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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
SEPTEMBER 30, 1997
/X/ 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 0-19711
THE SPECTRANETICS CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 84-0997049
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
96 TALAMINE COURT
COLORADO SPRINGS, COLORADO 80907
(719) 633-8333
(Address of principal executive offices and telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for 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
--- ---
As of November 5, 1997, there were 18,739,451 outstanding shares of Common
Stock.
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Exhibit Index at Page 15
Page 1
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PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE SPECTRANETICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS)
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Sept 30, December 31,
1997 1996
-------- ------------
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents $ 4,467 $ 2,860
Investment securities 1,547 4,290
Trade accounts receivable 4,023 3,651
Inventories (note 3) 2,203 1,628
Prepaid expenses and other current assets 278 396
-------- --------
Total current assets 12,518 12,825
-------- --------
Property and equipment, net 3,691 3,486
Goodwill and other intangible assets, net 5,398 6,346
Other assets 680 382
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Total assets $ 22,287 $ 23,039
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-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY:
LIABILITIES:
Accounts payable and accrued liabilities $ 3,238 $ 3,311
Deferred revenue 3,162 569
Current portion of note payable 79 75
Current portion of capital lease obligations 175 83
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Total current liabilities 6,654 4,038
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Other liabilities 10 26
Note payable, net of current portion 366 445
Capital lease obligations, net of current portion 140 20
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Total long-term liabilities 516 491
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Total liabilities 7,170 4,529
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SHAREHOLDERS' EQUITY:
Preferred stock, $.001 par value. Authorized
5,000,000 shares; none issued -- --
Common stock, $.001 par value. Authorized
25,000,000 shares; issued and outstanding
18,698,333 and 18,531,867, respectively 19 19
Additional paid-in capital 83,655 83,402
Cumulative foreign currency translation adjustment (165) (16)
Accumulated deficit (68,392) (64,895)
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Total shareholders' equity 15,117 18,510
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$ 22,287 $ 23,039
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Page 2
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ITEM 1. FINANCIAL STATEMENTS (CONT'D)
THE SPECTRANETICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS)
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<TABLE>
<CAPTION>
Three Months Ended Sept. 30. Nine Months Ended Sept. 30.
---------------------------- -----------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $ 6,233 $ 5,595 $ 15,387 $ 15,714
Cost of revenues 3,285 2,784 8,307 8,045
---------- ---------- ---------- ----------
Gross margin 2,948 2,811 7,080 7,669
---------- ---------- ---------- ----------
Gross margin % 47% 50% 46% 49%
OPERATING EXPENSES:
Marketing and sales expense 1,667 1,516 5,352 4,503
General and administrative expense 1,467 973 3,799 3,154
Research and development expense 489 466 1,569 1,248
---------- ---------- ---------- ----------
Total operating expenses 3,623 2,955 10,720 8,905
---------- ---------- ---------- ----------
LOSS FROM OPERATIONS (675) (144) (3,640) (1,236)
OTHER INCOME (EXPENSE):
Interest income 69 84 202 238
Interest expense (8) (10) (25) (34)
Other, net 5 1 (34) (4)
---------- ---------- ---------- ----------
66 75 143 200
---------- ---------- ---------- ----------
Net Loss $ (609) $ (69) $ (3,497) $ (1,036)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
LOSS PER SHARE (note 2) $ (0.03) $ - $ (0.19) $ (0.06)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
WEIGHTED AVERAGE COMMON SHARES 18,675,012 18,462,133 18,630,055 18,406,003
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
Page 3
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ITEM 1. FINANCIAL STATEMENTS (CONT'D)
THE SPECTRANETICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS)
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Nine Months Ended
Sept 30,
--------------------
1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,497) $ (1,036)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 1,499 2,072
Net change in operating assets and liabilities 1,367 (709)
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Net cash (used by) provided from operating activities (631) 327
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (486) (288)
Decrease (increase) in short-term investments 2,743 (1,193)
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Net cash provided by (used in) investing activities 2,257 (1,481)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 254 217
Principal payments on obligations under
capital leases and note payable (210) (150)
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Net cash provided by financing activities 44 67
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Effect of exchange rate changes on cash (63) (42)
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Net increase (decrease) in cash and cash equivalents 1,607 (1,129)
Cash and cash equivalents at beginning of period 2,860 3,115
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Cash and cash equivalents at end of period $ 4,467 $ 1,986
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Supplemental disclosures of cash flow information --
cash paid for interest $ 41 $ 44
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Supplemental disclosure of non-cash investing
and financing activities:
Transfers from inventory to equipment held for rental
or loan $ 202 $ 18
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Assets acquired with capital leases $ 347 $ --
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ITEM 1. FINANCIAL STATEMENTS (CONT'D)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) GENERAL
The information included in the accompanying condensed consolidated interim
financial statements is unaudited and should be read in conjunction with the
audited financial statements and notes thereto contained in the Company's latest
Annual Report on Form 10-K. In the opinion of management, all adjustments,
consisting of normal recurring accruals, necessary for a fair presentation of
the results of operations for the interim periods presented have been reflected
herein. The results of operations for interim periods are not necessarily
indicative of the results to be expected for the entire year.
(2) LOSS PER SHARE
The loss per common share does not reflect any assumed exercise of stock
options, since the effect of such inclusion would be antidilutive.
(3) INVENTORIES
Components of inventories are as follows (in thousands):
Sept 30, 1997 December 31, 1996
------------- -----------------
Finished Goods $ 871 $ 643
Work in Process 618 516
Raw Materials 714 469
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$2,203 $1,628
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(4) ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 128, EARNINGS PER SHARE
(SFAS 128) was issued in February 1997 by the Financial Accounting Standards
Board. SFAS 128 simplifies the standards for computing earnings per share
previously found in APB Opinion No. 15, EARNINGS PER SHARE, and makes them
comparable to international EPS standards. It replaces the presentation of
basic and diluted with a presentation of basic EPS. It also requires dual
presentation of basic and diluted EPS on the face of the income statement for
all entities with complex capital structures and requires a reconciliation of
the numerator and denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation.
Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity. Diluted EPS is computed similarly to fully
diluted EPS pursuant to Opinion 15. SFAS 128 is required to be adopted for
fiscal years, including interim periods, ending after December 15, 1997. The
Company will adopt SFAS 128 during the fourth quarter of 1997. Its adoption is
not expected to have a material effect on the consolidated financial statements
of the Company.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
The information set forth in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" below includes "forward-looking
statements" within the meaning of Section 21E of the Securities and Exchange Act
of 1934, as amended, and is subject to the safe harbor created by that section.
Readers are cautioned not to place undue reliance on these forward-looking
statements and to note that they speak only as of the date hereof. Factors that
realistically could cause actual results to differ materially from those set
forth in the forward-looking statements are set forth below and include the
following: market acceptance of excimer laser angioplasty technology,
technological changes resulting in product obsolescence, the inability to obtain
patents with respect to new products, adverse state or federal legislation and
regulation, availability of third party component products at reasonable prices,
and the other risk factors listed from time to time in the Company's filings
with the Securities and Exchange Commission as well as those set forth in "Risk
Factors."
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997
COMPARED TO THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996:
REVENUES
Revenues for the three months ended September 30, 1997 increased to
$6,233,000, or 11%, as compared to the three months ended September 30, 1996.
The increase reflects higher revenues associated with sales of laser systems and
lead removal devices to investigational sites participating in the Company's
ongoing clinical study for the removal of pacemaker and implantable
defibrillator leads. In July 1997, an advisory panel to the FDA unanimously
recommended the Company's lead removal device for approval. This increase was
partially offset by the effect of adverse foreign currency exchange rate
fluctuations, which amounted to approximately $200,000, or 2% of consolidated
revenues. The adverse fluctuation is due to the strengthening of the U.S.
dollar in relation to the Dutch guilder, the currency of the Company's wholly
owned subsidiary in the Netherlands, Spectranetics International, B.V., which
accounts for approximately 20% of consolidated revenues for the three and nine
months ended September 30, 1997.
Revenues for the nine months ended September 30, 1997 decreased to
$15,387,000, or 2%, as compared to the same period last year due primarily to
adverse foreign currency exchange rate fluctuations amounting to approximately
$400,000.
GROSS MARGIN
Gross margins as a percentage of revenues for the three months and nine
months ended September 30, 1997 were 47% and 46%, respectively, as compared to
gross margins of 50% and 49% for the comparable periods in 1996. The decline
in gross margins as a percentage of revenue is primarily a result of the
unfavorable fluctuation in foreign currency exchange rates. There was no
corresponding fluctuation in cost of revenues since they are denominated in U.S.
dollars. Had foreign currecy exchange rates remained constant, gross margins as
a percentage of revenues for the three and nine months ended September 30, 1997
would have been 49% and 48%, respectively.
Page 6
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (CONT'D)
OPERATING EXPENSES
Marketing and sales expenses increased 10% and 19% to $1,667,000 and
$5,352,000, respectively, for the three and nine months ended September 30, 1997
as compared to the same period last year. The increase is due to additional
staffing in the marketing and sales organization as well as an increase in
general marketing activities designed to highlight and promote the benefits of
the Company's excimer laser technology.
General and administrative expenses increased 51% and 20% to
$1,467,000 and $3,799,000, respectively, during the three and nine months ended
September 30, 1997 as compared to the same period last year. The increase is
primarily attributable to increased staffing and general corporate activities
associated with the build-up of the infrastructure necessary to execute the
Company's strategy of expanding the application of the Company's excimer laser
technology.
Research and development expenses increased 5% and 25% to $489,000 and
$1,569,000, respectively, for the three and nine months ended September 30, 1997
as compared to the same period last year. The increase is primarily due to an
increased focus on expanding the application of the Company's excimer laser
technology, which resulted in additional staffing costs and clinical study costs
associated with a retrospective trial examining laser treatment of stent
restenosis.
Fluctuations in foreign currency exchange rates during the three and
nine months ended September 30, 1997 compared to the same periods in 1996 caused
a decrease in operating expenses of 4% and 4%, respectively, for the three and
nine months ended September 30, 1997 as compared to the same periods in 1996.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1997, the Company had cash, cash equivalents and
investment securities of $6,014,000. The Company consumed $1,136,000 of cash,
cash equivalents, and investment securities during the nine months ended
September 30, 1997, primarily due to $631,000 consumed in connection with
operating activities.
Operating expenses have increased 20% for the nine months ended
September 30, 1997 as compared to the same period last year. Management expects
continued operating expense increases associated with research and development
projects, clinical studies, sales staffing additions, marketing activities, and
administrative costs necessary to support these increased corporate activities.
In September 1997, the Company entered into a $6,100,000 agreement
with United States Surgical Corporation (USSC), which will require USSC to make
advance payments against future purchases of Spectranetics' laser systems and
fiber-optic probes for use in transmyocardial revascularization (TMR).
Approximately $2,500,000 was paid to the Company during the third quarter and is
included within deferred revenue on the balance sheet.
During the nine months ended September 30, 1997, the Company entered
into capital leases to finance the purchase of capital equipment. Management
expects future purchases of capital equipment to be financed with similar
financing arrangements. There are no assurances that such financing can be
secured on terms favorable to the Company, if at all.
Page 7
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (CONT'D)
Management believes that the Company's liquidity and capitalization
will be sufficient to sustain the Company through the end of 1998. Revenue
increases or additional financing will be necessary to sustain the Company over
the longer term. There are no assurances that the revenue increases or the
necessary financing can be secured on terms favorable to the Company, if at all.
RISK FACTORS
The stockholders of the Company are, and will continue to be subject
to a number of risks, including the following:
CONTINUED LOSSES. The Company has incurred net losses since inception
in June 1984. The Company anticipates that net losses will continue in the
foreseeable future. There can be no assurance that the Company will be able to
achieve increased sales or profitability.
QUARTERLY FLUCTUATIONS IN OPERATING RESULTS. Results of operations
for the Company have varied and may continue to fluctuate significantly from
quarter to quarter and will depend upon numerous factors, including timing of
regulatory approvals, market acceptance of products and new product
introductions, implementation of health care reforms, changes in product mix
between laser units and catheters, ability to manufacture products efficiently
and competition from other technologies.
LACK OF LIQUIDITY. The Company believes that it has sufficient cash
liquidity to execute its plans through 1998. In order for cash flow from
operating activities to be sufficient to sustain the Company's operations over
the long term, the Company must achieve increases in sales and maintain control
over expenses. There can be no assurance that such increases in sales or
control in expenses will occur or that they will be sufficient to maintain
adequate cash to continue operations.
NO ASSURANCE THAT THE COMPANY WILL BE ABLE TO OBTAIN ADDITIONAL
FINANCING. The Company may require additional financing in the near future.
Such financing, if required, may not be available on satisfactory terms, or at
all. If the Company is unable to obtain sufficient funding from other sources
on terms and prices acceptable to the Company, the Company's ability to make
capital expenditures, provide adequate physician training and clinical support,
compete effectively and withstand the effects of adverse market and economic
conditions may be significantly impaired. If the Company is able to obtain debt
financing, there can be no assurance that the Company will have sufficient cash
flow from operating activities to meet its debt service requirements.
Therefore, the Company may be required to meet its debt service requirements
from other sources, such as the sale of additional equity and debt securities
and the sale of selected assets. To the extent the Company finances its future
operations through the issuance of equity securities, existing stockholders may
suffer dilution in net tangible book value per share.
LIMITED MANUFACTURING EXPERIENCE. SPNC received pre-market approval
(PMA) approval from the FDA for its CVX-300-Registered Trademark- laser unit in
1993. Accordingly, SPNC does not have substantial experience in manufacturing,
marketing or selling its products in commercial quantities. SPNC may encounter
difficulties in scaling up production of laser units and devices and hiring and
training additional qualified manufacturing personnel. The occurrence of
difficulties as SPNC increases production volumes could lead to quarterly
fluctuations in operating results and have a material adverse effect on SPNC's
business, financial condition and results of operations.
UNCERTAIN MARKET ACCEPTANCE. Excimer laser angioplasty technology is
a relatively new procedure which competes with more established therapies,
including balloon angioplasty, stent implantation and bypass surgery, and other
evolving technologies, such as atherectomy and non-excimer laser technologies.
Page 8
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (CONT'D)
The cost of the CVX-300-Registered Trademark- laser unit is significantly
greater than the cost of therapeutic capital equipment required with balloon
angioplasty, stent implantation and atherectomy procedures, and the cost of
SPNC's catheters is greater than the cost of balloon angioplasty catheters. In
addition, because excimer laser procedures are often followed by balloon
angioplasty, the cost of an excimer laser angioplasty can be higher than balloon
angioplasty alone. Market acceptance of the laser angioplasty system also will
depend, in part, on SPNC's ability to establish with the medical community the
clinical efficacy of excimer laser angioplasty.
As a result of such factors, there can be no assurance that the
marketplace will be receptive to SPNC's laser angioplasty systems or that
excimer laser angioplasty will be accepted over competing therapies. Failure of
SPNC's products to achieve market acceptance would have a material adverse
effect on SPNC's business, financial condition and results of operations.
DEPENDENCE ON SINGLE PRODUCT LINE. A significant percentage of SPNC's
revenues is derived from the sale or lease of the CVX-300-Registered Trademark-
laser unit and the sale of products used in conjunction with the
CVX-300-Registered Trademark- laser unit. Consequently, SPNC is dependent on
the successful development and commercialization of the CVX-300-Registered
Trademark- laser unit and such related products. Unfavorable clinical trial
results, failure to obtain regulatory approvals in a timely manner, or at all,
or failure to gain widespread market acceptance could have a material adverse
effect on SPNC's business and financial condition, and cessation of business
could occur.
INTENSE COMPETITION. Methods for the treatment of cardiovascular
disease are numerous and are expected to increase in number. Almost all of
SPNC's competitors have substantially greater financial, manufacturing,
marketing and technical resources than SPNC. SPNC expects intense competition
to continue in the marketplace. Market competition includes manufacturers of
balloon angioplasty devices and stents, and direct competition for SPNC comes
from manufacturers of atherectomy devices. Balloon angioplasty is currently the
most common therapy for the treatment of atherosclerosis. Guidant Corporation,
Boston Scientific Corporation and Johnson & Johnson Interventional Systems are
the leading balloon angioplasty manufacturers. With the approval of stents in
1994, SPNC anticipates that stent utilization will continue to grow as the
second most prevalent angioplasty treatment of choice for atherosclerosis.
Johnson & Johnson Interventional Systems is the leading stent provider in the
United States at this time. Manufacturers of atherectomy devices include
Devices for Vascular Intervention, Inc. (a subsidiary of Guidant Corporation),
Interventional Technologies, Inc. and Heart Technology, Inc. (a subsidiary of
Boston Scientific Corporation). There is an excimer laser company in Germany,
Medolas, which has performed excimer laser angioplasty in Europe. United States
Surgical Corporation has acquired an 80 percent interest in Medolas.
SPNC believes that the primary competitive factors in the
interventional cardiovascular market are: the ability to treat safely and
effectively a variety of lesions; the impact of managed care practices and
procedure costs; ease of use; and research and development capabilities.
There can be no assurance that SPNC's current and future competitors
will not develop technologies and products that are more effective in treating
cardiovascular disease than SPNC's current products or future products, and that
SPNC technologies and products would not be rendered obsolete by such
developments.
UNCERTAINTY OF IMPACT OF HEALTH CARE REFORM. The federal government
and certain states have already implemented or are considering legislation to
effect health care reforms. In addition, other legislative and industry groups
are studying various health care issues. The ultimate timing or effect of any
Page 9
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (CONT'D)
such health care reforms on SPNC cannot be predicted and no assurance can be
given that any such reforms will not have a material adverse effect on SPNC
revenues and earnings. Short-term cost containment initiatives may vary
substantially from long-term reforms and may impact SPNC differently.
LIMITATIONS ON THIRD-PARTY REIMBURSEMENT. The CVX-300-Registered
Trademark- laser unit is generally purchased by hospitals, which then bill
various third-party payors, such as government programs and private insurance
plans, for the health care services provided to their patients. Unlike
balloon angioplasty and atherectomy, laser angioplasty requires the purchase
of expensive capital equipment. The FDA has required that the label for the
CVX-300-Registered Trademark- laser unit indicate that adjunctive balloon
angioplasty was performed in the majority of the procedures submitted to the
FDA in SPNC's application for PMA. This will require the purchase of both a
laser catheter and a balloon catheter. Payors may deny reimbursement for
procedures they believe to be duplicative. Payors may also deny
reimbursement if they determine that a device used in a procedure was
experimental, was used for a non-approved indication or was not used in
accordance with established pay protocols regarding cost effective treatment
methods. There can be no assurance that laser angioplasty using the
CVX-300-Registered Trademark- laser unit will be considered cost effective by
third-party payors, that reimbursement will be available or, if available,
that payors' reimbursement policies will not adversely affect SPNC's ability
to sell its products on a profitable basis. There are increasing pressures
from many payor sources to control health care costs. In addition, there are
increasing pressures from public and private payors to limit increases in
reimbursement rates for medical devices. The market for SPNC's products and
the levels of revenues and profitability could also be adversely affected by
changes in governmental and private third-party payors' policies or by recent
federal legislation that reduces reimbursements under the capital cost
pass-through system for the Medicare program.
COSTS AND UNCERTAINTY OF REGULATORY COMPLIANCE. SPNC's products and
manufacturing activities are subject to vigorous Class III medical device
regulation by the FDA and comparable state and foreign agencies. The process of
complying with these regulations can be costly and time consuming. Failure to
comply with applicable regulatory requirements can result in, among other
things, fines, suspensions of approvals, seizures or recalls of products,
operating restrictions and criminal prosecutions. Furthermore, changes in
existing regulations or adoption of new regulations and standards could prevent
SPNC from obtaining, or affect the timing of, future regulatory approval. SPNC
products require the filing of original PMAs or PMA supplements. There can be
no assurance that the FDA will approve SPNC's current or future PMAs or PMA
supplements on a timely basis or at all. The absence of such approvals could
have a material adverse effect on SPNC's ability to generate future revenues.
Sales of medical devices outside of the United States are subject to
international regulatory requirements that vary from country to country. The
time required to obtain approval for sale internationally may be longer or
shorter than that required for FDA approval, and the requirements may differ.
As of March 1997, SPNC has received CE mark registration for all of its
products. There are no assurances that SPNC will be able to obtain CE mark for
its products in the future. In addition, significant costs and requests for
additional information may be encountered by SPNC in its efforts to obtain
regulatory approvals. Any such events could substantially delay or preclude
SPNC from marketing its products internationally.
TECHNOLOGICAL CHANGE RESULTING IN PRODUCT OBSOLESCENCE. Market
acceptance and sales of SPNC products also could be adversely affected by
technological changes. The health care industry is characterized by rapid
technological progress. New developments are expected to continue at an
accelerated pace in both industry and academia. Many companies, some of which
have substantially greater resources than SPNC, are engaged in research and
development with respect to methods of treatment and prevention of coronary
artery disease. These include pharmaceutical approaches as well as
Page 10
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (CONT'D)
development of new or improved angioplasty, atherectomy or other devices.
SPNC products could be rendered obsolete as a result of future innovations in
the treatment of coronary artery disease.
UNCERTAINTY RELATED TO PATENTS AND PROPRIETARY RIGHTS. SPNC holds
patents, has licenses to use patents and has patent applications pending. There
can be no assurance that any patents currently applied for by SPNC will be
granted or that any patents held by SPNC will be valid or sufficiently broad to
protect SPNC technology or to provide it with any competitive advantage or will
not be challenged or circumvented by competitors. Termination of the licenses
granted to SPNC would have a material adverse effect on its business, financial
condition and results of operations.
SPNC is aware of other patents issued to and patent applications filed
by individuals, partnerships, companies, universities and research institutions
relating to laser and fiber-optic technologies, which, if valid and enforceable,
may be infringed by SPNC. SPNC has received notice from other parties regarding
the existence of certain patents involving the use of lasers in the body.
Although SPNC has not been sued by these parties, there can be no assurance that
they will not be sued or that they would prevail in any such action. Should
SPNC determine that it is necessary to obtain a license to such patents or
proprietary technology, there can be no assurance that any such license would be
available on favorable terms, or at all, or that it would be able to develop or
otherwise obtain alternative technology.
Litigation concerning patents and proprietary rights could result in
substantial cost to and diversion of effort by SPNC. Adverse findings in any
proceeding could subject SPNC to significant liability to third parties, require
SPNC to seek licenses from third parties and adversely affect the ability of
SPNC to manufacture and sell its products.
SPNC also relies on trade secrets and unpatented know-how to protect
its proprietary technology, and may be vulnerable to competitors who attempt to
copy its products or to gain access to its trade secrets and know-how.
DEPENDENCE ON SUPPLIERS AND DISTRIBUTORS. The glass rods used by SPNC
in the fabrication of optical fibers incorporated into catheters are currently
available from a single source which holds worldwide patent rights on this
material. Any interruption in the supply of such glass rods could have a
material adverse effect on SPNC's ability to manufacture catheters.
PRODUCT LIABILITY AND SUFFICIENCY OF INSURANCE COVERAGE. The
manufacture and sale of the Company's products entail the risk of product
liability claims. A successful claim brought against the Company could have a
material adverse effect on the Company. The Company maintains product liability
insurance with coverage of $5,000,000, and an aggregate maximum of $5,000,000.
There can be no assurance that the coverage limits of the Company's insurance
policies will be adequate or that such insurance will be available in the future
on acceptable terms, if at all.
DEPENDENCE ON KEY PERSONNEL. The Company is dependent upon a limited
number of key management and technical personnel, and the future success of the
Company will depend in part upon its ability to attract and retain highly
qualified personnel. The Company will compete for such personnel with other
companies, academic institutions, government entities and other organizations.
There can be no assurance that the Company will be successful in hiring or
retaining qualified personnel. Loss of key personnel or inability to hire or
retain qualified personnel could have a material adverse effect on the Company's
business, financial condition and results of operations.
Page 11
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (CONT'D)
POTENTIAL DIFFICULTIES IN MANAGING BUSINESS UNDERGOING RAPID CHANGE.
The Company's future success will depend to a significant extent on the ability
of its management personnel to operate effectively, both independently and as a
group. In this regard, a number of members of the Company's senior management
team have only recently joined the Company. Moreover, certain members of such
management team have limited or no experience as a senior executive of a public
corporation. There can be no assurance that the management team will operate
together effectively. To compete successfully against current and future
competitors, complete clinical trials in progress, prepare additional products
for clinical trials and develop future products, the Company believes that it
must continue to expand its operations, particularly in the areas of research
and development, sales and marketing, training, and manufacturing. If the
Company were to experience significant growth in the future, such growth would
likely result in new and increased responsibilities for management personnel and
place significant strain upon the Company's management, operating and financial
systems and resources. To accommodate such growth and compete effectively, the
Company must continue to implement and improve information systems, procedures
and controls, and to expand, train, motivate and manage its workforce. There
can be no assurance that the Company's personnel, systems, procedures and
controls will be adequate to support the Company's future operations. Any
failure to implement and improve the Company's operational, financial and
management systems or to expand, train, motivate or manage employees could
materially and adversely affect the Company's business, financial condition and
results of operations.
ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER PROVISIONS. Each of the
following charter provisions may have anti-takeover effects and may have a
negative impact on the rights of the Company's stockholders and the value of the
Company's Common Stock:
STAGGERED BOARD OF DIRECTORS. The Company has a staggered board of
directors in which directors are elected for staggered three-year terms.
This prevents stockholders from electing all directors at each annual
meeting and may have the effect of delaying or deferring a change in
control of the Company.
PREFERRED STOCK ISSUANCE. Up to five million shares of the Company's
preferred stock may be issued in the future by the Company without further
stockholder approval and upon such terms and conditions, and having such
rights, privileges and preferences, as the Board of Directors may
determine. The rights of the holders of the Company's Common Stock will be
subject to, and may be adversely affected by, the rights of the holders of
any preferred stock that may be issued in the future. The issuance of
preferred stock could have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from acquiring, a
majority of the outstanding voting stock of the Company.
DELAWARE CORPORATION CODE SECTION 203. Section 203 of the Delaware
General Corporation Law prohibits a publicly held Delaware corporation from
engaging in a business combination with an interested stockholder for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless certain conditions are met.
Section 203 has a negative impact on the ability of certain stockholders to
effect business combinations with the Company.
INABILITY OF STOCKHOLDERS TO CALL SPECIAL MEETING. The Company's
Certificate and Bylaws provide that special meetings of stockholders may be
called only by the Board of Directors or a committee of the Board of
Directors duly designated and authorized to call special meetings in a
resolution of the Board of Directors or as may otherwise be specifically
provided in the
Page 12
<PAGE>
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (CONT'D)
Company's Certificate. This provision may limit the ability of the
Company's stockholders to take actions not supported by the Board of
Directors.
AMENDMENT OR REPEAL OF BYLAWS. The Company's Bylaws may be adopted,
amended or repealed by the Board of Directors or by the affirmative vote of
a majority of the outstanding shares of the Company's Common Stock entitled
to vote. The ability of the Board of Directors to amend the Bylaws to
increase the number of directors may make it more difficult for the
stockholders to change control of the Board of Directors.
POTENTIAL VOLATILITY OF STOCK PRICE. The stock market has from time
to time experienced significant price and volume fluctuations that are unrelated
to the operating performance of particular companies. In addition, the market
price of the shares of the Company's Common Stock, similar to other health care
companies, has been, and is likely to continue to be, highly volatile. Factors
such as fluctuations in operating results, announcements of technological
innovations or new products by the Company or its competitors, governmental
regulation, developments with respect to patents or proprietary rights, public
concern as to the safety of products developed by the Company or others and
general market conditions may have a significant effect on the market price of
the Company's Common Stock.
EXPOSURE FROM INTERNATIONAL OPERATIONS. Changes in overseas economic
conditions, currency exchange rates, foreign tax laws or tariffs or other trade
regulations could have a material adverse effect on the Company's ability to
market its products internationally and therefore on its business, financial
condition and results of operations. The Company's business is also expected to
subject it and its representatives, agents and distributors to laws and
regulations of the foreign jurisdictions in which they operate or the Company's
products are sold. The Company may depend on foreign distributors and agents
for compliance and adherence to foreign laws and regulations. The regulation of
medical devices in a number of such jurisdictions, particularly in the European
Union, continues to develop and there can be no assurance that new laws or
regulations will not have an adverse effect on the Company's business, financial
condition and results of operations. In addition, the laws of certain foreign
countries do not protect the Company's intellectual property rights to the same
extent as do the laws of the United States.
As the Company expands its international operations, its sales and
expenses denominated in foreign currencies will expand and that trend is
expected to continue. Thus, certain sales and expenses have been, and are
expected to be, subject to the effect of foreign currency fluctuations. As the
Company expands its international operations, its net foreign currency
denominated sales and expenses will be subject to the effect of foreign currency
fluctuations. Further, any significant changes in the political, regulatory or
economic environment where the Company conducts international operations may
have a material impact on revenues and profits.
LACK OF DIVIDENDS. The Company has not declared or paid any dividends
with respect to the Company's Common Stock. It is not anticipated that the
Company will pay any dividends in the foreseeable future. In addition, there
may be restrictions under state law on the ability of the Company to declare
dividends.
Page 13
<PAGE>
PART II.--OTHER INFORMATION
- --------------------------------------------------------------------------------
ITEM 1. LEGAL PROCEEDING
None
ITEMS 2-5. NOT APPLICABLE.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a.) EXHIBITS. The following documents are filed herewith and
made a part of this report on Form 10-Q:
Exhibit 10.1 - Lease covering a portion of the Company's
facilities between the Company and Duane and Donna Basse,
dated September 1, 1997.
Exhibit 10.2 omits certain attachments. The Company hereby
agrees to furnish supplementally to the Securities and
Exchange Commission, upon its request, a copy of any of the
exhibits and schedules to the Exhibits to the Form 10-Q.
License Agreement between The Spectranetics Corporation and
United States Surgical Corporation, dated September 25,
1997. (Certain portions of this document have been omitted
pursuant to a request for confidential treatment and filed
separately with the Commission.)
Exhibit 10.3 omits certain attachments. The Company hereby
agrees to furnish supplementally to the Securities and
Exchange Commission, upon its request, a copy of any of the
exhibits and schedules to the Exhibits to the Form 10-Q.
Supply Agreement between The Spectranetics Corporation and
United States Surgical Corporation, dated September 25,
1997. (Certain portions of this document have been omitted
pursuant to a request for confidential treatment and filed
separately with the Commission.)
Exhibit 27.1 - Financial Data Schedule for 1997 Third
Quarter Form 10-Q.
(b) REPORTS ON FORM 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE SPECTRANETICS CORPORATION
(Registrant)
November 14, 1997 By: /s/ James P. McCluskey
----------------------------------------
James P. McCluskey
Vice President, Finance
Secretary/Treasurer and
Principal Financial Officer
Page 14
<PAGE>
THE SPECTRANETICS CORPORATION
FORM 10Q FOR PERIOD ENDED SEPTEMBER 30, 1997
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- --------------------------------------------------------------------------------
10.1 Exhibit 10.1 - Lease covering a portion of the Company's facilities
between the Company and Duane and Donna Basse, dated September 1,
1997.
10.2 Exhibit 10.2 omits certain attachments. The Company hereby agrees to
furnish supplementally to the Securities and Exchange Commission, upon
its request, a copy of any of the exhibits and schedules to the
Exhibits to the Form 10-Q. License Agreement between The Spectrantics
Corporation and United States Surgical Corporation, dated
September 25, 1997. (Certain portions of this document have been
omitted pursuant to a request for confidential treatment and filed
separately with the Commission.)
10.3 Exhibit 10.3 omits certain attachments. The Company hereby agrees to
furnish supplementally to the Securities and Exchange Commission, upon
its request, a copy of any of the exhibits and schedules to the
Exhibits to the Form 10-Q. Supply Agreement between The Spectrantics
Corporation and United States Surgical Corporation, dated September
25, 1997. (Certain portions of this document have been omitted
pursuant to a request for confidential treatment and filed separately
with the Commission.)
27.1 Financial Data Schedule for 1997 Third Quarter Form 10-Q.
Page 15
<PAGE>
STATE OF COLORADO
COUNTY OF EL PASO
This Lease agreement, made and entered into by and between DUANE AND DONNA
BASSE hereinafter referred to as "Landlord", and SPECTRANETICS CORPORATION
hereinafter referred to as "Tenant";
WITNESSETH
1. LEASED PREMISES AND TERM: In consideration of the obligation of Tenant to
pay rent as herein provided, and in consideration of the other terms,
provisions and covenants hereof, Landlord hereby demises and leases to Tenant
and Tenant hereby takes from Landlord certain premises situated within the
County of El Paso, State of Colorado, more particularly described as follows:
APPROX. 24,576 SQ. FEET CONSISTING OF THE BUILDING LOCATED AT 3305 NORTH
CASCADE AVENUE, COLO. SPRINGS, COLORADO, 80907, WITH A LEGAL DESCRIPTION
OF: LOT 2, CASCADE INDUSTRIAL PARK A SUB. OF LOT 1, BLOCK 1, COLO. SPRINGS,
COLORADO
together with all rights, privileges, easements, appurtances (sic), and
immunities belonging to or in any way pertaining to the said premises and
together with the building and other improvements erected and/or to be
erected upon said demised premises, as the hereto attached floor plans marked
as Exhibit "A".
To Have and to Hold the same for a term commencing on the "completion
date" as hereinafter defined, and ending 48 months thereafter except that in
the event the "completion date" is a date other than the first day of the
calendar month, said term shall extend for a period of N/A months in addition
to the remainder of the calendar month during which the "completion date"
occurs. The "completion date" shall be the date upon which the building and
other improvements erected and to be erected upon the demised premises shall
have been completed in accordance with Exhibit A. Landlord shall notify
Tenant in writing, as soon as Landlord deems said building and other
improvements to be completed and ready for occupancy as aforesaid. In the
event that said building and other improvements have not in fact then been
completed as aforesaid, Tenant shall notify Landlord in writing of its
objections. Landlord shall have a reasonable time after delivery of such
notice in which to take such corrective action as may be necessary, and shall
notify Tenant in writing as soon as it deems such corrective action has been
completed so that said building and other improvements are completed and
ready for occupancy as aforesaid. Taking of possession by Tenant shall be
deemed conclusively to establish that said building and other improvements
have been completed in accordance with Exhibit A attached hereto and that the
premises are in good and satisfactory condition, as of when possession was so
taken, except for latent defects.
2. RENT AND SECURITY DEPOSIT:
(a) Tenant agrees to pay to Landlord rent for said premises at the rate
of ($29,491.20) TWENTY NINE THOUSAND FOUR HUNDRED NINETY ONE AND 20/100
Dollars per quarter on a net, net, net rental basis. One such quarterly
installment shall be due and payable on the "completion date" and a like
quarterly installment shall be due and payable on or before the first day of
each succeeding calendar quarter during the hereby demised term; provided
that if the "completion date" should be a date other than the first day of a
calendar quarter there shall be due and payable on the "completion date" as
rent for the balance of the calendar quarter during which the "completion
date" shall fall a sum equal to that portion of the rent for a full quarter
as herein provided which the number of days from the "completion date" to the
end of the calendar quarter during which the "completion date" shall fall
bears to the total number of days in such quarter and all succeeding
installments of rent shall be payable on or before the first day of each
succeeding calendar quarter during the hereby demised term as first above
provided, Tenant agrees, at the time of execution of this lease to deposit
with the Landlord the cash sum of ($5,982.40) FIFTY NINE HUNDRED EIGHTY TWO
AND 40/100 Dollars as a security deposit.
(b) Other remedies for nonpayment of rent notwithstanding, if the
monthly rental payment is not received by Landlord on or before the tenth day
of the month for which it is due, Tenant shall pay Landlord interest on the
overdue amount at the rate of 1-1/2 percent per month from the day the amount
became due until the date it actually is received by Landlord.
3. TAXES AND INSURANCE: As additional rent, Tenant shall pay to
Landlord on the first day of each month 1/12 Tenant's pro rata share of the
estimated real property tax on the Leased Premises for the current year plus
1/12 Tenant's pro rata share of the current premium for any liability or
casualty insurance carried by Landlord on the Leased Premises. If the actual
real property tax is greater than that estimated by Landlord, Tenant shall
pay the excess amount within thirty days after billing by Landlord. If the
actual real property tax is less than that estimated by Landlord, Landlord
shall refund the overpayment to Tenant within thirty days after payment of
the tax by Landlord. As used in this paragraph, "real property tax" shall
mean any form of assessment (both general and special), levy, penalty, or tax
(other than estate or inheritance tax) imposed by any authority having direct
or indirect power tax any legal or equitable interest of Landlord in the
Leased Premises, including any tax on rent (other than income tax) in lieu of
or in addition to normal real property taxes or assessments. Any such
billing by Landlord to Tenant that is not paid within 30 days shall bear
interest at 1-1/2% per month. Tenant may, at its sole cost and expense (in
its name or in the name of Landlord, or in the name of both, as it may deem
appropriate) dispute and contest the real property tax, and in such case,
said disputed tax must be paid prior to being contested. Tenant acknowledges
the right to contest solely for a refund. Should the real property tax
contested be held valid, Tenant shall pay all items, court costs, attorney's
fees, interest and penalties relating thereto.
4. COMPLETION DATE: Landlord shall with reasonable diligence prosecute
the completion of the improvements to the end that the scheduled "completion
date" will be on or before June 01, 1997 except for delays due to
unavailability of material, unusual weather conditions, war, transportation
failures, other circumstances beyond the control of Landlord and coercion of
materialmen and labor organizations. All buildings and other improvements
shall be of sound construction and shall in every respect comply with all
governmental laws, ordinances, regulations, and other requirements, which may
govern construction of the same.
5. CHARACTER OF OCCUPANCY: The demised premises shall be used only for
the purpose of receiving, storing, shipping, and selling products, materials
and merchandise made and/or sold by Tenant, and for such other lawful
purposes as may be incidental thereto. Tenant shall at its own cost and
expense obtain any and all licenses and permits necessary for such use.
Tenant shall comply with all governmental laws, ordinances and regulations
applicable to the use of the demised premises, and shall promptly comply with
all governmental orders and directives for the correction, prevention, and
abatement of nuisances in or upon, or connected with the demised premises,
all at Tenant's sole expense. Tenant shall not permit the Leased premises
(sic) to be used in any way which would, in the opinion of Landlord, be extra
hazardous on account of fire or otherwise or which would in any way increase
or render void the fire insurance on the Leased Premises.
<PAGE>
6. PRORATION: Whenever the term "pro rata" shall occur in this lease it
shall refer to N/A (or N/A%) of the total building as Tenant's responsibility.
7. REPAIRS AND MAINTENANCE: Tenant shall, at its own cost and expense,
keep in good repair and condition the interior and exterior of the Leased
Premises. Tenant's obligation shall extend to the entire Leased Premises,
including but not limited to the roof, exterior walls, gutters, glass, heating,
ventilation and air conditioning systems, plumbing, pipes, fixtures and other
equipment, except that Landlord shall correct any latent defects due to faulty
construction which may exist at the time Tenant takes possession of the leased
Premises. Tenant also agrees to maintain at its sole expense all grounds,
landscaping, and parking areas. Unless otherwise agreed by Landlord and Tenant,
all grounds, landscaping, and parking area maintenance and repair shall be
performed by Landlord and Tenant shall be billed for its pro rata share of such
expense. If either Landlord or Tenant fails to perform any duty described
above, the other may give notice of such failure. If the duty is not performed
by the responsible party within thirty days after notice (or within a reasonable
shorter period in the case of emergency), the other party may perform the repair
or maintenance work and charge the responsible party for any expense incurred.
The responsible party promptly shall pay the expense incurred. Landlord and
landlord's agents and representatives shall have the right to enter and inspect
the demised premises at any time during reasonable business hours, for the
purpose of ascertaining the condition of the demised premises or in order to
make such repairs as may be required to be made by Tenant or Landlord under the
terms of this Lease. At the termination of this Lease, Tenant shall deliver up
the leased premises with all improvements located thereon, except as provided in
Paragraph Eight hereof, in good repair and condition, and will deliver all keys
thereto at the office of the Landlord.
8. ALTERATIONS: Tenant shall not make any major alterations, additions,
or improvements to the demised premises without the prior written consent of
Landlord, which consent shall not be unreasonably withheld. Tenant may, without
the consent of Landlord but at its own cost and expense and in a good
workmanlike manner make such minor alterations, additions, or improvements or
erect, remove, or alter such partitions, or erect such shelves, bins, machinery,
and trade fixtures as it may deem advisable, without altering the basic
character of the building or improvements, and in each case complying with all
applicable governmental laws, ordinances, regulations, and other requirements.
At the termination of this Lease, Tenant shall, if Landlord so elects, remove
all alterations, additions, improvements, and partitions erected by Tenant and
restore the premises to their original condition, otherwise such improvements
shall be delivered up to Landlord with the premises. All shelves, bins,
machinery, and trade fixtures installed by Tenant may be removed by Tenant at
the termination of this Lease if Tenant so elects, and shall be so removed if
required by Landlord. All such removals and restorations shall be accomplished
in a good workmanlike manner so as not to damage the primary structure or
structural qualities of the buildings and other improvements situated on the
demised premises.
9. SIGNS: Tenant shall have the right to install such signs as it may
desire upon the roof and exterior walls of said building subject to Landlord's
prior written approval and subject to any applicable governmental laws,
ordinances, regulations, and other requirements. Tenant shall remove all such
signs at the termination of this Lease. Such installations and removals shall
be made in such manner as to avoid injury, defacement, or overloading of the
buildings and other improvements.
10. UTILITIES: Tenant shall pay all charges incurred for any utility
services metered to his demised premises or for Tenant's pro rata share of the
utility services provided to the demised premises, and billed to Tenant by
Landlord.
11. LEASE ASSIGNMENT OR SUBLETTING: Tenant shall not have the right to
assign this Lease or to sublet the whole or any part of the demised premises,
unless prior written approval of Landlord is obtained. Not withstanding any
such assignment or subletting Tenant shall at all times remain fully responsible
and liable for the payment of the rent herein specified and for compliance with
all of its provisions under the terms, provisions, and covenants of this Lease.
Upon the occurrence of an "event of default" as herein defined, if the demised
premises or any part thereof are then assigned or sublet, Landlord, in addition
to any other remedies herein provided or provided by law, may at its option
collect directly from such assignee or subtenant all rents becoming due to
Tenant under such assignment, or sublease and apply such rent against any sums
due to it by Tenant hereunder, and no such collection shall be construed to
constitute a novation or a release of Tenant from the further performance of its
obligations hereunder, Landlord shall also have the right to assign any of its
rights under this Lease.
12. INSURANCE, LIABILITY AND PROPERTY: Landlord shall not be liable to
Tenant or Tenant's employees, agents, or visitors, or to any other person
whomsoever, for any injury to person or damage to property on or about the
demised premises, caused by the negligence or misconduct of Tenant, its agents,
servants, or employees, or of any other person entering upon the premises under
express or implied invitation of Tenant, or caused by leakage of gas, oil, water
or steam or by electricity emanating from the premises, or due to any other
cause whatsoever, and Tenants (sic) agrees to indemnify Landlord and hold it
harmless from any loss, expense, or claims arising out of any such damage or
injury. Tenant shall throughout the demised term, at its sole cost and expense,
provide and keep in force with responsible insurance companies satisfactory to
Landlord and to any mortgagee under a mortgage constituting a lien upon the
demised premises, public liability and property damage insurance, the liability
limits of all said insurance shall be a minimum of $500,000.00 single limit,
protecting Landlord and any such mortgage as well as Tenant against liability to
any employees or servants of Tenant or to any other person whomsoever arising
out of or in connection with Tenant's use of the leased premises or the
condition of the leased premises. Tenant is to furnish Landlord with
certificate of liability.
Landlord shall, at Tenants (sic) expense, procure and maintain at all times
during the term of this Lease a policy or policies of insurance covering loss or
damage to the premises (exclusive of Tenant's trade fixtures and equipment),
providing protection against all perils included within the classification of
fire, extended coverage, vandalism, malicious mischief.
13. DAMAGE OR DESTRUCTION: In the event improvements on the premises are
damaged by any casualty which is covered under an insurance policy required to
be maintained pursuant to Paragraph 12, then Landlord may, at Landlord's option,
either (a) repair such damage as soon as reasonably possible at Landlord's
expense, in which event this Lease shall continue in full force and effect, or
(b) give written notice to Tenant within thirty (30) days after the date of
occurrence of such damage of Landlord's intention to cancel and terminate this
Lease as of the date of the occurrence of the damage. In the event Landlord
elects to terminate this Lease, Tenant shall have the right within ten (10) days
after receipt of the required notice to notify Landlord in writing of Tenant's
intention to repair such damage at Tenant's expense, without reimbursement from
Landlord, in which event this Lease shall continue in full force and effect, and
Tenant shall proceed to make such repairs as soon as reasonably possible. If
Tenant does not give such notice within the ten (10) day period this Lease shall
be cancelled and terminated as of the date of the occurrence of such damage. If
the premises are totally destroyed during the term of this Lease from any cause
whether or not covered by the insurance required under Paragraph 12 (including
any destruction required by any authorized public authority), this Lease shall
automatically terminate as of the date of such total destruction.
If the premises are partially destroyed or damaged during the last six (6)
months of the term of this Lease, Landlord may, at Landlord's option, cancel and
terminate this lease (sic) as of the date of the occurrence of the damage by
giving written notice to Tenant of Landlord's election to do so within thirty
(30) days after the date of occurrence of such damage by fire or other cause, or
to make any restoration or replacement of any panelings, decorations, office
fixtures, partitions, railings, ceilings, floor covering, equipment, machinery
or fixtures or any other improvements or property installed in the premises by
Tenant or at the direct or indirect expense of Tenant. Tenant shall be required
to restore or replace same in the event of damage.
If the premises are partially destroyed or damaged and Landlord or Tenant
repairs them pursuant to this Lease, the rent payable hereunder for the period
during which such damage and repair continues shall be abated in proportion to
the extent which Tenant's use of the premises is impaired. Except for abatement
of rent, if any, Tenant shall have no claim against Landlord for any damage
suffered by reason of such damage, destruction, repair or restoration. If
Landlord shall be obligated to repair or restore the premises and shall not
commence such repair or restoration within ninety (90) days after such
obligation shall accrue, Tenant may, at Tenant's option, cancel and terminate
this Lease by written notice to Landlord at any time prior to the commencement
of such repair or restoration. In such event this Lease shall terminate as of
the date of such notice.
<PAGE>
14. EMINENT DOMAIN:
(a) If the whole or any substantial part of the demised premises should be
taken for any public or quasi-public use under any governmental law, ordinance
or regulation or by right of eminent domain or by private purchase in lieu
thereof, this Lease shall terminate and the rent shall be abated during the
unexpired portion of this Lease, effective when the physical taking of said
premises shall occur. Separate awards, for damages to the respective interests
of Landlord and Tenant hereunder shall be made, and each shall be entitled to
receive and retain such awards as shall be made to it, and the termination of
this Lease shall not affect the rights of the respective parties to the awards.
(b) If less than a substantial part of the demised premises should be
taken for any public or quasi-public use under any governmental law, ordinance
or regulation, or by right of eminent domain, or by private purchase in lieu
thereof, this Lease shall not terminate, but the rent payable hereunder during
the unexpired portion of this Lease shall be reduced to such extent as may be
fair and reasonable under all of the circumstances. Separate awards shall be
made in such event for damages to the respective interests of Landlord and
Tenant hereunder.
15. HOLDING OVER: Should Tenant, or any of its successors in interest,
hold over the leased premises (sic), or any part thereof, after the expiration
of the term of this Lease, unless otherwise agreed in writing, such holding over
shall constitute and be construed as tenancy from month to month only, at a
rental equal to the rent paid the last month of the term of this Lease plus
twenty percent (20%) of such amount.
16. TENANT DEFAULT: The following events shall be deemed to be events of
default by Tenant under this lease:
(a) Tenant shall fail to pay any installment of the rent hereby reserved
and such failure shall continue for a period of ten (10) days.
(b) Tenant shall fail to comply with any term, provision, or covenant of
this Lease, other than the payment of rent, and shall not cure such failure
within thirty (30) days after written notice thereof to Tenant.
(c) Tenant shall become insolvent, or shall make a transfer in fraud of
creditors, or shall make an assignment for the benefit of creditors.
(d) Tenant shall file a petition under any section or chapter of the
National Bankruptcy Act, as amended, or under any similar law or statute of the
United States or any State thereof; or Tenant shall be adjudged bankrupt or
insolvent in proceedings filed against Tenant thereunder.
(e) A receiver or Trustee shall be appointed for all or substantially all
of the assets of Tenant.
(f) Tenant shall desert or vacate any substantial portion of the premises.
Upon the occurrence of any of such events of default, Landlord shall have the
option to pursue any one or more of the following remedies without any notice of
demand whatsoever:
(i) Terminate this Lease, in which event Tenant shall immediately
surrender the premises to Landlord, and if Tenant fails so to do, Landlord may,
without prejudice to any other remedy which it may have for possession or
arrearages in rent, enter upon and take possession of the leased premises (sic)
and expel or remove Tenant and any other person who may be occupying said
premises or any part thereof, by force if necessary, without being liable for
prosecution or any claim of damages therefor; and Tenant agrees to pay to
Landlord on demand the amount of all loss and damage which Landlord may suffer
by reason of such termination, whether through inability to relet the premises
on satisfactory terms or otherwise, including any damages Landlord may incur
because of special sums expended for fixing up premises for Tenant.
(ii) Enter upon and take possession of the leased premises (sic) and expel
or remove Tenant and any other person who may be occupying said premises or any
part thereof, by force if necessary, without being liable for prosecution or any
claim for damages therefor, and relet the premises and receive the rent
therefor; and Tenant agrees to pay to Landlord on demand any deficiency that may
arise by reason of such reletting.
(iii) Enter upon the leased premises (sic), by force if necessary, without
being liable for prosecution or any claim for damages therefor, and do whatever
Tenant is obligated to do under the terms of this Lease; and Tenant agrees to
reimburse Landlord on demand for any expenses which Landlord may incur in thus
effecting compliance with Tenant's obligations under this Lease, and Tenant
further agrees that Landlord shall not be liable for any damages, resulting to
the Tenant from such action, whether caused by negligence of Landlord or
otherwise.
Pursuit of any of the foregoing remedies shall not preclude pursuit of any
of the other remedies herein provided or any other remedies provided by law, nor
shall pursuit of any remedy herein provided constitute a forfeiture or waiver of
any waiver of any rent due to Landlord hereunder or of any damages accruing to
Landlord by reason of the violation of any of the terms, provisions and
covenants herein contained. No waiver by Landlord of any violation or breach of
any of the terms, provisions, and covenants herein contained shall be deemed or
construed to constitute a waiver of any other violation or breach of any of the
terms, provisions, and covenants herein contained, shall be deemed or construed
to constitute a waiver of any other violation or breach of any of the terms,
provisions, and covenants herein contained. Forbearance by Landlord to enforce
one or more of the remedies herein provided upon an event of default shall not
be deemed or construed to constitute a waiver of such default.
18. ATTORNEY'S FEES: If on account of any breach or default by Tenant in
Tenant's obligations under the terms and conditions of this Lease, it shall
become necessary for Landlord to employ an attorney to enforce or defend any of
Landlord's rights or remedies, hereunder, Tenant agrees to pay any reasonable
attorney's fees incurred by Landlord in such connection.
19. QUIET ENJOYMENT: Landlord warrants that it has full right to execute
and to perform this Lease and to grant the estate leased, and, that Tenant, upon
payment of the required rents and performing the terms, conditions, covenants
and agreements contained in this Lease, shall peaceably and quietly have, hold
and enjoy the Leased Premises during the full term of this Lease as well as any
extension or renewal. However, Tenant accepts this Lease subject and
subordinate to any underlying lease, mortgage, deed of trust or other lien
presently existing upon the Leased Premises. Landlord hereby is irrevocably
vested with full power and authority to subordinate Tenant's interest under this
agreement to any underlying lease, mortgage, deed of trust or other lien
hereafter placed on the Leased Premises, and Tenant agrees upon demand to
execute additional instruments subordinating this Lease as Landlord may require.
If the interest of Landlord under this Lease shall be transferred by reason of
foreclosure or other proceedings for enforcement of any lien, deed of trust or
mortgage on the Leased Premises, Tenant shall be bound to the transferee
(sometimes called the "Purchaser") under the terms, covenants and conditions of
this Lease for the balance of the term remaining, and any extensions or
renewals, with the same force and effect as if the Purchaser were the Landlord
under this Lease. Tenant agrees to attorn to the Purchaser, as its Landlord,
the attornment to be effective and self-operative without the execution of any
further instruments upon the Purchaser succeeding to the interest of the
Landlord under this Lease.
<PAGE>
The respective rights and obligations of Tenant and the Purchaser upon the
attornment, to the extent of the then remaining balance of the term of this
Lease, and any extensions and renewals, shall be and are the same as those set
forth in this Lease.
20. NOTICE ADDRESS: Each provision of this instrument or of any
applicable governmental laws, ordinances, regulations and other requirements
with reference to the sending, mailing, or delivery of any payment by Landlord
to Tenant or with reference to the sending, mailing, or delivery of any notice
of the making of any payment by Landlord to Tenant or with reference to the
sending, mailing, or delivery of any notice or the making of any payment by
Tenant to Landlord shall be deemed to be complied with when and if the following
steps are taken:
(a) All rent and other payments required to be made by Tenant to Landlord
hereunder shall be payable to Landlord in El Paso County, Colorado, at the
address hereinbelow set forth or at such other address as Landlord may specify
from time to time by written notice delivered in accordance herewith.
(b) All payments required to be made by Landlord to Tenant hereunder shall
be payable to Tenant at the address hereinbelow set forth, or at such other
address within the continental United States as Tenant may specify from time to
time by written notice delivered in accordance herewith.
(c) Any notice or document required or permitted to be delivered hereunder
shall be deemed to be delivered whether actually received or not when deposited
in the United State Mail, postage prepaid, Registered Mail, Return Receipt
Requested, addressed to the parties hereto at the respective addresses set out
opposite their names below, or at such other addresses as they have theretofore
specified by written notice delivered in accordance herewith:
Landlord DUANE AND DONNA BASSE Tenant SPECTRANETICS CORPORATION
POST OFFICE BOX 9601 96 TALAMINE COURT
COLO. SPRINGS, COLORADO 80932 COLO. SPRINGS, COLORADO 80907
If and when, included within the term "landlord" as used in this instrument,
there is more than one person, firm, or corporation, all shall jointly arrange
among themselves for their joint execution of such a notice specifying some
individual at some specific address in El Paso County, Colorado, or any other
location, for the receipt of notices and payments to Landlord; if and when,
included within the term "Tenant" as used in this instrument, there is more than
one person, firm, or corporation, all shall jointly arrange among themselves for
their joint execution of such a notice specifying some individual at some
specific address within the continental United States for receipt of notices and
payments to Tenant. All parties included within the terms "Landlord" and
"Tenant", respectively, shall be bound by notices given in accordance with the
provisions of this paragraph to the same effect as if each had received such
notice.
21. OTHER PROVISIONS:
A. See attached addendum for paragraph 24 through 27.
B. The terms, provisions and covenants and conditions contained in this
Lease, shall apply to, inure to the benefit of, and be binding upon the parties
hereto and upon their respective successors in interest and legal
representatives except as otherwise herein expressly provided. Words of any
gender used in this Lease shall be held and construed to include any other
gender, and words in the singular number shall be held to include the plural,
unless the context otherwise requires.
23. CORPORATE RESOLUTION: If this instrument is executed by a
corporation, such execution has been authorized by a duly adopted resolution of
the Board of Directors of such corporation and copy thereof furnished to
Landlord.
Executed the 1st day of Sept. 1997.
--- ----------
LANDLORD TENANT: (See paragraph 22 above)
By: /s/ Duane H. Basse By: /s/ Larry Martel
------------------------------- -----------------------------------
By: /s/ Donna Basse Title: V.P. Manufacturing
------------------------------- --------------------------------
By:
-----------------------------------
Title:
--------------------------------
<PAGE>
ADDENDUM TO LEASE
24. RENEWAL OPTION: The tenant (sic) shall have the right or option to
renew this Lease for a period of N/A years at the expiration of the term hereof
at a rental to be hereinafter determined, subject to all the conditions and
agreements herein contained; provided, however, that the Tenant shall notify the
Landlord of his election to renew the Lease by giving the Landlord written
notice of such election on or before six (6) months prior to the expiration of
the original term hereof. The base rental shall be computed upon the existing
base rental for the base term together with an increase that may be computed
based upon the Bureau of Labor Statistics Consumer Price Index of all items as
of ____________________. This basis shall be utilized to determine the rental
increase in the same proportion of the Cost of Living Index as it compares on
____________________________ with the date that said Lease term is extended.
25. Tenant acknowledges that late payments by Tenant to Landlord of rent
or other sums due hereunder will cause Landlord to incur costs not contemplated
by this Lease, the exact amount of which would be extremely difficult and
impractical to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed on
Landlord by the terms of any mortgage or trust deed covering the Premises.
Therefore, in the event Tenant should fail to pay any installment of rent or any
sum due hereunder after such amount is due, Tenant shall pay to Landlord as
additional rent a late charge equal to 5% of each such installment or other sum
of $25.00 per month, whichever is greater. A $5.00 charge will be paid by the
Tenant to the Landlord for each returned check.
26. Landlord shall allow Tenant to install, at Tenant's cost, additional
electrical power in the leased space.
27. All snow and ice removal shall be at the Tenant's expense.
ADDENDUM ACKNOWLEDGED:
BY: /s/ Duane H. Basse BY: /s/ Larry Martel
------------------------------- ----------------------------------
Landlord Tenant
BY: /s/ Donna Basse
-------------------------------
<PAGE>
EXHIBIT 10.2
LICENSE AGREEMENT
This agreement (this "Agreement"), dated as of September 25, 1997, is by
and between The Spectranetics Corporation, a corporation organized and existing
under the laws of the State of Delaware and having principal offices at 96
Talamine Court, Colorado Springs, Colorado 80907-5186 (hereinafter referred to
as "SPNC") and United States Surgical Corporation, a corporation organized and
existing under the laws of the State of Delaware and having principal offices at
150 Glover Avenue, Norwalk, Connecticut 06856 (hereinafter referred to as
"USSC").
WHEREAS, SPNC and USSC desire to expand their relationship and use their
respective expertise cooperatively to further develop and commercialize * and
other products for *;
WHEREAS, SPNC and USSC are executing a supply agreement simultaneously with
this Agreement (the "Supply Agreement") pursuant to which SPNC shall manufacture
and sell to USSC, and USSC shall buy from SPNC, *; and
WHEREAS, SPNC and USSC wish to enter into a license agreement on the
terms hereof pursuant to which SPNC grants to USSC certain rights to use
SPNC's * technology solely for *.
NOW THEREFORE, in consideration of the mutual promises, agreements,
covenants, undertakings and obligations set forth herein and for other good and
valuable consideration, the parties hereto agree as follows:
- -------------------
* This portion marked with an asterisk has been omitted pursuant to a request
for confidential treatment and filed separately with the Commission.
<PAGE>
ARTICLE 1 - DEFINITIONS
1.1 For the purposes of this Agreement, the definitions set forth below
shall be applicable.
Action - The term "Action" means a claim, action, suit or proceeding,
whether civil or criminal or in law or in equity.
Affiliate - The term "Affiliate" shall mean a corporation or other
business entity which is directly or indirectly, controlled by a party hereto.
For this purpose, control of a corporation or other business entity shall mean
(i) direct or indirect beneficial ownership of fifty percent (50%) or more of
the voting interest in such corporation or other business entity, (ii) direct or
indirect beneficial ownership of fifty percent (50%) or more of the equity of
such corporation or other business entity, and (iii) the existence of any other
relationship between corporation or other business entity and another
corporation or other business entity which results in effective management
control by one over the other, regardless of whether such control is
continuously exercised. The term "Affiliates" shall not mean any corporation or
other business entity which controls a party hereto or is under common control
with a party.
*
Know-How - The term "Know-How" means any and all secret or confidential
information, trade secrets, specifications, test results, analyses and data,
inventions, methods, processes, formulae, mixtures, compositions, delivery
systems, designs, techniques, applications, ideas or concepts, whether or not
reduced to practice, relating directly to coupling technology in the Field,
including, but not limited to, technology
- -------------------
* This portion marked with an asterisk has been omitted pursuant to a request
for confidential treatment and filed separately with the Commission.
2
<PAGE>
that is or could be the subject matter of a foreign or domestic patent or
patent application, whether or not reduced to writing in a patent application.
Patents and Patent Applications - The term "Patents and Patent
Applications" shall mean all patents and patent applications identified on
* hereto, all corresponding foreign patents and applications, all other
patents and patent applications filed by or assigned to SPNC or any SPNC
Affiliate prior or subsequent to the date hereof and relating to any invention,
method, process, formula, mixture composition and delivery system (but excluding
*) having application to a Product, and all other foreign and
domestic patent applications filed in the name of, or assigned to SPNC covering
any invention, method, process, formula, mixture, composition and delivery
system (but excluding *) having application to a Product and all
foreign and domestic patents issuing on any of the foregoing patent
applications, and all continuations, continuations-in-part, divisions, reissues,
reexaminations, additions, and renewals thereof.
Person - The term "Person" or "Persons" means any individual,
corporation, partnership, association, trust or other entity or organization,
including a governmental or political sub division or any agency or
instrumentality thereof.
*
Product - The term "Product" or "Products" means any instrument,
device or system (but excluding *) which involve or relate to * technology to
the extent for use with * in the Field and embody or utilize any or all of
the following in which SPNC has or, during the term of this Agreement,
acquires any right, title or interest: (i) the inventions, methods,
processes, formulae, mixtures, compositions, and delivery systems (but
excluding *) disclosed and/or claimed in the Patents and Patent Applications,
and any invention, method, process, formulae, mixture, composition and
delivery system (but excluding *) similar to any of the foregoing; (ii) every
part, subassembly, component or accessory of, and addition or improvement to,
any of the foregoing; and (iii) Know-How (defined above).
- -------------------
* This portion marked with an asterisk has been omitted pursuant to a request
for confidential treatment and filed separately with the Commission.
3
<PAGE>
Subsidiary - The term "Subsidiary" means any corporation, partnership or
other entity, fifty percent (50%) or more of the outstanding shares of any class
of stock, general partnership interest, or other equity of which is owned by a
party; and any operating division of a party not separately incorporated or
organized as an independent business Person.
1.2 In addition to the foregoing defined terms, the following terms shall have
the meanings set forth in the referenced Sections of this Agreement:
Term Section
---- -------
Confidential Information 6.4
Discloser 6.4
Disclosee 6.4
FDA 8.1
Force Majeure Event 18.3
Information 2.2
Inventions 3.1
Joint Results 12.1
License 2.1
License Fee 4.1
Modifications 3.3
* 7.1
* 9.6
ARTICLE 2 - THE GRANT
2.1 GRANT. Subject to payment of the Licensee Fee (defined in Section
4.1), SPNC hereby grants and conveys to USSC, and USSC hereby accepts from SPNC,
(i.e. with SPNC as provided below) a co-exclusive, worldwide, fully paid up and
irrevocable right and license (the "License"), without the right to sublicense,
to evaluate, develop, test, conduct clinical trials, obtain governmental
approvals, make, have made, use, practice, manufacture, have manufactured, sell,
transfer or commercialize Products, and the co-exclusive (i.e. with SPNC as
provided below), worldwide, fully paid up and irrevocable right and license to
practice and use the Know-How solely with respect to the Products. SPNC hereby
retains the non sublicenseable and non transferable right (except as provided in
Section 16.1) to (a) evaluate, develop, test, conduct clinical trials,
- -------------------
* This portion marked with an asterisk has been omitted pursuant to a request
for confidential treatment and filed separately with the Commission.
4
<PAGE>
obtain government approvals, make, have made, use, practice, manufacture,
have manufactured, sell, transfer and commercialize Products, (b) practice
under the Patents and Patent Applications and to practice and use the
Know-How throughout the world, and (c) all other rights with respect to
SPNC's intellectual property not specifically covered by this Agreement
including Patents and Patent Applications and Know-How.
2.2 INFORMATION. Within three (3) business days after the date of this
Agreement, SPNC shall deliver to USSC all conceptual, technical and design
information, specifications, test results, analyses, data, drawings, formulae,
mixtures, compositions, delivery systems, and any other useful information
(collectively, "Information") concerning the Patents and Patent Applications,
Know-How and Products now in SPNC's possession or control.
2.3 *
ARTICLE 3 - IMPROVEMENTS
3.1 IMPROVEMENTS. If, during the term of this Agreement, SPNC or one
or more SPNC Affiliates conceives, develops or acquires any right, title or
interest which may be licensed to USSC, in or to any new invention, method,
process, formula, mixture, composition, delivery system, modification or
improvement relating to a Product, or the use or manufacture thereof
(collectively, "Inventions"), SPNC shall furnish full details thereof to USSC,
including all Information involving or related thereto. Such Inventions shall
be deemed included in the License, except insofar as USSC notifies SPNC in
writing to exclude from the License all or any portion of such Inventions.
3.2 OWNERSHIP. Except as provided for in Section 9.2 regarding
ownership of inventions developed by SPNC during the term of this Agreement, all
patents
- -------------------
* This portion marked with an asterisk has been omitted pursuant to a request
for confidential treatment and filed separately with the Commission.
5
<PAGE>
pertaining to any Product or Products, or any part thereof, and all such
Inventions, which are the subject of this Agreement, shall be the exclusive
property of SPNC, subject to the License hereby granted.
3.3 *
ARTICLE 4 - CONSIDERATION
4.1 LICENSE FEE. The total consideration (the "License Fee") to be
paid by USSC for the rights granted hereunder shall be [*].
ARTICLE 5 - PAYMENT
5.1 PAYMENT. The License Fee shall be paid to SPNC within two (2)
business days of the date this Agreement is executed by both parties. Payment
of the Licensee Fee shall be made by means of a bank check in good funds or wire
transfer to an SPNC account based on prior written instructions provided by SPNC
to USSC.
- ----------------
* This portion marked with an asterisk has been omitted pursuant to a request
for confidential treatment and filed separately with the Commission.
6
<PAGE>
ARTICLE 6 - PROPRIETARY INFORMATION
6.1 USSC CONFIDENTIALITY OBLIGATION. USSC hereby represents and
warrants that it has not, directly or indirectly, disclosed and agrees that it
will not, directly or indirectly, disclose, either during or subsequent to the
term of this Agreement, any Confidential Information of SPNC, to any other
Person, except to its attorneys and accountants as required in connection with
this Agreement who have been and will be instructed to maintain its
confidentiality and to third Persons, with a demonstrated need to know such
Confidential Information who shall execute binding written agreements requiring
such third parties not to disclose Confidential Information disclosed to them by
USSC. The provisions of this Section 6.1 shall survive termination of this
Agreement.
6.2 SPNC CONFIDENTIALITY OBLIGATION. SPNC hereby represents and
warrants that it has not, directly or indirectly, disclosed and agrees that it
will not, directly or indirectly, disclose either during or subsequent to the
term of this Agreement, any Confidential Information of USSC, to any other
Person, except to SPNC's attorneys and accountants as required in connection
with this Agreement who have been and will be instructed to maintain its
confidentiality and to third Persons with a demonstrated need to know such
Confidential Information, who shall execute binding written agreements requiring
such third parties not to disclose Confidential Information disclosed to them by
SPNC. The provisions of this Section 6.2 shall survive termination of this
Agreement.
6.3 SUPPLIERS. It is not intended by this Article 6 that USSC shall be
required to obtain specific written commitments in relation to this Agreement
from materials and/or component suppliers where only specifications are
disclosed to said materials and/or component suppliers by USSC.
6.4 CONFIDENTIAL INFORMATION. For purposes of this Agreement,
"Confidential Information" shall mean verbal and written disclosures from SPNC
or USSC (the "Discloser") to the other party (the "Disclosee"), which concern
the Discloser, including without limitation information which concerns the
Discloser's business, operations, products or research and development efforts,
or which concern the Products or Know-How, but shall not include information
which: (a) at the time of disclosure is published or otherwise becomes a part of
the public domain through no fault of Disclosee (but
7
<PAGE>
only after, and only to the extent that, it is published or otherwise becomes
part of the public domain); (b) Disclosee can show was known to it at the
time of disclosure, free of restriction; (c) has been or hereafter is
disclosed to Disclosee without any obligation of confidentiality by a third
Person who is in lawful possession of such information and has the right to
disclose it to Disclosee; (d) has been or hereafter is disclosed by Discloser
to a third Person free of any obligations of confidentiality; (e) is
developed by the Disclosee independent of the Discloser's Confidential
Information; or (f) is disclosed by Disclosee pursuant to the order or
requirement of a court, administrative agency or other governmental body,
provided that the Disclosee promptly informs the Discloser of its intent to
make such disclosure, takes all reasonable steps to limit such disclosure and
does not inhibit the Discloser in taking whatever lawful steps the Discloser
considers necessary to attempt to preserve the confidentiality of such
information. Disclosures made to Disclosee by Discloser which are specific
shall not be deemed to be within the foregoing exceptions merely because they
are embraced by general disclosures in the public domain or in the possession
of Disclosee.
6.5 REMEDIES. The parties agree and acknowledge that any breach of
this Article 6 by SPNC or USSC would likely cause irreparable injury to the
other party and that such other party's remedy at law for any such breach would
be inadequate. Accordingly, the parties agree that, in addition to any other
remedies provided for herein or otherwise available at law, temporary and
permanent injunctive relief and other equitable relief may be granted in any
Action which may be brought by either party to enforce the provisions of this
Article 6 without the necessity of proof of actual damage. Each party agrees
promptly to seek temporary and permanent injunctive relief against any of its
directors, officers, employees, representatives or agents who breach the
aforesaid obligations with respect to any matter relating to this Agreement.
6.6 SURVIVAL. The provisions of this Article 6 shall survive
termination of this Agreement.
ARTICLE 7 - INDEMNIFICATION
7.1 *
- --------------
* This portion marked with an asterisk has been omitted pursuant to a request
for confidential treatment and filed separately with the Commission.
8
<PAGE>
7.2 *
7.3 SURVIVAL. The provisions of this Article 7 shall survive
termination of this Agreement.
ARTICLE 8 - FDA INTERACTION
8.1 USSC REGULATORY RIGHTS. Either party shall be entitled to interact
with the regulatory agencies in any country including, but not limited to, the
U.S. Food and Drug Administration (collectively, "FDA") concerning the
manufacture, use or sale of a Product and for purposes of any filings with the
FDA concerning the Products to be the official company sponsor. In the event of
a dispute between USSC and SPNC
- --------------
* This portion marked with an asterisk has been omitted pursuant to a request
for confidential treatment and filed separately with the Commission.
9
<PAGE>
concerning any matter relating to interaction concerning a Product with the
FDA, USSC shall have final authority to act as USSC, in its sole discretion,
deems appropriate with respect to the matter in dispute. USSC shall have the
right to utilize the Information in connection with such regulatory filings.
8.2 SPNC REGULATORY ASSISTANCE. During the term of this Agreement,
SPNC, at USSC's request, shall assist USSC during FDA interaction concerning the
Products; provided that USSC shall reimburse SPNC for all out-of-pocket
expenses, other than attorneys fees and expenses, incurred by SPNC in providing
such assistance.
8.3 *
ARTICLE 9 - PATENT PROSECUTION AND INFRINGEMENT
9.1 PRIOR INVENTIONS. USSC and SPNC each acknowledge that the other
party has heretofore developed or acquired methods, processes and apparatus
relative to their respective fields of endeavor. Notwithstanding anything in
this Agreement to the contrary but subject to Section 3.3, USSC and SPNC each
retain all right, title and interest in and to such methods, processes and
apparatus developed or owned on their respective parts prior to the effective
date of this Agreement.
9.2 *
- --------------
* This portion marked with an asterisk has been omitted pursuant to a request
for confidential treatment and filed separately with the Commission.
10
<PAGE>
9.3 PATENTS. Each party shall assist and cooperate in a reasonable
manner with the other party in obtaining patent protection for inventions
referred to in Section 9.2 and to protect title in the same in the name of the
proper party in accordance with such Section. USSC shall have the first right
to apply for and pursue patent protection for Joint Results for any invention,
development or improvement that relates to TMR and PMR, and in the event USSC
does not, after a reasonable period following discovery of the Joint Results,
file for patent protection, SPNC may file for such patent protection. No party
shall be obligated, however, to seek patent protection for any invention or to
pursue any application therefore once filed. Each party shall have sole
discretion in determining the jurisdictions in which it shall seek patent
protection for any invention owned by it.
9.4 INFRINGEMENT BY THIRD PARTIES. SPNC, on the one hand, and USSC, on
the other hand, shall promptly give written notice to the other of any apparent
infringement in the Field by a product discovered by it with respect to any
patent issuing from the Patents and Patent Applications. Such notice shall set
forth the facts of the apparent infringement in reasonable detail. *
9.5 THIRD PARTY CLAIM OF INFRINGEMENT. If USSC or SPNC receives notice
of a claim or Action by a third party alleging infringement of such third
party's rights in connection with the manufacture, use or sale of a Product by
USSC, its Affiliates, Subsidiaries, or permitted assignees, *
- --------------
* This portion marked with an asterisk has been omitted pursuant to a request
for confidential treatment and filed separately with the Commission.
11
<PAGE>
9.6 INFRINGEMENT DEFENSE OBLIGATIONS. *
9.7 MUTUAL LITIGATION UPDATE OBLIGATION; SETTLEMENT LIMITATIONS.
(a) *
(b) Notwithstanding anything in this Agreement to the contrary, neither
party nor its respective Affiliates, Subsidiaries, licensees, successors and
assigns, shall
- --------------
* This portion marked with an asterisk has been omitted pursuant to a request
for confidential treatment and filed separately with the Commission.
12
<PAGE>
agree or enter into any agreement, settlement of any claim or Action which
would invalidate any of the Patents or Patent Applications, or any claims
under any of the Patents or Patent Applications, or otherwise abridge the
right of the other party, its Affiliates, Subsidiaries, Sublicensees and
permitted assignees the right to practice thereunder or any of the Know-How
in the Field, without the prior written consent of the other party in its
sole and absolute discretion.
9.8 NOTICE OF INFRINGEMENT CLAIMS. In the event that any claim is
asserted against either party, or any of their respective directors, officers,
employees, agents or representatives, or such person is made a party defendant
in any Action involving a matter which is the subject of such party's
indemnification and hold harmless agreement as set forth above, or either party
becomes aware of a claim, patent or patent application which might provide the
basis for a third party's claim of infringement against the other party,
Affiliates, Subsidiaries, or permitted assignees as a result of their
manufacture, use or sale of a Product, then within thirty (30) days of receipt
by any one or more of such party of notice of any such event, and within ten
(10) days of such party's receipt of a written complaint or other formal
pleading regarding any such event, such party shall give the other party hereto
written notice of such claim, Action, or patent or patent application.
ARTICLE 10 - REPRESENTATIONS AND WARRANTIES
10.1 AUTHORITY. Each party hereby represents and warrants that (a) it
has full right, power and authority to enter into and be bound by the terms and
conditions of this Agreement, to transfer the rights and to carry out its
obligations under this Agreement, without the approval or consent of any other
person or entity; (b) the entering into of this Agreement, the transfer of
rights and the carrying out of its obligations under this Agreement is not
prohibited, restricted or otherwise limited by any contract, agreement or
understanding entered into by it, or by which it is bound, with any other
Person, or any governmental entity; (c) there is no contract, agreement or
understanding entered into by it, or by which it is bound, which if enforced,
terminated or modified, would be in derogation of, contrary to, or adversely
affect the rights acquired or to be acquired hereunder by USSC; and (d) there is
no claim, Action or investigation pending or currently threatened against it
which, if adversely
13
<PAGE>
determined, would restrict or limit its right to enter into this Agreement,
transfer the rights or carry out its obligations under this Agreement.
10.2 SPNC REPRESENTATIONS AND WARRANTIES. SPNC hereby further
represents and warrants that:
(a) it has not filed any patent application or been issued or assigned
any patent on or prior to the date of this Agreement for any instrument, device
or system similar to a Product, other than the Patents and Patent Applications;
(b) SPNC possesses all right, title and interest in the Patents and
Patent Applications and the Know-How, free and clear of any liens, charges,
encumbrances, claims and rights of any type, nature or amount whatsoever,
contingent or otherwise;
(c) to its knowledge and belief, SPNC is not aware of any act of fraud
or misrepresentation in connection with the prosecution of the Patents and
Patent Applications including, without limitation, any material prior art which
has not been disclosed in the cumulative prosecution of the Patents and Patent
Applications or any claim of prior inventions by others;
(d) to its knowledge and belief, SPNC has not authorized any disclosure
of SPNC trade secrets or confidential information involving or relating to the
Products without legally enforceable restrictions on disclosure by recipients
thereof; and
10.3 RELIANCE ON REPRESENTATIONS AND WARRANTIES. All representations,
warranties and covenants made by a party shall be considered to have been relied
upon by the other party hereto regardless of any discussion, review or
investigation made by or on behalf of, the other party, and shall survive
termination of this Agreement.
ARTICLE 11 - TERM AND TERMINATION
11.1 TERM. The term of this Agreement shall commence upon the date
hereof and shall terminate upon the later of the following:
(a) *
- --------------
* This portion marked with an asterisk has been omitted pursuant to a request
for confidential treatment and filed separately with the Commission.
14
<PAGE>
(b) *
Notwithstanding the foregoing, if at any time SPNC or USSC shall fail in any
material respect to comply with any of its material obligations under this
Agreement, or commit any fraud upon the other party in connection with this
Agreement or have willfully misrepresented any matter which is the subject of
the representations and warranties contained herein, the non breaching party may
terminate this Agreement upon seven (7) days prior written notice to the other.
The remedies provided in this Section 11.1(b) shall be in addition to any other
remedies available at law or in equity. Notwithstanding any other provision of
this Agreement, USSC at all times after fulfillment of USSC's obligations under
Section 4.1 shall have the right for any or no reason to terminate this
Agreement upon ten (10) days prior written notice to SPNC. In the event USSC
effects termination in accordance with the immediately preceding sentence, there
shall not be due to SPNC any termination penalty or other payment, nor shall the
payment by USSC to SPNC be returnable in any manner.
11.2 CURE. Notwithstanding Section 11.1 above, each party shall have
the right to cure any material breach. The cure shall be effected within a
reasonable period of time but not later than thirty (30) days after notice of
such breach given to it by the non-breaching party, if the cure can be effected
within such thirty (30) day period. If the breach is such that it cannot
reasonably be cured within such thirty (30) day period, this Agreement shall
terminate unless the breaching party institutes diligent efforts to cure such
breach within such thirty (30) day period and so long as such party shall
continue to pursue diligent efforts to effect such cure.
11.3 NON TERMINATION. Notwithstanding any other provision of this
Agreement, a party contesting in good faith any issue under this Agreement who
continues to comply with all other obligations and provisions of this Agreement
shall not be considered in breach of this Agreement for purposes of giving rise
to any right of termination by the other party until there is a final judgment
of a court of competent jurisdiction adverse to such contesting party with which
judgment such party has failed to comply within fifteen (15) days after written
notice thereof.
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* This portion marked with an asterisk has been omitted pursuant to a request
for confidential treatment and filed separately with the Commission.
15
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ARTICLE 12 - RIGHTS AFTER TERMINATION
12.1 RIGHTS AFTER TERMINATION.
(a) All rights and obligations of the parties which accrue on or before
the effective termination date shall be fully enforceable by either party after
termination.
(b) If this Agreement terminates and, as a result thereof, USSC is
required to cease making Products, USSC may, nonetheless after such termination
dispose of inventory of Products existing at the date of termination, complete
any Products in the process of manufacture at the date of termination, and
utilize materials on order at the date of termination.
(c) *
12.2 SURVIVAL. The provisions of this Article 12 shall survive
termination of this Agreement.
ARTICLE 13 - PUBLICITY
13.1 PUBLICITY. Neither party shall issue any press release or make any
public disclosure, announcement, comment or statement concerning the existence
or the terms and conditions of this Agreement or the transactions contemplated
hereby without the prior written consent of the other party in its sole and
absolute discretion, provided
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* This portion marked with an asterisk has been omitted pursuant to a request
for confidential treatment and filed separately with the Commission.
16
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however, that each party shall have the right to make disclosures which are
required in the reasonable opinion of its counsel are necessary to comply
with applicable laws and any rules or regulations of a securities exchange or
the National Association of Securities Dealers upon which its securities are
then being traded.
13.2 SURVIVAL. The provisions of this Article 13 shall survive
termination of this Agreement.
ARTICLE 14 - WAIVER
14.1 WAIVER. No waiver by either party, express or implied, or any
breach of any term, condition, or obligation of this Agreement by either party
shall be construed as a waiver of any subsequent breach of any term, condition,
or obligation of this Agreement, whether of the same or different nature.
ARTICLE 15 - NOTICES
15.1 NOTICES. Any notice required or permitted to be given hereunder
shall be in writing and shall be mailed by certified mail, return receipt
requested, or delivered by messenger or air courier to the party to whom such
notice or payment is required or permitted to be given at its address set forth
as follows: if given to SPNC, to: Attn.: Chief Executive Officer, The
Spectranetics Corporation, 96 Talamine Court, Colorado Springs, CO 80907-5186;
or, if given to USSC, to: Attn.: Thomas R. Bremer, Senior Vice President and
General Counsel, United States Surgical Corporation, 150 Glover Avenue, Norwalk,
CT 06856. Any such notice shall be considered given when delivered, as
indicated by signed receipt or other written delivery record. A party may
change that address to which notice to it is to be given by notice as provided
herein.
ARTICLE 16 - ASSIGNMENTS
16.1 ASSIGNMENT. Neither this Agreement nor the performance of any
part hereof may be assigned or transferred by either party hereto without the
prior written consent of the other party, except that either party may
(i) assign this Agreement to an
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Affiliate or Subsidiary of such party provided that such party continue to
guarantee the full performance by such Affiliate or Subsidiary of this
Agreement; and (ii) assign this Agreement to any successor by purchase,
merger or otherwise, to all or substantially all of such party's assets,
provided that in the event of such assignment such assignee shall agree in
writing with the other party to assume all of the obligations and liabilities
of such party hereunder. Any assignment, sublicense or transfer or attempt
thereat other than as permitted by this Section 16.1, and in compliance with
the provisions hereof, will be null and void.
ARTICLE 17 - CONSTRUCTION; ADJUDICATION
17.1 CONSTRUCTION. This Agreement, the validity, construction,
performance and interpretation thereof, and all issues and controversies arising
therefrom shall be construed and enforced in accordance with the internal laws
of the State of * applicable to contracts made and to be performed
entirely within the State of * without reference to its conflict of law
provisions.
17.2 *
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* This portion marked with an asterisk has been omitted pursuant to a request
for confidential treatment and filed separately with the Commission.
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17.3 SURVIVAL. The provisions of this Article 17 shall survive
termination of this Agreement.
ARTICLE 18 - ENTIRE UNDERSTANDING/AMENDMENT/
FORCE MAJEURE
18.1 ENTIRE UNDERSTANDING. This Agreement, along with the Supply
Agreement and the Service Maintenance Master Agreement dated August 19, 1996,
constitutes the entire understanding and agreement between the parties, and
supersedes all previous agreements (whether written or oral) concerning the
subject matter hereof.
18.2 AMENDMENT. This Agreement shall not be modified, amended, or
supplemented except by a written document executed by both parties.
18.3 FORCE MAJEURE. Notwithstanding anything in this Agreement to
the contrary, if either party is prevented from performing any of its
obligations hereunder
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due to any cause which is beyond the non-performing party's control,
including fire, explosion, flood or other act of God; laws or acts of any
governmental authority; war or civil commotion; strike, lockout or labor
disturbances; or failure of public utilities or common carrier (each a "Force
Majeure Event"), such non-performing party shall not be deemed in breach
provided such non-performing party shall promptly give notice thereof to the
other party and shall use reasonable commercial efforts to cure or correct
any Force Majeure Event and to resume performance of its affected obligations
as soon as possible.
ARTICLE 19 - HEADINGS
19.1 HEADINGS. The headings in this document are for information
purposes only and are not meant to have any legal effect in interpreting this
document.
ARTICLE 20 - SEVERABILITY; FURTHER ASSURANCES
20.1 SEVERABILITY. The invalidity or unenforceability of any Section
or provision of this document shall not affect the validity or enforceability
of any one or more of the other paragraphs or provisions.
20.2 FURTHER ACTS. The parties hereto will execute any further
instruments or perform any acts which are or may be necessary to effectuate
each of the terms and provisions of this Agreement.
ARTICLE 21 - COUNTERPARTS
21.1 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original but all of
which together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
THE SPECTRANETICS CORPORATION
By: /s/ Joseph A. Largey
--------------------------------------
Name: Joseph A. Largey
--------------------------------------
Title: President/CEO
--------------------------------------
UNITED STATES SURGICAL CORPORATION
By: /s/ Thomas D. Guy
--------------------------------------
Thomas D. Guy
Senior Vice President, Operations
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EXHIBIT 10.3
SUPPLY AGREEMENT
This agreement (this "Agreement") dated as of September 25, 1997 between
and among The Spectranetics Corporation, a Delaware corporation having a place
of business at 96 Talamine Court, Colorado Springs, CO 80907-5186 (hereinafter
referred to as "SPNC"); and United States Surgical Corporation, a Delaware
corporation, having a place of business at 150 Glover Avenue, Norwalk,
Connecticut 06856 (hereinafter referred to as "USSC").
WHEREAS, USSC has certain expertise in the design, development,
manufacture, marketing and sales of medical devices including advanced excimer
lasers and related medical devices and accessories; and
WHEREAS, SPNC has certain expertise in the design, development, manufacture
and marketing and sale of advanced excimer lasers, medical devices and
accessories; and
WHEREAS, USSC and SPNC have heretofore executed a certain "Confidential
Disclosure Agreement dated June 28, 1995 (the "Confidentiality Agreement')
attached hereto as APPENDIX A; and
WHEREAS, SPNC and USSC desire to expand their relationship and use their
respective expertise cooperatively to further develop and commercialize*; and
WHEREAS, SPNC and USSC are executing a license agreement simultaneously
with this Agreement (the "License Agreement") pursuant to which SPNC is granting
a license to USSC for *
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained herein and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
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* This portion marked with an asterisk has been omitted pursuant to a request
for confidential treatment and filed separately with the Commission.
<PAGE>
ARTICLE 1 - DEFINITIONS
1.1 For purposes of this Agreement, the definitions set forth below shall
be applicable:
"Affiliate" shall mean a corporation or other business entity which is,
directly or indirectly, controlled by a party hereto. For this purpose, control
of a corporation or other business entity shall mean (i) direct or indirect
beneficial ownership of fifty percent (50%) or more of the voting interest in
such corporation or other business entity, (ii) direct or indirect beneficial
ownership of fifty percent (50%) or more of the equity of such corporation or
other business entity, and (iii) the existence of any other relationship between
a corporation or other business entity and another corporation or other business
entity which results in effective management control by one or the other,
regardless of whether such control is continuously exercised. The term
"Affiliates" shall not mean any corporation or other business entity which
controls a party hereto or is under common control with a party.
*
"FDA" shall mean the United States Department of Health and Human Services,
Food and Drug Administration, or any successor agency.
*
"Person" or "Persons" shall mean any individual, corporation, partnership,
association, trust or other entity or organization, including a governmental or
political sub division or any agency or instrumentality thereof.
*
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* This portion marked with an asterisk has been omitted pursuant to a request
for confidential treatment and filed separately with the Commission.
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"Product" or "Products" shall mean collectively, * in the field.
"Subsidiary" shall mean any corporation, partnership or other entity, fifty
percent (50%) or more of the outstanding shares of any class of stock, general
partnership interest, or other equity of which is owned by a party; and any
operating division of a party not separately incorporated or organized as an
independent business Person.
"Territory" shall mean every country and territory in the world.
"Tooling" shall mean molds, dies and tooling and other equipment and items
relating to Products which may from time to time be provided by USSC to SPNC or
acquired or built by SPNC with funds provided to SPNC by USSC for the specific
purpose of acquiring or building such items.
1.2 In addition to the foregoing defined terms, the following terms shall
have the meanings set forth in the referenced Sections of this Agreement:
Term Section
---- -------
International Regulatory Agency 3.5
Joint Results 6.2
Purchase Order 3.1
* 7.2
* 7.2
* 7.3
* 7.3
Warranty 3.2
ARTICLE 2 - PURCHASES AND SALES OF PRODUCTS
2.1 AGREED UPON PURCHASES AND SALES.
(a) Upon execution of this Agreement by both parties, USSC shall issue a
Purchase Order (defined below) to SPNC for, and SPNC shall accept such Purchase
Order for the
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* This portion marked with an asterisk has been omitted pursuant to a request
for confidential treatment and filed separately with the Commission.
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sale and delivery to USSC of [*] of SPNC's * at a * price of [*] per Unit.
Such Purchase Order shall include agreed upon shipment and delivery
schedules, and payment thereunder by USSC shall be due in full upon SPNC's
written acceptance of the Purchase Order. Such Purchase Order shall be set
forth as *, attached hereto (the "* P.O."). Notwithstanding the foregoing,
the parties recognize and agree that USSC has already ordered [*] Units, and,
accordingly, the foregoing obligation shall be reduced thereby. The price of
the Unit set forth in this Section 2.1(a) includes *
(b) Upon execution of this Agreement by both parties, USSC shall issue
a Purchase Order to SPNC for, and SPNC shall accept such Purchase Order for
the sale and delivery to USSC of [*] at a price per unit of [*] per unit.
Such Purchase Order shall include agreed upon shipment and delivery schedules
and payment terms, and payment thereunder by USSC shall be due in full upon
SPNC's written acceptance of the Purchase Order. Such Purchase Order shall
be set forth as *, attached hereto (the "* P.O."). USSC hereby approves of
the design of such * and acknowledges that SPNC shall have no obligation
under this Agreement to supply *, the design of which is not approved by
USSC. The aforesaid pricing for * shall be subject to revision as shall be
mutually agreed by the parties in the event USSC requests specification
changes from the specifications set forth in such Purchase Order. Freight,
duties, insurance or any other applicable third party charges and fees are
not included and shall be paid by USSC.
2.2 ADDITIONAL PURCHASES AND SALES *. SPNC shall sell additional * to
USSC, and USSC shall purchase all its requirements for additional * for use
with * from SPNC during the term of this Agreement on the terms and
conditions set forth in Section 2.1 (other than price) and Article 3 below.
The pricing for such purchases during the term of this Agreement shall be as
follows: (i) the prices set forth in Section 2.1(b) during the period ending
* from the date hereof and (ii) prices determined by SPNC during each *
period commencing on each * year anniversary of the date of this
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* This portion marked with an asterisk has been omitted pursuant to a request
for confidential treatment and filed separately with the Commission.
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Agreement starting with the execution of this Agreement by both parties
(provided, however, that such prices shall in no event be more than [*]% ([*]
%) of the prices charged in the preceding * year period); provided, however,
that such prices shall be increased by SPNC's fully-burdened cost of any
modifications made in the * based on specification changes in the * requested
by USSC.
2.3 *
ARTICLE 3 - OTHER TERMS OF SALE AND COVENANTS
3.1 PURCHASE ORDERS. Purchase of Products by USSC from SPNC shall be
made pursuant to written purchase orders issued by USSC from time to time to
SPNC ("Purchase Orders"). * attached hereto, shall govern all Purchase
Orders for *. Insofar as the terms and conditions of Purchase Orders are
contrary to or inconsistent with the terms and conditions of this Agreement
hereto, the terms and conditions of this Agreement shall control.
3.2 PRODUCT REPRESENTATIONS AND WARRANTIES. SPNC represents and
warrants the following with respect to Products to be supplied to USSC: (i)
the Products will conform to mutually agreed upon specifications and will be
free of defects in materials and workmanship; (ii) will be manufactured in
accordance with all applicable regulatory provisions, including without
limitation, applicable FDA regulations as to "Good Manufacturing Practices"
including those recited for medical devices set forth at 21 C.F.R. Section
820, as amended from time to time, and the "Establishment Regulation and
Device Listing for Manufacturers of Devices" set forth at 21 C.F.R. Section
807, as amended from time to time, and ISO 9001; (iii) will not be
adulterated or misbranded within the meaning of the United States Food, Drug
and Cosmetic Act of 1938, as amended, and the regulations promulgated
thereunder; (iv) the Products will be free and clear of all liens, security
interests, charges and encumbrances of any kind or amount; and (v) will
conform to SPNC's standard representations and warranties for sale of * set
forth on *, attached hereto (the "Warranty").
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* This portion marked with an asterisk has been omitted pursuant to a request
for confidential treatment and filed separately with the Commission.
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3.3 CHANGES TO PRODUCTS. During the term of this Agreement, SPNC will
neither change the materials comprising the Products sold hereunder nor
implement different specifications for such Products without USSC's prior
written consent, which consent shall not be unreasonably withheld or delayed.
SPNC will provide USSC notice of such proposed changes as far in advance as
possible in order for USSC to consider such proposed changes and to seek, if
appropriate, approvals by the FDA and any International Regulatory Agency
(defined below).
3.4 REGULATORY ASSISTANCE. SPNC agrees to provide to USSC such
assistance as USSC reasonably requires in connection with instituting and
complying with the regulatory provisions referenced in Section 3.3 above.
Notwithstanding, SPNC shall not be required to pay any costs or expenses
other than SPNC's out-of-pocket costs in connection with any such assistance.
SPNC shall permit USSC to inspect production, labeling, shipping, packaging
and quality control and sterilization facilities and its regulatory books and
records involving or relating to the manufacture of * to allow USSC to verify
SPNC's compliance with its obligations under this Agreement.
3.5 REGULATORY INTERACTION AND RESPONSIBILITIES.
(a) Interaction with the FDA and any federal, state or local governmental
authority in the Territory outside the United States which authority performs
similar functions to the FDA (collectively, "International Regulatory Agency")
involving or relating to Products may be conducted non-exclusively by USSC and
SPNC agrees to fully cooperate with USSC in connection with same. SPNC shall,
subject to appropriate confidentiality agreements, (a) provide USSC access to
the greatest extent possible to all relevant FDA submissions (e.g. IDEs and
PMAs) made by SPNC; and (b) allow USSC the right to copy and include the
pertinent sections (e.g. product specifications, EMC testing, manufacturing
processes and control, and biocompatability of UV laser light) of such
submissions in USSC's own FDA submissions. For purpose of any filings with the
FDA and any International Regulatory Agency concerning the Products, either
party shall have the right to be an official company sponsor. In the event of a
dispute between USSC and SPNC concerning any matter relating to such interaction
with the FDA or any International Regulatory Agency solely as it relates to the
Field, USSC shall have final authority to act, as USSC in its sole discretion,
deems appropriate with respect to the matter in dispute. Notwithstanding the
foregoing, SPNC shall have sole control of and
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* This portion marked with an asterisk has been omitted pursuant to a request
for confidential treatment and filed separately with the Commission.
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responsibility for interaction with the FDA and any International Regulatory
Agency with respect to (i) SPNC qualification as a manufacturer under
applicable laws and regulations of the FDA and any International Regulatory
Agency; and (ii) SPNC materials used in Products regulated by such
authorities. Notwithstanding the foregoing, nothing in this Agreement shall
restrict (i) SPNC's right to conduct itself appropriately as determined in
the exercise of SPNC's sole judgment with respect to any regulatory agency,
including, without limitation, the FDA and any International Regulatory
Agency, or (ii) SPNC's ability to conduct research and academic studies
including, without limitation, clinical trials concerning Excimer Lasers and
Probes.
(b) Each party shall provide the other with a copy of any reported adverse
experience involving a Product as used in the Field after a party receives the
report of such occurrence whether sold by it or any third person or entity to
whom a party has granted any distribution or sales rights. Any death, serious
injury, potential for occurrence of the same, or change in the frequency or
occurrence of field experiences with respect to a Product which is required to
be reported by a party to the FDA or any International Regulatory Agency shall
be reported to the other party as promptly as possible to enable the other party
to comply with applicable regulations in a timely manner.
(c) SPNC shall institute and fund any recall, field corrective action,
or the like in circumstances relating to a Product defect or failure which
requires such action as determined by the FDA, any International Regulatory
Agency, SPNC, or as otherwise may be required pursuant to applicable laws,
rules or regulations if caused by the failure of the Product to meet the
agreed upon specifications for such Product when delivered by USSC. USSC
shall institute and fund any recall, field corrective action, or the like in
any other circumstances relating to a Product defect or failure which
requires such action as determined by the FDA, any International Regulatory
Agency, USSC, or as otherwise may be required pursuant to applicable laws,
rules or regulations if it relates to a defect or failure of a caused by
designs produced by USSC. In any such circumstances relating to, the actual
retrieval of the sold by USSC will be undertaken by USSC. In any such
circumstances relating to *, the actual retrieval of the * sold by USSC will
be undertaken by SPNC.
3.6 REPAIR AND MAINTENANCE SERVICES FOR *. SPNC shall offer to USSC
and USSC customers throughout the Territory non-Warranty equipment and repair
maintenance services for * in such locations in the Territory as SPNC is at
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* This portion marked with an asterisk has been omitted pursuant to a request
for confidential treatment and filed separately with the Commission.
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<PAGE>
such time already providing non-Warranty equipment and maintenance services
for * to other customers at SPNC's then standard price and on SPNC's then
standard terms.
3.7 TOOLING AND TOOLING DRAWINGS. USSC shall have no obligation to pay or
reimburse SPNC in connection with the acquisition or building of Tooling but may
do so from time to time in its discretion provided the parties agree thereto in
a separately signed writing, neither party being obligated to so agree. All
Tooling and drawings of Tooling shall be owned by USSC and shall be used by SPNC
exclusively to meet SPNC's obligations under this Agreement. All Tooling shall
be maintained by SPNC (i) in good repair and condition, ordinary wear and tear
excepted; (ii) in a reasonably secure location on the premises of SPNC and
reasonably acceptable to USSC and shall not be moved or relocated from such
location without prior notice and approval of USSC; and (iii) free and clear of
any right, title or interest in any other Person. SPNC shall (i) apply such
physical notice of USSC's ownership to each item of Tooling as is requested by
USSC and reasonably appropriate for such Tooling; (ii) maintain a written log of
all such Tooling and provide a copy of such log to USSC from time to time upon
request; (iii) permit USSC's representatives to inspect the Tooling from time to
time during the term of this Agreement during SPNC's normal business hours upon
prior notice; (iv) keep the Tooling insured against loss by fire (including
extended coverage), theft and other hazards under policies with responsible
insurers authorized to do business in the jurisdiction where the Tooling is
situated, cause USSC to be named as an additional named insured on such policies
as its interests may appear, and provide to USSC a certificate of such insurance
in customary form; and (v) promptly execute and reasonably cooperate with USSC
in connection with filing UCC statements and similar protective instruments with
respect to the Tooling to give notice to third Persons of USSC's ownership of
the Tooling. Any changes to Tooling shall be documented on the drawings.
3.8 SURVIVAL. The provisions of this Article 3 shall survive termination
of this Agreement.
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ARTICLE 4 - MARKETING ASSISTANCE, ADDITIONAL PAYMENTS
AND ADDITIONAL JOINT PROJECTS
4.1 MARKETING ASSISTANCE.
(a) SPNC shall * and shall provide USSC with *
(b) SPNC shall within fifteen (15) days following the execution of this
Agreement provide to USSC a list containing the names, addresses and contact
persons of each third Person or entity in possession of an *. SPNC shall
also provide USSC with the same types of information promptly following the
sale or transfer of any additional * during the term of this Agreement. USSC
will limit the distribution of this list, to Persons approved by SPNC, which
approval shall not be unreasonably withheld or delayed, in such a manner to
minimize the number of individuals with complete access to SPNC's customer
list.
4.2 ADDITIONAL PAYMENTS.
(a) Subject to the terms of this Agreement, USSC shall make payments to
SPNC as follows:
(i) [*]
(ii) [*]
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* This portion marked with an asterisk has been omitted pursuant to a request
for confidential treatment and filed separately with the Commission.
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(b) USSC shall deliver quarterly written reports within sixty (60) days
after the end of each quarter, to SPNC concerning payments due under Section
4.2(a). Such reports shall specify the name, address and number of Excimer
Lasers subject to a payment, the date (insofar as known by USSC to its
knowledge) each such * was first used *, and the amount of payments due to
SPNC thereon. All information contained in such reports shall be treated as
USSC's Confidential Information (defined below). Simultaneously with the
submission of each report, USSC shall pay SPNC by check or bank transfer the
amount of the payment due to SPNC for the report period under the terms of
this Agreement. During the first calendar quarter following the end of each
year in which there has been a payment due under Section 4(a), USSC shall
furnish to SPNC, at USSC's expense, a letter from a nationally recognized
firm of independent accountants, which may be the accounting firm employed by
USSC to conduct its regular annual audit, verifying the amount due during
such year under this Agreement.
(c) SURVIVAL. The provisions of this Section 4.2 shall survive
termination of this Agreement.
4.3 ADDITIONAL PROJECTS. * During the term of this Agreement,
the parties shall discuss broadening their relationship on mutually
satisfactory terms in their respective discretion, provided, however, neither
party shall be under any obligation to enter into such arrangement.
ARTICLE 5 - CONFIDENTIAL INFORMATION
5.1 USSC CONFIDENTIALITY OBLIGATION. USSC hereby represents and warrants
that it has not, directly or indirectly, disclosed and agrees that it will not,
directly or indirectly disclose, either during or subsequent to the term of this
Agreement, any Confidential Information of SPNC, to any other Person, except to
its attorneys and accountants as required in connection with this Agreement who
have been and will be instructed to maintain its confidentiality and to third
Persons, with a demonstrated need to know such Confidential Information, who
shall execute binding written agreements requiring such third parties not to
disclose Confidential Information disclosed to them by USSC.
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* This portion marked with an asterisk has been omitted pursuant to a request
for confidential treatment and filed separately with the Commission.
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5.2 SPNC CONFIDENTIALITY OBLIGATION. SPNC hereby represents and warrants
that it will not, directly or indirectly, disclose during or subsequent to the
term of this Agreement, any Confidential Information proprietary to USSC, to any
other Person, except to SPNC's attorneys and accountants as required in
connection with this Agreement who have been and will be instructed to maintain
its confidentiality and to third Persons, with a demonstrated need to know such
Confidential Information, who shall execute binding written agreements requiring
such third parties not to disclose Confidential Information disclosed to them by
USSC.
5.3 SUPPLIERS. It is not intended by this Article 5 that USSC shall be
required to obtain specific written commitments in relation to this Agreement
from materials and/or component suppliers where only specifications are
disclosed to said materials and/or component suppliers by USSC.
5.4 CONFIDENTIAL INFORMATION. For purposes of this Agreement,
"Confidential Information" shall mean verbal and written disclosures from SPNC
or USSC (the "Discloser") to the other party (the "Disclosee"), which concern
the Discloser, including without limitation information which concerns the
Discloser's business, operations, products or research and development efforts,
or which concern the Products, but shall not include information which: (a) at
the time of disclosure is published or otherwise becomes a part of the public
domain through no fault of Disclosee (but only after, and only to the extent
that, it is published or otherwise becomes a part of the public domain); (b)
Disclosee can show was known to it at the time of disclosure, free of
restriction; (c) has been or hereafter is disclosed to Disclosee without any
obligation of confidentiality by a third Person who is in lawful possession of
such information and has the right to disclose it to disclosee; (d) has been or
hereafter is disclosed by Discloser to a third Person free of any obligations of
confidentiality; (e) is developed by the Disclosee independent of the
discloser's Confidential Information; or (f) is disclosed by Disclosee pursuant
to the order or requirement of a court, administrative agency or other
governmental body, provided that the Disclosee promptly informs the Discloser of
its intent to make such disclosure, takes all reasonable steps to limit such
disclosure and does not inhibit the Discloser in taking whatever lawful steps
the Discloser considers necessary to attempt to preserve the confidentiality of
such information. Disclosures made to Disclosee by Discloser which are specific
shall not be deemed to be within the foregoing exceptions merely because they
are embraced by general disclosures in the public domain or in the possession of
Disclosee.
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5.5 REMEDIES. The parties agree and acknowledge that any breach of this
Article 5 by SPNC or USSC would likely cause irreparable injury to the other
party and that such other party's remedy at law for any such breach would be
inadequate. Accordingly, the parties agree that, in addition to any other
remedies provided for herein or otherwise available at law, temporary and
permanent injunctive relief and other equitable relief may be granted in any
Action which may be brought by either party to enforce the provisions of this
Article 5 without the necessity of proof of actual damage . Each party agrees
promptly to seek temporary and permanent injunctive relief against any of its
directors, officers, employees, representatives or agents who breach the
aforesaid obligations with respect to any matter relating to this Agreement.
5.6 SURVIVAL. The provisions of this Article 5 shall survive termination
of this Agreement.
ARTICLE 6 - INVENTIONS
6.l PRIOR INVENTIONS. USSC and SPNC each acknowledge that the other party
has heretofore developed or acquired methods, processes and apparatus relative
to their respective fields of endeavor. Notwithstanding anything in this
Agreement to the contrary, USSC and SPNC each retain all right, title and
interest in and to such methods, processes and apparatus developed or owned on
their respective parts prior to the effective date of this Agreement.
6.2 OWNERSHIP OF INVENTIONS. *
6.3 PATENTS. Each party shall assist and cooperate in a reasonable
manner with the other parties in obtaining patent protection for inventions
referred to in Section 6.2 and to protect title in the same in the name of the
proper party in accordance with such Section. * shall have the first right
to apply for and pursue patent protection for Joint
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* This portion marked with an asterisk has been omitted pursuant to a request
for confidential treatment and filed separately with the Commission.
12
<PAGE>
Results for any invention, development or improvement that relates to
* , and in the event that * does not, after a reasonable period following
discovery of the Joint Results, file for patent protection, * may file for
such patent protection. No party shall be obligated, however, to seek patent
protection for any invention or to pursue any application therefor once
filed. Each party shall have sole discretion in determining the
jurisdictions in which it shall seek patent protection for any invention
owned by it.
6.4 SURVIVAL. The provisions of this Article 6 shall survive termination
of this Agreement.
ARTICLE 7 - INDEMNIFICATION
7.1 BREACH OF THE AGREEMENT. Each of the parties agrees to defend,
indemnify and hold harmless the other parties and such other party's officers,
directors, employees, agents and representatives from and against any and all
suits, claims, losses, damages, judgments, executions, awards or damages,
including reasonable attorneys fees and costs resulting from such party's
misrepresentations, breach of warranties or failure to comply with its
obligations under this Agreement.
7.2 * INDEMNIFICATION *
(a) *
- --------------
* This portion marked with an asterisk has been omitted pursuant to a request
for confidential treatment and filed separately with the Commission.
13
<PAGE>
(b) *
7.3 * INDEMNIFICATION *
(a) *
(b) *
- --------------
* This portion marked with an asterisk has been omitted pursuant to a request
for confidential treatment and filed separately with the Commission.
14
<PAGE>
7.4 SURVIVAL. The provisions of this Article 7 shall survive termination
of the Agreement.
ARTICLE 8 - TERM AND TERMINATION
8.1 SPECIFIED TERM. The term of this Agreement shall commence upon the
date the last party signs this Agreement and shall continue until terminated
pursuant to Section 8.2.
8.2 EARLY TERMINATION. This Agreement may terminate prior to the end of
the term upon notice by one party upon the material breach of this Agreement by
the other party.
8.3 CURE. Notwithstanding Section 8.2 above, either party shall have the
right to cure any material breach. The cure shall be effected within a
reasonable period of time but not later than thirty (30) days after notice of
such breach given to it by the non-breaching party, if the cure can be effected
within such thirty (30) day period. If the breach is such that it cannot
reasonably be cured within such thirty (30) day period, this Agreement shall
terminate unless the breaching party institutes diligent efforts to cure such
breach within such thirty (30) day period and, so long as such party shall
continue to pursue diligent efforts to effect such cure. Notwithstanding the
foregoing, USSC's right to cure a failure to pay the amount due under a Purchase
Order shall be limited to five (5) business days after notice.
15
<PAGE>
8.4 NON TERMINATION. Notwithstanding any other provision of this
Agreement, a party contesting in good faith any issue under this Agreement who
continues to comply with all other obligations and provisions of this Agreement
shall not be considered in breach of this Agreement for purposes of giving rise
to any right of termination by the other party until there is a final judgment
of a court of competent jurisdiction adverse to such contesting party with which
judgment such party has failed to comply within fifteen (15) days after written
notice thereof.
8.5 POST TERMINATION SALES. In the event of termination of this Agreement
at the end of the term hereof or by early termination by either party in
accordance with this Article 8, all Purchase Orders of USSC for Products
accepted by SPNC at the time of notice of termination shall remain firm and
binding on USSC and SPNC shall fill all Purchase Orders accepted by SPNC in
accordance with their terms. Notwithstanding such termination, USSC shall have
the right to continue to sell all Products in USSC inventory or which are the
subject of any Purchase Orders previously accepted by SPNC.
8.6 SURVIVAL. The provisions of Section 8.5 above shall survive
termination of this Agreement.
ARTICLE 9 - NOTICES
9.1 NOTICES. Written communications under this Agreement shall be
effective only if addressed to the respective designees as follows (or to
such designees as the parties hereto may from time to time designate in
writing):
SPNC:
The Spectranetics Corporation
96 Talamine Court
Colorado Springs, CO 80907-5186
Attn.: Chief Executive Officer
USSC:
United States Surgical Corporation
150 Glover Avenue
Norwalk, CT 06856
16
<PAGE>
Attn.: Thomas R. Bremer, Esq.
Senior Vice President and General Counsel
ARTICLE 10 - ENTIRE AGREEMENT
10.1 ENTIRE AGREEMENT. This Agreement, along with the License Agreement
and the Service Maintenance Master Agreement dated August 19, 1996, constitutes
the entire understanding and agreement between the parties, and supersedes all
previous agreements (whether written or oral) concerning the subject matter
hereof. This Agreement may not be amended or supplemented except by a written
document executed by the parties to this Agreement.
10.2 AUTHORITY. Each party represents and warrants to the other party:
(i) it has no agreement or understanding with any third party which if enforced,
terminated or modified would prohibit it from entering into or carrying out the
terms of this Agreement or which would restrict or limit the rights granted to
the other party hereto; (ii) there is no action, suit or proceeding, claim or
investigation pending, or to its best knowledge currently threatened against it,
which, if adversely determined, is reasonably likely to prohibit it from
entering into or carrying out the terms of this Agreement or which would
restrict or limit the rights granted to the other parties hereto; and (iii) that
it is a corporation duly organized and validly existing under the laws of the
state of its incorporation and the officer executing this Agreement on its
behalf has full power and authority to execute same.
ARTICLE 11 - ASSIGNMENT
11.1 ASSIGNMENT. This Agreement shall be binding upon and shall inure to
the benefit of the parties and their respective successors and permitted
assigns, including without limitation, successors to all or substantially all of
the assets, business or operations of the corporations or entities performing a
party's obligations under this Agreement. Neither this Agreement nor the
performance of any part hereof may be assigned or transferred by either party
hereto without the prior written consent of the other party, except that a
party's rights hereunder may be transferred (i) to an Affiliate of such party
without the prior written consent of the other party, provided such party
17
<PAGE>
continues to guarantee all of the payment and performance obligations of such
party, or (ii) to a successor of all or substantially all of the business and
assets of the party.
ARTICLE 12 - INDEPENDENT CONTRACTORS
12.1 INDEPENDENT CONTRACTORS. The parties hereto are independent
contractors. Neither this Agreement nor any terms and conditions herein
contained shall be construed as creating a joint venture, agency or
employment relationship. Neither party is granted any right or authority to
assume or to create any obligation or responsibility, express or implied, on
behalf of or in the name of the other party.
ARTICLE 13 - WAIVER
13.1 NO WAIVER. The failure of either party to exercise any right it
is granted herein or to require the performance by the other party hereto
with respect to any provision of this Agreement, shall not prevent a
subsequent exercise or enforcement of such provision or be deemed a waiver of
any subsequent breach of the same or any other provision of this Agreement.
ARTICLE 14 - CONSTRUCTION; ADJUDICATION
14.1 CONSTRUCTION. This Agreement, the validity, construction,
performance and interpretation thereof, and all issues and controversies
arising therefrom shall be construed and enforced in accordance with the
internal laws of the State of * applicable to contracts made and to be
performed entirely within the State of * without reference to its
conflict of law provisions.
14.2 *
- --------------------
* This portion marked with an asterisk has been omitted pursuant to a request
for confidential treatment and filed separately with the Commission.
18
<PAGE>
14.3 SURVIVAL. The provision of this Article 14 shall survive
termination of this Agreement.
19
<PAGE>
ARTICLE 15 - COUNTERPARTS
15.1 COUNTERPARTS. This Agreement may be signed in multiple
counterparts each one of which shall be deemed effective as if each party had
signed each of such counterparts.
ARTICLE 16 - NON-COMPETE
16.1 DEFINITIONS: For purposes of this Article 16, the following terms
shall have the following definitions:
Directly or Indirectly - The term Directly or Indirectly shall
include by the Person or through any other Person (i) as to which the Person
is directly or indirectly a proprietor, partner, stockholder, joint venturer
or owner or (ii) to which the Person directly or indirectly renders services
in any capacity relating to the area of non-competition contemplated by this
Article 16.
Sell - The term Sell shall include sale, lease or rent.
16.2 *
16.3 *
16.4 MODIFICATION. If any covenant set forth in Article 16 is
construed by a court of competent jurisdiction to be unenforceable because of
its scope or duration, the parties agree that such court shall have the power
to modify such scope or duration and, as so modified, said covenant shall be
given full force and effect. If any such covenant or a portion thereof is
otherwise construed to be invalid or unenforceable, the same shall not affect
the remaining covenants or remaining portion, which shall be given full force
and effect without regard to the invalid covenant or portion.
- --------------------
* This portion marked with an asterisk has been omitted pursuant to a request
for confidential treatment and filed separately with the Commission.
20
<PAGE>
16.5 REMEDY. Each party acknowledges and agrees that any breach of
this Article 16 would likely cause irreparable injury to the other party and
that the other party's remedy at law for any such breach would be
inadequate. Accordingly, each party agrees that, in addition to any other
remedies provided for herein or otherwise available at law, temporary and
permanent injunction relief may be granted in any proceeding which may be
brought to enforce any provision of this Article 16 without the necessity of
proof of actual damage.
16.6 MATERIALITY. The parties acknowledge and agree that the covenants
contained in this Article 16 are materially significant and essential to this
Agreement.
21
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
THE SPECTRANETICS CORPORATION
By: /s/ Joseph A. Largey
-------------------------------------
Name: Joseph A. Largey
-------------------------------------
Title: President/CEO
-------------------------------------
UNITED STATES SURGICAL CORPORATION
By: /s/ Thomas D. Guy
----------------------------------
Thomas D. Guy
Senior Vice President, Operations
22
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATIONS AS
FOUND ON PAGES 2 AND 3 OF THE COMPANY'S FORM 10-Q FOR THE PERIODS ENDED
SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 4,467
<SECURITIES> 1,547
<RECEIVABLES> 4,023
<ALLOWANCES> 0
<INVENTORY> 2,203
<CURRENT-ASSETS> 12,518
<PP&E> 3,691<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 22,287
<CURRENT-LIABILITIES> 6,654
<BONDS> 0
0
0
<COMMON> 19
<OTHER-SE> 15,098
<TOTAL-LIABILITY-AND-EQUITY> 22,287
<SALES> 15,387
<TOTAL-REVENUES> 15,387
<CGS> 8,307
<TOTAL-COSTS> 8,307
<OTHER-EXPENSES> 10,720
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25
<INCOME-PRETAX> (3,497)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,497)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,497)
<EPS-PRIMARY> (.19)
<EPS-DILUTED> (.19)
<FN>
<F1>P.P.& E. is presented net of accumulated depreciation.
</FN>
</TABLE>
