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, 1999
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.)
1400 Providence Highway, Norwood, Massachusetts 02194
(Address of principal executive offices)
(781) 762-2080
(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
[including the related Preferred Stock Purchase Rights]
(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 March 10, 2000, the aggregate market value of the registrant's common
stock, no par value ("Common Stock"), held by non-affiliates of the registrant
was $30,485,153 based on 4,645,003 shares held by such non-affiliates at the
closing price of a share of Common Stock of $6.563 as reported on the Nasdaq
SmallCap 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 529,559 shares of the 5,174,562 shares of Common Stock outstanding
on such date. On March 10, 2000, the registrant had outstanding a total of
5,174,562 shares of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for its Special Meeting
of Stockholders to be held on May 12, 2000 to be filed with the Securities and
Exchange Commission on or prior to March 30, 2000 (the "2000 Proxy Statement"),
are incorporated by reference into Part III of this Annual Report on Form 10-K.
With the exception of the portions of the 2000 Proxy Statement expressly
incorporated into this Annual Report on Form 10-K by reference, such document
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
<TABLE>
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Item Page
<S> <C> <C>
Part I
1 Business 3
2 Properties 17
3 Legal Proceedings 18
4 Submission of Matters to a Vote of Security Holders 18
Part II
5 Market For Registrant's Common Stock
and Related Stockholder Matters 18
6 Selected Financial Data 19
7 Management's Discussion and Analysis of
Financial Condition and Results of Operations 21
8 Financial Statements and Supplementary Data 28
9 Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure 46
Part III
10 Directors and Executive Officers of the Registrant 46
11 Executive Compensation 46
12 Security Ownership of Certain
Beneficial Owners and Management 46
13 Certain Relationships and Related Transactions 46
Part IV
14 Exhibits and Financial Statement Schedules 47
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CaverMap(R) Surgical Aid, Symmetra(TM) Iodine-125 seeds, Impress(TM)
Softpatch, and INTROL(R) Bladder Neck Support Prosthesis are trademarks and
registered trademarks of UroMed Corporation. All other trademarks and trade
names referred to in this report are the property of their respective owners.
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PART I
Item 1. Business
General
The Company is dedicated to establishing itself as a leader in providing
interventional urological products, with primary emphasis on the treatment of
prostate cancer. The Company seeks to market a portfolio of products including
its two main proprietary products for the treatment of prostate cancer: the
CaverMap Surgical Aid, available to aid physicians in preserving vital nerves
during prostate cancer surgery, and the Symmetra Iodine-125 ("I-125")
radioactive seeds used in a brachytherapy procedure to treat localized prostate
cancer. The Company's product portfolio also includes brachytherapy introducer
needles. UroMed also continues to dedicate resources to the development and/or
acquisition of product lines that fit into its strategic platform.
The CaverMap Surgical Aid is an innovative new product in the field of
urological surgery. The CaverMap Surgical Aid is used in radical
prostatectomies, or surgical removal of the prostate, to assist the physician in
locating and avoiding nerves. If the physician avoids cutting nerves, certain
adverse side effects such as impotence and incontinence may be avoided. The
Company believes that, because of the highly proprietary nature of CaverMap, it
is uniquely positioned to offer physicians the opportunity to optimize both
surgical and brachytherapy for prostate cancer treatment.
The Company received regulatory clearance by the FDA in November 1997 to
market the CaverMap Surgical Aid in the U.S for use in prostate cancer surgery.
In February 2000, the U.S. Food and Drug Administration (FDA) cleared the
CaverMap Surgical Aid for U.S. marketing and distribution for use in colorectal
surgery in men. The CaverMap Surgical Aid will be used to assist surgeons in
performing colorectal cancer surgery in identifying and sparing sensitive nerves
responsible for erectile function.
The Symmetra I-125 seed was cleared by the FDA for marketing in the United
States in May 1999. The Symmetra seed is a proprietary Iodine-125 permanent seed
implant designed to be similar to the market leading prostate seed implant in
dosimetry, outer dimensions and biocompatibility. UroMed's manufacturing partner
in the brachytherapy seed business is Bebig Isotopentechnik und Umweltdiagnostik
GmbH of Berlin, Germany ("Bebig"). Under UroMed's agreement with Bebig, Bebig
developed the implant and UroMed has the exclusive license rights for six and
one-half years to market and distribute the Bebig implant in North America and
South America and non-exclusive rights elsewhere in the world.
Markets
A. Prostate Cancer
UroMed is positioned to address the needs of the prostate cancer market by
reason of its two complementary product offerings: the CaverMap Surgical Aid,
used to map and monitor the cavernosal nerves during a radical prostatectomy,
and the Symmetra I-125 seeds, used in a brachytherapy procedure to treat
localized prostate cancer. UroMed has a distinctive approach in focusing its
efforts on prostate cancer with product offerings addressing the two largest
therapeutic segments of the market for prostate cancer treatments.
Prostate cancer is the most frequently diagnosed cancer in American males.
The wide-spread adoption of prostate-specific antigen ("PSA") testing is largely
responsible for an increase in the age-adjusted incidence of prostate cancer
over the past decade.
Until recently, the American Cancer Society and other health organizations
predicted a continued rise in prostate cancer incidence in the U.S., with
predictions of the number of annual cases as high as 300,000 to 350,000 by the
year 2000. However, the incidence rate peaked in 1992 at 191 per 100,000 and
declined each year from 1993 through 1995. This decrease in incidence rate is
believed to be due to the "cull" effect associated with the advent of the PSA
test. A significant improvement in the sensitivity of a diagnostic test
generally leads to an increased number of detected cases of the disease that the
test is designed to detect. Once these cases clear the system, rates generally
fall back down to a level similar to that seen before the improved test. That
appears to be the case with the PSA test and the incidence rate of prostate
cancer. The American Cancer Society now estimates there will be 180,400 new
cases in the U.S. during 2000. Prostate cancer can be fatal if not treated early
and comprehensively. In 2000, an estimated 31,900 Americans will die from the
disease - the second leading cause of cancer death in men.
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Decisions about which treatment to pursue are made by the patient and the
physician, usually a urologist, based on the localization of the cancer, the age
and overall health of the patient, and risks and benefits ascribed to each
treatment protocol. When cancer has spread beyond the prostate, the patient is
usually guided toward chemotherapy and radiation therapy. For those with
localized cancer of the prostate, about 60% of those diagnosed, the treatment
options include:
o Radical Prostatectomy: the surgical removal of the prostate and some of
the surrounding tissue. Impotence and urinary incontinence are potential
complications.
o External Beam Radiation Therapy: the use of high-energy x-rays to kill
cancer cells and shrink tumors. Radiation is administered from machines
outside the body. This treatment requires daily visits for a period
of 6-8 weeks. Impotence and incontinence occur slightly less often than
after Radical Prostatectomy surgery, but damage to the rectum is a
potential complication.
o Brachytherapy Radiation Therapy: an alternative method of radiation
treatment, where sealed sources of various radioisotopes are implanted
in the prostate to kill the cancer cells during a one and one-half hour
outpatient procedure. This procedure is discussed in more detail below.
o Watchful Waiting: careful observation without further immediate
treatment. This is considered an appropriate option for men who have less
aggressive tumors, are older than 70, or have significant co-existing
illnesses.
o Hormone Therapy: manipulating hormone levels to inhibit cell growth. To
cause cancer cells to shrink, patients may be given LHRH-agonists, which
decrease the amount of testosterone in the body, or antiandrogens, which
block the activity of testosterone. These drugs are often used to shrink
the size of the prostate gland in preparation for additional therapies such
as brachytherapy or surgery.
o Other Treatment Options: includes other experimental procedures.
Each of these options has advantages and disadvantages. In recent years,
patient demand has fueled very high growth in rates of prostate brachytherapy,
even though the total number of new prostate cancer cases has decreased. The
two treatment options that the Company is focused on are:
1. Brachytherapy
The permanent implant brachytherapy procedure involves the permanent
placement of 65 to 120 tiny pellets or "seeds" containing radioactive material
into the prostate surgically. A therapeutic dose of radiation is delivered
locally to the tumor and prostate tissue, while minimizing radiation dosage to
the surrounding tissues. Some brachytherapy treatments are complemented with
external beam radiation therapy ("EBRT"). The concept of using small radiation
sources to treat cancer was introduced about a century ago, but it began to show
promise for treating prostate cancer only in the last decade.
The permanent brachytherapy implant procedure has been growing
significantly. The procedure provides patients with a minimally-invasive
alternative to surgical removal of the prostate or EBRT, both of which may have
higher costs and higher rates of complication, including incontinence and
impotence.
The Company believes that almost 36,000 brachytherapy procedures were
performed in the U.S. in 1999, accounting for 30% of all therapy for localized
(treatable) prostate cancer. We believe that the number of procedures utilizing
this therapy will continue to grow.
Two different isotopes are used in brachytherapy procedures for prostate
cancer, iodine-125 (I-125) and palladium-103 (Pd-103). The two isotopes have
similar characteristics, and there is no clinical evidence that favors one
isotope over the other. I-125 has a slightly higher energy photon, which means
it is slightly more penetrating, depositing its energy over a longer distance.
Palladium has a lower energy, and a shorter half-life, which allows more
radioactivity to be used in each seed with less damage to surrounding tissue.
Many physicians use palladium with cancers that they believe are faster growing.
Market data suggests that the split between iodine and palladium seed use in
1999 for brachytherapy for prostate cancer treatments is roughly 60% iodine and
40% palladium.
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2. Radical Prostatectomy
In 1999, there were approximately 80,000 radical prostatectomies performed
in the United States. Of this amount, approximately 48,000 were nerve-sparing
radical prostatectomies ("NSRP"), which comprised approximately 60% of all
radical prostatectomies performed. In 100 hospitals that are performing more
than 100 prostatectomies annually, over 11,000 radical prostatectomies were
performed in 1999. Of those, 8,400, or approximately 75%, were NSRP.
Radical prostatectomy is considered to be the preferred treatment for
patients with localized prostate cancer, and it offers patients the greatest
chance for long term survival. Excellent cure rates have been obtained with
radical prostatectomy in patients with localized tumors. However, many patients
refuse the radical prostatectomy surgical option because of fears of potential
complications, including erectile dysfunction and urinary incontinence.
The most common cause for erectile dysfunction after radical prostatectomy
is intra-operative injury to the neurovascular bundles and nerve branches. These
nerve structures are susceptible to injury at several points during the surgical
procedure, when they are pulled, stretched, transected or possibly excised.
Dr. Patrick C. Walsh, Chairman of the Brady Urological Institute of Johns
Hopkins, is credited with developing and introducing a modified approach to the
traditional radical prostatectomy. His modified surgical approach reduced
overall morbidity associated with the operation by making it possible to spare
the cavernosal neurovascular bundles responsible for erectile function in most
patients. In patients with localized prostate cancer, NSRP has been shown to
provide effective cancer control with a minimal occurrence of associated
complications.
The reported incidence rate of erectile dysfunction after NSRP ranges from
30 to 90%. This wide range is likely due to variations in the skill of the
surgeon, challenging anatomy, and the patient/physician post-surgical reporting
process. Physicians and patients consider erectile dysfunction as a significant
complication in determining the most appropriate course of treatment for their
disease. In January of 2000, the Journal of the American Medical Association
(JAMA) published an article on the complications following a radical
prostatectomy. The article concludes that the radical prostatectomy is
associated with significant (59.9%) erectile dysfunction. The authors state that
knowledge of these results may be particularly helpful to community-based
physicians and their patients with prostate cancer who face difficult treatment
options.
Erectile dysfunction is no longer a "behind closed doors" discussion
subject. It has become a major discussion topic of the American public, and is
widely recognized as a problem with drastic effects on quality of life. The
introduction of Viagra has helped to bring the discussion of erectile
dysfunction into mainstream daily conversation. Hundreds of thousands of
patients, who previously did not discuss their impotence problems, are now
seeking relief from erectile dysfunction with Viagra. As a result of Viagra,
physician visits are increasing and it is estimated that PSA testing could
increase as a result. The Company believes the general awareness level of Viagra
will drive patients to be more aware of erectile dysfunction and potentially
enhance nerve sparing procedure volume over time.
B. Colorectal Cancer Surgery
According to the American Cancer Society, colorectal cancer is the third
most common cancer in the U.S. with 129,000 cases diagnosed in 1999,
approximately 60% of which were in men. Seventy-three percent of newly diagnosed
colorectal cancers occur in persons aged 65 and older. Colorectal cancer
incidence increased from 1973 through 1985 particularly in men and then
decreased through 1995. The reasons for this trend are not well understood.
However, increased polyp removal, advances in treatment protocols, newer
surgical techniques, and changes in population dietary patterns may be
contributing factors.
Treatment options for colorectal cancer depend on the size and location of
the tumor and the stage of diagnosis. Colorectal cancers are treated using three
main approaches:
o Surgery - removal of the tumor and nearby tissues including lymph
nodes.
o Radiation therapy - use of high energy rays to kill cancer cells
o Chemotherapy - use of drugs that kill cancer cells throughout the body.
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Surgery is the primary treatment for colorectal cancer. Unfortunately,
impotence is a common complication as sensitive nerve bundles are sometimes
damaged. The CaverMap Surgical Aid may help colorectal cancer surgeons identify
the location of these nerve bundles, and, in doing so, may aid in the
preservation of sexual function for their patients.
Products
A . Symmetra I-125 Seeds
The UroMed seed ("Symmetra") is a proprietary I-125 permanent radioactive
seed implant. The Symmetra I-125 seed was designed to meet or exceed established
radioactive standards for sealed radioactive sources.
The Symmetra I-125 seed was cleared by the FDA for marketing in the United
States in May 1999. The Company began commercial selling efforts for this
product during the third quarter of 1999.
UroMed entered into agreements with Bebig and Isotope Products Laboratories
Inc. of Burbank, California ("IPL") in March of 1998 as a means of entering into
the brachytherapy business. Under the terms and conditions of the Company's
agreement with Bebig, Bebig developed a brachytherapy implant to which UroMed
has an exclusive license to market and distribute in North America and South
America (and non-exclusive rights elsewhere in the world) for a period of six
and one-half years from the date Bebig is first capable of producing the implant
at certain levels. The Company's agreement with IPL, a subsidiary of Bebig,
calls for IPL to distribute the Symmetra seeds in the United States for the term
of the production agreement between the Company and Bebig.
The Company has the capability to ship product directly to customers from
the facilities at Bebig and IPL. The Company along with Bebig has the ability to
warehouse product both at the Bebig and the IPL facilities.
B . UroMed Prostate Seeding Needles
The Company offers introducer needles for brachytherapy use. These needles
were commercially available beginning in the fourth quarter of 1998.
There are two types of implant needles used for a brachytherapy treatment
for prostate cancer that the Company offers. The first is a pre-loaded needle,
where the practitioner pre-loads the needles with the correct number of seeds
per the treatment plan. The second type of needles, called "Mick" needles
involves use of a Mick seed implant device, a registered trademark of Mick
Nuclear, Inc.
C . CaverMap Surgical Aid
The CaverMap Surgical Aid was cleared by the FDA for marketing for prostate
cancer surgery in men in the United States in November 1997. The Company began
commercial selling efforts for this product during the second quarter of 1998.
The CaverMap Surgical Aid was cleared by the FDA for marketing for colorectal
cancer surgery in men in February 2000.
The CaverMap Surgical Aid is a new product in the field of urologic
surgery. This product is the first tool of its kind, developed to address the
surgical needs of the physician during the "nerve location and sparing" segment
of the radical prostatectomy. Advances in nerve stimulation techniques coupled
with real-time feedback tumescence monitoring developed by UroMed can assist the
physician in the identification, mapping and preservation of the neurovascular
bundles during NSRP. The system consists of a control unit, reusable probe
handle, disposable probe tip, disposable tumescence sensor and related patient
and ground leads. The CaverMap Surgical Aid is used intraoperatively during the
procedure by the physician to stimulate the cavernosal nerves and measure minute
changes in tumescence of the penis. The physician uses the device to map the
course of the nerves and then uses this information to aid his dissection plan.
If the physician can perform the dissection without damage to the cavernosal
nerves, we believe that post-operative potency rates will improve.
Two clinical studies have been undertaken to evaluate the CaverMap device.
A single-center clinical study was undertaken by Dr. Laurence Klotz of
Sunnybrook Health Science Centre in Toronto, Canada to determine the feasibility
of using intraoperative nerve stimulation and real time penile tumescence
monitoring to guide the physician's dissection during NSRP. Erectile function
prior to surgery and during a one year period following surgery was assessed by
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patient self-reporting. Nineteen patients who reported erectile function prior
to surgery had one-year follow-up data available. A response to nerve
stimulation was elicited in seventeen of these nineteen patients. Sixteen of the
17 patients (94%) who demonstrated a response to stimulation during surgery
reported recovery of partial or full erectile function during the one year
period following surgery. The two patients who showed no response to
intra-operative nerve stimulation reported no erectile function following
surgery. This experience contrasted sharply with the investigator's prior
historical experience of 30% erectile function, leading him to conclude that the
use of CaverMap could significantly improve outcomes for patients. No adverse
events were reported that related to the use of the device. Dr. Klotz and five
other Canadian centers also undertook a multi-center study involving 61 patients
undergoing radical prostatectomy for early stage prostate cancer. The CaverMap
product was used intraoperatively to help locate the cavernous nerve during
NSRP. Use of the CaverMap Surgical Aid in this multi-center study led to a 30%
improvement in "successful" bilateral nerve sparing patients when compared to
the control group patients. Many patients have been able to return to a normal
life, experiencing minimal complications post-operatively. This preliminary data
was presented at the 93rd annual meeting of the American Urological Association
meeting on June 2, 1998.
The Company now has an installed base of CaverMap control units in
approximately 110 accounts performing radical prostatectomies in the United
States. Many of these accounts are surgical centers that perform colorectal
cancer surgery as well. The Company's initial strategy is to expand the
colorectal application of CaverMap to these centers.
D. Allosource Cadaveric Fascia Kits
The first area in the urologic community in which the Company developed
customer relationships is female urinary incontinence. The Company is presently
in this market with the offering of Allosource Cadaveric fascia. The fascia is
used during a surgical procedure to treat stress urinary incontinence. The
Company has competed in the fascia market since 1998, and is supplied its fascia
through a supply agreement with Allosource of Denver, Colorado.
Competition and Market Dynamics
The largest changes in the brachytherapy for prostate cancer marketplace in
the last few years has been the new product offerings in both iodine and
palladium seeds. The Company believes that new products will continue to affect
the market in 2000.
At the end of 1999, there were five companies supplying brachytherapy seeds
for prostate cancer treatment in the United States, including UroMed. Six new
competitors are expected to launch products in 2000.
The Company believes Nycomed Amersham was the market leader in iodine seed
for prostate cancer in 1999. Johnson & Johnson Indigo distributes Theragenics
Corporation's "Theraseed" product which competes and was the market leader in
the palladium area of the seed prostate cancer market in 1999. Other competitors
are Mentor Corporation, which distributes an iodine seed manufactured by North
American Scientific, and Imagyn Corporation which began competing in the iodine
seed market during 1999.
Although the Company anticipates additional entries into the brachytherapy
seed market given the tremendous growth projected for this market, the Company
believes that the number of additional entries may perhaps be limited because of
the barriers to entry such as the long lead time required for regulatory review,
and experience required to design, evaluate, and manufacture a sealed
radioactive source of this size in substantial quantities.
The Company is not aware of any products that directly compete with the
CaverMap Surgical Aid. However, competition exists in the form of other
treatments and therapies for prostate and colorectal cancers, as noted in the
"Markets" section above.
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Marketing and Sales
A. Initial Positioning as "Prostate Cancer Leader"; Build on Prostate Cancer
Base
UroMed's near term marketing strategy is to position itself as the leader
in providing innovative treatment options for prostate cancer with urology
department heads and the prostate cancer teams located at the large academic
centers and community hospitals treating the vast majority of the prostate
cancer patients in the United States. Given the Company's offerings in the
largest therapeutic segments of the prostate cancer market, the Company believes
that it is able to take a more comprehensive approach to the treatment of
prostate cancer than any of its competitors.
In the longer term, the Company intends to leverage its customer
relationships and its core technologies to expand into other interventional
therapeutic areas outside of prostate cancer. If such expansion requires
distribution outside of the urology/radiation oncology markets, UroMed intends
to gain such distribution through corporate partnerships and strategic
alliances.
B. Marketing Strategy
UroMed is dedicated to establishing itself as a leader in the innovative
treatment of prostate cancer with the introduction of the CaverMap device. There
are four elements to the Company's marketing strategy for CaverMap: (1) build a
strong clinical data base and gain endorsement for the product from leaders in
the field of urology as a potential standard of care; (2) establish broader
clinical education and experience in favor of the product, (3) generate patient
awareness of and demand for the product, and (4) secure favorable reimbursement
for use of the device from insurers, managed care organizations and other health
care industry participants.
Sales Strategy and Organization
The sales organization currently consists of seven sales representatives
reporting to the Vice President of Sales and one national accounts manager for
brachytherapy reporting to the brachytherapy product manager. The sales
representatives and brachytherapy national accounts manager are currently
responsible for selling the CaverMap device, the Symmetra I-125 seeds, and the
UroMed Prostate Seeding Needles. The efforts in selling all products are
supported by an aggressive effort on the part of the Symmetra and CaverMap
product managers and members of the senior management team.
Research and Development/Business Development
The Company has developed a three-pronged approach to research and
development and business development. Strategically, the Company is focusing on
(1) sustaining Research and Development, which includes a focus on supporting
the CaverMap device, the Symmetra I-125 seeds and the Company's other existing
products from a technical perspective; (2) future projects, which are currently
slated for the year 2001 or beyond but which may be moved up as resources become
available or market needs dictate; and (3) opportunistic product licensing
opportunities which leverage our growing customer relationships. The Company
believes that this focused approach to expanding the UroMed portfolio should
position the Company as a leader in prostate cancer therapies.
Manufacturing: Virtual Manufacturing Strategy
Currently, all of the UroMed product components are procured from outside
vendors with final testing and acceptance occurring at UroMed's facility in
Norwood, Massachusetts. All orders for UroMed's products are taken through
UroMed's customer service organization and finished products are shipped
directly to medical institutions. Two engineers are on-call 24 hours a day to
provide technical support for these products.
Bebig designed and built an automated brachytherapy seed manufacturing line
for production capacity at a rate of 200,000 units per single shift based on its
proprietary technology, at its facility in Berlin, Germany.
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Medical Office-Based Products
The Company has developed and acquired office-based products and technology
in the market for continence care. The Company has capitalized on these products
and technologies via strategic alliances with larger, more established
companies. On July 21, 1999, UroMed Corporation entered into an agreement to
sell global rights to its Impress Softpatch technology and assets to Procter &
Gamble. Under the agreement, UroMed received $3.3 million in cash at closing and
will receive an additional $150,000 in cash payments each year for a four-year
period commencing on July 21, 2000. In addition and under certain conditions,
UroMed may receive additional cash consideration in the future in the form of
royalty and other payments. The Company recorded a gain of $0.7 million as a
result of this transaction in 1999. 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
urinary incontinence patients. The Impress Softpatch technology was acquired
from the successor to Advanced Surgical Intervention, Inc. in May 1996.
During April 1997, the Company acquired the product line, all associated
license rights and all other rights of Johnson & Johnson Medical, Inc. and
certain of its affiliates to the INTROL Bladder Neck Support Prosthesis
("INTROL"). The INTROL, cleared for Rx marketing in the U.S. by the FDA in May
of 1995, is a patented intravaginal device which is designed to elevate the
bladder neck to its normal anatomical position, simulating the effect of bladder
neck suspension surgery. The Company initially serviced the small group of
physicians who had been trained and were involved in limited post-FDA clearance
marketing of INTROL. The Company initiated a broader United States launch of
INTROL to healthcare practitioners in 1997. In July 1998, the Company announced
the signing of an agreement with Johnson & Johnson Medical K.K. ("JJMKK "), a
subsidiary of Johnson & Johnson, giving JJMKK the exclusive right to distribute
the Company's INTROL in Japan. The agreement has a term of three years.
Breast Cancer
In October 1997, the Company unveiled a technology designed to help women
and their doctors detect suspicious lumps - often the early sign of breast
cancer. This technology is currently being developed by the Assurance Medical,
Inc. The Assurance Medical operations were part of UroMed through April 15,
1999. On April 15, 1999, the Company completed the "spin-out" of this technology
into a new, private company, Assurance Medical, Inc. ("Assurance"). In
conjunction with this spin-out, Assurance received $8.0 million in equity
financing from two healthcare venture capital firms and the Company contributed
its breast cancer screening technology to Assurance in exchange for an
approximately one-third equity position. As a result of this transaction, the
Company no longer has to fund the development of this technology. The Company is
hopeful that it will eventually share in the benefits related to this technology
via its equity interest in Assurance, although there can be no assurance that
the Company will be able to do so. The transaction did not have a material
impact on UroMed's financial position or results of operations. Because the
Company's recorded investment in Assurance is zero and the Company does not
intend to provide additional funding to Assurance, the Company has not recorded
its share of Assurance's net loss since the spin-out.
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.
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. 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.
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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.
Prostate Cancer
The Company presently holds an exclusive license for two issued United
States patents. A third United States patent has been issued for the CaverMap
Surgical Aid. The first two United States patents have been licensed from the
Brigham and Women's Hospital with exclusive rights to the Company. The third
United States patent is held jointly by the Company and Brigham and Women's
Hospital. International patent applications are pending as well. The Company
believes that the issued patents and allowed claims which cover both method and
device are a competitive advantage for the Company. The Company has filed or is
in the process of filing additional patents pertaining to the CaverMap Surgical
Aid.
Bebig has filed a patent for their Iodine-125 seed design, which UroMed
will market as the Symmetra I-125 seed. Under the terms of its agreement with
Bebig, UroMed will have exclusive license rights to market and distribute this
seed in North America and South America for a period of six and one-half years
from the date Bebig is first capable of producing the seed. UroMed has filed
patents pertaining to the packaging of its Symmetra seed.
Regulatory
Prostate Cancer
The Company received regulatory clearance by the FDA in November 1997 to
market the CaverMap Surgical Aid in the U.S. The clearance was through a 510(k)
application and the pre-clinical and clinical testing included a variety of
tests.
In February 2000, the U.S. Food and Drug Administration (FDA) cleared the
CaverMap Surgical Aid for U.S. marketing and distribution, through a 510(k)
application, for use in colorectal surgery in men. The CaverMap Surgical Aid
will be used to assist surgeons in performing colorectal cancer surgery in
identifying and sparing sensitive nerves responsible for erectile function.
The Company received regulatory clearance by the FDA in May 1999 to market
the Symmetra I125 seed for a brachytherapy treatment in the U.S. The clearance
was through a 510(k) application.
Office-Based Continence Care Products
FDA clearance to market the Impress Softpatch was granted in May 1996 on
the basis of a 510(k) Notification application originally filed, based on the
clinical trial data compiled, by Advanced Surgical Intervention, Inc. in
September 1995.
The INTROL was cleared for marketing in the United States by the FDA in May
1995 through a 510(k) application filed by Johnson & Johnson Medical, Inc. A
clinical trial was conducted to support the safety and effectiveness of the
INTROL for the treatment of stress urinary incontinence.
10
<PAGE>
Government Regulation
The CaverMap Surgical Aid, the Symmetra I-125 seeds, and the INTROL, 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
and surgical 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 "Quality System Regulation."
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 safety and efficacy, generally life-sustaining, life-supporting or
implantable devices, and also include all new or not substantially equivalent
devices introduced after May 28, 1976.
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.
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.
11
<PAGE>
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 Quality System Regulation. The Company's facility in Norwood,
Massachusetts, was registered with the FDA and successfully passed an
inspection. 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.
Employees
As of December 31, 1999, the Company employed approximately 34 individuals
on a permanent basis.
None of the Company's employees are covered by collective bargaining
agreements.
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 CaverMap Surgical Aid, the Symmetra I-125
brachytherapy seed and introducer needle including the timing and extent of
sales, (ii) the continued marketing activities for the commercial launch of the
Symmetra I-125 brachytherapy seeds, (iii) the Company's planned uses for its
cash and other liquid resources, (iv) 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 the
development of partnerships and/or strategic alliances for all incontinence and
breast care products and related assets and technology, and (v) the risk of the
Company's dependence on Bebig to manufacture the Symmetra I-125 seeds and the
Company's dependence on Symmetra's overall contribution to the Company's
operations. 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 CaverMap Surgical Aid and Symmetra I-125 seeds
will gain market acceptance among physicians in the United States.
- - The uncertainty that the Company will be able to develop and maintain
an effective sales force and implement a successful marketing campaign
for the CaverMap Surgical Aid and the Symmetra I-125 brachytherapy
seed in the United States.
- - The Company's dependence on others, including Bebig, for its products
and raw materials and other certain components of its products,
including certain materials available only from single sources.
- - The uncertain protection afforded the Company by its patents and/or
other intellectual property rights relating to the Company's products.
- - The uncertainty as to whether the Company will be able to 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 and 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.
- - The uncertainty of the size of the potential markets of the Company's
products.
12
<PAGE>
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:
Cashflow and Convertible Notes
There can be no assurance that the Company will generate sufficient cash
flow to pay interest and principal on its 6% Convertible Subordinated Notes due
October 15, 2003 (the "Notes"), of which $17,393,000 aggregate principal amount
was outstanding at December 31, 1999. The Company expects its operating losses
to increase over the foreseeable future and there can be no assurance that the
Company will be have sufficient cash available or will be able to raise
sufficient cash to pay the principal of the Notes at October 15, 2003.
Limited Operating History; History of Losses; Profitability Uncertain
The Company has experienced significant operating losses since inception
and, as of December 31, 1999, had an accumulated deficit of $104.1 million. The
Company has never successfully commercialized any of its products. In addition,
the development and commercialization by the Company of its products 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. 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.
Nasdaq SmallCap Continued Listing
The Company is presently subject to the continued listing requirements of
the Nasdaq Small Cap exchange. There can be no assurance that the Company will
be able to continue to meet these continued requirements. There can also be no
assurance that any de-listing from the Nasdaq SmallCap exchange will not have a
material adverse effect on the liquidity and value of the Company's stock.
Uncertainty of Market Acceptance for the Company's Products
The CaverMap Surgical Aid and the Symmetra I-125 seeds will be competing
against existing treatments and competing products in the prostate cancer
market. There can be no assurance of the market acceptance of these products.
Dependence on Bebig for Symmetra I-125 Seed Manufacturing
The Company expects to derive a substantial portion of its revenues for the
next several years from sales of the Symmetra I-125 Seed. The Company presently
has a production agreement in place with Bebig to produce the Symmetra seed for
six and one-half years. Any interruption in the Symmetra seed manufacturing
process would have a material adverse effect on the Company's business,
financial condition and results of operations.
Dependence on Few Products
The Company expects to derive a substantial part of its revenues for the
next several years from sales of the CaverMap Surgical Aid and the Symmetra
I-125 seeds. The Company's failure to commercialize successfully 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 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.
13
<PAGE>
Dependence on Others for Products and Raw Materials
The Symmetra seed is supplied solely by Bebig and certain of the raw
materials for the manufacture and assembly of the CaverMap Surgical Aid are
available only from single sources and are manufactured by third parties.
Interruptions in supplies of raw materials 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. Significant interruption in the
supply of raw materials currently used by the Company for its products could
have a material adverse effect on the Company's business, financial condition
and results of operations.
Lack of Marketing and Sales Experience
Although the FDA has cleared the CaverMap Surgical Aid and the Symmetra
I-125 seed for brachytherapy treatments in the United States, the Company has
sold only limited amounts of these products. The Company has developed a direct
marketing and sales group in the United States for its products. 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 CaverMap Surgical Aid and the Symmetra I-125 seeds,
or any future product developed by the Company.
Lack of Distribution Experience
The Company has limited experience in distributing units of its products to
its ultimate consumers. The Company ships all CaverMap related products directly
from its offices in Norwood, Massachusetts. The Symmetra seed shipments are
shipped directly to customers from IPL's warehouse in Burbank, California or
Bebig's facility in Berlin, Germany.
Competition and Technological Advances
The markets for prostate cancer treatment, particularly brachytherapy are
highly competitive. The Company's ability to compete in these areas will depend
upon the 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.
Risks Relating to FDA Oversight and Other Government Regulation
The facilities at which the Company or its key suppliers manufactures its
product, 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. 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. 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.
14
<PAGE>
Risk of Inadequate Funding; Future Capital Funding
The Company plans to continue to expend substantial funds on marketing,
research and product development, seeking out partnerships that fit into its
strategic platforms and pursuit of regulatory approvals. In addition, the
Company's Notes mature in October 2003.
There can be no assurance that the Company's existing capital resources 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 all of its products, 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 trademarks chosen and registered will
provide meaningful protection.
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 for any of its products or the
commercialization of any of its products. 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.
15
<PAGE>
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."
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, 1999, directors and executive officers of the Company
and their affiliates owned approximately 16% 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.
16
<PAGE>
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
1,703,508 shares of Common Stock held by certain current shareholders of the
Company. Of these 1,703,508 shares, 1,236,902 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 may be sold currently
under Rule 144(k) under the Securities Act without regard to volume or other
limitations. The remaining 467,005 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 50,000 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 unless held by one of our affiliates. As of December 31, 1999 the
Company also had options outstanding to purchase an aggregate of 312,975 shares
of Common Stock and had an additional 86,633 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, 1999, the Company had reserved 372,775 shares of Common Stock for
issuance upon conversion of the Notes.
Item 2. Properties
The Company currently leases space in one facility in Norwood,
Massachusetts. This lease commenced in 1997 has a five-year term and is for a
9,000 square foot area which occupies all administrative, research and
development, marketing and manufacturing staff of the Company.
The Company terminated operating leases at two locations during 1999. The
Company terminated the Needham, Massachusetts facility as part of its
restructuring. This was a 40,000 square-foot facility which had a lease set to
expire in 2001. The Company entered into a lease termination agreement effective
March 15, 1999. The second lease terminated during 1999 was for the lease for
the Assurance Medical Inc. staff in Hopkinton, Massachusetts. This lease was
terminated by the Company in conjunction with the April 1999 spin-off of the
Assurance Group into a separate corporation.
17
<PAGE>
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 1999 fiscal year, there were no
matters submitted to a vote of the security holders of the Company.
Item 5. Market for Registrant's Common Stock and Related Shareholder Matters
UroMed's common stock is traded on the Nasdaq SmallCap Market under the
symbol URMD. As of December 31, 1999 there were 307 registered holders of the
Company's common stock. The Company has not paid dividends on its common stock
since inception and does not anticipate paying any cash dividends in the
foreseeable future. The following table sets forth for the periods indicated the
range of high and low sales prices of the Company's Common Stock as reported by
Nasdaq.
<TABLE>
<CAPTION>
Year Ended December 31, 1999 High Low
- - - - --------------------------------------------------------------------------
<S> <C> <C>
First Quarter $ 2 3/32 $1 1/4
Second Quarter 2 1 3/16
Third Quarter 1 15/32 1 1/8
Fourth Quarter 1 5/16 31/32
Year Ended December 31, 1998 High Low
- - - - --------------------------------------------------------------------------
First Quarter $ 20 5/32 $8 1/8
Second Quarter 12 --- 4 13/16
Third Quarter 5 5/16 1 1/4
Fourth Quarter 3 5/8 0 1 1/8
</TABLE>
18
<PAGE>
Item 6. Selected Financial Data
Selected Financial Data
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997 1996 1995
---------- ------------ ---------- ------------ ---------
(in thousands,
except per share
amounts)
<S> <C> <C> <C> <C> <C>
Statement of
Operations Data:
Revenues $ 2,645 $ 837 $ 503 $ 2,622 $ 1,052
---------- ------------- ------------ ------------ ---------
Cost and expenses:
Cost of revenues 2,499 3,413 4,722 5,110 2,564
Research and
development 2,137 5,367 11,692 37,597(1) 6,821
Marketing and
sales 2,119 4,098 13,233 7,276 2,169
General and
administrative 1,767 4,175 5,514 2,816 1,898
Restructuring ( 80) 1,704 -- -- --
---------- ------------ ---------- ------------ ---------
Total costs
and expenses 8,442 18,757 35,161 52,799 13,452
---------- ------------ ---------- ------------ ---------
Loss from
operations ( 5,797) (17,920) (34,658) (50,177) (12,400)
Gain on sale
of assets 672 -- -- -- --
Interest (expense)
income, net ( 376) ( 1,074) 25 2,517 2,688
---------- ------------ ---------- ------------ --------
Loss before
extraordinary
gain on early
retirement
of debt ( 5,501) (18,994) (34,633) (47,660) (9,712)
Extraordinary
gain on early
retirement of
debt 3,021 23,273 -- -- --
---------- ------------ ---------- ------------ ---------
Net income
(loss) $ ( 2,480) $ 4,279 $ (34,633) $ (47,660) $ (9,712)
========== ============= =========== ============= =========
Basic and
diluted net
income (loss)
per share $ (0.48) $ .81 $ (1.30) $ (1.87) $ (.46)
========== ============= =========== ============= =========
Basic and
diluted
weighted average
common shares
outstanding 5,179 5,290 5,316 5,109 4,252
========== ============= =========== ============= =========
(1) Includes $30.2 million for the acquisition of the Impress Softpatch
technology and related expenses. See Note 10 to the Financial Statements.
19
<PAGE>
As of December 31,
1999 1998 1997 1996 1995
---------- ------------ ---------- ------------ ---------
Balance Sheet
Data:
Cash, cash
equivalents
and short-term
investments $ 17,862 $ 26,280 $ 65,025 $ 101,638 $ 60,427
Working capital 871 (466) 60,907 98,013 57,681
Total assets 21,876 33,606 76,593 110,488 64,264
Long-term debt 17,393 24,756 69,000 69,000 --
Accumulated
deficit (104,128) (101,648) (105,927) (71,294) (23,634)
Total
stockholders'
equity 2,991 5,574 1,785 35,952 60,092
</TABLE>
20
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This Management's Discussion and Analysis should be read in conjunction
with "Forward-Looking Statements and Associated Risks" and "Risk Factors"
contained in Item 1 of this Annual Report on Form 10-K.
The Company is dedicated to establishing itself as a leader in providing
interventional urological products, with primary emphasis on the treatment of
prostate cancer. The Company seeks to market a portfolio of products including
its two main proprietary products for the treatment of prostate cancer: the
CaverMap Surgical Aid, available to aid physicians in preserving vital nerves
during prostate cancer surgery, and the Symmetra I-125 radioactive seeds, used
in a brachytherapy procedure to treat localized prostate cancer. The Company's
product portfolio also includes brachytherapy introducer needles. UroMed,
through its approximate one-third ownership of Assurance Medical Inc. has
supported the development of electronic palpation technology in order to aid
physicians in the important mission of finding suspicious breast lumps earlier.
The Company also continues to dedicate resources to the development and/or
acquisition of product lines that fit into its strategic platform.
Results of Operations
Years Ended December 31, 1999 and 1998
Revenues
The Company's revenues increased by 216% to $2.6 million from $0.8 million
for 1999 as compared to 1998. The increase is primarily due to the increased
sales in 1999 of the CaverMap Surgical Aid, while 1998 sales levels of this
product were relatively insignificant. Additionally, the Company commenced
shipments of its Symmetra I-125 seed during the third quarter of 1999 and
recorded total related revenues of $0.2 million in 1999. Revenues in 1998 were
derived primarily from sales of the Company's previously marketed line of
incontinence products, which are currently not actively marketed by the Company.
Cost of Revenues
Cost of revenues decreased by 27% to $2.5 million from $3.4 million for
1999 as compared to 1998. The decrease is the result of reductions in salaries
and related expenses of $0.5 million primarily the result of the headcount
reduction from the 1998 restructuring, facilities and corporate-related
allocation reductions of $0.4 million, and a $0.5 million reduction in
depreciation expense. All the reductions are partially offset by an increase of
$0.5 million in variable product costs due to the increased revenue levels in
1999 as compared to 1998.
Research and Development
Research and development expenses decreased by 60% to $2.1 million from
$5.4 million for 1999 as compared to 1998. The decrease in 1999 is the result of
the following: a $1.5 million decrease in Assurance Medical related expenses due
to the April 1999 spin-out of this group into a separate corporation; a
reduction of $0.8 million in incontinence surgical related prototype, design and
consulting expenses; a decrease of $0.5 million in salary and related expenses
primarily the result of the headcount reduction from the 1998 restructuring; a
decrease of $0.3 million in administrative and corporate-related expenses; and a
$0.2 million reduction in clinical study related expenses on behalf of the
CaverMap Surgical Aid.
In October 1997, the Company unveiled a technology designed to help women
and their doctors detect suspicious lumps - often the early sign of breast
cancer. The technology is currently being developed by Assurance Medical, Inc.
The Assurance Medical operations were part of UroMed Corporation through April
15, 1999. On April 15, 1999, the Company completed the "spin-out" of this
technology into a new, private company, Assurance Medical, Inc. As a result of
this transaction, the Company no longer has to fund the development of this
technology and therefore had savings of approximately $2.3 million in operating
expenses for 1999 as compared to 1998. The transaction did not have a material
impact on UroMed's financial position or results of operations. The Company's
initial equity investment of $0.1 million has been reduced to $0 as a result of
the losses incurred by Assurance Medical, Inc. in 1999.
Marketing and Sales
Marketing and sales expenses decreased 48% to $2.1 million from $4.1
million for 1999 as compared to 1998. The decrease in 1999 is the result of the
following: $0.6 million in reduced Assurance Medical related expenses due to the
spin-out; $0.6 million in salaries and related expenses partially as a result of
the 1998 restructuring and partially the result of employee attrition during
1999; $0.4 million in reduced public relations and product literature expenses
for incontinence surgical products which were actively marketed in 1998 and not
in 1999; and $0.4 million in administrative and other marketing program related
expenses.
21
<PAGE>
General and Administrative
General and administrative expenses decreased by 58% to $1.8 million from
$4.2 million for 1999 as compared to 1998. The decrease is the result of the
following: 1998 included a $1.0 million charge for the write-off of the carrying
value of the Company's investment in Medworks Corporation (see Item 8: Financial
Statements and Supplementary Data, footnote 6 to the financial statements); a
decrease from 1998 to 1999 of $0.7 million in finance and administrative
expenses; a decrease from 1998 to 1999 of $0.3 million in Assurance Medical
related expenses due to the spin-out; and a decrease from 1998 to 1999 of $0.3
million in systems related expenses.
Restructuring
During the year ended December 31, 1998, the Company recorded a total
charge of $1,704,000 representing the cost of restructuring its operations to
shift its strategic emphasis to the hospital-based business and away from the
consumer- oriented continence care business, which the Company has concluded
will be best approached by entering into a partnership or other arrangement with
a larger company. During the first quarter of 1998, a plan to effect this
restructuring was adopted by the Board of Directors and, at that time, the
Company recorded a restructuring charge of $1,024,000. This charge consisted of
approximately $579,000 of employee termination benefits and approximately
$445,000 of costs to exit two of the Company's leased facilities. The employee
termination benefits related to the termination of approximately 40 employees,
all of which have been terminated as of December 31, 1998, across all functional
areas of the Company. The facility exit costs include the write-off of
approximately $138,000 of leasehold improvements, with the remainder
representing certain contractual lease payments related to the leased
facilities.
During the fourth quarter of 1998, the Company made certain changes to its
restructuring plan and, as a result, an additional charge of $680,000 was
recorded at that time, representing additional facility exit costs.
Specifically, the Company decided not to abandon one of the aforementioned
facilities slated for closure and, at that same time, committed to abandoning
one of the facilities that it had previously expected to keep open. The facility
exit costs include the write-off of approximately $500,000 of leasehold
improvements, with the remainder representing certain contractual lease payments
related to the abandonment of the leased facility.
In March 1999, the Company entered into a lease termination agreement in
respect to the facility that it committed to abandoning during the fourth
quarter of 1998. Based upon the terms of this agreement, the Company's cost of
exiting this facility was $80,000 less than the Company's original estimates
that were included within the restructuring liability as of December 31, 1998.
As a result, the Company reversed $80,000 of the restructuring liability during
1999. All remaining restructuring accruals were paid in cash in 1999.
During the year ended December 31, 1999, the activity with respect to the
restructuring liability was as follows (in thousands):
Balance at Balance at
December 31, Cash December 31,
1998 Payments Adjustments 1999
-------------- ---------- ----------- ------------
Employee termination
Benefits $ 55 $ 55 $ -- $ --
Other facility exit costs 304 224 80 --
------------- ---------- ---------- ------------
$ 359 $ 279 $ 80 $ --
============= ========== ========== ============
As compared to 1998, 1999 cost savings from the 1998 restructuring amounted
to approximately $2.7 million, which was in line with management's estimate. The
major reductions from 1998 expenditure levels were as follows: $1.6 million in
reduced employee expenses, $0.4 million in reduced public relations and selling
costs, $0.4 million in clinical and regulatory expenses, $0.1 million in reduced
distribution costs and $0.2 million in reduced facility costs (including
amortization).
22
<PAGE>
Gain on Sale of Assets
On July 21, 1999, UroMed entered into an agreement to sell global rights to
its Impress Softpatch technology and assets to Procter & Gamble. Under the
agreement, UroMed received $3.3 million in cash at closing and will receive an
additional $150,000 in cash payments each year for a four-year period commencing
on July 21, 2000. In addition and under certain conditions, UroMed may receive
additional cash consideration in the future in the form of royalty and other
payments. The Company recorded a gain of $0.7 million as a result of this
transaction in 1999.
Interest Income and Interest Expense
Interest income decreased by 59% to $1.2 million from $2.8 million for 1999
as compared to 1998. The decrease was attributable to the reduced size of the
Company's investment portfolio, caused by the need to fund the Company's
operations and to repurchase the Notes (see Note 9 to the Financial Statements).
Interest expense decreased 61% to $1.5 million from $3.9 million for 1999
as compared to 1998 as a result of the reduction in outstanding convertible
Notes due to the repurchases during 1998 and 1999.
Extraordinary Gain on Early Retirement of Debt
During 1999 and 1998, the Company repurchased some of its Convertible
Subordinated Notes Payable (the Notes) for the applicable periods as follows:
- ---------------------------------------------------- ---------------------------
Aggregate Principal Cost of Notes Extraordinary
Repurchased Repurchased Gain
Years ended:
- -------------------- ----------------------- ---------------- ------------------
- -------------------- ----------------------- ---------------- ------------------
December 31, 1999 $7,363,000 $4,179,000 $3,021,000
- -------------------- ----------------------- ---------------- ------------------
- -------------------- ----------------------- ---------------- ------------------
December 31, 1998 $44,244,000 $19,321,000 $23,273,000
- -------------------- ----------------------- ---------------- ------------------
The repurchases of the Notes occurred in open market transactions with
persons who were not affiliates of the Company. In addition to the cost of the
principal repurchased as noted in the table above, the Company incurred
additional costs of $163,000 and $1,650,000 in 1999 and 1998, respectively,
relating to deferred financing fees written off and other fees incurred as a
result of the repurchases.
Of the $44,244,000 of Notes repurchased in 1998, $34,924,000 represents
Notes repurchased as part of the Company's announced tender offer which was
completed on October 22, 1998. The remaining $9,320,000 of repurchased Notes
occurred in open market transactions with persons who were not affiliates of
the Company.
Subsequent to December 31, 1999 and through March 30, 2000, the Company
repurchased approximately $3.0 million in aggregate principal amount of its
Notes for approximately $1.7 million. This transaction will be reported in the
quarter ended March 31, 2000.
Results of Operations
Years Ended December 31, 1998 and 1997
Revenues
The Company's revenues increased by 66% to $0.8 million from $0.4 million
for 1998 compared to 1997. The increase is primarily the result of the first two
full quarters of sales of the CaverMap Surgical Aid in 1998 and revenue from
INTROL Bladder Neck Support Prosthesis through the distribution agreement with
Johnson & Johnson Medical K.K. entered into in 1998. 1997 revenues consisted of
the recognition of deferred revenue from a portion of the advance payments
received upon the signing of certain foreign distribution agreements, which are
no longer in place, and small amounts of U.S. sales of the Reliance Insert, the
INTROL Bladder Neck Support Prosthesis and the Impress Softpatch.
23
<PAGE>
Cost of Revenues
Cost of revenues decreased by 28% to $3.4 million from $4.7 million for
1998 as compared to 1997 primarily due to the decreased level of headcount and
related expenses as a result of the 1998 restructuring, and a higher level of
inventory obsolescence charges in 1997 as compared to 1998. Cost of revenues
significantly exceeds product revenue in 1998 and in 1997 due to the current
level of variable product costs as well as the Company's related overhead costs
relative to the low start-up volume of production in these periods.
Research and Development
Research and development expenses decreased by 54% to $5.4 million from
$11.7 million for 1998 as compared to 1997. The decrease is the result of
decreased headcount in 1998 as a result of the restructuring, significant 1997
expenses incurred in connection with Impress Softpatch scale-up activities and
impairment charges in connection with Reliance Insert manufacturing equipment,
and reduced consulting and prototype spending in relation to the breast cancer
screening technology.
Marketing and Sales
Marketing and sales expenses decreased 69% to $4.1 million from $13.2
million for 1998 as compared to 1997. This decrease was the result of
significant 1997 expenditures incurred in connection with the U.S. launch of the
Reliance Insert and market analysis for the Impress Softpatch, and the reduced
headcount in 1998 as the result of the restructuring.
General and Administrative
General and administrative expenses decreased by 24% to $4.2 million from
$5.5 million for 1998 as compared to 1997. The decrease is primarily the result
of the decreased headcount and fewer system and consulting expenditures in 1998.
Restructuring
During the year ended December 31, 1998, the Company recorded a total
charge of $1,704,000 representing the cost of restructuring its operations to
shift its strategic emphasis to the hospital-based business and away from the
consumer- oriented continence care business, which the Company has concluded
will be best approached by entering into a partnership or other arrangement with
a larger company. During the first quarter of 1998, a plan to effect this
restructuring was adopted by the Board of Directors and, at that time, the
Company recorded a restructuring charge of $1,024,000. This charge consisted of
approximately $579,000 of employee termination benefits and approximately
$445,000 of costs to exit two of the Company's leased facilities. The employee
termination benefits related to the termination of approximately 40 employees,
all of which have been terminated as of December 31, 1998, across all functional
areas of the Company. The facility exit costs include the write-off of
approximately $138,000 of leasehold improvements, with the remainder
representing certain contractual lease payments related to the leased
facilities.
During the fourth quarter of 1998, the Company made certain changes to its
restructuring plan and, as a result, an additional charge of $680,000 was
recorded at that time, representing additional facility exit costs.
Specifically, the Company decided not to abandon one of the aforementioned
facilities slated for closure and, at that same time, committed to abandoning
one of the facilities that it had previously expected to keep open. The facility
exit costs include the write-off of approximately $500,000 of leasehold
improvements, with the remainder representing certain contractual lease payments
related to the abandonment of the leased facility.
During the year ended December 31, 1998, the activity in the restructuring
liability was as follows (in thousands):
Total 1998 Balance at
Restructuring Cash Non-Cash December 31,
Charge Payments Items 1998
-------------- ---------- ---------- ------------
Employee termination
Benefits $ 579 $ 524 $ -- $ 55
Asset write-downs 638 -- 638 --
Other facility exit costs 487 183 -- 304
------------- ---------- ---------- ------------
$ 1,704 $ 707 $ 638 $ 359
============= ========== ========== ============
The annual cost savings resulting from the restructuring actions was
approximately $11,000,000.
24
<PAGE>
Interest Income and Interest Expense
Interest income decreased by 38% to $2.8 million from $4.6 million for 1998
as compared to 1997. The decrease was attributable to the reduced size of the
Company's investment portfolio, caused by the need to fund the Company's
operations and to repurchase the Notes (see Note 9 to the Financial Statements).
Interest expense decreased 14% to $3.9 million from $4.5 million for 1998
as compared to 1997 as a result of the reduction in outstanding convertible
Notes due to the repurchases during 1998.
Extraordinary Gain on Early Retirement of Debt
During 1998, the Company repurchased approximately $44,244,000 in aggregate
principal amount of its Notes. Of the total repurchases, $34,924,000 represents
Notes repurchased as part of the Company's announced tender offer which was
completed on October 22, 1998. The remaining $9,320,000 of Notes repurchased
occurred in unsolicited open market transactions with persons who were not
affiliates of the Company. The total cost of the Note repurchases was
$19,321,000, including accrued and unpaid interest and transaction fees related
to the tender offer. These repurchases resulted in an extraordinary gain of
$23,273,000 for the year ended December 31, 1998.
Liquidity and Capital Resources
At December 31, 1999, the Company had cash, cash equivalents and short-term
investments totaling $17.9 million, a decrease of $8.4 million, or 32%, from
$26.2 million at December 31, 1998. At December 31, 1999, the Company's funds
were invested in U.S. government obligations, corporate debt obligations and
money market funds.
Net cash used in operating activities of $7.2 million for the year ended
December 31, 1999 was primarily a result of the $5.5 million loss before the
extraordinary gain on the early retirement of debt and decreases of $1.8 million
in accounts payable and accrued expenses and the $0.7 million gain on sale of
assets, partially offset by depreciation and amortization of $1.2 million.
Net cash provided by investing activities was $3.3 million for the year
ended December 31, 1999, primarily as a result of the net proceeds of sales
of fixed assets.
Net cash used in financing activities was $4.2 million for the year ended
December 31, 1999, primarily as a result of the cash used to repurchase $7.4
million in aggregate principal amount of Notes.
In October 1996, the Company completed the sale of $69,000,000 of its 6%
Convertible Subordinated Notes due October 15, 2003 (the "Notes"). During 1999
and 1998, the Company repurchased approximately $51,607,000 in aggregate
principal amount of its Notes. The outstanding principal balance of the Notes at
December 31, 1999 was $17,393,000. The Company is considering from time to time
additional repurchases of its Notes. Any repurchases of Notes may be made on the
open market or in privately negotiated transactions. The Company plans to fund
such purchases from its working capital.
During March 2000, the Company repurchased in an open market transaction
$3.0 million in aggregate principal of the Notes for $1.7 million. This
transaction will be reported in the quarter ended March 31, 2000.
The Board of Directors of the Company authorized a Common Stock repurchase
program in 1998 (the "Repurchase program"). The Company is authorized to
repurchase up to one million shares of the outstanding Common Stock, from time
to time, subject to prevailing market conditions. As of December 31, 1999, the
Company has repurchased approximately 240,000 shares of its Common Stock for
approximately $573,000 as part of the Repurchase program. Purchases pursuant to
the Repurchase program may be made on the open market or in privately negotiated
transactions. The Company plans to fund such purchases from its working capital.
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 at least the next twelve months. The Company's future
long-term liquidity and capital requirements depend on numerous factors,
including, but not limited to: development of the Company's marketing
capability, market acceptance of the CaverMap Surgical Aid and the I-125
seed, development of partnerships and alliances for its assets and technology in
incontinence and breast cancer. 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.
25
<PAGE>
Year 2000
The Company has not experienced any significant problems related to the
year 2000-date rollover. In general, however, all problems related to the year
2000-date rollover may not yet have become apparent. While the Company believes
its efforts to date have successfully addressed the problems, there can be no
assurance until the passage of time that no further problems will occur. All
year 2000 readiness costs have been expensed through 1999 and were insignificant
during 1999.
The Company identified its Year 2000 risk in three categories: internal
business software; imbedded chip technology; and external non-compliance by
significant suppliers and service providers.
INTERNAL BUSINESS SOFTWARE. During 1996, the Company purchased an
Enterprise Resource Planning System ("ERP System") which was Year 2000
compliant. The ERP System provides for significantly all of the Company's
internal accounting, business management and planning needs. The total hardware,
software, installation and testing cost of the ERP System was approximately $1.2
million which has been spent to date. The Company does not anticipate incurring
significant additional costs for further testing and compliance activities.
Given that its internal business software is Year 2000 compliant, the Company
does not have a contingency plan in place.
IMBEDDED CHIP TECHNOLOGY. At this time, most of the Company's products are
manufactured by outside suppliers and, as such, the Company has limited
manufacturing activities. The Company does not rely materially on imbedded chip
technology in its manufacturing processes and therefore does not anticipate that
Year 2000 issues will significantly affect its ability to manufacture finished
goods.
At this time, the Company believes that it will not encounter significant
operational difficulties from the effect of a Year 2000 issue arising from its
imbedded chip technology. Accordingly, based on these expectations, the Company
does not have a contingency plan to address material Year 2000 issues. If
significant Year 2000 issues arise, there can be no assurance that the Company
will be able to develop and implement a contingency plan in a timely manner and,
if not, the Company's operations could be adversely effected.
EXTERNAL NON-COMPLIANCE BY SIGNIFICANT SUPPLIERS AND SERVICE PROVIDERS. The
Company identified all of its significant suppliers and service providers to
determine the extent to which the Company's business was vulnerable to those
third parties' failure to remedy their own Year 2000 issues. The Company's
significant suppliers included those that supplied the products sold, or
proposed to be sold, by the Company including the CaverMap Surgical Aid, the
Symmetra I-125 seeds, the Allosource Cadaveric fascia, and the INTROL Bladder
Neck Support Prosthesis. The Company received notification from the significant
suppliers and service providers of their Year 2000 compliance. The main risks
that were associated with the Year 2000 issue were the uncertainties as to
whether the Company's suppliers or service providers could continue to perform
their services for the Company uninterrupted by the Year 2000 event. The
Company's suppliers and service providers, if they were unable to remediate
their Year 2000 issues, may be unable to produce or deliver goods ordered by the
Company.
The preceding discussion contains forward-looking statements information
within the meaning of Section 21E of the Exchange Act. This disclosure is also
subject to protection under the Year 2000 Information and Readiness Disclosure
Act of 1998, Public Law 105-271, as a "Year 2000 Statement" and "Year 2000
Readiness Disclosure" as defined therein. Actual results may differ materially
from such projected information due to changes in underlying assumptions.
26
<PAGE>
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
The Company does not use derivative financial instruments. Less than 10% of
the Company's sales for the year ended December 31, 1999 were to foreign
customers, primarily in Japan and Europe. All such foreign sales are denominated
in US dollars. The Company believes, based on a hypothetical ten percent adverse
movement in foreign currency exchange rates for the Japanese Yen and the
European Euro, the potential losses in future earnings and cash flows are
immaterial, although the actual effects may differ materially from the
hypothetical analysis.
27
<PAGE>
Item 8. Financial Statements and Supplementary Data
Index to the Financial Statements:
<TABLE>
Page
------
<S> <C>
Report of Independent Accountants................................29
Balance Sheet at December 31, 1999 and 1998..................... 30
Statement of Operations for each of the three years
in the period ended December 31, 1999..........................31
Statement of Stockholders' Equity for each of the
three years in the period ended December 31, 1999 .............32
Statement of Cash Flows for each of the three years
in the period ended December 31, 1999 .........................33
Notes to the Financial Statements................................34-44
Financial Statement Schedule:
II - Valuation and Qualifying Accounts and Reserves............45
</TABLE>
All other financial statement schedules are omitted because they are not
applicable or the required information is shown in the financial statements or
footnotes thereto.
28
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders of UroMed Corporation
In our opinion, the financial statements listed in the accompanying index
present fairly, in all material respects, the financial position of UroMed
Corporation at December 31, 1999 and 1998, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1999, in conformity with accounting principles which are generally accepted in
the United States. In addition, in our opinion, the financial statement
schedules listed in the accompanying index present fairly, in all material
respects, the information set forth therein when read in conjunction with the
related financial statements. These financial statements and financial statement
schedule 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 in the United States 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/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 9, 2000, except for
the last paragraph of Note 9
for which the date is March 30,
2000
29
<PAGE>
Balance Sheet
<TABLE>
<CAPTION>
December 31, 1999 1998
- - - - --------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 3,485 $ 11,576
Short-term investments 14,377 14,704
Account receivable 585 224
Inventories 841 422
Prepaid expenses and other current assets 475 640
----------------------
Total current assets 19,763 27,566
Fixed assets, net 143 4,414
Other assets 1,970 1,626
----------------------
$ 21,876 $ 33,606
======================
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 145 $ 250
Accrued expenses 1,347 3,026
----------------------
Total current liabilities 1,492 3,276
----------------------
Convertible subordinated notes 17,393 24,756
----------------------
Commitments (Note 15)
Stockholders' equity:
Preferred stock, $.01 par value; 500 shares
authorized; none issued -- --
Common stock, no par value; 10,000 shares
authorized; 5,374 and 5,367 shares issued,
5,134 and 5,180 shares outstanding at
December 31, 1999 and 1998, respectively 107,737 107,733
Accumulated other comprehensive loss (45) --
Accumulated deficit (104,128) (101,648)
Common stock held in treasury, 240 and
187 shares respectively, at cost (573) (511)
----------------------
Total stockholders' equity 2,991 5,574
-----------------------
$ 21,876 $ 33,606
========================
</TABLE>
The accompanying notes are an integral part of the financial statements.
30
<PAGE>
<TABLE>
<CAPTION>
Statement of Operations
Year Ended December 31, 1999 1998 1997
- - - - --------------------------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C>
Revenues $ 2,645 $ 837 $ 503
--------------------------------
Costs and expenses:
Cost of revenues 2,499 3,413 4,722
Research and development 2,137 5,367 11,692
Marketing and sales 2,119 4,098 13,233
General and administrative 1,767 4,175 5,514
Restructuring ( 80) 1,704 ---
--------------------------------
Total costs and expenses 8,442 18,757 35,161
--------------------------------
Loss from operations ( 5,797) (17,920) (34,658)
Gain on sale of assets 672 --- ---
Interest income 1,151 2,837 4,558
Interest expense (1,527) (3,911) (4,533)
--------------------------------
Loss before extraordinary gain on early
retirement of debt ( 5,501) (18,994) (34,633)
Extraordinary gain on early retirement
of debt 3,021 23,273 ---
--------------------------------
Net income (loss) ( 2,480) 4,279 (34,633)
Other comprehensive income (loss):
Unrealized gain (loss) on investments
available-for-sale (45) (66) 97
---------------------------------
Total comprehensive income (loss) $ (2,525) $ 4,213 $(34,536)
=================================
Basic and diluted net income (loss)
per share:
Loss before extraordinary gain on
early retirement of debt $ (1.06) $ (3.59) $ (6.51)
Extraordinary gain on early retirement
of debt 0.58 4.40 --
----------------------------------
Net income (loss) $ (0.48) $ 0.81 $ (6.51)
==================================
Basic and diluted weighted average common
shares outstanding 5,179 5,290 5,316
==================================
The accompanying notes are an integral part of the financial statements.
</TABLE>
31
<PAGE>
Statement of Stockholders' Equity
<TABLE>
<CAPTION>
For the Three Years in the Period Ended December 31, 1999
(in thousands)
Common Stock Accumulated
----------------- Other Common
Number Comprehensive Deferred Accum- Stock Held
of Carrying Income Compen- ulated In
Shares Value (Loss) sation Deficit Treasury Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,1996 5,289 $107,492 $(31) $(215) $(71,294) -- $35,952
Issuance of common stock
options for services -- 65 -- -- -- -- 65
Issuance of common stock
upon exercise of stock
options 41 103 -- -- -- -- 103
Issuance of common stock
under employee stock
purchase plan, net of
cancellations 11 151 -- -- -- -- 151
Net unrealized gain on
investments available-
for-sale -- -- 97 -- -- -- 97
Amortization of deferred
compensation -- -- -- 50 -- -- 50
Reversal of deferred
compensation related to
employee termination -- (165) -- 165 -- -- --
Net loss -- -- -- -- (34,633) -- (34,633)
- - - --------------------------------------------------------------------------------------------------
Balance, December 31, 1997 5,341 107,646 66 -- (105,927) -- 1,785
Repurchase of common stock -- -- -- -- -- (511) (511)
Issuance of common stock
options for services -- 48 -- -- -- -- 48
Issuance of common stock
upon exercise of stock
options 25 46 -- -- -- -- 46
Issuance of common stock
under employee stock
purchase plan, net of
cancellations 1 (7) -- -- -- -- (7)
Net unrealized loss on
investments available-
for-sale -- -- (66) -- -- -- (66)
Net income -- -- -- -- 4,279 -- 4,279
- - - --------------------------------------------------------------------------------------------------
Balance, December 31, 1998 5,367 107,733 -- -- (101,648) (511) 5,574
Repurchase of common stock -- -- -- -- -- (62) (62)
Issuance of common stock
upon exercise of stock
options 7 4 -- -- -- -- 4
Net unrealized loss on
investments available-
for-sale -- -- (45) -- -- -- (45)
Net loss -- -- -- -- (2,480) -- (2,480)
- - - --------------------------------------------------------------------------------------------------
Balance, December 31, 1999 5,374 $107,737 $(45) $ -- $(104,128) $(573) $2,991
======================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
32
<PAGE>
Statement of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31, 1999 1998 1997
- --------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Increase (Decrease) in Cash and Cash
Equivalents
Cash flows from operating activities:
Net income (loss) $(2,480) $ 4,279 $(34,633)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 1,247 2,151 3,575
Gain on sale of assets (672) -- --
Issuance of common stock and stock
options for services -- 48 65
Extraordinary gain on early retirement
of debt (3,021) (23,273) --
Write-off of investment in Medworks
Corporation -- 1,000 --
Non-cash portion of restructuring charges -- 638 --
Increases (decreases) resulting from
changes in assets and liabilities:
Inventories (419) (135) 300
Accounts receivable (361) -- --
Prepaid expenses and other assets 332 (211) (79)
Accounts payable and accrued expenses (1,784) (2,532) 272
----------------------------------
Net cash used in operating
activities (7,158) (18,035) (30,500)
----------------------------------
Cash flows from investing activities:
Sales (purchases) of short-term
investments, net 282 38,248 3,161
Purchases of fixed assets (7) (554) (5,525)
Disposal of fixed assets 46 -- --
Net proceeds from sales of fixed assets 3,317 82 --
Investment in Medworks Corporation -- -- (1,000)
(Increase) decrease in other assets (304) 37 61
----------------------------------
Net cash provided by (used in)
investing activities 3,334 37,813 (3,303)
----------------------------------
Cash flows from financing activities:
Repurchase of convertible subordinated
notes, including transaction costs (4,209) (19,737) --
Repurchase of common stock (62) (511) --
Proceeds from issuance of common stock,
net of issuance costs 4 39 254
-----------------------------------
Net cash provided by (used in)
financing activities (4,267) (20,209) 254
-----------------------------------
Net (decrease) increase in cash and cash
equivalents (8,091) (431) (33,549)
Cash and cash equivalents, beginning of year 11,576 12,007 45,556
-----------------------------------
Cash and cash equivalents, end of year $ 3,485 $ 11,576 $ 12,007
===================================
Supplemental disclosure of cash flow
information:
Interest paid $ 1,469 $ 4,114 $ 4,140
</TABLE> ===================================
The accompanying notes are an integral part of the financial statements.
33
<PAGE>
Notes to Financial Statements
1 : Nature of Business
UroMed Corporation (the "Company"), a Massachusetts corporation, was
incorporated in October 1990 and is dedicated to establishing itself as a leader
in providing interventional urological products, with a primary emphasis on the
treatment of prostate cancer. The Company has also developed and acquired
technology in urinary incontinence products and in breast cancer detection.
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 and
disclosure of contingent 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.
Operations of the Company are subject to certain risks and uncertainties
including, but not limited to, uncertainties related to clinical trials,
regulatory approvals, technological uncertainty, uncertainty of future
profitability and access to capital, dependence on collaborative relationships
and key personnel.
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"). At December 31, 1999 and 1998, all of
the Company's investments are classified as available-for-sale and are reported
in the balance sheet at fair value. Any unrealized gains and losses on
available-for-sale securities are reported as accumulated other comprehensive
income in stockholders' equity. Upon the sale of securities, realized gains and
losses are reported in the statement of operations.
The Company invests its excess cash primarily in high grade corporate debt
obligations and money market funds that 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 because 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.
Major Customers
During the years ended December 31, 1999, 1998 and 1997, 7%, 29% and 75% of
total revenues, respectively, had been derived from the Company's foreign
distributors. Foreign distributor revenue for the years ended December 31, 1999
and 1998 was from the Company's distributor for Japan. Foreign distributor
revenue for the year ended December 31, 1997 was from the Company's distributor
for Scandinavia, the United Kingdom and The Netherlands.
Of total revenue reported, 9%, 0%, and 75% for the years ended December 31,
1999, 1998 and 1997, respectively, resulted from the recognition of revenue
(initially deferred) related to payments received by the Company upon the
signing of distribution agreements.
Inventories
Inventories are stated at the lower of cost or market, cost being
determined using the first-in, first-out method.
34
<PAGE>
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 Convertible Subordinated
Notes due October 15, 2003 using the straight-line method, which approximates
the interest method. Unamortized costs at December 31, 1999 and 1998 are
$381,000 and $680,000, respectively. During the years ended December 31, 1999
and 1998, $163,000 and $1,234,000, respectively, of deferred financing costs
were written-off in connection with the early retirement of debt (see Note 9).
Accounting for the Impairment of Long-Lived Assets
The Company periodically evaluates its long-lived assets whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. At the occurrence of such an event or change in circumstances,
the Company evaluates a potential impairment of an asset based on estimated
future undiscounted cash flows. In the event that future undiscounted cash flows
are less than the carrying amount of such asset, an impairment loss is
recognized for the difference between estimated fair value and the carrying
amount of the asset.
Net Income (Loss) Per Share
Net income (loss) per share has been calculated in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128"), which requires the presentation of "basic" earnings per share and
"diluted" earnings per share. Basic earnings per share is computed by dividing
net income (loss) by the weighted average shares of outstanding common stock.
For purposes of computing diluted earnings per share, the denominator includes
both the weighted average shares of outstanding common stock and dilutive
potential common stock shares.
For each of the periods presented, basic and diluted net income (loss) per
share are the same due to the antidilutive effect of potential common stock
shares. Antidilutive potential common stock excluded from the 1999, 1998 and
1997 computation included 312,975, 371,158 and 344,507 common shares,
respectively, issuable upon the exercise of outstanding common stock options,
and 261,903, 372,775 and 1,039,078 common shares ,respectively, issuable upon
the conversion of the Company's Notes.
Accounting for Stock-Based Compensation
The Company accounts for stock-based awards to its employees using the
intrinsic value based method as prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations ("APB 25") and follows the provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123") for disclosure purposes (see Note 12).
Comprehensive Income
The Financial Accounting Standards Board ("FASB") issued SFAS No. 130,
"Reporting Comprehensive Income", effective for fiscal years beginning after
December 15, 1997. SFAS 130 requires companies to report another measure of
operations called comprehensive income. This measure, in addition to "net
income" includes as income or loss, the following items, which if present are
included in the equity section of the balance sheet: 1) unrealized gains and
losses on certain investments in debt and equity securities; 2) foreign currency
translation; and 3) minimum pension liability adjustments. The Company has
reported comprehensive income within the Statement of Operations.
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 those years.
35
<PAGE>
3 : Investments
Following is a summary of available-for-sale investments, by balance sheet
classification:
<TABLE>
<CAPTION>
Amortized Unrealized
cost Gains (Losses) Fair value
- --------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
December 31, 1999:
Cash equivalents:
Corporate debt obligations $ 493 $ -- $ 493
Money market funds 2,271 -- 2,271
-------------------------------------------
$ 2,764 $ -- $ 2,764
===========================================
Short-term investments:
Corporate debt obligations $ 14,422 $ (45) $ 14,377
==========================================
December 31, 1998:
Cash equivalents:
U.S. Government obligations $ 2,571 $ -- $ 2,571
Corporate debt obligations 1.004 -- 1,004
Money market funds 7,719 -- 7,719
-------------------------------------------
$ 11,294 $ -- $ 11,294
===========================================
Short-term investments:
U.S. Government obligations $ 751 $ -- $ 751
Corporate debt obligations 13,953 -- 13,953
-------------------------------------------
$ 14,704 $ -- $ 14,704
============== ============================
</TABLE>
At December 31, 1999, the fair value of short-term investments having
contractual maturities of one year or less totaled $12,713,000 and the fair
value of short-term investments with contractual maturities greater than one
year but less than four years totaled $1,664,000. The proceeds from sales of
securities amounted to approximately $26,432,000, $16,255,000, and $21,098,000
for the years ended December 31, 1999, 1998 and 1997, respectively. Gross
realized gains and losses on these sales were not significant.
4 : Inventories
The components of inventory are as follows:
<TABLE>
<CAPTION>
December 31, 1999 1998
- ----------------------------------------------
(in thousands)
<S> <C> <C>
Raw materials $226 $ 85
Work in process 218 22
Finished goods 1,171 628
- -----------------------------------------------
$1,615 $735
Less: Reserve (774) (313)
- -----------------------------------------------
Total Inventory $841 $422
===============================================
</TABLE>
36
<PAGE>
5 : Fixed Assets
Fixed assets consist of the following:
<TABLE>
<CAPTION>
Useful Life December 31,
in Years 1999 1998
- - - - ---------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Machinery and equipment 3-4 $ 276 $1,430
Computer and office equipment 3-4 1,228 1,360
Leasehold improvements 7 7 --
Machinery and equipment not
yet placed in service -- -- 3,852
------------------
1,511 6,642
Less - Accumulated depreciation
and amortization 1,368 2,228
------------------
$ 143 $4,414
==================
</TABLE>
Depreciation expense for the years ended December 1999, 1998 and 1997 was
$1,111,000, $1,746,000 and $3,129,000,respectively.
6 : Investment in Medworks Corporation and Investment in Assurance Medical, Inc.
In August 1997, the Company invested $1,000,000 in the preferred stock of
Medworks Corporation of Louisville, KY as part of a license and supply agreement
between the Company and Medworks Corporation, enabling the Company to market,
sell and distribute Medworks' surgical technology to correct female urinary
stress incontinence. This investment was accounted for under the cost method and
was included in other assets in the balance sheet at December 31, 1997.
In December 1998, the license and supply agreement between the Company and
Medworks was terminated. In connection with the termination, the Company
evaluated the $1,000,000 carrying value of its Medworks investment and concluded
that an "other than temporary" decrease in the value of its investment had
occurred. Accordingly, the Company wrote-off the carrying value of the
investment during the year ended December 31, 1998 (included in general and
administrative expenses).
During 1998, as part of the license and supply agreement, the Company
purchased $155,000 of inventory from Medworks Corporation.
On April 15, 1999, the Company completed the "spin-out" of its breast
cancer technology into a new, private company, Assurance Medical, Inc.
("Assurance"). In conjunction with this spin-out, Assurance received $8.0
million in equity financing from two healthcare venture capital firms and the
Company contributed its breast cancer screening technology to Assurance in
exchange for an approximate one-third equity position. The Company's initial
equity investment of $0.1 million has been reduced to $0 as a result of the
losses incurred by Assurance Medical, Inc. in 1999.
7 : Accrued Expenses
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 31, 1998 1998
- - - - -----------------------------------------------------
(in thousands)
<S> <C> <C>
Clinical trials $ 116 $ 308
Professional fees 461 414
Interest 217 309
Employee-related 381 665
Restructuring -- 359
Other 171 971
---------------------
$1,347 $3,026
=====================
</TABLE>
37
<PAGE>
8 : Restructuring
During the year ended December 31, 1998, the Company recorded a total
charge of $1,704,000 representing the cost of restructuring its operations to
shift its strategic emphasis to the hospital-based business and away from the
consumer- oriented continence care business, which the Company has concluded
will be best approached by entering into a partnership or other arrangement with
a larger company. During the first quarter of 1998, a plan to effect this
restructuring was adopted by the Board of Directors and, at that time, the
Company recorded a restructuring charge of $1,024,000. This charge consisted of
approximately $579,000 of employee termination benefits and approximately
$445,000 of costs to exit two of the Company's leased facilities. The employee
termination benefits related to the termination of approximately 40 employees,
all of which have been terminated as of December 31, 1998, across all functional
areas of the Company. The facility exit costs include the write-off of
approximately $138,000 of leasehold improvements, with the remainder
representing certain contractual lease payments related to the leased
facilities.
During the fourth quarter of 1998, the Company made certain changes to its
restructuring plan and, as a result, an additional charge of $680,000 was
recorded at that time, representing additional facility exit costs.
Specifically, the Company decided not to abandon one of the aforementioned
facilities slated for closure and, at that same time, committed to abandoning
one of the facilities that it had previously expected to keep open. The facility
exit costs include the write-off of approximately $500,000 of leasehold
improvements, with the remainder representing certain contractual lease payments
related to the abandonment of the leased facility.
In March 1999, the Company entered into a lease termination agreement in
respect to the facility that it committed to abandoning during the fourth
quarter of 1998. Based upon the terms of this agreement, the Company's cost of
exiting this facility were $80,000 less than the Company's original estimates
that were included within the restructuring liability as of December 31, 1998.
As a result, the Company reversed $80,000 of the restructuring liability during
the three months ended March 31, 1999. All remaining restructuring accruals were
paid in cash during 1999.
During the year ended December 31, 1999, the activity in the restructuring
liability was as follows (in thousands):
Balance at Balance at
December 31, Cash December 31,
1998 Payments Adjustments 1999
-------------- ---------- ----------- ------------
Employee termination
Benefits $ 55 $ 55 $ -- $ --
Other facility exit costs 304 224 80 --
------------- ---------- ---------- ------------
$ 359 $ 279 $ 80 $ --
============= ========== ========== ============
9 : Convertible Subordinated Notes
In October 1996, the Company completed the sale of $69,000,000 of its
Convertible Subordinated Notes Payable (the "Notes"). The Notes are convertible
at any time into shares of common stock of the Company at a conversion price of
$66.41 per share, subject to adjustment under certain circumstances. The Notes
are due on October 15, 2003. Interest on the Notes is payable each April 15 and
October 15 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, ranging from 100.857% to 103.429% of the face amount per Note
plus accrued and unpaid interest to the date of redemption. The Notes are
unsecured obligations of the Company and are subordinated to all other Senior
Debt (as defined) of the Company.
38
<PAGE>
During 1999 and 1998, the Company repurchased certain of the Notes as follows:
- ---------------------------------------------------- ---------------------------
Aggregate Principal Cost of Notes Extraordinary
Repurchased Repurchased Gain
Year ended:
- -------------------- ----------------------- ---------------- ------------------
- -------------------- ----------------------- ---------------- ------------------
December 31, 1999 $7,363,000 $4,179,000 $3,021,000
- -------------------- ----------------------- ---------------- ------------------
- -------------------- ----------------------- ---------------- ------------------
December 31, 1998 $44,244,000 $19,321,000 $23,273,000
- -------------------- ----------------------- ---------------- ------------------
The repurchases of the Notes occurred in open market transactions with
persons who were not affiliates of the Company. In addition to the cost of the
principal repurchased as noted in the table above, the Company incurred costs of
$163,000 and $1,650,000 in 1999 and 1998, respectively, relating to deferred
financing fees written off and other fees incurred as a result of the
repurchase.
Of the $44,244,000 of Notes repurchased in 1998, $34,924,000 represents
Notes repurchased as part of the Company's announced tender offer which was
completed on October 22, 1998. The remaining $9,320,000 of repurchased Notes
occurred in open market transactions with persons who were not affiliates of
the Company.
Subsequent to December 31, 1999 and through March 30, 2000, the Company
repurchased approximately $3.0 million in aggregate principal amount of its
Notes for approximately $1.7 million. This transaction will be reported in the
quarter ended March 31, 2000.
10 : Gain on Sale of Assets
On July 21, 1999, the Company entered into an agreement to sell global
rights to its Impress Softpatch technology and assets to Procter & Gamble. Under
the agreement, the Company received $3.3 million in cash at closing and is to
receive an additional $150,000 in cash payments each year for a four-year period
commencing on July 21, 2000. In addition and under certain conditions, the
Company may receive additional cash consideration in the future in the form of
royalty and other payments. As a result of the transaction, the Company reported
a gain of $672,000 in 1999.
11 : Stockholders' Equity
Preferred Stock
The Company has authorized 500,000 shares of $.01 par value preferred
stock, none of which have been issued at December 31, 1999. 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 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
At December 31, 1999, the Company has reserved 393,304 shares of common
stock for issuance pursuant to exercise of common stock options granted under
the Stock Option Plan, 45,417 shares of common stock for issuance under the
Employee Stock Purchase Plan, and 261,903 shares for issuance upon conversion of
the Notes.
Treasury Stock
The Board of Directors of the Company authorized a Common Stock repurchase
program on June 17, 1998 (the "Repurchase Program") whereby the Company is
authorized to repurchase up to one million common shares, from time to time,
subject to prevailing market conditions. As of December 31, 1999 the Company had
repurchased 240,000 shares of its common stock for $573,000 as part of the
Repurchase Program.
39
<PAGE>
Shareholder Rights Plan
In June 1997, the Company's Board of Directors adopted a Shareholder Rights
Plan. This Plan provides shareholders with special purchase rights under certain
circumstances, including if any new person or group acquires 15 percent or more
of the Company's outstanding common stock.
12 : 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 640,000 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 ten
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 4,000 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 150 shares of common stock on a quarterly basis, up to a
maximum of 24 grants. All of these option grants are exercisable over a ten-year
period and must have an exercise price equal to the fair market value of the
shares on the grant date.
Option activity for the years ended December 31, 1999, 1998 and 1997 is
summarized as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997
- --------------------------------------------------------------------------------
Weighted Weighted Weighted
average average average
exercise exercise exercise
Shares price Shares price Shares price
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of
period 371,158 $ 5.31 344,507 $ 21.65 309,371 $26.55
Granted 139,989 $ 1.24 491,400 $ 6.16 184,302 $20.70
Cancelled (191,868) $ 7.70 (439,499) $ 19.94 (108,401) $41.10
Exercised (6,304) $ 0.38 ( 25,750) $ 1.82 ( 40,765) $ 2.55
--------- --------- ---------
Outstanding at
end of period 312,975 $ 2.74 371,158 $ 5.31 344,507 $21.65
========= ========= ==========
Options
exercisable
at end of
period 83,069 $ 6.72 103,593 $ 9.82 125,174 $14.05
========= ========= ==========
Weighted average
fair value of
options granted
during the period $ 1.24 $ 2.97 $10.05
========= ========= =========
</TABLE>
At December 31, 1999, options to purchase 80,329 shares of common stock
were available for future grants under the Plan.
40
<PAGE>
In September 1997, March 30, 1998 and December 15, 1998, the Company
repriced 31,860, 167,000 and 106,300, respectively, outstanding common stock
options to reflect the current market value per share of common stock. The
cancellation and issuance of replacement options is recorded in the option
activity above.
The following table summarizes information about stock options outstanding
and exercisable at December 31, 1999:
<TABLE>
<CAPTION>
Options outstanding
- --------------------------------------------------------------------------------
Weighted
average Weighted
Number remaining average
Range of exercise prices outstanding contractual life exercise price
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
$ .01 to $1.25 108,158 8.7 $ 1.00
$1.37 to $1.51 169,683 8.2 $ 1.38
$1.81 to $13.44 22,634 8.1 $ 3.11
$21.25 to $66.88 12,500 5.9 $35.39
---------
Total 312,975
=========
</TABLE>
<TABLE>
<CAPTION>
Options exercisable
- - - - --------------------------------------------------------------------------
Weighted
Number average
Range of exercise prices exercisable exercise price
- - - - --------------------------------------------------------------------------
<S> <C> <C>
$ .01 to $ 1.25 19,169 $ 0.51
$1.37 to $ 1.51 40,723 $ 1.40
$1.81 to $13.44 48,808 $ 4.57
$21.25 to $66.88 12,500 $35.39
-------
Total 83,069
=======
</TABLE>
Fair Value Disclosures
As discussed in Note 2, the Company follows APB 25 in accounting for awards
under its stock option plans. 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:
<TABLE>
<CAPTION>
Year Ended December 31, 1999 1998 1997
- - - - --------------------------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C>
Net income (loss):
As reported $(2,480) $4,279 $(34,633)
Pro forma $(2,674) $3,554 $(35,477)
Basic and diluted net income
(loss) per share:
As reported $ (0.48) $ 0.81 $ (6.51)
Pro forma $ (0.52) $ 0.67 $ (6.65)
</TABLE>
41
<PAGE>
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 for all
periods: dividend yield of 0.0%; risk-free interest rates ranging from 5.5% to
6.8%; expected option terms of 0.3 years to 5.8 years in 1996 and 1997, and 2
years to 6 years in 1998 and 1999; and a volatility of .60 for options granted
in 1997 and .66 for options granted in 1998 and 1999.
Employee Stock Purchase Plan
On May 19, 1995, the Company approved the 1995 Employee Stock Purchase
Plan. This plan provides for the purchase by employees of up to 60,000 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, 1999 there were no shares issued under the plan. During the
year ended December 31, 1998, 10,491 shares were issued under the plan at a
range of $1.22 to $4.73 per share. During the year ended December 31, 1997,
10,776 shares were issued under the plan at a range of $14.90 to $15.00 per
share. During the year ended December 31, 1996, 2,548 shares were issued under
the plan at a range of $41.45 to $59.25 per share.
13 : Income taxes
The components of deferred income tax (expense) benefit are as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1999 1998 1997
- - - - --------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Income tax (expense) benefit:
Federal $ 837 $ (980) $ 11,315
State 287 (137) 3,678
---------------------------------------
1,124 (1,117) 14,993
Change in deferred tax
asset valuation allowance (1,124) 1,117 (14,993)
---------------------------------------
$ -- $ -- $ --
=======================================
</TABLE>
No federal or state taxes were payable in any year through December 31,
1999 as a result of losses incurred and the utilization of net operating loss
carryforwards.
Deferred tax assets consist of the following:
<TABLE>
<CAPTION>
Year Ended December 31, 1999 1998
- - - - --------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards 39,091 $ 24,998
Tax credit carryforwards 2,802 2,683
Deferred research and development
expenses 2,801 3,401
Accrued expenses 416 943
Operating reserves 318 540
Purchased research and development 192 10,432
Section 263A tax overhead capitalization 180 440
Depreciation 173 1,316
Deferred revenue -- 96
-------------------------
Gross deferred tax assets 45,973 44,849
Deferred tax asset
valuation allowance (45,973) (44,849)
-------------------------
$ -- $ --
=========================
</TABLE>
42
<PAGE>
A reconciliation between the amounts of reported income tax (expense)
benefit and the amount determined by applying the U.S. federal statutory rate of
35% to net (income) loss follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1999 1998 1997
- --------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Net (income) loss at statutory rate $ 868 $ (1,498) $ 11,892
State tax (expense) benefit, net of
federal tax effect 153 (264) 2,098
Federal and state research
and development credits 115 314 710
Non-qualified stock
options and warrants -- -- 183
Other (12) 331 110
---------------------------------------
1,124 (1,117) 14,993
Benefit of loss not
recognized, decrease (increase) in
valuation allowance (1,124) 1,117 (14,993)
---------------------------------------
$ -- $ -- $ --
=======================================
</TABLE>
The Company has provided a valuation allowance for the full amount of the
deferred tax assets since it is not sufficiently assured 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 $56,800,000 valuation allowance at December 31, 1999, $1,000,000
relating to deductions for non-qualified stock options will be credited to
additional paid-in capital upon realization.
At December 31, 1999, the Company had net operating loss carryforwards for
federal and state income tax reporting purposes of approximately $95,000,000. At
December 31, 1999, the Company had research and development tax credit
carryforwards for federal and state income tax reporting purposes of $1,703,000
and $1,098,000, respectively. The federal carryforwards expire between the years
2006 and 2019 and the state carryforwards expire between the years 1999 and
2014.
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.
14 : Segment Reporting
In 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which changes the way the Company
reports information about its operating segments. The Company has determined its
reportable segments based on its method of internal reporting, which
disaggregates its business by product category. The Company's reportable
segments are (i) its prostate cancer and incontinence business, which includes
the Cavermap surgical aid, the I-125 brachytherapy seeds and needles, all
consumer and surgical incontinence products, and (ii) its breast cancer
business, which includes all development efforts for its proposed BreastExam,
BreastView and BreastCheck products.
43
<PAGE>
The accounting policies of the segments are the same as those described in
Note 2, "Summary of Significant Accounting Policies." The Company evaluates the
performance of its operating segments based on operating loss which represents
income before interest income and expense and extraordinary gain on early
retirement of debt. There are no intersegment revenues.
The table below presents information about the Company's segments for the
three years ended December 31, 1999. Asset information reportable by segment is
not reported, since the Company does not produce such information internally:
Prostate cancer
and Breast
Incontinence Cancer Totals
---------------- -------- --------
Year ended December 31, 1999
Revenues $ 2,645 $ - $ 2,645
Restructuring 80 - 80
Depreciation (1,102) (9) (1,111)
Operating Loss (3,772) (422) (4,194)
Year ended December 31, 1998
Revenues $ 837 $ - $ 837
Restructuring (1,704) - (1,704)
Depreciation (1,692) (54) (1,746)
Operating Loss (11,156) (2,725) (13,881)
Year ended December 31, 1997
Revenues 503 - 503
Depreciation (3,102) (27) (3,129)
Operating Loss (26,723) (3,405) (30,128)
The following are reconciliations of the operating loss amounts presented
above to corresponding totals in the accompanying financial statements:
Years ended December 31,
1999 1998 1997
- - - ----------------------------------------------------------------------------
Total for reportable segments $ (4,194) $(13,881) $(30,128)
Corporate (931) (4,039) (4,530)
Interest income 1,151 2,837 4,558
Interest Expense (1,527) (3,911) (4,533)
---------- -------- --------
Loss before extraordinary
gain on the early retirement
of debt $ (5,501) $(18,994) $(34,633)
========= ========== ==========
15 : Commitments
Leases
The Company leases space under an operating lease which expires in
December, 2002. The Company incurred rent expense of $194,000, $645,000 and
$532,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
Future minimum payments for the operating leases as of December 31, 1999 are as
follows:
<TABLE>
<CAPTION>
Operating
Leases
- - - -----------------------------------------------
(in thousands)
<S> <C>
2000 $ 94
2001 96
2002 98
2003 - 2004 0
------
Total future minimum lease payments $ 288
======
</TABLE>
44
<PAGE>
UroMed Corporation
SCHEDULE II Valuation and Qualifying Accounts and Reserves
<TABLE>
<CAPTION>
Balance at Charged to Balance at
beginning costs and end of
Description of period expenses Write-offs period
<S> <C> <C> <C> <C>
Allowance for
uncollectible
accounts
Year ended
December 31,
1999 $ 3,000 27,000 -- $30,000
Year ended
December 31,
1998 $ -- 3,000 -- $ 3,000
Year ended
December 31,
1997 $ 36,000 -- (36,000) $ --
Reserve for
inventory
valuation
Year ended
December 31,
1999 $ 313,000 471,000 (10,000) $ 774,000
Year ended
December 31,
1998 $1,564,000 329,000 (1,580,000) $ 313,000
Year ended
December 31,
1997 $919,000 740,000 (95,000) $1,564,000
</TABLE>
45
<PAGE>
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 as of December 31, 1999 and
certain information about them are set forth below:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Daniel Muscatello 44 President and Chief Executive Officer
Domenic C. Micale 35 Vice President of Finance and Administration,
Treasurer
</TABLE>
DANIEL MUSCATELLO, Director, President and Chief Executive Officer. Mr.
Muscatello joined the Company in February 1997 as Director of Marketing and was
appointed Vice President of Marketing and Sales in 1998. He was appointed
President and Chief Executive Officer in December 1999 at which time he was also
elected a member of the Company's Board of Directors. Prior to joining the
Company, Mr. Muscatello held management positions with Baxter Healthcare, the
former American Cyanamid, from 1993 to 1997 as Healthcare Consultant, Corporate
Account Executive and Region Manager. Prior to that, Mr. Muscatello was Director
of Marketing for Alcon Laboratories, Inc. Systems Division from 1991 to 1993.
DOMENIC C. MICALE joined the Company in September 1996 as Accounting
Manager. In July 1998, he became Director of Finance and in November 1999 became
the Vice President of Finance and Administration and treasurer. Prior to joining
the Company, he served in Assistant Controller positions at both Sequoia
Systems, Inc. during 1996, and at TransNational Group from 1992 to 1995. Prior
to then from 1987 to 1991, he served as, most recently, audit supervisor at
Coopers & Lybrand in Boston. Mr. Micale is a Certified Public Accountant and
holds a B.S.B.A. from Northeastern University and an M.B.A. from Boston
University.
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" of the 2000 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" in the 2000 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" in the 2000 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" of the 2000
Proxy Statement, which section is incorporated herein by reference.
Item 13. Certain Relationships and
Related Transactions
None.
46
<PAGE>
PART IV
Item 14. Exhibits and Financial
Statement Schedules
(a)(1) Index to Financial Statements
The financial statements filed as part of this Annual Report on Form 10-K
are listed above under Part II, Item 8.
(a)(2) Index to Financial Statement Schedules
The financial statement schedule filed as part of this Annual Report on
Form 10-K is listed above under Part II, Item 8.
(a)(3) Index to exhibits. The following documents are filed as exhibits to this
Annual Report on Form 10-K.
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
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 Lease between the Company and Trustees of New England
Industrial Center *(f) (filed as Exhibit No. 10.1)
10.10 Employment Agreement between the Company and John G. Simon
*(g) (filed as Exhibit No. 10.2)
47
<PAGE>
10.11 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)
10.12 Registration Rights Agreement, dated as of May 9, 1996, among the
Registrant and certain of its Securityholders.
*(l) (filed as Exhibit 4.4)
10.13 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)
10.14 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)
10.15 Employment Agreement between the Registrant and Richard
Epstein.
*(n) (filed as Exhibit 10.24)
10.16 Employment Agreement between the Registrant and Alan
West.
*(n) (filed as Exhibit 10.25)
10.17 Employment Agreement between the Registrant and Robert
Lorette.
*(n) (filed as Exhibit 10.26)
10.18 Employment Agreement, dated as of March 17, 1997,
between the Company and John G. Simon
*(n) (filed as Exhibit 10.28)
10.19 Rights Agreement, dated as of July 2, 1997.
*(o) (filed as Exhibit 10.29)
10.20 Employment Agreement, dated as of December 1, 1999,
between the Company and John G. Simon
10.21 Amendment to Employment Agreement, dated as of December 1, 1999,
between the Company and Daniel Muscatello
10.22 Contribution Agreement, dated as of April 14, 1999, between the
Company and Assurance Medical, Inc. for the "spin-out" of
Assurance Medical, Inc. by the Company
10.23 Technology and Other Asset Purchase Agreement, dated as of July
20, 1999, between the Company and The Procter & Gamble Company
for the sale of Impress Softpatch(TM) assets to The Procter
& Gamble by the Company
21 Subsidiaries of Registrant
*(a) (filed as Exhibit No. 21)
23 Consent of PricewaterhouseCoopers LLP
27 Financial Data Schedule
</TABLE>
48
<PAGE>
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:
(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
September 30, 1994.
(f) Registrant's Quarterly Report on Form 10-Q for its fiscal quarter ended
March 31, 1994.
(g) Registrant's Registration Statement on Form S-3 (File No. 333-03843) filed
May 16, 1996.
(h) Registrant's Quarterly Report on Form 10-Q for its fiscal quarter ended
September 30, 1996.
(i) Registrant's Annual Report on Form 10-K for its fiscal year ended
December 31, 1996.
(j) Registrant's Current Report on Form 8-K filed July 2, 1997.
+ 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.
49
<PAGE>
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 30, 2000
By: /s/ Daniel Muscatello
-----------------------
Daniel Muscatello
President and Chief Executive Officer
By: /s/ Domenic C. Micale
-----------------------
Domenic C. Micale
Vice President of Finance, 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 30, 2000 by the following
persons on behalf of the Registrant and in the capacities indicated.
/s/ John G. Simon Chairman of the Board of Directors
- - - - ----------------------
/s/ Daniel Muscatello President and Chief Executive Officer
- - - - ----------------------
/s/ Elizabeth B. Connell, MD Director
- - - - ----------------------
/s/ Richard A. Sandberg Director
- - - - ----------------------
/s/ Thomas F. Tierney Director
- - - - ----------------------
/s/ E. Kevin Hrusovsky Director
- - - - ----------------------
50
<PAGE>
Exhibit 23
Consent of Independent Accountants
To the Board of Directors of
UroMed Corporation
We hereby consent to the incorporation by reference in the Prospectuses
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 our
report dated February 9, 2000, except for the last paragraph of Note 9 for which
the date is March 30, 2000, relating to the financial statements and financial
statement schedules, which appears in UroMed Corporation's Annual Report on
Form 10-K for the year ended December 31, 1999.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 30, 2000
51
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET AND STATEMENT OF OPERATIONS FILED AS PART OF THE ANNUAL REPORT IN
FORM 10-K.
</LEGEND>
<CIK> 0000917821
<NAME> UROMED CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 3,485
<SECURITIES> 14,377
<RECEIVABLES> 615
<ALLOWANCES> 30
<INVENTORY> 841
<CURRENT-ASSETS> 19,763
<PP&E> 1,511
<DEPRECIATION> 1,368
<TOTAL-ASSETS> 21,876
<CURRENT-LIABILITIES> 1,492
<BONDS> 17,393
0
0
<COMMON> 107,164
<OTHER-SE> (104,173)
<TOTAL-LIABILITY-AND-EQUITY> 2,991
<SALES> 2,645
<TOTAL-REVENUES> 2,645
<CGS> 2,499
<TOTAL-COSTS> 8,442
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,527)
<INCOME-PRETAX> (5,501)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,501)
<DISCONTINUED> 0
<EXTRAORDINARY> 3,021
<CHANGES> 0
<NET-INCOME> (2,525)
<EPS-BASIC> (0.48)
<EPS-DILUTED> (0.48)
</TABLE>
UroMed Corporation
EMPLOYMENT AGREEMENT
The parties to this agreement, dated as of December 1, 1999, are UroMed
Corporation, a Massachusetts corporation (the "Employer"), and John G. Simon,
(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 Chairman of the Board of the
Employer. The Employee shall preside over meetings of the Employer's Board of
Directors, and, subject to the general direction and control of the Employer's
Board of Directors, meet periodically with the Chief Executive Officer and 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 such business time and effort as may be required by the Employer,
in and to his employment hereunder; provided, however, that Employee may be a
full-time employee elsewhere (subject to the duties of Employee pursuant to
Section 5 hereof) during the term of this Agreement if such employment does not
substantially interfere with Employee's abilities to materially discharge his
obligations under this Agreement.
3. TERM. (a) GENERAL. The initial term of employment of the Employee
hereunder shall commence as of the date hereof (as defined in Section 7 hereof)
and continue until March 31, 2001, 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.
(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 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; and
(ii) expense reimbursements under Section 4(d) hereof for expenses incurred
in the performance of his duties hereunder prior to termination.
In addition to the foregoing, at such time as the Employee ceases to be an
employee of the Employer during 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 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).
(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 two hundred and twenty-five thousand dollars
($225,000). 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) 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.
(c) 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.
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 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 later 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. 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 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 or of the other methods of giving notice
hereunder, to the relevant address 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, c/o UroMed Corporation 1400 Providence Highway, Bldg 2
Norwood, MA 02062
If to the Employee, to:
UroMed Corporation 1400 Providence Highway, Bldg. 2 Norwood, MA 02062
(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.
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:
/s/ Richard A. Sandberg
_______________________
Title: Chairman of the Compensation Committee,
hereunto duly authorized, acting in such capacity, and not individually
EMPLOYEE
/s/ John G. Simon
_________________
AMENDMENT TO EMPLOYMENT AGREEMENT
Whereas UroMed Corporation, a Massachusetts corporation with a principal
place of business at 1400 Providence Highway, Building #2, Norwood,
Massachusetts 02062 ("UroMed", "the Employer" or "the Company ") and Daniel
Muscatello. ("Employee") are parties to an Employment Agreement between them
dated February 4, 1997 ("the February Agreement"); and
Whereas UroMed desires to recognize the accomplishments of the Employee, to
change his position and compensation and to set forth such changes in an
amendment to the February Agreement,
Now, therefore, the parties agree as follows:
1. Paragraph 1 of the February Agreement will be deleted in its entirety
and the following shall be substituted.
"1. AT WILL EMPLOYMENT. Commencing on or about December 1, 1999 Employee
shall continue as a full time employee of UroMed with the title of President and
Chief Executive Officer. As President and Chief Executive Officer, subject to
the 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 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 without the consent of the Board of Directors. In addition to complying
with the terms and conditions hereof and the performance of the Employee job
responsibilities, Employee shall conduct himself in accordance with such
policies, rules and regulations as may be adopted by UroMed from time to time."
2. Paragraph 2 of the February Agreement will be deleted in its entirety
and the following shall be substituted.
"2. Compensation.
(a) Employee's annual compensation shall be $200,000.00 ("the Base
Salary"). 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 an annual review and adjustment.
(b) Severance Pay. The Employee shall not be entitled to any severance pay
or other compensation upon termination of this employment hereunder except for:
(i) any portion of his Base Salary accrued but unpaid from the last monthly
payment date to the date of termination;
(ii) expense reimbursements 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 in twelve equal
installments an amount equal to the Employee's then annual Base Salary plus an
amount equal to the monthly charge for participation under COBRA in the
Employer's medical insurance plan ("the Monthly Payment") paid in arrears on the
last day of each calendar month. For the purposes of this paragraph 2(b), the
sale of substantially all the assets of the Company or the acquisition of
substantially all the stock of the Company will be deemed to be a termination by
the Employer other than for Cause.
In addition to the foregoing, if, twelve months after Employee's
termination other than for Cause, (I) the Employee is not employed on a
full-time basis and (ii) the Employee has demonstrated to the Compensation
Committee of the Board of Directors diligent pursuit of employment during the
prior twelve months (including, but not limited to, providing written evidence
of communications and expenses incurred in such pursuit and references with
intermediaries who have been involved in pursuing employment Opportunities),
UroMed shall continue to pay, on a month-to-month basis, the Monthly Payment for
up to an additional six months provided that at the end of each month the
Employee continues to demonstrate satisfactory evidence of (i) and (ii) above.
Employer shall not make any such additional payments if, subsequent to
termination, the Employee has engaged performed or otherwise engaged in
consulting work that has resulted in payments (or accrued payments) to him or
his affiliates or more than $10,000, subsequent to termination or has
participated as a director, officer, founder or owner of more than 5% of the
equity of any company in which he did not participate prior to termination.
(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 directions are not unlawful to
perform or to adhere to or which do not relate to shipping or selling Company
products which the Employee believes, in good faith, to be appropriate for
shipment), 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."
3. The last sentence of paragraph 3 of the February Agreement will be
deleted in its entirety and the following shall be substituted.
"Employee will be awarded, at or prior to the first meeting of the Board of
Directors subsequent to the signing hereof, additional options to purchase
shares of UroMed common stock at the fair market value per share on the date of
grant so that the sum of all shares underlying all options held by Employee will
equal 2% of the fully diluted shares of common stock of the Company. Such
additional options shall vest 40% after two years of service and the balance
will vest monthly in equal increments over the following 36 months. In addition,
such options shall be governed by and be consistent with the terms of the most
recent plan adopted by the Board of Directors pursuant to which employee stock
options are issued."
4. Miscellaneous.
A. This Agreement shall be governed by and construed in accordance with the
laws of the Common wealth of Massachusetts.
B. Employee hereby consent 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. If any provision in this Agreement is found unenforceable, it shall not
affect any other provisions hereof. If any provision 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.
D. This Agreement shall bind and inure to the benefit of UroMed and any
successor UroMed by reorganization, merger, consolidation, liquidation, sale or
other assignee of UroMed's business or assets but shall otherwise be and remain
unenforceable.
E. 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.
F. Any cause of action or matter in dispute hereunder or otherwise relating
to Employee's relation ship with UroMed, whether or not arising during the 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.
G. 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 an 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 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
sought, the determination 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 December 1, 1999.
EMPLOYEE
/s/ Daniel Muscatello
______________________
UROMED CORPORATION
By:
/s/ Richard A. Sandberg
_______________________
Its Chairman of the Compensation Committee, hereunto duly authorized,
acting in such capacity, and not individually
CONTRIBUTION AGREEMENT
This is a Contribution Agreement, dated as of April 14, 1999 (as in effect
from time to time, this "Agreement"), between UroMed Corporation, a
Massachusetts corporation ("Parent"), and Assurance Medical, Inc., a Delaware
corporation ("Assurance").
WHEREAS, the Parent has engaged for several years in the development of its
BreastView(R), BreastCheck(R) and Breast Exam electronic palpation technology
(the "Products");
WHEREAS, the Parent has caused the formation of Assurance in order to own
the Products and continue the development and commercialization of the Products;
WHEREAS, the Parent and Assurance desire to enter into this Agreement in
order to effect the transfer by the Parent to Assurance of certain assets and
liabilities relating to the Products in exchange for the issuance by Assurance
to the Parent of shares of Assurance's Series A Preferred Stock, par value $.001
per share ("Series A Preferred Stock"), and shares of Series B Preferred Stock,
par value $.001 per share ("Series B Preferred Stock" and collectively the
"Preferred Stock").
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
set forth below, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
Article 1
Definitions
1.1. Certain Defined Terms. As used in this Agreement, the following
capitalized terms have the following meanings:
"Agreement" means this Contribution Agreement, including all exhibits and
schedules hereto, as amended, restated or supplemented from time to time.
"Assurance" has the meaning set forth in the preamble.
"Co-Sale Agreement" means that certain Co-Sale Agreement, dated as of April
14, 1999, by and among Assurance, Alan West, Michael Kelly and Joel Weinstein
and the holders of Series A Preferred Stock and Series B Preferred Stock.
"Encumbrance" means all liens, security interests, pledges, charges,
mortgages, conditional sales agreements, title retention agreements and other
encumbrances.
"Material Adverse Effect" means a material adverse effect on the
operations, assets or financial condition of the Transferred Business taken as a
whole.
"Parent" has the meaning set forth in the preamble.
"Permitted Encumbrances" means Encumbrances that in connection with any
agreement or instrument, relate to restrictions on transfer embodied in the
terms of such agreement or instrument.
"Person" means any individual, partnership, corporation, association,
trust, limited liability company, joint venture, unincorporated organization and
any government, governmental department or agency or political subdivision
thereof.
"Products" has the meaning set forth in the preamble.
"Transferred Business" means the development and commercialization of the
Company's breast cancer palpation screening technology, including, without
limitation, the Products.
1.2. Cross References to Certain Terms Defined Elsewhere in this Agreement.
Term Section
401(k) Plan 8.2(c)
Acquired Assets 2.1
Assumed Obligations 3.1
Claim 9.3(a)
Closing 4.1
Closing Date 4.1
Employees 6.10
Equipment 2.1(a)
Excluded Assets 2.2
Hopkinton Lease 2.1(c)
Indemnified Party 9.3(a)
Indemnifying Party 9.3(a)
Intangibles 2.1(d)
Losses 9.1 and 9.2
Miscellaneous Contracts 2.1(e)
Parent Benefit Plan 8.2(b)
Preferred Stock preamble
Proprietary Software 2.2(f)
Purchase Agreement 7.3
Retained Liabilities 3.1
Retained Third Party Software 2.2(f)
Securities Act 5.5(c)
Series A Preferred Stock preamble
Series B Preferred Stock preamble
Shares 3.2 and 5.5(a)
Subject Losses 9.6
Third Party Claim 9.3(a)
Third Party Software 2.1(f)
Third Party Software Licenses 2.1(f)
Transferred Employees 8.2(a)
Transferred Software 2.2(f)
WARN Act 8.2(a)
Article 2
Contribution of Assets
2.1. Acquired Assets. Subject to the terms and conditions set forth in this
Agreement, the Parent hereby assigns, transfers and delivers to Assurance, and
Assurance hereby acquires and takes assignment and delivery of, the assets of
the Parent owned, used or held for use in the Transferred Business as of the
date hereof and described below:
(a) any and all fixtures, machinery, installations, equipment, furniture,
supplies and other personal property, used solely in conjunction with the
operations of the Transferred Business, including without limitation those items
described on Schedule 2.1(a) hereto (the "Equipment");
(b) all the Parent's title to, interest in and rights under the lease of
the real property located at 103 South Street, Hopkinton, Massachusetts (the
"Hopkinton Lease");
(c) (i) all the Parent's right, title and interest in and to all trade
secrets and confidential information relating to the Transferred Business;
(ii) all the Parent's right, title and interest in and to any works of
authorship relating to the Transferred Business, including all copyright rights
throughout the world, and including the right to sue for and to recover for past
infringement thereof; (iii) all the Parent's right, title and interest in and to
all technical information, know-how and show-how whether or not protectable by
patent, copyright or trade secret law, relating to the Transferred Business;
(iv) all the Parent's right, title and interest in and to the trademarks, trade
names and service marks, whether registered or unregistered, arising under the
common law, state law, Federal law and laws of foreign countries and all
registrations thereof and interests therein throughout the world, used solely in
or with respect to the Transferred Business, including the right to sue for and
to recover for past infringement thereof; (v) all of the Parent's right, title
and interest in and to advertising and marketing know-how and materials, sales
tools and advertising, customer lists and other customer and potential customer
data relating to the Transferred Business, supplier and vendor lists and other
intangible assets, to the extent relating to the conduct of the Transferred
Business; and (vi) all the Parent's right, title and interest in any internally
developed software used in the Transferred Business (the "Internally Developed
Software," and, collectively, the "Intangibles"), including those more
particularly described on Schedule 2.1(c) hereto;
(d) all the Parent's right, title and interest in the miscellaneous
contracts of the Parent listed on Schedule 2.l(d) hereto (the "Miscellaneous
Contracts");
(e) copies of the Parent's accounting books, records and ledgers relating
to the Transferred Business, and copies of all documents and records relating to
the Acquired Assets and the Transferred Business and originals of the Hopkinton
Lease and Miscellaneous Contracts; and
(f) all the Parent's right, title and interest in the computer software
licensed to Parent and used in the Transferred Business and listed on Schedule
2.1(f) hereto (the "Transferred Software").
All of the foregoing assets are referred to collectively in this Agreement
as the "Acquired Assets".
2.2 Excluded Assets. Notwithstanding the foregoing, the Parent is not
transferring and Assurance is not acquiring, pursuant to this Agreement, and the
term "Acquired Assets" shall not include, any of the following (the "Excluded
Assets"):
(a) Any cash;
(b) Any accounts receivable, notes receivable or miscellaneous receivables;
(c) Any of the Parent's tradenames, service marks or tradenames, or any
stationery, office supplies, business forms, manuals or similar property bearing
the Parent's trademarks, trade names, service marks, logos or similar corporate
identification, unless such trademarks, trade names, service marks, logos or
similar corporate identification have been redacted therefrom;
(d) Any assets related solely to Retained Liabilities;
(e) Any income tax refunds or claims therefor which the Parent may be
entitled to receive from any federal, state, or local authorities;
(f) all computer software owned by the Parent and used in the Transferred
Business (the "Proprietary Software") and all computer software licensed to
Parent and used in the Transferred Business (the "Retained Third Party
Software") other than the Transferred Software and Internally Developed
Software; and
(g) Any assets of the Parent not used in the Transferred Business;
(h) Any of the Parent's rights under any insurance policies;
(i) the consideration received by the Parent pursuant to this Agreement;
(j) the rights of the Parent under this Agreement; and
(k) any rights of the Parent under any Parent Benefit Plan, and any pension
funds or other assets held pursuant to the terms of any Parent Benefit Plan.
Article 3
Assumption of Obligations; Issuance of Shares
3.1. Assumption of Obligations. Assurance assumes, and agrees to pay,
perform, fulfill and discharge (i) all obligations of the Parent arising on or
after the date hereof and relating to events transpiring on or after the date
hereof under the Hopkinton Lease, the Miscellaneous Contracts and the license
agreements relating to the Transferred Software, (ii) all other liabilities and
obligations relating to the Acquired Assets and arising after the Closing or
otherwise relating to or arising out of the operation of the Transferred
Business from and after the Closing Date, and (iii) the expenses to be paid by
Assurance pursuant to Section 3.3 (collectively, the "Assumed Obligations").
Anything in this Agreement to the contrary notwithstanding, Assurance shall not
assume, and shall not be deemed to have assumed, any liability or obligation of
the Parent whatsoever other than as specifically set forth in this Section 3.1
(with all such non-assumed liabilities and obligations referred to herein as the
"Retained Liabilities").
3.2. Issuance of Shares. As consideration for the transfer to Assurance of
the Acquired Assets, Assurance hereby agrees to issue to the Parent 4,740,000
shares of Series A Preferred and 500,000 shares of Series B Preferred
(collectively, the "Shares").
3.3. Issuance of Letter of Credit; Payment of Certain Fees and Expenses.
(a) Assurance agrees to cause its lender to issue a Letter of Credit in
favor of John M. Summers, sublessor under the Hopkinton Lease, complying with
the terms of the Hopkinton Lease, which shall replace the Letter of Credit
issued by Fleet National Bank pursuant to Section 10.15(b) of the Hopkinton
Lease, within thirty (30) days after Closing.
(b) Assurance agrees that it will pay or reimburse Parent for (i) accrued
expenses attributable to the Transferred Business listed on Schedule 3.3(b)
hereto, within one week after the Closing; (ii) any expenses attributable to the
Transferred Business incurred by Parent on or after April 1, 1999, a reasonable
estimate of which is set forth on Schedule 3.3(b), within one week after request
for such payment or reimbursement by Parent, (iii) an amount equal to the
security deposit, and any interest accrued thereon, deposited by Parent pursuant
to Section 10.15(a) of the Hopkinton Lease, within one week after the Closing,
and (iv) employee bonuses in the amounts set forth on Schedule 3.3(b) (the
"Employee Bonuses"), prior to May 1, 1999.
Article 4
Closing
4.1. Time and Place. The closing of the transfer and delivery of all
documents and instruments necessary to consummate the transactions contemplated
by this Agreement (the "Closing") shall be held at the offices of Hale & Dorr
LLP, Boston, Massachusetts, on the date of this Agreement or at such other time
or such other place as the Parent and Assurance may agree. The date on which the
Closing is actually held hereunder is sometimes referred to herein as the
"Closing Date". The Closing will be deemed to be effective for purposes of this
Agreement as of 11:59 p.m. in Boston, Massachusetts on the Closing Date.
4.2. Transactions at Closing. At the Closing:
(a) The Parent shall duly execute and deliver to Assurance or its nominee
or nominees such bills of sale, certificates of title and other instruments of
assignment or transfer with respect to the Acquired Assets as Assurance may
reasonably request and as may be necessary to vest in Assurance all of the
Parent's title to the Acquired Assets.
(b) Assurance shall deliver to the Parent duly executed certificates
representing the Shares.
(c) Assurance shall duly execute and deliver to the Parent such instruments
of assumption with respect to the Assumed Obligations as the Parent may
reasonably request.
(d) The Parent shall deliver to Assurance consents to the transactions
contemplated by this Agreement from John M. Summers, the Sublessor under the
Hopkinton Lease, and Tekscan, Inc.
(e) Fish & Richardson P.C. shall deliver to Assurance a written opinion,
addressed to Assurance and dated the Closing Date in form and substance
acceptable to Assurance and at Assurance's expense.
(f) Each of Alan West, Joel Weinstein and Mike Kelly shall deliver to the
Parent an acknowledgement in the form of Exhibit A hereto.
Article 5
Representations and Warranties of the Parent
The Parent represents and warrants to Assurance as follows:
5.1 Incorporation; Authority. The Parent is a corporation duly organized,
validly existing and in good standing under the laws of the Commonwealth of
Massachusetts and has all requisite corporate power and authority to carry on
the Transferred Business as now conducted.
5.2 Rights to Sell Acquired Assets; Approvals; Binding Effect. The Parent
has all requisite corporate power and authority to enter into this Agreement, to
perform all of its agreements and obligations hereunder in accordance with its
terms, and to transfer to Assurance all of the Acquired Assets. The execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby has been duly authorized by all necessary
corporate action on the part of the Parent. This Agreement has been duly
executed and delivered by the Parent and constitutes the legal, valid and
binding obligation of the Parent, enforceable against the Parent in accordance
with its terms, except as such validity, binding effect or enforcement may be
limited by bankruptcy, insolvency or similar laws affecting creditors' rights
generally or by equitable principles relating to the availability of remedies.
5.3 No Defaults. Except for consents to transfer with respect to any
agreement or license that is part of the Acquired Assets, the entering into this
Agreement, the performance and compliance by the Parent with the terms hereof,
and the consummation of all the transactions contemplated hereby, will not
either currently, or after notice or lapse of time or both:
(a) result in a violation of any provision of the charter, by-laws or other
organizational documents of the Parent;
(b) result in a violation by the Parent of any statute, regulation, order,
law, ordinance or restriction applicable to the Parent or by which the Parent or
any of the Acquired Assets is bound or subject;
(c) result in a violation by the Parent of any judgment, order or decree of
any court or judicial or quasi-judicial tribunal applicable to the Parent;
(d) conflict with, violate, result in the breach or termination of, or
constitute a default under any contract, order, or permit to which the Parent is
a party or by which it or any of the Acquired Assets are bound or subject; or
(e) result in the creation of any Encumbrance upon any of the Acquired
Assets, except, in each case, for Permitted Encumbrances.
5.4. Title to Assets. The Parent owns or has the right to transfer all of
the Acquired Assets, subject to the receipt of consents to transfer, which will
be obtained prior to the Closing. The Parent has, and at and as of the Closing
the Parent will convey to Assurance, good and marketable title to the Acquired
Assets, free and clear of all Encumbrances except for Permitted Encumbrances;
provided that this Section 5.4 shall not be considered a representation or
warranty as to the non-infringement of any of the Intangibles or other
intellectual property included in the Acquired Assets.
5.5. Investment Representations
(a) Purchase Entirely for Own Account. This Agreement is made with the
Parent in reliance upon the Parent's representation to Assurance, which by the
Parent's execution of this Agreement the Parent hereby confirms, that the shares
of Preferred Stock (the "Shares") to be acquired by the Parent will be acquired
for investment for the Parent's own account, not as a nominee or agent, and not
with a view to the resale or distribution of any part thereof and that the
Parent has no present intention of selling, granting any participation in, or
otherwise distributing the same.
(b) Disclosure of Information. The Parent represents that it has had an
opportunity to ask questions and receive answers from Assurance regarding the
terms and conditions of the transactions contemplated by this Agreement. The
foregoing, however, does not limit or modify the representations and warranties
of Assurance in Article 6 of this Agreement or the right of the Parent to rely
thereon.
(c) Investment Experience. The Parent understands that the Shares have not
been, and prior to an appropriate registration statement's becoming effective
will not be, registered under the Securities Act of 1933, as amended (the
"Securities Act"), by reason of a specific exemption from the registration
provisions of the Securities Act which depends upon, among other things, the
bona fide nature of the investment intent and the accuracy of the Parent's
representations as expressed herein. The Parent acknowledges that it is able to
fend for itself, can bear the economic risk of its investment and has such
knowledge and experience in financial and business matters that it is capable of
evaluating the merits and risks of the investment in the Shares.
(d) Legends. The Parent understands that the Shares may bear one or all of
the following legends:
(i) "these securities have not been registered under the securities act of
1933. they may not be sold, offered for sale, pledged or hypothecated in the
absence of a registration statement in effect with respect to the securities
under such act or an opinion of counsel REASONABLY satisfactory to the company
that such registration is not required."
(ii). Any legend required by the Blue Sky laws of any state to the extent
such laws are applicable to the shares represented by the certificate so
legended.
A certificate shall not bear such legends if in the opinion of counsel
reasonably satisfactory to Assurance the securities represented thereby may be
publicly sold without registration under the Securities Act and any applicable
state securities laws.
(e) Restricted Securities. The Parent understands that the Shares are
characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired from Assurance in a transaction not
involving a public offering and that under such laws and applicable regulations
such Shares may be resold without registration under the Securities Act only in
certain limited circumstances. The Parent acknowledges that the Shares must be
held indefinitely unless subsequently registered under the Securities Act or an
exemption from such registration is available.
(f) Accredited Investor. The Parent is an accredited investor as defined in
Rule 501(a) of Regulation D promulgated under the Securities Act.
Article 6
Representations and Warranties of Assurance
Assurance hereby represents and warrants to the Parent as follows:
6.1. Organization and Standing of Assurance. Assurance is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. Assurance has all required corporate power and authority to
enter into this Agreement, to perform all of its agreements and obligations
hereunder in accordance with its terms and to acquire the Acquired Assets from
the Parent.
6.2. Corporate Approval; Binding Effect. Assurance has obtained all
necessary authorizations and approvals from its Board of Directors and
shareholders required for the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby. This Agreement has been
duly executed and delivered by Assurance and constitutes the legal, valid and
binding obligation of Assurance enforceable against Assurance in accordance with
its terms, except as such validity, binding effect or enforcement may be limited
by bankruptcy, insolvency or similar laws affecting creditors' rights generally
or by equitable principles relating to the availability of remedies.
6.3. Non-Contravention. The execution, delivery and performance by
Assurance of this Agreement will not result in any violation of or be in
conflict with its Certificate of Incorporation or By-Laws, or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to it, or be in conflict with or constitute a default under any of
the foregoing.
6.4. Government Consents, Etc. Except for filings with the United States
Patent and Trademark Office and similar filings to register the transfer of
personal property, no consent, approval or authorization of or registration,
designation, declaration or filing with any Governmental Entity, Federal or
other, on the part of Assurance is required in connection with the purchase of
the Acquired Assets pursuant to this Agreement or the consummation of any other
transaction contemplated hereby.
6.5. Brokers. No finder, broker, agent or other intermediary has worked for
or on behalf of Assurance in connection with the negotiation or consummation of
the transactions contemplated hereby.
6.6. Capital Stock. The authorized capital stock of Assurance consists of
(a) 4,780,000 shares of Series A Preferred Stock, $.01 par value, (b) 8,500,000
shares of Series B Preferred Stock, par value $.01 per share and (c) 25,000,000
shares of Common Stock, $.01 par value. All of the outstanding shares of capital
stock of Assurance are duly authorized, validly issued, fully paid and
non-assessable. No class of capital stock of the Buyer is entitled to preemptive
rights. Except for rights of first refusal set forth in the Co-Sale Agreement,
no options, warrants or other rights to acquire capital stock from the Buyer are
outstanding.
6.7. Authorization for Shares. Assurance has taken all necessary action to
permit it to issue the number of Shares required to be issued pursuant to
Article 3. The Shares to be issued pursuant to Article 3 will, when issued, be
duly authorized, validly issued, fully paid, nonassessable and free of any
Encumbrance and no stockholder of Assurance will have any preemptive right of
subscription or purchase in respect thereof. Assuming the accuracy of the
Parent's representations and warranties in Section 5.5 hereof, the Shares will,
when issued, be exempt from registration under the Securities Act and any
applicable state securities laws.
6.8. Due Diligence Review. Assurance acknowledges that it has completed to
its satisfaction its own due diligence investigation with respect to the
Acquired Assets. Assurance acknowledges and agrees that, except for the
representations and warranties of the Parent contained in Article 5 hereof,
Assurance is acquiring the Acquired Assets on an AS IS/WHERE IS basis. Assurance
further acknowledges and agrees that upon consummation of the transactions
contemplated hereby, Assurance will not have any further recourse against the
Seller with respect to the Acquired Assets except for claims for indemnification
made pursuant to Article 9 hereof, claims for equitable remedies and claims
based upon fraud.
6.9. Conversion Shares. Assurance has reserved 5,280,000 shares of Common
Stock for issuance upon conversion of the Shares. All shares of Common Stock to
be issued upon conversion of the Shares have been duly authorized and, upon
issuance upon conversion of the Shares in accordance with the terms of
Assurance's Certificate of Incorporation, as amended from time to time, will be
validly issued and fully paid and non-assessable and issued free of any
preemptive rights.
6.10. Accrued Expenses. To the best knowledge of Assurance, except as set
forth on Schedule 6.10(a) hereto, Parent's employees listed on Schedule 6.10(b)
hereto (the "Employees") have not incurred any expenses relating to the
Transferred Business since January 1, 1999.
Article 7
Post Closing Covenants of Assurance and Parent
7.1. Securities Laws Compliance. Assurance shall, within 15 days after the
Closing, file a notice of the sale of the Shares to the Parent pursuant to
Section 25102(f) of the California Corporations Code, and shall make any filings
necessary under the securities or Blue Sky laws of any other applicable
jurisdiction.
7.2. Private Offering. Assurance agrees that neither Assurance nor anyone
acting on its behalf will offer any of the Shares or any similar securities for
issuance or sale to, or solicit any offer to acquire any of the same from,
anyone or take any other action so as to make the issuance and sale of the
Shares subject to the registration requirements of Section 5 of the Securities
Act.
7.3. Confidentiality Agreements. In the event that after the Closing a
current or former employee or vendor of Parent violates the terms of any
confidentiality or non-disclosure agreement between the Parent and such employee
or vendor with respect to information relating to the Transferred Business, then
at the request and direction of Assurance the Parent agrees to use reasonable
efforts to enforce the provisions of such agreement. Assurance shall reimburse
Parent for all reasonable expenses incurred by Parent in connection with such
enforcement.
Article 8
Certain Transitional Matters
8.1. (a) Employment. Assurance will offer employment, commencing on the
Closing Date, to the Employees who are at work at the Closing Date, including
those Employees on vacation, absent due to a sick or personal day, family leave
or workers' compensation claim (collectively, the "Transferred Employees").
Assurance will not be required to employ Employees who at the Closing Date are
on long-term disability. Each Transferred Employee's salary shall be at least as
great as his/her salary immediately prior to the Closing Date, and the location
of the offered employment shall be within a twenty-five mile radius of the
location where the Employee is employed immediately prior to the Closing Date.
Assurance shall have no obligation to employ any Employee for any specific term
after the Closing Date, provided that Assurance agrees that for a period of 60
days after the Closing Date, it will not cause any of the Transferred Employees
to suffer "employment loss" for purposes of the Worker Adjustment and Retraining
Notification Act and related regulations (the "WARN Act") if such employment
loss could create any liability for the Parent, unless Assurance delivers
notices under the WARN Act in such a manner and at such time that the Parent
bears no liability with respect thereto.
(b) Benefit Plans - Generally. Except as otherwise set forth on Schedule
8.4 hereto, the Transferred Employees (and their eligible dependents and
beneficiaries) shall cease to participate in any of the Parent's employee
benefit plans and programs ("Parent Benefit Plans") effective as of the Closing.
The Parent shall retain exclusive liability and responsibility for providing any
and all benefits due and payable to or in respect of Transferred Employees and
related dependents and beneficiaries under any Parent Benefit Plans in
accordance with the terms of such Parent Benefit Plans and applicable law.
(c) Savings Plan. The Parent will retain all liability and responsibility
for the disposition of interests under the Parent's 401(k) Plan (the "401(k)
Plan"), with respect to those Transferred Employees (or their beneficiaries) of
Parent who, as of the Closing Date, are participants in the 401(k) Plan. The
Parent agrees that it will cause the accounts in the 401(k) Plan of all such
participants to be fully vested as of the Closing Date. The active participation
of the Transferred Employees in the 401(k) Plan shall cease as of the Closing
Date.
8.3. Business Records. Assurance acknowledges that business records of the
Parent relating to the Parent's operations prior to the Closing will be conveyed
to Assurance as part of the Acquired Assets, and that the Parent may from time
to time require access to such records, and Assurance agrees that upon
reasonable prior written notice from the Parent, it will at any time prior to
the third anniversary of this Agreement, during normal business hours, either
provide the Parent with access to or, at Assurance's option and Parent's
expense, copies of such records for such purposes. Assurance agrees that it will
not destroy any such business records during the three year period after the
Closing Date and it will not within the two year period after that destroy any
business records prepared prior to the Closing without first notifying the
Parent and affording it the opportunity to remove or copy them. Assurance
further acknowledges that certain records relating to the Transferred Employees
are not being delivered to Assurance as part of the Acquired Assets. The Parent
acknowledges that Assurance may from time to time require access to or copies of
such records in connection with employee matters, and the Parent agrees that
upon reasonable prior written notice from Assurance, it will at any time prior
to the third anniversary of this Agreement, during normal business hours, either
provide Assurance with access to or, at the Parent's option and Assurance's
expense, copies of such records for such purposes. The Parent further agrees
that it will not destroy any such records during the three year period after the
Closing Date and it will not within the two year period after that destroy any
records relating to the Transferred Employees without first notifying Assurance
and affording it the opportunity to remove or copy them.
8.4. General Transitional Assistance. Parent agrees to provide general
transitional assistance to Assurance after the Closing, including assistance
with the matters set forth on Schedule 8.4 hereto. Any such transitional
assistance will be at the request of Assurance. Assurance will reimburse Parent
for any out-of-pocket costs and an allocable portion of wages or salaries and
related costs of any Parent employees providing this assistance. Unless it
otherwise agrees, Parent will not be required to provide this assistance after
180 days after Closing.
8.5. Computer Transition. Immediately after the Closing, Assurance agrees
to do all acts reasonably requested by Parent to transition Assurance off of
Parent's computer network. Parent agrees to provide the computer transition
assistance to Assurance set forth on Schedule 8.5 hereto.
Article 9
Indemnification
9.1. Indemnity by the Parent. The Parent agrees to indemnify and hold
Assurance harmless from and with respect to any and all claims, liabilities,
losses, damages, costs and expenses, including without limitation the reasonable
fees and disbursements of counsel, net of insurance proceeds (collectively, the
"Losses"), related to or arising directly or indirectly out of (a) any breach of
any representation or warranty made by the Parent in this Agreement, (b) any
breach by the Parent of any covenant, obligation, or undertaking made by the
Parent in this Agreement or (c) the Retained Liabilities, including the
liabilities of the Parent relating to Parent Benefit Plans and retained pursuant
to Section 8.2(b).
9.2. Indemnity by Assurance. Assurance agrees to indemnify and hold the
Parent harmless from and with respect to any and all claims, liabilities,
losses, damages, costs and expenses, including without limitation the fees and
disbursements of counsel, net of insurance proceeds (also referred to as
"Losses"), related to or arising directly or indirectly out of (a) any breach of
any representation or warranty made by Assurance in this Agreement, or (b) any
breach by Assurance of any covenant, obligation or undertaking made by Assurance
in this Agreement (including without limitation any failure by Assurance to pay
or perform any of the Assumed Obligations).
9.3. Claims.
(a) Any party seeking indemnification hereunder (the "Indemnified Party")
shall promptly notify the party hereto obligated to provide indemnification
hereunder (the "Indemnifying Party") or any action, suit, proceeding, demand or
breach (a "Claim") with respect to which the Indemnified Party claims
indemnification hereunder, provided that failure of the Indemnified Party to
give such notice shall not relieve the Indemnifying Party of its obligations
under this Article 9 except to the extent, it at all, that such Indemnifying
Party shall have been prejudiced thereby. If such Claim relates to any action,
suit, proceeding or demand instituted against the Indemnified Party by a third
party (a "Third Party Claim"), upon receipt of such notice from the Indemnified
Party the Indemnifying Party shall be entitled to participate in the defense of
such Third Party Claim, and if and only if each of the following conditions is
satisfied, the Indemnifying Party may assume the defense of such Third Party
Claim, and in the case of such an assumption the Indemnifying Party shall have
the authority to negotiate, compromise and settle such Third Party Claim:
(i) the Indemnifying Party confirms in writing that it is obligated
hereunder to indemnify the Indemnified Party with respect to such Third Party
Claim; and
(ii) the Indemnified Party does not give the Indemnifying Party written
notice that it has determined, in the exercise of its reasonable discretion,
that matters of corporate or management policy or a conflict of interest make
separate representation by the Indemnified Party's own counsel advisable.
The Indemnified Party shall retain the right to employ its own counsel and
to participate in the defense of any Third Party Claim, the defense of which has
been assumed by the Indemnifying Party pursuant hereto, but the Indemnified
Party shall bear and shall be solely responsible for its own costs and expenses
in connection with such participation.
(b) In the event of any Claim under Section 9.1 or 9.2, the Indemnified
Party shall advise the Indemnifying Party in writing of the amount and
circumstances surrounding such Claim. With respect to liquidated Claims, if
within thirty (30) days the Indemnifying Party has not contested such Claim in
writing, the Indemnifying Party will pay the full amount thereof within ten (10)
days after the expiration of such period.
9.4. Limits. No claim for indemnification under this Article 9 may be
asserted for the first time for any breach of any representation or warranty
made by Assurance or Parent in this Agreement after the second anniversary of
the Closing Date. The aggregate amount payable by the Parent or Assurance
pursuant to this Article 9 for breaches of representations or warranties is
$5,240,000.
9.5. Exclusive Remedy. The Parent and Assurance acknowledge and agree that
the indemnification rights and remedies available to each party under this
Article 9 shall be the sole and exclusive rights and remedies of Assurance and
the Parent with respect to any Losses arising out of or relating in any way to
(i) any breach of this Agreement, (ii) the acquisition of the Transferred
Business by Assurance, or (iii) the consummation of the transactions
contemplated hereby (collectively, the "Subject Losses"); provided, however,
that this Article 9 does not in any way limit any equitable remedies or claims
based upon fraud. Without limiting the generality of the foregoing, except as
specifically authorized by this Article 9, Assurance and the Parent hereby
waive, release and disclaim any claims, rights or remedies arising in tort, by
statute, or otherwise, with respect to the Subject Losses. As provided in
Section 10.7, in no event shall Assurance or the Parent be entitled to recover
from the other party hereto for punitive damages, and for all purposes of this
Agreement, the term "Losses" shall be deemed not to include any such damages.
Article 10
General
10.1. Expenses. Except as expressly set forth in this Agreement, all
expenses of the preparation, execution and consummation of this Agreement and of
the transactions contemplated hereby, including, without limitation, attorneys',
accountants and outside advisers' fees and disbursements, shall be borne by the
party incurring such expenses.
10.2. Notices. All notices, demands 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 overnight courier or sent by
written telecommunication, as follows:
If to the Parent:
UroMed Corporation
1400 Providence Highway
Norwood, Massachusetts 02062
Attention: John Simon
with a copy sent contemporaneously to:
Bingham Dana LLP
150 Federal Street
Boston, Massachusetts 02110
Attention: John Utzschneider, Esq.
If to Assurance:
Assurance Medical, Inc.
103 South Street
Hopkinton, Massachusetts 01748
Attention: Alan West
with a copy sent contemporaneously to:
Hale and Dorr LLP
60 State Street
Boston, MA 02110
Attention: Peter B. Tarr, Esq.
10.3. Entire Agreement. This Agreement (including the Exhibits and
Schedules hereto) contains the entire understanding of the parties hereto and
thereto, supersedes all prior agreements and understandings relating to the
subject matter hereof and thereof and shall not be amended except by a written
instrument hereafter signed by all of the parties hereto. No waiver of any
provision of this Agreement shall be effective unless evidenced by a written
instrument signed by the waiving party. Each of the parties hereto further
acknowledge and agree that, in entering into this Agreement, they have not in
any way relied upon any oral or written agreements, statements, promises,
information, arrangements, understandings, representations or warranties,
express or implied, not specifically set forth in this Agreement. EXCEPT AS SET
FORTH IN ARTICLE 5, PARENT MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR
IMPLIED, INCLUDING WITHOUT LIMITATION ANY REPRESENTATION OR WARRANTY WITH
RESPECT TO MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT TO
THE TRANSFER OF THE ACQUIRED ASSETS HEREUNDER OR THE TRANSFERRED BUSINESS.
10.4. Governing Law. This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the Commonwealth of Massachusetts
without regard to its conflict of laws rules.
10.5. Consent to Jurisdiction. Each of the parties hereto agrees that any
suit, action or proceeding instituted against such party under or in connection
with this Agreement shall be brought exclusively in a court of competent
jurisdiction of the Commonwealth of Massachusetts. By execution hereof, each
party hereto irrevocably waives any objection to, and any right of immunity on
the grounds of, improper venue, the convenience of the forum, the personal
jurisdiction of such courts or the execution of judgments resulting therefrom.
Each party hereto hereby irrevocably accepts and submits to the exclusive
jurisdiction of such courts in any such action, suit or proceeding.
10.6. Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY
WAIVES ANY RIGHTS THAT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION BASED UPON, OR ARISING OUT OF, THIS AGREEMENT OR ANY OF THE RELATED
AGREEMENTS OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS OR ACTIONS OF
ANY OF THEM RELATING THERETO.
10.7. Waiver of Certain Damages. EACH OF THE PARTIES HERETO TO THE FULLEST
EXTENT PERMITTED BY LAW IRREVOCABLY WAIVES ANY RIGHTS THAT THEY MAY HAVE TO
PUNITIVE DAMAGES IN RESPECT OF ANY LITIGATION BASED UPON, OR ARISING OUT OF,
THIS AGREEMENT OR ANY RELATED AGREEMENT OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS OR ACTIONS OF ANY OF THEM RELATING THERETO.
10.8. Sections and Section Headings. The headings of sections and
subsections are for reference only and shall not limit or control the meaning
thereof.
10.9. Assigns. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, successors and
permitted assigns. Neither this Agreement nor the obligations of any party
hereunder shall be assignable or transferable by such party without the prior
written consent of the other party hereto; provided, however, that the Acquired
Assets may be transferred after the Closing Date without the consent of any
other party hereto. In addition, either party may assign such party's rights and
obligations hereunder by way of collateral assignment to any bank or financing
institution or in connection with a sale of all or substantially all of such
party's assets.
10.10. No Implied Rights or Remedies. Except as otherwise expressly
provided herein, nothing herein expressed or implied is intended or shall be
construed to confer upon or to give any Person, except the parties hereto, any
rights or remedies under or by reason of this Agreement.
10.11. 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.
10.12. Construction. The language used in this Agreement will be deemed to
be the language chosen by the parties to express their mutual intent, and no
rule of strict construction will be applied against any party.
10.13. Severability. The invalidity or unenforceability of any particular
provision of this Agreement shall not affect the other provisions hereof or
thereof, and this Agreement shall be construed in all respects as if such
invalid or unenforceable provision was omitted.
10.14. No Other Obligations. The parties hereto hereby acknowledge and
agree that except as otherwise expressly provided in this Agreement, the
Schedules hereto and the documents and instruments delivered in connection
herewith, neither party has any obligation or liability to the other arising out
of the transactions contemplated by this Agreement or otherwise.
IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties
hereto have caused this Agreement to be duly executed and delivered as a sealed
instrument as of the date and year first above written.
UROMED CORPORATION
By: /s/ John G. Simon
______________________________
Name: John G. Simon
Title: President and Chief Executive Officer
ASSURANCE MEDICAL, INC.
By: /s/ Alan West
_______________________________
Name:
Title: President
TECHNOLOGY AND OTHER ASSET PURCHASE AGREEMENT
Effective on the date of the second signature to this Agreement, The
Procter & Gamble Company, an Ohio corporation (hereinafter "P&G"), having a
principal place of business at One Procter & Gamble Plaza, Cincinnati, Ohio,
45202, and UroMed Corporation, a Massachusetts corporation (hereinafter
"UroMed"), having a principal place of business at 1400 Providence Highway,
Building #2, Norwood, Massachusetts 02062, agree as follows:
Article I - Background
1.0 UROMED owns the entire right, title and interest in certain patents,
patent applications, know-how and manufacturing equipment pertaining to products
currently known and sold under the name Impress Softpatch(TM) (hereinafter
"Impress" or "Impress Softpatch").
1.1 UROMED and P&G are interested in entering into an agreement in which
UROMED will sell, assign, transfer and deliver certain rights in patents, patent
applications, know-how and, grant an option to purchase certain equipment
related know-how and manufacturing equipment owned by UROMED and used for the
exclusive purpose of manufacturing Impress Softpatch products to P&G in exchange
for payments described herein and a license back to UROMED for certain rights in
patents, patent applications, and know-how limited to making, having made,
using, and selling Impress Softpatch products in the prescription-use field.
Article II - Definitions
2.0 "AFFILIATE" means any entity that directly or indirectly owns, is owned
by, or is under common ownership with a Party to the AGREEMENT, either currently
or during the Term of this AGREEMENT. "Owns", "owned", or "ownership" means
direct or indirect possession of more than twenty percent (20%) of the votes of
holders of a corporation's voting securities or a comparable equity or other
ownership interest in any other type of entity.
2.1 "AGREEMENT" means this Agreement, including all exhibits and schedules
hereto, as amended and in effect from time to time.
2.2 "CLOSING" means the date and time when the first steps of the
transaction will take place, including the exchange of initial payments and
assignment of patent rights and other intangibles, which shall occur on the
EFFECTIVE DATE.
2.3 "EFFECTIVE DATE" means the date on which the last party signs this
AGREEMENT.
2.4 "EQUIPMENT" means the equipment owned by UROMED and used for the
exclusive purpose of manufacturing, testing, packaging, or otherwise preparing
articles, components, and raw materials for the Impress Softpatch product
including hand assembly equipment as well as automated equipment used to make
limited quantities of product, all of which are listed in Schedule E.
2.5 "NET SALE" means sales by P&G to third parties of P&G PRODUCTS at list
price less: discounts, returns and allowances.
2.6 "OTC" means "over-the-counter" and refers to all manners of marketing
and selling products exclusive of those associated with PRESCRIPTION USE. "OTC"
includes "pharmacy-only" marketing and selling as that term is commonly used
outside the United States to refer to products sold from behind the pharmacy
counter but which do not require a prescription (or legal equivalent) from a
physician (or legal equivalent).
2.7 "PARTIES" means P&G and UROMED when commonly referred to (in singular
and plural usage, as required by the context).
2.8 "PATENTS" means the patents related exclusively to the Impress
Softpatch product listed in Schedule A and patents issuing from PATENT
APPLICATIONS.
2.9 "PATENT APPLICATIONS" means the patent applications related exclusively
to the Impress Softpatch product listed in Schedule B.
2.10 "P&G" means The Procter & Gamble Company, its successors and assigns.
2.11 "P&G PRODUCTS" means any products sold by P&G or its AFFILIATES,
sub-licensees, or assignees after CLOSING covered by valid claims in PATENTS and
PATENT APPLICATIONS.
2.12 "PRESCRIPTION USE" refers to physician (or legal equivalent) directed
use by prescription (or legal equivalent) only.
2.13 "UROMED" means UroMed Corporation, its successors and assigns.
2.14 "UROMED PRODUCTS" means any and all products sold by UROMED or its
AFFILIATES, sub-licensees, or assignees under the "Impress" or "Impress
Softpatch" trade name prior to CLOSING, and similar products sold into the
PRESCRIPTION USE market by UROMED or its AFFILIATES, sub-licensees, or assignees
after CLOSING and covered by valid claims of PATENTS whether or not such
products are sold under the "Impress" or "Impress Softpatch" trade name.
Article III - Sale of Assets Terms
3.0 Patents and Patent Applications. UROMED agrees and hereby does
irrevocably sell, transfer, deliver and assign to P&G, subject to the license
described in Article 4.0 and other terms and conditions of this Agreement, its
entire right, title and interest in and to the PATENTS and PATENT APPLICATIONS,
and to execute all documents necessary to effect such transfer and assignment in
all countries of the world as necessary and to aid as may be necessary in
prosecution thereof.
3.1 Know-How, Certificates and Licenses. Subject to the provisions of
Article 4.0, UROMED agrees to and hereby does sell, assign, convey, transfer and
deliver to P&G its entire right, title and interest in and to know-how (other
than EQUIPMENT-related know-how) as well as all certificates, licenses, letters,
and the like associated with lawfully making, using, or selling UROMED PRODUCTS
prior to CLOSING.
3.2 Option to Purchase Equipment. UROMED agrees and hereby grants to P&G an
option to purchase EQUIPMENT and EQUIPMENT-related know-how at any time after
CLOSING until two (2) years after CLOSING upon the payment of $400,000 (four
hundred thousand dollars) to UROMED. If P&G elects to exercise this option, it
will give UROMED thirty (30) days written notice of such intent. Upon exercise
and payment in full, UROMED agrees it shall transfer full ownership of EQUIPMENT
and EQUIPMENT-related know-how to P&G, or its designated AFFILIATE, free and
clear of any liens or other encumbrances. P&G shall be responsible for shipping
and storing the EQUIPMENT upon taking title to the EQUIPMENT at expiration of
notice, it being understood title will transfer FOB UROMED storage facility. The
option expires if not exercised within two (2) years after CLOSING.
3.3 Support Documents. UROMED agrees to provide P&G at CLOSING with copies
of all written documentation including without limitation operating
instructions, formula specifications, technical manuals, FDA clearance letters,
safety notices and the like related to making, using or selling UROMED PRODUCTS
prior to CLOSING. In addition, UROMED will make available as reasonably
requested by P&G, UroMed employee for purposes of transferring know-how to P&G
and will provide the names of former employees and consultants that P&G may
contact to discuss retaining for this purpose.
3.4 Support Personnel. Any support personnel who are employees of UROMED
shall be provided by UROMED at a cost to P&G not to exceed $250.00 per day.
UROMED shall use its best efforts to persuade former UROMED employees to
cooperate on reasonable terms, without being required to pay any consideration
or waive any existing rights.
3.5 Access to Equipment. For a period of five (5) years after CLOSING P&G
agrees at UROMED's request to make reasonable accommodation to UROMED or its
sub-licensees for PRESCRIPTION USE, to make available for inspection any and all
EQUIPMENT (if option is exercised) still owned by P&G or an AFFILIATE at the
time of the request. Reasonable accommodation does not include making available
for inspection equipment developed by P&G, or modifications made by P&G to
EQUIPMENT after CLOSING or inspection of equipment where P&G determines trade
secret information developed after CLOSING may be revealed.
3.6 Access to Other Assets. For a period of five (5) years after CLOSING
P&G agrees at UROMED's request to make reasonable accommodation to UROMED or
persons designated by UROMED and authorized and bound by this Agreement,
including sub-licensees of UROMED, to make available for inspection any and all
"one-of-a-kind" assets including original certificates, licenses, letters, and
the like associated with lawfully making, using, or selling UROMED PRODUCTS
prior to CLOSING.
3.7 Association of Counsel. UROMED agrees to execute and file all papers
necessary to associate P&G patent counsel in accordance with 37 CFR 1.34(b),
and that further prosecution of PATENT APPLICATIONS will be carried out solely
by P&G patent counsel at no cost to UROMED, except as provided for in Article
3.8.
3.8 Prosecution of Patent Application. P&G agrees to use its best efforts
to pursue the broadest possible claim scope for PATENT APPLICATIONS, and
further, it will not abandon any PATENT APPLICATIONS except after filing
continuation applications with respect thereto, or as provided for in this
Article 3.8. If P&G decides to abandon any PATENT APPLICATION, prior to
abandonment P&G shall notify UROMED of its intention to abandon, and at UROMED's
written request, P&G will associate UROMED patent counsel in accordance with 37
CFR 1.34(b) to continue prosecution of said PATENT APPLICATIONS P&G no longer
wishes to pursue at no cost to P&G, at which time P&G shall assign all right,
title, and interest in and to said PATENT APPLICATIONS to UROMED.
3.9 Maintenance of Patents. P&G agrees to pay all maintenance fees when due
for all PATENTS. P&G will be relieved from this obligation with respect to a
particular patent of the PATENTS in a particular jurisdiction only if: (a) all
the claims of any said patent with respect to which the maintenance fee is due
and which claims cover a P&G PRODUCT have been found to be invalid in that
jurisdiction by a court of competent jurisdiction whose decision shall have
become final or P&G elects not to market any P&G PRODUCTS covered by any claim
of said patent with respect to which the maintenance fee is due in that
jurisdiction, and (b) P&G gives UROMED thirty (30) days prior written notice of
its intention not to pay the maintenance fee for said patent in said
jurisdiction. If P&G gives UROMED notice of its intention not to pay certain
maintenance fees under this Article 3.9 or otherwise fails to pay any
maintenance fees, UROMED shall have the option of electing to pay any remaining
fees when due for said patent, in which event P&G shall irrevocably sell,
transfer, deliver and assign said patent (and all rights associated with respect
thereto) to UROMED. P&G shall execute any and all assignments and other
documents necessary to effect such transfer and assignment in a timely manner.
Article IV - License Terms
4.0 Licensed Subject Matter. P&G agrees to and hereby does grant back to
UROMED and its AFFILIATES, subject to the terms and conditions of this
AGREEMENT: (a) an exclusive, paid up, worldwide, royalty-free license under
PATENTS and PATENT APPLICATIONS, to make, have made, use, and sell UROMED
PRODUCTS in the field of PRESCRIPTION USE only; and (b) a non-exclusive,
paid-up, worldwide, royalty-free license to know-how, certificates, licenses,
letters, and the like for the purpose of making, using and selling UROMED
PRODUCTS into the field of PRESCRIPTION USE by UROMED and its AFFILIATES after
the CLOSING. In no case do licenses under this AGREEMENT extend to
non-PRESCRIPTION USE fields.
4.1 Sub-licenses. UROMED may sub-license any rights granted under Article
4.0 in the PRESCRIPTION USE field to third parties, provided any such
sub-licensee agrees to be bound by the terms and conditions of this AGREEMENT.
4.2 Additional Covenants and Injunctive Relief. UROMED and its
sub-licensees covenant and hereby agree to refrain from engaging in any activity
under licenses granted pursuant to this AGREEMENT that is illegal, or any
conduct which by intention or negligence brings any P&G PRODUCT into disrepute.
P&G shall be entitled, at its election, to injunctive relief if UROMED or its
sub-licensees breach any covenant or agreement of this Article 4.2, and
continues to do so after written notice thereof by P&G and time to cure within
30 days of such notice. Should P&G seek injunctive relief the prevailing party
shall have its legal fees and costs, including attorney's fees, reimbursed by
the other party.
4.3 Standing to Sue. Except as set forth in Articles 3.8 and 6.3,UROMED's
license under this AGREEMENT confers no duty or right on UROMED to bring or
compel any action, suit, or other proceeding relating to PATENTS including
patents issuing from PATENT APPLICATIONS. Notwithstanding the foregoing, UROMED
may bring or compel any action or other proceeding relating to PATENTS or PATENT
APPLICATIONS that P&G assigns back to UROMED under either of Articles 3.8 or
3.9.
Article V - Payments
5.0 Initial Payment for Patents. As consideration for the entire right,
title and interest in and to PATENTS, PATENT APPLICATIONS, and know-how (other
than EQUIPMENT-related know-how) related to making, using, and selling UROMED
PRODUCTS prior to CLOSING, P&G agrees to pay to UROMED on or prior to July 31,
1999 the sum as specified in the following chart in cash at CLOSING.
CLOSING DATE AMOUNT
July 14-20, 1999 $2,740,000
July 21, 1999 2,741,000
July 22, 1999 2,742,000
July 23, 1999 2,743,000
July 24, 1999 2,744,000
July 26, 1999 2,745,000
July 27, 1999 2,746,000
July 28, 1999 2,747,000
July 29, 1999 2,748,000
July 30, 1999 2,749,000
July 31, 1999 2,750,000
5.1 Initial Payment for Option to Purchase Equipment. In addition to other
payments in this Article V, and as consideration for an option to purchase the
entire right, title and interest in and to EQUIPMENT and EQUIPMENT-related
know-how, P&G agrees to pay UROMED the sum of $600,000 (six hundred thousand
dollars) in cash at CLOSING.
5.2 Progress Payments. In addition to other payments in this Article V,
beginning one (1) year from CLOSING and continuing at annual intervals for a
period of three (3) years thereafter, P&G unconditionally agrees to pay UROMED
$150,000 (one hundred fifty thousand dollars) each year in progress payments. In
no case will total progress payments be less than or exceed $600,000.
5.3 Revenue Participation. In addition to other payments in this Article V,
P&G agrees to pay UROMED 0.75% (three-fourths of one percent) on all NET SALES
exceeding the first $130,000,000 (one hundred thirty million dollars) in
cumulative NET SALES and up to but not exceeding $490,000,000 (four hundred
ninety million dollars) in cumulative NET SALES. Nothing in this AGREEMENT,
however, will obligate P&G to introduce any P&G PRODUCTS into the market.
Payment under this Article 5.3 shall be paid semi-annually with a report of NET
SALES for the semi-annual period.
5.4 Right to Audit. Upon reasonable notice to P&G and during regular
business hours, UROMED or its agents may make such examinations of P&G's records
of NET SALES as UROMED reasonably deems necessary to verify payments under
Article 5.3. Such examination shall occur not more than once each year and shall
be at UROMED's expense. If, however, there is a discrepancy between reported NET
SALES under Article 5.3 and actual NET SALES during the same period of greater
than 10% (ten percent), the cost of examination shall be at P&G's expense.
5.5 Equipment Option. In addition to other payments in this Article V, P&G
agrees to pay UROMED $400,000 (four hundred thousand dollars) if P&G exercises
its option to purchase EQUIPMENT within two (2) years of CLOSING.
5.6 Filing Fees. In addition to other payments in this Article V, P&G
agrees to reimburse UROMED after CLOSING for all filing fees incurred by UROMED
related to PATENT APPLICATIONS filed via the Patent Cooperation Treaty (PCT),
all as listed by country in Schedule C up to a maximum total payment of $35,000.
5.7 License Payment. In partial consideration for the grant back by P&G of
a paid up license to UROMED under this AGREEMENT to make, have made, use, and
sell UROMED PRODUCTS for PRESCRIPTION USE, UROMED agrees to pay P&G the sum of
$1.00.
Article VI - Enforcement of Patents
6.0 Enforcement of Patents. P&G in its own name and at its expense, or
jointly with UROMED if it so elects or is otherwise required to join by law,
will at its discretion bring and will diligently prosecute suits for
infringement of all patents as may be reasonably necessary to protect UROMED
from unlicensed infringers of licensed PATENTS. Notwithstanding the foregoing,
UROMED may bring or compel any action or other proceeding relating to PATENTS
and PATENT APPLICATIONS that P&G assigns back to UROMED under either of Articles
3.8 or 3.9. P&G shall use its best efforts to defend the validity of PATENTS at
its expense, provided, however, P&G shall not be obligated to defend the
validity of any PATENTS if the issue of validity arises solely as a result of a
lawsuit brought by UROMED under Article 6.3 and no claim of said PATENT covers
any P&G PRODUCT.
6.1 Notice of Infringement. If UROMED becomes aware of any third party
infringement, potential infringement, or threatened infringement of any PATENTS
or patents issuing from PATENT APPLICATIONS, it shall give P&G written notice of
such infringement, potential infringement, or threatened infringement. If P&G
becomes aware of any third party infringement, potential infringement, or
threatened infringement of any PATENTS or patents issuing from PATENT
APPLICATIONS, it shall give UROMED written notice of such infringement,
potential infringement, or threatened infringement.
6.2 Decision to Bring Suit. P&G will determine the best course of action to
address the infringing or potentially infringing activity. The decision to
enforce PATENTS whether by action, suit, or other proceeding will be at the
discretion of P&G after careful evaluation of all risks associated with such
action, suit, or other proceeding. If P&G decides to bring suit, UROMED agrees
to cooperate with P&G in any way as may be reasonably necessary and reserves the
right to be joined as a party in interest. UROMED shall have the right to
actively participate at its expense in any invalidity action whether by
affirmative defense or declaratory judgment action.
6.3 Prescription Use Infringers. If the third party infringing activity
affects UROMED's rights in the PRESCRIPTION USE field, and P&G decides not to
prosecute by action, suit, or other proceeding, UROMED may bring suit in its own
name. If UROMED decides to bring suit P&G agrees to cooperate with UROMED in any
way as may be reasonably necessary and reserves the right to be joined as a
party in interest. P&G shall have the right at its expense to actively
participate in any invalidity action whether by affirmative defense or
declaratory judgment action.
6.4 Settlement. P&G in its discretion may settle any claim, action, or suit
brought by P&G for infringement on terms that are not materially adverse to
UROMED. UROMED in its discretion may settle any claim, action, or suit brought
under Article 6.3 on terms that are not materially adverse to P&G.
6.5 Enforcement Costs. All costs, disbursements, and expenses of any
action, suit, or other proceeding brought under this Article VI, except for
article 6.3, shall be borne by P&G. UROMED agrees to cooperate with P&G in any
way as may be reasonably necessary in the prosecution of any action, suit, or
other proceeding for infringement. All costs, disbursements, and expenses of any
action, suit, or other proceeding brought by UROMED under Article 6.3 shall be
borne by UROMED, provided, however, P&G shall be responsible for its costs,
disbursements, and expenses if it participates in a suit brought under Article
6.3.
6.6 Recovery of Costs and Expenses. Any recovery from any action, suit, or
other proceeding brought under this Article VI, except for article 6.3, shall
first be applied by P&G to the extent necessary to reimburse for P&G's costs,
attorney's fees, and expenses incurred by P&G in the proceeding. Any recovery
from any action, suit, or other proceeding brought under Article 6.3 shall first
be applied by UROMED to the extent necessary to reimburse for UROMED's costs,
attorney's fees, and expenses incurred by UROMED in the proceeding.
6.7 Recover of Damages. Unless agreed to in writing otherwise: (a) any
recovery of damages, including damages for lost profits, attributable to
infringement in the OTC field in an amount over and above costs, attorneys fees,
and expenses incurred by P&G in proceedings brought under this Article VI shall
be paid 100% to P&G; (b) any recovery of damages, including damages for lost
profits, attributable to infringement in the PRESCRIPTION USE field in an amount
over and above the costs incurred by UROMED in proceeding brought by UROMED
under Article 6.3 shall be paid 90% to UROMED and 10% to P&G.
Article VII - Representations and Warranties
7.0 Representations Regarding Patents. UROMED represents and warrants that:
(a) UROMED is the owner and current assignee of the PATENTS, and that its
ownership is full, free, and unencumbered, and that there are no obligations,
liens, or other encumbrances of any kind that would prevent P&G from using or
otherwise enjoying the PATENTS or other rights contemplated in this Agreement.
(b) To the best of UROMED's knowledge, there are no patents issued to, or
other rights owned by a third party that might prevent, inhibit, or limit the
PARTIES from carrying out the activities contemplated by this Agreement,
including manufacture and sale by P&G of products within the scope of the claims
of PATENTS;
(c) To the best of UROMED's knowledge, UROMED is not now infringing and
never has infringed any third party patent rights related to the making, using,
or selling of UROMED PRODUCTS. UROMED has received no notices of infringement,
potential infringement, judgments, or liens related to PATENTS; and
(d) No third party has any right to receive from UROMED any royalties or
other obligations with respect to PATENTS or UROMED PRODUCTS and there are no
royalty-free licenses or equivalent grants to which UROMED is a party with
respect to PATENTS.
7.1 Representations Regarding Patent Applications. UROMED represents and
warrants that:
(a) UROMED is the owner and current assignee of PATENT APPLICATIONS, and
that its ownership is full, free, and unencumbered, and that there are no
obligations, liens, or other encumbrances that would prevent P&G from using or
otherwise enjoying the PATENT APPLICATION; and
(b) All PATENTS APPLICATIONS are pending and are not abandoned for any
reason as of CLOSING.
7.2 Representations Regarding Legal Actions. UROMED represents and warrants
that:
(a) There are no past, present, or to the best of UROMED's knowledge,
threatened litigation or administrative or arbitral proceedings with respect to
PATENTS, PATENT APPLICATIONS, or EQUIPMENT, or to UROMED's knowledge any basis
for such litigation or administrative or arbitral proceedings, that could in any
way delay, prevent, interfere with, add unforeseen costs, or otherwise frustrate
P&G's enjoyment of rights under this AGREEMENT.
(b) There are no court, arbitrator, or governmental notices, actions,
orders, judgments, injunctions, awards or other communications of any kind
naming and served on UROMED or its AFFILIATES or to its knowledge any other
party that could or do adversely affect P&G's enjoyment of rights under this
AGREEMENT; and
(c) There are no notices or communications with respect to the Impress
Softpatch product served on UROMED or its AFFILIATES from consumer or government
agencies other than those made of record to P&G and listed in Schedule D.
7.3 Representations Regarding Compliance with Laws. UROMED represents and
warrants that:
(a) To the best of UROMED's knowledge UROMED has when marketing UROMED
PRODUCTS prior to CLOSING complied with all applicable general control
provisions of the Federal Food, Drug, and Cosmetic Act (FDCA) including its
foreign equivalents (including without limitation annual registration, listing
of devices, GMP, and labeling, and prohibitions against misbranding and
adulteration).
(b) UROMED possesses unrestricted Section 510(k) "clearance to market"
letters from the FDA, respecting sale of UROMED PRODUCTS, each of which
clearance is valid and in force and each of which is attached as Schedule F; and
(c) UROMED has complied and will when marketing UROMED PRODUCTS comply with
all applicable general laws, including without limitation the claims made for
such products, the ingredients and raw material sources of such products,
sterilization procedures, and manufacturing processes.
7.4 Representations Regarding Equipment. UROMED represents and warrants
that:
(a) UROMED is the owner of EQUIPMENT and will continue to remain the owner
of EQUIPMENT until the expiration of P&G's option to purchase such EQUIPMENT;
(b) If and when P&G exercises its option to purchase EQUIPMENT, such
EQUIPMENT shall be free and clear of any lien or other encumbrance such that
UROMED will deliver to P&G complete, good and marketable title to such
EQUIPMENT; and
(c) Until expiration of P&G's option to purchase EQUIPMENT, UROMED will
maintain EQUIPMENT in a warehouse in accordance with generally accepted industry
practice to store equipment of this kind.
7.5 Representation Regarding Authority to Execute and Perform Agreement.
UROMED represents and warrants that:
(a) UROMED has all requisite power and authority to enter into, execute and
deliver this AGREEMENT and to perform fully its obligations hereunder, and no
other corporate act or proceeding is necessary to authorize same; and
(b) The execution and delivery by UROMED of this AGREEMENT and the
performance by UROMED of its obligations hereunder do not require UROMED to
obtain any consent, approval, or action of, or make any filing with or give any
notice to any governmental or regulatory body or any other person or entity
other than public disclosure required by federal and state securities laws.
7.6 Representation Regarding Assets to be Transferred. UROMED represents
and warrants that:
(a) The Schedules attached hereto describing the EQUIPMENT, PATENTS and
PATENT APPLICATIONS are a complete listing of all assets owned by UROMED or its
AFFILIATES and used exclusively for manufacturing the Impress Softpatch product;
(b) The EQUIPMENT was operating free of material defects and produced
limited quantities of quality product prior to being disassembled and stored;
and
(c) No assets relating exclusively to the manufacturing of Impress
Softpatch have been transferred by UROMED or its AFFILIATES to any third party
since the time said assets were acquired by UROMED except for certain packaging
equipment which had only been used in connection with the packaging of Impress
Softpatch but which had much broader applicability.
Article VIII - Other Agreements
8.0 UROMED's Activities. UROMED agrees its making, using, or selling of
UROMED PRODUCTS and related products prior to CLOSING, as well as future making,
using, or selling or sub-licensing of UROMED PRODUCTS in the field of
PRESCRIPTION USE is the sole responsibility and liability of UROMED and will not
subject P&G to any liability of any kind.
8.1 Equipment Insurance. For the period that P&G has an option to purchase
EQUIPMENT, UROMED agrees to maintain insurance for at least $600,000 (six
hundred thousand dollars) to protect against the loss or other damage to
EQUIPMENT and to make P&G a beneficiary of such insurance. Insurance shall be
confirmed by a certificate of insurance or other appropriate document indicating
that P&G is a named beneficiary.
8.2 P&G Equipment Offset. If P&G exercises its right to purchase EQUIPMENT
and if EQUIPMENT is materially damaged and the $600,000 equipment insurance
proceeds of Article 8.1 are not sufficient to rehabilitate or refurbish
EQUIPMENT, the PARTIES agree P&G shall have the right to utilize part or all of
the $400,000(four hundred thousand dollars) payable for such exercise to
rehabilitate or refurbish EQUIPMENT as required. The net of any remaining funds
shall be paid to UROMED as the final consideration for P&G's exercise of its
option to purchase EQUIPMENT. UROMED may, at its option, maintain insurance on
EQUIPMENT above the amount required under Article 8.1. If UROMED elects to
maintain such excess insurance any equipment offset of this Article 8.2 will be
reduced in direct proportion to any insurance proceeds paid in excess of
$600,000 (six hundred thousand dollars). As a result, if UROMED elects to
maintain $1,000,000 of insurance, P&G shall have no right of offset.
8.3 Confidentiality. During the course of performance under this AGREEMENT
it may be necessary for each of the PARTIES to disclose to the other certain
information regarded by the disclosing PARTY as confidential. All technical and
business information related to making, using, or selling P&G PRODUCTS and
UROMED PRODUCTS is presumed to be confidential. Otherwise confidential
information shall be identified as such at the time of disclosure. The receiving
party shall take such steps as may be reasonably necessary to prevent the
disclosure of confidential information to third parties without written
authorization from the disclosing party. Information is not considered
confidential if (a) said information was known to the receiving party prior to
the disclosure by the disclosing party or is generally available to the public;
(b) through no act on the part of the receiving party, said information becomes
generally available to the public; (c) the substance of said information
corresponds to information furnished to the receiving party on a nonconfidential
basis by any third party having a lawful right to do so; or (d) said information
was furnished by the disclosing party on a nonconfidential basis to any third
party.
Article IX - Indemnifications
9.0 UROMED Obligation to Indemnify. UROMED agrees to indemnify, defend and
hold harmless P&G (and its directors, officers, employees, affiliates,
shareholders, successors and assigns) from and against all losses, liabilities,
damages, costs or expenses (including without limitation attorney's fees and
expenses) actually incurred by P&G or any of such other indemnified parties
based upon, arising out of or otherwise in respect of UROMED's breach of any
representation, warranty, covenant, or agreement contained in this AGREEMENT,
the Schedules hereto or any of the closing documents delivered by UROMED in
connection herewith up to a maximum of $7,500,000 (seven million five hundred
thousand dollars). Except for continuing obligations under Articles 4.2, all of
Article 6, 8.0, and 8.3, obligations to indemnify under this Article 9.0 shall
continue for a period of 5 (five) years.
9.1 P&G Obligation to Indemnify. P&G agrees to indemnify, defend and hold
harmless UROMED (and its directors, officers, employees, affiliates,
shareholders, successors and assigns) from and against all losses, liabilities,
damages, costs or expenses (including without limitation attorney's fees and
expenses) actually incurred by UROMED or any of such other indemnified parties
based upon, arising out of or otherwise in respect of P&G's breach of any
representation, warranty, covenant, or agreement contained in this AGREEMENT,
the Schedules hereto or any of the closing documents delivered by P&G in
connection herewith up to a maximum of $7,500,000 (seven million five hundred
thousand dollars). Except for continuing obligations under Articles 3.8, 3.9,
5.3, 5.4, 5.7, all of Article 6, and 8.3, obligations to indemnify under this
Article 9.1 shall continue for a period of 5 (five) years.
Article X - Public Announcements
10.0 Publicity. Except as provided in this Article X, the terms of this
AGREEMENT shall not be made public or publicized. Therefore the PARTIES agree:
(a) Upon the signing of this AGREEMENT, P&G and UROMED will jointly discuss
and agree on any press releases UROMED or P&G will make, standby answers to
possible third party questions, and any other public statements or comments
regarding the execution and the subject matter of this AGREEMENT, subject in
each case to disclosure otherwise required by law or regulation;
(b) In determining whether to make such announcements, the principles
observed by the PARTIES will be accuracy, the requirements for confidentiality,
whether by agreement or not, the advantage a competitor of P&G or UROMED may
gain from any statement regarding the terms of this AGREEMENT, the requirements
of disclosure under any securities laws or regulations of the United States,
including those associated with the U.S. Securities and Exchange Commission (the
"SEC") and regulatory filings and public offerings, the restrictions imposed by
the Federal FDCA, and the standards and customs in the industry for such
disclosures by companies comparable to P&G or UROMED.
Article XI - Miscellaneous
11.0 Governing Law, Jurisdiction, Forum Selection. This AGREEMENT, and the
rights and obligations of the PARTIES hereunder, shall be governed by, and
construed and enforced in accordance with, the laws of the State of Ohio
applicable to agreements made and to be performed entirely in such State,
without regard to principles of conflict of laws. Each of the PARTIES agrees
that any action or proceeding based upon or relating to this AGREEMENT shall, to
the fullest extent permitted by applicable law, be brought and maintained
exclusively in the courts of the United States District Court for the Southern
District of Ohio. Each of the PARTIES hereby irrevocably submit to the
jurisdiction of the United States District Court for the southern District of
Ohio for the purposes of any such action or proceeding, and irrevocably agrees
to be bound by any judgment rendered by any such court in connection with such
action or proceeding.
11.1 Survival of Terms. The provisions of Article VII, Article IX, and all
other covenants and agreements contained herein shall survive the execution and
closing of this AGREEMENT.
11.2 Notices. Any notices, consents, or other communications provided for
in this AGREEMENT to be made by either of the PARTIES shall be in writing with
appropriate confirmation of receipt.
11.3 Non-waiver of Rights. Except as specifically provided for herein, the
waiver from time to time by either of the PARTIES of any of the rights or their
failure to exercise any remedy shall not operate or be construed as a continuing
waiver of same or of any other of such Part's rights or remedies provided in
this AGREEMENT.
11.4 Severability. If any provision of this AGREEMENT or the application
thereof to any PARTY or circumstance shall, to any extent, be held to be invalid
or unenforceable, then:
(a) The remainder of this AGREEMENT, or the application of such provision
to the PARTIES or circumstances other than those as to which it is held invalid
or unenforceable, shall not be affected thereby and each provision of this
AGREEMENT shall be valid and be enforced to the fullest extent permitted by law;
and
(b) The PARTIES agree to negotiate any such provision thereof in good faith
in order to provide a reasonably acceptable alternative to the provision of this
AGREEMENT or the application thereof that is invalid or unenforceable, it being
the intent that the basic purposes of the AGREEMENT are to be effectuated.
11.5 Entire Agreement. This AGREEMENT sets forth the entire AGREEMENT among
the PARTIES with respect to the purchase and sale of PATENTS, PATENT
APPLICATION, KNOW-HOW and EQUIPMENT, and supersedes and terminates all prior
agreements and understandings between the PARTIES except confidentiality
agreements. No subsequent alteration, amendment, change, or addition to this
AGREEMENT shall be binding upon the PARTIES unless reduced to writing and signed
by the respective authorized officers of the PARTIES.
11.6 Binding Effect; Assignment. This AGREEMENT shall be binding upon and
inure to the benefit of the PARTIES hereto and their respective successors and
assigns. Subject to the provisions of Article IV of this AGREEMENT, P&G and
UROMED may assign their rights or obligations under this AGREEMENT, provided,
however, that such assignment shall not relieve the assigning PARTY of its
responsibility for performance of its obligations under this AGREEMENT.
11.7 Affiliates. The PARTIES agree that each may perform some of its
obligations hereunder through AFFILIATES; provided, however, that P&G and UROMED
shall remain responsible and be guarantors of such performance by their
AFFILIATES and shall cause their AFFILIATES to comply with the provisions of
this AGREEMENT in connection with such performance.
11.8 Interpretation. The captions appearing in this AGREEMENT are inserted
only as a matter of convenience and as a reference and in no way define, limit,
or describe the scope or intent of this AGREEMENT or any of the provisions
hereof. As the context may require in this AGREEMENT, the use of any gender
(male, female, or neuter) shall include any other gender, and the singular shall
include the plural and the plural the singular. As used in this AGREEMENT, the
term "person" includes individual, sole proprietorship, partnership, joint
venture, trust, corporation, limited liability company, association, or any
other entity or agency. The term "days" means calendar days.
11.9 Additional Documents and Actions. As required after execution of this
AGREEMENT, the PARTIES agree to execute and deliver at CLOSING and thereafter,
without further consideration, such documents as required, and to cooperate as
either Party hereto may reasonably request in such form as may be appropriate,
necessary, or advisable in connection with the intent and agreements contained
herein. Such cooperation shall include, without limitation, reasonable access to
employees of either Party.
11.10 Costs and Expenses. Except as otherwise provided in this AGREEMENT,
each PARTY shall bear its own costs and expenses in connection with this
AGREEMENT and the transactions contemplated thereby.
11.11 Integration of Schedules. All Schedules appended to this AGREEMENT
are hereby incorporated herein and made a part of this AGREEMENT.
Notices for P&G shall be sent to:
The Procter & Gamble Company
Attn.: Chief Patent Counsel
6083 Center Hill Avenue
Cincinnati, OH 45224
Facsimile: (513) 634-7792
With copies to:
The Procter & Gamble Company
Attn.: President
Feminine Protection
and
Attn.: Associate General Counsel
Feminine Protection
One Procter & Gamble Plaza
Cincinnati, OH 45202
Facsimile: (513) 983-8768
Notices for UroMed shall be sent to:
UroMed Corporation
Attn.: President
1400 Providence Highway
Building #2
Norwood, MA 02062
With copy to:
Bingham Dana LLP
Attn.: John Utzschnieder
150 Federal Street
Boston, MA 02110-1726
In witness whereof the PARTIES have executed this AGREEMENT in duplicate
originals by their proper officers as of the date and year first written above.
For: UROMED CORPORATION For: THE PROCTOR & GAMBLE COMPANY
By: /s/ John G. Simon By: /s/ Thomas W. Handley
Title: President Title: VP, Global Feminine Protection
Strategic Planning
Date: July 20, 1999 Date: July 20, 1999
