<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 16, 1996
REGISTRATION NO. 333-07277
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
------------------------
UROQUEST MEDICAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3845 59-3176454
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
</TABLE>
------------------------
265 EAST 100 SOUTH, SUITE 220
SALT LAKE CITY, UTAH 84111-1616
(801) 322-1554
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ERIC B. HALE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
UROQUEST MEDICAL CORPORATION
265 EAST 100 SOUTH, SUITE 220
SALT LAKE CITY, UTAH 84111-1616
(801) 322-1554
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
DAVID R. RUDD, ESQ. CRAIG E. DAUCHY, ESQ.
DAVID G. ANGERBAUER, ESQ. MATTHEW B. HEMINGTON, ESQ.
HOLLAND & HART LLP COOLEY GODWARD CASTRO
215 SOUTH STATE STREET, SUITE 500 HUDDLESON & TATUM
SALT LAKE CITY, UTAH 84111 3000 SAND HILL RD., BLDG. 3, SUITE 230
(801) 595-7800 MENLO PARK, CALIFORNIA 94025-7116
(415) 843-5000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / _____
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _____
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
UROQUEST MEDICAL CORPORATION
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM S-1 ITEM
NUMBER AND CAPTION PROSPECTUS CAPTION
---------------------------------------- ----------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus............................ Forepart of the Registration Statement;
Outside Front Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus................... Inside Front Cover Page; Outside Back Cover
Page
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges.... Outside Front Cover Page; Prospectus Summary;
Risk Factors
4. Use of Proceeds......................... Use of Proceeds
5. Determination of Offering Price......... Outside Front Cover Page; Underwriting
6. Dilution................................ Dilution
7. Selling Security Holders................ Not Applicable
8. Plan of Distribution.................... Outside Front and Inside Front Cover Pages;
Underwriting
9. Description of Securities to be
Registered............................ Prospectus Summary; Capitalization;
Description of Capital Stock
10. Interests of Named Experts and
Counsel............................... Not Applicable
11. Information with Respect to the
Registrant............................ Outside Front and Inside Cover Pages;
Prospectus Summary; Risk Factors; The Company;
Acquisition of BMT; Dividend Policy;
Capitalization; Selected Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of Operations;
Business; Management; Certain Transactions;
Principal Stockholders; Description of Capital
Stock; Shares Eligible for Future Sale;
Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities........................... Not Applicable
</TABLE>
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JULY 16, 1996
3,350,000 SHARES
UROQUEST MEDICAL CORPORATION [LOGO]
Common Stock
The 3,350,000 shares of Common Stock, par value $0.001 per share (the
"Common Stock"), offered hereby (this "Offering") are being offered by UroQuest
Medical Corporation (the "Company"). Prior to this Offering, there has been no
public market for the Common Stock. It is currently estimated that the initial
public offering price will be between $11.00 and $13.00 per share. See
"Underwriting" for the factors considered in determining the initial public
offering price.
The Company has applied for the Common Stock to be quoted on the Nasdaq
National Market under the symbol "UROQ."
FOR A DISCUSSION OF CERTAIN RISKS OF AN INVESTMENT IN THE SHARES OF COMMON
STOCK OFFERED HEREBY, SEE "RISK FACTORS" ON PAGES 6 TO 14.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS* COMPANY+
<S> <C> <C> <C>
Per Share.......................... $ $ $
Total++............................ $ $ $
</TABLE>
- ---------------
* The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
+ Before deducting expenses of this Offering payable by the Company estimated to
be $500,000.
++ The Company has granted the Underwriters a 30-day option to purchase up to
502,500 additional shares of Common Stock on the same terms per share solely
to cover over-allotments, if any. If such option is exercised in full, the
total price to public will be $ , the total underwriting discounts
and commissions will be $ and the total proceeds to the Company will
be $ . See "Underwriting."
------------------------
The Common Stock is being offered by the Underwriters as set forth under
"Underwriting" herein. It is expected that the delivery of certificates therefor
will be made at the offices of Dillon, Read & Co. Inc., New York, New York, on
or about , 1996, against payment therefor. The Underwriters
include:
DILLON, READ & CO. INC. PRUDENTIAL SECURITIES INCORPORATED
The date of this Prospectus is , 1996
<PAGE> 4
[Inside Front Cover]
[COMPANY LOGO]
Uroquest Medical Corporation was formed to design, develop and market advanced
products for the management and diagnosis of both male and female urological
disorders.
[This is a diagram showing the various types of urinary outflow dysfunctions.
Included with the diagram are two photographs: One showing the Male On-Command
Catheter and one showing the Female On-Command Catheter. Included with the
photographs is the following language: The On-Command Catheter is an
endourethral (inside the urethra) catheter incorporating a proprietary
anchoring system and a proprietary patient controlled, magnetically activated
valve used to regulate urine flow.]
- ----------------------------------------------------------------------------
The On-Command(R) Catheter is designed to enable persons with either urinary
incontinence or urinary retention to manage their condition without the
restricted mobility, medical complications, discomfort and embarrassment
generally associated with many of the existing management alternatives,
including intermittant, Foley, external and suprapubic catheters, diapers and
absorbants, and penile clamps.
The On-Command Catheter is an investigational device and has not been cleared or
approved by the FDA for commercial sale in the United States. The process of
obtaining FDA clearance or approval may be lengthy, and there can be no
assurance that the On-Command Catheter will be cleared or approved by the FDA.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Financial Statements and notes thereto appearing elsewhere
in this Prospectus, including the information under "Risk Factors." Except as
set forth in the Financial Statements or as otherwise indicated, all information
in this Prospectus (i) assumes the Underwriters' over-allotment option is not
exercised, (ii) assumes the Company's reincorporation in the State of Delaware
(the "Reincorporation"), which will be completed prior to the closing of this
Offering, (iii) assumes a 1-for-3.5 reverse stock split of the outstanding
shares of Common Stock and Preferred Stock of the Company and that the
conversion of all outstanding shares of Non-Voting Common Stock into Common
Stock will be effected in connection with the Reincorporation, (iv) assumes the
filing of the Company's Restated Certificate of Incorporation, authorizing a
class of 16,000,000 shares of undesignated Preferred Stock, which will be
effective upon the closing of this Offering, (v) gives effect to the conversion
of all outstanding shares of Preferred Stock into Common Stock upon the closing
of this Offering, (vi) assumes the exercise of warrants to purchase a total of
1,428,571 shares of Common Stock by certain of the Company's stockholders upon
the closing of this Offering, and (vii) assumes consummation of the proposed
acquisition of BMT, Inc. upon the closing of this Offering. See "Description of
Capital Stock," "Capitalization," "Underwriting" and "Acquisition of BMT."
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in such forward-looking statements as a result of certain factors
discussed under "Risk Factors" and elsewhere in this Prospectus.
THE COMPANY
UroQuest Medical Corporation (the "Company") was formed to design, develop
and market advanced products for the management and diagnosis of both male and
female urological disorders. The Company's principal product, the On-Command
Catheter, is an endourethral (inside the urethra) catheter incorporating a
proprietary anchoring system and a proprietary patient controlled, magnetically
activated valve used to regulate urine flow. The On-Command Catheter is designed
to enable persons with either urinary incontinence or urinary retention to
manage their condition without the restricted mobility, medical complications,
discomfort and embarrassment generally associated with many of the existing
management alternatives, including intermittent, Foley, external and suprapubic
catheters, diapers and absorbents, and penile clamps. Clinical trials of the
On-Command Catheter have demonstrated the utility of the device in managing male
urinary outflow disorders. The results of the clinical trials showed an overall
symptomatic urinary tract infection rate of less than 3% for all device
insertions during the trials. This rate is significantly lower than the rate of
infection generally associated with the use of Foley catheters. Of the patients
included in the trials, approximately 90% found the Male On-Command Catheter
maintained continence and was comfortable to wear and easy to use.
Urinary outflow dysfunction, or voiding disorders, affects at least 13
million people in the United States, including approximately three million men
and ten million women. The Company believes the incidence of urinary outflow
dysfunction in other developed countries is also significant. Urinary outflow
dysfunction is a problem that affects a large number of both institutionalized
(nursing home and hospital care) and community-dwelling individuals, and can be
characterized as either incontinence or retention. Urinary incontinence is the
inability to control one's urinary function, leading to frequent involuntary
urine leakage from the bladder. Urinary retention is the inability to
voluntarily and spontaneously empty one's bladder, preventing urine flow even
though the bladder continues to fill. More than 50% of the estimated 1.5 million
nursing home patients have voiding disorders. Additionally, in contrast to the
widely-held notion that voiding disorders are primarily a problem of the
institutionalized elderly, a 1986 National Institute on Aging study indicated
that 30% of the estimated 40 million community-dwelling population between the
ages of 60 to 84 also suffer from some form of urinary outflow dysfunction.
3
<PAGE> 6
The cost associated with the treatment and management of voiding disorders
is estimated to exceed $16 billion annually in the United States alone. Despite
the development of new treatment options, a recent survey conducted by the
National Association for Continence indicated that approximately 56% of
treatments for urinary outflow dysfunction produced no improvement or made the
patients' conditions worse. Therefore, the majority of sufferers must live with
the numerous problems associated with these disorders and seek acceptable
management modalities for their symptoms.
Clinical trials of the Male On-Command Catheter have been conducted at
eight sites in the United States under an Investigational Device Exemption
("IDE") application approved by the United States Food and Drug Administration
(the "FDA"). Through May 31, 1996, 67 patients had received a total of 220 male
devices. The longest trial period on any patient was 32 months, with the patient
receiving a total of 30 device insertions. The results, while promising, are
preliminary and additional clinical testing is required before any definitive
conclusions can be reached concerning the general use of the On-Command
Catheter. Consequently, the Company is preparing to conduct a controlled,
randomized clinical study under an approved IDE application at three sites that
have received Institutional Review Board ("IRB") approval. The predicate device
to be used in connection with the study is the Foley catheter. The Company
expects to complete the study, which has a targeted enrollment of 60 male
patients, in the fourth quarter of 1996. An IDE application for the Female
On-Command Catheter was approved in March 1996 and the Company is in the process
of obtaining IRB approval at two investigational sites prior to commencing
clinical trials.
The Company expects to initiate clinical evaluation of the Male On-Command
Catheter in Europe pursuant to an arrangement with B. Braun Biotrol S.A.
("Braun"), a Europe-based multinational medical device company. Braun plans to
conduct the evaluation and to prepare the necessary regulatory filings in 16
European countries. The clinical evaluation of the Male On-Command Catheter in
Europe is expected to begin in late summer 1996 at a total of six
investigational sites in France, Germany and Spain.
The Company intends to market the On-Command Catheter directly in the
United States to physicians and their patients while using marketing
collaborations for institutional and international markets. Medical association
estimates indicate that there are approximately 9,000 urologists and uro-
gynecologists in the United States whom the Company expects to address with a
relatively small direct sales force consisting of approximately 20 individuals
by the year 1999. The Company anticipates that the On-Command Catheter will be
marketed internationally through Braun and other marketing partners and
distributors following required clinical testing and necessary regulatory
approval.
In June 1996, the Company entered into a definitive agreement to acquire
BMT, Inc. and its wholly owned subsidiary, Bivona, Inc. (collectively, "BMT").
BMT designs, develops, manufactures and markets a line of proprietary silicone
medical device products as well as provides engineering design, development and
manufacturing services for silicone products on an OEM basis for other medical
device companies. BMT is one of a limited number of specialty manufacturers of
silicone catheters in the United States. BMT has been a contract manufacturer
for the Company since June 1994 and has manufactured approximately 2,200 Male
On-Command Catheters. The acquisition will be effected through a merger of BMT
with and into an acquisition subsidiary of the Company pursuant to which
shareholders of BMT will receive, in the aggregate, a combination of $10 million
cash and newly issued shares of Common Stock equal in value to $22.5 million.
Based upon an assumed initial public offering price of $12.00 per share, an
aggregate of 1,875,000 shares of Common Stock will be issued in the acquisition.
The acquisition will enable the Company to control its own production source
while providing necessary capacity and flexibility in the manufacturing process.
The product development and production expertise of BMT is also anticipated to
be utilized by the Company to develop additional On-Command Catheter products
and other new devices related to the management and diagnosis of urological
disorders.
4
<PAGE> 7
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk, including risks associated with the lack of regulatory approval
and limited clinical data, dependence upon the On-Command Catheter, uncertainty
of market acceptance, limited operating history, history of losses and
expectation of future losses, acquisition of BMT, government regulation, lack of
marketing and sales experience, manufacturing risks and other factors.
Prospective investors should refer to "Risk Factors" set forth on pages 6 to 14.
The Company will not be able to market the On-Command Catheter in the
United States unless and until it obtains clearance or approval from the FDA.
There can be no assurance that the Company will obtain FDA clearance or approval
for the On-Command Catheter on a timely basis, if at all.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company..................................... 3,350,000 shares
Common Stock to be outstanding after this Offering...................... 11,191,734 shares(1)
Use of proceeds......................................................... To fund clinical trials, sales and
marketing, the acquisition of BMT,
research and development, and for
working capital and general
corporate purposes
Nasdaq National Market symbol........................................... UROQ
</TABLE>
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
PRO FORMA
AS ADJUSTED(2)(3)
ACTUAL -------------------------
---------------------------------------------------------------------------------- THREE
PERIOD FROM THREE MONTHS ENDED MONTHS
INCEPTION YEAR ENDED DECEMBER 31, MARCH 31, YEAR ENDED ENDED MARCH
(APRIL 8, 1992) -------------------------------------- ----------------------- DEC. 31, 31,
TO DEC. 31,1992 1993 1994 1995 1995 1996 1995 1996
--------------- ---------- ----------- ----------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Net sales......... $ -- $ 979 $ 2,801 $ -- $ -- $ -- $14,257,413 $ 3,796,943
Cost of sales..... -- 832 2,381 -- -- -- 7,228,308 2,011,826
--------------- ---------- ----------- ----------- ---------- ---------- ----------- -----------
Gross profit...... -- 147 420 -- -- -- 7,029,105 1,785,117
Research and
development..... -- 120,531 431,295 1,106,631 193,700 277,822 2,092,896 530,340
General and
administrative... 11,234 156,647 483,399 397,523 77,548 120,838 2,050,720 573,263
Sales and
marketing....... -- 38,392 30,257 46,262 3,523 47,572 1,739,143 423,444
Amortization of
goodwill........ -- -- -- -- -- -- 1,420,000 355,000
--------------- ---------- ----------- ----------- ---------- ---------- ----------- -----------
Operating loss.... (11,234) (315,423) (944,531) (1,550,416) (274,771) (446,232) (273,654) (96,930)
Other income
(expense),
net............. -- -- (260,663) 36,669 (7,910) (561) (278,479) (77,065)
--------------- ---------- ----------- ----------- ---------- ---------- ----------- -----------
Net loss.......... $ (11,234) $ (315,423) $(1,205,194) $(1,513,747) $ (282,681) $ (446,793) $ (552,133) $ (173,995)
================= ============ ============= ============= ============ ============ ============= =============
Pro forma net loss
per share(4).... $(0.36) $(0.10) $(0.05) $(0.02)
============= ============ ============= =============
Shares used in
computing pro
forma net loss
per share(4).... 4,190,511 4,545,186 10,844,082 11,198,757
============= ============ ============= =============
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------------------
PRO FORMA(2) AS ADJUSTED(3)
------------- ---------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.................................................................. $ 5,759,135 $32,255,135
Working capital............................................................................ (1,205,591) 35,680,409
Total assets............................................................................... 42,887,272 69,383,272
Long-term debt, excluding current portion.................................................. 2,135,758 2,135,758
Deficit accumulated during development stage............................................... (3,492,391) (3,492,391)
Stockholders' equity....................................................................... 28,175,221 65,061,221
</TABLE>
- ---------------
(1) Excludes 17,594 shares of Common Stock reserved for issuance pursuant to
outstanding warrants and 1,052,815 shares of Common Stock reserved for
issuance pursuant to outstanding stock options as of March 31, 1996. Also
excludes a total of 488,679 shares of Common Stock reserved for future
issuance under the Company's 1994 Stock Option Plan and 1996 Employee Stock
Purchase Plan. See Note 5 of Notes to Consolidated Financial Statements of
UroQuest Medical Corporation, "Management -- Stock Plans" and "Description
of Capital Stock."
(2) Reflects the pro forma combination of the Company and BMT as if the
acquisition of BMT had occurred at the beginning of each of the periods
presented for consolidated statements of operations data and as of March 31,
1996 for consolidated balance sheet data and gives effect to each of the
events that will occur upon or prior to the closing of this Offering.
(3) Adjusted to give effect to the receipt of the net proceeds from the sale of
the 3,350,000 shares of Common Stock offered hereby (at an assumed initial
public offering price of $12.00 per share and after deducting the estimated
underwriting discounts and commissions and estimated offering expenses
payable by the Company).
(4) See Note 1 of Notes to Consolidated Financial Statements of UroQuest Medical
Corporation for information concerning the computation of pro forma net loss
per share and shares used in computing pro forma net loss per share.
5
<PAGE> 8
RISK FACTORS
The following risk factors should be considered carefully in addition to
the other information contained in this Prospectus before purchasing the Common
Stock offered hereby.
Lack of Regulatory Approval and Limited Clinical Data. The Company's
principal product, the On-Command Catheter, is an investigational device that
has not been cleared or approved by the FDA or foreign regulatory authorities
and will not be available for commercial distribution in the United States or
internationally unless and until such clearance or approval is obtained. The
Male On-Command Catheter is currently in clinical testing in the United States
with respect to single use insertions of up to 30 days. Clinical data obtained
to date is limited. The Company is preparing to conduct a controlled, randomized
clinical study of the Male On-Command Catheter. There can be no assurance that
the FDA will determine that the data derived from the clinical study will
support the safety and efficacy of the device. Clinical testing of the Female
On-Command Catheter has not yet been initiated. If either the Male or Female
On-Command Catheter does not prove to be safe and effective in clinical testing
to the satisfaction of the FDA or foreign regulatory authorities, the Company
will not be able to market or commercialize the On-Command Catheter in the
United States or abroad. Furthermore, clearance or approval for single use
insertions of the On-Command Catheter, if obtained, does not mean that use of
successive device insertions will be approved. There can be no assurance that
either single use or successive insertion use of the On-Command Catheter will
prove to be safe and effective in the United States or international clinical
testing, or that FDA or foreign regulatory clearance or approval will be
obtained on a timely basis, if at all. In addition, the clinical testing may
identify technical or other obstacles that can delay completion of such testing,
as has been experienced with respect to the Male On-Command Catheter. If the
On-Command Catheter does not prove to be safe and effective in clinical testing
or if the Company is otherwise unable to obtain necessary regulatory approval,
the Company's business, financial condition and results of operations will be
materially adversely affected. See "Business -- The On-Command Solution for
Managing Incontinence and Retention, -- Clinical Trials, and -- Government
Regulation."
Dependence Upon the On-Command Catheter. The Company expects to derive a
substantial majority of its future revenues from sales of the On-Command
Catheter. Although the operations of BMT are expected to be the sole source of
revenues in the short-term, the Company's long-term revenues and future success
are substantially dependent upon its ability to market and commercialize the On-
Command Catheter in the United States and abroad. Although the Company markets a
line of proprietary medical device products through BMT, there can be no
assurance that such products will receive continued market acceptance or
generate significant sales. Furthermore, even though the Company is in the
process of developing new products in addition to the On-Command Catheter, there
can be no assurance that such development efforts will be successful or that any
resulting products will achieve market commercialization. The life cycle of the
On-Command Catheter is difficult to estimate, particularly in light of current
and future technological developments, competition and other factors. The
failure of the Company to successfully commercialize the On-Command Catheter or
to realize significant revenues therefrom would have a material adverse effect
on the business, financial condition and results of operations of the Company.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- The On-Command Solution for Managing Incontinence
and Retention, and -- Clinical Trials."
Uncertainty of Market Acceptance. The On-Command Catheter represents a new
management modality for urinary outflow dysfunction, and there can be no
assurance that the On-Command Catheter will gain any significant degree of
market acceptance among physicians, health care payers or patients, even if
necessary domestic or international regulatory and reimbursement approvals are
obtained. The Company believes that recommendations of the On-Command Catheter
by physicians will be essential for market acceptance of the On-Command
Catheter, and there can be no assurance that any such recommendations will be
obtained. Broad use of the On-Command Catheter will require the training of
numerous physicians, and the time required to complete such training could
result in a delay or dampening of market acceptance. Moreover, health care
payers' approval of reimbursement for
6
<PAGE> 9
the On-Command Catheter will be an important factor in establishing market
acceptance. Patient acceptance of the device will depend on many factors,
including physician recommendations, the degree, rate and severity of potential
complications, the cost and benefits compared to competing products, lifestyle
implications, available reimbursement and other considerations. Failure of the
On-Command Catheter to achieve substantial market acceptance would have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Marketing and Sales, and -- Third Party
Reimbursement."
Limited Operating History; History of Losses and Expectation of Future
Losses. The Company has a limited history of operations. Since its inception in
April 1992, the Company has been primarily engaged in research and development
of the On-Command Catheter. The Company has experienced substantial operating
losses since inception and, as of March 31, 1996, had an accumulated deficit of
$3,492,391. The Company expects its operating losses to continue for at least
the next two years as it continues to expend substantial resources in funding
clinical trials in support of regulatory and reimbursement approvals, expansion
of marketing and sales activities, and research and development. There can be no
assurance that the Company will achieve or sustain profitability in the future.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Acquisition of BMT. The acquisition of BMT constitutes the Company's first
acquisition of another business. BMT's operations are significantly different in
many respects from the Company's current operations, and the acquisition may
result in a number of unforeseen difficulties and problems that could have a
material adverse effect on the Company's business, financial condition and
results of operations. There can be no assurance that the anticipated benefits
of the acquisition will be realized. Moreover, the acquisition could have the
effect of disrupting the current business and operations of BMT by adversely
affecting material relationships with significant customers and others,
including principal suppliers and key employees. In particular, approximately
40% of BMT's net sales during 1995 and the first quarter of 1996 were derived
from its manufacture of OEM medical device products. BMT maintains no long-term
OEM customer contracts and, during 1995 and the first quarter of 1996, BMT
derived approximately 20% of its net sales from one such customer. Although BMT
intends to continue developing its OEM business, there can be no assurance that
BMT will be successful in its efforts or that its OEM customers will react
favorably to the acquisition. The acquisition of BMT could also redirect
significant management attention and other resources that would otherwise be
devoted to the ongoing development of the On-Command Catheter. Accordingly, the
acquisition could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Acquisition of BMT,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- BMT."
Government Regulation. The Company's products, including the On-Command
Catheter, will be subject to pervasive and continuing regulation by the FDA.
Pursuant to the Federal Food, Drug and Cosmetic Act (the "FDC Act"), the FDA
regulates the preclinical and clinical testing, manufacture, labeling,
distribution and promotion of medical devices in the United States. Prior to
commercialization in the United States, a medical device generally must receive
FDA clearance or approval, which can be an expensive, lengthy and uncertain
process. Regulatory agencies in various foreign countries in which the Company's
products may be sold may impose additional or varying regulatory requirements.
Noncompliance with applicable requirements can result in, among other things,
fines, injunctions, civil penalties, recall or seizure of products, total or
partial suspension of production, failure of the government to grant premarket
clearance or approval for devices, withdrawal of marketing clearances or
approvals, and criminal prosecution. The FDA also has authority to request
recall, repair, replacement or refund of the cost of any device manufactured or
distributed by the Company.
Companies desiring to market a new medical device generally must obtain
either a premarket notification clearance under Section 510(k) of the FDC Act
("510(k)") or a premarket approval ("PMA") prior to the introduction of such
medical device into the market. In addition, changes to a medical device that
significantly affect the safety or efficacy of the device are also subject to
FDA review and clearance or approval. Although generally believed to be a
shorter, less costly regulatory path than
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<PAGE> 10
a PMA, the process of obtaining a 510(k) clearance generally requires the
submission of supporting data, which may include data from clinical trials of
the device. The time period required to assemble and compile this data can be
extensive and can extend the regulatory process for a considerable length of
time. The PMA process can take several years or longer from initial filing and
requires the submission of extensive clinical data and supporting information.
The FDA has approved IDEs for both the Male On-Command Catheter and the
Female On-Command Catheter. Clinical trials of the Male On-Command Catheter are
underway. The Company is in the process of obtaining IRB approvals to begin a
clinical trial of the Female On-Command Catheter. There can be no assurance that
the FDA will determine that the data derived from these studies will support the
safety and efficacy of the devices or warrant the continuation of clinical
studies.
The Company currently does not expect to submit a 510(k) notification for
the Male On-Command Catheter for single use insertion of up to 30 days until the
first quarter of 1997 or for the Female On-Command Catheter for single use
insertion until mid-1997, at the earliest. There can be no assurance that a
510(k) notification for either the Male On-Command Catheter or Female On-Command
Catheter will be submitted in these time frames, nor can there be any assurance
that clearance will be obtained for single use insertion, or that subsequent
clearance for successive insertion use will be obtained. Any failure to obtain,
or delay in obtaining, such clearances would have a material adverse effect on
the Company's business, financial condition and results of operations. There
also can be no assurance that the FDA will not require a PMA for either the Male
On-Command Catheter or the Female On-Command Catheter. The Company is aware of
at least one instance in which the FDA initially advised the sponsor of a
urological device for women with incontinence that 510(k) clearance would be the
appropriate regulatory path to market but subsequently required the sponsor to
seek PMA approval.
Regulatory approvals, if granted, may include significant limitations on
the indicated uses for which a product may be marketed. FDA enforcement policy
strictly prohibits the marketing of approved medical devices for unapproved
uses. The Company will be required to adhere to applicable FDA regulations
regarding Good Manufacturing Practices ("GMP") and similar regulations in other
countries, which include testing, control, and documentation requirements, and
with Medical Device Reporting ("MDR") requirements. Ongoing compliance with GMP
and other applicable regulatory requirements will be monitored through periodic
inspections by state and federal agencies, including the FDA, and by comparable
agencies in other countries. In addition, changes in existing regulations or
adoption of new governmental regulations or policies could prevent or delay
regulatory approval of the Company's products.
Sales of medical devices outside of the United States are subject to
foreign regulatory requirements that vary widely from country to country. The
time necessary to obtain approval for sales in foreign countries may be longer
or shorter than that required for FDA approval, and requirements may differ from
FDA requirements. The Company expects to initiate clinical evaluation of the
Male On-Command Catheter in Europe pursuant to an arrangement with Braun. Braun
will be responsible for management of the evaluation and obtaining regulatory
approval for the On-Command Catheter, and such approval will therefore be
outside the Company's control. Moreover, the success of such evaluation in
Europe will be dependent, in large part, on Braun's capabilities and
performance. Some countries in which the Company intends to sell devices through
distributors (for example, France, Germany and Spain) either do not currently
regulate medical devices such as the On-Command Catheter or have minimal
registration requirements. However, these countries may develop more extensive
regulations in the future that could impact the Company's ability to market the
On-Command Catheter.
There can be no assurance that the Company will be able to obtain 510(k)
clearance or, if required, PMA approval to market the On-Command Catheter or
other products in the United States for their intended uses on a timely basis or
at all, and delays in receipt of or failure to receive such clearances or
approvals, or failure to comply with existing or future regulatory requirements
would have a material adverse effect on the Company's business, financial
condition and results of operations.
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BMT, as a developer and manufacturer of Class I and Class II medical
devices, is also subject to all of the foregoing regulatory requirements of the
FDA. BMT is registered with the FDA and is a manufacturer, distributor, initial
importer, repackager and relabeler of medical devices. Among its activities, BMT
markets a range of proprietary and OEM products, most of which were required to
receive 510(k) clearance. BMT has made modifications to one or more of its
cleared proprietary devices that BMT believes do not require the submission of
new 510(k) notices. There can be no assurance, however, that the FDA would agree
with any of BMT's determinations not to submit a new 510(k) notice for any of
these changes or would not require BMT to submit a new 510(k) notice for any of
the changes made to BMT's devices. If the FDA requires BMT to submit a new
510(k) notice for any device modification, BMT may be prohibited from marketing
the modified device until the 510(k) notice is cleared by the FDA. See
"Business -- Clinical Trials, -- Government Regulation."
Lack of Marketing and Sales Experience. To date, the Company has not sold
any On-Command Catheter products. Although the Company intends to market the
On-Command Catheter in the United States through a direct sales force, if and
when necessary regulatory approvals are obtained, the Company currently does not
employ any marketing or sales employees for the On-Command Catheter. In
addition, the Company intends to market the On-Command Catheter internationally
through independent foreign distribution arrangements, none of which are
currently in place. There can be no assurance that the Company can attract and
retain its own qualified marketing and sales personnel, establish acceptable
international arrangements or otherwise design and implement an effective
marketing and sales strategy for the On-Command Catheter. See
"Business -- Marketing and Sales."
Manufacturing Risks. Through BMT, the Company has only manufactured the
On-Command Catheter in limited quantities for clinical testing purposes.
Although BMT has extensive experience in manufacturing custom silicone products,
including urological catheters, the Company, including BMT, does not have
experience in manufacturing the On-Command Catheter in commercial quantities.
The Company may encounter difficulties, delays and significant expenses in
scaling up production of the On-Command Catheter, including potential problems
involving production yields, quality control, component supply and shortages of
qualified personnel. The Company may also experience higher than expected
manufacturing costs that could prevent the Company from selling the On-Command
Catheter at a commercially reasonable price. There can be no assurance that
difficulties or unfavorable costs will not be encountered in mass-production of
the On-Command Catheter and, in such an event, these difficulties or costs could
result in a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Manufacturing."
Reliance on 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. The Company holds
ten United States patents, eight of which relate to the On-Command Catheter, and
numerous foreign patents, and has five United States patent applications and
various foreign patent applications pending. Through BMT, the Company holds an
additional fifteen United States patents and nine foreign patents. There can be
no assurance that the Company's issued patents, or any patents which may be
issued as a result of the Company's applications, will offer any degree of
protection. Moreover, there can be no assurance that any of the Company's
patents or patent applications 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 significant
investments in competing technologies, will not seek to apply for and obtain
patents that may prevent, limit or interfere with the Company's ability to make,
use or sell its products either in the United States or internationally.
In addition to patents, the Company relies on trade secrets and proprietary
know-how, which it seeks to protect, in part, through proprietary information
agreements with employees, consultants and other parties. The Company's
proprietary information agreements with its employees and consultants contain
provisions requiring such individuals to assign to the Company without
additional consideration any inventions conceived or reduced to practice by them
while employed or retained by the Company, subject to customary exceptions.
There can be no assurance that proprietary information
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agreements with employees, consultants and others will not be breached, that the
Company would have adequate remedies for any breach, or that the Company's trade
secrets will not otherwise become known to or independently developed by
competitors. The Company also seeks to protect its trademarks through
registration. There can be no assurance, however, that registration of such
marks will provide any significant protection. See "Business -- Patents and
Proprietary Rights."
Competition and Technological Advances. Competition in the market for
treatment and management of urological disorders is intense and is expected to
increase. The Company believes its principal competition will come from existing
incontinence management modalities, such as adult diapers and absorbents. The
market for adult absorbents is currently dominated by companies such as
Kimberly-Clark Corporation, Procter & Gamble Company and Johnson & Johnson Co.
The Company also expects to face significant competition from other domestic and
international companies that are developing similar and other products and
technologies for the management of incontinence. Most of the Company's
competitors and potential competitors have significantly greater financial,
technical, research, manufacturing, 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 more effective or commercially attractive than any which may
be offered 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. See
"Business -- Competition,-BMT."
Uncertainty Relating to Third-Party Reimbursement. In the United States
and in foreign countries, third-party reimbursement is generally available for
medical devices such as intermittent, Foley, external and suprapubic catheters
for the management of urinary outflow dysfunction, including incontinence and
retention. Products such as diapers and absorbents that are widely used for
incontinence management generally do not receive third-party reimbursement and
are paid for by the patient. The Company believes, based on the availability of
third-party reimbursement for certain other medical devices, that the On-Command
Catheter will generally be eligible for coverage by third-party reimbursement
programs. There can be no assurance, however, that such reimbursement will be
available. The Company is unable to determine whether the On-Command Catheter
reimbursement amount, if any, will be sufficient to cover the cost of the
product. If third-party reimbursement is unavailable, consumers will have to pay
for the On-Command Catheter themselves, resulting in greater relative
out-of-pocket costs for the device as compared to surgical procedures and other
management options for which third-party reimbursement is available. The Company
does not expect that third-party reimbursement will be available, if at all,
unless and until FDA and foreign regulatory approval is received. After such
time, if ever, as applicable regulatory approval is received, third-party
reimbursement for the On-Command Catheter will be dependent upon decisions by
the Health Care Financing Administration for Medicare in the United States and
similar authorities abroad, as well as by private insurers and other payers.
Changes in the availability of third-party reimbursement for the On-Command
Catheter, for products of the Company's competitors or for surgical procedures
may affect the pricing of the On-Command Catheter or the relative cost to the
patient. Regardless of the type of reimbursement system, the Company believes
that physician advocacy of the On-Command Catheter will be required to obtain
reimbursement. There can be no assurance that reimbursement for the Company's
products will be available in the United States or in international markets
under either governmental or private reimbursement systems, or that physicians
will support the On-Command Catheter. Failure to obtain such reimbursement may
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business -- Third-Party Reimbursement."
Possible Future Capital Requirements. The Company's capital requirements
depend on numerous factors, including the extent to which the On-Command
Catheter and other products gain market acceptance, actions relating to
regulatory and reimbursement matters, progress of clinical trials, the effect of
competitive products, the cost and effect of future marketing programs, the
resources the
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<PAGE> 13
Company devotes to manufacturing and developing its products, the success of
BMT's operations, general economic conditions and various other factors. The
timing and amount of such capital requirements cannot adequately be predicted.
Consequently, although the Company believes that the net proceeds from this
Offering, together with existing borrowings and cash anticipated to be generated
from BMT's operations, will provide adequate funding for its capital
requirements in the foreseeable future, there can be no assurance that the
Company will not require additional funding or that such additional funding, if
needed, will be available on terms satisfactory to the Company, if at all. Any
additional equity financing may be dilutive to stockholders, and debt financing,
if available, may involve significant restrictive covenants. Failure to raise
capital when needed could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Use of Proceeds"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
Dependence Upon Key Employees. The Company is dependent upon a number of
key management and technical personnel. The loss of the services of one or more
key employees would have a material adverse effect on the Company. The Company's
ability to manage its transition to commercial-scale operations, and hence its
success, will depend in large part on the efforts of these individuals. The
Company's success will also depend on its ability to attract and retain
additional highly qualified management and technical personnel. The Company
faces intense competition for qualified personnel, and there can be no assurance
that the Company will be able to attract and retain such personnel. See
"Business -- Employees" and "Management."
Intellectual Property Litigation Risks. The medical device industry has
been characterized by extensive litigation regarding patents and other
intellectual property rights, and companies in the medical device industry have
employed intellectual property litigation to gain a competitive advantage. The
Company is aware of patents held by other participants in the urological
disorder management market, and there can be no assurance that the Company will
not in the future become subject to patent infringement claims and litigation or
interference proceedings before the United States Patent and Trademark Office
(the "PTO"). The defense and prosecution of intellectual property suits, PTO
interference proceedings and related legal and administrative proceedings are
both costly and time consuming. Litigation may be necessary to enforce patents
issued to the Company, to protect trade secrets or know-how owned by the Company
or to determine the enforceability, scope and validity of the proprietary rights
of others.
Any litigation or interference proceedings would result in substantial
expense to the Company and significant diversion of attention by the Company's
technical and management personnel. An adverse determination in litigation or
interference proceedings to which the Company may become a party could subject
the Company to significant liabilities to third parties or require the Company
to seek licenses from third parties. Although patent and intellectual property
disputes in the medical device area have often been settled through licensing or
similar arrangements, costs associated with such arrangements may be substantial
and could include ongoing royalties. Furthermore, there can be no assurance that
necessary licenses would be available to the Company on satisfactory terms or at
all. Accordingly, an adverse determination in a judicial or administrative
proceeding or failure to obtain necessary licenses could prevent the Company
from manufacturing and selling its products, which would have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business -- Patents and Proprietary Rights."
International Sales Risks. The Company plans to sell the On-Command
Catheter and other products both in the United States and in foreign markets.
Any international sales are expected to be made through independent foreign
distributors and involve a number of inherent risks. Consequently, there can be
no assurance that the Company will be able to achieve significant sales of the
On-Command Catheter or other products in any foreign market. International sales
may be adversely affected by the imposition of government controls, export
license requirements, political instability, trade restrictions, changes in
tariffs, distributor difficulties, communications problems, fluctuations in
foreign currency rates, foreign competition and other factors. Any one or more
of these factors could
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limit the Company's international sales and have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Business -- Sales and Marketing."
Product Liability Risk; Product Recall Risk; No Insurance Coverage. The
manufacture and sale of medical devices entails significant product liability
and recall risks. A recent United States Supreme Court decision held that
product liability may exist despite FDA approval and future court decisions may
also affect the Company's risk of product liability. Although the Company
intends to obtain product liability insurance covering the On-Command Catheter
prior to commercialization, it does not currently have such insurance which may
be expensive and may not be available on acceptable terms, if at all. Although
BMT maintains product liability insurance with respect to its products, the
Company does not maintain product liability insurance for products that are in
clinical trials or otherwise in the development stage. A successful product
liability claim or series of claims brought against the Company that are not
covered by insurance or are in excess of BMT's insurance coverage with respect
to BMT's products could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, there can
be no assurance that product recalls, which could have a material adverse effect
on the Company's business, financial condition and results of operations, will
not occur. See "Business -- Product Liability and Insurance."
Uncertainty Related to Health Care Reform. Political, economic and
regulatory influences are subjecting the health care industry in the United
States to fundamental change. Although Congress has failed to pass comprehensive
health care reform legislation to date, the Company anticipates that Congress,
state legislatures and the private sector will continue to review and assess
alternative health care delivery and payment systems. Potential approaches that
have been considered include mandated basic health care benefits, controls on
health care spending through limitations on the growth of private health
insurance premiums and Medicare and Medicaid spending, the creation of large
insurance purchasing groups, price controls and other fundamental changes to the
health care delivery system. Legislative debate is expected to continue in the
future, and market forces are expected to demand reduced costs. The Company
cannot predict what impact the adoption of any federal or state health care
reform measures, future private sector reform or market forces may have on its
business.
Dependence Upon Key Suppliers. BMT purchases certain of the components
used to manufacture the On-Command Catheter from several single source
suppliers, with whom BMT has no long-term agreements. Any interruptions or
delays associated with any component shortages, particularly as the Company
scales up its manufacturing activities in support of commercial sales of the
On-Command Catheter, could have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business -- Manufacturing."
BMT Operations. Although the business operations of BMT have continued
since 1971, there can be no assurance that BMT's revenues, cash flow or current
profitability and growth rate will continue in the future. Furthermore, BMT is
subject to general business risks associated with operations of its size and, in
particular, to the same risks faced by other companies that manufacture and
market medical device products. Because virtually all of BMT's proprietary and
OEM products incorporate silicone components, any cost increase or other
negative development associated with this material could adversely affect its
business, financial condition and results of operations. BMT has faced two labor
union election contests in the past six years and may face additional elections
in the future. In the event BMT becomes subject to a collective bargaining
agreement, it may experience increased labor and related costs that could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business -- Employees, and -- BMT."
Environmental Matters. Through BMT, the Company utilizes many raw
materials in the manufacturing process that are subject to various environmental
laws and regulations. Proper disposal of waste including metals and chemicals
used in the manufacturing process is a major consideration for medical device
manufacturers. In the event of a violation of environmental laws, the Company
could be held liable for damages and for the costs of remedial actions and could
also be subject to revocation of
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permits necessary to conduct its business. Any such revocations could require
the Company to cease or limit production at its facilities, which could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company is also subject to environmental laws
relating to the storage, use and disposal of chemicals, solid waste and other
hazardous materials, as well as air quality regulations. Changes or restrictions
on discharge limits, emissions levels, or material storage or handling might
require a high level of unplanned capital investment and/or subsequent
relocation to another location. There can be no assurance that the Company will
be able to comply with the discharge levels mandated or that the costs of
complying with such regulations will not require additional capital expenses.
Furthermore, there can be no assurance that compliance with such regulations
will not have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Manufacturing."
Control by Directors, Executive Officers and Affiliated Entities. The
Company's directors, executive officers and entities affiliated with them will,
in the aggregate, beneficially own approximately 55.5% of the Common Stock
following the completion of this Offering. As a result, these stockholders, if
acting together, would be able to exert substantial influence over and could
possibly control all matters requiring approval by the stockholders of the
Company, including the election of directors and mergers or other business
combination transactions. In addition, each of Warburg, Pincus Investors, L.P.
("Warburg"), the Company's principal stockholder, and Vertical Fund Associates,
L.P. ("Vertical") is able to request, in certain circumstances, that the Company
appoint three designees of such stockholder to the Board of Directors, which may
not have more than 11 directors without consent of each such stockholder. In
this event, Warburg and Vertical, together, would be able to control the
direction, management and policies of the Company. See "Certain Transactions"
and "Principal Stockholders."
No Prior Public Trading Market. Prior to this Offering, there has been no
public market for the Common Stock, and there can be no assurance that an active
trading market will develop or, if one does develop, that it will be maintained.
The initial public offering price, which was established by negotiations between
the Company and the Underwriters, may not be indicative of prices that will
prevail in the trading market. In particular, there can be no assurance that the
market price will not be below the initial public offering price. See
"Underwriting."
Possible Volatility of Stock Price. The stock market has from time to time
experienced significant price and volume fluctuations that are unrelated to the
operating performance of particular companies. These broad market fluctuations
may adversely affect the market price of the Common Stock. In addition, the
market price of the Common Stock is likely to be highly volatile. Factors such
as fluctuations in the Company's operating results, announcements of
technological innovations or new products by the Company or its competitors, FDA
and international regulatory actions, actions with respect to reimbursement
matters, developments with respect to patents or proprietary rights, public
concern as to the safety of products developed by the Company or others, changes
in health care policy in the United States and internationally, changes in stock
market analyst recommendations regarding the Company, other medical device
companies or the medical device industry generally and general market conditions
may have a significant effect on the market price of the Common Stock. In
addition, it is likely that during future quarterly periods, the Company's
results of operations may fluctuate significantly or may fail to meet the
expectations of stock market analysts and investors and, in such event, the
Company's stock price could be materially adversely affected. In the past,
securities class action litigation has often been initiated following periods of
volatility in the market price of a company's securities. Such litigation, if
brought against the Company, could result in substantial costs and a diversion
of management's attention and resources, which could have a material adverse
effect on the Company's business, financial condition and results of operations.
Effect of Certain Charter, Bylaw and Other Provisions. Certain provisions
of the Company's Certificate of Incorporation and Bylaws may have the effect of
making it more difficult for a third party to acquire, or of discouraging a
third party from attempting to acquire, control of the Company. Such provisions
could limit the price that certain investors might be willing to pay in the
future for shares of
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the Common Stock. Certain of these provisions allow the Company to issue
Preferred Stock without any vote or further action by the stockholders,
eliminate the right of stockholders to act by written consent without a meeting
and eliminate cumulative voting in the election of directors. These provisions
may make it more difficult for stockholders to take certain corporate actions
and could have the effect of delaying or preventing a change in control of the
Company. See "Description of Capital Stock."
Shares Eligible for Future Sale; Registration Rights. Sales of Common
Stock (including shares issued upon the exercise of outstanding options or
warrants) in the public market after this Offering could materially adversely
affect the market price of the Common Stock. Such sales also might make it more
difficult for the Company to sell equity securities or equity-related securities
in the future at a time and price that the Company deems appropriate. Upon the
completion of this Offering, the Company will have 11,191,734 shares of Common
Stock outstanding, assuming no exercise of options or warrants after May 31,
1996, of which the 3,350,000 shares offered hereby will be freely tradable
without restriction under the Securities Act of 1933, as amended (the
"Securities Act") unless held by "affiliates" of the Company, as that term is
defined in Rule 144 under the Securities Act. The remaining 7,841,734 shares of
Common Stock held by existing stockholders will be "restricted securities"
within the meaning of Rule 144 promulgated under the Securities Act, and were
issued and sold by the Company in reliance on exemptions from the registration
requirements of the Securities Act. These shares may be sold in the public
market only if registered or pursuant to an exemption from registration, such as
Rule 144, 144(k) or Rule 701 under the Securities Act. All executive officers,
directors and certain stockholders of the Company, holding in aggregate
7,717,465 shares of Common Stock, are subject to lock-up agreements which
provide that they will not offer, sell, contract to sell, grant any option to
purchase or otherwise dispose of, or agree to dispose of, directly or
indirectly, any shares of Common Stock, options or warrants to acquire shares of
Common Stock or securities exchangeable for or convertible into Common Stock
owned by them for a period of 180 days after the date of this Prospectus,
without the prior written consent of Dillon, Read & Co. Inc. ("Dillon Read").
Dillon Read may, in its sole discretion and at any time without notice, release
all or any portion of the shares subject to such lock-up agreements after the
initial 180-day period. Upon expiration of the 180-day lock-up agreements,
approximately 736,122 shares of Common Stock held by existing stockholders will
be eligible for immediate public resale without restriction pursuant to Rule
144(k) or Rule 701, and approximately 1,830,613 shares held by existing
stockholders will be eligible for sale subject to the volume limitation and
other restrictions of Rule 144. The remaining 5,274,999 shares held by existing
stockholders will become eligible for public resale pursuant to Rule 144 upon
the expiration of their two-year holding periods. As of May 31, 1996, 1,058,531
shares were subject to outstanding options and 19,823 shares were subject to
outstanding warrants. All of these shares are subject to the lock-up agreements
described above. Upon expiration of such lock-up agreements, 602,267 shares
subject to such options will be vested. Upon expiration of the lock-up
agreements referred to above, holders of approximately 6,976,295 shares of
Common Stock (including shares issuable upon exercise of certain options and
warrants) or their transferees will be entitled to certain registration rights
with respect to such shares. If such holders, by exercising such rights, cause a
large number of shares to be registered and sold in the public market, such
sales could have a material adverse effect on the market price of the Common
Stock. See "Description of Capital Stock" and "Shares Eligible for Future Sale."
Dilution. The initial public offering price is substantially higher than
the net tangible book value per share of Common Stock. Investors purchasing
shares of Common Stock in this Offering will therefore incur immediate and
substantial net tangible book value dilution. See "Dilution."
Absence of Dividends. The Company has never paid cash dividends on its
Common Stock and does not anticipate paying cash dividends in the foreseeable
future. See "Dividend Policy."
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THE COMPANY
The Company was originally incorporated in Florida in April 1992 as Trek
Medical Corporation. In June 1994, the Company changed its name to UroQuest
Corporation. In July 1996, the Company reincorporated in the State of Delaware
and changed the name of the Company to "UroQuest Medical Corporation."
Unless the context otherwise requires, references in this Prospectus to the
"Company" refer to UroQuest Medical Corporation and each of its wholly owned
subsidiaries, assuming the acquisition of BMT has been consummated. Unless the
context otherwise requires, (i) references to "UroQuest" refer only to UroQuest
Medical Corporation and UroCath Corporation, its wholly owned subsidiary, and
(ii) references to "BMT" refer to BMT, Inc. and Bivona, Inc., its wholly owned
subsidiary. The Company's principal executive offices are located at 265 East
100 South, Suite 220, Salt Lake City, Utah 84111-1616, and its telephone number
is (801) 322-1554.
ACQUISITION OF BMT
In June 1996, UroQuest entered into a definitive agreement and plan of
merger (the "Agreement") to acquire BMT. BMT designs, develops, manufactures and
markets a line of proprietary silicone medical device products as well as
provides engineering design, development and manufacturing services for silicone
products on an OEM basis for other medical device companies. BMT has been a
contract manufacturer for the Company since June 1994 and has manufactured
approximately 2,200 Male On-Command Catheters. The business of BMT was commenced
in 1971 to develop tracheal and endotracheal tubes for airway management and has
expanded to include various other medical device products. The principal
facilities and executive offices of BMT are located in Gary, Indiana. See
"Business -- BMT."
In the acquisition, shareholders of BMT will receive, in the aggregate, a
combination of $10 million cash and newly issued shares of Common Stock equal in
value to $22.5 million. Based on an assumed initial public offering price of
$12.00 per share, an aggregate of 1,875,000 shares of Common Stock will be
issued pursuant to the acquisition. Consummation of the acquisition is expected
to occur upon the closing of this Offering. For the year ended December 31,
1995, BMT had revenues of $14,257,413 and net income of $1,431,614. For the
three months ended March 31, 1996, BMT had revenues of $3,796,943 and net income
of $377,798. See the Consolidated Financial Statements of BMT and pro forma
financial information set forth elsewhere in this Prospectus.
The Company believes the acquisition will provide a number of significant
benefits. BMT is one of a limited number of specialty manufacturers of silicone
catheters in the United States. The acquisition will enable the Company to
control its own production source while providing necessary capacity and
flexibility in the manufacturing process. The product development and production
expertise of BMT is also anticipated to be utilized by the Company to develop
additional On-Command Catheter products and other new devices related to the
management and diagnosis of urological disorders.
The ongoing operations of BMT are expected to provide a source of revenues
and cash flow while the Company completes its clinical testing and prepares to
market the On-Command Catheter. There can be no assurance, however, that such
revenues and cash flow or BMT's current profitability and growth rate will
continue in the future or that the expected benefits of the acquisition will be
realized. Moreover, the acquisition of BMT could have the effect of disrupting
the current business and operations of BMT by adversely affecting material
relationships with significant customers and others, including principal
suppliers and key employees. The acquisition could also redirect significant
management attention and other resources that would otherwise be devoted to the
ongoing development of the On-Command Catheter. Accordingly, the acquisition
could have a material adverse effect on the Company's business, financial
condition and results of operations.
15
<PAGE> 18
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,350,000 shares of
Common Stock offered hereby, at an assumed initial public offering price of
$12.00 per share, are estimated to be approximately $36,886,000 ($42,493,900 if
the Underwriters' over-allotment option is exercised in full), after deducting
the underwriting discounts and commissions and estimated offering expenses
payable by the Company.
The Company expects to use approximately $10 million of the net proceeds
for funding of clinical trials and expansion of marketing and sales activities,
$10 million for the cash portion of the consideration in connection with the
acquisition of BMT and approximately $4 million for investment in research and
development. The remaining $12.9 million will be used for working capital and
general corporate purposes. Although the Company may use a portion of the net
proceeds for the licensing or acquisition of new products or technologies from
third parties, the Company currently has no specific plans or commitments to do
so.
Except for the $10 million to be used in the acquisition of BMT, the
amounts set forth above are estimates, and the amounts actually expended for
each purpose may vary significantly depending upon numerous factors, including
the progress of the Company's clinical trials, actions relating to regulatory
and reimbursement matters, and the costs and timing of expansion of marketing
and sales activities. Pending such uses, the Company intends to invest the net
proceeds of this Offering in short-term, interest-bearing, investment grade
securities. See "Acquisition of BMT" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain any future earnings for funding
growth and, therefore, does not anticipate paying any cash dividends in the
foreseeable future. The payment by the Company of cash dividends, if any, on its
Common Stock in the future is subject to the discretion of the Board of
Directors and will depend on the Company's earnings, financial condition,
capital requirements and other relevant factors. See "Description of Capital
Stock."
16
<PAGE> 19
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1996 (i) on a pro forma basis to give effect to, upon the closing of
this Offering, the acquisition of BMT, the exercise of warrants to purchase a
total of 1,428,571 shares of Common Stock by certain of the Company's
stockholders, the filing of the Company's Restated Certificate of Incorporation,
authorizing a class of 16,000,000 shares of undesignated Preferred Stock, the
Company's reincorporation in the State of Delaware (including a 1-for-3.5
reverse stock split of the outstanding shares of Common Stock and Preferred
Stock and the conversion of all outstanding shares of Non-Voting Common Stock
into Common Stock effected in connection therewith), and the conversion of all
outstanding shares of Preferred Sock into Common Stock, and (ii) as adjusted to
reflect the sale of the 3,350,000 shares of Common Stock offered hereby at an
assumed initial public offering price of $12.00 per share, after deducting the
estimated underwriting discounts and commissions and estimated offering expenses
payable by the Company, and after application of the estimated net proceeds from
this Offering.
<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------------
PRO FORMA AS ADJUSTED
----------- -----------
<S> <C> <C>
Long-term debt, excluding current portion................................. $ 2,135,758 $ 2,135,758
----------- -----------
Stockholders' equity:
Preferred stock: $0.001 par value; 16,000,000 shares authorized, pro
forma and as adjusted; none issued and outstanding, pro forma and as
adjusted............................................................. $ -- $ --
Common stock, $0.001 par value, 31,000,000 shares authorized, pro forma
and as adjusted; 7,841,734 shares issued and outstanding pro forma;
11,191,734 shares issued and outstanding, as adjusted(1)............. 7,842 11,192
Additional paid-in capital.............................................. 31,929,836 68,812,486
Deferred compensation................................................... (270,066) (270,066)
Retained earnings (deficit accumulated during development stage)........ (3,492,391) (3,492,391)
----------- -----------
Total stockholders' equity...................................... 28,175,221 65,061,221
----------- -----------
Total capitalization.......................................... $30,310,979 $67,196,979
=========== ===========
</TABLE>
- ---------------
(1) Excludes 17,594 shares of Common Stock reserved for issuance pursuant to
outstanding warrants and 1,052,815 shares of Common Stock reserved for
issuance pursuant to outstanding stock options as of March 31, 1996. Also
excludes a total of 488,679 shares of Common Stock reserved for future
issuance under the Company's 1994 Stock Option Plan and 1996 Employee Stock
Purchase Plan. See Note 5 of Notes to Consolidated Financial Statements of
UroQuest Medical Corporation, "Management -- Stock Plans" and "Description
of Capital Stock."
17
<PAGE> 20
DILUTION
The pro forma net tangible book value of the Company as of March 31, 1996,
after giving effect to the acquisition of BMT and each of the other events that
will occur upon or prior to the closing of this Offering, was $(710,802) or
$(0.09) per share of Common Stock outstanding. Pro forma net tangible book value
per share represents the total amount of the Company's stockholders' equity,
less intangible assets, divided by 7,841,734 shares outstanding of Common Stock.
Net tangible book value dilution per share represents the difference
between the amount per share paid by purchasers of shares of Common Stock in
this Offering and the pro forma net tangible book value per share of Common
Stock immediately after completion of this Offering. After giving effect to the
sale of 3,350,000 shares of Common Stock in this Offering at an assumed initial
public offering price of $12.00 per share and the application of the estimated
net proceeds therefrom, the pro forma net tangible book value of the Company as
of March 31, 1996 would have been $36,175,198 or $3.23 per share. This
represents an immediate increase in net tangible book value of $3.32 per share
to existing stockholders and an immediate dilution in net tangible book value of
$8.77 per share to purchasers of Common Stock in this Offering, as illustrated
in the following table:
<TABLE>
<S> <C> <C>
Public offering price per share................................... $12.00
Pro forma net tangible book value per share before this
Offering........................................................ $(0.09)
Increase per share attributable to new investors.................. 3.32
------
Pro forma net tangible book value per share after this Offering... 3.23
------
Dilution per share to new investors............................... $ 8.77
======
</TABLE>
The following table sets forth as of March 31, 1996, after giving effect to
each of the events that will occur upon or prior to the closing of this
Offering, the difference between the existing stockholders and the purchasers of
shares in this Offering (at an assumed initial public offering price of $12.00
per share) with respect to the number of shares purchased from the Company, the
total consideration paid and the average price per share paid:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)(2)............... 7,841,734 70.1% $31,747,678 44.1% $ 4.05
New investors............................. 3,350,000 29.9 40,200,000 55.9 12.00
--------- ------ ----------- ------
Total................................. 11,191,734 100.0% $71,947,678 100.0%
========= ====== =========== ======
</TABLE>
- ---------------
(1) Excludes 1,070,409 shares of Common Stock issuable upon exercise of stock
options and warrants outstanding as of March 31, 1996, at a weighted average
price per share of $0.72.
(2) Includes the issuance of 1,875,000 shares of Common Stock (valued at $22.5
million based on the assumed initial public offering price of $12.00 per
share) for the acquisition of BMT and $5 million from the exercise of
warrants to purchase a total of 1,428,571 shares of Common Stock by certain
of the Company's stockholders upon the closing of this Offering.
18
<PAGE> 21
SELECTED FINANCIAL DATA
The following sets forth selected consolidated financial data with respect
to UroQuest and BMT on a historical basis and on a pro forma basis giving effect
to the acquisition of BMT and each of the other events that will occur prior to
or upon the closing of this Offering. The information set forth below should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," the Financial Statements and notes
thereto, including the Pro Forma Financial Statements and notes thereto,
included elsewhere in this Prospectus.
UROQUEST -- HISTORICAL
The financial information set forth below with respect to UroQuest's
consolidated statements of operations for each of the years in the three year
period ended December 31, 1995 and with respect to UroQuest's consolidated
balance sheets at December 31, 1994 and 1995 are derived from consolidated
financial statements of UroQuest included elsewhere herein that have been
audited by KPMG Peat Marwick LLP, independent certified public accountants, and
is qualified by reference to such consolidated financial statements and notes
related thereto. The financial information for the three month periods ended
March 31, 1995 and 1996, and for the period from inception (April 8, 1992) to
March 31, 1996, and as of March 31, 1996 has been derived from UroQuest's
unaudited consolidated financial statements which, in the opinion of management,
reflect all adjustments of a normal recurring nature necessary for a fair
presentation of the financial position and results of operations for such
periods. The results for the three months ended March 31, 1996 are not
necessarily indicative of the results to be expected for the entire year.
UroQuest is considered a development stage company as described in Note 1 of
Notes to Consolidated Financial Statements of UroQuest.
<TABLE>
<CAPTION>
PERIOD FROM THREE MONTHS PERIOD FROM
INCEPTION ENDED INCEPTION
(APRIL 8, 1992) YEAR ENDED DECEMBER 31, MARCH 31, (APRIL 8, 1992)
TO DEC. 31, ----------------------------------------- ------------------------ TO MAR. 31,
1992 1993 1994 1995 1995 1996 1996
--------------- ---------- ------------ ----------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED
STATEMENTS OF
OPERATIONS DATA:
Net sales.......... $ -- $ 979 $ 2,801 $ -- $ -- $ -- $ 3,780
Cost of sales...... -- 832 2,381 -- -- -- 3,213
---------- ---------- ----------- ----------- ---------- ---------- -----------
Gross profit....... -- 147 420 -- -- -- 567
Research and
development...... -- 120,531 431,295 1,106,631 193,700 277,822 1,936,279
General and
administrative... 11,234 156,647 483,399 397,523 77,548 120,838 1,169,641
Sales and
marketing........ -- 38,392 30,257 46,262 3,523 47,572 162,483
---------- ---------- ----------- ----------- ---------- ---------- -----------
Operating loss..... (11,234) (315,423) (944,531 ) (1,550,416) (274,771) (446,232) (3,267,836)
Other income
(expense), net... -- -- (260,663 ) 36,669 (7,910) (561) (224,555)
---------- ---------- ----------- ----------- ---------- ---------- -----------
Net loss........... $ (11,234) $ (315,423) $(1,205,194 ) $(1,513,747) $ (282,681) $ (446,793) $(3,492,391)
========== ========== =========== =========== ========== ========== ===========
Pro forma net loss
per share(1)..... $ (0.36) $ (0.10)
=========== ==========
Shares used in
computing pro
forma net loss
per share(1)..... 4,190,511 4,545,186
=========== ==========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
--------------------------------------- MARCH 31,
1993 1994 1995 1996
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.................. $ 187,422 $ 564,097 $ 1,113,594 $ 753,228
Working capital............................ 33,491 325,723 463,594 92,879
Total assets............................... 221,581 1,205,273 1,721,027 1,359,343
Long-term debt, excluding current
portion.................................. -- 552,188 -- --
Deficit accumulated during development
stage.................................... (326,657) (1,531,851) (3,045,598) (3,492,391)
Total stockholders' equity................. 65,560 412,621 1,047,126 675,221
</TABLE>
- ---------------
(1) See Note 1 of Notes to Consolidated Financial Statements of UroQuest for
information concerning the computation of pro forma net loss per share and
shares used in computing pro forma net loss per share.
19
<PAGE> 22
BMT -- HISTORICAL
The financial information set forth below with respect to BMT's
consolidated statements of operations for each of the years in the three year
period ended December 31, 1995 and with respect to BMT's consolidated balance
sheets at December 31, 1994 and 1995 is derived from consolidated financial
statements of BMT included elsewhere herein that have been audited by Grant
Thornton LLP, independent certified public accountants, and is qualified by
reference to such consolidated financial statements and notes related thereto.
The financial information for the three month periods ended March 31, 1995 and
1996 and as of March 31, 1996 has been derived from BMT's unaudited consolidated
financial statements which, in the opinion of management, reflect all
adjustments of a normal recurring nature necessary for a fair presentation of
the financial position and results of operations for such periods. The results
for the three months ended March 31, 1996 are not necessarily indicative of the
results to be expected for the entire year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
YEAR ENDED DECEMBER 31, 31,
----------------------------------------- ------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Net sales..................................... $11,239,155 $11,728,409 $14,257,413 $3,512,858 $3,796,943
Cost of sales................................. 6,351,651 6,668,026 7,228,308 1,746,736 2,011,826
----------- ----------- ----------- ---------- ----------
Gross profit.................................. 4,887,504 5,060,383 7,029,105 1,766,122 1,785,117
Research and development...................... 531,395 586,319 986,265 218,626 252,518
General and administrative.................... 1,080,971 1,151,485 1,653,197 441,050 452,425
Sales and marketing........................... 1,581,302 1,607,404 1,692,881 425,040 375,872
----------- ----------- ----------- ---------- ----------
Income from operations........................ 1,693,836 1,715,175 2,696,762 681,406 704,302
Other income (expense), net................... (343,846) (289,728) (315,148) (85,326) (76,504)
----------- ----------- ----------- ---------- ----------
Income before income taxes.................... 1,349,990 1,425,447 2,381,614 596,080 627,798
Income taxes.................................. 540,000 572,500 950,000 234,000 250,000
----------- ----------- ----------- ---------- ----------
Net income.................................... $ 809,990 $ 852,947 $ 1,431,614 $ 362,080 $ 377,798
=========== =========== =========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
----------------------------------------- MARCH 31,
1993 1994 1995 1996
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments................................. $ 174,414 $ 21,526 $ 47,083 $ 5,907
Working capital............................... 759,893 3,028,694 3,464,491 3,701,530
Total assets.................................. 6,909,863 6,952,200 8,190,829 8,085,414
Long-term debt, excluding current portion..... 1,582,764 2,831,985 2,385,884 2,135,758
Retained earnings............................. 993,146 1,846,093 3,277,707 3,655,505
Total stockholder's equity.................... 1,789,646 2,650,393 3,682,407 4,057,485
</TABLE>
20
<PAGE> 23
PRO FORMA DATA, AS ADJUSTED
The financial information set forth below reflects the pro forma
acquisition by UroQuest of BMT as if the acquisition of BMT had occurred at the
beginning of each of the periods presented for statements of operations data and
as of March 31, 1996 for balance sheet data. The following pro forma data, as
adjusted, has not been audited. This data also gives effect to each of the
events that will occur prior to or upon the closing of this Offering, as
adjusted to reflect the receipt of the net proceeds from the sale of the
3,350,000 shares of Common Stock offered hereby at an assumed initial public
offering price of $12.00 per share and after deducting the estimated
underwriting discounts and commissions and estimated offering expenses payable
by the Company.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1995 1996
------------ ------------
<S> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales................................................................ $ 14,257,413 $3,796,943
Cost of sales............................................................ 7,228,308 2,011,826
----------- ----------
Gross profit............................................................. 7,029,105 1,785,117
Research and development................................................. 2,092,896 530,340
General and administrative............................................... 2,050,720 573,263
Sales and marketing...................................................... 1,739,143 423,444
Amortization of goodwill................................................. 1,420,000 355,000
----------- ----------
Operating loss........................................................... (273,654) (96,930)
Other income (expense), net.............................................. (278,479) (77,065)
----------- ----------
Net loss................................................................. $ (552,133) $ (173,995)
=========== ==========
Pro forma net loss per share(1).......................................... $ (0.05) $ (0.02)
=========== ==========
Shares used in computing pro forma net loss per share(1)................. 10,844,082 11,198,757
=========== ==========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
1996
-----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................... $32,255,135
Working capital......................................................... 35,680,409
Total assets............................................................ 69,383,272
Long-term debt excluding current portion................................ 2,135,758
Deficit accumulated during development stage............................ (3,492,391)
Stockholders' equity(2)................................................. 65,061,221
</TABLE>
- ---------------
(1) See Notes to Pro Forma Financial Statements and Note 1 of Notes to
Consolidated Financial Statements of UroQuest for information concerning the
computation of net loss per share and pro forma net loss per share.
(2) Pro forma stockholders' equity assumes the conversion of all outstanding
shares of Preferred Stock and Non-Voting Common Stock into Common Stock.
21
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Financial
Statements and notes thereto included elsewhere in this Prospectus. The
following Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in such forward-looking statements as a result of certain factors
discussed under "Risk Factors" and elsewhere in this Prospectus.
UroQuest Background
The Male On-Command Catheter was originally designed and developed by
Richard C. Davis, M.D., the principal founder and Chief Science Officer of the
Company. In December 1986, the technology underlying the Male On-Command
Catheter was licensed to Surgitek, Inc. ("Surgitek"), a urological and plastic
surgery products subsidiary of Bristol-Myers Squibb Company. Surgitek spent
approximately five years and substantial sums advancing the technology,
engineering prototype catheters, conducting clinical trials and preparing
regulatory filings for the Male On-Command Catheter. In 1992, Surgitek was
acquired by Cabot Medical Corporation, and as a result of nonperformance under
the license agreement, the technology relating to the Male On-Command Catheter
reverted back to Dr. Davis and was transferred to UroCath, a wholly owned
subsidiary of UroQuest, in February 1993.
In November 1994, UroQuest hired a new Chief Executive Officer to seek
additional funding to support UroQuest's operations, facilitate the regulatory
approval process, including necessary clinical trials, and commercialize the
On-Command Catheter. In December 1994, Uroquest secured all remaining
intellectual property rights related to the Female On-Command Catheter. UroQuest
also intensified its efforts in design and engineering refinements,
manufacturing tooling, production testing and regulatory filings in connection
with conducting clinical trials in the United States of the Male On-Command
Catheter and initiating clinical trials for the Female On-Command Catheter. In
June 1995, UroQuest raised $2.2 million pursuant to the issuance of Preferred
Stock to Warburg and Vertical, allowing UroQuest to continue its efforts to
develop and commercialize the On-Command Catheter.
The Company expects to derive a substantial majority of its future revenues
from sales of the On-Command Catheter. Although the operations of BMT are
expected to be the sole source of revenues in the short-term, the Company's
long-term revenues and future success are substantially dependent upon its
ability to market and commercialize the On-Command Catheter in the United States
and abroad. The life cycle of the On-Command Catheter is difficult to estimate,
particularly in light of current and future technological developments,
competition and other factors.
The Company has a limited history of operations and has experienced
substantial operating losses since inception. Notwithstanding the acquisition of
BMT, the Company expects its operating losses to continue for at least the next
two years as it continues to expend substantial resources in funding clinical
trials in support of regulatory and reimbursement approvals, expansion of
marketing and sales activities, and research and development. There can be no
assurance that the Company will achieve or sustain profitability in the future.
Acquisition of BMT
In June 1996, the Company entered into a definitive agreement to acquire
BMT, pursuant to which BMT will become a wholly owned subsidiary of the Company.
BMT develops, manufactures and markets a line of proprietary silicone medical
device products as well as provides engineering design, development and
manufacturing services for silicone products on an OEM basis for other medical
22
<PAGE> 25
device companies. BMT is one of a limited number of specialty manufacturers of
silicone catheters in the United States. BMT has been a contract manufacturer
for the Company since June 1994 and has manufactured approximately 2,200 Male
On-Command Catheters.
In the acquisition, shareholders of BMT will receive, in the aggregate, a
combination of $10 million cash and newly issued shares of Common Stock equal in
value to $22.5 million. Based on an assumed initial public offering price of
$12.00 per share, an aggregate of 1,875,000 shares of Common Stock will be
issued pursuant to the acquisition. The acquisition will be accounted for under
the purchase method of accounting and will result in goodwill of approximately
$28.4 million. Consummation of the acquisition is expected to occur upon the
closing of this Offering.
The Company believes the acquisition will provide a number of significant
benefits. The acquisition will enable the Company to control its own
manufacturing source while providing necessary capacity and flexibility in the
manufacturing process. The product development and engineering expertise of BMT
is also anticipated to be utilized by the Company to develop additional
On-Command Catheter products and other new devices related to the management and
diagnosis of urological disorders.
The ongoing operations of BMT are expected to provide a source of revenues
and cash flow while the Company completes its clinical testing and prepares to
market the On-Command Catheter. There can be no assurance, however, that such
revenues and cash flow or BMT's current profitability and growth rate will
continue in the future or that the expected benefits of the acquisition will be
realized. The acquisition of BMT constitutes the Company's first acquisition of
another business. BMT's operations are significantly different in many respects
from the Company's current operations, and the acquisition may result in a
number of unforeseen difficulties and problems that could have a material
adverse effect on the Company's business, financial condition and results of
operations.
BMT Background
The business of BMT was commenced in 1971 to develop tracheal and
endotracheal tubes for airway management and has expanded to include various
other medical device products. BMT has utilized its product development
expertise and production capabilities to manufacture silicone medical device
products on an OEM basis, including components, assemblies and finished devices
for use in gastroenterology, urology, cardiopulmonary, parenteral and diagnostic
applications.
In December 1987, the business of BMT was acquired by Synthelabo, a
pharmaceutical division of L'Oreal S.A. In October 1992, the business was
acquired from Synthelabo by the existing executive officers and certain other
employees of BMT in a management buyout for approximately $7 million. These
officers and employees have continued to operate the business of BMT since the
buyout.
Over the past three years, BMT has implemented various management
strategies to increase sales and profitability. These strategies have included
elimination of low margin products, expansion of BMT's line of proprietary
products, investment in research and development, and improvements in
manufacturing facilities and capabilities. BMT operates under GMPs and is in the
process of obtaining ISO-9001 certification and CE mark status. There can be no
assurance, however, that BMT will obtain such certification or status.
RESULTS OF OPERATIONS -- UROQUEST
Net sales and cost of sales. To date, UroQuest has had no material sales.
Research and development. Research and development expenses include
clinical testing and regulatory expenses. For the three months ended March 31,
1996, research and development expenses increased to $277,822 from $193,700 for
the three months ended March 31, 1995. This increase was due primarily to hiring
of clinical personnel, conducting clinical trials in the first quarter of 1996
and implementing improvements in product design and the manufacturing process.
Research and development expenses increased to $1,106,631 in 1995 from $431,295
in 1994 resulting primarily from the transfer of certain personnel to research
and development functions in 1995 from general and administrative functions in
1994 and manufacturing costs incurred to produce devices used in clinical
23
<PAGE> 26
trials. The increase in research and development expenses in 1995, as compared
to 1994, is also attributable to costs associated with commencing clinical
trials of the Male On-Command Catheter, including legal and other fees related
to regulatory matters, the increased number of research and development
employees and amortization of approximately $130,000 related to patents
purchased by UroQuest in December 1994. Research and development expenses
increased to $431,295 in 1994 from $120,531 in 1993 primarily as a result of
increased personnel costs and consultant fees related to regulatory filings.
Research and development expenses are expected to continue to increase for the
foreseeable future.
General and administrative. General and administrative expenses increased
to $120,838 for the three months ended March 31, 1996 from $77,548 for the three
months ended March 31, 1995. This increase was attributable primarily to the
establishment of the Company's headquarters in Salt Lake City, Utah in September
1995. General and administrative expenses decreased to $397,523 in 1995 from
$483,399 in 1994 due primarily to the transfer of certain personnel to research
and development functions in 1995 from general and administrative functions in
1994, as discussed above. General and administrative expenses increased to
$483,399 in 1994 from $156,647 in 1993 primarily as a result of increased
administrative personnel. General and administrative expenses are expected to
continue to increase as the Company hires additional personnel to support
anticipated expansion of the Company's business.
Sales and marketing. Sales and marketing expenses increased to $47,572 for
the three months ended March 31, 1996 from $3,523 for the three months ended
March 31, 1995. This increase was attributable primarily to market research
conducted by outside consultants. Sales and marketing expenses increased to
$46,262 in 1995 from $30,257 in 1994 due principally to costs associated with
UroQuest retaining a sales and marketing consultant. Sales and marketing
expenses decreased to $30,257 in 1994 from $38,392 in 1993 primarily as a result
of lower costs of market research.
Other income (expense). There was no material change in other income
(expense), net for the three months ended March 31, 1996 from the three months
ended March 31, 1995. Other income (expense), net increased to income of $36,669
in 1995 from an expense of $260,663 in 1994. This change resulted primarily from
a bad debt reserve in 1994 which was not incurred in 1995. In exchange for the
sale of assets unrelated to the urology business in 1994 to corporations owned
by certain stockholders of the Company, UroQuest received promissory notes
totaling $235,008 from such corporations, which notes were reserved in full. In
June 1996, approximately $200,000 principal amount of such notes was converted
into common stock of one of the corporations. The net change to 1995 from 1994
also resulted from an increase of approximately $56,000 in interest income
partially offset by an increase of approximately $25,000 in interest expense.
There were no items included in other income (expense), net in 1993.
RESULTS OF OPERATIONS -- BMT
Three months ended March 31, 1996 and 1995
Net sales. Net sales increased to $3,796,943 for the three months ended
March 31, 1996 from $3,512,858 for the three months ended March 31, 1995. This
increase was primarily attributable to higher sales volumes of tracheostomy
tubes, one of BMT's principal products in its proprietary product line.
Cost of sales. Cost of sales increased to $2,011,826 for the three months
ended March 31, 1996 from $1,746,736 for the three months ended March 31, 1995.
This increase was due primarily to higher sales volume and an increase in the
sales mix to higher cost products. Increased cost of sales also resulted from
costs associated with improvements in manufacturing and quality control
processes.
General and administrative. General and administrative expenses increased
to $452,425 for the three months ended March 31, 1996 from $441,050 for the
three months ended March 31, 1995, primarily as a result of increased salary and
benefit costs per employee.
24
<PAGE> 27
Marketing and distribution. Marketing and distribution expenses decreased
to $375,872 for the three months ended March 31, 1996 from $425,040 for the
three months ended March 31, 1995. This decrease was due primarily to a
temporary reduction in marketing management personnel in the first quarter of
1996.
Research and development. Research and development expenses increased to
$252,518 for the three months ended March 31, 1996 from $218,626 for the three
months ended March 31, 1995. This increase was attributable primarily to
increased research and development personnel for various products, including the
On-Command Catheter.
Other expense, net. Other expense, net decreased to $76,504 for the three
months ended March 31, 1996 from $85,326 for the three months ended March 31,
1995. This decrease resulted from lower borrowings and reduced interest rates on
such borrowings.
Years ended December 31, 1995, 1994 and 1993
Net sales. Net sales increased to $14,257,413 in 1995 from $11,728,409 in
1994. This income was primarily attributable to higher sales volumes of
tracheostomy tubes, new sales resulting from recently commercialized products
and new sales of products acquired by BMT in January 1995. Net sales increased
to $11,728,409 in 1994 from $11,239,155 in 1993. This increase also resulted
from increased sales volume of tracheostomy tubes and the introduction of BMT's
electrolarynx product.
Cost of sales. Cost of sales increased to $7,228,308 in 1995 from
$6,668,026 in 1994. The increase was principally due to higher net sales offset,
in part, by an increase in the sales mix of products with lower per unit costs
and reduced production costs resulting from process improvements. Cost of sales
increased to $6,668,026 in 1994 from $6,351,651 in 1993. This increase was
attributable to higher net sales and costs associated with the introduction of a
new proprietary product partially offset by a higher sales mix of lower cost
products.
General and administrative. General and administrative expenses increased
to $1,653,197 in 1995 from $1,151,485 in 1994. This increase resulted primarily
from litigation costs and related legal fees associated with a contract dispute
related to the electrolarynx product, costs incurred in connection with BMT's
efforts to obtain ISO-9001 certification and increased personnel. General and
administrative expenses increased to $1,151,485 in 1994 from $1,080,971 in 1993
due primarily to increases in employee salaries, wages and benefits.
Marketing and distribution. Marketing and distribution expenses increased
to $1,692,881 in 1995 from $1,607,404 in 1994. This increase was principally
attributable to increased direct selling and marketing efforts resulting in
higher net sales. These expenses were offset, in part, by reduced marketing
management costs. Marketing and distribution expenses increased to $1,607,404 in
1994 from $1,581,302 in 1993 due primarily to increased sales volume partially
offset by implementation of marketing cost control measures.
Research and development. Research and development expenses increased to
$986,265 in 1995 from $586,319 in 1994. This increase resulted primarily from
increased personnel to expedite the development of various new products.
Research and development expenses increased to $586,319 in 1994 from $531,395 in
1993, due to higher salaries and employee benefits costs partially offset by
BMT's cost control efforts.
Other expense, net. Other expense, net increased to $315,148 in 1995 from
$289,728 in 1994, resulting from increased borrowings under BMT's existing line
of credit. Other expense, net decreased to $289,728 in 1994 from $343,846 in
1993, attributable to decreased borrowings and a lower interest rate on such
borrowings.
25
<PAGE> 28
INCOME TAXES
UroQuest has not generated any taxable income to date and, therefore, has
not paid any federal income taxes since its inception. The Company accounts for
income taxes under Statement of Financial Accounting Standards No. 109 ("FAS
109"). Realization of deferred tax assets is dependent on future earnings, if
any, the timing and amount of which are uncertain. Accordingly, valuation
allowances, in amounts equal to the net deferred tax assets as of December 31,
1995 and 1994, have been established in each period to reflect these
uncertainties.
At December 31, 1995, UroQuest and BMT had net operating losses, for tax
purposes, of approximately $1,600,000 and $1,470,000, respectively, that can be
carried forward to reduce federal income taxes. However, utilization of net
operating losses and any tax credit carryforwards will be subject to annual
limitations due to the ownership change limitations of the Internal Revenue Code
of 1986, as amended, and similar state provisions.
LIQUIDITY AND CAPITAL RESOURCES
To date, UroQuest has financed its operations primarily through the private
sale of equity securities and, to a lesser extent, through short-term borrowings
and equipment lease financing. Since inception, UroQuest has raised $4,128,678
in net proceeds of private equity financing. BMT has financed its operations
primarily with cash generated from operations and bank provided working capital
financing.
In December 1994, UroQuest raised $390,000 pursuant to a private placement
of 12% secured promissory notes due December 31, 1996. In connection with such
placement, UroQuest agreed to issue the holders of such notes warrants
exercisable for 0.2857 of a share of Common Stock for each dollar of interest
earned, at an exercise price of $3.50 per share. The notes are secured by a
pledge of the Company's eight United States patents relating to the On-Command
Catheter. The Company's patents will be released from such pledge upon repayment
of the notes, which is expected to occur upon or shortly after the closing of
this Offering. Pursuant to the notes, the Company is also obligated to pay the
holders 5% of the net sales income received, if any, from the sale of products
covered by the patents during the period from January 1995 though December 1996.
This royalty arrangement will also be terminated upon repayment of the notes.
During the three months ended March 31, 1996 and the year ended December
31, 1995, UroQuest consumed cash in operations of $361,824 and $1,282,485,
respectively. The changes in cash used in operations from prior comparable
periods were due primarily to higher expenses associated with increased research
and development activities, and commencement and continuation of clinical
trials.
The Company's primary internal source of liquidity presently consists of
existing borrowings and cash anticipated to be generated from BMT's operations.
As of March 31, 1996 and December 31, 1995, UroQuest had cash and cash
equivalents of $753,228 and $1,113,594, respectively. The decrease since
December 31, 1995 was due primarily to the use of cash in operations. As of
March 31, 1996, UroQuest had no significant noncancelable commitments for
capital expenditures or raw material purchases, although UroQuest may enter into
such commitments in the future. The Company's primary external sources of
liquidity are public and private debt and equity financings and bank provided
debt financing.
The Company's capital requirements depend on numerous factors, including
the extent to which the On-Command Catheter and other products gain market
acceptance, actions relating to regulatory and reimbursement matters, progress
of clinical trials, the effect of competitive products, the cost and effect of
future marketing programs, the resources the Company devotes to manufacturing
and developing its products, the success of BMT's operations, general economic
conditions and various other factors. The timing and amount of such capital
requirements cannot adequately be predicted. Consequently, although the Company
believes that the net proceeds from this Offering, together with existing
borrowings and cash anticipated to be generated from BMT's operations, will
provide adequate funding for its capital requirements in the foreseeable future,
there can be no assurance that the
26
<PAGE> 29
Company will not require additional funding or that such additional funding, if
needed, will be available on terms satisfactory to the Company, if at all. Any
additional equity financing may be dilutive to stockholders, and debt financing,
if available, may involve significant restrictive covenants. Failure to raise
capital when needed could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company expects its operating losses to continue for at least the next
two years as it continues to expend substantial resources in funding clinical
trials in support of regulatory and reimbursement approvals, expansion of
marketing and sales activities, and research and development. In addition, the
Company's results of operations may fluctuate significantly during future
quarterly periods. The Company plans to implement an aggressive marketing and
growth strategy, and all management estimates regarding liquidity and capital
requirements are subject to the factors discussed above and those set forth
under "Risk Factors" and elsewhere in this Prospectus.
ACCOUNTING STANDARDS ISSUES, NOT YET ADOPTED
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 Accounting for the Impairment of
Long-lived Assets and for Long-lived Assets to be Disposed of ("FASB 121"). The
Company is required to adopt the provisions of this statement for years
beginning after December 15, 1995. This statement requires that long-lived
assets and certain identifiable intangibles to be disposed of be reported at the
lower of carrying amount or fair value less cost to sell. The Company will adopt
FASB 121 during 1996; however, the adoption of FASB 121 is not expected to have
a material effect on the Company.
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<PAGE> 30
BUSINESS
The Company was formed to design, develop and market advanced products for
the management and diagnosis of both male and female urological disorders. The
Company's principal product, the On-Command Catheter, is an endourethral (inside
the urethra) catheter incorporating a proprietary anchoring system and a
proprietary patient controlled, magnetically activated valve used to regulate
urine flow. The On-Command Catheter is designed to enable persons with either
urinary incontinence or urinary retention to manage their condition without the
restricted mobility, medical complications, discomfort and embarrassment
generally associated with many of the existing management alternatives,
including intermittent, Foley, external and suprapubic catheters, diapers and
absorbents, and penile clamps. Clinical trials of the On-Command Catheter have
demonstrated the utility of the device in managing male urinary outflow
disorders. The results of the clinical trials showed an overall symptomatic
urinary tract infection ("UTI") rate of less than 3% for all device insertions
during the trials. This rate is significantly lower than the rate of infection
generally associated with the use of Foley catheters. Of the patients included
in the trials, approximately 90% found the Male On-Command Catheter maintained
continence and was comfortable to wear and easy to use.
Clinical trials of the Male On-Command Catheter have been conducted at
eight sites in the United States under an IDE application approved by the FDA.
Through May 31, 1996, 67 patients had received a total of 220 male devices. The
longest trial period on any patient was 32 months, with the patient receiving a
total of 30 device insertions. The results, while promising, are preliminary and
additional clinical testing is required before any definitive conclusions can be
reached concerning the general use of the On-Command Catheter. Consequently, the
Company is preparing to conduct a controlled, randomized clinical study under an
approved IDE application at three sites that have received IRB approval. The
predicate device to be used in connection with the study is the Foley catheter.
The Company expects to complete the study, which has a targeted enrollment of 60
male patients, in the fourth quarter of 1996. An IDE application for the Female
On-Command Catheter was approved in March 1996 and the Company is in the process
of obtaining IRB approval at two investigational sites prior to commencing
clinical trials.
The Company expects to initiate clinical evaluation of the Male On-Command
Catheter in Europe pursuant to an arrangement with Braun, a European-based
multinational medical device company. Braun plans to conduct the evaluation and
to prepare the necessary regulatory filings in 16 European countries. The
clinical evaluation of the Male On-Command Catheter in Europe is expected to
begin in late summer 1996 at a total of six investigational sites in France,
Germany and Spain.
In June 1996, the Company entered into a definitive agreement to acquire
BMT. BMT designs, develops, manufactures and markets a line of proprietary
silicone medical device products as well as provides engineering design,
development and manufacturing services for silicone products on an OEM basis for
other medical device companies. BMT is one of a limited number of specialty
manufacturers of silicone catheters in the United States. BMT has been a
contract manufacturer for the Company since June 1994 and has manufactured
approximately 2,200 Male On-Command Catheters. The acquisition will enable the
Company to control its own production source while providing necessary capacity
and flexibility in the manufacturing process. The product development and
production expertise of BMT is also anticipated to be utilized by the Company to
develop additional On-Command Catheter products and other new devices related to
the management and diagnosis of urological disorders. See "Business -- BMT."
LOWER URINARY TRACT ANATOMY AND FUNCTION
The urinary tract system aids the body in eliminating metabolic waste. The
kidneys process blood and filter waste products from the circulatory system,
thereby creating urine. The ureters drain the urine from the kidneys into the
bladder, which serves as a reservoir until urination. The storage capacity of
the bladder ranges from approximately one-quarter to one-half liter. The urinary
sphincter is a muscle at the base of the bladder which surrounds the bladder
neck and urethra and aids the
28
<PAGE> 31
bladder in maintaining continence. The urethra is the tube through which urine
flows when the bladder empties. This process is referred to as "voiding." In
males, the prostate gland surrounds the urethra and provides reproduction
function.
[This is a diagram showing the male and female urinary tract anatomy labeled to
include the Bladder, Bladder Neck, Urinary Sphincter, Urethra, Prostate Gland,
Labial Folds and Vagina.]
LOGO
In a properly functioning lower urinary tract, the balance between urinary
continence and voiding is maintained by a complex dynamic interplay of autonomic
reflexes, neurologic functions and anatomic structures. The bladder neck and the
urinary sphincter work together to act as a valve under muscular control to keep
the urethra closed as the bladder fills with urine. During urination, the
urethra and urinary sphincter muscle reflex and open, while the bladder
contracts and the bladder neck opens, resulting in the voiding of urine. In a
properly functioning lower urinary tract, as the bladder neck opens
involuntarily in response to intra-abdominal pressure, the lower portion of the
urinary sphincter tightens in order to maintain continence. A malfunction in or
damage to any part of this system can cause urinary outflow dysfunction,
including incontinence and retention.
MARKET OVERVIEW
Introduction
Urinary outflow dysfunction, or voiding disorders, affects at least 13
million people in the United States, including approximately three million men
and ten million women. The Company believes the incidence of urinary outflow
dysfunction in other developed countries is also significant. Urinary outflow
dysfunction is a problem that affects a large number of both institutionalized
(nursing home and hospital care) and community-dwelling individuals, and can be
characterized as either incontinence or retention. Urinary incontinence is the
inability to control one's urinary function, leading to frequent involuntary
urine leakage from the bladder. Urinary retention is the inability to
voluntarily and spontaneously empty one's bladder, preventing urine flow even
though the bladder continues to fill.
More than 50% of the estimated 1.5 million nursing home patients have
voiding disorders. Additionally, in contrast to the widely-held notion that
voiding disorders are primarily a problem of the institutionalized elderly, a
1986 National Institute on Aging study indicated that 30% of the estimated 40
million community-dwelling population between the ages of 60 to 84 also suffer
from some form of urinary outflow dysfunction. Furthermore, surveys of
community-dwelling younger individuals between the ages of 15 to 64 report that
between 1.5% to 5% of men, and between 10% and 25% of women, have voiding
problems. Medical experts believe that voiding problems are significantly
underreported.
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<PAGE> 32
The cost associated with the treatment and management of voiding disorders
is estimated to exceed $16 billion annually in the United States alone. Despite
the development of new treatment options, a recent survey conducted by the
National Association for Continence indicated that approximately 56% of
treatments for urinary outflow dysfunction produced no improvement or made the
patients' conditions worse. Therefore, the majority of sufferers must live with
the numerous problems associated with these disorders and seek acceptable
management modalities for their symptoms.
Male Urinary Dysfunction
Research data indicates that over three million men in the United States
are affected by urinary outflow dysfunction. Based on an independent study
commissioned by the Company, the Company estimates that at least one million men
in the United States suffer from retention requiring management and
intervention, while at least two million men suffer from incontinence. These
problems are commonly caused by or result from the treatment of specific urinary
tract diseases, including prostate cancer and benign prostatic hyperplasia
("BPH").
The American Cancer Society estimates that approximately 320,000 new cases
of prostate cancer will be diagnosed in 1996. Industry studies also estimate
that approximately 30% of men age 50 or older may have latent prostate cancer.
Approximately 300,000 prostatectomies (the surgical removal of the prostate) are
performed each year in the United States to treat prostate cancer. Radiation is
also a common form of treatment. Damage to the external sphincter, bladder neck,
and nerves controlling urinary function following prostatectomy or radiation
therapy often leads to chronic incontinence. The same therapies can also cause
stricture and scarring, leading to obstructive voiding symptoms and retention. A
study published in the December 1993 issue of Urology reported that in a
follow-up study on men who had undergone a prostatectomy, 30% experienced daily
problems with incontinence while another 15% reported seeking treatment for
retention due to urethral strictures.
BPH is a common disease in men over age 50 that causes the prostate to
enlarge, putting pressure on the urethra and restricting urine flow. It is
estimated that approximately six million men in the United States suffer
moderate to severe symptoms of BPH. Severe cases are generally treated through
surgery requiring hospitalization followed by an extended recovery period.
Several new technologies are being developed to treat BPH in a less invasive
fashion. The initial clinical data from these therapies indicates that 10% to
15% of patients require extended catheterization following treatment due to
post-operative swelling of the prostate tissues which causes urinary retention.
Female Urinary Dysfunction
It is estimated that at least 10 million women suffer from urinary outflow
dysfunction. The most common problem is stress urinary incontinence resulting
from hypermobility of the urethra and bladder neck due to a weakening of the
musculature caused by pregnancies.
Urinary retention is less common in women than men due to anatomical
differences and the relative lack of specific contributing diseases. The Company
estimates that approximately 100,000 women have chronic urinary retention in the
United States. Bladder neck suspension surgery, which is an increasingly popular
procedure performed on women to correct incontinence, often causes temporary
retention problems for up to 90 days. Women with this condition are generally
required to wear a Foley catheter or are taught to perform intermittent
catheterization until normal voiding function returns. As the number of women
seeking treatment for incontinence increases, the Company believes the incidence
of temporary retention will correspondingly increase.
URINARY INCONTINENCE
Urinary incontinence, the most common form of urinary outflow or voiding
dysfunction, is caused by a variety of factors, including vaginal childbirths,
congenital abnormalities, trauma, congestive heart failures, strokes, Multiple
Sclerosis, spinal cord injuries, drug effects, metabolic abnormalities, infec-
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<PAGE> 33
tions and dementia. Urinary incontinence is generally categorized as either
stress incontinence or urge incontinence.
Stress incontinence refers to the involuntary loss of urine during
coughing, laughing, sneezing, jogging or any other physical activity which
causes an increase in intra-abdominal pressure. This condition varies in
severity from those who leak urine only as a result of certain sudden movements
or physical activities to those who leak urine simply upon standing. Stress
incontinence generally results from either hypermobility or intrinsic sphincter
deficiency. Hypermobility is a lack of anatomic stability caused primarily by
weak surrounding tissue, which results in the abnormal movement of the bladder
neck and urethra in response to sufficient intra-abdominal pressure or exertion.
Intrinsic sphincter deficiency is the inability to contract the urinary
sphincter sufficiently to maintain continence.
Urge incontinence refers to the involuntary loss of urine due to a bladder
contraction which is associated with a strong, uncontrollable desire to urinate,
often referred to as urgency. Urge incontinence may result from, among other
things, a hyperactive bladder muscle, neurologic abnormalities, such as those
caused by a stroke, and urethral instability. Patients can also suffer from a
combination of urge and stress symptoms, generally referred to as "mixed"
incontinence.
The additional physical effects of urinary incontinence include a
predisposition to perineal rashes, pressure ulcers, urinary tract infections,
urosepsis, falls and fractures. This condition is also associated with
depression, social withdrawal, isolation, loss of mobility, feelings of
embarrassment and inadequacy, and reduced sexual functioning, and can cause
considerable caregiver burden.
Treating Urinary Incontinence
Incontinent persons generally seek treatments such as surgery,
pharmaceuticals and behavioral therapy when the condition begins to interfere
with their lifestyle. The following table highlights the relevant gender,
clinical indication and major drawbacks associated with each of these treatment
alternatives as more fully described below.
<TABLE>
<CAPTION>
RELEVANT
TREATMENT ALTERNATIVE GENDER CLINICAL INDICATION MAJOR DRAWBACKS
- -------------------------- ---------- -------------------------- --------------------------
<S> <C> <C> <C>
Artificial urinary Male/ Incontinence due to Highly invasive;
sphincter surgery Female intrinsic sphincter urethral erosion and
deficiency only injury; mechanical
malfunction
Bladder neck suspension Female Stress incontinence only Temporary retention;
surgery surgical complications
Urethral bulking procedure Male/ Incontinence due to Must be repeated
Female intrinsic sphincter periodically; mixed
deficiency only results
Pharmaceuticals Male/ Urge incontinence only Seldom curative;
Female adverse side effects
Behavioral therapy Female Stress incontinence only Mixed results; can
exacerbate problem
</TABLE>
Artificial urinary sphincter surgery. The implantable artificial sphincter
is an occlusive cuff that is surgically implanted around the urethra of an
incontinent patient. Although this procedure is generally effective for patients
with intrinsic sphincter deficiency, the Company believes that it is used
relatively infrequently (fewer than 6,000 procedures per year) primarily because
there are a limited number of patients for whom it would be indicated, and
because 32% of the patients have complications including infection, urethral
erosion and mechanical failure. In addition, the implantation surgery is
expensive and traumatic, involves general anesthesia and requires several weeks
or months for full recovery.
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<PAGE> 34
Bladder neck suspension surgery. Bladder neck suspension surgery is
primarily indicated for female stress incontinence. In this procedure, the
physician elevates and stabilizes the urethra and the bladder neck in order to
prevent hypermobility. These procedures are delicate and complicated and often
fail to redress the problem. Complications include symptomatic UTI, temporary
retention problems, obstruction symptoms, sepsis and prolonged suprapubic pain.
Bladder neck surgery is also expensive and traumatic, may involve general
anesthesia and requires several weeks or months for full recovery.
Urethral bulking procedure. Another surgical treatment for incontinence is
the use of injectable urethral bulking materials. In these procedures, Teflon,
collagen or other materials are injected into the area around the urethra with a
needle to create a mild obstruction. Injectable materials are a new and
potentially attractive treatment alternative because they are considerably less
invasive than the surgical procedures described above. Clinical experience with
injectable materials shows they are suitable primarily for treatment of
incontinence due to intrinsic sphincter deficiency, and produce mixed results in
men and women. The procedure is relatively expensive ($1,500 to $3,000 per
treatment) and must be repeated periodically because of bioabsorption.
Pharmaceuticals. In general, drugs available for the treatment of
incontinence act on the nerve receptors associated with the bladder
neurotransmitter system. Accordingly, drug treatment is appropriate for treating
urge incontinence but is not appropriate for managing stress incontinence. While
drugs can partially alleviate the symptoms of incontinence, they are seldom
curative. Also, drug use for incontinence may cause adverse side effects
including drowsiness, dryness of mouth, dizziness, constipation and urinary
retention.
Behavioral therapy. Behavioral therapy and related techniques include
bladder training and habit modification, pelvic muscle exercises, biofeedback
and electrical stimulation. While these are low-risk procedures, they typically
address only female stress incontinence and are seldom curative. These
techniques are time consuming and present patients with an uncertain outcome. In
addition, in the case of pelvic muscle training exercises, there is the
possibility of worsening the condition if the exercises are performed
incorrectly.
Managing Urinary Incontinence
A recent study indicated that less than 3% of treatments for urinary
incontinence are curative. Furthermore, most are invasive, costly, and can
actually worsen an incontinent person's symptoms or have other unintended side
effects. Therefore, incontinent persons typically turn to management
alternatives, including those summarized in the following table and more fully
described below.
<TABLE>
<CAPTION>
RELEVANT
MANAGEMENT ALTERNATIVE GENDER CLINICAL INDICATION MAJOR DRAWBACKS
- -------------------------- ---------- -------------------------- --------------------------
<S> <C> <C> <C>
Diapers and absorbents Male/ Stress/urge incontinence Wetness; odor; rash;
Female multiple daily changes
Foley catheters Male/ Stress/urge incontinence High infection rate;
Female urethral erosion;
external leg bag
Male external catheters Male Stress/urge incontinence Penile irritation; daily
changes; external leg
bag
Bladder neck support Female Stress incontinence only Vaginal infection,
prostheses discharge and tissue
erosion; daily
reinsertions
Urethral plugs Female Stress incontinence only Multiple daily changes
Penile clamps Male Stress/urge incontinence Penile edema and erosion;
removal every three
hours
</TABLE>
Diapers and absorbents. Adult diapers and pads, which capture urine upon
leakage, function similarly to baby diapers. Patients have the convenience and
privacy of purchasing these products
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<PAGE> 35
without seeing a physician. While the absorbency, size and fit of these products
have improved over the last several years, major disadvantages include lack of
control over urine flow, lack of dryness, skin irritations and rash,
embarrassment about appearance and odor, perceived social stigma, inconvenience
and significant lifestyle compromise. Based on various industry sources, the
Company estimates that an incontinent person in the United States who regularly
uses adult diapers and incontinence pads often spends up to $1,500 per year.
Although third-party reimbursement is generally not available for these
products, retail sales of adult absorbents in 1995 were estimated at over $2.5
billion in the United States alone.
Foley catheters. The Foley catheter is an indwelling device used by both
men and women that provides continuous drainage of the bladder. The device
consists of a bladder balloon and a drainage conduit that extends outside the
body and is connected to an external collection bag. Because this design permits
bacteria to enter the body, symptomatic UTI is a common problem with Foley
catheterization, and is recognized as a major cause of morbidity and increased
health care costs in both hospitals and nursing homes. It is estimated that as
many as one out of four hospital patients require short-term Foley
catheterization. Research studies have indicated that approximately 10% to 30%
of these patients develop symptomatic UTI (approximately 450,000 to 1,350,000
episodes per year). For patients requiring long-term Foley catheterization,
research has documented rates of symptomatic UTI as high as 100%. In the
hospital setting, symptomatic UTI prolongs stays by an estimated two to four
days, resulting in increased costs ($2,000 to $4,000 per patient), and increased
risk of death. Complications associated with symptomatic UTI include sepsis,
kidney infection, urinary stones, and abscesses in the tissue surrounding the
kidney. Foley catheters also cause irritation to the penis and urethral erosion
due to catheter movement, and require a leg bag for drainage, thereby
restricting movement and lifestyle. The Company estimates that over 60 million
Foley catheters are used annually in the United States.
Male external catheters. The male external catheter is a disposable
catheter consisting of a condom-like sheath tapering into a funnel connected to
a drainage tube. The sheath is unrolled onto the penis and adheres by means of
an adhesive. Urine drains through the male external catheter into a leg bag
which must be emptied several times a day. Typically, the catheter is removed
and discarded at least daily. Skin irritation, infection, embarrassment,
inconvenience and reduced mobility are all common drawbacks to male external
catheters.
Bladder neck support prostheses. Bladder neck support prostheses are used
for female stress incontinence. Roughly the size and shape of contraceptive
diaphragms, these devices are used to lift the bladder neck and urethra by
applying pressure through the neighboring vaginal cavity. It is difficult to fit
a patient properly and to apply enough pressure to eliminate the leakage of
urine without causing pain. Potential adverse side effects include vaginal
infection, discharge and tissue erosion. Prostheses are generally only worn for
short periods of time and require daily removal and reinsertion by the patient.
Urethral plugs. Urethral plugs are devices which occlude the female urethra
to manage stress incontinence. Urethral plugs are designed to maintain dryness
and may be an attractive alternative to absorbents for female patients with
stress incontinence who require management during periods of activity. They
serve only as a plug and must be removed, discarded and replaced with a new plug
each time a woman voids. This frequent changing may be expensive, inconvenient,
and may require both a high degree of patient dexterity and the use of a sterile
environment, which may potentially limit their market acceptance. Urethral plugs
are investigational devices that have not yet been approved by the FDA for sale
in the United States.
Penile clamps. Penile clamps are external compression devices which fit
around the shaft of the penis to prevent leakage of urine. The clamps operate by
constricting the urethra by mechanical, inflation or other similar means. These
devices are not widely used due to their bulk, fit and discomfort. They also
have a tendency to cause penile obstruction, edema and erosion if not removed
every three hours.
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<PAGE> 36
URINARY RETENTION
Unlike incontinence, the management of which primarily involves lifestyle
considerations, urinary retention is a medical condition which, if left
untreated, can lead to severe infection, kidney failure and death. Market
research commissioned by the Company indicates that over one million persons in
the United States suffer from retention. The most common causes of retention are
neurogenic bladder and urinary tract obstruction.
Neurogenic bladder refers to the inability of the bladder to contract in a
normal manner and initiate voiding. Causes of neurogenic bladder include spinal
cord injury, diabetes, Parkinson's Disease, Multiple Sclerosis and other nervous
system trauma.
Urinary tract obstruction refers to blockage of the bladder neck and/or the
urethra which prevents the normal passage of urine. This condition can be caused
by drug side effects, surgical scarring, post-operative swelling, enlarged
prostate, other surgical procedures, congenital abnormalities and other
complications. Urinary obstruction patients often suffer from a combination of
incontinence and retention.
Managing Urinary Retention
There are currently few treatment options available for retention.
Neurogenic problems are generally irreversible. Most urethral obstructions can
be removed through surgery but often return. However, patients with retention
can manage their symptoms through the use of intermittent catheterization, Foley
catheters or suprapubic catheters, as summarized in the following table and more
fully described below.
<TABLE>
<CAPTION>
RELEVANT
MANAGEMENT ALTERNATIVE GENDER CLINICAL INDICATION MAJOR DRAWBACKS
- ----------------------------- -------- -------------------------- -------------------------------
<S> <C> <C> <C>
Intermittent catheterization Male/ Neurogenic bladder or High infection rates; multiple
Female urethral obstruction daily insertions; urethral
inflammation
Foley catheters Male/ Neurogenic bladder or High infection rates; external
Female urethral obstruction leg bag; urethral erosion
Suprapubic catheters Male/ Neurogenic bladder or High infection rates;
Female urethral obstruction uncontrolled leakage; skin
erosion
</TABLE>
Intermittent catheterization. Intermittent catheterization ("IC") is
currently the preferred management modality for patients with urinary retention.
IC involves the use of a straight catheter inserted through the urethra into the
bladder to achieve voiding. Patients using IC often must perform this procedure
every three to six hours. This procedure can be uncomfortable, prone to
infection, and often results in severe urethral irritation. IC techniques are
classified as either clean or sterile. Clean IC involves the re-use of catheters
cleaned between each use. While clean IC is less expensive, patients can develop
severe or chronic infections which require them to switch to sterile IC, which
involves the use of more expensive single use catheters. Costs for sterile IC
can exceed $600 each month. Of the estimated one million patients with
retention, market research commissioned by the Company indicates 55% use
intermittent catheterization or have recurring problems with urethral
strictures.
Foley catheters. In addition to their use for managing incontinence as
discussed above, Foley catheters are also used to manage retention in
conjunction with external collection bags. Market research commissioned by the
Company indicates that approximately 30% of patients with retention use Foley
catheters. Foley catheters are used primarily by patients who are unable to
perform IC or who have recurring problems with urethral strictures.
Suprapubic catheters. Suprapubic catheters are surgically inserted into the
bladder through the abdomen and sutured into place. The catheters, in
conjunction with external collection bags, function similarly to Foley
catheters. These devices are generally used for patients who are unable to use
IC or
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<PAGE> 37
Foley catheters because of limited manual dexterity or other factors. Suprapubic
catheters can severely limit patient mobility and cause chronic infection,
strictures and other medical complications.
THE ON-COMMAND SOLUTION FOR MANAGING INCONTINENCE AND RETENTION
The On-Command Catheter is an endourethral catheter incorporating a
proprietary anchoring system and a proprietary patient controlled, magnetically
activated valve used to regulate urine flow. The On-Command Catheter is designed
to enable persons with either incontinence or retention to manage their
condition without the restricted mobility, medical complications, discomfort and
embarrassment generally associated with many of the existing management
alternatives including intermittent, Foley, external and suprapubic cathers,
diapers and absorbents, and penile clamps.
Unlike most of the widely used products for the management of incontinence,
which are designed to capture urine flow in an external container or absorbent
medium, the On-Command Catheter enables the incontinent person to remain dry
without interfering with normal lifestyle activities and without the associated
medical and psychological problems. Unlike most of the widely used products for
the management of retention which result in severe lifestyle restrictions, the
On-Command Catheter allows the patient with retention to empty the bladder
conveniently and without the potential complications associated with the use of
an external collection bag or the need for IC.
The principal features of the On-Command Catheter include:
- Patient Control. The On-Command Catheter enables persons with either
incontinence or retention to maintain control of their urinary outflow.
The On-Command Catheter prevents urine from leaving the urinary tract
until the incontinent person electively decides to void enabling such
person to remain dry. The On-Command Catheter allows the patient with
retention to void when desired and without the need for IC.
- Non-Surgical Application. The On-Command Catheter is designed to be a
relatively low-risk, non-surgical management application for urinary
outflow problems when compared to surgery or permanently implanted
devices. This is particularly important due to the uncertainty and
complications of invasive treatments, or when the longevity of the
patient is in question.
- Ease of Use. The operation of the On-Command Catheter is simple and
efficient for the patient. The device is also easy for the physician to
understand, size and insert because it shares several common design
features with other commonly used indwelling catheters, such as the Foley
catheter. There is no initial capital or inventory investment required
and a minimum of training is necessary for a physician to become
proficient in the use of the device.
- Convenience and Enhanced Lifestyle. The proprietary endourethral design
of the On-Command Catheter eliminates the need for external collection
bags and absorbents that can restrict mobility and compromise lifestyle.
Periodic replacement is also convenient when compared to products like
diapers, intermittent catheters and urethral plugs which must be changed
or replaced multiple times per day.
- Lower Incidence of Complications. The On-Command Catheter, because of its
endourethral design, is believed to result in fewer complications than
other products designed for the treatment or management of urinary
outflow problems. Incontinent persons are likely to stay dryer, reducing
the risks of rashes, skin irritations, urethral strictures and other
complications.
- Reduced Infection Rate. Male patients with either incontinence or
retention have been shown in the Company's clinical trials to have lower
symptomatic UTI rates while using the Male On-Command Catheter, when
compared with infection rates generally associated with the use of Foley
catheters.
- Cost Effectiveness. The Company believes that less frequent replacement
of the On-Command Catheter should provide a competitive cost advantage
over products that are changed daily or multiple times per day. In
addition, the Company anticipates that the overall treatment cost
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<PAGE> 38
using the On-Command Catheter will be lower due to a reduced incidence of
complications and side effects, as well as patient transfers into
institutionalized settings.
Urinary outflow dysfunction can result from a wide range of diseases,
surgical complications and other factors that can affect anatomic structures,
autonomic reflexes or neurologic function. As a result, it is difficult for a
single treatment or management alternative to effectively address every specific
condition. There are certain specific patients who would not be able to benefit
from the clinical and lifestyle advantages of the On-Command Catheter. First,
patients who have limited motor function or dementia may not be able to
effectively activate the magnetic valve. Second, the anatomy of patients who
have low bladder capacity or bladder instability may not be able to accommodate
an endourethral device such as the On-Command Catheter. Finally, patients with
other physical limitations such as excessive obesity or retracted penis may not
be able to use the On-Command Catheter.
[This is a diagram of the Male On-Command Catheter with the various components
labeled including the drainage conduit, Urethral Anchoring Balloon, Control
Valve, Bladder Balloon, and Activation Magnet.]
The Male On-Command Catheter consists of two separable units, the
endourethral catheter portion and the detachable inflator section. When the two
units are connected, prior to use, the device closely resembles a Foley
catheter. The device is inserted non-surgically through the urethra in a simple
five-minute procedure. Two balloons are inflated, one in the bladder to seal the
bladder neck and one in the urethra on the downstream side of the prostate gland
to anchor the device. The inflator portion is then detached and discarded,
allowing the device to reside completely inside the urethra with no exposed
components, thereby reducing the risk of infection. The device is designed to
remain in place for up to 30 days.
LOGO
The proprietary control valve is located at the outlet end of the catheter
section and is magnetically activated. This valve can be opened by simply
placing a matchbook sized magnet externally along the underside of the penis,
allowing the urine to flow. Removing the magnet closes the valve, shutting off
the flow of urine and keeping the patient dry. Both insertion and removal
procedures are non-surgical, take only a few minutes and are easily accomplished
by medical staff or other caregivers. The Company offers a range of sizes, and
uses a proprietary sizing catheter to ensure appropriate fit. The sizing
catheter is easy for physicians to use and ensures a comfortable and customized
fit in a variety of anatomies.
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<PAGE> 39
[This is a diagram of the Female On-Command Catheter showing the Activation
Magnet, Control Valve, External Anchoring Cap, Bladder Balloon, Drainage
Conduit.]
The Female On-Command Catheter also employs a catheter with a detachable
inflation section and a magnetically activated valve. The device is shorter than
the Male On-Command Catheter and substitutes the urethral anchoring balloon with
a small rounded external cap which anchors the device in place beneath the
labial folds of the vagina. The device is designed to remain in place for 15 to
30 days making it more convenient than many other products requiring multiple
changes per day. Because the external anchoring cap extends past the urethral
opening, symptomatic UTI rates in the Female On-Command Catheter are expected to
be higher than the Male On-Command Catheter which resides entirely inside the
urethra.
LOGO
The procedures for insertion, voiding and removal are similar to those for
the male device.
CLINICAL TRIALS
Clinical trials of the Male On-Command Catheter were conducted by Surgitek,
a prior licensee of the Company's technology, from 1989 to 1992. The trials
evaluated a minimum of three successive device insertions for a period of 30 to
37 days each in male patients with either incontinence or retention. A total of
49 patients were enrolled receiving an aggregate of 201 Male On-Command Catheter
insertions. The longest trial period on any patient was 32 months, with the
patient receiving a total of 30 device insertions.
The clinical trials demonstrated the utility of the Male On-Command
Catheter in managing urinary outflow problems. The results of the clinical
trials showed an overall symptomatic UTI rate of less than 3% for all device
insertions during the trials. This rate is significantly lower than the rate of
infection generally associated with the use of Foley catheters. The Company
believes that the results are due, in part, to the entirely indwelling design of
the Male On-Command Catheter which is not subject to bacterial influx from
external tubing and collection systems typically associated with a Foley
catheter. In addition, the proprietary anchoring system caused no adverse
effects to the urethra or bladder.
In the clinical trials, the Male On-Command Catheter initially experienced
a high degree of mechanical failure; however, the device's performance improved
substantially as design changes, manufacturing procedures, testing protocols and
insertion techniques were modified and enhanced. Complications other than
symptomatic UTI primarily included migration, mis-sizing and bladder spasms.
Notwithstanding the foregoing, approximately 90% of the patients included in the
trials found the Male On-Command Catheter maintained continence and was
comfortable to wear and easy to use.
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<PAGE> 40
The Company submitted a 510(k) notification to the FDA in July 1994 based
on the clinical data collected by Surgitek. The Company was notified by the FDA
that the clinical trials were deficient in certain respects, particularly with
respect to the design of the trials, which had an insufficient number of
patients and was not structured as a controlled, randomized study, as required
under current FDA regulations. In response to the FDA, the Company designed a
controlled, randomized study of the Male On-Command Catheter and filed an IDE
application that was approved in July 1995.
The purpose of the study is to confirm prior clinical results and
demonstrate the safety and efficacy of the Male On-Command Catheter when
compared to a Foley catheter in managing urinary outflow dysfunction. To date,
the three participating centers have received IRB approval and enrollment is
underway. The study protocol includes the evaluation of a single device
insertion for a period of up to 30 days. The duration of the study is seven
weeks per patient, including enrollment and both pre-insertion and
post-insertion examinations. Study endpoints include comparison of symptomatic
UTI rates, physical changes to the bladder and urethra and patient assessment of
quality of life between study groups. The Company anticipates the completion of
the study, with a targeted enrollment of 60 patients, during the fourth quarter
of 1996. There can be no assurance that the study will be completed in this
timeframe.
The controlled, randomized study was initially started in September 1995
and then stopped in order to diagnose and correct a component assembly problem
causing migration of the device away from the bladder. The Company initiated two
non-randomized pilot studies to evaluate several assembly and manufacturing
procedures designed to correct the problem and other improvements, including a
modified magnetic valve and a new sizing catheter and procedure to enhance the
patient fit of the device. The pilot studies have involved a total of 18
patients through May 31, 1996, and the Company is currently completing the
second pilot study in preparation for recommencing the controlled, randomized
study in the near-term. There can be no assurance, however, that the Company
will not encounter additional problems associated with the Male On-Command
Catheter that could delay or prevent recommencement of such study.
The IDE for the Female On-Command Catheter was approved in March 1996 by
the FDA and the Company is in the process of obtaining IRB approval at two
investigational sites. The clinical study will use a Foley catheter as the
control device and will evaluate single device insertions over a 7 to 30 day
period. The study will require seven weeks per patient to complete and will
include 180 patients, 90 of whom will receive the Female On-Command Catheter and
90 of whom will receive the Foley catheter. Study endpoints include comparison
of symptomatic UTI rates, physical changes to the bladder and urethra and
patient assessment of quality of life between study groups. As part of the
approved IDE, the Company will conduct a non-randomized pilot evaluation of 20
patients to test protocols and procedures prior to initiating the controlled,
randomized study.
The Company expects to initiate clinical evaluation of the Male On-Command
Catheter in Europe pursuant to an arrangement with Braun. Braun has agreed to
conduct the evaluation and prepare the necessary regulatory filings in 16
European countries. The clinical evaluation in Europe is expected to begin in
late summer 1996 and will evaluate the Male On-Command Catheter at a total of
six investigational sites in France, Germany and Spain. The protocol will be
similar to the IDE approved protocol used in the United States. However, the
Company will not be required to include a control group. The Company anticipates
evaluating up to three sequential device insertions for each patient.
MARKETING AND SALES
The Company intends to market the On-Command Catheter directly in the
United States to physicians and their patients while using marketing
collaborations for institutions (nursing home and hospital care) and
international markets. The Company's marketing strategy is designed to create
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<PAGE> 41
awareness and promote the On-Command Catheter as the preferred alternative for
the management of lower urinary tract problems in men and women. The Company's
initial marketing efforts will be directed toward urologists, uro-gynecologists
and primary care physicians whose patients are seeking relief from urinary
outflow problems.
The On-Command Catheter represents a new management modality for urinary
outflow dysfunction, and there can be no assurance that the On-Command Catheter
will gain any significant degree of market acceptance among physicians, health
care payers or patients, even if necessary domestic or international regulatory
and reimbursement approvals are obtained. Patient acceptance of the device will
depend on many factors, including physician recommendations, the degree, rate
and severity of potential complications, the cost and benefits compared to
competing products, lifestyle implications, available reimbursement and other
considerations. Failure of the On-Command Catheter to achieve substantial market
acceptance would have a material adverse effect on the Company's business,
financial condition and results of operations.
Domestic Sales
Medical association estimates indicate that there are approximately 9,000
urologists and uro-gynecologists in the United States. Over half of these
specialists practice in groups with patients drawn from a wide geographic area.
Because of this concentration, the Company expects that a relatively small
direct sales force of approximately 20 individuals by 1999 can effectively
address this market.
The Company intends to implement its marketing strategy through clinical
sales specialists who will educate and train physicians and patients. These
specialists will include field-based paraprofessionals, nurse practitioners and
professional sales representatives with experience demonstrating medical
products and procedures. Initially, the Company will target the sunbelt region
of the United States where there is a greater percentage of older persons in
whom the incidence of urinary dysfunction is higher. The Company then intends to
expand its sales efforts into other areas of the country.
Many patients using currently available products to manage incontinence and
retention are dissatisfied with such products. Patient awareness of the benefits
of the On-Command Catheter will be created through the use of selected print
advertising, incontinence advocacy group sponsorship, prostate cancer
newsletters and other targeted promotions. The objective will be to inform
patients that a new management option is available and provide them with a toll
free phone number to call for more information. Callers will be provided with
the names of physicians in the patient's area who have been trained by the
clinical sales specialist, have adopted the On-Command Catheter for their
patients and are prepared to evaluate the clinical suitability of the patient.
The Company's strategy is to identify reference physicians in selected
geographic areas to provide a referral network for patients seeking management
alternatives. Timing of the awareness media campaign will be carefully
orchestrated to coincide with the physician training. The Company's direct sales
activities will also be augmented through attendance and participation in trade
shows and organizational meetings specifically related to urology and urinary
dysfunction and through the publication of scientific papers discussing the
results of expanded clinical development work.
Based on market research commissioned by the Company, the Company believes
its initial target market includes men who have incontinence or retention whose
condition does not preclude them from using a medical device and who meet
certain additional criteria including age, manual dexterity and dissatisfaction
with their current management modality. This research also indicates that over
one million men are currently using a prescription medical device to manage
urinary outflow problems. The Company believes that patients currently using a
prescription medical device will be the first to recognize the benefits of the
On-Command Catheter. These male patients are accustomed to devices, see their
physician on a regular basis, and are believed to be the most receptive to
alternative
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<PAGE> 42
management methods. Patients using absorbents who are dissatisfied with the
wetness, odor, discomfort and embarrassment associated with diapers are also
primary targets.
The Company is targeting women with moderate to severe stress incontinence
who require some form of continuous management and are dissatisfied with wearing
diapers and pads. The Company estimates that this represents a target market of
one and one-half million women in the United States. The Company intends to
introduce the Female On-Command Catheter initially through the physicians who
have had prior experience with the Male On-Command Catheter and are treating
female patients with similar profiles.
The Company expects eventually to add managed care specialists to address
the unique requirements of capitated health care systems including hospitals,
HMOs and nursing homes. The products will be sold on the basis of
pharmacoeconomic results and the overall cost effectiveness versus other
management and treatment modalities. The Company plans to analyze and use the
most appropriate distribution method to reach these institutional markets.
To date, the Company has not sold any On-Command Catheter products and does
not currently employ any marketing or sales employees for such device. There can
be no assurance that the Company can attract and retain its own qualified
marketing and sales personnel or otherwise design and implement an effective
marketing and sales strategy for the On-Command Catheter. The failure to
establish and maintain effective marketing, sales and distribution channels for
the Company's products, or to attract and retain qualified sales personnel to
support commercial sales of the Company's products, would have a material
adverse effect on the Company's business, financial condition and results of
operations.
International
International marketing efforts are initially being directed at Europe and
Japan. International sales are expected to be made through independent foreign
distribution arrangements. The Company has entered into an arrangement with
Braun to conduct clinical trials in Europe for the On-Command Catheter. Braun
has over 200 sales representatives in the major European countries who would be
responsible for selling and marketing the Company's catheter products. This
arrangement may lead to an exclusive licensing and distribution agreement in
Europe following the clinical trials. Preliminary discussions are currently
underway with other potential distributors in Japan and other Pacific Rim
countries. There can be no assurance that the Company will be successful in
establishing or maintaining effective marketing, sales and distribution channels
internationally.
International sales may be adversely affected by the imposition of
government controls, export license requirements, political instability, trade
restrictions, changes in tariffs, distributor difficulties, communications
problems, fluctuations in foreign currency rates, foreign competition and other
factors. Any one or more of these factors could limit the Company's
international sales and have a material adverse effect on the Company's
business, financial condition and results of operations.
THIRD-PARTY REIMBURSEMENT
In the United States and in foreign countries, third-party reimbursement is
generally available for medical devices such as intermittent, Foley, external
and suprapubic catheters for the management of urinary outflow dysfunction,
including incontinence and retention. Products such as diapers and absorbents
that are widely used for incontinence management generally do not receive
third-party reimbursement and are paid for by the patient.
The Company believes, based on the availability of third-party
reimbursement for certain other medical devices, that the On-Command Catheter
will generally be eligible for coverage by third-party reimbursement programs.
There can be no assurance, however, that such reimbursement will be available.
The Company is unable to determine whether the On-Command Catheter reimbursement
amount, if any, will be sufficient to cover the cost of the product. Medicare
allowable costs for other
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<PAGE> 43
urinary outflow dysfunction management devices are approximately $60 for Foley
catheters and approximately $85 for male external catheters per month. Allowable
reimbursement costs for sterile IC are approximately $600 per month. The
Company's long-term strategy is to obtain separate reimbursement codes and
perform outcome studies evaluating the cost effectiveness of the On-Command
Catheter compared to other device, absorbent and treatment modalities.
If third-party reimbursement is unavailable, consumers will have to pay for
the On-Command Catheter themselves, resulting in greater relative out-of-pocket
costs for the device as compared to surgical procedures and other management
options for which third-party reimbursement is available. The Company does not
expect that third-party reimbursement will be available, if at all, unless and
until FDA and foreign regulatory approval is received. After such time, if ever,
as applicable regulatory approval is received, third-party reimbursement for the
On-Command Catheter will be dependent upon decisions by the Health Care
Financing Administration for Medicare in the United States and similar
authorities abroad, as well as by private insurers and other payers.
Changes in the availability of third-party reimbursement for the On-Command
Catheter, for products of the Company's competitors or for surgical procedures
may affect the pricing of the On-Command Catheter or the relative cost to the
patient. Regardless of the type of reimbursement system, the Company believes
that physician advocacy of the On-Command Catheter will be required to obtain
reimbursement. There can be no assurance that reimbursement for the Company's
products will be available in the United States or in international markets
under either governmental or private reimbursement systems, or that physicians
will support the On-Command Catheter. Failure to obtain such reimbursement may
have a material adverse effect on the Company's business, financial condition
and results of operations.
MANUFACTURING
UroQuest currently uses BMT to produce limited quantities of the On-Command
Catheter for use in its clinical trials. To date, BMT has manufactured
approximately 2,200 Male On-Command Catheters and only a limited number of
Female On-Command Catheters. Management anticipates that the acquisition of BMT
will provide significant manufacturing capabilities for UroQuest's products. The
manufacturing facilities are currently operated in compliance with existing GMPs
and have passed inspection repeatedly by the FDA, as well as the United
Kingdom's Department of Health.
The business of BMT has been specialized in the manufacturing of medical
devices using predominantly silicone technology for 25 years, and currently
manufactures a broad range of silicone-based catheter-type products used in
various segments of the healthcare industry. BMT is in the process of obtaining
ISO-9001 certification, which is based on adherence to established standards in
the area of quality assurance and manufacturing process control, and CE mark
status. There can be no assurance, however, that BMT will obtain such
certification or status.
BMT purchases certain of the components used to manufacture the On-Command
Catheter from several single source suppliers, with whom BMT has no long-term
agreements. Any interruptions or delays associated with any component shortages,
particularly as the Company scales up its manufacturing activities in support of
commercial sales of the On-Command Catheter, could have a material adverse
effect on the Company's business, financial condition and results of operations.
BMT's manufacturing capabilities include custom compounding, where special
pigmentation, radiopacity agent, or unique ratio blending are necessary to
customize end product performance specifications. Liquid silicones and high
consistency silicones are utilized in injection, transfer, compression, insert
or blow molding processes to manufacture components in a variety of custom
configurations. BMT also has the capability to extrude single or multi-lumen
tubing, special round or compound profiles or even coextrusion with other
silicone or non-silicone substrates in a range of sizes from as small as 0.002"
inside diameter tubing to as large as 1.6" outside diameter. In some cases,
these basic processes yield a finished device. In most cases these molded or
extruded products become the
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<PAGE> 44
components and/or subassemblies from which a broad range of catheter-type
devices are manufactured, including the On-Command Catheter.
BMT has extensive assembly and fabrication capabilities. The molded or
extruded silicone components are combined together with any number of
non-silicone components to produce a variety of products. BMT has both Class
100,000 and Class 10,000 certified clean room assembly and packaging capability.
Other custom assembly processes include adhesiving, bonding, potting, forming,
porting, drilling, notching, cutting, printing, coating, dispensing and
reinforcing with wires or other non-silicone substrates. In addition, BMT has
developed proprietary surface enhancement technologies and processes which
provide a wide range of alternative product characteristics. Over 800,000
silicone catheter-type devices are currently manufactured annually at BMT. The
Company currently has excess manufacturing capacity available.
The On-Command Catheter has been manufactured at BMT over the past two
years involving design and process steps which have evolved over this period to
its current design. The processes and techniques required to manufacture and
assemble the On-Command Catheter are similar to those currently used by BMT to
manufacture other silicone catheter-type devices. The On-Command Catheter also
requires the procurement of several non-silicone components. The sources for
each component have been identified and a limited inventory of certain
components is currently available. In addition, BMT is seeking to develop
alternative sources for such components.
The Company may encounter difficulties, delays and significant expenses in
scaling up production of the On-Command Catheter, including potential problems
involving production yields, quality control, component supply and shortage of
qualified personnel. The Company may also experience higher than expected
manufacturing costs that could prevent the Company from selling the On-Command
Catheter at a commercially reasonable price. Notwithstanding BMT's manufacturing
expertise, there can be no assurance that difficulties or unfavorable costs will
not be encountered in mass-production of the On-Command Catheter and, in such
event, these difficulties or costs could result in a material adverse effect on
the Company's business, financial condition and results of operations.
BMT utilizes many raw materials in the manufacturing process that are
subject to various environmental laws and regulations. In the event of a
violation of environmental laws, the Company could be held liable for damages
and for the costs of remedial actions and could also be subject to revocation of
permits necessary to conduct its business. Any such revocations could require
the Company to cease or limit production at its facilities, which could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company is also subject to environmental laws
relating to the storage, use and disposal of chemicals, solid waste and other
hazardous materials, as well as air quality regulations. Changes or restrictions
on discharge limits, emissions levels, or material storage or handling might
require a high level of unplanned capital investment and/or subsequent
relocation to another location. There can be no assurance that the Company will
be able to comply with the discharge levels mandated or that the costs of
complying with such regulations will not require additional capital expenses.
Furthermore, there can be no assurance that compliance with such regulations
will not have a material adverse effect on the Company's business, financial
condition and results of operations.
RESEARCH AND DEVELOPMENT
The Company's current research and development efforts are focused
primarily on broadening the number of On-Command configurations to address
additional clinical indications, as well as developing the Snap Shot Urine
Chemistry Test System. The Company also intends to continue to build upon its
clinical knowledge and relationships to develop additional advanced, innovative
products for the management, treatment and diagnosis of other urological
problems. Accordingly, the Company intends to continue to devote significant
funds to its research and development activities. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
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On-Command Convertible Catheter
The On-Command Convertible Catheter is being developed for use in patients
requiring temporary bladder management in a clinical setting where a Foley or
intermittent type catheter would normally be used to monitor urine output and
chemistry and evaluate kidney function. With the inflation portion attached, the
On-Command Convertible Catheter functions as would a Foley catheter allowing for
continuous bladder drainage. When continuous monitoring is no longer necessary
and continence has not yet returned, the inflator portion of the On-Command
Convertible Catheter can be disconnected and the device then functions in the
controlled flow mode. The patient can then move about without restriction or
without the attendant problems associated with an indwelling Foley catheter,
external tubing and collection bag. The Company estimates that over two million
Foley catheters are used annually in the United States for extended post-surgery
catheterization. The Company believes that separate clinical trials will not be
necessary for approval of the On-Command Convertible Catheter, and that the
device will be evaluated as an engineering modification to the current
On-Command Catheter.
On-Command Control Catheter
The On-Command Control Catheter is being developed for use with
semi-ambulatory or bed-ridden patients in long-term or home care environments.
An estimated $3 billion is spent annually in nursing homes to manage
incontinence alone. The On-Command Control Catheter incorporates a mechanical
valve mechanism that can be easily opened or closed by a caregiver to facilitate
patient voiding. The Company believes the device will be useful in the
management of incontinence in nursing homes and extended care settings,
replacing adult diapers, Foley catheters, male external catheters and suprapubic
catheters. The Company believes that separate clinical trials will not be
necessary for approval of the On-Command Control Catheter, and that the device
will be evaluated as an engineering modification to the current On-Command
Catheter.
Snap-Shot Urine Chemistry Test System
The urine chemistry test system, to be identified under the trademark
"Snap-Shot," is a simple disposable device used for the chemical analysis of
urine samples. The product is a completely closed system in which urine can be
easily collected and tested for various chemical components. Because urine is a
body fluid that can potentially transmit dangerous diseases, OSHA has mandated
the use of precautionary measures when such fluids are being handled. The use of
gloves, gowns, face protection and special ventilation and disposal for these
supplies, as well as the specimen, raises the cost of urinalysis performed in a
physician's office.
The Snap-Shot is designed to ensure compliance with OSHA safety regulations
for the safe handling of body fluids during testing procedures. The Company is
not aware of any other manual urinalysis device which is either currently on the
market or under development and which complies with these regulations. The
Company estimates the potential annual market in the United States for the
Snap-Shot to be approximately $200 million.
BMT Development Capabilities
BMT's prototype development and manufacturing expertise complement
UroQuest's basic research capabilities. BMT currently has a fully-staffed pilot
production laboratory with a range of capabilities including product molding,
extrusion, testing and assembly. BMT also has extensive experience in silicone
manufacturing and in materials selection for specific applications. BMT's
research and development staff consists of 7 engineers and 14 skilled
technicians. The Company intends to benefit from BMT's research and development
capabilities in connection with its development of the On-Command Catheter and
other urology products.
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COMPETITION
Competition in the market for treatment and management of urological
disorders is intense and is expected to increase. The Company believes that the
primary competitive factors for its products will include the level of physician
and consumer awareness and acceptance of available management methods, the
degree, rate and severity of potential complications, price and related
benefits, lifestyle implications, available reimbursement and the training of
health care professionals and consumers in the use of available management
methods. The Company's ability to compete in this market will also be affected
by its product development capabilities and innovation, its ability to obtain
required regulatory approval, its ability to protect the proprietary technology,
its manufacturing and marketing capabilities and its ability to attract and
retain skilled employees.
The Company believes its principal competition will come from existing
incontinence management modalities, such as adult diapers and absorbents, with
additional competition from existing catheter and surgery products. Current
major competitors who compete in the adult absorbent market include
Kimberly-Clark Corporation, Procter & Gamble Company, Johnson & Johnson Co.,
Confab Technologies, Inc. and INBRAND Corporation. Current major competitors who
compete in the catheter/urine collection bag drainage system market include C.R.
Bard, Inc., Kendall Co., Mentor Corporation, Convatec and Baxter Technologies,
Inc. Current major competitors who compete in the market for surgical or
implantable products for incontinence include American Medical Systems, Inc.,
C.R. Bard, Inc., Mentor Corporation, Johnson & Johnson Co. and Collagen
Corporation.
The Company is aware that UroMed Corp., UroHealth, Inc., Rochester Medical
Corporation, Influence, Inc. and others are developing a number of alternative
products for the management of female stress incontinence. The Company is not
aware of any new products or technologies that compete directly with the
On-Command Catheter in the male urinary outflow dysfunction market.
Most of the Company's competitors and potential competitors have
significantly greater financial, technical, research, manufacturing, marketing,
sales, distribution and other resources than the Company. It is possible that
other large health care and consumer product companies may also enter the
Company's markets in the future. Furthermore, academic institutions,
governmental agencies and other public and private research organizations will
continue to conduct research, seek patent protection and establish arrangements
for commercializing products that may compete with products offered by the
Company.
There can be no assurance that the Company's competitors will not succeed
in developing or marketing technologies and products that are more effective or
commercially attractive than any which may be offered 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.
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
information and proprietary know-how.
UroQuest holds ten United States patents, eight of which relate to the
On-Command Catheter, and numerous foreign patents and has five United States
patent applications and various foreign patent applications pending. One United
States patent and two patent applications relate to the Snap Shot chemistry test
system. The issued United States patents include both method and device claims.
The Company's first two patents, which relate to the On-Command Catheter, expire
in 2000 and 2001 and the remainder of all other patents, including six related
to the On-Command Catheter, expire in the
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<PAGE> 47
years from 2007 through 2014. In addition, BMT holds fifteen Unites States
patents and nine foreign patents. BMT's issued patents cover technology related
to proprietary products and, except for two patents that expire in 1999 and
2000, have expiration dates ranging from 2002 to 2014. The Company believes that
its patents contain claims which may provide a substantial competitive advantage
to the Company. However, there can be no assurance that the Company's issued
patents, or any patents which may be issued as a result of the Company's
applications, will offer any degree of protection. Moreover, there can be no
assurance that any of the Company's patents or patent applications will not be
challenged, invalidated or circumvented in the future. In addition, there can be
no assurance that competitors, many of whom have substantial resources and have
made significant investments in competing technologies, will not apply for and
obtain patents that will prevent, limit or interfere with the Company's ability
to make, use or sell its products either in the United States or
internationally.
Some of the technology used in, and that may be important to, the Company's
products is not covered by any patent or patent application of the Company.
Therefore, the Company also relies on trade secrets and proprietary know-how,
which it seeks to protect, in part, through proprietary information agreements
with employees, consultants and other parties. The Company's proprietary
information agreements with its employees and consultants contain provisions
requiring such individuals to assign to the Company without additional
consideration any inventions conceived or reduced to practice by them while
employed or retained by the Company, subject to customary exceptions. There can
be no assurance that proprietary information agreements with employees,
consultants and others will not be breached, that the Company would have
adequate remedies for any breach, or that the Company's trade secrets will not
otherwise become known to or independently developed by competitors. Moreover,
litigation associated with the enforcement by the Company of its trade secrets
and proprietary know-how can be lengthy and costly, with no guarantee of
success.
The medical device industry has been characterized by extensive litigation
regarding patents and other intellectual property rights, and companies in the
medical device industry have employed intellectual property litigation to gain a
competitive advantage. The Company is aware of patents held by other
participants in the urological disorder management market, and there can be no
assurance that the Company will not in the future become subject to patent
infringement claims and litigation or interference proceedings before the PTO.
Any litigation or interference proceedings would result in substantial
expense to the Company and significant diversion of attention by the Company's
technical and management personnel. An adverse determination in litigation or
interference proceedings to which the Company may become a party could subject
the Company to significant liabilities to third parties or require the Company
to seek licenses from third parties. Although patent and intellectual property
disputes in the medical device area have often been settled through licensing or
similar arrangements, costs associated with such arrangements may be substantial
and could include ongoing royalties. Furthermore, there can be no assurance that
necessary licenses would be available to the Company on satisfactory terms or at
all. Accordingly, an adverse determination in a judicial or administrative
proceeding or failure to obtain necessary licenses could prevent the Company
from manufacturing and selling its products, which would have a material adverse
effect on the Company's business, financial condition and results of operations.
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.
The Company seeks to protect its trademarks through registration.
On-Command(R) is a registered trademark of UroQuest. In addition, UroQuest has
filed intent to use applications for other marks which have been approved by the
PTO. BMT holds four registered trademarks, including Bivona(R), Fome-Cuf(R),
Aire-Cuf(R) and Saf T Flo(R) and 16 trademarks for which registration with the
PTO is pending. There can be no assurance, however, that registration of the
Company's trademarks will provide any significant protection.
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GOVERNMENT REGULATION
The Company's products, including the On-Command Catheter, will be subject
to pervasive and continuing regulation by the FDA. Pursuant to the Federal Food,
Drug and Cosmetic Act (the "FDC Act") and regulations promulgated thereunder,
the FDA regulates the preclinical and clinical testing, manufacture, labeling,
distribution and promotion of medical devices in the United States. Prior to
commercialization in the United States, a medical device generally must receive
FDA clearance or approval, which can be an expensive, lengthy and uncertain
process. Regulatory agencies in the various foreign countries in which the
Company's products may be sold may impose additional or varying regulatory
requirements. Noncompliance with applicable requirements can result in, among
other things, fines, injunctions, civil penalties, recall or seizure of
products, total or partial suspension of production, failure of the government
to grant premarket clearance or approval for devices, withdrawal of marketing
clearances or approvals, and criminal prosecution. The FDA also has authority to
request recall, repair, replacement or refund of the cost of any device
manufactured or distributed by the Company.
Following the enactment of the Medical Device Amendments to the FDC Act in
May 1976, the FDA has classified medical devices in commercial distribution into
one of three classes, Class I, II or III. This classification is based on the
controls deemed 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,
premarket notification and adherence to FDA-mandated good manufacturing
practices ("GMPs"). Class II devices are generally those whose safety and
efficacy can reasonably be ensured through the use of general and special
controls, such as performance standards, post-market surveillance, patient
registries and FDA guidelines. Class III devices are devices which must receive
premarket approval by the FDA to ensure their safety and efficacy, generally
life-sustaining, life-supporting or implantable devices, and also include all
new devices introduced after May 28, 1976 that are not "substantially
equivalent" to legally marketed products. Manufacturers must also comply with
MDR requirements that a firm report to the FDA any incident in which its product
may have caused or contributed to a death or serious injury, or in which its
product malfunctioned and, if the malfunction were to recur, it would be likely
to cause or contribute to a death or serious injury. Labeling and promotional
activities are subject to scrutiny by the FDA and, in certain circumstances, by
the Federal Trade Commission. Current FDA enforcement policy prohibits the
marketing of approved medical devices for unapproved uses.
The Company is subject to routine inspection by the FDA and certain state
agencies for compliance with GMP requirements, MDR requirements, and other
applicable regulations. The FDA has proposed changes to the GMP regulations
which will likely increase the cost of compliance with GMP requirements. Changes
in existing requirements or adoption of new requirements could have a material
adverse effect on the Company's business, financial condition and results of
operation. There can be no assurance that the Company will not incur significant
costs to comply with laws and regulations in the future or that laws and
regulations will not have a material adverse effect upon the Company's business,
financial condition or results of operation.
The Company also is subject to numerous federal, state and local laws
relating to such matters as safe working conditions, manufacturing practices,
environmental protection, fire hazard control and disposal of hazardous or
potentially hazardous substances. There can be no assurance that the Company
will not be required to incur significant costs to comply with such laws and
regulations in the future or that such laws or regulations will not have a
material adverse effect upon the Company's ability to do business.
Before a new device can be introduced into the market in the United States,
the manufacturer or distributor generally must obtain FDA marketing clearance or
approval through either a 510(k) premarket notification or a PMA application. If
a manufacturer or distributor of medical products can establish that a new
device is "substantially equivalent" to a legally marketed Class I or Class II
medical device or to a pre-amendment Class III medical device for which the FDA
has not required premarket approval ("PMA"), the manufacturer or distributor may
seek FDA marketing clearance for
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the device by submitting a 510(k) notification. The FDA recently has been
requiring more vigorous demonstration of substantial equivalence than in the
past, including in some cases requiring submission of clinical data. The 510(k)
notification 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.
Following submission of the 510(k) notification, 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. It generally takes from four to 12 months from
submission to obtain 510(k) premarket clearance, but may take longer. 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 data, before a
substantial equivalence determination can be made. Such determination or request
for additional information could prevent or delay the market introduction of a
new product. For any devices that are cleared through the 510(k) process,
modifications or enhancements that could significantly affect safety or
effectiveness, or constitute a major change in the intended use of the device,
will require new 510(k) submissions.
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 a PMA of the device. A
PMA, which must prove that a device is safe and effective, must be supported by
valid scientific evidence to demonstrate the safety and effectiveness of the
device, typically including the results of preclinical testing, clinical trials
and extensive manufacturing information. The PMA process can be expensive,
uncertain and lengthy. Upon receipt of a PMA application, the FDA makes a
threshold determination as to whether the application is sufficiently complete
to permit a substantive review. If sufficiently complete, the application is
declared fileable by the FDA and the FDA will begin an in-depth review of the
PMA. The FDA review of a PMA application generally takes one to three years from
the date the PMA is accepted for filing, but may take significantly longer. A
number of devices for which FDA approval has been sought by other companies have
never been approved for marketing. Modifications to a device that is the subject
of an approved PMA, its labeling or manufacturing process may require approval
by the FDA of PMA supplements or new PMAs. Supplements to a PMA often require
the submission of the same type of information required for an initial PMA,
except that the supplement is generally limited to that information needed to
support the proposed change from the product covered by the original PMA.
If human clinical trials of a device are required, whether for a 510(k) or
a PMA, and the device presents a "significant risk," the sponsor of the trial
(usually the manufacturer or the distributor of the device) will have to file an
investigational device exemption ("IDE") application prior to commencing human
clinical trials. The IDE application must be supported by data, typically
including the results of animal and laboratory testing. If the IDE application
is approved by the FDA and one or more appropriate Institutional Review Boards
("IRBs"), human clinical trials may begin at a specific number of
investigational sites with a specific number of patients, as approved by the
FDA. If the device presents a "nonsignificant risk" to the patient, a sponsor
may begin the clinical trial after obtaining approval for the study by one or
more appropriate IRBs without the need for FDA approval. Submission of an IDE
does not give assurances that FDA will approve the IDE and, if it is approved,
there can be no assurance that FDA will determine that the data derived from
these studies will support the safety and efficacy of the device or warrant the
continuation of clinical studies. An IDE supplement must be submitted to and
approved by the FDA before a sponsor or investigator may make a change to the
investigational plan that may affect its scientific soundness or the rights,
safety or welfare of human subjects.
The FDA has approved IDEs for both the Male On-Command Catheter and the
Female On-Command Catheter. Clinical trial of the Male On-Command Catheter is
underway. The Company is in the process of obtaining IRB approvals to begin a
clinical trial of the Female On-Command Catheter.
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There can be no assurance that the FDA will determine that the data derived from
these studies will support the safety and efficacy of the devices or warrant the
continuation of clinical studies.
The Company currently does not expect to submit a 510(k) notification for
the Male On-Command Catheter for single use insertion of up to 30 days until the
first quarter of 1997 or for the Female On-Command Catheter for single use
insertion until mid-1997, at the earliest. There can be no assurance that a
510(k) notification for either the Male On-Command Catheter or Female On-Command
Catheter will be submitted in these time frames, nor can there be any assurance
that clearance will be obtained for single use insertion, or that subsequent
clearance for successive insertion use will be obtained. Any failure to obtain,
or delay in obtaining, such clearances would have a material adverse effect on
the Company's business, financial condition and results of operations. There
also can be no assurance that the FDA will not require a PMA for either the Male
On-Command Catheter or the Female On-Command Catheter. The Company is aware of
at least one instance in which the FDA initially advised the sponsor of a female
urological device for women with incontinence that 510(k) clearance would be the
appropriate regulatory path to market but subsequently required the sponsor to
seek PMA approval.
There can be no assurance that the Company will be able to obtain necessary
regulatory clearances or approvals for its products on a timely basis or at all,
and delays in receipt of or failure to receive such clearances or approvals, the
loss of previously received clearances or approvals, limitations on intended use
imposed as a condition of such clearances or approvals, or failure to comply
with existing or future regulatory requirements would have a material adverse
effect on the Company's business, financial condition and results of operations.
Sales of medical devices outside of the United States are subject to
regulatory requirements that vary widely from country to country. The time
necessary to obtain approval for sale in other countries may be longer or
shorter than that required for FDA approval, and requirements may differ from
FDA requirements. The Company expects to initiate clinical evaluation of the
Male On-Command Catheter in Europe pursuant to an arrangement with Braun. Braun
will be responsible for management of the evaluation and obtaining regulatory
approval for the On-Command Catheter, and such approval will therefore be
outside the Company's control. Moreover, the success of such evaluation in
Europe will be dependent, in large part, on Braun's capabilities and
performance. Some countries in which the Company intends to sell devices through
distributors (for example, Germany, France and Spain) either do not currently
regulate medical devices such as the On-Command Catheter or have minimal
registration requirements. However, these countries may develop more extensive
regulations in the future that could impact the Company's ability to market the
On-Command Catheter. Some countries have historically permitted human studies
earlier in the product development cycle than the United States. Other
countries, such as Japan, have standards similar to those of the FDA. This
disparity in the regulation of medical devices may result in more rapid product
approvals in certain countries than in the United States, while approvals in
countries such as Japan may require longer than in the United States. The export
of medical devices is also subject to regulation in certain instances.
BMT, as a developer and manufacturer of Class I and Class II medical
devices, is also subject to all of the foregoing regulatory requirements of the
FDA. BMT is also registered with the FDA as a distributor, initial importer,
repackager and relabeler of medical devices. Among its activities, BMT markets a
range of proprietary and OEM products, most of which were required to receive
510(k) clearance. BMT has made modifications to one or more of its cleared
proprietary devices that BMT believes do not require the submission of new
510(k) notices. There can be no assurance, however, that the FDA would agree
with any of BMT's determinations not to submit a new 510(k) notice for any of
these changes or would not require BMT to submit a new 510(k) notice for any of
the changes made to BMT's devices. If the FDA requires BMT to submit a new
510(k) notice for any device modification, BMT may be prohibited from marketing
the modified device until the 510(k) notice is cleared by the FDA.
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BMT is currently seeking certification of conformance to ISO-900I
Standards. BMT has contracted with a foreign certification services company to
act on its behalf for assessment of compliance with the provisions of the
Medical Device Directive ("MDD") of the European Union. BMT's products are
classified as Class IIA, and self certification and authorization for
application of the CE mark under Annex II of the MDD (full quality system in
conformance to EN29001 and EN46001) is expected to be sought in the fourth
quarter of 1996. There can be no assurance that BMT will obtain ISO-9001
certification or CE mark status.
PRODUCT LIABILITY AND INSURANCE
The business of the Company entails significant product liability and
recall risks. A recent United States Supreme Court decision held that product
liability may exist despite FDA approval and future court decisions may also
affect the Company's risk of product liability. Although the Company intends to
obtain product liability insurance covering the On-Command Catheter prior to
commercialization, it does not currently have such insurance which may be
expensive and may not be available on acceptable terms, if at all. BMT maintains
product liability insurance in the amount of $5 million and evaluates its
insurance requirements on an ongoing basis. The Company does not maintain
product liability insurance for products that are in clinical trials or
otherwise in the development stage. A successful product liability claim or
series of claims brought against the Company that are not covered by insurance
or are in excess of BMT's insurance coverage with respect to BMT's products
could have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, there can be no assurance that
future product recalls, which could have a material adverse effect on the
Company's business, financial condition and results of operations, will not
occur.
EMPLOYEES
As of May 31, 1996, UroQuest employed a total of 8 full-time employees,
including 2 in research and development, 4 in administration and 2 in
regulatory. As of May 31, 1996, BMT employed a total of 215 full-time employees
and 38 part-time employees, including 187 in manufacturing, 27 in research and
development, 16 in administration, 9 in regulatory and quality assurance, and 14
in sales and marketing. The Company believes that it has been successful in
attracting experienced and capable personnel. However, there can be no assurance
that the Company will continue to do so.
None of the Company's employees is covered by collective bargaining
agreements. The Company considers relations with its employees to be good. In
the past six years, BMT has faced two union election contests at its
manufacturing facility, each of which failed. There can be no assurances that
BMT will not face additional attempts to unionize its employees. In the event
BMT becomes subject to a collective bargaining agreement, it may experience
increased labor and related costs that could have a material adverse effect on
the Company's business, financial condition and results of operations.
FACILITIES
The Company's principal facilities consist of UroQuest's headquarters in
Salt Lake City, Utah and BMT's headquarters in Gary, Indiana. The Company
believes that its facilities are adequate for its current operations.
BMT owns a 45,000 square foot manufacturing plant located on a 20 acre
parcel of land in Gary, Indiana, on which BMT's operations are headquartered.
The plant's space is allocated as follows: approximately 12,000 square feet
dedicated to equipment-intensive production, approximately 10,000 square feet
dedicated to office and support activity, and approximately 23,000 square feet
dedicated to cleanroom production and packaging. Additionally, BMT leases an
18,600 square foot warehouse and shipping facility located approximately five
miles from the manufacturing plant. The lease runs through December 1998 and the
current annual rate on the lease is approximately $60,000.
UroQuest currently leases approximately 2,300 square feet in Salt Lake
City, Utah pursuant to a lease expiring in September 2000. The current annual
rate on the lease is $37,017, with annual
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increases based on the percentage increase in the prior year's average consumer
price index, beginning in October 1998. Current space is dedicated to
administration, sales and marketing and regulatory activities.
LEGAL PROCEEDINGS
The Company is not currently involved in any legal proceedings, nor is the
property of the Company subject to any such proceedings. There can be no
assurance, however, that the Company will not experience material litigation
with respect to the operation of its business.
BMT
BMT manufactures and markets a series of proprietary products under the BMT
label. BMT's products consist primarily of silicone based medical devices used
in a wide variety of clinical applications, including tracheostomy and
endotracheal tubes for airway management and voice prostheses for voice
restoration. BMT also produces a range of complex catheter type products on an
OEM and private label basis for other medical device companies in areas that
include gastrointestinal feeding, esophageal management, cardiac perfusion,
hyperalimentation and dialysis.
BMT uses a small direct sales force to market its proprietary products to
medical specialists including ear, nose and throat ("ENT") surgeons, respiratory
therapists, speech pathologists and anesthesiologists. A group of specialty
medical dealers is used in international markets. Approximately 20% of BMT's net
sales are currently derived from sales in international markets.
The current proprietary product line includes over 400 different products
sold to approximately 9,000 customers in 40 different countries. The OEM product
line includes approximately 500 additional products sold to about 20 different
companies, most of which are Fortune 500 medical device companies. For the year
ended December 31, 1995 and the three months ended March 31, 1996, OEM sales
accounted for approximately 40% of BMT's net sales. During each of these
periods, sales to Abbott Laboratories accounted for approximately 20% of total
net sales. Although BMT intends to continue developing its OEM business, there
can be no assurance that BMT will be successful in its efforts or that its OEM
customers will react favorably to the acquisition of BMT by UroQuest. The loss
of Abbott Laboratories or other OEM customers could have a material adverse
effect on the Company's business, financial conditions and results of
operations.
The OEM business is serviced by a team of contract sales agents with
support from the BMT engineering staff. BMT is positioned as a value added
manufacturer providing complete product development, regulatory affairs,
manufacturing and packaging service. BMT emphasizes its broad expertise in
complex catheter manufacturing, silicone fabrication techniques and surface
enhancement technologies.
BMT competes with a number of other silicone fabricators for OEM and
private label business. The OEM business is highly competitive and the timing
and volume of orders can fluctuate significantly. BMT does not attempt to
compete with the high volume molded part producers, but specializes in complete
device assemblies of complex products. Because virtually all of BMT's
proprietary and OEM products incorporate silicone components, any cost increase
or other negative development associated with this material could adversely
affect its business, financial condition and results of operations.
BMT's proprietary silicone products compete primarily against non-silicone
counterparts produced by a number of large multinational companies including
Mallinkrodt Group Inc., Sims and Rusch Inc. In addition, there are a number of
smaller companies that compete in other BMT market areas, including InHealth in
voice restoration and Xomed Surgical Products, Inc. in ENT. Competition in the
markets for BMT's proprietary products is intense. Many of BMT's proprietary
products and OEM competitors have significantly greater financial, marketing,
distribution and other resources than BMT. Existing and future competitive
factors could have a material adverse effect on the Company's business,
financial condition and results of operations.
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The discussion contained above regarding third-party reimbursement for
medical devices and the On-Command Catheter in particular is generally
applicable to BMT's proprietary line of products. Failure to obtain such
reimbursement for such products could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Third-Party Reimbursement."
For additional information with respect to the business and operations of
BMT, see "Risk Factors," "Selected Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and
"Business -- Manufacturing, -- Research and Development, -- Patents and
Proprietary Rights, -- Government Regulation, -- Product Liability and
Insurance, -- Employees, -- Facilities, and -- Legal Proceedings."
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MANAGEMENT
EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS
The executive officers, key employees and directors of the Company are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------------- --- -------------------------------------------------
<S> <C> <C>
Eric B. Hale 43 President, Chief Executive Officer and Director
Tom E. Brandt 43 Chief Operating Officer and Director Nominee
Richard C. Davis, M.D. 43 Chief Science Officer and Chairman of the Board
Gregory S. Ayers 34 Vice President, Chief Financial Officer and
Treasurer
Terrence L. Domin 49 Vice President, Administration and Secretary
Anne T. Carter 41 Director of Clinical & Regulatory Affairs
Jack W. Lasersohn 43 Director
Gary E. Nei(1)(2) 52 Director
Maynard Ramsey, III, M.D., Ph.D.(1) 52 Director
Elizabeth H. Weatherman(2) 36 Director
</TABLE>
- ---------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
ERIC B. HALE has served as President, Chief Executive Officer and a
Director of the Company since November 1994. Before joining the Company, Mr.
Hale was President and Chief Executive Officer of AgriDyne Technologies, Inc., a
developer and manufacturer of bio-pesticides, from October 1988 until June 1994.
Prior to joining AgriDyne Technologies, Mr. Hale was Vice President and General
Manager of the Scientific Products Division of BaxterTravenol, a medical
products company, from November 1985 until September 1988. Mr. Hale held various
marketing, sales, and general management positions with American Hospital
Supply, a medical products company, from June 1975 to November 1985. Mr. Hale
holds a B.S. in Chemistry/Psychology from Utah State University.
TOM E. BRANDT is a director nominee of the Company. Mr. Brandt has been the
President and Chief Executive Officer of BMT since June 1989. Prior to joining
BMT, Mr. Brandt held various management, marketing and engineering positions
with Dow Corning Corporation, a chemical company. Mr. Brandt holds an M.B.A.
from Central Michigan University and a B.S. in Engineering from Iowa State
University. Following the closing of this Offering, Mr. Brandt will be appointed
to the Company's Board of Directors, will serve as the Company's Chief Operating
Officer and will continue as President and Chief Executive Officer of BMT.
RICHARD C. DAVIS, M.D., founded the Company and has served as Chairman of
the Board since its inception and as Chief Science Officer since November 1994.
Dr. Davis invented the Male On-Command Catheter and is responsible for all
research and development activities of the Company. In 1989, he founded Code
Blue Medical Corporation, a marketer of medical devices ("Code Blue") and served
as Chairman until April 1992, when Code Blue was sold to Ballard Medical
Products, a medical products company. Dr. Davis is named as an inventor in over
40 United States patents. Dr. Davis holds an M.D. from the Medical College of
Virginia and a B.S. in Chemistry from Old Dominion University.
GREGORY S. AYERS has served as Vice President, Chief Financial Officer and
Treasurer of the Company since April 1994. From August 1991 until April 1994,
Mr. Ayers held various senior management positions with Tunstall Consulting,
Inc., a corporate financial planning and consulting firm. From September 1983
until May 1991, Mr. Ayers held various positions, including Manager, with KPMG
Peat Marwick in the United States, England and Australia. Mr. Ayers holds a B.S.
in Accounting from Stetson University. He is a Certified Public Accountant.
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<PAGE> 55
TERRENCE L. DOMIN, a co-founder of the Company, has served as Vice
President, Administration and Secretary since April 1992. Previously, Mr. Domin
served as Executive Vice President and Chief Operating Officer at Code Blue.
From April 1984 until April 1987, Mr. Domin held various positions at Smith
Laboratories, a pharmaceutical company, most recently as Director, Sales and
Marketing, until its sale to The Boots Company of Nottingham, England. From June
1969 until March 1984, Mr. Domin was with Baxter Healthcare Corporation, a
medical products company, in a series of domestic and international marketing
management positions. Mr. Domin holds a B.S. in Mathematics from Loyola
University, Chicago.
ANNE T. CARTER has served as Director of Clinical & Regulatory Affairs of
the Company since August 1995. Prior to joining the Company, Ms. Carter was the
Director of Clinical & Regulatory Affairs at Iomed, Inc., a specialty
pharmaceutical and biomechanical company, from May 1990 until August 1995. Ms.
Carter has 20 years of diverse medical experience and 16 years of experience in
the clinical development and regulatory affairs of products in the
pharmaceutical, biotechnology, and medical device industries. Ms. Carter holds a
B.S. in Nursing from Westminster College and a B.S. in Health Education from the
University of Utah.
JACK W. LASERSOHN has served as a director of the Company since June 1995.
Mr. Lasersohn has been a Managing Director of the Vertical Group, Inc., a
private venture capital and investment management firm, since its formation in
1989 by former principals of F. Eberstadt & Co., Inc. From 1981 to 1989, he was
a Vice President and later a Managing Director of the venture capital division
of F. Eberstadt & Co., Inc. Mr. Lasersohn also serves as a director of
CardioThoracic Systems, Inc., a medical device company, VitalCom Inc., a health
care information systems company, and a number of privately-held health care
companies. He holds a J.D. from Yale University and an M.A. and B.S. from Tufts
University.
GARY E. NEI has served as a director of the Company since March 1994. Mr.
Nei is currently Chairman of the Board of B&B Publishing, a publishing company,
and has served as such since May 1995. Previously, Mr. Nei served as Chief
Executive Officer of Eon Labs, a pharmaceutical company, from February 1992
until January 1995. From November 1988 until December 1991, he served as the
Chief Executive Officer of Lyphomed, a pharmaceutical company. From 1985 until
1986, he served as Executive Vice President of Baxter International, a
healthcare company. He is also a director of Difco Inc., a biological products
company, W. H. Brady Co., an adhesives and graphics technology company, and Nei
Turner Interactive, a software company. He holds an M.B.A. from Northwestern
University and a B.A. from Ripon College.
MAYNARD RAMSEY, III, M.D., PH.D. has served as a director of the Company
since March 1994. Dr. Ramsey was a founder of Applied Medical Research, Inc., a
medical products company, which was acquired by Johnson & Johnson Co. in 1979
and became the patient monitoring business of Critikon, Inc., where he served as
Vice President of Science and Technology and Vice President of Research and
Development from 1979 until March 1994. Dr. Ramsey has received numerous awards
for his scientific and research achievements, holds 16 United States patents,
has authored 12 publications and has presented 21 papers. He holds an M.D. from
Duke University, a Ph.D. from Duke University and a B.A. in Chemistry from Emory
University.
ELIZABETH H. WEATHERMAN has served as a director of the Company since June
1995. Ms. Weatherman is a Managing Director of E.M. Warburg, Pincus & Co., Inc.,
a private investment firm, and has been with the firm since June 1988. Ms.
Weatherman is a director of Cardiotronics Systems, Inc., a medical device
company, VitalCom Inc., a health care information systems company and several
privately-held health care companies. Ms. Weatherman holds an M.B.A. from
Stanford University and a B.A. from Mount Holyoke College.
All directors hold office until the next annual meeting of stockholders and
until their successors have been duly elected and qualified. The Board of
Directors has a Compensation Committee, which establishes compensation policies
and is responsible for determinations regarding salaries, incentive compensation
and other forms of compensation for directors, officers and other employees of
the
53
<PAGE> 56
Company. The Audit Committee of the Board of Directors is responsible for
reviewing the scope of and work performed by the Company's independent auditors.
Officers are elected by and serve at the discretion of the Board of Directors or
pursuant to individual employment agreements. All executive officers of the
Company intend, while employed by the Company, to devote substantially all of
their full working time and attention to the Company's business and affairs.
There are no family relationships among the directors or officers of the
Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In addition to the functions and responsibilities discussed above, the
Compensation Committee also administers the Company's incentive compensation
plans. The Compensation Committee consists of Gary E. Nei and Elizabeth H.
Weatherman. Mr. Hale, who is the Company's President and Chief Executive
Officer, also participates in certain discussions and decisions regarding
salaries and incentive compensation for employees of and consultants to the
Company, except that Mr. Hale is excluded from discussions regarding his own
salary and incentive compensation.
KEY EMPLOYEES OF BMT
John M. Sandie, 45, has served as Vice President of Operations of BMT since
September 1989. Prior to joining BMT, Mr. Sandie held various production
management and engineering positions with Dow Corning. Mr. Sandie holds a B.S.
in Mechanical Engineering from Lake Superior State College.
Harry M. Kaufman, 56, has served as Director of Regulatory Affairs, Quality
Assurance and Quality Control of BMT since June 1988. Before joining BMT, Mr.
Kaufman was employed in various management positions with Alcide Corporation, a
pharmaceutical company, Pfizer, a pharmaceutical company, Baxter Healthcare, a
healthcare company, and Martin-Marietta, an aerospace company. Mr. Kaufman holds
an M.B.A. from Sacred Heart University, an M.S. in Microbiology from Arizona
State University and a B.S. in Biology from Texas Western University.
Stuart J. Marcadis, 36, has served as Director of Engineering/Research and
Development of BMT since July 1991. Mr. Marcadis was previously with DLP, a
developer and manufacturer of cardiovascular medical devices, serving as
Product/Process Development Engineering Manager from March 1989 to July 1991.
Mr. Marcadis holds a B.S. in Chemical Engineering from Rose-Hulman Institute of
Technology.
Joe H. Flacke, 41, has served as Secretary/Treasurer and Director of
Administration of BMT since November of 1988. From 1983 to 1988, Mr. Flacke was
General Production Manager for Teknar, Inc., a manufacturer of medical
electronic equipment. Prior to working at Teknar, Mr. Flacke was an electronics
technician at Washington University. Mr. Flacke holds an M.B.A. from Fontbonne
College and a B.S. in Data Processing from Washington University.
MEDICAL ADVISORY BOARD
The Company has established a Medical Advisory Board (the "Advisory Board")
consisting of six members to review and comment on the scientific aspects of the
Company and to develop suggestions for new ideas and products. Members of the
Advisory Board are appointed for a two-year term, and the Advisory Board meets
two times per year.
The members of the Advisory Board are set forth below. With the exception
of Dr. Rodney Appell, who has served as a member of the Advisory Board since
August 1994, each of the members of the Advisory Board was appointed in April
1996.
Anthony W. Middleton, Jr., M.D. serves as Chairman of the Advisory Board.
Dr. Middleton is currently serving as the Chairman of the Division of Urology at
LDS Hospital in Salt Lake City, Utah, and as Chairman of the Board of UROPAC
(National Urological Political Action Committee). He recently completed a term
as national President of the American Association of Clinical Urologists. In
addition to being a full-time practicing urologist, he has published over 100
articles and papers on
54
<PAGE> 57
various aspects of urology and organized medicine. Dr. Middleton is a graduate
of Cornell University Medical College.
Rodney Appell, M.D. currently serves as Chief of Urology at the Cleveland
Clinic and is a widely published and active researcher in the area of urinary
dysfunction. In addition, Dr. Appell is the Clinical Professor of Urology at the
Louisiana State University School of Medicine. Dr. Appell holds an M.D. from
Jefferson Medical College.
Fray F. Marshall, M.D. has been a Professor of Urology and Director,
Division of Adult Urology, at The Johns Hopkins Hospital, Baltimore, Maryland
since July 1990. Dr. Marshall holds an M.D. from the University of Virginia.
Joseph A. Smith, Jr., M.D. has been the William L. Bray Professor and
Chairman of the Department of Urologic Surgery and Interim Director, Section of
Surgical Sciences, at Vanderbilt University School of Medicine, Nashville,
Tennessee since July 1991. Dr. Smith holds an M.D. from the University of
Tennessee.
Peter Scardino, M.D. has headed the Department of Urology, Baylor School of
Medicine, Houston, Texas since 1987. Dr. Scardino holds an M.D. from Duke
University.
Larry Wright, M.D. has been the Director of Microbiology Laboratory at LDS
Hospital, Salt Lake City, Utah since 1989. Dr. Wright holds an M.D. from the
University of Utah.
EXECUTIVE COMPENSATION
The following table sets forth certain information for the calendar year
ended December 31, 1995, regarding the compensation of the Company's President
and Chief Executive Officer and each of the other two most highly compensated
executive officers of the Company (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
------------ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY COMPENSATION
- ------------------------------------------------------ ---- ------------ ---------------
<S> <C> <C> <C>
Eric B. Hale.......................................... 1995 $190,000 $ 3,600(1)
President and Chief Executive Officer
Terrence L. Domin..................................... 1995 120,000 --
Vice President, Administration
Richard C. Davis...................................... 1995 125,385 --
Chairman of the Board and
Chief Science Officer
</TABLE>
- ---------------
(1) Consists of a $600 per month automobile allowance paid by the Company for a
six-month period.
55
<PAGE> 58
OPTION GRANTS AND EXERCISES IN THE YEAR ENDED DECEMBER 31, 1995
AND FISCAL YEAR END OPTION VALUES
There were no options granted to the Named Executive Officers listed in the
Summary Compensation Table above during the fiscal year ended December 31, 1995.
The following table sets forth certain information as to options exercised
during the fiscal year ended December 31, 1995 and as to unexercised options
held at the end of such fiscal year by the Named Executive Officer of the
Company:
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT YEAR END AT YEAR END(1)
ACQUIRED ON VALUE ----------------------------- -----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Eric B. Hale............... 85,714 $103,414 68,477 216,242 $64,773 $ 110,283
Richard C. Davis........... -- -- 53,452 53,691 $27,261 $ 27,382
Terrence L. Domin.......... -- -- 132,282 187,142 $67,515 $ 95,442
</TABLE>
- ---------------
(1) Calculated on the basis of the fair market value of the Common Stock on
December 31, 1995 of $1.21 per share, as determined by the Company's Board
of Directors, minus the exercise price.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Richard C. Davis,
M.D., its Chairman of the Board and Chief Science Officer, Eric B. Hale, its
President and Chief Executive Officer, Gregory S. Ayers, its Vice President,
Chief Financial Officer and Treasurer, and Terrence L. Domin, its Vice
President, Operations and Secretary. Dr. Davis's employment agreement provides
for base pay of $130,000 per annum, plus performance bonuses based upon criteria
measured by the Board of Directors. Mr. Hale's employment agreement provides for
base pay of $195,000 per annum, performance bonuses based upon criteria measured
by the Board of Directors and severance constituting salary and benefits
continuation for up to eighteen months following termination of employment
without cause. The Company's employment agreement with Mr. Domin provides for
base pay of $120,000 per annum. The Company's employment agreements with Messrs.
Davis, Domin and Ayers provide for severance of salary and benefits continuation
for up to nine months following termination without cause. Each of these
employment agreements provides for grants of stock options. All officers will
also be entitled to acceleration of vesting of outstanding stock and options in
the event the Company is acquired. The vesting of each such officer's options
and any stock held subject to repurchase by the Company would accelerate so that
any such stock or options would be 100% vested. In addition, in connection with
the acquisition of BMT, the Company has entered into an employment agreement
with Tom E. Brandt, Chief Operating Officer, which provides for annual base
compensation of $168,000 for five years.
DIRECTOR COMPENSATION
Directors of the Company do not receive cash for services they provide as
directors. All directors of the Company, other than those designated by Warburg
and Vertical, have each been granted options to purchase 107,143 shares of
Common Stock at an exercise price of $0.70 per share. The options vest over a
five-year period, although all shares become immediately exercisable in the
event there is a change in control of the Company. See "Stock Plans -- 1994
Stock Option Plan" and "Certain Transactions." The Company does not pay
additional amounts for committee participation or special assignments of the
Board of Directors.
COMPENSATION OF MEDICAL ADVISORY BOARD MEMBERS
Pursuant to separate consulting, confidentiality and non-competition
agreements between the Company and each member of its Medical Advisory Board,
the Company has agreed to pay each such Advisory Board member $1,000 per meeting
attended. In addition, in April 1996 the Company granted
56
<PAGE> 59
certain of its Advisory Board members options to purchase an aggregate of 5,716
shares of Common Stock at a price of approximately $1.75 per share and a
cumulative exercise price of approximately $10,000.
STOCK PLANS
1994 Stock Option Plan. A total of 1,428,571 shares of Common Stock have
been reserved for issuance under the Company's 1994 Stock Option Plan (the
"Stock Plan"). As of March 31, 1996, 137,077 shares had been issued upon the
exercise of stock options granted under the Stock Plan, 1,052,815 shares were
subject to outstanding options and 238,679 shares remained available for future
grant. The Stock Plan is administered by the Compensation Committee of the Board
of Directors, which determines the terms of awards granted, including recipient,
type of award, exercise price, number of shares subject to the award and vesting
terms. Under the Stock Plan, options may be granted to employees, including
directors who are employees, and consultants. Only employees may receive
"incentive stock options," within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), which are intended to qualify for
certain tax treatment; non-employees receive "nonqualified stock options," which
do not qualify for such treatment. In the event of a change in control of the
Company, including a merger or sale of substantially all of the Company's
assets, outstanding options may be assumed by any successor corporation or may
become exercisable. The exercise price of stock options under the Stock Plan
must at least equal the fair market value of the Common Stock on the date of
grant. Options granted under the Stock Plan generally vest on a cumulative
monthly basis over five years and must be exercised within ten years.
1996 Employee Stock Purchase Plan. The Company's 1996 Employee Stock
Purchase Plan (the "Purchase Plan") was adopted by the Board of Directors and
approved by the stockholders in July 1996. A total of 250,000 shares of Common
Stock have been authorized for issuance under the Purchase Plan. No shares have
been issued under the Purchase Plan. The Purchase Plan, which is intended to
qualify under Section 423 of the Code, will be administered by the Compensation
Committee of the Board of Directors. Under the Purchase Plan, the Company will
withhold a specified percentage (not to exceed 15%) of each salary payment to
participating employees over certain offering periods. Any employee who has been
employed for at least six months and who is currently employed for at least 20
hours per week or for at least five consecutive months in a calendar year,
either by the Company or by a majority-owned subsidiary of the Company, will be
eligible to participate in the Purchase Plan. Unless the Compensation Committee
of the Board of Directors determines otherwise, each offering period will run
for six months. The first offering period will commence approximately 30 days
after the date of this Prospectus. New six-month offering periods will commence
approximately every six months thereafter. The price at which Common Stock will
be purchased under the Purchase Plan is equal to 85% of the fair market value of
the Common Stock on the first day of the applicable offering period or the last
day of the applicable offering period, whichever is lower. Employees may end
their participation in the offering at any time during the offering period and
may decrease their participation in the offering at any time during the offering
period on one occasion. Participation ends automatically on termination of
employment with the Company. The number of shares that a participant may
purchase in any offering period is determined by dividing the payroll deductions
accumulated during the offering period by the purchase price. However, no person
may purchase shares under the Purchase Plan to the extent such person would own
5% or more of the total combined value or voting power of all classes of the
capital stock of the Company or of any of its subsidiaries, or to the extent
that such person's rights to purchase stock under all employee stock purchase
plans would accrue at a rate that exceeds $25,000 worth of stock for any
calendar year, determined as of the first day of the applicable offering period.
In the event of a merger of the Company with or into another corporation, or the
sale of all or substantially all of the assets of the Company, the offering
period then in progress will be shortened. The Board of Directors may amend the
Purchase Plan at any time. The Purchase Plan shall be in effect for a term of
ten years unless terminated earlier pursuant to its terms.
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<PAGE> 60
LIMITATIONS ON DIRECTORS' LIABILITY AND INDEMNIFICATION
The Company's Certificate of Incorporation provides that the Company's
directors will not be liable for monetary damages for breach of the directors'
fiduciary duty of care to the Company and its stockholders. This provision in
the Certificate of Incorporation does not eliminate the duty of care, and in
appropriate circumstances equitable remedies such as an injunction or other
forms of non-monetary relief would remain available under Delaware law. Each
director will continue to be subject to liability for breach of the director's
duty of loyalty to the Company, for acts or omissions not in good faith or
involving intentional misconduct or knowing violations of law, for acts or
omissions that the director believes to be contrary to the best interests of the
Company or its stockholders, for any transaction from which the director derived
improper personal benefit, for acts or omissions involving a reckless disregard
for the director's duty to the Company or its stockholders when the director was
aware or should have been aware of a risk of serious injury to the Company or
its stockholders, for acts or omissions that constitute an unexcused pattern of
inattention that amounts to an abdication of the director's duty to the Company
or its stockholders, for improper transactions between the director and the
Company and for improper distributions to stockholders and loans to directors
and officers. This provision also does not affect a director's responsibilities
under any other laws, such as the federal securities laws or state or federal
environmental laws.
The Company's Bylaws provide that the Company will indemnify its directors
and executive officers and may indemnify its other officers, employees and other
agents to the fullest extent permitted by Delaware law. The Company believes
that indemnification under its Bylaws covers at least negligence and gross
negligence on the part of indemnified parties. The Company is also empowered
under its Bylaws to enter into indemnification contracts with its directors and
officers and to purchase insurance on behalf of any person it is required or
permitted to indemnify. Pursuant to this provision, the Company has entered into
indemnity agreements with each of its directors and officers.
At present, there is no pending litigation or proceeding involving a
director or officer of the Company in which indemnification is required or
permitted, and the Company is not aware of any threatened litigation or
proceeding that may result in a claim for such indemnification.
CERTAIN TRANSACTIONS
In August 1992, UroQuest issued 1,285,714 shares of Common Stock and
142,857 shares of Non-Voting Common Stock to Richard C. Davis and to DD Trust, a
trust established by Richard C. Davis on behalf of his children, respectively,
for patents and trademarks nominally valued at $5,000. Dr. Davis, a founder of
the Company, is the Company's Chairman of the Board and Chief Science Officer.
In January 1994, UroQuest issued 1,285,714 shares of Voting Common Stock and
142,857 shares of Non-Voting Common Stock to Richard C. Davis and to DD Trust,
respectively, for all of the outstanding equity of UroCath Corporation, which
was transferred by Dr. Davis and DD Trust to UroQuest. All shares owned by Dr.
Davis personally have been transferred to a trust established on his behalf and
controlled by Dr. Davis.
During 1994, UroQuest was assigned patents and trademarks totaling $250,000
by Excalibur Engineering Corporation for which UroQuest issued a $250,000
non-interest bearing note. Excalibur is controlled by Dr. Davis. As the note was
non-interest bearing, UroQuest recorded the note net of a $6,840 discount
calculated at 8% over the expected term of the note. The note was paid in full
and the discount completely amortized by December 31, 1995.
In June 1994, the Board of Directors of the Company approved issuance of an
option to purchase 107,143 shares of Common Stock at $.70 per share to each
member of the Board of Directors, which shares vest over a five-year term tied
to service on the Board of Directors. All shares will be exercisable in full in
the event there is a change in control of the Company.
In June 1994, corporations were formed by certain stockholders of the
Company for the purpose of transferring non-core business assets into separate
entities. Cash and other assets totaling $235,008
58
<PAGE> 61
were exchanged with those companies for 8% promissory notes. The notes are
payable on demand. In 1994, a valuation allowance was established to account for
possible non-collection of the notes. All accrued interest on the notes
receivable is provided for monthly.
In December 1994, Maynard Ramsey, a director of the Company, purchased
$150,000 of UroQuest's 12% Secured Promissory Notes due December 1996. In
December 1994, Donald P. Sauey, then a director of the Company, purchased
$100,000 of UroQuest's 12% Secured Promissory Notes due December 1996.
In June 1995, Dr. Davis, UroQuest, Warburg and Vertical entered into a
Stock Purchase Agreement dated June 15, 1995 (the "Stock Purchase Agreement")
pursuant to which Dr. Davis sold, at $0.0035 per share, 1,080,000 shares and
120,000 shares of Common Stock to Warburg and Vertical, respectively, in
conjunction with Warburg's and Vertical's purchase from UroQuest, at $3.50 per
share, of 565,714 shares and 62,857 shares, respectively, of Series D
Convertible Preferred Stock. In conjunction with the transaction, UroQuest
issued a warrant to Warburg to purchase 1,428,571 shares of Series D Convertible
Preferred Stock at $3.50 per share. Warburg has agreed that Vertical shall be
entitled to purchase 142,857 of the shares covered by the warrant. Pursuant to a
letter agreement dated June 15, 1995 between UroQuest and Dr. Davis, and in
consideration of Dr. Davis's sale of such shares of Common Stock to Warburg and
Vertical, UroQuest agreed to indemnify Dr. Davis from and against any
liabilities arising from or related to such sale.
Pursuant to a Termination Agreement dated June 27, 1996 (the "Termination
Agreement") among the Company, Dr. Davis, Warburg and Vertical, the Stock
Purchase Agreement will be terminated upon the closing of this Offering. Upon
the closing of this Offering, Warburg and Vertical have agreed to exercise the
warrant for 1,285,714 shares and 142,857 shares of Common Stock, respectively,
at $3.50 per share, and Dr. Davis has agreed to sell to Warburg and Vertical
128,571 shares and 14,285 shares of Common Stock, respectively, at $0.0035 per
share.
Pursuant to the Termination Agreement, so long as each of Warburg and
Vertical beneficially owns 50% of the Common Stock owned as of the closing of
this Offering, it is entitled to designate three directors to the Board of
Directors. The parties to the Termination Agreement have agreed that the size of
the Board of Directors will not be increased to more than eleven members without
the prior written consent of each of Warburg and Vertical. If each of Warburg
and Vertical designated three directors, they would collectively be able to
control the direction, management and policies of the Company. In addition, the
parties agreed to amend the Right of First Refusal and Co-Sale Agreement dated
June 15, 1995 among the parties (the "Co-Sale Agreement") pursuant to which
Warburg and Vertical have a first right of refusal to purchase shares of Common
Stock owned by Dr. Davis and a right to sell their shares if Dr. Davis receives
an offer to purchase his shares in certain circumstances. Pursuant to the
Co-Sale Agreement, as amended, all but 200,000 shares owned by Dr. Davis are
subject to the Co-Sale Agreement upon the closing of this Offering. On June 15,
1997, an additional 100,000 shares will be released from the restrictions of the
Co-Sale Agreement. Every three months thereafter, an additional amount equal to
one percent of the number of outstanding shares of the Common Stock will be
released from the restrictions of the Co-Sale Agreement.
All future transactions, including any loans from the Company to its
officers, directors, principal stockholders or affiliates, will be approved by a
majority of the Board of Directors, including a majority of the independent and
disinterested members of the Board of Directors or, if required by law, a
majority of disinterested stockholders, and will be on terms no less favorable
to the Company than could be obtained from unaffiliated third parties.
59
<PAGE> 62
PRINCIPAL STOCKHOLDERS
The following table sets forth information known to the Company with
respect to the beneficial ownership of its Common Stock as of June 30, 1996,
after giving effect to each of the events that will occur upon or prior to the
closing of this Offering, and as adjusted to reflect the sale of Common Stock
offered by the Company hereby at an assumed initial public offering price of
$12.00 per share, for (i) each person who is known by the Company to own
beneficially more than 5% of the Common Stock, (ii) each of the Company's
directors and its director nominee, (iii) each Named Executive Officer of the
Company and (iv) all directors and executive officers as a group.
<TABLE>
<CAPTION>
PERCENT
BENEFICIALLY OWNED
--------------------------------
NUMBER OF SHARES PERCENT BEFORE PERCENT AFTER
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) OFFERING OFFERING
- -------------------------------------------------- --------------------- -------------- -------------
<S> <C> <C> <C>
Warburg, Pincus Investors, L.P.(2)................ 3,059,999 39.0% 27.3%
466 Lexington Ave., 10th Floor
New York, NY 10017
Elizabeth H. Weatherman(3)........................ 3,059,999 39.0% 27.3%
Warburg, Pincus Investors, L.P.
466 Lexington Ave., 10th Floor
New York, NY 10017
Richard C. Davis, M.D.(4)......................... 1,292,501 16.3% 11.5%
4820 Longwater Way
Tampa, FL 33615
Thomas E. Brandt(5)............................... 1,203,750 15.3% 10.8%
206 Anderson Drive,
Valparaiso, IN 46383
Eric B. Hale(6)................................... 175,810 2.2% 1.6%
Terrence L. Domin(7).............................. 186,810 2.3% 1.6%
Jack W. Lasersohn(8).............................. 340,000 4.3% 3.0%
Maynard Ramsey, III, M.D., Ph.D.(9)............... 94,289 1.2% *
Gary E. Nei(10)................................... 60,000 * *
--------- ---- ----
All directors and executive officers as a group
(9 persons)(11)................................. 6,500,262 77.8% 55.5%
========= ==== ====
</TABLE>
- ---------------
* Less than 1%.
(1) "Beneficial owner" means generally any person who, directly or indirectly,
has or shares voting power or investment power with respect to a security.
Unless otherwise indicated in these footnotes, or pursuant to applicable
state community property laws, each stockholder has sole voting and
investment power with respect to the shares beneficially owned. Percentages
are determined based upon 7,844,591 shares of Common Stock outstanding on
June 30, 1996, or issuable upon exercise of warrants and options
exercisable within 60 days of June 30, 1996.
(2) Represents 3,059,999 shares of Common Stock held by Warburg, Pincus
Investors, L.P. ("Warburg"). The sole general partner of Warburg is
Warburg, Pincus & Co., a New York general partnership ("WP"). Lionel I.
Pincus is the managing partner of WP and may be deemed to control it. E.M.
Warburg, Pincus & Company, a New York general partnership that has the same
general partners as WP ("EM Warburg"), manages Warburg. WP has a 20%
interest in the profits of Warburg and through its wholly owned subsidiary,
E.M. Warburg, Pincus & Co., Inc. ("Warburg, Pincus") owns 1.13% of the
limited partnership interests in Warburg. Elizabeth H. Weatherman, a
director of the Company, is a Managing Director of Warburg, Pincus and a
general partner of WP, and EM Warburg. As such, Ms. Weatherman may be
deemed to have an indirect pecuniary interest (within the meaning of Rule
16a-1 under
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<PAGE> 63
the Securities Exchange Act of 1934, as amended (the "Exchange Act")) in an
indeterminate portion of the shares beneficially owned by Warburg, WP and
Warburg, Pincus.
(3) All of the shares indicated as owned by Ms. Weatherman are owned directly
by Warburg and are included because of her affiliation with Warburg. As
such, Ms. Weatherman may be deemed to have an indirect pecuniary interest
in an indeterminate portion of the shares beneficially owned by Warburg.
Ms. Weatherman disclaims beneficial ownership of these shares within the
meaning of Rule 13d-3 under the Exchange Act.
(4) Represents 1,228,572 shares of Common Stock held by The Richard C. Davis,
Jr. 1993 Revocable Trust, of which Dr. Davis is a trustee and over which
Dr. Davis has investment and voting control. Dr. Davis disclaims beneficial
ownership of these shares. Also includes 63,929 shares of Common Stock
issuable upon exercise of stock options exercisable within 60 days of June
30, 1996.
(5) Represents 1,203,750 shares of Common Stock to be issued at the closing of
this Offering to Mr. Brandt as a stockholder of BMT in connection with the
acquisition of BMT.
(6) Includes 90,096 shares of Common Stock issuable upon exercise of stock
options exercisable within 60 days of June 30, 1996.
(7) Includes 186,667 shares of Common Stock issuable upon exercise of stock
options exercisable within 60 days of June 30, 1996.
(8) Represents 340,000 shares of Common Stock held by Vertical Fund Associates,
L.P. ("Vertical"). The sole general partner of Vertical is The Vertical
Group, L.P. ("Vertical Group"). Jack W. Lasersohn, a director of the
Company, is a General Partner of the Vertical Group. As such, Mr. Lasersohn
may be deemed to have an indirect pecuniary interest in an indeterminate
portion of the shares beneficially owned by Vertical Group. Mr. Lasersohn
disclaims beneficial ownership of these shares within the meaning of Rule
13d-3 under the Exchange Act.
(9) Includes 62,514 shares of Common Stock issuable upon exercise of stock
options exercisable within 60 days of June 30, 1996. Also includes 8,918
shares of Common Stock issuable upon exercise of warrants exercisable
within 60 days of June 30, 1996.
(10) Includes 60,000 shares of Common Stock issuable upon exercise of stock
options exercisable within 60 days of June 30, 1996.
(11) Includes 500,706 shares of Common Stock issuable upon exercise of stock
options exercisable within 60 days of June 30, 1996. Also includes 8,918
shares of Common Stock issuable upon exercise of warrants exercisable
within 60 days of June 30, 1996.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company will consist of 31,000,000
shares of Common Stock, $.001 par value and 16,000,000 shares of Preferred
Stock, $.001 par value, after giving effect to the restatement of the Company's
Certificate of Incorporation upon the closing of this Offering. The following
summaries of certain provisions of the Common Stock and Preferred Stock do not
purport to be complete and are subject to, and qualified in their entirety by,
the provisions of the Company's Certificate of Incorporation, which is included
as an exhibit to the Registration Statement of which this Prospectus forms a
part, and by applicable law.
COMMON STOCK
As of May 31, 1996, there were 7,841,734 shares of Common Stock outstanding
held by 85 stockholders of record.
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. In the election of directors,
holders of Common Stock are not entitled to cumulative voting. The holders of
Common Stock are entitled to receive ratably such dividends, if any, as may be
declared from time to time by the Board of Directors out of funds legally
available for that purpose. In the event of a liquidation, dissolution or
winding up of the Company, the holders of Common Stock are entitled to share
ratably in all assets remaining after payment of liabilities, if any. The Common
Stock
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<PAGE> 64
has no preemptive or conversion rights or other subscription rights. There are
no redemption or sinking fund provisions applicable to the Common Stock. All
outstanding shares of Common Stock are fully paid and nonassessable, and the
shares of Common Stock to be issued upon the closing of this Offering will be
fully paid and non-assessable.
Following the completion of this Offering, based on an assumed initial
public offering price of $12.00 per share, the Company will have outstanding
warrants to purchase an aggregate of 19,823 shares of Common Stock. The weighted
average exercise price of these warrants is $3.50 per share, and these warrants
expire 30 days subsequent to the closing of this Offering.
PREFERRED STOCK
The Board of Directors has the authority, without action by the
stockholders, to designate and issue Preferred Stock in one or more series and
to designate the rights, preferences and privileges of each series, any or all
of which may be greater than the rights of the Common Stock. It is not possible
to state the actual effect of the issuance of any shares of Preferred Stock upon
the rights of holders of the Common Stock until the Board of Directors
determines the specific rights of the holders of such Preferred Stock. However,
the effects might include, among other things, restricting dividends on the
Common Stock, diluting the voting power of the Common Stock, impairing the
liquidation rights of the Common Stock and delaying or preventing a change in
control of the Company without further action by the stockholders. Upon the
closing of this Offering, all outstanding shares of Preferred Stock of the
Company will convert automatically into shares of Common Stock. The Company has
no present plans to issue any shares of Preferred Stock.
REINCORPORATION IN DELAWARE
The Company intends to reincorporate in Delaware in connection with this
Offering. The Company believes that Delaware law provides flexibility and that
Delaware courts have particular expertise with matters affecting public
companies and their stockholders. Except as otherwise noted, all information in
the Prospectus assumes the reincorporation has occurred.
REGISTRATION RIGHTS OF CERTAIN HOLDERS
Upon expiration of certain lock-up agreements referred to in "Shares
Eligible for Future Sales" below, the holders of approximately 6,976,295 shares
of Common Stock (including shares issuable upon exercise of certain options and
warrants) (the "Registrable Securities") or their transferees will be entitled
to certain rights with respect to the registration of such shares under the
Securities Act. These rights are provided under the terms of a Second Amended
and Restated Stockholders Agreement dated as of May 31, 1995 (the "Stockholders
Agreement") between the Company and the holders of Registrable Securities and a
Registration Rights Agreement dated June 15, 1995 (the "Rights Agreement") among
the Company, Warburg and Vertical. Subject to certain limitations in the
agreements, Warburg and Vertical, together owning a total of 3,399,999 shares of
the Registrable Securities, may require that the Company use its best efforts to
register their shares for public resale on up to four occasions pursuant to
certain demand registration rights. If the Company registers any of its Common
Stock either for its own account or for the account of other security holders,
all holders of Registrable Securities, including Warburg and Vertical, are
entitled to include their shares of Common Stock in the registration, subject to
the ability of the underwriters to limit the number of shares included in the
offering. All registration expenses must be borne by the Company and all selling
expenses relating to Registrable Securities must be borne by the holders of the
securities being registered. Pursuant to the terms of the Stockholders Agreement
and the Rights Agreement, the holders of Registrable Securities have waived
their rights to include their shares in this Offering.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN PROVISIONS
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("Section 203"), an anti-takeover law. Under Section 203
certain "business combinations" between a
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<PAGE> 65
Delaware corporation, whose stock generally is publicly traded or held of record
by more than 2,000 stockholders, and an interested stockholder are prohibited
for a three-year period following the date that such stockholder became an
interested stockholder, unless: (i) the corporation has elected in its
certificate of incorporation not to be governed by Section 203; (ii) the
business combination was approved by the Board of Directors of the corporation
before the other party to the business combination became an interested
stockholder; (iii) upon consummation of the transaction that made it an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the commencement of the
transaction (excluding voting stock owned by directors who are also officers or
held in employee benefit plans in which the employees do not have a confidential
right to tender or vote stock held by the plan); or (iv) the business
combination was approved by the Board of Directors of the corporation and
ratified by 66 2/3% of the voting stock which the interested stockholder did not
own. The three-year prohibition also does not apply to certain business
combinations proposed by an interested stockholder following the announcement or
notification of certain extraordinary transactions involving the corporation and
a person who had not been an interested stockholder during the previous three
years or who became an interested stockholder with the approval of a majority of
the corporation's directors. The term "business combination" is defined
generally to include mergers or consolidations between a Delaware corporation
and an interested stockholder, transactions with an interested stockholder
involving the assets or stock of the corporation or its majority-owned
subsidiaries and transactions which increase an interested stockholder's
percentage ownership of stock. The term "interested stockholder" is defined
generally as those stockholders who become beneficial owners of 15% or more of a
Delaware corporation's voting stock. These provisions, as well as the Board of
Directors' ability to issue Preferred Stock and the stockholders' inability to
act by written consent without a meeting, may have the effect of deterring
hostile takeovers or delaying changes in control or management of the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Chemical Mellon
Shareholder Services, L.L.C. Its telephone number is (415) 954-9152.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no market for the Common Stock of
the Company. Future sales of substantial amounts of Common Stock in the public
market could materially adversely affect market prices prevailing from time to
time. As described below, no shares currently outstanding will be available for
public resale immediately after this Offering due to certain contractual and
legal restrictions on resale (as described below). Sales of substantial amounts
of Common Stock of the Company in the public market after the restrictions lapse
could materially adversely affect the prevailing market price and the ability of
the Company to raise equity capital in the future.
Upon the completion of this Offering, the Company will have 11,191,734
shares of Common Stock outstanding, assuming no exercise of options or warrants
after May 31, 1996. Of these shares, the 3,350,000 shares sold in this Offering
will be freely tradable without restriction under the Securities Act, unless
held by "affiliates" of the Company, as that term is defined in Rule 144 under
the Securities Act. The remaining 7,841,734 shares of Common Stock held by
existing stockholders are "restricted securities" as that term is defined in
Rule 144 under the Securities Act, and were issued and sold by the Company in
reliance on exemptions from the registration requirements of the Securities Act.
These shares may be sold in the public market only if registered, or pursuant to
an exemption from registration such as Rule 144, 144(k) or 701 under the
Securities Act. All executive officers, directors and certain stockholders of
the Company, holding in aggregate 7,717,465 shares of Common Stock, are subject
to lock-up agreements which provide that they will not offer, sell, contract to
sell, grant any option to purchase or otherwise dispose of, or agree to dispose
of, directly or indirectly, any shares of Common Stock, options or warrants to
acquire shares of Common Stock or securities exchangeable for or convertible
into Common Stock owned by them for a period of 180 days after the date of this
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<PAGE> 66
Prospectus, without the prior written consent of Dillon, Read & Co. Inc. The
Company has entered into a similar agreement, except that the Company may grant
options and issue stock under its current stock option and stock purchase plans
and pursuant to other currently outstanding options.
As of May 31, 1996, 1,058,531 shares were subject to outstanding options
and 19,823 shares were subject to outstanding warrants. All of these shares are
subject to the lock-up agreements described above. Approximately 30 days after
the date of this Prospectus, the Company intends to file a Registration
Statement on Form S-8 to register all shares issuable under the Company's 1994
Stock Option Plan (including shares subject to then outstanding options) and
1996 Employee Stock Purchase Plan, thus permitting the resale of such shares in
the public market, subject to Rule 144 volume limitations applicable to
affiliates, without restriction under the Securities Act upon expiration of the
applicable lock-up agreements. Upon expiration of such lock-up agreements,
602,267 shares subject to such options will be vested.
Upon expiration of the 180-day lock-up agreements, approximately 736,122
shares of Common Stock held by existing stockholders will be eligible for
immediate public resale without restriction pursuant to Rule 144(k) or Rule 701,
and approximately 1,830,613 shares held by existing stockholders will be
eligible for public resale, subject to the volume limitation and other
restrictions of Rule 144. The remaining 5,274,999 shares held by existing
stockholders will become eligible for public resale pursuant to Rule 144 upon
the expiration of their two-year holding periods. The holders of approximately
6,976,295 shares of Common Stock (including shares issuable upon exercise of
certain options and warrants and shares issuable pursuant to anti-dilution
provisions) or their transferees will be entitled to registration rights with
respect to such shares upon the release of their respective lock-up agreements.
The number of shares sold in the public market could increase if such rights are
exercised.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least two
years (including the holding period of any prior owner, except an affiliate) is
entitled to sell in "broker's transactions" or to market makers, within any
three-month period commencing 90 days after the date of this Prospectus, a
number of shares that does not exceed the greater of (i) one percent of the
number of shares of Common Stock then outstanding (approximately 111,900 shares
immediately after this Offering) or (ii) the average weekly trading volume of
the Common Stock during the four calendar weeks preceding the required filing of
a Form 144 with respect to such sale. Sales under Rule 144 are generally subject
to certain manner of sale provisions and notice requirements and to the
availability of current public information about the Company. Under Rule 144(k),
a person who is not deemed to have been an affiliate of the Company at any time
during the 90 days preceding a sale, and who has beneficially owned the shares
proposed to be sold for at least three years, is entitled to sell such shares
without having to comply with the manner of sale, public information, volume
limitation or notice provisions of Rule 144. Under Rule 701 under the Securities
Act, persons who purchase shares upon exercise of options granted prior to the
effective date of this Offering are entitled to sell such shares 90 days after
the effective date of this Offering in reliance on Rule 144, without having to
comply with the holding period requirements of Rule 144 and, in the case of
non-affiliates, without having to comply with the public information, volume
limitation or notice provisions of Rule 144.
Any employee, officer or director or a consultant to the Company who
purchased his or her shares pursuant to a written compensatory plan or contract
is entitled to rely on the resale provisions of Rule 701, which permits
non-affiliates to sell their Rule 701 shares without having to comply with the
public information, holding period, volume limitation or notice provisions of
Rule 144 and permits affiliates to sell their Rule 701 shares without having to
comply with Rule 144's holding period restrictions, in each case commencing 90
days after the effective date of this Offering.
The Securities and Exchange Commission has recently proposed reducing the
Rule 144 holding period to one year and the Rule 144(k) holding period to two
years. There can be no assurance as to when or whether such rule changes will be
enacted. If enacted, such modifications will have a material effect on the times
when shares of the Common Stock become eligible for public resale.
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<PAGE> 67
UNDERWRITING
The names of the Underwriters of the shares of Common Stock offered hereby
and the aggregate number of shares which each has severally agreed to purchase
from the Company (subject to the terms and conditions specified in the
Underwriting Agreement) are as follows:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
-------------------------------------------------------------------- ----------------
<S> <C>
Dillon, Read & Co. Inc. ............................................
Prudential Securities Incorporated..................................
----------------
Total..................................................... 3,350,000
</TABLE>
The Managing Underwriters are Dillon, Read & Co. Inc. and Prudential
Securities Incorporated.
If any of the shares of Common Stock offered hereby are purchased by the
Underwriters, all such shares will be so purchased. The Underwriting Agreement
contains certain provisions whereby if any Underwriter defaults in its
obligation to purchase such shares and if the aggregate obligations of the
Underwriters so defaulting do not exceed 10% of the shares offered hereby, the
remaining Underwriters, or some of them, must assume such obligations.
The shares of Common Stock offered hereby are being offered severally by
the Underwriters for sale at the price set forth on the cover page hereof, or at
such price less a concession not to exceed $ per share on sale to certain
dealers. The Underwriters may allow, and such dealers may reallow, a concession
not to exceed $ per share on sales to certain other dealers. The offering of
the shares of Common Stock is made for delivery when, as, and if accepted by the
Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offer without notice. The Underwriters reserve the right to
reject any order for the purchase of the shares. After the shares are released
for sale to the public, the public offering price, the concession and the
reallowance may be changed by the Managing Underwriters.
The Company has granted to the Underwriters an option to purchase up to an
additional 502,500 shares of Common Stock on the same terms per share. If the
Underwriters exercise this option, each of the Underwriters will have a firm
commitment, subject to certain conditions, to purchase approximately the same
proportion of the aggregate shares so purchased as the number of shares to be
purchased by it shown in the above table bears to the total number of shares in
such table. The Underwriters may exercise such option on or before the thirtieth
day from the date of the public offering of the shares offered hereby and only
to cover over-allotments made of the shares in connection with this Offering.
The Company, its executive officers and directors and certain stockholders,
holding in aggregate 7,717,465 shares of Common Stock, have agreed that they
will not, without the prior written consent of Dillon, Read & Co. Inc., sell,
contract to sell, grant any option to sell, transfer or otherwise dispose of,
directly or indirectly, any shares of the Common Stock, or any securities
convertible into, or exercisable or exchangeable for, Common Stock or warrants
or other rights to purchase Common Stock, prior to the expiration of 180 days
from the date of the consummation of this Offering, except (i) shares of Common
Stock issued upon the exercise of options issued under the Company's existing
stock plans and (ii) the grant of options and other rights to purchase Common
Stock to the Company's employees, officers and directors under its existing
stock plans.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including any liabilities under the Securities Act, or to
contribute to payments the Underwriters may be required to make in respect
thereof.
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<PAGE> 68
Prior to this Offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock was determined by
negotiation between the Company and the Managing Underwriters. Among the factors
considered in determining the initial public offering price were prevailing
market and economic conditions, projected revenues and earnings of the Company,
market valuations of other companies engaged in activities similar to the
Company, estimates of the business potential and prospects of the Company, the
present state of the Company's business, the Company's management and other
factors deemed relevant.
The Underwriters do not intend to confirm sales to accounts over which they
exercise discretionary authority.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Holland & Hart, LLP, Salt Lake City, Utah. Certain legal matters will
be passed upon for the Underwriters by Cooley Godward Castro Huddleson & Tatum,
Menlo Park, California.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1994 and 1995 and for each of the years in the three-year period ended December
31, 1995, and for the period from April 8, 1992 (inception) to December 31,
1995, have been included herein and in the Registration Statement in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
The consolidated financial statements of BMT as of December 31, 1994 and
1995 and for each of the years in the three-year period ended December 31, 1995,
have been included herein and in the Registration Statement in reliance upon the
report of Grant Thornton LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
The statements in this Prospectus under the captions "Risk
Factors -- Reliance on Patents and Protection of Proprietary Technology" and
"Business -- Patents and Proprietary Rights" as they relate to UroQuest have
been reviewed and approved by Griffin, Butler, Whisenhunt & Kurtossy, Arlington,
Virginia, special patent counsel to UroQuest, as experts in such matters, and as
they relate to BMT have been reviewed and approved by Emrich & Dithmar, special
patent counsel to BMT, as experts in such matters, and such statements are
included herein in reliance upon such review and approval. Griffin, Butler,
Whisenhunt & Kurtossy has represented both UroQuest and Richard C. Davis,
Chairman of the Board and Chief Science Officer of the Company, in the past in
intellectual property matters, and it is anticipated that it will continue to
represent both of these parties in the future.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form S-1
including amendments thereto, under the Securities Act with respect to the
shares of Common Stock offered hereby. This Prospectus, which is part of the
Registration Statement, does not contain all the information set forth in the
Registration Statement and the exhibits and schedules filed therewith. For
further information with respect to the Company and such Common Stock, reference
is made to the Registration Statement and to the exhibits and schedules filed
therewith. Statements contained in this Prospectus as to the contents of any
contract or other document referred to are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference. A copy of the Registration
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<PAGE> 69
Statement, including the exhibits and schedules filed therewith, may be
inspected by anyone without charge at the public reference facilities maintained
by the Commission, at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549, or at its regional offices located at CitiCorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World
Trade Center, Suite 1300, New York, New York 10048 and copies of all or any part
thereof may be obtained from such offices of the Commission, upon payment of
certain fees prescribed by the Commission.
Prior to this Offering, the Company has not been subject to the reporting
requirements of the Exchange Act. After completion of this Offering, the Company
intends to comply with such requirements, including the distribution to its
stockholders of an annual report containing audited financial statements.
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<PAGE> 70
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED):
Pro Forma Statement of Operations for the year ended December 31, 1995
(Unaudited)..................................................................... F-3
Pro Forma Statement of Operations for the three months Ended March 31, 1996
(Unaudited)..................................................................... F-4
Pro Forma Balance Sheet as of March 31, 1996 (Unaudited)........................... F-5
Notes to Pro Forma Financial Statements (Unaudited)................................ F-6
UROQUEST MEDICAL CORPORATION:
Independent Auditors' Report....................................................... F-7
Consolidated Balance Sheets as of December 31, 1994 and 1995 and March 31, 1996
(Unaudited)..................................................................... F-8
Consolidated Statements of Operations for each of the years in the three year
period ended December 31, 1995 and for the period from April 8, 1992 (date of
inception) to December 31, 1995 and for the three months ended March 31, 1995
and 1996 (Unaudited) and for the period from April 8, 1992 (date of inception)
to March 31, 1996 (Unaudited)................................................... F-9
Consolidated Statements of Stockholders' Equity for the period from April 8, 1992
(date of inception) to December 31, 1995 and for the three months ended March
31, 1996 (Unaudited)............................................................ F-10
Consolidated Statements of Cash Flows for each of the years in the three year
period ended December 31, 1995 and for the period from April 8, 1992 (date of
inception) to December 31, 1995 and for the three months ended March 31, 1995
and 1996 (Unaudited) and for the period from April 8, 1992 (date of inception)
to March 31, 1996 (Unaudited)................................................... F-11
Notes to Consolidated Financial Statements......................................... F-12
BMT, INC.:
Report of Independent Certified Public Accountants................................. F-18
Consolidated Balance Sheets as of December 31, 1994 and 1995,
and March 31, 1996 (Unaudited).................................................. F-19
Consolidated Statements of earnings for the years ended December 31, 1993, 1994 and
1995, and for the three months ended March 31, 1995 and 1996 (Unaudited)........ F-20
Consolidated Statement of Changes in Stockholders' Equity for the years ended
December 31, 1993, 1994 and 1995 and for the three months ended March 31, 1996
(Unaudited)..................................................................... F-21
Consolidated Statements of Cash Flows for the Years Ended December 31, 1993, 1994
and 1995, and for the three months ended March 31, 1995 and 1996 (Unaudited).... F-22
Notes to Consolidated Financial Statements......................................... F-23
</TABLE>
F-1
<PAGE> 71
UROQUEST MEDICAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
UroQuest Medical Corporation was formed in April 1992 to design, develop
and market advanced products for the management and diagnosis of both male and
female urological disorders. UroQuest has entered into a definitive agreement to
acquire BMT, Inc. ("BMT"), pursuant to which BMT will merge with and into an
acquisition subsidiary of UroQuest. Pursuant to the merger, shareholders of BMT
will receive, in the aggregate, $10 million cash and 1,875,000 newly issued
shares of Common Stock. The consummation of the acquisition of BMT by UroQuest
is contingent upon the closing of this Offering. The following unaudited pro
forma financial statements give effect to the proposed acquisition, which will
be accounted for under the purchase method of accounting.
The unaudited pro forma balance sheet gives effect to the acquisition, as
if the acquisition had occurred as of March 31, 1996 and reflects as a liability
the cash consideration to be paid to the shareholders of BMT. The unaudited pro
forma balance sheet also presents, as supplemental pro forma information, the
effect of the issuance of Common Stock pursuant to this Offering. The unaudited
pro forma statements of operations present pro forma results from operations for
the year ended December 31, 1995 and for the three months ended March 31, 1996,
in each case as if the purchase had occurred as of the beginning of the
respective periods.
The total of the excess of the deemed purchase price over the book value of
the net assets of BMT acquired has been classified as "goodwill." Upon closing
of the acquisition, the Company will undertake a study to determine the fair
value of the net assets acquired and will allocate the deemed purchase price
accordingly, including intangible assets designated as acquired in-process
research and development, if any.
Unaudited pro forma adjustments are based upon historical information,
preliminary estimates and certain assumptions management deems appropriate. The
unaudited pro forma financial data presented herein is not necessarily
indicative of the results UroQuest would have obtained had such events occurred
at the beginning of such periods, as assumed, or of the future results of
UroQuest. The pro forma financial statements should be read in conjunction with
the other Financial Statements and notes thereto appearing elsewhere in the
Prospectus.
F-2
<PAGE> 72
UROQUEST MEDICAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
COMBINED PRO FORMA
UROQUEST BIVONA COMPANIES ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales.................... $ -- $14,257,413 $14,257,413 $ -- $14,257,413
Cost of sales................ -- 7,228,308 7,228,308 7,228,308
----------- ------------ ------------ ------------ ------------
Gross profit............ -- 7,029,105 7,029,105 -- 7,029,105
Operating expenses:
Research and development... 1,106,631 986,265 2,092,896 2,092,896
General and
administrative.......... 397,523 1,653,197 2,050,720 2,050,720
Sales, marketing and
distribution............ 46,262 1,692,881 1,739,143 1,739,143
Amortization of goodwill... -- -- -- 1,420,000(d) 1,420,000
----------- ------------ ------------ ------------ ------------
Total operating
expenses......... 1,550,416 4,332,343 5,882,759 1,420,000 7,302,759
----------- ------------ ------------ ------------ ------------
Operating income (loss)...... (1,550,416) 2,696,762 1,163,346 (1,420,000) (273,654)
Other income (expense):
Interest expense........... (54,809) (315,232) (370,041) (370,041)
Interest income............ 60,688 84 60,772 60,772
Other, net................. 30,790 -- 30,790 30,790
----------- ------------ ------------ ------------ ------------
36,669 (315,148) (278,479) -- (278,479)
Provision for income taxes... -- 950,000 950,000 (950,000)(e) --
----------- ------------ ------------ ------------ ------------
Net earnings
(loss)........... $(1,513,747) $ 1,431,614 $ (82,133) $ (470,000) $ (552,133)
=========== ============ ============ ============ ============
Pro forma net loss per
share...................... $ (0.36) $ (0.05)
=========== ============
Shares used in computing pro
forma net loss per share... 4,190,511 10,844,082
=========== ============
</TABLE>
See accompanying notes to pro forma financial statements.
F-3
<PAGE> 73
UROQUEST MEDICAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
PRO FORMA STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
COMBINED PRO FORMA
UROQUEST BIVONA COMPANIES ADJUSTMENTS PRO FORMA
---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Net sales....................... $ -- $3,796,943 $3,796,943 $ -- $3,796,943
Cost of sales................... -- 2,011,826 2,011,826 -- 2,011,826
---------- ---------- ---------- ---------- ----------
Gross profit............... -- 1,785,117 1,785,117 -- 1,785,117
Operating expenses:
Research and development...... 277,822 252,518 530,340 530,340
General and administrative.... 120,838 452,425 573,263 573,263
Sales, marketing and
distribution............... 47,572 375,872 423,444 423,444
Amortization of goodwill...... -- -- -- 355,000(d) 355,000
---------- ---------- ---------- ---------- ----------
Total operating
expenses............ 446,232 1,080,815 1,527,047 355,000 1,882,047
---------- ---------- ---------- ---------- ----------
Operating income (loss)......... (446,232) 704,302 258,070 (355,000) (96,930)
Other income (expense):
Interest expense.............. (11,700) (76,526) (88,226) (88,226)
Interest income............... 11,139 22 11,161 11,161
---------- ---------- ---------- ---------- ----------
(561) (76,504) (77,065) -- (77,065)
Provision for income taxes...... -- 250,000 250,000 (250,000)(e) --
---------- ---------- ---------- ---------- ----------
Net earnings (loss)... $ (446,793) $ 377,798 $ (68,995) $ (105,000) $ (173,995)
========== ========== ========== ========== ==========
Pro forma net loss per share.... $ (0.10) $ (0.02)
========== ==========
Shares used in computing pro
forma net loss per share...... 4,545,186 11,198,757
========== ==========
</TABLE>
See accompanying notes to pro forma financial statements.
F-4
<PAGE> 74
UROQUEST MEDICAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
PRO FORMA BALANCE SHEET
MARCH 31, 1996
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
COMBINED PRO FORMA SUPPLEMENTAL AS
UROQUEST BIVONA COMPANIES ADJUSTMENTS PRO FORMA ADJUSTMENTS ADJUSTED
---------- ---------- ---------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash
equivalents............ $ 753,228 $ 5,907 $ 759,135 $ 5,000,000(c) $ 5,759,135 $ 36,886,000(f) $32,255,135
(10,000,000)(f)
(390,000)(f)
Accounts receivable...... -- 2,767,650 2,767,650 2,767,650 2,767,650
Inventories.............. 11,662 2,569,245 2,580,907 2,580,907 2,580,907
Prepaid expenses and
other current assets... 12,111 145,899 158,010 158,010 158,010
Deferred income taxes.... -- 105,000 105,000 105,000 105,000
---------- ---------- ---------- ------------ ----------- ------------ -----------
Total current
assets........... 777,001 5,593,701 6,370,702 5,000,000 11,370,702 28,496,000 37,866,702
---------- ---------- ---------- ------------ ----------- ------------ -----------
Property and equipment,
net...................... 173,699 2,071,252 2,244,951 2,244,951 2,244,951
Patents and trademarks,
net...................... 408,643 34,865 443,508 443,508 443,508
Deposits and other......... -- 132,596 132,596 132,596 132,596
Pro forma goodwill......... -- -- -- 28,442,515(a) 28,442,515 28,442,515
Deferred income taxes...... -- 253,000 253,000 253,000 253,000
---------- ---------- ---------- ------------ ----------- ------------ -----------
Total assets....... $1,359,343 $8,085,414 $9,444,757 $ 33,442,515 $42,887,272 $ 26,496,000 $69,383,272
========== ========== ========== ============ =========== ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......... $ 200,527 $ 489,735 $ 690,262 $ $ 690,262 $ $ 690,262
Accrued expenses......... 93,595 471,188 564,783 564,783 564,783
Notes payable under line
of credit.............. -- 480,000 480,000 480,000 480,000
Secured promissory
notes.................. 390,000 -- 390,000 390,000 (390,000)(f) --
Current portion of
long-term debt......... -- 408,435 408,435 408,435 408,435
Income taxes payable..... -- 42,813 42,813 42,813 42,813
Cash consideration
payable to BMT
shareholders........... -- -- -- 10,000,000(a) 10,000,000 (10,000,000)(f) --
---------- ---------- ---------- ------------ ----------- ------------ -----------
Total current
liabilities...... 684,122 1,892,171 2,576,293 10.000,000 12,576,293 (10,390,000) 2,186,293
---------- ---------- ---------- ------------ ----------- ------------ -----------
Long-term debt............. -- 2,135,758 2,135,758 2,135,758 2,135,758
Shareholders' equity:
Preferred stock.......... 1,253 -- 1,253 (1,253)(b) -- --
Voting common stock...... 2,999 796,500 799,499 (791,657)(a,b,c) 7,842 3,350(f ) 11,192
Non-voting common
stock.................. 286 -- 286 (286)(b) -- --
Additional paid-in
capital................ 4,433,140 7,800 4,440,940 27,488,896(a,c) 31,929,836 36,882,650(f) 68,812,486
Deferred compensation.... (270,066) -- (270,066) (270,066) (270,066)
Retained earnings
(deficit accumulated
during development
stage)................. (3,492,391) 3,655,505 163,114 (3,655,505)(a) (3,492,391) (3,492,391)
Less common stock in
treasury at cost....... -- (402,320) (402,320) 402,320(a) -- --
---------- ---------- ---------- ------------ ----------- ------------ -----------
Total shareholders'
equity........... 675,221 4,057,485 4,732,706 23,442,515 28,175,221 36,886,000 65,061,221
---------- ---------- ---------- ------------ ----------- ------------ -----------
Total liabilities
and shareholders'
equity........... $1,359,343 $8,085,414 $9,444,757 $ 33,442,515 $42,887,272 $ 26,496,000 $69,383,272
========== ========== ========== ============ =========== ============ ===========
</TABLE>
See accompanying notes to pro forma financial statements.
F-5
<PAGE> 75
UROQUEST MEDICAL CORPORATION
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
The adjustments to arrive at the unaudited pro forma financial statements
are as follows:
(a) Recognition of $10 million cash payment and issuance of 1,875,000
shares of common stock (1,875,000 shares based upon the assumed offering
price of $12.00 per share) to BMT shareholders in exchange for all of BMT's
outstanding common stock. Treasury stock of BMT in the amount of $402,320
was canceled in the transaction. Goodwill in the amount of $28,442,515
($32.5 million purchase price less net assets acquired of $4,057,485) is
recorded in this transaction. The acquisition has been accounted for as a
purchase.
(b) Conversion of series A, B, C, and D preferred stock and non-voting
common stock into common stock of Uroquest Medical Corporation.
(c) Receipt of $5 million cash in connection with the issuance of a
total of 1,428,571 shares of common stock upon exercise of warrants by
certain of the Company's stockholders.
(d) Amortization of the goodwill recognized in the purchase of BMT as
if the amortization had commenced January 1, 1995. Goodwill will be
amortized over a twenty year period.
(e) Elimination of BMT's provision for income taxes due to offsets
from Uroquest Medical Corporation's net loss from operations assuming the
transaction had been consummated as of January 1, 1995.
(f) Receipt of the proceeds from issuance of 3,350,000 shares of
common stock (assuming an offering price of $12.00 per share) less
underwriting discounts and commissions, and estimated offering expenses.
Proceeds from the offering were used to pay the $10 million cash to BMT
stockholders as described in (a) above and to pay off $390,000 in secured
promissory notes.
Listed below is a reconciliation of common stock, additional paid in
capital, retained earnings (deficit accumulated in development stage) and
treasury stock to recognize the transaction described above:
<TABLE>
<CAPTION>
RETAINED EARNINGS
(DEFICIT
ACCUMULATED
ADDITIONAL DURING
PREFERRED COMMON PAID-IN DEVELOPMENT TREASURY
STOCK STOCK CAPITAL STAGE) STOCK
--------- -------- ---------- ----------------- --------
<S> <C> <C> <C> <C> <C>
Combined Companies............................ $ 1,253 799,499 4,440,940 163,114 (402,320)
Adjustments:
Exercise of 1,428,571 warrants @ $0.001
par....................................... -- 1,429 4,998,571 -- --
Offering of 3,350,000 shares @ $0.001 par... -- 3,350 36,882,650 -- --
Purchase of BMT equity:
Issuance of Uroquest common stock......... -- 1,875 22,498,125 -- --
Elimination of BMT equity in
consolidation........................... -- (796,500) (7,800) (3,655,505) 402,320
Conversion of preferred stock to common..... (1,253) 1,539 -- -- --
------- -------- ---------- ---------- --------
-- 11,192 68,812,486 (3,492,391) --
======= ======== ========== ========== ========
</TABLE>
(g) The weighted average shares outstanding used to calculate pro
forma loss per share is based on the estimated average number of shares of
common stock outstanding during the period calculated as follows:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1995 MARCH 31, 1996
----------------- --------------
<S> <C> <C>
Weighted average shares of UroQuest......... 4,190,511 4,545,186
Shares issued to the stockholders of BMT.... 1,875,000 1,875,000
Shares issued upon exercise of warrants..... 1,428,571 1,428,571
Shares issued in the Offering............... 3,350,000 3,350,000
----------
10,844,082 11,198,757
==========
</TABLE>
Intercompany sales are immaterial and therefore have not been
eliminated on the pro forma financial statements.
F-6
<PAGE> 76
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
UroQuest Medical Corporation:
We have audited the accompanying consolidated balance sheets of UroQuest
Medical Corporation and subsidiary (a development stage company) as of December
31, 1994 and 1995 and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the years in the three year
period ended December 31, 1995, and for the period April 8, 1992 (inception) to
December 31, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of UroQuest
Medical Corporation and subsidiary (a development stage company) as of December
31, 1994 and 1995 and the results of their operations and their cash flows for
each of the years in the three year period ended December 31, 1995, and for the
period April 8, 1992 (inception) to December 31, 1995, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Salt Lake City, Utah
March 20, 1996, except as to
Note 10 which is as of
June 28, 1996
F-7
<PAGE> 77
UROQUEST MEDICAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
DECEMBER 31, -----------
--------------------------- 1996
1994 1995 -----------
----------- ----------- (UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 564,097 $ 1,113,594 $ 753,228
Inventories.............................................. -- 9,590 11,662
Prepaid expenses and other current assets................ 2,090 14,311 12,111
----------- ----------- -----------
Total current assets.............................. 566,187 1,137,495 777,001
----------- ----------- -----------
Property and equipment, net (note 2)....................... 67,603 142,321 173,699
Patents and trademarks, net (notes 3 and 7)................ 571,483 441,211 408,643
----------- ----------- -----------
Total assets...................................... $ 1,205,273 $ 1,721,027 $ 1,359,343
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................... $ 84,125 $ 200,416 $ 200,527
Accrued expenses......................................... 54,935 83,485 93,595
Notes payable............................................ 70,000 -- --
Secured promissory notes (note 3)........................ -- 390,000 390,000
Amounts payable to related parties....................... 31,404 -- --
----------- ----------- -----------
Total current liabilities......................... 240,464 673,901 684,122
----------- ----------- -----------
Long-term liabilities:
Secured promissory notes (note 3)........................ 390,000 -- --
Note payable -- related party (note 7)................... 162,188 -- --
----------- ----------- -----------
552,188 -- --
----------- ----------- -----------
Commitments and contingencies (notes 3 and 9)
Stockholders' equity: (notes 4 and 10):
Convertible preferred stock, $.001 par value:
Series D: 8,000,000 shares authorized, 628,571 shares
issued and outstanding (liquidation preference
$2,200,000).......................................... -- 629 629
Series A: 316,667 shares authorized, 90,476 shares
issued and outstanding (liquidation preference
$190,000)............................................ 90 90 90
Series B: 955,494 shares authorized; 272,998 shares
issued and outstanding (liquidation preference
$687,956)............................................ 273 273 273
Series C: 1,009,107 shares authorized; 250,571, 260,571
and 260,571 shares issued and outstanding at December
31, 1994 and 1995 and March 31, 1996 respectively
(liquidation preference $912,000).................... 251 261 261
Voting common stock, $.001 par value; 30,000,000 shares
authorized; 2,816,654, 2,947,368 and 2,998,874 shares
issued and outstanding as of December 31, 1994 and
1995 and March 31, 1996, respectively................ 2,862 2,947 2,999
Non-voting common stock, $.001 par value; 1,000,000
shares authorized; 285,714 shares issued and
outstanding.......................................... 286 286 286
Additional paid-in capital............................. 1,940,710 4,088,238 4,433,140
Deferred compensation.................................. -- -- (270,066)
Deficit accumulated during development stage........... (1,531,851) (3,045,598) (3,492,391)
----------- ----------- -----------
Total stockholders' equity........................ 412,621 1,047,126 675,221
----------- ----------- -----------
Total liabilities and stockholders' equity................. $ 1,205,273 $ 1,721,027 $ 1,359,343
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 78
UROQUEST MEDICAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
CUMULATIVE CUMULATIVE
FROM FROM
APRIL 8, 1992 THREE MONTHS ENDED APRIL 8, 1992
YEAR ENDED DECEMBER 31, (INCEPTION) TO MARCH 31, (INCEPTION) TO
--------------------------------------- DECEMBER 31, ---------------------- MARCH 31,
1993 1994 1995 1995 1995 1996 1996
--------- ----------- ----------- -------------- --------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Net sales................. $ 979 $ 2,801 $ -- $ 3,780 $ -- $ -- $ 3,780
Cost of sales............. 832 2,381 -- 3,213 -- -- 3,213
--------- ----------- ----------- ----------- ----------- --------- ---------
Gross profit.......... 147 420 -- 567 -- -- 567
--------- ----------- ----------- ----------- ----------- --------- ---------
Operating expenses:
Research and
development........... 120,531 431,295 1,106,631 1,658,457 193,700 277,822 1,936,279
General and
administrative........ 156,647 483,399 397,523 1,048,803 77,548 120,838 1,169,641
Sales and marketing..... 38,392 30,257 46,262 114,911 3,523 47,572 162,483
--------- ----------- ----------- ----------- ----------- --------- ---------
Total operating
expenses........ 315,570 944,951 1,550,416 2,822,171 274,771 446,232 3,268,403
--------- ----------- ----------- ----------- ----------- --------- ---------
Operating loss............ (315,423) (944,531) (1,550,416) (2,821,604) (274,771) (446,232) (3,267,836)
Other income (expense):
Interest expense........ -- (29,939) (54,809) (84,748) (13,770) (11,700) (96,448)
Interest income......... -- 4,284 60,688 64,972 5,874 11,139 76,111
Other, net (note 7)..... -- (235,008) 30,790 (204,218) (14) -- (204,218)
--------- ----------- ----------- ----------- ----------- --------- ---------
-- (260,663) 36,669 (223,994) (7,910) (561) (224,555)
Provision for income taxes
(note 6)................ -- -- -- -- -- -- --
--------- ----------- ----------- ----------- ----------- --------- ---------
Net loss.............. $(315,423) $(1,205,194) $(1,513,747) $ (3,045,598) $(282,681) $(446,793) $ (3,492,391)
========= =========== =========== =========== =========== ========= =========
Pro forma net loss per
share................... $ (0.36) $ (0.10)
=========== =========
Shares used in computing
pro forma net loss per
share................... 4,190,511 4,545,186
=========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE> 79
UROQUEST MEDICAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
PERIOD FROM APRIL 8, 1992 (INCEPTION) TO DECEMBER 31, 1995
AND FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
SERIES PREFERRED STOCK VOTING NON-VOTING ADDITIONAL DURING TOTAL
------------------------- COMMON COMMON PAID-IN DEFERRED DEVELOPMENT STOCKHOLDERS'
D A B C STOCK STOCK CAPITAL COMPENSATION STAGE EQUITY
---- --- --- --- ------ ---------- ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, April
8, 1992
(inception)... $ -- -- -- -- -- -- -- -- -- --
Issuance of
1,428,571
shares of
Common Stock
for patents
and trademarks
(note 7)...... -- -- -- -- 1,286 143 3,571 -- -- 5,000
Net loss........ -- -- -- -- -- -- -- -- (11,234 ) (11,234)
--
---- --- --- ----- --- --------- -------- ---------- ----------
Balance,
December 31,
1992.......... -- -- -- -- 1,286 143 3,571 -- (11,234 ) (6,234)
--
---- --- --- ----- --- --------- -------- ---------- ----------
Issuance of
90,476 shares
of Series A
Preferred
Stock for
cash, net of
issuance costs
of $2,784..... -- 90 -- -- -- -- 187,127 -- -- 187,217
Issuance of
285,714 shares
of Common
Stock for
cash.......... -- -- -- -- 286 -- 199,714 -- -- 200,000
Net loss........ -- -- -- -- -- -- -- -- (315,423 ) (315,423)
--
---- --- --- ----- --- --------- -------- ---------- ----------
Balance,
December 31,
1993.......... -- 90 -- -- 1,571 143 390,413 -- (326,657 ) 65,560
--
---- --- --- ----- --- --------- -------- ---------- ----------
Issuance of
1,428,571
shares of
Common Stock
for
acquisition of
subsidiary
(note 7)...... -- -- -- -- 1,286 143 3,571 -- -- 5,000
Issuance of 143
shares of
Common Stock
for cash...... -- -- -- -- -- -- 100 -- -- 100
Issuance of
272,998 shares
of Series B
Preferred
Stock for
cash, net of
issuance costs
of $3,542..... -- -- 273 -- -- -- 684,141 -- -- 684,414
Issuance of
4,511 shares
of Common
Stock for
consulting
services...... -- -- -- -- 5 -- 11,362 -- -- 11,367
Issuance of
189,428 shares
of Series C
Preferred
Stock for
cash, net of
issuance costs
of $25,626.... -- -- -- 190 -- -- 637,184 -- -- 637,374
Issuance of
61,143 shares
of Series C
Preferred
Stock, in
exchange for
notes
payable....... -- -- -- 61 -- -- 213,939 -- -- 214,000
Net loss........ -- -- -- -- -- -- -- -- (1,205,194 ) (1,205,194)
--
---- --- --- ----- --- --------- -------- ---------- ----------
Balance,
December 31,
1994.......... -- 90 273 251 2,862 286 1,940,710 -- (1,531,851 ) 412,621
--
---- --- --- ----- --- --------- -------- ---------- ----------
Issuance of
628,571 shares
of Series D
Preferred
Stock for
cash, net of
issuance costs
of $87,048.... 629 -- -- -- -- -- 2,112,323 -- -- 2,112,952
Issuance of
10,000 shares
of Series C
Preferred
Stock, in
exchange for
notes
payable....... -- -- -- 10 -- -- 34,990 -- -- 35,000
Issuance of
85,714 shares
of Common
Stock for
cash, upon
exercise of
stock
options....... -- -- -- -- 85 -- 215 -- -- 300
Net loss........ -- -- -- -- -- -- -- -- (1,513,747 ) (1,513,747)
--
---- --- --- ----- --- --------- -------- ---------- ----------
Balance,
December 31,
1995.......... $629 90 273 261 2,947 286 4,088,238 -- (3,045,598 ) 1,047,126
--
---- --- --- ----- --- --------- -------- ---------- ----------
Issuance of
51,363 shares
of Common
Stock for
cash, upon
exercise of
stock options
(unaudited)... -- -- -- -- 52 -- 35,902 -- -- 35,954
Deferred
compensation
related to
grant of stock
options
(unaudited)... -- -- -- -- -- -- 309,000 (309,000) -- --
Amortization for
deferred
compensation
(unaudited)... -- -- -- -- -- -- -- 38,934 -- 38,934
Net loss
(unaudited)... -- -- -- -- -- -- -- -- (446,793 ) (446,793)
--
---- --- --- ----- --- --------- -------- ---------- ----------
Balance, March
31, 1996
(unaudited)... $629 90 273 261 2,999 286 4,433,140 (270,066) (3,492,391 ) 675,221
==== == === === ===== === ========= ======== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE> 80
UROQUEST MEDICAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
CUMULATIVE CUMULATIVE
FROM FROM
APRIL 8, 1992 THREE MONTHS ENDED APRIL 8, 1992
YEAR ENDED DECEMBER 31, (INCEPTION) TO MARCH 31, (INCEPTION) TO
------------------------------------- DECEMBER 31, ---------------------- MARCH 31,
1993 1994 1995 1995 1995 1996 1996
--------- ----------- ----------- -------------- --------- ---------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss....................... $(315,423) $(1,205,194) $(1,513,747) $ (3,045,598) $(282,681) $ (446,793) $ (3,492,391)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and
amortization................. 5,269 58,244 139,022 206,373 33,966 74,620 280,993
Issuance of Common Stock in
exchange for consulting
services..................... -- 11,367 -- 11,367 -- -- 11,367
Provisions for loss on notes
receivable -- 235,008 614 235,622 14 -- 235,622
Changes in operating assets and
liabilities:
Inventories.................. -- -- (9,590) (9,590) -- (2,072) (11,662)
Prepaid expenses and other
current assets............. (1,590) -- (12,221) (14,311) -- 2,200 (12,111)
Accounts payable............. 58,117 26,008 116,291 200,416 18,837 111 200,527
Amounts payable to related
parties.................... 59,104 (66,500) (31,404) -- -- -- --
Accrued expenses............. -- 54,935 28,550 83,485 9,720 10,110 93,595
--------- ----------- ----------- ----------- --------- ---------- -----------
Net cash used in operating
activities............... (194,523) (886,132) (1,282,485) (2,332,236) (220,144) (361,824) (2,694,060)
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of property and
equipment.................. (5,272) (159,819) (83,468) (279,463) (5,809) (34,496) (313,959)
Purchases of patents and
trademarks................. -- (400,000) -- (400,000) -- -- (400,000)
Cash
advances -- affiliates..... -- (92,290) (614) (92,904) (14) -- (92,904)
--------- ----------- ----------- ----------- --------- ---------- -----------
Net cash used in investing
activities............... (5,272) (652,109) (84,082) (772,367) (5,823) (34,496) (806,863)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of:
Stock...................... 387,217 1,321,888 2,113,252 3,822,357 -- 35,954 3,858,311
Notes...................... -- 674,000 -- 674,000 -- -- 674,000
Repayment of Notes........... -- (80,972) (197,188) (278,160) (66,355) -- (278,160)
--------- ----------- ----------- ----------- --------- ---------- -----------
Net cash provided by (used
in) financing
activities............... 387,217 1,914,916 1,916,064 4,218,197 (66,355) 35,954 4,254,151
--------- ----------- ----------- ----------- --------- ---------- -----------
Net increase in cash and cash
equivalents.................. 187,422 376,675 549,497 -- (292,322) (360,366) 753,228
Cash and cash equivalents at
beginning of period.......... -- 187,422 564,097 1,113,594 564,097 1,113,594 --
--------- ----------- ----------- ----------- --------- ---------- -----------
Cash and cash equivalents at
end of period................ $ 187,422 $ 564,097 $ 1,113,594 $ 1,113,594 $ 271,775 $ 753,228 $ 753,228
========= =========== =========== =========== ========= ========== ===========
Supplemental disclosures of
cash flow information:
Cash paid for interest....... $ -- $ 20,899 $ 63,849 $ 84,748 $ 11,700 $ 11,700 $ 96,448
Supplemental disclosure of
non-cash investing and
financing activities:
Conversion of notes payable
to preferred stock......... -- 214,000 35,000 249,000 -- -- 249,000
Issuance of note payable, net
of discount, for patents
and trademarks............. -- 243,160 -- 243,160 -- -- 243,160
Common stock issued for
patents and trademarks..... -- -- -- 5,000 -- -- 5,000
Common stock issued for
common stock of
subsidiary................. -- 5,000 -- 5,000 -- -- 5,000
Notes received in exchange
for patents and
trademarks................. -- 30,000 -- 30,000 -- -- 30,000
Note received in exchange for
fixed assets............... -- 112,718 -- 112,718 -- -- 112,718
</TABLE>
See accompanying notes to consolidated financial statements.
F-11
<PAGE> 81
UROQUEST MEDICAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
The Company was incorporated in the state of Florida on April 8, 1992, and
commenced operations for the purpose of designing, developing, and marketing
disposable urological catheters and other urological devices. The Company is
considered a development stage company under the guidelines of Statement of
Financial Accounting Standards No. 7. The Company has had limited operating
revenues as its activities have focused on product development and raising
capital. The accumulated deficit from inception through December 31, 1995, was
$3,045,598.
Principles of Consolidation
The consolidated financial statements include the assets and liabilities of
UroQuest's wholly owned subsidiary -- UroCath Corporation. All significant
intercompany transactions have been eliminated in consolidation.
Cash and Cash Equivalents
Cash equivalents of $564,097 and $1,084,375 at December 31, 1994 and 1995,
respectively, consist of liquid money market funds. For the purposes of the
statements of cash flows, the Company considers all investments with original
maturities of three months or less to be cash equivalents.
Fair Value Disclosure
At December 31, 1994 and 1995 the book value of the Company's financial
instruments approximates fair value.
Inventories
Inventories are comprised of finished goods that are stated at the lower of
cost or market, using the average cost method.
Property and Equipment
Property and equipment is recorded at cost. Depreciation is calculated on a
straight-line basis over the estimated useful lives of the assets, which range
from 3 to 10 years. Manufacturing tooling equipment has not been depreciated as
production has not yet begun.
Patents and trademarks
Patents and trademarks have been recorded at historical cost. Patents and
trademarks are amortized using the straight line method over their remaining
lives, not to exceed five years. Patents include male and female urological
catheters and a urinary diagnostic test system, both acquired from the founder
of the Company. Accumulated amortization as of December 31, 1995 was $181,949.
Management evaluates the recoverability of these net assets on a periodic basis
based on the projected cash flows from estimated future sales.
Income Taxes
The Company accounts for income taxes using the asset and liability method.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences
F-12
<PAGE> 82
UROQUEST MEDICAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases, operating loss,
and tax credit carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
Discounts
Discounts recorded on non-interest bearing notes payable are amortized
using the effective interest method over the life of the related note.
Estimates
The preparation of financial statements in accordance 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 those estimates.
Pro Forma Net Loss Per Share
Pro forma net loss per share amounts are based on the weighted average
number of common shares and common share equivalents (if dilutive) resulting
from options and warrants outstanding during the periods, after giving
retroactive effect to the common stock reverse stock split and the conversion of
preferred shares into common shares at their respective issuance dates as
discussed in notes 4 and 10.
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 83, common stock and common stock options issued for consideration below the
assumed initial public offering price of $12.00 per share during the
twelve-month period prior to the date of the filing of the Registration
Statement, even when antidilutive, have been included in the calculation of
common share equivalents, using the treasury stock method, as if they were
outstanding for all periods presented.
Interim Financial Information
The accompanying interim financial statements for the three month periods
ended March 31, 1995 and 1996 are unaudited, but in the opinion of management
reflect all adjustments necessary for a fair presentation of the results of such
periods. The results of operations for any interim period are not necessarily
indicative of results for the respective full year.
Research and Development Costs
Research and development costs are expensed as incurred.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1994 1995
--------- ---------
<S> <C> <C>
Manufacturing tooling...................................... 45,174 109,370
Office furniture and equipment............................. 38,102 57,374
------- -------
Total............................................ 83,276 166,744
Less accumulated depreciation.............................. (15,673) (24,423)
------- -------
Property and equipment, net................................ 67,603 142,321
======= =======
</TABLE>
F-13
<PAGE> 83
UROQUEST MEDICAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SECURED PROMISSORY NOTES
In December 1994, the Company issued 12% Secured Promissory Notes
("Notes"), totaling $390,000 all of which are to stockholders of the Company.
The Notes are secured by an interest in certain patents and are due December 31,
1996. Interest is payable quarterly and the Notes are callable by the Company at
any time. Note holders receive .2857 of a warrant to purchase Series C Preferred
Shares at $3.50 per share for each dollar of interest earned and are entitled to
receive a 5% royalty on sales of UroQuest's products utilizing certain
technology through December 31, 1996.
4. CONVERTIBLE PREFERRED STOCK
During the period from June 15, 1993 to November 15, 1993 the Company
issued 90,476 shares of Series A Convertible Preferred Stock (Series A Preferred
Shares) for $2.10 per share. During the period from February 12, 1994 to April
15, 1994, the Company issued 272,998 shares of Series B Convertible Preferred
Stock (Series B Preferred Shares) for $2.52 per share. During the period from
October 7, 1994 through June 15, 1995 the Company issued 260,571 shares of
Series C Convertible Preferred Stock (Series C Preferred Shares) for $3.50 per
share. On June 15, 1995 the Company issued 628,571 shares of Series D
Convertible Preferred Stock (Series D Preferred Shares) for $3.50 per share and
1,428,571 warrants to purchase Series D Preferred Shares for $3.50 per share.
Preferred Shares are convertible into common shares at the option of the
holder. Each Preferred Share shall automatically convert into one common share
if the Company obtains a firm underwriting commitment for a public offering. The
conversion rate will be adjusted for stock dividends, stock splits, and other
dilutive events. The Preferred stockholders are entitled to one vote for each
common share equivalent. Shares automatically convert in the event of sale of
all or substantially all of the assets or stock of the Company.
Preferred stockholders are entitled to a liquidation preference over common
shareholders of $2.10, $2.52, $3.50, and $3.50 per share, for Series A, B, C and
D, respectively, together with any declared but unpaid dividends. Series D
Preferred Shares have liquidation preference over all other classes of stock. If
any assets remain after payment of the liquidation preferences to the holders of
the Preferred Stock, the holders of the Preferred Stock will share in
distribution of the remaining assets with the holders of Common Stock on a fully
diluted, as-converted basis.
5. STOCK OPTIONS AND WARRANTS
The Company has a stock option plan (the "1994 Stock Option Plan") whereby
it has reserved 1,428,571 shares of its common stock for issuance to Company
employees, directors and consultants. Options granted under this Plan may be
either incentive stock options or non-qualified stock options. The exercise
price of these options shall not be less than the fair market value at the date
of the grant. Options under this Plan must be granted by March 31, 2004. Options
granted must be exercised within ten years of the grant date. At December 31,
1995 outstanding stock options and warrants to purchase shares of the Company's
stock were as follows:
F-14
<PAGE> 84
UROQUEST MEDICAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
EXPIRATION NUMBER AGGREGATE
DATES OF SHARES EXERCISE PRICE
------------------- --------- --------------
<S> <C> <C> <C>
June 6, 2004 to
Voting Common September 26,
Stock Options............. 2005............... 1,115,606 $ 751,071
Series D Convertible
Preferred Stock
Warrants.................. June 15, 1997 1,428,571 5,000,000
Series C Convertible
Preferred Stock
Warrants.................. December 31, 1999 14,250 49,876
</TABLE>
No options were granted, exercised or canceled in 1993. Information
relating to stock options granted, exercised, and canceled for the years ended
December 31, 1994 and 1995 is as follows:
<TABLE>
<CAPTION>
SHARES PRICE RANGE
--------- ------------
<S> <C> <C>
Balance, December 31, 1993............... -- --
Granted................................ 1,232,528 $.0035 - .70
--------- ---------
Balance, December 31, 1994............... 1,232,528 .0035 - .70
--------- ---------
Granted................................ 47,143 .70
Canceled............................... (78,351) .70
Exercised.............................. (85,714) .0035
--------- ---------
Balance, December 31, 1995............... 1,115,606 $.0035 - .70
========= =========
</TABLE>
Of the 1,115,606 options outstanding, 377,043 are exercisable at December
31, 1995 at a weighted average price of $.63 per share.
For financial statement presentation purposes, the Company has recorded as
deferred compensation expense the excess of the deemed value of the common stock
at the date of grant over the exercise price. The compensation expense will be
amortized ratably over the vesting period of the options and warrants and will
aggregate a maximum of $309,000. Amortization expense for the three months ended
March 31, 1996 was $38,934.
6. INCOME TAXES
There was no Federal income tax expense in 1993, 1994, and 1995 due to net
operating losses. The difference between the expected tax benefit and actual tax
benefit is primarily attributable to the effect of these net operating losses
being offset by an increase in the Company's valuation allowance.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets at December 31, 1993, 1994, and 1995 are
presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1993 1994 1995
--------- -------- ----------
<S> <C> <C> <C>
Start up and organization costs....... $ 76,940 268,534 434,065
Net operating loss carryforwards...... 44,903 215,189 614,285
Allowance for bad debts............... -- 87,657 87,657
--------- -------- ----------
Total....................... 121,843 571,380 1,136,007
Less valuation allowance.............. (121,843) (571,380) (1,136,007)
--------- -------- ----------
Net deferred tax assets............... $ -- -- --
========= ======== ==========
</TABLE>
The net change in the total valuation allowance for the years ended
December 31, 1993, 1994, and 1995 was an increase of approximately $117,653,
$449,537 and $564,627, respectively. Subsequently
F-15
<PAGE> 85
UROQUEST MEDICAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
recognized tax benefits relating to the valuation allowance for deferred tax
assets will be recognized as an income tax benefit to be reported in the
statement of operations.
At December 31, 1995 the Company had total tax net operating losses of
approximately $1,600,000 that can be carried forward to reduce federal income
taxes. If not utilized, the tax loss carryforwards expire beginning in 2007.
Under the rules of the Tax Reform Act of 1986, the Company has undergone a
greater that 50% change of ownership. Consequently, a certain amount of the
Company's net operating loss carryforward available to offset future taxable
income in any one year may be limited. The maximum amount of carryforwards
available in a given year is limited to the product of the Company's value on
the date of ownership change and the federal long-term tax-exempt rate, plus any
limited carryforwards not utilized in prior years.
7. RELATED PARTY TRANSACTIONS
Upon organization of the Company, patents and trademarks were acquired from
the founder of the Company for which 1,285,714 shares of voting common stock and
142,857 shares of non-voting common stock were issued as consideration and
nominally valued at $5,000.
In January 1994 the Company issued 1,285,714 shares of voting common stock
and 142,857 shares of non-voting common stock to the founder of the Company in
consideration for all of the outstanding equity of UroCath Corporation. The
acquisition of UroCath was accounted for as a combining of entities under common
control. Accordingly, the assets were recorded at their historical cost. Due to
the immateriality of the assets acquired and no significant previous operations,
comparative prior years' financial statements have not been retroactively
restated.
During 1994 the Company acquired patents and trademarks totaling $250,000
from Excalibur Engineering Corporation for which UroQuest issued a $250,000
non-interest bearing note. Excalibur is controlled by the founder of the
Company. As the note was non-interest bearing, the Company recorded the note net
of a $6,840 discount calculated at 8% over the expected term of the note. At
December 31, 1994 the unamortized portion of the discount was $4,017. As of
December 31, 1995, the note was paid in full and the discount completely
amortized.
In 1994, nonaffiliated corporations were formed by certain stockholders of
the Company. Cash and other non-core business assets of the Company totaling
$235,008 were transferred to those corporations in exchange for 8% promissory
notes. The notes are payable on demand. In 1994, a valuation allowance was
established to account for possible non-collection of the notes.
8. ACCOUNTING STANDARDS ISSUED NOT YET ADOPTED
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, Accounting for Stock Based
Compensation (FASB 123). The Company is required to adopt the provisions of this
statement in 1996. This statement encourages all entities to adopt a fair value
based method of accounting for employee stock options or similar equity
instruments. However, it also allows an entity to continue to measure
compensation cost for those plans using the intrinsic-value method of accounting
prescribed by APB opinion No. 25, Accounting for Stock Issued to Employees (APB
25). Entities electing to remain with the accounting in APB 25 must make pro
forma disclosures of net income and earnings per share as if the fair value
based method of accounting defined in this statement had been applied. It is
currently anticipated that the Company will continue to
F-16
<PAGE> 86
UROQUEST MEDICAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
account for employee stock options or similar equity instruments in accordance
with APB 25 and provide the disclosures required by FASB 123.
9. LEASE OBLIGATIONS AND COMMITMENTS
The Company leases office space and certain equipment under operating
leases that expire over a period of three to five years. Minimum future
obligations under noncancelable operating leases as of December 31, 1995 are as
follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
-------------------------------------------------- --------
<S> <C>
1996.............................................. $ 43,402
1997.............................................. 43,402
1998.............................................. 41,273
1999.............................................. 37,017
2000.............................................. 24,678
--------
Total............................................. $189,772
========
</TABLE>
Total rent expense for operating leases in 1993, 1994, and 1995 was
approximately $10,600, $23,300 and $36,200, respectively.
10. SUBSEQUENT EVENTS AND PRO FORMA CAPITAL AMOUNTS
The following events occurred in June, 1996:
The Board of Directors approved a 1-for-3.5 reverse stock split of the
Company's common stock. The number of common shares and per share amounts
presented in the accompanying financial statements have been restated for
the effects of this reverse split.
The Board of Directors authorized the filing of a registration
statement with the Securities and Exchange Commission permitting the
Company to sell shares of its common stock to the public.
The Company entered into a definitive agreement and plan of merger to
acquire all of the issued and outstanding common stock of BMT, Inc. which
is to occur concurrently with completion of the contemplated offering of
shares of the Company's common stock to the public. In the acquisition,
shareholders of BMT, Inc. will receive, in the aggregate, a combination of
$10 million cash and newly issued shares of common stock equal in value to
$22.5 million. Based on an assumed initial public offering price of $12.00
per share, an aggregate of 1,875,000 shares of common stock will be issued
pursuant to the acquisition. The acquisition will be accounted for under
the purchase method of accounting.
A significant stockholder of the Company provided a commitment to
finance the Company, if necessary, through August 1997.
Approximately $200,000 principal amount of the 8% promissory notes
described in Note 7 was converted into Common Stock of a corporation owned
by certain stockholders of the Company. After this conversion, the Company
held less than 10% of the outstanding stock of the corporation.
F-17
<PAGE> 87
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
BMT, Inc.
We have audited the accompanying consolidated balance sheets of BMT, Inc.
and its wholly-owned subsidiary, Bivona, Inc. as of December 31, 1994 and 1995,
and the related consolidated statements of earnings, stockholders' equity, and
cash flows for the three years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of BMT, Inc. and
its wholly-owned subsidiary, Bivona, Inc. as of December 31, 1994 and 1995, and
the consolidated results of their operations and their consolidated cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
GRANT THORNTON LLP
Chicago, Illinois
January 19, 1996, except for Note H
as to which the date is June 27, 1996
F-18
<PAGE> 88
BMT, INC. AND ITS WHOLLY-OWNED SUBSIDIARY, BIVONA, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1994 1995
---------- ---------- MARCH 31,
1996
-------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets
Cash....................................................... $ 21,526 $ 47,083 $ 5,907
Accounts receivable, net of allowance for doubtful accounts
of $100,000, $50,000 and $50,000 for 1994, 1995, and
1996, respectively...................................... 1,766,677 2,731,709 2,767,650
Inventories................................................ 2,459,821 2,658,918 2,569,245
Prepaid expenses and other................................. 112,492 44,319 145,899
Deferred income taxes...................................... 138,000 105,000 105,000
---------- ---------- ----------
Total current assets............................... 4,498,516 5,587,029 5,593,701
Property, plant and equipment
Land and building.......................................... 941,399 1,019,544 1,036,865
Machinery and equipment.................................... 1,177,002 1,583,613 1,596,664
Office furniture and equipment............................. 371,727 455,953 458,595
---------- ---------- ----------
2,490,128 3,059,110 3,092,124
Less accumulated depreciation.............................. 583,184 925,172 1,020,872
---------- ---------- ----------
Net property, plant and equipment.................. 1,906,944 2,133,938 2,071,252
Other assets
Patents, organization costs and trademarks, net of
accumulated amortization of $36,260, $54,575, and
$59,135 for 1994, 1995, and 1996, respectively.......... 42,740 39,425 34,865
Deposits and other......................................... -- 123,437 132,596
Deferred income taxes...................................... 504,000 307,000 253,000
---------- ---------- ----------
546,740 469,862 420,461
---------- ---------- ----------
Total assets....................................... $6,952,200 $8,190,829 $ 8,085,414
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable under line of credit......................... $ 10,000 $ 610,000 $ 480,000
Current portion of long-term debt.......................... 487,019 500,951 408,435
Accounts payable........................................... 440,823 369,469 489,735
Accrued expenses........................................... 319,980 389,305 471,188
Income taxes payable....................................... 212,000 252,813 42,813
---------- ---------- ----------
Total current liabilities.......................... 1,469,822 2,122,538 1,892,171
Long-term debt............................................... 2,831,985 2,385,884 2,135,758
Commitments.................................................. -- -- --
Stockholders' equity
Common stock, $1 par value; 1,000,000 shares authorized;
issued 796,500 shares................................... 796,500 796,500 796,500
Additional paid-in capital................................. 7,800 7,800 7,800
Retained earnings.......................................... 1,846,093 3,277,707 3,655,505
---------- ---------- ----------
2,650,393 4,082,007 4,459,805
Less common stock in treasury at cost, 120,000 and 120,500
shares for 1995 and 1996, respectively.................. -- (399,600) (402,320)
---------- ---------- ----------
Total stockholders' equity......................... 2,650,393 3,682,407 4,057,485
---------- ---------- ----------
Total liabilities and stockholders' equity......... $6,952,200 $8,190,829 $ 8,085,414
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-19
<PAGE> 89
BMT, INC. AND ITS WHOLLY-OWNED SUBSIDIARY, BIVONA, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
----------------------------------------- ------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales.................... $11,239,155 $11,728,409 $14,257,413 $3,512,858 $3,796,943
Cost of sales................ 6,351,651 6,668,026 7,228,308 1,746,736 2,011,826
----------- ----------- ----------- ---------- ----------
Gross profit....... 4,887,504 5,060,383 7,029,105 1,766,122 1,785,117
Operating expenses
General and
administrative.......... 1,080,971 1,151,485 1,653,197 441,050 452,425
Marketing and
distribution............ 1,581,302 1,607,404 1,692,881 425,040 375,872
Research and development... 531,395 586,319 986,265 218,626 252,518
----------- ----------- ----------- ---------- ----------
3,193,668 3,345,208 4,332,343 1,084,716 1,080,815
----------- ----------- ----------- ---------- ----------
Earnings from
operations....... 1,693,836 1,715,175 2,696,762 681,406 704,302
Other income (expense)
Interest income............ 740 69 84 23 22
Interest expense........... (344,586) (289,797) (315,232) (85,349) (76,526)
----------- ----------- ----------- ---------- ----------
(343,846) (289,728) (315,148) (85,326) (76,504)
----------- ----------- ----------- ---------- ----------
Earnings before
income taxes..... 1,349,990 1,425,447 2,381,614 596,080 627,798
Income taxes................. 540,000 572,500 950,000 234,000 250,000
----------- ----------- ----------- ---------- ----------
Net earnings....... $ 809,990 $ 852,947 $ 1,431,614 $ 362,080 $ 377,798
=========== =========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-20
<PAGE> 90
BMT, INC. AND ITS WHOLLY-OWNED SUBSIDIARY, BIVONA, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 1995 AND THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL COMMON TOTAL
COMMON PAID-IN RETAINED STOCK IN STOCKHOLDERS'
STOCK CAPITAL EARNINGS TREASURY EQUITY
-------- ---------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
Balance at January 1,
1993...................... $796,500 $ -- $ 183,156 $ -- $ 979,656
Net earnings................ -- -- 809,990 -- 809,990
-------- ------ ---------- --------- ----------
Balance at December 31,
1993...................... 796,500 -- 993,146 -- 1,789,646
Purchase of 13,000 common
shares.................... -- -- -- (16,250) (16,250)
Sale of 13,000 common shares
held in treasury.......... -- 7,800 -- 16,250 24,050
Net earnings................ -- -- 852,947 -- 852,947
-------- ------ ---------- --------- ----------
Balance at December 31,
1994...................... 796,500 7,800 1,846,093 -- 2,650,393
Purchase of 122,500 common
shares.................... -- -- -- (407,925) (407,925)
Sale of 2,500 common shares
held in treasury.......... -- -- -- 8,325 8,325
Net earnings................ -- -- 1,431,614 -- 1,431,614
-------- ------ ---------- --------- ----------
Balance at December 31,
1995...................... 796,500 7,800 3,277,707 (399,600) 3,682,407
Purchase of 500 common
shares (unaudited)........ -- -- -- (2,720) (2,720)
Net earnings (unaudited).... -- -- 377,798 -- 377,798
-------- ------ ---------- --------- ----------
Balance at March 31, 1996
(unaudited)............... $796,500 $7,800 $3,655,505 $(402,320) $ 4,057,485
======== ====== ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-21
<PAGE> 91
BMT, INC. AND ITS WHOLLY-OWNED SUBSIDIARY, BIVONA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
-------------------------------------- ----------------------
1993 1994 1995 1995 1996
--------- ----------- ---------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings.............................. $ 809,990 $ 852,947 $1,431,614 $ 362,080 $ 377,798
Adjustments to reconcile net earnings to
cash flows provided by operating
activities
Reduction of bad debt provision........ -- -- (50,000) -- --
Depreciation and amortization.......... 245,704 288,830 360,303 82,560 100,258
Deferred income taxes.................. 211,000 188,000 230,000 45,000 54,000
Changes in assets and liabilities:
(Increase) decrease in accounts
receivable........................ (500,474) 388,520 (915,032) (373,458) (46,187)
Increase in inventories.............. (123,098) (649,573) (199,097) (86,864) 89,673
(Increase) decrease in prepaid
expenses and other................ (19,401) (74,999) 68,173 (59,782) (100,495)
Increase in accounts payable......... (43,456) 289,798 (71,354) (106,036) 120,266
Increase (decrease) in accrued
expenses.......................... 45,127 (48,133) 69,325 100,232 81,886
Increase in income taxes payable..... (48,000) 227,000 40,813 (124,000) (210,000)
--------- ----------- ---------- --------- ---------
Total adjustments................. (232,598) 609,443 (466,869) (522,348) (129,064)
--------- ----------- ---------- --------- ---------
Net cash provided by operating
activities...................... 577,392 1,462,390 964,745 (160,268) 467,199
Cash flows used in investing activities:
Capital expenditures...................... (271,174) (350,998) (568,982) (369,149) (33,014)
Machinery deposits and patents............ -- -- (138,437) -- --
--------- ----------- ---------- --------- ---------
Net cash used in investing
activities...................... (271,174) (350,998) (707,419) (369,149) (33,014)
Cash flows used in financing activities:
Principal payments on debt................ (358,638) (396,480) (432,169) (114,817) (472,641)
Net borrowings (payments) under line of
credit................................. 130,000 (890,000) 600,000 690,000 --
Purchase of common shares................. -- (14,850) (407,925) -- (2,720)
Sale of common shares..................... -- 37,050 8,325 -- --
--------- ----------- ---------- --------- ---------
Net cash used in financing
activities...................... (228,638) (1,264,280) (231,769) 575,183 (475,361)
--------- ----------- ---------- --------- ---------
Net increase (decrease) in cash... 77,580 (152,888) 25,557 45,766 (41,176)
Cash, beginning of period................... 96,834 174,414 21,526 21,526 47,083
--------- ----------- ---------- --------- ---------
Cash, end of period......................... $ 174,414 $ 21,526 $ 47,083 $ 67,292 $ 5,907
========= =========== ========== ========= =========
Supplemental cash flow information:
Cash paid during the period for:
Interest............................... $ 344,586 $ 289,797 $ 315,232 $ 85,349 $ 76,526
Income taxes........................... 363,185 214,756 679,187 155,000 406,000
Non-cash financing activities:
Refinancing of letter of credit balance
to term note......................... -- 430,000 -- -- --
Finance of purchase of common shares... -- 14,400 -- -- --
</TABLE>
The accompanying notes are an integral part of these statements.
F-22
<PAGE> 92
BMT, INC. AND ITS WHOLLY-OWNED SUBSIDIARY, BIVONA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994 AND 1995 AND MARCH 31, 1996 (UNAUDITED)
NOTE A -- SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
BMT, Inc. (the Company) was formed as an Indiana corporation on September
30, 1992. On October 2, 1992, the Company acquired 100% of the capital stock of
Bivona, Inc. (Bivona). The acquisition was accounted for as a purchase
transaction. The consolidated balance sheets reflect the formation of the
Company and the acquisition, including the related financing, of Bivona. In
1995, the Company acquired manufacturing machinery and equipment, patents and
inventory of a manufacturer of emergency tracheostomy and cricothyrotomy
devices.
Description of Business
Bivona designs, develops, manufactures and markets a line of proprietary
silicone medical device products as well as provides engineering design,
development and manufacturing services for silicone products on an OEM basis for
other medical device companies. The majority of Bivona's sales are conducted in
the United States, Western Europe and Japan.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1994 1995
---------- ---------- MARCH 31,
1996
----------
(UNAUDITED)
<S> <C> <C> <C>
Finished goods....................... $ 577,835 $ 637,357 $ 611,205
Work-in-process...................... 1,369,873 1,384,383 1,329,380
Raw materials and supplies........... 512,113 637,178 628,660
---------- ---------- ----------
$2,459,821 $2,658,918 $2,569,245
========== ========== ==========
</TABLE>
Property, Plant and Equipment and Related Depreciation
Property, plant and equipment are recorded at cost, including amounts
allocated to such assets obtained from the acquisition of Bivona in 1992 in
accordance with Accounting Principles Board Opinion No. 16. Depreciation is
provided for in amounts sufficient to relate the cost of depreciable assets to
operations over their estimated service lives ranging from 5 to 15 years using
accelerated and straight-line methods.
Patents and Trademarks
The costs of patents and trademarks are capitalized and amortized to
operations over their estimated useful lives or statutory lives, whichever is
shorter. Amortization is computed on the straight-line method.
Revenue Recognition
Revenue is recognized by the Company upon the actual shipment of products.
F-23
<PAGE> 93
BMT, INC. AND ITS WHOLLY-OWNED SUBSIDIARY, BIVONA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995 AND MARCH 31, 1996 (UNAUDITED)
Research and Development Costs
The Company expenses all research and development costs as incurred.
Income Taxes
The Company and Bivona file a consolidated income tax return. Deferred
income taxes are recognized for differences between the assigned values and tax
bases of assets and liabilities resulting from the Bivona acquisition in
accordance with Statement of Financial Accounting Standards No. 109. Deferred
tax assets and liabilities have been established for temporary differences
between the financial reporting basis and the tax basis of the consolidated
company's assets and liabilities based upon currently enacted tax rates that are
expected to be in effect when such amounts are realized or settled.
Management Estimates
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 those estimates.
Fair Value of Financial Instruments
The Company's financial instruments include cash equivalents, accounts
receivable, accounts payable, notes payable and long-term obligations. The
carrying amounts of cash equivalents, accounts receivable, and accounts payable
approximate fair value because of the short-term nature of these instruments.
The carrying value of long-term obligations is based on quoted prices at the
reporting date for those instruments and approximates fair values. The fair
value of notes payable is estimated based on rates offered for instruments with
similar characteristics and does not materially differ from their carrying
value.
Impact of Adoption of Recently Issued Accounting Standards
In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," which requires that carrying values of long-lived
assets and certain identifiable intangible assets be evaluated based on the
future (undiscounted and without interest charges) cash flows expected to be
realized from the use of the asset and its eventual disposition. If the sum of
the expected future cash flows from an asset is less than the carrying value, an
impairment loss must be recognized. SFAS No. 121 is effective for fiscal years
commencing after December 15, 1995. The impact of adopting SFAS No. 121 upon the
Company is not expected to be material to the Company's financial position or
results of operations.
Interim Financial Information (Unaudited)
The unaudited interim financial statements have been prepared in conformity
with generally accepted accounting principles and include all adjustments, all
of which were normal and recurring in nature, which, in the opinion of
management, are necessary for a fair presentation of the interim periods
presented. Results of operations for the three months ended March 31, 1996 are
not necessarily indicative of the results to be expected for the full year.
F-24
<PAGE> 94
BMT, INC. AND ITS WHOLLY-OWNED SUBSIDIARY, BIVONA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995 AND MARCH 31, 1996 (UNAUDITED)
NOTE B -- NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1994 1995
---------- ----------
<S> <C> <C>
Notes payable under bank line of credit agreement:
Maximum borrowings are the lesser of $1,200,000
or 75% of eligible accounts receivable, plus
50% of eligible inventory as defined.
Interest at the bank's prime rate plus .5% is
payable monthly. The prime rate was 8.5% at
December 31, 1995. The line of credit
agreement is payable on demand and is
collateralized by substantially all of the
assets of the Company........................ $ 10,000 $ 610,000
========== ==========
Long-term debt:
Bank term note payable to bank monthly, with
interest at the bank's prime rate (8.5% at
December 31, 1995) plus .5% based upon a
seven year amortization. However, additional
principal payments are required quarterly
based on 75% of excess cash flow as defined.
The note matures in October of 1999 and is
collateralized by substantially all of the
Company's assets............................. $1,723,040 $1,443,574
Mortgage note payable with monthly principal and
interest payable at the bank's prime rate
(8.5% at December 31, 1995) plus 1.5%. The
note matures in October of 2007 and is
collateralized by the factory land and
building..................................... 1,276,062 1,228,187
Note payable to Lake County, Indiana Economic
Development Commission. The note bears
interest at a rate of 5% per annum and
matures in October of 1997 and is
collateralized by the factory land and
building..................................... 306,702 215,074
Note payable relating to a stock repurchase,
with interest payable monthly, at the prime
rate. The note was paid in full during fiscal
year 1995.................................... 13,200 --
---------- ----------
3,319,004 2,886,835
Less current maturities......................... 487,019 500,951
---------- ----------
$2,831,985 $2,385,884
========== ==========
</TABLE>
Based upon the borrowing rates currently available to the Company for bank
loans with similar terms and average maturities, the fair value of long-term
debt at December 31, 1995 is approximately $2,378,000.
The loan agreements contain certain restrictive covenants and provide for
the maintenance of certain financial requirements. The Company has satisfied all
covenants and requirements at December 31, 1995.
The two principal shareholders of the Company are currently personal
guarantors of all basic debt.
F-25
<PAGE> 95
BMT, INC. AND ITS WHOLLY-OWNED SUBSIDIARY, BIVONA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995 AND MARCH 31, 1996 (UNAUDITED)
Long-term debt matures as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
--------------------------------------------------------
<S> <C>
1996.................................................... $ 500,951
1997.................................................... 544,273
1998.................................................... 475,621
1999.................................................... 401,732
2000.................................................... 84,619
2001 and thereafter..................................... 879,639
----------
$2,886,835
==========
</TABLE>
NOTE C -- INCOME TAXES
The components of income tax expense consist of:
<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal................................ $232,600 $282,000 $560,000
State.................................. 96,400 102,500 160,000
-------- -------- --------
329,000 384,500 720,000
Deferred
Federal................................ 195,000 178,000 212,000
State.................................. 16,000 10,000 18,000
-------- -------- --------
211,000 188,000 230,000
-------- -------- --------
$540,000 $572,500 $950,000
======== ======== ========
</TABLE>
The tax effects of existing temporary differences that give rise to
significant portions of deferred tax assets (liabilities) are as follows:
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
DEFERRED TAX ASSETS
Acquired net operating loss
carryforwards......................... $ 626,000 $ 500,000
Research and development credits......... 80,000 80,000
Allowance for doubtful accounts.......... 42,000 21,000
Inventory capitalization and
allowances............................ 75,500 29,000
Other.................................... 20,500 55,000
Valuation allowance...................... (80,000) (80,000)
-------- --------
$ 764,000 $ 605,000
======== ========
DEFERRED TAX LIABILITIES
Depreciation............................. $(122,000) $(182,000)
Other.................................... -- (11,000)
-------- --------
$(122,000) $(193,000)
======== ========
</TABLE>
F-26
<PAGE> 96
BMT, INC. AND ITS WHOLLY-OWNED SUBSIDIARY, BIVONA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995 AND MARCH 31, 1996 (UNAUDITED)
Net current and long-term deferred tax assets are reflected in the
financial statements as:
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Current deferred tax asset................... $138,000 $105,000
Long-term deferred tax asset................. 504,000 307,000
-------- --------
$642,000 $412,000
======== ========
</TABLE>
Net operating loss carryforwards can be utilized to reduce Federal income
taxes payable each year at the lesser of approximately $371,000 or Federal
taxable income before net operating loss carryforwards. Total net operating loss
carryforwards available at December 31, 1995 are approximately $1,470,000
expiring as follows: $1,256,000 in 2003 and $214,000 in 2004. In addition to the
net operating loss carryforwards, the Company acquired research and development
credit carryforwards of approximately $80,000 that can be utilized after the net
operating loss carryforwards are utilized. A valuation reserve has been
established for these credits.
NOTE D -- STOCK REPURCHASE AGREEMENT
Each of the shareholders has entered into an agreement that provides the
Company, followed by other shareholders, with the right of first refusal on the
purchase of stock from a shareholder who desires to sell such stock. In
addition, the Company has agreed to acquire the stock of each shareholder upon
his or her death. The purchase price is the book value of the stock as of the
last day of the preceding year. Payment may be made 20% in cash, with the
balance paid in sixty monthly installments with interest at the prime rate at
the option of the Company. Book value per share of $5.44 and $3.33 at December
31, 1995 and 1994, respectively, is based upon the number of issued and
outstanding shares of stock at the end of the year adjusted for common shares
held in treasury.
NOTE E -- LEASE COMMITMENTS
The Company leases warehouse space under an operating lease expiring on
December 15, 1998. Future minimum rental commitments on this lease are
approximately $60,000 per year over the three year period. The lease termination
agreement provides the Company with the right to terminate the lease any month
prior to lease termination date upon paying a break lease fee equal to three
times the then current monthly rent amount.
Total rent expense approximated $55,800 and $55,800, and $92,900 for the
years ended December 31, 1993, 1994, and 1995, respectively.
NOTE F -- EMPLOYEE BENEFIT PLAN
The Company has established a defined contribution employee benefit plan
(the Plan) pursuant to Section 401(k) of the Internal Revenue Code. Employees
who have completed one year of service, and have attained the age of twenty-one,
are eligible to participate in the Plan. Participants may elect to make salary
deferral contributions of up to 15% of their compensation. The Company will
match such contributions in an amount up to 4% of each participant's
compensation. The Company made matching contributions of approximately $87,200,
$92,700 and $95,000 for the years ended December 31, 1993, 1994, and 1995,
respectively.
NOTE G -- MAJOR CUSTOMERS
Net sales to one customer amounted to 18%, 23% and 22% of Bivona's total
net sales for the years ended December 31, 1993, 1994 and 1995, respectively.
Outstanding receivables from this customer at December 31, 1993, 1994 and 1995
bear a similar relationship to total accounts receivable.
F-27
<PAGE> 97
BMT, INC. AND ITS WHOLLY-OWNED SUBSIDIARY, BIVONA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995 AND MARCH 31, 1996 (UNAUDITED)
NOTE H -- SUBSEQUENT EVENT
On June 27, 1996 the Company entered into a definitive agreement to be
acquired by UroQuest Medical Corporation ("UroQuest") for aggregate
consideration of $32,500,000, consisting of a combination of $10 million cash
and newly issued shares of UroQuest common stock equal in value to $22.5
million. The transaction is contingent upon the completion of an initial public
offering by UroQuest.
F-28
<PAGE> 98
MALE ON-COMMAND(R) CATHETER
FEMALE ON-COMMAND(R) CATHETER
[This is a diagram of the male and female anatomy showing the Male and Female
On Command Catheters in place with the following parts of the devices labeled:
Bladder Balloon, Urethral Anchoring Balloon, Catheter Shaft, External Anchoring
Cap and Magnetic Valve.]
The Male On-Command(R) Catheter consists of two separable units, the
endourethral catheter portion and the detachable inflator section. When the two
units are connected, prior to use, the device closely resembles a Foley
catheter. The device is inserted non-surgically through the urethra in a simple
five-minute procedure. Two balloons are inflated, one in the bladder to seal
the bladder neck and one in the urethra on the downstream side of the prostrate
gland to anchor the device. The inflator portion is then detached and
discarded, allowing the device to reside completely inside the urethra with no
exposed components, thereby reducing the risk of infection. The device is
designed to remain in place for up to 30 days.
The Female On-Command(R) Catheter also employs a catheter with a detachable
inflation section and a magnetically actuated valve. The device is shorter than
the Male On-Command Catheter and substitutes the urethral anchoring balloon
with a small rounded external cap which anchors the device in place beneath the
labial folds of the vagina. The device is designed to remain in place for 15 to
30 days making it more convenient than many other products requiring multiple
changes per day. Because the external anchoring cap extends past the urethral
opening, infection rates in the Female On-Command Catheter are expected to be
higher than the Male On-Command Catheter which resides entirely inside the
urethra.
BMT ACQUISITION IN CONNECTION WITH THIS OFFERING
[This is a photograph of the inside of BMT manufacturing facility showing
medical products being packaged and assembled.]
In June 1996, the Company entered into a definitive agreement to acquire BMT,
BMT develops, manufactures and markets a line of proprietary silicone medical
device products as well as provides engineering design, development and
manufacturing services for silicone products on an OEM basis for other medical
device companies. BMT is one of a limited number of specialty manufacturers of
silicone catheters in the United States. BMT has been a contract manufacturer
for the Company since June 1994 and has manufactured approximately 2,200 Male
On-Command Catheters. The acquisition will enable the Company to control its
own production source while providing necessary capacity and flexibility in the
manufacturing process. The product development and production expertise of BMT
is also anticipated to be utilized by the Company to develop additional
On-Command Catheter products and other new devices related to the management
and diagnosis of urological disorders.
<PAGE> 99
- ------------------------------------------------------------
- ------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, SHARES OF
COMMON STOCK IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE
ANY SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY......................... 3
RISK FACTORS............................... 6
THE COMPANY................................ 15
ACQUISITION OF BMT......................... 15
USE OF PROCEEDS............................ 16
DIVIDEND POLICY............................ 16
CAPITALIZATION............................. 17
DILUTION................................... 18
SELECTED FINANCIAL DATA.................... 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................... 22
BUSINESS................................... 28
MANAGEMENT................................. 52
CERTAIN TRANSACTIONS....................... 58
PRINCIPAL STOCKHOLDERS..................... 60
DESCRIPTION OF CAPITAL STOCK............... 61
SHARES ELIGIBLE FOR FUTURE SALE............ 63
UNDERWRITING............................... 65
LEGAL MATTERS.............................. 66
EXPERTS.................................... 66
ADDITIONAL INFORMATION..................... 66
INDEX TO FINANCIAL STATEMENTS.............. F-1
</TABLE>
------------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
UROQUEST
MEDICAL
CORPORATION
------------------------
3,350,000 SHARES
COMMON STOCK
PROSPECTUS
, 1996
------------------------
DILLON, READ & CO. INC.
PRUDENTIAL SECURITIES INCORPORATED
------------------------------------------------------------
------------------------------------------------------------
<PAGE> 100
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the issuance and distribution of the Common Stock being registered. All of
the amounts listed below will be borne by the Company. All of the amounts shown
are estimates, except the SEC registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
AMOUNT
---------
<S> <C>
SEC registration fee............................................. $ 17,270
NASD filing fee.................................................. 5,509
Nasdaq National Market filing fee................................ 20,479
Accounting fees and expenses..................................... 110,000
Legal fees and expenses.......................................... 215,000
Blue sky fees and expenses....................................... 17,000
Printing and engraving costs..................................... 100,000
Transfer agent and registrar fees................................ 10,000
Miscellaneous expenses........................................... 4,742
----------
Total.................................................. $ 500,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the Delaware General Corporation Law, the Registrant
has broad powers to indemnify its directors and officers against liabilities
they may incur in such capacities, including liabilities under the Securities
Act of 1933, as amended (the "Securities Act"). The Registrant's Bylaws also
provide that the Registrant will indemnify its directors and executive officers
and may indemnify its other officers, employees and other agents to the fullest
extent not permitted by Delaware law.
The Registrant's Certificate of Incorporation provides for the elimination
of liability for monetary damages for breach of the directors' fiduciary duty of
care to the Registrant and its stockholders. These provisions do not eliminate
the directors' duty of care and, in appropriate circumstances, equitable
remedies such an injunctive or other forms of non-monetary relief will remain
available under Delaware law. In addition, each director will continue to be
subject to liability for breach of the director's duty of loyalty to the
Registrant, for acts or omissions not in good faith or involving intentional
misconduct, for knowing violations of law, for any transaction from which the
director derived an improper personal benefit, and for payment of dividends or
approval of stock repurchases or redemptions that are unlawful under Delaware
law. The provision does not affect a director's responsibilities under any other
laws, such as the federal securities laws or state or federal environmental
laws.
The Registrant has entered into agreements with its directors and executive
officers that require the Registrant to indemnify such persons against expenses,
judgments, fines, settlements and other amounts actually and reasonably incurred
(including expenses of a derivative action) in connection with any proceeding,
whether actual or threatened, to which any such person may be made a party by
reason of the fact that such person is or was a director or officer of the
Registrant or any of its affiliated enterprises, provided such person acted in
good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the Registrant and, with respect to any
criminal proceeding, had no reasonable cause to believe his or her conduct was
unlawful. The indemnification agreements also set forth certain procedures that
will apply in the event of a claim for indemnification thereunder.
The Underwriting Agreement filed as an exhibit to this Registration
Statement provides for indemnification by the Underwriters of the Registrant and
its officers and directors for certain liabilities arising under the Securities
Act or otherwise. In addition to the foregoing, the Registrant intends to
II-1
<PAGE> 101
acquire insurance from commercial carriers against certain liabilities which may
be incurred by its directors and officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
(1) In December 1993, the Registrant issued 285,714 shares of Common Stock
to Donald P. Sauey, a then director of the Registrant at a price of $0.70 per
share for an aggregate purchase price of $200,000.
(2) In December 1993, the Registrant issued 90,476 shares of Series A
Convertible Preferred Stock to certain investors at a price of $2.10 per share
for an aggregate purchase price of $190,000.
(3) In January 1994, the Registrant issued 1,285,714 shares of Common Stock
to Richard C. Davis, Chairman and 142,857 shares of Common Stock to another
investor for all of the outstanding equity of UroCath Corporation. The assets of
UroCath acquired were recorded at their historical cost of $5,000.
(4) In January 1994, the Registrant issued a $250,000 non-interest bearing
promissory note to an affiliate of Richard C. Davis for patents and trademarks.
The Company recorded the note net of a $6,840 discount calculated at 8% over the
expected term of the note.
(5) In March 1994, the Registrant issued 143 shares of Common Stock to
Terrence L. Domin, Secretary of the Registrant, at a price of $0.70 per share
for an aggregate purchase price of $100.
(6) In July 1994, the Registrant issued 272,998 shares of Series B
Convertible Preferred Stock to certain investors at a price of $2.52 per share
for an aggregate purchase price of $687,956.
(7) In July 1994, the Registrant issued 4,511 shares of Common Stock to
certain consultants for consulting services valued at $11,367.
(8) In October 1994, the Registrant issued Convertible Subordinated
Promissory Notes totaling $284,000 to certain investors.
(9) In November 1994, the Registrant issued 189,428 shares of Series C
Convertible Preferred Stock to certain investors at a price of $3.50 per share
for an aggregate purchase price of $663,000.
(10) In December 1994, the Registrant issued 61,143 shares of Series C
Convertible Preferred Stock to certain investors at a price of $3.50 concurrent
with the conversion of Convertible Subordinated Promissory Notes totaling
$214,000.
(11) In December 1994, the Registrant issued Secured Promissory Notes
totaling $390,000 to certain existing investors (including $250,000 to directors
of the Registrant) and warrants to purchase 13,371 shares of Series C
Convertible Preferred Stock for $3.50 per share.
(12) In June 1995, the Registrant issued 628,571 shares of Series D
Convertible Preferred Stock to Warburg, Pincus Investors, L.P. and Vertical Fund
Associates, L.P., venture capital firms, at a price of $3.50 per share for an
aggregate purchase price of $2,200,000, and warrants to purchase 1,428,571
shares of Series D Convertible Preferred Stock for $3.50 per share.
(13) In June 1995, the Registrant issued 10,000 shares of Series C
Convertible Preferred Stock to certain investors at a price of $3.50 concurrent
with the conversion of Convertible Subordinated Promissory Notes totaling
$35,000.
(14) From June 1993 to June 1996, the Registrant granted stock options to
employees, directors and consultants to purchase shares of Common Stock at
exercise prices ranging from $0.0035 to $1.75, of which options to purchase an
aggregate of 1,058,531 shares of Common Stock are outstanding. From June 1993 to
June 1996, the Registrant issued 139,934 shares of Common Stock to employees,
directors and consultants upon exercise of stock options for an aggregate of
$38,254.
II-2
<PAGE> 102
The sales of securities referenced in paragraph (1) through (13) were
deemed to be exempt from registration under the Securities Act of 1933, as
amended (the "Securities Act"), in reliance on Section 4(2) thereof or
Regulation D thereunder. The sales of securities referenced in paragraph (14)
were deemed to be exempt from registration under the Securities Act in reliance
on Rule 701 promulgated under Section 3(b) thereof, as transactions by an issuer
not involving a public offering or transactions pursuant to compensatory benefit
plans and contracts relating to compensation as provided under Rule 701. The
recipients of securities in each such transaction represented their intention to
acquire the securities for investment only and not with a view to or for sale in
connection with any distribution thereof and appropriate legends were affixed to
the share certificates and instruments issued in such transactions. All
recipients had adequate access, though their relationships with the Company, to
information about the Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits to the Registration Statement.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement.
2.1* Form of Merger Agreement and Certificate of Merger for Delaware reincorporation.
2.2** Agreement and Plan of Merger dated as of June 27, 1996 among the Registrant, BMT
Acquisition Co. and BMT, Inc.
3.1* Certificate of Incorporation of UroQuest Medical Corporation, a Delaware
corporation, as in effect immediately following reincorporation.
3.2* Form of Restated Certificate of Incorporation of UroQuest Medical Corporation, a
Delaware corporation, to be filed after the closing of this Offering made under
this Registration Statement.
3.3* Bylaws of UroQuest Medical Corporation, a Delaware corporation, as in effect
immediately following reincorporation.
4.1* Specimen Common Stock Certificate.
4.2** Second Amended and Restated Stockholders Agreement dated May 31, 1995.
5.1* Opinion of Holland & Hart LLP.
10.1* Form of Indemnification Agreement between the Registrant and each of its
directors and officers.
10.2** 1994 Stock Option Plan.
10.3 Form of 1996 Employee Stock Purchase Plan and form of Subscription and
Contribution Election Form.
10.4** Letter of intent dated February 20, 1996, between B. Braun Biotrol S.A. and
Registrant.
10.5** 12% Secured Promissory Notes due December 31, 1996, in aggregate principal amount
of $390,000, including contingent 5% royalty payments on sales of On-Command
Catheter technology through December 31, 1996.
10.6** Commercial Security Agreement (Patents) dated December 7, 1994, by UroCath
Corporation for the benefit of holders of 12% Secured Promissory Notes due
December 31, 1996.
10.7** Lease Agreement of office space dated July 6, 1995 between 265 East Associates
and the Registrant.
10.8** Lease dated December 16, 1995 between JVM Realty Corporation and Bivona, Inc.
10.9** Employment Agreement (as amended) dated November 1, 1994 for Eric B. Hale.
</TABLE>
II-3
<PAGE> 103
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------
<S> <C>
10.10** Employment Agreement (as amended) dated December 1, 1994 for Richard C. Davis,
Jr., M.D.
10.11** Employment Agreement effective June 1, 1995 for Terrence L. Domin.
10.12** Employment Agreement effective June 1, 1995 for Gregory S. Ayers.
10.13 Employment Agreement effective June 27, 1996 for Tom E. Brandt.
10.14 Termination Agreement dated June 27, 1996, among Registrant, Warburg, Pincus
Investors, L.P., Vertical Fund Associates, L.P. and Richard C. Davis, Jr.
10.15 Right of First Refusal and Co-Sale Agreement dated June 15, 1995 among
Registrant, Warburg, Pincus Investors, L.P., Vertical Fund Associates, L.P. and
Richard C. Davis, Jr., M.D., as amended by letter agreement dated July 16, 1996.
11.1** Statement regarding computation of per share loss.
21.1 Subsidiaries of Registrant.
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Grant Thornton LLP.
23.3 Consent of Holland & Hart LLP (included in Exhibit 5.1).
23.4 Consent of Griffin, Butler, Whisenhunt & Kurtossy.
23.5 Consent of Emrich & Dithmar.
24.1** Power of Attorney (see page II-5).
99.1** Consent of Person About to Become a Director
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
(b) Financial Statement Schedules.
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act, and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer, or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered hereunder, the Company will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-4
<PAGE> 104
The Company hereby undertakes:
(1) To provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to
each purchaser.
(2) For purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Company pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(3) For purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at the time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 105
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Company has duly caused this Amendment No. 1 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in Salt Lake
City, State of Utah, on July 16, 1996.
UROQUEST MEDICAL CORPORATION
By: /s/ ERIC B. HALE
--------------------------------------
Eric B. Hale, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to Registration Statement has been signed by the following
persons in the capacities and as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------------- -------------
<S> <C> <C>
/s/ RICHARD C. DAVIS, M.D.* Chairman of the Board July 16, 1996
- ------------------------------------------
Richard C. Davis, M.D.
/s/ ERIC B. HALE President, Chief Executive July 16, 1996
- ------------------------------------------ Officer and Director
Eric B. Hale (principal executive officer)
/s/ GREGORY S. AYERS* Vice President, Finance July 16, 1996
- ------------------------------------------ and Chief Financial Officer
Gregory S. Ayers (principal accounting and
financial officer)
/s/ JACK W. LASERSOHN* Director July 16, 1996
- ------------------------------------------
Jack W. Lasersohn
/s/ GARY E. NEI* Director July 16, 1996
- ------------------------------------------
Gary E. Nei
/s/ MAYNARD RAMSEY, III, M.D., PH.D.* Director July 16, 1996
- ------------------------------------------
Maynard Ramsey, III, M.D., Ph.D.
/s/ ELIZABETH H. WEATHERMAN* Director July 16, 1996
- ------------------------------------------
Elizabeth H. Weatherman
* By: /s/ ERIC B. HALE
---------------------------------
Eric B. Hale, Attorney-in-Fact
</TABLE>
II-6
<PAGE> 106
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------------------------------------------------------- ------------
<S> <C> <C>
1.1 Form of Underwriting Agreement.............................
2.1* Form of Merger Agreement and Certificate of Merger for
Delaware reincorporation...................................
2.2** Agreement and Plan of Merger dated as of June 27, 1996
among the Registrant, BMT Acquisition Co. and BMT, Inc.....
3.1* Certificate of Incorporation of UroQuest Medical
Corporation, a Delaware corporation, as in effect
immediately following reincorporation......................
3.2* Form of Restated Certificate of Incorporation of UroQuest
Medical Corporation, a Delaware corporation, to be filed
after the closing of this Offering made under this
Registration Statement.....................................
3.3* Bylaws of UroQuest Medical Corporation, a Delaware
corporation, as in effect immediately following
reincorporation............................................
4.1* Specimen Common Stock Certificate..........................
4.2** Second Amended and Restated Stockholders Agreement dated
May 31, 1995...............................................
5.1* Opinion of Holland & Hart LLP..............................
10.1* Form of Indemnification Agreement between the Registrant
and each of its directors and officers.....................
10.2** 1994 Stock Option Plan.....................................
10.3 Form of 1996 Employee Stock Purchase Plan and form of
Subscription and Contribution Election Form................
10.4** Letter of intent dated February 20, 1996, between B. Braun
Biotrol S.A. and Registrant................................
10.5** 12% Secured Promissory Notes due December 31, 1996, in
aggregate principal amount of $390,000, including
contingent 5% royalty payments on sales of On-Command
Catheter technology through December 31, 1996..............
10.6** Commercial Security Agreement (Patents) dated December 7,
1994, by UroCath Corporation for the benefit of holders of
12% Secured Promissory Notes due December 31, 1996.........
10.7** Lease Agreement of office space dated July 6, 1995 between
265 East Associates and the Registrant.....................
10.8** Lease dated December 16, 1995 between JVM Realty
Corporation and Bivona, Inc................................
10.9** Employment Agreement (as amended) dated November 1, 1994
for Eric B. Hale...........................................
10.10** Employment Agreement (as amended) dated December 1, 1994
for Richard C. Davis, Jr., M.D.............................
10.11** Employment Agreement effective June 1, 1995 for Terrence L.
Domin......................................................
10.12** Employment Agreement effective June 1, 1995 for Gregory S.
Ayers......................................................
</TABLE>
<PAGE> 107
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------------------------------------------------------- ------------
<S> <C> <C>
10.13 Employment Agreement effective June 27, 1996 for Tom E.
Brandt.....................................................
10.14 Termination Agreement dated June 27, 1996, among
Registrant, Warburg, Pincus Investors, L.P., Vertical Fund
Associates, L.P. and Richard C. Davis, Jr..................
10.15 Right of First Refusal and Co-Sale Agreement dated June 15,
1995 among Registrant, Warburg, Pincus Investors, L.P.,
Vertical Fund Associates, L.P. and Richard C. Davis, Jr.,
M.D., as amended by letter agreement dated July 16, 1996...
11.1** Statement regarding computation of per share loss..........
21.1 Subsidiaries of Registrant.................................
23.1 Consent of KPMG Peat Marwick LLP...........................
23.2 Consent of Grant Thornton LLP..............................
23.3 Consent of Holland & Hart LLP (included in Exhibit 5.1)....
23.4 Consent of Griffin, Butler, Whisenhunt & Kurtossy..........
23.5 Consent of Emrich & Dithmar................................
24.1** Power of Attorney (see page II-5)..........................
99.1** Consent of Person About to Become a Director...............
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
<PAGE> 1
EXHIBIT 1.1
UROQUEST MEDICAL CORPORATION
SHARES
COMMON STOCK
($0.001 PAR VALUE)
UNDERWRITING AGREEMENT
AUGUST , 1996
<PAGE> 2
UNDERWRITING AGREEMENT
AUGUST , 1996
DILLON, READ & CO. INC.
PRUDENTIAL SECURITIES INCORPORATED
as Managing Underwriters
535 Madison Avenue
New York, New York 10022
Dear Sirs:
UroQuest Medical Corporation, a Delaware corporation (the "Company"),
proposes to issue and sell to the underwriters named in Schedule A annexed
hereto (the "Underwriters") an aggregate of shares (the "Firm Shares")
of Common Stock, par value $0.001 per share (the "Common Stock") of the Company.
In addition, solely for the purpose of covering over-allotments, the Company
proposes to grant to the Underwriters the option to purchase from the Company up
to an additional shares of Common Stock (the "Additional Shares"). The
Firm Shares and the Additional Shares are hereinafter collectively sometimes
referred to as the "Shares." The Shares are described in the Prospectus which is
referred to below.
The Company has filed, in accordance with the provisions of the Securities
Act of 1933, as amended, and the rules and regulations thereunder (collectively
the "Act"), with the Securities and Exchange Commission (the "Commission") a
registration statement on Form S-1, including a prospectus, relating to the
Shares. The Company has furnished to you, for use by the Underwriters and by
dealers, copies of one or more preliminary prospectuses (each thereof, being
herein called a "Preliminary Prospectus") relating to the Shares. Except where
the context otherwise requires, the registration statement, as amended when it
becomes effective, including all documents filed as a part thereof, and
including any information contained in a prospectus subsequently filed with the
Commission pursuant to Rule 424(b) under the Act and deemed to be part of the
registration statement at the time of effectiveness pursuant to Rule 430(A)
under the Act, and, if applicable, any registration statement filed pursuant to
Rule 462(b) under the Act, is herein called the "Registration Statement", and
the prospectus, in the form filed by the Company with the Commission pursuant to
Rule 424(b) under the Act or, if no such filing is required, the form of final
prospectus, included in the Registration Statement at the time it became
effective, is herein called the "Prospectus."
The Company and the Underwriters agree as follows:
1. SALE AND PURCHASE. Upon the basis of the warranties and representations
and the other terms and conditions herein set forth, the Company agrees to sell
to the respective Underwriters, and each of the Underwriters, severally and not
jointly, agrees to purchase from the Company the respective number of Firm
Shares set forth opposite the name of such Underwriter in Schedule A annexed
hereto in each case at a purchase price of $ per Share. You shall
release the Firm Shares for public sale promptly after this Agreement becomes
effective. You may from time to time increase or decrease the public offering
price after the initial public offering to such extent as you may determine.
In addition, upon the basis of the warranties and representations and the
other terms and conditions herein set forth, the Company hereby grants to the
Underwriters the option to purchase, and the Underwriters shall have the right
to purchase, severally and not jointly, from the Company all or a portion of the
Additional Shares as may be necessary to cover over-allotments made in
connection with the offering of the Firm Shares, at the same purchase price per
share to be paid by the Underwriters to the Company for the Firm Shares. This
option may be exercised at any time (but not more than once) on or before the
thirtieth day following the date hereof, by written notice to the Company. Such
notice shall set forth the aggregate number of Additional Shares as to which the
option is being exercised, and the date and time when the Additional Shares are
to be delivered (such date and time being herein referred to as the "additional
time of purchase"); provided, however, that the additional time of purchase
2
<PAGE> 3
shall not be earlier than the time of purchase (as defined below) nor earlier
than the second business day(1) after the date on which the option shall have
been exercised nor later than the eighth business day after the date on which
the option shall have been exercised. The number of Additional Shares to be sold
to each Underwriter shall be the number which bears the same proportion to the
aggregate number of Additional Shares being purchased as the number of Firm
Shares set forth opposite the name of such Underwriter on Schedule A hereto
bears to the total number of Firm Shares (subject, in each case, to such
adjustment as you may determine to eliminate fractional shares).
2. PAYMENT AND DELIVERY. Payment of the purchase price for the Firm Shares
shall be made to the Company by wire transfer or certified or official bank
check in New York Clearing House funds, at the office of Dillon, Read & Co. Inc.
in New York City, against delivery of the certificates for the Firm Shares to
you for the respective accounts of the Underwriters. Such payment and delivery
shall be made at 10:00 A.M., New York City time, on August , 1996 (unless
another time shall be agreed to by you and the Company or unless postponed in
accordance with the provisions of Section 8 hereof). The time at which such
payment and delivery are actually made is hereinafter sometimes called the "time
of purchase." Certificates for the Firm Shares shall be delivered to you in
definitive form in such names and in such denominations as you shall specify on
the second business day preceding the time of purchase. For the purpose of
expediting the checking of the certificates for the Firm Shares by you, the
Company agrees to make such certificates available to you for such purpose at
least one full business day preceding the time of purchase.
Payment of the purchase price for the Additional Shares shall be made at
the additional time of purchase in the same manner and at the same office as the
payment for the Firm Shares. Certificates for the Additional Shares shall be
delivered to you in definitive form in such names and in such denominations as
you shall specify on the second business day preceding the additional time of
purchase. For the purpose of expediting the checking of the certificates for the
Additional Shares by you, the Company agrees to make such certificates available
to you for such purpose at least one full business day preceding the additional
time of purchase.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to each of the Underwriters that:
(a) each Preliminary Prospectus filed as part of the Registration
Statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Act, complied when so filed in all material
respects with the Act; when the Registration Statement becomes or became
effective and at all times subsequent thereto up to the time of purchase
and the additional time of purchase, the Registration Statement and the
Prospectus complied and will comply in all material respects with the
provisions of the Act; and the Registration Statement, when the
Registration Statement became or becomes effective, and as amended or
supplemented, did not and will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, and the
Prospectus will not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading; provided, however, that the Company makes no warranty
or representation with respect to any statement contained in the
Registration Statement or the Prospectus in reliance upon and in conformity
with information concerning the Underwriters and furnished in writing by or
on behalf of any Underwriter through you to the Company expressly for use
in the Registration Statement or the Prospectus and set forth in the
section of the Registration Statement and the Prospectus entitled
"Underwriting";
(b) the Company had capitalization, as set forth under the heading
entitled "Pro Forma," after giving effect to the pro forma adjustments
described in the section of the Registration
- ---------------
(1) As used herein "business day" shall mean a day on which the New York
Stock Exchange is open for trading.
3
<PAGE> 4
Statement and the Prospectus entitled "Capitalization" and, as of the time
of purchase, the Company shall have capitalization as set forth under the
heading entitled "As Adjusted" in the section of the Registration Statement
and the Prospectus entitled "Capitalization"; all of the issued and
outstanding shares of capital stock of the Company have been duly and
validly authorized and issued and are fully paid and non-assessable and
free of any preemptive rights; except as described in the Registration
Statement and the Prospectus, there are no outstanding rights,
subscriptions, warrants, calls, preemptive rights, options or other
agreements (collectively, "Stock Rights") of any kind issued by the Company
with respect to its capital stock and, to the best of the Company's
knowledge, no outstanding Stock Rights issued by any other party with
respect to the Company's capital stock; the Company has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the State of Delaware, with full power and authority to
own its properties and conduct its business as described in the
Registration Statement and the Prospectus, to execute and deliver this
Agreement and to issue, sell and deliver the Shares as herein contemplated;
(c) the Company and each of its subsidiaries (the "Subsidiaries") are
duly qualified or licensed by and are in good standing in each jurisdiction
in which they conduct their respective businesses and in which the failure,
individually or in the aggregate, to be so licensed or qualified could have
a material adverse effect on the properties, assets, operations, business
or condition of the Company and its Subsidiaries, taken as a whole; and the
Company and each of its Subsidiaries are in compliance in all material
respects with the laws, orders, rules, regulations and directives issued or
administered by such jurisdictions;
(d) neither the Company nor any of its Subsidiaries is in breach of,
or in default under (nor has any event occurred which with notice, lapse of
time, or both would constitute a breach of, or default under), its
respective charter or by-laws or in the performance or observance of any
obligation, agreement, covenant or condition contained in any indenture,
mortgage, deed of trust, bank loan or credit agreement or other agreement
or instrument to which the Company or any of its Subsidiaries is a party or
by which any of them is bound; and the execution, delivery and performance
of this Agreement, the issuance of the Shares and the consummation of the
transactions contemplated hereby will not conflict with, or result in any
breach of or constitute a default under (nor constitute any event which
with notice, lapse of time, or both would constitute a breach of, or
default under), any provisions of the charter or by-laws of the Company or
any of its Subsidiaries or under any provision of any license, indenture,
mortgage, deed of trust, bank loan or credit agreement or other agreement
or instrument to which the Company or any of its Subsidiaries is a party or
by which any of them or their respective properties may be bound or
affected, or under any federal, state, local or foreign law, regulation or
rule or any decree, judgment or order applicable to the Company or any of
its Subsidiaries;
(e) the Firm Shares and the Additional Shares, when issued and
delivered to and paid for by the Underwriters as contemplated hereby, will
be duly authorized and validly issued and fully paid and nonassessable,
free and clear of any pledge, lien, encumbrance, security interest,
preemptive right or other claim;
(f) this Agreement has been duly authorized, executed and delivered by
the Company and is a legal, valid and binding agreement of the Company
enforceable in accordance with its terms;
(g) the capital stock of the Company, including the Shares, conforms
in all material respects to the description thereof contained in the
Registration Statement and Prospectus and the certificates for the Shares
are in due and proper form and the holders of the Shares will not be
subject to personal liability by reason of being such holders;
(h) no approval, authorization, consent or order of or filing with any
national, state or local governmental or regulatory commission, board,
body, authority or agency is required in connection with the issuance and
sale of the Shares as contemplated hereby other than registration of the
Shares under the Act, clearance of the offering of the Shares with the
National Association of
4
<PAGE> 5
Securities Dealers, Inc. (the "NASD") and any necessary qualification under
the securities or blue sky laws of the various jurisdictions in which the
Shares are being offered by the Underwriters;
(i) no person has the right, contractual or otherwise, to cause the
Company to issue to it, or register pursuant to the Act, any shares of
capital stock of the Company upon the issue and sale of the Shares to the
Underwriters hereunder, nor does any person have preemptive rights, rights
of first refusal or other rights to purchase any of the Shares;
(j) KPMG Peat Marwick LLP and Grant Thornton LLP whose reports on the
consolidated financial statements of the Company and BMT, Inc.,
respectively, are filed with the Commission as part of the Registration
Statement and Prospectus, are independent public accountants as required by
the Act and the applicable published rules and regulations thereunder;
(k) each of the Company and its Subsidiaries has all necessary
permits, authorizations, consents and approvals and has made all necessary
filings required under any federal, state, local or foreign law, regulation
or rule, and has obtained all necessary authorizations, consents and
approvals from other persons, in order to conduct its respective business;
neither the Company nor any of its Subsidiaries is in violation of, or in
default under, any such permit, authorization, consent or approval or any
federal, state, local or foreign law, regulation or rule or any decree,
order or judgment applicable to the Company or any of its Subsidiaries the
effect of which could have a material adverse effect on the Company and its
Subsidiaries taken as a whole;
(l) all legal or governmental proceedings, contracts or documents of a
character required to be described in the Registration Statement or the
Prospectus or to be filed as an exhibit to the Registration Statement have
been so described or filed as required;
(m) there are no actions, suits or proceedings pending or threatened
against the Company or any of its Subsidiaries or any of their respective
properties, at law or in equity, or before or by any federal, state, local
or foreign governmental or regulatory commission, board, body, authority or
agency which could result in a judgment, decree or order having a material
adverse effect on the business, condition, prospects or property of the
Company and its Subsidiaries taken as a whole;
(n) the audited and unaudited financial statements included in the
Registration Statement and the Prospectus present fairly the consolidated
financial position of the Company and its Subsidiaries as of the dates
indicated and the consolidated results of operations and changes in
financial position of the Company and its Subsidiaries for the periods
specified; such financial statements have been prepared in conformity with
generally accepted accounting principles applied on a consistent basis
during the periods involved;
(o) subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, and except as may be
otherwise stated in the Registration Statement or Prospectus, there has not
been (A) any material adverse change, financial or otherwise, in the
business, properties, prospects, regulatory environment, results of
operations or condition (financial or otherwise), present or prospective,
of the Company and its Subsidiaries taken as a whole, (B) any transaction,
which is material to the Company and its Subsidiaries taken as a whole,
contemplated or entered into by the Company or any of its Subsidiaries or
(C) any obligation, contingent or otherwise, directly or indirectly
incurred by the Company or any of its Subsidiaries which is material to the
Company and its Subsidiaries taken as a whole;
(p) the Company has obtained the agreement of each of its directors
and officers and stockholders not to sell, contract to sell, grant any
option to sell or otherwise dispose of, directly or indirectly, any shares
of Common Stock or securities convertible into or exchangeable for Common
Stock or warrants or other rights to purchase Common Stock for a period of
180 days after the date of the Prospectus;
(q) the business, operations and facilities of the Company and its
Subsidiaries have been and are being conducted in compliance in all
material respects with all applicable laws, ordinances,
5
<PAGE> 6
rules, regulations, licenses, permits, approvals, plans, authorizations or
requirements relating to occupational safety and health, or pollution, or
protection of health or the environment, or reclamation (including without
limitation those relating to emissions, discharges, releases or threatened
releases of pollutants, contaminants or hazardous or toxic substances,
materials or wastes into ambient air, surface water, groundwater or land,
or relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of chemical substances,
pollutants, contaminants or hazardous or toxic substances, materials or
wastes, whether solid, gaseous or liquid in nature) or otherwise relating
to remediating real property in which the Company has any interest, whether
owned or leased, of any governmental department, commission, board, bureau,
agency or instrumentality of the United States, any state or political
subdivision thereof or any foreign jurisdiction and all applicable judicial
or administrative agency or regulatory decrees, awards, judgments and
orders relating thereto; and neither the Company nor any Subsidiary has
received any notice from a governmental instrumentality or any third party
alleging any violation thereof or liability thereunder (including without
limitation liability for costs of investigating or remediating sites
containing hazardous substances or damages to natural resources);
(r) neither the Company nor any Subsidiary nor any employee of the
Company nor any Subsidiary has made any payment of funds of the Company or
the Subsidiary, as applicable, prohibited by law, and no funds of the
Company or the Subsidiary have been set aside to be used for any payment
prohibited by law;
(s) the Company and its Subsidiaries have filed all federal or state
income or franchise tax returns required to be filed and has or had, as
applicable, paid all taxes shown thereon as due, and there is no material
tax deficiency which has been or, to the Company's knowledge, might be
asserted against the Company or any of its Subsidiaries; all material tax
liabilities are adequately provided for on the books of the Company;
(t) neither the Company nor any Subsidiary has incurred any liability
for any finder's fees or payments similar to finder's fees in connection
with the transactions herein contemplated;
(u) the Company, and each of its Subsidiaries, owns or possesses
sufficient licenses or other rights to use all patents, patent
applications, trademarks, copyrights, trade names, trade secrets,
technology and know-how necessary to conduct the Company's, and each
Subsidiaries', business as described in the Registration Statement and
Prospectus;
(v) the Company is not aware of any pending or threatened action,
suit, proceeding or claim by others that the Company, or any of its
Subsidiaries, is infringing or otherwise violating any patents or patent
applications of others and is not aware of any rights of third parties to
any of the patents or patent applications owned by or licensed to the
Company, or any of its Subsidiaries, which could have a material adverse
effect on the use thereof by the Company, or any of its Subsidiaries; and
the Company is not aware of any pending or threatened action, suit,
proceeding or claim by others challenging the validity or scope of any
patents or patent applications owned by or licensed to the Company, or any
of its Subsidiaries; and
(w) the Company and its Subsidiaries have filed with the United States
Food and Drug Administration (the "FDA"), and all applicable state and
local regulatory bodies, for and received approval of all registrations,
applications, licenses, requests for exemptions, permits and other
regulatory authorizations necessary to conduct the Company's, and its
Subsidiaries', business as it is described in the Registration Statement
and Prospectus based on all available information provided to the Company
through the date hereof by applicable regulatory authorities; the Company
is in compliance with all such registrations, applications, licenses,
requests for exemptions, permits and other regulatory authorizations, and
all applicable FDA, state and local rules, regulations, guidelines and
policies, including, but not limited to, applicable FDA, state and local
rules, regulations and policies relating to current good manufacturing
practice, except where the failure so to comply would not have a material
adverse effect on the business, condition, prospects
6
<PAGE> 7
or property of the Company and its Subsidiaries taken as a whole; and the
Company has no reason to believe that any party granting any such
registration, application, license, request for exemption, permit or other
authorization is considering limiting, suspending or revoking the same and
knows of no basis for any such limitation, suspension or revocation;
(x) the Company and the Subsidiaries have good title to all properties
and assets owned or leased by them, in each case free and clear of all
liens, security interests, pledges, charges, encumbrances, mortgages and
defects (except such as are described or referred to in the Prospectus and
the financial statements and the notes thereto contained therein or such as
do not interfere with the use made and proposed to be made of such property
by the Company or the Subsidiaries; and
(y) the Company is not an "investment company" within the meaning of
the Investment Company Act of 1940, as amended, and is not subject to
regulation under such Act.
4. CERTAIN COVENANTS OF THE COMPANY. The Company hereby agrees:
(a) to furnish such information as may be required and otherwise to
cooperate in qualifying the Shares for offering and sale under the
securities or blue sky laws of such states as you may designate and to
maintain such qualifications in effect so long as required for the
distribution of the Shares, provided that the Company shall not be required
to qualify as a foreign corporation or to consent to the service of process
under the laws of any such state (except service of process with respect to
the offering and sale of the Shares); to promptly advise you of the receipt
by the Company of any notification with respect to the suspension of the
qualification of the Shares for sale in any jurisdiction or the initiation
or threatening of any proceeding for such purpose; and to use all
commercially reasonable efforts to obtain the withdrawal of any order of
suspension at the earliest practicable moment;
(b) to make available to you in New York City, as soon as practicable
after the Registration Statement becomes effective, and thereafter from
time to time to furnish to the Underwriters, as many copies of the
Prospectus (or of the Prospectus as amended or supplemented if the Company
shall have made any amendments or supplements thereto after the effective
date of the Registration Statement) as the Underwriters may request for the
purposes contemplated by the Act;
(c) to advise you promptly and (if requested by you) to confirm such
advice in writing, (i) when the Registration Statement has become effective
and when any post-effective amendment thereto becomes effective and (ii) if
Rule 430A under the Act is used, when the Prospectus is filed with the
Commission pursuant to Rule 424(b) under the Act (which the Company agrees
to file in a timely manner under such Rules);
(d) to advise you promptly, confirming such advice in writing, of any
request by the Commission for amendments or supplements to the Registration
Statement or Prospectus or for additional information with respect thereto,
or of notice of institution of proceedings for, or the entry of a stop
order suspending the effectiveness of the Registration Statement and, if
the Commission should enter a stop order suspending the effectiveness of
the Registration Statement, to use all commercially reasonable efforts to
obtain the lifting or removal of such order as soon as possible; to advise
you promptly of any proposal to amend or supplement the Registration
Statement or Prospectus including by filing any documents that would be
incorporated therein by reference and to file no such amendment or
supplement to which you shall object in writing;
(e) to furnish to you and, upon request, to each of the other
Underwriters, for a period of five years from the date of this Agreement
(i) copies of any reports or other communications which the Company shall
send to its stockholders or shall from time to time publish or publicly
disseminate, (ii) copies of all annual, quarterly and current reports filed
with the Commission on Forms 10-K, 10-Q and 8-K, or such other similar form
as may be designated by the Commission, and any other document filed by the
Company pursuant to Section 12, 13, 14 or 15(d) of the Exchange Act and
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<PAGE> 8
(iii) such other information as you may reasonably request regarding the
Company or its Subsidiaries;
(f) to advise the Underwriters promptly of the happening of any event
known to the Company within the time during which a prospectus relating to
the Shares is required to be delivered under the Act which, in the
reasonable judgment of the Company, would require the making of any change
in the Prospectus then being used, or in the information incorporated
therein by reference, so that the Prospectus, as then supplemented, would
not include an untrue statement of material fact or omit to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they are made, not misleading, and, during such
time, promptly to prepare and furnish, at the Company's expense, to the
Underwriters such amendments or supplements to such Prospectus as may be
necessary to reflect any such change, and to furnish you a copy of such
proposed amendment or supplement before filing any such amendment or
supplement with the Commission;
(g) to make generally available to its security holders, and to
deliver to you, an earnings statement of the Company (which will satisfy
the provisions of Section 11(a) of the Act including, at the option of the
Company, Rule 158) covering a period of twelve months beginning after the
effective date of the Registration Statement but ending not later than 15
months after the date of the Registration Statement, as soon as is
reasonably practicable after the termination of such twelve-month period;
(h) to furnish to you four signed copies of the Registration
Statement, as initially filed with the Commission, and of all amendments
thereto (including all exhibits thereto and documents incorporated by
reference therein) and sufficient conformed copies of the foregoing (other
than exhibits) for distribution of a copy to each of the other
Underwriters;
(i) to furnish to you as early as practicable prior to the time of
purchase and the additional time of purchase, as the case may be, but not
later than two business days prior thereto, a copy of the latest available
unaudited interim consolidated financial statements, if any, of the Company
and its Subsidiaries which have been read by the Company's independent
certified public accountants, as stated in their letter to be furnished
pursuant to Section 6(d) of this Agreement;
(j) to apply the net proceeds from the sale of the Shares in the
manner set forth under the caption "Use of Proceeds" in the Prospectus;
(k) to use its best efforts to cause the Shares to be qualified for
designation on the Nasdaq National Market;
(l) to refrain from investing the proceeds from the sale of the Shares
in a manner to cause the Company to become an "investment company" within
the meaning of the Investment Company Act of 1940, as amended;
(m) whether or not the transactions contemplated in this Agreement are
consummated or this Agreement otherwise becomes effective or is terminated,
to pay all out-of-pocket expenses, fees and taxes (other than any transfer
taxes and fees and disbursements of counsel for the Underwriters except as
set forth under Section 5 hereof and (iii) and (iv) below) in connection
with (i) the preparation and filing of the Registration Statement, each
Preliminary Prospectus, the Prospectus, and any amendments or supplements
thereto, and the printing and furnishing of copies of each thereof to the
Underwriters and to dealers (including costs of mailing and shipment), (ii)
the issue, sale and delivery of the Shares, (iii) the word processing
and/or printing of this Agreement, any Agreement Among Underwriters, any
dealer agreements, any Statements of Information and Powers of Attorney and
the reproduction and/or printing and furnishing of copies of each thereof
to the Underwriters and to dealers (including costs of mailing and
shipment), (iv) the qualification of the Shares for offering and sale under
state laws as aforesaid (including the legal fees and filing fees and other
disbursements of counsel for the Underwriters) and the printing and
furnishing of copies of any blue sky surveys or legal investment surveys to
the
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<PAGE> 9
Underwriters and to dealers, (v) any listing of the Shares on any
securities exchange or qualification of the Shares to be included in the
Nasdaq National Market and any registration thereof under the Exchange Act,
(vi) any filing for review of the public offering of the Shares by the NASD
and (vii) the performance of the Company's other obligations hereunder; and
(n) not to sell, contract to sell, grant any option to sell or
otherwise dispose of, directly or indirectly, any shares of Common Stock or
securities convertible into or exchangeable for Common Stock or warrants or
other rights to purchase Common Stock or permit the registration under the
Act of any shares of Common Stock during the period of 180 days after the
date hereof (the "Lockup Period"), except for (i) the registration of the
Shares and the sales to the Underwriters pursuant to this Agreement, (ii)
issuances of Common Stock upon the exercise of outstanding options,
warrants and debentures, and (iii) the grant of options or rights to
purchase shares of Common Stock to employees, consultants and directors of
the Company pursuant to the stock option plans of the Company in effect on
the date hereof as approved by the Board of Directors of the Company,
provided that shares issuable upon the exercise of such options or rights
are subject to contractual prohibitions on resale for the duration of the
Lockup Period.
5. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If the Shares are not
delivered for any reason other than the termination of this Agreement pursuant
to the first two paragraphs of Section 8 hereof or the default by one or more of
the Underwriters in its or their respective obligations hereunder, the Company
shall reimburse the Underwriters for all of their out-of-pocket expenses,
including the fees and disbursements of their counsel.
6. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The several obligations of the
Underwriters hereunder are subject to the accuracy of the representations and
warranties on the part of the Company on the date hereof and at the time of
purchase (and the several obligations of the Underwriters at the additional time
of purchase are subject to the accuracy of the representations and warranties on
the part of the Company on the date hereof and at the time of purchase (unless
previously waived) and at the additional time of purchase, as the case may be),
the performance by the Company of their obligations hereunder and to the
following conditions:
(a) The Company shall furnish to you at the time of purchase and at
the additional time of purchase, as the case may be, an opinion of Holland
& Hart, LLP, counsel for the Company, addressed to the Underwriters, and
dated the time of purchase or the additional time of purchase, as the case
may be, with reproduced copies for each of the other Underwriters and in
form satisfactory to Cooley Godward Castro Huddleson & Tatum, counsel for
the Underwriters, stating that:
(i) the Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of
Delaware, with full corporate power and authority to own its properties
and conduct its business as described in the Registration Statement and
the Prospectus, to execute and deliver this Agreement and to issue, sell
and deliver the Shares as herein contemplated;
(ii) each of the Subsidiaries has been duly incorporated and is
validly existing as a corporation in good standing under the laws of its
respective jurisdiction of incorporation with full corporate power and
authority to own its respective properties and to conduct its respective
business;
(iii) the Company and its Subsidiaries are duly qualified or
licensed by each jurisdiction in which they conduct their respective
businesses and in which the failure, individually or in the aggregate,
to be so licensed or qualified could have a material adverse effect on
the operations, business or condition (financial or other) of the
Company and its Subsidiaries taken as a whole, and the Company and its
Subsidiaries are duly qualified;
(iv) this Agreement has been duly authorized, executed and
delivered by the Company;
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<PAGE> 10
(v) the Shares, when issued and delivered to and paid for by the
Underwriters, will be duly and validly authorized and issued and will be
fully paid and non-assessable, and will be free of any preemptive right
and of any pledge, lien, encumbrance or claim; and the certificates for
the Shares are in due and proper form and the holders of the Shares will
not be subject to personal liability by reason of being such holders;
(vi) the Company has an authorized capitalization as set forth
under the heading "Capitalization" in the Registration Statement and the
Prospectus; the outstanding shares of capital stock of the Company have
been duly and validly authorized and issued, and are fully paid,
nonassessable and free of statutory and contractual preemptive rights;
(vii) the capital stock of the Company, including the Shares,
conforms in all material respects to the description thereof contained
in the Registration Statement and Prospectus;
(viii) the Registration Statement and the Prospectus (except as to
the financial statements and schedules and other financial and
statistical data contained therein, as to which such counsel need
express no opinion) comply as to form in all material respects with the
requirements of the Act;
(ix) the Registration Statement has become effective under the Act
and, to such counsel's knowledge, no stop order proceedings with respect
thereto are pending or threatened under the Act;
(x) no approval, authorization, consent or order of or filing with
any national, state or local governmental or regulatory commission,
board, body, authority or agency is required in connection with the
issuance and sale of the Shares as contemplated hereby other than
registration of the Shares under the Act (except such counsel need
express no opinion as to any necessary qualification under the state
securities or blue sky laws of the various jurisdictions in which the
Shares are being offered by the Underwriters);
(xi) the execution, delivery and performance of this Agreement by
the Company and the consummation by the Company of the transactions
contemplated hereby do not and will not conflict with, or result in any
breach of, or constitute a default under (nor constitute any event which
with notice, lapse of time, or both, would constitute a breach of or
default under), any provisions of the charter or by-laws of the Company
or any of its Subsidiaries or under any provision of any license,
indenture, mortgage, deed of trust, bank loan, credit agreement or other
agreement or instrument to which the Company or any of its Subsidiaries
is a party or by which any of them or their respective properties may be
bound or affected, or, to such counsel's knowledge, under any law,
regulation or rule or any decree, judgment or order applicable to the
Company or any of its Subsidiaries;
(xii) there are no contracts, licenses, agreements, leases or
documents of a character which are required to be filed as exhibits to
the Registration Statement or to be summarized or described in the
Prospectus which have not been so filed, summarized or described;
(xiii) there are no actions, suits or proceedings pending or
threatened against the Company or any of its Subsidiaries or any of
their respective properties, at law or in equity or before or by any
commission, board, body, authority or agency that individually or in the
aggregate could result in a judgment, decree or order having a material
adverse effect on the properties, assets, operations, business prospects
or condition (financial or other) of the Company and the Subsidiary
taken as a whole;
(xiv) to such counsel's knowledge, each person who has the right,
contractual or otherwise, to request the Company to register pursuant to
the Act securities of the Company upon the issue and sale of the Shares
to the Underwriters hereunder or who has preemptive rights, rights of
first refusal or other rights to purchase any of the Shares either
waived such
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<PAGE> 11
rights or was excluded from including any such shares in this offering,
or from any preemptive rights, rights of first refusal or other purchase
rights, in accordance with the terms thereof;
(xv) the statements in the Registration Statement and the
Prospectus under the captions "Risk Factors -- Acquisition of BMT,"
"-- Effect of Certain Charter and Bylaw Provisions," "-- Shares Eligible
For Future Sale," "Acquisition of BMT," "Management -- Stock Plans,"
"-- Limitations on Directors' Liability and Indemnification,"
"Description of Capital Stock," "Shares Eligible For Future Sale," "Item
14" and "Item 16" insofar as they are descriptions of laws, regulations
and rules, of legal and governmental proceedings or of contracts,
agreements, leases and other legal documents, or refer to statements of
law or legal conclusions, have been reviewed by such counsel and are
accurate in all material respects; and
(xvi) the Company is not an "investment company" or a person
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended;
(xvii) the sale of securities by the Company described in Item 15
of the Registration Statement were exempt from the registration
requirements under the Act.
In addition, such counsel's opinion shall state that nothing has come to
the attention of such counsel that causes them to believe that the Registration
Statement or any amendment thereto at the time such Registration Statement or
amendment became effective contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, or that the Prospectus or any
supplement thereto at the date of such Prospectus or such supplement, and at all
times up to and including the time of purchase or additional time of purchase,
as the case may be, contained an untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading (it being understood that such counsel need express no opinion
with respect to the financial statements and schedules and other financial and
statistical data included in the Registration Statement or Prospectus).
(b) The Company shall furnish to you at the time of purchase and at
the additional time of purchase, as the case may be, an opinion of Griffin,
Butler, Whisenhunt & Kurtossy and Enrich & Dithmar, patent counsels for the
Company, addressed to the Underwriters, and dated the time of purchase and
the additional time of purchase, as the case may be, with reproduced copies
for each of the other Underwriters and in form satisfactory to Cooley
Godward Castro Huddleson & Tatum, counsel for the Underwriters, stating
that:
(i) The statements in the Prospectus and Registration Statement
under the captions "Risk Factors -- Reliance on Patents and Protection
of Proprietary Technology," and "Business -- Patents and Proprietary
Rights," have been reviewed by such counsel and are accurate in all
material respects and fairly present the information disclosed therein.
(ii) To the best of such counsel's knowledge, after due inquiry,
such counsel believes the Registration Statement and the Prospectus do
not contain any untrue statement of material fact and do not omit to
state any material fact which would be required to be stated in the
Registration Statement and the Prospectus or are necessary to make the
statements therein not misleading.
(iii) Except as disclosed in the Prospectus, the Company, and each
of its Subsidiaries, has obtained all material intellectual property
licenses required for the conduct of their business and, to the best of
such counsel's knowledge, after due inquiry, such licenses are in full
force and effect and the Company is complying therewith in all material
respects.
(iv) Except as, and to the extent set forth, in the Prospectus, to
the best of such counsel's knowledge, after due inquiry, the Company is
not under any obligation to pay to any third party royalties or fees of
any kind whatsoever with respect to such technology or any related
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intellectual properties developed, employed, or used in the present
conduct of the Company's affairs.
(v) To the best of such counsel's knowledge, there is no claim or
action by any person pertaining to, or proceeding, pending or
threatened, which challenges the rights of the Company with respect to
the Company's patents, trademarks and intellectual property licenses.
(c) The Company shall furnish to you at the time of purchase and at
the additional time of purchase, as the case may be, an opinion of Hogan &
Hartson, special regulatory counsel for the Company, addressed to the
Underwriters, and dated the time of purchase and the additional time of
purchase, as the case may be, with reproduced copies for each of the other
Underwriters and in form reasonably satisfactory to Cooley Godward Castro
Huddleson & Tatum, counsel for the Underwriters, stating that:
(i) The statements in the Prospectus and Registration Statement
under the captions "Risk Factors -- Lack of Regulatory Approval and
Limited Clinical Data," "-- Government Regulation," "-- Uncertainty
Relating to Third Party Reimbursement," "Business -- Clinical Trials,"
"Business -- Government Regulation," and "Business -- Third Party
Reimbursement" have been reviewed by such counsel and to the extent that
they reflect matters of law, summaries of law or regulation, or
regulatory status, are accurate in all material respects and fairly
present the information disclosed therein.
(ii) To the best of such counsel's knowledge, after due inquiry,
such counsel believes the Registration Statement and the Prospectus do
not contain any untrue statement of material fact and do not omit to
state any material fact which would be required to be stated in the
Registration Statement and the Prospectus or are necessary to make the
statements therein not misleading.
(d) You shall have received from KPMG Peat Marwick LLP and Grant
Thornton LLP, letters dated, respectively, the date of this Agreement and
the time of purchase and additional time of purchase, as the case may be,
and addressed to the Underwriters (with reproduced copies for each of the
Underwriters) in the form heretofore approved by the Managing Underwriters.
(e) You shall have received at the time of purchase and at the
additional time of purchase, as the case may be, the opinion of Cooley
Godward Castro Huddleson & Tatum, counsel for the Underwriters, dated the
time of purchase or the additional time of purchase, as the case may be, in
a form and substance satisfactory to you;
(f) No amendment or supplement to the Registration Statement or
Prospectus, shall be filed prior to the time the Registration Statement
becomes effective to which you object in writing.
(g) The Registration Statement shall become effective at or before
5:30 P.M., New York City time, on the date of this Agreement, and if Rule
430A under the Act is used, the Prospectus shall have been filed with the
Commission pursuant to Rule 424(b) under the Act at or before 5:30 P.M.,
New York City time, on the second full business day after the date of this
Agreement; provided, however, that the Company and you or the Company and
any group of Underwriters, including you, who have agreed hereunder to
purchase in the aggregate at lease 50% of the Firm Shares may from time to
time agree on a later date.
(h) Prior to the time of purchase or the additional time of purchase,
as the case may be, (i) no stop order with respect to the effectiveness of
the Registration Statement shall have been issued under the Act or
proceedings initiated under Section 8(d) or 8(e) of the Act; (ii) the
Registration Statement and all amendments thereto, or modifications
thereof, if any, shall not contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading; and (iii) the Prospectus and
all amendments or supplements thereto, or modifications thereof, if any,
shall not contain an
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<PAGE> 13
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they are made, not
misleading.
(i) Between the time of execution of this Agreement and the time of
purchase or the additional time of purchase, as the case may be, there has
not been: (i) any material and adverse change, present or prospective, in
the properties, assets, operations, business, business prospects or
condition (financial or other) of the Company and the Subsidiaries taken as
a whole, other than as described in the Registration Statement and the
Prospectus; (ii) any transaction that is material to the Company and the
Subsidiaries taken as a whole contemplated or entered into by the Company
or the Subsidiaries, other than as described in the Registration Statement
and the Prospectus; or (iii) any obligation, contingent or otherwise,
directly or indirectly, incurred by the Company that is material to the
Company and the Subsidiaries taken as a whole, other than as described in
the Registration Statement and the Prospectus.
(j) The Company will, at the time of purchase or additional time of
purchase, as the case may be, deliver to you a certificate of two of its
executive officers to the effect that the representations and warranties of
the Company as set forth in this Agreement are true and correct as of each
such date and the Company has complied with all agreements and satisfied
all conditions to be performed by it or satisfied hereunder at or prior to
such date.
(k) You shall have received signed letters, dated the date of this
Agreement, from each of the directors, officers and stockholders of the
Company to the effect that such persons shall not sell, contract to sell,
grant any option to sell or otherwise dispose of, directly or indirectly,
any shares of Common Stock of the Company or securities convertible into or
exchangeable for Common Stock or warrants or other rights to purchase
Common Stock for a period of 180 days after the date of the Prospectus
without the prior written consent of Dillon, Read & Co. Inc.
(l) The Company shall have furnished to you such other documents and
certificates as to the accuracy and completeness of any statement in the
Registration Statement and the Prospectus as of the time of purchase and
the additional time of purchase, as the case may be as you may reasonably
request.
(m) The Company shall have performed such of their respective
obligations under this Agreement as are to be performed by the terms hereof
at or before the time of purchase and at or before the additional time of
purchase, as the case may be.
(n) The Shares shall have been qualified for designation on the Nasdaq
National Market, subject only to notice of issuance at or prior to the time
of purchase.
7. EFFECTIVE DATE OF AGREEMENT; TERMINATION. This Agreement shall become
effective (i) if Rule 430A under the Act is not used, when you shall have
received notification of the effectiveness of the Registration Statement, or
(ii) if Rule 430A under the Act is used, when the parties hereto have executed
and delivered this Agreement.
The obligations of the several Underwriters hereunder shall be subject to
termination in the absolute discretion of you or any group of Underwriters
(which may include you) which has agreed to purchase in the aggregate at least
50% of the Firm Shares, if, at any time prior to the time of purchase or, with
respect to the purchase of any Additional Shares, the additional time of
purchase, as the case may be, trading in securities on the New York Stock
Exchange shall have been suspended or minimum prices shall have been established
on the New York Stock Exchange, or if a banking moratorium shall have been
declared either by the United States or New York State authorities, or if the
United States shall have declared war in accordance with its constitutional
processes or there shall have occurred any material outbreak or escalation of
hostilities or other national or international calamity or crisis of such
magnitude in its effect on the financial markets of the United States as, in
your judgment or in the judgment of such group of Underwriters, to make it
impracticable to market the Shares.
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If you or any group of Underwriters elects to terminate this agreement as
provided in this Section 7, the Company and each other Underwriter shall be
notified promptly by letter or telegram.
If the sale to the Underwriters of the Shares, as contemplated by this
Agreement, is not carried out by the Underwriters for any reason permitted under
this Agreement or if such sale is not carried out because the Company, as the
case may be, shall be unable to comply with any of the terms of this Agreement,
the Company shall not be under any obligation or liability under this Agreement
(except to the extent provided in Sections 4, 5 and 9 hereof), and the
Underwriters shall be under no obligation or liability to the Company under this
Agreement (except to the extent provided in Section 9 hereof) or to one another
hereunder.
8. INCREASE IN UNDERWRITERS' COMMITMENTS. If any Underwriter shall default
in its obligation to take up and pay for the Firm Shares to be purchased by it
hereunder and if the number of Firm Shares which all Underwriters so defaulting
shall have agreed but failed to take up and pay for does not exceed 10% of the
total number of Firm Shares, the non-defaulting Underwriters shall take up and
pay for (in addition to the aggregate principal amount of Firm Shares they are
obligated to purchase pursuant to Section 1 hereof) the number of Firm Shares
agreed to be purchased by all such defaulting Underwriters, as hereinafter
provided. Such Shares shall be taken up and paid for by such non-defaulting
Underwriter or Underwriters in such amount or amounts as you may designate with
the consent of each Underwriter so designated or, in the event no such
designation is made, such Shares shall be taken up and paid for by all
non-defaulting Underwriters pro rata in proportion to the aggregate number of
Firm Shares set opposite the names of such non-defaulting Underwriters in
Schedule A.
Without relieving any defaulting Underwriter from its obligations
hereunder, the Company agrees with the non-defaulting Underwriters that they
will not sell any Firm Shares hereunder unless all of the Firm Shares are
purchased by the Underwriters (or by substituted Underwriters selected by you
with the approval of the Company or selected by the Company with your approval).
If a new Underwriter or Underwriters are substituted by the Underwriters or
by the Company for a defaulting Underwriter or Underwriters in accordance with
the foregoing provision, the Company or you shall have the right to postpone the
time of purchase for a period not exceeding five business days in order that any
necessary changes in the Registration Statement and Prospectus and other
documents may be effected.
The term Underwriter as used in this agreement shall refer to and include
any Underwriter substituted under this Section 8 with like effect as if such
substituted Underwriter had originally been named in Schedule A.
9. INDEMNITY BY THE COMPANY AND THE UNDERWRITERS.
(a) The Company agrees to indemnify, defend and hold harmless each
Underwriter and any person who controls any Underwriter within the meaning
of Section 15 of the Act or Section 20 of the Exchange Act, from and
against any loss, expense, liability or claim (including the reasonable
cost of investigation) which, jointly or severally, any such Underwriter or
any such controlling person may incur under the Act, the Exchange Act or
otherwise insofar as such loss, expense, liability or claim arises out of
or is based upon any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement (or in the
Registration Statement as amended by any post-effective amendment thereof
by the Company) or in a Prospectus (the term Prospectus for the purpose of
this Section 9 being deemed to include any Preliminary Prospectus, the
Prospectus and the Prospectus as amended or supplemented by the Company),
or arises out of or is based upon any omission or alleged omission to state
a material face required to be seated in either such Registration Statement
or Prospectus or necessary to make the statements made therein not
misleading, except insofar as any such loss, expense, liability or claim
arises out of or is based upon any untrue statement or alleged untrue
statement of a material face contained in and in conformity with
information furnished in writing by any Underwriter through you to the
Company
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<PAGE> 15
expressly for use with reference to such Underwriter in such Registration
Statement or such Prospectus or arises out of or is based upon any omission
or alleged omission to state a material fact in connection with such
information required to be stated in either such Registration Statement or
Prospectus or necessary to make such information not misleading, provided,
however, that the indemnity agreement contained in this subsection (a) with
respect to any Preliminary Prospectus or amended Preliminary Prospectus
shall not inure to the benefit of any Underwriter (or to the benefit of any
person controlling such Underwriter) from whom the person asserting any
such loss, expense, liability or claim purchased the Shares which is the
subject thereof if the Prospectus corrected any such alleged untrue
statement or omission and if such Underwriter failed to send or give a copy
of the Prospectus to such person at or prior to the written confirmation of
the sale of such Shares to such person.
If any action is brought against an Underwriter or controlling person
in respect of which indemnity may be sought against the Company pursuant to
the foregoing paragraph, such Underwriter shall promptly notify the Company
in writing of the institution of such action and the Company shall assume
the defense of such action, including the employment of counsel and payment
of expenses. Such Underwriter or such controlling person shall have the
right to employ its or their own counsel in any such case, but the fees and
expenses of such counsel shall be at the expense of such Underwriter or of
such controlling person unless the employment of such counsel shall have
been authorized in writing by the Company in connection with the defense of
such action or the Company shall not have employed counsel to have charge
of the defense of such action or such indemnified party or parties shall
have reasonably concluded that there may be defenses available to it or
them which are different from or additional to those available to the
Company (in which case the-Company shall not have the right to direct the
defense of such action on behalf of the indemnified party or parties), in
any of which events such fees and expenses shall be borne by the Company
and paid as incurred (it being understood, however, that the Company shall
not be liable for the expenses of more than one separate counsel in any one
action or series of related actions in the same jurisdiction representing
the indemnified parties who are parties to such action). Anything in this
paragraph to the contrary notwithstanding, the Company shall not be liable
for any settlement of any such claim or action effected without its written
consent.
(b) Each Underwriter severally agrees to indemnify, defend and hold
harmless the Company, its directors and officers, and any person who
controls the Company within the meaning of Section 15 of the Act or Section
20 of the Exchange Act from and against any loss, expense, liability or
claim (including the reasonable cost of investigation) which, jointly or
severally, the Company or any such person may incur under the Act or
otherwise, insofar as such loss, expense, liability or claim arises out of
or is based upon any untrue statement or alleged untrue statement of a
material fact contained in and in conformity with information furnished in
writing by or on behalf of such Underwriter through you to the Company
expressly for use with reference to such Underwriter in the Registration
Statement (or in the Registration Statement as amended by any
post-effective amendment thereof by the Company) or in a Prospectus, or
arises out of or is based upon any omission or alleged omission to state a
material fact in connection with such information required to be stated
either in such Registration Statement or Prospectus or necessary to make
such information not misleading.
If any action is brought against the Company or any such person in
respect of which indemnity may be sought against any Underwriter pursuant
to the foregoing paragraph, the Company or such person shall promptly
notify such Underwriter in writing of the institution of such action end
such Underwriter shall assume the defense of such action, including the
employment of counsel end payment of expenses. The Company or such person
shall have the right to employ its own counsel in any such case, but the
fees and expenses of such counsel shall be at the expense of the Company or
such person unless the employment of such counsel shall have been
authorized in writing by such Underwriter in connection with the defense of
such action or such Underwriter shall not have employed counsel to have
charge of the defense of such action or such indemnified party or parties
15
<PAGE> 16
shall have reasonably concluded that there may be defenses available to it
or them which are different from or additional to those available to such
Underwriter (in which case such Underwriter shall not have the right to
direct the defense of such action on behalf of the indemnified party or
parties), in any of which events such fees and expenses shall be borne by
such Underwriter and paid as incurred (it being understood, however, that
such Underwriter "shall not be liable for the expenses of more than one
separate counsel in any one action or series of related actions in the same
Jurisdiction representing the indemnified parties who are parties to such
action). Anything in this paragraph to the contrary notwithstanding, no
Underwriter shall be liable for any settlement of any such claim or action
affected without the written consent of such Underwriter,
(c) If the indemnification provided for in this Section 9 is
unavailable to an indemnified party under subsections (a) and (b) of this
Section 9 in respect of any losses, expenses, liabilities or claims
referred to therein, then each applicable indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, expenses,
liabilities or claims (i) in such proportion as is appropriate to reflect
the relative benefits received by the Company on the one hand and the
Underwriters on the other hand from the offering of the Shares or (ii) if
the allocation provided by clause (i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of the
Company on the one hand and of the Underwriters on the other in connection
with the statements or omissions which resulted in such losses, expenses,
liabilities or claims, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one
hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total proceeds from the offering (net of underwriting
discounts and commissions but before deducting expenses) received by the
Company bear to the total underwriting discounts and commissions received
by the Underwriters. The relative fault of the Company on the one hand and
of the Underwriters on the other shall be determined by reference to, among
other things, whether the untrue statement or alleged untrue statement of a
material fact or omission or alleged omission relates to information
supplied by the Company or by the Underwriters and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The amount paid or payable by a party
as a result of the losses, expenses, liabilities and claims referred to
above shall be deemed to include any legal or other fees or expenses
reasonably incurred by such party in connection with investigating or
defending any claim or action.
(d) The Company and the Underwriters agree that it would not be just
and equitable if contribution pursuant to this Section 9 were determined by
pro rata allocation (even if the Underwriters were treated as one entity
for such purpose) or by any other method of allocation that does not take
account of the equitable considerations referred to in subsection (c)
above. Notwithstanding the provisions of this Section 9, no Underwriter
shall be required to contribute.any amount in excess of the amount by which
the total price at which the Shares underwritten by such Underwriter and
distributed to the public were offered to the public exceeds the amount of
any damages which such Underwriter has otherwise been required to pay by
reason of such untrue statement or alleged untrue statement or omission or
alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentation.
The Underwriter's obligations to contribute pursuant to this Section 9 are
several in proportion to their respective underwriting commitments and not
joint.
(e) The indemnity and contribution agreements contained in this
Section 9 and the covenants, warranties and representations of the Company
contained in this Agreement shall remain in full force and effect
regardless of any investigation made by or on behalf of any Underwriter, or
any person who controls any Underwriter within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act, or by or on behalf of the
Company, its directors and officers or any person who controls the Company
within the meaning of Section 15 of the Act or Section 20 of the Exchange
16
<PAGE> 17
Act, and shall survive any termination of this Agreement or the issuance
and delivery of the Shares. The Company and each Underwriter agree promptly
to notify the others of the commencement of any litigation or proceeding
against it and, in the case of the Company, against any of the Company's
officers and directors in connection with the issuance and sale of the
Shares, or in connection with the Registration Statement or Prospectus.
10. NOTICES. Except as otherwise herein provided, all statements,
requests, notices and agreements shall be in writing or by telegram and, if to
the Underwriters, shall be sufficient in all respects if delivered or sent to
Dillon, Read & Co. Inc., 535 Madison Avenue, New York, N.Y. 10022, Attention:
Syndicate Department, if to the Company, shall be sufficient in all respects if
delivered or sent to the Company at the offices of the Company at 265 East 100th
South, Suite 220, Salt Lake City, UT 84111-1616, Attention: Secretary.
11. CONSTRUCTION. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York. The Section headings in this
Agreement have been inserted as a matter of convenience of reference and are not
a part of this Agreement.
12. PARTIES AT INTEREST. The Agreement herein set forth has been and is
made solely for the benefit of the Underwriters, the Company and the controlling
persons, directors and officers referred to in Section 9 hereof, and their
respective successors, assigns, executors and administrators. No other person,
partnership, association or corporation (including a purchaser, as such
purchaser, from any of the Underwriters) shall acquire or have any right under
or by virtue of this Agreement.
13. COUNTERPARTS. This agreement may be signed by the parties in
counterparts which together shall constitute one and the same agreement among
the parties.
If the foregoing correctly sets forth the understanding among the Company
and the Underwriters, please so indicate in the space provided below for the
purpose, whereupon this letter and your acceptance shall constitute a binding
agreement among the Company and the Underwriters, severally.
Very truly yours,
UROQUEST MEDICAL CORPORATION
By
------------------------------------
Title:
Accepted and agreed to as of the date
first
above written, on behalf of
themselves
and the other several
Underwriters
named in Schedule A
DILLON, READ & CO. INC.
PRUDENTIAL SECURITIES INCORPORATED
By: DILLON, READ & CO. INC.
By
----------------------------------
David Gottlieb
Vice President
17
<PAGE> 18
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER FIRM SHARES
----------- -----------
<S> <C>
Dillon, Read & Co. Inc. .........................................................
Prudential Securities Incorporated...............................................
-------
Total..................................................................
</TABLE>
<PAGE> 1
EXHIBIT 10.3
UROQUEST MEDICAL CORPORATION
1996 EMPLOYEE STOCK PURCHASE PLAN
SECTION 1. PURPOSE.
The purpose of the Uroquest Medical Corporation Employee 1996 Stock
Purchase Plan (the "Plan") is to provide a means by which employees of Uroquest
Medical Corporation,a Delaware corporation (the "Company"), and its Affiliates
may be given an opportunity to purchase Common Stock of the Company. The
Company, by means of the Plan, seeks to retain the services of its employees,
to secure and retain the services of new employees, and to provide incentives
for its employees to exert maximum efforts for the success of the Company. The
Company intends that the rights to purchase Common Stock of the Company granted
under the Plan be considered options issued under an "employee stock purchase
plan" as that term is defined in Code Section 423(b).
SECTION 2. DEFINITIONS.
(a) "Affiliate" means any parent corporation or subsidiary
corporation of the Company, as those terms are defined in Code Sections 424(e)
and (f), respectively.
(b) "Beneficiary" means the person designated by the
Eligible Employee in the form and manner prescribed by the Board or the
Committee pursuant to Section 15.
(c) "Board" means the Board of Directors of Uroquest
Medical Corporation.
(d) "Code" means the Internal Revenue Code of 1986, as
amended.
(e) "Committee" means the Compensation Committee of the
Board of Directors of Uroquest Medical Corporation as specified in Section
3(c).
(f) "Company" means Uroquest Medical Corporation.
(g) "Common Stock" means the Company's common stock.
(h) "Compensation" means remuneration earned by an
employee and paid by the Company or an Affiliate as may be defined by the Board
or the Committee under the terms of each Offering.
(i) "Eligible Employee" means an employee of the Company
or an Affiliate designated by the Board or the Committee as eligible to
purchase Common Stock of the Company pursuant to the terms of the applicable
Offering, subject to the provisions of Section 6.
(j) "Offering" means the offering of Common Stock for
purchase under the Plan to Eligible Employees as specified in Section 5.
(k) "Offering Date" means the date on which an Offering
is made as specified in Section 5.
(l) "Plan" means the Uroquest Medical Corporation 1996
Employee Stock Purchase Plan.
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<PAGE> 2
(m) "Purchase Date" means the date(s) established in
Section 7 by the Board or the Committee during an Offering on which rights
granted under the Plan shall be exercised and purchases of Common Stock carried
out in accordance with the terms of the Offering. In general, "Purchase Date"
shall mean the last business day of each Offering.
SECTION 3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until
the Board delegates administration to the Committee, as provided in Section
2(c). Whether or not the Board has delegated administration, the Board shall
have the final power to determine all questions of policy and expediency that
may arise in the administration of the Plan.
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions if the Plan:
(i) To determine when and how rights to purchase Common
Stock shall be granted and the provisions of each offering of such rights
(which need not be identical).
(ii) To designate from time to time which Affiliates of
the Company shall be eligible to participate in the Plan.
(iii) To construe and interpret the Plan and rights granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of its power, may correct any
defect, omission or inconsistency in the Plan, in a manner and to the extent it
shall deem necessary or expedient to make the Plan fully effective.
(iv) To amend the Plan as provided in Section 13.
(v) Generally, to exercise all powers and to perform all
acts as the Board deems necessary or expedient to promote the best interests of
the Company and its Affiliates and to carry out the intent that the Plan be
treated as an "employee stock purchase plan" within the meaning of Code Section
423.
(c) The Board may delegate administration of the Plan to the
Committee which shall be comprised of one or more persons and which may be
constituted in accordance with the applicable requirements of Rule 16b-3 under
the Securities Exchange Act of 1934 (the "Exchange Act" and "Rule 16b-3"). If
administration is delegated to the Committee, the Committee shall have, in
connection with the administration of the Plan, the powers previously possessed
by the Board, subject, however, to any resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
SECTION 4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 12 relating to
adjustments upon changes in stock, the stock that may be sold pursuant to
rights granted under the Plan shall not exceed in the aggregate two hundred
fifty thousand (250,000) shares of Common Stock. If any right granted under
the Plan shall for any reason terminate without having been exercised, the
Common Stock not purchased under such right shall again become available for
the Plan.
2
<PAGE> 3
(b) The Common Stock subject to the Plan may be unissued shares or
reacquired shares, bought on the market or otherwise.
SECTION 5. GRANT OF RIGHTS; OFFERING.
The Board or the Committee may from time to time grant or provide for
the grant of rights to purchase Common Stock under the Plan to Eligible
Employees (an Offering) on a date or dates (the Offering Date(s)) selected by
the Board or the Committee. Each Offering shall be in the form and shall
contain the terms and conditions as the Board or the Committee shall deem
appropriate, which shall comply with the requirements of Code Section
423(b)(5) that all employees granted rights to purchase stock under the Plan
shall have the same rights and privileges. The terms and conditions of each
Offering shall be incorporated by reference into the Plan and treated as part
of the Plan. The provisions of separate Offerings need not be identical, but
each Offering shall include (through incorporation of the provisions of this
Plan by reference in the document comprising the Offering or otherwise) the
period during which the Offering shall be effective, which period shall not
exceed twenty-seven (27) months beginning with the Offering Date, and the
substance of the provisions contained in Sections 5 through 8.
SECTION 6. ELIGIBILITY.
(a) Rights may be granted only to Eligible Employees of the
Company or, as the Board or the Committee may designate as provided in Section
2(b), to Eligible Employees of any Affiliate of the Company. Except as
provided in Section 5(b), an employee of the Company or any Affiliate shall not
be an Eligible Employee unless, on the Offering Date, the employee has been in
the employ of the Company or any Affiliate for a continuous period preceding
such grant as the Board or the Committee may require, but in no event shall the
required period of continuous employment be equal to or greater than two (2)
years. In addition, unless otherwise determined by the Board or the Committee
and set forth in the terms of the applicable Offering, no employee of the
Company or any Affiliate shall be an Eligible Employee unless, on the Offering
Date, the employee's customary employment with the Company or Affiliate is for
at least twenty (20) hours per week and at least five (5) months per calendar
year.
(b) The Board of the Committee may provide that, each individual
who, during the course of an Offering, first becomes an Eligible Employee of
the Company or designated Affiliate will, on a date or dates specified in the
Offering which coincides with the day on which the individual becomes an
Eligible Employee or occurs thereafter, receive a right under that Offering,
which right shall thereafter be deemed to be a part of that Offering. Such
right shall have the same characteristics as any rights originally granted
under that Offering, as described herein, except that:
(i) the date on which such right is granted shall be the
"Offering Date" of such right for all purposes, including determination of the
exercise price of such right;
(ii) the period of the Offering with respect to such right
shall begin on its Offering Date and end coincident with the end of such
Offering; and
(iii) the Board or the Committee may provide that if the
individual first becomes an Eligible Employee within a specified period of time
before the end of the Offering, he or she will not receive any right under that
Offering.
3
<PAGE> 4
(c) No employee who is otherwise an Eligible Employee shall be
eligible for the grant of any rights under the Plan if, immediately after any
such rights are granted, the employee owns stock possessing five percent (5%) or
more of the total combined voting power or value of all classes of stock of the
Company or of any Affiliate. For purposes of this Section 6(c), the rules of
Code Section 424(d) shall apply in determining the stock ownership of any
employee, and stock which the employee may purchase under all outstanding rights
and options shall be treated as stock owned by the employee.
(d) An Eligible Employee may be granted rights under the Plan only
if such rights, together with any other rights granted under "employee stock
purchase plans" of the Company and any Affiliates, as specified by Code Section
423(b)(8), do not permit the employee's rights to purchase stock of the Company
or any Affiliate to accrue at a rate which exceeds twenty-five thousand
($25,000) of fair market value of the Common Stock (determined at the time such
rights are granted) for each calendar year in which such rights are outstanding
at any time.
(e) Officers of the Company and any designated Affiliate shall be
eligible to participate in Offerings under the Plan, provided, however, that the
Board may provide in an Offering that certain employees who are highly
compensated employees within the meaning of Code Section 423(b)(4)(D) shall not
be eligible to participate.
SECTION 7. RIGHTS; PURCHASE PRICE.
(a) On each Offering Date, each Eligible Employee, pursuant to an
Offering made under the Plan, shall be granted the right to purchase up to the
number of shares of Common Stock purchasable with a percentage designated by the
Board or the Committee not exceeding fifteen percent (15%) of the employee's
Compensation during the period which begins on the Offering Date (or such later
date as the Board or the Committee determines for a particular Offering) and
ends on the date stated in the Offering, which date shall be no later than the
end of the Offering. The Board or the Committee shall establish one or more
Purchase Dates during an Offering on which rights granted under the Plan shall
be exercised and purchases of Common Stock carried out in accordance with the
terms of the Offering.
(b) In connection with each Offering made under the Plan, the Board
or the Committee may specify a maximum number of shares of Common Stock that may
be purchased by any Eligible Employee as well as a maximum aggregate number of
shares that may be purchased by all Eligible Employees pursuant to the terms of
the Offering. In addition, in connection with each Offering that contains more
than one Purchase Date, the Board or the Committee may specify a maximum
aggregate number of shares which may be purchased by all Eligible Employees on
any given Purchase Date under the Offering. If the aggregate purchase of shares
upon exercise of rights granted under the Offering would exceed any maximum
aggregate number, the Board or the Committee shall make a pro rata allocation of
the shares available in as nearly a uniform manner as shall be practicable and
as it shall deem to be equitable.
(c) The purchase price of Common Stock acquired pursuant to rights
granted under the Plan shall be not less than the lesser of:
(i) an amount equal to eighty-five percent (85%) of the
fair market value of the Common Stock on the Offering Date; or
(ii) an amount equal to eighty-five percent (85%) of the
fair market value of the Common Stock on the Purchase Date.
4
<PAGE> 5
SECTION 8. PARTICIPATION; WITHDRAWAL; TERMINATION.
(a) An Eligible Employee may become a participant in the Plan
pursuant to an Offering by delivering a participation agreement to the Company
within the time specified in the Offering, in the form and manner as the
Company provides. Each agreement shall authorize payroll deductions of up to
the maximum percentage specified by the Board or the Committee of the
employee's Compensation during the Offering (as defined by the Board or
Committee in each Offering). The payroll deductions made for each participant
shall be credited to an account for that participant under the Plan and shall
be deposited with the general funds of the Company. A participant may reduce
(including to zero) or increase his or her payroll deductions, and an Eligible
Employee may begin payroll deductions, after the beginning of any Offering only
as provided for in the terms of the Offering. A participant may make
additional payments into his or her account only if specifically provided for
in the Offering and only if the participant has not had the maximum amount
withheld during the Offering.
(b) At any time during an Offering, a participant may terminate
his or her payroll deductions under the Plan and withdraw from the Offering by
delivering to the Company a notice of withdrawal in the form and manner as the
Company provides. Withdrawal may be elected at any time prior to the end of
the Offering except as provided by the Board or the Committee in the Offering.
Upon withdrawal from the Offering by a participant, the Company shall
distribute to the participant all of his or her accumulated payroll deductions
(reduced to the extent, if any, deductions have been used to acquire stock for
the participant) under the Offering, without interest, and the participant's
interest in that Offering shall be automatically terminated. A participant's
withdrawal from an Offering will have no effect upon the participant's
eligibility to participate in any other Offerings under the Plan but the
participant will be required to deliver a new participation agreement in order
to participate in subsequent Offerings under the Plan.
(c) Rights granted pursuant to any Offering under the Plan shall
terminate immediately upon cessation of any participating employee's employment
with the Company or any designated Affiliate, for any reason other than death,
disability or retirement at age 65, and the Company shall distribute to the
terminated employee all of his or her accumulated payroll deductions (reduced
to the extent, if any, deductions have been used to acquire Common Stock for
the terminated employee) under the Offering, without interest.
(d) If a participating employee's employment with the Company
terminates for death, disability or retirement at age 65, the participant (or
the participant's Beneficiary in the case of death) may either (i) cancel the
rights, in which case the Company shall distribute to the terminated employee
all of his or her accumulated payroll deductions (reduced to the extent, if
any, deductions have been used to acquire Common Stock for the terminated
employee) under the Offering, without interest; or (ii) elect to receive at the
conclusion of the Offering the number of shares for which payroll deductions
actually made are sufficient to purchase (plus the cash balance credited to his
or her account, if any). The election of the participant or his or her
Beneficiary shall be made within three (3) months of the event causing the
termination of employment, but not later than the last day of the Offering.
Notification of the election shall be filed with the Board or the Committee.
In the event no notification is filed, the Company shall act in accordance with
clause (i) of this Section 8(d).
(e) Rights granted under the Plan shall not be transferable by a
participant otherwise than by will or the laws of descent and distribution, or
by designation of a Beneficiary as provided in Section 15 and, otherwise during
his or her lifetime, shall be exercisable only by the person to whom such
rights are granted.
5
<PAGE> 6
SECTION 9. EXERCISE.
(a) On each Purchase Date specified therefor in the relevant
Offering, each participant's accumulated payroll deductions and other
additional payments specifically provided for in the Offering (without any
increase for interest) will be applied to the purchase of whole shares of
Common Stock, up to the maximum number of shares permitted pursuant to the
terms of the Plan and the applicable Offering, at the purchase price specified
in the Offering. No fractional shares shall be issued upon the exercise of
rights granted under the Plan. The amount, if any, of accumulated payroll
deductions remaining in each participant's account after the purchase of shares
which is less than the amount required to purchase one share of Common Stock on
the final Purchase Date of an Offering shall be held in each participant's
account for the purchase of shares under the next Offering under the Plan,
unless the participant withdraws from the next Offering, as provided in Section
8(b), or is no longer eligible to be granted rights under the Plan, as provided
in Section 6, in which case such amount shall be distributed to the participant
after the final Purchase Date, without interest. The amount, if any, of
accumulated payroll deductions remaining in any participant's account after the
purchase of shares which is equal to the amount required to purchase whole
shares of stock on the final Purchase Date of an Offering shall be distributed
in full to the participant after the Purchase Date, without interest.
(b) No rights granted under the Plan may be exercised to any
extent unless the shares to be issued upon exercise under the Plan (including
rights granted thereunder) are covered by an effective registration statement
pursuant to the Securities Act of 1933, as amended, and the Plan is in material
compliance with all applicable state, foreign and other securities and other
laws applicable to the Plan. If on a Purchase Date in any Offering hereunder
the Plan is not so registered or in compliance, no rights granted under the
Plan or any Offering shall be exercised on the Purchase Date, and the Purchase
Date shall be delayed until the Plan is subject to an effective registration
statement and compliance, except that the Purchase Date shall not be delayed
more than twelve (12) months from the Offering Date. If on the Purchase Date
of any Offering hereunder, as delayed to the maximum extent permissible, the
Plan is not registered and in compliance, no rights granted under the Plan or
any Offering shall be exercised and all payroll deductions accumulated during
the Offering (reduced to the extent, if any, deductions have been used to
acquire Common Stock) shall be distributed to the participants in the Plan,
without interest.
SECTION 10. COVENANTS OF THE COMPANY.
(a) During the terms of the rights granted under the Plan, the
Company shall keep available at all times the number of shares of Common Stock
required to satisfy such rights.
(b) The Company shall seek to obtain from each federal, state,
foreign or other regulatory commission or agency having jurisdiction over the
Plan any authority as may be required to issue and sell shares of Common Stock
upon exercise of the rights granted under the Plan. If, after reasonable
efforts, the Company is unable to obtain from any regulatory commission or
agency the authority which counsel for the Company deems necessary for the
lawful issuance and sale of Common Stock under the Plan, the Company shall be
relieved from any liability for failure to issue and sell Common Stock upon
exercise of such rights unless and until the authority is obtained.
6
<PAGE> 7
SECTION 11. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of Common Stock pursuant to rights granted
under the Plan shall constitute general funds of the Company.
SECTION 12. RIGHTS AS A STOCKHOLDER.
A participant shall not be deemed to be the holder of, or to have any
of the rights of a holder with respect to, any shares subject to rights granted
under the Plan unless and until the participant's shareholdings acquired upon
exercise of rights under the Plan are recorded in the books of the Company.
SECTION 13. ADJUSTMENTS UPON CHANGES IN COMMON STOCK.
(a) If any change is made in the Common Stock subject to the Plan,
or subject to any rights granted under the Plan (through merger, consolidation,
reorganization, recapitalization, reincorporation, stock dividend, dividend in
property other than cash, stock split, liquidating dividend, combination of
shares, exchange of shares, change in corporate structure or other transaction
not involving the receipt of consideration by the Company), the Plan and
outstanding rights will be appropriately adjusted in the class(es) and number of
shares and price per share of stock subject to outstanding rights. Adjustments
shall be made by the Board or the Committee, the determination of which shall be
final, binding and conclusive. (The conversion of any convertible securities of
the Company shall not be treated as a "transaction not involving the receipt of
consideration by the Company.")
(b) In the event of: (1) a dissolution or liquidation of the
Company; (2) a merger or consolidation in which the Company is not the surviving
corporation; (3) a reverse merger in which the Company is the surviving
corporation but the shares of the Company's Common Stock outstanding immediately
preceding the merger are converted by virtue of the merger into other property,
whether in the form of securities, cash or otherwise; or (4) the acquisition by
any person, entity or group within the meaning of Exchange Act Section 13(d) or
14(d) Act or any comparable successor provisions (excluding any employee benefit
plan, or related trust, sponsored or maintained by the Company or any Affiliate
of the Company) of the beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act, or comparable successor rule) of securities
of the Company representing at least fifty percent (50%) of the combined voting
power entitled to vote in the election of directors, then, as determined by the
Board in its sole discretion: (i) any surviving or acquiring corporation may
assume outstanding rights or substitute similar rights for those under the Plan,
and such rights may continue in full force and effect; or (ii) participants'
accumulated payroll deductions may be used to purchase Common Stock immediately
prior to the transaction described above and the participants' rights under the
ongoing Offering terminated.
SECTION 14. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the
Plan. However, except as provided in Section 13 12 relating to adjustments upon
changes in Common Stock, no amendment shall be effective unless approved by the
stockholders of the Company within twelve (12) months before or after the
adoption of the amendment, where the amendment will:
(i) Increase the number of shares reserved for rights
under the Plan;
7
<PAGE> 8
(ii) Modify the provisions as to eligibility for
participation in the Plan (to the extent modifications requires
stockholder approval in order for the Plan to obtain employee stock
purchase plan treatment under Code Section 423 or to comply with the
requirements of Rule 16b-3); or
(iii) Modify the Plan in any other way if modification
requires stockholder approval in order for the Plan to obtain employee
stock purchase plan treatment under Code Section 423 or to comply with
the requirements of Rule 16b-3.
It is expressly provided that the Board may amend the Plan in any respect the
Board deems necessary or advisable to provide Eligible Employees with the
maximum benefits provided or to be provided under the provisions of the Code and
the regulations promulgated thereunder relating to employee stock purchase plans
and/or to bring the Plan and/or rights granted under it into compliance with the
Code and regulations.
(b) Rights and obligations under any rights granted before
amendment of the Plan shall not be impaired by any amendment of the Plan, except
with the consent of the person to whom such rights were granted, or except as
necessary to comply with any laws or governmental regulations, or except as
necessary to ensure that the Plan and/or rights granted under the Plan comply
with the requirements of Code Section 423.
SECTION 15. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a Beneficiary
who is to receive any shares and cash, if any, from the participant's account
under the Plan in the event of the participant's death subsequent to the end of
an Offering but prior to delivery to the participant of the participant's shares
and cash. In addition, a participant may file a written designation of a
Beneficiary who is to receive any cash from the participant's account under the
Plan in the event of the participant's death during the Offering.
(b) A Beneficiary designation may be changed by the participant at
any time by written notice. In the event of the death of a participant and in
the absence of a Beneficiary validly designated under the Plan who is living at
the time of the participant's death, the Company shall deliver the shares and/or
cash to the executor or administrator of the estate of the participant, or if no
executor or administrator has been appointed (to the knowledge of the Company),
the Company, in its sole discretion, may deliver the shares and/or cash to the
spouse or to any one or more dependents or relatives of the participant, or if
no spouse, dependent or relative is known to the Company, then to such other
person as the Company may designate.
SECTION 16. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board in its discretion, may suspend or terminate the Plan
at any time. No rights may be granted under the Plan while the Plan is
suspended or after it is terminated.
(b) Rights and obligations under any rights granted while the Plan
is in effect shall not be impaired by suspension or termination of the Plan,
except as expressly provided in the Plan or with the consent of the person to
whom such rights were granted, or except as necessary to comply with any laws
or governmental regulation, or except as necessary to ensure that the Plan
and/or rights granted under the Plan comply with the requirements of Code
Section 423.
8
<PAGE> 9
(c) Unless terminated earlier by the Board, the Plan shall
terminate automatically ten (10) years from the Effective Date of the Plan.
SECTION 17. EFFECTIVE DATE OF PLAN.
The Plan shall become effective on the same day that the Company's
registration statement covering the Common Stock subject to grant under the
Plan is filed on Form S-8 with the Securities and Exchange Commission (the
"Effective Date"), but no rights granted under the Plan shall be exercised
unless and until the Plan has been approved by the stockholders of the Company
within twelve (12) months before or after the date the Plan is adopted by the
Board or the Committee, which date may be prior to the Effective Date.
IN WITNESS WHEREOF, a duly authorized representative of the Company
has executed this Plan.
UROQUEST MEDICAL CORPORATION
By: ______________________________
Title: ___________________________
Date: ____________________________
ADOPTED BY THE BOARD _________________________, 1996
APPROVED BY STOCKHOLDERS _________________________, 1996
9
<PAGE> 10
UROQUEST MEDICAL CORPORATION (THE "COMPANY")
1996 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AND CONTRIBUTION ELECTION FORM
Uroquest Medical Corporation, 265 East 100 South,
Salt Lake City, UT 84111 (801) 322-1554
===============================================================================
PARTICIPANT'S NAME:________________________________ SOC. SEC. NO.:_____________
INDICATE PURPOSE OF THIS FORM: (CHECK ONE)
[ ] Initial Enrollment [ ] Discontinuance of Contributions
[ ] Change in Rate of Contribution
CONTRIBUTION ELECTION: (CHECK ALL THAT APPLY)
A. [ ] I hereby authorize the Company to deduct from each payroll
check (after taxes) the following percentage of my salary and
to contribute such amount to the Plan as an after-tax salary
reduction contribution to be used for the purchase of Company
Common Stock.
_________________% (Must be between 1% - 15%)
B. [ ] I hereby authorize the Company to reduce the percentage of my
salary reduction contribution to the following percentage of
my salary:
_________________% (May not go below 1%)
C. [ ] I hereby authorize the Company to discontinue my salary
reduction contributions.
[ ] I hereby request a withdrawal of all salary reduction
contributions currently in my account.
CONSENT AND CERTIFICATION:
I acknowledge that I have a received the applicable Offering documents. I
understand that the election(s) made above will remain in effect until I change
them by submitting a revised Contribution Election Form. I understand that I
cannot enroll in the Plan or increase my salary reduction contribution
percentage after the Offering Date for each Offering and, that if I discontinue
my contributions, I may not later resume participation until a new Offering. I
further understand that unless I withdraw from participation in the Plan, I
will automatically purchase the number of shares which may be purchased under
the Plan with my total salary reduction contribution.
___________________________________________________ _______________________
Participant's Signature Date
===============================================================================
PLEASE RETURN THIS FORM TO THE VICE PRESIDENT, FINANCE.
<PAGE> 1
EXHIBIT 10.13
EMPLOYEE AGREEMENT
THIS EMPLOYEE AGREEMENT ("Agreement") is made as of the 27 day of June, 1996,
by and between UROQUEST CORPORATION, ("UroQuest"), a Florida corporation and
Tom E. Brandt, (the "Employee") an individual currently employed by BIVONA,
INC. ("Bivona"), an Indiana corporation.
RECITALS
1. UroQuest is principally engaged in the development and marketing of certain
urological medical devices.
2. Bivona, a wholly-owned subsidiary of BMT, Inc. ("BMT") is principally
engaged in the manufacture and distribution of certain medical devices and
products, including urological catheters for UroQuest. The Employee has been
employed prior to the date hereof by Bivona in the capacity of President/Chief
Executive Officer.
3. BMT has entered into an Agreement and Plan of Merger with UroQuest, whereby
Bivona would become an indirect wholly-owned subsidiary of UroQuest. The merger
(the "Merger") would become effective concurrently with the consummation of the
initial public offering of UroQuest.
4. The combination of UroQuest and Bivona will be referred herein as the
"Company".
5. Subject to and upon consummation of the Merger, the Company desires to have
the Employee continue to serve as an employee of the Company, and the Employee
desires to continue such employment, all on the terms and conditions set forth
in this Agreement.
AGREEMENT
In consideration of the premises and the mutual covenants and conditions set
forth herein, UroQuest and the Employee agrees as follows:
ARTICLE I
EMPLOYMENT
UroQuest hereby agrees to the Employee's employment with the Company in
accordance with the terms and conditions of this Agreement, and the Employee
hereby agrees to the terms and conditions of this Agreement. The Employee shall
be employed as an officer and director of UroQuest as Vice President of
Operations & Chief Operating Officer (COO) and remain as the President of
Bivona. UroQuest further agrees, effective at the time of merger, that the
Employee shall be elected to the Board of Directors of UroQuest and shall be
recommended by the Board of Directors of UroQuest to its shareholders to
continue as a director for a period of at least five (5) years, provided his
employment with UroQuest does not terminate. The Employee will have the duties,
responsibilities, authority and powers that go with the responsibilities as
determined by the Board of Directors of UroQuest.
<PAGE> 2
ARTICLE II
TERM OF AGREEMENT
The term of employment which this Agreement establishes shall commence at the
effective time of the Merger and end on September 30, 2001. Not withstanding
the foregoing, the term of employment established by this Agreement is subject
to prior termination as herein provided.
ARTICLE III
DEVOTION OF DUTIES
During the term of employment, the Employee shall devote his full time
attention, skill and effort to the operations of the Company and shall not,
during such term engage in any other business activity requiring any
substantial amount of his time.
ARTICLE IV
REGULAR COMPENSATION
During the term of the Employee's employment under this Agreement, the Company
shall pay to the Employee and the Employee shall accept from the Company, as
compensation for his services and for his covenants and other obligations
hereunder, the monthly salary of $14,000, payable in accordance with the
regular and customary payroll practices of the Company. The salary of the
Employee shall be subject to periodic annual increases in accordance with
procedures established by UroQuest's Board of Directors.
ARTICLE V
EXPENSES AND FRINGE BENEFITS
The Company shall reimburse the Employee for all ordinary and necessary
business expenses incurred by him while carrying out his employment
responsibilities under this Agreement. The Employee shall also be entitled to
participate in all such fringe benefit programs, including any stock option,
stock or cash bonuses, stock purchase, vesting acceleration programs, or profit
sharing plans as the Company or its parent or affiliates have in place, or may
from time to time establish for other executive officers of the Company, if he
is otherwise qualified to participate in such programs.
ARTICLE VI
TERMINATION
Section 6.01. Reasons for Termination. The Employment of the Employee shall be
terminated upon the occurrence of any of the following events:
a) Death of the Employee.
b) At the Company's option, if the Employee shall suffer a permanent
disability. For purposes of this Agreement, "permanent disability" shall be
defined as the Employee's inability through physical or mental illness or
other cause to perform, in the opinion of the Company, duties assigned to
him hereunder for the continuous period of six months during the term of
this Agreement.
<PAGE> 3
c) At the Company's option, upon the Employee's willful and continued
violation of Company policy or upon any dishonesty of any kind or
willful misconduct of the Employee, including, but not limited to, theft
of or other unauthorized personal use of Company funds or other
remuneration from Company suppliers or potential suppliers.
d) At the Employee's option, without cause.
e) At the Company's option, without cause.
Section 6.02. Compensation Upon Termination.
a) Should the employment of the Employee be terminated under subsections
(a) or (b) of Section 6.01 of this Agreement, the Company shall make
payment to the Employee (or the Employee's personal representative),
within ten business days after the date of termination, a sum equal to
the aggregate amount of regular compensation that was paid to the
Employee under this Agreement for the six-month period preceding such
date of termination.
b) Should the employment of the Employee be terminated under subsection (c)
or (d) of Section 6.01 of this Agreement, the Employee shall be paid his
regular compensation up to the date of termination.
c) Should the employment of the Employee be terminated under subsection (e)
of Section 6.01 of this Agreement, the Company shall make payment to the
Employee, within ten business days after the date of termination, a sum
equal to the greater of either (i) the aggregate amount of regular
compensation that the Employee would otherwise have received during the
remaining term of this Agreement or (ii) the amount of regular
compensation that was paid to the Employee under this Agreement for the
twelve-month period preceding the date of termination.
d) Payments to the Employee under this Section 6.02 shall be considered
severance pay in consideration of the Employee's past service and in
consideration of his continued service from the date hereof. The Company
may, at its discretion, withhold from such payments any federal, state,
city, county or other taxes as applicable.
Section 6.03. Reimbursement for Certain Litigation Expenses. In the event of
litigation to determine whether the Employee's employment was properly
terminated under subsection (c) of Section 6.01, the prevailing party shall be
entitled to recover all reasonable costs and expenses, including reasonable
attorneys' fees, incurred in connection with such litigation.
ARTICLE VII
RESTRICTIVE COVENANT AND CONFIDENTIAL INFORMATION
In connection with his employment by the Company, the Employee has and will
become acquainted with the affairs of the Company, its officers and employees,
its sources of supply, its customers, and other trade information which the
Company has acquired or will acquire at great cost and expenses. Therefore, as
an essential ingredient and consideration of this Agreement, the Employee
hereby agrees as follows:
Section 7.01. Noncompetition and Nondisclosure. The Employee shall not,
during the term of his employment with the Company (whether pursuant to this
Agreement or otherwise), nor for twelve months immediately following the
expiration of the term of the Agreement as provided in Article II (whether such
termination occurs prior to or at the end of such term).
<PAGE> 4
(a) Solicit, take away, hire, employ or endeavor to employ any person who is
then an employee of the Company; or
(b) Engage directly or indirectly, whether as an individual or sole proprietor
or as owner, partner, shareholder (except of one percent or less of any
class of outstanding securities listed on any national securities exchange
or actively traded in an over-the-counter market), officer, director,
manager, agent, consultant, formal or informal advisor, or by or through the
lending of any form of assistance, to a competitor of the Company within any
geographical territory within which the Company operated as of the date of
the termination of the Employee's employment; or
(c) Disclose or otherwise use, confidential information of the Company regarding
merchandising methods, inventory, accounting or financial methods,
techniques or strategies, trade information, trade secrets, customer lists,
information relating to customers and their requirements or any other
information that was obtained by the Employee in connection with the
performance of his duties for the Company.
Section 7.02. Return of Records and Property. The Employee agrees that all
records and copies of records pertaining to the operations, customers and
business of the Company that are made or received by the Employee in the course
of his employment by the Company shall be the property of the Company, and
agrees to keep such documents subject to the Company's custody and control, and
to surrender to the Company such of those documents as are still in his
possession at the termination of this employment. The Employee agrees not to
disclose or give possession of such documents or records to anyone except
authorized representatives of the Company. The Employee further agrees to return
to the Company any and all catalogs, brochures, samples, machinery, equipment
and other property of the Company promptly upon termination of this employment.
Section 7.03. Violations.
(a) The Employee acknowledges that any violation of any provision of this
Article VII by him will cause irreparable damage to the Company, that such
damages will be incapable of precise measurement, and that, as a result,
the Company will not have an adequate remedy at law to redress the harm
which such violations will cause. Therefore, in the event of any violation
of any provision of this Article VII by the Employee, he agrees that, in
addition to its other remedies, the Company shall be entitled to injunctive
relief including, but not limited to, temporary restraining orders and
temporary injunctions to restrain any violation of this Article VII by the
Employee.
(b) If a court of competent jurisdiction finds that the Employee has violated
any of the restrictions set forth in this Article VII, then the period of
all restrictions set forth in this Article VII automatically shall be
extended by the number of days that the court determines the Employee to
have been in violation of such restriction.
(c) In addition to other relief to which it shall be entitled, the Company shall
be entitled to recover from the Employee the costs and reasonable attorneys'
fees incurred by the Company in seeking enforcement of this Article VII.
<PAGE> 5
ARTICLE VIII
GENERAL
Section 8.01. Severability. Should any clause, portion or section of this
Agreement be deemed unenforceable or invalid for any reason, such
unenforceability or invalidity shall not affect the enforceability or validity
of the remainder of this Agreement. Should any particular covenant in this
Agreement be held unreasonable or unenforceable for any reason, including,
without limitation, the time period, geographical area, and scope of activity
covered by such covenant, then such covenant shall be given effect and
enforced to whatever extent would be reasonable and enforceable.
Section 8.02. Assignment Successors in Interest. This Agreement, being
personal to the Employee, may not be assigned by him. The terms and conditions
of this Agreement shall inure to the benefit of and be binding upon the
successors and assigns of the Company, and the heirs, executors and personal
representatives of the Employee.
Section 8.03. Governing Law. This Agreement and the performance of the parties
under this Agreement shall be construed in accordance with the laws of the
State of Utah (other than its choice of laws provisions), and any action or
proceedings that may be brought, arising out of, in connection with, or by
reason of the Agreement shall be governed by the laws of Utah (other than its
choices of laws provisions), to the exclusion of the law of any other forum,
and regardless of the jurisdiction in which the action or proceeding may be
instituted.
Section 8.04. Waiver. Failure to insist upon strict compliance with any of the
terms, covenants or conditions of this Agreement shall not be deemed a waiver
of such term, covenant or condition, nor shall any waiver or relinquishment of
any right or power hereunder at any one or more times be deemed a waiver or
relinquishment of such right or power at any other time or times.
Section 8.05. Modifications and Entire Agreement. No modifications,
amendments, extension or alleged waiver of this Agreement or any provision
thereof will be binding upon the Employee or the Company unless in writing and
signed by the Employee and a duly authorized officer of the Company. This
Agreement constitutes the entire employment arrangement between the Employee
and the Company and supersedes and replaces any and all prior agreements and
understandings, written or oral, relative to such employment.
IN WITNESS WHEREOF, this Agreement has been executed as of the date first above
written.
EMPLOYEE UROQUEST CORPORATION
/s/ Tom Brandt By: /s/ Eric B. Hale
- ------------------------------- --------------------------------
Name
206 Andover Drive Title: President
- ------------------------------- -----------------------------
Address
Valparaiso, Ind 46383
- -------------------------------
City, State, Zip
###-##-####
- -------------------------------
Social Security Number
<PAGE> 1
EXHIBIT 10.14
TERMINATION AGREEMENT
This Termination Agreement (the "Agreement") is made and entered into
this 27th day of June, 1996 by and among UroQuest Corporation, a Florida
corporation, including its successors and assigns (the "Company"), Richard C.
Davis, Jr., M.D. ("Davis"), Warburg, Pincus Investors, L.P., a Delaware limited
partnership ("Warburg"), and Vertical Fund Associates, L.P., a Delaware limited
partnership ("Vertical" and, together with Warburg, the "Investors"), and shall
be effective only upon the closing of the Initial Public Offering (as defined
herein) of the Company.
Recitals:
WHEREAS, the parties hereto have entered into that certain Securities
Purchase Agreement, dated as of June 15, 1995, a copy of which is attached
hereto as Exhibit A and by this reference incorporated herein (the "Purchase
Agreement"); and
WHEREAS, pursuant to the Purchase Agreement, the Company issued a
Warrant to Warburg, dated June 15, 1995, a copy of which is attached hereto as
Exhibit B and by this reference incorporated herein (the "Original Warrant");
and
WHEREAS, the Company has determined to file with the Securities and
Exchange Commission a Registration Statement on Form S-1 under the Securities
Act of 1933, as amended, with respect to a proposed initial public offering of
up to 3,350,000 shares (but in no event less than 3,000,000 shares) of its
Common Stock, not including shares covered by the over-allotment option to be
granted to Dillon, Read & Co. Inc. and Prudential Securities Incorporated, the
managing underwriters of the offering contemplated therein, with an initial
public offering price of between $11.00 and $13.00 per share (the "Initial
Public Offering"); and
WHEREAS, in connection with, and subject to the closing of, the Initial
Public Offering, the parties hereto desire to terminate their respective
interests under the Purchase Agreement and the Original Warrant, except as
specifically set forth herein.
Agreement:
Now, therefore, upon these premises and in consideration of the
respective obligations and covenants contained herein, and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
1. Confirmation of Agreements. The parties hereto hereby acknowledge,
confirm and agree that the Purchase Agreement and the Original Warrant shall
continue in full force and effect, subject to their respective terms and
conditions, until the Effective Time (as defined below).
2. Termination of Agreements. Effective as of the closing of the
Initial Public Offering (the "Effective Time"), the Purchase Agreement and the
Original Warrant (collectively, the "Agreements") are hereby terminated, and no
party thereto shall have any right, interest, duty or obligation with respect
to the Agreements.
<PAGE> 2
3. Issuance and Exercise of Warrants. As of the Effective Time, the
Company shall issue to Warburg the warrant, to be dated the day of the
Effective Time, in the form attached hereto as Exhibit C and by this reference
incorporated herein (the "Warburg Replacement Warrant"), and Warburg shall
simultaneously exercise the Warburg Replacement Warrant in full, in accordance
with its terms and conditions. As of the Effective Time, the Company shall
issue to Vertical the warrant, to be dated the day of the Effective Time, in
the form attached hereto as Exhibit D and by this reference incorporated herein
(the "Vertical Replacement Warrant"), and Vertical shall simultaneously
exercise the Vertical Replacement Warrant in full, in accordance with its terms
and conditions.
4. Sale of Common Stock by Davis. As of the Effective Time, Davis shall
sell to Warburg, and Warburg shall purchase from Davis, 128,571 (one hundred
twenty eight thousand five hundred seventy one) shares of Common Stock for an
aggregate of $450 (Four Hundred Fifty Dollars) in cash or other immediately
available funds. As of the Effective Time, Davis shall sell to Vertical, and
Vertical shall purchase from Davis, 14,285 (fourteen thousand two hundred
eighty five) shares of Common Stock for an aggregate of $50 (Fifty Dollars) in
cash or other immediately available funds.
5. Amendment to Co-Sale Agreement. The parties hereto have entered into
that certain Right of First Refusal and Co-Sale Agreement dated as of June 15,
1995, a copy of which is attached hereto as Exhibit E and by this reference
incorporated herein (the "Co-Sale Agreement"). The parties hereto acknowledge
and agree that the Co-Sale Agreement shall be amended pursuant to the terms of
the letter agreement attached hereto as Exhibit F and by the reference
incorporated herein (the "Amendment"). The parties hereto affirm that the
Co-Sale Agreement shall continue in full force and effect, subject to its terms
and conditions, as amended and modified by the Amendment.
6. Affirmation of Contracts. The parties hereto hereby affirm that
nothing contained herein shall be deemed to modify or affect the terms and
conditions of the Option Agreement, dated June 15, 1996, among Warburg, the
Company and the holders of 12% Secured Promissory Notes (the "Option
Agreement"), the Second Amended and Restated Stockholders Agreement, dated May
31, 1995 and effective as of June 15, 1995, among the Company and the
Stockholders (as defined therein) (the "Stockholders Agreement"), or the
Registration Rights Agreement, dated June 15, 1995, among the Investors and the
Company (the "Rights Agreement"), and the Option Agreement, Stockholders
Agreement and Rights Agreement shall continue in full force and effect, subject
to their respective terms and conditions.
7. Warburg Right to Designate Directors. So long as Warburg owns
beneficially (within the meaning of Rule 13d-3 under the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) at least fifty percent (50%) of
the stock of the Company (including shares of Common Stock issuable upon
conversion of the Series D Preferred Stock and upon exercise of the Warburg
Replacement Warrant) owned by it on the date hereof, Warburg shall, at any
time, be entitled to designate three (3) directors to the Company's Board of
Directors.
8. Vertical Right to Designate Directors. So long as Vertical owns
beneficially (within the meaning of Rule 13d-3 under the Exchange Act) at least
fifty percent (50%) of the stock of the Company (including shares of Common
Stock issuable upon conversion of the Series D Preferred Stock and upon
exercise of the Vertical Replacement Warrant) owned by it on the date hereof,
Vertical shall, at any time, be entitled to designate three (3) directors to
the Company's Board of Directors.
2
<PAGE> 3
9. Change in Number of Directors. Notwithstanding anything contained
in the Articles of Incorporation or the Bylaws of the Company, each as amended
to date, the parties to this Agreement hereby agree that upon the request of
Warburg or Vertical to designate directors pursuant to the provisions set forth
in Sections 7 and 8 above, the parties hereto shall take all actions necessary,
including without limitation amending the Bylaws of the Company, to increase
the size of the Board of Directors so as to consist of not more than eleven
(11) members. Until such time as neither Warburg nor Vertical shall be entitled
to designate directors pursuant to this Agreement, the size of the Board of
Directors shall not be increased to a number greater than eleven (11) members
without the prior written consent of each of Warburg and Vertical.
10. Stock Split and Share Amounts. All share amounts contained herein
are expressed on a post-split basis assuming and giving effect to the Company's
proposed 1-for-3.5 reverse stock split (the "Reverse Split") of the outstanding
Common Stock and Preferred Stock of the Company to be effected in connection
with the Company's reincorporation in the State of Delaware. In the event the
Reverse Split is not effected prior to the Effective Time or is effected on a
basis other than as set forth above, the share amounts contained herein shall be
adjusted appropriately on an equitable basis.
11. No Cancellation. Nothing contained in this Agreement shall be
deemed to cancel or void, ab initio, any prior performance under the Purchase
Agreement that has been fully executed.
12. General Provisions
a. Notices. All communications under this Agreement shall be in
writing and shall be delivered by hand or mailed by overnight
courier or by registered mail or certified mail, postage
prepaid:
(1) if to Warburg, at 466 Lexington Avenue, New York, New York
10017, marked for attention of Elizabeth H. Weatherman, or
at such other address as Warburg may have furnished the
Company in writing,
(2) if to Vertical, at 18 Bank Street, Summit, New Jersey
07901, marked for attention of Jack Lasersohn, or at such
other address at Vertical may have furnished the Company
in writing,
(3) if to Davis, at 14280 Carlson Circle, Tampa, Florida
33626, marked for attention of Richard C. Davis, Jr.,
M.D., or at such other address as Davis may have furnished
the Company in writing, or
(4) if to the Company, at 265 East 100 South, Salt Lake City,
Utah 84111, marked for the attention of the President, or
at such other address as the Company may have furnished in
writing to the Investors.
b. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York
applicable to contracts made and to be performed entirely
within such State.
c. Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of
each of the parties.
3
<PAGE> 4
d. Entire Agreement; Amendment and Waiver. This Agreement and the
agreements or other instruments attached as Exhibits hereto constitute the
entire understanding of the parties hereto and supersede all prior agreements
or understandings with respect to the subject matter hereof among such parties.
This Agreement may be amended, and the observance of any term of this Agreement
may be waived, with (and only with) the written consent of the Company, Davis
and each of the Investors.
e. Severability. If any provision of this Agreement be determined by any
court having jurisdiction to be unlawful or unenforceable, such provision shall
be deemed separate and apart from all other provisions of this Agreement, and
all remaining provisions of this Agreement shall be fully enforceable.
f. Limitation on Enforcement of Remedies. The Company hereby agrees that
it will not assert against the limited partners of each of the Investors any
claim it may have under this Agreement by reason of any failure or alleged
failure by such Investor to meet its obligations hereunder.
g. Counterparts. This Agreement may be executed in more than one
counterpart and by facsimile, each of which shall be deemed an original and all
of which together shall constitute one and the same agreement.
UROQUEST CORPORATION
By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
RICHARD C. DAVIS, JR., M.D.
------------------------------------------
WARBURG, PINCUS INVESTORS, L.P.
By: Warburg, Pincus & Co., General Partner
By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
4
<PAGE> 5
VERTICAL FUND ASSOCIATES, L.P.
By: The Vertical Group, General Partner
By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
5
<PAGE> 1
Exhibit 10.15
RIGHT OF FIRST REFUSAL
AND
CO-SALE AGREEMENT
This Right of First Refusal and Co-Sale Agreement dated as of June 15,
1995 (this "Agreement") is entered into by and among UroQuest Corporation, a
Florida corporation (the "Corporation"), Warburg, Pincus Investors, L.P., a
Delaware limited partnership ("Warburg"), Vertical Fund Associates, L.P., a
Delaware limited partnership ("Vertical") (Warburg and Vertical are referred to
herein collectively as the "Investors") and Richard C. Davis, Jr. M.D., an
individual residing in the State of Florida ("Davis").
WITNESSETH:
WHEREAS, Davis owns 5,000,000 shares of voting common stock, $.001 par
value ("Voting Common Stock"), of the Corporation; and
WHEREAS, the Investors have agreed to purchase shares of Series D
Convertible Preferred Stock, par value $.001 per share (the "Series D Preferred
Stock") from the Corporation pursuant to a Securities Purchase Agreement between
the Corporation, the Investors and Davis; and
WHEREAS, the Investors have requested as a condition of their purchase
of the Series D Preferred Stock, and Davis has agreed, that Davis grant the
Investors the rights provided herein;
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants hereinafter set forth, and for other good and valuable consideration,
the parties hereby agree as follows:
SECTION 1. Definitions. As used in this Agreement:
(a) "Person" shall include an individual, a corporation, a
partnership, a trust or any other organization or entity.
(b) "Restricted Shares" shall mean all shares of Voting Common Stock
now owned or hereafter acquired by Davis while this Agreement remains in effect,
including without limitation, all Voting Common Stock now owned or hereafter
acquired by Davis and his spouse, if any, as community property or as separate
property, and all references herein to the Voting Common Stock owned by Davis
includes the community interest of his spouse, if any, in such stock. Any
obligation of Davis to sell or offer to sell Restricted Shares includes an
obligation on the part of his spouse, if any, to sell or offer to sell her
community interest in such stock in the same manner. The termination of the
marital relationship of Davis and his spouse for nay reason shall not have the
effect of removing any Voting Common Stock otherwise subject to this Agreement
from the coverage hereof.
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(c) "Sale," "sell" or "sold" shall mean and include any sale, gift, or
other form of inter vivos transfer, voluntary or involuntary, including any
dividend or distribution thereof and the pledging of any such stock.
SECTION 2. Transfer Restrictions. No Restricted Shares or any interest
therein shall be sold in any fashion, except as provided in Section 3, Section 4
or Section 5 of this Agreement. Any sale or attempted sale not made in
compliance with this Agreement shall be void and of no effect.
SECTION 3. Offer to the Corporation and the Shareholders.
(a) If Davis desires in good faith to sell any Restricted Shares or any
interest therein, or has received a good faith, non-collusive offer to purchase
such shares which Davis desires to accept, Davis shall first make a written
offer (the "Offer") to sell such Restricted Shares to the Investors.
(b) The offer shall be sent to the Investors in compliance with the
terms of this Agreement and shall set forth:
(i) the number of Restricted Shares and the interest therein
that Davis desires to sell;
(ii) the names of any proposed purchaser and a description of
the proposed sale;
(iii) the cash consideration per share to be received by Davis
in connection with any bona fide sale, or if the consideration is other than
cash or partly in cash and partly in the form of other consideration, the nature
of the consideration (with a reasonable description thereof) and the fair and
reasonable cash equivalent (discounted, at the prime commercial rate of
interest of Chase Manhattan Bank of Florida, to the present value of any future
cash payments) for the property or other consideration to be received, and the
other items and conditions of such proposed sale;
(iv) the address for Davis at which the Investors may give any
notice required herein;
(v) an offer to sell and transfer the Restricted Shares that
are the subject of the Offer to the Investors pursuant to the provisions of
this Agreement.
The date of the Offer shall be the fifth business day after the Offer
shall have been mailed or delivered personally to the Investors.
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(c) The Investors shall have the option for ten (10) days following the
date of the Offer, to purchase all of the Restricted Shares offered for the
consideration and on the other terms and conditions specified in the Offer. Each
Investor may purchase a proportionate amount of the Restricted Shares offered
equal to the proportion of the outstanding shares of Series D Preferred Stock
that it owns. If an Investor does not exercise its option with respect to all of
the Restricted Shares offered to it, the other Investor may purchase such
Restricted Shares which are not purchased by the first Investor.
(d) In order to exercise its right to purchase, an Investor shall
notify Davis within the requisite time period. Such notice shall state the
number of Restricted Shares which the Investor elects to purchase. A duplicate
copy of all notices of exercise by an Investor shall be sent to the Corporation.
(e) If, at the end of the ten (10) day option period, the Investors
have not elected to purchase all of the Restricted Shares offered, then the
Investors shall not be entitled to purchase any of the Restricted Shares and,
subject to the Investors' rights in Section 4, Davis may sell all, but not less
than all, of the Restricted Shares to the proposed purchaser named in the Offer,
on the terms and conditions set forth in the Offer. If the offered Restricted
Shares are not transferred within ninety (90) days after the date of the Offer,
then, before any transfer of such Restricted Shares, a new Offer covering such
Restricted Shares must be made by Davis and the terms of this Section 3 and
Section 4 must be complied with.
(f) The closing of the purchase of Restricted shares under this Section
3 shall be at 10:00 a.m. local time at the Corporation's office on the fifth
business day after expiration of the ten (10) day option period referred to in
Section 3(c), or at such other time and place as the parties may agree.
(g) Payment for the Restricted Shares purchased under this Section 3 by
an Investor shall be made in cash or by certified bank cashier's check or checks
payable to the order of Davis or such other person as may be designated by him.
SECTION 4. Sales by Davis.
(a) If Davis receives an Offer to purchase any Restricted Shares which
Davis wishes to accept Davis shall first comply with and satisfy all of the
requirements applicable to such proposed transfer under Section 3.
(b) If the right of first refusal in Section 3 is not exercised as to
all of the Restricted Stock, Davis then shall promptly notify each Investor in
writing of such fact. Each Investor shall have the right, exercisable upon
written notice to
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Davis within ten (10) days after receipt of such notice, to sell to the proposed
purchaser specified in the Offer the number of shares of Restricted Stock set
forth below at the price and upon the other terms and conditions contained in
the Offer. To the extent an Investor exercises such right of participation, the
number of shares of Restricted Stock that Davis may sell pursuant to such Offer
shall be correspondingly reduced. The right of participation of each Investor
shall be subject to the following terms and conditions:
(i) Each Investor may sell all or any part of that number of
shares of Voting Common Stock or Series D Preferred Stock owned by that Investor
that is not in excess of the product obtained by multiplying (A) the number of
shares of Common Stock covered by the Offer that Davis proposes to sell (after
compliance with Section 3 of this Agreement) by (B) a fraction, the numerator of
which is the number of shares of Voting Common Stock at the time owned by that
Investor and the denominator of which is the total number of shares of Voting
Common Stock then held by the Investors and Davis. For purposes of making this
computation, each Investor shall be deemed to own the number of shares of Voting
Common Stock into which all of its Series D Preferred Stock is convertible at
that time.
(ii) Each Investor may effect its participation in the sale by
delivering to the Corporation, with a copy to Davis, within the ten (10) day
period under Section 4(b), for transfer to the proposed transferee, one or more
certificates, properly endorsed for transfer, which shall be accompanied by a
written election to participate in the sale with respect to a specified number
of shares of the Voting Common Stock (the "Election Number") and shall
represent: (A) at least the Election Number of shares of Voting Common Stock, or
(B) that number of shares of Series D Preferred Stock which is at such time
convertible into at least the Election Number of shares of Voting Common Stock.
Any Investor who does not deliver such certificate(s) and written election
within the fifteen (15) day period will be deemed to have waived all rights
under this Agreement with respect to that particular Offer, but not with respect
to any subsequent Offer.
(c) The exercise or non-exercise of the rights of the Investors
hereunder to participate in one or more sales of Voting Common Stock made by
Davis shall not adversely affect the Investors' rights to participate in
subsequent Voting Common Stock sales by Davis pursuant to Section 4 hereof.
SECTION 5. Exempt Transactions.
(a) The prohibition against the sale of Restricted Shares shall not
apply to the exchange of Restricted Shares pursuant to a plan of merger,
consolidation, recapitalization or reorganization of the Corporation, but any
stock or securities
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<PAGE> 5
received in exchange therefor shall also become Restricted Shares subject to
this Agreement; provided, however, that any such stock or securities received in
any such merger, consolidation, recapitalization or reorganization shall not
become Restricted Shares subject to this Agreement if (i) Davis owns less than
ten percent (10%) of the aggregate voting power (for the election of directors
generally) of the surviving or resulting corporation, or other corporation party
to such transaction following such merger, consolidation, recapitalization or
reorganization and (ii) any stock or securities received in such merger,
consolidation, recapitalization or reorganization are registered under the
Securities Exchange Act of 1934, as amended. A dissolution or liquidation of the
Corporation shall not be deemed to be a transfer for purposes of this Agreement;
provided, however, that a dissolution or liquidation of the Corporation within
one year following the sale of all or substantially all of the assets of the
Corporation in exchange for stock or securities shall be considered a
reorganization of the Corporation.
(b) The prohibition against the sale of Restricted Shares shall not
apply to a sale or transfer by Davis of all or part of his Restricted Shares to
his spouse, his lineal descendants (natural or adopted), his parents, his
grandparents, or his siblings, or to an inter vivos trust established on behalf
of any of such persons, provided, however, that any such transferees shall
receive and hold the Restricted Shares subject to the terms of this Agreement.
(c) Except as expressly provided in Section 5(a), any transferees of
Restricted Shares, regardless of the method by which said transferee acquired
said Restricted Shares, shall be subject to the terms of this Agreement, and
shall, prior to the receipt of any such Restricted Shares, agree in writing to
be bound by the terms hereof. Any purported transfer which does not apply with
such provision shall be null and void.
SECTION 6. Legend on Stock Certificates. The parties will instruct the
Corporation to insert on all stock certificates representing the Restricted
Shares a conspicuous legend, in form reasonably acceptable to the Corporation,
stating that such shares are subject to an agreement which restricts the
transferability of the Shares and otherwise circumscribes the rights which may
be exercised by the holder thereof.
SECTION 7. Specific Enforcement. In view of the inadequacy of money
damages, and in view of the fact that the stock of the Corporation cannot be
readily purchased or sold in the general market, if Davis or other person shall
fail to comply with the provisions of Section 2, 3, 4 or 5 hereof, the Investors
shall be entitled, to the extent permitted by applicable law, to injunctive
relief in the case of the violation, or attempted or threatened violation, by
Davis or other person of any of the
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<PAGE> 6
provisions of such Sections, or to a decree compelling specific performance by
Davis or other person of any such provisions, or to any other remedy legally
allowed to them.
SECTION 8. Void Transfers. If any Restricted Shares shall be sold
otherwise than in accordance with the terms and conditions of this Agreement,
such sale shall be void. The Investors shall, instead of treating such sale,
transfer or disposition as a nullity, have the right, exercisable at any time
prior to the expiration of six (6) months after first receiving written or other
notice of such disposition, to purchase such shares at such price and in all
other respects as if the Restricted Shares had been disposed of in accordance
with the terms and conditions of this Agreement. Such right shall constitute an
"adverse claim" within the meaning of such term as used within the meaning of
the Uniform Commercial Code of any State. In addition to, and without prejudice
to, any and all other rights or remedies which may be available to the
Investors, Davis agrees that the Corporation may, but shall have no obligation
to, hold and refuse to transfer any Restricted Shares, or any certificate
therefor, tendered to it for transfer if the transfer violates the provisions of
the Agreement.
SECTION 9. Unique Consideration. If the consideration to be furnished
in any proposed transaction to acquire stock subject to this Agreement is other
than money or promissory notes, and involves a consideration which is unique and
cannot be readily furnished by the Investors (e.g., stock in a closely held
corporation or an interest in land), then the Investors may, for the purposes of
this Agreement, be deemed to meet the purchase price offered to Davis by paying
in cash the fair market value of the unique consideration proposed to be
furnished to Davis in the proposed transaction. The determination of the value
of the unique consideration shall be made by a third person selected by
agreement of the Investors and Davis. If there is no agreement on a third party,
then the determination shall be made by an independent appraiser selected by the
Corporation's Board of Directors.
SECTION 10. Notices. All notices, offers, requests, consents and
communications required or permitted to be given or made under this Agreement
shall be made in writing and shall be deemed to have been duly given or made
when sent by mail, postage prepaid.
(a) if to the Corporation, to 14280 Carlson Circle, Tampa,
Florida 33626, and
(b) if to Davis or any Investor, to the address as last shown on the
stock record books of the Corporation, or, in each case, at such other address
as may hereafter have been designated
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<PAGE> 7
most recently in writing, with specific reference to this Section, by the
addressee to the addressor.
SECTION 11. Amendment; Severability. Except as expressly provided
herein, neither this Agreement nor any term hereof may be amended, waived,
discharged or terminated other than by a written instrument signed by the
parties hereto. The invalidity or unenforceability of any particular provision
of this Agreement shall not affect the other provisions hereof, and this
Agreement shall be construed in all respects as if such invalid or unenforceable
provisions were omitted.
SECTION 12. Agreements by Corporation. The Corporation, insofar as is
proper or required, consents to this Agreement. It shall not transfer or reissue
any of its shares of stock in violation of this Agreement or without requiring
proof of compliance with this Agreement. All stock certificates issued to Davis
or his successors by the Corporation or held by Davis or his successors during
the lift of this Agreement shall be endorsed as stated above.
SECTION 13. Miscellaneous. This Agreement (a) constitutes the entire
agreement and supersedes all prior agreements and understandings, both written
and oral, among the parties with respect to the subject matter hereof, (b) may
be executed in several counterparts, each of which shall be deemed an original,
and all of which shall constitute one and the same instrument, (c) shall insure
to the benefit of, and be binding upon, the successors, assigns, legatees,
distributees, legal representatives and heirs of each party and is not intended
to confer upon any person, other than the parties and their permitted successors
and assigns, any rights or remedies hereunder, and (d) shall be governed in all
respects, including validity, interpretation and effect, by the laws of the
State of Florida, without respect to the conflict of laws rules. The captions in
this Agreement are for convenience of reference only and shall not affect its
interpretation in any respect.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands
effective as of the day and year first written above.
UROQUEST CORPORATION
By: /s/ Richard C. Davis, Jr.
-----------------------------
Richard C. Davis, Jr.,
Chairman of the Board
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INVESTORS
Warburg, Pincus Investors, L.P.
By: Warburg, Pincus & Co.,
General Partner
By: /s/ Elizabeth H. Weatherman
Name:_____________________
Title:____________________
Date:_____________________
Vertical Fund Associates, L.P.
By: The Vertical Group,
General Partner
By: /s/ Jack Lasersohn
Name: ____________________
Title:____________________
Date:_____________________
Spouse, if any DAVIS
/s/ Richard C. Davis, M.D.
________________________ Richard C. Davis, Jr., M.D.
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<PAGE> 9
UroQuest Corporation
14280 Carlson Circle
Tampa, Florida 33626
July __, 1996
Warburg, Pincus Investors, L.P.
466 Lexington Avenue
New York, New York 10017
Vertical Fund Associates, L.P.
18 Bank Street
Summit, New Jersey 07901
Richard C. Davis, Jr., M.D.
c/o UroQuest Corporation
14280 Carlson Circle
Tampa, Florida 33626
Ladies and Gentlemen:
Reference is made to the Right of First Refusal and Co-Sale Agreement,
dated as of June 15, 1995 ("Agreement"), among Warburg, Pincus Investors, L.P.
("Warburg"), Vertical Fund Associates, L.P. ("Vertical"), Richard C. Davis, Jr.,
M.D. ("Davis") and UroQuest Corporation (the "Company"). Capitalized terms used
but not defined herein shall have the meaning assigned to such terms in the
Agreement.
Warburg, Vertical, Davis and the Company hereby agree that the
Agreement is hereby amended by deleting Section 1(b) of the Agreement in its
entirety and replacing it with the following:
"(b) (i) "Restricted Shares" shall mean all shares of Voting
Common Stock now owned or hereafter acquired by Davis while this
Agreement remains in effect, including without limitation, all voting
Common Stock now owned or hereafter acquired by Davis and his spouse,
if any, as community property or as separate property, and all
references herein to the Voting Common Stock owned by Davis includes
the community interest of his spouse, if any, in such stock. Any
obligation of Davis to sell or, offer to sell Restricted Shares
includes an obligation on the part of his spouse, if any, to sell or
offer to sell her community interest in such stock in the same manner.
The termination of the marital relationship of Davis and his spouse for
any reason shall not have the effect of removing any Voting Common
Stock otherwise subject to this Agreement from the coverage hereof.
Notwithstanding the foregoing, the term "Restricted Shares" shall not
be deemed to include: (a) upon the closing of the proposed initial
public offering of up to 3,350,000 shares (but in no event less than
3,000,000 shares) of the Company's common stock, not including shares
covered by the over-allotment option, to be granted to Dillon, Read &
Co. Inc. and Prudential Securities Incorporated, the managing
underwriters of
<PAGE> 10
such offering, with an initial public offering price of between $11.00
and $13.00 per share (the "Initial Public Offering"), 200,000 shares of
Voting Common Stock, (b) following the closing of the Initial Public
Offering and on June 15, 1997, an amount equal to 100,000 shares of
Voting Common Stock, and (c) on the final day of the month that is the
eighteenth (18th) month following the closing of the Initial Public
Offering, and every three months thereafter, the number of shares of
Voting Common Stock equal to one percent (1%) of the number of
outstanding shares of the Company's common stock.
(ii) The number of shares of Voting Common Stock deemed not to
be Restricted Shares pursuant to this Agreement shall be adjusted upon
any stock split or division, reverse stock split, stock dividend,
reclassification, reorganization, combination or recapitalization."
If the foregoing is in accordance with your understanding, please so
indicate by executing a copy of this letter and returning it to the undersigned,
whereupon this letter shall become our binding agreement.
Sincerely,
UROQUEST CORPORATION
By:______________________
Name:
Title:
Agreed to and accepted by:
WARBURG, PINCUS INVESTORS, L.P.
By: WARBURG, PINCUS & CO.,
General Partner
By:___________________________
Name: Elizabeth H. Weatherman
Title: General Manager
THE VERTICAL FUND ASSOCIATES, L.P.
By: THE VERTICAL GROUP, INC.
General Partner
By:___________________________
Name:
Title:
______________________________
Richard C. Davis, Jr., M.D.
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<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF REGISTRANT
UroCath Corporation, a Florida corporation
BMT Acquisition Co., a Delaware corporation
Bivona, Inc., an Indiana corporation
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
UroQuest Medical Corporation:
We consent to the use of our report dated March 20, 1996, except as to note 10,
which is as of June 28, 1996, on the consolidated financial statements of
UroQuest Medical Corporation and Subsidiary as of December 31, 1994 and 1995 and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the years in the three year period ended December 31,
1995, and for the period April 8, 1992 (inception) to December 31, 1995,
included herein and to the reference to our Firm under the headings "Selected
Financial Data" and "Experts" in the Prospectus.
KPMG Peat Marwick LLP
Salt Lake City, Utah
July 16, 1996
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated January 19, 1996 (except for Note H as to which
the date is June 27, 1996) accompanying the consolidated financial statements
of BMT, Inc. contained in the Registration Statement and Prospectus of UroQuest
Medical Corporation. We consent to the use of the aforementioned report in the
Registration Statement and Prospectus and to the use of our name as it appears
under the captions "Selected Consolidated Financial Data" and "Experts".
GRANT THORNTON LLP
Chicago, Illinois
July 16, 1996
<PAGE> 1
EXHIBIT 23.4
CONSENT
We hereby consent to the reference to our firm under the heading "Experts"
in the Prospectus which forms a part of the Registration Statement on Form S-1
of UroQuest Corporation.
Griffin, Butler, Whisenhunt & Kurtossy
By F. Prince Butler
June 28, 1996
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EXHIBIT 23.5
CONSENT
We hereby consent to the reference to our firm under the heading "Experts"
in the Prospectus which forms a part of the Registration Statement on Form S-1
of UroQuest Corporation.
Emrich & Dithmar
By Paul L. Brown, Partner
July 16, 1996
