<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
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 0-6523
[MICRO THERAPEUTICS, INC LOGO]
(Name of Small Business Issuer in its charter)
DELAWARE 33-0569235
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2 GOODYEAR 92618
IRVINE, CALIFORNIA (Zip Code)
(Address of principal executive offices)
(949) 837-3700
(Issuer's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK
(Title of
class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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. YES [X] NO [ ]
Check if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB [X]
Issuer's revenues for its most recent fiscal year were $4,097,672
As of March 14, 2000, the aggregate market value of the voting stock and
non-voting common equity held by non-affiliates, computed by reference to the
price at which common equity was sold on such date, was approximately
$61,000,000.
9,887,636 shares of Common Stock were outstanding at March 14, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
Information required under Items 9, 10, 11 and 12 of Part III hereof are
incorporated by reference to portions of the registrant's definitive Proxy
Statement to be filed in connection with the solicitation of proxies for its
Annual Meeting of Stockholders to be held May 25, 2000.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
Index to Exhibits is on page 35.
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PART I
ITEM 1. BUSINESS
Micro Therapeutics, Inc. ("MTI" or the "Company") was incorporated in
California in 1993 and reincorporated in Delaware in 1996. The Company develops,
manufactures and markets minimally invasive medical devices for the diagnosis
and treatment of vascular disease. MTI focuses its efforts in two under-served
markets: (i) the treatment of neuro vascular disorders of the brain associated
with stroke; and (ii) the treatment of peripheral vascular disease, including
blood clot therapy in hemodialysis access grafts, arteries and veins. The
Company's objective is to provide physicians with new interventional treatment
alternatives which improve outcomes, reduce costs, shorten procedure times,
reduce drug usage and allow access to difficult-to-reach anatomical locations.
The Company currently markets more than eighty-five products for the treatment
of neuro and peripheral vascular disease and expects to introduce additional
products during 2000.
The Company's products and products under development in the neuro
vascular market designed to address stroke include: (i) the Onyx(TM) Liquid
Embolic System ("LES(TM)"), which combines a unique material and special purpose
access and delivery devices such as micro catheters, to treat aneurysms,
arteriovenous malformations ("AVMs") and hypervascular brain tumors; and (ii) a
range of guidewires, balloon catheters, and infusion micro catheters
incorporating shaft designs and innovative materials, which allow access to the
smallest, most remote blood vessels. The Company's products in the peripheral
vascular market, designed for less invasive treatment of blood clots, include:
(i) a broad offering of infusion catheters, micro catheters and infusion wires;
and (ii) the Cragg Thrombolytic Brush(TM) and the Castaneda Over The Wire
Brush(TM), designed for rapid interventional clot disruption and dissolution
through mechanical mixing of a thrombolytic drug with the clot.
BACKGROUND
Vascular disease is, by Company estimates, the leading cause of death in
the industrialized world. It may occur in any part of the body, and is generally
manifested as an occlusion or rupture in a vessel. The vascular disease market
consists of three segments, defined by anatomical location: cardiovascular
disease, or disease of the coronary arteries; neuro vascular disease, or disease
of the vessels in the brain; and peripheral vascular disease, or disease in
blood vessels throughout the rest of the body. MTI is focused on the two
segments it believes to be under-served: neuro vascular and peripheral vascular
disease.
Neuro Vascular Disease
The Company believes that the leading complication of neuro vascular
disease is stroke, the diminished blood flow to critical regions of the brain. A
significant need for effective stroke therapy exists because of the severity of
the disorder, its prevalence in society, the inadequacy of current therapies and
the high cost of treatment and care. Acute stroke is the third leading cause of
death in the United States and a major cause of long-term disability, with an
estimated annual cost of over $30 billion, according to Medical Data
International, Inc. ("MDI"). There are approximately 700,000 cases of stroke per
year in the United States, of which approximately 160,000 of the victims die as
a result of the event and another one-third become severely and permanently
disabled, according to the National Stroke Association. Over three million
people in the United States are stroke survivors and stroke is the leading cause
of disability among adults, according to an article published in Neurology. The
disabilities caused by stroke include paralysis, coma, impaired cognition,
reduced coordination, loss of visual acuity, loss of speech, loss of sensation
or a combination of these effects. Currently, no medical intervention exists
that can reverse the brain damage resulting from stroke.
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Strokes are typically caused either by blockages (vaso-occlusive stroke)
or ruptures (hemorrhagic stroke) of vessels within or leading to the brain.
According to MDI, vaso-occlusive strokes account for approximately 80% of all
strokes. According to the American Heart Association, the most common type of
vaso-occlusive stroke, thromboembolic stroke, is caused by the existence of a
blood clot, or thrombus, within an artery, blocking blood flow. These blood
clots can originate in the heart or a peripheral vascular site and travel into
the neuro vasculature. Another type of vaso-occlusive stroke, atherosclerotic
stroke, results from blockage of blood flow by plaque in a vessel. The majority
of atherosclerotic strokes result from blockage in the carotid artery in the
neck. According to MDI, the annual number of cases of thromboembolic and
atherosclerotic stroke in the United States is 168,000 and 272,000,
respectively. The balance of vaso-occlusive strokes are lacunar strokes, or
disease of the smallest vessels deep within the brain.
Hemorrhagic stroke is generally caused by the rupture of a blood vessel
in the brain resulting from a vascular defect such as an aneurysm or AVM.
According to MDI, there are approximately 140,000 cases of hemorrhagic stroke
per year in the United States.
An aneurysm is a balloon-shaped structure which forms at a weak point in
the vessel wall and fills with blood. Aneurysms typically grow over time and,
due to pressure placed on the wall of the aneurysm, are prone to rupture. Burst
aneurysms result in massive intracranial bleeding and often death. Patients with
unruptured aneurysms may experience symptoms such as blurred vision, headaches
or dizziness; however, the large majority of these patients are asymptomatic.
While 42,000 hemorrhagic stroke cases are related to ruptured intracranial
aneurysms, autopsy studies have suggested that unruptured aneurysms may occur in
approximately 2% to 5% of the general population in the United States, according
to the American Association of Neurological Surgeons. The Company believes that
with the development of new diagnostic and interventional technologies, the pool
of candidate patients may be expanded to include those with unruptured aneurysms
discovered in conjunction with other examinations.
In an AVM, the flow of blood between arteries and veins, which normally
occurs through capillary vessels, is shortcut by the development of a network of
larger vessels connecting directly from arteries to veins. The higher arterial
pressure communicating directly to the venous side makes these vessels highly
prone to rupture.
The Company believes that, while the interventional treatment of stroke
in the United States is estimated by MDI to be approximately 40,000 procedures
today, this market will grow significantly, driven by the development of
improved diagnostic, imaging and interventional technologies; conversion from
surgical to interventional procedures; the acceptance of preventive treatment of
unruptured aneurysms; the increasing number of trained interventional
neuroradiologists; the continued development of stroke centers; and the impact
of stroke public awareness programs.
Related to neuro vascular disease is the neurological dysfunction caused
by tumors in the brain. The tumor can cause compression in the brain tissue,
resulting in symptoms such as pain and neurological deficit. As discussed above,
the Company believes that the market for interventional therapeutic applications
such as embolization of those brain tumors that are hypervascular in nature will
grow significantly driven by the factors discussed in the preceding paragraph.
Peripheral Vascular Disease
Based on data from MDI, the Company believes that over eight million
people have been diagnosed with peripheral vascular disease in the United
States, of which an estimated one million are treated annually. Generally, these
patients suffer from degenerative atherosclerosis or blood clots, the same
process that produces coronary artery disease. For patients diagnosed with
peripheral vascular disease, there is currently no therapeutic regimen employed
to halt the degenerative process.
Vascular obstruction, and the resulting lack of blood flow, can lead to
skin discoloration, pain, ulceration, swelling or a change in blood chemistry,
and can result in the loss of limb and even death. These symptoms are most often
present in the legs and arms and may also develop in the neck and torso.
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Thrombosis, or the stagnation and clotting of blood, most often occurs
at locations in blood vessels where the flow of blood has become restricted.
This is most evident in vascular grafts, at the anastomosis, the site where the
artificial graft is joined to the native vessel. Blood clots may form at the
point of narrowing or may originate elsewhere in the cardiovascular system,
break off, travel downstream and lodge in a smaller peripheral vessel,
decreasing or completely blocking flow. Unless this condition is alleviated,
tissue ischemia and gangrene can occur.
According to MDI, thrombosis in peripheral arteries affects
approximately 500,000 people per year in the United States. Approximately
200,000 of these patients receive surgical or interventional treatment, as
estimated by the Company.
One common site for vascular obstruction is in hemodialysis access
grafts. Based on data from the Health Care Financing Administration, the Company
estimates that hemodialysis access grafts have been surgically implanted in over
183,000 kidney dialysis patients in the United States. These grafts are used as
the access site for dialysis needles which are inserted to withdraw and return
blood from a dialyzer, a procedure performed every 2-3 days for each patient.
These hemodialysis access grafts occlude over time and, according to an article
published in the Journal of Surgical Research, fail approximately every 5-10
months, requiring treatment.
Clotting of the deep veins in the lower extremities and torso is
commonly referred to as deep venous thrombosis ("DVT"). DVT and other venous
thrombosis associated with superficial veins are, according to an article
published in Cardiology Clinics, responsible for approximately 250,000
hospitalizations annually in the United States. Approximately 600,000 additional
cases result from long-term hospital stays, according to the American Medical
Association and an article published in American Family Physician. Currently,
the vast majority of treatment consists of oral medication and exercise.
However, there are a small number of patients receiving interventional treatment
consisting of catheter directed thrombolysis over several days, on an inpatient
basis. This is costly, but has been successful for acute cases of DVT. Surgical
removal of the obstruction is not considered to be a desirable treatment
alternative for DVT because of the potential injury to the vein.
The Company estimates that the interventional market of peripheral blood
clots in the United States is approximately 100,000 procedures per year, and
believes this market will grow significantly, driven by the conversion from
surgical to interventional procedures and the development of advanced
technologies that decrease overall procedure costs.
The Company believes that there are opportunities in the peripheral
vasculature for the interventional radiologist to utilize embolization
procedures to treat vascular malformations which occur in peripheral blood
vessels. Among the conditions the Company is considering for study are
peripheral AVMs, uterine fibroid tumors and liver tumors.
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PRODUCTS
The following table sets forth the Company's principal products and
products under development and their current regulatory status:
<TABLE>
<CAPTION>
PRODUCT LINE APPROVAL STATUS
---------------------------------------------------
UNITED STATES EUROPEAN UNION JAPAN
<S> <C> <C> <C>
ONYX LIQUID EMBOLIC SYSTEM
Aneurysm Submission Submission Submission
expected 2002 expected 2000 expected 2002
Arteriovenous malformation Submission Approved Submission
expected 2002 expected 2002
Hypervascular tumor Submission Submitted 1999 Submission
expected 2002 expected 2002
MICRO CATHETERS, AND ACCESS AND DELIVERY PRODUCTS
Rebar(TM) Micro Catheter Approved Approved Submitted 1999
Flow Rider(R) Flow Directed Catheter Approved Approved Approved
EasyRider(R) Micro Catheter Approved Approved Approved
SilverSpeed(TM) Guidewire Approved Approved Approved
Equinox(TM) Occlusion Balloon System Approved Approved Approved
PERIPHERAL VASCULAR-BLOOD CLOT THERAPY PRODUCTS
Infusion Catheters
Cragg-McNamara(TM) Valved Infusion Catheter Approved Approved Approved
MicroMewi(R) Sidehole Infusion Catheter Approved Approved Approved
Mewi-5(TM) Sidehole Infusion Catheter Approved Approved Approved
Infusion Wires
ProStream(R) Sidehole Infusion Wire Approved Approved Approved
ProStream(R) Endhole Infusion Wire Approved Approved Approved
MECHANICAL THROMBOLYSIS
Cragg Thrombolytic Brush(TM) Approved Approved Not Submitted
Castaneda Over The Wire Brush(TM) Approved Approved Not Submitted
</TABLE>
ONYX LIQUID EMBOLIC SYSTEM
The Company's proprietary Onyx Liquid Embolic System ("LES"), currently
under development, is designed for rapid and controlled embolization of
aneurysms, AVMs and hypervascular brain tumors. The Onyx LES consists of unique
biomaterials and special purpose micro catheters. The micro catheters are used
to deliver the material, in liquid form, to small remote blood vessels in the
brain where it fills a vascular defect and transforms into a solid polymer cast.
The Onyx LES offers a unique form, fill and seal approach to the interventional
treatment of aneurysms or AVMs associated with hemorrhagic stroke, and of
hypervascular tumors which can manifest mass effect symptoms similar to those of
a hemorrhagic stroke.
The conventional treatment of hemorrhagic stroke requires
highly-invasive neurosurgery, in which a portion of the skull is removed and
brain tissue is manipulated to gain access to the diseased vessel. This type of
surgery generally involves extensive blood loss and prolonged hospitalization.
Interventional treatment of certain aneurysms currently involves
advancing a micro catheter through the cerebral vasculature to the aneurysm
site. Tiny metal coils attached to a delivery wire are passed, one at a time,
through the catheter and into the aneurysm. The coil is then released from the
delivery wire, the wire is removed and the next coil is advanced through the
catheter. This process is repeated until approximately 35% of the volume of the
aneurysm is filled with coils. The presence of these coils in the aneurysm
disrupts blood flow, leading to the formation of thrombus in the spaces within
the coil mass. Numerous embolization coils are required to fill an aneurysm, a
procedure which generally takes two to three hours to complete, and not all
aneurysms are suited to this approach.
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Surgical treatment of AVMs includes both open neurosurgery and
radiosurgery. The Company estimates that 75% of AVM surgical procedures are
preceded by interventional embolization of the AVM. In the United States,
interventional AVM embolization, either as stand-alone treatment or as a bridge
to surgery, involves depositing polyvinyl alcohol ("PVA") particles, coils or
other embolic material into the AVM to reduce or stop blood flow. Embolization
with PVA particles is challenging due to the difficulty of placing the particles
into the proper location, the inability to visually confirm the placement of the
particles and the tendency for embolized vessels to reopen. Outside the United
States, the most widely used embolization technique for AVMs is the injection of
acrylic-based glues which have not been approved for use in the United States.
Glues have multiple drawbacks, such as lack of control in delivery and extreme
adhesion to all surfaces, including the delivery catheter.
Hypervascular brain tumors often present therapeutic challenges because
their vascularity leads to increased, and sometimes excessive, blood loss during
surgery and the need for blood transfusion. The tendency for hemorrhage during
surgery increases the risk of surgical morbidity and mortality, and makes
complete resection of a tumor more difficult. Accordingly, the Company believes
that embolization of such tumors, as a pre-operative therapy, has the potential
of reducing these inherent surgical risks through reduction of the tumor's
vascularity, and of enhancing surgical resection through tumor necrosis and
shrinkage. In the case of non-operable tumors, the Company believes that
palliative embolization can provide temporary symptomatic improvement such as
relief of pain and neural structural decompression with neurological
improvement. Embolization, pre-operative or palliative, is usually currently
performed with PVA particles. However, embolization with PVA particles is
subject to the challenges noted in the preceding paragraph.
In an Onyx procedure, the micro catheter is positioned at the
embolization site and the material is delivered with a single injection. The
Onyx material is visible under fluoroscopy and thus the interventionalist is
able to see and continuously monitor the penetration and location of the
material. When the vascular defect is completely filled with the polymer cast,
the delivery catheter is removed. Since the Onyx material is nonadhesive, the
controlled injection and filling of the vascular defect can take place over a
30-second or longer period, whereas a glue injection and catheter withdrawal
must be done very quickly to avoid gluing the delivery catheter in place.
The Company is conducting feasibility studies in the United States and
Europe with respect to the use of Onyx in the treatment of brain aneurysms, and,
in 2000, the Company anticipates filing for CE Mark certification in Europe
which, if granted, would allow the Company to market Onyx for this treatment,
and for an Investigational Device Exemption ("IDE") in the United States to
conduct multi-center human clinical trials. CE Mark approval was obtained in
1999 for the use of Onyx in the treatment of brain and peripheral AVMs, and the
Company anticipates filing an IDE in the United States to perform multi-center
human clinical studies with respect to the treatment of brain AVMs. In 1998, the
Company filed and received approval on an IDE to conduct multi-center human
clinical trials in the United States, pursuant to which the Company will seek to
obtain regulatory approval for market introduction of Onyx in the treatment of
meningiomas, the most common form of hypervascular brain tumor. There can be no
assurance, however, that the Company will be successful in completing any of the
studies referred to above or in obtaining approvals, such as those described
above, for market introductions.
MICRO CATHETERS, AND ACCESS AND DELIVERY PRODUCTS
The Company is developing a line of products that will allow access to
and treatment in challenging and difficult-to-reach anatomical locations, such
as the remote, or distal, vessels in the brain. This product line includes a
family of micro catheters, guidewires and balloon systems, certain models of
which will be delivery components of the Onyx LES and others will be for general
interventional therapies.
The Company's micro catheters incorporate unique shaft designs and
innovative materials which allow access to small, remote vessels in the brain.
These micro catheters may be used for infusion of drugs to dissolve blood clots
associated with thromboembolic stroke, and to deliver embolic materials,
including Onyx, to embolize aneurysms, AVMs and hypervascular brain tumors.
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Rebar Micro Catheter. This is a reinforced micro catheter constructed
using a three layer design for enhanced kink resistance. It is a multi-purpose
micro catheter enabling the interventionalist to deliver Onyx(TM), coils, glue,
other embolic materials, drugs, contrast media and liquids to the location of a
vascular defect. The catheter has two distal marker bands to facilitate
visualization. The Rebar is designed as an over-the-wire micro catheter and
works in conjunction with the Company's SilverSpeed Hydrophilic Guidewire. The
Company anticipates that this catheter will eventually supplant the EasyRider
Micro Catheter as its primary over-the-wire catheter. The Rebar Micro Catheter
has obtained regulatory marketing clearances in the United States and the
European Union.
FlowRider Flow Directed Catheter. This micro catheter is designed to
take advantage of naturally-occurring blood flow dynamics to access
hard-to-reach, tightly twisted vessels. The distal section of the catheter is
coated using an advanced coating process, to enhance its durability. The more
proximal section of the shaft is uncoated to facilitate handling control, and
constructed with the Company's proprietary Continuously Variable Extrusion(TM)
(CVE) technology. This process decreases the number of fused joints thus
increasing strength and pushability. If extra support is needed, it can also
accommodate the Company's SilverSpeed Hydrophilic Guidewire. The FlowRider Flow
Directed Catheter has obtained regulatory marketing clearances in the United
States, the European Union and Japan.
SilverSpeed Hydrophilic Guidewire. This guidewire is used to facilitate
introduction and placement of micro catheters, occlusion balloons and
angioplasty catheters. The construction of the guidewire allows for a flexible
end, with a gradual decrease in the stiffness toward the tip. The distal coil
segment is radiopaque platinum, which aids in fluoroscopic guidance for tip
positioning. The SilverSpeed Hydrophilic Guidewire has obtained regulatory
marketing clearances in the United States, the European Union and Japan.
Equinox Occlusion Balloon System. This balloon system is designed for
use in blood vessels where temporary occlusion is desired. It provides a vessel
selective technique which is useful in selectively stopping or controlling blood
flow, and is capable of accessing small diameter vessels and tortuous anatomy.
Accordingly, it may be used to arrest blood flow to distal sites to allow for
embolization treatment of vascular abnormalities such as aneurysms. The Equinox
Occlusion Balloon System has obtained regulatory marketing clearances in the
United States, the European Union and Japan.
PERIPHERAL VASCULAR BLOOD CLOT THERAPY PRODUCTS
Catheters and Infusion Wires
MTI has a broad offering of less invasive interventional catheters,
micro catheters and infusion wires capable of efficient delivery of thrombolytic
agents for the dissolution of blood clots. MTI's current offering of
Cragg-McNamara valved tip infusion catheters and ProStream infusion wires
represents advanced technology in thrombolytic therapy for three peripheral
vascular market subsegments: hemodialysis access grafts, arteries and veins.
Surgical embolectomy is the most common procedure for removing blood
clots from the vascular system, including hemodialysis access grafts. In this
procedure, a surgical incision is made down to the occluded vessel, the vessel
is cut open and a balloon catheter is used to remove the clot through the
incision.
Vascular bypass surgery with native vessels or synthetic grafts is also
performed. In this procedure, either a native vessel, usually a vein surgically
harvested from the patient's leg, or an artificial graft is surgically connected
above and below the occlusion. Blood can then flow around the occlusion.
These surgical procedures require an operating room and attending staff,
anesthesia, intensive care and associated in-hospital recovery facilities and
supplies. If the surgery is performed on an occluded graft through which the
patient had been receiving hemodialysis, the dialysis therapy must be
discontinued at the site of the graft for approximately two weeks and an
alternate access site established for hemodialysis.
Thrombolysis, or the dissolving of blood clots, can be performed
interventionally, often on an outpatient basis, by delivering thrombolytic drugs
through an infusion catheter directly into the clot.
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Various techniques are used in these procedures including the
"pulse-spray" infusion technique where boluses of the drug are repeatedly hand
injected into the thrombus with high pressure syringes, and the "weep" infusion
technique where the drug is slowly infused into the clot over a longer period of
time. In coaxial infusion systems, a micro catheter or infusion wire is placed
through a larger catheter, and infusion is performed through both devices. This
technique allows simultaneous infusion into small, distal vessels and larger,
proximal vessels.
Treatment modalities for blood clots in veins are much more limited than
those for arteries. The most common treatment for DVT is oral
medication/exercise regimens. This treatment only stops the progression of the
clotting and does not remove the clot already present. Surgical embolectomy is
not considered to be a treatment alternative for DVT because of the potential
for injury to the valves and walls of the vein.
A number of high profile interventional radiology centers in the United
States are treating DVT with local infusion of thrombolytic drugs at the site of
the clot through sidehole infusion catheter and infusion wire systems. The
Company believes the interventional treatment of DVT with its catheters and
infusion wires may represent a significant opportunity to expand the patient
population for interventional therapy.
Of the more than 183,000 hemodialysis access graft treatments currently
performed each year in the United States, the Company estimates that one third
are treated interventionally. Of the 200,000 arterial blood clot treatments
currently performed each year in the United States, the Company estimates that
50,000 are interventional. The Company also estimates that an additional 5,000
vein procedures are performed interventionally each year in the United States
for a total of approximately 100,000 interventional treatments for peripheral
blood clots.
Cragg-McNamara Valved Tip Catheters. These catheters incorporate the
Company's Cragg MicroValve which allows a catheter to be advanced over a
guidewire, and when the wire is removed, the valve at the tip of the catheter
closes completely. This valve technology allows the use of the entire catheter
lumen for sidehole fluid delivery as compared to competitive products which
require a wire to be in place to occlude the catheter tip during sidehole
infusion.
Mewi-5 Sidehole Infusion Catheters. The Company's Mewi-5 catheters
provide sidehole infusion in the peripheral vasculature. These catheters can be
used alone or as the outer catheter of a coaxial infusion system.
MicroMewi Sidehole Micro Catheters. The Company's MicroMewi micro
catheters provide sidehole infusion in small, distal vessels of the peripheral
vasculature. These catheters incorporate a two-section design which adds
pushability to the proximal segment and flexibility to the distal end. The
MicroMewi can be used either alone or as the inner catheter of a coaxial
infusion system.
MicroPatency Endhole Micro Catheters. These endhole micro catheters
provide infusion in small, distal vessels of the peripheral vasculature. They
incorporate a two-section design which adds pushability to the proximal segment
and flexibility to the distal end. The MicroPatency endhole micro catheters can
be used alone or as the inner catheter of a coaxial infusion system.
ProStream Infusion Wires. The Company's infusion wires can be inserted
into blood vessels, and navigated to the site of an obstruction to allow the
infusion of fluids through the wire to the distal anatomy. These infusion wires
can also be passed through infusion catheters in a coaxial manner, to allow
simultaneous infusion at multiple sites.
Thrombolytic Brush
The Company believes that most treatments for blood clots in the
peripheral vasculature could be performed interventionally. However, in order
for interventional thrombolysis procedures to surpass surgical procedures as the
treatment of choice, three main issues need to be addressed, all of which have a
direct impact on procedure cost.
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First, the length of time to achieve lysis of the clot must be
shortened. If a clot is relatively "fresh," that is, only several hours old or
less when treated, dissolution time is quick and the procedure can be completed
in a single session in the catheterization or special procedures lab. If,
however, the clot becomes more "organized" in the vessel, dissolution time
lengthens. In these circumstances, thrombolysis starts in the catheterization
lab and continues in a hospital room for 24-72 hours, making it an inpatient
procedure. The patient is then moved back to the lab a second time for
angiographic imaging to determine whether the infusion has been successful. Even
a single setting thrombolytic procedure on a fresh clot can require the
interventional radiologist to administer the drug for a considerable length of
time. Second, the dissolution of the clot must be complete. An established clot
is resistant to complete dissolution and any residual clot becomes a site for
repropagation of new clot. Third, drug cost must be reduced. The cost of drugs
for a long-term thrombolytic infusion lasting several days is thousands of
dollars.
In August 1997, MTI began marketing the Cragg Thrombolytic Brush for use
in hemodialysis access grafts. This product addresses the clinical issues that
remain in standard thrombolysis. The Cragg Thrombolytic Brush was designed for
rapid interventional clot disruption and dissolution through mechanical mixing
of a thrombolytic drug with the blood clot. In February 1998, the Company began
marketing the next generation of the Thrombolytic Brush, called the Castaneda
Over The Wire Brush, which the Company believes further improves vascular access
and ease of use. Future studies using this design may include clinical
evaluation in other applications, including native vessels and additional
peripheral grafts.
The Company's peripheral blood clot therapy products have received
regulatory marketing clearances in the United States, the European Union, Japan
and other countries. These products are marketed in the United States under a
distribution agreement with Abbott Laboratories ("Abbott"), in Japan under a
distribution agreement with Century Medical, Inc. ("Century") and in other
countries through independent distributors. See "Business--Sales and Marketing."
SALES AND MARKETING
The primary users of the Company's products are interventional
radiologists and neuroradiologists. The Company estimates that approximately
2,000 hospitals in the United States perform interventional radiology procedures
and an estimated 250 institutions provide some neuro vascular and peripheral
vascular therapy.
Since inception, the Company's practice has been to establish and
maintain relationships with key interventional radiologists and
neuroradiologists. To achieve such relationships, the Company has had direct
sales representatives covering the United States. In August 1998, the Company
entered into a Distribution Agreement with Abbott, which required that the
Company's sales force transition the Company's relationships with interventional
radiologists to Abbott. The Company's obligation to work on such a transition
with Abbott has ended and the Company has redirected the efforts of its
remaining direct sales force toward expanding the relationships it has formed in
the neuroradiology marketplace.
The distribution agreement with Abbott provides Abbott exclusive rights
to distribute the Company's peripheral blood clot therapy products in the U.S.
and Canada. The term of the agreement runs through the end of 2008. It may be
extended by mutual agreement, or by Abbott upon Abbott's attainment of forecast
sales levels, the determination of which is defined in the agreement, in any
three years within defined five-year periods in which the agreement is in force.
Abbott may terminate the agreement upon 180 days written notice, and the Company
may terminate the agreement if Abbott fails to attain the forecast sales levels
discussed above in at least three years within defined five-year periods in
which the agreement is in force, or if the parties reach an impasse in
determining such sales levels. The agreement is also terminable by the Company's
successor in the event of a change of control of the Company. In such event,
Abbott has the option to purchase the peripheral blood clot therapy line of
business at a mutually agreed-upon price, or the Company's successor may pay a
termination fee based upon Abbott's historical sales levels as defined in the
agreement. Sales to Abbott under this agreement accounted for 62% of total sales
for the year ended December 31, 1999. Although the Company expects the sales
under this agreement, as a percentage of total revenues, to decrease in 2000,
the Company believes that sales under this agreement will continue to be a
material component of total revenues.
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The Company has established international distribution arrangements,
focused on the introduction and market penetration of peripheral vascular
products, in most parts of Europe, Scandinavia, Latin America, Australia and New
Zealand through a network of specialty medical device distributors.
On November 17, 1997, the Company entered into a distribution agreement
with Guidant Corporation ("Guidant"), which provides for European distribution
of the Company's neuro products, and, in August 1998, the agreement was expanded
to include future peripheral embolization products utilizing the Onyx LES. The
distribution agreement has a five-year term, which commence upon the first
commercial sale of such products in 1999, and may be canceled by the Company
upon a sale of substantially all of the Company's assets or change in control of
the Company. In such event, the cancellation penalty to be paid to the
distributor is the greater of $1 million or an amount based on the distributor's
gross profit, as defined in the distribution agreement.
On September 23, 1998, the Company entered into a distribution agreement
with Century Medical, Inc. ("Century"), that provides Century with exclusive
rights to distribute all of the Company's products in Japan. The initial term of
the agreement extends five years past the date on which the first regulatory
approval is obtained for an application using the Onyx LES. The agreement may be
extended for additional five-year terms either automatically, unless terminated
for reasons described below, or by mutual agreement. The agreement may be
terminated by the Company if Century fails to achieve certain sales levels, as
defined in the agreement, in at least three of any five consecutive years in
which the agreement is in force, or if the parties reach an impasse in defining
such sales levels. The agreement is also terminable by the Company's successor
in the event of a change of control of the Company upon payment by the Company's
successor of a termination fee based on Century's historical gross profit, as
defined in the agreement.
RESEARCH AND DEVELOPMENT
For the years ended December 31, 1998 and 1999, the Company's research
and development expenses amounted to $3,865,000 and $5,745,000, respectively.
The Company is directing its research efforts towards development of products
which expand the therapeutic alternatives available to interventional
radiologists and interventional neuroradiologists for treatment of vascular
disease.
The Company believes that the Onyx LES has utility for a variety of
procedures throughout the vascular system, including embolization of AVMs,
hypervascular tumors and aneurysms. The Company has successfully performed
studies on representative animal models in each of these areas. The neuro AVM
application has received regulatory clearance for marketing in Europe, and the
Company anticipates commencing clinical testing for this application in the
United States during 2000. The tumor application is being tested in the clinical
setting, and the Company anticipates the neuro aneurysm program to transition
from the human feasibility studies currently underway to the clinical setting
during 2000. In addition, the Company has filed patents related to certain
non-vascular applications of the Onyx LES which have been cross-licensed to
entities in which the Company has a minority equity interest.
During 1999, the Company initiated and continued several programs to
design and develop additional access and delivery devices, specifically, micro
catheters, guidewires and balloon systems, both as part of the Onyx LES program
and as general purpose devices.
All of these research efforts are at an early stage, and there can be no
assurance that any products will be successfully developed from them, receive
regulatory approvals, be capable of being manufactured cost-effectively, be
successfully introduced or receive market acceptance. See "Certain Factors That
May Affect the Company's Business and Future Results" for additional information
regarding risks generally applicable to development of new products.
During 1999, the Company was issued five additional patents in the
United States, increasing the total such patents issued to the Company to
twenty-nine. The majority of the newly-issued patents related to neuro
catheters, liquid embolic agents and stents. The number of pending and
in-process applications increased commensurately during 1999.
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The Company's research and development staff consists of seventeen
full-time engineers, technicians and regulatory personnel, and several clinical
and technical consultants, all of whom have substantial experience in medical
device development. The Company's product development process incorporates teams
organized around each of the Company's core technologies or product groups, with
each team having representatives from marketing, regulatory and clinical
affairs, manufacturing and finance. Consultants are utilized where additional
specialized expertise is required.
MANUFACTURING
The Company manufactures its proprietary products in a controlled
environment setting at its facilities in Irvine, California, which it has
occupied since December 1998. Prior to that date, the Company's facilities were
located in San Clemente, California. The Company has implemented quality control
systems as part of its manufacturing process, which comply with U.S. Quality
System Regulations ("QSR") requirements. The Company has also been inspected by
the California Department of Health Services ("CDHS") and is registered with the
State of California to manufacture its medical devices. The Company believes
that it is in compliance with FDA QSR for medical devices. There can be no
assurance, however, that the Company will remain in compliance with QSR. Failure
to do so could have a material adverse effect on the Company's business,
operating results and financial condition.
The European Union has promulgated rules which require that medical
products receive the right to affix the CE Mark, an international symbol of
adherence to quality assurance standards. ISO 9001/EN 46001 certification is one
of the CE Mark certification requirements. In order to obtain the right to affix
the CE Mark to its products, the Company needs to obtain certification that its
processes meet the ISO 9001/EN 46001 quality standards and applicable medical
device directives promulgated by the European Union. Such certification has been
obtained by the Company with respect to its peripheral vascular blood clot
therapy, micro catheter, access and delivery products, and, thus, the Company
currently has the right to affix the CE Mark to such products. However, this
certification is reviewed on an annual basis, and there can be no assurance that
such right to affix the CE Mark will be retained by the Company in the future.
The Company has developed the necessary capabilities for manufacturing,
assembling, packaging and testing the products it currently markets, and for
developing such processes with respect to products currently under development.
Certain of these capabilities involve proprietary know-how. An endhole infusion
wire and certain accessories are manufactured for the Company on an OEM basis;
all other fabrication and assembly operations are performed in the Company's
manufacturing facilities. The Company uses outside contractors for molding,
sterilization, and other common technologies. Vertical integration occurs as
necessary or appropriate to meet the Company's production, quality and
profitability objectives.
Raw materials are purchased from various qualified vendors, subjected to
stringent quality specifications and assembled by the Company into final
products. The Company routinely conducts quality audits of suppliers and has a
vendor qualification program. Certain products are obtained by the Company from
single source suppliers. However, the Company believes that alternative
suppliers are available for its raw materials and other product components and
plans to qualify additional suppliers as sales volume warrants. Although the
Company intends to maintain sufficient levels of inventory to avoid any material
disruption resulting from increased manufacturing, there can be no assurance
that the Company will be able to manufacture and supply products to meet
potential demand.
COMPETITION
The medical device industry is characterized by rapidly evolving
technologies and significant competition. The Company expects competition in the
interventional radiology and interventional neuroradiology markets to increase
substantially. The Company believes that interventional procedures with products
like its own are substantially less costly than highly invasive surgical
procedures and may ultimately replace these procedures in certain applications.
In certain cases, the Company's products may be used in conjunction with
traditional surgical techniques.
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The Company competes primarily with other producers of embolic material
and devices, and catheter and wire based products for interventional treatment
of neuro vascular and peripheral vascular disease. In neuro vascular
interventional applications, the Target Therapeutics division of Boston
Scientific, Inc. is the market leader. The Company expects to compete against
Target Therapeutics and other entrants in the neuro vascular interventional
market including the Cordis, Inc. subsidiary of Johnson & Johnson. In peripheral
blood clot therapy applications the Company competes with Arrow International,
Inc., the MediTech and Target Therapeutics divisions of Boston Scientific, Inc.,
Cook, Inc., and the AngioDynamics division of E-Z-EM Corporation. All of these
companies have significantly greater financial, manufacturing, marketing,
distribution and technical resources, name recognition and experience than the
Company. There can be no assurance that the Company's competitors will not
succeed in developing technologies and products that are more effective than
those developed by the Company or that would render the Company's products
obsolete or noncompetitive. Additionally, there can be no assurance that the
Company will be able to compete effectively against such competitors based on
its ability to manufacture, market and sell its products.
The length of time required for product development and regulatory
approval plays an important role in a company's competitive position.
Consequently, the Company's success will depend in part on its ability to
respond quickly to medical and technological changes through the development,
clinical evaluation and commercialization of new products. Product development
involves a high degree of risk and there can be no assurance that the Company's
research and development efforts will result in commercially successful
products.
MEDICAL ADVISORY CONSULTANTS
The Company has consulting agreements with selected physicians who
advises it on medical matters in areas of the Company's business. Such
physicians are specialists in vascular disease diagnosis and therapy in
interventional radiology and interventional neuroradiology. The Company consults
with such physicians on an as-needed basis regarding the Company's research and
development, preclinical trials and clinical trials.
The consultants have entered into consulting agreements with the
Company. These agreements generally provide that all inventions conceived by
such consultants in the course of rendering service to the Company are the
exclusive property of the Company. These agreements further provide that
performance of such agreements will not conflict with any individual
consultant's obligation to maintain the secrecy of confidential information of
any third parties and that all confidential information developed or made known
to such consultants by the Company during the course of such relationships with
the Company is to be kept confidential and not disclosed to third parties.
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Certain of the consultants have been granted options to purchase shares
of the Company's Common Stock for their services and are reimbursed for
reasonable expenses, but receive no other compensation. Dr. Cragg is not an
option holder but does receive compensation and holds a significant number of
shares of the Company's Common Stock. All of the consultants are either
self-employed or employed by employers other than the Company and may have
commitments to, or consulting or advisory agreements with, other entities,
including potential competitors of the Company, that may limit their
availability to the Company. Although these consultants may contribute
significantly to the affairs of the Company, none, other than Dr. Cragg, is
expected to devote more than a small portion of his time to the Company.
PATENTS AND PROPRIETARY RIGHTS
The Company's policy is to aggressively protect its proprietary position
by, among other things, filing U.S. and foreign patent applications to protect
technology, inventions and improvements that are important to the development of
its business. The Company's strategy includes extending the patent protection of
its licensed technology by filing procedure-specific method patents wherever
possible for the use of the Company's products in new clinical applications.
As of March 1, 2000, the Company held thirty-three issued U.S. patents,
one issued foreign patent and has thirty-six U.S. and thirty-one foreign patent
applications pending. The Company's issued U.S. patents cover technology
underlying the LES (including both liquid embolic biomaterials as well as access
and delivery micro catheters), carotid and intra-cerebral stents, coatings, the
Cragg MicroValve, infusion wires, and the Cragg Thrombolytic Brush. The
expiration dates of these patents range from 2009 to 2018. The pending claims
cover additional aspects of liquid embolic material, access and microcatheter
delivery devices, carotid and intra-cerebral stent technologies, non-vascular
liquid embolic products, infusion catheters, infusion wires, and the
Thrombolytic Brush.
Although the Company aggressively works to protect its technology, no
assurance can be given that any patents from pending patent applications or from
any future patent applications will be issued, that the scope of any patent
protection will exclude competitors or provide competitive advantages to the
Company, that any of the Company's patents will be held valid if subsequently
challenged or that others will not claim rights in or ownership of the patents
and other proprietary rights held by the Company. Furthermore, there can be no
assurance that others have not developed or will not develop similar products,
duplicate any of the Company's products or design around the Company's patents.
In addition, others may hold or receive patents or file patent applications
which contain claims having a scope that covers products developed by the
Company.
The medical device industry has been characterized by extensive
litigation regarding patents and other intellectual property rights, and many
companies in the industry have employed intellectual property litigation to gain
a competitive advantage. There can be no assurance that the Company will not
become subject to patent infringement litigation or an interference proceeding
declared by the U.S. Patent and Trademark Office ("PTO") to determine the
priority of inventions. The defense and prosecution of patent suits, PTO
interference proceedings and related legal and administrative proceedings are
both costly and time consuming. Litigation may be necessary to enforce patents
issued to the Company, to protect the Company's trade secrets or know-how or to
determine the enforceability, scope and validity of the proprietary rights of
others.
Any litigation or interference proceedings involving the Company would
result in substantial expense to the Company and significant diversion of effort
by the Company's technical and management personnel. An adverse determination in
litigation or interference proceedings to which the Company may become a party
could subject the Company to significant liabilities to third parties or require
the Company to seek licenses from third parties. Although patent and
intellectual property disputes in the medical device area have often been
settled through licensing or similar arrangements, costs associated with such
arrangements may be substantial and could include ongoing royalties.
Furthermore, there can be no assurance that necessary licenses would be
available to the Company on satisfactory terms, if at all. Adverse
determinations in a judicial or administrative proceeding or failure to obtain
necessary licenses could prevent the Company from manufacturing and selling its
products, which would have a material adverse effect on the Company's business,
operating results and financial condition.
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In addition to patents, the Company relies on trade secrets and
proprietary know-how to compete, which it seeks to protect, in part, through
appropriate confidentiality and proprietary information agreements. These
agreements generally provide that all confidential information developed or made
known to individuals by the Company during the course of the relationship with
the Company is to be kept confidential and not disclosed to third parties,
except in specific circumstances. The agreements also generally provide that all
inventions conceived by the individual in the course of rendering service to the
Company shall be the exclusive property of the Company. There can be no
assurance that proprietary information or confidentiality agreements with
employees, consultants and others will not be breached, that the Company will
have adequate remedies for any breach, or that the Company's trade secrets will
not otherwise become known to or independently developed by competitors.
GOVERNMENT REGULATION
United States
The research, development, manufacture, labeling, distribution and
marketing of the Company's products are subject to extensive and rigorous
regulation by the FDA and, to varying degrees, by state and foreign regulatory
agencies. The Company's products are regulated in the United States as medical
devices by the FDA under the Federal Food, Drug, and Cosmetic Act (the "FDC
Act") and require clearance or approval by the FDA prior to commercialization.
In addition, significant changes or modifications to medical devices also are
subject to regulatory review and clearance or approval. Under the FDC Act, the
FDA regulates the research, clinical testing, manufacturing, safety, labeling,
storage, record keeping, advertising, distribution, sale and promotion of
medical devices in the United States. The testing for, and preparation and
subsequent review of, applications by the FDA and foreign regulatory authorities
is expensive, lengthy and uncertain. Noncompliance with applicable requirements
can result in, among other things, warning letters, proceedings to detain
imported products, fines, injunctions, civil and criminal penalties against the
Company, its officers and its employees, recall or seizure of products, total or
partial suspension of production, refusal of the government to grant premarket
clearance or premarket approval for devices, withdrawal of marketing approvals
and a recommendation by the FDA that the Company not be permitted to enter into
government contracts.
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 necessary by
the FDA to reasonably assure the devices' safety and efficacy. Under FDA
regulations, Class I devices are subject to general controls (for example,
labeling, premarket notification and adherence to QSRs) and Class II devices are
subject to general and special controls (for example, performance standards,
postmarket surveillance, patient registries, and FDA guidelines). Generally,
Class III devices are those that must receive premarket approval ("PMA") by the
FDA to ensure their safety and efficacy (for example, life-sustaining,
life-supporting and implantable devices, or new devices that have not been found
substantially equivalent to legally marketed Class I, Class II or pre-amendments
Class III devices).
The FDA also has the authority to require clinical testing of certain
medical devices as part of the clearance or approval process. If clinical
testing of a device is required and if the device presents a "significant risk,"
an IDE application must be approved prior to commencing clinical trials. The IDE
application must be supported by data, typically including the results of
laboratory and animal testing. If the IDE application is approved by the FDA,
clinical trials may begin at a specific number of investigational sites with a
maximum number of patients, as approved by the agency. Sponsors of clinical
trials are permitted to sell those devices distributed in the course of the
study provided such costs do not exceed recovery of the costs of manufacture,
research, development and handling. The clinical trials must be conducted under
the auspices of investigational sites' institutional review boards pursuant to
FDA regulations.
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) submission or approval of a PMA application. If a medical device
manufacturer or distributor can establish, among other things, that a device is
"substantially equivalent" in intended use and technological characteristics to
a legally marketed Class I or Class II medical device, or to a pre-amendments
Class III medical device for which the FDA has not required a PMA, the
manufacturer or distributor may seek clearance from the FDA to market the device
by filing a 510(k). The 510(k) submission must establish to the satisfaction of
the FDA the claim of substantial equivalence to the predicate device. In recent
years, the FDA has been requiring a more rigorous demonstration of substantial
equivalence, including the requirement for IDE clinical trials.
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Following submission of the 510(k), the manufacturer or distributor may
not place the device into commercial distribution unless and until an order is
issued by the FDA finding the product to be substantially equivalent. In
response to a 510(k), the FDA may declare that the device is substantially
equivalent to another legally marketed device and allow the proposed device to
be marketed in the United States. The FDA, however, may require further
information, including clinical data, to make a determination regarding
substantial equivalence, or may determine that the proposed device is not
substantially equivalent and require a PMA. Such a request for additional
information including clinical trials or a determination that the device is not
substantially equivalent would delay market introduction of the products that
are the subject of the 510(k). It generally takes four to twelve months from the
date of submission to obtain 510(k) clearance, although it may take longer, in
particular if clinical trials are required.
If the manufacturer or distributor cannot establish that a proposed
device is substantially equivalent to a legally marketed Class I or II predicate
device, or to a pre-amendments Class III medical device for which the FDA has
not required a PMA, the manufacturer or distributor must seek premarket approval
of the proposed device through submission of a PMA application. A PMA
application must be supported by extensive data, including laboratory,
preclinical and clinical trial data to prove the safety and efficacy of the
device, as well as extensive manufacturing information. If the FDA determines,
upon initial review, that a submitted PMA application is sufficiently complete
to permit substantive review, the FDA will accept the PMA application for
filing. FDA review of a PMA application generally takes approximately two years
or more from the date of acceptance for filing, but review times vary depending
upon FDA resources and workload demands and the complexity of PMA submissions.
There can be no assurance that the FDA will review and approve the PMA in a
timely manner, if at all. Failure to obtain PMA approvals could have a material
adverse effect on the Company's business, operating results and financial
condition. Additionally, as one of the conditions for approval, the FDA will
inspect the manufacturing establishment at which the subject device will be
manufactured to determine whether the quality control and manufacturing
procedures conform to QSRs. If granted, the PMA approval may include significant
limitations on the indicated uses for which a product may be marketed.
As of February 21, 2000, the Company had received 510(k) clearances for
certain therapeutic indications of its micro catheters, guidewires, balloons and
peripheral vascular blood clot therapy products, which cover over 80 products
offered for market. The Company has made modifications which affect a number of
its products covered under these 510(k) clearances, which modifications, the
Company believes, do not affect the safety and efficacy of the products and
thus, under FDA guidelines, do not require new 510(k) notices. There can be no
assurance, however, that the FDA would agree with any of the Company's
determinations not to submit a new 510(k) notice for any of these changes or
would not require the Company to submit a new 510(k) notice for any of the
changes made to the device. If the FDA requires the Company to submit a new
510(k) notice for any device modification, the Company may be prohibited from
marketing the modified device until the 510(k) notice is cleared by the FDA.
The use of certain materials may require that the device be evaluated as
a drug rather than as a device, and thus the FDA's investigational new drug
("IND") and new drug application ("NDA") regulations would be applicable to the
clinical study and commercialization of the product. Otherwise the product will
be treated as a medical device. The steps required before a drug may be marketed
in the United States include preclinical and laboratory tests, the submission to
the FDA of an application for an IND which must become effective before clinical
trials may commence, adequate and well controlled clinical trials to establish
the safety and efficacy of the drug, the submission to the FDA of an NDA, and
FDA approval of the NDA prior to any commercial sale or shipment of the product.
In January 1996, the Company met with representatives of both the drug and
device divisions of the FDA to discuss their respective new product approval
requirements. Based on the information presented by the Company regarding the
material composition of the LES, the Company believes the LES would be regulated
as a device. There can be no assurance, however, that upon more detailed review
of the LES, the FDA will not at a later date determine that the LES should be
regulated as a drug. Such a change could significantly delay the commercial
availability of the LES and have a material adverse effect on the Company's
business, operating results and financial condition.
There can be no assurance that the Company will be able to obtain
necessary 510(k) clearances or PMA or NDA approvals to market its products for
the intended uses on a timely basis, if at all, and delays in receipt of or
failure to receive such approvals, the loss of previously received approvals, or
failure to comply with existing or future regulatory requirements would have a
material adverse effect on the Company's business, operating results and
financial condition.
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The Company is also required to register as a medical device
manufacturer with the FDA and state agencies, such as the State of California
Department of Health Services ("CDHS") and to list its products with the FDA. As
such, the Company will be inspected by both the FDA and CDHS for compliance with
QSR and other applicable regulations. These regulations require that the Company
manufacture its products and maintain its documents in a prescribed manner. The
Company has not yet been inspected by the FDA for QSR compliance. Pursuant to
the maintenance of the Company's California medical device manufacturing
license, the Company's new facility in Irvine, California was inspected by the
CDHS in January 1999. No significant inspection observations were received.
There can be no assurance, however, that the Company will not be required to
incur significant costs to comply with such laws and regulations now or in the
future or that such laws or regulations will not have a material adverse effect
upon the Company's ability to do business.
The Company is required to provide information to the FDA on death or
serious injuries that its medical devices have allegedly caused or contributed
to, as well as product malfunctions that would likely cause or contribute to
death or serious injury if the malfunction were to recur. In addition, the FDA
strictly prohibits the marketing of approved devices for uses other than those
specifically cleared for marketing by the FDA. If the FDA believes that a
company is not in compliance with the law or regulations, it can institute
proceedings to detain or seize products, issue a recall, enjoin future
violations, and assess civil and criminal penalties against a company, its
officers and its employees. Failure to comply with the regulatory requirements
could have a material adverse effect on the Company's business, operating
results and financial condition.
Labeling and promotional activities are subject to scrutiny by the FDA
and, in certain circumstances, by the Federal Trade Commission. Current FDA
enforcement policy generally prohibits the marketing of approved medical devices
for unapproved uses. The Company is also subject to regulation by the
Occupational Safety and Health Administration and by other government entities.
Regulations regarding the manufacture and sale of the Company's products
are subject to change. The Company cannot predict what impact, if any, such
changes might have on its business, operating results and financial condition.
International
Sales of medical devices outside the United States are subject to
foreign regulatory requirements that vary widely from country to country. The
time required to obtain clearance required by foreign countries may be longer or
shorter than that required for FDA clearance, and requirements for licensing a
product in a foreign country may differ significantly from FDA requirements.
Some countries have historically permitted human studies earlier in the product
development cycle than regulations in the United States permit. Other countries,
such as Japan, have requirements similar to those of the United States. This
disparity in the regulation of medical devices may result in more rapid product
clearance in certain countries than in others.
The Company or its distributors have received registrations and
approvals to market Onyx for the treatment of neuro and peripheral AVMs, and its
micro catheter, access, delivery and peripheral vascular blood clot therapy
products, in most parts of Europe, Scandinavia, Latin America, New Zealand and
Australia.
The European Union has promulgated rules which require that medical
products receive the right to affix the CE Mark, an international symbol of
adherence to quality assurance standards. ISO 9001/EN 46001 certification is one
of the CE Mark certification requirements. In order to obtain the right to affix
the CE Mark to its products, the Company needs to obtain certification that its
processes meet the ISO 9001/EN 46001 quality standards and applicable medical
device directives promulgated by the European Union. Such certification has been
obtained by the Company with respect to its peripheral vascular blood clot
therapy, micro catheter, access and delivery products and, thus, the Company
currently has the right to affix the CE Mark to such products. However, this
certification is reviewed on an annual basis, and there can be no assurance that
such right to affix the CE Mark will be retained by the Company in the future.
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Exports of products subject to the 510(k) notification requirements, but
not yet cleared to market, are permitted without FDA export approval provided
certain requirements are met. Unapproved products subject to the PMA
requirements must receive prior FDA export approval unless they are approved for
use by any member country of the European Union and certain other countries,
including Australia, Canada, Israel, Japan, New Zealand, Switzerland and South
Africa, in which case they can be exported to any country without prior FDA
approval. To obtain FDA export approval, when it is required, certain
requirements must be met and information must be provided to the FDA, including
documentation demonstrating that the product is approved for import into the
country to which it is to be exported and, in some instances, safety data from
animal or human studies. There can be no assurance that the Company will receive
FDA export approval when such approval is necessary, or that countries to which
the devices are to be exported will approve the devices for import. Failure of
the Company to receive import approval from foreign countries, obtain
Certificates for Products for Export, meet FDA's export requirements, or obtain
FDA export approval when required to do so, could have a material adverse effect
on the Company's business, financial condition and results of operations.
THIRD-PARTY REIMBURSEMENT
In the United States, hospitals, catheterization laboratories,
physicians and other healthcare providers that purchase medical devices
generally rely on third-party payors, such as private health insurance plans, to
reimburse all or part of the costs associated with the treatment of patients.
The Company's success will depend upon, among other things, its
customer's ability to obtain satisfactory reimbursement from healthcare payors
for its products. Reimbursement in the United States for the Company's micro
catheter, access, delivery and peripheral blood clot therapy products is
currently available under existing procedure codes from most third-party payors,
including most major private health care insurance plans, Medicare and Medicaid.
The Company believes that procedures using products such as the Onyx LES may be
reimbursed in the United States under existing procedure codes should such
products receive FDA clearance or approval, of which there is no assurance.
However, third-party reimbursement for these products will be dependent upon
decisions by individual health maintenance organizations, private insurers and
other payors, and there can be no assurance that such procedure codes will
remain available or that the reimbursement under these codes will be adequate.
Given the efforts to control and decrease health care costs in recent years,
there can be no assurance that any reimbursement will be sufficient to permit
the Company to achieve or maintain profitability.
Reimbursement systems in international markets vary significantly by
country, and by region within some countries, and reimbursement approvals must
be obtained on a country-by-country basis. Many international markets have
government-managed health care systems that govern reimbursement for new devices
and procedures. In most markets, there are private insurance systems as well as
government-managed systems. Large-scale market acceptance of the Company's
products will depend on the availability and level of reimbursement in
international markets targeted by the Company. The Company has been informed by
its international distributors that its currently-marketed peripheral blood clot
therapy, micro catheter, access and delivery products have been approved for
reimbursement in countries in which the Company markets such products. Obtaining
reimbursement approvals can require 12-18 months or longer. There can be no
assurance that the Company will, in the future, obtain reimbursement in any
country within a particular time, for a particular amount, or at all. Failure to
obtain such approvals could have a material adverse effect on the Company's
sales, business, operating results and financial condition.
Regardless of the type of reimbursement system, the Company believes
that physician advocacy of its products will be required to obtain
reimbursement. Availability of reimbursement will depend on the clinical
efficacy and cost of the Company's products. There can be no assurance that
reimbursement for the Company's products will be available in the United States
or in international markets under either government or private reimbursement
systems, or that physicians will support and advocate reimbursement for use of
the Company's systems for all uses intended by the Company. Failure by
physicians, hospitals and other users of the Company's products to obtain
sufficient reimbursement from health care payors or adverse changes in
government and private third-party payors' policies toward reimbursement for
procedures employing the Company's products would have a material adverse effect
on the Company's business, operating results and financial condition.
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PRODUCT LIABILITY AND INSURANCE
The Company's business involves an inherent risk of exposure to product
liability claims. The risk of such claims has increased in light of a U.S.
Supreme Court decision in 1996 concluding that the FDA regulatory framework does
not necessarily preempt personal injury actions against medical device
manufacturers. Although the Company has not experienced any product liability
claims to date, there can be no assurance that the Company will be able to avoid
significant product liability claims and potential related adverse publicity.
The Company maintains product liability insurance with coverage limits of $10
million per occurrence and an annual aggregate maximum of $10 million, which the
Company believes is comparable to that maintained by other companies of similar
size serving similar markets. However, there can be no assurance that product
liability claims will not exceed such insurance coverage limits, which could
have a material adverse effect on the Company, or that such insurance will
continue to be available on commercially reasonable terms, or at all.
CERTAIN FACTORS THAT MAY AFFECT OUR BUSINESS AND FUTURE RESULTS
Some of the information included herein contains forward-looking
statements. These statements can be identified by the use of forward-looking
terms such as "may," "will," "expect," "anticipate," "estimate," "continue," or
other similar words. These statements discuss future expectations, projections
or results of operations or of financial condition or state other
"forward-looking" information. When considering these forward-looking
statements, you should keep in mind the risk factors and other cautionary
statements we make. These risk factors could cause our actual results to differ
materially from those contained in any forward-looking statement. If any of the
following risks actually occur, our business could be harmed and the trading
price of our common stock could decline.
Many of our products are in developmental stages and may not
successfully come to market. We have only recently introduced a number of
products commercially. Several of our key products, particularly those relating
to the Onyx Liquid Embolic System, are in the early stage of development. In
some cases, these products either have not entered full clinical trials or have
only recently done so. Our ability to market these products will depend upon a
number of factors, including our ability to demonstrate the safety and efficacy
of our products in the clinical setting. Our products may not be found to be
safe and effective in clinical trials and may not ultimately be cleared for
marketing by U.S. or foreign regulatory authorities. Our failure to develop safe
and effective products which are approved for sale on a timely basis would have
a negative impact on our business.
Our products may not be accepted by the market. Even if we are
successful in developing additional safe and effective products that have
received marketing clearance, our new products may not gain market acceptance.
In order for our Onyx Liquid Embolic System to be accepted, we must address the
needs of potential customers. The target customers for our products are
interventional radiologists and interventional neuroradiologists. However, even
if our products are accepted by these targeted customers, this acceptance may
not translate into sales. Additionally, our market share for our existing
products may not grow, and our products which have yet to be introduced may not
be accepted in the market.
New products and technologies in the market could create additional
competition. The markets in which we compete involve rapidly changing
technologies and new product introductions and enhancements. We must enhance and
expand the utility of our products, and develop and introduce innovative new
products that gain market acceptance. New technologies, products or drug
therapies developed by others could reduce the demand for our products. We may
encounter technical problems in connection with our own product development that
could delay introduction of new products or product enhancements. While we
maintain research and development programs to continually improve our product
offerings, including adding interventional devices, our efforts may not be
successful, and other companies could develop and commercialize products based
on new technologies that are superior to our products either in performance or
cost-effectiveness.
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<PAGE> 19
We face intense competition from many large companies. The medical
technology industry is intensely competitive. Our products compete with other
medical devices, surgical procedures and pharmaceutical products. A number of
the companies in the medical technology industry, including manufacturers of
neuro vascular and peripheral vascular products, have substantially greater
capital resources, larger customer bases, broader product lines, greater
marketing and management resources, larger research and development staffs and
larger facilities than ours. These competitors have developed and may continue
to develop products that are competitive with ours. They may develop and market
technologies and products that are more readily accepted than ours. Their
products could make our technology and products obsolete or noncompetitive.
Although we believe that our products may offer certain advantages over our
competitors' currently-marketed products, companies entering the market early
often obtain and maintain significant market share relative to those entering
the market later. While we have designed our products to be cost effective and
more efficient than competing technologies, we might not be able to provide
better methods or products at comparable or lower costs.
We also compete with other manufacturers of medical devices for clinical
sites to conduct human trials. If we are not able to locate such clinical sites
on a timely basis, it could hamper our ability to conduct trials of our
products, which may be necessary to obtain required regulatory clearance or
approval.
We have a short operating history, during which time we have not been
profitable. We were incorporated in 1993. To date, our business has generated
limited product sales. From our inception through December 31, 1999, we incurred
cumulative losses of approximately $41 million. We expect additional losses as
we expand our research and development, clinical, regulatory, manufacturing and
marketing efforts. We may not achieve significant sales of our products or
become profitable. We could encounter substantial delays and unexpected expenses
related to the introduction of our current and future products, or our research
and development, clinical, regulatory, manufacturing and marketing efforts. Such
delays or expenses could reduce revenues and have a negative effect on our
business.
We may need additional financing to continue operations. Our operations
to date have consumed substantial amounts of cash, and we expect that this
condition will continue at least into 2002. We believe that our anticipated cash
flow from planned operations and existing capital resources, comprising
primarily the net proceeds from the following should be adequate to satisfy our
capital requirements through 2001:
- - financings preceding and including the initial public offering of our
common stock in February 1997;
- - a convertible subordinated note agreement with Guidant entered into in
November 1997, including $2.5 million we received from Guidant in
exchange for debt and common stock upon the achievement of a milestone
defined in the agreement with Guidant;
- - a convertible subordinated note agreement, credit agreement and
distribution agreement with Abbott entered into in August 1998 and
amended at various dates thereafter;
- - a convertible subordinated note agreement, credit agreement and
distribution agreement with Century entered into in September 1998;
- - an option agreement with Abbott, which option was exercised by us in
November 1999;
- - the sale, in March 2000, by us of 1,600,000 shares of our common stock;
and
- - the interest earned on cash, cash equivalent and short-term investment
balances.
However, it is possible that we will need additional capital before the
end of 2001. Our need for additional financing will depend upon many factors,
including the extent and duration of our future operating losses, the level and
timing of future revenues and expenditures, market acceptance of new products,
the results and scope of ongoing research and development projects, competing
technologies, and market and regulatory developments.
We currently have no other committed external sources of funds. If our
existing resources are insufficient to fund our activities, we will seek to
raise additional funds through public or private financing. However, such
additional financing may not be available on acceptable terms or at all. If we
raise additional funds by issuing equity securities, further dilution to our
existing stockholders may result. If adequate funds are not available to us, our
business may be negatively impacted.
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<PAGE> 20
We depend on patents and proprietary technology. Our success will depend
in part on our ability to:
- - obtain and maintain patent protection for our products;
- - preserve our trade secrets; and
- - operate without infringing the proprietary rights of others.
The patent position of a medical device company may involve complex
legal and factual issues. As of February 21, 2000, we held twenty-nine issued
U.S. patents and one issued foreign patent, and have forty U.S. and thirty-one
foreign patent applications pending. Our issued U.S. patents cover technology
underlying the Onyx Liquid Embolic System (including both liquid embolic
implantables as well as micro catheters, access and delivery devices), carotid
and intra-cerebral stents, coatings, the Cragg MicroValve, infusion wires, and
the Cragg Thrombolytic Brush. The expiration dates of these patents range from
2009 to 2018. The pending claims cover additional aspects of liquid embolic
material, micro catheters, access and delivery devices, carotid and
intra-cerebral stent technologies, non-vascular liquid embolic products,
infusion catheters, infusion wires, and the Thrombolytic Brush. Each product
area we are pursuing is covered by at least two issued patents and, in most
instances, three pending patents. One of the patents we use is currently
licensed by us from Andrew Cragg, M.D.
There is no guarantee that issued patents will provide us significant
proprietary protection, that pending patents will be issued, or that products
incorporating the technology in issued patents or pending applications will be
free of challenge from competitors. It is possible that patents belonging to
competitors will require us to alter our technology and products, pay licensing
fees or cease to market or develop our current or future technology and
products. We also rely on trade secrets to protect our proprietary technology,
it is possible that others will independently develop or otherwise acquire
equivalent technology or that we will be unable to maintain our technology as
trade secrets. In addition, the laws of some foreign countries do not protect
our proprietary rights to the same extent as the laws of the United States. If
we fail to protect our intellectual property rights, there could be a negative
impact on our business.
There has been extensive litigation in the medical device industry
regarding patents and other intellectual property rights. It is possible that
infringement, invalidity, right to use or ownership claims could be asserted
against us in the future. Although patent and intellectual property disputes in
the medical device industry have often been settled through licensing or similar
arrangements, these arrangements can be costly and there can be no assurance
that necessary licenses would be available to us on satisfactory terms or at all
under such circumstances. Accordingly, an adverse determination in a judicial or
administrative proceeding or failure to obtain necessary licenses could prevent
us from manufacturing and selling our products, which would have a material
adverse effect on our business. In addition, if we decide to litigate such
claims, it would be expensive and time consuming and could divert our
management's attention from other matters and could negatively impact our
business regardless of the outcome of the litigation.
We have limited marketing and distribution experience. Our experience in
working with third-party distributors is limited. In November 1997, we executed
a distribution agreement with Guidant to provide for the distribution of our
neuro vascular product in Europe, and, in August 1998, Guidant agreed to expand
this distribution agreement with us to provide for the distribution of our
peripheral embolization applications of the Onyx Liquid Embolic System. We did
not enjoy meaningful revenues under this arrangement until the third quarter of
1999, following the initial regulatory clearance in the European Union to market
the Onyx Liquid Embolic System for the treatment of brain arteriovenous
malformations or "AVMs." In August 1998, we executed a distribution agreement
with Abbott to provide for distribution of our peripheral vascular blood clot
therapy products in the United States and Canada. In September 1998, we executed
a distribution agreement with Century to provide for distribution of all our
products in Japan. We did not enjoy meaningful revenues under the agreement with
Century until the second quarter of 1999, following initial marketing clearance
for certain of our products. There is no guarantee that either Guidant, Abbott
or Century will be able to successfully market our products. Further, there is
no guarantee that Century will be successful in assisting us in obtaining
necessary regulatory approvals in Japan to commence marketing all of our
products.
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<PAGE> 21
Our sales force in the United States consists of three individuals which
we consider an insufficient number to successfully launch products in the United
States. There is competition for sales personnel experienced in interventional
medical device sales, and there can be no assurance that we will be able to
successfully respond to this competition and attract, motivate and retain
qualified sales personnel. We intend to market and sell our products outside the
United States principally through distributors. We believe that we will need to
continue to expand our distributor network or develop our own sales force. Our
ability to market our products in certain areas may depend on strategic
alliances with marketing partners such as Guidant, Abbott and Century. There is
no guarantee that we will be able to enter into distribution agreements other
than the agreements with Guidant, Abbott and Century on acceptable terms or at
all. Also, there can be no assurance that such agreements will be successful in
developing our marketing capabilities or that we will be able to successfully
develop a direct sales force.
We have limited manufacturing experience. Our experience in
manufacturing our products is relatively limited. We have found it necessary to
expand our manufacturing capacity in connection with our continued development
and commercialization of our products We may find it necessary to further expand
our manufacturing capacity in the future. Development and commercialization
requires additional money for facilities, tooling and equipment and for
leasehold improvements. We expect that such expansion would be achieved
utilizing the increased space in our new leased facility, improved efficiencies,
automation and acquisition of additional tooling and equipment. However, we may
not be able to obtain the required funds for expansion of our manufacturing
capacity. Improved efficiencies might not result from such an expansion. Any
delay or inability to expand our manufacturing capacity, including obtaining the
commitment of necessary capital resources could materially adversely affect our
manufacturing ability.
Obtaining approval from governmental agencies is a barrier to the sale
of our products. The development, testing, manufacturing and marketing of our
products in the United States are regulated by the U.S. Food and Drug
Administration as well as various state agencies. The Food and Drug
Administration requires governmental clearance of such products before they are
marketed. The process of obtaining Food and Drug Administration and other
required regulatory clearances is lengthy, expensive and uncertain.
Additionally, if regulatory clearance is granted, it may include significant
limitations on the indicated uses for which a product may be marketed. Failure
to comply with applicable regulatory requirements can result in, among other
things, warning letters, fines, suspensions of approvals, product seizures,
injunctions, recalls of products, operating restrictions and criminal
prosecutions. The restriction, suspension or revocation of regulatory approvals
or any other failure to comply with regulatory approvals or requirements would
have a negative impact on our business.
Before we could offer and sell our current products, we were required to
submit information to the Food and Drug Administration in the form of a 510(k)
pre-market notification in order to substantiate label claims and to demonstrate
"substantial equivalence" of our products to a legally marketed Class I or II
medical device or a pre-amendments Class III medical device for which the Food
and Drug Administration had not called for premarket approvals. Although we
received Food and Drug Administration clearance for many of these products, we
may not be able to obtain the necessary regulatory clearance for the manufacture
and marketing of enhancements to our existing products or future products either
in the United States or in foreign markets. We have made modifications which
affect substantially all of our products covered under 510(k) clearances. We
believe that these modifications do not affect the safety or efficacy of the
products and thus, under Food and Drug Administration guidelines, do not require
the submission of new 510(k) notices. However, the Food and Drug Administration
may not agree with any of our determinations that a new 510(k) notice was not
required for such changes and could require us to submit a new 510(k) notice for
any of the changes made to a device. If the Food and Drug Administration
requires us to submit a new 510(k) notice for any device modification, we may be
prohibited from marketing the modified device until the 510(k) notice is cleared
by the Food and Drug Administration.
Before we can commercially market our Onyx Liquid Embolic System, we may
be required to submit one or more premarket approval applications to the Food
and Drug Administration. This generally involves a substantially longer and less
certain review process than that of a 510(k) pre-market notification. In either
event, such approvals or clearances may require human clinical testing prior to
any action by the Food and Drug Administration. Based on the information
regarding the material composition of Onyx, we believe the Onyx Liquid Embolic
System would be regulated as a device. However, the Food and Drug Administration
could at a later date determine that the Onyx Liquid Embolic System should be
regulated as a drug. Such a change could significantly delay the commercial
availability of the Onyx Liquid Embolic System and have a material adverse
effect our business. Delays in receipt of, failure to receive, or loss of
regulatory approvals or clearances to market our products would negatively
impact our ability to market these products.
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<PAGE> 22
In the European Union, we will be required to maintain the
certifications we have obtained which are necessary to affix the CE Mark to our
applicable products. We will have to obtain additional certifications with
respect to affixing the CE Mark to our new products, in order to sell them in
member countries of the European Union. We have received CE Mark certifications
with respect to our currently marketed peripheral blood clot therapy products,
micro catheters, guidewires, balloon systems, and the peripheral vascular and
brain AVM embolization applications of the Onyx Liquid Embolic System, the first
Onyx Liquid Embolic System applications to receive the CE Mark. We anticipate
obtaining certifications with respect to certain additional application of the
Onyx Liquid Embolic System. However, such certifications may be dependent upon
successful completion of clinical studies. These clinical studies may not be
successfully completed and we may not be able to obtain the required
certifications. Additionally, we may not be able to maintain our existing
certifications. In addition, federal, state, local and international government
regulations regarding the manufacture and sale of health care products and
diagnostic devices are subject to future change, and additional regulations may
be adopted.
Commercial distribution and clinical trials in most foreign countries
also are subject to varying government regulations which may delay or restrict
marketing of our products.
Manufacturers of medical devices for marketing in the United States are
required to adhere to applicable regulations setting forth detailed Quality
System Requirements, which include development, testing, control and
documentation requirements. Our manufacturing processes also are subject to
stringent federal, state and local regulations governing the use, generation,
manufacture, storage, handling and disposal of certain materials and wastes.
Although we believe that we have complied in all material respects with such
laws and regulations, there are periodic inspections to ensure our compliance.
It is possible that we could be required to incur significant costs in the
future in complying with manufacturing and environmental regulations, or that we
could be required to cease operations in the event of any continued failure to
comply.
We are exposed to product liability claims. The nature of our business
exposes us to risk from product liability claims. The risk of such claims has
increased in light of a U.S. Supreme Court decision in 1996 concluding that the
Food and Drug Administration regulatory framework does not necessarily preempt
personal injury actions against medical device manufacturers. We currently
maintain product liability insurance for our products, with limits of $10
million per occurrence and an annual aggregate maximum of $10 million. However,
our insurance may not be adequate to cover future product liability claims.
Additionally, we may not be able to maintain adequate product liability
insurance at acceptable rates. Any losses that we may suffer from any liability
claims, and the effect that any product liability litigation may have upon the
reputation and marketability of our products may divert management's attention
from other matters and may have a negative effect on our business.
We are dependent on single-source suppliers and independent contract
manufacturers. We purchase some components and services used in connection with
our products from third parties. Our dependence on third-party suppliers
involves several risks, including limited control over pricing, availability,
quality and delivery schedules. Delays in delivery or services or component
shortages can cause delays in the shipment of our products. Our single-source
components are generally acquired through purchase orders placed in the ordinary
course of business, and we have no guaranteed supply arrangements with any of
our single-source suppliers. Because of our reliance on these vendors, we may
also be subject to increases in component costs. It is possible that we could
experience quality control problems, supply shortages or price increases with
respect to one or more of these components in the future. If we need to
establish additional or replacement suppliers for some of these components, our
access to the components might be delayed while we qualify such suppliers. Any
quality control problems, interruptions in supply or component price increases
with respect to one or more components could have a negative impact on our
business.
We rely on independent contract manufacturers to produce some of our
products and components. This involves several risks, including:
- - inadequate capacity of the manufacturer's facilities;
- - interruptions in access to certain process technologies; and
- - reduced control over product quality, delivery schedules, manufacturing
yields and costs.
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Independent manufacturers have possession of and in some cases hold
title to molds for certain manufactured components of our products. Shortages of
raw materials, production capacity constraints or delays by our contract
manufacturers could negatively affect our ability to meet our production
obligations and result in increased prices for affected parts. Any such
reduction, constraint or delay may result in delays in shipments of our products
or increases in the prices of components, either of which could have a material
adverse effect on our business.
We do not have supply agreements with all of our current contract
manufacturers and we often utilize purchase orders which are subject to
acceptance by the supplier. An unanticipated loss of any of our contract
manufacturers could cause delays in our ability to deliver our products while we
identify and qualify a replacement manufacturer.
We depend upon key personnel. We significantly depend upon the
contributions, experience and expertise of our founders, certain members of our
management team and key consultants. We maintain a key-man life insurance policy
in the amount of $1 million on the life of George Wallace, our President and
Chief Executive Officer. This insurance may not be adequate to cover the risk
involved. Additionally, our success will depend upon our ability to attract and
retain additional highly qualified management, sales, technical, clinical and
consulting personnel.
We depend upon third-party reimbursement for some of our revenues. In
the United States, health care providers such as hospitals and physicians that
purchase medical devices generally rely on third-parties, principally federal
Medicare, state Medicaid and private health insurance plans, to reimburse all or
part of the cost of therapeutic and diagnostic procedures. With the
implementation of Medicare's Prospective Payment System for hospital inpatient
care (Diagnosis Related Groups or "DRGs") in the 1980s, public and private
payors began to reimburse providers on a fixed payment schedule for patients
depending on the nature and severity of the illness. Many tests and procedures
that would have been performed under cost-plus reimbursement formulas are
subject to scrutiny and must be justified in terms of their impact on patient
outcomes. As a result, there is an incentive to conduct only those tests that
will optimize cost-effective care.
Changes in reimbursement policies of governmental (both domestic and
international) or private healthcare payors could negatively impact our business
to the extent any such changes affect reimbursement for procedures in which our
products are used.
We may not be able to expand our international sales. Currently, most of
our revenues are not derived from international sales. We believe that our
future performance will be dependent in part upon our ability to increase
international sales. Although the perceived demand for certain products may be
lower outside the United States, we intend to continue to expand our
international operations and to enter additional international markets, which
will require significant management attention and financial resources. There is
no guarantee however, that we will be able to successfully expand our
international sales. Our success in international markets will depend on our
ability to establish and maintain agreements with suitable distributors, or
establish a direct sales presence.
International sales are subject to inherent risks, including unexpected
changes in regulatory requirements, fluctuating exchange rates, difficulties in
staffing and managing foreign sales and support operations, additional working
capital requirements, customs, duties, tariff regulations, export license
requirements, political and economic instability, potentially limited
intellectual property protection and difficulties with distributors. In
addition, sales and distribution of our products outside the United States are
subject to extensive foreign government regulation. We have in the past avoided
losses due to fluctuating exchange rates associated with international sales by
selling our products in U.S. dollars. However, we hope to sell products in some
markets in local currency, which would subject us to currency exchange risks.
Large-scale market acceptance of our products will depend on the
availability and level of reimbursement in international markets that we target.
Reimbursement systems in international markets vary significantly by country,
and by region within some countries, and reimbursement approvals must be
obtained on a country-by-country basis. Many international markets have
government managed health care systems that govern reimbursement for new devices
and procedures. In most markets, there are private insurance systems as well as
government-managed systems. Obtaining reimbursement approvals in each country
can require 12-18 months or longer.
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<PAGE> 24
Provisions in our charter documents may make an acquisition of us more
difficult. Provisions of our Amended and Restated Certificate of Incorporation,
Bylaws and Delaware law could make it more difficult for a third party to
acquire us, even if doing so would be beneficial to stockholders.
Stock prices are particularly volatile in some market sectors. The stock
market sometimes experiences significant price and volume fluctuations that are
unrelated to the operating performance of particular companies. These broad
market fluctuations can cause a decrease in the price of our common stock. The
following factors may have a material adverse effect on the market price of our
common stock:
- - fluctuations in our results of operations;
- - failure of our results of operations to meet the expectations of public
market analysts and investors;
- - timing and announcements of technological innovations or new products by
us or our competitors;
- - Food and Drug Administration and foreign regulatory actions;
- - developments with respect to patents and proprietary rights;
- - timing and announcements of developments, including clinical trials
related to our products;
- - public concern as to the safety of technology and products developed by
us or others;
- - changes in health care policy in the United States and internationally;
- - changes in stock market analyst recommendations regarding Micro
Therapeutics; and
- - the medical device industry generally.
In addition, it is likely that during a future quarterly period, our
results of operations will fail to meet the expectations of stock market
analysts and investors and, in such event, our stock price could materially
decrease.
In April 1999, we were notified by The Nasdaq-Amex Group that we did not
meet the requirements for our common stock to continue to be listed on the
Nasdaq National Market. We held discussions with the holders of our convertible
debt, submitted for Nasdaq's consideration a proposal and definitive plan for
compliance, and in support of such plan, in May 1999 we consummated agreements
with Abbott resulting in the conversion of $10 million of notes held by Abbott
into shares of our common stock. Additionally, the agreements provided us with
an option, which we exercised in November 1999, requiring Abbott to purchase $3
million of our common stock. Nasdaq informed us that it considered our actions
to be sufficient to support continued listing of our common stock on the Nasdaq
National Market. There is no guarantee, however, that we will be able to remain
in compliance with the Nasdaq National Market continued listing requirements.
Should Nasdaq determine in the future that our continued listing is not
supported, our stock price could materially decrease.
EMPLOYEES
At March 9, 2000, the Company had 103 employees, all of whom were
employed on a full-time basis.
ITEM 2. PROPERTIES
The Company occupies a facility of approximately 43,000 square feet
which is located within a multi-tenant building in Irvine, California. The
facility is subject to a lease which expires in September 2003, with two
three-year renewal options. The Company believes that this space is adequate for
its near-term needs.
ITEM 3. LEGAL PROCEEDINGS
The Company is not involved in any litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of 1999.
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<PAGE> 25
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Since February 18, 1997, the Common Stock of Micro Therapeutics, Inc.
("MTI" or the "Company") has traded on the Nasdaq National Market under the
symbol "MTIX." The Company's Common Stock was not traded on the Nasdaq National
Market, or any other exchange, prior to that date.
High and low sales prices for the Company's Common Stock during the
years ended December 31, 1998 and 1999 were as follows:
<TABLE>
<CAPTION>
High Low
<S> <C> <C>
Q1 1998 (January 1 through March 31) $11.3750 $6.2500
Q2 1998 (April 1 through June 30) 11.6875 8.5000
Q3 1998 (July 1 through September 30) 11.2500 5.6875
Q4 1998 (October 1 through December 31) 12.4375 6.1250
Q1 1999 (January 1 through March 31) 10.1250 6.3750
Q2 1999 (April 1 through June 30) 8.8750 6.0000
Q3 1999 (July 1 through September 30) 13.5000 7.3750
Q4 1999 (October 1 through December 31) $12.0000 $6.7500
</TABLE>
As of December 31, 1999, there were 50 stockholders of record of the
Company's Common Stock. The Company estimates that there are currently
approximately 1,200 beneficial owners of its Common Stock. All Preferred Stock
outstanding prior to the Company's initial public offering ("IPO") of its Common
Stock on February 14, 1997 was converted to Common Stock as a result of the IPO.
Accordingly, there is no Preferred Stock outstanding. The Company has not paid
any dividends on its Common Stock since its inception and does not contemplate
or anticipate paying any dividends upon its Common Stock in the foreseeable
future. It is currently anticipated that earnings, if any, will be used to
finance the development and expansion of the Company's business.
RECENT SALES OF UNREGISTERED SECURITIES.
The following is a summary of transactions by the Company during the
past three years, involving sales of the Company's securities that were not
registered under the Securities Act of 1993 (the "Securities Act"):
(1) On November 17, 1997, the Company sold to Guidant a 5% Convertible
Subordinated Note, due October 31, 2002, in the aggregate principal amount of
$5,000,000. The principal balance of the note is convertible at any time at
Guidant's option, in $100,000 increments, into shares of the Company's Common
Stock at a conversion price of $10.25 per share, which conversion price is
subject to adjustment in certain instances.
(2) On May 12, 1998, the Company sold to Guidant (a) an 8% Promissory
Note, due October 31, 2002, in the aggregate principal amount of $2,000,000, and
(b) 47,637 shares of the Company's Common Stock in the aggregate amount of
$500,000.
(3) On August 12, 1998, the Company sold to Abbott a 5% Convertible
Subordinated Note, due August 19, 2003, in the aggregate principal amount of
$5,000,000. The principal balance of the note was convertible at any time at
Abbott's option, into shares of the Company's Common Stock at a conversion price
of $13.00 per share. On May 21, 1999, the Note was converted into shares of the
Company's Common Stock, as described in (6) below.
(4) On November 9, 1998, the Company sold to Abbott a 5% Convertible
Credit Facility Note, due November 9, 2003, in the aggregate principal amount of
$5,000,000. The principal balance of the note was convertible at the Company's
option, subject to certain restrictions, into shares of the Company's Common
Stock at a conversion price of $15.00 per share. On May 21, 1999, the Note was
converted into shares of the Company's Common Stock, as described in (6) below.
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(5) On September 23, 1998 the Company sold to Century a 5% Convertible
Subordinated Note, due September 30, 2003, in the aggregate principal amount of
$3,000,000. The principal balance of the note is convertible at the Company's
option, subject to certain restrictions, into shares of the Company's Common
Stock at a conversion price of $15.00 per share, which conversion price is
subject to adjustment in certain circumstances.
(6) On May 21, 1999, Abbott and the Company amended the terms of the
Convertible Subordinated Note and Credit Facility Note, described respectively
in (3) and (4) above, to reduce the conversion price with respect to (i) $4
million of the principal amount of the Convertible Subordinated Note to
$8.640625 per share of the Company's Common Stock, (ii) the remaining $1 million
principal amount of the Convertible Subordinated Note to $12.00 per share of the
Company's Common Stock, (iii) the entire $5 million principal amount of the
Credit Facility Note to $12.00 per share of the Company's Common Stock.
Concurrently, Abbott converted the aggregate principal amount of the Convertible
Subordinated Note and Credit Facility Note in exchange for 962,328 shares of the
Company's Common Stock.
(7) On May 21, 1999, Abbott and the Company agreed to a Put Option,
under which the Company could require Abbott to purchase shares of the Company's
Common Stock at $12.00 per share, up to an aggregate purchase price of $3
million. On October 26, 1999, the Company exercised its rights under the Put
Option and issued the maximum of 250,000 shares of its Common Stock to Abbott
under the terms of the Put Option Agreement.
(8) On September 28, 1999 the Company sold to Century a 5% Convertible
Subordinated Note, due September 30, 2003, in the aggregate principal amount of
$2,000,000. The principal balance of the note is convertible at the Company's
option, subject to certain restrictions, into shares of the Company's Common
Stock at a conversion price of approximately $16.35 per share, which conversion
price is subject to adjustment in certain circumstances.
(9) On March 10, 2000, the Company sold 1,600,000 shares of its Common
Stock under the terms of a Securities Purchase Agreement to accredited investors
in conformity with Rule 506 under Regulation D at a price of $7.46 per share.
The Company and the investors concurrently entered into a Registration Rights
Agreement, under which the Company has undertaken to register such 1,600,000
shares under the Securities Act within a time frame specified in the
Registration Rights Agreement.
Exemption from the registration requirements of the Securities Act for
the sales of the securities described above was claimed under Section 4(2) of
the Securities Act, among others, on the basis that such transactions did not
involve any public offering and the purchasers were sophisticated with access to
the kind of information registration would provide. No underwriting or broker's
commissions were paid in connection with the foregoing transactions.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Financial
Statements and the related Notes thereto included elsewhere in this Annual
Report on Form 10-KSB. This Annual Report on Form 10-KSB contains
forward-looking statements which involve risks and uncertainties. The Company's
actual results may differ significantly from the results discussed in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed under "Business - Certain Factors That
May Affect the Company's Business and Future Results."
OVERVIEW
Since its inception in June 1993, the Company has been primarily engaged
in the design, development and marketing of minimally invasive devices for
treatment of vascular disease. The Company has a limited history of operations
and has experienced significant operating losses since inception. Operating
losses are expected to continue at least into fiscal 2002 as the Company expends
substantial resources to fund research and development, clinical trials,
regulatory approvals, and marketing and sales activities.
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<PAGE> 27
The Company commenced U.S. commercial shipments of its first
thrombolytic infusion catheters in November 1994, but did not generate
significant revenues until it established a direct domestic sales force in the
second half of 1995. Through the third quarter of 1999, the majority of the
Company's revenues have been derived from sales of its initial infusion
catheters and related accessories, the Cragg Thrombolytic Brush, and the
Castaneda Over The Wire Brush which received FDA approval in February 1998. In
August 1998, the Company entered into a distribution agreement with Abbott which
provides for distribution of such products by Abbott in the United States and
Canada. The Company expects sales, under the distribution agreement with Abbott,
of the products mentioned above, and similar products, to continue to provide a
significant portion of the Company's revenues. The Company currently sells such
products outside the United States and Canada through a limited number of
distributors, however, revenues under these arrangements have not been
significant to date.
In November 1997, the Company signed an agreement with Guidant
Corporation ("Guidant") to distribute the Company's neuro products in Europe
and, in August 1998, that agreement was expanded to include distribution in
Europe of the Company's peripheral embolization products. Until September 1999,
no significant revenues had been received under the Guidant arrangement.
Revenues under the Guidant arrangement are dependent upon the receipt by the
Company of CE Mark certification for applications of the Company's Onyx(TM)
Liquid Embolic System ("LES" (TM)) (formerly marketed as the EMBOLYX(TM) Liquid
Embolic System), and market training and product launch activities are
substantially underway. In April 1999, the Company obtained CE Mark approval for
the peripheral embolization application of the Onyx LES, and the Company is in
the process of accumulating additional clinical data with respect to this
application before commencing market training activities. In July 1999, the
Company received CE Mark approval for the treatment of arteriovenous
malformations ("AVMs") in the brain using the Onyx LES and, accordingly, the
Company initiated market training activities in July 1999, which activities are
currently underway. Product launch activities with respect to the brain AVM
application commenced in September 1999. Additional CE Mark certifications with
respect to the Onyx LES are subject to the successful completion of clinical
trials.
In September 1998, the Company entered into a distribution agreement
with Century Medical, Inc. ("Century") which provides for distribution of all
the Company's products by Century in Japan. Significant revenues are not
expected to be derived from sales in Japan until the Company's products receive
regulatory approval in Japan, the first of which occurred in May 1999 with
respect to peripheral blood clot therapy products, and in September 1999 with
respect to certain access and delivery products. Accordingly, the Company has
not realized significant revenues to date from sales in Japan.
The Company's products are currently manufactured by the Company at its
facility in Irvine, California. Certain accessories are manufactured and
processes are performed by contract manufacturers.
Future revenues and results of operations may fluctuate significantly
from quarter to quarter and will depend upon, among other factors, actions
relating to regulatory and reimbursement matters, the extent to which the
Company's products gain market acceptance, the rate at which the Company, and
third-party distributors, as applicable, establish their domestic and
international sales and distribution networks, the progress of clinical trials,
and the introduction of competitive products for diagnosis and treatment of
neuro and peripheral vascular disease. The Company's limited operating history
makes accurate prediction of future operating results difficult or impossible.
Although the Company has experienced sales growth in certain recent periods,
there can be no assurance that, in the future, the Company will sustain sales
growth or gain profitability on a quarterly or annual basis or that its growth
will be consistent with predictions made by securities analysts.
The Company currently manufactures product for stock and ships product
shortly after the receipt of orders, and anticipates that it will do so in the
future. Accordingly, the Company has not developed a significant backlog and
does not anticipate that it will develop a significant backlog in the near term.
27
<PAGE> 28
RESULTS OF OPERATIONS
Comparison of Fiscal Years Ended December 31, 1998 and December 31, 1999
Following is information with respect to net sales for the years ended
December 31, 1998 and 1999:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1999
---------- ----------
<S> <C> <C>
Peripheral blood clot therapy
United States $4,078,076 $2,540,231
International 86,226 188,395
---------- ----------
Total peripheral blood clot therapy revenues 4,164,302 2,728,626
---------- ----------
Onyx
United States -- 39,974
International -- 159,504
---------- ----------
Total Onyx revenues -- 199,478
---------- ----------
Micro catheter, access and delivery
United States 51,874 490,550
International 33,205 624,000
---------- ----------
Total micro catheter, access and delivery revenues 85,079 1,114,550
---------- ----------
Other
United States -- 53,538
International -- 1,480
---------- ----------
Total other revenues -- 55,018
---------- ----------
Total revenues $4,249,381 $4,097,672
========== ==========
</TABLE>
On August 12, 1998, the Company entered into a ten-year distribution
agreement with Abbott that provides Abbott with exclusive rights to distribute
the Company's peripheral blood clot therapy products in the U.S. and Canada.
Upon shipment of product by the Company to Abbott, the Company receives an
initial purchase price payment from Abbott, as provided in the agreement. Abbott
provides additional purchase price payments to the Company based upon Abbott's
net sales, as defined in the agreement. The Company recognizes as sales the
initial purchase price upon shipment of product to Abbott. The Company
recognizes the additional purchase price upon Abbott's reporting of sales to its
customers. Sales to Abbott constituted 62% of the Company's total sales in 1999,
as compared to 25% of the Company's total sales in 1998. Such sales to Abbott
are made at lower average selling prices per unit relative to the period prior
to August 1998, when sales of peripheral blood clot therapy products in the
United States and Canada were made directly by the Company to end-user
customers. Also, sales during substantially all of 1999 were adversely affected
by manufacturing issues, being addressed by Abbott, related to its thrombolytic
drug, Abbokinase(R), (urokinase for injection). The issues surrounding Abbott's
ability to supply Abbokinase to the blood clot therapy market correspondingly
affected sales of the Company's blood clot therapy products.
In the third quarter of 1999, the Company obtained CE Mark approval to
market the Onyx LES for the treatment of brain AVMs in the European Union.
Accordingly, sales of Onyx substantively commenced in the fourth quarter of
1999.
The increases in sales of micro catheter, access and delivery products
in 1999, relative to 1998, are due primarily to additional products that
received regulatory marketing clearances worldwide during 1999 and to the sale
of such products in connection with sales of the Onyx LES, as discussed above.
Other revenues in 1999 were derived from manufacturing services
performed by the Company for third parties.
28
<PAGE> 29
Cost of sales increased to $2,861,301 for the year ended December 31,
1999 from $2,363,110 for 1998, and increased, as a percentage of sales, from 56%
in 1998 to 70% in 1999. The dollar increase is attributable primarily to an
increase in unit sales volume. The increase in the cost of sales percentage was
due primarily to the lower unit prices the Company receives from Abbott, as
discussed above, net of effects of shipments which substantially commenced
during the third quarter of 1999 of the Company's neuro vascular micro catheter,
access and delivery products, which bear a relatively lower cost of sales
percentage than the peripheral blood clot therapy products that comprised
substantially all of the Company's sales in 1998.
Research and development expenses, including regulatory and clinical
expenses, increased 47% from $5,080,214 in 1998 to $7,458,679 in 1999. This
increase was primarily attributable to a higher level of personnel associated
with the Company's increased research and development activities, including
increased expenditures related to development of the Onyx LES, related clinical
trials, market training and development of access and delivery products. The
Company expects to continue to increase research and development costs for such
activities as discussed above.
Selling, general and administrative expenses decreased 15% from
$6,212,103 in 1998 to $5,250,251 in 1999. This decrease was primarily
attributable to two $500,000 payments from Abbott, received by the Company in
July 1999 and November 1999, as consideration for the continued resource
commitment of the Company's sales representatives during the second and third
quarters of 1999 to the transition of distribution to Abbott and due to the
implementation by the Company of certain cost control initiatives commencing in
the third quarter of 1999.
Net interest and other expense increased from $207,326 in 1998 to
$2,356,710 in 1999. Such increase was due primarily to a non-recurring, non-cash
charge, amounting to $1,651,585, related to the early debt conversion by Abbott
in May 1999, and to higher average debt balances that were outstanding during
1999, relative to 1998.
As a result of the items discussed above, the Company incurred a net
loss of $13,830,069 for the year ended December 31, 1999, compared to $9,906,420
for 1998.
Comparison of Fiscal Years Ended December 31, 1997 and December 31, 1998
Net sales for the year ended December 31, 1998 increased 57% to
$4,249,381 as compared to $2,714,047 for 1997. While almost all the Company's
peripheral vascular therapy product lines experienced increases in sales from
1997 to 1998, the largest such increase was attributable to sales of the Cragg
Thrombolytic Brush and the Castaneda Over The Wire Brush, which were introduced
in August 1997 and February 1998, respectively. A portion of third-quarter 1998
sales, and a substantial portion of fourth quarter 1998 sales were made to
Abbott under the terms of an exclusive distribution agreement with Abbott
entered into in August 1998, discussed above, which resulted in lower average
selling prices per unit relative to all of 1997, during which sales were made
directly by MTI to end-user customers. Sales to Abbott under this agreement
accounted for 25% of total sales for the year ended December 31, 1998.
International sales represented 3% of total sales for each of the years ended
December 31, 1998 and 1997.
Cost of sales increased to $2,363,110 for the year ended December 31,
1998 from $1,948,188 for 1997, and decreased, as a percentage of sales, from 72%
in 1997 to 56% in 1998. The dollar increase is attributable to the increase in
sales volume. The decrease in the cost of sales percentage is due to the
beneficial aspects of the increase in sales volume, and to increased
efficiencies achieved in manufacturing, which allowed the Company to re-deploy
certain individuals to research and development functions starting primarily in
the fourth quarter of 1997.
Research and development expenses, including regulatory and clinical
expenses, increased 19% from $4,273,656 for 1997 to $5,080,214 for 1998. This
increase was primarily attributable to increases in the number of employees
resulting from the aforementioned redeployment of personnel, the hiring of
additional personnel in connection with Company's increased research and
development activities, related relocation and recruiting expenses, increased
expenditures related to development of neuro vascular products and a research
grant.
29
<PAGE> 30
Selling, general and administrative expenses increased 46% from
$4,263,790 in 1997 to $6,212,103 in 1998. This increase was primarily
attributable to sales incentives related to increased revenues, the mid-1997
addition of an Executive Vice President of Marketing and Sales, marketing
studies commissioned by the Company, expenses related to the Company's public
reporting responsibilities, costs related to a contemplated transaction that was
not pursued to finalization, additional employees and related compensation,
relocation and recruiting expenses, and increases in other expenses that were
commensurate with the increased activity level of the Company. The closure of
the Company's European office in the fourth quarter of 1997 resulted in expenses
aggregating $275,000 that were incurred and recognized in 1997, that did not
recur in 1998.
Facility moving costs incurred in the fourth quarter of 1998 amounted to
$292,248 and related to the Company's move to its new facility in Irvine,
California. Such amount included direct costs, as well as accruals for such
items as the write-off of leasehold improvements and the remaining rental
payments related to the former facility.
Other income declined from $529,273 in 1997 to a net expense of $207,326
in 1998, due to the interest expense related to the notes payable that
originated in the fourth quarter of 1997, and the second and third quarters of
1998, and to the inclusion of non-recurring income in 1997 of $167,000, related
to the sale of common stock of a privately held company in which the Company had
held a minority interest.
As a result of the items discussed above, the Company incurred a net
loss of $9.9 million for the year ended December 31, 1998 compared to $7.2
million for 1997.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company's cash expenditures have significantly
exceeded its sales, resulting in an accumulated deficit of approximately $41
million at December 31, 1999. To fund its operations, the Company raised
approximately $15.3 million from the private placement of equity securities, and
completed an initial public offering in February 1997 of 1,840,000 shares of
Common Stock, raising net proceeds of approximately $10 million. Additionally,
in November 1997, the Company received $5 million from Guidant under terms of a
convertible note agreement. In April 1998, the Company achieved a milestone set
forth in the agreement with Guidant, and elected, under the terms of the
agreement, to have Guidant loan the Company $2 million and purchase from it
$500,000 of the Company's common stock at approximately $10.50 per share, the
proceeds from which were received in May 1998.
Concurrent with the execution of the distribution agreement with Abbott
in August 1998, the Company and Abbott entered into convertible subordinated
note, credit and security agreements, under which Abbott provided the Company
with (a) $5 million, in exchange for a five-year subordinated note, convertible
at Abbott's option into shares of the Company's Common Stock at a conversion
rate of $13.00 per share, and (b) a $5 million credit facility, available for
one year from the date of the agreement and repayable five years from the date
of the agreement, with amounts borrowed under the facility convertible over the
five-year life of the underlying note at the Company's option, subject to
certain restrictions, into shares of the Company's Common Stock at a conversion
rate of $15.00 per share. In October 1998, the Company elected to borrow the
entire $5 million under this facility, the proceeds of which were received in
November 1998. Both notes had a stated interest rate of 5% per annum. For
financial statement reporting purposes, this rate was adjusted to reflect an
imputed market rate of interest as of the date of each of the notes.
In April 1999, Abbott and the Company agreed to a modification, and, in
May 1999, the parties consummated such modification, of the agreements described
above. Under the terms of the modification, Abbott converted $4 million face
value of the notes into shares of the Company's Common Stock at a conversion
rate equal to 125% of the average closing price of such stock for the five days
ended April 30, 1999 (amounting to a conversion rate of $8.65 per share), and
converted the remaining $6 million face value of such notes into shares of the
Company's common stock at a rate of $12 per share.
Concurrently in April 1999, Abbott and the Company entered into an
agreement that provided the Company an option to require Abbott to purchase up
to $3 million of the Company's common stock at a price of $12 per share. In
October 1999, the Company exercised such option for the entire $3 million of
proceeds and, accordingly, issued 250,000 shares of its common stock to Abbott
upon the Company's receipt of the proceeds in November 1999.
30
<PAGE> 31
In October 1998, under the terms of the distribution agreement, Abbott
furnished the Company with a non-refundable $1 million marketing payment upon
Abbott's first commercial sale of product. For financial statement purposes,
this payment is being amortized into income on a straight-line basis over the
initial term of the agreement which continues through 2008.
The distribution agreement required the Company to commit the resources
of its sales representatives in the United States and Canada for the first six
months of the agreement to the transition of the distribution function to
Abbott. This six-month period terminated on March 31, 1999. In April 1999 and
August 1999, Abbott agreed to make additional quarterly $500,000 payments to the
Company solely as consideration for the continued resource commitment of the
Company's sales representatives to the transition of distribution to Abbott
during each of the quarters ended June 30, 1999 and September 30, 1999. These
additional payments were received by the Company in July 1999 and November 1999.
Upon shipment of product by the Company to Abbott, the Company receives
an initial purchase price payment from Abbott as provided in the agreement.
Abbott provides additional purchase price payments to the Company based upon
Abbott's net sales, as defined in the agreement.
Concurrent with the execution of the distribution agreement with Century
in September 1998, the Company and Century entered into convertible subordinated
note and credit agreements, under which Century provided the Company with (a) $3
million, in exchange for a five-year subordinated note, convertible at the
Company's option, subject to certain restrictions, into shares of the Company's
common stock at a conversion rate of $15.00 per share, and (b) a $2 million
credit facility. The availability of the credit facility commenced in April
1999, upon the Company obtaining its first CE Mark in Europe for an Onyx-related
application. In September 1999 the Company borrowed the entire $2 million
available under the credit facility in exchange for a note which is repayable
five years from the date of the agreement and is convertible over the five-year
life of the note at the Company's option, subject to certain restrictions, into
shares of the Company's Common Stock at a conversion rate of approximately
$16.35. Both notes have a stated interest rate of 5% per annum. This rate, for
financial statement reporting purposes, has been adjusted to reflect an imputed
market rate of interest as of the dates of the notes.
Under the terms of the distribution agreement, Century made a $500,000
advance payment to the Company on September 30, 1998, which amount is being
applied against Century's purchase orders for the Company's products. The
Company recorded this payment as deferred revenue and recognizes sales revenue
from such amount as the Company makes shipments to Century under such purchase
orders. Upon achievement of the first regulatory approval in Japan for an
application of the Onyx LES, Century, under the terms of the distribution
agreement, will make a $1 million advance payment to the Company, which amount
is to be applied against Century's first future purchase orders for Onyx-related
product.
On March 10, 2000, the Company sold 1,600,000 shares of its Common Stock
under the terms of a Securities Purchase Agreement to accredited investors in
conformity with Rule 506 under Regulation D. The Company and the investors
concurrently entered into a Registration Rights Agreement, under which the
Company has undertaken to register such 1,600,000 shares under the Securities
Act within a time frame specified in the Registration Rights Agreement. Such
shares were sold to the investors at a price of $7.46 per share, which the
Company estimates will result in net proceeds, after payment of offering and
registration expenses, of approximately $11 million.
31
<PAGE> 32
As of December 31, 1999, the Company had cash, cash equivalents and
short-term investments of approximately $9.7 million. Cash used in the Company's
operations for the year ended December 31, 1999 was approximately $12.1 million,
reflecting the loss from operations, increases in inventories, receivables, and
prepaid expenses, and decreases in accounts payable, accrued liabilities and
deferred revenue, net of an increase in accrued salaries and benefits. Cash
provided by investing activities for the year ended December 31, 1999 was
approximately $1.1 million and primarily reflected the maturity of short-term
investments, net of purchases, expenditures for property and equipment
(primarily leasehold improvements for the Company's new facility, furniture and
fixtures, and the license and installation of a new information systems and
related hardware), and for intellectual property. While continued investments
will be made for property and equipment, the components of which are described
above (as regards the Company's compliance with issues related to the Year 2000,
see "Impact of The Year 2000 Issue," below), and for intellectual property, the
Company has no significant capital commitments as of December 31, 1999. Cash
provided by financing activities was approximately $5.4 million, consisting of
net proceeds received by the Company from its borrowing under the credit
agreement with Century, sale of 250,000 shares of Common Stock, under the terms
of a Put Option Agreement, to Abbott, both as discussed above, issuances of
common stock under the Company's Employee Stock Purchase Plan and from the
exercise by employees, directors and consultants of stock options, net of
repayments by the Company on its equipment line of credit.
The Company plans to finance its capital and operational needs
principally from its existing capital resources at December 31, 1999, and the
net proceeds received from the sale of 1,600,000 shares of its Common Stock in
March 2000, discussed above.
The Company believes current resources will be sufficient to fund its
operations through 2001. However, the Company's future liquidity and capital
requirements will depend upon numerous factors, including results under the
distribution agreements with Guidant, Abbott and Century, and similar future
agreements, should any be entered into, progress of the Company's clinical
research and product development programs, the receipt of and the time required
to obtain regulatory clearances and approvals, and the resources the Company
devotes to developing, manufacturing and marketing its products. The Company's
capital requirements will also depend on the demands created by its operational
and development programs.
IMPACT OF THE YEAR 2000 ISSUE
Companies faced a potentially serious problem if information systems,
software applications and operational programs written in the past did not
properly recognize calendar dates beginning in the Year 2000 (the "Year 2000
issue"). This problem could have affected both information technology ("IT")
systems (for example, computer hardware and software) and non-IT systems (for
example, systems or machines with embedded microcontrollers) with the result
being the possible malfunctioning or non-functioning of such systems.
The Company's products do not contain IT or non-IT system components.
Moreover, the Company's assessment of the Year 2000 issue indicates that its
manufacturing processes are not significantly dependent on systems that would
have been affected by the Year 2000 issue. Accordingly, the Company estimates
that the level of incremental expenditures it has incurred solely to bring the
Company into compliance with respect to the Year 2000 issue did not exceed
$75,000. This amount excludes expenditures made in 1999 in connection with the
installation of an enterprise resources planning system and other software
systems, which expenditures the Company would have incurred irrespective of the
Year 2000 issue.
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<PAGE> 33
The Company formed an internal task force that undertook such activities
as creating awareness within the Company of the Year 2000 issue, assessing the
Company's IT and non-IT systems' compliance with respect to the Year 2000 issue,
implementing remedial action to address non-compliance and establishing controls
for ongoing compliance. As regards IT systems, the Company obtained written
representations from the manufacturers of the enterprise resource planning
software and the other software systems the Company installed during the first
half of 1999. Based on such written representations, the Company believed that
such software would not be affected by the Year 2000 issue, and the Company
experience to date is consistent with such representations. With respect to
non-IT systems, the Company, in connection with its move to its new facility in
December 1998, took steps to reduce the volume of outside manufacturing and
processing, and established on-site capabilities. In this transition, the
Company installed, as necessary, systems that are Year 2000 compliant. Also in
connection with the move to the new facility, the Company obtained written
representations as to compliance with the Year 2000 requirements from
manufacturers of systems that were installed in the facility. In addition, the
Company initiated communications with its suppliers and service providers to
assess such parties' status with respect to the Year 2000 issue, and the Company
established policies regarding internal approval for it to transact business
with current and future suppliers and service providers that is predicated, in
part, on such parties' compliance with Year 2000 requirements. No specific risks
were identified from communication requested and received by the Company from
its vendors and service providers, and the Company's experience to date is
consistent with such communication.
ITEM 7. FINANCIAL STATEMENTS
The financial statements of the Company required by this Item begin on
Page F-1 of this Report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
33
<PAGE> 34
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The information required hereunder is incorporated by reference from the
information contained in the sections entitled "Directors," "Other Executive
Officers" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the
Company's definitive Proxy Statement for its 2000 Annual Meeting of the
Stockholders to be held on May 25, 2000 to be filed with the Securities and
Exchange Commission.
ITEM 10. EXECUTIVE COMPENSATION
The information required hereunder is incorporated by reference from the
information contained in the sections entitled "Compensation of Executive
Officers," "Option Matters," "Employment and Severance Agreements" and
"Directors Fees" in the Company's definitive Proxy Statement for its 2000 Annual
Meeting of the Stockholders to be held on May 25, 2000 to be filed with the
Securities and Exchange Commission.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required hereunder is incorporated by reference from the
information contained in the section entitled "Security Ownership of Certain
Beneficial Owners and Management" in the Company's definitive Proxy Statement
for its 2000 Annual Meeting of the Stockholders to be held on May 25, 2000 to be
filed with the Securities and Exchange Commission.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required hereunder is incorporated by reference from the
information contained in the section entitled entitled "Certain Relationships
and Related Transactions" in the Company's definitive Proxy Statement for its
2000 Annual Meeting of the Stockholders to be held on May 25, 2000 to be filed
with the Securities and Exchange Commission.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
The following documents are filed as part of this Form 10-KSB:
(a) Exhibits:
See Index to Exhibits on Page 35 of this Annual Report on Form 10-KSB.
(b) Reports on Form 8-K:
The Registrant did not file any reports on Form 8-K during the last
quarter of the period covered by this report, and none were required.
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<PAGE> 35
INDEX TO EXHIBITS
EXHIBIT NUMBER
DESCRIPTION OF DOCUMENT
2.1 Agreement and Plan of Merger between the Company and Micro Therapeutics,
Inc., a California corporation, effective November 6, 1996.(1)
3.1 Certificate of Incorporation of the Company, as currently in effect.(2)
3.2 Bylaws of the Company, as currently in effect.(1)
4.1 Warrant Agreement dated December 20, 1995 between the Company and
Comdisco, Inc.(1)
4.2 Warrant Agreement dated May 21, 1996 between the Company and Comdisco,
Inc.(1)
10.1 Form of Directors' and Officers' Indemnification Agreement.(1)
10.2 License Agreement dated June 1, 1993 between the Company and Andrew
Cragg.(1)
10.3 Consulting Agreement dated October 1, 1996 between the Company and
Andrew Cragg.(1)
10.4 Industrial Real Estate Lease dated June 10, 1998 between the Company and
New Goodyear, LTD., a California Limited Partnership. (Incorporated by
reference to Exhibit 10.4 of the Company's Form 10-KSB as filed with the
Securities and Exchange Commission on March 31, 1999)
10.5 Amended and Restated Investors Rights Agreement dated February 9, 1995,
among the Company, the Investors named therein and the Common Holders
named therein, as amended on May 17, 1996 and June 27, 1996.(1)
10.6 1993 Incentive Stock Option, Nonqualified Stock Option and Restricted
Stock Purchase Plan.(1), (3)
10.7 1996 Stock Incentive Plan, as amended.(1), (3)
10.8 Employee Stock Purchase Plan, as amended.(1), (3)
10.9 Equipment Leasing Line of Credit dated December 20, 1995 between the
Company and ComDisco Ventures, as amended on May 21, 1996.(1)
10.10 Convertible Subordinated Note Agreement dated November 17, 1997, between
the Company and Guidant Corporation. (Incorporated by reference to
Exhibit 10.11 of the Company's Form 10-KSB as filed with the Securities
and Exchange Commission on March 31, 1998)
10.11 Distribution Agreement dated November 17, 1997, between the Company and
Guidant Corporation. (Incorporated by reference to Exhibit 10.12 of the
Company's Form 10-KSB as filed with the Securities and Exchange
Commission on March 31, 1998)(4)
10.12 First Amendment to Distribution Agreement dated August 17, 1998 between
the Company and Guidant Corporation. (Incorporated by reference to
Exhibit 10.12 of the Company's Form 10-KSB as filed with the Securities
and Exchange Commission on March 31, 1999)
10.13 Second Amendment to Distribution Agreement dated July 23, 1999 between
the Company and Guidant Corporation. (Incorporated by reference to
Exhibit 10.6 of the Company's Form 10-QSB as filed with the Securities
and Exchange Commission on August 12, 1999)
10.14 Convertible Subordinated Note Agreement dated August 12, 1998, between
the Company and Abbott Laboratories. (Incorporated by reference to
Exhibit 10.1 of the Company's Form 8-K as filed with the Securities and
Exchange Commission on August 12, 1998)
35
<PAGE> 36
10.15 5% Convertible Note dated August 19, 1998, between the Company and
Abbott Laboratories. (Incorporated by reference to Exhibit 10.2 of the
Company's Form 8-K as filed with the Securities and Exchange Commission
on August 12, 1998)
10.16 Exclusive Distribution Agreement dated August 12, 1998, between the
Company and Abbott Laboratories. (Incorporated by reference to Exhibit
10.3 of the Company's Form 8-K as filed with the Securities and Exchange
Commission on August 12, 1998)(4)
10.17 First Amendment to Exclusive Distribution Agreement dated November 16,
1998 by and between the Company and Abbott Laboratories. (Incorporated
by reference to Exhibit 10.6 of the Company's Form 10-QSB as filed with
the Securities and Exchange Commission on November 16, 1998)
10.18 Credit Agreement dated August 12, 1998, between the Company and Abbott
Laboratories. (Incorporated by reference to Exhibit 10.4 of the
Company's Form 8-K as filed with the Securities and Exchange Commission
on August 12, 1998)
10.19 Security Agreement dated August 12, 1998, between the Company and Abbott
Laboratories. (Incorporated by reference to Exhibit 10.5 of the
Company's Form 8-K as filed with the Securities and Exchange Commission
on August 12, 1998)
10.20 Amendment to Convertible Subordinated Note Agreement and Credit
Agreement dated May 21, 1999 between the Company and Abbott.
(Incorporated by reference to Exhibit 10.1 of the Company's Form 8-K
dated June 2, 1999)
10.21 Termination of Credit Agreement and Security Agreement dated May 21,
1999 between the Company and Abbott. (Incorporated by reference to
Exhibit 10.2 of the Company's Form 8-K dated June 2, 1999)
10.22 Notice of Conversion of First Note, dated May 21, 1999, executed by
Abbott. (Incorporated by reference to Exhibit 10.3 of the Company's Form
8-K dated June 2, 1999)
10.23 Notice of Conversion of Second Note, dated May 21, 1999, executed by the
Company. (Incorporated by reference to Exhibit 10.4 of the Company's
Form 8-K dated June 2, 1999)
10.24 Put Option Agreement, dated October 26, 1999 between the Company and
Abbott.
10.25 Convertible Subordinated Note Agreement dated September 23, 1998,
between the Company and Century Medical, Inc. (Incorporated by reference
to Exhibit 10.1 of the Company's Form 8-K as filed with the Securities
and Exchange Commission on November 3, 1998)
10.26 5% Convertible Note dated September 30, 1998, between the Company and
Century Medical, Inc. (Incorporated by reference to Exhibit 10.2 of the
Company's Form 8-K as filed with the Securities and Exchange Commission
on November 3, 1998)
10.27 Distribution Agreement dated September 23, 1998, between the Company and
Century Medical, Inc. (Incorporated by reference to Exhibit 10.3 of the
Company's Form 8-K as filed with the Securities and Exchange Commission
on November 3, 1998)(4)
10.28 Credit Agreement dated September 23, 1998, between the Company and
Century Medical, Inc. (Incorporated by reference to Exhibit 10.4 of the
Company's Form 8-K as filed with the Securities and Exchange Commission
on November 3, 1998)
10.29 Stockholder Rights Plan. (Incorporated by reference to Exhibit 1 of the
Company's Form 8-A dated June 3, 1999)
10.30 Securities Purchase Agreement dated March 10, 2000 between the Company
and Pequot Capital Equity Fund II LP, Framlington Health, Bridge & Co.
and Munder Health
36
<PAGE> 37
10.31 Registration Rights Agreement dated March 10, 2000 between the Company
and Pequot Capital Equity Fund II LP, Framlington Health, Bridge & Co.
and Munder Health
21.1 Subsidiaries of the Registrant.(1)
23.1 Consent of PricewaterhouseCoopers LLP
24.1 Power of Attorney (see signature page S-1).
27.1 Financial Data Schedule for the year ended December 31, 1999.
- -------------
(1) Incorporated by reference to the same numbered exhibit of the Company's
Registration Statement on Form SB-2, No. 333-17345.
(2) Incorporated by reference to Exhibit number 3.4 of the Company's
Registration Statement on Form SB-2, No. 333-17345.
(3) These exhibits are identified as management contracts or compensatory
plans or arrangements of the Company pursuant to item 13(a) of Form
10-KSB.
(4) Portions of this Exhibit are omitted and were filed separately with the
Secretary of the Commission pursuant to the Company's application
requesting confidential treatment under Rule 406 of the Securities Act
of 1933.
37
<PAGE> 38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Irvine,
State of California, on March 30, 2000.
MICRO THERAPEUTICS, INC.
Dated: March 30, 2000 By: /s/ GEORGE WALLACE
George Wallace
President, Chief Executive
Officer and Director
We, the undersigned directors and officers of Micro Therapeutics, Inc.,
do hereby constitute and appoint George Wallace and Harold A. Hurwitz our true
and lawful attorneys and agents, with full powers of substitution to do any and
all acts and things in our name and behalf in our capacities as directors and
officers and to execute any and all instruments for us and in our names in the
capacities indicated below, which said attorneys and agents may deem necessary
or advisable to enable said corporation to comply with the Securities Exchange
Act of 1934, as amended, and any rules, regulations and requirements of the
Securities and Exchange Commission, in connection with this Annual Report on
Form 10-KSB, including specifically but without limitation, power and authority
to sign for us or any of us in our names in the capacities indicated below, any
and all amendments hereto; and we do hereby ratify and confirm all that said
attorneys and agents, shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ GEORGE WALLACE President, Chief Executive March 30, 2000
- --------------------------- Officer and Director
George Wallace (Principal Executive Officer)
/s/ HAROLD A. HURWITZ Chief Financial Officer March 30, 2000
- --------------------------- (Principal Financial and
Harold A. Hurwitz Principal Accounting Officer)
/s/ WENDE HUTTON Director March 30, 2000
- ---------------------------
Wende Hutton
/s/ DICK ALLEN Director March 30, 2000
- ---------------------------
Dick Allen
/s/ KIM BLICKENSTAFF Director March 30, 2000
- ---------------------------
Kim Blickenstaff
/s/ W. JAMES FITZSIMMONS Director March 30, 2000
- ---------------------------
W. James Fitzsimmons
</TABLE>
S-1
<PAGE> 39
MICRO THERAPEUTICS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Accountants ...................................................................... F-2
Consolidated Balance Sheet At December 31, 1999 ........................................................ F-3
Consolidated Statements Of Operations For The Years Ended December 31, 1998 And 1999 ................... F-4
Consolidated Statements Of Stockholders' Equity For The Years Ended December 31, 1998 And 1999.......... F-5
Consolidated Statements Of Cash Flows For The Years Ended December 31, 1998 And 1999 ................... F-6
Notes To Consolidated Financial Statements ............................................................. F-7
</TABLE>
F-1
<PAGE> 40
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Micro Therapeutics, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Micro
Therapeutics, Inc. at December 31, 1999, and the results of its operations and
its cash flows for each of the two years in the period ended December 31, 1999
in conformity with accounting principles generally accepted in the United
States. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Orange County, California
February 18, 2000, except as to Note 17 as to which the date is March 10, 2000
F-2
<PAGE> 41
MICRO THERAPEUTICS, INC.
CONSOLIDATED BALANCE SHEET
December 31, 1999
A S S E T S:
<TABLE>
<CAPTION>
Pro Forma
Current assets: (Note 17)
<S> <C> <C>
Cash and cash equivalents $ 9,666,166 $ 20,666,166
Short term investments - -
Accounts receivable, net 685,018 685,018
Inventories, net 1,199,523 1,199,523
Prepaid expenses and other current assets 382,546 382,546
------------ ------------
Total current assets 11,933,253 22,933,253
Property and equipment, net 2,176,441 2,176,441
Patents and licenses, net of accumulated amortization of $170,833 1,460,336 1,460,336
Other assets 60,543 60,543
------------ ------------
Total assets $ 15,630,573 $ 26,630,573
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 425,186 $ 425,186
Accrued salaries and benefits 390,277 390,277
Accrued liabilities 382,767 382,767
Deferred revenue 342,231 342,231
Current portion of equipment line of credit 70,775 70,775
------------ ------------
Total current liabilities 1,611,236 1,611,236
Deferred revenue 775,000 775,000
Equipment line of credit 2,523 2,523
Notes payable, net 10,607,618 10,607,618
------------ ------------
Total liabilities 12,996,377 12,996,377
------------ ------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.001 par value, 5,000,000 shares authorized;
no shares issued or outstanding
Common stock, $0.001 par value, 20,000,000 shares authorized;
8,229,575 shares issued and outstanding (9,829,575 shares pro forma) 8,230 9,830
Additional paid-in capital 43,765,699 54,764,099
Unearned compensation - -
Stockholder notes receivable (322,590) (322,590)
Accumulated deficit (40,817,143) (40,817,143)
------------ ------------
Total stockholders' equity 2,634,196 13,634,196
------------ ------------
Total liabilities and stockholders' equity $ 15,630,573 $ 26,630,573
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE> 42
MICRO THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Years Ended December 31, 1998 and 1999
<TABLE>
<CAPTION>
1998 1999
------------ ------------
<S> <C> <C>
Net sales $ 4,249,381 $ 4,097,672
Cost of sales 2,363,110 2,861,301
------------ ------------
Gross margin 1,886,271 1,236,371
Costs and expenses:
General and administrative 2,416,748 2,661,677
Research and development 3,864,982 5,744,563
Clinical and regulatory 1,215,232 1,714,116
Marketing and sales 3,795,355 2,588,574
Facility moving costs 292,248
------------ ------------
Total costs and expenses 11,584,565 12,708,930
------------ ------------
Loss from operations (9,698,294) (11,472,559)
------------ ------------
Other income (expense):
Interest income 607,057 498,610
Interest expense (806,469) (2,831,311)
Other expense, net (7,914) (24,009)
------------ ------------
(207,326) (2,356,710)
------------ ------------
Loss before provision for income taxes (9,905,620) (13,829,269)
Provision for income taxes 800 800
------------ ------------
Net loss ($ 9,906,420) ($13,830,069)
============ ============
Per share data:
Net loss ($ 9,906,420) ($13,830,069)
Net loss per share (basic and diluted) ($ 1.49) ($ 1.86)
Weighted average shares outstanding 6,642,558 7,446,501
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE> 43
MICRO THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For The Years Ended December 31, 1998 and 1999
<TABLE>
<CAPTION>
Common Stock Additional Paid-In Unearned
Shares Amount Capital Compensation
------------ ------------ ------------ ---------
<S> <C> <C> <C> <C>
Balances at January 1, 1998 6,505,195 $ 6,505 $ 26,239,388 ($174,969)
Common stock issued for cash 47,637 48 499,952
Compensation related to stock options vesting - - 52,137
Unearned compensation related to terminated
employees - - (79,542) 79,542
Common stock issued under employee stock
purchase plan 22,458 22 150,722
Exercise of stock options 140,286 140 266,970
Common stock grant 2,143 2 14,998
Imputed discount on convertible notes payable - - 2,533,253
Net loss - -
------------ ------------ ------------ ---------
Balances at December 31, 1998 6,717,719 6,718 29,625,741 (43,290)
Common stock issued for cash, net of costs of
$68,282 250,000 250 2,931,468
Compensation related to stock options vesting - - 43,290
Common stock issued under employee stock
purchase plan 31,929 32 219,382
Exercise of stock options and warrants 267,299 267 646,208
Imputed discount on convertible notes payable - - 326,385
Common stock issued for conversion of debt 962,628 963 9,896,515
Compensation related to stock option grants - - 120,000
Net loss - -
------------ ------------ ------------ ---------
Balances at December 31, 1999 8,229,575 $ 8,230 $ 43,765,699 -
============ ============ ============ =========
</TABLE>
<TABLE>
<CAPTION>
Stockholder Accumulated Total Stockholders'
Notes Receivable Deficit Equity
---------------- ------------- -------------------
<S> <C> <C> <C>
Balances at January 1, 1998 ($ 17,080,654) $ 8,990,270
Common stock issued for cash 500,000
Compensation related to stock options vesting 52,137
Unearned compensation related to terminated
employees -
Common stock issued under employee stock
purchase plan 150,744
Exercise of stock options 267,110
Common stock grant 15,000
Imputed discount on convertible notes payable 2,533,253
Net loss (9,906,420) (9,906,420)
---------------- ------------- --------------
Balances at December 31, 1998 - (26,987,074) 2,602,095
Common stock issued for cash, net of costs of
$68,282 2,931,718
Compensation related to stock options vesting 43,290
Common stock issued under employee stock
purchase plan 219,414
Exercise of stock options and warrants (322,590) 323,885
Imputed discount on convertible notes payable 326,385
Common stock issued for conversion of debt 9,897,478
Compensation related to stock option grants 120,000
Net loss (13,830,069) (13,830,069)
------------- ------------- ------------
Balances at December 31, 1999 ($322,590) ($40,817,143) $ 2,634,196
============= ============= ============
</TABLE>
F-5
<PAGE> 44
MICRO THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1998 and 1999
<TABLE>
<CAPTION>
1998 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($ 9,906,420) ($13,830,069)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 488,902 712,282
Amortization of notes payable discounts 270,268 394,624
Compensation related to common stock options vesting and grants 67,137 163,290
Loss on sale of equipment 1,947 21,260
Debt conversion charge 1,651,585
Change in operating assets and liabilities:
Accounts receivable (151,148) (134,049)
Inventories (212,970) (367,882)
Prepaid expenses and other assets (217,400) (21,862)
Accounts payable 462,939 (328,505)
Accrued salaries and benefits 16,383 68,131
Accrued liabilities 239,101 (22,390)
Deferred revenue 1,475,000 (357,769)
------------ ------------
Net cash used in operating activities (7,466,261) (12,051,354)
------------ ------------
Cash flows from investing activities:
Purchase of short-term investments (5,683,149) (4,999,277)
Maturity of short-term investments 9,488,567 7,498,293
Additions to property and equipment (1,732,102) (961,771)
Additions to patents and licenses (424,274) (451,905)
Sale of equipment 7,200 10,600
------------ ------------
Net cash provided by investing activities 1,656,242 1,095,940
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock 650,745 3,219,414
Proceeds from exercise of stock options 267,110 323,885
Borrowings on note payable 15,000,000 2,000,000
Common stock issuance costs (68,282)
Repayments on equipment line of credit (63,643) (73,317)
------------ ------------
Net cash provided by financing activities 15,854,212 5,401,700
------------ ------------
Net increase (decrease) in cash and cash equivalents 10,044,193 (5,553,714)
Cash and cash equivalents at beginning of year 5,175,687 15,219,880
------------ ------------
Cash and cash equivalents at end of year $ 15,219,880 $ 9,666,166
============ ============
Supplemental cash flow disclosures:
Cash paid during the year for interest $ 380,231 $ 921,513
Cash paid during the year for income taxes $ 800 $ 800
Supplemental schedule of noncash activities:
Unearned compensation related to terminated employees $ 79,542 $ -
Issuance of notes receivable for stock option exercises $ - $ 322,590
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE> 45
MICRO THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF THE COMPANY:
Micro Therapeutics, Inc. ("MTI" or the "Company") was incorporated on
June 11, 1993 in California and was reincorporated in Delaware in
November 1996 to develop, manufacture and market minimally invasive
medical devices for diagnosis and treatment of neuro and peripheral
vascular diseases.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation:
The accompanying consolidated financial statements include the accounts
of the Company and its former majority-owned subsidiary for the
applicable period of control (see Note 16). All significant intercompany
accounts and transactions have been eliminated in consolidation.
Cash Equivalents:
The Company considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash equivalents.
The carrying amount of cash and cash equivalents approximates market
value.
Short-Term Investments:
The Company's short-term investments consist primarily of funds invested
in money market instruments and commercial paper which have maximum
maturities of six months. The Company classifies its investments as held
to maturity. The carrying amount of these investments is at cost plus
accrued interest which approximates market value. All short-term
investments are held in the Company's name and under the custody of one
financial institution.
Accounts Receivable:
The Company periodically evaluates the collectibility of its receivables
based upon various factors including the financial condition and payment
history of major customers, an overall review of collection experience
on other accounts and economic factors or events expected to affect the
Company's future collection experience.
Inventories:
Inventories are stated at the lower of cost (first-in, first-out method)
or market.
The Company periodically evaluates the carrying value of its
inventories, taking into account such factors as historical and
anticipated future sales compared with quantities on hand and the price
the Company expects to obtain for its product compared with the
historical cost.
Property And Equipment:
Property and equipment are carried at cost less accumulated depreciation
and amortization. Maintenance and repairs are expensed as incurred while
renewals or betterments are capitalized. Upon sale or disposition of
assets, any gain or loss is included in the consolidated statement of
operations. Capital leases are recorded at the fair market value of the
leased asset. The leased assets are amortized on a straight-line basis
over their economic useful lives.
F-7
<PAGE> 46
MICRO THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The cost of property and equipment is generally depreciated using the
straight-line method over the estimated useful lives of the respective
assets, which are generally not greater than five years. Leasehold
improvements are amortized over the lesser of the estimated useful lives
of the assets or the related lease terms.
The Company continually monitors events and changes in circumstances
that could indicate the carrying balances of its property and equipment
may not be recoverable in accordance with the provisions of Statement of
Financial Accounting Standards ("SFAS") No.; 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of." When such events or changes in circumstances are present, the
Company assesses the recoverability of long-lived assets by determining
whether the carrying value of such assets will be recovered through
undiscounted expected future cash flows. If the total of the future cash
flows is less than the carrying amount of those assets, the Company
recognizes an impairment loss based on the excess of the carrying amount
over the fair value of the assets.
Patents and Licenses:
Costs incurred to obtain patents and licenses are capitalized. All
amounts assigned to these patents and licenses are amortized on a
straight-line basis over an estimated five-year useful life from date of
issue or acquisition. The Company continually evaluates the amortization
period and carrying basis of patents and licenses to determine whether
later events and circumstances warrant a revised estimated useful life
or reduction in value.
Research and Development:
Research and development costs are expensed as incurred.
Revenue Recognition:
Sales and related cost of sales are generally recognized upon shipment
of products and when collectibility is probable. Certain of the
Company's agreements with distributors of its products provide for
additional payments to the Company based on sales of the Company's
product by the distributor. Such additional payments are recognized as
revenue by the Company upon the sale of the related product by the
distributor (Note 13).
The Company's products are generally under warranty against defects in
material and workmanship for a period of one year.
Use of Estimates:
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
F-8
<PAGE> 47
MICRO THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Income Taxes:
The Company follows SFAS No. 109, "Accounting for Income Taxes," which
requires the recognition of deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in
the financial statements or tax returns. Under this method, deferred
income taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year-end based on enacted tax laws
and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances
are established, when necessary, to reduce deferred tax assets to the
amount expected to be realized.
Net Loss Per Share:
Net loss per share is calculated under the provisions of SFAS No. 128,
"Earnings per Share," by dividing net loss by the weighted average
number of common shares issued and outstanding during the period.
Potential common shares, represented by options, warrants and
convertible debt, have been excluded from the calculations due to their
anti-dilutive effect. Basic and diluted loss per share are the same for
the periods presented.
Stock-Based Compensation:
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." SFAS No. 123 defines a fair
value based method of accounting for an employee stock option. Fair
value of the stock option is determined considering factors such as the
exercise price, the expected life of the option, the current price of
the underlying stock and its volatility, expected dividends on the
stock, and the risk-free interest rate for the expected term of the
option. Under the fair value based method, compensation cost is measured
at the grant date based on the fair value of the award and is recognized
over the service period. Pro forma disclosures for entities that elect
to continue to measure compensation cost under the intrinsic method
provided by Accounting Principles Board Opinion No. 25 must include the
effects of all awards granted in fiscal years that begin after December
15, 1994.
Segment Information:
In 1998, the Company adopted SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." SFAS No. 131 supercedes SFAS
No. 14, "Financial Reporting for Segments of a Business Enterprise,"
replacing the "industry segment" approach with the "management"
approach. The management approach designates the internal organization
that is used by management for making operating decisions and assessing
performance as the source of the Company's reportable segments. SFAS No.
131 also requires disclosures about products, geographic areas and major
customers. The adoption of SFAS No. 131 did not affect results of
operations or financial position but did affect the disclosures of
segment information (Note 15).
3. CASH AND CASH EQUIVALENTS:
Cash and cash equivalents consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Cash $ 763,881
Cash equivalents 8,902,285
----------
$9,666,166
</TABLE>
Cash equivalents consist of commercial paper and deposits in a money
market account.
F-9
<PAGE> 48
MICRO THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
4. INVENTORIES:
Inventories consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Raw materials and work-in-process $ 880,057
Finished goods 441,031
-----------
1,321,088
Reserve for obsolescence (121,565)
-----------
$ 1,199,523
===========
5. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
Machinery and equipment $ 760,214
Tooling 238,468
Leasehold improvements 1,084,131
Furniture and fixtures 1,139,798
Construction-in-progress 226,407
-----------
3,449,018
Less, Accumulated depreciation and amortization (1,272,577)
-----------
$ 2,176,441
===========
</TABLE>
At December 31, 1999, certain machinery, equipment, furniture and
fixtures, with an aggregate original cost of $288,517 and accumulated
amortization of $247,775, are recorded under a capital lease.
Depreciation and amortization expense for the years ended December 31,
1998 and 1999 was $439,659 and $712,031, respectively.
6. EQUIPMENT LINE OF CREDIT:
The Company had an equipment line of credit to finance qualified
equipment purchases at an implicit interest rate of 14.23%. Outstanding
amounts are collateralized by the assets financed. The amount
outstanding is due in monthly installments over 48 months which began in
June 1997. A total of $73,298 was outstanding under this equipment line
of credit as of December 31, 1999.
In connection with this equipment line of credit, the Company issued two
sets of warrants to the lessor to purchase shares of the Company's
Preferred Stock, which converted, upon the conversion of all outstanding
shares of Preferred Stock in connection with the Company's initial
public offering in February 1997, into warrants to purchase an aggregate
of 13,683 shares of the Company's Common Stock at prices ranging from
$4.23 to $6.46 per share. In conformity with the warrant agreement, the
lessor executed a net exercise of all such warrants in April 1999,
resulting in the issuance of 4,991 shares of the Company's Common Stock
to the lessor.
F-10
<PAGE> 49
Future minimum payments under the equipment line of credit are as
follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
<S> <C>
2000 $ 73,610
2001 2,523
--------
76,133
Less, amount representing interest (2,835)
--------
$ 73,298
========
</TABLE>
7. NOTES PAYABLE:
In November 1997, the Company and Guidant Corporation ("Guidant")
entered into a convertible subordinated note agreement under which the
Company borrowed $5 million. The principal amount of the note is due in
October 2002, unless accelerated for certain events such as the
termination of the distribution agreement between the Company and
Guidant (Note 13), and is convertible, at any time, at Guidant's option,
into shares of the Company's Common Stock at a conversion price of
$10.25 per share. The note has a stated interest rate of 5% per annum,
which the Company has determined is lower than interest rates typically
associated with similar debt instruments. Accordingly, the Company
recorded a discount on the note of $974,328 upon execution of the
agreement, resulting in an imputed interest rate over the term of the
note of 10%. Such discount had an unamortized balance of $618,532 at
December 31, 1999, and is presented net of the principal amount of the
note in the accompanying consolidated balance sheet. Interest payments
are due quarterly, in arrears.
In April 1998, the Company achieved a milestone set forth in the
agreement and elected, under the terms of the agreement, to have Guidant
loan the Company $2 million and purchase $500,000 of the Company's
Common Stock at approximately $10.50 per share. The proceeds were
received in May 1998. The loan is due in October 2002 and bears an
interest rate of 8% per annum.
In August 1998, the Company and Abbott Laboratories ("Abbott") entered
into convertible subordinated note, credit and security agreements under
which Abbott provided the Company with (a) $5 million, in exchange for a
subordinated note, due August 2003, convertible at Abbott's option into
shares of the Company's Common Stock at a conversion rate of $13.00 per
share, and (b) a $5 million credit facility, under which the Company
borrowed the entire amount available in November 1998. The amount
borrowed under the credit facility was due in November 2003 and was
convertible over the five-year life of the underlying note at the
Company's option, subject to certain restrictions, into shares of the
Company's Common Stock at a conversion rate of $15.00 per share. Both
notes had a stated interest rate of 5% per annum, which the Company
determined was lower than interest rates typically associated with
similar debt instruments. Accordingly, the Company recorded discounts
aggregating $1,948,656 upon execution of the note agreements, resulting
in an imputed interest rate over the terms of both notes of 10%. The
notes were collateralized by the trademarks, patents and other
intellectual property related to the products covered by the
distribution agreement between the Company and Abbott (Note 13).
F-11
<PAGE> 50
MICRO THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
In May 1999, Abbott and the Company consummated a modification of the
agreements described above. Under the terms of the modification, Abbott
converted $4 million face value of the notes into shares of the
Company's common stock at a conversion rate equal to 125% of the average
closing price of such stock for the five days ended April 30, 1999
(amounting to a conversion rate of $8.64 per share), and converted the
remaining $6 million face value of such notes into shares of the
Company's common stock at a rate of $12 per share. As required by
generally accepted accounting principles, the Company, in May 1999,
recognized a non-recurring, non-cash charge, included in interest
expense in the accompanying 1999 statement of operations, amounting to
approximately $1.7 million, representing the aggregate fair market value
of the incremental shares issued as a result of the modified conversion
rates.
In September 1998, the Company and Century Medical, Inc. ("Century")
entered into convertible subordinated note and credit agreements, under
which Century provided the Company with (a) $3 million, in exchange for
a subordinated note, due September 2003, convertible at the Company's
option, subject to certain restrictions, into shares of the Company's
Common Stock at a conversion rate of $15.00 per share, and (b) a $2
million credit facility. The availability of the facility commenced in
April 1999, upon the Company obtaining its first CE Mark in Europe for
an Onyx(TM)-related application. In September 1999 the Company borrowed
the entire $2 million available under the credit facility in exchange
for a note (the "Credit Facility Note") which is repayable five years
from the date of the agreement and is convertible over the four-year
life of the Credit Facility Note at the Company's option, subject to
certain restrictions, into shares of the Company's Common Stock at a
conversion rate of approximately $16.35. Both notes have a stated
interest rate of 5% per annum, which the Company has determined is lower
than interest rates typically associated with similar debt instruments.
Accordingly, the Company recorded discounts aggregating $910,982 upon
execution of the note agreements, resulting in an imputed interest rate
over the term of both notes of 10%. Such discounts had an aggregate
unamortized balance of $773,850 at December 31, 1999, and are presented
net of the principal amounts of the notes in the accompanying
consolidated balance sheet.
Interest payments are due quarterly, in arrears.
The agreements with Guidant and Century each provide for certain
operational conditions with which the Company must comply, and a right
of first offer to allow a pro rata participation in the issuance by the
Company of any "new security," as defined in the respective agreements.
The agreement with Guidant allows it visitation rights at meetings of
the Company's Board of Directors. Guidant and Century may either convert
the principal amount of the note or declare the note to be immediately
due and payable upon notification of an impending sale of substantially
all of the Company's assets or a change of control of the Company.
Future maturities of principal with respect to the notes payable
described above, and a reconciliation to the carrying amount of notes
payable at December 31, 1999, are as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
<S> <C>
2002 $ 7,000,000
2003 5,000,000
------------
Total future maturities 12,000,000
Unamortized discount (1,392,382)
------------
Notes payable $ 10,607,618
============
</TABLE>
Guidant, Abbott and Century each entered into distribution agreements
with the Company concurrent with the the execution of their respective
convertible note agreements described above. The distribution agreements
are described in Note 13.
F-12
<PAGE> 51
MICRO THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
8. PREFERRED STOCK:
The Company's Board of Directors has the authority to issue up to
5,000,000 shares of Preferred Stock in one or more series and to fix the
rights, preferences and privileges without stockholder approval. At
December 31, 1999, no shares of Preferred Stock were issued or
outstanding.
9. COMMON STOCK PLANS:
1993 Stock Option Plan:
The 1993 Incentive Stock Option, Nonqualified Stock Option and
Restricted Stock Purchase Plan (the "1993 Plan") provides for the direct
sale of shares and the grant of options to purchase shares of the
Company's Common Stock to employees, officers, consultants and
directors.
The 1993 Plan includes nonqualified stock options ("NSOs") and incentive
stock options ("ISOs"). The option price for the ISOs and NSOs shall not
be less than the fair market value of the shares of the Company's Common
Stock on the date of the grant. For ISOs, the exercise price per share
may not be less than 110% of the fair market value of a share of Common
Stock on the grant date for any individual possessing more than 10% of
the total outstanding Common Stock of the Company. The Board of
Directors has the authority to determine the time or times at which
options become exercisable, which generally occurs over a four-year
period. Options expire within a period of not more than ten years from
the date of grant. Options expire generally ninety days after
termination of employment.
The 1993 Plan provides for the issuance of up to 650,000 shares of common
stock. A summary of the option activity under the 1993 Plan is as
follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
PER SHARE
INCENTIVE NONQUALIFIED TOTAL EXERCISE PRICE
--------- ------------ ----- --------------
<S> <C> <C> <C> <C>
Balances at January 1, 1998 269,626 138,611 408,237 $1.46
Granted -- -- -- --
Exercised (86,184) (20,669) (106,853) $0.74
Canceled (42,692) -- (42,692) $0.80
-------- -------- --------
Balances at December 31, 1998 140,750 117,942 258,692 $1.85
Granted -- -- -- --
Exercised (114,272) (78,650) (192,922) $1.33
Canceled (3,048) -- (3,048) $3.74
-------- -------- --------
Balances at December 31, 1999 23,430 39,292 62,722 $3.36
======== ======== ========
Exercisable at December 31, 1998 101,349 113,982 215,331 $1.51
======== ======== ========
Exercisable at December 31, 1999 14,442 38,732 53,174 $3.61
======== ======== ========
</TABLE>
F-13
<PAGE> 52
MICRO THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Additional information with respect to outstanding options as of December 31,
1999 is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
RANGE OF PER OPTIONS EXERCISABLE
SHARE NUMBER OF WEIGHTED AVERAGE WEIGHTED AVERAGE
EXERCISE PRICES OPTIONS REMAINING YEARS NUMBER OF OPTIONS PER SHARE EXERCISE PRICES
--------------- ------- --------------- ----------------- -------------------------
<S> <C> <C> <C> <C>
$0.46 16,104 1 16,104 $0.46
$1.54-$4.62 23,368 1 22,262 $3.31
$5.38 23,250 3 14,808 $5.38
</TABLE>
The difference between the exercise price and the fair market value at
the date of grant of certain options granted from the 1993 Plan prior to
the Company's initial public offering in February 1997 is accounted for
as unearned compensation and is being amortized to expense over the
related vesting period. During the years ended December 31, 1998 and
1999, amortized compensation expense was $52,137 and $43,290,
respectively.
1996 Stock Incentive Plan:
The 1996 Stock Incentive Plan (the "1996 Plan") provides for options to
purchase shares of the Company's Common Stock and restricted Common
Stock grants. The 1996 Plan includes NSOs and ISOs and may include
grants to directors, officers, employees and consultants of the Company,
except that incentive stock options may not be granted to non-employee
directors or consultants. In addition, the 1996 Plan provides that each
non-employee director of the Company be granted an option consisting of
8,000 shares of Common Stock, which option shall vest and become
exercisable at the rate of 25% immediately and 25% on the anniversary of
such director's initial election during the three-year period following
the grant date. Such directors shall also automatically be granted
options for an additional 2,000 shares each year thereafter, subject to
an aggregate stock ownership limitation of 1% of outstanding shares and
options as defined in the 1996 Plan. Options, other than those granted
to the non-employee directors as described above, generally vest over a
four-year period. Options expire within a period of not more than ten
years from the date of grant. Options expire generally 30 days after
termination of employment.
The 1996 Plan provides for the issuance of up to 2,000,000 shares of
Common Stock. A summary of the option activity under the 1996 Plan is as
follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
PER SHARE
INCENTIVE NONQUALIFIED TOTAL EXERCISE PRICE
<S> <C> <C> <C> <C>
Balances at January 1, 1998 417,130 43,300 460,430 $5.48
Granted 426,458 131,342 557,800 $9.69
Exercised (31,769) (1,664) (33,433) $5.63
Canceled (65,057) -- (65,057) $6.39
--------- --------- ----------
Balances at December 31, 1998 746,762 172,978 919,740 $7.96
Granted 347,629 177,995 525,624 $8.37
Exercised (69,386) -- (69,386) $5.61
Canceled (83,942) (16,186) (100,128) $8.49
--------- --------- ----------
Balances at December 31, 1999 941,063 334,787 1,275,850 $8.22
========= ========= ==========
Exercisable at December 31, 1998 133,787 26,162 159,949 $6.05
========= ========= ==========
Exercisable at December 31, 1999 340,273 169,596 509,869 $8.07
========= ========= ==========
</TABLE>
F-14
<PAGE> 53
MICRO THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Additional information with respect to outstanding options as of
December 31, 1999 is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
RANGE OF PER OPTIONS EXERCISABLE
SHARE NUMBER OF WEIGHTED AVERAGE WEIGHTED AVERAGE
EXERCISE PRICES OPTIONS REMAINING YEARS NUMBER OF OPTIONS PER SHARE EXERCISE PRICES
--------------- ------- --------------- ----------------- -------------------------
<S> <C> <C> <C> <C>
$4.75-$6.50 362,836 5 180,538 $5.60
$6.63-$11.00 913,014 7 329,331 $9.43
</TABLE>
In 1998, the Company granted to a consultant 2,143 shares of common
stock under the 1996 Plan and recorded compensation expense of $15,000,
representing the fair market value of the stock at the date of grant.
In 1999, the Company recognized consulting expense, included with
research and development expense in the accompanying consolidated
statement of operations, of $120,000 relating to the value of options
granted to consultants.
Employee Stock Purchase Plan:
The Employee Stock Purchase Plan (the "Purchase Plan") covers an
aggregate of 200,000 shares of Common Stock. The Purchase Plan permits
an eligible employee to purchase Common Stock through payroll deductions
not to exceed 20% of the employee's compensation. An employee's
participation is limited also if such participation results in the
employee (a) owning any class of the Company's stock or holding options
to purchase stock that together result in the employee possessing 5% or
more of the total voting power of all classes of stockholders, (b)
having the right to purchase, through any of the Company's stock
purchase plans, more than either 2,500 shares or $25,000 of fair market
value of the Company's Common Stock in any given year, or (c) otherwise
having the right on the last day of any offering period (described
below) to purchase in excess of 2,500 shares. The price of the Common
Stock purchased under the Purchase Plan is 85% of the lower of the fair
market value of the Common Stock at the beginning of the six-month
offering period (January 1 or July 1) or on the applicable purchase date
(June 30 or December 31). Employees may end their participation in the
offering at any time during the offering period, and participation ends
automatically on termination of employment. Unless terminated earlier by
the Company, the Purchase Plan will terminate in 2007, on the tenth
anniversary of the Company's February 1997 initial public offering.
During 1998 and 1999, purchases by employees under the Purchase Plan
resulted in the issuance of 22,458 and 31,929 shares of Common Stock,
respectively, and in proceeds to the Company of $150,744 and $219,414,
respectively.
Pro Forma Effect of Stock-Based Compensation:
The Company has adopted the disclosure-only provisions of SFAS No. 123.
Had compensation cost been determined on the fair value at the grant
dates for awards under those plans consistent with the method
promulgated by SFAS No. 123, the Company's net loss and loss per share
would have been as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
1998 1999
---- ----
<S> <C> <C>
Net loss:
As reported ($9,906,420) ($13,830,069)
============ =============
Pro forma for SFAS No. 123 ($10,633,743) ($15,144,086)
============= =============
Loss per share (basic and diluted):
As reported ($1.49) ($1.86)
======= =======
Pro forma for SFAS No. 123 ($1.60) ($2.03)
======= =======
</TABLE>
F-15
<PAGE> 54
MICRO THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The fair value of each option grant subsequent to the Company's 1997
initial public offering was estimated on the date of the grant using the
Black-Scholes option-pricing model. The assumptions used for the years
ended December 31, 1998 and 1999 were as follows: the average risk-free
interest rate was 5.30% and 5.84%, respectively; generally the exercise
price is equal to the fair market value of the underlying Common Stock
at the grant date after consideration of any related unearned
compensation recorded in the financial statements; the expected life of
the option is the term to expiration, generally 4 years; expected
volatility was 61% and 67%, respectively; the weighted average grant
date fair value of options was $9.67 and $8.07, respectively; and the
Common Stock is expected to pay no dividends.
10. INCOME TAXES:
The following table presents the current and deferred income tax
provision for federal and state income taxes:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
<S> <C> <C>
1998 1999
Current:
Federal -- --
State $800 $800
---- ----
800 800
Deferred:
Federal -- --
State -- --
---- ----
$800 $800
==== ====
</TABLE>
The tax effects of temporary differences which give rise to the deferred
tax provision (benefit) consist of:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
1998 1999
----------- -----------
<S> <C> <C>
Capitalized research and development costs $(1,617,396) $ (570,407)
Capitalized inventory costs (41,660) 11,663
Intangibles 6,235 2,657
Property and equipment 19,448 54,963
Accrued expenses 36,210 (49,443)
Stock options 79,173 --
Tax credit carryforwards (422,431) (510,774)
Net operating loss carryforwards (2,041,487) (4,941,214)
Deferred revenue (417,690) 42,840
Other (88,679) 5,141
Valuation allowance 4,488,277 5,954,574
----------- -----------
$ -- $ --
=========== ===========
</TABLE>
F-16
<PAGE> 55
MICRO THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The provision (benefit) for income taxes differs from the amount that
would result from applying the federal statutory rate as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
1998 1999
------- -------
<S> <C> <C>
Statutory regular federal income tax rate (34.00%) (34.00%)
Meals and entertainment 0.23 0.18
State taxes 0.01 0.01
Tax credit carryforwards (1.81) (1.73)
Change in valuation allowance 34.79 36.20
Other, net 0.79 (0.65)
------- -------
Effective tax rate 0.01% 0.01%
======= =======
</TABLE>
The components of the net deferred tax asset at December 31, 1999 are as
follows:
<TABLE>
<CAPTION>
<S> <C>
Capitalized research and development costs $ 4,026,898
Capitalized inventory costs 48,064
Intangibles 1,433
Property and equipment 41,771
Accrued expenses 145,299
State taxes 272
Tax credit carryforwards 1,441,226
Net operating loss carryforwards 11,372,160
Deferred revenue 374,850
Other 83,538
Valuation allowance (17,535,511)
------------
Net deferred tax asset $ --
============
</TABLE>
The Company has established a valuation allowance against its deferred
tax assets due to the uncertainty surrounding the realization of such
assets. Management periodically evaluates the recoverability of the
deferred tax assets. At such time as it is determined that it is more
likely than not that the deferred tax assets are realizable, the
valuation allowance will be reduced.
At December 31, 1999, the Company had net operating loss carryforwards
for federal and state purposes of approximately $29,988,000 and
$13,307,000, respectively. The net operating loss carryforwards begin
expiring in 2009 and 2000, respectively. The Company also has research
and experimentation credit carryforwards for federal and state purposes
of approximately $787,000 and $554,000, respectively. The research and
experimentation credits begin to expire in 2009 for federal purposes and
carry forward indefinitely for state purposes. The Company has a
manufacturer's investment credit for state purposes of approximately
$57,000. The manufacturer's investment credit will begin to expire in
2005.
The utilization of net operating loss and credit carryforwards may be
limited under the provisions of Internal Revenue Code Section 382 and
similar state provisions.
F-17
<PAGE> 56
MICRO THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
11. COMMITMENTS AND CONTINGENCIES:
On June 10, 1998, the Company entered into a five-year operating lease
for office, research and manufacturing space in a facility located in
Irvine, California, with two three-year renewal options. The lease
provides for minimum annual increases in rent based on a cost of living
index. For financial statement reporting purposes, such minimum
increases have been included in calculating the total minimum cost of
the lease, which cost has been allocated on a straight-line basis over
the initial term of the lease. This allocation has resulted in deferred
rent as of December 31, 1999, amounting to $32,097, which is included in
accrued liabilities in the accompanying consolidated balance sheet.
As of December 31, 1999, the future noncancelable minimum lease
commitments are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31:
<S> <C>
2000 $ 477,102
2001 491,415
2002 506,157
2003 388,096
</TABLE>
Rent expense for the years ended December 31, 1998 and 1999, which, in
1998, consisted primarily of rent related to the Company's former
facility in San Clemente, California, was $366,272 and $545,188,
respectively. The Company received $3,625 of rental sublease income for
the year ended December 31, 1998 and none for the year ended December
31, 1999.
The Company has agreements with certain of its suppliers of coatings for
its micro catheter, access and delivery products under which the Company
pays royalties in a range of 1.5% to 3% of sales of such products
bearing either of such coatings. Royalty expense under these agreements
aggregated $1,286 in 1998 and $12,881 in 1999.
12. RELATED PARTY TRANSACTIONS:
In June 1993, the Company acquired from a stockholder an exclusive
worldwide license to manufacture, market and sell devices utilizing
certain catheter technology developed by the stockholder/licensor. As
consideration for the license, the Company is obligated to pay the
stockholder/licensor royalties at the rate of 1-1/2% of the net revenues
from products developed utilizing the patented technology for a period
of ten years from the first commercial sale of such products and a
royalty of 1% of net revenue on any product that bears the name of the
consultant (for as long as it bears the name). Commercial sale of these
products commenced in November 1995. Royalty expense under these license
agreements totaled $21,445 and $5,412 for the years ended December 31,
1998 and 1999, respectively.
In November 1994, the Company licensed technology from a consultant for
which the Company pays a royalty of 1% of net sales on any product that
bears the name of the consultant. Royalty expense under this agreement
was $18,709 and $5,412 in 1998 and 1999, respectively.
In October 1996, the Company licensed technology from a consultant for
which a royalty of 1% of net sales of a specified product will be paid
until October 8, 1999 and thereafter as long as the product continues to
use a derivative of the consultant's name. Royalty expense under this
agreement was $3,980 and $954 in 1998 and 1999, respectively.
F-18
<PAGE> 57
MICRO THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
In March 1998, the Company licensed technology from a consultant for
which the Company pays a royalty of 1% of net sales on any product that
bears the name of the consultant for a period of ten years. Royalty
expense under this agreement was $9,477 and $8,005 in 1998 and 1999,
respectively.
In April 1999, the Company entered into a consulting agreement under
which the Company granted 30,000 options to the consultant in conformity
with the 1996 Plan (Note 9) and agreed to pay the consultant a royalty
of 3% of net sales of certain micro catheters and certain formulations
of Onyx. Royalty expense under this agreement in 1999 was $12,292.
In November 1999, certain officers and an employee of the Company
exercised options in conformity with the 1996 Plan (Note 9), resulting
in the issuance of an aggregate of 79,634 shares of the Company's Common
Stock, and issued notes to the Company in the aggregate amount of
$322,590. The notes are collateralized by such shares of the Company's
Common Stock, are due November 2002 and bear an interest rate of 5.47%
per annum.
The Company manufactures products for sale to certain companies who
license technology from the Company (Note 16). Sales to these companies
aggregated $73,420 in 1999. There were no such sales in 1998.
The Company's President and Chief Executive Officer is a director of a
company for whom the Company manufactures products. Sales to this
company were $22,582 in 1999.
There were no such sales in 1998.
13. DISTRIBUTION AGREEMENTS:
Concurrent with the execution of their respective convertible note
agreements described in Note 7, Guidant, Abbott and Century each entered
into distribution agreements with the Company.
Guidant Corporation
The distribution agreement with Guidant provides rights for exclusive
European distribution of the Company's neuro products. In August 1998,
the agreement was expanded to provide for the European distribution by
Guidant of the Company's peripheral embolization products. The agreement
has a five-year term, which commenced during 1999, upon the first
commercial sale of products covered under the agreement, and may be
canceled by the Company upon a sale of substantially all the Company's
assets or change in control of the Company. In such event, the
cancellation penalty to be paid to Guidant is the greater of $1 million
or an amount based on Guidant's gross profit, as defined in the
agreement.
Abbott Laboratories
The distribution agreement with Abbott provides exclusive rights to
distribute the Company's peripheral blood clot therapy products in the
U.S. and Canada. The initial term of the agreement is through 2008. It
may be extended by mutual agreement, or by Abbott upon Abbott's
attainment of forecast sales levels, the determination of which is
defined in the agreement, in any three years within defined five-year
periods in which the agreement is in force. Abbott may terminate the
agreement upon 180 days written notice, and the Company may terminate
the agreement if Abbott fails to attain the forecast sales levels
discussed above in at least three years within defined five-year periods
in which the agreement is in force, or if the parties reach an impasse
in determining such sales levels. The agreement is also terminable by
the Company's successor in the event of a change of control of the
Company. In such event, Abbott has the option to purchase the peripheral
blood clot therapy line of business at a mutually agreed-upon price, or
the Company's successor may pay a termination fee based upon Abbott's
historical sales levels as defined in the agreement.
F-19
<PAGE> 58
MICRO THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
In October 1998, under the terms of the distribution agreement, Abbott
furnished the Company with a non-refundable $1 million marketing payment
upon Abbott's first commercial sale of product. This payment was
recorded as deferred revenue by the Company, and is being amortized on a
straight-line basis into income over the initial term of the
distribution agreement.
The distribution agreement with Abbott required the Company to commit
the resources of its sales representatives for the first six months of
the agreement to the transition of the distribution function to Abbott.
This six-month period terminated on March 31, 1999. In April and August
1999, Abbott agreed to make additional quarterly $500,000 payments to
the Company solely as consideration for the continued resource
commitment of the Company's sales representatives to the transition of
distribution to Abbott during each of the quarters ended June 30, 1999
and September 30, 1999. These additional payments, which are reflected
as a reduction of selling expenses in the accompanying 1999 statement of
operations, were received by the Company in July 1999 and November 1999.
Upon shipment of product by the Company to Abbott, the Company receives
an initial purchase price payment from Abbott as provided in the
agreement, which is recorded as revenue by the Company upon shipment to
Abbott. Additional purchase price payments are made by Abbott to the
Company based upon Abbott's net sales, as defined in the agreement. Such
additional purchase price payments are recorded as revenue by the
Company upon Abbott's sale of the related product.
Century Medical, Inc.
The distribution agreement with Century provides exclusive rights to
distribute all of the Company's products in Japan. The initial term of
the agreement extends five years past the date on which the first
regulatory approval is obtained for an application using the Company's
proprietary Onyx Liquid Embolic System. The agreement may be extended
for additional five-year terms either automatically, unless terminated
for reasons described below, or by mutual agreement. The agreement may
be terminated by the Company if Century fails to achieve certain sales
levels, the determination of which is defined in the agreement, in at
least three of any five consecutive years in which the agreement is in
force, or if the parties reach an impasse in determining such sales
levels. The agreement is also terminable by the Company's successor in
the event of a change of control of the Company upon payment by the
Company's successor of a termination fee based on Century's historical
gross profit, as defined in the agreement.
Under the terms of the distribution agreement, Century made a $500,000
advance payment to the Company on September 30, 1998, which amount is to
be applied against Century's first future purchase orders for the
Company's peripheral blood clot therapy products. The Company has
recorded this payment as deferred revenue and will recognize sales
revenue from such amount as the Company makes shipments to Century under
such purchase orders. Under the terms of the distribution agreement,
upon achievement of the first regulatory approval in Japan for an
application using Onyx, Century will make a $1 million advance payment
to the Company, which amount is to be applied against Century's first
future purchase orders for Onyx-related product.
14. CONCENTRATIONS OF CREDIT RISK:
At December 31, 1999, the Company had approximately $9,851,000 of cash
and cash equivalents that were in excess of the federally-insured limit
of $100,000 per bank. All such investments are in the custody of one
bank.
F-20
<PAGE> 59
Prior to October 1, 1998, the effective date of the Company's
distribution agreement with Abbott (Note 14), the Company's customers in
the United States were primarily hospitals. Subsequent to that date,
Abbott became the Company's primary customer in the United States and
accounted for 47% of the Company's accounts receivable at December 31,
1999. Internationally, distributors, including Guidant and Century, are
the Company's primary customers.
15. SEGMENT INFORMATION:
In 1998 and 1999, the Company's neuro vascular products were in various
phases of research, development, clinical and regulatory processes.
Accordingly, the Company's revenues in such years were derived
substantially from its peripheral vascular products. Additional
information with respect to revenues for 1998 and 1999 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1999
---------- ----------
<S> <C> <C>
Peripheral blood clot therapy
United States $4,078,076 $2,540,231
International 86,226 188,395
---------- ----------
Total peripheral blood clot therapy revenues 4,164,302 2,728,626
---------- ----------
Onyx
United States -- 39,974
International -- 159,504
Total Onyx revenues -- 199,478
Micro catheter, access and delivery
United States 51,874 490,550
International 33,205 624,000
---------- ----------
Total micro catheter, access and delivery revenues 85,079 1,114,550
---------- ----------
Other
United States -- 53,538
International -- 1,480
---------- ----------
Total other revenues -- 55,018
---------- ----------
Total revenues $4,249,381 $4,097,672
========== ==========
</TABLE>
Due to the predominance of peripheral blood clot therapy revenues in
1998 and 1999, information such as operating income (loss) and total
assets was not used in such years to evaluate segment performance.
In 1998 and 1999, Abbott (Note 13) accounted for 25% and 62%,
respectively, of the Company's sales. No other customer accounted for
10% or more of the Company's sales in 1998 or 1999.
F-21
<PAGE> 60
MICRO THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
16. LICENSING TRANSACTIONS:
On November 17, 1997, the Company licensed its proprietary Onyx
technology to its then-new subsidiary, Genyx Medical, Inc., ("Genyx") in
connection with non-vascular applications for gynecological and
urological procedures. Genyx licensed back to the Company the right to
develop, manufacture and market any product which incorporates or uses
the Genyx modified Onyx technology outside of the applications licensed
to Genyx. As consideration for the license agreement and for certain
commitments described below, Genyx issued 850,000 shares of its common
stock to the Company, which constituted 85% of its then outstanding
shares, and entered into a royalty arrangement whereby Genyx compensates
the Company based on net revenues derived from sale of licensed products
by Genyx.
On March 12, 1998, Genyx entered into a $3 million equity financing
agreement. As a result of this financing, the Company's ownership in
Genyx was reduced from 85% to 27%. Because the Company's carrying value
of its investment in Genyx is $0 and the Company has no obligation to
fund Genyx's operations, the Company is currently not required by
generally accepted accounting principles to recognize its equity share
of the losses Genyx has incurred since March 12, 1998. Expenditures
related to Genyx for the period from January 1, 1998 to March 12, 1998
had been recorded by the Company as research and development expenses,
and amounted to $33,916.
In July 1998, the Company licensed its proprietary Onyx technology to a
newly-formed company (the "licensee"). The licensee was formed for the
purpose of developing non-vascular applications using Onyx in the
gastrointestinal tract. The license agreement provides for a license
back to the Company under which it has the right to develop, manufacture
and market any product which incorporates or uses Onyx technology
modified by the licensee outside of the applications licensed to it. As
consideration, the licensee issued 2,000,000 shares of its common stock
to the Company, which constituted 38% of its then outstanding shares,
and entered into a royalty arrangement whereby the licensee will
compensate the Company based on net revenues derived from sale of
licensed products by the licensee. In November 1999, the licensee
completed a financing transaction which resulted in the Company's
ownership being reduced to approximately 25% of currently outstanding
shares. Because the Company's carrying value of its investment in the
licensee is $0 and the Company has no obligation to fund the licensee's
operations, the Company is not required by generally accepted accounting
principles to recognize its equity share of the licensee's losses.
17. SUBSEQUENT EVENT:
On March 10, 2000, the Company sold 1,600,000 shares of its Common Stock
under the terms of a Securities Purchase Agreement to accredited
investors in conformity with Rule 506 under Regulation D, raising gross
proceeds of $11,936,000. The Company and the investors concurrently
entered into a Registration Rights Agreement, under which the Company
has undertaken to register such 1,600,000 shares under the Securities
Act within a time frame specified in the Registration Rights Agreement.
The pro forma information presented in the accompanying consolidated
balance sheet reflects this transaction, net of estimated issuance and
registration costs aggregating $936,000, as if it had been completed on
December 31, 1999.
F-22
<PAGE> 61
INDEX TO EXHIBITS
EXHIBIT NUMBER
<TABLE>
<CAPTION>
DESCRIPTION OF DOCUMENT
-----------------------
<S> <C>
2.1 Agreement and Plan of Merger between the Company and Micro Therapeutics,
Inc., a California corporation, effective November 6, 1996.(1)
3.1 Certificate of Incorporation of the Company, as currently in effect.(2)
3.2 Bylaws of the Company, as currently in effect.(1)
4.1 Warrant Agreement dated December 20, 1995 between the Company and
Comdisco, Inc.(1)
4.2 Warrant Agreement dated May 21, 1996 between the Company and Comdisco,
Inc.(1)
10.1 Form of Directors' and Officers' Indemnification Agreement.(1)
10.2 License Agreement dated June 1, 1993 between the Company and Andrew
Cragg.(1)
10.3 Consulting Agreement dated October 1, 1996 between the Company and
Andrew Cragg.(1)
10.4 Industrial Real Estate Lease dated June 10, 1998 between the Company and
New Goodyear, LTD., a California Limited Partnership. (Incorporated by
reference to Exhibit 10.4 of the Company's Form 10-KSB as filed with the
Securities and Exchange Commission on March 31, 1999)
10.5 Amended and Restated Investors Rights Agreement dated February 9, 1995,
among the Company, the Investors named therein and the Common Holders
named therein, as amended on May 17, 1996 and June 27, 1996.(1)
10.6 1993 Incentive Stock Option, Nonqualified Stock Option and Restricted
Stock Purchase Plan.(1), (3)
10.7 1996 Stock Incentive Plan, as amended.(1), (3)
10.8 Employee Stock Purchase Plan, as amended.(1), (3)
10.9 Equipment Leasing Line of Credit dated December 20, 1995 between the
Company and ComDisco Ventures, as amended on May 21, 1996.(1)
10.10 Convertible Subordinated Note Agreement dated November 17, 1997, between
the Company and Guidant Corporation. (Incorporated by reference to
Exhibit 10.11 of the Company's Form 10-KSB as filed with the Securities
and Exchange Commission on March 31, 1998)
10.11 Distribution Agreement dated November 17, 1997, between the Company and
Guidant Corporation. (Incorporated by reference to Exhibit 10.12 of the
Company's Form 10-KSB as filed with the Securities and Exchange
Commission on March 31, 1998) (4)
10.12 First Amendment to Distribution Agreement dated August 17, 1998 between
the Company and Guidant Corporation. (Incorporated by reference to
Exhibit 10.12 of the Company's Form 10-KSB as filed with the Securities
and Exchange Commission on March 31, 1999)
10.13 Second Amendment to Distribution Agreement dated July 23, 1999 between
the Company and Guidant Corporation. (Incorporated by reference to
Exhibit 10.6 of the Company's Form 10-QSB as filed with the Securities
and Exchange Commission on August 12, 1999)
10.14 Convertible Subordinated Note Agreement dated August 12, 1998, between
the Company and Abbott Laboratories. (Incorporated by reference to
Exhibit 10.1 of the Company's Form 8-K as filed with the Securities and
Exchange Commission on August 12, 1998)
</TABLE>
<PAGE> 62
<TABLE>
<CAPTION>
<S> <C>
10.15 5% Convertible Note dated August 19, 1998, between the Company and
Abbott Laboratories. (Incorporated by reference to Exhibit 10.2 of the
Company's Form 8-K as filed with the Securities and Exchange Commission
on August 12, 1998)
10.16 Exclusive Distribution Agreement dated August 12, 1998, between the
Company and Abbott Laboratories. (Incorporated by reference to Exhibit
10.3 of the Company's Form 8-K as filed with the Securities and Exchange
Commission on August 12, 1998)(4)
10.17 First Amendment to Exclusive Distribution Agreement dated November 16,
1998 by and between the Company and Abbott Laboratories. (Incorporated
by reference to Exhibit 10.6 of the Company's Form 10-QSB as filed with
the Securities and Exchange Commission on November 16, 1998)
10.18 Credit Agreement dated August 12, 1998, between the Company and Abbott
Laboratories. (Incorporated by reference to Exhibit 10.4 of the
Company's Form 8-K as filed with the Securities and Exchange Commission
on August 12, 1998)
10.19 Security Agreement dated August 12, 1998, between the Company and Abbott
Laboratories. (Incorporated by reference to Exhibit 10.5 of the
Company's Form 8-K as filed with the Securities and Exchange Commission
on August 12, 1998)
10.20 Amendment to Convertible Subordinated Note Agreement and Credit
Agreement dated May 21, 1999 between the Company and Abbott.
(Incorporated by reference to Exhibit 10.1 of the Company's Form 8-K
dated June 2, 1999)
10.21 Termination of Credit Agreement and Security Agreement dated May 21,
1999 between the Company and Abbott. (Incorporated by reference to
Exhibit 10.2 of the Company's Form 8-K dated June 2, 1999)
10.22 Notice of Conversion of First Note, dated May 21, 1999, executed by
Abbott. (Incorporated by reference to Exhibit 10.3 of the Company's Form
8-K dated June 2, 1999)
10.23 Notice of Conversion of Second Note, dated May 21, 1999, executed by the
Company. (Incorporated by reference to Exhibit 10.4 of the Company's
Form 8-K dated June 2, 1999)
10.24 Put Option Agreement, dated October 26, 1999 between the Company and
Abbott.
10.25 Convertible Subordinated Note Agreement dated September 23, 1998,
between the Company and Century Medical, Inc. (Incorporated by reference
to Exhibit 10.1 of the Company's Form 8-K as filed with the Securities
and Exchange Commission on November 3, 1998)
10.26 5% Convertible Note dated September 30, 1998, between the Company and
Century Medical, Inc. (Incorporated by reference to Exhibit 10.2 of the
Company's Form 8-K as filed with the Securities and Exchange Commission
on November 3, 1998)
10.27 Distribution Agreement dated September 23, 1998, between the Company and
Century Medical, Inc. (Incorporated by reference to Exhibit 10.3 of the
Company's Form 8-K as filed with the Securities and Exchange Commission
on November 3, 1998)(4)
10.28 Credit Agreement dated September 23, 1998, between the Company and
Century Medical, Inc. (Incorporated by reference to Exhibit 10.4 of the
Company's Form 8-K as filed with the Securities and Exchange Commission
on November 3, 1998)
10.29 Stockholder Rights Plan. (Incorporated by reference to Exhibit 1 of the
Company's Form 8-A dated June 3, 1999)
10.30 Securities Purchase Agreement dated March 10, 2000 between the Company
and Pequot Capital Equity Fund II LP, Framlington Health, Bridge & Co.
and Munder Health
</TABLE>
<PAGE> 63
<TABLE>
<S> <C>
10.31 Registration Rights Agreement dated March 10, 2000 between the Company
and Pequot Capital Equity Fund II LP, Framlington Health, Bridge & Co.
and Munder Health
21.1 Subsidiaries of the Registrant.(1)
23.1 Consent of PricewaterhouseCoopers LLP
24.1 Power of Attorney (see signature page S-1).
27.1 Financial Data Schedule for the year ended December 31, 1999.
- ------------------
(1) Incorporated by reference to the same numbered exhibit of the Company's
Registration Statement on Form SB-2, No. 333-17345.
(2) Incorporated by reference to Exhibit number 3.4 of the Company's
Registration Statement on Form SB-2, No. 333-17345.
(3) These exhibits are identified as management contracts or compensatory
plans or arrangements of the Company pursuant to item 13(a) of Form
10-KSB.
(4) Portions of this Exhibit are omitted and were filed separately with the
Secretary of the Commission pursuant to the Company's application
requesting confidential treatment under Rule 406 of the Securities Act
of 1933.
</TABLE>
<PAGE> 1
EXHIBIT 10.24
PUT OPTION AGREEMENT
THIS PUT OPTION AGREEMENT ("Agreement") is made as of October 26, 1999,
between Micro Therapeutics, Inc., a Delaware corporation ("the Company"), and
Abbott Laboratories, an Illinois corporation ("Abbott").
RECITALS
WHEREAS, Abbott has agreed to grant to the Company, and the Company has
agreed to accept, the option to issue, sell and deliver to Abbott shares of the
Company's Common Stock; and
WHEREAS, the Company and Abbott desire to make certain representations,
warranties, and covenants in connection with said grant to the Company of the
option to issue, sell and deliver to Abbott the Company's Common Stock and to
prescribe conditions precedent to such sale, issuance and delivery;
AGREEMENT
NOW THEREFORE, in consideration of the premises and the respective
promises made in this Agreement, and in consideration of the representations,
warranties, and covenants contained herein, the parties hereto agree as follows:
1. Certain Definitions. Unless the context otherwise requires, the terms
hereafter set forth when used in this Agreement shall have the following
meanings and the following definitions shall be equally applicable to both the
singular and plural forms of any of the terms herein defined:
1.1 "Business Day" means any day except a Saturday, Sunday, or other day
on which commercial banks in the City of Chicago are authorized by law to close.
1.2 "Closing" has the meaning set forth in Section 2.6 of this
Agreement.
1.3 "Common Stock" means the shares of Common stock of the Company, par
value $0.001 per share.
1.4 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
1.5 "Material Adverse Effect" has the meaning set forth in SECTION 3.1
of this Agreement.
1.6 "Option Limit" means $3,000,000.
1.7 "Option Shares" means shares of Common Stock acquired by Abbott
under the terms of this Agreement and any other securities received on account
of such shares as have been issued at any time in any stock split, stock
dividend, recapitalization, merger, consolidation or similar event.
-1-
<PAGE> 2
1.8 "Price Per Option Share" means $12 (as adjusted pursuant to Section
2.3).
1.9 "Purchase Price" has the meaning set forth in SECTION 2.5 of this
Agreement.
1.10 "Put Option" has the meaning set forth in SECTION 2.1 of this
Agreement.
1.11 "SEC" means the United States Securities and Exchange Commission.
1.12 "SEC Documents" has the meaning set forth in SECTION 3.10 of this
Agreement.
1.13 "Securities Act" means the Securities Act of 1933, as amended.
2. Put Option.
2.1 Grant of Put Option. The Company shall have the right, at its sole
discretion, but subject to the terms and conditions of this Agreement and on the
basis of the representations, warranties and covenants set forth herein, to
require Abbott to purchase up to the number of shares of Common Stock obtained
by dividing the Option Limit by the Price Per Option Share and rounding down to
the nearest whole number (the "Put Option"). The Put Option may be exercised,
whether in whole or in part, on only one occasion.
2.2 Term of the Put Option. The Put Option shall terminate immediately
after the Closing or on October 31, 1999, whichever occurs first.
2.3 Price and Certain Adjustment. The price per share of Common Stock to
be paid by Abbott shall be the Price Per Option Share. If the Company at any
time effects a subdivision or combination of the outstanding Common Stock, the
Price Per Option Share shall be decreased, in the case of a subdivision
(including by way of any stock split or recapitalization), or increased, in the
case of a combination (including by way of any reverse stock split or
recapitalization), in the same proportions as the Common Stock is subdivided or
combined, in each case effective automatically upon, and simultaneously with,
the effectiveness of the subdivision or combination which gives rise to the
adjustment. If the Company at any time pays a dividend, or makes any other
distribution, to holders of Common Stock payable in shares of Common Stock, or
fixes a record date for the determination of holders of Common Stock entitled to
receive a dividend or other distribution payable in shares of Common Stock, the
Price Per Option Share shall be adjusted by multiplying it by a fraction:
(a) the numerator of which shall be the total number of shares of
Common Stock outstanding immediately prior to such dividend or
distribution; and
(b) the denominator of which shall be the total number of shares of
Common Stock outstanding immediately after such dividend (plus,
if the Company paid cash instead of fractional shares otherwise
issuable in such dividend or distribution, the number of
additional shares which would have been outstanding had the
Company issued
-2-
<PAGE> 3
fractional shares instead of cash).
Whenever the Price Per Option Share shall be adjusted, the Company shall
prepare a certificate signed by a corporate officer setting forth, in reasonable
detail, the event requiring the adjustment, the amount of the adjustment, the
method by which such adjustment was calculated, and the Price Per Option Share
after giving effect to such adjustment, and shall cause a copy of such
certificate to be mailed (by first class mail postage prepaid) to Abbott
promptly after each adjustment.
2.4 Additional Limitation. Notwithstanding any other provision of this
Agreement to the contrary, the Company shall not be entitled to exercise the Put
Option to the extent that such exercise will cause Abbott to become the record
holder of more than 14.9% of the outstanding voting stock of the Company, unless
the purchase of such shares has been approved by the Board of Directors of the
Company prior to the date of such Put Option for the purpose of Section 203 of
the Delaware General Corporation Law, such that on the applicable Closing,
neither Abbott nor any of Abbott's affiliates will be subject to the
restrictions set forth in said Section 203 with respect to the Company. A
certified copy of the resolution or consent evidencing the approval called for
by this SECTION 2.4 will be provided to Abbott prior to the Company exercising
the Put Option causing Abbott to become the record holder of more than 14.9% of
the outstanding voting stock of the Company (after giving effect to the exercise
of such Put Option).
2.5 Manner of Exercising Put Option. To exercise the Put Option, the
Company shall deliver to Abbott a written notice (the "Exercise Notice"), which
shall set forth: (i) the number of shares of Common Stock to be sold to and
purchased by Abbott in connection with the exercise of the Put Option; (ii) the
aggregate purchase price for such shares determined by multiplying (a) the
number of shares of Common Stock to be sold to and purchased by Abbott in
connection with the exercise of the Put Option by (b) the Price Per Option Share
(the "Purchase Price"), and (iii) the date of the Closing, which shall be no
sooner than the tenth Business Day after Abbott's receipt of the Exercise Notice
or such other date as shall be agreed to in writing by Abbott and the Company.
The Company shall deliver to Abbott written wire transfer instructions (setting
forth the name and address of the bank, the account number, the ABA routing
number and any other required information for the payment of the Purchase Price)
at least 48 hours prior to the Closing.
2.6 Place of Closing. The closing of the purchase and sale of shares of
Common Stock under this Agreement (the "Closing") shall be held at the time
specified in Section 2.5 at the offices of Stradling Yocca Carlson & Rauth, 660
Newport Center Drive, Suite 1600, Newport Beach, CA 92660, or at such time and
place upon which the Company and Abbott shall agree.
2.7 Delivery. At any Closing, the Company will issue a certificate to
Abbott registered in Abbott's name representing the number of shares of Common
Stock being purchased by Abbott against payment to the Company of the Purchase
Price therefor. The Purchase Price shall be paid
-3-
<PAGE> 4
by Abbott to the Company by wire transfer to the bank account of the Company
specified by the Company pursuant to Section 2.5.
3. Representations And Warranties of The Company. Except as set forth in
the Schedule of Exceptions attached hereto as EXHIBIT A specifically identifying
the relevant subsection of this Agreement, the Company hereby represents and
warrants to Abbott that:
3.1 Authority.
(a) The Company has full legal right, power and authority to execute
and deliver this Agreement and to consummate the transactions
contemplated hereby.
(b) All corporate action on the part of the Company, its officers,
directors and stockholders necessary for the execution and
delivery of, and the consummation of the transactions
contemplated by this Agreement and the performance of all
obligations of the Company hereunder have been taken.
(c) This Agreement, upon execution and delivery by the Company and,
assuming the due and proper execution and delivery by Abbott,
constitutes a legal, valid and binding obligation of the
Company, enforceable in accordance with its terms, except as may
be limited by: (i) applicable bankruptcy, insolvency,
reorganization or other laws of general application relating to
or affecting the enforcement of creditors rights generally, and
(ii) the effect of rules of law governing the availability of
equitable remedies.
(d) The making and performance of the Agreement by the Company and
the consummation of the transactions contemplated by the
Agreement: (i) will not violate any provision of the
organizational documents of the Company or any of its
subsidiaries; (ii) will not result in the creation of any lien,
charge, security interest or encumbrance upon any assets of the
Company pursuant to the terms or provisions of, and will not
conflict with, result in the breach or violation of, or
constitute, either by itself or upon notice or the passage of
time or both, a default under any agreement, mortgage, deed of
trust, lease, franchise, licence, indenture, permit or other
instrument to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries or any
of their respective properties may be bound or affected, except,
in each such case, as would not reasonably be expected to have a
material adverse affect on the condition (financial or
otherwise), properties, business, prospects, or results of
operations of the Company and its subsidiaries taken as a whole
(a "Material Adverse Effect"); and (iii) will not conflict with,
or result in the breach or violation of, any statute or any
authorization, judgment, decree, order, rule or regulation of
any court or any regulatory body, administrative agency or other
governmental body applicable to the Company or any of its
subsidiaries or any of their respective properties.
-4-
<PAGE> 5
3.2 Organization, Good Standing and Qualification.
(a) The Company and each of its subsidiaries, has been duly
incorporated and is validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation,
with full power and authority (corporate and other) to own and
lease its properties and conduct its businesses as presently
conducted and as proposed to be conducted. The Company and each
of its subsidiaries, is duly qualified to do business and in
good standing as a foreign corporation in each jurisdiction in
which the ownership or leasing of properties or the conduct of
its business requires such qualification, except for
jurisdictions in which the failure to so qualify would not have
a Material Adverse Effect; and no proceeding has been instituted
in any such jurisdiction, revoking, limiting or curtailing, or
seeking to revoke, limit or curtail such power and authority or
qualification.
(b) The Company has delivered to Abbott complete and correct copies
of its Certificate of Incorporation and Bylaws, as amended to
the date hereof, and will furnish to Abbott true and correct
copies of any amendments thereto throughout the term of this
Agreement.
3.3 Capitalization.
(a) The authorized capital stock of the Company consists of
20,000,000 shares of Common Stock $0.001 par value and 5,000,000
shares of Preferred Stock, $0.001 par value.
(b) As of the date hereof, there were 7,926,659 shares of Common
Stock issued and outstanding and no shares of Preferred Stock
issued and outstanding. All such issued an outstanding shares
have been duly authorized and validly issued and are fully paid
and non-assessable and no issued and outstanding shares are
subject to preemptive rights created by statute, the Certificate
of Incorporation or Bylaws, or any agreement to which the
Company is a party or by which the Company may be bound.
(c) All outstanding shares of the Company's capital stock have been
issued in compliance with applicable federal and state
securities laws.
(d) There are no other options, warrants, conversion privileges or
other contractual rights presently outstanding or in existence
to purchase or otherwise acquire any authorized but unissued
shares of the Company's capital stock or other securities or the
capital stock or other securities of any subsidiary of the
Company.
3.4 Valid Issuance of Common Stock. The Option Shares shall have been
duly authorized and, when issued, delivered, and paid for in the manner set
forth in this Agreement, will be duly authorized, validly issued, fully paid and
nonassessable, and, at the Closing, Abbott shall receive good and marketable
title to the Option Shares free of any liens or restrictions (unless created
-5-
<PAGE> 6
by Abbott), other than the restrictions expressly set forth in this Agreement or
under applicable state and federal securities laws. No preemptive rights or
other subscription or purchase rights exist with respect to the issuance and
sale of the Option Shares by the Company pursuant to this Agreement.
3.5 Governmental Consents. Other than compliance with the Securities Act
and such filings as may be required to be made with the National Association of
Securities Dealers, no consent, approval order or authorization of, or
registration, qualification, designation, declaration or filing with, any
federal state or local governmental authority on the part of the Company is
required in connection with the consummation of the transactions contemplated by
this Agreement.
3.6 Offering. Subject in part to the truth and accuracy of Abbott's
representations set forth in SECTION 4 of this Agreement, the offer, sale and
issuance of the Option Shares as contemplated by this Agreement are exempt from
the registration requirements of the Securities Act, and neither the Company nor
any authorized agent acting on its behalf will take any action hereafter that
would cause the loss of such exemption.
3.7 Litigation. There are no legal or governmental actions, suits or
proceedings pending or, to the Company's knowledge, threatened to which the
Company or any of its subsidiaries is or may be a party or of which property
owned or leased by the Company or any of its subsidiaries is or may be the
subject, which actions, suits or proceedings might, individually or in the
aggregate, prevent or adversely affect the transactions contemplated by this
Agreement or result in a Material Adverse Effect. The Company is not a party or
subject to the provisions of any material injunction, judgment, decree or order
of any court, regulatory body, administrative agency or other governmental body.
There are no material legal or governmental actions, suits or proceedings
pending or, to the Company's knowledge, threatened against any executive
officers or directors of the Company.
3.8 Disclosure. Neither this Agreement, nor any other statements or
certificates made or delivered in connection herewith or therewith contains any
untrue statement of a material fact or omits to state a material fact necessary
to make the statements herein or therein not misleading.
3.9 Changes. Since June 30, 1999:
(a) the Company has not incurred any material liabilities or
obligations, indirect, direct or contingent, or entered into any
material verbal or written agreement or other transaction which
is not in the ordinary course of business;
(b) the Company has not sustained any material loss or interference
with its business or properties from fire, flood, storm,
accident or other calamity, whether or not covered by insurance;
(c) the Company has not paid or declared any dividends or other
distributions with respect to its capital stock and the Company
is not in default in the payment of principal or interest on any
outstanding debt obligations;
-6-
<PAGE> 7
(d) there has not been any change in the capital stock or, other
than in the ordinary course of business, indebtedness material
to the Company; and
(e) there has not been any event, change or development resulting in
or which may reasonably be expected to result in a Material
Adverse Effect.
3.10 Financial and SEC Documents.
(a) The Company has furnished to Abbott its audited consolidated
statement of operations, statement of stockholders' equity and
statement of cash flows for the fiscal year ended December 31,
1998 and the Company's audited consolidated balance sheet at
December 31, 1998; and the unaudited consolidated statement of
operations and statement of cash flows for the six (6) months
ended June 30, 1999 and the unaudited consolidated balance sheet
at June 30, 1999. The balance sheet at June 30, 1999 is
hereinafter referred to as the "Company Balance Sheet," and all
such financial statements are hereinafter referred to
collectively as the "Company Financial Statements." The Company
Financial Statements have been and will be prepared in
accordance with generally accepted accounting principles in the
United States applied on a consistent basis, except for any
change due to the adoption of an accounting principle
established by the FASB, AICPA, SEC or any other accounting
standard setting board, during the periods involved, and fairly
present the consolidated financial position of the Company and
the results of its operations as of the date and for the periods
indicated thereon. At the date of the Company Balance Sheet (the
"Company Balance Sheet Date"), neither the Company nor its
consolidated subsidiaries had any material liabilities or
obligations, secured or unsecured (whether accrued, absolute,
contingent or otherwise) not reflected on the Company Balance
Sheet or the accompanying notes thereto.
(b) The Company has furnished to Abbott a true and complete copy of
the Company's Form 10-KSB for the year ended December 31, 1998
and Form 10-QSB for each of the quarters ended March 31, 1999
and June 30, 1999 (the "Company SEC Documents"). The Company has
filed in a timely manner each statement, annual, quarterly and
other report, registration statement and definitive proxy
statement required to be filed (other than preliminary material)
by the Company with the SEC. As of their respective filing
dates, the Company SEC Documents comply in all material respects
with the requirements of the Exchange Act or the Securities Act,
and none of the Company SEC Documents contain any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the
statements made therein, in light of the circumstances under
which they were made, not misleading, except to the extent
corrected by a subsequently filed Company SEC Document.
(c) Since June 30, 1999, there have been no events or transactions
that would require adjustment to, or disclosure in, the audited
financial statements of the Company for the period then ended in
order to keep them from being misleading.
-7-
<PAGE> 8
3.11 DGCL. The issue, sale and delivery of the Common Stock under the
terms if this Agreement shall not cause Abbott to become an "interested
shareholder" (as defined in Section 203 of the Delaware General Corporation
Law).
4. Representations, Warranties and Covenants of Abbott. Abbott hereby
represents and warrants to the Company that:
4.1 Authority.
(a) Abbott has full legal right, power and authority to execute and
deliver this Agreement and to consummate the transactions
contemplated hereby.
(b) All corporate action on the part of Abbott, its officers,
directors and stockholders necessary for the execution and
delivery of, and the consummation of the transactions
contemplated by this Agreement and the performance of all
obligations of Abbott hereunder have been taken.
(c) This Agreement, upon execution and delivery by Abbott and,
assuming the due and proper execution and delivery by the
Company, constitutes a legal, valid and binding obligation of
Abbott, enforceable in accordance with its terms, except as may
be limited by: (i) applicable bankruptcy, insolvency,
reorganization or other laws of general application relating to
or affecting the enforcement of creditors rights generally, and
(ii) the effect of rules of law governing the availability of
equitable remedies.
(d) The making and performance of the Agreement by Abbott and the
consummation of the transactions contemplated by Abbott will not
violate any provision of the organizational documents of Abbott
or any of its subsidiaries.
4.2 Purchase Entirely for Own Account. The Option Shares to be received
by Abbott at the Closing will be acquired for investment for Abbott's own
account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof, and Abbott has no present intention of
selling, granting any participation in, or otherwise distributing the same.
Abbott does not have any contract, undertaking, agreement or arrangement with
any person to sell, transfer or grant participation to such person or to any
third person, with respect to any of the Option Shares.
4.3 Disclosure of Information. Abbott further represents that it has had
an opportunity to ask questions and receive answers from the Company regarding
the terms and conditions of the offering of the Option Shares and the business,
properties, prospects and financial condition of the Company. The foregoing,
however, does not limit or modify the representations and warranties of the
Company in SECTION 3 of this Agreement or the right of Abbott to rely thereon.
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<PAGE> 9
4.4 Investment Experience. Abbott acknowledges that it can bear the
economic risk of its investment and has such knowledge and experience in
financial or business matters that it is capable of evaluating the merits and
risks of the investment in the Option Shares.
4.5 Restricted Securities. Abbott understands that the Option Shares are
characterized as "restricted securities" under the federal securities laws
inasmuch as they are acquired from the Company in a transaction not involving a
registered offering and that such securities may be resold without registration
under the Securities Act, only in compliance with the federal securities laws
and the regulations thereunder.
4.6 Accredited Investor. Abbott is an "accredited investor" within the
meaning of SEC Rule 501 of Regulation D, as presently in effect.
4.7 Shares of Common Stock. As of the date hereof, excluding the number
of Option Shares to be acquired by Abbott under the terms of this Agreement,
Abbott is the beneficial owner of 962,628 shares of Common Stock.
5. Additional Covenants.
5.1 Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the SEC which may permit the sale of restricted
Common Stock to the public without registration, as long as a public market
exists for the Common Stock, the Company agrees to use its best efforts to:
(a) Make and keep available adequate current public information, as
those terms are understood and defined in Rule 144 under the
Securities Act;
(b) File with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and
the Exchange Act; and
(c) For the two year period following the Closing and for so long as
Abbott owns any restricted Common Stock, furnish to Abbott
forthwith upon request a written statement by the Company as to
its compliance with the reporting requirements of Rule 144, and
of the Securities Act and the Exchange Act, a copy of the most
recent annual or quarterly report of the Company, and such other
reports and documents of the Company and other information in
the possession of or reasonably obtainable by the Company as
Abbott may reasonably request in availing itself of any rule or
regulation of the SEC allowing Abbott to sell any such
securities without registration.
5.2 Press Releases. Any press release or other public announcement
concerning this Agreement or the transactions contemplated hereby shall be
mutually satisfactory to the Company and Abbott, except that the Company and
Abbott may issue such press releases or make such public statements as it
reasonably believes to be required by law or the rules of any national
securities
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<PAGE> 10
exchange or inter-dealer quotation system.
5.3 Legends. Each certificate or instrument representing the Option
Shares shall bear legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND
ARE "RESTRICTED SECURITIES" AS DEFINED IN RULE 144 PROMULGATED UNDER THE
SECURITIES ACT. THE SECURITIES MAY NOT BE SOLD OR OFFERED FOR SALE OR
OTHERWISE DISTRIBUTED EXCEPT (I) IN CONJUNCTION WITH AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT, OR
(II) IN COMPLIANCE WITH RULE 144, OR (III) PURSUANT TO AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE ISSUER OF THESE SECURITIES THAT
SUCH REGISTRATION OR COMPLIANCE IS NOT REQUIRED AS TO SUCH SALE, OFFER
OR DISTRIBUTION".
6. Conditions of Abbott's Obligations at Closing. Abbott's obligation to
purchase Option Shares at the Closing is subject to fulfillment, on or prior to
such Closing of each of the following conditions unless waived by Abbott.
6.1 Representations And Warranties. The representations and warranties
of the Company contained in SECTION 3 shall be true and correct when made and at
the Closing with the same effect as though such representations and warranties
had been made on and as of the date of the Closing.
6.2 Performance. The Company shall have performed and complied with all
agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing.
6.3 Qualifications. All authorizations, approvals, or permits, if any,
of any governmental authority or regulatory body of the United States or of any
state that are required in connection with the lawful issuance and sale of the
Option Shares pursuant to this Agreement shall be duly obtained and effective as
of the Closing.
6.4 Proceedings And Documents. All corporate and other proceedings in
connection with the transactions contemplated at the Closing and all documents
incident thereto shall be reasonably satisfactory in form and substance to
Abbott, and it shall have received all such counterpart original and certified
or other copies of such documents as it may reasonably request.
6.5 No Order Pending. There shall not then be in effect any order
enjoining or restraining the transactions contemplated by this Agreement.
6.6 Compliance Certificate. The Company shall have delivered to Abbott a
certificate, executed on behalf of the Company by the Chief Executive Officer of
the Company, dated as of the
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<PAGE> 11
date of the Closing and certifying to the fulfillment of the conditions
specified in SECTION 6.1 and SECTION 6.2.
6.7 Opinion of Counsel. Counsel for the Company shall have delivered to
Abbott an opinion, dated as of the Closing, substantially to the effect that, on
the basis of facts and representations set forth in such opinion or set forth in
writing elsewhere and referred to therein:
(a) The Company has been duly incorporated and is a validly existing
corporation in good standing under the laws of the State of
Delaware, with corporate power and authority to own its
properties and conduct its business as described in SECTION 3.2
of this Agreement.
(b) The Company has corporate power to enter into and perform its
obligations under this Agreement.
(c) The Option Shares have been duly authorized and validly issued
and are fully paid and nonassessable and, to the best of their
knowledge and information, have not been issued in violation of
or not otherwise subject to any preemptive rights or other
similar rights.
(d) Assuming the accuracy of the representations, warranties and
covenants of Abbott contained in SECTION 4 of this Agreement,
the offer, issue and sale of the Option Shares will be exempt
from the registration and prospectus delivery requirements of
the Securities Act, and the Option Shares have been registered
or qualified (or are exempt from registration and qualification)
under the registration, permit, or qualification requirements of
all applicable state securities laws.
(e) The form of certificate used to evidence the Option Shares is in
proper form and complies with all applicable statutory
requirements.
7. Conditions of the Company's Obligations at Closing. The Company's
obligation to issue and sell Option Shares at any Closing are subject to
fulfillment, on or prior to the Closing with respect to the Option Shares, of
each of the following conditions unless waived by the Company.
7.1 Representations And Warranties. The representations and warranties
of Abbott contained in SECTION 4 shall be true and correct when made and at the
Closing with the same effect as though such representations and warranties had
been made on and as of the date of the Closing.
7.2 Payment of Purchase Price. Abbott shall have delivered the Purchase
Price.
7.3 Qualifications. All authorizations, approvals, or permits, if any,
of any governmental
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<PAGE> 12
authority or regulatory body of the United States or of any state that are
required in connection with the lawful issuance and sale of the Option Shares
pursuant to this Agreement shall be duly obtained and effective as of the
Closing.
7.4 No Order Pending. There shall not then be in effect any order
enjoining or restraining the transactions contemplated by this Agreement.
8. Miscellaneous.
8.1 Survival of Warranties. The warranties, representations and
covenants of the Company and Abbott contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
Closings and shall in no way be affected by any investigation of the subject
matter thereof made by or on behalf of Abbott or the Company.
8.2 Assignment: Successors and Assigns. No provision of this Agreement
may be assigned without the prior written consent of the other party hereto.
Except as otherwise provided herein, the terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors and
assigns of the parties (including transferees of any of the Option Shares).
Nothing in this Agreement, express or implied, is intended to confer upon any
party other than the parties hereto or their respective successors and assigns
any rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.
8.3 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of Delaware without regard to conflicts of law
principles.
8.4 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.5 Titles And Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
8.6 Notices, Etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be sent by personal delivery,
facsimile, overnight courier or mailed by certified or registered mail, postage
prepaid, return receipt requested, to the address or facsimile number as
follows:
If to the Company:
Micro Therapeutics, Inc.
2 Goodyear
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<PAGE> 13
Irvine, CA 92618
Attention: George Wallace
Facsimile: (949) 465-1743
With a copy (which will not constitute notice) to:
Stradling Yocca Carlson & Rauth
660 Newport Center Drive, Suite 1600
Newport Beach, CA 92660
Attention: Bruce Feuchter
Facsimile: (949) 725-4100
If to Abbott:
Abbott Laboratories
D-960, AP30
200 Abbott Park Road
Abbott Park, IL 60064-3500
Attention: President, Hospital Products Division
Facsimile: (847) 937-0805
With a copy (which will not constitute notice) to:
Abbott Laboratories
Legal Division
D-322, AP6D
100 Abbott Park Road
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<PAGE> 14
Abbott Park, IL 60064-3500
Attention: Divisional Vice President
Domestic Legal Operations
Facsimile: (847) 938-1206
or to such other facsimile number or address provided to the parties to this
Agreement in accordance with this SECTION 8.6. Such notices or other
communications shall be deemed delivered only upon receipt.
8.7 Finder's Fee.
(a) Each party represents that it neither is nor will be obligated
for any finders' fee or commission in connection with this
transaction.
(b) Abbott agrees to indemnify and hold harmless the Company from
any liability for any commission or compensation in the nature
of a finders' fee (and the costs and expenses of defending
against such liability or asserted liability) for which Abbott
or any of its officers, partners, employees or representatives
is responsible.
(c) The Company agrees to indemnify and hold harmless Abbott from
any liability for any commission or compensation in the nature
of a finders' fee (and the costs and expenses of defending
against such liability or asserted liability) for which the
Company or any of its officers, employees or representatives is
responsible.
8.8 Expenses. Irrespective of whether the Closing is effected, each
party shall pay all costs and expenses that it incurs with respect to the
negotiation, execution, delivery and performance of this Agreement.
8.9 Alternative Dispute Resolution. The parties agree to effectuate all
reasonable efforts to resolve in an amicable manner any and all disputes between
them in connection with this Agreement. The parties agree that any dispute that
arises in connection with this Agreement, which cannot be amicably resolved
informally shall be finally settled as set forth in the Alternative Dispute
Resolution provisions of EXHIBIT B attached hereto.
8.10 Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively) only with
the written consent of the Company and Abbott.
8.11 Severability. If one or more provisions of this Agreement are held
to be
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<PAGE> 15
unenforceable under applicable law, such provision shall be excluded from this
Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
8.12 Entire Agreement. This Agreement and the documents referred to
herein and constitute the entire agreement among the parties with respect to the
transactions contemplated by this Agreement and supersedes any prior
understandings, agreements, or representations by or between the parties,
written or oral, that may have related in any way to the subject matter of this
Agreement, and no party shall be liable or bound to any other party in any
manner by any warranties, representations, or covenants except as specifically
set forth herein.
8.13 Further Assurances. The Company and Abbott shall do and perform or
cause to be performed all such further acts and things and shall execute and
deliver all such other agreements, certificates, instruments or documents as the
other party may reasonably request from time to time in order to carry out the
intent and purposes of this Agreement and the consummation of the transactions
contemplated by the Agreement. Neither the Company nor Abbott shall voluntarily
undertake any course of action inconsistent with the satisfaction of the
requirements applicable to them as set forth in this Agreement, and each shall
promptly do all such acts and take all such measures as may be appropriate to
enable them to perform as early as practicable their obligations under this
Agreement.
8.14 No Third Party Rights. Nothing in this Agreement shall create or be
deemed to create any rights in any person or entity not a party to his
Agreement.
8.15 Mutual Drafting. This Agreement is the joint product of the Company
and Abbott and each provision of the Agreement has been subject to consultation,
negotiation and agreement of the Company and Abbott and their respective legal
counsel and advisers and any rule of construction that a document shall be
interpreted or construed against the drafting party shall not apply.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
MICRO THERAPEUTICS, INC.
By: /s/ George Wallace
---------------------------------
Title: President and Chief Executive
Officer
ABBOTT LABORATORIES
By: /s/ Richard A. Gonzalez
---------------------------------
Title: President, H.P.D.
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<PAGE> 1
EXHIBIT 10.30
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of March
10, 2000 is made by and among Micro Therapeutics, Inc., a Delaware corporation,
with headquarters located at 2 Goodyear, Irvine, California 92618 (the
"Company"), and the investors named on the signature pages hereto, together with
their permitted transferees (the "Investors").
RECITALS:
A. The Company and the Investors are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Section 4(2) of the Securities Act and Rule 506 under Regulation D.
B. The Investors desire, upon the terms and conditions stated in this
Agreement, to purchase shares of the Company's Common Stock, for an aggregate
purchase price of Eleven Million Nine Hundred Thirty-Six Thousand Dollars
($11,936,000). The purchase price per share of the Common Stock is Seven Dollars
and Forty-Six Cents ($7.46).
C. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
under which the Company has agreed to provide certain registration rights under
the Securities Act, the rules and regulations promulgated thereunder and
applicable state securities laws.
D. The capitalized terms used herein and not otherwise defined have the
meanings given them in Article IX hereof.
In consideration of the premises and the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Company and the Investors hereby agree as
follows:
ARTICLE I
PURCHASE AND SALE OF SECURITIES
1.1 Purchase and Sale of Securities. At the Closing, subject to the
terms of this Agreement and the satisfaction or waiver of the conditions set
forth in Articles VI and VII hereof, the Company will issue and sell to each
Investor, and each Investor will (on a several and not a joint basis) purchase
from the Company, the number of shares of Common Stock set forth beneath such
Investor's name on the signature pages hereof.
1.2 Payment. Each Investor will pay the purchase price for the number of
Securities set forth beneath its name on the signature pages hereof, by wire
transfer of immediately available funds in accordance with the Company's written
wire instructions, upon delivery by the Company to each Investor of certificates
representing the Securities so purchased by such Investor and the Company will
deliver such certificates against delivery of the purchase price as described
above.
1.3 Closing Date. Subject to the satisfaction or waiver of the
conditions set forth in Articles VI and VII hereof, the Closing will take place
at 10 a.m. Pacific Standard Time on March 10, 2000 or at another date or time
agreed upon by the parties to this Agreement (the "Closing
<PAGE> 2
Date"). The Closing will be held at the offices of Stradling Yocca Carlson &
Rauth or at such other place as the parties agree.
ARTICLE II
INVESTOR'S REPRESENTATIONS AND WARRANTIES
Each Investor represents and warrants to the Company, severally and
solely with respect to itself and its purchase hereunder and not with respect to
any other Investor, that:
2.1 Investment Purpose. The Investor is purchasing the Securities for
its own account and not with a present view toward the public sale or
distribution thereof, except pursuant to sales registered or exempted from
registration under the Securities Act; provided, however, that by making the
representation herein, the Investor does not agree to hold any of the Securities
for any minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a registration
statement or an exemption under the Securities Act.
2.2 Accredited Investor Status. The Investor is an "accredited investor"
as defined in Rule 501(a) of Regulation D. The Investor has delivered an
Investor Questionnaire in the form of Exhibit A to the Company and to U.S.
Bancorp Piper Jaffray Inc.
2.3 Reliance on Exemptions. The Investor understands that the Securities
are being offered and sold to it in reliance upon specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying upon the truth and accuracy of, and the Investor's
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of the Investor set forth herein in order to determine the
availability of such exemptions and the eligibility of the Investor to acquire
the Securities.
2.4 Information. The Investor and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company, and materials relating to the offer and sale of the Securities,
that have been requested by the Investor or its advisors, if any. The Investor
and its advisors, if any, have been afforded the opportunity to ask questions of
the Company. Neither such inquiries nor any other due diligence investigation
conducted by Investor or any of its advisors or representatives modify, amend or
affect the Investor's right to rely on the Company's representations and
warranties contained in Article III below. The Investor acknowledges and
understands that its investment in the Securities involves a significant degree
of risk, including the risks reflected in the SEC Documents.
2.5 Governmental Review. The Investor understands that no United States
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities or an
investment therein.
2.6 Transfer or Resale. The Investor understands that:
(a) except as provided in the Registration Rights Agreement, the
Securities have not been and are not being registered under the Securities Act
or any applicable state securities laws and, consequently, the Investor may have
to bear the risk of owning the Securities for an indefinite period of time
because the Securities may not be transferred unless (i) the resale of the
Securities is registered pursuant to an effective registration statement under
the Securities Act; (ii) the Investor has delivered to the Company an opinion of
counsel (in form, substance and scope customary for
2
<PAGE> 3
opinions of counsel in comparable transactions) to the effect that the
Securities to be sold or transferred may be sold or transferred pursuant to an
exemption from such registration; (iii) the Securities are sold or transferred
pursuant to Rule 144 or (iv) the Securities are sold or transferred to an
affiliate (as defined in Rule 144) of the Investor;
(b) any sale of the Securities made in reliance on Rule 144 may
be made only in accordance with the terms of Rule 144 and, if Rule 144 is not
applicable, any resale of the Securities under circumstances in which the seller
(or the person through whom the sale is made) may be deemed to be an underwriter
(as that term is defined in the Securities Act) may require compliance with some
other exemption under the Securities Act or the rules and regulations of the SEC
thereunder; and
(c) except as set forth in the Registration Rights Agreement,
neither the Company nor any other person is under any obligation to register the
Securities under the Securities Act or any state securities laws or to comply
with the terms and conditions of any exemption thereunder.
2.7 Legends. The Investor understands that until (a) the Securities may
be sold by the Investor under Rule 144(k) or (b) such time as the resale of the
Securities have been registered under the Securities Act as contemplated by the
Registration Rights Agreement, the certificates representing the Securities will
bear a restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of the certificates for such
Securities):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE OF THE UNITED STATES. THE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR
ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER APPLICABLE SECURITIES LAWS, OR UNLESS OFFERED, SOLD OR
TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
The legend set forth above will be removed and the Company will issue a
certificate without the legend to the holder of any certificate upon which it is
stamped, in accordance with the terms of Article V hereof.
2.8 Authorization; Enforcement. This Agreement and the Registration
Rights Agreement have been duly and validly authorized, executed and delivered
on behalf of the Investor and are valid and binding agreements of the Investor
enforceable in accordance with their terms, subject to the effect of any
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the rights of creditors generally and the application of general
principles of equity.
2.9 Residency. The Investor is a resident of the jurisdiction set forth
immediately below such Investor's name on the signature pages hereto.
2.10 Acknowledgements Regarding Placement Agent. Purchaser acknowledges
that U.S. Bancorp Piper Jaffray Inc. is acting as placement agent (the
"Placement Agent") for the Securities being offered hereby and will be
compensated by the Company for acting in such capacity. Purchaser further
acknowledge that the Placement Agent has acted solely as placement agent in
connection with the offering of the Securities by the Company, that the
information and data
3
<PAGE> 4
provided to Purchaser in connection with the transactions contemplated hereby
have not been subjected to independent verification by the Placement Agent, and
that the Placement Agent makes no representation or warranty with respect to the
accuracy or completeness of such information, data or other related disclosure
material. Purchaser further acknowledges that in making its decision to enter
into this Agreement and purchase the Securities it has relied on its own
examination of the Company and the terms of, and consequences, of holding the
Securities. Purchaser further acknowledges that the provisions of this Section
2.10 are for the benefit of, and may be enforced by, the Placement Agent.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Investors that:
3.1 Organization and Qualification. The Company is duly incorporated,
validly existing and in good standing under the laws of the jurisdiction in
which it is incorporated, with full power and authority (corporate and other) to
own, lease, use and operate its properties and to carry on its business as and
where now owned, leased, used, operated and conducted. The Company is duly
qualified to do business and is in good standing in every jurisdiction in which
the nature of the business conducted by it makes such qualification necessary,
except where the failure to be so qualified or in good standing would not have a
Material Adverse Effect.
3.2 Authorization; Enforcement. (a) The Company has all requisite
corporate power and authority to enter into and to perform its obligations under
this Agreement and the Registration Rights Agreement, to consummate the
transactions contemplated hereby and thereby and to issue the Securities in
accordance with the terms hereof and thereof; (b) the execution, delivery and
performance of this Agreement and the Registration Rights Agreement by the
Company and the consummation by it of the transactions contemplated hereby and
thereby (including without limitation the issuance of the Securities) have been
duly authorized by the Company's Board of Directors and no further consent or
authorization of the Company, its Board or Directors, or its shareholders is
required; (c) this Agreement and the Registration Rights Agreement have been
duly executed by the Company; and (d) each of this Agreement and the
Registration Rights Agreement constitutes a legal, valid and binding obligation
of the Company enforceable against the Company in accordance with its terms,
subject to the effect of any applicable bankruptcy, insolvency, reorganization,
or moratorium or similar laws affecting the rights of creditors generally and
the application of general principles of equity.
3.3 Capitalization. As of the date hereof, the authorized capital stock
of the Company consists of (a) 20,000,000 shares of Common Stock, par value
$.001 per share, of which 8,272,634 shares are issued and outstanding, 2,850,000
shares are reserved for issuance under the Company's employee and director stock
option plans, 200,000 are reserved for issuance pursuant to the Company's
employee stock purchase plan, and 810,164 shares are reserved for issuance
pursuant to securities (other than securities issued under the foregoing plans)
exercisable for, or convertible into or exchangeable for shares of Common Stock;
(b) 5,000,000 shares of preferred stock, par value $.001 per share, none of
which shares are designated and none are issued and outstanding. All of such
outstanding shares of capital stock are, or upon issuance will be, duly
authorized, validly issued, fully paid and nonassessable. No shares of capital
stock of the Company, including the Securities issuable pursuant to this
Agreement, are subject to preemptive rights or any other similar rights of the
stockholders of the Company or any liens or encumbrances imposed through the
actions or failure to
4
<PAGE> 5
act of the Company. Except as disclosed in Schedule 3.3 and except for the
transactions contemplated hereby, (i) there are no outstanding options,
warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal,
agreements, understandings, claims or other commitments or rights of any
character whatsoever relating to, or securities or rights convertible into,
exercisable for, or exchangeable for any shares of capital stock of the Company,
or arrangements by which the Company is or may become bound to issue additional
shares of capital stock of the Company; (ii) there are no agreements or
arrangements (other than the Registration Rights Agreement) under which the
Company is obligated to register the sale of any of its securities under the
Securities Act and (iii) there are no anti-dilution or price adjustment
provisions contained in any security issued by the Company (or in any agreement
providing rights to security holders) that will be triggered by the issuance of
the Securities. The Company has furnished to the Investors true and correct
copies of the Company's Certificate of Incorporation, as amended, as in effect
on the date hereof, the Company's By-laws as in effect on the date hereof and
the terms of all securities convertible into or exercisable for Common Stock of
the Company and the material rights of the holders thereof in respect thereto.
3.4 Issuance of Securities. The Securities are duly authorized and, upon
issuance in accordance with the terms of this Agreement, will be validly issued,
fully paid and non-assessable, free from all taxes, liens, claims, encumbrances
and charges with respect to the issue thereof, will not be subject to preemptive
rights or other similar rights of stockholders of the Company, and will not
impose personal liability on the holders thereof.
3.5 No Conflicts; No Violation.
(a) The execution, delivery and performance of this Agreement
and the Registration Rights Agreement by the Company and the consummation by the
Company of the transactions contemplated hereby and thereby (including, without
limitation, the issuance of the Securities) will not (i) conflict with or result
in a violation of any provision of the Certificate of Incorporation or By-laws
or (ii) violate or conflict with, or result in a breach of any provision of, or
constitute a default (or an event which with notice or lapse of time or both
could become a default) under, or give to others any rights of termination,
amendment (including without limitation, the triggering of any anti-dilution
provision), acceleration or cancellation of, any agreement, indenture, patent,
patent license, or instrument to which the Company is a party, or (iii) result
in a violation of any law, rule, regulation, order, judgment or decree
(including U.S. federal and state securities laws and regulations and
regulations of any self-regulatory organizations to which the Company or its
securities are subject) applicable to the Company or by which any property or
asset of the Company is bound or affected (except for such conflicts, breaches,
defaults, terminations, amendments, accelerations, cancellations and violations
as would not, individually or in the aggregate, have a Material Adverse Effect).
(b) The Company is not in violation of its Certificate of
Incorporation, By-laws or other organizational documents and the Company is not
in default (and no event has occurred which with notice or lapse of time or both
could put the Company in default) under any agreement, indenture or instrument
to which the Company is a party or by which any property or assets of the
Company is bound or affected, except for possible defaults as would not,
individually or in the aggregate, have a Material Adverse Effect.
(c) The Company is not conducting its business in violation of
any law, ordinance or regulation of any governmental entity, the failure to
comply with which would, individually or in the aggregate, have a Material
Adverse Effect.
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(d) Except as specifically contemplated by this Agreement and as
required under the Securities Act and any applicable state securities laws or
any listing agreement with any securities exchange or automated quotation
system, the Company is not required to obtain any consent, authorization or
order of, or make any filing or registration with, any court or governmental
agency or any regulatory or self regulatory agency in order for it to execute,
deliver or perform any of its obligations under this Agreement or the
Registration Rights Agreement, in each case in accordance with the terms hereof
or thereof, or to issue and sell the Securities in accordance with the terms
hereof. Except as set forth in Schedule 3.5, all consents, authorizations,
orders, filings and registrations which the Company is required to obtain
pursuant to the preceding sentence have been obtained or effected on or prior to
the date hereof. The Company is not in violation of the listing requirements of
Nasdaq.
3.6 SEC Documents, Financial Statements. Since December 31, 1998, the
Company has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Exchange Act (all of the foregoing filed prior to the date
hereof and all exhibits included therein and financial statements and schedules
thereto and documents (other than exhibits) incorporated by reference therein,
being hereinafter referred to herein as the "SEC Documents"). The Company has
delivered to each Investor, or each Investor has had access to, true and
complete copies of the SEC Documents, except for such exhibits and incorporated
documents. As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the Exchange Act or the Securities
Act, as the case may be, and the rules and regulations of the SEC promulgated
thereunder applicable to the SEC Documents, and none of the SEC Documents, at
the time they were filed with the SEC, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. As of their respective
dates, the financial statements of the Company included in the SEC Documents
complied as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto. Such financial statements have been prepared in accordance with U.S.
generally accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may not include footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). Except as set forth
in the financial statements included in the SEC Documents, the Company has no
liabilities, contingent or otherwise, other than liabilities incurred in the
ordinary course of business subsequent to September 30, 1999, and liabilities of
the type not required under generally accepted accounting principles to be
reflected in such financial statements. Such liabilities incurred subsequent to
September 30, 1999, are not, in the aggregate, material to the financial
condition or operating results of the Company.
3.7 Absence of Certain Changes. Except as disclosed in the SEC
Documents, since December 31, 1998, there has been no material adverse change in
the assets, liabilities, business, properties, operations, financial condition,
prospects or results of operations of the Company.
3.8 Absence of Litigation. There is no action, suit, claim, proceeding,
inquiry or investigation before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the knowledge of the
Company, threatened against or affecting the Company
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or any of its officers or directors acting as such that could, individually or
in the aggregate, have a Material Adverse Effect.
3.9 Intellectual Property Rights. The Company owns or possesses the
licenses or rights to use all patents, patent applications, patent rights,
inventions, know-how, trade secrets, trademarks, trademark applications, service
marks, service names, trade names and copyrights necessary to enable it to
conduct its business as now operated or as currently proposed to be operated
(the "Intellectual Property"). Except as set forth in the SEC Documents (as
defined in Section 3.6 hereof), there are no material outstanding options,
licenses or agreements relating to the Intellectual Property, nor is the Company
bound by or a party to any material options, licenses or agreements relating to
the patents, patent applications, patent rights, inventions, know-how, trade
secrets, trademarks, trademark applications, service marks, service names, trade
names or copyrights of any other person or entity. There is no claim or action
or proceeding pending or, to the Company's knowledge, threatened that challenges
the right of the Company with respect to any Intellectual Property.
3.10 Tax Status. Except as set forth on Schedule 3.10, the Company has
timely made or filed all federal, state and foreign income and all other tax
returns, reports and declarations required by any jurisdiction to which it is
subject (unless and only to the extent that the Company has set aside on its
books provisions reasonably adequate for the payment of all unpaid and
unreported taxes) and has timely paid all taxes and other governmental
assessments and charges that are material in amount, shown or determined to be
due on such returns, reports and declarations, except those being contested in
good faith, and has set aside on its books provisions reasonably adequate for
the payment of all taxes for periods subsequent to the periods to which such
returns, reports or declarations apply. To the knowledge of the Company, there
are no unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company know of no basis
for any such claim. The Company has not executed a waiver with respect to the
statute of limitations relating to the assessment or collection of any foreign,
federal, state or local tax. Except as set forth on Schedule 3.10, none of the
Company's tax returns is presently being audited by any taxing authority.
3.11 Environmental Laws. The Company (i) is in compliance with all
applicable foreign federal, state and local laws and regulations relating to the
protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants ("Environmental Laws"), (ii)
has received all permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct its business and (iii) is in compliance
with all terms and conditions of any such permit, license or approval where, in
each of the three foregoing clauses, the failure to so comply would have,
individually or in the aggregate, a Material Adverse Effect
3.12 No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales in any security or solicited any offers to
buy any security under circumstances that would require registration under the
Securities Act of the issuance of the Securities to the Investors. The issuance
of the Securities to the Investors will not be integrated with any other
issuance of the Company's securities (past, current or future) for purposes of
the Securities Act or any applicable rules of Nasdaq.
3.13 No Brokers. The Company has taken no action which would give rise
to any claim by any person for brokerage commissions, finder's fees or similar
payments relating to this
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Agreement or the transactions contemplated hereby, except for dealings with U.S.
Bancorp Piper Jaffray Inc., whose commissions and fees will be paid for by the
Company.
3.14 Insurance. The Company is insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
management of the Company believes to be prudent and customary in the businesses
in which the Company is engaged.
3.15 Employment Matters. The Company is in compliance with all federal,
state, local and foreign laws and regulations respecting employment and
employment practices, terms and conditions of employment and wages and hours
except where failure to be in compliance would not have a Material Adverse
Effect. The Company is not bound by or subject to (and none of its assets or
properties is bound by or subject to) any written or oral, express or implied,
contract, commitment or arrangement with any labor union, and no labor union has
requested or, to the Company's knowledge, has sought to represent any of the
employees, representatives or agents of the Company. There is no strike or other
labor dispute involving the Company pending, or to the Company's knowledge,
threatened, that could have a Material Adverse Effect nor is the Company aware
of any labor organization activity involving its employees. The Company is not
aware that any officer or key employee, or that any group of officers or key
employees, intends to terminate their employment with the Company, nor does the
Company have a present intention to terminate the employment of any of the
foregoing.
3.16 Employee Benefit Plans. Except as set forth in the SEC Documents
(as defined in Section 3.6 hereof), the Company does not have any Employee
Benefit Plans, as such term is defined in the Employee Retirement Security Act
of 1974.
3.17 Investment Company Status. The Company is not and upon consummation
of the sale of the Securities will not be an "investment company," a company
controlled by an "investment company" or an "affiliated person" of, or
"promoter" or "principal underwriter" for, an "investment company" as such terms
are defined in the Investment Company Act of 1940, as amended.
3.18 Subsidiaries. Except as set forth in the SEC Documents (as defined
in Section 3.6 hereof), the Company does not presently own or control, directly
or indirectly, any interest in any other corporation, association, joint
venture, partnership or other business entity and the Company is not a direct or
indirect participant in any joint venture or partnership.
3.19 No Conflict of Interest. The Company is not indebted, directly or
indirectly, to any of its officers or directors or to their respective spouses
or children, in any amount whatsoever other than in connection with expenses or
advances of expenses incurred in the ordinary course of business or relocation
expenses of employees. None of the Company's officers, directors or employees,
or any members of their immediate families, are directly, or indirectly,
indebted to the Company (other than in connection with purchases of the
Company's stock or as set forth on Schedule 3.19) or, to the best of the
Company's knowledge, have any direct or indirect ownership interest in any
entity with which the Company is affiliated or with which the Company has a
business relationship, or any entity which competes with the Company except that
officers, directors, employees and/or stockholders of the Company may own stock
in (but not exceeding five percent (5%) of the outstanding capital stock of) any
publicly traded company that may compete with the Company. To the best of the
Company's knowledge, none of the Company's officers, directors or employees or
any members of their immediate families are, directly or indirectly, interested
in any material contract with the Company. The Company is not a guarantor or
indemnitor of any indebtedness of any other person or entity.
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ARTICLE IV
COVENANTS
4.1 Best Efforts. Each party will use its best efforts to satisfy in a
timely fashion each of the conditions to be satisfied by it under Articles VI
and VII of this Agreement.
4.2 Form D; Blue Sky Laws. The Company will timely file a Notice of Sale
of Securities on Form D with respect to the Securities, as required under
Regulation D, and to provide a copy thereof to each Investor promptly after such
filing. The Company will, on or before the Closing Date, take such action as it
reasonably determines to be necessary to qualify the Securities for sale to the
Investors under this Agreement under applicable securities (or "blue sky") laws
of the states of the United States (or to obtain an exemption from such
qualification), and will provide evidence of any such action so taken to the
Investors on or prior to the date of the Closing. The Company will file with the
SEC a Current Report on Form 8-K disclosing this Agreement and the transactions
contemplated hereby within 10 business days after the Closing Date.
4.3 Reporting Status; Eligibility to Use Form S-3. The Company's Common
Stock is registered under Section 12 of the Exchange Act. Throughout the
Registration Period (as defined in the Registration Rights Agreement), the
Company will timely file all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC under the reporting
requirements of the Exchange Act, and the Company will not terminate its status
as an issuer required to file reports under the Exchange Act even if the
Exchange Act or the rules and regulations thereunder would permit such
termination. The Company currently meets, and will take all reasonably necessary
action to continue to meet, the "registrant eligibility" requirements set forth
in the general instructions to Form S-3 to enable the registration of the
Registrable Securities as defined in the Registration Rights Agreement.
4.4 Expenses. The Company and each Investor is liable for, and will pay,
its own expenses incurred in connection with the negotiation, preparation,
execution and delivery of this Agreement and the other agreements to be executed
in connection herewith, including, without limitation, attorneys' and
consultants' fees and expenses.
4.5 Financial Information. The financial statements of the Company will
be prepared in accordance with United States generally accepted accounting
principles, consistently applied, and will fairly present in all material
respects the consolidated financial position of the Company and results of its
operations and cash flows as of, and for the periods covered by, such financial
statements (subject, in the case of unaudited statements, to normal year-end
audit adjustments).
4.6 Listing. On or before the tenth business day after the date of this
Agreement, the Company will secure the listing of the Securities upon each
national securities exchange or automated quotation system, if any, upon which
shares of Common Stock are then listed (subject to official notice of issuance)
and, so long as any Investor owns any of the Securities, will maintain such
listing of the Securities. The Company will use its best efforts to obtain and,
so long as any Investor owns any of the Securities, maintain the listing and
trading of its Common Stock on Nasdaq, the American Stock Exchange or the New
York Stock Exchange and will comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the
National Association of Securities Dealers, Inc. and such exchanges, as
applicable. Until an Investor transfers, assigns or sells all of the Securities
owned by it, the Company will promptly provide to each Investor copies of any
notices it receives regarding the continued eligibility of the Common Stock for
listing
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on Nasdaq or other principal exchange or quotation system on which the Common
Stock is listed or traded.
4.7 Compliance with Law. As long as an Investor owns any of the
Securities, the Company will conduct its business in compliance with all
applicable laws, rules and regulations of the jurisdictions in which it is
conducting business, including, without limitation, all applicable local, state
and federal environmental laws and regulations, the failure to comply with which
would have a Material Adverse Effect.
4.8 No Integration. The Company will not make any offers or sales of any
security (other than the Securities) under circumstances that would cause the
offering of the Securities to be integrated with any other offering of
securities by the Company (i) for the purpose of any stockholder approval
provision applicable to the Company or its securities or (ii) for purposes of
any registration requirement under the Securities Act.
4.9 Sales by Investors. Each Investor will sell any Securities sold by
it in compliance with applicable prospectus delivery requirements, if any, or
otherwise in compliance with the requirements for an exemption from registration
under the Securities Act and the rules and regulations promulgated thereunder.
No Investor will make any sale, transfer or other disposition of the Securities
in violation of federal or state securities laws.
ARTICLE V
TRANSFER AGENT INSTRUCTIONS; REMOVAL OF LEGENDS
5.1 Issuance of Certificates. The Company will instruct its transfer
agent to issue certificates, registered in the name of each Investor or its
nominee, for the Securities. All such certificates will bear the restrictive
legend described in Section 2.7, except as otherwise specified in this Article
V. In addition, the Company will issue irrevocable Transfer Agent Instructions
to the transfer agent in the form of Exhibit B hereto. The Company will not give
to its transfer agent any instruction other than as described in this Article V
and stop transfer instructions to give effect to Section 2.7 hereof (prior to
registration of the Securities under the Securities Act). Nothing in this
Section will affect in any way the Investor's obligations and agreement set
forth in Section 2.7 hereof to comply with all applicable prospectus delivery
requirements, if any, upon resale of the Securities.
5.2 Unrestricted Securities. If, unless otherwise required by applicable
state securities laws, (a) the Securities represented by a certificate have been
registered under an effective registration statement filed under the Securities
Act, (b) a holder of Securities provides the Company and the Transfer Agent with
an opinion of counsel, in form, substance and scope customary for opinions of
counsel in comparable transactions, to the effect that a public sale or transfer
of such Securities may be made without registration under the Securities Act and
such sale either has occurred or may occur without restriction on the manner of
such sale or transfer, (c) such holder provides the Company and the Transfer
Agent with reasonable assurances that such Securities can be sold under Rule
144, or (d) the Securities represented by a certificate can be sold without
restriction as to the number of securities sold under Rule 144(k), the Company
will permit the transfer of the Securities, and the Transfer Agent will issue
one or more certificates, free from any restrictive legend, in such name and in
such denominations as specified by such holder. Notwithstanding anything herein
to the contrary, the Securities may be pledged as collateral in connection with
a bona fide margin account or other lending arrangement; provided that such
pledge will not alter the provisions of this Article V with respect to the
removal of restrictive legends.
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5.3 Enforcement of Provision. The Company acknowledges that a breach by
it of its obligations hereunder will cause irreparable harm to the Investor by
vitiating the intent and purpose of the transaction contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations under this Article V will be inadequate and agrees, in the event of
a breach or threatened breach by the Company of the provisions of this Section,
that the Investor will be entitled, in addition to all other available remedies,
to an injunction restraining any breach and requiring immediate transfer,
without the necessity of showing economic loss and without any bond or other
security being required.
ARTICLE VI
CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL
The obligation of the Company to issue and sell the Securities to each
Investor at the Closing is subject to the satisfaction by such Investor, on or
before the Closing Date, of each of the following conditions. These conditions
are for the Company's sole benefit and may be waived by the Company at any time
in its sole discretion:
6.1 The Investor will have executed this Agreement and the Registration
Rights Agreement and will have delivered those agreements to the Company.
6.2 The Investor will have delivered the purchase price for the
Securities to the Company in accordance with this Agreement.
6.3 The representations and warranties of the Investor must be true and
correct in all material respects as of the Closing Date as though made at that
time (except for representations and warranties that speak as of a specific
date, which representations and warranties must be correct as of such date), and
the Investor will have performed and complied in all material respects with the
covenants and conditions required by this Agreement to be performed or complied
with by the Investor at or prior to the Closing.
6.4 No statute, rule, regulation, executive order, decree, ruling or
injunction will have been enacted, entered, promulgated or endorsed by or in any
court or governmental authority of competent jurisdiction or any self-regulatory
organization having authority over the matters contemplated hereby which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
ARTICLE VII
CONDITIONS TO THE INVESTOR'S OBLIGATION TO PURCHASE
The obligation of each Investor hereunder to purchase the Securities
from the Company at the Closing is subject to the satisfaction, on or before the
Closing Date, of each of the following conditions. These conditions are for each
Investor's respective benefit and may be waived by any Investor at any time in
its sole discretion:
7.1 The Company will have executed this Agreement and the Registration
Rights Agreement and will have delivered those Agreements to the Investor.
7.2 The Company will have delivered to the Investors duly executed
certificates representing the Securities in the amounts specified in Section 1.1
hereof.
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7.3 The representations and warranties of the Company must be true and
correct in all material respects as of the Closing as though made at that time
(except for representations and warranties that speak as of a specific date,
which representations and warranties must be true and correct as of such date)
and the Company must have performed and complied in all material respects with
the covenants and conditions required by this Agreement to be performed or
complied with by the Company at or prior to the Closing. The Investor must have
received a certificate or certificates dated as of the Closing Date and executed
by the Chief Executive Officer or the Chief Financial Officer of the Company
certifying as to the matters in contained in this Section 7.3 and as to such
other matters as may be reasonably requested by such Investor, including, but
not limited to, the Company's Certificate of Incorporation, By-laws, Board of
Directors' resolutions relating to the transactions contemplated hereby and the
incumbency and signatures of each of the officers of the Company who may execute
on behalf of the Company any document delivered at the Closing.
7.4 No litigation, statute, rule, regulation, executive order, decree,
ruling or injunction will have been enacted, entered, promulgated or endorsed by
or in any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement.
7.5 Trading and listing of the Common Stock on Nasdaq must not have been
suspended by the SEC or Nasdaq.
7.6 The Investors will have received an opinion of the Company's
counsel, dated as of the Closing Date, in form, scope and substance reasonably
satisfactory to the Investors and in substantially the form attached hereto as
Exhibit C.
7.7 The Irrevocable Transfer Agent Instructions, in form and substance
satisfactory to the Investors, will have been delivered to the Company's
transfer agent and acknowledged in writing by such transfer agent.
ARTICLE VIII
INDEMNIFICATION
In consideration of each Investor's execution and delivery of this
Agreement and its acquisition of the Securities hereunder, and in addition to
all of the Company's other obligations under this Agreement and the Registration
Rights Agreement, the Company will defend, protect, indemnify and hold harmless
each Investor and each other holder of the Securities and all of their
stockholders, officers, directors, employees and direct or indirect investors
and any of the foregoing person's agents or other representatives (including,
without limitation, those retained in connection with the transactions
contemplated by this Agreement) (collectively, the "Indemnitees") from and
against any and all actions, causes of action, suits, claims, losses, costs,
penalties, fees, liabilities and damages, and expenses in connection therewith
(regardless of whether any such Indemnitee is a party to the action for which
indemnification hereunder is sought), and including reasonable attorneys' fees
and disbursements (the "Indemnified Liabilities"), incurred by an Indemnitee as
a result of, or arising out of, or relating to (a) any breach of any
representation or warranty made by the Company herein or in any other
certificate, instrument or document contemplated hereby or thereby, (b) any
breach of any covenant, agreement or obligation of the Company contained herein
or in any other certificate, instrument or document contemplated hereby or
thereby or (c) any cause of action, suit or claim brought or made against such
Indemnitee and arising out of or resulting from the execution, delivery,
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performance, breach or enforcement of this Agreement or the Registration Rights
Agreement by the Company. To the extent that the foregoing undertaking by the
Company is unenforceable for any reason, the Company will make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities that is permissible under applicable law.
ARTICLE IX
DEFINITIONS
9.1 "Closing" means the closing of the purchase and sale of the
Securities under this Agreement.
9.2 "Closing Date" has the meaning set forth in Section 1.3.
9.3 "Common Stock" means the common stock, par value $.001 per share, of
the Company.
9.4 "Company" means Micro Therapeutics, Inc.
9.5 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
9.6 "Indemnified Liabilities" has the meaning set forth in Article VIII.
9.7 "Indemnitees" has the meaning set forth in Article VIII.
9.8 "Investors" means the investors whose names are set forth on the
signature pages of this Agreement, and their permitted transferees.
9.9 "Material Adverse Effect" means a material adverse effect on (a) the
business, operations, prospects, assets or financial condition of the Company or
(b) the ability of the Company to perform its obligations pursuant to the
transactions contemplated by this Agreement or under the agreements or
instruments to be entered into or filed in connection herewith.
9.10 "Nasdaq" means the Nasdaq National Market System.
9.11 "Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date of this Agreement and among the parties to this
Agreement, in the form attached hereto as Exhibit D.
9.12 "Regulation D" means Regulation D as promulgated under by the SEC
under the Securities Act.
9.13 "Rule 144" and "Rule 144(k)" mean Rule 144 and Rule 144(k),
respectively, promulgated under the Securities Act, or any successor rule.
9.14 "SEC" means the United States Securities and Exchange Commission.
9.15 "SEC Documents" has the meaning set forth in Section 3.6.
9.16 "Securities" means the Common Stock sold pursuant to this
agreement.
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9.17 "Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations thereunder, or any similar successor statute.
ARTICLE X
GOVERNING LAW; MISCELLANEOUS
10.1 Governing Law; Jurisdiction. This Agreement will be governed by and
interpreted in accordance with the laws of the State of Delaware without regard
to the principles of conflict of laws. The parties hereto hereby submit to the
exclusive jurisdiction of the United States federal and state courts located in
the State of Delaware with respect to any dispute arising under this Agreement,
the agreements entered into in connection herewith or the transactions
contemplated hereby or thereby.
10.2 Counterparts; Signatures by Facsimile. This Agreement may be
executed in two or more counterparts, all of which are considered one and the
same agreement and will become effective when counterparts have been signed by
each party and delivered to the other parties. This Agreement, once executed by
a party, may be delivered to the other parties hereto by facsimile transmission
of a copy of this Agreement bearing the signature of the party so delivering
this Agreement.
10.3 Headings. The headings of this Agreement are for convenience of
reference only, are not part of this Agreement and do not affect its
interpretation.
10.4 Severability. If any provision of this Agreement is invalid or
unenforceable under any applicable statute or rule of law, then such provision
will be deemed modified in order to conform with such statute or rule of law.
Any provision hereof that may prove invalid or unenforceable under any law will
not affect the validity or enforceability of any other provision hereof.
10.5 Entire Agreement; Amendments. This Agreement and the Registration
Rights Agreement (including all schedules and exhibits thereto) constitute the
entire agreement among the parties hereto with respect to the subject matter
hereof and thereof. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein or therein. This
Agreement supersedes all prior agreements and understandings among the parties
hereto with respect to the subject matter hereof. No provision of this Agreement
may be waived or amended other than by an instrument in writing signed by the
party to be charged with enforcement.
10.6 Notices. Any notices required or permitted to be given under the
terms of this Agreement must be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier (including a recognized
overnight delivery service) or by facsimile and will be effective five days
after being placed in the mail, if mailed by regular U.S. mail, or upon receipt,
if delivered personally, by courier (including a recognized overnight delivery
service) or by facsimile, in each case addressed to a party. The addresses for
such communications are:
If to the Company: George Wallace
Micro Therapeutics, Inc.
2 Goodyear
Irvine, California 92618
(949) 837-3700
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With a copy to: Bruce W. Feuchter, Esq.
Stradling Yocca Carlson & Rauth
660 Newport Center Drive, Suite 1600
Newport Beach, California 92660
(949) 725-4000
If to an Investor: To the address set forth immediately below such
Investor's name on the signature pages hereto.
Each party will provide written notice to the other parties of any
change in its address.
10.7 Successors and Assigns. This Agreement is binding upon and inures
to the benefit of the parties and their successors and assigns. The Company will
not assign this Agreement or any rights or obligations hereunder without the
prior written consent of the Investors, and no Investor may assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the Company. Notwithstanding the foregoing, an Investor may assign
all or part of its rights and obligations hereunder to any of its "affiliates,"
as that term is defined under the Securities Act, without the consent of the
Company so long as the affiliate is an accredited investor (within the meaning
of Regulation D under the Securities Act) and agrees in writing to be bound by
this Agreement. This provision does not limit the Investor's right to transfer
the Securities pursuant to the terms of this Agreement or to assign the
Investor's rights hereunder to any such transferee pursuant to the terms of this
Agreement.
10.8 Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
10.9 Survival. The representations and warranties of the Company and the
agreements and covenants set forth herein will survive the Closing hereunder.
The Company makes no representations or warranties in any oral or written
information provided to Investors, other than the representations and warranties
included herein.
10.10 Further Assurances. Each party will do and perform, or cause to be
done and performed, all such further acts and things, and will execute and
deliver all other agreements, certificates, instruments and documents, as
another party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
10.11 No Strict Construction. The language used in this Agreement is
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.
10.12 Equitable Relief. The Company recognizes that, if it fails to
perform or discharge any of its obligations under this Agreement, any remedy at
law may prove to be inadequate relief to the Investors. The Company therefore
agrees that the Investors are entitled to temporary and permanent injunctive
relief in any such case without the necessity of proving actual damages.
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IN WITNESS WHEREOF, the undersigned Investors and the Company have
caused this Agreement to be duly executed as of the date first above written.
COMPANY:
Micro Therapeutics, Inc.
By: /s/ Harold A. Hurwitz
-----------------------------
Name: Harold A. Hurwitz
-----------------------------
Title: Chief Financial Officer
-----------------------------
16
<PAGE> 17
OMNIBUS SIGNATURE PAGE TO
MICRO THERAPEUTICS, INC.
SECURITIES PURCHASE AGREEMENT
The undersigned hereby executes and delivers the Securities Purchase
Agreement to which this Signature Page is attached, which, together with all
counterparts of the Agreement and Signature Pages of the other parties named in
said Agreement, shall constitute one and the same document in accordance with
the terms of the Agreement.
T. ROW PRICE NEW HORIZONS FUND, INC.
Sign Name: /s/ John H. Laporte
-------------------------
Print Name: John H. Laporte, Director
-------------------------
17
<PAGE> 18
OMNIBUS SIGNATURE PAGE TO
MICRO THERAPEUTICS, INC.
SECURITIES PURCHASE AGREEMENT
The undersigned hereby executes and delivers the Securities Purchase
Agreement to which this Signature Page is attached, which, together with all
counterparts of the Agreement and Signature Pages of the other parties named in
said Agreement, shall constitute one and the same document in accordance with
the terms of the Agreement.
PEQUOT PRIVATE EQUITY FUND II, L.P.
Sign Name: /s/ David J. Malat
-------------------------
By: Pequot Capital Management, Inc.
--------------------------------
David J. Malot, CFO
--------------------------------
Its: Investment Manager
--------------------------------
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<PAGE> 19
OMNIBUS SIGNATURE PAGE TO
MICRO THERAPEUTICS, INC.
SECURITIES PURCHASE AGREEMENT
The undersigned hereby executes and delivers the Securities Purchase
Agreement to which this Signature Page is attached, which, together with all
counterparts of the Agreement and Signature Pages of the other parties named in
said Agreement, shall constitute one and the same document in accordance with
the terms of the Agreement.
FRAMLINGTON INVESTMENT MANAGEMENT
FOR FRAMLINGTON HEALTH FUND
Sign Name: /s/ Bill Kennedy
-------------------------
Its: Treasury Manager
-------------------------
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<PAGE> 20
OMNIBUS SIGNATURE PAGE TO
MICRO THERAPEUTICS, INC.
SECURITIES PURCHASE AGREEMENT
The undersigned hereby executes and delivers the Securities Purchase
Agreement to which this Signature Page is attached, which, together with all
counterparts of the Agreement and Signature Pages of the other parties named in
said Agreement, shall constitute one and the same document in accordance with
the terms of the Agreement.
FRAMLINGTON INVESTMENT MANAGEMENT
FOR MUNDER HEALTH FUND
Sign Name: /s/ Bill Kennedy
-------------------------
Its: Treasury Manager
-------------------------
20
<PAGE> 1
EXHIBIT 10.31
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT, dated as of March 10, 2000 (this
"Agreement"), is made by and among Micro Therapeutics, Inc., a Delaware
corporation, with headquarters located at 2 Goodyear, Irvine, California 92618
(the "Company"), and the investors named on the signature pages hereto (the
"Initial Investors").
RECITALS:
A. In connection with the Securities Purchase Agreement dated March 10,
2000 between the Initial Investors and the Company (the "Purchase Agreement"),
the Company has agreed, upon the terms and subject to the conditions of the
Purchase Agreement, to issue and sell to the Initial Investors 1,600,000 shares
of the Company's Common Stock (the "Common Shares").
B. In order to induce the Initial Investors to execute and deliver the
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act and applicable state securities laws with
respect to the Common Shares.
In consideration of the premises and the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Company and the Initial Investors hereby
agree as follows:
ARTICLE I
DEFINITIONS
Capitalized terms used and not otherwise defined herein have the
respective meanings given them set forth in the Purchase Agreement. In addition,
as used in this Agreement, the following terms have the following meanings:
1.1 "Common Shares" means the shares of Common Stock sold pursuant to
the Purchase Agreement.
1.2 "Investors" means the Initial Investors and any of their transferees
or assignees who agree to become bound by the provisions of this Agreement in
accordance with Article IX hereof.
1.3 "Registrable Securities" means the Common Shares sold pursuant to
the Purchase Agreement and any shares of capital stock issued or issuable from
time to time (with any adjustments) in exchange for or otherwise with respect to
the Common Shares.
1.4 "Registration Period" means the period between the date of this
Agreement and the earlier of (i) the date on which all of the Registrable
Securities have been sold by the Initial Investors and no further Registrable
Securities may be issued in the future, or (ii) the date on which all the
Registrable Securities (in the opinion of the Investors' counsel) may be
immediately sold by the Initial Investors without registration and without
restriction (including without limitation as to volume by each holder thereof)
as to the number of Registrable Securities to be sold, pursuant to Rule 144 or
otherwise.
<PAGE> 2
1.5 "Registration Statement" means a Registration Statement of the
Company filed under the Securities Act.
1.6 The terms "register," "registered," and "registration" refer to a
registration effected by preparing and filing a Registration Statement or
statements in compliance with the Securities Act and pursuant to Rule 415 and
the declaration or ordering of effectiveness of such Registration Statement by
the SEC.
1.7 "Rule 415" means Rule 415 under the Securities Act, or any successor
Rule providing for offering securities on a continuous basis, and applicable
rules and regulations thereunder.
ARTICLE II
REGISTRATION
2.1 Mandatory Registration. The Company will use best efforts to file
with the SEC a Registration Statement on Form S-3 registering the Registrable
Securities and no other securities for resale within 30 business days after the
Closing Date of the purchase of the Common Shares under the Purchase Agreement.
If Form S-3 is not available at that time, then the Company will file a
Registration Statement on such form as is then available to effect a
registration of the Registrable Securities, subject to the consent of the
Initial Investors, which consent will not be unreasonably withheld.
2.2 Effectiveness of the Registration Statement. The Company will use
its best efforts to cause the Registration Statement to be declared effective by
the SEC as soon as practicable after filing, and in any event no later than the
90th day after the Closing Date (the "Required Effective Date"). However, so
long as the Company filed the Registration Statement within 30 business days
after the Closing Date, (a) if the SEC takes the position that registration of
the resale of the Registrable Securities by the Investors is not available under
applicable laws, rules and regulation and that the Company must register the
offering of the Registrable Securities as a primary offering by the Company, or
(b) if the Registration Statement receives SEC review, then the Required
Effective Date will be the 120th day after the Closing Date. In the case of an
SEC response described in clause (a), the Company will, within 40 business days
after the date the Company receives such SEC response, file a Registration
Statement as a primary offering. The Company's best efforts will include, but
not be limited to, promptly responding to all comments received from the staff
of the SEC. If the Company receives notification from the SEC that the
Registration Statement will receive no action or review from the SEC, then the
Company will cause the Registration Statement to become effective within five
business days after such SEC notification. Once the Registration Statement is
declared effective by the SEC, the Company will cause the Registration Statement
to remain effective throughout the Registration Period, except as permitted
under Section 3.
2.3 Payments by the Company. If (i) at any time after effectiveness of
the Registration Statement, sales cannot be made thereunder for any reason,
other than suspension of effectiveness of the Registration Statement as
described in Section 3.6, for a period of more than 10 consecutive business
days, or 30 days in the aggregate, during any 12-month period or (ii) the Common
Stock is not listed or included for quotation on Nasdaq, Nasdaq SmallCap, the
NYSE or AMEX for more than an aggregate of 10 business days in any 12-month
period, then the Company will thereafter make cash payments to each Investor as
partial compensation for such delay. The amount of the cash payment made to each
Investor will be equal to 2% of the purchase price paid for the Common
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<PAGE> 3
Shares purchased by the Investor and not previously sold by the Investor for the
first 30 days that sales cannot be made under the effective Registration
Statement or the Common Stock is not listed or included for quotation on Nasdaq,
Nasdaq SmallCap, the NYSE or AMEX. These payments will be prorated on a daily
basis during the 30 day period and will be paid to each Investor in cash within
five business days following the end of each month after the 20th day that sales
could not be made. Nothing herein limits any Investor's right to pursue actual
damages for the Company's failure to ensure sales can be made under the
Registration Statement or the Company's failure to ensure the Common Stock is
listed or included for quotation on the Nasdaq SmallCap market.
2.4 Effect of Late Registration. If the Registration Statement has not
been declared effective by the Required Effective Date, then the Company will
make cash payments to each Investor as partial compensation for such delay (the
"Late Registration Payments"). The Late Registration Payments will be equal to
2% of the purchase price paid for the Common Shares purchased by such Investor
and not previously sold by such Investor for the first 30 days after the
Required Effective Date. The Late Registration Payments will be prorated on a
daily basis during the 30 day period and will be paid to the Initial Investors
in cash within five business days after the earlier of (i) the end of the 30
days following the Required Effective Date or (ii) the effective date of the
Registration Statement. Nothing herein limits any Investor's right to pursue
actual damages for the Company's failure to file a Registration Statement or to
have it declared effective by the SEC on or prior to the Required Effective Date
in accordance with the terms of this Agreement.
2.5 Piggyback Registrations.
(a) If, at any time prior to the expiration of the Registration
Period, a Registration Statement is not effective with respect to all of the
Registrable Securities and the Company decides to register any of its securities
for its own account or for the account of others, then the Company will promptly
give the Investors written notice thereof and will use its best efforts to
include in such registration all or any part of the Registrable Securities
requested by such Investors to be included therein (excluding any Registrable
Securities previously included in a Registration Statement). This requirement
does not apply to Company registrations on Form S-4 or S-8 or their equivalents
relating to equity securities to be issued solely in connection with an
acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans. Each Investor must
give its request for registration under this paragraph to the Company in writing
within 15 days after receipt from the Company of notice of such pending
registration. If the registration for which the Company gives notice is a public
offering involving an underwriting, the Company will so advise the Investors as
part of the above-described written notice. In that event, if the managing
underwriter(s) of the public offering impose a limitation on the number of
shares of Common Stock that may be included in the Registration Statement
because, in such underwriter(s)' judgment, such limitation would be necessary to
effect an orderly public distribution, then the Company will be obligated to
include only such limited portion, if any, of the Registrable Securities with
respect to which such Investors have requested inclusion hereunder. Any
exclusion of Registrable Securities will be made pro rata among all holders of
the Company's securities seeking to include shares of Common Stock in proportion
to the number of shares of Common Stock sought to be included by those holders.
However, the Company will not exclude any Registrable Securities unless the
Company has first excluded all outstanding securities the holders of which are
not entitled by right to inclusion of securities in such Registration Statement
or are not entitled pro rata inclusion with the Registrable Securities.
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<PAGE> 4
(b) No right to registration of Registrable Securities under
this Section 2.5 limits in any way the registration required under Section 2.1
above. The obligations of the Company under this Section 2.5 expire upon the
earlier of (i) the effectiveness of the Registration Statement filed pursuant to
Section 2.1 above, (ii) after the Company has afforded the opportunity for the
Investors to exercise registration rights under this Section 2.5 for two
registrations (provided, however, that any Investor that has had any Registrable
Securities excluded from any Registration Statement in accordance with this
Section 2.5 may include in any additional Registration Statement filed by the
Company the Registrable Securities so excluded), (iii) when all of the
Registrable Securities held by any Investor may be sold by such Investor under
Rule 144 without being subject to any volume restrictions, or (iv) the second
anniversary of the date of this Agreement.
2.6 Eligibility to use Form S-3. The Company represents and warrants
that it meets the requirements for the use of Form S-3 for registration of the
sale by the Investors of the Registrable Securities. The Company will file all
reports required to be filed by the Company with the SEC in a timely manner so
as to preserve its eligibility for the use of Form S-3.
ARTICLE III
ADDITIONAL OBLIGATIONS OF THE COMPANY
3.1 Continued Effectiveness of Registration Statement. Subject to the
limitations set forth in Section 3.6, the Company will keep the Registration
Statement covering the Registrable Securities effective under Rule 415 at all
times during the Registration Period. In the event that the number of shares
available under a Registration Statement filed pursuant to this Agreement is
insufficient to cover all of the Registrable Securities issued, the Company will
(if permitted) amend the Registration Statement or file a new Registration
Statement (on the short form available therefor, if applicable), or both, so as
to cover all of the Registrable Securities. The Company will file such amendment
or new Registration Statement as soon as practicable, but in no event later than
30 business days after the necessity therefor arises (based upon the market
price of the Common Stock and other relevant factors on which the Company
reasonably elects to rely). The Company will use its best efforts to cause such
amendment or new Registration Statement to become effective as soon as is
practicable after the filing thereof, but in no event later than 90 days after
the date on which the Company reasonably first determines (or reasonably should
have determined) the need therefor.
3.2 Accuracy of Registration Statement. Any Registration Statement
(including any amendments or supplements thereto and prospectuses contained
therein) filed by the Company covering Registrable Securities will not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein, or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading. The Company
will prepare and file with the SEC such amendments (including post-effective
amendments) and supplements to the Registration Statement and the prospectus
used in connection with the Registration Statement as may be necessary to permit
sales pursuant to the Registration Statement at all times during the
Registration Period, and, during such period, will comply with the provisions of
the Securities Act with respect to the disposition of all Registrable Securities
of the Company covered by the Registration Statement until the termination of
the Registration Period, or if earlier, until such time as all of such
Registrable Securities have been disposed of in accordance with the intended
methods of disposition by the seller or sellers thereof as set forth in the
Registration Statement.
3.3 Furnishing Documentation. The Company will furnish to each Investor
whose Registrable Securities are included in a Registration Statement, or to its
legal counsel, (a) promptly
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<PAGE> 5
after each document is prepared and publicly distributed, filed with the SEC or
received by the Company, one copy of any Registration Statement filed pursuant
to this Agreement and any amendments thereto, each preliminary prospectus and
final prospectus and each amendment or supplement thereto; and (b) a number of
copies of a prospectus, including a preliminary prospectus, and all amendments
and supplements thereto, and such other documents as the Investor may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by the Investor. The Company will immediately notify by facsimile each
Investor whose Registrable Securities are included in any Registration Statement
of the effectiveness of the Registration Statement and any post-effective
amendment.
3.4 Additional Obligations. The Company will use its best efforts to (a)
register and qualify the Registrable Securities covered by a Registration
Statement under such other securities or blue sky laws of such jurisdictions as
each Investor who holds (or has the right to hold) Registrable Securities being
offered reasonably requests, (b) prepare and file in those jurisdictions any
amendments (including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain their
effectiveness during the Registration Period, (c) take any other actions
necessary to maintain such registrations and qualifications in effect at all
times during the Registration Period, and (d) take any other actions reasonably
necessary or advisable to qualify the Registrable Securities for sale in such
jurisdictions. Notwithstanding the foregoing, the Company is not required, in
connection such obligations, to (i) qualify to do business in any jurisdiction
where it would not otherwise be required to qualify but for this Section 3.4,
(ii) subject itself to general taxation in any such jurisdiction, (iii) file a
general consent to service of process in any such jurisdiction, (iv) provide any
undertakings that cause material expense or burden to the Company, or (v) make
any change in its charter or bylaws, which in each case the Board of Directors
of the Company determines to be contrary to the best interests of the Company
and its stockholders.
3.5 Underwritten Offerings. If the Investors who hold a majority in
interest of the Registrable Securities being offered in an offering pursuant to
a Registration Statement or any amendment or supplement thereto under this
Agreement select underwriters reasonably acceptable to the Company for such
offering, the Company will enter into and perform its obligations under an
underwriting agreement in usual and customary form including, without
limitation, customary indemnification and contribution obligations, with the
managing underwriter of such offering.
3.6 Suspension of Registration.
(a) The Company will notify (by telephone and also by facsimile
and reputable overnight courier) each Investor who holds Registrable Securities
being sold pursuant to a Registration Statement of the happening of any event of
which the Company has knowledge as a result of which the prospectus included in
the Registration Statement as then in effect includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The Company will make such notification as
promptly as practicable after the Company becomes aware of the event (but in no
event, without the prior written consent of the Investor, will the Company
disclose to any Investor any of the facts or circumstances regarding the event),
will promptly (but in no event more than ten business days) prepare a supplement
or amendment to the Registration Statement to correct such untrue statement or
omission, and will deliver a number of copies of such supplement or amendment to
each Investor as such Investor may reasonably request.
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<PAGE> 6
(b) Notwithstanding the obligations under Section 3.6(a), if in
the good faith judgment of the Company, following consultation with legal
counsel, it would be detrimental to the Company and its stockholders for resales
of Registrable Securities to be made pursuant to the Registration Statement due
to (i) the existence of a material development or potential material development
involving the Company which the Company would be obligated to disclose in the
Registration Statement, which disclosure would be premature or otherwise
inadvisable at such time or would have a Material Adverse Effect upon the
Company and its stockholders, or (ii) in the good faith judgment of the
Company's Board of Directors, it would adversely affect or require premature
disclosure of the filing of a Company-initiated registration of any class of its
equity securities, the Company will have the right to suspend the use of the
Registration Statement for a period of not more than ninety days, provided,
however, that the Company may so defer or suspend the use of the Registration
Statement no more than one time in any twelve-month period, and provided,
further, that, after deferring or suspending the use of the Registration
Statement, the Company may not again defer or suspend the use of the
Registration Statement until a period of thirty days has elapsed after
resumption of the use of the Registration Statement.
(c) Subject to the Company's rights under this Section 3, the
Company will use its best efforts to prevent the issuance of any stop order or
other suspension of effectiveness of a Registration Statement and, if such an
order is issued, will use its best efforts to obtain the withdrawal of such
order at the earliest possible time and to notify each Investor that holds
Registrable Securities being sold (or, in the event of an underwritten offering,
the managing underwriters) of the issuance of such order and the resolution
thereof.
(d) Notwithstanding anything to the contrary contained herein or
in the Purchase Agreement, if the use of the Registration Statement is suspended
by the Company, the Company will promptly give notice of the suspension to all
Investors whose securities are covered by the Registration Statement, and will
promptly notify each such Investor as soon as the use of the Registration
Statement may be resumed. Notwithstanding anything to the contrary contained
herein or in the Purchase Agreement, the Company will cause the Transfer Agent
to deliver unlegended shares of Common Stock to a transferee of an Investor in
accordance with the terms of the Purchase Agreement in connection with any sale
of Registrable Securities with respect to which such Investor has entered into a
contract for sale prior to receipt of notice of such suspension and for which
such Investor has not yet settled.
3.7 Review by the Investors. The Company will permit a single firm of
legal counsel, designated by the Investors who hold a majority in interest of
the Registrable Securities being sold pursuant to a Registration Statement, to
review the Registration Statement and all amendments and supplements thereto (as
well as all requests for acceleration or effectiveness thereof) a reasonable
period of time prior to their filing with the SEC, and will not file any
document in a form to which such counsel reasonably objects, unless otherwise
required by law in the opinion of the Company's counsel. The sections of any
such Registration Statement including information with respect to the Investors,
the Investors' beneficial ownership of securities of the Company or the
Investors' intended method of disposition of Registrable Securities must conform
to the information provided to the Company by each of the Investors.
3.8 Comfort Letter; Legal Opinion. At the request of the Investors who
hold a majority in interest of the Registrable Securities being sold pursuant to
a Registration Statement, and on the date that Registrable Securities are
delivered to an underwriter for sale in connection with the Registration
Statement, the Company will furnish to the Investors and the underwriters (i) a
letter,
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<PAGE> 7
dated such date, from the Company's independent certified public accountants, in
form and substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering, addressed to the
underwriters; and (ii) an opinion, dated such date, from counsel representing
the Company for purposes of the Registration Statement, in form and substance as
is customarily given in an underwritten public offering, addressed to the
underwriters and Investors.
3.9 Due Diligence; Confidentiality.
(a) The Company will make available for inspection by any
Investor whose Registrable Securities are being sold pursuant to a Registration
Statement, any underwriter participating in any disposition pursuant to the
Registration Statement, and any attorney, accountant or other agent retained by
any such Investor or underwriter (collectively, the "Inspectors"), all pertinent
financial and other records, pertinent corporate documents and properties of the
Company (collectively, the "Records"), as each Inspector reasonably deems
necessary to enable the Inspector to exercise its due diligence responsibility.
The Company will cause its officers, directors and employees to supply all
information that any Inspector may reasonably request for purposes of performing
such due diligence.
(b) Each Inspector will hold in confidence, and will not make
any disclosure (except to an Investor) of, any Records or other information that
the Company determines in good faith to be confidential, and of which
determination the Inspectors are so notified, unless (i) the disclosure of such
Records is necessary to avoid or correct a misstatement or omission in any
Registration Statement, (ii) the release of such Records is ordered pursuant to
a subpoena or other order from a court or government body of competent
jurisdiction, (iii) the information in such Records has been made generally
available to the public other than by disclosure in violation of this or any
other agreement (to the knowledge of the relevant Inspector), (iv) the Records
or other information was developed independently by an Inspector without breach
of this Agreement, (v) the information was known to the Inspector before receipt
of such information from the Company, or (vi) the information was disclosed to
the Inspector by a third party without restriction. The Company is not required
to disclose any confidential information in the Records to any Inspector unless
and until such Inspector has entered into a confidentiality agreement (in form
and substance satisfactory to the Company) with the Company with respect
thereto, substantially in the form of this Section 3.9. Each Investor will, upon
learning that disclosure of Records containing confidential information is
sought in or by a court or governmental body of competent jurisdiction or
through other means, give prompt notice to the Company and allow the Company, at
the Company's expense, to undertake appropriate action to prevent disclosure of,
or to obtain a protective order for, the Records deemed confidential. Nothing
herein will be deemed to limit the Investor's ability to sell Registrable
Securities in a manner that is otherwise consistent with applicable laws and
regulations.
(c) The Company will hold in confidence, and will not make any
disclosure of, information concerning an Investor provided to the Company under
this Agreement unless (i) disclosure of such information is necessary to comply
with federal or state securities laws, (ii) the disclosure of such information
is necessary to avoid or correct a misstatement or omission in any Registration
Statement, (iii) the release of such information is ordered pursuant to a
subpoena or other order from a court or governmental body of competent
jurisdiction, (iv) such information has been made generally available to the
public other than by disclosure in violation of this Agreement or any other
agreement (v) the information was disclosed to the Company by a third party
without restriction or (vi) such Investor consents to the form and content of
any such disclosure. If the
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<PAGE> 8
Company learns that disclosure of such information concerning an Investor is
sought in or by a court or governmental body of competent jurisdiction or
through other means, the Company will give prompt notice to such Investor prior
to making such disclosure and allow such Investor, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, such information.
3.10 Listing. The Company will (i) cause all of the Registrable
Securities covered by each Registration Statement to be listed on each national
securities exchange on which securities of the same class or series issued by
the Company are then listed, if any, if the listing of such Registrable
Securities is then permitted under the rules of such exchange, or (ii) to the
extent the securities of the same class or series are not then listed on a
national securities exchange, secure the designation and quotation of all of the
Registrable Securities covered by each Registration Statement on Nasdaq and,
without limiting the generality of the foregoing, arrange for at least two
market makers to register with the National Association of Securities Dealers,
Inc. as such with respect to such Registrable Securities.
3.11 Transfer Agent; Registrar. The Company will provide a transfer
agent and registrar, which may be a single entity, for the Registrable
Securities not later than the effective date of the Registration Statement.
3.12 Share Certificates. The Company will cooperate with the Investors
who hold Registrable Securities being sold and with the managing underwriter(s),
if any, to facilitate the timely preparation and delivery of certificates (not
bearing any restrictive legends) representing Registrable Securities to be
offered pursuant to a Registration Statement and will enable such certificates
to be in such denominations or amounts as the case may be, and registered in
such names as the Investors or the managing underwriter(s), if any, may
reasonably request, all in accordance with Article V of the Purchase Agreement.
3.13 Plan of Distribution. At the request of the Investors holding a
majority in interest of the Registrable Securities registered pursuant to a
Registration Statement, the Company will promptly prepare and file with the SEC
such amendments (including post-effective amendments) and supplements to the
Registration Statement, and the prospectus used in connection with the
Registration Statement, as may be necessary in order to change the plan of
distribution set forth in such Registration Statement.
3.14 Securities Laws Compliance. The Company will comply with all
applicable laws related to any Registration Statement relating to the sale of
Registrable Securities and to offering and sale of securities and with all
applicable rules and regulations of governmental authorities in connection
therewith (including, without limitation, the Securities Act, the Exchange Act
and the rules and regulations promulgated by the SEC).
3.15 Further Assurances. The Company will take all other reasonable
actions as any Investor or the underwriters, if any, may reasonably request to
expedite and facilitate disposition by such Investor of the Registrable
Securities pursuant to the Registration Statement.
3.16 No Additional Selling Shareholders. The Company will not, and will
not agree to, allow the holders of any securities of the Company to include any
of their securities in any Registration Statement under Section 2.1 hereof, or
any amendment or supplement thereto under
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Section 3.2 hereof, without the consent of the holders of a majority in interest
of the Registrable Securities.
ARTICLE IV
OBLIGATIONS OF THE INVESTORS
4.1 Investor Information. As a condition to the obligations of the
Company to complete any registration pursuant to this Agreement with respect to
the Registrable Securities of each Investor, such Investor will furnish to the
Company such information regarding itself, the Registrable Securities held by it
and the intended method of disposition of the Registrable Securities held by it
as is reasonably required by the Company to effect the registration of the
Registrable Securities. At least 10 business days prior to the first anticipated
filing date of a Registration Statement for any registration under this
Agreement, the Company will notify each Investor of the information the Company
requires from that Investor if the Investor elects to have any of its
Registrable Securities included in the Registration Statement. If, within three
business days prior to the filing date, the Company has not received the
requested information from an Investor, then the Company may file the
Registration Statement without including Registrable Securities of that
Investor.
4.2 Further Assurances. Each Investor will cooperate with the Company,
as reasonably requested by the Company, in connection with the preparation and
filing of any Registration Statement hereunder, unless such Investor has
notified the Company in writing of such Investor's election to exclude all of
such Investor's Registrable Securities from the Registration Statement.
4.3 Suspension of Sales. Upon receipt of any notice from the Company of
the happening of any event of the kind described in Section 3.6, each Investor
will immediately discontinue disposition of Registrable Securities pursuant to
the Registration Statement covering such Registrable Securities until it
receives copies of the supplemented or amended prospectus contemplated by
Section 3.6. If so directed by the Company, each Investor will deliver to the
Company (at the expense of the Company) or destroy (and deliver to the Company a
certificate of destruction) all copies in the Investor's possession (other than
a limited number of file copies) of the prospectus covering such Registrable
Securities that is current at the time of receipt of such notice.
4.4 Underwritten Offerings.
(a) If Investors holding a majority in interest of the
Registrable Securities being registered (with the approval of the Initial
Investors) determine to engage the services of an underwriter, each Investor
will enter into and perform such Investor's obligations under an underwriting
agreement, in usual and customary form, including, without limitation, customary
indemnification and contribution obligations, with the managing underwriter of
such offering, and will take such other actions as are reasonably required in
order to expedite or facilitate the disposition of the Registrable Securities,
unless such Investor has notified the Company in writing of such Investor's
election to exclude all of its Registrable Securities from such Registration
Statement.
(b) Without limiting any Investor's rights under Section 2.1
hereof, no Investor may participate in any underwritten distribution hereunder
unless such Investor (a) agrees to sell such Investor's Registrable Securities
on the basis provided in any underwriting arrangements approved by the Investors
entitled hereunder to approve such arrangements, (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements, and (c) agrees to pay its pro
9
<PAGE> 10
rata share of all underwriting discounts and commissions and other fees and
expenses of investment bankers and any manager or managers of such underwriting,
and legal expenses of the underwriter, applicable with respect to its
Registrable Securities, in each case to the extent not payable by the Company
under the terms of this Agreement.
ARTICLE V
EXPENSES OF REGISTRATION
The Company will bear all reasonable expenses, other than underwriting
discounts and commissions, and transfer taxes, if any, incurred in connection
with registrations, filings or qualifications pursuant to Articles II and III of
this Agreement, including, without limitation, all registration, listing and
qualifications fees, printers and accounting fees, the fees and disbursements of
counsel for the Company, and the reasonable fees and disbursements of one firm
of legal counsel selected by the Initial Investors pursuant to Section 3.7
hereof.
ARTICLE VI
INDEMNIFICATION
In the event that any Registrable Securities are included in a
Registration Statement under this Agreement:
6.1 To the extent permitted by law, the Company will indemnify and hold
harmless each Investor that holds such Registrable Securities, any underwriter
(as defined in the Securities Act) for the Investors, any directors or officers
of such Investor or such underwriter and any person who controls such Investor
or such underwriter within the meaning of the Securities Act or the Exchange Act
(each, an "Indemnified Person") against any losses, claims, damages, expenses or
liabilities (joint or several) (collectively, and together with actions,
proceedings or inquiries by any regulatory or self-regulatory organization,
whether commenced or threatened in respect thereof, "Claims") to which any of
them become subject under the Securities Act, the Exchange Act or otherwise,
insofar as such Claims arise out of or are based upon any of the following
statements, omissions or violations in a Registration Statement filed pursuant
to this Agreement, any post-effective amendment thereof or any prospectus
included therein: (a) any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any post-effective
amendment thereof or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, (b) any untrue statement or alleged untrue statement of
a material fact contained in the prospectus (as it may be amended or
supplemented) or the omission or alleged omission to state therein any material
fact necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading, or
(c) any violation or alleged violation by the Company of the Securities Act, the
Exchange Act or any other law, including without limitation any state securities
law or any rule or regulation thereunder (the matters in the foregoing clauses
(a) through (c) being, collectively, "Violations"). Subject to the restrictions
set forth in Section 6.3 with respect to the number of legal counsel, the
Company will reimburse the Investors and each such underwriter or controlling
person and each such other Indemnified Person, promptly as such expenses are
incurred and are due and payable, for any legal fees or other reasonable
expenses incurred by them in connection with investigating or defending any
Claim. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6.1 (i) does not apply to a
Claim by an Indemnified Person arising out of or based upon a Violation that
occurs in reliance upon and in conformity with information furnished in writing
to the Company by such Indemnified Person
10
<PAGE> 11
expressly for use in connection with the preparation of the Registration
Statement or any such amendment thereof or supplement thereto, if such
prospectus was timely made available by the Company pursuant to Section 3.3
hereof; and (ii) does not apply to amounts paid in settlement of any Claim if
such settlement is made without the prior written consent of the Company, which
consent will not be unreasonably withheld. This indemnity obligation will remain
in full force and effect regardless of any investigation made by or on behalf of
the Indemnified Persons and will survive the transfer of the Registrable
Securities by the Investors under Article IX of this Agreement.
6.2 In connection with any Registration Statement in which an Investor
is participating, each such Investor will indemnify and hold harmless, to the
same extent and in the same manner set forth in Section 6.1 above, the Company,
each of its directors, each of its officers who signs the Registration
Statement, each person, if any, who controls the Company within the meaning of
the Securities Act or the Exchange Act, and any other stockholder selling
securities pursuant to the Registration Statement or any of its directors or
officers or any person who controls such stockholder within the meaning of the
Securities Act or the Exchange Act (each an "Indemnified Person") against any
Claim to which any of them may become subject under the Securities Act, the
Exchange Act or otherwise, insofar as such Claim arises out of or is based upon
any Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished to the Company by such Investor expressly for use in connection with
such Registration Statement. Subject to the restrictions set forth in Section
6.3, such Investor will promptly reimburse any legal or other expenses (promptly
as such expenses are incurred and due and payable) reasonably incurred by them
in connection with investigating or defending any such Claim. However, the
indemnity agreement contained in this Section 6.2 does not apply to amounts paid
in settlement of any Claim if such settlement is effected without the prior
written consent of such Investor, which consent will not be unreasonably
withheld, and no Investor will be liable under this Agreement (including this
Section 6.2 and Article VII) for the amount of any Claim that exceeds the net
proceeds actually received by such Investor as a result of the sale of
Registrable Securities pursuant to such Registration Statement. This indemnity
will remain in full force and effect regardless of any investigation made by or
on behalf of an Indemnified Party and will survive the transfer of the
Registrable Securities by the Investors under Article IX of this Agreement.
6.3 Promptly after receipt by an Indemnified Person under this Article
VI of notice of the commencement of any action (including any governmental
action), such Indemnified Person will, if a Claim in respect thereof is to be
made against any indemnifying party under this Article VI, deliver to the
indemnifying party a written notice of the commencement thereof. The
indemnifying party may participate in, and, to the extent the indemnifying party
so desires, jointly with any other indemnifying party similarly given notice,
assume control of the defense thereof with counsel mutually satisfactory to the
indemnifying parties and the Indemnified Person. In that case, the indemnifying
party will diligently pursue such defense. If, in the reasonable opinion of
counsel retained by the indemnifying party, the representation by such counsel
of the Indemnified Person and the indemnifying party would be inappropriate due
to actual or potential conflicts of interest between the Indemnified Person and
any other party represented by such counsel in such proceeding or the actual or
potential defendants in, or targets of, any such action including the
Indemnified Person, and any such Indemnified Person reasonably determines that
there may be legal defenses available to such Indemnified Person that are
different from or in addition to those available to the indemnifying party, then
the Indemnified Person is entitled to assume such defense and may retain its own
counsel, with the fees and expenses to be paid by the indemnifying party. The
Company will pay for only one separate legal counsel for the Investors
collectively, and such legal counsel will be selected by the Investors holding a
majority in interest of the Registrable Securities. The failure to deliver
written
11
<PAGE> 12
notice to the indemnifying party within a reasonable time of the commencement of
any such action does not relieve an indemnifying party of any liability to an
Indemnified Person under this Article VI, except to the extent that the
indemnifying party is prejudiced in its ability to defend such action. The
indemnification required by this Article VI will be made by periodic payments of
the amount thereof during the course of the investigation or defense, as such
expense, loss, damage or liability is incurred and is due and payable.
ARTICLE VII
CONTRIBUTION
To the extent that any indemnification provided for herein is prohibited
or limited by law, the indemnifying party will make the maximum contribution
with respect to any amounts for which it would otherwise be liable under Article
VI to the fullest extent permitted by law. However, (a) no contribution will be
made under circumstances where the maker would not have been liable for
indemnification under the fault standards set forth in Article VI, (b) no seller
of Registrable Securities guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) will be entitled to contribution
from any seller of Registrable Securities who was not guilty of such fraudulent
misrepresentation, and (c) contribution (together with any indemnification or
other obligations under this Agreement) by any seller of Registrable Securities
will be limited in amount to the net amount of proceeds received by such seller
from the sale of such Registrable Securities.
ARTICLE VIII
EXCHANGE ACT REPORTING
In order to make available to the Investors the benefits of Rule 144 or
any similar rule or regulation of the SEC that may at any time permit the
Investors to sell securities of the Company to the public without registration,
the Company will:
(a) File with the SEC in a timely manner, and make and keep
available, all reports and other documents required of the Company under the
Securities Act and the Exchange Act so long as the Company remains subject to
such requirements (it being understood that nothing herein limits the Company's
obligations under Section 4.3 of the Purchase Agreement) and the filing and
availability of such reports and other documents is required for the applicable
provisions of Rule 144; and
(b) Furnish to each Investor, so long as such Investor holds
Registrable Securities, promptly upon the Investor's request, (i) a written
statement by the Company that it has complied with the reporting requirements of
Rule 144, the Securities Act and the Exchange Act, (ii) a copy of the most
recent annual or quarterly report of the Company and such other reports and
documents filed by the Company with the SEC and (iii) such other information as
may be reasonably requested to permit the Investors to sell such securities
pursuant to Rule 144 without registration.
ARTICLE IX
ASSIGNMENT OF REGISTRATION RIGHTS
The rights of the Investors hereunder, including the right to have the
Company register Registrable Securities pursuant to this Agreement, will be
automatically assigned by the Investors to transferees or assignees of all or
any portion of the Registrable Securities, but only if (a) the Investor
12
<PAGE> 13
agrees in writing with the transferee or assignee to assign such rights, and a
copy of such agreement is furnished to the Company within a reasonable time
after such assignment, (b) the Company is, within a reasonable time after such
transfer or assignment, furnished with written notice of the name and address of
such transferee or assignee and the securities with respect to which such
registration rights are being transferred or assigned, (c) after such transfer
or assignment, the further disposition of such securities by the transferee or
assignee is restricted under the Securities Act and applicable state securities
laws, (d) at or before the time the Company received the written notice
contemplated by clause (b) of this sentence, the transferee or assignee agrees
in writing with the Company to be bound by all of the provisions contained
herein, (e) such transfer is made in accordance with the applicable requirements
of the Purchase Agreement, and (f) the transferee is an "accredited investor" as
that term is defined in Rule 501 of Regulation D.
ARTICLE X
AMENDMENT OF REGISTRATION RIGHTS
This Agreement may be amended and the obligations hereunder may be
waived (either generally or in a particular instance, and either retroactively
or prospectively) only with the written consent of the Company and of the
Investors who then hold a two-thirds (2/3) interest of the Registrable
Securities (but not including any Investor who is not affected by such amendment
or waiver). Any amendment or waiver effected in accordance with this Article X
is binding upon each Investor and the Company. Notwithstanding the foregoing, no
amendment or waiver will retroactively affect any Investor without its consent,
or will prospectively adversely affect any Investor who no longer owns any
Registrable Securities without its consent. Neither Article VI nor Article VII
hereof may be amended or waived in a manner adverse to an Investor without its
consent.
ARTICLE XI
MISCELLANEOUS
11.1 Conflicting Instructions. A person or entity is deemed to be a
holder of Registrable Securities whenever such person or entity owns of record
such Registrable Securities. If the Company receives conflicting instructions,
notices or elections from two or more persons or entities with respect to the
same Registrable Securities, the Company will act upon the basis of
instructions, notice or election received from the registered owner of such
Registrable Securities.
11.2 Notices. Any notices required or permitted to be given under the
terms of this Agreement will be given as set forth in the Purchase Agreement.
11.3 Waiver. Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, does not operate as a waiver thereof.
11.4 Governing Law. This Agreement will be governed by and interpreted
in accordance with the laws of the State of Delaware without regard to the
principles of conflict of laws. The parties hereto hereby submit to the
exclusive jurisdiction of the United States federal and state courts located in
the State of Delaware with respect to any dispute arising under this Agreement,
the agreements entered into in connection herewith or the transactions
contemplated hereby or thereby.
11.5 Severability. If any provision of this Agreement is invalid or
unenforceable under any applicable statute or rule of law, then such provision
will be deemed modified in order to
13
<PAGE> 14
conform with such statute or rule of law. Any provision hereof that may prove
invalid or unenforceable under any law will not affect the validity or
enforceability of any other provision hereof.
11.6 Entire Agreement. This Agreement and the Purchase Agreement
(including all schedules and exhibits thereto) constitute the entire agreement
among the parties hereto with respect to the subject matter hereof and thereof.
There are no restrictions, promises, warranties or undertakings, other than
those set forth or referred to herein or therein. This Agreement supersedes all
prior agreements and understandings among the parties hereto with respect to the
subject matter hereof.
11.7 Successors and Assigns. Subject to the requirements of Article IX
hereof, this Agreement inures to the benefit of and is binding upon the
successors and assigns of each of the parties hereto. Notwithstanding anything
to the contrary herein, including, without limitation, Article IX, the rights of
an Investor hereunder are assignable to and exercisable by a bona fide pledgee
of the Registrable Securities in connection with an Investor's margin or
brokerage accounts.
11.8 Use of Pronouns. All pronouns refer to the masculine, feminine or
neuter, singular or plural, as the context may require.
11.9 Headings. The headings of this Agreement are for convenience of
reference only, are not part of this Agreement and do not affect its
interpretation.
11.10 Counterparts. This Agreement may be executed in two or more
counterparts, each of which is deemed an original but all of which constitute
one and the same agreement. This Agreement, once executed by a party, may be
delivered to the other party hereto by facsimile transmission, and facsimile
signatures are binding on the parties hereto.
11.11 Further Assurances. Each party will do and perform, or cause to be
done and performed, all such further acts and things, and will execute and
deliver all other agreements, certificates, instruments and documents, as
another party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
11.12 Consents. All consents and other determinations to be made by the
Investors pursuant to this Agreement will be made by the Initial Investors or
the Investors holding a majority in interest of the Registrable Securities.
11.13 No Strict Construction. The language used in this Agreement is
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.
14
<PAGE> 15
IN WITNESS WHEREOF, the undersigned Investors and the Company have
caused this Agreement to be duly executed as of the date first above written.
COMPANY:
MICRO THERAPEUTICS, INC.
By: /s/ Harold A. Hurwitz
---------------------------------
Name: Harold A. Hurwitz
Title: Chief Financial Officer
INVESTOR:
T. ROWE PRICE NEW HORIZONS FUND,
INC.
By: /s/ John H. Laporte
---------------------------------
Name: John H. Laporte
Its: Director
15
<PAGE> 16
IN WITNESS WHEREOF, the undersigned Investors and the Company have
caused this Agreement to be duly executed as of the date first above written.
COMPANY:
MICRO THERAPEUTICS, INC.
By: /s/ Harold A. Hurwitz
---------------------------------
Name: Harold A. Hurwitz
Title: Chief Financial Officer
INVESTOR:
PEQUOT PRIVATE EQUITY FUND II, L.P.
By: /s/ David J. Malat
---------------------------------
Name: Pequot Capital Management,
Inc.
David J. Malat, CFO
Its: Investment Manager
16
<PAGE> 17
IN WITNESS WHEREOF, the undersigned Investors and the Company have
caused this Agreement to be duly executed as of the date first above written.
COMPANY:
MICRO THERAPEUTICS, INC.
By: /s/ Harold A. Hurwitz
---------------------------------
Name: Harold A. Hurwitz
Title: Chief Financial Officer
INVESTOR:
FRAMLINGTON INVESTMENT MANAGEMENT
FOR FRAMLINGTON HEALTH FUND
By: /s/ Bill Kennedy
---------------------------------
Name: Bill Kennedy
Its: Treasury Manager
17
<PAGE> 18
IN WITNESS WHEREOF, the undersigned Investors and the Company have
caused this Agreement to be duly executed as of the date first above written.
COMPANY:
MICRO THERAPEUTICS, INC.
By: /s/ Harold A. Hurwitz
---------------------------------
Name: Harold A. Hurwitz
Title: Chief Financial Officer
INVESTOR:
FRAMLINGTON INVESTMENT MANAGEMENT
FOR MUNDER HEALTH FUND
By: /s/ Bill Kennedy
---------------------------------
Name: Bill Kennedy
Its: Treasury Manager
18
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Forms S-8 (File No. 333-23361 and File No. 333-23367) of our report
dated February 18, 2000, except as to Note 17 as to which the date is March 10,
2000, relating to the consolidated financial statements of Micro Therapeutics,
Inc., which appear in this Annual Report on Form 10-KSB.
PRICEWATERHOUSECOOPERS LLP
Orange County, California
March 30, 2000
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BALANCE SHEET AND STATEMENT OF OPERATIONS IN FORM 10-KSB FOR THE YEAR ENDED
DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM
10-KSB.
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<INTEREST-EXPENSE> 2,831
<INCOME-PRETAX> (13,829)
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