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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
Annual report pursuant to Section 13 of the Securities Exchange Act of 1934
For the fiscal year ended: December 31, 1996
Commission file number: 000-23266
UroMed Corporation
(Exact name of registrant as specified in its charter)
Massachusetts 04-3104185
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
64 A Street, Needham, Massachusetts 02194
(Address of principal executive offices)
(617) 433-0033
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
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(Title of Class)
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 the past 90 days.
Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-X is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of January 31, 1997, the aggregate market value of the registrant's common
stock, no par value ("Common Stock"), held by non-affiliates of the registrant
was $146,646,000 based on 17,002,422 shares held by such non-affiliates at the
closing price of a share of Common Stock of $8.625 as reported on the Nasdaq
National Market on such date. Affiliates of the Company, defined as officers,
directors and owners of 10 percent or more of the outstanding shares of Common
Stock, owned 9,491,004 shares of the 26,493,426 shares of Common Stock
outstanding on such date. On February 28,1997, the registrant had outstanding a
total of 26,493,426 shares of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for its Special Meeting
in lieu of Annual Meeting of Stockholders to be held on May 9, 1997 to be filed
with the Securities and Exchange Commission on or prior to March 28, 1997 (the
"1997 Proxy Statement"), are incorporated by reference into Part III of this
Annual Report on Form 10-K and portions of the registrant's Annual Report to
Stockholders for the registrant's fiscal year ended December 31, 1996 (the "1996
Annual Report"), are incorporated by reference into Part II and Part IV of this
Annual Report on Form 10-K. With the exception of the portions of the 1997 Proxy
Statement and the 1996 Annual Report expressly incorporated into this Annual
Report on Form 10-K by reference, such documents shall not be deemed filed as
part of this Annual Report on Form 10-K.
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UROMED CORPORATION
ANNUAL REPORT ON FORM 10-K
Table of Contents
Item Page
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Part I
1 Business 1
2 Properties 40
3 Legal Proceedings 41
4 Submission of Matters to a Vote of Security Holders 41
Part II
5 Market For Registrant's Common Stock and Related Stockholder
Matters 41
6 Selected Financial Data 41
7 Management's Discussion and Analysis of Financial Condition and
Results of Operations 41
8 Financial Statements and Supplementary Data 42
9 Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure 42
Part III
10 Directors and Executive Officers of the Registrant 42
11 Executive Compensation 44
12 Security Ownership of Certain Beneficial Owners and Management 44
13 Certain Relationships and Related Transactions 44
Part IV
14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K 45
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PART I
Item 1. Business
UroMed Corporation (the "Company" or "UroMed") was formed in 1990 and is
focused on the development, manufacture and marketing of products for the
management of urological and gynecological disorders. The Company's first two
products, the Reliance(R) Insert (the "Reliance Insert") and Impress(TM)
Softpatch (the "Impress Softpatch"), are intended for the management of certain
types of female urinary incontinence ("UI"). UI is the loss of bladder control
resulting in the involuntary leakage of urine in amounts considered to be a
social or personal problem. According to published sources, there are more than
10.0 million UI sufferers in the United States, of which approximately 85% are
women. The Company has initially identified a target market of approximately 1.5
million UI sufferers whose UI condition is of a level such that management by
the use of the Reliance Insert would be medically appropriate and who meet
certain target demographics. The Impress Softpatch is designed for a broader
group of approximately 3.5 million additional UI sufferers in the United States
whose UI condition is mild to moderate.
The Reliance Insert. The Reliance Insert was approved by the United States Food
and Drug Administration (the "FDA") for marketing in the United States in August
1996 based upon a Pre-Marketing Approval application filed by the Company. The
Reliance Insert is a small, prescription, balloon-tipped, single-use plug
designed to be inserted in the urethra and inflated to block the flow of urine
from the bladder to the urethra. The Company has completed its manufacturing and
marketing scale-up and expects commercialization of the Reliance Insert to
continue in 1997. The Reliance Insert is currently commercially available in
seven European countries: the United Kingdom, The Netherlands, Sweden, Finland,
Norway, Denmark and Germany under marketing and sales agreements with
subsidiaries or divisions of Astra AB and Byk Gulden Lomberg. In addition, the
first phase of the Company's commercial launch of the Reliance Insert in France
commenced in October 1996 by its French distributor, a subsidiary of Synthelabo
S.A.
The Impress Softpatch. The Impress Softpatch was cleared by the FDA for
marketing in the United States in May 1996 on the basis of a 510(k) Notification
application. The Impress Softpatch is a small, prescription, disposable adhesive
patch designed to be placed externally against the urinary opening to block the
leakage of urine in mild to moderate UI patients. The Impress Softpatch
technology was acquired from the successor to Advanced Surgical Intervention,
Inc. in May 1996 for a combination of cash and shares of Common Stock
collectively valued at $30.0 million. The Company is developing a marketing plan
for the commercial launch of the Impress Softpatch in the United States, which
is currently expected to occur in late 1997 or early 1998. The Company is also
developing the commercial manufacturing process for the Impress Softpatch.
The consequences of UI, including depression, discomfort and embarrassment
about appearance and odor, are significant and often result in a dramatic change
in quality of life. The majority of incontinent women currently manage their
condition with diapers and other absorbent products. Based on an industry
source, the Company estimates that retail sales of
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adult diapers and other absorbent products were over $1.0 billion in 1995. Based
on its market research, the Company has concluded that patients are generally
dissatisfied with the current options available for the management of UI. The
Company believes that the Reliance Insert and Impress Softpatch both provide new
approaches to managing certain types of female UI. The intended benefits of the
Reliance Insert, such as convenience, ease-of-use, non-surgical nature of
treatment and broad applicability, are similar to those conferred by a tampon in
the case of menstruation; the Impress Softpatch provides a complementary
solution to a broader range of mild to moderate UI sufferers.
The Company has established a 50-person direct sales force experienced in
the sales of medical devices and new products and has developed a three-phase
marketing strategy for the Reliance Insert in the United States. The Company
targeted a select group of urologists and urogynecologists for the initial
marketing of the Reliance Insert during the last two months of 1996 and
continued this marketing effort into the first quarter of 1997. The Company will
continue to target this group in order to build core groups of experienced
prescribing physicians and consumers. The Company will target a wider range of
physicians, including gynecologists, as well as engaging in a public relations
campaign, in the second phase of its marketing roll-out program. The Company
commenced this second phase in February 1997. The third phase of the Company's
marketing roll-out strategy, expected to begin in mid-1997, will involve
marketing to a much broader group of physicians, as well as a consumer-oriented
educational marketing program. This program will include the placement of
patient-educational advertisements in major women's publications designed to
encourage UI sufferers to discuss their problem with their physicians.
The Company has also developed an innovative direct-to-consumer
distribution system under which, after initial prescription by a physician, its
Reliance Insert currently is, and Impress Softpatch will be, shipped directly to
consumers following telephone orders. To fulfill these orders, the Company has
established a fulfillment center in New Hampshire with a licensed pharmacist on
staff.
The Company's strategy is to grow by focusing on the development,
manufacturing and marketing of innovative products for the large and underserved
urological and gynecological markets. The Company's near-term goals include (i)
successful commercialization of the Company's initial products, the Reliance
Insert and Impress Softpatch, in the United States and abroad, including the
development of additional in-house commercial-quantity manufacturing capacity,
(ii) the continued deployment of a highly-experienced sales force focused on
urologists and gynecologists, (iii) the continued development and possible
acquisition or in-licensing of other complementary products that could be
commercialized rapidly and efficiently by the Company through leverage of its
developing sales force and distribution system.
The Company's current manufacturing operations are located in a 40,000
square foot manufacturing facility in Needham, Massachusetts, where the Company
has two lines of automated equipment dedicated to the commercial-scale
production of its Reliance Insert.
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Strategy
The principal elements of the Company's strategy are as follows:
o Focus on urology and gynecology. The Company focuses on developing
patient-driven solutions to address significant medical needs in the
large and underserved urological and gynecological markets. The
Company believes that it has developed expertise in these segments,
particularly in the area of incontinence and in selected other areas,
through its development efforts, clinical trials and significant
interaction with physicians and patients. Moreover, the Company
believes that the opportunities that exist in these segments can be
served effectively by a highly experienced sales and marketing
organization and an effective direct-to-consumer distribution system.
o Commercialize initial products. The Company is currently focusing on
the commercialization of its first two products, the Reliance Insert
and the Impress Softpatch. The Company has hired a highly experienced
sales force to focus initially on the marketing of the Reliance Insert
to urologists and gynecologists. The Company believes that it will be
able to leverage the experience and relationships developed by this
sales force, which it believes is one of the only specialty sales
forces concentrating solely on urology and gynecology office
practices, to commercialize the Impress Softpatch and other products
that may be developed, acquired or in-licensed by the Company in the
United States. The Company has established marketing and sales
relationships with several healthcare companies to commercialize the
Reliance Insert in certain countries in Europe, and intends to pursue
additional such relationships to commercialize the Impress Softpatch
overseas.
o Develop and leverage a direct-to-consumer distribution system. The
Company has developed an innovative, customized direct-to-consumer
distribution system in the United States. The Company expects that the
majority of its sales will be made through this system directly by
mail order to its customers pursuant to prescriptions telephoned or
faxed by a physician's office to the Company's licensed pharmacy. The
Company believes that this approach will permit it to develop and
maintain close and cost-effective interaction with its patients, which
will allow the Company to serve the needs of its patients quickly and
appropriately and gain information that could be useful in developing
new products. The Company intends to leverage its customer base and
distribution system in the future with additional products designed to
serve its target markets.
o Establish automated manufacturing capability to manufacture the
Reliance Insert and Impress Softpatch in commercial quantities. The
Company has developed a proprietary automated, modular manufacturing
process which gives it the current ability to manufacture its Reliance
Insert
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in commercial quantities on its two existing lines of automated
manufacturing equipment. The Company is in the process of developing a
proprietary manufacturing process for its Impress Softpatch in
preparation for the commercial launch of the product, currently
scheduled for late 1997 or early 1998.
o Supplement internal research and development efforts through
acquisitions and licensing of complementary products and technologies.
The Company intends to continue its research and development efforts
in the urological and gynecological markets (both within and outside
of continence care). In addition, the Company may seek to acquire the
rights to manufacture and market additional products either through
acquisition, as in the case of the Impress Softpatch, or in-licensing
activities, as opportunities may arise in the future. The Company is
seeking to develop, and will consider acquiring or in-licensing, other
technology or products which it believes it could commercialize
effectively by leveraging its developing sales force, distribution
capacity and physician and patient customer base.
Background
The urinary tract aids the body in eliminating waste. The kidneys process
blood at a high rate and filter waste products from the circulatory system,
creating urine to remove the waste. The ureters drain urine from the kidneys
into the bladder, which serves as a reservoir (storage capacity ranges from
approximately one-quarter to one-half liter) until urination. The urinary
sphincter is a muscle at the base of the bladder which surrounds the bladder
neck and urethra and aids the bladder in maintaining continence. The urethra is
the tube through which urine flows when the bladder empties.
Urinary Continence
In the normal urinary tract, continence, or appropriate storage of urine,
is maintained by a complex interplay of anatomic structures. In a normal system,
the bladder neck and the urinary sphincter work in a coordinated fashion to act
as a valve. During urination, the urethra and urinary sphincter muscle relax and
open, the bladder contracts and the bladder neck opens, all in a coordinated
fashion, causing the passage of urine. In normal continence, when the bladder
neck opens involuntarily in response to intra-abdominal pressure, the lower
portion of the urinary sphincter tightens in turn so as to maintain continence.
Similarly, the urethra is also under muscular control so as to keep this tube
closed during the urine storage phase.
A malfunction in any part of this system can cause incontinence. The most
common anatomic incontinence pathology is bladder neck or urethra hypermobility,
which results from a lack of bladder neck support caused primarily by weak
surrounding tissue. The weakening of tissue surrounding the bladder, urethra and
bladder neck arises most commonly in women as a consequence of pelvic trauma
caused by pregnancy and childbirth. Other causes of incontinence include
physiological, anatomical and neurological disorders.
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Incidence and Types of UI
According to published sources, there are approximately 10.0 million UI
sufferers in the United States, of which approximately 85% are women. UI
afflicts women of all ages, primarily those over 40, and tends to get worse over
time. The Company believes that UI is more prevalent among women as compared to
men primarily because women do not have a prostate to aid in occluding (or
closing) the urethra; women have far shorter urethras (and hence less occlusive
force); and, most importantly, women suffer significant pelvic trauma during
pregnancy and childbirth. In pregnancy and childbirth, a woman's pelvic nerves
and muscles are stretched to a great degree and, as a result, the continence
function is often impaired. UI therefore shows an increase in incidence as a
function of the number of children born to a woman.
There are three major types of UI, described as follows: Stress
incontinence refers to the involuntary loss of urine during coughing, laughing,
sneezing, jogging or any other physical activity that causes a sufficient
increase in intra-abdominal pressure. Stress incontinence is the most common
type of UI in women under 60. This condition varies in severity from those women
who leak urine as a result of certain sudden movements or physical activities to
those who leak urine simply upon standing up. Stress incontinence is caused by
one of two conditions: (i) hypermobility, a lack of anatomic stability caused
primarily by weak surrounding tissue, which results in the abnormal movement of
the bladder neck and urethra in response to sufficient intra-abdominal pressure
or exertion; or (ii) intrinsic sphincteric deficiency, or the inability of the
urinary sphincter valve muscle to function properly. Hypermobility is the more
common cause of stress incontinence, accounting for approximately 85% of all
stress incontinence cases, while intrinsic sphincteric deficiency is less
common, accounting for approximately 15% of all stress incontinence cases. Urge
incontinence refers to the involuntary loss of urine due to an unwanted bladder
contraction which is associated with a strong, uncontrollable desire to urinate,
often referred to as urgency. Causes of urge incontinence include an overactive
bladder muscle, neurologic abnormalities, such as those caused by a stroke, and
urethral instability or abnormal relaxation patterns. Mixed incontinence is a
mixture of stress and urge incontinence.
The Company estimates that approximately 60% to 70% of female UI
sufferers in the United States suffer from stress incontinence or mixed
incontinence in which the urge component is relatively mild. The Reliance
Insert and Impress Softpatch were designed for the management of certain
types of stress incontinence, including predominately the stress incontinence
component of mixed incontinence of the type described above.
Market Overview
In addition to being a serious health problem, UI is also associated with
significant costs to the health care system. According to published sources, the
direct costs of caring for persons of all ages with incontinence in the United
States aggregate more than $15.0 billion annually. The Company believes, based
on its market research, that only approximately 2.5 million of the women who
suffer from UI in the United States discuss their UI disorder with a
gynecologist, urologist or urogynecologist during an annual visit.
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Current Treatments
Gynecologists, urologists and urogynecologists currently deal with a
woman's incontinence by following a program of therapy that corresponds to the
severity of the condition and the physician's familiarity with available
treatment methods. Most women tend to manage their disorder by using diapers,
pads or other absorbent products. Current treatments include: surgery;
indwelling, or Foley, catheters; behavioral therapy, pelvic muscle training
exercises and related techniques; implantable devices and injectable materials;
vaginal pessaries; and pharmaceuticals.
Adult diapers and pads, which capture urine upon leakage, function
similarly to baby diapers. While these products have improved over the last
several years, major disadvantages include the lack of control over urine flow,
the embarrassment about appearance and odor, the perceived social stigma, the
bulky size, the inconvenience, the lack of dryness and the significant
compromise of freedom in one's lifestyle. However, patients do have the
convenience and privacy of purchasing these products without seeing a physician.
Based on various industry sources and its own market research, the Company
estimates that the typical UI sufferer in the United States who regularly uses
adult diapers and specialized incontinence pads spends approximately $1,000 to
$1,500 per year on these products, and that retail sales of these and other
absorbent products were over $1.0 billion in 1995.
Surgery is more appropriate for stress incontinence than for urge or mixed
incontinence and, unlike other possible therapies, is intended to be curative.
In these procedures, the physician elevates and stabilizes the urethra and the
bladder neck in order to prevent hypermobility. Surgeries of this nature are
delicate and complicated procedures in which outcomes are generally varied.
Current surgical procedures require vaginal or abdominal incisions and are
typically performed under general anesthesia. As such, surgery is expensive and
traumatic, often involving an inpatient procedure, a hospital stay and a period
of several weeks until full recovery.
An indwelling, or Foley, catheter is a balloon-tipped tube inserted
through the urethra into the patient's bladder in order to allow bladder
drainage directly through the tube into a urine collection bag. The principal
advantages of this technique are that a UI patient typically remains dry and no
invasive procedure is required. However, a patient experiences the inconvenience
of a long tube and collection bag and may suffer from certain medical
conditions, such as urinary tract infections, arising from a continuously
indwelling catheter. The Company believes that there are other devices in
development which are designed to combine a continuously indwelling catheter
with a valve which may be opened periodically by a patient to permit voiding
and, accordingly, do not require a collection bag. The Company believes these
devices suffer disadvantages common to the use of catheters, including that they
must be installed and removed by a physician and are subject to risks such as
increased urinary tract infection rates; irritation; migration; incrustation;
expulsion; obstructive non-natural voiding; and valve malfunction.
Other current treatments available for the treatment of UI have similar or
related shortcomings. Behavioral therapy and related techniques, including
bladder and habit
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training, pelvic muscle exercises, biofeedback and electrical stimulation,
typically alleviate the symptoms of UI only in part and are seldom curative. The
use of implantable devices, such as the implantation of artificial urinary
sphincters, has been limited due to their highly invasive natures and the
relatively high rates of significant complications as compared to other
available treatment methods. The use of injectables, such as collagen, which are
injected around the urethra to create a mild obstruction, are a potentially
attractive alternative to surgery; however, they are expensive, present some
degree of side effects, and in some cases must be repeated to maintain efficacy.
Vaginal pessaries are diaphragm-like devices which are used to obstruct the
bladder neck and urethra by applying pressure through the neighboring vaginal
cavity. These treatments are rarely effective, and can have other adverse side
effects including vaginal discharge and tissue erosion. The use of
pharmaceuticals to alleviate UI generally target urge incontinence only, can
have side effects, often affecting the cardiovascular and circulatory systems,
and are not curative.
The Reliance Insert
Description of the Reliance Insert
The Reliance Insert acts as a stopper, or plug, to block the flow of
urine, rather than as an absorbent product. The Company believes that the
Reliance Insert is appropriate for use with most levels of severity of stress
incontinence (whether caused by hypermobility or intrinsic sphincteric
deficiency) and will be most appropriate for those women who have significant
stress incontinence problems, but desire to avoid surgery. The Company believes
that a discrete form of blockage might be preferable to adult diapers and other
absorbent products.
The sterile Reliance Insert consists of three principal precision-made
components: a balloon, a thermoplastic elastomer body and a valve operated by a
specialized piece of string. It is assembled into a compact unit, and is
available in five different lengths. The balloon is designed to inflate when the
reusable applicator, a small modified air syringe, is depressed. The body is a
tapered shaft, ranging from three to five centimeters in length, with an oval
plate at one end and a lumen, or internal tube, within the shaft. The oval plate
is intended to assist in securing the device in place. The lumen allows
sufficient passage of air to inflate the balloon when the applicator is
depressed and houses the valve mechanism, which forms an airtight seal to
maintain the balloon in an inflated form.
The Reliance Insert, designed as a single-use device, is inserted by a
patient into the urethra with a removable applicator, which is then depressed in
order to inflate the balloon. When the user needs to urinate, she simply pulls
on a string, thereby deflating the Reliance Insert, removes the device and
urinates naturally. Following urination, a new Reliance Insert can be put in
place.
The Company also distributes three accessories for the use of the Reliance
Insert: an applicator that inflates the balloon component of the Reliance
Insert, a mirror designed for use in patient training, and a sterile sizing
device for use by the patient's physician in determining the appropriate size of
Reliance Insert to be used by a particular patient. The
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applicator and mirror are packaged with the Reliance Inserts for delivery to
consumers and the sizing device is distributed directly to physicians in the
United States.
Target Market for the Reliance Insert
The Reliance Insert has been designed to provide a female stress
incontinence sufferer with immediate lifestyle benefits similar to those
conferred by a tampon in the case of menstruation, including convenience,
ease-of-use, non-surgical nature of treatment and broad applicability. The
Company has developed this approach primarily because its market research
indicates that the majority of female stress incontinence sufferers choose to
manage their condition with diapers, pads and other absorbent products and
appear to prefer relatively non-invasive and easy-to-use therapies. Based on its
market research, the Company estimates that the initial target market for the
Reliance Insert in the United States will be a subgroup, comprised of
approximately 1.5 million women, of the approximately 2.5 million women who
visit a urologist, gynecologist or urogynecologist each year and discuss their
UI disorder with their physician. This subgroup consists of women whose UI
condition is of a level of severity such that management by the use of the
Reliance Insert would be medically appropriate, who have the manual dexterity to
use the product and who meet certain target demographic characteristics,
including age.
The Company believes that usage of the Reliance Insert will vary
significantly among patients based on severity of incontinence, income, price,
availability of reimbursement, level of activity and personal preference. The
Company believes that a typical UI sufferer in the Company's target markets who
elects to use the Reliance Insert may use between one and three Reliance Inserts
daily. Patients enrolled in the Company's clinical trials for the Reliance
Insert, who did not pay for the device, had an average use of approximately 90
Reliance Inserts per month.
Launch Strategy in the United States Market
The Company's United States marketing and sales strategy for the Reliance
Insert currently contemplates a three-stage process, employing the use of its
direct sales force in conjunction with an in-house marketing, sales and clinical
education support staff, to contact gynecologists, urologists and
urogynecologists and to train them and their staffs in the correct prescription
and use of the Reliance Insert. The Company intends to pursue the initial
marketing and commercialization of the Reliance Insert in the following series
of three phases:
Phase I: Key Account Development Phase. The first stage of the
Company's marketing strategy for the Reliance Insert, which began in the
fourth quarter of 1996 and progressed into the first quarter of 1997,
involved building strong support for the use of the Reliance Insert among
a select group of physicians, including urologists and urogynecologists.
During this Key Account Development phase, the Company identified such
physicians through surveys and profiling as being good candidates to
advocate the use of the Reliance Insert, act as referral centers and build
up a substantial core of active users. As of mid-February 1997, the
Company had trained more than 1,000 "Reliance Ready" physicians.
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Phase II: National or Expanded Launch Phase. Following the
achievement of certain milestones in the Key Account Development Phase,
the Company commenced Phase II in February 1997. This stage will
involve expansion of its sales efforts to additional physicians,
including gynecologists. During this stage of the Company's
commercialization efforts, advertising directed towards gynecologists
and urologists will be used to complement the Company's direct sales
efforts to create increased awareness and interest in the Reliance
Insert. The Company has implemented a limited public relations campaign
as a means to raise awareness of the social and personal issues women
face when dealing with incontinence, to build support among physicians
and advocacy groups and to initiate consumer interest.
Phase III. Consumer Promotion Phase. After the attainment of certain
goals of Phase II, the Company intends to commence the third phase of its
marketing program. This phase will involve the direct promotion of the use
of the Reliance Insert to consumers. In addition to the activities of
Phase II, the Consumer Promotion Phase will include an advertising and
public relations campaign targeted directly toward potential Reliance
users, including placement of patient-education advertisements in major
women's publications. The Company intends to use this public relations and
advertising campaign as a means of creating awareness on the part of UI
sufferers that UI is a treatable condition that afflicts a significant
number of women. The campaign will be designed to inform the public of the
existence of the Reliance Insert in order to motivate women consumers to
visit their doctors, or discuss their UI problems with their doctors
during regularly-scheduled visits, and determine whether the Reliance
Insert might be appropriate for them.
Once a physician has indicated an interest in prescribing the Reliance
Insert, the Company's sales representatives will provide educational support to
the physician's professional staff, primarily the practice nurse or nurses. The
Company anticipates that office nursing staffs will become the primary interface
with patients in their introduction to, and successful use of, the Reliance
Insert. The Company intends to provide nurses with materials to assist in
educating patients in the use of the Reliance Insert.
Launch Strategy in International Markets
The Company has begun commercializing the Reliance Insert in certain
international markets. Several independent studies have concluded that the
prevalence of urinary incontinence in other countries is similar to that
reported for the United States. Based on its market research, the Company
believes that women in international markets are motivated by the same needs to
manage the problem of incontinence. However, due to the country-by-country
variability in incontinence management, the Company has determined that
developing market-by-market alliances with companies situated in each foreign
market may be the most appropriate strategy for introducing the Reliance Insert
internationally. Generally, under marketing and sales agreements in place with
each of the Company's European distributors, the Company has agreed to
manufacture and deliver the Reliance Insert to the distributor and the
distributor has assumed the responsibility for the presentation of the Reliance
Insert in its market, including providing detailing, promotion, distribution and
regulatory support. In this way, cultural, social, economic and health care
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delivery considerations may be factored into the development of a marketing
strategy. Under the marketing and sales agreements, each of the distributors has
the right to determine how best to market the Reliance Insert in the markets
covered by the agreements and to set the pricing of the Reliance Insert in such
markets.
Under each of these sales and marketing agreements, the Company has agreed
to sell to the respective distributor such number of Reliance Inserts as are
necessary to satisfy the distributor's requirements. The price to be paid to the
Company under each of these agreements is a wholesale price that varies over
time and is determined by reference to the prices at which the distributor
resells the Reliance Inserts to its customers, subject to a minimum price
specified in each agreement. Although these sales and marketing agreements do
not require the distributors to purchase a minimum amount of Reliance Inserts,
the Company may under certain circumstances terminate a sales and marketing
agreement prior to its scheduled expiration in the event that an agreed upon
level of sales from the Company to the distributor has not been met.
In certain international markets the Reliance Insert is being distributed
through the wholesale and retail systems currently in place and will be
delivered to the patient at the pharmacy. In some markets, mail order
distribution directly to patients may be an acceptable possibility.
The Company has entered into marketing and sales agreements with each of
the following companies:
E. Tosse & Co. MbH. In December 1994, the Company entered into a
distributorship agreement for the Reliance Insert in Germany with E. Tosse & Co.
MbH ("Tosse"), a part of the Byk Gulden Lomberg pharmaceutical division of the
Atlanta Company, which gave Tosse the exclusive right to market the Reliance
Insert in Germany. Under this seven-year agreement, the initial medical
education phase of the launch of the Reliance Insert in Germany occurred in
September 1995. Subject to the terms of the agreement, Tosse agreed to invest a
minimum of approximately $21 million over the length of the agreement in
marketing and sales resources in Germany. Tosse also made a one-time initial
payment of $500,000 to the Company, subject to certain contingencies. Tosse has
notified the Company of its impending reintegration back into Byk Gulden
division and re-focusing on its cardiovascular product line. In view of this,
both parties will be working on transitioning the distributorship in the coming
year.
Porges S.A. In August 1995, the Company entered into a distributorship
agreement with a French medical device company, Porges S.A. ("Porges"), a
subsidiary of Synthelabo S.A., which gives Porges the exclusive right to
distribute the Reliance Insert in France. Pursuant to this seven-year agreement,
the market launch of the Reliance Insert in France occurred in October 1996.
Subject to the terms of the agreement, Porges has agreed to invest a minimum of
approximately $5 million over the length of the agreement in marketing and sales
resources in France. If commercialization of the Reliance Insert in France
proceeds as expected, Porges resource investment could increase to as much as
$12 million over the seven-year period. Porges made an initial advance of
$250,000 prior to the beginning of the commercialization of the Reliance Insert
in France.
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Astra Tech AB. In August 1995, the Company entered into an exclusive
multi-national distributorship agreement with Astra Tech AB ("Astra Tech"), a
subsidiary of Astra AB, a leading pharmaceutical company based in Scandinavia.
The five-year agreement gives Astra Tech exclusive rights to distribute the
Reliance Insert in Sweden, Norway, Denmark and Finland, as well as The
Netherlands and the United Kingdom. Subject to the terms of the agreement, Astra
Tech has agreed to invest a minimum of $14 million in advance commitments in
marketing and sales resources in these territories. If the commercialization of
the Reliance Insert in the countries covered by this agreement proceeds as
expected, the total investments to be made by Astra Tech in commitments of
resources under the agreement could approach $30 million. Astra Tech also made
an up-front payment of $1 million, subject to certain contingencies. The first
phase of the professional market launches of the Reliance Insert occurred in
Sweden, Norway, Denmark, Finland and The Netherlands in March 1996, and in the
United Kingdom in April 1996.
International sales of the Reliance Insert in the fourth quarter of
1996 were weaker than expected as a result of lower orders from the Company's
distributors due to the fact that they had more than adequate inventories
already in place relative to consumer demand. The Company expects that
international sales of the Reliance Insert will be minimal for at least
the first half of 1997 due to the expected sales volume of Company's
distributors in relation to their inventory levels.
The successful commercialization of the Reliance Insert internationally
will depend in part on the ability of the Company's distributors to successfully
market and sell the Reliance Insert to physician and patient populations in
their respective countries. Shipments to distributors to date have been for
stocking orders of the Reliance Insert and its accessories. At this time it is
not known whether these stocks of Reliance Inserts will be successfully sold to
consumers. There is no assurance that the Company will be successful in
marketing the Reliance Insert in international markets.
Pricing of the Reliance Insert
The Company has priced the Reliance Insert with the intention that it will
be accessible to its initial target market in the United States. The expected
average selling price for the Reliance Insert in the United States is currently
$1.85. The Company believes that the absence of a significant initial cost in
connection with the commencement of use of the Reliance Insert will give it a
competitive advantage over certain other treatments. See "--Current Treatments."
The pricing of the Reliance Insert in the various European countries
covered by its existing marketing and sales agreements has been and will be
determined by the Company's European distributors in their respective
territories. The Company's European distributors have generally priced the
Reliance Insert in the various European markets based on the particular market
and the availability of third-party reimbursement.
Manufacturing of the Reliance Insert
The Company has expended substantial efforts on the manufacturing scale-up
activities for the relatively large volume of devices that it expects will be
required for complete commercialization of the Reliance Insert in the United
States and abroad. The
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Company has automated its manufacturing process in order to achieve the high
volume, high quality production required to meet the Company's current sales
forecast within desired cost objectives. The Company is currently producing the
Reliance Insert in relatively low-level commercial quantities on the two
currently installed lines of the Company's automated assembly equipment. This
equipment, with robotics assistance, progressively assembles the Reliance
Insert. Although the Company believes its current equipment has the capacity to
produce enough Reliance Inserts to meet the initial demands of commercialization
in the United States, the Company expects to order additional lines of automated
assembly equipment in 1997 in order to meet anticipated demand. See
"--Properties."
The principal materials used in the Reliance Insert are supplied by three
resin suppliers and one supplier of other materials. Although the Company
currently has only a limited number of supply agreements in place, the Company
may, in the future, seek to enter into additional agreements for protected
supply with certain of its resin suppliers if it considers this to be a
cost-effective means of assuring the availability of essential materials. The
Company intends to maintain adequate and ample inventory to avoid product flow
interruptions. It is the Company's view that suitable alternative suppliers for
certain materials other than resins can be located.
Certain component parts of the Reliance Insert are custom produced for the
Company using the Company's proprietary processes. The balance of the components
of the Reliance Insert are manufactured by the Company at its manufacturing
facility. The Company considers the production of thermoplastic elastomers to
the tolerances required for use in the Reliance Insert to be a key technology
developed by the Company. Although the Company currently utilizes a sole vendor
for the production of the balloon and body components of the Reliance Insert,
the Company believes that there is an ample supply of qualified vendors. The
additional accessories for the Reliance Insert and their components are readily
available from several suppliers. The packaging for the Reliance Insert consists
of generic medical grade materials which are readily available from multiple
vendors. See "--Patents and Proprietary Rights."
The Company's manufacturing facility for the Reliance Insert, as an FDA-
registered facility subject to "Good Manufacturing Practices," is subject to
regulation and periodic inspection by the FDA. See "--Properties."
Clinical Results of the Reliance Insert
In connection with the Pre-Marketing Approval application upon which the
FDA based clearance of the Reliance Insert, the Company has conducted on-going
human clinical trials of the Reliance Insert at ten centers in the United States
during different periods since 1992. As of March 31, 1996, 255 patients,
comprising over 2,000 patient months, had used the Reliance Insert on a daily
basis over varying periods of time and approximately 190,000 Reliance Inserts
had been used by patients in these clinical trials. As of that date, 51 patients
have used the Reliance Insert for more than one year, and the longest follow-up
on any one patient was 38 months.
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Results of the Company's trials of the Reliance Insert involving 63
patients who had used the Reliance Insert for over one year were published in
the June 1996 edition of the Journal of Endourology.
These included the following highlights:
- 80 percent of these patients reported experiencing complete dryness.
- 95 percent of these patients reported experiencing a significant
reduction in urine loss.
- 70 percent of these patients reported experiencing improvement in
their quality of life after commencing use of the Reliance Insert.
- 97 percent of these patients reported that they would recommend use
of the device to a friend who suffers from stress incontinence.
The clinicians conducting the trials of the Reliance Insert also reported
that the Company's clinical trials had demonstrated incidences of transitory
hematuria (incidence of blood in the urine), urinary tract infection, device
migration and anatomical findings of urinary tract or mucosal irritation.
However, the clinicians concluded that these adverse effects were well within
the range expected with other commonly-accepted self-catheterization techniques
and that such effects tended to decrease in frequency over time. The clinicians
attributed this decrease to a patient habituation period associated with the use
of the Reliance Insert similar to habituation periods associated with other
self-catheterization techniques.
Regulatory Status of the Reliance Insert
FDA Approval. The Company received final regulatory approval from the FDA
to market the Reliance Insert in the United States in August 1996. This
clearance was granted on the basis of clinical trial data included in a
Pre-Market Approval ("PMA") application originally filed by the Company as a
shorter-form 510(k) Notification application in December 1994. The FDA's final
approval of the Company's PMA was granted conditioned upon final labeling
review, which has been completed, and an undertaking to complete a five-year
post-market surveillance study covering 150 patients designed to determine (i)
the degree of urinary tract bacteriology associated with use of the device,
including type and frequency of symptomatic bacteriuria, and (ii) the long-term
effect of use of the device on urethral integrity. See "--Government
Regulation."
European Authorization. The process of obtaining necessary authorization
or approvals to market medical devices in Europe varies from country to country.
In Germany, this process was accomplished by delivery by Tosse, one of the
Company's European distributors, of notice to the German government that it was
beginning commercial distribution of the Reliance Insert. Similarly, the
required notification to the French government by Porges, another distributor,
of its intent to distribute the Reliance Insert in France has been made. The
countries of Finland, Denmark and the United Kingdom require no formal
application or registration process in order for Astra Tech, the Company's third
European distributor, to sell the Reliance Insert in these countries.
Applications filed by Astra Tech in each of Sweden, The Netherlands and Norway
for the
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approval to market the Reliance Insert were approved in each of these countries.
The Company has also received approval to affix the CE Mark to the Reliance
Insert and any accessories to the Reliance Insert sold in Europe. Generally, no
clinical trials of the Reliance Insert were required for clearance in these
European markets. See "--Third-Party Reimbursement" and "--Government
Regulation."
The Impress Softpatch
Acquisition of the Impress Softpatch. The Impress Softpatch technology was
acquired by the Company in May 1996 from the ASI Liquidating Trust, the
successor to Advanced Surgical Intervention, Inc., a medical device manufacturer
that suspended operations in June 1994. In consideration for the Impress
Softpatch technology, the Company paid the trust $7.0 million in cash and issued
to the trust approximately 2.3 million shares of Common Stock valued at $23.0
million. At the closing of this acquisition, the Company entered into consulting
agreements with three of the principal inventors of the Impress Softpatch to
assist the Company in developing its manufacturing capability for the product.
Description of the Impress Softpatch
The Impress Softpatch has been designed to provide sufferers of mild to
moderate stress UI with the immediate lifestyle benefits offered by a
non-invasive and easy-to-use self-management therapy. The Impress Softpatch
permits the Company to offer a complementary and simple product for mild to
moderate stress incontinence sufferers. Unlike conventional pads or diapers, the
much smaller Impress Softpatch is placed directly against the urinary opening
where it is secured by an adhesive. Accordingly, the Impress Softpatch might be
preferred by many UI sufferers for comfort and discretion reasons, as well as
the ability, unlike pads or diapers, to block urine leakage at its source. The
Impress Softpatch is not designed to be the product of choice for severe UI
sufferers, many of whom may be candidates for the use of the Reliance Insert.
The Impress Softpatch is a one-piece, disposable, triangular pad made of
soft foam, measuring approximately 3.3 centimeters in length and 2.6 centimeters
in width at its widest point. The Impress Softpatch is self-applied by a patient
between the labia covering the urinary opening, and secured in place by a thin
layer of adhesive gel covering the flat side of the patch. The shape of the
Impress Softpatch and the adhesive gel together form a seal which helps to
prevent the involuntary leakage of urine. The Impress Softpatch is designed as
single-use device; after application the Impress Softpatch remains against the
urinary opening until the patient desires to urinate. Prior to urination, the
patient removes the device manually and urinates naturally. After urination, a
new Impress Softpatch can be put in place. The Impress Softpatch is available in
one size designed to fit all UI sufferers for whom it is an appropriate therapy.
Target Market for the Impress Softpatch
The Impress Softpatch has been designed to treat a broad range of mild to
moderate stress UI sufferers, including those who may prefer, for medical,
severity level or psychological reasons, to use this product rather than the
Reliance Insert, or those whose UI problem is relatively mild. The Company
estimates that the initial target market for the
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Impress Softpatch in the United States will be 3.5 million women, including
approximately 1.0 million of the approximately 2.5 million women in the United
States who visit a urologist, gynecologist or urogynecologist each year and
discuss their UI condition with their physician. Because the Impress Softpatch
offers an easy-to-use, non-invasive strategy for the management of UI, the
Company believes that its planned consumer awareness programs for the product
may allow it to reach an additional 2.5 million women in the United States who
currently manage their UI condition through over-the-counter products, such as
diapers or pads, and have not discussed their UI condition with a urologist,
gynecologist or urogynecologist.
The Company believes that usage of the Impress Softpatch will vary
significantly among patients based on severity of incontinence, income, price,
availability of reimbursement, level of activity and personal preference. The
Company believes that a typical UI sufferer in the Company's target markets who
elects to use the product may use between one and three Impress Softpatches
daily. Patients enrolled in the clinical trials of the Impress Softpatch, who
did not pay for the product, averaged use of approximately 110 devices per
month.
Launch Strategy in the United States
The Company currently intends to leverage its existing sales force, and
the experience gained by the Company and this sales force during the commercial
launch of the Reliance Insert, to pursue a similar strategy to commercialize the
Impress Softpatch in the United States. The Company expects this
commercialization to begin in late 1997 or early 1998 with an initial intensive
marketing effort focused on a selected group of urologists and gynecologists
with whom the Company's sales force has established relationships. After
establishing a foothold for the Impress Softpatch in the incontinence self-care
market through these physicians, the Company intends to broaden its marketing
efforts to a wider range of physicians, including more generalists, building on
the experience of a small but established customer base of Impress Softpatch
users. During the course of these efforts, the direct sales force currently
being established by the Company will perform similar physician detailing and
instruction activities with respect to the Impress Softpatch. The Company
believes that, based on the relative simplicity of the Impress Softpatch, its
ease-of-use and non-invasive character, and the benefits of the experience
expected to be gained by the Company's sales force in launching the Reliance
Insert, the commercialization efforts for the Impress Softpatch and market
acceptance of the Impress Softpatch should progress more quickly than those
currently contemplated for the Reliance Insert. The Company's marketing and
commercialization strategies for the Impress Softpatch are in their formative
stages, and will be adjusted to reflect the Company's experience in regards to
the continence care market.
The timing and success of the Company's commercialization of the
Impress Softpatch will be dependent on the development by the Company
of the ability to produce commercial quantities of the Impress
Softpatch. See "--Properties."
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Launch Strategy in International Markets
Although the Company is currently focused on its preparations for the
commercialization of the Impress Softpatch in the United States, it intends to
eventually commercialize the Impress Softpatch in certain other countries after
the successful completion of its market launch in the United States and the
development of sufficient manufacturing capacity. The Company believes that it
will follow a commercialization strategy in Europe for the Impress Softpatch
similar to that employed for the Reliance Insert.
Pricing of the Impress Softpatch
The Company has not yet set the pricing of the Impress Softpatch in the
United States or abroad. The Company intends to price the Impress Softpatch so
that it will be accessible to its initial target market in the United States.
The Company believes that the absence of a significant initial cost in
connection with the commencement of use of the Impress Softpatch will give it a
competitive advantage over certain treatments. See "--Current Treatments."
Manufacturing of the Impress Softpatch
The Company intends to begin the first phase of its manufacturing
operations for the Impress Softpatch by the end of the fourth quarter of 1997.
This phase will include manual assembly of the foam pad that makes up the body
of the Impress Softpatch, and the application of the adhesive gel to the face
which is placed against the urinary opening during use. Because Advanced
Surgical Intervention, Inc., the company which originally developed the Impress
Softpatch, never progressed to commercial-stage manufacturing of the Impress
Softpatch, the Company has been required to develop its own manufacturing
process for the product. The Company ordered automated assembly and packaging
equipment for the Impress Softpatch late in the fourth quarter of 1996. The
Company anticipates that this equipment will be in full operation by the end of
1997 in anticipation of the planned commercial launch of the Impress Softpatch
in the United States in late 1997 or early 1998.
Clinical Results of the Impress Softpatch
In connection with an application for FDA clearance, clinical trials of
the Impress Softpatch were conducted by its developer, Advanced Surgical
Intervention, Inc., at 12 centers in the United States. These studies, which
concluded in October 1993, enrolled 356 patients suffering from mild to moderate
stress incontinence who used the device for twelve weeks following an initial
four week control period. Patients were asked to perform home pad weight studies
to determine the efficacy of the device and complete bladder diaries and
satisfaction surveys relating to, among other things, the impact of incontinence
on their quality of life and the impact of use of the device on the same. The
clinicians who conducted this study reported the following significant results:
- 52 percent of patients reported that they were completely dry when
using the device.
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- 84 percent of patients reported that use of the device improved
their overall daily living.
- 97 percent of patients reported that they were able to learn to use
the device without instructions from a physician.
The clinicians who conducted the trials of the Impress Softpatch did not
report any significant adverse events associated with use of the device.
However, some slight tissue irritation was reported by some of the patients
using the device.
Regulatory Status of the Impress Softpatch
FDA Clearance. FDA clearance to market the Impress Softpatch was granted
on May 8, 1996 on the basis of a 510(k) Notification application originally
filed by Advanced Surgical Intervention, Inc. in September 1995. This
application was based on the clinical trial data compiled with respect to the
Impress Softpatch by Advanced Surgical Intervention, Inc. FDA clearance was
issued without the requirement that a post-market surveillance study be
conducted with respect to use of the Impress Softpatch or subject to any other
conditions.
European Authorization. Because of the timing encompassed by the Company's
commercialization strategy for the Impress Softpatch, including the Company's
current emphasis on initial commercialization in the United States, the Company
is not currently pursuing any notifications or applications to market the
Impress Softpatch in Europe. The Company believes that the notification and
application processes for most countries in Europe for the Impress Softpatch
will involve application to the Company's "Notified Body"- a private agency
which reviews applications for CE marks under European Union Law to affix the CE
Mark to the Impress Softpatch. See "--Government Regulation."
Intended Benefits of the Reliance Insert and Impress Softpatch
The Company's philosophy in the treatment of UI is to offer a continuum of
care, including a range of self-care options depending on the severity of the
affliction and certain attributes of particular patients.
The intended benefits of both the Reliance Insert and the Impress
Softpatch for the management of stress incontinence in appropriate patients
include:
Convenience. Unlike diapers and pads, the Reliance Insert and Impress
Softpatch are each intended to stop urine from leaving the urinary tract until a
woman desires to urinate. The Reliance Insert and Impress Softpatch are each
relatively small, with only a small string extending from the user's body in the
case of the Reliance Insert, and a small patch surrounding the urinary opening,
in the case of the Impress Softpatch. It is intended that the lack of exterior
constraints and small size of each product may allow the patient a more natural
lifestyle than that achieved with diapers and other absorbent products.
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Ease of Use. The Reliance Insert and Impress Softpatch are each designed
to be easy to use. The Company believes that the majority of stress incontinence
sufferers can easily learn to use the Reliance Insert after appropriate
demonstration and training. The Company believes the Impress Softpatch is even
easier to use than the Reliance Insert, and could be used by a majority of the
stress incontinence sufferers in the United States.
Less-Invasive Self-Care. The Reliance Insert and Impress Softpatch are
each designed to be a relatively low-risk, non-invasive treatment as compared to
surgery or the permanent implantation of foreign materials into the body. A
patient and her physician can simply decide to discontinue use of either product
in the event that any adverse effects occur. Use of the Reliance Insert or the
Impress Softpatch is intended to avoid the potentially frustrating experience of
undergoing the effort, time, expense and inconvenience of an invasive therapy or
exercise therapy only to determine that the chosen form of treatment may not be
effective or appropriate.
Broad Applicability. The Company believes that the Reliance Insert may
potentially be appropriate for use with most levels and types of stress
incontinence, ranging from those patients who have a mild form of the condition,
and will occasionally use the product, to those patients with the most severe
form that generally requires surgery. The Company believes that the Impress
Softpatch may potentially be appropriate for use with an even broader range of
women with mild to moderate stress incontinence.
Flexibility and Ease of Prescription. Unlike surgery or the implantation
of artificial materials, the prescription of the Reliance Insert or Impress
Softpatch is not intended to be time consuming or technically demanding. In
addition, the availability of both the Reliance Insert and the Impress Softpatch
is expected to give a prescribing physician flexibility in prescribing a
non-invasive or less-invasive product for the self-care of UI, depending on the
severity level of the patient's UI and other medical and psychological factors.
In the case of the Reliance Insert, after initial diagnosis, sizing by the
physician or nursing staff and instruction, the device would become a patient
self-care item. Similarly, after a simple physician consultation and brief
instruction, the Impress Softpatch would also become a patient self-care item.
The clinical trials conducted with respect to the Reliance Insert and
Impress Softpatch have demonstrated certain comparative disadvantages, or
perceived comparative disadvantages, which could adversely affect market
acceptance of such products. For example, the Reliance Insert and the Impress
Softpatch represent management methods for the treatment of stress incontinence
and are not permanent cures. Moreover, as patient-managed therapies, their use
may be discontinued by a patient at any time. A considerable number of patients
chose to withdraw from the Company's clinical trials of the Reliance Insert for
a variety of reasons, including the demands of compliance with study protocols
(including follow-up doctor visits, laboratory testing and requirements that
patients comply with record-keeping requirements), discomfort experienced while
using the Reliance Insert and, in some patients, urinary tract infections
experienced while using the device. The Company expects that patients will
experience a foreign-body sensation and, in some cases, discomfort, during
acclimation and use of the product. Results of the clinical trials of the
Impress Softpatch indicated that a small number of patients experienced slight
tissue irritation after use of the device. The Impress Softpatch is not designed
to be the
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product of choice for severe incontinence and certain UI patients using the
Impress Softpatch may require a back-up pad for complete protection under
certain circumstances. In addition, the Reliance Insert and the Impress
Softpatch will each be prescription items in the United States market, which
will require the patient to visit her physician. See "--Research and
Development."
Marketing and Sales
The Company's U.S. marketing strategy is designed to promote awareness of
its initial products, the Reliance Insert and Impress Softpatch, as representing
a highly desirable continuum of care for the management of stress incontinence.
The Company will focus initially on the acceptance of the Reliance Insert, and
will implement its marketing program by systematically providing information and
educational support to the target physicians who will prescribe the Reliance
Insert and to the physician's practice staff who will educate the patient.
The Company believes that the problem of incontinence is often discussed
during a woman's annual physical examination. The physicians most aware of the
problem of incontinence in the United States are gynecologists, urologists and
urogynecologists. There are currently approximately 35,000 gynecologists (a
relatively small number of which are urogynecologists), and 9,000 urologists in
the United States.
The Company has recently developed a sales organization designed initially
to address 42 key territories. These territories were identified by the Company
as having relatively large populations of women and significant numbers of
urologists or gynecologists in which to focus the initial rollout of the
Reliance Insert. After the commercial launch of the Reliance Insert, the Company
believes that it will be able to leverage the experience and relationships
gained by this sales force during this campaign to launch the Impress Softpatch,
and any other complementary products developed, acquired or licensed by the
Company, in the United States. This sales force is composed primarily of 42
full-time Territory Managers, of whom twelve are Senior Territory Managers. Each
of the Senior Territory Managers has a minimum of seven years experience in
medical device sales and substantial managed care experience. Each of the
remaining Territory Managers has a minimum of five years of medical sales
experience. These Territory Managers, who generally will work out of their homes
in their respective territories, report to six Regional Sales Directors, each
with a minimum of seven years of medical device sales and management experience,
organized under a Director of Sales and the Vice President, Sales and Marketing
of the Company. Approximately one-half of the members of the Company's sales
force have gynecology sales experience, while many of the remainder have urology
sales experience. Most of the sales force also have experience in launching
innovative new products. The Company believes that using a direct sales force
will provide the highest quality, fastest and most cost-effective means for
introducing its products to the broad physician base targeted by the Company.
The role of each sales representative will be to educate physicians and their
staffs as to the intended clinical safety and efficacy of the Company's products
and train the office staff in the appropriate patient in-service protocol to
ensure proper use and acceptance of the products. The Company may supplement its
direct sales force with contract sales representatives or corporate partnership
relationships where it believes it is appropriate to do so.
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Distribution
The Company has developed an innovative distribution system in the United
States, with an emphasis on direct distribution to and interaction with its
consumers. First, a physician prescribes the product, his or her office staff or
the patient receives the prescription, telephones or faxes the patient's
prescription into the Company. Next, the patient is encouraged to telephone the
Company's fulfillment center directly to place an initial order for the Reliance
Insert. During this call, the patient is encouraged to join the Company's free
"Personally Fit for Success" Program, or PFS Program, which will offer the
patient access to a telephone "help line." The Company generally attempts to
place at least three outgoing calls to each member of the PFS Program during the
first 30 days after receipt of her initial prescription, to follow up on her
initial usage of the Reliance Insert and help with any product questions. The
Company expects that it will follow a similar protocol for the distribution of
the Impress Softpatch.
Prescriptions are filled by a licensed pharmacist based at a Company
fulfillment center located in Nashua, New Hampshire, which is a pharmacy
licensed to dispense medical devices, and then Reliance Inserts are sent
directly to patients in a discrete package. Initially, this pharmacist's primary
role is to ensure that Reliance Inserts of the proper size are delivered
pursuant to the prescriptions sent to the Company.
The Company markets a Reliance Insert starter kit to each new patient.
Each kit contains a Reliance applicator, a mirror to assist the patient in the
initial applications of the Reliance Insert, and 20 Reliance Inserts. After this
initial purchase, the Company plans to market additional Reliance Inserts to its
customers in packs of 20 Reliance Inserts and 50 Reliance Inserts. Other pack
sizes may be added as the Company deems necessary. The Company has not yet made
a final determination on the pack sizes of the Impress Softpatch for sale in the
United States.
The Company is not currently planning to stock pharmacies with the
Reliance Insert or the Impress Softpatch; however, it intends to fill orders
placed directly from individual pharmacies or doctors for patients not electing
to deliver their prescriptions directly to the Company. The Company may consider
stocking pharmacies or adopting other distribution strategies in the future.
Third-Party Reimbursement
United States
In the United States, third-party reimbursement is generally available for
surgical procedures for incontinence, but generally is unavailable for patient
management products such as diapers and pads. Although the Company believes that
the prospect of widespread government or private insurance reimbursement in the
United States for the Reliance Insert or Impress Softpatch for the near term is
unlikely, the Company does not believe that reimbursement is necessary for the
successful launch of either product in the United States. The Company intends,
however, to continue to work with managed care organizations to
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explore the possibility of reimbursement for the use of either or both products
in the United States. Any such reimbursement is likely to be variable among
these third-party payors.
International Markets
The availability of third-party reimbursement for the use of the Company's
Reliance Insert, Impress Softpatch or/and any related incontinence products
varies among the foreign countries that the Company has targeted for the
marketing and sale of such products. Prior to the market launch of the Reliance
Insert in Germany in September 1995, the Company received notice that the use of
the Reliance Insert would be fully reimbursable by the German government.
Because the procedure for applying for reimbursement in France is more involved
and includes a requirement that clinical studies be conducted in France, it is
unclear whether or when the Company's distributor in France, Porges S.A., will
apply for reimbursement for the Reliance Insert in France. The Company and Astra
Tech AB, one of the Company's distributors, successfully applied for
reimbursement for the use of the Reliance Insert in each of Norway and Sweden,
and parts of Denmark and Finland. The process of applying for reimbursement for
the Reliance Insert in The Netherlands, where reimbursement is available only
through private insurers, and the United Kingdom is a more involved process,
which the Company and its European distributors began prior to the professional
market launches in The Netherlands, which occurred in March 1996, and the United
Kingdom, which occurred in April 1996. The Company is unable to predict when
final reimbursement decisions will be rendered in such countries. Changes in the
availability of third-party reimbursement for the Reliance Insert, for products
of the Company's competitors or for surgical procedures may affect the pricing
of the Reliance Insert or its relative cost to the patient.
Research and Development
The Company believes that its future success will depend in large part
upon its ability to enhance its Reliance Insert and Impress Softpatch and to
develop other new products. Accordingly, the Company intends to continue to
devote significant funds and efforts to research and development. The Company
currently employs 36 individuals on a full-time basis and 8 on a part-time basis
for its research and development efforts.
The Company believes that there is potential for improvement in the
diagnosis and treatment of a number of urological and gynecological disorders.
The Company believes that advancements in urology and gynecology have been
hampered by the relatively smaller research and development resources dedicated
to these disciplines as compared to other areas, such as cardiology.
In order to pursue its focus on identifying, developing and marketing
innovative products that address female urological disorders, UroMed has
reevaluated and reorganized its research and development groups to accomodate
its anticipated growth. As Managing Director of Continence Care, Joanne Moon now
overseas the development of the continence care area. Alan West was hired by the
Company in February 1996 as Managing Director of Female Healthcare Programs.
Rick Epstein was hired by the Company in October 1996 as Managing Director of
Male Healthcare Programs. Robert Lorette was hired by the Company in February
1996 as Vice President of Corporate Development. The Company
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believes that this enhanced management team and newly organized research and
development area should provide UroMed with the infrastructure necessary to
continue to develop internal projects as well as to leverage in-licensing
opportunities.
Competition
The incontinence product industry is highly competitive. The Company
believes that the primary competitive factors include the level of physician and
consumer awareness and acceptance of available treatment methods, consistency of
product quality and delivery, price, technical capability and the training of
health care professionals and consumers in the use of available treatment
methods. The Company's ability to compete in this industry will also be affected
by its product development capabilities and innovation, its ability to obtain
required regulatory clearances, its ability to protect the proprietary
technology included in its products, its manufacturing and marketing
capabilities and its ability to attract and retain skilled employees. Current
major competitors who compete in the adult absorbent market include
Kimberly-Clark Corp., Procter & Gamble Co., Johnson & Johnson, Confab
Technologies, Inc. and INBRAND Corp. Current major competitors who compete in
the catheter/urine collection bag drainage system market include C.R. Bard,
Inc., Kendall Co., Mentor Corp., ConvaTec Ltd. and Baxter Technologies, Inc.
Current major competitors who compete in the market for surgical or implantable
products for incontinence include American Medical Systems, Inc., C.R. Bard,
Inc., Boston Scientific Corporation, Johnson & Johnson and Mentor Corp. The
Company is also aware that at least one manufacturer of catheters has announced
that it is seeking to develop a single-use plug device intended to compete with
the Reliance Insert, and the Company believes that other companies may also be
seeking to develop potentially competing devices, including indwelling valved
devices.
Many of the Company's competitors and potential competitors have
significantly greater financial, manufacturing, marketing, distribution and
technical resources and experience than the Company. It is possible that other
large health care and consumer products companies may enter this industry in the
future. Furthermore, smaller companies, academic institutions, governmental
agencies and other public and private research organizations will continue to
conduct research, seek patent protection and establish arrangements for
commercializing products. Such products may compete directly with any products
which may be offered by the Company. Finally, competitors in the medical device
industry have in the past and may in the future employ litigation to gain a
competitive advantage.
Patents and Proprietary Rights
The Company's success will depend in part on its ability to obtain and
maintain patent protection for its products, to preserve its trade secrets and
to operate without infringing the proprietary rights of third parties. The
Company's strategy regarding the protection of its proprietary rights and
innovations is to seek patents on those portions of its technology that it
believes are patentable and to protect as trade secrets other confidential and
proprietary information.
As of December 31, 1996, the Company held five issued United States
patents and had thirteen additional United States patent applications and
various foreign patent
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applications pending relating to the Company's technology underlying the
Reliance Insert and other related products. The Company believes that the
primary issued United States patent relating to the Reliance Insert, which
includes both method and device claims and expires in the year 2010, contains
broad claims relating to the construction and use of expandable remove-to-void
urethral plugs.
The Company holds two patents and has two patent applications pending with
respect to the Impress Softpatch and related products. The issued patents
relating to the Impress Softpatch and related products include device claims and
expire in the year 2011. The two applications filed by the Company with respect
to the Impress Softpatch and related technology contain both method and device
claims.
The Company believes that its patents, and any additional patents which
may be issued pursuant to these applications and any continuations or
continuations-in-part, may provide the Company with a substantial competitive
advantage in the female incontinence markets for urethral insert products and
exterior barrier products which use adhesive technology. However, there can be
no assurance as to the degree of protection offered by any of these patents or
that any patents will be issued with respect to the Company's pending patent
applications. The Company also holds licenses to two issued United States
patents, and has jointly filed one pending United States patent application and
various foreign patent applications, relating to applications of the Company's
technology outside of the area of incontinence.
Some of the technology used in the Company's products is not covered by
any patent or patent application of the Company. The Company seeks to maintain
the confidentiality of its proprietary technology by requiring employees who
work with proprietary information to sign confidentiality agreements and by
limiting access by parties outside the Company to such confidential information.
There can be no assurance, however, that these measures will prevent the
unauthorized disclosure or use of this information, or that others will not be
able to independently develop such information. Moreover, as is the case with
the Company's patent rights, the enforcement by the Company of its trade secret
rights can be lengthy and costly, with no guarantee of success.
To date, no claims have been brought against the Company alleging that its
technology or products infringe intellectual property rights of others. However,
there can be no assurance that such claims will not be brought against the
Company in the future or that any such claims will not be successful.
In addition to the proprietary protection afforded by the Company's
intellectual property activities, the Company believes that the production
processes that it has developed for the Reliance Insert and that it is
developing for the Impress Softpatch, involving the production of components in
high volumes, at acceptable costs and with very low fault tolerances, are key
assets of the Company. Because it believes that any potential competitor
attempting to produce an expandable urethral plug, external adhesive barrier
device or similar devices would also have to develop production processes
involving the production of components at high volumes, at acceptable costs and
at very low fault tolerances in order to compete effectively, the Company
believes that its development
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efforts with regard to production processes are an important competitive
advantage. See "--Manufacturing of the Reliance Insert."
The Company has selected the name Reliance for its incontinence insert
product through a program of market research and testing. As part of the
Company's global branding and marketing strategy, the Company has filed for and
received trademark registrations for the Reliance name in the United States and
in a number of other countries where it plans to market the Reliance Insert. In
late 1994, the Company became aware that Howmedica, Inc. ("Howmedica"), a
medical products company, has claimed rights to the Reliance name in several
countries. In April 1995, the Company and Howmedica entered into an agreement
which permits each party to use the Reliance name for its specific product areas
in those countries where both parties have filed or will file registrations.
Howmedica does not currently market products for the treatment of UI. There can
be no assurance that further trademark registration of Reliance or any other
name that may be selected by the Company will ever be obtained or, if a
trademark registration is obtained, that such trademark or the Company's use
thereof will not be challenged, invalidated, prevented or circumvented in the
future.
The Company has selected the name Impress Softpatch for its adhesive patch
incontinence device. The Company has filed an application for trademark
registration in the United States and will file applications for appropriate
trademark registrations in Europe and other countries for the Impress Softpatch.
However, there can be no assurance that the Company will receive trademark
registration for the name Impress Softpatch in the United States or in any other
countries in which the Company may want to market and sell the Impress
Softpatch.
Government Regulation
United States
The Reliance Insert and Impress Softpatch, as well as certain products
currently under development by the Company, are regulated as medical devices by
the FDA under the Federal Food, Drug and Cosmetic Act (the "FDC Act") and
require regulatory clearance prior to commercialization in the United States.
Under the FDC Act, the FDA regulates clinical testing, manufacturing, labeling,
distribution and promotion of medical devices in the United States. Various
states and other countries in which the Company's products may be sold in the
future may impose additional regulatory requirements.
Following the enactment of the Medical Device Amendments to the FDC Act in
May 1976, the FDA classified medical devices in commercial distribution into one
of three classes, Class I, II or III. This classification is based on the
controls necessary to reasonably ensure the safety and efficacy of medical
devices. Class I devices are those whose safety and efficacy can reasonably be
ensured through general controls, such as adequate labeling, pre-market
notification and adherence to FDA-mandated "Good Manufacturing Practices."
Generally, Class II devices are those whose safety and efficacy can reasonably
be ensured through the use of special controls, such as performance standards,
post-market surveillance, patient registries and FDA guidelines. Class III
devices are devices which must receive pre-market approval by the FDA to ensure
their
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safety and efficacy, generally life-sustaining, life-supporting or implantable
devices, and also include all new not substantially equivalent devices
introduced after May 28, 1976. The Reliance Insert is a Class III device, and
the Impress Softpatch is a Class II device.
If a manufacturer or distributor of medical devices can establish that a
new device is "substantially equivalent" to a legally marketed Class I or Class
II medical device or to a Class III medical device for which the FDA has not
required pre-market approval, the manufacturer or distributor may seek FDA
marketing clearance for the device by filing a 510(k) Notification application.
The 510(k) Notification application and the claim of substantial equivalence may
have to be supported by various types of information indicating that the device
is as safe and effective for its intended use as a legally marketed predicate
device and a 510(k) Notification application may require the submission of data
including clinical data.
Following submission of the 510(k) Notification application, the
manufacturer or distributor may not place the device into commercial
distribution until an order is issued by the FDA. The FDA has no specific time
limit by which it must respond to a 510(k) Notification application. The FDA may
agree with the manufacturer or distributor that the proposed device is
"substantially equivalent" to another legally marketed device, and allow the
proposed device to be marketed in the United States. The FDA may, however,
determine that the proposed device is not substantially equivalent, or may
require further information, such as additional clinical test data, before it is
able to make a determination regarding substantial equivalence. Such
determination or request for additional information could delay the market
introduction of a product. FDA clearance for the Impress Softpatch was granted
on the basis of a 510(k) Notification application originally filed by Advanced
Surgical Intervention, Inc.
If a manufacturer or distributor cannot establish to the FDA's
satisfaction that a new device is substantially equivalent to a legally marketed
medical device, the manufacturer or distributor will have to seek pre-market
approval or reclassification of the device. A PMA, which must prove that a
device is safe and effective, must be supported by extensive data, including
preclinical and clinical trial data, to demonstrate the safety and efficacy of
the device. Upon receipt, the FDA will conduct a preliminary review of the PMA
to determine whether the submission is sufficiently complete to permit a
substantive review. If sufficiently complete, the submission is declared
fileable by the FDA. By regulation, the FDA has 180 days to review a PMA after
it has been determined to be fileable. While the FDA has at times responded to
PMA's within the allotted time period, PMA reviews more often occur over a
longer time period and generally take approximately two years or more from the
date of filing to complete. A number of devices for which FDA marketing
clearance has been sought have never been cleared for marketing. FDA approval
for the Reliance Insert was granted on the basis of a PMA originally filed by
the Company as a 510(k) Notification application in December 1994. Approvals
granted by the FDA on the basis of PMA's are granted subject to publication of
notice in the Federal Register, which initiates a 30-day period during which
interested persons may seek review of the decision to approve the PMA. The FDA
published this notice on December 2, 1996 and the 30-day period of review ended
on January 2, 1997.
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After approval is granted on the basis of a PMA, continued market
clearance is contingent upon the submission of annual post-clearance reports
required by FDA regulations. In addition to the general requirements of the FDA
regulations for post-clearance reports, the FDA approval of the Reliance Insert
requires that post-clearance reports contain an evaluation of the long-term
effects of the Reliance Insert, including the results of a five-year
post-marketing surveillance study covering 150 patients designed to determine
(i) the degree of urinary tract infection associated with use of the device,
including type and frequency of symptomatic bacteriuria, and (ii) the long-term
effect of use of the device on urethral integrity. Subject to certain
exceptions, changes to an approved device, including the materials used therein,
and its manufacturing and quality processes, require additional submissions to
the FDA. If the FDA believes that the Company is not in compliance with
applicable law and regulations, the FDA can take one or more of the following
actions: withdraw previously approved applications; require notification to
users regarding newly found, unreasonable risks; request repair, refund or
replacement of faulty devices; request corrective advertisements, formal recalls
or temporary marketing suspension; refuse to review or clear applications to
market any of the Company's future products in the United States or to allow the
Company to enter into government supply contracts; or institute legal
proceedings to detain or seize products, enjoin future violations or assess
criminal penalties against the Company, its officers or employees.
If a manufacturer commercializes a medical device, it is required to
register with the FDA and to list all of its devices. In addition, any such
manufacturer will be subject to inspection on a routine basis for compliance
with the FDA's GMP regulations. The Company's facility in Needham,
Massachusetts, was registered with the FDA and successfully passed an inspection
in connection with the Company's PMA application for the Reliance Insert. The
FDA's regulations also require that such manufacturer manufacture its products
and maintain its documents in a prescribed manner with respect to manufacturing,
testing and quality control activities. Further, such manufacturer is required
to comply with various FDA requirements for labeling and reporting of adverse
reactions, and may be required to meet rules governing product tracking and
post-market surveillance. See "--Properties."
The Company's distribution system requires maintenance of a licensed
pharmacy at its New Hampshire order-fulfillment center. This facility is subject
to ongoing inspection and regulation by the State of New Hampshire Board of
Pharmacy, which has authority to revoke the pharmacy license or modify the terms
of the license. The State of New Hampshire is the only state in which the
Company is licensed to distribute medical products. Although the Company does
not believe its lack of a pharmacy license in other states will materially
interfere with its ability to distribute products to consumers in the United
States, an adverse decision by a regulator in any state could require the
Company to suspend distribution to consumers in that state while it seeks an
appropriate license or, if such license is not forthcoming or too costly to
obtain, to terminate distribution in that state.
International
Sales of medical device products outside the United States are subject to
foreign regulatory requirements that vary widely from country to country and
with respect to the
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nature of the particular medical device. The time necessary to obtain approvals
required by other countries may be longer or shorter than that required for FDA
approval, and requirements for licensing may differ from FDA requirements. Some
countries have historically permitted human studies earlier in the product
development cycle than the United States. Other countries, such as Japan, have
standards similar to those of the FDA. This disparity in the regulation of
medical devices may result in more rapid product approvals in certain countries
than in the United States, while approvals in countries such as Japan may take
longer than in the United States. Nevertheless, in general the Company believes
that these foreign regulatory requirements are less stringent than those imposed
by the FDA.
As required by German law, notification was made by the Company to the
German Government prior to the German market launch of the Reliance Insert in
September 1995. A similar notification procedure requirement is necessary for
the sale of the Reliance Insert in France. One of the Company's distributors,
Astra Tech AB, successfully completed the various notifications required by
Norway, Sweden, Denmark, Finland, The Netherlands and the United Kingdom prior
to the market launches of the Reliance Insert in these countries in 1995 and
early 1996.
Effective January 1, 1995, member countries of the European Union are
required to comply with the Medical Devices Directive ("MDD"). Under the system
established by the MDD, all medical devices other than active implants and in
vitro diagnostic products must qualify for CE Marking by June 14, 1998. During
the period from January 1, 1995 to June 14, 1998, medical devices must comply
with the requirements of the MDD or the national requirements that were in force
on December 31, 1994.
In order to qualify for CE Marking, the manufacturer must comply with the
Essential Requirements of the MDD. These relate to safety and performance. In
order to demonstrate compliance with these requirements of the MDD, the
manufacturer must undergo conformity assessment which depends on the class of
the product. The Company chose as its conformity assessment type testing of the
product by a Notified Body and assessment of the manufacturer's quality system
used in production by a Notified Body. In February 1996, representatives of the
Notified Body chosen by the Company reviewed the Company's facility and
operations in Needham, Massachusetts, for conformity to the Essential
Requirements of the MDD and Annex. Upon conclusion of the inspection, the
representative recommended to the Notified Body that the Company be granted
approval to use the CE Mark, and in March 1996 the Company received
certification of eligibility to use the CE Mark on the Reliance Insert and any
accessories for the Reliance Insert sold in Europe. The Company intends to apply
to its Notified Body to gain the ability to affix the CE Mark to the Impress
Softpatch in advance of any contemplated commercialization of such product in
Europe. Any such application, if granted, would eliminate the need to acquire
many of the additional regulatory approvals otherwise required to market the
products in Europe.
International sales of unapproved medical devices are also subject to FDA
export requirements. For each country to which an unapproved medical device is
exported, the manufacturer or distributor may first need to obtain documentation
from the medical device regulatory authority of such country stating that the
sale of such device is not in violation of
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that country's medical device laws. This documentation may then need to be
submitted to the FDA with a request for a permit for export to such country.
These requirements depend on both the regulatory status and classification of
the product in the United States.
Employees
As of December 31, 1996, the Company employed approximately 168
individuals on a permanent basis and 21 on a temporary basis. The Company
believes that it has been highly successful in attracting experienced and
capable personnel. However, there can be no assurance that the Company will
continue to do so.
None of the Company's employees is covered by collective bargaining
agreements. The Company considers relations with its employees to be good.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This Report contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), including statements in Item 1
"Business" regarding (i) the planned progression of the Company's
commercialization strategies for the Reliance Insert and Impress Softpatch,
including the timing and extent of initial sales in the United States and
abroad, (ii) the planned increases in manufacturing capacity for the Reliance
Insert and the Impress Softpatch, including the timing and extent of
expenditures needed for capital equipment and inventory production, (iii)
consumer acceptance of the use of the Reliance Insert and Impress Softpatch as
strategies for the self-care of UI and the size and accessibility of the
Company's target markets, (iv) the protection which may be provided by the
Company's patents and related technology in the area of treatment of
incontinence, (v) the Company's planned uses for its cash and other liquid
resources, (vi) the extent of future revenues, expenses and results of
operations and the sufficiency of the Company's financial resources to meet
planned operational costs and other expenditure needs; and (vii) the Company's
expectations regarding its research and development and in-licensing activities.
These forward-looking statements are based largely on the Company's expectations
and are subject to a number of risks and uncertainties, many of which are beyond
the Company's control. Actual results could differ materially from these
forward-looking statements as a result of certain factors. In light of these
risks, including particularly the following risks and uncertainties and those
described under the heading "Risk Factors", there can be no assurance that any
forward-looking statements contained in this Report will prove to be accurate:
- - The uncertainty that the Reliance Insert and the Impress Softpatch will
gain market acceptance either among physicians or UI sufferers in the
United States or in Europe and the risk that the adverse effects
experienced by some of the parties enrolled in clinical trials of the
Company's Reliance Insert will be more prevalent in widespread consumer
use of such products and that such effects will affect the market
acceptance of these products.
- - The dependence by the Company on the success of two products, the Reliance
Insert and the Impress Softpatch, neither of which has been widely
marketed.
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- - The uncertainty that the Company will be able to develop the ability to
produce commercial quantities of its products and produce such quantities
at an acceptable cost.
- - The uncertainty that the Company will be able to develop an effective
sales force and implement a successful marketing plan for the Reliance
Insert and the Impress Softpatch in the United States.
- - The Company's dependence on others for raw materials and certain
components of its products, including certain materials available only
from single sources.
- - The effect of competing products and surgical and non-surgical
alternative treatments for incontinence.
- - The uncertainty that the Company will be able to develop an effective
distribution network and implement a successful distribution strategy for
the Company's products in the United States, Europe and elsewhere.
- - The uncertain protection afforded the Company by its patents and other
intellectual property relating to the Reliance Insert and the Impress
Softpatch.
- - The uncertainty whether the Company will be able to achieve medical
reimbursement for the Reliance Insert or the Impress Softpatch in the
United States or in all the European markets targeted for the Company's
products.
- - The uncertainty whether the Company will be able to manufacture, market
and sell its products at prices that permit it to achieve satisfactory
margins in the production and marketing of its products.
- - Risks relating to FDA or other governmental oversight of the Company's
operations, including the possibility that the FDA could impose costly
additional labeling requirements on, or restrict the marketing of, the
Company's products, or suspend operations at one or more of the Company's
facilities.
RISK FACTORS
The Company's financial condition and results of operation, as well as the
market price for the Company's outstanding securities, are also likely to be
affected by the following factors:
Uncertainty of Market Acceptance of the Reliance Insert and Impress Softpatch
Each of the Reliance Insert and the Impress Softpatch represents a new
approach to managing certain types of female UI, and there can be no assurance
that either product will gain any significant degree of market acceptance. The
Company believes that recommendations by physicians will be essential for market
acceptance of both the Reliance Insert and the Impress Softpatch, which are and
will be marketed on a prescription basis,
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and there can be no assurance that any such recommendations, if such
recommendations are ever made, will be followed. In addition, there can be no
assurance that the Reliance Insert or the Impress Softpatch will be accepted by
female UI sufferers in the United States or abroad. The Reliance Insert must be
inserted into the urethra. Accordingly, some female UI sufferers may not be
willing to use the device. Furthermore, the Reliance Insert and, to a lesser
degree, the Impress Softpatch, may not be appropriate for use by UI patients who
lack sufficient dexterity or who suffer from other physical or mental conditions
that could have an impact on the safe and efficacious use of the devices.
Certain transitory adverse effects such as hematuria (incidence of blood in the
urine), urinary tract infection, device migration and anatomical findings such
as irritation of the mucosa, were evident in varying degrees in the Company's
clinical trials of the Reliance Insert. The observation of such adverse effects
in patients, or the perception that the product could cause any such adverse
effects, could have the effect of discouraging some potential users of the
Reliance Insert. The Reliance Insert and the Impress Softpatch are each
patient-managed therapies and as such patients may at any time decide to
discontinue their use. During the course of the Company's clinical trials of the
Reliance Insert, a considerable number of the patients enrolled in the trials
chose to discontinue use of the Reliance Insert prior to the end of a complete
year for a variety of reasons, including discomfort and, in some cases, urinary
tract infections, experienced while using the device. The Company expects that
patients will experience a foreign-body sensation, and in some cases,
discomfort, during acclimation and use of the product. Results of the clinical
trials of the Impress Softpatch indicated that some patients experienced slight
tissue irritation after use of that device and that 48% of the patients were
unable to report that they were completely dry when using the device. Although
the safety and efficacy of the Reliance Insert and Impress Softpatch were each
deemed to be sufficient for clearance by the FDA, there can be no assurance that
either product will continue to prove to be safe and effective over the
long-term and after wider use. Finally, the pricing of the Reliance Insert and
the Impress Softpatch in the United States and in many foreign markets has not
yet been finally determined, and the pricing policies of the Company and its
European distributors could adversely impact market acceptance of these products
as compared to competing products and treatments.
Any of the foregoing factors, or other factors, including the availability
or non-availability of third-party reimbursement, could limit or detract from
market acceptance of the Company's products in the United States and abroad.
Insufficient market acceptance of the Reliance Insert or the Impress Softpatch
would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--The Reliance Insert," "--The
Impress Softpatch," and "--Third Party Reimbursement."
Dependence on Two Products
The Company expects to derive a substantial part of its revenues for
the next several years from sales of the Reliance Insert and the Impress
Softpatch. The Company's failure to commercialize successfully both of these
products would have a material adverse effect on the Company's business,
financial condition and results of operations. The Company does not expect
that commercialization of other new products
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will be feasible without a substantial, continuing commitment to research and
development for an extended period of time or acquisitions of new properties,
or both. Also, the development of any new products may require that such
products will be subject to clinical trials and regulatory clearance or
approval before commercialization. There can be no assurance as to whether or
when commercialization of other products might begin or as to the likelihood
that any such initiative would be successful. See "Business--Research and
Development."
Limited Manufacturing Capability and Experience
The Company has limited experience in manufacturing commercial quantities
of its Reliance Insert and has not manufactured significant quantities of any
other products, including the Impress Softpatch. In addition, the Company is
currently unable, due in part to the current volume of production, to
manufacture Reliance Inserts at a cost below the price at which such products
are currently being sold to the Company's European distributors and domestic
customers. In order to successfully commercialize the Reliance Insert in the
United States and abroad, the Company will have to reduce per-unit manufacturing
costs while maintaining the extremely high quality standards required. In
addition, the Company may have to increase its manufacturing capacity to support
expected demand for the Reliance Insert generated by sales to direct customers
in the United States and sales to the Company's distributors in Europe during
the second half of 1997. Moreover, in the event that demand for the Reliance
Insert is greater than expected, the Company may not be able to develop
additional manufacturing capacity to produce quantities of the Reliance Insert
sufficient to supply such requirements in a timely fashion. In the event that
the Company's planned expansion of its manufacturing capacity is delayed for any
reason due to problems encountered during such expansion, the Company may be
unable to produce quantities of the Reliance Insert to fulfill its commitments
to its European distributors or the demand of the United States market. The
Company has not yet developed any capacity to manufacture the Impress Softpatch,
and has not yet been able to demonstrate that it will be able to manufacture the
Impress Softpatch or to develop such capacity on a cost-effective basis. Even if
the Company does develop such capacity, it may not be able to develop sufficient
capacity to produce the quantities of the Impress Softpatch that may be required
to support its sales. In order to develop sufficient additional manufacturing
capacity, the Company will have to make substantial capital expenditures on
additional units of the Company's automated assembly equipment for the Reliance
Insert and new equipment to manufacture the Impress Softpatch, and expand the
Company's existing manufacturing facility into space currently used for other
functions, or acquire additional manufacturing space at other locations. In the
event that the Company is unable to manufacture sufficient quantities of the
Reliance Insert or the Impress Softpatch to support its obligations under its
European marketing and sales agreements and ultimately to support sales in the
United States, the Company may be required to enter into arrangements with third
parties to manufacture these products. These other manufacturers may not be able
to manufacture the Reliance Insert or Impress Softpatch on commercially
acceptable terms or in quantities sufficient to permit the successful
commercialization of such products. See "Business--The Reliance
Insert--Manufacturing of the Reliance Insert," and "--The Impress
Softpatch--Manufacturing of the Impress Softpatch."
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Dependence on Others for Components and Raw Materials
Certain of the raw materials for the manufacture of the Reliance Insert
and the Impress Softpatch are available only from single sources, and certain of
the components of the Reliance Insert are manufactured by third parties.
Interruptions in supplies of raw materials or components of the Reliance Insert
may occur as a result of business risks particular to such suppliers or the
failure of the Company and any such supplier to agree on satisfactory terms.
Such sources may also decide for reasons beyond the control of the Company, such
as concerns about potential medical product liability risk in general, to cease
supplying such materials or components for use in medical devices generally. In
the event of such an interruption, alternative sources of raw materials or
components may be limited. The Company is currently a party to supply agreements
with only some of its key suppliers and may not be able to obtain agreements
with some of its suppliers of raw materials or components if it so desires. In
the event that the Company replaces its current raw materials used in the
Reliance Insert or Impress Softpatch with alternative materials, such product,
as modified, may require new FDA and other regulatory approvals, and additional
clinical and other testing may be required in order to obtain such approvals.
Any interruption in the supply of raw materials currently used by the Company or
any components incorporated in the Reliance Insert, or the usage of any
alternative raw materials, would have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--The
Reliance Insert--Manufacturing of the Reliance Insert."
Lack of Marketing and Sales Experience; Dependence on European Marketing and
Sales Agreements
Although the FDA has approved the Reliance Insert and cleared Impress
Softpatch for marketing in the United States, the Company has sold only limited
amounts of the Reliance Insert in the United States and has not sold the Impress
Softpatch. The Company has developed a direct marketing and sales group in the
United States for its products and has begun to commercialize the Reliance
Insert internationally through marketing and sales agreements. However, there
can be no assurance that the Company has built an effective sales force, will be
able to continue to attract and retain a qualified marketing and sales group in
the United States, or can otherwise design and implement an effective marketing
and sales strategy for the Reliance Insert, the Impress Softpatch or any future
product developed by the Company.
The Company believes that a portion of its future product revenue will be
derived from certain European markets including Germany, France, The
Netherlands, the United Kingdom, Sweden, Norway, Denmark and Finland. The
Company has entered into marketing and sales agreements with several European
companies providing for the marketing and sale of the Reliance Insert in these
countries on an exclusive basis. In general, pursuant to these agreements, the
Company is required to provide sufficient quantities of Reliance Inserts for
sale by its European distributors, and the Company's European distributors are
permitted to market and sell the Reliance Insert in such countries at prices and
in a manner determined by such companies. There can be no assurance that the
Company's European distributors will be able to successfully market and sell the
Reliance Insert in their respective countries, that they will devote sufficient
resources to
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support the market launch of the Reliance Insert in those countries, or that
they will market the Reliance Insert at prices that will permit it to gain
market acceptance in their respective territories. In addition, these agreements
impose certain obligations upon the Company relating to delivery of commercial
quantities of the Reliance Insert, the maintenance of product liability
insurance and the clinical performance of the Reliance Insert. Failure or
inability of the Company to comply with any of these obligations under these
agreements could permit the Company's distributors to terminate their respective
agreements. In addition, there can be no assurance that each or any of these
distributors will perform its obligations under its respective agreement with
the Company. Any such termination or non-performance, or any failure by the
Company's European distributors to effectively market the Reliance Insert in
their respective territories, will have a material adverse impact on the
Company's ability to market and sell the Reliance Insert in these territories,
and perhaps other territories, including the United States. The Company has not
entered into any distribution arrangements with respect to the Impress Softpatch
for the European market or elsewhere, and does not currently have a marketing
strategy that would enable it to undertake commercialization of the Impress
Softpatch in Europe on a unilateral basis. In the event that the Company is
successful in developing satisfactory distribution arrangements in one or more
European markets for the Impress Softpatch, such distribution arrangements will
be subject to risks and uncertainties similar to those of the Company's existing
relationships with respect to the Reliance Insert. See "Business--Marketing and
Sales," "--The Reliance Insert--Launch Strategy in International Markets" and
"--The Impress Softpatch--Launch Strategy in International Markets."
Limited Operating History; History of Losses; Profitability Uncertain
Since inception in October 1990, the Company has been primarily engaged in
research and development of the Reliance Insert. The Company acquired the
Impress Softpatch technology in May 1996. The Company has experienced
significant operating losses since inception and, as of December 31, 1996, had
an accumulated deficit of $71.3 million, including $30.2 million relating to the
acquisition of the Impress Softpatch technology and related expenses. In
addition, the development and commercialization by the Company of the Reliance
Insert, the Impress Softpatch and other new products, if any, will require
substantial product development expenditures for the foreseeable future. The
Company's future profitability is dependent upon its ability to successfully
commercialize these products. There can be no assurance that the Company will
generate sufficient revenue to pay interest and principal on its $69,000,000
aggregate principal amount 6% Convertible Subordinated Notes due October 15,
2003 (the "Notes") or to achieve continued profitability. The Company expects
its operating losses to increase over the foreseeable future and there can be no
assurance that the Company will be profitable in the future or that the
Company's existing capital resources and any funds provided by future operations
will be sufficient to fund the Company's needs, or that other sources of funding
will be available.
Lack of Distribution Experience; Unconventional Distribution System
The Company has limited experience in distributing units of its products
to its ultimate consumers. In Europe, where nearly all of the sales of the
Company's products have been made to date, the Company relies on the
distribution systems of third party
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distributors. In addition, the distribution system that the Company has
developed in the United States is designed as a direct-to-consumer system in
which the Company expects that most of its sales will be made over the telephone
during calls originating with the consumer, rather than in sales directly to
pharmacies. These orders would be filled directly by the Company. The Company is
aware of no other medical device manufacturer who has employed such a
distribution strategy in the United States. There can be no assurance that the
Company's distribution system will be successful in filling orders made by the
Company's customers on a timely, accurate and cost-effective basis, or that the
Company's consumers will be willing to telephone orders to the Company directly.
In addition, as a licensed pharmacy, the Company's fulfillment center in Nashua,
New Hampshire is subject to state and federal regulation of its operations. Any
significant failure by the Company to fill orders for its products on an
accurate and timely basis, or otherwise to meet any ongoing licensing
requirements in New Hampshire or elsewhere, could result in a suspension or loss
of its license and interruption of its distribution activities, which in turn
would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Distribution" and
"--Government Regulation."
Competition and Technological Advances
The incontinence product industry is highly competitive. The Company's
ability to compete in the UI management field will depend primarily upon
physician and consumer acceptance of the Reliance Insert and the Impress
Softpatch, consistency of product quality and delivery, price, technical
capability and the training of health care professionals and consumers. Other
factors within and outside the Company's control will also affect its ability to
compete, including its product development and innovation capabilities, its
ability to obtain required regulatory clearances, its ability to protect the
proprietary technology included in its products, its manufacturing, marketing
and distribution capabilities and its ability to attract and retain skilled
employees. Certain of the Company's competitors have significantly greater
financial, technical, research, marketing, sales, distribution and other
resources. See "Business--Competition."
Risks Relating to FDA Oversight and Other Government Regulation
The medical devices currently being manufactured, or proposed to be
manufactured, by the Company, including the Reliance Insert and the Impress
Softpatch, and the facilities at which the Company manufactures its products,
are subject to regulation by the FDA and, in many instances, by comparable
agencies in the foreign countries in which these devices are distributed and
sold. Although approval to market the Reliance Insert and clearance to market
Impress Softpatch in the United States has been granted by the FDA, the process
of obtaining regulatory approvals for the marketing and sale of any additional
products, or the modification of existing products, by the Company could be
costly and time-consuming and there can be no assurance that such approvals will
be granted on a timely basis, if at all. The regulatory process may delay the
marketing of new products for lengthy periods, impose substantial additional
costs and furnish an advantage to competitors who have greater financial
resources. Moreover, regulatory approvals for new or modified products, if
granted, may include significant limitations on the indicated uses for which a
product is marketed. In addition, the extent of potentially adverse governmental
regulations that might arise from future legislative, administrative or judicial
action cannot be determined. The
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final approval granted by the FDA for marketing the Reliance Insert in the
United States was conditioned upon final labeling review, which has been
completed, and an undertaking to complete a five-year post-marketing study
covering 150 patients designed to determine (i) the degree of urinary tract
infection associated with use of the device, including type and frequency of
symptomatic bacteriuria, and (ii) the long-term effect of use of the device on
urethral integrity. If the FDA were to believe that the Company is not in
compliance with applicable law and regulations, the FDA could take one or more
of the following actions: withdraw previously approved applications; require
notification to users regarding newly found, unreasonable risks; request the
repair, refund or replacement of faulty devices; request corrective
advertisements, formal recalls or temporary marketing suspension; refuse to
review or clear applications to market any of the Company's future products in
the United States or to allow the Company to enter into government supply
contracts; or institute legal proceedings to detain or seize products, enjoin
future violations or assess criminal penalties against the Company, its officers
or employees. Civil penalties for Food, Drug and Cosmetic Act violations may be
assessed by the FDA in lieu of or in addition to instituting legal action. Any
such action by the FDA could result in disruption of the Company's operations
for an indeterminate period of time. The Company's manufacturing facility in
Needham, Massachusetts, the operations conducted there, and any future
manufacturing facilities developed or acquired by the Company and any operations
conducted there are subject to on-going inspections by the FDA. The Company
registered the facility with the FDA in connection with its Pre-Market Approval
application for the Reliance Insert and FDA representatives inspected the
facility and operations prior to granting approval of such application. Although
the Company's facility passed inspection in connection with this approval, as a
registered manufacturing facility subject to Good Manufacturing Practices, this
facility is subject to future inspections no less frequently than once every two
years. Any revocation of the Company's approval for marketing either the
Reliance Insert or the Impress Softpatch, or any material product recall or loss
of certification of the Company's manufacturing facility, would have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company is also subject to regulation under federal, state and
local regulations regarding maintenance of a licensed pharmacy, work place
safety, environmental protection and hazardous and controlled substance
controls, among others. The Company cannot predict the extent of government
regulations or impact of new government regulations which might have an adverse
effect on the production and marketing of the Company's products. See
"Business--Research and Development," "--The Reliance Insert--Regulatory Status
of the Reliance Insert," "--The Impress Softpatch--Regulatory Status of the
Impress Softpatch," and "--Government Regulation."
Risk of Inadequate Funding; Future Capital Funding
The Company plans to continue to expend substantial funds on expansion of
its manufacturing facilities or acquisition of additional manufacturing
facilities, marketing and distribution of its products, research and product
development and pursuit of regulatory approvals. The Company also intends to
invest in additional equipment in order to establish sufficient manufacturing
capabilities to supply commercial volumes of its Reliance Insert and Impress
Softpatch in the United States and abroad. Changes in technology or sales growth
beyond currently contemplated manufacturing capabilities will require further
capital investment. There can be no assurance that the Company's existing
capital resources
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and any funds generated from future operations will be sufficient to finance any
required investment or pay interest on and principal of the Notes or that other
sources of funding will be available. In addition, future sales of substantial
amounts of the Company's securities in the public market could adversely affect
prevailing market prices and could impair the Company's future ability to raise
capital through the sale of its securities.
Uncertainty Regarding Patents and Protection of Proprietary Technology
The Company's ability to compete effectively will depend, in part, on its
ability to develop and maintain proprietary aspects of its technology. There can
be no assurance as to the validity of the United States patents held by the
Company with respect to the technology underlying the Reliance Insert, the
validity of the United States patents with respect to the technology underlying
the Impress Softpatch, or as to the degree of protection offered by these
patents. There can be no assurance that the Company's patents will not be
challenged, invalidated or circumvented in the future. In addition, there can be
no assurance that competitors, many of which have substantial resources and have
made substantial investments in competing technologies, will not seek to apply
for and obtain patents that will prevent, limit or interfere with the Company's
ability to make, use and sell its products either inside or outside the United
States. The defense and prosecution of patent litigation or other legal or
administrative proceedings related to patents is both costly and time-consuming,
even if the outcome is favorable to the Company. During the pendency of any such
proceedings, the Company may be restrained, enjoined or otherwise limited in its
ability to make, use or sell a product incorporating the patents or technology
that are the subject of such claim, which would have a material adverse effect
on the Company's business, financial condition and results of operations. An
adverse outcome in any such proceeding could subject the Company to significant
liabilities to third parties, require disputed rights to be licensed from others
or require the Company to cease making, using or selling any products. There can
be no assurance that any licenses required under any patents or proprietary
rights would be made available on terms acceptable to the Company, if at all.
The Company also relies on unpatented proprietary technology and there can
be no assurance that others may not independently develop the same or similar
technology or otherwise obtain access to the Company's unpatented proprietary
technology. In addition, the Company cannot be certain that others will not
independently develop substantially equivalent or superseding proprietary
technology, or that an equivalent product will not be marketed in competition
with the Company's products, thereby substantially reducing the value of the
Company's proprietary rights. There can be no assurance that any confidentiality
agreements between the Company and its employees or consultants will provide
meaningful protection for the Company's trade secrets, know-how or other
proprietary information in the event of any unauthorized use or disclosure of
such trade secrets, know-how or other proprietary information. Finally, there
can be no assurance that the Company's Reliance trademark or any trademarks
chosen and registered for the Impress Softpatch will provide meaningful
protection. See "Business--Patents and Proprietary Rights."
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Product Liability Risk; Limited Insurance Coverage
The manufacture and sale of medical products and the conduct of clinical
trials using new technology entail the risk of product liability claims. There
can be no assurance that the Company's existing insurance coverage limits are
adequate to protect the Company from any liabilities which it might incur in
connection with the clinical trials of the Company's Reliance Insert, the
commercialization of the Reliance Insert in the United States and in Europe or
the contemplated commercialization of the Impress Softpatch. Such insurance is
expensive and in the future may not be available on acceptable terms, if at all.
A successful product liability claim or series of product liability claims
brought against the Company in excess of its insurance coverage would have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, any claims, even if not ultimately
successful, could adversely affect the market acceptance of the Company's
products.
Dependence on Key Personnel
The Company is dependent upon a number of key scientific and management
personnel (most of whom do not have employment agreements providing for a fixed
term of employment). The loss of the services of one or more key individuals
would have a material adverse effect on the Company's business, financial
condition and results of operations. The Company's success will also depend on
its ability to attract and retain other highly qualified scientific and
management personnel. The Company faces competition for such personnel and there
can be no assurance that the Company will be able to attract or retain such
personnel. See "Executive Officers of the Registrant."
Uncertainty Relating to Third-Party Reimbursement
In the United States and many foreign countries, third-party reimbursement
is currently generally available for surgical procedures for incontinence, but
generally unavailable for patient-managed products such as diapers and pads. As
part of its near-term marketing plan in the United States, the Company does not
believe it will obtain government or private insurance reimbursement for its
Reliance Insert or Impress Softpatch and that the prospect of substantial
third-party reimbursement for either device in the United States may be
difficult. In Europe, the Company and its European distributors have agreed to
adopt a strategy of pursuing reimbursement for the use of the Reliance Insert in
each of their respective territories where it is appropriate. The availability
of third-party reimbursement for the Reliance Insert in Europe varies from
country to country. While the Company has received notice that full
reimbursement for the use of the Reliance Insert will be provided by the
relevant German, Swedish and Norwegian governmental authorities and by certain
authorities covering much of Denmark and Finland, it is unclear whether
reimbursement will be available for the Reliance Insert in the remainder of
Denmark or Finland, or whether reimbursement will be available for the Reliance
Insert in France, The Netherlands or the United Kingdom. It is also unclear
whether or not such reimbursement approvals that the Company has received may at
some point in the future be reversed. The Company has not yet established a
strategy with respect to seeking reimbursement for the Impress Softpatch outside
of the United States. If third-party reimbursement is unavailable in the
relevant European country or in the United States, consumers will have to pay
for the
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Reliance Insert or Impress Softpatch themselves, resulting in greater relative
out-of-pocket cost of such therapies as compared to surgical procedures and
other management options for which third-party reimbursement is available.
Changes in the availability of third-party reimbursement for the Reliance Insert
or Impress Softpatch, for products of the Company's competitors or for surgical
procedures may affect the pricing of the Company's products or the relative cost
to the consumer. The Company is not able to predict the effect that the
availability or unavailability of third-party reimbursement for the Reliance
Insert or Impress Softpatch may have on the commercialization of such products
abroad or in the United States. See "Business--Third-Party Reimbursement."
International Sales and Operations Risks
The Reliance Insert is currently being marketed and sold by the Company's
European distributors in Germany, Sweden, Denmark, Norway, The Netherlands, the
United Kingdom and Finland and the Company intends to sell the Reliance Insert
in France through its French distributor. International sales and operations may
be limited or disrupted by the imposition of government controls, export license
requirements, political instability, trade restrictions, changes in tariffs or
difficulties in staffing and managing international operations. Foreign
regulatory agencies often establish product standards different from those in
the United States and any inability to obtain foreign regulatory approvals on a
timely basis would have an adverse effect on the Company's international
business and its financial condition and results of operations. Additionally,
the Company's business, financial condition and results of operations may be
adversely affected by fluctuations in currency exchange rates as well as
increases in duty rates and difficulties in obtaining export licenses.
International sales of the Reliance Insert in the fourth quarter of 1996 were
lower than expected and the Company expects that international sales of the
Reliance Insert will be minimal for at least the first half of 1997. There can
be no assurance that the Company will be able to successfully commercialize the
Reliance Insert, the Impress Softpatch or any future product in any foreign
market. See "Business--The Reliance Insert--Launch Strategy in International
Markets" and "--The Impress Softpatch--Launch Strategy in International
Markets."
Volatility of Market Prices
The market price of the Common Stock and Notes may be highly volatile.
Factors such as quarter-to-quarter variations in the Company's operations or
financial performance and announcements of technological innovations or new
products, results of clinical trials or other regulatory or reimbursement events
by the Company or its competitors or any of its or their regulators could cause
the market price of the Common Stock or Notes to fluctuate significantly. In
addition, in recent years the stock markets in general, and the market prices
for medical technology companies in particular, have experienced significant
volatility, which often may have been unrelated to the operating performance of
the affected companies. Such volatility may adversely affect the market price of
the Common Stock or Notes. See "Market for Registrant's Common Stock and Related
Shareholder Matters."
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Certain Charter and By-Law Provisions May Affect Market Prices
The Company's Restated Articles of Organization and the Company's Amended
and Restated By-Laws contain provisions that may have the effect of making it
more difficult for a third party to acquire control of, or of discouraging
acquisition bids for, the Company. This could limit the price that certain
investors might be willing to pay in the future for shares of Common Stock.
Certain Massachusetts Laws May Affect Market Prices
Certain Massachusetts laws contain provisions that may have the effect of
making it more difficult for a third party to acquire control of, or of
discouraging acquisition bids for, the Company. These laws include Chapter 110F
of the Massachusetts General Laws, which prohibits certain "business
combinations" with "interested stockholders," and Chapter 110D, entitled
"Regulation of Control Share Acquisitions." These provisions could limit the
price that certain investors might be willing to pay in the future for shares of
Common Stock.
Effect of Issuance of Preferred Stock
Shares of preferred stock may be issued in the future without further
stockholder approval and upon such terms and conditions, and having such rights,
privileges and preferences, as the Board of Directors may determine. The rights
of the holders of Common Stock will be subject to, and may be adversely affected
by, the rights of the holders of any preferred stock that may be issued in the
future. In addition, the issuance of preferred stock could have the effect of
making it more difficult for a third party to acquire control of, or of
discouraging acquisition bids for, the Company. This could limit the price that
certain investors might be willing to pay in the future for shares of Common
Stock.
Concentration of Ownership
As of December 31, 1996, directors and executive officers of the Company
and their affiliates owned approximately 24% of the outstanding Common Stock
(including options to purchase Common Stock exercisable within 60 days of such
date). As a result, such persons have the ability to assert significant
influence over the Company and the direction of its affairs and business. See
"Security Ownership of Certain Beneficial Owners and Management."
Absence of Dividends
The Company has not paid cash dividends and does not anticipate doing so
for the foreseeable future.
Shares Available for Future Sale
The future sale of shares of the Company's Common Stock could have an
adverse effect on the market price of the Common Stock or the Notes. The Company
currently has two effective registration statements on file with the Securities
and Exchange Commission initially covering the resale of up to an aggregate of
8,519,538 shares of Common Stock
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held by certain current shareholders of the Company. Of these 8,519,538 shares,
6,184,512 shares are covered by a registration statement which was declared
effective in October 1995 registering shares of Common Stock held by
approximately 73 holders. These shares, representing shares of Common Stock
issued upon the conversion of the Company's previously outstanding convertible
preferred stock, were registered at the request of the holders of such shares.
All of these shares, with the exception of 1,641,257 shares held by an affiliate
of the Company, may be sold currently under Rule 144(k) under the Securities Act
without regard to volume or other limitations. The remaining 2,335,026 shares,
which were issued to the former shareholders of Advanced Surgical Intervention,
Inc. in connection with the acquisition of the Impress Softpatch technology in
May 1996, are covered by a registration statement which was declared effective
in June 1996. These shares are held by 273 holders, with the largest number of
shares held by any single holder thereunder being approximately 252,000 shares.
The Company believes that many of the shares covered by these registration
statements have been sold in the open market prior to the date hereof. All of
the shares covered by these registration statements are freely tradeable in the
open market without volume limitations. As of December 31, 1996 the Company also
has options outstanding to purchase an aggregate of 1,546,858 shares of Common
Stock and has an additional 1,064,720 shares of Common Stock reserved for
issuance of options which may be granted and exercised under the Company's
existing employee benefit plans. Any shares of Common Stock issued upon the
exercise of such outstanding options or any options granted in the future will
be, upon issuance, freely tradeable on the open market, subject in some cases to
the volume limitations imposed by Rule 144 under the Securities Act. As of
December 31, 1996, the Company had reserved 5,195,391 shares of Common Stock for
issuance upon conversion of the Notes.
Item 2. Properties
The Company currently occupies a 40,000 square-foot leased facility in
Needham, Massachusetts. This lease expires in 2001; however, the Company has the
option to extend the lease for an additional five years. This leased facility
includes research and manufacturing space and, to a lesser degree,
administrative space. The FDA regulates companies that manufacture commercial
medical devices and requires that such companies manufacture such devices in a
properly designed environment. The Company registered the facility with the FDA
in connection with its PMA application for the Reliance Insert and FDA
representatives inspected the facility and operations prior to granting approval
of such application. Although the Company's facility passed inspection in
connection with this approval, as a registered manufacturing facility subject to
Good Manufacturing Practices, this facility is subject to future inspection no
less frequently than once every two years.
In order to support commercialization of the Reliance Insert and the
Impress Softpatch in the United States and abroad the Company believes it is
likely that the Company will be required to acquire additional manufacturing
space to accommodate contemplated manufacturing operations for the Impress
Softpatch, either through expansion of the Company's manufacturing space into
space currently used for research and development, marketing or other
administrative functions at the Company's existing facility, and relocation of
such operations elsewhere, or through the acquisition of additional
manufacturing space. Any such additional manufacturing space would be required
to be
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registered and qualified in the same manner as the Company's current facility,
and would be subject to the same inspection requirements. See "--Government
Regulation."
The Company also leases a 6,200 square foot fulfillment center in
Nashua, New Hampshire, where the Company's staff pharmacist is located, and
intends to exercise its right of first offer on an additional 3,000 square
feet of space at the same location in 1997. This lease expires in 1997;
however, the Company has the right to renew the lease for five additional
one-year terms after the expiration of the initial term. Direct-to-consumer
shipments of the Company's products are currently made from this location.
Item 3. Legal Proceedings
The Company is not involved in any material legal proceedings, nor is the
property of the Company the subject of any such proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
During the fourth quarter of the Company's 1996 fiscal year there were no
matters submitted to a vote of the securityholders of the Company.
PART II
Item 5. Market for Registrant's Common Stock and Related Shareholder Matters
Information relating to the market for the Company's common stock and
related shareholder matters is contained on the inside back cover, after page
28, of the 1996 Annual Report in the section entitled "Stock Profile and
Activity," which section is incorporated herein by reference.
Item 6. Selected Financial Data
Selected financial data for the five years ended December 31, 1996 is
contained on page 13 of the 1996 Annual Report in the section entitled "Selected
Financial Data," which section is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Information is contained on pages 14 to 17 of the 1996 Annual Report in
the section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations," which section is incorporated herein by
reference.
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Item 8. Financial Statements and Supplementary Data
The financial statements, together with the report thereon of Price
Waterhouse LLP dated February 17, 1997, appearing on pages 18 to 28 of the 1996
Annual Report are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Executive Officers of the Registrant
The names of the Company's executive officers and certain information
about them are set forth below as of March 21, 1997:
Name Age Position
---- --- --------
Richard M. Epstein 40 Managing Director of Male Healthcare
Programs
Stephen A. Guida 46 Vice President, Marketing and Sales
Robert C. Lorette 45 Vice President, Corporate Development
Neil J. Magner 41 Vice President, Manufacturing
Joanne H. Moon 45 Managing Director of Continence Care
Paul J. Murphy 48 Chief Financial Officer and Treasurer
John G. Simon 34 Chairman of the Board of Directors,
President, and Chief Executive Officer
Alan I. West 49 Managing Director of Female Healthcare
Programs
Carl J. Wisnosky 48 Vice President, Research and Development
RICHARD M. EPSTEIN joined the Company as Managing Director of Male
Healthcare Programs in October 1996. Prior to joining the Company, he served as
Vice President Sales, Marketing and Business Development for Nextran, an
affiliate of Baxter Healthcare. Mr. Epstein helped create Nextran during his ten
years with Baxter Healthcare where he also held positions as Director of the
Transplant Business and Director of Advanced Product and New Business
Development. Mr. Epstein holds a B.S. from the University of Illinois, an M.S.
from Stanford University and an M.B.A. from the University of Chicago.
STEPHEN A. GUIDA joined the Company in September 1995 as Vice President,
Marketing and Sales, with over 22 years of domestic and international marketing
experience. From May 1994 to August 1995, Mr. Guida was Vice President,
Marketing and Sales, for IQ Now Corporation, a developer and marketer of health
care information
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services. Prior to joining IQ Now, Mr. Guida held several senior sales and
marketing positions, including Vice President, Worldwide Strategic Marketing,
and Vice President, U.S. Marketing and Sales at Allergan Medical Optics, a
division of Allergan, Inc., a global eye care company. Mr. Guida holds a B.S.
from the University of South Carolina and an M.B.A. from Pepperdine University.
ROBERT C. LORETTE joined the Company in February 1996 as Vice President,
Corporate Development, with over 18 years of legal and business experience. From
1985 to 1995, Mr. Lorette was employed by Bausch & Lomb Incorporated, a
diversified healthcare and optics company, where he held the positions of Vice
President and General Manager, Specialty Products for the Charles River
Laboratories Division; Vice President and General Manager of the Criterion
Vision business unit; and Senior Counsel in the Law Department. From 1978 to
1987, he practiced law in Connecticut. Mr. Lorette holds an A.B. from the
College of the Holy Cross and a J.D. and an M.P.A. from Syracuse University.
NEIL J. MAGNER joined the Company in October 1994 as Director of
Manufacturing. In September 1996 he was promoted to Vice President,
Manufacturing. Prior to joining the Company he was employed from 1979 through
1994 by Millipore Corporation, a manufacturer of pharmaceutical and
microelectronics filters and systems. There he held various manufacturing
management positions, most recently serving as the Plant Manager of the Process
Systems Division. Mr. Magner holds a B.A. from Merrimack College and an M.S.
from Lesley College.
JOANNE H. MOON joined the Company in May 1991 as Vice President,
Operations, with over 23 years of manufacturing experience. In September 1996
she was promoted to Managing Director of Continence Care. From 1978 to 1991, Ms.
Moon was employed by the U.S.C.I. Division of Bard, a manufacturer of
cardiovascular medical devices, where she held the positions of Plant Manager,
Director of Manufacturing and Director of Quality Assurance. Ms. Moon holds a
B.A. from Upsala College.
PAUL J. MURPHY joined the Company in June 1994 as Chief Financial Officer
and Treasurer. Previously, he served as Vice President, Finance and Treasurer of
Xyplex, Inc., a local area network company, from 1986 to 1994 and as Chief
Financial Officer from 1990 to 1994. He served as Vice President, Finance of
Ztel, Inc. from 1985 to 1986 and as Vice President, Finance of Lexidata
Corporation from 1979 to 1985. Mr. Murphy holds a B.S. from Brooklyn College and
an M.B.A. from the Harvard Graduate School of Business Administration.
JOHN G. SIMON is the founder of UroMed and has served as President, Chief
Executive Officer and Chairman of the Board of Directors of the Company since
inception in 1990. Prior to founding the Company, Mr. Simon served as an
associate at Highland Capital Partners, L.P., a venture capital firm, from 1988
to 1990, and as a research associate at Charles River Ventures, a venture
capital firm, from 1985 to 1987. He was also the Vice President of Marketing and
Sales for Adaptive Networks Inc. from 1987 to 1988. Mr. Simon holds a B.A. from
Harvard University and received a second B.A. from Oxford University while on a
Rhodes Scholarship.
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ALAN I. WEST joined the Company in February 1996 as Managing Director of
Female Healthcare Programs, bringing with him twenty years of medical product
development experience. Most recently, he was Business Manager of Vision
Sciences, an endoscopy company. Previously, he joined Boston Scientific
Corporation's Microvasive division, and he left there in 1990 as Vice President
of Research and Development. From 1976 to 1981, he worked in research and
development at the Codman division of Johnson & Johnson and as Marketing Manager
of a small company involved in biomechanics, sports medicine and sensors. Mr.
West holds a B.S. from Brown University and an M.S. from Tufts University.
CARL J. WISNOSKY joined the Company as Vice President, Research and
Development in April 1993. Prior to joining the Company, he was employed from
1986 to 1993 by Smith & Nephew Dyonics, Inc., a manufacturer of surgical
instruments and medical supplies, where he held a number of positions, most
recently serving as the Vice President, Research and Development and prior to
that as Vice President, Operations. Mr. Wisnosky holds a B.S. and an M.S. from
the New Jersey Institute of Technology.
Information relating to the Directors of the Company will be set forth
in the sections entitled "Election of Directors", "Background of Directors"
and "Director Compensation" on pages 3, 4 and 8 of the 1997 Proxy Statement,
which sections are incorporated herein by reference. Information relating to
compliance with Section 16(a) of the Securities Exchange Act of 1934 will be
set forth in the section entitled "Reports of Beneficial Ownership" on page
11 of the 1997 Proxy Statement, which section is incorporated herein by
reference.
Item 11. Executive Compensation
Information relating to executive compensation will be set forth in the
section entitled "Executive Compensation" on pages 6 through 10 of the 1997
Proxy Statement, which section is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information relating to ownership of securities of the Company by certain
beneficial owners and management will be set forth in the section entitled
"Stock Ownership of Principal Stockholders and Management" on pages 2 and 3 of
the 1997 Proxy Statement, which section is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
None.
-44-
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) Financial Statements of UroMed Corporation. The following
financial statements required by Item 8 of Form 10-K are incorporated by
reference from the 1996 Annual Report attached hereto as Exhibit 13.
Location in 1996
Item Annual Report
---- -----------------
Report of Independent Accountants Page 28
Balance Sheet at December 31, 1995 and 1996 Page 18
Statement of Operations for the three
years in the period ended December 31, 1996 Page 19
Statement of Stockholders' Equity for the
three years in the period ended December Pages 20-21
31, 1996
Statement of Cash Flows for the three
years in the period ended December 31, 1996 Page 22
Notes to Financial Statements Pages 23-28
(2) Financial Statement Schedules of UroMed Corporation. The
following financial statement schedule is filed as part of this Annual
Report on Form 10-K:
Item
----
Report of Independent Accountants
Schedule VIII - Valuation and Qualifying
Accounts and Reserves
All other schedules are omitted because the required information is
not applicable or because the information is reflected in the financial
statements or notes thereto.
(3) Exhibits. The following documents are filed as exhibits to this
Annual Report on Form 10-K.
-45-
<PAGE>
Exhibit No. Description
----------- -----------
3.2 Amended and Restated By-Laws of the Registrant
*(a) (filed as Exhibit No. 3.2)
3.3 Restated Articles of Organization of the Registrant
*(b) (filed as Exhibit No. 3.3)
10.1 Amended and Restated Registration Rights Agreement dated
as of September 15, 1993 among the Registrant and
certain of its security holders
*(a) (filed as Exhibit No. 10.1)
10.2 Consulting Agreement dated as of November 3, 1993
between the Registrant and Kenneth Thurston
*(a) (filed as Exhibit No. 10.5)
10.3 Amended and Restated 1991 Stock Option Plan of the
Registrant
*(c) (filed as Exhibit No. 4.3)
10.4 UroMed Corporation 1995 Employee Stock Purchase Plan
*(d) (filed as Exhibit No. 4.3)
10.5 Forms of Nonstatutory Common Stock Option Agreements
between the Registrant and its Directors
*(a) (filed as Exhibit No. 10.7)
10.6 Forms of Nonstatutory Common Stock Option Agreements
between the Registrant and members of its Medical
Advisory Board and its Scientific Advisory Board
*(a) (filed as Exhibit No. 10.8)
10.7 Forms of Incentive Stock Option Agreements between the
Registrant and its Employees
*(a) (filed as Exhibit No. 10.9)
10.8 Form of Consulting, Confidentiality and Non-Competition
Agreement between the Registrant and members of its
Medical Advisory Board and its Scientific Advisory Board
*(a) (filed as Exhibit No. 10.10)
10.9 Employment Agreements between the Company and Joanne H.
Moon and Carl J. Wisnosky
*(a) (filed as Exhibit No. 10.15)
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<PAGE>
Exhibit No. Description
----------- -----------
10.10 Employment Agreement between the Company and Paul J.
Murphy
*(e) (filed as Exhibit No. 10.1)
10.11 Employment Agreement between the Company and Stephen A.
Guida
*(f) (filed as Exhibit 10.12)
10.12 Nonstatutory Common Stock Option Agreement between the
Registrant and Stephen A. Guida
*(f) (filed as Exhibit 10.13)
10.13 Lease between the Company and Trustees of New England
Industrial Center
*(f) (filed as Exhibit No. 10.1)
10.14 Employment Agreement between the Company and John G.
Simon
*(g) (filed as Exhibit No. 10.2)
+ 10.15 Contract Purchase Order No. 94250 between the Company
and Innovative Products & Equipment ("IPE")
*(g) (filed as Exhibit No. 10.4)
++ 10.16 Contract Purchase Order No. 94004 between the Company
and IPE
*(f) (filed as Exhibit No. 10.2)
+++ 10.17 Distributorship Agreement between the Company and E.
Tosse & Co. MbH
*(h) (filed as Exhibit No. 10.16)
++++ 10.18 Distributorship Agreement between the Company and Porges
S.A.
*(i) (filed as Exhibit No. 10.1)
++++ 10.19 Distributorship Agreement between the Company and Astra
Tech AB
*(i) (filed as Exhibit No. 10.2)
10.20 Asset Purchase Agreement, dated as of May 9, 1996, among
the Registrant, Robert F. Rosenbluth and Donald B.
Milder as Trustees, the ASI Liquidating Trust and the
Indemnifying Beneficiaries named on Schedule A thereto.
*(k) (filed as Exhibit 2.1)
-47-
<PAGE>
Exhibit No. Description
----------- -----------
10.21 Registration Rights Agreement, dated as of May 9, 1996,
among the Registrant and certain of its Securityholders.
*(l) (filed as Exhibit 4.4)
10.22 Indenture, dated as of October 15, 1996, by and between
the Registrant, as issuer, and State Street Bank and
Trust Company, as Trustee
*(m) (filed as Exhibit 10.1)
10.23 Purchase Agreement, dated as of October 8, 1996, by and
between the Registrant and the Purchasers (as defined
therein)
*(m) (filed as Exhibit 10.2)
10.24 Employment Agreement between the Registrant and Richard
Epstein.
10.25 Employment Agreement between the Registrant and Alan
West.
10.26 Employment Agreement between the Registrant and Robert
Lorette.
10.27 Employment Agreement between the Registrant and Neil
Magner.
10.28 Employment Agreement, dated as of March 17, 1997,
between the Company and John G. Simon
11 Statement Re: Computation of Per Share and Pro Forma Per
Share Loss
13 Annual Report to Shareholders of UroMed Corporation for
its fiscal year ended December 31, 1996
21 Subsidiaries of Registrant
*(a) (filed as Exhibit No. 21)
23 Consent of Price Waterhouse LLP
27 Financial Data Schedule
- ----------
All exhibit descriptions followed by an asterisk (*) were previously filed
with the Securities and Exchange Commission (the "SEC") as Exhibits to, and are
hereby incorporated by reference from, the document to which the letter in
parentheses following the asterisk corresponds, as set forth below. The Exhibit
number of the document in that previous filing is indicated in parentheses after
the incorporation by reference code:
-48-
<PAGE>
(a) Registrant's Registration Statement on Form S-1, as amended,
(Registration No. 33-74282).
(b) Registrant's Annual Report on Form 10-K for its fiscal year ended
December 31, 1994.
(c) Registrant's Registration Statement on Form S-8 filed with the
Securities and Exchange Commission on October 18, 1995 (Registration
No. 33-98262).
(d) Registrant's Registration Statement on Form S-8 filed with the
Securities and Exchange Commission on October 18, 1995 (Registration
No. 33-98264).
(e) Registrant's Quarterly Report on Form 10-Q for its fiscal quarter
ended June 30, 1994.
(f) Registrant's Quarterly Report on Form 10-Q for its fiscal quarter
ended September 30, 1994.
(g) Registrant's Quarterly Report on Form 10-Q for its fiscal quarter
ended March 31, 1994.
(h) Registrant's Annual Report on Form 10-K for its fiscal year ended
December 31, 1994.
(i) Registrant's Quarterly Report on Form 10-Q for its fiscal quarter
ended September 30, 1995.
(j) Registrant's Annual Report on Form 10-K for its fiscal year ended
December 31, 1995.
(k) Registrant's Current Report on Form 8-K filed May 9, 1996.
(l) Registrant's Registration Statement on Form S-3 (File No. 333-03843)
filed May 16, 1996.
(m) Registrant's Quarterly Report on Form 10-Q for its fiscal quarter
ended September 30, 1996.
+ An unexpired order granting confidential treatment to deleted
portions of Exhibit 10.15 was issued on July 19, 1994.
++ An unexpired order granting confidential treatment to deleted
portions of Exhibit 10.16 was issued on December 13, 1994.
+++ An unexpired order granting confidential treatment to deleted
portions of Exhibit 10.17 was issued on June 6, 1995.
++++ An unexpired order granting confidential treatment to deleted
portions of Exhibits 10.18 and 10.19 was issued on January 26, 1996.
(b) Reports on Form 8-K
(1) On October 9, 1996, the Registrant filed a current report on Form 8-K
disclosing that on September 30, 1996, the Registrant issued a press release
disclosing that it had commenced a proposed offering of up to $50,000,000
principal amount of Convertible Subordinated Notes due 2003 to certain qualified
institutional buyers, institutional accredited investors and foreign investors.
Such current report also disclosed that on October 9, 1996 the Registrant issued
a press release updating that it had set the terms of its $60,000,000 in
principal amount of 6% Convertible Subordinated Notes due
-49-
<PAGE>
October 15, 2003 to be offered to certain qualified institutional buyers,
institutional accredited investors and foreign investors.
SIGNATURES
Pursuant to the requirements to Section 13 of the Securities Exchange Act
of 1934, the Registrant has duly caused this Annual Report on Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized.
UroMed Corporation
Date: March 27, 1997
By: \s/ Paul J. Murphy
---------------------------
Chief Financial Officer and
Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report on Form 10-K has been signed below as of March 24, 1997 by the
following persons on behalf of the Registrant and in the capacities indicated.
\s\ John G. Simon Chairman of the Board, Chief Executive
---------------------------- Officer and President (principal
executive officer)
\s\ Paul J. Murphy Chief Financial Officer and Treasurer
---------------------------- (principal financial and accounting
officer)
\s\ Elizabeth B. Connell, MD Director
----------------------------
\s\ David P. Fialkow Director
----------------------------
\s\ Steven J. Gilbert Director
----------------------------
\s\ Richard A. Sandberg Director
----------------------------
\s\ Thomas F. Tierney Director
----------------------------
-50-
<PAGE>
Exhibit 10.24
EMPLOYMENT AGREEMENT
This Employment Agreement is made and entered into this 25th day of
September, 1996 by and between UroMed Corporation, a Massachusetts corporation
with a principal place of business at 64 A Street, Needham, Massachusetts 02194
("UroMed") and Richard M. Epstein an individual residing at 5 Bush Ct. Princeton
Junction, NJ 08550. ("Employee").
1. AT WILL EMPLOYMENT. Commencing on October 15, 1996, Employee shall
become a full time "at-will-employee" of UroMed with the title of Managing
Director, of Male Healthcare Programs. In addition to complying with the terms
and conditions hereof and the performance of the Employee job responsibilities,
Employee shall conduct him or herself in accordance with such policies, rules
and regulations as may be adopted by UroMed from time to time.
2. COMPENSATION. Employee's gross semi-monthly compensation shall be
$5,416.67. Employee shall be paid on the 15th day and the last day of each
calendar month for the current month's employment. Pay shall be adjusted pro
rata for any partial week of employment and standard employer deductions shall
be made from each payment. Employee's gross semi-monthly compensation shall be
subjected to annual review and adjustment.
3. BONUSES, EQUITY PARTICIPATION, AND BENEFITS. Employee shall be eligible
for (i) annual bonuses under such applicable bonus program(s) as UroMed's Board
of Directors may adopt from time to time, if any; (ii) participation in such
applicable employee stock option plans as may be adopted by UroMed's Board of
Directors from time to time, if any, (provided that Employee shall exercise
his/her shareholder voting rights by executing and delivering a proxy entitling
John Simon to vote such shares); and (iii) participation in such applicable
employee benefit plans as UroMed's Board of Directors may adopt from time to
time, if any. Employee will be eligible for 30,000 shares (options) with 40%
vested after two years of service; the balance monthly. You will also be
eligible for a bonus of up to $15,000 gross per year based upon performance at
my discretion.
4. TERM. As an at-will employee, Employee understands that this Agreement
and the employment hereunder may be terminated by either party hereto at any
time with or without cause. If not terminated, this Agreement shall govern the
terms of Employee's employment for a period of five (5) years at which time the
parties may enter into a written renewal hereof. Said five (5) year limitation
shall not affect the covenants herein that are intended to survive the
Employee's employment hereunder. Annual salary adjustments pursuant to Section 2
above shall not affect the other terms and conditions hereof, nor shall it
necessitate any written modifications hereof. In the event that the Employee's
employment is terminated within the five (5) year period referred to above other
than for cause, the Employee shall be entitled to four (4) gross semi-monthly
payments of the amount listed in section 2 above over a two (2) month period as
severance payments.
<PAGE>
5. ASSIGNMENT OF RIGHTS TO PROPRIETARY INFORMATION AND INVENTIONS.
Employee recognizes that UroMed possesses or will possess information which has
commercial value in UroMed's business ("Proprietary Information") including
without limitation, information created, discovered or developed directly or
indirectly by Employee in connection with Employee's services hereunder or made
known to Employee during his or her employment. Employee acknowledges that such
Proprietary Information shall include, without limitation, inventions, product
improvements, financial, technical or sales strategies, forecasts, product
ideas, formulas, processes, copyrightable and/or patentable materials and/or
concepts, schematics, techniques, market research and /or customer lists which
Employee may create or be exposed to from time to time. Employee expressly
agrees that all Proprietary Information and rights thereto shall be and remain
the sole and exclusive property of UroMed, and Employee hereby without further
consideration, unconditionally, exclusively and irrevocably assigns to UroMed,
royalty free, all of his or her right, title and interest in such Proprietary
Information. Notwithstanding the foregoing, Employee shall execute and deliver
such confirmatory instruments of this assignment as UroMed may request
including, without limitation, applications for patent and/or copyright
registration. Employee agrees that the foregoing assignments are a material term
of employment by UroMed and that his or her compensation includes sufficient
consideration therefor. Upon the termination or expiration of Employee's
employment with UroMed. Employee shall immediately deliver to the President of
UroMed all files, notes, lists, rolodex cards, credit cards, computer disks,
recordings, print-outs, and drawings (including, without limitation, any
materials reflecting or containing Proprietary Information) which are under the
control or in the possession of Employee and relate to the operation and
business of UroMed, Employee shall not be entitled to retain any duplicates of
the foregoing, and acknowledges that failure to comply with these requirements
will constitute criminal theft.
6. CONFIDENTIALITY. At all time during the operative term of this
Agreement and thereafter (including periods after the termination or expiration
of Employee's employment with UroMed) Employee shall keep in strictest
confidence and trust all Proprietary Information and will not use, discuss or
disclose any Proprietary Information without the prior written consent of UroMed
except when done in the course of employment, exclusively with other UroMed
employees. Further excepted from the foregoing shall be Proprietary Information
that (i) can be clearly demonstrated to have been in the public domain prior to
the date hereof or which comes into the public domain during the operation
hereof through no fault of Employee; and (ii) can be demonstrated to have been
developed independently by Employee prior to any involvement with UroMed.
Employee agrees that his or her compensation hereunder includes sufficient
consideration for the foregoing covenants.
7. NON-COMPETITION.
A. Employee agrees that throughout his or her employment with UroMed and
for a period of two (2) years after the expiration or termination of such
employment, Employee will not directly (as owner, partner, principal in any
entity or otherwise) or indirectly (as an employee, agent, contractor, advisor,
beneficiary or otherwise) engage in, or participate in any entity that engages
in any activity involving the development,
-2-
<PAGE>
manufacturing or marketing of any product or service which might (i) compete
with a UroMed product, product concept, service or service concept; or (ii)
utilize any proprietary technology being developed by UroMed unless approved in
writing by UroMed.
B. For a period of two (2) years after the expiration or termination of
Employee's employment with UroMed, Employee shall provide UroMed with written
notice (i); of any change of Employee's residential address; and (ii) stating
the name, address and nature of each subsequent employment activity. Any such
notice of subsequent employment or business activity shall include Employee's
certification that such employment or activity does not violate the provisions
of this Agreement.
C. For a period of two (2) years after the expiration or termination of
Employee's employment with UroMed, Employee agrees not to seek to persuade any
UroMed employee, consultant, director, officer or advisory board member to
discontinue association with UroMed or become involved directly or indirectly in
any endeavor that might compete with UroMed's business.
D. Employee represents and warrants for UroMed's reliance that the
foregoing covenants in Paragraphs A-C shall not unduly impair Employee's ability
to obtain gainful employment in Employee's field subsequent to Employee's
employment by UroMed. Employee further agrees that his or her compensation
hereunder includes sufficient consideration for the restrictions imposed by the
foregoing covenants.
8. INVENTIONS AFTER EMPLOYMENT. Employee agrees that he or she shall
notify in writing of any technology, invention, discovery, concept, and/or idea
whether patentable, copyrightable or neither developed by Employee within two
(2) years after the expiration or termination of his or her employment by UroMed
which relates to the field ("Inventions"). UroMed is hereby irrevocably granted
the option to take an unconditional, exclusive, irrevocable, royalty-free
assignment of such Invention(s) upon written notice mailed to Employee within
thirty (30) days after UroMed's receipt of Employee's initial notice. If UroMed
duly exercises such option, Employee shall execute and deliver such instruments
of assignment therefor as UroMed may deem necessary or advisable including,
without limitations, applications for patent and/or copyright registration.
Although Employee agrees that the compensation provided herein shall be
sufficient consideration for the foregoing covenants to assign, Employee and
UroMed agree that in consideration for Employee's execution of assignment
instruments subsequent to employment by UroMed, Employee shall be paid $1,000.00
upon delivery to UroMed thereof.
9. EMPLOYEE REPRESENTATIONS. Employee represents and warrants for UroMed's
reliance that (i) this Agreement does not conflict with any other agreement,
promise and/or commitment undertaken by Employee which could prohibit or impair
the performance of Employee's obligations hereunder; (ii) Employee has not and
shall not disclose to UroMed, its officers, directors, employees or agents any
proprietary information of another individual or company prohibiting such
disclosure; (iii) Employee's compliance with the confidentiality,
non-competition and other provisions of this Agreement will not materially
impair Employee's ability to earn a living outside of UroMed's employment in his
field; and (iv) all information on Employee's education, past work experience
and other qualifications presented to UroMed are accurate. complete and not
misleading.
-3-
<PAGE>
10. MISCELLANEOUS.
A. This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts.
B. Employee hereby consents to submit to the jurisdiction of the courts in
the place where UroMed's principal place of business is located at the time any
action is brought and agrees to accept service of process by registered mail or
the equivalent delivered to his or her last known address.
C. Employee agrees that any breach of Section 3, 5, 6, 7, or 8 will result
in irreparable damage to Employer and therefore consents that in addition to
recovery of provable damages and attorney's fees UroMed will be entitled to
enjoin any such breach in any competent court.
D. If any provision in this Agreement is found unenforceable, it shall not
affect any other provisions hereof. If any provisions in this Agreement is
determined to be excessively broad or overreaching, it shall be construed by
limiting it so as to be enforceable to the extent compatible with applicable
law.
E. This Agreement shall bind and inure to the benefit of UroMed and any
successor of UroMed by reorganization, merger, consolidation, liquidation, sale
or other assignee of UroMed's business or assets but shall otherwise be and
remain unenforceable.
F. The waiver by any party of a breach of any provision of this Agreement
shall not operate or be construed as a waiver of any subsequent breach.
G. Employee acknowledges that this Agreement constitutes the complete
agreement between the parties and all offer letters, negotiations and other
agreements are subsumed and extinguished hereby. Except for salary adjustment
and UroMed's promulgation of employee rules and regulations from time to time,
no modification or amendment hereof shall be valid or enforceable unless it is
in writing and executed and delivered by the parties.
H. Employee agrees to indemnify and hold UroMed's officers, directors,
shareholders, agents and employees personally harmless from and against any and
all suits or causes of action Employee may ever have against UroMed.
I. Any cause of action or matter in dispute hereunder or otherwise
relating to Employee's relationship with UroMed, whether or not arising during
there term of this Agreement, is hereby waived unless judicial proceedings are
initiated by the complaining party within one (1) year from the later of the
accrual of the cause of action or the date on which the cause of action should
reasonably have been discovered. EACH PARTY EXPRESSLY WAIVES ANY AND ALL RIGHTS
THAT HE OR IT MAY HAVE TO HAVE ANY DISPUTE (WHETHER OR NOT ARISING DURING THE
TERM OF THIS AGREEMENT) HEREUNDER OR OTHERWISE RELATING TO EMPLOYEE'S
RELATIONSHIP WITH UROMED TRIED BEFORE OR DETERMINED BY A JURY.
-4-
<PAGE>
J. In the event of any suit relating to this Agreement or Employee's
employment hereunder as to which the Employee is the losing party, the Employee
shall pay all costs (including court costs and attorneys' fees) incurred by the
UroMed and its employees, directors, and shareholders with respect to such suit.
If the suit is settled or otherwise determined for a fixed dollar payment and
the suit involves a fixed dollar amount of damages sought, then the Employee
shall be deemed to be the losing party if the amount paid in settlement or
otherwise is 50% or less of the amount sought. If the Employee does recover
fifty percent (50%) or more of the amount sought or no specific dollar amount is
sought, the determination of who prevailed shall be made, in the absence of
agreement, by applicable court proceedings.
IN WITNESS WHEREOF the parties hereto have affixed their hands and seals
upon two (2) counterpart originals hereof as of the date and year first written
above.
EMPLOYEE UROMED CORPORATION
/s/ Richard M. Epstein By: /s/ John G. Simon
- ---------------------- -------------------------
Richard M. Epstein its President, hereunto
duly authorized, acting
in such capacity, and not
individually
-5-
<PAGE>
Exhibit 10.25
EMPLOYMENT AGREEMENT
This Employment Agreement is made and entered into this 23rd day of
January 23, 1996 by and between UroMed Corporation, a Massachusetts corporation
with a principal place of business at 64 A Street, Needham, Massachusetts 02194
("UroMed") and Alan I. West an individual residing at 223 Winter Street,
Hopkington, Massachusetts 01748 ("Employee").
1. AT WILL EMPLOYMENT. Commencing on February 5, 1996, Employee shall
become a full time "at-will-employee" of UroMed with the title of Managing
Director of Female Healthcare Programs. In addition to complying with the terms
and conditions hereof and the performance of the Employee job responsibilities
set forth on Exhibit A annexed hereto and made a part hereof, Employee shall
conduct him or herself in accordance with such policies, rules and regulations
as may be adopted by UroMed from time to time.
2. COMPENSATION. Employee's gross semi-monthly compensation shall be
$5,208.33. Employee shall be paid on the 15th day and the last day of each
calendar month for the current month's employment. Pay shall be adjusted pro
rata for any partial week of employment and standard employer deductions shall
be made from each payment. Employee's gross semi-monthly compensation shall be
subjected to annual review and adjustment.
3. BONUSES, EQUITY PARTICIPATION, AND BENEFITS. Employee shall be eligible
for (i) annual bonuses under such applicable bonus program(s) as UroMed's Board
of Directors may adopt from time to time, if any; (ii) participation in such
applicable employee stock option plans as may be adopted by UroMed's Board of
Directors from time to time, if any, (provided that Employee shall exercise
his/her shareholder voting rights by executing and delivering a proxy entitling
John Simon to vote such shares); and (iii) participation in such applicable
employee benefit plans as UroMed's Board of Directors may adopt from time to
time, if any. Employee will be eligible for 20,000 shares (options) with 20%
vested after one (1) year of service; the balance monthly.
4. TERM. As an at-will employee, Employee understands that this Agreement
and the employment hereunder may be terminated by either party hereto at any
time with or without cause. If not terminated, this Agreement shall govern the
terms of Employee's employment for a period of five (5) years at which time the
parties may enter into a written renewal hereof. Said five (5) year limitation
shall not affect the covenants herein that are intended to survive the
Employee's employment hereunder. Annual salary adjustments pursuant to Section 2
above shall not affect the other terms and conditions hereof, nor shall it
necessitate any written modifications hereof.
<PAGE>
5. ASSIGNMENT OF RIGHTS TO PROPRIETARY INFORMATION AND INVENTIONS.
Employee recognizes that UroMed possesses or will possess information which has
commercial value in UroMed's business ("Proprietary Information") including
without limitation, information created, discovered or developed directly or
indirectly by Employee in connection with Employee's services hereunder or made
known to Employee during his or her employment. Employee acknowledges that such
Proprietary Information shall include, without limitation, inventions, product
improvements, financial, technical or sales strategies, forecasts, product
ideas, formulas, processes, copyrightable and/or patentable materials and/or
concepts, schematics, techniques, market research and /or customer lists which
Employee may create or be exposed to from time to time. Employee expressly
agrees that all Proprietary Information and rights thereto shall be and remain
the sole and exclusive property of UroMed, and Employee hereby without further
consideration, unconditionally, exclusively and irrevocably assigns to UroMed,
royalty free, all of his or her right, title and interest in such Proprietary
Information. Notwithstanding the foregoing, Employee shall execute and deliver
such confirmatory instruments of this assignment as UroMed may request
including, without limitation, applications for patent and/or copyright
registration. Employee agrees that the foregoing assignments are a material term
of employment by UroMed and that his or her compensation includes sufficient
consideration therefor. Upon the termination or expiration of Employee's
employment with UroMed, Employee shall immediately deliver to the President of
UroMed all files, notes, lists, rolodex cards, credit cards, computer disks,
recordings, print-outs, and drawings (including, without limitation, any
materials reflecting or containing Proprietary Information) which are under the
control or in the possession of Employee and relate to the operation and
business of UroMed; Employee may retain property which he can validate as his
own brought in to the company. Employee shall not be entitled to retain any
duplicates of the foregoing, and acknowledges that failure to comply with these
requirements will constitute criminal theft.
6. CONFIDENTIALITY. At all time during the operative term of this
Agreement and thereafter (including periods after the termination or expiration
of Employee's employment with UroMed) Employee shall keep in strictest
confidence and trust all Proprietary Information and will not use, discuss or
disclose any Proprietary Information without the prior written consent of UroMed
except when done in the course of employment, exclusively with other UroMed
employees. Further excepted from the foregoing shall be Proprietary Information
that (i) can be clearly demonstrated to have been in the public domain prior to
the date hereof or which comes into the public domain during the operation
hereof through no fault of Employee; and (ii) can be demonstrated to have been
developed independently by Employee prior to any involvement with UroMed.
Employee agrees that his or her compensation hereunder includes sufficient
consideration for the foregoing covenants.
7. NON-COMPETITION.
A. Employee agrees that throughout his or her employment with UroMed and
for a period of three (3) years after the expiration or termination of such
employment, Employee will not directly (as owner, partner, principal in any
entity or otherwise) or indirectly (as an employee, agent, contractor, advisor,
beneficiary or otherwise) encase in, or participate in any entity that engages
in any activity involving the development,
-2-
<PAGE>
manufacturing or marketing of any product or service which might (i) compete
with a UroMed product, product concept, service or service concept; or (ii)
utilize any proprietary technology being developed by UroMed unless approved in
writing by UroMed. Employee acknowledges that UroMed's business is global in
nature and therefore agrees that the foregoing restrictions apply world-wide.
B. For a period of three (3) years after the expiration or termination of
Employee's employment with UroMed, Employee shall provide UroMed with written
notice (i); of any change of Employee's residential address; and (ii) stating
the name, address and nature of each subsequent employment activity. Any such
notice of subsequent employment or business activity shall include Employee's
certification that such employment or activity does not violate the provisions
of this Agreement.
C. For a period of three (3) years after the expiration or termination of
Employee's employment with UroMed, Employee agrees not to seek to persuade any
UroMed employee. consultant, director, officer or advisory board member to
discontinue association with UroMed or become involved directly or indirectly in
any endeavor that might compete with UroMed's business.
D. Employee represents and warrants for UroMed's reliance that the
foregoing covenants in Paragraphs A-C shall not unduly impair Employee's ability
to obtain gainful employment in Employee's field subsequent to Employee's
employment by UroMed. Employee further agrees that his or her compensation
hereunder includes sufficient consideration for the restrictions imposed by the
foregoing covenants.
8. INVENTIONS AFTER EMPLOYMENT. Employee agrees that he or she shall
notify in writing of any technology, invention, discovery, concept, and/or idea
whether patentable, copyrightable or neither developed by Employee within three
(3) years after the expiration or termination of his or her employment by UroMed
which relates to UroMed's fields of interest or business operations
("Inventions"). UroMed is hereby irrevocably granted the option to take an
unconditional, exclusive, irrevocable, royalty-free assignment of such
Invention(s) upon written notice mailed to Employee within thirty (30) days
after UroMed's receipt of Employee's initial notice. If UroMed duly exercises
such option, Employee shall execute and deliver such instruments of assignment
therefor as UroMed may deem necessary or advisable including, without
limitations, applications for patent and/or copyright registration. Although
Employee agrees that the compensation provided herein shall be sufficient
consideration for the foregoing covenants to assign, Employee and UroMed agree
that in consideration for Employee's execution of assignment instruments
subsequent to employment by UroMed, Employee shall be paid $1,000.00 upon
delivery to UroMed thereof.
9. EMPLOYEE REPRESENTATIONS. Employee represents and warrants for UroMed's
reliance that (i) this Agreement does not conflict with any other agreement,
promise and/or commitment undertaken by Employee which could prohibit or impair
the performance of Employee's obligations hereunder; (ii) Employee has not and
shall not disclose to UroMed, its officers, directors, employees or agents any
proprietary information of another individual or company prohibiting such
disclosure-, (iii) Employee's compliance with the confidentiality,
non-competition and other provisions of this Agreement will not
-3-
<PAGE>
materially impair Employee's ability to earn a living outside of UroMed's
employment in his field; and (iv) all information on Employee's education, past
work experience and other qualifications presented to UroMed are accurate.
complete and not misleading.
10. MISCELLANEOUS.
A. This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts.
B. Employee hereby consents to submit to the jurisdiction of the courts in
the place where UroMed's principal place of business is located at the time any
action is brought and agrees to accept service of process by registered mail or
the equivalent delivered to his or her last known address.
C. Employee agrees that any breach of Section 3, 5, 6, 7, or 8 will result
in irreparable damage to Employer and therefore consents that in addition to
recovery of provable damages and attorney's fees UroMed will be entitled to
enjoin any such breach in any competent court.
D. If any provision in this Agreement is found unenforceable, it shall not
affect any other provisions hereof. If any provisions in this Agreement is
determined to be excessively broad or overreaching, it shall be construed by
limiting it so as to be enforceable to the extent compatible with applicable
law.
E. This Agreement shall bind and inure to the benefit of UroMed and any
successor of UroMed by reorganization, merger, consolidation, liquidation, sale
or other assignee of UroMed's business or assets but shall otherwise be and
remain unenforceable.
F. The waiver by any party of a breach of any provision of this Agreement
shall not operate or be construed as a waiver of any subsequent breach.
G. Employee acknowledges that this Agreement constitutes the complete
agreement between the parties and all offer letters, negotiations and other
agreements are subsumed and extinguished hereby. Except for salary adjustment
and UroMed's promulgation of employee rules and regulations from time to time,
no modification or amendment hereof shall be valid or enforceable unless it is
in writing and executed and delivered by the parties.
H. Employee agrees to indemnify and hold UroMed's officers, directors,
shareholders, agents and employees personally harmless from and against any and
all suits or causes of action Employee may ever have against UroMed.
I. Any cause of action or matter in dispute hereunder or otherwise
relating to Employee's relationship with UroMed, whether or not arising during
there term of this Agreement, is hereby waived unless judicial proceedings are
initiated by the complaining party within one (1) year from the later of the
accrual of the cause of action or the date on which the cause of action should
reasonably have been discovered. EACH PARTY EXPRESSLY WAIVES ANY AND ALL RIGHTS
THAT HE OR IT MAY HAVE TO
-4-
<PAGE>
HAVE ANY DISPUTE (WHETHER OR NOT ARISING DURING THE TERM OF THIS AGREEMENT)
HEREUNDER OR OTHERWISE RELATING TO EMPLOYEE'S RELATIONSHIP WITH UROMED TRIED
BEFORE OR DETERMINED BY A JURY.
J. In the event of any suit relating to this Agreement or Employee's
employment hereunder as to which the Employee is the losing party, the Employee
shall pay all costs (including court costs and attorneys' fees) incurred by the
UroMed and its employees, directors, and shareholders with respect to such suit.
If the suit is settled or otherwise determined for a fixed dollar payment and
the suit involves a fixed dollar amount of damages sought, then the Employee
shall be deemed to be the losing party if the amount paid in settlement or
otherwise is 50% or less of the amount sought. If the Employee does recover
fifty percent (50%) or more of the amount sought or no specific dollar amount is
sought, the determination of who prevailed shall be made, in the absence of
agreement, by applicable court proceedings.
IN WITNESS WHEREOF the parties hereto have affixed their hands and seals
upon two (2) counterpart originals hereof as of the date and year first written
above.
EMPLOYEE UROMED CORPORATION
/s/ Alan I. West By: /s/ John G. Simon
- ---------------------- -------------------------
Alan I. West its President, hereunto
duly authorized, acting
in such capacity, and not
individually
addendum 1/25/96: If Employee is to be terminated without cause within the first
two (2) years of at-will service, Employee will be given 60 days advance notice
of this termination.
-5-
<PAGE>
Exhibit 10.26
EMPLOYMENT AGREEMENT
This Employment Agreement is made and entered into this 22d day of
February, 1996 by and between UroMed Corporation, a Massachusetts corporation
with a principal place of business at 64 A Street, Needham, Massachusetts 02194
("UroMed") and Robert C. Lorette an individual residing at 185 Old Pickard Road,
Concord, Massachusetts 01742 ("Employee").
1. AT WILL EMPLOYMENT. Commencing on February 28, 1996, Employee shall
become a full time "at-will-employee" of UroMed with the title of Vice
President, Corporate Development. In addition to complying with the terms and
conditions hereof and the performance of the Employee job responsibilities set
forth on Exhibit A annexed hereto and made a part hereof, Employee shall conduct
him or herself in accordance with such policies, rules and regulations as may be
adopted by UroMed from time to time.
2. COMPENSATION. Employee's gross semi-monthly compensation shall be
$5,208.33. Employee shall be paid on the 15th day and the last day of each
calendar month for the current month's employment. Pay shall be adjusted pro
rata for any partial week of employment and standard employer deductions shall
be made from each payment. Employee's gross semi-monthly compensation shall be
subjected to annual review and adjustment.
3. BONUSES, EQUITY PARTICIPATION, AND BENEFITS. Employee shall be
eligible for (i) annual bonuses under such applicable bonus program(s) as
UroMed's Board of Directors may adopt from time to time, if any; (ii)
participation in such applicable employee stock option plans as may be adopted
by UroMed's Board of Directors from time to time, if any, (provided that
Employee shall exercise his/her shareholder voting rights by executing and
delivering a proxy entitling John Simon to vote such shares); and (iii)
participation in such applicable employee benefit plans as UroMed's Board of
Directors may adopt from time to time, if any. Employee will be eligible for
20,000 shares (options) with 40% vested after two years of service; the balance
monthly.
4. TERM. As an at-will employee, Employee understands that this
Agreement and the employment hereunder may be terminated by either party hereto
at any time with or without cause. If not terminated, this Agreement shall
govern the terms of Employee's employment for a period of five (5) years at
which time the parties may enter into a written renewal hereof. Said five (5)
year limitation shall not affect the covenants herein that are intended to
survive the Employee's employment hereunder. Annual salary adjustments pursuant
to Section 2 above shall not affect the other terms and conditions hereof, nor
shall it necessitate any written modifications hereof.
5. ASSIGNMENT OF RIGHTS TO PROPRIETARY INFORMATION AND INVENTIONS.
Employee recognizes that UroMed possesses or will possess information which has
commercial value in UroMed's business ("Proprietary Information") including
<PAGE>
without limitation, information created, discovered or developed directly or
indirectly by Employee in connection with Employee's services hereunder or made
known to Employee during his or her employment. Employee acknowledges that such
Proprietary Information shall include, without limitation, inventions, product
improvements, financial, technical or sales strategies, forecasts, product
ideas, formulas, processes, copyrightable and/or patentable materials and/or
concepts, schematics, techniques, market research and /or customer lists which
Employee may create or be exposed to from time to time. Employee expressly
agrees that all Proprietary Information and rights thereto shall be and remain
the sole and exclusive property of UroMed, and Employee hereby without further
consideration, unconditionally, exclusively and irrevocably assigns to UroMed,
royalty free, all of his or her right, title and interest in such Proprietary
Information. Notwithstanding the foregoing, Employee shall execute and deliver
such confirmatory instruments of this assignment as UroMed may request
including, without limitation, applications for patent and/or copyright
registration. Employee agrees that the foregoing assignments are a material term
of employment by UroMed and that his or her compensation includes sufficient
consideration therefor. Upon the termination or expiration of Employee's
employment with UroMed. Employee shall immediately deliver to the President of
UroMed all files, notes, lists, rolodex cards, credit cards, computer disks,
recordings, print-outs, and drawings (including, without limitation, any
materials reflecting or containing Proprietary Information) which are under the
control or in the possession of Employee and relate to the operation and
business of UroMed. Employee shall not be entitled to retain any duplicates of
the foregoing, and acknowledges that failure to comply with these requirements
will constitute criminal theft.
6. CONFIDENTIALITY. At all time during the operative term of this
Agreement and thereafter (including periods after the termination or expiration
of Employee's employment with UroMed) Employee shall keep in strictest
confidence and trust all Proprietary Information and will not use, discuss or
disclose any Proprietary Information without the prior written consent of UroMed
except when done in the course of employment, exclusively with other UroMed
employees. Further excepted from the foregoing shall be Proprietary Information
that (i) can be clearly demonstrated to have been in the public domain prior to
the date hereof or which comes into the public domain during the operation
hereof through no fault of Employee; and (ii) can be demonstrated to have been
developed independently by Employee prior to any involvement with UroMed.
Employee agrees that his or her compensation hereunder includes sufficient
consideration for the foregoing covenants.
7. NON-COMPETITION.
A. Employee agrees that throughout his or her employment with UroMed
and for a period of three (3) years after the expiration or termination of such
employment, Employee will not directly (as owner, partner, principal in any
entity or otherwise) or indirectly (as an employee, agent, contractor, advisor,
beneficiary or otherwise) encase in, or participate in any entity that engages
in any activity involving the development, manufacturing or marketing of any
product or service which might (i) compete with a UroMed product, product
concept, service or service concept; or (ii) utilize any proprietary technology
being developed by UroMed unless approved in writing by UroMed. Employee
-2-
<PAGE>
acknowledges that UroMed's business is global in nature and therefore agrees
that the foregoing restrictions apply world-wide.
B. For a period of three (3) years after the expiration or termination
of Employee's employment with UroMed, Employee shall provide UroMed with written
notice (i); of any change of Employee's residential address; and (ii) stating
the name, address and nature of each subsequent employment activity. Any such
notice of subsequent employment or business activity shall include Employee's
certification that such employment or activity does not violate the provisions
of this Agreement.
C. For a period of three (3) years after the expiration or termination
of Employee's employment with UroMed, Employee agrees not to seek to persuade
any UroMed employee. consultant, director, officer or advisory board member to
discontinue association with UroMed or become involved directly or indirectly in
any endeavor that might compete with UroMed's business.
D. Employee represents and warrants for UroMed's reliance that the
foregoing covenants in Paragraphs A-C shall not unduly impair Employee's ability
to obtain gainful employment in Employee's field subsequent to Employee's
employment by UroMed. Employee further agrees that his or her compensation
hereunder includes sufficient consideration for the restrictions imposed by the
foregoing covenants.
8. INVENTIONS AFTER EMPLOYMENT. Employee agrees that he or she shall
notify in writing of any technology, invention, discovery, concept, and/or idea
whether patentable, copyrightable or neither developed by Employee within three
(3) years after the expiration or termination of his or her employment by UroMed
which relates to UroMed's fields of interest or business operations
("Inventions"). UroMed is hereby irrevocably granted the option to take an
unconditional, exclusive, irrevocable, royalty-free assignment of such
Invention(s) upon written notice mailed to Employee within thirty (30) days
after UroMed's receipt of Employee's initial notice. If UroMed duly exercises
such option, Employee shall execute and deliver such instruments of assignment
therefor as UroMed may deem necessary or advisable including, without
limitations, applications for patent and/or copyright registration. Although
Employee agrees that the compensation provided herein shall be sufficient
consideration for the foregoing covenants to assign, Employee and UroMed agree
that in consideration for Employee's execution of assignment instruments
subsequent to employment by UroMed, Employee shall be paid $1,000.00 upon
delivery to UroMed thereof.
9. EMPLOYEE REPRESENTATIONS. Employee represents and warrants for
UroMed's reliance that (i) this Agreement does not conflict with any other
agreement, promise and/or commitment undertaken by Employee which could prohibit
or impair the performance of Employee's obligations hereunder; (ii) Employee has
not and shall not disclose to UroMed, its officers, directors, employees or
agents any proprietary information of another individual or company prohibiting
such disclosure-, (iii) Employee's compliance with the confidentiality,
non-competition and other provisions of this Agreement will not materially
impair Employee's ability to earn a living outside of UroMed's employment in his
field; and (iv) all information on Employee's education, past work experience
and other qualifications presented to UroMed are accurate, complete and not
misleading.
-3-
<PAGE>
10. MISCELLANEOUS.
A. This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts.
B. Employee hereby consents to submit to the jurisdiction of the courts
in the place where UroMed's principal place of business is located at the time
any action is brought and agrees to accept service of process by registered mail
or the equivalent delivered to his or her last known address.
C. Employee agrees that any breach of Section 3, 5, 6, 7, or 8 will
result in irreparable damage to Employer and therefore consents that in addition
to recovery of provable damages and attorney's fees UroMed will be entitled to
enjoin any such breach in any competent court.
D. If any provision in this Agreement is found unenforceable, it shall
not affect any other provisions hereof. If any provisions in this Agreement is
determined to be excessively broad or overreaching, it shall be construed by
limiting it so as to be enforceable to the extent compatible with applicable
law.
E. This Agreement shall bind and inure to the benefit of UroMed and any
successor of UroMed by reorganization, merger, consolidation, liquidation, sale
or other assignee of UroMed's business or assets but shall otherwise be and
remain unenforceable.
F. The waiver by any party of a breach of any provision of this Agreement
shall not operate or be construed as a waiver of any subsequent breach.
G. Employee acknowledges that this Agreement constitutes the complete
agreement between the parties and all offer letters, negotiations and other
agreements are subsumed and extinguished hereby. Except for salary adjustment
and UroMed's promulgation of employee rules and regulations from time to time,
no modification or amendment hereof shall be valid or enforceable unless it is
in writing and executed and delivered by the parties.
H. Employee agrees to indemnify and hold UroMed's officers, directors,
shareholders, agents and employees personally harmless from and against any and
all suits or causes of action Employee may ever have against UroMed.
I. Any cause of action or matter in dispute hereunder or otherwise
relating to Employee's relationship with UroMed, whether or not arising during
there term of this Agreement, is hereby waived unless judicial proceedings are
initiated by the complaining party within one (1) year from the later of the
accrual of the cause of action or the date on which the cause of action should
reasonably have been discovered. EACH PARTY EXPRESSLY WAIVES ANY AND ALL RIGHTS
THAT HE OR IT MAY HAVE TO HAVE ANY DISPUTE (WHETHER OR NOT ARISING DURING THE
TERM OF THIS AGREEMENT) HEREUNDER OR OTHERWISE RELATING TO EMPLOYEE'S
RELATIONSHIP WITH UROMED TRIED BEFORE OR DETERMINED BY A JURY.
-4-
<PAGE>
J. In the event of any suit relating to this Agreement or Employee's
employment hereunder as to which the Employee is the losing party, the Employee
shall pay all costs (including court costs and attorneys' fees) incurred by the
UroMed and its employees, directors, and shareholders with respect to such suit.
If the suit is settled or otherwise determined for a fixed dollar payment and
the suit involves a fixed dollar amount of damages sought, then the Employee
shall be deemed to be the losing party if the amount paid in settlement or
otherwise is 50% or less of the amount sought. If the Employee does recover
fifty percent (50%) or more of the amount sought or no specific dollar amount is
sought, the determination of who prevailed shall be made, in the absence of
agreement, by applicable court proceedings.
IN WITNESS WHEREOF the parties hereto have affixed their hands and seals
upon two (2) counterpart originals hereof as of the date and year first written
above.
EMPLOYEE UROMED CORPORATION
/s/ Robert C. Lorette By: /s/ John G. Simon
- ---------------------- -------------------------
Robert C. Lorette its President, hereunto
duly authorized, acting
in such capacity, and not
individually
-5-
<PAGE>
Exhibit 10.27
EMPLOYMENT AGREEMENT
This Employment Agreement is made and entered into this 19th day of
September, 1994 by and between UroMed Corporation, a Massachusetts
corporation with a principal place of business at 313 Plesant Street,
Watertown, Massachusetts 02172 ("UroMed") and Neil J. Magner an individual
residing at 5 Grist Mill Road, Acton, MA 01720 ("Employee").
1. AT WILL EMPLOYMENT. Commencing on October 10, 1994, Employee shall
become a full time "at-will-employee" of UroMed with the title of Director of
Manufacturing. In addition to complying with the terms and conditions hereof
and the performance of the Employee job responsibilities set forth on Exhibit
A annexed hereto and made a part hereof, Employee shall conduct him or
herself in accordance with such policies, rules and regulations as may be
adopted by UroMed from time to time.
2. COMPENSATION. Employee's gross semi-monthly compensation shall be
$3,541.67. Employee shall be paid on the 15th day and the last day of each
calendar month for the current month's employment. Pay shall be adjusted pro
rata for any partial week of employment and standard employer deductions
shall be made from each payment. Employee's gross semi-monthly compensation
shall be subjected to annual review and adjustment.
3. BONUSES, EQUITY PARTICIPATION, AND BENEFITS. Employee shall be
eligible for (i) annual bonuses under such applicable bonus program(s) as
UroMed's Board of Directors may adopt from time to time, if any; (ii)
participation in such applicable employee stock option plans as may be
adopted by UroMed's Board of Directors from time to time, if any, (provided
that Employee shall exercise his/her shareholder voting rights by executing
and delivering a proxy entitling John Simon to vote such shares); and (iii)
participation in such applicable employee benefit plans as UroMed's Board of
Directors may adopt from time to time, if any. Employee will be eligible for
20,000 shares (options) with 40% vested after two years of service; the
balance monthly.
4. TERM. As an at-will employee, Employee understands that this Agreement
and the employment hereunder may be terminated by either party hereto at any
time with or without cause. If not terminated, this Agreement shall govern
the terms of Employee's employment for a period of five (5) years at which
time the parties may enter into a written renewal hereof. Said five (5) year
limitation shall not affect the covenants herein that are intended to survive
the Employee's employment hereunder. Annual salary adjustments pursuant to
Section 2 above shall not affect the other terms and conditions hereof, nor
shall it necessitate any written modifications hereof.
5. ASSIGNMENT OF RIGHTS TO PROPRIETARY INFORMATION AND INVENTIONS.
Employee recognizes that UroMed possesses or will possess information which
has commercial value in UroMed's business ("Proprietary Information")
including without limitation, information created, discovered or developed
directly or indirectly by Employee in connection with Employee's services
hereunder or made known to Employee during his or her employment. Employee
acknowledges that such Proprietary Information shall include, without
limitation, inventions, product improvements, financial, technical or sales
strategies, forecasts, product ideas, formulas, processes, copyrightable
and/or patentable materials and/or concepts, schematics, techniques,
<PAGE>
-2-
market research and /or customer lists which Employee may create or be
exposed to from time to time. Employee expressly agrees that all Proprietary
Information and rights thereto shall be and remain the sole and exclusive
property of UroMed, and Employee hereby without further consideration,
unconditionally, exclusively and irrevocably assigns to UroMed, royalty free,
all of his or her right, title and interest in such Proprietary Information.
Notwithstanding the foregoing, Employee shall execute and deliver such
confirmatory instruments of this assignment as UroMed may request including,
without limitation, applications for patent and/or copyright registration.
Employee agrees that the foregoing assignments are a material term of
employment by UroMed and that his or her compensation includes sufficient
consideration therefor. Upon the termination or expiration of Employee's
employment with UroMed. Employee shall immediately deliver to the President
of UroMed all files, notes, lists, rolodex cards, credit cards, computer
disks, recordings, print-outs, and drawings (including, without limitation,
any materials reflecting or containing Proprietary Information) which are
under the control or in the possession of Employee and relate to the
operation and business of UroMed. Employee shall not be entitled to retain
any duplicates of the foregoing, and acknowledges that failure to comply with
these requirements will constitute criminal theft.
6. CONFIDENTIALITY. At all time during the operative term of this
Agreement and thereafter (including periods after the termination or
expiration of Employee's employment with UroMed) Employee shall keep in
strictest confidence and trust all Proprietary Information and will not use,
discuss or disclose any Proprietary Information without the prior written
consent of UroMed except when done in the course of employment, exclusively
with other UroMed employees. Further excepted from the foregoing shall be
Proprietary Information that (i) can be clearly demonstrated to have been in
the public domain prior to the date hereof or which comes into the public
domain during the operation hereof through no fault of Employee; and (ii) can
be demonstrated to have been developed independently by Employee prior to any
involvement with UroMed. Employee agrees that his or her compensation
hereunder includes sufficient consideration for the foregoing covenants.
7. NON-COMPETITION.
A. Employee agrees that throughout his or her employment with UroMed and
for a period of three (3) years after the expiration or termination of such
employment, Employee will not directly (as owner, partner, principal in any
entity or otherwise) or indirectly (as an employee, agent, contractor,
advisor, beneficiary or otherwise) encase in, or participate in any entity
that engages in any activity involving the development, manufacturing or
marketing of any product or service which might (i) compete with a UroMed
product, product concept, service or service concept; or (ii) utilize any
proprietary technology being developed by UroMed unless approved in writing
by UroMed. Employee acknowledges that UroMed's business is global in nature
and therefore agrees that the foregoing restrictions apply world-wide.
B. For a period of three (3) years after the expiration or termination of
Employee's employment with UroMed, Employee shall provide UroMed with written
notice (i); of any change of Employee's residential address; and (ii) stating
the name, address and nature of each subsequent employment activity. Any such
notice of subsequent employment or business activity shall include Employee's
certification that such employment or activity does not violate the
provisions of this Agreement.
<PAGE>
-3-
C. For a period of three (3) years after the expiration or termination of
Employee's employment with UroMed, Employee agrees not to seek to persuade
any UroMed employee. consultant, director, officer or advisory board member
to discontinue association with UroMed or become involved directly or
indirectly in any endeavor that might compete with UroMed's business.
D. Employee represents and warrants for UroMed's reliance that the
foregoing covenants in Paragraphs A-C shall not unduly impair Employee's
ability to obtain gainful employment in Employee's field subsequent to
Employee's employment by UroMed. Employee further agrees that his or her
compensation hereunder includes sufficient consideration for the restrictions
imposed by the foregoing covenants.
8. INVENTIONS AFTER EMPLOYMENT. Employee agrees that he or she shall
notify in writing of any technology, invention, discovery, concept, and/or
idea whether patentable, copyrightable or neither developed by Employee
within three (3) years after the expiration or termination of his or her
employment by UroMed which relates to UroMed's fields of interest or business
operations ("Inventions"). UroMed is hereby irrevocably granted the option to
take an unconditional, exclusive, irrevocable, royalty-free assignment of
such Invention(s) upon written notice mailed to Employee within thirty (30)
days after UroMed's receipt of Employee's initial notice. If UroMed duly
exercises such option, Employee shall execute and deliver such instruments of
assignment therefor as UroMed may deem necessary or advisable including,
without limitations, applications for patent and/or copyright registration.
Although Employee agrees that the compensation provided herein shall be
sufficient consideration for the foregoing covenants to assign,
Employee and UroMed agree that in consideration for Employee's execution of
assignment instruments subsequent to employment by UroMed, Employee shall be
paid $1,000.00 upon delivery to UroMed thereof.
9. EMPLOYEE REPRESENTATIONS. Employee represents and warrants for
UroMed's reliance that (i) this Agreement does not conflict with any other
agreement, promise and/or commitment undertaken by Employee which could
prohibit or impair the performance of Employee's obligations hereunder; (ii)
Employee has not and shall not disclose to UroMed, its officers, directors,
employees or agents any proprietary information of another individual or
company prohibiting such disclosure-, (iii) Employee's compliance with the
confidentiality, non-competition and other provisions of this Agreement will
not materially impair Employee's ability to earn a living outside of UroMed's
employment in his field; and (iv) all information on Employee's education,
past work experience and other qualifications presented to UroMed are
accurate, complete and not misleading.
10. MISCELLANEOUS.
A. This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts.
B. Employee hereby consents to submit to the jurisdiction of the courts
in the place where UroMed's principal place of business is located at the
time any action is brought and agrees to accept service of process by
registered mail or the equivalent delivered to his or her last known address.
C. Employee agrees that any breach of Section 3, 5, 6, 7, or 8 will
result in irreparable damage to Employer and therefore consents that in
addition to recovery
<PAGE>
-4-
of provable damages and attorney's fees UroMed will be entitled to enjoin any
such breach in any competent court.
D. If any provision in this Agreement is found unenforceable, it shall
not affect any other provisions hereof. If any provisions in this Agreement
is determined to be excessively broad or overreaching, it shall be construed
by limiting it so as to be enforceable to the extent compatible with
applicable law.
E. This Agreement shall bind and inure to the benefit of UroMed and any
successor of UroMed by reorganization, merger, consolidation, liquidation,
sale or other assignee of UroMed's business or assets but shall otherwise be
and remain unenforceable.
F. The waiver by any party of a breach of any provision of this Agreement
shall not operate or be construed as a waiver of any subsequent breach.
G. Employee acknowledges that this Agreement constitutes the complete
agreement between the parties and all offer letters, negotiations and other
agreements are subsumed and extinguished hereby. Except for salary adjustment
and UroMed's promulgation of employee rules and regulations from time to
time, no modification or amendment hereof shall be valid or enforceable
unless it is in writing and executed and delivered by the parties.
H. Employee agrees to indemnify and hold UroMed's officers, directors,
shareholders, agents and employees personally harmless from and against any
and all suits or causes of action Employee may ever have against UroMed.
I. Any cause of action or matter in dispute hereunder or otherwise
relating to Employee's relationship with UroMed, whether or not arising
during there term of this Agreement, is hereby waived unless judicial
proceedings are initiated by the complaining party within one (1) year from
the later of the accrual of the cause of action or the date on which the
cause of action should reasonably have been discovered. EACH PARTY EXPRESSLY
WAIVES ANY AND ALL RIGHTS THAT HE OR IT MAY HAVE TO HAVE ANY DISPUTE (WHETHER
OR NOT ARISING DURING THE TERM OF THIS AGREEMENT) HEREUNDER OR OTHERWISE
RELATING TO EMPLOYEE'S RELATIONSHIP WITH UROMED TRIED BEFORE OR DETERMINED BY
A JURY.
J. In the event of any suit relating to this Agreement or Employee's
employment hereunder as to which the Employee is the losing party, the
Employee shall pay all costs (including court costs and attorneys' fees)
incurred by the UroMed and its employees, directors, and shareholders with
respect to such suit. If the suit is settled or otherwise determined for a
fixed dollar payment and the suit involves a fixed dollar amount of damages
sought, then the Employee shall be deemed to be the losing party if the
amount paid in settlement or otherwise is 50% or less of the amount sought.
If the Employee does recover fifty percent (50%) or more of the amount sought
or no specific dollar amount is sought, the determination of who prevailed
shall be made, in the absence of agreement, by applicable court proceedings.
<PAGE>
-5-
IN WITNESS WHEREOF the parties hereto have affixed their hands and seals
upon three (3) counterpart originals hereof as of the date and year first
written above.
EMPLOYEE UROMED CORPORATION
/s/ Neil J. Magner By: /s/ John G. Simon
-------------- ------------------
Neil J. Magner its President, hereunto
duly authorized, acting
in such capacity, and not
individually
<PAGE>
UroMed Corporation
EMPLOYMENT AGREEMENT
The parties to this agreement, dated as of March 17, 1997, are UroMed
Corporation, a Massachusetts corporation (the "EMPLOYER"), and John G. Simon,
of Boston, Massachusetts (the "EMPLOYEE").
The Employer wishes to retain their services of the Employee in order to
avail itself of the Employee's executive and managerial skills in, among other
things, strategic decision-making, developing marketing and public relations
approaches, continuing and expanding existing and developing new lines of
business and raising new debt and equity capital, and the Employee is willing to
provide his services to the Employer on the terms set forth herein;
The parties accordingly agree as follows:
1. EMPLOYMENT. The Employer hereby employs the Employee, and the
Employee hereby accepts employment, upon the terms and subject to the conditions
hereinafter set forth.
2. DUTIES. The Employee shall be employed as President, Chief Executive
Officer, and (if he is at the relevant time a Director of the Employer) Chairman
of the Board of the Employer. As Chairman of the board, the Employee shall
preside over meetings of the Employer's Board of Directors. As President and
Chief Executive Officer, subject to the general direction and control of the
Employer's Board of Directors, Employee shall supervise the Employer's other
executive officers, and guide and participate in the process of formulating and
monitoring the Employer's performance of the Employer's annual budget and
strategic business plan and undertake such other activities as the Board shall
reasonably request from time to time. Employee shall use his best efforts,
including the highest standards of professional competence and integrity, and
shall devote his full business time and effort, in and to his employment
hereunder, and shall not engage in any other non-charitable business activity
other than advisory or directorship positions (not inconsistent with Section
5(b)) and passive investments that collectively do not interfere with hid
say-to-day acquittal of his responsibilities hereunder.
3. TERM.
(a) GENERAL. The initial term of employment of the Employee
hereunder shall commence on the March 17, 1997 (as defined in Section 7 hereof)
and continue until the second anniversary of the date hereof, and may be
extended thereafter for additional terms only by the written agreement of the
Employer and the Employee; provided, that the employment of the Employee
hereunder may terminate prior to the expiration of such term in accordance with
the provisions of subsections (b) or (c) below.
<PAGE>
(b) DEATH OR DISABILITY. Employee's employment hereunder shall
terminate upon the death of the Employee during the term of his employment
hereunder or, at the option of the Employer and upon sixty (60) days notice to
the Employee, in the event of the Employee's disability. The Employee shall be
deemed disabled if an independent medical doctor (selected by the Employer's
health or disability insurer) certifies that the Employee has for six (6)
months, consecutive or non-consecutive, in any twelve-month period been disabled
in a manner that seriously interferes with his ability to perform his
responsibilities under this agreement, or if Employee refuses to submit to
medical examination reasonably requested hereunder for the purpose of
determining whether Employee is disabled for these purposes.
(c) FOR CAUSE. Employee's employment hereunder shall terminate for
"Cause" effective immediately upon written notice by the Employer to the
Employee if the Employee shall (i) commit an unlawful or criminal act involving
moral turpitude, (ii) fail to perform or adhere to written directions delivered
to the Employee by the Employer's Board of Directors (which are not unlawful to
perform or to adhere to), or (iii) commit a material breach of any of the
covenants, terms and provisions hereof that continues uncured for more than
thirty (30) days after receipt by the Employee of written notice from the
Employer's Board of Directors of such breach of failure.
(d) SEVERANCE PAY. The Employee shall not be entitled to any
severance pay or other compensation upon termination of his employment hereunder
except for:
(i) any portion of his Base Salary (as defined below) accrued
but unpaid from the last monthly payment date to the date of
termination;
(ii) expense reimbursements under Section 4(d) hereof for
expenses incurred in the performance of his duties hereunder prior
to termination; and
(iii) if Employee's employment with the Employer is terminated
by the Employer other than for Cause, Employer shall pay to
Employee a cancellation payment in a lump sum, and without regard
to mitigation, in an amount equal to the Base Salary (as defined
below) that would be required to be paid to Employee with respect
to the remainder of the term of employment described in Section
3(a).
In addition to the foregoing, at such time as the Employee ceases to be a
full-time employee of the Employer, whether during or after the term of
employment set forth in Section 3(a), for any reason or for no reason, unless
such event occurs because the Employee's employment is terminated by the
Employer for Cause, Employer shall pay to Employee a severance payment, without
regard to mitigation, in an aggregate amount equal to six (6) months' Base
Salary, at the Base Salary rate in effect immediately preceding such event.
Such severance shall be paid in six (6) equal monthly installments paid in
arrears on the last day of each calendar month.
<PAGE>
(e) SURVIVAL OF PROVISIONS. Notwithstanding anything otherwise
provided herein, the provisions of Sections 3(d) and 5 (and only Sections 3(d)
and 5) shall survive the termination of this agreement and of the Employee's
employment with the Employer.
4. COMPENSATION AND BENEFITS. In consideration for the services of the
Employee hereunder, the Employer shall compensate the Employee as set out in
this Section 4. The Employee shall have no rights to any compensation except as
specifically set forth herein.
(a) BASE SALARY. The Employer shall pay the Employee, on the
fifteenth (15th) and last day of each calendar month in arrears, as base salary
(the "Base Salary") with respect to each calendar month of the Employee's
employment thereunder (prorated to reflect any partial month). The Base Salary
will be paid initially at an annual rate of One Hundred Sixty Thousand Five
Hundred Dollars ($160,500). Employer shall review and evaluate the Base Salary
at least annually, and may increase (but not decrease) the Base Salary, although
it makes no representation that it intends to do so.
(b) INCENTIVE BONUS. The Employee will be eligible to receive annual
incentive bonus payments upon achievement of certain performance targets
pursuant to an annual incentive bonus plan if and when adopted by the Employer's
Board of Directors for the Employee. The performance targets, bonus amounts and
other terms of the bonus plan will be determined in the discretion of the Board
of Directors.
(c) FRINGE BENEFITS; INSURANCE. Employee shall be entitled to
participate from time to time in all fringe benefits made available to senior
executive personnel of the employer. Such fringe benefits shall, in any event,
include accident, life disability, dental, and health insurance.
(d) REIMBURSEMENT OF EXPENSES. The Employer shall reimburse the
Employee for all ordinary and necessary expenses incurred by the Employee in the
performance of his duties hereunder. The Employee shall comply with such budget
limitations and approval and reporting requirements with respect to expenses as
the Employer may establish from time to time.
(e) VACATION. The Employee shall be entitled to four (4) weeks of
paid vacation per calendar year of employment. Vacations shall be taken at
reasonable times.
5. EMPLOYEE CONDUCT PRIOR TO AND FOLLOWING TERMINATION OF EMPLOYMENT AND
DIRECTORSHIP
(a) CONFIDENTIALITY. The Employee recognizes and acknowledges that
the Proprietary Information (as defined below) is a valuable, special, and
unique asset of the Employer and its affiliates. The Employee shall not, during
or after his term of employment or the period in which he is a director of the
Employer, disclose any of the Proprietary Information to any person, firm,
corporation, association, or any other entity for any reason or purpose
whatsoever, directly or indirectly, except as may be required pursuant to his
employment hereunder, until the earlier of (i) two (2) years after the
Termination Date (as defined below) or (ii) such time as such Proprietary
Information becomes publicly available
<PAGE>
other than as a consequence of the breach by the Employee of his
confidentially obligations hereunder. For purposes hereof, the "TERMINATION
DATE" is the date of the alter to occur of the Employee ceasing to be an
employee of the Employer or Employee ceasing to be a director of the Employer.
(b) NON-COMPETITION AGREEMENT. Until one (1) years after the
Termination Date, the Employee will not (i) engage directly or indirectly (alone
or as a shareholder, partner, officer, director, employee, or consultant of or
to any other business organization) in any business activities which relate to
the research, development, manufacture, or marketing of products that directly
compete with products actively being researched, developed, manufactured, or
marketed by the Employer (or as to which the Employer has formulated specific
written research or development plans that have been reviewed by or submitted to
the Employer's Board of Directors) as of the time of termination of the
Employee's employment (the "EMPLOYER'S INDUSTRY") or (ii) divert or seek to
divert to any competitor of the Employer in the Employer's Industry any
customer of the Employer. Until two (2) years after the Termination Date, the
Employee will not solicit or encourage any officer, employee or consultant of or
to the Employer to leave its employ. The parties hereto acknowledge and agree
that the Employee's non-competition obligations hereunder will not preclude the
Employee from owning less than five percent (5%) of the common stock of any
corporation having business activities in the Employer's Industry. The Employee
will continue to be bound by the provisions of this Section 5(b) until their
expiration and shall not be entitled to any compensation from the Employer with
respect thereto. If at any time the provisions of this Section 5(b) shall be
determined to be invalid or unenforceable, by reason of being vague or
unreasonable as to area, duration or scope of activity, this Section 5(b) shall
be considered divisible and shall become and be immediately amended to apply
only to such area, duration and scope of activity as shall be determined to be
reasonable and enforceable by the court or other body having jurisdiction over
the matter; and the Employee agrees that this Section 5(b) as so amended shall
be valid and binding as though any invalid or unenforceable provision had not
been included herein.
(c) ASSIGNMENT OF RIGHT TO PROPRIETARY INFORMATION AND INVENTIONS.
The Employee recognizes that the Employee now possesses and will possess during
his employment by and directorship of the Employer information that has
commercial value in the Employer's business ("PROPRIETARY INFORMATION"), such as
information regarding customers, pricing policies, methods of operation,
proprietary equipment and other hardware, software, sales, products, profits,
costs, markets, and key personnel, and including without limitation information
and inventions created directly or indirectly by the Employee in performing his
services hereunder, or made known to the Employee during the term hereof. The
Employee acknowledges that such Proprietary Information shall include, without
limitation, inventions, product improvements, financial , technical or sales
strategies, forecasts, product ideas, formulas, processes, copyrightable and/or
patentable materials and/or concepts, schematics, techniques, market research
and/or customer lists which the Employee may create or be exposed to while
employed hereunder. Notwithstanding the foregoing, the Proprietary Information
shall not include any information not relevant to the Employer's Industry if
Employee first learns of or invents (or otherwise first come to possess) such
information while is a director and not an employee of the Employer. The
Employee expressly agrees that all Proprietary information and rights thereto
shall be and remain the sole and exclusive property of the Employer, and the
Employee hereby without
<PAGE>
further consideration, unconditionally, exclusively and irrevocable assigns
to the Employer, royalty free, all of his right, title and interest in and to
such Proprietary Information. Notwithstanding the foregoing, the Employee
shall execute and deliver such confirmatory instruments of this assignment as
the Employer may request including, without limitation, applications for
patent and/or copyright registration . The Employee agrees that the
foregoing assignments are a material term of his employment relationship with
the Employer and that his Base Salary includes sufficient consideration
therefor.
(d) RETURN OF MATERIALS. The Employee agrees that upon the
Termination Date, however the termination's of his employment and directorship
may occur and whether or not during the term of this agreement, the Employee
will promptly return to the Employer all files, notes, lists, rolodex cards,
credit cards, computer disks, recordings, print-outs, and drawings (including
without limitation, any materials reflecting or containing Proprietary
Information) that are under the control or in the possession of the Employee and
that relate to the operation and business of the Employer, and the like. The
Employee shall not be entitled to retain any duplicates or summaries of or notes
on any of the foregoing to the extent such materials represent, embody, or
otherwise set out or include Proprietary Information; otherwise the Employee
shall be entitled to retain for his files such duplicates, summaries, or notes.
6. GENERAL.
(a) NOTICES. All notices and other communications hereunder shall be
in writing or by written telecommunication, and shall be deemed to have been
duly given if delivered personally or if mailed by certified mail, return
receipt requested, postage prepaid, or if sent by nationally recognized
reputable overnight courier (e.g., Federal Express), or by written
telecommunication confirmed by on of the other methods of giving notice
hereunder, to the relevant address et forth below, or to such other address as
the recipient of such notice or communication shall have specified to the other
party hereto in accordance with this 6(a).
If to the Employee, to:
John G. Simon
140 Beacon Street, #6
Boston, MA 02116
<PAGE>
If to the Employee, to:
UroMed Corporation
64A Street
Needham, MA 02194
(b) EQUITABLE REMEDIES. Each of the parties hereto acknowledges
and agrees that upon any breach by the Employee of his obligations under Section
5 hereof, the Employer will have o adequate remedy at law, and accordingly will
be entitled to specific performance and other appropriate injunctive and
equitable relief, in addition to any other remedies that it may have.
(c) SEVERABILITY. IF any provision of this agreement is or
becomes invalid, illegal or unenforceable in any respect under any law, the
validity, legality and enforceability of the remaining provisions hereof shall
not in any way be affected or impaired.
(d) ENTIRE AGREEMENT, AMENDMENT, WAIVERS. This agreement
contains the entire understanding of the parties, supersedes all prior
agreements and understandings relating to the subject matter hereof and shall
not be amended except by a written instrument hereafter signed by each of the
parties hereto. No delay or omission by either party hereto in exercising any
right, power or privilege hereunder shall impair such right, power or privilege,
nor shall any single or partial exercise of any such right, power or privilege
preclude any further exercise thereof for the exercise of any other right, power
or privilege.
(e) ASSIGNS. This agreement shall be binding upon and inure to
the benefit of the heirs and successors of each of the parties hereto.
(f) GOVERNING LAW. This agreement and the performance hereof
shall be construed and governed in accordance with the law of the Commonwealth
of Massachusetts.
(g) COUNTERPARTS. This agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7. EFFECTIVE DATE. The provisions of this agreement shall not become
effective until the date on which this agreement is executed.
<PAGE>
IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties
hereto have caused this agreement to be duly executed as of the date and year
first above written.
UroMed Corporation
By:
-----------------------------
Title
-------------------------------------
John G. Simon
<PAGE>
Exhibit No. 11. Statement Re: Computation of Per Share and Pro Forma Per Share
Loss
UROMED CORPORATION
Year Ended December 31,
-------------------------------
1994 1995 1996
-------- -------- --------
(In thousands)
Net loss attributable to common stockholders $ (7,993) $ (9,712) $(47,660)
======== ======== ========
Per Share Loss:
Weighted average shares outstanding:
Common stock 17,520 21,262 25,544
Shares issuable pursuant to SAB 83
using the treasury stock method:
Series D convertible perferred stock -- -- --
Common stock options and warrants -- -- --
-------- -------- --------
Total weighted average shares outstanding 17,520 21,262 25,544
======== ======== ========
Net loss per share $ (.46) $ (.46) $ (1.87)
======== ======== ========
Pro Forma Per Share Loss:
Pro forma weighted average shares outstanding:
Common stock 17,520
Additional shares deemed outstanding from
the assumed conversion of preferred stock 2,046
--------
Total pro forma weighted average shares 19,566
outstanding
========
Pro forma net loss per share $ (.41)
========
-6-
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1992 1993 1994 1995 1996
- ------------------------------------------------------------ --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Statement of Operations Data:
Revenues.................................................... $ -- $ -- $ -- $ 1,052 $ 2,622
--------- --------- ---------- ---------- ----------
Cost and expenses:
Cost of revenues.......................................... -- -- -- 2,564 5,110
Research and development.................................. 1,088 2,753 5,796 6,821 37,597(1)
Marketing and sales....................................... 260 504 1,417 2,169 7,276
General and administrative................................ 387 719 2,007 1,898 2,898
--------- --------- ---------- ---------- ----------
Total costs and expenses.............................. 1,735 3,976 9,220 13,452 52,881
--------- --------- ---------- ---------- ----------
Loss from operations........................................ (1,735) (3,976) (9,220) (12,400) (50,259)
Interest income, net........................................ 101 268 1,610 2,688 2,599
--------- --------- ---------- ---------- ----------
Net loss.................................................... (1,634) (3,708) (7,610) (9,712) (47,660)
Excess of redemption price over carrying costs of Series A
redeemable convertible preferred stock.................. -- -- (383) -- --
--------- --------- ---------- ---------- ----------
Net loss attributable to common stockholders................ $ (1,634) $ (3,708) $ (7,993) $ (9,712) $ (47,660)
--------- --------- ---------- ---------- ----------
--------- --------- ---------- ---------- ----------
Net loss per share (unaudited pro forma net loss per share
for the years ended December 31, 1993 and 1994)........... $ (.23) $ (.41) $ (.46) $ (1.87)
--------- --------- ---------- ---------- ----------
--------- --------- ---------- ---------- ----------
Weighted average common shares outstanding (unaudited pro
forma weighted average common shares outstanding for the
years ended December 31, 1993 and 1994)................. 15,800 19,566 21,262 25,544
--------- --------- ---------- ---------- ----------
--------- --------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1992 1993 1994 1995 1996
- ------------------------------------------------------------ --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and short-term investments......... $ 7,881 $ 17,980 $ 45,704 $ 60,427 $ 101,638
Working capital........................................... 7,740 17,697 44,288 57,681 98,013
Total assets.............................................. 8,000 18,314 47,818 64,264 110,488
Long-term debt and capital lease obligations.............. 46 43 12 -- 69,000
Accumulated deficit....................................... (2,222) (5,929) (13,922) (23,634) (71,294)
Total stockholders' equity................................ $ 7,814 $ 17,874 $ 45,660 $ 60,092 $ 35,952
</TABLE>
- ------------------------
(1) Includes $30.2 million for the acquisition of the Impress Softpatch
technology and related expenses.
See Note 3 to the Financial Statements.
13
<PAGE>
UROMED CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
UroMed Corporation ("the Company"), is focused on the development,
manufacture and marketing of products for the management of urological and
gynecological disorders. The Company's first two products, the
Reliance-Registered Trademark- Insert and the Impress-TM- Softpatch, are
intended for the management of certain types of female urinary incontinence
("UI").
The Reliance Insert was cleared by the U.S. Food and Drug Administration
("FDA") for marketing in the United States in August 1996. The Reliance
Insert is a small, prescription, balloon-tipped, single-use plug designed to
be inserted in the urethra and inflated to block the flow of urine from the
bladder to the urethra. The Company has completed its manufacturing and
marketing scale-up and began the first phase of the commercial launch of the
Reliance Insert in the United States in November 1996. The Company expects
commercialization of the Reliance Insert to continue in 1997. The Reliance
Insert is also commercially available through the Company's European
distributors in Germany, the United Kingdom, Finland, Norway, Sweden, Denmark
and The Netherlands. Commercial activities in France commenced in the fourth
quarter of 1996.
The Impress Softpatch was cleared by the FDA for marketing in the United
States in May 1996. The Impress Softpatch is a small, prescription,
disposable adhesive patch designed to be placed externally against the
urinary opening to block the leakage of urine in mild to moderate UI
patients. The Company is developing a marketing plan for the commercial
launch of the Impress Softpatch in the United States, which is currently
expected to occur in late 1997 or early 1998. The Company is also developing
the commercial manufacturing process for the Impress Softpatch.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1995--The Company had revenues of $2.6
million in 1996 compared to $1.1 million in 1995, an increase of $1.5 million
or 136%. Revenues in 1996 consisted primarily of initial stocking shipments
of the Reliance Insert product to the Company's three European distributors
and related recognition of deferred revenue from a portion of the advance
payments received upon the signing of European distributorship agreements.
International sales of the Reliance Insert in the fourth quarter were
weaker than expected as a result of lower orders from distributors due to the
fact that they had adequate inventories already in place. The Company expects
that international sales of the Reliance Insert will be minimal for at least
the first half of 1997 due to distributors expected sales volume in relation
to their inventory levels. The Company believes that international revenue
will not be more than 10-15% of expected 1997 revenue.
Due to the timing and targeted nature of the U.S. launch in the fourth
quarter of 1996, U.S. sales of the Reliance Insert did not contribute
significantly to fourth-quarter revenues. As of February 1997, as a result of
the first phase of the U.S. launch, the Company has trained over 1,000
physicians, primarily urologists. The Company is commencing the second phase
of the U.S. launch which will involve calling on gynecologists and initiating
a public relations campaign to patients and physicians. Since the Company
believes that demand for the Reliance Insert will be patient driven, it
believes that sales of the Reliance Insert in the U.S. will be immaterial
during at least the first two quarters of 1997 or until this next phase has
been executed.
Revenue in 1995 was the result of initial stocking shipments, beginning
in August 1995, of the Reliance Insert to the Company's European
distributors, primarily E. Tosse for the German launch.
Cost of revenues were $5.1 million for 1996 compared to $2.6 million for
1995, an increase of $2.5 million or 96% over 1995. These costs significantly
exceeded product revenue for the periods due to the current level of variable
product costs as well as the Company's manufacturing-related overhead costs,
relative to the low start-up volume of production in the periods. The Company
expects negative or low gross margins for the near term and, accordingly, has
considered this in its valuation of inventory. There can be no assurance that
the Company will ever realize sufficient production volumes or otherwise
reduce its manufacturing costs in order to raise gross margins. In addition,
the Company expects to increase future facilities spending in order to
accommodate changes in, as well as increases to, its manufacturing space for
both the Reliance Insert and the Impress Softpatch.
14
<PAGE>
Management's Discussion and Analysis of Financial Condition and results of
operations
Research and development expenses increased by $30.8 million, or 453%, to
$37.6 million in 1996 as compared to $6.8 million in 1995. The increase was
primarily the result of the acquisition of the Impress Softpatch and related
technology in May 1996 (see Note 3 of Notes to Financial Statements) which
has been accounted for as purchased in-process research and development and,
as a result, the purchase price of $30.0 million and related expenses of $0.2
million was expensed as research and development in 1996. Before this charge,
research and development expenses increased by $0.6 million or 9% to $7.4
million in 1996 as compared to $6.8 million in 1995. The increase in research
and development costs was primarily due to additional engineering personnel
and research projects, outside consulting services and increased clinical
study costs. Partially offsetting this increase, manufacturing spending
relating to the Reliance Insert, starting in the third quarter of 1995, is
now being included in cost of revenues due to the Company's transition from
the development stage to the commencement of commercial product
manufacturing. The Company anticipates increased expenditures in
manufacturing and research and development as it continues with the process
development and scale-up for the Impress Softpatch. In 1997, the Company
anticipates it will continue to increase research and development spending
relating to its existing products and potential new products, including
development and clinical testing of other urological and gynecological
products.
Marketing and sales expenses increased by $5.1 million or 232% to $7.3
million in 1996 as compared to $2.2 million in 1995. This increase was the
result of expenditures incurred in connection with the U.S. launch of the
Reliance Insert including hiring marketing and sales personnel, preparations
for an advertising campaign, marketing consulting fees, public relations
activities, sales training, exhibit costs and market research. The Company
anticipates increased expenditures on sales and marketing as it continues
with the commercialization of the Reliance Insert in the United States and
Europe and commercialization activities for the Impress Softpatch.
General and administrative expenses increased $1.0 million or 53% to $2.9
million in 1996 as compared to $1.9 million in 1995. The increase is
attributable to hiring additional administrative personnel, and increased
systems, consulting and legal expenses.
Interest income increased by $0.8 million or 30% to $3.5 million in 1996
as compared to $2.7 million in 1995. The increase was attributable to
significantly higher interest bearing cash equivalents and short-term
investments during 1996 as a result of the completion of a public offering of
the Company's common stock in the fourth quarter of 1995 and the issuance of
the Company's 6% Convertible Subordinated Notes due October 15, 2003 (the
"Convertible Notes") in the fourth quarter of 1996, partially offset by lower
interest rates on investments in 1996.
Interest expense increased from $0.0 million in 1995 to $0.9 million in
1996 as a result of the issuance of the Convertible Notes in October 1996.
Net losses were $47.7 million in 1996 and $9.7 million in 1995. Before
the charge for acquired technology mentioned above, net losses for 1996 and
1995 were $17.5 million and $9.7 million, respectively.
YEARS ENDED DECEMBER 31, 1995 AND 1994 --The Company had revenues of $1.1
million for 1995 and no revenues in 1994. Revenue was the result of
shipments, beginning in August 1995, of the Reliance Insert to the Company's
European distributors, primarily E. Tosse for the German launch.
Cost of revenues significantly exceeded product revenue during 1995 due
to the current level of variable product costs as well as the Company's
manufacturing related overhead costs, relative to the low start-up volume of
production in the year.
Research and development expenses increased by 17% to $6.8 million in
1995 as compared to $5.8 million in 1994. The increase in research and
development costs was due primarily to the hiring of additional engineering
personnel, facilities costs, clinical trial costs, regulatory consulting fees
and patent fees. The Company also incurred expenses in the research and
development of additional products for the management of UI and other
urological and gynecological disorders. Partially offsetting these increases,
starting in the third quarter of 1995, manufacturing spending is included in
cost of revenues due to the Company's transition from the development stage
to the commencement of commercial product manufacturing.
15
<PAGE>
Management's Discussion and Analysis of Financial Condition and results of
operations
Marketing and sales expenses increased by 57% to $2.2 million in 1995 as
compared to $1.4 million in 1994. This increase was mainly the result of the
payment of consulting fees in connection with the establishment of
distribution agreements in Europe, together with increases in product
literature development, public relations and personnel costs, including the
hiring of a Vice President of Marketing and Sales, which were partially
offset by reductions in other marketing consulting costs.
General and administrative expenses decreased by 5% to $1.9 million in
1995 as compared to $2.0 million in 1994. The decrease in general and
administrative expenses was primarily attributable to lower allocated
facilities costs, partially offset by an increase in personnel and costs
associated with being a public company.
Interest income increased by 69% to $2.7 million in 1995, as compared to
$1.6 million in 1994. The increase was attributable to the significant
increase in the Company's interest-bearing cash equivalents and short-term
investments as a result of the initial public offering of the Company's
common stock in March 1994 and the Company's additional public offering in
November 1995 as well as an increase in interest rates during this year.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company had cash, cash equivalents and
short-term investments of $101.6 million, an increase of $41.2 million from
$60.4 million at December 31, 1995. At December 31, 1996, the Company's funds
were invested in U.S. government obligations, corporate debt obligations and
money market funds.
Net cash used in operating activities was $22.5 million during the year
ended December 31, 1996 primarily due to the net loss for the year which was
partially offset by non-cash expenses of $24.3 million. In addition, accounts
receivable decreased by $0.2 million due to lower sales occurring near the
end of the quarter ended December 31, 1996 compared to the quarter ended
December 31, 1995. Inventories increased by $0.4 million for the U.S. launch
of the Reliance Insert. Prepaid expenses and other current assets increased
by $0.3 million as the result of an increase in interest receivable on cash,
cash equivalents and short-term investments. Accounts payable and related
accrued expenses together increased by $2.5 million primarily as a result of
expenses incurred in the launch of the Reliance Insert product, conducting
clinical studies and interest accrued on the Convertible Notes. Deferred
revenue decreased by $1.1 million as a portion of the advance payments
received upon the signing of European distributorship agreements were
recognized as revenue as commercial quantities of product were shipped to the
distributors.
Net cash used in investing activities was $16.6 million during the year
ended December 31, 1996. Short-term investments increased by $14.0 million
due to moving cash and cash equivalents into investments with longer
maturities. Fixed assets increased by $2.6 million primarily as a result of
the purchase of information systems, milestone payments made on additional
automated assembly and packaging equipment and purchases of other machinery
and equipment. At December 31, 1996, the Company had outstanding commitments
of approximately $5.0 million for the purchase of automated assembly and
packaging equipment for the Impress Softpatch and other machinery and
equipment, against which advance and milestone payments of $0.5 million have
already been made.
Net cash provided by financing activities was $66.4 million during the
year ended December 31, 1996. On October 15, 1996, the Company completed the
sale of $69.0 million of its Convertible Notes. Net proceeds to the Company
were $66.2 million. The Company also received $0.2 million of proceeds from
the exercise of stock options and from purchases under the Company's employee
stock purchase plan.
The Company believes that available cash, cash equivalents and short-term
investments will be sufficient to meet the Company's operating expenses and
capital requirements for the foreseeable future. The Company's future
liquidity and capital requirements depend on numerous factors, including, but
not limited to, development of the Company's marketing capability, market
acceptance of the Reliance Insert and Impress Softpatch products, the
uncertainty of medical reimbursement, development of the Company's
manufacturing capability and achieving acceptable cost of production, the
uncertain protection afforded the Company by its intellectual property and
patents relating to the Reliance Insert and Impress Softpatch, the
development status of other potential products, potential acquisitions and
other potential strategic product opportunities. There can be no assurance
that the Company will not require additional financing or that, if required,
such financing will be available on terms acceptable to the Company.
16
<PAGE>
Management's Discussion and Analysis of Financial Condition and results of
operations
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
Certain statements contained in this Annual Report may be considered
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, including statements regarding (i) the planned progression of the
Company's commercialization strategies for the Reliance Insert and Impress
Softpatch, including the timing and extent of initial sales in the United
States and abroad, (ii) the planned increases in manufacturing capacity for
the Reliance Insert and Impress Softpatch, including the timing and extent of
expenditures needed for capital equipment and inventory production, (iii)
consumer acceptance of the use of the Reliance Insert and Impress Softpatch
as strategies for the self-care of UI and the size and accessibility of the
Company's target markets, (iv) the Company's expectations regarding its
research and development and in-licensing activities, (v) the Company's
planned uses for its cash and other liquid resources and (vi) the extent of
future revenues, expenses and results of operations and the sufficiency of
the Company's financial resources to meet planned operational costs and other
expenditure needs. These forward-looking statements are based largely on the
Company's expectations and are subject to a number of risks and
uncertainties, many of which are beyond the Company's control. Actual results
could differ materially from these forward-looking statements as a result of
certain factors, including those described below:
- The uncertainty that the Reliance Insert and the Impress Softpatch will
gain market acceptance either among physicians or UI sufferers in the
United States or in Europe and the risk that the adverse effects
experienced by some of the parties enrolled in clinical trials of the
Company's Reliance Insert will be more prevalent in widespread consumer
use of such products and that such effects will affect the market
acceptance of these products.
- The dependence by the Company on the success of two products, the Reliance
Insert and the Impress Softpatch, neither of which have been widely
marketed.
- The uncertainty that the Company will be able to develop the ability to
produce commercial quantities of its products and produce such quantities
at an acceptable cost.
- The uncertainty that the Company will be able to develop an effective
sales force and implement a successful marketing plan for the Reliance
Insert and the Impress Softpatch in the United States.
- The Company's dependence on others for raw materials and certain
components of its products, including certain materials available only
from single sources.
- The effect of competing products and surgical and non-surgical alternative
treatments for incontinence.
- The uncertainty that the Company will be able to develop an effective
distribution network and implement a successful distribution strategy for
the Company's products in the United States, Europe and elsewhere.
- The uncertain protection afforded the Company by its patents and other
intellectual property relating to the Reliance Insert and the Impress
Softpatch.
- The uncertainty whether the Company will be able to achieve medical
reimbursement for the Reliance Insert or the Impress Softpatch in the
United States or in all the European markets targeted for the Company's
products.
- The uncertainty whether the Company will be able to manufacture, market
and sell its products at prices that permit it to achieve satisfactory
margins in the production and marketing of its products.
- Risks relating to FDA or other governmental oversight of the Company's
operations, including the possibility that the FDA could impose costly
additional labeling requirements on, or restrict the marketing of, the
Company's products, or suspend operations at one or more of the Company's
facilities.
Other relevant risks are described in the Company's Current Report on
Form 8-K, filed January 31, 1997, under the headings "Forward-Looking
Statements and Associated Risks" and "Risk Factors," which are
incorporated herein by reference.
17
<PAGE>
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1995 1996
- ------------------------------------------------------------------------------------------ ---------- ----------
<S> <C> <C>
(IN THOUSANDS, EXCEPT SHARE RELATED DATA)
ASSETS
Current assets:
Cash and cash equivalents............................................................... $ 18,165 $ 45,556
Short-term investments.................................................................. 42,262 56,082
Accounts receivable, net of allowance for uncollectible accounts of $21 and $36 in 1995
and 1996, respectively................................................................ 275 70
Inventories............................................................................. 230 587
Prepaid expenses and other assets....................................................... 921 1,254
---------- ----------
Total current assets................................................................ 61,853 103,549
Fixed assets, net......................................................................... 2,042 3,962
Other assets.............................................................................. 369 2,977
---------- ----------
$ 64,264 $ 110,488
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................................ $ 355 $ 713
Accrued expenses........................................................................ 2,055 4,216
Deferred revenue........................................................................ 1,750 607
Capital lease obligations............................................................... 12 --
---------- ----------
Total current liabilities........................................................... 4,172 5,536
---------- ----------
Convertible subordinated notes............................................................ -- 69,000
---------- ----------
Commitments (Note 12)
Stockholders' equity:
Preferred stock, $.01 par value; 500,000 shares authorized; none issued................. -- --
Common stock, no par value; 50,000,000 shares authorized; 23,975,612 and 26,446,257
shares issued and outstanding at December 31, 1995 and 1996, respectively............. 83,537 106,739
Additional paid-in capital.............................................................. 302 753
Net unrealized gain (loss) on investments available-for-sale............................ 160 (31)
Deferred compensation................................................................... (273) (215)
Accumulated deficit..................................................................... (23,634) (71,294)
---------- ----------
Total stockholders' equity.......................................................... 60,092 35,952
---------- ----------
$ 64,264 $ 110,488
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994 1995 1996
- ------------------------------------------------------------------------------- --------- ---------- ----------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues....................................................................... $ -- $ 1,052 $ 2,622
--------- ---------- ----------
Costs and expenses:
Cost of revenues............................................................. -- 2,564 5,110
Research and development..................................................... 5,796 6,821 37,597
Marketing and sales.......................................................... 1,417 2,169 7,276
General and administrative................................................... 2,007 1,898 2,898
--------- ---------- ----------
Total costs and expenses................................................. 9,220 13,452 52,881
--------- ---------- ----------
Loss from operations........................................................... (9,220) (12,400) (50,259)
Interest income................................................................ 1,622 2,692 3,462
Interest expense............................................................... (12) (4) (863)
--------- ---------- ----------
Net loss....................................................................... (7,610) (9,712) (47,660)
Excess of redemption price over carrying cost of Series A redeemable
convertible preferred stock.................................................. (383) -- --
--------- ---------- ----------
Net loss attributable to common stockholders................................... $ (7,993) $ (9,712) $ (47,660)
--------- ---------- ----------
--------- ---------- ----------
Net loss per share (unaudited pro forma net loss per share for the year ended
December 31, 1994)........................................................... $ (.41) $ (.46) $ (1.87)
--------- ---------- ----------
--------- ---------- ----------
Weighted average common shares outstanding (unaudited pro forma weighted
average common shares outstanding for the year ended December 31,1994)....... 19,566 21,262 25,544
--------- ---------- ----------
--------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SERIES B, C AND D SERIES A REDEEMABLE
CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK
---------------------- ------------------------
FOR THE THREE NUMBER NUMBER
YEARS IN THE PERIOD OF CARRYING OF CARRYING
ENDED DECEMBER 31, 1996 SHARES VALUE SHARES VALUE
- --------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT SHARE RELATED DATA)
Balance, December 31, 1993............... 6,132,178 $ 22,599 9,580 $ 958
Issuance of common stock upon exercise
of stock options and warrants..........
Redemption of Series
A redeemable convertible
preferred stock....... (9,580) (958)
Issuance of common stock pursuant to
initial public offering, net of stock
issuance costs of $3,300,000...........
Conversion of preferred stock to common
stock pursuant to initial public
offering............................... (6,132,178) (22,599)
Net unrealized loss on investments
available-for-sale.....................
Net loss...............
----------- ----------- ----------- -----
Balance, December 31, 1994............... -- -- -- --
Issuance of common stock for services....
Issuance of common stock upon exercise
of stock options.......................
Issuance of common stock pursuant
to follow-on public offering, net of
stock issuance costs of $1,795,750.....
Issuance of common stock under employee
stock purchase plan....................
Net unrealized gain on investments
available-for-sale.....................
Deferred compensation related to
employee common stock options granted..
Amortization of deferred compensation....
Net loss.................................
--------- ----------- ----------- -----
Balance, December 31, 1995............... -- -- -- --
Issuance of common stock in connection
with acquisition of technology.........
Issuance of common stock options for
services...............................
Issuance of common stock upon exercise
of stock options.......................
Issuance of common stock under employee
stock purchase plan....................
Net unrealized loss on investments
available-for-sale.....................
Amortization of deferred compensation....
Net loss.................................
--------- ----------- ----------- -----
Balance, December 31, 1996............... -- $ -- -- $ --
--------- ----------- ----------- -----
--------- ----------- ----------- -----
20
<PAGE>
<CAPTION>
NET
UNREALIZED
COMMON STOCK GAIN (LOSS)
- ---------------------- ON
NUMBER ADDITIONAL INVESTMENTS TOTAL
OF CARRYING PAID-IN AVAILABLE- DEFERRED ACCUMULATED STOCKHOLDERS'
SHARES VALUE CAPITAL FOR-SALE COMPENSATION DEFICIT EQUITY
--------- ----------- ------------- --------------- ----------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT SHARE RELATED DATA)
5,342,518 $ 236 $10 $ (5,929) $ 17,874
275,148 51 51
(383) (1,341)
5,000,000 36,700 36,700
10,093,510 22,599 --
$(15) (15)
(7,610) (7,610)
- ---------- -------- ------- ------ ------ ------------- -------------
20,711,176 59,586 10 (15) -- (13,922) 45,659
79,637 653 653
403,199 73 73
2,775,000 23,179 23,179
6,600 46 46
175 175
292 $(292) --
19 19
(9,712) (9,712)
- ---------- -------- ------- ----- ------ ------------- -------------
23,975,612 83,537 302 160 (273) (23,634) 60,092
2,335,026 23,000 23,000
451 451
123,185 89 89
12,434 113 113
(191) (191)
58 58
(47,660) (47,660)
- ---------- -------- ------- ----- ------ -------------- -------------
26,446,257 $106,739 $753 $(31) $(215) $(71,294) $35,952
- ---------- -------- ------- ----- ------ -------------- -------------
- ---------- -------- ------- ----- ------ -------------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
21
<PAGE>
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994 1995 1996
- ------------------------------------------------------------------------------- --------- ---------- ----------
<S> <C> <C> <C>
(IN THOUSANDS)
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities:
Net loss..................................................................... $ (7,610) $ (9,712) $ (47,660)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization.............................................. 179 406 867
Issuance of common stock in connection with acquisition of technology...... -- -- 23,000
Issuance of common stock and stock options for services.................... 175 478 451
Changes in assets and liabilities:
Decrease (increase) in accounts receivable............................... -- (275) 205
Increase in inventories.................................................. -- (229) (357)
Increase in prepaid expenses and other assets............................ (617) (191) (333)
Increase in accounts payable and accrued expenses........................ 1,097 970 2,519
Decrease (increase) in deferred revenue.................................. 500 1,250 (1,143)
--------- ---------- ----------
Net cash used in operating activities.................................. (6,276) (7,303) (22,451)
--------- ---------- ----------
Cash flows from investing activities:
(Purchases) sales of short-term investments, net............................. 12,465 (38,716) (14,011)
Purchases of fixed assets.................................................... (906) (1,486) (2,647)
(Increase) decrease in other assets.......................................... (436) 72 75
--------- ---------- ----------
Net cash provided by (used in) investing activities...................... 11,123 (40,130) (16,583)
--------- ---------- ----------
Cash flows from financing activities:
Proceeds from issuance of convertible subordinated notes, net of issuance
costs...................................................................... -- -- 66,235
Principal payments on capital lease obligations.............................. (53) (31) (12)
Redemption of Series A redeemable preferred stock............................ (1,341) -- --
Proceeds from issuance of common stock, net of issuance costs................ 36,751 23,297 202
--------- ---------- ----------
Net cash provided by financing activities................................ 35,357 23,266 66,425
--------- ---------- ----------
Net increase (decrease) in cash and cash equivalents........................... 40,204 (24,167) 27,391
Cash and cash equivalents, beginning of period................................. 2,128 42,332 18,165
--------- ---------- ----------
Cash and cash equivalents, end of period....................................... $ 42,332 $ 18,165 $ 45,556
--------- ---------- ----------
--------- ---------- ----------
Supplemental disclosure of cash flow information:
Interest paid................................................................ $ 12 $ 4 $ 1
</TABLE>
The accompanying notes are an integral part of the financial statements.
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
UroMed Corporation, a Massachusetts corporation, was incorporated in October
1990 to develop, manufacture and market products for the management of
urological and gynecological disorders.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation --The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from these estimates.
Cash Equivalents and Short-Term Investments --The Company accounts for
investments in accordance with Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS
115"), which requires that investments in debt and equity securities be
classified as trading, available-for-sale or held-to-maturity. Except for those
debt securities classified as held-to-maturity, securities are reported in the
balance sheet at fair value. Held-to-maturity securities are reported in the
balance sheet at amortized cost. Any unrealized gains and losses on trading or
available-for-sale securities are included in current period earnings or are
reported as a separate component of stockholders' equity, respectively. Upon the
sale of securities (the cost of which are based upon the specific identification
method), realized gains and losses are reported in the statement of operations.
At December 31, 1995 and 1996, all of the Company's investments are classified
as available-for-sale.
The Company invests its excess cash primarily in securities of U.S.
government agencies, high grade corporate debt obligations and money market
funds. These investments are subject to minimal credit and market risks. The
Company considers investments with original maturities of three months or less
to be cash equivalents. All other investments are classified as short-term
investments as they are highly liquid and are available to meet working capital
needs.
Revenue Recognition -- Revenue from product sales is recorded upon shipment
of product to the customer. The Company accrues anticipated product warranty
costs at that time.
Deferred revenue represents fees received by the Company upon the execution
of distribution agreements. Initially, these fees were refundable under certain
conditions and, accordingly, upon receipt they were classified as deferred
revenue. As these amounts become non-refundable, they are recognized as revenue
over a period approximating one year, as commercial quantities of product are
shipped to the distributors.
Concentration of Credit Risk and Major Customers -- At December 31, 1996,
the Company's accounts receivable are predominantly from its European
distributors, potentially exposing the Company to concentration of credit risk.
Management regularly monitors the financial condition of its customers and
believes that it has adequately provided for any exposure to potential credit
losses. The Company does not require collateral.
During the year ended December 31, 1996, revenues from the Company's
distributor for Scandinavia, the United Kingdom and The Netherlands represented
63% of total revenues and revenues from the Company's distributor for Germany
represented 34% of total revenues. During the year ended December 31, 1995,
revenues from the Company's distributor for Germany represented 87% of total
revenues.
Inventories -- Inventories are stated at the lower of cost or market, cost
being determined using the first-in, first-out method. Cost includes material,
labor and manufacturing overhead.
Fixed Assets -- Fixed assets are recorded at cost and depreciated over
the estimated useful lives of the assets using the straight-line method.
Leasehold improvements are depreciated using the straight-line method, over
their estimated useful lives or the term of the lease, if shorter. Additions,
renewals and betterments are capitalized. Repair and maintenance costs are
expensed as incurred.
Financing Costs -- Deferred financing costs, which are included in other
assets, are being amortized over the seven year life of the Company's 6%
Convertible Subordinated Notes using the straight-line method, which
approximates the interest method. Unamortized costs at December 31, 1996 are
$2,683,000.
Net Loss Per Share and Unaudited Pro Forma Net Loss Per Share -- Net loss
per share is determined by dividing net loss attributable to common stockholders
by the weighted average number of common shares outstanding during the period.
All common stock equivalent shares from stock options have been excluded from
the calculation of weighted average number of common shares outstanding since
their inclusion would be antidilutive. Net loss per share was $.46 per share for
the year ended December 31, 1994.
Unaudited pro forma net loss per share is determined by dividing net loss
attributable to common stockholders by the pro forma weighted average number of
common shares outstanding during the period. Unaudited pro forma net loss per
share reflects the conversion of the Series B, C and D convertible preferred
stock that occurred upon, and the redemption of the Series A convertible
preferred stock that occurred before the close of, the Company's initial public
offering of common stock, using the if-converted method.
23
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Reclassifications -- Certain prior year amounts have been reclassified to
conform to the current year financial statement presentation. The
reclassifications had no impact on net loss for these years.
Accounting for Stock-Based Compensation -- In October 1995, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). The Company
adopted this standard during the year ended December 31, 1996 through disclosure
only.
3. ACQUISITION OF TECHNOLOGY
On May 9, 1996, the Company acquired all of the incontinence technology of
the ASI Liquidating Trust, the successor to Advanced Surgical Intervention,
Inc., including the Miniguard-TM- Patch, an FDA-cleared prescription adhesive
patch placed externally against the urethral opening to help block leakage in
women with mild to moderate stress urinary incontinence. The Company purchased
the Miniguard Patch technology for $30.0 million, consisting of $7.0 million in
cash and common stock valued at $23.0 million. The value of the common stock
issued was based on the market value of the common stock for the five day period
preceding the transaction. The acquisition of this incontinence technology has
been accounted for as purchased in-process research and development and, as a
result, the purchase price and related expenses of $0.2 million were charged to
operations in the second quarter of 1996.
4. INVESTMENTS
Following is a summary of available-for-sale investments, by balance sheet
classification (in thousands):
<TABLE>
<CAPTION>
UNREALIZED
AMORTIZED ----------------------
COST GAINS LOSSES FAIR VALUE
-------------- ----------- --------- -----------
<S> <C> <C> <C> <C>
December 31, 1996:
Cash equivalents:
Corporate debt obligations............................... $ 38,741 $ -- $ -- $ 38,741
Money market funds....................................... 6,003 -- -- 6,003
-------------- --- --------- -----------
$ 44,744 $ -- $ -- $ 44,744
-------------- --- --------- -----------
-------------- --- --------- -----------
Short-term investments:
U.S. Government obligations.............................. $ 17,263 -- $ (24) $ 17,239
Corporate debt obligations............................... 38,850 -- (7) 38,843
-------------- --- --------- -----------
$ 56,113 $ -- $ (31) $ 56,082
-------------- --- --------- -----------
-------------- --- --------- -----------
December 31, 1995:
Cash equivalents:
Money market funds......................................... $ 17,859 $ -- $ -- $ 17,859
-------------- --- --------- -----------
-------------- --- --------- -----------
Short-term investments:
U.S. Government obligations.............................. $ 20,114 $ 57 $ -- $ 20,171
Corporate debt obligations............................... 21,988 103 -- 22,091
-------------- --- --------- -----------
$ 42,102 $ 160 $ -- $ 42,262
-------------- --- --------- -----------
-------------- --- --------- -----------
</TABLE>
At December 31, 1996, the fair value of short-term investments having
contractual maturities of one year or less totaled $25,733,000 and the fair
value of short-term investments with contractual maturities greater than one
year but less than two years totaled $30,349,000. The proceeds from sales of
securities amounted to approximately $12,189,000 and $15,853,000 for the years
ended December 31, 1995 and 1996, respectively. Gross realized gains and losses
on these sales were not significant.
5. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1995 1996
- ------------------------------------------------------------------------------ --------- ---------
<S> <C> <C>
Raw materials................................................................. $ 218 $ 279
Work in process............................................................... 12 112
Finished goods................................................................ -- 196
--------- ---------
$ 230 $ 587
--------- ---------
--------- ---------
</TABLE>
6. FIXED ASSETS
Fixed assets consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
USEFUL LIFE --------------------
IN YEARS 1995 1996
----------- --------- ---------
<S> <C> <C> <C>
Machinery and equipment........................................................... 3-4 $ 1,272 $ 1,756
Computer and office equipment..................................................... 3-4 530 2,733
Leasehold improvements............................................................ 7 384 384
Machinery and equipment not yet placed in service................................. -- 533 492
----------- ---------
2,719 5,365
Less--Accumulated depreciation and amortization................................... 677 1,403
----------- ---------
$ 2,042 $ 3,962
----------- ---------
----------- ---------
Fixed assets related to equipment held under capital leases....................... $ 60 $ --
Related accumulated amortization on fixed assets under capital leases............. $ 50 $ --
Amortization expense for fixed assets under capital leases........................ $ 31 $ 10
</TABLE>
7. ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1995 1996
- --------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Clinical trials............................................................ $ 482 $ 631
Professional fees.......................................................... 313 574
Interest................................................................... -- 863
Employee related........................................................... 55 520
Product related............................................................ 5 362
Other...................................................................... 1,200 1,266
--------- ---------
$ 2,055 $ 4,216
--------- ---------
--------- ---------
</TABLE>
24
<PAGE>
NOTES TO FINANCIAL STATEMENTS
8. CONVERTIBLE SUBORDINATED NOTES
On October 15, 1996, the Company completed the sale of $69.0 million of its
6% Convertible Subordinated Notes due October 15, 2003 (the "Notes"), to
qualified institutional buyers in reliance on Rule 144A under the Securities Act
of 1933 and to foreign investors. The Notes are convertible at any time into
shares of common stock of the Company at a conversion price of $13.281 per
share, subject to adjustment under certain circumstances. Interest on the Notes
is payable each year on April 15 and October 15, commencing on April 15, 1997
unless previously converted or repurchased. The Notes are redeemable at the
option of the Company on or after October 15, 1999, at specified redemption
prices plus accrued and unpaid interest to the date of redemption. The Notes are
unsecured obligations of the Company and subordinated to all other Senior Debt
(as defined) of the Company.
9. STOCKHOLDERS' EQUITY
Preferred Stock -- On February 23, 1994, the Company redeemed all of the
outstanding shares of its Series A redeemable convertible preferred stock (par
value $100) at a redemption price of $140 per share. On March 16, 1994, the
effective date of the Company's initial public offering, each share of the
Company's Series B, C and D preferred stock was automatically converted into
1.646 shares of common stock.
The Company has authorized 500,000 shares of $.01 par value preferred stock,
of which none have been issued at December 31, 1996. Preferred stock may be
issued at the discretion of the Board of Directors of the Company with such
designations, rights and preferences as the Board of Directors may in its
discretion determine. Upon issuance, the preferred stock may include, among
other things, extraordinary dividend, redemption, conversion, voting or other
rights which may adversely affect the holders of the common stock.
Common Stock -- On January 14, 1994, the Board of Directors authorized a
1.646-for-1 stock split of the Company's common stock in the form of a stock
dividend. The stock split was effective on January 19, 1994. All common stock,
options and warrants and per share amounts included in the accompanying
financial statements have been adjusted to give retroactive effect to the common
stock split.
On March 16, 1994, the Company completed an initial public offering of
5,000,000 shares of its common stock at a price of $8.00 per share. The net
proceeds to the Company were approximately $36,700,000.
On November 13, 1995, the Company completed a follow-on public offering of
2,775,000 shares of its common stock at a price of $9.00 per share (including
the exercise of the underwriter's overallotment option). The net proceeds to the
Company were approximately $23,179,000.
During the year ended December 31, 1995, the Company issued 79,637 shares of
its common stock in exchange for negotiation services provided by an investment
banking firm in connection with the execution of European distribution
agreements.
At December 31, 1996, the Company has reserved 2,330,612 shares of common
stock for issuance pursuant to exercise of common stock options granted under
the Stock Option Plan, 280,966 shares of common stock for issuance under the
Employee Stock Purchase Plan, and 5,195,391 shares for issuance upon conversion
of the 6% Convertible Subordinated Notes.
10. EMPLOYEE BENEFIT PLANS
Stock Option Plan -- On June 7, 1991, the Company adopted the 1991 Stock
Option Plan (the "Plan") which provides for the granting of either incentive
stock options or non-statutory stock options to employees, officers, directors
and consultants of the Company. The Plan, as amended, allows for a maximum of
3,200,000 shares of common stock to be issued.
The exercise price of any incentive stock option shall not be less than the
fair value of the stock on the date of grant or less than 110% of the fair value
in the case of optionees holding more than 10% of the total combined voting
power of all classes of stock of the Company. Options under the Plan are
exercisable over periods determined by the Board of Directors, not to exceed 10
years from the date of grant, except for incentive stock options granted to
optionees holding more than 10% of the total combined voting power of all
classes of stock, which must be within five years.
Under the Plan, non-employee directors of the Company will receive options
to purchase 20,000 shares of common stock upon their election to the Board of
Directors and, after having served on the Board of Directors for one year,
options to purchase 750 shares of common stock on a quarterly basis, up to a
maximum of 24 grants. All of these option grants are exercisable over a 10 year
period and must have an exercise price equal to the fair market value of the
shares on the grant date.
25
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Option activity for the years ended December 31, 1994, 1995 and 1996 is
summarized as follows:
<TABLE>
<CAPTION>
1994 1995 1996
-------------------------------- ---------------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
YEAR ENDED DECEMBER 31, SHARES PRICE SHARES PRICE SHARES PRICE
- ------------------------------ --------------- --------------- --------------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
period...................... 1,376,633 $ 0.24 1,394,005 $ 1.19 1,268,523 $ 3.11
Granted................... 331,695 $ 4.20 319,650 $ 7.67 461,975 $ 10.25
Canceled.................. (70,079) $ 0.56 (41,933) $ 2.09 (60,455) $ 6.51
Exercised................. (244,244) $ 0.11 (403,199) $ 0.18 (123,185) $ 0.72
--------------- --------------- ----------
Outstanding at end of
period...................... 1,394,005 $ 1.19 1,268,523 $ 3.11 1,546,858 $ 5.31
--------------- --------------- ----------
--------------- --------------- ----------
Options exercisable at end of
period...................... 631,471 $ 0.40 471,803 $ 0.67 598,431 $ 1.39
--------------- --------------- ----------
--------------- --------------- ----------
Weighted average fair value of
options granted during the
period...................... $ 4.68 $ 6.73
--------------- ----------
--------------- ----------
</TABLE>
At December 31, 1996, options to purchase 783,754 shares of common stock
were available for future grants under the Plan.
The following table summarizes information about employee and director stock
options outstanding at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------------------
WEIGHTED
NUMBER AVERAGE WEIGHTED
OUTSTANDING AT REMAINING AVERAGE
RANGE OF EXERCISE PRICES DECEMBER 31, 1996 CONTRACTUAL LIFE EXERCISE PRICE
- -------------------------------------------- ------------------ ------------------ ---------------
<S> <C> <C> <C>
$0.01 to $0.91.............................. 570,500 6.0 $ 0.33
$3.04 to $9.88.............................. 580,558 8.0 $ 5.91
$10.00 to $13.88............................ 395,800 9.1 $ 11.60
------------------
Total....................................... 1,546,858
------------------
------------------
</TABLE>
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE
--------------------------------
NUMBER WEIGHTED
RANGE OF EXERCISE PRICES EXERCISABLE AT AVERAGE
DECEMBER 31, 1996 EXERCISE PRICE
- --------------------------------------------------------------------- ------------------ --------------
<S> <C> <C>
$0.01 to $0.91....................................................... 473,251 $ 0.31
$3.04 to $9.88....................................................... 109,430 $ 4.48
$10.00 to $13.88..................................................... 15,750 $ 12.27
------------------
Total................................................................ 598,431
------------------
------------------
</TABLE>
Fair Value Disclosures -- As discussed in Note 2, the Company has elected
to adopt SFAS 123 through disclosure only. Had compensation cost for the
Company's option plans been determined based on the fair value at the grant
dates, as prescribed by SFAS 123, the Company's net loss and net loss per
share would have been as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995 1996
- ------------------------------------------------------------------------ --------- ----------
<S> <C> <C>
Net loss:
As reported........................................................... ($9,712) ($47,660)
Pro forma............................................................. ($9,912) ($48,620)
Net loss per share:
As reported........................................................... ($ 0.46) ($ 1.87)
Pro forma............................................................. ($ 0.47) ($ 1.90)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes model with the following assumptions used for grants during
the applicable period: dividend yield of 0.0% for both periods; risk-free
interest rates of 5.5% to 6.7% for options granted during the year ended
December 31, 1995 and 5.8% to 6.8% for options granted during the year ended
December 31, 1996; expected option terms of .3 years to 5.8 years for both
periods; and a volatility of .60 for both periods.
26
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Employee Stock Purchase Plan -- On May 19, 1995, the shareholders of UroMed
approved the 1995 Employee Stock Purchase Plan. This plan provides for the
purchase by employees of up to 300,000 shares of common stock at 85% of the fair
market value on the first or last day of the offering period (as defined in the
plan) whichever is lower. During the year ended December 31, 1996, 12,736 shares
were issued under the plan at a range of $8.29 to $11.05 per share. During the
year ended December 31, 1995, 6,600 shares were issued under the plan at $6.91
per share.
401(k) Retirement Plan -- On January 1, 1993 the Company adopted a 401(k)
Retirement Plan (the "401(k) Plan") under Section 401(k) of the Internal
Revenue Code. The 401(k) Plan covers substantially all employees who meet
minimum age and service requirements. The 401(k) Plan is non-contributory on
the part of the Company.
11. INCOME TAXES
The components of deferred income tax benefit (expense) are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994 1995 1996
- ----------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Income tax benefit:
Federal............................................ $ 2,835 $ 3,317 $ 15,497
State.............................................. 830 1,082 4,796
--------- --------- ---------
3,665 4,399 20,293
Change in deferred tax asset valuation allowance..... (3,665) (4,399) (20,293)
--------- --------- ---------
$ -- $ -- $ --
--------- --------- ---------
--------- --------- ---------
</TABLE>
No federal or state taxes were payable in any years as a result of losses
incurred.
Deferred tax assets consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1995 1996
- ------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Deferred tax assets:
Purchased research and development...................................... $ -- $ 11,882
Accrued expenses........................................................ 282 582
Depreciation............................................................ 107 253
Operating reserves...................................................... 130 176
Deferred revenue........................................................ 700 154
Tax credit carryforwards................................................ 1,021 1,383
Net operating loss carryforwards........................................ 8,347 16,353
Other................................................................... 93 190
--------- ---------
Gross deferred tax assets................................................ 10,680 30,973
Deferred tax asset valuation allowance................................... (10,680) (30,973)
--------- ---------
$ -- $ --
--------- ---------
--------- ---------
</TABLE>
A reconciliation between the amounts of reported income tax benefit
(expense) and the amount determined by applying the U.S. federal statutory rate
of 35% to net loss follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994 1995 1996
- --------------------------------------------------------------------------- --------- ---------------- ---------
<S> <C> <C> <C>
Net loss at statutory rate................................................. $ 2,663 $ 3,399 $16,681
State tax benefit, net of federal tax liability........................... 406 600 2,988
Federal and state research and development credits........................ 405 201 292
Non-qualified stock options and warrants.................................. 339 237 82
Nondeductible research and development expenses........................... (123) -- --
Other..................................................................... (25) (38) 250
--------- ---------------- ---------
3,665 4,399 20,293
Benefit of loss not recognized, increase in valuation allowance............ (3,665) (4,399) (20,293)
--------- ---------------- ---------
$ -- $ -- $ --
--------- ---------------- ---------
--------- ---------------- ---------
</TABLE>
The Company has provided a full valuation allowance for deferred tax assets
since there is no assurance that future tax benefits will be realized. As the
Company achieves profitability, these deferred tax assets would be available to
offset future income tax liabilities and expense. Of the $30,973,000 valuation
allowance at December 31, 1996, $790,000 relating to deductions for
non-qualified stock options will be credited to additional paid-in capital upon
realization.
At December 31, 1996, the Company had net operating loss carryforwards for
federal and state income tax reporting purposes of approximately $40,000,000. At
December 31, 1996, the Company had research and development tax credit
carryforwards for federal and state income tax reporting purposes of $965,000
and $418,000, respectively. The federal carryforwards expire between the years
2006 and 2011. The state carryforwards expire between the years 1997 and 2002.
Ownership changes, as defined in the Internal Revenue Code (the "Code"),
have limited the amount of net operating loss and tax credit carryforwards that
can be used annually to offset future taxable income or tax liabilities. The
annual limitation amount as defined in the Code is approximately $8,600,000 and
the net operating loss and tax credit carryforwards subject to this limitation
are approximately $20,900,000 and $802,000, respectively. Future changes in
ownership could further affect the limitation in future years.
27
<PAGE>
NOTES TO FINANCIAL STATEMENTS
12. COMMITMENTS
Leases --The Company leases its present office and manufacturing space under
operating leases which expire on various dates through 2001. These leases
contain options to extend the initial lease terms for additional periods of one
to five years. In connection with one of the leases, the Company provided a
security deposit to a landlord of $514,000 in consideration of tenant
renovations made by the landlord. Such deposit is being held in escrow and will
be returned to the Company at the rate of $36,750 each six-month period during
the lease term. Total rent expense under operating leases was approximately
$231,000, $334,000 and $390,000 for the years ended December 31, 1994, 1995 and
1996, respectively.
Future minimum payments for the operating leases as of December 31, 1996 are
as follows (in thousands):
<TABLE>
<S> <C>
1997......................................................... $ 382
1998......................................................... 341
1999......................................................... 357
2000......................................................... 357
2001......................................................... 357
---------
Total minimum lease payments................................. $ 1,794
---------
---------
</TABLE>
Purchase Commitments -- At December 31, 1996, the Company had outstanding
commitments of approximately $5,000,000 for the purchase of additional machinery
and equipment, against which advance and milestone payments of approximately
$500,000 have been made.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of UroMed Corporation
In our opinion, the accompanying balance sheet and the related statements of
operations, of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of UroMed Corporation at December
31, 1996 and 1995, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/Price Waterhouse LLP
Price Waterhouse LLP
Boston, Massachusetts
February 17, 1997
28
<PAGE>
Consent of Independent Accountants
To the Board of Directors of
UroMed Corporation
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statements on Form S-3 (No. 33-95828,
No. 333-03843 and No. 333-19581) and the incorporation by reference in the
Registration Statements on Form S-8 (No. 33-98262 and No. 33-98264) of UroMed
Corporation of our report dated February 17, 1997, appearing on page 28 of
the 1996 Annual Report to Shareholders which is incorporated in this Annual
Report on Form 10-K. We also consent to the incorporation by reference of our
report on the Financial Statement Schedule, which appears on page 44 of this
Form 10-K.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Boston, Massachusetts
March 27, 1997
<PAGE>
Schedule VIII
UROMED CORPORATION
Valuation and Qualifying Accounts and Reserves
Balance at Charged to Balance at
beginning costs and end of
Description of period expenses Deductions period
Allowance for uncollectible
accounts
Year ended December 31, 1996 $ 21,000 $ 15,000 -- $ 36,000
Year ended December 31, 1995 -- $ 21,000 -- $ 21,000
Reserve for inventory valuation
Year ended December 31, 1996 $530,000 $466,000 ($77,000) $919,000
Year ended December 31, 1995 -- $530,000 -- $530,000
Note: During the year ended December 31, 1994, the Company did not have an
allowance for doubtful accounts or a reserve for inventory valuation.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE BALANCE STATEMENT
OF OPERATIONS FILED AS PART OF THE ANNUAL REPORT ON FORM 10-K QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH ANNUAL REPORT ON FORM 10
</LEGEND>
<CIK> 0000917821
<NAME> UROMED-CORP.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 45,556
<SECURITIES> 56,082
<RECEIVABLES> 106
<ALLOWANCES> 36
<INVENTORY> 587
<CURRENT-ASSETS> 103,549
<PP&E> 5,365
<DEPRECIATION> 1,403
<TOTAL-ASSETS> 110,488
<CURRENT-LIABILITIES> 5,536
<BONDS> 69,000
0
0
<COMMON> 106,739
<OTHER-SE> (70,787)
<TOTAL-LIABILITY-AND-EQUITY> 110,488
<SALES> 2,622
<TOTAL-REVENUES> 2,622
<CGS> 5,110
<TOTAL-COSTS> 52,881
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (863)
<INCOME-PRETAX> (47,660)
<INCOME-TAX> 0
<INCOME-CONTINUING> (47,660)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (47,660)
<EPS-PRIMARY> (1.87)
<EPS-DILUTED> (1.87)
</TABLE>
