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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
March 31, 1999
|_| 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 April 19, 1999, there were 22,932,568 outstanding shares of Common Stock.
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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 Share and Per Share Amounts)
March 31, December 31,
1999 1998
-------- ------------
Assets:
Current assets:
Cash and cash equivalents $ 9,313 $ 4,158
Investment securities 477 --
Trade accounts receivable, net of allowance 4,668 5,182
Inventories (note 4) 3,072 2,610
Other current assets 370 361
-------- --------
Total current assets 17,900 12,311
Property and equipment, net 5,348 5,323
Goodwill and other intangible assets, net 3,852 4,110
Other assets 157 495
-------- --------
Total Assets $ 27,257 $ 22,239
======== ========
Liabilities and Shareholders'Equity:
Liabilities:
Current liabilities:
Accounts payable and accrued liabilities $ 4,756 $ 5,425
Deferred revenue (note 5) 1,258 1,278
Current portion of note payable 938 950
Current portion of capital lease obligations 75 122
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Total current liabilities 7,027 7,775
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Deferred revenue and other liabilities (note 5) 1,757 1,757
Notes payable, net of current portion 1,118 1,346
Capital lease obligations, net of current portion 65 93
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Total long-term liabilities 2,940 3,196
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Total liabilities 9,967 10,971
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Shareholders'Equity:
Preferred stock, $.001 par value
Authorized 5,000,000 shares; none issued -- --
Common stock, $.001 par value
Authorized 60,000,000 shares; issued and outstanding
22,932,568 and 19,110,825 shares, respectively 23 19
Additional paid-in capital 91,103 84,131
Accumulated other comprehensive loss (121) (92)
Accumulated deficit (73,715) (72,790)
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Total shareholders'equity 17,290 11,268
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Total Liabilities and Shareholders'Equity $ 27,257 $ 22,239
======== ========
See accompanying unaudited notes to consolidated financial statements.
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Item 1. Financial Statements (cont'd)
THE SPECTRANETICS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(In Thousands, Except Share and Per Share Amounts)
Three Months Ended March 31,
1999 1998
------------ ------------
Revenues $ 7,077 $ 6,553
Cost of revenue 2,981 3,093
------------ ------------
Gross margin 4,096 3,460
------------ ------------
Gross margin % 58% 53%
Operating Expenses:
Marketing and sales 2,491 2,427
General and administrative 1,296 1,103
Research and development 1,048 588
Amortization of intangibles 200 200
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Total operating expenses 5,035 4,318
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Operating Loss (939) (858)
Other Income (Expense):
Interest income 54 91
Interest expense (49) (35)
Other, net 9 8
------------ ------------
14 64
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Net Loss $ (925) $ (794)
Other Comprehensive Loss:
Foreign currency translation (29) (4)
------------ ------------
Comprehensive Loss $ (954) $ (798)
============ ============
Net Loss per Share -basic and diluted $ (0.04) $ (0.04)
============ ============
Weighted Average Common Shares
Outstanding -basic and diluted 20,566,667 18,761,033
============ ============
See accompanying unaudited notes to consolidated financial statements.
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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 Share and Per Share Amounts)
Three Months Ended
March 31,
1999 1998
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Cash flows from operating activities:
Net loss $ (925) $ (794)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 691 514
Net change in operating assets and liabilities (462) (209)
------- -------
Net cash used by operating activities (696) (489)
------- -------
Cash flows from investing activities:
Capital expenditures (266) (632)
(Increase) decrease in short-term investments (477) 773
------- -------
Net cash (used) provided by investing activities (743) 141
------- -------
Cash flows from financing activities:
Net proceeds from exercise of common stock options 52 232
Proceeds from private placement of common stock, net 6,856 --
Principal payments on obligations under
capital leases and note payable (288) (71)
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Net cash provided by financing activities 6,620 161
------- -------
Effect of exchange rate changes on cash (26) (12)
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Net increase (decrease) in cash and cash equivalents 5,155 (199)
Cash and cash equivalents at beginning of period 4,158 6,532
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Cash and cash equivalents at end of period $ 9,313 $ 6,333
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Supplemental disclosures of cash flow information --
Cash paid for interest $ 45 $ 35
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Supplemental disclosure of noncash investing
and financing activities:
Transfers from inventory to equipment held for
rental or loan $ 340 $ 157
======= =======
See accompanying unaudited notes to consolidated financial statements.
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Item 1. Notes to 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 Company calculates earnings (loss) per share under the provisions of
Statement of Financial Accounting Standards No. 128, Earnings per Share (SFAS
128). Under SFAS 128, basic loss per share is computed on the basis of
weighted-average common shares outstanding. Diluted loss per share considers
potential common stock instruments in the calculation, and is the same as basic
loss per share for the three months ended March 31, 1999 and 1998, as all
potential common stock instruments were anti-dilutive.
(3) Shareholders' Equity and Private Placement of Common Stock
In February 1999, the Company completed the private placement of 3,800,000
shares of its common stock and received cash proceeds, net of offering costs,
therefrom of $6,856,000.
(4) Inventories
Components of inventories are as follows (in thousands):
March 31, 1999 December 31, 1998
-------------- -----------------
Raw Materials $ 735 $ 693
Work in Process 936 575
Finished Goods 1,401 1,342
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$3,072 $2,610
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(5) Deferred Revenue
In 1997, the Company entered into a license agreement with United States
Surgical Corporation ("USSC"), whereby USSC paid a license fee in addition to
advance payment for products to be supplied by the Company. The payments
received were recorded as deferred revenue and are being amortized as product is
shipped under the agreement. During 1997, cash received under the agreement
totaled $6,339,000. Revenue recognized related to the agreement during the years
ended December 31, 1998 and 1997 totaled $3,067,000 and $1,244,000,
respectively. Of the remaining balance of $2,028,000, $271,000 has been recorded
as current and $1,757,000 as non-current on the balance sheet at March 31, 1999
and December 31, 1998.
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Item 1. Notes to Financial Statements (cont'd)
(5) Deferred Revenue (continued)
Other deferred revenue - current in the amounts of $987,000 and $1,007,000
at March 31, 1999 and December 31, 1998, respectively, relates to payments in
advance for various product maintenance contracts, whereby revenue is initially
deferred and amortized over the life of the contract, which is generally one
year.
(6) Segment and Geographic Reporting
An operating segment is a component of an enterprise whose operating
results are regularly reviewed by the enterprise's chief operating decision
maker to make decisions about resources to be allocated to the segment and
assess its performance. The primary performance measure used by management is
net earnings or loss. The Company operates in two distinct lines of business:
(1) medical business consisting of the development, manufacturing, marketing and
distribution of a proprietary excimer laser system for the treatment of certain
coronary and vascular conditions, and (2) industrial business consisting of the
development, manufacturing, marketing and distribution of drawn silica glass
products including capillary tubing and specialty fiber optics. The Company has
identified three reportable segments within these lines of business: (1) U.S.
Medical (2) Europe Medical and (3) Industrial. U.S. Medical and Europe Medical
offer similar products and services but operate in different geographic regions
and have different distribution networks. The Industrial segment is operated
entirely by the Company's wholly owned subsidiary, Polymicro. Additional
information regarding each reportable segment is shown below.
Certain elements within the segment reporting financial information at
December 31, 1998 have been reclassified to conform with the segment reporting
as presented at March 31, 1999.
U. S. Medical
Products offered by this reportable segment include an excimer laser unit
("equipment"), fiber-optic delivery devices ("disposables"), and the service of
the excimer laser unit ("service"). The Company is subject to product approvals
from the Food and Drug Administration ("FDA"). At March 31, 1999, FDA-approved
products are used in conjunction with coronary angioplasty as well as in the
removal of non-functioning pacing leads from pacemakers and cardiac
defibrillators. This segment's customers are primarily located in the United
States; however, the geographic area served by this segment also includes
Canada, Mexico, South America and the Pacific Rim.
U.S. Medical is also corporate headquarters for the Company. Accordingly,
research and development as well as corporate administrative functions are
performed within this reportable segment. As of March 31, 1999 and 1998, cost
allocations of these functions to other reportable segments have not been
performed, except for a $45,000 and $30,000 allocation to the Industrial segment
for general and administrative activities for three months ended March 31, 1999
and 1998, respectively.
Revenue associated with intersegment transfers to Europe Medical were
$418,000 and $457,000 for the three months ended March 31, 1999 and 1998,
respectively. Revenue is based upon transfer prices which provide for
intersegment profit that is eliminated upon consolidation. For each of the three
months ended March 31, 1999 and 1998, intersegment revenue and intercompany
profits are not included in the segment information in the table shown below.
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Item 1. Notes to Financial Statements (cont'd)
Europe Medical
The Europe Medical segment is a marketing and sales subsidiary serving all
of Europe as well as the Middle East. Products offered by this reportable
segment are identical to those of U.S. Medical and were distributed primarily
through third-party distributors for the three months ended March 31, 1998.
Beginning in January 1999, we established a direct sales force in Germany, which
accounts for the majority of the revenues within this segment. Europe has CE
mark approval for products that relate to three applications of excimer laser
technology - coronary angioplasty, lead removal, and peripheral angioplasty to
clear blockages in leg arteries.
Industrial
The Industrial segment operates in markets unrelated to the medical
segments, although it supplies certain fiber-optic components to the U.S.
Medical segments. Revenue associated with intersegment transfers, which are
transferred at cost, for the three months ended March 31, 1999 and 1998 totaled
$36,000 and $101,000, respectively. Intersegment transfers are not included in
the reportable segment information presented below.
Summary financial information relating to reportable segment operations is
as follows. Intersegment transfers as well as intercompany assets and
liabilities are excluded from the information provided (in thousands).
Three Months Ended March 31,
Revenue: 1999 1998
------ ------
U.S. Medical $3,436 $3,892
Europe Medical 634 511
Industrial 3,007 2,150
------ ------
Total revenues $7,077 $6,553
====== ======
Revenue within the industrial segment includes revenue from one customer
totaling $914,000, or 13% of total revenues, for the three months ended March
31, 1999. For the three months ended March 31, 1998, revenue from one customer
from the U.S. medical segment totaled $1,245,000, or 19% of total revenues.
Three Months Ended March 31,
Segment net earnings (loss): 1999 1998
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U.S. Medical $(1,130) $ (470)
Europe Medical (268) (584)
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Subtotal - Medical (1,398) (1,054)
Industrial 473 260
------- -------
Total net earnings (loss) $ (925) $ (794)
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Item 1. Notes to Financial Statements (cont'd)
March 31, December 31,
Segment assets: 1999 1998
------- -------
U.S. Medical $18,272 $12,926
Europe Medical 2,096 2,131
------- -------
Subtotal - Medical 20,368 15,057
Industrial 6,889 7,182
------- -------
Total assets $27,257 $22,239
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Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
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Corporate Overview
We develop, manufacture, service and distribute an excimer laser unit and
fiber optic delivery system for the treatment of certain coronary and vascular
conditions. Our wholly owned subsidiary, Polymicro Technologies, Inc.,
manufactures and distributes drawn silica glass products which include capillary
tubing and specialty fiber optics sold to a variety of companies in addition to
Spectranetics.
Our revenues are dependent on obtaining clinical data supporting regulatory
approvals and market acceptance. We sell the only excimer laser system that has
been market approved by the FDA in the United States for coronary applications.
Our laser system competes primarily against alternative technologies including
balloon catheters, cardiovascular stents and mechanical artherectomy devices.
Our strategy is to expand our installed base of excimer laser systems,
increase catheter utilization of existing customers, and develop additional
procedures for our excimer laser system. In 1997, we secured FDA approval to use
our excimer laser system for removal of pacemaker and defibrillator leads and
entered into a supply and license agreement with United States Surgical
Corporation for use of our system for TMLR, an experimental coronary procedure.
In 1999, we will initiate clinical trials evaluating the use of our excimer
laser system to treat restenosed stents and blockages in the legs. These trials
will take from one to three years to complete depending on the type and size of
the trial, patient enrollment, and our ability to fund these trials. To fund our
strategy, we intend to continue to accelerate investment in the development of
new products, clinical trials for additional applications, as well as additional
sales and marketing resources. This investment may result in operating losses
through 1999.
Results of Operations
In this section, we will discuss revenue and net income results for the
three months ended March 31, 1999 and 1998. We will begin with a general
overview, then discuss revenue and net income from our three operating units.
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Item 2. Management's Discussion and Analysis of Results of Operations And
Financial Condition (cont'd)
Financial Overview
Revenue per Operating Unit
Three Months Ended March 31,
1999 1998
------ ------
U.S. Medical $3,436 $3,892
Europe Medical 634 511
Industrial 3,007 2,150
------ ------
Total revenues $7,077 $6,553
====== ======
Net income (loss) per Operating Unit
Three Months Ended March 31,
Segment net earnings (loss): 1999 1998
------- -------
U.S. Medical $(1,130) $ (470)
Europe Medical (268) (584)
------- -------
Subtotal - Medical (1,398) (1,054)
Industrial 473 260
------- -------
Total net earnings (loss) $ (925) $ (794)
======= =======
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998
Revenue for the three months ended March 31, 1999 totaled $7,077,000, an
increase of $524,000, or 8%, over the three months ended March 31, 1998.
Increased revenue included a 41% increase in disposable sales, a 40% increase in
revenue from Polymicro, and a 43% increase in service revenue offset by a 75%
decrease in equipment revenue due to the lack of shipments to United States
Surgical Corporation, a division of Tyco International, Ltd. Revenue, excluding
equipment revenue from United States Surgical Corporation of $1,245,000 during
the three months ended March 31, 1998, increased 33% for the three months ended
March 31, 1999 as compared to the same period in 1998. We completed the
shipments of laser systems to United States Surgical Corporation in the third
quarter of 1998. As such, there were no sales to United States Surgical
Corporation during the three months ended March 31, 1999.
Increased disposable revenue, which consists of single-use catheter
products, resulted from an increase of 37% in sales of coronary angioplasty
catheters and a 36% increase in sales of lead removal devices over our 1998
levels. These increases were primarily a result of unit volume increases
combined with increased average selling prices across each product line in the
United States and Europe.
Polymicro revenues were up as a result of increased sales of precision
silica glass capillary tubing and assemblies into new capillary electrophoresis
applications such as DNA sequencing and increased sales to existing gas
chromatography customers.
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Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition (cont'd)
Gross margins increased to 58% during the three months ended March 31, 1999
as compared to 53% for the three months ended March 31, 1998. This improvement
was due to a combination of improved manufacturing efficiencies for both our
medical and industrial groups, price increases averaging 5% on our catheter
products effective in December 1998, and a higher proportion of disposable
revenue in relation to total revenue, which generates higher margins than
equipment, service or industrial products.
Operating expenses grew 17% during the three months ended March 31, 1999 to
$5,035,000 as compared to $4,318,000 for the three months ended March 31, 1998.
Marketing and sales expenses increased by 3% to $2,491,000 for the three months
ended March 31, 1999. This increase relates to investments made in the United
States for additional field personnel. This is offset by a decrease in Europe
due primarily to a decrease in clinical trial costs. In 1998, our Europe Medical
segment was funding certain clinical trials that were substantially completed
during 1998. Therefore, expenditures in this area during the three months ended
March 31, 1999 were minimal. General and administrative expense grew 17% to
$1,296,000 for the three months ended March 31, 1999. This increase is
attributable to increased personnel costs at the Industrial segment associated
with building the necessary infrastructure to support its increased revenue base
combined with increased legal fees within the medical segment. Research and
development expense increased by 78% to $1,048,000. Approximately 75% of the
increase was due to increased product development costs combined with clinical
trial costs associated with clearing blockages in the upper leg. The remaining
increase relates to similar costs for our industrial segment, Polymicro.
Interest income is down slightly due to lower yields and lower average cash
balances for the three months ended March 31, 1999 as compared to the same
period in 1998. Interest expense related primarily to interest charges on our
loan from Silicon Valley Bank.
Net loss for the three months ended March 31, 1999 increased by 16% to a
loss of $925,000 from a loss of $794,000 for the three months ended March 31,
1998. Net loss increased due to a 33% increase in the loss from the medical
division offset by an 82% increase in the net income of the industrial group,
Polymicro.
U.S. Medical
Revenue from our medical business in the United States decreased 12% to
$3,436,000 for the three months ended March 31, 1999 as compared to revenue of
$3,892,000 for the three months ended March 31, 1998. Excluding the equipment
revenue of $1,245,000 from United States Surgical Corporation during the three
months ended March 31, 1998, revenue increased 30% for the three months ended
March 31, 1999 as compared to the same period for 1998. Disposable revenue
increased 48%, led by a 51% increase in coronary angioplasty revenue and a 33%
increase in lead removal devices. Service revenue increased 46%.
Net loss from this unit increased 140% to a loss of $1,130,000 for the
three months ended March 31, 1999 as compared to a loss of $470,000 for the
three months ended March 31, 1998. The increased net loss was primarily due to
increased operating expenses led by higher research and development costs.
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Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition (cont'd)
Europe Medical
Revenue from our medical business in Europe increased 24% to $634,000 for
the three months ended March 31, 1999 as compared to revenue of $511,000 for the
three months ended March 31, 1998. This increase was generated from increased
sales of peripheral catheters and lead removal devices. In January 1999, a
direct sales organization began operations in Germany, which is the largest
market for our products in Europe. Prior to 1999, we used an exclusive
distributor to sell our products in Germany.
Net loss from European operations decreased by 54%. This decrease is
attributed to a 38% increase in gross margin and a 25% decrease in operating
expenses as a result of the completion of certain clinical trials in Europe in
1998.
The functional currency of Spectranetics International, B.V. is the Dutch
guilder. All revenue and expenses are translated to United States dollars in the
consolidated statements of operations using weighted average exchange rates
during the year. Fluctuation in Dutch guilder currency rates during the three
months ended March 31, 1999 as compared to the three months ended March 31, 1998
caused an increase in revenues and operating expenses of less than 1% of
consolidated revenues and operating expenses, respectively.
Industrial - Polymicro Technologies, Inc.
Polymicro revenue was up 40% to $3,007,000 for the three months ended March
31, 1999 as compared to revenue of $2,150,000 for the three months ended March
31, 1998, due to sales of precision silica glass capillary tubing and assemblies
into new capillary electrophoresis applications such as DNA sequencing and
increased sales to existing gas chromatography customers.
Net income from Polymicro increased by 82% to $473,000 for the three months
ended March 31, 1999 as compared to net income of $260,000 for the three months
ended March 31, 1998. This increase was due to a 45% increase in gross margin
amounts partially offset by a 45% increase in operating expenses.
We recently announced that we are contemplating strategic alternatives for
Polymicro, which could include the sale of Polymicro. We anticipate that we
would use any capital raised from such a transaction to accelerate developmental
programs for our core medical business. While we have had discussions with
several parties, we have not entered into any agreement to sell Polymicro. We
have not set a fixed time frame for a decision. We may decide not to sell
Polymicro or we may fail to obtain offers to purchase Polymicro at a price we
deem satisfactory.
Liquidity and Capital Resources
As of March 31, 1999, we had cash, cash equivalents and investment
securities of $9,790,000 compared to $4,158,000 at December 31, 1998. In
February 1999, Spectranetics completed the private placement of 3,800,000 shares
of its common stock and received cash proceeds, net of offering costs, therefrom
of $6,856,000.
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Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition (cont'd)
Cash used by operating activities totaled $696,000 for the three months
ended March 31, 1999, primarily due to uses of cash totaling $653,000 related to
increased inventories and $567,000 related to decreased accounts payable and
accrued liabilities. These uses of cash were offset by cash provided of $442,000
due to decreases in accounts receivable and $342,000 of decreases in other
assets. The table below describes the growth in receivables and inventory in
relative terms, through the calculation of financial ratios. Days sales
outstanding is calculated by dividing the ending accounts receivable balance by
the average daily sales for the quarter. Inventory turns is calculated by
dividing annualized cost of sales for the quarter by ending inventory.
----------------------------------------------------------------------
March 31, 1999 December 31, 1998
-------------- -----------------
Days Sales Outstanding 59 62
Inventory Turns 3.9 5.2
----------------------------------------------------------------------
Receivables considered to be overdue were not material as of March 31, 1999
or December 31, 1998. The decline in inventory turns is primarily due to
increased equipment inventory at March 31, 1999 as compared to December 31,
1998.
Capital expenditures were $266,000 for the three months ended March 31,
1999 as compared to $632,000 for three months ended March 31, 1998.
Net cash provided by financing activities was $6,620,000. This cash was
comprised of proceeds from the private stock placement which totaled $6,856,000,
net of issue costs and $52,000 from the sales of common stock associated with
stock option exercises, which were offset by $288,000 from principal payments on
debt and capital lease obligations.
During 1997, we secured a $2,000,000 credit line collateralized by
equipment (equipment line). The equipment line bears interest, which is accrued
monthly, at a rate equal to three-quarters of a percent above the prime rate
(interest rate of 8.5% at March 31, 1999), and matures on December 23, 2000. At
March 31, 1999, the equipment line had an outstanding balance of $1,400,000. As
of December 31, 1998, we were in breach of certain covenants under this
agreement, for which we obtained a waiver from the lender. As of March 31, 1999
we are in compliance with the debt covenants and we expect to remain compliant
with these covenants for the remainder of 1999.
During 1998, we entered into a $330,000 loan agreement collateralized by
equipment held for rental or loan owned by Spectranetics International, B.V. The
loan bears interest at 6.51% per annum and matures in December 2003. At March
31, 1999, the loan had an outstanding balance of $290,000.
At March 31, 1999 and December 31, 1998, we placed a number of systems on
rental, loan and fee per procedure programs. A total of $2,542,000 and
$2,350,000 were recorded as equipment held for rental or loan as of March 31,
1999 and December 31, 1998, respectively, and are being depreciated over three
to five years. This equipment was transferred from inventory at cost. We will
continue to offer these programs as we execute our strategy of increasing our
installed base of laser systems in major cardiac centers.
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Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition (cont'd)
We currently use three placement programs:
(1) Rental programs - Straight rental program with terms varying from 6
months to 3 years. Rental revenues in the amount of $3,000 to $5,000
are invoiced on a monthly basis and revenue is recognized upon
invoicing. Catheter revenues are recognized when shipped and invoiced.
The lasers are transferred from inventory to the equipment held for
rental or loan account upon shipment of the laser to the customer. The
laser is then depreciated over three to five years, depending on the
type of laser. Depreciation on these lasers is included in cost of
revenues. At the end of the rental term, if the customer elects to
purchase the unit, revenue is recognized upon invoicing the customer
after receiving a valid purchase order. Cost of sales equal to the net
book value of the system is also recorded at this time.
(2) Loan programs - We "loan" a laser system to an institution for use
over a short period of time, usually three to six months. The loan of
the equipment is to create awareness of the product and no revenue is
earned or recognized in connection with the placement of this laser.
The units are transferred to the equipment held for rental or loan
account upon shipment of the laser system. The laser systems are
depreciated over a three to five year period which is expensed to cost
of revenue.
(3) Fee for procedure - This program is similar to the rental program
except that revenues are derived from a premium attached to the sale
of each single use laser catheter. Revenue equal to the premium
charged above list price for each catheter sold is recognized as
rental revenues. This rental income is immaterial to the financial
statements, representing less than 1% of consolidated revenue. All
other accounting treatment is consistent with that noted above in the
"rental programs".
We believe our liquidity and capitalization as of March 31, 1999 is
sufficient to meet our operating and capital requirements through December 31,
2000. Revenue increases from current levels may be necessary to sustain us over
the long-term.
Year 2000
The year 2000 ("Y2K") issue arose because many computer programs existing
today utilize only two characters to recognize a year. Therefore, when the year
2000 arrives, these programs may not properly recognize a year beginning with
"20" instead of "19". The Y2K issue may result in the improper processing of
dates and date-sensitive calculations by computers and other
microprocessor-controlled equipment as the year 2000 is approached and reached.
State of Readiness
We have divided our Y2K exposure into three major areas:
o internal systems;
o products; and
o potential Y2K problems associated with outside vendors.
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Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition (cont'd)
Because we believe that our primary Y2K issues could arise in the area of
internal systems, we have focused on this area and have almost completed this
phase of our Y2K project. New computer systems, which are designed to be Y2K
compliant, were installed and implemented during the first half of 1998 at our
facilities in Colorado Springs, Colorado and Phoenix, Arizona. We are currently
evaluating our computer systems at our European subsidiary, Spectranetics
International B.V., for Y2K compliance. These computer systems are the
foundation for our business operations and include, but are not limited to,
business functions such as order entry, shipping, purchasing, inventory control,
manufacturing, accounts receivable, accounts payable, and general ledger. We are
also in the process of reviewing other equipment that contains date-sensitive
information. We have implemented a Y2K compliant phone system at our
headquarters and are reviewing other equipment for potential Y2K issues. We
expect to complete our review of internal systems by June 30, 1999 and do not
expect a material adverse effect on our operations as a result of this review.
We have reviewed our products and determined that there are no
date-sensitive fields contained in any of the software within our products;
therefore, we do not believe that our products will be affected by Y2K issues.
We are in the process of identifying any risks associated with the Y2K
problem as it relates to outside vendors with systems that interface with our
systems. We expect to complete this review by June 30, 1999. Based on a
preliminary review of the Y2K impact associated with outside vendors, we do not
expect this issue to have a material adverse effect on our operations. However,
since third party year 2000 compliance is not within our control, we cannot
assure that Y2K issues affecting the systems of other companies on which our
systems rely will not have a material adverse effect on our operations.
Costs to Address the Y2K Issue
Costs to address the Y2K issue include hardware, software, and
implementation costs paid to outside consultants associated primarily with the
implementation of a new computer system. These costs were directly related to
the purchase and implementation of the new computer system, not for the
remediation of current systems to make them y2k compliant. For the three months
ended March 31, 1999 no costs of this type had been incurred. These costs
totaled $999,000 for the twelve months ended December 31, 1998 and were
capitalized and will be depreciated over a three to five year period. The costs
were financed primarily through financing activities, which include capital
leases and a draw on our line of credit. Depreciation costs for the three months
ended March 31, 1999 and 1998 totaled $64,000 and $16,000, respectively.
Interest costs associated with the capital leases used to finance hardware and
software totaled $3,000 and $4,000, respectively, for the three months ended
March 31, 1999 and 1998. We do not expect to incur material future costs
associated with the Y2K issue as it relates to internal systems. No other
expenses, which include non-capitalized equipment and consulting costs, were
incurred for the three months ended March 31, 1999 and 1998.
Risks Presented By The Year 2000 Issue
To date, we have not identified any Y2K issues that we believe could
materially adversely affect us or for which a suitable solution cannot be
implemented. However, as the review of our internal systems and interfaces with
outside vendors progresses, it is possible that Y2K issues may be identified
that could result in a material adverse effect on our operations. For more
information, see "Risk Factors - Year 2000 Issues Could Hurt Our Business."
Page 14
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition (cont'd)
Contingency Plans
Although we have not prepared a formal contingency plan to date, we intend
to continue to assess our Y2K risks and develop contingency plans as
appropriate.
Risk Factors
We Have Continued to Suffer Losses. We have incurred net losses since our
inception in June 1984. At March 31, 1999, we had accumulated $73.7 million in
net losses since inception. We anticipate that our net losses will continue in
the foreseeable future. We may be unable to increase sales or achieve
profitability.
Limited Cash on Hand, Additional Financing May Be Needed and We May Not Be
Able to Obtain It. We believe that our existing cash, cash from operations and
the proceeds from our private placement to the selling stockholders should be
sufficient to support our plans through at least December 31, 2000. However, we
may need to raise additional cash prior to that time. We may be unable to obtain
additional financing, if needed, on satisfactory terms or at all. If financing
is not available on acceptable terms, we may be unable to make capital
expenditures, compete effectively or withstand the effects of adverse market and
economic conditions. Cash flow from operating activities may not be sufficient
to sustain our long-term operations unless we are able to increase sales and
control expenses. If we finance future operations through additional issuances
of equity securities, you may suffer dilution and the price of the common stock
may fall.
Our Small Sales and Marketing Team May be Unable to Compete with our Larger
Competitors or Reach All Potential Customers. Many of our competitors have
larger sales and marketing operations than ours. This allows those competitors
to spend more time with customers, which gives them a significant advantage over
our team in making sales.
Our European Operations Have Not Been Successful and Our Recently
Established Direct Sales Force in Europe May Not Be Successful. In January 1999,
we established a direct sales force for our principal European markets. We may
be unable to develop an effective European sales force, and our sales and
marketing efforts in Europe could be unsuccessful.
We Are Exposed to the Problems that Come from Having International
Operations. For the three months ended March 31, 1999, our revenues from
international operations represented 9% of consolidated revenues. Changes in
overseas economic conditions, currency exchange rates, foreign tax laws or
tariffs or other trade regulations could adversely affect our ability to market
our products in these and other countries. As we expand our international
operations, we expect our sales and expenses denominated in foreign currencies
to expand.
Our Products are Still New and May Not Be Accepted in Their Markets.
Excimer laser technology is a relatively new procedure that competes with more
established therapies for restoring circulation to clogged or obstructed
arteries. Market acceptance of the excimer laser system depends on our ability
to provide adequate clinical and economic data that shows the clinical efficacy
of and patient need for excimer laser angioplasty and lead removal.
Page 15
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition (cont'd)
We May Be Unable to Compete Successfully in our Highly Competitive Industry
in Which Many Other Competitors are Bigger Companies. Our primary competitors
are manufacturers of products used in competing therapies, such as:
o balloon angioplasty, which uses a balloon to push obstructions out of the
way;
o stent implantation;
o open chest bypass surgery; and
o atherectomy, a mechanical method for removing arterial blockages.
We also compete with companies that develop lead extraction devices or
removal methods, such as mechanical sheaths. Almost all of our competitors have
substantially greater financial, manufacturing, marketing and technical
resources than we do. We expect competition to intensify.
We believe that the primary competitive factors in the interventional
cardiovascular market are:
o the ability to treat a variety of lesions safely and effectively;
o the impact of managed care practices and procedure costs;
o ease of use;
o size and effectiveness of sales forces; and
o research and development capabilities.
SCIMED Life Systems, Inc. (a subsidiary of Boston Scientific Corporation),
Cordis Corporation (a subsidiary of Johnson & Johnson Interventional Systems),
Advanced Cardiovascular Systems, Inc. (a subsidiary of Guidant Corporation), and
Bard and Schneider (a subsidiary of Pfizer Inc.) are the leading balloon
angioplasty manufacturers. SCIMED, Cordis, Advanced Cardiovascular Systems and
Medtronic, Inc. are the leading stent providers in the United States.
Manufacturers of atherectomy devices include Devices for Vascular Intervention,
Inc. (a subsidiary of Guidant Corporation) and Heart Technology, Inc. (a
subsidiary of Boston Scientific Corporation).
Failure of Third Parties to Reimburse Medical Providers for our Products
May Reduce Our Sales. We sell our CVX-300 laser unit primarily to hospitals,
which then bill third-party payors such as government programs and private
insurance plans, for the services the hospitals provide using the CVX-300 laser
unit. Unlike balloon angioplasty and atherectomy, laser angioplasty requires the
purchase of expensive capital equipment. In some circumstances, the amount
reimbursed to hospitals for procedures involving our products may not be
adequate to cover a hospital's costs. We do not believe that reimbursement has
materially adversely affected our business to date, but continued cost
containment measures could hurt our business in the future.
In addition, the FDA has required that the label for the CVX-300 laser unit
state that adjunctive balloon angioplasty was performed together with laser
angioplasty in most of the procedures we submitted to the FDA for pre-market
approval. Adjunctive balloon angioplasty requires the purchase of a balloon
catheter in addition to the laser catheter. While all approved procedures using
the excimer laser system are reimbursable, some third-party payors attempt to
deny reimbursement for procedures they believe are duplicative, such as
adjunctive balloon angioplasty performed together with laser angioplasty.
Third-party payors may also attempt to 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. Hospitals that have experienced
reimbursement
Page 16
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition (cont'd)
problems or expect to experience reimbursement problems may not purchase our
excimer laser systems in the future.
Regulatory Compliance is Very Expensive and Can Often Be Denied or
Significantly Delayed. The industry in which we compete is subject to extensive
regulation by the FDA and comparable state and foreign agencies. Complying with
these regulations is costly and time consuming. International regulatory
approval processes may take longer than the FDA approval process. If we fail to
comply with applicable regulatory requirements, we may be subject to, among
other things, fines, suspensions of approvals, seizures or recalls of products,
operating restrictions and criminal prosecutions. We may be unable to obtain
future regulatory approval in a timely manner or at all if existing regulations
are changed or new regulations are adopted. For example, the FDA approval
process for the use of excimer laser technology in clearing blocked arteries in
the lower leg has taken longer than we anticipated, due to requests for
additional clinical data and changes in regulatory requirements.
Failures in Clinical Trials May Hurt Our Business and Our Stock Price. All
of Spectranetics' potential products are subject to extensive regulation and
will require approval from the Food and Drug Administration and other regulatory
agencies prior to commercial sale. The results from pre-clinical testing and
early clinical trials may not be predictive of results obtained in large
clinical trials. Companies in the medical device industry have suffered
significant setbacks in various stages of clinical trials, even in advanced
clinical trials after promising results had been obtained in earlier trials.
The development of safe and effective products is highly uncertain and
subject to numerous risks. The product development process may take several
years, depending on the type, complexity, novelty and intended use of the
product. Product candidates that may appear to be promising in development may
not reach the market for a number of reasons. Product candidates may:
o be found ineffective;
o take longer to progress through clinical trials than had been anticipated;
or
o require additional clinical data and testing.
In particular, our Prima(R) laser guidewire, which allows excimer laser
energy to assist in crossing totally blocked arteries, has not been as effective
as we expected. Also, during the course of review of the Prima guidewire by the
FDA, alternative technologies have surfaced which may limit market acceptance of
the Prima guidewire. We cannot guarantee that the clinical trials relating to
any of our products will be successful.
We Have Important Sole Source Suppliers and May Be Unable to Replace Them
if They Stop Supplying Us. We purchase certain components of our CVX-300 laser
unit from several sole source suppliers. We do not have guaranteed commitments
from these suppliers and order products through purchase orders placed with
these suppliers from time to time. While we believe that we could obtain
replacement components from alternative suppliers, we may be unable to do so.
Potential Product Liability Claims and Insufficient Insurance Coverage May
Hurt Our Business and Stock Price. We are subject to risk of product liability
claims. We maintain product liability insurance with coverage and aggregate
maximum amounts of $5 million. The coverage limits of our insurance policies may
be inadequate, and insurance coverage with acceptable terms could be unavailable
in the future.
Technological Change May Result in Our Products Being Obsolete. We derive
approximately two-thirds of our revenues from the sale or lease of the CVX-300
laser unit and the sale of disposable
Page 17
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition (cont'd)
devices. Technological progress or new developments in our industry could
adversely affect sales of our products. Many companies, some of which have
substantially greater resources than we do, are engaged in research and
development for the treatment and prevention of coronary artery disease. These
include pharmaceutical approaches as well as development of new or improved
angioplasty, atherectomy or other devices. Our products could be rendered
obsolete as a result of future innovations in the treatment of vascular disease.
Our Patents and Proprietary Rights May be Proved Invalid so Competitors Can
Copy Our Products; We May Infringe Other Companies' Rights. We hold patents and
licenses to use patented technology, and have patent applications pending. Any
patents for which we have applied may not be granted. In addition, our patents
may not be sufficiently broad to protect our technology or to give us any
competitive advantage. Our patents could be challenged as invalid or
circumvented by competitors. In addition, the laws of certain foreign countries
do not protect our intellectual property rights to the same extent as do the
laws of the United States. We do not have patents in many foreign countries. We
could be adversely affected if any of our licensors terminate our licenses to
use patented technology.
We are aware of patents and patent applications owned by others relating to
laser and fiber-optic technologies, which, if determined to be valid and
enforceable, may be infringed by Spectranetics. Holders of certain patents,
including holders of patents involving the use of lasers in the body, have
contacted us and requested that we enter into license agreements for the
underlying technology. We cannot guarantee you that a patent holder will not
file a lawsuit against us and may prevail. If we decide that we need to license
this technology, we may be unable to obtain these licenses on favorable terms or
at all. We may not be able to develop or otherwise obtain alternative
technology.
Litigation concerning patents and proprietary rights is time-consuming,
expensive, unpredictable and could divert the efforts of our management. An
adverse ruling could subject us to significant liability, require us to seek
licenses and restrict our ability to manufacture and sell our products.
Protections Against Unsolicited Takeovers in Our Rights Plan, Charter and
Bylaws May Reduce or Eliminate our Stockholders' Ability to Resell Their Shares
at a Premium Over Market Price. We have a stockholder rights plan that may
prevent an unsolicited change of control of Spectranetics. The rights plan may
adversely affect the market price of our common stock or the ability of
stockholders to participate in a transaction in which they might otherwise
receive a premium for their shares. Under the rights plan, rights to purchase
preferred stock in certain circumstances have been issued to holders of
outstanding shares of common stock, and rights will be issued in the future for
any newly issued common stock. Holders of the preferred stock are entitled to
certain dividend, voting and liquidation rights that could make it more
difficult for a third party to acquire Spectranetics.
Our charter and bylaws contain provisions relating to issuance of preferred
stock, special meetings of stockholders and amendments of the bylaws that could
have the effect of delaying, deferring or preventing an unsolicited change in
the control of Spectranetics. Our Board of Directors are elected for staggered
three-year terms, which prevents stockholders from electing all directors at
each annual meeting and may have the effect of delaying or deferring a change in
control.
Potential Volatility of Stock Price. The market price of our common stock,
similar to other health care companies, has been, and is likely to continue to
be, highly volatile. The following factors may significantly affect the market
price of our common stock:
o fluctuations in operating results;
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<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition (cont'd)
o announcements of technological innovations or new products by
Spectranetics or our competitors;
o governmental regulation;
o developments with respect to patents or proprietary rights;
o public concern regarding the safety of products developed by
Spectranetics or others;
o general market conditions; and
o financing future operations through additional issuances of equity
securities, which may result in dilution to existing stockholders and
falling stock prices.
Year 2000 Issues Could Hurt Our Business. We installed and implemented new
computer systems at our Colorado and Arizona facilities in the first half of
1998. Although our new software is designed to be year 2000 compliant, we cannot
assure that this software contains all necessary data code changes. We are
currently evaluating our other computer systems for year 2000 compliance.
Although we expect all of our critical systems to be year 2000 compliant by June
30, 1999, there is a risk that some or all of our systems will not be year 2000
compliant by 2000.
Upon review of our product offerings, we have determined that the software
within our products does not contain date-sensitive fields. As a result, we do
not believe that our products will be affected by year 2000 issues. We cannot
assure, however, that all of our products are year 2000 compliant.
We are in the process of obtaining information from outside vendors
regarding systems that interface with our systems. Based on currently available
information, we do not believe that year 2000 issues relating to these systems
will adversely affect our business. However, since third party year 2000
compliance is not within our control, we cannot assure that any year 2000 issues
affecting our outside vendors will not adversely affect our business.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our primary market risks include changes in foreign currency exchange rates
and interest rates. Market risk is the potential loss arising from adverse
changes in market rates and prices, such as foreign currency exchange and
interest rates. We do not use financial instruments to any degree to manage
these risks. We do not use financial instruments to manage changes in commodity
prices and do not hold or issue financial instruments for trading purposes. Our
debt consists of obligations with a fixed interest rate ranging from 5.75% to
6.51% as well as an obligation with a variable interest rate equal to the prime
rate plus three-quarters of a percent. An increase or decrease in the prime rate
of 1% would cause interest expense to increase or decrease by approximately
$16,000 over a twelve month period.
Part II.---OTHER INFORMATION
- --------------------------------------------------------------------------------
Item 1. Legal Proceedings
In 1993, we entered into a license agreement with Pillco Limited
Partnership granting us a license regarding certain patents. In 1996, Pillco
Limited Partnership transferred all of its right, title and interest in the
patents and license agreement to Interlase LP. In July 1998, we were served a
Garnishment Summons instructing us to make royalty payments due under the
license to the ex-wife of one of the named inventors of the licensed patents,
who is also a partner of Interlase LP. The Garnishment Summons was issued by a
state court in Virginia where this divorce proceeding was pending. In September
1998, Interlase LP purported to assign all of its right, title and interest in
the patents to White Star Holdings, Ltd.
Page 19
<PAGE>
Item 1. Legal Proceedings (cont'd)
("White Star"), an offshore company. White Star subsequently demanded payment of
the royalties. In light of the competing demands from White Star and a Receiver
appointed by the Virginia court to collect the assets of Interlase LP, we
notified White Star and the Receiver that the funds would be deposited into a
segregated, interest-bearing account until we could determine the rightful owner
of the royalty payments. In October 1998, White Star filed suit against us in
the U.S. District Court for the District of Colorado, alleging that we breached
the license agreement by failing to remit the royalty payments. We responded to
White Star's claim by following well-established procedure and requesting that
the court determine which of White Star and the Interlase LP Receiver is
entitled to receive the royalty payments. We also requested and were granted
permission to deposit all of the disputed royalties into the registry of the
Court. In January 1999, White Star issued a notice to us purporting to terminate
the license agreement. White Star proceeded to distribute a press release
describing the purported termination of the license agreement. In January 1999,
we sought and were granted a temporary restraining order restraining White Star
and its agents from taking any further steps to terminate the license agreement,
from issuing further press releases concerning the litigation or the status of
the license agreement, and from contacting any of our customers regarding such
matters. In March 1999, a preliminary injunction was issued by the U.S. District
Court of Colorado restraining White Star from all actions described in the
temporary restraining order.
We believe that White Star's claims are baseless and will vigorously defend
against their allegations. We have also filed a motion with the U.S. District
Court of Colorado to assert additional claims against White Star.
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 10.19 - Employment contract between the Spectranetics
Corporation and Henk Kos dated January 1, 1997.
Exhibit 10.20 - Form of the Stock Purchase Agreement, dated as of
December 22, 1998 by and between The Spectranetics Corporation and the
stockholders named in Spectranetics' Registration Statement on Form
S-3 filed on December 29, 1998, as subsequently amended. (file no.
333-69829)
Exhibit 27.1 - Financial Data Schedule for 1999 First Quarter Form
10-Q.
(b) Reports on Form 8-K Spectranetics Announced Financial Results for
Fiscal 1998
Filed on February 2, 1999
Spectranetics Announced that It Was Considering Strategic Alternatives
for Polymicro Technologies, Inc.
Filed on February 23, 1999
Page 20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The Spectranetics Corporation
(Registrant)
May 5, 1999 By: /s/ James P. McCluskey
---------------------------------
James P. McCluskey
Vice President, Finance
Secretary/Treasurer and
Principal Financial Officer
Page 21
<PAGE>
THE SPECTRANETICS CORPORATION
Form 10-Q for the Period Ended March 31, 1999
EXHIBIT INDEX
Exhibit
Number Description
- --------------------------------------------------------------------------------
10.19 Employment contract between the Spectranetics Corporation and Henk Kos
dated January 1, 1997.
10.20 Form of the Stock Purchase Agreement, dated as of December 22, 1998 by
and between The Spectranetics Corporation and the stockholders named
in Spectranetics' Registration Statement on Form S-3 filed on December
29, 1998, as subsequently amended. (file no. 333-69829)
27.1 Financial Data Schedule for 1999 First Quarter Form 10-Q.
Page 22
Spectranetics
EMPLOYMENT AGREEMENT
The undersigned:
1. THE SPECTRANETICS CORPORATION,
represented by James P. McCluskey,
hereafter referred to as "The Company";
and
2. Hendricus Kos, hereafter referred to as "the Employee";
WHEREAS
The general meeting of shareholders of Spectranetics International B.V. has
appointed the Employee at its meeting of January 8, 1993 as Managing Director
("statutair directeur") of Spectranetics International B.V.
Employee has now accepted the position of Vice President, Sales & Marketing of
the Company as per January 1, 1997, as of which date the hereinafter contained
conditions will apply.
The actual performance of his duties in this respect in the Netherlands will be
minor in relation to his duties as Vice President, Sales & Marketing of the
Company worldwide.
The Parties acknowledge that the position for which the Employee has been
offered and for which the employee has accepted is high within management and
involves worldwide sales of the Company's products. The Parties further
acknowledge that Employee will be privy to the most sensitive of the Company's
information, including, without limitation, trade secrets, lists of customer
identities, list of potential customers, technical information and
specifications,
<PAGE>
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Speccorp.agr. 5/21/97
marketing materials, marketing plans, promotional strategies, research and
development materials and plans, as well as all other marketing and technical
strategies. The Parties acknowledge that this information is highly sensitive
and valuable to the Company and involves the underpinnings of the Company's
global business. Accordingly, the Parties intend and expect that this Agreement
protect the confidentiality of such information and prevent the use of such
information in competition with the Company's business.
NOW HEREBY AGREE AS FOLLOWS:
Article 1 Employment
1.1 Subject to the terms and conditions of this agreement, the Employee hereby
undertakes to act as Vice President, Sales & Marketing, in the employ of
the Company, and the Company hereby so employs the Employee.
1.2 The function of the Employee is set out in his job description per
attached.
1.3 The Company is entitled to change and/or adapt the function of the Employee
in case this reasonably will be required by the Company.
1.4 The Employee will report to the C.E.O. and President of the Spectranetics
Corporation.
Article 2 Term
2.1 This Agreement shall be effective when executed by both parties, subject to
the conditions set forth herein, and the term and conditions of this
Agreement shall be as set forth herein.
2.2 Employee and the Company agree that employee shall be employed at will and
may be terminated with or without cause at any time. However, the parties
agree that they shall give notice of their intent to terminate this
Agreement six months prior to termination beginning on the last day of the
month in which notice is given.
Article 3 Obligations of the Employee
3.1 In addition to any other obligations imposed by Colorado Common Law,
employee's job description, and as may be imposed upon the employee by
instructions from the company, the employee shall have the following
obligations. Except for the performance of his duties as Managing Director
of Spectranetics International B.V. in the Netherlands, the Employee shall
devote his working time and his best efforts to the Company and its
business and he shall not be engaged or financially interested, in any
manner, in any other employment or business during the term of this
agreement.
3.2 The Employee shall also at all times observe the best interests of the
Company and all subsidiaries/group companies (all the aforementioned
companies hereinafter to be called the "Group Companies").
<PAGE>
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Speccorp.agr. 5/21/97
3.3 The Employee shall duly observe the directives given by the C.E.O. and
President of the Spectranetics Corporation concerning the general course of
the Company's financial, social and economic policy and its personnel
management.
Article 4 Remuneration
4.1 The Employee shall receive a fixed gross salary of USD 11.800,-- per month,
(including vacation allowance) payable bi-weekly in the gross amount of
$5,446.15.
4.2 The Employee is entitled to receive annual incentive compensation when
those plans exist and in accordance with the annual incentive compensation
plan program in place at that time. It is understood that these plans may
change from time to time. The incentive program for 1997 is described in
annex 1.
4.3 The Employee is entitled to stock options as described in the stock option
plan, annex 2 to the extent and under the terms and conditions set forth in
such stock option plan.
4.4 The Employee is entitled to participate in the Employee Stock Purchase Plan
of The Spectranetics Corporation to the extent and under the terms and
conditions set forth in such Employee Stock Purchase Plan. It should be
noted that as an officer of the corporation the Employee will be subject to
additional restrictions for participation in said plan.
Article 5 Pension
The Employee will stay entitled to participate in the pension plan of
Spectranetics International B.V. to the extent and under the terms and
conditions set forth in such pension plan.
Article 6 Car and Other Reimbursements
The Company will provide a monthly auto allowance in the amount of $750.00 month
to cover the purchase or lease of a vehicle, registration fees, licenses,
maintenance, insurance and applicable income taxes. In addition, for business
use of the vehicle, reimbursement will be provided in the amount of $.09/mile to
cover oil, gas and tires. The Company shall reimburse the Employee's telephone
expenses.
Article 7 Vacation
The Employee shall conform to the current U.S. vacation policy of 20 days of
vacation per annum under this contract, the contract between the Employee and
Spectranetics International B.V. included, such vacation to be taken in
consultation with the Company. The Employee is not allowed to take vacation for
a period longer than three (3) weeks in sequence.
<PAGE>
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Speccorp.agr., 5/21/97
Article 8 Health-insurance
The Employee shall be entitled to participate in the health insurance plan of
Spectranetics International B.V. to the extent permitted and on the terms and
conditions set forth in such health insurance plan.
Article 9 Illness
9.1 During illness or other inability for work of the Employee, the Company
will supplement the social benefits of the Employee up to 100% (one hundred
percent) of his after tax normal monthly check during a period of one (1)
year. In case the inability for work is interrupted for a period of less
than 30 days, the inability for work is deemed not to have been interrupted
in view of the aforementioned period of one year.
9.2 The Company will provide disability insurance for the Employee after the
period of one year as described in the disability plan of Spectranetics
International B.V.
Article 10 Company Property
Upon termination of this agreement for any reason whatsoever, the Employee shall
immediately deliver to the Company all correspondence, papers, documents,
including without limitation customer lists, and other property belonging to the
Company and all subsidiaries/group companies of the latter both in the
Netherlands and abroad, which may be in his possession or under his control or
which refer to or discuss the company's business.
Article 11 Confidentiality
11.1 The Employee will not provide anyone with confidential business
information, neither during employment nor after termination of employment.
The Employee agrees at all times during the term his employment and
thereafter to hold in strictest confidence, and not to use, except for the
benefit of the Company, or to disclose to any person, firm or corporation,
without the written authorization of the Board of Directors of the Company
("Board"), any proprietary information of the Company. Employee agrees to
obtain the Board's written approval before publishing or submitting for
publication any material (written, verbal or otherwise) that relates to any
work at the Company and/or incorporates any proprietary information.
Employee hereby recognizes that all Proprietary Information will be the
sole property of the Company and its assigns.
11.2 The Employee is forbidden to have, or to show to others, books,
correspondence, drawings, calculations and other documents as well as
copies or notes of the above mentioned ("Proprietary Information"). The
term "Proprietary Information" shall mean any and all confidential and/or
proprietary knowledge, data or information of the Company. By way of
illustration but not limitation. "Proprietary Information" includes a)
trade secrets, inventions, mask works, ideas, processes, formulas, source
and object codes, data, programs, other works of authorship, know-how,
improvements, discoveries, development, designs and techniques (hereinafter
collectively referred to as "Inventions"); and b)
<PAGE>
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Speccorp.agr., 5/21/97
information regarding plans for research, development, new products,
marketing and selling, business plans, budgets and unpublished financial
statements, licenses, prices and costs, suppliers and customers; and c)
information regarding the skills and compensation of other employees of the
company. Notwithstanding the foregoing, it is understood that "Proprietary
Information" does not include and at all such times, Employee is free to
use information which is generally known to the public or in the trade or
industry, is known to Employee at the time of its first disclosure to
Employee by the Company or becomes known to Employee lawfully from a third
party without any restriction on disclosure, and his own, skill, knowledge,
know-how and experience to whatever extent and in whichever way Employee
may wish.
11.3 All these correspondence, notes, drawings, calculations, etc. must be given
to the Company at the end of employment, even if they are/were addressed to
the Employee.
11.4 The Employee is obliged not to use any information about personnel other
than for the purpose of registration or for the purpose of his job. The
Employee is also obliged not to inform unauthorized persons about
personnel.
11.5 The Employee recognizes that the Company imposes the Employee secrecy of
all particulars regarding the Company and its organization. The Employee is
forbidden to provide any kind of information regarding the Company and its
organization to others.
11.6 The Employee agrees and recognizes that the Company has received and in the
future will receive Proprietary Information from third parties subject to a
duty on the Company's part to maintain the confidentiality of such
information and, in some cases, to use it only for certain limited
purposes. Employee agrees that he owes the Company and such third parties,
both during the term of employment and thereafter, a duty to hold all such
Proprietary Information in the strictest confidence and not to, except as
is consistent with the Company's agreement with the third party, disclose
it to any person, firm or corporation or use it for the benefit of anyone
other than the Company or such third party, unless expressly authorized to
act otherwise by an officer of the Company.
11.7 The Employee agrees that he will not, during his employment with the
Company, in breach of any agreement or unlawfully use or disclose any
confidential information or trade secrets of his former or concurrent
employers or companies, if any, and that he will not bring on to the
premises of the Company any unpublished documents or any property belonging
to his former or concurrent employers or companies unless previously and
specifically consented to in writing by the particular employer or company.
Article 12 Non-Competition
12.1 Employee agrees that during the period of his employment by the Company he
will not, without the company's express written consent, engage or prepare
to engage in any activity in competition with the Company or accept
employment, provide services to, or establish a business relationship with
a business or individual engaged in or preparing to engage in
<PAGE>
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Speccorp.agr. 5/21/97
competition with the Company. For the period of Employee's employment by
the Company and for one (1) year after the date of his separation from the
Company he will not (a) induce any employee, officer, director, consultant
or independent contractor of the Company to leave the service of the
Company or (b) solicit the business of any client or customer of the
Company (other than on behalf of the Company). If any restriction set forth
in this Section is found by any court of competent jurisdiction to be
unenforceable because it extends for too long a period of time or over too
great a range of activities or in too broad a geographic area, it shall be
interpreted to extend only over the maximum period of time, range of
activities or geographic area as to which it may be enforceable.
12.2 Customers referred to in Article 12.1 are all business relations to whom
the Company has sold and/or delivered any products during a period of 12
months previous to the termination of this agreement, as well as any
prospects at the date of termination of this agreement.
12.3 Company's business and Company's customers are located worldwide. In
addition, as Vice President, Sales and Marketing for The Spectranetics
Corporation, employee will perform his services through the United States.
Therefore, the parties agree that this non-competition provision is
reasonable in geographic scope with respect to all customers outside the
United States and with respect to employee's participation in equal or
similar companies with business interests within the United States.
12.4 When the Employee leaves the employ of the Company, he agrees to deliver to
the Company (and will not keep in his possession, recreate or deliver to
anyone else) any and all devices, records, data, notes, reports, proposals,
lists, correspondence, specifications, drawings, blueprints, sketches,
materials, equipment, other documents or property, together with all copies
thereof (in whatever medium recorded) belonging to the Company, its
successors or assigns whether kept at the Company, home or elsewhere.
Employee further agrees that any property situated on the Company's
premises and owned by the Company, including disks and other storage media,
filing cabinets or other work areas, is subject to inspection by Company
personnel at any time with our without notice. Prior to leaving, Employee
agrees to cooperate with the Company in completing and signing the
Company's termination statement for technical and management personnel
confirming the above and his obligations under this Agreement.
Article 13 Rights Upon Termination
13.1 In case of termination of this agreement by the company, without cause or
due to company re-organization (merger, acquisition, internal
restructuring, etc.), the Company will provide one year's severance from
the date notice is given under Article 2.2 and will pay to return the
employee to the Netherlands. Severance will include base salary, benefits,
allowances and reimbursements, in whatever form. Employee acknowledges that
during this one year period, he is bound by the non-competition provision
in Article 12 herein in the same manner as he would be bound if he were
still employed. It should be understood that application of this Article
supersedes the compensation outlined in Article 2.2.
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Speccorp.agr., 5/21/97
13.2 Should the Employee be terminated, the Employee, shall be entitled to
exercise to the full extent permitted pursuant to the option agreements and
stock option plan of the company, those stock options which have vested.
All the Stock Options held by the Employee shall remain exercisable after
the termination of his employment for a period of three (3) months, but in
no event beyond ten (10) years from the date of grant set forth in
paragraph 1 of each of the Option Agreements.
13.3 In case the Employee is terminated for good cause, or if employee
terminates his employment hereunder for his convenience, the company shall
pay employee his salary through the date of such termination at the rate in
effect at the time of the notice of termination, and the company shall
thereafter have no further obligations to employee under this Agreement.
For purposes of this agreement, "good cause" shall mean (1) employee fails
to substantially perform his duties hereunder (other than such failure
resulting from executive's incapacity due to physical or mental illness);
or (2) Employee engages in one or more acts of dishonesty or
insubordination or violates a written company policy.
13.4 If the Employee is reassigned back to Europe, this would not be deemed
termination.
13.5 When the Employee leaves the employ of the Company, he agrees to deliver to
the Company (and will not keep in his possession, recreate or deliver to
anyone else) any and all devices, records, data, notes, reports, proposals,
lists correspondence, specifications, drawings, blueprints, sketches,
materials, equipment, other documents or
Article 14 Special Achievements
14.1 If the Employee achieves something, which can be considered a result of his
work by the Company and which can lead to certain rights of industrial or
intellectual property or ownership in the Netherlands or elsewhere, the
Company has a right to those achievements. Included are: inventions,
achievements in industrial designing, computer programs, etc.
14.2 The Employee is obliged, as soon as he has made such an achievement, to
inform the Company immediately.
14.3 If the achievement leads to an appliance for patent, the Company will, if
the Employee wishes, promote that the Employee's name will be mentioned in
the patent.
14.4 All costs resulting from the above-mentioned will be at the Company's
expense.
Article 15 Liquidated Damages
If employee breaches the provisions of Articles 10, 11, 12 and 13, the Company
may pursue its legal and equitable remedies against the employee. However,
employee and company agree that damages for violations of these provisions are
difficult to measure, and that violations of these provisions may cause
irreparable harm. Therefore, the parties agree that, in addition to any other
remedies available to the company, employee shall pay to the company. as
liquidated damages.
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page 8
Speccorp.agr. 5/27/97
one year's gross salary together with 1% of one year's gross salary for each day
that such act is continued, all without prejudice to all other remedies of the
company, including the right of the company to claim full damages, should these
exceed the liquidated damages or to seek injunctive relief to prevent continued
violations.
Article 16 Medical Examination
On request of the Company, the Employee will, from time to time, be medically
examined.
Article 17 Changes
Changes in this contract must be mutually agreed upon and confirmed in writing.
Article 18 Applicable law
This agreement shall be construed and governed in accordance with the laws of
the State of Colorado, notwithstanding the Employee's activities abroad.
Article 19 Competent Court
Any dispute relating to the provisions of this agreement between parties will be
exclusively settled in the first instance by the Courts in Colorado Springs,
except in the case of a legal provision of mandatory law which stipulates
otherwise.
If the court of competent jurisdiction determines that any term or provision of
this Agreement is invalid or unenforceable, then the remaining terms and
provisions will be unimpaired. Such court will have the authority to modify or
replace the invalid or unenforceable term or provision with a valid and
enforceable term or provision which most accurately represents the Parties'
intention with respect to the invalid or unenforceable term or provision.
Thus signed in duplicate on January 1, 1997 at Colorado Springs, Colorado, USA.
/s/ James P. McCluskey /s/ Hendricus Kos
- ----------------------------- -------------------------------
The Spectranetics Corporation Employee
James P. McCluskey Hendricus Kos
STOCK PURCHASE AGREEMENT
The Spectranetics Corporation
96 Talamine Court
Colorado Springs, CO 80907
Ladies & Gentlemen:
The undersigned, ______________________ (the "Investor"), hereby confirms
its agreement with you as follows:
1. This Stock Purchase Agreement (the "Agreement") is made as of December 22,
1998 between The Spectranetics Corporation, a Delaware corporation (the
"Company"), and the Investor.
2. The Company has authorized the sale and issuance of up to 3,800,000 shares
(the "Shares") of Common Stock of the Company, $.001 par value per share (the
"Common Stock"), subject to adjustment by the Company's Board of Directors, to
certain investors in a private placement conditioned upon registration of the
Shares for resale (the "Offering").
3. The Company and the Investor agree that the Investor will purchase from the
Company and the Company will sell to the Investor, for a purchase price of
$_________ per share, or an aggregate purchase price of $__________, ___________
Shares pursuant to the Terms and Conditions for Purchase of Shares attached
hereto as Annex I and incorporated herein by reference as if fully set forth
herein. Unless otherwise requested by the Investor, certificates representing
the shares purchased by the Investor will be registered in the Investor's name
and address as set forth below.
4. The Investor represents that, except as set forth below, (a) it has had no
position, office or other material relationship within the past three years with
the Company or its affiliates, (b) neither it, nor any group of which it is a
member or to which it is related, beneficially owns (including the right to
acquire or vote) any securities of the Company and (c) it has no direct or
indirect affiliation or association with any NASD member. Exceptions:
________________________________________________________________________________
________________________________________________________________________________
(If no exceptions, write "none." If left blank, response will be deemed to be
"none.")
Please confirm that the foregoing correctly sets forth the agreement
between us by signing in the space provided below for that purpose.
INVESTOR
By:___________________________________________
Print Name:___________________________________
Title:________________________________________
Address:______________________________________
______________________________________________
Tax ID No.:___________________________________
Contact name:_________________________________
Telephone:____________________________________
Name in which shares should be registered
(if different):_______________________________
AGREED AND ACCEPTED:
THE SPECTRANETICS CORPORATION
________________________________________________
By: Joseph A. Largey
Title: President and Chief Executive Officer
<PAGE>
ANNEX I
TERMS AND CONDITIONS FOR PURCHASE OF SHARES
1. Authorization and Sale of the Shares. Subject to the terms and
conditions of this Agreement, the Company has authorized the sale of up to
3,800,000 Shares. The Company reserves the right to increase or decrease this
number.
2. Agreement to Sell and Purchase the Shares; Subscription Date.
2.1 At the Closing (as defined in Section 3), the Company will sell to the
Investor, and the Investor will purchase from the Company, upon the terms and
conditions hereinafter set forth, the number of Shares set forth on the
signature page hereto at the purchase price set forth on such signature page.
2.2 The Company proposes to enter into substantially identical Stock
Purchase Agreements with certain other investors (the "Other Investors") and
expects to complete sales of Shares to them. Other Investors will not receive
more favorable terms than the Investor. (The Investor and the Other Investors
are hereinafter sometimes collectively referred to as the "Investors," and this
Agreement and the Stock Purchase Agreements executed by the Other Investors are
hereinafter sometimes collectively referred to as the "Agreements.") The Company
will accept executed Agreements from Investors for the purchase of Shares
commencing upon the date on which the Company provides the Investors with the
proposed purchase price per Share and concluding upon the date (the
"Subscription Date") on which the Company has (i) executed Agreements with
Investors for the purchase of at least 3,000,000 Shares, and (ii) notified
BancBoston Robertson Stephens (the "Placement Agent") in writing that it is no
longer accepting Agreements from Investors for the purchase of Shares. The
Company may not enter into any Agreements after the Subscription Date.
3. Delivery of the Shares at Closing. The completion of the purchase and
sale of the Shares (the "Closing") shall occur at a place and time (the "Closing
Date") to be specified by the Company and the Placement Agent, not later than 90
days after the date the Registration Statement (as hereinafter defined) is filed
with the Securities and Exchange Commission (the "SEC") and of which the
Investors will be notified in advance by the Placement Agent. At the Closing,
the Company shall deliver to the Investor one or more stock certificates
representing the number of Shares set forth on the signature page hereto, each
such certificate to be registered in the name of the Investor or, if so
indicated on the signature page hereto, in the name of a nominee designated by
the Investor.
The Company's obligation to issue the Shares to the Investor shall be
subject to the following conditions, any one or more of which may be waived by
the Company: (a) receipt by the Company of a certified or official bank check or
wire transfer of funds in the full amount of the purchase price for the Shares
being purchased hereunder as set forth on the signature page hereto; and (b) the
accuracy of the representations and warranties made by the Investors and the
fulfillment of those undertakings of the Investors to be fulfilled prior to the
Closing. Notwithstanding anything to the contrary elsewhere herein, the
Company's obligation to close shall be subject to the Company's receipt of at
least $6,000,000 in proceeds from the sale of the Shares.
The Investor's obligation to purchase the Shares shall be subject to the
following conditions, any one or more of which may be waived by the Investor:
(a) Investors shall have executed Agreements for the purchase of at least
3,000,000 Shares; (b) the Company shall have (i) filed a registration statement
(the "Registration Statement") within five (5) business days after the
Subscription Date, (ii) received an indication from the SEC that it has no
further comments with respect to the Registration Statement, and (iii) submitted
an acceleration request providing for the Registration Statement to be declared
effective at a time immediately following the Closing and on or prior to the
90th day after the date of its filing; and (c) satisfaction of all of the
conditions set forth in Section 6 of the Placement Agency Agreement dated as of
December 22, 1998 between the Company and the Placement Agent. The Investor's
obligations hereunder are expressly not conditioned on the purchase by any or
all of the Other Investors of the Shares that they have agreed to purchase from
the Company. Notwithstanding anything to the contrary elsewhere herein, the
Investor's obligation to close shall be subject to the Company's receipt of at
least $6,000,000 in proceeds from the sale of the Shares.
1
<PAGE>
4. Representations, Warranties and Covenants of the Company. The Company
hereby represents and warrants to, and covenants with, the Investor, as follows:
4.1 Organization. Each of the Company and its Subsidiaries (as defined in
Rule 405 under the Securities Act of 1933, as amended (the "Securities Act")),
is duly organized and validly existing in good standing under the laws of the
jurisdiction of its organization. Each of the Company and its Subsidiaries has
full power and authority to own, operate and occupy its properties and to
conduct its business as presently conducted and as described in the private
placement memorandum, dated November 9, 1998 distributed in connection with the
sale of the Shares (including the documents incorporated by reference therein,
the "Placement Memorandum") and is registered or qualified to do business and in
good standing in each jurisdiction in which it owns or leases property or
transacts business and where the failure to be so qualified would have a
material adverse effect upon the business, financial condition, properties or
operations of the Company and its Subsidiaries, considered as one enterprise,
and no proceeding has been instituted in any such jurisdiction, revoking,
limiting or curtailing, or seeking to revoke, limit or curtail, such power and
authority or qualification. The Company does not have any Subsidiaries nor does
it control, directly or indirectly, or own, directly or indirectly, any shares
of stock or any other equity interest of any corporation, partnership or limited
liability company, other than as disclosed in the Placement Memorandum.
4.2 Due Authorization. The Company has all requisite power and authority to
execute, deliver and perform its obligations under the Agreements, and the
Agreements have been duly authorized and validly executed and delivered by the
Company and constitute legal, valid and binding agreements of the Company
enforceable against the Company in accordance with their terms, except as rights
to indemnity and contribution may be limited by state or federal securities laws
or the public policy underlying such laws, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' and contracting parties' rights generally and
except as enforceability may be subject to general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
4.3 Non-Contravention. The execution and delivery of the Agreements, the
issuance and sale of the Shares to be sold by the Company under the Agreements,
the fulfillment of the terms of the Agreements and the consummation of the
transactions contemplated thereby will not (A) conflict with or constitute a
violation of, or default (with the passage of time or otherwise) under, (i) any
material bond, debenture, note or other evidence of indebtedness, or under any
material lease, contract, indenture, mortgage, deed of trust, loan agreement,
joint venture or other agreement or instrument to which the Company or any
Subsidiary is a party or by which it or any of its Subsidiaries or their
respective properties are bound, (ii) the charter, by-laws or other
organizational documents of the Company or any Subsidiary, or (iii) any law,
administrative regulation, ordinance or order of any court or governmental
agency, arbitration panel or authority applicable to the Company or any
Subsidiary or their respective properties, or (B) result in the creation or
imposition of any lien, encumbrance, claim, security interest or restriction
whatsoever upon any of the material properties or assets of the Company or any
Subsidiary or an acceleration of indebtedness pursuant to any obligation,
agreement or condition contained in any material bond, debenture, note or any
other evidence of indebtedness or any material indenture, mortgage, deed of
trust or any other agreement or instrument to which the Company or any
Subsidiary is a party or by which any of them is bound or to which any of the
property or assets of the Company or any Subsidiary is subject. No consent,
approval, authorization or other order of, or registration, qualification or
filing with, any regulatory body, administrative agency, or other governmental
body in the United States is required for the execution and delivery of the
Agreements and the valid issuance and sale of the Shares to be sold pursuant to
the Agreements, other than such as have been made or obtained, and except for
any securities filings required to be made under federal or state securities
laws.
4.4 Capitalization. The capitalization of the Company as of October 31,
1998 is as set forth in the Placement Memorandum. The Company has not issued any
capital stock since that date other than pursuant to (i) employee benefit plans
disclosed in the Placement Memorandum, or (ii) outstanding warrants or options
disclosed in the Placement Memorandum. The Shares to be sold pursuant to the
Agreements have been duly authorized, and when issued and paid for in accordance
with the terms of the Agreements will be duly and validly issued, fully paid and
nonassessable. The outstanding shares of capital stock of the Company have been
duly and validly issued and are fully paid and nonassessable, have been issued
in compliance with all federal and state securities laws, and were not issued in
violation of any preemptive rights or similar rights to subscribe for or
purchase securities. Except as set forth in or contemplated by the Placement
Memorandum, there are no outstanding rights (including, without limitation,
preemptive rights), warrants or options to acquire, or instruments convertible
into or exchangeable for, any unissued shares of capital stock or other equity
interest in the Company or any Subsidiary, or any contract, commitment,
agreement, understanding or
2
<PAGE>
arrangement of any kind to which the Company is a party or of which the Company
has knowledge and relating to the issuance or sale of any capital stock of the
Company or any Subsidiary, any such convertible or exchangeable securities or
any such rights, warrants or options. The Company holds no shares of capital
stock in its Treasury. Without limiting the foregoing, no preemptive right,
co-sale right, registration right, right of first refusal or other similar right
exists with respect to the Shares or the issuance and sale thereof. No further
approval or authorization of any stockholder, the Board of Directors of the
Company or others is required for the issuance and sale of the Shares. The
Company owns the entire equity interest in each of its Subsidiaries, free and
clear of any pledge, lien, security interest, encumbrance, claim or equitable
interest, other than as described in the Placement Memorandum. Except as
disclosed in the Placement Memorandum, there are no stockholders agreements,
voting agreements or other similar agreements with respect to the Common Stock
to which the Company is a party or, to the knowledge of the Company, between or
among any of the Company's stockholders.
4.5 Legal Proceedings. There is no material legal or governmental
proceeding pending or, to the knowledge of the Company, threatened to which the
Company or any Subsidiary is or may be a party or of which the business or
property of the Company or any Subsidiary is or may be subject that is not
disclosed in the Placement Memorandum.
4.6 No Violations. Neither the Company nor any Subsidiary is in violation
of its charter, bylaws, or other organizational document, or in violation of any
law, administrative regulation, ordinance or order of any court or governmental
agency, arbitration panel or authority applicable to the Company or any
Subsidiary, which violation, individually or in the aggregate, would be
reasonably likely to have a material adverse effect on the business or financial
condition of the Company and its Subsidiaries, considered as one enterprise, or
is in default in any material respect in the performance of any obligation,
agreement or condition contained in any bond, debenture, note or any other
evidence of indebtedness in any indenture, mortgage, deed of trust or any other
agreement or instrument to which the Company or any Subsidiary is a party or by
which the Company or any Subsidiary is bound or by which the properties of the
Company or any Subsidiary are bound or affected, and there exists no condition
which, with the passage of time or otherwise, would constitute a material
default under any such document or instrument or result in the imposition of any
material penalty or the acceleration of any material indebtedness.
4.7 Governmental Permits, Etc. With the exception of the matters which are
dealt with separately in Section 4.1, 4.13, 4.14 and 4.21, each of the Company
and its Subsidiaries has all necessary franchises, licenses, certificates and
other authorizations from any foreign, federal, state or local government or
governmental agency, department, or body that are currently necessary for the
operation of the business of the Company and its Subsidiaries as currently
conducted and as described in the Placement Memorandum except where the failure
to currently possess could not reasonably be expected to have a material adverse
effect.
4.8 Intellectual Property. Subject to the matters discussed under "Risk
Factors" in the Placement Memorandum (i) each of the Company and its
Subsidiaries owns or possesses sufficient rights to use all material patents,
patent rights, trademarks, copyrights, licenses, inventions, trade secrets,
trade names and know-how (collectively, "Intellectual Property") described or
referred to in the Placement Memorandum as owned or used by it or that are
necessary for the conduct of its business as now conducted or as proposed to be
conducted as described in the Placement Memorandum except where the failure to
currently own or possess would not have a material adverse effect on the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company and its Subsidiaries considered as one enterprise, (ii)
neither the Company nor any of its Subsidiaries has received any notice of, or
has any knowledge of, any infringement of or conflict with asserted rights of
the Company or any of its Subsidiaries by others with respect to any
Intellectual Property and except as described in the Placement Memorandum and
except as would not have a material adverse effect on the condition (financial
or otherwise), earnings, operations, business or business prospects of the
Company and its Subsidiaries considered as one enterprise, (iii) neither the
Company nor any of its Subsidiaries has received any notice of, or has any
knowledge of, any infringement of or conflict with asserted rights of a third
party with respect to any Intellectual Property that, individually or in the
aggregate, would have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business of the Company and its Subsidiaries
considered as one enterprise.
4.9 Financial Statements. The financial statements of the Company and the
related notes contained or incorporated by reference in the Placement Memorandum
present fairly, in accordance with generally accepted accounting principles, the
financial position of the Company and its Subsidiaries as of the dates
indicated, and the results of its operations and cash flows for the periods
therein specified. Such financial statements (including the
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<PAGE>
related notes) have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
therein specified, except as disclosed in the Placement Memorandum. The other
financial information contained in the Placement Memorandum has been prepared on
a basis consistent with the financial statements of the Company.
4.10 No Material Adverse Change. Except as disclosed in the Placement
Memorandum, since September 30, 1998, there has not been (i) any material
adverse change in the financial condition or earnings of the Company and its
Subsidiaries considered as one enterprise nor has any material adverse event
occurred to the Company or its Subsidiaries, (ii) any material adverse event
affecting the Company, (iii) any obligation, direct or contingent, that is
material to the Company and its Subsidiaries considered as one enterprise,
incurred by the Company, except obligations incurred in the ordinary course of
business, (iv) any dividend or distribution of any kind declared, paid or made
on the capital stock of the Company or any of its Subsidiaries, or (v) any loss
or damage (whether or not insured) to the physical property of the Company or
any of its Subsidiaries which has been sustained which has a material adverse
effect on the condition (financial or otherwise), earnings, operations, business
or business prospects of the Company and its Subsidiaries considered as one
enterprise.
4.11 Disclosure. The information contained in the Placement Memorandum as
of the date of such information, did not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
4.12 Existing Agreements and Physical Property. Except as set forth in the
Placement Memorandum, the agreements to which the Company or any of its
Subsidiaries is a party and which are described in the Placement Memorandum are
valid agreements, enforceable by the Company, and its Subsidiary (as applicable)
except as the enforcement thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable principles and, to
the best of the Company's knowledge, the other contracting party or parties
thereto are not in material breach or material default under any of such
agreements. Except as set forth in the Placement Memorandum, the Company owns or
leases all such physical properties as are necessary to its operations as now
conducted.
4.13 Regulatory Compliance. Except as described in the Placement Memorandum
and subject to the matters described under "Risk Factors" in the Placement
Memorandum, (i) the Company and its Subsidiaries have operated and currently
operate their businesses in conformity with all applicable laws, rules and
regulations of each jurisdiction in which they are conducting business,
including, without limitation, the United States Food and Drug Administration
(the "FDA") and applicable Environmental Laws (as defined below), except where
the failure to be so in compliance would not have a material adverse effect on
the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company and its Subsidiaries considered as one
enterprise, (ii) the Company and its Subsidiaries have all licenses,
certificates, authorizations, approvals, permits, franchises, orders and
consents from all state, federal and other governmental or regulatory
authorities including, without limitation, the FDA, which are necessary to the
current conduct of their businesses, except where the failure to be so in
compliance would not have a material adverse effect on the condition (financial
or otherwise), earnings, operations, business or business prospects of the
Company and its Subsidiaries considered as one enterprise, (iii) all of such
licenses, certificates, authorizations, approvals, permits, franchises, orders
and consents are valid and in full force and effect, (iv) the Company and its
Subsidiaries have fulfilled and performed, and will fulfill and perform, all of
their obligations with respect to, and are operating in compliance with, all
such licenses, certificates, authorizations, approvals, permits, franchises,
orders and consents and no event has occurred which allows, or after notice or
lapse of time would allow, revocation or termination thereof or result in any
impairment of the rights of the holder thereof, except to the extent that any
such revocation, termination or impairment would not have a material adverse
effect on the financial condition, results of operations, business or business
prospects of the Company and its Subsidiaries considered as one enterprise, (v)
no such licenses, certificates, authorizations, approvals, permits, franchises,
orders or consents contain any restrictions that have or could reasonably be
expected to have a material adverse effect on the financial condition, results
of operations, business or business prospects of the Company and its
Subsidiaries considered as one enterprise, and (vi) the Company is not aware of
any existing or imminent matter which could reasonably be expected to have an
adverse impact on the current operations or business of the Company and its
Subsidiaries considered as one enterprise. For the purposes of this Section
4.13, "Environmental Laws" shall include, without limitation, the Federal
Insecticide, Fungicide, Rodenticide Act, Resource Conservation & Recovery Act,
Clean Water Act, Safe Drinking Water Act, Atomic Energy Act, Occupational Safety
and Health Act, Toxic Substances Control Act, Clean Air Act, Comprehensive
Environmental Response,
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<PAGE>
Compensation and Liability Act, Emergency Planning and Community Right-to-Know
Act, Hazardous Materials Transportation Act and all analogous or related
federal, state or local laws, each as amended, all rules and regulations
promulgated pursuant to any of the above statues, and any other foreign,
federal, state or local law, statute, ordinance, rule or regulation governing
environmental matters, as amended from time to time, including any common law
cause of action providing any right or remedy with respect to environmental
matters, and all judicial and administrative decisions, orders and decrees
issued to the Company or its Subsidiaries relating to environmental matters.
4.14 NASDAQ Compliance. The Company's Common Stock is registered pursuant
to Section 12(g) of the Exchange Act and is listed on The Nasdaq Stock Market,
Inc. National Market (the "Nasdaq National Market"), and the Company has taken
no action designed to, or likely to have the effect of, terminating the
registration of the Common Stock under the Exchange Act or de-listing the Common
Stock from the Nasdaq National Market, nor has the Company received any
notification that the SEC or the National Association of Securities Dealers,
Inc. ("NASD") is contemplating terminating such registration or listing. As of
the Closing Date, the Company will be in compliance with the listing
requirements for the Nasdaq National Market.
4.15 Foreign Corrupt Practices. Neither the Company nor any of its
Subsidiaries, nor, to the knowledge of the Company or any Subsidiary, any agent
or other person acting on behalf of the Company or any of its Subsidiaries, have
(i) directly or indirectly, used any corporate funds for unlawful contributions,
gifts, entertainment or other unlawful expenses related to foreign or domestic
political activity; (ii) made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties or
campaigns from corporate funds; (iii) failed to disclose fully any contribution
made by the Company or made by any person acting on its behalf and of which the
Company is aware in violation of law; (iv) violated in any material respect any
provision of the Foreign Corrupt Practices Act of 1977, as amended; or (v) made
any unlawful bribe, rebate, payoff, influence, kick-back or other unlawful
payment.
4.16 No Manipulation of Stock. The Company has not taken and will not take,
any action designed to or that might reasonably be expected to cause or result
in stabilization or manipulation of the price of the Common Stock to facilitate
the sale or resale of the Shares.
4.17 OSHA. The operations of the Company and its Subsidiaries with respect
to any real property currently leased, owned or by any means controlled by the
Company or any of its Subsidiaries (the "Real Property") are in compliance with
all federal, state, and local laws, ordinances, rules, and regulations relating
to occupational health and safety and the environment except where failure to be
in such compliance could not reasonably be expected to have a material adverse
effect on the current operations or business of the Company and its Subsidiaries
considered as one enterprise; the Company and its Subsidiaries maintain all
licenses, permits and authorizations necessary to operate under all such laws
applicable to the Company and its Subsidiaries except where the failure to so
possess could not reasonably be expected to have a material adverse effect on
the current operations or business of the Company and its Subsidiaries
considered as one enterprise.
4.18 Lock-up Agreements. Lock-up Agreements or similar agreements with the
Placement Agent have been, or will be prior to the Closing Date, executed by
each of the Company and the Company's executive officers and directors providing
that, subject to certain exceptions, such entity or individual will not sell,
offer, contract to sell, pledge, grant any option to purchase or otherwise
dispose of any shares of the Company's Common Stock for a period ending 90 days
after the Registration Statement is declared effective.
4.19 Accounting Controls. The Company and each of its Subsidiaries maintain
a system of internal accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for assets, (iii)
access to assets is permitted only in accordance with management's general or
specific authorization, and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
4.20 Loans to Directors or Officers. There are no outstanding loans,
advances (except normal advances for business expenses in the ordinary course of
business or except in amounts that in the aggregate are not material) or
guarantees of indebtedness by the Company to or for the benefit of any of the
officers or directors of the Company or any of the members of the families of
any of them, except as disclosed in the Placement Memorandum.
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4.21 Compliance with Florida Statutes. The Company has complied with all
provisions of Florida Statutes Section 517.075, and the regulations thereunder,
relating to doing business with the Government of Cuba or with any person or
affiliate located in Cuba.
4.22 Reporting Status. The Company has filed in a timely manner all
documents that the Company was required to file under the Securities Exchange
Act of 1934, as amended (the "Exchange Act") during the 12 months preceding the
date of this Agreement. The following documents complied in all material
respects with the SEC's requirements as of their respective filing dates, and
the information contained therein as of the date thereof did not contain an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein in light of the
circumstances under where they were made not misleading:
(a) The Company's Annual Report on Form 10-K for the year ended
December 31, 1997;
(b) The Company's proxy statement in connection with its 1998 Annual
Meeting of Stockholders; and
(c) All other documents, if any, filed by the Company with the SEC
since December 31, 1997 pursuant to the reporting requirements of the
Exchange Act.
4.23 Listing. The Company shall comply with all requirements of the
National Association of Securities Dealers, Inc. with respect to the issuance of
the Shares and the listing thereof on the Nasdaq National Market.
4.24 Year 2000 Compliance. The information set forth in the Placement
Memorandum with respect to the Company's efforts regarding Year 2000 matters (i)
conforms in all material respects to the guidelines set forth in SEC Release No.
33-7558 and (ii) accurately describes the status of the Company's efforts
regarding Year 2000 matters. To the Company's knowledge, the costs associated
with ensuring that the Company is Year 2000 compliant will not have a material
adverse effect on the operations or business of the Company and its Subsidiaries
considered as one enterprise.
4.25 Taxes. The Company has timely filed all necessary federal, state and
foreign income and franchise tax returns and has paid all taxes shown thereon as
due, except for such filings or payments as to which the failure to so file or
pay would not have a material adverse effect on the Company.
4.27 Press Releases. The Company will not, without the prior approval of
the Investor, issue any press release that mentions the Investor by name.
4.28 Insurance. The Company and its Subsidiaries maintain insurance with
insurers of recognized financial responsibility of the types and in the amounts
generally deemed adequate for their respective businesses and consistent with
insurance coverage maintained by similar companies in similar businesses.
5. Representations, Warranties and Covenants of the Investor.
5.1 The Investor represents and warrants to, and covenants with, the
Company that: (i) the Investor is an "accredited investor" as defined in
Regulation D under the Securities Act and the Investor is also knowledgeable,
sophisticated and experienced in making, and is qualified to make decisions with
respect to investments in shares presenting an investment decision like that
involved in the purchase of the Shares, including investments in securities
issued by the Company and investments in comparable companies, and has
requested, received, reviewed and considered all information it deemed relevant
in making an informed decision to purchase the Shares; (ii) the Investor is
acquiring the number of Shares set forth on the signature page hereto in the
ordinary course of its business and for its own account for investment only and
with no present intention of distributing any of such Shares or any arrangement
or understanding with any other persons regarding the distribution of such
Shares; (iii) the Investor will not, directly or indirectly, offer, sell,
pledge, transfer or otherwise dispose of (or solicit any offers to buy, purchase
or otherwise acquire or take a pledge of) any of the Shares except in compliance
with the Securities Act, applicable state securities laws and the respective
rules and regulations promulgated thereunder; (iv) the Investor has answered all
questions on the signature page hereto for use in preparation of the
Registration Statement and the answers thereto are true and correct as of the
date hereof and will be true and correct as of the Closing Date; (v) the
Investor will notify the Company immediately of any
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change in any of such information until such time as the Investor has sold all
of its Shares or until the Company is no longer required to keep the
Registration Statement effective; and (vi) the Investor has, in connection with
its decision to purchase the number of Shares set forth on the signature page
hereto, relied only upon the Placement Memorandum and the representations and
warranties of the Company contained herein. Investor understands that its
acquisition of the Shares has not been registered under the Securities Act or
registered or qualified under any state securities law in reliance on specific
exemptions therefrom, which exemptions may depend upon, among other things, the
bona fide nature of the Investor's investment intent as expressed herein.
Investor has completed or caused to be completed and delivered to the Company
the Investor Questionnaire attached as Exhibit D to the Placement Memorandum,
which questionnaire is true and correct in all material respects.
5.2 The Investor acknowledges, represents and agrees that no action has
been or will be taken in any jurisdiction outside the United States by the
Company or the Placement Agent that would permit an offering of the Shares, or
possession or distribution of offering materials in connection with the issue of
the Shares, in any jurisdiction outside the United States where action for that
purpose is required. Each Investor outside the United States will comply with
all applicable laws and regulations in each foreign jurisdiction in which it
purchases, offers, sells or delivers Shares or has in its possession or
distributes any offering material, in all cases at its own expense. The
Placement Agent is not authorized to make any representation or use any
information in connection with the issue, placement, purchase and sale of the
Shares other than as contained in the Placement Memorandum.
5.3 The Investor hereby covenants with the Company not to make any sale of
the Shares without complying with the provisions of this Agreement, including
Section 7.2 hereof, and without effectively causing the prospectus delivery
requirement under the Securities Act to be satisfied, and the Investor
acknowledges that the certificates evidencing the Shares will be imprinted with
a legend that prohibits their transfer except in accordance therewith. The
Investor acknowledges that there may occasionally be times when the Company,
based on the advice of its counsel, determines that it must suspend the use of
the Prospectus forming a part of the Registration Statement pursuant to Section
7.2 hereof until such time as an amendment to the Registration Statement has
been filed by the Company and declared effective by the SEC or until the Company
has amended or supplemented such Prospectus.
5.4 The Investor further represents and warrants to, and covenants with,
the Company that (i) the Investor has full right, power, authority and capacity
to enter into this Agreement and to consummate the transactions contemplated
hereby and has taken all necessary action to authorize the execution, delivery
and performance of this Agreement, and (ii) this Agreement constitutes a valid
and binding obligation of the Investor enforceable against the Investor in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' and contracting parties' rights generally and except as
enforceability may be subject to general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law)
and except as the indemnification agreements of the Investors herein may be
legally unenforceable.
5.5 Investor will not, prior to the effectiveness of the Registration
Statement, sell, offer to sell, solicit offers to buy, dispose of, loan, pledge
or grant any right with respect to (collectively, a "Disposition"), the Common
Stock of the Company, nor will Investor engage in any hedging or other
transaction which is designed to or could reasonably be expected to lead to or
result in a Disposition of Common Stock of the Company by the Investor or any
other person or entity. Such prohibited hedging or other transactions would
include without limitation effecting any short sale or having in effect any
short position (whether or not such sale or position is against the box and
regardless of when such position was entered into) or any purchase, sale or
grant of any right (including without limitation any put or call option) with
respect to the Common Stock of the Company or with respect to any security
(other than a broad-based market basket or index) that includes, relates to or
derives any significant part of its value from the Common Stock of the Company.
5.6 The Investor understands that nothing in the Placement Memorandum, this
Agreement or any other materials presented to the Investor in connection with
the purchase and sale of the Shares constitutes legal, tax or investment advice.
The Investor has consulted such legal, tax and investment advisors as it, in its
sole discretion, has deemed necessary or appropriate in connection with its
purchase of Shares.
6. Survival of Representations, Warranties and Agreements. Notwithstanding
any investigation made by any party to this Agreement or by the Placement Agent,
all covenants, agreements, representations and warranties made
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by the Company and the Investor herein shall survive the execution of this
Agreement, the delivery to the Investor of the Shares being purchased and the
payment therefor.
7. Registration of the Shares; Compliance with the Securities Act.
7.1 Registration Procedures and Expenses. The Company shall:
(a) subject to receipt of necessary information from the Investors,
prepare and file with the SEC, within five (5) business days after the
Subscription Date, the Registration Statement to enable the resale of the
Shares by the Investors from time to time through the automated quotation
system of the Nasdaq National Market or in privately-negotiated
transactions;
(b) use its reasonable efforts, subject to receipt of necessary
information from the Investors, to cause the Registration Statement to
become effective within 90 days after the Registration Statement is filed
by the Company;
(c) prepare and file with the SEC such amendments and supplements to
the Registration Statement and the Prospectus used in connection therewith
as may be necessary to keep the Registration Statement current and
effective for a period not exceeding, with respect to each Investor's
Shares purchased hereunder, the earlier of (i) the second anniversary of
the Closing Date, (ii) the date on which the Investor may sell all Shares
then held by the Investor without restriction by the volume limitations of
Rule 144(e) of the Securities Act, or (iii) such time as all Shares
purchased by such Investor in this Offering have been sold pursuant to a
registration statement.
(d) furnish to the Placement Agent and to the Investor with respect to
the Shares registered under the Registration Statement such number of
copies of the Registration Statement, Prospectuses and Preliminary
Prospectuses in conformity with the requirements of the Securities Act and
such other documents as the Investor may reasonably request, in order to
facilitate the public sale or other disposition of all or any of the Shares
by the Investor, provided, however, that the obligation of the Company to
deliver copies of Prospectuses or Preliminary Prospectuses to the Investor
shall be subject to the receipt by the Company of reasonable assurances
from the Investor that the Investor will comply with the applicable
provisions of the Securities Act and of such other securities or blue sky
laws as may be applicable in connection with any use of such Prospectuses
or Preliminary Prospectuses;
(e) file documents required of the Company for normal blue sky
clearance in states specified in writing by the Investor, provided,
however, that the Company shall not be required to qualify to do business
or consent to service of process in any jurisdiction in which it is not now
so qualified or has not so consented;
(f) bear all expenses in connection with the procedures in paragraph
(a) through (e) of this Section 7.1 and the registration of the Shares
pursuant to the Registration Statement; and
(g) advise the Investors, promptly after it shall receive notice or
obtain knowledge of the issuance of any stop order by the SEC delaying or
suspending the effectiveness of the Registration Statement or of the
initiation or threat of any proceeding for that purpose; and it will
promptly use its reasonable efforts to prevent the issuance of any stop
order or to obtain its withdrawal at the earliest possible moment if such
stop order should be issued.
The Company understands that the Investor disclaims being an underwriter,
but the Investor being deemed an underwriter by the SEC shall not relieve the
Company of any obligations it has hereunder, provided, however that if the
Company receives notification from the SEC that the Investor is deemed an
underwriter, then the period by which the Company is obligated to submit an
acceleration request to the SEC shall be extended to the earlier of (i) the 90th
day after such SEC notification, or (ii) 120 days after the initial filing of
the Registration Statement with the SEC.
7.2 Transfer of Shares After Registration; Suspension.
(a) The Investor agrees that it will not effect any disposition of the
Shares or its right to purchase the Shares that would constitute a sale
within the meaning of the Securities Act except as contemplated in the
Registration Statement referred to in Section 7.1 and as described below,
and that it will promptly notify the Company of any changes in the
information set forth in the Registration Statement regarding the Investor
or its plan of distribution.
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(b) Except in the event that paragraph (c) below applies, the Company
shall (i) if deemed necessary by the Company, prepare and file from time to
time with the SEC a post-effective amendment to the Registration Statement
or a supplement to the related Prospectus or a supplement or amendment to
any document incorporated therein by reference or file any other required
document so that such Registration Statement will not contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading, and so that, as thereafter delivered to purchasers of the
Shares being sold thereunder, such Prospectus will not contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading; (ii) provide
the Investor copies of any documents filed pursuant to Section 7.2(b)(i);
and (iii) inform each Investor that the Company has complied with its
obligations in Section 7.2(b)(i) (or that, if the Company has filed a
post-effective amendment to the Registration Statement which has not yet
been declared effective, the Company will notify the Investor to that
effect, will use its reasonable efforts to secure the effectiveness of such
post-effective amendment as promptly as possible and will promptly notify
the Investor pursuant to Section 7.2(b)(i) hereof when the amendment has
become effective).
(c) Subject to paragraph (d) below, in the event (i) of any request by
the SEC or any other federal or state governmental authority during the
period of effectiveness of the Registration Statement for amendments or
supplements to a Registration Statement or related Prospectus or for
additional information; (ii) of the issuance by the SEC or any other
federal or state governmental authority of any stop order suspending the
effectiveness of a Registration Statement or the initiation of any
proceedings for that purpose; (iii) of the receipt by the Company of any
notification with respect to the suspension of the qualification or
exemption from qualification of any of the Shares for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose; or (iv) of any event or circumstance which necessitates the making
of any changes in the Registration Statement or Prospectus, or any document
incorporated or deemed to be incorporated therein by reference, so that, in
the case of the Registration Statement, it will not contain any untrue
statement of a material fact or any omission to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading, and that in the case of the Prospectus, it will not contain
any untrue statement of a material fact or any omission to state a material
fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; then the Company shall deliver a certificate in writing to the
Investor (the "Suspension Notice") to the effect of the foregoing and, upon
receipt of such Suspension Notice, the Investor will refrain from selling
any Shares pursuant to the Registration Statement (a "Suspension") until
the Investor's receipt of copies of a supplemented or amended Prospectus
prepared and filed by the Company, or until it is advised in writing by the
Company that the current Prospectus may be used, and has received copies of
any additional or supplemental filings that are incorporated or deemed
incorporated by reference in any such Prospectus. In the event of any
Suspension, the Company will use its reasonable efforts to cause the use of
the Prospectus so suspended to be resumed as soon as reasonably practicable
within twenty (20) business days after the delivery of a Suspension Notice
to the Investor. In addition to and without limiting any other remedies
(including, without limitation, at law or at equity) available to the
Investor, the Investor shall be entitled to specific performance in the
event that the Company fails to comply with the provisions of this Section
7.2(c).
(d) Notwithstanding the foregoing paragraphs of this Section 7.2, the
Investor shall not be prohibited from selling Shares under the Registration
Statement as a result of Suspensions on more than three (3) occasions of
not more than thirty (30) days each in any twelve month period, unless, in
the good faith judgment of the Company's Board of Directors, upon advice of
counsel, the sale of Shares under the Registration Statement in reliance on
this paragraph 7.2(d) would be reasonably likely to cause a violation of
the Securities Act or the Exchange Act and result in potential liability to
the Company.
(e) Provided that a Suspension is not then in effect the Investor may
sell Shares under the Registration Statement, provided that it arranges for
delivery of a current Prospectus to the transferee of such Shares. Upon
receipt of a request therefor, the Company has agreed to provide an
adequate number of current Prospectuses to the Investor and to supply
copies to any other parties requiring such Prospectuses.
(f) In the event of a sale of Shares by the Investor, the Investor
must also deliver to the Company's transfer agent, with a copy to the
Company, a Certificate of Subsequent Sale substantially in the form
attached hereto as Exhibit A, so that the shares may be properly
transferred.
7.3 Indemnification. For the purpose of this Section 7.3:
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(i) the term "Selling Stockholder" shall include the Investor and any
affiliate of such Investor;
(ii) the term "Registration Statement" shall include any final
Prospectus, exhibit, supplement or amendment included in or relating to the
Registration Statement referred to in Section 7.1; and
(iii) the term "untrue statement" shall include any untrue statement
or alleged untrue statement, or any omission or alleged omission to state
in the Registration Statement a material fact required to be stated therein
or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(a) The Company agrees to indemnify and hold harmless each Selling
Stockholder from and against any losses, claims, damages or liabilities to
which such Selling Stockholder may become subject (under the Securities Act
or otherwise) insofar as such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) arise out of, or are based upon
(i) any untrue statement of a material fact contained in the Registration
Statement, or (ii) any failure by the Company to fulfill any undertaking
included in the Registration Statement, and the Company will reimburse such
Selling Stockholder for any reasonable legal or other expenses reasonably
incurred in investigating, defending or preparing to defend any such
action, proceeding or claim, or preparing to defend any such action,
proceeding or claim, provided, however, that the Company shall not be
liable in any such case to the extent that such loss, claim, damage or
liability arises out of, or is based upon, an untrue statement made in such
Registration Statement in reliance upon and in conformity with written
information furnished to the Company by or on behalf of such Selling
Stockholder specifically for use in preparation of the Registration
Statement or the failure of such Selling Stockholder to comply with its
covenants and agreements contained in Sections 5.3 or 7.2 hereof respecting
sale of the Shares or any statement or omission in any Prospectus that is
corrected in any subsequent Prospectus that was delivered to the Investor
prior to the pertinent sale or sales by the Investor.
(b) The Investor agrees to indemnify and hold harmless the Company
(and each person, if any, who controls the Company within the meaning of
Section 15 of the Securities Act, each officer of the Company who signs the
Registration Statement and each director of the Company) from and against
any losses, claims, damages or liabilities to which the Company (or any
such officer, director or controlling person) may become subject (under the
Securities Act or otherwise), insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) arise out of, or
are based upon, (i) any failure to comply with the covenants and agreements
contained in Section 5.3 or 7.2 hereof respecting sale of the Shares, or
(ii) any untrue statement of a material fact contained in the Registration
Statement if such untrue statement was made in reliance upon and in
conformity with written information furnished by or on behalf of the
Investor specifically for use in preparation of the Registration Statement,
and the Investor will reimburse the Company (or such officer, director or
controlling person), as the case may be, for any legal or other expenses
reasonably incurred in investigating, defending or preparing to defend any
such action, proceeding or claim. Indemnification under Section 7.3(b)(ii)
above shall be limited to the amount of net proceeds received by Investor
from the sale of the Shares.
(c) Promptly after receipt by any indemnified person of a notice of a
claim or the beginning of any action in respect of which indemnity is to be
sought against an indemnifying person pursuant to this Section 7.3, such
indemnified person shall notify the indemnifying person in writing of such
claim or of the commencement of such action, but the omission to so notify
the indemnifying party will not relieve it from any liability which it may
have to any indemnified party under this Section 7.3 (except to the extent
that such omission materially and adversely affects the indemnifying
party's ability to defend such action) or from any liability otherwise than
under this Section 7.3. Subject to the provisions hereinafter stated, in
case any such action shall be brought against an indemnified person, the
indemnifying person shall be entitled to participate therein, and, to the
extent that it shall elect by written notice delivered to the indemnified
party promptly after receiving the aforesaid notice from such indemnified
party, shall be entitled to assume the defense thereof, with counsel
reasonably satisfactory to such indemnified person. After notice from the
indemnifying person to such indemnified person of its election to assume
the defense thereof, such indemnifying person shall not be liable to such
indemnified person for any legal expenses subsequently incurred by such
indemnified person in connection with the defense thereof, provided,
however, that if there exists or shall exist a conflict of interest that
would make it inappropriate, in the opinion of counsel to the indemnified
person, for the same counsel to represent both the indemnified person and
such indemnifying person or any affiliate or associate thereof, the
indemnified person shall be entitled to retain its own counsel at the
expense of such indemnifying person; provided, however, that no
indemnifying person shall be responsible for the fees and expenses of more
than one separate counsel (together with appropriate local counsel) for all
indemnified parties. In no event shall any indemnifying person be liable in
respect of any amounts paid in settlement of any action unless the
indemnifying person shall have approved the terms of such
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settlement; provided that such consent shall not be unreasonably withheld.
No indemnifying person shall, without the prior written consent of the
indemnified person, effect any settlement of any pending or threatened
proceeding in respect of which any indemnified person is or could have been
a party and indemnification could have been sought hereunder by such
indemnified person, unless such settlement includes an unconditional
release of such indemnified person from all liability on claims that are
the subject matter of such proceeding.
(d) If the indemnification provided for in this Section 7.3 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to
therein, then each indemnifying party shall contribute to the amount paid
or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (or actions in respect thereof) in such proportion
as is appropriate to reflect the relative fault of the Company on the one
hand and the Investors on the other in connection with the statements or
omissions or other matters which resulted in such losses, claims, damages
or liabilities (or actions in respect thereof), as well as any other
relevant equitable considerations. The relative fault shall be determined
by reference to, among other things, in the case of an untrue statement,
whether the untrue statement relates to information supplied by the Company
on the one hand or an Investor on the other and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement. The Company and the Investors agree that it
would not be just and equitable if contribution pursuant to this subsection
(d) were determined by pro rata allocation (even if the Investors were
treated as one entity for such purpose) or by any other method of
allocation which does not take into account the equitable considerations
referred to above in this subsection (d). The amount paid or payable by an
indemnified party as a result of the losses, claims, damages or liabilities
(or actions in respect thereof) referred to above in this subsection (d)
shall be deemed to include any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any
such action or claim. Notwithstanding the provisions of this subsection
(d), no Investor shall be required to contribute any amount in excess of
the amount by which the net amount received by the Investor from the sale
of the Shares to which such loss relates exceeds the amount of any damages
which such Investor has otherwise been required to pay by reason of such
untrue statement. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Investors' obligations in this subsection to
contribute are several in proportion to their sales of Shares to which such
loss relates and not joint.
(e) The parties to this Agreement hereby acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof including, without limitation,
the provisions of this Section 7.3, and are fully informed regarding said
provisions. They further acknowledge that the provisions of this Section
7.3 fairly allocate the risks in light of the ability of the parties to
investigate the Company and its business in order to assure that adequate
disclosure is made in the Registration Statement as required by the Act and
the Exchange Act. The parties are advised that federal or state public
policy as interpreted by the courts in certain jurisdictions may be
contrary to certain of the provisions of this Section 7.3, and the parties
hereto hereby expressly waive and relinquish any right or ability to assert
such public policy as a defense to a claim under this Section 7.3 and
further agree not to attempt to assert any such defense.
7.4 Termination of Conditions and Obligations. The conditions precedent
imposed by Section 5 or this Section 7 upon the transferability of the Shares
shall cease and terminate as to any particular number of the Shares when such
Shares shall have been effectively registered under the Securities Act and sold
or otherwise disposed of in accordance with the intended method of disposition
set forth in the Registration Statement covering such Shares or at such time as
an opinion of counsel satisfactory to the Company shall have been rendered to
the effect that such conditions are not necessary in order to comply with the
Securities Act.
7.5 Information Available. So long as the Registration Statement is
effective covering the resale of Shares owned by the Investor, the Company will
furnish to the Investor:
(a) as soon as practicable after it is available, one copy of (i) its
Annual Reports to Stockholders (which Annual Reports shall contain
financial statements audited in accordance with generally accepted
accounting principles by a national firm of certified public accountants),
(ii) if not included in substance in the Annual Reports to Stockholders,
its Annual Reports on Form 10-K and (iii) its Quarterly Reports on Form
10-Q (the foregoing, in each case, excluding exhibits);
11
<PAGE>
(b) upon the reasonable request of the Investor, all exhibits excluded
by the parenthetical to subparagraph (a) of this Section 7.5 as filed with
the SEC and all other information that is made available to shareholders;
and
(c) upon the reasonable request of the Investor, an adequate number of
copies of the Prospectuses to supply to any other party requiring such
Prospectuses; and the Company, upon the reasonable request of the Investor,
will meet with the Investor or a representative thereof at the Company's
headquarters to discuss all information relevant for disclosure in the
Registration Statement covering the Shares and will otherwise cooperate
with any Investor conducting an investigation for the purpose of reducing
or eliminating such Investor's exposure to liability under the Securities
Act, including the reasonable production of information at the Company's
headquarters; provided, that the Company shall not be required to disclose
any confidential information to or meet at its headquarters with any
Investor until and unless the Investor shall have entered into a
confidentiality agreement in form and substance reasonably satisfactory to
the Company with the Company with respect thereto.
8. Placement Agent's Fee. The Investor acknowledges that the Company
intends to pay to the Placement Agent a fee in respect of the sale of the Shares
to the Investor.
9. Notices. All notices, requests, consents and other communications
hereunder shall be in writing, shall be mailed (A) if within domestic United
States by first-class registered or certified airmail, or nationally recognized
overnight express courier, postage prepaid, or by facsimile, or (B) if delivered
from outside the United States, by International Federal Express or facsimile,
and shall be deemed given (i) if delivered by first-class registered or
certified mail domestic, three business days after so mailed, (ii) if delivered
by nationally recognized overnight carrier, one business day after so mailed,
(iii) if delivered by International Federal Express, two business days after so
mailed, (iv) if delivered by facsimile, upon electric confirmation of receipt
and shall be delivered as addressed as follows:
(a) if to the Company, to:
The Spectranetics Corporation
96 Talamine Court
Colorado Springs, CO 80907
Attn: Chief Financial Officer
Phone: (719) 633-8333
Telecopy: (719) 633-2248
(b) with a copy mailed to:
Latham & Watkins
135 Commonwealth Drive
Menlo Park, CA 94025
Attn: Christopher Kaufman
Phone: (650) 328-4600
Telecopy: (650) 463-2600
(c) if to the Investor, at its address on the signature page hereto,
or at such other address or addresses as may have been furnished to the
Company in writing.
10. Changes. This Agreement may not be modified or amended except pursuant
to an instrument in writing signed by the Company and the Investor.
11. Headings. The headings of the various sections of this Agreement have
been inserted for convenience of reference only and shall not be deemed to be
part of this Agreement.
12. Severability. In case any provision contained in this Agreement should
be invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall not in any way
be affected or impaired thereby.
12
<PAGE>
13. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the internal laws of the State of California, without giving
effect to the principles of conflicts of law.
14. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which, when
taken together, shall constitute but one instrument, and shall become effective
when one or more counterparts have been signed by each party hereto and
delivered to the other parties.
15. Attorneys' Fees. If any party to this Agreement brings an action to
interpret or enforce its rights under this Agreement, the prevailing party shall
be entitled to recover its reasonable attorneys' fees incurred in connection
with such action, including any appeal of such action.
13
<PAGE>
INSTRUCTION SHEET FOR INVESTOR
(to be read in conjunction with the entire Stock Purchase Agreement)
A. Complete the following items in the Stock Purchase Agreement:
1. Provide the information regarding the Investor requested on the
signature page (page 1). The Agreement must be executed by an individual
authorized to bind the Investor.
2. Return the signed Stock Purchase Agreement to:
Dominique Semon
BancBoston Robertson Stephens Inc.
590 Madison Avenue, 36th Floor
New York, NY 10022
Telephone: (212) 319-8900
Facsimile: (212) 610-6125
An executed original Stock Purchase Agreement or a telecopy thereof must be
received by 5:00 p.m. California time on a date to be determined and distributed
to the Investor at a later date.
B. Instructions regarding the transfer of funds for the purchase of
Shares will be telecopied to the Investor by the Placement Agent at a later
date.
C. To resell the Shares after the Registration Statement covering the
Shares is effective:
(i) Provided that a Suspension of the Registration Statement is not
then in effect pursuant to the terms of the Stock Purchase Agreement, the
Investor may sell Shares under the Registration Statement, provided that it
arranges for delivery of a current Prospectus to the transferee. Upon
receipt of a request therefor, the Company has agreed to provide an
adequate number of current Prospectuses to each investor and to supply
copies to any other parties requiring such Prospectuses.
(ii) The Investor must also deliver to the Company's transfer agent,
with a copy to the Company, a Certificate of Subsequent Sale in the form
attached as Exhibit A to the Stock Purchase Agreement, so that the Shares
may be properly transferred.
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed condolidated balance sheet and statement of operations as found
on pages 2 and 3 of the Company's Form 10-Q for the period ended March 31,
1999 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 9,313
<SECURITIES> 477
<RECEIVABLES> 4,668
<ALLOWANCES> 0
<INVENTORY> 3,072
<CURRENT-ASSETS> 17,900
<PP&E> 5,348<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 27,257
<CURRENT-LIABILITIES> 7,027
<BONDS> 0
0
0
<COMMON> 23
<OTHER-SE> 17,267
<TOTAL-LIABILITY-AND-EQUITY> 27,257
<SALES> 7,077
<TOTAL-REVENUES> 7,077
<CGS> 2,981
<TOTAL-COSTS> 2,981
<OTHER-EXPENSES> 5,035
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 49
<INCOME-PRETAX> (925)
<INCOME-TAX> 0
<INCOME-CONTINUING> (925)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (925)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
<FN>
P.P.&E is presented net of accumulated depreciation.
</FN>
</TABLE>
