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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, 2000
[ ] 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 25, 2000, there were 23,226,809 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)
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
------------------- -------------------
Assets:
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,058 $ 4,900
Investment securities, held to maturity 4,939 3,468
Trade accounts receivable, net of allowance 6,132 5,564
Inventories 3,316 2,746
Other current assets 647 492
------------------- -------------------
Total current assets 19,092 17,170
Property and equipment, net 3,856 3,675
Other intangible assets, net 1,080 1,138
Other assets 510 298
Long-term investments, held to maturity 8,747 11,757
------------------- -------------------
Total Assets $ 33,285 $ 34,038
=================== ===================
Liabilities and Shareholders' Equity:
Liabilities:
Current liabilities:
Accounts payable and accrued liabilities $ 6,093 $ 6,308
Deferred revenue 1,119 917
Current portion of notes payable 740 942
Current portion of capital lease obligations 31 46
------------------- -------------------
Total current liabilities 7,983 8,213
------------------- -------------------
Deferred revenue 2,028 2,028
Notes payable, net of current portion 353 376
Capital lease obligations, net of current portion 31 35
------------------- -------------------
Total long-term liabilities 2,412 2,439
------------------- -------------------
Total liabilities 10,395 10,652
------------------- -------------------
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
23,222,981 and 23,037,188 shares, respectively 23 23
Additional paid-in capital 91,547 91,112
Accumulated other comprehensive loss (165) (128)
Accumulated deficit (68,515) (67,621)
------------------- -------------------
Total shareholders' equity 22,890 23,386
------------------- -------------------
Total Liabilities and Shareholders' Equity $ 33,285 $ 34,038
=================== ===================
</TABLE>
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 AND COMPREHENSIVE LOSS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended March 31,
2000 1999
------------ ------------
<S> <C> <C>
Revenue $ 6,662 $ 4,070
Cost of revenue 2,274 1,360
------------ ------------
Gross margin 4,388 2,710
------------ ------------
Gross margin % 66% 67%
Operating Expenses:
Marketing and sales 3,089 2,164
General and administrative 1,288 979
Royalties expense 313 195
Research and development 857 787
------------ ------------
Total operating expenses 5,547 4,125
------------ ------------
Operating Loss (1,159) (1,415)
Other Income (Expense):
Interest income 294 54
Interest expense (30) (49)
Other, net 1 12
------------ ------------
Total other income (expense) 265 17
------------ ------------
Loss from Continuing Operations (894) (1,398)
Discontinued Operation:
Income from operations of discontinued
industrial subsidiary -- 473
------------ ------------
Income from Discontinued Operations -- 473
------------ ------------
Net Loss (894) (925)
Other Comprehensive Loss -
Foreign currency translation (37) (29)
------------ ------------
Comprehensive Loss $ (931) $ (954)
============ ============
Loss from Continuing Operations per share -
basic and diluted $ (0.04) $ (0.07)
Income from Discontinued Operations
per share - basic and diluted -- 0.03
------------ ------------
Net Loss per share - basic and diluted $ (0.04) $ (0.04)
============ ============
Weighted Average Common Shares
Outstanding - basic and diluted 23,099,244 20,566,667
============ ============
</TABLE>
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)
<TABLE>
<CAPTION>
Three Months Ended March 31,
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (894) $ (925)
Adjustments to reconcile net loss to net cash
used by operating activities:
Income from discontinued industrial subsidiary -- (473)
Depreciation and amortization 392 397
Net change in operating assets and liabilities (1,903) (234)
------------ ------------
Net cash used by operating activities (2,405) (1,235)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (162) (103)
Net cash received from discontinued industrial subsidiary -- 375
Decrease (increase) in gross investments 1,538 (477)
------------ ------------
Net cash provided (used) by investing activities 1,376 (205)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from exercise of common stock options 409 52
Proceeds from private placement of common stock, net -- 6,856
Principal payments on obligations under
capital leases and notes payable (228) (287)
------------ ------------
Net cash provided by financing activities 181 6,621
------------ ------------
Effect of exchange rate changes on cash 6 (26)
------------ ------------
Net increase (decrease) in cash and cash equivalents (842) 5,155
Cash and cash equivalents at beginning of period 4,900 4,158
------------ ------------
Cash and cash equivalents at end of period $ 4,058 $ 9,313
============ ============
Supplemental disclosures of cash flow information --
cash paid for interest $ 28 $ 45
============ ============
Supplemental disclosure of noncash investing and financing activity -
transfers from inventory to equipment held for
rental or loan $ 356 $ 340
============ ============
</TABLE>
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 assets, liabilities and 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.
Certain reclassifications have been made in the financial statements to
conform with the financial statements as presented at March 31, 2000.
(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, 2000 and 1999, 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 $6,537,000.
(4) DISCONTINUED OPERATIONS
In June 1999, the Company completed the sale of its industrial
subsidiary, Polymicro Technologies, Inc. (PTI) for $15,000,000 in cash. PTI
manufactures drawn silica glass products for industrial, aerospace and medical
uses with an emphasis on the analytical instrument market.
The income from PTI up to the date of disposal is shown as "income from
operations of discontinued industrial subsidiary" on the consolidated statement
of operations.
(5) INVENTORIES
Components of inventories are as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31, 2000 DECEMBER 31, 1999
----------------- -----------------
<S> <C> <C>
Raw Materials $ 1,822 $ 1,105
Work in Process 163 788
Finished Goods 1,331 853
----------------- -----------------
$ 3,316 $ 2,746
================= =================
</TABLE>
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ITEM 1. NOTES TO FINANCIAL STATEMENTS (CONT'D)
(6) DEFERRED REVENUE
In 1997, the Company entered into a license and supply 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 have been amortized as
product is shipped under the agreement. During 1997, cash received under the
agreement totaled $6,339,000. There was no revenue related to these agreements
during the three months ended March 31, 2000 and 1999. The remaining deferred
revenue balance of $2,028,000 is shown as non-current on the balance sheet at
March 31, 2000 and December 31, 1999, as delivery dates are unknown due to the
Baxter Healthcare litigation (see note 8).
Other deferred revenue - current in the amounts of $1,119,000 and
$917,000 at March 31, 2000 and December 31, 1999, respectively, relates
primarily to payments received 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.
(7) 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. As a result of the sale of PTI in June 1999, the Company
operates in one distinct line of business consisting of the development,
manufacturing, marketing and distribution of a proprietary excimer laser system
for the treatment of certain coronary and vascular conditions. The Company has
identified two geographic reportable segments within this line of business: (1)
U.S. Medical, and (2) Europe Medical. U.S. Medical and Europe Medical offer
similar products and services but operate in different geographic regions and
have different distribution networks. Additional information regarding each
reportable segment is shown below.
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, 2000,
FDA-approved products were used in conjunction with coronary angioplasty as well
as 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, the Pacific Rim and Australia.
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, 2000 and
1999 cost allocations of these functions to Europe Medical have not been
performed. Allocations to income from operations of our discontinued industrial
subsidiary for general and administrative activities totaled $45,000 for the
three months ended March 31, 1999.
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ITEM 1. NOTES TO FINANCIAL STATEMENTS (CONT'D)
Revenue associated with intersegment transfers to Europe Medical were
$534,000 and $418,000 for the three months ended March 31, 2000 and 1999,
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, 2000 and 1999, intersegment revenue and intercompany
profits have been eliminated in the segment information in the table shown
below.
EUROPE MEDICAL
The Europe Medical segment is a marketing and sales subsidiary located
in the Netherlands that serves all of Europe as well as the Middle East.
Products offered by this reportable segment are similar in nature to U.S.
Medical products. Beginning in January 1999, the Company established a direct
sales force in Germany, which accounts for the majority of the revenue within
this segment. The Company has received 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.
Summary financial information relating to reportable continuing segment
operations is as follows. Intersegment transfers as well as intercompany assets
and liabilities are excluded from the information provided (in thousands).
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
REVENUE: 2000 1999
--------------- ---------------
<S> <C> <C>
U.S. Medical $ 5,674 $ 3,436
Europe Medical 988 634
--------------- ---------------
Total revenue $ 6,662 $ 4,070
=============== ===============
THREE MONTHS ENDED MARCH 31,
SEGMENT NET LOSS: 2000 1999
--------------- ---------------
U.S. Medical $ (602) $ (1,130)
Europe Medical (292) (268)
--------------- ---------------
Total net loss $ (894) $ (1,398)
=============== ===============
MARCH 31, DECEMBER 31,
SEGMENT ASSETS: 2000 1999
--------------- ---------------
U.S. Medical $ 31,101 $ 32,299
Europe Medical 2,184 1,739
--------------- ---------------
Total assets $ 33,285 $ 34,038
=============== ===============
</TABLE>
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ITEM 1. NOTES TO FINANCIAL STATEMENTS (CONT'D)
(8) COMMITMENTS AND CONTINGENCIES
On August 6, 1999, the Company was notified of a lawsuit claiming
patent infringement which was filed in Delaware by Baxter Healthcare
Corporation. The lawsuit seeks an injunction against further alleged
infringement of the patents as well as unspecified damages. The Company is aware
of these patents and does not believe any patent infringement has occurred. The
Company has also asserted several counterclaims against Baxter. The Company has
accrued for costs incurred and expected to be incurred as a result of this
claim. We have assessed the range of costs to be incurred and have accrued costs
at the lower end of the range, as there is no better estimate within that range.
However, it is difficult to assess the costs involved related to the defense and
resolution of this claim. As such, the possibility exists that the costs to
resolve this matter may exceed the amount accrued.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
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. In June 1999, we sold our wholly owned subsidiary,
Polymicro Technologies, Inc, a manufacturer and distributor of drawn silica
glass products which include capillary tubing and specialty fiber optics. The
operations of Polymicro are reflected in our financial statements as a
discontinued operation and our discussion and analysis contained herein focuses
on our continuing medical business only.
We sell the only excimer laser system that has been market approved by
the FDA in the United States for multiple applications -- including coronary
angioplasty and lead removal. 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 laser systems, increase
the utilization of our FDA-approved products, 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. We are
currently conducting three clinical trials evaluating the use of our excimer
laser system to treat restenosed stents and blocked arteries in the upper and
lower leg. We expect that each of these trials will continue another 2 to 3
years.
RESULTS OF OPERATIONS
In this section, we discuss revenue and net income (loss) from
continuing operations for the three months ended March 31, 2000 and 1999.
On August 6, 1999, one of our competitors, Boston Scientific
Corporation, announced a product recall of its rotational atherectomy system. We
believe that a large part of the increase within our coronary angioplasty
product line during the last half of 1999 was directly related to the recall.
Boston Scientific responded to the recall by supplying its customers with the
earlier generation rotational atherectomy system and has since received FDA
clearance to re-introduce the product that was recalled in August.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (CONT'D)
We believe that we can retain the majority of the business gained since
the product recall was announced, but our ability to do so depends on, among
other things, the acceptance of the excimer laser angioplasty as a viable
alternative to rotational atherectomy.
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
Revenue increased by 64% to $6,662,000 for the three months ended March
31, 2000 as compared to $4,070,000 for the three months ended March 31, 1999.
Increased revenue included a 48% increase in disposables sales, a 229% increase
in equipment revenue and a 23% increase in service revenue.
Increased disposables revenue, which consists of single-use catheter
products, resulted from an increase of 32% in sales of coronary angioplasty
catheters and a 93% increase in sales of lead removal devices over our 1999
levels.
Equipment revenue increased in 2000 primarily due to increased unit
sales of our laser system. Additionally, rental revenue contributed to the
increase in connection with the introduction of the Evergreen rental program in
July 1999.
Gross margin decreased slightly to 66% during the three months ended
March 31, 2000 as compared to 67% for the three months ended March 31, 1999.
This decrease is primarily the result of a shift in sales mix toward lower
margin equipment revenue during the three months ended March 31, 2000.
Operating expenses grew 34% during the three months ended March 31,
2000 to $5,547,000 as compared to $4,125,000 for the three months ended March
31, 1999.
Marketing and sales expenses increased by 43% to $3,089,000 for the
three months ended March 31, 2000 as compared to $2,164,000 for the same period
for 1999. This increase relates to costs incurred primarily in the United States
for investments in sales personnel. The U.S. field sales organization has
increased to 30 employees as of March 31, 2000 as compared to 15 as of March 31,
1999.
General and administrative expenses grew 32% to $1,288,000 for the
three months ended March 31, 2000 as compared to $979,000 for the three months
ended March 31, 1999. This increase is primarily attributable to increased
personnel costs associated with building the infrastructure necessary to support
the company's growth and higher legal costs as compared to the three months
ended March 31, 1999.
Royalties expense represent costs paid on license agreements held by
third parties on our products. Royalties expense increased by 61% to $313,000
for the three months ended March 31, 2000 as a direct result of increased
revenue as compared to the three months ended March 31, 1999. Additionally, the
higher mix of equipment revenue during the three months ended March 31, 2000
also contributed to the increase since royalty rates on equipment revenue are
generally higher.
Research and development expenses increased by 9% to $857,000 for the
three months ended March 31, 2000 as compared to $787,000 for the three months
ended March 31, 1999. This increase is
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (CONT'D)
due primarily to clinical trial costs associated with peripheral angioplasty to
clear blockages in the upper and lower leg and the debulking of blockages with
restenosed, or blocked, stents.
Interest income increased due to higher cash and investment averages as
a result of cash received from the private placement of common stock in February
1999 and the cash received from the sale of PTI in June 1999. Interest expense
decreased slightly from the prior year and related primarily to interest charges
on our equipment loan.
Loss from continuing operations for the three months ended March 31,
2000 decreased by 36% to a loss of $894,000 from a loss of $1,398,000 for the
three months ended March 31, 1999, primarily due to increases in revenue and
gross margin partially offset by increases in expenses discussed above.
U.S. MEDICAL
Revenue in the United States increased 65% to $5,674,000 for the three
months ended March 31, 2000 as compared to revenue of $3,436,000 for the three
months ended March 31, 1999. Equipment revenue increased by 148%. Disposables
revenue increased 59%, led by a 97% increase in lead removal products and a 47%
increase in coronary angioplasty revenue. Service revenue increased 19%.
Loss from continuing operations decreased 47% to a loss of $602,000 for
the three months ended March 31, 2000, as compared to a loss of $1,130,000 for
the three months ended March 31, 1999. The decreased net loss was primarily due
to increased revenue partially offset by increased operating expenses.
EUROPE MEDICAL
Revenue from our medical business in Europe increased 56% to $988,000
for the three months ended March 31, 2000 as compared to revenue of $634,000 for
the three months ended March 31, 1999. This increase was primarily due to an
increase in equipment revenue.
Net loss increased by 9% to a loss of $292,000 for the three months
ended March 31, 2000 as compared to a loss of $268,000 for the three months
ended March 31, 1999. This increase is primarily attributed to decreased gross
margin resulting from a higher mix of equipment sales, combined with a 27%
increase in operating expenses, primarily associated with personnel costs as we
solidify our direct sales organization in Germany.
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 period. Fluctuation in Dutch guilder currency rates during the
three months ended March 31, 2000 as compared to the three months ended March
31, 1999 caused a decrease in revenue and operating expenses of 3%.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (CONT'D)
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000, we had cash, cash equivalents and investment
securities of $17,744,000 compared to $20,125,000 at December 31, 1999. 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 $6,537,000. In June 1999, the Company completed the sale of PTI for cash of
$15,000,000.
Cash used in operations totaled $2,405,000 for the three months ended
March 31, 2000, primarily due to the following: (1) net loss of $894,000, (2)
$517,000 related to increased receivables balances, (3) $945,000 related to
increased inventories and equipment held for rental or loan, and (4) $123,000
related to decreased accounts payable and accrued liabilities. These uses of
cash were offset by cash provided by an increase in deferred revenue. The table
below describes the growth in receivables and inventory in relative terms,
through the presentation of financial ratios. Days sales outstanding is
calculated by dividing the ending accounts receivable balance by the average
daily medical sales for the quarter. Inventory turns is calculated by dividing
annualized cost of sales for the quarter by ending inventory.
<TABLE>
<CAPTION>
Mar 31, 2000 Dec 31, 1999
------------ ------------
<S> <C> <C>
Days Sales Outstanding 83 75
Inventory Turns 2.7 3.0
</TABLE>
Receivables considered to be overdue were not significant as of March
31, 2000 or December 31, 1999. The increase in days sales outstanding is
primarily due to the timing of sales for the three months ended March 31, 2000.
Net cash provided by investing activities was $1,376,000 for the three
months ended March 31, 2000 primarily due to a $1,538,000 decrease in invested
balances. Capital expenditures were $162,000 for the three months ended March
31, 2000 compared to $103,000 for the three months ended March 31, 1999.
Net cash provided by financing activities was $181,000, consisting of
$409,000 from the issuance of common stock associated with stock option
exercises and the employee stock purchase plan which was offset by $228,000 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 one-quarter of a percent above the prime rate
(interest rate of 9.25% at March 31, 2000), and matures on December 23, 2000. At
March 31, 2000, the equipment line had an outstanding balance of $600,000. As of
March 31, 2000 we are in compliance with the debt covenants and we expect to
remain compliant with these covenants.
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, 2000, the loan had an outstanding balance of $211,000.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (CONT'D)
At March 31, 2000 and December 31, 1999, we placed a number of systems
on rental, loan and fee per procedure programs. A total of $3,513,000 and
$3,331,000 were recorded as property and equipment as of March 31, 2000 and
December 31, 1999, 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.
We currently use three placement programs. Since July 1999, most units
were placed under the Evergreen or evaluation programs. A description of our
placement programs follow:
(1) Rental programs - Straight rental program with terms varying from
6 months to 3 years. Rental revenue in the amount of $3,000 to
$5,000 are invoiced on a monthly basis and revenue is recognized
upon invoicing. Catheter revenue is recognized when shipped and
invoiced. The lasers are transferred from inventory to property
and equipment 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 revenue. 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
revenue equal to the net book value of the system is also
recorded at this time.
(2) Evergreen - The Evergreen rental program was introduced in July
1999 and is similar to the straight rental program. However,
rental revenue under this program vary on a sliding scale
depending on the customer's catheter purchases each month. Rental
revenue is invoiced on a monthly basis and revenue is recognized
upon invoicing.
(3) Evaluation 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 made 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 that is expensed to cost of revenue. At the end
of the evaluation period, the equipment typically converts to a
rental agreement or the customer purchases the laser system.
We believe our liquidity and capitalization as of March 31, 2000 is
sufficient to meet our operating and capital requirements through December 31,
2000. Revenue increases from current levels and attaining profitability will be
necessary to sustain us over the long-term.
CONVERSION TO THE EURO
On January 1, 1999, eleven countries in Europe adopted a common
currency, the "euro", and exchange rates between the currencies of the eleven
countries were fixed against the new euro. The former currencies of those eleven
countries will remain legal tender as denominations of the euro until January 1,
2002 and goods and services may be paid for using either the euro or the former
currency until that time.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (CONT'D)
Spectranetics International, B.V., currently intends to continue using
the Dutch guilder as its functional currency until its fiscal year beginning
January 1, 2002.
Due to the size of the Spectranetics International, B.V. operations in
relation to the consolidated operations, the conversion to the Euro is not
expected to have a material effect on the consolidated financial statements.
ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities" (FAS
133), which is effective for fiscal quarters beginning after June 15, 1999,
later extended to June 15, 2000. FAS 133 requires companies to record
derivatives on the balance sheet as assets or liabilities, measured at fair
value. Gains or losses resulting from changes in the values of those derivatives
would be accounted for depending on the use of the derivative and whether it
qualifies under the standard for hedge accounting. The Company does not
anticipate a material impact on the results of operations as a result of
implementing this standard.
RISK FACTORS
We Have Continued to Suffer Losses. We have incurred net losses since
our inception in June 1984. At March 31, 2000, we had accumulated $68.5 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.
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, 2000, our revenue from
international operations represented 15% of consolidated revenues. Of this
revenue, approximately 30% was derived from sales in Germany. Changes in
international 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.
13
<PAGE> 14
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
balloon angioplasty, stent implantation, open chest bypass surgery, and
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.
SCIMED Life Systems, Inc. (a subsidiary of Boston Scientific
Corporation), Cordis Corporation (a subsidiary of Johnson & Johnson
Interventional Systems), and Advanced Cardiovascular Systems, Inc. (a subsidiary
of Guidant Corporation), are the leading balloon angioplasty manufacturers.
Manufacturers of atherectomy devices include Devices for Vascular Intervention,
Inc. (a subsidiary of Guidant Corporation) and SCIMED. Cook Vascular, Inc.
competes with us in the lead removal market with their mechanical lead removal
products.
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.
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 reimbursement driven 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 protocols regarding
cost effective treatment methods. Hospitals that have experienced reimbursement
problems or expect to experience reimbursement problems may not purchase our
excimer laser systems in the future.
Page 14
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (CONT'D)
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.
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 $5,000,000. 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 Becoming Obsolete. We
derive more than 80% of our revenue from the sale or lease of the CVX-300 laser
unit and the sale of disposable 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
Page 15
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (CONT'D)
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. See Part II- Item I of Legal Proceedings.
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.
Page 16
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (CONT'D)
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;
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.
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 of 1% in the
prime rate 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. ("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 was 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. In July 1999, two Virginia courts ruled that Spectranetics is a valid
holder of a patent license entitling the Company to develop, manufacture,
market, and distribute its CVX-300(R) excimer laser system.
In May 2000, a permanent injunction was issued restraining White Star
from all actions described in the temporary restraining order. Additionally,
White Star is restrained from instituting any legal proceedings related to the
patents or the license agreements against the company, its customers or any
third party.
On October 1, 1999 Baxter Healthcare Corporation, an affiliate of
Baxter International, Inc., served notice of a complaint against us claiming
that all of our products infringe on three patents licensed by Baxter. We feel
our position is meritorious and intend to vigorously defend our patent position
and we have asserted several counterclaims against Baxter.
The Company is involved in other legal proceedings in the normal course
of business and does not expect them to have a material adverse effect on our
business.
ITEMS 2-3. NOT APPLICABLE.
ITEM 4. NOT APPLICABLE.
ITEM 5. NOT APPLICABLE.
Page 17
<PAGE> 18
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 10.22 Letter Agreement dated June 17, 1999 between the
Company and James P. McCluskey.
Exhibit 10.23 Termination Agreement dated February 15, 2000
between the Company and Hendricus Kos.
Exhibit 27.1 Financial Data Schedule for 2000 First Quarter
Form 10-Q.
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 12, 2000 By: /s/ Paul C. Samek
--------------------------------------
Paul C. Samek
Vice President Finance,
Chief Financial Officer
Page 18
<PAGE> 19
THE SPECTRANETICS CORPORATION
FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.22 Letter Agreement dated June 17, 1999 between the Company
and James P. McCluskey.
10.23 Termination Agreement dated February 15, 2000 between the Company
and Hendricus Kos.
27.1 Financial Data Schedule for 2000 First Quarter 10-Q.
</TABLE>
<PAGE> 1
EXHIBIT 10.22
SPECTRANETICS
- -------------------------------------------------------------------------------
BRILLIANCE IN INTERVENTIONAL THERAPY
June 17, 1999
Mr. James P. McCluskey
6130 W. Julie Drive
Glendale, Arizona 85308
Dear Mr. McCluskey:
This letter confirms the terms of the separation package
offered to you by The Spectranetics Corporation ("Spectranetics").
On June 15, 1999, you tendered your resignation as Director,
Secretary-Treasurer, Chief Financial Officer and General Manager of Polymicro
Technologies, Inc. (the "Company"), effective as of the effective time of the
merger of the Company with and into Polymicro Technologies, LLC (the "Buyer")
pursuant to the Merger Agreement dated as of May 24, 1999, by and among
Spectranetics, the Company, the Buyer and PMT Holdings, LLC ("PMT Holdings"),
and Spectranetics and the Company accepted your resignation. By your signature
below you acknowledge that:
1. You have returned to Company all property of Company in your
possession.
2. You will return when requested by Spectranetics all property of
Spectranetics in your possession.
3. You shall not disclose any confidential or proprietary information
that you acquired while an employee of the Company or Spectranetics to
any other person or use such information in any manner that is
detrimental to Company's or Spectranetics' interests.
4. Upon receipt of your signature on this letter agreement, Spectranetics
will place you on its payroll for a 12-month period from the date you
sign this letter agreement (the "Severance Period") and will pay you
$110,000 over the Severance Period in equal biweekly installments (less
withholding for state and federal taxes, social security and benefits
deductions) and during the Severance Period will provide medical,
dental, LTD, STD, participation in the 401(k) and Employee Stock
Purchase Plan.
THE SPECTRANETICS CORPORATION
96 TALAMINE COURT - COLORADO SPRINGS, COLORADO 80907-5186
TEL 719.633.8333 - 800.633.0960 - FAX 719.633.2248
<PAGE> 2
5. Your termination date with the Spectranetic Corporation will be June
17, 2000 (the "Severance Period Termination Date"). Should you accept
employment during the Severance Period with another organization and be
provided with benefits, your benefits, medical, dental, LTD, STD,
participation in the 401(k) and the Employee Stock Purchase Plan, with
Spectranetics will cease.
6. During the Severance Period you will not accrue vacation, but you will
be paid for your accrued vacation of 200 hours as of the date of your
Severance Period Termination from Spectranetics.
7. You will receive a performance bonus of $27,500 for the work performed
at the Company during the period of January 1, 1999 through June 17,
1999. This bonus will be paid at the time that management bonuses are
generally paid to Spectranetics employees in the Year 2000.
8. As of the Severance Period Termination Date, all of your unvested stock
options will become vested and you will be able the exercise such stock
options per the terms of the Stock Option Agreements.
9. You will receive a bonus for assisting in the sale of the Company of
$75,000 to be paid within 5 working days of the close of the
transaction.
10. You agree to work on specific projects as requested by Joseph A. Largey
President/CEO or his designee during the severance period.
11. On behalf of yourself and your heirs and assigns, you hereby release
Spectranetics, the Company, the Buyer, PMT Holdings and their
respective owners, stockholders, parent corporations, affiliates,
divisions, subsidiaries, predecessors, officers, managers, employees,
insurers, representatives and agents from all claims based upon
contract, tort or statute arising out of, based upon, or relating to
your hire, employment, remuneration or termination from the Company,
including any claims arising under Title VII of the Civil Rights Act of
1964, as amended; the Equal Pay Act, as amended; the Age Discrimination
in Employment Act, as amended; the Employee Retirement Income Security
Act, as amended; the Older Workers Benefit Protection Act of 1990;
and/or any other local, state, or federal law governing discrimination
in employment and/or the payment of wages and benefits.
12. IN ACCORDANCE WITH THE OLDER WORKERS BENEFIT PROTECTION ACT OF 1990,
YOU ACKNOWLEDGE THAT YOU ARE AWARE OF THE FOLLOWING:
(a) YOU HAVE A RIGHT TO CONSULT WITH AN ATTORNEY BEFORE ACCEPTING
THIS OFFER;
(b) YOU HAVE 21 DAYS FROM THE DATE SET FORTH ABOVE TO CONSIDER
THIS OFFER; AND
SPECTRANETICS
<PAGE> 3
(c) YOU HAVE SEVEN DAYS AFTER ACCEPTING THIS OFFER TO REVOKE YOUR
ACCEPTANCE, AND YOUR ACCEPTANCE WILL NOT BE EFFECTIVE UNTIL THAT
REVOCATION PERIOD HAS EXPIRED.
13. Except as may be required by law, neither you nor any member of your family
will disclose to any individual or entity (other than your legal or tax
advisors) the terms of this agreement without the prior written consent of
Spectranetics. In the event that such disclosure is made, any outstanding
obligations of Company under this agreement shall immediately terminate,
and any payments previously made under this agreement shall be returned to
Company.
14. The provisions of this agreement are severable. If any provision is held
to be invalid or unenforceable, it shall not affect the validity or the
enforceability of any other provision.
15. You represent that you have thoroughly read and considered all aspects of
this agreement, that you understand all of its provisions, and that you are
voluntarily entering into this agreement.
16. This agreement sets forth the entire agreement between you and Company and
supersedes any and all prior oral or written agreements or understandings
between you and Company concerning the termination of your employment.
17. This agreement may not be altered, amended, or modified except by a further
written document signed by you and an authorized representative of Company.
If the above terms are agreeable to you, please date and sign the original
of this letter in the places indicated below and return it to me.
Very truly yours,
THE SPECTRANETICS CORPORATION
/s/ DALE T. MUTH
-------------------------------------
By:
Title: Vice President Human Resources
Accepted and agreed to on this
17th day of June, 1999.
/s/ JAMES P. MCCLUSKEY
- -------------------------------
James P. McCluskey
SPECTRANETICS
<PAGE> 1
EXHIBIT 10.23
TERMINATION AGREEMENT
This Termination Agreement (the "Agreement") is entered into as of this
fifteenth day of February 2000 by and between:
The Spectranetics Corporation, a corporation organized under the laws of the
State of Colorado and with its registered address at 96 Talamine Court,
Colorado Springs, Colorado, U.S.A. and Spectranetics International B.V., a
company organized under the laws of The Netherlands and with its registered
address at Plesmanstraat 6, 3833 LA Leusden, The Netherlands (the "Employer"),
represented collectively by Mr. Dale T. Muth, on the one side;
and
Hendricus Kos, domiciled at Naarderstraat 45, 1272 NG Huizen, The Netherlands,
(the "Employee"), on the other side.
RECITALS
WHEREAS as of January 11, 1993, the Employee entered into an
Employment Agreement with Spectranetics International B.V. pursuant to which
the Employee agreed to perform the duties of Managing Director ("statutair
directeur") for Spectranetics International B.V. (the "1993 Agreement"); and
WHEREAS subsequent to such date, but without terminating the 1993
Agreement, Employee entered into an Employment Agreement with The Spectranetics
Corporation whereby the Employee agreed to perform the duties of Vice President,
Sales & Marketing of Employer as from January 1, 1997 (the "1997 Agreement");
and
WHEREAS Employee has been performing his duties under the 1993
Agreement and the 1997 Agreement and Employer has fulfilled its obligations
under the 1993 Agreement and the 1997 Agreement; and
WHEREAS Employer and Employee have mutually determined that the choice
of forum provisions in the 1993 Agreement and the choice of law and forum
provisions in the 1997 Agreement shall be modified such that the laws of The
Netherlands shall be applicable to the 1993 Agreement and the 1997 Agreement
prior to their termination; and
WHEREAS Employer and Employee have mutually determined that the 1993
Agreement and the 1997 Agreement shall be terminated for the mutual benefit of
both the parties;
WHEREAS Employer and Employee have mutually determined that the 1993
Agreement and the 1997 Agreement shall be terminated as soon as reasonably
possible after execution of this agreement; and
WHEREAS Employer and Employee desire that the 1993 Agreement and the
1997 Agreement shall be terminated simultaneously and in a manner other than
that provided for under the 1993 Agreement or the 1997 Agreement, and thus are
entering into this present Agreement.
1
<PAGE> 2
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency being hereby acknowledged, the parties hereby agree as follows:
1. TERMINATION OF EMPLOYMENT
Employer and Employee agree that Employer shall seek in the District Court and
the Cantonal Court, both located in the District ("Arrondissement") of Utrecht,
the Netherlands, a court order under Section 7:685 of the Dutch Civil Code, for
the termination of the 1993 Agreement and the 1997 Agreement respectively.
Employer and Employee agree that Employer shall simultaneously request said
District Court to terminate the 1993 Agreement and said Cantonal Court to
terminate the 1997 Agreement. The requested termination date shall be February
15, 2000, or such date thereafter as said District Court and said Cantonal court
may reasonably determine (the "Termination Date"). In furtherance of the
foregoing, Employer agrees to file in said District Court and Cantonal Court,
within seven (7) calendar days following the date of the execution of this
Agreement, a request for termination in substantially the same form as Annex 1
to this Agreement (the "Request"). In response, Employee agrees to file, within
seven (7) calendar days following the day on which Employer's Request is filed,
a "formal reply" in substantially the same form as Annex 2 to this Agreement. In
the event the Cantonal Court shall not terminate the 1997 Agreement, such
agreement shall by operation of law terminate on the date of termination of the
1993 Agreement. The Employee shall receive his salary and all other benefits
from the 1993 Agreement and the 1997 Agreement respectively until the date of
termination of the 1993 Agreement and the 1997 Agreement respectively.
2. MODIFICATION OF 1997 AGREEMENT; MODIFICATION OF 1993 AGREEMENT;
TERMINATION OF PRIOR AGREEMENTS
The clauses concerning choice of law (Article 18 - Applicable Law) and choice of
forum (Article 19 - Competent Court, first sentence) of the 1997 Agreement are
hereby modified by the parties thereto; the law applicable to the 1997 Agreement
shall be the laws of The Netherlands and the competent court with exclusive
jurisdiction of all disputes relating to the 1997 Agreement shall be the
Cantonal Court in the District of Utrecht.
The clauses concerning choice of forum (Article 18 - Competent Court) of the
1993 Agreement are hereby modified by the parties thereto; the competent court
with exclusive jurisdiction of all disputes relating to the 1993 Agreement shall
be the District Court in the District of Utrecht.
The 1993 Agreement and the 1997 Agreement shall terminate as set forth above
under 1., with the exception of: (a) Articles 10 (Company Property), 11
(Confidentiality), 12 (Non-Competition), 13 (Special Achievements), and 14
(Penalty Clause) of the 1993 Agreement; and (b) Articles 10 (Company Property),
11 (Confidentiality), 12 (Non-Competition), 14 (Special Achievements), and (15
(Liquidated Damages) of the 1997 Agreement. The parties hereby specifically
waive any rights or obligations that either may have under Article 2.2 of the
1993 Agreement and Article 2.2 of the 1997 Agreement concerning Notice.
3. SEVERANCE COMPENSATION; LETTER OF REFERENCE; SEPARATION ANNOUNCEMENT
In connection with the termination of Employee's employment relationship with
the Employer, the parties hereby agree to the following:
2
<PAGE> 3
a. Severance Pay
Employer agrees to pay the Employee an amount equivalent to USD 335,418 (three
hundred thirty-five thousand four hundred eighteen United States dollars)
("Severance Pay"). Of this amount, Spectranetics International B.V. agrees to
pay Employee an amount of NLG 171,902 (one hundred seventy-one thousand nine
hundred two Dutch Guilders) (the "1933 Severance") without withholding taxes or
premiums ("ten titel van stamrecht") through transfer into bank account number
45.18.04.902 with ABN AMRO Bank N.V. of Kove Beheer B.V. within eight (8)
calendar days after the date of termination of the 1993 Agreement. The
Spectranetics Corporation agrees to pay to Employee an amount of USD 251,564
(two hundred fifty-one thousand five hundred sixty-four United States dollars)
(the "1997 Severance") within (8) calendar days after the date of termination of
the 1997 Agreement by transfer into bank account number 505 514 9079 with
Norwest bank of Employee. As from the date of execution of this Agreement the
Employee shall be released from his obligation to perform his functions as
described in Article 1.1, 1.2, and 3.1 of the 1997 Agreement. The Employee shall
be responsible and liable for any taxes or duties levied in relation with
payment of the Severance Pay.
The parties agree that the 1997 Severance and the Employer's obligation to pay
the 1997 Severance shall be reduced with any amount of gross salary paid out to
Employee by Employer as from January 1, 2000.
b. Miscellaneous
(i) Automobile
As of January 1, 2000, Employee will no longer be entitled to
reimbursement of the lease of a car.
(ii) Mobile Telephone
Employee shall be entitled to buy the mobile telephone currently owned
by Employer but in use with Employee, for an amount of NLG 432.70,
which amount shall be payable as of Termination Date and which amount
may be deducted by Employer from the Severance Pay.
(iii) Stock Options
The stock options relating to shares in the capital of The
Spectranetics Corporation (the "Stock Options") which have vested and
are owned and exercisable by Employee as per Termination Date, as
mentioned in employee's Personal Option Status as per Termination Date,
may be exercised during a period of three (3) months from Termination
Date and in accordance with the terms and conditions of the Stock
Option Plan. A copy of the Employee's Personal Option Status as per
February 15, 2000 is attached to this Agreement. Employee will not earn
any new Stock Options as from January 1, 2000.
(iv) Computer
3
<PAGE> 4
Employee must return the computer Gateway Solo provided by Employer
to Employee at the office address of Employer at Leusden no later than
the calendar day immediately following Termination Date.
No later than the Termination Date, Employee shall return to the
Employer the following items:
o All keys to the Employer's premises situated at Leusden, as
well as any and all other keys in the possession or control
of Employee which would give Employee access to Employer's
premises.
o KLM Credit Card
o Scope card
Employee will also receive a letter of reference from Employer describing his
responsibilities during his employment with Employer. Such letter may be used
by the Employee for the purposes of procuring employment. Notwithstanding the
foregoing, such letter shall be considered as an integral part of this
Agreement and use of such letter shall be governed by Paragraph 4(a) of this
Agreement relating to Confidentiality and Non-Disclosure.
The foregoing contains all compensation, benefits and rights to which Employee
shall be entitled as a result of his separation from Employer. Employee
specifically and irrevocably waives all other compensation, benefits and rights
to which Employee may be entitled to under the 1993 Agreement, 1997 Agreement
or any applicable laws or court decisions.
4. RETURN OF EMPLOYER PROPERTY
Employee agrees to return to Employer no later than 4:00 P.M. on the
Termination Date, without limitation, all correspondence, papers, documents,
files, data, computer software and programs, work in progress, customer lists,
business plans, contracts, business proposals, notes, drawings, calculations,
and any other property belonging to Employer and all subsidiaries/group
companies of Employer, both in The Netherlands and abroad, which may be in
Employee's possession or control, whether or not such materials were addressed
to Employee personally or otherwise ("Employer Property").
Employee further agrees to retain no duplicates or copies of any Employer
Property without the prior express written consent of Employer. To the extent
not covered herein, Employer agrees to comply fully with the provisions of
Articles 10 and 11.3 of the 1993 Agreement and Articles 10, 11.3, 12.4, and
13.5 of the 1997 Agreement.
5. CONFIDENTIALITY
a. Non-Disclosure of Separation Agreement
Employee covenants and agrees that Employee will hold the terms and
conditions of this Agreement in the strictest of confidence and that
Employee will not disclose to any other employee of the Employer, nor
any other third party (other than Employee's legal counsel), any of the
terms or conditions of this Agreement without first obtaining the
express written consent of the Employer.
4
<PAGE> 5
This Agreement may not be introduced into evidence in the connection
with any legal or other process, by Employee against Employer, or by
Employer against Employee, for any reason other than the enforcement of
its terms.
b. Protection of Employer Proprietary Information
Employee further acknowledges and agrees that during the course of
employment with Employer, Employee's relationship with Employer was one
of high trust and confidence and that in the course of such employment
with Employer, Employee had access and made use of a variety of
proprietary information of the Employer, including information relating
to Employer's business, marketing plans, products, software programs,
manuals, guides, customer lists, business plans, client proposals, and
confidential documents and communications within or concerning Employer
and its affiliates which are not freely available to outsiders
(collectively, "Proprietary Information"). Employee hereby agrees and
covenants that Employee will not disclose to any third party any
Proprietary Information in Employee's possession or control without the
prior express written consent of Employer.
c. Survival of Confidentiality
Employee further agrees that the Confidentiality provisions of Article
11 of the 1993 Agreement and of Article 11 of the 1997 Agreement
remain in full force and effect, and are incorporated herein by
reference. Nothing contained herein limits the terms or effectiveness
of such provisions, nor limits Employer's rights and/or remedies
thereunder.
6. ADEQUATE COMPENSATION
Employee covenants and agrees that the Severance Pay, taking into consideration
all relevant facts and circumstances, including but not limited to Employee's
knowledge and experience and his position on the relevant employment market,
constitutes adequate and sufficient compensation for Employee's obligations
described in article 2 and article of this Agreement.
7. RELEASE
Employee covenants and agrees that this Agreement constitutes the full and
final resolution of all claims and demands that Employee has or may have
against Employer arising out of Employee's employment relationship with
Employer, Employee's termination of employment with Employer, or for any other
reason whatsoever. Employee further waives any and all rights that Employee has
or may have against Employer to make and claim or demand for damages, injury or
loss of whatever kind or natures, and/or to commence, continue, prosecute,
cause or permit to be prosecuted any action or proceeding of any type or
description against Employer or its shareholders, officers, directors, agents,
employees, affiliates, associates, successors, assigns, parent or subsidiary
companies or insurers arising out of Employee's employment with Employer,
Employee's termination of employment with Employer, or for any other reason
whatsoever.
8. REPRESENTATION OF THE COMPANY
5
<PAGE> 6
Employee covenants and agrees that as of the Termination Date, Employee shall no
longer be an employee, agent, or representative of Employer in any capacity,
and thus Employee shall not have, nor represent that he has, any power to
represent or to bind Employer.
9. DISMISSAL AS MANAGING DIRECTOR
Employee covenants and agrees to be dismissed and discharged by The
Spectranetics Corporation in its capacity of sole shareholder of Spectranetics
International B.V., and by Spectranetics International B.V., as Managing
Director ("ontslagen en gedechargeerd als statutair directeur") of Spectranetics
International B.V. as of the Termination Date. To the extent legally required,
Employee waives the right to be heard by the General Meeting of Shareholders of
the Spectranetics International B.V. in connection with a resolution for
dismissal of Employee as Managing Director of that company. Employee further
agrees to assist Employer and take all actions necessary in order to effectuate
such dismissal, including the execution of documents, as necessary, for filing
with the competent Trade Register.
10. COURT ORDER; NO MODIFICATION
Employee and Employer covenant and agree that the terms of this Agreement
concerning compensation to be paid to employee shall not be superseded or
altered by any court order received as a result of the actions taken pursuant to
paragraph 1 to this Agreement and that this Termination Agreement shall govern
the terms of Employee's termination in all respects. Employee specifically
waives his right to enforce such court order to the extent the indemnity for the
termination of employee's employment exceeds the indemnity agreed to in this
Agreement. Employer specifically waives its right to enforce such court orders
to the extent the indemnity for the termination of Employee's employment is less
than that agreed to herein.
11. SEVERABILITY
In case any one or more of the provisions of this Agreement shall 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 thereby.
12. BINDING AGREEMENT
The Agreement shall be binding upon and inure to the benefit of the heirs,
executors, administrators, successors, and assigns of Employee and Employer.
13. GOVERNING LAW; JURISDICTION
This Agreement and all rights of Employee and Employer hereunder shall be
governed, construed, and interpreted in accordance with the laws of The
Netherlands. The courts in the District of Utrecht shall have exclusive
jurisdiction of all disputes arising under or related to this Agreement.
14. COMPLETE AGREEMENT; AMENDMENT OR MODIFICATION
Employee and Employer do hereby for themselves, their heirs, executors,
administrators, successors, assigns, trustees, and next of kin covenant that no
promise, agreement, statement, or representation not herein expressed has been
made to or relied upon by them and that this Agreement contains the entire
agreement between Employee and Employer.
6
<PAGE> 7
No modification or addendum to this Agreement shall be valid unless made in
writing and signed by the parties hereto.
15. RELATION TO 1993 AGREEMENT AND 1997 AGREEMENT
To the extent any provision contained herein conflicts with any provision of
the 1993 Agreement or the 1997 Agreement, the provisions of this Agreement
shall be controlling and shall supersede those of the 1993 Agreement and the
1997 Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first written above by: on behalf of Employer, its duly
authorized representative; and by Employee, personally.
THE SPECTRANETICS CORPORATION HENDRICUS KOS
/s/ DALE T. MUTH /s/ HENDRICUS KOS
By: Dale T. Muth
Position: Vice President Human Resources
SPECTRANETICS INTERNATIONAL B.V.
/s/ DALE T. MUTH
By: Dale T. Muth
Position: Directeur
7
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATIONS AS FOUND ON
PAGES 2 AND 3 OF THE COMPANY'S FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 2000 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 4,058
<SECURITIES> 4,939
<RECEIVABLES> 6,132
<ALLOWANCES> 0
<INVENTORY> 3,316
<CURRENT-ASSETS> 647
<PP&E> 3,856<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 33,285
<CURRENT-LIABILITIES> 7,983
<BONDS> 0
0
0
<COMMON> 23
<OTHER-SE> 22,867
<TOTAL-LIABILITY-AND-EQUITY> 33,285
<SALES> 6,662
<TOTAL-REVENUES> 6,662
<CGS> 2,274
<TOTAL-COSTS> 2,274
<OTHER-EXPENSES> 5,547
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30
<INCOME-PRETAX> (894)
<INCOME-TAX> 0
<INCOME-CONTINUING> (894)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (894)
<EPS-BASIC> (.04)
<EPS-DILUTED> (.04)
<FN>
<F1>PP&E is presented net of accumulated depreciation.
</FN>
</TABLE>
