<PAGE>
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UNITED STATES
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 FISCAL QUARTER ENDED SEPTEMBER 30, 1997
[ ] 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: 0-27596
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CONCEPTUS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 94-3170244
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1021 HOWARD AVENUE
SAN CARLOS, CA 94070
(Address of principal executive offices)
Registrant's telephone number, including area code: (650) 802-7240
___________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for at least the past 90 days.
Yes X No
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As of September 30, 1997, 9,476,387 shares of the Registrant's Common
Stock were outstanding.
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<PAGE>
CONCEPTUS, INC.
FORM 10-Q For the Quarter Ended September 30, 1997
INDEX
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Facing sheet 1
Index 2
Part I. Financial Information
Item 1. a) Consolidated balance sheets at September 30, 1997 and December 31, 1996 3
c) Consolidated statements of operations for the three and nine month periods
ended September 30, 1997 and September 30, 1996 4
c) Consolidated statements of cash flows for the three and nine month periods
ended September 30, 1997 and September 30, 1996 5
d) Notes to consolidated financial statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk 11
Part II. Other Information 12
Signature 13
Index to Exhibits 14
</TABLE>
2
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PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONCEPTUS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------ -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 10,374 $ 16,939
Short-term investments 11,184 18,286
Accounts receivable, net 409 105
Inventories 238 182
Other current assets 285 234
--------- ---------
Total current assets 22,490 35,746
Property and equipment, net 995 543
Long-term investments 9,098 3,796
Other assets 930 8
--------- ---------
$ 33,513 $ 40,093
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 783 $ 588
Accrued compensation 590 455
Accrued acquisition costs - 1,000
Other accrued liabilities 348 302
Current portion of deferred revenue 97 -
Current portion of debt and capital lease obligations 50 119
--------- ---------
Total current liabilities 1,868 2,464
Long-term portion of debt and capital lease obligations 4 34
Deferred revenue 364 -
Commitments
Stockholders' equity:
Common stock, $0.003 par value, 30,000,000 shares authorized, 63,475 61,876
9,476,387 and 9,206,795 shares issued and outstanding at
September 30, 1997 and December 31, 1996, respectively
Stockholder notes receivable (49) (49)
Deferred compensation (397) (559)
Deficit accumulated during the development stage (31,752) (23,673)
--------- ---------
Total stockholders' equity 31,277 37,595
--------- ---------
$ 33,513 $ 40,093
--------- ---------
--------- ---------
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
CONCEPTUS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 310 $ 236 $ 1,011 $ 423
Cost of sales 562 374 1,756 768
------- ------- -------- -------
Gross profit (252) (138) (745) (345)
Operating expenses:
Research and development 1,151 965 4,120 2,668
Selling, general and administrative 1,605 1,232 4,653 3,424
------- ------- -------- -------
Total operating expenses 2,756 2,197 8,773 6,092
------- ------- -------- -------
Operating loss (3,008) (2,335) (9,518) (6,437)
Interest and investment income, net 503 612 1,439 1,620
------- ------- -------- -------
Net loss $(2,505) $(1,723) $ (8,079) $(4,817)
------- ------- -------- -------
------- ------- -------- -------
Net loss per share $ (0.26) $ (0.19) $ (0.86) $ (0.59)
------- ------- -------- -------
------- ------- -------- -------
Shares used in computing net loss per share 9,466 9,143 9,347 8,134
------- ------- -------- -------
------- ------- -------- -------
</TABLE>
See notes to consolidated financial statements.
-4-
<PAGE>
CONCEPTUS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES
Net loss $ (2,505) $ (1,724) $ (8,079) $ (4,818)
Adjustments to reconcile net loss to net cash
from operating activities:
Depreciation and amortization 129 80 347 219
Amortization of deferred compensation 48 54 451 165
Recognition of deferred revenue (24) - (24) -
Changes in operating assets and liabilities:
Accounts receivable (48) (160) (304) (216)
Inventory (87) (104) (56) (145)
Other current assets 82 (181) (51) 71
Accounts payable (127) 160 195 (68)
Accrued compensation 177 165 134 153
Other accrued liabilities 61 - 184 314
---------- ---------- ---------- ---------
Net cash used in operating activities (2,294) (1,710) (7,203) (4,325)
---------- ---------- ---------- ---------
CASH FLOWS FROM/(USED IN) INVESTING ACTIVITIES
Purchase of investments (9,098) (6,117) (32,052) (29,414)
Maturities of investments 7,796 - 33,852 2,090
Capital expenditures (88) (95) (799) (283)
Change in other assets (20) 12 (910) 15
---------- ---------- ---------- ---------
Net cash from/(used in) investing activities (1,410) (6,200) 91 (27,592)
---------- ---------- ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from distributor agreement 485 - 485 -
Proceeds from issuance of common stock 23 108 161 44,181
Principal payments on debt and capital obligations (24) (41) (99) (121)
---------- ---------- ---------- ---------
Net cash from financing activities 484 67 547 44,060
---------- ---------- ---------- ---------
Net change in cash and cash equivalents (3,220) (7,843) (6,565) 12,143
Cash and cash equivalents at beginning of period 13,594 22,834 16,939 2,848
---------- ---------- ---------- ---------
Cash and cash equivalents at end of period $ 10,374 $ 14,991 $ 10,374 $ 14,991
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest $ 4 $ 6 $ 11 $ 20
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
SUPPLEMENTAL DISCLOSURE OF NON CASH FINANCING INFORMATION
Conversion of preferred stock to common stock $ - $ - $ - $ 16,624
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
Issuance of common stock to Microgyn shareholders $ - $ - $ 1,000 $ -
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
</TABLE>
See notes to consolidated financial statements.
-5-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
METHOD OF PREPARATION
The accompanying consolidated balance sheet as of September 30, 1997 and
the consolidated statements of operations and cash flows for the three and
nine month periods ended September 30, 1997 and 1996 have been prepared by
Conceptus, Inc. ("Conceptus" or the "Company"), without audit. In the
opinion of management, all adjustments necessary to present fairly the
financial position, results of operations, and cash flows at September 30,
1997, and for all periods presented, have been made.
Although the Company believes that the disclosures in these financial
statements are adequate to make the information presented not misleading,
certain information and footnote disclosures required by Generally Accepted
Accounting Principles for complete financial statements have been omitted
pursuant to the rules and regulations of the Securities and Exchange
Commission ("SEC"). This financial data should be reviewed in conjunction
with the audited financial statements and notes thereto included in the
Company's Form 10-K for the year ended December 31, 1996. The results of
operations for the three and nine months ended September 30, 1997 may not
necessarily be indicative of the operating results for the full 1997 fiscal
year.
COMPUTATION OF NET LOSS PER SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per
share, the dilutive effect of stock options will be excluded. The impact of
Statement 128 is expected to result in no change to the Company's net loss
per share for the three and nine month periods ended September 30, 1997 and
1996, because antidilutive stock options have been excluded from the current
computation. The impact of Statement 128 on the calculation of fully diluted
earnings per share for these periods is not expected to be material.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform with
current year presentation.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
unaudited financial statements and notes thereto included in Part I-Item 1 of
this Quarterly Report. In addition, except for the historical statements
contained therein, the following discussion contains forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act
of 1934, as amended. The Company wishes to alert readers that the factors
set forth in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996 and in the Company's prospectus dated February 1, 1996
under the heading "Risk Factors", as well as other factors, including those
set forth in the following discussion could in the future affect, and in the
past have affected, the Company's actual results and could cause the
Company's results for future periods to differ materially from those
expressed in any forward-looking statements made by or on behalf of the
Company.
OVERVIEW
Since its inception on September 18, 1992, Conceptus has been primarily
engaged in the design, development and marketing of innovative medical
devices that provide minimally invasive devices for reproductive
applications. The Company has a limited history of operations and has
experienced significant operating losses since inception. Operating losses
are expected to continue for at least the next several years as the Company
continues to expend substantial resources to fund clinical trials in support
of regulatory and reimbursement approvals, conduct research and development,
and expand marketing and sales activities.
The Company's primary commercial products, the T-TAC (Transcervical
Tubal Access Catheter) and STARRT (Selective Tubal Assessment to Refine
Reproductive Therapy) Falloposcopy systems have generated limited sales to
date. In the fourth quarter of 1996, the Company presented results from the
International Multicenter Study of Falloposcopy of its STARRT Falloposcopy
system. Study data showed that use of the STARRT system altered infertility
diagnosis in the majority of cases versus conventional infertility diagnosis.
The Company is developing a second generation STARRT catheter designed to
improve the performance of the STARRT system.
The Company currently sells its T-TAC and STARRT products to
international markets through a limited number of distributors who resell to
physicians and hospitals. Domestically, the Company sells its products
through a small direct sales force and U.S. distributors. In 1996, the
Company made adjustments to the profile of its distributors, resulting in
replacement and addition of new distributors in international markets. Sales
to distributors are made on open credit terms and may include purchase
discounts. Sales in 1997 and 1996 consisted primarily of commercial
shipments of T-TAC products.
On November 26, 1996, the Company completed the acquisition of Microgyn,
Inc. ("Microgyn"), a privately held medical device company developing
products designed to improve the safety and performance of resectoscope
procedures, including therapeutic hysteroscopy. The Company acquired all of
the outstanding common stock of Microgyn in exchange for $3.0 million in cash
on the acquisition date and $1.0 million in cash or stock (at the option of
Conceptus) payable six months after the acquisition date, plus $752,000 due
to assumption of certain liabilities and related acquisition expenses. In May
1997, the Company satisfied the $1.0 million accrued acquisition cost by
issuing 104,708 shares of Common Stock. Additional contingent consideration
in cash or stock, at the option of Conceptus, is
7
<PAGE>
payable to the former shareholders of Microgyn based upon meeting certain
future milestones. The Company is continuing product development, clinical
and marketing activities, is pursuing additional regulatory clearance on
products acquired in the acquisition, and is developing a distribution
strategy for both international and domestic customers.
In the first quarter of 1997, the Company received 510(k) clearance for
its FUTURA Resectoscope Sheath for urology applications. In September 1997,
the Company received 510(k) clearance for its ERA Resectoscope Sheath for
gynecological procedures. Also in September 1997, the Company entered into a
marketing and distribution agreement with Imagyn Medical Technologies,
formerly UroHealth, Inc. ("Imagyn"), granting Imagyn an exclusive, worldwide
license to distribute products for urological applications of the
resectoscope sheath. The Company intends to sell the ERA Resectoscope Sheath
for gynecologic applications in the United States and internationally through
a combination of a direct sales force and distributors in certain markets and
regions.
Certain of the Company's products are currently manufactured by certain
original equipment manufacturers while others are manufactured by Conceptus
at its location in San Carlos, California. If the T-TAC, STARRT, and
Microgyn resectoscope products are accepted by the market, the Company
expects to increase its direct manufacturing operations in order to better
control product costs and improve gross margin. Future revenues and results
of operations may fluctuate significantly from quarter to quarter and will
depend upon, among other factors, actions relating to regulatory and
reimbursement matters, the extent to which the Company's products gain market
acceptance, the rate at which the Company establishes its domestic and
international distribution network, the timing and size of distributor
purchases, the progress of clinical trials, and the introduction of
competitive products for diagnosis and treatment of the female reproductive
system.
The Company continues to devote significant resources to the product
development program for the S/TOP Permanent Contraception device, a
non-surgical alternative to surgical tubal ligation, the most commonly used
method of sterilization. The system utilizes a unique micro-coil designed to
be permanently implanted into the fallopian tube in order to obtain effective
sterilization. In July 1997, the Company commenced a Phase II efficacy
study of the S/TOP system in Australia. The Phase II study involves device
placement in fertile women who desire permanent sterilization. Study
patients will be clinically monitored for a minimum of two years.
RESULTS OF OPERATIONS - THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Sales increased to $310,000 and $1,011,000 for the three and nine months
ended September 30, 1997, respectively, from $236,000 and $423,000 for the
same respective periods in the prior year. The $74,000 increase in sales in
the third quarter of 1997 as compared to the prior year period is primarily
due to an initial stocking order to Imagyn for loops used in conjunction with
the FUTURA Resectoscope Sheath. The $588,000 increase in sales in the first
nine months of 1997 compared to the prior year period is primarily due to
shipments of the Company's T-TAC products to a significant U.S. distributor.
It is anticipated that the near term product shipments will consist primarily
of Microgyn resectoscope products rather than the Company's T-TAC products.
Additionally, near term shipments of T-TAC products are expected to be below
historical levels. Domestic sales comprised 92% and 90% of sales for the
three and nine month periods ended September 30, 1997, respectively, compared
with 81% and 70% in the prior year periods.
8
<PAGE>
Cost of sales increased to $562,000 and $1,756,000 for the three and
nine months ended September 30, 1997, respectively, from $374,000 and
$768,000 for the same respective periods in the prior year. The $188,000
increase in cost of sales in the third quarter of 1997 as compared to the
prior year period is due to increased manufacturing overhead needed to
support increased unit manufacturing volume combined with purchase price
variances and increased inventory reserves. The $988,000 increase in cost of
sales in the first nine months of 1997 compared to the prior year period is
due to the same factors as well as increased unit shipments in the current
year of the Company's T-TAC products. The Company expects that cost of sales
will increase in absolute dollars due to expected increase of unit shipments
of Microgyn resectoscope products. Additionally, the Company expects to
incur substantial costs associated with scale-up of manufacturing activities.
These activities will include a build-out of a new manufacturing facility
primarily for the manufacture of the Microgyn resectoscope products,
equipment purchases, increased manufacturing personnel and related support
activities.
Research and development ("R&D") expenses, which include clinical and
regulatory expenses as well as costs associated with acquiring new products
or technologies, increased to $1,151,000 and $4,120,000 for the three and
nine months ended September 30, 1997, respectively, from $965,000 and
$2,668,000 for the same respective periods in the prior year. The $186,000
increase in R&D expenses in the third quarter of 1997 as compared to the
prior year period is primarily due to increased costs associated with
supporting various clinical and regulatory efforts related to both the STARRT
and S/TOP systems. The $1,452,000 increase in R&D expenses in the first
nine months of 1997 as compared to the prior year period is primarily due to
the previously discussed factors as well as on-going development activities
related to products acquired in the acquisition of Microgyn, an increased
number of R&D employees and related personnel expenses. The Company believes
that its investment in product development is an essential element of its
efforts to establish its competitive position and to continue the development
of future products. Accordingly, the Company expects to continue to make
substantial expenditures on product development and to increase the dollar
amount expended for R&D.
Selling, general and administrative ("SG&A") expenses increased to
$1,605,000 and $4,653,000 for the three and nine months ended September 30,
1997, respectively, from $1,232,000 and $3,424,000 for the same respective
periods in the prior year. This increase is primarily due to an increase in
headcount to support planned internal growth, increased costs of being a
public company, and various consulting and legal costs associated with
corporate strategic planning. The Company anticipates that the dollar amount
expended for SG&A will continue to increase, primarily due to expenses
associated with increasing the size of the domestic sales force, and
introducing and marketing the Company's Microgyn resectoscope and STARRT
products, which will require increased physician training.
Net interest and other income decreased to $503,000 and $1,439,000 for
the three and nine months ended September 30, 1997, respectively, from
$612,000 and $1,620,000 for the same respective periods in the prior year.
The decrease is due to a lower average invested cash balance as the proceeds
of the Company's initial public offering of Common Stock on February 1, 1996
have been utilized during 1996 and 1997.
As a result of the items discussed above, net loss increased to
$2,505,000 and $8,079,000 for the three and nine months ended September 30,
1997, respectively, from $1,723,000 and $4,817,000 for the same respective
periods in 1996.
9
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The Company has a limited history of operations. Since its inception in
September 1992, the Company has been engaged primarily in research and
development of its T-TAC and STARRT Falloposcopy systems, tubal sterilization
products and Microgyn resectoscope products. The Company has generated only
limited revenues, primarily from sales to domestic and international
distributors as well as sales in international markets for clinical trials,
and does not have experience in manufacturing, marketing or selling its
products in commercial quantities. Moreover, because of the Company's
limited revenues, relatively small changes in absolute dollars in the
Company's revenues could result in a relatively large percentage change in
the Company's revenues on a quarterly or annual basis. The Company has
experienced significant operating losses since inception and, as of September
30, 1997, had an accumulated deficit of $31.8 million. The Company expects
its operating losses to continue for at least the next several years as it
continues to expend substantial resources in funding clinical trials in
support of regulatory and reimbursement approvals, expansion of
manufacturing, marketing and sales activities and research and product
development or acquisition. Due to the expense and unpredictable nature of
these activities, there can be no assurance that the Company will achieve or
sustain profitability on a quarterly or annual basis in the future.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company's cash expenditures have significantly
exceeded its sales, resulting in an accumulated deficit of $31.8 million at
September 30, 1997. On February 1, 1996, the Company completed an initial
public offering of 3,450,000 shares of its Common Stock at $14.00 per share
for net proceeds of $44.1 million. Prior to the initial public offering, the
Company funded its operations since incorporation primarily through the
private placement of equity securities, as well as through interest income,
equipment financing and secured loan arrangements. Through December 31,
1995, the Company raised approximately $16.6 million from the private
placement of equity securities.
At September 30, 1997, Conceptus had cash, cash equivalents and
investments of $30.7 million, compared with $39.0 million at December 31,
1996. The decrease is due to approximately $7.2 million used in operating
activities combined with capital expenditures in the first nine months of
1997 of $799,000 compared with $283,000 in the prior year period. This
increase is largely due to expenditures for a new enterprise computer system,
expenditures necessary to support the growth in employees, and new equipment
for manufacturing scale-up of Microgyn resectoscope products.
Conceptus believes that its existing capital resources will be
sufficient to fund its operations through 1998. However, the Company's
future liquidity and capital requirements will depend upon numerous factors,
including the progress of the Company's clinical research and product
development programs, the receipt of and the time required to obtain
regulatory clearances and approvals, and the resources the Company devotes to
developing, manufacturing and marketing its products. The Company's capital
requirements will also depend on, among other things, the resources required
to hire and develop a direct sales force in the United States, the resources
required to expand manufacturing capacity and facilities requirements and the
extent to which the Company's products generate market acceptance and demand.
In addition, the Company may use its capital resources to acquire products,
technologies or companies. Accordingly, there can be no assurance that the
Company will not require additional financing within this time frame and,
therefore, may in the future seek to raise additional funds through bank
facilities, debt or equity offerings or other sources of capital. Additional
funding may not be available when needed or on terms acceptable to the
Company, which would have a material adverse effect on the Company's
business, financial condition and results of operations.
10
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
11
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS IN SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.16 Marketing and Distribution Agreement, dated as of September 16, 1997,
between the Registrant and Urohealth
27.1 Financial Data Schedule
27.2 Amended Financial Data Schedule for the period from January 1, 1996
to June 30, 1996
27.3 Amended Financial Data Schedule for the period from January 1, 1996
to September 30, 1996
27.4 Amended Financial Data Schedule for the period from January 1, 1997
to June 30, 1997
(b) Reports on Form 8-K.
One Report on Form 8-K was filed on September 10, 1997 reporting a
press release announcing that the Company had received United
States Food and Drug Administration (FDA) clearance to market its
ERA (Endometrial Resection and Ablation) Resectoscope Sheath for
gynecological procedures.
12
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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.
CONCEPTUS, INC.
By: /s/ SANFORD FITCH
--------------------------------------
Sanford Fitch
Senior Vice President
and Chief Financial Officer
(Duly Authorized and Principal Financial
and Accounting Officer)
Date: November 7, 1997
13
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.16 Marketing and Distribution Agreement, dated as of September 16, 1997,
between the Registrant and Urohealth
27.1 Financial Data Schedule
27.2 Amended Financial Data Schedule for the period from January 1, 1996
to June 30, 1996
27.3 Amended Financial Data Schedule for the period from January 1, 1996
to September 30, 1996
27.4 Amended Financial Data Schedule for the period from January 1, 1997
to June 30, 1997
14
<PAGE>
CONCEPTUS, INC.
MARKETING AND DISTRIBUTION AGREEMENT
This Marketing and Distribution Agreement (the "AGREEMENT") is entered into
as of September 16, 1997 (the "Effective Date"), between CONCEPTUS, INC., a
corporation organized under the laws of Delaware, with principal offices at 1021
Howard Avenue, San Carlos, California 94070 ("CONCEPTUS") and UROHEALTH, a
corporation organized under the laws of Delaware, with principal offices
at 5 Civic Plaza, Suite 100, Newport Beach, CA 92660 ("UROHEALTH").
RECITALS
A. UROHEALTH represents that it has the capability and resources to
promote and sell CONCEPTUS's MicroGyn bipolar sheath products for urology
applications and to fulfill the needs and requirements of customers for such
products worldwide.
B. CONCEPTUS desires to appoint UROHEALTH to promote, sell and distribute
CONCEPTUS's MicroGyn bipolar sheath products for urology applications worldwide
in accordance with the terms and conditions stated herein.
AGREEMENT
IN CONSIDERATION OF THE FOREGOING, it is mutually agreed by and between the
parties as follows:
1. DEFINITIONS. For purposes of this Agreement, the following terms
shall have the following meanings:
(a) "INTERNATIONAL TERRITORY" shall mean the entire world, excluding
the U.S. Territory.
(b) "KITS" shall mean a collection of more than one surgical device
or instrument that (i) contains a Product, (ii) contains a .010" specialty loop
product and (iii) is sold as a packaged collection.
(c) "PRODUCTS" shall mean the FUTURA Sheath products manufactured by
or on behalf of CONCEPTUS and identified on EXHIBIT A.
(d) "TERRITORY" shall mean the U.S. Territory and the International
Territory.
(e) "U.S. TERRITORY" shall mean the United States of America and its
possessions.
<PAGE>
2. GRANT OF MARKETING AND DISTRIBUTION RIGHTS.
(a) APPOINTMENT. CONCEPTUS hereby grants to UROHEALTH the exclusive
right to purchase from CONCEPTUS the Products for sale for urology applications
worldwide. CONCEPTUS appoints UROHEALTH as its exclusive representative in the
Territory to promote, sell, market and distribute the Products in the Territory
for urology applications. UROHEALTH hereby accepts the appointment and agrees
to represent CONCEPTUS on the terms and conditions set forth herein and in
accordance with the Terms and Conditions of Sale attached hereto as EXHIBIT B
and incorporated herein by reference and made a part hereof. After Kits are
available, UROHEALTH shall only sell the Products in the US Territory in Kits.
CONCEPTUS shall make available for purchase by UROHEALTH sufficient quantities
of Products in light of UROHEALTH's Rolling Forecasts (as defined below) to meet
UROHEALTH's reasonable needs and requirements in order to fulfill the terms and
conditions of this Agreement.
(b) DIRECT SALES. During the term of this Agreement CONCEPTUS shall
not have the right to make sales of Products for urology applications directly
itself, or indirectly through affiliates, agents, distributors or otherwise
other than through UROHEALTH within the Territory for which UROHEALTH has
exclusive distribution rights for such Products pursuant to this Agreement.
(c) PROMOTION OF PRODUCTS. UROHEALTH agrees to use commercially
reasonable efforts to develop a market for and promote the Products in the
Territory.
(d) TAKE OR PAY MINIMUM PURCHASE COMMITMENTS. UROHEALTH agrees to
purchase from CONCEPTUS Products for sale in the Territory with the minimum
aggregate purchase prices set forth on EXHIBIT C over the time periods set forth
therein (the "TAKE OR PAY MINIMUM PURCHASE COMMITMENTS").
(e) FAILURE TO MEET TAKE OR PAY MINIMUM PURCHASE COMMITMENTS. In the
event that UROHEALTH fails to meet a particular Take or Pay Minimum Purchase
Commitment for either the US Territory or the International Territory, CONCEPTUS
shall notify UROHEALTH within 10 days after the end of the applicable period of
UROHEALTH's failure to meet the Take or Pay Minimum Purchase Commitment and the
amount of the shortfall for the US Territory or the International Territory, as
applicable. Thereafter, UROHEALTH must purchase Products equal to the amount of
the shortfall for such period, at the purchase price which would have applied
had UROHEALTH purchased such Products on the last day of such period, within 20
days after the end of the applicable period. If UROHEALTH does not satisfy its
obligations set forth in the preceding sentence, CONCEPTUS may, at its option
and in addition to any other legal or equitable remedies it may have, terminate
this Agreement effective immediately upon notice of termination.
(f) YEARLY MINIMUM PURCHASE COMMITMENTS. Beginning not later than
October 1 of each year during the term of this Agreement, commencing with 1998,
UROHEALTH and CONCEPTUS will negotiate in good faith to establish a worldwide
minimum purchase commitment (in units) for UROHEALTH for the Products (the
"YEARLY
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MINIMUM PURCHASE COMMITMENTS") for the next calendar year. UROHEALTH hereby
agrees that, beginning in the 1999 calendar year and for each calendar year
thereafter during the term of this Agreement, it will purchase from CONCEPTUS
Products in order to meet the Yearly Minimum Purchase Commitments agreed upon
by UROHEALTH and CONCEPTUS. In the event that the parties cannot agree on a
Yearly Minimum Purchase Commitment for a calendar year within the applicable
90-day negotiation period, the Yearly Minimum Purchase Commitment for such
calendar year shall be equal to UROHEALTH's actual end-user sales for the
previous calendar year (in units) multiplied by 1.25.
(g) FAILURE TO MEET YEARLY MINIMUM PURCHASE COMMITMENTS. In the
event that UROHEALTH fails to meet a Yearly Minimum Purchase Commitment for any
calendar year during the term of this Agreement, CONCEPTUS may, at its option,
terminate this Agreement effective immediately upon notice of termination.
(h) ASSUMPTIONS. The Take or Pay Minimum Purchase Commitments set
forth on EXHIBIT C assume that CONCEPTUS satisfies its obligations to supply
Products to UROHEALTH pursuant to this Agreement. In the event that the
assumption set forth in the preceding sentence is not met, UROHEALTH and
CONCEPTUS will mutually agree to appropriate reductions in the Take or Pay
Minimum Purchase Commitments.
3. PRODUCTS. UROHEALTH shall have the rights of first refusal set forth
in this Section to distribute under this Agreement for urology applications all
products constituting improvements or enhancements of any Product (each, a "Next
Generation Product"). CONCEPTUS will inform UROHEALTH promptly when any Next
Generation Product is ready for the market. CONCEPTUS will by written notice
offer UROHEALTH the right to add such Next Generation Product to this Agreement
for exclusive distribution by UROHEALTH in the Territory, subject to the parties
agreeing upon the applicable transfer pricing and minimum purchase commitments
for such Next Generation Product. In the event UROHEALTH decides that it does
not want to add the Next Generation Product to this Agreement, or in the event
that, notwithstanding their good faith negotiations, the parties cannot agree on
the applicable transfer pricing or minimum purchase commitments for such Next
Generation Product within 45 days from the effectiveness of the notice delivered
by CONCEPTUS, CONCEPTUS shall have the right to have such Next Generation
Product distributed in the Territory by one or more other representatives.
4. PRICES; PURCHASE ORDERS.
(a) PRICES. Prices to UROHEALTH shall be in United States dollars
and will be as set forth in EXHIBIT D hereto. All prices are calculated and
stated in EXHIBIT D as F.O.B. CONCEPTUS's distribution site, currently located
in San Carlos, California. Customs, duties and charges, if any, shall be borne
by UROHEALTH. All import or export licenses, approvals or both shall be
obtained by UROHEALTH at its cost. Prices to UROHEALTH do not include any
federal, state, local or foreign taxes directly applicable to the sale by
CONCEPTUS to UROHEALTH of the Products. When CONCEPTUS has the legal obligation
to collect such taxes, the appropriate amount shall be added to UROHEALTH's
invoice and paid by
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UROHEALTH unless UROHEALTH provides CONCEPTUS with a valid tax exemption
certificate authorized by the appropriate taxing authority.
(b) PURCHASE ORDERS. Pursuant to this Agreement, UROHEALTH will
submit purchase orders for the Products ("PURCHASE ORDERS"). Such Purchase
Orders shall be subject to the Terms and Conditions attached hereto as EXHIBIT
B. Within fourteen (14) days after the Effective Date and in any event by
September 20, 1997, UROHEALTH shall submit an initial Purchase Order for
Products with an aggregate purchase price of at least three hundred fifty
thousand dollars ($350,000).
5. PAYMENT. Full payment of UROHEALTH's purchase price (including any
freight, taxes or other applicable costs initially paid by CONCEPTUS but to be
borne by UROHEALTH) shall be in United States of America dollars. Payment terms
shall be net forty-five (45) days, and payment shall be made by wire transfer,
check or other instrument approved by CONCEPTUS. Any invoiced amount not paid
when due shall be subject to a service charge at the lower of the rate of 1.5%
per month or the maximum rate permitted by law. If UROHEALTH fails to make any
payment to CONCEPTUS when due, CONCEPTUS may, without affecting its rights under
this Agreement, cancel or delay any future shipments to UROHEALTH until such
delinquent payment is made.
6. TERMS AND TERMINATION.
(a) TERM OF AGREEMENT. This Agreement shall commence on the
Effective Date and continue in full force and effect until midnight on December
31, 1998, unless terminated earlier under the provisions of this Section 6 or
other applicable termination provisions of this Agreement. At the end of such
fixed term, this Agreement may be renewed in one-year increments (but only for a
maximum of three one-year increments) provided that CONCEPTUS and UROHEALTH
agree in writing not later than 60 days prior to the end of such fixed term, and
each additional term, upon the terms and conditions of such renewal, including,
without limitation, any amendments to this Agreement and the exhibits hereto.
Neither party shall be under any obligation to renew this Agreement, and if such
written agreement is not reached prior to the end of the then-current contract
term, then this Agreement shall terminate at the end of such current contract
term.
(b) TERMINATION FOR CAUSE. If either party defaults in the
performance of any provision of this Agreement, and such default is not cured
within thirty (30) days of notice thereof from the nondefaulting party, then the
nondefaulting party may terminate this Agreement immediately upon written notice
to the defaulting party.
(c) TERMINATION FOR INSOLVENCY OR WRONGDOING. Either party may
terminate this Agreement in the event that the other party becomes insolvent,
files a petition in bankruptcy, is declared bankrupt, makes an assignment for
benefit of creditors or there is reasonable evidence indicating the imminent
possibility of such filing or assignment, during the term that this Agreement is
in effect. In addition, either party may terminate this Agreement in the event
the other party is found liable in any civil proceeding of any wrongdoing
involving its manufacture, development, marketing, sale or support of the
Products or any other products or is found guilty
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in any criminal proceeding of any wrongdoing. Termination under this
provision shall be effective 20 days following written notice that this
Agreement is being terminated for the reason stated in this Section 6(c).
(d) TERMINATION FOLLOWING A CHANGE OF CONTROL.
(i) CHANGE OF CONTROL OF CONCEPTUS. In the event of a Change
of Control (as defined below) of CONCEPTUS, either CONCEPTUS (or its
successor corporation) or UROHEALTH may terminate this Agreement by giving
thirty (30) days written notice to the other party within fifteen days of the
effective date of the Change of Control; provided, however, that if CONCEPTUS
(or its successor corporation) terminates this Agreement pursuant to this
Section 6(d)(i), CONCEPTUS (or its successor corporation) shall repurchase at
cost, within five business days after the effective date of such termination
and the receipt of the requisite information, that portion of UROHEALTH's
inventory that is equal to the last three months of UROHEALTH's actual sales
of Products to end-users prior to the effective date of such termination.
(ii) CHANGE OF CONTROL OF UROHEALTH. In the event of a Change
of Control (as defined below) of UROHEALTH, CONCEPTUS may terminate this
Agreement by giving thirty (30) days written notice to UROHEALTH within
fifteen days of the effective date of the Change of Control.
(iii) DEFINITION OF CHANGE OF CONTROL. For purposes of this
Agreement, a CHANGE OF CONTROL of a party shall mean the occurrence of any of
the following events: A merger or consolidation of such party whether or not
approved by its Board of Directors, other than a merger or consolidation
which would result in the voting securities of such party outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) at least 50% of the total voting power represented by the voting
securities of such party or such surviving entity outstanding immediately
after such merger or consolidation, or the stockholders of such party approve
an agreement for the sale or disposition by such party of all or
substantially all of such party's assets.
(e) TERMINATION FOR CONVENIENCE. Either party may terminate this
Agreement at any time upon one hundred-eighty (180) days written notice to the
other party.
(f) EFFECT OF TERMINATION; LIMITATION OF LIABILITY. Except as set
forth in Section 6(d), in the event of termination by either party in accordance
with any of the provisions of this Agreement, neither party shall be liable to
the other, because of such termination, for compensation, reimbursement or
damages on account of the loss of prospective profits or anticipated sales or on
account of expenditures, inventory, investments, leases or commitments in
connection with the business or goodwill of CONCEPTUS or UROHEALTH. Termination
shall not, however, relieve either party of obligations incurred prior to the
termination or of any obligations arising under this Agreement which by their
terms or by operation of law survive termination. Either UROHEALTH and
CONCEPTUS shall be entitled to cancel all Purchase Orders, to the extent
Products have not been delivered to UROHEALTH, which are outstanding
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at the time of notice of termination; provided however that, subject to
payment in advance to CONCEPTUS, UROHEALTH shall be entitled to receive
Products necessary to fulfill valid and binding purchase orders accepted by
UROHEALTH prior to notification of termination of this Agreement. Prior to
filling orders for such Products, CONCEPTUS shall be entitled to request and
receive documentary evidence of all such outstanding purchase orders and an
accounting of UROHEALTH's existing inventory of Products.
(g) POST-TERMINATION USE OF MATERIALS. After termination of this
Agreement, neither party shall use any signs, equipment, advertising matter or
other material which refer to or are related to the other party and each party
shall refrain from acts and omissions that indicate or suggest a relationship
with the other party and shall immediately return to the other party all of such
other party's property, promotional material, and proprietary information.
7. NOTICES.
(a) ADDRESSES. All notices given under this Agreement and the
provisions contained herein shall be sent by first class registered airmail,
postage prepaid and return receipt requested, by Federal Express, or by
Telecopier, or Facsimile as directed below:
To: CONCEPTUS, INC.
1021 Howard Avenue
San Carlos, California 94070
Attention: Vice President, Sales & Marketing
Telephone: (415) 802-7240
Facsimile: (415) 508-7646
when directed to CONCEPTUS, and
To: UROHEALTH
______________________________
______________________________
Attention: __________________
Telephone: __________________
Facsimile: __________________
when directed to UROHEALTH.
(b) DELIVERY. Notices shall be considered delivered when mailed or
sent by Telecopier or Facsimile in accordance with the provisions of Section
7(a) above, subject to proof of receipt by Telecopier or Facsimile confirmation
or by mail receipt.
8. MISCELLANEOUS.
(a) ASSIGNMENT. Neither this Agreement nor any of the rights and
obligations of either party under this Agreement may be transferred or assigned
directly or indirectly without the prior written consent of the other party.
Subject to the foregoing sentences, this Agreement
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shall be binding upon and inure to the benefit of the parties hereto and
their successors and assigns.
(b) ATTORNEY FEES. The prevailing party in any legal action brought
by one party against the other and arising out of this Agreement shall be
entitled, in addition to any other rights and remedies that such prevailing
party may have, to reimbursement for reasonable expenses incurred by such
prevailing party, including court costs and reasonable attorneys' fees.
(c) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(d) PARTIAL INVALIDITY. If any provision of this Agreement,
inclusive of the provisions set forth in the Terms and Conditions attached as
EXHIBIT B, is held to be invalid, then the remaining provisions shall
nevertheless remain in full force and effect. The parties agree to renegotiate
in good faith any term held invalid and to be bound by the mutually agreed
substitute provision.
(e) TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
(f) TENSES. As used herein, all singular nouns and pronouns shall
include the plural thereof, and vice versa, whenever the context and facts
require such construction.
IN WITNESS WHEREOF, this Marketing and Distribution Agreement has been
executed as of the day and year first above written.
CONCEPTUS, INC. UROHEALTH
("CONCEPTUS") ("UROHEALTH")
By: /s/ Kathryn Tunstall By: /s/ Charles Laverty
--------------------------------- ---------------------------------
Print Name: Kathryn Tunstall Print Name: Charles Laverty
------------------------- --------------------------
Title: President & CEO Title: Chairman/CEO
------------------------------ -------------------------------
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<PAGE>
EXHIBIT A
PRODUCTS
MICROGYN PRODUCTS FOR UROLOGY APPLICATIONS
FUTURA Sheath
.010" specialty loop
Kit
<PAGE>
EXHIBIT B
TERMS AND CONDITIONS OF SALE
These Terms and Conditions of Sale ("TERMS AND CONDITIONS") are
incorporated into and are a part of the Marketing and Distribution Agreement
(the "Agreement") relating to the marketing and distribution of the Products
in the Territory as set forth in the Agreement.
1. DILIGENCE AND SUPPORT.
(a) PROMOTION. UROHEALTH shall exercise due diligence and its
reasonable efforts in promoting and selling the Products within the
Territory. UROHEALTH agrees to devote such portion of sales force time as is
reasonably necessary to market the volume of Products consistent with
UROHEALTH's Purchase Commitments as set forth in the Agreement.
(b) MARKETING.
(i) UROHEALTH shall maintain the financial capability to
perform its obligations under the Agreement and shall, at its own expense,
establish and maintain sales, marketing and distribution, organization and
personnel of sufficient size to adequately and effectively sell the Products
in the Territory. UROHEALTH will be responsible for the market launch of
Products in the Territory during the term of the Agreement. CONCEPTUS shall
provide UROHEALTH with available marketing and technical information
concerning the Products as well as camera-ready copies of brochures,
instructional material, advertising literature and other product data,
provided that all such material will be printed in the English language.
CONCEPTUS shall be responsible for the accuracy of all information so
provided to UROHEALTH. UROHEALTH will produce, and obtain CONCEPTUS's prior
approval (which approval will not be unreasonably withheld) of, all materials
used to promote the Products in the Territory. During the term of the
Agreement, UROHEALTH will represent CONCEPTUS at all key urology conferences
in the Territory as identified and agreed upon by the parties within 45 days
after the date of the Agreement.
(ii) Each party agrees to share with the other its marketing
intelligence regarding product launches, product sales, sales leads and
customer feedback on the MicroGyn Products. Furthermore, the parties agree
to hold quarterly meetings by conference telephone call or in person between
representatives of the parties to discuss market-related and product-related
issues and product development and introduction plans.
(c) RECORDS AND REPORTING. UROHEALTH shall maintain adequate and
accurate books and records with respect to the sale or distribution of the
Products during the term of the Agreement and for a period of two years after
termination of the Agreement. Upon prior notice, employees or agents of
CONCEPTUS shall have the right, during reasonable business hours, to inspect
the facilities of UROHEALTH which are used or provided in connection with the
sale, administration and stocking of the Products, and to inspect such books
and records, subject to the obligations of confidentiality set forth in
Section 10 below. UROHEALTH will submit to CONCEPTUS within 10 days after
the end of each calendar quarter a quarterly report
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setting forth (i) unit volumes, aggregate purchase prices and average selling
prices during such quarter by Product category for each country in the
Territory, (ii) the number of dedicated MicroGyn sales representatives and
marketing managers in each country in the Territory as of the end of such
quarter and (iii) amounts invested in MicroGyn marketing efforts in each
country in the Territory during such quarter.
(d) TRAINING. UROHEALTH shall ensure that the sales personnel
charged or to be charged with marketing the Products are adequately educated
about all of the Products. UROHEALTH shall provide in-service training for
personnel of customers acquiring the Products and shall provide necessary
user education for such personnel.
(e) HARMFUL ACTS. Both CONCEPTUS and UROHEALTH understand,
acknowledge and agree that the continued maintenance of an image of
excellence and high level ethical marketing of the Products is essential to
the continued success of both parties. Each party agrees that its
manufacturing, sales, marketing, distribution, or advertising will not
reflect unfavorably on, or dilute in any way, the other party's image of
excellence and high level ethical marketing. Each party agrees that it shall
not do anything, directly or indirectly, to impair the current image or to
lower the prestige or quality of the Products.
(f) CONFLICT OF INTEREST. UROHEALTH shall not, during the term of
the Agreement, promote or distribute any products which enable resection in
saline or are directly competitive with the Products. Immediately prior to
the execution of the Agreement, UROHEALTH shall provide CONCEPTUS with a list
of the medical device companies and products that it currently represents in
the urology market and shall notify CONCEPTUS in writing of any new companies
or products at such time as its promotion of these new companies or products
in the urology markets commences.
2. DELIVERY, TITLE, RISK OF LOSS, RETURNS AND LABELING.
(a) PURCHASE ORDERS; FORECASTS. Binding Purchase Orders are to be
placed by UROHEALTH at least 90 days prior to the required delivery date.
All Purchase Orders are subject to acceptance in writing by CONCEPTUS. Upon
effectiveness of the Agreement and thereafter prior to the end of each
calendar month during the term of the Agreement, UROHEALTH will provide
CONCEPTUS with a rolling forecast of its anticipated Product needs, by
Product category, for the following 12 months (each such forecast, a "ROLLING
FORECAST"), together with a binding Purchase Order for the next 90 days.
(b) SHIPPING. All Products delivered pursuant to the terms of
this Agreement shall be suitably packed for shipment according to UROHEALTH's
instructions and in CONCEPTUS's standard shipping cartons, marked for
shipment at CONCEPTUS's manufacturing plant to UROHEALTH's address set forth
in this Agreement or such other address as UROHEALTH may specify, and
delivered to UROHEALTH or UROHEALTH's carrier agent F.O.B. CONCEPTUS's
distribution site, at which time title to such Products and risk of loss
shall pass to UROHEALTH. CONCEPTUS shall deliver Products to the carrier
selected by UROHEALTH. In the event that UROHEALTH does not provide written
notice of
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such carrier, CONCEPTUS shall select the carrier. UROHEALTH will obtain
insurance sufficient to cover the value of each shipment.
(c) REJECTION AND RETURNS.
(i) UROHEALTH shall inspect all Products promptly upon
receipt thereof and may reject any product that fails in any material way to
meet the specifications set forth in CONCEPTUS's current brochure for that
Product. Any Product not properly rejected within 30 days of receipt of that
Product by UROHEALTH (the "REJECTION PERIOD") shall be deemed accepted. To
reject a product, UROHEALTH must, within the Rejection Period, notify
CONCEPTUS of its rejection and request a Material Return Authorization
("MRA") number. CONCEPTUS shall provide the MRA number to UROHEALTH within
seven days of receipt of the request. Within seven days of receipt of the
MRA number, UROHEALTH shall return to CONCEPTUS the rejected Product, freight
prepaid, in its original shipping carton with the MRA number displayed on the
outside of the carton. CONCEPTUS reserves the right to refuse to accept any
rejected Products that do not bear an MRA number on the outside of the
carton. As promptly as possible but no later than 30 working days after
receipt of properly rejected Products, CONCEPTUS shall, at its option and
expense, replace the Products. CONCEPTUS shall pay the shipping charges back
to UROHEALTH for properly rejected Products; otherwise, UROHEALTH shall be
responsible for the shipping charges.
(ii) After the Rejection Period, UROHEALTH may not return a
Product to CONCEPTUS for any reason without CONCEPTUS's prior written
consent. For any Product for which CONCEPTUS gives such consent, CONCEPTUS
shall credit eighty percent of UROHEALTH's purchase price for that Product to
UROHEALTH's account within 30 days upon receipt of returned Product.
UROHEALTH shall be responsible for all shipping charges.
(d) LABELING. UROHEALTH will provide the artwork for all
overlabeling and/or outer packaging for CONCEPTUS's prior approval, which
will not be unreasonably withheld. UROHEALTH will supply CONCEPTUS with
sufficient quantities of such labeling and/or outer packaging material and
CONCEPTUS will perform such overlabeling and/or outer packaging (as
appropriate) on all Products, such that both the UROHEALTH and CONCEPTUS
names and trademarks are clearly visible and such labeling, and Product
markings generally, comply with applicable regulatory requirements, which, in
the case of country-specific requirements, shall have been identified by
UROHEALTH and communicated in writing sufficiently in advance to CONCEPTUS.
In the event sufficient quantities of such labeling and/or outer packaging
are not available prior to September 5, 1997, labeling of the initial order
of Products will be the responsibility of UROHEALTH.
(e) NOTIFICATION OF ADVERSE EXPERIENCES. UROHEALTH shall provide
CONCEPTUS with a copy of any reported adverse experience report or product
complaint involving Products promptly after UROHEALTH receives the report of
such occurrence. CONCEPTUS shall provide UROHEALTH with a copy of any reported
adverse experience report or product complaint involving Products with respect
to gynecology applications promptly after CONCEPTUS receives the report of such
occurrence. Any death, serious injury, potential
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for occurrence of the same, or change in the frequency or occurrence in field
experiences required to be reported by CONCEPTUS to the Food and Drug
Administration (the "FDA") or any foreign governmental agency performing
similar functions shall be reported to CONCEPTUS by UROHEALTH in a manner and
time which will enable CONCEPTUS to comply with applicable regulations in a
timely manner.
3. WARRANTY.
(a) STANDARD LIMITED WARRANTY. UROHEALTH shall pass on to its
customers CONCEPTUS's standard limited warranty for Products, including the
limitations set forth in Sections 3(b) and 3(c) below. CONCEPTUS warrants
that the Products (i) have been manufactured in compliance with good
manufacturing practices, (ii) have received clearance for marketing in the
United States for urology applications from the FDA and (iii) are accompanied
by instructions that comply with applicable FDA requirements for the
Products. This warranty is contingent upon proper use of a Product in the
application for which such Product was intended and does not cover Products
that were modified without CONCEPTUS's approval, that have expired or that
were subjected by the customer to unusual physical, chemical or electrical
stress. The parties understand and acknowledge that this warranty does not
relate to personal injury or damage, other than to the Product itself, but
entitles an end-user to make warranty claims directly against CONCEPTUS,
although this shall not in any way affect the allocation of responsibilities
set forth in Section 2(c) above.
(b) NO OTHER WARRANTY. EXCEPT FOR THE EXPRESS LIMITED WARRANTY
SET FORTH ABOVE, CONCEPTUS GRANTS NO WARRANTIES FOR THE PRODUCTS, EXPRESS OR
IMPLIED, EITHER IN FACT OR BY OPERATION OF LAW, BY STATUTE OR OTHERWISE, AND
CONCEPTUS SPECIFICALLY DISCLAIMS ANY IMPLIED WARRANTY OF QUALITY, WARRANTY OF
MERCHANTABILITY, WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE.
(c) LIMITATION OF LIABILITY. CONCEPTUS'S LIABILITY UNDER THE
WARRANTY SHALL BE LIMITED TO A REFUND OF THE CUSTOMER'S PURCHASE PRICE. IN
NO EVENT SHALL CONCEPTUS BE LIABLE FOR THE COST OF PROCUREMENT OF SUBSTITUTE
GOODS BY THE CUSTOMER OR FOR ANY SPECIAL, CONSEQUENTIAL OR INCIDENTAL DAMAGES
FOR BREACH OF WARRANTY.
(d) INCREMENTAL WARRANTIES. UROHEALTH may make additional or
incremental warranties on its behalf, provided that (i) such warranties shall
impose no liability on CONCEPTUS, (ii) UROHEALTH shall not make any false or
misleading representations to customers or others regarding the Products and
(iii) UROHEALTH shall comply with the requirements of this Section 3.
4. PROTECTION OF RIGHTS; USE OF TRADEMARKS.
(a) COVENANT NOT TO CONTEST. UROHEALTH shall not dispute or
contest the validity of any of CONCEPTUS's or its affiliated companies'
rights to letters patent, trademarks,
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<PAGE>
copyrights, product registrations and approvals, interest, know-how or other
intangible property concerning the Products. This covenant not to contest
validity shall not, however, apply to any CONCEPTUS's letters patent owned by
CONCEPTUS or its affiliated companies to the extent that such letters patent
are invalid under applicable law.
(b) TRADEMARK LICENSE. CONCEPTUS hereby grants to UROHEALTH the
right and license to use CONCEPTUS's trademarks for CONCEPTUS's Products and
any trademark registrations which CONCEPTUS obtains for the Products in the
Territory, but only in connection with sales of the Products purchased from
CONCEPTUS in countries in which UROHEALTH has distribution rights for the
Products, subject to the terms of Section 11. UROHEALTH shall be required to
use CONCEPTUS's trademark with respect to all sales of the Products. All
representations of CONCEPTUS's trademarks shall first be submitted to
CONCEPTUS for approval, which approval shall not be unreasonably withheld, or
shall be exact copies of those used by CONCEPTUS. Such trademark license
shall continue in effect for each country in the Territory while UROHEALTH
retains its distribution rights in such country. All right, title and
interest to CONCEPTUS's trademarks (except the right to use such trademarks
set forth herein) shall remain with CONCEPTUS. UROHEALTH shall not have the
right to use CONCEPTUS's name in any advertising or promotion or otherwise
without CONCEPTUS's prior written consent. Upon UROHEALTH's request,
CONCEPTUS shall, at its expense, file trademark registrations in countries
within the Territory where UROHEALTH plans to market the Products. At no
time during or after the term of this Agreement shall UROHEALTH challenge or
assist others to challenge CONCEPTUS's trademarks or the registration thereof
or attempt to register any trademarks, marks or trade names confusingly
similar to those of CONCEPTUS.
(c) UNAUTHORIZED USE. Each party understands and agrees that it
is not authorized to use the other party's name in connection with its
general business or to imply to third parties that its relationship with the
other party is other than as set forth under the Agreement. Furthermore,
neither party shall use the name of the other party in any public
announcement, press release or other public document without the written
consent of the other party. Notwithstanding the foregoing, nothing in this
Agreement shall prohibit or impede either party from using the name of the
other party in order to meet its disclosure obligations in its public
securities law filings; PROVIDED that this sentence shall not be deemed to
permit or authorize any misrepresentation by such party of the nature of the
relationship between the parties. Each party shall hold the other party
harmless and indemnify it against any liability, including attorneys' fees
and other costs of defense, resulting from actions of third parties claiming
injury or loss as a result of the failure by the offending party to honor the
provisions of this Section 4(c).
(d) UNFAIR COMPETITION. UROHEALTH agrees to give CONCEPTUS prompt
written notice upon becoming aware of the same of any imitations and unfair
competition by others with respect to the Products. UROHEALTH agrees to
cooperate with CONCEPTUS, at CONCEPTUS's request and expense, and take
whatever action is required to cause the termination of such conduct.
CONCEPTUS reserves the right to take whatever action it deems appropriate to
protect its trademarks and trade names.
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(e) UROHEALTH TRADEMARKS. For purposes of Section 2(d) above
(regarding labeling), UROHEALTH hereby grants to CONCEPTUS the right and
license to use and reproduce UROHEALTH's trademarks solely to the extent
necessary to create and reproduce the labeling and/or outer packaging for the
Products for shipment to UROHEALTH. All right, title and interest to
UROHEALTH's trademarks (except the right to use such trademarks set forth
herein) shall remain with UROHEALTH. CONCEPTUS shall not have the right to
use UROHEALTH's name in any advertising or promotion or otherwise without
UROHEALTH's prior written consent, other than where necessary to comply with
CONCEPTUS's legal disclosure obligations.
5. INDEPENDENT CONTRACTOR RELATIONSHIP. It is understood that both
parties hereto are independent contractors and engaged in the operation of
their own respective businesses. Neither party hereto is to be considered
the agent of the other party for any purpose whatsoever, and neither party
has any authority, express or implied, to enter into any contracts or assume
any obligations for the other party, to pledge the credit, or make any
warranties or representations on behalf of the other party except where
expressly authorized in writing to do so. Nothing in the Agreement or in the
activities of either party shall be deemed to create an agency, partnership,
or joint venture relationship.
6. INDEMNIFICATION.
(a) BY CONCEPTUS. CONCEPTUS agrees to indemnify and hold
UROHEALTH harmless from and against any and all damages or costs awarded in
or amounts paid in settlement of any claim, suit or action to the extent
based on a claim that the manufacture, use or sale of the Products infringes
any United States patent, copyright, trade secret or other intellectual
property right; provided that CONCEPTUS shall have no liability under this
Section 6(a) for any infringement caused by (i) any modification to the
Products made after their delivery to UROHEALTH, or (ii) the use or
combination of the Products with any other product to the extent such
infringement would not have arisen but for such use or combination. The
foregoing sets forth CONCEPTUS' entire liability and UROHEALTH's sole remedy
with respect to any infringement of patent, copyright, trademark, trade
secret or other intellectual property rights.
(b) BY UROHEALTH. UROHEALTH agrees to indemnify and hold
CONCEPTUS harmless from and against any and all damages or costs awarded in
or amounts paid in settlement of any claim, suit or action to the extent
based on a claim arising out of the marketing, distribution, sale or use of
the Products where and to the extent caused by the act or omission of
UROHEALTH, its employees or agents.
(c) PROCEDURE. The indemnifying party shall have the right to defend
or, at its option, to settle such claims, and if it chooses to exercise such
right, it shall have sole control over defense of any such claim or settlement
negotiations. The indemnifying party shall be relieved of the foregoing
obligations unless the indemnified party gives prompt notice in writing of any
such claim, suit or proceeding upon becoming aware of the same to the
indemnifying party and, at the indemnifying party's expense, gives the
indemnifying party proper and full
-6-
<PAGE>
information and assistance to settle and/or defend any such claim, suit or
proceeding. The parties agree that only direct, non-consequential damages
will be indemnified under this Section 6.
7. INABILITY TO DELIVER.
(a) IMPOSSIBILITY. If, due to industrial conflicts, mobilization,
requisition, embargo, currency restriction, insurrection, general shortage of
transport, material or power supply, fire, explosion, stroke of lightning,
force majeure and similar casualties or other events beyond a party's
control, as well as, in the case of CONCEPTUS, default in deliveries from
subcontractors due to such circumstances as defined in the preceding clause,
and in the case of UROHEALTH, default in transportation by carriers due to
such circumstances, it is impossible for a party to fulfill its supply or
marketing obligations, as the case may be, with respect to purchased
Products, the other party shall not be entitled to any damages during such
period of impossibility and the offending party shall not be considered in
breach or default under the Agreement.
(b) IMPRACTICABILITY. If the performance of the Agreement by
either party is made commercially impracticable (i) by the occurrence of an
economic contingency the non-occurrence of which was a basic assumption on
which this Agreement was made or (ii) by compliance in good faith with any
applicable foreign or domestic governmental law, regulation, or order, then
the Agreement shall terminate immediately. For purposes of the Agreement,
currency devaluation, currency restrictions, currency and exchange controls,
and other monetary controls, restrictions, and restraints shall not be
considered to render the performance of the Agreement by either party
commercially impracticable, or otherwise be considered force majeure with
respect to either party.
8. CHANGES AND ADDITIONS TO AGREEMENT.
The Agreement and the exhibits thereto, including these Terms and
Conditions incorporated therein, constitutes the final agreement between the
parties and supersedes all prior agreements and understandings, oral or
written, all of which are merged herein. No modification, assignment, or any
future representation, promise or agreement in connection with the subject
matter of the Agreement shall be binding on CONCEPTUS and UROHEALTH unless
made in writing and signed by an authorized signatory of each.
9. GOVERNING LAW AND ARBITRATION.
The Marketing and Distribution Agreement shall be governed by, and
construed and interpreted in accordance with, the laws of the State of
California, United States of America, without reference to conflict of laws
principles. Any dispute or claim arising out of or in connection with the
Agreement or the performance, breach or termination thereof, shall be finally
settled by binding arbitration in San Mateo County, California under the
Rules of Arbitration of the International Chamber of Commerce by one
arbitrator appointed in accordance with such rules. Judgment on the
arbitration award by such arbitrator may be entered in any court of competent
jurisdiction. Notwithstanding the foregoing, the parties may apply to any
court of competent jurisdiction for injunctive relief without breach of this
arbitration provision.
-7-
<PAGE>
10. PROPRIETARY INFORMATION.
(a) CONFIDENTIALITY. Each party acknowledges that it has or will
have access to valuable proprietary information of the other party, including
but not limited to, technical data and customer and marketing information,
all of which are the property of the other party, have been maintained
confidential, and are used in the course of such other party's business.
Each party shall not, either during the term of the Agreement or thereafter,
disclose the other party's proprietary information to anyone other than those
of its employees having a need to know and shall refrain from use of such
information other than in the performance of the Agreement. In addition, the
receiving party shall take all reasonable precautions to protect the value
and confidentiality of such information to the originating party. All
records, files, notes, drawings, prints, samples, advertising material and
the like relating to the business, products or projects of the originating
party and all copies made from such documents, shall remain the sole and
exclusive property of the originating party and shall be returned to the
originating party immediately upon written request thereby. Each party
agrees to continue to maintain all proprietary information in confidence for
a period of five years following termination of the Agreement, unless written
authorization to do disclose any such information is first obtained from the
originating party hereunder.
(b) NON-PROPRIETARY INFORMATION. Neither party shall be obligated
or required to maintain in confidence any information which it can
demonstrate with written records (i) is in the public domain or known to the
receiving party prior to disclosure by the originating party, (ii) becomes
known to the public after disclosure by the originating party, other than
through breach of the Agreement, (iii) becomes known to the receiving party
from a source other than the disclosing party without breach of any
obligation of confidence, or (iv) is or has been furnished to a third party
by the originating party without restriction on the third party's right to
disclose.
11. GOVERNMENT REGULATIONS.
(a) APPROVALS AND REGISTRATIONS. CONCEPTUS and UROHEALTH shall
collaborate to obtain and maintain regulatory approvals for sale of the Products
for urology applications in Europe and Japan. UROHEALTH shall be responsible
for the reasonable expenses of obtaining and maintaining such approvals.
UROHEALTH agrees that it will, at its own expense, secure any and all additional
required regulatory approvals or registrations of the Products in all other
countries in the International Territory, to the extent necessary for the
implementation, execution and performance of the Agreement. CONCEPTUS agrees
that it will, at its own expense, secure any and all additional required
regulatory approvals or registrations of all Products in the United States of
America to the extent necessary for the implementation, execution and
performance of the Agreement. Each party agrees to cooperate fully with the
other party in its pursuit of applicable approvals or registrations and, when
requested, use its reasonable efforts to assist the other party in obtaining
such requisite approvals and registrations. To the extent permissible,
UROHEALTH shall obtain all approvals in CONCEPTUS's name. With respect to any
approvals of Products in Japan, CONCEPTUS will be assigned in-country caretaker
status and will hold such approvals (the Shonen). Upon any expiration,
cancellation, or termination of the Agreement, any approvals not held by
CONCEPTUS shall be transferred and
-8-
<PAGE>
delivered to, and shall inure to the benefit of, CONCEPTUS, to the extent
that this is permissible under applicable law, at no cost to CONCEPTUS other
than the direct costs of transferring such approvals. UROHEALTH shall obtain
all necessary documents or licenses and shall comply with all applicable
laws, including, if required, registration of the Agreement. UROHEALTH shall
notify CONCEPTUS of all permits, approvals and registrations obtained by it
and shall provide CONCEPTUS with copies of all materials and documents
related thereto.
(b) CLINICAL TRIALS. UROHEALTH will pay all costs (including,
without limitation, data collection costs, patient enrollment costs and
Product costs) associated with any clinical trials necessary to obtain
regulatory approval for the Products in the Territory; provided that any such
clinical trials shall be subject to CONCEPTUS' prior written approval.
UROHEALTH shall provide leadership with respect to organizing and conducting
clinical trials with respect to approval of the Products in the Territory and
CONCEPTUS shall provide reasonable assistance and support; PROVIDED, HOWEVER,
that no activities in connection with organizing and conducting such trials
shall be initiated by UROHEALTH without CONCEPTUS's prior written approval
and CONCEPTUS shall not be responsible for any costs incurred in connection
with such trials without CONCEPTUS's prior written approval. For purposes of
clarity, the parties contemplate that such assistance may typically consist
of UROHEALTH field personnel working directly with CONCEPTUS's research and
development or clinical personnel. Nothing in the Agreement shall require
either party to take any action or omit to take any action which action or
omission would result in the breach of any applicable law or governmental
rule or regulation.
(c) ILLEGAL TRANSFER. UROHEALTH agrees that it shall not allow
either the Products supplied to it by CONCEPTUS, CONCEPTUS's Trademarks, any
proprietary data of CONCEPTUS, or any direct product of such data, to be
knowingly made available, either directly or indirectly, or in any way to be
knowingly given, transferred, sold or re-exported to any country in violation
of its laws and export control regulations or applicable laws of any country
(or the European Union). United States laws and export control regulations
governing the exportability of technical data and products to nations are
subject to change. If any country included within UROHEALTH's Territory
shall, at the time of execution of the Agreement, or at any time during the
term of the Agreement, be placed in an excluded category by the United States
government for the receipt of either technical data or the manufacture or
sale of products of the type supplied by CONCEPTUS, UROHEALTH agrees that it
shall take actions necessary to cease business activity in the Products in
the excluded country.
12. UNFAIR COMPETITION AND PATENT INFRINGEMENT.
(a) INFRINGEMENT. UROHEALTH shall promptly advise CONCEPTUS of
any infringement or potential infringement by third parties of which
UROHEALTH becomes aware of any issued patents relating to the Products
supplied by CONCEPTUS under the Agreement. CONCEPTUS shall have the right,
but not the obligation, to sue alleged infringers. If suit is brought by
CONCEPTUS, CONCEPTUS shall control the prosecution thereof and be entitled to
retain any amounts recovered in full by reason of such infringement.
UROHEALTH agrees to cooperate with and assist CONCEPTUS in any such suit.
CONCEPTUS shall reimburse
-9-
<PAGE>
UROHEALTH for costs related to such assistance. CONCEPTUS shall have the
exclusive right to negotiate and approve any settlement of such suits.
(b) MUTUALITY OF LITIGATION COSTS. In the event that UROHEALTH
joins CONCEPTUS by mutual agreement in litigation relating to such
infringement, UROHEALTH shall bear an agreed-upon proportion of the legal
costs. Should any damages or costs in such litigation be awarded to
CONCEPTUS and UROHEALTH, UROHEALTH shall be entitled to recover the same
proportion thereof as its contribution to expenses.
(c) NON-INFRINGEMENT REPRESENTATION. CONCEPTUS represents that it
has no knowledge of any third-party intellectual property rights that would
be infringed by use or sale of the Products in the Territory. In the event
that CONCEPTUS is enjoined from making and selling and/or UROHEALTH is
enjoined from selling Products as a result of changes of infringement of
intellectual property rights, such injunction shall not constitute a breach
of the Agreement.
13. MISCELLANEOUS PROVISIONS.
(a) CONCEPTUS shall have the right to manufacture in the
Territory. UROHEALTH is granted no rights under this Agreement to manufacture
any Product.
(b) UROHEALTH shall comply fully, at its expense, with any and all
applicable health and safety laws and regulations of the Territory.
CONCEPTUS will provide reasonable assistance to UROHEALTH in connection with
such compliance efforts by UROHEALTH.
(c) UROHEALTH shall withdraw the Products from the marketplace in
the event that the parties agree that such action is reasonably necessary for
the protection of the public health.
CONCEPTUS, INC. UROHEALTH
("CONCEPTUS") ("UROHEALTH")
By: /s/ Kathryn Tunstall By: /s/ Charles Laverty
--------------------------------- ---------------------------------
Print Name: Kathryn Tunstall Print Name: Charles Laverty
------------------------- --------------------------
Title: President & CEO Title: Chairman/CEO
------------------------------ -------------------------------
-10-
<PAGE>
EXHIBIT C
TAKE OR PAY MINIMUM PURCHASE COMMITMENTS
Upon execution: $350,000
From October 1 to December 31, 1997: $150,000 plus 100 units at cost for
demonstration purposes only
For each calendar quarter of 1998: $250,000
CONCEPTUS, INC. UROHEALTH
("CONCEPTUS") ("UROHEALTH")
By: /s/ Kathryn Tunstall By: /s/ Charles Laverty
--------------------------------- ---------------------------------
Print Name: Kathryn Tunstall Print Name: Charles Laverty
------------------------- --------------------------
Title: President & CEO Title: Chairman/CEO
------------------------------ -------------------------------
<PAGE>
EXHIBIT D
PRODUCT PRICING
UROHEALTH shall pay CONCEPTUS the following amounts for each Product purchased
pursuant to this Agreement:
FUTURA Sheath $77.00
.010" specialty loop $66.00
Kit $136.00
For each calendar quarter after December 31, 1997, CONCEPTUS and UROHEALTH agree
that the pricing of each Product shall be adjusted as follows:
1. The pricing of each Product shall be decreased by fifty percent of
any Manufacturing Savings. (The term "Manufacturing Savings" means any
reductions experienced by CONCEPTUS in its manufacturing costs of each such
Product during the preceding quarter.); and
2. The pricing of each Product shall be increased by fifty percent of
any Sales Increase. (The term "Sales Increase" means any increase
experienced by UROHEALTH in its average sales price of each such Product to
its customers during the preceding quarter.)
CONCEPTUS, INC. UROHEALTH
("CONCEPTUS") ("UROHEALTH")
By: /s/ Kathryn Tunstall By: /s/ Charles Laverty
--------------------------------- ---------------------------------
Print Name: Kathryn Tunstall Print Name: Charles Laverty
------------------------- --------------------------
Title: President & CEO Title: Chairman/CEO
------------------------------ -------------------------------
-1-
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