<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
- ---- Act of 1934.
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
or
Transition report pursuant to Section 13 or 15(d) of the Securities
- ----- Exchange Act of 1934.
For the transition period from __________ to __________.
Commission File Number
0-26890
Perclose, Inc.
--------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 94-3154669
-------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
199 Jefferson Drive, Menlo Park, CA 94025-1114
----------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone, including area code: (650) 473-3100
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
requirements for the past 90 days.
Yes X No
------ ------
As of June 27, 1997 there were 9,585,643 shares of the Registrant's Common
Stock.
Exhibit Index on page: 15
Total number of pages: 15 (hard copy version)
16 (Edgar version)
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PERCLOSE, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
--------
Item 1. Financial Statements
Balance Sheets as of June 30, 1997 and
March 31, 1997 3
Statements of Operations for the three
months ended June 30, 1997 and 1996 4
Statements of Cash Flows for the three months
ended June 30, 1997 and 1996 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION 13
SIGNATURES 14
EXHIBIT INDEX 15
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PERCLOSE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, March 31,
1997 1997
------------ ------------
(unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,573,526 $ 2,677,278
Short-term investments 19,398,495 24,995,229
Accounts receivable 2,370,799 1,529,959
Inventories 989,749 743,531
Prepaid expenses 261,189 279,894
------------ ------------
Total current assets 25,593,758 30,225,891
Equipment and leasehold improvements 3,576,221 3,101,256
Less accumulated depreciation (1,698,994) (1,454,533)
------------ ------------
1,877,227 1,646,723
Officer notes receivable 600,000 400,000
Other assets 195,638 241,221
------------ ------------
Total assets $ 28,266,623 $ 32,513,835
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 339,157 $ 422,646
Accrued compensation 741,273 852,255
Accrued license fee 50,000 200,000
Accrued warranty 322,135 324,313
Accrued clinical trial costs 282,387 309,812
Other accrued expenses 568,491 520,247
Current portion of notes payable 376,811 373,795
------------ ------------
Total current liabilities 2,680,254 3,003,068
Long-term portion of notes payable 30,815 128,387
Stockholders' equity:
Common stock, $0.001 par value 9,584 9,564
Additional paid-in capital 58,350,764 58,308,167
Deferred compensation (812,784) (891,789)
Accumulated deficit (31,992,010) (28,043,562)
------------ ------------
Total stockholders' equity 25,555,554 29,382,380
------------ ------------
Total liabilities and stockholders' equity $ 28,266,623 $ 32,513,835
------------ ------------
------------ ------------
</TABLE>
See accompanying notes.
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<PAGE>
PERCLOSE, INC.
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Net revenues $ 1,170,244 $ 1,500,175
Operating expenses:
Cost of goods sold 1,452,646 1,162,039
Research and development 1,234,090 1,064,964
Marketing, general and administrative 2,846,591 1,183,392
------------ ------------
Total operating expenses 5,533,327 3,410,395
Loss from operations (4,363,083) (1,910,220)
Interest income 415,343 469,303
Interest expense (59,637) (30,988)
------------ ------------
355,706 438,315
------------ ------------
Loss before income taxes (4,007,377) (1,471,905)
Net loss $ (4,007,377) $ (1,471,905)
------------ ------------
------------ ------------
Net loss per share $ (0.42) $ (0.15)
------------ ------------
------------ ------------
Shares used in computing net loss per share 9,578,892 9,498,871
------------ ------------
</TABLE>
See accompanying notes.
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<PAGE>
PERCLOSE, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
---------------------------
1997 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (4,007,377) $ (1,471,905)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 244,461 139,198
Deferred compensation amortization 79,005 28,391
Changes in operating assets and liabilities:
Accounts receivable (840,840) (332,339)
Other receivables - (78,721)
Inventory (246,218) (12,038)
Prepaid expenses 18,705 56,015
Accounts payable (83,489) (37,673)
Accrued expenses (242,341) 266,643
------------ ------------
Net cash provided by (used in) operating activities (5,078,094) (1,442,429)
INVESTING ACTIVITIES
Purchases of short-term investments (1,823,240) (5,163,684)
Proceeds from sales and maturities of short-term investments 7,478,903 6,842,708
Purchases of equipment and improvements (474,965) (267,073)
Other assets 45,583 (145,400)
------------ ------------
Net cash provided by (used in) investing activities 5,226,281 1,266,551
FINANCING ACTIVITIES
Principal payments under notes payable (94,556) (86,930)
Proceeds from issuance of common stock 42,617 8,257
Repurchase of common stock - (47,396)
Issuance of employee notes receivable (200,000) -
------------ ------------
Net cash provided by (used in) financing activities (251,939) (126,069)
Net increase (decrease) in cash and cash equivalents (103,752) (301,947)
Cash and cash equivalents at beginning of period 2,677,278 9,803,777
------------ ------------
Cash and cash equivalents at end of period $ 2,573,526 $ 9,501,830
------------ ------------
</TABLE>
See accompanying notes.
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<PAGE>
PERCLOSE, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1997
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and in accordance with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included.
The operating results of the interim periods presented are not necessarily
indicative of the results for the year ending March 31, 1998 or for any future
interim period. The accompanying financial statements should be read in
conjunction with the audited financial statements and notes thereto for the year
ended March 31, 1997 included in the Company's Annual Report on Form 10-K as
filed with the Securities Exchange Commission.
The Company's fiscal year ends on the last Friday in March. The Company's
fiscal quarters end on the Friday closest to the end of each calendar quarter.
The three months shown as having ended June 30, 1997 and 1996 actually ended on
June 27, 1997 and June 28, 1996, respectively. For ease of presentation, the
accompanying financial statements have been shown as ending on the last day of
the calendar month.
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<PAGE>
PERCLOSE, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1997
(Unaudited)
Note 2. Inventories
Inventories consist of the following:
June 30, March 31,
1997 1997
---------- ----------
Raw materials $ 484,770 $ 311,952
Work-in-process 402,914 385,993
Finished goods 102,065 45,586
---------- ----------
$ 989,749 $ 743,531
---------- ----------
---------- ----------
Note 3. Net Loss Per Share
Net loss per share is computed using the weighted average number of common
shares outstanding. Common equivalent shares from stock options are excluded
from the computation, as their effect is antidilutive.
Recent Pronouncements
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share, which the Company is required to adopt on December 31,
1997. At that time, the Company will be required to change the method currently
used to compute earnings per share and to restate all prior periods. Under the
new requirements for calculating primary earnings per share, the dilutive effect
of convertible preferred stock, stock options, common and common equivalent
shares issued during the period twelve months prior to the initial public
offering will be excluded. The impact of Statement 128 on the calculation of
primary and fully diluted loss per share for the three months ended June 30,
1997 and 1996 is not expected to be material.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The Company has a fiscal year ending March 31. Since its inception in March
1992, the Company has been engaged in the design, development, clinical testing,
manufacture and sale of a family of suture-based Percutaneous Vascular Surgery
(PVS) systems that close the femoral artery access site following catheter
procedures that diagnose or clear blocked arteries. These products are known as
the Prostar, Prostar Plus, Prostar XL, Techstar and Techstar XL systems. The
Company has received regulatory approvals where required to market certain of
these products in Europe, Canada, Japan and the United States.
In April 1997 the Company received approval from the United States Food and Drug
Administration ("FDA") for clearance of its Prostar systems for commercial sale
in the United States under the Pre-Market Approval ("PMA") regulatory pathway.
In May 1997 the Company filed additional applications with the FDA for clearance
of its Prostar Plus, Prostar XL, Techstar and Techstar XL systems for commercial
sale in the United States under the Pre-Market Approval Supplement ("PMA
Supplement") regulatory pathway. There can be no assurance as to when or whether
the Company will receive approval of such PMA Supplement applications. Delays
in or the failure to receive FDA approval of PMA Supplement applications would
have a material adverse effect on the Company's business, financial condition
and results of operations.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997 AND 1996
Net revenues of $1.2 million for the three months ended June 30, 1997 decreased
from $1.5 million from the three month period ended June 30, 1996. The decline
in revenues from the comparable year ago period is due primarily to lower unit
volume of sales in Europe, and in addition, lower unit prices in France. The
lower sales levels in Europe in the June 1997 quarter were offset in part by the
addition of revenues in the United States, where the Company initiated sales in
May 1997.
After the end of the June 1997 quarter, the Company finalized renegotiating its
distributor agreements with its German and French distributors. The
renegotiated terms of the agreements provide for the Company to assume a higher
level of involvement in the sales, marketing and training activities in those
countries and also to receive a higher portion of the end user prices of
products sold in Germany and France. Sales by the Company's French, Italian and
Israeli distributors represented 21% of total sales in the June 1997 quarter.
Cost of goods sold increased to $1.5 million in the three months ended June 30,
1997 from $1.2 million in the three months ended June 30, 1996 as a result of
the higher costs of producing the Prostar versions of the PVS products, which
had been phased out of the product mix in European and other overseas markets
during the year ago period but which were the only two approved products in the
United States market during the June 1997 quarter. In addition, additional
expenses related to the preparation for manufacturing for the United States
market added to indirect manufacturing costs during the June 1997 quarter.
Research and development expenses increased 16% to $1.2 million in the three
months ended June 30, 1997 from $1.1 million in the three months ended June 30,
1996.
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<PAGE>
This increase was the result of the costs associated with additional
personnel required for continued product development of the Company's PVS
systems and the development of new products, as well as a refinement in the
method of allocating manufacturing costs to R&D as they relate to the new
product development. These trends were offset by lower clinical trial
expense in the June 1997 period versus the June 1996 period.
Marketing, general and administrative expenses increased 140% to $2.8 million in
the three months ended June 30, 1997 from $1.2 million in the three months ended
June 30, 1996. The increase was primarily due to the addition of a United
States field sales force.
Net interest income decreased to approximately $356,000 for the three months
ended June 30, 1997 from $438,000 for the three months ended June 30, 1996
primarily due to the lower level of cash and short-term investments.
INCOME TAXES
The Company has incurred only state minimum taxes since inception, which are
included in other income and expense. The Company has incurred net losses in
prior fiscal years and expects to incur a net loss in the current fiscal year.
The Company has not generated any net income to date and therefore has not paid
any federal taxes since inception.
Realization of deferred tax assets is dependent on future earnings, if any, the
timing and amount of which are uncertain. Accordingly, a valuation allowance
has been established in an amount equal to the net deferred assets of the
Company to reflect these uncertainties.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended June 30, 1997 and 1996, the Company used cash to
fund operations of $5.1 million and $1.4 million, respectively. The increase
in cash used in operations during the three months ended June 30, 1997 was
primarily due to increases in spending on sales and marketing personnel and
related expenditures, increased funding of accounts receivables and
additional purchases of inventory.
The Company's net cash provided by investing activities was $5.2 million for the
three months ended June 30, 1997 compared to $1.3 for the three months ended
June 30, 1996 respectively. For the three months ended June 30, 1997, net
proceeds from short-term investments generated $5.7 million in cash that was
offset by $475,000 used for purchases of equipment. These equipment purchases
were primarily for computer and production equipment due to increased personnel
hires and manufacturing activities. In the three months ended June 30, 1996,
net proceeds from short-term investments generated $1.7 million, which was
offset by $267,000 for equipment purchases.
The Company's principal source of liquidity at June 30, 1997 consisted of cash,
cash equivalents, and short-term investments of $22.0 million. From inception
through June 30, 1997 Perclose raised $22.7 million in net proceeds of
private equity financing and stock option exercises and $37.2 million in its
initial public offering. In addition, the Company has borrowed $1.3 million
under an equipment credit facility.
The Company anticipates that its operating losses will continue for at least the
next year since it plans to expend substantial resources in funding clinical
trials in support of regulatory approvals, and continues to expand research,
development, marketing and sales activities. Although Perclose believes that
current cash balances and short-term investments along with cash generated from
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<PAGE>
the future sales of products will be sufficient to meet the Company's
operating and capital requirements through fiscal 1998, there can be no
assurance that the Company will not require additional financing within this
time frame or after. There can be no assurance that such additional financing
will be available on satisfactory terms or at all. In any event, Perclose
may in the future seek to raise additional funds through bank facilities,
debt or equity offerings or other sources of capital. Perclose's future
liquidity and capital requirements will depend on numerous factors, including
progress of the Company's clinical trials, actions relating to regulatory and
reimbursement matters, the costs and timing of expansion of marketing, sales,
manufacturing and product development activities, the extent to which the
Company's products gain market acceptance, and competitive developments.
FACTORS AFFECTING OPERATING RESULTS
This report contains 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. The Company's future results of operations could vary significantly as
a result of the factors described in this section and elsewhere in this report.
The Prostar, Prostar Plus, Prostar XL, Techstar, and Techstar XL systems are
currently the Company's only products. The Prostar systems have been approved
in the United States by the FDA and other products have been approved in certain
international markets by the appropriate regulatory authorities. The Company
has filed PMA Supplement applications to the FDA for the Techstar, Techstar XL,
Prostar Plus and Prostar XL systems; however, such product systems have not yet
been approved as safe and effective under applicable FDA regulatory guidelines.
There can be no assurance that these products will prove to be safe and
effective under applicable regulatory guidelines. In addition, the clinical
trial data may identify significant technical or other obstacles to be overcome
prior to obtaining necessary United States regulatory or United States and
international reimbursement approvals. If the Techstar, Techstar XL, Prostar
Plus, and Prostar XL systems are not approved as safe and effective in the
United States or if the Company is otherwise unable to commercialize these
products successfully in the United States, the Company's business, financial
condition and results of operations could be materially and adversely affected.
In April 1997 the Company received approval from the United States Food and Drug
Administration ("FDA") for clearance of its Prostar systems for commercial sale
in the United States under the Pre-Market Approval ("PMA") regulatory pathway.
In May 1997 the Company filed additional applications with the FDA for clearance
of its Prostar Plus, Prostar XL, Techstar and Techstar XL systems for commercial
sale in the United States under the Pre-Market Approval Supplement ("PMA
Supplement") regulatory pathway. There can be no assurance as to when or whether
the Company will receive approval of such PMA Supplement applications. Delays
in or the failure to receive FDA approval of PMA Supplement applications would
have a material adverse effect on the Company's business, financial condition
and results of operations.
There can be no assurance as to when or whether the Company will receive FDA
clearance or approval for sale of other PVS systems or any other products in the
United States. There can be no assurance that the Company's development efforts
will be successful or that any further PVS products or any other product
developed by the Company will be safe or effective, capable of being
manufactured in commercial quantities at acceptable costs, approved by
appropriate regulatory and reimbursement authorities or successfully marketed.
-10-
<PAGE>
Furthermore, because the Prostar, Prostar Plus, Prostar XL, Techstar and
Techstar XL systems represent the Company's sole near-term product focus,
the Company could be materially and adversely affected if these systems are
not successfully commercialized.
The Company's largest international markets have been Germany, France and Japan.
The Company, through its Japanese distributor, has applied for and received
regulatory approval to sell the Prostar, Prostar Plus, Prostar XL, Techstar and
Techstar XL systems in Japan and intends to commence clinical trials in Japan
that will form the basis of an application for Japanese reimbursement approval.
The Company has received certain reimbursement approvals in certain states in
Germany. In October 1996, the Company's French distributor was informed that
the French government has decided to discontinue direct reimbursement to private
French hospitals for the use of Perclose products. The Company's products still
retain regulatory approval in France. The Company and its distributor are
currently formulating different reimbursement and marketing strategies for
selling the Company's products to private hospitals in France.
The Company's products represent a new method of closing arterial access sites
and there can be no assurance that these products will gain any significant
degree of market acceptance among physicians, patients and health care payers,
even if necessary international and United States regulatory and reimbursement
approvals are obtained. The Company believes that factors affecting market
acceptance include: recommendations and endorsements from physicians, that the
products represent an attractive alternative to other means of closing arterial
access sites, that the products reduce the time to ambulation and hospital
stays, and the Company's ability to train interventional cardiologists. Failure
of the Company's products to achieve significant market acceptance would have a
material adverse effect on the Company's business, financial condition and
results of operations.
Perclose has a limited history of operations and has experienced significant
operating losses since inception. As of June 30, 1997 the Company had an
accumulated deficit of $32.0 million. The Company has been primarily engaged in
research and development of its percutaneous vascular surgery products. The
Company has generated limited revenues from international sales in certain
markets, which sales commenced in December 1994, and initial sales in the U.S.
market beginning in the June 1997 quarter. The Company does not have experience
in manufacturing, marketing or selling its products in quantities necessary for
achieving profitability. Manufacturers often encounter difficulties in scaling
up production of new products, including problems involving production yields,
quality control and assurance, component supply and shortage of qualified
personnel. Difficulties encountered by Perclose in manufacturing scale-up could
have a material adverse effect on its business, financial condition and results
of operation.
There can be no assurance that the Company's systems will be successfully
commercialized or that the Company will achieve significant revenues from either
international or domestic sales. Sales through international distributors are
subject to risks, including the risk of financial instability and the risk that
the distributors will not effectively promote the Company's products. Loss,
termination or ineffectiveness of distributors could have a material adverse
effect on the Company's international sales efforts and could result in the
Company repurchasing unsold inventory from former distributors by virtue of
local laws applicable to distribution relationships, provisions of distribution
agreements or negotiated settlements entered into with such distributors.
The Company anticipates that its operating losses will continue for at least the
next year since it plans to expend substantial resources in funding clinical
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<PAGE>
trials in support of regulatory approvals and continues to expand research,
development, marketing and sales activities. There can be no assurance that
the Company will achieve or sustain profitability in the future.
The Company anticipates that its results of operations will fluctuate on a
quarterly basis for the foreseeable future due to several factors, including
actions relating to regulatory and reimbursement matters, progress of clinical
trials, the extent to which the Company's products gain market acceptance,
introduction of alternative means for arterial access site closure, and
competitive developments. Results of operations will also be affected by the
adoption rate of PVS products in the United States and internationally, the
timing of orders received from distributors, and the ability of distributors to
effectively promote the Company's products.
Competition in the emerging market for arterial access site closure devices is
expected to be intense and to increase. Most of the Company's competitors have
significantly greater financial, technical, research, marketing, sales,
distribution and other resources than the Company. There can be no assurance
that the Company's competitors will not succeed in developing or marketing
technologies and products that are technologically superior, more effective or
commercially attractive than any that are being developed by the Company, or
that such competitors will not succeed in obtaining regulatory approval,
introducing or commercializing any such products prior to the Company. Such
developments could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, the medical device
market is generally characterized by rapid change and by frequent emergence of
new technologies, products or procedures. Furthermore, there can be no
assurance that any such new technologies, products or procedures will not reduce
the number of coronary catheterization procedures performed.
The Company currently manufactures and ships products shortly after receipt of
orders, and the Company anticipates that it will continue to do so in the
future. Accordingly, to date the Company has not developed a significant
backlog and the Company does not anticipate that it will develop a material
backlog in the future.
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<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings None
Item 2. Changes in Securities None
Item 3. Defaults upon Senior Securities None
Item 4. Submission of Matters to a Vote of Security Holders None
Item 5. Other Information None
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits: The exhibits listed on the accompanying Index
to Exhibits are filed as a part hereof and
are incorporated by reference.
b) Reports on Form 8-K: No reports on Form 8-K were filed by the
Registrant during the quarter ended June 30,
1997.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this 10-Q report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 8, 1997 PERCLOSE, INC.
/s/ Henry A. Plain, Jr.
-------------------------------------
Henry A. Plain, Jr.
President and Chief Executive Officer
/s/ Kenneth E. Ludlum
--------------------------------------------
Kenneth E. Ludlum
Vice President Finance and Administration,
Chief Financial Officer
(Principal Financial and Accounting Officer)
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<PAGE>
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
- ------- -----------
3.1(1) Restated Certificate of Incorporation.
3.2(1) Bylaws of the Registrant.
3.3(2) Certificate of Designations of Rights, Preferences and Privileges of
Series A Participating Preferred Stock.
3.4(2) Preferred Shares Rights Agreement, dated as of January 27, 1997.
4.1(1) Specimen Common Stock Certificate.
10.1(1) Form of Indemnification Agreement between the Company and each of its
directors and officers.
10.2(1) 1992 Stock Plan and form of Stock Option Agreement thereunder.
10.3(1) 1995 Director Option Plan.
10.4(1) 1995 Employee Stock Purchase Plan and forms of agreements thereunder.
10.5(1) Lease Agreement (the "Lease Agreement") dated July 6, 1993 between
Registrant and the David D. Bohanon Organization for facility located
at 199 Jefferson Drive, Menlo Park, California, as amended by First
Amendment to Lease dated January 31, 1994.
10.6(3) Second amendment to Lease Agreement dated September 10, 1996.
10.7(3) Third amendment to Lease Agreement dated March 21, 1997.
10.8(1) Loan and Security Agreement dated September 29, 1994 between the
Registrant, Silicon Valley Bank and MMC/GATX Partnership No. I, as
amended by Loan Modification Agreement.
10.9(1) Shareholder Rights Agreement dated August 23, 1995 between the
Registrant and certain holders of the Registrant's securities.
10.10(3) Employment Agreement dated May 8, 1996 between the Registrant and
Kenneth E. Ludlum.
10.11(1) Agreement dated March 30, 1993 between the Registrant and
LocalMed, Inc.
10.12(3) Promissory Note between the Registrant and John G. McCutcheon dated
January 31, 1997.
10.13 Promissory Note between the Registrant and Kenneth E. Ludlum and Judy
M. Wong dated June 26, 1997.
27.1 Financial Data Schedule (Edgar version only).
________
(1) Filed as an Exhibit to the Registrant's Registration Statement on
Form S-1 (File No. 33-97128) and incorporated herein by reference.
(2) Filed as an Exhibit to the Registrant's Registration Statement on
Form 8-A filed with the Securities and Exchange Commission on
January 28, 1997, and incorporated herein by reference.
(3) Filed as an Exhibit to the Registrant's Annual Report on Form 10-K
for the fiscal year ended March 31, 1997 and incorporated herein by
reference.
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<PAGE>
Exhibit 10.13
PROMISSORY NOTE
SECURED BY DEED OF TRUST
$200,000.00 Menlo Park, California
June 26, 1997
FOR VALUE RECEIVED, the undersigned, KENNETH E. LUDLUM and JUDY M. WONG,
husband and wife (jointly and severally, "Borrower"), promise to pay to
PERCLOSE, INC., a Delaware corporation (the "Company"), at its office at 199
Jefferson Drive, Menlo Park, California 94025 or order, with interest on the
unpaid principal amount from the date hereof at the rate of Six and Eighty
One Hundredths percent (6.80%) per annum, compounded annually, the principal
sum of Two Hundred Thousand Dollars ($200,000.00) (the "Principal"), loaned
to Borrower pursuant to that certain Loan Agreement between Borrower and the
Company of even date herewith (the "Loan Agreement"). Notwithstanding the
foregoing, interest will accrue and be payable at a per annum rate equal to
the lesser of (i) the aforementioned rate of interest plus five percent (5%)
or (ii) the maximum interest rate allowed by law, on all past-due principal
and, to the extent permitted by applicable law, on all past-due interest
(whether past-due by maturity, acceleration or otherwise) from the due dates
thereof until the obligations of Borrower with respect to the payment hereof
shall have been discharged in full.
1. All accrued and unpaid interest and all unpaid Principal shall be
due and payable on the fourth anniversary of this Note (the "Maturity Date")
or upon a Maturity Event (hereinafter defined), whichever comes first.
2. Borrower may prepay all or any portion of the Principal sum of this
Note at any time prior to the Maturity Date, with no premium or penalty, and
interest shall thereupon cease on the portion of the principal amount
prepaid. All amounts payable hereunder shall be payable in lawful money of
the United States of America. All payments made pursuant hereto, regardless
of when made, shall be first applied to reduce accrued and unpaid interest on
the outstanding principal hereof, and any remaining portion of such payments
shall then be applied to reduce the principal hereof. All payments hereunder
shall be made by Borrower free and clear of, and without deduction for, any
and all present and future taxes, levies, charges, deductions and
withholdings. Borrower shall pay upon demand any stamp or other taxes,
levies or charges of any jurisdiction with respect to the execution,
delivery, performance and enforcement of this Note.
3. In the event that the Company is merged into another corporation, or
substantially all the outstanding stock or assets of the Company are sold to
another corporation, immediately prior to the consummation of such transaction
(the "Forgiveness Date") the Company shall forgive all unpaid Principal in
excess of One Hundred Thousand Dollars ($100,000.00) and all accrued and unpaid
interest on such forgiven Principal. Such forgiveness shall be conditioned upon
the following:
<PAGE>
A. Kenneth E. Ludlum is an employee of the Company as of the
Forgiveness Date and has not been given notice of termination for cause; or
B. Kenneth E. Ludlum is not an employee of the Company on the
Forgiveness Date but was terminated without cause within the three month
period immediately preceding the Forgiveness Date.
The total amount forgiven on the Forgiveness Date shall be considered
income to Borrower and shall be included as income on Kenneth E. Ludlum's W-2
statements. Borrower shall be responsible for all taxes associated with such
forgiven amounts.
Any portion of the Principal and all accrued interest which is not
forgiven pursuant to this Section 3 shall be due and payable as otherwise set
forth in this Note.
4. The holder of this Note may, at its option, accelerate the maturity
of all sums due or to become due hereunder upon the occurrence of any of the
following (each, a "Maturity Event"), in which event the entire unpaid
balance of this Note (being the then unpaid Principal and all accrued and
unpaid interest thereon) shall immediately become due and payable, without
demand or notice:
A. Termination of the employment of Kenneth E. Ludlum with the
Company, whether voluntary or involuntary, and whether with cause or without
cause; or
B. The filing of a petition of bankruptcy, either voluntary or
involuntary, by or against Borrower; or
C. Institution of any proceeding by or against Borrower under
bankruptcy or insolvency laws relating to the relief of debtors; or
D. If at any time the holder considers the security for the loan
underlying this Note to be unsatisfactory or insufficient, and Borrower does
not, on demand by the holder, furnish such further collateral or make such
payment on account as may be satisfactory to the holder; or
E. If at any time, in the sole opinion of the holder, the
financial responsibility of Borrower becomes impaired or unsatisfactory to
the holder; or
F. If Borrower shall sell, convey or alienate the Property
(defined below), or any part thereof, or any interest therein, or shall be
divested of his title or any interest therein in any manner or way, whether
voluntarily or involuntarily, without the written consent of the holder of
this Note being first had and obtained; or
G. If at any time Borrower fails to make any payment or to perform
any other obligation which is secured by a deed of trust or other lien on the
Property and such failure is
2
<PAGE>
deemed a default pursuant to the terms of such deed of trust or other lien
(or applicable law with respect to such other lien); or
H. If at any time the amount of the indebtedness encumbering the
Property secured by a deed of trust, lien or other encumbrance senior to the
Deed of Trust is increased over the amount of such indebtedness existing as
of the date of this Note.
In the event (i) Borrower defaults in the payment of Principal or any
interest thereon when due pursuant to the terms hereof or in Borrower's
performance of any obligation contained in the Deed of Trust (hereinafter
defined) encumbering the Property and securing this Note including any
amendment, modification or extension thereof, (ii) any representation or
warranty of Borrower contained in this Note or any other agreement or
instrument executed in connection with this loan described therein proves to
have been false or misleading in any material respect, (iii) Borrower
defaults in Borrower's obligation to pay any indebtedness evidenced by any
promissory note executed by Borrower and payable to the Company or there
occurs any other default under any deed of trust, mortgage or other document
securing repayment of such indebtedness, (iv) Borrower defaults in Borrower's
performance of any obligation to pay any indebtedness secured by a deed of
trust, mortgage or other lien encumbering the Property or in Borrower's
performance of any obligation contained in any such deed of trust, mortgage
or other lien, or (v) a Maturity Event occurs, then, unless otherwise
prohibited by law, the Company shall have the option, without demand or
notice, to declare the entire Principal balance of this Note to be
immediately due and payable.
5. This Note is secured by and subject to the terms of a deed of trust
(the "Deed of Trust") executed by Kenneth E. Ludlum and Judy M. Wong, in
favor of the Company, encumbering certain real property commonly known as 80
Del Monte Drive, located in the City of Hillsborough, County of San Mateo,
State of California (the "Property"), as more particularly described and set
forth therein.
6. Borrower agrees to pay the actual expenses incurred by the holder in
connection with any attempt by the holder to collect any amount due or to
exercise any rights the holder may have under this Note, or under or pursuant
to the Deed of Trust. Borrower agrees that, if any legal action is necessary
to enforce or collect this Note, or any other obligations of Borrower
pursuant to this Note, the prevailing party shall be entitled to reasonable
attorneys' fees in addition to any other relief to which the party may be
entitled.
7. This Note may be amended or modified, and provisions hereof may be
waived, only by the written agreement of Borrower and the Company. No delay
or failure by the Company in exercising any right, power or remedy hereunder
shall operate as a waiver of such right, power or remedy, and a waiver of any
right, power or remedy on any one occasion shall not operate as a bar or
waiver of any such right, power or remedy on any other occasion. Without
limiting the generality of the foregoing, the delay or failure by the Company
for any period of time to enforce collection of any amounts due hereunder
shall not be deemed to be a waiver of any rights of the Company under
contract or under law. The rights of the Company under this Note are in
addition to any other rights
3
<PAGE>
and remedies which the Company may have. Should this instrument or any part
of the indebtedness hereby be collected by law or through an attorney-at-law,
the holder hereof shall, if permitted by applicable law, be entitled to
collect from Borrower reasonable attorneys' fees and all other costs of
collection. Borrower hereby waives presentment, demand, protest and notice
of any kind, including notice of presentment, demand, protest, dishonor and
non-payment. This Note shall be binding upon Borrower and its respective
heirs, legal representatives, successors and assigns.
8. In the event that the holder hereof, in enforcing its rights
hereunder, determines that the charges and fees incurred in connection with
this Note may under applicable law cause the interest rate to exceed the
maximum rate allowed by law, then such interest shall be calculated and any
excess over the maximum permitted by said law shall be credited to the then
outstanding principal amount hereof to reduce said balance by the amount of
any such excess. It is the intent of the parties hereto that under no
circumstance shall Borrower be required to pay, nor shall the holder be
entitled to collect, any interest which exceeds the maximum rate permitted
under applicable laws relative to usury.
9. Time is of the essence of this Note. Liability hereunder shall be
joint and several both between Borrower and among all other persons and
entities now or hereafter liable for all or any part of the indebtedness
evidenced hereby. The validity, construction, effect, performance and
enforcement of this Note shall be governed in all respects by the laws of the
State of California. Every provision of this Note is intended to be
severable. Whenever possible, each provision of this Note shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Note shall be prohibited by or invalid under
such law, such provision shall be ineffective to the extent of such
prohibition or invalidity without invalidating the remainder of such
provision or the remaining provisions of this Note.
IN WITNESS WHEREOF, the undersigned have executed this Note, intending to
be bound personally hereby, as of the day and year first above written.
BORROWER
/s/ KENNETH E. LUDLUM
-----------------------------------
Kenneth E. Ludlum
/s/ JUDY M. WONG
-----------------------------------
Judy M. Wong
4
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<PAGE>
<ARTICLE> 5
<CIK> 0000934438
<NAME> PERCLOSE, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,573,526
<SECURITIES> 19,398,495
<RECEIVABLES> 2,370,799
<ALLOWANCES> 0
<INVENTORY> 989,749
<CURRENT-ASSETS> 25,593,758
<PP&E> 3,576,221
<DEPRECIATION> 1,698,994
<TOTAL-ASSETS> 28,266,623
<CURRENT-LIABILITIES> 2,680,254
<BONDS> 0
0
0
<COMMON> 9,584
<OTHER-SE> 25,545,970
<TOTAL-LIABILITY-AND-EQUITY> 28,266,623
<SALES> 1,170,244
<TOTAL-REVENUES> 1,170,244
<CGS> 1,452,646
<TOTAL-COSTS> 5,533,327
<OTHER-EXPENSES> 4,080,681
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 59,637
<INCOME-PRETAX> (4,007,377)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,007,377)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,007,377)
<EPS-PRIMARY> (.42)
<EPS-DILUTED> (.42)
</TABLE>
