1993, 1994 and 1995 was
approximately $216,300, $210,900 and $202,400, respectively.
401(K) PLAN
The Company has a 401(k) Profit Sharing Plan (the "401(k) Plan"), which is a
defined contribution plan for all Company employees who have reached age 21 and
have completed at least 1,000 hours of service. The 401(k) Plan is
self-contributory. The Company may, at its discretion, contribute to the Plan in
an amount not to exceed 12% of the employee's contribution. There were no
Company contributions in 1993, 1994 or 1995.
MANAGEMENT INCENTIVE BONUS PROGRAMS
During 1995, the Company approved a Management Incentive Bonus Program (the
"Bonus Plan") for directors and officers. The Bonus Plan provides for bonuses of
up to 20% of base compensation, provided certain specific performance criteria
are met. No bonuses were payable for 1995 unless the Company achieved 90% or
more of both its 1995 operating plan revenues and operating profit. No amounts
were due or paid in 1995 under this 1995 Bonus Plan. A similar bonus plan was in
effect in 1994, and $24,549 was earned under that plan.
During 1995, the Company established a European Sales Incentive Program
which provides, for eligible employees based in Europe, for additional
compensation provided specific performance criteria are met. During the year
ended December 31, 1995, $7,748 was earned and paid under this European Program.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with its President and
Chief Executive Officer and Director of European Sales. These agreements provide
for a minimum annual salary through 1996 and may be terminated by either party.
The agreements also contain severance provisions which grant the employees the
right to receive salary and benefits, as individually defined, if such
employee's employment is terminated by the Company without cause.
DISTRIBUTION AGREEMENT
In 1995, the Company entered into an agreement whereby another company was
appointed as the Company's distributor for certain products in certain
territories. The agreement required nonrefundable payments in the
F-15
<PAGE>
IMAGYN MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Commitments And Contingencies: (Continued)
amount of $3,500,000 which were received by the Company during the year ended
December 31, 1995 and are included in operations on the accompanying
consolidated statement of operations as other operating income. The agreement
does not have a fixed term.
14. Net Loss Per Common Share:
Net loss per common share is based on reported net loss, with such reported
net loss increased for accretion of the Series C preferred stock. The resulting
amount is presented below as loss applicable to common stock.
Such loss applicable to common stock in each period presented is divided by
the weighted average number of outstanding common shares which, along with
shares issuable under other equity securities, have been computed in accordance
with Securities and Exchange Commission Staff Accounting Bulletin ("SAB") Topic
4-D. The SAB requires that common stock issued by the Company in the twelve
months immediately preceding a proposed public offering plus the number of
common equivalent shares which become issuable during the same period pursuant
to the issuance of warrants or grant of stock options (using the modified
treasury stock method), and issuance of convertible preferred stock, at prices
less than the per share initial public offering price be included in the
calculation of common stock and common stock equivalent shares as if they were
outstanding for all periods presented.
<TABLE>
<CAPTION>
For The Three Months
Ended March 31,
For The Years Ended December 31, (unaudited)
---------------------------------------------------------------------- ----------------------
1993 1994 1995 1995
---------------------- ---------------------- ---------------------- ----------------------
Amount Per Share Amount Per Share Amount Per Share Amount Per Share
----------- --------- ----------- --------- ----------- --------- ----------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Reported net loss................ $ (4,840) $ (1.14) $ (5,311) $ (1.24) $ (2,645) $ (0.58) $ (1,050) $ (0.25)
Adjustment for accretion of
Series C preferred stock........ (80) $ (0.02) (80) $ (0.02) (60) $ (0.01) (20) --
----------- --------- ----------- --------- ----------- --------- ----------- ---------
Net loss applicable to common
stock and net loss per common
share and common equivalent
share........................... $ (4,920) $ (1.16) $ (5,391) $ (1.26) $ (2,705) $ (0.59) $ (1,070) $ (0.25)
----------- --------- ----------- --------- ----------- --------- ----------- ---------
----------- --------- ----------- --------- ----------- --------- ----------- ---------
Weighted average number of:
Common shares.................. 573 596 922 585
Common equivalent shares....... 3,667 3,667 3,651 3,667
----------- ----------- ----------- -----------
Weighted average common shares
and common equivalent shares
outstanding..................... 4,240 4,263 4,573 4,252
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
<CAPTION>
1996
----------------------
Amount Per Share
----------- ---------
<S> <C> <C>
Reported net loss................ $ (1,569) $ (0.29)
Adjustment for accretion of
Series C preferred stock........ -- --
----------- ---------
Net loss applicable to common
stock and net loss per common
share and common equivalent
share........................... $ (1,569) $ (0.29)
----------- ---------
----------- ---------
Weighted average number of:
Common shares.................. 1,995
Common equivalent shares....... 3,339
-----------
Weighted average common shares
and common equivalent shares
outstanding..................... 5,334
-----------
-----------
</TABLE>
Primary and fully-diluted loss per share amounts do not differ.
15. Pro Forma Financial Statement Information:
Upon the closing of the Company's initial public offering, each outstanding
share of the Company's preferred stock will be converted automatically to common
stock. The pro forma effect of the conversion has been presented as a separate
column in the Company's consolidated balance sheet assuming the conversion had
occurred as of March 31, 1996.
Shares used in computing net loss per share are the same as for the pro
forma net loss per share calculation since all convertible preferred stock was
included in the shares used for historical net loss per share in accordance with
SAB Topic 4-D.
F-16
<PAGE>
IMAGYN MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16. Credit Risk:
The Company maintains cash deposits at a bank. As of December 31, 1994 and
1995, the Company had cash on deposit of $89,696 and $270,316, respectively, in
excess of the federally-insured limit.
The Company's customers are primarily physicians and hospitals in the United
States and certain foreign countries, and domestic and international
distributors. The two largest customers accounted for approximately 40% and 56%
of accounts receivable at December 31, 1994 and 1995, respectively. One customer
accounted for approximately 75% of accounts receivable at March 31, 1996. The
two largest customers totaled approximately 38% and 25% of sales for the years
ended December 31, 1993 and 1994, respectively, and the three largest customers
totaled approximately 43% of sales for the year ended December 31, 1995. One
customer totaled approximately 89% of sales for the three months ended March 31,
1996.
The Company reviews a customer's credit history before extending credit and
may require an international customer to provide an irrevocable letter of credit
drawn on a bank previously approved by the Company. The Company establishes
allowances for doubtful accounts based upon factors surrounding the credit risk
of specific customers. The accounting loss, should a customer be unable to meet
its obligation to the Company, would be equal to the recorded account
receivable.
17. Segment Information:
The Company's products are sold in the following geographic regions:
<TABLE>
<CAPTION>
For The Three Months
For The Years Ended December 31, Ended March 31,
---------------------------------------- ---------------------
1993 1994 1995 1996
------------ ------------ ------------ ---------------------
<S> <C> <C> <C> <C>
(unaudited)
United States......................... $ 21,885 $ 2,475 $ 639,796 $ 1,360,315
Japan................................. 289,900 27,342 553,565 13,825
Europe................................ 450,434 664,293 684,986 52,068
Australia............................. 20,789 149,048 228,104 38,700
Other................................. 264,102 161,584 136,204 2,510
------------ ------------ ------------ ----------
$ 1,047,110 $ 1,004,742 $ 2,242,655 $ 1,467,418
------------ ------------ ------------ ----------
------------ ------------ ------------ ----------
</TABLE>
18. Subsequent Events:
On April 8, 1996 the Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission permitting
the Company to sell shares of its common stock to the public. If the offering is
consummated under terms presently anticipated, all of the currently outstanding
preferred stock will automatically convert to 2,715,546 shares of common stock.
In conjunction with this registration, the Board of Directors and
stockholders approved a 1 for 1.4814 reverse stock split of all outstanding
common stock, preferred stock and common stock options. All share and per share
amounts have been adjusted to give retroactive effect to the reverse stock split
for all periods presented.
In April 1996 the Board of Directors adopted the 1996 Director Option Plan
and the 1996 Employee Stock Purchase Plan and reserved 200,000 and 200,000
shares of common stock, respectively, for issuance thereunder. The Company also
authorized 50,000,000 shares of $0.001 par value common stock and 5,000,000
shares of $0.001 par value preferred stock.
From January through April 1, 1996, the Company granted 120,160 options to
purchase common stock pursuant to the 1995 Stock Plan at exercise prices from
$0.222 to $8.888 per share and approved an increase in the number of shares
reserved under the 1995 Stock Plan to 1,675,000.
F-17
<PAGE>
Imagyn Micro-Invasive Systems
Address a broad continuum of gynecological and reproductive disorders
<TABLE>
<S> <C>
[photo of components of MicroLap [photo of components of Ovation
system] Falloposcopy system and Ovation
Tubal Recanalization system]
THE MICROLAP SYSTEM THE OVATION FALLOPOSCOPY SYSTEM
THE OVATION TUBAL RECANALIZATION
SYSTEM
- - Pelvic pain - Fallopian tube diagnosis
- - Tubal sterilization - Tubal recanalization
- - Infertility assessment
[photo of components of Ovation [photo of components of MicroSpan
IUI system] system]
THE OVATION IUI SYSTEM THE MICROSPAN SYSTEM
- - Intrauterine insemination - Uterine disorders
- Abnormal uterine
bleeding
- Infertility
assessment
</TABLE>
THE COMPANY'S MICROSPAN MICROHYSTEROSCOPY SYSTEM HAS NOT BEEN CLEARED BY THE FDA
FOR COMMERCIAL SALE IN THE UNITED STATES. THE OVATION FALLOPOSCOPY AND TUBAL
RECANALIZATION SYSTEMS ARE INVESTIGATIONAL DEVICES AND HAVE NOT BEEN APPROVED BY
THE FDA FOR COMMERCIAL SALE IN THE UNITED STATES. THE PROCESS OF OBTAINING FDA
CLEARANCE OR APPROVAL MAY BE LENGTHY, AND THERE CAN BE NO ASSURANCE THAT THE
MICROSPAN AND OVATION SYSTEMS WILL BE CLEARED OR APPROVED BY THE FDA.
<PAGE>
- ------------------------------------------------
------------------------------------------------
- ------------------------------------------------
------------------------------------------------
No dealer, salesperson or other person has been authorized to give any
information or to make any representation other than those contained in this
Prospectus in connection with the offer contained herein, and if given or made,
such information or representation must not be relied upon as having been
authorized by the Company or any Underwriter. This Prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy, shares of
Common Stock in any jurisdiction to any person to whom it is not lawful to make
any such offer or solicitation in such jurisdiction or in which the person
making such offer or solicitation is not qualified to do so. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create an implication that there has been no change in the
affairs of the Company since the date hereof.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Prospectus Summary........................ 3
Risk Factors.............................. 5
The Company............................... 16
Use of Proceeds........................... 16
Dividend Policy........................... 16
Capitalization............................ 17
Dilution.................................. 18
Selected Consolidated Financial Data...... 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 20
Business.................................. 25
Management................................ 48
Certain Transactions...................... 56
Principal Stockholders.................... 58
Description of Capital Stock.............. 60
Shares Eligible for Future Sale........... 61
Underwriting.............................. 63
Legal Matters............................. 64
Experts................................... 64
Additional Information.................... 64
Index to Consolidated Financial
Statements............................... F-1
</TABLE>
------------------------
Until , 1996 (25 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.
[IMAGYN LOGO]
------------------------
2,500,000 Shares
Common Stock
PROSPECTUS
, 1996
------------------------------
DILLON, READ & CO. INC.
MONTGOMERY SECURITIES
- ------------------------------------------------
------------------------------------------------
- ------------------------------------------------
------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of Common Stock being registered. All amounts are estimates except
the SEC registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee.................................................. $ 14,871
NASD filing fee....................................................... 4,238
Nasdaq National Market application and listing fee.................... 40,000
Printing and engraving costs.......................................... 110,000
Legal fees and expenses............................................... 225,000
Accounting fees and expenses.......................................... 125,000
Blue Sky fees and expenses............................................ 25,000
Transfer Agent and Registrar fees..................................... 5,000
Valuation Study....................................................... 25,000
Directors and Officers Liability Insurance............................ 200,000
Miscellaneous expenses................................................ 25,891
--------
Total............................................................. $800,000
--------
--------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law permits a corporation to
include in its charter documents, and in agreements between the corporation and
its directors and officers, provisions expanding the scope of indemnification
beyond that specifically provided by the current law.
Article VIII of the Registrant's Certificate of Incorporation provides for
the indemnification of directors to the fullest extent permissible under
Delaware law.
Article VI of the Registrant's Bylaws provides for the indemnification of
officers, directors and third parties acting on behalf of the corporation if
such person acted in good faith and in a manner reasonably believed to be in and
not opposed to the best interest of the corporation, and, with respect to any
criminal action or proceeding, the indemnified party had no reason to believe
his conduct was unlawful.
The Registrant has entered into indemnification agreements with its
directors and executive officers, in addition to indemnification provided for in
the Registrant's Bylaws, and intends to enter into indemnification agreements
with any new directors and executive officers in the future.
The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Registrant and
its officers and directors for certain liabilities arising under the Securities
Act, or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Between May 1993 and April 1995 Registrant issued 24,240 shares of Common
Stock to a total of eleven employees and consultants pursuant to exercise of
options to purchase Common Stock for an aggregate purchase price of $48,693 with
a weighted average exercise price of approximately $2.01 per share.
In September 1994, Registrant issued 335 shares of Series C Preferred Stock
to one venture capital investor at a price of $36.63 per share for an aggregate
purchase price of $12,239.
In October 1994, Registrant issued 45,903 shares to Franklin D. Brown,
President, Chief Executive Officer and Chairman of the Board of Registrant, at a
price of $3.70 per share for an aggregate purchase price of $170,000, which was
paid with a promissory note. Such shares were repurchased by the Company in
August 1995 for the same consideration exchanged by Mr. Brown to purchase them.
In April 1995, Registrant issued 338 shares of Common Stock to two
consultants to Registrant at a price of $3.70 per share for an aggregate
purchase price of $1,250.
II-1
<PAGE>
From May to August 1995, Registrant issued 281,034 warrants for no
additional consideration to a total of seven venture capital, institutional and
individual investors in connection with Registrant's bridge loan financing
issuance of $2,056,586 of subordinated promissory notes, convertible into shares
of New Series A Preferred Stock, at 9% interest.
In September 1995, Registrant sold 2,715,546 shares of New Series A
Preferred Stock to a total of twelve venture capital, institutional and
individual investors at a price of $3.66 per share, which sale included the
conversion of the subordinated promissory notes described in the previous
paragraph. The aggregate purchase price consisted of $7,879,691 in cash and
$2,056,587 of subordinated promissory notes. Pursuant to such sale, a
recapitalization of Registrant was performed to convert all of the outstanding
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
into Common Stock and the warrants described in the previous paragraph were
exchanged for 281,034 shares of Common Stock for no additional consideration. In
contemplation of such recapitalization, a one-for-five reverse stock split was
effected in August 1995.
In October 1995, Registrant sold 328,069 shares of Common Stock to Mr. Brown
at a purchase price of $0.22 per share pursuant to a stock purchase agreement. A
separate agreement dated April 1996 provided Registrant with a right to
repurchase such shares, at a price of $0.22 per share for an aggregate purchase
price of $72,900. Such shares are subject to a repurchase option which expires
with respect to 35% of the shares in September 1996 and the remainder on a
monthly pro rata basis through September 1998.
In March 1996, Registrant issued 40,833 shares of Common Stock to Glen
French, a former director and officer of Registrant at a price of $1.11 per
share for an aggregate purchase price of $46,368 pursuant to exercise of options
under the 1990 Option Plan.
The sales of the above securities were deemed to be exempt from registration
under the Securities Act of 1933 in reliance on section 4(2) thereof, or
Regulation D promulgated thereunder, or Rule 701 promulgated under Section 3(b)
thereof, as transactions by an issuer not involving a public offering or
transactions pursuant to compensatory benefit plans and contracts relating to
compensation as provided under Rule 701. The recipients of securities in each
such transaction represented their intention to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed the share certificates
and instruments issued in such transactions. All recipients had adequate access,
through their relationships with the Company to information about the
Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<S> <C>
1.1+ Form of Underwriting Agreement.
2.1+ Form of Merger Agreement for Delaware reincorporation.
3.1+ Restated Articles of Incorporation of Imagyn Medical, Inc., a California
corporation, as currently in effect.
3.2+ Bylaws of Imagyn Medical, Inc., a California corporation, as currently in
effect.
3.3+ Certificate of Incorporation of Imagyn Medical, Inc., a Delaware corporation, as
in effect immediately following reincorporation.
3.4+ Form of Restated Certificate of Incorporation of Imagyn Medical, Inc., a
Delaware corporation, to be filed after the closing of the offering made under
this Registration Statement.
3.5+ Bylaws of Imagyn Medical, Inc., a Delaware corporation, as in effect immediately
following reincorporation.
4.1+ Specimen Common Stock Certificate.
5.1+ Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
10.1+ Form of Indemnification Agreement between Imagyn Medical, Inc., a California
corporation, and each of its directors and officers.
10.2+ 1995 Stock Plan and form of Stock Option Agreement thereunder.
10.3+ 1996 Director Option Plan and form of Director Option Agreement.
10.4+ 1996 Employee Stock Purchase Plan and form of Subscription Agreement.
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
10.5+ License Agreement dated September 1, 1992 between Otmar Bauer, M.D. ("Bauer")
and Registrant.
10.6+ Amendment dated April 1, 1994 to Exhibit 10.5 between Bauer and Registrant.
10.7+- License Agreement dated January 12, 1990 among Baxter International, Inc.
DIAMOND- ("Baxter"), Thomas J. Fogarty ("Fogarty") and Gyntech MedSystems, Inc.
(predecessor to Registrant).
10.8+ Letter Agreement dated October 29, 1992 between Baxter and Registrant relating
to Exhibit 10.7.
10.9+- Amendment dated September 30, 1992 to Exhibit 10.7 among Baxter, Fogarty and
DIAMOND- Registrant.
10.10+ Lease of primary office space dated December 21, 1995 between Birtcher Niguel
and Registrant.
10.11+- License, Manufacturing and Distribution Agreement dated November 30, 1992
DIAMOND- between Registrant and Terumo Corporation.
10.12+- Distributorship Agreement dated October 23, 1995 between Registrant and United
DIAMOND- States Surgical Corporation ("USSC").
10.13+- Amendment dated February 20, 1993 to Exhibit 10.12 between USSC and Registrant.
DIAMOND-
10.14+ Employment Agreement dated October 10, 1994 between Franklin D. Brown and
Registrant.
10.15+ Employment Agreement dated April 6, 1995 between Kristine F. Lahman and
Registrant.
10.16+ Employment Agreement dated June 7, 1995 between Christopher Bova and Registrant.
10.17+ Stock Purchase Agreement dated October 30, 1995 between Franklin D. Brown and
Registrant.
10.18+ Repurchase Agreement dated April 3, 1996 relating to Exhibit 10.7 between
Franklin D. Brown and Registrant.
10.19+ Form of Indemnification Agreement between Imagyn Medical, Inc., a Delaware
corporation, and each of its directors and officers.
10.20+ Lease of office space dated April 5, 1996 between Birtcher Niguel and
Registrant.
22.1+ Subsidiaries of Registrant.
23.1 Consent of Coopers & Lybrand L.L.P. Independent Accountants (see page II-6).
23.2+ Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (included
in Exhibit 5.1).
23.3+ Consent of Myers Uxa & Stout.
24.1+ Power of Attorney.
</TABLE>
- ------------------------
+ Previously filed.
- -DIAMOND- Confidential treatment requested.
(B) FINANCIAL STATEMENT SCHEDULES
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the provisions referenced in
Item 14 of this Registration Statement, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act, and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a
II-3
<PAGE>
director, officer, or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered
hereunder, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby further undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of Prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
Prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment to Registration Statement 333-3542 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Laguna
Niguel, State of California, on the 24th day of May, 1996.
IMAGYN MEDICAL, INC.
By: /s/ FRANKLIN D. BROWN*
-----------------------------------
Franklin D. Brown,
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- ------------------------------------ ------------------------------------- --------------
/s/ FRANKLIN D. BROWN* President, Chief Executive Officer
- ------------------------------------ and Director (Principal Executive May 24, 1996
Franklin D. Brown Officer)
/s/ J. C. MACRAE Vice President and Chief Financial
- ------------------------------------ Officer (Principal Financial and May 24, 1996
J. C. MacRae Accounting Officer)
/s/ DAVID W. CHONETTE*
- ------------------------------------ Director May 24, 1996
David W. Chonette
/s/ SAMUEL D. COLELLA*
- ------------------------------------ Director May 24, 1996
Samuel D. Colella
/s/ ELIZABETH B. CONNELL, M.D.*
- ------------------------------------ Director May 24, 1996
Elizabeth B. Connell, M.D.
/s/ RICHARD S. SCHNEIDER, PH.D.*
- ------------------------------------ Director May 24, 1996
Richard S. Schneider, Ph.D.
*By: /s/ J. C.
MACRAE
- ------------------------------------
J. C. MacRae
ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 and
related prospectus of our report, dated April 8, 1996, on our audits of the
consolidated financial statements of Imagyn Medical, Inc. We also consent to the
references to our firm under the captions "Selected Consolidated Financial Data"
and "Experts".
COOPERS & LYBRAND L.L.P.
Newport Beach, California
May 24, 1996
II-6
