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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______________ TO _________________.
COMMISSION FILE NUMBER 0-22743
VISTA MEDICAL TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-3184035
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5451 AVENIDA ENCINAS, SUITE A
CARLSBAD, CA 92008
(Address of principal executive offices)
(760) 603-9120
(Registrant's phone number, including area code)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS) AND (2) HAS BEEN SUBJECT TO
SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS:
(1) YES [X] NO [ ]
(2) YES [X] NO [ ]
As of August 10, 1998 there were 13,486,944 shares of $.01 par value common
stock outstanding.
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VISTA MEDICAL TECHNOLOGIES, INC.
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations. . . . . . . . . . . . 4
Consolidated Statements of Cash Flows . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations . . . . . . 8
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . 27
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . . . 27
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . 27
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
</TABLE>
2
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PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
VISTA MEDICAL TECHNOLOGIES, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . $ 6,925,342 $ 7,328,502
Short-term investments & securities available for sale. . 8,344,874 16,784,345
Accounts receivable . . . . . . . . . . . . . . . . . . . 1,267,945 521,616
Inventories . . . . . . . . . . . . . . . . . . . . . . . 4,702,135 3,344,967
Other current assets. . . . . . . . . . . . . . . . . . . 153,151 261,864
----------- ------------
Total current assets . . . . . . . . . . . . . . . . . . . . 21,393,447 28,241,294
Property and equipment, net. . . . . . . . . . . . . . . . . 2,466,576 3,327,283
Patents and other assets . . . . . . . . . . . . . . . . . . 274,360 561,873
----------- ------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . $ 24,134,383 $ 32,130,450
----------- ------------
----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable. . . . . . . . . . . . . . . . . . . . . $ 1,308,539 $ 1,217,110
Accrued compensation. . . . . . . . . . . . . . . . . . . 744,740 516,743
Accrued liabilities . . . . . . . . . . . . . . . . . . . 870,029 665,285
----------- ------------
Total current liabilities. . . . . . . . . . . . . . . . . . 2,923,208 2,399,138
Commitments
Stockholders' equity:. . . . . . . . . . . . . . . . . . . .
Convertible preferred stock, $.01 par value:
Authorized shares - 5,000,000. . . . . . . . . . . . .
Issued and outstanding shares - no shares outstanding
on December 31, 1997 or June 30, 1998 . . . . . . . . -- --
Common stock, $.01 par value:
Authorized shares - 35,000,000 . . . . . . . . . . . .
Issued and outstanding shares - 13,407,038 on
December 31, 1997 and 13,467,569 on June 30, 1998. . 134,676 134,071
Additional paid-in capital. . . . . . . . . . . . . . . . 62,745,820 62,531,513
Notes receivable from stockholders. . . . . . . . . . . . (78,375) (78,375)
Deferred compensation . . . . . . . . . . . . . . . . . . (1,319,978) (1,942,074)
Unrealized gains/loss on investments. . . . . . . . . . . 7,850 (416,313)
Accumulated deficit . . . . . . . . . . . . . . . . . . . (40,278,918) (30,497,510)
----------- ------------
Total stockholders' equity . . . . . . . . . . . . . . . . . 21,211,075 29,731,312
----------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 24,134,383 $ 32,130,450
----------- ------------
----------- ------------
</TABLE>
Note: The balance sheet at December 31, 1997 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes
3
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VISTA MEDICAL TECHNOLOGIES, INC.
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------------- ----------------------------------
1998 1997 1998 1997
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Sales....................................... $ 1,881,159 $ 505,444 $ 4,314,241 $ 1,334,662
Costs and expenses:
Cost of sales............................ 1,818,427 764,901 3,608,035 1,590,927
Research and development................. 1,631,628 1,554,055 3,187,325 3,067,923
Sales and marketing...................... 1,566,863 957,238 3,445,784 1,701,899
General and administrative............... 1,155,378 1,180,278 2,859,633 2,344,500
Restructuring expense.................... 939,919 -- 939,919 --
---------- ----------- ----------- ------------
Total cost and expenses..................... 7,112,215 4,456,472 14,040,696 8,705,249
---------- ----------- ----------- ------------
Loss from operations........................ (5,231,056) (3,951,028) (9,726,455) (7,370,587)
Interest income............................. 254,854 42,271 583,047 143,759
Other losses................................ (638,000) -- (638,000) --
Net loss.................................... $(5,614,202) $(3,908,757) $ (9,781,408) $(7,226,828)
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
Basic and diluted loss per share............ $ (0.42) $ (12.16) $ (0.74) $ (21.61)
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
Shares used in computing basic and
diluted loss per share.................... 13,289,121 321,448 13,265,196 334,361
</TABLE>
See accompanying notes
4
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VISTA MEDICAL TECHNOLOGIES, INC.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . $(9,781,408) $(7,226,828)
Adjustments to reconcile net loss to net cash used for
operating activities:
Depreciation and amortization. . . . . . . . . . . . . 1,031,569 261,293
Amortization of premium on short term investments. . . 97,124 --
Stock issued for services rendered . . . . . . . . . . -- 20,010
Amortization of deferred compensation. . . . . . . . . 517,481 517,664
Loss on disposal of fixed assets . . . . . . . . . . . 290,410 --
Write down for impairment on available for sale
securities . . . . . . . . . . . . . . . . . . . . . 638,000 --
Changes in operating assets and liabilities,
net of effect of acquisitions:
Accounts receivable . . . . . . . . . . . . . (746,329) 266,128
Inventories . . . . . . . . . . . . . . . . . (1,357,168) (1,122,654)
Other current assets. . . . . . . . . . . . . 325,275 (38,288)
Accounts payable. . . . . . . . . . . . . . . 91,429 104,532
Accrued compensation. . . . . . . . . . . . . 227,996 112,921
Accrued liabilities . . . . . . . . . . . . . 339,578 741,984
---------- ----------
Net cash flows used for operating activities . . . . . . . . (8,326,043) (6,363,238)
INVESTING ACTIVITIES
Purchases of short-term investments. . . . . . . . . . . . . (724,366) (83,000)
Maturities of short-term investments . . . . . . . . . . . . 8,950,000 --
Purchase of property and equipment . . . . . . . . . . . . . (487,445) (1,747,856)
---------- ----------
Net cash flows provided by (used for) investing activities . 7,738,189 (1,830,856)
FINANCING ACTIVITIES
Issuance of common stock . . . . . . . . . . . . . . . . . . 184,694 39,905
Deferred Public Offering costs . . . . . . . . . . . . . . . -- (689,295)
---------- ----------
Net cash flows provided by (used in) financing activities. . 184,694 (649,390)
Net (decrease) increase in cash and cash equivalents . . . . (403,160) (8,843,484)
Cash and cash equivalents at beginning of period . . . . . . 7,328,502 10,119,529
---------- ----------
Cash and cash equivalents at end of period . . . . . . . . . $6,925,342 $1,276,045
---------- ----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest . . . . . . . . . . . . . . . . . . . $ 0 $ 196
---------- ----------
---------- ----------
</TABLE>
See accompanying notes
5
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VISTA MEDICAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
The Audited Financial Statements of Vista Medical Technologies, Inc. (the
"Company") and the notes thereto for the year ended December 31, 1997 included
in the Company's Annual Report on Form 10-K filed with the Securities and
Exchange Commission, contain additional information about the Company, its
operations, and its financial statements and accounting practices, and should
be read in conjunction with this quarterly report on Form 10-Q. These unaudited
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles and with the instructions on Form 10-Q
except that certain information and footnote disclosures normally contained in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted.
The accompanying unaudited consolidated financial statements of the Company
reflect all adjustments of a normal recurring nature which are, in the opinion
of management, necessary for a fair presentation of the financial position,
results of operations and cash flows for all periods presented. The interim
financial information contained herein is not necessarily indicative of
results for any future interim periods or for the full fiscal year ending
December 31, 1998.
2. Computation of Net Loss Per Share
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
"Earnings per Share," (SFAS 128) which replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
restated to conform to SFAS 128 and the requirements of the recently effective
Staff Accounting Bulletin No. 98.
Recent interpretations by the Securities and Exchange Commission have
altered the treatment of preferred stock previously included in computing
certain earnings per share data. The Company previously considered preferred
stock as outstanding in pre-IPO periods from the date of original issuance in
computing earnings per share. To conform with the recent interpretations, the
Company has revised its calculation of earnings per share for all pre-IPO
periods to exclude the impact of preferred shares.
6
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3. New Accounting Standard
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income," and SFAS No. 131, "Segment
Information." Both of these standards are effective for fiscal years
beginning after December 15, 1997. SFAS No. 130 requires that all components
of comprehensive income, including net income, be reported in the financial
statements in the period in which they are recognized. Comprehensive income
is defined as the change in equity during a period from transactions and
other events and circumstances from non-owner sources. Net income and
other comprehensive income, including foreign currency translation
adjustments, and unrealized gains and losses on investments, shall be
reported, net of their related tax effect, to arrive at comprehensive income.
The Company believes that comprehensive income or loss will not be
materially different than net income or loss. SFAS No. 131 amends the
requirements for public enterprises to report financial and descriptive
information about its reportable operating segments. Operating segments, as
defined by SFAS No. 131, are components of an enterprise for which financial
information is available and evaluated regularly by the Company in deciding
how to allocate resources and in assessing performance. This financial
information is required to be reported on the basis that it is used
internally for evaluating the segment performance. The Company believes it
operates in one business and operating segment and that adoption of SFAS No.
131 will not have a material impact on the Company's financial statements.
4. Inventories
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------- -----------------
(Unaudited)
<S> <C> <C>
Parts and materials......... $ 2,295,900 $ 1,977,878
Work in process............. 874,413 662,237
Finished goods.............. 1,531,822 704,852
----------- -----------
$ 4,702,135 $ 3,344,967
----------- -----------
----------- -----------
</TABLE>
7
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
THIS QUARTERLY REPORT MAY CONTAIN PREDICTIONS, ESTIMATES AND OTHER
FORWARD-LOOKING STATEMENTS THAT INVOLVE A NUMBER OF RISKS AND UNCERTAINTIES,
INCLUDING THOSE DISCUSSED BELOW AT "RISKS AND UNCERTAINTIES." WHILE THIS
OUTLOOK REPRESENTS MANAGEMENT'S CURRENT JUDGMENT ON THE FUTURE DIRECTION OF
THE BUSINESS, SUCH RISKS AND UNCERTAINTIES COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM ANY FUTURE PERFORMANCE SUGGESTED BELOW. THE COMPANY
UNDERTAKES NO OBLIGATION TO RELEASE PUBLICLY THE RESULTS OF ANY REVISIONS TO
THESE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES ARISING
AFTER THE DATE HEREOF. THE FOLLOWING DISCUSSION SHOULD BE READ IN
CONJUNCTION WITH THE CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES THERETO
INCLUDED IN ITEM 1 OF THIS QUARTERLY REPORT ON FORM 10-Q AND THE COMPANY'S
1997 ANNUAL REPORT ON FORM 10-K, FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION.
Overview
The Company develops, manufactures and markets proprietary visualization
and information systems that enable minimally invasive surgical solutions in
cardiothoracic, head, neck and spine ("HNS") and other selected microsurgical
procedures. The Company also markets endoscopic cameras and related surgical
instruments and accessories and has generated minimal revenues from the sales
of these products since its formation in July 1993. The Company expects to
continue to incur substantial losses for at least the next 12 months. As of
June 30, 1998, the Company's accumulated deficit was approximately $40.3
million.
Results of Operations
Sales. The Company had revenues of $1,881,000 and $4,314,000 for the
three- and six-months ended June 30, 1998, respectively, compared to $505,000
and $1,335,000 for the same periods in 1997. The increase in revenue for the
three-month period was due to (i) unit sales of StereoSite systems, which were
commercially launched during the second quarter, to Sofamor Danek, the Company's
strategic partner and exclusive distributor for the HNS market and (ii) unit
sales of the Company's Series 8000 Advanced Visualization and Information System
("Series 8000") for minimally invasive cardiac surgery launched during the third
quarter of 1997. The increase in revenue for the six-month period was due to
increased volume of (i) sales of StereoSite systems and associated distribution
fees paid by Sofamor Danek and (ii) sales of Series 8000's for minimally
invasive cardiac surgery.
8
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Cost of Sales. The Company's cost of sales were $1,818,000 and
$3,608,000 for the three- and six-months ended June 30, 1998, respectively,
and $765,000 and $1,591,000 for the three- and six-months ended June 30,
1997, respectively. The increase for both the three- and six-month periods
was primarily due to costs corresponding to the growth in revenues from
product sales partially offset by completion of manufacturing scale-up in
1997 which contributed to 1997 cost of sales but not to 1998 expenses.
Research and Development Expenses. Research and development expenses
were $1,632,000 and $3,187,000 for the three- and six-months ended June 30,
1998, respectively, compared to $1,554,000 and $3,068,000 for the
corresponding periods in 1997. The increase in research and development
expenses for both the three- and six-month periods was primarily attributable
to increases in staffing and related supply and occupancy costs. The Company
believes that a significant level of investment for product development and
evaluation is necessary to remain technologically competitive and anticipates
that it will continue its spending in research and development at or near
current levels in the near term.
Sales and Marketing Expenses. Sales and marketing expenses were
$1,567,000 and $3,446,000 for the three- and six-months ended June 30, 1998,
respectively, compared to $957,000 and $1,702,000 for the corresponding
periods in 1997. The increase in sales and marketing expense for both the
three- and six-month periods was attributable to the Company's development
and expansion of its sales force, increased marketing efforts associated with
commercialization of new products and physician training costs. At the end
of the quarter the Company announced an agreement with Medtronic, Inc. for
U.S. distribution of its Series 8000 System for minimally invasive cardiac
surgery which includes sales and marketing efforts associated with the
product. The Company therefore expects that such expenses will decrease on an
absolute dollar basis in the future as it transitions its sales and marketing
efforts in connection with this product in the U.S. to Medtronic.
General and Administrative Expenses. The Company's general and
administrative expenses were $1,155,000 and $2,860,000 for the three- and
six-months ended June 30, 1998, respectively, compared to $1,180,000 and
$2,345,000 for the corresponding periods in 1997. The expenses were
relatively flat in the three-month period compared to the prior year due to
increases in staffing and related expenses and costs associated with being a
public company which were offset by a reduction in deferred compensation and
lower professional and legal services fees. The increase in expenses for the
six-month period was primarily due to increases in staffing and related
expenses and costs associated with being a public company. The Company
expects its general and administrative expenses to be relatively flat in the
near term as the impact of a restructuring takes effect and offsets increased
costs associated with being a public company.
Restructuring Expenses. The Company recorded charges associated with
restructuring expenses of $940,000 for both the three- and six-month periods
ended June 30, 1998 and had no such expenses for the corresponding periods of
1997. The restructuring expenses related primarily to termination and
severance payments to employees in connection with transfer of sales and
marketing responsibility in the U.S. for the Company's Series 8000 System for
9
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minimally invasive cardiac surgery to Medtronic, Inc., termination and
severance payments to employees in connection with a general Company
restructuring and work force reduction, and write down of assets related to a
strategic decision to discontinue distribution of a line of cardiac
instrument and sutures earlier than previously planned.
Interest Income. The Company had net interest income of $255,000 and
$583,000 for the three- and six-month periods ended June 30, 1998,
respectively, compared to $42,000 and $144,000 for the corresponding periods
in 1997. This increase was due primarily to increasing average investment
balances of the Company's excess cash following the Company's Initial Public
Offering ("IPO").
Other Losses. The Company recorded other losses of $638,000 for both
the three- and six-month periods ended June 30, 1998 and had no such losses
for the corresponding periods in 1997. The losses for both the three- and
six-month periods relate to recognition of a permanent reduction in value of
securities the Company received in connection with an earlier license
agreement with Imagyn Medical Technologies, Inc. (formerly Urohealth Systems,
Inc.).
Liquidity and Capital Resources
The Company completed its IPO in July 1997, raising approximately $32.8
million net of offering costs. Prior to the IPO, the Company satisfied its
liquidity requirements from the private sale of common and preferred stock,
through advances from a related party, and from the proceeds from licensing
certain of the Company's technology.
Net cash used in operating activities for the six-months ended June 30,
1998 was $8,326,000 compared to net cash used of $6,363,000 for the
corresponding six-month period in 1997. The increase in net cash used in
operating activities was primarily attributable to the increasing net losses
during the 1998 period with the overall effect of changes in operating
assets, liabilities, depreciation and amortization having little impact
between the periods.
Net cash provided by investing activities was $7,738,000 for the
six-months ended June 30, 1998 compared to $1,831,000 of net cash used in the
same period in 1997. The net cash provided by investing activities in 1998
was primarily attributable to maturities of short-term investments and the
net cash used in 1997 was primarily attributable to the purchase of property
and equipment related to increased staffing, expansion of manufacturing
capabilities, and marketing demonstrations.
Net cash provided by financing activities was $185,000 for the
six-months ended June 30, 1998 compared to net cash used in financing
activities of $649,000 for the same period in 1997. The net cash provided by
financing activities in 1998 was primarily attributable to proceeds from the
purchase of stock by employees through the Company's employee stock purchase
plan and the exercise of stock options while the cash used in the 1997 period
was associated with expenses related to the Company's IPO which was completed
in July 1997.
10
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As of June 30, 1998, the Company's strategic partners, Sofamor Danek and
Medtronic accounted for approximately 47% and 18%, respectively, of the
outstanding receivables and Aesculap AG accounted for approximately 10%.
In October 1997, the Company completed a $10.0 million Loan and Security
Agreement ("Loan Agreement") to finance the placement with customers of its
Series 8000 product on a pay per procedure basis rather than through an
upfront capital payment. As of June 30, 1998 there were no outstanding
balances under the agreement. On June 29, 1998, the Company announced a new
distribution agreement with Medtronic, Inc. whereby Medtronic will distribute
the Series 8000 for the Company in the United States. The terms of that
agreement call for Medtronic to pay Vista for units placed with the companies
then sharing in the gross margins generated by procedure fees. The Company
believes that this agreement effectively replaces the Loan Agreement, which
expires in September 1998, and that the Company will not draw down on the
loan. If the Company were to borrow funds pursuant to the Loan Agreement, it
could borrow up $10.0 million at one time with an interest rate of prime plus
one and one half percent.
The Company anticipates that the net proceeds from the IPO completed in
July 1997 and the interest income thereon, together with existing cash, cash
equivalents and short-term investments, and product revenues, will be
sufficient to fund its operations through at least the first quarter of 1999.
Risks and Uncertainties
THE FOLLOWING ARE AMONG THE FACTORS THAT SHOULD ALSO BE CONSIDERED
CAREFULLY IN EVALUATING VISTA MEDICAL TECHNOLOGIES AND ITS BUSINESS.
DEVELOPMENT STAGE COMPANY; SUBSTANTIAL FUTURE LOSSES AND FUTURE CAPITAL
REQUIREMENTS. Since its formation in July 1993, the Company has been engaged
in the development of visualization and information systems and related
surgical instruments and accessories that enable minimally invasive
microsurgery ("MIM") solutions for applications in cardiothoracic and other
selected microsurgical procedures and in manufacturing and marketing limited
quantities of camera systems to customers as an OEM. As of June 30, 1998,
the Company had incurred cumulative net losses of approximately $40.3 million
since its formation. The Company expects to incur substantial additional
operating losses before it will reach profitability, if at all. There can be
no assurance that the Company will achieve or sustain profitability in the
future. Failure to achieve significant commercial revenues or profitability
would have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company's future liquidity and capital requirements will depend upon
numerous factors, including the following: the extent to which the Company's
products gain market acceptance; the progress and scope of product evaluations;
the timing and costs of filing future regulatory submissions; the timing and
costs required to receive both domestic and international governmental
approvals; the timing and costs of product introductions; the extent of the
11
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Company's ongoing research and development programs; the costs of training
physicians to become proficient in the use of the Company's products and
procedures; and the costs of developing marketing and distribution
capabilities. The Company anticipates that the net proceeds from the Initial
Public Offering completed in July 1997 and the interest income thereon,
together with existing cash, cash equivalents and short-term investments, and
product revenues, will be sufficient to fund its operations through at least
the first quarter of 1999. If, at or prior to such time, the net proceeds of
the Initial Public Offering, together with available funds and cash generated
from operations, are insufficient to satisfy the Company's cash needs, the
Company may require additional financing. There can be no assurance that
such additional financing will be available on terms acceptable to the
Company, if at all. The Company's inability to fund its capital and
operational requirements would have a material adverse effect on the
Company's business, financial condition and results of operations.
DEPENDENCE UPON AND UNCERTAINTY REGARDING COMMERCIALIZATION OF SERIES
8000 AND STEREOSITE. The Series 8000 for minimally invasive cardiac surgery
and StereoSite Systems for head, neck and spine microsurgery are the
Company's primary near-term product focuses and are expected to account for
the majority of the Company's revenues over the next several years. There
can be no assurance that demand for the Series 8000 and StereoSite will be
sufficient to achieve profitable operations.
Development of certain additional components of the Series 8000 has not
yet been completed and additional versions of StereoSite have yet to be
finally developed. There can be no assurance that the Company's development
efforts for these products will be successful, or that the Company's other
products under development will be shown to be safe or effective, capable of
being manufactured in commercial quantities at acceptable costs, acquire
appropriate regulatory clearances or be successfully marketed.
Evaluations of the Series 8000 and StereoSite conducted to date have
shown that there is a learning process involved for surgeons and other
members of the surgery team to become proficient with the use of the systems.
Based on the clinical and laboratory procedures performed to date, there can
be no assurance that visualization and information system enhancements
incorporated, or to be incorporated, in the Series 8000 and StereoSite will
prove suitable for use by a substantial number of surgeons. If the Series
8000 and StereoSite prove unsuitable for a number of surgeons to use, the
potential markets and applications for the Company's products would be
significantly limited. Widespread use of the Series 8000 and StereoSite will
require training of a large number of surgeons, and the time required to
institute a training program and to train such surgeons could adversely
affect market acceptance. Failure to successfully commercialize the Series
8000 and StereoSite would have a material adverse effect on the Company's
business, financial condition and results of operations.
UNCERTAINTY OF CLINICAL ADOPTION OF MINIMALLY INVASIVE MICROSURGICAL
PROCEDURES. The Company's near-term products are being developed in order to
enable cardiothoracic and HNS surgeons to perform Minimally Invasive
Microsurgical ("MIM") surgical procedures using their existing skills coupled
with training and
12
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complementary equipment being developed by other companies. Accordingly, the
Company's success is dependent upon acceptance of these procedures by the
medical community as a reliable, safe and cost effective alternative to
existing treatments. To date, MIM surgical procedures have only been
performed on a very limited basis by a small number of highly skilled
surgeons. The Company is unable to predict how quickly, if at all, MIM
surgical procedures will be adopted by the medical community or, if they are
adopted, the number of procedures that will be performed.
Most patients with cardiovascular disease first consult with a
cardiologist, who then may treat the patient with pharmaceuticals or
non-surgical interventions, such as angioplasty and intravascular stents, or
refer the patient to a cardiac surgeon for open-chest coronary artery bypass
graft ("CABG") surgery. Cardiologists may not recommend MIM procedures until
such time, if at all, as such procedures can successfully be demonstrated to
be as safe and cost-effective as other accepted treatments. In addition,
cardiac surgeons may choose not to recommend MIM procedures until such time,
if at all, as such procedures are proven to be as efficacious as
conventional, open-chest surgery methods, which have become widely adopted by
cardiac surgeons since the initial use of such surgery in the mid-1950s.
Even if the clinical efficacy of MIM procedures is established in
cardiac and other specialties, surgeons, specialists and other physicians may
choose not to recommend the procedures for any number of other reasons.
Clinical adoption will depend, for example, upon the Company's ability to
facilitate training of surgeons to perform MIM surgery and the willingness of
such surgeons to perform such procedures. Physicians may similarly elect not
to recommend the MIM procedure based on possible unavailability of
acceptable reimbursement from health care payors. Health care payor
acceptance may require evidence of the cost effectiveness of MIM procedures
as compared to other currently available treatments. The Company believes
that physician endorsements will be essential for clinical adoption of MIM
procedures, and there can be no assurance that any such endorsements will be
obtained in a timely manner, if at all. Patient acceptance of the procedure
will depend upon such physician recommendations, as well as other factors,
including the effectiveness of, and the rate and severity of complications
associated with, the procedure as compared to other treatments.
There can be no assurance that MIM procedures will gain clinical
adoption. Failure of these procedures to achieve significant clinical
adoption would have a material adverse effect on the Company's business,
financial condition and results of operations.
DEPENDENCE ON MEDTRONIC, INC. AND SOFAMOR DANEK. The Company has
organized its sales and marketing efforts through the Company's
CardioThoracic Surgery and HNS Microsurgery divisions. Pursuant to a
recently announced sales agreement, the products of the Company's
Cardiothoracic Surgery division will be sold by Medtronic's sales force in
most of the world's significant markets including the United States. The
products of the Company's HNS Microsurgery division will be sold worldwide
via Sofamor Danek's sales force.
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The Company is directly dependent on its agreements with Medtronic and
Sofamor Danek for sales of the majority of its products. The termination of
these relationships could have a material adverse effect on the Company.
Medtronic is the world's leading medical technology company specializing
in implantable and interventional therapies. Medtronic manufactures products
in the United States, Europe and Asia and sells its products to hospitals and
surgeons worldwide. Pursuant to a June 29, 1998 sales agreement between
Medtronic and the Company, the Company appointed Medtronic as its exclusive
distributor for current and future visualization and information systems for
cardiothoracic surgery in the U.S., Europe, Japan and several other
significant geographical regions. There can be no assurance that Medtronic
will commit significant resources to market the Company's Series 8000 System
or that its marketing efforts will be effective.
Sofamor Danek is engaged in the worldwide development, manufacturing and
distribution of systems for spinal surgery. Sofamor Danek manufactures
products in the United States and Europe and sells its products to surgeons
and hospitals worldwide. Pursuant to an exclusive distribution agreement
between Sofamor Danek and the Company, the Company appointed Sofamor Danek as
its exclusive worldwide distributor for the Company's current and future
visualization and information systems for neurosurgery, spinal surgery,
radiation delivery, otolaryngology and maxillofacial surgery (the "StereoSite
Systems"). There can be no assurance that Sofamor Danek will commit
significant resources to market StereoSite Systems or that its marketing
activities will be effective.
The Company and Sofamor Danek also entered into a cooperative technology
agreement, pursuant to which the parties have agreed to work exclusively
together in performing research and development specifically designed to
enhance StereoSite Systems or integrate StereoSite Systems with Sofamor
Danek's image guidance systems and certain other products, including systems
and instruments for spinal surgery. There can be no assurance that such
improvement and integration of products will be successfully completed.
LACK OF COMMERCIAL MANUFACTURING EXPERIENCE; SCALE-UP RISK. The Company
lacks experience in manufacturing the products under development, including
its Series 8000 systems for minimally invasive cardiac surgery and StereoSite
systems for HNS microsurgery, in the quantities that would be necessary for
the Company to achieve significant commercial sales. The manufacture of the
Company's products primarily involves the assembly of a number of
sub-assemblies and components. Such businesses often encounter difficulties
in scaling up manufacturing of products, which difficulties could include
problems involving quality control and assurance, component and service
availability, adequacy of control policies and procedures, lack of qualified
personnel, compliance with U.S. Food and Drug Administration ("FDA")
regulations and the need for further FDA approval of new manufacturing
processes and facilities and other production constraints. There can be no
assurance that reliable, high-volume manufacturing can be established or
maintained at commercially reasonable costs. The Company
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will also require additional manufacturing facilities as production volumes
increase; acquisition of new manufacturing facilities will likely involve
relocation. Any of these factors could have a material adverse effect on the
Company's business, financial condition and results of operation.
The Company has considered and will continue to consider as appropriate,
the internal manufacture of sub-assemblies currently provided by third party
subcontractors, as well as the implementation of new production processes.
There can be no assurance that manufacturing yields or costs will not be
adversely affected by the transition to in-house production or to new
production processes when such efforts are undertaken, or that FDA Good
Manufacturing Practices ("GMP") requirements can be met and that such a
transition would not materially adversely affect the Company's business,
financial condition and results of operations.
POTENTIAL COMPONENT SHORTAGES; DEPENDENCE ON SOLE SOURCES OF SUPPLY.
The Company uses or relies on certain components and services used in its
systems that are provided by sole source suppliers. The manufacture of the
Company's products in larger commercial quantities will require a substantial
increase in component supplies and will likely necessitate the replacement of
current suppliers or the addition of new suppliers. The qualification of
additional or replacement vendors for certain components or services is a
lengthy process. In addition, the substitution of replacement vendors may
entail re-engineering time and cost and could delay the supply of the
Company's products.
The Company expects to manufacture its products based on forecasted
product orders and intends to purchase subassemblies and components prior to
receipt of purchase orders from customers. Lead times for materials and
components ordered by the Company vary significantly and depend on factors
such as the business practices of the specific supplier, contract terms and
general demand for a component at a given time. Certain components used in
the Company's products have long lead times. As a result, there is a risk of
excess or inadequate inventory if orders do not match forecasts.
Any significant supply interruption, or inventory shortage or overage,
would have a material adverse effect on the Company's ability to manufacture
the Company's products and, therefore, a material adverse effect on its
business, financial condition and results of operations.
NO ASSURANCE OF REGULATORY CLEARANCE OR APPROVAL; SIGNIFICANT DOMESTIC
AND INTERNATIONAL REGULATION. The manufacture and sale of medical devices
intended for commercial distribution are subject to extensive governmental
regulation in the United States. Medical devices are regulated in the United
States primarily by the FDA and, to a lesser extent, by certain state
agencies. Generally, medical devices require pre-market clearance or
pre-market approval prior to commercial distribution. In addition, certain
material changes or modifications to, and changes in intended use of, medical
devices also are subject to FDA review and clearance or approval. The FDA
regulates the research, testing, manufacture, safety, effectiveness,
labeling, storage, record keeping, promotion and distribution of medical
devices in the United States and the export of unapproved medical
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devices from the United States to other countries. Noncompliance with
applicable requirements can result in failure of the government to grant
pre-market clearance or approval for devices, withdrawal or suspension of
approval, total or partial suspension of production, fines, injunctions,
civil penalties, refunds, recall or seizure of products and criminal
prosecution.
In the United States, medical devices are classified into one of three
classes, Class I, II or III, on the basis of the controls deemed by the FDA to
be necessary to reasonably ensure their safety and effectiveness. The Company's
products to date have either been classified as Class I or Class II devices.
Class I devices are subject to general controls (e.g., establishment
registration and product listing, labeling, adulteration and misbranding
provisions and medical device reporting requirements and, unless exempt, to
pre-market notification and adherence to GMP standards). Class II devices
are subject to general controls and special controls (e.g., performance
standards, post-market surveillance, patient registries and FDA guidelines).
Generally, Class III devices are those that must receive pre-market approval
by the FDA to ensure their safety and effectiveness (e.g., life-sustaining,
life-supporting and implantable or new devices which have not been found to
be substantially equivalent to legally marketed devices). Class III devices
ordinarily require clinical testing to ensure safety and effectiveness and
FDA approval prior to marketing and distribution. The FDA also has the
authority to require clinical testing of Class I and Class II devices. A
pre-market approval ("PMA") application must be filed if a proposed device is
not substantially equivalent to a legally marketed predicate device or if it
is a Class III device for which the FDA has called for such application. A
PMA typically takes several years to be approved by the FDA.
Generally, before a new device can be introduced into the market in the
United States, the manufacturer or distributor must obtain FDA clearance of a
510(k) notification or submission and approval of a PMA application. If a
medical device manufacturer or distributor can establish that a device is
"substantially equivalent" to a legally marketed Class I or Class II device,
or to a Class III device for which the FDA has not called for a PMA, the
manufacturer or distributor may market the device upon receipt of an FDA
order determining such a device substantially equivalent to a predicate
device. The 510(k) notification may need to be supported by appropriate
performance, clinical or testing data establishing the claim of substantial
equivalence. The FDA requires a rigorous demonstration of substantial
equivalence.
Following submission of the 510(k) notification, the manufacturer or
distributor may not place the device into commercial distribution until an
FDA substantial equivalence order permitting the marketing of a device is
received by the person who submitted the 510(k) notification. At this time,
the FDA typically responds to the submission of a 510(k) notification within
90 to 200 days. An FDA letter may declare that the device is substantially
equivalent to a legally marketed device and allow the proposed device to be
marketed in the United States. The FDA, however, may determine that the
proposed device is not substantially equivalent or require further
information, including clinical data, to make a determination regarding
substantial
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equivalence. Such determination or request for additional information will
delay market introduction of the product that is the subject of the 510(k)
notification.
All clinical investigations involving the use of an unapproved or
uncleared device on humans to determine the safety or effectiveness of the
device must be conducted in accordance with the FDA's investigational device
exemption ("IDE") regulations. If the device presents a "significant risk,"
the manufacturer or distributor of the device is required to file an IDE
application with the FDA prior to commencing human clinical trials. The IDE
application must be supported by data, typically the result of animal and
bench testing. If the IDE application is approved by the FDA, human clinical
trials may begin at a specific number of investigational sites with a maximum
number of patients, as approved by the FDA. If the device presents a
"non-significant risk," approval by an Institutional Review Board prior to
commencing human clinical trials is required, as well as compliance with
labeling, record keeping, monitoring and other requirements. However, the
FDA can disagree with a non-significant risk device finding.
Any products manufactured or distributed by the Company are subject to
continuing regulation by the FDA, which includes record keeping requirements,
reporting of adverse experience with the use of the device, GMP requirements
and post-market surveillance, and may include post-market registry and other
actions deemed necessary by the FDA. A new 510(k), PMA or PMA supplement is
also required when a medical device manufacturer makes a change or
modification to a legally marketed device that could significantly affect the
safety or effectiveness of the device, or where there is a major change or
modification in the intended use of the device or a new indication for use of
the device. When any change or modification is made to a device or its
intended use, the manufacturer is expected to make the initial determination
as to whether the change or modification is of a kind that would necessitate
the filing of a new 510(k), PMA or PMA supplement.
Sales of medical device products outside the United States are subject
to foreign regulatory requirements that vary from country to country. The
time required to obtain approvals required by foreign countries may be longer
or shorter than that required for FDA clearance, and requirements for
licensing may differ from FDA requirements. Failure to comply with
regulatory requirements could have a material adverse effect on the Company's
business, financial condition and results of operations. The current
regulatory environment in Europe for medical devices differs significantly
from that in the United States. After June 1998, all medical devices sold in
the European Union must bear the CE mark. Devices are now classified by
manufacturers according to the risks they represent with a classification
system giving Class III as the highest risk devices and Class I as the
lowest. Once the device has been classified, the manufacturer can follow one
of a series of conformity assessment routes, typically through a registered
quality system, and demonstrate compliance to a European Notified Body.
After that, the CE mark may be applied to the device. Maintenance of the
system is ensured through annual on-site audits by the Notified Body and a
post-market surveillance system requiring the manufacturer to submit serious
complaints to the appropriate governmental authority.
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Failure to comply with regulatory requirements could have a material
adverse effect on the Company's business, financial condition and results of
operations.
RAPID TECHNOLOGICAL CHANGE; SIGNIFICANT COMPETITION. The medical device
market is characterized by intensive development efforts and rapidly advancing
technology. The future success of the Company will depend, in large part, upon
its ability to anticipate and keep pace with advancing technology and competing
innovations. There can be no assurance, however, that the Company will be
successful in identifying, developing and marketing new products or enhancing
its existing products.
The Company believes that a number of large companies, with significantly
greater financial, manufacturing, marketing, distribution and technical
resources and experience than that of the Company, already develop, manufacture
and market visualization products for minimally invasive surgery and would have
a natural interest in developing and marketing advanced technology for minimally
invasive microsurgical applications in general, which could also be applied to
cardiac or HNS surgery. The Company estimates there are approximately ten
potential major competitors in the minimally invasive visualization market with
such companies as Stryker, Karl Storz, Olympus and Dyonics considered leaders,
and while they have not yet introduced products which compete directly with the
Company's technology, there can be no assurance that they will not do so in the
future.
Technological advances with other therapies such as drugs, interventional
procedures or future innovations in surgical techniques could make such other
therapies more effective or lower in cost than MIM surgical procedures and could
render MIM surgery obsolete.
There can be no assurance that physicians will use MIM surgical procedures
to replace or supplement established treatments, or that MIM cardiac surgery or
HNS microsurgery will be competitive with current or future technologies. There
can be no assurance that the Company will be able to compete successfully
against current and future competitors. Failure to do so would have a material
adverse effect upon the Company's business, financial condition and results of
operations.
RELIANCE ON STRATEGIC RELATIONSHIPS. The Company intends to pursue
strategic relationships with corporations and research institutions with
respect to the research, development, regulatory approval and marketing of
certain of its products. The Company's future success may depend, in part,
on its relationships with such partners, including, for example, the
Company's relationships with Medtronic and Sofamor Danek. The Company will
have limited or no control over the resources that any partner may devote to
the Company's products, or over its partners' development and marketing
efforts. There can be no assurance that any of the Company's present or
future collaborative partners will perform their obligations as expected or
will devote sufficient resources to the development or marketing of the
Company's potential products. Any parallel development by a partner of
alternate technologies, preclusion from entering into competitive
arrangements, failure to obtain timely regulatory approvals,
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premature termination of a collaborative agreement or failure by a partner to
devote sufficient resources to the development and commercialization of the
Company's products would have a material adverse effect on the Company's
business, financial condition and results of operations. The Company
believes that its strategic partners currently have the right to terminate
their respective agreements only in the event of a material breach by the
Company. There can be no assurance that the Company will be successful in
establishing or maintaining any such strategic relationships in the future or
that any such relationship will be successful.
FLUCTUATIONS IN OPERATING RESULTS. Results of operations of the Company
may vary significantly from quarter to quarter depending upon numerous
factors, including the following: timing and results of product evaluations;
delays associated with the FDA and other regulatory approval processes;
demand for and utilization of the Company's products; changes in pricing
policies by the Company or its competitors; changes in third-party payment
guidelines; the number, timing and significance of product enhancements and
new product announcements by the Company and its competitors; the ability of
the Company to develop, introduce and market new and enhanced versions of the
Company's products on a timely basis; customer order deferrals in
anticipation of enhancements or new products offered by the Company or its
competitors; product quality problems; personnel changes; and the level of
international sales.
UNCERTAINTY RELATING TO THIRD-PARTY PAYMENTS. The Company expects that
the majority of its sales and the prices of those sales will be directly or
indirectly affected by the profitability to, or cost-effectiveness for,
hospitals of the procedures in which the Company's products are involved.
While the cost of using one of the Company's products may not be specifically
reimbursable, its cost will form part of the global cost of the procedure to
the institution. Such attention to the relationship between procedure cost
and potential reimbursement is an increasing element in purchasing decisions
by hospitals, particularly in the United States and, increasingly, in other
important foreign markets. In the U.S. profitability levels are directly
related to the level of payments for surgical procedures, either by Medicare
or private insurance companies, and it is a continuing trend in U.S. health
care for such payments to be under continual scrutiny and downward pressure.
The Company expects that the majority of its products typically will be used
by hospitals and surgical centers, which bill various third-party payors,
such as governmental programs and private insurance plans, for the health
care services provided to their patients. If such hospitals and surgical
centers are unable to be reimbursed for procedures using the Company's
equipment, this could have a material adverse effect on the sales of the
Company's products. Third-party payors carefully review and increasingly
challenge the prices charged for medical products and services or negotiate a
flat rate fee in advance. Payment rates from private companies also vary
depending on the procedure performed, the third-party payor, the insurance
plan and other factors. Medicare compensates hospitals at a prospectively
determined fixed amount for the costs associated with an in-patient
hospitalization based on the patient's discharge diagnosis and compensates
physicians at a prospectively determined fixed amount based on the procedure
performed, regardless of the actual costs incurred by the hospital or
physician in furnishing the care and unrelated to the specific devices or
systems used in that procedure. Medicare and other third-party payors are
increasingly scrutinizing whether to cover
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new products and the level of payment for new procedures. The flat fee
reimbursement trend is causing hospitals to control costs strictly in the
context of a managed care system in which health care providers contract to
provide comprehensive health care for a fixed cost per person. The Company
is unable to predict what changes will be made in the reimbursement methods
utilized by third-party health care payors. The Company could be adversely
affected by changes in payment policies of government or private health care
payors, particularly to the extent any such changes affect payment for the
procedure in which the Company's products are intended to be used.
If the Company obtains the necessary foreign regulatory registrations or
approvals, market acceptance of the Company's products in international
markets would be dependent, in part, upon the acceptance by the prevailing
health care financing system in each country. Health care financing systems
in international markets vary significantly by country and include both
government sponsored health care programs and private insurance. These
financing systems face the same cost containment pressures as the U.S. and
there can be no assurance that they will endorse use of the Company's
technology.
The Company believes that reimbursement in the future will be subject to
increased restrictions such as those described above, both in the United
States and in foreign markets. The Company believes that the overall
escalating cost of medical products and services has led to and will continue
to lead to increased pressures on the health care industry, both foreign and
domestic, to reduce the cost of products and services, including products
offered by the Company. There can be no assurance, as to either United
States or foreign markets, that funding will be available or adequate, or
that future legislation, regulation or reimbursement policies of third-party
payors will not otherwise adversely affect the demand for the Company's
products or its ability to sell its products on a profitable basis,
particularly if the Company's systems are utilized in procedures which are
more expensive than competing conventional surgical procedures. The
unavailability or inadequacy of third-party payor coverage or reimbursement
would have a material adverse effect on the Company's business, financial
condition and results of operations.
RISK RELATING TO INTERNATIONAL OPERATIONS. In the event the Company is
successful in developing its products, manufacturing them in commercial
quantities and receiving necessary FDA and foreign regulatory registrations
or approvals, the Company plans to market its products in international
markets, either on its own or with its strategic partners. The Company has
limited experience in marketing its products overseas. Changes in overseas
economic conditions, currency exchange rates, foreign tax laws or tariffs or
other trade regulations could have a material adverse effect on the Company's
business, financial condition and results of operations. The anticipated
international nature of the Company's business is also expected to subject it
and its representatives, agents and distributors to laws and regulations of
the foreign jurisdictions in which they operate or in which the Company's
products under development are sold. The regulation of medical devices in a
number of such jurisdictions, particularly in the European Union, continues
to develop and there can be no assurance that new laws or regulations will
not have an adverse effect on the Company's business, financial condition and
results of operations. In addition, the laws of certain foreign countries do
not
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protect the Company's intellectual property rights to the same extent as do
the laws of the United States.
PRODUCT LIABILITY RISK; LIMITED INSURANCE COVERAGE. The Company faces
an inherent and significant business risk of exposure to product liability
claims in the event that the use of its products results in personal injury
or death and there can be no assurance that the Company will not experience
any material product liability losses in the future. Also, in the event that
any of the Company's products prove to be defective, the Company may be
required to recall or redesign such products. The Company's current product
liability insurance coverage limit is $10.0 million per occurrence and in the
aggregate. 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. In addition, the
Company may require increased product liability coverage if any products are
used in clinical evaluations or successfully commercialized. 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 or a product recall could have a material adverse effect
on the Company's business, financial condition and results of operations.
UNCERTAINTY REGARDING PATENTS AND PROTECTION OF PROPRIETARY TECHNOLOGY;
RISKS OF FUTURE LITIGATION. Vista Medical relies on a combination of
technical leadership, patent, trade secret, copyright and trademark
protection and nondisclosure agreements to protect its proprietary rights.
As of June 30, 1998, the Company had exclusive ownership rights to seven
issued United States patents, 10 pending United States patent applications
and 16 pending foreign applications covering various aspects of its devices
and systems. Furthermore, as of the same date, the Company had exclusive
rights in the medical field to four issued United States patents, one pending
United States patent application, three issued foreign patents and nine
pending foreign applications covering various aspects of its devices and
systems. The Company intends to file additional patent applications in the
future. The failure of such patents to issue could have a material adverse
effect on the Company's business, financial condition and results of
operations.
The Company's future success will depend, in part, on its ability to
continue to develop patentable products, enforce its patents and obtain
patent protection for its products both in the United States and in other
countries. The patent positions of medical device companies, including the
Company, however, are generally uncertain and involve complex legal and
factual questions. There can be no assurance that patents will issue from
any patent applications owned by or licensed to the Company or that, if
patents do issue, the claims allowed will be sufficiently broad to protect
the Company's technology. In addition, there can be no assurance that any
issued patents owned by or licensed to the Company will not be challenged,
invalidated or circumvented, or that the rights granted thereunder will
provide competitive advantages to the Company.
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The medical device industry has been characterized by extensive
litigation regarding patents and other intellectual property rights.
Litigation, which would result in substantial expense to the Company, may be
necessary to enforce any patents issued or licensed to the Company and/or to
determine the scope and validity of proprietary rights of third parties or
whether the Company's products, processes or procedures infringe any such
third-party proprietary rights. The Company may also have to participate in
interference proceedings declared by the United States Patent and Trademark
Office, which could result in substantial expense to the Company, to
determine the priority of inventions covered by the Company's issued United
States patents or pending patent applications. Furthermore, the Company may
have to participate at substantial cost in International Trade Commission
proceedings to enjoin importation of products which would compete unfairly
with products of the Company. Any adverse outcome of any patent litigation
(including interference proceedings) could subject the Company to significant
liabilities to third parties, require disputed rights to be licensed from or
to third parties or require the Company to cease using the technology in
dispute.
Patent applications in the United States are maintained in secrecy until
a patent issues, and patent applications in foreign countries are maintained
in secrecy for a period of time after filing. After such period of time, and
usually before the grant of the patent, patent applications in foreign
countries are published. While publication of discoveries in the scientific
or patent literature tends to lag behind actual discoveries and the filing of
related patent applications, such publication may enable the Company's
competitors to ascertain what areas of research or development the Company is
engaged in prior to the Company's receipt of patent protection in the United
States or foreign countries relating to such research or development.
In general, the development of visualization and information systems and
related surgical instruments and accessories is intensely competitive.
Patents issued and patent applications filed relating to medical devices are
numerous and there can be no assurance that current and potential competitors
and other third parties have not filed or in the future will not file
applications for, or have not received or in the future will not receive,
patents or obtain additional proprietary rights relating to products or
processes used or proposed to be used by the Company. There can also be no
assurance that third parties will not assert infringement claims against the
Company in the future or that any such assertions will not result in costly
litigation or require the Company to obtain a license to intellectual
property rights of such parties. There can be no assurance that any such
licenses would be available on terms acceptable to the Company, if at all.
Furthermore, parties making such claims may be able to obtain injunctive or
other equitable relief that could effectively block the Company's ability to
make, use, sell or otherwise practice its intellectual property (whether or
not patented or described in pending patent applications), or to further
develop or commercialize its products in the United States and abroad and
could result in the award of substantial damages. Defense of any lawsuit or
failure to obtain any such license could have a material adverse effect on
the Company.
The Company relies on unpatented trade secrets to protect its proprietary
technology, and no assurance can be given that others will not independently
develop or otherwise acquire the
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same or substantially equivalent technologies or otherwise gain access to the
Company's proprietary technology or disclose such technology or that the
Company can ultimately protect its rights to such unpatented proprietary
technology. No assurance can be given that third parties will not obtain
patent rights to such unpatented trade secrets, which patent rights could be
used to assert infringement claims against the Company. The Company also
relies on confidentiality agreements with its collaborators, employees,
advisors, vendors and consultants to protect its proprietary technology.
There can be no assurance that these agreements will not be breached, that
the Company would have adequate remedies for any breach or that the Company's
trade secrets will not otherwise become known or be independently developed
by competitors. In addition, the Company's agreements with its employees and
consultants require disclosure to the Company of ideas, developments,
discoveries or inventions conceived during employment or consulting, as the
case may be, and assignment to the Company of proprietary rights to such
matters related to the business and technology of the Company. The extent to
which efforts by others will result in patents and the effect on the Company
of the issuance of such patents is unknown. Failure to obtain or maintain
patent and trade secret protection, for any reason, could have a material
adverse effect on the Company's business, financial condition and results of
operations.
The Company has in-licensed certain aspects of its technology. In
September 1995, Mr. H. McKinley and McKinley Optics, Inc. (collectively,
"McKinley") granted to the Company a perpetual, exclusive, worldwide license
in the medical field to make, have made, modify, use, lease, market, sell and
otherwise distribute certain endoscopes and other medical products
incorporating a stereo objective lens and/or a relay lens configuration.
Under the terms of this license agreement, Vista Medical is obligated to pay
McKinley an annual maintenance royalty, additional royalties upon the sale of
certain numbers of systems incorporating the McKinley technology and
royalties on net sales of products incorporating the McKinley technology.
The exclusive license granted under this agreement becomes a non-exclusive
license (or, under certain circumstances, the license terminates) in the
event Vista Medical fails to pay any royalties following receipt of notice of
such failure to pay. In addition, Vista Medical has the right to terminate
the agreement with limited notice.
In June 1996, Fuji Film Co. and Fuji Photo Optical Co., Ltd.
(collectively, "Fuji") granted to the Company a non-exclusive license to
certain optical zoom technology for use in endoscopes. Vista Medical is
obligated to pay royalties on net sales of products in the United States
which incorporate Fuji's technology. Fuji may terminate the agreement if
Vista Medical does not cure any violation of the agreement within a limited
period of time. Failure of the Company to retain rights to these
technologies could have a material, adverse effect on the Company's business,
financial condition and results of operations.
DEPENDENCE ON KEY PERSONNEL AND ADVISORS. The Company's future
business and operating results depend in significant part upon the continued
contributions of its key technical and senior management personnel, many of
whom would be difficult to replace and certain of whom perform important
functions for the Company beyond those functions suggested
23
<PAGE>
by their respective job titles or descriptions. The Company's business and
future operating results also depend in significant part upon its ability to
attract and retain qualified management, manufacturing, technical, marketing
and sales and support personnel for its operations. The Company has not
entered into any employment contracts or arrangements with any of its
employees. Competition for such personnel is intense, and there can be no
assurance that the Company will be successful in attracting or retaining such
personnel. The loss of any key employee, the failure of any key employee to
perform in his or her current position or the Company's inability to attract
and retain skilled employees, as needed, could materially adversely affect
the Company's business, financial condition and results of operations.
The Company has established three Clinical Advisory Boards made up of
leading surgeons, one focused on minimally invasive cardiac surgery, another
focused on HNS microsurgery and a third General Board focused on several
specialties. The Company also has formed a Research Advisory Board to
conduct specific research in the development of techniques applicable to the
use of video assistance in minimally invasive cardiac surgery. Members of
the Clinical Advisory Boards consult with the Company exclusively in the
field of visualization, but are free to consult with other non-competing
instrumentation companies and are employed elsewhere on a full-time basis.
As a result, they only spend a limited amount of time on the Company's
affairs. Although the Company has entered into consulting agreements, with
terms ranging from 12 months to two years, including confidentiality
provisions with each of the members of the Clinical Advisory Boards, there
can be no assurance that the consulting and confidentiality agreements
between the Company and each of the members of the Clinical Advisory Boards
will not be terminated or breached. In addition, there can be no assurance
that any of such agreements will be renewed upon termination.
NEED TO FINANCE AND MANAGE AN EXPANDING AND CHANGING BUSINESS. In order
to compete effectively against current and future competitors, prepare
additional products for potential commercialization and develop future
products, the Company believes that it must be prepared to expand its
operations, particularly in the areas of development and manufacturing. If
the Company were to experience significant growth in the future, such growth
would likely result in additional demands for financing and new and increased
responsibilities for management personnel and place significant strain upon
the Company's management, operating and financial systems and resources. To
accommodate such growth and compete effectively, the Company must continue to
implement and improve information systems, procedures and controls, and to
expand, train, motivate and manage its work force. All of the foregoing
demands will require the addition of new management personnel. The Company's
future success will depend to a significant extent on the ability of its
current and future management personnel to operate effectively, both
independently and as a group. There can be no assurance that the Company's
personnel, systems, procedures and controls will be adequate to support the
Company's future operations. The Company anticipates that the net proceeds
from the IPO completed in July 1997 and the interest income thereon, together
with existing cash, cash equivalents and short-term investments, and product
revenues, will be sufficient to fund and expand operations through at least
the first quarter of 1999. If, at or
24
<PAGE>
prior to such time, the net proceeds of the initial public offering, together
with available funds and cash generated from operations, are insufficient to
satisfy the Company's cash needs and expansion of operations, the Company may
require additional financing and will evaluate various strategies and sources
of funds at that time. There can be no assurance that such additional
financing will be available on terms acceptable to the Company, if at all,
and any failure to finance, implement and improve the Company's operational,
financial and management systems or to expand, train, motivate or manage
employees could have a material adverse effect on the Company's business,
financial condition and results of operations.
YEAR 2000 ISSUES. The Company recognizes the need to ensure its
operations will not be adversely impacted by the inability of the Company's
systems to process data having dates on or after January 1, 2000 (the "Year
2000" issues). Processing errors due to software failure arising from
calculations using the Year 2000 date are a recognized risk. The Company is
currently addressing the risk, with respect to the availability and integrity
of its financial systems and the reliability of its operating systems, and is
in the process of communicating with suppliers, customers, financial
institutions and others with whom it conducts business transactions to assess
whether they are Year 2000 compliant.
While the Company believes its planning efforts are adequate to address
its Year 2000 concerns, there can be no guarantee that the systems of other
companies on which the Company's systems and operations rely will be
converted on a timely basis and will not have a material effect on the
Company. In addition, the potential impact of the Year 2000 issues on
significant suppliers, customers, financial institutions and others with whom
the Company does business cannot be reasonably estimated at this time. The
cost of the Year 2000 initiatives to be executed by the Company is not
expected to be material to the Company's results of operations or financial
position.
POTENTIAL VOLATILITY OF STOCK PRICE. The market prices and trading
volumes for securities of emerging companies, like the Company, have
historically been highly volatile and have experienced significant
fluctuations unrelated to the operating performance of such companies. The
market price of the shares of Common Stock is likely to be highly volatile
and may be significantly affected by factors such as actual or anticipated
fluctuations in the Company's operating results, changes in financial
estimates by securities analysts, announcements of technological innovations,
new products or new contracts by the Company or its competitors, regulatory
announcements, developments with respect to patents or proprietary rights,
conditions and trends in the medical device and other technology industries,
adoption of new accounting standards affecting the medical device industry,
general market conditions and other factors. In addition, the stock market
has from time to time experienced significant price and volume fluctuations
that have particularly affected the market prices for shares of early stage
companies. These broad market fluctuations may adversely affect the market
price of the Common Stock. In the past, following periods of volatility in
the market price of a particular company's securities, securities class
action litigation has often been brought against that company. Such
litigation, if brought against the Company, could result in substantial costs
and a diversion of management's attention and resources.
25
<PAGE>
HAZARDOUS MATERIALS. The Company's research and development may involve
the controlled use of hazardous materials and chemicals. Although the
Company believes that its safety procedures for handling and disposing of
such materials comply with the standards prescribed by state and federal
regulations, the risk of accidental contamination or injury from these
materials cannot be completely eliminated. In the event of such an accident,
the Company could be held liable for any resultant damages, and any such
liability could exceed the resources of the Company. The Company may incur
substantial cost to comply with environmental regulations. The Company
believes it is currently in compliance with all Federal, State and local
environmental laws.
NO DIVIDENDS. The Company currently intends to retain any future
earnings for use in its business and does not anticipate paying any cash
dividends in the foreseeable future.
EFFECT OF CERTAIN CHARTER PROVISIONS; ANTITAKEOVER EFFECTS OF SECOND
RESTATED CERTIFICATE OF INCORPORATION, BYLAWS AND DELAWARE LAW. The
Company's Board of Directors has the authority to issue up to 5,000,000
shares of preferred stock and to determine the price, rights, preferences,
privileges and restrictions, including voting and conversion rights of such
shares, without any further vote or action by the Company's stockholders.
The rights of the holders of Common Stock are subject to, and may be
adversely affected by, the rights of the holders of any preferred stock that
may be issued in the future. The issuance of preferred stock could have the
effect of making it more difficult for a third party to acquire a majority
of the outstanding voting stock of the Company.
In addition, the Company's Second Restated Certificate of Incorporation
provides for a classified Board of Directors such that approximately
one-third of the members of the Company's Board of Directors are elected at
each annual meeting of stockholders. Such classification of the Company's
Board of Directors may have the effect of delaying, deferring or discouraging
changes in control of the Company. Making more difficult or discouraging a
change in control of the Company may adversely affect the market price of the
Common Stock.
Item 3. Not Applicable
26
<PAGE>
PART II. OTHER INFORMATION
Item 1. Not Applicable
Item 2. Not Applicable
Item 3. Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
I. 1998 Annual Meeting of Stockholders held on June 9, 1998
a. The 1998 Annual Meeting of Stockholders of Vista Medical
Technologies, Inc.(the "Annual Meeting") was held on June 9, 1998. The
holders of 10,718,911 of the 13,450,567 shares of the Company's Common
Stock outstanding on April 15, 1998, the record date for the Annual
Meeting (approximately 79.691%), were present at the Annual Meeting in
person or by proxy.
b. At the Annual Meeting, the seven individuals listed below were duly
nominated and properly elected as Directors of the Company. Nicholas B.
Binkley and Larry M. Osterink were elected to serve until the 1999 annual
meeting of stockholders or until their successors are elected and have
qualified. Olav. B. Bergheim and Daniel J. Holland were elected to serve
until the 2000 annual meeting of stockholders or until their successors
are elected and have qualified. James C. Blair, Ph.D. and John R. Lyon
were elected to serve until the 2001 annual meeting of stockholders or
until their successors are elected and have qualified. The number of votes
cast for and withheld with respect to each nominee for office, as well as
broker non-votes are indicated below:
<TABLE>
<CAPTION>
AGAINST/ BROKER
FOR WITHHELD NON-VOTES
---------- -------- ---------
<S> <C> <C> <C>
James C. Blair 10,702,896 16,015 0
Olav B. Bergheim 10,702,996 15,915 0
Nicholas B. Binkley 10,702,896 16,015 0
Daniel J. Holland 10,702,996 15,915 0
John R. Lyon 10,702,996 15,915 0
Larry M. Osterink 10,702,996 15,915 0
</TABLE>
At the Annual Meeting, a proposal to ratify the appointment of Ernst & Young
LLP as the Company's independent auditors for fiscal 1998 was approved. The
number of votes cast for, against and to abstain on the proposal, as well as
broker non-votes, are indicated below:
<TABLE>
<CAPTION>
BROKER
FOR AGAINST ABSTENTIONS NON-VOTES
---------- ------- ----------- ---------
<S> <C> <C> <C>
10,695,399 12,700 10,812 0
</TABLE>
Item 5. Not Applicable
Item 6. Exhibits and Reports on Form 8-K
A) Exhibits
27
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* 10.1 Amended and Restated Sales Agreement between the Company and
Medtronic, Inc., dated June 26, 1998
11.1 Statement Regarding Computation of Per Share Earnings
28
<PAGE>
27.1 Financial Data Schedule
* Certain confidential portions of this Exhibit were omitted by means of
redacting a portion of the text (the "Mark"). This Exhibit has been filed
separately with the Secretary of the Commission without the Mark pursuant
to the Company's Application Requesting Confidential Treatment under Rule
406 under the Securities Act.
B) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the three months
ended June 30, 1998.
29
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VISTA MEDICAL TECHNOLOGIES, INC.
Date: August 13, 1998 /s/ John R. Lyon
------------------- --------------------------------------
John R. Lyon
President, Chief Executive Officer and
Director
Date: August 13, 1998 /s/ Robert J. De Vaere
------------------- --------------------------------------
Robert J. De Vaere
Vice President of Finance & Administration
& Chief Financial Officer
(Principal financial and accounting officer)
30
<PAGE>
EXHBIT 10.1
AMENDED AND RESTATED SALES AGREEMENT
THIS AMENDED AND RESTATED SALES AGREEMENT (the "Agreement") is made and
entered into this 26th day of June, 1998 to be effective as of July 1, 1998
(the "Effective Date") between VISTA MEDICAL TECHNOLOGIES, INC. ("Vista"), a
Delaware corporation, and MEDTRONIC, INC. (as defined below, "Medtronic"), a
Minnesota corporation.
WITNESSETH:
WHEREAS, Vista has developed visualization and related information
systems for use in, among other areas, cardiothoracic surgical procedures; and
WHEREAS, Vista and Medtronic Asset Management, Inc., a wholly-owned
subsidiary of Medtronic ("MAMI") entered into a Series C Preferred Stock
Purchase Agreement dated November 27, 1996 (the "Investment Agreement")
pursuant to which MAMI purchased Series C Preferred Stock of Vista; and
WHEREAS, MAMI is a party to the Amended and Restated Investor Rights
Agreement dated November 27, 1996 (the "Investors' Rights Agreement")
pursuant to which MAMI received certain registration and other rights; and
WHEREAS, Vista and MAMI entered into a Sales Agreement dated November
27, 1996 (the "Original Sales Agreement"), as amended by an Amendment Number
One to Sales Agreement dated June 9, 1998 ("Amendment No. 1"; the Original
Sales Agreement as amended thereby referred to as the "Amended Sales
Agreement"); and
WHEREAS, Vista and MAMI desire to further amend and to restate the
Amended Sales Agreement in its entirety to read as set forth herein.
NOW THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained herein, and for other valuable
consideration, the receipt and adequacy of which is hereby acknowledged, the
parties mutually agree to amend and restate the Amended Sales Agreement in
its entirety as follows effective from and after the Effective Date:
ARTICLE 1
DEFINITIONS
1.1) SPECIFIC DEFINITIONS. As used in this Agreement, the following
terms have the meanings set forth or referenced below:
"AFFILIATE" of a specified person (natural or juridical) means a person that
directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, the person specified.
"Control" shall mean ownership of more than 50% of the shares of
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stock entitled to vote for the election of directors in the case of a
corporation, and more than 50% of the voting power in the case of a business
entity other than a corporation.
"CHANGE OF CONTROL" means, with respect to Vista, any of the following
events: (1) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act) in a single transaction acquires "beneficial ownership" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of Vista representing 50% or more of the combined voting power
(with respect to the election of directors) of Vista's then outstanding
securities; (2) the consummation of a merger, combination or consolidation of
Vista with or into any other corporation, other than a merger, combination or
consolidation which would result in the voting securities of Vista
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 50% of the combined voting power (with respect to
the election of directors) of the securities of Vista or of such surviving
entity outstanding immediately after such merger, combination or
consolidation; or (3) the consummation of a plan of complete liquidation of
Vista or of an agreement for the sale or disposition by Vista of all or
substantially all of Vista's business or assets.
"CONFIDENTIAL INFORMATION" means know-how, trade secrets, and other
unpublished or proprietary information disclosed (whether before or during
the term of this Agreement) by one of the parties (the "disclosing party") to
the other party (the "receiving party") or generated under this Agreement,
excluding information which:
(a) is now or comes to be in the public domain through no fault of the
receiving party;
(b) is released without restriction to the receiving party by the
disclosing party in writing;
(c) is lawfully obtained by the receiving party from third parties;
(d) can be demonstrated by competent proof to have been known or hereafter
developed by the receiving party independently of any disclosure of
"Confidential Information by the disclosing party;
(e) has been in the possession of the receiving party, as a result of
disclosure under this Agreement, for a period of five (5) years; or
(f) is required by law to be disclosed; provided that the receiving party
has given the disclosing party prompt written notice of such disclosure
requirement and has cooperated with the disclosing party so that the
disclosing party may seek a protective order or other appropriate remedy to
avoid or limit such disclosure.
All Confidential Information disclosed by one party to the other under
this Agreement shall be in writing and bear a legend "Company Proprietary,"
"Company Confidential" or words of similar import or, if disclosed in any
manner other than writing, shall be preceded by an oral statement indicating
that the information is Company proprietary or confidential, and shall be
followed by transmittal of a reasonably detailed written summary of the
information provided to
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the receiving party with identification as Confidential Information
designated as above within thirty (30) days.
"EUROPE, THE MIDDLE EAST, AND AFRICA" means those countries included within
Medtronic's currently designated "Europe", "Middle East" and "Africa" sales
regions as more fully described on Schedule 1.1 hereto.
"EXTENDED GEOGRAPHIES" means the following countries: Japan, Australia, New
Zealand, Canada and India.
"FDA" means the U.S. Food and Drug Administration.
"FDA GOOD MANUFACTURING PRACTICES" means as defined in 21 Code of Federal
Regulations Part 820.
"FIELD OF USE" means cardiothoracic surgical procedures.
"INTELLECTUAL PROPERTY" means all patents, trade names, trademarks, service
marks, copyrights, and applications or registrations for any of the foregoing,
inventions, discoveries, know-how, trade secrets, data, information, technology,
processes, formulas, drawings, designs, computer programs, licenses, and all
amendments, modifications, and improvements to any of the foregoing.
"MEDTRONIC" means Medtronic, Inc. and its Affiliates.
"PRIME RATE" means, for any calendar quarter, the prime commercial lending rate
quoted by the Wall Street Journal, as in effect on the first day of such
quarter.
"SPECIFICATIONS" means the current (as of the date of the Original Sales
Agreement) specifications for the Systems, as have been or may be amended from
time to time after the date of the Original Sales Agreement by written
agreement of the parties hereto.
"SYSTEMS" means Vista's current (as of the date of the Original Sales Agreement)
and future (from and after the date of the Original Sales Agreement)
visualization and related information systems, together with all associated
accessories and disposables specific to the visualization system in the Field of
Use.
"TERRITORY" means the United States, Europe, the Middle East, and Africa and the
Extended Geographies.
"UNITED STATES" means The United States of America, including all territories
and possessions thereof.
"VISTA" means Vista Medical Technologies, Inc. and its Affiliates.
1.2) OTHER TERMS. Other terms may be defined elsewhere in the text of this
Agreement and shall have the meaning indicated throughout this Agreement.
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<PAGE>
1.3) OTHER DEFINITIONAL PROVISIONS.
(a) The words "hereof," "herein," and "hereunder" and words of
similar import, when used in this Agreement, shall refer to this Agreement
as a whole and not to any particular provisions of this Agreement.
(b) The terms defined in the singular shall have a comparable
meaning when used in the plural, and vice versa.
(c) References to an "Exhibit" are, unless otherwise specified,
to one of the Exhibits attached to or referenced in this Agreement, and
references to an "Article" or a "Section" are, unless otherwise specified,
to one of the Articles or Sections of this Agreement.
(d) The term "person" includes any individual, partnership,
joint venture, corporation, trust, unincorporated organization or
government or any department or agency thereof.
(e) The term "Dollars" or "$" shall refer to the currency of the
United States of America.
(f) The term "knowledge" means actual knowledge of a fact or the
knowledge which such person or its officers or employees could reasonably
be expected to have based on reasonable investigation and inquiry.
(g) All references to time shall refer to Minneapolis, Minnesota
time.
ARTICLE 2
MEDTRONIC AS DISTRIBUTOR IN THE UNITED STATES
2.1) Appointment.
(a) Vista hereby appoints Medtronic, and Medtronic hereby accepts
appointment, as Vista's exclusive distributor, with the exclusive right to sell
and distribute the Systems in the Field of Use in the United States, including
the right to place Systems with hospitals or other users under contracts
providing for a per procedure pricing basis (as defined in Section 2.4). Vista
represents and warrants to Medtronic that all other distributorship agreements
and independent sales representative agreements, written or oral, with any third
party permitting the sale of Systems in the Field of Use in the United States
will be terminated within 90 days after signing this Agreement at Vista's sole
cost and expense.
(b) The initial term ("Initial Term") for Medtronic's rights and
obligation as the exclusive distributor for Systems in the United States shall
commence on the Effective Date and continue until April 30, 2003. The Initial
Term shall have two phases: The first phase ("Phase I") shall commence on the
Effective Date and continue until November 30, 1999. The second phase ("Phase
II") shall commence on December 1, 1999 and continue until April 30, 2003.
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<PAGE>
2.2) EMPLOYEES.
(a) Within 60 days after the Effective Date, Medtronic shall hire
*** persons to serve as Medtronic's sales and clinical specialist force
dedicated to selling and placing the Systems in the United States (the "Field
Organization"). In hiring such Field Organization, Medtronic shall make
offers of employment to up to *** members of Vista's current sales and
clinical specialist force who meet the requirements for the needed positions
that Medtronic has identified are necessary to support sales and/or placement
of the Systems. The Field Organization shall be integrated into the ***
sales organization and become Medtronic employees effective as of specific
dates to be determined. During Phase I, Vista shall reimburse Medtronic on a
monthly basis for all expenses associated with the Field Organization,
including salaries, commissions, bonuses, medical benefits, and travel
expenses, up to a maximum of *** in the aggregate. Vista shall also
reimburse Medtronic on a monthly basis for any termination expenses (not to
exceed 3-months salary per individual) related to the termination or
dismissal by Medtronic for performance reasons of any members of Vista's
current sales and clinical specialist force who are hired by Medtronic.
(b) As of the beginning of Phase II, Medtronic shall cover all
expenses associated with the Field Organization, including salaries,
commissions, bonuses, medical benefits, and travel expenses.
2.3) SPECIAL PROVISIONS REGARDING PHASE I
(a) During Phase I, the Medtronic Cardiac Surgery USCV sales
organization shall actively generate leads of interested customers and work
cooperatively with the Field Organization to complete sales/placements of
Systems.
(b) Within 45 days of commencement of Phase I, Medtronic shall hire a
Marketing/Education Manager fully devoted to Vista and the System.
(c) During Phase I:
(i) Contracts with the hospitals for the sale or placement of
Systems shall be entered into by Medtronic in Medtronic's name;
(ii) Vista shall cooperate with Medtronic to transfer and assign to
Medtronic all contracts for the placement of Systems on a per procedure
pricing basis that Vista entered into with hospitals prior to the beginning
of Phase I. Vista will remain responsible for servicing the Systems placed
under such contracts pursuant to Section 2.5. Medtronic shall pay Vista an
amount equal to the total *** of such Systems (including
service and upgrade components) placed under such contracts, and Vista shall
assign title to such systems and any deposits or prepayments under such
contracts to Medtronic. Such *** shall be based on
straight-line depreciation over three years pursuant to Vista's standard
accounting principles.
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
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Medtronic shall thereafter pay Vista a portion of Medtronic's gross margin
pursuant to Section 2.4(b) on payments received by Medtronic under such
transferred contracts. Vista shall use all commercially reasonable efforts
to obtain the consent of such hospitals to such assignment, if required by
such contract. If any such consent is not obtained, the parties shall
cooperate in good faith to cause Vista to continue to perform its obligations
under such contract for the benefit of Medtronic.
(iii) Medtronic shall be responsible for invoicing of all Systems
and the collection of accounts receivable; provided that during Phase I, Vista
shall retain the billing function with respect to Systems placed on a per
procedure pricing basis until such time that the administrative services would
be transferred to Medtronic. Medtronic shall record for its account all
revenues recognized.
2.4) PRICING.
(a) Medtronic shall purchase Systems from Vista for resale to
customers in the United States at a price (the "Transfer Price") determined
as follows:
(i) For Phase I, the Transfer Price for units to be sold
to customers shall equal Vista's ***
and to be reasonably determined in accordance with
generally accepted accounting principles as then currently
applied by Vista, as applicable), plus a mark-up equal to ***;
and
(ii) For Phase II, the Transfer Price for units to be
sold to customers shall equal Vista's *** plus
a mark-up equal to *** of such *** *** plus
an amount equal to one-half of Medtronic's gross margin
percentage in excess of ***.
(b) Medtronic shall purchase Systems from Vista for placement on a
"per procedure pricing basis" (as defined below) with customers in the United
States at a price (the "Transfer Price") equal to Vista's *** .
With respect to such Systems placed on a per procedure pricing basis in the
United States, Medtronic shall also pay Vista a percentage of Medtronic's
"gross margin" (as defined below) as follows:
(i) with respect to payments received by Medtronic
during Phase I from customers for Systems placed on a per
procedure pricing basis, Medtronic shall pay Vista *** of
Medtronic's gross margin on such System placement.
(ii) with respect to payments received by Medtronic
during Phase II from customers for Systems placed on a per
procedure pricing basis, Medtronic shall pay Vista *** of
Medtronic's gross margin, up to a *** gross margin percentage,
plus *** of
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
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Medtronic's gross margin in excess of a *** gross margin
percentage, on such System placement, calculated on a
cumulative basis since the beginning of Phase II.
(c) The Transfer Price to Medtronic of a standard System shall in
no event exceed U.S. *** . (The components of the current standard
System, exclusive of accessories and disposables, are listed on Schedule 3.3).
(d) As used in this Agreement "per procedure pricing" is defined
as a System placed in a cardiothoracic operating room where the amount of the
fee billed to the customer is based on System configuration and usage. As
used in this Article 2, Medtronic's "gross margin" on the sale of Systems or
the placement of Systems on a per procedure basis shall mean Medtronic's Net
Sales (as defined below) minus Medtronic's "cost of goods sold", which in the
case of a sale of a System shall mean the price paid to Vista by Medtronic
for purchase of the System (calculated prior to any gross margin sharing) and
in the case of placement of a System on a per procedure basis shall mean the
depreciation charge allocated to that System by Medtronic during the relevant
period based on a three-year straight-line depreciation of the System. As
used in this Article 2, "Medtronic's Net Sales" means the amount that
Medtronic, any Affiliate of Medtronic, or any subdistributor of Medtronic
under this Agreement receives from third parties (excluding transactions
between or among Affiliates of Medtronic, subdistributor's, and/or Medtronic)
for sales or placements of Systems pursuant to the terms of this Agreement,
less all amounts charged for sales, use, occupation or excise tax, freight,
duty or insurance included therein, returns, discounts of any type, and
allowances, credits or repayments due to rejections, defects or returns. As
used in this Article 2, Medtronic's "gross margin percentage" shall mean
Medtronic's gross margin as a percentage of Medtronic's Net Sales.
(e) Medtronic shall pay the Transfer Price for Systems purchased
under Article 2 in full within forty-five (45) days after the date of invoice
by Vista. Medtronic's payments to Vista of a percentage of Medtronic's gross
margin on Systems placed on a per procedure pricing basis pursuant to
subsections 2.4(b) shall be made quarterly within forty-five (45) days after
the end of each Medtronic fiscal quarter. Medtronic and Vista shall work
together to establish a method for reporting or estimating such per procedure
pricing payments on a monthly and quarterly basis to enable both Vista and
Medtronic to satisfy their respective internal and external financial
reporting obligations.
(f) In addition, Medtronic shall be entitled to purchase from
Vista up to *** of Vista's current demonstration units at a price equal
to the total *** of the Systems as described in Section 2.3(c)(ii). In
addition, Medtronic shall be entitled to purchase a reasonable number of
demonstration units at a price equal to Vista's *** . The total
number of demonstration units purchased by Medtronic under this Article 2
would not exceed *** over the initial term of Medtronic's distribution
pursuant to this Article 2.
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
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2.5) UNITED STATES INSTALLATION; REPAIRS AND SERVICE; TRAINING.
(a) Medtronic shall be solely responsible for selling and
installing all Systems in the Field of Use in the United States.
(b) During the initial one-year warranty period, Vista shall be
solely responsible for all repairs and service of Systems in the United
States at Vista's expense. With respect to repairs and service after the
warranty period for Systems sold by Medtronic, the purchaser of such System
shall be offered by Medtronic on behalf of Vista successive one-year fixed
price service contracts. Such service contracts shall be between Vista and
such purchaser, but the terms and provisions of such contract shall be
reasonably acceptable to Medtronic. If a purchaser fails to accept a service
contract, Vista will, if requested by such purchaser, perform repairs and
service for a fee from such purchaser based on time and materials spent (with
a target *** gross margin to Vista). With respect to repairs and
service after the warranty period for Systems placed by Medtronic with a
customer on a per procedure pricing basis, Vista shall upon Medtronic's
request perform such repairs and service and Medtronic shall pay Vista its
*** thereof plus a *** mark-up, subject to a maximum of *** per System
per year. With respect to repairs and service under per procedure pricing
contracts assigned by Vista to Medtronic pursuant to Section 2.3(c)(ii),
Vista shall perform all such repairs and service at no additional cost (the
depreciated cost thereof is included in the price paid by Medtronic pursuant
to such Section 2.3(c)(ii)). Vista's repair and service obligations under
this Section shall not include damage due to the System user's abuse or
neglect, and shall not include software or hardware upgrades.
(c) Subject to Section 2.6 below, Medtronic shall be solely
responsible for providing customer and physician training to any purchaser of
Systems for use in the Field of Use in the United States.
2.6) TRAINING. Vista and Medtronic shall mutually agree on a plan
to transition customer training in the United States to Medtronic with a
target date of September 30, 1998 but no later than November 1, 1998. Vista
shall, at its cost, provide initial technical training of Medtronic's sales
specialists and field service supervisors in the United States in the use,
installation and service of the Systems at such reasonable times and places
as the parties shall agree. Medtronic shall reimburse Vista for Vista's
costs of providing ongoing training of Medtronic's field sales and service
representatives in the United States (such ongoing training costs to include
travel costs, a reasonable mutually agreed upon per diem rate for Vista's
sales training personnel, and a reasonable mutually agreed upon cost of sales
training materials).
2.7) FORECASTS. Within 60 days after the Effective Date, Medtronic
shall provide Vista with a twelve-month forecast indicating by month the
number of Systems anticipated to be sold by Medtronic or purchased by
Medtronic for use as demonstration units (as updated as provided herein, the
"Plan"). The Plan shall be updated by Medtronic on a monthly basis (on or
before the first day of each subsequent month) for a rolling successive
twelve-month period. The first two months of each Plan shall constitute a
firm purchase commitment by Medtronic for delivery of
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
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the number of Systems specified therein. The third month of each Plan shall
constitute a firm purchase commitment only insofar as Medtronic agrees not to
reduce the quantity specified therein by more than 25%, but Medtronic
otherwise may modify such quantity in the next Plan. The fourth through
twelfth months of each Plan shall be used for purposes of facilitating
Medtronic's marketing plans and meeting the lead times required by certain of
Vista's suppliers, but are not legally binding on Medtronic in any manner.
2.8) REGULATORY APPROVALS.
(a) Vista shall be solely responsible for obtaining, at Vista's
expense and in Vista's name all necessary regulatory and other approvals from
the FDA and any other applicable regulatory agencies prerequisite to the
commercial sale of the Systems in the Field of Use in the United States.
Such approval efforts shall include, but not necessarily be limited to, the
preparation and filing of any required Investigational Device Exemption,
Pre-Market Approval or Section 510(k) filings and the establishment and
oversight of any required clinical investigations and clinical follow-up
relating to future commercial sale of the Systems. Vista shall promptly
notify Medtronic of receipt of any such approvals, and shall provide
Medtronic with such information regarding the status of pending approvals as
Medtronic may reasonably request.
(b) Vista shall be responsible for obtaining all import licenses and
permits as may be required to import the Systems into the United States (if
applicable) in accordance with then prevailing laws and regulations. All such
filings and registrations of the Systems shall be in the name of Vista.
Medtronic shall cooperate fully with Vista in its efforts to obtain any such
approvals.
(c) Vista shall be considered the manufacturer of the Systems for
purposes of any United States regulatory requirements, including medical
device reporting and recalls. If Medtronic becomes aware of any reportable
event involving Systems which Medtronic has sold or placed on a per procedure
pricing basis pursuant to this Agreement, it shall promptly notify Vista of
such event. Vista shall promptly notify Medtronic if Vista files an MDR with
the FDA. Furthermore, Medtronic shall maintain complete and accurate records
of all Systems sold or placed by Medtronic and its subdistributors in
sufficient detail to enable Vista to conduct an effective recall of Systems
if Vista determines that such a recall is required or otherwise necessary or
appropriate. Vista shall have the responsibility of initiating all recalls
if necessary. In the event of a recall of any of the Systems, Medtronic will
cooperate with and assist Vista in effecting such recall, including promptly
contacting any customers that Vista reasonably desires to be contacted and
promptly communicating to such customers the information or instructions
Vista reasonably desires to be transmitted relating to such recall. Vista
shall pay, or reimburse Medtronic, for all costs of effecting such recall,
including any shipping costs related to returning recalled Systems to Vista
and replacing such recalled Systems with new Systems at Vista's expense.
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2.9) SALES AND MARKETING.
(a) Medtronic and Vista shall develop mutually agreed upon
marketing, selling, and pricing strategies for the Systems in the United
States.
(b) Medtronic shall be responsible for designing, developing and
producing, at Medtronic's expense, Systems sales and marketing materials for
use in the Field of Use in the United States.
(c) At Medtronic's discretion and expense, Medtronic shall
demonstrate the Systems in the trade shows booth in connection with its other
cardiac surgery products.
2.10) NONCOMPETITION. During the term of Medtronic's distribution
of Systems pursuant to this Article 2, Medtronic shall not market or sell in
the United States direct visualization products which are competitive with
the Systems in the Field of Use ("Competitive Products"); provided that, for
purposes of clarification, Competitive Products shall not include
intra-vascular or intra-cardiac imaging or visualization products or systems.
ARTICLE 3
MEDTRONIC AS DISTRIBUTOR IN EUROPE, MIDDLE EAST AND
AFRICAAND EXTENDED GEOGRAPHIES
3.1) APPOINTMENT.
(a) Vista hereby appoints Medtronic, and Medtronic hereby accepts
appointment, as Vista's exclusive distributor, with the right to sell and
distribute the Systems in the Field of Use in Europe, the Middle East and
Africa and the Extended Geographies, including the right to place Systems
with hospitals or other users under contracts providing for a "per procedure
pricing basis" (as defined in Section 2.4). Vista represents and warrants to
Medtronic that all other distributorship agreements or sales representative
agreements, written or oral, with any third party permitting the sale of
Systems in the Field of Use in Europe, the Middle East and Africa and the
Extended Geographies have been terminated at Vista's sole cost and expense.
(b) During the term of Medtronic's distribution rights pursuant to
this Article 3, Medtronic shall not market or sell Competitive Products (as
defined in Section 2.10) in Europe, the Middle East and Africa or the
Extended Geographies.
3.2) REGULATORY APPROVALS.
(a) Medtronic shall be solely responsible for obtaining, at
Medtronic's expense and in Medtronic's name, all necessary regulatory and
other approvals from the applicable regulatory agencies prerequisite to the
commercial sale of the Systems in the Field of Use in the Middle East, Africa
and the Extended Geographies (excluding Canada). Such approval efforts shall
include, but not necessarily be limited to, the preparation and filing of any
required filings and the establishment and oversight of any required clinical
investigations and clinical follow-up
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relating to future commercial sale of the Systems in the Field of Use in the
Middle East, Africa and the Extended Geographies (excluding Canada).
(b) In Europe, Vista will be responsible for gaining, at Vista's
expense and in Vista's name, the CE Mark under the appropriate Medical Device
Directive. Medtronic will be responsible for all dealings with the
appropriate Competent Authority such as Notification, Medical Device
Vigilance and national labeling issues, provided that Vista will bear final
legal responsibility for the content of all its own labeling. Medtronic will
also be named as the "Authorized Representative" as defined in the
Directives. Medtronic may also distribute Systems in particular countries
within Europe under country-specific regulatory approvals prior to Vista's
gaining the CE Mark or in particular countries where CE Mark approval is not
the requisite form of commercial sale approval, and in such circumstances
Vista shall (i) provide Medtronic with such information and cooperation as is
necessary to obtain any such country-specific approvals in Europe, (ii) bear
the expenses of meeting any applicable product design and manufacturing
facility requirements, and (iii) take all steps as are necessary to meet the
EMC Directive.
(c) In Canada, Vista shall be responsible for obtaining, at
Vista's expense and in Vista's name, cETL agency approval prerequisite to the
commercial sale of Systems in the Field of Use in Canada. Such approval
efforts shall include, but not necessarily be limited to, the preparation and
filing of any required filings and the establishment and oversight of any
required clinical investigations and clinical follow-up relating to future
commercial sale of the Systems in the Field of Use in Canada. Medtronic
shall provide Vista reasonable assistance upon request, at Medtronic's
expense, in obtaining any necessary Canadian health or regulatory approval.
3.3) PRICING.
(a) For the period from the date of the Original Sales Agreement
until December 31, 1998, Medtronic shall purchase Systems for sale or
placement in Europe, Middle East, Africa and the Extended Geographies from
Vista at a price (the "Transfer Price") *** *** plus a projected
mark-up presently estimated to be *** but in no event less than ***
subject to final determination as hereinafter provided. Such transfer price
shall be finally determined by the parties based on market conditions at the
time of commercial introduction of the Systems; provided that in no event
shall the price to Medtronic of a standard System exceed U.S. *** . (The
components of the current standard System, exclusive of accessories and
disposables, are listed on Schedule 3.3). No later than December 31, 1998,
and by each December 31 thereafter, the parties shall amend the Transfer
Price for the following twelve-month period pursuant to a formula to be
mutually agreed to by the parties, taking into account then market conditions.
(b) In addition, Medtronic shall be entitled to purchase from
Vista a reasonable number of demonstration Systems at a price equal to
Vista's *** for a System as determined above. Such reasonable number
of demonstration Systems (not to
*** Portions of this page have been omitted pursuant to a
request for Confidential Treatment and filed separately with the
Commission.
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exceed *** per year) shall be consistent with the number of Medtronic's
"sales specialists" and the number of demonstrations to be conducted by such
sales specialists in connection with selling the Systems, and shall include,
without limitation, *** demonstration System for each country within
the Extended Geographies.
(c) Payments made by Medtronic for Systems purchased hereunder
shall be due and payable in full within sixty (60) days after the date of
invoice by Vista.
3.4) SALES AND SERVICE.
(a) Medtronic shall be solely responsible for selling, installing
and servicing all Systems in the Field of Use in Europe, the Middle East and
Africa and the Extended Geographies. The Systems shall be sold under Vista
trademarks and trade names subject to Medtronic's right to indicate its
status as distributor thereof on sales and marketing materials for the
Systems.
(b) Subject to Section 3.5 below, Medtronic shall be solely
responsible for providing customer and physician training to any purchaser of
Systems for use in the Field of Use in Europe, the Middle East and Africa and
the Extended Geographies.
(c) Medtronic shall be solely responsible for establishing,
subject to Vista's right to be consulted with respect thereto, the marketing,
selling and pricing strategies for the Systems in the Field of Use in Europe,
the Middle East and Africa and the Extended Geographies.
3.5) TRAINING.
(a) Vista shall, at its cost, provide initial technical training
of Medtronic's sales specialists and field service supervisors in Europe, the
Middle East and Africa in the use, installation and service of the Systems at
such reasonable times and places as the parties shall agree. Medtronic shall
reimburse Vista for Vista's costs of providing ongoing training of
Medtronic's field sales and service representatives in Europe, the Middle
East and Africa (such ongoing training costs to include travel costs, a
reasonable mutually agreed upon per diem rate for Vista's sales training
personnel, and a reasonable mutually agreed upon cost of sales training
materials).
(b) Vista shall, at its cost, provide initial technical training
of Medtronic's sales specialists, field service supervisors and customers in
the Extended Geographies in the use, installation and service of the Systems
at such reasonable times and places as the parties shall agree; provided
however, that Vista will be required to make available a minimum of one
trainer for a minimum of one week. Medtronic shall reimburse Vista for
Vista's cost of providing ongoing training of Medtronic's field sales and
service representatives in the Extended Geographies (such ongoing training
costs to include travel costs, a reasonable mutually agreed
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
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upon per diem rate for Vista's sales training personnel, and a reasonable
mutually agreed upon cost for sales training materials).
3.6) FORECASTS. On or before January 1, 1997, Medtronic shall
provide Vista with a twelve-month international sales plan indicating by
month the number of Systems anticipated to be sold by Medtronic or purchased
by Medtronic for use as demonstration units (as updated as provided herein,
the "Plan"). The Plan shall be updated by Medtronic on a monthly basis (on
or before the first day of each subsequent month) for a rolling successive
twelve-month period. The first two months of each Plan shall constitute a
firm purchase commitment by Medtronic for delivery of the number of Systems
specified therein. The third month of each Plan shall constitute a firm
purchase commitment only insofar as Medtronic agrees not to reduce the
quantity specified therein by more than 25%, but Medtronic otherwise may
modify such quantity in the next Plan. The fourth through twelfth months of
each Plan shall be used for purposes of facilitating Medtronic's marketing
plans and meeting the lead times required by certain of Vista's suppliers,
but are not legally binding on Medtronic in any manner.
3.7) EXPORT/IMPORT APPROVALS.
(a) Vista shall be responsible for obtaining all export licenses
and permits as may be required to export the Systems from the country of
manufacture into the particular countries within Europe, the Middle East and
Africa and the Extended Geographies.
(b) Medtronic shall be responsible for obtaining all import
licenses and permits as may be required to import the Systems into particular
countries within Europe, the Middle East and Africa and the Extended
Geographies as selected by Medtronic in accordance with then prevailing laws
and regulations of such countries. All such filings and registrations of the
Systems shall be in the name of Medtronic, whenever feasible in accordance
with prevailing laws and regulations. Vista shall cooperate fully with
Medtronic in its efforts to obtain any such approvals.
3.8) ADDITIONAL ORDER. Prior to the Effective Date, Medtronic
shall have placed an order with Vista for the purchase and shipment of the
following number of Systems for the Extended Geographies:
<TABLE>
<CAPTION>
<S> <C>
Japan *** Systems (*** of which shall be a
demonstration System)
Australia/New Zealand *** System
Canada *** Systems (*** of which shall be a
demonstration System)
</TABLE>
On or prior to December 31, 1998, Medtronic will place an order for purchase
and shipment of one System for India.
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
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ARTICLE 4
DISTRIBUTION GENERALLY
4.1) SUBDISTRIBUTORS. Medtronic may appoint subdistributors for
the sale or distribution of Systems in the Field of Use in the Territory, and
will provide Vista a list of such subdistributors from time to time.
Notwithstanding such appointment of subdistributors, Medtronic shall remain
fully responsible for the performance of all of its covenants and obligations
hereunder, and any sales by Vista to such Medtronic subdistributors shall be
billed by Vista to Medtronic directly.
4.2) SALES LEADS. Vista shall promptly forward to Medtronic all
leads for sales of Systems in the Field of Use in the Territory.
4.3) INSPECTION AND WARRANTY
(a) In the event of any shortage, damage or discrepancy in or to a
shipment of Systems or in the event any of the Systems fail to comply with
the then current specifications for the Systems, Medtronic shall report the
same to Vista and furnish such written evidence or other documentation as
Vista reasonably may deem appropriate. If the substantiating evidence
delivered by Medtronic demonstrates that such shortage, damage or discrepancy
or non-conformity with specifications existed at the time of delivery of the
Systems at the F.O.B. point, Medtronic may return the Systems to Vista at
Vista' expense, and at Medtronic's request Vista shall use all reasonable
efforts to deliver promptly replacement Systems to Medtronic in accordance
with the delivery procedures set forth herein.
(b) Vista represents and warrants to Medtronic that all Systems
sold and delivered to any account under this Agreement will have been
manufactured, if required by law, in accordance with FDA Good Manufacturing
Practices, European Medical Device Directive requirements, ISO 9001
certification or successor requirements, and all other applicable
manufacturing requirements, and that continually during the term of this
Agreement no Systems delivered by Vista to Medtronic or to any Medtronic
Account shall be adulterated or misbranded at the time of delivery within the
meaning of the U.S. Food, Drug and Cosmetic Act and regulations thereunder.
Vista shall cause Medtronic's regulatory personnel to be provided with
reasonable access from time to time to the facilities and records of Vista
for the purpose of confirming Vista's compliance with all applicable
requirements noted in this Section.
(c) Vista warrants to Medtronic and to Medtronic's customers that
Systems sold by Vista will not infringe any currently issued patents, trade
secrets, trademarks, or other intellectual property rights of any third
party, and that such products shall, when delivered at the F.O.B. point, meet
the Specifications and shall be free from defects in materials and
workmanship. Medtronic shall invoice Vista for, and Vista shall promptly
pay, Medtronic's reasonable labor charges and Medtronic's out-of-pocket
materials, handling, shipping, transportation, insurance and other expenses
actually incurred in replacing defective Systems which were under warranty.
(d) THE WARRANTIES SET FORTH ABOVE ARE IN LIEU OF ALL OTHER
WARRANTIES, EXPRESS OR IMPLIED, WHICH ARE HEREBY DISCLAIMED AND
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EXCLUDED BY VISTA, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, EXCEPT VISTA
SHALL ALSO PROVIDE WITH RESPECT TO SYSTEMS SOLD TO MEDTRONIC OR TO
MEDTRONIC'S CUSTOMERS SUCH OTHER WARRANTIES AS VISTA CUSTOMARILY PROVIDES TO
ITS CUSTOMERS OR END-USERS OF THE SYSTEMS IN THE FIELD OF USE (A COPY OF THE
CURRENT VERSION OF SUCH CUSTOMER WARRANTY IS ATTACHED HERETO AS SCHEDULE
4.3). VISTA MAY CHANGE ITS STANDARD CUSTOMER WARRANTY FROM TIME TO TIME.
4.4) TRADEMARKS. The Systems shall be sold under Vista trademarks
and trade names subject to Medtronic's right to indicate its status as
distributor thereof on sales and marketing materials for the Systems.
4.5) ORDERS.
(a) Medtronic and Vista shall jointly develop order and delivery
procedures and guidelines for the Systems. Medtronic's orders shall be given
no less favorable treatment by Vista than orders from any other customers.
The parties intend that Medtronic will maintain mutually agreed upon adequate
inventories of Systems, and that under most circumstances, Vista will ship
Systems directly to locations designated by Medtronic.
(b) Medtronic shall submit purchase orders for Systems to Vista in
writing, whether by mail, telecopier, telegram or otherwise, which shall, at
a minimum, set forth the product numbers, quantities, delivery dates, and
shipping instructions and shipping addresses for all Systems ordered. All
orders shall be subject to acceptance in accordance with the terms of this
Agreement by Vista at its office. Each purchase order shall, upon acceptance
by Vista, give rise to a contract between Medtronic and Vista for the sale of
the Systems ordered and shall be subject to and governed by the terms of this
Agreement. The terms and conditions of this Agreement shall so govern and
supersede any additional or contrary terms set forth in Medtronic's purchase
order or any Vista or Medtronic acceptance, confirmation, invoice or other
document unless duly signed by an officer of Medtronic and an officer of
Vista and expressly stating and identifying which specific additional or
contrary terms shall supersede the terms and conditions of this Agreement.
(c) Vista shall not be required to deliver quantities in excess of
100% of forecasted requirements unless Vista has been given at least 120 days
advance written notice of the quantities to be delivered which exceed the
forecasted amounts; provided, however, that Vista shall use all commercially
reasonable efforts to supply such excess.
(d) No purchase order shall be modified or canceled except upon
the mutual agreement of the parties. Mutually agreed change orders shall be
subject to all provisions of this Agreement, whether or not the change order
so states. Notwithstanding the foregoing, any purchase order may be cancelled
by Medtronic as to any Systems which are not delivered within sixty (60) days
of the delivery date requested by Medtronic, and any such cancellation shall
not limit or affect any contract remedies available to Medtronic with respect
thereto. Any such
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cancellation by Medtronic must be by written notice to Vista given within
fifteen (15) business days after such 60th day.
(e) All deliveries of Systems shall be F.O.B. Vista's manufacturing
facility located at Westborough, Massachusetts. Except as provided in Section
4.3 above, Vista shall have no further responsibility for Systems, and all risk
of damage to or loss or delay of Systems shall pass to Medtronic, upon their
delivery at the aforesaid F.O.B point. All Systems deliveries shall be made by
a common carrier specified by Medtronic or, in the event that no carrier shall
have been specified by Medtronic on or before the date fifteen (15) days prior
to the requested shipment date, a common carrier reasonably selected by Vista.
(f) Vista shall inform Medtronic of any material changes in the
Specifications for the Systems and, if such changes affect the applicable
regulatory approvals of the Systems, Medtronic shall not be obligated to
purchase such altered Systems.
(g) Vista shall be responsible for packaging and any necessary
sterilization of Systems purchased under this Agreement in accordance with
specifications which are mutually satisfactory to the parties.
(h) Vista's *** , for purposes of determining the Transfer
Price, shall be mutually determined on a semi-annual basis as of the end of
December and June of each year during the Initial Term, commencing December
31, 1998.
4.6) UPGRADES. Vista shall make software and hardware upgrades
available to Medtronic for the Systems at prices and on terms and conditions
no less favorable than those offered to any other customers of Vista;
provided that Vista shall provide upgrades to Systems placed under per
procedure pricing contracts assigned by Vista to Medtronic pursuant to
Section 2.3(c)(ii) at no additional cost (the depreciated cost of such
upgrades is included in the price paid by Medtronic pursuant to such Section
2.3(c)(ii)). Except as provided in Section 4.3 with respect to warranty
replacement parts, Vista shall sell replacement parts for the Systems to
Medtronic at prices equal to Vista's *** thereof plus ***.
4.7) REPORTS AND AUDITS.
(a) Medtronic shall provide Vista, on a quarterly basis, with current
customer lists for Systems sold by Medtronic and physician users (of which
Medtronic is aware) of the Systems in the Field of Use in the Territory.
Medtronic also will periodically provide Vista with the customer name and
address for each System installation in the Field of Use in the Territory for
warranty and regulatory purposes. Medtronic shall report any "adverse events"
(as defined by FDA regulations) promptly to Vista.
(b) Medtronic shall keep accurate written records sufficient in
detail to enable Medtronic's gross margin on Systems placed on a per
procedure pricing basis, as reported by
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
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Medtronic to Vista, to be determined on a quarterly basis and verified by
Vista. Vista shall keep accurate written records sufficient in detail to
enable Vista's fully burdened manufacturing cost, as reported by Vista to
Medtronic, to be determined on a semi-annual basis and verified by Medtronic.
Such records shall be retained by the reporting party for a period of not
less than five years after the end of such period. Upon reasonable notice
and during regular business hours, the reporting party shall from time to
time (but no more frequently than semi-annually) make available such records
for audit by independent accounting representatives selected by the other
party (the "reviewing party") and reasonably acceptable to the reporting
party to verify the accuracy of the statements provided. Such
representatives shall execute a suitable confidentiality agreement reasonably
acceptable to the reporting party prior to conducting such audit. Such
representatives may disclose to Medtronic or Vista only their conclusions
regarding the accuracy of Medtronic's calculation of its gross margin on
Systems placed on a per procedure pricing basis or of Vista's calculation of
its fully burdened manufacturing cost of the System, respectively, and shall
not disclose the reporting party's confidential business information to the
reviewing party without the prior written consent of the reporting party.
All audit fees and costs shall be paid by the reviewing party; provided that
if such audit demonstrates that Medtronic's gross margin was understated, or
Vista's fully burdened manufacturing cost was overstated, by more than 5% for
any of the quarterly or semi-annual periods audited, then the reporting party
shall pay such audit fees and costs of such representative.
ARTICLE 5
FIRST REFUSAL FOR DISTRIBUTION IN OTHER REGIONS
5.1) RIGHT OF FIRST REFUSAL.
(a) In the event that Vista proposes to enter into any
distribution or sales representative agreement with any third party regarding
the sale or distribution of the Systems in the Field of Use in any region
outside of the Territory (such regions consisting of Asia Pacific (excluding
Japan) and Central/South America), then, prior to entering into any
discussions regarding such distribution or sales representative agreement,
Vista shall notify Medtronic in writing of such intention to enter into such
discussions, including the material terms and provisions upon which Vista
would be willing to enter into such a distribution or sales representative
agreement for such region ("Vista's Notice").
(b) For a period of 45 days after Medtronic's receipt of Vista's
Notice (the "Exclusive Period"), Vista shall negotiate in good faith
exclusively with Medtronic regarding such distribution or sales
representative agreement for the applicable region specified in Vista's
Notice. During the Exclusive Period, Vista will not solicit offers from,
negotiate with, or provide information to any third party regarding any
distribution or sales representative relationship for Systems in such region.
(c) If Medtronic and Vista fail to reach mutual agreement upon the
terms and provisions of a definitive agreement for such distribution or sales
representative relationship, then Vista shall have 90 days from the earlier
of expiration of the Exclusive Period or termination by Medtronic of
negotiations between Vista and Medtronic in which to enter into a
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definitive agreement for such distribution or sales representative
relationship with a third party for the applicable region specified in
Vista's Notice; provided that Vista may not enter into such definitive
agreements unless the terms and provisions thereof are, in the aggregate,
more favorable to Vista than the terms and provisions proposed by Medtronic
during the Exclusive Period. If Vista fails to enter into such definitive
agreement for the applicable region within such 90-day period, then
Medtronic's rights under this Section shall be reinstated and Vista may not
enter into any distribution or sales representative relationship for the sale
of Systems in such region without first giving Medtronic a new Vista's Notice
and complying with the terms of this Section.
ARTICLE 6
PRODUCT DEVELOPMENT
6.1) CUSTOMIZED SYSTEMS. Medtronic may refer new product ideas or
product customization requests for the Systems in the Field of Use to
designated Vista marketing representatives. Vista shall consider development
of Medtronic's custom product requests in a reasonable and timely manner
consistent with the way in which Vista undertakes custom product requests for
any other Vista customers.
6.2) NEW PRODUCTS. Vista and Medtronic shall each have the right
to offer to the other party the opportunity to co-develop products or
technologies with potential application in the Field of Use which the
offering party owns or has the right to use, subject to such mutually
acceptable terms and conditions as the parties may agree. The cost of such
co-development efforts shall be shared as may be mutually agreed to by the
parties.
ARTICLE 7
TERM AND TERMINATION
7.1) INITIAL TERM. The initial term (the "Initial Term") for
Medtronic's rights and obligations as (i) the exclusive distributor for
Systems in the United States shall be as set forth in Section 2.1(a), and
(ii) the exclusive distributor for Systems in Europe, the Middle East and
Africa and the Extended Geographies, shall commence on the date of the
Original Sales Agreement (or the date of Amendment No. 1 with respect to the
Extended Geographies) hereof and continue until April 30, 2003.
7.2) RENEWAL TERM; PERFORMANCE OBJECTIVES.
(a) The Initial Term shall be automatically renewed for an
additional two-year period (the "Renewal Term"), unless such Initial Term has
been terminated by Vista due to Medtronic's failure to achieve certain
reasonable and mutually agreeable performance objectives to be established by
the parties (the "Performance Objectives"). There shall be annual Performance
Objectives with respect to Medtronic's rights and obligations as the exclusive
distributor for Systems in the United States on an aggregate basis, and annual
Performance Objectives with
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respect to Medtronic's rights and obligations as the exclusive distributor for
Systems in Europe, the Middle East and Africa and the Extended Geographies on
an aggregate basis.
(b) Vista and Medtronic shall negotiate in good-faith to establish
(i) on or before December 31, 1997 and annually thereafter, annual aggregate
Performance Objectives for Europe, the Middle East and Africa and the
Extended Geographies during the Initial Term, and (ii) on or before the
beginning of Phase II and annually thereafter, annual Performance Objectives,
including pricing and marketing strategies, for the United States during the
Initial Term. The Performance Objectives shall take into account such factors
as the size of the market, price of the Systems, potential applications of
the Systems, selling cycle, Vista's manufacturing capacity, size of the
relative sales forces, and other relevant factors. The Performance
Objectives for Europe, the Middle East and Africa and the Extended
Geographies shall include aggregate sales volume targets and regulatory
approval requirements.
(c) The parties shall, within 90 days preceding the commencement
of the Renewal Term, establish mutually acceptable Performance Objectives for
such Renewal Term.
7.3) TERMINATION FOR FAILURE TO MEET PERFORMANCE OBJECTIVES OR
ABANDONMENT OF AREA.
(a) Subject to Article 9 hereof, if Medtronic fails to meet the
Performance Objectives for the United States, Vista shall have the right to
terminate Medtronic's rights and obligations as exclusive distributor of
Systems in the United States. Subject to Article 9 hereof, if Medtronic
fails to meet the Performance Objectives for Europe, the Middle East, and
Africa and the Extended Geographies, Vista shall have the right to terminate
Medtronic's rights and obligations as distributor for Europe, the Middle East
and Africa and the Extended Geographies. Vista shall give Medtronic written
notice of any such intent to terminate, and Medtronic shall have sixty (60)
days in which to cure such failure to meet the Performance Objectives.
Vista's rights under this Section 7.3(a) shall be Vista's sole and exclusive
remedy for Medtronic's failure to meet the Performance Objectives.
(b) In addition to Vista's rights under subsection (a) above and
whether or not Medtronic has met the aggregate Performance Objectives for
Europe, the Middle East and Africa and the Extended Geographies, if at any
time after commercial release of the Systems Medtronic is making no efforts
(and has no plans to make such efforts) to sell, distribute, or promote the
Systems in Europe, the Middle East, Africa or the Extended Geographies, then
Vista shall have the right to terminate Medtronic's rights and obligations as
distributor with respect to such geographic area in which no efforts are
being made or are planned (i.e. either Europe, the Middle East or Africa, as
applicable). Vista shall give Medtronic written notice of any such intent to
terminate, and Medtronic shall have sixty (60) days in which to commence such
sales efforts (or provide a plan to commence such sales efforts) in such
geographic area. Except as provided in Subsection 7.3(a), Vista's rights
under this Subsection 7.3(b) shall be Vista's sole and exclusive remedy for
any failure by Medtronic to sell, distribute or promote the Systems.
(c) Upon any such termination pursuant to Subsections 7.3(a) or
7.3(b) above, Vista will repurchase from Medtronic, at Medtronic's cost,
Medtronic's entire inventory of Systems
-19-
<PAGE>
(excluding demonstration Systems) and related accessories that do not contain
Medtronic's name or trademarks as of the termination date relating to the
geographic area to which such termination relates.
7.4) TERMINATION FOR CHANGE OF CONTROL.
(a) Vista shall be entitled to terminate Medtronic's rights and
obligations as exclusive distributor in the United States if a bona fide
third-party transaction has resulted in a Change of Control of Vista. On or
before such Change of Control, Vista shall give Medtronic written notice of
any such intent to terminate, which termination shall be effective six months
after the effective date of the Change of Control.
(b) Upon any such termination pursuant to Subsection 7.4(a) above,
Vista will (i) pay Medtronic *** plus an amount equal to Medtronic's
cumulative losses before interest and taxes, if any, up to ***
incurred by Medtronic from and after the beginning of Phase I; and (ii)
repurchase from Medtronic, at Medtronic's cost, Medtronic's entire inventory
of Systems (including demonstration Systems) and related materials that do
not contain Medtronic's name or trademarks as of the termination date
relating to the geographic area to which such termination relates.
(c) In no event, however, shall Vista have the right to terminate
Medtronic's rights as the exclusive distributor for the Systems in Europe, the
Middle East and Africa and the Extended Geographies, or any other region other
than the United States, by reason of any "Change of Control" of Vista.
7.5) MEDTRONIC'S TERMINATION FOR VISTA BREACH.
(a) Subject to Article 9 hereof, if Vista breaches any of its
material obligations under this Agreement with respect to Article 2 and/or
Article 3 of this Agreement, then Medtronic shall be entitled to terminate
Medtronic's rights and obligations under Article 2 and/or, at Medtronic's
election, Article 3 of this Agreement. Medtronic shall give Vista written
notice of any such intent to terminate, specifying whether such termination
will apply to Medtronic's rights and obligations under Article 2 or Article
3, or both, and Vista shall have sixty (60) days in which to cure such
material breach.
(b) Upon any such termination pursuant to Subsection 7.5(a) above,
Vista will repurchase from Medtronic, at Medtronic's cost, Medtronic's entire
inventory of Systems (including demonstration Systems) and related materials
that do not contain Medtronic's name or trademarks as of the termination date
relating to Medtronic's rights and obligations under Article 2 and/or Article
3 of this Agreement, as applicable.
7.6) VISTA'S TERMINATION FOR MEDTRONIC BREACH.
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
-20-
<PAGE>
(a) Subject to Article 9 hereof and except as otherwise provided
in Section 7.3, if Medtronic breaches any of its material obligations under
this Agreement with respect to Article 2 and/or Article 3 of this Agreement,
then Vista shall be entitled to terminate Medtronic's rights and obligations
under Article 2 and/or, at Vista's election, Article 3 of this Agreement.
Vista shall give Medtronic written notice of any such intent to terminate,
specifying whether such termination will apply to Medtronic's rights and
obligations under Article 2 or Article 3, or both, and Medtronic shall have
sixty (60) days in which to cure such material breach.
(b) Upon any such termination pursuant to Subsection 7.6(a) above,
Vista will repurchase from Medtronic, at Medtronic's cost, Medtronic's entire
inventory of Systems (excluding demonstration Systems) and related materials
that do not contain Medtronic's name or trademarks as of the termination date
relating to Medtronic's rights and obligations under Article 2 and/or Article
3 of this Agreement, as applicable.
7.7) RIGHTS AND OBLIGATIONS ON TERMINATION. In the event of
termination of all or a portion of this Agreement for any reason, the parties
shall have the following rights and obligations:
(a) Termination of all or a portion of this Agreement shall not
release either party from the obligation to make payment of all amounts
previously due and payable;
(b) In the event of the termination of Medtronic's distribution
rights with respect to all of Europe, the Middle East and Africa and the
Extended Geographies in accordance with Section 7.3(a), Section 7.5 or
Section 7.6, or with respect to Europe, the Middle East, Africa or the
Extended Geographies in accordance with Section 7.3(b), then (i) Vista shall
have the right, at its option, to cancel any or all purchase orders for
Systems which provide for delivery to such geographic area after the
effective date of termination, (ii) Medtronic shall assign, at Vista's cost,
all regulatory approvals and files regarding sales of Systems in such
geographic area to Vista, and (iii) Medtronic and Vista shall cooperate to
assure continued service and support to customers in such geographic area who
purchased Systems from Medtronic. Vista hereby acknowledges Medtronic's
right to continue to sell Systems purchased from Vista to any person or
entity until such time as Medtronic's entire inventory of Systems is sold; and
(c) Without limitation of Section 11.6 hereof, the parties'
payment and audit obligations pursuant to Articles 2 and 3 hereof, and the
parties obligations pursuant to Articles 8, 10 and 11 hereof, shall survive
termination of this Agreement.
(d) Upon any termination of Medtronic's exclusive distribution of
Systems in any portion of the Territory, (i) Vista will repurchase from
Medtronic all Systems on Medtronic's books that have been placed in such
portion of the Territory with respect to which Medtronic's rights are
terminated with a customer on a per procedure pricing basis and all
demonstration units related to such portion of the Territory with respect to
which Medtronic's rights are terminated for a price equal to the total ***
of such Systems, and (ii) Medtronic shall
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
-21-
<PAGE>
cooperate with Vista to transfer and assign to Vista all contracts for the
placement of Systems on a per procedure pricing basis in such portion of the
Territory that Medtronic entered into prior to such termination.
ARTICLE 8
INDEMNIFICATION
8.1) VISTA'S LIABILITY. Vista shall indemnify, defend and hold
harmless Medtronic and each of its subsidiaries, officers, directors,
employees, shareholders and distributors from and against and in respect of
any and all demands, claims, actions or causes of action, assessments,
losses, damages, liabilities, interest and penalties, costs and expenses
(including, without limitation, reasonable legal fees and disbursements
incurred in connection therewith and in seeking indemnification therefor, and
any amounts or expenses required to be paid or incurred in connection with
any action, suit, proceeding, claim, appeal, demand, assessment or judgment)
("Indemnifiable Losses"), resulting from, arising out of, or imposed upon or
incurred by any person to be indemnified hereunder by reason of (i) any
breach of representation, warranty, covenant or agreement on the part of
Vista under this Agreement, (ii) total or partial Systems recalls, or (iii)
alleged defects in materials, workmanship, product performance, or design of
the Systems, but in any event excluding matters for which Medtronic is
responsible under Section 8.2 below. Vista shall maintain product liability
insurance or self-insurance in such amounts as is advisable pursuant to
ordinary good business practice for a similar company in a similar type of
business, and shall provide Medtronic with evidence of this coverage.
8.2) MEDTRONIC'S LIABILITY. Medtronic shall indemnify, defend and
hold harmless Vista and each of its subsidiaries, officers, directors,
employees, shareholders and suppliers from and against and in respect of any
and all demands, claims, actions or causes of action, assessments, losses,
damages, liabilities, interest and penalties, costs and expenses (including,
without limitation, reasonable legal fees and disbursements incurred in
connection therewith and in seeking indemnification therefor, and any amounts
or expenses required to be paid or incurred in connection with any action,
suit, proceeding, claim, appeal, demand, assessment or judgment)
("Indemnifiable Losses"), resulting from, arising out of, or imposed upon or
incurred by any person to be indemnified hereunder by reason of (i) any
breach of representation, warranty, covenant or agreement on the part of
Medtronic under this Agreement, (ii) product claims whether written or oral,
made or alleged to be made, by Medtronic in its advertising, publicity,
promotion, or sale of any Systems where such product claims were not provided
by or approved by Vista, or (iii) negligent handling by Medtronic of the
Systems, but in any event excluding matters for which Vista is responsible
under Section 8.1 above.
8.3) THIRD PARTY CLAIMS. If a claim by a third party is made
against any indemnified party, and if the indemnified party intends to seek
indemnity with respect thereto under this Article 8, such indemnified party
shall promptly notify the indemnifying party of such claim; provided,
however, that failure to give timely notice shall not affect the rights of
the indemnified party so long as the failure to give timely notice does not
materially adversely affect the indemnifying party's ability to defend such
claim against a third party. The indemnifying party
-22-
<PAGE>
shall be entitled to settle or assume the defense of such claim, including
the employment of counsel reasonably satisfactory to the indemnified party,
as provided below. If the indemnifying party elects to settle or defend such
claim, it shall notify the indemnified party within thirty (30) days (but in
no event less than twenty (20) days before any pleading, filing or response
on behalf of the indemnified party is due) of its intent to do so. If the
indemnifying party elects not to settle or defend such claim or fails to
notify the indemnified party of its election within thirty (30) days (or such
shorter period provided above) after receipt of the indemnified party's
notice of a claim of indemnity hereunder, the indemnified party shall have
the right to contest, settle or compromise the claim without prejudice to any
rights to indemnification hereunder. Regardless of which party is
controlling the settlement or defense of any claim, (i) both the indemnified
party and indemnifying party shall act in good faith, (ii) the indemnifying
party shall not thereby permit to exist any lien, encumbrance or other
adverse charge upon any asset of any indemnified party or of its
subsidiaries, (iii) the indemnifying party shall permit the indemnified party
to participate in such settlement or defense through counsel chosen by the
indemnified party, provided that all fees, costs and expenses of such counsel
in an action controlled by the indemnifying party shall be borne by the
indemnified party, unless the indemnifying party and indemnified party have
different available defenses to such third party claim, in which case such
fees, costs and expenses shall be borne by the indemnifying party, (iv) no
entry of judgment or settlement of a claim may be agreed to without the
written consent of both the indemnified party and the indemnifying party,
which consents shall not be unreasonably withheld, and (v) the indemnifying
party shall agree promptly to reimburse the indemnified party for the full
amount of such claim pursuant to this Article 8. So long as the indemnifying
party is reasonably contesting any such claim in good faith as permitted
herein, the indemnified party shall not pay or settle any such claim;
provided that the indemnified party may settle any such claim so long as the
indemnifying party is not adversely affected thereby. The controlling party
shall deliver, or cause to be delivered, to the other party copies of all
correspondence, pleadings, motions, briefs, appeals or other written
statements relating to or submitted in connection with the settlement or
defense of any such claim, and timely notices of, and the right to
participate pursuant to (iii) above in any hearing or other court proceeding
relating to such claim.
8.4) COOPERATION AS TO INDEMNIFIED LIABILITY. Each party hereto
shall cooperate fully with the other parties with respect to access to books,
records, or other documentation within such party's control, if deemed
reasonably necessary or appropriate by any party in the defense of any claim
which may give rise to indemnification hereunder.
ARTICLE 9
FORCE MAJEURE
9.1) FORCE MAJEURE. "Force Majeure" shall mean any event or
condition, not existing as of the date of signature of this Agreement, not
reasonably foreseeable as of such date and not reasonably within the control
of either party, which prevents in whole or in material part the performance
by one of the parties of its obligations hereunder, such as act of God, act
of government, war or related actions, civil insurrection, riot, sabotage,
strike, epidemic, fire, flood, windstorm, and similar events.
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<PAGE>
9.2) NOTICE. Upon giving notice to the other party, a party
affected by an event of Force Majeure shall be released without any liability
on its part from the performance of its obligations under this Agreement,
except for the obligation to pay any amounts due and owing hereunder, but
only to the extent and only for the period that its performance of such
obligations is prevented by the event of Force Majeure.
9.3) SUSPENSION OF PERFORMANCE. During the period that the
performance by one of the parties of its obligations under this Agreement has
been suspended by reason of an event of Force Majeure, the other party may
likewise suspend the performance of all or part of its obligations hereunder
to the extent that such suspension is commercially reasonable.
ARTICLE 10
INTELLECTUAL PROPERTY
10.1) TRADEMARK LICENSE. Medtronic shall have a royalty-free
license to use all trademarks, trade names and logotypes of Vista relating to
the Systems solely in connection with the sale or other distribution,
promotion, advertising and/or maintenance of the Systems in the Field of Use.
Medtronic shall acquire no right, title or interest in such Vista trademarks,
trade names and logotypes, other than as provided for above, and Medtronic
shall not use any Vista trademarks, trade names and logotypes as part of
Medtronic's corporate or trade name or permit any third party under
Medtronic's control to do so without the prior written consent of Vista. All
rights under this Section 10.1 shall terminate upon termination of this
Agreement under Article 7, subject to Section 7.5(b).
10.2) OWNERSHIP. Vista represents and warrants to Medtronic the
following: Vista is the exclusive owner or licensee of all right, title and
interest in and to all Intellectual Property used in the research, design,
development, manufacture or sale of the Systems (the "Vista Intellectual
Property") free and clear of any liens, charges, security interests,
mortgages, pledges, restrictions, adverse claims or any other encumbrances of
any kind. Neither Vista, its business, any of the Systems, nor the execution
and performance of this Agreement and the transactions contemplated herein,
infringes, misuses, misappropriates or conflicts with the rights, including
patent and other intellectual property rights or contract rights, of others.
To the knowledge of Vista, the Vista Intellectual Property is valid and has
not been challenged in any judicial or administrative proceeding. To the
knowledge of Vista, Vista has not failed to take any necessary steps or
appropriate actions to record its interests, or to protect its rights, in the
Vista Intellectual Property. To the knowledge of Vista, no person or entity
nor such person's or entity's business or products has infringed, misused,
misappropriated or conflicted with the Vista Intellectual Property or
currently is infringing, misusing, misappropriating or conflicting with the
Vista Intellectual Property.
10.3) PROTECTION OF VISTA'S INTELLECTUAL PROPERTY AND IMPROVEMENTS.
During the term of this Agreement, Vista shall promptly inform Medtronic of
any invention, improvement, upgrading or modification relating to the Systems
or Vista's Intellectual Property relating to the Systems.
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<PAGE>
ARTICLE 11
MISCELLANEOUS
11.1) NON-DISCLOSURE. Except as permitted or required for
performance by the party receiving such Confidential Information of its
rights or duties hereunder, each party agrees (i) not to disclose or use any
Confidential Information of the other party obtained in connection with the
performance of this Agreement, and (ii) not to disclose or provide any of
such Confidential Information of the other party to any third party and to
take appropriate measures to prevent any such disclosure by its present and
future employees, officers, agents, subsidiaries, or consultants.
11.2) RELATIONSHIP. This Agreement does not make either party the
employee, agent or legal representative of the other for any purpose
whatsoever. Neither party is granted any right or authority to assume or to
create any obligation or responsibility, express or implied, on behalf of or
in the name of the other party. In fulfilling its obligations pursuant to
this Agreement, each party shall be acting as an independent contractor.
11.3) ASSIGNMENT. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and the successors or assigns of the
parties hereto; provided, that (i) the rights and obligations of Vista herein
may not be assigned except to any person who succeeds to substantially all of
the assets and business of Vista to which this Agreement relates, and (ii)
the rights and obligations of Medtronic herein may not be assigned except to
an Affiliate of Medtronic or to any person who succeeds to substantially all
of that portion of Medtronic's business to which this Agreement relates.
11.4) COMPLETE AGREEMENT. This Agreement, the Investment Agreement,
the Investors' Rights Agreement, the Supplemental Rights Agreement, and the
Exhibits hereto and thereto constitute the entire agreement between the
parties hereto with respect to the subject matter hereof and supersede all
prior agreements whether written or oral relating hereto. This Agreement
replaces the Original Sales Agreement and Amendment No. 1 as of the Effective
Date.
11.5) GOVERNING LAW. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of California, including
all matters of construction, validity, performance and enforcement, without
giving effect to principles of conflict of laws.
11.6) SURVIVAL. All of the representations, warranties, and
covenants made in this Agreement, and all terms and provisions hereof
intended to be observed and performed by the parties after the termination
hereof, shall survive such termination and continue thereafter in full force
and effect.
11.7) WAIVER, DISCHARGE, AMENDMENT, ETC. The failure of any party
hereto to enforce at any time any of the provisions of this Agreement shall
in no way be construed to be a waiver of any such provision, nor in any way
to affect the validity of this Agreement or any part thereof or the right of
the party thereafter to enforce each and every such provision. No waiver of
any breach of this Agreement shall be held to be a waiver of any other or
subsequent breach. Any amendment to this Agreement shall be in writing and
signed by the parties hereto.
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<PAGE>
11.8) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed as original and all of which
together shall constitute one instrument.
11.9) TITLES AND HEADINGS; CONSTRUCTION. The titles and headings to
Sections herein are inserted for the convenience of reference only and are
not intended to be a part of or to affect the meaning or interpretation of
this Agreement. This Agreement shall be construed without regard to any
presumption or other rule requiring construction hereof against the party
causing this Agreement to be drafted.
11.10) BENEFIT. Nothing in this Agreement, expressed or implied, is
intended to confer on any person other than the parties to this Agreement or
their respective successors or assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
11.11) NOTICES. All notices or other communications to a party
required or permitted hereunder shall be deemed given if in writing and
delivered personally or sent by telecopy (with confirmation of transmission)
or certified mail (return receipt requested) to such party at the following
addresses (or at such other addresses as shall be specified by like notice):
if to Medtronic, to:
Medtronic, Inc.
Corporate Center
7000 Central Avenue N.E.
Minneapolis, MN 55432
Attention: General Counsel
FAX (612) 572-5459
with a copy to:
Medtronic, Inc.
Corporate Center
7000 Central Avenue N.E.
Minneapolis, MN 55432
Attention: Vice President, Marketing and Minimally
Invasive Cardiac Surgery
FAX (612) 514-6718
and if to Vista, to:
Vista Medical Technologies, Inc.
5451 Avenida Encinas, Suite A
Carlsbad, CA 92008
Attention: John Lyon
FAX (619) 603-9170
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<PAGE>
with a copy to:
Brobeck Phleger & Harrison LLP
550 West C Street, Suite 1300
San Diego, CA 92101
Attention: Craig Andrews
FAX (619) 234-3848
Medtronic or Vista may change their respective above-specified recipient
and/or mailing address by notice to the other party given in the manner
herein prescribed. All notices shall be deemed given on the day when actually
delivered as provided above (if delivered personally or by telecopy) or on
the day shown on the return receipt (if delivered by mail).
11.12) ILLEGALITY. In case any provision of this Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
11.13) PUBLIC ANNOUNCEMENT. Each of the parties to this Agreement
hereby agrees with the other parties hereto that, except as may be required
to comply with the requirements of applicable law or any exchange upon which
such party's capital stock is listed or traded, no press release or similar
public announcement or communication will be made or caused to be made
concerning the execution or performance of this Agreement unless specifically
approved in advance by Medtronic and Vista. The foregoing shall not restrict
either party's communications with employees, customers or private investors.
11.14) EXECUTION OF FURTHER DOCUMENTS. Each party agrees to execute
and deliver without further consideration any further applications, licenses,
assignments or other documents, and to perform such other lawful acts as the
other party may reasonably require to fully secure and/or evidence the rights
or interests herein.
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<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this
Amended and Restated Sales Agreement to be executed in the manner appropriate
to each, as of the date first above written.
VISTA MEDICAL TECHNOLOGIES, INC.
By /s/ John R. Lyon
-------------------------------------
Its Chief Executive Officer
-------------------------------------
MEDTRONIC, INC.
By /s/ Clinton W. Owens
-------------------------------------
Its Vice President, Marketing and
Minimally Invasive Cardiac Surgery
-----------------------------------
ATTACHMENTS:
Schedule 1.1 - "Europe, the Middle East, and Africa"
Schedule 3.3 - System Components
Schedule 4.3 - Vista's current System product warranty
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<PAGE>
Schedule 1.1
"EUROPE, THE MIDDLE EAST AND AFRICA"
1. EUROPE. Europe shall include all of continental Europe, and further
include the United Kingdom, Ireland and the Scandinavian countries and
Eastern Europe, including the Czech Republic, Serbia, Russia and Central
Independent States of the former USSR.
2. MIDDLE EAST. The Middle East shall include all of the Middle East north
and east of the Red Sea, from Turkey in the north and west, to Iran in the
east and Yemen in the south, excluding Afghanistan and Pakistan.
3. AFRICA. Africa shall include the entire continent of Africa and all
islands appurtenant thereto.
<PAGE>
Schedule 3.3
SYSTEM COMPONENTS
CardioView advanced visualization and information management system:
Cardio 3DScope - A complete set of stereo cameras and endoscopes (either
Miniature or Traditional).
-A miniature camera 1.3" in length capable of attaching to retractor
systems or delivered within the surgical field by attachment to
malleable or rigid guide; or
-Traditional 4.7 mm rotable Thoracoscope.
CardioCamera - 1.3" in length miniature one chip mono camera to be placed
within the body.
CardioView - head mounted display system.
-Lightweight, ergonomic display with LCD chips providing real time 3D
video.
-Image resolution equivalent to conventional TV monitor.
-Can be worn with surgical loops.
-Providing voice activated command for the delivery of patient
information.
-First generation to include TEE (Trans Esophageal Echo), "picture in
picture".
-Consisting of up to four head mounted displays operating off one
central control unit. Standard system includes two HMDs.
CardioConsole - Elegant, user friendly system to rack mount a customized
information management system for Cardiothoracic surgery. CardioConsole
will contain:
CardioController - High resolution stereo image processor.
-Will operate either the mono or stereo cameras.
-Capable of running all cameras in cardiac surgery.
-Can "slave" to other medical monitors in O.R.
CardioRecorder - 3 dimensional CD ROM image recorder.
CardioLight, Advanced single fiber light delivery technology.
-Cogent Light xenon light source
Standard 13" medical monitor.
-For setup, calibration, and trouble shooting
<PAGE>
Schedule 4.3
VISTA'S CURRENT SYSTEM PRODUCT WARRANTY
[INCORPORATED BY REFERENCE TO SCHEDULE 4.3 TO ORIGINAL SALES AGREEMENT]
<PAGE>
EXHIBIT 11.1
VISTA MEDICAL TECHNOLOGIES, INC.
Statement Regarding Computation of Per Share Data
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
------------------------------- --------------------------------
1998 1997 1998 1997
----------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Net loss.............................................. $ 5,614,202 $ 3,908,757 $ 9,781,408 $ 7,226,828
Weighted average common shares outstanding............ 13,289,121 321,448 13,265,196 334,361
Assumed conversion of convertible preferred........... -- -- -- --
----------- ----------- ------------ -------------
Shares used in basic per share computations .......... 13,289,121 321,448 13,265,196 334,361
----------- ----------- ------------ -------------
----------- ----------- ------------ -------------
Net loss per share - basic............................ $ (0.42) $ (12.16) $ (0.74) $ (21.61)
----------- ----------- ------------ -------------
----------- ----------- ------------ -------------
Net effect of dilutive common share equivalents based
on the treasury stock method....................... -- -- -- --
----------- ----------- ------------ -------------
Shares used in diluted per
share computations................................. 13,289,121 321,448 13,265,196 334,361
----------- ----------- ------------ -------------
----------- ----------- ------------ -------------
Net loss per share - diluted...................... $ (0.42) $ (12.16) $ (0.74) $ (21.61)
----------- ----------- ------------ -------------
----------- ----------- ------------ -------------
</TABLE>
See accompanying notes
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANTS CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED
DECEMBER 31, 1997 AND AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 6,925,342
<SECURITIES> 8,344,874
<RECEIVABLES> 1,267,945
<ALLOWANCES> 0
<INVENTORY> 4,702,135
<CURRENT-ASSETS> 21,393,447
<PP&E> 5,372,684
<DEPRECIATION> 2,906,108
<TOTAL-ASSETS> 24,134,383
<CURRENT-LIABILITIES> 2,923,208
<BONDS> 0
0
0
<COMMON> 134,676
<OTHER-SE> 21,076,399
<TOTAL-LIABILITY-AND-EQUITY> 24,134,383
<SALES> 3,849,641
<TOTAL-REVENUES> 4,897,288
<CGS> 3,608,035
<TOTAL-COSTS> 3,608,035
<OTHER-EXPENSES> 11,070,661
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 9,781,408
<INCOME-TAX> 0
<INCOME-CONTINUING> 9,781,408
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,781,408
<EPS-PRIMARY> (0.74)
<EPS-DILUTED> (0.74)
</TABLE>
