-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JRceygMJtZTMCKWY939BzUze53FkhFIrYp4psjfdJ+/dVi0S3BQ5xPONEHUtt9yY +wmtZatvbW2ZS/2/zUM0wg== 0000891554-98-001036.txt : 19980817 0000891554-98-001036.hdr.sgml : 19980817 ACCESSION NUMBER: 0000891554-98-001036 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPECTRANETICS CORP CENTRAL INDEX KEY: 0000789132 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 840997049 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19711 FILM NUMBER: 98691039 BUSINESS ADDRESS: STREET 1: 96 TALAMINE COURT CITY: COLORADO SPRING STATE: CO ZIP: 80907 BUSINESS PHONE: 7196338333 MAIL ADDRESS: STREET 1: 96 TALAMINE COURT CITY: COLORADO SPRINGS STATE: CO ZIP: 80907 10-Q 1 FORM 10-Q ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED June 30, 1998 |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO ______ Commission file number 0-19711 The Spectranetics Corporation (Exact name of Registrant as specified in its charter) Delaware 84-0997049 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 96 Talamine Court Colorado Springs, Colorado 80907 (719) 633-8333 (Address of principal executive offices and telephone number) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No ____ As of August 3, 1998, there were 19,110,822 outstanding shares of Common Stock. ================================================================================ Page 1 Part I---FINANCIAL INFORMATION Item 1. Financial Statements THE SPECTRANETICS CORPORATION AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Unaudited) (In Thousands, Except Shares and Per Share Amounts)
Assets: June 30, 1998 December 31, 1997 ------------- ----------------- Current assets: Cash and cash equivalents $ 5,109 $ 6,532 Investment securities 597 2,058 Trade accounts receivable 3,600 4,505 Inventories (note 4) 3,835 2,315 Other current assets 404 295 ------------- ------------- Total current assets 13,545 15,705 Property and equipment, net 4,750 3,906 Goodwill and other intangible assets, net 4,625 5,140 Other assets 647 574 ------------- ------------- Total Assets $ 23,567 $ 25,325 ============= ============= Liabilities and Shareholders' Equity: Liabilities: Accounts payable and accrued liabilities $ 4,742 $ 3,575 Deferred revenue (note 5) 1,846 4,081 Current portion of note payable 884 299 Current portion of capital lease obligations 143 163 ------------- ------------- Total current liabilities 7,615 8,118 ------------- ------------- Deferred revenue and other liabilities (note 5) 1,757 1,757 Note payable, net of current portion 1,415 1,246 Capital lease obligations, net of current portion 133 141 ------------- ------------- Total long-term liabilities 3,305 3,144 ------------- ------------- Total liabilities 10,920 11,262 ------------- ------------- Shareholders' Equity: Preferred stock, $.001 par value Authorized 5,000,000 shares; none issued -- -- Common stock, $.001 par value Authorized 60,000,000 shares; issued and outstanding 19,084,848 and 18,734,142 shares, respectively 19 19 Additional paid-in capital 84,068 83,711 Accumulated other comprehensive loss (145) (152) Accumulated deficit (71,295) (69,515) ------------- ------------- Total shareholders' equity 12,647 14,063 ------------- ------------- Total Liabilities and Shareholders' Equity $ 23,567 $ 25,325 ============= =============
See accompanying Notes to Consolidated Financial Statements Page 2 Item 1. Financial Statements (cont'd) THE SPECTRANETICS CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Operations (Unaudited) (In Thousands, Except Shares and Per Share Amounts)
Three Months Ended June 30, Six Months Ended June 30, 1998 1997 1998 1997 ------------ ------------ ------------ ------------ Revenues $ 6,764 $ 4,583 $ 13,317 $ 9,154 Cost of revenues 3,040 2,482 6,133 5,022 ------------ ------------ ------------ ------------ Gross margin 3,724 2,101 7,184 4,132 ------------ ------------ ------------ ------------ Gross margin % 55% 46% 54% 45% Operating Expenses: Marketing and sales expense 2,428 1,911 4,855 3,685 General and administrative expense 1,506 1,057 2,809 2,332 Research and development expense 780 567 1,368 1,080 ------------ ------------ ------------ ------------ Total operating expenses 4,714 3,535 9,032 7,097 ------------ ------------ ------------ ------------ Loss From Operations (990) (1,434) (1,848) (2,965) Other Income (Expense): Interest income 64 53 155 133 Interest expense (54) (8) (89) (17) Other, net (5) (10) 3 (39) ------------ ------------ ------------ ------------ 5 35 69 77 ------------ ------------ ------------ ------------ Net Loss (985) (1,399) (1,779) (2,888) Other Comprehensive Loss: Foreign currency translation adjustment 10 (34) 6 (138) ============ ============ ============ ============ Comprehensive loss $ (975) $ (1,433) $ (1,773) $ (3,026) ============ ============ ============ ============ Net Loss per Share - basic and diluted $ (0.05) $ (0.08) $ (0.09) $ (0.16) ============ ============ ============ ============ Weighted Average Common Shares Outstanding - basic and diluted 19,084,124 18,625,909 18,924,324 18,588,291 ============ ============ ============ ============
See accompanying Notes to Consolidated Financial Statements Page 3 Item 1. Financial Statements (cont'd) THE SPECTRANETICS CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited) (In Thousands, Except Shares and Per Share Amounts)
Six Months Ended June 30, 1998 1997 ------- ------- Cash flows from operating activities: Net loss $(1,779) $(2,888) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization 1,086 1,278 Net change in operating assets and liabilities (2,193) (1,055) ------- ------- Net cash used by operating activities (2,886) (2,665) ------- ------- Cash flows from investing activities: Capital expenditures (1,090) (310) Decrease in short-term investment, securities, net 1,461 617 ------- ------- Net cash provided by investing activities 371 307 ------- ------- Cash flows from financing activities: Net proceeds from issuance of common stock 356 133 Proceeds from line of credit 900 -- Principal payments on obligations under capital leases and note payable (160) (81) ------- ------- Net cash provided by financing activities 1,096 52 ------- ------- Effect of exchange rate changes on cash (4) (51) ------- ------- Net decrease in cash and cash equivalents (1,423) (2,357) Cash and cash equivalents at beginning of period 6,532 2,860 ------- ------- Cash and cash equivalents at end of period $ 5,109 $ 503 ======= ======= Supplemental disclosures of cash flow information -- cash paid for interest $ 129 $ 34 ======= ======= Supplemental disclosure of non-cash investing and financing activities: Transfers from inventory to equipment held for rental or loan $ 329 $ 259 ======= =======
See accompanying Notes to Consolidated Financial Statements Page 4 Item 1. Notes to Financial Statements (1) General The information included in the accompanying condensed consolidated interim financial statements is unaudited and should be read in conjunction with the audited financial statements and notes thereto contained in the Company's latest Annual Report on Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the entire year. (2) Loss Per Share During 1997, the Company adopted the provisions of Statement of Financial Accounting Standards No. 128, Earnings per Share (SFAS 128) which is effective for financial statements issued for periods ending after December 15, 1997. Under SFAS 128, basic loss per share is computed on the basis of weighted-average common shares outstanding. Diluted loss per share considers potential common stock instruments in the calculation, and is the same as basic loss per share for the six months ended June 30, 1998 and the year ended December 31, 1997, as all potential common stock instruments were anti-dilutive. (3) Comprehensive Income Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income (SFAS 130) establishes standards for the presentation of comprehensive income in the financial statements. Comprehensive income includes income and loss components which are otherwise recorded directly to shareholders' equity under generally accepted accounting principles. The Company adopted SFAS 130 effective January 1, 1998 and has reported accumulated other comprehensive loss in the accompanying condensed consolidated balance sheets, and the components of other comprehensive income in the accompanying condensed consolidated statements of operations. (4) New Pronouncements SFAS 131, Disclosures about Segments of an Enterprise and Related Information, establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. SFAS 132, Employers' Disclosures about Pensions and Other Postretirement Benefits, revises employers' disclosures about pension and other post-retirement benefit plans. SFAS 133, Accounting for Derivative Instruments and Hedging Activities, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. The adoption of these statements is not expected to have a significant impact on the Company's consolidated financial statements. Page 5 Item 1. Notes to Financial Statements (cont'd) (5) Inventories Components of inventories are as follows (in thousands): June 30, 1998 December 31, 1997 -------------- ----------------- Raw Materials $1,173 $ 755 Work in Process 1,398 882 Finished Goods 1,264 678 -------------- ----------------- $3,835 $2,315 ============== ================= (6) Deferred Revenue In 1997, the Company entered into a license agreement with United States Surgical Corporation ("USSC"), pursuant to which USSC paid a license fee in addition to advance payment for products to be supplied by the Company. The payments received were recorded as deferred revenue and are being amortized as product is shipped. During 1997, cash received under the agreement totaled $6,339,000. Revenue totaling $2,490,000 was recognized related to the agreement during the six months ended June 30, 1998. Revenue of $120,000 was recorded during the comparable periods in 1997. The remaining deferred revenue balance is $2,609,000 and $5,100,000 at June 30, 1998 and December 31, 1997, respectively, of which $852,000 and $3,343,000 has been recorded as a current liability at June 30, 1998 and December 31, 1997, respectively. Other deferred revenue - current, in the amounts of $994,000 and $738,000 at June 30, 1998 and December 31, 1997, respectively, relates primarily to advance payments for various product maintenance contracts, pursuant to which revenues are initially deferred and then amortized over the life of the contract, which is generally one year. Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition - -------------------------------------------------------------------------------- Results of Operations for the Three and Six Months Ended June 30, 1998 Compared to the Three and Six Months Ended June 30, 1997: Revenues Revenue for the three and six months ended June 30, 1998 totaled $6,764,000 and $13,317,000, respectively, an increase of $2,181,000 (48%) and $4,163,000 (45%) as compared with revenue of $4,583,000 and $9,154,000 for the three and six months ended June 30, 1997, respectively. Laser revenues increased 114% and 149% for the three and six months ended June 30, 1998, respectively, as compared to the same periods in 1997, primarily due to the shipment of lasers to United States Surgical Corporation under an agreement entered into during 1997. Revenues recorded related to the agreement were $1,245,000 and $2,490,000 for the three and six months ended June 30, 1998. Revenue of $120,000 was recorded in the comparable periods in 1997. Disposable catheter revenues increased 46% and 33% during the three and six months ended June 30, 1998, respectively, primarily as a result of revenues related to the laser sheath product. Other revenues, from Polymicro Technologies, Inc. (PTI), service, and custom products, increased 27% and 24% during the three and six months ended June 30, 1998, respectively, over the same periods last year, due primarily to increased unit volumes at PTI. Page 6 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition (cont'd) The functional currency of Spectranetics International, B.V. is the Dutch guilder. Fluctuations in foreign currency exchange rates during the three and six months ended June 30, 1998, compared to the same period in 1997, caused a decrease in revenues of less than 1% for each period. Gross Margin Gross margin percentages for the three and six months ended June 30, 1998 were 55% and 54%, respectively, as compared to gross margins of 46% and 45% for the comparable periods in 1997. The increase in gross margins as a percentage of revenue is due to higher selling prices per unit realized for lasers and catheters combined with manufacturing efficiencies recognized as a result of higher volumes. Operating Expenses Overall, operating expenses totaled $4,714,000 and $9,032,000 for the three and six months ended June 30, 1998, respectively, increases of 33% and 27%, respectively, over the 1997 expense levels of $3,535,000 and $7,097,000 for the same periods. Fluctuations in foreign currency exchange rates during the three and six months ended June 30, 1998, compared to the same period in 1997, caused a decrease in operating expenses of approximately 1% for each period. Marketing and sales expenses totaled $2,428,000 and $4,855,000 for the three and six months ended June 30, 1998 respectively, increases of 27% and 32% over the 1997 expense levels of $1,911,000 and $3,685,000 for the same periods in 1997, respectively. The increases are attributable to increased staffing costs, primarily in sales and clinical staffing, combined with increased marketing activities associated with conventions, workshops, and marketing materials. General and administrative expenses were $1,506,000 and $2,809,000 for the three and six months ended June 30, 1998, respectively, increases of 42% and 20% over the 1997 expense levels of $1,057,000 and $2,332,000 for the same periods. The increases are attributable primarily to increases in investor relations activities and increased depreciation associated with the implementation of a new computer system. Research and development expenses totaled $780,000 and $1,368,000 for the three and six months ended June 30, 1998, respectively, increases of 38% and 27% over the 1997 expense levels of $567,000 and $1,080,000 for the same periods. The increases are due primarily to increased staffing and project-related costs as part of the Company's ongoing effort to expand the applications for excimer laser technology. Net loss for the three and six months ended June 30, 1998 was $985,000, or $0.05 per share, and $1,779,000, or $0.09 per share, respectively, as compared to $1,399,000 loss, or $0.08 per share, and $2,888,000, or $0.16 per share, for the same periods in 1997. Liquidity and Capital Resources As of June 30, 1998, the Company had cash, cash equivalents and investment securities of $5,706,000 compared to $8,590,000 at December 31, 1997, a decrease of $2,884,000. Cash usage from operating activities was $2,886,000 for the six months ended June 30, 1998 as compared to cash used of $2,665,000 from operating activities during the first six months of 1997. The increase in cash used is primarily due to increased inventory levels and recognition of deferred revenue associated with the United States Surgical agreement. During 1997, the Company received cash payments of $6,339,000 in advance Page 7 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition (cont'd) in connection with the United States Surgical agreement. Cash used for capital expenditures increased to $1,090,000 in 1998 from $310,000 in 1997 as the Company invested in infrastructure improvements in the form of costs associated with the purchase of a new computer system, a new phone system, a state-of-the art marketing booth for use at conventions and trade shows, and manufacturing equipment purchased by PTI. Cash provided by financing activities was $1,096,000 in 1998 and $52,000 in 1997. The increase is due to proceeds from advances on the equipment line of credit and a larger number of stock options exercised during the six months ended June 30, 1998. During 1997, the Company entered into an agreement with Silicon Valley Bank for a credit line of $5,000,000. As of December 31, 1997, $1,100,000 was drawn on the line of credit. During the three months ended June 30, 1998, an additional advance of $900,000 was drawn on the line of credit, and a principal payment of $67,000 was made during the same period resulting in a balance of $1,933,000 due as of June 30, 1998. Subject to compliance with debt covenants, the remaining $3,000,000 line of credit is available for future financing for general business purposes. At June 30, 1998 and December 31, 1997, the Company had placed a number of systems at customers under rental, loan and fee-per-procedure programs. Laser units capitalized as equipment held for rental or loan totaled $1,418,000 and $1,441,000 as of June 30, 1998 and December 31, 1997, respectively, and are being depreciated over three to five years. This equipment was transferred from the Company's inventory at cost. The Company expects that it will continue to offer rental, loan and fee-per-procedure programs for the foreseeable future. Management believes that the Company's liquidity and capitalization as of June 30, 1998 is sufficient to meet its operating and capital requirements through at least December 31, 1998. Revenue increases from current levels or additional financing will be necessary to sustain the Company over the longer term. Risk Factors The Company's business, results of operations, and financial condition are, and will continue to be, subject to the following risks: Continued Losses. The Company has incurred net losses since inception in June 1984. The Company anticipates that net losses will continue in the foreseeable future. There can be no assurance that the Company will be able to achieve increased sales or profitability. Quarterly Fluctuations in Operating Results. Results of operations for the Company have varied and may continue to fluctuate significantly from quarter to quarter and will depend upon numerous factors, including timing of regulatory approvals, market acceptance of products and new product introductions, implementation of health care reforms, changes in product mix between laser units and catheters, ability to manufacture products efficiently and competition from other technologies. Lack of Liquidity. While the Company believes that it has sufficient cash liquidity to execute its plans through at least December 31, 1998, in order for cash flow from operating activities to be sufficient to sustain the Company's operations over the long term, the Company must achieve increases in sales and maintain control over expenses. There can be no assurance that such increases in sales or control in expenses will occur or that they will be sufficient to maintain adequate cash to continue operations. Page 8 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition (cont'd) No Assurance that the Company Will Be Able to Obtain Additional Financing. The Company may require additional financing in the future. Such financing, if required, may not be available on satisfactory terms, or at all. If the Company is unable to obtain sufficient funding from other sources on terms and prices acceptable to the Company, the Company's ability to make capital expenditures, compete effectively and withstand the effects of adverse market and economic conditions may be significantly impaired. Furthermore, there can be no assurance that the Company will have sufficient cash flow from operating activities to meet its debt service requirements. Therefore, the Company may be required to meet its debt service requirements from other sources, such as the sale of additional equity and debt securities and the sale of selected assets. To the extent the Company finances its future operations through the issuance of equity securities, existing stockholders may suffer dilution in net tangible book value per share. Limited Operating History; Limited Manufacturing Experience. The Company has a limited history of operations. SPNC received PMA approval from the FDA for its CVX-300(R) laser unit in 1993. Accordingly, the Company does not have substantial experience in manufacturing, marketing or selling its products in commercial quantities. The Company may encounter difficulties in scaling up production of laser units and catheters and hiring and training additional qualified manufacturing personnel. The occurrence of difficulties as the Company increases production volumes could lead to quarterly fluctuations in operating results and have a material adverse effect on the Company's business, financial condition and results of operations. Uncertain Market Acceptance. Excimer laser angioplasty technology is a relatively new procedure which competes with more established therapies, including balloon angioplasty, stent implantation and bypass surgery, and other evolving technologies, such as atherectomy and non-excimer laser technologies. The cost of the CVX-300(R) laser system is significantly greater than the cost of therapeutic capital equipment required with balloon angioplasty, stent implantation and atherectomy procedures, and the cost of the Company's catheters is greater than the cost of balloon angioplasty catheters. In addition, because excimer laser procedures are often followed by balloon angioplasty, the cost of an excimer laser angioplasty can be significantly greater than balloon angioplasty alone. Market acceptance of the laser angioplasty system also will depend, in part, on the Company's ability to establish with the medical community the clinical efficacy of excimer laser angioplasty. As a result of such factors, there can be no assurance that the marketplace will be receptive to the Company's laser angioplasty systems or that excimer laser angioplasty will be accepted over competing therapies. Failure of SPNC's products to achieve market acceptance would have a material adverse effect on the Company's business, financial condition and results of operations. Dependence on Single Product Line. A significant percentage of the Company's revenues is derived from the sale or lease of the CVX-300(R) laser unit and the sale of products used in conjunction with the CVX-300(R). Consequently, the Company is dependent on the successful development and commercialization of the CVX-300(R) laser unit and such related products. Unfavorable clinical trial results, failure to obtain regulatory approvals in a timely manner, or at all, or failure to gain widespread market acceptance could have a material adverse effect on the Company's business and financial condition, and cessation of business could occur. Intense Competition. Methods for the treatment of cardiovascular disease are numerous and are expected to increase in number. Almost all of SPNC's competitors have substantially greater financial, manufacturing, marketing and technical resources than SPNC. The Company expects intense competition Page 9 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition (cont'd) to continue in the marketplace. Market competition includes manufacturers of balloon angioplasty devices and stents, and direct competition comes from manufacturers of atherectomy devices. As a result of its agreement with United States Surgical Corporation in 1997 to license and supply its CVX-300(R) excimer laser units and disposable fiber optic probes, the Company expects competition from manufacturers of devices that treat transmyocardial revascularization. The Company also believes that it will experience increased competition in the future from companies that will develop lead extraction devices or removal methods. Balloon angioplasty is currently the most common therapy for the treatment of atherosclerosis. SCIMED (a subsidiary of Boston Scientific Corporation), Cordis (a subsidiary of Johnson & Johnson Interventional Systems), ACS (a subsidiary of Guidant Corporation), Bard, and Schneider (a subsidiary of Pfizer) are the leading balloon angioplasty manufacturers. With the approval of stents in 1994, SPNC anticipates that stent utilization will continue to grow as the second most prevalent angioplasty treatment of choice for atherosclerosis. SCIMED, Cordis, ACS, Arterial Vascular Engineering, and Medtronic are the leading stent providers in the United States at this time. Manufacturers of atherectomy devices include Devices for Vascular Intervention, Inc. (a subsidiary of Guidant Corporation) and Heart Technology, Inc. (a subsidiary of Boston Scientific Corporation). In 1996, United States Surgical Corporation acquired an 80 percent interest in Medolas, an excimer laser company in Germany. The companies currently participating in clinical trials for transmyocardial revascularization are CardioGenesis, Eclipse Surgical, PLC Systems, Inc., and AccuLase. SPNC believes that the primary competitive factors in the interventional cardiovascular market are: the ability to treat safely and effectively a variety of lesions; the impact of managed care practices and procedure costs; ease of use; and research and development capabilities. There can be no assurance that SPNC current and future competitors will not develop technologies and products that are more effective in treating cardiovascular disease than SPNC's current products or future products, and that SPNC technologies and products would not be rendered obsolete by such developments. Uncertainty of Impact of Health Care Reform. The federal government and certain states have already implemented or are considering legislation to effect health care reforms. In addition, other legislative and industry groups are studying various health care issues. The ultimate timing or effect of any such health care reforms on SPNC cannot be predicted and no assurance can be given that any such reforms will not have a material adverse effect on SPNC revenues and earnings. Short-term cost containment initiatives may vary substantially from long-term reforms and may impact SPNC differently. Limitations on Third-Party Reimbursement. The CVX-300(R) laser unit is generally purchased by hospitals, which then bill various third-party payors, such as government programs and private insurance plans, for the health care services provided to their patients. Unlike balloon angioplasty and atherectomy, laser angioplasty requires the purchase of expensive capital equipment. The FDA has required that the label for the CVX-300(R) laser unit indicate that adjunctive balloon angioplasty was performed in the majority of the procedures submitted to the FDA in SPNC's application for PMA. This will require the purchase of both a laser catheter and a balloon catheter. Payors may deny reimbursement for procedures they believe to be duplicative. Payors may also deny reimbursement if they determine that a device used in a procedure was experimental, was used for a non-approved indication or was not used in accordance with established pay protocols regarding cost effective treatment methods. There can be no assurance that laser Page 10 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition (cont'd) angioplasty using the CVX-300(R) laser unit will be considered cost effective by third-party payors, that reimbursement will be available or, if available, that payors' reimbursement policies will not adversely affect SPNC's ability to sell its products on a profitable basis. There are increasing pressures from many payor sources to control health care costs. In addition, there are increasing pressures from public and private payors to limit increases in reimbursement rates for medical devices. The market for SPNC's products and the levels of revenues and profitability could also be adversely affected by changes in governmental and private third-party payors' policies or by recent federal legislation that reduces reimbursements under the capital cost pass-through system for the Medicare program. Costs and Uncertainty of Regulatory Compliance. The Company's products and manufacturing activities are subject to vigorous regulation by the FDA and comparable state and foreign agencies. The process of complying with these regulations can be costly and time consuming. Failure to comply with applicable regulatory requirements can result in, among other things, fines, suspensions of approvals, seizures or recalls of products, operating restrictions and criminal prosecutions. Furthermore, changes in existing regulations or adoption of new regulations could prevent the Company from obtaining, or affect the timing of, future regulatory approval. The Company has filed PMA supplements. There can be no assurance that the FDA will approve SPNC's current or future PMA supplements on a timely basis or at all. The absence of such approvals could have a material adverse effect on the Company's ability to generate future revenues. Sales of medical devices outside of the United States are subject to international regulatory requirements that vary from country to country. The time required to obtain approval for sale internationally may be longer or shorter than that required for FDA approval, and the requirements may differ. As of March 1998, SPNC has received CE mark registration for all of its products. There are no assurances that the Company will be able to obtain CE mark for its products in the future. In addition, the Company may encounter significant costs and requests for additional information in its efforts to obtain regulatory approvals. Any such events could substantially delay or preclude SPNC from marketing its products internationally. Technological Change Resulting in Product Obsolescence. Market acceptance and sales of SPNC products also could be adversely affected by technological changes. The health care industry is characterized by rapid technological progress. New developments are expected to continue at an accelerated pace in both industry and academia. Many companies, some of which have substantially greater resources than SPNC, are engaged in research and development with respect to methods of treatment and prevention of coronary artery disease. These include pharmaceutical approaches as well as development of new or improved angioplasty, atherectomy or other devices. SPNC products could be rendered obsolete as a result of future innovations in the treatment of coronary artery disease. Uncertainty Related to Patents and Proprietary Rights. SPNC holds patents, has licenses to use patents and has patent applications pending. There can be no assurance that any patents currently applied for by the Company will be granted or that any patents held by the Company will be valid or sufficiently broad to protect the Company technology or to provide it with any competitive advantage or will not be challenged or circumvented by competitors. Termination of the licenses granted to the Company would have a material adverse effect on its business, financial condition and results of operations. The Company is aware of other patents issued to and patent applications filed by individuals, partnerships, companies, universities and research institutions relating to laser and fiber-optic technologies, Page 11 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition (cont'd) which, if valid and enforceable, may be infringed by the Company. The Company has received notice from other parties regarding the existence of certain patents involving the use of lasers in the body. Although these parties have not sued the Company, there can be no assurance that they will not be sued or that they would prevail in any such action. Should the Company determine that it is necessary to obtain a license to such patents or proprietary technology, there can be no assurance that any such license would be available on favorable terms, or at all, or that it would be able to develop or otherwise obtain alternative technology. Litigation concerning patents and proprietary rights could result in substantial cost to and diversion of effort by the Company. Adverse findings in any proceeding could subject the Company to significant liability to third parties, require the Company to seek licenses from third parties and adversely affect the ability of the Company to manufacture and sell its products. The Company also relies on trade secrets and unpatented know-how to protect its proprietary technology, and may be vulnerable to competitors who attempt to copy its products or to gain access to its trade secrets and know-how. Dependence on Suppliers and Distributors. The glass rods used by SPNC in the fabrication of optical fibers incorporated into catheters are currently available from a single source that holds worldwide patent rights on this material. Any interruption in the supply of such glass rods could have a material adverse effect on SPNC's ability to manufacture catheters. Product Liability and Sufficiency of Insurance Coverage. The manufacture and sale of the Company's products entail the risk of product liability claims. A successful claim brought against the Company could have a material adverse effect on the Company. The Company maintains product liability insurance with coverage of $5,000,000, and an aggregate maximum of $5,000,000. There can be no assurance that the coverage limits of the Company's insurance policies will be adequate or that such insurance will be available in the future on acceptable terms, if at all. Dependence on Key Personnel. The Company is dependent upon a limited number of key management and technical personnel, and the future success of the Company will depend in part upon its ability to attract and retain highly qualified personnel. The Company will compete for such personnel with other companies, academic institutions, government entities and other organizations. There can be no assurance that the Company will be successful in hiring or retaining qualified personnel. Loss of key personnel or inability to hire or retain qualified personnel could have a material adverse effect on the Company's business, financial condition and results of operations. Potential Difficulties in Managing Business Undergoing Rapid Change. The Company's future success will depend to a significant extent on the ability of its management personnel to operate effectively, both independently and as a group. To compete successfully against current and future competitors, complete clinical trials in progress, prepare additional products for clinical trials and develop future products, the Company believes that it must continue to expand its operations, particularly in the areas of research and development, sales and marketing, training, and manufacturing. If the Company were to experience significant growth in the future, such growth would likely result in new and increased responsibilities for management personnel and place significant strain upon the Company's management, operating and financial systems and resources. To accommodate such growth and compete effectively, the Company must continue to implement and improve information systems, procedures and controls, and to expand, train, motivate and manage its workforce. There can be no assurance that the Company's Page 12 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition (cont'd) personnel, systems, procedures and controls will be adequate to support the Company's future operations. Any failure to implement and improve the Company's operational, financial and management systems or to expand, train, motivate or manage employees could materially and adversely affect the Company's business, financial condition and results of operations. Potential Anti-Takeover Effects of Certificate of Incorporation, Bylaws, the Rights Agreement and the Delaware General Corporation Law. The Company's Certificate of Incorporation and Bylaws, the Rights Agreement dated as of May 6, 1996, between the Company and Norwest Bank of Minnesota, N.A. (the "Rights Agreement") and the Delaware General Corporation Law (the "DGCL") contain certain provisions that could have the effect of delaying, deferring or preventing an unsolicited change in the control of the Company, which may adversely affect the market price of the Company's common stock of the ability of shareholders to participate in a transaction in which they might otherwise receive a premium for their shares over the then current market price. The Company has a Board of Directors in which directors are elected for staggered three-year terms. This prevents shareholders from electing all directors at each annual meeting and may have the effect of delaying or deferring a change in control of the Company. The Company's Certificate of Incorporation authorizes the Board of Directors to issue up to five million shares of preferred stock of the Company without further shareholder approval and upon such terms and conditions, and having such rights, privileges and preferences, as the Board of Directors may determine. Although no shares of preferred stock are currently outstanding and the Company has no present plans to issue any shares of preferred stock, the rights of the holders of common stock will be subject to, and may be adversely affected by, the rights of holders of preferred stock that may be issued in the future. The Company's Certificate of Incorporation and Bylaws provide that special meetings of shareholders may be called only by the Board of Directors or a committee of the Board of Directors or as may otherwise be specifically provided in the Certificate of Incorporation. This provision may limit the ability of the Company's shareholders to take actions not supported by the Board of Directors. The Company's Bylaws may be adopted, amended or repealed by the Board of Directors or by the affirmative vote of a majority of the outstanding shares of the Company's common stock entitled to vote. The ability of the Board of Directors to amend the Bylaws to increase the number of directors may make it more difficult for the shareholders to change control of the Board of Directors. In connection with the Rights Agreement, rights have been issued (and will be issued for any newly outstanding common stock) to holders of the outstanding shares of common stock of the Company which, in certain circumstances, give the shareholders of the Company the right to purchase shares of preferred stock which will entitle the holder thereof to certain dividend, voting and liquidation rights that could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from acquiring, a majority of the outstanding voting stock of the Company. Section 203 of the DGCL prohibits a publicly held Delaware corporation from engaging in a business combination with an interested shareholder for a period of three years after the date of the transaction in which the person became an interested shareholder, unless certain conditions are met, and may impact the ability of certain shareholders to effect business combinations with the Company. Potential 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. In addition, the market price of the shares of the Company's Common Stock, similar to other health care Page 13 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition (cont'd) companies, has been, and is likely to continue to be, highly volatile. Factors such as fluctuations in operating results, announcements of technological innovations or new products by the Company or its competitors, governmental regulation, developments with respect to patents or proprietary rights, public concern as to the safety of products developed by the Company or others and general market conditions may have a significant effect on the market price of the Company's Common Stock. Exposure from International Operations. Changes in overseas economic conditions, currency exchange rates, foreign tax laws or tariffs or other trade regulations could have a material adverse effect on the Company's ability to market its products internationally and therefore on its business, financial condition and results of operations. The Company's business is also expected to subject it and its representatives, agents and distributors to laws and regulations of the foreign jurisdictions in which they operate or the Company's products are sold. The Company may depend on foreign distributors and agents for compliance and adherence to foreign laws and regulations. The regulation of medical devices in a number of such jurisdictions, particularly in the European Union, continues to develop and there can be no assurance that new laws or regulations will not have an adverse effect on the Company's business, financial condition and results of operations. In addition, the laws of certain foreign countries do not protect the Company's intellectual property rights to the same extent as do the laws of the United States. As the Company expands its international operations, its sales and expenses denominated in foreign currencies will expand and that trend is expected to continue. Thus, certain sales and expenses have been, and are expected to be, subject to the effect of foreign currency fluctuations. As the Company expands its international operations, its net foreign currency denominated sales and expenses will be subject to the effect of foreign currency fluctuations. Further, any significant changes in the political, regulatory or economic environment where the Company conducts international operations may have a material impact on revenues and profits. Lack of Dividends. The Company has not declared or paid any dividends with respect to the Company's Common Stock. It is not anticipated that the Company will pay any dividends in the foreseeable future. In addition, there may be restrictions under state law on the ability of the Company to declare dividends. Part II.---OTHER INFORMATION - -------------------------------------------------------------------------------- Item 1. Legal Proceedings None Items 2-5. Not applicable. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. The following documents are filed herewith and made a part of this report on Form 10-Q: Exhibit 3.1(b) - Certificate of Amendment to Restated Certificate of Incorporation. Page 14 Part II. Other Information (cont'd) Exhibit 10.18 omits certain attachments. The Company hereby agrees to furnish supplementally to the Securities and Exchange Commission, upon its request, a copy of any of the exhibits and schedules to the Exhibits to the Form 10-Q. Exclusive Purchase and Distribution Agreement between The Spectranetics Corporation and Orbus Medical Technologies, Inc. dated March 12, 1998. (Certain portions of this document have been omitted pursuant to a request for confidential treatment and filed separately with the Commission.) Exhibit 27.1 - Financial Data Schedule for 1998 Second Quarter Form 10-Q. (b) Reports on Form 8-K None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The Spectranetics Corporation (Registrant) August 14, 1998 By: /s/ James P. McCluskey ---------------------- James P. McCluskey Vice President, Finance Secretary/Treasurer and Principal Financial Officer Page 15 Part II. Other Information (cont'd) THE SPECTRANETICS CORPORATION Form 10Q for Period Ended June 30, 1998 EXHIBIT INDEX Exhibit Number Description - -------------------------------------------------------------------------------- 3.1(b) Certificate of Amendment to Restated Certificate of Incorporation 10.18 Exhibit 10.18 omits certain attachments. The Company hereby agrees to furnish supplementally to the Securities and Exchange Commission, upon its request, a copy of any of the exhibits and schedules to the Exhibits to the Form 10-Q. Exclusive Purchase and Distribution Agreement between The Spectranetics Corporation and Orbus Medical Technologies, Inc. dated March 12, 1998. (Certain portions of this document have been omitted pursuant to a request for confidential treatment and filed separately with the Commission.) 27.1 Financial Data Schedule for 1998 Second Quarter Form 10-Q. Page 16 EX-3.1(B) 2 CERTIFICATE OF AMENDMENT CERTIFICATE OF AMENDMENT TO RESTATED CERTIFICATE OF INCORPORATION OF THE SPECTRANETICS CORPORATION THE SPECTRANETICS CORPORATION, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: FIRST: That, by Unanimous Written Consent dated March 25, 1998 the Board of Directors of said Corporation duly adopted resolutions setting forth a proposed amendment to the Restated Certificate of Incorporation of said Corporation, declaring said amendment to be advisable and calling for the consent of the stockholders of said Corporation thereto. The amendment is as follows: Article IV, Section I is hereby amended to read in its entirety as follows: The aggregate number of shares of capital stock which the Corporation shall have authority to issue shall be 65,000,000 shares, 60,000,000 of which shall be of a class designated as Common Stock, with a par value of $0.001 per share (hereinafter referred to as "Common Stock"), and 5,000,000 of which shall be of a class designated as Preferred Stock, with a par value $0.001 per share (hereinafter referred to as "Preferred Stock"). SECOND: That thereafter, pursuant to a meeting of stockholders in accordance with Section 211 of the General Corporation Law of the State of Delaware, the necessary number of shares as required by statute were voted in favor of the amendments. THIRD: That said amendments were duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. In witness whereof, I have hereunto set my hand as of the 14th day of May, 1998. /s/Joseph A. Largey --------------------------------------- Joseph A. Largey President and Chief Executive Officer ATTEST: /s/James P. McCluskey --------------------------------------- James P. McCluskey Secretary EX-10.18 3 EXCLUSIVE PURCHASE AND DISTRIBUTION AGREEMENT EXCLUSIVE PURCHASE AND DISTRIBUTION AGREEMENT This agreement (the "Agreement") dated as of March 12, 1998 between the Spectranetics Corporation, a Delaware corporation having a place of business at 96 Talamine Court, Colorado Springs, Colorado 80907-5186 (hereinafter referred to as "Spectranetics"); and Orbus Medical Technologies, Inc., a Florida corporation, having an address at 200 South Biscayne Boulevard, Floor 20, Miami, Florida 33131 (hereinafter referred to as "OrbusMT"). WHEREAS, Spectranetics is a distributor of medical devices and has certain expertise in the marketing and sale of medical devices; and WHEREAS, OrbusMT is organizing a venture to engage in the design, development, and manufacture of certain medical devices including the "R Stent" as defined; and WHEREAS, OrbusMT has informed Spectranetics that a patent for the R Stent, in the name of Dr. Gary Becker as author, has been applied for in the European Community under Application * * * and that Dr. Becker has agreed to transfer to OrbusMT any patent issued pursuant to such application; and WHEREAS, the parties acknowledge that, as of the "Commencement Date," as defined, the R Stent has not been registered or approved for sale in any country; and WHEREAS, OrbusMT desires to arrange for the distribution of the R Stent in the "Territories," as defined, and Spectranetics desires to become the exclusive distributor of the R Stent in such Territories; and WHEREAS, Spectranetics represents that it has adequate facilities, skills, personnel, and financial resources to perform its duties under this Agreement; and WHEREAS, as consideration for the granting of the exclusive rights to distribute the R Stent on the terms and conditions of this Agreement, Spectranetics has agreed to invest certain monies and resources in the registration, approval, and subsequent sales and marketing of the R Stent in the Territories as more fully set forth in Section 3.3 hereof; and WHEREAS, the parties acknowledge that they each must invest significant resources in the registration, clinical trials, and production of the R Stent if it is to be successfully marketed 1 * * * This portion has been omitted pursuant to a request for confidential treatment and filed separately with the Commission. and sold; NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE 1 DEFINITIONS 1.1. For purposes of this Agreement, the definitions set forth below shall be applicable: "Affiliate" shall mean a corporation or other business entity which is, directly or indirectly, controlled by a party hereto. For this purpose, control of a corporation or other business entity shall mean (i) direct or indirect beneficial ownership of fifty percent (50%) or more of the voting interest in such corporation or other business entity, (ii) direct or indirect beneficial ownership of fifty percent (50%) or more of the equity of such corporation or other business entity, and (iii) the existence of any other relationship between a corporation or other business entity and another corporation or other business entity which results in effective management control by one or the other, regardless of whether such control is continuously exercised. The term "Affiliates" shall not mean any corporation or other business entity which controls a party hereto or is under common control with a party. "Approval" means the approval, by the appropriate governmental or quasi-governmental authorities, of the R Stent marketing and sales in the relevant part of the Territories. "Approval Date"" is defined in Section 11.1. * * * "Commencement Date" means the date of execution of this Agreement. "Confidential Information" is defined in Section 6.3. "Demo Unit" means a unit of the R Stent which Spectranetics gives * * * to a customer or potential customer. "Disclosee" is defined in Section 6.3. 2 * * * This portion has been omitted pursuant to a request for confidential treatment and filed separately with the Commission. "Discloser" is defined in Section 6.3. "FDA" shall mean the United States Department of Health and Human Services, Food and Drug Administration, or any successor agency. "First Contract Year" shall mean, as to each Territory, the 365-day period beginning on * * * in such Territory (the * * * Date," as further defined in Section * * * and ending at midnight on the 365th day thereafter. The "Second Contract Year," as to each such Territory, shall mean the next subsequent 365-day period, and so on. "International Regulatory Agency" shall mean any federal, state or local governmental authority in the Territories outside the United States which authority performs similar functions to the FDA. * * * * * * "Person" or "Persons" shall mean any individual, corporation, partnership, association, trust or other entity or organization, including a governmental or political sub division or any agency of instrumentality thereof. "R Stent" shall mean the OrbusMT R Stent as defined in the European patent application * * *, a copy of which is attached hereto as Annex "1" (the "European Patent Application"), and any modifications and improvements thereto. "Spectranetics Claims" is defined in Section 8.3. * * * "Sub-Distributor" shall mean any Person or Persons chosen by Spectranetics and approved by OrbusMT, as set forth in Section 2.1., to distribute the R Stent in any Territory, or portion thereof, on Spectranetics' behalf. "Subsequent Clinical Trial" means any clinical trial required to gain Approval in a part of the Territories for a modification, additional configuration, or other change made to the R Stent after the R Stent has received initial Approval in such part of the Territories. "Subsidiary" shall mean any corporation, partnership or other entity, fifty percent (50%) or more of the outstanding shares of any class of stock, general partnership interest, or other 3 * * * This portion has been omitted pursuant to a request for confidential treatment and filed separately with the Commission. equity of which is owned by a party; and any operating division of a party not separately incorporated or organized as an independent business Person. * * * "Trademark" shall mean such trademark or trademarks as OrbusMT shall register for the R Stent. OrbusMT shall give Spectranetics prompt notice of any and all such trademarks. ARTICLE 2 EXCLUSIVE DISTRIBUTORSHIP 2.1. Exclusivity. OrbusMT hereby appoints Spectranetics, for the Term of this Agreement, and Spectranetics hereby accepts such appointment, as OrbusMT's exclusive distributor for the sale and distribution of the R Stent in the Territories, on the terms and conditions of this Agreement. Spectranetics acknowledges that OrbusMT is relying on its particular skills and reputation in the scientific community and agrees that it may not appoint any Sub-Distributor without the prior written approval of OrbusMT, which approval OrbusMT may give or withhold in its sole discretion, with or without reason. 2.2. Sales in the Territories. During the term of this Agreement, OrbusMT will sell and deliver to Spectranetics, and Spectranetics will purchase from OrbusMT, the R Stent at the prices and subject to the terms and conditions provided in this Agreement. OrbusMT agrees not to sell the R Stent in the Territories to Persons other than Spectranetics and to forward to Spectranetics all inquiries and orders received by OrbusMT concerning sales of the R Stent in the Territories. Spectranetics agrees not to sell the R Stent outside the Territories and to forward to OrbusMT all inquiries or orders received by Spectranetics concerning sales of the R Stent outside the Territories. 2.3. Sales Outside the Territories. OrbusMT agrees not to knowingly sell the R Stent to Persons outside the Territories who intend to sell the R Stent in the Territories. If Spectranetics advises OrbusMT that another customer of OrbusMT is engaged in the distribution, sale, or resale of the R Stent in the Territories, then OrbusMT agrees to use reasonable efforts to persuade or prevent such customer from distributing, selling, or reselling in the Territories (which efforts need not include litigation) and, if OrbusMT is unsuccessful in its efforts, then OrbusMT agrees to cease sales to such customer within sixty (60) days of the date OrbusMT first becomes aware of such customer's unauthorized activities. 4 * * * This portion has been omitted pursuant to a request for confidential treatment and filed separately with the Commission. Spectranetics agrees not to sell the R Stent outside the Territories without specific advance written authorization from OrbusMT. Spectranetics further agrees that, during the term of this Agreement (1) it shall not knowingly sell the R Stent to Persons located in the Territories who intend to distribute, sell, or resell the R Stent outside the Territories; and (2) it shall take reasonable precautions to insure that the R Stents it purchases from OrbusMT shall only be offered for distribution, sale, or resale within the Territories. If Spectranetics is advised by OrbusMT that one of its customers is engaged in the distribution, sale, or resale of the R Stent outside of the Territories, then Spectranetics agrees to use reasonable efforts to persuade or prevent such customer from distributing, selling, or reselling the R Stent outside of the Territories (which efforts need not include litigation) and, if Spectranetics is unsuccessful in its efforts, then Spectranetics agrees to cease sales to such customer within sixty (60) days of the date Spectranetics first becomes aware of such customer's unauthorized activities. 2.4. OrbusMT's Employees. OrbusMT agrees: (1) not to send or employ any agents or employees or other personnel of OrbusMT into the Territories to engage in the sales or promotion of the R Stent in the Territories and (2) not to make any efforts to sell the R Stent in the Territories from outside the Territories; provided, however, that nothing contained in this Section 2.4 shall prevent OrbusMT from having any employees or agents work in the Territories, on a part-time, full-time or permanent basis, to act as liaison between Spectranetics and OrbusMT, and to act on OrbusMT's behalf in the Territories as long as such activities are consistent with the "Annual Marketing Plan," as defined in Section 3.2(a) of this Agreement. 2.5. * * * Bundling. Distribution rights shall be considered to be in effect for any Territory from the Commencement Date until such rights are terminated pursuant to the terms of this Agreement. * * * Spectranetics may not sell or distribute the R Stent "bundled," as defined, with any other product or products without the prior written approval of OrbusMT. "Bundled" means the giving of a price to a customer for two or more products without indicating what portion of the price is for each product included. 5 * * * This portion has been omitted pursuant to a request for confidential treatment and filed separately with the Commission. 2.6. Payment to OrbusMT. (a) For each Territory, Spectranetics shall determine the suggested hospital list prices, the sales prices directly from Spectranetics to hospitals, and the actual sales price from Spectranetics to Sub-Distributors and customers for the R Stent. Spectranetics will inform OrbusMT in writing of such prices as and when they change. (b) For each R Stent sold Spectranetics agrees to pay OrbusMT * * * (c) Spectranetics agrees to pay OrbusMT the OrbusMT Price for each R Stent delivered to Spectranetics within thirty (30) days after receipt of the invoice for such R Stent. Spectranetics agrees to pay any additional amount owed to OrbusMT pursuant to Section 2.6(b) within thirty (30) days after the end of the calendar quarter in which Spectranetics is paid by its Sub-Distributor or customer for such R Stent. (d) * * * the OrbusMT Price shall be subject to adjustment at OrbusMT's option at any time and from time to time, provided that (i) OrbusMT shall have given Spectranetics thirty (30) days' notice of such adjustment, and (ii) OrbusMT shall be obligated to fill all orders it receives from Spectranetics prior to the effective date of such adjustment at the immediately preceding price levels except as may be otherwise agreed by the parties; and (iii) the aggregate increases in the prices of the R Stent in any Contract Year shall not be more than * * * over the prices in effect at the beginning of such Contract Year unless the increases shall be due to a modification in the R Stent. The parties acknowledge that the OrbusMT Price may also be adjusted to * * * . 2.7 New Products. OrbusMT shall use commercially reasonable efforts to discuss with Spectranetics, in an informal manner, potential new products on an ongoing basis. * * * All discussions between OrbusMT and Spectranetics concerning any New Product or any potential New Product shall be subject to the provisions of this Agreement concerning confidentiality. 6 * * * This portion has been omitted pursuant to a request for confidential treatment and filed separately with the Commission. ARTICLE 3 RESPONSIBILITIES OF PARTIES 3.1. Responsibilities of OrbusMT. (a) OrbusMT will be responsible for and in charge of (i) any further research and development needed for the production of the R Stent; and (ii) the manufacturing (including Territory-specific labeling and packaging) of the R Stent. In connection with these responsibilities OrbusMT will prepare an annual business plan (the "Annual Business Plan") describing, in detail, projected production numbers, supply schedules, and production capacities for the R Stent in the Territories * * *. The Annual Business Plan for 1998 is attached hereto and made a part hereof as Annex "3." (b) OrbusMT agrees to assist Spectranetics in sales, training and other programs intended to enhance Spectranetics' ability to market the R Stent. In connection therewith, OrbusMT shall provide Spectranetics, at no cost to Spectranetics, (i) access to technical personnel during normal business hours to answer questions or inquiries concerning the R Stent; and (ii) the assistance of a "Marketing Management Consultant" in preparing and executing education, training and other programs for the Spectranetics sales staff. The Marketing Management Consultant shall be available on an as needed basis to Spectranetics until May 30, 1999 and thereafter up to twenty five percent (25%) of the Marketing Management Consultant's work time in each calendar year during the Term of this Agreement. Mr. David L. Camp shall be the initial Marketing Management Consultant. In the event that OrbusMT wishes to replace Mr. Camp as Marketing Management Consultant during the period from the Commencement Date until May 30, 1999, then Spectranetics must approve Mr. Camp's proposed replacement. In the event that OrbusMT wishes to replace Mr. Camp as Marketing Management Consultant after May 30, 1999, then OrbusMT agrees that: (A) it shall only consider and hire candidates with at least ten (10) years' experience in marketing medical devices in the areas of interventional radiology and/or interventional cardiology, and (B) it shall include Spectranetics in the interviewing and evaluation process, Spectranetics acknowledging that the final decision shall be that of OrbusMT. (c) OrbusMT will provide Demo Units to Spectranetics at a maximum cost of * * *. Spectranetics will include in the quarterly reports provided to OrbusMT pursuant to Section 3.2 information regarding the distribution of Demo Units to its customers. 7 * * * This portion has been omitted pursuant to a request for confidential treatment and filed separately with the Commission. (d) OrbusMT shall use its best efforts to protect the intellectual property associated with the R Stent to the fullest extent possible, including, but not limited to, prosecuting patents for the R Stent in the Territories in a timely manner. (e) OrbusMT shall provide to Spectranetics R Stent packaging materials such that Spectranetics may review and approve the packaging design thereof. OrbusMT shall have sole responsibility for ensuring that the required Agency and other regulatory information is incorporated in such materials. 3.2. Responsibilities of Spectranetics. (a) Spectranetics will execute an annual sales plan (the "Annual Sales Plan") and an annual marketing plan (the "Annual Marketing Plan"). The Annual Sales Plan will describe, in detail, projected sales, sale prices and sales targets for each country in the Territories. The Annual Marketing Plan will describe, in detail, planned clinical trials, promotional activities, materials, and related budgets for the year in question. * * * The Annual Sales Plan for 1998 and the Annual Marketing Plan for 1998 are attached hereto and made a part hereof as Annex "4". * * * (b) Sales. Spectranetics shall (i) take reasonable efforts to promote and obtain sale and distribution of, and to stimulate interest in, the R Stent throughout the Territories; and (ii) solicit orders for and sell the R Stent for delivery to customers throughout the Territories; and, in consideration thereof, OrbusMT hereby agrees not to appoint another distributor of the R Stent within the Territories during the Term of this Agreement, except as specified in Article 9. (c) Specific Duties. In order to carry out its responsibilities, Spectranetics agrees to undertake the following at its expense: (i) to treat its customers and to conduct its business with a view to maintaining and increasing the public goodwill and reputation attached to the R Stent; (ii) to employ, train, and maintain an efficient staff of sales and other personnel to carry out Spectranetics' responsibilities under this Agreement, including, without limitation, the agreed minimum staff set forth in Annex "2" attached hereto and made a part hereof (the "Minimum Staff"). Minimum Staff may support other Spectranetics' products; (iii) to organize and participate in such joint visits of 8 * * * This portion has been omitted pursuant to a request for confidential treatment and filed separately with the Commission. Spectranetics' customers as may be reasonably requested by OrbusMT; (iv) to distribute among prospective purchasers such technical or commercial catalogues, leaflets, and other printed documentation as it and OrbusMT may agree to; (vi) to prepare with OrbusMT's assistance and to distribute to prospective buyers such other catalogues, leaflets, and printed documentation as the parties agree desirable for the marketing of the R Stent within the Territories; (vii) to apply to its customers conditions of sale and warranty strictly in accordance with all applicable laws, regulations, and FDA or International Regulatory Agency standards in the respective Territories; and (viii) to inform OrbusMT immediately of laws, regulations, and FDA or International Regulatory Agency standards applicable to the R Stent in the Territories of which Spectranetics becomes aware. (d) Trademarks. OrbusMT hereby authorizes Spectranetics to utilize any of its Trademarks or trade names in connection with Spectranetics' sales of the R Stent pursuant to this Agreement. Spectranetics agrees to evidence any such Trademarks or trade names in any advertising or sales promotion materials and to advise OrbusMT promptly of any infringement it discovers of any of OrbusMT's Trademarks or trade names. Spectranetics further agrees: (i) to utilize the Trademark only in connection with the R Stent and the performance of this Agreement; (ii) to evidence the Trademark in any advertising or sales promotion program or campaign; (iii) to comply with OrbusMT's reasonable instructions with respect to any use of the Trademark (color, design, and so on); (iv) to have the Trademark appear on any packaging or wrapping materials that Spectranetics or any of its subdistributors, dealers, or sales representatives provides concerning the R Stent; 9 * * * This portion has been omitted pursuant to a request for confidential treatment and filed separately with the Commission. (v) not to associate the Trademark in a confusing manner with any other tradename or trademark (including those of Spectranetics), except in accordance with OrbusMT's instructions; (vi) not to use the Trademark for other purposes than those specifically provided herein without the prior written approval of OrbusMT; (vii) not to file any registration application or to register the Trademark or any other trademarks or tradenames associating the Trademark or the R Stent with any other products or leading to confusion with or imitating the R Stent or the Trademark; (viii) except as set forth in Section 11.4, to cease and desist from the use of the Trademark from and after such time as this Agreement shall have been terminated for any reason whatsoever; and (ix) to impose the restrictions imposed upon it by the terms of this Section 3.2 upon those to whom it sells. (e) License to OrbusMT. Subject to the terms and conditions of this Agreement, Spectranetics hereby grants to OrbusMT a non-exclusive, non-transferable limited license to use the Spectranetics tradename and trademarks solely for the purpose of manufacturing and packaging R Stents for distribution under this Agreement. (f) Standard of Conduct. Spectranetics shall conduct its affairs in an ethical and businesslike manner, shall pay all taxes, levies, and duties applicable to the sale of the R Stent, shall at no times knowingly engage in any illegal, deceptive, unfair or unethical trade practices which may adversely affect the image and reputation of OrbusMT or the R Stent, and shall not knowingly make false, misleading, or disparaging representations regarding OrbusMT or the R Stent. (g) Warranties by Spectranetics. Spectranetics shall make no warranties or guarantees with respect to the R Stent or the use of the R Stent except as may be authorized by OrbusMT in writing. Sales shall be made under OrbusMT's warranty as in effect from time to time and shall be extended to purchasers at retail. Warranty cards or similar materials provided 10 * * * This portion has been omitted pursuant to a request for confidential treatment and filed separately with the Commission. by OrbusMT shall be furnished by Spectranetics to each buyer. (h) Records. Spectranetics shall maintain accurate records and accounts of all purchase orders, invoices, sales statistics, and advertising expenditures relating to the R Stent and shall permit examination of such records by OrbusMT's representatives and agents upon reasonable notice and during normal business hours. OrbusMT shall not require Spectranetics to maintain information other than that it maintains in the normal course of its business. Spectranetics agrees that it will permit a reputable independent certified public accounting firm designated by OrbusMT and approved by Spectranetics, which approval shall not be unreasonably withheld, to have access, at a mutually-agreed-upon time during Spectranetics' normal business hours, to Spectranetics' records and books of account which relate solely to the R Stent for the purpose of determining whether the appropriate fees have been paid. Such audits may not be required more often than once every year; provided, however, that OrbusMT may audit Spectranetics within six (6) months of any audit in which a discrepancy of five percent (5%) or greater in favor of Spectranetics is found. If a discrepancy is discovered, the party in whose favor the error was made will promptly pay the amount of the error to the other. OrbusMT will pay the cost of the audit, provided that, if a discrepancy is discovered of ten percent (10%) or greater, then Spectranetics will pay the cost of the audit. (i) Reports. Within thirty (30) days following the end of each calendar quarter, Spectranetics shall furnish to OrbusMT a written "Sales and Inventory Report" setting forth such information as OrbusMT may reasonably request, in each case on a country-by-country basis, including: (i) quantities on hand at the beginning of such calendar quarter; (ii) quantities purchased from OrbusMT during such calendar quarter; (iii) quantities sold by Spectranetics to each of its customers during such calendar quarter, the prices at which the R Stents in question were sold, and the terms on which such R Stents were sold; (iv) the amounts collected by Spectranetics during such calendar quarter on account of the R Stent from each of its customers; and (v) quantities on hand at the end of such calendar quarter. 3.3. The Approval Process. Except as provided in this Section 3.3, all costs of obtaining Approval for the sale and marketing of the R Stent in each part of the Territories shall 11 * * * This portion has been omitted pursuant to a request for confidential treatment and filed separately with the Commission. be borne by * * * agrees to devote the time and resources necessary to obtain Approval in each part of the Territories on the timetable set forth in Annex "6" attached hereto and made a part hereof. * * * * * * * * * shall maintain detailed records of all clinical trials, in accordance with the accepted standards in the profession, including records of the costs of such clinical trials. * * * shall be entitled to copies of all such records of * * * at any time and from time to time. In the event of modification to the design of the R Stent, * * * shall bear the costs of all design work in connection therewith. * * * shall bear the costs of all Subsequent Clinical Trials and applications for Approval which may be required in connection with any such modification * * *. OrbusMT agrees to discuss any proposed modification to the design of the R Stent with Spectranetics prior to implementing the same and to coordinate with Spectranetics, where possible, the timing of the introduction of any modified version of the R Stent. ARTICLE 4 REPRESENTATIONS AND WARRANTIES 4.1. Representations and Warranties of OrbusMT. OrbusMT represents and warrants that (i) it will employ or otherwise engage and maintain adequate manpower to fulfill its responsibilities hereunder; (ii) the R Stents will conform to the specifications submitted for Approval in the respective parts of the Territories and will be free of defects in materials and workmanship; (iii) the R Stents will be manufactured in accordance with all applicable regulatory provisions, including without limitation, applicable FDA regulations as to "Good Manufacturing Practices" including those recited for medical devices set forth at 21 C.F.R. ss. 820, as amended from time to time, and the "Establishment Regulation and Device Listing for Manufacturers of Devices" set forth at 21 C.F.R. ss. 807, as amended from time to time, and ISO 9002; (iv) the R Stents will not be adulterated or misbranded within the meaning of the United States Food, Drug and Cosmetic Act of 1938, as amended, and the regulations promulgated thereunder; (v) when delivered to Spectranetics, the R Stents will be free and clear of all liens, security interest, charges and encumbrances of any kind or amount; and (vi) neither the materials comprising the R Stents sold hereunder nor the specifications for such R Stents will be altered without prior written notice to Spectranetics, which notice shall be given on a timely basis prior to the making of any such alteration. 12 * * * This portion has been omitted pursuant to a request for confidential treatment and filed separately with the Commission. 4.2. Corporate Existence and Power. OrbusMT is a corporation, duly organized, validly existing and in good standing under the laws of the State of Florida. OrbusMT has full power to carry on its business and perform its obligations under this Agreement. 4.3. Authorization and Validity of Agreement. The execution, delivery and performance of this Agreement by OrbusMT and the consummation by OrbusMT of the transactions contemplated hereby have been duly authorized by all necessary action on the part of OrbusMT. This Agreement has been duly executed and delivered by OrbusMT and this Agreement and any agreements executed and delivered by OrbusMT pursuant hereto constitute the valid and binding agreements of OrbusMT and each is enforceable against it in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to creditors' rights generally or by equitable principles (whether considered in an action at law or in equity). 4.4. No Violation; Consents. Neither the execution and delivery of this Agreement nor the consummation of the transactions provided for herein will violate any material agreement to which OrbusMT is a party or by which it is bound or any law, order or decree or any provision of the Articles of Incorporation or By-Laws. No authorization, approval, or consent of any third party (including, without limitation, the holder or any material debt of OrbusMT, the lessor of any material lease, any other party to any contract or agreement, or any governmental or regulatory authority) is required in connection with the lawful execution, delivery and performance of this Agreement by OrbusMT. 4.5. Title to Purchased Assets. Prior to initial Approval in any Territory, OrbusMT shall own the entire right, title and interest in and to the Patent Application, free and clear of all mortgages, liens, pledges, charges and encumbrances of any kind and nature. 4.6. Intellectual Property. OrbusMT has not received any notice of any claim of infringement or any other claim or proceeding relating to any patent, trademark, trade name, service mark, copyright or trade secret relating to the R Stent. 13 * * * This portion has been omitted pursuant to a request for confidential treatment and filed separately with the Commission. 4.7. Representations and Warranties of Spectranetics. Spectranetics represents and warrants that (i) it has the ability to employ and maintain adequate manpower and organization to fulfill its responsibilities hereunder, including without limitation, the Minimum Staff; (ii) once delivered to Spectranetics, the R Stent will not be adulterated or misbranded within the meaning of the United States Food, Drug and Cosmetic Act of 1938, as amended, and the regulations promulgated thereunder; (iii) while in the possession of Spectranetics and at the time of delivery from Spectranetics to its customers, the R Stents will be free and clear of all liens, security interest, charges and encumbrances of any kind or amount and (iv) Spectranetics will assure that the R Stents are properly stored and inventoried until such time as they are delivered to its customers, in compliance with the guidelines of OrbusMT in effect from time to time and in compliance with all applicable laws, regulations, and standards in the Territories. In order to guarantee that R Stents shall not be sold beyond their shelf life, Spectranetics represents and warrants that it shall: (A) use the "First In, First Out" inventory system, such that the oldest R Stents on hand are sold first; and (B) destroy all R Stents which are past the "last sales date" or "expiration date" printed on the packaging of each R Stent in order to assure that the same are not sold. In the event that Spectranetics uses any Sub-Distributor, Spectranetics warrants that it will assure that each such Sub-Distributor warrants to it and to OrbusMT that such Sub-Distributor will also follow the provisions of this Section 4.7. 4.8. Corporate Existence and Power. Spectranetics is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Spectranetics has full power to enter into this Agreement and perform its obligations hereunder. 4.9. Authorization and Validity of Agreement. The execution, delivery and performance of this Agreement by Spectranetics and the consummation by Spectranetics of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Spectranetics. This Agreement has been duly executed and delivered by Spectranetics and this Agreement and any agreements executed and delivered by Spectranetics pursuant hereto constitute the valid and binding agreements of Spectranetics and each is enforceable against it in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to creditors' rights generally or by equitable principles (whether considered in an action at law or in equity). 4.10. No Violation; Consents. Neither the execution and delivery of this Agreement 14 * * * This portion has been omitted pursuant to a request for confidential treatment and filed separately with the Commission. nor the consummation of the transactions provided for herein will violate any material agreement to which Spectranetics is a party or by which it is bound or any law, order or decree or any provision of the Articles of Incorporation or By-Laws. Except with respect to Silicon Valley Bank, no authorization, approval, or consent of any thirty party (including, without limitation, the holder of any material debt of Spectranetics, the lessor of any material lease, any other party to any contract or agreement, or any governmental or regulatory authority) is required in connection with the lawful execution, delivery and performance of this Agreement by Spectranetics. 4.11. Inspections. Each of OrbusMT and Spectranetics shall permit the other such inspections as are necessary to allow the other to verify that the representations and warranties are true. Such inspections shall not be required more often than once in each Contract Year; provided, however, that either party may make follow-up inspections within two (2) months of any inspection in which a material breach of any representation or warranty is found. ARTICLE 5 INFORMATION 5.1. Access to Information. Each party shall provide to the other access to all relevant governmental files and submissions to which such party has access. Each party shall provide the other with a copy of any reported adverse experience involving the R Stent after a party receives the report of such occurrence whether sold by it or any Person to whom a party has granted any distribution or sales rights. Any death, serious injury, potential for occurrence of the same, or change in the frequency or occurrence of field experiences with respect to an R Stent which is required to be reported by a party to the FDA or any International Regulatory Agency shall be reported to the other party as promptly as possible to enable the other party to comply with applicable regulations in a timely manner. 5.2. Corrective Actions - OrbusMT. Except as provided for in Section 5.3, OrbusMT shall institute and fund any recall, corrective action, or the like in circumstances relating to a R Stent defect or failure which requires such action as determined by the FDA, any International Regulatory Agency, OrbusMT, or as otherwise may be required pursuant to applicable laws, rules or regulations. Spectranetics shall provide OrbusMT with responsible assistance in the actual retrieval of the R Stents sold by Spectranetics. 5.3 Corrective Actions - Spectranetics. Spectranetics shall institute and fund any recall, corrective action, or the like in circumstances relating to an R Stent defect or failure which requires such action as determined by the FDA, any International Regulatory Agency, OrbusMT, Spectranetics or as otherwise may be required pursuant to applicable laws, rules or regulations if 15 * * * This portion has been omitted pursuant to a request for confidential treatment and filed separately with the Commission. caused by the failure of Spectranetics to properly inventory and store the R Stent after delivered to Spectranetics. OrbusMT shall provide Spectranetics with responsible assistance in the actual retrieval of the R Stents sold by Spectranetics. In the event of any recall, each party will cooperate fully with the other in accounting for all units and acquiring the same. 5.4. Survival. The provisions of this Article 5 shall survive termination of this Agreement. ARTICLE 6 CONFIDENTIAL INFORMATION 6.1. Spectranetics' Confidentiality Obligation. Spectranetics hereby covenants that it will not, directly or indirectly, disclose either during or subsequent to the term of this Agreement, any Confidential Information of OrbusMT, to any other Person, except to its attorneys and accountants as required in connection with this Agreement who have been and will be instructed to maintain its confidentiality and to third Persons, with a demonstrated need to know such Confidential Information, who shall execute binding written agreements requiring such third Persons not to disclose Confidential Information disclosed to them by Spectranetics. 6.2. OrbusMT's Confidentiality Obligation. OrbusMT hereby covenants that it will not, directly or indirectly, disclose either during or subsequent to the term of this Agreement, any Confidential Information proprietary to Spectranetics, to any other Person, except to OrbusMT's attorneys and accountants as required in connection with this Agreement who have been and will be instructed to maintain its confidentiality and to third Persons, with a demonstrated need to know such Confidential Information, who shall execute binding written agreements requiring such third Persons not to disclose Confidential Information disclosed to them by OrbusMT. 6.3. Confidential Information. For purposes of this Agreement, "Confidential Information" shall mean verbal and written disclosures from OrbusMT or Spectranetics (the "Discloser") to the other party (the "Disclosee"), which concern the Discloser, including without limitation information which concerns the Discloser's business, operations, products or research and development efforts, or which concern the R Stents, but shall not include information which: (a) at the time of disclosure is published or otherwise becomes a part of the public domain through no fault of Disclosee (but only after, and only to the extent that, it is published or otherwise becomes a part of the public domain); (b) Disclosee can show was known to it at the time of disclosure, free of restriction; (c) has been or hereafter is disclosed to Disclosee without any obligation of confidentiality by a third Person who is in lawful possession of such 16 * * * This portion has been omitted pursuant to a request for confidential treatment and filed separately with the Commission. information and has the right to disclose it to Disclosee; (d) has been or hereafter is disclosed by Discloser to a third Person free of any obligations of confidentiality; (e) is developed by Disclosee independent of the Discloser's Confidential Information; or (f) is disclosed by Disclosee pursuant to the order or requirement of a court, administrative agency or other governmental body, provided that the Disclosee promptly informs the Discloser of its intent to make such disclosure, takes all reasonable steps to limit such disclosure and does not inhibit the Discloser in taking whatever lawful steps the Discloser considers necessary to attempt to preserve the confidentiality of such information. Disclosures made to Disclosee by Discloser which are specific shall not be deemed to be within the foregoing exceptions merely because they are embraced by general disclosures in the public domain or in the possession of Disclosee. 6.4. Remedies. The parties agree and acknowledge that any breach of this Article 6 by OrbusMT or Spectranetics would likely cause irreparable injury to the other party and that such other party's remedy at law for any such breach would be inadequate. Accordingly, the parties agree that, in addition to any other remedies provided for herein or otherwise available at law, temporary and permanent injunctive relief and other equitable relief may be granted in any Action which may be brought by either party to enforce the provisions of this Article 6 without the necessity of proof of actual damage. Each party agrees promptly to seek temporary and permanent injunctive relief against any of its directors, officers, employees, representatives or agents who breach the aforesaid obligations with respect to any matter relating to this Agreement. The provisions of Section 12.8. shall not apply to this Article 6. 6.5. Survival. The provisions of this Article 6 shall survive termination of this Agreement. ARTICLE 7 INVENTIONS 7.1. Inventions. Spectranetics and OrbusMT each acknowledge that the other party has heretofore developed or acquired and will continue to develop, acquire, market and sell products, methods, processes and apparatus relative to their respective fields of endeavor. Notwithstanding anything in this Agreement to the contrary, Spectranetics and OrbusMT each retain all right, title and interest in and to such products, methods, processes and apparatus developed or owned on their respective parts. 7.2. Patents. Spectranetics acknowledges that OrbusMT has filed the European Patent Application, and that OrbusMT may file future patent applications in other parts of the Territories and elsewhere for the R Stent. Spectranetics agrees that it shall assist and cooperate in a reasonable manner with OrbusMT in obtaining patent protection pursuant to any such 17 * * * This portion has been omitted pursuant to a request for confidential treatment and filed separately with the Commission. applications and to protect title in the same in the name of OrbusMT. In such event, OrbusMT shall reimburse to Spectranetics its reasonable out-of-pocket costs in connection with such assistance. 7.3. Joint Works. There shall be no joint works between the parties. Spectranetics acknowledges that the R Stent, any licenses associated therewith, and all intellectual property rights related to the R Stent and any modifications to the design or characteristics of the same are and shall remain the sole and exclusive property of OrbusMT. 7.4. Survival. The provisions of this Article 7 shall survive termination of this Agreement. ARTICLE 8 INDEMNIFICATION 8.1. * * * Indemnification of * * *. (a) * * *. (b) * * *. 8.2. * * * Indemnification of * * *. (a) * * *. (b) * * *. (c) * * *. 8.3. Survival. The provisions of this Article 8 shall survive termination of the Agreement. 18 * * * This portion has been omitted pursuant to a request for confidential treatment and filed separately with the Commission. ARTICLE 9 APPLICATION DATES * * * 9.1. Application Dates. The parties agree that they each shall prepare and execute the materials and undertakings which each is to prepare and execute under the provisions of Section 3.3 for the registration and application for Approval of the R Stent in each part of the Territories such that application for Approval can be filed no later than the date given for each in Annex "6" attached hereto and made a part hereof (the "Application Dates"). * * *. In the event that an application is not timely filed and neither party is in default hereunder, then both parties will continue to use reasonable efforts to effect the filing of such application as quickly as possible. 9.2. * * * If, as to any part of the Territories during any Contract Year, * * *, OrbusMT shall have the right to terminate this Agreement as to such part of the Territories, by sending six (6) months written notice to Spectranetics (the "6 Month Notice"), without any indemnity, compensation, or damage of any nature whatsoever to be paid by OrbusMT to Spectranetics in relation to any such termination. Spectranetics may, prior to the expiration of the 60th day following the date of the 6 Month Notice, * * *. Otherwise, this Agreement shall terminate on the date specified in the 6 Month Notice (being a date at least 6 months after the date the 6 Month Notice is given) as to the part of the Territories specified in such 6 Month Notice. * * *, then OrbusMT shall have the right to terminate this Agreement as to such part of the Territories, by sending six (6) months written notice to Spectranetics (the "6 Month Notice"), without any indemnity, compensation, or damage of any nature whatsoever to be paid by OrbusMT to Spectranetics in relation to any such termination. Spectranetics may, prior to the expiration of the 60 day period following the date of the 6 Month Notice, * * *. Otherwise, this Agreement shall terminate on the date specified in the 6 Month Notice (being a date at least 6 months after the date the 6 Month Notice is given) as to the part of the Territories specified in such 6 Month Notice. The provisions of this Section 9.2 shall be the sole remedy of OrbusMT in the event * * *. 19 * * * This portion has been omitted pursuant to a request for confidential treatment and filed separately with the Commission. ARTICLE 10 CONDITIONS OF SALES 10.1. Orders. Spectranetics shall provide OrbusMT with a non-binding 12 month rolling forecast (a "forecast") of Spectranetics' estimated requirements for the R Stent broken down by Territory, which forecast shall be updated: (1) every three (3) months and (ii) within thirty (30) days of initial Approval of the R Stent in a Territory. The first of such forecasts shall be provided within thirty (30) days after initial Approval in any Territory. Concurrent with submitting its non-binding forecast pursuant to this Section 10.1, Spectranetics shall place a binding purchase order with OrbusMT for (i) 100% of the forecasted requirement for the first three (3) month period of such forecast (the "first quarter") and (ii) fifty percent (50%) of the forecasted requirement for the subsequent three (3) month period of such forecast (the "second quarter"). Estimated quantities given in each forecast for the last six (6) month period of such forecast shall be for planning purposes only. OrbusMT agrees to meet Spectranetics' requirements as set forth in binding purchase orders pursuant to this Section 10.1 and any additional quantity of up to a twenty-five percent (25%) increase over the most recent forecasted requirements for the first and second quarters of such forecasts. Orders accepted by OrbusMT shall result in sales contracts to be governed and construed in accordance with the terms of this Agreement, OrbusMT's terms and conditions of sale in effect at the time of delivery (to the extent not inconsistent with this Agreement), and the terms of Spectranetics order (to the extent not inconsistent with this Agreement or OrbusMT's terms and conditions of sale). The terms of this Agreement will control over any contrary language contained on any purchase order, acknowledgment or invoice submitted by either party hereto in connection with any purchase or sale covered by this Agreement whether or not such purchase order, acknowledgment or invoice refers to this Agreement explicitly. 10.2. Sales. All sales of the R Stents to Spectranetics shall be made F.O.B. to the "Spectranetics Designated Warehouse," as defined. The "Spectranetics Designated Warehouse" means a single location in each of the Territories to which orders shall be shipped. The location of the Spectranetics Designated Warehouse in any one Territory may not be changed more than once yearly. 10.3. Risk of Loss. Risk of loss of all units of the R Stent sold hereunder shall pass to Spectranetics, and OrbusMT's responsibility for loss or damage to any R Stent shall cease, immediately upon delivery of the R Stents to the Spectranetics Designated Warehouse. 20 * * * This portion has been omitted pursuant to a request for confidential treatment and filed separately with the Commission. 10.4. Shipping Dates. Throughout the Term of this Agreement, OrbusMT agrees to keep Spectranetics reasonably advised of anticipated shipping dates and of any delays in the same. 10.5 Security Interest. OrbusMT reserves a purchase money security interest in each R Stent until such time as it receives payment for the OrbusMT Price. OrbusMT shall be solely responsible for perfecting its security interest. Spectranetics agrees to execute such instruments as may be required from time to time to perfect such interest in OrbusMT. 10.6. Warranty. OrbusMT warrants to Spectranetics that each unit delivered hereunder will be free from defects in material and workmanship. If, within one (1) year from the date a unit is shipped to Spectranetics, it appears that the unit does not meet the warranty specified in this Section 10.7. and Spectranetics makes such unit available for inspection by OrbusMT, then OrbusMT will, at its sole option: (a) furnish a replacement for the defective unit to Spectranetics against return at Spectranetics' premises of the defective item; or (b) refund to Spectranetics an amount equal to the price paid by Spectranetics to OrbusMT for such unit, against return at Spectranetics' premises of the defective item. OrbusMT further warrants that each R Stent provided hereunder conforms to the requirements of the relevant Approval. OrbusMT further warrants that the R Stents shall be merchantable for the purpose set forth in such Approval. THE FOREGOING WARRANTIES ARE EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES, WHETHER WRITTEN, ORAL OR IMPLIED, INCLUDING THE WARRANTY OF FITNESS FOR A SPECIFIC PURPOSE. The liability of OrbusMT to Spectranetics arising out of the supplying of a R Stent or its use, whether on warranty, contract, negligence or otherwise, shall not in any case exceed the cost of replacing such R Stent except as specifically provided in this Agreement. The foregoing shall constitute the sole remedy of Spectranetics and the sole liability of OrbusMT in respect of any loss or damage arising out of or connected with any order or the performance or breach thereof or the manufacture, sale, delivery, resale or use of any R Stent. OrbusMT shall have no obligations as to any R Stents which are subjected to misuse, negligence, accident, or alteration by Spectranetics or any third party. NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES, 21 * * * This portion has been omitted pursuant to a request for confidential treatment and filed separately with the Commission. INCLUDING, BUT NOT LIMITED TO, LOSS OF PROFITS, LOSS OF BUSINESS OR OTHER LOSS ARISING OUT OR RESULTING FROM THIS AGREEMENT EVEN IF THE PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THE FOREGOING SHALL APPLY REGARDLESS OF THE NEGLIGENCE OR OTHER FAULT OF THE PARTY AND REGARDLESS OF WHETHER SUCH LIABILITY SOUNDS IN CONTRACT, NEGLIGENCE, TORT, OR ANY OTHER THEORY OF LEGAL LIABILITY. 10.8. Warranty to Customers. Spectranetics agrees and warrants that each R Stent sold shall be accompanied by a copy of OrbusMT's standard warranty language (the "Warranty"), a copy of which is attached hereto as Annex "5." The parties agree that neither of them shall modify the Warranty except (a) as required by any governmental authority or (b) as jointly agreed between them. 10.9 Manufacturing. * * * The provisions of this Section 10.9 shall not apply if (a) Spectranetics shall be in default under the terms of this Agreement, including, but not limited to, a failure by Spectranetics to pay OrbusMT in a timely fashion pursuant to the provisions of Article 2 hereof, or (b) under any circumstance where OrbusMT's failure to deliver any R Stents to Spectranetics is the result of any action taken by Spectranetics or any state of facts related to Spectranetics. ARTICLE 11 TERM AND TERMINATION OF THE AGREEMENT 11.1. Term. (a) The term of this Agreement shall commence upon the Commencement Date and shall continue until the exclusive distributorship granted to Spectranetics hereunder, has been terminated in each of the Territories unless terminated earlier pursuant to the provisions of this Agreement. (b) The Term of the exclusive distributorship in each Territory shall be * * * from the date that official marketing approval is granted by the FDA or the appropriate International Regulatory Agency, as the case may be, in such Territory (the "Approval Date"). In the case of a Territory with more than one country, the Approval Date shall be the date when approval has been granted by the FDA or the International Regulatory Agency, as the case may be, in at least one-half of the countries in such Territory, including the largest country in such Territory. The Term of this Agreement for each Territory will automatically renew for an additional * * * of the Approval Date in such Territory unless Spectranetics shall have given 22 * * * This portion has been omitted pursuant to a request for confidential treatment and filed separately with the Commission. OrbusMT six (6) months prior written notice of termination of the exclusive distributorship in that Territory or * * * from the Approval Date. The Renewal Amount represents the unit commitment for * * * then OrbusMT may terminate this Agreement by giving Spectranetics six (6) months prior written notice of termination of the exclusive distributorship in that Territory. Such terminations are Territory specific and do not affect Spectranetics' exclusive distributorship in any other Territory. In the event that the Term of the Agreement shall automatically renew as to any part of the Territories, * * *. (c) Spectranetics has the option to terminate this Agreement within ten (10) days of receipt of the reported conclusions and recommendations of the feasibility study now being conducted by the Rotterdam Heart Center ("RHC") relating to the R Stent, but in no event later than May 5, 1998 (the "RHC Report"). If Spectranetics terminates this Agreement based on the recommendations and conclusions of RHC, OrbusMT will reimburse Spectranetics for the actual out-of-pocket cost of such study. Upon reimbursement to Spectranetics by OrbusMT of such cost, Spectranetics shall sign a release in favor of OrbusMT releasing all of the rights of Spectranetics under the present Agreement and with regard to the R Stent, the clinical trials, and the feasibility study conducted by RHC. If Spectranetics has not sent written notice to OrbusMT by midnight, E.S.T., on or before May 5, 1998, that Spectranetics has elected to terminate this Agreement under the provisions of this Section 11.1.(c), then Spectranetics shall be deemed to have waived its right to elect to terminate this Agreement pursuant hereto. (d) Spectranetics has the option to terminate this Agreement if OrbusMT fails to receive a patent export license from the United States Patent and Trademark Office by * * *. Further, if for any other reason OrbusMT fails to receive patent protection for the R Stent in the European Union or the United States, or such patents becomes invalid or unenforceable in the European Union or the Untied States, then Spectranetics shall have the option of terminating this Agreement. The termination rights set forth in this Section 11.1. (d) shall not mature until OrbusMT has had a full and complete opportunity to prosecute its patent and/or to fully litigate any challenges to such patent. (e) Spectranetics may, at its option, continue to investigate patentablity and infringement issues regarding the R Stent and, if not satisfied with such results, terminate this Agreement by April 30, 1998. (f) Either party may terminate this Agreement by written notice to the other (the "11.1(f) Termination Notice") if * * *. 11.2. Termination. Notwithstanding the provisions of Section 11.1., this Agreement 23 * * * This portion has been omitted pursuant to a request for confidential treatment and filed separately with the Commission. may be terminated prior to the expiration of the initial term or the renewal term, if any, as follows: (a) by mutual written consent of the parties hereto; or (b) by written notice to a party hereto, upon the filing of a petition in bankruptcy or equivalent order or petition under the laws of any jurisdiction by or against such party; or upon an assignment of the assets of such party for the benefit of creditors; or upon the commencement by or against such party of any proceeding under an act of any legislative body, or order of a governmental authority of for the relief of debtors seeking the relief or readjustment of indebtedness either though reorganization, composition, extension or otherwise; or upon the voluntary or involuntary dissolution of such party; or (c) by written notice to a party hereto if such party shall fail in any material respect to comply with the terms, covenants and conditions of this Agreement to be complied with by it and shall fail to remedy such failure within sixty (60) days after receipt of written notice thereof from the other party hereto; provided, however, that, if such default cannot by its nature be cured within sixty (60) days, then the defaulting party shall be given a reasonable opportunity to cure the same; or (d) as provided in Article 9. 11.3. Force Majeure. Neither party hereto shall be in default hereunder by reason of its delay in the performance or failure to perform any of its obligations hereunder for any event, circumstance, or cause beyond its control such as, but not limited to, acts of God, strikes, lock-outs, general governmental orders or restrictions, war, threat of war, hostilities, revolution, riots, epidemics, fire, or flood. The party affected by any such event shall notify the other party within a maximum period of fifteen (15) days from its occurrence. The performance of this Agreement shall then be suspended for as long as any such event shall prevent the affected party from performing its obligations under this Agreement. 11.4. Sale on Termination. Within ten (10) days after the expiration or termination of this Agreement as to each part of the Territories, irrespective of the reason therefore, Spectranetics shall furnish to OrbusMT a written statement of the number of units of the R Stent owned by Spectranetics but not sold by it at the date of such termination. OrbusMT shall have 24 * * * This portion has been omitted pursuant to a request for confidential treatment and filed separately with the Commission. the irrevocable right and option, upon written notice to Spectranetics, within twenty (20) days after receipt of such statement from Spectranetics, to repurchase some or all of such unsold R Stents, which R Stents Spectranetics hereby agrees to sell to OrbusMT upon the exercise thereof. Such repurchase, if any, shall be made at a price for each unit equal to the purchase price for such unit paid by Spectranetics to OrbusMT. Units repurchased by OrbusMT shall be delivered C.O.D. to OrbusMT to any location in the Territory specified by OrbusMT no later than thirty (30) days after receipt of OrbusMT's repurchase order. In the event OrbusMT does not exercise the option granted to it under this Section 11.4. hereof within the twenty (20) day period specified therein, or if OrbusMT exercises such option with respect to less than all units on hand at the date of termination hereof, Spectranetics shall, after the expiration of such twenty (20) day period, have the right to sell all R Stents which OrbusMT has not theretofore purchased, on the terms and conditions contained in this Agreement. In the event that, as of the expiration or termination of this Agreement, Spectranetics does not have on hand sufficient inventory to fill firm orders in hand for the R Stents and Spectranetics has previously placed firm orders with OrbusMT for such units, then OrbusMT shall use its best efforts, not to include litigation, to fill such firm orders to the extent necessary for Spectranetics to be able to fill Spectranetics' firm orders. 11.5. Survival. The provisions of this Article 11 shall survive termination of the Agreement. ARTICLE 12 MISCELLANEOUS 12.1. Notices. Written communications under this Agreement shall be effective only if addressed to the respective designees as follows (or to such designees as the parties hereto may from time to time designate in writing): If to Spectranetics: The Spectranetics Corporation 96 Talamine Court Colorado Springs, Colorado 80907-5186 Attn: Chief Executive Officer with a copy to: Eileen M. Fitzsimmons, Esq. Latham & Watkins 75 Willow Road 25 * * * This portion has been omitted pursuant to a request for confidential treatment and filed separately with the Commission. Menlo Park, California 94025 If to OrbusMT: Orbus Medical Technologies, Inc. 200 South Biscayne Boulevard, Floor 20 Miami, Florida 33131 Attn: Chief Executive Officer with a copy to: Jan Carson Cheezem Keith Mack LLP 200 South Biscayne Boulevard, 20th Floor Miami, Florida 33131 12.2. Entire Agreement. This Agreement constitutes the entire understanding and agreement between the parties, and supersedes all previous agreements (whether written or oral) concerning the subject matter hereof. This Agreement may not be amended or supplemented except by a written document executed by the parties to this Agreement. 12.3. Assignment. This Agreement shall be binding upon and shall inure to the benefit of the parties and their respective successors and permitted assigns, including without limitation, successors to all or substantially all of the assets, business or operations of the corporations or entities performing a party's obligations under this Agreement. Neither this Agreement nor the performance of any part hereof may be assigned or transferred by either party hereto without the prior written consent of the other party, except that a party's rights hereunder may be transferred (i) to an Affiliate of such party without the prior written consent of the other party, provided such party continues to guarantee all of the payment and performance obligations of such party; or (ii) to a successor of all or substantially all of the business and assets of the party. 12.4. Independent Contractors. The parties hereto are independent contractors. Neither this Agreement nor any terms and conditions herein contained shall be construed as creating a joint venture, agency or employment relationship. Neither party is granted any right or authority to assume or to create any obligation or responsibility, express or implied, on behalf of or in the name of the other party. 12.5. No Waiver. The failure of either party to exercise any right it is granted herein or to require the performance by the other party hereto with respect to any provision of this Agreement, shall not prevent a subsequent exercise or enforcement of such provision or be deemed a wavier of any subsequent breach of the same or any other provision of this Agreement. 12.6. Jurisdiction. The internal laws of the State of Delaware, United States of America, applicable to contracts entered into and wholly to be performed in Delaware by 26 * * * This portion has been omitted pursuant to a request for confidential treatment and filed separately with the Commission. Delaware residents, without reference to any principles concerning conflicts of law, shall govern the validity of this Agreement, the construction of its terms and the interpretation of the rights and duties of the parties hereunder; provided, however, that this Section and the parties' rights under this Section shall be governed by and construed in accordance with the Federal Arbitration Act, 9 U.S.C. ss.1, et. seq. 12.7. Arbitration. Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, other than a purported breach of Article 6, shall be settled by the following procedures: Either party may send the other written notice identifying the matter in dispute and involving the procedures of this Section. Within fourteen (14) days after such written notice is given, one or more principals of each party shall meet at a mutually agreeable location in Denver, Colorado, for the purpose of determining whether they can resolve the dispute themselves by written agreement, and, if not, whether they can agree upon a third-party impartial arbitrator (the "Arbitrator") to whom to submit the matter in dispute for final and binding arbitration. If the parties fail to resolve the dispute by written agreement or agree on the Arbitrator within such twenty one (21) day period, either party may make written application to the Judicial Arbitrator Group, Inc. ("JAG"), Denver, Colorado, for the appointment of a single Arbitrator to resolve the dispute by arbitration and at the request of JAG, the parties shall meet with JAG at its offices or confer with JAG by telephone within ten (10) calendar days of such request to discuss the dispute and the qualifications and experience with each party respectively believes the Arbitrator should have; provided, however, the selection of the Arbitrator shall be the exclusive decision of JAG and shall be made within thirty (30) days of the written application to JAG. Within thirty (30) days of the selection of the Arbitrator, the parties shall meet in Denver, Colorado, with such Arbitrator at a place and time designated by the Arbitrator after consultation with the parties and present their respective positions on the dispute. Each party shall have no longer than one (1) day to present its position, the entire proceedings before the Arbitrator shall be no more than three (3) consecutive days, and the award shall be made in writing no more than thirty (30) days following the end of the proceeding. Such award shall be a final and binding determination of the dispute and shall be fully enforceable as an arbitration award in any court having jurisdiction and venue over the parties. The prevailing party (as determined by the Arbitrator) shall in addition be awarded by the Arbitrator such party's own attorneys' fees and expenses in connection with such proceeding. The non-prevailing party (as determined by the Arbitrator) shall pay the Arbitrator's fees and expenses. The provisions of this Section 12.7. shall survive termination of this Agreement. 12.8. Counterparts. This Agreement may be signed in multiple counterparts, each one of which shall be deemed effective as if each party had signed each of such counterparts. (signature page follows) 27 * * * This portion has been omitted pursuant to a request for confidential treatment and filed separately with the Commission. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. THE SPECTRANETICS CORPORATION By: /s/ Hendricus Kos Name: Hendricus Kos Title: Vice President, Sales and Marketing ORBUS MEDICAL TECHNOLOGIES, INC. By: /s/ David L. Camp, Jr. Name: David L. Camp, Jr. Title: Director, Sales and Marketing * * * This portion has been omitted pursuant to a request for confidential treatment and filed separately with the Commission. ANNEX LIST Annex 1 European Patent Application Annex 2 Minimum Staff Annex 3 Annual Business Plan for 1998 Annex 4 Annual Sales Plan for 1998 and Annual Marketing Plan for 1998 Annex 5 Warranty Annex 6 Timetable - Application Dates Annex 7 * * * * * * This portion has been omitted pursuant to a request for confidential treatment and filed separately with the Commission. ANNEX "1" European Patent Application * * * * * * This portion has been omitted pursuant to a request for confidential treatment and filed separately with the Commission. ANNEX "2" Minimum Staff Sales and Marketing V.P. Global Sales and Marketing Three Sales Managers Five Account Managers Clinical Support and Clinical Trial Monitoring Director Clinical Affairs Two Clinical Managers Eleven Clinical Advisors Customer Service/Order Handling - Worldwide Customer Support Manager Two Assistants Regulatory Affairs V.P. RA/QA Director Regulatory Affairs Staff for Preparing and Filing IDE, PMA and CE Submissions ANNEX "3" Annual Business Plan for 1998 * * * * * * This portion has been omitted pursuant to a request for confidential treatment and filed separately with the Commission. ANNEX "4" Annual Sales Plan for 1998 and Annual Marketing Plan for 1998 * * * * * * This portion has been omitted pursuant to a request for confidential treatment and filed separately with the Commission. ANNEX "5" Warranty OrbusMT Medical Technologies, Inc. warrants that reasonable care has been used in the manufacture of the device. THIS WARRANTY IS EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES, WHETHER EXPRESSED, IMPLIED, WRITTEN OR ORAL, INCLUDING, BUT NOT LIMITED TO ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. As a result of biological differences in individuals, no product is 100% effective under all circumstances. Because of this fact and since we have no control over the conditions under which the device is used, diagnosis of the patient, methods of administration or its handling after the device leaves our possession, OrbusMT does not warrant either a good effect or against any ill effect following its use. OrbusMT shall not be liable for any incidental or consequential loss, damage, or expense arising directly or indirectly from the use of this device. OrbusMT will replace any device that we feel was defective at the time of shipment. No representative of OrbusMT may change any of the foregoing or assume any additional liability or responsibility in connection with this device. OrbusMT Medical Technologies, Inc. warrants that each component of this system has been manufactured, packaged, and tested with reasonable care and will be free from defects in workmanship and material. OrbusMT will not be liable for any incidental, special, or consequential loss, damage, or expense resulting, directly or indirectly, from the use of its product. OrbusMT's sole obligation shall be to repair or replace, at its option, any device that OrbusMT determines was defective at time of shipment if notice thereof is received within one year of shipment. Buyer assumes all liability, whether based upon warranty, contract, negligence, or otherwise, for damages resulting from the handling, possession, use, or misuse of the OrbusMT product. Because OrbusMT has no control over the operation, inspection, maintenance, or use of its products after sale and has no control over the selection of patients, THIS WARRANTY IS EXPRESSLY IN LIEU OF ANY OTHER EXPRESS OF IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE, AND OF ANY OTHER OBLIGATION ON THE PART OF THE SELLER. The remedies set forth in this Warranty and Limitations shall be the exclusive remedy available to any person. No agent, employee, or representative of OrbusMT has any authority to change any of the foregoing or assume or bind OrbusMT to any additional liability or responsibility in connection with this device. * * * This portion has been omitted pursuant to a request for confidential treatment and filed separately with the Commission. ANNEX "6" Timetable - Application Dates * * * * * * This portion has been omitted pursuant to a request for confidential treatment and filed separately with the Commission. ANNEX "7" * * * * * * This portion has been omitted pursuant to a request for confidential treatment and filed separately with the Commission. EX-27.1 4 FINANCIAL DATA SCHEDULE FOR SPECTRANETIC CORP.
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATIONS AS FOUND ON PAGES 2 AND 3 OF THE COMPANY'S FORM 10Q FOR THE PERIOD ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 5,109 597 3,600 0 3,835 13,545 4,750 0 23,567 7,615 0 0 0 19 12,628 23,567 13,317 13,317 6,133 6,133 9,032 0 89 (1,779) 0 (1,779) 0 0 0 (1,779) (.09) (.09) PP&E is presented net of accumulated depreciation.
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